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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 27, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from
to
Commission File Number: 333-26091
BOOTH CREEK SKI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1359604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 South Frontage Road West, Suite 100
Vail, Colorado 81657
(970) 476-1311
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
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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 27, 2000, the number of shares outstanding of the
registrant's Common Stock, par value $.01 per share, was 1,000 shares. There is
no trading market for the registrant's Common Stock. Accordingly, the aggregate
market value of the Common Stock held by non-affiliates of the registrant is
not determinable. See Part II, Item 5 of this Report.
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TABLE OF CONTENTS
Item Page Number
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PART I
1. Business..................................................... 2
2. Properties................................................... 21
3. Legal Proceedings............................................ 21
4. Submission of Matters to a Vote of Security
Holders...................................................... 23
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 24
6. Selected Financial Data...................................... 24
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 27
7a. Quantitative and Qualitative Disclosures About
Market Risk.................................................. 36
8. Financial Statements and Supplementary Data.................. 37
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 37
PART III
10. Directors and Executive Officers of the Registrant........... 38
11. Executive Compensation....................................... 40
12. Security Ownership of Certain Beneficial Owners
and Management............................................... 46
13. Certain Relationships and Related Transactions............... 50
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.......................................... 54
Signatures................................................... 60
Index of Financial Statements................................ F-1
PART I
Item 1. Business
Overview
As used in this Report, the "Company" or "Booth Creek" refers to Booth
Creek Ski Holdings, Inc. and its subsidiaries, unless the context otherwise
requires. The Company is a wholly-owned subsidiary of Booth Creek Ski Group,
Inc. ("Parent"). The Company currently owns and operates seven ski resort
complexes encompassing ten separate resorts, including the Northstar-at-Tahoe
("Northstar") and Sierra-at-Tahoe ("Sierra") ski resorts in the Lake Tahoe
region of Northern California, the Bear Mountain ski resort ("Bear Mountain")
in Southern California, the Waterville Valley ("Waterville Valley"), Mount
Cranmore ("Mt. Cranmore") and Loon Mountain ("Loon Mountain") ski resorts in
the White Mountains of New Hampshire and the Summit at Snoqualmie (the
"Summit") ski resort complex, which consists of four separate resorts, in the
Cascade Mountains of Northwest Washington. The Company divested the Grand
Targhee ski resort ("Grand Targhee") on June 20, 2000.
The Company is the fourth largest ski resort operator in North America
based on approximately 2.2 million skier days recorded during the 1999/00 ski
season at its resorts (excluding Grand Targhee). Booth Creek primarily operates
regional ski resorts which attract the majority of their guests from their
regional ski markets, within a 200 mile driving radius of each resort. The
Company's properties offer approximately 6,281 acres of skiable terrain, 376
trails, 93 lifts (including 16 high-speed lifts and two gondolas) and
on-mountain capacity to accommodate approximately 53,000 guests daily. For the
year ended October 27, 2000, the Company generated revenues of $139.4 million
and income from operations before depreciation, depletion and amortization
expense and the noncash cost of real estate sales ("EBITDA") of $43.9 million,
and incurred a net loss of $357,000. 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.
The Company's resort properties are located near major skiing populations,
including four of the five largest regional ski markets in the United States:
Los Angeles/San Diego, San Francisco/Sacramento, Boston and Seattle/Tacoma. The
Company believes this geographical diversification may help to limit the
Company's exposure to regional economic downturns and unfavorable weather
conditions.
The Company's resorts seek to differentiate themselves in their respective
markets by selectively upgrading on-mountain facilities and guest services,
employing targeted marketing strategies and offering extensive skier
development programs, all of which create a competitively-priced, high-quality
guest experience. The Company's resorts have collectively invested
approximately $58 million (including $5.9 million of equipment acquired through
capital leases and other debt) in capital expenditures during the last three
fiscal years, including the addition of high-speed chairlifts, additional
snowmaking capabilities, improved trail grooming equipment, and enhanced
on-mountain skier service, retail and food service amenities. The Company
believes its existing resorts are well maintained. The Company also uses
targeted advertising, database marketing and strategic marketing alliances to
enhance the image of its resorts and increase regional market share. The
Company also offers extensive development programs to improve the technical
skill level of all types of skiers, which management believes is important to
expand the total skier population and increase skier visitation frequency.
On June 20, 2000, the Company sold all of the assets associated with the
Grand Targhee resort for $11.4 million in cash to GT Acquisition I, LLC ("GT
Acquisition"), an entity formed and controlled by the Chairman and Chief
Executive Officer of the Company. At the closing of the transaction, GT
Acquisition also assumed all liabilities relating to the Grand Targhee resort.
The Company obtained a fairness opinion for the transaction from an independent
firm qualified in the subject matter of the transaction.
The following is an organizational chart of Parent, the Company and the
Company's subsidiaries. Each subsidiary of the Company is, directly or
indirectly, wholly-owned by Booth Creek.
[GRAPHIC OF ORGANIZATIONAL CHART OMITTED]
The Company's principal executive offices are located at 1000 South
Frontage Road West, Suite 100, Vail, Colorado 81657. Its telephone number at
that location is (970) 476-1311. The Company was incorporated in Delaware on
October 8, 1996.
Industry
There are approximately 503 ski areas in the United States which, during
the 1999/00 ski season generated approximately 52 million skier days. A "skier
day" represents one skier or snowboarder visiting one ski resort for one day,
including skiers and snowboarders using complimentary and season passes.
Calculation of skier days requires an estimate of visits by season passholders.
Although different ski resort operators may use different methodologies for
making such estimates, management believes that any resulting differences in
total skier days are immaterial. U.S. ski areas range from small ski resort
operators, which primarily cater to day skiers and regional overnight skiers
from nearby population centers, to larger resorts which, given the scope of
their operations and their accessibility, are able to attract skiers and
snowboarders from their regional ski markets as well as destination resort
guests who are seeking a comprehensive vacation experience. While regional ski
market skiers tend to focus primarily on lift ticket price and round-trip
travel time, destination travelers tend to be heavily influenced by the number
of amenities and activities offered as well as the perceived overall quality of
the vacation experience. The table below summarizes regional skier day
information from the 1995/96 ski season through the 1999/00 ski season.
U.S. Ski Industry Regions and Skier Days
(In thousands)
Rocky Pacific Lake
Season Northeast Southeast Midwest Mtns West Tahoe Total
- --------------------- --------- --------- ------- ------ ------- ----- ------
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
1999/00.............. 12,025 5,191 6,422 18,109 6,560 3,891 52,198
Five year average.... 12,654 4,744 6,711 18,531 6,811 3,505 52,956
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: 1999/00 Kottke National End of Season Survey
Over the last fifteen years, 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 503 in 2000. 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 503 ski areas, the 1999/00 Kottke National End of
Season Survey estimates the average resort recorded approximately 104,000 skier
days. All of the Company's resorts except Mt. Cranmore typically record more
than 200,000 annual skier days. The trend among leading resorts is toward
investing in improving technology and infrastructure, including high-speed
lifts, attractive facilities and extensive snowmaking capabilities, to deliver
a more consistent, quality experience. During the last three fiscal years, the
Company has invested approximately $58 million in capital expenditures at its
resorts to improve their competitive position and to meet sustaining capital
requirements. Management believes the need for increased investment in resorts
in general has required a greater access to capital and has enhanced the
position of resorts owned by larger, better capitalized owners. Despite the
recent consolidation in the ski industry, the industry remains fragmented, with
no one resort accounting for more than 3%, and no one resort operator
accounting for more than approximately 10%, of the United States' 52 million
skier days during the 1999/00 ski season. The four largest ski resort
companies, including the Company, accounted for approximately 29% of all U.S.
skier days recorded during the 1999/00 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, continue to move 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). 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 1999/00 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 13.8 million in the 1999/00 ski season, an increase of approximately
116%. Snowboarders tend to be between the ages of 13 and 25 and presently
represent an estimated 26.4% of all domestic ski resort visitors. 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
"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 and snowmaking, trail grooming and lift
technologies 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 1999/00 ski season
were from the San Francisco, Sacramento and Central California Valley
metropolitan areas and the Lake Tahoe region. Other guests come principally
from Southern California and states with large ski populations, such as Texas,
Illinois and Florida. Skiers in this market can choose from among seven major
resorts, which include Northstar, Sierra, Squaw Valley, Heavenly Valley, Alpine
Meadows, Sugar Bowl 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 2.5 million
annual skier days over the last five years. Management estimates that
approximately 90% of the skiers visiting Southern California resorts during the
1999/00 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 12.7
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 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. The Pacific West market has averaged
approximately 6.8 million skier days over the last five years. Management
estimates that more than 90% of the skier days recorded at Washington state
resorts during the 1999/00 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, Crystal Mountain, White Pass, Mission Ridge and Mt.
Baker. Other ski areas in Washington are moderate to small in size.
Resort Operations
The Company's seven resort complexes offer a variety of ski and non-ski
activities. The table below provides a summary of each resort's ski operations
and is followed by a more detailed description of each resort.
Approx.
Snow- Approx.
Vertical making Beds
Skiable Drop Trail Within
Resort Acres (Feet) Trails Lifts Coverage 12 Miles
- -------------------- ------- -------- ------ ------------- --------- --------
Northstar-at-Tahoe.. 2,420 2,280 70 1 High-Speed 50% 15,000
Gondola
5 High-Speed
Quads (1)
4 Fixed Grip
5 Surface
Sierra-at-Tahoe..... 1,680 2,212 46 3 High-Speed 4% 30,000
Quads
6 Fixed Grip
1 Surface
Bear Mountain....... 195 1,665 32 2 High-Speed 100% 11,000
Quads
7 Fixed Grip
3 Surface
Waterville Valley... 255 2,020 52 2 High-Speed 100% 6,500
Quads
6 Fixed Grip
4 Surface
Mt. Cranmore........ 183 1,270 39 1 High-Speed 100% 16,000
Quad
4 Fixed Grip
4 Surface
Loon Mountain....... 250 2,100 41 1 High-Speed 96% 13,000
Gondola
1 High-Speed
Quad
5 Fixed Grip
1 Surface
The Summit.......... 1,298 2,200 96 2 High-Speed 0% 1,000
Quads
18 Fixed Grip
7 Surface
(1)High-Speed Quads are four-person chairlifts which decelerate and detach from
a cable during passenger loading and unloading and reattach and accelerate
thereafter.
Total skier visits generated by each of the Company's resorts during the
1999/00, 1998/99 and 1997/98 ski seasons were as follows:
1999/00 1998/99 1997/98
----------- ----------- -----------
(In thousands)
Northstar............................ 477 530 537
Sierra............................... 310 355 342
Bear Mountain........................ 251 294 302
Waterville Valley.................... 204 239 231
Mt. Cranmore......................... 100 112 100
Loon Mountain........................ 304 297 350 (a)
The Summit........................... 504 485 410
Grand Targhee........................ 137 121 114
----------- ----------- -----------
2,287 2,433 2,386
=========== =========== ===========
(a) Pro forma for the acquisition of Loon Mountain by the Company on February
26, 1998. Actual skier visits generated by Loon Mountain from the date of
its acquisition through the end of the 1997/98 ski season were 77,000
total skier visits.
Northstar-at-Tahoe
Northstar-at-Tahoe, located near the north end of Lake Tahoe, California,
offers extensive activities and services in both winter and summer. The
resort's 8,600-foot Mt. Pluto features 2,420 acres of skiable terrain and a
2,280 foot vertical drop. Northstar's 70 ski trails are served by 15 operating
lifts, including one gondola, 5 high-speed quads, two triple lifts and two
double lifts, which combine to transport up to 22,375 skiers uphill per hour.
Northstar also has approximately 65 kilometers of groomed trails for
cross-country skiing and snowshoeing and several on-mountain terrain parks for
snowboarders and adventurous skiers. Other facilities at Northstar include a
village consisting of condominium/hotel accommodations, restaurants, bars,
shops, a child-care center and conference facilities, a 22,700 square foot
on-mountain ski lodge, a 9,000 square foot rental equipment facility, and a
5,800 square foot on-mountain children's ski school facility. Summer recreation
facilities include an 18-hole golf course, ten tennis courts, a horseback
riding stable, fly fishing, mountain bike rentals and trails and swimming
pools. Northstar currently ranks third in total skier days in the Lake Tahoe
area. In 2000, Northstar was ranked by Ski magazine as the 19th best resort in
North America and in the top ten in a number of important categories including
guest service, family programs, grooming and favorable weather.
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 air service to all parts of the United States, Western
Canada and Mexico. Private planes, including jet airplanes, can fly into the
all-weather Truckee Airport, which is located two miles from Northstar, where
Northstar operates transit buses to the resort.
Northstar is within a 200 mile driving radius of the major population
centers of San Francisco, San Jose 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 1999/00 ski season, 65% of the skiers visiting Northstar came
from Northern California, 10% from Southern California, 22% from other states
and 3% from international locales.
Northstar has invested in a number of improvements for the 2000/01 ski
season, including a 200 acre terrain expansion onto Lookout Mountain. The
Lookout expansion provides Northstar with additional advanced terrain, and is
served by a new detachable quad lift. Additionally, the resort has invested in
a new automated snowmaking system which provides coverage to four trails,
including two of the new trails on Lookout Mountain. Northstar also constructed
a new 9,000 square foot rental facility and improved and expanded its rental
fleet.
Northstar's snowmaking system is engineered to cover approximately 50% of
its ski trails. Annual snowfall at the resort has averaged 326 inches per year
during the past five years. Northstar has pumping rights from nearby water
sources which, when coupled with its 60 million gallon water storage capacity,
have been sufficient to support the resort's needs. The Company is currently
evaluating alternatives for the expansion and improvement of the existing
snowmaking system at Northstar in order to lessen the influence of unfavorable
weather, which can negatively impact operating conditions at the resort.
Northstar consists of approximately 8,000 acres of land privately owned by
the Company. Management believes that Northstar has significant opportunities
to develop additional ski terrain, as well as certain real estate development
opportunities. Moreover, management believes that the expansion of the existing
on-mountain bed base at the resort from the recently announced East West
development will result in increased skier days, thereby enhancing the value
and profitability of Northstar's resort operations. Such bed base development
is also expected to make additional ski terrain expansion at Northstar even
more attractive. See Part I, Item 1. "Business - Real Estate Development."
Sierra-at-Tahoe
Sierra-at-Tahoe is conveniently located near the large bed base of South
Lake Tahoe, California and is the closest major ski resort to Sacramento and
the Central California Valley. The resort's 8,852-foot peak offers 1,680
skiable acres and a 2,212 foot vertical drop. Sierra's 46 ski trails are served
by 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, retail and other skier services. Management believes that
Sierra's investment in its ski infrastructure has made it the best ski value in
the South Lake Tahoe area. Sierra does not offer summertime activities.
Sierra has been positioned as Lake Tahoe's "value" resort, primarily
targeted to families, teenagers and young adults. Sierra does not own or manage
any lodging 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 514 inches per year
over the past five years, Sierra's snowmaking equipment covers only 4% of
Sierra's total terrain. In 2000, Ski magazine ranked Sierra as one of the ten
best ski resorts in the Pacific region.
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,
Orange County 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
90% of Bear Mountain's skiers are from Southern California. 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 sophisticated 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 - Regulation and Legislation." 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'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), three other base area facilities
comprising approximately 27,500 square feet, a mid-mountain lodge featuring a
cafeteria and deli and a mountain-top lodge with snack bar and restaurant
dining.
The Waterville Valley resort has a year-round Adventure Center offering
mountain bikers, cross-country skiers and hikers access to 105 kilometers of
trails in the White Mountain National Forest. Other resort amenities include an
ice skating arena, golf course, tennis center, sports and fitness center,
horsedrawn sleigh rides, skateboard park, beach and paddle boats. Waterville
Valley's Conference Center has 17,000 square feet of meeting space and provides
banquet facilities for up to 1,000 people. With 11 meeting rooms, a business
center, audio-visual capabilities and a self-contained pub, the Conference
Center's on-site staff supports events year-round.
Waterville Valley has traditionally created an environment conducive to
families comprised of either day skiers, regional overnight skiers or
destination skiers. Its location proximate to Interstate 93 (a major
north-south thoroughfare for skiers) makes it one of the most accessible of the
larger New England resorts. 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 1999/00
ski season the majority of Waterville Valley's skiers came from New Hampshire
(44%) and Massachusetts (31%), with the remainder coming from Rhode Island,
Connecticut, New York, New Jersey and other regional locations. In 2000,
Waterville Valley was recognized as the fifth best resort in the East by Ski
magazine.
Waterville Valley owns 35 acres on Snow Mountain and two acres at the
Conference Center. It leases 790 acres of land on Mt. Tecumseh under a Term
Special Use Permit issued by the United States Forest Service. See Part I, Item
1. "Business - Regulation and Legislation." Waterville Valley's snowmaking
system is engineered to cover 100% of the ski trails on Mt. Tecumseh. Water for
snowmaking is currently pumped from a local river and a pond. Waterville Valley
is in the process of seeking permits for additional water sources and water
storage facilities for snowmaking.
Mt. Cranmore
Mt. Cranmore is the oldest continuously operated ski area in the United
States. Located in the hub of New Hampshire's Mount Washington Valley, Mt.
Cranmore's 1,714 foot summit offers 183 skiable acres and a 1,270 foot vertical
drop. Mt. Cranmore's 39 trails are served by nine operating lifts, including
one high-speed quad, one triple lift and three double lifts, which combine to
transport up to 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 1999/00 ski
season, management estimates that 52% of the resort's guests were from the
Boston metropolitan area, 22% were from New Hampshire and 6% 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 weather-monitoring and snowmaking system which covers 100% of
the resort's ski trails. In addition to pumping rights from a nearby stream,
Mt. Cranmore has an agreement with the local water district for an additional
reservoir of one million gallons of water for snowmaking. In addition, Mt.
Cranmore's base area pond holds 1.4 million gallons of water.
Loon Mountain
Loon Mountain is located in the White Mountains of New Hampshire in the
town of Lincoln. The resort's 3,050 foot peak features 250 skiable acres and a
2,100 foot vertical drop. Loon Mountain's 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 a top ten ranking in North
America for accessibility by Ski magazine in 2000. 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.
In 2000, Loon Mountain was ranked as the seventh best resort in the East by Ski
magazine.
Loon Mountain owns 565 acres and leases 778 acres of land in the White
Mountain National Forest under a Term Special Use Permit issued by the United
States Forest Service permitting year-round recreational use. See Part I, Item
1. "Business - Regulation and Legislation." Adjacent to such land, an
additional 581 acres are leased on "South Mountain" under a separate Special
Use Permit permitting certain limited activities, including mountain biking,
cross-country skiing and horseback riding. These 581 acres have been designated
by management for the eventual development, subject to permitting, of skiing
terrain to complement the current skiing area. See Part I, Item 1. "Business -
Real Estate Development."
Loon Mountain has the snowmaking capacity to cover approximately 96% of
its skiable terrain.
The Summit at Snoqualmie
The Summit at Snoqualmie is located in the Cascade Mountains of Northwest
Washington and consists of four separate resorts, Alpental at the Summit
("Alpental"), Summit West, Summit Central, and Summit East, which collectively
offer 1,298 acres of skiable terrain. Individually, Alpental has a 5,400 foot
top elevation, a 2,200 foot vertical drop, 170 acres of skiable trails and runs
(93 acres of which are lighted for night skiing) and approximately 600 acres of
backcountry terrain; Summit West has a 3,860 foot top elevation, an 810 foot
vertical drop and 172 acres of skiable trails and runs (166 acres of which are
lighted for night skiing); Summit Central has a 3,860 foot top elevation, a
1,020 foot vertical drop and 246 acres of skiable trails and runs (176 acres of
which are lighted for night skiing); and Summit East has a 3,760 foot top
elevation, a 1,080 foot vertical drop and 110 acres of skiable trails and runs
(58 acres of which are lighted for night skiing). In total, the Summit complex
has 96 designated trails and runs served by 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. 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% of its 1999/00
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 30% of its skier visits each season being recorded at
night.
The Summit owns 686 acres of its 4,152 gross acreage, leases over 1,400
acres under a private permit and utilizes 1,864 acres of mountain terrain under
a United States Forest Service Term Special Use Permit. See Part I, Item 1.
"Business - Regulation and Legislation." The Summit typically enjoys abundant
annual snowfall, averaging 500 inches annually over the past five years. As a
result, there are no man-made snowmaking capabilities at any of the Summit
resorts. The Company does, however, possess water rights that would allow it to
engage in snowmaking, if necessary or desired in the long term.
Business Segments
The Company operates in two business segments: resort operations and real
estate and other. Business segment information is presented in Note 14 to the
accompanying consolidated financial statements.
Real Estate Development
The Company has certain holdings of land suitable for either the expansion
of ski terrain or the development of residential and commercial properties. The
Company also has terrain expansion opportunities on land within its current
United States Forest Service permits as well as land owned by third parties. In
management's view, increasing the on-mountain bed base, expanding retail and
other commercial services and developing additional skiable terrain at a resort
can accelerate growth in skier days and ski-related revenues. The following
table lists certain owned or leased land that may be available to the Company
for expansion.
Residential/ Approximate
Commercial/ Number Principal
Location How Held Ski Terrain of Acres Uses
- ------------------------- ----------- ------------- ----------- ---------------
Northstar: Single
Family Development..... Owned Residential 62 On-mountain
housing
Northstar: Residential/ 162 On-mountain
Zoned/Undeveloped...... Owned Commercial housing and
expanded
commercial
facilities
Northstar: Mountain
Terrain Expansion -
Lookout Mountain,
Sawtooth Ridge and
Other areas............ Owned Ski Terrain 1,532 Expand ski
terrain
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
Bear Mountain........... Leased: Ski Terrain 114 Expand ski
Forest terrain
Service
Bear Mountain............ Owned Residential/ 6 Develop 56
Ski Terrain condominiums
and 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
The Summit............... Owned Residential 105 On-mountain
housing,
parking lots
and ski terrain
The Company's real estate development strategy for residential and
commercial properties is comprised of the following components: (1) to build
recurring resort cash flow through increased bed base and diversification of
revenue sources, (2) to partner with proven real estate developers, (3) to
invest on a limited basis in land and infrastructure development in conjunction
with the development of single family lots at Northstar, and (4) to refrain
from investment in vertical or commercial development except in conjunction
with the development of ski related facilities.
The Company's strategy with regard to the expansion of skiable terrain at
its resorts is based on the evaluation of several key factors, including (i)
the anticipated growth of the skier base within the relevant market and the
Company's ability to improve its competitive position in that market, as
measured by the potential increase in the number of skier days and revenue per
skier on a long-term basis which the Company believes it can capture through
expansion and upgrades, and (ii) the return on capital expected to be realized
from an expansion project versus alternative projects. Management undertakes
extensive planning and pre-development steps prior to investing significant
capital into any development project. Currently, the Company is in the process
of developing comprehensive master plans and obtaining entitlements (e.g.,
zoning approvals) for Northstar, Loon Mountain, Waterville Valley and the
Summit. In management's view, the expansion projects at Northstar and Loon
Mountain represent the Company's highest development opportunities, and would
likely take priority over the pursuit of expansion and development initiatives
at the Company's other resorts.
The Company's resorts have traditionally taken a conservative approach
toward residential and commercial development and real estate development
efforts have taken place primarily at Northstar. Beginning in 1995, the resort
developed a single family home community on Mt. Pluto ("Big Springs")
consisting of 158 private residential lots. The total project was 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. The last
two phases of Big Springs, which consisted of 47 lots, was substantially sold
out during the summer of 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 in three phases
or subdivisions. The Company is currently proceeding with the entitlement
process and pre-construction activities for the first single family lot
subdivision, which is planned to be developed and marketed during the
summer/fall of 2001. The Company has commenced the approval process for the
second lot subdivision, and currently anticipates that such lots would be
available for sale in 2002. The Company has not yet commenced the entitlement
and approval process for the final single family lot subdivision at Northstar.
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. The Company obtained a fairness opinion for the transaction from an
independent firm qualified in the subject matter of the transaction. See Part
II, Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources." Under the terms of
the transaction with TLH, the Company will receive any excess net cash proceeds
over the proceeds received in November 1999 from the subsequent resale of the
lots by TLH.
On February 11, 2000, Trimont Land Company ("TLC"), the owner and operator
of Northstar and a wholly-owned subsidiary of the Company, entered into an
agreement (the "Joint Venture and Sales Agreement") providing for the transfer
and sale of certain developmental real estate at Northstar (the "Joint Venture
Development Property") to a joint venture to be formed by TLC and East West
Partners, Inc. and/or its affiliates (collectively, "East West"). Pursuant to
the terms of the Joint Venture and Sales Agreement, TLC was to receive
$10,000,000 in cash from the joint venture at the closing and the joint venture
was required to deposit $5,000,000 into an escrow account, with such funds to
be used to reimburse TLC for certain capital improvements required to be made
by TLC at Northstar. In addition, TLC would have received additional payments
in the future based on gross sales of the developed real estate (after East
West received priority distributions equal to the sum of the $15,000,000 to be
paid to TLC pursuant to the Joint Venture and Sales Agreement and a preferred
return thereon, plus certain advances by East West to the joint venture and a
preferred return thereon) as well as a 20% profit interest in the joint
venture. Pursuant to the Joint Venture and Sales Agreement, East West was to be
granted (i) a right of first refusal on any sale of Northstar, (ii) a right of
first refusal for a period of ten years to purchase certain undeveloped real
estate at Northstar, and (iii) an option to purchase 50% of the golf course and
property management businesses at Northstar (collectively, the "East West
Options"). The proposed transaction was subject to a number of significant
closing conditions, including the receipt of consents and approvals from the
Company's senior lenders. The Joint Venture and Sales Agreement was terminated
as a result of the Company's failure to satisfy certain of these closing
conditions.
Upon the termination of the Joint Venture and Sales Agreement, the
Company, TLH and East West entered into discussions with respect to alternative
plans. These discussions culminated in TLC and TLH entering into an Agreement
for Purchase and Sale of Real Property (the "Northstar Real Estate Agreement")
on September 22, 2000. Pursuant to the Northstar Real Estate Agreement, TLC
agreed to sell to TLH certain development real estate consisting of
approximately 550 acres of land located at Northstar (the "Development Real
Estate") for a total purchase price of $27,600,000. The purchase price was
based on an appraisal obtained from an independent third party appraiser. In
addition to receiving the fair market value for the Development Real Estate,
under the terms of the Northstar Real Estate Agreement (i) TLH (or East West)
is required, at their expense to pay for substantially all mitigation costs
associated with the development project, and (ii) TLH is obligated to reconvey
to TLC certain excess land following the subdivision of the Development Real
Estate. In addition, TLC did not grant to East West the East West Options, and
TLC maintained significant approval rights over various aspects of the real
estate development, as well as development activities that could impact resort
operations at Northstar.
In connection with the execution of the Northstar Real Estate Agreement,
TLH and East West entered into (i) an agreement for the sale by TLH to East
West of the Development Real Estate (the "TLH Purchase Agreement") and (ii) a
limited liability company joint venture agreement (the "East West Joint
Venture") providing for the development of the property sold by TLH to the East
West Joint Venture. The proposed project contemplated by the East West Joint
Venture includes the development of a mixture of approximately 1,800 hotel,
condominium, townhome and time share units, as well as significant additional
commercial/retail space in and around Northstar. Under the East West Joint
Venture, TLH retains financial responsibility for approximately $5,000,000 of
costs associated with the development of the infrastructure of the Development
Real Estate.
On September 22, 2000, TLC and TLH consummated the sale of the initial
land parcels (the "Initial Closing") contemplated by the Northstar Real Estate
Agreement. At the Initial Closing, TLC transferred the bulk of the Development
Real Estate to TLH for a total purchase price of $21,000,000, of which
$17,850,000, or 85%, was paid in cash and $3,150,000, or 15%, was paid in the
form of a convertible secured subordinated promissory note (the "Convertible
Secured Note"). The Convertible Secured Note requires quarterly interest
payments at the rate of 10% per annum if paid in cash, or 12% if paid in kind,
and is due in full in September 2005. The Convertible Secured Note is secured
by TLH's membership interest in the East West Joint Venture. The Convertible
Secured Note is convertible at TLC's option into 15% of TLH's membership
interest in the East West Joint Venture, which enables TLC to obtain, at TLC's
option, a profit participation in the Development Real Estate. The sale of the
remaining Development Real Estate under the Northstar Real Estate Agreement is
subject to certain subdivision requirements to effect the transfer of such
property and other normal and customary closing conditions. The cash portion of
the purchase price under the Northstar Real Estate Agreement is being funded in
part from the proceeds of the TLH Purchase Agreement, with the balance being
provided through financing to TLH from John Hancock Life Insurance Company.
Management believes that the expected substantial increase in on-mountain
bed base from the East West development will result in increased visitation to
Northstar and increased skier days, thereby enhancing the value and
profitability of Northstar's resort operations. In addition, the development is
expected to make additional ski terrain expansion at Northstar even more
attractive. The Company has been able to secure these benefits without
incurring the economic risks associated with real estate development.
Moreover, the Northstar Real Estate Agreement has provided the Company
with significantly more upfront net cash proceeds than was contemplated under
the unconsummated Joint Venture and Sales Agreement - while at the same time
giving the Company, through the Convertible Secured Note, the option to acquire
an equity interest in the East West Joint Venture. These additional cash
proceeds largely address the Company's historic liquidity constraints and will
allow the Company to make further investments in resort improvements and to
enhance its ski operations at Northstar and its other resorts. Management also
believes that the East West development will allow the Company to concentrate
its resources on its ski resort operations while at the same time maintaining
control and/or significant influence over the material aspects of the
development of the Northstar property. The Company obtained the required
consent to the Northstar Real Estate Agreement from Fleet National Bank, under
the Company's Senior Credit Facility, and in connection therewith, Fleet
National Bank agreed to release its mortgage lien on the Development Real
Estate. In addition, the Company obtained an opinion from an independent firm
qualified and experienced in the subject matter of the transaction that the
terms of the sale of the Development Real Estate were fair and reasonable to
the Company and TLC and at least as favorable as the terms which could have
been obtained in a comparable transaction made on an arm's-length basis between
unaffiliated parties.
The Company intends to enhance the ski terrain at the Northstar resort by
upgrading the existing trails and lifts, reducing or eliminating on-mountain
bottlenecks and providing better access to and from the resort's existing base
area. During 1999 and 2000, five trails were cut on Lookout Mountain and a new
detachable quad lift was constructed to provide new advanced skiing terrain at
the resort. The Company has preliminarily identified a number of other sites,
including the Sawtooth Ridge, within Northstar's present boundaries that are
suitable for future expansion. Such expansion is expected to occur concurrently
with the anticipated bed base expansion resulting from the East West
development. In addition, the Company is currently studying alternatives for
the expansion and improvement of its existing snowmaking system at Northstar in
order to lessen the influence of unfavorable weather, which can negatively
impact operating conditions at the resort. Any significant terrain expansion
would require customary permits and approvals, and no assurance can be given
that the Company will be able to develop any additional terrain at Northstar
or, if completed, any such projects will be successful.
In addition, Northstar has a program to harvest timber through third party
contracting. The timber harvesting program, which produced revenues of $669,000
during the year ended October 27, 2000, is managed carefully to avoid
interference with Northstar's resort operations and prevent any diminution in
the quality of the resort's natural environment.
Loon Mountain currently leases approximately 581 acres known as "South
Mountain" from the Forest Service. Although currently limited to recreational
uses other than downhill skiing, this permitted area has been designated by
both Loon Mountain and the Forest Service as an area for expanded skiing
activities and the development of additional trails and lifts. A permit
allowing this expansion was issued by the United States Forest Service in 1993,
but was subsequently invalidated by the U.S. Court of Appeals due to litigation
brought by third parties. See Part I, Item 3. "Legal Proceedings." Pending the
issuance of additional permits, expansion on South Mountain depends upon the
Company and United States Forest Service fulfilling the requirements, including
the preparation of supplemental National Environmental Policy Act ("NEPA")
documentation, of a court order issued by the federal district court to which
the related litigation was remanded. Based on discussions with the United
States Forest Service, the Company expects final NEPA documentation to be
issued in the Spring of 2001. The available South Mountain land is located in
an area directly adjacent to the present Loon Mountain ski area and would be
able to accommodate alpine and cross country trails, ski lifts (including one
connecting the current ski area with South Mountain) and snowmaking from newly
installed snowmaking facilities. Expansion and upgrades to the resort would
serve to better meet and fulfill the anticipated needs of guests by enhancing
the quality and diversity of skiable terrain. Loon Mountain 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, up to 930 units could be constructed. The
balance of land owned by Loon Mountain could allow for up to 148 additional
units to be constructed, subject to zoning and other required approvals. The
timing and scope of development will depend on market conditions, the Company's
financial position and an evaluation of the Company's other expansion
opportunities.
Bear Mountain has received approval from the United States Forest Service
and local governmental authorities of an expansion plan that would, among other
things, increase the resort's skiable terrain by 114 acres and increase daily
skier capacity by approximately 25%. The approval, however, is subject to
numerous mitigation conditions, including a requirement that Bear Mountain
acquire and dedicate to the United States Forest Service two acres of spotted
owl habitat and one acre of flying squirrel habitat in exchange for each acre
proposed for development. Bear Mountain has also entered into a developer's
agreement with the City of Big Bear Lake that generally authorizes, subject to
certain conditions, the construction of up to 56 condominium units on resort
operating property owned by Bear Mountain. However, portions of the potential
condominium development property are currently used in the operation of the
existing ski resort, and any proposed development plans could possibly be
constrained by operating requirements at Bear Mountain. The Company does not
presently have any immediate expansion or development plans for Bear Mountain,
and any future expansion or development would depend on a variety of factors,
including local market conditions, the Company's financial position and the
resolution of regulatory and United States Forest Service permitting issues.
Mt. Cranmore holds a perpetual easement entitling it to develop at least
500 acres of additional ski terrain known as the "Black Cap Mountain area" or
"Black Cap." The Black Cap easement was granted in 1951 and allows the Company
to expand Mt. Cranmore's existing ski and recreational infrastructure and
develop additional trails. The Black Cap property underlying the Company's
easement is privately owned by a third party. The Black Cap land available for
development by the Company is high-quality, mostly north and west-facing ski
terrain located in an area that can accommodate alpine and cross-country
trails, ski lifts and snowmaking. Expansion could increase Mt. Cranmore's skier
capacity, and could enhance the quality and diversity of its skiable terrain.
Given the resort's location in the heart of the Mt. Washington region, the
dominant tourist destination in New Hampshire, the Company believes that
expansion into Black Cap could position Mt. Cranmore as a premier attraction in
the White Mountains and one of the larger and more appealing resorts in New
Hampshire. Additionally, Mt. Cranmore has 35 acres of privately owned land at
the southwest flank of the mountain. This southwest facing ski-in/ski-out land
is very suitable for development. The Company does not have any immediate
expansion or development plans for Mt. Cranmore and the timing and scope of any
development will depend on market conditions, the Company's financial position
and the Company's other expansion opportunities.
The Summit owns 66 acres of real property on various parcels on and around
its resorts, a portion of which is available for residential development. The
developmental real estate at the Summit is owned by DRE, L.L.C. (the "Real
Estate LLC"), a subsidiary of the Company. The 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. Any potential real estate development activities at
the Summit could be constrained by existing or future planned resort operations
at the Summit. The Summit's development parcels will be studied for future
development potential when market conditions warrant.
The Company has no agreements, arrangements or understandings with respect
to financing the development of any of the real estate projects discussed
herein. Any future development would be subject to, among other things, the
Company's ability to obtain the necessary financing and all necessary permits
and approvals. The Senior Credit Facility, the Indenture and the Securities
Purchase Agreements (as defined herein) each contain restrictive covenants that
may significantly limit the Company's ability to pursue real estate development
opportunities. No assurance can be given that the Company will develop any
additional properties or, if completed, any such projects will be successful.
Moreover, there can be no assurances that the East West development at
Northstar will be successful or be completed as currently planned, or that such
development will have the currently anticipated favorable effects on the
Company's resort operations. In addition, there are 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, Internet strategies and research. Each resorts' marketing personnel
also participate in the development of the Company's overall marketing
strategy.
Strategy
The Company's marketing plans are designed to attract both day skiers and
vacationers by emphasizing the Company's diverse facilities and services and
proximity to approximately 20% of the total skiers in the United States. The
Company has positioned each of its resorts as an attractive alternative to
competing regional resorts and to other forms of leisure and entertainment. The
primary objectives of the Company's marketing efforts are to (i) increase each
of its resorts' relative market share, (ii) expand the number of skiers in each
of its markets, (iii) increase skier visitation frequency, (iv) increase the
expenditures of each of its visitors, and (v) attract and retain new guests to
the Company's resorts by expanding the scope of Booth Creek's resorts to winter
recreation centers offering a multitude of snowsport options in addition to
skiing and snowboarding.
The Company's marketing efforts are predicated on knowing its guests and
understanding the markets in which it competes. Accordingly, the Company's
resorts, typically through professional firms, conduct extensive market
research, including on-site guest surveys, focus groups, advertising tests and
phone and Internet surveys. Each of the Company's resorts develops its own
resort-specific marketing program based upon its unique qualities and
characteristics as well as the demographics of its skier base. 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.
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. Management believes that 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 "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. Loon Mountain
has traditionally targeted families comprised of either day skiers, regional
overnight skiers or destination skiers. 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.
Programs
The Company has developed a number of specific marketing programs to
achieve its objectives, including the following:
o Customer loyalty and season pass 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 60% of Northstar's 1999/00 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 frequent skier programs in place at the Company's California
resorts. For an annual membership fee, Vertical Plus members receive a special,
personalized identification wristband containing a preprogrammed computer
microchip which acts as their lift access for the season. In addition to
offering daily ticket discounts, the system tracks the amount of vertical feet
skied at participating resorts and rewards members with prizes based on the
number of vertical feet skied in a season. Other benefits of the program
include members-only lift lines, direct lift access, the convenience of being
able to make cashless retail transactions and electronic messaging. In
addition, several of the Company's resorts successfully introduced new season
pass products for the 1999/00 ski season that were attractively priced to
entice visitation during non-peak periods, stimulate demand, attract market
share and develop guest loyalty. The Company is continuing its successful
season pass initiatives for the 2000/01 ski season.
Multimedia advertising. The Company's marketing efforts include print,
broadcast, outdoor, Internet and direct mail advertising, with the particular
method tailored for each resort and existing market opportunities. The Company
is also very active in a variety of promotional programs designed to attract
guests from population centers in and around the Los Angeles, San Diego, San
Francisco, Sacramento, Seattle and Boston metropolitan areas and states with
large skier populations such as Texas, Illinois, Florida and New York. For
example, the Company's Northstar and Sierra resorts have participated in
extensive cooperative marketing with other Lake Tahoe resorts to promote the
region as a premier vacation destination. Market research has shown that the
typical Booth Creek guest utilizes the Internet extensively as a source of
information and additional Company resources have been concentrated towards
this communication vehicle. For the 2000/01 ski season, Booth Creek will
feature e-commerce "virtual stores" on each resort's website offering products
such as season passes, loyalty program memberships, gift certificates and
lodging/lift packages as well as private lessons, child care and lift tickets.
Data-base marketing programs. Through the information obtained from its
customer loyalty 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 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, geared toward intermediate and advanced skiers, which
offers free specialized instruction and daily training. This program has
increased guest loyalty and repeat visitation. In addition, Booth Creek is
expanding the definition of ski and snowboard areas to winter recreation
centers. Resorts are offering a multitude of unique options for sliding on
snow. "Booth Creek Hill Thrill Centers" include snow tubing, snowbikes,
snowfoxes and snowscoots. Many of these are low-skill, high-sensation
activities that even those who have never skied or snowboarded can enjoy. There
are also transferable learning skills from these sliding devices to learning to
ski or snowboard. Other efforts have been instituted at all resorts to embrace
and welcome new participants to the sport of skiing or snowboarding.
Strategic marketing alliances. The Company is a national ski resort
operator with approximately 2.2 million skier days (excluding Grand Targhee)
recorded during the 1999/00 ski season. At least one of the Company's resorts
is within driving distance of four of the five largest ski markets in the
United States. Management believes that 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 involve over $1 million worth of television
exposure, free use of vehicles for Company purposes and a vehicle give-away
promotion for resort guests. For the 2000/01 ski season, Booth Creek and
Dynastar Skis, Inc. have continued a unique alliance whereby Dynastar Skis,
Inc., a major ski and snowboard equipment manufacturer, prominently featured
Northstar in a nationwide infomercial that includes a $2 million television
media buy. This provides exposure of Booth Creek's largest resort to a targeted
audience of skiers in key markets. 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.
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. Sales personnel
at each resort provide year-round assistance to group leaders in organizing and
developing events. Business affiliations are developed and maintained through
corporate ticket programs, whereby participating businesses are given an
opportunity to provide their employees with incentive-based pricing.
Seasonality
The business of the Company is highly seasonal, with the vast majority of
its annual revenues expected to be generated between November and April of each
fiscal year. Management considers it essential to achieve optimal operating
results during key holidays and weekends during this period. The Company's
results of operations are, in turn, significantly dependent on favorable
weather conditions and other factors beyond the Company's control. The Company
has sought to partially mitigate the downside risk of its seasonal business by
purchasing paid skier visit insurance policies. For the 2000/01 ski season, the
Company purchased paid skier visit policies covering its Bear Mountain,
Waterville Valley, Summit and Loon Mountain resorts. However, these policies
would not fully protect these resorts against poor weather conditions or other
factors that could adversely affect their operations. In addition, the 2000/01
ski season policies are less favorable than the skier visit insurance policies
in place for the 1999/00 ski season. The Company did not obtain coverage for
the Northstar, Sierra and Mt. Cranmore resorts for the 2000/01 ski season as
effective policies were not available on commercially viable terms.
During the off-season months of May through October, the Company's resorts
typically experience a substantial reduction in labor and utility expense due
to the absence of ski operations, but make significant expenditures for
maintenance, expansion and capital improvements in preparation for the ensuing
ski season.
Competition
The general unavailability of new developable ski mountains, regulatory
requirements and the high costs and expertise required to build and operate
resorts present significant barriers to entry in the ski industry. The last
major new ski resort to open in the United States was in 1989, and in the past
15 years, management believes at least 85 proposed resorts have been stalled or
abandoned due to environmental issues and the high costs of entering into the
capital intensive ski industry. The domestic ski industry is currently
comprised of approximately 503 resorts and is highly competitive. The Company's
competitive position in the markets in which it competes is dependent upon many
diverse factors, including proximity to population centers, pricing, snowmaking
capabilities, type and quality of skiing offered, prevailing weather
conditions, quality and price of complementary services. The Company's Lake
Tahoe resorts, Northstar and Sierra, face strong competition from Lake Tahoe's
five other major ski resorts. Northstar's primary competition in the North Lake
Tahoe area is from Squaw Valley, Alpine Meadows and Sugar Bowl. Northstar also
competes with major ski and non-ski destination resorts throughout North
America. Sierra primarily competes in the South Lake Tahoe area with Heavenly
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, Rhode Island,
Connecticut and New York. Within the Northeast region, skiers can choose from
over 50 major resorts and ski areas, most of which are located in the
mountainous areas of New England and eastern New York. Waterville Valley's
primary regional competitors include Bretton Woods, 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, Bretton Woods, Cannon Mountain, Mount Sunapee and Sunday River.
The Summit competes primarily with ten other ski resorts in Washington,
including Crystal Mountain, Stevens Pass, White Pass, Mission Ridge and Mt.
Baker. Additional competition comes from the regional destination resorts at
Mt. Bachelor, Mt. Hood Meadows, Sun Valley and Whistler/Blackcomb, as well as
other day and weekend ski facilities in Oregon and British Columbia.
On a regional basis, at least one of the Company's resorts is readily
accessible to four of the five largest ski markets in the United States.
Management estimates that more than 70% of the skiers visiting the Company's
Lake Tahoe resorts are from the San Francisco, Sacramento, Central California
Valley and Lake Tahoe regions, while more than 90% of Bear Mountain's skiers
are from the Los Angeles, Orange County and San Diego metropolitan areas.
Waterville Valley, Mt. Cranmore and Loon Mountain are estimated to attract more
than 75% of their guests from Massachusetts and New Hampshire, with a large
percentage of such visitors coming from the Boston metropolitan area. The
Summit attracts more than 90% of its guests from the Seattle/Tacoma
metropolitan region.
Regulation and Legislation
The Company's operations are dependent upon its ownership or control over
the real property used in its ski operations at each resort. The real property
presently used at the Northstar and Mt. Cranmore resorts is owned by the
Company or controlled through easements. The Company has the right to use a
substantial portion of the real property associated with the Bear Mountain,
Sierra, Summit and Waterville Valley resorts under the terms of Term Special
Use Permits issued by the United States Forest Service. The Bear Mountain
permit expires in 2020, the Sierra permit expires in 2039, the Waterville
Valley permit expires in 2034 and the Summit permit expires in 2032.
A substantial portion of the real property associated with the Loon
Mountain resort is likewise used under United States Forest Service permits. In
1993, the United States Forest Service authorized various lift, trail and
snowmaking improvements on Loon Mountain and an expansion onto South Mountain.
In 1996, the United States Court of Appeals for the First Circuit (the "First
Circuit") overturned this authorization on the ground that the United States
Forest Service had failed to properly address certain environmental issues
under the National Environmental Policy Act ("NEPA"). Certain improvements,
including a snowmaking pipeline and part of the expansion, had been constructed
before the First Circuit ruled. On May 5, 1997, the United States District
Court for the District of New Hampshire (the "District Court") entered a
stipulated order which authorized existing improvements to remain in place and
existing operations to continue but generally prohibited future construction,
restricted use of a major snowmaking water source, and required certain water
discharge permits to be pursued, pending United States Forest Service
reconsideration of the projects under NEPA. These authorizations and
limitations were incorporated into the final order issued by the District Court
on December 11, 1998, and will remain in effect until the United States Forest
Service completes its NEPA review and issues a new decision. On February 12,
1999, the District Court agreed that the United States Forest Service may
combine this NEPA review with its evaluation and analysis of the existing
snowmaking pipeline. Based on discussions with the United States Forest
Service, the Company expects final NEPA documentation to be issued in the
Spring of 2001.
In August 1997, the United States Forest Service authorized the Loon
Mountain resort to construct a new snowmaking pipeline across permitted land.
The United States Forest Service found that such construction was consistent
with the District Court order and enabled the resort to modify its snowmaking
operations to better protect water resources and replace snowmaking capacity
lost under the order. Although the pipeline was completed, its use was
challenged by private parties who asserted that the United States Forest
Service violated NEPA. On January 20, 1998, the District Court issued a
decision finding that the United States Forest Service violated NEPA in failing
to address the potential for the new pipeline to increase the amount of snow
made and any associated environmental effects. On March 10, 1998, the District
Court issued a series of further orders which, among other things, directed the
United States Forest Service to re-evaluate the pipeline, and enjoined Loon
Mountain from using the pipeline pending further action by the court. On July
2, 1998, the United States Forest Service issued a new decision approving the
pipeline, which was challenged by several private parties, who again asserted
that it violated NEPA. The United States Forest Service subsequently withdrew
its decision authorizing the pipeline to conduct further review and the
District Court consolidated the lawsuits concerning the pipeline. On November
19, 1998, the District Court modified the injunction, allowing Loon Mountain to
use the pipeline to withdraw and convert 159.7 million gallons of water per ski
season into snow while the United States Forest Service further reviewed the
pipeline under NEPA. On February 12, 1999, the District Court issued a final
order, which dismissed the consolidated lawsuit concerning the pipeline in
light of the United States Forest Service's decision to conduct further review
of the pipeline, and specified that the limitation on pipeline usage will
continue until that review is completed and a new decision is issued. On
January 28, 2000, the District Court modified the final order to allow Loon
Mountain to convert up to 190 million gallons of water into snow during the
1999/00 ski season subject to certain additional conditions; such order remains
in effect until the additional NEPA documentation is completed and the United
States Forest Service issues a new decision on the pipeline, which is currently
expected to occur in the Spring of 2001.
Existing use of Loon Mountain is authorized under a Term Special Use
Permit, which covers facilities and expires in 2006; existing non-skiing use of
Loon Mountain's South Mountain area is authorized under an annual permit issued
by the United States Forest Service that is subject to reissuance each year.
After the United States Forest Service reconsiders the pipeline improvements
and expansion under NEPA, it will need to render a new decision and, if
appropriate, issue a new Term Special Use Permit. At that time, the conditions
imposed by the two District Court orders will terminate. Based upon the
existing administrative record, and certain proposed modifications to the
resort's snowmaking operations that 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
27, 2000 were $1,166,000.
The Company believes that its relations with the United States Forest
Service are good, and, to the best of its knowledge, no Term Special Use Permit
for any major ski resort has ever been terminated by the United States Forest
Service. The United States Secretary of Agriculture has the right to terminate
any Term Special Use Permit upon 180-days notice if, in planning for the uses
of the national forest, the public interest requires termination. Term Special
Use Permits may also be terminated or suspended because of non-compliance by
the permitee; however, the United States Forest Service would be required to
notify the Company of the grounds for such action and to provide it with
reasonable time to correct any curable non-compliance.
The Company's resorts are subject to a wide variety of federal, state and
local laws and regulations relating to land use, water resources, discharge,
storage, treatment and disposal of various materials and other environmental
matters. Except as described in this section, management believes that the
Company's resorts are presently in compliance with all land use and
environmental laws, except where non-compliance is not expected to result in a
material adverse effect on its financial condition. The Company also believes
that the cost of complying with known requirements, as well as anticipated
investigation and remediation activities, will not have a material adverse
effect on its financial condition or future results of operations. However,
failure to comply with such laws could result in the imposition of severe
penalties and other costs or restrictions on operations by government agencies
or courts that could materially adversely affect operations.
The operations at the resorts require numerous permits and approvals from
federal, state and local authorities, including permits relating to land use,
ski lifts and the sale of alcoholic beverages. In addition, the Company's
operations are heavily dependent on its continued ability, under applicable
laws, regulations, policies, permits, licenses or contractual arrangements, to
have access to adequate supplies of water with which to make snow and service
the other needs of its facilities, and otherwise to conduct its operations.
There can be no assurance that new applications of existing laws, regulations
and policies, or changes in such laws, regulations and policies will not occur
in a manner that could have a detrimental effect on the Company, or that
material permits, licenses or agreements will not be canceled, not renewed, or
renewed on terms materially less favorable to the Company. Major expansions of
any one or more of the Company's resorts could require, among other things, the
filing of an environmental impact statement or other documentation with the
United States Forest Service and state or local governments under NEPA and
certain state or local NEPA counterparts if it is determined that the expansion
may have a significant impact upon the environment. Although the Company has no
reason to believe that it will not be successful in implementing its operations
and development plans, no assurance can be given that necessary permits and
approvals will be obtained.
Bear Mountain operates in an area subject to an air emissions reduction
program and regulated by the South Coast Air Quality Management District
("SCAQMD") in California. For the past several years, the Company anticipated
that Bear Mountain would eventually be required to participate in an emission
credit program whereby Bear Mountain would be permitted to operate its
diesel-fueled snowmaking compressor engines if it acquired "banked" emission
credits from SCAQMD-regulated facilities which had already implemented nitrogen
oxide emission reduction programs. However, the Company has been notified that
SCAQMD will not allow Bear Mountain to participate in the emission credits
program and, further, that Bear Mountain's applications to operate the engines
were denied because they were not equipped with the "Best Available Control
Technology," thus violating SCAQMD rules. Bear Mountain intends to seek
compliance as quickly as feasible by either replacing the engines with electric
motors and taking all steps necessary to acquire or generate the electrical
power therefor, or replacing the engines with otherwise compliant engines (the
"Alternatives"). However, management believes that it will take at least two
seasons to achieve full compliance, and depending on the Alternative selected
and the manner in which it is implemented, the resolution of this matter may
require material capital expenditures for new equipment. Recognizing the
importance of the current compressor engines to Bear Mountain's operations,
SCAQMD and Bear Mountain agreed to a Stipulated Order for Abatement whereby
Bear Mountain is subject to certain requirements including investigating and
implementing the Alternatives according to a particular timeline through 2002,
record keeping and reporting to SCAQMD, payment of certain usage fees, and
particular interim operational dictates concerning the engines. No assurance
can be made regarding the outcome or timing of resolution of this matter.
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 premised on normal conditions prevailing and the absence of droughts,
earthquakes, dam failure or other types of similar calamities that impact the
ability to obtain or supply water. In the past, Bear Valley Mutual Water
Company pursued numerous legal claims against Big Bear Municipal Water District
including a claim that its rights in the lake are not subject to Big Bear
Municipal Water District's obligation to supply water to Bear Mountain. Bear
Valley Mutual Water Company withdrew such claim and water was provided to Bear
Mountain on an uncontested basis while Bear Valley Mutual Water Company and Big
Bear Municipal Water District successfully settled their differences. The
Company believes that Bear Valley will not further pursue its claim regarding
Bear Mountain's water supply, however, no assurance can be made regarding the
outcome of this matter.
Pursuant to the previously described decision of the First Circuit and the
order of the District Court, Loon Mountain applied for and was issued, by the
Environmental Protection Agency ("EPA"), a Clean Water Act (the "CWA")
discharge permit covering discharges associated with its snowmaking operations.
Certain ongoing discharges are authorized by the District Court order pending
final action on the permit and subject to the District Court's reserved power
to modify such approval to address any resulting environmental issues.
Certain regulatory approvals associated with the new snowmaking pipeline
at Loon Mountain 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. On January 18, 2000, in papers filed in connection with
the District Court's modification of the final order in the pipeline
litigation, the same individual again alleged that Loon Mountain had previously
filled wetlands in violation of the CWA. The same individual has orally advised
the Company that he still intends to initiate a lawsuit under the CWA regarding
the alleged wetland fill.
Except for certain permitting and environmental compliance matters
relating to the Loon Mountain and Bear Mountain resorts described above and in
Part I, Item 3. "Legal Proceedings," the Company has not received any notice of
material non-compliance with permits, licenses or approvals necessary for the
operation of its properties or of any material liability under any
environmental law or regulation.
Employees
As of December 31, 2000, the Company employed a full-time corporate staff
of 34 persons. In addition, the Company's resorts employ an aggregate of
approximately 515 full-time and approximately 5,000 seasonal employees. None of
the employees of the Company or its resorts is represented by a labor union,
and the Company considers its employee relations to be good.
Item 2. Properties
Northstar consists of approximately 8,000 acres of land privately owned by
the Company. Sierra owns 20 acres of its 1,689 gross acreage and leases the
remainder under a Term Special Use Permit with the United States Forest
Service. Bear Mountain owns 116 of its 819 gross acreage, leases 698 acres of
mountain terrain under a Forest Service Term Special Use Permit and leases five
acres from third parties. Waterville Valley owns 35 acres on Snow Mountain and
two acres at the Conference Center, and leases 790 acres of land on Mt.
Tecumseh from the federal government under a Term Special Use Permit issued by
the Forest Service. Mt. Cranmore owns 754 acres and holds deeded easements
enabling it to develop an additional 500 acres of ski terrain. The Summit owns
686 acres of its 4,152 gross acreage, leases over 1,400 acres under a private
permit and utilizes 1,864 acres of mountain terrain under a Forest Service Term
Special Use Permit. Loon Mountain owns 565 acres and leases 778 acres of land
in the White Mountain National Forest under a Term Special Use Permit issued by
the United States Forest Service permitting year-round recreational use.
Adjacent to such land, an additional 581 acres are leased on "South Mountain"
under a separate Special Use Permit permitting certain limited activities,
including mountain biking, cross country skiing and horseback riding. In
addition, each of the Company's resorts have ski lodges and other facilities
that management believes are suitable for the Company's current operations. For
further information regarding the Company's properties, see Part I, Item 1.
"Business - Resort Operations" and "- Regulation and Legislation."
Item 3. Legal Proceedings
Each of the Company's resorts has pending and is regularly subject to
litigation, and the threat thereof, with respect to personal injury claims
relating principally to skiing activities at its resorts as well as to premises
and vehicular operations and worker's compensation matters. The Company
maintains liability insurance that the Company considers adequate to insure
claims related to such usual and customary risks associated with the operation
of four-season recreation resorts.
In connection with the merger with Loon Mountain Recreation Corporation
("LMRC"), certain shareholders of LMRC (the "LMRC Shareholder Plaintiffs")
filed a lawsuit against LMRC and its former directors alleging breach of
fiduciary duty and against the Company alleging that the Company 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. The LMRC
Shareholder Plaintiffs appealed the dismissal to the New Hampshire Supreme
Court and oral arguments were heard in January of 2000; the New Hampshire
Supreme Court's decision has not yet been entered. 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.
The LMRC Shareholder Plaintiffs' breach of fiduciary duty action against
LMRC, Parent and its former directors remains pending and discovery is being
conducted. The Company's Motion for Summary Judgment was denied by the court.
The matter has been consolidated for trial with the Corporation Act case
described below; trial has not yet been set. 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. By
disclosure dated March 17, 2000 the LMRC Shareholder Plaintiffs' expert has
revised his opinion of fair value to $91.90 per share. Pursuant to the
Corporation Act, LMRC commenced a proceeding in the Superior Court of Grafton
County, New Hampshire seeking a judicial appraisal of the value of the LMRC
Shareholder Plaintiffs' shares in LMRC. Discovery in the case is pending and
the matter has been consolidated for trial with the fiduciary duty case
described above; a trial date has not yet been set. While the Company believes
that the amount paid to the LMRC Shareholder Plaintiffs prior to the
commencement of the appraisal proceeding represents the fair value of their
shares, there can be no assurance as to the value which the appraisal
proceeding will assign to the LMRC Shareholder Plaintiffs' 1,125 shares.
In 1995, an individual sued the United States Forest Service (the "Forest
Service") in the United States District Court for the District of New Hampshire
(the "District Court") alleging that the Forest Service had violated the
National Environmental Policy Act ("NEPA"), the Clean Water Act ("CWA"), and an
executive order in approving improvements to facilities on Loon Mountain and an
expansion of the Loon Mountain resort on to South Mountain. LMRC and an
environmental group intervened in the lawsuit. The District Court entered
summary judgment for the Forest Service on all claims and the original
plaintiff, along with the intervening environmental group, (collectively or
individually, the "Environmental Plaintiffs") appealed. In December 1996, the
United States Court of Appeals for the First Circuit (the "First Circuit")
reversed the District Court decision and ruled that the Forest Service must
reconsider certain environmental issues under NEPA and that LMRC must obtain a
discharge permit under the CWA for certain discharges from its snowmaking
system. The District Court then entered a stipulated order that: enjoins LMRC
from any further construction implementing the project with certain limited
exceptions; imposes various restrictions on LMRC's existing snowmaking
operations and requires LMRC to apply for a CWA discharge permit for discharges
of water and any pollutants associated with its snowmaking; allows existing
construction to remain in place and existing uses to continue; requires LMRC to
undertake certain erosion control and monitoring measures; requires the Forest
Service to prepare supplemental NEPA documentation on the improvements and
expansion; and reserves the right to require restoration of areas developed
under the original Forest Service approval to their preexisting condition if
not ultimately re-approved by the Forest Service. This order remains in effect
until the supplemental NEPA process is completed. Based on discussions with the
Forest Service, the Company expects final NEPA documentation to be issued in
the Spring of 2001. 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
First Circuit has issued a series of orders staying the appeal to permit
settlement negotiations, which are on-going; the parties most recent joint
filing requested an extension of the stay until March 15, 2001, at which time
the parties would file an additional settlement status report with the First
Circuit. 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 per ski season. On February 12, 1999, the District Court dismissed the
pipeline litigation and allowed the Forest Service to combine its NEPA analysis
of the pipeline with the pending NEPA analysis of the South Mountain expansion.
The injunction authorizing LMRC to use the pipeline to supply water for making
historical levels of snow remains in place, but was further modified to permit
LMRC to use 190 million gallons of water for snowmaking during the 1999/00 ski
season subject to certain additional conditions; such order remains in effect
until the additional NEPA documentation is completed and the Forest Service
issues a new decision on the pipeline, which is currently expected to occur in
the Spring of 2001.
Killington West, Ltd., formerly known as Bear Mountain, Ltd., ("Killington
West "), filed a breach of contract lawsuit in the Superior Court of the State
of California, San Bernardino County, against Fibreboard Corporation
("Fibreboard") and Bear Mountain, Inc., a wholly-owned subsidiary of the
Company, alleging that Fibreboard and Bear Mountain, Inc. breached the asset
purchase agreement dated October 6, 1995 (the "Original Bear Mountain
Agreement") among Killington West, Fibreboard and Bear Mountain, Inc. pursuant
to which Bear Mountain, Inc. acquired the Bear Mountain ski resort from
Killington West. Killington West's lawsuit concerned an alleged breach by
Fibreboard and Bear Mountain, Inc. of a change of control provision in the
Original Bear Mountain Agreement. In connection with the Company's acquisition
of Bear Mountain, Inc. in December 1996, the Company obtained from Fibreboard
indemnification for any claim that might be made by Killington West, and
further, required that $1 million of the purchase price be held in escrow
pending the outcome of any potential disputes with Killington West. Fibreboard
acknowledged its obligation to indemnify Bear Mountain, Inc. with respect to
the Killington West lawsuit and will defend such lawsuit on behalf of
Fibreboard and Bear Mountain, Inc.
Item 4. Submission Of Matters To A Vote Of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established trading market for any class of equity securities
of the Company. All of the Company's equity securities are owned by Parent.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with
the consolidated financial statements of the Company and related notes thereto
included elsewhere in this Report and Part II, Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The selected
consolidated financial data of the Company as of and for the years ended
October 31, 1997, October 30, 1998, October 29, 1999 and October 27, 2000, have
been derived from the audited consolidated financial statements of the Company,
which have been audited by Ernst & Young LLP, independent auditors. The Company
was formed in October 1996 and had no operations until its acquisition of seven
ski resort complexes during the first six months of fiscal 1997. The selected
combined financial data (except for the other financial and operating data) of
the Fibreboard Resort Group (i) as of and for the ten months ended October 31,
1996 have been derived from the audited combined financial statements of the
Fibreboard Resort Group, which have been audited by Arthur Andersen LLP,
independe