United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED OCTOBER 26, 1997
_____________________________
Commission File Number 333-9763
_____________________________
ASC East, Inc.
(Exact name of registrant as specified in its charter)
Maine 01-0503382
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 450
Bethel, Maine 04217
(Address of principal executive office) (Zip Code)
(207) 824-5196
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report.)
Indicated by checkmark 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 [ ]
The number of shares outstanding of each of the issuer's classes of
common stock was 1,077,265 shares of common stock $.01 par value
outstanding as at December 10, 1997.
[PAGE]
Table of Contents
Part I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Statement of Operations
(Unaudited) for the three months ended October 26, 1997
and October 27, 1996 ....................................1
Condensed Consolidated Balance Sheet
(Unaudited) as of October 26, 1997 and July 27, 1997.....2
Condensed Consolidated Statement of Cash Flows
(Unaudited) for the three months ended October 26, 1997
and October 27, 1996.......... ..........................3
Notes to Condensed Consolidated Financial Statements
(Unaudited) ............................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General ................................................11
Liquidity and Capital Resources ........................11
Changes in Results of Operations .......................13
Changes in Financial Condition .........................14
Part II - Other Information
Item 6 Exhibits ........................................17
[PAGE]
Part I - Financial Information
Item 1
Financial Statements
This Form 10-Q is filed by ASC East, Inc. ("ASC East") for itself and
its following wholly-owned subsidiaries:
Sunday River Skiway Corporation Sunday River, Ltd.
Sunday River Transportation Perfect Turn, Inc.
LBO Holding, Inc. Sugarbush Resort Holdings, Inc.
Mountain Wastewater Treatment, Inc. Sugarbush Leasing Company
Sugarbush Restaurants, Inc. Cranmore, Inc.
Grand Summit Resort Properties, Inc. S-K-I Limited
Killington, Ltd. Mount Snow, Ltd.
Waterville Valley Ski Area, Ltd. Sugarloaf Mountain Corporation
Killington Restaurants, Inc. Dover Restaurants, Inc.
Resort Technologies, Inc. Resort Software Services, Inc.
Mountainside Sugartech
Deerfield Operating Company Pico Ski Area Management Company
SKI Insurance Mountain Water Company
Killington West, Ltd. Club Sugarbush, Inc.
As used herein the term the "Company" means and refers to ASC East
and the subsidiary registrants listed above on a consolidated basis.
The 12% senior subordinated notes due 2006 and 13.75% subordinated
discount notes due 2007 are fully and unconditionally guaranteed by the
Company and all of its subsidiaries with the exception of SKI Insurance,
Killington West, Ltd., Mountain Water Company, and Club Sugarbush, Inc.
(the "Non-Guarantors").
[PAGE]
ASC East, Inc. and Subsidiaries
Part I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Statement of Operations
(In thousands, except share and per share amounts)
For the three months ended
October 26, 1997 October 27, 1996
(unaudited) (unaudited)
Net revenues:
Resort $ 13,655 $ 11,728
Real estate 810 1,569
Total net revenues 14,465 13,297
Operating expenses:
Resort 17,533 15,034
Real estate 925 1,032
Marketing, general and
administrative 6,540 4,792
Depreciation and amortization 1,450 1,527
Total operating expenses 26,448 22,385
Loss from operations (11,983) (9,088)
Interest expense 6,707 7,514
Net loss before benefit for
income taxes (18,690) (16,602)
Benefit for income taxes (7,289) (6,309)
Net loss $(11,401) $ (10,293)
Net loss per weighted average $ (11.66) $ (10.71)
(common share outstanding note 4)
Retained earnings, beginning
of the period 12,352 18,131
Net loss (11,401) (10,293)
Retained earnings, end of period $ 951 $ 7,838
See accompanying notes to condensed consolidated financial statements.
[PAGE]1
ASC East, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
(In thousands, except share and per share amounts)
October 26, 1997 July 27, 1997
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 4,574 $ 2,634
Restricted cash 3,079 2,812
Accounts receivable 4,174 3,801
Inventory 12,102 7,282
Prepaid expenses 2,326 1,579
Deferred tax assets 422 422
Total current assets 26,676 18,530
Property and equipment, net 253,279 242,617
Goodwill 10,595 10,664
Deferred financing costs 8,105 8,334
Long-term investments 3,380 3,507
Other assets 4,744 4,998
Real estate developed for sale 45,478 23,540
Due from affiliate - 1,260
Total Assets $352,257 $313,450
[PAGE]2
ASC East, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
(In thousands, except share and per share amounts)
October 26, 1997 July 27, 1997
(unaudited)
Liabilities and Shareholders' Equity
Current liabilities
Line of credit and current
portion of long-term debt $ 29,736 $ 33,248
Accounts payable and other 31,483 24,857
current liabilities
Deposits and deferred revenue 14,360 4,379
Demand note, shareholder 1,933 1,933
Due to affiliate 3,990 -
Total current liabilites 81,502 64,417
Long-term debt, excluding current 236,925 196,582
portion
Other long-term liabilities 8,022 7,813
Deferred income taxes 21,085 28,514
Total liabilities 347,534 297,326
Shareholders' Equity
Common stock of $.01 per share;
10,000,000 shares authorized
978,300 issued and outstanding. 10 10
Additional paid-in capital 3,762 3,762
Retained earnings 951 12,352
Total shareholders' equity 4,723 16,124
Total liabilities and shareholders'
equity $ 352,257 $ 313,450
See accompanying notes to condensed consolidated financial statements.
[PAGE]3
ASC East, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(In thousands)
For the three months ended
October 26, 1997 October 27, 1996
(unaudited) (unaudited)
Net loss $ (11,401) $(10,293)
Adjustments to reconcile net loss to
net cash (used in) provided by operating
activities:
Depreciation and amortization, 2,350 1,527
Deferred income taxes (7,429) (5,789)
Decrease (increase) in assets:
Restricted cash and investments held
in escrow (267) (177)
Accounts receivable (373) 71
Inventory (3,520) (562)
Prepaid expenses (747) (457)
Real estate developed for sale (21,938) -
Other current assets - 85
Other assets 155 904
Increase (decrease) in liabilities:
Accounts payable and other current 6,742 9,897
liabilities
Deposits and deferred revenue 9,981 7,136
Other long-term liabilities 209 -
Due to/from affiliate 5,250 -
Net cash flow (used in) provided by
operating activities (20,988) 2,342
Cash flows from investing activities:
Capital expenditures (11,175) (7,333)
Additions to assets held for resale - (3,285)
Payments for purchases of businesses - (2,492)
Long-term investments 127 (498)
Net cash used in investing activities $(11,048) $ (13,608)
[PAGE]4
ASC East, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows (continued)
(In thousands)
For the three months ended
October 26, 1997 October 27, 1996
(unaudited) (unaudited)
Cash flows from financing activities:
Net proceeds from senior credit facility $ 1,189 $ -
Payments of long-term debt (935) -
Deferred financing costs (50) -
Reductions on demand note shareholder - (621)
Proceeds from long-term debt 318 11,689
Proceeds from construction loan 33,453 -
Net cash provided by financing activities 33,975 11,068
Net increase (decrease) in cash and 1,939 (198)
cash equivalents
Cash and cash equivalents beginning 2,634 4,087
of period
Cash and cash equivalents, end of period $ 4,573 $ 3,889
See accompanying notes to condensed consolidated financial statements
(unaudited).
[PAGE]5
ASC East, Inc. and Subsidiaries
Notes to (Unaudited) Condensed Consolidated Financial Statements
1. General. In the opinion of the Company, the
accompanying unaudited condensed consolidated financial
statements contain all adjustments necessary to present fairly
the financial position of the Company as of October 26, 1997 and
July 27, 1997, the results of operations for the three months
ended October 26, 1997 and October 27, 1996, and the statement of
cash flows for the three months ended October 26, 1997 and
October 27, 1996. All adjustments are of a normal recurring
nature. The unaudited condensed consolidated financial
statements should be read in conjunction with the following notes
and the Company's consolidated financial statements in the Form
10-K filed with the Securities and Exchange Commission on October
30, 1997.
In addition, certain amounts in the accompanying October 27,
1996 condensed consolidated financial statements are amended from
the Form 10-Q as of and for the three month period ended October 27,
1996 filed on January 10, 1997. The Company intends to file a Form
10-Q/A no later than December 12, 1997 to reflect such changes.
The effect of such changes in the first quarter of fiscal 1997 has
an equal and offsetting effect on the Company's results of operations
for the three period ended January 26, 1997, and has no net effect on
the cumulative results of operations for the six month period
ended January 26, 1997 and for the year ended July 27, 1997.
2. Income Taxes. The benefit for taxes on income is based
on a projected annual effective tax rate of 39%. The net
deferred income tax liability includes the cumulative reduction
in current income taxes payable resulting principally from the
excess of depreciation reported for income tax purposes over that
reported for financial reporting purposes.
3. Seasonal Business. Results for interim periods are not
indicative of the results expected for the year due to the
seasonal nature of the Company's business which is the
development and operation of ski resorts.
4. Net Income per Common Share. Net income per common
share figures are based on the weighted average shares
outstanding during the first quarter of fiscal 1998 and 1997 of
978,300.
5. Acquisitions. The Company purchased the Pico Mountain
Ski Resort ("Pico") on December 9, 1996. This resort is located
in Sherburne, Vermont in close proximity to the Killington
resort. The purchase price of Pico was comprised of $2,909,000
in cash and $1,626,000 in present value of contingent liabilities
which are based upon the occurrence of certain future events
relating to the development and growth of the resort.
6. Reclassifications. Certain amounts in
the prior unaudited condensed consolidated financial statements
have been reclassed to conform to the current presentation.
7. Subsequent events. On November 6, 1997, the Company's
parent corporation, American Skiing Company ("Parent") completed
an initial public offering of its common stock and received total
proceeds of $265.5 million. The Parent subsequently invested
$35.6 million into the Company to purchase 98,965 shares of
common stock. The proceeds from the sale of stock to the Parent
will be used to retire the Company's 13 3/4% subordinated notes due
2007 the "Subordinated Notes". The early retirement of the
Subordinated Notes will result in an extraordinary loss of $4.4
million which will be incurred and reported in the second quarter
of fiscal 1998.
On November 12, 1997, the Company entered into a new senior
secured credit agreement . The new senior credit agreement
represents one component of a two-part, $215 million senior
credit facility established for the Parent, of which $75 million
is allocated to the Company. The Company is not obligated on the
second $140 million component. The Company's facility is,
however, guaranteed by the Parent. The existing credit
agreement was retired with proceeds from the new credit
agreement. Early retirement of the existing credit agreement
will result in an extraordinary loss of $1,628,000 in the
second quarter of fiscal 1998.
8. Guarantors of Debt. The 12% Senior Subordinated Notes
and Subordinated Notes are fully and unconditionally guaranteed
by the Company and all of its subsidiaries with the exception of
Grand Summit Resort Properties, Inc., SKI Insurance Company,
Killington West, Ltd., Mountain Water Company and Club Sugarbush,
Inc., (the "Non-Guarantors"). Prior to the Acquisition and
issuance of the Notes and Subordinated Notes on June 28, 1996,
the bank loan agreements were collateralized by virtually all of
the assets of the companies comprising the Company. The
guarantor subsidiaries are wholly-owned subsidiaries of the
Company and the guarantees are fully, unconditional, and joint
and several. The guarantor information for the quarter ended
October 26, 1997, is as follows:
[PAGE]6
<TABLE>
Statement of Operations for the three months ended October 26, 1997
(In thousands)
<CAPTION>
Non-
Guarantor Guarantor Eliminating Consolidated Total
ASC East Subsidiaries Subsidiaires Entries ASC East
<S> <C> <C> <C> <C> <C>
Net revenues:
Resort $ 759 $ 12,807 $ 422 $ (333) $ 13,655
Real estate - 330 480 - 810
Total net revenues 759 13,137 902 (333) 14,465
Operating expenses:
Resort 355 17,121 390 (333) 17,533
Real estate - 233 692 - 925
Marketing, general
and administrative 1,932 4,606 2 - 6,540
Depreciation and
amortization 447 1,001 2 - 1,450
Total operating expenses 2,734 22,961 1,086 (333) 26,448
Loss from operations (1,975) (9,824) (184) - (11,983)
Interest expense 5,897 704 106 - 6,707
Net loss before
benefit for income taxes (7,872) (10,528) (290) - (18,690)
Benefit for income taxes (2,965) (4,211) (113) - (7,289)
Net loss $(4,907) $(6,317) (177) $ - (11,401)
</TABLE>
[PAGE]7
ASC East, Inc. and Subsidiaries
<TABLE>
Balance Sheet as of October 26, 1997
(in thousands)
<CAPTION>
Non- Consolidated
Guarantor Guarantor Eliminating Total
ASC East Subsidiaries Subsidiaries Entries ASC East
<S> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 18 $ 1,362 $ 3,193 - $ 4,573
Restricted cash - 624 2,455 - 3,079
Accounts receivable 383 3,560 1,515 (1,284) 4,174
Inventory 391 11,711 - - 12,102
Prepaid expenses 388 1,361 577 - 2,326
Deferred tax assets - 422 - - 422
Investment in subsidiaries 120,118 138,800 - (258,918) -
Total current assets 121,298 157,840 7,740 (260,202) 26,676
Property and equipment, net 2,309 247,193 3,777 - 253,279
Goodwill 10,595 - - - 10,595
Deferred financing costs 8,105 - - - 8,105
Long-term investments - - 3,380 - 3,380
Other assets - 4,744 - - 4,744
Real estate developed for sale - 1,394 44,084 - 45,478
Total assets $142,307 411,171 58,981 (260,202) 352,257
Liabilities and Shareholders'
Equity
Current liabilities
Line of credit and current
Portion of long-term debt $ 25,255 $ 3,831 $ 650 - 29,736
Accounts payable and other
current liabilities 6,192 25,487 1,096 (1,292) 31,483
Deposits and deferred Revenue 730 11,164 2,466 - 14,360
Demand note, shareholder - 1,933 - - 1,933
Due to affiliate (52,236) 72,677 (16,451) - 3,990
Total Current Liabilities (20,059) 115,092 (12,239) (1,292) 81,502
Long-term debt, excluding
current portion 170,753 29,057 37,115 - 236,925
Other long-term liabilities 298 3,536 4,188 - 8,022
Deferred income taxes (11,668) 33,635 (882) - 21,085
Total liabilities 139,324 181,320 28,182 (1,292) 347,534
Shareholders' Equity
Common stock 10 181 2 (183) 10
Additional paid-in capital 3,762 209,876 30,383 (240,259) 3,762
Retained earnings (789) 19,794 414 (18,468) 951
Total shareholders' equity 2,983 229,851 30,799 (258,910) 4,723
Total liabilities and
Shareholders' equity $142,307 $ 411,171 $ 58,981 (260,202) 352,257
</TABLE>
[PAGE]8
Statement of Cash Flows for the three months ended October 26, 1997
(In thousands)
<TABLE>
Non- Consolidated
Guarantor Guarantor Eliminating Total
ASC East Subsidiaries Subsidiaries Entries ASC East
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss $ (4,907) $ (6,317) $ (177) $ - $ (11,401)
Adjustments to reconcile
net loss to net cash
(used in) provided by
operating activities
Depreciation and
amortization 1,285 1,063 2 - 2,350
Deferred income taxes (2,965) (4,211) (253) - (7,429)
Decrease (increase) in
assets
Restricted cash - (250) (17) - (267)
Accounts receivable (243) 3 (464) 331 (373)
Inventory (107) (3,413) - - (3,520)
Prepaid expenses (20) (772) 45 - (747)
Real estate developed for
sale - (472) (21,466) - (21,938)
Other assets 250 (95) - - 155
Increase (decrease) in
liabilities
Accounts payable and
other current 4,110 7,542 (4,579) (331) 6,742
liabilities
Deposits and deferred
revenue 192 9,780 9 - 9,981
Other long-term liabilities (194) 413 (10) - 209
Due to/from affiliate 2,441 7,517 (4,708) - 5,250
Net cash flows (used in)
provided by operating
activities (158) 10,788 (31,618) - (20,988)
Cash flows from
investing activities:
Capital expenditures (981) (10,194) - - (11,048)
Long-term investments - - 127 - 127
Cash flows used in provided
by for investing activities (981) (10,194) 127 - (11,048)
Cash flows from
financing activities:
Net proceeds from
senior credit facility 1,189 - - _ 1,189
Payments of long-term debt - (931) (4) - (935)
Deferred financing costs (50) - - - (50)
Proceeds from long-term debt - 318 - - 318
Proceeds from construction
loan - - 33,453 - 33,453
Cash flows provided by (used
in) for financing activities 1,139 (613) 33,449 - 33,975
Net (decrease) increase
in cash and cash equivalents - (19) 1,958 - 1,939
Cash and cash equivalents,
beginning of period 18 1,381 1,235 - 2,634
Cash and cash equivalents,
end of period 18 1,362 3,193 - 4,573
</TABLE>
[PAGE]9
ASC East, Inc. and Subsidiaries
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
Set forth below is management's discussion and analysis of
(i ) the liquidity and capital resources of the Company (ii)
changes in financial condition of the Company, from the end of
the 1997 fiscal year through the quarter ended October 26, 1997,
and (iii) the results of operations for the first quarter of
fiscal 1998 as compared to the corresponding quarter of fiscal
1997.
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 of its subsidiaries, borrowings
under the Company's senior credit facility and equity infusion
from the Parent. Capital expenditures associated with real
estate development are funded through construction financing
facilities established for each major real estate development
project.
The Company established a New Credit Facility on November
12, 1997 (the "New Credit Facility"). As of October 26, 1997
there was $56 million outstanding under the prior credit
facility, leaving availability under the facility of $5 million.
The New Credit Facility is a portion of a combined facility
provided to and guaranteed by the Parent. The Company's
obligations under the senior credit facility are limited to the
$75 million portion of the facility available to the Company.
The financial convents (excepting the leverage test) are,
however, applied on a consolidated basis with the Parent. The
New Credit Facility for the Company consists of a six year revolving
credit facility in the amount of $45 million and an eight year term
facility in the amount of $30 million. The New Credit Facility
facility will be subject to an annual 30 day clean down requirement
to an outstanding balance of not more than the available revolving
credit amount in effect at such time less $25 million. For the
year ended July 26, 1998 the clean down requirement will be an
outstanding balance of not more than $10 million. The maximum
availability under the revolving facility will reduce over the
term of the facility by certain prescribed amounts. The term
facility amortizes at a rate of approximately 1.0% of the
principal amount for the first six years with the remaining
[PAGE]10
ASC East, Inc. and Subsidiaries
portion of the principal due in two substantially equal
installments in years seven and eight.
Beginning in July 1999, the New Credit Facility is expected
to require certain mandatory prepayments from excess cash flows.
In no event, however, will such mandatory prepayments reduce the
Company's revolving facility commitment below $35 million. The
New Credit Facility is expected to be secured by substantially
all the assets of the Company, except Grand Summit Resort
Properties, Inc., which is not a borrower under the New Credit
Facility. The New Credit Facility is expected to contain
affirmative, negative and financial covenants customary for this
type of senior credit facility including maintenance of customary
financial ratios. Compliance with financial covenants will be
determined on a consolidated basis notwithstanding the
bifurcation of the New Credit Facility into facilities for the
Company and the Parent's other subsidiaries, with the exception
of a leverage test.
The Company's principal real estate development projects,
Grand Summit Hotels at its Sunday River, Attitash/Bear Peak,
Killington and Mount Snow resorts ("Projects") are undertaken
through an unrestricted subsidiary of the Company, Grand Summit
Resort Properties, Inc. The projects have been financed through a
construction loan facility entered into on August 1, 1997. The
construction loan facility is not an obligation of the Company.
Recourse on this facility is limited to its Grand Summit Resort
Properties, Inc. subsidiary. The facility is a customary
construction lending facility allowing for periodic draw down as
construction progresses. Each advance is subject to certain
conditions, including Grand Summit Resort Properties, Inc.
subsidiary obtaining certain levels of preconstruction sales.
Interest on the loan will accrue at the prime rate established by
Chase Manhattan Bank as of the first day of each month, plus
1.5%, but will not accrue at less than 9.25% per annum. The loan
will be secured by (i) a first mortgage on the hotel resort
properties, (ii)any interests that the Company may have in
purchased quartershare units, including sales contracts, and
(iii) security interests in substantially all the assets of Grand
Summit Resort Properties, Inc. Interest on the loan is due and
payable monthly in arrears. Principal will be repaid on the
following basis: (i) as quartershare sales close at the Attitash
project for an amount equal to 85% of the sales proceeds payable
in connection with the sale; (ii) as quartershare sales close at
the Jordan Bowl, Killington and Mount Snow projects, an amount
equal to 80% of the sales proceeds payable in connection with
the sale; (iii) an amount equal to the rental payments received
by the Grand Summit Resort Properties, Inc. subsidiary from the
Company for the lease of the Projects (aggregating $193,000 per
month); and (iv) other amounts upon the aggregate of original or
outstanding advances exceeding certain construction costs and
quartershare sales levels; provided, however, that the
construction loan facility will mature at the end of December,
[PAGE]11
ASC East, Inc. and Subsidiaries
2000. This facility has been used to fund the $21.9 million
capital expenditures related to project construction. With a
total availability of $55 million it is anticipated that this
facility, together with funds invested by the Company, will be
sufficient to fund the projects under construction.
The Parent, American Skiing Company, closed on its initial
public offering on November 12, 1997 and purchased common stock
in the Company in the amount of approximately $35.6 million. The
proceeds will be use to redeem the Company's 13 /% subordinated
discount notes due 2007 for an aggregate redemption price of
approximately $27.7 million. These notes will be redeemed on
December 30, 1997. The proceeds were also used to repay
approximately $7.7 million of a subsidiary's outstanding debt in
connection with the closing of the Parent's initial public
offering .
During the first quarter of fiscal 1998 the Company used
$21.0 million for operations, including $21.9 million which was
used for the construction of the Projects, which are classified
as real estate developed for resale. The estimated completion
dates on these hotels will be the second and third quarter of
fiscal 1998. Net cash from operations excluding the Project
construction expenditures, was a positive $.9 million.
Management believes cash flow from second and third quarter
operations, combined with borrowings under its senior credit
facility, will be sufficient to meet its operating and capital
requirements for the remainder of fiscal 1998 and the first and
second quarter of fiscal 1999.
Management Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis of the financial
condition and results of operations of the Company should be read
in conjunction with the July 27, 1997 Form 10-K and the
consolidated financial statements as of July 27, 1997 and
October 26, 1997, and for the three month period ended October
26, 1997 and October 27, 1996, included in Part 1 of the Form 10-
Q, which provide additional information regarding financial
condition and operating results.
Changes in Results of Operations
Changes for the First Quarter of Fiscal 1998 compared to the
First Quarter of Fiscal 1997.
1. Resort Revenues. Resort revenues increased $1.9
million (16.4%) from $11.7 million for the quarter ended October
27, 1996 to $13.6 million for the quarter ended October 26, 1997.
This increase resulted primarily from: (i) $1.2 million increase
[PAGE]12
ASC East, Inc. and Subsidiaries
in retail sales from the purchase of two retail operations with
locations in Vermont, New Hampshire, and Maine; (ii) $.3 million
increase from the operation of the Attitash/Bear Peak Grand
Summit Hotel, which was not completed until April, 1997; and
(iii) $.4 million increase from the existing operations of the
Company.
2. Real Estate Revenues Real estate revenues decreased
from $1.6 million for the quarter ended October 27, 1996 to $.8
million for the quarter ended October 26, 1997, a decreased of
$.8 million or 48.4%. $1.6 million of the decrease was
attributable to a reduction in sales of Locke Mountain townhouses
at Sunday River Ski Resort as that project nears completion. Six
units were sold in the first quarter of fiscal 1997 at an average
price of $261,000, while no units were closed in the first
quarter of fiscal 1998. It is anticipated the conclusion of that
project will result in 12 townhouses being constructed and closed
in fiscal 1998 the same number as in fiscal 1997. In the first
quarter of fiscal 1998, the Company sold $.5 million of the
Attitash/Bear Peak Grand Summit Hotel quarter share units. The
hotel was completed in April 1997 and therefore no units were
sold in the first quarter of fiscal 1997.
3. Cost of Resort Operations. Cost of resort operations
increased from $15 million for the quarter ended October 27, 1996
compared to $17.5 million for the quarter ended October 26, 1997,
a $2.5 million increase or 16.6%. This increase resulted
primarily from: (i) $1.4 million increase in costs related to
new retail operations which include certain costs associated with
the start up of the new retail locations; (ii) $.4 million of
costs related to the operation of the Attitash/Bear Peak Grand
Summit Hotel and: (iii) $.7 million increase from the existing
operations of the Company.
4. Cost of Real Estate Operations Cost of real estate
operations decreased from $1.0 million for the quarter ended
October 27, 1996 to $.9 million for the quarter ended October 26,
1997. The decrease is primarily attributable to the difference
in sales between the two periods and the operational costs of
Grand Summit Resort Properties, Inc..
5. Marketing, General and Administrative Marketing,
general and administrative costs increased from $4.8 million for
the quarter ended October 27, 1996 to $6.5 million for the
quarter ended October 26, 1997, a $1.7 million increase or 36.5%.
The primary reason for the increase was the establishment of ASC
corporate offices, increased costs associated with coordinating
the activities of the various resorts and increased marketing
costs associated with the new Edge card program and direct to
lift access.
6. Interest Expense. Interest expense decreased $.8
million from the first quarter of fiscal 1997 compared to the
first quarter of fiscal 1998. The decrease is primarily due to
[PAGE]13
ASC East, Inc. and Subsidiaries
prepayment penalties incurred in the first Quarter of fiscal 1997
for the repayment of certain long-term debt.
Changes in Financial Condition
October 26, 1997 Compared to July 27, 1997
1. Cash and Cash Equivalents. Cash and cash equivalents
increased $1.9 million. This increase was attributable to the
timing of funding the Company's Grand Summit Resort Properties,
Inc. subsidiary's construction projects. Grand Summit Resort
Properties, Inc.'s construction financing facility supplies cash
that is temporarily held for deposit before the funds are
disbursed for construction costs.
2. Inventory. Inventory increased $4.8 million, an
increase of approximately 66% from July 27, 1997. Approximately
$4.2 million of the increase was attributable primarily to the
Company increasing its retail operations: (i) the addition of a
retail location at the base of the Killington resort; (ii) the
purchase of a retail business that includes stores in North
Conway, New Hampshire and Freeport, Maine; and (iii) the
development of retail stores at several of its resorts. The
remainder of the increase in inventory is attributable to the
Company's normal operating cycle as its resorts prepare for the
ski season.
3. Prepaid Expenses. Prepaid expenses increased $.7
million which is due to the normal operating cycle of the
Company.
4. Property & Equipment. Property and equipment, net
increased $10.7 million from July 27, 1997. The increase in
property and equipment is attributable to the Company's
significant commitment to capital improvements at all its
resorts. The improvements include several new lifts, significant
upgrades in snowmaking at certain resorts, and many other
improvements for the 1997/1998 and future ski seasons.
5. Real Estate Developed for Resale. Real estate developed
for resale increased approximately $22 million. The increase is
attributable primarily to the construction of three Grand Summit
hotels at the Company's Killington, Mount Snow, and Sunday River
resorts. The hotels are expected to begin operations during the
1997/1998 ski season.
6. Current Portion of Long-term Debt. Current portion of
long-term debt decreased $3.5. The decrease is due to $4.5
million of current debt related to the construction of the
Attitash Grand Summit hotel that was repaid subsequent to July
27, 1997.
7. Accounts Payable and Accrued Expenses. Accounts
payable and accrued expenses increased $6.6 million, or 26.7% at
[PAGE]14
ASC East, Inc. and Subsidiaries
October 26, 1997 as compared to July 27, 1997. The increase in
accounts payable and accrued expenses was due to: (i) an
approximate $7.3 million increase in short term payables due to
capital projects and preparation for the ski season; (ii) an
increase in accrued interest of $3.6 million related to the
Company's 12% senior subordinated debentures, and; (iii) a
decrease of $4.5 million related to the timing of construction
contract billings for the Projects.
8. Deposits and Deferred Revenues. Deposits and deferred
revenues increased approximately $10 million, or 228% at October
26, 1997 as compared to July 27, 1997. The increase in deferred
revenues is attributable primarily to pre-season sales of season
passes and multiple day ticket products for the 1997/1998 ski
season. The remainder of the increase is due to lodging deposits
for the 1997/1998 ski season.
9. Due to Affiliate. Due to affiliate increased $5.2
million. This advance was from the Parent American Skiing
Company and was primarily used for operations and capital
investment at the Company. The majority of the increase is due
to an advance of $4.1 million to Grand Summit Resort Properties,
Inc. for hotel construction. The remaining $1.1 million was
advanced to Company and used for capital and operations.
10. Long-term Debt. Long-term debt increased $40.3 million,
or 21% at October 26, 1997 as compared to July 27, 1997. The
increase in long-term debt is principally attributable to: (i)
$37.1 drawn down under the Grand Summit Resort Properties, Inc.
construction loan facility to fund Project construction; (ii) a
new $1 million note established in connection with Killington's
purchase of its new retail operation; and (iii) $.9 million of
original issue discount amortization on the senior and junior
subordinated debentures. The remaining increase is attributable
to the increase in the Company's senior credit facility for
normal operating purposes.
11. Deferred Income Taxes. Deferred income taxes decreased
$7.4 million which is attributable to the Company's income tax
benefit generated by the loss incurred during the months ended
October 26, 1997.
12. Retained Earnings. Retained earnings decreased $11.4
million representing the Company's net loss for the three months
ended October 26, 1997.
[PAGE]15
Part II - Other Information
Item 2 Changes in Securities
In conjunction with the Parent's initial public offering,
the Company amended the terms of its 12% Senior Subordinated
Notes due 2006 to permit the consummation of the offering without
requiring the Company to make a "Change of Control Offer" as
defined in the indenture relating to the notes. The amendment
was effected through a successful solicitation of consent of
bondholders to the amendment.
Item 6
Exhibits
Included herewith is the Financial Data Schedule submitted
as Exhibit 27 in accordance with Item 601(c) of Regulation S-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ASC EAST, INC.
Date: December 10, 1997 /s/ Thomas M. Richardson
Thomas M. Richardson
Senior Vice President Finance
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: December 10, 1997 /s/ Christopher E. Howard
Christopher E. Howard
Chief Administrative Officer and
General Counsel
(Duly Authorized Officer)
PAGE[16]
Item 2 Exhibit 4
[FIRST] SUPPLEMENTAL INDENTURE (the "Supplemental
Indenture"), dated as of ________ __, 1997, between ASC East,
Inc., a Maine corporation (the "Company") and United States Trust
Company of New York, a New York banking corporation, as trustee
under the Indenture referred to below (the "Trustee").
W I T N E S S E T H:
WHEREAS, pursuant to the Indenture (the "Original
Indenture"), dated as of June 28, 1996 between ASC East, Inc. and
the Trustee, the Company duly issued its 12% Senior Subordinated
Notes Due 2006 (the "Securities"), in the aggregate principal
amount of $120 million;
[WHEREAS, the Original Indenture has been supplemented
by the First Supplemental Indenture dated as of _________________
among ASC East, Inc., the Company and the Trustee and the Second
Supplemental Indenture dated as of _________________ between the
Company and the Trustee (as so supplemented, the "Indenture");]
[WHEREAS, in accordance with the Indenture, the Company
has obtained the written consent of the Holders of a majority in
principal amount of the Securities to certain amendments to the
Indenture;]
NOW, THEREFORE, for and in consideration of the
premises, it is mutually covenanted and agreed for the benefit of
all Holders of the Securities as follows:
SECTION 1. (a) (i) The definition of "Permitted
Holders" in Section 1.01 is hereby amended by deleting the
definition in its entirety and substituting the following
therefor:
"Permitted Holders" means (i) Leslie B. Otten (or, in
the event of his incompetence or death, his estate and his
estate's heirs, executor, administrator, committee or other
representative (collectively, "Heirs")), (ii) any Person in which
Leslie B. Otten and his Heirs, directly or indirectly, (A) have
an 80% controlling interest, or (B) own Capital Stock having
voting power to elect at least a majority of the Board of
Directors of such Person and (iii) any Person with a class of
stock registered under Section 12(b) or Section 12(g) of the
Exchange Act in which Leslie B. Otten and his Heirs, directly or
indirectly, own Capital Stock representing an aggregate of at
least 25% of the combined voting power of all outstanding Capital
Stock of such Person.
SECTION 2. The Trustee accepts this Supplemental
Indenture and agrees to execute the trust created by the
Indenture as hereby supplemented upon the terms and conditions
set forth in the Indenture, including the terms and provisions
defining and limiting the liabilities and responsibilities of the
Trustee, which terms and provisions shall in like manner define
and limit its liabilities and responsibilities in the performance
of the trust created by the Indenture as hereby supplemented.
SECTION 3. The Indenture, supplemented as hereinabove
set forth, is in all respects ratified and confirmed, and the
terms and conditions thereof, supplemented as hereinabove set
forth, shall be and remain in full force and effect.
SECTION 4. The recitals contained in this Supplemental
Indenture shall be taken as the statements of the Company, and
the Trustee shall have no liability or responsibility for their
correctness.
SECTION 5. This Supplemental Indenture shall become
effective upon the execution and delivery hereof by the Company
and the Trustee.
SECTION 6. THIS SUPPLEMENTAL INDENTURE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION
OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
[PAGE]
SECTION 7. This Supplemental Indenture may be signed
in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
SECTION 8. Capitalized terms not otherwise defined
herein are defined as set forth in the Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed as of the date first
above written.
ASC EAST, INC.
By:___________________________
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By:___________________________
Name:
Title:
HA2 85745.1 01736 00422
12/10/97 3:37 pm 3<PAGE>
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