American Skiing Company 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 333-33483
--------------------------------
American Skiing Company
(Exact name of registrant as specified in its charter)
Maine 04-3373730
(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 were 14,760,530 of Class A common stock $.01 par value and
16,120,044 shares of common stock $.01 par value outstanding as of May 7,
1998.
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Table of Contents
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Statement of Operations (Unaudited)
for the three months ended October 26, 1997
and October 27, 1996..................................................2
Condensed Consolidated Balance Sheet
as of October 26, 1997 (Unaudited)and July 27, 1997...................4
Condensed Consolidated Statement of Cash Flows (Unaudited) for the
three months ended October 26, 1997
and October 27, 1996..................................................6
Notes to Condensed Consolidated Financial Statements
(Unaudited) ..........................................................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General..............................................................11
Liquidity and Capital Resources......................................11
Changes in Results of Operations.....................................14
Changes in Financial Condition.......................................16
Subsequent Events....................................................17
Forward-Looking Statements...........................................18
Part II - Other Information
Item 2. Changes in Securities and Reports filed
on Form 8K..................................................20
Item 4. Submission of Matters to Vote of Security
Holders.....................................................20
Item 6. Exhibits.....................................................21
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Part I - Financial Information
Item 1
Financial Statements
This Form 10-Q/A is filed by American Skiing Company ("ASC") 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.
ASC East, Inc. ASC West, Inc.
ASC Utah
As used herein the term the "Company" means and refers to American
Skiing Company and the subsidiary registrants listed above on a consolidated
basis.
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<TABLE>
Part I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Statement of Operations
(In thousands, except share and per share amounts)
<CAPTION>
For the three months ended
October 26, 1997 October 27, 1996
(unaudited) (unaudited)
<S> <C> <C>
Net revenues:
Resort $13,811 $ 11,728
Real estate 810 1,569
------------------------------------------------------------
Total net revenues 14,621 13,297
------------------------------------------------------------
Operating expenses:
Resort 17,808 15,034
Real estate 925 1,032
Marketing, general and administrative 6,845 4,792
Stock option charge (note 7) 14,254
Depreciation and amortization 1,506 1,527
------------------------------------------------------------
Total operating expenses 41,338 22,385
Loss from operations (26,717) (9,088)
Interest expense 8,448 7,514
------------------------------------------------------------
Loss before benefit for income taxes
and minority interest in loss of subsidiary (35,165) (16,602)
Benefit for income taxes (13,714) (6,309)
Minority interest in loss of subsidiary (456)
------------------------------------------------------------
Net loss (20,995) (10,293)
Accretion of discount and dividends accrued on
mandatorily redeemable preferred stock $ 2,431 $ -
-------------------------------------------------------------
</TABLE>
2
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<TABLE>
Condensed Consolidated Statement of Operations (Continued)
(In thousands, except share and per share amounts)
<CAPTION>
For the three months ended
October 26, 1997 October 27, 1996
(unaudited) (unaudited)
<S> <C> <C>
Net loss available to common shareholders $ (23,426) $ (10,293)
====================================================
Net loss per Class A common and common shares
outstanding (note 4) $ (1.59) $ (10.52)
====================================================
Retained earnings, beginning of the period $ 12,305 $ 18,131
Net loss available to Common Shareholders (23,426) (10,293)
----------------------------------------------------
====================================================
Retained earnings (accumulated deficit),
end of period $ (11,121) $ 7,838
====================================================
Weighted average common shares
outstanding 14,760,530 978,300
====================================================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
Condensed Consolidated Balance Sheet
(In thousands, except share and per share amounts)
<CAPTION>
October 26, 1997 July 27, 1997
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 6,214 $ 15,558
Restricted cash 6,762 2,812
Deposit 11,010
Accounts receivable 4,358 3,801
Inventory 12,102 7,282
Prepaid expenses 2,536 1,579
Deferred tax assets 422 422
--------------------------------------------------------------
Total current assets 43,404 31,454
Property and equipment, net 271,082 252,346
Goodwill 10,595 10,664
Deferred financing costs 9,171 9,431
Long-term investments 3,380 3,507
Other assets 8,997 6,398
Real estate developed for sale 45,478 23,540
===============================================================
Total assets $ 392,107 $ 337,340
===============================================================
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<TABLE>
Condensed Consolidated Balance Sheet
(In thousands, except share and per share amounts)
<CAPTION>
October 26, 1997 July 27, 1997
(unaudited)
<S> <C> <C>
Liabilities Mandatorily Redeemable Preferred
Stock, and Shareholders' Equity
Current liabilities
Line of credit and current portion of long-term debt $ 36,236 $ 39,748
Accounts payable and other current liabilities 40,719 24,857
Deposits and deferred revenue 14,657 4,379
Demand note, shareholder 1,933 1,933
Due to affiliate 95 -
-----------------------------------------------------
Total current liabilities 93,640 70,917
Long-term debt, excluding current portion 255,045 196,582
Other long-term liabilities 8,200 8,779
Minority Interest 170 626
Deferred income taxes 14,660 28,514
-----------------------------------------------------
Total liabilities 371,715 305,418
Mandatorily redeemable preferred stock Series A,
par value $1,000 per share 200,000 shares authorized;
17,500 issued and outstanding; net or unaccreted
issuance costs and including accretion or discount
and cumulative dividends in arrears (redemption
value of 18,402) 18,402 16,821
Shareholders' Equity
Common stock, Class A, par value $.01 per share, 15,000,000
shares authorized; 14,760,530 issued and outstanding; 10 10
Additional paid-in capital 13,101 2,786
Retained earnings (11,121) 12,305
-----------------------------------------------------
Total shareholders' equity 1,990 15,101
-----------------------------------------------------
Total liabilities, mandatorily redeemable
preferred stock and shareholders' equity $ 392,107 $ 337,340
=====================================================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
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<TABLE>
Condensed Consolidated Statement of Cash Flows
(In thousands)
<CAPTION>
For the three months ended
October 26, 1997 October 27, 1996
(unaudited) (unaudited)
<S> <C> <C>
Net loss $ (20,995) $ (10,293)
Adjustments to reconcile net loss to net
cash (used in)provided by operating
activities:
Minority Interest (456)
Depreciation and amortization 3,001 1,527
Discount on convertible debt 927 -
Deferred income taxes (13,854) (5,789)
Stock option charge 14,254
Decrease (increase) in assets:
Restricted cash and investments held in escrow (3,950) (177)
Deposits (11,010)
Accounts receivable (557) 71
Inventory (3,520) (562)
Prepaid expenses (957) (457)
Real estate developed for sale (21,938) -
Other current assets 85
Other assets (2,698) 904
Increase (decrease) in liabilities:
Accounts payable and other current
liabilities 9,381 9,897
Deposits and deferred revenue 10,278 7,136
Other long-term liabilities 302 -
-------------------------------------------------------------
Net cash flow (used in) provided by
operating activities (41,792) 2,342
Cash flows from investing activities:
Capital expenditures (19,249) (7,333)
Additions to assets held for resale - (3,285)
Payments for purchases of businesses - (2,492)
Long-term investments 127 (498)
Due to affiliate 95
-------------------------------------------------------------
Net cash used in investing activities $ (19,027) $ (13,608)
-------------------------------------------------------------
</TABLE>
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<TABLE>
Condensed Consolidated Statement of Cash Flows (continued)
(In thousands)
<CAPTION>
For the three months ended
October 26, 1997 October 27, 1996
(unaudited) (unaudited)
<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 17,818 11,689
Proceeds from construction loan 33,453 -
------------------------------------------------------
Net cash provided by financing activities 51,475 11,068
Net increase (decrease) in cash and cash equivalents (9,344) (198)
Cash and cash equivalents, beginning of period 15,558 4,087
------------------------------------------------------
Cash and cash equivalents, end of period $ 6,214 $ 3,889
======================================================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
7
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Notes to (Unaudited) Condensed Consolidated Financial Statements
1. Amendment to Form 10-Q. The Form 10-Q for the quarter ended
October 26, 1997, as originally filed on December 22, 1997, has been amended to
restate the statement of operations to reflect $0.9 million of interest expense
on the Senior Exchangeable Notes, not previously recorded, to account for the
conversion feature under the Securities Purchase Agreement(as defined in the
Form S-1 filed by the Company on November 6, 1997). The Senior Exchangeable
Notes were subsequently exchanged for shares of the 10 1/2% Convertible
Preferred Stock upon the closing of the Company's initial public offering of its
common stock in accordance with the Preferred Exchange Offer (as defined in the
Form S-1 filed by the Company on November 6, 1997). The amendment results in an
increase of $.6 million, net of the related income tax benefit, in the net loss
for the quarter from $20.4 million, as originally filed, to $21.0 million and an
increase in the basic and diluted net loss per share for the quarter from $1.55
to $1.59.
In addition, the Form 10-Q, as originally filed on December 22, 1997,
has been amended to restate the balance sheet to reflect a $0.9 million reclass
from Series A Mandatorily Redeemable Preferred Stock to additional paid-in
capital to account for the conversion feature under the Securities Purchase
Agreement. The Series A Mandatorily Redeemable Preferred Stock was subsequently
exchanged for shares of the 10 1/2% Convertible Preferred Stock upon the closing
of the Company's initial public offering of its common stock.
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 26, 1997 and
July 27, 1997, the results of operations for the three months ended October 26,
1997 and October 27, 1996, and the statement of cash flows for the three months
ended October 26, 1997 and October 27, 1996. All adjustments are of a normal
recurring nature. The unaudited condensed consolidated financial statements
should be read in conjunction with the following notes and the Company's
consolidated financial statements in the Form S-1, Amendment No. 4 filed with
the Securities and Exchange Commission on November 5, 1997.
3. Inventories. Inventories are stated at the lower of cost (first-in,
first-out) or market, and consist primarily of retail goods, food and beverage
products and maintain operating supplies.
4. Income Taxes. The benefit for taxes on income is based on a
projected annual effective tax rate of 39%. The net deferred income tax
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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.
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 the development and operation of ski resorts.
6. Net Income per Common Share. Net income per common share figures are
based on the weighted average number of shares outstanding during the first
quarter of fiscal 1998 and 1997 of 14,760,530 and 978,300 respectively. The
shares outstanding are the actual shares outstanding for both common stock and
Class A common stock. On a pro forma basis using the outstanding shares as of
May 7, 1997, loss per share for the Quarter ended October 26, 1997 including
Class A common and common stock would have been $(.78) per share. This pro forma
loss per share includes the increase in shares outstanding from the Company's
initial public offering that closed on November 12, 1997.
7. Adjustments and Reclassifications. Certain amounts in the prior
unaudited condensed consolidated financial statements and the audited financial
statements filed with the Fourth Amendment to the Company's Registration
Statement on November 5, 1997 with the Securities and Exchange Commission have
been reclassified to conform to the current presentation.
8. Stock option plan. The Company recorded a compensation expense charge of
$14.3 million in the quarter ended October 26, 1997 to recognize compensation
expense for stock options granted to certain key members of management. This
charge is based on the difference between the exercise price of $2.00 and the
fair market value as of the date of grant of $18.00. Certain senior management
are also being granted a cash payment on the date the options are exercised to
cover individual Federal and State income tax liability generated by exercising
the options. The estimated amount of the tax liability payment of $5.7 million
has been fully accrued along with the stock option compensation charge of $8.6
million.
9. Guarantors of Debt. One of the main subsidiaries of the Company is
ASC East, Inc. ASC East, Inc. files its own Form 10-Q because of notes and
subordinated notes that were registered with the Securities and Exchange
Commission on Form S-4 with the Securities and Exchange Commission on November
22, 1996. These notes and subordinated notes are fully and unconditionally
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guaranteed by ASC East, Inc. and all of its subsidiaries with the exception of
Grand Summit Resort Properties, Inc., Ski Insurance Company, Killington West,
Ltd., Mountain Water Company, and Club Sugarbush. All required financial
information associated with these notes and "non-guarantor" disclosures are
included in the 10-Q for the quarter ended October 26, 1997 for ASC East, Inc.
filed with the Securities and Exchange Commission December 10, 1997.
10. Subsequent events. On November 5, 1997, the Securities and Exchange
Commission declared effective the Company's Form S-1 Registration Statement for
purposes of registering the Company's common stock. On November 12, 1997, the
Company settled the sale of (i) 833,333 shares of common stock directly to the
Principal Shareholder at $18.00 a share (ii) 13,916,667 shares of common stock
to the public at $18.00 per share in the public offering by the underwriters.
Total gross proceeds of $265.5 million were received in connection with the
offering.
On November 12, 1997 the Company closed the acquisition of the
Steamboat and Heavenly resorts for a purchase price, including closing costs and
adjustments, of approximately $298 million. On a pro forma basis including the
results from the Steamboat and Heavenly resorts acquired November 12, 1997,
total revenues for the quarters ended October 26, 1997 and October 27, 1996
would have been $17,699 million and $16,551 million, respectively; net loss for
the quarters ended October 26, 1997 and October 27, 1996 would have been $35,394
million and $19,532, respectively; and earnings per share would have been (using
the outstanding shares as of December 22, 1997 of 29,510,530) $(1.20) and
$(.66), respectively.
On November 12, 1997, the Company entered into a new senior secured
credit facility with a group of lenders pursuant to which the Company may borrow
up to $215 million. A portion of the net proceeds of the common stock offering,
together with borrowings under the senior credit facility, were used to fund the
purchase of Steamboat and Heavenly ski resorts for approximately $290 million,
Also on November 12, 1997 a portion of the proceeds from the common stock
offering were used to make a $35.6 million investment in the common stock of one
of the Company's major subsidiaries, ASC East, Inc. This investment in ASC East,
Inc. will primarily be used to redeem the Subsidiaries' outstanding subordinated
discount notes, on December 30, 1997.
The Company is also in the process of exchanging shares of the
Company's common stock for shares of common stock in a subsidiary of the
Company, ASC East, Inc. This exchange is being made to enable three beneficial
owners of the minority interests to acquire common stock in the Company at
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substantially the same exchange ratio as Leslie B. Otten, the principal
shareholder of the Company, exchanged his shares of ASC East, Inc. common stock
for shares of common stock in connection with the formation of the Company. The
Company believes that the simplification of its organizational structure will
enable the Company to more clearly present its operations to prospective
investors and lenders, thereby enhancing the Company's ability to obtain capital
and expand the markets it serves and will eliminate potential conflicts of
interest between minority holders and shareholders of the Company.
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
We are pleased to present to you management's discussion and analysis
of financial condition and results of operations for the first quarter of fiscal
1998. The results reported do not include the Steamboat and Heavenly resorts
acquired after the close of the first quarter. Pro forma revenue and net loss
for the first quarter of fiscal 1997 and 1998, inclusive of Steamboat and
Heavenly, are provided under the discussion of "Subsequent Events." As you read
the material below, we urge you to carefully consider our condensed,
consolidated financial statements and related notes contained elsewhere in this
report and the audited financial statements and related notes contained in our
Form S-1 Registration Statement filed November 5, 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 summer 1998 capital
improvement program has two primary components (1) skiing related improvements,
such as lifts, trails, snow-making equipment and base facilities, and (2)
development of base area real estate. Cash requirements for each activity are
provided by separate sources. The Company's primary sources of liquidity for
working capital and ski-related capital improvements are unexpended proceeds
from the initial public offering, cash flow from operations of its subsidiaries
and borrowings under the its senior credit facility. Real estate development is
funded primarily 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"). The New Credit Facility is divided into two
sub-facilities, $75 million of which (up to $65 million of which is currently
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available) is available for borrowings by ASC East, Inc. and its subsidiaries
(the "East Facility") and $140 million of which is available for borrowings by
the Company excluding ASC East, Inc. and its subsidiaries (the "West Facility").
The East Facility consists of a six-year revolving credit facility in the amount
of $45 million and an eighty-year term facility in the amount of $30 million.
The West Facility consists of a six-year revolving facility in the amount of $65
million and an eight-year term facility in the amount of $75 million.
The revolving facilities are subject to annual 30-day clean down
requirements to an outstanding balance of not more than $10 million for the East
Facility and not more than $35 million for the West Facility. The maximum
availability under the revolving facilities will reduce over the term of the New
Credit Facility by certain prescribed amounts. The term facilities amortize 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. In no event, however, will such mandatory prepayments reduce either
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.
Except for a leverage test, compliance with financial covenants is determined on
a consolidated basis notwithstanding the bifurcation of the New Credit Facility
into sub-facilities. The East Facility is secured by substantially all the
assets of ASC East and its subsidiaries, except our real estate development
subsidiaries, which are not borrowers under the New Credit Facility. The West
Facility is secured by substantially all the assets of the Company and its
subsidiaries, except ASC East and its subsidiaries.
The Company retained approximately $15 million of unexpended proceeds
from its initial public offering.
ASC East, Inc. is prohibited under the indenture governing its $120
million 12% Senior Subordinated Notes due 2006 from paying dividends or making
other distributions to the Company. Therefore, excess cash flow from ASC East,
Inc. cannot be distributed to the Company for use by the Company or its other
subsidiaries.
The Company issued $17.5 million of convertible, preferred stock and
$17.5 million convertible notes to fund development at its new resort in Utah
called The Canyons. Approximately $20 million was expended in acquiring and
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developing the resort since July 3, 1997. The remaining proceeds are earmarked
for funding a portion of summer 1998 improvements at The Canyons.
The combination of unexpended proceeds from its initial public
offering, cash flow from resort operations, the New Credit Facility and proceeds
remaining from the 10 1/2% Convertible, Exchangeable Preferred Stock will
provide sufficient funds to meet short term liquidity needs for working capital
and skiing related capital expenditures.
The Company runs its real estate development through single purpose
subsidiaries. Construction of 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 for periodic draw down 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
Grand Summit properties. Principal is repaid from 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, will be
sufficient to fund the Grand Summit projects scheduled for completion for the
1997-1998 ski season.
The Company intends to continue real estate development at its eastern
resorts, and initiate real estate development projects at its western resorts
during summer 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 be arranged on a limited recourse basis similar to
our existing real estate development facilities; however, no commitments are
currently in place for the necessary facilities.
Long Term. The Company's primary long term liquidity needs are to fund
skiing related capital improvements at certain of its resorts, extensive
development of its slopeside real estate and any future acquisitions of resort
properties.
The Canyons resort in Utah represents the Company's largest long-term
capital need. That resort will require an estimated $40 million over the next
four years to fully develop on-mountain facilities in time for the 2002 Winter
Olympic Games.
The investment required at each of the other resorts varies depending
upon the age and condition of its facilities. With the exception of Killington
and Mount Snow, the New England resorts will generally require less investment
due to the investments already made at those resorts over the last several
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years. Killington, Mount Snow and the western resorts will require higher levels
of investment over the next several years to realize their full potential.
There is a considerable degree of flexibility in the timing and, to a
lesser degree, scope of these capital improvements. Although specific capital
expenditures can be deferred for extended periods, continued growth of 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 senior credit facility.
The size and scope of the capital improvement program will generally be
determined annually depending upon future availability of cash flow from each
season's resort operations and future borrowing availability under the senior
credit facility.
Development of Grand Summit hotels at several resorts and alpine
villages at Sunday River, Killington, The Canyons and Steamboat will require
substantial funding. The Company expects to undertake these projects through
special purpose subsidiaries with financing provided principally on a limited
recourse basis. The Company's ability to guarantee real estate development is
limited to $25 million under the New Credit Facility. 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.
Changes in Results of Operations
First Quarter of Fiscal 1998 compared to First Quarter of Fiscal 1997.
1. Resort Revenues. Resort revenues increased 17.18% from $11.7 million to
$13.8 million. This increase resulted primarily from(i) a $1.2 million increase
in retail sales from the purchase of two retail ski shop operations with
locations in Vermont, New Hampshire, and Maine; (ii) $.3 million increase from
the operation of the Attitash/Bear Peak Grand Summit Hotel, completed April,
1997; and (iii)a $.6 million increase from the general operations of the
Company.
2. Real Estate Revenues Real estate revenues decreased from $1.6 million to
$.8 million. The decrease is attributable to the negative impact of timing
differences, in sales of Locke Mountain townhouses at Sunday River offset by the
positive impact of quartershare sales at the Attitash/Bear Peak Grand Summit
Hotel.
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3. Cost of Resort Operations. Cost of resort operations increased 18.5%
from $15.0 million to $17.8 million. This increase resulted primarily from: (i)
a $1.4 million increase in costs related to new retail operations, including
costs associated with the start up of the new retail locations; (ii) $.4 million
in costs related to the operation of the Attitash/Bear Peak Grand Summit Hotel
and: (iii) $1.0 million increase due to the addition of Pico and The Canyons
operations.
4. Cost of Real Estate Operations Cost of real estate operations decreased
10% from $1.0 million to $.9 million. The decrease is primarily attributable to
the difference in sales between the two periods and increased operational costs
of its hotel development subsidiary during the first quarter of fiscal 1998 as
the Company nears completion of three quarter share hotels.
5. Marketing, General and Administrative Marketing, general and
administrative costs increased 42.8% from $4.8 million to $6.8 million. The
primary reason for the increase was the establishment of the Company's corporate
offices, increased costs associated with coordinating the activities of the
various resorts and increased marketing costs associated with the new Edge
program and direct to lift automated ticketing program.
6. Stock option charge. The company recorded a compensation charge of
$14.3 million in the first quarter attributable to stock options granted to
certain key members of management. This charge reflects (i) the difference
between the $2.00 exercise price and the $18.00 fair market value as of the date
of grant of the Company's common stock, and an accrual for payments to certain
senior management to cover all individual Federal and State income tax liability
generated upon exercise of the options.
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
consolidated financial statements as of July 27, 1997 and for the year then
ended, as filed in Amendment No. 4 to Form S-1 filed with the Securities and
Exchange Commission on November 5, 1997.
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Changes in Financial Condition
First Quarter of Fiscal 1998 Compared to Fiscal Year End 1997
1. Cash and Cash Equivalents. Cash and cash equivalents decreased $9.3
million. The decrease is attributable to (1) the $11.0 million earnest money
deposit required in connection with the acquisition of Steamboat and Heavenly,
and (2) a $1.7 million increase in cash balances due to the Company's normal
operating cycle.
2. Restricted cash. Restricted cash increased $4.0 million primarily
due to a $3.7 million deposit to secure a land option at The Canyons.
3. Inventory. Inventory increased approximately 66% or $4.8 million.
The increase is attributable primarily to the increase in retail
locations.
4. Prepaid Expenses. Prepaid expenses increased 61% or $1.0 million.
$.5 million of the increase is due to the normal operating cycle of the Company,
and $.5 million is related to expense in developing the quartershare hotel
projects.
5. Property & Equipment. Property and equipment, net increased 7% or
$18.7 million. The increase in property and equipment is attributable to
implementation of the Company's capital improvement program.
6. Other assets. Other assets increased $2.6 million due to the
acquisition of land purchase options at The Canyons.
7. Real Estate Developed for Sale. Real estate developed for sale
increased approximately 93% or $22 million. The increase is attributable
primarily to the construction of three Grand Summit hotels at Killington, Mount
Snow and Sunday River. The hotels will begin operations during the 1997/1998 ski
season.
8. Current Portion of Long-term Debt. Current portion of long-term debt
decreased 9% or $3.5 million. The decrease is due to the construction financing
for the Attitash Grand Summit hotel from quartershare sale proceeds.
9. Accounts Payable and Accrued Expenses. Accounts payable and accrued
expenses increased 64% or $15.9 million. The increase in accounts payable and
accrued expenses was due to: (i) an approximate $11.1 million increase in short
term payables due to capital projects and preparation for the ski season; (ii)
16
<PAGE>
an increase in accrued interest of $3.6 million related to the Company's 12%
senior subordinated debentures, (iii) a decrease of $4.5 million related to the
timing of construction contract billings for the projects, and (iv) an increase
of $5.7 related to the stock option charge described above.
10. Deposits and Deferred Revenues. Deposits and deferred revenues
increased approximately 235% or $10.3 million. The increase in deferred revenues
is attributable primarily to pre-season sales of season passes and multiple day
ticket products for the 1997-1998 ski season and lodging deposits for the
1997-1998 ski season.
11. Long-term Debt. Long-term debt increased 30% or $58.5 million. 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 Grand Summit 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 junior subordinated
debentures; (iv) the issuance of a $17.5 million note to fund development at The
Canyons; and (v) a $1.4 million increase attributable to an increase in the
Company's senior credit facility due to normal operating cycle.
12. Minority interest. Minority interest decreased 134% or $.8 million
due to the first-quarter operating loss.
13. Deferred Income Taxes. Deferred income taxes decreased 49% or $13.9
million due to the Company's income tax benefit generated by the first quarter
operating loss.
14. Additional paid in capital. Additional paid in capital increased
370% or $10.3 million due primarily to the recording of the stock option charge
and the accounting for the conversion feature for the Series A Mandatorily
Redeemable Preferred Stock under the Securities Purchase Agreement.
15. Retained Earnings. Retained earnings decreased $23.4 million due to
the Company's first quarter net loss.
Subsequent Events
IPO Closing and Acquisition. The Company closed on the initial public
offering of 14.75 million shares of its common stock on November 12, 1997. The
proceeds were primarily used to (1) fund the acquisition of Steamboat and
Heavenly in an amount totaling $173.3 million, (2)redeem ASC East, Inc.'s 13
3/4% subordinated discount notes due 2007 for an aggregate redemption price of
approximately $27.7 million, and (3) repay approximately $7.7 million of a
17
<PAGE>
subsidiary's outstanding debt inconnection with the closing of the Company's
initial public offering. The Company has retained approximately $14 million of
offering proceeds in temporary investments.
On a pro forma basis including the results from the Steamboat and
Heavenly resorts acquired November 12, 1997, total revenues for the quarters
ended October 26, 1997 and October 27, 1997 would have been $17,699 million and
$16,551 million, respectively; net loss for the quarters ended October 26, 1997
and October 27, 1996 would have been $35,394 million and $19,532, respectively;
and earnings per share would have been (using the outstanding shares as of
December 22, 1997 of 29,510,530) $(1.20) and $(.66), respectively.
New Credit Facility. The Company established the New Credit Facility
described above under the heading "Liquidity and Capital Resources"
contemporaneously with the closing of its initial public offering and the
acquisition of steamboat and Heavenly on November 12, 1997.
10 1/2% Convertible, Exchangeable Preferred Stock. Contemporaneously
with the other November 12, 1998 closings the Company converted its $17.5
million principal amount of convertible notes and its $17.5 million face amount
of convertible preferred at a conversion price, including accrued interest and
accumulated dividends, of $37.3 million into its 10 1/2% convertible,
exchangeable preferred stock.
Consent Solicitation. Contemporaneously with the other November 12,
1997 closings, the Company closed the Consent Solicitation transaction
described in its Registration Statement.
Significant Transactions. The Company consummated a land exchange with
the State of Vermont on December 1, 1997. The exchange results in the Company
coming into ownership of over 1,000 acres of valuable development real estate at
the base of the Killington resort.
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 results cannot be
predicted with certainty and actual results could differ materially from any
forward-looking statements. In particular:
18
<PAGE>
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 and is significant
portion of resort revenues (and approximately 23% of annual skier visits) was
generated during the Christmas and Presidents' Day vacation weeks. Adverse
weather or market conditions during these periods could materially adversely
effect 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 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
therefrom may be adversely affected by numerous factors, many of which are
beyond the control of the Company, including the national and regional economic
climate and the ability of the company to obtain all necessary zoning, land use,
buildings, occupancy and other required governmental permits and authorizations
and changes in real estate, zoning, land use, environmental or tax laws. In
additional, 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 as to whether, when or on what
terms such financing, permits, licenses and real estate may be obtained.
19
<PAGE>
Part II - Other Information
Item 2
Changes in Securities and Use of Proceeds
The New Credit Facility imposes customary prohibitions upon the
declaration of any dividends on Common Stock of the Company.
Item 4
Submission of Matters to Vote of Security Holders
The following matters were submitted to a vote of the shareholders of
the Company during the first quarter on the dates and with the results reflected
below:
Date Matter Result
- ----- ------ ------
8/11/97 Special Meeting Fixing Number of Directors Unanimous Approval
at three and electing Messrs.
Howard and Richardson as
Directors. Mr. Otten continued
as a director following the
election.
10/9/97 Special Meeting Approval of Stock Option Plan Unanimous Approval
10/10/97 Special Meeting Authorization of capital stock Unanimous Approval
in conjunction with initial
public offering and related
transactions.
20
<PAGE>
Item 6
Exhibits
Included herewith is the Financial Data Schedule submitted as Exhibit 27 in
accordance with Item 601(c) of Regulation S-K. Also, as filed with Form 10-Q on
December 22, 1997 and incorporated herein by reference are the following
material agreements entered into since November 5, 1997, the date of filing of
the Company's Form S-1 Registration Statement:
Exhibit No. Description
- ----------- -----------
1 Amended and Restated Credit Agreement dated November
12, 1997 among ASC East, Inc., Sunday River Skiway
Corporation, Sunday River, Ltd., Perfect Turn, Inc.,
Sunday River Transportation, Inc., L.B.O. Holding,
Inc., Sugarbush Resort Holdings, Inc., Sugarbush
Leasing Company, Sugarbush Restaurants, Inc.,
Mountain Wastewater Treatment, Inc., S-K-I, Ltd.,
Killington, Ltd., Mount Snow, Ltd., Pico Ski Area
Management Company, Resorts Software Services, Inc.,
Dover Restaurants, Inc., Sugarloaf Mountain
Corporation, Mountainside, Sugartech as Borrowers
American Skiing Company, as Guarantor, and
BankBoston, N.A. as Agent for the Lenders and DLJ
Capital Funding, Inc. as Documentation Agent for the
Lenders.
2 Credit Agreement dated as of November 12, 1997 Among
ASC Utah, ASC West, Inc., Steamboat Ski & Resort
Corporation, Steamboat Development Corporation,
Heavenly Valley Ski & Resort Corporation, Heavenly
Corporation, Heavenly Valley, Limited Partnership as
Borrowers, American Skiing Company, as Guarantor, and
BankBoston, N.A., as Agent for the Lenders and DLJ
Capital Funding, Inc. as Documentation Agent for the
Lenders.
3 Registration Rights Agreement dated November 10, 1997
by and between American Skiing Company and ING (U.S.)
Capital Corporation.
4 Contract of Sale by and between Orlando Resort
Corporation and ELW Golf Group, Inc.
5 Real Estate Purchase Agreement dated December 8, 1997
by and between WMR Investment Company, L.L.C.
and Alpine Resort Properties, Inc.
21
<PAGE>
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.
Date: May 7, 1998 /s/ Thomas M. Richardson
----------------- ---------------------------------
Thomas M. Richardson
Senior Vice President Finance
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: May 7, 1998 /s/ Christopher E. Howard
----------------- --------------------------------
Christopher E. Howard
Chief Administrative Officer and
General Counsel
22
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