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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[GRAPHIC OMITTED] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: October 30, 1998
OR
[GRAPHIC OMITTED] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the
Transition Period from _________ to _____________
Commission File Number: 333-26091
BOOTH CREEK SKI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1359604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 South Frontage Road West, Suite 100
Vail, Colorado 81657
(970) 476-4030
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [GRAPHIC OMITTED] No [GRAPHIC
OMITTED]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [GRAPHIC OMITTED]
As of January 15, 1999, the number of shares outstanding of the
registrant's Common Stock, par value $.01 per share, was 1,000 shares. There is
no trading market for the Common Stock. Accordingly, the aggregate market value
of the Common Stock held by non-affiliates of the registrant is not
determinable. See Part II, Item 5 of this Report.
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TABLE OF CONTENTS
Item Page Number
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PART I
1. Business................................................. 2
2. Properties............................................... 20
3. Legal Proceedings........................................ 20
4. Submission of Matters to a Vote of Security Holders...... 23
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 24
6. Selected Financial Data.................................. 24
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 27
8. Financial Statements and Supplementary Data.............. 36
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................. 36
PART III
10. Directors and Executive Officers of the Registrant....... 37
11. Executive Compensation................................... 39
12. Security Ownership of Certain Beneficial Owners and
Management............................................... 43
13. Certain Relationships and Related Transactions........... 46
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K...................................................... 51
2
PART I
As used in this Report, the "Company" or "Booth Creek" refers to Booth Creek
Ski Holdings, Inc. and its subsidiaries, unless the context otherwise requires.
The Company is a wholly-owned subsidiary of Booth Creek Ski Group, Inc.
("Parent"). Since November 27, 1996 the Company has acquired the
Northstar-at-Tahoe ("Northstar") and Sierra-at-Tahoe ("Sierra") ski resorts in
the Lake Tahoe region of Northern California, the Bear Mountain ski resort in
Southern California (together with Northstar and Sierra, the "California
Resorts"), the Waterville Valley and Mt. Cranmore ski resorts in New Hampshire,
the Summit at Snoqualmie (the "Summit") ski resort complex, which consists of
four separate and distinct resorts in the Cascade Mountains of Northwest
Washington and the Grand Targhee ski resort in the Grand Tetons in Wyoming. Most
recently, on February 26, 1998, the Company acquired the Loon Mountain ski
resort ("Loon Mountain") in the White Mountains of New Hampshire.
Item 1. Business
Overview
Booth Creek owns and operates eight ski resort complexes encompassing eleven
separate resorts, making the Company the fourth largest operator in North
America based on approximately 2.4 million skier days recorded during the
1997/98 ski season at such resorts. Booth Creek primarily operates regional ski
resorts which, in the aggregate, attract approximately 85% of their guests from
their regional ski markets, within a 200 mile driving radius of each resort. The
Company's properties offer approximately 9,281 acres of skiable terrain, 399
trails, 94 lifts (including 16 high-speed lifts and 2 Gondolas) and on-mountain
capacity to accommodate approximately 56,000 guests daily. For the fiscal years
ended October 30, 1998 and October 31, 1997, the Company's resorts generated
approximately $115.5 million and $97.8 million of pro forma revenue,
respectively, $27.4 million and $14.2 million of pro forma EBITDA, respectively,
and $14.8 million and $21.2 million of pro forma net loss, respectively.
The Company's resort properties are primarily located near major skiing
populations, including four of the five largest regional ski markets: Los
Angeles/San Diego, San Francisco/Sacramento, Boston and Seattle/Tacoma. The
Company believes this geographical diversification serves to limit the Company's
exposure to regional economic downturns and unfavorable weather conditions.
The Company's resorts continue to differentiate themselves in their
respective markets by selectively upgrading on-mountain facilities and guest
services, employing targeted marketing strategies and offering extensive skier
development programs, all of which create a competitively-priced, high-quality
guest experience. Since its formation in October 1996, the Company's resorts
have collectively spent over $27.5 million in capital improvements, including
the addition of high-speed chairlifts, additional snowmaking capability,
improved trail grooming equipment, and enhanced on-mountain lodging, retail and
food service amenities. The Company believes its existing resorts have been well
maintained. The Company also uses targeted advertising, database marketing and
strategic marketing alliances to enhance the image of its resorts and increase
regional market share. The Company also offers extensive development programs to
improve the technical skill level of all types of skiers, which management
believes is important to expand the total skier population and increase skier
visitation frequency. Northstar and Sierra are consistently rated by consumer
publications as having premier ski instruction and development programs. The
Company is currently implementing similar skier development programs at its
other resorts.
The following is an organizational chart of Booth Creek Ski Group, Inc.
("Parent") and the Company and its subsidiaries. Each subsidiary of the Company
is, directly or indirectly, wholly-owned by Booth Creek.
3
[GRAPH OF ORGANIZATIONAL CHART OMITTED]
The Company's principal executive offices are located at 1000 South Frontage
Road West, Suite 100, Vail, Colorado 81657. Its telephone number at that
location is (970) 476-4030. The Company was incorporated in Delaware on October
8, 1996.
Recent and Pending Acquisitions
On February 26, 1998, the Company acquired Loon Mountain Recreation
Corporation ("LMRC"), the owner and operator of the Loon Mountain ski resort
located in New Hampshire. The acquisition of LMRC (the "Loon Mountain
Acquisition") was effected pursuant to an Agreement and Plan of Merger, dated
September 18, 1997, as amended as of December 22, 1997, by and among the
Company, as assignee of Parent, LMRC Acquisition Corp. and LMRC. The aggregate
net purchase price for the Loon Mountain Acquisition was approximately $30.2
million (including the assumption of debt which was repaid in connection with
the acquisition and acquisition costs). The Loon Mountain Acquisition was
financed through (i) proceeds from the offering of $17.5 million aggregate
principal amount of the Company's 12.5% Series C Senior Notes due 2007, issued
under the Indenture for the Senior Notes dated as of March 18, 1997,(as amended
and supplemented, the "Indenture") among the Company, the Guarantors named
therein, and the trustee, (ii) a capital contribution of $10.5 million to the
Company by Parent (the "Equity Financing"), and (iii) available cash on hand and
borrowings under the Company's Amended and Restated Credit Agreement dated March
18, 1997, (which has since been amended and restated effective as of October 30,
1998 (the "Senior Credit Facility"). See Part II, Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources").
On August 28, 1998, the Company, Booth Creek Ski Acquisition, Inc., a
wholly-owned subsidiary of Booth Creek ("Acquisition Sub"), and Seven Springs
Farm, Inc. ("Seven Springs"), the owner and operator of the Seven Springs
Mountain Resort, a ski resort and conference center in Pennsylvania, entered
into an Agreement of Merger (the "Merger Agreement"), pursuant to which the
Company would acquire Seven Springs through the merger of Acquisition Sub with
and into Seven Springs. The aggregate merger consideration and related payments
will be approximately $83.0 million plus certain deferred payments, subject to
certain price adjustments. The proposed acquisition is conditioned on the
receipt of a judicial determination that the terms of a certain shareholders'
agreement among Seven Springs and its shareholders (the "Seven Springs
Shareholder Agreement") does not apply to the transactions contemplated by the
Merger Agreement, as well as customary closing conditions. In connection with
the proposed acquisition, certain shareholders of Seven Springs filed a lawsuit
in the Court of Common Pleas of Somerset County, Pennsylvania against the
Company, Acquisition Sub, and Seven Springs and certain of its directors,
seeking a declaratory judgment, along with other relief including the rescission
of the Merger Agreement. Plaintiffs allege that the terms of the Seven Springs
Shareholder Agreement ban the consummation of the proposed acquisition. On
October 29, 1998, the Court entered a final judgment denying Plaintiff's motion
and has permitted the consummation of the transactions contemplated by the
Merger Agreement. On December 28, 1998, the Plaintiff's filed an amended notice
of appeal which is currently pending. While the Company believes that Seven
Springs will prevail with its position that the Seven Springs Shareholders
Agreement does not apply to the transactions contemplated by the Merger
Agreement, no assurance can be made regarding the timing or the outcome of this
litigation.
4
Industry
There are 521 ski areas in the United States which, during the 1997/98 ski
season generated approximately 54.1 million skier days. A "skier day" represents
one skier or snowboarder visiting one ski resort for one day, including skiers
and snowboarders using complementary and season passes. Calculation of skier
days requires an estimate of visits by season passholders. Although different
ski resort operators may use different methodologies for making such estimates,
management believes that any resulting differences in total skier days are
immaterial. These areas range from small ski resort operations which, primarily
cater to day skiers and regional overnight skiers from nearby population
centers, to larger resorts which, given the scope of their operations and their
accessibility, are able to attract skiers and snowboarders from their regional
ski markets as well as destination resort guests who are seeking a comprehensive
vacation experience. While regional ski market skiers tend to focus primarily on
lift ticket price and round-trip travel time, destination travelers tend to be
heavily influenced by the number of amenities and activities offered as well as
the perceived overall quality of the vacation experience. The table below
summarizes regional skier days from the 1993/94 ski season through the 1997/98
ski season.
U.S. Ski Industry Regions and Skier Days
(in thousands)
Rocky Pacific Lake
Season Northeast Southeast Midwest Mts West Tahoe Total
------ --------- --------- ------- ------ -------- ------ -----
1993/94......................... 13,718 5,808 7,364 17,503 7,144 3,100 54,637
1994/95......................... 11,265 4,746 6,907 18,412 7,446 3,900 52,676
1995/96......................... 13,825 5,693 7,284 18,148 6,033 3,000 53,983
1996/97......................... 12,407 4,231 7,137 18,904 7,341 2,500 52,520
1997/98......................... 12,712 4,343 6,707 19,191 7,419 3,750 54,122
Five year average............... 12,785 4,964 7,080 18,432 7,077 3,250 53,588
Northeast: CT, MA, ME, NH, NY, VT, RI
Southeast: AL, GA, KY, MD, NC, NJ, PA, TN, VA, WV
Midwest: IA, IL, IN, MI, MN, MO, ND, NE, OH, SD, WI
Rocky Mts: CO, ID, MT, NM, UT, WY
Pacific West: AK, AZ, CA (excluding Lake Tahoe Region), NV, OR, WA
Source: 1997/98 Kottke National End of Season Survey
The ski resort industry is presently experiencing a period of consolidation. The
number of United States ski areas has declined from 709 in 1986 to 521 in 1998
and, based on industry estimates, the number of ski areas is expected to decline
further, as many mountain resorts lack the infrastructure, capital and
management capability to compete in this multi-dimensional and service-intensive
industry. No major new ski resort has opened in the United States since 1989. Of
the 521 ski areas, the 1997/98 Kottke National End of Season Survey estimates
the average resort recorded approximately 103,882 skier days. Only 25% of all
resorts typically report more than 200,000 skier days per season. All of the
Company's resorts except Mt. Cranmore and Grand Targhee typically record more
than 200,000 annual skier days. The trend among leading resorts is toward
investing in improving technology and infrastructure, including high-speed
lifts, attractive facilities and extensive snowmaking capabilities to deliver a
more consistent, quality experience. Since its formation, the Company's resorts
have spent over $27.5 million in capital expenditures to improve their
competitive position. Management believes the need for increased investment in
resorts in general has required a greater access to capital and has enhanced the
position of larger and better capitalized resort owners. Despite this
consolidation, the ski industry remains highly fragmented, with no one resort
accounting for more than 3%, and no one resort operator accounting for more than
approximately 10%, of the United States' 54.1 million skier days during the
1997/98 ski season. The four largest ski resort companies, including the
Company, accounted for approximately 27.6% of all U.S. skier days recorded
during the 1997/98 ski season.
Management believes that changes in demographics and certain ski industry
trends will be favorable for the U.S. ski industry. Members of the Baby Boom
generation, the single largest group of skiers, are moving into an age and
economic cycle when a greater portion of their disposable income is available
for recreational activities and the purchase of vacation homes. The next largest
group of skiers are the Echo Boom generation (children of Baby Boomers) and the
"X" Generation (young adults). With an estimated 114 million people, members of
these generations are beginning to form their recreational habits and offer the
largest potential increase in skiers since the emergence of the Baby Boom
generation in the late 1960's through the mid-1970's.
5
The emergence and growth of snowboarding, driven primarily by the Echo Boom
and X Generations, have energized interest in "on-snow" recreation. According to
the 1997/98 Kottke National End of Season Survey, the estimated number of
snowboarder visits has increased from 5.7 million in the 1993/94 ski season to
11.2 million in the 1997/98 ski season, an increase of approximately 96%.
Snowboarding is now regarded as one of the fastest growing sports in the world.
Recently the International Olympic Committee designated snowboarding as a medal
event in the 2002 Winter Olympic Games. Snowboarders tend to be between the
ages of 13 and 25 and presently represent an estimated 20.7% of all domestic ski
resort visitors. Regional resorts are the industry leaders in providing
designated snowboarding parks, trails and specialized trial grooming techniques
for snowboarders. All of the Company's resorts have allocated significant
terrain to snowboarders. Management believes that the growth in snowboarding has
had, and will continue to have, a positive impact on the snow sports industry,
especially since it is attracting new age groups, and will continue to be an
important source of lift ticket, ski school, retail and rental revenue growth
for the Company.
The advent of snowboarding has been accompanied by the recent introduction
of new "parabolic," or shaped, alpine skis which make skiing easier to
learn and enjoy. The new skis are expected to significantly improve a new
skier's learning progression, as well as enhance the experience of skiers of all
abilities through increased technical ability and control. The California
Resorts, the Summit, Grand Targhee and Loon Mountain have replaced all or a
majority of their rental skiing equipment with new shaped skis. Further advances
and innovations in skier equipment, trail maintenance and lift technology are
also expected to lead to the greater popularity of skiing.
The Lake Tahoe region has averaged approximately 3.3 million annual skier
days over the last five years. Management estimates that approximately 80% of
the skiers visiting Lake Tahoe resorts during the 1997/98 ski season were from
the San Francisco, Sacramento and Central California Valley metropolitan areas.
Other guests come principally from Southern California and states with large ski
populations, such as Texas, Illinois and Florida. Skiers in this market can
choose from among six major resorts, which include Northstar, Sierra, Squaw
Valley, Heavenly Valley, Alpine Meadows, and Kirkwood. Northstar, Squaw Valley
and Heavenly Valley attract a significantly greater share of destination skiers
than the area's other resorts.
The Southern California market has averaged approximately 2.3 million annual
skier days over the last five years. Management estimates that approximately 80%
of the skiers visiting Southern California resorts during the 1997/98 ski season
were drawn primarily from the Los Angeles, Orange County and San Diego
metropolitan areas. Skiers in this market can choose from among three major
resorts, which include Bear Mountain, Snow Summit and Mammoth Mountain.
The Northeast market (including New York) has averaged approximately 12.8
million annual skier days over the last five years. The Northeast market
consists of a significant percentage of day or weekend skiers due to the
relatively short driving radius to major metropolitan areas. While the Northeast
does not draw significant numbers of vacationing skiers from the Western regions
of the United States, it does compete with the Rocky Mountains and Pacific West
areas for Eastern vacationing skiers. Within the Northeast region, skiers can
choose from among over 50 major ski areas and resorts. The region's major ski
areas and resorts are concentrated in the mountainous areas of New England and
eastern New York, with the bulk of skiers coming from the population centers
located in eastern Massachusetts, southern New Hampshire, Connecticut, eastern
New York, New Jersey and the Philadelphia area.
The Company's Summit resort complex operates in the Washington state segment
of the Pacific West market, which recorded approximately 7.4 million skier days
during the 1997/98 ski season. Management estimates that approximately 95% of
the skier days recorded at Washington state resorts during the 1997/98 ski
season were attributable to residents of the Seattle/Tacoma metropolitan area.
Other guests come primarily from other parts of Washington, Oregon and Western
Canada. Washington state resorts do not attract a significant number of
destination skiers. Within Washington state, skiers can choose from among 14 ski
resorts, including the four resorts comprising the Summit. The largest ski areas
in Washington state are the Summit, Stevens Pass and Crystal Mountain. Other ski
areas in Washington are moderate to small in size.
The Rocky Mountains market has averaged approximately 18.4 million skier
days over the last five years, with a high percentage of visitors consisting of
destination skiers. Of the 90 ski areas in the region, 28 are located in
Colorado, accounting for approximately 62% of all recorded skier days in the
region during the 1997/98 ski season. The 38 ski resorts in the northern Rocky
Mountain states of Montana, Idaho and Wyoming recorded a total of approximately
2.9 million skier days during the 1997/98 ski season. Because resorts in this
part of the region are generally less accessible than resorts in Colorado or
6
Utah, they tend to be smaller and attract fewer destination skiers from outside
of the northern Rocky Mountain states.
Resort Operations
The Company's eight resort complexes offer a variety of ski and non-ski
activities. The table below provides a summary of each resort's ski operations
and is followed by a more detailed description of each resort.
Approx.
Snow- Snow Beds
Skiable Vertical Making Grooming Within 12
Resort Acres Drop Trails Lifts Coverage Machines Miles
- -------------------------------- ------ ------- ------- ------ --------- -------- -------
Northstar-at-Tahoe............. 2,400 2,280 63 1 Gondola 50% 14 16,000
4 High-Speed
Quads (1)
4 Fixed
Grip
3 Surface
Sierra-at-Tahoe................ 1,663 2,212 46 3 High-Speed 10% 12 30,000
Quads
6 Fixed
Grip
1 Surface
Bear Mountain.................. 195 1,665 32 2 High-Speed 100% 8 11,000
Quads
7 Fixed
Grip
3 Surface
Waterville Valley.............. 255 2,020 52 2 High-Speed 100% 8 6,500
Quads
6 Fixed
Grip
4 Surface
Mt. Cranmore................... 190 1,167 41 1 High-Speed 100% 4 16,000
Quad
4 Fixed
Grip
4 Surface
The Summit at
Snoqualmie................... 1,916 2,200 96 2 High-Speed 0% 14 1,000
Quads
18 Fixed
Grip
7 Surface
Grand Targhee.................. 2,412 2,200 28 1 High-Speed 0% 7 750
Quad
2 Fixed
Grip
1 Surface
Loon Mountain.................. 250 2,100 41 1 Gondola 96% 8 13,000
1 High-Speed
Quad
5 Fixed
Grip
1 Surface
(1) High-Speed Quads are four-person chairlifts which decelerate and detach from
a cable during passenger loading and unloading and reattach and accelerate
thereafter.
Northstar-at-Tahoe
In management's opinion, Northstar-at-Tahoe, located near the north end of
Lake Tahoe, California offers more activities and services in both winter and
summer than any of its competitors in the Lake Tahoe area. The resort's
8,600-foot Mt. Pluto features 2,400 acres of skiable terrain and a 2,280 foot
vertical drop. Northstar's 63 ski trails are served by 12 operating lifts,
including one gondola, four high-speed quads, two triple lifts and two double
lifts, which combine to transport up to 19,275 skiers uphill per hour. Northstar
also has approximately 42 kilometers of groomed trails for cross-country skiing
and snowshoeing and several on-mountain terrain parks for snowboarders and
adventurous skiers offering non-traditional bumps, jumps and turns. Other
facilities at Northstar include a European-style village that consists of
condominium/hotel accommodations, various restaurants, bars, shops, a child-care
center and entertainment and convention facilities, a 22,700 square foot
on-mountain ski lodge and a 5,800 square foot on-mountain children's ski school
facility. Summer recreation facilities include an 18-hole golf course, ten
tennis courts, a
7
horseback riding stable, fly fishing, mountain bike rentals and trails and
a swimming pool. Northstar currently ranks third in total skier days in the Lake
Tahoe area and is one of only 18 resorts in the United States to surpass the
500,000 skier days milestone, which it did during the 1994/95 and 1997/98 ski
seasons. Between 1990 and 1998, Northstar was named one of the top ten family
resorts in the United States by Travel & Leisure, Better Homes & Gardens and
Family Circle, as well as one of the best 50 ski resorts in North America by
Snow Country and Ski magazines.
Northstar provides a full-service skiing experience for its clientele, which
typically includes the upper-income, Baby Boomer population. Northstar's
marketing is focused on the San Francisco Bay and the Sacramento Valley areas as
a destination skier's alternative to Colorado and Utah resorts. Northstar also
markets aggressively in Southern California and states with large ski
populations. Northstar is within a one hour drive of the Reno International
Airport, which offers convenient scheduled air service to all parts of the
United States, Western Canada and Mexico. Small private planes can fly into the
all-weather Truckee Airport, where Northstar operates transit buses to the
resort.
Typical Northstar guests include single male intermediate skiers between
the ages of 25 and 44 and earning between $50,000 and $100,000 and families
headed by professionals or business executives with incomes in excess of
$100,000. Northstar is within a 200 mile driving radius of the major population
centers of San Francisco and Sacramento and, therefore, attracts a significant
number of its guests from Northern California. Northstar has approximately 6,000
beds at the resort with an additional 40,000 beds in the vicinity, 10,000 of
which are within a 12 mile radius. Management estimates that during the 1997/98
ski season 70% of the skiers visiting Northstar came from Northern California,
10% from Southern California, 17% from other states and 3% from international
locales.
Northstar's snowmaking system is engineered to cover approximately 50% of
its ski trails, which management believes is adequate given the area's heavy
annual snowfall, which averaged approximately 326 inches per year during the
past five years. Northstar has pumping rights from nearby water sources which,
when coupled with its 60 million gallon water storage capacity, have been more
than sufficient to support the resort's needs. Snowmaking during the 1997/98 ski
season consumed approximately 32.4 million gallons of water.
Northstar consists of over 6,500 acres of privately owned land, of which
less than one-third has been developed. Management believes that Northstar has
significant opportunities to develop additional ski terrain as well as
residential and commercial space. See Part I, Item 1. "Business - Real Estate
Development."
Sierra-at-Tahoe
Sierra-at-Tahoe is conveniently located near the large bed base of South
Lake Tahoe, California and is the closest major ski resort to Sacramento and the
Central California Valley. The resort's 8,852-foot peak offers 1,663 skiable
acres and a 2,212 foot vertical drop. Sierra's 46 ski trails are currently
served by ten operating lifts, including three high-speed quads, one triple lift
and five double lifts, which combine to transport up to 14,921 skiers uphill per
hour. In addition to significantly upgrading its retail and restaurant
facilities in recent years, Sierra has invested approximately $11.5 million
since 1994 to install new high-speed lifts, upgrade its grooming equipment and
rebuild its base lodge facilities. Sierra operates a 46,000 sq. ft. base lodge
which offers a variety of food and beverage services. Management believes that
Sierra's recent investment in its ski infrastructure has made it the best ski
value in the South Lake Tahoe area. Sierra does not offer summertime activities.
Sierra's demographic characteristics closely parallel Northstar's, although
Sierra's core customer base is slightly younger and less affluent with more
aggressive skiing demands. Sierra does not own or manage any real estate units
in the area but there are approximately 50,000 beds in the South Lake Tahoe
vicinity, including 30,000 beds within a 12 mile radius. Sierra attracts a
larger share of its guests from the Sacramento and Central California Valleys
than the San Francisco Bay area.
Sierra owns 20 acres of its 1,689 gross acreage and leases the remainder
under a Special Use Permit from the United States Forest Service. See Part I,
Item 1. "Business - Regulation and Legislation." Sierra's skiable terrain,
notable for its extensive grooming and wind-protected slopes, requires less snow
than other resorts to provide appealing ski conditions. Due to its abundant
annual snowfall, which has averaged approximately 518 inches per year over the
past five years, Sierra is not dependent upon snowmaking and, as a result, its
snowmaking equipment covers only 10% of Sierra's total acreage. Sierra also
employs a modern fleet of snow grooming machines which maintain high-quality
skiing surfaces.
8
Bear Mountain
Bear Mountain is located in the San Bernardino mountains of Southern
California. Its 8,805-foot peak features 195 acres of skiable terrain and a
1,665 foot vertical drop. Bear Mountain's 32 ski trails are served by 12 lifts,
including two high-speed quads, one fixed grip quad, two triple lifts and four
double lifts, which combine to transport up to 16,590 skiers uphill per hour.
During the last two ski seasons, Bear Mountain invested approximately $1.5
million to upgrade its base lodge facilities. Other facilities at Bear Mountain
include three lodges which provide an aggregate of approximately 31,000 square
feet of space for food and beverage services (restaurants and cafeterias), skier
services and entertainment. Summer recreation facilities include a nine-hole
golf course.
Bear Mountain is within a one to three hour drive of the Los Angeles and
San Diego metropolitan areas, providing it with access to nearly 16 million
Southern Californians of whom approximately 800,000 actively participate in
skiing and snowboarding. Approximately 90% of Bear Mountain's skiers are from
Southern California. Bear Mountain appeals to the younger generations of skiers,
the Echo Boom and "X" Generations, who are generally less affluent than the
targeted customers at the Company's Lake Tahoe resorts. While Bear Mountain is
in the middle of an approximately 11,000 bed base area, it is primarily a day
skiing facility.
Bear Mountain owns an 116 of its 819 gross acreage, leases 698 acres of
mountain terrain under a Forest Service special use permit and leases five acres
from third parties. See Part I, Item 1. "Business - Regulation and Legislation."
Management believes that Bear Mountain has one of the largest snowmaking
capacities per acre of any resort west of the Mississippi River and incorporates
a state-of-the-art system which allows it to efficiently cover 100% of its ski
trails. Bear Mountain also has access to three reservoirs capable of holding six
million gallons of water for snowmaking. Management believes that the skiing
infrastructure at Bear Mountain, including lifts, snowmaking and trail grooming
equipment, is very strong, making it one of the most attractive ski areas in
Southern California.
Waterville Valley
Waterville Valley has long been recognized as one of the largest and most
picturesque ski resorts in New Hampshire. Waterville Valley's major base
facilities are located on the 4,004 square foot high Mt. Tecumseh and offer 255
skiable acres and a vertical drop of 2,020 feet. Waterville Valley's 52 trails
are served by 12 operating lifts, including two high-speed quads, two triple
lifts and four double lifts, which combine to transport up to 15,672 skiers
uphill per hour.
The resort operates a 41,872 square feet base lodge (complete with multiple
food service centers and child care), a mid-mountain lodge featuring a cafeteria
and deli and a mountain-top lodge with snack bar and acclaimed restaurant
dining.
The Waterville Valley resort has a year-round Adventure Center offering
mountain bikers, cross-country skiers, and hikers access to 105 kilometers of
trails in the White Mountain National Forest. Other resort amenities include an
ice skating arena, golf course, tennis center, sports and fitness center,
horsedrawn sleigh rides, skateboard park, beach and paddle boats. Waterville
Valley's Conference Center has 17,000 square feet of meeting space and provides
banquet facilities for up to 1,000 people. With 11 meeting rooms, a business
center, audio-visual capabilities and a self-contained pub, the Conference
Center's on-site staff supports events year-round.
Waterville Valley has traditionally created an environment conducive to
families composed of either day skiers, regional overnight skiers or vacation
skiers. Its location adjacent to Interstate 93 (a major north-south thoroughfare
for skiers) makes it one of the most accessible of the larger New England
resorts. The resorts facilities, trails and programs can satisfy adults and
children of all abilities. Waterville Valley's proximity to large East Coast
markets (Boston is less than two and one-half hours away by car) attracts day
skiers, while the town's substantial bed base can accommodate the regional
overnight skiers and vacationers who will stay an average of two to four days.
There are approximately 6,500 beds in the Waterville Valley area, of which
approximately 3,000 can be rented. Management estimates that during the 1997/98
ski season the majority of Waterville Valley's skiers came from Massachusetts
(49%) and New Hampshire (30%), with the remainder coming from Rhode Island,
Connecticut, New York, New Jersey and other regional locations.
9
Waterville Valley owns 35 acres on Snow Mountain and two acres at the
Conference Center. It leases 790 acres of land on Mt. Tecumseh under a Special
Use Permit issued by the United States Forest Service. See Part I, Item 1.
"Business - Regulation and Legislation." Waterville Valley's snowmaking system
is engineered to cover 100% of the ski trails on Mt. Tecumseh. Water for
snowmaking is currently pumped from a local river and a pond. Waterville Valley
is in the process of obtaining permits for additional water sources and water
storage facilities for snowmaking.
Mt. Cranmore
Mt. Cranmore is the oldest continuously operated ski area in the United
States. Strategically located in the hub of New Hampshire's Mount Washington
Valley, Mt. Cranmore's 1,714 foot summit offers 190 skiable acres and a 1,167
foot vertical drop. Mt. Cranmore's 41 trails, including nine trails lighted for
night skiing, are served by nine operating lifts, including one high-speed quad,
one triple lift, three double lifts, three handle tows and one surface lift,
which combine to transport up to 6,420 skiers uphill per hour. The mountain is
serviced by two base lodges, offering multiple eating locations and
pub/restaurant facilities, as well as a restaurant at the summit. In addition,
Mt. Cranmore owns a year-round 46,000 square foot athletic facility which
includes an outdoor tennis stadium with seating for up to 5,500 people, four
indoor tennis courts, a pool, a spa, a weight-lifting area, aerobic rooms, an
indoor-climbing wall, locker rooms, a snack area and a nursery. Mt. Cranmore
also operates on-site retail and rental shops.
Management believes that Mt. Cranmore has great appeal to the family skier
due to its intimate size, high percentage of intermediate trails (45%, with 33%
for advanced) and its well-developed children's ski programs. An additional
family attraction is Mt. Cranmore's neighboring town of North Conway, which is
within walking distance of the mountain and has one of New England's largest
rural, retail outlet and restaurant centers. North Conway is part of the White
Mountains area, which is the dominant tourist destination in New Hampshire.
Approximately 13 million people live within a four-hour drive of Mt. Cranmore.
During the 1997/98 ski season, management estimates that 46% of the resort's
guests were from the Boston metropolitan area, 36% were from New Hampshire and
8% were from Rhode Island. To accommodate destination/vacation skiers there are
approximately 16,000 rental beds in the Mt. Washington Valley, including 76
condominium units at Mt. Cranmore itself.
Mt. Cranmore owns 754 acres and holds easements enabling it to
develop an additional 1,200 acres of ski terrain. Mt. Cranmore does not lease
any of its land from the federal government. Mt. Cranmore's snowmaking equipment
consists of a computerized Hydralink weather-monitoring snowmaking system which,
when installed in 1995, increased snowmaking output by 40% and currently covers
100% of the resort's ski trails. In addition to pumping rights from a nearby
stream, Mt. Cranmore has an agreement with the local water district for
unrestricted access to an additional reservoir of 1 million gallons of water for
snowmaking. Mt. Cranmore's base area pond also holds 2.5 million gallons.
The Summit at Snoqualmie
The Summit is located in the Cascade Mountains of Northwest Washington and
consists of four separate resorts, Alpental at the Summit ("Alpental"), Summit
West, Summit Central, and Summit East, which collectively offer 1,916 acres of
skiable terrain. Individually, Alpental has a 5,400 foot top elevation, a 2,200
foot vertical drop and 170 acres of skiable trails and runs (93 of which are
lighted for night skiing); Summit West has a 3,860 foot top elevation, an 810
foot vertical drop and 172 acres of skiable trails and runs (166 of which are
lighted for night skiing); Summit Central has a 3,860 foot top elevation, a
1,020 foot vertical drop and 246 acres of skiable trails and runs (176 of which
are lighted for night skiing); and Summit East has a 3,760 foot top elevation, a
1,080 foot vertical drop and 110 acres of skiable trails and runs (58 of which
are lighted for night skiing). In total, the Summit complex has 96 designated
trails and runs served by 27 operating lifts, including two high-speed quads,
four triple lifts, 14 double lifts and 7 surface lifts, which combine to
transport up to 32,890 skiers uphill per hour. The Summit Nordic Center also
offers approximately 55 kilometers of cross-country skiing on an expert trail
system and a lighted beginner student trail which hosts a season-long night
racing series. In addition, the Summit West, Summit Central, and Summit East
areas are interconnected by a cross-over trail system. Since its acquisition in
January 1997, the Company has invested approximately $6.6 million at the Summit
to improve base facilities and install additional lifts. In December 1998, the
Company completed the installation of new detachable quad lifts at Alpental and
Summit Central for the 1998/99 ski season. The Summit
10
operates seven lodges which provide an aggregate of approximately 111,175 square
feet of space for food and beverage services (restaurants and cafeterias), skier
services and entertainment.
The Summit is within a one-hour drive of the Seattle/Tacoma metropolitan
area, providing it with access to nearly 450,000 active skiers and snowboarders.
Although the complex offers a relatively even variety of trail difficulty, each
of the separate properties have been designed to appeal to specific skier
profiles: Alpental's trails are designed primarily for intermediate to expert
skiers; Summit West's open slopes are geared toward beginner and intermediate
skiers; Summit Central's trail systems are heavily weighted toward intermediate
to advanced skiers; and Summit East's trails are designed primarily for novice
to intermediate skiers. Overall, the Summit complex is one of the largest
learn-to-ski areas in the United States, with approximately 30% of its 1997/98
skier days being attributable to guests enrolled in ski school. In addition, the
Summit is the largest night ski complex in the United States, with approximately
40% of its skier visits being recorded at night.
The Summit owns 686 acres of its 4,152 gross acreage, leases over 1,400
acres under a private permit and utilizes 1,864 acres of mountain terrain under
a United States Forest Service Special Use Permit. The Summit enjoys abundant
annual snowfall, averaging 422 inches annually over the past five years. As a
result, there are no man-made snowmaking capabilities at any of the resorts. The
Company does, however, possess water rights that would allow it to engage in
snowmaking, if necessary, or desired in the long term.
Grand Targhee
Grand Targhee is located in the Grand Teton mountains of Wyoming,
approximately 50 miles northwest of the town of Jackson. Jackson, Wyoming is a
major ski destination resort center, recording an average of 483,000 skier days
annually at the area's three resorts in the last five ski seasons. Grand
Targhee, with a top elevation of 9,873 feet, 2,412 acres of skiable terrain and
a 2,200 foot vertical drop, offers two different mountain ski areas. The first
mountain is served by four operating lifts, including the longest high-speed
quad in the state of Wyoming, which combine to transport up to 5,460 skiers
uphill per hour. The second mountain is reserved for Snowcat powder skiing.
Grand Targhee also has approximately 15 kilometers of machine groomed trails for
cross-country skiing. Grand Targhee has recently invested approximately $4.0
million to improve uphill capacity and the overall ski experience. Other
facilities at Grand Targhee include base lodge facilities, hotel accommodations,
restaurants, shops, a child care center and retail stores. In addition, Grand
Targhee owns and operates a spa, fitness and conference center.
Grand Targhee competes for day and regional overnight skiers in the northern
Rocky Mountain region as well as national destination skiers traveling to the
greater Jackson, Wyoming area. Guests from Idaho, Utah, Wyoming and Montana have
accounted for approximately 38% of Grand Targhee's total skier days over the
past five ski seasons. Grand Targhee's national destination guests, those guests
residing outside the northern Rocky Mountain region, accounted for the remaining
62% of the resort's skier days during the same period. A majority of these
guests came from California, Washington, New York and Minnesota. Overall,
approximately 60% of Grand Targhee's skiers reside more than 200 miles from the
resort. Given that Grand Targhee only operates 96 rental units, many of the
resort's overnight regional and destination skiers secure hotel accommodations
at other resorts or hotels in the area. The Company believes that there are in
excess of 5,000 beds in the vicinities of Jackson, Wyoming and Driggs, Idaho.
Management believes that the distinguishing features of Grand Targhee are
well-maintained and uncrowded facilities, excellent ski conditions, attractive
vacation packages and a high quality family ski school.
Grand Targhee is located entirely on land leased under a United States
Forest Service Special Use Permit. See Part I, Item 1. "Business - Regulation
and Legislation." Grand Targhee has averaged approximately 512 inches of
snowfall annually during the last five years, and historically has received the
second highest snowfall amount of all ski resorts in the United States. In 1997,
Snow Country magazine rated Grand Targhee as the best ski area in North America
for snow conditions.
Management believes that Grand Targhee is currently underutilized, and that
a key component of increasing skier days at the resort will be expanding its
bed base. Grand Targhee recently received United States Forest Service approval
to build 590 rental units and has had discussions with the Forest Service that
would allow for the future development of private dwellings. See Part I, Item 1.
"Business - Real Estate Development."
11
Loon Mountain
Loon Mountain is located in the White Mountains of New Hampshire in the town
of Lincoln. The resort's 3,050 foot peak features 250 skiable acres and a 2,100
foot vertical drop. Loon Mountain's 41 trails are served by eight operating
lifts, including a four-passenger gondola and a high-speed quad, which combine
to transport over 10,000 skiers uphill per hour. Loon Mountain's trails cater
mostly to intermediate level skiers (64%), with trails provided for beginners
(20%) and experts (16%) as well. Resort amenities include access to certain core
areas of the on-mountain Mountain Club, including a restaurant, a bar, a
swimming pool and conference rooms. Additionally, the resort offers a base lodge
with a cafeteria and coffee shop, a restaurant and deck at the summit, the
Governor Adams lodge (which provides traditional lodge facilities and also
serves as a forum for summer outdoor activities and concerts), trails for cross-
country skiing, horseback riding and mountain biking, a steam engine railroad
for shuttling visitors, and a Wildlife Theater.
Loon Mountain has traditionally created an environment conducive to families
who are either day skiers, regional overnight skiers or destination skiers. Its
location adjacent to Interstate 93 (a major north-south thoroughfare for skiers)
enabled it to receive the number one ranking in North America east of the
Mississippi River for accessibility by Snow Country magazine in 1997. Loon
Mountain's proximity to large East Coast markets (Boston is less than two and
one-half hours away by car) attracts day skiers, while an approximate bed base
of 13,000 within twelve miles of the resort can accommodate regional overnight
and destination skiers.
Loon Mountain owns 565 acres upon which substantially all of the buildings
and improvements relating to the resort are located. Loon Mountain leases 775
acres of land in the White Mountain National Forest under a Special Use Permit
issued by the United States Forest Service permitting year-round recreational
use. Adjacent to such land, an additional 581 acres are leased on "South
Mountain" under a separate Special Use Permit permitting certain limited
activities, including mountain biking, cross-country skiing and horseback
riding. These 581 acres have been designated by management for the eventual
development, subject to permitting, of skiing terrain to complement the current
skiing area. See Part I. Item 1. "Business-Real Estate Development." The average
annual snowfall at Loon Mountain was 142 inches over the last five seasons,
although when necessary Loon Mountain has the snowmaking capacity to cover
approximately 96% of the skiable acreage.
Business Segments
Business segment information is presented in Note 10 to the accompanying
consolidated financial statements.
Real Estate Development
The Company believes it has significant opportunities to develop available
acreage for additional skiing terrain as well as for residential lodging and
commercial uses. Management believes that selective real estate development can
enhance the Company's resorts and that there is opportunity for synergy between
real estate development and the Company's ski operations. In management's view,
increasing the on-mountain bed base, expanding retail and other commercial
services and developing additional skiable terrain at a resort can accelerate
growth in skier days and ski-related revenues. The following table lists certain
owned or leased land available to the Company for expansion. The land subject to
Special Use Permits with the United States Forest Service is subject to certain
restrictions and approval requirements.
Residential/
Commercial/ Number Principal
Location How Held Ski Terrain of Acres Uses
- ----------------------------- ------------ ------------ --------- -------------------
Northstar: Big Springs....... Owned Residential 90 On-mountain housing
Northstar: North Lookout
Mountain................... Owned Ski Terrain 450 Expand ski terrain
by 16%
Northstar: Sawtooth Ridge.... Owned Ski Terrain 652 Expand ski terrain
by 22%
Northstar: Zoned/Undeveloped. Owned Residential/ 765 On-mountain housing and
Commercial expand commercial
facilities
Mt. Cranmore: Black Cap...... Easement Ski Terrain 700 Significantly
expand and vary ski
terrain
Mt. Cranmore: Base Lands..... Easement Residential/ 35 On-mountain housing and
Commercial expand commercial
facilities
12
Residential/
Commercial/ Number Principal
Location How Held Ski Terrain of Acres Uses
- ----------------------------- ------------ ------------ --------- -------------------
Bear Mountain................ Leased: Ski Terrain 126 Expand ski
Forest Service terrain by 25%
Bear Mountain: Big Bear Lake. Owned Residential/ 6 Develop 56
Ski Terrain condominiums
and expand ski
terrain
Grand Targhee................ Leased: Ski Terrain 900 Expand ski terrain
Forest Service by 70%
Grand Targhee................ Leased: Residential/ 108 Develop Village
Forest Service Commercial (increase
on-mountain bed
base by 615%) and
expand commercial
facilities
The Summit................... Owned Residential 105 On-mountain housing
Loon Mountain:
South Mountain............. Leased: Ski Terrain 581 Expand ski terrain
Forest Service
Loon Mountain: Base Lands.... Deeded: Residential/ 412 On-mountain housing
Privately Owned Commercial and expand commercial
facilities
The Company's strategy with regard to the expansion of skiable terrain at
its resorts is based on the evaluation of several key factors, including (i) the
anticipated growth of the skier base within the relevant market and the
Company's ability to improve its competitive market position in that market, as
measured by the potential increase in the number of skier days and revenue per
skier on a long-term basis which the Company believes it can capture through
expansion and (ii) the return on capital expected to be realized from an
expansion project versus alternative projects. Management plans to undertake
extensive planning and pre-development steps prior to investing significant
capital into any development project. Currently, the Company is in the process
of developing comprehensive master plans for Northstar, Waterville Valley, the
Summit, Grand Targhee and Loon Mountain. The Company's management intends to
undertake a number of these projects with real estate partners who can provide a
substantial portion of the construction capital.
The Company's resorts have traditionally taken a conservative approach
toward residential and commercial development and real estate development
efforts have taken place primarily at Northstar. Beginning in 1995, the resort
developed a new single family home community on Mt. Pluto ("Big Springs")
consisting of 158 private residential lots. The total project has been planned
in five phases to reduce infrastructure development costs and maximize returns
by controlling both the timing and inventory of lots on the market. Prior to
fiscal 1998, Northstar sold all of the 44 lots offered in phase one and all of
the 35 lots offered in phase two for an average price of approximately $154,000.
In August 1998, Northstar sold all 32 lots available for sale in phase three for
an average lot price of approximately $212,000. New homes built by the owners of
such properties range in price from approximately $600,000 to $1.2 million.
Phases four and five will require an estimated $2.0 million in capital
expenditures to complete infrastructure development for the 46 available lots.
Northstar expects to sell the remaining properties over the next one to two
years. Management believes that the Big Springs development project alone will
increase the on-mountain bed base by 5% over the next two years, and should
contribute to an increase in paid skier days. Northstar also has opportunities
to develop an additional 756 acres of owned real property on Mt. Pluto, which
has been zoned for commercial and residential use.
In addition, Northstar has begun a program to harvest timber through third
party contracting. The timber harvesting program, which produced revenues of
$644,000 during the year ended October 30, 1998, is managed carefully to avoid
interference with Northstar's resort operations and prevent any diminution in
the quality of the resort's natural environment. The Company also intends to
eventually expand Northstar's ski operations to the challenging additional
terrain it owns on both North Lookout Mountain and Sawtooth Ridge, which are
adjacent to the resort's current operations. Management believes that the
skiable acreage at Northstar would increase by 30% with the development of this
terrain. The timing and scope of this expansion will depend on market conditions
and on an evaluation of the Company's other expansion criteria.
13
Mt. Cranmore holds an easement entitling it to develop at least 700 acres
of additional ski terrain known as the "Black Cap Mountain area" or "Black Cap."
The Black Cap easement was granted in 1951 and allows the Company to expand Mt.
Cranmore's existing ski and recreational infrastructure and develop additional
trails. The Black Cap property underlying the Company's easement is privately
owned and therefore not subject to the same governmental regulations which
presently restrict the activities of many New England ski areas that are located
on national or state forest land. The Black Cap land available for development
by the Company is high-quality, mostly north and west-facing ski terrain located
in an area that can accommodate alpine and cross-country trails, ski lifts and
snowmaking. Expansion would not only significantly increase Mt. Cranmore's skier
capacity, but would also enhance the quality and diversity of its skiable
terrain. Given the resort's location in the heart of the Mt. Washington region,
the dominant tourist destination in New Hampshire, the Company believes that
expansion into Black Cap could position Mt. Cranmore as a premier attraction in
the White Mountains and one of the largest and most appealing resorts in New
Hampshire. Additionally, Mt. Cranmore has 35 acres of privately owned land at
the southwest flank of the mountain. This southwest facing ski-in/ski-out land
is very suitable for development. The timing and scope of this development will
depend on market conditions and the Company's other expansion criteria.
Bear Mountain has received final approval from the Forest Service and local
governmental authorities of an expansion plan that would, among other things,
increase the resort's skiable terrain by 114 acres and increase daily skier
capacity by approximately 25%. The approval, however, is subject to numerous
mitigation conditions, including a requirement that Bear Mountain acquire and
dedicate to the Forest Service two acres of spotted owl habitat and one acre of
flying squirrel habitat in exchange for each acre proposed for development. Bear
Mountain has also entered into a developer's agreement with the City of Big Bear
Lake that generally authorizes, subject to certain conditions, the construction
of up to 56 condominium units on property currently owned by Bear Mountain. The
Company does not presently have any imminent expansion or development plans for
Bear Mountain, and any future expansion or development would depend on a variety
of factors, including local market conditions and the resolution of regulatory
and Forest Service permitting issues.
The Summit owns 66 acres of real property at the base of its mountain,
which is available for residential development. The developmental real estate at
the Summit is currently owned by DRE, L.L.C. (the "Real Estate LLC"), a
subsidiary of the Company. The Real Estate LLC has executed a deed of trust with
respect to the real property in favor of the holders of the Ski Lifts Preferred
Stock (as defined herein) to secure the Real Estate LLC's obligation to purchase
such preferred stock. In the event the Real Estate LLC defaults under its
obligation to purchase the Ski Lifts Preferred Stock, the holders thereof could
foreclose on the developmental real property and deprive the Company of the
benefit thereof. The Summit also owns 39 acres of real property at Summit East
that is ski-in/ski-out and is zoned as high-density residential and commercial.
The parcel will be studied for future development potential when market
conditions warrant.
The Company, through a study commissioned by Grand Targhee, has identified
approximately 900 acres of additional skiable terrain adjacent to the resort
which has received preliminary Forest Service approval for development. The
study also contains numerous recommendations for the further development of
Grand Targhee's infrastructure, including the creation of a European-style
village center comprising a variety of tightly-knit structures with central
pedestrian streets, plazas, commercial and recreation facilities and amenity
spaces which reflect and complement the sloped mountain topography. The village
center design includes nine additional or renovated hotel/condotel developments
providing 590 additional public accommodation units, which would increase the
resort's on-mountain bed base by 615%. The Company has received preliminary
approval for the construction of the residential units envisioned by the study,
together with the development of an additional 900 acres of skiable terrain,
subject to certain conditions. Management believes that the expansion of Grand
Targhee's on-mountain bed base will be an important component in addressing the
resort's historic underutilization. The Company intends to pursue long-term
development opportunities with third parties, although the timing and scope of
any such development is still being evaluated.
Loon Mountain currently leases approximately 581 acres known as "South
Mountain" from the Forest Service. Although currently limited to recreational
uses not including downhill skiing, this permitted area has been designated by
both Loon Mountain and the Forest Service as an area for expanded skiing
activities and the development of additional trails and lifts. A permit allowing
this expansion was issued by the Forest Service in 1993, but was subsequently
invalidated by the U.S. Court of Appeals. See "Legal Proceedings." Pending the
issuance of additional permits, expansion on South Mountain depends upon the
Company and Forest Service fulfilling the requirements, including the
preparation of supplemental National Environmental Policy Act ("NEPA")
documentation, of a court order issued by the
14
federal district court to which the related litigation was remanded. The
available South Mountain land is located in an area directly adjacent to the
present Loon Mountain ski area and will be able to accommodate alpine and cross
country trails, ski lifts (including one connecting the current ski area with
South Mountain) and snowmaking from newly installed snowmaking facilities.
Expansion would not only significantly increase Loon Mountain's skier capacity,
but would also enhance the quality and diversity of its skiable terrain. Loon
Mountain also owns 412 acres at the base of the mountain, of which 312 acres is
located at the base of South Mountain and is zoned as rural residential and
general use. Based on current zoning and subject to approvals, 844 units could
be constructed. The balance of land owned by Loon Mountain, subject to approvals
and zoning, could allow for up to 400 additional units to be constructed.
The Company has no agreements, arrangements or understandings with respect
to financing the development of any of the real estate projects discussed
herein. Any future development would be subject to, among other things, the
Company's ability to obtain the necessary financing and all necessary permits
and approvals. The Senior Credit Facility, the Indenture and the Securities
Purchase Agreements (as defined herein) significantly limit the Company's
ability to incur additional indebtedness. No assurance can be given that the
Company will develop successfully any additional properties or, if completed,
any such properties will be successful. In addition, there are risks inherent in
any expansion project and in the implementation of the Company's development
strategy.
Marketing and Sales
Staff
The Company has a marketing staff of approximately 50 persons, including a
marketing director at each resort who reports to the Vice President of Marketing
and Sales as well as to each resort's general manager. The marketing staff at
each resort is responsible for the development of resort-specific marketing
plans including advertising, sales, public relations, events, promotions and
research. Each resorts' marketing personnel also participate in the development
of the Company's overall marketing strategy.
Strategy
The Company's marketing plans are designed to attract both day skiers and
vacationers by emphasizing the Company's diverse facilities and services and
proximity to approximately 20% of the total skiers in the United States. The
Company intends to position each of its resorts as an attractive alternative to
competing regional resorts and to other forms of leisure and entertainment. The
primary objectives of the Company's marketing efforts are to (i) increase each
of its resorts' relative market share, (ii) expand the number of skiers in each
of its markets, (iii) increase skier visitation frequency, (iv) increase the
expenditures of each of its visitors, (v) influence the vacation destination
choice of its prospective guests by encouraging them to visit other Booth Creek
resorts, and (vi) attract and retain new guests to the Company's resorts by
expanding the scope of Booth Creek resorts to winter recreation centers offering
a multitude of snowsport options in addition to skiing and snowboarding.
The Company's marketing efforts are predicated on knowing its guests and
understanding the markets in which it competes. Accordingly, the Company's
resorts, typically through professional firms, conduct extensive market
research, including on-site guest surveys, focus groups, advertising tests and
regional phone surveys. Each of the Company's resorts develops its own
resort-specific marketing program based upon its unique qualities and
characteristics as well as the demographics of its skier base. Management
believes that a major benefit of being a multiple resort operator will be the
ability to coordinate resort marketing programs in a manner that makes them more
effective. For example, the extension of frequency/loyalty programs to all of
the Company's resorts will, in management's view, reinforce the existing
marketing programs at each resort and create significant cross-marketing
opportunities.
The Company's resorts offer a variety of terrain for alpine skiing and
snowboarding, with most providing a high percentage of intermediate trails and
well developed skier development programs, which can accommodate skiers and
snowboarders of all skill levels. Northstar markets primarily to the upper
income Baby Boom generation and their families residing in the San Francisco Bay
and Sacramento Valley areas as a full service, all season resort for day and
vacation guests. In addition, the resort has been successful in attracting
vacationing skiers from major Southern California markets largely through the
use of targeted marketing programs, including tour packages with major airlines
and tour operators. Management believes that Northstar's diverse year round
activities and services have made it attractive to affluent families interested
15
in recreation-centered vacation homes. Real estate development and the
resulting increase in on-mountain bed base likewise provide Northstar with
significant opportunities for future growth. Sierra has been positioned as Lake
Tahoe's economical "value" resort, primarily targeted to families, teenagers and
young adults from the Central California Valley. Bear Mountain primarily targets
Generation "X" skiers and snowboarders as well as value-oriented families from
the major Southern California metropolitan areas. Waterville Valley generally
focuses on regional and vacationing families from the Southern New Hampshire and
Boston metropolitan markets by promoting the resort's diverse year round
facilities and New England village atmosphere. Mt. Cranmore targets vacationing
families (including non-skiers) from the Boston metropolitan area by emphasizing
its proximity to the Mt. Washington 16,000 area bed base and North Conway retail
and restaurant district. The Summit's diversity of terrain among its four
resorts and significant night skiing programs allow the resort to target
multiple demographic groups including families, teenagers and young adults from
the Seattle/Tacoma metropolitan area. Grand Targhee primarily targets
destination skiers visiting the Jackson Hole area as well as day skiers and
regional overnight skiers from Wyoming, Idaho and Utah. Loon Mountain has
traditionally targeted families composed of either day skiers, regional
overnight skiers or destination skiers.
Programs
The Company has developed a number of specific marketing programs to achieve
its objectives, including the following:
o Customer loyalty programs
o Multimedia advertising (including Internet strategies)
o Data-based marketing programs (including e-mail broadcasting)
o Snowsport development programs (programs include a multitude of
snowsport options such as snowbikes, snowscoots and tubing as well as
more traditional skiing and snowboarding)
o Strategic marketing alliances
o School, group and business affiliations
Customer loyalty programs. The Company believes that the success of each of
its resorts depends, in large part, on its ability to retain and increase the
skier visitation frequency of its existing customer base. For example,
approximately 79% of Northstar's 1997/98 ski season skier days were attributable
to guests who had visited the resort on at least one other occasion. The Company
believes a critical component to developing customer loyalty will be the success
of its customer loyalty programs, including its Vertical Plus and Vertical Value
frequent skier programs. For an annual membership fee of $49, Vertical Plus
members receive a special, personalized identification wristband containing a
preprogrammed computer microchip which acts as their lift access for the season.
In addition to offering daily ticket discounts, the system tracks the amount of
vertical feet skied at participating resorts and rewards members with prizes
based on the number of vertical feet skied in a season. Other benefits of the
program include members-only lift lines, direct lift access, the convenience of
being able to make cashless retail transactions and electronic messaging. In
addition to Vertical Plus, the Company has developed Vertical Value, a program
that appeals to a broader range of skiers and offers an incentive for frequent
visitation at all of the Company's resorts. Visitors also receive a welcome
packet with targeted offers and a newsletter which allows the resorts to
communicate effective and timely information to their frequent guests.
Multimedia advertising. The Company's marketing efforts include print,
broadcast, outdoor, Internet and direct mail advertising, with the particular
method tailored for each resort and existing market opportunities. The Company
is also very active in a variety of promotional programs designed to attract
guests from population centers in and around the Los Angeles, San Diego, San
Francisco, Sacramento, Seattle and Boston metropolitan areas and states with
large skier populations such as Texas, Illinois, Florida and New York. For
example, the Company's Northstar and Sierra resorts have participated in
extensive cooperative marketing with other Lake Tahoe resorts to promote the
region as a premier vacation destination.
Data-based marketing programs. Through the information obtained from its
customer loyalty programs, extensive market surveys and other market research,
the Company maintains a database containing detailed information on its existing
customers. Management believes that database marketing is an effective and
16
efficient method to identify, target and maintain an on-going relationship with
the Company's best customers. For example, the Company has been successful in
the use of targeted direct mailings and e-mail broadcasts, which are designed to
match customer preferences with special ski package offers to build peak and
off-peak volume. Management believes that these types of relationship-based
marketing programs build guest loyalty and play an important role in solidifying
a resort's existing customer base.
Skier development programs. The Company's resorts operate a variety of
skier development programs designed to improve the skills of children and
beginners, as well as more advanced skiers and snowboarders. Management believes
that these development programs increase skier days at the Company's resorts by
expanding the total market of skiers and making skiing more enjoyable.
Northstar, Sierra and Waterville Valley operate ski schools that are
consistently rated among the best in their respective regions. In addition,
several of the Company's resorts have introduced a development program, Vertical
Improvement, geared toward intermediate and advanced skiers, which offers free
specialized instruction and daily training. This has proven to increase repeated
resort visitation. Booth Creek is expanding the definition of ski and snowboard
areas to winter recreation centers. Resorts are offering a multitude of unique
options for sliding on snow. Booth Creek Hill Thrill Centers include snow
tubing, snowbikes, snowfoxes, snowscoots and Zorbs. Many of these are low-skill,
high-sensation activities that even those who have never skied or snowboarded
can enjoy. There are also transferable learning skills from these sliding
devices to learning to ski or snowboard. Other efforts have been instituted at
all resorts to embrace and welcome new participants to the sport of skiing or
snowboarding.
Strategic marketing alliances. The Company is a national ski resort operator
with more than 2.4 million skier days recorded during the 1997/98 ski season. At
least one of the Company's resorts is within driving distance of four of the
five largest consumer markets in the United States. These factors, together with
the attractive demographics of the Company's skier base, position the Company to
further develop resort marketing programs with major corporate sponsors.
Sponsorship opportunities include potential relationships with automobile
manufacturers, soft drink companies, and ski and snowboard equipment
manufacturers. For example, Northstar and Sierra have a relationship with a
major automobile manufacturer that involves over $1 million worth of television
exposure, free use of vehicles for Company purposes and a vehicle give-away
promotion for resort guests. Management believes that the media exposure
generated by this partnership is important in building market share and the
image of the resorts, and that current joint marketing programs can be greatly
expanded.
School, group and business affiliations. The Company is dedicated to
developing special programs designed to attract school, business and other
groups. By introducing skiing, snowboarding and other methods of sliding on snow
to a wider audience, these programs broaden the Company's customer base and have
proven to be a particularly effective way to build name recognition and brand
loyalty. Ski groups have also emerged as the fastest and most profitable way of
increasing business during non-peak periods. Marketing personnel at each resort
provide year-round assistance to group leaders in organizing and developing
events. Business affiliations are developed and maintained through corporate
tickets programs, whereby participating businesses are given an opportunity to
provide their employees with incentive-based pricing.
Seasonality
The business of the Company is highly seasonal, with the vast majority of
its annual revenues expected to be generated between November and April of each
fiscal year. Management considers it essential to achieve optimal operating
results during key holidays and weekends during this period. The Company has
sought to mitigate the downside risk of its seasonal business by purchasing a
skier day insurance policy for the 1998/99 ski season. During the off-season
months of May through October, the Company's resorts typically experience a
substantial reduction in labor and utility expense due to the absence of ski
operations, but make significant expenditures for maintenance, expansion and
capital improvement in preparation for the ensuing ski season.
Competition
The general unavailability of new developable mountains, regulatory
requirements and the high costs and expertise required to build and operate
resorts present significant barriers to entry in the ski industry. The last
major new ski resort to open in the United States was in 1989, and in the past
15 years, management believes at least 85 proposed resorts have been stalled or
abandoned due to environmental issues and the high costs of entering into the
capital intensive ski industry. The domestic ski industry is currently comprised
of 521 resorts
17
and is highly competitive. The Company's competitive position in the markets in
which it competes is dependent upon many diverse factors, including proximity to
population centers, pricing, snowmaking capabilities, type and quality of skiing
offered, prevailing weather conditions, quality and price of complementary
services. The Company's Lake Tahoe resorts, Northstar and Sierra, face strong
competition from Lake Tahoe's seven other major ski resorts. Northstar's primary
competition in the North Lake Tahoe area is from Squaw Valley and Alpine
Meadows. Northstar also competes with major ski and non-ski destination resorts
throughout North America. Sierra primarily competes in the Southern Lake Tahoe
area with Heavenly Valley and Kirkwood. The Company's other California resort,
Bear Mountain, competes primarily with Snow Summit and Mammoth Mountain.
The Company's New England resorts, Waterville Valley, Mt. Cranmore and Loon
Mountain, compete in the highly competitive Northeast ski market, which consists
of Maine, New Hampshire, Vermont, Massachusetts, Connecticut and New York.
Within the Northeast region, skiers can choose from over 50 major resorts and
ski areas, most of which are located in the mountainous areas of New England and
eastern New York. Waterville Valley's primary regional competitors include
Bretton Woods, Attitash/Bear Peak and Gunstock. Mt. Cranmore's primary regional
competitors are the Attitash/Bear Peak ski resort and Gunstock. Loon Mountain's
primary regional competitors are Okemo and Sunday River.
The Summit competes primarily with five local ski areas, including Crystal
Mountain, Stevens Pass, White Pass, Mission Ridge and Mt. Baker. Additional
competition comes from the regional destination resorts at Mt. Bachelor, Mt.
Hood Meadows, Sun Valley and Whistler/Blackcomb, as well as other day and
weekend ski facilities in Washington, Oregon and British Columbia.
Grand Targhee competes for day and regional overnight skiers in the northern
Rocky Mountain region as well as national destination skiers traveling to the
greater Jackson, Wyoming area. Jackson Hole Ski Resort is the resort's largest
single competitor. Grand Targhee has participated in joint marketing programs
with Jackson Hole to promote the Jackson area and many visitors to the region
ski at both resorts. Grand Targhee also competes for day and regional overnight
skiers with Sun Valley and resorts in Utah.
On a regional basis, at least one of the Company's resorts is readily
accessible to four of the five largest ski markets in the United States.
Management estimates that approximately 70% of the skiers visiting the Company's
Lake Tahoe resorts are from the San Francisco, Sacramento Valley, Central
California Valley and Lake Tahoe regions, while approximately 90% of Bear
Mountain's skiers are from the Los Angeles and San Diego metropolitan areas.
Waterville Valley, Mt. Cranmore and Loon Mountain are estimated to attract
approximately 80% of their guests from Massachusetts and New Hampshire, with a
large percentage of such visitors coming from the Boston metropolitan area. The
Summit attracts approximately 90% of its skier guests from the Seattle/Tacoma
region. Grand Targhee primarily attracts day and regional overnight skiers from
the northern Rocky Mountain region and destination skiers visiting the region.
Regulation and Legislation
The Company's operations are dependent upon its ownership or control over
the real estate constituting each resort. The real property presently used at
the Northstar and Mt. Cranmore resorts is owned by the Company. The Company has
the right to use a substantial portion of the real property associated with the
Bear Mountain, Sierra, Summit, Grand Targhee and Waterville Valley resorts under
the terms of Special Use Permits issued by the Forest Service. The Special Use
Permits for the Bear Mountain, Sierra, Waterville Valley, the Summit and Grand
Targhee resorts were reissued at the time of the Company's acquisition of such
resorts, with the Bear Mountain permit expiring in 2020, the Sierra permit
expiring in 2008, the Waterville Valley permit expiring in 2034, the Summit
permit expiring in 2032 and the Grand Targhee permit expiring in 2034.
A substantial portion of the real property associated with the Loon
Mountain resort is likewise used under Forest Service permits. In 1993, the
Forest Service authorized various lift, trail and snowmaking improvements on
Loon Mountain and an expansion onto South Mountain. In 1996, the United States
Court of Appeals for the First Circuit overturned this authorization on the
ground that the Forest Service had failed to properly address certain
environmental issues under NEPA. Certain improvements and part of the expansion
had been constructed before the First Circuit ruled. On May 5, 1997, the United
States District Court for the District of New Hampshire entered a stipulated
order which authorizes existing improvements to remain in place and existing
operations to continue but generally prohibits future construction, restricts
use of a major snowmaking
18
water source, and requires certain water discharge permits to be pursued,
pending Forest Service reconsideration of the projects under NEPA. In August
1998, the Forest Service announced that it expects to complete this NEPA process
and issue a new decision on the improvements sometime in the Spring of 1999. In
a December 4, 1998 court filing, the Forest Service revised the target date for
a draft NEPA document on the improvements and the proposed expansion to the Fall
of 1999. The District Court entered a final order on December 11, 1998
specifying that the conditions imposed on operations at Loon Mountain in the May
5, 1997 order will remain in effect until the Forest Service completes its NEPA
review and issues a new decision.
Existing use of Loon Mountain is authorized under a Term Special Use
Permit, which covers facilities and expires in 2006, and a supplemental permit,
which covers the balance of Loon Mountain; existing non-skiing, use of South
Mountain is authorized under an annual permit which expires in February 1999,
but is expected to be reissued. After the Forest Service reconsiders the
improvements and expansion under NEPA, it will need to render a new decision
and, if appropriate, issue a new permit. At that time, the District Court order
will terminate. Based upon the existing administrative record, and certain
proposed modifications to the resort's snowmaking operations which are intended
to better protect water resources, the Company expects that the improvements and
expansion will be approved by the Forest Service. However, no assurance can be
given regarding the timing or outcome of this process.
In August 1997, the Forest Service authorized the Loon Mountain resort to
construct a new snowmaking pipeline across permitted land. The Forest Service
found that such construction is consistent with the District Court order and
will enable the resort to modify its snowmaking operations to better protect
water resources and replace snowmaking capacity lost under the order. Although
the pipeline has been completed, its use was challenged by private parties who
assert that the Forest Service violated NEPA. On January 20, 1998, the United
States District Court for the District of New Hampshire issued a decision
finding that the Forest Service violated NEPA in failing to address the
potential for the new pipeline to increase the amount of snow made and any
associated environmental effects. On March 10, 1998, the District Court issued a
series of further orders which, among other things, direct the Forest Service to
re-evaluate the pipeline, allow such re-evaluation to proceed separate from and
prior to the Forest Service's reconsideration of the larger expansion, and
enjoin LMRC from using the pipeline pending further action by the Court.
On July 2, 1998, the Forest Service issued a new decision approving the
pipeline and addressing its potential to increase the amount of snow made. This
decision was challenged by several of the same private parties, who, again,
asserted that it violated NEPA. The Forest Service subsequently withdrew its
decision authorizing the pipeline to conduct further review. Additionally, two
of the parties whose challenge to the new pipeline decision is pending before
the District Court filed a new lawsuit on August 20, 1998, in the same court,
challenging the same decision on the same grounds, as well as additional grounds
that another party has asserted in that case or that were previously addressed
by the District Court in its January 20, 1998 decision. The District Court
consolidated the new lawsuit with the existing action on November 19, 1998. The
same day, the Court modified the injunction precluding use of the pipeline to
permit LMRC to use the pipeline to withdraw and convert 159.7 million gallons of
water into snow per ski season while the Forest Service further reviews the
pipeline under NEPA. On December 4, 1998, the Forest Service filed a Notice of
Administrative Action stating that it intends to combine its NEPA review of the
pipeline with its NEPA review of the improvements and proposed expansion at Loon
Mountain. The Forest Service stated that it hopes to issue a draft NEPA document
for public comment on the pipeline, the improvements, and the expansion in the
Fall of 1999. No assurances can be given regarding the timing or outcome of this
process.
The Forest Service has the right to approve the location, design and
construction of improvements in permit areas and many operational matters at
resorts with permits. Under the permits, the Company is required to pay fees to
the Forest Service. Under recently enacted legislation, retroactively effective
to the 1995/96 ski season, the fees range from 1.5% to approximately 4.0% of
certain revenues, with the rate generally rising with increased revenues.
However, through fiscal 1998, the Company is required to pay the greater of (i)
the fees due under the new legislation and (ii) the fees actually paid for the
1994/95 ski season, unless gross revenue in a ski season falls more than 10%
below that of the 1994/95 ski season, in which case the fees due are calculated
solely under the new legislation. The calculation of gross revenues includes,
among other things, lift tickets, ski school lessons, food and beverages, rental
equipment and retail merchandise revenues. Total fees paid to the Forest Service
by the Company during the year ended October 30, 1998 were $1,014,000. The new
legislation is not expected to have a material effect on fees payable in future
periods.
19
The Company believes that its relations with the Forest Service are good,
and, to the best of its knowledge, no special use permit for any major ski
resort has ever been terminated by the Forest Service. Prior to permit
termination, the United States Forest Service would be required to notify the
Company of the grounds for such action and to provide it with reasonable time to
correct any curable non-compliance.
Employees
As of December 31, 1998, the Company employed a full-time corporate staff of
40 persons. In addition, the Company's resorts employ an aggregate of
approximately 614 full-time and 5,600 seasonal employees. None of the employees
of the Company or its resorts is represented by a labor union, and the Company
considers its employee relations to be good.
Regulatory Matters
The Company's resorts are subject to a wide variety of federal, state and
local laws and regulations relating to land use, water resources, discharge,
storage, treatment and disposal of various materials and other environmental
matters. Management believes that the Company's resorts are presently in
compliance with all land use and environmental laws, except where non-compliance
is not expected to result in a material adverse effect on its financial
condition. The Company also believes that the cost of complying with known
requirements, as well as anticipated investigation and remediation activities,
will not have a material adverse effect on its financial condition or future
results of operations. However, failure to comply with such laws could result in
the imposition of severe penalties and other costs or restrictions on operations
by government agencies or courts that could adversely affect operations.
The Company has not received any notice of material non-compliance with
permits, licenses or approvals necessary for the operation of its properties or
of any material liability under any environmental law or regulation. However, at
Grand Targhee, the Wyoming Department of Environmental Quality (the "DEQ") has
issued a Notice of Violation of state water pollution requirements based on
alleged discharge from a wastewater lagoon without a permit. The Company has
entered into an negotiated compliance order with the DEQ requiring construction
and operation of a new wastewater facility at a cost of approximately $1.0
million. The Company has substantially completed the construction of the new
wastewater facility and is awaiting final approval of the facility by the DEQ.
Pursuant to the air emissions reduction program currently in effect in the
area regulated by the South Coast Air Quality Management District (the
"SCAQMD"), where Bear Mountain is located, Bear Mountain will be required to
"bank" emission credits from other facilities which have already implemented NOx
emission reductions. The Company may purchase "banked" emission credits in a
one-time transaction at the current market rate of approximately $700,000 or
over time up to the year 2010 at prevailing market rates.
Bear Mountain has a water supply contract ("Contract") for 500 acre-feet
per year with Big Bear Municipal Water District executed January 8, 1988, the
initial fifteen-year term of which expires on January 7, 2003. Big Bear
Municipal Water District's primary source of water is from a portion of the
water in Big Bear Lake shared with Bear Valley Mutual Water Company, the senior
water rights holder. The Contract provides water primarily for snow making and
slope irrigation purposes. The obligation of Big Bear Municipal Water District
to supply water is excused only if the level of Big Bear Lake recedes below
6,735.2 feet above sea level or 8 feet below the top of Big Bear Lake Dam. Bear
Valley Mutual Water Company recently claimed that its rights in the Lake are not
subject to Big Bear Municipal Water District's obligation to supply water to
Bear Mountain. This claim is vigorously contested by all interested parties and
a two-year moratorium agreement between Bear Valley Mutual Water Company and Big
Bear Municipal Water District was executed in November, 1998, which withdraws
Bear Valley's claim for two years while the issues between Bear Valley and Big
Bear Municipal are worked out. This allows continued service to Bear Mountain on
an uncontested basis during the moratorium period. The Company expects that the
issue will be resolved favorable to the interests of Bear Mountain because of
its contribution to the local economy, the stenghth of its contract rights with
Big Bear Municipal Water District, and the alternate sources of water supply
that are available. It should be noted the foregoing is premised on normal
conditions prevailing and the absence of droughts, earthquakes, dam failure, or
other types of similar calamities that impact the ability to obtain or supply
water and no assurance can be made regarding the outcome of this situation or
the timing negotiations during the next two years.
The operations at the resorts require permits and approvals from certain
federal, state and local authorities. In addition, the Company's operations are
heavily dependent upon its continued ability, under applicable laws,
regulations, policies, permits, licenses or contractual arrangements, to have
access to adequate supplies of water with which to make snow and service the
other needs of its facilities, and otherwise to conduct its operations. There
can be no assurance that new applications of existing laws, regulations and
policies, or changes in such laws, regulations and policies will not occur in a
manner that could have a detrimental effect on the Company, or that material
permits, licenses or agreements will not be canceled, non-renewed, or renewed on
terms materially less favorable to the Company. Major expansions of any one or
more resorts could require, among other things, the filing of an environmental
impact statement or other documentation with the Forest Service and state or
local governments under the NEPA and certain state or local counterparts if it
is determined that the expansion may have a significant impact upon the
environment. Although the Company has no reason to believe that it will not be
successful in implementing its operations and development plans, no assurance
can be given that necessary permits and approvals will be obtained.
Pursuant to the decision of the United States Court of Appeals for the
First Circuit and the United States District Court for the District of New
Hampshire's order, each discussed under Part I - Item 3, LMRC has applied to the
Environmental Protection Agency ("EPA") for a Clean Water Act (the "CWA")
discharge permit covering discharges associated with its snowmaking operations.
Certain ongoing discharges are authorized by the District Court order pending
final action on the permit and subject to the District Court's reserved power to
modify such approval to
20
address any resulting environmental issues. The EPA issued a discharge permit
prior to the 1998/99 ski season.
Certain regulatory approvals associated with the new snowmaking pipeline at
Loon Mountain impose minimum stream flow requirements on LMRC. These
requirements will compel LMRC to construct water storage facilities within the
next ten years, and such construction will require further regulatory approvals
and environmental documentation under the NEPA.
In addition, LMRC was notified in September 1997 that it had allegedly
filled certain wetlands at the resort in violation of the CWA. In response, LMRC
worked with the EPA to remove the alleged fill and implement certain erosion
control measures. On January 15, 1998, an individual notified the EPA, LMRC, and
certain other persons that he intended to initiate a lawsuit under the CWA
regarding the alleged wetland violation. On February 2, 1998, the EPA wrote to
such individual stating that the alleged fill had been removed and that the EPA
does not believe there is a continuing violation at the site. While the Company
believes that its position would prevail, no assurance can be given regarding
any outcome.
Item 2. Properties
Northstar consists of over 6,500 acres of privately owned land, of which
less than one-third has been developed. Sierra owns 20 acres of its 1,689 gross
acreage and leases the remainder under a Special Use Permit with the United
States Forest Service. Bear Mountain owns 116 of its 819 gross acreage, leases
698 acres of mountain terrain under a Forest Service Special Use Permit and
leases 5 acres from third parties. Waterville Valley owns 35 acres on Snow
Mountain and two acres at the Conference Center, and leases 790 acres of land on
Mt. Tecumseh from the federal government under a Special Use Permit issued by
the Forest Service. Mt. Cranmore owns 754 acres and holds deeded easements
enabling it to develop an additional 1,200 acres of ski terrain. The Summit owns
686 acres of its 4,152 gross acreage, leases 1,400 acres under a private permit
and utilizes 1,864 acres of mountain terrain under a Forest Service Special Use
Permit. Grand Targhee leases all of the land on which the resort is operated
under a Special Use Permit with the United States Forest Service. Loon Mountain
owns 565 acres upon which substantially all of the buildings and improvements
relating to the resort are located. Loon Mountain leases 775 acres of land in
the White Mountain National Forest under a Special Use Permit issued by the
United States Forest Service permitting year-round recreational use. Adjacent to
such land, an additional 581 acres are leased on "South Mountain" under a
separate Special Use Permit permitting certain limited activities, including
mountain biking, cross country skiing and horseback riding. For further
information regarding the Company's properties, see Part I, Item 1. "Business -
Resort Operations" and "- Regulation and Legislation."
Item 3. Legal Proceedings
Each of the Company's resorts has pending and is regularly subject to
litigation with respect to personal injury claims relating principally to skiing
activities at its resorts. The Company and each of its resorts maintain
extensive liability insurance that the Company considers adequate to insure
claims related to usual and customary risks associated with the operation of ski
resorts. The Company does not believe that it or any of its resorts are involved
in any litigation that will, individually or in the aggregate, have a material
adverse effect on its financial condition or future results of operations.
On March 25, 1997, Killington West, Ltd., a California corporation formerly
known as Bear Mountain, Ltd. ("Killington"), filed a breach of contract lawsuit
in the Superior Court of the State of California (County of San Bernardino)
against Fibreboard Corporation ("Fibreboard") and Bear Mountain, Inc. alleging
that Fibreboard and Bear Mountain, Inc. breached the asset purchase agreement
dated October 6, 1995 (the "Original Bear Mountain Agreement") among Killington,
Fibreboard and Bear Mountain, Inc., pursuant to which Bear Mountain, Inc.
acquired the Bear Mountain ski resort from Killington. Killington's lawsuit
concerns an alleged breach by Fibreboard and Bear Mountain, Inc. of a change of
control provision in the Original Bear Mountain Agreement. In connection with
the Company's acquisition of Bear Mountain, Inc. in December 1996, the Company
obtained from Fibreboard indemnification for any claim that might be made by
Killington, and further, required that $1.0 million of the purchase price be
held in escrow pending the outcome of any potential disputes with Killington.
Fibreboard has acknowledged its obligation to indemnify Bear Mountain, Inc. with
respect to the Killington lawsuit and has commenced the defense of such lawsuit
on behalf of Fibreboard and Bear Mountain, Inc. However, no assurances can be
given regarding the outcome of this litigation.
21
In connection with the Loon Mountain Acquisition, certain shareholders (the
"Plaintiffs") of LMRC filed a lawsuit in New Hampshire state court against LMRC
and its former directors alleging breach of fiduciary duty and against the
Company alleging that the Company failed to comply with the New Hampshire
Security Takeover Disclosure Act (the "Takeover Statute"). Prior to the filing
of the lawsuit against the Company, the Company had sought and received a "no
action" order from the Bureau of Securities Regulation, New Hampshire Department
of State (the "Bureau") finding that the Takeover Statute was inapplicable to
the proposed merger. The two lawsuits were consolidated in the Superior Court in
Grafton County, New Hampshire. The Plaintiffs' initial request for a preliminary
injunction prohibiting the Company (or its affiliates) from proceeding with the
Loon Mountain Acquisition based on allegations that the Company failed to comply
with the Takeover Statute was denied on October 28, 1997. Before the litigation
proceeded further, both parties amended the merger agreement relating to the
Loon Mountain Acquisition. The Company then sought and obtained an additional
order by the Bureau that the Takeover Statute did not apply. On January 30,
1998, the Company filed its answer to the Plaintiffs' petition and, on February
10, 1998, filed a motion to dismiss the action against the Company under the
Takeover Statute in its entirety, asserting, inter alia, that the Takeover
Statute did not apply to the transaction as a matter of law. On June 11, 1998,
the Court denied the Company's motion to dismiss. On July 2, 1998, the Company
filed a motion to reconsider the Court's decision. On August 1, 1998, the Court
granted the Company's motion for reconsideration and dismissed Plaintiffs'
claims under the Takeover Statute. Plaintiffs filed a motion for reconsideration
as to the Court's dismissal of the Takeover Statute claim which was denied on
October 1, 1998, and Plaintiffs have appealed the dismissal of their Takeover
Statute claim to the New Hampshire Supreme Court. Plaintiffs' breach of
fiduciary duty action against LMRC and its directors remains pending. Plaintiffs
have conducted limited discovery and a trial date has not been set. On December
15, 1998, Plaintiffs moved to amend their complaint to allege a cause of action
seeking money damages against the Company, LMRC and the former LMRC directors
for breach of fiduciary duty and omissions and misrepresentations in connection
with the approval of the Loon Mountain Acquisition and the solicitation of
proxies from the LMRC shareholders to approve the transaction. Plaintiffs'
potential remedies include monetary damages for the directors' alleged failure
to maximize the consideration to LMRC shareholders and/or failing to properly
disclose material information to LMRC shareholders in connection with the Loon
Mountain Acquisition. If Plaintiffs are successful in pursuing their claims
against the former LMRC directors, LMRC has certain indemnity obligations to the
former directors and is currently involved in such directors' defense. The
Company may have available to it as a defense the exclusive remedy
provisions of the New Hampshire statute on dissenters' rights, which rights, as
described below, the Plaintiffs have exercised. While management of the Company
believes that the former LMRC directors will prevail against Plaintiffs' claims
and appeals, no assurance can be given regarding the outcome of the above
described litigation.
In connection with the Loon Mountain Acquisition, Plaintiffs exercised
dissenters' rights under the New Hampshire Business Corporation Act (the
"NHBCA"). Under the statutory procedure for settling the Plaintiffs' dissenters'
rights, LMRC paid Plaintiffs an aggregate of $34,436, or $30.61 per share, as
its estimate of the fair value of their 1,125 shares. Plaintiffs demanded
additional payments necessary to compensate them for the $71.38 per share price,
plus interest, which they have asserted as the fair value of their shares.
Pursuant to the NHBCA, LMRC commenced a proceeding in the Grafton County New
Hampshire Superior Court on July 20, 1998 seeking a judicial appraisal of the
value of Plaintiffs shares in LMRC. On September 30, 1998, Plaintiffs moved to
dismiss the appraisal proceeding on the grounds that LMRC's payments to them
were untimely and that the accompanying notice omitted certain required
information. The court denied the Plaintiff's motion to dismiss on December 14,
1998. LMRC anticipates that discovery will commence in early 1999. While the
Company believes that the amount paid to the Plaintiffs prior to the
commencement of the appraisal proceeding represents the fair value of their
shares, there can be no assurance as to the value which the appraisal proceeding
will assign to the Plaintiffs 1,125 shares.
In 1995, an individual sued the United States Forest Service in the United
States District Court for the District of New Hampshire (the "District Court")
alleging that the Forest Service had violated NEPA, the CWA, and an executive
order in 1993 approving improvements to facilities on Loon Mountain and an
expansion of the Loon Mountain resort on to South Mountain. LMRC and an
environmental group intervened. The District Court entered summary judgment for
the United States Forest Service on all claims and the original plaintiff along
with an intervening party appealed.In December 1996, the United States Court of
Appeals for the First Circuit (the "First Circuit") reversed the District Court
and ruled that the Forest Service must reconsider certain environmental issues
under NEPA and that LMRC must obtain a discharge permit under the CWA for
certain discharges from its snowmaking system. On May 5, 1997, later finalized
December 11, 1998, the District Court entered a stipulated order that: enjoins
LMRC from any further construction implementing the project with certain limited
exceptions; imposes various restrictions on LMRC's existing snowmaking
operations and requires LMRC to apply for a CWA discharge permit for discharges
of water and any associated pollutants associated with its snowmaking; allows
22
existing construction to remain in place and existing uses to continue; requires
LMRC to undertake certain erosion control and monitoring measures; requires the
Forest Service to prepare supplemental NEPA documentation on the improvements
and expansion; and reserves the right to require restoration of areas developed
under the 1993 Forest Service decision to their preexisting condition if not
ultimately approved by the Forest Service. This order will remain in effect
until the supplemental NEPA process is completed and the Forest Service issues a
new special use permit. The Company has received a CWA permit for its snowmaking
system, and the Forest Service currently expects to issue draft NEPA
documentation in the Fall of 1999. However, no assurance can be provided
on the timing, terms or outcome of this proceeding.
Following the First Circuit's decision, the plaintiffs filed a motion with
the District Court asking it to impose a civil penalty under the CWA of
$5,550,125 and attorney fees and costs against LMRC for unpermitted discharges
into Loon Pond without a discharge permit during its snowmaking operations in
the 1996/97 ski season and preceding years. The discharge at issue involves
water transfers from the East Branch of the Pemigewasset River and drain back
from the snowmaking system into Loon Pond. In connection with the Loon Mountain
Acquisition, the Company obtained environmental pollution insurance for
$4,500,000 of coverage above a $1.2 million deductible to cover any penalties,
fees, and costs that the Court assesses against LMRC. LMRC asserted defenses to
the merits and amount of penalty sought. In a December 11, 1998 final order, the
District Court dismissed the claim for civil penalties and attorney fees under
the CWA on grounds of mootness and standing. One of the plaintiffs filed a
notice of appeal on January 8, 1999 to appeal the final order to the United
States Court of Appeals for the First Circuit but has not yet identified issues
on appeal. No assurances can be given regarding the outcome of this litigation.
On August 29, 1997, the plaintiffs filed a second lawsuit against the
Forest Service in the District Court alleging that the Forest Service violated
NEPA in authorizing LMRC to construct and operate a snowmaking pipeline across
permitted land. Another party intervened as plaintiff, and LMRC intervened as
defendant. The Forest Service and LMRC asserted various defenses. On January 20,
1998, the District Court held that the pipeline may be analyzed and approved by
the Forest Service separately from the South Mountain expansion, but that the
Forest Service violated NEPA by failing to consider the potential environmental
effects of the alleged increase in snowmaking capacity. On March 10, 1998, the
District Court issued a series of further orders which establish a schedule for
the Forest Service's reconsideration of the pipeline and any resulting
challenges, deny plaintiffs' request that such reconsideration be deferred until
the Forest Service's decision on the larger expansion, and enjoin Loon Mountain
from using the pipeline pending further action by the Court. Three of the
plaintiffs have appealed the District Court's denial of their claim that
reconsideration of the pipeline be deferred until the Forest Service's decision
on the larger expansion, but briefing on these appeals has not yet commenced in
the First Circuit.
On July 2, 1998, the Forest Service issued a new decision reauthorizing the
pipeline and addressing the potential environmental effects of the projected
increase in snowmaking capacity. Three of the prior plaintiffs filed challenges
to this decision with the District Court, alleging that it, too, violated NEPA.
The Forest Service subsequently withdrew its decision authorizing the pipeline
to conduct further review under NEPA.
On August 20, 1998, two of the plaintiffs who have challenges to the new
pipeline decision pending before the District Court filed a separate lawsuit
against the Forest Service in the same court challenging the pipeline decision
on the same grounds, as well as additional grounds that another party has
asserted in that case or that are identical to claims that the Court addressed
in its January 20, 1998 decision. The Court consolidated the new lawsuit with
the existing action on the pipeline on November 19, 1998. That same day, the
Court modified the injunction precluding Loon Mountain from using the pipeline
to permit Loon Mountain to use the pipeline to withdraw and convert 159.7
million gallons of water into snow per ski season until the Forest Service
completes its environmental review of the pipeline. On December 4, 1998, the
Forest Service filed a Notice of Administrative Action stating that it intends
to combine its NEPA review of the pipeline with the NEPA review of the
improvements and proposed expansion at Loon Mountain. The Forest Service
currently expects to release a draft NEPA document for public comment on the
pipeline, the improvements, and the proposed expansion in Fall 1999. No
assurances can be given regarding the timing or outcome of this process or the
litigation on the pipeline.
The plaintiffs in the Loon Mountain pipeline litigation have stated that
they intend to seek attorney fees in the combined amount of $52,965. One
plaintiff has indicated that he will claim $23,581 in attorney fees against
LMRC on grounds of bad faith. The other plaintiffs have not ruled out claims for
attorney fees against LMRC. The Company believes LMRC has substantial defenses
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in the event claims for attorney fees are filed; however, it cannot guarantee
any particular result.
On August 1, 1997, two plaintiffs filed a lawsuit against the Town of
Lincoln Planning Board and LMRC in the Grafton County Superior Court in the
State of New Hampshire alleging that the Lincoln Planning Board had improperly
approved various facilities associated with the snowmaking pipeline. On
September 30, 1997, LMRC moved to dismiss the claims against it, but sought to
remain in the case as in intervenor. Also on September 30, 1997, the Lincoln
Planning Board answered the complaint, denying most of the allegations and
raising various defenses. On February 23, 1998, the court granted LMRC's motion
to dismiss. However, in the event that the plaintiffs are successful, the
Lincoln Planning Board would be requested to reconsider the facilities and issue
a new decision. No assurance can be given regarding