United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JANUARY 25, 1998
_____________________________
Commission File Number 333-33483
_____________________________
American Skiing Company
(Exact name of registrant as specified in its charter)
Maine 04-3373730
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 450 04217
Bethel, Maine
(Address of principal executive office) (Zip Code)
(207) 824-5196
(Registrant's telephone number, including area code)
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 15,365,072 shares of common stock $.01 par value outstanding as of
March 9, 1998.
American Skiing Company and Subsidiaries
Table of Contents
Part I - Financial Information...................... 1
Item 1 Financial Statements ........................ 2
Condensed Consolidated Statement of Operations
(Unaudited) for the Three Months Ended
January 25, 1998 and January 26, 1997.......... 2
Condensed Consolidated Statement of Operations
(Unaudited) for the Six Months Ended
January 25, 1998 and January 26, 1997.......... 4
Condensed Consolidated Balance Sheet
(Unaudited) as of January 25, 1998 and
July 27, 1997.................................. 5
Condensed Consolidated Statement of Cash
Flows(Unaudited) for the Six Months Ended
January 25, 1998 and January 26, 1997.......... 7
Notes to (Unaudited) Condensed Consolidated
Financial Statements........................... 9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operation.................. 15
General........................................ 15
Liquidity and Capital Resources................ 15
Changes in Results of Operations............... 18
Changes in Financial Condition................. 20
Part II - Other Information......................... 26
i[PAGE]
American Skiing Company and Subsidiaries
Part I - Financial Information
Item 1
Financial Statements
This Form 10 Q is filed by the 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. AJT, Inc. (f/k/a Cranmore, Inc.)
Grand Summit Resort Properties, Inc. S-K-I Limited
Mount Snow, Ltd. Killington, Ltd.
Sugarloaf Mountain Corporation WVSAL, Inc. (f/k/a Waterville
Dover Restaurants, Inc. Valley Ski Area, Ltd.)
Killington Restaurants, Inc. ASC East, Inc.
Resort Software Services, Inc. Resort Technologies, Inc.
Sugartech ASC Utah
Pico Ski Area Management Deerfield Operating Company
ASC West, Inc. Alpine Resort Properties, Inc.
Heavenly Valley Limited Partnership Heavenly Corporation
Heavenly Ski Resort Corporation Orlando Resort Corporation
Steamboat Ski and Resort Corporation Killington West, Ltd.
Steamboat Development Corporation Mountain Water Company
Ski Insurance Company Club Sugarbush, Inc.
Mountainside Corporation
As used herein, the term "the Company" means and refers to
American Skiing Company and the subsidiary registrants listed above on
a consolidated basis.
1[PAGE]
American Skiing Company and Subsidiaries
Condensed Consolidated Statement of Operations
(In thousands except share and per share amounts)
For the Three Months Ended
January 25, 1998 January 26, 1997
(Unaudited) (Unaudited)
Net revenues:
Resort $107,425 $59,418
Real estate 7,890 1,740
----------------------------
Total net revenues 115,315 61,158
Operating expenses:
Resort 64,244 38,995
Real estate 5,223 935
Marketing, general and
administrative 13,621 7,709
Depreciation & amortization 15,009 7,344
---------------------------
Total operating expenses 98,097 54,983
---------------------------
Income from operations 17,218 6,175
Interest expense 6,325 5,557
---------------------------
Income before provision for
income taxes 10,893 618
Provision for income tax
expense 4,249 235
---------------------------
Net income from continuing operations 6,644 383
Extraordinary loss, net of income
tax benefit of $3,248 5,081 -
---------------------------
Net income after extraordinary
item 1,563 383
Accretion of discount and
dividends accrued on
mandatorily redeemable
preferred stock (850) -
---------------------------
Net income available to Common
Shareholders $2,413 $383
===========================
Retained earnings (accumulated
deficit), beginning of the
period $(10,555) $7,838
Add: Net income available to
common shareholders 2,413 383
Retained earnings (accumulated
deficit), end of period $(8,142) $8,221
===========================
2[PAGE]
American Skiing Company and Subsidiaries
Earnings per common share - basic:
Net income from continuing operations $0.23 $0.39
Extraordinary loss ($0.18) -
Net income $0.08 $0.39
Earnings per common share - diluted:
Net income from continuing operations $0.21 $0.39
Extraordinary loss ($0.16) -
Net income $0.05 $0.39
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
3[PAGE]
American Skiing Company and Subsidiaries
Condensed Consolidated Statement of Operations
(in thousands except share and per share amounts)
For the Six Months Ended
January 25, 1998 January 26, 1997
(Unaudited) (Unaudited)
Net revenues:
Resort $121,236 $71,146
Real estate 8,700 3,309
--------------------------
Total net revenues 129,936 74,455
Operating expenses:
Resort 82,052 54,029
Real estate 6,148 1,967
Marketing, general and
administrative. 20,466 12,501
Stock compensation charge (Note 7) 14,254 -
Depreciation & amortization 16,515 8,871
--------------------------
Total operating expenses 139,435 77,368
--------------------------
Loss from operations (9,499) (2,913)
Interest expense 13,846 13,071
--------------------------
Net loss before benefit for income taxes (23,345) (15,984)
Benefit for income tax expense (9,104) (6,074)
Minority interest in loss of
subsidiary (456) -
--------------------------
Net loss from continuing operations (13,785) (9,910)
Extraordinary loss, net of income tax
benefit of $3,248 5,081 -
--------------------------
Net loss (18,866) (9,910)
Accretion of discount and dividends accrued
on mandatorily redeemable preferred
stock 1,581 -
--------------------------
Net loss available to common Shareholders (20,447) (9,910)
==========================
Retained earnings, beginning of $12,305 $18,131
the period
Add: Net loss (20,447) (9,910)
==========================
Retained earnings(accumulated
deficit), end of period $(8,142) $8,221
==========================
Earnings per common share (basic and diluted):
Net loss from continuing operations $(0.64) $(10.13)
Extraordinary loss $(0.24) -
Net loss $(0.96) $(10.13)
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
4[PAGE]
American Skiing Company and Subsidiaries
Condensed Consolidated Balance Sheet
(in thousands)
January 25, 1998 July 27, 1997
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $36,393 $15,558
Restricted cash 3,799 2,812
Accounts receivable 11,907 3,801
Inventory 17,892 7,282
Prepaid expenses 2,935 1,579
Assets held for resale 5,780 -
Deferred tax assets 770 422
-----------------------
Total current assets 79,476 31,454
Property and equipment, net 473,547 252,346
Real estate developed for sale 100,412 23,540
Long-term investments 2,432 3,507
Goodwill 97,006 10,664
Deferred financing costs 9,792 9,431
Investment in real estate partnership 4,994 -
Other assets 22,131 6,398
-----------------------
Total assets $789,790 $337,340
=======================
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
5[PAGE]
American Skiing Company and Subsidiaries
Condensed Consolidated Balance Sheet
(in thousands)
January 25, 1998 July 27, 1997
(Unaudited)
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit and current portion
of long-term debt $24,905 $39,748
Accounts payable and other current
liabilities 56,672 25,738
Deposits and deferred revenue 29,647 4,379
Due to stockholder 1,933 1,933
------------------------
Total current liabilities 113,157 71,798
Long-term debt 215,374 46,833
Subordinated notes and debentures 127,867 149,749
Minority interest - 626
Other long-term liabilities 23,046 7,898
Deferred income taxes 16,370 28,514
-----------------------
Total liabilities 495,814 305,418
Mandatorily redeemable preferred stock 37,359 16,821
Shareholders' equity
Common stock, Class A 10
Common stock 148 -
Paid-in capital 264,457 2,786
Retained earnings (accumulated
deficit) (8,142) 12,305
-----------------------
Total equity 256,617 15,101
-----------------------
Total liabilities, mandatorily
redeemable preferred stock and equity $789,790 $337,340
=======================
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
6[PAGE]
American Skiing Company and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(in thousands)
For the Six Months Ended
January 25, 1998 January 26, 1997
Cash flows from operating activities: (Unaudited) (Unaudited)
Net loss $(18,866) $(9,910)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Stock option compensation charge 14,254 -
Depreciation and amortization 16,515 8,871
Minority interest (456) -
Deferred income taxes (12,492) (363)
Decreases (increases) in assets:
Restricted cash (810) -
Investments held in escrow - 7,240
Accounts receivable (7,976) (489)
Income taxes receivable - (6,074)
Inventory (6,627) (1,703)
Prepaid expenses (869) (247)
Other current assets - 723
Real estate developed for resale (48,848) -
Other assets (3,133) 197
Increases (decreases) in liabilities:
Accounts payable and other accrued
expenses 14,352 20,252
Income taxes payable - (14)
Deposits and unearned revenue 20,470 8,892
Accrued interest - 95
Other long term liabilities 5,232 -
-------------------------
Cash flow provided by operating
activities (29,252) 28,196
Cash flows from investing activities:
Assets held for resale (5,780) 14,921
Additions to property and equipment (50,062) (18,351)
Purchase of ski resorts (288,499) -
Purchase of ski resort minority
interest (2,492)
Sale (Purchase) of long-term
investment 1,075 (2,582)
--------------------------
Net cash used in investing activities (343,268) (8,504)
7[PAGE]
American Skiing Company
Cash flows from financing activities:
Reductions in note payable to
shareholder - (621)
Net proceeds from initial public
offering 244,619 -
Proceeds from construction loan 50,432 -
Proceeds from term loan 105,000 -
Proceeds from revolving line of
credit 65,803 -
Repayment of revolving line of
credit (59,623) -
Proceeds from subordinated notes 16,920 -
Repayment of subordinated debt (21,882) -
Additions (reductions) to long-
term debt (7,914) (19,717)
---------------------------
Net cash provided by (used in)
financing activities 393,355 (20,338)
Net decrease in cash and short-
term investments 20,835 (646)
Cash and short-term investments at
beginning of period 15,558 4,087
---------------------------
Cash and short-term investments at
end of period $36,393 $3,441
===========================
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
8[PAGE]
American Skiing Company and Subsidiaries
Notes to (Unaudited) Condensed Consolidated Financial Statements
1. General. In the opinion of the Company, the accompanying
unaudited condensed consolidated financial statements contain all
adjustments necessary to present fairly the financial position of the
Company as of January 25, 1998 and July 27, 1997, the results of
operations for the three months ended January 25, 1998 and January 26,
1997, and the statement of cash flows for the six months ended January
25, 1998 and January 26, 1997. All adjustments are of a normal
recurring nature. The unaudited condensed consolidated financial
statements should be read in conjunction with the following notes and
the Company's unaudited consolidated financial statements as of and
for the year ended July 27, 1997 and the unaudited condensed consolidated
financial statements as of and for the three months ended October 26,
1997 in the Form S-1, filed with the Securities and Exchange Commission
on February 10, 1998.
2. 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 mountain operating supplies.
3. Income Taxes. The benefit for income taxes 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 Income per Common Share. Effective January 25, 1998, the
Company adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standard No. 128, Earnings
Per Share (SFAS 128). SFAS 128 specifies the computation, presentation,
and disclosure requirements for earnings per share for public
entities. Earnings per share for the three-month and six-month
periods ended January 25, 1998 and 1997 were determined as follows:
9[PAGE]
American Skiing Company and Subsidiaries
Three Months Ended Six Months Ended
January 25 January 25
1998 1997 1998 1997
-----------------------------------------
Income
Income (loss) from
continuing operations 6,644 383 (13,785) (9,910)
Preferred stock
accretion 850 - (1,581) -
Extraordinary item (5,081) - (5,081) -
Basic earnings available
to common shareholders 2,413 383 (20,477) (9,910)
------------------------------------------
Convertible preferred
stock (850) - - -
Diluted earnings
available to common
shareholders 1,563 383 (20,477) (9,910)
==========================================
Shares
Weighted-average shares
available - basic 28,760 978 21,376 978
------------------------------------------
Mandatorily redeemable
preferred stock 2,185 - - -
Dilutive common stock
options 539 - - -
Weighted average shares
available - diluted 31,484 978 21,376 978
==========================================
6. Adjustments and Reclassifications. Certain amounts in the
prior unaudited condensed consolidated financial statements and the
audited financial statements filed with the Company's Registration
Statement on February 10, 1998 with the Securities and Exchange
Commission have been reclassified to conform to the current
presentation.
7. 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 members of 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.
10[PAGE]
American Skiing Company and Subsidiaries
8. Pro forma disclosure. The following pro forma
statements of operations for the three and six month periods ended
January 25, 1998 and January 26, 1997 are presented for purposes of
comparison. The following pro forma adjustments have been made
for the following periods:
The three months ended January 25, 1998 - There are no pro forma
adjustments.
The three months ended January 26, 1997 - The results of
operations for Steamboat, Heavenly and the Canyons have been added
based on their historical results for the three months ended January
26, 1997.
The six months ended January 25, 1998 - The results of operations
for Steamboat, and Heavenly have been added based on their historical
results for the three months ended October 26, 1997.
The six months ended January 26, 1997 - The results of operations
for Steamboat, Heavenly and the Canyons have been added based on their
historical results for the six months ended January 26, 1997.
9. Resort EBITDA represents resort revenues less cost of resort
operations and marketing, general and administrative expense. Real
estate EBIT represents revenues from real estate less cost of real
estate sold which includes selling costs, holding costs, the allocated
capitalized cost of land, construction costs and other costs relating
to property sold.
11[PAGE]
American Skiing Company and Subsidiaries
<TABLE>
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
Pro Forma
Three Months Ending Six Months Ending
Jan. 25, 1998 Jan. 26, 1997 Jan. 25, 1998 Jan. 26, 1997
<S> <C> <C> <C> <C>
Net Revenues:
Resort $107,425 $91,897 $124,623 $108,457
Real Estate 7,890 1,740 8,700 3,309
------------------------------------------------------------
Total net revenues 115,315 93,637 133,323 111,766
------------------------------------------------------------
Operating expenses:
Resort 64,244 57,804 89,445 81,953
Real estate 5,223 935 6,148 1,967
Marketing, general and
administrative 13,621 11,565 24,260 19,267
Stock compensation
charge - - 14,254 -
------------------------------------------------------------
Depreciation and
amortization 15,009 12,896 16,932 14,831
------------------------------------------------------------
Total operating expenses 98,097 83,200 151,039 118,018
------------------------------------------------------------
Income from operations 17,218 10,437 (17,716) (6,252)
Interest expense 6,325 8,174 16,298 18,268
------------------------------------------------------------
Net income before
provision benefit for
income taxes and minority
interest in loss of
subsidiary 10,893 2,263 (34,014) (24,520)
Provision (benefit) for
income taxes 4,249 877 (13,265) (9,692)
Minority interest in
loss of subsidiary - - (456) -
------------------------------------------------------------
Net income (loss) from
continuing operations 6,644 1,386 (20,293) (14,828)
12 [PAGE]
Extraordinary loss 5,080 - 5,081 -
------------------------------------------------------------
Net income after
extraordinary items 1,564 1,386 (25,374) (14,828)
Accretion of discounts
and dividends
accrued on mandatorily
redeemable preferred stock (850) - 1,581 -
------------------------------------------------------------
Net income (loss) available
to Common Shareholders $2,413 $1,386 (26,955) (14,828)
===========================================================
Earnings per common share -
basic
Income (loss) from continuing
operations $0.23 $0.05 ($0.95) ($0.69)
Extraordinary loss ($0.18) - ($0.24) -
Net income (loss) $0.08 $1.05 ($1.26) ($0.69)
Earnings (loss) per common
share - diluted
Net income (loss) from
continuing operations $0.21 $0.05 ($0.95) ($0.69)
Extraordinary loss ($0.16) - ($0.24) $ -
Net income (loss) $0.05 $0.05 ($1.26) ($0.69)
Supplemental Data
Resort EBITDA $29,560 $22,528 $10,918 $7,237
Real Estate EBITDA 2,667 805 2,552 1,342
--------------------------------------------------------------
Total EBITDA $32,227 $23,333 $13,470 $8,579
</TABLE>
13[PAGE]
American Skiing Company and Subsidiaries
9. Significant 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. The acquisition
was accounted for using the purchase accounting method. The
consolidated financial statements herein reflect the results of
operations of the acquired Steamboat and Heavenly ski resorts
subsequent to November 13, 1997 and include the balance sheet of the
acquired resorts as of January 25, 1998.
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 $33.6 million investment in the common
stock of one of the Company's major subsidiaries, ASC East, Inc. This
investment in ASC East, Inc. was primarily used to redeem its
outstanding subordinated discount notes, which redemption was effected
on December 30, 1997.
The Company has also exchanged 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 substantially the same exchange ratio 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 this will eliminate
potential conflicts of interest between minority holders and
shareholders of the Company.
14[PAGE]
American Skiing Company and Subsidiaries
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
We are pleased to present to you management's discussion and
analysis of financial condition and results of operations for the
first and second quarters of fiscal 1998. The results include the
Steamboat and Heavenly resorts acquired during the second quarter. 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
Statements filed November 5, 1997 and February
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 improvements will include expenditures on lifts, trails,
snow-making equipment and base facilities, as well as real estate
development. Cash requirements for ski-related and real estate
development activities are provided by separate sources. The
Company's primary sources of liquidity for working capital and ski-
related capital improvements are unexpended proceeds from the initial
public offering, cash flow from operations of its subsidiaries and
borrowings under the senior credit facility. Real estate development
will be funded primarily through construction financing facilities
established for major real estate development projects.
The Company established a new credit facility on November 12,
1997 (the "New Credit Facility"). The New Credit Facility is divided
into two sub-facilities, $75 million of which (up to $65 million of
which is currently 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 eight-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 that $35 million for the West
Facility. The maximum availability under the revolving facilities
15[PAGE]
American Skiing Company and Subsidiaries
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 rations.
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, Inc. 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 in July, 1997 to fund development
at its new resort in Utah called The Canyons. These securities were
converted on November 12, 1997, into 101/2% Convertible Exchangeable
Preferred Stock of the Company.
The Company's summer 1998 capital program is expected to total
between $40 million and $60 million, excluding real estate
development. The combination of unexpended proceeds from its initial
public offering, cash flow from resort operations, capital leases and
the New Credit Facility is expected to provide sufficient funds to
meet short term liquidity needs for working capital and skiing related
capital expenditures.
The Company is considering the issuance of up to $50 million in
senior subordinated bonds prior to close of its 1998 fiscal year and
either soliciting the consent of holders of ASC East, Inc.'s $120
million 12% Senior Subordinated to certain covenant changes in the
12% Note Indenture, or making an exchange offer to holders of the $120
million Senior Subordinated Notes exchange those obligations for
substantially similar obligations of the Company. The precise nature
of the transaction, and whether it will actually be effected, has not
yet been determined by the Company.
The Company runs its real estate development through single
purpose subsidiaries. Construction of existing Grand Summit Hotel
16[PAGE]
American Skiing Company and Subsidiaries
projects are 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 was 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, is sufficient to fund the Grand
Summit projects scheduled for completion during the 1997-1998 ski
season.
The Company intends to continue real estate development at its
eastern resorts, and initiate real estate development projects at
certain of 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 consist of two components. The senior component is
expected to be a conventional construction loan arranged on a limited
recourse basis similar to the existing real estate development
construction facility. A portion of the development costs are
expected to be financed through either a mezanine debt facility
established directly with the real estate subsidiary pursuing the
projects or equity infused by the Company derived from additional
subordinated debt incurred by the Company.
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 Company's largest long-term capital needs relate to The
Canyons resort in Utah and the Company's real estate development
program. The Canyons 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.
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
17[PAGE]
American Skiing Company and Subsidiaries
directly contribute equity toward or otherwise 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
Changes for the Second Quarter of Fiscal 1998 compared to the Second
Quarter of Fiscal 1997.
1. Resort revenues. Resort revenues increased 80.8% from $59.4
million for the second quarter of fiscal 1997 to $107.4 for the second
quarter of fiscal 1998. The $48.0 million increase in revenue is
principally attributable to the addition of Steamboat and Heavenly
resorts acquired on November 12, 1997. Additionally, our existing
pre-acquisition group of resorts also reflected positive overall
revenue growth driven primarily by increases in skier visits, and the
acquisition of various retail and food and beverage operations, as
well as yield increases of 5%.
2. Real estate revenues. Real estate revenues increased $6.2
million in the second quarter of fiscal 1998 as compared to the second
quarter of fiscal 1997. The increase is attributable to closed sales
at two of the Company's new quartershare hotels at Sunday River and
Attitash.
3. Cost of resort operations. Cost of resort operations
increased 64.8% from $39.0 million to $64.2 million. The $25.2
million increase is principally attributable to the inclusion of
Steamboat and Heavenly resorts. The results of our existing pre-
acquisition resorts also reflected increases in cost of resort
operations consistent with their related resort revenue growth.
4. Cost of real estate Cost of real estate increased $4.3
million in the second quarter of fiscal 1998 as compared to the second
fiscal quarter of 1997. The primary reason for the increase is from
increased sales of quarter share units and additional costs associated
with the start up of new development projects at eastern and western
resorts.
5. Marketing, general, and administrative. Marketing, general,
and administrative costs increased 77% from $7.7 million to $13.6
million. The inclusion of Steamboat and Heavenly resorts accounted
for approximately 37% of this increase. The remainder of the increase
can be attributed to increased costs associated with the new Edge card
18[PAGE]
American Skiing Company and Subsidiaries
program, direct to lift programs, and other marketing and real estate
development initiatives throughout our resorts.
6. Depreciation and amortization. Depreciation and amortization
increased from $7.3 million for the second quarter of fiscal 1997 to
$15.0 million for the second quarter of fiscal 1998. The increase is
principally attributable to the acquisitions of Steamboat, Heavenly,
and the Canyons and last years capital program at the Company's
eastern resorts.
7. Provision for income taxes. Provision for income taxes
increased 1708% from $.4 million for the three months ended January
26, 1997 to $4.2 million for the three months ended January 25, 1998.
The reason for the increase is from the increase in net income for the
period.
8. Extraordinary item. The extraordinary expense recorded by the
Company is related to the early retirement of the Company's revolving
line of credit, Junior subordinated discount notes, and acquisition
indebtedness related to the acquisition of Sugarbush. The total
amount related to this extraordinary expense was $8.3 million, net of
the income tax benefit the amount was $5.1 million.
9. Accretion of preferred stock. The Company issued manditorily
redeemable preferred stock on July 2, 1997. This security could be
exchanged in the event of an initial public offering, at the option of
the holder into common stock of the Company or another issue of preferred
stock. There was a discount on the conversion to common stock allowing
the holder of the preferred stock to receive approximately a 5% discount
off the initial public offering price. The holder of the preferred
stock exchanged their shares into the another issue of preferred stock
and not directly into shares of the common stock of the Company. The
Company accreted the value of the preferred stock in the first quarter
of fiscal 1998 to account for the entire amount of the 5% discount.
Since the holder of the preferred stock exchanged their shares for
another issue of preferred stock, and the trading price of the stock
was below the conversion price, the amount that was originally
accreted was greater than the amount actually exchanged. This
required the Company to reduce the carrying value of the preferred
stock to the value that was actually exchanged.
19[PAGE]
American Skiing Company and Subsidiaries
Changes in Results of Operations
Changes for the First Six Months of Fiscal 1998 compared to the
First Six Months of Fiscal 1997.
1. Resort revenues. Resort revenues increased 71% from $71.1
million for the six months ended January 25, 1998 to $121.2 million
for the six months ended January 26, 1997. The $50.1 million increase
in revenue is principally attributable to the addition of Steamboat
and Heavenly resorts acquired on November 12, 1997. Additionally, our
existing pre-acquisition group of resorts also reflected positive
overall revenue growth driven primarily by increases in skier visits
and increased yeilds per skier visit.
2. Real estate revenues. Real estate revenues increased $5.4
million for the six months ended January 25, 1998 as compared to the
six months ended January 26, 1997. The increase is attributable to
closed sales at two of the Company's new quartershare condominium
hotels at Sunday River and Attitash.
3. Cost of resort operations. Cost of resort operations
increased 51.9% from $54.0 million to $82.1 million. The $28.1
million increase is principally attributable to the inclusion of
Steamboat and Heavenly resorts. The results of our existing pre-
acquisition resorts also reflected increases in cost of resort
operations consistent with their related resort revenue growth.
4. Cost of real estate. Cost of real estate sold increased $4.2
million for the six months ended January 25,1998 as compared to the
six months ended January 26, 1997. The increase is consistent with
the increase in sales of real estate.
5. Marketing, general, and administrative. Marketing, general,
and administrative costs increased 64.0% from $12.5 million to $20.5
million. The inclusion of Steamboat and Heavenly resorts accounted
for approximately 31% of this increase. The remainder of the increase
can be attributed to increased costs associated with the establishment
of ASC corporate offices, the new Edge card program, direct to lift
programs, and other marketing and real estate initiatives throughout
our resorts.
6. Depreciation and amortization. Depreciation and amortization
increased $7.6 million for the six months ended January 25,1998 as
compared to the six months ended January 26, 1997. The increase is
principally attributable to the acquisitions of Steamboat, Heavenly,
and the Canyons and the additional plant, property and equipment
related to the 1997 capital improvement expenditures.
20[PAGE]
American Skiing Company and Subsidiaries
7. Benefit for income taxes. The benefit for income taxes
increased from $6.1 million for the six months ended January 26, 1997
to $9.1 million for the six months ended January 25, 1998. The $3.0
million increase is directly related to the results from operations
for the period, which included a $14.3 million stock compensation
charge that is considered a non recurring event by the Company.
8. Extraordinary item. The extraordinary expense recorded by the
Company is related to the early retirement of the Company's revolving
line of credit, Junior subordinated discount notes, and acquisition
indebtedness related to the acquisition of Sugarbush. The total
amount related to this extraordinary expense was $8.3 million, net of
the income tax benefit the amount was $5.1 million.
Changes for the First Six months of Fiscal 1998 Compared to year-end
Fiscal 1997.
1. Cash and cash equivalents. Cash and cash equivalents
increased 134% or $20.8 million from $15.6 million as of July 27, 1997
to $36.4 million as of January 25, 1998. The three primary reasons for
the increase are 1) the operating cycle of the Company, 2) the cash
balances at the acquired resorts, 3) cash retained at the parent
Company for future investment.
2. Accounts receivable. Accounts receivable increased 213% or
$8.1 million from $3.8 million as of July 27, 1997 to $11.9 million as
of January 25, 1998. The primary reason for the increase is from
increased operating activities and accounts receivable associated with
the increased operating activities.
3. Inventory. Inventories increased 146% or $10.6 million from
$7.3 million as of July 27, 1997 to $17.9 million as of January 25,
1998. $4 million of the increase is related to the acquisition of
Heavenly and Steamboat ski resorts with the balance of the increase
related to the operating cycle of the Company.
4. Assets held for resale. Assets held for resale is the
estimated net proceeds from the Orlando golf resort that was purchased
with the Heavenly and Steamboat ski resorts. The golf course was sold
on February 2, 1998 for $5.6 million.
5. Prepaid expenses. Prepaid expenses increased 86% or $1.4
million from $1.6 million as of July 27, 1997 to $2.9 million as of
January 25, 1998. The primary reason for the increase is from the
prepaid expenses associated with the pre-sales of the three quarter
21[PAGE]
American Skiing Company and Subsidiaries
share hotel projects at Killington, Mount Snow, and Sunday River ski
resorts.
6. Property, plant and equipment. Property, plant, and equipment
increased 88% or $221.2 million from $252.3 million as of July 27,
1997 to $473.5 million as of January 25, 1998. $186.0 million is from
the acquisition of the Heavenly and Steamboat ski resorts. The
remaining $50.1 million is related to capital improvements at the
existing resorts, and the acquisition of land and businesses, net of
$15.0 million of depreciation.
7. Real estate developed for resale. Real estate developed for
resale increase 327% or $76.9 million from $23.0 million as of July
27, 1997 to $100.4 million as of January 25, 1998. The increase is
from the following: 1) $40.3 million related to the construction of
three quarter share hotel projects being constructed at Killington,
Mount Snow and Sunday River ski resorts, 2) $28 million related to
land held for development acquired with the Steamboat ski resort, 3)
$7.0 million related to land purchased at the Canyons in Utah for
future development, 4) $1.6 million related to the construction of
townhouses at Sunday River.
8. Goodwill. Goodwill increased 810% or $86.3 million from $10.7
million as of July 27, 1997 to $97.0 million as of January 25, 1998.
$77.9 million is related to the acquisition of the Heavenly and
Steamboat ski resorts, with the balance of $8.4 million (net of
amortization of existing goodwill) related to the Company's purchase
of the minority interest in ASC East.
9. Investment in real estate partnership. The $5 million balance
in investment in real estate partnership was acquired with the
Heavenly and Steamboat ski resorts and is from a 50% general
partnership interest in a partnership that is engaged in the
development and sale of residential real estate adjacent to the
Steamboat ski resort.
10. Other assets. Other assets increase 246% or $15.7 million
from $6.4 million as of July 27, 1997 to $22.1 million as of January
25, 1998. The primary reason for the increase is the inclusion of
various intangibles related to the acquisition of the Steamboat and
Heavenly ski resorts.
11. Current portion of long term debt. Current portion of long
term debt decreased 37% or $14.8 million from $39.7 as of July 27,
1997 to $24.9 million as of January 25, 1998. The primary reason for
the decrease is the restructuring of the Company's revolving lines
credit and the addition of term loans that replaced a portion of the
amounts previously funded by revolving lines of credit.
22[PAGE
American Skiing Company and Subsidiaries
12. Accounts payable. Accounts payable increased 120% or $30.9
million from $25.7 million as of July 27, 1997 to $56.7 million as of
January 25, 1998. $10.0 million of the increase is related to the
acquisition of Heavenly and Steamboat ski resorts with balance of the
increase from the operating cycle of the Company and construction
activities related to the quarter share hotel projects.
13. Deposits and unearned revenue. Deposits and unearned revenue
increased 577% or $25.3 million from $4.4 million as of July 27, 1997
to $29.6 million as of January 25, 1998. $10.1 million is related to
the acquisition of Heavenly and Steamboat ski resorts, with the
balance of the increase from the operating cycle of the Company.
14. Long term debt. Long term debt increased 360% or $168.5
million from $46.8 million as of July 27, 1997 to $215.4 million as of
January 25, 1998. The primary reasons for the increase is from 1)
the proceeds of $114.4 million from a loan and revolving line of
credit (net of current portion) at ASC West, and 2) a $50.4 million
dollar increase in the construction loan associated with the three
quarter share hotel projects, 3) $3.5 million associated with land
acquired for future development at the Canyons ski resort in Utah.
15. Subordinated notes and debentures. Subordinated notes and
debentures decreased 14.6% or $21.8 million. The primary reason for
this decrease is from the early retirement of ASC East's the
subordinated discount notes on December 20, 1997.
16. Deferred income taxes. Deferred income taxes decreased 43%
or $12.1 million from $28.5 million as of July 27, 1997 to $16.4
million as of January 25, 1998. The reason for the decrease is the
net loss generated from July 28, 1997 to January 25, 1998.
17. Other long-term liabilities. Other long-term liabilities
increased 192% or $15.1 million from $7.9 million as of July 27, 1997
to $23.0 million as of January 25, 1998. The primary reason for the
increased is from the acquisition of Heavenly and Steamboat ski
resorts.
18. Mandatorily redeemable preferred stock. Mandatorily
redeemable preferred stock increased 122% or $20.5 million from $16.8
million as of July 27, 1997 to $37.4 million as of January 25, 1998.
The reason for this increase is from the conversion of $17.5 million
of 14% convertible notes that were issued on July 29, 1997 to 10 /%
preferred stock on November 5, 1997. The balance of the increase is
from the accretion related to the preferred stock.
19. Additional paid in capital. Additional paid in capital
increased 9398% or $261.8 million from $2.8 million as of July 27,
1997 to $264.6 million as of January 25, 1998. The increase is due to
1) the Company's initial public offering as of November 6, 1997 was
$244.6 million. 2) purchase of the minority interest in ASC East, Inc.
resulted in an increase of $8.7 million to additional paid in capital,
and 3) the Company recording a stock compensation charge of $14.3
million resulting in an increase to the paid in capital $8.5 million.
20. Retained earnings. Retained earnings decreased from $12.3
million as of July 27, 1997 to an accumulated deficit of $8.1 million
as of January 25, 1998. The decrease is directly attributable to the
$20.4 million loss for the six months ended January 25, 1998. The
loss for this period included a $14.2 million dollar charge related to
a non-recurring stock compensation charge and a $5.1 million
extraordinary loss related to the early retirement of debt.
23[PAGE]
American Skiing Company and Subsidiaries
Significant 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 subsidiary's
outstanding debt in connection with the closing of the Company's
initial public offering.
The Company has retained approximately $15 million of offering
proceeds in temporary investments.
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, 1997 closings the
Company converted its $17.5 million principal amount of convertible
notes and its $17.5 million face amount of convertible preferred stock
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 November 5, 1997 Registration Statement.
Land Exchange. The Company consummated a land exchange with the
State of Vermont on December 1, 1997. The exchange results in the
24[PAGE]
American Skiing Company and Subsidiaries
Company coming into ownership of over 1,000 acres of valuable
development real estate at the base of the Killington resort.
Subsequent Events
Interest Rate Swap. On February 5, 1998 the Company entered into
an interest rate swap arrangement with Bank Boston that effectively
lowers the interest rate on its $120 million senior subordinated notes
due 2002 to 9%. The Company's principal risk on the transaction is
that LIBOR decreases below 6.9% in July 2001 when another swap
agreement can be entered into.
Appointment of Directors. On February 11th, the Company
appointed three of its four independent directors. The fourth
director is committed to joining the board before the end of the
fiscal year after fulfilling existing obligations. The three
directors are: Joel B. Alvord, former Chairman of Fleet Financial
Group and currently, President and Managing Director of Shawmut
Capital Partners, Inc.; Christopher J. Nassetta, Executive Vice
President and Chief Operating Officer for Host Marriott Corp.,
formerly Co-founder of Bailey Capital Corp., a real estate investment
and advisory firm.; and Gordon Gillies, a former attorney and current
faculty member of Hebron Academy in Maine.
Forward-Looking Statements
Certain of the statements contained in this section of the
report, including those under "Financial Condition," are forward-
looking. While the Company believes that these statements are
accurate, its business is highly seasonal and is dependent upon
weather and general economic conditions and various conditions
specific to its industry. Future trends and results cannot be
predicted with certainty and actual results could differ materially
from any forward-looking statements. In particular:
1. Ski and resort operations are highly seasonal. Over the last
five fiscal years, the Company realized an average of approximately
86% of its resort revenues during the period from November through
April and a 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.
25[PAGE]
American Skiing Company and Subsidiaries
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 addition,
real estate development will be dependent upon, among other things,
receipt of adequate financing on suitable terms, obtaining and
maintaining the requisite permits and licenses and, in certain
circumstances, acquiring additional real estate. There can be no
assurance as to whether, when or on what terms such financing,
permits, licenses and real estate may be obtained.
26[PAGE]
American Skiing Company and Subsidiaries
Part II - Other Information
Item 2
Changes In Securities And Use Of Proceeds
On November 12, 1997, the Company established the New
Credit Facility described above under the heading "Liquidity
and Capital Resources." The New Credit Facility contains a
limitation on the Company making dividends or distributions,
or redeeming any shares of its stock in excess of 50% of
cumulative consolidated net income after July 31, 1997,
provided that after the distribution or redemption the ratio
of consolidated total debt to consolidated earnings before
interest, taxes, depreciation and amortization does not
exceed 4 to 1.
On November 12, 1997, the Company issued $37.3 million
principal amount of its 101/2% Convertible Exchangeable
Preferred Stock ("Preferred Stock"). The Certificate of
Designation for the preferred stock establishes the following
limitations on the rights of the holders of Common Stock:
1. The Preferred Stock ranks prior to Common Stock with
respect to (a) payment of dividends and (b) distributions
upon liquidation or dissolution of the Company; and
2. In the event of any default upon the Preferred Stock
the number of members of the Company's Board of Directors
will be increased by two, and both new directors will be
elected by the holders of Preferred Stock.
27[PAGE]
American Skiing Company and Subsidiaries
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.
AMERICAN SKIING COMPANY
Date: March 9, 1998 /s/ Thomas M. Richardson
Thomas M. Richardson
Senior Vice President
Finance Chief Financial
Officer (Principal
Financial and Accounting
Officer)
Date: March 9, 1998 /s/ Christopher E. Howard
Christopher E. Howard
Chief Administrative
Officer and General
Counsel (Duly Authorized
Officer)
28[PAGE]
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