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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: October 29, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________________
to _________________
Commission File Number: 333-26091
BOOTH CREEK SKI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1359604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 South Frontage Road West, Suite 100
Vail, Colorado 81657
(970) 476-4030
(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 [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of December 31, 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
- ---- -----------
PART I
1. Business...................................................... 2
2. Properties.................................................... 22
3. Legal Proceedings............................................. 22
4. Submission of Matters to a Vote of Security Holders........... 25
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................... 26
6. Selected Financial Data....................................... 26
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 29
7a. Quantitative and Qualitative Disclosures About
Market Risk................................................... 39
8. Financial Statements and Supplementary Data................... 40
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................... 40
PART III
10. Directors and Executive Officers of the Registrant............ 41
11. Executive Compensation........................................ 43
12. Security Ownership of Certain Beneficial Owners
and Management................................................ 47
13. Certain Relationships and Related Transactions................ 51
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................... 57
Signatures.................................................... 62
Index of Financial Statements................................. F-1
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
("Bear Mountain") in Southern California, the Waterville Valley ("Waterville
Valley") and Mount Cranmore ("Mt. Cranmore") ski resorts in the White Mountains
of New Hampshire, the Summit at Snoqualmie (the "Summit") ski resort complex in
the Cascade Mountains of Northwest Washington, the Grand Targhee ski resort
("Grand Targhee") in the Grand Tetons in Wyoming and 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
1998/99 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,
397 trails, 94 lifts (including 16 high-speed lifts and two Gondolas) and
on-mountain capacity to accommodate approximately 56,000 guests daily. For the
year ended October 29, 1999, the Company generated revenues of $125.7 million
and EBITDA before unusual items of $28.2 million, and incurred a net loss of
$18.8 million. For the year ended October 30, 1998, the Company generated pro
forma revenues of $115.5 million, pro forma EBITDA of $27.4 million, and
incurred a pro forma net loss of $14.8 million.
The Company's resort properties are primarily located near major skiing
populations, including four of the five largest regional ski markets in the
United States: Los Angeles/San Diego, San Francisco/Sacramento, Boston and
Seattle/Tacoma. The Company believes this geographical diversification may help
to limit the Company's exposure to regional economic downturns and unfavorable
weather conditions.
The Company's resorts seek to differentiate themselves in their respective
markets by selectively upgrading on-mountain facilities and guest services,
employing targeted marketing strategies and offering extensive skier
development programs, all of which create a competitively-priced, high-quality
guest experience. Since its formation in October 1996, the Company's resorts
have collectively spent over $42 million in capital expenditures, including the
addition of high-speed chairlifts, additional snowmaking capabilities, improved
trail grooming equipment, and enhanced on-mountain lodging, retail and food
service amenities. The Company believes its existing resorts are well
maintained. The Company also uses targeted advertising, database marketing and
strategic marketing alliances to enhance the image of its resorts and increase
regional market share. The Company also offers extensive development programs
to improve the technical skill level of all types of skiers, which management
believes is important to expand the total skier population and increase skier
visitation frequency.
The following is an organizational chart of Booth Creek Ski Group, Inc.
("Parent") and the Company and the Company's subsidiaries. Each subsidiary of
the Company is, directly or indirectly, wholly-owned by Booth Creek.
[GRAPHIC OF ORGANIZATIONAL CHART OMITTED]
The Company's principal executive offices are located at 1000 South Frontage
Road West, Suite 100, Vail, Colorado 81657. Its telephone number at that
location is (970) 476-4030. The Company was incorporated in Delaware on October
8, 1996.
Industry
There are 509 ski areas in the United States which, during the 1998/99 ski
season generated approximately 52.0 million skier days. A "skier day"
represents one skier or snowboarder visiting one ski resort for one day,
including skiers and snowboarders using complimentary and season passes.
Calculation of skier days requires an estimate of visits by season passholders.
Although different ski resort operators may use different methodologies for
making such estimations, management believes that any resulting differences in
total skier days are immaterial. U.S. ski 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 day
information from the 1994/95 ski season through the 1998/99 ski season.
U.S. Ski Industry Regions and Skier Days
(in thousands)
Rocky Pacific Lake
Season Northeast Southeast Midwest Mtns West Tahoe Total
- --------------------- --------- --------- ------- ------ ------- ----- ------
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
1998/99.............. 12,300 4,261 6,005 18,305 6,702 4,382 51,955
Five year average.... 12,502 4,655 6,808 18,592 6,988 3,506 53,051
Northeast: CT, MA, ME, NH, NY, VT, RI
Southeast: AL, GA, KY, MD, NC, NJ, PA, TN, VA, WV
Midwest: IA, IL, IN, MI, MN, MO, ND, NE, OH, SD, WI
Rocky Mtns: CO, ID, MT, NM, UT, WY
Pacific West: AK, AZ, CA (excluding Lake Tahoe Region), NV, OR, WA
Source: 1998/99 Kottke National End of Season Survey
Over the past decade, the ski resort industry has been experiencing a period
of consolidation. The number of United States ski areas has declined from 709
in 1986 to 509 in 1999. The number of ski areas may decline further, as many
mountain resorts lack the infrastructure, capital and management capability to
effectively compete in this multi-dimensional and service-intensive industry.
No major new ski resort has opened in the United States since 1989. Of the 509
ski areas, the 1998/99 Kottke National End of Season Survey estimates the
average resort recorded approximately 102,072 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 has
spent over $42 million in capital expenditures at its resorts to improve their
competitive position and to meet sustaining capital requirements. Management
believes the need for increased investment in resorts in general has required a
greater access to capital and has enhanced the position of resorts owned by
larger, better capitalized owners. Despite this consolidation, the ski industry
remains fragmented, with no one resort accounting for more than 3%, and no one
resort operator accounting for more than approximately 10%, of the United
States' 52.0 million skier days during the 1998/99 ski season. The four largest
ski resort companies, including the Company, accounted for approximately 28.9%
of all U.S. skier days recorded during the 1998/99 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.
The emergence and growth of snowboarding, driven primarily by the Echo Boom
and X Generations, has energized interest in "on-snow" recreation. According to
the 1998/99 Kottke National End of Season Survey, the estimated number of
snowboarder visits has increased from 6.4 million in the 1994/95 ski season to
12.1 million in the 1998/99 ski season, an increase of approximately 89%.
Snowboarders tend to be between the ages of 13 and 25 and presently represent
an estimated 23.2% of all domestic ski resort visitors. Regional resorts are
the industry leaders in providing designated snowboarding parks, trails and
specialized trail 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, snow
school, retail and rental revenue growth for the Company.
The advent of snowboarding has been accompanied by the introduction of new
"shaped", alpine skis which make skiing easier to learn and enjoy. The shaped
skis 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. All of the Company's resorts have replaced all or a
majority of their rental skiing equipment with 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 3.5 million annual skier
days over the last five years. Management estimates that approximately 70% to
75% of the skiers visiting Lake Tahoe resorts during the 1998/99 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 2.8 million annual
skier days over the last five years. Management estimates that approximately
77% of the skiers visiting Southern California resorts during the 1998/99 ski
season were drawn primarily from the Los Angeles, Orange County and San Diego
metropolitan areas. Skiers in this market can choose from among four major
resorts, which include Bear Mountain, Snow Summit, Mountain High and Mammoth
Mountain.
The Northeast market (including New York) has averaged approximately 12.5
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. Waterville
Valley, Mt. Cranmore and Loon Mountain all operate in the Northeast market.
The Company's Summit resort complex operates in the Washington state segment
of the Pacific West market, which recorded approximately 6.7 million skier days
during the 1998/99 ski season. Management estimates that more than 90% of the
skier days recorded at Washington state resorts during the 1998/99 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 18.6 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, 27 are located in
Colorado, accounting for approximately 62% of all recorded skier days in the
region during the 1998/99 ski season. The 40 ski resorts in the northern Rocky
Mountain states of Montana, Idaho and Wyoming, including the Company's Grand
Targhee resort, recorded a total of approximately 3.0 million skier days during
the 1998/99 ski season. Because resorts in this part of the region are
generally less accessible than resorts in Colorado or 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
Resort Acres Drop Trails Lifts Coverage Machines 12 Miles
- -------------------- ------- -------- ------ ------------- --------- -------- --------
Northstar-at-Tahoe.. 2,400 2,280 63 1 High-Speed 50% 14 15,000
Gondola
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 39 1 High-Speed 100% 3 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 High-Speed 96% 8 13,000
Gondola
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 65 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 village consisting of
condominium/hotel accommodations, restaurants, bars, shops, a child-care center
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 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, 1997/98 and 1998/99 ski
seasons. In selected years 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. In 1999, Northstar was chosen
as the Best Family Reunion location by Family Tree magazine; Top 10 in the
nation for snow terrain features by Ski magazine and Top Sports Shop in the
nation by Ski magazine.
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, which is located two miles from Northstar, 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 5,000 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 1998/99 ski
season, 73% of the skiers visiting Northstar came from Northern California, 7%
from Southern California, 16% from other states and 4% 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 367 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 1998/99
ski season consumed approximately 34 million gallons of water.
Northstar consists of over 8,000 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. Sierra operates a 46,000 square foot base lodge which
offers a variety of food and beverage services. Management believes that
Sierra's investment in its ski infrastructure has made it the best ski value in
the South Lake Tahoe area. Sierra does not offer summertime activities.
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 Term 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 546 inches per year
over the past five years, Sierra is not as 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. In 1999, Sierra
was ranked as one of the best ten resorts in the Pacific region by Ski
magazine.
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.
Since its acquisition by Booth Creek, Bear Mountain has made significant
improvements to its base lodge facilities, and installed a new high-speed quad
lift to provide improved access to key portions of its beginner and advanced
terrain. Other facilities at Bear Mountain include three lodges which provide
an aggregate of approximately 31,000 square feet of space for food and beverage
services (restaurants and cafeterias), skier services and entertainment. Summer
recreation facilities include a nine-hole golf course.
Bear Mountain 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. Management estimates that approximately 94% 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 116 of its 819 gross acreage, leases 698 acres of
mountain terrain under a United States Forest Service Term Special Use Permit
and leases five acres from third parties. See Part I, Item 1. "Business -
Regulation and Legislation." 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. See Part I, Item 1. "Business - Regulatory Matters." 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. In 1999, Bear Mountain was
rated as one of the top ten resorts in the nation for terrain features and
parks by Ski and Freeze magazines.
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 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 foot 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 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 comprised of either day skiers, regional overnight skiers or
destination 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 resort's 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 1998/99 ski season
the majority of Waterville Valley's skiers came from Massachusetts (44%) and
New Hampshire (34%), with the remainder coming from Rhode Island, Connecticut,
New York, New Jersey and other regional locations. In 1999, Waterville Valley
was recognized as the third best resort in North America for families by Ski
magazine.
Waterville Valley owns 35 acres on Snow Mountain and two acres at the
Conference Center. It leases 790 acres of land on Mt. Tecumseh under a Term
Special Use Permit issued by the United States Forest Service. See Part I, Item
1. "Business - Regulation and Legislation." Waterville Valley's snowmaking
system is engineered to cover 100% of the ski trails on Mt. Tecumseh. Water for
snowmaking is currently pumped from a local river and a pond. Waterville Valley
is in the process of 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. 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 39 trails 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 five outdoor tennis courts, four indoor tennis courts,
a pool, a spa, a weight-lifting area, aerobic training rooms, an indoor
climbing wall, locker rooms, a kitchen area and nursery service. Mt. Cranmore
also operates on-site retail and rental shops.
Management believes that Mt. Cranmore has great appeal to young and growing
families due to its intimate size, high percentage of intermediate trails (45%,
with 33% for advanced skiers) and its well-developed children's ski programs.
An additional family attraction is Mt. Cranmore's proximity to the 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 1998/99 ski season, management
estimates that 53% of the resort's guests were from the Boston metropolitan
area, 20% were from New Hampshire and 10% 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 500 acres of ski terrain. Mt. Cranmore does not lease any of its
land from the federal government. Mt. Cranmore's snowmaking equipment consists
of a computerized 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 one million gallons of water for
snowmaking. In addition, Mt. Cranmore's base area pond holds 2.5 million
gallons.
The Summit at Snoqualmie
The Summit at Snoqualmie is located in the Cascade Mountains of Northwest
Washington and consists of four separate resorts, Alpental at the Summit
("Alpental"), Summit West, Summit Central, and Summit East, which collectively
offer 1,916 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 acres 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 acres of which are lighted for night skiing); Summit Central has
a 3,860 foot top elevation, a 1,020 foot vertical drop and 246 acres of skiable
trails and runs (176 acres of which are lighted for night skiing); and Summit
East has a 3,760 foot top elevation, a 1,080 foot vertical drop and 110 acres
of skiable trails and runs (58 acres of which are lighted for night skiing). In
total, the Summit complex has 96 designated trails and runs served by 27
operating lifts, including two high-speed quads, four triple lifts, 14 double
lifts and seven 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 by Booth
Creek in January 1997, the Company has invested approximately $10.5 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 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 beginner, intermediate and advanced
skiers a relatively equivalent amount of trail difficulty, each of the separate
properties has 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 primarily designed 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 25% to 30% of its
1998/99 skier days being attributable to guests enrolled in ski school
programs. In addition, the Summit is the largest night skiing complex in the
United States, with approximately 25% to 35% of its 1998/99 skier visits each
season being recorded at night.
The Summit owns 686 acres of its 4,152 gross acreage, leases over 1,400
acres under a private permit and utilizes 1,864 acres of mountain terrain under
a United States Forest Service Term Special Use Permit. See Part I, Item 1.
"Business - Regulation and Legislation." The Summit enjoys abundant annual
snowfall, averaging 493 inches annually over the past five years. As a result,
there are no man-made snowmaking capabilities at any of the Summit resorts. The
Company does, however, possess water rights that would allow it to engage in
snowmaking, if necessary or desired in the long term.
Grand Targhee
Grand Targhee is located in the Grand Teton mountains of Wyoming,
approximately 50 miles northwest of the town of Jackson, Wyoming. Jackson is a
major ski destination resort center, recording an average of 507,000 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 currently being used for snowcat
serviced powder skiing. The Company has received approval from the United
States Forest Service for the construction of a lift to service this terrain.
Management expects to install such lift in the next several years. Grand
Targhee also has approximately 15 kilometers of machine groomed trails for
cross-country skiing. 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
center and conference facilities.
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 60% 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 40% 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 Term Special Use Permit. See Part I, Item 1. "Business -
Regulation and Legislation." Grand Targhee has averaged approximately 544
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 1999, Grand Targhee was recognized by Ski magazine in several
categories:
number two for best snow conditions in North America; number five in North
America for best value; and number seven in North America for best scenery.
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 has received United States Forest Service approval to
build 590 rental units and has had discussions with the United States Forest
Service that would allow for the future development of private dwellings. See
Part I, Item 1. "Business - Real Estate Development."
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 a base lodge with a
cafeteria and coffee shop, a restaurant and deck at the summit, the Governor
Adams lodge (which provides traditional lodge facilities and also serves as a
venue for summer outdoor activities and concerts), trails for cross-country
skiing, horseback riding and mountain biking and a steam engine railroad for
shuttling visitors.
Loon Mountain has 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 received additional national magazine
recognition in 1999, including Gold Medals by Ski magazine for accessibility
and family programs and silver medals for challenge, lift network, service,
lodging, dining, apres ski activities and off-hill activities. Loon Mountain
also was chosen as the best snowboard park in the East by Snowboarding magazine
and one of the top four snowboard parks in the U.S. by Heckler magazine.
Loon Mountain owns 565 acres upon which substantially all of the buildings
and improvements relating to the resort are located. Loon Mountain leases 778
acres of land in the White Mountain National Forest under a Term Special Use
Permit issued by the United States Forest Service permitting year-round
recreational use. See Part I, Item 1. "Business - Regulation and Legislation."
Adjacent to such land, an additional 581 acres are leased on "South Mountain"
under a separate Special Use Permit permitting certain limited activities,
including mountain biking, cross-country skiing and horseback riding. These 581
acres have been designated by management for the eventual development, subject
to permitting, of skiing terrain to complement the current skiing area. See
Part I, Item 1. "Business - Real Estate Development." The average annual
snowfall at Loon Mountain was 131 inches over the last five seasons, although
when necessary Loon Mountain has the snowmaking capacity to cover approximately
96% of its skiable acreage.
Business Segments
The Company operates in two business segments: resort operations and real
estate and other. Business segment information is presented in Note 13 to the
accompanying consolidated financial statements.
Real Estate Development
The Company has significant holdings of land suitable for either the
expansion of ski terrain or the development of residential and commercial
properties. The Company also has terrain expansion opportunities on land within
its current United States Forest Service permits as well as land owned by third
parties. In management's view, increasing the on-mountain bed base, expanding
retail and other commercial services and developing additional skiable terrain
at a resort can accelerate growth in skier days and ski-related revenues. The
following table lists certain owned or leased land that may be available to the
Company for expansion.
Residentia/ Approximate
Commercial/ Number Principal
Location How Held Ski Terrain of Acres Uses
- ------------------------- ----------- ------------- ----------- ---------------
Northstar: Single
Family Development..... Owned Residential 86 On-mountain
housing
Northstar: Residential/ 364 On-mountain
Zoned/Undeveloped...... Owned Commercial housing and
expanded
commercial
facilities
Northstar: Mountain
Terrain Expansion -
North Lookout/
Sawtooth Ridge......... Owned Ski Terrain 937 Expand ski
terrain
Mt. Cranmore: Black Cap.. Easement Ski Terrain 500 Expand ski
terrain
Mt. Cranmore: Base Lands. Owned Residential/ 35 On-mountain
Commercial housing and
expanded
commercial
facilities
Bear Mountain........... Leased: Ski Terrain 114 Expand ski
Forest terrain
Service
Bear Mountain: Big
Bear Lake.............. Owned Residential/ 6 Develop 56
Ski Terrain condominiums
and expand ski
terrain
The Summit............... Owned Residential 105 On-mountain
housing
Grand Targhee............ Leased: Ski Terrain 900 Expand ski
Forest terrain
Service
Grand Targhee............ Leased: Residential/ 108 Develop village
Forest Commercial and expand
Service commercial
facilities
Loon Mountain:
South Mountain......... Leased: Ski Terrain 581 Expand ski
Forest terrain
Service
Loon Mountain: Base
Lands.................. Owned Residential/ 412 On-mountain
Commercial housing and
expanded
commercial
facilities
The Company's real estate development strategy for residential and
commercial properties is comprised of the following components: (1) to build
recurring resort cash flow through increased bed base and diversification of
revenue sources, (2) to partner with proven real estate developers, (3) to
invest on a limited basis in land and infrastructure development in conjunction
with the development of single family product at Northstar and (4) to refrain
from investment in vertical development except in conjunction with the
development of ski related facilities.
The Company's strategy with regard to the expansion of skiable terrain at
its resorts is based on the evaluation of several key factors, including (i)
the anticipated growth of the skier base within the relevant market and the
Company's ability to improve its competitive 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 upgrades and (ii) the return on capital expected to be realized
from an expansion project versus alternative projects. Management is
undertaking extensive planning and pre-development steps prior to investing
significant capital into any development project. Currently, the Company is in
the process of developing comprehensive master plans and obtaining entitlements
(e.g., zoning approvals) for Northstar, Waterville Valley, the Summit, Grand
Targhee and Loon Mountain. However, the Company's high leverage and operating
restrictions under its debt agreements may limit its ability to pursue
development projects. See Part II, Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
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 spread out 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. The last two phases of Big Springs, which consisted
of 47, lots was substantially all sold out in one day during August 1999. The
average price for a one third acre lot was $305,000.
Future single family residential development at Northstar is limited based
on the current real estate master development plan. The plan calls for the
development of approximately 56 additional single family lots. Recently the
Company received preliminary environmental approval from Placer County for a 26
lot development. Final plot plan review and applications for sale with the
California Department of Real Estate are being prepared for submittal. It is
anticipated that the project will be constructed and sold during the year 2000
pending the completion of the entitlement process and timeliness of required
approvals from the California Department of Real Estate. It is the Company's
intent to move forward with the entitlement process for the balance of single
family lots in early 2000. The timing for the final sale of these lots is
predicated on the findings of the environmental report and entitlement process
with Placer County. This approval process could take anywhere from 6 months to
a year to complete. Preliminary estimates of the Company's development costs
for the 56 single family lots are approximately $5 million.
On December 15, 1999, the Company reached an agreement for the proposed sale
of certain developmental real estate (the "Joint Venture Development
Property"), consisting of approximately 250 acres of land at Northstar, to a
newly formed joint venture between the Company and East West Partners, Inc.
("East West"). The Joint Venture Development Property excludes certain single
family developmental parcels that the Company anticipates developing on its
own, as well as other land held for future development and sale at Northstar.
The proposed transaction is subject to a number of significant closing
conditions, including (1) required consents and approvals, including those of
certain of the Company's creditors and (2) completion of title evaluations and
subdivision requirements to effect the transfer of the Joint Venture
Development Property. Further, East West has the right to terminate the
transaction prior to January 31, 2000. Under the terms of the proposed
transaction, the Company would receive an upfront cash payment ranging from $10
million to $15 million depending on the amount of real estate transferred at
the initial closing, the remainder of the upfront cash payment of $15 million
upon the subsequent transfer of parcels not transferred at the initial closing,
additional payments based on gross sales of the developed real estate as well
as a 20% interest in the joint venture. The Company is required to invest $5
million of the upfront cash payment in capital improvements to the Northstar
resort. The Company has retained approval rights over certain components of the
master development plan for the proposed development. However, there can be no
assurances that the conditions to the transaction will be satisfied or that the
transaction will be consummated on the terms described or at all.
A portion of the property underlying the planned single family development
lots at Northstar was sold to Trimont Land Holdings, Inc. ("TLH"), a
wholly-owned subsidiary of Parent and an affiliate of the Company, on November
17, 1999. See Part II, Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity." Under the terms of
the transaction with TLH, Northstar has retained an option to repurchase such
land from TLH, or may receive any excess net cash proceeds over the proceeds
received in November 1999 from the subsequent resale of the lots by TLH.
Additionally, in the event the planned transaction with East West is
consummated, the Company anticipates using a portion of the proceeds therefrom
to repurchase such land from TLH.
The proposed project contemplated by the East West joint venture envisions
the development of approximately 2,000 units that will be a mixture of hotel,
condominium, townhome and time share units, and additional commercial /retail
space in the village core. The Company over the next several months will be
working with East West to develop an updated overall master development plan
for the resort. The need to update the master development plan, undertake an
Environmental Impact Review, develop site specific architectural and
engineering plans for the initial phases of the project, and market and sell
the initial phases is a lengthy process that could take up to several years to
complete. The ultimate build-out of the entire project could take ten to twelve
years.
Following the completion and sale of the 56 single family lots described
above and the receipt of the upfront cash payment for the Joint Venture
Development Property, the Company's management does not anticipate the
receipt of significant cash proceeds from real estate activities at Northstar
for at least the next several years.
The Company also intends to enhance the ski terrain at the Northstar resort
by upgrading the existing trails and lifts, reducing or eliminating on-mountain
bottlenecks and providing better access to and from the resort's existing base
area. Additionally, the Company has identified two potential expansion areas,
North Lookout Mountain and the Sawtooth Ridge, which are adjacent to the
resort's current operations. These areas could provide additional challenging
terrain and bring the resort's terrain mix to a more favorable balance. During
the summer of 1999, four trails were cut on North Lookout Mountain in
preparation for the anticipated installation during the summer of 2000 of a new
lift to service such terrain. There are no immediate plans to expand into the
Sawtooth Ridge area, although this terrain expansion could be pursued by the
Company in the future if market conditions warrant such expansion.
In addition, Northstar has begun a program to harvest timber through third
party contracting. The timber harvesting program, which produced revenues of
$740,000 during the year ended October 29, 1999, is managed carefully to avoid
interference with Northstar's resort operations and prevent any diminution in
the quality of the resort's natural environment.
Mt. Cranmore holds an easement entitling it to develop at least 500 acres of
additional ski terrain known as the "Black Cap Mountain area" or "Black Cap."
The Black Cap easement was granted in 1951 and allows the Company to expand Mt.
Cranmore's existing ski and recreational infrastructure and develop additional
trails. The Black Cap property underlying the Company's easement is privately
owned and therefore, while still subject to laws and regulations, is 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 could increase Mt. Cranmore's skier capacity, and could enhance the
quality and diversity of its skiable terrain. Given the resort's location in
the heart of the Mt. Washington region, the dominant tourist destination in New
Hampshire, the Company believes that expansion into Black Cap could position
Mt. Cranmore as a premier attraction in the White Mountains and one of the
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, the
Company's financial position and the Company's other expansion opportunities.
Bear Mountain has received final approval from the United States Forest
Service and local governmental authorities of an expansion plan that would,
among other things, increase the resort's skiable terrain by 114 acres and
increase daily skier capacity by approximately 25%. The approval, however, is
subject to numerous mitigation conditions, including a requirement that Bear
Mountain acquire and dedicate to the 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, the Company's financial position and the resolution of
regulatory and United States 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 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-to/ski-from and is zoned as high-density residential and commercial. The
parcel will be studied for future development potential when market conditions
warrant.
At Grand Targhee, the Company, based on a master development plan done in
1994, has identified approximately 900 acres of additional skiable terrain
adjacent to the Grand Targhee resort which has received preliminary United
States 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 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 Company has received preliminary approval for the construction
of the 590 residential units envisioned by the study (which would expand Grand
Targhee's on-mountain bed base by 615%), 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. More recently the United States Forest Service requested that
Grand Targhee undertake a land exchange for the base lands at the resort to
assist them in their plans to protect a prime grizzly habitat known as Squirrel
Meadows. This exchange of lands will allow the resort to provide the necessary
amenities as outlined in the above described plan, as well as provide for
additional diverse resort opportunities for destination and regional overnight
guests. It will also enable the resort to have more flexibility in design and
project financing while at the same time taking an administrative burden off
the United States Forest Service and protecting the habitat for an endangered
species. If successful this should allow the resort to build a range of 700 to
970 units at the base, pending local planning and zoning. To date Booth Creek
has protected 421 acres in Squirrel Meadows with land purchase options and the
United States Forest Service is conducting an Environmental Impact Statement
("EIS") on the national forest parcel. The Company hopes that the exchange will
take place in 2000 at which time Grand Targhee would exchange 421 acres of
prime grizzly bear habitat for up to 195 acres at the base of the resort. The
United States Forest Service's decision in this matter could be subject to
administrative and judicial appeals and, while the Company believes the land
exchange will ultimately be approved and the Company would likely prevail in
any administrative and judicial proceedings following such approval, no
assurances can be given regarding the timing and outcome of this matter. Upon
successful completion of the land exchange and exhaustion of opponents remedies
the Company intends to pursue long-term development opportunities with third
parties.
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 Part I, Item 3.
"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 federal
district court to which the related litigation was remanded. Recently, the
Forest Service decided to prepare and issue an EIS versus the supplemental
documentation it agreed to previously. It is anticipated that the decision to
conduct an EIS versus supplemental documentation will not negatively impact the
issuance of the draft EIS, which is scheduled for June 2000, followed by a
final decision scheduled for November 2000. 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 could increase
Loon Mountain's skier capacity and enhance the quality and diversity of its
skiable terrain. Loon Mountain also owns 412 acres at the base of the mountain,
of which 310 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, 930 units could be constructed. The balance of land owned by Loon
Mountain, subject to approvals and zoning, could allow for up to 148 additional
units to be constructed. The timing and scope of development will depend on
market conditions, the Company's financial position and an evaluation of the
Company's other expansion opportunities.
Except for the potential sale of the Joint Venture Development Property, 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, grant liens and make investments. No
assurance can be given that the Company will develop successfully any
additional properties or, if completed, any such projects 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 has positioned each of its resorts as an attractive alternative to
competing regional resorts and to other forms of leisure and entertainment. The
primary objectives of the Company's marketing efforts are to (i) increase each
of its resorts' relative market share, (ii) expand the number of skiers in each
of its markets, (iii) increase skier visitation frequency, (iv) increase the
expenditures of each of its visitors, (v) 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's 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 is 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
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 comprised 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-base marketing programs (including e-mail broadcasting)
o Snowsport development programs (programs include a multitude
of snowsport options such as snowbikes, snowscoots and
tubing as well as more traditional skiing and snowboarding)
o Strategic marketing alliances
o School, group and business affiliations
Customer loyalty 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 80% of Northstar's 1998/99 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
frequency will be the success of its customer loyalty programs, including its
Vertical Plus and Vertical Value frequent skier programs. For an annual
membership fee, Vertical Plus members receive a special, personalized
identification wristband containing a preprogrammed computer microchip which
acts as their lift access for the season. In addition to offering daily ticket
discounts, the system tracks the amount of vertical feet skied at participating
resorts and rewards members with prizes based on the number of vertical feet
skied in a season. Other benefits of the program include members-only lift
lines, direct lift access, the convenience of being able to make cashless
retail transactions and electronic messaging. In addition 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. In addition, several of the resorts
successfully introduced new season pass products for the 1999/00 ski season
that were attractively priced to entice visitation during non-peak periods as
well as develop brand loyalty.
Multimedia advertising. The Company's marketing efforts include print,
broadcast, outdoor, Internet and direct mail advertising, with the particular
method tailored for each resort and existing market opportunities. The Company
is also very active in a variety of promotional programs designed to attract
guests from population centers in and around the Los Angeles, San Diego, San
Francisco, Sacramento, Seattle and Boston metropolitan areas and states with
large skier populations such as Texas, Illinois, Florida and New York. For
example, the Company's Northstar and Sierra resorts have participated in
extensive cooperative marketing with other Lake Tahoe resorts to promote the
region as a premier vacation destination. Market research has shown that the
typical Booth Creek guest utilizes the Internet extensively as a source of
information and additional company resources were recently concentrated towards
this communication vehicle. For the 1999/00 ski season, Booth Creek has
introduced e-commerce "virtual stores" on each resort's website offering
products such as season passes, loyalty program memberships, gift certificates
and lodging/lift packages.
Data-base marketing programs. Through the information obtained from its
customer loyalty programs, extensive market surveys and other market research,
the Company maintains a data-base containing detailed information on its
existing customers. Management believes that data-base marketing is an
effective and efficient method to identify, target and maintain an on-going
relationship with the Company's best customers. For example, the Company has
been successful in the use of targeted direct mailings and e-mail broadcasts,
which are designed to match customer preferences with special 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.
Snowsport development programs. The Company's resorts operate a variety of
snowsport development programs designed to improve the skills of children and
beginners, as well as more advanced skiers and snowboarders. 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, the Summit, Waterville Valley and Loon Mountain 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 program has
increased customer loyalty and repeat resort visits. In addition, Booth Creek
is expanding the definition of ski and snowboard areas to winter recreation
centers. Resorts are offering a multitude of unique options for sliding on
snow. "Booth Creek Hill Thrill Centers" include snow tubing, snowbikes,
snowfoxes, 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 1998/99 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 relationships with major
automobile manufacturers 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 these partnerships is important in building market share and the
image of the resorts, and that current joint marketing programs can be
expanded. For the 1999/00 ski season, Booth Creek and Dynastar Skis, Inc.
entered into a unique alliance whereby Dynastar Skis, Inc. included Booth Creek
resorts in a nationwide infomercial that includes a $2 million television media
buy. This provides exposure of Booth Creek resorts to a targeted audience of
skiers in key markets.
School, group and business affiliations. The Company is dedicated to
developing special programs designed to attract school, business and other
groups. By introducing skiing, snowboarding and other methods of sliding on
snow to a wider audience, these programs broaden the Company's customer base
and have proven to be a particularly effective way to build name recognition
and brand loyalty. 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 ticket programs, whereby participating businesses
are given an opportunity to provide their employees with incentive-based
pricing. Additional emphasis is being placed on the sales effort with a new
national sales director and ongoing training of resort personnel.
Seasonality
The business of the Company is highly seasonal, with the vast majority of
its annual revenues expected to be generated between November and April of each
fiscal year. Management considers it essential to achieve optimal operating
results during key holidays and weekends during this period. The Company's
results of operations are, in turn, significantly dependent on favorable
weather conditions and other factors beyond the Company's control. The Company
has sought to mitigate the downside risk of its seasonal business by purchasing
paid skier day insurance policies for the 1999/00 ski season. However, these
policies would not fully protect the Company against poor weather conditions or
other factors that adversely affect the Company's operations.
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 509 resorts and is highly competitive. The Company's competitive
position in the markets in which it competes is dependent upon many diverse
factors, including proximity to population centers, pricing, snowmaking
capabilities, type and quality of
skiing offered, prevailing weather conditions, quality and price of
complementary services. The Company's Lake Tahoe resorts, Northstar and Sierra,
face strong competition from Lake Tahoe's 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, Mountain
High and Mammoth Mountain.
The Company's New England resorts, Waterville Valley, Mt. Cranmore and Loon
Mountain, compete in the highly competitive Northeast ski market, which
consists of Maine, New Hampshire, Vermont, Massachusetts, 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 more than 70% of the skiers visiting the Company's
Lake Tahoe resorts are from the San Francisco, Sacramento, Central California
Valley and Lake Tahoe regions, while more than 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 more than 70% of their
guests from Massachusetts and New Hampshire, with a large percentage of such
visitors coming from the Boston metropolitan area. The Summit attracts more
than 90% of its skier guests from the Seattle/Tacoma metropolitan 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 property 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, Loon Mountain and Waterville
Valley resorts under the terms of Term Special Use Permits issued by the United
States Forest Service. The Term Special Use Permits for the Bear Mountain,
Sierra, Waterville Valley, 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 2039, 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 United States Forest Service permits. In 1993,
the United States Forest Service authorized various lift, trail and snowmaking
improvements on Loon Mountain and an expansion onto South Mountain. In 1996,
the United States Court of Appeals for the First Circuit (the "First Circuit")
overturned this authorization on the ground that the United States Forest
Service had failed to properly address certain environmental issues under the
National Environmental Policy Act ("NEPA"). Certain improvements, including a
snowmaking pipeline and part of the expansion, had been constructed before the
First Circuit ruled. On May 5, 1997, the United States District Court for the
District of New Hampshire (the "District Court") entered a stipulated order
which authorized existing improvements to remain in place and existing
operations to continue but generally prohibited future construction, restricted
use of a major snowmaking water source, and required certain water discharge
permits to be pursued,
pending United States Forest Service reconsideration of the projects under
NEPA. In a December 4, 1998 filing, the United States Forest Service targeted
the Fall of 1999 for issuance of a draft NEPA document regarding the
improvements and the proposed expansion and stated that it intended to combine
such NEPA review with review of the existing snowmaking pipeline. However, the
Forest Service recently revised its target date for when it expects to issue
draft NEPA documentation from the Fall of 1999 to June of 2000. 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 United States Forest Service completes its NEPA review and
issues a new decision. On February 12, 1999, the District Court agreed that the
United States Forest Service may combine its evaluation and analysis of the
existing snowmaking pipeline with its NEPA review of the improvements and
proposed expansion.
In August 1997, the United States Forest Service authorized the Loon
Mountain resort to construct a new snowmaking pipeline across permitted land.
The United States Forest Service found that such construction was consistent
with the District Court order and enabled the resort to modify its snowmaking
operations to better protect water resources and replace snowmaking capacity
lost under the order. Although the pipeline was completed, its use was
challenged by private parties who asserted that the United States Forest
Service violated NEPA. On January 20, 1998, the District Court issued a
decision finding that the United States Forest Service violated NEPA in failing
to address the potential for the new pipeline to increase the amount of snow
made and any associated environmental effects. On March 10, 1998, the District
Court issued a series of further orders which, among other things, directed the
United States Forest Service to re-evaluate the pipeline, allowed such
re-evaluation to proceed separate from and prior to the United States Forest
Service's reconsideration of the larger expansion, and enjoined the Loon
Mountain Resort from using the pipeline pending further action by the court. On
July 2, 1998, the United States Forest Service issued a new decision approving
the pipeline and addressing its potential to increase the amount of snow made.
This decision was challenged by several private parties, who again asserted
that it violated NEPA. The United States Forest Service subsequently withdrew
its decision authorizing the pipeline to conduct further review and the
District Court consolidated the lawsuits concerning the pipeline. On November
19, 1998, the District Court modified the injunction allowing Loon Mountain to
use the pipeline to withdraw and convert 159.7 million gallons of water per ski
season into snow while the United States Forest Service further reviews the
pipeline under NEPA. On February 12, 1999, the District Court dismissed the
consolidated lawsuit concerning the pipeline in light of the United States
Forest Service's decision to combine review of the pipeline's construction and
operation with its NEPA review of the improvements and proposed expansion.
Existing use of Loon Mountain is authorized under a Term Special Use Permit,
which covers facilities and expires in 2006; existing non-skiing use of Loon
Mountain's South Mountain area is authorized under an annual permit issued by
the United States Forest Service that is subject to reissuance each year. After
the United States Forest Service reconsiders the pipeline improvements and
expansion under NEPA, it will need to render a new decision and, if
appropriate, issue a new Term Special Use Permit. At that time, the 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
pipeline improvements and expansion will be approved by the United States
Forest Service. However, no assurance can be given regarding the timing or
outcome of this process.
The United States Forest Service has the right to approve the location,
design and construction of improvements in permit areas and many operational
matters at resorts with permits. Under the Term Special Use Permits, the
Company is required to pay fees to the United States Forest Service. The fees
range from 1.5% to approximately 4.0% of certain revenues, with the rate
generally rising with increased revenues. The calculation of gross revenues
includes, among other things, revenue from lift ticket, ski school lesson, food
and beverage, rental equipment and retail merchandise sales. Total fees paid to
the United States Forest Service by the Company during the year ended October
29, 1999 were $1,189,000.
The Company believes that its relations with the United States Forest
Service are good, and, to the best of its knowledge, no Term Special Use Permit
for any major ski resort has ever been terminated by the United States Forest
Service. The United States Secretary of Agriculture has the right to terminate
any Term Special Use Permit upon 180-days notice if, in planning for the uses
of the national forest, the public interest requires termination. Term Special
Use Permits may also be terminated or suspended because of non-compliance by
the permitee; however, the United States Forest Service would be required to
notify the Company of the grounds for such action and to provide it with
reasonable time to correct any curable non-compliance.
Employees
As of December 31, 1999, the Company employed a full-time corporate staff of
42 persons. In addition, the Company's resorts employ an aggregate of
approximately 575 full-time and approximately 5,400 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
materially adversely affect operations.
The operations at the resorts require numerous permits and approvals from
federal, state and local authorities including permits relating to land use,
ski lifts and the sale of alcoholic beverages. In addition, the Company's
operations are heavily dependent on its continued ability, under applicable
laws, regulations, policies, permits, licenses or contractual arrangements, to
have access to adequate supplies of water with which to make snow and service
the other needs of its facilities, and otherwise to conduct its operations.
There can be no assurance that new applications of existing laws, regulations
and policies, or changes in such laws, regulations and policies will not occur
in a manner that could have a detrimental effect on the Company, or that
material permits, licenses or agreements will not be canceled, not renewed, or
renewed on terms materially less favorable to the Company. Major expansions of
any one or more resorts could require, among other things, the filing of an
environmental impact statement or other documentation with the United States
Forest Service and state or local governments under NEPA and certain state or
local NEPA counterparts if it is determined that the expansion may have a
significant impact upon the environment. Although the Company has no reason to
believe that it will not be successful in implementing its operations and
development plans, no assurance can be given that necessary permits and
approvals will be obtained.
Except for certain permitting and environmental compliance matters relating
to the Loon Mountain resort (See Part I, Item 1. - "Business - Regulation and
Legislation" and Part I, Item 3. - "Legal Proceedings"), the Company has not
received any notice of material non-compliance with permits, licenses or
approvals necessary for the operation of its properties or of any material
liability under any environmental law or regulation.
Pursuant to the air emissions reduction program currently in effect in the
area regulated by the South Coast Air Quality Management District in California
where Bear Mountain is located, depending on Bear Mountain's operations and
emissions, Bear Mountain may be required to acquire emission credits from other
facilities which have already implemented nitrogen oxide emission reductions.
When necessary, the Company may purchase "banked" emission credits at
prevailing market rates.
Bear Mountain has a water supply 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 water supply contract provides for water primarily for snowmaking
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 eight 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 being vigorously contested by all
interested parties including Bear Mountain 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
resolved. This allows continued service to Bear Mountain on an uncontested
basis during the moratorium period. No assurance can be made regarding the
outcome or timing of resolution of this matter.
Pursuant to the previously described decision of the First Circuit and the
order of the District Court, Loon Mountain applied and was issued, by the
Environmental Protection Agency ("EPA"), a Clean Water Act (the "CWA")
discharge permit covering discharges associated with its snowmaking operations.
Certain ongoing discharges are authorized by the District Court order pending
final action on the permit and subject to the District Court's reserved power
to modify such approval to address any resulting environmental issues.
Certain regulatory approvals associated with the new snowmaking pipeline at
Loon Mountain impose minimum stream flow requirements on the Loon Mountain
resort. These requirements will compel the Loon Mountain resort to construct
water storage facilities within the next ten years, and such construction will
require further regulatory approvals and environmental documentation under
NEPA. No assurances can be given that such regulatory approvals will be
obtained or that the Company will have the financial resources to complete such
construction.
In addition, the Loon Mountain resort was notified in September 1997 that it
had allegedly filled certain wetlands at the resort in violation of the CWA. In
response, Loon Mountain worked with the EPA to remove the alleged fill and
implement certain erosion control measures. On January 15, 1998, an individual
notified the EPA, Loon Mountain, and certain other persons that he intended to
initiate a lawsuit under the CWA regarding the alleged wetland violation. On
February 2, 1998, the EPA wrote to such individual stating that the alleged
fill had been removed and that the EPA does not believe there is a continuing
violation at the site. The Company does not have any further notice of any
threatened lawsuit or other action regarding this matter.
Item 2. Properties
Northstar consists of over 8,000 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 Term Special Use Permit with the
United States Forest Service. Bear Mountain owns 116 of its 819 gross acreage,
leases 698 acres of mountain terrain under a Forest Service Term Special Use
Permit and leases five acres from third parties. Waterville Valley owns 35
acres on Snow Mountain and two acres at the Conference Center, and leases 790
acres of land on Mt. Tecumseh from the federal government under a Term Special
Use Permit issued by the Forest Service. Mt. Cranmore owns 754 acres and holds
deeded easements enabling it to develop an additional 500 acres of ski terrain.
The Summit owns 686 acres of its 4,152 gross acreage, leases over 1,400 acres
under a private permit and utilizes 1,864 acres of mountain terrain under a
Forest Service Term Special Use Permit. Grand Targhee leases all of the land on
which the resort is operated under a Term 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 778 acres of land in the White Mountain National Forest under a
Term Special Use Permit issued by the United States Forest Service permitting
year-round recreational use. Adjacent to such land, an additional 581 acres are
leased on "South Mountain" under a separate Special Use Permit permitting
certain limited activities, including mountain biking, cross country skiing and
horseback riding. For further information regarding the Company"s properties,
see Part I, Item 1. "Business - Resort Operations" and "- Regulation and
Legislation."
Item 3. Legal Proceedings
Each of the Company's resorts has pending and is regularly subject to
litigation, and the threat thereof, with respect to personal injury claims
relating principally to skiing activities at its resorts but also relating to
premises and vehicular operations and worker's compensation matters. The
Company maintains extensive liability insurance that the Company considers
adequate to monetarily insure claims related to such usual and customary risks
associated with the operation of four-season recreation resorts.
Killington West, Ltd., formerly known as Bear Mountain, Ltd., ("Killington
West "), filed a breach of contract lawsuit in the Superior Court of the State
of California, San Bernardino County, against Fibreboard Corporation
("Fibreboard") and Bear Mountain, Inc. alleging that Fibreboard and Bear
Mountain, Inc. breached the asset purchase agreement dated October 6, 1995 (the
"Original Bear Mountain Agreement") among Killington West, Fibreboard and Bear
Mountain, Inc. pursuant to which Bear Mountain, Inc. acquired the Bear Mountain
ski resort from Killington West. Killington West's lawsuit concerned an alleged
breach by Fibreboard and Bear Mountain, Inc. of a change of control provision
in the Original Bear Mountain Agreement. In connection with the Company's
acquisition of Bear Mountain, Inc. in December 1996, the Company obtained from
Fibreboard indemnification for any claim that might be made by Killington West,
and further, required that $1 million of the purchase price be held in escrow
pending the outcome of any potential disputes with Killington West. Fibreboard
acknowledged its obligation to indemnify Bear Mountain, Inc. with respect to
the Killington West lawsuit and will defend such lawsuit on behalf of
Fibreboard and Bear Mountain, Inc.
In connection with the merger with Loon Mountain Recreation Corporation
("LMRC"), certain shareholders of LMRC (the "LMRC Shareholder Plaintiffs")
filed a lawsuit against LMRC and its former directors alleging breach of
fiduciary duty and against the Company alleging that the Company failed to
comply with the New Hampshire Security Takeover Disclosure Act (the "Takeover
Statute") in connection with the transaction. The two lawsuits were
consolidated in the Superior Court of Grafton County, New Hampshire. Prior to
the filing of the lawsuit against the Company, the Company 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 LMRC Shareholder Plaintiffs' initial
request for a preliminary injunction prohibiting the Company (or its
affiliates) from proceeding with the LMRC merger was denied by the court.
Before the litigation proceeded further, and prior to the merger, the parties
to the merger agreement amended such agreement. The Company then obtained an
additional order by the Bureau that the Takeover Statute did not apply to the
merger transaction. The Company answered the LMRC Shareholder Plaintiffs'
petition and filed a motion to dismiss the LMRC Shareholder Plaintiffs' action
against the Company asserting that the Takeover Statute did not apply to the
transaction as a matter of law. The court initially denied the Company's motion
to dismiss but granted the motion to dismiss upon reconsideration. LMRC
Shareholder Plaintiffs have appealed the dismissal to the New Hampshire Supreme
Court. The parties have filed briefs in the appeal and requested oral argument,
which has not been scheduled. Potential remedies under the Takeover Statute
include money damages and rescission of the transaction. While the Company does
not believe the LMRC Shareholder Plaintiffs will prevail in their actions, no
assurances can be made regarding the outcome of these actions.
LMRC Shareholder Plaintiffs' breach of fiduciary duty action against LMRC
and its former directors remains pending and limited discovery has been
conducted; a trial date will be set after April 15, 2000. The LMRC Shareholder
Plaintiffs were given leave by the court to amend their complaint to seek money
damages against the Company, LMRC and its former directors. If the LMRC
Shareholder Plaintiffs are successful in obtaining a judgment against the
former LMRC directors, the Company may have certain obligations to indemnify
the former directors pursuant to the former LMRC by-laws. While the Company
does not believe LMRC Shareholder Plaintiffs will prevail in this lawsuit, no
assurances can be made regarding the outcome of this litigation.
Also in connection with the merger with LMRC, the LMRC Shareholder
Plaintiffs exercised dissenters' rights under the New Hampshire Business
Corporation Act (the "Corporation Act"). Under the statutory procedure for
settling the LMRC Shareholder Plaintiffs' dissenters' rights, LMRC paid the
plaintiffs an aggregate of $34,436, or $30.61 per share, as its estimate of the
fair value of their 1,125 shares. The LMRC Shareholder Plaintiffs demanded
additional payments necessary to compensate them for the $71.38 per share
price, plus interest, which they asserted as the fair value of their shares.
Pursuant to the Corporation Act, LMRC commenced a proceeding in the Superior
Court of Grafton County, New Hampshire seeking a judicial appraisal of the
value of the LMRC Shareholder Plaintiffs' shares in LMRC. Discovery in the case
is pending and trial is set for January of 2000. While the Company believes
that the amount paid to the LMRC Shareholder Plaintiffs prior to the
commencement of the appraisal proceeding represents the fair value of their
shares, there can be no assurance as to the value which the appraisal
proceeding will assign to the LMRC Shareholder Plaintiffs' 1,125 shares.
In 1995, an individual sued the United States Forest Service (the "Forest
Service") in the United States District Court for the District of New Hampshire
(the "District Court") alleging that the Forest Service had violated the
National Environmental Policy Act ("NEPA"), the Clean Water Act ("CWA"), and an
executive order in approving improvements to facilities on Loon Mountain and an
expansion of the Loon Mountain resort on to South Mountain. LMRC and an
environmental group intervened in the lawsuit. The District Court entered
summary judgment for the Forest Service on all claims and the original
plaintiff, along with the intervening environmental group, (collectively or
individually, the "Environmental Plaintiffs") appealed. In December 1996, the
United States Court of Appeals for the First Circuit (the "First Circuit")
reversed the District Court decision and ruled that the Forest Service must
reconsider certain environmental issues under NEPA and that LMRC must obtain a
discharge permit under the CWA for certain discharges from its snowmaking
system. The District Court then entered a stipulated order that: enjoins LMRC
from any further construction implementing the project with certain limited
exceptions; imposes
various restrictions on LMRC's existing snowmaking operations and requires LMRC
to apply for a CWA discharge permit for discharges of water and any associated
pollutants associated with its snowmaking; allows existing construction to
remain in place and existing uses to continue; requires LMRC to undertake
certain erosion control and monitoring measures; requires the Forest Service to
prepare supplemental NEPA documentation on the improvements and expansion; and
reserves the right to require restoration of areas developed under the original
Forest Service approval to their preexisting condition if not ultimately
re-approved by the Forest Service. This order remains in effect until the
supplemental NEPA process is completed. The Forest Service recently revised its
target date for when it expects to issue draft NEPA documentation from the Fall
of 1999 to June of 2000. The Company can give no assurance regarding the timing
or outcome of such process. The Environmental Plaintiffs also filed a motion
asking the District Court to impose against LMRC a CWA civil penalty of
$5,550,125 and attorney's fees and costs in connection with LMRC's discharges
into Loon Pond during its snowmaking operations for the 1996/97 ski season and
prior years. The discharge at issue involved water transfers from the East
Branch of the Pemigewasset River and drain back from the snowmaking system into
Loon Pond. The District Court dismissed the claim for civil penalties and
attorney's fees under the CWA and one of the Environmental Plaintiffs appealed
to the First Circuit. The appeal is stayed pending a decision of the United
States Supreme Court in a different case involving the CWA. In connection with
the merger with LMRC, the Company obtained a specific insurance policy
providing $4.5 million of coverage (above a $1.2 million deductible) to cover
any civil penalties, fees and costs that the District Court may assess against
LMRC.
In 1997, the Environmental Plaintiffs filed a second lawsuit against the
Forest Service in the District Court alleging that the Forest Service violated
NEPA in authorizing LMRC to construct and operate a snowmaking pipeline across
permitted land. LMRC intervened in the lawsuit. The District Court held that
the Forest Service had violated NEPA by failing to consider the potential
effects of an increase in snowmaking capacity. The District Court then enjoined
Loon Mountain from using the pipeline but later modified the injunction to
permit LMRC to use the pipeline provided that, among other things, it does not
make snow in excess of the historic production level utilizing 159.7 million
gallons. On February 12, 1999, the District Court dismissed the pipeline
litigation and allowed the Forest Service to combine its NEPA analysis of the
pipeline with the pending NEPA analysis of the South Mountain expansion. The
injunction authorizing LMRC to use the pipeline to supply water for making
historical levels of snow remains in place.
In 1998, the Company, Booth Creek Ski Acquisition, Inc. ("Acquisition Sub")
and Seven Springs Farm, Inc. ("Seven Springs") entered into an Agreement of
Merger (the "Merger Agreement") concerning the acquisition of the Seven Springs
resort in Pennsylvania through merger of Acquisition Sub with Seven Springs. In
connection with the proposed acquisition, certain shareholders of Seven Springs
(the "Seven Springs Shareholder Plaintiffs") filed a lawsuit in the Court of
Common Pleas of Somerset County, Pennsylvania against the Company, Acquisition
Sub, and Seven Sprin