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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-26091
BOOTH CREEK SKI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1359604
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
1000 South Frontage Road West, 81657
Suite 100 (Zip Code)
Vail, Colorado
(Address of Principal Executive
Offices)
(970) 476-1311
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[X] No[ ]
As of August 31, 2002, the number of shares outstanding of the
registrant's Common Stock, par value $.01 per share, was 1,000 shares.
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TABLE OF CONTENTS
Item Page Number
- ---- -----------
PART I - FINANCIAL INFORMATION
1. Financial Statements.............................................. 1
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 11
3. Quantitative and Qualitative Disclosures about Market Risk........ 28
4. Controls and Procedures........................................... 28
PART II - OTHER INFORMATION
1. Legal Proceedings................................................. 29
6. Exhibits and Reports on Form 8-K.................................. 31
Signatures........................................................ 33
Certifications.................................................... 34
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
August 2, November 2, July 27,
2002 2001 2001
------------ ----------- ------------
ASSETS (Unaudited) (Unaudited)
Current assets:
Cash................................... $ 713 $ 458 $ 845
Accounts receivable, net of allowance
of $50, $39 and $58, respectively..... 1,334 1,937 1,272
Insurance proceeds receivable.......... 800 1,500 1,500
Inventories ........................... 1,663 2,486 1,841
Prepaid expenses and other current
assets ............................... 1,176 1,616 948
Assets held for sale................... 12,845 - -
------------ ----------- ------------
Total current assets ................... 18,531 7,997 6,406
Property and equipment, net ............ 118,133 139,347 140,929
Real estate held for development
and sale .............................. 6,632 8,220 7,293
Deferred financing costs, net of
accumulated amortization of $4,300,
$5,128 and $4,888, respectively ....... 4,435 4,087 4,327
Timber rights and other assets ......... 6,085 6,429 6,169
Goodwill................................ 22,938 23,138 23,724
------------ ----------- ------------
Total assets ........................... $ 176,754 $ 189,218 $ 188,848
============ =========== ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Revolving credit facility ............. $ 2,530 $ 17,628 $ 3,425
Current portion of long-term debt ..... 4,416 1,748 2,042
Accounts payable and accrued
liabilities .......................... 27,183 34,842 29,606
Liabilities held for sale.............. 1,232 - -
------------ ----------- ------------
Total current liabilities .............. 35,361 54,218 35,073
Long-term debt ......................... 120,433 128,664 128,676
Other long-term liabilities ............ 767 767 760
Commitments and contingencies
Preferred stock of subsidiary........... - 1,136 1,262
Shareholder's equity:
Common stock, $.01 par value; 1,000
shares authorized, issued and
outstanding .......................... - - -
Additional paid-in capital ............ 72,000 72,000 72,000
Accumulated deficit ................... (51,807) (67,567) (48,923)
------------ ----------- ------------
Total shareholder's equity ............. 20,193 4,433 23,077
------------ ----------- ------------
Total liabilities and shareholder's
equity ................................ $ 176,754 $ 189,218 $ 188,848
============ =========== ============
See accompanying notes.
1
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Three Months Ended Nine Months Ended
--------------------- ---------------------
August 2, July 27, August 2, July 27,
2002 2001 2002 2001
--------- --------- --------- ---------
(Unaudited)
Revenue:
Resort operations.......... $ 3,482 $ 3,248 $104,742 $101,819
Real estate and other
(including $2,400 and
$11,300, respectively, in
revenues with related
parties for the three and
nine month periods ended
August 2, 2002 - Note 5).. 2,560 190 11,475 190
--------- --------- --------- ---------
Total revenue................ 6,042 3,438 116,217 102,009
Operating expenses:
Cost of sales - resort
operations................ 6,248 5,910 56,268 54,707
Cost of sales - real estate
and other................. 564 167 2,737 167
Depreciation and depletion. 3,939 4,663 12,506 14,036
Amortization of goodwill
and other intangible
assets.................... - 595 - 1,785
Selling, general and
administrative expense.... 4,149 4,110 17,751 16,854
--------- --------- --------- ---------
Total operating expenses..... 14,900 15,445 89,262 87,549
--------- --------- --------- ---------
Operating income (loss)...... (8,858) (12,007) 26,955 14,460
Other income (expense):
Interest expense........... (3,572) (4,006) (11,645) (12,415)
Amortization of deferred
financing costs........... (307) (239) (817) (726)
Minority interest.......... - (30) (15) (99)
Other income (expense)..... (81) 133 (39) 256
--------- --------- --------- ---------
Other income
(expense),net.............. (3,960) (4,142) (12,516) (12,984)
--------- --------- --------- ---------
Income (loss) from
continuing operations
before extraordinary item
and change in accounting
principle.................. (12,818) (16,149) 14,439 1,476
Discontinued operations:
Income (loss) from
discontinued operatons of
Bear Mountain resort...... (1,290) (1,477) 1,960 1,651
Impairment loss from
anticipated disposal of
Bear Mountain resort...... (3,200) - (3,200) -
--------- --------- --------- ---------
Income (loss) on discontinued
operations................. (4,490) (1,477) (1,240) 1,651
--------- --------- --------- ---------
Income (loss) before
extraordinary item and
change in accounting
principle.................. (17,308) (17,626) 13,199 3,127
Extraordinary gain on early
retirement of debt......... - - 2,761 1,723
Change in accounting
principle for goodwill..... - - (200) -
--------- --------- --------- ---------
Net income (loss)............ $ (17,308) $ (17,626) $ 15,760 $ 4,850
========= ========= ========= =========
See accompanying notes.
2
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
-------------------------------
August 2, July 27,
2002 2001
------------- -------------
(Unaudited)
Cash flows from operating activities:
Net income..................................... $ 15,760 $ 4,850
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and depletion.................. 13,851 16,247
Amortization of goodwill and other
intangible assets ......................... - 1,785
Noncash cost of real estate sales .......... 2,492 -
Amortization of deferred financing costs ... 817 726
Minority interest .......................... 15 99
Impairment loss from anticipated disposal
of Bear Mountain resort.................... 3,200 -
Extraordinary gain on early retirement
of debt.................................... (2,761) (1,723)
Change in accounting principle for goodwill. 200 -
Changes in operating assets and liabilities:
Accounts receivable ....................... 588 657
Insurance proceeds receivable.............. 700 2,570
Inventories ............................... 561 265
Prepaid expenses and other current assets.. 437 246
Accounts payable and accrued liabilities... (7,012) (4,309)
Other long-term liabilities ............... - (25)
------------- -------------
Net cash provided by operating activities...... 28,848 21,388
Cash flows from investing activities:
Capital expenditures for property and
equipment .................................... (6,637) (8,029)
Capital expenditures for real estate
held for development and sale ................ (904) (727)
Other assets .................................. 223 (344)
------------- -------------
Net cash used in investing activities ......... (7,318) (9,100)
Cash flows from financing activities:
Borrowings under revolving credit facility .... 11,265 16,313
Repayments under revolving credit facility ... (26,363) (19,240)
Proceeds of long-term debt..................... 25,000 -
Principal payments of long-term debt .......... (27,985) (8,735)
Deferred financing costs ...................... (2,041) (2)
Purchase of preferred stock of subsidiary
and payment of dividends ..................... (1,151) (475)
------------- -------------
Net cash used in financing activities ......... (21,275) (12,139)
------------- -------------
Increase in cash............................... 255 149
Cash at beginning of period.................... 458 696
------------- -------------
Cash at end of period.......................... $ 713 $ 845
============= =============
See accompanying notes.
3
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 2, 2002
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies
Booth Creek Ski Holdings, Inc. ("Booth Creek") owns and operates various ski
resorts, including Northstar-at-Tahoe ("Northstar"), Sierra-at-Tahoe ("Sierra"),
Bear Mountain, Waterville Valley, Mt. Cranmore, Loon Mountain and the Summit at
Snoqualmie (the "Summit"). Booth Creek also conducts certain real estate
development activities, primarily at Northstar.
The consolidated financial statements include the accounts of Booth Creek
and its subsidiaries (collectively referred to as the "Company"), all of which
are wholly-owned. All significant intercompany transactions and balances have
been eliminated.
Booth Creek is a wholly-owned subsidiary of Booth Creek Ski Group, Inc.
("Parent").
The accompanying consolidated financial statements as of August 2, 2002 and
July 27, 2001 and for the three and nine month periods then ended are unaudited,
but include all adjustments (consisting only of normal, recurring adjustments
and adjustments to recognize (a) the change in accounting principle for goodwill
during the nine months ended August 2, 2002, (b) the extraordinary gains on
early retirement of debt during the nine month periods ended August 2, 2002 and
July 27, 2001, and (c) the impairment loss from the anticipated disposal of Bear
Mountain during the nine months ended August 2, 2002) which, in the opinion of
management of the Company, are considered necessary for a fair presentation of
the Company's financial position at August 2, 2002 and July 27, 2001, and its
operating results and cash flows for the three and nine month periods then
ended. Due to the highly seasonal nature of the Company's business, the results
for the interim periods are not necessarily indicative of results for the entire
year. Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to generally accepted accounting
principles applicable for interim periods. Management believes that the
disclosures made are adequate to make the information presented not misleading.
The unaudited consolidated financial statements should be read in conjunction
with the following notes and the Company's consolidated financial statements and
accompanying notes included in the Company's Annual Report on Form 10-K for the
fiscal year ended November 2, 2001.
Cash
Included in cash at August 2, 2002 is restricted cash of $571,000, relating
to advance deposits and rental fees due to property owners for lodging and
property rentals.
Recently Adopted and Pending Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). The Company adopted SFAS No. 142 effective
as of November 3, 2001. Under the new rules, goodwill will no longer be
amortized but will be subject to annual impairment tests in accordance with the
pronouncement. The Company's operating results for the three and nine month
periods ended July 27, 2001 reflected goodwill amortization of $586,000 and
$1,757,000, respectively. Adjusted net income or loss for the three and nine
months ended July 27, 2001 would have been a net loss of $17,040,000 and net
income of $6,607,000, respectively, excluding such goodwill amortization. In
connection with the adoption of SFAS No. 142, the Company performed a
transitional impairment test for recorded goodwill as of November 3, 2001 for
each resort. Based on the results of the transitional impairment test, the
Company wrote down goodwill by $200,000 for one resort, which has been reflected
as the cumulative effect of a change in accounting principle in the accompanying
statement of operations for the nine months ended August 2, 2002.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"), which
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and associated asset retirement costs.
The new rules apply to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) normal operation of a long-lived asset. SFAS No. 143 is effective for
the Company at the beginning of fiscal 2003. The Company believes the adoption
of SFAS No. 143 will not have a material impact on its consolidated financial
position or results of operations.
4
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Paid Skier Visit Insurance Programs
For the 2000/01 season, the Company arranged for four separate paid skier
visit insurance policies covering Bear Mountain, Loon Mountain, Waterville
Valley and the Summit. The policies had a deductible for the initial decline
from targeted paid skier visit and revenue levels and stated maximum coverage
levels. In addition, the policies required the insured to experience monthly or
annual snowfall amounts below certain agreed upon levels before a claim could be
filed for the decline in paid skier visits. For the nine months ended July 27,
2001, the Company recorded resort operations revenues of $1,500,000 for claims
attributable to lower than agreed upon paid skier visits and snowfall levels
under the Summit and Waterville Valley policies. The Company's claims were
determined based on a specified formula under the paid skier visit insurance
policies and snowfall information verified by an independent third party. The
Company believes that it has fully complied with its obligations under the
policies, and has properly reported and made claims in accordance with the
policies for losses aggregating in excess of $1,500,000. As a result of the
underwriters' failure to properly process the Company's claims, in November
2001, the Company filed a lawsuit against the underwriters seeking recovery for
breach of contract, breach of covenant of good faith and unfair and deceptive
business practices. In April 2002, the underwriters made a partial offer of
settlement of $700,000, which the Company accepted with a reservation of all
rights and remedies under the terms of the policies and applicable law with
respect to its remaining claims. The Company intends to vigorously pursue
collection of its remaining claims. The parties to the lawsuit are currently
conducting discovery in the matter. Based on an evaluation of information to
date and the advice of counsel, the Company believes that realization of its
recorded claims is probable. However, no assurance can be given regarding the
timing of the resolution of this matter.
For the 1999/00 ski season, the Company arranged for four separate paid
skier visit insurance policies covering its Lake Tahoe resorts (Northstar and
Sierra), its New Hampshire resorts (Waterville Valley, Mt. Cranmore and Loon
Mountain), Bear Mountain and the Summit. For the nine months ended July 27,
2001, resort operations revenues included $254,000 for additional claim
recoveries received upon the final settlement of the 1999/00 paid skier visit
insurance policies in excess of the amounts recognized in fiscal 2000 of
$6,600,000.
3. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
August 2, November 2, July 27,
2002 2001 2001
----------- ----------- -----------
(In thousands)
Accounts payable.................... $ 2,751 $ 7,836 $ 2,828
Accrued compensation and benefits... 3,869 4,159 4,023
Taxes other than income taxes....... 663 1,131 979
Unearned revenue and deposits-
resort operations.................. 4,903 11,601 5,665
Unearned deposits-
real estate operations (Note 5).... 5,610 6,000 6,000
Interest............................ 4,567 2,063 5,707
Other............................... 4,820 2,052 4,404
----------- ----------- -----------
$ 27,183 $ 34,842 $ 29,606
=========== =========== ===========
5
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Financing Arrangements
Senior Credit Facility
Effective March 15, 2002, the Company and its subsidiaries entered into an
Amended and Restated Credit Agreement (the "Senior Credit Facility") with Fleet
National Bank, as administrative agent ("Agent"), and certain lenders. The
following is a summary of certain provisions of the Senior Credit Facility.
General - The Senior Credit Facility provides for a revolving credit
facility (the "Revolving Credit Facility") with borrowing availability of up
to $25,000,000, and a term loan facility (the "Term Facility") with
borrowing availability of up to $25,000,000. Borrowings under the Senior
Credit Facility are collectively referred to herein as "Loans."
Interest - For purposes of calculating interest, Loans can be, at the
election of the Company, Base Rate Loans or LIBOR Rate Loans or a
combination thereof. Base Rate Loans bear interest at the sum of (a) the
higher of (i) Agent's prime rate or (ii) the federal funds rate plus .5%
plus (b) a margin of 1.5%. LIBOR Rate Loans bear interest at the LIBOR rate
plus a margin of 4%. Interest on Loans outstanding is payable quarterly. The
Senior Credit Facility also requires commitment fees of .5% based on the
unused borrowing availability of the Revolving Credit Facility. Borrowings
outstanding under the Term Facility as of August 2, 2002 bore interest at an
annual rate of 6.8% pursuant to the LIBOR rate option. Borrowings under the
Revolving Credit Facility as of August 2, 2002 bore interest at an annual
rate of 6.25% pursuant to the base rate option.
Repayment - Subject to the provisions of the Senior Credit Facility, the
Company may, from time to time, borrow, repay and reborrow under the
Revolving Credit Facility. The Senior Credit Facility requires that the
Company not have any borrowings under the Revolving Credit Facility for a
period of 30 consecutive days commencing sometime between January 15 and
February 28 of each year. The Term Facility provides for quarterly
commitment reductions of $1,000,000 on the last day of January, April, July
and October of each year beginning on January 31, 2003 and continuing
through October 31, 2005, the maturity date of the Senior Credit Facility.
The Company is required to repay amounts outstanding under the Term Facility
on such dates by an amount equal to the greater of (i) the amount by which
outstanding Term Facility borrowings exceed the then-applicable term loan
commitment and (ii) the Excess Cash Proceeds (as defined in the Senior
Credit Facility) derived from specified real estate asset sales determined
on a cumulative basis. No amount of the Term Facility which is repaid may be
reborrowed. The entire unpaid balance under the Senior Credit Facility is
due and payable on October 31, 2005.
Security - Borrowings under the Senior Credit Facility are secured by
(a) a pledge to the Agent for the ratable benefit of the financial
institutions party to the Senior Credit Facility of all of the capital stock
of Booth Creek's principal subsidiaries and (b) a grant of a security
interest in substantially all of the consolidated assets of Booth Creek and
its subsidiaries.
Covenants - The Senior Credit Facility contains financial covenants
relating to the maintenance of (a) minimum consolidated resort EBITDA (as
defined in the Senior Credit Facility) measured quarterly on a rolling four
quarter basis, (b) the ratio of consolidated EBITDA (as defined in the
Senior Credit Facility) to consolidated debt service, and (c) levels of
adjusted consolidated leverage. The Senior Credit Facility also contains
restrictive covenants pertaining to the management and operation of Booth
Creek and its subsidiaries. The covenants include, among others, significant
limitations on indebtedness, guarantees, letters of credit, liens,
investments, distributions, capital expenditures, mergers, acquisitions,
asset sales, fundamental corporate changes, transactions with affiliates,
optional payments and modification of debt instruments and issuances of
stock.
Use of Proceeds - Borrowings under the Revolving Credit Facility may be
used for working capital and other general corporate purposes. Borrowings
under the Term Facility may be used to repurchase the Company's 12.5% senior
notes due 2007 (the "Senior Notes") or repay certain other indebtedness,
together with accrued and unpaid interest thereon. During the nine months
ended August 2, 2002, the Company repurchased $29,325,000 aggregate
principal amount of Senior Notes in privately-negotiated transactions
through borrowings under the Term Facility and available cash resources. As
of August 2, 2002, outstanding borrowings under the Revolving Credit
Facility and Term Facility were $2,530,000 and $25,000,000, respectively.
6
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company has entered into two interest rate cap agreements for an
aggregate notional amount of $15,000,000 through July 31, 2005, declining to
$14,000,000 through October 31, 2005. In exchange for upfront payments of
$179,000, the Company will receive floating rate payments from the
counterparties to the interest rate cap agreements during those periods in which
the three month LIBOR rate exceeds 6%. These agreements are accounted for at
their fair value, with fluctuations recorded through the statement of
operations.
Senior Notes
As of August 2, 2002, the Company had outstanding $96,175,000 aggregate
principal amount of its Senior Notes. The Senior Notes mature on March 15, 2007,
and bear interest at 12.5% per annum, payable semi-annually on March 15 and
September 15. The Senior Notes are redeemable at the option of the Company, in
whole or in part, at any time after March 15, 2002, with an initial redemption
price of 106.25% declining through maturity, plus accrued and unpaid interest to
the redemption date. The Senior Notes are general senior unsecured obligations
of the Company ranking equally in right of payment with all other existing and
future senior indebtedness of the Company and senior in right of payment to any
subordinated indebtedness of the Company.
The Senior Notes are unconditionally guaranteed, on an unsecured senior
basis, as to the payment of principal, premium, if any, and interest, jointly
and severally (the "Guarantees"), by all Restricted Subsidiaries of the Company,
as defined in the indenture for the Senior Notes (the "Indenture"), having
either assets or shareholders' equity in excess of $20,000 (the "Guarantors").
All of the Company's direct and indirect subsidiaries are Restricted
Subsidiaries, except DRE, L.L.C.
The Senior Notes are effectively subordinated in right of payment to all
secured indebtedness of the Company and the Guarantors, including indebtedness
under the Senior Credit Facility. In addition, the Senior Notes are structurally
subordinated to any indebtedness of the Company's subsidiaries that are not
Guarantors. The Indenture contains covenants for the benefit of the holders of
the Senior Notes that, among other things, limit the ability of the Company and
any Restricted Subsidiaries to: (i) incur additional indebtedness; (ii) pay
dividends and make other distributions; (iii) issue stock of subsidiaries; (iv)
make certain investments; (v) repurchase stock; (vi) create liens; (vii) enter
into transactions with affiliates, (viii) enter into sale and leaseback
transactions, (ix) create dividend or other payment restrictions affecting
Restricted Subsidiaries; (x) merge or consolidate the Company or any Guarantors;
and (xi) sell assets.
The Guarantors are wholly-owned subsidiaries of Booth Creek and have fully
and unconditionally guaranteed the Senior Notes on a joint and several basis.
Booth Creek is a holding company and has no significant operations, assets or
cash flows separate from its investments in its subsidiaries. In addition, the
assets, equity, revenues, income and cash flow of DRE, L.L.C., Booth Creek's
only non-guarantor subsidiary, are minor and the membership interests in DRE,
L.L.C. are entirely owned by Booth Creek. There are no significant restrictions
on the ability of the Guarantors to pay dividends or otherwise transfer funds to
Booth Creek. Accordingly, Booth Creek has not presented separate financial
statements and other disclosures concerning the Guarantors or its non-guarantor
subsidiary because management has determined that such information is not
material to investors.
During the nine months ended August 2, 2002, the Company repurchased
$29,325,000 aggregate principal amount of Senior Notes for $25,588,000. After
giving effect to the write-off of related deferred financing and other costs of
$976,000, the Company recognized an extraordinary gain of $2,761,000.
During the nine months ended July 27, 2001, the Company repurchased
$8,000,000 aggregate principal amount of Senior Notes for $5,990,000. After
giving effect to the write-off of related deferred financing costs of $287,000,
the Company recognized an extraordinary gain of $1,723,000.
Other Debt
During the nine month periods ended August 2, 2002 and July 27, 2001, the
Company entered into long-term debt and capital lease obligations of $1,644,000
and $3,317,000, respectively, for the purchase of equipment.
7
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Real Estate Transactions with Related Parties
Unit 7 and 7A Development
On November 17, 1999, Trimont Land Company ("TLC"), the owner and operator
of Northstar and a wholly-owned subsidiary of the Company, consummated the sale
to Trimont Land Holdings, Inc. ("TLH"), a wholly-owned subsidiary of Parent and
an affiliate of the Company, of certain single family development property
underlying a portion of the Unit 7 and 7A developments at Northstar for an
aggregate sales price of $7,050,000, subject to adjustment as described below.
The consideration paid to TLC consisted of $6,000,000 in cash and a promissory
note (the "TLH Note") for $l,050,000, subject to adjustment. The Company
obtained a fairness opinion for the transaction from an independent firm
qualified in the subject matter of the transaction. In connection with the sale
of development real estate on September 22, 2000 as described below, TLH's
interests in the Unit 7A lots were transferred back to TLC on September 22,
2000.
Under the terms of the TLH Note, TLC will receive the greater of (a)
$1,050,000 plus accrued interest at 7% per annum, or (b) the Net Cash Proceeds
(as defined) derived from the resale of TLH's lots within Unit 7. Pursuant to
the terms of the sale, TLC retained the obligation to complete the scheduled
construction of the Unit 7 development, which was substantially completed in
November 2001. The Company recognizes revenue and related costs of sales for
this real estate transaction upon the close of escrow for lot sales between TLH
and third party buyers, and had reflected the $6,000,000 in cash received as a
deposit liability as of November 2, 2001.
During the nine months ended August 2, 2002, TLH consummated the sale of 25
Unit 7 lots for net proceeds of approximately $11,300,000. As the net proceeds
of the 25 lot sales were more than the $6,000,000 in cash initially paid by TLH
for the underlying real estate, additional cash proceeds of $5,300,000 were
distributed to TLC during the nine months ended August 2, 2002. In addition, the
Company relieved the existing $6,000,000 deposit liability during the nine
months ended August 2, 2002. One lot currently remains available for sale within
the Unit 7 subdivision.
Development Real Estate
On September 22, 2000, TLC and TLH entered into an Agreement for Purchase
and Sale of Real Property (the "Northstar Real Estate Agreement") pursuant to
which TLC agreed to sell to TLH certain development real estate consisting of
approximately 550 acres of land located at Northstar (the "Development Real
Estate") for a total purchase price of $27,600,000, of which 85% was payable in
cash and 15% was payable in the form of convertible secured subordinated
promissory notes. The purchase price was based on an appraisal obtained from an
independent third party appraiser. Concurrently therewith, TLC and TLH
consummated the sale of the initial land parcels contemplated by the Northstar
Real Estate Agreement, and TLC transferred the bulk of the Development Real
Estate to TLH for a total purchase price of $21,000,000, of which $17,850,000,
or 85%, was paid in cash and $3,150,000, or 15%, was paid in the form of a
convertible secured subordinated promissory note. During the nine months ended
August 2, 2002, TLH transferred cash of $5,610,000 to TLC, which represents the
cash portion of the purchase price for the remaining Development Real Estate.
The $5,610,000 payment has been deferred as a deposit liability pending the
consummation of the sale of the remaining Development Real Estate under the
Northstar Real Estate Agreement, which is subject to certain subdivision
requirements to effect the transfer of such property and other normal and
customary closing conditions, and is expected to be consummated in calendar
2002.
8
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Income Taxes
As of November 2, 2001, the Company had estimated net operating loss
carryforwards of approximately $84,700,000 for federal income tax reporting
purposes, which expire between 2012 and 2021. The tax benefits of such net
operating losses are fully offset by a valuation reserve. Based on the Company's
current tax attributes, no income tax provision or benefit is expected for the
year ending November 1, 2002. Accordingly, during the nine months ended August
2, 2002, no income tax provision has been provided.
7. Business Segments
The Company currently operates in two business segments, resort operations
and real estate and other. Data by segment is as follows:
Three Months Ended Nine Months Ended
----------------------- -----------------------
August 2, July 27, August 2, July 27,
2002 2001 2002 2001
---------- ----------- ----------- ----------
(In thousands)
Revenue:
Resort operations.... $ 3,482 $ 3,248 $ 104,742 $ 101,819
Real estate and
other.............. 2,560 190 11,475 190
---------- ----------- ----------- -----------
$ 6,042 $ 3,438 $ 116,217 $ 102,009
========== =========== =========== ===========
Operating income (loss):
Resort operations.... $ (10,579) $ (11,704) $ 18,987 $ 15,161
Real estate and
other............. 1,721 (303) 7,968 (701)
---------- ----------- ----------- -----------
$ (8,858) $ (12,007) $ 26,955 $ 14,460
========== =========== =========== ===========
August 2, November 2,
2002 2001
------------- -------------
(In thousands)
Segment assets:
Resort operations.................. $ 145,174 $ 169,919
Real estate and other.............. 10,716 12,345
Assets held for sale (Note 8)...... 12,845 -
Corporate and other
nonidentifiable assets........... 8,019 6,954
------------- -------------
$ 176,754 $ 189,218
============= =============
A reconciliation of combined operating income (loss) for resort operations
and real estate and other to consolidated income (loss) before extraordinary
item and change in accounting principle is as follows:
Three Months Ended Nine Months Ended
---------------------- --------------------
August 2, July 27, August 2, July 27,
2002 2001 2002 2001
--------- --------- --------- ---------
(In thousands)
Operating income (loss)for
reportable segments....... $ (8,858) $(12,007) $ 26,955 $ 14,460
Interest expense........... (3,572) (4,006) (11,645) (12,415)
Amortization of deferred
financing costs........... (307) (239) (817) (726)
Minority interest.......... - (30) (15) (99)
Other income (expense)..... (81) 133 (39) 256
--------- --------- --------- ---------
Income (loss) from
continuing operations
before extraordinary item
and change in accounting
principle................. $(12,818) $(16,149) $ 14,439 $ 1,476
========= ========= ========= =========
9
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Pending Sale of Bear Mountain Resort
On July 22, 2002, the Company entered into definitive agreements for the
sale of all of the capital stock of Bear Mountain, Inc. ("Bear Mountain") to
Snow Summit Ski Corporation for a purchase price of $12,000,000 in cash, subject
to certain adjustments for working capital, assumed debt and allocations of
off-season operating losses and capital expenditures. As a result of the
intended disposition, the Company has reflected the assets and liabilities of
Bear Mountain as held for sale in the accompanying consolidated balance sheet as
of August 2, 2002, and has reflected the operating results of Bear Mountain as
discontinued operations in the accompanying statements of operations. The
closing of the proposed transaction is conditioned upon the receipt of certain
third party consents and governmental approvals, including the approval of the
United States Forest Service, and other customary closing conditions. The
Company is currently seeking an amendment to the Senior Credit Facility which
would permit the sale transaction. The closing of the sale is expected to occur
in the fourth quarter of fiscal 2002. However, no assurances can be given that
the transaction will be consummated on the terms contemplated or at all. Based
on the terms of the pending transaction and the anticipated closing date, the
Company recorded an estimated impairment loss of $3,200,000 relating to the
long-lived assets of Bear Mountain.
The components of Bear Mountain's assets and liabilities held for sale as of
August 2, 2002 are as follows:
(In thousands)
Assets held for sale:
Current assets..................................... $ 280
Property and equipment, net........................ 12,535
Other assets....................................... 30
-----------
Total assets held for sale....................... $ 12,845
===========
Liabilities held for sale:
Current portion of long-term debt.................. $ 135
Accounts payable and accrued liabilities........... 647
Long-term debt..................................... 450
-----------
Total liabilities held for sale.................. $ 1,232
===========
Summary operating results for Bear Mountain for the periods indicated below,
which have historically been included in the Company's resort segment operating
results, are as follows:
Three Months Ended Nine Months Ended
---------------------- ---------------------
August 2, July 27, August 2, July 27,
2002 2001 2002 2001
---------- ---------- ---------- ----------
(In thousands)
Total revenue.............. $ 312 $ 250 $ 13,820 $ 14,201
Total expenses............. (1,602) (1,727) (11,860) (12,550)
---------- ---------- ---------- ----------
Total income (loss) from
discontinued operations.. $(1,290) $(1,477) $ 1,960 $ 1,651
========== ========== ========== ==========
Year Ended
-----------------------------------
November 2, October 27,
2001 2000
----------------- -----------------
(In thousands)
Total revenue................... $ 14,539 $ 10,135
Total expenses.................. (14,677) (12,582)
------------- -------------
Total loss from
discontinued operations....... $ (138) $ (2,447)
============= =============
Bear Mountain generated income from operations before depreciation of
$2,863,000 and $748,000 for the years ended November 2, 2001 and October 27,
2000, respectively.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes thereto included elsewhere in this
Report. The following discussion contains certain forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to the differences are discussed in "Forward-Looking Statements" and elsewhere
in this Report.
General
The Company's ski operations are highly sensitive to weather conditions and
the overall strength of the regional economies in the areas in which the Company
operates. The Company believes that the geographic diversity of its resorts and
the use of extensive snowmaking technology coupled with advanced trail grooming
equipment, which together can provide consistent skiing conditions, can
partially mitigate the risk of both economic downturns and adverse weather
conditions in any given region. However, the Company remains vulnerable to warm
weather, heavy rains, high winds, drought and other types of severe or unusual
weather conditions, which can have a significant effect on the operating
revenues and profitability at one or more of the Company's resorts. For example,
the Northeast has experienced a drought during the summer of 2002, which may
negatively impact snowmaking operations at the Company's New Hampshire resorts
during the 2002/03 ski season. Moreover, since 2000, the Company has sold one
resort (Grand Targhee) and entered into an agreement to sell another (Bear
Mountain), thereby reducing its geographical diversity.
The Company's four most weather-sensitive resorts, Bear Mountain, Waterville
Valley, Loon Mountain and Mt. Cranmore, have invested heavily in snowmaking
capabilities to provide coverage on virtually all of their trails and have been
open for skiing at least 138, 136, 139 and 99 days, respectively, during each of
the last five ski seasons, including the 2001/02 ski season. However, the
efficiency and effectiveness of snowmaking operations can be negatively impacted
by numerous factors, including temperature variability, reliability of water
sources, availability and cost of adequate energy supplies and unfavorable
weather events such as heavy rains.
Sierra and the Summit generally experience higher natural snowfall levels,
averaging approximately 484 and 450 inches of snowfall, respectively, per year
for the past five ski seasons. As a result of their historic natural snowfall,
their snowmaking capabilities in terms of trail coverage are considerably less
extensive than at Bear Mountain, Waterville Valley, Loon Mountain or Mt.
Cranmore. However, such resorts are dependent upon early season snowfall to
provide necessary terrain for the important Christmas holiday period, and
therefore, the timing and extent of natural snowfall can significantly impact
operating conditions.
Northstar has averaged approximately 285 inches of snowfall per year for the
past five ski seasons. The resort has snowmaking capabilities to provide
coverage on approximately 50% of its trails. Although the resort's operations
depend significantly on natural snowfall, particularly in the early part of the
ski season, in recent years the Company has invested in additional snowmaking
facilities to improve Northstar's snowmaking production capacity.
The Company's results of operations are also highly dependent on the
Company's ability to compete in each of the large regional ski markets in which
it operates. Management estimates that at Northstar and Sierra approximately 70%
of the 2001/02 ski season total skier days were attributable to residents of the
San Francisco/San Jose, Sacramento, Central California Valley and Lake Tahoe
regions. At Bear Mountain, more than 90% of the 2001/02 ski season total skier
days were attributable to residents of the Los Angeles, Orange County and San
Diego metropolitan regions. At Waterville Valley, Loon Mountain and Mt.
Cranmore, more than 75% of the 2001/02 ski season total skier days were
attributable to residents of Massachusetts and New Hampshire, with a large
percentage of such visitors coming from the Boston metropolitan area. At the
Summit, the Company estimates that approximately 90% of the 2001/02 ski season
total skier days were attributable to residents of the Seattle/Tacoma
metropolitan region.
A meaningful portion of total operating costs at the Company's resorts are
variable, consisting primarily of retail and food service cost of sales,
utilities and labor expense. These variable costs can fluctuate significantly
based upon skier days and seasonal factors. With the exception of certain
management, administrative and maintenance personnel, substantially all of the
Company's employees are compensated on an hourly basis. Management believes a
key element to maximizing profitability during the winter season is to closely
monitor staffing requirements and to adjust staffing levels when skier volumes
or seasonal needs dictate.
11
The Company's resorts utilize significant energy resources in their
operations, including power for operating lifts and snowmaking facilities.
Volatility in the availability and cost of energy resources at the Company's
resorts could have an adverse effect on the Company's results of operations. In
this regard, in August 2001, Bear Mountain was informed by its local electrical
utility of new proposed electrical rates that if adopted would have resulted in
an increase of approximately $1,100,000 to $1,200,000 in annual electricity
costs from the level incurred in 2001. Bear Mountain, along with other parties,
intervened in the electrical utility's rate application proceeding before the
Public Utilities Commission of the State of California (the "PUC"). On February
8, 2002, Bear Mountain, the electrical utility and other parties to the
proceeding entered into a settlement agreement which, among other things, would
serve to reduce Bear Mountain's increased annual costs to a range of
approximately $400,000 to $500,000 over 2001 levels. The settlement agreement
was approved by the PUC on July 17, 2002.
Each of the Company's resorts is subject to the threat of personal injury
claims relating principally to snow sports activities as well as premises and
vehicular operations and worker's compensation matters. The Company maintains
various forms of insurance covering claims related to its properties and usual
and customary risks associated with the operation of four-season recreation
resorts. As a result of the terrorist attacks on September 11, 2001, the
insurance industry has experienced significant losses and a substantial
reduction in underwriting capacity, which has generally resulted in
significantly higher renewal premiums for companies seeking insurance. In
connection with its annual renewal of insurance coverage for 2002, the Company
experienced an increase in insurance premium costs of approximately $650,000
over the level of such costs in 2001. Offsetting this increase was the effect of
the elimination of paid skier visit insurance coverage, for which premiums were
approximately $1,100,000 in 2001. The Company has not yet renewed its commercial
insurance coverage for 2003. The Company can make no assurances regarding the
availability and terms of insurance coverage for 2003, or the extent of
potential premium increases which the Company may experience. In addition, the
elimination of paid skier visit insurance coverage is likely to lead to more
variability in the Company's operating results.
Results of Operations of the Company
Overview
The opening and closing dates for the Company's resorts for the 2001/02 and
2000/01 ski seasons were as follows:
Opening Dates
------------------------------------------------
2001/02 Season 2000/01 Season
---------------- ----------------
Northstar............. November 29, 2001 November 18, 2000
Sierra................ November 25, 2001 November 3, 2000
Bear Mountain......... November 27, 2001 November 9, 2000
Waterville Valley*.... November 16, 2001 November 19, 2000
Mt. Cranmore.......... December 15, 2001 November 25, 2000
Loon Mountain*........ November 16, 2001 November 22, 2000
The Summit............ November 30, 2001 December 1, 2000
Closing Dates
------------------------------------------------
2001/02 Season 2000/01 Season
---------------- ----------------
Northstar............. April 21, 2002 April 22, 2001
Sierra................ April 15, 2002 April 23, 2001
Bear Mountain......... April 14, 2002 April 22, 2001
Waterville Valley..... April 7, 2002 April 15, 2001
Mt. Cranmore.......... March 24, 2002 April 1, 2001
Loon Mountain......... April 14, 2002 April 29, 2001
The Summit............ May 5, 2002 April 22, 2001
* Following their openings for the 2001/02 season, Waterville Valley and
Loon Mountain ceased operations in December 2001 for six and ten days,
respectively, due to eroding conditions as a result of warm weather.
12
Due to warm temperatures and the lack of natural snowfall in the Lake Tahoe
region for most of November 2001, Northstar and Sierra did not open for the
2001/02 season until after Thanksgiving Day, whereas for the 2000/01 season,
Northstar opened on schedule and Sierra experienced an unusually early opening.
In the first half of December 2001, the Lake Tahoe region received significantly
above average snowfall, which allowed Northstar and Sierra to open 100% of their
terrain earlier than usual, and provided favorable conditions going into the
Christmas holiday period and the first half of January 2002. However, snowfall
levels in the Lake Tahoe region in January and February 2002 were below
historical levels, and several weekends in March 2002 were negatively impacted
by disruptive storms. In addition, the early timing of the Easter holiday period
and softening conditions in April 2002 negatively impacted late season business.
For the 2000/01 season as a whole, snowfall levels in the Lake Tahoe region were
below historical levels.
For the 2001/02 season, Bear Mountain opened later than scheduled due to
warm weather in Southern California, which negatively impacted early season
skier volumes at Bear Mountain as compared to the 2000/01 ski season. However,
Bear Mountain experienced favorable snowmaking conditions and adequate snowfall
in December 2001, which allowed for increased trail availability over the
Christmas holiday. As a result, the resort experienced a strong Christmas
holiday period during the 2001/02 season, which partially offset the effects of
the delayed opening. Bear Mountain experienced below average snowfall from
January 2002 through the end of the season, compared to generally adequate
levels of snowfall during the same period in the 2000/01 ski season.
For the 2001/02 season, the Northeast experienced drought conditions and one
of the warmest winters on record. While Waterville Valley and Loon Mountain
opened for the 2001/02 season as scheduled, the resorts were forced to close for
six and ten days, respectively, in early December 2001 due to eroding conditions
as a result of warm weather. Mt. Cranmore was unable to open for the 2001/02
season until December 15, 2001. In addition to difficult early season conditions
and below average snowfall, the Company's New Hampshire resorts experienced an
above average number of negative weather events during the 2001/02 season,
including periods of warm weather and rain. By comparison, weather conditions
for the Company's New Hampshire resorts for the 2000/01 season were generally
favorable, with cold temperatures and above average snowfall.
The Summit received above average snowfall and experienced generally
favorable conditions during the 2001/02 season, whereas the 2000/01 season was
marked by significantly below average snowfall.
On July 22, 2002, the Company entered into definitive agreements for the
sale of all of the capital stock of Bear Mountain, Inc. ("Bear Mountain") to
Snow Summit Ski Corporation for a purchase price of $12,000,000 in cash, subject
to certain adjustments for working capital, assumed debt and allocations of
off-season operating losses and capital expenditures. As a result of the
intended disposition, the Company has reflected the assets and liabilities of
Bear Mountain as held for sale in the accompanying consolidated balance sheet as
of August 2, 2002, and has reflected the operating results of Bear Mountain as
discontinued operations in the accompanying statements of operations. The
closing of the proposed transaction is conditioned upon the receipt of certain
third party consents and governmental approvals, including the approval of the
United States Forest Service, and other customary closing conditions. The
Company is currently seeking an amendment to the Senior Credit Facility which
would permit the sale transaction. The closing of the sale is expected to occur
in the fourth quarter of fiscal 2002. However, no assurances can be given that
the transaction will be consummated on the terms contemplated or at all. Based
on the terms of the pending transaction and the anticipated closing date, the
Company recorded an estimated impairment loss of $3,200,000 relating to the
long-lived assets of Bear Mountain. Additional financial information relating to
Bear Mountain is included in Note 8 to the accompanying consolidated financial
statements. The definitive agreements relating to the Bear Mountain transaction
are filed as Exhibit 10.1 to this Report.
Three Months Ended August 2, 2002 Compared to the Three Months Ended July
27, 2001
Continuing Operations:
Total revenue for the three months ended August 2, 2002 was $6,042,000, an
increase of $2,604,000 from the Company's revenues for the three months ended
July 27, 2001. Revenues from resort operations for the 2002 period were
$3,482,000, an increase of $234,000, or 7%, as compared to the 2001 period. The
increase was primarily the result of increased golf rounds at Northstar and
improved summer operations at Loon Mountain. Revenues from real estate
operations for the three months ended August 2, 2002 were $2,400,000, which was
due to the close of escrow on five lots within the Unit 7 development at
Northstar. There were no real estate sales in the 2001 period. Timber operations
contributed revenues of $160,000 in the 2002 period as compared to $190,000 in
the 2001 period.
13
Cost of sales for resort operations for the three months ended August 2,
2002 were $6,248,000, an increase of $338,000, or 6%, as compared to the 2001
period. The increase was primarily the result of increased summer business
volumes and normal inflationary factors.
Cost of sales for real estate and timber operations for the three months
ended August 2, 2002 was $564,000, including noncash cost of real estate sales
of $363,000, as a result of the close of escrow on five lots within the Unit 7
development at Northstar. Cost of sales for timber operations for the three
months ended July 27, 2001 were $167,000.
Depreciation and depletion expense for the three months ended August 2, 2002
was $3,939,000, a decrease of $724,000 from the 2001 period. The decline was
primarily due to certain assets acquired in connection with the Company's resort
acquisitions in 1996 and 1997 having become fully depreciated.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). The Company adopted SFAS No. 142 effective
as of November 3, 2001. Under the new rules, goodwill will no longer be
amortized but will be subject to annual impairment tests in accordance with the
pronouncement. The Company's operating results for the three months ended July
27, 2001 reflected goodwill amortization of $586,000. Adjusted net loss for the
three months ended July 27, 2001 would have been $17,040,000 excluding such
goodwill amortization.
Selling, general and administrative expenses for the three months ended
August 2, 2002 were $4,149,000, an increase of $39,000, or 1%, as compared to
the 2001 period. Selling, general and administrative expenses for the 2002 and
2001 periods included $184,000 and $242,000, respectively, relating to the
Company's real estate segment.
Operating loss for the three months ended August 2, 2002 was $8,858,000, an
improvement of $3,149,000 from the operating loss generated for the 2001 period,
as a result of the factors discussed above.
Interest expense for the three months ended August 2, 2002 totaled
$3,572,000, a decrease of $434,000, or 11%, from the Company's interest expense
for the three months ended July 27, 2001, due to reduced borrowings and lower
average interest rates.
As of November 2, 2001, the Company had estimated net operating loss
carryforwards of approximately $84,700,000 for federal income tax reporting
purposes, which expire between 2012 and 2021. The tax benefits of such net
operating losses are fully offset by a valuation reserve. Based on the Company's
current tax attributes, no income tax provision or benefit is expected for the
year ending November 1, 2002. Accordingly, during the three months ended August
2, 2002, no income tax provision has been provided.
The Company's loss from continuing operations for the three months ended
August 2, 2002 was $12,818,000, an improvement of $3,331,000 from the loss from
continuing operations of $16,149,000 generated for the three months ended July
27, 2001, as a result of the factors discussed above.
Discontinued Operations:
The Company's loss from discontinued operations for the three months ended
August 2, 2002, excluding the impairment loss recorded on the anticipated
disposition of Bear Mountain, was $1,290,000, an improvement of $187,000, or
13%, from the loss from discontinued operations of $1,477,000 for the 2001
period. The improvement was primarily the result of decreased depreciation
expense as certain assets acquired as part of the acquisition of Bear Mountain
in December 1996 have become fully depreciated.
Based on the terms of the pending sale of Bear Mountain and the anticipated
closing date, during the three months ended August 2, 2002, the Company recorded
an estimated impairment loss of $3,200,000 relating to the long-lived assets of
Bear Mountain.
14
Combined Operations:
The Company's net loss for the three months ended August 2, 2002 was
$17,308,000, an improvement of $318,000 from the net loss of $17,626,000
generated for the three months ended July 27, 2001, as a result of the factors
discussed above.
The financial information presented below includes information on "Total
EBITDA from Continuing Operations," "Noncash Cost of Real Estate Sales," "Total
EBITDA from Continuing Operations (excluding Noncash Cost of Real Estate Sales)"
and "Total EBITDA (excluding Noncash Cost of Real Estate Sales)." "Total EBITDA
from Continuing Operations" represents operating loss before depreciation,
depletion and amortization expense. "Noncash Cost of Real Estate Sales"
represents the allocated portion of real estate development expenditures
previously capitalized (including acquisition costs allocated to real estate
development) which relate to current real estate sales. "Total EBITDA (excluding
Noncash Cost of Real Estate Sales)" includes Total EBITDA from Continuing
Operations and EBITDA associated with the discontinued operations of Bear
Mountain. Although EBITDA is not a measure of performance under accounting
principles generally accepted in the United States ("GAAP"), the information is
presented because management believes it provides useful information regarding a
company's ability to incur and service debt. Further, Total EBITDA (excluding
Noncash Cost of Real Estate Sales) is calculated essentially in the manner that
"EBITDA" is calculated under the indenture governing the Company's 12.5% senior
notes due 2007 (the "Senior Notes"), and therefore, management believes this
measure is meaningful to holders of the Senior Notes. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity. In
addition, the EBITDA measures as determined by the Company may not be comparable
to related or similar measures as reported by other companies and do not
represent funds available for discretionary use.
Three Months Ended
----------------------
August 2, July 27, Percentage
2002 2001 Increase Increase
--------- --------- -------- --------
(In thousands)
Total EBITDA from Continuing
Operations........................ $(4,919) $(6,749) $ 1,830 27%
Noncash Cost of Real Estate Sales... $ 363 $ - $ 363 100
Total EBITDA from Continuing
Operations (excluding Noncash Cost
of Real Estate Sales)............. $(4,556) $(6,749) $ 2,193 32
Total EBITDA (excluding Noncash Cost
of Real Estate Sales)............. $(5,356) $(7,477) $ 2,121 28
Nine Months Ended August 2, 2002 Compared to the Nine Months Ended July 27,
2001
Continuing Operations:
Total revenue for the nine months ended August 2, 2002 was $116,217,000, an
increase of $14,208,000, or 14%, over the Company's revenues for the nine months
ended July 27, 2001. Revenues from resort operations for the 2002 period were
$104,742,000, an increase of $2,923,000, or 3%, as compared to the 2001 period.
Revenues from real estate operations for the nine months ended August 2, 2002
were $11,300,000, which were due to the close of escrow on 25 lots within the
Unit 7 development at Northstar. There were no real estate sales in the 2001
period. Timber operations contributed revenues of $175,000 in the 2002 period as
compared to $190,000 in the 2001 period.
15
The following table summarizes the sources of the Company's revenues from
resort operations for the nine months ended August 2, 2002 and July 27, 2001:
Nine Months Ended
---------------------- Percentage
August 2, July 27, Increase Increase
2002 2001 (Decrease) (Decrease)
--------- --------- --------- ---------
(In thousands)
Lift Tickets............... $ 42,930 $ 42,731 $ 199 -%
Season Passes.............. 14,521 11,573 2,948 25
Snow School................ 8,118 7,318 800 11
Equipment Rental........... 8,931 8,749 182 2
Retail..................... 4,408 4,335 73 2
Food and Beverage.......... 14,972 14,804 168 1
Other...................... 10,862 10,555 307 3
--------- --------- ---------
Revenues from Resort
Operations before Paid
Skier Visit Insurance.... 104,742 100,065 4,677 5
Paid Skier Visit Insurance. - 1,754 (1,754) (100)
--------- --------- ---------
Total Resort Operations
Revenues................. $104,742 $101,819 $ 2,923 3
========= ========= =========
Total skier visits generated by each of the Company's resorts for the nine
months ended August 2, 2002 and July 27, 2001 were as follows:
Nine Months Ended
---------------------- Percentage
August 2, July 27, Increase Increase
2002 2001 (Decrease) (Decrease)
--------- --------- --------- ---------
(In thousands)
Northstar.................. 521 519 2 -%
Sierra..................... 419 391 28 7
Waterville Valley.......... 205 235 (30) (13)
Mt. Cranmore............... 96 129 (33) (26)
Loon Mountain.............. 301 385 (84) (22)
The Summit................. 612 508 104 20
------- ------- -------
2,154 2,167 (13) (1)
======= ======= =======
For the 2000/01 season, the Company arranged for four separate paid skier
visit insurance policies covering Bear Mountain, Loon Mountain, Waterville
Valley and the Summit. The policies had a deductible for the initial decline
from targeted paid skier visit and revenue levels and stated maximum coverage
levels. In addition, the policies required the insured to experience monthly or
annual snowfall amounts below certain agreed upon levels before a claim could be
filed for the decline in paid skier visits. For the nine months ended July 27,
2001, the Company recorded resort operations revenues of $1,500,000 for claims
attributable to lower than agreed upon paid skier visits and snowfall levels
under the Summit and Waterville Valley policies. The Company's claims were
determined based on a specified formula under the paid skier visit insurance
policies and snowfall information verified by an independent third party. The
Company believes that it has fully complied with its obligations under the
policies, and has properly reported and made claims in accordance with the
policies for losses aggregating in excess of $1,500,000. As a result of the
underwriters' failure to properly process the Company's claims, in November
2001, the Company filed a lawsuit against the underwriters seeking recovery for
breach of contract, breach of covenant of good faith and unfair and deceptive
business practices. In April 2002, the underwriters made a partial offer of
settlement of $700,000, which the Company accepted with a reservation of all
rights and remedies under the terms of the policies and applicable law with
respect to its remaining claims. The Company intends to vigorously pursue
collection of its remaining claims. The parties to the lawsuit are currently
conducting discovery in the matter. Based on an evaluation of information to
date and the advice of counsel, the Company believes that realization of its
recorded claims is probable. However, no assurance can be given regarding the
timing of the resolution of this matter.
16
For the 1999/00 ski season, the Company arranged for four separate paid
skier visit insurance policies covering its Lake Tahoe resorts (Northstar and
Sierra), its New Hampshire resorts (Waterville Valley, Mt. Cranmore and Loon
Mountain), Bear Mountain and the Summit. For the nine months ended July 27,
2001, resort operations revenues included $254,000 for additional claim
recoveries received upon the final settlement of the 1999/00 paid skier visit
insurance policies in excess of the amounts recognized in fiscal 2000 of
$6,600,000.
Resort operations revenues, excluding the effect of paid skier visit
insurance, were $104,742,000 for the nine months ended August 2, 2002, an
increase of $4,677,000, or 5%, from the 2001 period. Revenues for Northstar
increased by $1,375,000, primarily due to higher per skier revenue yields.
Revenues for Sierra increased by $1,535,000 due to higher skier visits and
increased season pass sales, as well as moderate increases in per skier revenue
yields. Revenues for Waterville Valley, Mt. Cranmore and Loon Mountain decreased
by $466,000, $682,000 and $860,000, respectively, primarily due to lower skier
visits, partially offset by improved per skier revenue yields. The Summit's
revenues increased by $3,775,000 due primarily to a significant increase in
skier visits, as well as higher season pass revenues and yield improvements. The
improvement in per skier revenue yields at the Company's resorts was primarily
due to price increases, and to a lesser extent, sales of additional services and
products to the Company's guests.
Cost of sales for resort operations for the nine months ended August 2, 2002
were $56,268,000, an increase of $1,561,000, or 3%, as compared to the 2001
period. The increase was the result of the combined effects of the following
items: (1) increased workers' compensation provisions of approximately
$1,300,000 for unfavorable trends in workers' compensation exposures at the
Company's California and Washington resorts, (2) increased credit card costs,
United States Forest Service permit fees and other variable operating costs
related to increased revenues, and (3) normal inflationary factors.
Cost of sales for real estate and timber operations for the nine months
ended August 2, 2002 was $2,737,000, including noncash cost of real estate sales
of $2,492,000, primarily as a result of the close of escrow on 25 lots within
the Unit 7 development at Northstar. Cost of sales for timber operations for the
nine months ended July 27, 2001 were $167,000.
Depreciation and depletion expense for the nine months ended August 2, 2002
was $12,506,000, a decrease of $1,530,000 from the 2001 period. The decline in
depreciation expense was primarily due to certain assets acquired in connection
with the Company's resort acquisitions in 1996 and 1997 having become fully
depreciated.
The Company's operating results for the nine months ended July 27, 2001
reflected goodwill amortization of $1,757,000. Adjusted net income for the nine
months ended July 27, 2001 would have been $6,607,000 excluding such goodwill
amortization. In connection with the adoption of SFAS No. 142, the Company
performed a transitional impairment test for recorded goodwill as of November 3,
2001 for each resort. Based on the results of the transitional impairment test,
the Company wrote down goodwill by $200,000 for one resort, which has been
reflected as the cumulative effect of a change in accounting principle in the
accompanying statement of operations for the nine months ended August 2, 2002.
Selling, general and administrative expenses for the nine months ended
August 2, 2002 were $17,751,000, an increase of $897,000, or 5%, as compared to
the 2001 period. Selling, general and administrative expenses for the 2002 and
2001 periods include $679,000 and $640,000, respectively, relating to the
Company's real estate segment. The increase in total selling, general and
administrative expenses between the 2002 and 2001 periods was principally due to
the following factors: (1) an increase in legal and professional costs for Loon
Mountain due to significant activity during the 2002 period on various legal
matters, (2) an increase in payroll due to the addition of certain resort and
corporate management and administrative positions, as well as increased
commission costs due to higher commissionable sales, and (3) normal inflationary
factors.
Operating income for the nine months ended August 2, 2002 was $26,955,000,
an increase of $12,495,000 over the operating income generated for the 2001
period, as a result of the factors discussed above.
Interest expense for the nine months ended August 2, 2002 totaled
$11,645,000, a decrease of $770,000, or 6%, from the Company's interest expense
for the nine months ended July 27, 2001, as a result of reduced borrowings and
lower average interest rates.
The Company's income from continuing operations for the nine months ended
August 2, 2002 was $14,439,000, an increase of $12,963,000 from the income from
continuing operations of $1,476,000 for the 2001 period, as a result of the
factors discussed above.
17
As of November 2, 2001, the Company had estimated net operating loss
carryforwards of approximately $84,700,000 for federal income tax reporting
purposes, which expire between 2012 and 2021. The tax benefits of such net
operating losses are fully offset by a valuation reserve. Based on the Company's
current tax attributes, no income tax provision or benefit is expected for the
year ending November 1, 2002. Accordingly, during the nine months ended August
2, 2002, no income tax provision has been provided.
Discontinued Operations:
The Company recognized income from the discontinued operations of Bear
Mountain, excluding the impairment loss recorded on the anticipated disposition
of Bear Mountain, of $1,960,000 for the nine months ended August 2, 2002, an
increase of $309,000 from the income generated for the 2001 period. The increase
was primarily the result of reduced depreciation expense as certain assets
acquired as part of the acquisition of Bear Mountain in 1996 have become fully
depreciated, partially offset by (1) decreased revenues principally as a result
of lower skier visits during the 2001/02 ski season, and (2) increased cost of
sales primarily as a result of the Company's involvement in electrical rate
proceedings and other regulatory matters involving Bear Mountain.
Based on the terms of the pending sale of Bear Mountain and the anticipated
timing of close, during the nine months ended August 2, 2002, the Company
recorded an estimated impairment loss of $3,200,000 relating to the long-lived
assets of Bear Mountain.
Combined Operations:
The Company recognized extraordinary gains on the early retirement of debt
of $2,761,000 and $1,723,000 for the nine months ended August 2, 2002 and July
27, 2001, respectively.
The Company's net income for the nine months ended August 2, 2002 was
$15,760,000, an improvement of $10,910,000 from the net income of $4,850,000
generated for the nine months ended July 27, 2001, as a result of the factors
discussed above.
The financial information presented below includes information on "Total
EBITDA from Continuing Operations," "Noncash Cost of Real Estate Sales," "Total
EBITDA from Continuing Operations (excluding Noncash Cost of Real Estate Sales)"
and "Total EBITDA (excluding Noncash Cost of Real Estate Sales)." "Total EBITDA
from Continuing Operations" represents operating income before depreciation,
depletion and amortization expense. "Noncash Cost of Real Estate Sales"
represents the allocated portion of real estate development expenditures
previously capitalized (including acquisition costs allocated to real estate
development) which relate to current real estate sales. "Total EBITDA (excluding
Noncash Cost of Real Estate Sales)" includes Total EBITDA from Continuing
Operations and EBITDA associated with the discontinued operations of Bear
Mountain. Although EBITDA is not a measure of performance under accounting
principles generally accepted in the United States ("GAAP"), the information is
presented because management believes it provides useful information regarding a
company's ability to incur and service debt. Further, Total EBITDA (excluding
Noncash Cost of Real Estate Sales) is calculated essentially in the manner that
"EBITDA" is calculated under the Indenture governing the Company's Senior Notes,
and therefore, management believes this measure is meaningful to holders of the
Senior Notes. EBITDA should not be considered in isolation or as a substitute
for net income, cash flows from operating activities and other income or cash
flow statement data prepared in accordance with GAAP, or as a measure of
profitability or liquidity. In addition, the EBITDA measures as determined by
the Company may not be comparable to related or similar measures as reported by
other companies and do not represent funds available for discretionary use.
18
Nine Months Ended
----------------------
August 2, July 27, Percentage
2002 2001 Increase Increase
--------- --------- -------- --------
(In thousands)
Total EBITDA from Continuing
Operations........................ $ 39,461 $ 30,281 $ 9,180 30%
Noncash Cost of Real Estate Sales... $ 2,492 $ - $ 2,492 100
Total EBITDA from Continuing
Operations (excluding Noncash Cost
of Real Estate Sales)............. $ 41,953 $ 30,281 $ 11,672 39
Total EBITDA (excluding Noncash Cost
of Real Estate Sales)............. $ 45,306 $ 34,198 $ 11,108 32
Liquidity and Capital Resources
The Company's primary liquidity needs are to fund capital expenditures,
service indebtedness and support seasonal working capital requirements. The
Company's primary sources of liquidity are cash, cash flow from operations and
borrowings under the Senior Credit Facility (as defined below). Virtually all of
the Company's operating income is generated by its subsidiaries. As a result,
the Company is dependent on the earnings and cash flow of, and dividends and
distributions or advances from, its subsidiaries to provide the funds necessary
to meet its debt service obligations.
Effective March 15, 2002, the Company and its subsidiaries entered into an
Amended and Restated Credit Agreement (the "Senior Credit Facility") with Fleet
National Bank, as administrative agent ("Agent"), and certain lenders. The
following summary of the terms of the Senior Credit Facility is qualified by
reference to the complete agreement governing the Senior Credit Facility, which
was filed as an exhibit to the Company's Form 10-Q for its fiscal quarter ended
February 1, 2002.
The Senior Credit Facility provides a revolving credit facility (the
"Revolving Credit Facility") with borrowing availability of up to $25,000,000,
and a term loan facility (the "Term Facility") with borrowing availability of up
to $25,000,000. The Senior Credit Facility requires that the Company not have
any borrowings under the Revolving Credit Facility for a period of 30
consecutive days commencing sometime between January 15 and February 28 of each
year. The Term Facility provides for quarterly commitment reductions of
$1,000,000 on the last day of January, April, July and October of each year
beginning on January 31, 2003 and continuing through October 31, 2005, the
maturity date of the Senior Credit Facility. The Company is required to repay
amounts outstanding under the Term Facility on such dates by an amount equal to
the greater of (i) the amount by which outstanding Term Facility borrowings
exceed the then-applicable term loan commitment and (ii) the Excess Cash
Proceeds (as defined in the Senior Credit Facility) derived from specified real
estate asset sales determined on a cumulative basis. No amount of the Term
Facility which is repaid may be reborrowed. The entire unpaid balance under the
Senior Credit Facility is due and payable on October 31, 2005. Borrowings under
the Senior Credit Facility are secured by (a) a pledge to the Agent for the
ratable benefit of the financial institutions party to the Senior Credit
Facility of all of the capital stock of Booth Creek's principal subsidiaries and
(b) a grant of a security interest in substantially all of the consolidated
assets of Booth Creek and its subsidiaries.
The Senior Credit Facility contains financial covenants relating to the
maintenance of (a) minimum consolidated resort EBITDA (as defined in the Senior
Credit Facility) measured quarterly on a rolling four quarter basis, (b) the
ratio of consolidated EBITDA (as defined in the Senior Credit Facility) to
consolidated debt service, and (c) levels of adjusted consolidated leverage. The
Senior Credit Facility also contains restrictive covenants pertaining to the
management and operation of Booth Creek and its subsidiaries. The covenants
include, among others, significant limitations on indebtedness, guarantees,
letters of credit, liens, investments, distributions, capital expenditures,
mergers, acquisitions, asset sales, fundamental corporate changes, transactions
with affiliates, optional payments and modification of debt instruments and
issuances of stock.
For purposes of calculating interest, loans under the Senior Credit Facility
can be, at the election of the Company, Base Rate Loans or LIBOR Rate Loans or a
combination thereof. Base Rate Loans bear interest at the sum of (a) the higher
of (i) Agent's prime rate or (ii) the federal funds rate plus .5% plus (b) a
margin of 1.5%. LIBOR Rate Loans bear interest at the LIBOR rate plus a margin
of 4%. Interest on loans outstanding is payable quarterly. The Senior Credit
Facility also requires commitment fees of .5% based on the unused borrowing
availability of the Revolving Credit Facility. Borrowings outstanding under the
Term Facility as of August 2, 2002 bore interest at an annual rate of 6.8%
pursuant to the LIBOR rate option. Borrowings under the Revolving Credit
Facility as of August 2, 2002 bore interest at an annual rate of 6.25% pursuant
to the base rate option.
19
Borrowings under the Revolving Credit Facility may be used for working
capital and general corporate purposes. Borrowings under the Term Facility may
be used to repurchase the Company's Senior Notes or repay certain other
indebtedness, together with accrued and unpaid interest thereon. During the nine
months ended August 2, 2002, the Company repurchased $29,325,000 aggregate
principal amount of Senior Notes in privately-negotiated transactions through
borrowings under the Term Facility and available cash resources. As of August 2,
2002, outstanding borrowings under the Revolving Credit Facility and Term
Facility were $2,530,000 and $25,000,000, respectively.
The Company had a net working capital deficit of $6,317,000 as of August 2,
2002 (including $2,530,000 in outstanding borrowings under the Revolving Credit
Facility and excluding $10,513,000 of unearned revenue and deposits from resort
and real estate operations, which will not require cash spending to settle such
liabilities), which will negatively affect liquidity during the remainder of
2002.
The Company generated cash from operating activities of $28,848,000 for the
nine months ended August 2, 2002 as compared to $21,388,000 for the nine months
ended July 27, 2001. The increase in operating cash flows for the 2002 period
was primarily due to the improved operating results for such period.
Cash used in investing activities totaled $7,318,000 and $9,100,000 for the
nine months ended August 2, 2002 and July 27, 2001, respectively. The results
for the 2002 and 2001 periods primarily reflect capital expenditures for the
purchase of property and equipment.
Cash used in financing activities totaled $21,275,000 and $12,139,000 for
the nine months ended August 2, 2002 and July 27, 2001, respectively. The
results for the 2002 and 2001 periods reflect net repayments of the Revolving
Credit Facility and scheduled payments of long-term debt and preferred stock. In
the 2002 period, the Company borrowed $25,000,000 under the Term Facility, which
together with available cash resources, were used to repurchase $29,325,000
aggregate principal amount of Senior Notes for $25,588,000. In the 2001 period,
the Company utilized available cash resources of $5,990,000 to repurchase
$8,000,000 aggregate principal amount of Senior Notes. The Company may consider
repurchasing additional Senior Notes in the future if it could do so on
favorable terms subject to financing and other liquidity constraints.
On November 17, 1999, Trimont Land Company ("TLC"), the owner and operator
of Northstar and a wholly-owned subsidiary of the Company, consummated the sale
to Trimont Land Holdings, Inc. ("TLH"), a wholly-owned subsidiary of Parent and
an affiliate of the Company, of certain single family development property
underlying a portion of the Unit 7 and 7A developments at Northstar for an
aggregate sales price of $7,050,000, subject to adjustment as described below.
The consideration paid to TLC consisted of $6,000,000 in cash and a promissory
note (the "TLH Note") for $1,050,000, subject to adjustment. The Company
obtained a fairness opinion for the transaction from an independent firm
qualified in the subject matter of the transaction. In connection with the sale
of development real estate on September 22, 2000 as described below, TLH's
interests in the Unit 7A lots were transferred back to TLC on September 22,
2000.
Under the terms of the TLH Note, TLC will receive the greater of (a)
$1,050,000 plus accrued interest at 7% per annum, or (b) the Net Cash Proceeds
(as defined) derived from the resale of TLH's lots within Unit 7. Pursuant to
the terms of the sale, TLC retained the obligation to complete the scheduled
construction of the Unit 7 development, which was substantially completed in
November 2001. The Company recognizes revenue and related costs of sales for
this real estate transaction upon the close of escrow for lot sales between TLH
and third party buyers, and had reflected the $6,000,000 cash received as a
deposit liability as of November 2, 2001.
During the nine months ended August 2, 2002, TLH consummated the sale of 25
Unit 7 lots for net proceeds of approximately $11,300,000. As the net proceeds
of the 25 lot sales were more than the $6,000,000 in cash initially paid by TLH
for the underlying real estate, additional cash proceeds of $5,300,000 were
distributed to TLC during the nine months ended August 2, 2002. In addition, the
Company relieved the existing $6,000,000 deposit liability during the nine
months ended August 2, 2002. One lot currently remains available for sale within
the Unit 7 subdivision.
20
On September 22, 2000, TLC and TLH entered into an Agreement for Purchase
and Sale of Real Property (the "Northstar Real Estate Agreement") pursuant to
which TLC agreed to sell to TLH certain development real estate consisting of
approximately 550 acres of land located at Northstar (the "Development Real
Estate") for a total purchase price of $27,600,000, of which 85% was payable in
cash and 15% was payable in the form of convertible secured subordinated
promissory notes. The purchase price was based on an appraisal obtained from an
independent third party appraiser. Concurrently therewith, TLC and TLH
consummated the sale of the initial land parcels contemplated by the Northstar
Real Estate Agreement, and TLC transferred the bulk of the Development Real
Estate to TLH for a total purchase price of $21,000,000, of which $17,850,000,
or 85%, was paid in cash and $3,150,000, or 15%, was paid in the form of a
convertible secured subordinated promissory note. During the nine months ended
August 2, 2002, TLH transferred cash of $5,610,000 to TLC, which represents the
cash portion of the purchase price for the remaining Development Real Estate.
The $5,610,000 payment has been deferred as a deposit liability pending the
consummation of the sale of the remaining Development Real Estate under the
Northstar Real Estate Agreement, which is subject to certain subdivision
requirements to effect the transfer of such property and other normal and
customary closing conditions, and is expected to be consummated in calendar
2002.
The transactions described above between TLC and TLH have facilitated the
sale and development of real estate at Northstar while at the same time
minimizing development risk to the Company and providing the Company with
immediate liquidity. Management believes that the terms of the transactions have
been at least as favorable as would have been available from unrelated parties.
As noted above, the Company has obtained fairness opinions and/or appraisals
from independent third parties to support this belief. Neither the Company nor
any of its subsidiaries, including TLC, has provided credit support to TLH or
has any commitment or obligation to provide funds to TLH in the future.
The Company's capital expenditures for property and equipment during the
nine months ended August 2, 2002 were $8,281,000 (including $1,644,000 of
equipment acquired through capital leases), and consisted primarily of the
remaining portion of the Company's 2001 capital programs, acquisitions of
grooming equipment and the initial stages of the Company's 2002 capital
programs. Management anticipates that total capital expenditures for its fiscal
2002 capital programs will be approximately $12,000,000 to $14,000,000, of which
approximately $4,000,000 had been incurred through August 2, 2002. Depending
upon the timing of certain approvals, capital expenditures for real estate held
for development and sale are anticipated to range from $1,800,000 to $2,100,000
in fiscal 2002. Total capital expenditures for the Company's 2003 capital
programs are preliminarily estimated to range between $12,000,000 and
$15,000,000. The Company plans to fund future capital expenditures from
available cash flow, anticipated net proceeds from the sale of Bear Mountain,
vendor financing to the extent permitted under the Senior Credit Facility and
the Indenture for the Company's Senior Notes and/or borrowings under the Senior
Credit Facility. Commitments for future capital expenditures were approximately
$4,000,000 at August 2, 2002.
Management believes that there is a considerable degree of flexibility in
the timing (and, to a lesser degree, the scope) of its capital expenditure
program, and even greater flexibility as to its real estate development
objectives. While the capital expenditure program described above is regarded by
management as important, both as to timing and scope, discretionary capital
spending above maintenance levels can be deferred, in some instances for
substantial periods of time, in order to address cash flow or other constraints.
With respect to the Company's potential real estate development
opportunities, management believes that such efforts would enhance ski-related
revenues and contribute independently to earnings. In addition, with respect to
significant development projects, the Company expects to continue to pursue
arrangements that would reduce infrastructure and other development costs.
Nonetheless, existing lodging facilities in the vicinity of each resort are
believed to be adequate to support current skier volumes and a deferral or
curtailment of development efforts is not regarded by management as likely to
adversely affect skier days and ski-related revenues or profitability. The
Company also believes that its current infrastructure is sufficient, and that
development of real estate opportunities is not presently necessary to support
its existing operations.
21
The Company's significant contractual obligations include long-term debt
(including capital lease obligations) and operating leases. As of August 2,
2002, excluding liabilities and commitments relating to Bear Mountain which are
classified as held for sale, the Company's scheduled maturities of long-term
debt and operating lease commitments for the periods indicated were as follows
(in thousands):
Three
Months
Ending Year Ending October
October ----------------------------------------------------
2002 2003 2004 2005 2006 2007 Thereafter Total
------ ------ ------ ------ ------ ------ ---------- ------
Long-term
Debt $ - $ 5,390 $ 5,877 $ 17,379 $ 23 $ 96,180 $ - $124,849
======= ======= ======== ======== ====== ========= ========= ========
Operating
Leases $ 100 $ 1,027 $ 767 $ 608 $ 232 $ 110 $ 2,069 $ 4,913
======= ======= ======== ======== ====== ========= ========= ========
The Company's liquidity has been and will continue to be significantly
affected by its high leverage. As a result of its leveraged position, the
Company will have significant cash requirements to service debt and funds
available for working capital, capital expenditures, acquisitions and general
corporate purposes are limited. In addition, the Company's high level of debt
may increase its vulnerability to competitive pressures and the seasonality of
the skiing and recreational industries. Any decline in the Company's expected
operating performance could have a material adverse effect on the Company's
liquidity and on its ability to service its debt and make required capital
expenditures.
In addition, the Senior Credit Facility and the Indenture governing the
Company's Senior Notes each contains covenants that, among other things,
significantly limit the Company's ability to obtain additional sources of
capital and may affect the Company's liquidity. These covenants restrict the
ability of the Company and its Restricted Subsidiaries to, among other things,
incur additional indebtedness, create liens, make investments, consummate
certain asset sales, create subsidiaries, issue subsidiary stock, consolidate or
merge with any other person, or transfer all or substantially all of the assets
of the Company. Further, upon the occurrence of a Change of Control (as defined
in the Indenture), the Company may be required to repurchase the Senior Notes at
101% of the principal amount thereof, plus accrued and unpaid interest. The
occurrence of a Change of Control may also constitute a default under the Senior
Credit Facility. No assurance can be given that the Company would be able to
finance a Change of Control repurchase offer. The Senior Credit Facility also
requires the Company to maintain specified consolidated financial ratios and
satisfy certain consolidated financial tests. The Company's ability to meet
these financial covenants may be affected by events beyond its control, and
there can be no assurance that the Company will meet those covenants.
As of August 2, 2002, the Company had $124,849,000 of total long-term debt
(excluding debt associated with Bear Mountain). The Company expects that
existing cash, cash generated from operations and cash proceeds of planned real
estate sales at Northstar, together with borrowing availability, will be
adequate to fund the Company's debt service and other cash operating
requirements over the next twelve months. In order to focus the Company's
resources on attractive investment opportunities at certain of its resorts and
to satisfy short-term and long-term liquidity requirements, the Company may in
the future consider divestitures of non-strategic assets, including resorts, if
such transactions can be completed on favorable terms.
Any decline in the Company's expected operating performance or the inability
of management to successfully implement the Company's business strategy, could
have a material adverse effect on the Company's financial position and
liquidity. In such case, the Company could be required to attempt to refinance
all or a portion of its existing debt, sell other assets or obtain additional
financing. No assurance can be given of the Company's ability to do so or the
terms of any such transaction. In addition, the Company would require additional
financing for expansion of its existing properties or for future acquisitions,
if any. No assurances can be given that any such financing would be available on
commercially reasonable terms. See "Forward-Looking Statements" herein.
The Company believes that inflation has had little effect on its results of
operations and any impact on costs has been largely offset by increased pricing.
22
Significant Accounting Policies
The Company's significant accounting policies are more fully described in
Note 1 to the Company's consolidated financial statements accompanying its
Annual Report on Form 10-K for the year ended November 2, 2001. Certain of the
Company's accounting policies require the application of judgment by management
in selecting the appropriate assumptions for calculating financial estimates. By
their nature, these judgments are subject to an inherent degree of uncertainty.
These judgments are based on historical experience, terms of existing contracts
and customer arrangements and information available from other sources, as
appropriate. The Company's significant accounting policies include:
Revenue Recognition for Resort Operations - Revenues from resort operations
are generated from a wide variety of sources, including lift ticket sales, snow
school lessons, equipment rentals, retail product sales, food and beverage
operations, lodging and property management services and other recreational
activities, and are recognized as services are provided and products are sold.
Sales of season passes are initially deferred in unearned revenue and recognized
ratably over the season. Revenues relating to paid skier visit insurance
arrangements in prior years were recognized based on an evaluation of the policy
arrangements, actual and forecasted skier visits, actual snowfall amounts and
other relevant factors. The Company also periodically evaluates the
collectibility of all of its receivables, and, if necessary, provides for an
adequate allowance for doubtful accounts.
Revenue Recognition for Real Estate Sales - Sales and profits on real estate
sales are recognized using the full accrual method at the point that the
Company's receivables from land sales are deemed collectible and the Company has
no significant remaining obligations for construction or development, which
typically occurs upon transfer of title. If such conditions are not met, the
recognition of all or part of the sales and profit is postponed. The Company
thoroughly evaluates contractual agreements and the underlying facts and
circumstances relating to its real estate transactions to determine the
appropriate revenue recognition treatment of such transactions in accordance
with Statement of Financial Accounting Standards No. 66, "Accounting for Sales
of Real Estate," and related pronouncements.
Valuation of Long-Lived Assets and Goodwill - The Company periodically
evaluates whether there are facts and circumstances that indicate potential
impairment of its long-lived assets. If impairment indicators are present, the
Company reviews the carrying value of its long-lived assets for continued
appropriateness. The Company also performs periodic impairment tests for
recorded goodwill. The impairment evaluations for long-lived assets and goodwill
are based upon projections of future cash flows, estimated purchase multiples
and other relevant factors. While the Company believes its estimates are
reasonable, different assumptions could materially affect these evaluations.
Evaluation of Contingencies - The Company's operations are affected by
various contingencies, including commercial litigation, personal injury claims
relating principally to snow sports activities and workers' compensation
matters. The Company performs periodic evaluations of these contingencies and,
based on the advice of counsel, information provided by third-party claims
administrators and other pertinent information, provides reserves for its best
estimate of the eventual outcome of these matters. While the Company believes
its estimates are reasonable, different assumptions could materially affect
these evaluations.
Pending Accounting Pronouncement
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"), which
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and associated asset retirement costs.
The new rules apply to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) normal operation of a long-lived asset. SFAS No. 143 is effective for
the Company at the beginning of fiscal 2003. The Company believes the adoption
of SFAS No. 143 will not have a material impact on its consolidated financial
position or results of operations.
Seasonality
The business of the Company is highly seasonal, with the vast majority of
its annual revenues expected to be generated between November and April of each
fiscal year. Management considers it essential to achieve optimal operating
results during key holidays and weekends during this period. The Company's
results of operations are, in turn, significantly dependent on favorable weather
conditions and other factors beyond the Company's control. In prior years, the
Company sought to partially mitigate the downside risk of its seasonal business
by purchasing paid skier visit insurance policies. The Company did not obtain
paid skier visit insurance coverage for its resorts for the 2001/02 ski season
as effective policies were not available on commercially viable terms.
23
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
and capital improvements in preparation for the ensuing ski season.
Regulation and Legislation
The Company's operations are dependent upon its ownership or control over
the real property used in its ski operations at each resort. The real property
presently used at the Northstar and Mt. Cranmore resorts is owned by the
Company, leased from third parties or controlled by easements. The Company has
the right to use a substantial portion of the real property associated with the
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. On
February 12, 1999, the District Court agreed that the United States Forest
Service could combine this NEPA review with its evaluation and analysis of the
existing snowmaking pipeline.
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 would continue until that review
was completed and a new decision was issued.
On February 26, 2002, the United States Forest Service issued its Record of
Decision ("ROD") approving the Loon Mountain Final Environmental Impact
Statement ("Final EIS"). In general, the ROD and Final EIS collectively:
o Authorize Loon Mountain's addition of new ski terrain, construction
of ski trails, installation and upgrades of lifts, expansion of new
on-mountain facilities and installation of snowmaking infrastructure
to serve all ski terrain.
o Authorize the current location and operation of the 16-inch
snowmaking water pipeline at levels restricted only by water
withdrawal limitations and pumping capacities originating on private
land.
o Authorize the issuance of a new Special Use Permit for a term of 40
years to replace the three existing Special Use Permits that
previously authorized Loon Mountain to occupy and use United States
Forest Service lands, including the South Mountain area, to operate
the ski resort. The new Special Use Permit was issued on June 24,
2002.
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o Confirm that the activities and developments contemplated by the
Final EIS are consistent with the 1986 Forest Plan for the White
Mountain National Forest and authorize the amendment of such Forest
Plan to accommodate the expansion onto South Mountain.
o Document all mitigation measures and monitoring required to
adequately avoid or minimize potential environmental harm associated
with the activities and dev