===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: October 31, 2003
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from
__________________ to __________________
Commission File Number: 333-26091
BOOTH CREEK SKI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1359604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 South Frontage Road West, Suite 100
Vail, Colorado 81657
(970) 476-1311
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
------------------
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
------------------
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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 December 31, 2003, the number of shares outstanding of the
registrant's Common Stock, par value $.01 per share, was 1,000 shares. There is
no trading market for the registrant's Common Stock. Accordingly, the aggregate
market value of the Common Stock held by non-affiliates of the registrant is
not determinable. See Part II, Item 5 of this Report.
===============================================================================
TABLE OF CONTENTS
Item Page Number
-----------
PART I
1. Business..................................................... 1
2. Properties................................................... 15
3. Legal Proceedings............................................ 15
4. Submission of Matters to a Vote of Security
Holders...................................................... 16
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 17
6. Selected Financial Data...................................... 17
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 20
7a. Quantitative and Qualitative Disclosures About
Market Risk.................................................. 39
8. Financial Statements and Supplementary Data.................. 39
9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.......................... 39
9a. Controls and Procedures...................................... 39
PART III
10. Directors and Executive Officers of the Registrant........... 41
11. Executive Compensation....................................... 44
12. Security Ownership of Certain Beneficial Owners
and Management............................................... 49
13. Certain Relationships and Related Transactions............... 53
14. Principal Accounting Fees and Services....................... 56
PART IV
15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.......................................... 57
Signatures................................................... 63
Index of Financial Statements................................ F-1
PART I
Item 1. Business
Overview
As used in this Report, the "Company" or "Booth Creek" refers to Booth
Creek Ski Holdings, Inc. and its subsidiaries, unless the context otherwise
requires. The Company is a wholly-owned subsidiary of Booth Creek Ski Group,
Inc. ("Parent"). The Company currently owns and operates six ski resort
complexes encompassing nine separate resorts, including the Northstar-at-Tahoe
("Northstar") and Sierra-at-Tahoe ("Sierra") ski resorts in the Lake Tahoe
region of Northern California, the Waterville Valley ("Waterville Valley"),
Mount Cranmore ("Mt. Cranmore") and Loon Mountain ("Loon Mountain") ski resorts
in the White Mountains of New Hampshire and the Summit at Snoqualmie (the
"Summit") ski resort complex, which consists of four separate resorts, in the
Cascade Mountains of Northwest Washington. The Company divested the Bear
Mountain ski resort ("Bear Mountain") in Southern California on October 10,
2002.
The Company is the fourth largest ski resort operator in North America
based on approximately 2.0 million skier visits recorded during the 2002/03 ski
season at its resorts. The Company primarily operates regional ski resorts which
attract the majority of their guests from within a 200 mile driving radius of
each resort. The Company's resort properties are located near major skiing
populations, including three of the five largest regional ski markets in the
United States: San Francisco/Sacramento, Boston and Seattle/Tacoma. The
Company's properties offer approximately 6,501 acres of skiable terrain, 353
trails, 87 lifts (including 14 high-speed lifts and two gondolas) and
on-mountain capacity to accommodate approximately 45,000 guests daily. For the
fiscal year ended October 31, 2003, the Company generated revenues of $115.0
million and operating income of $7.8 million, and incurred a net loss of $5.4
million. For the fiscal year ended November 1, 2002, the Company generated
revenues of $120.5 million and operating income of $14.8 million, and incurred a
net loss of $1.9 million. See Part II, Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a discussion and
analysis of the Company's financial condition and results of operations.
The Company's resorts seek to differentiate themselves in their respective
markets by selectively upgrading on-mountain facilities and guest services,
employing targeted marketing strategies and offering extensive skier development
programs, all of which create a competitively-priced, high-quality guest
experience. The Company's current resorts have collectively invested
approximately $56.7 million (including $9.0 million of equipment acquired
through capital leases and other debt) in capital expenditures during the last
four fiscal years, including the addition of high-speed chairlifts, additional
snowmaking capabilities, improved trail grooming equipment, and enhanced
on-mountain skier service, retail and food service amenities. The Company
believes its existing resort infrastructure is reasonably well maintained. The
Company uses targeted advertising, database marketing and strategic marketing
alliances to enhance the image of its resorts and increase regional market
share. The Company also offers extensive development programs to improve the
technical skill level of all types of skiers, which management believes is
important to expand the total skier population and increase skier visitation
frequency.
The following is an organizational chart of Parent, the Company and the
Company's subsidiaries. Each subsidiary of the Company is, directly or
indirectly, wholly-owned by Booth Creek.
1
[GRAPHIC OF ORGANIZATIONAL CHART OMITTED]
The Company's principal executive offices are located at 1000 South
Frontage Road West, Suite 100, Vail, Colorado 81657. Its telephone number at
that location is (970) 476-1311. The Company was incorporated in Delaware on
October 8, 1996.
Industry
There are approximately 490 ski areas in the United States which, during
the 2002/03 ski season, generated approximately 57.6 million visits days. A
"skier visit" represents one skier or snowboarder visiting one ski resort for
one day, including skiers and snowboarders using complimentary tickets and
season passes. Calculation of skier visits requires an estimate of visits by
season passholders. Although different ski resort operators may use different
methodologies for making such estimates, management believes that any resulting
differences in total skier visits are immaterial. Ski areas in the United States
range from small ski resort operators, which primarily cater to day skiers and
regional overnight skiers from nearby population centers, to larger resorts,
which given the scope of their operations and their accessibility, are able to
attract skiers and snowboarders from their regional ski markets as well as
destination resort guests who are seeking a comprehensive vacation experience.
While regional ski market skiers tend to focus primarily on lift ticket prices
and round-trip travel time, destination travelers tend to be heavily influenced
by the number of amenities and activities offered as well as the perceived
overall quality of the vacation experience. The table below summarizes skier
visit information for each region of the United States from the 1998/99 ski
season through the 2002/03 ski season.
2
United States Ski Industry Regions and Skier Days
(In thousands)
Rocky Pacific Lake
Season Northeast Southeast Midwest Mtns West Tahoe Total
- --------------------- --------- --------- ------- ------ ------- ----- ------
1998/99.............. 12,299 4,261 6,005 18,440 6,702 4,382 52,089
1999/00.............. 12,025 5,191 6,422 18,109 6,560 3,891 52,198
2000/01.............. 13,697 5,458 7,580 19,324 7,355 3,923 57,337
2001/02.............. 12,188 4,994 6,980 18,123 8,098 4,028 54,411
2002/03.............. 13,991 5,833 8,129 18,728 6,862 4,051 57,594
Five year average.... 12,840 5,147 7,023 18,545 7,116 4,055 54,726
Northeast: CT, MA, ME, NH, NY, VT, RI
Southeast: AL, GA, KY, MD, NC, NJ, PA, TN, VA, WV
Midwest: IA, IL, IN, MI, MN, MO, ND, NE, OH, SD, WI
Rocky Mtns: CO, ID, MT, NM, UT, WY
Pacific West: AK, AZ, CA (excluding Lake Tahoe Region), NV, OR, WA
Source: 2002/03 Kottke National End of Season Survey
Over the last twenty years, the ski resort industry has experienced a
period of consolidation. The number of United States ski areas has declined from
735 in 1984 to 490 in 2003. The number of ski areas may decline further, as many
mountain resorts lack the infrastructure and capital and management resources to
effectively compete in this multi-dimensional and service-intensive industry. Of
the 490 ski areas, the 2002/03 Kottke National End of Season Survey estimates
that the average resort recorded approximately 118,000 skier visits. All of the
Company's resorts, except Mt. Cranmore, typically record more than 200,000
annual skier visits. The trend among leading resorts is toward investing in
improving technology and infrastructure, including high-speed lifts, attractive
facilities and extensive snowmaking capabilities to deliver a more consistent,
quality experience. During the last four fiscal years, the Company has invested
approximately $56.7 million in capital expenditures at its current resorts to
improve their competitive position and to meet sustaining capital requirements.
Management believes the need for increased investment in resorts in general has
required a greater access to capital and has enhanced the position of resorts
owned by larger, better capitalized owners. Despite the recent consolidation in
the ski industry, the industry remains fragmented, with no one resort accounting
for more than 3%, and no one resort operator accounting for more than 10%, of
the United States' approximately 57.6 million skier visits during the 2002/03
ski season. The four largest ski resort companies, including the Company,
accounted for approximately 28% of all United States skier visits recorded
during the 2002/03 ski season.
The Lake Tahoe region has averaged approximately 4.1 million annual skier
visits over the last five years. Management estimates that approximately 70% to
75% of the skiers visiting Lake Tahoe resorts during the 2002/03 ski season were
from the San Francisco/San Jose, Sacramento and Central California Valley
metropolitan areas and the Lake Tahoe region. Other guests were principally from
Southern California and states with large ski populations, such as Texas,
Illinois and Florida.
The Northeast market (including New York) has averaged approximately 12.8
million annual skier visits over the last five years. The Northeast market
consists of a significant percentage of day or weekend skiers due to the
relatively short driving radius to major metropolitan areas. While the Northeast
does not draw significant numbers of vacationing skiers from the Western regions
of the United States, it does compete with the Rocky Mountains and Pacific West
areas for Eastern vacationing skiers. The region's major ski areas and resorts
are concentrated in the mountainous areas of New England and Eastern New York,
and management believes that the bulk of skiers come from the population centers
located in Eastern Massachusetts, Southern New Hampshire, Connecticut, Eastern
New York, New Jersey and the Philadelphia area.
The Pacific West market has averaged approximately 7.1 million skier visits
over the last five years. Management estimates that the vast majority of the
skier visits recorded at Washington state resorts during the 2002/03 ski season
were attributable to residents of the Seattle/Tacoma metropolitan area. Other
guests were primarily from other parts of Washington, Oregon and Western Canada.
Washington state resorts do not attract a significant number of destination
skiers.
3
Resort Operations
The Company's six resort complexes offer a variety of ski and non-ski
activities. The table below provides a summary of each resort's ski operations
and is followed by a more detailed description of each resort.
Approx. Approx.
Snow- No. of
Vertical making Beds
Skiable Drop Trail Within
Resort Acres (Feet) Trails Lifts Coverage 12 Miles
- -------------------- ------- -------- ------ ------------- -------- --------
Northstar-at-Tahoe.. 2,420 2,280 70 1 High-Speed 50% 16,000
Gondola
5 High-Speed
Quads (1)
4 Fixed Grip
7 Surface
Sierra-at-Tahoe..... 1,680 2,212 46 3 High-Speed 4% 30,000
Quads
6 Fixed Grip
3 Surface
Waterville Valley... 255 2,020 52 2 High-Speed 100% 6,500
Quads
6 Fixed Grip
4 Surface
Mt. Cranmore........ 183 1,270 39 1 High-Speed 100% 16,000
Quad
4 Fixed Grip
6 Surface
Loon Mountain....... 266 2,100 50 1 High-Speed 96% 13,000
Gondola
1 High-Speed
Quad
5 Fixed Grip
3 Surface
The Summit.......... 1,697 2,280 96 2 High-Speed 0% 1,000
Quads
17 Fixed Grip
6 Surface
(1) High-Speed Quads are four-person chairlifts which decelerate and detach
from a cable during passenger loading and unloading and reattach and
accelerate thereafter.
Northstar-at-Tahoe
Northstar-at-Tahoe, located near the north end of Lake Tahoe, California,
offers extensive activities and services in both the winter and summer. The
resort's 8,600-foot Mt. Pluto features 2,420 acres of skiable terrain and a
2,280 foot vertical drop. Northstar's 70 ski trails are served by 17 operating
lifts, including one gondola, 5 high-speed quads, two triple lifts and two
double lifts, which combine to transport up to approximately 23,000 skiers
uphill per hour. Northstar also has approximately 65 kilometers of groomed
trails for cross-country skiing and snowshoeing and numerous on-mountain terrain
parks for snowboarders and adventurous skiers. Other amenities at Northstar
include a village consisting of condominium/hotel accommodations, restaurants,
bars, shops, a child-care center, conference facilities, a 22,700 square foot
on-mountain ski lodge, a 9,000 square foot rental equipment facility and a 5,800
square foot on-mountain children's ski school facility. Summer recreation
amenities include an 18-hole golf course, extensive mountain biking trails and
bike rentals, ten tennis courts, a horseback riding stable, fly fishing and
swimming pools. Northstar currently ranks third in total skier days in the Lake
Tahoe area. In 2003, Northstar was ranked by Ski magazine as the 25th best ski
resort in North America, and received high rankings in a number of important
categories, including guest service, family programs, grooming and terrain
parks. Additionally, Northstar was ranked by Transworld Snowboarding magazine as
the 12th best snowboarding resort in North America in 2003.
4
Northstar's snowmaking system is engineered to cover approximately 50% of
its ski trails. Annual snowfall at the resort has averaged approximately 253
inches per year during the past five years. Northstar has water rights from
various sources which, when coupled with its 60 million gallon water storage
capacity, have been sufficient to support the resort's needs.
Northstar consists of approximately 8,000 acres of land privately owned by
the Company. Management believes that Northstar has significant opportunities to
develop additional ski terrain, as well as certain other real estate development
opportunities. Moreover, management believes that the planned expansion of the
existing on-mountain bed base at the resort from the East West development
project will result in increased skier days, thereby enhancing the value and
profitability of Northstar's resort operations. Such bed base development is
also expected to make additional ski terrain expansion at Northstar even more
attractive. See Part I, Item 1. "Business - Real Estate Development."
Sierra-at-Tahoe
Sierra-at-Tahoe is conveniently located near the large bed base of South
Lake Tahoe, California and is the closest major ski resort to Sacramento and the
Central California Valley. The resort's 8,852-foot peak offers 1,680 skiable
acres and a 2,212 foot vertical drop. Sierra's 46 ski trails are served by 12
operating lifts, including three high-speed quads, one triple lift and five
double lifts, which combine to transport up to approximately 15,000 skiers
uphill per hour. Sierra operates a 46,000 square foot base lodge which offers a
variety of food and beverage, retail and other skier services. Sierra does not
offer summertime activities.
Sierra owns 20 acres of its 1,689 gross acreage and leases the remainder
under a Term Special Use Permit from the United States Forest Service (the
"Forest Service"). See Part I, Item 1. "Business - Regulation and Legislation."
Due to its abundant annual snowfall, which has averaged approximately 430 inches
per year over the past five years, Sierra's snowmaking equipment covers only 4%
of Sierra's total trail acreage.
Waterville Valley
Waterville Valley's major facilities are located on the 4,004 foot high Mt.
Tecumseh and offer 255 skiable acres and a vertical drop of 2,020 feet.
Waterville Valley's 52 trails are served by 12 operating lifts, including two
high-speed quads, two triple lifts and four double lifts, which combine to
transport up to approximately 16,000 skiers uphill per hour. The resort operates
a 42,000 square foot base lodge (complete with multiple food and beverage
service centers and a child care facility), three other base area facilities
comprising approximately 27,500 square feet, a mid-mountain lodge featuring a
cafeteria and deli and a mountain-top lodge with a snack bar and restaurant
dining.
The Waterville Valley resort has a year-round Adventure Center offering
mountain bikers, cross-country skiers and hikers access to 105 kilometers of
trails in the White Mountain National Forest. Other area amenities, which are
primarily owned and operated by third parties, include an ice skating arena,
golf course, tennis center, sports and fitness center, horsedrawn sleigh rides,
skateboard park, beach and paddle boats. Waterville Valley's Conference Center
has 17,000 square feet of meeting space and provides banquet facilities for up
to 1,000 people. With 11 meeting rooms, a business center, audio-visual
capabilities and a self-contained pub, the Conference Center's on-site staff
supports events year-round. In 2003, Waterville Valley was ranked as the 15th
best ski resort in the East by Ski magazine.
Waterville Valley owns 11 acres on Snow Mountain and two acres at the
Conference Center. It leases 790 acres of land on Mt. Tecumseh under a Term
Special Use Permit issued by the Forest Service. See Part I, Item 1. "Business -
Regulation and Legislation." Waterville Valley's snowmaking system is engineered
to cover 100% of the ski trails on Mt. Tecumseh. Water for snowmaking is
currently pumped from a local river and a pond. Waterville Valley is in the
process of seeking permits for additional water sources and water storage
facilities for snowmaking.
Mt. Cranmore
Mt. Cranmore is the oldest continuously operated ski area in the United
States. Located in the hub of New Hampshire's Mount Washington Valley, Mt.
Cranmore's 1,714 foot summit offers 183 skiable acres and a 1,270 foot vertical
drop. Mt. Cranmore's 39 trails are served by 11 operating lifts, including one
high-speed quad, one triple lift and three double lifts, which combine to
transport up to approximately 7,000 skiers uphill per hour. The mountain is
serviced by two base lodges, offering multiple eating locations and
pub/restaurant facilities, as well as a restaurant at the summit. In addition,
Mt. Cranmore owns a 41,000 square foot athletic facility which operates
year-round. Mt. Cranmore also operates on-site retail and rental shops.
5
Mt. Cranmore owns 754 acres and holds easements enabling it to develop an
additional 500 acres of ski terrain. Mt. Cranmore does not lease any of its land
from the federal government. Mt. Cranmore's snowmaking system covers 100% of the
resort's trails. In addition to pumping rights from a nearby stream, Mt.
Cranmore has an understanding with the local water district for an additional
reservoir of one million gallons of water for snowmaking. In addition, Mt.
Cranmore's base area pond holds one million gallons of water.
Loon Mountain
Loon Mountain is located in the White Mountains of New Hampshire in the
town of Lincoln. The resort's 3,050 foot peak features 266 skiable acres and a
2,100 foot vertical drop. Loon Mountain's 50 trails (including five tree skiing
trails) are served by 10 operating lifts, including a four-passenger gondola, a
high-speed quad, two triple lifts and three double lifts, which combine to
transport over 11,800 skiers uphill per hour. Loon Mountain's trails cater
mostly to intermediate level skiers (64%), with trails provided for beginners
(20%) and experts (16%) as well. Resort amenities include a base lodge with a
cafeteria and coffee shop, a restaurant and deck at the summit, the 17,600
square foot Governor Adams lodge (which provides traditional lodge facilities
and also serves as a venue for summer outdoor activities and concerts), two
rental shops and a ski and snowboard tuning facility, a 17,300 square foot
children's center, trails for cross-country skiing, horseback riding and
mountain biking, indoor and outdoor climbing walls and a steam engine railroad
for shuttling visitors. In 2003, Loon Mountain was ranked as the 14th best ski
resort in the East by Ski magazine. Loon Mountain has the snowmaking capacity to
cover approximately 96% of its skiable terrain. Water for snowmaking at Loon
Mountain is primarily drawn from the Pemigewasset River, and when river flows
are below minimum stream flow levels the resort draws water from Loon Pond.
Loon Mountain owns 565 acres and leases 1,366 acres of land in the White
Mountain National Forest under a Term Special Use Permit issued by the Forest
Service permitting year-round recreational use. During 2002, Loon Mountain
received certain approvals from the Forest Service which generally permit the
enhancement and expansion of the resort, including new ski terrain and
facilities. See Part I, Item 1. "Business - Regulation and Legislation."
Management believes that Loon Mountain has significant real estate development
opportunities in connection with the expansion and enhancement of the resort.
See Part I, Item 1. "Business - Real Estate Development."
The Summit at Snoqualmie
The Summit at Snoqualmie is located in the Cascade Mountains of Northwest
Washington and consists of four separate resorts, Alpental at the Summit
("Alpental"), Summit West, Summit Central and Summit East, which collectively
offer 1,697 acres of skiable terrain. Individually, Alpental has a 5,450 foot
top elevation, a 2,280 foot vertical drop, 302 acres of skiable trails and runs
(121 acres of which are lighted for night skiing) and approximately 523 acres of
backcountry terrain; Summit West has a 3,765 foot top elevation, a 765 foot
vertical drop and 197 acres of skiable trails and runs (189 acres of which are
lighted for night skiing); Summit Central has a 3,865 foot top elevation, a
1,025 foot vertical drop and 466 acres of skiable trails and runs (231 acres of
which are lighted for night skiing); and Summit East has a 3,710 foot top
elevation, a 1,100 foot vertical drop and 209 acres of skiable trails and runs.
In total, the Summit complex has 96 designated trails and runs served by 25
operating lifts, including two high-speed quads, two fixed grip quads, four
triple lifts, 11 double lifts and six surface lifts, which combine to transport
up to approximately 33,000 skiers uphill per hour. The Summit Nordic Center also
offers approximately 55 kilometers of cross-country skiing on an expert trail
system and a lighted beginner student trail which hosts a season-long night
racing series. The Summit Tubing Center offers special tubing lifts and multiple
groomed lanes. In addition, the Summit West, Summit Central and Summit East
areas are interconnected by a cross-over trail system. The Summit operates 10
lodges which provide an aggregate of approximately 122,000 square feet of space
for food and beverage services (restaurants and cafeterias), skier services and
entertainment.
Overall, the Summit complex is one of the largest learn-to-ski areas in the
United States, with approximately 25% of its annual skier days typically being
attributable to guests enrolled in ski school programs. In addition, the Summit
is the largest night skiing complex in the United States, with approximately 20%
to 25% of its skier visits each season being recorded at night.
6
The Summit owns 686 acres of its 4,103 gross acreage, leases approximately
440 acres under a private permit, utilizes 1,280 acres for cross-country skiing
under an annual operating agreement with the Forest Service and utilizes 1,697
acres of mountain terrain under a Forest Service Term Special Use Permit. See
Part I, Item 1. "Business - Regulation and Legislation." The Summit typically
enjoys abundant annual snowfall, averaging approximately 425 inches annually
over the past five years. As a result, there are no man-made snowmaking
capabilities at any of the Summit resorts.
Business Segments and Principal Products
The Company operates in two business segments: resort operations and real
estate and other. Business segment information is presented in Note 12 to the
accompanying consolidated financial statements.
The Company's principal products from resort operations include lift
tickets, season passes, snow school lessons, equipment rentals, retail sales,
food and beverage operations and other ancillary products and services. See Part
II, Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations," for information regarding the
composition of the Company's resort operations revenues for the last three
fiscal years.
Real Estate Development
The Company has certain holdings of land suitable for either the expansion
of ski terrain or the development of residential and commercial properties. The
Company also has terrain expansion opportunities on land within its current
Forest Service permit areas as well as on land owned by third parties. In
management's view, increasing the on-mountain bed base, expanding retail and
other commercial services and developing additional skiable terrain at a resort
can accelerate growth in skier days and ski-related revenues.
The Company's real estate development strategy for residential and
commercial properties is comprised of the following components: (i) build
recurring resort cash flow through increased bed base and diversification of
revenue sources, (ii) partner with proven real estate developers, (iii) invest
on a limited basis in infrastructure development in conjunction with the
development of single family lots at Northstar and Loon Mountain, and (iv)
refrain from investment in vertical or commercial development except in
conjunction with the development of ski related facilities.
The Company's strategy with regard to the expansion of skiable terrain at
its resorts is based on the evaluation of several key factors, including (i) the
anticipated growth of the skier base within the relevant market and the
Company's ability to improve its competitive position in that market, as
measured by the potential increase in the number of skier days, revenues and
revenue per skier on a long-term basis which the Company believes it can capture
through expansion and upgrades, and (ii) the return on capital expected to be
realized from an expansion project versus alternative projects. Management
undertakes extensive planning and pre-development steps prior to investing
significant capital into any development project. Currently, the Company is in
the process of developing comprehensive master plans and obtaining entitlements
(e.g., zoning approvals) for Northstar, Loon Mountain and the Summit. In
management's view, the expansion projects at Northstar and Loon Mountain
represent the Company's best development opportunities, and would likely take
priority over the pursuit of expansion and development initiatives at the
Company's other resorts.
The Company has traditionally taken a conservative approach toward
residential and commercial development. Real estate development efforts have
taken place primarily at Northstar. Current and future single family residential
development at Northstar is limited based on the present real estate master
development plan, and consists of three phases or subdivisions known as "Unit
7A," "Unit 7B" and "Porcupine Ridge."
In March 2003, Trimont Land Company ("TLC"), the owner and operator of
Northstar and a wholly-owned subsidiary of the Company, launched the sale of the
Unit 7A subdivision at Northstar, which consists of 15 ski-in/ski-out single
family lots generally ranging in size from one-half to three-quarters of an
acre. As of October 31, 2003, TLC closed escrow on 12 of the lots and recognized
real estate revenues of $9,184,000 during the fiscal year ended October 31,
2003. TLC closed escrow on the three remaining lots in December 2003 for an
aggregate sales price of $2,798,000, which will be reflected as real estate
revenues in the Company's first fiscal quarter of 2004. The average lot sales
price achieved for the lots within Unit 7A was approximately $800,000.
7
The Company has submitted a development application for the Unit 7B
subdivision known as the Retreat, which is expected to consist of approximately
15 available one-acre single family lots (net of three lots which the Company
expects to transfer or sell to certain executives in satisfaction of employment
contract obligations). The Unit 7B subdivision is undergoing an environmental
impact review as part of the permitting and entitlement process. The Company
expects to receive approvals for the subdivision in the second half of 2004, and
would likely commence construction of the subdivision in 2005. Subject to
further regulatory approvals, construction schedules and market demand, lot
closings are tentatively targeted to commence in the fourth calendar quarter of
2005. However, no assurances can be given regarding the ultimate timing of lot
closings or proceeds therefrom.
The Company is in the initial planning stages for the Porcupine Ridge
subdivision and anticipates submitting development applications for the project
within the next 12 months. As currently contemplated, the Porcupine Ridge
subdivision is expected to consist of approximately 10 three to five acre lots.
The Company currently anticipates that the Porcupine Ridge subdivision would be
constructed and marketed for sale in 2006. However, no assurances can be given
regarding the ultimate timing of lot closings or proceeds therefrom.
On September 22, 2000, TLC and Trimont Land Holdings, Inc. ("TLH"), a
wholly-owned subsidiary of Parent and an affiliate of the Company, entered into
an Agreement for Purchase and Sale of Real Property (the "Northstar Real Estate
Agreement") relating to certain development real estate at Northstar. Pursuant
to the Northstar Real Estate Agreement, TLC agreed to sell to TLH certain
development real estate consisting of approximately 550 acres of land located at
Northstar (the "Development Real Estate") for a total purchase price of
$27,600,000, of which 85% was payable in cash and 15% was payable in the form of
convertible secured subordinated promissory notes. The purchase price was based
on an appraisal obtained from an independent third party appraiser. In addition
to receiving the fair market value for the Development Real Estate, under the
terms of the Northstar Real Estate Agreement (i) TLH or its joint venture
partner, East West Partners, Inc. (together with its affiliates, "East West"),
is required, at its expense, to pay for substantially all mitigation costs
associated with the development project, and (ii) TLH is obligated to reconvey
to TLC certain excess land following the subdivision of the Development Real
Estate. TLC retained significant approval rights over various aspects of the
real estate development, including development activities that could impact
resort operations at Northstar.
In connection with the execution of the Northstar Real Estate Agreement,
TLH and East West entered into a joint venture agreement (the "East West Joint
Venture") providing for the development of the property purchased by TLH and
subsequently transferred to the East West Joint Venture. Under the East West
Joint Venture, TLH retains financial responsibility for certain costs associated
with the development of the infrastructure of the Development Real Estate.
On September 22, 2000, TLC and TLH consummated the sale of the initial land
parcels contemplated by the Northstar Real Estate Agreement, and TLC transferred
the bulk of the Development Real Estate to TLH for a total purchase price of
$21,000,000, of which $17,850,000, or 85%, was paid in cash and $3,150,000, or
15%, was paid in the form of a convertible secured subordinated promissory note.
During the fiscal year ended November 1, 2002, TLH paid $5,610,000 to TLC,
which represents the cash portion of the purchase price for the remaining
Development Real Estate subject to the Northstar Real Estate Agreement. The
$5,610,000 payment has been deferred as a deposit liability as of October 31,
2003 and November 1, 2002 pending the consummation of the sale of the remaining
Development Real Estate under the Northstar Real Estate Agreement. In December
2003, TLC transferred the remaining Development Real Estate to TLH, which is
expected to be recognized as real estate revenues in the Company's first fiscal
quarter of 2004.
The East West Joint Venture has submitted a development application and
obtained approvals from Placer County for the development of 212 condominium,
townhome and time share units and approximately 180,000 square feet of
commercial and skier services space within the village at Northstar (the
"Northstar Village Project"). The Northstar Village Project is expected to be
constructed in a series of phases. The East West Joint Venture is expected to
commence construction in April 2004 of the initial phase of the Northstar
Village Project, which consists of three lodge buildings and one skier
services/commercial building encompassing 98 one, two, three and four bedroom
condominiums and related owner amenities, as well as approximately 90,000 square
feet of commercial and skier services space. The remaining phases of the
Northstar Village Project will be developed based on market conditions and
demand.
8
In addition to the Northstar Village Project, the proposed development
contemplated by the East West Joint Venture includes the planned development of
approximately 1,450 ski-in/ski-out condominium, town home, timeshare and hotel
units in the mid-mountain area of the Northstar resort (the "Highlands
Project"), as well as an additional 138 units in the vicinity of the Northstar
Village Project. The East West Joint Venture is in the process of preparing
development applications for certain aspects of the proposed development.
Ultimately, the East West Joint Venture expects to develop a total of 1,800
residential units at Northstar, which will likely occur over an extended period
of time.
Management believes that the expected substantial increase in on-mountain
bed base and the development of an expanded village and commercial amenities
from the East West development will result in increased visitation and skier
days at Northstar, thereby enhancing the value and profitability of Northstar's
resort operations. The Company has been able to secure these benefits without
incurring the economic risks associated with real estate development.
The Company intends to enhance the ski terrain at the Northstar resort by
upgrading the existing trails and lifts, reducing or eliminating on-mountain
bottlenecks and providing better access to and from the resort's existing base
area. During 1999 and 2000, five trails were cut on Lookout Mountain and a new
detachable quad lift was constructed to provide new advanced skiing terrain at
the resort. The Company has preliminarily identified a number of other sites
within Northstar's present boundaries that are suitable for future expansion. In
general, such expansion is expected to occur concurrently with the anticipated
bed base expansion resulting from the East West development. In this regard, the
Company expects that it will need to construct an additional base area lift at
Northstar prior to the start of the 2005/06 ski season in conjunction with the
development of the Northstar Village Project. In 2002, the Company submitted
applications for permit approvals for various mountain improvements, including
new and replacement lifts, additional trails and trail widening and snowmaking
infrastructure. These applications are currently being reviewed by applicable
regulatory agencies. Any lift construction or terrain expansion would require
customary permits and approvals, and no assurance can be given that the Company
will be able to develop any additional terrain at Northstar or, if completed,
any such projects will be successful. In addition, in 2000 and 2001, the Company
expanded and improved the existing snowmaking system at Northstar in order to
lessen the influence of unfavorable weather, which can negatively impact
operating conditions at the resort.
In addition, Northstar has a program to harvest timber through third party
contracting. The timber harvesting program, which produced revenues of $254,000
during the fiscal year ended October 31, 2003, is managed carefully to avoid
interference with Northstar's resort operations and prevent any diminution in
the quality of the resort's natural environment.
As part of the new Special Use Permit obtained in 2002, Loon Mountain
leases approximately 581 acres known as "South Mountain" from the Forest
Service. The available South Mountain land is located in an area directly
adjacent to the present Loon Mountain ski area and would be able to accommodate
alpine and cross country trails, ski lifts (including one connecting the current
ski area with South Mountain) and snowmaking from newly installed snowmaking
facilities. Expansion and upgrades to the resort would serve to better meet and
fulfill the anticipated needs of guests by enhancing the quality and diversity
of skiable terrain. Loon Mountain owns 311 acres of land located at the base of
South Mountain (the "South Mountain Real Estate"). In March 2003, the Company
obtained a favorable rezoning of the bulk of the property comprising the South
Mountain Real Estate from rural residential zoning to general use zoning. The
general use zoning permits the development of multi-family housing units on the
South Mountain Real Estate and greater flexibility for commercial uses. The
Company has undertaken initial studies of the South Mountain Real Estate, and
currently estimates that approximately 904 residential units (including an
estimated 90 single family lots and 814 multi-family units) and approximately
80,000 square feet of commercial space could be developed within the South
Mountain Real Estate. Presently, the Company expects that the Company will
undertake the sale and development of the expected phases or subdivisions of
single family lots planned for the South Mountain Real Estate. However,
consistent with its real estate development strategy and past practice, the
Company would likely seek a proven real estate developer for the development of
the multi-family property and commercial property (other than ski related
facilities) within the South Mountain Real Estate.
In addition to the South Mountain Real Estate, Loon Mountain also owns (i)
approximately 32 acres of land with existing approvals for development of 31
single family lots, and (ii) 49 acres of land which is zoned rural residential
and could accommodate up to a maximum of 147 additional units, subject to
receipt of applicable approvals, and (iii) 21 acres of land at the base of the
existing ski area which is zoned rural residential and would allow approximately
61 units, subject to receipt of applicable regulatory approvals.
9
The timing and scope of development at Loon Mountain will depend on market
conditions, receipt of required regulatory approvals, the limitations set out in
the Forest Service's Record of Decision and in the settlement agreements with
certain environmental plaintiffs, the Company's financial position and an
evaluation of the Company's other expansion opportunities. See Part I, Item 1.
"Business - Regulation and Legislation."
Mt. Cranmore holds a perpetual easement entitling it to develop at least
500 acres of additional ski terrain known as the "Black Cap Mountain area" or
"Black Cap." The Black Cap easement was granted in 1951 and allows the Company
to expand Mt. Cranmore's existing ski and recreational infrastructure and
develop additional trails. The Black Cap property underlying the Company's
easement is privately owned by a third party. The Black Cap land available for
development by the Company is high-quality, mostly north and west-facing ski
terrain located in an area that can accommodate alpine and cross-country trails,
ski lifts and snowmaking. Expansion could increase Mt. Cranmore's skier
capacity, and could enhance the quality and diversity of its skiable terrain.
Additionally, Mt. Cranmore owns certain land at the southwest flank of the
mountain. This southwest facing ski-in/ski-out land is very suitable for
development. The Company does not have any immediate expansion or development
plans for Mt. Cranmore and the timing and scope of any development will depend
on market conditions, receipt of required regulatory approvals, the Company's
financial position and the Company's other expansion opportunities.
The Summit owns approximately 66 acres of real property on various parcels
in and around its resorts, a portion of which is available for residential
development. The developmental real estate at the Summit is owned by DRE, L.L.C.
(the "Real Estate LLC"), an indirect subsidiary of the Company. The Summit also
owns 39 acres of real property at Summit East that is ski-in/ski-out and is
zoned as high-density residential and commercial. Any potential real estate
development activities at the Summit could be constrained by existing or future
planned resort operations at the Summit. The Summit's development parcels will
be studied for future development potential when market conditions warrant. In
addition to market conditions, the development of such parcels will depend on
receipt of required regulatory approvals, the Company's financial position and
the Company's other expansion opportunities.
The Company has no agreements, arrangements or understandings with respect
to financing the development of any of the real estate projects discussed
herein. Any future development would be subject to, among other things, the
Company's ability to obtain the necessary financing and all necessary permits
and approvals. The Senior Credit Facility, the Indenture and the Securities
Purchase Agreements (as defined herein) each contain restrictive covenants that
may significantly limit the Company's ability to pursue real estate development
opportunities. No assurance can be given that the Company will develop any
additional properties or, if completed, any such projects will be successful.
Moreover, there can be no assurances that the East West development at Northstar
will be successful or be completed as currently planned, or that such
development will have the currently anticipated favorable effects on the
Company's resort operations. In addition, there are significant risks inherent
in any expansion project and in the implementation of the Company's development
strategy.
Marketing and Sales
Staff
The Company has a marketing and sales staff of approximately 60 persons,
including a marketing director at each resort who reports to the Vice President
of Marketing and Sales, as well as to each resort's general manager. The
marketing staff at each resort is responsible for the development of
resort-specific marketing plans including advertising, sales, public relations,
events, promotions, Internet strategies and research. Each resort's marketing
personnel also participate in the development of the Company's overall marketing
strategy.
Strategy
The Company's marketing plans are designed to attract both day skiers and
vacationers by emphasizing the Company's diverse facilities and services and
proximity to three of the five largest regional ski markets in the United
States. The Company has positioned each of its resorts as an attractive
alternative to competing regional resorts and to other forms of leisure and
entertainment. The primary objectives of the Company's marketing efforts are to
(i) increase each of its resorts' relative market share, (ii) expand the number
of skiers in each of its markets, (iii) increase skier visitation frequency,
(iv) increase the expenditures of each of its visitors, (v) attract and retain
new guests to the Company's resorts by expanding the scope of Booth Creek's
resorts to winter recreation centers offering a multitude of snowsport options
in addition to skiing and snowboarding, and (vi) develop products and execute
sales efforts that provide advance bookings and sales.
10
The Company's marketing efforts are predicated on knowing its guests and
understanding the markets in which it competes. Accordingly, the Company's
resorts, typically through professional firms, conduct extensive market
research, including on-site guest surveys, focus groups, advertising tests and
phone and Internet surveys. Each of the Company's resorts develops its own
resort-specific marketing program based upon its unique qualities and
characteristics, as well as the demographics of its visitor base.
Programs
The Company has developed a number of specific marketing and sales programs
to achieve its objectives, including the following:
o Customer loyalty and season pass programs
o Sales initiatives
o Multimedia advertising (including Internet strategies)
o Data-base marketing programs (including e-mail broadcasting)
o Snowsport development programs
o Strategic marketing alliances
o School, group and business affiliations
o Youth market initiatives
Customer loyalty and season pass programs. The Company believes that the
success of each of its resorts depends, in large part, on its ability to retain
and increase the skier visitation frequency of its existing customer base. The
Company believes a critical component to developing customer frequency will be
the success of its customer loyalty programs, including its Vertical Plus
frequent skier programs in place at the Company's Lake Tahoe resorts. For an
annual membership fee, Vertical Plus members receive a special, personalized
identification wristband containing a preprogrammed computer microchip which
acts as their lift access for the season. In addition to offering daily ticket
discounts, the system tracks members' expenditures and the amount of vertical
feet skied at participating resorts and rewards members with prizes based on
spending activity and the number of vertical feet skied in a season. Other
benefits of the program include members-only lift lines, direct lift access, the
convenience of being able to make cashless retail transactions and electronic
messaging. In addition, over the past several years, the Company's resorts have
successfully introduced new season pass products that are attractively priced to
entice visitation during non-peak periods, stimulate demand, attract market
share and develop guest loyalty. The Company is continuing its successful season
pass initiatives for the 2003/04 ski season.
Sales Initiatives. The Company's sales initiatives include a variety of
programs designed to increase and enhance buying opportunities for its customers
in order to provide a complete vacation experience. Through merchandising
efforts, increasing sales outlets and channels, sales training for front-line
employees, on-site and Internet-based promotions and other marketing efforts,
the Company seeks to increase sales of products and services to its customers
and generate additional revenue per skier visit.
Multimedia advertising. The Company's marketing efforts include print,
broadcast, outdoor, Internet and direct mail advertising, with the particular
method tailored for each resort and existing market opportunities. The Company
is also very active in a variety of promotional programs designed to attract
guests from population centers in and around the San Francisco, Sacramento,
Seattle and Boston metropolitan areas and states with large skier populations
such as Texas, Illinois, Florida and New York. For example, the Company's
Northstar and Sierra resorts have participated in extensive cooperative
marketing with other Lake Tahoe resorts to promote the region as a premier
vacation destination. Market research has shown that the typical Booth Creek
guest utilizes the Internet extensively as a source of information and
additional Company resources have been concentrated towards this communication
vehicle. Booth Creek's resort websites feature e-commerce "virtual stores" on
each resort's website offering products such as season passes, loyalty program
memberships, gift certificates and lodging/lift packages as well as private
lessons, child care and lift tickets.
11
Data-base marketing programs. Through the information obtained from its
customer loyalty and season pass programs, extensive market surveys and other
market research, the Company maintains a data-base containing detailed
information on its existing customers. Management believes that data-base
marketing is an effective and efficient method to identify, target and maintain
an on-going relationship with the Company's best customers. For example, the
Company has been successful in the use of targeted direct mailings and e-mail
broadcasts, which are designed to match customer preferences with special offers
to build volume and penetration.
Snowsport development programs. The Company's resorts operate a variety of
snowsport development programs designed to improve the skills of children and
beginners, as well as more advanced skiers and snowboarders. The Company's
resorts operate ski schools that are consistently rated among the best in their
respective regions. In addition, certain of the Company's resorts have
introduced a development program, geared toward intermediate and advanced
skiers, which offers free specialized instruction and daily training. This
program has increased guest loyalty and repeat visitation. Other efforts have
been instituted at all resorts to embrace and welcome new participants to the
sport of skiing or snowboarding.
Strategic marketing alliances. The Company is a national ski resort
operator with approximately 2.0 million skier visits recorded during the 2002/03
ski season. At least one of the Company's resorts is within driving distance of
three of the five largest ski markets in the United States. Sponsorship
opportunities include potential relationships with automobile manufacturers,
soft drink companies, and ski and snowboard equipment manufacturers. For
example, Northstar and Sierra have relationships with a major automobile
manufacturer that involves over $1.2 million worth of television exposure, free
use of vehicles for Company purposes and a vehicle give-away promotion for
resort guests. This provides exposure of Booth Creek's resorts to a targeted
audience of skiers in key markets.
School, group and business affiliations. The Company is dedicated to
developing special programs designed to attract school, business and other
groups. By introducing skiing, snowboarding and other methods of sliding on snow
to a wider audience, these programs broaden the Company's customer base and have
proven to be a particularly effective way to build name recognition and brand
loyalty. Sales personnel at each resort provide year-round assistance to group
leaders in organizing and developing events. Business affiliations are developed
and maintained through corporate ticket programs, whereby participating
businesses are given an opportunity to provide their employees with
incentive-based pricing.
Youth market initiatives. The Company is devoting marketing and operational
resources to ensure that its resorts offer selected products and services
targeted toward the important youth market segment. These initiatives have
focused on the Company's (i) youth market branding, (ii) terrain park features
and amenities, and (iii) music, food, entertainment, events and other products
and services oriented to the youth market.
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 upon 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.
Competition
The general unavailability of new developable ski mountains, regulatory
requirements and the high costs and expertise required to build and operate
resorts present significant barriers to entry in the ski industry. In the past
15 years, many proposed resorts have been stalled or abandoned due to
environmental issues and the high costs of entering into the capital intensive
ski industry. The domestic ski industry is currently comprised of approximately
490 resorts and is highly competitive. The Company's competitive position in the
markets in which it competes is dependent upon many diverse factors, including
proximity to population centers, pricing, snowmaking capabilities, type and
quality of skiing offered, prevailing weather conditions, local bed base and
quality and price of complementary services.
12
The Company's Lake Tahoe resorts, Northstar and Sierra, face strong
competition from Lake Tahoe's five other major ski resorts. Northstar's primary
competition in the North Lake Tahoe area is from Squaw Valley, Alpine Meadows
and Sugar Bowl. Northstar also competes with major ski and non-ski destination
resorts throughout North America. Sierra primarily competes in the South Lake
Tahoe area with Heavenly and Kirkwood.
The Company's New England resorts, Waterville Valley, Mt. Cranmore and Loon
Mountain, compete in the highly competitive Northeast ski market, which consists
of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut and
New York. Within the Northeast region, skiers can choose from over 50 major
resorts and ski areas, most of which are located in the mountainous areas of New
England and Eastern New York. Waterville Valley's, Mt. Cranmore's and Loon
Mountain's competitors include Bretton Woods, Mount Sunapee, Attitash/Bear Peak,
Gunstock, Cannon Mountain, King Pine and Wildcat Mountain in New Hampshire, as
well as other major regional ski resort operators, including Okemo, Sunday
River, Killington, Wachusett Mountain, Smuggler's Notch, Stowe, Stratton
Mountain and Shawnee Peak.
The Summit competes primarily with 11 other ski resorts in Washington,
including Crystal Mountain, Stevens Pass, White Pass, Mission Ridge and Mt.
Baker. Additional competition comes from the regional destination resorts at Mt.
Bachelor, Mt. Hood Meadows, Sun Valley and Whistler/Blackcomb, as well as other
day and weekend ski facilities in Oregon and British Columbia.
On a regional basis, at least one of the Company's resorts is readily
accessible to three of the five largest ski markets in the United States.
Management estimates that approximately 70% of the skiers visiting the Company's
Lake Tahoe resorts are from the San Francisco/San Jose, Sacramento, Central
California Valley and Lake Tahoe regions. Waterville Valley, Mt. Cranmore and
Loon Mountain are estimated to attract approximately 80% of their guests from
Massachusetts and New Hampshire, with a large percentage of such visitors coming
from the Boston metropolitan area. The Summit attracts approximately 90% of its
guests from the Seattle/Tacoma metropolitan region.
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 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.
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.
13
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 fiscal year ended October 31, 2003 were
$1,053,000.
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.
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.
14
Certain regulatory approvals associated with a snowmaking pipeline at Loon
Mountain, as well as certain contractual obligations, impose minimum stream flow
requirements with respect to Loon Mountain's snowmaking operations. 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.
Certain regulatory approvals associated with a proposed snowmaking
impoundment will impose more stringent minimum stream flow requirements with
respect to Waterville Valley's snowmaking operations in the future. These
requirements will likely require Waterville Valley to construct water storage
facilities in the next four years.
Except for certain permitting and environmental compliance matters relating
to Loon Mountain described above and in Part I, Item 3. "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.
Employees
As of December 31, 2003, the Company employed a full-time corporate staff
of 58 persons. In addition, the Company's resorts employ an aggregate of
approximately 440 full-time and approximately 3,900 seasonal employees. None of
the employees of the Company or its resorts is represented by a labor union, and
the Company considers its employee relations to be good.
Item 2. Properties
Northstar consists of approximately 8,000 acres of land privately owned by
the Company. Sierra owns 20 acres of its 1,689 gross acreage and leases the
remainder under a Term Special Use Permit issued by the Forest Service.
Waterville Valley owns 11 acres on Snow Mountain and two acres at the Conference
Center, and leases 790 acres of land on Mt. Tecumseh from the federal government
under a Term Special Use Permit issued by the Forest Service. Mt. Cranmore owns
754 acres and holds deeded easements enabling it to develop an additional 500
acres of ski terrain. Loon Mountain owns 565 acres and leases 1,366 acres of
land in the White Mountain National Forest under a Term Special Use Permit
issued by the Forest Service. The Summit owns 686 acres of its 4,103 gross
acreage, leases approximately 440 acres under a private permit, utilizes 1,280
acres for cross-country skiing under an annual operating agreement with the
Forest Service and utilizes 1,697 acres of mountain terrain under a Forest
Service Term Special Use Permit. In addition, each of the Company's resorts have
ski lodges and other facilities that management believes are suitable for the
Company's current operations. For further information regarding the Company's
properties, see Part I, Item 1. "Business - Resort Operations" and "- Regulation
and Legislation."
Substantially all of the consolidated assets of the Company are pledged as
collateral for outstanding borrowings under the Senior Credit Facility (as
defined herein). In addition, the Term Special Use Permits issued by the Forest
Service relating to the Sierra, Waterville Valley, Loon Mountain and Summit
resorts are encumbered as collateral for the Senior Credit Facility.
Item 3. 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.
15
In 1995, an individual sued 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 1. "Business - 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 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 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.
Item 4. Submission of Matters to a Vote of Security Holders
On October 3, 2003, Parent, the sole shareholder of the Company, acting
through its President, Christopher P. Ryman, voted to reelect and confirm George
N. Gillett, Jr., Dean C. Kehler, Edward Levy and Gary M. Pelletier as the
members of the Board of Directors of the Company. No other matters were
submitted to a vote of security holders of the Company during the fourth quarter
of fiscal 2003.
16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established trading market for any class of equity securities
of the Company. All of the Company's equity securities are owned by Parent.
The Company's principal debt agreements contain restrictions on the
Company's ability to pay dividends. The Company has not paid any dividends on
its common stock since inception. See Part II, Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity" and
Note 5 to the accompanying consolidated financial statements.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with
the consolidated financial statements of the Company and related notes thereto
included elsewhere in this Report and Part II, Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The selected
consolidated financial data of the Company as of and for the fiscal years ended
October 29, 1999, October 27, 2000, November 2, 2001, November 1, 2002 and
October 31, 2003, have been derived from the audited consolidated financial
statements of the Company, which have been audited by Ernst & Young LLP,
independent auditors.
17
--------------------------------------------------------------------
Fiscal Fiscal Fiscal Fiscal Fiscal
Year Year Year Year Year
Ended Ended Ended Ended Ended
October October November November October
29, 1999 27, 2000(b) 2, 2001 1, 2002 31, 2003
----------- ----------- ----------- ----------- -----------
(Dollars in Thousands, except Revenue per Skier Visit)
Statement of Operations Data: (a)
Revenue:
Resort Operations............................. $ 101,962 $ 108,430 $ 107,090 $ 108,827 $ 104,963
Real Estate and Other......................... 12,744 19,670 276 11,705 10,084
----------- ----------- ----------- ----------- -----------
114,706 128,100 107,366 120,532 115,047
Operating Expenses:
Cost of Sales - Resort Operations............. 66,581 62,804 61,290 63,137 63,969
Cost of Sales - Real Estate and Other......... 5,244 4,507 211 2,920 5,444
Depreciation, Depletion and Amortization (c).. 18,769 19,437 22,181 17,094 15,766
Selling, General and Administrative........... 20,736 21,187 21,428 22,614 22,063
Unusual Items, Net............................ 487 - - - -
----------- ----------- ----------- ----------- -----------
Operating Income................................. 2,889 20,165 2,256 14,767 7,805
Other Income (Expense):
Interest Expense.............................. (18,517) (18,158) (16,822) (15,281) (12,492)
Amortization of Deferred Financing Costs...... (1,093) (1,084) (966) (1,126) (1,140)
Gain on Early Retirement of Debt.............. - - 1,723 2,761 506
Other Income (Expense)........................ (261) 47 153 (105) (40)
----------- ----------- ----------- ----------- -----------
Other Income (Expense), Net................... (19,871) (19,195) (15,912) (13,751) (13,166)
----------- ----------- ----------- ----------- -----------
Income (Loss) from Continuing Operations Before
Change in Accounting Principle................ (16,982) 970 (13,656) 1,016 (5,361)
Discontinued Operations:
Income (Loss) from Discontinued Operations of
Bear Mountain Resort........................ (1,811) (1,327) (138) 549 -
Loss on Sale of Bear Mountain Resort.......... - - - (3,235) -
----------- ----------- ----------- ----------- -----------
Loss on Discontinued Operations.................. (1,811) (1,327) (138) (2,686) -
----------- ----------- ----------- ----------- -----------
Loss Before Change in Accounting Principle....... (18,793) (357) (13,794) (1,670) (5,361)
Change in Accounting Principle for Goodwill (c).. - - - (200) -
----------- ----------- ----------- ----------- -----------
Net Loss......................................... $ (18,793) $ (357) $ (13,794) $ (1,870) $ (5,361)
=========== =========== =========== =========== ===========
Other Financial and Operating Data:
Total Skier Visits (d)........................... 2,139,000 2,036,000 2,167,000 2,154,000 1,953,000
Revenue (Excluding Paid Skier Visit Insurance
Policy Revenue) per Skier Visit (e)........... $ 47.67 $ 50.56 $ 48.61 $ 50.52 $ 53.74
Capital Expenditures for Property and Equipment.. $ 14,342 $ 21,909 $ 12,944 $ 11,638 $ 6,445
Net Cash Provided by (Used in):
Operating Activities.......................... $ 15,393 $ 29,737 $ 13,366 $ 23,523 $ 13,684
Investing Activities.......................... $ (18,504) $ (9,124) $ (15,280) $ (782) $ (8,787)
Financing Activities.......................... $ 2,947 $ (20,378) $ 1,676 $ (22,535) $ (4,752)
Ratio of Earnings to Fixed Charges (f) .......... - 1.03 - 1.05 -
As of As of As of As of As of
October October November November October
29, 1999 27, 2000 2, 2001 1, 2002 31, 2003
----------- ----------- ----------- ----------- -----------
Balance Sheet Data: (In Thousands)
Working Capital (Deficit), Including Revolving
Credit Facility Borrowings.................... $ (45,309) $ (31,628) $ (46,221) $ (35,935) $ (52,233)
Total Assets..................................... $ 210,346 $ 199,063 $ 189,218 $ 166,600 $ 154,866
Long-term Debt................................... $ 136,483 $ 136,790 $ 128,664 $ 120,195 $ 98,382
Total Debt (g)................................... $ 160,986 $ 144,498 $ 148,040 $ 127,157 $ 122,561
Preferred Stock of Subsidiary ................... $ 2,133 $ 1,638 $ 1,136 $ - $ -
Common Shareholder's Equity (Deficit)............ $ 18,584 $ 18,227 $ 4,433 $ 2,563 $ (2,798)
18
(a) Pursuant to Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"), which was adopted by the Company effective as of October 28, 2000,
the historical results of operations and loss on sale of the Bear Mountain
resort are presented as discontinued operations in the Company's
consolidated statements of operations. As the sale of the Grand Targhee
resort occurred prior to the adoption of SFAS No. 144, the former
operations of the Grand Targhee resort through June 20, 2000 are reflected
in the Company's continuing operations for the fiscal years ended October
29, 1999 and October 27, 2000.
(b) Reflects the divestiture of the Grand Targhee resort on June 20, 2000.
(c) In June 2001, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"). The Company adopted SFAS No. 142 effective as of
November 3, 2001. Under these rules, goodwill is no longer amortized but is
subject to annual impairment tests in accordance with the pronouncement. In
connection with the adoption of SFAS No. 142, the Company performed a
transitional impairment test for recorded goodwill as of November 3, 2001
for each resort. Based on the transitional impairment test, the Company
wrote down goodwill by $200,000 for one resort, which has been reflected as
the cumulative effect of a change in accounting principle for the fiscal
year ended November 1, 2002. The following table reflects the amount of
recorded goodwill amortization and adjusted net income (loss) excluding
such goodwill amortization for the periods indicated:
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
October October November
29, 1999 27, 2000 2, 2001
---------- ---------- ----------
(In Thousands)
Reported Net (Loss).......... $ (18,793) $ (357) $ (13,794)
Goodwill Amortization........ 2,391 2,356 2,343
---------- ---------- ----------
Adjusted Net Income
(Loss) .................... $ (16,402) $ 1,999 $ (11,451)
========== ========== ==========
(d) Total skier visits associated with Bear Mountain's operations have been
excluded from the Company's reported total skier visits disclosed in Other
Financial and Operating Data.
(e) Reflects revenue from resort operations divided by total skier visits. For
the fiscal years ended October 27, 2000 and November 2, 2001, the amount
presented for revenue per skier visit excludes the effect of paid skier
visit insurance policy revenue of $5,480,000 and $1,754,000, respectively.
19
(f) For purposes of this computation, earnings are the sum of (i) income (loss)
from continuing operations, and (ii) fixed charges excluding capitalized
interest and preferred stock dividend requirements. Fixed charges are the
sum of (i) interest expensed and capitalized, (ii) an estimate of the
interest within rent expense, (iii) amortization of deferred financing
costs, and (iv) preferred stock dividend requirements. Earnings were
inadequate to cover fixed charges by approximately $5,500,000, $13,800,000
and $17,500,000 during the fiscal years ended October 31, 2003, November 2,
2001 and October 29, 1999, respectively.
(g) Includes Revolving Credit Facility borrowings, current portion of long-term
debt and long-term debt.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto included elsewhere
in this Report. The following discussion contains certain forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to the differences are discussed in "- Risk Factors," "-
Forward-Looking Statements" and elsewhere in this Report.
General
The Company's ski operations are highly sensitive to weather conditions and
the overall strength of the national economy and 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 one or more of the Company's resorts.
Moreover, since 2000, the Company has sold two resorts (Grand Targhee and Bear
Mountain), thereby reducing its geographical diversity.
The Company's three resorts with the lowest average natural snowfall,
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 2002/03 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 430 and 425 inches of snowfall, respectively, per year
for the past five ski seasons. As a result of their historic natural snowfall,
these resorts do not have any significant snowmaking infrastructure. 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 and relatively warm
temperatures, the Summit was unable to open until after Christmas for the
2002/03 ski season, and conditions remained poor for much of the season.
Northstar has averaged approximately 253 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 2002/03 ski season total skier visits 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,
approximately 80% of the 2002/03 ski season total skier visits 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 approximately 90% of the 2002/03 ski season total skier visits
were attributable to residents of the Seattle/Tacoma metropolitan region.
20
The Company seeks to maximize revenues and operating income by managing the
mix of skier visits and revenue per skier visit. 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 visits 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 visits by offering a quality guest experience and developing effective
target marketing programs. See Part I, Item 1. "Business - Marketing and Sales."
The Company seeks to improve revenue per skier visit 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.
The Company's current resorts have invested approximately $56.7 million
(including $9.0 million of equipment acquired through capital leases and other
debt) in capital expenditures during the last four 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, substantially 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. Due to a variety of factors, the insurance industry has experienced
significant losses and a substantial reduction in underwriting capacity in the
past several years, which has generally resulted in significantly higher renewal
premiums for companies seeking insurance. In connection with its annual renewal
of insurance coverage for fiscal 2004, the Company experienced an increase in
insurance premium costs of approximately $1,000,000 over the level of such costs
in fiscal 2003.
Results of Operations
Overview
The opening and closing dates for the Company's resorts for the 2002/03,
2001/02 and 2000/01 ski seasons were as follows:
Opening Dates
---------------------------------------------------
2002/03 Season 2001/02 Season 2000/01 Season
-------------- -------------- --------------
Northstar............. Nov. 22, 2002 Nov. 29, 2001 Nov. 18, 2000
Sierra................ Dec. 16, 2002 Nov. 25, 2001 Nov. 3, 2000
Waterville Valley*.... Nov. 22, 2002 Nov. 16, 2001 Nov. 19, 2000
Mt. Cranmore.......... Nov. 29, 2002 Dec. 15, 2001 Nov. 25, 2000
Loon Mountain*........ Nov. 15, 2002 Nov. 16, 2001 Nov. 22, 2000
The Summit............ Dec. 27, 2002 Nov. 30, 2001 Dec. 1, 2000
21
Closing Dates
---------------------------------------------------
2002/03 Season 2001/02 Season 2000/01 Season
-------------- -------------- --------------
Northstar............. April 20, 2003 April 21, 2002 April 22, 2001
Sierra................ April 27, 2003 April 15, 2002 April 23, 2001
Waterville Valley..... April 6, 2003 April 7, 2002 April 15, 2001
Mt. Cranmore.......... March 30, 2003 March 24, 2002 April 1, 2001
Loon Mountain......... April 20, 2003 April 14, 2002 April 29, 2001
The Summit............ April 13, 2003 May 5, 2002 April 22, 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.
Total skier visits generated by each of the Company's resorts during the
2002/03, 2001/02 and 2000/01 ski seasons were as follows:
2002/03 2001/02 2000/01
--------- --------- ----------
(In thousands)
Northstar....................... 570 521 519
Sierra.......................... 353 419 391
Waterville Valley............... 223 205 235
Mt. Cranmore.................... 119 96 129
Loon Mountain................... 359 301 385
The Summit...................... 329 612 508
--------- --------- ----------
Current Resorts............... 1,953 2,154 2,167
Bear Mountain................... - 303 333
--------- --------- ----------
1,953 2,457 2,500
========= ========= ==========
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. 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. During January, February and March 2003, the
Lake Tahoe region experienced natural snowfall levels that were substantially
below both long-term historical and prior season levels, which negatively
impacted customer perception of skiing conditions in Lake Tahoe. Despite these
weather challenges, skier visits at Northstar for the 2002/03 season increased
by 49,000 visits, or 9%, due to the relative competitive advantage of its
snowmaking system and the introduction of new season pass products. Skier
visitation at Sierra for the 2002/03 season declined by 66,000 visits, or 16%,
due primarily to the delayed opening for the 2002/03 season and skier visit
shortfalls in the latter part of January and February 2003 due to the lack of
natural snowfall. For the 2000/01 season as a whole, snowfall levels in the Lake
Tahoe region were below historical levels.
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. Bitterly cold temperatures during the second
half of January and the first half of February 2003, as well as several major
disruptive storms (including over the important Presidents' Day holiday) in
Boston and other major cities in the Northeast, dampened mid-season skier
visitation. Late season conditions during the 2002/03 season at the Company's
New Hampshire resorts were generally improved over the prior season. For the
2002/03 ski season, skier visits at the Company's New Hampshire resorts
increased by 99,000 visits, or 16%, from the 2001/02 season. Weather conditions
for the Company's New Hampshire resorts for the 2000/01 season were generally
favorable, with cold temperatures and above average snowfall.
22
For the 2002/03 season, the Pacific Northwest experienced unseasonably warm
temperatures and substantially below average snowfall. Snowfall at the Summit
for the 2002/03 season was less than 60% of historical long-term averages and
prior season levels. Additionally, average temperatures at the Summit during the
2002/03 ski season were generally warmer than normal, and the resort experienced
a large amount of rainfall during the course of the season. 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. Skiing conditions remained
poor at the Summit throughout the 2002/03 season. Conversely, 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 2002/03 season were down 283,000 visits, or 46%, as compared to the 2001/02
season. The 2000/01 season for the Summit was marked by significantly below
average snowfall. However, unlike the unusual weather conditions experienced
during the 2002/03 season, for the 2000/01 season the resort was able to open in
early December and maintain reasonable conditions throughout the season.
Fiscal Year Ended October 31, 2003 Compared to the Fiscal Year Ended
November 1, 2002
The Company's operating results by segment for the fiscal years ended
October 31, 2003 and November 1, 2002 were as follows. Such results exclude the
operating results for the Bear Mountain resort, which was sold on October 10,
2002.
Fiscal Year Ended Percentage
-----------------
October 31, November 1, Increase Increase
2003 2002 (Decrease) (Decrease)
---------- ----------- ---------- ----------
(In thousands, except revenue per skier visit)
Resort Operations:
Revenue:
Lift Tickets................. $ 36,953 $ 42,077 $ (5,124) (12)%
Season Passes................ 19,772 15,098 4,674 31
Snow School.................. 7,521 8,119 (598) (7)
Equipment Rental............. 7,849 8,930 (1,081) (12)
Retail....................... 4,809 4,916 (107) (2)
Food and Beverage............ 15,303 15,864 (561) (4)
Other........................ 12,756 13,823 (1,067) (8)
---------- ----------- ----------
Total Resort Operations
Revenue....................... 104,963 108,827 (3,864) (4)
Cost of Sales - Resort
Operations.................... 63,969 63,137 832 1
Depreciation Expense............ 15,639 16,892 (1,253) (7)
Selling, General and
Administrative Expense -
Resort Operations............. 20,692 21,400 (708) (3)
---------- ----------- ----------
Total Resort Operations
Expenses...................... 100,300 101,429 (1,129) (1)
---------- ----------- ----------
Resort Operating Income......... $ 4,663 $ 7,398 $ (2,735) (37)
========== =========== ==========
Skier Visits.................... 1,953 2,154 (201) (9)
========== =========== ==========
Revenue per Skier Visit......... $ 53.74 $ 50.52 $ 3.22 6
========== =========== ==========
Real Estate and Other Operations:
Revenue:
Real Estate Revenue.......... $ 9,830 $ 11,300 $ (1,470) (13)%
Timber Revenue............... 254 405 (151) (37)
---------- ----------- ----------
Total Real Estate and Other
Operations Revenue............ 10,084 11,705 (1,621) (14)
Cost of Sales - Real Estate
and Other..................... 5,444 2,920 2,524 86
Depletion Expense............... 127 202 (75) (37)
Selling, General and
Administrative Expense -
Real Estate and Other......... 1,371 1,214 157 13
---------- ----------- ----------
Total Real Estate and Other
Operating Expenses............ 6,942 4,336 2,606 60
---------- ----------- ----------
Real Estate and Other
Operating Income.............. $ 3,142 $ 7,369 $ (4,227) (57)
========== =========== ==========
23
Resort Operations:
Revenues from resort operations for the fiscal year ended October 31, 2003
were $104,963,000, a decrease of $3,864,000, or 4%, as compared to the 2002
period. Skier visits for the 2003 period declined by 201,000 visits, or 9%, from
the 2002 period. Increased sales of season passes, which rose 31% to $19,772,000
for the 2003 period, as well as improved revenue per skier visit yields,
partially offset the impact of reduced skier visitation. As compared to the
fiscal year ended November 1, 2002, resort operations revenues for Northstar
increased by $1,621,000, primarily due to higher skier visits and season pass
sales, partially offset by lower revenue per skier visit yields due to changes
in the mix of skiers. Revenues for Sierra decreased by $1,872,000 due to reduced
skier visits, partially offset by higher revenue per skier visit yields.
Revenues for Waterville Valley and Mt. Cranmore increased by $730,000 and
$955,000, respectively, due to increases in skier visits. Revenues for Loon
Mountain increased by $408,000 due to increased skier visits, partially offset
by lower yields due to a greater proportion of season pass visits in the 2003
period. The Summit's revenues decreased by $5,706,000 due primarily to
substantially lower visitation.
Cost of sales for resort operations for the fiscal year ended October 31,
2003 was $63,969,000, an increase of $832,000, or 1%, as compared to the 2002
period. The increase was primarily the result of normal inflationary factors and
higher insurance costs, partially offset by (i) lower snowmaking costs, (ii) the
effect of higher workers' compensation provisions in the 2002 period for
exposures at the Company's Lake Tahoe and Washington resorts, and (iii) lower
summer payroll in the 2003 period as a result of cost savings initiatives.
Depreciation expense for the fiscal year ended October 31, 2003 was
$15,639,000, a decrease of $1,253,000, or 7%, from the 2002 period. The decline
in depreciation 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 expense for resort operations for the
fiscal year ended October 31, 2003 was $20,692,000, a decrease of $708,000, or
3%, as compared to the 2002 period. The decrease in selling, general and
administrative expense between the 2003 and 2002 periods was primarily due to
reduced provisions under incentive compensation arrangements in 2003, partially
offset by normal inflationary factors.
Resort operating income for the fiscal year ended October 31, 2003 was
$4,663,000, a decrease of $2,735,000 from the operating income generated for the
2002 period, primarily as a result of lower revenues in the 2003 period.
Real Estate and Other:
Revenues from real estate operations for the fiscal year ended October 31,
2003 were $9,830,000, which was due to (i) the sale of the final lot within the
Unit 7 subdivision at Northstar for $646,000, and (ii) the sale of 12 lots
within the Unit 7A subdivision at Northstar for $9,184,000. Revenues from real
estate sales during the fiscal year ended November 1, 2002 were $11,300,000,
which was due to the sale of 25 lots within the Unit 7 subdivision at Northstar.
Due to slightly larger average lot sizes, better lot views and amenities and
continued improvements in the local real estate market, the Company was able to
realize significantly higher average lot prices for the Unit 7A subdivision as
compared to the Unit 7 subdivision. Timber operations at Northstar contributed
revenues of $254,000 and $405,000 during the 2003 and 2002 periods,
respectively.
Cost of sales for real estate and other operations was $5,444,000
(including noncash cost of real estate sales of $4,484,000) for the fiscal year
ended October 31, 2003, as compared to $2,920,000 for the fiscal year ended
November 1, 2002. The increase in cost of sales was primarily due to expanded
infrastructure requirements for the Unit 7A subdivision, including related water
system improvements and a lift to access Northstar's ski terrain from the
subdivision.
Selling, general and administrative expense related to real estate
operations increased by $157,000, or 13%, to $1,371,000 for the fiscal year
ended October 31, 2003, due principally to sales launch costs for the Unit 7A
subdivision.
Operating income from real estate and other operations was $3,142,000 for
the fiscal year ended October 31, 2003, a decrease of $4,227,000 from the fiscal
year ended November 1, 2002, as a result of the factors discussed above.
24
Interest Expense and Other Items:
Interest expense for the fiscal year ended October 31, 2003 totaled
$12,492,000, a decrease of $2,789,000, or 18%, from the Company's interest
expense for the fiscal year ended November 1, 2002, as a result of reduced
borrowings and lower average interest rates.
The Company recognized gains on the early retirement of debt of $506,000
and $2,761,000 for the fiscal years ended October 31, 2003 and November 1, 2002,
respectively, relating to repurchases of $16,000,000 and $29,325,000 aggregate
principal amount of its 12.5% senior notes due 2007 (the "Senior Notes") during
the 2003 and 2002 periods, respectively.
As of October 31, 2003 and November 1, 2002, the Company had net operating
loss carryforwards of approximately $100,000,000 and $90,000,000, respectively,
for federal income tax reporting purposes, which expire between 2012 and 2023.
The tax benefits of such net operating losses are fully offset by a valuation
reserve. Accordingly, during the fiscal years ended October 31, 2003 and
November 1, 2002, no income tax provision has been provided.
On October 10, 2002, the Company consummated the sale of all of the capital
stock of Bear Mountain, Inc., the owner and operator of the Bear Mountain ski
resort, to Snow Summit Ski Corporation for a purchase price of $12,000,000 in
cash, subject to certain adjustments for working capital, assumed debt and
allocations of off-season operating losses and capital expenditures. The
purchase price was determined through arms-length negotiations. As a result of
the disposal, the Company has reflected the historical operating results of Bear
Mountain as discontinued operations in its consolidated statements of
operations. Based on the terms of the transaction, the Company recognized a loss
on sale of $3,235,000 during the fiscal year ended November 1, 2002.
Additionally, the Company generated income from the discontinued operations of
the Bear Mountain resort of $549,000 during the fiscal year ended November 1,
2002.
The Company's net loss for the fiscal year ended October 31, 2003 was
$5,361,000, an increase of $3,491,000 from the net loss of $1,870,000 generated
for the fiscal year ended November 1, 2002, as a result of the factors discussed
above.
Fiscal Year Ended November 1, 2002 Compared to the Fiscal Year Ended
November 2, 2001
The Company's operating results by segment for the fiscal years ended
November 1, 2002 and November 2, 2001 were as follows. Such results exclude the
operating results of Bear Mountain, which was sold on October 10, 2002.
Fiscal Year Ended Percentage
-----------------
November 1, November 2, Increase Increase
2002 2001 (Decrease) (Decrease)
---------- ----------- ---------- ----------
(In thousands, except revenue per skier visit)
Resort Operations:
Revenue:
Lift Tickets................. $ 42,077 $ 42,431 $ (354) (1)%
Season Passes................ 15,098 12,065 3,033 25
Snow School.................. 8,119 7,348 771 10
Equipment Rental............. 8,930 8,597 333 4
Retail....................... 4,916 4,965 (49) (1)
Food and Beverage............ 15,864 15,895 (31) -
Other........................ 13,823 14,035 (212) (2)
Paid Skier Visit Insurance... - 1,754 (1,754) (100)
---------- ----------- ----------
Total Resort Operations
Revenue....................... 108,827 107,090 1,737 2
25
Fiscal Year Ended Percentage
-----------------
November 1, November 2, Increase Increase
2002 2001 (Decrease) (Decrease)
---------- ----------- ---------- ----------
(In thousands, except revenue per skier visit)
Resort Operations (continued):
Cost of Sales - Resort
Operations.................... 63,137 61,290 1,847 3
Depreciation Expense............ 16,892 19,648 (2,756) (14)
Amortization Expense............ - 2,405 (2,405) (100)
Selling, General and
Administrative Expense -
Resort Operations............. 21,400 20,599 801 4
---------- ----------- ----------
Total Resort Operations
Expenses...................... 101,429 103,942 (2,513) (2)
---------- ----------- ----------
Resort Operating Income......... $ 7,398 $ 3,148 $ 4,250 135
========== =========== ==========
Skier Visits.................... 2,154 2,167 (13) (1)
========== =========== ==========
Revenue per Skier Visit
(Excluding Paid Skier
Visit Insurance)............. $ 50.52 $ 48.61 $ 1.91 4
========== =========== ==========
Real Estate and Other Operations:
Revenue:
Real Estate Revenue.......... $ 11,300 $ - $ 11,300 100%
Timber Revenue............... 405 276 129 47
---------- ----------- ----------
Total Real Estate and Other
Operations Revenue............ 11,705 276 11,429 NM
Cost of Sales - Real Estate
and Other..................... 2,920 211 2,709 NM
Depletion Expense............... 202 128 74 58
Selling, General and
Administrative Expense -
Real Estate and Other......... 1,214 829 385 46
---------- ----------- ----------
Total Real Estate and Other
Operating Expenses............ 4,336 1,168 3,168 NM
---------- ----------- ----------
Real Estate and Other
Operating Income(Loss)........ $ 7,369 $ (892) $ 8,261 NM
========== =========== ==========
- --------------------
NM - Not meaningful.
Resort Operations:
Resort operations revenues were $108,827,000 for the fiscal year ended
November 1, 2002, an increase of $1,737,000, or 2%, from the 2001 period. Skier
visits for the 2002 period declined by 13,000 visits, or 1%, from the 2001
period. Increased season pass sales and higher revenue per skier visit yields
more than offset the slightly reduced skier visitation and elimination of paid
skier visit insurance revenues. As compared to the fiscal year ended November 2,
2001, revenues for Northstar increased by $798,000, primarily due to higher per
skier revenue yields. Revenues for Sierra increased by $1,518,000 due to higher
skier visits and increased season pass sales, as well as moderate increases in
per skier revenue yields. Revenues for Waterville Valley, Mt. Cranmore and Loon
Mountain decreased by $628,000, $688,000 and $985,000, respectively, primarily
due to lower skier visits, partially offset by improved per skier revenue
yields. The Summit's revenues increased by $3,476,000 due primarily to a
significant increase in skier visits, as well as higher season pass revenues and
yield improvements. The 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.
26
For the 2000/01 season, the Company entered into four separate paid skier
visit insurance policies covering Bear Mountain, Loon Mountain, Waterville
Valley and the Summit. For the fiscal year ended November 2, 2001, the Company
recorded resort operations revenue 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. 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. In June
2003, the parties agreed to settle the Company's claims in exchange for a final
claim payment of $683,000 tendered to the Company in July 2003.
For the 1999/00 ski season, the Company arranged for four separate paid
skier visit insurance policies covering its Lake Tahoe resorts (Northstar and
Sierra), its New Hampshire resorts (Waterville Valley, Mt. Cranmore and Loon
Mountain), Bear Mountain and the Summit. For the fiscal year ended November 2,
2001, resort operations revenues included $254,000 for additional claim
recoveries received upon the final settlement of the 1999/00 paid skier visit
insurance policies in excess of the amounts recognized in fiscal 2000.
Cost of sales for resort operations for the fiscal year ended November 1,
2002 were $63,137,000, an increase of $1,847,000, or 3%, as compared to the 2001
period. The increase was the result of the combined effects of the following
items: (i) increased workers' compensation provisions of approximately
$1,900,000 for unfavorable trends in workers' compensation exposures at the
Company's California and Washington resorts, (ii) increased credit card costs,
Forest Service permit fees and other variable operating costs related to
increased revenues, and (iii) normal inflationary factors.
Depreciation expense for the fiscal year ended November 1, 2002 was
$16,892,000, a decrease of $2,756,000 from the 2001 period. The decline in
depreciation expense was primarily due to certain assets acquired in connection
with the Company's resort acquisitions in 1996 and 1997 having become fully
depreciated.
The Company's operating results for the fiscal year ended November 2, 2001
reflected goodwill amortization of $2,343,000. Adjusted net loss for the fiscal
year ended November 2, 2001 would have been $11,451,000 excluding such goodwill
amortization. In connection with the adoption of SFAS No. 142, the Company
performed a transitional impairment test for recorded goodwill as of November 3,
2001 for each resort. Based on the results of the transitional impairment test,
the Company wrote down goodwill by $200,000 for one resort, which has been
reflected as the cumulative effect of a change in accounting principle in the
accompanying statement of operations for the fiscal year ended November 1, 2002.
Selling, general and administrative expense for resort operations for the
fiscal year ended November 1, 2002 were $21,400,000, an increase of $801,000, or
4%, as compared to the 2001 period. The increase in total selling, general and
administrative expense between the 2002 and 2001 periods was principally due to
the following factors: (i) an increase in payroll due to the addition of certain
resort and corporate management and administrative positions, as well as
increased commission costs due to higher commissionable sales, and (ii) normal
inflationary factors.
Resort operating income for the fiscal year ended November 1, 2002 was
$7,398,000, an increase of $4,250,000 over the operating income generated for
the 2001 period, as a result of the factors discussed above.
Real Estate and Other:
Revenues from real estate operations for the fiscal year ended November 1,
2002 were $11,300,000, due to the close of escrow on 25 lots within the Unit 7
development at Northstar. There were no real estate sales in the 2001 period.
Timber operations contributed revenues of $405,000 in the 2002 period as
compared to $276,000 in the 2001 period.
Cost of sales for real estate and timber operations for the fiscal year
ended November 1, 2002 was $2,920,000, including noncash cost of real estate
sales of $2,478,000, primarily as a result of the close of escrow on 25 lots
within the Unit 7 development at Northstar. Cost of sales for timber operations
for the fiscal year ended November 2, 2001 were $211,000.
Selling, general and administrative expense for real estate and other were
$1,214,000 for the fiscal year ended November 1, 2002, an increase of $385,000
from the 2001 period due primarily to increased real estate professional fees
and incentive provisions.
27
Operating income for real estate and other operations was $7,369,000 for
the fiscal year ended November 1, 2002, an increase of $8,261,000 from the
operating loss incurred for the fiscal year ended November 2, 2001, as a result
of the factors discussed above.
Interest Expense and Other Items:
Interest expense for the fiscal year ended November 1, 2002 totaled
$15,281,000, a decrease of $1,541,000, or 9%, from the Company's interest
expense for the fiscal year ended November 2, 2001, as a result of lower average
interest rates and reduced borrowings.
The Company recognized gains on the early retirement of debt of $2,761,000
and $1,723,000 for the fiscal years ended November 1, 2002 and November 2, 2001,
respectively, relating to the repurchase of its Senior Notes.
The Company's income from continuing operations for the fiscal year ended
November 1, 2002 was $1,016,000, an increase of $14,672,000 from the loss from
continuing operations of $13,656,000 for the 2001 period, as a result of the
factors discussed above.
As of November 1, 2002 and November 2, 2001, the Company had estimated net
operating loss carryforwards of approximately $90,000,000 and $84,700,000,
respectively, for federal income tax reporting purposes. The tax benefits of
such net operating losses are fully offset by a valuation reserve. Accordingly,
during the fiscal years ended November 1, 2002 and November 2, 2001, no income
tax benefit has been provided.
On October 10, 2002, the Company consummated the sale of all of the capital
stock of Bear Mountain, Inc., the owner and operator of the Bear Mountain ski
resort, to Snow Summit Ski Corporation for a purchase price of $12,000,000 in
cash, subject to certain adjustments for working capital, assumed debt and
allocations of off-season operating losses and capital expenditures. The
purchase price was determined through arms-length negotiations. As a result of
the disposal, the Company has reflected the historical operating results of Bear
Mountain as discontinued operations in its consolidated statements of
operations. Based on the terms of the transaction, the Company recognized a loss
on sale of $3,235,000 during the fiscal year ended November 1, 2002. Additional
financial information relating to Bear Mountain is included in Note 9 to the
accompanying consolidated financial statements.
The Company recognized income from the discontinued operations of Bear
Mountain, excluding the loss recorded on the sale of the capital stock of Bear
Mountain, of $549,000 for the fiscal year ended November 1, 2002, an increase of
$687,000 from the loss generated during the 2001 period. The increase was
primarily the result of reduced depreciation expense as certain assets acquired
as part of the acquisition of Bear Mountain in 1996 had become fully
depreciated, partially offset by (i) decreased revenues principally as a result
of lower skier visits during the 2001/02 ski season, and (ii) increased cost of
sales primarily as a result of the Company's involvement in electrical rate
proceedings and other regulatory matters involving Bear Mountain.
The Company's net loss for the fiscal year ended November 1, 2002 was
$1,870,000, an improvement of $11,924,000 from the net loss of $13,794,000
generated for the fiscal year ended November 2, 2001, as a result of the factors
discussed above.
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 with Fleet National Bank, as
administrative agent ("Agent"), and certain lenders. The Senior Credit Facility
has since been amended three times, most recently on June 13, 2003 (as so
amended the "Senior Credit Facility"). The following summary of the terms of the
Senior Credit Facility, is qualified by reference to the complete agreement
governing the Senior Credit Facility, a copy of which has been filed as an
exhibit to our periodic reports.
28
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
October 31, 2003 of $21,000,000. The Senior Credit Facility requires that the
Company not have any borrowings under the Revolving Credit Facility for a period
of 30 consecutive days 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 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 (resort earnings before
interest, taxes, depreciation and amortization, adjusted for certain items
specified in the Senior Credit Facility) measured quarterly on a rolling four
quarter basis ("Minimum Resort EBITDA"), (b) a minimum ratio of (y) consolidated
EBITDA (earnings before interest, taxes, depreciation, depletion, amortization
and noncash cost of real estate sales, adjusted for certain items specified in
the Senior Credit Facility), less $5,000,000, less cash income taxes actually
paid during the period to (z) consolidated debt service (the sum of interest,
cash payments of principal made in respect of capitalized lease obligations and
mandatory reductions under the Term Facility) measured quarterly on a rolling
four quarter basis (the "Leverage Ratio"), and (c) a maximum adjusted
consolidated leverage ratio (the ratio of secured indebtedness of the Company
and its subsidiaries (with certain exceptions specified in the Senior Credit
Facility) to the sum of the Company's consolidated net worth, as adjusted
pursuant to the Senior Credit Facility and the aggregate principal amount of
outstanding Senior Notes ("Adjusted Leverage Ratio").
On June 13, 2003, the Company obtained an amendment and waiver (the
"Amendment and Waiver") from the lenders under the Senior Credit Facility, which
modified the financial covenants under the Senior Credit Facility. After giving
effect to the Amendment and Waiver, the Company is required to have a Minimum
Resort EBITDA of (i) $19,000,000 during each rolling four quarter period through
January 30, 2004, (ii) $23,500,000 during each rolling four quarter period from
January 31, 2004 through January 28, 2005 and (iii) $26,500,000 during each
rolling four quarter period from January 29, 2005 and thereafter. It is also
required to maintain (a) a minimum Leverage Ratio of (i) 1 to 1 from August 2,
2003 through October 31, 2003, (ii) 1.1 to 1 from November 1, 2003 through
January 30, 2004, (iii) 1.2 to 1 from January 31, 2004 through January 28, 2005
and (iv) 1.3 to 1 thereafter and (b) a maximum Adjusted Leverage Ratio of (i)
..65 to 1 from August 2, 2003 through October 31, 2003, (ii) .55 to 1 from
November 1, 2003 through October 29, 2004, (iii) .50 to 1 from October 30, 2004
through October 28, 2005 and (iv) .45 to 1 thereafter.
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) the 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 or at the end
of the Interest Period (as defined in the Senior Credit Facility) for loans
subject to LIBOR rate options. 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 5.12% as of October 31, 2003 pursuant to the LIBOR
rate option. Borrowings under the Revolving Credit Facility bore interest at a
weighted average annual rate of 5.14% as of October 31, 2003 pursuant to
elections under both the base rate and LIBOR rate options.
29
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. Initial borrowings of
$25,000,000 under the Term Facility were used to repurchase the Company's Senior
Notes, together with accrued and unpaid interest thereon. As of October 31,
2003, outstanding borrowings under the Revolving Credit Facility and Term
Facility were $17,750,000 and $21,000,000, respectively. Following October 31,
2003, outstanding borrowings under the Revolving Credit Facility peaked at
$18,900,000 on December 2, 2003. As of January 26, 2004, there were no amounts
outstanding under the Revolving Credit Facility.
The Company had a net working capital deficit of $52,233,000 as of October
31, 2003 (including $17,750,000 in outstanding borrowings under the Revolving
Credit Facility), which will negatively affect liquidity during 2004. The
Company's net working capital deficit as of October 31, 2003 was due in part to
unearned revenue and deposits from resort operations of $14,739,000 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's working capital
deficit as of November 1, 2002 was $35,935,000 (including $1,245,000 in
outstanding borrowings under the Revolving Credit Facility).
The Company generated cash from operating activities of $13,684,000 for the
fiscal year ended October 31, 2003 as compared to $23,523,000 for the fiscal
year ended November 1, 2002. The decrease in operating cash flows was primarily
due to reduced revenues and a higher net loss in the 2003 period and timing
differences in accounts payable and accrued liabilities.
Cash used in investing activities totaled $8,787,000 and $782,000 for the
fiscal years ended October 31, 2003 and November 1, 2002, respectively. The
results for the 2003 and 2002 periods primarily reflect capital expenditures for
the purchase of property and equipment and real estate held for development and
sale. In addition, the results for the 2002 period reflect proceeds of
$11,954,000 from the sale of the Bear Mountain resort.
Cash used in financing activities totaled $4,752,000 for the fiscal year
ended October 31, 2003, which reflects net borrowings under the Revolving Credit
Facility of $16,505,000, scheduled payments of long-term debt of $5,991,000 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 $22,535,000 for
the fiscal year ended November 1, 2002, which reflects net repayments under the
Revolving Credit Facility of $16,383,000, and scheduled repayments of long-term
debt and preferred stock of $2,361,000 and $1,151,000, respectfully.
Additionally, financing activities for the 2002 period reflect borrowings of
$25,000,000 under the Term Facility, which together with available cash
resources, were used to repurchase $29,325,000 aggregate principal amount of
Senior Notes for $25,588,000.
The Company's capital expenditures for property and equipment during the
fiscal year ended October 31, 2003 were $7,335,000 (including $890,000 of
equipment acquired through capital leases). As of October 31, 2003, the portion
of fiscal 2003 capital programs which will be expended in fiscal 2004 is
estimated to be approximately $1,500,000, which excludes grooming equipment to
be acquired under capital leases. The Company has not yet determined the scope
of potential expansion capital projects that may be undertaken as part of its
2004 capital cycle. Maintenance capital spending for the Company's 2004 capital
cycle is preliminarily estimated to be in the range of $6,000,000 to $6,500,000.
Capital expenditures for real estate development projects in fiscal 2004 are
preliminarily estimated to range between $3,000,000 and $3,500,000. 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 for property and
equipment and real estate development were approximately $4,700,000 at October
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.
30
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.
In December 2003, the Company closed escrow on the final three lots within
the Unit 7A subdivision at Northstar for an aggregate sales price of $2,798,000.
The Company does not anticipate that it will sell any additional single family
real estate at Northstar during the remainder of fiscal 2004.
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 will be 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. During the fiscal year ended October
31, 2003, the Company experienced a significant decline in its operating
performance due to weather challenges at its three largest resorts, which will
negatively affect liquidity in future periods. In response, the Company reduced
its resort capital expenditures for its 2003 capital cycle, and undertook
cost-cutting initiatives in an effort to improve its financial performance in
future periods. In addition, the Company sold 12 lots within the Unit 7A
subdivision at Northstar, which generated significant cash proceeds during
fiscal 2003. Any further significant decline in the Company's expected operating
performance could have a material adverse effect on the Company's ability to
service its debt and make required capital expenditures. Due to the expected
absence of significant real estate sales in fiscal 2004, the Company will be
more dependent upon cash flows from resort operations to service its
indebtedness, fund necessary capital expenditures and support working capital
requirements.
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. On June 13, 2003, the Company
obtained an amendment from the lenders under the Senior Credit Facility
modifying these covenants prospectively and a waiver of defaults that had arisen
as a result of the Company's operating performance through May 2, 2003. The
Company was in compliance with the amended covenants under the Senior Credit
Facility as of October 31, 2003. 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.
As of October 31, 2003, the Company had $104,811,000 of total long-term
debt. The Company expects that existing cash, cash generated from operations and
cash proceeds of 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 12 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 pursuant to satisfactory terms. 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.
31
Contractual Obligations and Off-Balance Sheet Arrangements
The Company's significant contractual obligations include long-term debt
(including capital lease obligations), operating leases, purchase obligations
and other long-term liabilities. As of October 31, 2003, the Company's scheduled
maturities of long-term debt, operating lease commitments, purchase obligations
and other long-term liabilities for the periods indicated were as follows:
Payments Due By Period
-------------------------------------
One to More Than
Less Than Three Three to Five
Total One Year Years Five Years Years
--------- -------- -------- -------- --------
(In thousands)
Long-term Debt and Capital
Lease Obligations............ $ 104,811 $ 6,429 $ 18,180 $ 80,202 $ -
Operating Lease Obligations.... 4,897 1,239 1,424 218 2,016
Purchase Obligations........... 2,600 2,600 - - -
Other Long-term Liabilities.... 741 - 295 179 267
--------- -------- -------- -------- --------
Total.......................... $ 113,049 $ 10,268 $ 19,899 $ 80,599 $ 2,283
========= ======== ======== ======== ========
For further information regarding the Company's long-term debt and capital
lease and operating lease obligations, see Notes 5 and 6 to the accompanying
consolidated financial statements.
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 October 31, 2003 were approximately $3,800,000 and $585,000,
respectively. Under the terms of the Senior Credit Facility, the letters of
credit in the amount of $585,000 reduce the Company's borrowing capacity under
the Revolving Credit Facility.
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 when services are provided and products are sold.
Sales of season passes are initially deferred in unearned revenue and recognized
ratably over the expected 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.
32
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
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.
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.
During the fiscal year ended October 31, 2003, the Company recognized a non-cash
impairment charge of $350,000 for certain previously capitalized planning and
design costs for a project which is in the process of being redesigned. As of
October 31, 2003, the Company believes there has not been any impairment of its
other long-lived assets or goodwill.
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 and Pending Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") 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 any impact on the Company's
consolidated financial position or results of operations.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS No. 146"), which addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for
a cost that is associated with an exit or disposal activity be recognized when
the liability is incurred, whereas EITF Issue No. 94-3 required an entity to
recognize a liability for an exit cost on the date that the entity committed
itself to an exit plan. SFAS No. 146 was effective for exit or disposal
activities initiated after December 31, 2002. The adoption of SFAS No. 146 did
not have any impact on the Company's consolidated financial position or results
of operations.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities - an Interpretation of ARB No. 51" ("FIN No. 46"),
which has been subsequently deferred and revised by the FASB on several dates.
This interpretation addresses consolidation and reporting by business
enterprises of variable interest entities ("VIEs"). VIEs are entities for which
control is achieved through means other than voting rights. FIN No. 46, as
revised, provides for various effective dates for adoption of the
interpretation's provisions depending upon the date of formation of the VIEs and
their nature. FIN No. 46 has not had, and is not expected to have, a significant
effect on the Company's consolidated financial position or the results of
operations.
33
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 upon 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.
Risk Factors
In this section, references to "we" or "our" refers to Booth Creek and its
subsidiaries unless the context requires otherwise.
We have a substantial amount of debt, which may harm our financial condition and
require us to use a significant portion of our cash flow to satisfy our debt
obligations.
We have debt that is substantially greater than our shareholder's equity
(deficit) and a significant portion of our cash flows from operations will be
used to satisfy our debt obligations. For the fiscal years ended October 31,
2003 and November 1, 2002, our consolidated interest expense was $12,492,000 and
$15,281,000, respectively. Our Senior Credit Facility provides for quarterly
commitment reductions of $1,000,000 on the last day of January, April, July and
October through October 31, 2005, the maturity date of the Senior Credit
Facility. Our Senior Notes mature in March 2007. Therefore, a downturn in our
business could limit our ability to make payments to satisfy our debt
obligations. The following chart sets forth certain important information
regarding our capitalization and is presented as of or for the fiscal years
ended October 31, 2003 and November 1, 2002:
October 31, 2003 November 1, 2002
---------------- -----------------
Total indebtedness..................... $ 122,561,000 $ 127,157,000
Shareholder's equity (deficit)......... $ (2,798,000) $ 2,563,000
Total capitalization................... $ 119,763,000 $ 129,720,000
Debt to total capitalization........... 102% 98%
Ratio of earnings to fixed charges
(coverage deficiency)................. $ (5,496,000) 1.05 to 1
Our indebtedness could:
o Increase our vulnerability to general adverse economic conditions
and the seasonality of the skiing and recreational industries;
o Limit our ability to use operating cash flow in other areas of
our business because we must dedicate a substantial portion of
these funds to payments on our existing indebtedness;
o Limit our ability to obtain other financing to fund future
working capital needs, acquisitions, capital expenditures and
other general corporate requirements;
o Limit our ability to take advantage of business opportunities as
a result of various restrictive covenants in our principal debt
agreements; and
o Place us at a competitive disadvantage compared to our
competitors that have less debt.
34
Our Indenture and Senior Credit Facility restrict our operations.
As customary in similar agreements, the Indenture governing the Senior
Notes and the agreements governing the Senior Credit Facility restrict our
ability to, among other things:
o Sell or transfer assets;
o Incur additional indebtedness;
o Make certain investments or acquisitions;
o Make capital expenditures; and
o Engage in certain transactions with affiliates.
As a result of these restrictions, the Company may not be able to engage in
certain transactions which management believes would be beneficial to the
Company and its results of operations.
We are structured as a holding company and have no assets other than the common
stock of our subsidiaries.
We are a holding company and our ability to pay principal and interest on
debt will be dependent upon the receipt of dividends and other distributions, or
the payment of principal and interest on intercompany borrowings, from our
subsidiaries. We do not have, and we do not expect in the future to have, any
material assets other than the common stock of our direct and indirect
subsidiaries. The breach of any of the conditions or provisions under the
documents governing the indebtedness of subsidiaries could result in a default
which in turn could accelerate the maturity of a debt. If the maturity of debt
were accelerated, the indebtedness would be required to be paid in full before
the subsidiary would be permitted to distribute any assets to the parent
company. There can be no assurance that our assets or those of our subsidiaries
would be sufficient to repay all of our outstanding debt.
Regional and national economic conditions could adversely affect our results of
operations.
The skiing industry is cyclical in nature and is particularly vulnerable to
shifts in regional and national economic conditions. Skiing is a discretionary
recreational activity entailing relatively high costs of participation, and
negative conditions or developments in the regional or national economies where
we operate could adversely impact our skier visits and our real estate and other
revenues. Accordingly, our financial condition, particularly in light of our
highly leveraged position, could be adversely affected by any weakening of the
national economy or in the regional economies in which we operate.
Our business is highly seasonal and unfavorable weather conditions can
significantly affect our business.
Ski resort operations are highly seasonal. Over the last three fiscal
years, we have realized an average of approximately 92% of our resort operations
revenues and all of our resort operating income during our first and second
fiscal quarters. Further, a significant portion of resort operations revenue was
generated during the Christmas and Presidents' Day vacation weeks and other
winter holiday periods. In addition, our resorts typically experience operating
losses and negative cash flows during our third and fourth fiscal quarters.
During the third and fourth fiscal quarters in 2003, for example, we had resort
operating losses aggregating approximately $21,300,000 and negative cash flow
from resort operations aggregating approximately $11,600,000.
A high degree of seasonality in our revenues increases the impact of
certain events on our operating results. Adverse weather conditions, access
route closures, equipment and power failures, and other developments of even
moderate or limited duration occurring during our peak business periods could
significantly reduce our revenues. Adverse weather conditions can also increase
power and other operating costs associated with snowmaking or could render
snowmaking wholly or partially ineffective in maintaining quality skiing
conditions. Furthermore, unfavorable weather conditions, regardless of actual
skiing conditions, can result in decreased skier visits.
We operate in a highly competitive industry which makes maintaining our customer
base a difficult task.
The ski industry is highly competitive and capital intensive. Our
competitors include major ski resort operators in the western and northeastern
United States as well as other worldwide recreation resorts, including warm
weather resorts and various alternative leisure activities. Our competitive
position depends on a number of factors, such as our proximity to population
centers, the availability and cost of transportation to and within a resort,
natural snowfall, the quality and coverage of snowmaking operations, resort
size, the attractiveness of terrain, lift ticket prices, prevailing weather
conditions, the appeal of related services, the quality and the availability of
lodging facilities and resort reputation. Some of our competitors may have
greater competitive position and relative ability to withstand adverse
developments, as well as greater financial resources than we do. Increased
competition in the areas in which we operate or in general leisure activities
could negatively affect our results of operations.
35
A significant portion of our ski resorts are operated under leases or Forest
Service permits.
We lease a significant portion of the land underlying certain of our ski
resorts or use them pursuant to licenses from governmental and private entities.
If any of these arrangements were terminated or not renewed upon expiration, or
renewed on terms materially less favorable to us, our ability to possess and use
the land would be impaired. A substantial portion of the skiable terrain at our
resorts is federal land that is used under the terms of permits with the Forest
Service. The permits give the Forest Service the right to review and comment on
the location, design and construction of improvements in the permit area and on
certain other operational matters. Also, any future expansion on our part could
require an amendment of these permits, which may involve additional review under
the federal National Environmental Policy Act or other federal, state or local
environmental laws and the imposition of additional conditions and requirements.
The permits can also be terminated or modified by the Forest Service to serve
the public interest or in the event we fail to perform any of our obligations
under the permits. Any additional conditions and requirements under these
permits or the termination or non-renewal or modification of any of them could
negatively affect our results of operations.
Our business is subject to significant environmental and land use regulation.
We are subject to a wide variety of federal, state and local laws and
regulations relating to land use and development and to environmental compliance
and permitting obligations, including those related to the use, storage,
discharge, emission and disposal of hazardous materials. Any failure to comply
with these laws could result in capital or operating expenditures or the
imposition of severe penalties or restrictions on our operations that could
adversely affect our present and future resort operations. In addition, these
laws and regulations could change in a manner that materially and adversely
affects our ability to conduct our business or to implement desired expansions
and improvements to our facilities.
Our business is reliant upon the availability and cost of adequate energy
resources.
Our operations are heavily dependent upon our ability to obtain adequate
supplies of energy on favorable terms. The operations of our lodge facilities,
ski lifts, snowmaking equipment and other facilities at our resorts require
substantial amounts of energy. Each of our resorts obtains energy from local
energy suppliers. In recent years, California, where two of our resorts are
located, has experienced power outages and significant volatility in energy
costs. Any significant impairment in our ability to obtain adequate energy
resources to operate our resorts or any material increase in our energy costs
would negatively affect our business and results of operations.
A disruption in our water supply would impact our snowmaking capabilities and
impact our operations.
Our operations are heavily dependent upon our ability, under applicable
federal, state and local laws, regulations, policies, permits, and licenses or
contractual arrangements, including leases, reservations in deeds, easements and
rights-of-way, to have access to adequate supplies of water with which to make
snow and service the other needs of our facilities, and otherwise conduct our
operations. There can be no assurance that existing laws, regulations and
policies, or changes in such laws, regulations and policies will not have an
adverse effect on our access to or use of our water supply. In addition, there
can be no assurances that important permits, licenses or agreements will be
renewed, not be cancelled, expire or renewed on terms no less favorable to us.
Any failure to have access to adequate water supplies to support our current
operations and anticipated expansion would have a material adverse effect on our
business and operating results.
In addition, our rights to use various water sources on or about our
properties may be also subject to significant restrictions or the rights of
other riparian users and the public generally. For example, Waterville Valley's
snowmaking equipment is presently dependent on a single source of water that is
inconsistent during the winter months and Loon Mountain's snowmaking operations
and proposed expansion onto South Mountain have historically been the subject of
litigation and regulatory proceedings. Any additional restrictions or negative
determinations in this area could have a material adverse effect on our business
and operating results.
36
Revenues, operating income and cash flows from our real estate business are
highly variable.
Historically, our real estate and other revenues have consisted primarily
of sales of single family lots, development real estate and timber at Northstar.
The revenues, operating income and cash flows of the real estate segment are
highly variable. Revenues for the real estate and other segment were
$10,084,000, $11,705,000 and $276,000 for the fiscal years ended October 31,
2003, November 1, 2002 and November 2, 2001, respectively. With the exception of
the sale of the final three lots within the Unit 7A subdivision at Northstar in
December 2003, and the transfer and sale of the remaining Development Real
Estate (as defined herein) at Northstar in December 2003 (the cash proceeds of
which were received during the year ended November 1, 2002 and deferred as a
deposit liability), we do not currently anticipate the sale of any additional
real estate at Northstar during fiscal 2004. Due to the expected absence of
significant real estate sales in fiscal 2004, the Company will be more dependent
upon cash flows from resort operations to service its indebtedness, fund
necessary capital expenditures and support working capital requirements.
Acts of terrorism could have an adverse effect on tourism and the availability
of air travel and could decrease customer traffic to our resorts.
Acts of terrorism, including the ongoing effects of the September 11, 2001
terrorist attacks, on potential customers' propensity to travel to our resorts
is unclear. If these events were to depress the public's propensity to take
vacations requiring air travel, it could have an adverse effect on our results
of operations. Our Northstar resort in particular is partially dependent on
customers arriving by air transportation, and any significant disruption in the
public's willingness or ability to travel by air could adversely impact our
results of operations.
We may not be able to repurchase the Senior Notes upon a change of control.
Upon a change of control (as defined in the Indenture governing the Senior
Notes), we will be required to make an offer to repurchase all of the
outstanding Senior Notes at 101% of their principal amount plus accrued and
unpaid interest up to, but not including, the date of repurchase. The source of
funds for such purchase would be our available cash or third-party financing.
However, there can be no assurance that we will have enough available funds, or
be able to enter into satisfactory financing arrangements, at the time of any
change of control to make the required repurchases of tendered notes.
The loss of any of our executive officers or key personnel would harm our
business.
Our success depends to a significant extent upon the performance and
continued service of various key management and operational personnel. The loss
of the services of these or other key personnel could have a material adverse
effect on our business and operations.
Recent Trends and Outlook
Recent trends affecting the Company's early season results for the 2003/04
ski season include the following:
o The opening dates for the Company's resorts for the 2003/04 and
2002/03 ski seasons were as follows:
2003/04 Season 2002/03 Season
----------------- -----------------
Northstar............. November 22, 2003 November 22, 2002
Sierra................ November 14, 2003 December 16, 2002
Waterville Valley..... November 22, 2003 November 22, 2002
Mt. Cranmore.......... December 13, 2003 November 29, 2002
Loon Mountain......... November 26, 2003 November 15, 2002
The Summit............ November 29, 2003 December 27, 2002
o As a result of improved early season snowfall, Sierra experienced a
much earlier opening for the 2003/04 season. However, business volumes
at Northstar and Sierra were negatively impacted for several days
during the later portion of the Christmas holidays due to two major
storms that hit the Lake Tahoe region. Although total skier visitation
at the Company's Lake Tahoe resorts through late-January 2004 was
generally consistent with the corresponding period of the 2002/03
season, these resorts have experienced a meaningful shift in the mix
of skier visitors from paid visitors to season pass visitors. This
trend will likely result in lower lift ticket revenues in the current
season.
o From November 2003 through late-January 2004, the northeastern United
States has experienced relatively inconsistent weather patterns,
including, at varying times, major snowstorms, warm temperatures,
periods of heavy rainfall, and, most recently, extended periods of
bitterly cold temperatures. Due to the weather volatility, business
volumes at the Company's New Hampshire resorts through late-January
2004 have declined measurably from the level of skier visitation
during the comparable period of the 2002/03 season.
37
o Due to a return to more normal weather patterns, for the early part of
the 2003/04 season the Company has experienced a significant rebound
in skier visitation at its Summit resort in Washington.
o A meaningful portion of the Company's customer base is comprised of
committed season pass holders. Through late-January 2004, the
Company's 2003/04 season pass sales were approximately 10% higher than
the total level of season passes sold for the 2002/03 ski season. A
portion of the increase is attributable to the introduction of new
pass products which could reduce sales of other lift ticket products.
Forward-Looking Statements
Except for historical matters, the matters discussed in Part II, Item 7.
"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,
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, commencement or continuation 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" above.
38
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk sensitive instruments do not subject the Company
to material market risk exposures, except for risks related to interest rate
fluctuations. As of October 31, 2003, the Company had debt outstanding
(including borrowings under the Revolving Credit Facility) with a carrying value
of $122,561,000 and an estimated fair value of approximately $122,000,000.
Fixed interest rate debt outstanding as of October 31, 2003, which excludes
borrowings under the Senior Credit Facility, was $83,811,000, carried an average
interest rate of approximately 12.4%, and matures as follows:
Year Ending October
------------------------------------------------
2004 2005 2006 2007 Total
---- ---- ---- ---- ---------
Senior Notes $ - $ - $ - $ 80,175 $ 80,175
Other Debt 2,429 1,050 130 27 3,636
------- ------- -------- -------- ---------
$ 2,429 $ 1,050 $ 130 $ 80,202 $ 83,811
======= ======= ======== ======== =========
The amount of borrowings under the Revolving Credit Facility and Term
Facility as of October 31, 2003 were $17,750,000 and $21,000,000, respectively.
For purposes of calculating interest, borrowings under the Senior Credit
Facility can be, at the election of the Company, base rate loans or LIBOR rate
loans or a combination thereof. Base rate loans bear interest at the sum of (a)
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%. Borrowings outstanding under the Term Facility as of October 31,
2003 bore interest at an annual rate of 5.12% pursuant to the LIBOR rate option.
Borrowings under the Revolving Credit Facility as of October 31, 2003 bore
interest at a weighted average annual rate of 5.14% pursuant to elections under
both the base rate and LIBOR rate option.
The Company has entered into two interest rate cap agreements for an
aggregate notional amount of $15,000,000 through July 15, 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. 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%.
A 100 basis point increase or decrease in interest rates would have an
immaterial effect on the Company's future pretax earnings and cash flows.
For further information regarding the Company's indebtedness, see Part II,
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 5 to the accompanying consolidated financial statements.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary financial information that are
required to be included pursuant to this Item 8 are listed in Item 15 of this
Report under the caption "(a)1." and follow Item 15. The financial statements
and supplementary financial information specifically referenced in such list are
incorporated in this Item 8 by reference.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Item 9a. 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 end 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 information. 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.
39
b) There were no significant changes in the Company's internal control
over financial reporting during the quarterly period ended October 31,
2003 that have materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting.
40
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors, Executive Officers and Key Employees
The following table sets forth information with respect to the directors,
executive officers and other key employees of the Company and Parent, of which
the Company is a wholly-owned subsidiary.
Name Age Position
George N. Gillett, Jr....... 65 Chairman of the Board of Directors; Chief
Executive Officer, Assistant Secretary, and
Director of the Company and Parent
Christopher P. Ryman........ 52 President, Chief Operating Officer and
Assistant Secretary of the Company, and
President and Assistant Secretary of Parent
Elizabeth J. Cole........... 43 Executive Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary
of the Company and Parent
Timothy H. Beck............. 53 Executive Vice President, Planning of the
Company
Brian J. Pope............... 41 Vice President of Accounting and Finance,
Assistant Treasurer and Assistant Secretary
of the Company, and Vice President and
Assistant Secretary of Parent
David G. Corbin............. 51 Vice President of Resort Development of
the Company
Ross D. Agre................ 35 Vice President and General Counsel and
Secretary of the Company and Parent
Julianne Maurer............. 47 Vice President of Marketing and Sales of
the Company
Susan L. Tjossem............ 50 Vice President Guest Experience and Product
Development of the Company
Mark St. J. Petrozzi........ 44 Vice President of Risk Management of the
Company
Laura B. Moriarty........... 48 Vice President of Human Resources of the
Company
Gary M. Pelletier........... 42 Director of the Company and Parent
Scott A. McFetridge......... 43 Director of the Company and Parent
Dean C. Kehler.............. 47 Director of the Company and Parent
Edward Levy................. 40 Director of the Company and Parent
Timothy Silva............... 52 General Manager - Northstar
John A. Rice................ 48 General Manager - Sierra
Thomas H. Day............... 49 General Manager - Waterville Valley
Ted M. Austin............... 43 General Manager - Mt. Cranmore
Rick F. Kelley.............. 48 General Manager - Loon Mountain
Dan Brewster................ 43 General Manager - Summit
George N. Gillett, Jr. Mr. Gillett has been the Chairman of the Board of
Directors of the Company since its formation in October 1996 and Chief Executive
Officer since October 1997. Mr. Gillett has been Chairman, Chief Executive
Officer and President since December 1999 of Booth Creek Management Corporation
(formerly Booth Creek, Inc.), which oversees Mr. Gillett's family business
interests and provides certain management services to the Company. See Part III,
Item 13. "Certain Relationships and Related Transactions - Management Agreement
with Booth Creek Management Corporation." Since July 2001, Mr. Gillett has been
Chairman of Club de Hockey Canadien, Inc., which owns and operates the Montreal
Canadiens hockey team, and has been the managing general partner of the entity
41
that owns and operates the Centre Bell stadium in Montreal. Mr. Gillett has been
Chairman and Chief Executive Officer since June 2000 of GT Acquisition I, LLC,
which acquired the Grand Targhee Ski and Summer Resort from the Company in 2000.
In addition, Mr. Gillett has served in various capacities in several privately
held companies engaged in the processing and marketing of meat and poultry
products, including Chairman since September 2002 of Swift Foods Company, Vice
Chairman since March 2002 of KDSB Holdings, LLC, Vice Chairman since January
2002 of BC Natural Foods, LLC, Chairman of Packerland Packing Company from
August 1994 to July 2001 and Chairman of Corporate Brand Foods America, Inc.
from January 1997 to February 2000. Mr. Gillett has also served as Chairman
since May 1997 of Northland Holdings, Inc., a company engaged in marine
transportation, as Chairman and President since January 2001 of GNBC Holdings
Corp., a producer of landscaping and gardening products, and as Manager since
January 2003 of Spraddle Creek Auto Investment, LLC, a company in the automotive
dealership business.
Christopher P. Ryman. Mr. Ryman became President, Chief Operating Officer
and Assistant Secretary of the Company in May 1998. Mr. Ryman was Chief
Operating Officer and Senior Vice President of Vail Associates, Inc. from 1995
to May 1998. Prior to that time, from 1992 to 1995, he was Senior Vice President
of Mountain Operations at Vail Associates, Inc.
Elizabeth J. Cole. Ms. Cole has held the positions of Executive Vice
President, Chief Financial Officer and Treasurer of the Company since May 1998.
Ms. Cole also held the position of Secretary of the Company from May 1998 until
October 2001, at which time she was appointed Assistant Secretary. From May 1995
until May 1998, Ms. Cole worked at Vail Associates, Inc., with her most recent
position there being that of Vice President, Business Development. Prior to this
time Ms. Cole was affiliated with Aurora Capital Partners, a private equity
fund. During her employment with Aurora Capital Partners, she served as the
Chief Financial Officer of Petrowax PA, Inc., a manufacturer of petroleum waxes.
Timothy H. Beck. Mr. Beck has held the position of Executive Vice
President, Planning of the Company since July 1997. Prior to this time he served
as President of Sno-engineering, Inc., a leading ski resort and real estate
consulting and appraisal firm, since January 1991.
Brian J. Pope. Mr. Pope has held the position of Vice President of
Accounting and Finance of the Company since August 1998. In December 1998, Mr.
Pope was also named to the positions of Assistant Treasurer and Assistant
Secretary of the Company. Prior to August 1998, he served as Senior Manager in
the Assurance and Advisory Business Services unit of Ernst & Young LLP.
David G. Corbin. Mr. Corbin became the Vice President of Resort Development
of the Company in August 2000. Prior to this time, he served as a Vice President
with Vail Resorts Development Company since 1993.
Ross D. Agre. Mr. Agre has held the position of Vice President and General
Counsel of the Company since September 2001. In October 2001, Mr. Agre was also
named Secretary of the Company. From October 1994 to August 2001, Mr. Agre was
associated with the law firm of Milbank, Tweed, Hadley & McCloy LLP, and was
principally involved in the practice of corporate law.
Julianne Maurer. Ms. Maurer has held the position of Vice President of
Marketing and Sales of the Company since December 1996. Prior to this time she
served as Director of Marketing of the Fibreboard Resort Group as well as
Director of Marketing for Northstar.
Susan L. Tjossem. Ms. Tjossem has held the position of Vice President Guest
Experience and Product Development of the Company since March 2002. Prior to
this time, Ms. Tjossem served in a variety of positions with the Vail and Beaver
Creek resorts since 1975, including most recently Vice President Sports and
Recreational Services and Senior Managing Director Sports and Recreational
Services.
Mark St. J. Petrozzi. Mr. Petrozzi has held the position of Vice President
of Risk Management of the Company since January 1998. Between July 1988 and
January 1998, Mr. Petrozzi held various management positions with Willis
Corroon, a national insurance brokerage and consulting firm.
42
Laura B. Moriarty. Ms. Moriarty has held the position of Vice President of
Human Resources of the Company since September 1997. Prior to this time, Ms.
Moriarty was the Training Development Director at Harvey's Resort Casino since
October 1994.
Gary M. Pelletier. Mr. Pelletier has been a director of the Company since
October 2001. Mr. Pelletier has been with John Hancock Life Insurance Company
("John Hancock") since June 2001 and currently serves as a Managing Director
with the Bond and Corporate Finance Group. Mr. Pelletier is responsible for a
portfolio of investments specializing in media, entertainment and recreational
related businesses, and has investment responsibilities with respect to Hancock
Mezzanine Partners L.P., a shareholder of Parent. Prior to June 2001, Mr.
Pelletier was employed by State Street Corporation since 1987, and most recently
was in charge of Global Fixed Income Credit Research for State Street Global
Advisors, the asset management arm of State Street Corporation.
Scott A. McFetridge. Mr. McFetridge has been a director of the Company
since December 2003. Mr. McFetridge is a Managing Director in the Bond and
Corporate Finance Group of John Hancock, and has been employed by John Hancock
since June 1983. Mr. McFetridge is a Vice President of Hancock Mezzanine
Advisors LLC, a subsidiary of John Hancock, and the managing member of the
general partner of three funds that invest in mezzanine debt securities
including Hancock Mezzanine Partners L.P., a shareholder of Parent. Mr.
McFetridge is also a director of KDSB Holdings, LLC.
Dean C. Kehler. Mr. Kehler has been a director of the Company since July
1999. Mr. Kehler is a Vice Chairman of CIBC World Markets Corp. (an affiliate of
CIBC WG Argosy Merchant Fund 2, L.L.C. - the "CIBC Merchant Fund"), co-head of
CIBC World Markets High Yield Merchant Banking Funds, and a member of CIBC World
Markets Corp.'s Executive Board, U.S. Management Committee and Investment
Committee, and has investment responsibilities with respect to the CIBC Merchant
Fund and the Co-Investment Merchant Fund, LLC (the "Co-Investment Fund"). The
CIBC Merchant Fund and the Co-Investment Fund are shareholders of Parent. Mr.
Kehler is also a founder of Trimaran Capital Partners, a private asset
management firm which manages private equity funds and a portfolio of structured
investment funds. Prior to joining CIBC World Markets Corp., Mr. Kehler was a
Managing Director of Argosy Group L.P., an investment banking firm, from
February 1990 to August 1995. Mr. Kehler serves as a director of inviva, Inc.
and PrimeCo Wireless Communications, LLC.
Edward Levy. Mr. Levy has been a director of the Company since July 1999.
Mr. Levy has been a Managing Director of CIBC World Markets Corp. (an affiliate
of CIBC Merchant Fund and the Co-Investment Fund) since August 1995, and co-head
of CIBC World Markets Corp.'s Leveraged Finance Group since June 2001, and has
investment responsibilities with respect to the CIBC Merchant Fund and the
Co-Investment Fund. From February 1990 to August 1995, Mr. Levy was a Managing
Director of Argosy Group, L.P., an investment banking firm. Mr. Levy is also a
director of Norcross Safety Products.
Timothy Silva. Mr. Silva has been the General Manager of Northstar since
January 1995. Prior to this time, he served as Director of Operations of
Northstar, since February 1992.
John A. Rice. Mr. Rice has been the General Manager of Sierra since July
1993. Prior to this time he served as Vice President of Administration of Bear
Mountain, Ltd. (the predecessor of Bear Mountain, Inc.) since July 1988.
Thomas H. Day. Mr. Day has been the General Manager of Waterville Valley
since May 1997. Prior to this time, he served as Mountain Manager of Waterville
Valley since 1986.
Ted M. Austin. Mr. Austin became the General Manager of Mt. Cranmore in
September 1997. Prior to this time, he served as Director of Marketing at Sierra
since August 1993.
Rick F. Kelley. Mr. Kelley became the General Manager of Loon Mountain in
March 1998. Prior to this time, he served as Manager of Operations, Director of
Mountain Operations, Director of Skiing Operations, Director of Technical
Operations and Director of Maintenance Operations as well as serving in a
variety of other positions at Loon Mountain since 1978.
Dan Brewster. Mr. Brewster became the General Manager of the Summit in
September 2000. Prior to this time, he served in a variety of other positions at
the Summit since 1979, including Director of Operations, Director of Planning
and Development, Vice President of Ski Lifts, Inc. (the owner and operator of
the Summit) and Director of Human Resources.
43
Board of Directors
All directors of Booth Creek and Parent hold office until the respective
annual meeting of stockholders next following their election, or until their
successors are elected and qualified. On October 3, 2003, George N. Gillett,
Jr., Gary M. Pelletier, Dean C. Kehler and Edward Levy were re-elected to serve
as members of the Board of Directors of Parent and the Company, and George N.
Gillett, Jr. was re-appointed as Chairman of the Board of Directors of the
Company. On December 3, 2003, Scott A. McFetridge was elected to the Board of
Directors of Parent and the Company. See Part III, Item 13. "Certain
Relationships and Related Transactions - Stockholders Agreements."
During the fiscal year ended October 31, 2003 and as of the date of this
Report, neither the Board of Directors of Booth Creek nor Parent had any
committees, including any audit committee. The Company is not an issuer as
defined in the Sarbanes-Oxley Act of 2002 and it does not have a class of
securities listed on any securities exchange. All decisions relating to the
selection, compensation and oversight of the Company's independent auditors are
made by the Company's Board of Directors. The functions of an audit committee
are carried out by the full Board of Directors of the Company. We do not believe
that any of the Company's directors qualifies as an "audit committee financial
expert." As disclosed in this Report, Parent is the Company's sole shareholder,
and the Board of Directors of the Company and Parent are identical. The Board of
Directors of Parent is determined pursuant to the provisions of a stockholders
agreement. See Part III, Item 13. "Certain Relationships and Related
Transactions - Stockholders Agreements."
The Company believes that the members of the Company's Board of Directors
have demonstrated that they are capable of analyzing and evaluating the
Company's financial statements and understanding internal controls and
procedures for financial reporting. In addition, the Company believes that
retaining a director who would qualify as an "audit committee financial expert"
would be costly and burdensome and is not warranted in the circumstances.
Code of Ethics
Effective January 14, 2003, the Company adopted a Code of Business Conduct
and Ethics applicable to its Chief Executive Officer, President and Chief
Operating Officer, Executive Vice President and Chief Financial Officer and Vice
President of Accounting and Finance. A copy of the Code of Business Conduct and
Ethics is incorporated herein by reference as Exhibit 14.1 of this Report.
Item 11. Executive Compensation
Compensation of Executive Officers
The following table sets forth the compensation paid by Booth Creek to (i)
its Chairman of the Board and Chief Executive Officer and (ii) each of the four
most highly compensated executive officers of the Company in fiscal 2003
(collectively, the "Named Executives"), for services rendered in all capacities
to the Company during the periods indicated.
44
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
----------------------- ------------
Other Restricted All
Annual Stock Other
Salary Bonus Comp. Awards Compen-
Name and Principal Position Year ($) ($) ($)(1) ($)(2) sation($)
- --------------------------- --- ------ ------ --------- -------- ---------
George N. Gillett, Jr.... 2003 - - - - -
Chairman of the Board, 2002 - - - - -
Chief Executive Officer 2001 - - - - -
and Director (3)
Christopher P. Ryman..... 2003 400,000 - - - 20,436(4)
President, Chief 2002 335,000 175,000 - - 16,425(5)
Operating Officer and 2001 335,000 167,500 - 11,536 11,026(6)
Assistant Secretary
Elizabeth J. Cole........ 2003 350,000 - - - 18,496(7)
Executive Vice President, 2002 275,000 175,000 - - 14,388(8)
Chief Financial Officer, 2001 275,000 165,000 - 11,536 10,447(9)
Treasurer and Secretary
Timothy H. Beck.......... 2003 210,000 20,000 - - 14,612(10)
Executive Vice 2002 195,000 70,000 - - 12,855(11)
President, Planning 2001 195,000 78,000 - 1,960 8,668(12)
Brian J. Pope............ 2003 210,000 25,000 - - 11,437(13)
Vice President of 2002 185,000 95,000 - - 9,742(14)
Accounting and 2001 185,000 95,000 - 2,800 7,995(15)
Finance, Assistant
Treasurer,
Assistant Secretary
- --------------------------
(1) Each person's other annual compensation is below the threshold required to
be disclosed under the applicable rules of the Securities and Exchange
Commission.
(2) The amounts disclosed in this column reflect the dollar values of
restricted shares granted during fiscal 2001 pursuant to Parent's 2001
Incentive Stock Plan. The total number of restricted shares held by the
Named Executives and their aggregate market value as of October 31, 2003
were as follows: Christopher P. Ryman, 824 shares valued at $11,536;
Elizabeth J. Cole, 824 shares valued at $11,536; Timothy H. Beck, 140
shares valued at $1,960; and Brian J. Pope, 200 shares valued at $2,800.
(3) Mr. Gillett is the sole shareholder, sole director and Chief Executive
Officer of Booth Creek Management Corporation which, pursuant to the
Management Agreement (as defined below), provides the Company with
management services. See Part III, Item 13. "Certain Relationships and
Related Transactions - Management Agreement with Booth Creek Management
Corporation."
(4) Consists of a 401(k) matching contribution of $12,347, term life insurance
premiums of $2,949 and excess disability premiums of $5,140.
(5) Consists of a 401(k) matching contribution of $9,742, term life insurance
premiums of $1,463 and excess disability premiums of $5,220.
(6) Consists of a 401(k) matching contribution of $8,838 and term life
insurance premiums of $2,188.
(7) Consists of a 401(k) matching contribution of $11,898, term life insurance
premiums of $3,615 and excess disability premiums of $2,983.
(8) Consists of a 401(k) matching contribution of $8,427, term life insurance
premiums of $3,615 and excess disability premiums of $2,346.
(9) Consists of a 401(k) matching contribution of $8,352 and term life
insurance premiums of $2,095.
45
(10) Consists of a 401(k) matching contribution of $8,715, term life insurance
premiums of $1,765 and excess disability premiums of $4,132.
(11) Consists of a 401(k) matching contribution of $7,202, term life insurance
premiums of $1,765 and excess disability premiums of $3,888.
(12) Consists of a 401(k) matching contribution of $6,903 and term life
insurance premiums of $1,765.
(13) Consists of a 401(k) matching contribution of $9,534 and excess disability
premiums of $1,903.
(14) Consists of a 401(k) matching contribution of $7,814 and excess disability
premiums of $1,928.
(15) Consists of a 401(k) matching contribution.
Parent 2001 Stock Incentive Plan
Parent has established the Booth Creek Ski Group, Inc. 2001 Stock Incentive
Plan (the "Parent 2001 Stock Incentive Plan"), pursuant to which various forms
of stock awards with respect to a maximum of 2,473 shares of Parent's Class B
Common Stock may be granted. Stock awards may be granted under the Parent 2001
Stock Incentive Plan to employees and independent contractors of Parent and
Parent-controlled businesses, including the Company, at the discretion of the
Board of Directors of Parent.
Under the Parent 2001 Stock Incentive Plan, Parent entered into restricted
stock arrangements with Christopher P. Ryman, Elizabeth J. Cole, Timothy H. Beck
and Brian J. Pope (each a "Holder") which provided for the issuance of 824, 824,
140 and 200 restricted shares, respectively. Each Holder was vested with respect
to 100% of the shares on November 1, 2003. Holders are entitled to receive
dividends on restricted shares to the same extent as holders of unrestricted
shares. Holders are also entitled to deferred compensation from Parent pursuant
to a specified formula, which is paid upon sale of their shares or under certain
other circumstances.
Employment and Other Agreements
Christopher P. Ryman
For the period from May 1, 2000 through October 31, 2003, the Company and
Parent were parties to an employment agreement, as amended and restated, with
Christopher P. Ryman, President and Chief Operating Officer of the Company and
Parent. The employment agreement expired on October 31, 2003. The Company,
Parent and Mr. Ryman are currently negotiating a renewal of his employment
arrangements in substantially similar form to the prior employment agreement.
Pending the renewal of his employment agreement, Mr. Ryman receives materially
the same salary and benefits as provided under the prior employment agreement.
However, there can be no assurance that the Company and Parent will enter into a
new agreement with Mr. Ryman or on similar terms. Outlined below is a summary of
the significant terms and conditions of the prior employment agreement for Mr.
Ryman.
For the fiscal year ended October 31, 2003, Mr. Ryman received a base
salary of $400,000 from the Company, which is subject to annual review and
increase as Mr. Ryman and the Company may agree. The agreement provides that the
Company's Board of Directors will establish reasonable performance incentive
goals for Mr. Ryman for each fiscal year, with a bonus target of 50% of his base
salary if such goals are obtained. Mr. Ryman is also eligible for separate
incentive compensation from Parent. Under the terms of his employment agreement,
Mr. Ryman is eligible to participate in the health, disability and retirement
plans offered to executives of the Company, at participation levels and with
benefits not less favorable than those provided to the plans' respective highest
ranking participants. In addition, Mr. Ryman is entitled to certain supplemental
disability and life insurance benefits. Mr. Ryman and a designee of his choice
are eligible for certain membership benefits in clubs owned or controlled by the
Company or its affiliates, or clubs in which the Company or its affiliates may
have an interest, as further described in the employment agreement. The
employment agreement also provides that the Company shall convey to Mr. Ryman a
single family lot from two alternative sites at the Northstar resort. Further,
the Company and Parent are required to reimburse Mr. Ryman for all reasonable
and necessary expenses incurred by him in the discharge of his duties and have
agreed to indemnify him to the maximum extent permitted by Delaware law. In the
event that the Company requires Mr. Ryman to relocate his residence, the
employment agreement provides that the Company and Mr. Ryman shall agree upon a
reasonable relocation package.
46
In accordance with Mr. Ryman's employment agreement, Parent has issued to
Mr. Ryman 824 shares of its Class B Common Stock in the form of restricted
stock. The restricted stock is subject to a stockholders agreement. See Part
III, Item 13. "Certain Relationships and Related Transactions - Stockholders
Agreements."
Under the terms of his employment agreement, Mr. Ryman's employment may be
terminated upon:
o His death or disability,
o Notice from the Company or Parent for cause (as described in his
agreement),
o Notice from the Company or Parent of termination other than for
cause,
o 60 days' prior notice from Mr. Ryman given within six months from
the date that the CIBC Merchant Fund and John Hancock and their
respective affiliates together own beneficially capital stock of
Parent entitling them to cast less than a majority of the votes
entitled to be cast on any matter upon which a holder of a share
of stock of a Delaware corporation of which only one class of
stock is outstanding would be entitled to vote, treating any
Parent outstanding nonvoting stock that is convertible into
Parent voting stock as if it had been so converted, or
o 30 days' prior notice from Mr. Ryman given within two months of
the date on which his duties and authority having been materially
reduced from those existing on May 1, 2000, unless such duties
and authority are restored within a 30 day period.
In the event Mr. Ryman's employment shall be terminated pursuant to the
last three items described above, the Company will provide Mr. Ryman with a
payment equal to one and one-half times his base salary, and provide
continuation of insurance benefits until the earlier of (a) 18 months, or (b)
the date on which Mr. Ryman becomes eligible for comparable health, disability
and life insurance benefits from new employment. During the term of his
employment and for certain specified periods thereafter, Mr. Ryman will be
subject to provisions prohibiting (1) his competition with the Company and
Parent, (2) solicitation of certain of Parent or Company management personnel,
(3) diversion of Parent or Company vendors, customers or others doing business
with Parent or the Company, and (4) disparaging Parent, the Company or any of
their personnel or revealing any information that might impair the reputation or
goodwill of Parent, the Company or their personnel. Mr. Ryman's employment
agreement also contains provisions relating to non-disclosure of certain
confidential information of Parent and the Company (as described in the
agreement).
Elizabeth J. Cole
For the period from May 1, 2000 through October 31, 2003, the Company and
Parent were parties to an employment agreement, as amended and restated, with
Elizabeth J. Cole, Executive Vice President and Chief Financial Officer of the
Company and Parent. The employment agreement expired on October 31, 2003. The
Company, Parent and Ms. Cole are currently negotiating a renewal of her
employment arrangements in substantially similar form to the prior employment
agreement. Pending the renewal of her employment agreement, Ms. Cole receives
materially the same salary and benefits as provided under the prior employment
agreement. However, there can be no assurance that the Company and Parent will
enter into a new agreement with Ms. Cole or on similar terms. Outlined below is
a summary of the significant terms and conditions of the prior employment
agreement for Ms. Cole.
For the fiscal year ended October 31, 2003, Ms. Cole received a base salary
of $350,000 from the Company, which is subject to annual review and increase as
Ms. Cole and the Company may agree. The agreement provides that the Company's
Board of Directors will establish reasonable performance incentive goals for Ms.
Cole for each fiscal year, with a bonus target of 50% of her base salary if such
goals are obtained. Ms. Cole is also eligible for separate incentive
compensation from Parent. Under the terms of her employment agreement, Ms. Cole
is eligible to participate in the health, disability and retirement plans
offered to executives of the Company, at participation levels and with benefits
not less favorable than those provided to the plans' respective highest ranking
participants. In addition, Ms. Cole is entitled to certain supplemental
disability and life insurance benefits. Ms. Cole and a designee of her choice
are eligible for certain membership benefits in clubs owned or controlled by the
Company or its affiliates, or clubs in which the Company or its affiliates may
have an interest, as further described in the employment agreement. The
employment agreement also provides that the Company shall convey to Ms. Cole a
single family lot from two alternative sites at the Northstar resort. Further,
the Company and Parent reimburse Ms. Cole for all reasonable and necessary
expenses incurred by her in the discharge of her duties and have agreed to
indemnify her to the maximum extent permitted by Delaware law. In the event that
the Company requires Ms. Cole to relocate her residence, the employment
agreement provides that the Company and Ms. Cole shall agree upon a reasonable
relocation package.
47
In accordance with Ms. Cole's employment agreement, Parent has issued to
Ms. Cole 824 shares of its Class B Common Stock in the form of restricted stock.
The restricted stock is subject to a stockholders agreement. See Part III, Item
13. "Certain Relationships and Related Transactions - Stockholders Agreements."
Under the terms of her employment agreement, Ms. Cole's employment may be
terminated upon:
o Her death or disability,
o Notice from the Company or Parent for cause (as described in her
agreement),
o Notice from the Company or Parent of termination other than for
cause,
o 60 days' prior notice from Ms. Cole given within six months from
the date that the CIBC Merchant Fund and John Hancock and their
respective affiliates together own beneficially capital stock of
Parent entitling them to cast less than a majority of the votes
entitled to be cast on any matter upon which a holder of a share
of stock of a Delaware corporation of which only one class of
stock is outstanding would be entitled to vote, treating any
Parent outstanding nonvoting stock that is convertible into
Parent voting stock as if it had been so converted, or
o 30 days' prior notice from Ms. Cole given within two months of
the date on which her duties and authority having been materially
reduced from those existing on May 1, 2000, unless such duties
and authority are restored within a 30 day period.
In the event Ms. Cole's employment shall be terminated pursuant to the last
three items described above, the Company will provide Ms. Cole with a payment
equal to one and one-half times her base salary, and provide continuation of
insurance benefits until the earlier of (a) 18 months, or (b) Ms. Cole becomes
eligible for comparable health, disability and life insurance benefits from new
employment. During the term of her employment and for certain specified periods
thereafter, Ms. Cole will be subject to provisions prohibiting (1) her
competition with the Company or Parent, (2) solicitation of certain of Parent or
Company management personnel, (3) diversion of Parent or Company vendors,
customers or others doing business with Parent or the Company, and (4)
disparaging Parent, the Company or any of their personnel or revealing any
information that might impair the reputation or goodwill of Parent, the Company
and their personnel. Ms. Cole's employment agreement also contains provisions
relating to non-disclosure of certain confidential information of Parent and the
Company (as described in the agreement).
Timothy H. Beck
For the period from July 1, 1997 through October 31, 2003, the Company was
a party to an employment agreement, as amended, with Timothy H. Beck, Executive
Vice President, Planning of the Company. The employment agreement expired on
October 31, 2003. The Company and Mr. Beck are currently negotiating a renewal
of his employment arrangements in substantially similar form to the prior
employment agreement. Pending the renewal of his employment agreement, Mr. Beck
receives materially the same salary and benefits as provided under the prior
employment agreement. However, there can be no assurance that the Company will
enter into a new agreement with Mr. Beck or on similar terms. Outlined below is
a summary of the significant terms and conditions of the prior employment
agreement for Mr. Beck.
For the fiscal year ended October 31, 2003, Mr. Beck received a base salary
of $210,000, which is subject to annual review and discretionary increase by the
Company. Mr. Beck will also be entitled to receive an annual incentive bonus of
up to 50% of his base salary based upon the Company's attainment of certain
targeted financial, business and personal goals. Under the terms of his
employment agreement, Mr. Beck is entitled to four weeks paid vacation per year
and is eligible to participate in the health, disability, retirement, profit
sharing, equity award and savings plans offered to other executives of the
Company. The employment agreement also provides Mr. Beck with the right to
purchase a single family lot at the Company's basis from two alternative sites
at the Northstar resort. In addition, pursuant to his agreement, the Company
provides Mr. Beck with a $1,000,000 term life insurance policy, reimburses him
for all reasonable and necessary expenses incurred by him in the discharge of
his duties and indemnifies him to the maximum extent permitted by Delaware law.
In the event that the Company requires Mr. Beck to relocate his residence to the
community in which the Company's executive offices are located (as described in
his agreement), the Company shall reimburse Mr. Beck for certain costs related
to such relocation.
48
Under the terms of his employment agreement, Mr. Beck's employment may be
terminated by the Company at any time, with or without cause, or upon his death,
disability or resignation. In the event Mr. Beck's employment is terminated
"without cause", by Mr. Beck for "good reason" or in the event of a "change in
control" (each as described in his agreement), the Company will provide Mr. Beck
with salary continuation and continuation of health and disability insurance
coverage for a period of 18 months or until such time as Mr. Beck is eligible
for comparable benefits from another entity, whichever date is sooner. During
the term of his employment and for certain specified periods thereafter, Mr.
Beck will be subject to provisions prohibiting (1) his competition with the
Company or Parent, (2) solicitation of certain of Parent or Company management
personnel, (3) diversion of Parent or Company vendors, customers or others doing
business with Parent or the Company, and (4) disparaging Parent, the Company or
any of their personnel or revealing any information that might impair the
reputation or goodwill of Parent, the Company and their personnel. Mr. Beck's
employment agreement also contains provisions relating to non-disclosure of
certain confidential information of Parent and the Company (as described in his
agreement).
Brian J. Pope
Through October 31, 2003, the Company, Parent and Mr. Pope were parties to
a severance agreement that provided for the payment to Mr. Pope of severance pay
equal to 12 months' salary if his employment was terminated without cause. The
severance agreement expired on October 31, 2003. The Company, Parent and Mr.
Pope are currently negotiating a renewal of the severance arrangement in
substantially similar form to the existing agreement. However, there can be no
assurance that the Company and Parent will enter into a new agreement with Mr.
Pope or on similar terms.
Compensation of Directors
No director of Booth Creek or Parent receives compensation for acting in
such capacity.
Compensation Committee Interlocks and Insider Participation
The Company's compensation policies are determined and executive officer
compensation decisions are made by the Board of Directors, which currently
consists of George N. Gillett, Jr., Gary M. Pelletier, Scott A. McFetridge, Dean
C. Kehler and Edward Levy. Mr. Gillett is the Chief Executive Officer of the
Company and is the sole shareholder, sole director and Chief Executive Officer
of Booth Creek Management Corporation, which provides the Company with
management services. See Part III, Item 13. "Certain Relationships and Related
Transactions."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Company is a wholly-owned subsidiary of Parent. The following table
sets forth information concerning the beneficial ownership of Parent's Common
Stock (including Class A Common Stock and Class B Common Stock) as of December
31, 2003 by (i) each person known to the Company to own beneficially more than
5% of the outstanding Common Stock of Parent, (ii) by each director and Named
Executive of the Company and (iii) all directors and executive officers of the
Company as a group. Each share of Parent's Class B Common Stock is non-voting
(except with respect to certain amendments to the certificate of incorporation
and bylaws of Parent and as otherwise required by the General Corporation Law of
the State of Delaware) and is convertible into one share of voting Class A
Common Stock of Parent at any time, subject to applicable regulatory approvals.
All shares are owned with sole voting and investment power, unless otherwise
indicated.
The percentages of beneficial ownership in the accompanying table
represents the relative interests assuming that only such individual holder's
respective Class B Common Stock or Warrants were converted with respect to the
existing number of outstanding Class A or Class B shares.
49
Parent's Class A Parent's Class B
Common Stock Common Stock
Beneficially Owned Beneficially Owned
---------------------- ----------------------
Beneficial Owner Shares % Shares %
- ------------------------------------- ------------- -------- ------------- --------
Booth Creek Partners Limited II,
L.L.L.P............................... 825.70 (1) 100% 182.90 (2) 2%
6755 Granite Creek Road
Teton Village, Wyoming 83025
John Hancock Life Insurance
Company............................... 9,160.21 (3) 93% 9,160.21 (3) 65%
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
CIBC WG Argosy Merchant Fund 2, L.L.C... 3,147.36 (4) 83% 3,147.36 (4) 26%
425 Lexington Avenue, 3rd Floor
New York, New York 10017
George N. Gillett, Jr................... 825.70 (5) 100% 182.90 (5) 2%
Chairman of the Board of the Company
Rose Gillett............................ 825.70 (5) 100% 182.90 (5) 2%
6755 Granite Creek Road
Teton Village, Wyoming 83025
Jeffrey J. Joyce........................ 96.42 (6) 15% - -
3330 Cumberland Blvd., Suite 500
Atlanta, Georgia 30339
Hancock Mezzanine Partners L.P.......... 529.03 (7) 45% 529.03 (7) 5%
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
Co-Investment Merchant Fund, LLC........ 349.70 (8) 35% 349.70 (8) 3%
425 Lexington Ave., 3rd Floor
New York, New York 10017
Gary M. Pelletier....................... 9,689.24 (9) 94% 9,689.24 (9) 68%
Director of the Company and Parent
Scott A. McFetridge..................... 9,689.24 (10) 94% 9,689.24 (10) 68%
Director of the Company and Parent
Dean C. Kehler.......................... 3,497.06 (11) 84% 3,497.06 (11) 29%
Director of the Company and Parent
Edward Levy............................. 3,497.06 (12) 84% 3,497.06 (12) 29%
Director of the Company and Parent
Christopher P. Ryman.................... 824.00 (13) 56% 824.00 (13) 7%
President, Chief Operating Officer
and Assistant Secretary of the
Company; President and Assistant
Secretary of Parent
Elizabeth J. Cole....................... 824.00 (14) 56% 824.00 (14) 7%
Executive Vice President, Chief
Financial Officer, Treasurer and
Assistant Secretary of the Company
and Parent
Timothy H. Beck......................... 140.00 (15) 18% 140.00 (15) 1%
Executive Vice President, Planning
of the Company
Brian J. Pope........................... 200.00 (16) 24% 200.00 (16) 2%
Vice President of Accounting and
Finance, Assistant Treasurer and
Assistant Secretary of the Company;
Vice President and Assistant
Secretary of Parent
Total Executive Officers and
Directors as a Group.................. 16,000.00 (17) 100% - -
- ---------------------
(1) Comprised of 642.80 shares of Class A Common Stock of Parent and Warrants
to purchase 182.90 shares of Class B Common Stock of Parent. Each share of
Parent's Class B Common Stock is convertible into one share of Class A
50
Common Stock of Parent at any time, subject to applicable regulatory
approvals. Each Warrant may be exercised for one share of Parent's Class B
Common Stock at an exercise price of $.01 per share.
(2) Represents Warrants to purchase 182.90 shares of Class B Common Stock of
Parent.
(3) Comprised of 6,268.31 shares of Class B Common Stock of Parent and Warrants
to purchase 2,891.90 shares of Class B Common Stock of Parent. Each share
of Parent's Class B Common Stock is convertible into one share of Class A
Common Stock of Parent at any time, subject to applicable regulatory
approvals. Each Warrant may be exercised for one share of Parent's Class B
Common Stock at an exercise price of $.01 per share.
(4) Comprised of 2,227.92 shares of Class B Common Stock of Parent and Warrants
to purchase 919.44 shares of Class B Common Stock of Parent. Each share of
Parent's Class B Common Stock is convertible into one share of Class A
Common Stock of Parent at any time, subject to applicable regulatory
approvals. Each Warrant may be exercised for one share of Parent's Class B
Common Stock at an exercise price of $.01 per share.
(5) Booth Creek Partners Limited II, L.L.L.P. owns directly 642.80 shares of
Class A Common Stock of Parent and Warrants to purchase 182.90 shares of
Class B Common Stock of Parent. Each share of Parent's Class B Common Stock
is convertible into one share of Class A Common Stock of Parent at any
time, subject to applicable regulatory approvals. Each Warrant may be
exercised for one share of Parent's Class B Common Stock at an exercise
price of $.01 per share. George N. Gillett, Jr. is the managing general
partner and Rose Gillett is a co-general partner of Booth Creek Partners
Limited II, L.L.L.P. and each may be deemed to possess shared voting and/or
investment power with respect to the interests held therein. Accordingly,
the beneficial ownership of such interests may be attributed to George N.
Gillett, Jr. and Rose Gillett. Rose Gillett is the wife of George N.
Gillett, Jr.
(6) Represents shares of Class A Common Stock of Parent that Mr. Joyce has an
option to purchase from Booth Creek Partners Limited II, L.L.L.P. (the
"Option") pursuant to that certain Option Letter Agreement dated December
3, 1996, as amended. The Option is exercisable, in whole or in part, at any
time on or prior to December 1, 2006 at an initial exercise price equal to
$2,066.12 per share, which exercise price shall increase by $55.10 on each
December 1. The shares subject to the Option and the per share exercise
price are subject to adjustment under certain circumstances, and the
obligation of Booth Creek Partners Limited II, L.L.L.P. to sell shares of
Class A Common Stock of Parent upon exercise of the Option is subject to
compliance with applicable securities laws.
(7) Comprised of 364.73 shares of Class B Common Stock of Parent and Warrants
to purchase 164.30 shares of Class B Common Stock of Parent. Each share of
Parent's Class B Common Stock is convertible into one share of Class A
Common Stock of Parent at any time, subject to applicable regulatory
approvals. Each Warrant may be exercised for one share of Parent's Class B
Common Stock at an exercise price of $.01 per share.
(8) Comprised of 247.54 shares of Class B Common Stock of Parent and Warrants
to purchase 102.16 shares of Class B Common Stock of Parent. Each share of
Parent's Class B Common Stock is convertible into one share of Class A
Common Stock of Parent at any time, subject to applicable regulatory
approvals. Each Warrant may be exercised for one share of Parent's Class B
Common Stock at an exercise price of $.01 per share.
(9) Represents an aggregate of 6,633.04 shares of Class B Common Stock of
Parent and Warrants to purchase 3,056.20 shares of Class B Common Stock of
Parent held of record by John Hancock and Hancock Mezzanine Partners L.P.
(the "Hancock Entities"). Each share of Parent's Class B Common Stock is
convertible into one share of Class A Common Stock of Parent at any time,
subject to applicable regulatory approvals. Each Warrant may be exercised
for one share of Parent's Class B Common Stock at an exercise price of $.01
per share. Mr. Pelletier disclaims beneficial ownership of the securities
held by the Hancock Entities.
(10) Represents an aggregate of 6,633.04 shares of Class B Common Stock of
Parent and Warrants to purchase 3,056.20 shares of Class B Common Stock of
Parent held of record by the Hancock Entities. Each share of Parent's Class
B Common Stock is convertible into one share of Class A Common Stock of
Parent at any time, subject to applicable regulatory approvals. Each
Warrant may be exercised for one share of Parent's Class B Common Stock at
an exercise price of $.01 per share. Mr. McFetridge disclaims beneficial
ownership of the securities held by the Hancock Entities.
51
(11) Represents an aggregate of 2,475.46 shares of Class B Common Stock of
Parent and Warrants to purchase 1,021.60 shares of Class B Common Stock of
Parent held of record by CIBC WG Argosy Merchant Fund 2, L.L.C. and
Co-Investment Merchant Fund, L.L.C. (the "CIBC Entities"). Each share of
Parent's Class B Common Stock is convertible into one share of Class A
Common Stock of Parent at any time, subject to applicable regulatory
approvals. Each Warrant may be exercised for one share of Parent's Class B
Common Stock at an exercise price of $.01 per share. Mr. Kehler disclaims
beneficial ownership of the securities held by the CIBC Entities.
(12) Represents an aggregate of 2,475.46 shares of Class B Common Stock of
Parent and Warrants to purchase 1,021.60 shares of Class B Common Stock of
Parent held of record by the CIBC Entities. Each share of Parent's Class B
Common Stock is convertible into one share of Class A Common Stock of
Parent at any time, subject to applicable regulatory approvals. Each
Warrant may be exercised for one share of Parent's Class B Common Stock at
an exercise price of $.01 per share. Mr. Levy disclaims beneficial
ownership of the securities held by the CIBC Entities.
(13) Represents 824.00 shares of restricted Class B Common Stock of Parent held
by Mr. Ryman pursuant to his employment agreement. See Part III, Item II.
"Executive Compensation - Employment and Other Agreements." Each share of
Parent's Class B Common Stock is convertible into one share of Class A
Common Stock of Parent at any time, subject to applicable regulatory
approvals.
(14) Represents 824.00 shares of restricted Class B Common Stock of Parent held
by Ms. Cole pursuant to her employment agreement. See Part III, Item II.
"Executive Compensation - Employment and Other Agreements." Each share of
Parent's Class B Common Stock is convertible into one share of Class A
Common Stock of Parent at any time, subject to applicable regulatory
approvals.
(15) Represents 140.00 shares of restricted Class B Common Stock of Parent held
by Mr. Beck pursuant to that certain restricted stock agreement by and
between Parent and Mr. Beck. See Part III, Item 11. "Executive Compensation
- Parent 2001 Stock Incentive Plan." Each share of Parent's Class B Common
Stock is convertible into one share of Class A Common Stock of Parent at
anytime, subject to applicable regulatory approvals.
(16) Represents 200.00 shares of restricted Class B Common Stock of Parent held
by Mr. Pope pursuant to that certain restricted stock agreement by and
between Parent and Mr. Pope. See Part III, Item 11. "Executive Compensation
- Parent 2001 Stock Incentive Plan." Each share of Parent's Class B Common
Stock is convertible into one share of Class A Common Stock of Parent at
anytime, subject to applicable regulatory approvals.
(17) Represents (i) 642.80 shares of Class A Common Stock of Parent and Warrants
to purchase 182.90 shares of Class B Common Stock of Parent owned by Booth
Creek Partners Limited II, L.L.L.P., of which George N. Gillett, Jr. may be
deemed to be the beneficial owner, (ii) 6,633.04 shares of Class B Common
Stock of Parent and Warrants to purchase 3,056.20 shares of Class B Common
Stock of Parent owned by the Hancock Entities, of which Gary M. Pelletier
and Scott A. McFetridge may be deemed to be the beneficial owners as
described in notes (9) and (10) above, (iii) 2,475.46 shares of Class B
Common Stock of Parent and Warrants to purchase 1,021.60 shares of Class B
Common Stock of Parent owned by the CIBC Entities, of which each of Dean C.
Kehler and Edward Levy may be deemed to be the beneficial owners as
described in notes (11) and (12) above, (iv) 824.00 shares of Class B
Common Stock of Parent held by Christopher P. Ryman as described in note
(13) above, (v) 824.00 shares of Class B Common Stock of Parent held by
Elizabeth J. Cole as described in note (14) above, (vi) 140.00 shares of
Class B Common Stock of Parent held by Timothy H. Beck as described in note
(15) above, and (vii) 200.00 shares of Class B Common Stock of Parent held
by Brian J. Pope as described in note (16) above.
52
Item 13. Certain Relationships and Related Transactions
Securities Purchase Agreements
Since its formation in October 1996, the Company and Parent have each
engaged in a series of transactions with the principal security holders of
Parent for the purpose of raising capital to finance the acquisitions of the
Company's resorts and for general corporate purposes. In connection with these
transactions, the principal security holders of Parent (comprised of Booth Creek
Partners Limited II, L.L.L.P., the Hancock Entities and the CIBC Entities) and
Parent have entered into Securities Purchase Agreements dated November 27, 1996,
as amended and restated on February 26, 1998, September 14, 1998 and May 28,
2000 (the "Securities Purchase Agreements"). Pursuant to the Securities Purchase
Agreements, Parent has issued shares of Class A and Class B Common Stock,
warrants to purchase Class B Common Stock (the "Warrants") and Parent Notes. The
Parent Notes mature on November 27, 2008 and bear interest at 12% per annum, if
paid in cash, or 14% per annum, if paid in kind, payable semi-annually on each
May 27 and November 27. George N. Gillett, Jr. and his affiliates own 100% of
the outstanding Class A Common Stock. A copy of the Securities Purchase
Agreement dated as of May 28, 2000 is incorporated herein by reference as
Exhibit 4.6 of this Report.
The Securities Purchase Agreements, which govern the Parent Notes, contain
restrictive covenants pertaining to the management and operation of Parent and
its subsidiaries, including the Company. The covenants include, among others,
significant limitations on funded debt and current debt, dividends and other
stock payments, redemption, retirement, purchase or acquisition of equity
interests in Parent and its subsidiaries, transactions with affiliates,
investments, liens, issuances of stock, asset sales, acquisitions, mergers,
fundamental corporate changes, tax consolidation, modifications of certain
documents and leases. The Securities Purchase Agreements further required that
all of the issued and outstanding common stock of the Company be pledged to
secure the Parent Notes, and provide that Parent shall cause the Company to pay
cash dividends to Parent in the maximum amount permitted by law, subject to
restrictions contained in the Company's debt agreements, in order to satisfy
Parent's interest payment obligations under the Parent Notes.
The Securities Purchase Agreements provide for events of default customary
in agreements of this type, including: (i) failure to make payments when due;
(ii) breach of covenants; (iii) bankruptcy defaults; (iv) breach of
representations or warranties in any material respect when made; (v) default by
Parent or any of its subsidiaries under any agreement relating to debt for
borrowed money in excess of $1.0 million in the aggregate; (vi) final judgments
for the payment of money against Parent or any of its subsidiaries in excess of
$1.0 million in the aggregate; (vii) ERISA defaults; (viii) any operative
document ceasing to be in full force and effect; (ix) any enforcement of liens
against Parent or any of its subsidiaries; and (x) a change of control of
Parent.
The Warrants are exercisable, subject to certain conditions, at a per share
price of $0.01 (as adjusted by certain anti-dilution provisions) at any time
prior to November 27, 2008, on which date all unexercised Warrants will be
deemed automatically exercised.
The Securities Purchase Agreements provide that the holders of at least 85%
of the Purchased Common Shares (as defined in the Securities Purchase
Agreements) and shares issuable upon exercise of the Warrants will each be
entitled to require Parent to register their shares under the Securities Act for
resale to the public. The holders of Registrable Shares (as defined in the
Securities Purchase Agreements) are also entitled to certain piggyback and other
registration rights, subject in all cases to certain qualifications.
Stockholders Agreements
In connection with the Securities Purchase Agreements described above,
Parent, Booth Creek Partners Limited II, L.L.L.P., John Hancock, Hancock
Mezzanine Partners L.P., the CIBC Merchant Fund and Co-Investment Fund have
entered into the Stockholders Agreement dated November 27, 1996, as amended and
restated on February 26, 1998, August 5, 1998 and May 28, 2000 (the
"Stockholders Agreement"). A copy of the Stockholders Agreement dated as of May
28, 2000 is incorporated herein by reference as a component of Exhibit 4.6 of
this Report.
53
Pursuant to the Stockholders Agreement, the Board of Directors of Parent
shall consist of three individuals selected by Booth Creek Partners Limited II,
L.L.L.P. and two individuals designated by John Hancock. The Board of Directors
of Parent and the Company currently consists of George N. Gillett, Jr., Dean C.
Kehler, Edward Levy, Gary M. Pelletier and Scott A. McFetridge. See Part III,
Item 10. "Directors and Executive Officers of the Registrant - Board of
Directors." Without the consent of owners of 75% or more of Parent's equity
securities (the "Required Owners"), neither Parent nor any subsidiary of Parent,
including the Company, may issue any equity securities except for certain
enumerated permitted issuances. With respect to issuance of equity securities of
Parent requiring the approval of the Required Owners, the Required Owners also
are entitled to certain preemptive rights. In addition, the Stockholders
Agreement provides that neither Parent nor any of its subsidiaries, including
the Company, may acquire any assets or business from any other person (other
than inventory and equipment in the ordinary course of business), or sell or
otherwise dispose of all or substantially all of the assets of any resort or the
stock of any subsidiary, without the consent of the Required Owners.
The Stockholders Agreement requires that, under certain circumstances,
Parent grant to Booth Creek Partners Limited II, L.L.L.P. registration rights
with respect to its equity securities which are in all material respects the
same as those provided to the Institutional Investors (as defined) under the
Securities Purchase Agreements.
In addition to the foregoing, the Stockholders Agreement gives each party
thereto certain co-sale rights and rights of first offer upon the sale or other
transfer of any equity securities of Parent by any other party, and requires
that, as a condition to the issuance or transfer of any equity securities of
Parent to any third party (other than a person who acquires such securities
pursuant to an effective registration statement under the Securities Act) that
such person become a party to the Stockholders Agreement and agree to be bound
by all the terms and conditions thereof.
The Stockholders Agreement shall terminate, and be of no force or effect,
upon the consummation of a Qualified Public Offering (as defined in the
Stockholders Agreement). The Stockholders Agreement may be amended, superseded
or otherwise modified, and its terms may be waived, by the Required Owners,
subject to certain limited exceptions.
In connection with the issuance of restricted stock to Christopher P.
Ryman, Elizabeth J. Cole, Timothy H. Beck and Brian J. Pope, these individuals
entered into a separate stockholders agreement with the Institutional Investors,
which generally provides for certain co-sale and registration rights for the
executives and drag-along rights for the Institutional Investors. See Part III,
Item 11. "Executive Compensation - Parent 2001 Stock Incentive Plan."
Sales of Real Estate to Trimont Land Holdings, Inc. and Related Transactions
On November 17, 1999, Trimont Land Company ("TLC"), the owner and operator
of Northstar and a wholly-owned subsidiary of the Company, consummated the sale
of certain single family development property underlying a portion of the Unit 7
and 7A developments at Northstar to Trimont Land Holdings, Inc. ("TLH"), a
wholly-owned subsidiary of Parent and an affiliate of the Company, for an
aggregate sales price of $7,050,000, subject to adjustment as described below.
The consideration paid to TLC consisted of $6,000,000 in cash and a promissory
note (the "Unit 7 Note") for $l,050,000, subject to adjustment. The Company
obtained a fairness opinion for the transaction from an independent firm
qualified in the subject matter of the transaction. In connection with the sale
of development real estate on September 22, 2000 as described below, TLH's
interests in the Unit 7A lots were transferred back to TLC on September 22,
2000.
Under the terms of the Unit 7 Note, TLC was entitled to receive the greater
of (a) $1,050,000 plus accrued interest at 7% per annum, or (b) the Net Cash
Proceeds (as defined) derived from the resale of TLH's lots within Unit 7.
Pursuant to the terms of the sale, TLC retained the obligation to complete the
scheduled construction of the Unit 7 development, which was substantially
completed in November 2001. The Company recognized revenue and related costs of
sales for these real estate transactions upon the close of escrow for lot sales
between TLH and third party buyers, and had reflected the $6,000,000 in cash
received as a deposit liability as of November 2, 2001.
During the fiscal year ended November 1, 2002, TLH consummated the sale of
25 Unit 7 lots for net proceeds of approximately $11,300,000. During the fiscal
year ended October 31, 2003, TLH consummated the sale of the final lot within
Unit 7 for net proceeds of $646,000. As the net proceeds of the 26 lot sales
were more than the $6,000,000 in cash initially paid by TLH for the underlying
real estate, additional cash proceeds of $5,300,000 and $646,000 were
distributed to TLC during the fiscal years ended November 1, 2002 and October
31, 2003, respectively. In addition, the Company relieved the existing
$6,000,000 deposit liability during the fiscal year ended November 1, 2002.
54
On September 22, 2000, TLC and TLH entered into an Agreement for Purchase
and Sale of Real Property (the "Northstar Real Estate Agreement") pursuant to
which TLC agreed to sell to TLH certain development real estate consisting of
approximately 550 acres of land located at Northstar (the "Development Real
Estate") for a total purchase price of $27,600,000, of which 85% was payable in
cash and 15% was payable in the form of convertible secured subordinated
promissory notes. The purchase price was based on an appraisal obtained from an
independent third party appraiser. Concurrently therewith, TLC and TLH
consummated the sale of the initial land parcels contemplated by the Northstar
Real Estate Agreement, and TLC transferred the bulk of the Development Real
Estate to TLH for a total purchase price of $21,000,000, of which $17,850,000,
or 85%, was paid in cash and $3,150,000, or 15%, was paid in the form of a
convertible secured subordinated promissory note (the "Convertible Secured
Note"). The Convertible Secured Note is subordinated to other indebtedness of
TLH, including amounts owed to John Hancock, an affiliate of the Company.
The Convertible Secured Note requires quarterly interest payments at the
rate of 10% per annum if paid in cash, or 12% if paid in kind, and is due in
full in September 2005. The Convertible Secured Note is secured by TLH's
membership interest in a real estate joint venture (the "East West Joint
Venture") to which TLH is a party. The Convertible Secured Note is convertible
at TLC's option into 15% of TLH's membership interest in the East West Joint
Venture, which enables TLC to obtain, at TLC's option, a profit participation in
the Development Real Estate. The Company obtained an opinion from an independent
firm qualified and experienced in the subject matter of the transaction that the
terms of the sale of the Development Real Estate were fair and reasonable to the
Company and TLC and at least as favorable as the terms which could have been
obtained in a comparable transaction made on an arms-length basis between
unaffiliated parties.
During the fiscal year ended November 1, 2002, TLH paid $5,610,000 to TLC,
which represents the cash portion of the purchase price for the remaining
Development Real Estate subject to the Northstar Real Estate Agreement. The
$5,610,000 payment has been deferred as a deposit liability as of October 31,
2003 and November 1, 2002 pending the consummation of the sale of the remaining
Development Real Estate under the Northstar Real Estate Agreement. In December
2003, TLC transferred the remaining Development Real Estate to TLH, which is
expected to be recognized as real estate revenue in the Company's first fiscal
quarter of 2004.
Management Agreement with Booth Creek Management Corporation
On May 26, 2000, the Company and Parent entered into an Amended and
Restated Management Agreement (the "Management Agreement") with Booth Creek
Management Corporation (the "Management Company") pursuant to which the
Management Company agreed to provide Parent, Booth Creek and its subsidiaries
with management advice with respect to, among other things, (i) formulation and
implementation of financial, marketing and operating strategies, (ii)
development of business plans and policies, (iii) corporate finance matters,
including acquisitions, divestitures, debt and equity financings and capital
expenditures, (iv) administrative and operating matters, including unified
management of the Company's ski resorts, (v) research, marketing and promotion,
and (vi) other general business matters. George N. Gillett, Jr. is the sole
shareholder, sole director and Chief Executive Officer of the Management
Company. A copy of the Management Agreement has been filed as Exhibit 10.13 to
this Report and is incorporated by reference herein.
Under the terms of the Management Agreement, Parent and the Company provide
customary indemnification, reimburse certain costs and pay the Management
Company an annual management fee of $100,000, plus a discretionary operating
bonus. No operating bonus was paid for the fiscal year ended October 31, 2003.
To the fullest extent permitted by law, with certain limitations, the
Management Company and any officer, director, employee, agent or attorney of the
Management Company (collectively, the "Indemnities") shall not have any
liability to Parent, Booth Creek or any of their subsidiaries for any loss,
damage, cost or expense (including, without limitation, any court costs,
attorneys' fees and any special, indirect, consequential or punitive damages)
allegedly arising out of the Management Company's management services rendered
to the Parent, Booth Creek or any of their subsidiaries or Indemnities' acts,
conduct or omissions in connection with the Management Company's management
services rendered to Booth Creek or any of their subsidiaries.
55
In addition, to the fullest extent permitted by law, each of Parent and
Booth Creek indemnifies the Indemnitees and holds the Indemnitees harmless
against any loss, damage, cost or expense (including, without limitation, court
costs and reasonable attorneys' fees) which the Indemnitees may sustain or incur
by reason of any threatened, pending or completed investigation, action, claim,
demand, suit, proceeding or recovery by any person (other than the Indemnitees)
allegedly arising out of the Management Company's management services rendered
to the Parent, Booth Creek or any of their subsidiaries or the Indemnitees'
acts, conduct or omissions in connection with the Management Company's
management services rendered to the Parent, Booth Creek or any of their
subsidiaries.
Item 14. Principal Accounting Fees and Services
Audit Fees. Fees for audit services totaled $184,500 and $205,588 for the
fiscal years ended October 31, 2003 and November 1, 2002, respectively, which
included fees associated with the annual audit and reviews of the Company's
quarterly reports on Form 10-Q.
Audit-Related Fees. Fees for audit-related services totaled $10,000 and
$12,000 for the fiscal years ended October 31, 2003 and November 1, 2002,
respectively, and related to the audit of the Company's 401(k) plan.
Tax Fees. Fees for tax compliance and advisory services were $9,425 and
$6,750 for the fiscal years ended October 31, 2003 and November 1, 2002,
respectively.
There were no other fees incurred by the Company during the fiscal years
ended October 31, 2003 and November 1, 2002. The Company's Board of Directors
appoints the independent auditors and pre-approves the fee arrangements with
respect to the annual audit, quarterly reviews of the Company's Form 10-Q
filings, audit of the Company's 401(k) plan and tax compliance services and
other services as required.
56
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) List of Documents Filed as Part of This Report:
1. Financial Statements:
The financial statements listed on page F-1 are filed as part of
this Report.
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable, not
required or the information is included elsewhere in the
consolidated financial statements or notes thereto.
3. List of Exhibits:
+2.1 Agreement and Plan of Merger dated as of September 18, 1997
by and among Booth Creek Ski Group, Inc., LMRC Acquisition
Corp. and Loon Mountain Recreation Corporation.
+2.2 First Amendment to Merger Agreement, dated December 22,
1997, by and among Booth Creek Ski Group, Inc., LMRC
Acquisition Corp. and Loon Mountain Recreation Corporation.
*3.1 Certificate of Incorporation of Booth Creek Ski Holdings,
Inc.
*3.2 Bylaws of Booth Creek Ski Holdings, Inc.
*3.3 Restated Articles of Incorporation of Trimont Land Company.
*3.4 Bylaws of Trimont Land Company.
*3.5 Certificate of Incorporation of Sierra-at-Tahoe, Inc.
*3.6 Bylaws of Sierra-at-Tahoe, Inc.
*3.7 Certificate of Incorporation of Booth Creek Ski Acquisition
Corp.
*3.8 Bylaws of Booth Creek Ski Acquisition Corp.
*3.9 Amended and Restated Certificate of Incorporation of
Waterville Valley Ski Resort, Inc.
*3.10 Bylaws of Waterville Valley Ski Resort, Inc.
*3.11 Amended and Restated Certificate of Incorporation of Mount
Cranmore Ski Resort, Inc.
*3.12 Bylaws of Mount Cranmore Ski Resort, Inc.
*3.13 Amended and Restated Articles of Incorporation of Ski Lifts,
Inc.
*3.14 Bylaws of Ski Lifts, Inc.
**3.15 Articles of Incorporation of LMRC Holding Corp.
**3.16 Amended and Restated Articles of Incorporation of Loon
Mountain Recreation Corporation.
**3.17 Amended and Restated Bylaws of Loon Mountain Recreation
Corporation.
57
**3.18 Amended and Restated Articles of Incorporation of Loon
Realty Corp.
**3.19 Amended and Restated Bylaws of Loon Realty Corp.
**3.20 Bylaws of LMRC Holding Corp.
*4.1 Indenture dated as of March 18, 1997 by and among Booth
Creek Ski Holdings, Inc., as Issuer, Trimont Land Company,
Sierra-at-Tahoe, Inc., Waterville Valley Ski Resort, Inc.,
Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition
Corp. and Ski Lifts, Inc., as Subsidiary Guarantors, and
HSBC Bank USA, as Trustee (including the form of 12.5%
Senior Note due 2007 and the form of Guarantee).
*4.2 Supplemental Indenture No. 1 to Indenture dated as of April
25, 1997 by and among Booth Creek Ski Holdings, Inc., as
Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Booth Creek Ski Acquisition Corp. and Ski
Lifts, Inc., as Subsidiary Guarantors, HSBC Bank USA, as
Trustee.
+4.3 Supplemental Indenture No. 2 to Indenture dated as of
February 20, 1998 by and among Booth Creek Ski Holdings,
Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe,
Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Booth Creek Ski Acquisition Corp. and Ski
Lifts, Inc., as Subsidiary Guarantors, and HSBC Bank USA, as
Trustee.
+4.4 Supplemental Indenture No. 3 to Indenture dated as of
February 26, 1998, by and among Booth Creek Ski Holdings,
Inc., as Issuer, LMRC Holding Corp., Loon Mountain
Recreation Corporation and Loon Realty Corp., as Subsidiary
Guarantors, and HSBC Bank USA, as Trustee.
++4.5 Supplemental Indenture No. 4 to Indenture dated as of
October 8, 1998 by and among Booth Creek Ski Holdings, Inc.,
as Issuer, Booth Creek Ski Acquisition, Inc., and HSBC Bank
USA, as Trustee.
##4.6 Second Amended and Restated Securities Purchase Agreement
and certain related agreements dated as of May 28, 2000,
among Booth Creek Ski Group, Inc., Booth Creek Ski Holdings,
Inc., the Subsidiary Guarantors as defined therein and each
of John Hancock Life Insurance Company, CIBC WG Argosy
Merchant Fund 2, L.L.C., Hancock Mezzanine Partners, L.P.,
Co-Investment Merchant Fund, LLC and Booth Creek Partners
Limited II, L.L.L.P.
####4.7 Stockholders Agreement dated January 22, 2002 among
Christopher P. Ryman, Elizabeth J. Cole, Timothy H. Beck,
Brian J. Pope, John Hancock Life Insurance Company, Hancock
Mezzanine Partners, L.P., CIBC WG Argosy Merchant Fund 2,
L.L.C., Co-Investment Merchant Fund, LLC and Booth Creek Ski
Group, Inc.
@10.1 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.
@@@10.2 First Amendment dated October 10, 2002 to 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.
&10.3 Waiver and Amendment dated March 14, 2003 to 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.
58
&&10.4 Third Amendment and Waiver dated June 13, 2003 to 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, and Fleet National
Bank, as Agent for the Lenders.
*10.5 Purchase and Sale Agreement dated as of August 30, 1996 by
and between Waterville Valley Ski Area, Ltd., Cranmore,
Inc., American Skiing Company and Booth Creek Ski
Acquisition Corp.
*10.6 Subordinated Promissory Note dated November 27, 1996 issued
by Booth Creek Ski Acquisition Corp., Waterville Valley Ski
Resort, Inc. and Mount Cranmore Ski Resort, Inc. to American
Skiing Company.
*10.7 Stock Purchase and Indemnification Agreement dated as of
November 26, 1996 among Booth Creek Ski Holdings, Inc.,
Fibreboard Corporation, Trimont Land Company,
Sierra-at-Tahoe, Inc. and Bear Mountain, Inc.
*10.8 Escrow Agreement dated December 3, 1996 by and among
Fibreboard Corporation, Booth Creek Ski Holdings, Inc. and
First Trust of California.
*10.9 Stock Purchase Agreement dated as of February 21, 1997 by
and between Booth Creek Ski Holdings, Inc., William W.
Moffett, Jr., David R. Moffett, Laurie M. Padden,
individually and as custodian for Christina Padden, Jennifer
Padden and Mary M. Padden, Stephen R. Moffett, Katharine E.
Moffett, Frances J. DeBruler, individually and as
representative of the Estate of Jean S. DeBruler, Jr.,
deceased, and Peggy Westerlund, and David R. Moffett, as
representative.
*10.10 Preferred Stock Purchase Agreement dated as of February
21, 1997 by and between DRE, L.L.C., William W. Moffett,
Jr., David R. Moffett, Laurie M. Padden, individually and as
custodian for Christina Padden, Jennifer Padden and Mary M.
Padden, Stephen R. Moffett, Katharine E. Moffett, Frances J.
DeBruler, individually and as representative of the Estate
of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund and
David R. Moffett, as representative.
#10.11 Asset Purchase Agreement dated as of March 21, 2000, as
modified and amended, by and between Booth Creek Ski
Holdings, Inc., a Delaware corporation, as Seller, and GT
Acquisition I, LLC, a Delaware limited liability company, as
Buyer.
###10.12 Agreement for Purchase and Sale of Real Property and
certain related agreements dated September 22, 2000 between
Trimont Land Company and Trimont Land Holdings, Inc.
##10.13 Amended and Restated Management Agreement dated as of May
26, 2000 by and between Booth Creek Ski Holdings, Inc. and
Booth Creek Management Corporation.
*10.14 Ski Area Term Special Use Permit No. 4002/01 issued by the
United States Forest Service to Waterville Valley Ski
Resort, Inc.
*10.15 Ski Area Term Special Use Permit No. 4127/09 issued by the
United States Forest Service to Ski Lifts, Inc.
*10.16 Annual Special Use Permit Nos. 4127/19 & 4127/19 issued by
the United States Forest Service to Ski Lifts, Inc.
@@10.17 Ski Area Term Special Use Permit No. 4008/1 issued by the
United States Forest Service to Loon Mountain Recreation
Corporation.
59
+++10.18 Ski Area Term Special Use Permit No. 4186 issued by the
United States Forest Service to Sierra-at-Tahoe, Inc.
@@10.19 Stock Purchase Agreement dated July 22, 2002 among Bear
Mountain Resort, Inc., Snow Summit Ski Corporation and Booth
Creek Ski Holdings, Inc.
**10.20 Employment Agreement dated as of July 1, 1997, by and
between Booth Creek Ski Holdings, Inc. and Timothy H. Beck.
####10.21 Amendment No. 1 to the Employment Agreement by and
between Booth Creek Ski Holdings, Inc. and Timothy H. Beck.
####10.22 Amended and Restated Employment Agreement by and
between Booth Creek Ski Group, Inc., Booth Creek Ski
Holdings, Inc. and Christopher P. Ryman.
####10.23 Amended and Restated Employment Agreement by and
between Booth Creek Ski Group, Inc., Booth Creek Ski
Holdings, Inc. and Elizabeth J. Cole.
####10.24 Booth Creek Ski Group, Inc. 2001 Stock Incentive Plan.
####10.25 Restricted Stock Agreement by and between Booth Creek
Ski Group, Inc. and Timothy H. Beck.
####10.26 Deferred Compensation Agreement by and between Booth
Creek Ski Group, Inc. and Timothy H. Beck.
####10.27 Restricted Stock Agreement by and between Booth Creek
Ski Group, Inc. and Brian J. Pope.
####10.28 Deferred Compensation Agreement by and between Booth
Creek Ski Group, Inc. and Brian J. Pope.
####10.29 Severance Agreement by and between Booth Creek Ski
Group, Inc., Booth Creek Ski Holdings, Inc. and Brian J.
Pope.
&&&12.1 Statement of Ratio of Earnings to Fixed Charges.
@@@@14.1 Booth Creek Ski Holdings, Inc. Code of Business Conduct
and Ethics adopted January 14, 2003.
@@@@21.1 Subsidiaries of the Registrant.
&&&31.1 Certification of George N. Gillett, Jr., Chief Executive
Officer, pursuant to Securities and Exchange Commission
("SEC") Rule 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
&&&31.2 Certification of Christopher P. Ryman, President and
Chief Operating Officer, pursuant to SEC Rule 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
&&&31.3 Certification of Elizabeth J. Cole, Executive Vice
President and Chief Financial Officer, pursuant to SEC Rule
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
&&&32.1 Certification of George N. Gillett, Jr., Chief Executive
Officer, pursuant to SEC Rule 15d-14(b) and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
60
&&&32.2 Certification of Christopher P. Ryman, President and
Chief Operating Officer, pursuant to SEC Rule 15d-14(b) and
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
&&&32.3 Certification of Elizabeth J. Cole, Executive Vice
President and Chief Financial Officer, pursuant to SEC Rule
15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------------------
* Filed with Registration Statement on Form S-4 (Reg. No. 333-26091) and
incorporated herein by reference.
** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended January 30, 1998 and incorporated herein by reference.
+ Filed with the Company's Current Report on Form 8-K dated February 26, 1998
and incorporated herein by reference.
++ Filed with the Company's Annual Report on Form 10-K for the Fiscal Year
Ended October 30, 1998 and incorporated herein by reference.
+++ Filed with the Company's Annual Report on Form 10-K for the Fiscal Year
Ended October 29, 1999 and incorporated herein by reference.
# Filed with the Company's Current Report on Form 8-K dated March 21, 2000
and incorporated herein by reference.
## Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended July 28, 2000 and incorporated herein by reference.
### Filed with the Company's Current Report on Form 8-K dated September 22,
2000 and incorporated herein by reference.
#### Filed with the Company's Annual Report on Form 10-K for the Fiscal Year
Ended November 2, 2001 and incorporated herein by reference.
@ Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended February 1, 2002 and incorporated herein by reference.
@@ Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended August 2, 2002 and incorporated herein by reference.
@@@ Filed with the Company's Current Report on Form 8-K dated October 10, 2002
and incorporated herein by reference.
@@@@ Filed with the Company's Annual Report on Form 10-K for the Fiscal Year
Ended November 1, 2002 and incorporated herein by reference.
& Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended January 31, 2003 and incorporated herein by reference.
&& Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended May 2, 2003 and incorporated herein by reference.
&&& Filed herewith as an Exhibit to this Form 10-K.
61
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarterly period ended October 31,
2003.
(c) Exhibits: See (a)3 above for a listing of Exhibits filed as a part of this
Report.
(d) Additional Financial Statement Schedules: None.
Supplemental Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act
Neither an annual report covering the Registrant's last fiscal year nor
proxy materials with respect to any annual or other meeting of security holders
have been sent to security holders.
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Truckee, State of California, as of January 28, 2004.
BOOTH CREEK SKI HOLDINGS, INC.
(Registrant)
By: /s/ CHRISTOPHER P. RYMAN
-------------------------------------------------
Christopher P. Ryman
President and Chief Operating Officer
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)
63
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed by the following persons in the capacities
and as of the dates indicated.
Signature Title Date
--------- ----- ----
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of January 28, 2004
- ---------------------------- Directors and Chief
George N. Gillett, Jr. Executive Officer
(Principal Executive
Officer)
/s/ GARY M. PELLETIER Member of the Board of January 28, 2004
- ---------------------------- Directors
Gary M. Pelletier
/s/ SCOTT A. McFETRIDGE Member of the Board of January 28, 2004
- ---------------------------- Directors
Scott A. McFetridge
/s/ DEAN C. KEHLER Member of the Board of January 28, 2004
- ---------------------------- Directors
Dean C. Kehler
/s/ EDWARD LEVY Member of the Board of January 28, 2004
- ---------------------------- Directors
Edward Levy
/s/ CHRISTOPHER P. RYMAN President and Chief January 28, 2004
- ---------------------------- Operating Officer
Christopher P. Ryman
/s/ ELIZABETH J. COLE Executive Vice President January 28, 2004
- ---------------------------- and Chief Financial
Elizabeth J. Cole Officer (Principal
Financial Officer)
/s/ BRIAN J. POPE Vice President of January 28, 2004
- ---------------------------- Accounting and Finance
Brian J. Pope (Principal Accounting
Officer)
64
BOOTH CREEK SKI HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
INDEX OF FINANCIAL STATEMENTS
Page
Report of Independent Auditors....................................... F-2
Consolidated Balance Sheets.......................................... F-3
Consolidated Statements of Operations................................ F-4
Consolidated Statements of Shareholder's Equity (Deficit)............ F-5
Consolidated Statements of Cash Flows................................ F-6
Notes to Consolidated Financial Statements........................... F-7
F-1
REPORT OF INDEPENDENT AUDITORS
Booth Creek Ski Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Booth Creek
Ski Holdings, Inc. as of October 31, 2003 and November 1, 2002, and the related
consolidated statements of operations, shareholder's equity (deficit), and cash
flows for each of the three years in the period ended October 31, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Booth Creek Ski
Holdings, Inc. at October 31, 2003 and November 1, 2002, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended October 31, 2003 in conformity with accounting principles generally
accepted in the United States.
As discussed in Note 1 to the consolidated financial statements, Booth
Creek Ski Holdings, Inc. adopted Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" on November 3, 2001.
/s/ ERNST & YOUNG LLP
Sacramento, California
December 19, 2003
F-2
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
October 31, November 1,
2003 2002
--------------- ---------------
ASSETS
Current assets:
Cash.................................... $ 809 $ 664
Accounts receivable, net of allowance
of $47 and $44, respectively........... 1,827 1,964
Insurance proceeds receivable........... - 800
Inventories............................. 2,390 2,298
Prepaid expenses and other current
assets................................. 1,282 1,425
--------------- ---------------
Total current assets...................... 6,308 7,151
Property and equipment, net............... 110,683 119,337
Real estate held for development and
sale.................................... 6,627 6,966
Deferred financing costs, net of
accumulated amortization
of $5,235 and $4,609, respectively...... 2,769 4,137
Timber rights and other assets............ 5,541 6,071
Goodwill.................................. 22,938 22,938
--------------- ---------------
Total assets.............................. $ 154,866 $ 166,600
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY(DEFICIT)
Current liabilities:
Revolving credit facility............... $ 17,750 $ 1,245
Current portion of long-term debt....... 6,429 5,717
Accounts payable and accrued
liabilities............................ 34,362 36,124
--------------- ---------------
Total current liabilities................. 58,541 43,086
Long-term debt............................ 98,382 120,195
Other long-term liabilities............... 741 756
Commitments and contingencies
Shareholder's equity (deficit):
Common stock, $.01 par value; 1,000
shares authorized,
issued and outstanding................. - -
Additional paid-in capital.............. 72,000 72,000
Accumulated deficit..................... (74,798) (69,437)
--------------- ---------------
Total shareholder's equity (deficit)...... (2,798) 2,563
--------------- ---------------
Total liabilities and
shareholder's equity (deficit).......... $ 154,866 $ 166,600
=============== ===============
See accompanying notes.
F-3
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Year Ended
----------------------------------------------
October 31, November 1, November 2,
2003 2002 2001
-------------- -------------- --------------
Revenue:
Resort operations............ $ 104,963 $ 108,827 $ 107,090
Real estate and other
(including revenues from
related parties of $646 and
$11,300 for the years ended
Oct. 31, 2003 and Nov. 1,
2002, respectively)....... 10,084 11,705 276
-------------- -------------- --------------
Total revenue.................. 115,047 120,532 107,366
Operating expenses:
Cost of sales - resort
operations.................. 63,969 63,137 61,290
Cost of sales - real estate
and other................... 5,444 2,920 211
Depreciation and depletion... 15,766 17,094 19,776
Amortization of goodwill and
other intangible
assets...................... - - 2,405
Selling, general and
administrative expense...... 22,063 22,614 21,428
-------------- -------------- --------------
Total operating expenses....... 107,242 105,765 105,110
-------------- -------------- --------------
Operating income............... 7,805 14,767 2,256
Other income (expense):
Interest expense............. (12,492) (15,281) (16,822)
Amortization of deferred
financing costs............. (1,140) (1,126) (966)
Minority interest............ - (15) (127)
Gain on early retirement
of debt..................... 506 2,761 1,723
Other income (expense)....... (40) (90) 280
-------------- -------------- --------------
Other income (expense), net.... (13,166) (13,751) (15,912)
-------------- -------------- --------------
Income (loss) from continuing
operations before change
in accounting principle...... (5,361) 1,016 (13,656)
Discontinued operations:
Income (loss) from
discontinued operations of
Bear Mountain resort......... - 549 (138)
Loss on sale of Bear
Mountain resort.............. - (3,235) -
-------------- -------------- --------------
Loss on discontinued
operations.................... - (2,686) (138)
-------------- -------------- --------------
Loss before change in
accounting principle.......... (5,361) (1,670) (13,794)
Change in accounting principle
for goodwill.................. - (200) -
-------------- -------------- --------------
Net loss....................... $ (5,361) $ (1,870) $ (13,794)
============== ============== ==============
See accompanying notes.
F-4
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
(In thousands, except shares)
Additional
Common Stock Paid-in Accumulated
--------------
Shares Amount Capital Deficit Total
-------- ------- --------- ------------ -------
Balance at October 27, 2000.... 1,000 $ - $ 72,000 $ (53,773) $ 18,227
Net loss....................... - - - (13,794) (13,794)
------------------------------------------------
Balance at November 2, 2001.... 1,000 - 72,000 (67,567) 4,433
Net loss....................... - - - (1,870) (1,870)
------------------------------------------------
Balance at November 1, 2002.... 1,000 - 72,000 (69,437) 2,563
Net loss....................... - - - (5,361) (5,361)
------------------------------------------------
Balance at October 31, 2003.... 1,000 $ - $ 72,000 $ (74,798) $ (2,798)
======== ======= ========= ============ =======
See accompanying notes.
F-5
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
----------------------------------------------
October 31, November 1, November 2,
2003 2002 2001
-------------- -------------- --------------
Cash flows from operating
activities:
Net loss.......................... $ (5,361) $ (1,870) $ (13,794)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and depletion..... 15,766 18,439 22,716
Asset impairment charge....... 350 - -
Amortization of goodwill and
other intangible assets....... - - 2,405
Noncash cost of real estate
sales......................... 4,484 2,478 -
Amortization of deferred
financing costs............... 1,140 1,126 966
Minority interest.............. - 15 127
Gain on early retirement
of debt....................... (506) (2,761) (1,723)
Loss on sale of Bear Mountain
resort........................ - 3,235 -
Change in accounting principle
for goodwill.................. - 200 -
Changes in operating assets
and liabilities,
net of divestiture:
Accounts receivable......... 137 (188) (8)
Insurance proceeds
receivable................. 800 700 2,570
Inventories................. (92) (31) (380)
Prepaid expenses and other
current assets............. 143 186 (422)
Accounts payable and
accrued liabilities........ (3,162) 2,005 927
Other long-term liabilities. (15) (11) (18)
-------------- -------------- ------------
Net cash provided by operating
activities...................... 13,684 23,523 13,366
Cash flows from investing
activities:
Capital expenditures for property
and equipment................... (6.445) (11,638) (12,944)
Capital expenditures for real
estate held for
development and sale............ (2,745) (1,224) (1,654)
Proceeds on sale of Bear Mountain
resort.......................... - 11,954 -
Other assets...................... 403 126 (682)
-------------- -------------- ------------
Net cash used in investing
activities...................... (8,787) (782) (15,280)
Cash flows from financing
activities:
Borrowings under revolving
credit facility................. 60,595 27,880 34,001
Repayments under revolving
credit facility................. (44,090) (44,263) (22,725)
Proceeds of long-term debt........ - 25,000 -
Principal payments of long-term
debt............................ (21,071) (27,949) (8,969)
Deferred financing costs.......... (186) (2,052) (2)
Purchase of preferred stock of
subsidiary and
payment of dividends............ - (1,151) (629)
-------------- -------------- ------------
Net cash provided by (used in)
financing activities............ (4,752) (22,535) 1,676
-------------- -------------- ------------
Increase (decrease) in cash....... 145 206 (238)
Cash at beginning of year......... 664 458 696
-------------- -------------- ------------
Cash at end of year............... $ 809 $ 664 $ 458
============== ============== ============
See accompanying notes.
F-6
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2003
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies
Booth Creek Ski Holdings, Inc. ("Booth Creek") was organized on October 8,
1996 in the State of Delaware for the purpose of acquiring and operating various
ski resorts, including Northstar-at-Tahoe ("Northstar"), Sierra-at-Tahoe
("Sierra"), 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 and Loon Mountain. 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 statements of operations for the years ended
November 1, 2002 and November 2, 2001.
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.
("Parent").
Reporting Periods
The Company's fiscal year ends on the Friday closest to October 31 of each
year. Fiscal 2003 and 2002 were 52 week years. Fiscal 2001 was a 53 week year.
Business and Principal Markets
Northstar is a year-round destination resort including ski and golf
facilities. Sierra is a regional ski area which attracts both day and
destination skiers. Both Northstar and Sierra are located near Lake Tahoe,
California. Waterville Valley, Mt. Cranmore and Loon Mountain are regional ski
resorts attracting both day and destination skiers, and are located in New
Hampshire. The Summit is located in Northwest Washington and is a day ski
resort.
Operations are highly seasonal at all locations with the majority of
revenues realized during the ski season from late November through early April.
The length of the ski season and the profitability of operations are
significantly impacted by weather conditions. Although Northstar, Waterville
Valley, Mt. Cranmore and Loon Mountain have snowmaking capacity to mitigate some
of the effects of adverse weather conditions, abnormally warm weather or lack of
adequate snowfall can materially affect revenues. Sierra and the Summit lack
significant snowmaking capabilities but generally experience higher annual
snowfall.
Other operational risks and uncertainties that face the Company include
competitive pressures affecting the number of skier visits and ticket prices;
the success of marketing efforts to maintain and increase skier visits; the
possibility of equipment failure; and continued availability and cost of water
supplies and energy sources for snowmaking and other operations.
Cash
Included in cash at October 31, 2003 and November 1, 2002 is restricted
cash of $420,000 and $327,000, respectively, relating to advance deposits and
rental fees due to property owners for lodging and property rentals.
F-7
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies - (Continued)
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market. The components of inventories are as follows:
October 31, November 1,
2003 2002
--------------- ---------------
(In thousands)
Retail products........................ $ 1,581 $ 1,432
Supplies............................... 625 618
Food and beverage...................... 184 248
--------------- ---------------
$ 2,390 $ 2,298
=============== ===============
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method based upon the estimated service lives or capital lease
terms, which are as follows:
Land improvements................................. 20 years
Buildings and improvements........................ 20 years
Lift equipment.................................... 15 years
Other machinery and equipment..................... 3 to 15 years
Amortization of assets recorded under capital leases is included in
depreciation expense.
Real Estate Activities
The Company capitalizes as real estate held for development and sale the
original acquisition cost, direct construction and development costs, and other
related costs. Property taxes, insurance and interest incurred on costs related
to real estate under development are capitalized during periods in which
activities necessary to prepare the property for its intended use are in
progress. Land costs and other common costs incurred prior to construction are
allocated to each land parcel benefited. Construction-related costs are
allocated to individual units in each development phase using the relative sales
value method. Selling expenses are charged against income in the period
incurred. Interest capitalized on real estate development projects for the years
ended October 31, 2003, November 1, 2002 and November 2, 2001 was $135,000,
$30,000 and $54,000, respectively.
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 the contractual agreements
and 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.
F-8
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies - (Continued)
Long-Lived Assets
The Company evaluates potential impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). During
the year ended October 31, 2003, the Company recognized a non-cash impairment
charge of $350,000 for certain previously capitalized planning and design costs
for a project which is in the process of being redesigned. The $350,000 asset
impairment charge is included in cost of sales - resort operations in the
accompanying statement of operations for the year ended October 31, 2003. As of
October 31, 2003, the Company believes that there has not been any impairment of
its other long-lived assets.
Goodwill
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). The Company adopted SFAS No. 142 effective
as of November 3, 2001. Under these rules, goodwill is no longer amortized but
is subject to annual impairment tests in accordance with the pronouncement. The
Company's operating results for the year ended November 2, 2001 reflected
goodwill amortization of $2,343,000. Excluding such goodwill amortization,
adjusted net loss would have been $11,451,000 for the year ended November 2,
2001. In connection with the adoption of SFAS No. 142, the Company performed a
transitional impairment test for recorded goodwill as of November 3, 2001 for
each resort. Based on the transitional impairment test, the Company wrote down
goodwill by $200,000 for one resort, which has been reflected as the cumulative
effect of a change in accounting principle in the accompanying statement of
operations for the year ended November 1, 2002.
Pursuant to the requirements of SFAS No. 142, the Company performs annual
impairment tests for recorded goodwill. Based on the Company's annual impairment
tests, the Company did not identify any impairment of goodwill as of October 31,
2003 and November 1, 2002.
Fair Value of Financial Instruments
The fair value of amounts outstanding under the Company's Senior Credit
Facility approximates book value, as the interest rate on such debt generally
varies with changes in market interest rates. The fair value of the Company's
12.5% senior notes due March 15, 2007 (the "Senior Notes") was approximately
$80,000,000 and $88,000,000 at October 31, 2003 and November 1, 2002,
respectively, which was based on the market price of such debt.
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.
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.
F-9
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies - (Continued)
Amortization
Through November 2, 2001, the excess of the purchase price over the fair
values of the net assets acquired (goodwill) was amortized using the
straight-line method over a period of 15 years.
Deferred financing costs are being amortized over the lives of the related
obligations.
Advertising Costs
The production cost of advertisements is expensed when the advertisement is
initially released. The cost of professional services for advertisements, sales
campaigns and promotions is expensed when the services are rendered. The cost of
brochures and other winter marketing collateral is expensed over the ski season.
Advertising expenses for the years ended October 31, 2003, November 1, 2002 and
November 2, 2001 were $3,737,000, $4,196,000 and $3,970,000, respectively.
Income Taxes
Deferred income taxes are provided for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
The Company is included in the federal and state tax returns of Parent. The
provision for federal and state income tax is computed as if the Company filed
separate consolidated tax returns.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires that comprehensive income and its components, as
defined in the pronouncement, be reported within the consolidated financial
statements of the Company. As of and for the years ended October 31, 2003,
November 1, 2002 and November 2, 2001, the Company does not have any
transactions that would necessitate disclosure of comprehensive income.
Recently Adopted and Pending Accounting Pronouncements
In June 2001, the FASB 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
any impact on the Company's consolidated financial position or results of
operations.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS No. 146"), which addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for
a cost that is associated with an exit or disposal activity be recognized when
the liability is incurred, whereas EITF Issue No. 94-3 required an entity to
recognize a liability for an exit cost on the date that the entity committed
itself to an exit plan. SFAS No. 146 was effective for exit or disposal
activities initiated after December 31, 2002. The adoption of SFAS No. 146 did
not have any impact on the Company's consolidated financial position or results
of operations.
F-10
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies - (Continued)
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities - an Interpretation of ARB No. 51" ("FIN No. 46"),
which has been subsequently deferred and revised by the FASB on several dates.
This interpretation addresses consolidation and reporting by business
enterprises of variable interest entities ("VIEs"). VIEs are entities for which
control is achieved through means other than voting rights. FIN No. 46, as
revised, provides for various effective dates for adoption of the
interpretation's provisions depending upon the date of formation of the VIEs and
their nature. FIN No. 46 has not had, and is not expected to have, a significant
effect on the Company's consolidated financial position or the 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 ski season, the Company entered into four separate paid
skier visit insurance policies covering Bear Mountain, Loon Mountain, Waterville
Valley and the Summit. 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. 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. In June
2003, the parties agreed to settle the Company's claims in exchange for a final
claim payment of $683,000 tendered to the Company in July 2003.
3. Property and Equipment
Property and equipment consist of the following:
October 31, November 1,
2003 2002
--------------- ---------------
(In thousands)
Land and improvements.................. $ 32,566 $ 31,433
Buildings and improvements............. 49,298 46,598
Lift equipment......................... 45,386 45,222
Other machinery and equipment.......... 61,902 62,471
Construction in progress............... 10,576 13,550
--------------- ---------------
199,728 199,274
Less accumulated depreciation and
amortization......................... 89,045 79,937
--------------- ---------------
$ 110,683 $ 119,337
=============== ===============
F-11
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
October 31, November 1,
2003 2002
--------------- ---------------
(In thousands)
Accounts payable....................... $ 3,816 $ 4,552
Accrued compensation and benefits...... 2,951 4,031
Taxes other than income taxes.......... 822 972
Unearned revenue and deposits -
resort operations..................... 14,739 15,232
Unearned deposits from related party -
real estate operations................ 5,610 5,610
Interest............................... 1,355 1,647
Other.................................. 5,069 4,080
--------------- ---------------
$ 34,362 $ 36,124
=============== ===============
5. 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 October 31, 2003 of $21,000,000. 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) the 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 or at the end of the Interest Period (as defined in the Senior
Credit Facility) for loans subject to LIBOR rate options. 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 as of October 31, 2003 bore interest at an annual rate of
5.12% pursuant to the LIBOR rate option. Borrowings under the Revolving
Credit Facility as of October 31, 2003 bore interest at a weighted average
annual rate of 5.14% pursuant to elections under both the base rate option
and LIBOR rate options.
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 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 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.
F-12
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Financing Arrangements - (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.
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 Senior
Notes. Initial borrowings of $25,000,000 under the Term Facility were used
to repurchase Senior Notes, together with accrued and unpaid interest
thereon. As of October 31, 2003, outstanding borrowings under the Revolving
Credit Facility and Term Facility were $17,750,000 and $21,000,000,
respectively.
Covenants - The Senior Credit Facility contains financial covenants
relating to the maintenance of (a) minimum consolidated resort EBITDA
(resort earnings before interest, taxes, depreciation and amortization,
adjusted for certain items specified in the Senior Credit Facility)
measured quarterly on a rolling four quarter basis ("Minimum Resort
EBITDA"), (b) a minimum ratio of (y) consolidated EBITDA (earnings before
interest, taxes, depreciation, depletion, amortization and noncash cost of
real estate sales, adjusted for certain items specified in the Senior
Credit Facility), less $5,000,000, less cash income taxes actually paid
during the period to (z) consolidated debt service (the sum of interest,
cash payments of principal made in respect of capitalized lease obligations
and mandatory reductions under the Term Facility) measured quarterly on a
rolling four quarter basis (the "Leverage Ratio"), and (c) a maximum
adjusted consolidated leverage ratio (the ratio of secured indebtedness of
the Company and its subsidiaries (with certain exceptions specified in the
Senior Credit Facility) to the sum of the Company's consolidated net worth,
as adjusted pursuant to the Senior Credit Facility, and the aggregate
principal amount of outstanding Senior Notes ("Adjusted Leverage Ratio")).
On June 13, 2003, the Company obtained an amendment and waiver (the
"Amendment and Waiver") from the lenders under the Senior Credit Facility,
which modified the financial covenants under the Senior Credit Facility.
After giving effect to the Amendment and Waiver, the Company is required to
have a Minimum Resort EBITDA of (i) $19,000,000 during each rolling four
quarter period through January 30, 2004, (ii) $23,500,000 during each
rolling four quarter period from January 31, 2004 through January 28, 2005
and (iii) $26,500,000 during each rolling four quarter period from January
29, 2005 and thereafter. It is also required to maintain (a) a minimum
Leverage Ratio of (i) 1 to 1 from August 2, 2003 through October 31, 2003,
(ii) 1.1 to 1 from November 1, 2003 through January 30, 2004, (iii) 1.2 to
1 from January 31, 2004 through January 28, 2005 and (iv) 1.3 to 1
thereafter and (b) a maximum Adjusted Leverage Ratio of (i) .65 to 1 from
August 2, 2003 through October 31, 2003, (ii) .55 to 1 from November 1,
2003 through October 29, 2004, (iii) .50 to 1 from October 30, 2004 through
October 28, 2005 and (iv) .45 to 1 thereafter.
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. The
Company was in compliance with the covenants under the Senior Credit
Facility as of October 31, 2003.
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. 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 October 31,
2003, the fair value of these agreements was $17,000.
F-13
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Financing Arrangements - (Continued)
Senior Notes
As of October 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 current redemption price (expressed as a percentage of
the principal amount redeemed) of 104.167%, 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.
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, 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 Guarantor;
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 year ended October 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.
During the year ended November 1, 2002, the Company repurchased $29,325,000
aggregate principal amount of Senior Notes for $25,588,000. After giving effect
to the write-off of related deferred financing costs and other costs of
$976,000, the Company recognized a gain on early retirement of debt of
$2,761,000.
During the year ended November 2, 2001, the Company repurchased $8,000,000
aggregate principal amount of Senior Notes for $5,990,000. After giving effect
to the write-off of related deferred financing costs of $287,000, the Company
recognized a gain on early retirement of debt of $1,723,000.
F-14
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Financing Arrangements - (Continued)
Other Debt
Other debt of $3,636,000 and $4,737,000 at October 31, 2003 and November 1,
2002, respectively, consists of various capital lease obligations, notes payable
and amounts owed under the American Skiing Company ("ASC") Seller Note for a
portion of the purchase price for the acquisitions of Waterville Valley and Mt.
Cranmore. The ASC Seller Note requires a final principal payment of $1,000,000
on June 30, 2004. The ASC Seller Note bears interest at 12% per annum payable
semi-annually on each June 30 and December 31.
For the years ended October 31, 2003, November 1, 2002 and November 2,
2001, the Company entered into long-term debt and capital lease obligations of
$890,000, $2,676,000 and $3,245,000, respectively, for the purchase of
equipment.
During the years ended October 31, 2003, November 1, 2002 and November 2,
2001, the Company paid cash for interest costs of $12,784,000, $15,697,000 and
$17,054,000, respectively, net of amounts capitalized of $135,000, $78,000 and
$59,000, respectively.
As of October 31, 2003, the maturities of long-term debt were as follows:
Year
Ending
October (In thousands)
--------
2004......................................... $ 6,429
2005......................................... 18,050
2006......................................... 130
2007......................................... 80,202
---------------
Total long-term debt......................... 104,811
Less current portion......................... 6,429
---------------
Long-term debt............................... $ 98,382
===============
6. Commitments and Contingencies
Lease Commitments
The Company leases certain machinery, equipment and facilities under
operating leases. Aggregate future minimum lease payments as of October 31, 2003
were as follows:
Year
Ending
October (In thousands)
--------
2004......................................... $ 1,239
2005......................................... 1,025
2006......................................... 399
2007......................................... 114
2008......................................... 104
Thereafter................................... 2,016
---------------
$ 4,897
===============
Total rent expense for all operating leases amounted to $1,669,000,
$2,378,000 and $2,225,000 for the years ended October 31, 2003, November 1, 2002
and November 2, 2001, respectively.
F-15
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Commitments and Contingencies - (Continued)
The Company leases certain machinery and equipment under capital leases.
Aggregate future minimum lease payments as of October 31, 2003 for the years
ending October 2004, October 2005, October 2006 and October 2007 were
$1,521,000, $1,057,000, $118,000, and $23,000, respectively. The cost of
equipment recorded under capital leases at October 31, 2003 and November 1, 2002
was $4,702,000 and $4,819,000, respectively, and the related accumulated
depreciation at such dates was $2,502,000 and $2,147,000, respectively.
In addition, the Company leases property from the United States Forest
Service under Term Special Use Permits for all or certain portions of the
operations of Sierra, Waterville Valley, Loon Mountain and the Summit. These
leases are effective through 2039, 2034, 2042 and 2032, respectively. Lease
payments are based on a percentage of revenues, and were $1,053,000, $1,352,000
and $1,215,000 for the years ended October 31, 2003, November 1, 2002 and
November 2, 2001, respectively.
Other Commitments
Commitments for future capital expenditures totaled approximately
$4,700,000 at October 31, 2003.
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 October 31, 2003 were approximately $3,800,000 and $585,000,
respectively. Under the terms of the Senior Credit Facility, the letters of
credit in the amount of $585,000 reduce the Company's borrowing capacity under
the Revolving Credit Facility.
Litigation
The nature of the ski industry includes the risk of skier injuries.
Generally, the Company has insurance to cover potential claims; in some cases
the amounts of the claims may be substantial. The Company is also involved in a
number of other claims arising from its operations.
Management, in consultation with legal counsel, believes resolution of
these claims will not have a material adverse impact on the Company's
consolidated financial condition or results of operations.
Pledge of Stock
The stock of the Company is pledged to secure approximately $113,400,000 of
indebtedness of Parent.
7. Income Taxes
The difference between the statutory federal income tax rate and the
effective tax rate is attributable to the following:
Year Ended
-------------------------------------
October 31, November 1, November 2,
2003 2002 2001
----------- ----------- -----------
(In thousands)
Tax benefit computed at
federal statutory
rate of 35% of pre-tax loss.... $ 1,876 $ 655 $ 4,828
Net change in valuation
allowance...................... (2,090) (594) (4,419)
Other, net....................... 214 (61) (409)
----------- ----------- -----------
$ - $ - $ -
=========== =========== ===========
F-16
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Income Taxes - (Continued)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
October 31, November 1,
2003 2002
--------------- ---------------
(In thousands)
Deferred tax assets:
Accruals and reserves................ $ 1,153 $ 1,529
Alternative minimum tax credit
carryforwards....................... 352 352
Net operating loss carryforwards..... 36,678 32,344
--------------- ---------------
Total deferred tax assets.......... 38,183 34,225
Deferred tax liabilities:
Property and equipment............... (16,642) (15,358)
Goodwill............................. (1,095) (511)
--------------- ---------------
Total deferred tax liabilities..... (17,737) (15,869)
--------------- ---------------
Net deferred tax assets................ 20,446 18,356
Valuation allowance.................... (20,446) (18,356)
Net deferred tax assets reflected --------------- ---------------
in the accompanying consolidated
balance sheets....................... $ - $ -
=============== ===============
At October 31, 2003, the Company has net operating loss carryforwards of
approximately $100,000,000 for federal income tax reporting purposes, which
expire between 2012 and 2023.
8. Real Estate Transactions
Sale of Unit 7 and 7A Developments to a Related Party
On November 17, 1999, Trimont Land Company ("TLC"), the owner and operator
of Northstar and a wholly-owned subsidiary of the Company, consummated the sale
of certain single family development property underlying a portion of the Unit 7
and Unit 7A developments at Northstar to Trimont Land Holdings, Inc. ("TLH"), a
wholly-owned subsidiary of Parent and an affiliate of the Company, for an
aggregate sales price of $7,050,000, subject to adjustment as described below.
The consideration paid to TLC consisted of $6,000,000 in cash and a promissory
note (the "Unit 7 Note") for $l,050,000, subject to adjustment. The Company
obtained a fairness opinion for the transaction from an independent firm
qualified in the subject matter of the transaction. In connection with the sale
of development real estate on September 22, 2000 as described below, TLH's
interests in the Unit 7A lots were transferred back to TLC on September 22,
2000.
Under the terms of the Unit 7 Note, TLC was entitled to receive the greater
of (a) $1,050,000 plus accrued interest at 7% per annum, or (b) the Net Cash
Proceeds (as defined) derived from the resale of TLH's lots within Unit 7.
Pursuant to the terms of the sale, TLC retained the obligation to complete the
scheduled construction of the Unit 7 development, which was substantially
completed in November 2001. The Company recognized revenue and related costs of
sales for these real estate transactions upon the close of escrow for lot sales
between TLH and third party buyers, and had reflected the $6,000,000 in cash
received as a deposit liability as of November 2, 2001.
During the year ended November 1, 2002, TLH consummated the sale of 25 Unit
7 lots for net proceeds of approximately $11,300,000. During the year ended
October 31, 2003, TLH consummated the sale of the final lot within Unit 7 for
net proceeds of $646,000. As the net proceeds of the 26 lot sales were more than
the $6,000,000 in cash initially paid by TLH for the underlying real estate,
additional cash proceeds of $5,300,000 and $646,000 were distributed to TLC
during the years ended November 1, 2002 and October 31, 2003, respectively. In
addition, the Company relieved the existing $6,000,000 deposit liability during
the year ended November 1, 2002.
F-17
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Real Estate Transactions - (Continued)
Sale of Unit 7A Single Family Lots
In March 2003, TLC launched the sale of the Unit 7A subdivision at
Northstar, which consists of 15 ski-in/ski-out single family lots. As of October
31, 2003, TLC closed escrow on 12 of the lots and recognized real estate
revenues of $9,184,000 during the year ended October 31, 2003. TLC closed escrow
on the three remaining lots in December 2003 for an aggregate sales price of
$2,798,000, which will be reflected as real estate revenues in the Company's
first fiscal quarter of 2004.
Sale of Development Real Estate to a Related Party
On September 22, 2000, TLC and TLH entered into an Agreement for Purchase
and Sale of Real Property (the "Northstar Real Estate Agreement") pursuant to
which TLC agreed to sell to TLH certain development real estate consisting of
approximately 550 acres of land located at Northstar (the "Development Real
Estate") for a total purchase price of $27,600,000, of which 85% was payable in
cash and 15% was payable in the form of convertible secured subordinated
promissory notes. The purchase price was based on an appraisal obtained from an
independent third party appraiser. Concurrently therewith, TLC and TLH
consummated the sale of the initial land parcels contemplated by the Northstar
Real Estate Agreement, and TLC transferred the bulk of the Development Real
Estate to TLH for a total purchase price of $21,000,000, of which $17,850,000,
or 85%, was paid in cash and $3,150,000, or 15%, was paid in the form of a
convertible secured subordinated promissory note (the "Convertible Secured
Note").
In accordance with generally accepted accounting principles for real estate
transactions, the Company has recorded revenues for the sale of the initial land
parcels to the extent of cash received by TLC. The Company will recognize
revenues and profits on the portion of the sales price represented by the
Convertible Secured Note as collections are made, and accordingly, has reflected
$3,150,000 of deferred revenue as an offset to the Convertible Secured Note in
the accompanying consolidated balance sheets as of October 31, 2003 and November
1, 2002. The Convertible Secured Note requires quarterly interest payments at
the rate of 10% per annum if paid in cash, or 12% if paid in kind, and is due in
full in September 2005. No interest is currently being accrued on the
Convertible Secured Note, as such interest will be recognized as collections are
made. The Convertible Secured Note is secured by TLH's membership interest in a
real estate joint venture (the "East West Joint Venture") to which TLH is a
party. The Convertible Secured Note is convertible at TLC's option into 15% of
TLH's membership interest in the East West Joint Venture, which enables TLC to
obtain, at TLC's option, a profit participation in the Development Real Estate.
The Company obtained an opinion from an independent firm qualified and
experienced in the subject matter of the transaction that the terms of the sale
of Development Real Estate were fair and reasonable to the Company and TLC and
at least as favorable as the terms which could have been obtained in a
comparable transaction made on an arms-length basis between unaffiliated
parties.
During the year ended November 1, 2002, TLH paid $5,610,000 to TLC, which
represents the cash portion of the purchase price for the remaining Development
Real Estate subject to the Northstar Real Estate Agreement. The $5,610,000
payment has been deferred as a deposit liability as of October 31, 2003 and
November 1, 2002 pending the consummation of the sale of the remaining
Development Real Estate under the Northstar Real Estate Agreement. In December
2003, TLC transferred the remaining Development Real Estate to TLH, which is
expected to be recognized as real estate revenue in the Company's first fiscal
quarter of 2004.
9. Sale of Bear Mountain Resort
On October 10, 2002, the Company consummated the sale of all of the capital
stock of Bear Mountain, Inc., the owner and operator of the Bear Mountain ski
resort, to Snow Summit Ski Corporation for a purchase price of $12,000,000 in
cash, subject to certain adjustments for working capital, assumed debt and
allocations of off-season operating losses and capital expenditures. The
purchase price was determined through arms-length negotiations. As a result of
the disposition, the Company has reflected the historical operating results of
Bear Mountain as discontinued operations in the accompanying consolidated
statements of operations for the years ended November 1,
F-18
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Sale of Bear Mountain Resort - (Continued)
2002 and November 2, 2001. Based on the terms of the transaction, the Company
recognized a loss on the sale of $3,235,000 during the year ended November 1,
2002.
In connection with the sale of Bear Mountain, the Company obtained an
amendment to the Senior Credit Facility to permit the transaction and modify
certain covenant computations and other provisions of the Senior Credit
Facility.
Summary operating results for Bear Mountain for the periods indicated
below, which have historically been included in the Company's resort segment
operating results, were as follows:
Year Ended
-----------------------------------
November 1, November 2,
2002 2001
----------------- -----------------
(In thousands)
Total revenue......... $ 14,067 $ 14,539
Total expenses........ (13,518) (14,677)
----------------- -----------------
Total income (loss)
from discontinued
operations.......... $ 549 $ (138)
================= =================
Bear Mountain generated income from operations before depreciation of
$1,946,000 and $2,863,000 for the years ended November 1, 2002 and November 2,
2001, respectively.
10. Management Agreement with Related Party and Other Related Party Transactions
On May 26, 2000, the Company and Parent entered into an Amended and
Restated Management Agreement (the "Management Agreement") with Booth Creek
Management Corporation (the "Management Company") pursuant to which the
Management Company agreed to provide Parent, Booth Creek and its subsidiaries
with management advice with respect to, among other things, (i) formulation and
implementation of financial, marketing and operating strategies, (ii)
development of business plans and policies, (iii) corporate finance matters,
including acquisitions, divestitures, debt and equity financings and capital
expenditures, (iv) administrative and operating matters, including unified
management of the Company's ski resorts, (v) research, marketing and promotion,
and (vi) other general business matters. The Company's Chairman and Chief
Executive Officer is the sole shareholder, sole director and Chief Executive
Officer of the Management Company.
Under the terms of the amended Management Agreement, Parent and the Company
provide customary indemnification, reimburse certain costs and pay the
Management Company an annual management fee of $100,000, plus a discretionary
operating bonus. Management fees and reimbursable expenses incurred by the
Company during the years ended October 31, 2003, November 1, 2002 and November
2, 2001 were $75,000 per year.
CIBC World Markets Corp., an affiliate of a significant shareholder of
Parent, has provided financial and investment banking services to the Company
from time to time, including in connection with the Company's repurchase of its
Senior Notes. The Company paid fees aggregating $100,000 to CIBC World Markets
Corp. for such services during the year ended November 1, 2002.
11. Employee Benefit Plan
The Company maintains a defined contribution retirement plan (the "Plan"),
qualified under Section 401(k) of the Internal Revenue Code, for certain
eligible employees. Pursuant to the Plan, eligible employees may contribute a
portion of their compensation, subject to a maximum amount per year as specified
by law. The Company provides a matching contribution based on specified
percentages of amounts contributed by participants. The Company's contribution
expense for the years ended October 31, 2003, November 1, 2002 and November 2,
2001 were $607,000, $637,000 and $605,000, respectively.
F-19
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Business Segments
The Company currently operates in two business segments, resort operations
and real estate and other. The Company's resort operations segment is currently
comprised of six ski resort complexes, which provide lift access, snow school
lessons, retail, equipment rental, food and beverage offerings, lodging and
property management services and ancillary products and services. The real
estate and other segment is primarily engaged in the development and sale of
real estate at Northstar and the harvesting of timber rights. Given the
distinctive nature of their respective products, these segments are managed
separately. Data by segment is as follows:
Year Ended
-------------------------------------
October 31, November 1, November 2,
2003 2002 2001
----------- ----------- -----------
(In thousands)
Revenue:
Resort operations............... $ 104,963 $ 108,827 $ 107,090
Real estate and other........... 10,084 11,705 276
----------- ----------- -----------
$ 115,047 $ 120,532 $ 107,366
=========== =========== ===========
Operating income (loss):
Resort operations............... $ 4,663 $ 7,398 $ 3,148
Real estate and other........... 3,142 7,369 (892)
----------- ----------- -----------
$ 7,805 $ 14,767 $ 2,256
=========== =========== ===========
Depreciation, depletion,
amortization and noncash cost
of real estate sales:
Resort operations............... $ 15,639 $ 16,892 $ 22,053
Real estate and other........... 4,611 2,680 128
----------- ----------- -----------
$ 20,250 $ 19,572 $ 22,181
=========== =========== ===========
Capital expenditures by segment, which include expenditures relating to
Bear Mountain for the years ended November 1, 2002 and November 2, 2001, and
segment assets, were as follows:
Year Ended
-------------------------------------
October 31, November 1, November 2,
2003 2002 2001
----------- ----------- -----------
(In thousands)
Capital expenditures:
Resort operations............... $ 6,445 $ 11,638 $ 12,944
Real estate and other........... 2,745 1,224 1,654
----------- ----------- -----------
$ 9,190 $ 12,862 $ 14,598
=========== =========== ===========
October 31, November 1,
2003 2002
----------- -----------
Segment assets:
Resort operations............... $ 138,522 $ 148,427
Real estate and other........... 10,423 10,939
Corporate and other
nonidentifiable assets......... 5,921 7,234
----------- -----------
$ 154,866 $ 166,600
=========== ===========
F-20
Exhibit Index
EXHIBIT
NUMBER DESCRIPTION
------- -----------
+2.1 Agreement and Plan of Merger dated as of September 18, 1997
by and among Booth Creek Ski Group, Inc., LMRC Acquisition
Corp. and Loon Mountain Recreation Corporation.
+2.2 First Amendment to Merger Agreement, dated December 22,
1997, by and among Booth Creek Ski Group, Inc., LMRC
Acquisition Corp. and Loon Mountain Recreation Corporation.
*3.1 Certificate of Incorporation of Booth Creek Ski Holdings,
Inc.
*3.2 Bylaws of Booth Creek Ski Holdings, Inc.
*3.3 Restated Articles of Incorporation of Trimont Land Company.
*3.4 Bylaws of Trimont Land Company.
*3.5 Certificate of Incorporation of Sierra-at-Tahoe, Inc.
*3.6 Bylaws of Sierra-at-Tahoe, Inc.
*3.7 Certificate of Incorporation of Booth Creek Ski Acquisition
Corp.
*3.8 Bylaws of Booth Creek Ski Acquisition Corp.
*3.9 Amended and Restated Certificate of Incorporation of
Waterville Valley Ski Resort, Inc.
*3.10 Bylaws of Waterville Valley Ski Resort, Inc.
*3.11 Amended and Restated Certificate of Incorporation of Mount
Cranmore Ski Resort, Inc.
*3.12 Bylaws of Mount Cranmore Ski Resort, Inc.
*3.13 Amended and Restated Articles of Incorporation of Ski Lifts,
Inc.
*3.14 Bylaws of Ski Lifts, Inc.
**3.15 Articles of Incorporation of LMRC Holding Corp.
**3.16 Amended and Restated Articles of Incorporation of Loon
Mountain Recreation Corporation.
**3.17 Amended and Restated Bylaws of Loon Mountain Recreation
Corporation.
**3.18 Amended and Restated Articles of Incorporation of Loon
Realty Corp.
**3.19 Amended and Restated Bylaws of Loon Realty Corp.
**3.20 Bylaws of LMRC Holding Corp.
*4.1 Indenture dated as of March 18, 1997 by and among Booth
Creek Ski Holdings, Inc., as Issuer, Trimont Land Company,
Sierra-at-Tahoe, Inc., Waterville Valley Ski Resort, Inc.,
Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition
Corp. and Ski Lifts, Inc., as Subsidiary Guarantors, and
HSBC Bank USA, as Trustee (including the form of 12.5%
Senior Note due 2007 and the form of Guarantee).
i
*4.2 Supplemental Indenture No. 1 to Indenture dated as of April
25, 1997 by and among Booth Creek Ski Holdings, Inc., as
Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Booth Creek Ski Acquisition Corp. and Ski
Lifts, Inc., as Subsidiary Guarantors, HSBC Bank USA, as
Trustee.
+4.3 Supplemental Indenture No. 2 to Indenture dated as of
February 20, 1998 by and among Booth Creek Ski Holdings,
Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe,
Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Booth Creek Ski Acquisition Corp. and Ski
Lifts, Inc., as Subsidiary Guarantors, and HSBC Bank USA, as
Trustee.
+4.4 Supplemental Indenture No. 3 to Indenture dated as of
February 26, 1998, by and among Booth Creek Ski Holdings,
Inc., as Issuer, LMRC Holding Corp., Loon Mountain
Recreation Corporation and Loon Realty Corp., as Subsidiary
Guarantors, and HSBC Bank USA, as Trustee.
++4.5 Supplemental Indenture No. 4 to Indenture dated as of
October 8, 1998 by and among Booth Creek Ski Holdings, Inc.,
as Issuer, Booth Creek Ski Acquisition, Inc., and HSBC Bank
USA, as Trustee.
##4.6 Second Amended and Restated Securities Purchase Agreement
and certain related agreements dated as of May 28, 2000,
among Booth Creek Ski Group, Inc., Booth Creek Ski Holdings,
Inc., the Subsidiary Guarantors as defined therein and each
of John Hancock Life Insurance Company, CIBC WG Argosy
Merchant Fund 2, L.L.C., Hancock Mezzanine Partners, L.P.,
Co-Investment Merchant Fund, LLC and Booth Creek Partners
Limited II, L.L.L.P.
####4.7 Stockholders Agreement dated January 22, 2002 among
Christopher P. Ryman, Elizabeth J. Cole, Timothy H. Beck,
Brian J. Pope, John Hancock Life Insurance Company, Hancock
Mezzanine Partners, L.P., CIBC WG Argosy Merchant Fund 2,
L.L.C., Co-Investment Merchant Fund, LLC and Booth Creek Ski
Group, Inc.
@10.1 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.
@@@10.2 First Amendment dated October 10, 2002 to 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.
&10.3 Waiver and Amendment dated March 14, 2003 to 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.
&&10.4 Third Amendment and Waiver dated June 13, 2003 to 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, and Fleet National
Bank, as Agent for the Lenders.
*10.5 Purchase and Sale Agreement dated as of August 30, 1996 by
and between Waterville Valley Ski Area, Ltd., Cranmore,
Inc., American Skiing Company and Booth Creek Ski
Acquisition Corp.
ii
*10.6 Subordinated Promissory Note dated November 27, 1996 issued
by Booth Creek Ski Acquisition Corp., Waterville Valley Ski
Resort, Inc. and Mount Cranmore Ski Resort, Inc. to American
Skiing Company.
*10.7 Stock Purchase and Indemnification Agreement dated as of
November 26, 1996 among Booth Creek Ski Holdings, Inc.,
Fibreboard Corporation, Trimont Land Company,
Sierra-at-Tahoe, Inc. and Bear Mountain, Inc.
*10.8 Escrow Agreement dated December 3, 1996 by and among
Fibreboard Corporation, Booth Creek Ski Holdings, Inc. and
First Trust of California.
*10.9 Stock Purchase Agreement dated as of February 21, 1997 by
and between Booth Creek Ski Holdings, Inc., William W.
Moffett, Jr., David R. Moffett, Laurie M. Padden,
individually and as custodian for Christina Padden, Jennifer
Padden and Mary M. Padden, Stephen R. Moffett, Katharine E.
Moffett, Frances J. DeBruler, individually and as
representative of the Estate of Jean S. DeBruler, Jr.,
deceased, and Peggy Westerlund, and David R. Moffett, as
representative.
*10.10 Preferred Stock Purchase Agreement dated as of February
21, 1997 by and between DRE, L.L.C., William W. Moffett,
Jr., David R. Moffett, Laurie M. Padden, individually and as
custodian for Christina Padden, Jennifer Padden and Mary M.
Padden, Stephen R. Moffett, Katharine E. Moffett, Frances J.
DeBruler, individually and as representative of the Estate
of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund and
David R. Moffett, as representative.
#10.11 Asset Purchase Agreement dated as of March 21, 2000, as
modified and amended, by and between Booth Creek Ski
Holdings, Inc., a Delaware corporation, as Seller, and GT
Acquisition I, LLC, a Delaware limited liability company, as
Buyer.
###10.12 Agreement for Purchase and Sale of Real Property and
certain related agreements dated September 22, 2000 between
Trimont Land Company and Trimont Land Holdings, Inc.
##10.13 Amended and Restated Management Agreement dated as of May
26, 2000 by and between Booth Creek Ski Holdings, Inc. and
Booth Creek Management Corporation.
*10.14 Ski Area Term Special Use Permit No. 4002/01 issued by the
United States Forest Service to Waterville Valley Ski
Resort, Inc.
*10.15 Ski Area Term Special Use Permit No. 4127/09 issued by the
United States Forest Service to Ski Lifts, Inc.
*10.16 Annual Special Use Permit Nos. 4127/19 & 4127/19 issued by
the United States Forest Service to Ski Lifts, Inc.
@@10.17 Ski Area Term Special Use Permit No. 4008/1 issued by the
United States Forest Service to Loon Mountain Recreation
Corporation.
+++10.18 Ski Area Term Special Use Permit No. 4186 issued by the
United States Forest Service to Sierra-at-Tahoe, Inc.
@@10.19 Stock Purchase Agreement dated July 22, 2002 among Bear
Mountain Resort, Inc., Snow Summit Ski Corporation and Booth
Creek Ski Holdings, Inc.
**10.20 Employment Agreement dated as of July 1, 1997, by and
between Booth Creek Ski Holdings, Inc. and Timothy H. Beck.
iii
####10.21 Amendment No. 1 to the Employment Agreement by and
between Booth Creek Ski Holdings, Inc. and Timothy H. Beck.
####10.22 Amended and Restated Employment Agreement by and
between Booth Creek Ski Group, Inc., Booth Creek Ski
Holdings, Inc. and Christopher P. Ryman.
####10.23 Amended and Restated Employment Agreement by and
between Booth Creek Ski Group, Inc., Booth Creek Ski
Holdings, Inc. and Elizabeth J. Cole.
####10.24 Booth Creek Ski Group, Inc. 2001 Stock Incentive Plan.
####10.25 Restricted Stock Agreement by and between Booth Creek
Ski Group, Inc. and Timothy H. Beck.
####10.26 Deferred Compensation Agreement by and between Booth
Creek Ski Group, Inc. and Timothy H. Beck.
####10.27 Restricted Stock Agreement by and between Booth Creek
Ski Group, Inc. and Brian J. Pope.
####10.28 Deferred Compensation Agreement by and between Booth
Creek Ski Group, Inc. and Brian J. Pope.
####10.29 Severance Agreement by and between Booth Creek Ski
Group, Inc., Booth Creek Ski Holdings, Inc. and Brian J.
Pope.
&&&12.1 Statement of Ratio of Earnings to Fixed Charges.
@@@@14.1 Booth Creek Ski Holdings, Inc. Code of Business Conduct
and Ethics adopted January 14, 2003.
@@@@21.1 Subsidiaries of the Registrant.
&&&31.1 Certification of George N. Gillett, Jr., Chief Executive
Officer, pursuant to Securities and Exchange Commission
("SEC") Rule 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
&&&31.2 Certification of Christopher P. Ryman, President and
Chief Operating Officer, pursuant to SEC Rule 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
&&&31.3 Certification of Elizabeth J. Cole, Executive Vice
President and Chief Financial Officer, pursuant to SEC Rule
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
&&&32.1 Certification of George N. Gillett, Jr., Chief Executive
Officer, pursuant to SEC Rule 15d-14(b) and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
&&&32.2 Certification of Christopher P. Ryman, President and
Chief Operating Officer, pursuant to SEC Rule 15d-14(b) and
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
&&&32.3 Certification of Elizabeth J. Cole, Executive Vice
President and Chief Financial Officer, pursuant to SEC Rule
15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
iv
- ---------------------
* Filed with Registration Statement on Form S-4 (Reg. No. 333-26091) and
incorporated herein by reference.
** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended January 30, 1998 and incorporated herein by reference.
+ Filed with the Company's Current Report on Form 8-K dated February 26, 1998
and incorporated herein by reference.
++ Filed with the Company's Annual Report on Form 10-K for the Fiscal Year
Ended October 30, 1998 and incorporated herein by reference.
+++ Filed with the Company's Annual Report on Form 10-K for the Fiscal Year
Ended October 29, 1999 and incorporated herein by reference.
# Filed with the Company's Current Report on Form 8-K dated March 21, 2000
and incorporated herein by reference.
## Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended July 28, 2000 and incorporated herein by reference.
### Filed with the Company's Current Report on Form 8-K dated September 22,
2000 and incorporated herein by reference.
#### Filed with the Company's Annual Report on Form 10-K for the Fiscal Year
Ended November 2, 2001 and incorporated herein by reference.
@ Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended February 1, 2002 and incorporated herein by reference.
@@ Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended August 2, 2002 and incorporated herein by reference.
@@@ Filed with the Company's Current Report on Form 8-K dated October 10, 2002
and incorporated herein by reference.
@@@@ Filed with the Company's Annual Report on Form 10-K for the Fiscal Year
Ended November 1, 2002 and incorporated herein by reference.
& Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended January 31, 2003 and incorporated herein by reference.
&& Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended May 2, 2003 and incorporated herein by reference.
&&& Filed herewith as an Exhibit to this Form 10-K.
v