UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED OCTOBER 29, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from________ to _______.
--------------------------------
Commission File Number 1-13507
--------------------------------
American Skiing Company
(Exact name of registrant as specified in its charter)
Delaware 04-3373730
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 450
Bethel, Maine 04217
(Address of principal executive office)
(Zip Code)
(207) 824-8100
www.peaks.com
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate 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 shares of Class A common stock, $.01 par value, and
15,708,633 shares of common stock, $.01 par value, as of December 8, 2000.
<PAGE>
Table of Contents
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations (unaudited) for
the 13 weeks ended October 29, 2000 and October 24, 1999........3
Condensed Consolidated Balance Sheets as of October 29, 2000
(unaudited) and July 30, 2000...................................4
Condensed Consolidated Statements of Cash Flows (unaudited) for the 13
weeks ended October 29, 2000 and October 24, 1999...............5
Notes to (unaudited) Condensed Consolidated Financial Statements......6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General...............................................................8
Liquidity and Capital Resources.......................................8
Results of Operations................................................12
Forward-Looking Statements...........................................14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk..............................................14
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K...................................15
2
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Condensed Consolidated Statement of Operations
(In thousands, except share and per share amounts)
<TABLE>
13 weeks ended 13 weeks ended
October 29, 2000 October 24, 1999
(unaudited)
<S> <C> <C>
Net revenues:
Resort $ 20,912 $20,806
Real estate 27,216 2,549
---------- ---------
Total net revenues 48,128 23,355
Operating expenses:
Resort 30,343 29,015
Real estate 23,578 3,284
Marketing, general and administrative 10,443 10,753
Depreciation and amortization 4,002 3,202
---------- ----------
Total operating expenses 68,366 46,254
---------- ----------
Loss from operations (20,238) (22,899)
Interest expense 12,319 7,966
---------- ----------
Loss before benefit from income taxes (32,557) (30,865)
Benefit from income taxes (11,558) (9,052)
---------- ----------
Loss before extraordinary item and accounting change (20,999) (21,813)
Extraordinary loss, net of tax benefit of $396 - 621
Cumulative effect of accounting change,
net of taxes of $1,538 and ($449) (Note 2) (2,509) 704
---------- ----------
Loss before preferred stock dividends (18,490) (23,138)
Accretion of discount and dividends accrued on
mandatorily redeemable preferred stock 5,686 4,816
---------- ----------
Net loss available to common shareholders $ (24,176) $(27,954)
========== ==========
Accumulated deficit, beginning of period $ (84,763) $(32,311)
Net loss available to common shareholders (24,176) (27,954)
---------- ----------
Accumulated deficit, end of period $ (108,939) $(60,265)
========== ==========
Basic and diluted loss per common share (Note 3)
Loss from continuing operations $ (0.87) $ (0.88)
Extraordinary loss, net of taxes - (0.02)
Cumulative effect of change in accounting principle, net of taxes 0.08 (0.02)
---------- ----------
Net loss available to common shareholders $ (0.79) $ (0.92)
========== ==========
Weighted average common shares outstanding - basic and diluted 30,469,163 30,286,773
=========== ===========
See accompanying notes to (unaudited) Condensed Consolidated Financial Statements
</TABLE>
3
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<TABLE>
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
October 29, 2000 July 30, 2000
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 14,044 $ 10,085
Restricted cash 7,286 7,424
Accounts receivable 13,962 8,176
Inventory 14,445 10,200
Prepaid expenses 10,348 8,092
Deferred income taxes 1,664 1,566
----------------- ------------------
Total current assets 61,749 45,543
Property and equipment, net 570,593 534,078
Real estate developed for sale 187,537 222,660
Goodwill 74,471 75,003
Intangible assets 21,861 22,055
Deferred financing costs 14,601 10,844
Other assets 26,203 16,595
----------------- ------------------
Total assets $957,015 $926,778
================= ==================
Liabilities, Mandatorily Redeemable Preferred Stock and Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 93,826 $ 58,508
Current portion of subordinated notes and debentures 525 525
Accounts payable and other current liabilities 71,662 70,957
Deposits and deferred revenue 40,348 15,930
----------------- ------------------
Total current liabilities 206,361 145,920
Long-term debt, excluding current portion (Note 5) 235,087 249,841
Subordinated notes and debentures, excluding current portion 126,882 126,810
Other long-term liabilities 30,186 17,494
Deferred income taxes (9,696) 200
----------------- ------------------
Total liabilities 588,820 540,265
Mandatorily Redeemable 10 1/2% Preferred Stock, par value of $1,000 per share;
40,000 shares authorized; 36,626 shares issued and outstanding; including
cumulative dividends (redemption value of $50,013 and $48,706, respectively) 50,013 48,706
Mandatorily Redeemable 8 1/2% Series B Preferred Stock, par value of $1,000 per
share; 150,000 shares authorized, issued and outstanding; including
cumulative dividends (redemption value of $166,354 and $162,865, respectively) 156,684 152,310
Shareholders' Equity
Common stock, Class A, par value of $.01 per share; 15,000,000 shares authorized;
14,760,530 issued and outstanding 148 148
Common stock, par value of $.01 per share; 100,000,000 shares authorized;
15,708,633 issued and outstanding 157 157
Additional paid-in capital 270,094 269,955
Other comprehensive income 38 -
Accumulated deficit (108,939) (84,763)
----------------- ------------------
Total shareholders' equity 161,498 185,497
================= ==================
Total liabilities, mandatorily redeemable preferred stock and shareholders' equity $957,015 $926,778
================= ==================
See accompanying notes to (unaudited) Condensed Consolidated Financial Statements
</TABLE>
4
<PAGE>
Condensed Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
13 weeks ended 13 weeks ended
Oct 29, 2000 Oct 24, 1999
------------------ ------------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $ (18,490) $ (23,138)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 4,002 3,202
Amortization of discount on debt 96 88
Deferred income taxes (9,994) (9,897)
Stock compensation charge 123 126
Extraordinary loss -- 1,017
Cumulative effect of change in accounting principle (4,047) 1,153
Gain on sale of assets (64) (1,402)
Decrease (increase) in assets:
Restricted cash 138 (2,461)
Accounts receivable (5,786) (2,099)
Inventory (4,245) (1,140)
Prepaid expenses (2,255) (1,645)
Real estate developed for sale 8,883 (53,251)
Other assets (3,051) 785
Increase in liabilities:
Accounts payable and other current liabilities 705 5,011
Deposits and deferred revenue 24,416 19,124
Other long-term liabilities 4,558 5
Other, net 2 (7)
------------------ ------------------
Net cash used in operating activities (5,009) (64,529)
------------------ ------------------
Cash flows from investing activities
Capital expenditures (12,972) (6,496)
Proceeds from sale of assets 91 9,102
------------------ ------------------
Net cash provided by (used in) investing activities (12,881) 2,606
------------------ ------------------
Cash flows from financing activities
Net proceeds from issuance of mandatorily redeemable securities -- 136,732
Net repayment of Senior Credit Facility 25,200 (106,186)
Proceeds from long-term debt -- 180
Proceeds from non-recourse real estate debt 15,975 40,826
Repayment of long-term debt (742) (3,334)
Repayment of non-recourse real estate debt (17,498) (2,032)
Deferred financing costs (1,097) (3,609)
Repayment of demand note, Principal Shareholder -- (1,830)
Other, net 11 --
------------------ ------------------
Net cash provided by financing activities 21,849 60,747
------------------ ------------------
Net increase (decrease) in cash and cash equivalents 3,959 (1,176)
Cash and cash equivalents, beginning of period 10,085 9,003
------------------ ------------------
Cash and cash equivalents, end of period $ 14,044 $ 7,827
================== ==================
Supplementary disclosure of non-cash item:
Non-cash transfer of real estate developed for sale to fixed assets $ 26,239 $ -
See accompanying notes to (unaudited) Condensed Consolidated Financial Statements
</TABLE>
5
<PAGE>
American Skiing Company and Subsidiaries
Notes to (unaudited) Condensed Consolidated Financial Statements
1. General. American Skiing Company (the "Parent") is organized as a
holding company and operates through various subsidiaries (together with the
Parent, the "Company"). The Company's fiscal year is a fifty-two week or
fifty-three week period ending on the last Sunday of July. Fiscal 2001 is a
fifty-two week reporting period with each quarter consisting of 13 weeks. Fiscal
2000 was a fifty-three week reporting period with the second quarter consisting
of 14 weeks and all other quarters consisting of 13 weeks. The accompanying
unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
Results for interim periods are not indicative of the results expected
for the year due to the seasonal nature of the Company's business. The unaudited
condensed consolidated financial statements should be read in conjunction with
the following notes and the Company's consolidated financial statements in its
Form 10-K, filed with the Securities and Exchange Commission on October 26,
2000. Certain amounts in the prior year's unaudited condensed consolidated
financial statements and the audited financial statements as filed in the
Company's Form 10-K have been reclassified to conform to the current period
presentation.
2. Accounting Change. In the first quarter of fiscal 2001, the Company
changed its method of accounting for interest rate swaps in accordance with its
adoption of Statement of Financial Accounting Standards ("SFAS") No. 133
Accounting for Derivative Instruments and Hedging Activities, SFAS No. 137
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - an Amendment of FASB Statement No.
133 and SFAS No. 138 Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an Amendment of FASB Statement No. 133 (collectively SFAS
133 as amended).
SFAS 133 as amended requires that derivatives be recorded on the
balance sheet as an asset or liability at fair value. The Company has entered
into three interest rate swap agreements that do not qualify for hedge
accounting under SFAS 133 as amended. As of July 30, 2000, the Company had $8.6
million recorded in Other Long Term Liabilities in the accompanying Consolidated
Balance Sheet and had been recording the net effect of the anticipated $2.1
million in interest savings from these agreements on a straight line basis over
the life of the agreements through the income statement. Upon adoption of SFAS
133 as amended, the fair value of these swaps was recorded as a $6.5 million
asset and an $11.1 million liability, with a corresponding $4.6 million entry to
cumulative effect of accounting change in earnings. The $8.6 million recorded in
Other Long Term Liabilities was also recognized through a cumulative effect of
accounting change in earnings, resulting in a net cumulative effect of
accounting change of $4.0 million (before a $1.5 million provision for income
taxes). Subsequent changes in the fair values of the swaps are being recorded
through the income statement as an adjustment to interest expense.
Cash flow hedges
The Company has also entered into two interest rate swap agreements,
with a total notional amount of $75 million, which have been designated as cash
flow hedges of variable future cash flows associated with the interest on the
Senior Credit Facility. Upon adoption of SFAS 133 as amended, the fair value of
these swaps of $0.3 million has been recorded as an asset on the balance sheet
with a corresponding credit of $0.2 million, after taxes, to other comprehensive
income. Subsequent changes in fair value of the swaps will be recorded through
other comprehensive income, except for changes related to ineffectiveness during
the period these instruments are designated as hedges. The Company does not
currently anticipate ineffectiveness under these hedges.
3. Loss per Common Share. Loss per common share for the 13 weeks ending
October 29, 2000 and October 24, 1999, respectively, were determined based on
the following data (in thousands):
6
<PAGE>
<TABLE>
13 weeks ended 13 weeks ended
October 29, 2000 October 24,
1999
----------------- ----------------
<S> <C> <C>
Loss
Loss before preferred stock dividends
and accretion and extraordinary items $ (20,999) $ (21,813)
Accretion of discount and dividends accrued on
mandatorily redeemable preferred stock 5,686 4,816
----------------- ----------------
Loss before extraordinary items (26,685) (26,629)
Extraordinary loss, net of taxes - 621
Cumulative effect of accounting changes, net of taxes (2,509) 704
================= ================
Net loss available to common shareholders $ (24,176) $ (27,954)
================= ================
Shares
================= ================
Weighted average shares outstanding - basic and diluted 30,469 30,287
================= ================
</TABLE>
The Company has outstanding 186,626 shares of convertible preferred
stock (represented by two separate classes) at October 29, 2000 and October 24,
1999, respectively. These shares are convertible into shares of the Company's
common stock. The common stock shares into which these securities are
convertible have not been included in the dilutive share calculation as the
impact of their inclusion would be anti-dilutive. The Company also has 2,128,763
and 3,041,844 exercisable options outstanding to purchase shares of its common
stock under the Company's stock option plan as of October 29, 2000 and October
24, 1999, respectively. These shares are also excluded from the dilutive share
calculation as the impact of their inclusion would also be anti-dilutive.
4. Segment Information. The Company currently operates in two business
segments, Resort and Real Estate. The Company's Resort revenues are derived from
a wide variety of sources including lift ticket sales, food and beverage, retail
sales including rental and repair, skier development, lodging and property
management, golf, other summer activities and miscellaneous revenue sources. The
Company's Real Estate revenues are derived from the sale and leasing of
interests in real estate development projects undertaken by the Company at its
resorts and the sale of other real property interests. Revenues and operating
profits for each of the two reporting segments are as follows:
<TABLE>
13 weeks ended 13 weeks ended
October 29, 2000 October 24, 1999
---------------- -----------------
(in thousands)
<S> <C> <C>
Revenues:
Resorts $ 20,912 $ 20,806
Real Estate 27,216 2,549
---------------- -----------------
Total $ 48,128 $ 23,355
---------------- -----------------
Loss before benefit from income taxes
Resorts $ (29,949) $ (28,090)
Real Estate (2,608) (2,775)
---------------- -----------------
Total $ (32,557) $ (30,865)
---------------- -----------------
</TABLE>
5. Long Term Debt. On July 31, 2000, the Company entered into a Second
Amended and Restated Credit Agreement between its principal real estate
development subsidiary, American Skiing Company Resort Properties, Inc. ("Resort
Properties"), Fleet National Bank and the lenders party thereto (the "Amended
Real Estate Term Facility"). This fully syndicated $73 million facility replaced
Resort Properties' previous un-syndicated $58 million Real Estate development
term loan facility. The Amended Real Estate Term Facility is collateralized by
security interests in, and mortgages on, substantially all of Resort Properties'
assets, which primarily consist of undeveloped real property and the stock of
its real estate development subsidiaries, including Grand Summit Resort
Properties.
The Amended Real Estate Term Facility is comprised of three tranches, each
with separate interest rates and maturity dates. Tranche A has a maximum
principal amount of $35 million, bears interest at a variable rate equal to the
Fleet National Bank's Base Rate plus 8.25% (payable monthly in arrears) and
matures on December 31, 2002. Tranche B has a maximum principal amount of $25
million, bears interest at a fixed rate of 25% per annum and matures on December
31, 2003. Interest calculated at 18% per annum for Tranche B is payable monthly
in arrears. The remaining 7% per annum accrues, is added to the principal
7
<PAGE>
balance of Tranche B and bears interest at 25% per annum, compounded annually.
Tranche C has a maximum principal amount of $13 million, bears interest at an
effective rate of 25% per annum and matures on December 31, 2005. Interest
accrues, is added to the principal balance of Tranche C and compounds
semi-annually.
Tranche C of the Amended Real Estate Term Facility was purchased by Oak
Hill Capital Partners, L.P, which, together with certain of its affiliates, is
also the holder of the Company's Series B Preferred Stock. In connection with
this $13 million investment, the Company entered into a Securities Purchase
Agreement with Oak Hill, dated as of July 31, 2000, pursuant to which the
Company has agreed to either (i) issue warrants to Oak Hill for 6,000,000 shares
of ASC common stock with an exercise price of $2.50 per share or (ii) issue to
Oak Hill common stock in Resort Properties representing approximately 15% of the
voting interest in Resort Properties. The purchase price of the warrants (or
Resort Properties common stock, as applicable) was $2 million. The Tranche C
portion of this facility is being carried at a discount due to the relative fair
values of the warrants issued to Oak Hill and the total Tranche C borrowings. As
of October 29, 2000, $5.5 million had been drawn down under Tranche C, with a
carrying value of $3.1 million.
In addition, the Series B Agreement, dated August 9, 1999, was amended
as of July 31, 2000 to provide, among other things: (i) that Oak Hill will have
the right to elect six members of the Company's Board of Directors, provided
that Oak Hill maintains certain ownership levels; (ii) that Mr. Otten will have
the right to elect two members to the Board, provided that he maintains certain
ownership levels; and (iii) that Mr. Otten will have the right to serve on the
executive committee of the Board and on the board of directors of material
subsidiaries of ASC. As of July 31, 2000, Oak Hill would own 54.9% of the
67,546,455 shares of common stock of the Company that would be outstanding if
all the shares of the Series B Preferred Stock were converted and if all of the
Warrants were exercised.
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following is management's discussion and analysis of financial
condition and results of operations for the quarter ended October 29, 2000. As
you read the material below, we urge you to carefully consider our Consolidated
Financial Statements and related notes contained elsewhere in this report.
When used in this discussion, the words "expect(s)", "feel(s)",
"believe(s)", "will", "may", "anticipate(s)" and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to replenish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Readers are also
urged to carefully review and consider the various disclosures made by the
Company in its periodic reports on Forms 10-K, 10-Q, and 8-K filed with the
Securities Exchange Commission that advise interested parties of the factors
which effect the Company's business.
Liquidity and Capital Resources
Short-Term. Our primary short-term liquidity needs involve funding
seasonal working capital requirements, continuing and completing real estate
development projects presently under construction, funding our fiscal 2001
capital improvement program and servicing our debt. Our cash requirements for
ski-related and real estate development activities are provided from separate
sources. Our primary source of liquidity for ski-related working capital and
ski-related capital improvements are cash flow from operations of our non-real
estate subsidiaries and borrowings under our senior credit facility. Real estate
development and real estate working capital is funded primarily through
construction financing facilities established for major real estate development
projects, a real estate term facility, and net proceeds from the sale of real
estate developed for sale after required construction loan repayments. These
facilities are without recourse to us and our resort operating subsidiaries and
are collateralized by significant real estate assets of American Skiing Company
Resort Properties and its subsidiaries, including the assets and stock of Grand
Summit Resort Properties, Inc., our primary hotel development subsidiary. As of
October 29, 2000, the book value of the total assets that collateralized these
facilities and which are included in the accompanying consolidated balance sheet
was approximately $288.9 million.
8
<PAGE>
Resort Liquidity. We have established a $165 million senior credit
facility agreement with Fleet National Bank, as agent, and certain other
lenders, consisting of a $100 million revolving portion and a $65 million term
portion. The revolving portion of the senior credit facility matures on May 30,
2004, and the term portion matures on May 31, 2006.
The maximum availability under the revolving portion of the senior
credit facility reduces over its term by certain prescribed amounts. As of
December 3, 2000, total borrowings under the revolving credit were $78.8
million, and $5.9 million of availability was allocated to cover outstanding
letters of credit. The term portion of the senior credit facility amortizes in
five annual installments of $650,000 payable on May 31 of each year, with the
remaining portion of the principal due in two substantially equal installments
on May 31, 2005 and May 31, 2006. As of December 3, 2000, the outstanding
balance of the term portion has been reduced by $650,000 to $64.4 million. In
addition, the senior credit facility requires mandatory prepayment of the term
portion and a reduction in the availability under the revolving portion of an
amount equal to 50% of the consolidated excess cash flows during any period in
which excess cash flow leverage ratio exceeds 3.50 to 1. In no event, however,
will such mandatory prepayments reduce the revolving portion of the facility
below $74.8 million. We do not presently expect to generate consolidated excess
cash flows during fiscal 2001.
The senior credit facility contains affirmative, negative and financial
covenants customary for this type of credit facility, which includes maintaining
certain financial ratios. The senior credit facility is secured by substantially
all of our assets and subsidiaries except those of our real estate development
subsidiaries. The revolving portion of the facility is subject to an annual
30-day clean-down requirement, which period must include April 30 of each year,
during which the sum of the outstanding principal balance and letter of credit
exposure shall not exceed $35 million.
We amended the senior credit facility on March 6, 2000, which
significantly modified the financial covenant requirements of the senior credit
facility on a prospective basis, established minimum quarterly EBITDA levels
through the second quarter of fiscal 2002 and established monthly restrictions
on the maximum amount outstanding under the revolving portion of the senior
credit facility through December 3, 2000. We successfully exceeded our required
minimum EBITDA levels under the amended senior credit facility for the first
fiscal quarter of 2001 and we have successfully fulfilled all of the maximum
usage requirement for each monthly period through December 3, 2000. Based on
historical operations, we presently anticipate that we will be able to meet the
financial covenants of the amended senior credit facility. Failure to meet one
or more of these covenants could result in an event of default under the senior
credit facility. In the event that such default were not waived by the lenders
holding a majority of the debt under the senior credit facility, this default
would also constitute defaults under one or more of our other major credit
facilities, the consequences of which would likely be material and adverse to
our business.
The amended senior credit facility also places a maximum level of non-real
estate capital expenditures of $13 million (of which approximately $4.6 million
had been expended as of December 3, 2000) for fiscal 2001, exclusive of the
Heavenly Gondola project. Following fiscal 2001, annual resort capital
expenditures, exclusive of real estate capital expenditures, are limited to the
lesser of $35 million, or the total of the non-real estate development
subsidiaries' consolidated EBITDA for the four fiscal quarters ended in April of
the previous fiscal year less the consolidated debt service for the same period.
In addition to the foregoing amounts, we are permitted to and expect to make
capital expenditures of up to $30 million for the purchase and construction of a
new gondola at our Heavenly resort in Lake Tahoe, Nevada, on which construction
is currently underway and approximately $19.5 million has been expended as of
December 3, 2000.
The amended senior credit facility restricts our ability to pay
dividends on our common stock. We are prohibited from paying dividends in excess
of 50% of the consolidated net income of the non-real estate development
subsidiaries after April 25, 1999, and further prohibited from paying dividends
under any circumstances when the effect of such payment would cause the debt to
EBITDA ratio of the non-real estate development subsidiaries to exceed 4.0 to 1.
Based upon these and other restrictions, we do not expect to be able to pay cash
dividends on our common stock, mandatorily redeemable 10.5% preferred stock or
series B preferred stock during fiscal 2001 or fiscal 2002.
Our liquidity is significantly affected by our high leverage. As a
result of our leveraged position, we will have significant cash requirements to
service interest and principal payments on our debt. Consequently, cash
availability for working capital needs, capital expenditures and acquisitions is
limited, outside of any availability under the senior credit facility.
Furthermore, the senior credit facility and the indenture governing our 12%
Senior Subordinated Notes, due 2006, each contain significant restrictions on
our ability to obtain additional sources of capital and may affect our
liquidity. These restrictions include restrictions on the sale of assets,
restrictions on the incurrence of additional indebtedness and restrictions on
the issuance of preferred stock.
9
<PAGE>
As of December 3, 2000, we have drawn or committed for letters of credit
approximately $84.7 million of the total $100 million revolving portion of our
senior credit facility. We expect to maximize borrowings under the senior credit
facility in December of 2000, consistent with our historical experience when we
have had little, if any, borrowing availability under the senior credit
facility.
Under the indenture for our 12% Senior Subordinated Notes, due 2006, we
are prohibited from paying cash dividends or making other distributions to our
shareholders.
Real Estate Liquidity. Funding of working capital for American Skiing
Company Resort Properties and its fiscal 2001 real estate development program is
provided by a real estate term facility and the net proceeds from the sale of
real estate developed for sale after required construction loan repayments.
On July 31, 2000, we entered into a second amended real estate facility
agreement between American Skiing Company Resort Properties and Fleet National
Bank. This fully syndicated $73 million facility replaced our previous
un-syndicated $58 million real estate development term loan facility. The second
amended real estate facility is collateralized by security interests in, and
mortgages on, substantially all of American Skiing Company Resort Properties'
assets, which primarily consist of undeveloped real property and the stock of
its real estate development subsidiaries (including Grand Summit Resort
Properties). As of October 29, 2000, the book value of the total assets that
collateralized the real estate facilities, and are included in the accompanying
consolidated balance sheet, was approximately $288.9 million.
The second amended real estate facility is comprised of three tranches,
each with separate interest rates and maturity dates. Tranche A has a maximum
principal amount of $35 million, bears interest at a variable rate equal to the
Fleet National Bank Base Rate plus 8.25%, or a current rate of 17.8%, (payable
monthly in arrears) and matures on December 31, 2002. Mandatory principal
payments on Tranche A of $5.0 million each are payable on April 30, 2002, July
31, 2002 and October 31, 2002. Tranche B has a maximum principal amount of $25
million, bears interest at a fixed rate of 25% per annum and matures on December
31, 2003. Interest calculated at 18% per annum for Tranche B is payable monthly
in arrears. The remaining 7% per annum accrues, is added to the principal
balance of Tranche B and bears interest at 25% per annum, compounded annually.
Tranche C has a maximum principal amount of $13 million, bears interest at an
effective rate of 25% per annum and matures on December 31, 2005. Interest
accrues, is added to the principal balance of Tranche C and is compounded
semi-annually. Neither Tranche B nor Tranche C have any scheduled amortization
payments prior to maturity. As of December 3, 2000, the principal balances
outstanding, including accrued and unpaid interest, under Tranches A, B & C of
the second amended real estate facility were $28.9 million, $25.0 million, and
$5.5 million, respectively.
Tranche C of the second amended real estate facility was purchased by
Oak Hill Capital Partners, L.P. In connection with this $13 million investment,
we entered a securities purchase agreement with Oak Hill, dated as of July 31,
2000, pursuant to which we agreed to either issue warrants to Oak Hill for
6,000,000 shares of our common stock with an exercise price of $2.50 per share,
or issue to Oak Hill common stock in American Skiing Company Resort Properties,
representing approximately 15% of the voting interest in that entity. The
purchase price of the warrants (or American Skiing Company Resort Properties
common stock, as applicable) was $2 million. We expect to issue the warrants
following receipt of necessary lender consents.
We conduct substantially all of our real estate development through
single purpose subsidiaries, each of which is a wholly owned subsidiary of
American Skiing Company Resort Properties. Grand Summit Hotel projects are
constructed through Grand Summit Resort Properties and have been primarily
financed through a $110 million construction loan facility among Grand Summit
Resort Properties and various lenders, including TFC Textron Financial, the
syndication agent and administrative agent, which closed on September 25, 1998.
As of December 3, 2000, the amount outstanding under the construction
loan facility was $75.7 million. This facility matures on March 31, 2002 and
bears interest at the rate of prime plus 2.5% per annum, or a current rate of
12.0%. The principal is payable incrementally as quartershare sales are closed
based on a predetermined per unit amount, which approximates between 65% and 80%
of the net proceeds of each closing. The facility is collateralized by mortgages
against the project sites (including the completed Grand Summit Hotels at
Killington, Mt. Snow, Sunday River, Attitash Bear Peak and The Canyons, as well
as the recently opened Steamboat Grand Hotel), and is subject to covenants,
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representations and warranties customary for this type of construction facility.
The facility is non-recourse to American Skiing Company and its resort operating
subsidiaries (although it is collateralized by substantial assets of Grand
Summit Resort Properties, having a total book value of $198.5 million as of
October 29, 2000, which in turn comprise substantial assets of our business).
Due to construction delays and cost increases at the Steamboat Grand
Summit Hotel project, Grand Summit Resort Properties entered into a $10 million
subordinated loan tranche with TFC Textron Financial on July 25, 2000. This
facility has been used solely for the purpose of funding the completion of the
Steamboat Grand Hotel. The facility bears interest at a fixed rate of 20% per
annum, payable monthly in arrears, provided that only 50% of the amount of such
interest shall be due and payable in cash and the other 50% of such interest
shall, if no events of default exist under the subordinated loan tranche
facility or the construction loan Textron facility, automatically be deferred
until the final payment date. As of December 3, 2000, the amount outstanding
under the subordinated loan tranche facility was $6.9 million.
On October 17, 2000, we sold our option rights to certain real estate
in the South Lake Tahoe Redevelopment District to Marriott Ownership Resorts,
Inc., a wholly owned subsidiary of Marriott International, for $8.5 million.
Pursuant to the terms of the option sale, American Skiing Company Resort
Properties received $4.09 million in cash proceeds on October 17, applied a $0.3
million previously received deposit and will receive an additional $4.09 million
from Marriott on January 15, 2001. Simultaneously with the closing of the sale
of its option rights, our July 28, 1998 development agreement with Marriott was
terminated. Management believes that the termination of this agreement will
allow American Skiing Company Resort Properties to more aggressively market
certain developmental real estate at its Killington and Steamboat resorts to
other potential timeshare investors. In addition, we continue to discuss with
Marriott a possible development at Killington, but have not and may not reach an
acceptable agreement regarding this parcel.
Our fiscal 2001 business plan anticipates starting two real estate
projects in the spring and summer of 2001; a Grand Summit Hotel at Heavenly and
townhomes at The Canyons. Commencement of these projects is subject to
satisfying the requisite pre-sale hurdles, our cash flow requirements and
arranging appropriate financing for these projects.
Long-Term. Our primary long-term liquidity needs are to fund skiing-related
capital improvements at certain of our resorts, development of our slope side
real estate and the mandatory redemption of our Series A Preferred Stock on
November 15, 2002. With respect to capital needs, we have invested over $185
million in skiing related facilities since the beginning of fiscal 1998. As a
result, and in keeping with restrictions imposed under the senior credit
facility, we expect our resort capital programs for the next several fiscal
years will be more limited in size. Our fiscal 2001 resort capital program is
estimated at approximately $13 million (of which $4.6 million had been expended
as of December 3, 2000), plus an additional estimated $18 million to be expended
on the Heavenly Gondola project (of which $12.2 million had been expended as of
December 3, 2000).
For our 2001 and 2002 fiscal years, we anticipate our annual
maintenance capital needs to be approximately $10 to $12 million. There is a
considerable degree of flexibility in the timing and, to a lesser degree, scope
of our growth capital program. 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.
Our practice is to finance on-mountain capital improvements through resort
cash flow, capital leases and our senior credit facility. The size and scope of
the capital improvement program will generally be determined annually depending
upon the strategic importance and expected financial return of certain projects,
future availability of cash flow from each season's resort operations and future
borrowing availability and covenant restrictions under the senior credit
facility. The senior credit facility places a maximum level of non-real estate
capital expenditures for fiscal 2002 and beyond at the lesser of $35 million, or
the total of the non-real estate development subsidiaries' consolidated EBITDA
for the four fiscal quarters ended in April of the previous fiscal year less
consolidated debt service for the same period. In addition, we are permitted to
and expect to make capital expenditures of up to $30 million for the purchase
and construction of a new gondola at our Heavenly resort in Lake Tahoe, Nevada.
Construction on the Heavenly gondola began in June, 2000 and as of December 3,
2000, we had expended approximately $19.5 million on this project. Our
management believes that these capital expenditure amounts will be sufficient to
meet our non-real estate capital improvement needs for the near future.
Our business plan anticipates the development of Grand Summit hotels,
condominium hotels and townhouses at our resort villages at The Canyons,
Heavenly, Killington, Steamboat and Sunday River. The timing and extent of these
projects are subject to local and state permitting requirements which may be
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beyond our control, as well as our cash flow requirements and the availability
of external capital. Our real estate development is undertaken through our real
estate development subsidiary, American Skiing Company Resort Properties.
Recourse on debt incurred to finance this real estate development is limited to
American Skiing Company Resort Properties and its subsidiaries, which include
Grand Summit Resort Properties. This debt is usually collateralized by the
projects that it finances, which, in some cases, constitute a significant
portion of our assets. As of October 29, 2000, the total assets collateralizing
the real estate facilities, and included in the accompanying consolidated
balance sheet, totaled approximately $288.9 million. American Skiing Company
Resort Properties' eight existing development projects are currently being
funded by the second amended real estate facility, the construction loan
facility and a separate construction loan facility for the final phase of the
Locke Mountain Townhomes at Sunday River. The Locke Mountain project is
currently 100% sold and through December 3, 2000, we have realized $1.9 million
in proceeds from closings and we have completely paid down the construction debt
for this project.
We expect to undertake future real estate development projects through
special purpose subsidiaries with financing provided principally on a
non-recourse basis to us and our resort operating subsidiaries. Although this
financing is expected to be non-recourse to us and our resort subsidiaries, it
will likely be collateralized by our existing and future real estate projects
that may constitute significant assets to us. Required equity contributions for
these projects must be generated before they can be undertaken, and the projects
are subject to mandatory pre-sale requirements as well as other key project
criteria under the second amended real estate facility. Potential sources of
equity contributions include sales proceeds from existing real estate projects
and assets, (to the extent not applied to the repayment of indebtedness) and the
possible sale of equity or debt interests in American Skiing Company Resort
Properties or its real estate development subsidiaries. Financing commitments
for future real estate development do not currently exist, and we can offer no
assurance that they will be available on satisfactory terms. We will be required
to establish both equity sources and construction facilities or other financing
arrangements for our projects before undertaking them.
We have outstanding $36 million of mandatorily redeemable 10 1/2%
preferred stock, with an accreted value of $50.0 million as of October 29, 2000.
The mandatorily redeemable 10 1/2% preferred stock is exchangeable at the option
of the holder into our common stock at a conversion price of $17.10 for each
common share. We expect to hold the mandatorily redeemable 10 1/2% preferred
stock until its maturity date of November 15, 2002, at which time we will be
required to redeem the mandatorily redeemable 10 1/2% preferred stock at a
redemption price of approximately $62 million. We can give no assurance that the
necessary liquidity will be available or that we will meet requirements of our
debt facilities to effect the redemption on a timely basis.
Changes in Results from Operations for the 13 Weeks Ended October 29, 2000
Compared to the 13 Weeks ended October 24, 1999
Resort Operations:
Resort revenues increased slightly in the first quarter of 2001
compared to the first quarter of fiscal 2000, from $20.8 million to $20.9
million. Included in our fiscal 2000 resort revenues were $1.6 million in
non-recurring gains from asset sales, for which there were no comparative
amounts in fiscal 2001. Exclusive of these gains from asset sales, our first
quarter resort revenues actually increased by $1.7 million over last year's
first quarter. The Canyons Grand Summit Hotel, which opened for business during
the second quarter of fiscal 2000, generated approximately $2.2 million in
lodging and food & beverage revenues in the first quarter of 2001, and the new
Steamboat Grand Hotel, which opened towards the end of the first quarter,
contributed another $0.3 million in resort revenues. Slightly offsetting these
increased revenues from hotel operations were lower golf and summer activity
revenues due to cool, wet weather in the east and one less week of summer
activity during this quarter vs the same quarter last year. In addition, we
generated lower retail revenues due to reduced inventory liquidation activity
this year, in contrast to last years unusually large liquidation effort.
Our Resort segment generated a $29.9 million loss before income taxes
and preferred dividends for the current fiscal quarter, compared to a $28.1
million loss in the first quarter of fiscal 2000. Exclusive of the $1.6 million
non-recurring gain from asset sales in fiscal 2000 referred to above, our first
quarter Resort segment operating loss increased by $0.2 million over the first
quarter of fiscal 2000 due to the following:
i. Resort EBITDA (earnings before taxes, depreciation and amortization)
increased by $0.7 million over fiscal 2000, exclusive of the non-recurring
gains from asset sales
ii. Resort depreciation and amortization increased by $0.5 million over fiscal
2000
iii. Resort interest expense increased by $0.4 million over fiscal 2000
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The $0.7 million increase in Resort EBITDA is net of approximately $0.8
million in pre-opening expenses incurred at the Steamboat Grand Hotel leading up
to its opening late in the first quarter of fiscal 2000. Exclusive of these
pre-opening charges, our Resort EBITDA would have increased by $1.5 million,
mainly due to:
(i) a $0.6 million improvement in retail margins over last year due to
improved inventory management;
(ii) lower marketing, sales and administrative costs in fiscal 2001 (a $0.5
million decrease, excluding $0.2 million of Steamboat Grand Hotel
marketing expenses), mainly due to lower marketing expenses resulting
from the elimination of certain corporate level marketing activities;
(iii) a $0.3 million increase from sponsorship and events activity resulting
from earlier completion of some agreements than in the prior year.
Real Estate Operations:
Real estate revenues increased by $24.7 million in the current quarter
compared to fiscal 2000, from $2.5 million to $27.2 million. During the first
quarter of 2001, we began delivering quartershare units in the recently opened
Steamboat Grand Hotel, from which we realized $15.6 million in revenues from
closings of pre-sold units. We also continued to realize sales at The Canyons
Grand Summit Hotel, which opened in the second quarter of fiscal 2000. During
the first quarter of 2001, we realized $5.3 million from sales of quartershare
units at The Canyons Grand Summit. Continuing sales of quartershare units of
Grand Summit Hotels at the Company's Eastern resorts contributed $0.8 million in
real estate revenues for the current quarter compared to $2.1 million in the
third quarter of fiscal 2000, a decrease of $1.3 million. Although the pace of
unit sales has slowed over time, the overall sell-out of these projects remains
strong as both the Jordan Grand at Sunday River and the Grand Summit at
Killington are now over 95% sold-out, with the Grand Summit at Mount Snow over
75% and Attitash Bear Peak over 58% sold-out.
Also in the first quarter of fiscal 2001, we sold our option rights to
certain real estate in the South Lake Tahoe Redevelopment District to Marriott
Ownership Resorts, Inc., a wholly owned subsidiary of Marriott International,
for $8.5 million. Pursuant to the terms of the option sale, we received $4.09
million in cash proceeds and applied a $0.3 million previously received deposit,
for a total of $4.4 million of realized revenue in the first quarter. We
anticipate that we will receive the remaining $4.09 million from Marriott, and
subsequently realize it as real estate revenue, during our second fiscal quarter
of 2001.
Our Real Estate segment generated a loss before income taxes of $2.6
million for the first quarter of fiscal 2001, compared to a $2.8 million loss in
the first quarter of fiscal 2001. The current year operating loss is derived
from $3.6 million in real estate EBITDA, offset by $5.8 million in real estate
interest expense and $0.4 million in real estate depreciation and amortization.
The comparative breakdown from the first quarter of fiscal 2000 was a real
estate EBITDA loss of $0.7 million, real estate interest expense of $1.8 million
and real estate depreciation and amortization of $0.3 million. Our sale of land
options rights at South Lake Tahoe to Marriott contributed $3.3 million in real
estate EBITDA in the quarter. The delivery of quartershare units in the Grand
Summit Hotels at The Canyons and Steamboat generated $0.6 and $0.2 million in
EBITDA, respectively, during the current quarter. The $4.0 million increase in
real estate interest expense was primarily due to an increase in real estate
debt outstanding in fiscal 2001 and lower capitalized interest due to completion
of the Sundial Lodge and the Grand Summit Hotel at The Canyons in the second
quarter of fiscal 2000.
Cumulative effect of accounting changes of $2.5 million (net of $1.5
million tax provision) in fiscal 2001 resulted from recording the fair value of
non-hedging derivatives on our balance sheet in connection with our initial
adoption of SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activities, SFAS No. 137 Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
Amendment of FASB Statement No. 133 and SFAS No. 138 Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of FASB
Statement No. 133.
The cumulative effect of accounting changes of $0.7 million (net of
$0.4 million tax benefit) in fiscal 2000 resulted from our write-off of certain
capitalized start-up costs relating to our hotel and retail operations and the
opening of The Canyons resort in fiscal 1998. The accounting change was due to
our adoption of AICPA Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities". SOP 98-5 requires the expensing of all start-up costs as
incurred, rather than capitalizing and subsequently amortizing such costs.
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Accretion of discount and dividends accrued on mandatorily redeemable
preferred stock increased $0.9 million, from $4.8 million for the first quarter
of fiscal 2000 to $5.7 million for the current quarter. This increase is
primarily attributable to the compounding effect of accruing dividends on
150,000 shares of the Series B Preferred Stock issued to Oak Hill in the first
quarter of fiscal 2000. We are currently accruing dividends on the Series B
Preferred Stock at an effective rate of 9.7%, compounded quarterly, assuming
that dividends will not be paid in cash until the fifth anniversary of the
issuance, which will cause the dividend rate to incrementally increase up to
10.5% by the end of the fifth year.
Forward-Looking Statements
Certain information contained in this report includes forward-looking
statements, the realization of which may be impacted by the factors discussed
below. The forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. This report
contains forward looking statements that are subject to risks and uncertainties,
including, but not limited to: uncertainty as to future financial results; our
substantial leverage; the capital intensive nature of development of our ski
resorts; rapid and substantial growth that could place a significant strain on
our management, employees and operations; uncertainties associated with
obtaining additional financing for future real estate projects and to undertake
future capital improvements; demand for and costs associated with real estate
development; changes in market conditions affecting the interval ownership
industry; regulation of marketing and sales of our quartershare interests;
seasonality of resort revenues; fluctuations in operating results; dependence on
favorable weather conditions; the discretionary nature of consumers' spending
for skiing, destination vacations and resort real estate; regional and national
economic conditions; laws and regulations relating to our land use, development,
environmental compliance and permitting obligations; termination, renewal or
extension terms of our leases and United States Forest Service permits; industry
competition; the adequacy of water supply at our properties; and other risks
detailed from time to time in our filings with the Securities and Exchange
Commission. These risks could cause our actual results for fiscal year 2001 and
beyond to differ materially from those expressed in any forward looking
statements made by, or on behalf of, us. The foregoing list of factors should
not be construed as exhaustive or as any admission regarding the adequacy of
disclosure that we have made prior to the date of this report or the
effectiveness of the Private Securities Litigation Reform Act.
Item 3
Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in information relating to market
risk since the Company's disclosure included in Item 7A of Form 10-K as filed
with the Securities and Exchange Commission on October 26, 2000.
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Part II - Other Information
Item 6
Exhibits and Reports on Form 8-K
a) Exhibits
Included herewith is the Financial Data Schedule submitted as Exhibit
27 in accordance with Item 601(c) of Regulation S-K.
b) Reports on Form 8-K
The Company filed a report on Form 8-K on August 2, 2000, reporting the
following:
i. Securities Purchase Agreement dated July 31, 2000 among the Registrant,
American Skiing Company Resort Properties, Inc. and Oak Hill Capital
Partners, L.P.
ii. Second Amended and Restated Credit Agreement dated July 31, 2000 among
American Skiing Company Resort Properties, Inc., Fleet National Bank,
as Agent, and the other Lenders party thereto.
iii. Amendment to Stockholders' Agreement dated July 31, 2000 among the
Registrant, Oak Hill Capital Partners, L.P. and Leslie B. Otten.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 8, 2000 /s/ Christopher E. Howard
------------------------------- --------------------------------
Christopher E. Howard
Executive Vice President
(Duly Authorized Officer)
Date: December 8, 2000 /s/ Mark J. Miller
------------------------------- -------------------------------
Mark J. Miller
Senior Vice President
Chief Financial Officer
(Principal Financial Officer)
