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 JANUARY 25, 1998
_____________________________
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
incorporation or organization) Identification No.)
P.O. Box 450 04217
Bethel, Maine
(Address of principal executive office) (Zip Code)
(207) 824-5196
(Registrant's telephone number, including area code)
Original 10Q filed under American Skiing Company
(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 978,300 shares of common stock $.01 par value
outstanding as of March 11, 1998.
[PAGE]
ASC East, Inc. and Subsidiaries
Table of Contents
Part I Financial Information........................ 1
Item 1 Financial Statements ........................ 2
Condensed Consolidated Statement of Operations
(Unaudited) for the Three Months Ended
January 25, 1998 and January 26, 1997.......... 2
Condensed Consolidated Statement of Operations
(Unaudited) for the Six Months Ended January 25,
1998 and January 26, 1997...................... 4
Condensed Consolidated Balance Sheet (Unaudited)
as of January 25, 1998 and July 27, 1997....... 6
Condensed Consolidated Statement of Cash
Flows(Unaudited) for the Six Months Ended
January 25, 1998 and January 26, 1997.......... 8
Notes to (Unaudited) Condensed Consolidated
Financial Statements........................... 10
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 16
General........................................ 16
Liquidity and Capital Resources................ 16
Changes in Results of Operations............... 21
Changes in Financial Condition................. 23
Part II Other Information........................... 26
i[PAGE]
ASC East, Inc. and Subsidiaries
Part I - Financial Information
Item 1
Financial Statements
This Form 10 Q is filed by ASC East, Inc. 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. AJT, Inc. (f/k/a Cranmore, Inc.)
S-K-I Limited Pico Ski Area Management
Killington, Ltd. Deerfield Operating Company
Mount Snow, Ltd. Sugartech
Sugarloaf Mountain Corporation Resort Technologies, Inc.
Killington Restaurants, Inc. Mountainside Corporation
Dover Restaurants, Inc. Resort Software Services, Inc.
WVSAL, Inc. (f/k/a Waterville
Valley Ski Area, Ltd.)
As used herein, the term "the Company" means and refers to ASC
East, Inc., the subsidiary registrants listed above and its non-
guarantor wholly-owned subsidiaries Ski Insurance Company, Mountain
Water Company, Club Sugarbush, Inc., Grand Summit Resort Properties,
Inc., and Killington West, Ltd. on a consolidated basis.
1[PAGE]
ASC East, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations
(in thousands except share and per share amounts)
For the Three Months Ended
January 25, January 26,
1998 1997
(Unaudited) (Unaudited)
Net revenues:
Resort $70,849 $59,418
Real estate 7,890 1,740
--------------------------
Total net revenues 78,739 61,158
Operating expenses:
Resort 44,202 38,995
Real estate 5,223 935
Marketing, general and
administrative 7,256 7,709
Depreciation & amortization 8,151 7,344
--------------------------
Total operating expenses 64,832 54,983
--------------------------
Income from operations 13,907 6,175
Interest expense 5,345 5,557
--------------------------
Income before provision for income
taxes 8,562 618
Provision for income tax expense 3,340 235
Net income from continuing
operations 5,222 383
Extraordinary loss, net of income
tax benefit of $2,854 4,464 -
--------------------------
Net income $758 $383
==========================
Retained earnings, beginning of
the period $951 $7,838
Add: Net income 758 383
--------------------------
Retained earnings, end of period $1,709 $8,221
==========================
2[PAGE]
ASC East, Inc. and Subsidiaries
For the Six Months Ended
January 25, January 26,
1998 1997
(Unaudited) (Unaudited)
Earnings per common share -
basic and diluted:
Income from continuing
operations $5.34 $0.39
Extraordinary loss ($4.56) -
Net income $0.78 $0.39
See accompanying Notes to (Unaudited) Condensed Consolidated
Financial Statements.
3[PAGE]
ASC East, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations
(in thousands except share and per share amounts)
For the Six Months Ended
January 25, January 26,
1998 1997
(Unaudited) (Unaudited)
Net revenues:
Resort $84,504 $71,146
Real estate 8,700 3,309
--------------------------
Total net revenues 93,204 74,455
Operating expenses:
Resort 61,735 54,029
Real estate 6,148 1,967
Marketing, general and
administrative 13,796 12,501
Depreciation & amortization 9,601 8,871
--------------------------
Total operating expenses 91,280 77,368
--------------------------
Income (loss) from operations 1,924 (2,913)
Interest expense 12,052 13,071
--------------------------
Loss before benefit for income
taxes (10,128) (15,984)
Benefit for income tax expense (3,949) (6,074)
--------------------------
Net loss from continuing
operations (6,179) (9,910)
Extraordinary loss, net of income
tax benefit of $2,854 4,464 -
--------------------------
Net loss $(10,643) $(9,910)
==========================
Retained earnings, beginning of
the period $12,352 $18,131
Add: Net loss (10,643) (9,910)
--------------------------
Retained earnings, end of period $1,709 $8,221
==========================
4[PAGE]
ASC East, Inc. and Subsidiaries
For the Six Months Ended
January 25, January 26,
1998 1997
(Unaudited) (Unaudited)
Earnings per common share -
basic and diluted:
Loss from continuing operations ($6.32) ($10.13)
Extraordinary loss ($4.56) -
Net loss ($10.88) ($10.13)
See accompanying Notes to (Unaudited) Condensed Consolidated
Financial Statements.
5[PAGE]
ASC East, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
(in thousands)
January 25, July 27, 1997
1998
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $8,222 $2,634
Restricted cash 3,505 2,812
Accounts receivable 9,396 3,801
Inventory 13,746 7,282
Prepaid expenses 2,389 1,579
Deferred tax assets 770 422
--------------------------
Total current assets 38,028 18,530
Property and equipment, net 265,844 242,617
Real estate developed for sale 65,388 23,540
Long-term investments 2,432 3,507
Goodwill 19,011 10,664
Deferred financing costs 7,081 8,334
Other assets 4,622 4,998
--------------------------
Total assets $402,406 $312,190
==========================
See accompanying Notes to (Unaudited) Condensed Consolidated
Financial Statements.
6[PAGE]
ASC East, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
(in thousands)
January 25, 1998 July 27, 1997
(Unaudited)
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Line of credit and current
portion of long-term debt $24,704 $33,248
Accounts payable and other
current liabilities 36,675 25,738
Deposits and deferred
revenue 19,010 4,379
Due to (from) affiliate 14,657 (1,260)
Due to shareholder 1,933 1,933
--------------------------
Total current liabilities 96,979 64,038
Long-term debt 97,621 46,833
Subordinated notes and
debentures 127,867 149,749
Deferred income taxes 21,919 28,514
Other long-term liabilities 7,405 6,932
--------------------------
Total liabilities 351,791 296,066
Shareholders' equity
Common stock 10 10
Paid in capital 48,896 3,762
Retained earnings 1,709 12,352
--------------------------
Total shareholders' equity 50,615 16,124
--------------------------
Total liabilities and
shareholders' equity $402,406 $312,190
=========================
See accompanying Notes to (Unaudited) Condensed Consolidated
Financial Statements.
7[PAGE]
ASC East, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(in thousands)
For the Six Months Ended
January 25, January 26,
1998 1997
Cash flows from operating (Unaudited) (Unaudited)
activities
Net loss $(10,643) $(9,910)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 9,601 8,871
Deferred income taxes (6,943) 363
Decreases (increases) in assets:
Investments held in escrow and
restricted cash (693) 7,240
Accounts receivable (5,595) (489)
Income taxes receivable - (6,074)
Inventory (6,464) (1,703)
Prepaid expenses (810) (247)
Real estate developed for sale (41,848) -
Other current assets - 723
Other assets 376 197
Increases (decreases) in liabilities:
Accounts payable and other current
liabilities 10,937 20,333
Deposits and deferred revenue 14,631 8,892
Due to affiliate 15,917 -
Other long-term liabilities 473 -
--------------------------
Net cash flow provided by (used
in) operating activities (21,061) 28,196
8[PAGE]
ASC East, Inc. and Subsidiaries
For the Six Months Ended
January 25, 1998 January 26, 1997
(Unaudited) (Unaudited)
Cash flows from investing activities:
Assets held for resale - 14,921
Additions to property and
equipment (32,166) (18,351)
Purchase of ski resort
minority interest - (2,492)
Sale (purchase) of long-term
investment 1,075 (2,582)
Net cash used in investing --------------------------
activities (31,091) (8,504)
Cash flows from financing activities:
Reductions in note payable to
shareholder - (621)
Proceeds from construction loan 50,432 -
Proceeds from term loan 30,000 -
Proceeds from revolving line of
credit 25,676 -
Repayment of revolving line of
credit (59,623) -
Proceeds from capital
contribution from ASC 36,650 -
Repayment of subordinated debt (21,882) -
Reductions to long-term debt
(3,513) (19,717)
--------------------------
Net cash provided by (used in)
financing activities 57,740 (20,338)
Net increase (decrease) in cash and
cash equivalents 5,588 (646)
Cash and cash equivalents at
beginning of period 2,634 4,087
--------------------------
Cash and cash equivalents at end
of period $8,222 $3,441
==========================
See accompanying Notes to (Unaudited) Condensed Consolidated
Financial Statements.
9[PAGE]
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 January 25, 1998, and July 27, 1997, the results of
operations for the quarter and six months ended January 25, 1998 and
January 26, 1997, and the statement of cash flows for the six months
ended January 25, 1998 and January 26, 1997. 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 consolidated financial statements in the Company's Form
10K filed with the Securities and Exchange Commission on October 30,
1997.
2. Income Taxes. The provision for income taxes is based on a
projected annual effective tax rate of 39%. Deferred income taxes
include 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 ownership and operation of
ski resorts.
4. Net Income per Common Share. Effective January 25, 1998, the
Company adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standard No. 128, "Earnings
Per Share" (SFAS 128). SFAS 128 specifies the computation,
presentation and disclosure requirements for earnings per share for
public entities. Earnings per share for the three-month and six-month
periods ended January 25, 1998 and January 26, 1997 were determined as
follows:
(in thousands) Three Months Ended Six Months Ended
January 25 January 26 January 25 January 26
Income 1998 1997 1998 1997
-----------------------------------------------
Net income (loss) $5,222 $383 ($6,179) ($9,910)
Extraordinary loss (4,464) - (4,464) -
-----------------------------------------------
Net income (loss)
available to common
shareholders 758 383 (10,643) (9,910)
===============================================
10[PAGE]
ASC East, Inc. and Subsidiaries
For the Six Months Ended
(in thousands) Three Months Ended Six Months Ended
January 25 January 26 January 25 January 26
Income 1998 1997 1998 1997
-----------------------------------------------
Shares
Weighted-average
common shares
outstanding - basic 978 978 978 978
and diluted
===============================================
5. Adjustments and Reclassifications. Certain amounts in the
prior unaudited condensed consolidated financial statements have been
reclassified to conform to the current presentation.
6. Guarantors of Debt. The 12% Senior 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, Killington West, Ltd., Mountain Water Company,
and Club Sugarbush, Inc., (the non-guarantors). The guarantor
subsidiaries are wholly-owned subsidiaries of the company and the
guarantees are full, unconditional, and joint and several. The
guarantor information for the period ended January 25, 1998, is as
follows:
<TABLE>
Statement of operations for the six months ended January 25, 1998
(in thousands)
<CAPTION>
ASC East Guarantor Non-Guarantor Eliminating Consolidated
Subsidiaries Subsidiaries Entries ASC East
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues:
Resort $2,815 $81,438 $953 $(702) $84,504
Real estate - 722 7,978 - 8,700
-----------------------------------------------------------------------
Total net revenues 2,815 82,160 8,931 (702) 93,204
Operating expenses:
Resort 1,127 60,268 1,042 (702) 61,735
Real estate - 466 5,682 - 6,148
Marketing, general
and administrative 1,932 11,853 11 - 13,796
Depreciation and
amortization 828 8,769 4 - 9,601
-----------------------------------------------------------------------
Total operating expenses 3,887 81,356 6,739 (702) 91,280
Income (loss) from (1,072) 804 2,192 - 1,924
operations
Interest expense 8,415 4,124 (487) - 12,052
-----------------------------------------------------------------------
Income (loss) before
benefit for income (9,487) (3,320) 2,679 - (10,128)
taxes
Benefit for income (3,124) (1,421) 596 - (3,949)
taxes
-----------------------------------------------------------------------
Net income (loss)
from continuing (6,363) (1,899) 2,083 - (6,179)
operations
Extraordinary loss 4,266 198 - - 4,464
-----------------------------------------------------------------------
Net income (loss) $(10,629) $(2,097) $2,083 - (10,643)
</TABLE>
11[PAGE]
ASC East, Inc. and Subsidiaries
Balance Sheet at January 25, 1998
(in thousands)
<TABLE>
<CAPTION>
ASC East Guarantor Non-Guarantor Eliminating Consolidated
Subsidiaries Subsidiaries Entries ASC East
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash
equivalents $18 $6,231 $1,973 $- $8,222
Restricted cash - 581 2,924 - 3,505
Accounts receivable 989 6,553 1,854 - 9,396
Inventory 204 13,542 - - 13,746
Prepaid expenses 499 817 1,073 - 2,389
Deferred tax assets - 422 348 - 770
-----------------------------------------------------------------------
Total current assets 1,710 28,146 8,172 - 38,028
Property and
equipment, net 3,314 258,779 3,751 - 265,844
Real estate
developed for sale - 2,961 62,427 - 65,388
Long-term investment - - 2,432 - 2,432
Goodwill 19,011 - - - 19,011
Deferred financing
costs 7,080 - 1 - 7,081
Other assets - 4,622 - - 4,622
Investment in
Subsidiaries 120,118 141,960 - (262,078) -
-----------------------------------------------------------------------
Total assets $151,233 $436,468 $76,783 $(262,078) $402,406
========================================================================
</TABLE>
12[PAGE]
ASC East, Inc. and Subsidiaries
<TABLE>
Balance Sheet at January 25, 1998
(in thousands)
<CAPTION>
ASC East Guarantor Non-Guarantor Eliminating Consolidated
Subsidiaries Subsidiaries Entries ASC East
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Line of credit and
current portion of long-term debt $21,000 $3,054 $650 $- $24,704
long-term debt
Accounts payable
and other current liabilities 2,475 32,798 1,432 (30) 36,675
Due to shareholder - 1,933 - - 1,933
Deposits and
deferred revenue 915 15,191 2,904 - 19,010
Due to affiliate (51,549) 83,143 (16,937) - 14,657
-----------------------------------------------------------------------
Total current liabilities (27,159) 136,119 (11,951) (30) 96,979
Long-term debt 33,358 13,774 50,489 97,621
Deferred income taxes (14,555) 36,299 175 21,919
Subordinated notes
and debentures 116,917 10,950 - - 127,867
Other long-term liabilities 298 3,300 3,807 - 7,405
-----------------------------------------------------------------------
Total liabilities 108,859 200,442 42,520 (30) 351,791
Shareholders' equity
Common stock 10 180 2 (182) 10
Paid in capital 48,876 213,037 30,383 (243,400) 48,896
Retained earnings (deficit) (6,512) 22,809 3,878 (18,466) 1,709
-----------------------------------------------------------------------
Total equity 42,374 236,026 34,263 (262,048) 50,615
-----------------------------------------------------------------------
Total liabilities and equity $151,233 $436,468 $76,783 $ (262,078) $402,406
=======================================================================
</TABLE>
13[PAGE]
ASC East, Inc. and Subsidiaries
<TABLE>
Statement of cash flows for the six month period ended January 25,1998
(in thousands)
<CAPTION>
ASC East Guarantor Non-Guarantor Elimination Consolidated
Subsidiaries Subsidiaries ASC East
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating
activities
Net income (loss) $(10,629) $(2,097) $2,083 $(10,643)
Adjustments to
reconcile net
income (loss) to
net cash provided
by (used in)
operating
activities:
Depreciation and
amortization 828 8,769 4 9,601
Deferred income taxes (5,852) (775) (316) (6,943)
Decreases (increases) in
assets:
Restricted cash - (208) (485) (693)
Accounts receivable (848) (2,986) (810) (951) (5,595)
Inventory 80 (6,544) - (6,464)
Prepaid expenses (133) (274) (403) (810)
Real estate
developed for sale - (2,040) (39,808) (41,848)
Other assets 349 27 - 376
Increases (decreases)
in liabilities:
Accounts payable and
other current liabilities 277 14,823 (4,141) (22) 10,937
Deposits and
deferred revenue 378 13,838 415 14,631
Due to affiliate 3,129 15,962 (3,011) (163) 15,917
Other long-term
liabilities (194) 1,059 (392) 473
-----------------------------------------------------------------------
Net cash flows
provided by (used
in) operating
activities (12,615) 39,554 (42,868) (1,136) (21,061)
Cash flows from
investing
activities:
Additions to
property and
equipment (1,987) (30,037) (142) (32,166)
Sale of long-term
investments - - 1,075 1,075
-----------------------------------------------------------------------
Cash provided by
(used in) investing
activities (1,987) (30,037) 933 (31,091)
</TABLE>
14[PAGE]
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
ASC East Guarantor Non-Guarantor Elimination Consolidated
Subsidiaries Subsidiaries ASC East
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
financing
activities:
Proceeds from
construction loan - - 50,423 50,432
Proceeds from term
loan 30,000 - - 30,000
Proceeds from
revolving line of
credit 25,676 - - 25,676
Repayment of
revolving line of
credit (59,623) - - (59,623)
Capital
contribution from
ASC 36,004 - - 646 36,650
Repayments of
subordinated debt (21,882) - - (21,882)
Additions
(reductions) to
long-term debt 4,427 (4,708) (3,722) 490 (3,513)
-----------------------------------------------------------------------
Net cash provided
by (used in)
financing
activities 14,602 (4,708) 46,710 1,136 57,740
Net increase
(decrease) in cash
and cash
equivalents - 4,809 779 - 5,588
Cash and cash
equivalents at the
beginning of the
period 18 1,422 1,194 - 2,634
-----------------------------------------------------------------------
Cash and cash
equivalents at the
end of the period $ 18 $6,231 $ 1,973 $ - $ 8,222
=======================================================================
</TABLE>
15[PAGE]
ASC East, Inc. and Subsidiaries
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
We are pleased to present to you management's discussion and
analysis of financial condition and results of operations for the
first and second quarters of fiscal 1998. As you read the material
below, we urge you to carefully consider our condensed, consolidated
financial statements and related notes contained elsewhere in this
report and the audited financial statements and related notes
contained in our Form 10K filed with the Securities Exchange
Commission October 30, 1997.
Liquidity and Capital Resources
Short-Term. The Company's primary short-term liquidity needs are
funding seasonal working capital requirements, its summer 1998 capital
improvement program, and servicing indebtedness. The 1998 summer
capital improvements will include expenditures on lifts, trails, snow-
making equipment and base facilities, as well as real estate
development. Cash requirements for ski-related and real estate
development activities are provided by separate sources. The
Company's primary sources of liquidity for working capital and ski-
related capital improvements are investments in the Company by its
parent, American Skiing Company ("ASC"), cash flow from operations of
its subsidiaries and borrowings under ASC's senior credit facility.
Real estate development will be funded primarily through construction
financing facilities established for major real estate development
projects.
The Company established a new credit facility on November 12,
1997 (the "New Credit Facility"). The New Credit Facility is a sub-
facility under the senior credit facility of ASC, $75 million (up to
$65 million of which is currently available) is available for
borrowings by the Company. The New Credit Facility 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 revolving portion of the New Credit Facility is subject to
annual 30-day clean down requirements to an outstanding balance of not
more than $10 million. The maximum availability under the revolving
facility will be reduced over the term of the New Credit Facility by
certain prescribed amounts. The term portion of the New Credit
Facility amortizes at a rate of approximately 1.0% of the principal
amount for the first six years with the remaining portion of the
principal due in two substantially equal installments in years seven
and eight. Beginning July 1999, the New Credit Facility requires
mandatory prepayment of 50% of excess cash flows during any period in
which the ratio of the Company's total senior debt to EBITDA exceeds
3.50 to 1, tested on a consolidated basis with that of ASC and its
16[PAGE]
ASC East, Inc. and Subsidiaries
remaining subsidiaries. In no event, however, will such mandatory
prepayments reduce the revolving facility commitment below $35
million. The New Credit Facility contains affirmative, negative and
financial covenants customary for this type of senior credit facility
including maintenance of customary financial ratios. With the
exception of a leverage test, compliance with financial covenants is
determined on a consolidated basis with the remainder of the credit
facility for ASC and its other subsidiaries, notwithstanding the
bifurcation of that facility into sub-facilities. The New Credit
Facility is secured by substantially all the assets of the Company and
its subsidiaries, except for the Company's real estate development
subsidiaries, which are not borrowers under the New Credit Facility.
The Company's 1998 summer capital program is expected to total
between $15 million and $20 million, excluding real estate
development. The combination of capital contributions from ASC, cash
flow from resort operations, capital leases and the New Credit
Facility are expected to provide sufficient funds to meet short-term
liquidity needs for working capital and skiing related capital
expenditures.
The Company expects to benefit from capital contributions from
ASC resulting from an exchange offer made by its parent prior to close
of its 1998 fiscal year. The exchange offer will be made to holders
of the Company's $120 million 12% Senior Subordinated Notes due 2006
to exchange those obligations for substantially similar obligations of
ASC. As part of the same transaction, it is anticipated that ASC will
issue approximately $50 million in additional senior subordinated
notes. No commitments have been made by the Company or ASC relating
to these transactions. The proceeds from the additional debt are not
required to meet the Company's short-term liquidity needs; however,
investments of the proceeds in the Company by ASC will provide the
Company with substantial flexibility in pursuing its capital
improvement and real estate development programs.
The Company runs its real estate development through single
purpose subsidiaries. Construction of the Company's existing Grand
Summit Hotel projects is financed through an independent construction
loan facility with recourse limited to the real estate development
subsidiaries. The facility is a customary construction lending
facility allowing advances as construction progresses. Each advance
is subject to certain conditions, including obtaining certain levels
of preconstruction sales. The loan is secured by first mortgages on
the Company's Grand Summit properties. Principal is to be repaid at a
rate of 80% to 85% of the proceeds generated by quartershare sales.
The construction facility matures December, 2000. This facility,
together with funds invested by the Company are considered sufficient
to finance the Grand Summit projects scheduled for completion during
the 1997-1998 ski season.
The Company intends to continue real estate development at its
eastern resorts during the summer of 1998. This real estate
development is not currently funded and will require construction
financing in order to proceed. It is anticipated that construction
financing will consist of two components. The senior component is
expected to be a conventional construction loan arranged on a limited
recourse basis similar to the Company's existing real estate
development construction loan facility. A portion of the development
17[PAGE]
ASC East, Inc. and Subsidiaries
costs are expected to be financed through either a mezanine debt
facility established directly with the real estate subsidiary or
through capital contributions by its parent derived from additional
subordinated debt incurred by ASC.
Long-Term. The Company's primary long-term liquidity needs are
to fund skiing related capital improvements at certain of its resorts
and extensive development of its slopeside real estate. There is a
considerable degree of flexibility in the timing and, to a lesser
degree, in the scope of these capital improvements. Although specific
capital expenditures can be deferred for extended periods, continued
growth in skier visits, revenues and profitability will require
continued capital investment in on-mountain improvements. The
Company's practice is to finance on-mountain capital improvements
through resort cash flow and its New Credit Facility. The size and
scope of the capital improvement program will generally be determined
annually depending on future availability of cash flow from each
season's resort operations and future borrowing availability under the
New Credit Facility.
Development of Grand Summit hotels at several resorts and alpine
villages at Sunday River and Killington will require substantial
funding. The Company expects to undertake these projects through
single purpose subsidiaries with financing provided principally on a
limited recourse basis. The Company's ability to directly contribute
equity toward or otherwise guarantee real estate development is
limited to $25 million under the New Credit Facility, tested on a
consolidated basis with ASC and its remaining subsidiaries. Financing
commitments for future real estate development do not currently exist.
The Company will be required to establish construction facilities for
these projects before undertaking each development.
Significant Events
New Credit Facility. The Company entered into the New Credit
Facility described above under the heading "Liquidity and Capital
Resources" contemporaneously with the closing by ASC of its initial
public offering on November 12, 1997.
Consent Solicitation. Contemporaneously with the November 12,
1997 closing, the Company closed the amendment (the "Amendment") of
the indenture (the "12% Note Indenture") relating to its 12% Senior
Subordinated Notes due 2006 (the "12% Notes") to permit the
consummation of the initial public offering of ASC without requiring
the Company to make a Change of Control Offer (as defined). The 12%
Note Indenture required the consent of the holders of at least a
majority in aggregate principal amount of the 12% Notes to amend the
12% Note Indenture. The Company obtained the requisite amount of
consents pursuant to the consent solicitation, and executed a
supplemental indenture to give effect to the Amendment. In connection
with the consent solicitation, the Company paid to the consenting
holders of the 12% Notes a customary consent payment.
18[PAGE]
ASC East, Inc. and Subsidiaries
Redemption of Subordinated Notes. A portion of the proceeds from
the New Credit Facility have been be used to make an approximate $27.7
redemption of all outstanding 13/% Subordinated Discount Notes due
2007 of the Company (the "Subordinated Notes"). The indenture
relating to the Subordinated Notes provided for a redemption price
equal to 113.75% of the carrying value of the Subordinated Notes on
the redemption date. The Company recorded a pretax loss of
approximately $4.3 million related to the repayment of the
Subordinated Notes.
Land Exchange. The Company consummated a land exchange with the
State of Vermont on December 1, 1997. The exchange results in the
Company's obtaining ownership of over 1,000 acres of valuable
developmental real estate at the base of the Killington resort.
Subsequent Events
Interest Rate Swap. On February 5, 1998 the Company entered into
an interest rate swap arrangement with BankBoston that effectively
lowers the interest rate on its 12% notes to 9%. The Company's
principal risk on the transaction is that LIBOR decreases below 6.9%
in July 2001 when another swap agreement can be entered into.
19[PAGE]
ASC East, Inc. and Subsidiaries
Forward-Looking Statements
Certain of the statements contained in this section of the
report, including those under "Financial Condition," are forward-
looking. While the Company believes that these statements are
accurate, its business is highly seasonal and is dependent upon
weather and general economic conditions and various conditions
specific to its industry. Future trends and results cannot be
predicted with certainty and actual results could differ materially
from the forward-looking statements. In particular:
1. Ski and resort operations are highly seasonal. Over the last
five fiscal years, the Company realized an average of approximately
86% of its resort revenues during the period from November through
April, with a significant portion of these resort revenues (and
approximately 23% of annual skier visits) being generated during the
Christmas and Presidents' Day vacation weeks. Unfavorable weather or
market conditions during these periods could have a material adverse
effect on operating results and financial performance.
2. The development of ski resorts is capital intensive. The
Company's expansion of its resorts is dependent upon availability of
the necessary capital. There can be no assurance that the Company
will have adequate funds, from internal or external sources, to make
all planned and required capital expenditures over the long term.
3. Real estate development and the Company's ability to generate
revenues from sales therefore may be adversely affected by numerous
factors, many of which are beyond the control of the Company. These
factors include the national and regional economic climate, the
ability of the Company to obtain the necessary zoning, land use,
building, occupancy and other required governmental permits and
authorizations and changes in real estate, zoning, land use,
environmental and tax laws. In addition, real estate development will
be dependent upon, among other things, receipt of adequate financing
on suitable terms, obtaining and maintaining the requisite permits and
licenses and, in certain circumstances, acquiring additional real
estate. There can be no assurance that such financing, permits,
licenses and real estate are obtainable.
20[PAGE]
ASC East, Inc. and Subsidiaries
Changes in Results of Operations
Changes for the Second Quarter of Fiscal 1998 compared to the Second
Quarter of Fiscal 1997.
1. Resort revenues. Resort revenues increased 19.2%
from $59.4 million for the second quarter of fiscal 1997 to $70.8
for the second quarter of fiscal 1998. The $11.4 million increase
in revenue is principally attributable to increased skier visits at
the Company's resorts, combined with increased lift ticket yields
and the acquisition of various retail and food and beverage
operations.
2. Real estate revenues. Real estate revenues increased $6.2
million in the second quarter of fiscal 1998 as compared to the second
quarter of fiscal 1997. The increase is attributable to closed sales
at two of the Company's new quartershare Grand Summit hotels at Sunday
River and Attitash.
3. Cost of Resort Operations. Cost of resort operations
increased 13.3% from $39.0 million to $44.2 million. The $5.2 million
increase is principally attributable to increased costs associated
with increased skier visits at the Company's resorts.
4. Cost of Real Estate. Cost of real estate increased $4.3
million in the second quarter of fiscal 1998 as compared to the second
fiscal quarter of 1997. The increase is related to increased sales
and additional non-capitalizable costs associated with future
projects.
5. Provision for income taxes. Provision for income taxes
increased $3.1 million in the second quarter of fiscal 1998 as
compared to the second quarter of fiscal 1997, and is entirely related
to the $7.9 million increase in net income before provision for income
taxes.
6. Extraordinary loss. The extraordinary loss recorded by the
Company is related to the early retirement of the Company's revolving
line of credit, Subordinated Notes, and indebtedness related to the
acquisition of Sugarbush.
21[PAGE]
ASC East, Inc. and Subsidiaries
Changes in Results of Operations
Changes for the First Six Months of Fiscal 1998 compared to the First
Six Months of Fiscal 1997.
1. Resort revenues. Resort revenues increased 18.8% from $71.1
million for the six months ended January 25, 1998 to $84.5 million for
the six months ended January 26, 1997. The $13.4 million increase in
revenues is principally attributable to increased skier visits at the
Company's resorts, an increase in yield per skier visit, and an the
acquisition of various retail and food and bervage operations.
2. Real estate revenues. Real estate revenues increased $5.4
million for the six months ended January 25, 1998 as compared to the
six months ended January 26, 1997. The increase is attributable to
closed sales at two of the Company's new Grand Summit quartershare
condominium hotels at Sunday River and Attitash.
3. Cost of Resort Operations. Cost of resort operations
increased 14.3% from $54.0 million to $61.7 million. The $7.7 million
increase is principally attributable to increased costs associated
with increased skier visits at the Company's resorts.
4. Cost of Real Estate. Cost of real estate increased $4.2
million for the six months ended January 25,1998 as compared to the
six months ended January 26, 1997. The increase is related to
increased sales and additional non-capitalizable costs associated with
future projects.
5. Marketing, General, and Administrative. Marketing, general,
and administrative costs increased 10.4% from $12.5 million to $13.8
million. The increase is attributable to increased costs associated
with the establishment of ASC corporate offices, the new Edge card
program, lift programs, marketing initiatives and real estate
development throughout the Company's resorts.
6. Benefit for income taxes. Benefit for income taxes decreased
34.4% or $2.1 million for the six months ended January 25, 1998 as
compared to the six month period ended January 26, 1997. The decrease
is attributable to the $5.9 million decrease in loss before benefit
for income taxes.
7. Extraordinary loss. The extraordinary loss recorded by the
Company is related to the early retirement of the Company's revolving
line of credit, Subordinated Notes, and indebtedness related to the
acquisition of Sugarbush.
22[PAGE]
ASC East, Inc. and Subsidiaries
Changes in Financial Condition
Changes for the First Six months of Fiscal 1998 Compared to year-end
Fiscal 1997.
1. Cash and cash equivalents. Cash and cash equivalents
increased 212% or $5.6 million from $2.6 million as of July 27, 1997
to $8.2 million as of January 25, 1998. The primary reason for the
increase is due to the increased activity related to the operating
cycle of the Company.
2. Accounts receivable. Accounts receivable increased 147% or
$5.6 million from $3.8 million as of July 27, 1997 to $9.4 million as
of January 25, 1998. The primary reason for the increase is due to
increased operating activities due to the seasonal nature of the
Company's business.
3. Inventory. Inventories increased 89% or $6.5 million from
$7.3 million as of July 27, 1997 to $13.7 million as of January 25,
1998. The increased inventory levels are directly related to the
Company's operating cycle and additional retail operations in the
Northeast.
4. Property, plant and equipment. Property , plant, and
equipment increased 9.6% or $23.2 million from $242.6 million as of
July 27, 1997 to $265.8 million as of January 25, 1998. The $23.2
million increase is related to the capital improvement program at the
resorts and the acquisition of the Wobbly Barn restaurant in
Killington, VT.
5. Real estate developed for resale. Real estate developed for
resale increase 178% or $41.8 million from $23.5 million as of July
27, 1997 to $65.4 million as of January 25, 1998. The increase is
attributable to $39.8 million in capital expenditures for the three
quarter share Grand Summit hotel projects being constructed at the
Killington, Mount Snow and Sunday River ski resorts and $2 million
related to the construction of townhouses at Sunday River.
6. Goodwill. Goodwill increased 78% or $8.3 million from $10.7
million as of July 27, 1997 to $19.0 million as of January 25, 1998.
The increase of $8.3 million (net of amortization of existing
goodwill) is attributable to American Skiing Company's (the Company's
parent) exchange of shares of its common stock for shares of ASC
East's common stock held by the minority interest shareholders.
23[PAGE]
ASC East, Inc. and Subsidiaries
7. Deferred financing costs. Deferred financing costs decreased
$1.3 million or 15% from $8.3 million as of July 27, 1997 to $7.1
million as of January 25, 1998. The decrease is attributable to the
extraordinary loss recorded from the early retirement of debt related
to the Subordinated Notes. In addition, there was an extraordinary
loss related to the early retirement of the Company's revolving line
of credit, however write-off of these deferred financing fees was
offset by the fees recorded relating to the New Credit Facility.
8. Current portion of long term debt. Current portion of long
term debt decreased 26% or $8.5 million from $33.2 million as of July
27, 1997 to $24.7 million as of January 25, 1998. The reason for the
decrease is due to the New Credit Facility and its payment structure
relative to the senior credit facility.
9. Accounts payable and other current liabilities. Accounts
payable and other current liabilities increased 43% or $10.9 million
from $25.7 million as of July 27, 1997 to $36.7 million as of January
25, 1998. The increase is primarily attributable to the operating
cycle of the Company and construction activities related to the
quarter share Grand Summit hotel projects.
10. Deposits and deferred revenue. Deposits and deferred revenue
increased 334% or $14.6 million from $4.4 million as of July 27, 1997
to $19.0 million as of January 25, 1998. The increase is from the
operating cycle of the Company and deferred revenue related to resort
operations. There is also a $.5 million increase that is related to
increases in deposits on quarter share Grand Summit units at the
Killington, Mount Snow, and Sunday River resorts.
11. Due to affiliate. Due to affiliate increased $15.9 million.
The increase is primarily attributable to advances to the Company from
its parent for operations and retirement of the senior credit
facility.
12. Long-term debt excluding current portion. Long-term debt
increased 108% or $50.8 million from $46.8 million as of July 27, 1997
to $97.6 million as of January 25, 1998. The increase results
primarily from a construction loan that was closed in August 1997
which has a balance of $50.5 million as of January 25, 1998.
14. Subordinated notes and debentures. Subordinated notes and
debentures decreased 14.6% or $21.9 million. The decrease is
primarily attributable to the early retirement of the Subordinated
Notes on December 29, 1997.
24[PAGE]
ASC East, Inc. and Subsidiaries
15. Deferred income taxes. Deferred income taxes decreased 23%
or $6.6 million from $28.5 as of July 27, 1997 to $21.9 million as of
January 25, 1998. The decrease is attributable to the deferred tax
benefit recorded as a result of the operating loss generated for the
six months ended January 25, 1998.
16. Additional paid in capital. Additional paid in capital
increased $45.1 million from $3.8 million as of July 27, 1997 to $48.9
million as of January 25, 1998. The increase is due to the following
factors: 1) the Company's parent, American Skiing Company, exchanged
shares of its common stock for the minority interest of the Company
resulting in an increase of $8.7 million and 2) The Company's parent
contributed $36.4 million to the Company to repay various outstanding
debt obligations, including the Subordinated Notes, and the Sugarbush
acquisition indebtedness.
17. Retained earnings. Retained earnings decreased from $12.4
million as of July 27, 1997 to a $1.7 million as of January 25, 1998.
The decrease is directly attributable to the $10.7 million loss for
the six months ended January 25, 1998. The loss for this period
included a $4.5 million extraordinary loss related to the early
retirement of debt.
25[PAGE]
ASC East, Inc. and Subsidiaries
Part II - Other Information
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: March 11, 1998 /s/ Thomas M. Richardson
------------------------------
Thomas M. Richardson
Senior Vice President and
Chief Financial
Officer(Principal
Financial and Accounting
Officer)
Date: March 11, 1998 /s/ Christopher E. Howard
------------------------------
Christopher E. Howard
Chief Administrative
Officer and
General Counsel (Duly
Authorized Officer)
26[PAGE]
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