ASC East, Inc. and Subsidiaries
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 OCTOBER 26, 1997
-----------------------------
Commission File Number 333-9763
-----------------------------
ASC East, Inc.
(Exact name of registrant as specified in its charter)
Maine 01-0503382
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 450
Bethel, Maine 04217
(Address of principal executive office) (Zip Code)
(207) 824-5196
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Indicated by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of
common stock was 978,300 shares of common stock $.01 par value outstanding as at
November 10, 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 26, 1997
and October 27, 1996................................................2
Condensed Consolidated Balance Sheet
(Unaudited) as of October 26, 1997 and July 27, 1997................3
Condensed Consolidated Statement of Cash Flows (Unaudited) for the
three months ended October 26, 1997 and October 27, 1996............5
Notes to Condensed Consolidated Financial Statements (Unaudited) ............7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................12
General .....................................................................12
Liquidity and Capital Resources..............................................14
Changes in Results of Operations.............................................14
Changes in Financial Condition...............................................15
Part II Other Information....................................................16
Item 6 Exhibits..............................................................16
<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. ("ASC East") for itself and its
following wholly-owned subsidiaries:
Sunday River Skiway Corporation Sunday River, Ltd.
Sunday River Transportation Perfect Turn, Inc.
LBO Holding, Inc Sugarbush Resort Holdings, Inc.
Mountain Wastewater Treatment, Inc. Sugarbush Leasing Company
Sugarbush Restaurants, Inc. Cranmore, Inc.
Grand Summit Resort Properties, Inc. S-K-I Limited
Killington, Ltd. Mount Snow, Ltd.
Waterville Valley Ski Area, Ltd. Sugarloaf Mountain Corporation
Killington Restaurants, Inc. Dover Restaurants, Inc.
Resort Technologies, Inc. Resort Software Services, Inc.
Mountainside Sugartech
Deerfield Operating Company Pico Ski Area Management Company.
SKI Insurance Mountain Water Company
Killington West, Ltd Club Sugarbush, Inc.
As used herein the term the "Company" means and refers to ASC East and
the subsidiary registrants listed above on a consolidated basis.
The 12% senior subordinated notes due 2006 and 13.75% subordinated
discount notes due 2007 are fully and unconditionally guaranteed by the Company
and all of its subsidiaries with the exception of SKI Insurance, Killington
West, Ltd., Mountain Water Company, and Club Sugarbush, Inc. (the
"Non-Guarantors").
<PAGE>
<TABLE>
<CAPTION>
ASC East, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations
(in thousands)
For the three months ended
October 26, 1997 October 27, 1996
(unaudited) (unaudited)
(Restated - Note 1)
<S> <C> <C>
Net revenues:
Resort ........................................... $ 13,655 $ 11,728
Real estate ...................................... 810 1,569
---------------------------------------------
Total net revenues ............................. 14,465 13,297
Operating expenses:
Resort ........................................... 17,533 15,034
Real Estate ...................................... 925 1,032
Marketing, general and administrative ............ 6,540 4,792
Stock compensation charge (Note 1) ............... 3,271 -
Depreciation and amortization .................... 1,450 1,527
---------------------------------------------
Total operating expenses ....................... 29,719 22,385
---------------------------------------------
Loss from operations ............................... (15,254) (9,088)
Interest expense ................................... 6,707 7,514
---------------------------------------------
Net loss before benefit for income taxes (note 1)... (21,961) (16,602)
Benefit from income taxes .......................... (8,433) (6,309)
---------------------------------------------
Net loss ........................................... $ (13,528) $ (10,293)
=============================================
Net loss per common share-basic and diluted (note 6) $(13.83) $(10.52)
---------------------------------------------
Retained earnings, beginning of the period ........ 12,352 18,131
Net loss .......................................... (13,528) (10,293)
---------------------------------------------
Retained earnings (accumulated deficit), end
of period ......................................... $ (1,176) $ 7,838
=============================================
See accompanying notes to condensed consolidated financial statements
(unaudited).
</TABLE>
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheet
(in thousands)
October 26, 1997 July 27, 1997
(unaudited)
(Restated- Note 1)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents ....................... ......... $ 4,573 $ 2,634
Restricted cash ................................. ......... 3,079 2,812
Accounts receivable ............................. ......... 4,174 3,801
Inventory ....................................... ......... 12,102 7,282
Prepaid expenses .......................................... 2,326 1,579
Deferred tax assets ....................................... 422 422
-------------------------------------------
Total current assets .................................. 26,676 18,530
Property and equipment, net ............................... 253,279 242,617
Long-term investments ..................................... 3,380 3,507
Goodwill .................................................. 10,595 10,664
Deferred financing costs .................................. 8,105 8,334
Due from affiliate ........................................ - 1,260
Real estate developed for sale ............................ 45,478 23,540
Other assets .............................................. 4,744 4,998
============================================
Total assets ........................................... $ 352,257 $ 313,450
============================================
</TABLE>
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheet
(in thousands)
October 26, 1997 July 27, 1997
(unaudited)
(Restated - Note 1)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities
Line of credit and current portion of
long-term debt .................................... $ 29,736 $ 33,248
Accounts payable and other current liabilities .... 31,483 25,738
Deposits and deferred revenue ..................... 14,360 4,379
Demand note shareholder ........................... 1,933 1,933
Due to affiliate (note 1).......................... 7,261 -
----------------------------------------------
Total current liabilities ....................... 84,773 65,298
Long-term debt, excluding current portion ......... 236,925 196,582
Other long-term liabilities ....................... 8,022 6,932
Deferred income taxes (note 1)..................... 19,941 28,514
----------------------------------------------
Total liabilities ............................... 349,661 297,326
Shareholders' Equity
Common stock ........................................ 10 10
Additional paid - in capital ........................ 3,762 3,762
Retained earnings (accumulated deficit) (note 1)..... (1,176) 12,352
-----------------------------------------------
Total shareholders' equity ........................ 2,596 16,124
==============================================
Total liabilities and shareholders' equity ............ $ 352,257 $ 313,450
==============================================
</TABLE>
See accompanying notes to condensed consolidated financial statements
(Unaudited).
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Condensed Consolidated Statement of Cash Flows
(in thousands)
For the three months ended
October 26, 1997 October 27, 1996
(unaudited) (unaudited)
(Restated- Note 1)
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................................ $(13,528) $ (10,293)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization ........................................... 2,350 1,527
Stock compensation charge ............................................... 3,271
Deferred income taxes ................................................... (8,573) (5,789)
Decrease (increase) in assets: .......................................... -
Restricted cash and investments held in escrow .......................... (267) (177)
Accounts receivable ..................................................... (373) 71
Inventory ............................................................... (3,520) (562)
Prepaid expenses ........................................................ (747) (457)
Real estate developed for sale .......................................... (21,938) -
Other current assets .................................................... - 85
Other assets ............................................................ 155 904
Increase (decrease) in liabilities:
Accounts payable and other current liabilities .......................... 6,742 9,897
Deposits and deferred revenue ........................................... 9,981 7,136
Other long-term liabilities ............................................. 209 -
Due to/from affiliate .................................................. 5,250 -
----------------------------------------------
Cash flow (used in) provided by operating activities .................... (20,988) 2,342
Cash flows from investing activities:
Capital expenditures .................................................... (11,175) (7,333)
Additions to assets held for resale ..................................... - (3,285)
Payments for purchases of businesses .................................... - (2,492)
Long-term investments ................................................... 127 (498)
----------------------------------------------
Net cash used in investing activities ................................... (11,048) (13,608)
</TABLE>
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Condensed Consolidated Statement of Cash Flows (continued)
(in thousands)
For the three months ended
October 26, 1997 October 27, 1996
(unaudited) (unaudited)
(Restated - Note 1)
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from senior credit facility ............................ $ 1,189 $ -
-
Payments of long-term debt .......................................... (935) -
Deferred financing costs ............................................ (50) -
Reductions on demand note shareholder ............................... - (621)
Proceeds from long-term debt ........................................ 318 11,689
Proceeds from construction loan ..................................... 33,453 -
---------------------------------------------
Net cash provided by financing activities ........................... 33,975 11,068
---------------------------------------------
Net increase (decrease) in cash and cash equivalents ................ 1,939 (198)
Cash and cash equivalents beginning of period ....................... 2,634 4,087
Cash and cash equivalents end of period ............................. $ 4,573 $ 3,889
=============================================
See accompanying notes to condensed consolidated financial statements
(unaudited).
</TABLE>
<PAGE>
ASC East, Inc. and Subsidiaries
Notes to (Unaudited) Condensed Consolidated Financial Statements
1. Amendment to Form 10Q. The Form 10Q for the three months ended
October 26, 1997, as filed December 10, 1997, 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 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 is based on management's analysis of the actual time spent
by such employees on ASC East-related activities during the period. It is
management's opinion that the method used to allocate the stock compensation
charge is reasonable.
The impact of this adjustment on the unaudited Condensed Consolidated
statement of Operations for the three months ended October 26, 1997 was the
recording of the Stock compensation charge of $3.3 million and an increase in
the benefit from income taxes from $7.3 million to $8.4 million, an increase of
$1.1 million. These adjustments resulted in an increase in net loss of $2.1
million from $11.4 million to $13.5 million, and an increase in basic and
diluted loss per common share of $2.17, from a loss of $11.66 per share to a
loss of $13.83 per share.
2. Amendment to Footnote 8 of the Form 10Q as filed on December 10,
1997. The Form 10Q for the three months ended October 26, 1997 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 10). In the form 10Q as filed on December 10,
1997, the Company incorrectly reflected GSRP as a non-guarantor.
<PAGE>
ASC East, Inc. and Subsidiaries
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 October 26, 1997 and
July 27, 1997, the results of operations for the three months ended October 26,
1997 and October 27, 1996, and the statement of cash flows for the three months
ended October 26, 1997 and October 27, 1996. All adjustments are of a normal
recurring nature. The unaudited condensed consolidated financial statements
should be read in conjunction with the following notes and the consolidated
financial statements in the Form 10-K filed with the Securities and Exchange
Commission October 30, 1997.
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 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.
6. Net Income per Common Share. Net income per common share figures
are based on the average shares outstanding during the first quarter of fiscal
1998 and 1997 of 978,300.
7. Acquisitions. The Company purchased the Pico Mountain Ski Resort on
December 9, 1996. This resort is located in Sherburne, Vermont in close
proximity to the Killington resort. The purchase price of the resort was
$2,909,000 in cash and $1,626,000 present value of contingent liabilities based
upon the occurrence of certain future events relating to the development and
growth of the resort.
8. Adjustments and Reclassifications. Certain amounts in the prior
consolidated financial statements have been reclassed to conform to the current
presentation.
9. Subsequent events. On November 6, 1997, the Company's parent
corporation, American Skiing Company ("Parent") completed an initial public
offering of its common stock. Total proceeds of $265.5 million were raised and
the Parent invested $28.0 million into the Company to purchase 98,965 shares of
common stock. The proceeds from the sale of stock to the Parent will be used to
retire the Company's 13 3/4 subordinated notes due 2007. The early retirement of
these notes will result in an extraordinary loss of $4,398,000 which will be
reported in the second quarter of fiscal 1998.
On November 12, 1997, the Company entered into a new senior credit
agreement . The new senior credit agreement is one component of a two-part $215
million senior credit facility established for the Parent, of which $75 million
is allocated to the Company. The Company's facility is guaranteed by the Parent.
The new credit agreement was used to retire the existing credit agreement. Early
retirement of the existing credit agreement will result in an extraordinary loss
of $1,628,000 in the second quarter of fiscal 1998.
10. Guarantors of Debt (Restated - Note 2). The Notes and 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").
Prior to the Acquisition and issuance of the Notes and Subordinated Notes on
June 28, 1996, the bank loan agreements were collateralized by virtually all of
the assets of the companies comprising the Company. The guarantor subsidiaries
are wholly-owned subsidiaries of the Company and the guarantees are fully,
unconditional, and joint and several. The guarantor information for the quarter
ended October 26, 1997, is as follows:
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Balance Sheet as of October 26, 1997
(in thousands) (unaudited)
Non- Consolidated
Guarantor Guarantor Eliminating Total
ASSETS ASC EAST Subsidiaries Subsidiaries Entries ASC East
(Restated
Note 1 and 2) (Restated - Note 1)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 tax asset - 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
Goodwill 10,595 - - - 10,595
Deferred financing costs 8,105 - - - 8,105
Long-term investments - - 3,380 - 3,380
Other assets - 4,744 - - 4,744
Real estate developed for resale - 45,478 - - 45,478
--------------------------------------------------------------------------------
Total assets 142,307 464,295 5,857 (260,202) 352,257
================================================================================
Liabilities & 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, shareholder - 1,933 - - 1,933
Due to affiliate (48,965) 85,208 (28,982) - 7,261
--------------------------------------------------------------------------------
Total current liabilities (16,788) 131,350 (28,497) (1,292) 84,773
Deferred income taxes (12,812) 33,557 (804) - 19,941
Long-term debt, excluding current portion 170,753 66,110 62 - 236,925
Other long-term liabilities 298 3,536 4,188 - 8,022
--------------------------------------------------------------------------------
Total liabilities 141,451 234,553 (25,051) (1,292) 349,661
Shareholders' Equity
Common stock 10 181 2 (183) 10
Additional paid in capital 3,762 209,876 30,383 (240,259) 3,762
Retained earnings (2,916) 19,685 523 (18,468) (1,176)
--------------------------------------------------------------------------------
Total shareholders' equity 856 229,742 30,908 (258,910) 2,596
Total Liabilities & Shareholders' Equity $ 142,307 $ 464,295 $ 5,857 $ (260,202) $352,257
================================================================================
</TABLE>
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Statement of Operations for the three months ended October 26, 1997
(in thousands) (unaudited)
Non- Consolidated
Guarantor Guarantor Eliminating Total
ASC EAST Subsidiaries Subsidiaries Entries ASC East
(Restated -
Note 1 and 2) (Restated Note 1)
----------------------------------------------------------------------------------
<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 mortization 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 5,897 808 2 - 6,707
----------------------------------------------------------------------------------
Net income (loss) before provision for
income taxes (11,143) (10,844) 26 - (21,961)
Provision for (benefit) Income Taxes (4,109) (4,334) 10 - (8,433)
----------------------------------------------------------------------------------
Net income (loss) $ (7,034) $ (6,510) $ 16 $ - $ (13,528)
==================================================================================
</TABLE>
<PAGE>
ASC East, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Statement of Cash Flows for the three months ended October 26, 1997
(in thousands) (unaudited)
Non- Consolidated
Guarantor Guarantor Eliminating Total
ASC EAST Subsidiaries Subsidiaries Entries ASC East
(Restated -
Note 1 and 2) (Restated - Note 1)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (7,034) $ (6,510) $ 16 $ - $ (13,528)
Non-cash items included in net loss:
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 resale - (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
--------------------------------------------------------------------------------
Cash flows provided (used) for operating
activities (158) (20,446) (384) - (20,988)
Cash flows from investing activities:
Long-term investments - - 127 - 127
Capital expenditures (981) (10,194) - - (11,175)
--------------------------------------------------------------------------------
Cash flows provided (used) for 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
Deferred financing costs (50) - - - (50)
Proceeds from long-term debt - 318 - - 318
Payments of long-term debt - (931) (4) - (935)
--------------------------------------------------------------------------------
Cash flows provided (used) for financing
activities 1,139 32,840 (4) - 33,975
Net cash increase (decrease) in cash
and cash equivalents - 2,200 (261) - 1,939
Cash and cash equivalents, beginning of year 18 2,141 475 - 2,634
--------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 18 $ 4,341 $ 214 $ - $ 4,573
================================================================================
</TABLE>
<PAGE>
ASC East, Inc. and Subsidiaries
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Restated - Note 1)
General
Set forth below is management's discussion and analysis of (i ) the
liquidity and capital resources of the Company, (ii) changes in financial
condition of the Company, including (a) a discussion of changes in financial
condition from the end of the 1997 fiscal year through the quarter ended October
26, 1997, and (b) a comparison of financial condition between the first quarter
of fiscal 1998 as compared to the first quarter of fiscal 1997, and (iii) the
results of operations for the first quarter of fiscal 1998 as compared to the
corresponding quarter of fiscal 1997.
Liquidity and Capital Resources
The Company's primary liquidity needs are to fund capital expenditures,
service indebtedness and support seasonal working capital requirements. The
Company's primary sources of liquidity are cash flow from operations of its
subsidiaries, borrowings under the Company's senior credit facility and equity
infusion from the Parent. Capital expenditures associated with real estate
development are funded through construction financing facilities established for
each major real estate development project.
The Company established a new credit facility on November 12, 1997 (the
"New Credit Facility"). As of October 26, 1997 there was $56 million outstanding
under the prior credit facility, leaving availability under the facility of $5
million. The new credit facility is a portion of a combined facility provided to
and guaranteed by the Parent. The Company's obligations under the senior credit
facility are limited to the portion of the facility available to the Company.
The financial convents (excepting the leverage test) are, however, applied on a
consolidated basis with the Parent. The facility for the Company consists of a
six year revolving credit facility in the amount of $45 million and an eight
year term facility in the amount of $30 million. The revolving facility will be
subject to an annual 30 day clean down requirement to an outstanding balance of
not more than the available revolving credit amount in effect at such time less
$25 million. For the year ended July 26, 1998 the clean down requirement will be
an outstanding balance of not more than $10 million. The maximum availability
under the revolving facility will reduce over the term of the facility by
certain prescribed amounts. The term facility amortizes at a rate of
approximately 1.0% of the principal amount for the first six years with the
remaining portion of the principal due in two substantially equal installments
in years seven and eight.
Beginning in July 1999, the New Credit Facility is expected to require
certain mandatory prepayments from excess cash flows. In no event, however, will
such mandatory prepayments reduce the Company's revolving facility commitment
below $35 million. The New Credit Facility is expected to be secured by
substantially all the assets of the Company, except Grand Summit Resort
Properties, Inc., which is not a borrower under the New Credit Facility. The New
Credit Facility is expected to contain affirmative, negative and financial
covenants customary for this type of senior credit facility including
maintenance of customary financial ratios. Compliance with financial covenants
will be determined on a consolidated basis notwithstanding the bifurcation of
the New Credit Facility into facilities for the Company and the Parent's other
subsidiaries, with the exception of a leverage test.
<PAGE>
ASC East, Inc. and Subsidiaries
The Company's principal real estate development projects, Grand Summit
Hotels at its Sunday River, Attitash/Bear Peak, Killington and Mount Snow
resorts ("Projects") are undertaken through an unrestricted subsidiary of the
Company, Grand Summit Resort Properties, Inc. The projects have been financed
through a construction loan facility entered into on August 1, 1997. The
construction loan facility is not an obligation of the Company. Recourse on this
facility is limited to its Grand Summit Resort Properties, Inc. subsidiary. The
facility is a customary construction lending facility allowing for periodic draw
down as construction progresses. Each advance is subject to certain conditions,
including Grand Summit Resort Properties, Inc. subsidiary obtaining certain
levels of preconstruction sales. Interest on the loan will accrue at the prime
rate established by Chase Manhattan Bank as of the first day of each month, plus
1.5%, but will not accrue at less than 9.25% per annum. The loan will be secured
by (I) a first mortgage on the hotel resort properties, (ii)any interests that
the Company may have in purchased quartershare units, including sales contracts,
and (iii) other security interests granted by the Grand Summit Resort
Properties, Inc. subsidiary. Interest on the loan is due and payable monthly in
arrears. Principal will be repaid on the following basis: (i) as quartershare
sales close at the Attitash project an amount equal to 85% of the sales proceeds
payable in connection with the sale, (ii) as quartershare sales close at The
Jordan Bowl, Killington and Mount Snow projects, an amount equal to 80% of the
sales proceeds payable in connection with the sale, (iii) an amount equal to the
rental payments received by The Grand Summit Resort Properties, Inc. subsidiary
from The Company for the lease of the Projects (aggregating $193,000 per month)
and (iv) other amounts upon the aggregate of original or outstanding advances
exceeding certain construction costs and quartershare sales levels; provided,
however, that the construction loan facility will mature at the end of December,
2000. This facility has been used to fund the $21.9 million capital expenditures
related to project construction. With a total availability of $55 million it is
anticipated that this facility, together with funds invested by the Company,
will be sufficient to fund the Projects under construction.
The Parent closed on its initial public offering on November 12, 1997
and purchased common stock in the Company in the amount of approximately $35.6
million. The proceeds will be use to redeem the Company's 13 3/4% subordinated
discount notes due 2007 for an aggregate redemption price of approximately $27.7
million. These notes will be redeemed on December 30, 1997. The proceeds were
also used to repay approximately $7.7 million of a subsidiary's outstanding debt
in connection with the closing of the Parent's initial public offering .
During the first quarter of fiscal 1998 the Company used $26.1 million
for operations, $21.9 million of which was for the construction of the Projects,
which are classified as real estate developed for resale. The estimated
completion dates on these hotels will be the second and third quarter of fiscal
1998. The balance of $4.2 million was used in operations and to prepare the
resorts for the coming season.
Management believes cash flow from second and third quarter operations,
combined with borrowings under its senior credit facility, will be sufficient to
meet its operating and capital requirements for the remainder of fiscal 1998 and
the first and second quarter of fiscal 1999.
<PAGE>
ASC East, Inc. and Subsidiaries
Management Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the July
27, 1997 Form 10-K and the consolidated financial statements as of July 27, 1997
and October 26, 1997, and for the three month period ended October 26, 1997 and
October 27, 1996, included in Part 1 of the Form 10-Q/A, which provide
additional information regarding financial condition and operating results.
Changes in Results of Operations
Changes for the First Quarter of Fiscal 1998 compared to the First Quarter of
Fiscal 1997.
1. Resort Revenues. Resort revenues increased $2.0 million (17.1%) from
$11.7 million for the quarter ended October 27, 1996 to $13.7 million for the
quarter ended October 26, 1997. This increase resulted primarily from: (i) $1.2
million increase in retail sales from the purchase of two retail operations with
locations in Vermont, New Hampshire, and Maine; (ii) $.3 million increase from
the operation of the recently completed Attitash/Bear Peak Grand Summit Hotel;
and (iii) $.5 million increase from the existing operations of the Company.
2. Real Estate Revenues Real estate revenues decreased $.8 million
(48.4%) from $1.6 million for the quarter ended October 27, 1996 to $.8 million
for the quarter ended October 26, 1997. $1.6 million of the decrease was
attributable to a reduction in sales of Locke Mountain townhouses at Sunday
River Ski Resort as that project nears completion. In the first quarter of
fiscal 1997 6 units had been sold with an average price of $261,000, no units
were closed in the first quarter of fiscal 1998. It is anticipated the
conclusion of that project will result in the same number of townhouses being
constructed and closed in fiscal 1998 as in fiscal 1997. In the first quarter of
fiscal 1998, the Company sold $.5 million of the Attitash/Bear Peak Grand Summit
Hotel quarter share units. The hotel was completed in April 1997 and therefore
no units were sold in the first quarter of fiscal 1997.
3. Cost of Resort Operations. Cost of resort operations increased from
$15 million for the quarter ended October 27, 1996 compared to $17.5 million for
the quarter ended October 26, 1997, a $2.5 million increase or 16.6%. This
increase resulted primarily from: (i) $1.4 million increase in costs related to
new retail operations which include certain costs associated with the start up
of the new retail locations; (ii) $.4 million of costs related to the operation
of the Attitash/Bear Peak Grand Summit Hotel and: (iii) $.7 million increase
from the existing operations of the Company.
4. Cost of Real Estate Operations Cost of real estate operations
decreased from $1.0 million for the quarter ended October 27, 1996 to $.9
million for the quarter ended October 26, 1997. The decrease is primarily
attributable to the difference in sales between the two periods.
<PAGE>
ASC East, Inc. and Subsidiaries
5. Marketing, General and Administrative Marketing, general and
administrative costs increased from $4.8 million for the quarter ended October
27, 1996 to $6.5 million for the quarter ended October 26, 1997, a $1.7 million
increase or 35.4%. The primary reason for the increase was the establishment of
corporate offices and increased costs associated with coordinating the
activities of the various resorts.
6. 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.
7. Interest Expense. Interest expense decreased $.8 million from the
first quarter of 1997 compared to the first quarter of 1998. The decrease is
primarily due to the repayment of certain long-term debt.
8. Benefit from Income Taxes (Restated - Note 1). Benefit from income
taxes increased $2.1 million and is from the increase in net loss before benefit
from income taxes of $5.4 million.
Changes in Financial Condition
October 26, 1997 Compared to July 27, 1997
1. Cash and Cash Equivalents. Cash and cash equivalents increased $1.9
million. This increase was attributable to the timing of funding the Company's
Grand Summit Resort Properties, Inc. subsidiary's construction projects. Grand
Summit Resort Properties, Inc.'s construction financing facility supplies cash
that is temporarily held for deposit before the funds are disbursed for
construction costs.
2. Inventory. Inventory increased $4.8 million, an increase of
approximately 66% from July 27, 1997. Approximately $4.2 million of the increase
was attributable primarily to the Company increasing its retail operations,
including: (i) the addition of a retail location at the base of the Killington
resort; (ii) the purchase of a retail business that includes stores in North
Conway, New Hampshire and Freeport, Maine; and (iii) the development of retail
stores at several of its resorts. The remainder of the increase in inventory is
attributable to the Company's normal operating cycle as its resorts prepare for
the ski season.
<PAGE>
ASC East, Inc. and Subsidiaries
3. Prepaid Expenses. Prepaid expenses increased $.7 million which is
due to the normal operating cycle of the Company.
4. Property & Equipment. Property and Equipment, net increased $10.7
million from July 27, 1997. The increase in Property and Equipment is
attributable to the Company's significant capital improvements at its resorts;
including several new lifts, significant upgrades in snowmaking and other base
area improvements for the 1997/1998 ski season.
5. Real Estate Developed for Resale. Real Estate Developed for Resale
increased $21.9 million. The increase is attributable primarily to the
construction of three Grand Summit hotels at the Company's Killington, Mount
Snow, and Sunday River resorts. The hotels are expected to begin operations
during the 1997/1998 ski season.
6. Current Portion of Long-term Debt. Current Portion of Long-term debt
decreased $3.5. The decrease is primarily due to $4.5 million of current debt
related to the construction of the Attitash Grand Summit hotel that was repaid
during the first quarter of Fiscal 1998.
7. Accounts Payable and Accrued Expenses. Accounts Payable and Accrued
Expenses increased $5.7 million, or 22.3% at October 26, 1997 as compared to
July 27, 1997. The increase in Accounts Payable and Accrued Expenses was due to:
(i) an approximate $7.3 million increase in short term payables due to capital
projects and preparation for the ski season; (ii) an increase in accrued
interest of $3.6 million related to the Company's 12% senior subordinated
debentures, and; (iii) a decrease of $4.5 million related to the timing of
construction contract billings for the Projects.
8. Deposits and Deferred Revenues. Deposits and Deferred Revenues
increased $10.0 million, or 228% at October 26, 1997 as compared to July 27,
1997. The increase in deferred revenues is attributable primarily to $8.1
million of pre-sales relating to season pass sales and multiple day ticket
products. The remainder of the increase is due to lodging deposits for the
1997/1998 ski season.
9. Due to Affiliate (Restated - Note 1). Due to affiliate increased
$7.3 million. This advance was from American Skiing Company and was primarily
used for operations and capital investment at the Company. 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.
10. Long-term Debt. Long-term debt increased $40.3 million, or 21% at
October 26, 1997 as compared to July 27, 1997. The increase in Long-term Debt is
principally attributable to: (i) $37.1 drawn down under the Grand Summit Resort
Properties, Inc. construction loan facility to fund Project construction; (ii) a
new $1 million note established in connection with Killington's purchase of its
new retail operation; and (iii) $.9 million of original issue discount
amortization on the senior and junior subordinated debentures. The remaining
increase is attributable to the increase in the Company's senior credit facility
for normal operating purposes.
11. Deferred Income Taxes (Restated - Note 1). Deferred Income taxes
decreased $8.6 million which is attributable to the Company's income tax benefit
generated by the loss incurred during the three months ended October 26, 1997.
12. Retained Earnings (Restated - Note 1). Retained Earnings decreased
$13.5 million representing the Company's net loss for the three months ended
October 26, 1997.
<PAGE>
ASC East, Inc. and Subsidiaries
Part II - Other Information
In conjunction with the Parent's initial public offering, the Company
amended the terms of its 12% Senior Subordinated Notes due 2006 to permit the
consummation of the offering without requiring the Company to make a "Change of
Control Offer" as defined in the indenture relating to the notes. The amendment
was effected through a successful solicitation of consent of bondholders to the
amendment.
Item 6
Exhibits
Included herewith is the Financial Data Schedule submitted as Exhibit
27 in accordance with Item 601(c) of Regulation S-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASC EAST, INC.
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)
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