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Minutes Of Board of Trustees Meeting Held March 18, 2000

 

After due notice, a meeting of the Board of Trustees of Mad River Glen Cooperative was convened at 4:35 p.m. on March 18, 2000, at the Basebox, at Mad River Glen Ski Area in Fayston, Vermont. Trustees Bleier, Eaton, Kirkpatrick, Meier, Michl, Russell, Schultz, Singer were present (comprising the entire Board of Trustees). The Cooperative's president, Mr. Meier, presided. Minutes were kept by the secretary, Mary Kirkpatrick, with assistance from corporate counsel, Peter Monte.

 

Minutes of Prior Meetings:

After discussion and upon motion duly made and seconded, it was unanimously

VOTED: To approve as corrected the minutes of the February 12, 2000, meeting of the board of trustees.

Shareholder Comments:

The meeting packages included correspondence from owners Rod Wentworth (objecting to the Cooperative's participation in the Town of Fayston's school tax issues); Margaret Briggs (commending the 12 and under free skiing program and urging the Cooperative to allow snowboarding); Evelyn Murphy (a ski instructor at another ski area who visited Mad River and was so impressed she bought a share); Susan and Jack Brooks (commenting favorably on the 12 and under program and complementing ski area operations generally): Steve Skilton (complimenting and thanking the staff for their assistance to the Harwood Union Alpine Ski Team); and Rich Aiken (commenting on the capital campaign of the Cooperative to raise funds for needed improvements) (Mr. Aiken's letter was referred to the finance committee).

 

Mr. Bleier requested that shareholder letters be posted in the Basebox as the trustees had decided in October. The general manager noted that the bulletin board is already overcrowded and maintaining the volume of these postings would burden administrative staff during the busiest time of the year. The board decided that in the future shareholder letters would not be posted in the Basebox, but would be maintained in a file at the office and available to any owner who requests the file.

 

Ken Timmerman urged the trustees to consider a tax exempt device to raise needed capital funds for the Cooperative. The general manager informed the meeting that he has employed a professional consultant expert in this area to advise whether and how a tax exempt entity may be formed by the Cooperative for this purpose.

 

Josh Tower identified the removal of large dead trees from the woods as the most important maintenance issue for the summer. He noted that fallen trees had blocked many of the best skiing lines in the woods. Mr. Tower also urged the trustees when they consider price increase to apply any increase evenly across all pass and ticket products and not to confine the increases to weekend and holiday day tickets.

 

Bruce Hatfield urged the trustees to leave the woods alone.

 

Board Committees:

The president requested comment on the board committee policy circulated before the meeting. The circulated policy had been revised to reflect changes requested by the trustees during discussions at earlier board meetings.

 

Mr. Singer suggested a further change--that subcommittee recommendations should be approved by the entire standing committee rather than only the committee chair. The trustees concurred in this change.

 

Owner Heeter inquired why the policy required that two trustees serve on each standing committee. She felt the presence of two trustees on each standing committee impaired shareholder control and burdened trustees= limited time. The president explained that the standing committees on which owners would participate have no authority under the bylaws other than recommending actions to the board of trustees. The policy contemplates that committee recommendations would be more effective if one or more members of the board participate in the formulation and are fully aware of the subcommittee actions which led to the recommendation.

 

After further discussion and upon motion duly made by Mr. Singer and seconded by Mr. Schultz it was unanimously (Mr. Bleier abstaining)

VOTED: To adopt as amended board policy 2000-01 regarding standing committees of the board of trustees (a copy of the policy, as adopted is appended to these minutes).

40l (k) Plan Trustees:

The general manager informed the board that its prior action in naming trustees of the Cooperative's 401 (k) plan by office was not acceptable to the plan administrator. To satisfy applicable requirements, plan trustees must be designated by name, rather than ex officio. Mr. Singer objected to the appointment of any Cooperative employee as a retirement plan trustee because of the potential conflict of interest. Owner McAfee recommended that no employee or trustee of the Cooperative should manage the 401 (k) plan; instead, qualified independent outsiders should fill this function to avoid any potential conflict of interest.

 

The general manager agreed that it would be optimal if strangers to the Cooperative managed the retirement plan to avoid any possible conflict of interest. He observed, however, that given the small size of the fund under management, logistics and availability mandate that Cooperative insiders should perform this task.

 

After further discussion and upon motion duly made by Mr. Schultz and seconded by Mr. Eaton it was

VOTED: To terminate all prior appointments of persons to serve as trustees of the Cooperative's 401(k) plan and to name Robert Ackland, Leigh Michl, and Alan Russell to serve as trustees of the Cooperative's 401 (k) plan.

Voting: In favor: Eaton, Kirkpatrick, Meier, Michl, Russell and Shultz. Opposed: Bleier and Singer.

 

General Manager's Report:

 

Robert Ackland, the general manager reported to the board. He stated that February was a very good month for ski conditions and revenues. Year to date revenues at the end of February are $95,000 behind budget and $89,000 ahead of the period ending February, 1999.

 

The engine driving the single chair lift broke down because of a failure of its water pump on February 21. Staff managed to repair and restore the lift to operation the same day.

One groomer is off line and scheduled for replacement this summer. Lift staffing problems are resolved and staffing is now stabilized.

 

The Birdcage septic system froze. Staff must await the spring thaw to investigate the problem and evaluate the problem's cause and determine who should shoulder the blame.

The Cooperative's insurance company investigation of facilities was completed last month and the Cooperative passed the inspection in all respects.

 

The general manager praised the ski school. Ski school revenues exceed budget by 57%. The ski school has tracked its revenue for the first time and learned by this tracking that lessons to children constitute over half of the ski school's revenues. Ski school director, Missy Shea has obtained her level one PSIA certification in alpine and is scheduled soon to take her level two certification in telemark. Other instructors are also progressing with their PSIA certifications.

 

During Presidents' Day weekend, the Basebox set a two day record for food and beverage sales at Mad River Glen Ski Area.

 

808 passes have been picked up by children participating in the free skiing program. Staff's ongoing analysis of the program continues, but the general manager views the program as very successful. The program has benefitted the bottom line as well as providing less tangible benefits of publicity and encouraging youth. Ski area revenues from junior ticket sales have fallen by only 1% this year and have been more than offset by a significant increase in pass sales to the parents of children participating in the program.

 

The general manager circulated a summary of share marketing status. To day 1,937 shares have been sold. After February, sales were 9 ahead of budget but slow traffic in the ski area does not bode well for share sales during March. With only five shares sold so far in March, staff expects share sales to fall behind budget by the end of the month. Slow traffic during the month of March at the ski area has resulted in dwindling of the lead list. Staff is considering new approaches to develop leads for share sales.

 

The general manager provided the trustees with a listing of shareholders who are delinquent in installment payments. At the next trustee meeting, staff will seek authority to inform the 35 shareholders most delinquent that their share sales are revoked for these defaults.

 

183 shareholders are delinquent in their APR payments and have been informed that they will be denied voting privilege at the annual meeting unless their APR is brought current before April 1.

 

The general manager circulated the summary of a recent Vermont Supreme Court decision. In this case, the Supreme Court sustained the payment of workman's compensation benefits to a Aski bum@ (employed by a restaurant unaffiliated with a ski area) who was injured while skiing on his free time. Although this case does not have direct application to the Cooperative, the general manager noted that decisions like this affect the ski industry as a whole.

 

The general manager made available to the trustees and the owners in attendance a forest management plan which had been prepared by Jay Appleton (a Cooperative owner and a professional forester). He recommended the plan to the trustees for review and evaluation. The general manager will present a detailed report on the plan at the annual meeting in April. The general manager stressed the importance to the Cooperative of adopting and adhering to a plan for management of the Stark Mountain forest. The forest is mature, older trees are dying, and the problems are seriously aggravated by recent wind and ice storm events. Without the Cooperative's active management, the forest may soon degrade unacceptably.

 

The general manager announced the results of the recent shareholders survey. The survey showed that the four primary reasons why owners bought a share of the Cooperative were (1) to preserve the Mad River skiing experience; (2) to preserve the environment of Stark Mountain; (3) to preserve low-cost skiing; and (4) to become part of a skiing community. 95% of the shareholders responding to the survey believe that the Cooperative is doing a good job to accomplish these purposes.

 

February Financial Results:

The general manager summarized financial results for the month of March, 2000. He commended staff for their tremendous efforts during the five week period ending February 29. Snow conditions were very good and staff showed that they have the talent and enthusiasm to make the best of it. Results may be summarized:

 

Income Expense Profit (Loss)
February $463,692 $242,000 $221,700
YTD $1,154,300 $804,900 $349,400

 

Cash on hand February 29, 2000: $686,000

 

The general manager cautioned the trustees that March ski conditions were not favorable and staff expects the Cooperative to sustain a significant loss during March.

The president commented that he was very favorably impressed with February results. He observed that these profits show that the Cooperative has the benefit of employees who can produce impressive financial results when weather conditions provide the opportunity.

 

Financial Projections:

The general manager submitted detailed reports projecting income and expense for the balance of the fiscal year ending September 30, 2000. The general manager projects this fiscal year will generate a $30,000 operating loss based on projected revenues and expenses. The general manager estimates a $20,000 cash flow deficit for this fiscal year. Year end cash on hand is projected to be $195,000.

 

Poor weather caused ski area revenues to fall far below budget assumptions. Although expenses were also reduced because of low skier traffic, fixed operating costs prevent staff from reducing costs in the same proportion that revenues fall short.

 

As promised at the last month's trustees meeting, the general manager also submitted a detailed recommendation for capital expenditures during the remainder of the fiscal year. The general manager's recommendations reflect a reduction in capital expenditures to accommodate the projected shortfall in available cash. The general manager's recommended capital budget calls for capital expenditures of $136,800 through September, 2000, plus additional spending to bring the total to $169,875 through the end of calendar year 2000.

 

The president suggested that the most logical way for the trustees to consider the revised capital budget was to determine first whether to alter the previously approved budget for the single chair and then to evaluate the remainder of the budget. The previously approved FY 2000 capital budget called for approximately $150,000 in improvements to the single chair drive and the newly revised budget calls for expenditures of only $9,000.

 

Mr. Singer inquired when the last detailed testing of the single chair's ring gear was completed. The assistant general manager, Jamey Wimble, replied that the ring gear was last tested in l988. Although the ring gear passed this test it did show 'indications' of possible faults. Mr. Singer stated that he believes that the ring gear test should be eliminated from the capital budget this year. Mr. Singer believes that cash flows will be less than are projected and fears that unfavorable test results for the gear will obligate the Cooperative to spend large sums of money. The general manager replied that he believes that the ring gear is a critical component of the single chair drive and a breakdown could create safety issues.

 

After discussion and upon motion duly made by Ms. Kirkpatrick and seconded by Mr. Michl it was

VOTED: To modify the capital budget for FY 2000 to reduce spending for the single chair improvements to comport with the general manager's recommendations, i.e. $9,000 to be spent to rebuild the diesel engine, test the ring gear and sight the line.

Voting: In favor: Bleier, Eaton, Kirkpatrick, Meier, Michl, Russell and Schultz. Opposed: Singer.

 

Ms. Kirkpatrick inquired whether tower padding should be added to the budget. She observed that the Cooperative is apparently obliged for insurance reasons to pad all lift towers if it pads any. She recognizes that the Cooperative cannot afford to pad all lift towers at this time but questioned whether is was prudent to begin now to set aside money for this purpose so a fund will be established in a few years to enable the entire project. After discussion, staff agreed to provide the trustees at a future meeting with a cost analysis to acquire materials for padding and estimated maintenance cost to install, adjust and remove padding each year.

 

The president noted that the proposed $20,000 budget for Stark's Nest is the only item in the proposed budget which is an Aenhancement@ rather than a safety measure or response to an urgent need. He suggested that this item might be deferred in the budget until a future year when more cash is available.

 

Mr. Russell stated the Stark's Nest is overdue for major work and supported the proposed budget expenditure. The general manager commented that a mountain top shelter is an important amenity; significant work is required to restore Stark's Nest to acceptable condition; and he hopes increasing use of Stark's Nest will take pressure off the overcrowded Basebox. Mr. Schultz added that the Stark's Nest is an important amenity for spring skiing above the mid station. The trustees took a straw vote which showed a majority of the board supports retaining the $20,000 expenditure for the Stark's Nest.

 

After further discussion and upon motion duly made by Ms. Kirkpatrick and seconded by Mr. Michl it was

VOTED: To approve the general manager's revised capital budget for expenditures through December, 2000, as presented to the meeting (a copy of which is attached to these minutes).

Voting: In favor: Bleier, Eaton, Kirkpatrick, Meier, Michl, Russell and Schultz. Opposed: Singer.

 

Pricing:

The general manager circulated a draft price schedule for day tickets and passes at Mad River Glen Ski Area. The draft would increase weekend day ticket prices to $40 and holiday day ticket prices to $42. Other ticket and pass prices would remain unchanged from the l999-2000 schedule. The general manager informed the trustees that he does not seek a board decision on pricing until later this summer. He circulated the draft schedule to solicit a reaction from the trustees and to prompt consideration of the pricing issues.

 

Ms. Kirkpatrick stated that her initial preference was for an across-the-board increase applied equally to all tickets and passes rather than concentrating increases on the weekend and holiday day ticket prices. The general manager responded that he believes the present season pass prices are relatively high at Mad River Glen when compared to the prices of nearby ski areas and the average number of days when skiing is available at Mad River. In contrast, the general manager believes that the weekend and holiday day ticket prices at Mad River are a bargain compared to competing ski area pricing, so that is where he proposed to implement a price increase.

 

Mr. Singer recommended that the Cooperative's final pricing for next year should eliminate all shareholder discounts except discounts offered for one year to first-time purchasers of a Cooperative share. He believes that the present level of shareholder discounts violates IRS rules governing Cooperatives. He also believes that the discounts deny the Cooperative substantial and much-needed revenues. Mr. Singer circulated an analysis he prepared which shows that shareholders discounts for the 1998-1999 season totaled $63,000. He estimates that the total cost to the Cooperative of shareholder discounts is $183,000 for the three years the Cooperative has operated after its initial start up year. Mr. Singer asserted that the Cooperative cannot afford such a substantial, ongoing reduction in its revenues in light its need for capital to correct deferred maintenance and to provide needed improvements.

 

Mr. Schultz opined that season pass prices should be set at a fixed multiple of day ticket prices. He reiterated his long standing assertion that the Cooperative must set prices adequately to cover the true costs of operation including acquiring funds sufficient to pay for needed maintenance and improvements. Mad River Glen must operate and market its facilities to attract skiers who appreciate the unique experience rather than those who seek non-sustainable, bargain prices.

 

The general manager responded to Mr. Schultz by stating that he does not disagree in principle. He advised the trustees, however, that the number of skier days at Mad River Glen is too low to assure a sustained revenue stream to pay for needed capital improvements. The general manager doubts that demand is sufficiently elastic to allow the Cooperative to obtain needed capital reserves through increased prices. Season pass prices must be set in line with competition. Mid week prices must be left low to increase traffic. He called on the trustees to develop and implement additional sources of capital because viable price increases are not likely to satisfy all of the Cooperative's funding requirements over the years to come.

 

Mr. Singer's Analysis of l998-99 Cash Flow Statements:

Because of a prior commitment, Mr. Eaton departed from the meeting before Mr. Singer's presentation.

 

Mr. Singer made a written and oral presentation to explain the conclusion he stated at the last trustee meeting that cash flow from operations in the l998-99 fiscal year should show a $200,000 deficit rather than the $78,000 deficit shown in the Cooperative's annual statement.

 

Mr. Singer does not disagree with the auditors overall calculation of cash flows (which showed positive cash flow overall). It is his opinion, however, that the auditors incorrectly included pre-season pass and ticket sales in the Aoperations@ category of cash flows, and that pre-season sales are more correctly included in cash flow from Afinancing.@ Mr. Singer, a certified public accountant, cited statements of generally accepted principles of accounting and the Internal Revenue Code which he says support his characterization of pre-season sales in the Afinancing@ category.

 

In Mr. Singer's opinion, the principal lesson from his analysis is that the Cooperative is supporting operations by funds derived from financing. In Mr. Singer's opinion, reliance on share sales to support operations is not a sustainable practice. Eventually, the Cooperative must cease share sales when its long term objective of 3,000 shares outstanding is reached. Thereafter, operations must be self-sustaining or the Cooperative may face financial failure because of inadequate cash flows.

 

Mr. Bleier inquired whether staff or the trustees were prepared to rebut Mr. Singer's arguments. The general manager commented that he felt Mr. Singer's analysis involved an invalid Aapples and oranges@ comparison. The president stated his belief that the operating expenditures for FY 1998-99 included the last payment for the double, an amount in excess of $100,000 which is actually capital and would materially affect Mr. Singer's analysis.

 

The president also stated that Mr. Singer's basic point appeared to be a technical question of accounting characterizations. The president noted that the Cooperative's auditors had certified that all of their financial statements, including their cash flow analysis, had been prepared in accordance with generally accepted principles of accounting. Because Mr. Singer's argument and materials had not been circulated before their presentation at the meeting, the president and finance committee had not had an opportunity to consider them or to solicit the opinion of the Cooperative's auditors. The president asked the general manager and the treasurer to look into Mr. Singer's opinion and prepare a report for the board's consideration.

 

Executive Session:

The trustees entered executive session at 8:00 p.m. to discuss personnel matters. The general manager, assistant general manager and counsel were invited to attend the executive session. The trustees resumed open session at 8:10.

 

Adjournment:

There being no further business to come before the meeting, after discussion and upon motion duly made and seconded it was unanimously

VOTED: To adjourn.

Adjourned accordingly at 8:12 p.m.

A true record. ATTEST: ___________________________________________ Mary Kirkpatrick, Secretary

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