United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
P.O. Box 450 04217
Bethel, Maine
(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 978,300 shares of common stock $.01 par value outstanding as of
November 9, 1998.
<PAGE>
ASC East, Inc. and Subsidiaries
Table of Contents
Part I Financial Information..................................................1
Item 1 Financial Statements ..................................................1
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...............3
Condensed Consolidated Balance Sheet as of
January 25, 1998 (Unaudited) and July 27, 1997......................4
Condensed Consolidated Statement of Cash Flows (Unaudited) for the
Six Months Ended January 25, 1998 and January 26, 1997...............6
Notes to (Unaudited) Condensed Consolidated Financial Statements.....8
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................13
General..............................................................13
Liquidity and Capital Resources......................................13
Significant Events...................................................15
Forward-Looking Statements...........................................16
Changes in Results of Operations.....................................17
Changes in Financial Condition.......................................18
Part II Other Information.....................................................21
<PAGE>
ASC East, Inc. and Subsidiaries
Part I - Financial Information
Item 1
Financial Statements
This Form 10-Q/A 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. Grand Summit Resort Properties, 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., 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, 1998 January 26, 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 and amortization 8,151 7,344
-------- --------
Total operating expenses 64,832 54,983
-------- --------
Income from operations 13,907 6,175
Interest expense 6,534 5,557
-------- --------
Income before provision for income taxes 7,373 618
Provision for income tax expense 2,876 235
-------- --------
Income from continuing operations 4,497 383
Extraordinary loss, net of income tax
benefit of $2,854 4,464 --
-------- --------
Net income $ 33 $ 383
-------- --------
-------- --------
Retained earnings, beginning of period $ (1,176) $ 7,838
Add: Net income 33 383
-------- --------
Retained earnings, end of period $ (1,143) $ 8,221
-------- --------
-------- --------
Earnings per common share - basic and diluted:
Income from continuing operations $ 4.59 $ 0.39
Extraordinary loss ($ 4.56) --
Net income $ 0.03 $ 0.39
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
2
<PAGE>
ASC East, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations
(in thousands except share and per share amounts)
<TABLE>
<CAPTION>
For the Six Months Ended
January 25, 1998 January 26, 1997
(Unaudited) (Unaudited)
(Restated-Note 1)
<S> <C> <C>
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
Stock compensation charge (Note 1) 3,271
Depreciation and amortization 9,601 8,871
-------- --------
Total operating expenses 94,551 77,368
-------- --------
Loss from operations (1,347) (2,913)
Interest expense 13,241 13,071
-------- --------
Loss before benefit from income taxes (14,588) (15,984)
Benefit from income tax expense (Note 1) (5,557) (6,074)
-------- --------
Loss from continuing operations (9,031) (9,910)
Extraordinary loss, net of income tax benefit of $2,854 4,464 --
-------- --------
Net loss $(13,495) $ (9,910)
-------- --------
-------- --------
Retained earnings, beginning of period $ 12,352 $ 18,131
Add: Net loss (13,495) (9,910)
-------- --------
Retained earnings (accumulated deficit), end of period $ (1,143) $ 8,221
-------- --------
-------- --------
Earnings per common share - basic and diluted:
Loss from continuing operations ($ 9.24) ($ 10.13)
Extraordinary loss ($ 4.56) --
Net loss ($ 13.80) ($ 10.13)
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
</TABLE>
3
<PAGE>
ASC East, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
(in thousands)
January 25, 1998 July 27, 1997
(Unaudited)
(Restated-Note 1)
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.
4
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheet
(in thousands)
January 25, 1998 July 27, 1997
(Unaudited)
(Restated-Note 1)
<S> <C> <C>
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 37,864 25,738
Deposits and deferred revenue 19,010 4,379
Due to (from) affiliate (Note 1) 17,928 (1,260)
Due to shareholder 1,933 1,933
--------- ---------
Total current liabilities 101,439 64,038
Long-term debt 97,621 46,833
Subordinated notes and debentures 127,867 149,749
Deferred income taxes (Note 1) 20,311 28,514
Other long-term liabilities 7,405 6,932
--------- ---------
Total liabilities 354,643 296,066
Shareholders' equity
Common stock 10 10
Additional paid-in capital 48,896 3,762
Retained earnings (1,143) 12,352
--------- ---------
Total shareholders' equity 47,763 16,124
--------- ---------
Total liabilities and shareholders' equity $ 402,406 $ 312,190
--------- ---------
--------- ---------
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
</TABLE>
5
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Condensed Consolidated Statement of Cash Flows
(in thousands)
For the Six Months Ended
January 25, 1998 January 26, 1997
(Unaudited) (Unaudited)
(Restated-Note 1)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(13,495) $ (9,910)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 9,601 8,871
Stock compensation charge 3,271
Deferred income taxes (8,551) 363
Non cash portion of extraordinary loss 2,232 --
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 in liabilities:
Accounts payable and other current liabilities 12,126 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 (18,829) 28,196
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements
</TABLE>
6
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Condensed Consolidated Statement of Cash Flows (continued)
(in thousands)
For the Six Months Ended
January 25, 1998 January 26, 1997
(Unaudited) (Unaudited)
(Restated-Note 1)
<S> <C> <C>
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 23,444 --
Repayment of revolving line of credit (59,623) --
Proceeds from capital contribution from ASC 36,650 --
Repayment of subordinated notes and debentures (21,882) --
Reductions to long-term debt (3,513) (19,717)
------- -------
Net cash provided by (used in) financing activities 55,508 (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.
</TABLE>
7
<PAGE>
Notes to (Unaudited) Condensed Consolidated Financial Statements
ASC East, Inc. and Subsidiaries
1. Amendment to Form 10Q/A. The Form 10Q/A for the six months ended
January 25, 1998, as filed on June 6, 1998, is being amended to reflect the
allocation of a portion of the total stock compensation charge incurred by the
Company's parent, American Skiing Company (the "Parent"). The previously filed
Form 10Q/A did not include the allocation. During the quarter ended October 26,
1997, the Parent granted nonqualified options under the American Skiing Company
Stock Option Plan to certain key members of senior management and other members
of management with an exercise price of $2.00 per share when the fair market
value of the stock was estimated to be $18.00 per share. Accordingly, the Parent
recognized stock compensation expense of $8.6 million relating to the grants
based on the intrinsic value of $16.00 per share. Under the grant agreements,
the Company agreed to pay the optionees a fixed tax bonus in the aggregate of
$5.7 million to provide for certain fixed tax liabilities that the optionees
will incur upon exercise. The Parent recognized the total stock compensation
charge of $14.3 million in the quarter ended October 26, 1997.
It was determined that the stock compensation charge incurred by the
Parent of $14.3 million was an allocable expense to ASC East in accordance with
Staff Accounting Bulletin 55, Topic 1-B, due to the fact that the members of
management comprising the charge worked on ASC East-related activities in
addition to Parent corporate activities. The allocation of the stock
compensation charge was based on management's analysis of the actual time spent
by such employees on ASC East-related activities during period. It is
management's opinion that the method used to allocate the stock compensation
charge is reasonable.
There was no impact from these adjustments on the unaudited Condensed
Consolidated Statement of Operations for the three months ended January 25,
1998. The impact of these adjustments on the unaudited Condensed Consolidated
Statement of Operations for the six months ended January 25, 1998 was the
recording of the Stock compensation allocation of $3.3 million, and the related
increase in the benefit from income taxes from $4.4 million to $5.5 million, an
increase of $1.1 million. These adjustments resulted in an increase in net loss
from $11.4 million to $13.5 million for the six month period, an increase of
$2.1 million, and an increase in basic and diluted loss per common share of
$2.18, from a loss of $11.62 per share to a loss of $13.80 per share.
2. Amendment to Footnote 7 of the Form 10Q/A as filed on June 6, 1998.
The Form 10Q/A for the six months ended January 25, 1998 is being amended to
reflect the correct classification of the Company's wholly-owned subsidiary,
Grand Summit Resort Properties, Inc. ("GSRP"), as a guarantor of the 12% Senior
Subordinated Notes (See Footnote 8). In the Form 10Q/A as filed on June 6, 1998,
the Company incorrectly reflected GSRP as a non-guarantor.
3. 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, 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.
8
<PAGE>
4. Income Taxes. The benefit for income taxes is based on a projected
annual effective tax rate of 39%, adjusted for the difference between what was
expensed for financial reporting purposes versus what is estimated to be
deductible for income tax reporting purposes with respect to the stock
compensation charge. 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.
5. 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.
9
<PAGE>
6. 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 (loss) per share for the three
and six months ended January 25, 1998 and January 26, 1997 were determined as
follows:
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(in thousands) Three Months Ended Six Months Ended
January 25, January 26, January 25, January 26,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Income (loss) (Restated-Note 1)
<S> <C> <C> <C> <C>
Net income (loss) from continuing
operations $ 4,497 $ 383 $ (9,031) $ (9,910)
Extraordinary loss (4,464) -- (4,464) --
-------- -------- -------- --------
Net income (loss)
$ 33 $ 383 $(13,495) $ (9,910)
======== ======== ======== ========
Shares
Weighted-average common shares
outstanding - basic and diluted 978 978 978 978
======== ======== ======== ========
</TABLE>
7. Adjustments and Reclassifications. Certain amounts in the prior
unaudited condensed consolidated financial statements have been reclassified to
conform to the current presentation.
10
<PAGE>
8. 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 Ski Insurance Company, 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:
Statement of operations for the six months ended January 25, 1998
(in thousands)
<TABLE>
<CAPTION>
Consolidated
ASC East Guarantor Non-Guarantor ASC East
(Unaudited) Subsidiaries Subsidiaries Eliminations (Unaudited)
(Restated-Note 1 & 2) (Unaudited) (Unaudited) (Unaudited) (Restated-Note 1)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues:
Resort $ 2,815 $ 81,630 $ 761 $ (702) $ 84,504
Real estate -- 8,700 -- -- 8,700
-------- -------- -------- -------- --------
Total net revenues 2,815 90,330 761 (702) 93,204
Operating expenses:
Resort 1,127 60,490 820 (702) 61,735
Real estate -- 6,148 -- -- 6,148
Marketing, general and 1,932 11,853 11 -- 13,796
administrative
Stock compensation charge 3,271 -- -- -- 3,271
Depreciation and amortization 828 8,769 4 -- 9,601
-------- -------- -------- -------- --------
Total operating expenses 7,158 87,260 835 (702) 94,551
Income (loss) from operations (4,343) 3,070 (74) -- (1,347)
Interest expense 9,604 4,862 (1,225) -- 13,241
-------- -------- -------- -------- --------
Income (loss) before benefit from
income taxes (13,947) (1,792) 1,151 -- (14,588)
Benefit from
income taxes (4,732) ( 825 ) -- -- (5,557)
-------- -------- -------- -------- --------
Income (loss) from continuing
operations (9,215) ( 967 ) 1,151 -- (9,031)
Extraordinary loss 4,266 198 -- -- 4,464
-------- -------- -------- -------- --------
Net income (loss) $(13,481) $ (1,165) $ 1,151 -- (13,495)
======== ======== ======== ======== ========
</TABLE>
11
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Balance Sheet at January 25, 1998
(in thousands)
Consolidated
ASC East Guarantor Non-Guarantor ASC East
(Unaudited) Subsidiaries Subsidiaries Eliminations (Unaudited)
(Restated - Note 1 & 2) (Unaudited) (Unaudited) (Unaudited) (Restated - Note 1)
------------------- ----------- ----------- ------------ -------------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents $ 18 $ 7,216 $ 988 $ -- $ 8,222
Restricted cash -- 3,504 1 -- 3,505
Accounts receivable 989 7,129 1,278 -- 9,396
Inventory 204 13,542 -- -- 13,746
Prepaid expenses 499 1,889 1 -- 2,389
Deferred tax assets -- 422 348 -- 770
--------- --------- --------- --------- ---------
Total current assets 1,710 33,702 2,616 -- 38,028
Property and equipment, net 3,314 261,857 673 -- 265,844
Real estate developed for sale -- 65,388 -- -- 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 $ 507,530 $ 5,721 $(262,078) $ 402,406
========= ========= ========= ========= =========
</TABLE>
12
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Balance Sheet at January 25, 1998
(in thousands)
Consolidated
ASC East Guarantor Non-Guarantor ASC East
(Unaudited) Subsidiaries Subsidiaries Eliminations (Unaudited)
(Restated-Note 1 & 2) (Unaudited) (Unaudited) (Unaudited) (Restated-Note 1)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Line of credit and current
portion of long-term debt $ 21,000 $ 3,704 $ -- $ -- $ 24,704
Accounts payable and other
current liabilities 3,664 33,778 452 (30) 37,864
Deposits and deferred revenue 915 18,102 (7) -- 19,010
Due to (from) affiliate (48,278) 97,574 (31,368) -- 17,928
Due to shareholder -- 1,933 -- -- 1,933
--------- --------- --------- --------- ---------
Total current liabilities (22,699) 155,091 (30,923) (30) 101,439
Long-term debt 33,358 64,206 57 97,621
Subordinated notes and
debentures 116,917 10,950 -- -- 127,867
Deferred income taxes (16,163) 36,344 130 20,311
Other long-term liabilities 298 3,300 3,807 -- 7,405
--------- --------- --------- --------- ---------
Total liabilities 111,711 269,891 (26,929) (30) 354,643
Common stock 10 180 2 (182) 10
Additional paid-in capital 48,876 213,037 30,383 (243,400) 48,896
Retained earnings (accumulated
deficit) (9,364) 24,422 2,265 (18,466) (1,143)
--------- --------- --------- --------- ---------
Total shareholders' equity 39,522 237,639 32,650 (262,048) 47,763
Total liabilities and shareholders' $ 151,233 $ 507,530 $ 5,721 $(262,078) $ 402,406
equity
========= ========= ========= ========= =========
</TABLE>
13
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Statement of cash flows for the six month period ended January 25,1998
(in thousands)
Consolidated
ASC East Guarantor Non-Guarantor ASC East
(Unaudited) Subsidiaries Subsidiaries Eliminations (Unaudited)
(Restated-Note 1 & 2) (Unaudited) (Unaudited) (Unaudited) (Restated-Note 1)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(13,481) $ (1,165) $ 1,151 $ -- $(13,495)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 828 8,769 4 -- 9,601
Stock compensation charge 3,271 3,271
Deferred income taxes (7,460) (659) (432) -- (8,551)
Non cash portion of extraordinary loss 2,232 -- -- -- 2,232
Decreases (increases) in assets:
Restricted cash -- (699) 6 -- (693)
Accounts receivable (848) (3,559) (237) (951) (5,595)
Inventory 80 (6,544) -- -- (6,464)
Prepaid expenses (133) 249 (926) -- (810)
Real estate developed for sale -- (42,386) 538 -- (41,848)
Other assets 349 27 -- -- 376
Increases (decreases) in
liabilities:
Accounts payable and other current
liabilities 1,466 10,571 111 (22) 12,126
Deposits and deferred revenue 378 14,292 (39) -- 14,631
Due to affiliate 3,129 13,133 (182) (163) 15,917
Other long-term liabilities (194) 1,059 (392) -- 473
-------- -------- -------- -------- --------
Net cash flows provided by (used
in) operating activities (10,383) (6,912) (398) (1,136) (18,829)
Cash flows from investing activities:
Additions to property and equipment (1,987) (30,178) (1) -- (32,166)
Sale of long-term investments -- -- 1,075 -- 1,075
-------- -------- -------- -------- --------
Cash provided by (used in)
investing activities (1,987) (30,178) 1,074 -- (31,091)
Cash flows from financing activities:
Proceeds from construction loan -- 46,832 -- -- 50,432
Proceeds from term loan 30,000 -- -- -- 30,000
Proceeds from revolving line of credit 23,444 -- -- -- 23,444
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) (122) 490 (3,513)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities 12,370 42,124 (122) 1,136 55,508
Net increase in cash and cash
equivalents -- 5,034 554 -- 5,588
Cash and cash equivalents at
beginning of period 18 2,182 434 -- 2,634
-------- -------- -------- -------- --------
Cash and cash equivalents at end of
period $ 18 $ 7,216 $ 988 $ -- $ 8,222
======== ======== ======== ======== ========
</TABLE>
14
<PAGE>
ASC East, Inc. and Subsidiaries
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Restated - Note 1)
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 (Unaudited) 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 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.
15
<PAGE>
ASC East, Inc. and Subsidiaries
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 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.
16
<PAGE>
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.
17
<PAGE>
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.
Redemption of Subordinated Notes. A portion of the proceeds from the
New Credit Facility have been used to make an approximate $27.7 redemption of
all outstanding 13 3/4% 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.
18
<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.
19
<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 tax expense. Provision for income tax expense
increased $2.6 million in the second quarter of fiscal 1998 as compared to the
second quarter of fiscal 1997, and is entirely related to the $6.8 million
increase in net income before provision for income taxes.
6. Extraordinary loss. The extraordinary loss recorded by the Company
is due to the early retirement of the Company's revolving line of credit,
Subordinated Notes, and indebtedness related to the acquisition of Sugarbush.
20
<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
beverage 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 from income tax expense (Restated-Note 1). Benefit from
income tax expense decreased 8.5% or $.5 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 $1.4 million decrease in loss before benefit
from income taxes.
7. Stock compensation charge (Restated-Note 1). The Company recorded
a stock compensation charge of $3.3 million. This represents the allocation to
the Company of the stock compensation charge recorded by the Company's Parent.
8. Extraordinary loss. The extraordinary loss recorded by the Company
is due to the early retirement of the Company's revolving line of credit,
Subordinated Notes, and indebtedness related to the acquisition of Sugarbush.
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
212.1% 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 147.2% 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.
21
<PAGE>
ASC East, Inc. and Subsidiaries
3. Inventory. Inventories increased 88.8% 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 and equipment, net. Property and equipment, net 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 sale. Real estate developed for sale
increased 177.8% 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 quartershare Grand Summit hotel
projects being constructed at the Killington, Mount Snow and Sunday River ski
resorts and $2.0 million related to the construction of townhouses at Sunday
River.
6. Goodwill. Goodwill increased 78.3% 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 ASC's exchange of shares of its common stock for shares of ASC
East's common stock held by the minority interest shareholders.
7. Deferred financing costs. Deferred financing costs decreased $1.3
million or 15.0% 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. Line of credit and current portion of long-term debt. Current
portion of long-term debt decreased 25.7% 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 (Restated-Note 1).
Accounts payable and other current liabilities increased 47.1% or $12.1 million
from $25.7 million as of July 27, 1997 to $37.9 million as of January 25, 1998.
The increase is primarily attributable to the operating cycle of the Company,
construction activities related to the quartershare Grand Summit hotel projects
and an increase in accrued interest related to the Company's New Credit
Facility.
10. Deposits and deferred revenue. Deposits and deferred revenue
increased 334.1% 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 which related to increases in deposits on quartershare Grand
Summit units at the Killington, Mount Snow, and Sunday River resorts.
22
<PAGE>
ASC East, Inc. and Subsidiaries
11. Due to (from) affiliate (Restated-Note 1). Due to affiliate
increased $19.2 million. The increase is primarily attributable to advances to
the Company from its parent for operations, retirement of the Company's senior
credit facility and the allocation of a portion of the stock compensation charge
from the Company's Parent.
12. Long-term debt excluding current portion. Long-term debt increased
108.4% 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
which was closed in August 1997 and has a balance of $50.5 million as of January
25, 1998.
13. Subordinated notes and debentures. Subordinated notes and
debentures decreased 14.6% or $21.9 million which is primarily attributable to
the early retirement of the Subordinated Notes on December 29, 1997.
14. Deferred income taxes (Restated-Note 1). Deferred income taxes
decreased 28.8% or $8.2 million from $28.5 as of July 27, 1997 to $20.3 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.
15. 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, which included the Subordinated Notes and the
Sugarbush acquisition indebtedness.
16. Retained earnings (Restated-Note 1). Retained earnings decreased
from $12.4 million as of July 27, 1997 to an accumulated deficit of $1.1 million
as of January 25, 1998. The decrease is directly attributable to the $13.5
million loss for the six months ended January 25, 1998 which includes a $4.5
million extraordinary loss related to the early retirement of debt.
23
<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.
November 10, 1998
- --------------------------- By: /s/ Christopher E. Howard
------------------------------
Christopher E. Howard
Senior Vice President, Chief Administrative
Officer, General Counsel, Clerk and Chief
Financial Officer, (Principal Financial
Officer and duly Authorized Officer)
24
<PAGE>
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