Committee meeting called to order by committee chair Deb Steines at 2:00 PM via conference call.
Committee members in attendance:, – Roy Liu, Eric Schoenholz, Mark Renson and Deb Steines, Chair.
Absent. Leigh Michl and Jed Kalkstein
Shareholders in attendance: Carol Pierce
MRG Staff: Jamey Wimble.
Financials for 12/31/02 YTD and Month – A general discussion was held on the positive state of affairs. The comment was passed that expenses were higher than expected. Jamey explained that some up-front cost of inventory and some capital items were in early months but will be transferred. Nothing specific was noted. Also opening early turned out to be uneconomic as expenses exceeded daily ticket receipts.
Capital Funding – to discuss potential funding sources for MR for when and if the need arises. The board had asked us to develop a white paper on this potential need.
·Discussion began with a review of Jamey’s 20-year capital plan and the fact that it is his best guess at this point with a worse case scenario for the single chair.
·Discussion evolved to the two funding scenarios based on two estimated levels of operating income he has created.
· Exhibit I was based on 2002/03 budgeted income statement with 4% increases to operating income every year through year 2020. It included 75 share sales a year and use of the reserves when needed for capital. This exhibit shows us in negative number from 2005 – 2020. ($233,000) in 2005, ($787,000) in 2010 and ($405,000) in 2020. We’d be in debt from 2005 on with the operating income we are currently showing with no accounting for any bad years.
·Exhibit II was based on increased operating income to show what is needed to partially fund the projected capital expenditures. Even this higher income scenario leaves us with a shortfall in years 2005 through 2010 of between ($45,000) and ($265,000)
·Considering these income statements, which project income in every year, we have somewhere between a $265,000 and $800,000 shortfall in the not too distant future. Assuming budget level income and better every year is not a reasonable assumption, the committee needs to further review top line growth.
·Possible funding sources –
·Share Sales – This would be successful if we could create a sense of urgency among the shareholders. These share sales are above and beyond the regular annual sales that are 75 a year in the exhibits Jamey created. An example of the number of shares that would need to be sold are as follows:
$800,000 = $1750 x 457 shares
$350,000 = $1750 x 200 shares
It should also be noted that the sale of 457 shares would require multiple purchases by some proportion of current shareholders, as the total number of shareholders is limited to 2,000, and current # of shareholders are in excess of 1,600.
·Bond Sales to shareholders – The original bond sale was orchestrated by Deri Meier, we will talk to him about the process and successes and challenges. The original bond issue was not an easy sell and out of the $160,000 that was authorized, only $135,000 was scripted. The existing bonds have three interest payment options, 6% if paid in cash, 8% if taken in Mad Money, and 10% if taken against the APR. The administration is complicated but it is friendly debt. This debt is at a very high rate of interest, if we were to have another bond issue the rates would of course be more competitive with current rates. Jamey recommends only one interest option to eliminate the administrative issues.
·The Line of Credit – is only good for short-term needs and would not be available to us for long-term requirements, which is what we are discussing now. This money is for emergency situations to take us until we secure more permanent funding.
·Bank Loans – The best time to borrow is when you don’t need it and can shop for the best rates. Currently rates are extremely low now for both bank loans and bonds. Borrowing now still creates costs and interest expenses, which we are not interested in, besides we don’t need money this year. Long-term bank loans are not realistic for long term financial needs without very onerous conditions. To obtain a 10-year loan would require realistic projected cash flows along with historic cash flows, which would not support our receiving a long-term loan. Longer-term loans to smaller business are discouraged unless they are against a real estate development where the facility is held as collateral.
·Re-mortgage the property – this could be an avenue of discussion but is not a promising scenario. This would require shareholder approval, which would be a huge hurdle to get them to buy into this. Banks look at liquidation or residual value, current banks we deal with would not touch this. Sugarbush had a very difficult time financing $800,000 for the Castlerock chair; they are paying 10% for vendor-financed money.
·Other Observations – the $225,000 operating income maintained over the next 18-20 years is required in the current shortfall scenario of ($265,000). This is not realistic. We need to look at optimizing revenue and minimizing expenses to make sure we are at a maximum income producing level and then look at what our debt will be. As an example, the environmental program is losing $10k a year, we need to look for vendor sponsorship (Tubbs or Patagonia were mentioned) or Foundation support. Coke gave us $5,000 and our sales were only $6,000 at the time.
·Generating more top line income – how can we and is it realistic
·Review 20 year capital plan (Jamey to give it a look based on current knowledge)
·Generate a comparison of the last 7 years P&L
·Generate funding sources P&L with realistic operating income and 40 share sales a year. Review reserve numbers. Detail every year for 10 years.
Next Meeting – February 6, 2 PM, via conference call
The meeting adjourned at 3:00 PM.
Agenda items for the next meeting:
·Approve minutes from January 23.
·Capital funding sources continue discussion
·Top Line growth and maximization
·See Other questions/topics
·Debit Cards instead of Mad Money (future discussion)