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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-26091
BOOTH CREEK SKI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1359604
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
1000 South Frontage Road West, 81657
Suite 100 (Zip Code)
Vail, Colorado
(Address of Principal Executive
Offices)
(970) 476-1311
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[X] No[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X]
As of February 28, 2004, the number of shares outstanding of the
registrant's Common Stock, par value $.01 per share, was 1,000 shares.
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TABLE OF CONTENTS
Item Page Number
- ---- -----------
PART I - FINANCIAL INFORMATION
1. Financial Statements.............................................. 1
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 11
3. Quantitative and Qualitative Disclosures about Market Risk........ 23
4. Controls and Procedures........................................... 24
PART II - OTHER INFORMATION
1. Legal Proceedings................................................. 25
4. Submission of Matters to a Vote of Security Holders............... 25
6. Exhibits and Reports on Form 8-K.................................. 26
Signatures........................................................ 27
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
January 30, October 31, January 31,
2004 2003 2003
------------ ----------- ------------
ASSETS
Current assets:
Cash and cash equivalents.............. $ 3,526 $ 809 $ 1,883
Accounts receivable, net of allowance
of $56, $47 and $51, respectively..... 2,885 1,827 2,361
Insurance proceeds receivable.......... - - 800
Inventories ........................... 2,995 2,390 3,153
Prepaid expenses and other current
assets ............................... 3,225 1,282 3,214
------------ ----------- ------------
Total current assets ................... 12,631 6,308 11,411
Property and equipment, net ............ 109,921 110,683 118,535
Real estate held for development
and sale .............................. 5,583 6,627 7,292
Deferred financing costs, net of
accumulated amortization of $5,515,
$5,235 and $4,377, respectively ....... 2,489 2,769 3,441
Timber rights and other assets ......... 5,404 5,541 5,969
Goodwill................................ 22,938 22,938 22,938
------------ ----------- ------------
Total assets ........................... $ 158,966 $ 154,866 $ 169,586
============ =========== ============
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Revolving credit facility ............. $ - $ 17,750 $ 7,500
Current portion of long-term debt ..... 6,641 6,429 5,464
Accounts payable and accrued
liabilities .......................... 42,014 34,362 43,606
------------ ----------- ------------
Total current liabilities .............. 48,655 58,541 56,570
Long-term debt ......................... 98,731 98,382 103,066
Other long-term liabilities ............ 741 741 756
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 72,000
Accumulated deficit ................... (61,161) (74,798) (62,806)
------------ ----------- ------------
Total shareholder's equity (deficit).... 10,839 (2,798) 9,194
------------ ----------- ------------
Total liabilities and shareholder's
equity (deficit)....................... $ 158,966 $ 154,866 $ 169,586
============ =========== ============
See accompanying notes.
1
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended
--------------------------
January 30, January 31,
2004 2003
----------- -----------
Revenue:
Resort operations............................ $ 47,315 $ 46,515
Real estate and other (including $5,610 in
revenues with a related party in 2004)...... 8,498 16
----------- -----------
Total revenue.................................. 55,813 46,531
Operating expenses:
Cost of sales - resort
operations.................................. 26,273 26,096
Cost of sales - real estate
and other................................... 1,791 21
Depreciation and depletion................... 3,603 3,830
Selling, general and
administrative expense...................... 7,257 6,809
----------- -----------
Total operating expenses....................... 38,924 36,756
----------- -----------
Operating income............................... 16,889 9,775
Other income (expense):
Interest expense............................. (3,056) (3,371)
Amortization of deferred
financing costs............................. (280) (282)
Gain on early retirement of debt............. - 506
Other income................................. 84 3
----------- -----------
Other income (expense),net..................... (3,252) (3,144)
----------- -----------
Net income..................................... $ 13,637 $ 6,631
=========== ============
See accompanying notes.
2
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
-------------------------------
January 30, January 31,
2004 2003
------------- -------------
Cash flows from operating activities:
Net income..................................... $ 13,637 $ 6,631
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and depletion.................. 3,603 3,830
Noncash cost of real estate sales .......... 1,590 -
Amortization of deferred financing costs ... 280 282
Gain on early retirement of debt............ - (506)
Changes in operating assets and liabilities:
Accounts receivable ....................... (1,058) (397)
Inventories ............................... (605) (855)
Prepaid expenses and other current assets.. (1,943) (1,789)
Accounts payable and accrued liabilities... 7,652 7,482
------------- -------------
Net cash provided by operating activities...... 23,156 14,678
Cash flows from investing activities:
Capital expenditures for property and
equipment .................................... (1,625) (2,339)
Capital expenditures for real estate
held for development and sale ................ (546) (326)
Other assets .................................. 137 95
------------- -------------
Net cash used in investing activities ......... (2,034) (2,570)
Cash flows from financing activities:
Borrowings under revolving credit facility..... 6,150 26,995
Repayments under revolving credit facility .... (23,900) (20,740)
Principal payments of long-term debt .......... (655) (17,144)
------------- -------------
Net cash used in financing activities ......... (18,405) (10,889)
------------- -------------
Increase in cash and cash equivalents.......... 2,717 1,219
Cash and cash equivalents
at beginning of period........................ 809 664
------------- -------------
Cash and cash equivalents at end of period..... $ 3,526 $ 1,883
============= =============
See accompanying notes.
3
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 2004
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies
Booth Creek Ski Holdings, Inc. ("Booth Creek") owns and operates various
ski resorts, including Northstar-at-Tahoe ("Northstar"), Sierra-at-Tahoe
("Sierra"), Waterville Valley, Mt. Cranmore, Loon Mountain and the Summit at
Snoqualmie (the "Summit"). Booth Creek also conducts certain real estate
development activities, primarily at Northstar and Loon Mountain.
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").
The accompanying consolidated financial statements as of January 30, 2004
and January 31, 2003 and for the three month periods then ended are unaudited,
but include all adjustments (consisting only of normal and recurring
adjustments) which, in the opinion of management of the Company, are considered
necessary for a fair presentation of the Company's financial position at January
30, 2004 and January 31, 2003, and its operating results and cash flows for the
three month periods then ended. Due to the highly seasonal nature of the
Company's business, the results for the interim periods are not indicative of
results for the entire year. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States have been omitted
pursuant to generally accepted accounting principles applicable for interim
periods. Management believes that the disclosures made are adequate to make the
information presented not misleading. The unaudited consolidated financial
statements should be read in conjunction with the following notes and the
Company's consolidated financial statements and accompanying notes included in
the Company's Annual Report on Form 10-K for the fiscal year ended October 31,
2003.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of January
30, 2004 and January 31, 2003, cash equivalents consisted of money market funds.
Included in cash at January 30, 2004 is restricted cash of $1,365,000,
relating to advance deposits and rental fees due to property owners for lodging
and property rentals.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market. The components of inventories were as follows:
January 30, October 31, January 31,
2004 2003 2003
--------------- --------------- ---------------
(In thousands)
Retail products....... $ 1,644 $ 1,581 $ 1,745
Supplies.............. 681 625 670
Food and beverage..... 670 184 738
--------------- --------------- ---------------
$ 2,995 $ 2,390 $ 3,153
=============== =============== ===============
4
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies - (Continued)
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.
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.
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.
Pending Accounting Pronouncement
In January 2003, the Financial Accounting Standards Board ("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 accounting
principles generally accepted in the United States 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. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
January 30, October 31, January 31,
2004 2003 2003
----------- ----------- -----------
(In thousands)
Accounts payable.................... $ 8,172 $ 3,816 $ 7,118
Accrued compensation and benefits... 3,974 2,951 4,340
Taxes other than income taxes....... 1,443 822 1,942
Unearned revenue and deposits -
resort operations.................. 16,904 14,739 14,428
Unearned deposits from related
party - real estate operations..... - 5,610 5,610
Interest............................ 3,856 1,355 3,838
Other............................... 7,665 5,069 6,330
----------- ----------- -----------
$ 42,014 $ 34,362 $ 43,606
=========== =========== ===========
5
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Financing Arrangements
Senior Credit Facility
Effective March 15, 2002, the Company and its subsidiaries entered into an
Amended and Restated Credit Agreement (as amended, the "Senior Credit Facility")
with Fleet National Bank, as administrative agent ("Agent"), and certain
lenders. The following is a summary of certain provisions of the Senior Credit
Facility, as amended to date.
General - The Senior Credit Facility provides for a revolving credit
facility (the "Revolving Credit Facility") with borrowing availability of
up to $25,000,000, and a term loan facility (the "Term Facility") with
outstanding borrowings as of January 30, 2004 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) 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 January
30, 2004 pursuant to elections under both the base rate 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 Company satisfied this requirement for 2004
on February 25, 2004. 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.
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 12.5%
senior notes due March 15, 2007 (the "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 January 30, 2004,
outstanding borrowings under the Term Facility were $21,000,000. As of
January 30, 2004, there were no amounts outstanding under the Revolving
Credit Facility.
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
6
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Financing Arrangements - (Continued)
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")).
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) 1.1 to 1 from
November 1, 2003 through January 30, 2004, (ii) 1.2 to 1 from January 31,
2004 through January 28, 2005 and (iii) 1.3 to 1 thereafter and (b) a
maximum Adjusted Leverage Ratio of (i) .55 to 1 from November 1, 2003
through October 29, 2004, (ii) .50 to 1 from October 30, 2004 through
October 28, 2005 and (iii) .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 January 30, 2004.
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 January 30,
2004, the fair value of these agreements was not significant.
Senior Notes
As of January 30, 2004, the Company had outstanding $80,175,000 aggregate
principal amount of its Senior Notes. The Senior Notes mature on March 15, 2007,
and bear interest at 12.5% per annum, payable semi-annually on March 15 and
September 15. The Senior Notes are redeemable at the option of the Company, in
whole or in part, at a redemption price (expressed as a percentage of the
principal amount redeemed) of 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.
7
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Financing Arrangements - (Continued)
The Senior Notes are effectively subordinated in right of payment to all
secured indebtedness of the Company and the Guarantors, including indebtedness
under the Senior Credit Facility. In addition, the Senior Notes are structurally
subordinated to any indebtedness of the Company's subsidiaries that are not
Guarantors. The Indenture contains covenants for the benefit of the holders of
the Senior Notes that, among other things, limit the ability of the Company and
any Restricted Subsidiaries to: (i) incur additional indebtedness; (ii) pay
dividends and make other distributions; (iii) issue stock of subsidiaries; (iv)
make certain investments; (v) repurchase stock; (vi) create liens; (vii) enter
into transactions with affiliates; (viii) enter into sale and leaseback
transactions; (ix) create dividend or other payment restrictions affecting
Restricted Subsidiaries; (x) merge or consolidate the Company or any Guarantors;
and (xi) sell assets.
The Guarantors are wholly-owned subsidiaries of Booth Creek and have fully
and unconditionally guaranteed the Senior Notes on a joint and several basis.
Booth Creek is a holding company and has no significant operations, assets or
cash flows separate from its investments in its subsidiaries. In addition, the
assets, equity, revenues, income and cash flow of DRE, L.L.C., Booth Creek's
only non-guarantor subsidiary, are minor and the membership interests in DRE,
L.L.C. are entirely owned by Booth Creek. There are no significant restrictions
on the ability of the Guarantors to pay dividends or otherwise transfer funds to
Booth Creek. Accordingly, Booth Creek has not presented separate financial
statements and other disclosures concerning the Guarantors or its non-guarantor
subsidiary because management has determined that such information is not
material to investors.
During the three months ended January 31, 2003, the Company repurchased
$16,000,000 aggregate principal amount of Senior Notes for $15,080,000. After
giving effect to the write-off of related deferred financing costs of $414,000,
the Company recognized a gain on early retirement of debt of $506,000.
Other Debt
During the three months ended January 30, 2004 and January 31, 2003, the
Company entered into capital lease obligations of $1,216,000 and $682,000,
respectively, for the purchase of equipment.
As of January 30, 2004, the maturities of long-term debt, including capital
lease obligations, were as follows:
(In thousands)
Nine months ending October 2004...................... $ 6,241
Year ending October 2005............................. 18,407
Year ending October 2006............................. 521
Year ending October 2007............................. 80,203
-----------
Total long-term debt................................. 105,372
Less current portion................................. 6,641
-----------
Long-term debt....................................... $ 98,731
===========
4. Income Taxes
At October 31, 2003, the Company had estimated net operating loss
carryforwards of $100,000,000 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. Based on the Company's current tax
attributes, no income tax provision or benefit is expected for the year ending
October 29, 2004. Accordingly, during the three months ended January 30, 2004,
no income tax provision has been provided.
8
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Real Estate Transactions
Sale of Unit 7A Single Family Lots
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. TLC closed escrow on the final three remaining lots within the Unit
7A subdivision in December 2003 for an aggregate sales price of $2,798,000,
which has been recognized as revenue from real estate operations in the
accompanying statement of operations for the three months ended January 30,
2004.
Sale of Development Real Estate to a Related Party
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") 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 accounting principles generally accepted in the United
States 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. 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
represented the cash portion of the $6,600,000 purchase price for the remaining
Development Real Estate subject to the Northstar Real Estate Agreement. The
$5,610,000 payment had been deferred as a deposit liability as of October 31,
2003 pending the consummation of the sale of the remaining Development Real
Estate under the Northstar Real Estate Agreement. In December 2003, TLC
completed the subdivision of the remaining Development Real Estate and
transferred such real estate to TLH. Accordingly, TLC has relieved the existing
$5,610,000 deposit liability and recognized real estate revenues of $5,610,000
for this transaction during the three months ended January 30, 2004.
Additionally, the Convertible Secured Note has been increased by $990,000 for
the 15% noncash portion of the consideration for the remaining Development Real
Estate, which has been accounted for in the manner described above for the sale
of the initial land parcels.
9
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Business Segments
The Company currently operates in two business segments, resort operations
and real estate and other. Data by segment is as follows:
Three Months Ended
------------------------
January 30, January 31,
2004 2003
---------- ----------
(In thousands)
Revenue:
Resort operations................. $ 47,315 $ 46,515
Real estate and other............. 8,498 16
---------- ----------
$ 55,813 $ 46,531
========== ==========
Operating income (loss):
Resort operations................. $ 10,402 $ 10,075
Real estate and other............. 6,487 (300)
---------- ----------
$ 16,889 $ 9,775
========== ==========
January 30, October 31,
2004 2003
---------- ----------
(In thousands)
Segment assets:
Resort operations................. $ 144,461 $ 138,522
Real estate and other............. 9,379 10,423
Corporate and other
nonidentifiable assets........... 5,126 5,921
---------- ----------
$ 158,966 $ 154,866
========== ==========
A reconciliation of combined operating income for resort operations and
real estate and other to consolidated net income is as follows:
Three Months Ended
------------------------
January 30, January 31,
2004 2003
---------- ----------
(In thousands)
Operating income for reportable
segments.......................... $ 16,889 $ 9,775
Interest expense................... (3,056) (3,371)
Amortization of deferred financing
costs............................. (280) (282)
Gain on early retirement of debt... - 506
Other income....................... 84 3
---------- ----------
Net income......................... $ 13,637 $ 6,631
========== ==========
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and related notes thereto included elsewhere
in this Report. The following discussion contains certain forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to the differences are discussed in "Forward-Looking Statements" and
elsewhere in this Report as well as in Part II, Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Risk Factors" in
the Company's Annual Report on Form 10-K for its fiscal year ended October 31,
2003.
General
The Company's ski operations are highly sensitive to weather conditions and
the overall strength of the national economy and 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, extended periods
of extreme cold 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.
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 per year, respectively,
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.
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
more than 90% of the 2002/03 ski season total skier visits were attributable to
residents of the Seattle/Tacoma metropolitan region.
The Company seeks to maximize revenues and operating income by managing the
mix of skier 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. 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.
11
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 services, 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 visits 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.
The Company's real estate and other segment is primarily engaged in the
sale of single family lots, development real estate and timber at Northstar. The
revenues, operating income and cash flows of the real estate and other segment
are highly variable.
Results of Operations of the Company
Overview
The opening dates for the Company's resorts for the 2003/04 and 2002/03 ski
seasons were as follows:
Opening Dates
------------------------------------------------
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
12
Total skier visits generated by each of the Company's resorts for the three
months ended January 30, 2004 and January 31, 2003 were as follows:
Three Months Ended
--------------------- Percentage
January January Increase Increase
30, 2004 31, 2003 (Decrease) (Decrease)
--------- -------- -------- --------
(In thousands)
Northstar........................ 260 266 (6) (2)%
Sierra........................... 198 163 35 21
Waterville Valley................ 74 106 (32) (30)
Mt. Cranmore..................... 37 51 (14) (27)
Loon Mountain.................... 136 174 (38) (22)
The Summit....................... 248 153 95 62
-------- -------- --------
953 913 40 4
======== ======== ========
As a result of improved early season snowfall in November 2003 and colder
temperatures, Northstar opened on schedule for the 2003/04 season on November
22, 2003 and Sierra opened ahead of schedule on November 14, 2003. However,
business volumes at Northstar and Sierra during the 2003/04 season were
negatively impacted for several key days between Christmas and New Year's Day
due to two major storms that hit the Lake Tahoe region during this timeframe.
For the 2002/03 season, the Lake Tahoe region experienced relatively dry
conditions and a lack of natural snowfall through November 2002 and the first
half of December 2002. Due to the strength of its snowmaking system, Northstar
opened on schedule for the 2002/03 season. However, Sierra did not open for the
2002/03 season until December 16, 2002 due to its dependence on natural
snowfall. During mid-December 2002, the region received a number of powerful
storms resulting in over six feet of snowfall at Northstar and Sierra, which
provided excellent skiing conditions for the 2002/03 Christmas holiday period.
In January 2003, the Lake Tahoe region experienced substantially below average
natural snowfall. Although Northstar's total skier visits for the three months
ended January 30, 2004 were consistent with visitation in the corresponding
period of fiscal 2003 and Sierra's visits have increased measurably due to the
earlier opening for the 2003/04 season, these resorts have experienced a
meaningful shift in the mix of skier visits from paid visitors to season pass
visitors. The trend is due in part to increased sales of season passes at
Northstar and Sierra, and will likely result in lower lift ticket revenues in
the current season.
For the 2003/04 season, the northeastern United States has experienced
relatively inconsistent weather patterns, including, at varying times, major
snowstorms, warm temperatures, periods of heavy rainfall, and, for most of
January 2004, extended periods of bitterly cold temperatures. Due to the weather
volatility and relatively poor skiing conditions, skier volumes at the Company's
New Hampshire resorts for the three months ended January 30, 2004 have declined
by 84,000 visits, or 25%, from the level of skier visitation during the
comparable period of the 2002/03 season.
As compared to the difficult 2002/03 season, the Pacific Northwest
experienced a return to more normal weather patterns for the first half of the
2003/04 ski season, resulting in a significant rebound in skier visitation at
the Company's Summit resort in Washington. For the 2003/04 season, the Summit
opened slightly ahead of schedule on November 29, 2003. For 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. Additionally, average temperatures at
the Summit during the 2002/03 season were generally much warmer than normal, and
the resort experienced a large amount of rainfall during the course of the
season. The Summit commenced partial operations for the 2002/03 season on
December 27, 2002 on limited terrain. As a result of the early opening for the
2003/04 season and substantially improved conditions, skier visits for the
Summit for the three months ended January 30, 2004 increased by 95,000 visits,
or 62%, from the corresponding period in the prior year.
13
Three Months Ended January 30, 2004 Compared to the Three Months Ended
January 31, 2003
The Company's operating results by segment for the three months ended
January 30, 2004 and January 31, 2003 were as follows.
Three Months Ended Percentage
------------------
January 30, January 31, Increase Increase
2004 2003 (Decrease) (Decrease)
---------- ----------- ---------- ----------
(In thousands, except revenue per skier visit)
Resort operations:
Revenue:
Lift tickets................. $ 17,703 $ 18,141 $ (438) (2)%
Season passes................ 9,963 9,577 386 4
Snow school.................. 3,519 3,461 58 2
Equipment rental............. 3,738 3,628 110 3
Retail....................... 2,170 1,850 320 17
Food and beverage............ 6,753 6,423 330 5
Other........................ 3,469 3,435 34 1
---------- ----------- ----------
Total resort operations
revenue....................... 47,315 46,515 800 2
Cost of sales - resort
operations.................... 26,273 26,096 177 1
Depreciation expense............ 3,603 3,823 (220) (6)
Selling, general and
administrative expense -
resort operations............. 7,037 6,521 516 8
---------- ----------- ----------
Total resort operations
expenses...................... 36,913 36,440 473 1
---------- ----------- ----------
Resort operating income......... $ 10,402 $ 10,075 $ 327 3
========== =========== ==========
Skier visits.................... 953 913 40 4
========== =========== ==========
Revenue per skier visit......... $ 49.65 $ 50.95 $ (1.30) (3)
========== =========== ==========
Real estate and other operations:
Revenue:
Real estate revenue.......... $ 8,498 $ - $ 8,498 NM
Timber revenue............... - 16 (16) (100)%
---------- ----------- ----------
Total real estate and other
operations revenue............ 8,498 16 8,482 NM
Cost of sales - real estate
and other..................... 1,791 21 1,770 NM
Depletion expense............... - 7 (7) (100)
Selling, general and
administrative expense -
Real estate and other......... 220 228 (68) (24)
---------- ----------- ----------
Total real estate and other
operating expenses............ 2,011 316 1,695 NM
---------- ----------- ----------
Real estate and other
operating income (loss)....... $ 6,487 $ (300) $ 6,787 NM
========== =========== ==========
NM - Not meaningful.
Resort Operations:
Revenues from resort operations for the three months ended January 30, 2004
were $47,315,000, an increase of $800,000, or 2%, as compared to the 2003
period. Skier visits for the 2004 period increased by 40,000 visits, or 4%, from
the 2003 period. Recognized season pass revenues, which rose 4% to $9,963,000
for the 2004 period, as well as increased snow school, equipment rental, retail
and food and beverage sales, offset the impact of reduced lift ticket sales.
Sales of season pass products, which are expected to increase by approximately
11% in total for the 2003/04 season as compared to the $19,772,000 in season
passes sold for the 2002/03 season, are recognized ratably over the expected ski
season. The difference between the level of increase in recognized season pass
revenues between the first fiscal quarters of 2004 and 2003 and the expected
increase in total season pass products between the 2003/04 and 2002/03 seasons
is primarily due to later scheduled openings for the 2003/04 season.
As compared to the three months ended January 31, 2003, resort operations
revenues for Northstar decreased by $447,000, primarily due to slightly lower
skier visits. Revenues for Sierra increased by $747,000 due to increased skier
visits, partially offset by lower revenue per skier visit yields due to changes
in the mix of skiers. Revenues for Waterville Valley, Mt. Cranmore and Loon
Mountain decreased by $1,130,000, $492,000 and $1,295,000, respectively, due to
decreases in skier visits, partially offset by improved revenue per skier visit
yields. The Summit's revenues increased by $3,417,000 due primarily to
substantially higher visitation, partially offset by lower revenue per skier
visit yields.
14
Cost of sales for resort operations for the three months ended January 30,
2004 was $26,273,000, an increase of $177,000, or 1%, as compared to the 2003
period. The increase between the 2004 and 2003 periods was primarily the result
of (i) higher insurance and workers' compensation premium costs in the amount of
$357,000, (ii) an increase in snowmaking costs of $206,000 for the 2004 period,
(iii) increased variable costs, such as credit card fees, as a result of higher
skier visits, revenues and season pass sales in the 2004 period and (iv) normal
inflationary factors, partially offset by a $475,000 workers' compensation
provision in the 2003 period for the effect of two large claims matters.
Depreciation expense for the three months ended January 30, 2004 was
$3,603,000, a decrease of $220,000, or 6%, from the 2003 period. The decline in
depreciation expense was primarily due to certain assets acquired in connection
with the Company's resort acquisition in 1998 having become fully depreciated.
Selling, general and administrative expense for resort operations for the
three months ended January 30, 2004 was $7,037,000, an increase of $516,000, or
8%, as compared to the 2003 period. The increase in selling, general and
administrative expense between the 2004 and 2003 periods was primarily due to
(i) the receipt of a $100,000 reimbursement in the 2003 period for prior legal
fees for certain legal matters involving Loon Mountain, (ii) an increase of
$97,000 in workers' compensation premiums in the 2004 period and (iii) normal
inflationary factors.
Resort operating income for the three months ended January 30, 2004 was
$10,402,000, an increase of $327,000, or 3% from the operating income generated
for the 2003 period, as a result of the factors discussed above.
Real Estate and Other:
Revenues from real estate operations for the three months ended January 30,
2004 were $8,498,000, which was due to (i) the close of escrow on the final
three lots within the Unit 7A subdivision at Northstar for an aggregate sales
price of $2,798,000, (ii) the transfer and sale of the remaining Development
Real Estate (as defined herein) at Northstar pursuant to the Northstar Real
Estate Agreement (as defined herein) between Trimont Land Company and Trimont
Land Holdings, Inc. (see Note 5 to the accompanying consolidated financial
statements) and (iii) the sale of a single family lot at Loon Mountain for
$90,000. There were no real estate sales during the three months ended January
31, 2003. Timber operations at Northstar contributed revenues of $16,000 for the
2003 period. There were no timber operations revenues for the three months ended
January 30, 2004.
Cost of sales for real estate and other operations for the three months
ended January 30, 2004 was $1,791,000, including noncash cost of real estate
sales of $1,590,000, primarily as a result of the sale of the final three lots
in the Unit 7A subdivision at Northstar and the sale of the remaining
Development Real Estate at Northstar.
Selling, general and administrative expense for real estate and other
operations for the three months ended January 30, 2004 was $220,000, a decrease
of $68,000 from the 2003 period, primarily as a result of lower legal and
professional fees in the 2004 period.
Operating income from real estate and other operations was $6,487,000 for
the three months ended January 30, 2004, an increase of $6,787,000 from the
$300,000 operating loss incurred during the three months ended January 31, 2003,
as a result of the factors discussed above.
Interest Expense and Other Items:
Interest expense for the three months ended January 30, 2004 totaled
$3,056,000, a decrease of $315,000, or 9%, from the Company's interest expense
for the three months ended January 31, 2003, as a result of reduced borrowings
and lower average interest rates.
15
The Company recognized a gain on the early retirement of debt of $506,000
for the three months ended January 31, 2003, relating to the repurchase of
$16,000,000 aggregate principal amount of its 12.5% senior notes due March 15,
2007 (the "Senior Notes") during the 2003 period.
As of October 31, 2003, the Company had estimated net operating loss
carryforwards of approximately $100,000,000 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. Based on the Company's
current tax attributes, no income tax provision or benefit is expected for the
year ending October 29, 2004. Accordingly, during the three months ended January
30, 2004, no income tax provision has been provided.
The Company's net income for the three months ended January 30, 2004 was
$13,637,000, an increase of $7,006,000 from the net income of $6,631,000
generated for the three months ended January 31, 2003, 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.
The Senior Credit Facility provides a revolving credit facility (the
"Revolving Credit Facility") with borrowing availability of up to $25,000,000,
and a term loan facility (the "Term Facility") with outstanding borrowings as of
January 30, 2004 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 Company satisfied this requirement for 2004 on February 25, 2004.
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").
16
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) 1.1 to 1 from November
1, 2003 through January 30, 2004, (ii) 1.2 to 1 from January 31, 2004 through
January 28, 2005 and (iii) 1.3 to 1 thereafter and (b) a maximum Adjusted
Leverage Ratio of (i) .55 to 1 from November 1, 2003 through October 29, 2004,
(ii) .50 to 1 from October 30, 2004 through October 28, 2005 and (iii) .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 January 30, 2004 pursuant to elections
under both the base rate and LIBOR rate options.
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 January 30,
2004, outstanding borrowings under the Term Facility were $21,000,000. As of
January 30, 2004, there were no amounts outstanding under the Revolving Credit
Facility.
The Company had a net working capital deficit of $36,024,000 as of January
30, 2004, which will negatively affect liquidity during 2004. The Company's net
working capital deficit as of January 30, 2004 was due in part to unearned
revenue and deposits from resort operations of $16,904,000 for season pass and
membership product sales, lodging deposits and other prepaid products. The
Company's working capital deficit as of January 31, 2003 was $45,159,000
(including $7,500,000 in outstanding borrowings under the Revolving Credit
Facility).
The Company generated cash from operating activities of $23,156,000 for the
three months ended January 30, 2004, as compared to $14,678,000 for the
comparable period in 2003. The increase in operating cash flows was primarily
due to the increase in net income for the 2004 period.
Cash used in investing activities totaled $2,034,000 and $2,570,000 for the
three months ended January 30, 2004 and January 31, 2003, respectively. The
results for the 2004 and 2003 periods primarily reflect capital expenditures for
the purchase of property and equipment and real estate held for development and
sale.
Cash used in financing activities totaled $18,405,000 for the three months
ended January 30, 2004, which reflects net repayments under the Revolving Credit
Facility of $17,750,000 and scheduled payments of long-term debt of $655,000.
Cash used in financing activities totaled $10,889,000 for the comparable period
in 2003, which reflects net advances under the Revolving Credit Facility of
$6,255,000, scheduled payments of long-term debt of $2,064,000 and the
repurchase of $16,000,000 aggregate principal amount of the Company's Senior
Notes for $15,080,000. The decrease in the scheduled payments of long-term debt
for the 2004 period was primarily due to the timing of the Term Loan quarterly
commitment reduction of $1,000,000, which for the 2004 period fell after the end
of the fiscal quarter.
17
The Company's capital expenditures for property and equipment during the
three months ended January 30, 2004 were $2,841,000 (including $1,216,000 of
equipment acquired through capital leases), and consisted primarily of the
remaining portion of the Company's fiscal 2003 capital programs and acquisitions
of grooming equipment. 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 $5,500,000 to $6,000,000. Capital
expenditures for real estate development projects in fiscal 2004 are
preliminarily estimated to range between $2,000,000 and $2,500,000. The Company
plans to fund future capital expenditures from (i) available cash flow, (ii)
vendor financing to the extent permitted under the Senior Credit Facility and
the Indenture for the Company's Senior Notes or (iii) borrowings under the
Revolving Credit Facility. Commitments for future capital expenditures for
property and equipment and real estate development were approximately $2,800,000
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.
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 15 lots within the Unit 7A
subdivision at Northstar, which generated significant cash proceeds during the
fourth fiscal quarter of 2003 and the first fiscal quarter of 2004. 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 January 30, 2004. The Company's ability to meet these financial
covenants in the future may be affected by events beyond its control, and there
can be no assurance that the Company will meet those covenants.
18
As of January 30, 2004, the Company had $105,372,000 of total long-term
debt. The Company expects that existing cash and cash generated from operations,
together with borrowing availability, will be adequate to fund the Company's
debt service and other cash operating requirements over the next 12 months.
However, in order to meet the Company's off-season liquidity requirements, the
Company expects that it will be substantially drawn on the $25,000,000 Revolving
Credit Facility during the early portion of the 2004/05 ski season. 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.
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 January 30, 2004, 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
-------------------------------------
More
Remainder One to Than
of Fiscal Three Three to Five
Total 2004 Years Five Years Years
--------- -------- -------- -------- --------
(In thousands)
Long-term debt and capital
lease obligations............ $ 105,372 $ 6,241 $ 18,928 $ 80,203 $ -
Operating lease obligations.... 4,822 861 1,727 218 2,016
Purchase obligations........... 800 800 - - -
Other long-term liabilities.... 741 - 295 179 267
--------- -------- -------- -------- --------
Total.......................... $ 111,735 $ 7,902 $ 20,950 $ 80,600 $ 2,283
========= ======== ======== ======== ========
In connection with certain single family real estate development projects
at Northstar, self-insured workers' compensation arrangements for the Summit and
certain other aspects of its operations, the Company has arranged for surety
bonds from third-party surety bonding companies or letters of credit from
financial institutions. The aggregate amount of surety bonds and letters of
credit in place at January 30, 2004 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.
19
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. The Company also periodically evaluates the
collectibility of all of its receivables, and, if necessary, provides for an
adequate allowance for doubtful accounts.
Revenue Recognition for Real Estate Sales - Sales and profits on real
estate sales are recognized using the full accrual method at the point that the
Company's receivables from land sales are deemed collectible and the Company has
no significant remaining obligations for construction or development, which
typically occurs upon transfer of title. If such conditions are not met, the
recognition of all or part of the sales and profit is postponed. The Company
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.
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.
Pending Accounting Pronouncement
In January 2003, the Financial Accounting Standards Board ("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.
20
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.
Regulation and Legislation
The Company's operations are dependent upon its ownership or control over
the real property used in its ski operations at each resort. The real property
presently used at the Northstar and Mt. Cranmore resorts is owned by the
Company, leased from third parties or controlled by easements. The Company has
the right to use a substantial portion of the real property associated with the
Sierra, Summit and Waterville Valley resorts under the terms of Term Special Use
Permits issued by the United States Forest Service (the "Forest Service"). The
Sierra permit expires in 2039, the Waterville Valley permit expires in 2034 and
the Summit permit expires in 2032.
A substantial portion of the real property associated with the Loon
Mountain resort is likewise used under a Forest Service Term Special Use Permit.
In 1993, the Forest Service authorized various improvements at Loon Mountain and
an expansion onto the adjacent South Mountain. The United States Court of
Appeals for the First Circuit overturned this authorization in 1996 on the
ground that the Forest Service had failed to properly address certain
environmental issues under the National Environmental Policy Act ("NEPA"). On
remand from the Court of Appeals, the United States District Court for the
District of New Hampshire (the "District Court") entered a final order dated
December 11, 1998 which imposed certain conditions and limitations on the Forest
Service and Loon Mountain Recreation Corporation ("LMRC") until the Forest
Service completed an additional environmental review process under NEPA. In
response to a separate 1997 action filed by an individual and an environmental
group, the District Court entered an injunction on February 12, 1999 which
limited LMRC's snowmaking and use of a snowmaking pipeline until the Forest
Service completed the additional environmental review process under NEPA.
Effective February 22, 2001, certain plaintiffs in the lawsuits alleging
violations of environmental laws by the Forest Service and LMRC entered into
settlement agreements with LMRC which resolved all issues among the plaintiffs
and LMRC relating to LMRC's prior operations and its proposal for near term
expansion and upgrading of Loon Mountain. Among other things, these agreements
impose certain restrictions on the operation of the resort and the future
development of certain private land at the resort.
LMRC notified the District Court and interested parties that the December
11, 1998 final order and February 12, 1999 injunction expired under their terms
when the Forest Service (i) completed its NEPA process, (ii) issued a Record of
Decision ("ROD") on February 26, 2002 approving the Loon Mountain Final
Environmental Impact Statement (the "Final EIS"), and (iii) issued a Term
Special Use Permit to LMRC for Loon Mountain on June 24, 2002 (thereby replacing
Loon Mountain's three existing Forest Service permits). The new Loon Mountain
Term Special Use Permit expires in 2042.
Two written administrative appeals to the ROD were filed with the Forest
Service. One of the two appellants settled with LMRC and withdrew its appeal.
The Forest Service denied the other administrative appeal and upheld the ROD in
a letter decision dated June 7, 2002. With these actions, the Forest Service has
concluded its administrative appeal process for the ROD. The ROD and the Forest
Service's June 7, 2002 letter decision are subject to judicial review in federal
court under the Administrative Procedure Act by the appellant whose
administrative appeal was denied by the Forest Service. As of the date of this
Report, no action for judicial review had been filed. The Company can give no
assurance regarding whether such a judicial appeal will be filed or the timing
or outcome of such a process.
21
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.
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.
22
Except for certain permitting and environmental compliance matters relating
to Loon Mountain described above and in Part II, Item 1. "Legal Proceedings,"
the Company has not received any notice of material non-compliance with permits,
licenses or approvals necessary for the operation of its properties or of any
material liability under any environmental law or regulation.
Recent Trends
Through mid-March 2004, the Company's resorts have generated slightly
higher revenues and skier visits during the Company's second fiscal quarter of
2004 as compared to the corresponding period in fiscal 2003. Trends by region
for the Company's resorts for the completed portion of the second fiscal quarter
of fiscal 2004 relative to the comparable period in fiscal 2003 were as follows:
o Revenues and skier visits for the Company's Lake Tahoe resorts were
generally consistent with prior season levels.
o As a result of continued weather challenges, the Company's New
Hampshire resorts have generated slightly lower revenues and skier
visits in the 2004 period.
o Due to a return to more normal conditions as compared to the
challenging prior season, the Summit resort in Washington has
continued to realize significant gains in skier visitation and
revenues in the 2004 period.
Forward-Looking Statements
Except for historical matters, the matters discussed in Part I, Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Report are forward-looking statements that
involve risks and uncertainties. The forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The reader can identify these statements by forward-looking
words such as "may," "will," "expect," "plan," "intend," "anticipate,"
"believe," "estimate," and "continue" or similar words. Forward-looking
statements are based on management's current views and assumptions and involve
risks and uncertainties that could significantly affect the Company's business
and expected operating results. The Company wishes to caution the reader that
certain factors, including those described below, could significantly and
materially affect the Company's actual results, causing results to differ
materially from those in any forward-looking statement. These factors include,
but are not limited to:
o Uncertainty as to future financial results,
o The substantial leverage and liquidity constraints of the Company,
o Significant operating restrictions under the Company's debt
agreements,
o The capital intensive nature of development of the Company's ski
resorts,
o Uncertainties associated with obtaining financing for future real
estate projects and to undertake future capital improvements,
o Uncertainties regarding the timing and success of our real estate
development projects and their ultimate impact on our operating
results,
o Demand for and costs associated with real estate development,
o The discretionary nature of consumers' spending for skiing and resort
real estate,
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
Forest Service permits, and
o Other factors identified under "- Risk Factors" in Part II, Item 7.
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's Annual Report on Form 10-K for
the year ended October 31, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended January 30, 2004, there have been no material
changes in information relating to market risk from the Company's disclosure in
Item 7a. of the Company's Annual Report on Form 10-K for the year ended October
31, 2003 as filed with the Securities and Exchange Commission.
23
ITEM 4. CONTROLS AND PROCEDURES
a) The Company, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer,
President and Chief Operating Officer and Chief Financial Officer,
carried out an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (the
"Evaluation") as of the 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.
b) There were no significant changes in the Company's internal control
over financial reporting during the quarterly period ended January 30,
2004 that have materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting.
24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Each of the Company's resorts has pending and is regularly subject to
litigation, and the threat thereof, with respect to personal injury claims
relating principally to snow sports activities at its resorts as well as to
premises and vehicular operations and workers' compensation matters. The Company
maintains liability insurance that the Company considers adequate to insure
claims related to such usual and customary risks associated with the operation
of four-season recreation resorts.
In connection with the Company's 1998 acquisition of Loon Mountain
Recreation Corporation ("LMRC"), certain shareholders of LMRC filed several
lawsuits challenging the transaction and seeking to exercise dissenters' rights
under the New Hampshire Business Corporation Act. Each of these lawsuits has
been decided or otherwise resolved in favor of the Company, LMRC and its former
directors, resulting in no further liability or obligation relating to the
transaction for LMRC, its former directors or the Company and its affiliates.
The New Hampshire Superior Court has awarded attorneys fees to the defendants in
certain of these cases in the amount of $972,000 (with $420,000 for LMRC and the
Company and $552,000 for the insurer that funded certain costs of defending the
former LMRC directors), although the amount of such award remains subject to
appeal and the likelihood or timing of collection of such amount is uncertain.
In 1995, an individual sued the United States Forest Service (the "Forest
Service") in the United States District Court for the District of New Hampshire
(the "District Court") alleging that the Forest Service had violated the
National Environmental Policy Act ("NEPA"), the Clean Water Act ("CWA"), and an
executive order in approving improvements to and an expansion at Loon Mountain.
The District Court entered a final order dated December 11, 1998 that imposed
certain conditions and limitations on LMRC's operations. Under its terms, the
order was effective until the Forest Service completed an additional
environmental review process under NEPA and issued a new Term Special Use Permit
for Loon Mountain. In 1997, an individual and an environmental group filed a
second lawsuit against the Forest Service in the District Court alleging that
the Forest Service violated NEPA in authorizing LMRC to construct and operate a
snowmaking pipeline. The District Court entered an injunction on February 12,
1999 which limited LMRC's use of the snowmaking pipeline until the Forest
Service completed its additional environmental analysis under NEPA and issued a
Record of Decision ("ROD").
As described in Part I, Item 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 December 3, 2003, Booth Creek Ski Group, Inc., the sole shareholder of
the Company, acting through its President, Christopher P. Ryman, voted to elect
Scott A. McFetridge as a member of the Board of Directors of the Company. No
other matters were submitted to a vote of security holders of the Company during
the quarter ended January 30, 2004.
25
ITEM 6. EXHIBITS AND REPORTS ON FORM-8-K
a. Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
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.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarterly period ended January
30, 2004.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BOOTH CREEK SKI HOLDINGS, INC.
(Registrant)
By:/s/ ELIZABETH J. COLE
---------------------------------------------
Elizabeth J. Cole
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By:/s/ BRIAN J. POPE
---------------------------------------------
Brian J. Pope
Vice President of Accounting and Finance
(Principal Accounting Officer)
March 15, 2004