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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: October 31, 2003
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from
__________________ to __________________
Commission File Number: 333-26091
BOOTH CREEK SKI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1359604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 South Frontage Road West, Suite 100
Vail, Colorado 81657
(970) 476-1311
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [_] No [X]
As of December 31, 2003, the number of shares outstanding of the
registrant's Common Stock, par value $.01 per share, was 1,000 shares. There is
no trading market for the registrant's Common Stock. Accordingly, the aggregate
market value of the Common Stock held by non-affiliates of the registrant is
not determinable. See Part II, Item 5 of this Report.
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TABLE OF CONTENTS
Item Page Number
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PART I
1. Business..................................................... 1
2. Properties................................................... 15
3. Legal Proceedings............................................ 15
4. Submission of Matters to a Vote of Security
Holders...................................................... 16
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 17
6. Selected Financial Data...................................... 17
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 20
7a. Quantitative and Qualitative Disclosures About
Market Risk.................................................. 39
8. Financial Statements and Supplementary Data.................. 39
9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.......................... 39
9a. Controls and Procedures...................................... 39
PART III
10. Directors and Executive Officers of the Registrant........... 41
11. Executive Compensation....................................... 44
12. Security Ownership of Certain Beneficial Owners
and Management............................................... 49
13. Certain Relationships and Related Transactions............... 53
14. Principal Accounting Fees and Services....................... 56
PART IV
15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.......................................... 57
Signatures................................................... 63
Index of Financial Statements................................ F-1
PART I
Item 1. Business
Overview
As used in this Report, the "Company" or "Booth Creek" refers to Booth
Creek Ski Holdings, Inc. and its subsidiaries, unless the context otherwise
requires. The Company is a wholly-owned subsidiary of Booth Creek Ski Group,
Inc. ("Parent"). The Company currently owns and operates six ski resort
complexes encompassing nine separate resorts, including the Northstar-at-Tahoe
("Northstar") and Sierra-at-Tahoe ("Sierra") ski resorts in the Lake Tahoe
region of Northern California, the Waterville Valley ("Waterville Valley"),
Mount Cranmore ("Mt. Cranmore") and Loon Mountain ("Loon Mountain") ski resorts
in the White Mountains of New Hampshire and the Summit at Snoqualmie (the
"Summit") ski resort complex, which consists of four separate resorts, in the
Cascade Mountains of Northwest Washington. The Company divested the Bear
Mountain ski resort ("Bear Mountain") in Southern California on October 10,
2002.
The Company is the fourth largest ski resort operator in North America
based on approximately 2.0 million skier visits recorded during the 2002/03 ski
season at its resorts. The Company primarily operates regional ski resorts which
attract the majority of their guests from within a 200 mile driving radius of
each resort. The Company's resort properties are located near major skiing
populations, including three of the five largest regional ski markets in the
United States: San Francisco/Sacramento, Boston and Seattle/Tacoma. The
Company's properties offer approximately 6,501 acres of skiable terrain, 353
trails, 87 lifts (including 14 high-speed lifts and two gondolas) and
on-mountain capacity to accommodate approximately 45,000 guests daily. For the
fiscal year ended October 31, 2003, the Company generated revenues of $115.0
million and operating income of $7.8 million, and incurred a net loss of $5.4
million. For the fiscal year ended November 1, 2002, the Company generated
revenues of $120.5 million and operating income of $14.8 million, and incurred a
net loss of $1.9 million. See Part II, Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a discussion and
analysis of the Company's financial condition and results of operations.
The Company's resorts seek to differentiate themselves in their respective
markets by selectively upgrading on-mountain facilities and guest services,
employing targeted marketing strategies and offering extensive skier development
programs, all of which create a competitively-priced, high-quality guest
experience. The Company's current resorts have collectively invested
approximately $56.7 million (including $9.0 million of equipment acquired
through capital leases and other debt) in capital expenditures during the last
four fiscal years, including the addition of high-speed chairlifts, additional
snowmaking capabilities, improved trail grooming equipment, and enhanced
on-mountain skier service, retail and food service amenities. The Company
believes its existing resort infrastructure is reasonably well maintained. The
Company uses targeted advertising, database marketing and strategic marketing
alliances to enhance the image of its resorts and increase regional market
share. The Company also offers extensive development programs to improve the
technical skill level of all types of skiers, which management believes is
important to expand the total skier population and increase skier visitation
frequency.
The following is an organizational chart of Parent, the Company and the
Company's subsidiaries. Each subsidiary of the Company is, directly or
indirectly, wholly-owned by Booth Creek.
1
[GRAPHIC OF ORGANIZATIONAL CHART OMITTED]
The Company's principal executive offices are located at 1000 South
Frontage Road West, Suite 100, Vail, Colorado 81657. Its telephone number at
that location is (970) 476-1311. The Company was incorporated in Delaware on
October 8, 1996.
Industry
There are approximately 490 ski areas in the United States which, during
the 2002/03 ski season, generated approximately 57.6 million visits days. A
"skier visit" represents one skier or snowboarder visiting one ski resort for
one day, including skiers and snowboarders using complimentary tickets and
season passes. Calculation of skier visits requires an estimate of visits by
season passholders. Although different ski resort operators may use different
methodologies for making such estimates, management believes that any resulting
differences in total skier visits are immaterial. Ski areas in the United States
range from small ski resort operators, which primarily cater to day skiers and
regional overnight skiers from nearby population centers, to larger resorts,
which given the scope of their operations and their accessibility, are able to
attract skiers and snowboarders from their regional ski markets as well as
destination resort guests who are seeking a comprehensive vacation experience.
While regional ski market skiers tend to focus primarily on lift ticket prices
and round-trip travel time, destination travelers tend to be heavily influenced
by the number of amenities and activities offered as well as the perceived
overall quality of the vacation experience. The table below summarizes skier
visit information for each region of the United States from the 1998/99 ski
season through the 2002/03 ski season.
2
United States Ski Industry Regions and Skier Days
(In thousands)
Rocky Pacific Lake
Season Northeast Southeast Midwest Mtns West Tahoe Total
- --------------------- --------- --------- ------- ------ ------- ----- ------
1998/99.............. 12,299 4,261 6,005 18,440 6,702 4,382 52,089
1999/00.............. 12,025 5,191 6,422 18,109 6,560 3,891 52,198
2000/01.............. 13,697 5,458 7,580 19,324 7,355 3,923 57,337
2001/02.............. 12,188 4,994 6,980 18,123 8,098 4,028 54,411
2002/03.............. 13,991 5,833 8,129 18,728 6,862 4,051 57,594
Five year average.... 12,840 5,147 7,023 18,545 7,116 4,055 54,726
Northeast: CT, MA, ME, NH, NY, VT, RI
Southeast: AL, GA, KY, MD, NC, NJ, PA, TN, VA, WV
Midwest: IA, IL, IN, MI, MN, MO, ND, NE, OH, SD, WI
Rocky Mtns: CO, ID, MT, NM, UT, WY
Pacific West: AK, AZ, CA (excluding Lake Tahoe Region), NV, OR, WA
Source: 2002/03 Kottke National End of Season Survey
Over the last twenty years, the ski resort industry has experienced a
period of consolidation. The number of United States ski areas has declined from
735 in 1984 to 490 in 2003. The number of ski areas may decline further, as many
mountain resorts lack the infrastructure and capital and management resources to
effectively compete in this multi-dimensional and service-intensive industry. Of
the 490 ski areas, the 2002/03 Kottke National End of Season Survey estimates
that the average resort recorded approximately 118,000 skier visits. All of the
Company's resorts, except Mt. Cranmore, typically record more than 200,000
annual skier visits. The trend among leading resorts is toward investing in
improving technology and infrastructure, including high-speed lifts, attractive
facilities and extensive snowmaking capabilities to deliver a more consistent,
quality experience. During the last four fiscal years, the Company has invested
approximately $56.7 million in capital expenditures at its current resorts to
improve their competitive position and to meet sustaining capital requirements.
Management believes the need for increased investment in resorts in general has
required a greater access to capital and has enhanced the position of resorts
owned by larger, better capitalized owners. Despite the recent consolidation in
the ski industry, the industry remains fragmented, with no one resort accounting
for more than 3%, and no one resort operator accounting for more than 10%, of
the United States' approximately 57.6 million skier visits during the 2002/03
ski season. The four largest ski resort companies, including the Company,
accounted for approximately 28% of all United States skier visits recorded
during the 2002/03 ski season.
The Lake Tahoe region has averaged approximately 4.1 million annual skier
visits over the last five years. Management estimates that approximately 70% to
75% of the skiers visiting Lake Tahoe resorts during the 2002/03 ski season were
from the San Francisco/San Jose, Sacramento and Central California Valley
metropolitan areas and the Lake Tahoe region. Other guests were principally from
Southern California and states with large ski populations, such as Texas,
Illinois and Florida.
The Northeast market (including New York) has averaged approximately 12.8
million annual skier visits over the last five years. The Northeast market
consists of a significant percentage of day or weekend skiers due to the
relatively short driving radius to major metropolitan areas. While the Northeast
does not draw significant numbers of vacationing skiers from the Western regions
of the United States, it does compete with the Rocky Mountains and Pacific West
areas for Eastern vacationing skiers. The region's major ski areas and resorts
are concentrated in the mountainous areas of New England and Eastern New York,
and management believes that the bulk of skiers come from the population centers
located in Eastern Massachusetts, Southern New Hampshire, Connecticut, Eastern
New York, New Jersey and the Philadelphia area.
The Pacific West market has averaged approximately 7.1 million skier visits
over the last five years. Management estimates that the vast majority of the
skier visits recorded at Washington state resorts during the 2002/03 ski season
were attributable to residents of the Seattle/Tacoma metropolitan area. Other
guests were primarily from other parts of Washington, Oregon and Western Canada.
Washington state resorts do not attract a significant number of destination
skiers.
3
Resort Operations
The Company's six resort complexes offer a variety of ski and non-ski
activities. The table below provides a summary of each resort's ski operations
and is followed by a more detailed description of each resort.
Approx. Approx.
Snow- No. of
Vertical making Beds
Skiable Drop Trail Within
Resort Acres (Feet) Trails Lifts Coverage 12 Miles
- -------------------- ------- -------- ------ ------------- -------- --------
Northstar-at-Tahoe.. 2,420 2,280 70 1 High-Speed 50% 16,000
Gondola
5 High-Speed
Quads (1)
4 Fixed Grip
7 Surface
Sierra-at-Tahoe..... 1,680 2,212 46 3 High-Speed 4% 30,000
Quads
6 Fixed Grip
3 Surface
Waterville Valley... 255 2,020 52 2 High-Speed 100% 6,500
Quads
6 Fixed Grip
4 Surface
Mt. Cranmore........ 183 1,270 39 1 High-Speed 100% 16,000
Quad
4 Fixed Grip
6 Surface
Loon Mountain....... 266 2,100 50 1 High-Speed 96% 13,000
Gondola
1 High-Speed
Quad
5 Fixed Grip
3 Surface
The Summit.......... 1,697 2,280 96 2 High-Speed 0% 1,000
Quads
17 Fixed Grip
6 Surface
(1) High-Speed Quads are four-person chairlifts which decelerate and detach
from a cable during passenger loading and unloading and reattach and
accelerate thereafter.
Northstar-at-Tahoe
Northstar-at-Tahoe, located near the north end of Lake Tahoe, California,
offers extensive activities and services in both the winter and summer. The
resort's 8,600-foot Mt. Pluto features 2,420 acres of skiable terrain and a
2,280 foot vertical drop. Northstar's 70 ski trails are served by 17 operating
lifts, including one gondola, 5 high-speed quads, two triple lifts and two
double lifts, which combine to transport up to approximately 23,000 skiers
uphill per hour. Northstar also has approximately 65 kilometers of groomed
trails for cross-country skiing and snowshoeing and numerous on-mountain terrain
parks for snowboarders and adventurous skiers. Other amenities at Northstar
include a village consisting of condominium/hotel accommodations, restaurants,
bars, shops, a child-care center, conference facilities, a 22,700 square foot
on-mountain ski lodge, a 9,000 square foot rental equipment facility and a 5,800
square foot on-mountain children's ski school facility. Summer recreation
amenities include an 18-hole golf course, extensive mountain biking trails and
bike rentals, ten tennis courts, a horseback riding stable, fly fishing and
swimming pools. Northstar currently ranks third in total skier days in the Lake
Tahoe area. In 2003, Northstar was ranked by Ski magazine as the 25th best ski
resort in North America, and received high rankings in a number of important
categories, including guest service, family programs, grooming and terrain
parks. Additionally, Northstar was ranked by Transworld Snowboarding magazine as
the 12th best snowboarding resort in North America in 2003.
4
Northstar's snowmaking system is engineered to cover approximately 50% of
its ski trails. Annual snowfall at the resort has averaged approximately 253
inches per year during the past five years. Northstar has water rights from
various sources which, when coupled with its 60 million gallon water storage
capacity, have been sufficient to support the resort's needs.
Northstar consists of approximately 8,000 acres of land privately owned by
the Company. Management believes that Northstar has significant opportunities to
develop additional ski terrain, as well as certain other real estate development
opportunities. Moreover, management believes that the planned expansion of the
existing on-mountain bed base at the resort from the East West development
project will result in increased skier days, thereby enhancing the value and
profitability of Northstar's resort operations. Such bed base development is
also expected to make additional ski terrain expansion at Northstar even more
attractive. See Part I, Item 1. "Business - Real Estate Development."
Sierra-at-Tahoe
Sierra-at-Tahoe is conveniently located near the large bed base of South
Lake Tahoe, California and is the closest major ski resort to Sacramento and the
Central California Valley. The resort's 8,852-foot peak offers 1,680 skiable
acres and a 2,212 foot vertical drop. Sierra's 46 ski trails are served by 12
operating lifts, including three high-speed quads, one triple lift and five
double lifts, which combine to transport up to approximately 15,000 skiers
uphill per hour. Sierra operates a 46,000 square foot base lodge which offers a
variety of food and beverage, retail and other skier services. Sierra does not
offer summertime activities.
Sierra owns 20 acres of its 1,689 gross acreage and leases the remainder
under a Term Special Use Permit from the United States Forest Service (the
"Forest Service"). See Part I, Item 1. "Business - Regulation and Legislation."
Due to its abundant annual snowfall, which has averaged approximately 430 inches
per year over the past five years, Sierra's snowmaking equipment covers only 4%
of Sierra's total trail acreage.
Waterville Valley
Waterville Valley's major facilities are located on the 4,004 foot high Mt.
Tecumseh and offer 255 skiable acres and a vertical drop of 2,020 feet.
Waterville Valley's 52 trails are served by 12 operating lifts, including two
high-speed quads, two triple lifts and four double lifts, which combine to
transport up to approximately 16,000 skiers uphill per hour. The resort operates
a 42,000 square foot base lodge (complete with multiple food and beverage
service centers and a child care facility), three other base area facilities
comprising approximately 27,500 square feet, a mid-mountain lodge featuring a
cafeteria and deli and a mountain-top lodge with a snack bar and restaurant
dining.
The Waterville Valley resort has a year-round Adventure Center offering
mountain bikers, cross-country skiers and hikers access to 105 kilometers of
trails in the White Mountain National Forest. Other area amenities, which are
primarily owned and operated by third parties, include an ice skating arena,
golf course, tennis center, sports and fitness center, horsedrawn sleigh rides,
skateboard park, beach and paddle boats. Waterville Valley's Conference Center
has 17,000 square feet of meeting space and provides banquet facilities for up
to 1,000 people. With 11 meeting rooms, a business center, audio-visual
capabilities and a self-contained pub, the Conference Center's on-site staff
supports events year-round. In 2003, Waterville Valley was ranked as the 15th
best ski resort in the East by Ski magazine.
Waterville Valley owns 11 acres on Snow Mountain and two acres at the
Conference Center. It leases 790 acres of land on Mt. Tecumseh under a Term
Special Use Permit issued by the Forest Service. See Part I, Item 1. "Business -
Regulation and Legislation." Waterville Valley's snowmaking system is engineered
to cover 100% of the ski trails on Mt. Tecumseh. Water for snowmaking is
currently pumped from a local river and a pond. Waterville Valley is in the
process of seeking permits for additional water sources and water storage
facilities for snowmaking.
Mt. Cranmore
Mt. Cranmore is the oldest continuously operated ski area in the United
States. Located in the hub of New Hampshire's Mount Washington Valley, Mt.
Cranmore's 1,714 foot summit offers 183 skiable acres and a 1,270 foot vertical
drop. Mt. Cranmore's 39 trails are served by 11 operating lifts, including one
high-speed quad, one triple lift and three double lifts, which combine to
transport up to approximately 7,000 skiers uphill per hour. The mountain is
serviced by two base lodges, offering multiple eating locations and
pub/restaurant facilities, as well as a restaurant at the summit. In addition,
Mt. Cranmore owns a 41,000 square foot athletic facility which operates
year-round. Mt. Cranmore also operates on-site retail and rental shops.
5
Mt. Cranmore owns 754 acres and holds easements enabling it to develop an
additional 500 acres of ski terrain. Mt. Cranmore does not lease any of its land
from the federal government. Mt. Cranmore's snowmaking system covers 100% of the
resort's trails. In addition to pumping rights from a nearby stream, Mt.
Cranmore has an understanding with the local water district for an additional
reservoir of one million gallons of water for snowmaking. In addition, Mt.
Cranmore's base area pond holds one million gallons of water.
Loon Mountain
Loon Mountain is located in the White Mountains of New Hampshire in the
town of Lincoln. The resort's 3,050 foot peak features 266 skiable acres and a
2,100 foot vertical drop. Loon Mountain's 50 trails (including five tree skiing
trails) are served by 10 operating lifts, including a four-passenger gondola, a
high-speed quad, two triple lifts and three double lifts, which combine to
transport over 11,800 skiers uphill per hour. Loon Mountain's trails cater
mostly to intermediate level skiers (64%), with trails provided for beginners
(20%) and experts (16%) as well. Resort amenities include a base lodge with a
cafeteria and coffee shop, a restaurant and deck at the summit, the 17,600
square foot Governor Adams lodge (which provides traditional lodge facilities
and also serves as a venue for summer outdoor activities and concerts), two
rental shops and a ski and snowboard tuning facility, a 17,300 square foot
children's center, trails for cross-country skiing, horseback riding and
mountain biking, indoor and outdoor climbing walls and a steam engine railroad
for shuttling visitors. In 2003, Loon Mountain was ranked as the 14th best ski
resort in the East by Ski magazine. Loon Mountain has the snowmaking capacity to
cover approximately 96% of its skiable terrain. Water for snowmaking at Loon
Mountain is primarily drawn from the Pemigewasset River, and when river flows
are below minimum stream flow levels the resort draws water from Loon Pond.
Loon Mountain owns 565 acres and leases 1,366 acres of land in the White
Mountain National Forest under a Term Special Use Permit issued by the Forest
Service permitting year-round recreational use. During 2002, Loon Mountain
received certain approvals from the Forest Service which generally permit the
enhancement and expansion of the resort, including new ski terrain and
facilities. See Part I, Item 1. "Business - Regulation and Legislation."
Management believes that Loon Mountain has significant real estate development
opportunities in connection with the expansion and enhancement of the resort.
See Part I, Item 1. "Business - Real Estate Development."
The Summit at Snoqualmie
The Summit at Snoqualmie is located in the Cascade Mountains of Northwest
Washington and consists of four separate resorts, Alpental at the Summit
("Alpental"), Summit West, Summit Central and Summit East, which collectively
offer 1,697 acres of skiable terrain. Individually, Alpental has a 5,450 foot
top elevation, a 2,280 foot vertical drop, 302 acres of skiable trails and runs
(121 acres of which are lighted for night skiing) and approximately 523 acres of
backcountry terrain; Summit West has a 3,765 foot top elevation, a 765 foot
vertical drop and 197 acres of skiable trails and runs (189 acres of which are
lighted for night skiing); Summit Central has a 3,865 foot top elevation, a
1,025 foot vertical drop and 466 acres of skiable trails and runs (231 acres of
which are lighted for night skiing); and Summit East has a 3,710 foot top
elevation, a 1,100 foot vertical drop and 209 acres of skiable trails and runs.
In total, the Summit complex has 96 designated trails and runs served by 25
operating lifts, including two high-speed quads, two fixed grip quads, four
triple lifts, 11 double lifts and six surface lifts, which combine to transport
up to approximately 33,000 skiers uphill per hour. The Summit Nordic Center also
offers approximately 55 kilometers of cross-country skiing on an expert trail
system and a lighted beginner student trail which hosts a season-long night
racing series. The Summit Tubing Center offers special tubing lifts and multiple
groomed lanes. In addition, the Summit West, Summit Central and Summit East
areas are interconnected by a cross-over trail system. The Summit operates 10
lodges which provide an aggregate of approximately 122,000 square feet of space
for food and beverage services (restaurants and cafeterias), skier services and
entertainment.
Overall, the Summit complex is one of the largest learn-to-ski areas in the
United States, with approximately 25% of its annual skier days typically being
attributable to guests enrolled in ski school programs. In addition, the Summit
is the largest night skiing complex in the United States, with approximately 20%
to 25% of its skier visits each season being recorded at night.
6
The Summit owns 686 acres of its 4,103 gross acreage, leases approximately
440 acres under a private permit, utilizes 1,280 acres for cross-country skiing
under an annual operating agreement with the Forest Service and utilizes 1,697
acres of mountain terrain under a Forest Service Term Special Use Permit. See
Part I, Item 1. "Business - Regulation and Legislation." The Summit typically
enjoys abundant annual snowfall, averaging approximately 425 inches annually
over the past five years. As a result, there are no man-made snowmaking
capabilities at any of the Summit resorts.
Business Segments and Principal Products
The Company operates in two business segments: resort operations and real
estate and other. Business segment information is presented in Note 12 to the
accompanying consolidated financial statements.
The Company's principal products from resort operations include lift
tickets, season passes, snow school lessons, equipment rentals, retail sales,
food and beverage operations and other ancillary products and services. See Part
II, Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations," for information regarding the
composition of the Company's resort operations revenues for the last three
fiscal years.
Real Estate Development
The Company has certain holdings of land suitable for either the expansion
of ski terrain or the development of residential and commercial properties. The
Company also has terrain expansion opportunities on land within its current
Forest Service permit areas as well as on land owned by third parties. In
management's view, increasing the on-mountain bed base, expanding retail and
other commercial services and developing additional skiable terrain at a resort
can accelerate growth in skier days and ski-related revenues.
The Company's real estate development strategy for residential and
commercial properties is comprised of the following components: (i) build
recurring resort cash flow through increased bed base and diversification of
revenue sources, (ii) partner with proven real estate developers, (iii) invest
on a limited basis in infrastructure development in conjunction with the
development of single family lots at Northstar and Loon Mountain, and (iv)
refrain from investment in vertical or commercial development except in
conjunction with the development of ski related facilities.
The Company's strategy with regard to the expansion of skiable terrain at
its resorts is based on the evaluation of several key factors, including (i) the
anticipated growth of the skier base within the relevant market and the
Company's ability to improve its competitive position in that market, as
measured by the potential increase in the number of skier days, revenues and
revenue per skier on a long-term basis which the Company believes it can capture
through expansion and upgrades, and (ii) the return on capital expected to be
realized from an expansion project versus alternative projects. Management
undertakes extensive planning and pre-development steps prior to investing
significant capital into any development project. Currently, the Company is in
the process of developing comprehensive master plans and obtaining entitlements
(e.g., zoning approvals) for Northstar, Loon Mountain and the Summit. In
management's view, the expansion projects at Northstar and Loon Mountain
represent the Company's best development opportunities, and would likely take
priority over the pursuit of expansion and development initiatives at the
Company's other resorts.
The Company has traditionally taken a conservative approach toward
residential and commercial development. Real estate development efforts have
taken place primarily at Northstar. Current and future single family residential
development at Northstar is limited based on the present real estate master
development plan, and consists of three phases or subdivisions known as "Unit
7A," "Unit 7B" and "Porcupine Ridge."
In March 2003, Trimont Land Company ("TLC"), the owner and operator of
Northstar and a wholly-owned subsidiary of the Company, launched the sale of the
Unit 7A subdivision at Northstar, which consists of 15 ski-in/ski-out single
family lots generally ranging in size from one-half to three-quarters of an
acre. As of October 31, 2003, TLC closed escrow on 12 of the lots and recognized
real estate revenues of $9,184,000 during the fiscal year ended October 31,
2003. TLC closed escrow on the three remaining lots in December 2003 for an
aggregate sales price of $2,798,000, which will be reflected as real estate
revenues in the Company's first fiscal quarter of 2004. The average lot sales
price achieved for the lots within Unit 7A was approximately $800,000.
7
The Company has submitted a development application for the Unit 7B
subdivision known as the Retreat, which is expected to consist of approximately
15 available one-acre single family lots (net of three lots which the Company
expects to transfer or sell to certain executives in satisfaction of employment
contract obligations). The Unit 7B subdivision is undergoing an environmental
impact review as part of the permitting and entitlement process. The Company
expects to receive approvals for the subdivision in the second half of 2004, and
would likely commence construction of the subdivision in 2005. Subject to
further regulatory approvals, construction schedules and market demand, lot
closings are tentatively targeted to commence in the fourth calendar quarter of
2005. However, no assurances can be given regarding the ultimate timing of lot
closings or proceeds therefrom.
The Company is in the initial planning stages for the Porcupine Ridge
subdivision and anticipates submitting development applications for the project
within the next 12 months. As currently contemplated, the Porcupine Ridge
subdivision is expected to consist of approximately 10 three to five acre lots.
The Company currently anticipates that the Porcupine Ridge subdivision would be
constructed and marketed for sale in 2006. However, no assurances can be given
regarding the ultimate timing of lot closings or proceeds therefrom.
On September 22, 2000, TLC and Trimont Land Holdings, Inc. ("TLH"), a
wholly-owned subsidiary of Parent and an affiliate of the Company, entered into
an Agreement for Purchase and Sale of Real Property (the "Northstar Real Estate
Agreement") relating to certain development real estate at Northstar. Pursuant
to the Northstar Real Estate Agreement, TLC agreed to sell to TLH certain
development real estate consisting of approximately 550 acres of land located at
Northstar (the "Development Real Estate") for a total purchase price of
$27,600,000, of which 85% 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. In addition
to receiving the fair market value for the Development Real Estate, under the
terms of the Northstar Real Estate Agreement (i) TLH or its joint venture
partner, East West Partners, Inc. (together with its affiliates, "East West"),
is required, at its expense, to pay for substantially all mitigation costs
associated with the development project, and (ii) TLH is obligated to reconvey
to TLC certain excess land following the subdivision of the Development Real
Estate. TLC retained significant approval rights over various aspects of the
real estate development, including development activities that could impact
resort operations at Northstar.
In connection with the execution of the Northstar Real Estate Agreement,
TLH and East West entered into a joint venture agreement (the "East West Joint
Venture") providing for the development of the property purchased by TLH and
subsequently transferred to the East West Joint Venture. Under the East West
Joint Venture, TLH retains financial responsibility for certain costs associated
with the development of the infrastructure of the Development Real Estate.
On September 22, 2000, TLC and TLH consummated the sale of the initial land
parcels contemplated by the Northstar Real Estate Agreement, and TLC transferred
the bulk of the Development Real Estate to TLH for a total purchase price of
$21,000,000, of which $17,850,000, or 85%, was paid in cash and $3,150,000, or
15%, was paid in the form of a convertible secured subordinated promissory note.
During the fiscal year ended November 1, 2002, TLH paid $5,610,000 to TLC,
which represents the cash portion of the purchase price for the remaining
Development Real Estate subject to the Northstar Real Estate Agreement. The
$5,610,000 payment has been deferred as a deposit liability as of October 31,
2003 and November 1, 2002 pending the consummation of the sale of the remaining
Development Real Estate under the Northstar Real Estate Agreement. In December
2003, TLC transferred the remaining Development Real Estate to TLH, which is
expected to be recognized as real estate revenues in the Company's first fiscal
quarter of 2004.
The East West Joint Venture has submitted a development application and
obtained approvals from Placer County for the development of 212 condominium,
townhome and time share units and approximately 180,000 square feet of
commercial and skier services space within the village at Northstar (the
"Northstar Village Project"). The Northstar Village Project is expected to be
constructed in a series of phases. The East West Joint Venture is expected to
commence construction in April 2004 of the initial phase of the Northstar
Village Project, which consists of three lodge buildings and one skier
services/commercial building encompassing 98 one, two, three and four bedroom
condominiums and related owner amenities, as well as approximately 90,000 square
feet of commercial and skier services space. The remaining phases of the
Northstar Village Project will be developed based on market conditions and
demand.
8
In addition to the Northstar Village Project, the proposed development
contemplated by the East West Joint Venture includes the planned development of
approximately 1,450 ski-in/ski-out condominium, town home, timeshare and hotel
units in the mid-mountain area of the Northstar resort (the "Highlands
Project"), as well as an additional 138 units in the vicinity of the Northstar
Village Project. The East West Joint Venture is in the process of preparing
development applications for certain aspects of the proposed development.
Ultimately, the East West Joint Venture expects to develop a total of 1,800
residential units at Northstar, which will likely occur over an extended period
of time.
Management believes that the expected substantial increase in on-mountain
bed base and the development of an expanded village and commercial amenities
from the East West development will result in increased visitation and skier
days at Northstar, thereby enhancing the value and profitability of Northstar's
resort operations. The Company has been able to secure these benefits without
incurring the economic risks associated with real estate development.
The Company intends to enhance the ski terrain at the Northstar resort by
upgrading the existing trails and lifts, reducing or eliminating on-mountain
bottlenecks and providing better access to and from the resort's existing base
area. During 1999 and 2000, five trails were cut on Lookout Mountain and a new
detachable quad lift was constructed to provide new advanced skiing terrain at
the resort. The Company has preliminarily identified a number of other sites
within Northstar's present boundaries that are suitable for future expansion. In
general, such expansion is expected to occur concurrently with the anticipated
bed base expansion resulting from the East West development. In this regard, the
Company expects that it will need to construct an additional base area lift at
Northstar prior to the start of the 2005/06 ski season in conjunction with the
development of the Northstar Village Project. In 2002, the Company submitted
applications for permit approvals for various mountain improvements, including
new and replacement lifts, additional trails and trail widening and snowmaking
infrastructure. These applications are currently being reviewed by applicable
regulatory agencies. Any lift construction or terrain expansion would require
customary permits and approvals, and no assurance can be given that the Company
will be able to develop any additional terrain at Northstar or, if completed,
any such projects will be successful. In addition, in 2000 and 2001, the Company
expanded and improved the existing snowmaking system at Northstar in order to
lessen the influence of unfavorable weather, which can negatively impact
operating conditions at the resort.
In addition, Northstar has a program to harvest timber through third party
contracting. The timber harvesting program, which produced revenues of $254,000
during the fiscal year ended October 31, 2003, is managed carefully to avoid
interference with Northstar's resort operations and prevent any diminution in
the quality of the resort's natural environment.
As part of the new Special Use Permit obtained in 2002, Loon Mountain
leases approximately 581 acres known as "South Mountain" from the Forest
Service. The available South Mountain land is located in an area directly
adjacent to the present Loon Mountain ski area and would be able to accommodate
alpine and cross country trails, ski lifts (including one connecting the current
ski area with South Mountain) and snowmaking from newly installed snowmaking
facilities. Expansion and upgrades to the resort would serve to better meet and
fulfill the anticipated needs of guests by enhancing the quality and diversity
of skiable terrain. Loon Mountain owns 311 acres of land located at the base of
South Mountain (the "South Mountain Real Estate"). In March 2003, the Company
obtained a favorable rezoning of the bulk of the property comprising the South
Mountain Real Estate from rural residential zoning to general use zoning. The
general use zoning permits the development of multi-family housing units on the
South Mountain Real Estate and greater flexibility for commercial uses. The
Company has undertaken initial studies of the South Mountain Real Estate, and
currently estimates that approximately 904 residential units (including an
estimated 90 single family lots and 814 multi-family units) and approximately
80,000 square feet of commercial space could be developed within the South
Mountain Real Estate. Presently, the Company expects that the Company will
undertake the sale and development of the expected phases or subdivisions of
single family lots planned for the South Mountain Real Estate. However,
consistent with its real estate development strategy and past practice, the
Company would likely seek a proven real estate developer for the development of
the multi-family property and commercial property (other than ski related
facilities) within the South Mountain Real Estate.
In addition to the South Mountain Real Estate, Loon Mountain also owns (i)
approximately 32 acres of land with existing approvals for development of 31
single family lots, and (ii) 49 acres of land which is zoned rural residential
and could accommodate up to a maximum of 147 additional units, subject to
receipt of applicable approvals, and (iii) 21 acres of land at the base of the
existing ski area which is zoned rural residential and would allow approximately
61 units, subject to receipt of applicable regulatory approvals.
9
The timing and scope of development at Loon Mountain will depend on market
conditions, receipt of required regulatory approvals, the limitations set out in
the Forest Service's Record of Decision and in the settlement agreements with
certain environmental plaintiffs, the Company's financial position and an
evaluation of the Company's other expansion opportunities. See Part I, Item 1.
"Business - Regulation and Legislation."
Mt. Cranmore holds a perpetual easement entitling it to develop at least
500 acres of additional ski terrain known as the "Black Cap Mountain area" or
"Black Cap." The Black Cap easement was granted in 1951 and allows the Company
to expand Mt. Cranmore's existing ski and recreational infrastructure and
develop additional trails. The Black Cap property underlying the Company's
easement is privately owned by a third party. The Black Cap land available for
development by the Company is high-quality, mostly north and west-facing ski
terrain located in an area that can accommodate alpine and cross-country trails,
ski lifts and snowmaking. Expansion could increase Mt. Cranmore's skier
capacity, and could enhance the quality and diversity of its skiable terrain.
Additionally, Mt. Cranmore owns certain land at the southwest flank of the
mountain. This southwest facing ski-in/ski-out land is very suitable for
development. The Company does not have any immediate expansion or development
plans for Mt. Cranmore and the timing and scope of any development will depend
on market conditions, receipt of required regulatory approvals, the Company's
financial position and the Company's other expansion opportunities.
The Summit owns approximately 66 acres of real property on various parcels
in and around its resorts, a portion of which is available for residential
development. The developmental real estate at the Summit is owned by DRE, L.L.C.
(the "Real Estate LLC"), an indirect subsidiary of the Company. The Summit also
owns 39 acres of real property at Summit East that is ski-in/ski-out and is
zoned as high-density residential and commercial. Any potential real estate
development activities at the Summit could be constrained by existing or future
planned resort operations at the Summit. The Summit's development parcels will
be studied for future development potential when market conditions warrant. In
addition to market conditions, the development of such parcels will depend on
receipt of required regulatory approvals, the Company's financial position and
the Company's other expansion opportunities.
The Company has no agreements, arrangements or understandings with respect
to financing the development of any of the real estate projects discussed
herein. Any future development would be subject to, among other things, the
Company's ability to obtain the necessary financing and all necessary permits
and approvals. The Senior Credit Facility, the Indenture and the Securities
Purchase Agreements (as defined herein) each contain restrictive covenants that
may significantly limit the Company's ability to pursue real estate development
opportunities. No assurance can be given that the Company will develop any
additional properties or, if completed, any such projects will be successful.
Moreover, there can be no assurances that the East West development at Northstar
will be successful or be completed as currently planned, or that such
development will have the currently anticipated favorable effects on the
Company's resort operations. In addition, there are significant risks inherent
in any expansion project and in the implementation of the Company's development
strategy.
Marketing and Sales
Staff
The Company has a marketing and sales staff of approximately 60 persons,
including a marketing director at each resort who reports to the Vice President
of Marketing and Sales, as well as to each resort's general manager. The
marketing staff at each resort is responsible for the development of
resort-specific marketing plans including advertising, sales, public relations,
events, promotions, Internet strategies and research. Each resort's marketing
personnel also participate in the development of the Company's overall marketing
strategy.
Strategy
The Company's marketing plans are designed to attract both day skiers and
vacationers by emphasizing the Company's diverse facilities and services and
proximity to three of the five largest regional ski markets in the United
States. The Company has positioned each of its resorts as an attractive
alternative to competing regional resorts and to other forms of leisure and
entertainment. The primary objectives of the Company's marketing efforts are to
(i) increase each of its resorts' relative market share, (ii) expand the number
of skiers in each of its markets, (iii) increase skier visitation frequency,
(iv) increase the expenditures of each of its visitors, (v) attract and retain
new guests to the Company's resorts by expanding the scope of Booth Creek's
resorts to winter recreation centers offering a multitude of snowsport options
in addition to skiing and snowboarding, and (vi) develop products and execute
sales efforts that provide advance bookings and sales.
10
The Company's marketing efforts are predicated on knowing its guests and
understanding the markets in which it competes. Accordingly, the Company's
resorts, typically through professional firms, conduct extensive market
research, including on-site guest surveys, focus groups, advertising tests and
phone and Internet surveys. Each of the Company's resorts develops its own
resort-specific marketing program based upon its unique qualities and
characteristics, as well as the demographics of its visitor base.
Programs
The Company has developed a number of specific marketing and sales programs
to achieve its objectives, including the following:
o Customer loyalty and season pass programs
o Sales initiatives
o Multimedia advertising (including Internet strategies)
o Data-base marketing programs (including e-mail broadcasting)
o Snowsport development programs
o Strategic marketing alliances
o School, group and business affiliations
o Youth market initiatives
Customer loyalty and season pass programs. The Company believes that the
success of each of its resorts depends, in large part, on its ability to retain
and increase the skier visitation frequency of its existing customer base. The
Company believes a critical component to developing customer frequency will be
the success of its customer loyalty programs, including its Vertical Plus
frequent skier programs in place at the Company's Lake Tahoe resorts. For an
annual membership fee, Vertical Plus members receive a special, personalized
identification wristband containing a preprogrammed computer microchip which
acts as their lift access for the season. In addition to offering daily ticket
discounts, the system tracks members' expenditures and the amount of vertical
feet skied at participating resorts and rewards members with prizes based on
spending activity and the number of vertical feet skied in a season. Other
benefits of the program include members-only lift lines, direct lift access, the
convenience of being able to make cashless retail transactions and electronic
messaging. In addition, over the past several years, the Company's resorts have
successfully introduced new season pass products that are attractively priced to
entice visitation during non-peak periods, stimulate demand, attract market
share and develop guest loyalty. The Company is continuing its successful season
pass initiatives for the 2003/04 ski season.
Sales Initiatives. The Company's sales initiatives include a variety of
programs designed to increase and enhance buying opportunities for its customers
in order to provide a complete vacation experience. Through merchandising
efforts, increasing sales outlets and channels, sales training for front-line
employees, on-site and Internet-based promotions and other marketing efforts,
the Company seeks to increase sales of products and services to its customers
and generate additional revenue per skier visit.
Multimedia advertising. The Company's marketing efforts include print,
broadcast, outdoor, Internet and direct mail advertising, with the particular
method tailored for each resort and existing market opportunities. The Company
is also very active in a variety of promotional programs designed to attract
guests from population centers in and around the San Francisco, Sacramento,
Seattle and Boston metropolitan areas and states with large skier populations
such as Texas, Illinois, Florida and New York. For example, the Company's
Northstar and Sierra resorts have participated in extensive cooperative
marketing with other Lake Tahoe resorts to promote the region as a premier
vacation destination. Market research has shown that the typical Booth Creek
guest utilizes the Internet extensively as a source of information and
additional Company resources have been concentrated towards this communication
vehicle. Booth Creek's resort websites feature e-commerce "virtual stores" on
each resort's website offering products such as season passes, loyalty program
memberships, gift certificates and lodging/lift packages as well as private
lessons, child care and lift tickets.
11
Data-base marketing programs. Through the information obtained from its
customer loyalty and season pass programs, extensive market surveys and other
market research, the Company maintains a data-base containing detailed
information on its existing customers. Management believes that data-base
marketing is an effective and efficient method to identify, target and maintain
an on-going relationship with the Company's best customers. For example, the
Company has been successful in the use of targeted direct mailings and e-mail
broadcasts, which are designed to match customer preferences with special offers
to build volume and penetration.
Snowsport development programs. The Company's resorts operate a variety of
snowsport development programs designed to improve the skills of children and
beginners, as well as more advanced skiers and snowboarders. The Company's
resorts operate ski schools that are consistently rated among the best in their
respective regions. In addition, certain of the Company's resorts have
introduced a development program, geared toward intermediate and advanced
skiers, which offers free specialized instruction and daily training. This
program has increased guest loyalty and repeat visitation. Other efforts have
been instituted at all resorts to embrace and welcome new participants to the
sport of skiing or snowboarding.
Strategic marketing alliances. The Company is a national ski resort
operator with approximately 2.0 million skier visits recorded during the 2002/03
ski season. At least one of the Company's resorts is within driving distance of
three of the five largest ski markets in the United States. Sponsorship
opportunities include potential relationships with automobile manufacturers,
soft drink companies, and ski and snowboard equipment manufacturers. For
example, Northstar and Sierra have relationships with a major automobile
manufacturer that involves over $1.2 million worth of television exposure, free
use of vehicles for Company purposes and a vehicle give-away promotion for
resort guests. This provides exposure of Booth Creek's resorts to a targeted
audience of skiers in key markets.
School, group and business affiliations. The Company is dedicated to
developing special programs designed to attract school, business and other
groups. By introducing skiing, snowboarding and other methods of sliding on snow
to a wider audience, these programs broaden the Company's customer base and have
proven to be a particularly effective way to build name recognition and brand
loyalty. Sales personnel at each resort provide year-round assistance to group
leaders in organizing and developing events. Business affiliations are developed
and maintained through corporate ticket programs, whereby participating
businesses are given an opportunity to provide their employees with
incentive-based pricing.
Youth market initiatives. The Company is devoting marketing and operational
resources to ensure that its resorts offer selected products and services
targeted toward the important youth market segment. These initiatives have
focused on the Company's (i) youth market branding, (ii) terrain park features
and amenities, and (iii) music, food, entertainment, events and other products
and services oriented to the youth market.
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 upon favorable
weather conditions and other factors beyond the Company's control.
During the off-season months of May through October, the Company's resorts
typically experience a substantial reduction in labor and utility expense due to
the absence of ski operations, but make significant expenditures for
maintenance, expansion and capital improvements in preparation for the ensuing
ski season.
Competition
The general unavailability of new developable ski mountains, regulatory
requirements and the high costs and expertise required to build and operate
resorts present significant barriers to entry in the ski industry. In the past
15 years, many proposed resorts have been stalled or abandoned due to
environmental issues and the high costs of entering into the capital intensive
ski industry. The domestic ski industry is currently comprised of approximately
490 resorts and is highly competitive. The Company's competitive position in the
markets in which it competes is dependent upon many diverse factors, including
proximity to population centers, pricing, snowmaking capabilities, type and
quality of skiing offered, prevailing weather conditions, local bed base and
quality and price of complementary services.
12
The Company's Lake Tahoe resorts, Northstar and Sierra, face strong
competition from Lake Tahoe's five other major ski resorts. Northstar's primary
competition in the North Lake Tahoe area is from Squaw Valley, Alpine Meadows
and Sugar Bowl. Northstar also competes with major ski and non-ski destination
resorts throughout North America. Sierra primarily competes in the South Lake
Tahoe area with Heavenly and Kirkwood.
The Company's New England resorts, Waterville Valley, Mt. Cranmore and Loon
Mountain, compete in the highly competitive Northeast ski market, which consists
of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut and
New York. Within the Northeast region, skiers can choose from over 50 major
resorts and ski areas, most of which are located in the mountainous areas of New
England and Eastern New York. Waterville Valley's, Mt. Cranmore's and Loon
Mountain's competitors include Bretton Woods, Mount Sunapee, Attitash/Bear Peak,
Gunstock, Cannon Mountain, King Pine and Wildcat Mountain in New Hampshire, as
well as other major regional ski resort operators, including Okemo, Sunday
River, Killington, Wachusett Mountain, Smuggler's Notch, Stowe, Stratton
Mountain and Shawnee Peak.
The Summit competes primarily with 11 other ski resorts in Washington,
including Crystal Mountain, Stevens Pass, White Pass, Mission Ridge and Mt.
Baker. Additional competition comes from the regional destination resorts at Mt.
Bachelor, Mt. Hood Meadows, Sun Valley and Whistler/Blackcomb, as well as other
day and weekend ski facilities in Oregon and British Columbia.
On a regional basis, at least one of the Company's resorts is readily
accessible to three of the five largest ski markets in the United States.
Management estimates that approximately 70% of the skiers visiting the Company's
Lake Tahoe resorts are from the San Francisco/San Jose, Sacramento, Central
California Valley and Lake Tahoe regions. Waterville Valley, Mt. Cranmore and
Loon Mountain are estimated to attract approximately 80% of their guests from
Massachusetts and New Hampshire, with a large percentage of such visitors coming
from the Boston metropolitan area. The Summit attracts approximately 90% of its
guests from the Seattle/Tacoma metropolitan region.
Regulation and Legislation
The Company's operations are dependent upon its ownership or control over
the real property used in its ski operations at each resort. The real property
presently used at the Northstar and Mt. Cranmore resorts is owned by the
Company, 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
Sierra, Summit and Waterville Valley resorts under the terms of Term Special Use
Permits issued by the Forest Service. 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 a Forest Service Term Special Use Permit.
In 1993, the Forest Service authorized various improvements at Loon Mountain and
an expansion onto the adjacent South Mountain. The United States Court of
Appeals for the First Circuit overturned this authorization in 1996 on the
ground that the Forest Service had failed to properly address certain
environmental issues under the National Environmental Policy Act ("NEPA"). On
remand from the Court of Appeals, the United States District Court for the
District of New Hampshire (the "District Court") entered a final order dated
December 11, 1998 which imposed certain conditions and limitations on the Forest
Service and Loon Mountain Recreation Corporation ("LMRC") until the Forest
Service completed an additional environmental review process under NEPA. In
response to a separate 1997 action filed by an individual and an environmental
group, the District Court entered an injunction on February 12, 1999 which
limited LMRC's snowmaking and use of a snowmaking pipeline until the Forest
Service completed the additional environmental review process under NEPA.
Effective February 22, 2001, certain plaintiffs in the lawsuits alleging
violations of environmental laws by the Forest Service and LMRC entered into
settlement agreements with LMRC which resolved all issues among the plaintiffs
and LMRC relating to LMRC's prior operations and its proposal for near term
expansion and upgrading of Loon Mountain. Among other things, these agreements
impose certain restrictions on the operation of the resort and the future
development of certain private land at the resort.
LMRC notified the District Court and interested parties that the December
11, 1998 final order and February 12, 1999 injunction expired under their terms
when the Forest Service (i) completed its NEPA process, (ii) issued a Record of
Decision ("ROD") on February 26, 2002 approving the Loon Mountain Final
Environmental Impact Statement (the "Final EIS"), and (iii) issued a Term
Special Use Permit to LMRC for Loon Mountain on June 24, 2002 (thereby replacing
Loon Mountain's three existing Forest Service permits). The new Loon Mountain
Term Special Use Permit expires in 2042.
13
Two written administrative appeals to the ROD were filed with the Forest
Service. One of the two appellants settled with LMRC and withdrew its appeal.
The Forest Service denied the other administrative appeal and upheld the ROD in
a letter decision dated June 7, 2002. With these actions, the Forest Service has
concluded its administrative appeal process for the ROD. The ROD and the Forest
Service's June 7, 2002 letter decision are subject to judicial review in federal
court under the Administrative Procedure Act by the appellant whose
administrative appeal was denied by the Forest Service. As of the date of this
Report, no action for judicial review had been filed. The Company can give no
assurance regarding whether such a judicial appeal will be filed or the timing
or outcome of such a process.
Elements of the expansion and development activities addressed in the Final
EIS that occur on private lands will be subject to separate federal, state and
local permitting processes. While the Company believes that it will successfully
navigate these remaining steps to undertaking the activities authorized in the
ROD, it can give no assurance regarding the timing or outcome of such processes.
The Forest Service has the right to approve the location, design and
construction of improvements in permit areas and many operational matters at
resorts with permits. Under the Term Special Use Permits, the Company is
required to pay fees to the Forest Service. The fees range from 1.5% to
approximately 4.0% of certain revenues, with the rate generally rising with
increased revenues. The calculation of gross revenues includes, among other
things, revenue from lift ticket, season pass, ski school lesson, food and
beverage, rental equipment and retail merchandise sales. Total fees paid to the
Forest Service by the Company during the fiscal year ended October 31, 2003 were
$1,053,000.
The Company believes that its relations with the Forest Service are good,
and, to the best of its knowledge, no Term Special Use Permit for any major ski
resort has ever been terminated by the Forest Service. The United States
Secretary of Agriculture has the right to terminate any Term Special Use Permit
upon 180-days notice if, in planning for the uses of the national forest, the
public interest requires termination. Term Special Use Permits may also be
terminated or suspended because of non-compliance by the permittee; however, the
Forest Service would be required to notify the Company of the grounds for such
action and to provide it with reasonable time to correct any curable
non-compliance.
The Company's resorts are subject to a wide variety of federal, state and
local laws and regulations relating to land use, water resources, discharge,
storage, treatment and disposal of various materials and other environmental
matters. Management believes that the Company's resorts are presently in
compliance with all land use and environmental laws, except where non-compliance
is not expected to result in a material adverse effect on its financial
condition. However, the Company is required from time to time to undertake
remediation activities at its resorts to assure compliance with environmental
laws or to address instances of non-compliance. The cost of these activities
could be significant. The failure by the Company to comply with applicable
environmental laws could result in the imposition of severe penalties and other
costs or restrictions on operations by government agencies or courts that could
materially adversely affect operations.
The operations at the resorts require numerous permits and approvals from
federal, state and local authorities, including permits relating to land use,
ski lifts and the sale of alcoholic beverages. In addition, the Company's
operations are heavily dependent on its continued ability, under applicable
laws, regulations, policies, permits, licenses or contractual arrangements, to
have access to adequate supplies of water with which to make snow and service
the other needs of its facilities, and otherwise to conduct its operations.
There can be no assurance that new applications of existing laws, regulations
and policies, or changes in such laws, regulations and policies will not occur
in a manner that could have a detrimental effect on the Company, or that
material permits, licenses or agreements will not be canceled, or renewed, or
will be renewed on terms materially less favorable to the Company. Major
expansions of any one or more of the Company's resorts could require, among
other things, the filing of an environmental impact statement or other
documentation with the Forest Service and state or local governments under NEPA
and certain state or local NEPA counterparts if it is determined that the
expansion may have a significant impact upon the environment. Although the
Company has no reason to believe that it will not be successful in implementing
its operations and development plans, no assurance can be given that necessary
permits and approvals will be obtained or renewed.
14
Certain regulatory approvals associated with a snowmaking pipeline at Loon
Mountain, as well as certain contractual obligations, impose minimum stream flow
requirements with respect to Loon Mountain's snowmaking operations. These
requirements will compel Loon Mountain to construct water storage facilities
within approximately four years, and such construction may require further
regulatory approvals and environmental documentation under NEPA. No assurances
can be given that such regulatory approvals will be obtained or that the Company
will have the financial resources to complete such construction.
Certain regulatory approvals associated with a proposed snowmaking
impoundment will impose more stringent minimum stream flow requirements with
respect to Waterville Valley's snowmaking operations in the future. These
requirements will likely require Waterville Valley to construct water storage
facilities in the next four years.
Except for certain permitting and environmental compliance matters relating
to Loon Mountain described above and in Part I, Item 3. "Legal Proceedings," the
Company has not received any notice of material non-compliance with permits,
licenses or approvals necessary for the operation of its properties or of any
material liability under any environmental law or regulation.
Employees
As of December 31, 2003, the Company employed a full-time corporate staff
of 58 persons. In addition, the Company's resorts employ an aggregate of
approximately 440 full-time and approximately 3,900 seasonal employees. None of
the employees of the Company or its resorts is represented by a labor union, and
the Company considers its employee relations to be good.
Item 2. Properties
Northstar consists of approximately 8,000 acres of land privately owned by
the Company. Sierra owns 20 acres of its 1,689 gross acreage and leases the
remainder under a Term Special Use Permit issued by the Forest Service.
Waterville Valley owns 11 acres on Snow Mountain and two acres at the Conference
Center, and leases 790 acres of land on Mt. Tecumseh from the federal government
under a Term Special Use Permit issued by the Forest Service. Mt. Cranmore owns
754 acres and holds deeded easements enabling it to develop an additional 500
acres of ski terrain. Loon Mountain owns 565 acres and leases 1,366 acres of
land in the White Mountain National Forest under a Term Special Use Permit
issued by the Forest Service. The Summit owns 686 acres of its 4,103 gross
acreage, leases approximately 440 acres under a private permit, utilizes 1,280
acres for cross-country skiing under an annual operating agreement with the
Forest Service and utilizes 1,697 acres of mountain terrain under a Forest
Service Term Special Use Permit. In addition, each of the Company's resorts have
ski lodges and other facilities that management believes are suitable for the
Company's current operations. For further information regarding the Company's
properties, see Part I, Item 1. "Business - Resort Operations" and "- Regulation
and Legislation."
Substantially all of the consolidated assets of the Company are pledged as
collateral for outstanding borrowings under the Senior Credit Facility (as
defined herein). In addition, the Term Special Use Permits issued by the Forest
Service relating to the Sierra, Waterville Valley, Loon Mountain and Summit
resorts are encumbered as collateral for the Senior Credit Facility.
Item 3. Legal Proceedings
Each of the Company's resorts has pending and is regularly subject to
litigation, and the threat thereof, with respect to personal injury claims
relating principally to snow sports activities at its resorts as well as to
premises and vehicular operations and workers' compensation matters. The Company
maintains liability insurance that the Company considers adequate to insure
claims related to such usual and customary risks associated with the operation
of four-season recreation resorts.
In connection with the Company's 1998 acquisition of Loon Mountain
Recreation Corporation ("LMRC"), certain shareholders of LMRC filed several
lawsuits challenging the transaction and seeking to exercise dissenters' rights
under the New Hampshire Business Corporation Act. Each of these lawsuits has
been decided or otherwise resolved in favor of the Company, LMRC and its former
directors, resulting in no further liability or obligation relating to the
transaction for LMRC, its former directors or the Company and its affiliates.
The New Hampshire Superior Court has awarded attorneys fees to the defendants in
certain of these cases in the amount of $972,000 (with $420,000 for LMRC and the
Company and $552,000 for the insurer that funded certain costs of defending the
former LMRC directors), although the amount of such award remains subject to
appeal and the likelihood or timing of collection of such amount is uncertain.
15
In 1995, an individual sued the Forest Service in the United States
District Court for the District of New Hampshire (the "District Court") alleging
that the Forest Service had violated the National Environmental Policy Act
("NEPA"), the Clean Water Act ("CWA"), and an executive order in approving
improvements to and an expansion at Loon Mountain. The District Court entered a
final order dated December 11, 1998 that imposed certain conditions and
limitations on LMRC's operations. Under its terms, the order was effective until
the Forest Service completed an additional environmental review process under
NEPA and issued a new Term Special Use Permit for Loon Mountain. In 1997, an
individual and an environmental group filed a second lawsuit against the Forest
Service in the District Court alleging that the Forest Service violated NEPA in
authorizing LMRC to construct and operate a snowmaking pipeline. The District
Court entered an injunction on February 12, 1999 which limited LMRC's use of the
snowmaking pipeline until the Forest Service completed its additional
environmental analysis under NEPA and issued a Record of Decision ("ROD").
As described in Part I, Item 1. "Business - Regulation and Legislation", on
February 26, 2002, the Forest Service completed its environmental analysis under
NEPA and issued a ROD approving the Final Environmental Impact Statement for
Loon Mountain. The Forest Service issued a Term Special Use Permit to LMRC for
Loon Mountain on June 24, 2002. The Forest Service denied an administrative
appeal of the ROD in a June 7, 2002 letter decision. The ROD and the June 7,
2002 letter decision are subject to judicial review in federal court by the
appellant whose administrative appeal was denied by the Forest Service. As of
the date of this Report, no action for judicial review had been filed. The
Company can give no assurance regarding whether such a judicial appeal will be
filed or the timing or outcome of such process.
Effective February 22, 2001, certain plaintiffs in lawsuits (each of which
have now been dismissed or settled) alleging violations of environmental laws by
LMRC entered into settlement agreements with LMRC, which resolve all issues
among them and LMRC relating to LMRC's prior operations and current proposal for
near term expansion and upgrading of the Loon Mountain resort. Among other
things, these agreements impose certain restrictions on the operation of the
resort and the future development of certain private land at the resort.
Item 4. Submission of Matters to a Vote of Security Holders
On October 3, 2003, Parent, the sole shareholder of the Company, acting
through its President, Christopher P. Ryman, voted to reelect and confirm George
N. Gillett, Jr., Dean C. Kehler, Edward Levy and Gary M. Pelletier as the
members of the Board of Directors of the Company. No other matters were
submitted to a vote of security holders of the Company during the fourth quarter
of fiscal 2003.
16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established trading market for any class of equity securities
of the Company. All of the Company's equity securities are owned by Parent.
The Company's principal debt agreements contain restrictions on the
Company's ability to pay dividends. The Company has not paid any dividends on
its common stock since inception. See Part II, Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity" and
Note 5 to the accompanying consolidated financial statements.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with
the consolidated financial statements of the Company and related notes thereto
included elsewhere in this Report and Part II, Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The selected
consolidated financial data of the Company as of and for the fiscal years ended
October 29, 1999, October 27, 2000, November 2, 2001, November 1, 2002 and
October 31, 2003, have been derived from the audited consolidated financial
statements of the Company, which have been audited by Ernst & Young LLP,
independent auditors.
17
--------------------------------------------------------------------
Fiscal Fiscal Fiscal Fiscal Fiscal
Year Year Year Year Year
Ended Ended Ended Ended Ended
October October November November October
29, 1999 27, 2000(b) 2, 2001 1, 2002 31, 2003
----------- ----------- ----------- ----------- -----------
(Dollars in Thousands, except Revenue per Skier Visit)
Statement of Operations Data: (a)
Revenue:
Resort Operations............................. $ 101,962 $ 108,430 $ 107,090 $ 108,827 $ 104,963
Real Estate and Other......................... 12,744 19,670 276 11,705 10,084
----------- ----------- ----------- ----------- -----------
114,706 128,100 107,366 120,532 115,047
Operating Expenses:
Cost of Sales - Resort Operations............. 66,581 62,804 61,290 63,137 63,969
Cost of Sales - Real Estate and Other......... 5,244 4,507 211 2,920 5,444
Depreciation, Depletion and Amortization (c).. 18,769 19,437 22,181 17,094 15,766
Selling, General and Administrative........... 20,736 21,187 21,428 22,614 22,063
Unusual Items, Net............................ 487 - - - -
----------- ----------- ----------- ----------- -----------
Operating Income................................. 2,889 20,165 2,256 14,767 7,805
Other Income (Expense):
Interest Expense.............................. (18,517) (18,158) (16,822) (15,281) (12,492)
Amortization of Deferred Financing Costs...... (1,093) (1,084) (966) (1,126) (1,140)
Gain on Early Retirement of Debt.............. - - 1,723 2,761 506
Other Income (Expense)........................ (261) 47 153 (105) (40)
----------- ----------- ----------- ----------- -----------
Other Income (Expense), Net................... (19,871) (19,195) (15,912) (13,751) (13,166)
----------- ----------- ----------- ----------- -----------
Income (Loss) from Continuing Operations Before
Change in Accounting Principle................ (16,982) 970 (13,656) 1,016 (5,361)
Discontinued Operations:
Income (Loss) from Discontinued Operations of
Bear Mountain Resort........................ (1,811) (1,327) (138) 549 -
Loss on Sale of Bear Mountain Resort.......... - - - (3,235) -
----------- ----------- ----------- ----------- -----------
Loss on Discontinued Operations.................. (1,811) (1,327) (138) (2,686) -
----------- ----------- ----------- ----------- -----------
Loss Before Change in Accounting Principle....... (18,793) (357) (13,794) (1,670) (5,361)
Change in Accounting Principle for Goodwill (c).. - - - (200) -
----------- ----------- ----------- ----------- -----------
Net Loss......................................... $ (18,793) $ (357) $ (13,794) $ (1,870) $ (5,361)
=========== =========== =========== =========== ===========
Other Financial and Operating Data:
Total Skier Visits (d)........................... 2,139,000 2,036,000 2,167,000 2,154,000 1,953,000
Revenue (Excluding Paid Skier Visit Insurance
Policy Revenue) per Skier Visit (e)........... $ 47.67 $ 50.56 $ 48.61 $ 50.52 $ 53.74
Capital Expenditures for Property and Equipment.. $ 14,342 $ 21,909 $ 12,944 $ 11,638 $ 6,445
Net Cash Provided by (Used in):
Operating Activities.......................... $ 15,393 $ 29,737 $ 13,366 $ 23,523 $ 13,684
Investing Activities.......................... $ (18,504) $ (9,124) $ (15,280) $ (782) $ (8,787)
Financing Activities.......................... $ 2,947 $ (20,378) $ 1,676 $ (22,535) $ (4,752)
Ratio of Earnings to Fixed Charges (f) .......... - 1.03 - 1.05 -
As of As of As of As of As of
October October November November October
29, 1999 27, 2000 2, 2001 1, 2002 31, 2003
----------- ----------- ----------- ----------- -----------
Balance Sheet Data: (In Thousands)
Working Capital (Deficit), Including Revolving
Credit Facility Borrowings.................... $ (45,309) $ (31,628) $ (46,221) $ (35,935) $ (52,233)
Total Assets..................................... $ 210,346 $ 199,063 $ 189,218 $ 166,600 $ 154,866
Long-term Debt................................... $ 136,483 $ 136,790 $ 128,664 $ 120,195 $ 98,382
Total Debt (g)................................... $ 160,986 $ 144,498 $ 148,040 $ 127,157 $ 122,561
Preferred Stock of Subsidiary ................... $ 2,133 $ 1,638 $ 1,136 $ - $ -
Common Shareholder's Equity (Deficit)............ $ 18,584 $ 18,227 $ 4,433 $ 2,563 $ (2,798)
18
(a) Pursuant to Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"), which was adopted by the Company effective as of October 28, 2000,
the historical results of operations and loss on sale of the Bear Mountain
resort are presented as discontinued operations in the Company's
consolidated statements of operations. As the sale of the Grand Targhee
resort occurred prior to the adoption of SFAS No. 144, the former
operations of the Grand Targhee resort through June 20, 2000 are reflected
in the Company's continuing operations for the fiscal years ended October
29, 1999 and October 27, 2000.
(b) Reflects the divestiture of the Grand Targhee resort on June 20, 2000.
(c) In June 2001, the Financial Accounting Standard Board 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 these rules, goodwill is no longer amortized but is
subject to annual impairment tests in accordance with the pronouncement. 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 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 for the fiscal
year ended November 1, 2002. The following table reflects the amount of
recorded goodwill amortization and adjusted net income (loss) excluding
such goodwill amortization for the periods indicated:
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
October October November
29, 1999 27, 2000 2, 2001
---------- ---------- ----------
(In Thousands)
Reported Net (Loss).......... $ (18,793) $ (357) $ (13,794)
Goodwill Amortization........ 2,391 2,356 2,343
---------- ---------- ----------
Adjusted Net Income
(Loss) .................... $ (16,402) $ 1,999 $ (11,451)
========== ========== ==========
(d) Total skier visits associated with Bear Mountain's operations have been
excluded from the Company's reported total skier visits disclosed in Other
Financial and Operating Data.
(e) Reflects revenue from resort operations divided by total skier visits. For
the fiscal years ended October 27, 2000 and November 2, 2001, the amount
presented for revenue per skier visit excludes the effect of paid skier
visit insurance policy revenue of $5,480,000 and $1,754,000, respectively.
19
(f) For purposes of this computation, earnings are the sum of (i) income (loss)
from continuing operations, and (ii) fixed charges excluding capitalized
interest and preferred stock dividend requirements. Fixed charges are the
sum of (i) interest expensed and capitalized, (ii) an estimate of the
interest within rent expense, (iii) amortization of deferred financing
costs, and (iv) preferred stock dividend requirements. Earnings were
inadequate to cover fixed charges by approximately $5,500,000, $13,800,000
and $17,500,000 during the fiscal years ended October 31, 2003, November 2,
2001 and October 29, 1999, respectively.
(g) Includes Revolving Credit Facility borrowings, current portion of long-term
debt and long-term debt.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto included elsewhere
in this Report. The following discussion contains certain forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to the differences are discussed in "- Risk Factors," "-
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 national economy and 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.
Moreover, since 2000, the Company has sold two resorts (Grand Targhee and Bear
Mountain), thereby reducing its geographical diversity.
The Company's three resorts with the lowest average natural snowfall,
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 136, 139 and 99 days, respectively, during
each of the last five ski seasons, including the 2002/03 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 430 and 425 inches of snowfall, respectively, per year
for the past five ski seasons. As a result of their historic natural snowfall,
these resorts do not have any significant snowmaking infrastructure. 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.
For example, as a result of a lack of natural snowfall and relatively warm
temperatures, the Summit was unable to open until after Christmas for the
2002/03 ski season, and conditions remained poor for much of the season.
Northstar has averaged approximately 253 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 2002/03 ski season total skier visits were attributable to residents
of the San Francisco/San Jose, Sacramento, Central California Valley and Lake
Tahoe regions. At Waterville Valley, Loon Mountain and Mt. Cranmore,
approximately 80% of the 2002/03 ski season total skier visits 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 2002/03 ski season total skier visits
were attributable to residents of the Seattle/Tacoma metropolitan region.
20
The Company seeks to maximize revenues and operating income by managing the
mix of skier visits and revenue per skier visit. These strategies are also
designed to maximize resort cash flow. The strategy for each resort is based on
the demographic profile of its market and the physical capacity of its mountain
and facilities. The Company seeks to increase skier visits by developing
effective ticket pricing and season pass strategies and sales and marketing
programs to improve peak and off-peak volume. The Company also seeks to increase
skier visits by offering a quality guest experience and developing effective
target marketing programs. See Part I, Item 1. "Business - Marketing and Sales."
The Company seeks to improve revenue per skier visit by effectively managing the
price, quality and value of each of its ski-related services, including retail
shops, equipment rentals, lessons and food and beverage facilities.
The Company's current resorts have invested approximately $56.7 million
(including $9.0 million of equipment acquired through capital leases and other
debt) in capital expenditures during the last four fiscal years to upgrade
chairlift capacity, expand terrain, improve skier service, enhance retail and
food and beverage facilities, increase snowmaking capabilities and to meet
sustaining capital requirements, all of which management believes are important
in providing a quality guest experience.
A significant 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.
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 workers' 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. Due to a variety of factors, the insurance industry has experienced
significant losses and a substantial reduction in underwriting capacity in the
past several years, which has generally resulted in significantly higher renewal
premiums for companies seeking insurance. In connection with its annual renewal
of insurance coverage for fiscal 2004, the Company experienced an increase in
insurance premium costs of approximately $1,000,000 over the level of such costs
in fiscal 2003.
Results of Operations
Overview
The opening and closing dates for the Company's resorts for the 2002/03,
2001/02 and 2000/01 ski seasons were as follows:
Opening Dates
---------------------------------------------------
2002/03 Season 2001/02 Season 2000/01 Season
-------------- -------------- --------------
Northstar............. Nov. 22, 2002 Nov. 29, 2001 Nov. 18, 2000
Sierra................ Dec. 16, 2002 Nov. 25, 2001 Nov. 3, 2000
Waterville Valley*.... Nov. 22, 2002 Nov. 16, 2001 Nov. 19, 2000
Mt. Cranmore.......... Nov. 29, 2002 Dec. 15, 2001 Nov. 25, 2000
Loon Mountain*........ Nov. 15, 2002 Nov. 16, 2001 Nov. 22, 2000
The Summit............ Dec. 27, 2002 Nov. 30, 2001 Dec. 1, 2000
21
Closing Dates
---------------------------------------------------
2002/03 Season 2001/02 Season 2000/01 Season
-------------- -------------- --------------
Northstar............. April 20, 2003 April 21, 2002 April 22, 2001
Sierra................ April 27, 2003 April 15, 2002 April 23, 2001
Waterville Valley..... April 6, 2003 April 7, 2002 April 15, 2001
Mt. Cranmore.......... March 30, 2003 March 24, 2002 April 1, 2001
Loon Mountain......... April 20, 2003 April 14, 2002 April 29, 2001
The Summit............ April 13, 2003 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.
Total skier visits generated by each of the Company's resorts during the
2002/03, 2001/02 and 2000/01 ski seasons were as follows:
2002/03 2001/02 2000/01
--------- --------- ----------
(In thousands)
Northstar....................... 570 521 519
Sierra.......................... 353 419 391
Waterville Valley............... 223 205 235
Mt. Cranmore.................... 119 96 129
Loon Mountain................... 359 301 385
The Summit...................... 329 612 508
--------- --------- ----------
Current Resorts............... 1,953 2,154 2,167
Bear Mountain................... - 303 333
--------- --------- ----------
1,953 2,457 2,500
========= ========= ==========
The Lake Tahoe region experienced relatively dry conditions and a lack of
natural snowfall through mid-December 2002. Due to its snowmaking system,
Northstar opened on schedule. However, Sierra did not open until December 16,
2002 due to its dependence on natural snowfall. During the period from December
14th to the 21st, the region received a number of powerful storms resulting in
over six feet of snowfall at Northstar and Sierra. While the storms provided
excellent skiing conditions for the Christmas holiday season, the storms caused
prolonged power outages prior to Christmas, difficult road conditions and other
factors which negatively affected skier visitation on a number of days during
mid-December 2002. For the 2001/02 season, the Lake Tahoe region received
significantly above average snowfall in the first half of December 2001, 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. During January, February and March 2003, the
Lake Tahoe region experienced natural snowfall levels that were substantially
below both long-term historical and prior season levels, which negatively
impacted customer perception of skiing conditions in Lake Tahoe. Despite these
weather challenges, skier visits at Northstar for the 2002/03 season increased
by 49,000 visits, or 9%, due to the relative competitive advantage of its
snowmaking system and the introduction of new season pass products. Skier
visitation at Sierra for the 2002/03 season declined by 66,000 visits, or 16%,
due primarily to the delayed opening for the 2002/03 season and skier visit
shortfalls in the latter part of January and February 2003 due to the lack of
natural snowfall. For the 2000/01 season as a whole, snowfall levels in the Lake
Tahoe region were below historical levels.
During the first half of the 2002/03 ski season, the northeastern United
States experienced much colder temperatures and increased natural snowfall as
compared to the record warm winter of 2001/02. As a result, the Company's New
Hampshire resorts experienced generally good operating conditions for the early
part of the 2002/03 ski season. Bitterly cold temperatures during the second
half of January and the first half of February 2003, as well as several major
disruptive storms (including over the important Presidents' Day holiday) in
Boston and other major cities in the Northeast, dampened mid-season skier
visitation. Late season conditions during the 2002/03 season at the Company's
New Hampshire resorts were generally improved over the prior season. For the
2002/03 ski season, skier visits at the Company's New Hampshire resorts
increased by 99,000 visits, or 16%, from the 2001/02 season. Weather conditions
for the Company's New Hampshire resorts for the 2000/01 season were generally
favorable, with cold temperatures and above average snowfall.
22
For the 2002/03 season, the Pacific Northwest experienced unseasonably warm
temperatures and substantially below average snowfall. Snowfall at the Summit
for the 2002/03 season was less than 60% of historical long-term averages and
prior season levels. Additionally, average temperatures at the Summit during the
2002/03 ski season were generally warmer than normal, and the resort experienced
a large amount of rainfall during the course of the season. The Summit commenced
partial operations on December 27, 2002 on limited terrain, as compared to a
November 30, 2001 opening for the 2001/02 ski season. Skiing conditions remained
poor at the Summit throughout the 2002/03 season. Conversely, operating
conditions at the Summit were generally favorable throughout the 2001/02 ski
season. As a result of these conditions, total skier visits at the Summit for
the 2002/03 season were down 283,000 visits, or 46%, as compared to the 2001/02
season. The 2000/01 season for the Summit was marked by significantly below
average snowfall. However, unlike the unusual weather conditions experienced
during the 2002/03 season, for the 2000/01 season the resort was able to open in
early December and maintain reasonable conditions throughout the season.
Fiscal Year Ended October 31, 2003 Compared to the Fiscal Year Ended
November 1, 2002
The Company's operating results by segment for the fiscal years ended
October 31, 2003 and November 1, 2002 were as follows. Such results exclude the
operating results for the Bear Mountain resort, which was sold on October 10,
2002.
Fiscal Year Ended Percentage
-----------------
October 31, November 1, Increase Increase
2003 2002 (Decrease) (Decrease)
---------- ----------- ---------- ----------
(In thousands, except revenue per skier visit)
Resort Operations:
Revenue:
Lift Tickets................. $ 36,953 $ 42,077 $ (5,124) (12)%
Season Passes................ 19,772 15,098 4,674 31
Snow School.................. 7,521 8,119 (598) (7)
Equipment Rental............. 7,849 8,930 (1,081) (12)
Retail....................... 4,809 4,916 (107) (2)
Food and Beverage............ 15,303 15,864 (561) (4)
Other........................ 12,756 13,823 (1,067) (8)
---------- ----------- ----------
Total Resort Operations
Revenue....................... 104,963 108,827 (3,864) (4)
Cost of Sales - Resort
Operations.................... 63,969 63,137 832 1
Depreciation Expense............ 15,639 16,892 (1,253) (7)
Selling, General and
Administrative Expense -
Resort Operations............. 20,692 21,400 (708) (3)
---------- ----------- ----------
Total Resort Operations
Expenses...................... 100,300 101,429 (1,129) (1)
---------- ----------- ----------
Resort Operating Income......... $ 4,663 $ 7,398 $ (2,735) (37)
========== =========== ==========
Skier Visits.................... 1,953 2,154 (201) (9)
========== =========== ==========
Revenue per Skier Visit......... $ 53.74 $ 50.52 $ 3.22 6
========== =========== ==========
Real Estate and Other Operations:
Revenue:
Real Estate Revenue.......... $ 9,830 $ 11,300 $ (1,470) (13)%
Timber Revenue............... 254 405 (151) (37)
---------- ----------- ----------
Total Real Estate and Other
Operations Revenue............ 10,084 11,705 (1,621) (14)
Cost of Sales - Real Estate
and Other..................... 5,444 2,920 2,524 86
Depletion Expense............... 127 202 (75) (37)
Selling, General and
Administrative Expense -
Real Estate and Other......... 1,371 1,214 157 13
---------- ----------- ----------
Total Real Estate and Other
Operating Expenses............ 6,942 4,336 2,606 60
---------- ----------- ----------
Real Estate and Other
Operating Income.............. $ 3,142 $ 7,369 $ (4,227) (57)
========== =========== ==========
23
Resort Operations:
Revenues from resort operations for the fiscal year ended October 31, 2003
were $104,963,000, a decrease of $3,864,000, or 4%, as compared to the 2002
period. Skier visits for the 2003 period declined by 201,000 visits, or 9%, from
the 2002 period. Increased sales of season passes, which rose 31% to $19,772,000
for the 2003 period, as well as improved revenue per skier visit yields,
partially offset the impact of reduced skier visitation. As compared to the
fiscal year ended November 1, 2002, resort operations revenues for Northstar
increased by $1,621,000, primarily due to higher skier visits and season pass
sales, partially offset by lower revenue per skier visit yields due to changes
in the mix of skiers. Revenues for Sierra decreased by $1,872,000 due to reduced
skier visits, partially offset by higher revenue per skier visit yields.
Revenues for Waterville Valley and Mt. Cranmore increased by $730,000 and
$955,000, respectively, due to increases in skier visits. Revenues for Loon
Mountain increased by $408,000 due to increased skier visits, partially offset
by lower yields due to a greater proportion of season pass visits in the 2003
period. The Summit's revenues decreased by $5,706,000 due primarily to
substantially lower visitation.
Cost of sales for resort operations for the fiscal year ended October 31,
2003 was $63,969,000, an increase of $832,000, or 1%, as compared to the 2002
period. The increase was primarily the result of normal inflationary factors and
higher insurance costs, partially offset by (i) lower snowmaking costs, (ii) the
effect of higher workers' compensation provisions in the 2002 period for
exposures at the Company's Lake Tahoe and Washington resorts, and (iii) lower
summer payroll in the 2003 period as a result of cost savings initiatives.
Depreciation expense for the fiscal year ended October 31, 2003 was
$15,639,000, a decrease of $1,253,000, or 7%, from the 2002 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.
Selling, general and administrative expense for resort operations for the
fiscal year ended October 31, 2003 was $20,692,000, a decrease of $708,000, or
3%, as compared to the 2002 period. The decrease in selling, general and
administrative expense between the 2003 and 2002 periods was primarily due to
reduced provisions under incentive compensation arrangements in 2003, partially
offset by normal inflationary factors.
Resort operating income for the fiscal year ended October 31, 2003 was
$4,663,000, a decrease of $2,735,000 from the operating income generated for the
2002 period, primarily as a result of lower revenues in the 2003 period.
Real Estate and Other:
Revenues from real estate operations for the fiscal year ended October 31,
2003 were $9,830,000, which was due to (i) the sale of the final lot within the
Unit 7 subdivision at Northstar for $646,000, and (ii) the sale of 12 lots
within the Unit 7A subdivision at Northstar for $9,184,000. Revenues from real
estate sales during the fiscal year ended November 1, 2002 were $11,300,000,
which was due to the sale of 25 lots within the Unit 7 subdivision at Northstar.
Due to slightly larger average lot sizes, better lot views and amenities and
continued improvements in the local real estate market, the Company was able to
realize significantly higher average lot prices for the Unit 7A subdivision as
compared to the Unit 7 subdivision. Timber operations at Northstar contributed
revenues of $254,000 and $405,000 during the 2003 and 2002 periods,
respectively.
Cost of sales for real estate and other operations was $5,444,000
(including noncash cost of real estate sales of $4,484,000) for the fiscal year
ended October 31, 2003, as compared to $2,920,000 for the fiscal year ended
November 1, 2002. The increase in cost of sales was primarily due to expanded
infrastructure requirements for the Unit 7A subdivision, including related water
system improvements and a lift to access Northstar's ski terrain from the
subdivision.
Selling, general and administrative expense related to real estate
operations increased by $157,000, or 13%, to $1,371,000 for the fiscal year
ended October 31, 2003, due principally to sales launch costs for the Unit 7A
subdivision.
Operating income from real estate and other operations was $3,142,000 for
the fiscal year ended October 31, 2003, a decrease of $4,227,000 from the fiscal
year ended November 1, 2002, as a result of the factors discussed above.
24
Interest Expense and Other Items:
Interest expense for the fiscal year ended October 31, 2003 totaled
$12,492,000, a decrease of $2,789,000, or 18%, from the Company's interest
expense for the fiscal year ended November 1, 2002, as a result of reduced
borrowings and lower average interest rates.
The Company recognized gains on the early retirement of debt of $506,000
and $2,761,000 for the fiscal years ended October 31, 2003 and November 1, 2002,
respectively, relating to repurchases of $16,000,000 and $29,325,000 aggregate
principal amount of its 12.5% senior notes due 2007 (the "Senior Notes") during
the 2003 and 2002 periods, respectively.
As of October 31, 2003 and November 1, 2002, the Company had net operating
loss carryforwards of approximately $100,000,000 and $90,000,000, respectively,
for federal income tax reporting purposes, which expire between 2012 and 2023.
The tax benefits of such net operating losses are fully offset by a valuation
reserve. Accordingly, during the fiscal years ended October 31, 2003 and
November 1, 2002, no income tax provision has been provided.
On October 10, 2002, the Company consummated the sale of all of the capital
stock of Bear Mountain, Inc., the owner and operator of the Bear Mountain ski
resort, 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. The
purchase price was determined through arms-length negotiations. As a result of
the disposal, t