United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED OCTOBER 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 Identification No.)
incorporation or organization)
P.O. Box 450
Bethel, Maine 04217
(Address of principal executive office) (Zip Code)
(207) 824-5196
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report.)
The registrant meets the conditions set forth in General Instruction (H)
(1) (a) and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format provided therein.
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 at
December 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 October 25, 1998 and October 26, 1997...................... 1
Condensed Consolidated Balance Sheet of October 25, 1998 (Unaudited) and
July 26, 1998 .......................................................... 2
Condensed Consolidated Statement of Cash Flows (Unaudited) for the three
months ended October 25, 1998 and October 26, 1997 ..................... 3
Notes to (Unaudited) Condensed Consolidated Financial Statements ............ 4
Item 2.
Changes in Results of Operations............................................. 12
Year 2000 Disclosure ........................................................ 13
Forward-Looking Statements .................................................. 15
Part II - Other Information.................................................. 17
Item 6. Exhibits and Reports on Form 8-K..................................... 18
<PAGE>
ASC East, Inc. and Subsidiaries
Part I - Financial Information
Item 1
Financial Statements
<TABLE>
Condensed Consolidated Statement of Operations
(in thousands, except share and per share amounts)
<CAPTION>
For the three months ended
October 25, 1998 October 26,
1997
(unaudited) (unaudited)
<S> <C> <C>
Net revenues:
Resort $ 15,799 $ 13,655
Real estate 4,323 810
------------------ ------------------
Total net revenues 20,122 14,465
Operating expenses
Resort 19,646 17,533
Real estate 3,937 925
Marketing, general and administrative 5,092 6,540
Stock compensation charge (Note 7) - 3,271
Depreciation and amortization 1,827 1,450
------------------ ------------------
Total operating expenses 30,502 29,719
------------------ ------------------
Loss from operations (10,380) (15,254)
Interest expense 6,900 6,707
------------------ ------------------
Loss before benefit for income taxes (17,280) (21,961)
Benefit for income taxes (6,730) (8,433)
------------------ ------------------
Net loss $ (10,550) $ (13,528)
================== ==================
Retained earnings, beginning of period $ 9,268 $ 12,352
Net loss (10,550) (13,528)
------------------ ------------------
Accumulated deficit, end of period $ (1,282) $ (1,176)
================== ==================
Net loss per share-basic and diluted (Note 5) $ (10.78) $ (13.83)
Weighted average shares outstanding 978,300 978,300
================== ==================
See accompanying notes to (Unaudited) Condensed Consolidated Financial Statements.
</TABLE>
1
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
Condensed Consolidated Balance Sheet
(in thousands, except share and per share amounts)
<CAPTION>
October 25, 1998 July 26, 1998
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 5,563 $ 4,157
Restricted cash 6,378 1,769
Accounts receivable 4,682 7,138
Inventory 9,096 10,226
Prepaid expenses 2,960 1,705
Deferred income taxes 1,289 1,289
----------------- ----------------
Total current assets 29,968 26,284
Property and equipment, net 303,373 296,756
Real estate developed for sale 91,242 38,023
Goodwill 19,563 19,702
Intangible assets 2,032 2,050
Deferred financing costs 6,463 6,643
Long-term investments 2,051 2,202
Other assets 8,158 4,691
----------------- ----------------
Total assets $ 462,850 $ 396,351
----------------- ----------------
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 47,285 $ 28,100
Accounts payable and other current liabilities 27,390 26,557
Deposits and deferred revenue 20,778 3,574
Demand note, Principal Shareholder 1,846 1,846
Due to affiliates 53,602 17,132
----------------- ----------------
Total current liabilities 150,901 77,209
Long-term debt, excluding current portion 83,897 85,045
Subordinated notes and debentures, excluding current portion 127,539 127,497
Other long-term liabilities 7,780 7,313
Deferred income taxes 20,119 26,873
----------------- ----------------
Total liabilities 390,236 323,937
Shareholders' Equity
Common stock, Class A, par value $.01 per share; 1,000,000 shares
Authorized; 978,300 issued and outstanding 10 10
Additional paid-in capital 73,886 63,136
Retained earnings (deficit) (1,282) 9,268
----------------- ----------------
Total shareholders' equity 72,614 72,414
----------------- ----------------
Total liabilities and shareholders' equity $ 462,850 $ 396,351
----------------- ----------------
See accompanying notes to (Unaudited) Condensed Consolidated Financial Statements.
</TABLE>
2
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
Condensed Consolidated Statement of Cash Flows
(in thousands)
<CAPTION>
For the three months ended
October 25, 1998 October 26,
1997
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $ (10,550) $ (13,528)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,827 2,350
Discount on convertible debt 67 -
Deferred income taxes (6,730) (8,573)
Stock compensation charge - 3,271
Decrease (increase) in assets:
Restricted cash (118) (267)
Accounts receivable 1,696 (373)
Inventory 1,130 (3,520)
Prepaid expenses (171) (747)
Real estate developed for sale (12,820) (21,938)
Other assets (3,467) 155
Increase (decrease) in liabilities:
Accounts payable and other current liabilities 1,595 6,742
Deposits and deferred revenue 11,107 9,981
Other long-term liabilities 467 209
Due to/from affiliates 9,338 5,250
----------------- ------------------
Net cash used in operating activities (6,629) (20,988)
----------------- ------------------
Cash flows from investing activities
Capital expenditures (8,602) (11,175)
Long-term investments 151 127
Cash contribution from parent 1,600 -
Other, net (5) -
----------------- ------------------
Net cash used in investing activities (6,856) (11,048)
----------------- ------------------
Cash flows from financing activities
Net proceeds from Old Credit Facility - 1,189
Net borrowings (repayment of) under Senior Credit Facility (3,727) -
Proceeds from (repayment of) long-term debt 18,657 32,836
Deferred financing costs (39) (50)
----------------- ------------------
Net cash provided by financing activities 14,891 33,975
----------------- ------------------
Net increase in cash and cash equivalents 1,406 1,939
Cash and cash equivalents, beginning of period 4,157 2,634
----------------- ------------------
Cash and cash equivalents, end of period $ 5,563 $ 4,573
================= ==================
See accompanying notes to (Unaudited) Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
ASC East, Inc. and Subsidiaries
Notes to (Unaudited) Condensed Consolidated Financial Statements
1. Change in Accounting Estimate. Effective July 27, 1998, the Company
made changes in the estimated useful lives of certain of its operating fixed
assets. This change had no effect on the net loss or loss per share for the
quarter ended October 25, 1998 as the Company records a full year of
depreciation relating to its operating assets over the second and third quarters
of its fiscal year.
2. General. In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of October 25, 1998 and
July 26, 1998, the results of operations for the three months ended October 25,
1998 and October 26, 1997, and the statement of cash flows for the three months
ended October 25, 1998 and October 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 Form 10-K which was filed with the Securities and
Exchange Commission on November 9, 1998.
3. Income Taxes. The expense (benefit) for taxes on income (loss) is based
on a projected annual effective tax rate of 39%. The net deferred income tax
liability includes the cumulative reduction in current income taxes payable
resulting principally from the excess of depreciation reported for income tax
purposes over that reported for financial reporting purposes.
4. Seasonal Business. Results for interim periods are not indicative of
the results expected for the year due to the seasonal nature of the Company's
business which is the development and operation of ski resorts.
5. Net Loss per Share. Net loss per share figures are based on the
average shares outstanding during the first quarter of fiscal 1999 and 1998 of
978,300. The shares outstanding are the actual shares outstanding for Class A
common stock.
6. Adjustments and Reclassifications. Certain amounts in the prior year's
unaudited condensed consolidated financial statements and the audited financial
statements as filed with the Securities and Exchange Commission on November 9,
1998 have been reclassified to conform to the current presentation.
7. Stock option plan. In the first quarter of fiscal 1998 the Company's
parent incurred a stock compensation charge associated with the grant of
non-qualified stock options to certain key members of senior management. A
portion of the parent's stock compensation charge ($3.3 million) was allocated
to ASC East based on an approximation of the actual time management employees
comprising the stock compensation charge spent on ASC East related activities
during the year ended July 26, 1998.
4
<PAGE>
ASC East, Inc. and Subsidiaries
8. Related party transactions. The Company's parent incurs certain common
expenses that are allocable to ASC East, including marketing and other overhead
related costs. The total allocation of these costs charged to the Company of
$420,000 is included in the marketing, general and administrative component in
the accompanying consolidated statement of operations. The marketing and other
overhead cost were allocated to the Company based on the estimate of amounts
benefitting ASC East. It is management's opinion that the methods used to
allocate the other common costs are reasonable.
9. Guarantors of Debt. The 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, Uplands Water Company,
and Club Sugarbush, Inc., (the "Non-Guarantors"). Prior to the S-K-I Acquisition
and issuance of the Notes on June 28, 1996, the bank loan agreements were
collateralized by virtually all of the assets of the companies comprising the
Company. The guarantor subsidiaries are wholly-owned subsidiaries of the Company
and the guarantees are fully, unconditional, and joint and several. The
guarantor information for the quarters ended October 25, 1998 and October 26,
1997, is as follows:
10. Recently Issued Accounting Standards. In June 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 was
effective for all fiscal quarters of all fiscal years beginning after December
15, 1997, (the fiscal year ended July 25, 1999 for the Company). This
pronouncement requires disclosure of comprehensive income and its components in
interim and annual reports. Total comprehensive income components included in
stockholders' equity include any changes in equity during a period that are not
the result of transactions with owners, including cumulative translation
adjustments, unrealized gains and losses on available-for-sale securities and
minimum pension liabilities. As of October 25, 1998, the Company has no such
items of comprehensive income. As such, the adoption of SFAS 130 had no effect
on the Company's financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segment of an Enterprise and Related Information"
("SFAS 131"). This statement established standards for reporting information on
operating segments in interim and annual financial statements. SFAS 131 is
effective for fiscal years beginning after December 15, 1997 (the fiscal year
ended July 25, 1999 for the Company) and does not require application to interim
financial statements in the initial year of application. As the company already
discloses segment information under SFAS 14, "Financial Reporting for Segments
of a Business Enterprise", management does not believe the adoption of SFAS 131
will result in a change in the composition of the Company's operating segments,
or in the previously reported net income for each segment. Additional disclosure
to comply with SFAS 131 will be required.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instrument and Hedging Activities" ("SFAS
133"). SFAS 133 is effective for fiscal quarters of all fiscal years beginning
after June 15, 1999 (the fiscal year ended July 30, 2000 for the Company). This
pronouncement required that all derivative instrument be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending of
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. Management of the Company is currently reviewing
the impact of SFAS 133 on its consolidated financial statements.
11. Subsequent Events. On September 30, 1998, the Company entered into a
$30 million credit arrangement with BankBoston Morgan Stanley Capital Funding
(the "Bridge Financing"). The Bridge Financing bears interest at a rate of 14%
per annum, payable monthly in arrears, and was to mature on December 4, 1998.
The maturity date for the loan was extended to December 30, 1998. The Company is
currently in the process of obtaining permanent financing to repay the Bridge
Financing and provide additional capital for real estate developments.
5
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
Balance Sheet as of October 25, 1998
(in thousands) (unaudited)
<CAPTION>
ASC East Guarantor Non- Guarantor Elimination Consolidated
Subsidiaries Subsidiaries Entries ASC East
<S> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ - $ 4,605 $ 958 $ - $ 5,563
Restricted cash - 6,346 32 - 6,378
Accounts receivable 71 8,549 2,116 (6,054) 4,682
Inventory 1,603 7,493 - - 9,096
Prepaid expenses 1 2,958 1 - 2,960
Deferred income taxes - 1,289 - - 1,289
Investment in subsidiaries 174,312 139,806 - (314,118) -
-------------- --------------- -------------- ------------- --------------
Total current assets 175,987 171,046 3,107 (320,172) 29,968
Property and equipment, net 89 302,585 699 - 303,373
Real estate developed for sale - 91,242 - - 91,242
Goodwill 17,388 2,175 - - 19,563
Intangible assets - 2,032 - - 2,032
Deferred financing costs 6,462 - 1 - 6,463
Long-term investments - - 2,051 - 2,051
Other assets - 8,158 - - 8,158
Due from affiliate - - - - -
-------------- --------------- -------------- ------------- --------------
Total assets $ 199,926 $ 577,238 $ 5,858 $ (320,172) $462,850
-------------- --------------- -------------- ------------- --------------
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 17,782 $ 29,503 $ - $ - $ 47,285
Accounts payable and other current liabilities 6,413 22,575 422 (2,020) 27,390
Deposits and deferred revenue 300 19,916 562 - 20,778
Demand note, Principal Shareholder - 1,846 - - 1,846
Due to affiliates (53,018) 107,067 (447) - 53,602
-------------- --------------- -------------- ------------- --------------
Total current liabilities (28,523) 180,907 537 (2,020) 150,901
Long-term debt, excluding current portion 39,253 48,635 42 (4,033) 83,897
Subordinated notes and debentures, excluding current 117,044 10,495 - - 127,539
portion
Other long-term liabilities 1,716 2,753 3,311 - 7,780
Deferred income taxes (9,788) 30,441 (534) - 20,119
-------------- --------------- -------------- ------------- --------------
Total liabilities 119,702 273,231 3,356 (6,053) 390,236
Shareholders' Equity
Common stock, Class A, par value $.01 per share;
1,000,000 shares authorized; 978,300 issued and 10 181 2 (183) 10
outstanding
Additional paid-in capital 73,886 252,371 1,651 (254,022) 73,886
Retained earnings (deficit) 6,328 51,455 849 (59,914) (1,282)
-------------- --------------- -------------- ------------- --------------
Total shareholders' equity 80,224 304,007 2,502 (314,119) 72,614
-------------- --------------- -------------- ------------- --------------
Total liabilities and shareholders' equity $ 199,926 $ 577,238 $ 5,858 $ (320,172) $ 462,850
-------------- --------------- -------------- ------------- --------------
</TABLE>
6
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
Statement of Operations for the three months ended October 25, 1998
(in thousands) (unaudited)
<CAPTION>
ASC East Guarantor Non- Elimination Consolidated
Subsidiaries Guarantor Entries ASC East
Subsidiaries
<S> <C> <C> <C> <C> <C>
Net revenues:
Resort $ 515 $ 15,247 $ 268 $ (231) $ 15,799
Real estate - 4,323 - - 4,323
------------- --------------- -------------- -------------- ----------------
Total net revenues 515 19,570 268 (231) 20,122
------------- --------------- -------------- -------------- ----------------
Operating expenses:
Resort 574 19,074 229 (231) 19,646
Real estate - 3,937 - - 3,937
Marketing, general and administrative 440 4,652 - - 5,092
Depreciation and amortization 344 1,469 14 - 1,827
------------- --------------- -------------- -------------- ----------------
Total operating expenses 1,358 29,132 243 (231) 30,502
------------- --------------- -------------- -------------- ----------------
Income (loss) from operations (843) (9,562) 25 - (10,380)
Interest expense (income) 3,706 3,223 (29) - 6,900
------------- --------------- -------------- -------------- ----------------
Income (loss) before provision (benefit) for
income taxes (4,549) (12,785) 54 - (17,280)
Provision (benefit) for income taxes (1,600) (5,149) 19 - (6,730)
------------- --------------- -------------- -------------- ----------------
Net loss $ (2,949) $ (7,636) $ 35 $ - $ (10,550)
------------- --------------- -------------- -------------- ----------------
</TABLE>
7
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
Statement of Cash Flows for the three months ended October 25, 1998
(in thousands) (unaudited)
<CAPTION>
ASC East Guarantor Non- Elimination Consolidated
Subsidiaries Guarantor Entries ASC East
Subsidiaries
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (2,949) $ (7,636) $ 35 $ - $ (10,550)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 344 1,469 14 - 1,827
Amortization of discount on subordinated notes and
debentures and other liabilities 42 25 - - 67
Deferred income taxes (1,600) (5,150) 20 - (6,730)
Decrease (increase) in assets:
Restricted cash and investments held in escrow - (110) (8) - (118)
Accounts receivable 618 1,978 (427) (473) 1,696
Inventory (41) 1,171 - - 1,130
Prepaid expenses - (170) (1) - (171)
Real estate developed for sale - (12,820) - - (12,820)
Other assets - (3,467) - - (3,467)
Increase (decrease) in liabilities:
Accounts payable and other current liabilities 4,912 (3,224) (93) - 1,595
Deposits and deferred revenue (221) 10,781 547 - 11,107
Other long-term liabilities - 387 80 - 467
Due to/from affiliate 2,522 7,156 (340) - 9,338
------------ ------------- -------------- ------------- ------------
Net cash provided by (used in) operating activities 3,627 (9,610) (173) (473) (6,629)
------------ ------------- -------------- ------------- ------------
Cash flows from investing activities
Capital expenditures (39) (8,563) - - (8,602)
Long-term investments - - 151 - 151
Cash contribution from parent - 1,600 - - 1,600
Other, net - (5) - - (5)
------------ ------------- -------------- ------------- ------------
Net cash used in investing activities (39) (6,968) 151 - (6,856)
------------ ------------- -------------- ------------- ------------
Cash flows from financing activities
Net borrowings under Senior Credit Facility (3,727) - - - (3,727)
Proceeds from (repayment of) long-term debt - 18,189 (5) 473 18,657
Deferred financing costs (39) - - - (39)
------------ ------------- -------------- ------------- ------------
Net cash provided by (used in) financing activities (3,766) 18,189 (5) 473 14,891
------------ ------------- -------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents (178) 1,611 (27) - 1,406
Cash and cash equivalents, beginning of period 178 2,994 985 - 4,157
------------ ------------- -------------- ------------- ------------
Cash and cash equivalents, end of period $ - $ 4,605 $ 958 $ - $ 5,563
------------ ------------- -------------- ------------- ------------
</TABLE>
8
<PAGE>
<TABLE>
ASC East, Inc. and Subsidiaries
Balance Sheet as of October 26, 1997
(in thousands) (unaudited)
<CAPTION>
ASC East Guarantor Non-Guarantor Elimination Consolidated
Subsidiaries Subsidiaries Entries ASC East
<S> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 18 $ 4,341 $ 214 $ - $ 4,573
Restricted cash - 3,079 - - 3,079
Accounts receivable 383 3,618 1,457 (1,284) 4,174
Inventory 391 11,711 - - 12,102
Prepaid expenses 388 1,918 20 - 2,326
Deferred income taxes - 422 - - 422
Investment in subsidiaries 120,118 138,800 - (258,918) -
-------------- --------------- -------------- ------------- --------------
Total current assets 121,298 163,889 1,691 (260,202) 26,676
Property and equipment, net 2,309 250,184 786 - 253,279
Real estate developed for sale - 45,478 - - 45,478
Goodwill 10,595 - - - 10,595
Deferred financing costs 8,105 - - - 8,105
Long-term investments - - 3,380 - 3,380
Other assets - 4,744 - - 4,744
-------------- --------------- -------------- ------------- --------------
Total assets $ 142,307 $ 464,295 $ 5,857 $ (260,202) $ 352,257
-------------- --------------- -------------- ------------- --------------
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 25,255 $ 4,481 $ - $ - $ 29,736
Accounts payable and other current liabilities 6,192 26,114 469 (1,292) 31,483
Deposits and deferred revenue 730 13,614 16 - 14,360
Demand note, Principal Shareholder - 1,933 - - 1,933
Due to affiliates (48,965) 85,208 (28,982) - 7,261
-------------- --------------- -------------- ------------- --------------
Total current liabilities (16,788) 131,350 (28,497) (1,292) 84,773
Long-term debt, excluding current portion 170,753 66,110 62 - 236,925
Other long-term liabilities 298 3,536 4,188 - 8,022
Deferred income taxes (12,812) 33,557 (804) - 19,941
-------------- --------------- -------------- ------------- --------------
Total liabilities 141,451 234,553 (25,051) (1,292) 349,661
Shareholders' Equity
Common stock, par value of $.01 per share;
1,000,000 shares authorized; 978,300 issued and
outstanding 10 181 2 (183) 10
Additional paid-in capital 3,762 209,876 30,383 (240,259) 3,762
Retained earnings (2,916) 19,685 523 (18,468) (1,176)
-------------- --------------- -------------- ------------- --------------
Total shareholders' equity 856 229,742 30,908 (258,910) 2,596
-------------- --------------- -------------- ------------- --------------
Total liabilities and shareholders' equity $ 142,307 $ 464,295 $ 5,857 $ (260,202) $ 352,257
-------------- --------------- -------------- ------------- --------------
</TABLE>
9
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
Statement of Operations for the three months ended October 26, 1997
(in thousands) (unaudited)
<CAPTION>
ASC East Guarantor Non-Guarantor Elimination Consolidated
Subsidiaries Subsidiaries Entries ASC East
<S> <C> <C> <C> <C> <C>
Net revenues:
Resort $ 759 $ 12,807 $ 422 $ (333) $ 13,655
Real estate - 810 - - 810
------------- --------------- -------------- -------------- ----------------
Total net revenues 759 13,617 422 (333) 14,465
------------- --------------- -------------- -------------- ----------------
Operating expenses:
Resort 355 17,121 390 (333) 17,533
Real estate - 925 - - 925
Marketing, general and administrative 1,932 4,606 2 - 6,540
Stock compensation charge 3,271 - - - 3,271
Depreciation and amortization 447 1,001 2 - 1,450
------------- --------------- -------------- -------------- ----------------
Total operating expenses 6,005 23,653 394 (333) 29,719
------------- --------------- -------------- -------------- ----------------
Income (loss) from operations (5,246) (10,036) 28 - (15,254)
Interest expense 5,897 808 2 - 6,707
------------- --------------- -------------- -------------- ----------------
Income (loss) before provision (benefit) for
income taxes (11,143) (10,844) 26 - (21,961)
Provision (benefit) for income taxes (4,109) (4,334) 10 - (8,433)
------------- --------------- -------------- -------------- ----------------
Net loss available $ (7,034) $ (6,510) $ 16 $ - $(13,528)
------------- --------------- -------------- -------------- ----------------
</TABLE>
10
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
Statement of Cash Flows for the three months ended October 26, 1997
(in thousands) (unaudited)
<CAPTION>
ASC East Guarantor Non-Guarantor Elimination Consolidated
Subsidiaries Subsidiaries Entries ASC East
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (7,034) $ (6,510) $ 16 $ - $ (13,528)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,285 1,063 2 - 2,350
Stock compensation charge 3,271 - - - 3,271
Deferred income taxes (4,109) (4,334) (130) - (8,573)
Decrease (increase) in assets:
Restricted cash - (273) 6 - (267)
Accounts receivable (243) (51) (410) 331 (373)
Inventory (107) (3,413) - - (3,520)
Prepaid expenses (20) (806) 79 - (747)
Real estate developed for sale - (21,938) - - (21,938)
Other assets 250 (95) - - 155
Increase (decrease) in liabilities:
Accounts payable and other current liabilities 4,110 2,936 27 (331) 6,742
Deposits and deferred revenue 192 9,773 16 - 9,981
Other long-term liabilities (194) 413 (10) - 209
Due to/from affiliate 2,441 2,789 20 - 5,250
------------ ------------- -------------- ------------- ------------
Net cash used in operating activities (158) (20,446) (384) - (20,988)
------------ ------------- -------------- ------------- ------------
Cash flows from investing activities
Capital expenditures (981) (10,194) - - (11,175)
Long-term investments - - 127 - 127
------------ ------------- -------------- ------------- ------------
Net cash provided by (used in) investing activities (981) (10,194) 127 - (11,048)
------------ ------------- -------------- ------------- ------------
Cash flows from financing activities
Net proceeds from Senior Credit Facility 1,189 - - - 1,189
Proceeds from construction loan - 33,453 - - 33,453
Proceeds from (repayment of) long-term debt - (613) (4) - (617)
Deferred financing costs (50) - - - (50)
------------ ------------- -------------- ------------- ------------
Net cash provided by financing activities 1,139 32,840 (4) - 33,975
------------ ------------- -------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents - 2,200 (261) - 1,939
Cash and cash equivalents, beginning of period 18 2,141 475 - 2,634
------------ ------------- -------------- ------------- ------------
Cash and cash equivalents, end of period $ 18 $ 4,341 $ 214 $ - $ 4,573
------------ ------------- -------------- ------------- ------------
</TABLE>
11
<PAGE>
ASC East, Inc. and Subsidiaries
Item 2
The following discussion and analysis of the results of operations of the
Company should be read in conjunction with the condensed consolidated financial
statements and related notes contained elsewhere in this report and the audited
financial statements and related notes contained in our Form 10-K filed on
November 9, 1998. The presentation has been reduced in scope pursuant to General
Instruction (H) of Form 10-Q.
Changes in Results of Operations Fiscal 1999 compared to the First Quarter of
Fiscal 1998.
1. Resort revenues. Resort revenues increased $2.1 million, or 15.3%,
from $13.7 million for the three months ended October 26, 1997 to $15.8
million for the three months ended October 25, 1998. The increase is
primarily attributable to the operation of Grand Summit Resort Hotels at
the Company's Killington, Mt. Snow and Sunday River Resorts which opened
during the 1997/1998 ski season.
2. Real estate revenues. Real estate revenue increased $3.5 million,
or 437.5%, from $0.8 million for the three months ended October 26, 1997 to
$4.3 million for the three months ended October 25, 1998. The increase is
primarily attributable to the sale of quartershare units at Grand Summit
Resort Hotel projects at the Company's Killington, Mt. Snow and Sunday
River Resorts and the sale of Locke Mt. townhouses at the Company's Sunday
River Resort.
3. Cost of resort operations. Cost of resort operations increased $2.1
million, or 12.0%, from $17.5 million for the three months ended October
26, 1997 to $19.6 million for the three months ended October 25, 1998. The
increase is primarily attributable to the operation of Grand Summit Resort
Hotels at the Company's Killington, Mt. Snow and Sunday River Resorts which
opened during the 1997/1998 ski season.
4. Cost of real estate operations. Cost of real estate operations
increased $3.0 million, or 333.3% from $.9 million for the three months
ended October 26, 1997 to $3.9 million for the three months ended October
25, 1998. The increase is primarily attributable to an increase in cost of
goods sold relating to the sale of quartershare units at Grand Summit
Resort Hotel projects at the Company's Killington, Mt. Snow and Sunday
River Resorts and the sale of Locke Mt. townhouses at the Company's Sunday
River Resort.
5. Marketing, general and administrative. Marketing, general and
administrative expenses decreased $1.4 million, or 21.5%, from $6.5 million
for the three months ended October 26, 1997 to $5.1 million for the three
months ended October 25, 1998. The decrease is attributable to certain
marketing, general and administrative expenses being assumed by the
Company's parent subsequent to the parents initial public offering on
November 6, 1997.
6. Stock compensation charge. Stock compensation charge decreased $3.3
million, or 100%. This charge was recognized during the three months ended
October 26, 1997 to reflect stock options granted to certain members of
senior management in relation to the Company's parents initial public
offering.
7. Benefit for income taxes. Benefit for income taxes decreased $1.7
million, or 20.2%, from a benefit of $8.4 million for the three months
ended October 26, 1997 to a benefit of $6.7 million for the three months
ended October 25, 1998. The decrease is attributable to the decrease in the
Company's net loss for the three months ended October 25, 1998 as compared
to the three months ended October 26, 1997.
12
<PAGE>
Year 2000 disclosure
Background The "Year 2000 Problem" is the result of many existing computer
programs and embedded chip technology containing programming code in which
calendar year data is abbreviated by using only two digits rather than four to
refer to a year. As a result of this, some of these programs fail to operate or
may not properly recognize a year that begins with "20" instead of "19". This
may cause such software to recognize a date using "00" as the year 1900 rather
than the year 2000. Even systems and equipment that are not typically thought of
as computer-related often contain embedded hardware or software that may
improperly understand dates beginning with the year 2000.
The Company has developed a task force with representation throughout the
organization. The task force has developed a comprehensive strategy to
systematically evaluate and update systems as appropriate. In some cases, no
system changes are necessary or the changes have already been made. In all other
cases, modifications are planned to prepare the Company's systems to be Year
2000 compliant by September 1999. The disclosure below addresses the Company's
Year 2000 Project.
Company's state of readiness
The Year 2000 Project is divided into three initiatives--Information Technology
("IT") Systems, Non-IT Systems and Related Third Party Providers. The Company
has identified the following phases with actual or estimated dates of
completion: 1) identify an inventory of systems expected to be complete by
January 31, 1999; 2) gather certificates and warranties from providers; expected
to be complete by January 31, 1999, 3) determine required actions and budgets;
estimated to be completed by January 31, 1999, 4) perform remediation and tests:
estimated to be completed by September 1, 1999 and 5) designing contingency and
business continuation plans for each Company location: estimated to be completed
by May 31, 1999.
The following is a summary of the different phases and progress to date for each
initiative identified above:
IT Systems: The Company has continuously updated or replaced older
technology with more current technology. As the Company was acquiring ski
resorts, the technology was being updated. The Company's main IT systems include
an enterprise wide client server financial system, a mid-range enterprise wide
payroll system, various point of sale and property management systems, upgraded
personal computers, wide area networking and local area networking. Phases 1 and
2, as noted above, are complete and the remaining phases are currently on
schedule. During phase 1 and 2, the Company noted that Sugarloaf and Sugarbush
have not yet converted to the Springer Miller lodging system and the central
reservation system, both of which the company belives are compliant. Also, the
Company estimates that approximately 20% of personal computers for employees are
not Year 2000 compliant. The Company has estimated that these deficiencies will
be remedied by September 1, 1999, which is in accordance with the original
timetable.
13
<PAGE>
ASC East, Inc. and Subsidiaires
Non-IT Systems: Internal non-IT systems are comprised of faxes, copiers,
printers, postal systems, security systems, elevators and telecommunication
systems. Phases 1, 2 and 3 are scheduled for completion by January 31, 1999
which is 45 days behind schedule. The Company has estimated that remediation is
scheduled for completion by September 1, 1999, which is in accordance with the
original timetable.
Related third party providers: The company has identified its major related
third party providers as certain utility providers, employee benefit
administrators and supply vendors. Phases 1, 2 and 3, are scheduled for
completion by January 31, 1999, which is 45 days behind schedule. The Company
has estimated that remediation is scheduled for completion by September 1, 1999,
which is in accordance with the original timetable.
14
<PAGE>
ASC East, Inc. and Subsidiaries
Actual and anticipated costs
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's financial position.
The estimated total cost of the Year 2000 Project is approximately $150,000.
This estimate does not include Information System conversions at Sugarloaf and
Sugarbush for the Springer Miller lodging system or the central reservations
system since those replacement costs were not due to, or accelerated by, the
Year 2000 Project. The Company is updating those systems to standardize systems
within American Skiing Company resorts. The total amount expended on the Year
2000 Project through October 25, 1998 was $0, of which approximately (1) $0
related to costs to modify software, hire internal personnel and hire outsourced
Year 2000 solution providers and (2) $0 and $0 related to replacement costs of
non-compliant IT systems and non-IT systems, respectively. The estimated future
costs of the Year 2000 Project through October 25, 1998 was $150,000, of which
approximately (1) $0 related to cost to modify software, hire internal personnel
and hire outsourced Year 2000 solution providers and (2) $150,000 and $0 related
to replacement costs of non-compliant IT systems and non-IT systems
respectively.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Year 2000 Project is expected
to significantly reduce the Company's level of uncertainty about the Year 2000
problem. The company believes that, with the implementation of new business
systems and completion of the Year 2000 Project as scheduled, the possibility of
significant interruptions of normal operations should be reduced. Readers are
cautioned that forward-looking statements contained in the Year 2000 Update
should be read in conjunction with the Company's disclosures under the heading:
"Forward Looking Statements" beginning on page 14.
Contingency plans
As of October 25, 1998, the Company has not developed a contingency plan related
to Year 2000. The Company is planning on developing a contingency plan by
May 31, 1999.
15
<PAGE>
ASC East, Inc. and Subsidiaries
Forward-Looking Statements
The above information includes forward-looking statements, the realization
of which may be impacted by the factors discussed below. The forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 (the "Act"). This report contains
forward looking statements that are subject to risks and uncertainties,
including, but not limited to, uncertainty as to future financial results, the
substantial leverage of the Company, the capital intensive nature of development
of the Company's ski resorts; rapid and substantial growth that could place a
significant strain on the Company's management, employees and operations;
uncertainties associated with obtaining financing with which to repay the Bridge
Loan and undertake future capital improvements; demand for and costs associated
with real estate development; change in market conditions affecting the interval
ownership industry; regulation of marketing and sales of the Company's
quartershare interests; seasonality of resort revenues; fluctuations in
operating results; dependence on favorable weather conditions; the discretionary
nature of consumers' spending for skiing and resort real estate; competition;
regional and national economic conditions; laws and regulations relating to the
Company's land use, development, environmental compliance and permitting
obligations; renewal or extension terms of the Company's leases and permits; the
adequacy of water supply; and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission. These risks could
cause the Company's actual results for fiscal year 1999 and beyond to differ
materially from those expressed in any forward looking statements made by, or on
behalf of, the Company. The foregoing list of factors should not be construed as
exhaustive or as any admission regarding the adequacy of disclosures made by the
Company prior to the date hereof or the effectiveness of said Act.
16
<PAGE>
ASC East, Inc. and Subsidiaries
Part II - Other Information
Exhibits and Reports on Form 8-K
Item 6
a) Exhibits
Included herewith is the Financial Data Schedule submitted as Exhibit
27 in accordance with Item 601(c) of Regulation S-K. Also included are the
following material agreements entered into in the Company's first fiscal quarter
of 1999.
Exhibit No. Description
- - ----------- -----------
1) Loan and Security Agreement among Grand Summit Resort Properties,
Inc., Textron Financial Corporation and certain lenders dated as of
September 1, 1998.*
2) Credit Agreement among American Skiing Company Resort Properties,
Inc., certain lenders and BankBoston, N.A. as agent dated as of
September 4, 1998.*
3) Supplemental Indenture dated as of September 4, 1998 among American
Skiing Company Resort Properties, Inc., its subsidiaries party
thereto, and United States Trust Company of New York as Trustee.*
* Incorporated by reference to the Company's Parent Form 10Q for Period Ending
October 25, 1998. (File No. 333-33483)
b) Reports on Form 8-K
The Company filed a Form 8-K during the first quarter of 1999 on
September 29, 1998, reporting the closing of the Bridge Financing and the
Textron
Facility.
17
<PAGE>
ASC East, Inc. and Subsidiaries
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.
December 9, 1998 By: /s/ Christopher E. Howard
---------------------------------------
Christopher E. Howard
Senior Vice President
Chief Administrative Officer
General Counsel, Clerk and
acting Chief Financial Officer
(Duly Authorized Officer)
/s/ Christopher D. Livak
---------------------------------------
Christopher D. Livak
Vice President (Principal Financial Officer)
18
<PAGE>
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