Intrawest restructures 

In an effort to reduce debt and free up capital, Intrawest is revamping its business strategy. The new business model, which was announced this week, involves the company moving the bulk of its production-phase real estate business into separate, independent companies. This means that all real estate production activities from breaking the ground to delivering the final sale of units will be handled by independent companies.

"For several years now Intrawest has been migrating from a capital-intensive business towards a business model where our reputation, our expertise and our customers are the basis for future growth," Joe Houssain, Intrawest’s chairman, president and chief executive officer, said in a release.

"This new business model will generate significant free cash flow to support our growth in our various divisions while at the same time creating a more conservative capital structure for Intrawest."

Through this restructuring Intrawest can significantly reduce the capital requirements of its real estate business, reduce its debt levels and use separate capital structures for resort business and real estate business.

The company expects to generate about $250 million US in free cash flow in its 2004 fiscal year after providing for the ongoing capital requirements of its operating business. Also, as a result of the decline in capital expenditures and the increased cash flow, Intrawest will be able to reduce its net debt by roughly $300 million US by the end of June 2004.

Intrawest has partnered to create the new companies Leisura Developments US and Leisura Developments Canada. It will have a minority equity investment in each company. The other partners are major Canadian and US institutional investors.

Beginning this spring, Leisura will acquire land parcels at fair market value from Intrawest and the first projects will commence construction in April 2003. The Leisura companies will carry the business through to completion and final sale of the resort homes, which is generally 12 to 18 months depending on the type of project. During 2003 the Leisura companies are expected to take on 15 projects from nine resorts. In the future, the bulk of the production-phase development at Intrawest's resorts is expected to be carried out in a similar fashion.

Intrawest will realize the fair market value for its land as parcels are sold to the Leisura companies. Consideration for this land will be 75 per cent in cash with the balance in a land note. In addition, Intrawest will continue to participate directly in the earnings and cash flow of the projects developed by Leisura through its investment interests. It will also earn fees for its development services provided to Leisura.

If the current portion of its production-phased real estate was already in these independent companies, the companies would have an asset value of roughly $380 million US.

Intrawest expects the overall impact on earnings per share to be roughly neutral in the near term and modestly positive in the longer term.

"This completes an investment picture that combines a unique and compelling growth story with a business model based more on expertise and reputation than on capital," said Daniel Jarvis, executive vice president and chief financial officer.

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