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 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 Identification No.)
Incorporation or organization)
P.O. Box 450 04217
Bethel, Maine
(Address of principal executive office) (Zip Code)
(207) 824-5196
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Indicated by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of
common stock 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.
<PAGE>
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...................................................... 16
General.......................................................... 16
Liquidity and Capital Resources.................................. 16
Changes in Results of Operations................................. 20
Changes in Financial Condition................................... 23
Significant Events............................................... 26
Subsequent Events................................................ 27
Forward Looking Statements....................................... 28
Part II - Other Information............................................... 29
i
<PAGE>
Part I - Financial Information
Item 1
Financial Statements
This Form 10-Q/A 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. Mountainside Corporation
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.
American Skiing Company Resort Properties, Inc.
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>
<TABLE>
Condensed Consolidated Statement of Operations
(In thousands except share and per share amounts)
For the Three Months Ended
<CAPTION>
January 25, 1998 January 26, 1997
(Unaudited) (Unaudited)
<S> <C> <C>
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 5,585 5,557
----------------------------------------------------------------------
Income before provision for income taxes
11,633 618
Provision for income tax expense
4,538 235
----------------------------------------------------------------------
Net income from continuing operations
7,095 383
Extraordinary loss, net income tax benefit of $3,248
5,081 -
----------------------------------------------------------------------
Net income 2,014 383
Dividends accrued on mandatorily redeemable preferred
stock
740 -
----------------------------------------------------------------------
Net income available to Common Shareholders
$1,274 $383
======================================================================
Retained earnings (accumulated deficit), beginning of
the period
$(11,121) $7,838
Add: Net income available to common shareholders
1,274 383
2
<PAGE>
Retained earnings (accumulated deficit), end of period
$(9,847) $8,221
======================================================================
Earnings per common share - basic:
Net income from continuing operations $0.25 $0.39
Extraordinary loss ($0.18) -
Net income $0.05 $0.39
Earnings per common share - diluted:
Net income from continuing operations
$0.25 $0.39
Extraordinary loss ($0.18) -
Net income $0.04 $0.39
See accompanying Notes to (Unaudited) Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
Condensed Consolidated Statement of Operations
(in thousands except share and per share amounts)
<CAPTION>
For the Six Months Ended
January 25, 1998 January 26, 1997
(Unaudited) (Unaudited)
<S> <C> <C>
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 14,033 13,071
---------------------------------------------------------------------
Net loss before benefit for income taxes (23,532) (15,984)
Benefit for income tax expense (9,176) (6,074)
Minority interest in loss of subsidiary
(456) -
---------------------------------------------------------------------
Net loss from continuing operations (13,900) (9,910)
Extraordinary loss, net of income tax benefit of $3,248
5,081 -
---------------------------------------------------------------------
Net loss (18,981) (9,910)
Accretion of discount and dividends accrued on mandatorily
redeemable preferred stock
3,171 -
---------------------------------------------------------------------
Net loss available to Common Shareholders
==================================== (9,910)
(22,152)
Retained earnings, beginning of the period
$12,305 $18,131
Add: Net income (loss) (22,152) (9,910)
=====================================================================
Retained earnings(accumulated deficit), end of period
$(9,847) $8,221
=====================================================================
Earnings per common share (basic and diluted):
Net loss from continuing operations $(0.65) $(10.13)
Extraordinary item $(0.24) -
Net loss $(1.04) $(10.13)
See accompanying Notes to (Unaudited) Condensed Consolidated Financial Statements.
4
</TABLE>
<PAGE>
<TABLE>
Condensed Consolidated Balance Sheet
(in thousands)
<CAPTION>
January 25, 1998 July 27, 1997
(Unaudited)
<S> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
Condensed Consolidated Balance Sheet
(in thousands)
<CAPTION>
January 25, 1998 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 $24,905 $39,748
Accounts payable and other current liabilities
56,672 25,738
Due to stockholder 1,933 1,933
Deposits and deferred revenue 29,647 4,379
----------------------------------------------------------
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 16,298 28,514
----------------------------------------------------------
Total liabilities 495,742 305,418
Mandatorily redeemable preferred stock 37,359 16,821
Shareholders' equity
Common stock, Class A 148 10
Common stock 154 -
Paid-in capital 266,234 2,786
Retained earnings (accumulated deficit)
(9,847) 12,305
----------------------------------------------------------
Total equity 256,689 15,101
==========================================================
Total liabilities, mandatorily redeemable preferred stock and equity
$789,790 $337,340
==========================================================
See accompanying Notes to (Unaudited) Condensed Consolidated Financial Statements.
6
</TABLE>
<PAGE>
<TABLE>
Condensed Consolidated Statement of Cash Flows
(in thousands)
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended
- -----------------------------------------------------------------------------------------------------------------------------------
January 25, 1998 January 26, 1997
Cash flows from operating activities: (Unaudited) (Unaudited)
<S> <C> <C>
Net loss $(18,981) $(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
Discount on convertible debt 927 -
Minority interest (456) -
Deferred income taxes (12,564) (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
(28,514) 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 (2,582)
1,075
-----------------------------------------------------------------
Net cash used in investing activities (343,266) (8,504)
7
<PAGE>
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
65,063 -
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
392,615 (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.
</TABLE>
8
<PAGE>
Notes to (Unaudited) Condensed Consolidated Financial Statements
1. Amendment to Form 10-Q. The Form 10-Q for the quarter ended January 25,
1998, as originally filed on March 9, 1998, has been amended to restate the
statement of operations for the three months ended January 25, 1998 to reflect
the reclass of $0.7 million of accrued dividends on the Company's 10 1/2%
Convertible Preferred Stock, previously recorded in interest expense, and the
reclass to additional paid-in capital of $0.9 million of dividends recorded to
account for the exchange feature on the Company's Series A Mandatorily
Redeemable Preferred Stock, previously reflected as an increase in net income
available to common shareholders. The amendment results in a decrease of $1.1
million in net income available to common shareholders for the three months
ended January 25, 1998 from $2.4 million, as originally filed, to $1.3 million,
and a decrease in basic and diluted net earnings per share for the quarter from
$0.08 to $0.05 and from $0.05 to $0.04, respectively. The impact of these
adjustments on the statement of operations for the six months ended January 25,
1998, combined with the adjustments made in the Form 10-Q/A filed for the
quarter ended October 26, 1997, result in an increase in the net loss available
to common shareholders of $1.7 million from $20.4 million, as originally filed,
to $22.1 million, and an increase in the basic and diluted loss per share from
$0.96 to $1.04.
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 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 audited
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 as included in the Form S-1, filed with the
Securities and Exchange Commission on February 10, 1998.
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 mountain operating supplies.
4. Income Taxes. The provision (benefit) for income taxes is
based on a projected annual effective tax rate of 39%. The net deferred income
9
<PAGE>
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.
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. Effective January 25, 1998, the
Company adopted the provisions of 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 January 26,
1997 were determined as follows:
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January January
Income (loss) 1998 1997 1998 1997
------------------ ---------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations 7,095 383 (13,900) (9,910)
Preferred stock accretion (740) - (3,171) -
Extraordinary item (5,081) - (5,081) -
Net income (loss) available to common
shareholders (basic and diluted)
1,274 383 (22,152) (9,910)
================== ================ ================= ====================
Shares
Weighted-average shares outstanding (basic)
27,991 978 21,376 978
------------------ ---------------- ----------------- --------------------
Dilutive common stock options
539 - - -
Weighted average shares outstanding
(diluted) 28,530 978 21,376 978
================== ================ ================= ====================
</TABLE>
7. 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.
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
estimated 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.
9. Pro forma disclosure. The following pro forma statements of
operations for the three and six month periods ended January 25, 1998 and
11
<PAGE>
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.
Resort EBITDA represents resort revenues less cost of resort operations
and marketing, general and administrative expense. Real estate EBITDA 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.
Pro forma adjustments have been posted to interest expense to reflect the
change in the capital structure of the Company related to the acquisition of
Heavenly and Steamboat and the initial public offering of the Company on
November 6, 1997.
The minority interest in loss of subsidiary has been removed to reflect the
exchange of the ASC East minority shareholders.
12
<PAGE>
<TABLE>
Consolidated Statement of Operations
(In thousands, except share and per share amounts)
Pro Forma
<CAPTION>
Three Months Ended Six Months Ended
Jan. 25, 1998 Jan. 26, 1997 Jan. 25, 1998 Jan. 26, 1997
<S> <C> <C> <C> <C>
Net revenues: $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 5,103 6,247 14,302 14,572
---------------------------------------------------------------------------------------
Net income before provision (benefit)
for income taxes and minority
interest in loss of subsidiary 12,115 4,190 (32,018) (20,824)
Provision (benefit) for income taxes 4,725 1,634 (12,487) (8,121)
Minority interest in loss of subsidiary - - (456) -
---------------------------------------------------------------------------------------
Net Income (loss) from continuing operations 7,390 2,556 (19,531) (12,703)
---------------------------------------------------------------------------------------
13
<PAGE>
---------------------------------------------------------------------------------------
Extraordinary loss 5,081 - 5,081 -
---------------------------------------------------------------------------------------
Net income 2,309 2,556 (24,612) (12,703)
Accretion of discounts and dividends
accrued on mandatorily redeemable
preferred stock 740 - 3,171 -
---------------------------------------------------------------------------------------
Net income (loss) available to Common
Shareholders $1,569 $2,556 (27,783) (12,703)
=======================================================================================
Earnings (loss) per common share - basic
Net income(loss) from continuing operations $0.26 $2.61 ($0.91) ($12.99)
Extraordinary loss ($0.18) - ($0.24) -
Net income (loss) $0.06 $2.61 ($1.30) ($12.99)
Earnings (loss) per common share - diluted
Net income (loss) from continuing operations $0.26 $2.61 ($0.63) ($10.13)
Extraordinary loss ($0.18) - ($0.23) -
Net income(loss) $0.05 $2.61 ($1.01) ($10.13)
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>
14
<PAGE>
10. 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 and (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.
15
<PAGE>
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 10, 1998.
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.
16
<PAGE>
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 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 10 1/2% 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.
17
<PAGE>
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 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.
18
<PAGE>
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 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.
19
<PAGE>
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 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
20
<PAGE>
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 from $.2 million for the three months ended January 26, 1997 to $4.5
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. Accrued dividends. The $.7 million represents dividends
accrued on the 10 1/2% Convertible Exchangeable Preferred Stock issued on
November 12, 1997.
21
<PAGE>
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.
22
<PAGE>
7. Benefit for income taxes. The benefit for income taxes
increased from $6.1 million for the six months ended January 26, 1997 to $9.2
million for the six months ended January 25, 1998. The $3.1 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.
9. Accretion of preferred stock. The accretion of discounts and
dividends accrued on the mandatorily redeemable preferred stock of $3.2 million
represents the accretion of the exchange feature, the amortization of the
issuance costs and the accrual of dividends relating to the Series A
Exchangeable Preferred Stock prior to its exchange. The activity in this
component for the six months ended January 25, 1998 also includes $.7 million of
dividends accrued on the 10 1/2% Convertible, Exchangeable Preferred Stock
subsequent to its exchange from the Series A Exchangeable Preferred Stock on
November 12, 1997.
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
23
<PAGE>
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 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.
24
<PAGE>
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.
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 $12.2
million from $28.5 million as of July 27, 1997 to $16.3 million as of
25
<PAGE>
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 $20.6 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 $16.6 million of 14% convertible notes that were
issued on July 29, 1997 to 10 1/2% preferred stock on November 5, 1997. The
remaining increase of $3.1 million is related to $.7 million of dividend
accrual and $2.4 million of accretion of discounts associated with the issuance
costs and the accretion of the exchange feature of the Series A exchangeable
preferred stock.
19. Additional paid in capital. Additional paid in capital increased 9407%
or $263.4 million from $2.8 million as of July 27, 1997 to $266.2 million as of
January 25, 1998. The increase is due to 1) the Company's initial public
offering as of November 6, 1997 which generated additional paid-in capital of
$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 $9.8 million as of January 25, 1998.
The decrease is directly attributable to the $22.1 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.
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.
26
<PAGE>
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 $36.3 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 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.
27
<PAGE>
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.
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.
28
<PAGE>
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 10 1/2% 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.
29
<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.
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: 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
(Duly Authorized Officer)
30
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