Back to GetFilings.com
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: November 2, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from
to
Commission File Number: 333-26091
BOOTH CREEK SKI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1359604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 South Frontage Road West, Suite 100
Vail, Colorado 81657
(970) 476-1311
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
------------------
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of December 31, 2001, the number of shares outstanding of the
registrant's Common Stock, par value $.01 per share, was 1,000 shares. There is
no trading market for the registrant's Common Stock. Accordingly, the aggregate
market value of the Common Stock held by non-affiliates of the registrant is
not determinable. See Part II, Item 5 of this Report.
===============================================================================
TABLE OF CONTENTS
Item Page Number
-----------
PART I
1. Business..................................................... 1
2. Properties................................................... 17
3. Legal Proceedings............................................ 17
4. Submission of Matters to a Vote of Security
Holders...................................................... 19
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 20
6. Selected Financial Data...................................... 20
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 22
7a. Quantitative and Qualitative Disclosures About
Market Risk.................................................. 33
8. Financial Statements and Supplementary Data.................. 33
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 33
PART III
10. Directors and Executive Officers of the Registrant........... 34
11. Executive Compensation....................................... 36
12. Security Ownership of Certain Beneficial Owners
and Management............................................... 41
13. Certain Relationships and Related Transactions............... 45
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.......................................... 48
Signatures................................................... 54
Index of Financial Statements................................ F-1
PART I
Item 1. Business
Overview
As used in this Report, the "Company" or "Booth Creek" refers to Booth
Creek Ski Holdings, Inc. and its subsidiaries, unless the context otherwise
requires. The Company is a wholly-owned subsidiary of Booth Creek Ski Group,
Inc. ("Parent"). The Company currently owns and operates seven ski resort
complexes encompassing ten separate resorts, including the Northstar-at-Tahoe
("Northstar") and Sierra-at-Tahoe ("Sierra") ski resorts in the Lake Tahoe
region of Northern California, the Bear Mountain ski resort ("Bear Mountain") in
Southern California, the Waterville Valley ("Waterville Valley"), Mount Cranmore
("Mt. Cranmore") and Loon Mountain ("Loon Mountain") ski resorts in the White
Mountains of New Hampshire and the Summit at Snoqualmie (the "Summit") ski
resort complex, which consists of four separate resorts, in the Cascade
Mountains of Northwest Washington. The Company divested the Grand Targhee ski
resort ("Grand Targhee") on June 20, 2000.
The Company is the fourth largest ski resort operator in North America
based on approximately 2.5 million skier days recorded during the 2000/01 ski
season at its resorts. Booth Creek primarily operates regional ski resorts which
attract the majority of their guests from their regional ski markets, within a
200 mile driving radius of each resort. The Company's properties offer
approximately 6,281 acres of skiable terrain, 381 trails, 96 lifts (including 16
high-speed lifts and two gondolas) and on-mountain capacity to accommodate
approximately 52,000 guests daily. For the year ended November 2, 2001, the
Company generated revenues of $121.9 million and income from operations before
depreciation, depletion and amortization expense and the noncash cost of real
estate sales ("EBITDA") of $27.3 million, and incurred a net loss of $13.8
million. For the year ended October 27, 2000, the Company generated revenues of
$139.4 million and EBITDA of $43.9 million, and incurred a net loss of $357,000.
The Company's resort properties are located near major skiing populations,
including four of the five largest regional ski markets in the United States:
Los Angeles/San Diego, San Francisco/Sacramento, Boston and Seattle/Tacoma. The
Company believes this geographical diversification may help to limit the
Company's exposure to regional economic downturns and unfavorable weather
conditions.
The Company's resorts seek to differentiate themselves in their respective
markets by selectively upgrading on-mountain facilities and guest services,
employing targeted marketing strategies and offering extensive skier development
programs, all of which create a competitively-priced, high-quality guest
experience. The Company's resorts have collectively invested approximately $55.8
million (including $6.6 million of equipment acquired through capital leases and
other debt) in capital expenditures during the last three fiscal years,
including the addition of high-speed chairlifts, additional snowmaking
capabilities, improved trail grooming equipment, and enhanced on-mountain skier
service, retail and food service amenities. The Company believes its existing
resorts are well maintained. The Company also uses targeted advertising,
database marketing and strategic marketing alliances to enhance the image of its
resorts and increase regional market share. The Company also offers extensive
development programs to improve the technical skill level of all types of
skiers, which management believes is important to expand the total skier
population and increase skier visitation frequency.
The following is an organizational chart of Parent, the Company and the
Company's subsidiaries. Each subsidiary of the Company is, directly or
indirectly, wholly-owned by Booth Creek.
[GRAPHIC OF ORGANIZATIONAL CHART OMITTED]
The Company's principal executive offices are located at 1000 South
Frontage Road West, Suite 100, Vail, Colorado 81657. Its telephone number at
that location is (970) 476-1311. The Company was incorporated in Delaware on
October 8, 1996.
Industry
There are approximately 490 ski areas in the United States which, during
the 2000/01 ski season, generated approximately 57.3 million skier days. A
"skier day" represents one skier or snowboarder visiting one ski resort for one
day, including skiers and snowboarders using complimentary and season passes.
Calculation of skier days requires an estimate of visits by season passholders.
Although different ski resort operators may use different methodologies for
making such estimates, management believes that any resulting differences in
total skier days are immaterial. U.S. ski areas range from small ski resort
operators, which primarily cater to day skiers and regional overnight skiers
from nearby population centers, to larger resorts which, given the scope of
their operations and their accessibility, are able to attract skiers and
snowboarders from their regional ski markets as well as destination resort
guests who are seeking a comprehensive vacation experience. While regional ski
market skiers tend to focus primarily on lift ticket price and round-trip travel
time, destination travelers tend to be heavily influenced by the number of
amenities and activities offered as well as the perceived overall quality of the
vacation experience. The table below summarizes regional skier day information
from the 1996/97 ski season through the 2000/01 ski season.
U.S. Ski Industry Regions and Skier Days
(In thousands)
Rocky Pacific Lake
Season Northeast Southeast Midwest Mtns West Tahoe Total
- --------------------- --------- --------- ------- ------ ------- ----- ------
1996/97.............. 12,407 4,231 7,137 18,904 7,341 2,500 52,520
1997/98.............. 12,712 4,343 6,707 19,191 7,419 3,750 54,122
1998/99.............. 12,300 4,261 6,005 18,439 6,702 4,382 52,089
1999/00.............. 12,025 5,191 6,422 18,109 6,560 3,891 52,198
2000/01.............. 13,697 5,458 7,580 19,324 7,355 3,923 57,337
Five year average.... 12,628 4,697 6,770 18,793 7,076 3,689 53,653
Northeast: CT, MA, ME, NH, NY, VT, RI
Southeast: AL, GA, KY, MD, NC, NJ, PA, TN, VA, WV
Midwest: IA, IL, IN, MI, MN, MO, ND, NE, OH, SD, WI
Rocky Mtns: CO, ID, MT, NM, UT, WY
Pacific West: AK, AZ, CA (excluding Lake Tahoe Region), NV, OR, WA
Source: 2000/01 Kottke National End of Season Survey
Over the last fifteen years, the ski resort industry has experienced a
period of consolidation. The number of United States ski areas has declined from
709 in 1986 to 490 in 2001. The number of ski areas may decline further, as many
mountain resorts lack the infrastructure, capital and management capability to
effectively compete in this multi-dimensional and service-intensive industry. No
major new ski resort has opened in the United States since 1989. Of the 490 ski
areas, the 2000/01 Kottke National End of Season Survey estimates the average
resort recorded approximately 117,000 skier days. All of the Company's resorts
except Mt. Cranmore typically record more than 200,000 annual skier days. The
trend among leading resorts is toward investing in improving technology and
infrastructure, including high-speed lifts, attractive facilities and extensive
snowmaking capabilities, to deliver a more consistent, quality experience.
During the last three fiscal years, the Company has invested approximately $55.8
million in capital expenditures at its resorts to improve their competitive
position and to meet sustaining capital requirements. Management believes the
need for increased investment in resorts in general has required a greater
access to capital and has enhanced the position of resorts owned by larger,
better capitalized owners. Despite the recent consolidation in the ski industry,
the industry remains fragmented, with no one resort accounting for more than 3%,
and no one resort operator accounting for more than approximately 10%, of the
United States' 57.3 million skier days during the 2000/01 ski season. The four
largest ski resort companies, including the Company, accounted for approximately
28.4% of all U.S. skier days recorded during the 2000/01 ski season.
The Lake Tahoe region has averaged approximately 3.7 million annual skier
days over the last five years. Management estimates that approximately 70% to
75% of the skiers visiting Lake Tahoe resorts during the 2000/01 ski season were
from the San Francisco, Sacramento and Central California Valley metropolitan
areas and the Lake Tahoe region. Other guests come principally from Southern
California and states with large ski populations, such as Texas, Illinois and
Florida.
The Southern California market has averaged approximately 2.8 million
annual skier days over the last five years. Management estimates that
approximately 90% of the skiers visiting Southern California resorts during the
2000/01 ski season were drawn primarily from the Los Angeles, Orange County and
San Diego metropolitan areas.
The Northeast market (including New York) has averaged approximately 12.6
million annual skier days over the last five years. The Northeast market
consists of a significant percentage of day or weekend skiers due to the
relatively short driving radius to major metropolitan areas. While the Northeast
does not draw significant numbers of vacationing skiers from the Western regions
of the United States, it does compete with the Rocky Mountains and Pacific West
areas for Eastern vacationing skiers. The region's major ski areas and resorts
are concentrated in the mountainous areas of New England and Eastern New York,
with the bulk of skiers coming from the population centers located in eastern
Massachusetts, Southern New Hampshire, Connecticut, Eastern New York, New Jersey
and the Philadelphia area.
The Pacific West market has averaged approximately 7.1 million skier days
over the last five years. Management estimates that more than 90% of the skier
days recorded at Washington state resorts during the 2000/01 ski season were
attributable to residents of the Seattle/Tacoma metropolitan area. Other guests
come primarily from other parts of Washington, Oregon and Western Canada.
Washington state resorts do not attract a significant number of destination
skiers.
Resort Operations
The Company's seven resort complexes offer a variety of ski and non-ski
activities. The table below provides a summary of each resort's ski operations
and is followed by a more detailed description of each resort.
Approx.
Snow- Approx.
Vertical making Beds
Skiable Drop Trail Within
Resort Acres (Feet) Trails Lifts Coverage 12 Miles
- -------------------- ------- -------- ------ ------------- -------- --------
Northstar-at-Tahoe.. 2,420 2,280 70 1 High-Speed 50% 15,000
Gondola
5 High-Speed
Quads (1)
4 Fixed Grip
5 Surface
Sierra-at-Tahoe..... 1,680 2,212 46 3 High-Speed 4% 30,000
Quads
6 Fixed Grip
3 Surface
Bear Mountain....... 195 1,665 34 2 High-Speed 100% 11,000
Quads
7 Fixed Grip
3 Surface
Waterville Valley... 255 2,020 52 2 High-Speed 100% 6,500
Quads
6 Fixed Grip
4 Surface
Mt. Cranmore........ 183 1,270 39 1 High-Speed 100% 16,000
Quad
4 Fixed Grip
4 Surface
Loon Mountain....... 250 2,100 44 1 High-Speed 96% 13,000
Gondola
1 High-Speed
Quad
5 Fixed Grip
3 Surface
The Summit.......... 1,298 2,200 96 2 High-Speed 0% 1,000
Quads
18 Fixed Grip
6 Surface
(1)High-Speed Quads are four-person chairlifts which decelerate and detach from
a cable during passenger loading and unloading and reattach and accelerate
thereafter.
Total skier visits generated by each of the Company's resorts during the
2000/01, 1999/00 and 1998/99 ski seasons were as follows:
2000/01 1999/00 1998/99
(In thousands)
Northstar....................... 519 477 530
Sierra.......................... 391 310 355
Bear Mountain................... 333 251 294
Waterville Valley............... 235 204 239
Mt. Cranmore.................... 129 100 112
Loon Mountain................... 385 304 297
The Summit...................... 508 504 485
--------- --------- ----------
Current Resorts............... 2,500 2,150 2,312
Grand Targhee................... - 137 121
--------- --------- ----------
2,500 2,287 2,433
========= ========= ==========
Northstar-at-Tahoe
Northstar-at-Tahoe, located near the north end of Lake Tahoe, California,
offers extensive activities and services in both winter and summer. The resort's
8,600-foot Mt. Pluto features 2,420 acres of skiable terrain and a 2,280 foot
vertical drop. Northstar's 70 ski trails are served by 15 operating lifts,
including one gondola, 5 high-speed quads, two triple lifts and two double
lifts, which combine to transport up to approximately 23,000 skiers uphill per
hour. Northstar also has approximately 65 kilometers of groomed trails for
cross-country skiing and snowshoeing and several on-mountain terrain parks for
snowboarders and adventurous skiers. Other facilities at Northstar include a
village consisting of condominium/hotel accommodations, restaurants, bars,
shops, a child-care center and conference facilities, a 22,700 square foot
on-mountain ski lodge, a 9,000 square foot rental equipment facility, and a
5,800 square foot on-mountain children's ski school facility. Summer recreation
facilities include an 18-hole golf course, ten tennis courts, a horseback riding
stable, fly fishing, mountain bike rentals and trails and swimming pools.
Northstar currently ranks third in total skier days in the Lake Tahoe area. In
2001, Northstar was ranked by Ski magazine as the 22nd best ski resort in North
America and received gold medals in a number of important categories including
guest service, family programs, grooming and favorable weather.
Northstar has invested in a number of improvements for the 2001/02 ski
season, including snowmaking infrastructure enhancements to increase the
efficiency and effectiveness of Northstar's snowmaking operations, a new
mid-mountain rental equipment and snowsports school facility and a mountain-top
food and beverage facility. These improvements augment a number of key expansion
projects made in 2000, including a 200 acre terrain expansion onto Lookout
Mountain. The Lookout expansion provided Northstar with additional advanced
terrain, and is served by a detachable quad lift.
Northstar's snowmaking system is engineered to cover approximately 50% of
its ski trails. Annual snowfall at the resort has averaged 304 inches per year
during the past five years. Northstar has water rights from various sources
which, when coupled with its 60 million gallon water storage capacity, have been
sufficient to support the resort's needs.
Northstar consists of approximately 8,000 acres of land privately owned by
the Company. Management believes that Northstar has significant opportunities to
develop additional ski terrain, as well as certain real estate development
opportunities. Moreover, management believes that the planned expansion of the
existing on-mountain bed base at the resort from the East West development will
result in increased skier days, thereby enhancing the value and profitability of
Northstar's resort operations. Such bed base development is also expected to
make additional ski terrain expansion at Northstar even more attractive. See
Part I, Item 1. "Business - Real Estate Development."
Sierra-at-Tahoe
Sierra-at-Tahoe is conveniently located near the large bed base of South
Lake Tahoe, California and is the closest major ski resort to Sacramento and the
Central California Valley. The resort's 8,852-foot peak offers 1,680 skiable
acres and a 2,212 foot vertical drop. Sierra's 46 ski trails are served by
twelve operating lifts, including three high-speed quads, one triple lift and
five double lifts, which combine to transport up to approximately 15,000 skiers
uphill per hour. Sierra operates a 46,000 square foot base lodge which offers a
variety of food and beverage, retail and other skier services. Management
believes that Sierra's investment in its ski infrastructure has made it the best
ski value in the South Lake Tahoe area. Sierra does not offer summertime
activities. In 2001, Ski magazine ranked Sierra as one of the ten best ski
resorts in the Pacific region.
Sierra owns 20 acres of its 1,689 gross acreage and leases the remainder
under a Term Special Use Permit from the United States Forest Service. See Part
I, Item 1. "Business - Regulation and Legislation." Due to its abundant annual
snowfall, which has averaged approximately 476 inches per year over the past
five years, Sierra's snowmaking equipment covers only 4% of Sierra's total
terrain.
Bear Mountain
Bear Mountain is located in the San Bernardino mountains of Southern
California. Its 8,805-foot peak features 195 acres of skiable terrain and a
1,665 foot vertical drop. Bear Mountain's 34 ski trails are served by 12 lifts,
including two high-speed quads, one fixed grip quad, two triple lifts and four
double lifts, which combine to transport up to approximately 17,000 skiers
uphill per hour. Since its acquisition by Booth Creek, Bear Mountain has made
significant improvements to its base lodge facilities, and installed a new
high-speed quad lift to provide improved access to key portions of its beginner
and advanced terrain. Other facilities at Bear Mountain include three lodges
which provide an aggregate of approximately 31,000 square feet of space for food
and beverage services (restaurants and cafeterias), skier services and
entertainment. Summer recreation facilities include a nine-hole golf course.
Bear Mountain owns 116 of its 819 gross acreage, leases 698 acres of
mountain terrain under a United States Forest Service Term Special Use Permit
and leases five acres from third parties. See Part I, Item 1. "Business -
Regulation and Legislation." Bear Mountain's snowmaking system covers 100% of
its ski trails. Bear Mountain also has access to three reservoirs capable of
holding six million gallons of water for snowmaking.
Waterville Valley
Waterville Valley's major base facilities are located on the 4,004 foot
high Mt. Tecumseh and offer 255 skiable acres and a vertical drop of 2,020 feet.
Waterville Valley's 52 trails are served by 12 operating lifts, including two
high-speed quads, two triple lifts and four double lifts, which combine to
transport up to approximately 16,000 skiers uphill per hour. The resort operates
a 41,872 square foot base lodge (complete with multiple food service centers and
child care), three other base area facilities comprising approximately 27,500
square feet, a mid-mountain lodge featuring a cafeteria and deli and a
mountain-top lodge with snack bar and restaurant dining.
The Waterville Valley resort has a year-round Adventure Center offering
mountain bikers, cross-country skiers and hikers access to 105 kilometers of
trails in the White Mountain National Forest. Other resort amenities include an
ice skating arena, golf course, tennis center, sports and fitness center,
horsedrawn sleigh rides, skateboard park, beach and paddle boats. Waterville
Valley's Conference Center has 17,000 square feet of meeting space and provides
banquet facilities for up to 1,000 people. With 11 meeting rooms, a business
center, audio-visual capabilities and a self-contained pub, the Conference
Center's on-site staff supports events year-round. In 2001, Waterville Valley
was recognized as the tenth best ski resort in the East by Ski magazine.
Waterville Valley owns 35 acres on Snow Mountain and two acres at the
Conference Center. It leases 790 acres of land on Mt. Tecumseh under a Term
Special Use Permit issued by the United States Forest Service. See Part I, Item
1. "Business - Regulation and Legislation." Waterville Valley's snowmaking
system is engineered to cover 100% of the ski trails on Mt. Tecumseh. Water for
snowmaking is currently pumped from a local river and a pond. Waterville Valley
is in the process of seeking permits for additional water sources and water
storage facilities for snowmaking.
Mt. Cranmore
Mt. Cranmore is the oldest continuously operated ski area in the United
States. Located in the hub of New Hampshire's Mount Washington Valley, Mt.
Cranmore's 1,714 foot summit offers 183 skiable acres and a 1,270 foot vertical
drop. Mt. Cranmore's 39 trails are served by nine operating lifts, including one
high-speed quad, one triple lift and three double lifts, which combine to
transport up to approximately 6,000 skiers uphill per hour. The mountain is
serviced by two base lodges, offering multiple eating locations and
pub/restaurant facilities, as well as a restaurant at the summit. In addition,
Mt. Cranmore owns a year-round 46,000 square foot athletic facility which
includes five outdoor tennis courts, four indoor tennis courts, a pool, a spa, a
weight-lifting area, aerobic training rooms, an indoor climbing wall, locker
rooms, a kitchen area and nursery service. Mt. Cranmore also operates on-site
retail and rental shops.
Mt. Cranmore owns 754 acres and holds easements enabling it to develop an
additional 500 acres of ski terrain. Mt. Cranmore does not lease any of its land
from the federal government. Mt. Cranmore's snowmaking equipment consists of a
computerized weather-monitoring and snowmaking system which covers 100% of the
resort's ski trails. In addition to pumping rights from a nearby stream, Mt.
Cranmore has an understanding with the local water district for an additional
reservoir of one million gallons of water for snowmaking. In addition, Mt.
Cranmore's base area pond holds 1.5 million gallons of water.
Loon Mountain
Loon Mountain is located in the White Mountains of New Hampshire in the
town of Lincoln. The resort's 3,050 foot peak features 250 skiable acres and a
2,100 foot vertical drop. Loon Mountain's 44 trails are served by ten operating
lifts, including a four-passenger gondola, a high-speed quad, two triple lifts
and three double lifts, which combine to transport over 10,000 skiers uphill per
hour. Loon Mountain's trails cater mostly to intermediate level skiers (64%),
with trails provided for beginners (20%) and experts (16%) as well. Resort
amenities include a base lodge with a cafeteria and coffee shop, a restaurant
and deck at the summit, the Governor Adams lodge (which provides traditional
lodge facilities and also serves as a venue for summer outdoor activities and
concerts), trails for cross-country skiing, horseback riding and mountain biking
and a steam engine railroad for shuttling visitors. Loon Mountain has the
snowmaking capacity to cover approximately 96% of its skiable terrain. In 2001,
Loon Mountain was ranked as the ninth best ski resort in the East by Ski
magazine.
Loon Mountain owns 565 acres and leases 778 acres of land in the White
Mountain National Forest under a Term Special Use Permit issued by the United
States Forest Service permitting year-round recreational use. See Part I, Item
1. "Business - Regulation and Legislation." Adjacent to such land, an additional
581 acres are leased on "South Mountain" under a separate Special Use Permit
permitting certain limited activities, including mountain biking, cross-country
skiing and horseback riding. These 581 acres have been designated by management
for the eventual development, subject to permitting, of skiing terrain to
complement the current skiing area. See Part I, Item 1. "Business - Real Estate
Development."
The Summit at Snoqualmie
The Summit at Snoqualmie is located in the Cascade Mountains of Northwest
Washington and consists of four separate resorts, Alpental at the Summit
("Alpental"), Summit West, Summit Central, and Summit East, which collectively
offer 1,298 acres of skiable terrain. Individually, Alpental has a 5,400 foot
top elevation, a 2,200 foot vertical drop, 170 acres of skiable trails and runs
(93 acres of which are lighted for night skiing) and approximately 600 acres of
backcountry terrain; Summit West has a 3,860 foot top elevation, an 810 foot
vertical drop and 172 acres of skiable trails and runs (166 acres of which are
lighted for night skiing); Summit Central has a 3,860 foot top elevation, a
1,020 foot vertical drop and 246 acres of skiable trails and runs (176 acres of
which are lighted for night skiing); and Summit East has a 3,760 foot top
elevation, a 1,080 foot vertical drop and 110 acres of skiable trails and runs
(58 acres of which are lighted for night skiing). In total, the Summit complex
has 96 designated trails and runs served by 26 operating lifts, including two
high-speed quads, four triple lifts, 14 double lifts and six surface lifts,
which combine to transport up to approximately 33,000 skiers uphill per hour.
The Summit Nordic Center also offers approximately 55 kilometers of
cross-country skiing on an expert trail system and a lighted beginner student
trail which hosts a season-long night racing series. In addition, the Summit
West, Summit Central, and Summit East areas are interconnected by a cross-over
trail system. The Summit operates seven lodges which provide an aggregate of
approximately 111,175 square feet of space for food and beverage services
(restaurants and cafeterias), skier services and entertainment.
Overall, the Summit complex is one of the largest learn-to-ski areas in the
United States, with approximately 25% of its 2000/01 skier days being
attributable to guests enrolled in ski school programs. In addition, the Summit
is the largest night skiing complex in the United States, with approximately 20%
to 25% of its skier visits each season being recorded at night.
The Summit owns 686 acres of its 4,152 gross acreage, leases over 1,400
acres under a private permit and utilizes 1,864 acres of mountain terrain under
a United States Forest Service Term Special Use Permit. See Part I, Item 1.
"Business - Regulation and Legislation." The Summit typically enjoys abundant
annual snowfall, averaging 482 inches annually over the past five years. As a
result, there are no man-made snowmaking capabilities at any of the Summit
resorts. The Company does, however, possess water rights that would allow it to
engage in snowmaking, if necessary or desired in the long term.
Business Segments and Principal Products
The Company operates in two business segments: resort operations and real
estate and other. Business segment information is presented in Note 14 to the
accompanying consolidated financial statements.
The Company's principal products from resort operations include lift
tickets, season passes, snow school lessons, equipment rentals, retail sales,
food and beverage operations and other ancillary products and services. See Part
II, Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - General," for information regarding the composition of
the Company's resort operations revenues for the last three fiscal years.
Real Estate Development
The Company has certain holdings of land suitable for either the expansion
of ski terrain or the development of residential and commercial properties. The
Company also has terrain expansion opportunities on land within its current
United States Forest Service permits as well as land owned by third parties. In
management's view, increasing the on-mountain bed base, expanding retail and
other commercial services and developing additional skiable terrain at a resort
can accelerate growth in skier days and ski-related revenues.
The Company's real estate development strategy for residential and
commercial properties is comprised of the following components: (1) to build
recurring resort cash flow through increased bed base and diversification of
revenue sources, (2) to partner with proven real estate developers, (3) to
invest on a limited basis in land and infrastructure development in conjunction
with the development of single family lots at Northstar, and (4) to refrain from
investment in vertical or commercial development except in conjunction with the
development of ski related facilities.
The Company's strategy with regard to the expansion of skiable terrain at
its resorts is based on the evaluation of several key factors, including (i) the
anticipated growth of the skier base within the relevant market and the
Company's ability to improve its competitive position in that market, as
measured by the potential increase in the number of skier days and revenue per
skier on a long-term basis which the Company believes it can capture through
expansion and upgrades, and (ii) the return on capital expected to be realized
from an expansion project versus alternative projects. Management undertakes
extensive planning and pre-development steps prior to investing significant
capital into any development project. Currently, the Company is in the process
of developing comprehensive master plans and obtaining entitlements (e.g.,
zoning approvals) for Northstar, Loon Mountain, Waterville Valley and the
Summit. In management's view, the expansion projects at Northstar and Loon
Mountain represent the Company's highest development opportunities, and would
likely take priority over the pursuit of expansion and development initiatives
at the Company's other resorts.
The Company's resorts have traditionally taken a conservative approach
toward residential and commercial development and real estate development
efforts have taken place primarily at Northstar. Beginning in 1995, the resort
developed a single family home community on Mt. Pluto ("Big Springs") consisting
of 158 private residential lots. The last two phases of Big Springs, which
consisted of 47 lots, were substantially sold out during the summer of 1999. The
average price for a one third acre lot was $305,000.
Current and future single family residential development at Northstar is
limited based on the present real estate master development plan. The plan calls
for the development of approximately 56 additional single family lots in three
phases or subdivisions known as "Unit 7", "Unit 7A" and "Unit 7B."
The property underlying the Unit 7 development lots was sold by Trimont
Land Company ("TLC"), the owner and operator of Northstar and a wholly-owned
subsidiary of the Company, to Trimont Land Holdings, Inc. ("TLH"), a
wholly-owned subsidiary of Parent and an affiliate of the Company, on November
17, 1999. The Company obtained a fairness opinion for the transaction from an
independent firm qualified in the subject matter of the transaction. See Note 9
to the accompanying consolidated financial statements. Under the terms of the
transaction with TLH, the Company is entitled to receive any excess net cash
proceeds (over the proceeds received in November 1999) from the subsequent
resale of the lots by TLH.
During December 2001, TLH consummated the sale of seven Unit 7 lots for net
proceeds of approximately $3,300,000. As the net proceeds of the seven lot sales
were less than the $6,000,000 in cash initially paid by TLH for the underlying
real estate, no additional cash proceeds were distributed to TLC. TLH intends to
market and sell the remaining 19 unsold Unit 7 lots during 2002.
The Company is currently proceeding with the entitlement process and
pre-construction activities for the Unit 7A subdivision, which is expected to
consist of approximately 15 single family lots. Depending on market conditions
and demand for the remaining Unit 7 lots, the Company expects to develop and
market the Unit 7A lots during either the Summer/Fall of 2002 or sometime in
2003. The entitlement and approval process for the Unit 7B subdivision, which is
expected to consist of approximately 15 lots, is at a preliminary stage.
On September 22, 2000, TLC and TLH entered into an Agreement for Purchase
and Sale of Real Property (the "Northstar Real Estate Agreement") relating to
certain development real estate at Northstar. Pursuant to the Northstar Real
Estate Agreement, TLC agreed to sell to TLH certain development real estate
consisting of approximately 550 acres of land located at Northstar (the
"Development Real Estate") for a total purchase price of $27,600,000, of which
85% is payable in cash and 15% is payable in the form of convertible secured
subordinated promissory notes. The purchase price was based on an appraisal
obtained from an independent third party appraiser. In addition to receiving the
fair market value for the Development Real Estate, under the terms of the
Northstar Real Estate Agreement (i) TLH or its joint venture partner, East West
Partners, Inc. (together with its affiliates, "East West"), is required, at its
expense, to pay for substantially all mitigation costs associated with the
development project, and (ii) TLH is obligated to reconvey to TLC certain excess
land following the subdivision of the Development Real Estate. TLC maintained
significant approval rights over various aspects of the real estate development,
as well as development activities that could impact resort operations at
Northstar.
In connection with the execution of the Northstar Real Estate Agreement,
TLH and East West entered into a joint venture agreement (the "East West Joint
Venture") providing for the development of the property purchased by TLH and
subsequently transferred to the East West Joint Venture. The proposed project
contemplated by the East West Joint Venture includes the development of a
mixture of at least 1,800 hotel, condominium, townhome and time share units, as
well as significant additional commercial/retail space in and around Northstar.
Under the East West Joint Venture, TLH retains financial responsibility for
approximately $5,000,000 of costs associated with the development of the
infrastructure of the Development Real Estate.
On September 22, 2000, TLC and TLH consummated the sale of the initial land
parcels contemplated by the Northstar Real Estate Agreement, and TLC transferred
the bulk of the Development Real Estate to TLH for a total purchase price of
$21,000,000, of which $17,850,000, or 85%, was paid in cash and $3,150,000, or
15%, was paid in the form of a convertible secured subordinated promissory note.
The sale of the remaining Development Real Estate under the Northstar Real
Estate Agreement is subject to certain subdivision requirements to effect the
transfer of such property and other normal and customary closing conditions, and
is expected to be consummated in 2002.
Management believes that the expected substantial increase in on-mountain
bed base from the East West development will result in increased visitation to
Northstar and increased skier days, thereby enhancing the value and
profitability of Northstar's resort operations. The Company has been able to
secure these benefits without incurring the economic risks associated with real
estate development.
The Company intends to enhance the ski terrain at the Northstar resort by
upgrading the existing trails and lifts, reducing or eliminating on-mountain
bottlenecks and providing better access to and from the resort's existing base
area. During 1999 and 2000, five trails were cut on Lookout Mountain and a new
detachable quad lift was constructed to provide new advanced skiing terrain at
the resort. The Company has preliminarily identified a number of other sites
within Northstar's present boundaries that are suitable for future expansion.
Such expansion is expected to occur concurrently with the anticipated bed base
expansion resulting from the East West development. In addition, in 2000 and
2001 the Company expanded and improved the existing snowmaking system at
Northstar in order to lessen the influence of unfavorable weather, which can
negatively impact operating conditions at the resort. The Company is studying
further alternatives for the continued expansion and improvement of Northstar's
snowmaking system. Any lift construction or terrain expansion would require
customary permits and approvals, and no assurance can be given that the Company
will be able to develop any additional terrain at Northstar or, if completed,
any such projects will be successful.
In addition, Northstar has a program to harvest timber through third party
contracting. The timber harvesting program, which produced revenues of $276,000
during the year ended November 2, 2001, is managed carefully to avoid
interference with Northstar's resort operations and prevent any diminution in
the quality of the resort's natural environment.
Loon Mountain currently leases approximately 581 acres known as "South
Mountain" from the Forest Service. Although currently limited to recreational
uses other than downhill skiing, this permitted area has been designated by both
Loon Mountain and the Forest Service as an area for expanded skiing activities
and the development of additional trails and lifts. A permit allowing this
expansion was issued by the United States Forest Service in 1993, but was
subsequently invalidated by the U.S. Court of Appeals due to litigation brought
by third parties. See Part I, Item 3. "Legal Proceedings." Pending the issuance
of additional permits, expansion on South Mountain depends upon the Company and
United States Forest Service fulfilling the requirements, including the
preparation of supplemental National Environmental Policy Act ("NEPA")
documentation, of a court order issued by the federal district court to which
the related litigation was remanded. Based on discussions with the United States
Forest Service, the Company expects final NEPA documentation to be issued in the
first half of 2002. The available South Mountain land is located in an area
directly adjacent to the present Loon Mountain ski area and would be able to
accommodate alpine and cross country trails, ski lifts (including one connecting
the current ski area with South Mountain) and snowmaking from newly installed
snowmaking facilities. Expansion and upgrades to the resort would serve to
better meet and fulfill the anticipated needs of guests by enhancing the quality
and diversity of skiable terrain. Loon Mountain owns 327 acres of land located
at the base of South Mountain and approximately 5 acres at the base of the
existing ski area. The current zoning for this property is rural residential and
general use, and would allow for, subject to approvals, construction of a
maximum of 997 units. Loon Mountain also owns (1) approximately 32 acres of land
with existing approvals for development of 31 single family lots, and (2) 49
acres of land which is zoned rural residential and could accommodate up to a
maximum of 147 additional units, subject to receipt of applicable approvals. The
timing and scope of development will depend on market conditions, the Company's
financial position and an evaluation of the Company's other expansion
opportunities.
Bear Mountain has received approval from the United States Forest Service
and local governmental authorities of an expansion plan that would, among other
things, increase the resort's skiable terrain by 114 acres and increase daily
skier capacity by approximately 25%. The approval, however, is subject to
numerous mitigation conditions, including a requirement that Bear Mountain
acquire and dedicate to the United States Forest Service two acres of spotted
owl habitat and one acre of flying squirrel habitat in exchange for each acre
proposed for development. Bear Mountain has also entered into a developer's
agreement with the City of Big Bear Lake that generally authorizes, subject to
certain conditions, the construction of up to 56 condominium units on resort
operating property owned by Bear Mountain. However, portions of the potential
condominium development property are currently used in the operation of the
existing ski resort, and any proposed development plans could possibly be
constrained by operating requirements at Bear Mountain. The Company does not
presently have any immediate expansion or development plans for Bear Mountain,
and any future expansion or development would depend on a variety of factors,
including local market conditions, the Company's financial position and the
resolution of regulatory and United States Forest Service permitting issues.
Mt. Cranmore holds a perpetual easement entitling it to develop at least
500 acres of additional ski terrain known as the "Black Cap Mountain area" or
"Black Cap." The Black Cap easement was granted in 1951 and allows the Company
to expand Mt. Cranmore's existing ski and recreational infrastructure and
develop additional trails. The Black Cap property underlying the Company's
easement is privately owned by a third party. The Black Cap land available for
development by the Company is high-quality, mostly north and west-facing ski
terrain located in an area that can accommodate alpine and cross-country trails,
ski lifts and snowmaking. Expansion could increase Mt. Cranmore's skier
capacity, and could enhance the quality and diversity of its skiable terrain.
Given the resort's location in the heart of the Mt. Washington region, the
dominant tourist destination in New Hampshire, the Company believes that
expansion into Black Cap could position Mt. Cranmore as a premier attraction in
the White Mountains and one of the larger and more appealing resorts in New
Hampshire. Additionally, Mt. Cranmore has 35 acres of privately owned land at
the southwest flank of the mountain. This southwest facing ski-in/ski-out land
is very suitable for development. The Company does not have any immediate
expansion or development plans for Mt. Cranmore and the timing and scope of any
development will depend on market conditions, the Company's financial position
and the Company's other expansion opportunities.
The Summit owns 66 acres of real property on various parcels on and around
its resorts, a portion of which is available for residential development. The
developmental real estate at the Summit is owned by DRE, L.L.C. (the "Real
Estate LLC"), a subsidiary of the Company. The Summit also owns 39 acres of real
property at Summit East that is ski-to/ski-from and is zoned as high-density
residential and commercial. Any potential real estate development activities at
the Summit could be constrained by existing or future planned resort operations
at the Summit. The Summit's development parcels will be studied for future
development potential when market conditions warrant.
The Company has no agreements, arrangements or understandings with respect
to financing the development of any of the real estate projects discussed
herein. Any future development would be subject to, among other things, the
Company's ability to obtain the necessary financing and all necessary permits
and approvals. The Senior Credit Facility, the Indenture and the Securities
Purchase Agreements (as defined herein) each contain restrictive covenants that
may significantly limit the Company's ability to pursue real estate development
opportunities. No assurance can be given that the Company will develop any
additional properties or, if completed, any such projects will be successful.
Moreover, there can be no assurances that the East West development at Northstar
will be successful or be completed as currently planned, or that such
development will have the currently anticipated favorable effects on the
Company's resort operations. In addition, there are significant risks inherent
in any expansion project and in the implementation of the Company's development
strategy.
Marketing and Sales
Staff
The Company has a marketing and sales staff of approximately 50 persons,
including a marketing director at each resort who reports to the Vice President
of Marketing and Sales, as well as to each resort's general manager. The
marketing staff at each resort is responsible for the development of
resort-specific marketing plans including advertising, sales, public relations,
events, promotions, Internet strategies and research. Each resorts' marketing
personnel also participate in the development of the Company's overall marketing
strategy.
Strategy
The Company's marketing plans are designed to attract both day skiers and
vacationers by emphasizing the Company's diverse facilities and services and
proximity to approximately 20% of the total skiers in the United States. The
Company has positioned each of its resorts as an attractive alternative to
competing regional resorts and to other forms of leisure and entertainment. The
primary objectives of the Company's marketing efforts are to (i) increase each
of its resorts' relative market share, (ii) expand the number of skiers in each
of its markets, (iii) increase skier visitation frequency, (iv) increase the
expenditures of each of its visitors, (v) attract and retain new guests to the
Company's resorts by expanding the scope of Booth Creek's resorts to winter
recreation centers offering a multitude of snowsport options in addition to
skiing and snowboarding, and (vi) develop products and execute sales efforts
that provide advance bookings and sales.
The Company's marketing efforts are predicated on knowing its guests and
understanding the markets in which it competes. Accordingly, the Company's
resorts, typically through professional firms, conduct extensive market
research, including on-site guest surveys, focus groups, advertising tests and
phone and Internet surveys. Each of the Company's resorts develops its own
resort-specific marketing program based upon its unique qualities and
characteristics as well as the demographics of its skier base.
Programs
The Company has developed a number of specific marketing and sales programs
to achieve its objectives, including the following:
o Customer loyalty and season pass programs
o Sales initiatives
o Multimedia advertising (including Internet strategies)
o Data-base marketing programs (including e-mail broadcasting)
o Snowsport development programs (programs include a multitude of
snowsport options such as snowbikes, snowscoots and tubing as well as
more traditional skiing and snowboarding)
o Strategic marketing alliances
o School, group and business affiliations
Customer loyalty and season pass programs. The Company believes that the
success of each of its resorts depends, in large part, on its ability to retain
and increase the skier visitation frequency of its existing customer base. The
Company believes a critical component to developing customer frequency will be
the success of its customer loyalty programs, including its Vertical Plus
frequent skier programs in place at the Company's California resorts. For an
annual membership fee, Vertical Plus members receive a special, personalized
identification wristband containing a preprogrammed computer microchip which
acts as their lift access for the season. In addition to offering daily ticket
discounts, the system tracks the amount of vertical feet skied at participating
resorts and rewards members with prizes based on the number of vertical feet
skied in a season. Other benefits of the program include members-only lift
lines, direct lift access, the convenience of being able to make cashless retail
transactions and electronic messaging. In addition, over the past several years,
the Company's resorts successfully introduced new season pass products that were
attractively priced to entice visitation during non-peak periods, stimulate
demand, attract market share and develop guest loyalty. The Company is
continuing its successful season pass initiatives for the 2001/02 ski season.
Sales Initiatives. The Company's sales initiatives include a variety of
programs designed to increase and enhance buying opportunities for its customers
in order to provide a complete vacation experience. Through merchandising
efforts, increasing sales outlets and channels, sales training for front-line
employees, on-site and Internet-based promotions and other marketing efforts,
the Company seeks to increase sales of products and services to its customers
and generate additional revenue per skier visit.
Multimedia advertising. The Company's marketing efforts include print,
broadcast, outdoor, Internet and direct mail advertising, with the particular
method tailored for each resort and existing market opportunities. The Company
is also very active in a variety of promotional programs designed to attract
guests from population centers in and around the Los Angeles, San Diego, San
Francisco, Sacramento, Seattle and Boston metropolitan areas and states with
large skier populations such as Texas, Illinois, Florida and New York. For
example, the Company's Northstar and Sierra resorts have participated in
extensive cooperative marketing with other Lake Tahoe resorts to promote the
region as a premier vacation destination. Market research has shown that the
typical Booth Creek guest utilizes the Internet extensively as a source of
information and additional Company resources have been concentrated towards this
communication vehicle. For the 2001/02 ski season, Booth Creek will continue to
feature e-commerce "virtual stores" on each resort's website offering products
such as season passes, loyalty program memberships, gift certificates and
lodging/lift packages as well as private lessons, child care and lift tickets.
Data-base marketing programs. Through the information obtained from its
customer loyalty and season pass programs, extensive market surveys and other
market research, the Company maintains a data-base containing detailed
information on its existing customers. Management believes that data-base
marketing is an effective and efficient method to identify, target and maintain
an on-going relationship with the Company's best customers. For example, the
Company has been successful in the use of targeted direct mailings and e-mail
broadcasts, which are designed to match customer preferences with special offers
to build volume and penetration.
Snowsport development programs. The Company's resorts operate a variety of
snowsport development programs designed to improve the skills of children and
beginners, as well as more advanced skiers and snowboarders. The Company's
resorts operate ski schools that are consistently rated among the best in their
respective regions. In addition, several of the Company's resorts have
introduced a development program, geared toward intermediate and advanced
skiers, which offers free specialized instruction and daily training. This
program has increased guest loyalty and repeat visitation. In addition, Booth
Creek is expanding the definition of ski and snowboard areas to winter
recreation centers. Resorts are offering a multitude of unique options for
sliding on snow. "Booth Creek Hill Thrill Centers" include snow tubing,
snowbikes, snowfoxes and snowscoots. Many of these are low-skill, high-sensation
activities that even those who have never skied or snowboarded can enjoy. There
are also transferable learning skills from these sliding devices to learning to
ski or snowboard. Other efforts have been instituted at all resorts to embrace
and welcome new participants to the sport of skiing or snowboarding.
Strategic marketing alliances. The Company is a national ski resort
operator with approximately 2.5 million skier days recorded during the 2000/01
ski season. At least one of the Company's resorts is within driving distance of
four of the five largest ski markets in the United States. Sponsorship
opportunities include potential relationships with automobile manufacturers,
soft drink companies, and ski and snowboard equipment manufacturers. For
example, Northstar and Sierra have relationships with major automobile
manufacturers that involve over $2 million worth of television exposure, free
use of vehicles for Company purposes and a vehicle give-away promotion for
resort guests. This provides exposure of Booth Creek's largest resort to a
targeted audience of skiers in key markets.
School, group and business affiliations. The Company is dedicated to
developing special programs designed to attract school, business and other
groups. By introducing skiing, snowboarding and other methods of sliding on snow
to a wider audience, these programs broaden the Company's customer base and have
proven to be a particularly effective way to build name recognition and brand
loyalty. Sales personnel at each resort provide year-round assistance to group
leaders in organizing and developing events. Business affiliations are developed
and maintained through corporate ticket programs, whereby participating
businesses are given an opportunity to provide their employees with
incentive-based pricing.
Seasonality
The business of the Company is highly seasonal, with the vast majority of
its annual revenues expected to be generated between November and April of each
fiscal year. Management considers it essential to achieve optimal operating
results during key holidays and weekends during this period. The Company's
results of operations are, in turn, significantly dependent on favorable weather
conditions and other factors beyond the Company's control. In prior years, the
Company sought to partially mitigate the downside risk of its seasonal business
by purchasing paid skier visit insurance policies. However, the Company did not
obtain paid skier visit insurance coverage for its resorts for the 2001/02 ski
season as effective policies were not available on commercially viable terms.
During the off-season months of May through October, the Company's resorts
typically experience a substantial reduction in labor and utility expense due to
the absence of ski operations, but make significant expenditures for
maintenance, expansion and capital improvements in preparation for the ensuing
ski season.
Competition
The general unavailability of new developable ski mountains, regulatory
requirements and the high costs and expertise required to build and operate
resorts present significant barriers to entry in the ski industry. The last
major new ski resort to open in the United States was in 1989, and in the past
15 years, management believes at least 85 proposed resorts have been stalled or
abandoned due to environmental issues and the high costs of entering into the
capital intensive ski industry. The domestic ski industry is currently comprised
of approximately 490 resorts and is highly competitive. The Company's
competitive position in the markets in which it competes is dependent upon many
diverse factors, including proximity to population centers, pricing, snowmaking
capabilities, type and quality of skiing offered, prevailing weather conditions,
quality and price of complementary services.
The Company's Lake Tahoe resorts, Northstar and Sierra, face strong
competition from Lake Tahoe's five other major ski resorts. Northstar's primary
competition in the North Lake Tahoe area is from Squaw Valley, Alpine Meadows
and Sugar Bowl. Northstar also competes with major ski and non-ski destination
resorts throughout North America. Sierra primarily competes in the South Lake
Tahoe area with Heavenly and Kirkwood. The Company's other California resort,
Bear Mountain, competes primarily with Snow Summit, Mountain High and Mammoth
Mountain.
The Company's New England resorts, Waterville Valley, Mt. Cranmore and Loon
Mountain, compete in the highly competitive Northeast ski market, which consists
of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut and
New York. Within the Northeast region, skiers can choose from over 50 major
resorts and ski areas, most of which are located in the mountainous areas of New
England and eastern New York. Waterville Valley's primary regional competitors
include Bretton Woods, Mount Sunapee, Attitash/Bear Peak and Gunstock. Mt.
Cranmore's primary regional competitors are Attitash/Bear Peak, Wildcat, Bretton
Woods and Gunstock. Loon Mountain's primary regional competitors are Okemo,
Bretton Woods, Cannon Mountain, Mount Sunapee and Sunday River.
The Summit competes primarily with eleven other ski resorts in Washington,
including Crystal Mountain, Stevens Pass, White Pass, Mission Ridge and Mt.
Baker. Additional competition comes from the regional destination resorts at Mt.
Bachelor, Mt. Hood Meadows, Sun Valley and Whistler/Blackcomb, as well as other
day and weekend ski facilities in Oregon and British Columbia.
On a regional basis, at least one of the Company's resorts is readily
accessible to four of the five largest ski markets in the United States.
Management estimates that more than 70% of the skiers visiting the Company's
Lake Tahoe resorts are from the San Francisco/San Jose, Sacramento, Central
California Valley and Lake Tahoe regions, while more than 90% of Bear Mountain's
skiers are from the Los Angeles, Orange County and San Diego metropolitan areas.
Waterville Valley, Mt. Cranmore and Loon Mountain are estimated to attract more
than 75% of their guests from Massachusetts and New Hampshire, with a large
percentage of such visitors coming from the Boston metropolitan area. The Summit
attracts more than 90% of its guests from the Seattle/Tacoma metropolitan
region.
Regulation and Legislation
The Company's operations are dependent upon its ownership or control over
the real property used in its ski operations at each resort. The real property
presently used at the Northstar and Mt. Cranmore resorts is owned by the Company
or controlled by easements. The Company has the right to use a substantial
portion of the real property associated with the Bear Mountain, Sierra, Summit
and Waterville Valley resorts under the terms of Term Special Use Permits issued
by the United States Forest Service. The Bear Mountain permit expires in 2020,
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 United States Forest Service permits. In
1993, the United States Forest Service authorized various lift, trail and
snowmaking improvements on Loon Mountain and an expansion onto South Mountain.
In 1996, the United States Court of Appeals for the First Circuit (the "First
Circuit") overturned this authorization on the ground that the United States
Forest Service had failed to properly address certain environmental issues under
the National Environmental Policy Act ("NEPA"). Certain improvements, including
a snowmaking pipeline and part of the expansion, had been constructed before the
First Circuit ruled. On May 5, 1997, the United States District Court for the
District of New Hampshire (the "District Court") entered a stipulated order
which authorized existing improvements to remain in place and existing
operations to continue but generally prohibited future construction, restricted
use of a major snowmaking water source, and required certain water discharge
permits to be pursued, pending United States Forest Service reconsideration of
the projects under NEPA. These authorizations and limitations were incorporated
into the final order issued by the District Court on December 11, 1998, and will
remain in effect until the United States Forest Service completes its NEPA
review and issues a new decision. On February 12, 1999, the District Court
agreed that the United States Forest Service may combine this NEPA review with
its evaluation and analysis of the existing snowmaking pipeline. The United
States Forest Service issued a draft Environmental Impact Statement in January
2001. Based on discussions with the United States Forest Service, the Company
expects final NEPA documentation to be issued in the first half of 2002.
In August 1997, the United States Forest Service authorized the Loon
Mountain resort to construct a new snowmaking pipeline across permitted land.
The United States Forest Service found that such construction was consistent
with the District Court order and enabled the resort to modify its snowmaking
operations to better protect water resources and replace snowmaking capacity
lost under the order. Although the pipeline was completed, its use was
challenged by private parties who asserted that the United States Forest Service
violated NEPA. On January 20, 1998, the District Court issued a decision finding
that the United States Forest Service violated NEPA in failing to address the
potential for the new pipeline to increase the amount of snow made and any
associated environmental effects. On March 10, 1998, the District Court issued a
series of further orders which, among other things, directed the United States
Forest Service to re-evaluate the pipeline and enjoined Loon Mountain from using
the pipeline pending further action by the court. On July 2, 1998, the United
States Forest Service issued a new decision approving the pipeline, which was
challenged by several private parties, who again asserted that it violated NEPA.
The United States Forest Service subsequently withdrew its decision authorizing
the pipeline to conduct further review and the District Court consolidated the
lawsuits concerning the pipeline. On November 19, 1998, the District Court
modified the injunction, allowing Loon Mountain to use the pipeline to withdraw
and convert 159.7 million gallons of water per ski season into snow while the
United States Forest Service further reviewed the pipeline under NEPA. On
February 12, 1999, the District Court issued a final order, which dismissed the
consolidated lawsuit concerning the pipeline in light of the United States
Forest Service's decision to conduct further review of the pipeline, and
specified that the limitation on pipeline usage will continue until that review
is completed and a new decision is issued. Such order remains in effect until
the additional NEPA documentation is completed and the United States Forest
Service issues a new decision on the pipeline, which is currently anticipated to
occur in the first half of 2002.
Existing use of Loon Mountain is authorized under a Term Special Use
Permit, which covers facilities and expires in 2006; existing non-skiing use of
Loon Mountain's South Mountain area is authorized under an annual permit issued
by the United States Forest Service that is subject to reissuance each year.
After the United States Forest Service reconsiders the pipeline improvements and
expansion under NEPA, it will need to render a new decision and, if appropriate,
issue a new Term Special Use Permit. At that time, the conditions imposed by the
two District Court orders will terminate. Based upon the existing administrative
record, and certain proposed modifications to the resort's snowmaking operations
which are intended to better protect water resources, the Company expects that
the pipeline improvements and expansion will be approved by the United States
Forest Service. However, no assurance can be given regarding the timing or
outcome of this process.
The United States 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 United States 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, ski school lesson, food and beverage, rental
equipment and retail merchandise sales. Total fees paid to the United States
Forest Service by the Company during the year ended November 2, 2001 were
$1,215,000.
The Company believes that its relations with the United States 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 United States 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
permitee; however, the United States Forest Service would be required to notify
the Company of the grounds for such action and to provide it with reasonable
time to correct any curable non-compliance.
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. Except as described in this section, management believes that the
Company's resorts are presently in compliance with all land use and
environmental laws, except where non-compliance is not expected to result in a
material adverse effect on its financial condition. The Company also believes
that the cost of complying with known requirements, as well as anticipated
investigation and remediation activities, will not have a material adverse
effect on its financial condition or future results of operations. However,
failure to comply with such laws could result in the imposition of severe
penalties and other costs or restrictions on operations by government agencies
or courts that could 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, not renewed, or 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 United States
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.
Bear Mountain operates in an area subject to an air emissions reduction
program and regulated by the South Coast Air Quality Management District
("SCAQMD") in California. Prior to mid 2000, the Company anticipated that Bear
Mountain would eventually be required to participate in an emission credit
program whereby Bear Mountain would be permitted to operate its diesel-fueled
snowmaking compressor engines if it acquired "banked" emission credits from
SCAQMD-regulated facilities which had already implemented nitrogen oxide
emission reduction programs. However, in August 2000 the Company was notified
that SCAQMD will not allow Bear Mountain to participate in the emission credits
program and, further, that Bear Mountain's applications to operate the engines
were denied because they were not equipped with the "Best Available Control
Technology," thus violating SCAQMD rules. Recognizing the importance of the
current compressor engines to Bear Mountain's operations, SCAQMD and Bear
Mountain agreed to a Stipulated Order of Abatement whereby Bear Mountain is
subject to certain requirements including investigating and implementing a
remedial alternative according to a particular timeline through 2002, record
keeping and reporting to SCAQMD, payment of certain usage fees, and particular
interim operational dictates concerning the engines. Pursuant to the Stipulated
Order of Abatement, Bear Mountain is required to implement a remedial
alternative by October 15, 2002. Depending on the alternative selected and the
manner in which it is implemented, the resolution of this matter may require
capital expenditures of approximately $1 million for new equipment. However, no
assurance can be made regarding the outcome or timing of resolution of this
matter.
Pursuant to the previously described decision of the First Circuit and the
order of the District Court, Loon Mountain applied for and was issued, by the
Environmental Protection Agency ("EPA"), a Clean Water Act (the "CWA") discharge
permit covering discharges associated with its snowmaking operations. Certain
ongoing discharges are authorized by the District Court order pending final
action on the permit and subject to the District Court's reserved power to
modify such approval to address any resulting environmental issues.
Certain regulatory approvals associated with the new snowmaking pipeline at
Loon Mountain, as well as certain contractual obligations, impose minimum stream
flow requirements on Loon Mountain. These requirements will compel Loon Mountain
to construct water storage facilities within approximately five years, and such
construction will 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.
In addition, Loon Mountain was notified in September 1997 that it had
allegedly filled certain wetlands at the resort in violation of the CWA. In
response, Loon Mountain worked with the EPA to remove the alleged fill and
implement certain erosion control measures. On January 15, 1998, an individual
notified the EPA, Loon Mountain, and certain other persons that he intended to
initiate a lawsuit under the CWA regarding the alleged wetland violation. On
February 2, 1998, the EPA wrote to such individual stating that the alleged fill
had been removed and that the EPA does not believe there is a continuing
violation at the site. On January 18, 2000, in papers filed in connection with
the District Court's modification of the final order in the pipeline litigation,
the same individual again alleged that Loon Mountain had previously filled
wetlands in violation of the CWA. The same individual has orally advised the
Company that he still intends to initiate a lawsuit under the CWA regarding the
alleged wetland fill.
Except for certain permitting and environmental compliance matters relating
to the Loon Mountain and Bear Mountain resorts described above and in Part I,
Item 3. "Legal Proceedings," the Company has not received any notice of material
non-compliance with permits, licenses or approvals necessary for the operation
of its properties or of any material liability under any environmental law or
regulation.
Employees
As of December 31, 2001, the Company employed a full-time corporate staff
of 36 persons. In addition, the Company's resorts employ an aggregate of
approximately 500 full-time and approximately 5,500 seasonal employees. None of
the employees of the Company or its resorts is represented by a labor union, and
the Company considers its employee relations to be good.
Item 2. Properties
Northstar consists of approximately 8,000 acres of land privately owned by
the Company. Sierra owns 20 acres of its 1,689 gross acreage and leases the
remainder under a Term Special Use Permit with the United States Forest Service.
Bear Mountain owns 116 of its 819 gross acreage, leases 698 acres of mountain
terrain under a Forest Service Term Special Use Permit and leases five acres
from third parties. Waterville Valley owns 35 acres on Snow Mountain and two
acres at the Conference Center, and leases 790 acres of land on Mt. Tecumseh
from the federal government under a Term Special Use Permit issued by the Forest
Service. Mt. Cranmore owns 754 acres and holds deeded easements enabling it to
develop an additional 500 acres of ski terrain. The Summit owns 686 acres of its
4,152 gross acreage, leases over 1,400 acres under a private permit and utilizes
1,864 acres of mountain terrain under a Forest Service Term Special Use Permit.
Loon Mountain owns 565 acres and leases 778 acres of land in the White Mountain
National Forest under a Term Special Use Permit issued by the United States
Forest Service permitting year-round recreational use. Adjacent to such land, an
additional 581 acres are leased on "South Mountain" under a separate Special Use
Permit permitting certain limited activities, including mountain biking, cross
country skiing and horseback riding. In addition, each of the Company's resorts
have ski lodges and other facilities that management believes are suitable for
the Company's current operations. For further information regarding the
Company's properties, see Part I, Item 1. "Business - Resort Operations" and "-
Regulation and Legislation."
Item 3. Legal Proceedings
Each of the Company's resorts has pending and is regularly subject to
litigation, and the threat thereof, with respect to personal injury claims
relating principally to skiing activities at its resorts as well as to premises
and vehicular operations and worker's 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 merger with Loon Mountain Recreation Corporation
("LMRC"), certain shareholders of LMRC (the "LMRC Shareholder Plaintiffs") filed
a lawsuit against LMRC and its former directors alleging breach of fiduciary
duty and against the Company alleging that the Company aided and abetted the
former directors' breach of fiduciary duty and failed to comply with the New
Hampshire Security Takeover Disclosure Act (the "Takeover Statute") in
connection with the transaction. The two lawsuits were consolidated in the
Superior Court of Grafton County, New Hampshire. The Company answered the LMRC
Shareholder Plaintiffs' petition and filed a motion to dismiss the LMRC
Shareholder Plaintiffs' action against the Company asserting that the Takeover
Statute did not apply to the transaction as a matter of law. The court initially
denied the Company's motion to dismiss but granted the motion to dismiss upon
reconsideration. The LMRC Shareholder Plaintiffs appealed the dismissal to the
New Hampshire Supreme Court. The New Hampshire Supreme Court upheld the Superior
Court's dismissal of the plaintiffs' claim under the Takeover Statute in a
ruling issued on November 20, 2001.
The LMRC Shareholder Plaintiffs have amended their breach of fiduciary duty
claims to seek money damages against the Company, LMRC and its former directors.
The trial for the LMRC Shareholder Plaintiffs' breach of fiduciary duty claims,
which was consolidated with the Corporation Act case described below, concluded
on January 16, 2002. A decision is anticipated by the end of February 2002. If
the LMRC Shareholder Plaintiffs are successful in obtaining a judgment against
the former LMRC directors, the Company may have certain obligations to indemnify
the former directors pursuant to the former LMRC by-laws. While the Company does
not believe that the LMRC Shareholder Plaintiffs will prevail in this lawsuit,
no assurances can be made regarding the outcome of this litigation.
On February 22, 2001, certain additional former shareholders of LMRC who
are family members of one of the LMRC Shareholder Plaintiffs commenced an action
which is currently pending in the Superior Court of Hillsborough County, New
Hampshire seeking damages for breach of fiduciary duty against the former LMRC
directors, breach of contract against the former LMRC directors and the Company
and violations of the New Hampshire Consumer Protection Statute. The plaintiffs
formerly held 4,375 shares of LMRC common stock. The Company and the former LMRC
directors have filed a motion which remains pending to dismiss the claims on the
grounds that they fail to state a valid cause of action and are barred by the
statute of limitations. The Company believes it has meritorious defenses to
these claims and intends to vigorously defend them.
Also in connection with the merger with LMRC, the LMRC Shareholder
Plaintiffs exercised dissenters' rights under the New Hampshire Business
Corporation Act (the "Corporation Act"). Under the statutory procedure for
settling the LMRC Shareholder Plaintiffs' dissenters' rights, LMRC paid the
plaintiffs an aggregate of $34,436, or $30.61 per share, as its estimate of the
fair value of their 1,125 shares. The LMRC Shareholder Plaintiffs demanded
additional payments necessary to compensate them for the $71.38 per share price,
plus interest, which they asserted as the fair value of their shares. By
disclosure dated March 17, 2000 the LMRC Shareholder Plaintiffs' expert has
revised his opinion of fair value to $91.90 per share. Pursuant to the
Corporation Act, LMRC commenced a proceeding in the Superior Court of Grafton
County, New Hampshire seeking a judicial appraisal of the value of the LMRC
Shareholder Plaintiffs' shares in LMRC. The matter was consolidated for trial
with the fiduciary duty case described above. The trial for these matters
concluded on January 16, 2002, and a ruling is anticipated by the end of
February 2002. While the Company believes that the amount paid to the LMRC
Shareholder Plaintiffs prior to the commencement of the appraisal proceeding
represents the fair value of their shares, there can be no assurance as to the
value which the appraisal proceeding will assign to the LMRC Shareholder
Plaintiffs' 1,125 shares.
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 facilities on Loon Mountain and an
expansion of the Loon Mountain resort on to South Mountain. LMRC and an
environmental group intervened in the lawsuit. The District Court entered
summary judgment for the Forest Service on all claims and the original
plaintiff, along with the intervening environmental group (collectively or
individually, the "Environmental Plaintiffs"), appealed. In December 1996, the
United States Court of Appeals for the First Circuit (the "First Circuit")
reversed the District Court decision and ruled that the Forest Service must
reconsider certain environmental issues under NEPA and that LMRC must obtain a
discharge permit under the CWA for certain discharges from its snowmaking
system. The District Court then entered a stipulated order that: enjoins LMRC
from any further construction implementing the project with certain limited
exceptions; imposes various restrictions on LMRC's existing snowmaking
operations and requires LMRC to apply for a CWA discharge permit for discharges
of water and any pollutants associated with its snowmaking; allows existing
construction to remain in place and existing uses to continue; requires LMRC to
undertake certain erosion control and monitoring measures; requires the Forest
Service to prepare supplemental NEPA documentation on the improvements and
expansion; and reserves the right to require restoration of areas developed
under the original Forest Service approval to their preexisting condition if not
ultimately re-approved by the Forest Service. This order remains in effect until
the supplemental NEPA process is completed. Based on discussions with the Forest
Service, the Company expects final NEPA documentation to be issued during the
first half of 2002. However, the Company can give no assurance regarding the
timing or outcome of such process.
The Environmental Plaintiffs also filed a motion asking the District Court
to impose against LMRC a CWA civil penalty of $5,550,125 and attorney's fees and
costs in connection with LMRC's discharges into Loon Pond during its snowmaking
operations for the 1996/97 ski season and prior years. The District Court
dismissed the claim for civil penalties and attorney's fees under the CWA, and
one of the Environmental Plaintiffs appealed to the First Circuit. The appeal
was stayed to permit settlement negotiations, and these negotiations concluded
with the execution of a settlement agreement between the appellant, LMRC and
Loon Realty Corp. effective as of February 22, 2001. In accordance with the
terms of the agreement, the appellant's claims against LMRC were dismissed on
March 14, 2001.
In 1997, the Environmental Plaintiffs filed a second lawsuit against the
Forest Service in the District Court alleging that the Forest Service violated
NEPA in authorizing LMRC to construct and operate a snowmaking pipeline across
permitted land. LMRC intervened in the lawsuit. The District Court held that the
Forest Service had violated NEPA by failing to consider the potential effects of
an increase in snowmaking capacity. The District Court then enjoined Loon
Mountain from using the pipeline but later modified the injunction to permit
LMRC to use the pipeline provided that, among other things, it does not make
snow in excess of the historic production level utilizing 159.7 million gallons
per ski season. On February 12, 1999, the District Court dismissed the pipeline
litigation and allowed the Forest Service to combine its NEPA analysis of the
pipeline with the pending NEPA analysis of the South Mountain expansion. The
injunction authorizing LMRC to use the pipeline to supply water for making
historical levels of snow remains in place until the additional NEPA
documentation is completed and the Forest Service issues a new decision on the
pipeline, which is currently expected to occur in the first half of 2002.
Effective February 22, 2001, both Environmental Plaintiffs entered into
settlement agreements with LMRC, which resolve all issues among them 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.
Killington West, Ltd., formerly known as Bear Mountain, Ltd., ("Killington
West "), filed a breach of contract lawsuit in the Superior Court of the State
of California, San Bernardino County, against Fibreboard Corporation
("Fibreboard") and Bear Mountain, Inc., a wholly-owned subsidiary of the
Company, alleging that Fibreboard and Bear Mountain, Inc. breached the asset
purchase agreement dated October 6, 1995 (the "Original Bear Mountain
Agreement") among Killington West, Fibreboard and Bear Mountain, Inc. pursuant
to which Bear Mountain, Inc. acquired the Bear Mountain ski resort from
Killington West. Killington West's lawsuit concerned an alleged breach by
Fibreboard and Bear Mountain, Inc. of a change of control provision in the
Original Bear Mountain Agreement. In connection with the Company's acquisition
of Bear Mountain, Inc. in December 1996, the Company obtained from Fibreboard
indemnification for any claim that might be made by Killington West, and
further, required that $1 million of the purchase price be held in escrow
pending the outcome of any potential disputes with Killington West. Fibreboard
acknowledged its obligation to indemnify Bear Mountain, Inc. with respect to the
Killington West lawsuit and is defending such lawsuit on behalf of Fibreboard
and Bear Mountain, Inc.
On November 13, 2001, the Company filed a lawsuit against ASU International
LLC, Essex Insurance Company and Certain Underwriters, Lloyd's London
(collectively, the "Insurers") in Superior Court in Massachusetts. The Company
had placed with the Insurers weather/income stabilization coverage for the
2000/01 ski season for certain of its resorts. During the applicable period of
the policies, the Company incurred losses at two of its resorts which the
Company believes were covered under the terms of such policies. The Company
believes that it has complied with its obligations under the policies and has
properly reported and made claims in accordance with the policies for losses
aggregating in excess of $1.5 million. In response to the Insurers' failure to
properly process the Company's claims, the Company seeks recovery for breach of
contract, breach of covenant of good faith and unfair and deceptive business
acts. The Company's complaint seeks recovery for the full amount of its claims
as well as multiple damages and attorneys' fees based on its assertion of unfair
and deceptive business acts by the Insurers. An informal settlement conference
has been scheduled by the parties. Pre-trial discovery has not yet commenced.
While the Company believes that it will prevail in this lawsuit, no assurances
can be made regarding the outcome or timing of resolution of this litigation.
Item 4. Submission Of Matters To A Vote Of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2001.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established trading market for any class of equity securities
of the Company. All of the Company's equity securities are owned by Parent.
The Company's principal debt agreements contain restrictions that restrict
its ability to pay dividends. See Note 5 to the accompanying consolidated
financial statements.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with
the consolidated financial statements of the Company and related notes thereto
included elsewhere in this Report and Part II, Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The selected
consolidated financial data of the Company as of and for the years ended October
31, 1997, October 30, 1998, October 29, 1999, October 27, 2000 and November 2,
2001, have been derived from the audited consolidated financial statements of
the Company, which have been audited by Ernst & Young LLP, independent auditors.
The Company was formed in October 1996 and had no operations until its
acquisition of seven ski resort complexes during the first six months of fiscal
1997.
The other financial and operating data presented below includes information
on "EBITDA" and "Resort EBITDA margin." "EBITDA" represents income from
operations before depreciation, depletion and amortization expense and the
noncash cost of real estate sales. "Resort EBITDA margin" is Resort EBITDA
divided by resort operations revenue. Although EBITDA is not a measure of
performance under United States generally accepted accounting principles
("GAAP"), the term is presented because management believes it provides useful
information regarding a company's ability to incur and service debt. EBITDA
should not be considered in isolation or as a substitute for net income, cash
flows from operating activities and other income or cash flow statement data
prepared in accordance with GAAP, or as a measure of profitability or liquidity.
In addition, "EBITDA" and "Resort EBITDA margin" as determined by the Company
may not be comparable to related or similar measures as reported by other
companies and do not represent funds available for discretionary use.
Year Year Year Year Year
Ended Ended Ended Ended Ended
October October October October November
31, 1997(a) 30, 1998(b) 29, 1999 27, 2000(c) 2, 2001
----------- ----------- ----------- ----------- -----------
(Dollars in Thousands, except Revenue per Skier Day)
Statement of Operations Data:
Revenue:
Resort Operations............................. $ 68,136 $ 97,248 $ 112,980 $ 119,685 $ 121,629
Real Estate and Other......................... 3,671 7,608 12,744 19,670 276
----------- ----------- ----------- ----------- -----------
71,807 104,856 125,724 139,355 121,905
Operating Expenses:
Cost of Sales - Resort Operations............. 44,624 61,325 74,404 70,394 70,982
Cost of Sales - Real Estate and Other......... 2,799 4,671 5,244 4,507 211
Depreciation, Depletion and Amortization...... 11,681 17,752 21,750 22,572 25,121
Selling, General and Administrative........... 13,719 19,645 22,571 22,985 23,412
Unusual Items, Net............................ - - 487 - -
----------- ----------- ----------- ----------- -----------
Operating Income (Loss).......................... (1,016) 1,463 1,268 18,897 2,179
Interest Expense and Other, Net.................. (14,912) (18,733) (19,843) (19,075) (17,569)
----------- ----------- ----------- ----------- -----------
Pre-tax Loss..................................... (15,928) (17,270) (18,575) (178) (15,390)
Income Tax Benefit............................... 1,728 - - - -
----------- ----------- ----------- ----------- -----------
Loss Before Minority Interest and Extraordinary
Item.......................................... (14,200) (17,270) (18,575) (178) (15,390)
Minority Interest................................ (229) (260) (218) (179) (127)
----------- ----------- ----------- ----------- -----------
Loss Before Extraordinary Item................... (14,429) (17,530) (18,793) (357) (15,517)
Extraordinary Gain (Loss) on Early Retirement
of Debt....................................... (2,664) - - - 1,723
----------- ----------- ----------- ----------- -----------
Net Loss......................................... $ (17,093) $ (17,530) $ (18,793) $ (357) $ (13,794)
=========== =========== =========== =========== ===========
Other Financial and Operating Data:
Total Skier Days................................. 1,565,917 2,113,562 2,432,845 2,287,128 2,500,484
Revenue (Excluding Paid Skier Visit Insurance
Policy Revenue) per Skier Day (d)............. $ 43.51 $ 46.01 $ 46.44 $ 49.45 $ 47.94
Noncash Cost of Real Estate Sales (e)............ $ 2,237 $ 3,721 $ 4,743 $ 2,460 $ -
Capital Expenditures Excluding Acquisitions and
Real Estate and Other......................... $ 9,459 $ 15,500 $ 14,342 $ 21,909 $ 12,944
Net Cash Provided by (Used in):
Operating Activities.......................... $ 1,552 $ 7,559 $ 15,393 $ 29,737 $ 13,366
Investing Activities.......................... (152,685) (47,718) (18,504) (9,124) (15,280)
Financing Activities.......................... 151,595 40,322 2,947 (20,378) 1,676
EBITDA Before Unusual Items...................... $ 12,902 $ 22,936 $ 28,248 $ 43,929 $ 27,300
EBITDA from Resort Operations.................... $ 9,793 $ 16,278 $ 16,005 $ 26,396 $ 28,064
Resort EBITDA Margin............................. 14.4% 16.7% 14.2% 22.1% 23.1%
EBITDA from Real Estate and Other................ $ 3,109 $ 6,658 $ 12,243 $ 17,533 $ (764)
As of As of As of As of As of
October 31, October 30, October 29, October 27, November 2,
1997(a) 1998(b) 1999 2000 2001
----------- ----------- ----------- ----------- -----------
(Dollars in Thousands)
Balance Sheet Data:
Working Capital (Deficit), Including Senior
Credit Facility Borrowings.................... $ (26,634) $ (33,093) $ (45,309) $ (31,628) $ (46,221)
Total Assets..................................... 186,416 218,546 210,346 199,063 189,218
Total Debt....................................... 136,327 156,280 160,986 144,498 148,040
Preferred Stock of Subsidiary (f)................ 3,354 2,634 2,133 1,638 1,136
Common Shareholder's Equity...................... 29,407 37,377 18,584 18,227 4,433
- --------------------------------------------------------------------------------------------------------------------------------
(see accompanying footnotes)
Notes to Selected Financial Data
(a) Reflects the financial results of Waterville Valley and Mt. Cranmore from
November 27, 1996, Northstar, Sierra and Bear Mountain from December 3,
1996, the Summit from January 15, 1997, and Grand Targhee from March 18,
1997, the respective dates of acquisition of each resort by the Company.
(b) Reflects the financial results of Waterville Valley, Mt. Cranmore,
Northstar, Sierra, Bear Mountain, the Summit and Grand Targhee for the
entire period, and Loon Mountain for the period beginning February 26,
1998, the date on which it was acquired by the Company.
(c) Reflects the divestiture of the Grand Targhee resort on June 20, 2000.
(d) Reflects revenue from resort operations divided by total skier days. For
the years ended October 27, 2000 and November 2, 2001, the amount presented
for revenue per skier day excludes the effect of paid skier visit insurance
policy revenue of $6,600,000 and $1,754,000, respectively.
(e) Noncash cost of real estate sales represents the allocated portion of real
estate development expenditures previously capitalized (including
acquisition costs allocated to real estate development) which relate to
current year real estate sales.
(f) Represents preferred stock of a subsidiary of the Company which is subject
to mandatory redemption requirements.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto included elsewhere
in this Report. The following discussion contains certain forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to the differences are discussed in "- Forward-Looking Statements"
and elsewhere in this Report.
General
The Company's ski operations are highly sensitive to weather conditions and
the overall strength of the regional economies in the areas in which the Company
operates. The Company believes that the geographic diversity of the Company's
resorts and the use of extensive snowmaking technology coupled with advanced
trail grooming equipment, which together can provide consistent skiing
conditions, can partially mitigate the risk of both economic downturns and
adverse weather conditions in any given region. However, the Company remains
vulnerable to warm weather, heavy rains, high winds, drought and other types of
severe or unusual weather conditions, which can have a significant effect on the
operating revenues and profitability at any one of the Company's resorts.
The Company's four most weather-sensitive resorts, Bear Mountain,
Waterville Valley, Loon Mountain and Mt. Cranmore, have invested heavily in
snowmaking capabilities to provide coverage on virtually all of their trails and
have been open for skiing at least 143, 138, 142 and 101 days, respectively,
during each of the last five ski seasons, including the 2000/01 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 476 and 482 inches of snowfall, respectively, per year
for the past five ski seasons. As a result of their historic natural snowfall,
their snowmaking capabilities in terms of trail coverage are considerably less
extensive than at Bear Mountain, Waterville Valley, Loon Mountain or Mt.
Cranmore. However, such resorts are dependent upon early season snowfall to
provide necessary terrain for the important Christmas holiday period, and
therefore, the timing and extent of natural snowfall can significantly impact
operating conditions.
Northstar has averaged approximately 304 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
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 2000/01 ski season total skier days were attributable to residents of the
San Francisco/San Jose, Sacramento, Central California Valley and Lake Tahoe
regions. At Bear Mountain, roughly 90% of the 2000/01 ski season total skier
days were attributable to residents of the Los Angeles, Orange County and San
Diego metropolitan regions. At Waterville Valley, Loon Mountain and Mt.
Cranmore, more than 75% of the 2000/01 ski season total skier days were
attributable to residents of Massachusetts and New Hampshire, with a large
percentage of such visitors coming from the Boston metropolitan area. At the
Summit, the Company estimates that more than 90% of the 2000/01 ski season total
skier days were attributable to residents of the Seattle/Tacoma metropolitan
region.
The Company seeks to maximize revenues and operating income by managing the
mix of skier days and revenue per skier day. These strategies are also designed
to maximize resort cash flow. The strategy for each resort is based on the
demographic profile of its market and the physical capacity of its mountain and
facilities. The Company seeks to increase skier days by developing effective
ticket pricing and season pass strategies and sales and marketing programs to
improve peak and off-peak volume. The Company seeks to improve revenue per skier
day by effectively managing the price, quality and value of each of its
ski-related services, including retail shops, equipment rentals, lessons and
food and beverage facilities.
The Company seeks to increase skier days by offering a quality guest
experience and developing effective target marketing programs. See Part I, Item
1. "Business - Marketing and Sales." The Company's resorts have invested
approximately $55.8 million (including $6.6 million of equipment acquired
through capital leases and other debt) in capital expenditures during the last
three fiscal years to upgrade chairlift capacity, expand terrain, improve skier
service, 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.
The following table summarizes the sources of the Company's revenues from
resort operations for the years ended November 2, 2001, October 27, 2000 and
October 29, 1999. The information for the years ended October 27, 2000 and
October 29, 1999 includes the operating results of the Grand Targhee resort,
which was sold in June 2000.
Year Ended
---------------------------------------------
November 2, October 27, October 29,
2001 2000 1999
------------ ------------ ------------
(In thousands)
Lift Tickets.......... $ 49,363 $ 45,037 $ 50,741
Season Passes......... 12,853 11,691 4,201
Snow School........... 8,987 7,990 7,771
Equipment Rental...... 10,163 8,768 8,806
Retail................ 5,725 5,805 8,124
Food and Beverage..... 18,332 17,675 18,626
Other................. 14,452 16,119 14,711
------------ ------------ ------------
Revenues from Resort Operations
before Paid Skier Visit
Insurance....................... 119,875 113,085 112,980
Paid Skier Visit Insurance........ 1,754 6,600 -
------------ ------------- ------------
Total Resort Operations Revenues..$ 121,629 $ 119,685 $ 112,980
============ ============= ============
A meaningful portion of total operating costs at the Company's resorts are
variable, consisting primarily of retail and food service cost of sales,
utilities and labor expense. These variable costs can fluctuate significantly
based upon skier days and seasonal factors. The Company's resorts utilize
significant energy resources in their respective operations, including power for
operating lifts and snowmaking equipment. Volatility in the availability and
cost of energy resources at the Company's resorts could have a material adverse
effect on the Company's results of operations in future periods. In this regard,
Bear Mountain has recently been informed by its local electrical utility of new
proposed electrical rates that could result in an increase of approximately $1.1
million to $1.2 million in annual electricity costs from the level incurred in
2001. The Company is currently evaluating potential alternatives to mitigate the
effect of these cost increases, including (1) opposition of the proposed
electrical rates, (2) conservation efforts, (3) changes in snowmaking production
and other current business practices to reduce electricity consumption during
periods of peak rates, (4) investment in more energy efficient snowmaking
equipment, and (5) product pricing strategies. However, no assurance can be made
regarding the outcome of this matter.
Each of the Company's resorts is subjest to the threat of personal injury
claims relating principally to skiing activities as well as premises and
vehicular operations and worker's compensation matters. The Company maintains
various forms of insurance that the Company considers adequate to insure its
properties and against claims related to usual and customary risks associated
with the operation of four - season recreation resorts. As a result of the
terrorist attacks on September 11th, the insurance industry has experienced
significant losses and a substantial reduction in underwriting capacity, which
has generally resulted in higher renewal premiums for companies seeking
insurance. In connection with its annual renewal of insurance coverage for 2002,
the Company experienced an increase in insurance premium costs of $650,000 over
the level of such costs in 2001.
With the exception of certain management, administrative and maintenance
personnel, all of the Company's employees are compensated on an hourly basis.
Management believes a key element to maximizing profitability during the winter
season is to closely monitor staffing requirements and to adjust staffing levels
when skier volumes or seasonal needs dictate.
Results of Operations of the Company
Overview
The Company's results of operations are significantly impacted by weather
conditions. Snow conditions were generally favorable for Northstar and Sierra
during the 1998/99 ski season. For the 1999/00 ski season, Northstar and Sierra
experienced unseasonably dry weather and a lack of natural snowfall during
November, December and the first part of January, which significantly impacted
terrain availability at these resorts during such period. However, snowfall for
these resorts returned to more normal levels during the later half of January
and February of 2000. Although total snowfall levels during the 2000/01 ski
season in the Lake Tahoe area were significantly less than historical averages,
as compared to the 1999/00 ski season, both Northstar and Sierra benefited from
generally improved trail coverage and conditions during the 2000 Christmas
holiday period and early January 2001. In addition, Sierra opened early on
November 3, 2000, as compared to November 24, 1999 for the 1999/00 ski season.
Bear Mountain suffered from a lack of natural snowfall during both the 1998/99
and 1999/00 ski seasons. For the 2000/01 ski season, snowfall levels at Bear
Mountain were more consistent with historical levels, and early season
snowmaking conditions were generally more favorable than during the prior ski
season. For the 1998/99 season, the Company's New Hampshire resorts experienced
mild temperatures through most of December 1998 and rain on most weekends in
January 1999. The New Hampshire resorts experienced variable temperatures and a
lack of significant natural snowfall through the middle of January of the
1999/00 ski season. For the 2000/01 ski season, temperatures in the Northeast
were generally colder, which enabled more efficient snowmaking production at the
Company's New Hampshire resorts. In addition, natural snowfall for the 2000/01
season at each of the New Hampshire resorts was higher than the two previous ski
seasons, which resulted in significantly improved conditions, particularly
during the early and later parts of the season. For the 1998/99 ski season, the
Summit experienced a prolonged period of snowfall, which resulted in increased
snow removal and other operating costs.