10-K 1 k11022001.txt BOOTH CREEK SKI HOLDINGS, INC. 10-K-110201 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- 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: November 2, 2001 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) ------------------ Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: None. ------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of December 31, 2001, 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. =============================================================================== TABLE OF CONTENTS Item Page Number ----------- PART I 1. Business..................................................... 1 2. Properties................................................... 17 3. Legal Proceedings............................................ 17 4. Submission of Matters to a Vote of Security Holders...................................................... 19 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................................... 20 6. Selected Financial Data...................................... 20 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 22 7a. Quantitative and Qualitative Disclosures About Market Risk.................................................. 33 8. Financial Statements and Supplementary Data.................. 33 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................... 33 PART III 10. Directors and Executive Officers of the Registrant........... 34 11. Executive Compensation....................................... 36 12. Security Ownership of Certain Beneficial Owners and Management............................................... 41 13. Certain Relationships and Related Transactions............... 45 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................................... 48 Signatures................................................... 54 Index of Financial Statements................................ F-1 PART I Item 1. Business Overview As used in this Report, the "Company" or "Booth Creek" refers to Booth Creek Ski Holdings, Inc. and its subsidiaries, unless the context otherwise requires. The Company is a wholly-owned subsidiary of Booth Creek Ski Group, Inc. ("Parent"). The Company currently owns and operates seven ski resort complexes encompassing ten separate resorts, including the Northstar-at-Tahoe ("Northstar") and Sierra-at-Tahoe ("Sierra") ski resorts in the Lake Tahoe region of Northern California, the Bear Mountain ski resort ("Bear Mountain") in Southern California, the Waterville Valley ("Waterville Valley"), Mount Cranmore ("Mt. Cranmore") and Loon Mountain ("Loon Mountain") ski resorts in the White Mountains of New Hampshire and the Summit at Snoqualmie (the "Summit") ski resort complex, which consists of four separate resorts, in the Cascade Mountains of Northwest Washington. The Company divested the Grand Targhee ski resort ("Grand Targhee") on June 20, 2000. The Company is the fourth largest ski resort operator in North America based on approximately 2.5 million skier days recorded during the 2000/01 ski season at its resorts. Booth Creek primarily operates regional ski resorts which attract the majority of their guests from their regional ski markets, within a 200 mile driving radius of each resort. The Company's properties offer approximately 6,281 acres of skiable terrain, 381 trails, 96 lifts (including 16 high-speed lifts and two gondolas) and on-mountain capacity to accommodate approximately 52,000 guests daily. For the year ended November 2, 2001, the Company generated revenues of $121.9 million and income from operations before depreciation, depletion and amortization expense and the noncash cost of real estate sales ("EBITDA") of $27.3 million, and incurred a net loss of $13.8 million. For the year ended October 27, 2000, the Company generated revenues of $139.4 million and EBITDA of $43.9 million, and incurred a net loss of $357,000. The Company's resort properties are located near major skiing populations, including four of the five largest regional ski markets in the United States: Los Angeles/San Diego, San Francisco/Sacramento, Boston and Seattle/Tacoma. The Company believes this geographical diversification may help to limit the Company's exposure to regional economic downturns and unfavorable weather conditions. The Company's resorts seek to differentiate themselves in their respective markets by selectively upgrading on-mountain facilities and guest services, employing targeted marketing strategies and offering extensive skier development programs, all of which create a competitively-priced, high-quality guest experience. The Company's resorts have collectively invested approximately $55.8 million (including $6.6 million of equipment acquired through capital leases and other debt) in capital expenditures during the last three fiscal years, including the addition of high-speed chairlifts, additional snowmaking capabilities, improved trail grooming equipment, and enhanced on-mountain skier service, retail and food service amenities. The Company believes its existing resorts are well maintained. The Company also uses targeted advertising, database marketing and strategic marketing alliances to enhance the image of its resorts and increase regional market share. The Company also offers extensive development programs to improve the technical skill level of all types of skiers, which management believes is important to expand the total skier population and increase skier visitation frequency. The following is an organizational chart of Parent, the Company and the Company's subsidiaries. Each subsidiary of the Company is, directly or indirectly, wholly-owned by Booth Creek. [GRAPHIC OF ORGANIZATIONAL CHART OMITTED] The Company's principal executive offices are located at 1000 South Frontage Road West, Suite 100, Vail, Colorado 81657. Its telephone number at that location is (970) 476-1311. The Company was incorporated in Delaware on October 8, 1996. Industry There are approximately 490 ski areas in the United States which, during the 2000/01 ski season, generated approximately 57.3 million skier days. A "skier day" represents one skier or snowboarder visiting one ski resort for one day, including skiers and snowboarders using complimentary and season passes. Calculation of skier days requires an estimate of visits by season passholders. Although different ski resort operators may use different methodologies for making such estimates, management believes that any resulting differences in total skier days are immaterial. U.S. ski areas range from small ski resort operators, which primarily cater to day skiers and regional overnight skiers from nearby population centers, to larger resorts which, given the scope of their operations and their accessibility, are able to attract skiers and snowboarders from their regional ski markets as well as destination resort guests who are seeking a comprehensive vacation experience. While regional ski market skiers tend to focus primarily on lift ticket price and round-trip travel time, destination travelers tend to be heavily influenced by the number of amenities and activities offered as well as the perceived overall quality of the vacation experience. The table below summarizes regional skier day information from the 1996/97 ski season through the 2000/01 ski season. U.S. Ski Industry Regions and Skier Days (In thousands) Rocky Pacific Lake Season Northeast Southeast Midwest Mtns West Tahoe Total --------------------- --------- --------- ------- ------ ------- ----- ------ 1996/97.............. 12,407 4,231 7,137 18,904 7,341 2,500 52,520 1997/98.............. 12,712 4,343 6,707 19,191 7,419 3,750 54,122 1998/99.............. 12,300 4,261 6,005 18,439 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 Five year average.... 12,628 4,697 6,770 18,793 7,076 3,689 53,653 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: 2000/01 Kottke National End of Season Survey Over the last fifteen years, the ski resort industry has experienced a period of consolidation. The number of United States ski areas has declined from 709 in 1986 to 490 in 2001. The number of ski areas may decline further, as many mountain resorts lack the infrastructure, capital and management capability to effectively compete in this multi-dimensional and service-intensive industry. No major new ski resort has opened in the United States since 1989. Of the 490 ski areas, the 2000/01 Kottke National End of Season Survey estimates the average resort recorded approximately 117,000 skier days. All of the Company's resorts except Mt. Cranmore typically record more than 200,000 annual skier days. The trend among leading resorts is toward investing in improving technology and infrastructure, including high-speed lifts, attractive facilities and extensive snowmaking capabilities, to deliver a more consistent, quality experience. During the last three fiscal years, the Company has invested approximately $55.8 million in capital expenditures at its resorts to improve their competitive position and to meet sustaining capital requirements. Management believes the need for increased investment in resorts in general has required a greater access to capital and has enhanced the position of resorts owned by larger, better capitalized owners. Despite the recent consolidation in the ski industry, the industry remains fragmented, with no one resort accounting for more than 3%, and no one resort operator accounting for more than approximately 10%, of the United States' 57.3 million skier days during the 2000/01 ski season. The four largest ski resort companies, including the Company, accounted for approximately 28.4% of all U.S. skier days recorded during the 2000/01 ski season. The Lake Tahoe region has averaged approximately 3.7 million annual skier days over the last five years. Management estimates that approximately 70% to 75% of the skiers visiting Lake Tahoe resorts during the 2000/01 ski season were from the San Francisco, Sacramento and Central California Valley metropolitan areas and the Lake Tahoe region. Other guests come principally from Southern California and states with large ski populations, such as Texas, Illinois and Florida. The Southern California market has averaged approximately 2.8 million annual skier days over the last five years. Management estimates that approximately 90% of the skiers visiting Southern California resorts during the 2000/01 ski season were drawn primarily from the Los Angeles, Orange County and San Diego metropolitan areas. The Northeast market (including New York) has averaged approximately 12.6 million annual skier days over the last five years. The Northeast market consists of a significant percentage of day or weekend skiers due to the relatively short driving radius to major metropolitan areas. While the Northeast does not draw significant numbers of vacationing skiers from the Western regions of the United States, it does compete with the Rocky Mountains and Pacific West areas for Eastern vacationing skiers. The region's major ski areas and resorts are concentrated in the mountainous areas of New England and Eastern New York, with the bulk of skiers coming from the population centers located in eastern Massachusetts, Southern New Hampshire, Connecticut, Eastern New York, New Jersey and the Philadelphia area. The Pacific West market has averaged approximately 7.1 million skier days over the last five years. Management estimates that more than 90% of the skier days recorded at Washington state resorts during the 2000/01 ski season were attributable to residents of the Seattle/Tacoma metropolitan area. Other guests come primarily from other parts of Washington, Oregon and Western Canada. Washington state resorts do not attract a significant number of destination skiers. Resort Operations The Company's seven resort complexes offer a variety of ski and non-ski activities. The table below provides a summary of each resort's ski operations and is followed by a more detailed description of each resort. Approx. Snow- Approx. Vertical making Beds Skiable Drop Trail Within Resort Acres (Feet) Trails Lifts Coverage 12 Miles -------------------- ------- -------- ------ ------------- -------- -------- Northstar-at-Tahoe.. 2,420 2,280 70 1 High-Speed 50% 15,000 Gondola 5 High-Speed Quads (1) 4 Fixed Grip 5 Surface Sierra-at-Tahoe..... 1,680 2,212 46 3 High-Speed 4% 30,000 Quads 6 Fixed Grip 3 Surface Bear Mountain....... 195 1,665 34 2 High-Speed 100% 11,000 Quads 7 Fixed Grip 3 Surface Waterville Valley... 255 2,020 52 2 High-Speed 100% 6,500 Quads 6 Fixed Grip 4 Surface Mt. Cranmore........ 183 1,270 39 1 High-Speed 100% 16,000 Quad 4 Fixed Grip 4 Surface Loon Mountain....... 250 2,100 44 1 High-Speed 96% 13,000 Gondola 1 High-Speed Quad 5 Fixed Grip 3 Surface The Summit.......... 1,298 2,200 96 2 High-Speed 0% 1,000 Quads 18 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. Total skier visits generated by each of the Company's resorts during the 2000/01, 1999/00 and 1998/99 ski seasons were as follows: 2000/01 1999/00 1998/99 (In thousands) Northstar....................... 519 477 530 Sierra.......................... 391 310 355 Bear Mountain................... 333 251 294 Waterville Valley............... 235 204 239 Mt. Cranmore.................... 129 100 112 Loon Mountain................... 385 304 297 The Summit...................... 508 504 485 --------- --------- ---------- Current Resorts............... 2,500 2,150 2,312 Grand Targhee................... - 137 121 --------- --------- ---------- 2,500 2,287 2,433 ========= ========= ========== Northstar-at-Tahoe Northstar-at-Tahoe, located near the north end of Lake Tahoe, California, offers extensive activities and services in both winter and summer. The resort's 8,600-foot Mt. Pluto features 2,420 acres of skiable terrain and a 2,280 foot vertical drop. Northstar's 70 ski trails are served by 15 operating lifts, including one gondola, 5 high-speed quads, two triple lifts and two double lifts, which combine to transport up to approximately 23,000 skiers uphill per hour. Northstar also has approximately 65 kilometers of groomed trails for cross-country skiing and snowshoeing and several on-mountain terrain parks for snowboarders and adventurous skiers. Other facilities at Northstar include a village consisting of condominium/hotel accommodations, restaurants, bars, shops, a child-care center and conference facilities, a 22,700 square foot on-mountain ski lodge, a 9,000 square foot rental equipment facility, and a 5,800 square foot on-mountain children's ski school facility. Summer recreation facilities include an 18-hole golf course, ten tennis courts, a horseback riding stable, fly fishing, mountain bike rentals and trails and swimming pools. Northstar currently ranks third in total skier days in the Lake Tahoe area. In 2001, Northstar was ranked by Ski magazine as the 22nd best ski resort in North America and received gold medals in a number of important categories including guest service, family programs, grooming and favorable weather. Northstar has invested in a number of improvements for the 2001/02 ski season, including snowmaking infrastructure enhancements to increase the efficiency and effectiveness of Northstar's snowmaking operations, a new mid-mountain rental equipment and snowsports school facility and a mountain-top food and beverage facility. These improvements augment a number of key expansion projects made in 2000, including a 200 acre terrain expansion onto Lookout Mountain. The Lookout expansion provided Northstar with additional advanced terrain, and is served by a detachable quad lift. Northstar's snowmaking system is engineered to cover approximately 50% of its ski trails. Annual snowfall at the resort has averaged 304 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 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 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 twelve 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. Management believes that Sierra's investment in its ski infrastructure has made it the best ski value in the South Lake Tahoe area. Sierra does not offer summertime activities. In 2001, Ski magazine ranked Sierra as one of the ten best ski resorts in the Pacific region. Sierra owns 20 acres of its 1,689 gross acreage and leases the remainder under a Term Special Use Permit from the United States Forest Service. See Part I, Item 1. "Business - Regulation and Legislation." Due to its abundant annual snowfall, which has averaged approximately 476 inches per year over the past five years, Sierra's snowmaking equipment covers only 4% of Sierra's total terrain. Bear Mountain Bear Mountain is located in the San Bernardino mountains of Southern California. Its 8,805-foot peak features 195 acres of skiable terrain and a 1,665 foot vertical drop. Bear Mountain's 34 ski trails are served by 12 lifts, including two high-speed quads, one fixed grip quad, two triple lifts and four double lifts, which combine to transport up to approximately 17,000 skiers uphill per hour. Since its acquisition by Booth Creek, Bear Mountain has made significant improvements to its base lodge facilities, and installed a new high-speed quad lift to provide improved access to key portions of its beginner and advanced terrain. Other facilities at Bear Mountain include three lodges which provide an aggregate of approximately 31,000 square feet of space for food and beverage services (restaurants and cafeterias), skier services and entertainment. Summer recreation facilities include a nine-hole golf course. Bear Mountain owns 116 of its 819 gross acreage, leases 698 acres of mountain terrain under a United States Forest Service Term Special Use Permit and leases five acres from third parties. See Part I, Item 1. "Business - Regulation and Legislation." Bear Mountain's snowmaking system covers 100% of its ski trails. Bear Mountain also has access to three reservoirs capable of holding six million gallons of water for snowmaking. Waterville Valley Waterville Valley's major base facilities are located on the 4,004 foot high Mt. Tecumseh and offer 255 skiable acres and a vertical drop of 2,020 feet. Waterville Valley's 52 trails are served by 12 operating lifts, including two high-speed quads, two triple lifts and four double lifts, which combine to transport up to approximately 16,000 skiers uphill per hour. The resort operates a 41,872 square foot base lodge (complete with multiple food service centers and child care), three other base area facilities comprising approximately 27,500 square feet, a mid-mountain lodge featuring a cafeteria and deli and a mountain-top lodge with snack bar and restaurant dining. The Waterville Valley resort has a year-round Adventure Center offering mountain bikers, cross-country skiers and hikers access to 105 kilometers of trails in the White Mountain National Forest. Other resort amenities include an ice skating arena, golf course, tennis center, sports and fitness center, horsedrawn sleigh rides, skateboard park, beach and paddle boats. Waterville Valley's Conference Center has 17,000 square feet of meeting space and provides banquet facilities for up to 1,000 people. With 11 meeting rooms, a business center, audio-visual capabilities and a self-contained pub, the Conference Center's on-site staff supports events year-round. In 2001, Waterville Valley was recognized as the tenth best ski resort in the East by Ski magazine. Waterville Valley owns 35 acres on Snow Mountain and two acres at the Conference Center. It leases 790 acres of land on Mt. Tecumseh under a Term Special Use Permit issued by the United States Forest Service. See Part I, Item 1. "Business - Regulation and Legislation." Waterville Valley's snowmaking system is engineered to cover 100% of the ski trails on Mt. Tecumseh. Water for snowmaking is currently pumped from a local river and a pond. Waterville Valley is in the process of seeking permits for additional water sources and water storage facilities for snowmaking. Mt. Cranmore Mt. Cranmore is the oldest continuously operated ski area in the United States. Located in the hub of New Hampshire's Mount Washington Valley, Mt. Cranmore's 1,714 foot summit offers 183 skiable acres and a 1,270 foot vertical drop. Mt. Cranmore's 39 trails are served by nine operating lifts, including one high-speed quad, one triple lift and three double lifts, which combine to transport up to approximately 6,000 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 year-round 46,000 square foot athletic facility which includes five outdoor tennis courts, four indoor tennis courts, a pool, a spa, a weight-lifting area, aerobic training rooms, an indoor climbing wall, locker rooms, a kitchen area and nursery service. Mt. Cranmore also operates on-site retail and rental shops. Mt. Cranmore owns 754 acres and holds easements enabling it to develop an additional 500 acres of ski terrain. Mt. Cranmore does not lease any of its land from the federal government. Mt. Cranmore's snowmaking equipment consists of a computerized weather-monitoring and snowmaking system which covers 100% of the resort's ski trails. In addition to pumping rights from a nearby stream, Mt. Cranmore has an 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 1.5 million gallons of water. Loon Mountain Loon Mountain is located in the White Mountains of New Hampshire in the town of Lincoln. The resort's 3,050 foot peak features 250 skiable acres and a 2,100 foot vertical drop. Loon Mountain's 44 trails are served by ten operating lifts, including a four-passenger gondola, a high-speed quad, two triple lifts and three double lifts, which combine to transport over 10,000 skiers uphill per hour. Loon Mountain's trails cater mostly to intermediate level skiers (64%), with trails provided for beginners (20%) and experts (16%) as well. Resort amenities include a base lodge with a cafeteria and coffee shop, a restaurant and deck at the summit, the Governor Adams lodge (which provides traditional lodge facilities and also serves as a venue for summer outdoor activities and concerts), trails for cross-country skiing, horseback riding and mountain biking and a steam engine railroad for shuttling visitors. Loon Mountain has the snowmaking capacity to cover approximately 96% of its skiable terrain. In 2001, Loon Mountain was ranked as the ninth best ski resort in the East by Ski magazine. Loon Mountain owns 565 acres and leases 778 acres of land in the White Mountain National Forest under a Term Special Use Permit issued by the United States Forest Service permitting year-round recreational use. See Part I, Item 1. "Business - Regulation and Legislation." Adjacent to such land, an additional 581 acres are leased on "South Mountain" under a separate Special Use Permit permitting certain limited activities, including mountain biking, cross-country skiing and horseback riding. These 581 acres have been designated by management for the eventual development, subject to permitting, of skiing terrain to complement the current skiing area. See Part I, Item 1. "Business - Real Estate Development." The Summit at Snoqualmie The Summit at Snoqualmie is located in the Cascade Mountains of Northwest Washington and consists of four separate resorts, Alpental at the Summit ("Alpental"), Summit West, Summit Central, and Summit East, which collectively offer 1,298 acres of skiable terrain. Individually, Alpental has a 5,400 foot top elevation, a 2,200 foot vertical drop, 170 acres of skiable trails and runs (93 acres of which are lighted for night skiing) and approximately 600 acres of backcountry terrain; Summit West has a 3,860 foot top elevation, an 810 foot vertical drop and 172 acres of skiable trails and runs (166 acres of which are lighted for night skiing); Summit Central has a 3,860 foot top elevation, a 1,020 foot vertical drop and 246 acres of skiable trails and runs (176 acres of which are lighted for night skiing); and Summit East has a 3,760 foot top elevation, a 1,080 foot vertical drop and 110 acres of skiable trails and runs (58 acres of which are lighted for night skiing). In total, the Summit complex has 96 designated trails and runs served by 26 operating lifts, including two high-speed quads, four triple lifts, 14 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. In addition, the Summit West, Summit Central, and Summit East areas are interconnected by a cross-over trail system. The Summit operates seven lodges which provide an aggregate of approximately 111,175 square feet of space for food and beverage services (restaurants and cafeterias), skier services and entertainment. Overall, the Summit complex is one of the largest learn-to-ski areas in the United States, with approximately 25% of its 2000/01 skier days being attributable to guests enrolled in ski school programs. In addition, the Summit is the largest night skiing complex in the United States, with approximately 20% to 25% of its skier visits each season being recorded at night. The Summit owns 686 acres of its 4,152 gross acreage, leases over 1,400 acres under a private permit and utilizes 1,864 acres of mountain terrain under a United States Forest Service Term Special Use Permit. See Part I, Item 1. "Business - Regulation and Legislation." The Summit typically enjoys abundant annual snowfall, averaging 482 inches annually over the past five years. As a result, there are no man-made snowmaking capabilities at any of the Summit resorts. The Company does, however, possess water rights that would allow it to engage in snowmaking, if necessary or desired in the long term. Business Segments and Principal Products The Company operates in two business segments: resort operations and real estate and other. Business segment information is presented in Note 14 to the accompanying consolidated financial statements. 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 - General," 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 United States Forest Service permits as well as land owned by third parties. In management's view, increasing the on-mountain bed base, expanding retail and other commercial services and developing additional skiable terrain at a resort can accelerate growth in skier days and ski-related revenues. The Company's real estate development strategy for residential and commercial properties is comprised of the following components: (1) to build recurring resort cash flow through increased bed base and diversification of revenue sources, (2) to partner with proven real estate developers, (3) to invest on a limited basis in land and infrastructure development in conjunction with the development of single family lots at Northstar, and (4) to refrain from investment in vertical or commercial development except in conjunction with the development of ski related facilities. The Company's strategy with regard to the expansion of skiable terrain at its resorts is based on the evaluation of several key factors, including (i) the anticipated growth of the skier base within the relevant market and the Company's ability to improve its competitive position in that market, as measured by the potential increase in the number of skier days and revenue per skier on a long-term basis which the Company believes it can capture through expansion and upgrades, and (ii) the return on capital expected to be realized from an expansion project versus alternative projects. Management undertakes extensive planning and pre-development steps prior to investing significant capital into any development project. Currently, the Company is in the process of developing comprehensive master plans and obtaining entitlements (e.g., zoning approvals) for Northstar, Loon Mountain, Waterville Valley and the Summit. In management's view, the expansion projects at Northstar and Loon Mountain represent the Company's highest development opportunities, and would likely take priority over the pursuit of expansion and development initiatives at the Company's other resorts. The Company's resorts have traditionally taken a conservative approach toward residential and commercial development and real estate development efforts have taken place primarily at Northstar. Beginning in 1995, the resort developed a single family home community on Mt. Pluto ("Big Springs") consisting of 158 private residential lots. The last two phases of Big Springs, which consisted of 47 lots, were substantially sold out during the summer of 1999. The average price for a one third acre lot was $305,000. Current and future single family residential development at Northstar is limited based on the present real estate master development plan. The plan calls for the development of approximately 56 additional single family lots in three phases or subdivisions known as "Unit 7", "Unit 7A" and "Unit 7B." The property underlying the Unit 7 development lots was sold by Trimont Land Company ("TLC"), the owner and operator of Northstar and a wholly-owned subsidiary of the Company, to Trimont Land Holdings, Inc. ("TLH"), a wholly-owned subsidiary of Parent and an affiliate of the Company, on November 17, 1999. The Company obtained a fairness opinion for the transaction from an independent firm qualified in the subject matter of the transaction. See Note 9 to the accompanying consolidated financial statements. Under the terms of the transaction with TLH, the Company is entitled to receive any excess net cash proceeds (over the proceeds received in November 1999) from the subsequent resale of the lots by TLH. During December 2001, TLH consummated the sale of seven Unit 7 lots for net proceeds of approximately $3,300,000. As the net proceeds of the seven lot sales were less than the $6,000,000 in cash initially paid by TLH for the underlying real estate, no additional cash proceeds were distributed to TLC. TLH intends to market and sell the remaining 19 unsold Unit 7 lots during 2002. The Company is currently proceeding with the entitlement process and pre-construction activities for the Unit 7A subdivision, which is expected to consist of approximately 15 single family lots. Depending on market conditions and demand for the remaining Unit 7 lots, the Company expects to develop and market the Unit 7A lots during either the Summer/Fall of 2002 or sometime in 2003. The entitlement and approval process for the Unit 7B subdivision, which is expected to consist of approximately 15 lots, is at a preliminary stage. On September 22, 2000, TLC and TLH 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% is payable in cash and 15% is 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 maintained significant approval rights over various aspects of the real estate development, as well as development activities that could impact resort operations at Northstar. In connection with the execution of the Northstar Real Estate Agreement, TLH and East West entered into 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. The proposed project contemplated by the East West Joint Venture includes the development of a mixture of at least 1,800 hotel, condominium, townhome and time share units, as well as significant additional commercial/retail space in and around Northstar. Under the East West Joint Venture, TLH retains financial responsibility for approximately $5,000,000 of costs associated with the development of the infrastructure of the Development Real Estate. On September 22, 2000, TLC and TLH consummated the sale of the initial land parcels 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. The sale of the remaining Development Real Estate under the Northstar Real Estate Agreement is subject to certain subdivision requirements to effect the transfer of such property and other normal and customary closing conditions, and is expected to be consummated in 2002. Management believes that the expected substantial increase in on-mountain bed base from the East West development will result in increased visitation to Northstar and increased skier days, thereby enhancing the value and profitability of Northstar's resort operations. 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. Such expansion is expected to occur concurrently with the anticipated bed base expansion resulting from the East West development. 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. The Company is studying further alternatives for the continued expansion and improvement of Northstar's snowmaking system. 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, Northstar has a program to harvest timber through third party contracting. The timber harvesting program, which produced revenues of $276,000 during the year ended November 2, 2001, is managed carefully to avoid interference with Northstar's resort operations and prevent any diminution in the quality of the resort's natural environment. Loon Mountain currently leases approximately 581 acres known as "South Mountain" from the Forest Service. Although currently limited to recreational uses other than downhill skiing, this permitted area has been designated by both Loon Mountain and the Forest Service as an area for expanded skiing activities and the development of additional trails and lifts. A permit allowing this expansion was issued by the United States Forest Service in 1993, but was subsequently invalidated by the U.S. Court of Appeals due to litigation brought by third parties. See Part I, Item 3. "Legal Proceedings." Pending the issuance of additional permits, expansion on South Mountain depends upon the Company and United States Forest Service fulfilling the requirements, including the preparation of supplemental National Environmental Policy Act ("NEPA") documentation, of a court order issued by the federal district court to which the related litigation was remanded. Based on discussions with the United States Forest Service, the Company expects final NEPA documentation to be issued in the first half of 2002. 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 327 acres of land located at the base of South Mountain and approximately 5 acres at the base of the existing ski area. The current zoning for this property is rural residential and general use, and would allow for, subject to approvals, construction of a maximum of 997 units. Loon Mountain also owns (1) approximately 32 acres of land with existing approvals for development of 31 single family lots, and (2) 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. The timing and scope of development will depend on market conditions, the Company's financial position and an evaluation of the Company's other expansion opportunities. Bear Mountain has received approval from the United States Forest Service and local governmental authorities of an expansion plan that would, among other things, increase the resort's skiable terrain by 114 acres and increase daily skier capacity by approximately 25%. The approval, however, is subject to numerous mitigation conditions, including a requirement that Bear Mountain acquire and dedicate to the United States Forest Service two acres of spotted owl habitat and one acre of flying squirrel habitat in exchange for each acre proposed for development. Bear Mountain has also entered into a developer's agreement with the City of Big Bear Lake that generally authorizes, subject to certain conditions, the construction of up to 56 condominium units on resort operating property owned by Bear Mountain. However, portions of the potential condominium development property are currently used in the operation of the existing ski resort, and any proposed development plans could possibly be constrained by operating requirements at Bear Mountain. The Company does not presently have any immediate expansion or development plans for Bear Mountain, and any future expansion or development would depend on a variety of factors, including local market conditions, the Company's financial position and the resolution of regulatory and United States Forest Service permitting issues. Mt. Cranmore holds a perpetual easement entitling it to develop at least 500 acres of additional ski terrain known as the "Black Cap Mountain area" or "Black Cap." The Black Cap easement was granted in 1951 and allows the Company to expand Mt. Cranmore's existing ski and recreational infrastructure and develop additional trails. The Black Cap property underlying the Company's easement is privately owned by a third party. The Black Cap land available for development by the Company is high-quality, mostly north and west-facing ski terrain located in an area that can accommodate alpine and cross-country trails, ski lifts and snowmaking. Expansion could increase Mt. Cranmore's skier capacity, and could enhance the quality and diversity of its skiable terrain. Given the resort's location in the heart of the Mt. Washington region, the dominant tourist destination in New Hampshire, the Company believes that expansion into Black Cap could position Mt. Cranmore as a premier attraction in the White Mountains and one of the larger and more appealing resorts in New Hampshire. Additionally, Mt. Cranmore has 35 acres of privately owned land at the southwest flank of the mountain. This southwest facing ski-in/ski-out land is very suitable for development. The Company does not have any immediate expansion or development plans for Mt. Cranmore and the timing and scope of any development will depend on market conditions, the Company's financial position and the Company's other expansion opportunities. The Summit owns 66 acres of real property on various parcels on and around its resorts, a portion of which is available for residential development. The developmental real estate at the Summit is owned by DRE, L.L.C. (the "Real Estate LLC"), a subsidiary of the Company. The Summit also owns 39 acres of real property at Summit East that is ski-to/ski-from and is zoned as high-density residential and commercial. Any potential real estate development activities at the Summit could be constrained by existing or future planned resort operations at the Summit. The Summit's development parcels will be studied for future development potential when market conditions warrant. The Company has no agreements, arrangements or understandings with respect to financing the development of any of the real estate projects discussed herein. Any future development would be subject to, among other things, the Company's ability to obtain the necessary financing and all necessary permits and approvals. The Senior Credit Facility, the Indenture and the Securities Purchase Agreements (as defined herein) each contain restrictive covenants that may significantly limit the Company's ability to pursue real estate development opportunities. No assurance can be given that the Company will develop any additional properties or, if completed, any such projects will be successful. Moreover, there can be no assurances that the East West development at Northstar will be successful or be completed as currently planned, or that such development will have the currently anticipated favorable effects on the Company's resort operations. In addition, there are 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 50 persons, including a marketing director at each resort who reports to the Vice President of Marketing and Sales, as well as to each resort's general manager. The marketing staff at each resort is responsible for the development of resort-specific marketing plans including advertising, sales, public relations, events, promotions, Internet strategies and research. Each resorts' marketing personnel also participate in the development of the Company's overall marketing strategy. Strategy The Company's marketing plans are designed to attract both day skiers and vacationers by emphasizing the Company's diverse facilities and services and proximity to approximately 20% of the total skiers in the United States. The Company has positioned each of its resorts as an attractive alternative to competing regional resorts and to other forms of leisure and entertainment. The primary objectives of the Company's marketing efforts are to (i) increase each of its resorts' relative market share, (ii) expand the number of skiers in each of its markets, (iii) increase skier visitation frequency, (iv) increase the expenditures of each of its visitors, (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. The Company's marketing efforts are predicated on knowing its guests and understanding the markets in which it competes. Accordingly, the Company's resorts, typically through professional firms, conduct extensive market research, including on-site guest surveys, focus groups, advertising tests and phone and Internet surveys. Each of the Company's resorts develops its own resort-specific marketing program based upon its unique qualities and characteristics as well as the demographics of its skier base. 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 (programs include a multitude of snowsport options such as snowbikes, snowscoots and tubing as well as more traditional skiing and snowboarding) o Strategic marketing alliances o School, group and business affiliations Customer loyalty 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 California resorts. For an annual membership fee, Vertical Plus members receive a special, personalized identification wristband containing a preprogrammed computer microchip which acts as their lift access for the season. In addition to offering daily ticket discounts, the system tracks the amount of vertical feet skied at participating resorts and rewards members with prizes based on the number of vertical feet skied in a season. Other benefits of the program include members-only lift lines, direct lift access, the convenience of being able to make cashless retail transactions and electronic messaging. In addition, over the past several years, the Company's resorts successfully introduced new season pass products that were attractively priced to entice visitation during non-peak periods, stimulate demand, attract market share and develop guest loyalty. The Company is continuing its successful season pass initiatives for the 2001/02 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 Los Angeles, San Diego, San Francisco, Sacramento, Seattle and Boston metropolitan areas and states with large skier populations such as Texas, Illinois, Florida and New York. For example, the Company's Northstar and Sierra resorts have participated in extensive cooperative marketing with other Lake Tahoe resorts to promote the region as a premier vacation destination. Market research has shown that the typical Booth Creek guest utilizes the Internet extensively as a source of information and additional Company resources have been concentrated towards this communication vehicle. For the 2001/02 ski season, Booth Creek will continue to feature e-commerce "virtual stores" on each resort's website offering products such as season passes, loyalty program memberships, gift certificates and lodging/lift packages as well as private lessons, child care and lift tickets. Data-base marketing programs. Through the information obtained from its customer loyalty 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, several of the Company's resorts have introduced a development program, geared toward intermediate and advanced skiers, which offers free specialized instruction and daily training. This program has increased guest loyalty and repeat visitation. In addition, Booth Creek is expanding the definition of ski and snowboard areas to winter recreation centers. Resorts are offering a multitude of unique options for sliding on snow. "Booth Creek Hill Thrill Centers" include snow tubing, snowbikes, snowfoxes and snowscoots. Many of these are low-skill, high-sensation activities that even those who have never skied or snowboarded can enjoy. There are also transferable learning skills from these sliding devices to learning to ski or snowboard. Other efforts have been instituted at all resorts to embrace and welcome new participants to the sport of skiing or snowboarding. Strategic marketing alliances. The Company is a national ski resort operator with approximately 2.5 million skier days recorded during the 2000/01 ski season. At least one of the Company's resorts is within driving distance of four of the five largest ski markets in the United States. Sponsorship opportunities include potential relationships with automobile manufacturers, soft drink companies, and ski and snowboard equipment manufacturers. For example, Northstar and Sierra have relationships with major automobile manufacturers that involve over $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 largest resort 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. Seasonality The business of the Company is highly seasonal, with the vast majority of its annual revenues expected to be generated between November and April of each fiscal year. Management considers it essential to achieve optimal operating results during key holidays and weekends during this period. The Company's results of operations are, in turn, significantly dependent on favorable weather conditions and other factors beyond the Company's control. In prior years, the Company sought to partially mitigate the downside risk of its seasonal business by purchasing paid skier visit insurance policies. However, the Company did not obtain paid skier visit insurance coverage for its resorts for the 2001/02 ski season as effective policies were not available on commercially viable terms. During the off-season months of May through October, the Company's resorts typically experience a substantial reduction in labor and utility expense due to the absence of ski operations, but make significant expenditures for maintenance, expansion and capital improvements in preparation for the ensuing ski season. Competition The general unavailability of new developable ski mountains, regulatory requirements and the high costs and expertise required to build and operate resorts present significant barriers to entry in the ski industry. The last major new ski resort to open in the United States was in 1989, and in the past 15 years, management believes at least 85 proposed resorts have been stalled or abandoned due to environmental issues and the high costs of entering into the capital intensive ski industry. The domestic ski industry is currently comprised of approximately 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, quality and price of complementary services. The Company's Lake Tahoe resorts, Northstar and Sierra, face strong competition from Lake Tahoe's five other major ski resorts. Northstar's primary competition in the North Lake Tahoe area is from Squaw Valley, Alpine Meadows and Sugar Bowl. Northstar also competes with major ski and non-ski destination resorts throughout North America. Sierra primarily competes in the South Lake Tahoe area with Heavenly and Kirkwood. The Company's other California resort, Bear Mountain, competes primarily with Snow Summit, Mountain High and Mammoth Mountain. The Company's New England resorts, Waterville Valley, Mt. Cranmore and Loon Mountain, compete in the highly competitive Northeast ski market, which consists of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut and New York. Within the Northeast region, skiers can choose from over 50 major resorts and ski areas, most of which are located in the mountainous areas of New England and eastern New York. Waterville Valley's primary regional competitors include Bretton Woods, Mount Sunapee, Attitash/Bear Peak and Gunstock. Mt. Cranmore's primary regional competitors are Attitash/Bear Peak, Wildcat, Bretton Woods and Gunstock. Loon Mountain's primary regional competitors are Okemo, Bretton Woods, Cannon Mountain, Mount Sunapee and Sunday River. The Summit competes primarily with eleven other ski resorts in Washington, including Crystal Mountain, Stevens Pass, White Pass, Mission Ridge and Mt. Baker. Additional competition comes from the regional destination resorts at Mt. Bachelor, Mt. Hood Meadows, Sun Valley and Whistler/Blackcomb, as well as other day and weekend ski facilities in Oregon and British Columbia. On a regional basis, at least one of the Company's resorts is readily accessible to four of the five largest ski markets in the United States. Management estimates that more than 70% of the skiers visiting the Company's Lake Tahoe resorts are from the San Francisco/San Jose, Sacramento, Central California Valley and Lake Tahoe regions, while more than 90% of Bear Mountain's skiers are from the Los Angeles, Orange County and San Diego metropolitan areas. Waterville Valley, Mt. Cranmore and Loon Mountain are estimated to attract more than 75% of their guests from Massachusetts and New Hampshire, with a large percentage of such visitors coming from the Boston metropolitan area. The Summit attracts more than 90% of its guests from the Seattle/Tacoma metropolitan region. Regulation and Legislation The Company's operations are dependent upon its ownership or control over the real property used in its ski operations at each resort. The real property presently used at the Northstar and Mt. Cranmore resorts is owned by the Company or controlled by easements. The Company has the right to use a substantial portion of the real property associated with the Bear Mountain, Sierra, Summit and Waterville Valley resorts under the terms of Term Special Use Permits issued by the United States Forest Service. The Bear Mountain permit expires in 2020, the Sierra permit expires in 2039, the Waterville Valley permit expires in 2034 and the Summit permit expires in 2032. A substantial portion of the real property associated with the Loon Mountain resort is likewise used under United States Forest Service permits. In 1993, the United States Forest Service authorized various lift, trail and snowmaking improvements on Loon Mountain and an expansion onto South Mountain. In 1996, the United States Court of Appeals for the First Circuit (the "First Circuit") overturned this authorization on the ground that the United States Forest Service had failed to properly address certain environmental issues under the National Environmental Policy Act ("NEPA"). Certain improvements, including a snowmaking pipeline and part of the expansion, had been constructed before the First Circuit ruled. On May 5, 1997, the United States District Court for the District of New Hampshire (the "District Court") entered a stipulated order which authorized existing improvements to remain in place and existing operations to continue but generally prohibited future construction, restricted use of a major snowmaking water source, and required certain water discharge permits to be pursued, pending United States Forest Service reconsideration of the projects under NEPA. These authorizations and limitations were incorporated into the final order issued by the District Court on December 11, 1998, and will remain in effect until the United States Forest Service completes its NEPA review and issues a new decision. On February 12, 1999, the District Court agreed that the United States Forest Service may combine this NEPA review with its evaluation and analysis of the existing snowmaking pipeline. The United States Forest Service issued a draft Environmental Impact Statement in January 2001. Based on discussions with the United States Forest Service, the Company expects final NEPA documentation to be issued in the first half of 2002. In August 1997, the United States Forest Service authorized the Loon Mountain resort to construct a new snowmaking pipeline across permitted land. The United States Forest Service found that such construction was consistent with the District Court order and enabled the resort to modify its snowmaking operations to better protect water resources and replace snowmaking capacity lost under the order. Although the pipeline was completed, its use was challenged by private parties who asserted that the United States Forest Service violated NEPA. On January 20, 1998, the District Court issued a decision finding that the United States Forest Service violated NEPA in failing to address the potential for the new pipeline to increase the amount of snow made and any associated environmental effects. On March 10, 1998, the District Court issued a series of further orders which, among other things, directed the United States Forest Service to re-evaluate the pipeline and enjoined Loon Mountain from using the pipeline pending further action by the court. On July 2, 1998, the United States Forest Service issued a new decision approving the pipeline, which was challenged by several private parties, who again asserted that it violated NEPA. The United States Forest Service subsequently withdrew its decision authorizing the pipeline to conduct further review and the District Court consolidated the lawsuits concerning the pipeline. On November 19, 1998, the District Court modified the injunction, allowing Loon Mountain to use the pipeline to withdraw and convert 159.7 million gallons of water per ski season into snow while the United States Forest Service further reviewed the pipeline under NEPA. On February 12, 1999, the District Court issued a final order, which dismissed the consolidated lawsuit concerning the pipeline in light of the United States Forest Service's decision to conduct further review of the pipeline, and specified that the limitation on pipeline usage will continue until that review is completed and a new decision is issued. Such order remains in effect until the additional NEPA documentation is completed and the United States Forest Service issues a new decision on the pipeline, which is currently anticipated to occur in the first half of 2002. Existing use of Loon Mountain is authorized under a Term Special Use Permit, which covers facilities and expires in 2006; existing non-skiing use of Loon Mountain's South Mountain area is authorized under an annual permit issued by the United States Forest Service that is subject to reissuance each year. After the United States Forest Service reconsiders the pipeline improvements and expansion under NEPA, it will need to render a new decision and, if appropriate, issue a new Term Special Use Permit. At that time, the conditions imposed by the two District Court orders will terminate. Based upon the existing administrative record, and certain proposed modifications to the resort's snowmaking operations which are intended to better protect water resources, the Company expects that the pipeline improvements and expansion will be approved by the United States Forest Service. However, no assurance can be given regarding the timing or outcome of this process. The United States Forest Service has the right to approve the location, design and construction of improvements in permit areas and many operational matters at resorts with permits. Under the Term Special Use Permits, the Company is required to pay fees to the United States Forest Service. The fees range from 1.5% to approximately 4.0% of certain revenues, with the rate generally rising with increased revenues. The calculation of gross revenues includes, among other things, revenue from lift ticket, ski school lesson, food and beverage, rental equipment and retail merchandise sales. Total fees paid to the United States Forest Service by the Company during the year ended November 2, 2001 were $1,215,000. The Company believes that its relations with the United States Forest Service are good, and, to the best of its knowledge, no Term Special Use Permit for any major ski resort has ever been terminated by the United States Forest Service. The United States Secretary of Agriculture has the right to terminate any Term Special Use Permit upon 180-days notice if, in planning for the uses of the national forest, the public interest requires termination. Term Special Use Permits may also be terminated or suspended because of non-compliance by the permitee; however, the United States Forest Service would be required to notify the Company of the grounds for such action and to provide it with reasonable time to correct any curable non-compliance. The Company's resorts are subject to a wide variety of federal, state and local laws and regulations relating to land use, water resources, discharge, storage, treatment and disposal of various materials and other environmental matters. Except as described in this section, management believes that the Company's resorts are presently in compliance with all land use and environmental laws, except where non-compliance is not expected to result in a material adverse effect on its financial condition. The Company also believes that the cost of complying with known requirements, as well as anticipated investigation and remediation activities, will not have a material adverse effect on its financial condition or future results of operations. However, failure to comply with such laws could result in the imposition of severe penalties and other costs or restrictions on operations by government agencies or courts that could materially adversely affect operations. The operations at the resorts require numerous permits and approvals from federal, state and local authorities including permits relating to land use, ski lifts and the sale of alcoholic beverages. In addition, the Company's operations are heavily dependent on its continued ability, under applicable laws, regulations, policies, permits, licenses or contractual arrangements, to have access to adequate supplies of water with which to make snow and service the other needs of its facilities, and otherwise to conduct its operations. There can be no assurance that new applications of existing laws, regulations and policies, or changes in such laws, regulations and policies will not occur in a manner that could have a detrimental effect on the Company, or that material permits, licenses or agreements will not be canceled, not renewed, or renewed on terms materially less favorable to the Company. Major expansions of any one or more of the Company's resorts could require, among other things, the filing of an environmental impact statement or other documentation with the United States Forest Service and state or local governments under NEPA and certain state or local NEPA counterparts if it is determined that the expansion may have a significant impact upon the environment. Although the Company has no reason to believe that it will not be successful in implementing its operations and development plans, no assurance can be given that necessary permits and approvals will be obtained or renewed. Bear Mountain operates in an area subject to an air emissions reduction program and regulated by the South Coast Air Quality Management District ("SCAQMD") in California. Prior to mid 2000, the Company anticipated that Bear Mountain would eventually be required to participate in an emission credit program whereby Bear Mountain would be permitted to operate its diesel-fueled snowmaking compressor engines if it acquired "banked" emission credits from SCAQMD-regulated facilities which had already implemented nitrogen oxide emission reduction programs. However, in August 2000 the Company was notified that SCAQMD will not allow Bear Mountain to participate in the emission credits program and, further, that Bear Mountain's applications to operate the engines were denied because they were not equipped with the "Best Available Control Technology," thus violating SCAQMD rules. Recognizing the importance of the current compressor engines to Bear Mountain's operations, SCAQMD and Bear Mountain agreed to a Stipulated Order of Abatement whereby Bear Mountain is subject to certain requirements including investigating and implementing a remedial alternative according to a particular timeline through 2002, record keeping and reporting to SCAQMD, payment of certain usage fees, and particular interim operational dictates concerning the engines. Pursuant to the Stipulated Order of Abatement, Bear Mountain is required to implement a remedial alternative by October 15, 2002. Depending on the alternative selected and the manner in which it is implemented, the resolution of this matter may require capital expenditures of approximately $1 million for new equipment. However, no assurance can be made regarding the outcome or timing of resolution of this matter. Pursuant to the previously described decision of the First Circuit and the order of the District Court, Loon Mountain applied for and was issued, by the Environmental Protection Agency ("EPA"), a Clean Water Act (the "CWA") discharge permit covering discharges associated with its snowmaking operations. Certain ongoing discharges are authorized by the District Court order pending final action on the permit and subject to the District Court's reserved power to modify such approval to address any resulting environmental issues. Certain regulatory approvals associated with the new snowmaking pipeline at Loon Mountain, as well as certain contractual obligations, impose minimum stream flow requirements on Loon Mountain. These requirements will compel Loon Mountain to construct water storage facilities within approximately five years, and such construction will require further regulatory approvals and environmental documentation under NEPA. No assurances can be given that such regulatory approvals will be obtained or that the Company will have the financial resources to complete such construction. In addition, Loon Mountain was notified in September 1997 that it had allegedly filled certain wetlands at the resort in violation of the CWA. In response, Loon Mountain worked with the EPA to remove the alleged fill and implement certain erosion control measures. On January 15, 1998, an individual notified the EPA, Loon Mountain, and certain other persons that he intended to initiate a lawsuit under the CWA regarding the alleged wetland violation. On February 2, 1998, the EPA wrote to such individual stating that the alleged fill had been removed and that the EPA does not believe there is a continuing violation at the site. On January 18, 2000, in papers filed in connection with the District Court's modification of the final order in the pipeline litigation, the same individual again alleged that Loon Mountain had previously filled wetlands in violation of the CWA. The same individual has orally advised the Company that he still intends to initiate a lawsuit under the CWA regarding the alleged wetland fill. Except for certain permitting and environmental compliance matters relating to the Loon Mountain and Bear Mountain resorts described above and in Part I, Item 3. "Legal Proceedings," the Company has not received any notice of material non-compliance with permits, licenses or approvals necessary for the operation of its properties or of any material liability under any environmental law or regulation. Employees As of December 31, 2001, the Company employed a full-time corporate staff of 36 persons. In addition, the Company's resorts employ an aggregate of approximately 500 full-time and approximately 5,500 seasonal employees. None of the employees of the Company or its resorts is represented by a labor union, and the Company considers its employee relations to be good. Item 2. Properties Northstar consists of approximately 8,000 acres of land privately owned by the Company. Sierra owns 20 acres of its 1,689 gross acreage and leases the remainder under a Term Special Use Permit with the United States Forest Service. Bear Mountain owns 116 of its 819 gross acreage, leases 698 acres of mountain terrain under a Forest Service Term Special Use Permit and leases five acres from third parties. Waterville Valley owns 35 acres on Snow Mountain and two acres at the Conference Center, and leases 790 acres of land on Mt. Tecumseh from the federal government under a Term Special Use Permit issued by the Forest Service. Mt. Cranmore owns 754 acres and holds deeded easements enabling it to develop an additional 500 acres of ski terrain. The Summit owns 686 acres of its 4,152 gross acreage, leases over 1,400 acres under a private permit and utilizes 1,864 acres of mountain terrain under a Forest Service Term Special Use Permit. Loon Mountain owns 565 acres and leases 778 acres of land in the White Mountain National Forest under a Term Special Use Permit issued by the United States Forest Service permitting year-round recreational use. Adjacent to such land, an additional 581 acres are leased on "South Mountain" under a separate Special Use Permit permitting certain limited activities, including mountain biking, cross country skiing and horseback riding. In addition, each of the Company's resorts have ski lodges and other facilities that management believes are suitable for the Company's current operations. For further information regarding the Company's properties, see Part I, Item 1. "Business - Resort Operations" and "- Regulation and Legislation." Item 3. Legal Proceedings Each of the Company's resorts has pending and is regularly subject to litigation, and the threat thereof, with respect to personal injury claims relating principally to skiing activities at its resorts as well as to premises and vehicular operations and worker's compensation matters. The Company maintains liability insurance that the Company considers adequate to insure claims related to such usual and customary risks associated with the operation of four-season recreation resorts. In connection with the merger with Loon Mountain Recreation Corporation ("LMRC"), certain shareholders of LMRC (the "LMRC Shareholder Plaintiffs") filed a lawsuit against LMRC and its former directors alleging breach of fiduciary duty and against the Company alleging that the Company aided and abetted the former directors' breach of fiduciary duty and failed to comply with the New Hampshire Security Takeover Disclosure Act (the "Takeover Statute") in connection with the transaction. The two lawsuits were consolidated in the Superior Court of Grafton County, New Hampshire. The Company answered the LMRC Shareholder Plaintiffs' petition and filed a motion to dismiss the LMRC Shareholder Plaintiffs' action against the Company asserting that the Takeover Statute did not apply to the transaction as a matter of law. The court initially denied the Company's motion to dismiss but granted the motion to dismiss upon reconsideration. The LMRC Shareholder Plaintiffs appealed the dismissal to the New Hampshire Supreme Court. The New Hampshire Supreme Court upheld the Superior Court's dismissal of the plaintiffs' claim under the Takeover Statute in a ruling issued on November 20, 2001. The LMRC Shareholder Plaintiffs have amended their breach of fiduciary duty claims to seek money damages against the Company, LMRC and its former directors. The trial for the LMRC Shareholder Plaintiffs' breach of fiduciary duty claims, which was consolidated with the Corporation Act case described below, concluded on January 16, 2002. A decision is anticipated by the end of February 2002. If the LMRC Shareholder Plaintiffs are successful in obtaining a judgment against the former LMRC directors, the Company may have certain obligations to indemnify the former directors pursuant to the former LMRC by-laws. While the Company does not believe that the LMRC Shareholder Plaintiffs will prevail in this lawsuit, no assurances can be made regarding the outcome of this litigation. On February 22, 2001, certain additional former shareholders of LMRC who are family members of one of the LMRC Shareholder Plaintiffs commenced an action which is currently pending in the Superior Court of Hillsborough County, New Hampshire seeking damages for breach of fiduciary duty against the former LMRC directors, breach of contract against the former LMRC directors and the Company and violations of the New Hampshire Consumer Protection Statute. The plaintiffs formerly held 4,375 shares of LMRC common stock. The Company and the former LMRC directors have filed a motion which remains pending to dismiss the claims on the grounds that they fail to state a valid cause of action and are barred by the statute of limitations. The Company believes it has meritorious defenses to these claims and intends to vigorously defend them. Also in connection with the merger with LMRC, the LMRC Shareholder Plaintiffs exercised dissenters' rights under the New Hampshire Business Corporation Act (the "Corporation Act"). Under the statutory procedure for settling the LMRC Shareholder Plaintiffs' dissenters' rights, LMRC paid the plaintiffs an aggregate of $34,436, or $30.61 per share, as its estimate of the fair value of their 1,125 shares. The LMRC Shareholder Plaintiffs demanded additional payments necessary to compensate them for the $71.38 per share price, plus interest, which they asserted as the fair value of their shares. By disclosure dated March 17, 2000 the LMRC Shareholder Plaintiffs' expert has revised his opinion of fair value to $91.90 per share. Pursuant to the Corporation Act, LMRC commenced a proceeding in the Superior Court of Grafton County, New Hampshire seeking a judicial appraisal of the value of the LMRC Shareholder Plaintiffs' shares in LMRC. The matter was consolidated for trial with the fiduciary duty case described above. The trial for these matters concluded on January 16, 2002, and a ruling is anticipated by the end of February 2002. While the Company believes that the amount paid to the LMRC Shareholder Plaintiffs prior to the commencement of the appraisal proceeding represents the fair value of their shares, there can be no assurance as to the value which the appraisal proceeding will assign to the LMRC Shareholder Plaintiffs' 1,125 shares. In 1995, an individual sued the United States Forest Service (the "Forest Service") in the United States District Court for the District of New Hampshire (the "District Court") alleging that the Forest Service had violated the National Environmental Policy Act ("NEPA"), the Clean Water Act ("CWA"), and an executive order in approving improvements to facilities on Loon Mountain and an expansion of the Loon Mountain resort on to South Mountain. LMRC and an environmental group intervened in the lawsuit. The District Court entered summary judgment for the Forest Service on all claims and the original plaintiff, along with the intervening environmental group (collectively or individually, the "Environmental Plaintiffs"), appealed. In December 1996, the United States Court of Appeals for the First Circuit (the "First Circuit") reversed the District Court decision and ruled that the Forest Service must reconsider certain environmental issues under NEPA and that LMRC must obtain a discharge permit under the CWA for certain discharges from its snowmaking system. The District Court then entered a stipulated order that: enjoins LMRC from any further construction implementing the project with certain limited exceptions; imposes various restrictions on LMRC's existing snowmaking operations and requires LMRC to apply for a CWA discharge permit for discharges of water and any pollutants associated with its snowmaking; allows existing construction to remain in place and existing uses to continue; requires LMRC to undertake certain erosion control and monitoring measures; requires the Forest Service to prepare supplemental NEPA documentation on the improvements and expansion; and reserves the right to require restoration of areas developed under the original Forest Service approval to their preexisting condition if not ultimately re-approved by the Forest Service. This order remains in effect until the supplemental NEPA process is completed. Based on discussions with the Forest Service, the Company expects final NEPA documentation to be issued during the first half of 2002. However, the Company can give no assurance regarding the timing or outcome of such process. The Environmental Plaintiffs also filed a motion asking the District Court to impose against LMRC a CWA civil penalty of $5,550,125 and attorney's fees and costs in connection with LMRC's discharges into Loon Pond during its snowmaking operations for the 1996/97 ski season and prior years. The District Court dismissed the claim for civil penalties and attorney's fees under the CWA, and one of the Environmental Plaintiffs appealed to the First Circuit. The appeal was stayed to permit settlement negotiations, and these negotiations concluded with the execution of a settlement agreement between the appellant, LMRC and Loon Realty Corp. effective as of February 22, 2001. In accordance with the terms of the agreement, the appellant's claims against LMRC were dismissed on March 14, 2001. In 1997, the Environmental Plaintiffs filed a second lawsuit against the Forest Service in the District Court alleging that the Forest Service violated NEPA in authorizing LMRC to construct and operate a snowmaking pipeline across permitted land. LMRC intervened in the lawsuit. The District Court held that the Forest Service had violated NEPA by failing to consider the potential effects of an increase in snowmaking capacity. The District Court then enjoined Loon Mountain from using the pipeline but later modified the injunction to permit LMRC to use the pipeline provided that, among other things, it does not make snow in excess of the historic production level utilizing 159.7 million gallons per ski season. On February 12, 1999, the District Court dismissed the pipeline litigation and allowed the Forest Service to combine its NEPA analysis of the pipeline with the pending NEPA analysis of the South Mountain expansion. The injunction authorizing LMRC to use the pipeline to supply water for making historical levels of snow remains in place until the additional NEPA documentation is completed and the Forest Service issues a new decision on the pipeline, which is currently expected to occur in the first half of 2002. Effective February 22, 2001, both Environmental Plaintiffs entered into settlement agreements with LMRC, which resolve all issues among them 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. Killington West, Ltd., formerly known as Bear Mountain, Ltd., ("Killington West "), filed a breach of contract lawsuit in the Superior Court of the State of California, San Bernardino County, against Fibreboard Corporation ("Fibreboard") and Bear Mountain, Inc., a wholly-owned subsidiary of the Company, alleging that Fibreboard and Bear Mountain, Inc. breached the asset purchase agreement dated October 6, 1995 (the "Original Bear Mountain Agreement") among Killington West, Fibreboard and Bear Mountain, Inc. pursuant to which Bear Mountain, Inc. acquired the Bear Mountain ski resort from Killington West. Killington West's lawsuit concerned an alleged breach by Fibreboard and Bear Mountain, Inc. of a change of control provision in the Original Bear Mountain Agreement. In connection with the Company's acquisition of Bear Mountain, Inc. in December 1996, the Company obtained from Fibreboard indemnification for any claim that might be made by Killington West, and further, required that $1 million of the purchase price be held in escrow pending the outcome of any potential disputes with Killington West. Fibreboard acknowledged its obligation to indemnify Bear Mountain, Inc. with respect to the Killington West lawsuit and is defending such lawsuit on behalf of Fibreboard and Bear Mountain, Inc. On November 13, 2001, the Company filed a lawsuit against ASU International LLC, Essex Insurance Company and Certain Underwriters, Lloyd's London (collectively, the "Insurers") in Superior Court in Massachusetts. The Company had placed with the Insurers weather/income stabilization coverage for the 2000/01 ski season for certain of its resorts. During the applicable period of the policies, the Company incurred losses at two of its resorts which the Company believes were covered under the terms of such policies. The Company believes that it has complied with its obligations under the policies and has properly reported and made claims in accordance with the policies for losses aggregating in excess of $1.5 million. In response to the Insurers' failure to properly process the Company's claims, the Company seeks recovery for breach of contract, breach of covenant of good faith and unfair and deceptive business acts. The Company's complaint seeks recovery for the full amount of its claims as well as multiple damages and attorneys' fees based on its assertion of unfair and deceptive business acts by the Insurers. An informal settlement conference has been scheduled by the parties. Pre-trial discovery has not yet commenced. While the Company believes that it will prevail in this lawsuit, no assurances can be made regarding the outcome or timing of resolution of this litigation. Item 4. Submission Of Matters To A Vote Of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2001. 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 that restrict its ability to pay dividends. See 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 years ended October 31, 1997, October 30, 1998, October 29, 1999, October 27, 2000 and November 2, 2001, have been derived from the audited consolidated financial statements of the Company, which have been audited by Ernst & Young LLP, independent auditors. The Company was formed in October 1996 and had no operations until its acquisition of seven ski resort complexes during the first six months of fiscal 1997. The other financial and operating data presented below includes information on "EBITDA" and "Resort EBITDA margin." "EBITDA" represents income from operations before depreciation, depletion and amortization expense and the noncash cost of real estate sales. "Resort EBITDA margin" is Resort EBITDA divided by resort operations revenue. Although EBITDA is not a measure of performance under United States generally accepted accounting principles ("GAAP"), the term is presented because management believes it provides useful information regarding a company's ability to incur and service debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. In addition, "EBITDA" and "Resort EBITDA margin" as determined by the Company may not be comparable to related or similar measures as reported by other companies and do not represent funds available for discretionary use. Year Year Year Year Year Ended Ended Ended Ended Ended October October October October November 31, 1997(a) 30, 1998(b) 29, 1999 27, 2000(c) 2, 2001 ----------- ----------- ----------- ----------- ----------- (Dollars in Thousands, except Revenue per Skier Day) Statement of Operations Data: Revenue: Resort Operations............................. $ 68,136 $ 97,248 $ 112,980 $ 119,685 $ 121,629 Real Estate and Other......................... 3,671 7,608 12,744 19,670 276 ----------- ----------- ----------- ----------- ----------- 71,807 104,856 125,724 139,355 121,905 Operating Expenses: Cost of Sales - Resort Operations............. 44,624 61,325 74,404 70,394 70,982 Cost of Sales - Real Estate and Other......... 2,799 4,671 5,244 4,507 211 Depreciation, Depletion and Amortization...... 11,681 17,752 21,750 22,572 25,121 Selling, General and Administrative........... 13,719 19,645 22,571 22,985 23,412 Unusual Items, Net............................ - - 487 - - ----------- ----------- ----------- ----------- ----------- Operating Income (Loss).......................... (1,016) 1,463 1,268 18,897 2,179 Interest Expense and Other, Net.................. (14,912) (18,733) (19,843) (19,075) (17,569) ----------- ----------- ----------- ----------- ----------- Pre-tax Loss..................................... (15,928) (17,270) (18,575) (178) (15,390) Income Tax Benefit............................... 1,728 - - - - ----------- ----------- ----------- ----------- ----------- Loss Before Minority Interest and Extraordinary Item.......................................... (14,200) (17,270) (18,575) (178) (15,390) Minority Interest................................ (229) (260) (218) (179) (127) ----------- ----------- ----------- ----------- ----------- Loss Before Extraordinary Item................... (14,429) (17,530) (18,793) (357) (15,517) Extraordinary Gain (Loss) on Early Retirement of Debt....................................... (2,664) - - - 1,723 ----------- ----------- ----------- ----------- ----------- Net Loss......................................... $ (17,093) $ (17,530) $ (18,793) $ (357) $ (13,794) =========== =========== =========== =========== =========== Other Financial and Operating Data: Total Skier Days................................. 1,565,917 2,113,562 2,432,845 2,287,128 2,500,484 Revenue (Excluding Paid Skier Visit Insurance Policy Revenue) per Skier Day (d)............. $ 43.51 $ 46.01 $ 46.44 $ 49.45 $ 47.94 Noncash Cost of Real Estate Sales (e)............ $ 2,237 $ 3,721 $ 4,743 $ 2,460 $ - Capital Expenditures Excluding Acquisitions and Real Estate and Other......................... $ 9,459 $ 15,500 $ 14,342 $ 21,909 $ 12,944 Net Cash Provided by (Used in): Operating Activities.......................... $ 1,552 $ 7,559 $ 15,393 $ 29,737 $ 13,366 Investing Activities.......................... (152,685) (47,718) (18,504) (9,124) (15,280) Financing Activities.......................... 151,595 40,322 2,947 (20,378) 1,676 EBITDA Before Unusual Items...................... $ 12,902 $ 22,936 $ 28,248 $ 43,929 $ 27,300 EBITDA from Resort Operations.................... $ 9,793 $ 16,278 $ 16,005 $ 26,396 $ 28,064 Resort EBITDA Margin............................. 14.4% 16.7% 14.2% 22.1% 23.1% EBITDA from Real Estate and Other................ $ 3,109 $ 6,658 $ 12,243 $ 17,533 $ (764) As of As of As of As of As of October 31, October 30, October 29, October 27, November 2, 1997(a) 1998(b) 1999 2000 2001 ----------- ----------- ----------- ----------- ----------- (Dollars in Thousands) Balance Sheet Data: Working Capital (Deficit), Including Senior Credit Facility Borrowings.................... $ (26,634) $ (33,093) $ (45,309) $ (31,628) $ (46,221) Total Assets..................................... 186,416 218,546 210,346 199,063 189,218 Total Debt....................................... 136,327 156,280 160,986 144,498 148,040 Preferred Stock of Subsidiary (f)................ 3,354 2,634 2,133 1,638 1,136 Common Shareholder's Equity...................... 29,407 37,377 18,584 18,227 4,433 -------------------------------------------------------------------------------------------------------------------------------- (see accompanying footnotes)
Notes to Selected Financial Data (a) Reflects the financial results of Waterville Valley and Mt. Cranmore from November 27, 1996, Northstar, Sierra and Bear Mountain from December 3, 1996, the Summit from January 15, 1997, and Grand Targhee from March 18, 1997, the respective dates of acquisition of each resort by the Company. (b) Reflects the financial results of Waterville Valley, Mt. Cranmore, Northstar, Sierra, Bear Mountain, the Summit and Grand Targhee for the entire period, and Loon Mountain for the period beginning February 26, 1998, the date on which it was acquired by the Company. (c) Reflects the divestiture of the Grand Targhee resort on June 20, 2000. (d) Reflects revenue from resort operations divided by total skier days. For the years ended October 27, 2000 and November 2, 2001, the amount presented for revenue per skier day excludes the effect of paid skier visit insurance policy revenue of $6,600,000 and $1,754,000, respectively. (e) Noncash cost of real estate sales represents the allocated portion of real estate development expenditures previously capitalized (including acquisition costs allocated to real estate development) which relate to current year real estate sales. (f) Represents preferred stock of a subsidiary of the Company which is subject to mandatory redemption requirements. 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 "- Forward-Looking Statements" and elsewhere in this Report. General The Company's ski operations are highly sensitive to weather conditions and the overall strength of the regional economies in the areas in which the Company operates. The Company believes that the geographic diversity of the Company's 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 any one of the Company's resorts. The Company's four most weather-sensitive resorts, Bear Mountain, Waterville Valley, Loon Mountain and Mt. Cranmore, have invested heavily in snowmaking capabilities to provide coverage on virtually all of their trails and have been open for skiing at least 143, 138, 142 and 101 days, respectively, during each of the last five ski seasons, including the 2000/01 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 476 and 482 inches of snowfall, respectively, per year for the past five ski seasons. As a result of their historic natural snowfall, their snowmaking capabilities in terms of trail coverage are considerably less extensive than at Bear Mountain, Waterville Valley, Loon Mountain or Mt. Cranmore. However, such resorts are dependent upon early season snowfall to provide necessary terrain for the important Christmas holiday period, and therefore, the timing and extent of natural snowfall can significantly impact operating conditions. Northstar has averaged approximately 304 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 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 2000/01 ski season total skier days were attributable to residents of the San Francisco/San Jose, Sacramento, Central California Valley and Lake Tahoe regions. At Bear Mountain, roughly 90% of the 2000/01 ski season total skier days were attributable to residents of the Los Angeles, Orange County and San Diego metropolitan regions. At Waterville Valley, Loon Mountain and Mt. Cranmore, more than 75% of the 2000/01 ski season total skier days were attributable to residents of Massachusetts and New Hampshire, with a large percentage of such visitors coming from the Boston metropolitan area. At the Summit, the Company estimates that more than 90% of the 2000/01 ski season total skier days were attributable to residents of the Seattle/Tacoma metropolitan region. The Company seeks to maximize revenues and operating income by managing the mix of skier days and revenue per skier day. 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 days by developing effective ticket pricing and season pass strategies and sales and marketing programs to improve peak and off-peak volume. The Company seeks to improve revenue per skier day 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 seeks to increase skier days by offering a quality guest experience and developing effective target marketing programs. See Part I, Item 1. "Business - Marketing and Sales." The Company's resorts have invested approximately $55.8 million (including $6.6 million of equipment acquired through capital leases and other debt) in capital expenditures during the last three fiscal years to upgrade chairlift capacity, expand terrain, improve skier service, 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. The following table summarizes the sources of the Company's revenues from resort operations for the years ended November 2, 2001, October 27, 2000 and October 29, 1999. The information for the years ended October 27, 2000 and October 29, 1999 includes the operating results of the Grand Targhee resort, which was sold in June 2000. Year Ended --------------------------------------------- November 2, October 27, October 29, 2001 2000 1999 ------------ ------------ ------------ (In thousands) Lift Tickets.......... $ 49,363 $ 45,037 $ 50,741 Season Passes......... 12,853 11,691 4,201 Snow School........... 8,987 7,990 7,771 Equipment Rental...... 10,163 8,768 8,806 Retail................ 5,725 5,805 8,124 Food and Beverage..... 18,332 17,675 18,626 Other................. 14,452 16,119 14,711 ------------ ------------ ------------ Revenues from Resort Operations before Paid Skier Visit Insurance....................... 119,875 113,085 112,980 Paid Skier Visit Insurance........ 1,754 6,600 - ------------ ------------- ------------ Total Resort Operations Revenues..$ 121,629 $ 119,685 $ 112,980 ============ ============= ============ A meaningful portion of total operating costs at the Company's resorts are variable, consisting primarily of retail and food service cost of sales, utilities and labor expense. These variable costs can fluctuate significantly based upon skier days and seasonal factors. The Company's resorts utilize significant energy resources in their respective operations, including power for operating lifts and snowmaking equipment. Volatility in the availability and cost of energy resources at the Company's resorts could have a material adverse effect on the Company's results of operations in future periods. In this regard, Bear Mountain has recently been informed by its local electrical utility of new proposed electrical rates that could result in an increase of approximately $1.1 million to $1.2 million in annual electricity costs from the level incurred in 2001. The Company is currently evaluating potential alternatives to mitigate the effect of these cost increases, including (1) opposition of the proposed electrical rates, (2) conservation efforts, (3) changes in snowmaking production and other current business practices to reduce electricity consumption during periods of peak rates, (4) investment in more energy efficient snowmaking equipment, and (5) product pricing strategies. However, no assurance can be made regarding the outcome of this matter. Each of the Company's resorts is subjest to the threat of personal injury claims relating principally to skiing activities as well as premises and vehicular operations and worker's compensation matters. The Company maintains various forms of insurance that the Company considers adequate to insure its properties and against claims related to usual and customary risks associated with the operation of four - season recreation resorts. As a result of the terrorist attacks on September 11th, the insurance industry has experienced significant losses and a substantial reduction in underwriting capacity, which has generally resulted in higher renewal premiums for companies seeking insurance. In connection with its annual renewal of insurance coverage for 2002, the Company experienced an increase in insurance premium costs of $650,000 over the level of such costs in 2001. With the exception of certain management, administrative and maintenance personnel, 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. Results of Operations of the Company Overview The Company's results of operations are significantly impacted by weather conditions. Snow conditions were generally favorable for Northstar and Sierra during the 1998/99 ski season. For the 1999/00 ski season, Northstar and Sierra experienced unseasonably dry weather and a lack of natural snowfall during November, December and the first part of January, which significantly impacted terrain availability at these resorts during such period. However, snowfall for these resorts returned to more normal levels during the later half of January and February of 2000. Although total snowfall levels during the 2000/01 ski season in the Lake Tahoe area were significantly less than historical averages, as compared to the 1999/00 ski season, both Northstar and Sierra benefited from generally improved trail coverage and conditions during the 2000 Christmas holiday period and early January 2001. In addition, Sierra opened early on November 3, 2000, as compared to November 24, 1999 for the 1999/00 ski season. Bear Mountain suffered from a lack of natural snowfall during both the 1998/99 and 1999/00 ski seasons. For the 2000/01 ski season, snowfall levels at Bear Mountain were more consistent with historical levels, and early season snowmaking conditions were generally more favorable than during the prior ski season. For the 1998/99 season, the Company's New Hampshire resorts experienced mild temperatures through most of December 1998 and rain on most weekends in January 1999. The New Hampshire resorts experienced variable temperatures and a lack of significant natural snowfall through the middle of January of the 1999/00 ski season. For the 2000/01 ski season, temperatures in the Northeast were generally colder, which enabled more efficient snowmaking production at the Company's New Hampshire resorts. In addition, natural snowfall for the 2000/01 season at each of the New Hampshire resorts was higher than the two previous ski seasons, which resulted in significantly improved conditions, particularly during the early and later parts of the season. For the 1998/99 ski season, the Summit experienced a prolonged period of snowfall, which resulted in increased snow removal and other operating costs. Operating conditions were generally favorable during the 1999/00 ski season, whereas conditions at the Summit for the 2000/01 ski season were relatively poor due to lower than average snowfall and periods of rain for parts of January through April 2001. The Company's fiscal year ended November 2, 2001 was a 53 week period, whereas the years ended October 27, 2000 and October 29, 1999 were both 52 week periods. As the additional week in 2001 occurred during the non-peak period prior to the start of the 2001/02 ski season, the inclusion of the 53rd week in 2001 did not have a significant impact on the comparability of resort operations revenues between periods. Cost of operations for the Company's resort business and selling, general and administrative expense in 2001 included approximately $400,000 in incremental labor costs due to payroll associated with the 53rd week. The Company sold the assets associated with the Grand Targhee resort on June 20, 2000. Grand Targhee contributed resort operations revenues of $7,367,000 and income from operations before depreciation, depletion and amortization expense and the noncash cost of real estate sales ("EBITDA") of $2,229,000 during the year ended October 27, 2000. Year Ended November 2, 2001 Compared to the Year Ended October 27, 2000 Total revenue for the year ended November 2, 2001 was $121,905,000, a decrease of $17,450,000, or 12.5%, from the Company's revenues for the year ended October 27, 2000. Revenues from resort operations for the 2001 period were $121,629,000, an increase of $1,944,000, or 1.6%, as compared to the 2000 period. Revenues from real estate and other operations for the year ended November 2, 2001 were $276,000, a decrease of $19,394,000 from the 2000 period. Due primarily to the generally improved weather and terrain conditions experienced by the Company's California and New Hampshire resorts during the 2000/01 ski season as compared to the 1999/00 season as well as increased season pass visits due to a greater number of passes sold and higher estimated pass visits per passholder, total skier visits for the Company's current resorts (excluding Grand Targhee) increased by 350,000, or 16.3%, to 2,500,000 visits for the 2000/01 ski season. In the accompanying consolidated financial statements as of and for the year ended November 2, 2001, the Company has recorded a receivable and resort operations revenues of $1,500,000 for expected proceeds from claims attributable to lower than agreed-upon paid skier visits and snowfall levels under paid skier visit insurance policies in place for the 2000/01 season for the Summit and Waterville Valley. The underwriters are currently disputing the Company's insurance claims. In November 2001, the Company commenced litigation against the underwriters and their representatives. While the Company intends to vigorously pursue collection of its claims and believes such claims are valid, no assurance can be made regarding the outcome or timing of resolution of this matter. See Part I, Item 3. "Legal Proceedings." For the 1999/00 ski season, the Company arranged for four separate paid skier visit insurance policies covering its Lake Tahoe resorts (Northstar and Sierra), its New Hampshire resorts (Waterville Valley, Mt. Cranmore and Loon Mountain), Bear Mountain and the Summit. Resort operations revenues for the year ended October 27, 2000 included estimated claims revenues of $6,600,000 under such policies. For the year ended November 2, 2001, resort operations revenues included $254,000 for additional claim recoveries which were received upon the final settlement of the 1999/00 paid skier visit insurance policies in excess of the amounts recognized in fiscal 2000 of $6,600,000. Resort operations revenues, excluding the effect of paid skier visit insurance, were $119,875,000 for the year ended November 2, 2001, an increase of $6,790,000, or 6.0%, from the comparable revenues for the 2000 period. Revenues for Northstar and Sierra increased by $2,919,000 and $3,772,000, respectively, primarily due to higher skier visits. Revenues for Bear Mountain increased by $4,404,000 due to higher skier visits, additional season pass sales and improved per skier revenue yields. Revenues for Waterville Valley, Mt. Cranmore and Loon Mountain increased by $830,000, $1,077,000 and $912,000, respectively, due principally to higher skier visits, partially offset by reduced yields due to changes in the mix of skier visits. Revenues at the Summit increased by $243,000 due to higher season pass sales and a slight increase in skier visits. Offsetting these increases was the effect of the divestiture of the Grand Targhee resort, which contributed revenues of $7,367,000 during the year ended October 27, 2000. Due to the timing of the close of escrow on lot sales within the Unit 7 development at Northstar, there were no sales of single family lots during the year ended November 2, 2001. In December 2001, seven lots within Unit 7 were sold for net proceeds of approximately $3,300,000, which will be recognized in the Company's operating results for the first quarter of fiscal 2002. Revenues from real estate and other operations for the year ended October 27, 2000 were $19,670,000, consisting primarily of (1) revenues of $17,850,000 from the sale of certain developmental property at Northstar, (2) revenues from the close of escrow on the final four lots in Phases 4 and 4A of the Big Springs Development at Northstar, and (3) timber sales of $669,000. Timber operations contributed revenues of $276,000 in the 2001 period. The reduction in timber harvesting and related revenues in the 2001 period was principally due to harvesting restrictions as a result of adverse fire conditions in the Lake Tahoe region. Cost of sales for resort operations for the year ended November 2, 2001 were $70,982,000, an increase of $588,000, or 0.8%, as compared to the 2000 period. Excluding cost of sales incurred by the Grand Targhee resort of $4,419,000 during the 2000 period, cost of sales for resort operations increased by $5,007,000 in 2001, or 7.6%, over the 2000 period. The increase was primarily the result of increased payroll and operating expenses as a result of the more normalized operations, increases in business volumes and extended seasons at the California and New Hampshire resorts due to improved snowfall and terrain conditions. In addition, the following items also contributed to the increase: (1) the impact of the 53rd week of operations in 2001, (2) wage pressures due to the competitive labor markets in the areas of the Company's resorts and statutory changes affecting wage rates and overtime regulations in California, (3) higher utility and fuel prices, (4) additional operating costs associated with the launch of the new Lookout Mountain terrain expansion at Northstar, (5) increased snowmaking costs due to higher snowmaking production, and (6) normal inflationary factors. Selling, general and administrative expenses for the year ended November 2, 2001 were $23,412,000, an increase of $427,000, or 1.9%, as compared to the 2000 period. Excluding selling, general and administrative expenses incurred by the Grand Targhee resort of $719,000 during the 2000 period, selling, general and administrative expenses increased by $1,146,000 in 2001, or 5.1%, over the 2000 period. The increase was primarily the result of (1) general and administrative expenses of $829,000 associated with real estate development activities at Northstar and Loon Mountain, (2) the impact of the 53rd week of operations in 2001, (3) normal inflationary factors, (4) sales and marketing initiatives at the Company's resorts, and (5) marketing and promotional activities associated with the launch of the Lookout Mountain terrain expansion at Northstar. Cost of sales for real estate and other operations for the year ended October 27, 2000 of $4,507,000, including noncash cost of real estate sales of $2,460,000, consisted of land basis, development and transaction costs associated with the sale of real estate at Northstar, and cost of sales for timber operations of $486,000. Cost of sales for real estate and other operations for the year ended November 2, 2001 was $211,000 and consisted solely of timber harvesting costs. Operating income for the year ended November 2, 2001 was $2,179,000, a decrease of $16,718,000, or 88.5%, from the operating income generated for the 2000 period, as a result of the factors discussed above. Interest expense for the year ended November 2, 2001 totaled $16,883,000, a decrease of $1,332,000, or 7.3%, from the Company's interest expense for the year ended October 27, 2000. The decrease was primarily the result of the repurchase of $8,000,000 aggregate principal amount of its senior debt securities (the "Senior Notes") during the year ended November 2, 2001, as well as the effect of lower average borrowing levels and interest rates on the Company's Senior Credit Facility in the 2001 period. As of November 2, 2001, the Company had estimated net operating loss carryforwards of approximately $84.7 million for federal income tax reporting purposes, which expire between 2012 and 2021. The tax benefits of such net operating losses are fully offset by a valuation reserve. Accordingly, during the year ended November 2, 2001, no income tax benefit has been provided. The Company recognized an extraordinary gain on the early retirement of debt of $1,723,000 for the year ended November 2, 2001 as a result of the repurchase of $8,000,000 aggregate principal amount of Senior Notes. The Company's net loss for the year ended November 2, 2001 was $13,794,000, as compared to a net loss of $357,000 generated for the year ended October 27, 2000, as a result of the factors discussed above. Total EBITDA for the year ended November 2, 2001 was $27,300,000, a decrease of $16,629,000, or 37.9%, from the EBITDA of $43,929,000 for the year ended October 27, 2000. Resort operations contributed EBITDA of $28,064,000 for the 2001 period as compared to $26,396,000 for the 2000 period, an increase of $1,668,000 or 6.3%. Excluding the effect of the Grand Targhee resort on the 2000 period, resort operations EBITDA for the 2001 period increased by $3,897,000, or 16.1%, over the 2000 period. Real estate and other operations incurred an EBITDA loss of $764,000 for the 2001 period as compared to EBITDA generated from real estate and other operations of $17,533,000 for the 2000 period. Year Ended October 27, 2000 Compared to the Year Ended October 29, 1999 Total revenue for the year ended October 27, 2000 was $139,355,000, an increase of $13,631,000, or 10.8%, over the Company's revenues for the year ended October 29, 1999. Revenues from resort operations for the year ended October 27, 2000 were $119,685,000, an increase of $6,705,000, or 5.9%, as compared to the 1999 period. Revenues from real estate and other operations for the year ended October 27, 2000 were $19,670,000, an increase of $6,926,000, or 54.3%, as compared to the 1999 period. For the 1999/00 ski season, the Company introduced new attractively priced season pass products at Sierra, Bear Mountain, Waterville Valley, Mt. Cranmore, Loon Mountain, the Summit and Grand Targhee, which were designed to stimulate demand, attract greater market share and take advantage of off-peak capacity. This initiative resulted in an increase of approximately $7,500,000 in the total amount of season pass products sold for the 1999/00 season when compared to the 1998/99 season. Due to the unfavorable weather and terrain conditions experienced by most of the Company's resorts during the first half of the 1999/00 ski season, the Company experienced significant declines in total skier visits for the 1999/00 season as compared to the 1998/99 season. Total skier visits for the 1999/00 season were 2,287,000, a decrease of 146,000 skier visits from the 1998/99 season. For the 1999/00 ski season, the Company arranged for four separate paid skier visit insurance policies covering its Lake Tahoe resorts (Northstar and Sierra), its New Hampshire resorts (Waterville Valley, Mt. Cranmore and Loon Mountain), Bear Mountain and the Summit. For the year ended October 27, 2000, the Company recognized resort operating revenues of $6,600,000 for estimated claims proceeds attributable to the decline from targeted paid skier visits for the 1999/00 season. Resort operating revenues, excluding the effect of paid skier visit insurance, were $113,085,000 for the year ended October 27, 2000, an increase of $105,000 from the 1999 period. Revenues for Northstar increased by $225,000 due to higher per skier revenue yields and improved summer business, partially offset by lower skier visits. Revenues for Sierra and Bear Mountain declined by $1,519,000 and $883,000, respectively, due to a decline in skier visits, partially offset by improvements in per skier revenue yields and higher season pass revenues. Waterville Valley's revenues declined by $1,548,000 due to the conversion of its retail operations to a concessionaire arrangement for the 1999/00 season and lower skier visits, partially offset by improved yields and higher season pass revenues. Revenues for Mt. Cranmore were consistent with the prior period, as improved yields offset the impact of reduced skier visits. Loon Mountain generated increased revenues of $1,325,000 due primarily to improved yields and higher season pass revenues. Revenues for the Summit increased by $2,876,000 due to increases in season pass revenues and improved yields. Grand Targhee generated slightly increased revenues during the winter season due to higher skier visits, which was offset by the effect of the sale of the resort on June 20, 2000. The improvement in per skier revenue yields at the Company's resorts was primarily due to price increases, and to a lesser extent, sales of additional services and products to the Company's guests. Revenues from real estate and other operations for the year ended October 27, 2000 were $19,670,000, consisting primarily of (1) revenues of $17,850,000 from the sale of certain developmental property at Northstar, (2) revenues from the close of escrow on the final four lots in Phases 4 and 4A of the Big Springs development at Northstar, and (3) timber sales of $669,000. For the 1999 period, revenues from real estate and other operations consisted of $12,004,000 in revenues from the sale of 43 lots in Phases 4 and 4A of the Big Springs development and timber sales of $740,000. For additional information on the Company's real estate activities, see Part I, Item 1. "Business - Real Estate Development." Cost of sales for resort operations for the year ended October 27, 2000 was $70,394,000, a decrease of $4,010,000, or 5.4%, as compared to the 1999 period. The decline was primarily due to the combined effects of the following: (1) elimination of certain nonrecurring maintenance, operations, snow removal and other costs incurred at the Summit in the 1999 period, (2) lower business volumes and aggressive variable cost management at most of the resorts during the first quarter of 2000, (3) elimination of $1,200,000 in retail costs of sales at Waterville Valley due to the conversion of the resort's retail operations to a concessionaire arrangement for the 1999/00 ski season, and (4) the divestiture of the Grand Targhee resort on June 20, 2000. Selling, general and administrative expense for the year ended October 27, 2000 was $22,985,000, which was generally consistent with the 1999 period. Cost of sales for real estate and other operations for the year ended October 27, 2000 of $4,507,000 consisted of land basis, development and transaction costs associated with the sale of real estate at Northstar, and cost of sales for timber operations of $486,000. Cost of sales for real estate and other operations for the year ended October 29, 1999 was $5,244,000, consisting of land basis, development and other costs associated with the sale of real estate at Northstar, and cost of sales for timber operations of $502,000. Noncash cost of real estate sales were $2,460,000 and $4,743,000 for the 2000 and 1999 periods, respectively. Operating income for the year ended October 27, 2000 totaled $18,897,000, an increase of $17,629,000 over the operating income generated for the 1999 period, as a result of the factors discussed above. Interest expense for the year ended October 27, 2000 totaled $18,215,000, a decrease of $492,000 from the Company's interest expense for the year ended October 29, 1999. The decrease in interest expense was the result of lower borrowing levels under the Company's Senior Credit Facility, offset by slightly higher borrowing rates. Due to the Company's lack of profitable history, the tax benefits of operating losses are fully offset by a valuation reserve. Accordingly, no income tax provision was recorded for the years ended October 27, 2000 and October 29, 1999. The Company's net loss for the year ended October 27, 2000 was $357,000, an improvement of $18,436,000 from the net loss of $18,793,000 incurred for the year ended October 29, 1999, as a result of the factors discussed above. EBITDA for the year ended October 27, 2000 was $43,929,000, an increase of $15,681,000, or 55.5%, over EBITDA before unusual items of $28,248,000 for the year ended October 29, 1999. Resort operations contributed EBITDA of $26,396,000 for the 2000 period as compared to $16,005,000 for the 1999 period, an increase of $10,391,000 or 64.9%. EBITDA from real estate and other operations was $17,533,000 for the 2000 period, an increase of $5,290,000, or 43.2%, from the EBITDA of $12,243,000 for the 1999 period. Liquidity and Capital Resources The Company's primary liquidity needs are to fund capital expenditures, service indebtedness and support seasonal working capital requirements. The Company's primary sources of liquidity are cash flow from operations and borrowings under the Senior Credit Facility. Virtually all of the Company's operating income is generated by its subsidiaries. As a result, the Company is dependent on the earnings and cash flow of, and dividends and distributions or advances from, its subsidiaries to provide the funds necessary to meet its debt service obligations. The Senior Credit Facility currently provides for borrowing availability of up to $25 million during the term of such facility. The Senior Credit Facility requires that the Company not have borrowings thereunder in excess of $8 million, in addition to amounts maintained by the Company in certain depository accounts with the Agent, for a period of 60 consecutive days each year commencing sometime between February 1 and February 28. The Senior Credit Facility matures on March 31, 2002. The Company is in discussions with potential lenders regarding the extension or refinancing of the Senior Credit Facility. While the Company anticipates that the Senior Credit Facility will be renewed or refinanced, the Company has not received a binding commitment from any lender to provide such financing, and no assurances can be given regarding the availability of such financing or the terms thereof. The Company intends to use borrowings under the Senior Credit Facility (or any replacement facility) to meet seasonal fluctuations in working capital requirements, primarily related to off-season operations and maintenance activities during the months of May through November, to fund capital expenditures and to build retail and other inventories prior to the start of the ski season and for other cash requirements. As of November 2, 2001, outstanding borrowings under the Senior Credit Facility totaled approximately $17.6 million. As of January 25, 2002, borrowings outstanding under the Senior Credit Facility were approximately $1.0 million. The Company had a working capital deficit of $28.6 million (including $17.6 million in outstanding borrowings under the Senior Credit Facility, and excluding $17.6 million of unearned revenue from resort and real estate operations which will not require cash spending to settle such liabilities) as of November 2, 2001, which will negatively affect liquidity during 2002. The Company's working capital deficit at October 27, 2000, determined in a consistent manner as described above, was $16.0 million. The Company generated cash from operating activities of $13.4 million for the year ended November 2, 2001 as compared to $29.7 million for the year ended October 27, 2000. The decrease in cash generated from operating activities was primarily due to the absence of real estate sales in the 2001 period. Cash used in investing activities totaled $15.3 million and $9.1 million for the years ended November 2, 2001 and October 27, 2000, respectively. The results for the 2001 and 2000 periods primarily reflect capital expenditures for property and equipment and real estate held for development and sale. In addition, investing cash flows for the 2000 period reflects $11.4 million in proceeds from the sale of the Grand Targhee resort on June 20, 2000. Cash provided by financing activities for the year ended November 2, 2001 was $1.7 million, and primarily reflects net borrowings under the Senior Credit Facility of $11.3 million, principal payments on long-term debt of $9.0 million and payments on preferred stock of $629,000. Cash used in financing activities for the year ended October 27, 2000 was $20.4 million, and principally consisted of Senior Credit Facility net repayments of $16.7 million, principal payments on long-term debt of $2.7 million and payments on preferred stock of $674,000. During the year ended November 2, 2001, the Company repurchased $8,000,000 aggregate principal amount of Senior Notes for $5,990,000. After giving effect to the write-off of related deferred financing costs of $287,000, the Company recognized an extraordinary gain of $1,723,000. The Company may consider repurchasing additional Senior Notes in the future if it could do so on favorable terms, subject to financing and other liquidity constraints. On November 17, 1999, Trimont Land Company ("TLC"), the owner and operator of Northstar and a wholly-owned subsidiary of the Company, consummated the sale to Trimont Land Holdings, Inc. ("TLH"), a wholly-owned subsidiary of Parent and an affiliate of the Company, of certain single family development property underlying a portion of the Unit 7 and 7A developments at Northstar for an aggregate sales price of $7,050,000, subject to adjustment as described below. The consideration paid to TLC consisted of $6,000,000 in cash and a promissory note (the "TLH Note") for $1,050,000, subject to adjustment. The Company obtained a fairness opinion for the transaction from an independent firm qualified in the subject matter of the transaction. In connection with the sale of development real estate on September 22, 2000 as described below, TLH's interests in the Unit 7A lots were transferred back to TLC on September 22, 2000. Under the terms of the TLH Note, TLC will receive the greater of (a) $1,050,000 plus accrued interest at 7% per annum, or (b) the Net Cash Proceeds (as defined) of the resale of TLH's lots within Unit 7. The TLH Note is prepayable at any time, and is due on the earlier to occur of January 30, 2003 or the date on which the last of the lots owned by TLH has been sold. The Company will recognize revenue and related costs of sales for this real estate transaction upon the close of escrow for lot sales between TLH and third party buyers, and has reflected the cash received as a deposit liability as of November 2, 2001 and October 27, 2000. During December 2001, TLH consummated the sale of seven Unit 7 lots for net proceeds of approximately $3,300,000. As the net proceeds of the seven lot sales were less than the $6,000,000 in cash initially paid by TLH for the underlying real estate, no additional cash proceeds were distributed to TLC. However, TLC will relieve the related deposit liability and recognize revenues for such lot sales during the first quarter of fiscal 2002. TLH intends to market and sell the remaining 19 unsold Unit 7 lots during 2002. On September 22, 2000, TLC and TLH entered into an Agreement for Purchase and Sale of Real Property (the "Northstar Real Estate Agreement") pursuant to which TLC agreed to sell to TLH certain development real estate consisting of approximately 550 acres of land located at Northstar (the "Development Real Estate") for a total purchase price of $27,600,000, of which 85% is payable in cash and 15% is payable in the form of convertible secured subordinated promissory notes. The purchase price was based on an appraisal obtained from an independent third party appraiser. Concurrently therewith, TLC and TLH consummated the sale of the initial land parcels contemplated by the Northstar Real Estate Agreement, and TLC transferred the bulk of the Development Real Estate to TLH for a total purchase price of $21,000,000, of which $17,850,000, or 85%, was paid in cash and $3,150,000, or 15%, was paid in the form of a convertible secured subordinated promissory note. The sale of the remaining Development Real Estate under the Northstar Real Estate Agreement is subject to certain subdivision requirements to effect the transfer of such property and other normal and customary closing conditions, and is expected to be consummated in 2002. See Part III, Item 13. "Certain Relationships and Related Transactions - Sale of Real Estate to Trimont Land Holdings, Inc." and Note 9 to the accompanying consolidated financial statements. The Company's capital expenditures for property and equipment for the year ended November 2, 2001 were approximately $16.2 million (including $3.2 million of equipment acquired through capital leases and other debt). Commitments for future capital expenditures at November 2, 2001 were approximately $2.1 million. Management anticipates that maintenance capital expenditures for its fiscal 2002 and 2003 capital programs will range from $5.0 million to $6.0 million per year. Remaining capital expenditures for the Company's fiscal 2001 capital program which will be incurred in fiscal 2002 are approximately $3.1 million. In addition, acquisitions of grooming equipment, which are typically financed under capital leases, are expected to range from $1.2 million to $2.0 million annually. Depending upon the timing of construction of the Unit 7A single family development at Northstar, expenditures for real estate held for development and sale are anticipated to range from $2.0 million to $3.5 million in fiscal 2002. The scope of fiscal 2002 expansion capital plans and project planning and approvals has not yet been determined. The Company plans to fund these capital expenditures from available cash flow, vendor financing to the extent permitted under the Senior Credit Facility and the Indenture and borrowings under the Senior Credit Facility (or a replacement facility). Management believes that there is a considerable degree of flexibility in the timing (and, to a lesser degree, the scope) of its capital expenditure program, and even greater flexibility as to its real estate development objectives. While the capital expenditure program described above is regarded by management as important, both as to timing and scope, discretionary capital spending above maintenance levels can be deferred, in some instances for substantial periods of time, in order to address cash flow or other constraints. With respect to the Company's potential real estate development opportunities, management believes that such efforts would enhance ski-related revenues and contribute independently to earnings. In addition, with respect to significant development projects, the Company expects to continue to pursue arrangements that would reduce infrastructure and other development costs. Nonetheless, existing lodging facilities in the vicinity of each resort are believed to be adequate to support current skier volumes and a deferral or curtailment of development efforts is not regarded by management as likely to adversely affect skier days and ski-related revenues or profitability. The Company also believes that its current infrastructure is sufficient, and that development of real estate opportunities is not presently necessary to support its existing operations. The Company's liquidity has been and will continue to be significantly affected by its high leverage. As a result of its leveraged position, the Company will have significant cash requirements to service debt and funds available for working capital, capital expenditures, acquisitions and general corporate purposes are limited. In addition, the Company's high level of debt may increase its vulnerability to competitive pressures and the seasonality of the skiing and recreational industries. Any decline in the Company's expected operating performance could have a material adverse effect on the Company's liquidity and on its ability to service its debt and make required capital expenditures. In addition, the Senior Credit Facility and the Indenture governing the Company's Senior Notes each contain covenants that, among other things, significantly limit the Company's ability to obtain additional sources of capital and may affect the Company's liquidity. These covenants restrict the ability of the Company and its Restricted Subsidiaries to, among other things, incur additional indebtedness, create liens, make investments, consummate certain asset sales, create subsidiaries, issue subsidiary stock, consolidate or merge with any other person, or transfer all or substantially all of the assets of the Company. Further, upon the occurrence of a Change of Control (as defined in the Indenture), the Company may be required to repurchase the Notes at 101% of the principal amount thereof, plus accrued and unpaid interest. The occurrence of a Change of Control may also constitute a default under the Senior Credit Facility. No assurance can be given that the Company would be able to finance a Change of Control repurchase offer. The Senior Credit Facility also requires the Company to maintain specified consolidated financial ratios and satisfy certain consolidated financial tests. The Company's ability to meet these financial covenants may be affected by events beyond its control, and there can be no assurance that the Company will satisfy those covenants. In addition, the Senior Credit Facility matures on March 31, 2002. No assurances can be given that the agreements governing any replacement financing, if such financing is available, will not have more restrictive operating covenants or other less favorable terms than the existing Senior Credit Facility. The Company currently has $125.5 million aggregate principal amount of Senior Notes outstanding, which will result in annual cash interest requirements of approximately $15.7 million. The Company expects that cash generated from operations, cash proceeds of planned real estate sales at Northstar, together with borrowing availability (to the extent the Company is able to extend or refinance the Senior Credit Facility), will be adequate to fund the interest requirements on the Senior Notes and the Company's other cash operating and debt service requirements over the next twelve months. In order to focus the Company's resources on attractive investment opportunities at certain of its resorts and to satisfy short-term and long-term liquidity requirements, the Company may in the future consider divestitures of non-strategic assets, including resorts and certain real estate assets, if such transactions can be completed on favorable terms. For the year ended November 2, 2001, the Company's earnings would have been inadequate to cover fixed charges by $15.5 million. Any decline in the Company's expected operating performance or the inability of management to successfully implement the Company's business strategy, could have a material adverse effect on the Company's financial position and liquidity. In such case, the Company could be required to attempt to refinance all or a portion of its existing debt, sell other assets or obtain additional financing. No assurance can be given of the Company's ability to do so or the terms of any such transaction. In addition, the Company would require additional financing for expansion of its existing properties or for future acquisitions, if any. No assurances can be given that any such financing would be available on commercially reasonable terms. See "Forward-Looking Statements" herein. The Company believes that inflation has had little effect on its results of operations and any impact on costs has been largely offset by increased pricing. Recent Trends and Outlook The full impact of the September 11th terrorist attacks and the weakening U.S. economy on the Company's business is not presently determinable. Currently, there are a number of both negative trends and mitigating factors that will likely influence the ultimate effect of these events on the Company's future results of operations, including the following: o The Company's resorts are located within 200 miles of four of the five largest regional ski markets in the United States. Depending on the particular resort, management estimates that 70-95% of its customers travel to the Company's resorts by car. o The eventual impact on the travel choices of the Company's customers who travel by air due to (1) concerns about the safety of air travel, (2) reductions in the number of flight options, and (3) increases in the time commitment necessary to travel by air due to heightened security measures, is not determinable. o A meaningful portion of the Company's customer base is comprised of committed season pass holders. Through mid January 2002, the Company's 2001/02 season pass sales were significantly higher than at the same time in 2001, although a portion of the increase is attributable to the introduction of new pass products which may cannibalize sales of other lift ticket products. o Based on U.S. Department of Labor statistics through December 2001, over the prior year the number of unemployed persons nationally increased by 2.6 million and the unemployment rate grew by 1.8% to 5.8%. o Due to impacts on the insurance industry of the September 11th terrorist attacks, the Company's insurance premiums for 2002 increased by approximately $650,000 over the level of such costs in 2001. Due to the concerns surrounding the travel and recreational industries as a result of recent terrorism and the weakening U.S. economy, the Company is continuing to closely monitor its operational and capital spending levels to help offset the impacts on the Company's business of potential reductions in business volumes. Pending Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the pronouncement. The Company will apply the new rules on accounting for goodwill commencing on November 3, 2001. Application of the nonamortization provisions of SFAS No. 142 is expected to result in an increase in net income of approximately $2,300,000 in fiscal 2002. In connection with the adoption of SFAS No. 142, the Company will be required to perform a transitional impairment test for recorded goodwill as of November 3, 2001. The Company does not expect that the transitional impairment test will result in any significant impairment losses. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"), which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated asset retirement costs. The new rules apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal operation of a long-lived asset. SFAS No. 143 is effective for the Company at the beginning of fiscal 2003. The Company believes the adoption of SFAS No. 143 will not have a material impact on its consolidated financial position or results of operations. Seasonality The business of the Company is highly seasonal, with the vast majority of its annual revenues expected to be generated between November and April of each fiscal year. Management considers it essential to achieve optimal operating results during key holidays and weekends during this period. The Company's results of operations are, in turn, significantly dependent on favorable weather conditions and other factors beyond the Company's control. In prior years, the Company sought to partially mitigate the downside risk of its seasonal business by purchasing paid skier visit insurance policies. The Company did not obtain paid skier visit insurance coverage for its resorts for the 2001/02 ski season as effective policies were not available on commercially viable terms. 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. Forward-Looking Statements Except for historical matters, the matters discussed in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Report are forward-looking statements that involve risks and uncertainties. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The reader can identify these statements by forward-looking words such as "may", "will", "expect", "plan", "intend", "anticipate", "believe", "estimate", and "continue" or similar words. Forward-looking statements are based on management's current views and assumptions and involve risks and uncertainties that could significantly affect the Company's business and expected operating results. The Company wishes to caution the reader that certain factors, including those described below, could significantly and materially affect the Company's actual results, causing results to differ materially from those in any forward-looking statement. These factors include, but are not limited to: o Uncertainty as to future financial results, o The substantial leverage and liquidity constraints of the Company, o The potential inability of the Company to refinance or extend its Senior Credit Facility as well as the terms thereof, o Significant operating restrictions under the Company's debt agreements, o The capital intensive nature of development of the Company's ski resorts, o Uncertainties associated with obtaining financing for future real estate projects and to undertake future capital improvements, o Uncertainties regarding the timing and success of our real estate development projects and their ultimate impact on our operating results, o Demand for and costs associated with real estate development, o The discretionary nature of consumers' spending for skiing and resort real estate, o Regional and national economic conditions, o Weather conditions, o Negative impact on demand for our services and products resulting from recent and potential terrorism threats (including the effect of the September 11th attacks), o Availability of commercial air service, o Natural disasters (such as earthquakes and floods), o Availability and terms of paid skier visit insurance coverage, o Competition and pricing pressures o Governmental regulation and litigation and other risks associated with expansion and development, o The adequacy of the water supplies at each of the Company's resorts, o Availability of adequate energy supplies for the operation of the Company's resorts, including snowmaking operations, and volatility in the prices charged for energy and fuel, and o The occupancy of leased property and property used pursuant to the United States Forest Service permits. Item 7a. Quantitative and Qualitative Disclosures about Market Risk The Company's market risk sensitive instruments do not subject the Company to material market risk exposures, except for such risks related to interest rate fluctuations. As of November 2, 2001, the Company had debt outstanding (including the Senior Credit Facility) with a carrying value of $148.0 million and an estimated fair value of $118.5 million. Fixed interest rate debt outstanding as of November 2, 2001, which excludes the Senior Credit Facility, was $130.4 million, carried an average interest rate of approximately 12%, and matures as follows (in thousands): 2002 2003 2004 2005 2006 Thereafter Total ---- ---- ---- ---- ---- ---------- ----- Senior Notes $ - $ - $ - $ - $ - $ 125,500 $ 125,500 Other Debt 1,748 1,116 1,624 209 125 90 4,912 ----------------------------------------------------------------- $1,748 $1,116 $1,624 $209 $125 $ 125,590 $ 130,412 ================================================================= The amount of borrowings under the Senior Credit Facility as of November 2, 2001 was approximately $17.6 million. For purposes of calculating interest, borrowings under the Senior Credit Facility can be, at the election of the Company, Base Rate Loans or LIBOR Rate Loans or a combination thereof. Base Rate Loans bear interest at the sum of (a) a margin of between 0% and .5%, depending on the level of consolidated EBITDA of the Company and its subsidiaries (as determined pursuant to the Senior Credit Facility), plus (b) the higher of (i) the Agent's base rate or (ii) the federal funds rate plus .5%. LIBOR Rate Loans bear interest at the LIBOR rate plus a margin of between 2% and 3%, depending on the level of consolidated EBITDA. As of November 2, 2001, the borrowings outstanding under the Senior Credit Facility bore interest at an annual rate of 5.5%, pursuant to the Base Rate Loan option. A 10% increase or decrease in interest rates would have an immaterial effect on the Company's future pretax earnings and cash flows. Item 8. Financial Statements and Supplementary Data The financial statements and supplementary financial information that are required to be included pursuant to this Item 8 are listed in Item 14 of this Report under the caption "(a)1." and follow Item 14. The financial statements and supplementary financial information specifically referenced in such list are incorporated in this Item 8 by reference. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant Directors, Executive Officers and Key Employees The following table sets forth information with respect to the directors, executive officers and other key employees of the Company and Booth Creek Ski Group, Inc., a Delaware corporation ("Parent"), of which the Company is a wholly-owned subsidiary. Name Age Position George N. Gillett, Jr....... 63 Chairman of the Board of Directors; Chief Executive Officer, Assistant Secretary, and Director of the Company and Parent Christopher P. Ryman........ 50 President, Chief Operating Officer and Assistant Secretary of the Company, and President and Assistant Secretary of Parent Elizabeth J. Cole........... 41 Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary of the Company and Parent Timothy H. Beck............. 51 Executive Vice President, Planning of the Company Brian J. Pope............... 39 Vice President of Accounting and Finance, Assistant Treasurer and Assistant Secretary of the Company, and Vice President and Assistant Secretary of Parent David G. Corbin............. 49 Vice President of Resort Development of the Company Ross D. Agre................ 33 Vice President and General Counsel and Secretary of the Company and Parent Julianne Maurer............. 45 Vice President of Marketing and Sales of the Company Mark St. J. Petrozzi........ 42 Vice President of Risk Management of the Company Laura B. Moriarty........... 46 Vice President of Human Resources of the Company Gary M. Pelletier........... 40 Director of the Company and Parent Dean C. Kehler.............. 45 Director of the Company and Parent Edward Levy................. 38 Director of the Company and Parent Timothy Silva............... 50 General Manager - Northstar John A. Rice................ 46 General Manager - Sierra Brent G. Tregaskis.......... 41 General Manager - Bear Mountain Thomas H. Day............... 47 General Manager - Waterville Valley Ted M. Austin............... 41 General Manager - Mt. Cranmore Rick F. Kelley.............. 46 General Manager - Loon Mountain Dan Brewster................ 41 General Manager - Summit ------------------------------------------------------------------------------- George N. Gillett, Jr. Mr. Gillett has been the Chairman of the Board of Directors of the Company since its formation in October 1996 and Chief Executive Officer since February 1997. From August 1994 to July 2001, he served as Chairman of Packerland Packing Company, Inc., a meatpacking company based in Green Bay, Wisconsin. From January 1997 to February 2000, Mr. Gillett served as Chairman of Corporate Brand Foods America, Inc., a processor and marketer of meat and poultry products based in Houston, Texas, which was acquired by IBP in February 2000. Christopher P. Ryman. Mr. Ryman became President, Chief Operating Officer and Assistant Secretary of the Company in May 1998. Mr. Ryman was Chief Operating Officer and Senior Vice President of Vail Associates, Inc. from 1995 to May 1998. Prior to that time, from 1992 to 1995, he was Senior Vice President of Mountain Operations at Vail Associates, Inc. Elizabeth J. Cole. Ms. Cole has held the positions of Executive Vice President, Chief Financial Officer and Treasurer of the Company since May 1998. Ms. Cole also held the position of Secretary of the Company until October 2001, at which time she was appointed Assistant Secretary. From May 1995 until May 1998, Ms. Cole worked at Vail Resorts, with her most recent position there being that of Vice President, Business Development. Prior to this time Ms. Cole was affiliated with Aurora Capital Partners, a private equity fund. During her employment with Aurora Capital Partners, she served as the Chief Financial Officer of Petrowax PA, Inc., a manufacturer of petroleum waxes. Timothy H. Beck. Mr. Beck has held the position of Executive Vice President, Planning of the Company since July 1997. Prior to this time he served as President of Sno-engineering, Inc., a leading ski resort and real estate consulting and appraisal firm, since January 1991. Brian J. Pope. Mr. Pope has held the position of Vice President of Accounting and Finance of the Company since August 1998. In December 1998, Mr. Pope was also named to the positions of Assistant Treasurer and Assistant Secretary of the Company. Prior to August 1998, he served as Senior Manager in the Assurance and Advisory Business Services unit of Ernst & Young LLP. David G. Corbin. Mr. Corbin became the Vice President of Resort Development of the Company in August 2000. Prior to this time, he served as Vice President with Vail Resorts Development Company since 1993. Ross D. Agre. Mr. Agre has held the position of Vice President and General Counsel of the Company since September 2001. In October 2001, Mr. Agre was also named Secretary of the Company. From October 1994 to August 2001, Mr. Agre served with the law firm of Milbank, Tweed, Hadley & McCloy LLP, and was principally involved in a corporate transactional practice. Julianne Maurer. Ms. Maurer has held the position of Vice President of Marketing and Sales of the Company since December 1996. Prior to this time she served as Director of Marketing of the Fibreboard Resort Group as well as Director of Marketing for Northstar. Mark St. J. Petrozzi. Mr. Petrozzi has held the position of Vice President of Risk Management of the Company since January 1998. Between July 1988 and January 1998, Mr. Petrozzi held various management positions with Willis Corroon, a national insurance brokerage and consulting firm. Laura B. Moriarty. Ms. Moriarty has held the position of Vice President of Human Resources of the Company since September 1997. Prior to this time, Ms. Moriarty was the Training Development Director at Harvey's Resort Casino since October 1994. Gary M. Pelletier. Mr. Pelletier has been with John Hancock Life Insurance Company ("John Hancock") since June 2001 and currently serves as a Managing Director with the Bond and Corporate Finance Group. Mr. Pelletier is responsible for a portfolio of investments specializing in media, entertainment and recreational related businesses, and has investment responsibilities with respect to Hancock Mezzanine Partners L.P. Prior to June 2001, Mr. Pelletier was employed with State Street Corporation since 1987, and most recently was in charge of Global Fixed Income Credit Research for State Street Advisors, the asset management arm of State Street Corporation. Dean C. Kehler. Mr. Kehler is a vice-chairman of CIBC World Markets Corp. (an affiliate of CIBC WG Argosy Merchant Fund 2, L.L.C. - the "CIBC Merchant Fund"), co-head of CIBC World Markets High Yield Merchant Banking Funds, and a member of CIBC World Markets Corp.'s Executive Board, U.S. Management Committee and Investment Committee, and has investment responsibilities with respect to the CIBC Merchant Fund and the Co-Investment Merchant Fund, LLC (the "Co-Investment Fund"). Mr. Kehler is also a founder of Trimaran Capital Partners, a private asset management firm which manages private equity funds and a portfolio of structured investment funds. Prior to joining CIBC World Markets Corp., Mr. Kehler was a Managing Director of Argosy Group L.P., an investment banking firm, from February 1990 to August 1995. Mr. Kehler serves as a director of Heating Oil Partners, L.P., First Knowledge Partners, inviva, inc. and CityNet Telecommunications, Inc. Edward Levy. Mr. Levy has been a Managing Director of CIBC World Markets Corp., an affiliate of CIBC Merchant Fund, since August 1995, and has investment responsibilities with respect to the CIBC Merchant Fund and the Co-Investment Fund. From February 1990 to August 1995, Mr. Levy was a Managing Director of Argosy Group, L.P., an investment banking firm. Mr. Levy is also a director of Heating Oil Partners, L.P., High Voltage Engineering Corporation and Norcross Safety Products. Timothy Silva. Mr. Silva has been the General Manager of Northstar since January 1995. Prior to this time, he served as Director of Operations of Northstar, since February 1992. John A. Rice. Mr. Rice has been the General Manager of Sierra since July 1993. Prior to this time he served as Vice President of Administration of Bear Mountain, Ltd. (the predecessor of Bear Mountain, Inc.) since July 1988. Brent G. Tregaskis. Mr. Tregaskis became the General Manager of Bear Mountain in February 1998. Prior to this time, he served as Food and Beverage and Facilities Director of Jackson Hole Mountain Resort since July 1996. From 1985 until July 1996, he served in a variety of positions at Snow Summit Mountain Resort, including Profit Centers Manager and General Manager of the Food and Beverage Department. Thomas H. Day. Mr. Day has been the General Manager of Waterville Valley since May 1997. Prior to this time, he served as Mountain Manager of Waterville Valley since 1986. Ted M. Austin. Mr. Austin became the General Manager of Mt. Cranmore in September 1997. Prior to this time, he served as Director of Marketing at Sierra since August 1993. Rick F. Kelley. Mr. Kelley became the General Manager of Loon Mountain in March 1998. Prior to this time, he served as Manager of Operations, Director of Mountain Operations, Director of Skiing Operations, Director of Technical Operations and Director of Maintenance Operations as well as serving in a variety of other positions at Loon Mountain since 1978. Dan Brewster. Mr. Brewster became the General Manager of the Summit in September 2000. Prior to this time, he served in a variety of other positions at the Summit since 1979, including Director of Operations, Director of Planning and Development, Vice President of Ski Lifts, Inc. (the owner and operator of the Summit) and Director of Human Resources. Directors All directors of Booth Creek and Parent hold office until the respective annual meeting of stockholders next following their election, or until their successors are elected and qualified. On October 5, 2001, George N. Gillett, Jr., Dean C. Kehler and Edward Levy were re-elected to serve as members of the Board of Directors of Parent and the Company, and George N. Gillett, Jr. was re-appointed as Chairman of the Board of Directors of the Company. Additionally, on such date, Gary M. Pelletier was elected to the Board of Directors of Parent and the Company to replace a former director. See Part III, Item 13. "Certain Relationships and Related Transactions - Stockholders Agreements." No director of Booth Creek or Parent receives compensation for acting in such capacity. Item 11. Executive Compensation Compensation of Executive Officers The following table sets forth the compensation paid by Booth Creek to (i) its Chairman of the Board and Chief Executive Officer and (ii) each of the four most highly compensated executive officers of the Company in fiscal 2001 (collectively, the "Named Executives"), for services rendered in all capacities to the Company during the periods indicated. SUMMARY COMPENSATION TABLE Long-Term Annual Compensation Compensation ----------------------------- ------------ Other Restricted All Annual Stock Other Salary Bonus Compen- Awards Compen- Name and Principal Position Year ($) ($) sation($) ($)(1) sation($) --------------------------- --- ------ ------ --------- -------- --------- George N. Gillett, Jr.... 2001 - - - - - Chairman of the Board, 2000 - - - - - Chief Executive Officer 1999 - - - - - and Director (2) Christopher P. Ryman..... 2001 335,000 167,500 - 11,536 11,026 (3) President, Chief 2000 315,000 315,000 - - 11,032 (4) Operating Officer and 1999 240,000 50,000 - - 3,738 (5) Assistant Secretary Elizabeth J. Cole........ 2001 275,000 165,000 - 11,536 10,447 (6) Executive Vice President, 2000 250,000 250,000 - - 7,720 (7) Chief Financial Officer, 1999 175,000 100,000 - - 4,821 (8) Treasurer and Secretary Timothy H. Beck.......... 2001 195,000 78,000 - 1,960 8,668 (9) Executive Vice 2000 185,000 110,000 - - 6,568(10) President, Planning 1999 175,000 35,000 - - 7,520(11) Brian J. Pope............ 2001 185,000 95,000 - 2,800 7,995 (5) Vice President of 2000 165,000 110,000 - - 5,997 (5) Accounting and 1999 125,000 45,000 - - - Finance, Assistant Treasurer, Assistant Secretary -------------------------- (1) The amounts disclosed in this column reflect the dollar values of restricted shares granted pursuant to Parent's 2001 Incentive Stock Plan. The total number of restricted shares held by the Named Executives and their aggregate market value as of November 2, 2001 were as follows: Christopher P. Ryman, 824 shares valued at $11,536; Elizabeth J. Cole, 824 shares valued at $11,536; Timothy H. Beck, 140 shares valued at $1,960; and Brian J. Pope, 200 shares valued at $2,800. (2) Mr. Gillett is the sole shareholder, sole director and Chief Executive Officer of Booth Creek Management Corporation which, pursuant to the Management Agreement (as defined), provides the Company with management services. See Part III, Item 13. "Certain Relationships and Related Transactions - Management Agreement with Booth Creek Management Corporation." (3) Consists of a 401(k) matching contribution of $8,838 and term life insurance premiums of $2,188. (4) Consists of a 401(k) matching contribution of $7,087 and term life insurance premiums of $3,945. (5) Consists of a 401(k) matching contribution. (6) Consists of a 401(k) matching contribution of $8,352 and term life insurance premiums of $2,095. (7) Consists of a 401(k) matching contribution of $5,625 and term life insurance premiums of $2,095. (8) Consists of a 401(k) matching contribution of $2,726 and term life insurance premiums of $2,095. (9) Consists of a 401(k) matching contribution of $6,903 and term life insurance premiums of $1,765. (10) Consists of a 401(k) matching contribution of $4,803 and term life insurance premiums of $1,765. (11) Consists of a 401(k) matching contribution of $5,755 and term life insurance premiums of $1,765. Parent 2001 Stock Incentive Plan Parent has established the Booth Creek Ski Group, Inc. 2001 Stock Incentive Plan (the "Parent 2001 Stock Incentive Plan"), pursuant to which various forms of stock awards with respect to a maximum of 2,473 shares of Parent's Class B Common Stock may be granted. In connection with the adoption of the Parent 2001 Stock Incentive Plan, Parent's 1997 stock option plan was terminated. Stock awards may be granted under the Parent 2001 Stock Incentive Plan to employees and independent contractors of Parent and Parent-controlled businesses, including the Company, at the discretion of the Board of Directors of Parent. Under the Parent 2001 Stock Incentive Plan, Parent has entered into restricted stock arrangements with Christopher P. Ryman, Elizabeth J. Cole, Timothy H. Beck and Brian J. Pope (each a "Holder") providing for the issuance of 824, 824, 140 and 200 restricted shares, respectively. Each Holder's restricted stock vested with respect to 60% of the shares on November 1, 2001, and will vest with respect to an additional 20% of the related shares on each of November 1, 2002 and November 1, 2003. Holders are entitled to receive dividends on restricted shares to the same extent as holders of unrestricted shares. After vesting of the restricted stock, Holders are also entitled to deferred compensation from Parent pursuant to a specified formula, which is paid upon sale of their shares or under certain other circumstances. Employment and Other Agreements Christopher P. Ryman The Company and Parent are parties to an employment agreement, as amended and restated, with Christopher P. Ryman, President and Chief Operating Officer of the Company and Parent. Mr. Ryman's employment under such agreement commenced on May 1, 2000, and the agreement is scheduled to expire on October 31, 2003, unless sooner terminated. For the year ended November 2, 2001, Mr. Ryman received a base salary of $335,000 from the Company, which is subject to annual review and increase as Mr. Ryman and the Company may agree. The agreement provides that the Company's Board of Directors will establish reasonable performance incentive goals for Mr. Ryman for each fiscal year, with a bonus target of 50% of base salary if such goals are obtained. Mr. Ryman is also eligible for separate incentive compensation from Parent. Under the terms of his employment agreement, Mr. Ryman is eligible to participate in the health, disability and retirement plans offered to executives of the Company, at participation levels and with benefits not less favorable than those provided to the plans' respective highest ranking participants. In addition, Mr. Ryman is entitled to certain supplemental disability and life insurance benefits. Mr. Ryman and a designee of his choice are eligible for certain membership benefits in clubs owned or controlled by the Company or its affiliates, or clubs in which the Company or its affiliates may have an interest, as further described in the employment agreement. The employment agreement also provides that the Company shall convey to Mr. Ryman a single family lot from two alternative sites at the Northstar resort. Further, the Company and Parent are required to reimburse Mr. Ryman for all reasonable and necessary expenses incurred by him in the discharge of his duties and have agreed to indemnify him to the maximum extent permitted by Delaware law. In the event that the Company requires Mr. Ryman to relocate his residence, the employment agreement provides that the Company and Mr. Ryman shall agree upon a reasonable relocation package. In accordance with Mr. Ryman's employment agreement, Parent has issued to Mr. Ryman 824 shares of its Class B Common Stock in the form of restricted stock. The employment agreement further provides that portions of the restricted stock will be forfeitable under certain circumstances. The restricted stock is subject to a stockholders agreement. See Part III, Item 13. "Certain Relationships and Related Transactions - Stockholders Agreements." Under the terms of his employment agreement, Mr. Ryman's employment may be terminated prior to October 31, 2003 upon: o His death or disability, o Notice from the Company or Parent for cause (as described in his agreement), o Notice from the Company or Parent of termination other than for cause, o 60 days' prior notice from Mr. Ryman given within six months from the date that the CIBC Merchant Fund and John Hancock and their respective affiliates together own beneficially capital stock of Parent entitling them to cast less than a majority of the votes entitled to be cast on any matter upon which a holder of a share of stock of a Delaware corporation of which only one class of stock is outstanding would be entitled to vote, treating any Parent outstanding nonvoting stock that is convertible into Parent voting stock as if it had been so converted, or o 30 days' prior notice from Mr. Ryman given within two months of the date on which his duties and authority having been materially reduced from those existing on May 1, 2000, unless such duties and authority are restored within a 30 day period. In the event Mr. Ryman's employment shall be terminated pursuant to the last three items described above, the Company will provide Mr. Ryman with a payment equal to one and one-half times his base salary, and provide continuation of insurance benefits until the earlier of (a) 18 months, or (b) the date on which Mr. Ryman becomes eligible for comparable health, disability and life insurance benefits from new employment. During the term of his employment and for certain specified periods thereafter, Mr. Ryman will be subject to provisions prohibiting (1) his competition with the Company and Parent, (2) solicitation of certain of Parent or Company management personnel, (3) diversion of Parent or Company vendors, customers or others doing business with Parent or the Company, and (4) disparaging Parent, the Company or any of their personnel or revealing any information that might impair the reputation or goodwill of Parent, the Company or their personnel. Mr. Ryman's employment agreement also contains provisions relating to non-disclosure of certain confidential information of Parent and the Company (as described in the agreement). Elizabeth J. Cole The Company and Parent are parties to an employment agreement, as amended and restated, with Elizabeth J. Cole, Executive Vice President and Chief Financial Officer of the Company and Parent. Ms. Cole's employment under such agreement commenced on May 1, 2000, and the agreement is scheduled to expire on October 31, 2003, unless sooner terminated. For the year ended November 2, 2001, Ms. Cole received a base salary of $275,000 from the Company, which is subject to annual review and increase as Ms. Cole and the Company may agree. The agreement provides that the Company's Board of Directors will establish reasonable performance incentive goals for Ms. Cole for each fiscal year, with a bonus target of 50% of base salary if such goals are obtained. Ms. Cole is also eligible for separate incentive compensation from Parent. Under the terms of her employment agreement, Ms. Cole is eligible to participate in the health, disability and retirement plans offered to executives of the Company, at participation levels and with benefits not less favorable than those provided to the plans' respective highest ranking participants. In addition, Ms. Cole is entitled to certain supplemental disability and life insurance benefits. Ms. Cole and a designee of her choice are eligible for certain membership benefits in clubs owned or controlled by the Company or its affiliates, or clubs in which the Company or its affiliates may have an interest, as further described in the employment agreement. The employment agreement also provides that the Company shall convey to Ms. Cole a single family lot from two alternative sites at the Northstar resort. Further, the Company and Parent reimburse Ms. Cole for all reasonable and necessary expenses incurred by her in the discharge of her duties and have agreed to indemnify her to the maximum extent permitted by Delaware law. In the event that the Company requires Ms. Cole to relocate her residence, the employment agreement provides that the Company and Ms. Cole shall agree upon a reasonable relocation package. In accordance with Ms. Cole's employment agreement, Parent has issued to Ms. Cole 824 shares of its Class B Common Stock in the form of restricted stock. The employment agreement further provides that portions of the restricted stock will be forfeitable under certain circumstances. The restricted stock is subject to a stockholders agreement. See Part III, Item 13. "Certain Relationships and Related Transactions - Stockholders Agreements." Under the terms of her employment agreement, Ms. Cole's employment may be terminated prior to October 31, 2003 upon: o Her death or disability, o Notice from the Company or Parent for cause (as described in her agreement), o Notice from the Company or Parent of termination other than for cause, o 60 days' prior notice from Ms. Cole given within six months from the date that the CIBC Merchant Fund and John Hancock and their respective affiliates together own beneficially capital stock of Parent entitling them to cast less than a majority of the votes entitled to be cast on any matter upon which a holder of a share of stock of a Delaware corporation of which only one class of stock is outstanding would be entitled to vote, treating any Parent outstanding nonvoting stock that is convertible into Parent voting stock as if it had been so converted, or o 30 days' prior notice from Ms. Cole given within two months of the date on which her duties and authority having been materially reduced from those existing on May 1, 2000, unless such duties and authority are restored within a 30 day period. In the event Ms. Cole's employment shall be terminated pursuant to the last three items described above, the Company will provide Ms. Cole with a payment equal to one and one-half times her base salary, and provide continuation of insurance benefits until the earlier of (a) 18 months, or (b) Ms. Cole becomes eligible for comparable health, disability and life insurance benefits from new employment. During the term of her employment and for certain specified periods thereafter, Ms. Cole will be subject to provisions prohibiting (1) her competition with the Company or Parent, (2) solicitation of certain of Parent or Company management personnel, (3) diversion of Parent or Company vendors, customers or others doing business with Parent or the Company, and (4) disparaging Parent, the Company or any of their personnel or revealing any information that might impair the reputation or goodwill of Parent, the Company and their personnel. Ms. Cole's employment agreement also contains provisions relating to non-disclosure of certain confidential information of Parent and the Company (as described in the agreement). Timothy H. Beck The Company is a party to an employment agreement, as amended, with Timothy H. Beck, Executive Vice President, Planning of the Company. Mr. Beck's employment under such agreement commenced on July 1, 1997, and the agreement is scheduled to expire on November 1, 2003, unless sooner terminated. For the year ended November 2, 2001, Mr. Beck received a base salary of $195,000, which is subject to annual review and discretionary increase by the Company. Mr. Beck will also be entitled to receive an annual incentive bonus of up to 50% of his base salary based upon the Company's attainment of certain targeted financial, business and personal goals. Under the terms of his employment agreement, Mr. Beck is entitled to four weeks paid vacation per year and is eligible to participate in the health, disability, retirement, profit sharing, equity award and savings plans offered to other executives of the Company. The employment agreement also provides Mr. Beck with the right to purchase a single family lot at the Company's basis from two alternative sites at the Northstar resort. In addition, pursuant to his agreement, the Company provides Mr. Beck with a $1,000,000 term life insurance policy, reimburses him for all reasonable and necessary expenses incurred by him in the discharge of his duties and indemnifies him to the maximum extent permitted by Delaware law. In the event that the Company requires Mr. Beck to relocate his residence to the community in which the Company's executive offices are located (as described in his agreement), the Company shall reimburse Mr. Beck for certain costs related to such relocation. Under the terms of his employment agreement, Mr. Beck's employment may be terminated by the Company at any time, with or without cause, or upon his death, disability or resignation. In the event Mr. Beck's employment is terminated "without cause", by Mr. Beck for "good reason" or in the event of a "change in control" (each as described in his agreement), the Company will provide Mr. Beck with salary continuation and continuation of health and disability insurance coverage for a period of 18 months or until such time as Mr. Beck is eligible for comparable benefits from another entity, whichever date is sooner. During the term of his employment and for certain specified periods thereafter, Mr. Beck will be subject to provisions prohibiting (1) his competition with the Company or Parent, (2) solicitation of certain of Parent or Company management personnel, (3) diversion of Parent or Company vendors, customers or others doing business with Parent or the Company, and (4) disparaging Parent, the Company or any of their personnel or revealing any information that might impair the reputation or goodwill of Parent, the Company and their personnel. Mr. Beck's employment agreement also contains provisions relating to non-disclosure of certain confidential information of Parent and the Company (as described in his agreement). Brian J. Pope Mr. Pope is entitled to severance pay equal to 12 months' salary, if his employment is terminated without cause before November 1, 2003. Compensation Committee Interlocks and Insider Participation The Company's compensation policies are determined and executive officer compensation decisions are made by the Board of Directors, which currently consists of George N. Gillett, Jr., Gary M. Pelletier, Dean C. Kehler and Edward Levy. Mr. Gillett is the Chief Executive Officer of the Company and is the sole shareholder, sole director and Chief Executive Officer of Booth Creek Management Corporation, which provides the Company with management services. See Part III, Item 13. "Certain Relationships and Related Transactions." Item 12. Security Ownership of Certain Beneficial Owners and Management The Company is a wholly-owned subsidiary of Parent. The following table sets forth information concerning the beneficial ownership of Parent's Common Stock (including Class A Common Stock and Class B Common Stock) as of January 29, 2002 by (i) each person known to the Company to own beneficially more than 5% of the outstanding Common Stock of Parent, (ii) by each director and Named Executive of the Company and (iii) all directors and executive officers of the Company as a group. Each share of Parent's Class B Common Stock is non-voting (except with respect to certain amendments to the certificate of incorporation and bylaws of Parent and as otherwise required by the General Corporation Law of the State of Delaware) and is convertible into one share of voting Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. All shares are owned with sole voting and investment power, unless otherwise indicated. The percentages of beneficial ownership in the accompanying table represents the relative interests assuming that only such individual holder's respective Class B Common Stock or Warrants were converted with respect to the existing number of outstanding Class A or Class B shares. Parent's Class A Parent's Class B Common Stock Common Stock Beneficially Owned Beneficially Owned ---------------------- ---------------------- Beneficial Owner Shares % Shares % ------------------------------------- ------------- -------- ------------- -------- Booth Creek Partners Limited II, L.L.L.P............................... 825.70 (1) 100% 182.90 (2) 2% 6755 Granite Creek Road Teton Village, Wyoming 83025 John Hancock Life Insurance Company............................... 9,160.21 (3) 93% 9,160.21 (3) 65% John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 CIBC WG Argosy Merchant Fund 2, L.L.C... 3,147.36 (4) 83% 3,147.36 (4) 26% 425 Lexington Avenue, 3rd Floor New York, New York 10017 George N. Gillett, Jr................... 825.70 (5) 100% - - Chairman of the Board of the Company Rose Gillett............................ 825.70 (5) 100% - - 6755 Granite Creek Road Teton Village, Wyoming 83025 Jeffrey J. Joyce........................ 96.42 (6) 15% - - 3330 Cumberland Blvd., Suite 500 Atlanta, Georgia 30339 Hancock Mezzanine Partners L.P.......... 529.03 (7) 45% 529.03 (7) 5% John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 Co-Investment Merchant Fund, LLC........ 349.70 (8) 35% 349.70 (8) 3% 425 Lexington Ave., 3rd Floor New York, New York 10017 Gary M. Pelletier....................... 9,689.24 (9) 94% 9,689.24 (9) 68% Director of the Company and Parent Dean C. Kehler.......................... 3,497.06 (10) 84% 3,497.06 (10) 29% Director of the Company and Parent Edward Levy............................. 3,497.06 (11) 84% 3,497.06 (11) 29% Director of the Company and Parent Christopher P. Ryman.................... 824.00 (12) 56% 824.00 (12) 7% President, Chief Operating Officer and Assistant Secretary of the Company; President and Assistant Secretary of Parent Elizabeth J. Cole....................... 824.00 (13) 56% 824.00 (13) 7% Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary of the Company and Parent Timothy H. Beck......................... 140.00 (14) 18% 140.00 (14) 1% Executive Vice President, Planning of the Company Brian J. Pope........................... 200.00 (15) 24% 200.00 (15) 2% Vice President of Accounting and Finance, Assistant Treasurer and Assistant Secretary of the Company; Vice President and Assistant Secretary of Parent Total Executive Officers and Directors as a Group.................. 16,000.00 (16) 100% - -
--------------------- (1) Comprised of 642.80 shares of Class A Common Stock of Parent and Warrants to purchase 182.90 shares of Class B Common Stock of Parent. Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. Each Warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. (2) Represents Warrants to purchase 182.90 shares of Class B Common Stock of Parent. (3) Comprised of 6,268.31 shares of Class B Common Stock of Parent and Warrants to purchase 2,891.90 shares of Class B Common Stock of Parent. Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. Each Warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. (4) Comprised of 2,227.92 shares of Class B Common Stock of Parent and Warrants to purchase 919.44 shares of Class B Common Stock of Parent. Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. Each Warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. (5) Booth Creek Partners Limited II, L.L.L.P. owns directly 642.80 shares of Class A Common Stock of Parent and Warrants to purchase 182.90 shares of Class B Common Stock of Parent. Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. Each Warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. George N. Gillett, Jr. is the managing general partner and Rose Gillett is a co-general partner of Booth Creek Partners Limited II, L.L.L.P. and each may be deemed to possess shared voting and/or investment power with respect to the interests held therein. Accordingly, the beneficial ownership of such interests may be attributed to George N. Gillett, Jr. and Rose Gillett. Rose Gillett is the wife of George N. Gillett, Jr. (6) Represents shares of Class A Common Stock of Parent that Mr. Joyce has an option to purchase from Booth Creek Partners Limited II, L.L.L.P. (the "Option") pursuant to that certain Option Letter Agreement dated December 3, 1996, as amended. The Option is exercisable, in whole or in part, at any time on or prior to December 1, 2006 at an initial exercise price equal to $2,066.12 per share, which exercise price shall increase by $55.10 on each December 1. The shares subject to the Option and the per share exercise price are subject to adjustment under certain circumstances, and the obligation of Booth Creek Partners Limited II, L.L.L.P. to sell shares of Class A Common Stock of Parent upon exercise of the Option is subject to compliance with applicable securities laws. (7) Comprised of 364.73 shares of Class B Common Stock of Parent and Warrants to purchase 164.30 shares of Class B Common Stock of Parent. Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. Each Warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. (8) Comprised of 247.54 shares of Class B Common Stock of Parent and Warrants to purchase 102.16 shares of Class B Common Stock of Parent. Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. Each Warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. (9) Represents an aggregate of 6,633.04 shares of Class B Common Stock of Parent and Warrants to purchase 3,056.20 shares of Class B Common Stock of Parent held of record by John Hancock Life Insurance Company and Hancock Mezzanine Partners L.P. (the "Hancock Entities"). Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. Each Warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. Mr. Pelletier disclaims beneficial ownership of the securities held by the Hancock Entities. (10) Represents an aggregate of 2,475.46 shares of Class B Common Stock of Parent and Warrants to purchase 1,021.60 shares of Class B Common Stock of Parent held of record by CIBC WG Argosy Merchant Fund 2, L.L.C. and Co-Investment Merchant Fund, L.L.C. (the "CIBC Entities"). Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. Each Warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. Mr. Kehler disclaims beneficial ownership of the securities held by the CIBC Entities. (11) Represents an aggregate of 2,475.46 shares of Class B Common Stock of Parent and Warrants to purchase 1,021.60 shares of Class B Common Stock of Parent held of record by the CIBC Entities. Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. Each Warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. Mr. Levy disclaims beneficial ownership of the securities held by the CIBC Entities. (12) Represents 824.00 shares of restricted Class B Common Stock of Parent held by Mr. Ryman pursuant to his employment agreement. See Part III, Item II. "Executive Compensation - Employment and Other Agreements." Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. (13) Represents 824.00 shares of restricted Class B Common Stock of Parent held by Ms. Cole pursuant to her employment agreement. See Part III, Item II. "Executive Compensation - Employment and Other Agreements." Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. (14) Represents 140.00 shares of restricted Class B Common Stock of Parent held by Mr. Beck pursuant to that certain restricted stock agreement by and between Parent and Mr. Beck. See Part III, Item 11. "Executive Compensation - Parent 2001 Stock Incentive Plan." (15) Represents 200.00 shares of restricted Class B Common Stock of Parent held by Mr. Pope pursuant to that certain restricted stock agreement by and between Parent and Mr. Pope. See Part III, Item 11. "Executive Compensation - Parent 2001 Stock Incentive Plan. (16) Represents (i) 642.80 shares of Class A Common Stock of Parent and Warrants to purchase 182.90 shares of Class B Common Stock of Parent owned by Booth Creek Partners Limited II, L.L.L.P., of which George N. Gillett, Jr. may be deemed to be the beneficial owner, (ii) 6,633.04 shares of Class B Common Stock of Parent and Warrants to purchase 3,056.20 shares of Class B Common Stock of Parent owned by the Hancock Entities, of which Gary M. Pelletier may be deemed to be the beneficial owner as described in note (9) above, (iii) 2,475.46 shares of Class B Common Stock of Parent and Warrants to purchase 1,021.60 shares of Class B Common Stock of Parent owned by the CIBC Entities, of which each of Dean C. Kehler and Edward Levy may be deemed to be the beneficial owners as described in notes (10) and (11) above, (iv) 824.00 shares of Class B Common Stock of Parent held by Christopher P. Ryman as described in note (12) above, (v) 824.00 shares of Class B Common Stock of Parent held by Elizabeth J. Cole as described in note (13) above, (vi) 140.00 shares of Class B Common Stock of Parent held by Timothy H. Beck as described in note (14) above, and (vii) 200.00 shares of Class B Common Stock of Parent held by Brian J. Pope as described in Note (15) above. Item 13. Certain Relationships and Related Transactions Securities Purchase Agreements Since its formation in October 1996, the Company and Parent have each engaged in a series of transactions with the principal security holders of Parent for the purpose of raising capital to finance the acquisitions of the Company's resorts and for general corporate purposes. In connection with these transactions, the principal security holders of Parent (comprised of Booth Creek Partners Limited II, L.L.L.P., the Hancock Entities and the CIBC Entities) and Parent have entered into Securities Purchase Agreements dated November 27, 1996, as amended and restated on February 26, 1998, September 14, 1998 and May 28, 2000 (the "Securities Purchase Agreements"). Pursuant to the Securities Purchase Agreements, Parent has issued shares of Class A and Class B Common Stock, warrants to purchase Class B Common Stock (the "Warrants") and Parent Notes. The Parent Notes mature on November 27, 2008 and bear interest at 12% per annum, if paid in cash, or 14% per annum, if paid in kind, payable semi-annually on each May 27 and November 27. George N. Gillett, Jr., and affiliates own 100% of the outstanding Class A Common Stock. The Securities Purchase Agreements, which govern the Parent Notes, contain restrictive covenants pertaining to the management and operation of Parent and its subsidiaries, including the Company. The covenants include, among others, significant limitations on funded debt and current debt, dividends and other stock payments, redemption, retirement, purchase or acquisition of equity interests in Parent and its subsidiaries, transactions with affiliates, investments, liens, issuances of stock, asset sales, acquisitions, mergers, fundamental corporate changes, tax consolidation, modifications of certain documents and leases. The Securities Purchase Agreements further required that all of the issued and outstanding common stock of the Company be pledged to secure the Parent Notes, and provide that Parent shall cause the Company to pay cash dividends to Parent in the maximum amount permitted by law, subject to restrictions contained in the Company's debt agreements, in order to satisfy Parent's interest payment obligations under the Parent Notes. The Securities Purchase Agreements provide for events of default customary in agreements of this type, including: (i) failure to make payments when due; (ii) breach of covenants; (iii) bankruptcy defaults; (iv) breach of representations or warranties in any material respect when made; (v) default by Parent or any of its subsidiaries under any agreement relating to debt for borrowed money in excess of $1.0 million in the aggregate; (vi) final judgments for the payment of money against Parent or any of its subsidiaries in excess of $1.0 million in the aggregate; (vii) ERISA defaults; (viii) any operative document ceasing to be in full force and effect; (ix) any enforcement of liens against Parent or any of its subsidiaries; and (x) a change of control of Parent. The Warrants are exercisable, subject to certain conditions, at a per share price of $0.01 (as adjusted by certain anti-dilution provisions) at any time prior to November 27, 2008, on which date all unexercised Warrants will be deemed automatically exercised. The Securities Purchase Agreements provide that the holders of at least 85% of the Purchased Common Shares (as defined in the Securities Purchase Agreements) and shares issuable upon exercise of the Warrants will each be entitled to require Parent to register their shares under the Securities Act for resale to the public. The holders of Registrable Shares (as defined in the Securities Purchase Agreements) are also entitled to certain piggyback and other registration rights, subject in all cases to certain qualifications. Stockholders Agreements In connection with the Securities Purchase Agreements described above, Parent, Booth Creek Partners Limited II, L.L.L.P., John Hancock, Hancock Mezzanine Partners L.P., the CIBC Merchant Fund and Co-Investment Fund, have entered into the Stockholders Agreement dated November 27, 1996, as amended and restated on February 26, 1998, August 5, 1998 and May 28, 2000 (the "Stockholders Agreement"). Pursuant to the Stockholders Agreement, the Board of Directors of Parent shall consist of three individuals selected by Booth Creek Partners Limited II, L.L.L.P. and two individuals designated by John Hancock. The Board of Directors of Parent and the Company currently consists of George N. Gillett, Jr., Dean C. Kehler, Edward Levy and Gary M. Pelletier. See Part III, Item 10. "Directors and Executive Officers of the Registrant - Directors." Without the consent of owners of 75% or more of Parent's equity securities (the "Required Owners"), neither Parent nor any subsidiary of Parent, including the Company, may issue any equity securities except for certain enumerated permitted issuances. With respect to issuance of equity securities of Parent requiring the approval of the Required Owners, the Required Owners also are entitled to certain preemptive rights. In addition, the Stockholders Agreement provides that neither Parent nor any of its subsidiaries, including the Company, may acquire any assets or business from any other person (other than inventory and equipment in the ordinary course of business), or sell or otherwise dispose of all or substantially all of the assets of any resort or the stock of any subsidiary, without the consent of the Required Owners. The Stockholders Agreement requires that, under certain circumstances, Parent grant to Booth Creek Partners Limited II, L.L.L.P. registration rights with respect to its equity securities which are in all material respects the same as those provided to the Institutional Investors (as defined) under the Securities Purchase Agreements. In addition to the foregoing, the Stockholders Agreement gives each party thereto certain co-sale rights and rights of first offer upon the sale or other transfer of any equity securities of Parent by any other party, and requires that, as a condition to the issuance or transfer of any equity securities of Parent to any third party (other than a person who acquires such securities pursuant to an effective registration statement under the Securities Act) that such person become a party to the Stockholders Agreement and agree to be bound by all the terms and conditions thereof. The Stockholders Agreement shall terminate, and be of no force or effect, upon the consummation of a Qualified Public Offering (as defined in the Stockholders Agreement). In connection with the issuance of restricted stock to Christopher P. Ryman, Elizabeth J. Cole, Timothy H. Beck and Brian J. Pope, these individuals entered into a separate stockholders agreement with the Institutional Investors, which generally provides for certain co-sale and registration rights for the executives and drag-along rights for the Institutional Investors. See Part III, Item 11. "Executive Compensation - Parent 2001 Stock Incentive Plan." Sales of Real Estate to Trimont Land Holdings, Inc. On September 22, 2000, Trimont Land Company ("TLC"), the owner and operator of Northstar and a wholly-owned subsidiary of the Company, 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") pursuant to which TLC agreed to sell to TLH certain development real estate consisting of approximately 550 acres of land located at Northstar (the "Development Real Estate") for a total purchase price of $27,600,000, of which 85% is payable in cash and 15% is payable in the form of convertible secured subordinated promissory notes. The purchase price was based on an appraisal obtained from an independent third party appraiser. Concurrently therewith, TLC and TLH consummated the sale of the initial land parcels contemplated by the Northstar Real Estate Agreement, and TLC transferred the bulk of the Development Real Estate to TLH for a total purchase price of $21,000,000, of which $17,850,000, or 85%, was paid in cash and $3,150,000, or 15%, was paid in the form of a convertible secured subordinated promissory note (the "Convertible Secured Note"). The sale of the remaining Development Real Estate under the Northstar Real Estate Agreement is subject to certain subdivision requirements to effect the transfer of such property and other normal and customary closing conditions, and is expected to be consummated in 2002. The Convertible Secured Note requires quarterly interest payments at the rate of 10% per annum if paid in cash, or 12% if paid in kind, and is due in full in September 2005. The Convertible Secured Note is secured by TLH's membership interest in a real estate joint venture (the "East West Joint Venture") to which TLH is a party. The Convertible Secured Note is convertible at TLC's option into 15% of TLH's membership interest in the East West Joint Venture, which enables TLC to obtain, at TLC's option, a profit participation in the Development Real Estate. The Company obtained an opinion from an independent firm qualified and experienced in the subject matter of the transaction that the terms of the sale of Development Real Estate were fair and reasonable to the Company and TLC and at least as favorable as the terms which could have been obtained in a comparable transaction made on an arm's-length basis between unaffiliated parties. Management Agreement with Booth Creek Management Corporation On May 26, 2000, the Company and Parent entered into an Amended and Restated Management Agreement (the "Management Agreement") with Booth Creek Management Corporation (the "Management Company") pursuant to which the Management Company agreed to provide Parent, Booth Creek and its subsidiaries with management advice with respect to, among other things, (i) formulation and implementation of financial, marketing and operating strategies, (ii) development of business plans and policies, (iii) corporate finance matters, including acquisitions, divestitures, debt and equity financings and capital expenditures, (iv) administrative and operating matters, including unified management of the Company's ski resorts, (v) research, marketing and promotion, and (vi) other general business matters. George N. Gillett, Jr. is the sole shareholder, sole director and Chief Executive Officer of Booth Creek Management Corporation. Under the terms of the Management Agreement, Parent and the Company provide customary indemnification, reimburse certain costs and owe the Management Company an annual management fee of $100,000, plus a discretionary operating bonus. To the fullest extent permitted by law, with certain limitations, the Management Company and any officer, director, employee, agent or attorney of the Management Company (collectively, the "Indemnities") shall not have any liability to any of the Parent, Booth Creek or any of their subsidiaries for any loss, damage, cost or expense (including, without limitation, any court costs, attorneys' fees and any special, indirect, consequential or punitive damages) allegedly arising out of the Management Company's management services rendered to the Parent, Booth Creek or any of their subsidiaries or Indemnities' acts, conduct or omissions in connection with the Management Company's management services rendered to Booth Creek or any of their subsidiaries. In addition, to the fullest extent permitted by law, Parent and Booth Creek indemnifies the Indemnitees and holds the Indemnitees harmless against, any loss, damage, cost or expense (including, without limitation, court costs and reasonable attorneys' fees) which the Indemnitees may sustain or incur by reason of any threatened, pending or completed investigation, action, claim, demand, suit, proceeding or recovery by any person (other than the Indemnitees) allegedly arising out of the Management Company's management services rendered to the Parent, Booth Creek or any of their subsidiaries or the Indemnitees' acts, conduct or omissions in connection with the Management Company's management services rendered to the Parent, Booth Creek or any of their subsidiaries. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) List of Documents Filed as Part of This Report: 1. Financial Statements: The financial statements listed on page F-1 are filed as part of this Report. 2. Financial Statement Schedules: All schedules are omitted because they are not applicable, not required or the information is included elsewhere in the consolidated financial statements or notes thereto. 3. List of Exhibits: +2.1 Agreement and Plan of Merger dated as of September 18, 1997 by and among Booth Creek Ski Group, Inc., LMRC Corp. and Loon Mountain Recreation Corporation. +2.2 First Amendment to Merger Agreement, dated December 22, 1997, by and among Booth Creek Ski Group, Inc., LMRC Acquisition Corp. and Loon Mountain Recreation Corporation. *3.1 Certificate of Incorporation of Booth Creek Ski Holdings, Inc. *3.2 Bylaws of Booth Creek Ski Holdings, Inc. *3.3 Restated Articles of Incorporation of Trimont Land Company. *3.4 Bylaws of Trimont Land Company. *3.5 Certificate of Incorporation of Sierra-at-Tahoe, Inc. *3.6 Bylaws of Sierra-at-Tahoe, Inc. *3.7 Certificate of Incorporation of Bear Mountain, Inc. *3.8 Bylaws of Bear Mountain, Inc. *3.9 Certificate of Incorporation of Booth Creek Ski Acquisition Corp. *3.10 Bylaws of Booth Creek Ski Acquisition Corp. *3.11 Amended and Restated Certificate of Incorporation of Waterville Valley Ski Resort, Inc. *3.12 Bylaws of Waterville Valley Ski Resort, Inc. *3.13 Amended and Restated Certificate of Incorporation of Mount Cranmore Ski Resort, Inc. *3.14 Bylaws of Mount Cranmore Ski Resort, Inc. *3.15 Amended and Restated Articles of Incorporation of Ski Lifts, Inc. *3.16 Bylaws of Ski Lifts, Inc. **3.17 Articles of Incorporation of LMRC Holding Corp. **3.18 Amended and Restated Articles of Incorporation of Loon Mountain Recreation Corporation. **3.19 Amended and Restated Bylaws of Loon Mountain Recreation Corporation. **3.20 Amended and Restated Articles of Incorporation of Loon Realty Corp. **3.21 Amended and Restated Bylaws of Loon Realty Corp. **3.22 Bylaws of LMRC Holding Corp. *4.1 Indenture dated as of March 18, 1997 by and among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., ear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp. and Ski Lifts, Inc., as Subsidiary Guarantors, and HSBC Bank USA (formerly Marine Midland Bank), as trustee (including the form of 12 1/2% Senior Note due 2007 and the form of Guarantee). *4.2 Supplemental Indenture No.1 to Indenture dated as of April 25, 1997 by and among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp. and Ski Lifts, Inc., as Subsidiary Guarantors, HSBC Bank USA (formerly Marine Midland Bank), as trustee. +4.3 Supplemental Indenture No. 2 to Indenture dated as of February 20, 1998 by and among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp. and Ski Lifts, Inc., as Subsidiary Guarantors, and HSBC Bank USA (formerly Marine Midland Bank), as Trustee. +4.4 Supplemental Indenture No. 3 to Indenture dated as of February 26, 1998, by and among Booth Creek Ski Holdings, Inc., as Issuer, LMRC Holding Corp., Loon Mountain Recreation Corporation and Loon Realty Corp., as Subsidiary Guarantors, and HSBC Bank USA (formerly Marine Midland Bank), as Trustee. +++4.5 Supplemental Indenture No. 4 to Indenture dated as of October 8, 1998 by and among Booth Creek Ski Holdings, Inc., as Issuer, Booth Creek Ski Acquisition, Inc., and HSBC Bank USA (formerly Marine Midland Bank), as Trustee. ##4.6 Second Amended and Restated Securities Purchase Agreement and certain related agreements dated as of May 28, 2000, among Booth Creek Ski Group, Inc., Booth Creek Ski Holdings, Inc., the Subsidiary Guarantors as defined therein and each of John Hancock Life Insurance Company, CIBC WG Argosy Merchant Fund 2, L.L.C., Hancock Mezzanine Partners, L.P., Co-Investment Merchant Fund, LLC and Booth Creek Partners Limited II, L.L.L.P. #####4.7 Form of Stockholders Agreement dated January 22, 2002 among Christopher P. Ryman, Elizabeth J. Cole, Timothy H. Beck, Brian J. Pope, John Hancock Life Insurance Company, Hancock Mezzanine Partners, L.P., CIBC WG Argosy Merchant Fund 2, L.L.C., Co-Investment Merchant Fund, LLC and Booth Creek Ski Group, Inc. +++10.1 Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Mountain Realty Corp. and Fleet National Bank (formerly BankBoston, N.A.). ***10.2 Waiver Agreement dated March 12, 1999, to Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and Fleet National Bank (formerly BankBoston, N.A.). ****10.3 First Amendment dated May 18, 1999, to Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and Fleet National Bank (formerly BankBoston, N.A.). ****10.4 Waiver Agreement dated June 14, 1999, to Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and Fleet National Bank (formerly BankBoston, N.A.). ##10.5 Second Amendment dated May 28, 2000 to Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and Fleet National Bank. ##10.6 Third Amendment dated May 28, 2000 to Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and Fleet National Bank. ####10.7 Fourth Amendment dated September 22, 2000 to Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and Fleet National Bank. *10.8 Purchase and Sale Agreement dated as of August 30, 1996 by and between Waterville Valley Ski Area, Ltd., Cranmore, Inc., American Skiing Company and Booth Creek Ski Acquisition Corp. *10.9 Subordinated Promissory Note dated November 27, 1996 issued by Booth Creek Ski Acquisition Corp., Waterville Valley Ski Resort, Inc. and Mount Cranmore Ski Resort, Inc. to American Skiing Company. *10.10 Stock Purchase and Indemnification Agreement dated as of November 26, 1996 among Booth Creek Ski Holdings, Inc., Fibreboard Corporation, Trimont Land Company, Sierra-at-Tahoe, Inc. and Bear Mountain, Inc. *10.11 Escrow Agreement dated December 3, 1996 by and among Fibreboard Corporation, Booth Creek Ski Holdings, Inc. and First Trust of California. *10.12 Stock Purchase Agreement dated as of February 21, 1997 by and between Booth Creek Ski Holdings, Inc., William W. Moffett, Jr., David R. Moffett, Laurie M. Padden, individually and as custodian for Christina Padden, Jennifer Padden and Mary M. Padden, Stephen R. Moffett, Katharine E. Moffett, Frances J. DeBruler, individually and as representative of the Estate of Jean S. DeBruler, Jr.,deceased, and Peggy Westerlund, and David R. Moffett, as representative. *10.13 Preferred Stock Purchase Agreement dated as of February 21, 1997 by and between DRE, L.L.C., William W. Moffett, Jr., David R. Moffett, Laurie M. Padden, individually and as custodian for Christina Padden, Jennifer Padden and Mary M. Padden, Stephen R. Moffett, Katharine E. Moffett, Frances J. DeBruler, individually and as representative of the Estate of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund and David R. Moffett, as representative. #10.14 Asset Purchase Agreement dated as of March 21, 2000, as modified and amended, by and between Booth Creek Ski Holdings, Inc., a Delaware corporation, as Seller, and GT Acquisition I, LLC, a Delaware limited liability company, as Buyer. ###10.15 Agreement for Purchase and Sale of Real Property and certain related agreements dated September 22, 2000 between Trimont Land Company and Trimont Land Holdings, Inc. ##10.16 Amended and Restated Management Agreement dated as of May 26, 2000 by and between Booth Creek Ski Holdings, Inc. and Booth Creek Management Corporation. *10.17 Ski Area Term Special Use Permit No. 4002/01 issued by the United States Forest Service to Waterville Valley Ski Resort, Inc. *10.18 Ski Area Term Special Use Permit No. 5123/01 issued by the United States Forest Service to Bear Mountain, Inc. *10.19 Ski Area Term Special Use Permit No. 4127/09 issued by the United States Forest Service to Ski Lifts, Inc. *10.20 Annual Special Use Permit Nos. 4127/19 & 4127/19 issued by the United States Forest Service to Ski Lifts, Inc. ++10.21 Ski Area Term Special Use Permit No. 4031/01 issued by the United States Forest Service to Loon Mountain Recreation Corporation. ++10.22 Amendment Number 2 for Special Use Permit No. 4008/1 issued by the United States Forest Service to Loon Mountain Recreation Corporation. ++10.23 Amendment Number 5 for Special Use Permit No. 4008/1 issued by the United States Forest Service to Loon Mountain Recreation Corporation. ++++10.24 Ski Area Term Special Use Permit No. 4186 issued by the United States Forest Service to Sierra-at-Tahoe, Inc. **10.25 Employment Agreement dated as of July 1, 1997, by and between Booth Creek Ski Holdings, Inc. and Timothy H. Beck. #####10.26 Amendment No. 1 to the Employment Agreement by and between Booth Creek Ski Holdings, Inc. and Timothy H. Beck. #####10.27 Amended and Restated Employment Agreement by and between Booth Creek Ski Group, Inc., Booth Creek Ski Holdings, Inc. and Christopher P. Ryman. #####10.28 Amended and Restated Employment Agreement by and between Booth Creek Ski Group, Inc., Booth Creek Ski Holdings, Inc. and Elizabeth J. Cole. #####10.29 Booth Creek Ski Group, Inc. 2001 Stock Incentive Plan. #####10.30 Restricted Stock Agreement by and between Booth Creek Ski Group, Inc. and Timothy H. Beck. #####10.31 Deferred Compensation Agreement by and between Booth Creek Ski Group, Inc. and Timothy H. Beck. #####10.32 Restricted Stock Agreement by and between Booth Creek Ski Group, Inc. and Brian J. Pope. #####10.33 Deferred Compensation Agreement by and between Booth Creek Ski Group, Inc., Booth Creek Ski Holdings, Inc. and Brian J. Pope. #####10.34 Severance Agreement by and between Booth Creek Ski Group, Inc., Booth Creek Ski Holdings, Inc. and Brian J. Pope. ####21.1 Subsidiaries of the Registrant. --------------------- * Filed with Registration Statement on Form S-4 (Reg. No. 333-26091) and incorporated herein byreference. ** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended January 30, 1998 and incorporated herein by reference. *** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended January 29, 1999 and incorporated herein by reference. **** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended April 30, 1999 and incorporated herein by reference. + Filed with the Company's Current Report on Form 8-K dated February 26, 1998 and incorporated herein by reference. ++ Filed with Registration Statement on Form S-4 (Reg. No. 333-48619) and incorporated herein by reference. +++ Filed with the Company's Annual Report on Form 10-K for the Fiscal Year Ended October 30, 1998 and incorporated herein by reference. ++++ Filed with the Company's Annual Report on Form 10-K for the Fiscal Year Ended October 29, 1999 and incorporated herein by reference. # Filed with the Company's Current Report on Form 8-K dated March 21, 2000 and incorporated herein by reference. ## Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended July 28, 2000 and incorporated herein by reference. ### Filed with the Company's Current Report on Form 8-K dated September 22, 2000 and incorporated herein by reference. #### Filed with the Company's Annual Report on Form 10-K for the Fiscal Year Ended October 27, 2000 and incorporated herein by reference. ##### Filed herewith as an Exhibit to this Form 10-K. (b) Reports on Form 8-K: None. (c) Exhibits: See (a)3 above for a listing of Exhibits filed as a part of this Report. (d) Additional Financial Statement Schedules: None. Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act Neither an annual report covering the Registrant's last fiscal year nor proxy materials with respect to any annual or other meeting of security holders have been sent to security holders. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Truckee, State of California, as of January 29, 2002. BOOTH CREEK SKI HOLDINGS, INC. (Registrant) By: /s/ CHRISTOPHER P. RYMAN ------------------------------------------------- Christopher P. Ryman President and Chief Operating Officer By: /s/ ELIZABETH J. COLE ------------------------------------------------- Elizabeth J. Cole Executive Vice President and Chief Financial Officer (Principal Financial Officer) By: /s/ BRIAN J. POPE ------------------------------------------------- Brian J. Pope Vice President of Accounting and Finance (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed by the following persons in the capacities and as of the dates indicated. Signature Title Date --------- ----- ---- /s/ GEORGE N. GILLETT, JR. Chairman of the Board of January 29, 2002 ---------------------------- Directors and Chief George N. Gillett, Jr. Executive Officer (Principal Executive Officer) /s/ GARY M. PELLETIER Member of the Board of January 29, 2002 ---------------------------- Directors Gary M. Pelletier /s/ DEAN C. KEHLER Member of the Board of January 29, 2002 ---------------------------- Directors Dean C. Kehler /s/ EDWARD LEVY Member of the Board of January 29, 2002 ---------------------------- Directors Edward Levy /s/ CHRISTOPHER P. RYMAN President and Chief January 29, 2002 ---------------------------- Operating Officer Christopher P. Ryman /s/ ELIZABETH J. COLE Executive Vice President January 29, 2002 ---------------------------- and Chief Financial Elizabeth J. Cole Officer (Principal Financial Officer) /s/ BRIAN J. POPE Vice President of January 29, 2002 ---------------------------- Accounting and Finance Brian J. Pope (Principal Accounting Officer) BOOTH CREEK SKI HOLDINGS, INC. ANNUAL REPORT ON FORM 10-K INDEX OF FINANCIAL STATEMENTS Page Report of Independent Auditors....................................... F-2 Consolidated Balance Sheets.......................................... F-3 Consolidated Statements of Operations................................ F-4 Consolidated Statements of Shareholder's Equity...................... F-5 Consolidated Statements of Cash Flows................................ F-6 Notes to Consolidated Financial Statements........................... F-7 F-1 REPORT OF INDEPENDENT AUDITORS Booth Creek Ski Holdings, Inc. We have audited the accompanying consolidated balance sheets of Booth Creek Ski Holdings, Inc. as of November 2, 2001 and October 27, 2000, and the related consolidated statements of operations, shareholder's equity, and cash flows for each of the three years in the period ended November 2, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Booth Creek Ski Holdings, Inc. at November 2, 2001 and October 27, 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended November 2, 2001 in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Sacramento, California December 18, 2001 F-2 BOOTH CREEK SKI HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) November 2, October 27, 2001 2000 --------------- --------------- ASSETS Current assets: Cash.................................... $ 458 $ 696 Accounts receivable, net of allowance of $39 and $28, respectively...................... 1,937 1,929 Insurance proceeds receivable........... 1,500 4,070 Inventories............................. 2,486 2,106 Prepaid expenses and other current assets................................. 1,616 1,194 --------------- --------------- Total current assets...................... 7,997 9,995 Property and equipment, net............... 139,347 145,746 Real estate held for development and sale...................................... 8,220 6,566 Deferred financing costs, net of accumulated amortization of $5,128 and $4,162, respectively...... 4,087 5,338 Timber rights and other assets............ 6,429 5,937 Goodwill, net of accumulated amortization of $11,280 and $8,937, respectively............................ 23,138 25,481 --------------- --------------- Total assets.............................. $ 189,218 $ 199,063 =============== =============== LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Senior credit facility.................. $ 17,628 $ 6,352 Current portion of long-term debt....... 1,748 1,356 Accounts payable and accrued liabilities............................ 34,842 33,915 --------------- --------------- Total current liabilities................. 54,218 41,623 Long-term debt............................ 128,664 136,790 Other long-term liabilities............... 767 785 Commitments and contingencies Preferred stock of subsidiary; 28,000 shares authorized, 9,000 shares issued and outstanding at November 2, 2001 (13,000 shares at October 27, 2000); liquidation preference and redemption value of $1,136 at November 2, 2001........................ 1,136 1,638 Shareholder's equity: Common stock, $.01 par value; 1,000 shares authorized, issued and outstanding................. - - Additional paid-in capital.............. 72,000 72,000 Accumulated deficit..................... (67,567) (53,773) --------------- --------------- Total shareholder's equity................ 4,433 18,227 --------------- --------------- Total liabilities and shareholder's equity.................... $ 189,218 $ 199,063 =============== =============== See accompanying notes. F-3 BOOTH CREEK SKI HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands) Year Ended ---------------------------------------------- November 2, October 27, October 29, 2001 2000 1999 -------------- -------------- -------------- Revenue: Resort operations............ $ 121,629 $ 119,685 $ 112,980 Real estate and other........ 276 19,670 12,744 -------------- -------------- -------------- Total revenue.................. 121,905 139,355 125,724 Operating expenses: Cost of sales - resort operations.................. 70,982 70,394 74,404 Cost of sales - real estate and other................... 211 4,507 5,244 Depreciation and depletion... 22,716 20,172 19,320 Amortization of goodwill and other intangible assets...................... 2,405 2,400 2,430 Selling, general and administrative expense...... 23,412 22,985 22,571 Unusual items, net........... - - 487 -------------- -------------- -------------- Total operating expenses....... 119,726 120,458 124,456 -------------- -------------- -------------- Operating income............... 2,179 18,897 1,268 Other income (expense): Interest expense............. (16,883) (18,215) (18,707) Amortization of deferred financing costs............. (966) (1,084) (1,093) Gain on sale of Grand Targhee resort.............. - 369 - Other income (expense)....... 280 (145) (43) -------------- -------------- -------------- Other income (expense), net.. (17,569) (19,075) (19,843) -------------- -------------- -------------- Loss before minority interest and extraordinary item........ (15,390) (178) (18,575) Minority interest.............. (127) (179) (218) -------------- -------------- -------------- Loss before extraordinary item......................... (15,517) (357) (18,793) Extraordinary gain on early retirement of debt............ 1,723 - - -------------- -------------- -------------- Net loss....................... $ (13,794) $ (357) $ (18,793) ============== ============== ============== See accompanying notes. F-4 BOOTH CREEK SKI HOLDINGS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (In thousands, except shares) Additional Common Stock Paid-in Accumulated -------------- Shares Amount Capital Deficit Total -------- ------- --------- ------------ ------- Balance at October 31, 1998.... 1,000 $ - $ 72,000 $ (34,623) $ 37,377 Net loss....................... - - - (18,793) (18,793) ------------------------------------------------- Balance at October 29, 1999.... 1,000 - 72,000 (53,416) 18,584 Net loss....................... - - - (357) (357) ------------------------------------------------- Balance at October 27, 2000.... 1,000 - 72,000 (53,773) 18,227 Net loss....................... - - - (13,794) (13,794) ------------------------------------------------- Balance at November 2, 2001.... 1,000 $ - $ 72,000 $ (67,567) $ 4,433 ======== ======= ========= ============ ======= See accompanying notes. F-5 BOOTH CREEK SKI HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended ---------------------------------------------- November 2, October 27, October 29, 2001 2000 1999 -------------- -------------- -------------- Cash flows from operating activities: Net loss.......................... $ (13,794) $ (357) $ (18,793) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and depletion..... 22,716 20,172 19,320 Amortization of goodwill and other intangible assets............. 2,405 2,400 2,430 Noncash cost of real estate sales......................... - 2,460 4,743 Amortization of deferred financing costs............... 966 1,084 1,093 Minority interest.............. 127 179 218 Gain on sale of Grand Targhee resort........................ - (369) - Extraordinary gain on early retirement of debt............ (1,723) - - Changes in operating assets and liabilities, net of divestiture: Accounts receivable......... (8) (366) (136) Insurance proceeds receivable................. 2,570 (2,271) (1,799) Inventories................. (380) 394 1,584 Prepaid expenses and other current assets............. (422) (264) 345 Accounts payable and accrued liabilities........ 927 5,940 6,483 Other long-term liabilities. (18) 735 (95) -------------- -------------- ------------ Net cash provided by operating activities...................... 13,366 29,737 15,393 Cash flows from investing activities: Capital expenditures for property and equipment................... (12,944) (21,909) (14,342) Capital expenditures for real estate held for development and sale............ (1,654) (175) (3,439) Acquisition of businesses......... - - (726) Proceeds on sale of Grand Targhee resort.......................... - 11,422 - Proceeds on sale of property and equipment....................... - 1,060 - Other assets...................... (682) 478 3 -------------- -------------- ------------ Net cash used in investing activities...................... (15,280) (9,124) (18,504) Cash flows from financing activities: Net borrowings (repayments) under senior credit facility.......... 11,276 (16,683) 5,892 Principal payments of long-term debt............................ (8,969) (2,670) (1,711) Deferred financing costs.......... (2) (351) (515) Purchase of preferred stock of subsidiary and payment of dividends............ (629) (674) (719) -------------- -------------- ------------ Net cash provided by (used in) financing activities............ 1,676 (20,378) 2,947 -------------- -------------- ------------ Increase (decrease) in cash....... (238) 235 (164) Cash at beginning of year......... 696 461 625 -------------- -------------- ------------ Cash at end of year............... $ 458 $ 696 $ 461 ============== ============== ============ See accompanying notes. F-6 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS November 2, 2001 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies Booth Creek Ski Holdings, Inc. ("Booth Creek") was organized on October 8, 1996 in the State of Delaware for the purpose of acquiring and operating various ski resorts, including Northstar-at-Tahoe ("Northstar"), Sierra-at-Tahoe ("Sierra"), Bear Mountain, Waterville Valley, Mt. Cranmore, Loon Mountain and the Summit at Snoqualmie (the "Summit"). Booth Creek divested the Grand Targhee ski resort ("Grand Targhee") on June 20, 2000. Booth Creek also conducts certain real estate development activities, primarily at Northstar. The consolidated financial statements include the accounts of Booth Creek and its subsidiaries (collectively referred to as the "Company"). Booth Creek owns all of the common stock of its subsidiaries. Ski Lifts, Inc. (the operator of the Summit) has shares of preferred stock owned by a third party. All significant intercompany transactions and balances have been eliminated. Booth Creek is a wholly-owned subsidiary of Booth Creek Ski Group, Inc. ("Parent"). Reporting Periods The Company's fiscal year ends on the Friday closest to October 31 of each year. Fiscal 2001 was a 53 week year. Fiscal 2000 and 1999 were 52 week years. Business and Principal Markets Northstar is a year-round destination resort including ski and golf facilities. Sierra is a regional ski area which attracts both day and destination skiers. Both Northstar and Sierra are located near Lake Tahoe, California. Bear Mountain is primarily a day ski area located approximately two hours from Los Angeles, California. Waterville Valley, Mt. Cranmore and Loon Mountain are regional ski areas attracting both day and destination skiers, and are located in New Hampshire. The Summit is located in Northwest Washington and is a day ski area. Operations are highly seasonal at all locations with the majority of revenues realized during the ski season from late November through early April. The length of the ski season and the profitability of operations are significantly impacted by weather conditions. Although Northstar, Bear Mountain, Waterville Valley, Loon Mountain and Mt. Cranmore have snowmaking capacity to mitigate some of the effects of adverse weather conditions, abnormally warm weather or lack of adequate snowfall can materially affect revenues. Sierra and the Summit lack significant snowmaking capability but generally experience higher annual snowfall. Other operational risks and uncertainties that face the Company include competitive pressures affecting the number of skier visits and ticket prices; the success of marketing efforts to maintain and increase skier visits; the possibility of equipment failure; and continued access to water supplies for snowmaking. Cash Included in cash at November 2, 2001 and October 27, 2000 is restricted cash of $378,000 and $612,000, respectively, relating to advance deposits and rental fees due to property owners for lodging and property rentals. F-7 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies - (Continued) Inventories Inventories are valued at the lower of cost (first-in, first-out method) or market. The components of inventories are as follows: November 2, October 27, 2001 2000 --------------- --------------- (In thousands) Retail products........................ $ 1,604 $ 1,263 Supplies............................... 622 566 Food and beverage...................... 260 277 --------------- --------------- $ 2,486 $ 2,106 =============== =============== Property and Equipment Property and equipment are stated at cost. Depreciation is provided on the straight-line method based upon the estimated service lives, which are as follows: Land improvements................................. 20 years Buildings and improvements........................ 20 years Lift equipment.................................... 15 years Other machinery and equipment..................... 3 to 15 years Amortization of assets recorded under capital leases is included in depreciation expense. Real Estate Activities The Company capitalizes as real estate held for development and sale the original acquisition cost, direct construction and development costs, and other related costs. Property taxes, insurance and interest incurred on costs related to real estate under development are capitalized during periods in which activities necessary to prepare the property for its intended use are in progress. Land costs and other common costs incurred prior to construction are allocated to each land parcel benefited. Construction-related costs are allocated to individual units in each development phase using the relative sales value method. Selling expenses are charged against income in the period incurred. Interest capitalized on real estate development projects for the years ended November 2, 2001, October 27, 2000 and October 29, 1999 was $54,000, $28,000 and $169,000, respectively. Sales and profits on real estate sales are recognized using the full accrual method at the point that the Company's receivables from land sales are deemed collectible and the Company has no significant remaining obligations for construction or development, which typically occurs upon transfer of title. If such conditions are not met, the recognition of all or part of the sales and profit is postponed. Long-Lived Assets In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposal Of," and certain provisions of APB Opinion No. 30, "Reporting F-8 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies - (Continued) Long-Lived Assets (Continued) the Results of Operations," relating to a disposal of a segment of a business. The Company adopted the provisions of SFAS No. 144 as of October 28, 2000. Similar to SFAS No. 121, SFAS No. 144 establishes procedures for review of recoverability, and measurement of impairment if necessary, of long-lived assets held and used by an entity. SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 144 also requires that long-lived assets to be disposed of other than by sale (for example, abandonments, exchanges for similar productive assets or in a distribution to owners in a spinoff) shall continue to be classified as held and used until disposal. Further, SFAS No. 144 specifies the criteria for classifying long-lived assets as "held for sale" and requires that long-lived assets to be disposed of by sale be reported at the lower of carrying amount or fair value less estimated selling costs. As of November 2, 2001, management believes that there has not been any impairment of the Company's long-lived assets. Fair Value of Financial Instruments The fair value of amounts outstanding under the Company's Senior Credit Facility approximates book value, as the interest rate on such debt generally varies with changes in market interest rates. The fair value of the Company's Senior Notes was approximately $96,000,000 and $93,000,000 at November 2, 2001 and October 27, 2000, respectively, which is based on the market price of such debt. Revenue Recognition Revenues from resort operations are generated from a wide variety of sources, including lift ticket sales, snow school lessons, equipment rentals, retail product sales, food and beverage operations, lodging and property management services and other recreational activities, and are recognized as services are provided and products are sold. Sales of season passes are initially deferred in unearned revenue and recognized ratably over the ski season. Amortization Through November 2, 2001, the excess of the purchase price over the fair values of the net assets acquired (goodwill) has been amortized using the straight-line method over a period of 15 years. See "Pending Accounting Pronouncements" below. Deferred financing costs are being amortized over the lives of the related obligations. Advertising Costs The production cost of advertisements is expensed when the advertisement is initially released. The cost of professional services for advertisements, sales campaigns and promotions is expensed when the services are rendered. The cost of brochures and other winter marketing collateral is expensed over the ski season. Advertising expenses for the years ended November 2, 2001, October 27, 2000 and October 29, 1999 were $3,970,000, $3,611,000 and $3,525,000, respectively. Income Taxes Deferred income taxes are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company is included in the federal and state tax returns of Parent. The provision for federal and state income tax is computed as if the Company filed separate consolidated tax returns. F-9 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies - (Continued) Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" requires that comprehensive income and its components, as defined in the pronouncement, be reported within the consolidated financial statements of the Company. As of and for the years ended November 2, 2001, October 27, 2000 and October 29, 1999, the Company does not have any transactions that would necessitate disclosure of comprehensive income. Pending Accounting Pronouncements In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the pronouncement. The Company will apply the new rules on accounting for goodwill commencing on November 3, 2001. Application of the nonamortization provisions of SFAS No.142 is expected to result in an increase in net income of approximately $2,300,000 in fiscal 2002. In connection with the adoption of SFAS No. 142, the Company will be required to perform a transitional impairment test for recorded goodwill as of November 3, 2001. The Company does not expect that the transitional impairment test will result in any significant impairment losses. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"), which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated asset retirement costs. The new rules apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal operation of a long-lived asset. SFAS No. 143 is effective for the Company at the beginning of fiscal 2003. The Company believes the adoption of SFAS No. 143 will not have a material impact on its consolidated financial position or results of operations. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. Paid Skier Visit Insurance Programs For the 2000/01 ski season, the Company arranged for four separate paid skier visit insurance policies covering Bear Mountain, Loon Mountain, Waterville Valley and the Summit. The policies had a deductible for the initial decline from targeted paid skier visit and revenue levels and stated maximum coverage levels. In addition, the policies required the insured to experience monthly and/or annual snowfall amounts below certain agreed upon levels before a claim could be filed for the decline in paid skier visits. For the year ended November 2, 2001, the Company has recognized resort operations revenues of $1,500,000 for claims attributable to lower than agreed upon paid skier visits and snowfall levels under the Waterville Valley and Summit policies. The underwriters are currently disputing the Company's insurance claims. In November 2001, the Company commenced litigation against the underwriters and their representatives. While the Company intends to vigorously pursue collection of its claims and believes such claims are valid, no assurance can be made regarding the outcome or timing of resolution of this matter. For the 1999/00 ski season, the Company arranged for four separate paid skier visit insurance policies covering its Lake Tahoe resorts (Northstar and Sierra), its New Hampshire resorts (Waterville Valley, Mt. Cranmore and Loon Mountain), Bear Mountain and the Summit. For the year ended October 27, 2000, the Company recognized F-10 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2. Paid Skier Visit Insurance Programs - (Continued) resort operations revenues of $6,600,000 for estimated claims proceeds under such policies. For the year ended November 2, 2001, resort operations revenues included $254,000 for additional claim recoveries which were received upon the final settlement of the 1999/00 paid skier visit insurance policies in excess of the amounts recognized in fiscal 2000 of $6,600,000. 3. Property and Equipment Property and equipment consist of the following: November 2, October 27, 2001 2000 --------------- --------------- (In thousands) Land and improvements.................. $ 39,510 $ 37,901 Buildings and improvements............. 48,946 47,727 Lift equipment......................... 49,921 45,900 Other machinery and equipment.......... 68,680 57,526 Construction in progress............... 11,825 14,062 --------------- --------------- Less accumulated depreciation and 218,882 203,116 amortization......................... 79,535 57,370 --------------- --------------- $ 139,347 $ 145,746 =============== =============== 4. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of the following: November 2, October 27, 2001 2000 --------------- --------------- (In thousands) Accounts payable....................... $ 7,836 $ 7,958 Accrued compensation and benefits...... 4,159 4,002 Taxes other than income taxes.......... 1,131 1,157 Unearned revenue and deposits- resort operations..................... 11,601 9,582 Unearned deposits- real estate operations................ 6,000 6,000 Interest............................... 2,063 2,234 Other.................................. 2,052 2,982 --------------- --------------- $ 34,842 $ 33,915 =============== =============== F-11 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 5. Financing Arrangements Senior Credit Facility The following is a summary of certain provisions of the Amended and Restated Credit Agreement (the "Senior Credit Facility") as currently amended, among Booth Creek, its subsidiaries, the financial institutions party thereto and Fleet National Bank, as administrative agent ("Agent"). General - The Senior Credit Facility provides for borrowing availability of up to $25,000,000. The Senior Credit Facility requires that the Company not have borrowings thereunder in excess of $8,000,000, in addition to certain amounts maintained by the Company in certain depository accounts with the Agent, for a period of 60 consecutive days each year commencing sometime between February 1 and February 28. Borrowings under the Senior Credit Facility are collectively referred to herein as "Loans." Total borrowings outstanding under the Senior Credit Facility at November 2, 2001 were $17,628,000. Interest - For purposes of calculating interest, Loans can be, at the election of the Company, Base Rate Loans or LIBOR Rate Loans or a combination thereof. Base Rate Loans bear interest at the sum of (a) a margin of between 0% and .5%, depending on the level of consolidated EBITDA of the Company and its subsidiaries (as determined pursuant to the Senior Credit Facility), plus (b) the higher of (i) the Agent's base rate or (ii) the federal funds rate plus .5%. LIBOR Rate Loans bear interest at the LIBOR rate plus a margin of between 2% and 3%, depending on the level of consolidated EBITDA. The Senior Credit Facility also requires a commitment fee of .375% based on the unused borrowing base. As of November 2, 2001, the borrowings outstanding under the Senior Credit Facility bore interest at 5.5%, pursuant to the Base Rate Loan option. Repayment - Subject to the provisions of the Senior Credit Facility, the Company may, from time to time, borrow, repay and reborrow under the Senior Credit Facility. The entire unpaid balance under the Senior Credit Facility is due and payable on March 31, 2002. The Company is in discussions with potential lenders regarding the extension or refinancing of the Senior Credit Facility. While the Company anticipates that the Senior Credit Facility will be renewed or refinanced, the Company has not received a binding commitment from any lender to provide such financing, and no assurances can be given regarding the availability of such financing or the terms thereof. Security - Borrowings under the Senior Credit Facility are secured by (i) a pledge to the Agent for the ratable benefit of the financial institutions party to the Senior Credit Facility of all of the capital stock of Booth Creek's principal subsidiaries and (ii) a grant of a security interest in substantially all of the consolidated assets of Booth Creek and its subsidiaries (excluding DRE, L.L.C.). Covenants - The Senior Credit Facility contains financial covenants relating to the maintenance of ratios of (a) financing debt to consolidated cash flow, and (b) adjusted consolidated cash flow to consolidated fixed charges. The Senior Credit Facility also contains restrictive covenants pertaining to the management and operation of Booth Creek and its subsidiaries. The covenants include, among others, significant limitations on indebtedness, guarantees, mergers, acquisitions, fundamental corporate changes, capital expenditures, asset sales, leases, investments, loans and advances, liens, dividends and other stock payments, transactions with affiliates, optional payments and modification of debt instruments and issuances of stock. F-12 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 5. Financing Arrangements - (Continued) Long-Term Debt Long-term debt consists of the following instruments, which are described below: November 2, October 27, 2001 2000 --------------- --------------- (In thousands) Senior Notes........................... $ 125,500 $ 133,500 Other debt............................. 4,912 4,646 --------------- --------------- 130,412 138,146 Less current portion................... 1,748 1,356 --------------- --------------- $ 128,664 $ 136,790 =============== =============== Senior Notes As of November 2, 2001, the Company had outstanding $125,500,000 aggregate principal amount of its senior debt securities (the "Senior Notes"). The Senior Notes mature on March 15, 2007, and bear interest at 12.5% per annum, payable semi-annually on March 15 and September 15. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time after March 15, 2002, with an initial redemption price of 106.25% declining through maturity, plus accrued and unpaid interest to the redemption date. The Senior Notes are general senior unsecured obligations of the Company ranking equally in right of payment with all other existing and future senior indebtedness of the Company and senior in right of payment to any subordinated indebtedness of the Company. The Senior Notes are unconditionally guaranteed, on an unsecured senior basis, as to the payment of principal, premium, if any, and interest, jointly and severally (the "Guarantees"), by all Restricted Subsidiaries of the Company, as defined in the indenture for the Senior Notes (the "Indenture"), having either assets or shareholders' equity in excess of $20,000 (the "Guarantors"). All of the Company's direct and indirect subsidiaries are Restricted Subsidiaries, except DRE, L.L.C. The Senior Notes are effectively subordinated in right of payment to all secured indebtedness of the Company and the Guarantors, including indebtedness under the Senior Credit Facility. In addition, the Senior Notes are structurally subordinated to any indebtedness of the Company's subsidiaries that are not Guarantors. The Indenture contains covenants for the benefit of the holders of the Senior Notes that, among other things, limit the ability of the Company and any Restricted Subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends and make other distributions; (iii) issue stock of subsidiaries; (iv) make certain investments; (v) repurchase stock; (vi) create liens; (vii) enter into transactions with affiliates, (viii) enter into sale and leaseback transactions, (ix) create dividend or other payment restrictions affecting Restricted Subsidiaries; (x) merge or consolidate the Company or any Guarantors; and (xi) sell assets. The Guarantors are wholly-owned subsidiaries of Booth Creek and have fully and unconditionally guaranteed the Senior Notes on a joint and several basis. Booth Creek is a holding company and has no significant operations, assets or cash flows separate from its investments in its subsidiaries. In addition, the assets, equity, revenues, income and cash flow of DRE, L.L.C., Booth Creek's only non-guarantor subsidiary, are minor and the membership interest in DRE, L.L.C. is entirely owned by Booth Creek. There are no significant restrictions on the ability of the Guarantors to pay dividends or otherwise transfer funds to Booth Creek. Accordingly, Booth Creek has not presented separate financial statements and other disclosures concerning the Guarantors or its non-guarantor subsidiary because management has determined that such information is not material to investors. F-13 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 5. Financing Arrangements - (Continued) Long-Term Debt (Continued) During the year ended November 2, 2001, the Company repurchased $8,000,000 aggregate principal amount of Senior Notes for $5,990,000. After giving effect to the write-off of related deferred financing costs of $287,000, the Company recognized an extraordinary gain of $1,723,000. Other Debt Other debt of $4,912,000 and $4,646,000 at November 2, 2001 and October 27, 2000, respectively, consists of various capital lease obligations, notes payable, improvement bond obligations and amounts owed under the American Skiing Company ("ASC") Seller Note for a portion of the purchase price for the acquisitions of Waterville Valley and Mt. Cranmore. The ASC Seller Note requires principal payments of $300,000, $350,000 and $1,150,000 on January 31, 2002, January 31, 2003 and June 30, 2004, respectively. The ASC Seller Note bears interest at 12% per annum payable semi-annually on each June 30 and December 31. For the years ended November 2, 2001, October 27, 2000 and October 29, 1999, the Company entered into long-term debt and capital lease obligations of $3,245,000, $2,874,000 and $525,000, respectively, for the purchase of equipment. During the years ended November 2, 2001, October 27, 2000 and October 29, 1999, the Company paid cash for interest costs of $17,054,000, $18,473,000 and $18,564,000, respectively, net of amounts capitalized of $59,000, $149,000 and $332,000, respectively. 6. Commitments and Contingencies Lease Commitments The Company leases certain machinery, equipment and facilities under operating leases. Aggregate future minimum lease payments as of November 2, 2001 were as follows: Year Ending October (In thousands) -------- 2002......................................... $ 1,429 2003......................................... 1,030 2004......................................... 761 2005......................................... 478 2006......................................... 104 Thereafter................................... 2,122 --------------- $ 5,924 =============== Total rent expense for all operating leases amounted to $2,225,000, $3,279,000 and $3,714,000 for the years ended November 2, 2001, October 27, 2000 and October 29, 1999, respectively. F-14 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 6. Commitments and Contingencies - (Continued) Lease Commitments (Continued) The Company leases certain machinery and equipment under capital leases. Aggregate future minimum lease payments as of November 2, 2001 for the years ending October 2002, October 2003, October 2004 and October 2005 were $1,422,000, $711,000, $397,000 and $113,000, respectively. The cost of equipment recorded under capital leases at November 2, 2001 and October 27, 2000 was $4,690,000 and $3,566,000, respectively, and the related accumulated depreciation at such dates was $1,812,000 and $1,433,000, respectively. In addition, the Company leases property from the U.S. Forest Service under Term Special Use Permits for all or certain portions of the operations of Sierra, Bear Mountain, Waterville Valley, Loon Mountain and the Summit. These leases are effective through 2039, 2020, 2034, 2006 and 2032, respectively. Lease payments are based on a percentage of revenues, and were $1,215,000, $1,166,000 and $1,189,000 for the years ended November 2, 2001, October 27, 2000 and October 29, 1999, respectively. Other Commitments Commitments for future capital expenditures totaled approximately $2,100,000 at November 2, 2001. Litigation The nature of the ski industry includes the risk of skier injuries. Generally, the Company has insurance to cover potential claims; in some cases the amounts of the claims may be substantial. The Company is also involved in a number of other claims arising from its operations. Management, in consultation with legal counsel, believes resolution of these claims will not have a material adverse impact on the Company's consolidated financial condition or results of operations. Pledge of Stock The stock of the Company is pledged to secure approximately $86,700,000 of indebtedness of Parent. 7. Income Taxes The difference between the statutory federal income tax rate and the effective tax rate is attributable to the following: Year Ended ------------------------------------- November 2, October 27, October 29, 2001 2000 1999 ----------- ----------- ----------- (In thousands) Tax benefit computed at federal statutory rate of 35% of pre-tax loss.... $ 4,828 $ 62 $ 6,501 Net change in valuation allowance...................... (4,419) (55) (6,235) Other, net....................... (409) (7) (266) ----------- ----------- ----------- $ - $ - $ - =========== =========== =========== F-15 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 7. Income Taxes - (Continued) Significant components of the Company's deferred tax assets and liabilities are as follows: November 2, October 27, 2001 2000 --------------- --------------- (In thousands) Deferred tax assets: Accruals and reserves................ $ 1,235 $ 1,220 Alternative minimum tax credit carryforwards....................... 352 546 Net operating loss carryforwards..... 30,925 27,187 --------------- --------------- Total deferred tax assets.......... 32,512 28,953 Deferred tax liabilities: Property and equipment............... (14,750) (15,610) --------------- --------------- Total deferred tax liabilities..... (14,750) (15,610) --------------- --------------- Net deferred tax assets................ 17,762 13,343 Valuation allowance.................... (17,762) (13,343) Net deferred tax assets reflected --------------- --------------- in the accompanying consolidated balance sheets....................... $ - $ - =============== =============== At November 2, 2001, the Company has net operating loss carryforwards of approximately $84,700,000 for federal income tax reporting purposes, which expire between 2012 and 2021. 8. Preferred Stock of Subsidiary In connection with the consummation of the Summit acquisition in fiscal 1997, Ski Lifts, Inc. transferred certain owned real estate held for development purposes and related buildings into a Delaware limited liability company, DRE, L.L.C. (the "Real Estate LLC"), of which Ski Lifts, Inc. is a member and 99% equity interest holder and Booth Creek is the other member and 1% equity interest holder. In addition, Ski Lifts, Inc. granted the Real Estate LLC an option (the "Real Estate Option") to purchase acreage of developmental real estate for nominal consideration. Ski Lifts, Inc. also issued 28,000 shares of non-voting preferred stock (the "Ski Lifts Preferred Stock") to its prior owners having an aggregate liquidation preference equal to $3,500,000, the aggregate estimated fair market value of the real estate transferred to the Real Estate LLC and the real estate subject to the Real Estate Option. Concurrently with these transactions, the Real Estate LLC entered into an agreement to purchase (the "Preferred Stock Purchase Agreement") the Ski Lifts Preferred Stock, on a quarterly basis over the five years following the date of the Summit acquisition, at a purchase price equal to the liquidation preference thereof plus accrued dividends at a rate of 9% to the date of purchase. Through November 2, 2001, the Company has paid $2,375,000, excluding dividends, under the Preferred Stock Purchase Agreement. Real Estate LLC's remaining purchase requirement under the Preferred Stock Purchase Agreement of $1,125,000, excluding dividends, was paid on January 16, 2002. 9. Northstar Real Estate Sales Phases 4 and 4A of the Big Springs Development On July 28, 1999, Trimont Land Company ("TLC"), the owner and operator of Northstar and a wholly-owned subsidiary of the Company, consummated the sale of the property comprising Phases 4 and 4A of the Big Springs development to Trimont Land Holdings, Inc. ("TLH"), a wholly-owned subsidiary of Parent and an affiliate of the Company, for an aggregate sales price of $10,000,000, subject to adjustment as described below. The consideration initially paid to TLC consisted of $8,500,000 in cash and a promissory note (the "TLH Note") for $1,500,000, subject to adjustment. Under the terms of the TLH Note, TLC obtained the right to receive the greater of (a) F-16 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 9. Northstar Real Estate Sales - (Continued) Phases 4 and 4A of the Big Springs Development (Continued) $1,500,000 plus accrued interest at 7% per annum, or (b) the Net Cash Proceeds of the resale of the lots within Phases 4 and 4A. The Company obtained a fairness opinion for the transaction from an independent firm qualified in the subject matter of the transaction. "Net Cash Proceeds" is defined as gross proceeds received by TLH from the subsequent resale of the lots, after deduction for (1) the proceeds applied to repay any indebtedness incurred by TLH in connection with its financing of the purchase of the lots, (2) any fees or other costs incurred by TLH in connection with its financing of the purchase or sales of the lots, and (3) any corporate overhead costs incurred by TLH attributable to the purchase, maintenance, marketing or sale of the lots. Pursuant to the terms of the sale, TLC retained the obligation to complete the scheduled construction of the development in accordance with the approved site development plan. The Company recognized revenue and related cost of sales for these real estate transactions upon the substantial completion of construction and the close of escrow for lot sales between TLH and third party buyers. Through October 29, 1999, TLH had closed escrow on 43 of the available 47 lots within Phases 4 and 4A, and TLC had substantially completed the construction of the development. The remaining four lots closed escrow during the year ended October 27, 2000. In accordance with the terms of the transaction between TLH and TLC, the Company received proceeds and recorded real estate sales of $1,055,000 and $12,004,000 during the years ended October 27, 2000 and October 29, 1999, respectively. Unit 7 and 7A Development On November 17, 1999, TLC consummated the sale to TLH of certain single family development property underlying a portion of the Unit 7 and 7A developments at Northstar for an aggregate sales price of $7,050,000, subject to adjustment as described below. The consideration paid to TLC consisted of $6,000,000 in cash and a promissory note (the "Second TLH Note") for $1,050,000, subject to adjustment. The Company obtained a fairness opinion for the transaction from an independent firm qualified in the subject matter of the transaction. In connection with the sale by TLC of development real estate on September 22, 2000, as described below, TLH's interests in the Unit 7A lots were transferred back to TLC on September 22, 2000. Under the terms of the Second TLH Note, TLC will receive the greater of (a) $1,050,000 plus accrued interest at 7% per annum, or (b) the Net Cash Proceeds (as defined) of the resale of TLH's lots within Unit 7. The Second TLH Note is prepayable at any time, and is due on the earlier to occur of January 30, 2003 or the date on which the last of the lots owned by TLH has been sold. Pursuant to the terms of the sale, TLC retained the obligation to complete the scheduled construction of the Unit 7 development, which was substantially completed in November 2001. The Company will recognize revenue and related costs of sales for this real estate transaction upon the close of escrow for lot sales between TLH and third party buyers, and has reflected the cash received as a deposit liability as of November 2, 2001 and October 27, 2000. During December 2001, TLH consummated the sale of seven Unit 7 lots for net proceeds of approximately $3,300,000. As the net proceeds of the seven lot sales were less than the $6,000,000 in cash initially paid by TLH for the underlying real estate, no additional cash proceeds were distributed to TLC. However, TLC will relieve the related deposit liability and recognize revenues for such lot sales during the first quarter of fiscal 2002. TLH intends to market and sell the remaining 19 unsold Unit 7 lots during 2002. Development Real Estate On September 22, 2000, TLC and TLH entered into an Agreement for Purchase and Sale of Real Property (the "Northstar Real Estate Agreement") pursuant to which TLC agreed to sell to TLH certain development real estate consisting of approximately 550 acres of land located at Northstar (the "Development Real Estate") for a total purchase price of $27,600,000, of which 85% is payable in cash and 15% is payable in the form of convertible secured subordinated promissory notes. The purchase price was based on an appraisal obtained from an independent third party appraiser. Concurrently therewith, TLC and TLH consummated the sale of the initial land parcels F-17 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 9. Northstar Real Estate Sales - (Continued) Development Real Estate (Continued) 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 (the "Convertible Secured Note"). The sale of the remaining Development Real Estate under the Northstar Real Estate Agreement is subject to certain subdivision requirements to effect the transfer of such property and other normal and customary closing conditions, and is expected to be consummated in 2002. In accordance with generally accepted accounting principles for real estate transactions, the Company has recorded revenues for the sale to the extent of cash received by TLC. The Company will recognize revenues and profits on the portion of the sales price represented by the Convertible Secured Note as collections are made, and accordingly, has reflected $3,150,000 of deferred revenue as an offset to the Convertible Secured Note in the accompanying consolidated balance sheets as of November 2, 2001 and October 27, 2000. The Convertible Secured Note requires quarterly interest payments at the rate of 10% per annum if paid in cash, or 12% if paid in kind, and is due in full in September 2005. The Convertible Secured Note is secured by TLH's membership interest in a real estate joint venture (the "East West Joint Venture") to which TLH is a party. The Convertible Secured Note is convertible at TLC's option into 15% of TLH's membership interest in the East West Joint Venture, which enables TLC to obtain, at TLC's option, a profit participation in the Development Real Estate. The Company obtained an opinion from an independent firm qualified and experienced in the subject matter of the transaction that the terms of the sale of Development Real Estate were fair and reasonable to the Company and TLC and at least as favorable as the terms which could have been obtained in a comparable transaction made on an arm's-length basis between unaffiliated parties. 10. Sale of Grand Targhee On June 20, 2000, the Company sold all of the assets associated with the Grand Targhee resort for approximately $11,400,000 in cash to GT Acquisition I, LLC ("GT Acquisition"), an entity formed and controlled by the Chairman and Chief Executive Officer of the Company. At the closing of the transaction, GT Acquisition also assumed all liabilities relating to the Grand Targhee resort. The sale of the Grand Targhee resort resulted in a gain of $369,000 during the year ended October 27, 2000. The Company obtained a fairness opinion for the transaction from an independent firm qualified in the subject matter of the transaction. 11. Unusual Items During the fourth quarter of fiscal 1999, the Company recorded the following unusual items: (In thousands) Unusual Gains and (Losses): Gain on involuntary conversion of restaurant facility......................................... $ 1,300 Impairment charges for technology projects that will not be pursued.............................. (524) Severance......................................... (340) Write-off of business pursuit costs............... (482) Environmental reserves............................ (216) Inventory obsolescence upon conversion of retail operations at Waterville Valley to a concessionaire arrangement................. (225) ---------------- Unusual items, net................................ $ (487) ================ F-18 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 11. Unusual Items - (Continued) On February 26, 1999, the Company experienced an electrical fire which destroyed the restaurant facility located at the peak of Northstar's ski terrain. Upon the consummation of negotiations with its insurer in the fourth quarter of fiscal 1999, the Company recorded a gain of $1,300,000 for the difference between the net book value of the facility and contents and the amount of insurance proceeds received. The Company's insurance policies also provided coverage for earnings lost as a result of the fire, as well as reimbursement of costs incurred in mitigating the operating impacts of the fire. Operating income for the year ended October 29, 1999 included business interruption proceeds of $206,000. 12. Management Agreement On May 26, 2000, the Company and Parent entered into an Amended and Restated Management Agreement (the "Management Agreement") with Booth Creek Management Corporation (the "Management Company") pursuant to which the Management Company agreed to provide Parent, Booth Creek and its subsidiaries with management advice with respect to, among other things, (i) formulation and implementation of financial, marketing and operating strategies, (ii) development of business plans and policies, (iii) corporate finance matters, including acquisitions, divestitures, debt and equity financings and capital expenditures, (iv) administrative and operating matters, including unified management of the Company's ski resorts, (v) research, marketing and promotion, and (vi) other general business matters. Under the terms of the amended Management Agreement, Parent and the Company provide customary indemnification, reimburse certain costs and owe the Management Company an annual management fee of $100,000, plus a discretionary operating bonus. Management fees and reimbursable expenses incurred by the Company during the years ended November 2, 2001, October 27, 2000 and October 29, 1999 were $75,000, $246,000 and $370,000, respectively. 13. Employee Benefit Plan The Company maintains a defined contribution retirement plan (the "Plan"), qualified under Section 401(k) of the Internal Revenue Code, for certain eligible employees. Pursuant to the Plan, eligible employees may contribute a portion of their compensation, subject to a maximum amount per year as specified by law. The Company provides a matching contribution based on specified percentages of amounts contributed by participants. The Company's contribution expense for the years ended November 2, 2001, October 27, 2000 and October 29, 1999 were $605,000, $615,000 and $538,000, respectively. F-19 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 14. Business Segments The Company currently operates in two business segments, resort operations and real estate and other. The Company's resort operations segment is currently comprised of seven ski resort complexes, which provide lift access, snow school lessons, retail, equipment rental, food and beverage offerings, lodging and property management services and ancillary products and services. The real estate and other segment is primarily engaged in the development and sale of real estate at Northstar and the harvesting of timber rights. Given the distinctive nature of their respective products, these segments are managed separately. Data by segment is as follows: Year Ended ------------------------------------- November 2, October 27, October 29, 2001 2000 1999 ----------- ----------- ----------- (In thousands) Revenue: Resort operations............... $ 121,629 $ 119,685 $ 112,980 Real estate and other........... 276 19,670 12,744 ----------- ----------- ----------- $ 121,905 $ 139,355 $ 125,724 =========== =========== =========== Operating income (loss): Resort operations............... $ 3,071 $ 4,070 $ (5,954) Real estate and other........... (892) 14,827 7,222 ----------- ----------- ----------- $ 2,179 $ 18,897 $ 1,268 =========== =========== =========== Depreciation, depletion, amortization and noncash cost of real estate sales: Resort operations............... $ 24,993 $ 22,326 $ 21,472 Real estate and other........... 128 2,706 5,021 ----------- ----------- ----------- $ 25,121 $ 25,032 $ 26,493 =========== =========== =========== Capital expenditures: Resort operations............... $ 12,944 $ 21,909 $ 14,342 Real estate and other........... 1,654 175 3,439 ----------- ----------- ----------- $ 14,598 $ 22,084 $ 17,781 =========== =========== =========== November 2, October 27, 2001 2000 ----------- ----------- Segment assets: Resort operations............... $ 169,919 $ 180,984 Real estate and other........... 12,345 10,819 Corporate and other nonidentifiable assets......... 6,954 7,260 ----------- ----------- $ 189,218 199,063 =========== =========== F-20 Exhibit Index EXHIBIT NUMBER DESCRIPTION ------ ----------- +2.1 Agreement and Plan of Merger dated as of September 18, 1997 by and among Booth Creek Ski Group, Inc., LMRC Acquisition Corp. and Loon Mountain Recreation Corporation. +2.2 First Amendment to Merger Agreement, dated December 22, 1997, by and among Booth Creek Ski Group, Inc., LMRC Acquisition Corp. and Loon Mountain Recreation Corporation. *3.1 Certificate of Incorporation of Booth Creek Ski Holdings, Inc. *3.2 Bylaws of Booth Creek Ski Holdings, Inc. *3.3 Restated Articles of Incorporation of Trimont Land Company. *3.4 Bylaws of Trimont Land Company. *3.5 Certificate of Incorporation of Sierra-at-Tahoe, Inc. *3.6 Bylaws of Sierra-at-Tahoe, Inc. *3.7 Certificate of Incorporation of Bear Mountain, Inc. *3.8 Bylaws of Bear Mountain, Inc. *3.9 Certificate of Incorporation of Booth Creek Ski Acquisition Corp. *3.10 Bylaws of Booth Creek Ski Acquisition Corp. *3.11 Amended and Restated Certificate of Incorporation of Waterville Valley Ski Resort, Inc. *3.12 Bylaws of Waterville Valley Ski Resort, Inc. *3.13 Amended and Restated Certificate of Incorporation of Mount Cranmore Ski Resort, Inc. *3.14 Bylaws of Mount Cranmore Ski Resort, Inc. *3.15 Amended and Restated Articles of Incorporation of Ski Lifts, Inc. *3.16 Bylaws of Ski Lifts, Inc. **3.17 Articles of Incorporation of LMRC Holding Corp. **3.18 Amended and Restated Articles of Incorporation of Loon Mountain Recreation Corporation. **3.19 Amended and Restated Bylaws of Loon Mountain Recreation Corporation. **3.20 Amended and Restated Articles of Incorporation of Loon Realty Corp. **3.21 Amended and Restated Bylaws of Loon Realty Corp. **3.22 Bylaws of LMRC Holding Corp. *4.1 Indenture dated as of March 18, 1997 by and among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp. and Ski Lifts, Inc., as Subsidiary Guarantors, and HSBC Bank USA (formerly Marine Midland Bank), as trustee (including the form of 12 1/2% Senior Note due 2007 and the form of Guarantee). *4.2 Supplemental Indenture No. 1 to Indenture dated as of April 25, 1997 by and among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp. and Ski Lifts, Inc., as Subsidiary Guarantors, HSBC Bank USA (formerly Marine Midland Bank), as trustee. +4.3 Supplemental Indenture No. 2 to Indenture dated as of February 20, 1998 by and among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp. and Ski Lifts, Inc., as Subsidiary Guarantors, and HSBC Bank USA (formerly Marine Midland Bank), as Trustee. +4.4 Supplemental Indenture No. 3 to Indenture dated as of February 26, 1998, by and among Booth Creek Ski Holdings, Inc., as Issuer, LMRC Holding Corp., Loon Mountain Recreation Corporation and Loon Realty Corp., as Subsidiary Guarantors, and HSBC Bank USA (formerly Marine Midland Bank), as Trustee. +++4.5 Supplemental Indenture No. 4 to Indenture dated as of October 8, 1998 by and among Booth Creek Ski Holdings, Inc., as Issuer, Booth Creek Ski Acquisition, Inc., and HSBC Bank USA (formerly Marine Midland Bank), as Trustee. ##4.6 Second Amended and Restated Securities Purchase Agreement and certain related agreements dated as of May 28, 2000, among Booth Creek Ski Group, Inc., Booth Creek Ski Holdings, Inc., the Subsidiary Guarantors as defined therein and each of John Hancock Life Insurance Company, CIBC WG Argosy Merchant Fund 2, L.L.C., Hancock Mezzanine Partners, L.P., Co-Investment Merchant Fund, LLC and Booth Creek Partners Limited II, L.L.L.P. #####4.7 Form of Stockholders Agreement dated January 22, 2002 among Christopher P. Ryman, Elizabeth J. Cole, Timothy H. Beck, Brian J. Pope, John Hancock Life Insurance Company, Hancock Mezzanine Partners, L.P., CIBC WC Argosy Merchant Fund 2, L.L.C., Co-Investment Merchant Fund, LLC and Booth Creek Ski Group, Inc. +++10.1 Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Mountain Realty Corp. and Fleet National Bank (formerly BankBoston, N.A.). ***10.2 Waiver Agreement dated March 12, 1999, to Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and Fleet National Bank (formerly BankBoston, N.A.). ****10.3 First Amendment dated May 18, 1999, to Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and Fleet National Bank (formerly BankBoston, N.A.). ****10.4 Waiver Agreement dated June 14, 1999, to Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and Fleet National Bank (formerly BankBoston, N.A.). ##10.5 Second Amendment dated May 28, 2000 to Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and Fleet National Bank. ##10.6 Third Amendment dated May 28, 2000 to Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and Fleet National Bank. ####10.7 Fourth Amendment dated September 22, 2000 to Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and Fleet National Bank. *10.8 Purchase and Sale Agreement dated as of August 30, 1996 by and between Waterville Valley Ski Area, Ltd., Cranmore, Inc., American Skiing Company and Booth Creek Ski Acquisition Corp. *10.9 Subordinated Promissory Note dated November 27, 1996 issued by Booth Creek Ski Acquisition Corp., Waterville Valley Ski Resort, Inc. and Mount Cranmore Ski Resort, Inc. to American Skiing Company. *10.10 Stock Purchase and Indemnification Agreement dated as of November 26, 1996 among Booth Creek Ski Holdings, Inc., Fibreboard Corporation, Trimont Land Company, Sierra-at-Tahoe, Inc. and Bear Mountain, Inc. *10.11 Escrow Agreement dated December 3, 1996 by and among Fibreboard Corporation, Booth Creek Ski Holdings, Inc. and First Trust of California. *10.12 Stock Purchase Agreement dated as of February 21, 1997 by and between Booth Creek Ski Holdings, Inc., William W. Moffett, Jr., David R. Moffett, Laurie M. Padden, individually and as custodian for Christina Padden, Jennifer Padden and Mary M. Padden, Stephen R. Moffett, Katharine E. Moffett, Frances J. DeBruler, individually and as representative of the Estate of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund, and David R. Moffett, as representative. *10.13 Preferred Stock Purchase Agreement dated as of February 21, 1997 by and between DRE, L.L.C., William W. Moffett, Jr., David R. Moffett, Laurie M. Padden, individually and as custodian for Christina Padden, Jennifer Padden and Mary M. Padden, Stephen R. Moffett, Katharine E. Moffett, Frances J. DeBruler, individually and as representative of the Estate of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund and David R. Moffett, as representative. #10.14 Asset Purchase Agreement dated as of March 21, 2000, as modified and amended, by and between Booth Creek Ski Holdings, Inc., a Delaware corporation, as Seller, and GT Acquisition I, LLC, a Delaware limited liability company, as Buyer. ###10.15 Agreement for Purchase and Sale of Real Property and certain related agreements dated September 22, 2000 between Trimont Land Company and Trimont Land Holdings, Inc. ##10.16 Amended and Restated Management Agreement dated as of May 26, 2000 by and between Booth Creek Ski Holdings, Inc. and Booth Creek Management Corporation. *10.17 Ski Area Term Special Use Permit No. 4002/01 issued by the United States Forest Service to Waterville Valley Ski Resort, Inc. *10.18 Ski Area Term Special Use Permit No. 5123/01 issued by the United States Forest Service to Bear Mountain, Inc. *10.19 Ski Area Term Special Use Permit No. 4127/09 issued by the United States Forest Service to Ski Lifts, Inc. *10.20 Annual Special Use Permit Nos. 4127/19 & 4127/19 issued by the United States Forest Service to Ski Lifts, Inc. ++10.21 Ski Area Term Special Use Permit No. 4031/01 issued by the United States Forest Service to Loon Mountain Recreation Corporation. ++10.22 Amendment Number 2 for Special Use Permit No. 4008/1 issued by the United States Forest Service to Loon Mountain Recreation Corporation. ++10.23 Amendment Number 5 for Special Use Permit No. 4008/1 issued by the United States Forest Service to Loon Mountain Recreation Corporation. ++++10.24 Ski Area Term Special Use Permit No. 4186 issued by the United States Forest Service to Sierra-at-Tahoe, Inc. **10.25 Employment Agreement dated as of July 1, 1997, by and between Booth Creek Ski Holdings, Inc. and Timothy H. Beck. #####10.26 Amendment No. 1 to the Employment Agreement by and between Booth Creek Ski Holdings, Inc. and Timothy H. Beck. #####10.27 Amended and Restated Employment Agreement by and between Booth Creek Ski Group, Inc., Booth Creek Ski Holdings, Inc. and Christopher P. Ryman. #####10.28 Amended and Restated Employment Agreement by and between Booth Creek Ski Group, Inc., Booth Creek Ski Holdings, Inc. and Elizabeth J. Cole. #####10.29 Booth Creek Ski Group, Inc. 2001 Stock Incentive Plan. #####10.30 Restricted Stock Agreement by and between Booth Creek Ski Group, Inc. and Timothy H. Beck. #####10.31 Deferred Compensation Agreement by and between Booth Creek Ski Group, Inc. and Timothy H. Beck. #####10.32 Restricted Stock Agreement by and between Booth Creek Ski Group, Inc. and Brian J. Pope. #####10.33 Deferred Compensation Agreement by and between Booth Creek Ski Group, Inc. and Brian J. Pope. #####10.34 Severance Agreement by and between Booth Creek Ski Group, Inc., Booth Creek Ski Holdings, Inc. and Brian J. Pope. ####21.1 Subsidiaries of the Registrant. -------------------------- * Filed with Registration Statement on Form S-4 (Reg. No. 333-26091) and incorporated herein by reference. ** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended January 30, 1998 and incorporated herein by reference. *** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended January 29, 1999 and incorporated herein by reference. **** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended April 30, 1999 and incorporated herein by reference. + Filed with the Company's Current Report on Form 8-K dated February 26, 1998 and incorporated herein by reference. ++ Filed with Registration Statement on Form S-4 (Reg. No. 333-48619) and incorporated herein by reference. +++ Filed with the Company's Annual Report on Form 10-K for the Fiscal Year Ended October 30, 1998 and incorporated herein by reference. ++++ Filed with the Company's Annual Report on Form 10-K for the Fiscal Year Ended October 29, 1999 and incorporated herein by reference. # Filed with the Company's Current Report on Form 8-K dated March 21, 2000 and incorporated herein by reference. ## Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended July 28, 2000 and incorporated herein by reference. ### Filed with the Company's Current Report on Form 8-K dated September 22, 2000 and incorporated herein by reference. #### Filed with the Company's Annual Report on Form 10-K for the Fiscal Year Ended October 27, 2000 and incorporated herein by reference. ##### Filed herewith as an Exhibit to this Form 10-K.