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 APRIL 30, 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
15,692,633 shares of common stock, $.01 par value, as of June 14, 2000.
<PAGE>
Table of Contents
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Statement of Operations (unaudited) for the 13
weeks ended April 30, 2000 and April 25, 1999......................3
Condensed Consolidated Statement of Operations (unaudited) for the 40
weeks ended April 30, 2000 and the 39 weeks ended April 25, 1999...4
Condensed Consolidated Balance Sheet as of April 30, 2000 (unaudited)
and July 25, 1999..................................................5
Condensed Consolidated Statement of Cash Flows (unaudited) for the 40
weeks ended April 30, 2000 and the 39 weeks ended April 25, 1999...6
Notes to (unaudited) Condensed Consolidated Financial Statements......7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General..............................................................12
Liquidity and Capital Resources......................................12
Changes in Results of Operations.....................................18
Forward-Looking Statements...........................................23
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.................................................23
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.....................................24
2
<PAGE>
Part I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Statement of Operations
(In thousands, except share and per share amounts)
13 weeks ended 13 weeks ended
April 30, 2000 April 25, 1999
(unaudited)
Net revenues:
Resort $ 149,942 $ 154,317
Real estate 73,153 10,324
----------------- ------------------
Total net revenues 223,095 164,641
Operating expenses:
Resort 74,865 74,573
Real estate 63,450 8,554
Marketing, general and administrative 13,063 14,519
Depreciation and amortization 19,076 19,731
----------------- ------------------
Total operating expenses 170,454 117,377
----------------- ------------------
Income from operations 52,641 47,264
Interest expense 8,386 10,144
----------------- ------------------
Income before provision for income taxes 44,255 37,120
Provision for income taxes 17,472 14,787
----------------- ------------------
Income before preferred stock dividends 26,783 22,333
Accretion of discount and dividends
accrued on mandatorily redeemable
preferred stock 5,319 1,096
----------------- ------------------
Net income available to common
shareholders $ 21,464 $ 21,237
================= ==================
Accumulated deficit, begining of
period $ (75,389) $ (31,036)
Net income available to common
shareholders 21,464 21,237
----------------- ------------------
Accumulated deficit, end of period $ (53,925) $ (9,799)
================= ==================
Basic earnings per common share (note 3)
Net income available to common
shareholders $ 0.71 $ 0.70
================= ==================
Weighted average common shares
outstanding 30,423,073 30,286,773
================= ==================
Fully diluted earnings per common share (note 3)
Net income available to common
shareholders $ 0.42 $ 0.68
================= ==================
Weighted average common shares
outstanding 60,267,685 33,063,047
================= ==================
See accompanying notes to (unaudited)
Condensed Consolidated Financial Statements
3
<PAGE>
Condensed Consolidated Statement of Operations
(In thousands, except share and per share amounts)
40 weeks ended 39 weeks ended
April 30, 2000 April 25, 1999
(unaudited)
Net revenues:
Resort $ 275,228 $ 277,833
Real estate 97,849 21,109
----------------- -----------------
Total net revenues 373,077 298,942
Operating expenses:
Resort 177,403 171,897
Real estate 89,220 20,459
Marketing, general and administrative 40,099 43,267
Depreciation and amortization 43,202 41,450
----------------- ----------------
Total operating expenses 349,924 277,073
----------------- ----------------
Income from operations 23,153 21,869
Interest expense 25,516 29,213
----------------- ----------------
Loss before provision for (benefit from)
income taxes (2,363) (7,344)
Provision for (benefit from) income
taxes 2,472 (768)
----------------- ----------------
Loss before extraordinary item and
accounting change (4,835) (6,576)
Extraordinary loss, net of tax benefit
of $396 (note 6) 621 --
Cumulative effect of change in accounting
principle, net of tax benefit of $449
(note 2) 704 --
----------------- ----------------
Loss before preferred stock dividends (6,160) (6,576)
Accretion of discount and dividends
accrued on mandatorily redeemable
preferred stock 15,454 3,234
----------------- ----------------
Net loss available to common shareholders $ (21,614) $ (9,810)
================= ================
Retained earnings (accumulated deficit),
beginning of period $ (32,311) $ 11
Net loss available to common shareholders (21,614) (9,810)
----------------- ----------------
Accumulated deficit, end of period $ (53,925) $ (9,799)
================= ================
Basic and fully diluted loss per common
share (note 3)
Loss from continuing operations $ (0.67) $ (0.32)
Extraordinary loss, net of taxes (0.02) --
Cumulative effect of change in
accounting principle, net of taxes (0.02) --
----------------- ----------------
Net loss available to common
shareholders $ (0.71) $ (0.32)
================= ================
Weighted average common shares
outstanding - basic and diluted 30,352,301 30,286,357
================= ================
See accompanying notes to (unaudited)
Condensed Consolidated Financial Statements.
4
<PAGE>
Condensed Consolidated Balance Sheet
(In thousands, except share and per share amounts)
April 30, 2000 July 25, 1999
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 10,088 $ 9,003
Restricted cash 7,843 6,628
Accounts receivable 11,653 6,474
Inventory 9,615 10,837
Prepaid expenses 6,386 5,309
Deferred income taxes 4,273 4,273
----------------- ---------------
Total current assets 49,858 42,524
Property and equipment, net 528,968 529,154
Real estate developed for sale 231,372 207,745
Goodwill 75,339 76,672
Intangible assets 22,259 22,987
Deferred financing costs 11,351 9,279
Other assets 18,384 19,141
----------------- ---------------
Total asset $ 937,531 $ 907,502
================= ===============
Liabilities, Mandatorily Redeemable
Preferred Stock and Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 12,487 $ 61,555
Accounts payable and other current
liabilities 89,877 77,951
Deposits and deferred revenue 13,181 20,850
----------------- ---------------
Total current liabilities 115,545 160,356
Long-term debt, excluding current portion 256,346 313,844
Subordinated notes and debentures,
excluding current portion 127,263 127,062
Other long-term liabilities 15,157 15,687
Deferred income taxes 11,688 10,062
----------------- ---------------
Total liabilities 525,999 627,011
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 $47,442 and $43,836, respectively) 47,442 43,836
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
$159,448 and $0, respectively) 148,388 --
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; 15,662,543
and 15,526,243 issued and outstanding,
respectively 157 155
Additional paid-in capital 269,322 268,663
Accumulated deficit (53,925) (32,311)
----------------- ---------------
Total shareholders' equity 215,702 236,655
================= ===============
Total liabilities, mandatorily redeemable
preferred stock and shareholders'
equity $ 937,531 $ 907,502
================= ===============
See accompanying notes to (unaudited)
Condensed Consolidated Financial Statements.
5
<PAGE>
Condensed Consolidated Statement of Cash Flows
(In thousands)
40 weeks ended 39 weeks ended
April 30, 2000 April 25, 1999
(unaudited)
Cash flows from operating activities
Net loss $ (6,160) $ (6,576)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 43,202 41,450
Amortization of discount on debt 274 247
Deferred income taxes 1,626 (768)
Stock compensation charge 388 644
Extraordinary loss 1,017 --
Cumulative effect of change in
accounting principle 1,154 --
(Gain)/loss from sale of assets (1,477) 95
Decrease (increase) in assets:
Restricted cash (1,215) (555)
Accounts receivable (5,179) (5,471)
Inventory 1,222 (4)
Prepaid expenses (1,392) 1,264
Real estate developed for sale (52,629) (71,549)
Other assets 1,930 (3,632)
Increase (decrease) in liabilities:
Accounts payable and other current
liabilities 11,926 50,463
Deposits and deferred revenue (7,669) 10,556
Other long-term liabilities 1,300 1,235
Other, net (3) 5
---------------- ---------------
Net cash provided by (used in) operating
activities (11,685) 17,404
----------------- ---------------
Cash flows from investing activities
Capital expenditures (18,994) (43,319)
Proceeds from sale of assets 10,020 365
Long-term investments (1,278) 1,250
Payments for purchase of businesses (162) --
----------------- ---------------
Net cash used in investing activities (10,414) (41,704)
----------------- ---------------
Cash flows from financing activities
Net proceeds from issuance of
mandatorily redeemable securities 136,540 --
Net repayment of Senior Credit
Facility (123,169) (46,794)
Proceeds from long-term debt 147 19,920
Proceeds from non-recourse real
estate debt 104,937 71,223
Repayment of long-term debt (9,308) (6,730)
Repayment of non-recourse real
estate debt (79,843) (18,211)
Deferred financing costs (4,563) (1,371)
Repayment of demand note,
Principal Shareholder (1,830) --
Proceeds from exercise of stock options 273 --
----------------- ---------------
Net cash provided by financing activities 23,184 18,037
----------------- ---------------
Net increase in cash and cash equivalents 1,085 (6,263)
Cash and cash equivalents, beginning of
period 9,003 15,370
----------------- ---------------
Cash and cash equivalents, end of period $ 10,088 $ 9,107
================= ===============
Supplementary disclosure of non-cash item:
Non-cash transfer of real estate
developed for sale to fixed assets $ 28,268 $ -
See accompanying notes to (unaudited)
Condensed Consolidated Financial Statements.
6
<PAGE>
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 2000 is a
fifty-three week reporting period with the second quarter consisting of 14 weeks
and all other quarters consisting of 13 weeks. Fiscal 1999 was a fifty-two week
reporting period with each quarter 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 23,
1999. 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 2000, the Company
changed its method of accounting for start-up costs in accordance with its
adoption of AICPA Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" ("SOP 98-5"). The change involved expensing all start-up
costs as incurred, rather than capitalizing and subsequently amortizing such
costs. The initial adoption of SOP 98-5 resulted in the write-off of $1.2
million of start-up costs that had previously been capitalized as of July 25,
1999. The net effect of the write-off of $704,000 (which is net of income tax
benefits of $449,000) has been expensed and reflected as a cumulative effect of
a change in accounting principle in the accompanying statement of operations for
the 40 weeks ended April 30, 2000.
3. Earnings (loss) per Common Share. Effective January 25, 1998, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 specifies the computation, presentation, and disclosure
requirements for earnings per share for public entities. Earnings (loss) per
common share for the 13 weeks, and the 40 and 39 weeks ending April 30, 2000 and
April 25, 1999, respectively, were determined based on the following data (in
thousands):
<TABLE>
<CAPTION>
13 weeks ended 13 weeks ended 40 weeks ended 39 weeks ended
April 30, 2000 April 25, 1999 April 30, 2000 April 25, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Income/(loss) before preferred stock dividends
and accretion and extraordinary items $ 26,783 $ 22,333 $ (4,835) $ (6,576)
Accretion of discount and dividends accrued
on mandatorily redeemable preferred stock 5,319 1,096 15,454 3,234
---------------- ---------------- ---------------- ----------------
Income/(loss) before extraordinary items -
basic 21,464 21,237 (20,289) (9,810)
10 1/2% Series A Preferred Stock dividend
requirements - 1,096 - -
Series B Preferred Stock dividend
requirements 4,093 - - -
---------------- ---------------- ---------------- ----------------
Income/(loss) before extraordinary items -
diluted 25,557 22,333 (20,289) (9,810)
Extraordinary loss, net of taxes - - 621 -
Cumulative effect of change in
accounting principle, net of taxes - - 704 -
---------------- ---------------- ---------------- ----------------
Net income/(loss) available
to common shareholders - diluted $ 25,557 $ 22,333 $ (21,614) $ (9,810)
================ ================ ================ ================
7
<PAGE>
13 weeks ended 13 weeks ended 40 weeks ended 39 weeks ended
April 30, 2000 April 25, 1999 April 30, 2000 April 25, 1999
---------------- ---------------- ---------------- ----------------
Shares
Weighted average shares outstanding - basic 30,423 30,287 30,375 30,286
Effect of dilutive securities:
Common stock options 97 343 - -
Convertible 10 1/2% Series A Preferred Stock - 2,433 - -
Convertible Series B Preferred Stock 29,748 - - -
---------------- ---------------- ---------------- ----------------
Weighted average shares outstanding - diluted 60,268 33,063 30,375 30,286
================ ================ ================ ================
</TABLE>
The Company had 36,626 shares of Mandatorily Redeemable 10 1/2%
Convertible Preferred Stock outstanding as of April 30, 2000 which 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 had 683,750 and 2,191,547 as of April 30, 2000
and April 25, 1999, respectively, of exercisable common stock options
outstanding which are excluded from the dilutive share calculation because in
each case the exercise price is greater than the average share price for the
periods presented.
4. Income Taxes. The net deferred income tax liability includes the tax
benefit of cumulative net operating losses and other tax attributes, net of the
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. The provision for income taxes includes a $3.0
million valuation allowance established in the first quarter of fiscal 2000
relating to certain deferred tax assets for prior net operating losses. As a
result of the Series B Preferred Stock Transaction described in footnote 7, the
realization of the tax benefit from certain of the Company's net operating
losses and other tax attributes is dependent upon the occurrence of certain
future events. It is the judgment of the Company that a valuation allowance of
$3.0 million against its deferred tax assets for net operating losses and other
tax attributes is appropriate because it is more likely than not that the
benefit of such losses and attributes will not be realized. Based on facts known
at this time, the Company expects to substantially realize the benefit of the
remainder of its net operating losses and other tax attributes affected by the
Series B Preferred Stock Transaction.
5. Segment Information. The Company currently operates in two business
segments, Resorts 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:
8
<PAGE>
13 weeks ended 13 weeks ended 40 weeks ended 39 weeks ended
April 30, 2000 April 25, 1999 April 30, 2000 April 25, 1999
-------------- -------------- -------------- --------------
(in thousands)
Revenues:
Resorts $ 149,942 $ 154,317 $ 275,228 $ 277,833
Real Estate 73,153 10,324 97,849 21,109
-------------- -------------- -------------- --------------
Total $ 223,095 $ 164,641 $ 373,077 $ 298,942
-------------- -------------- -------------- --------------
Income (loss) before
benefit from income taxes
Resorts $ 37,935 $ 37,756 $ (3,303) $ (2,555)
Real Estate 6,320 (636) 940 (4,788)
-------------- -------------- -------------- --------------
Total $ 44,255 $ 37,120 $ (2,363) $ (7,344)
-------------- -------------- -------------- --------------
6. Long Term Debt. The Company established a senior credit facility on
November 12, 1997. On October 12, 1999, this senior credit facility was amended,
restated and consolidated from two sub-facilities totaling $215 million to a
single facility totaling $165 (the "Senior Credit Facility"). The Senior Credit
Facility consists of a revolving credit facility in the amount of $100 million
and a term facility in the amount of $65 million. The revolving portion of the
Senior Credit Facility matures on May 30, 2004, and the term portion matures on
May 31, 2006. In conjunction with the restructuring of the Senior Credit
Facility, the Company wrote-off a pro-rata portion of its existing deferred
financing costs in the amount of $1.0 million, or $0.6 million net of income
taxes, which is included in the accompanying Condensed Consolidated Statement of
Operations for the 40 weeks ended April 30, 2000 as an extraordinary loss.
The Senior Credit Facility contains affirmative, negative and financial
covenants customary for this type of credit facility, including maintenance of
certain financial ratios. The Senior Credit Facility is collateralized by
substantially all the assets of the Company, except its real estate development
subsidiaries, which are not borrowers under the Senior Credit Facility
(collectively, the borrowing subsidiaries are referred to as the "Restricted
Subsidiaries"). The revolving portion of the Senior Credit 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 under the revolving portion of the facility is not
permitted to exceed $25 million for fiscal 2000 and $35 million for each fiscal
year thereafter.
The Senior Credit Facility contains restrictions on the payment of
dividends by the Company on its common stock. Those restrictions prohibit the
payment of dividends in excess of 50% of the Restricted Subsidiaries'
consolidated net income after April 25, 1999, and further prohibit the payment
of dividends under any circumstances when the effect of such payment would be to
cause the Restricted Subsidiaries' debt to EBITDA ratio (as defined within the
credit agreement) to exceed 4.0 to 1.
9
<PAGE>
The maximum availability under the revolving portion of the Senior
Credit Facility reduces over its term by certain prescribed amounts. The term
portion of the Senior Credit Facility amortizes in five annual installments of
$650,000 payable on May 31 of each year, commencing May 31, 2000, with the
remaining portion of the principal due in two substantially equal installments
on May 31, 2005 and May 31, 2006. In addition, the Senior Credit Facility
requires mandatory prepayment of the term portion and a mandatory reduction in
the availability under the revolving portion of an amount equal to 50% of
Consolidated Excess Cash Flows (as defined in the credit agreement) during any
period in which the Excess Cash Flow Leverage Ratio (as defined in the credit
agreement) exceeds 3.50 to 1. In no event, however, will such mandatory
prepayments reduce the revolving portion of the facility below $74.8 million.
The Senior Credit Facility also places a maximum level of non-real
estate capital expenditures of $20 million for fiscal 2000 and $13 million for
fiscal 2001 (exclusive of certain capital expenditures in connection with the
sale of the Series B Preferred Stock). Following fiscal 2001, annual resort
capital expenditures (exclusive of real estate capital expenditures) are capped
at the lesser of (i) $35 million or (ii) the total of the Restricted
Subsidiaries' consolidated EBITDA (as defined therein) for the four fiscal
quarters ended in April of the previous fiscal year less consolidated debt
service for the same period. In addition to the foregoing amounts, the Company
is permitted to and expects to make capital expenditures of up to $30 million
for the purchase and construction of a new gondola at its Heavenly resort in
Lake Tahoe, Nevada, which the Company currently plans to construct during the
2000 and 2001 fiscal years.
The Company entered into an amendment to the Senior Credit Facility
effective March 6, 2000 (the "Credit Facility Amendment") which significantly
modifies the covenant requirements for the current quarter and on a prospective
basis. The Credit Facility Amendment requires the following minimum quarterly
EBITDA levels starting with the Company's current third quarter of fiscal 2000:
Fiscal Quarter Minimum EBITDA
----------------------------------------------------
2000 Quarter 3 $60,000,000
2000 Quarter 4 ($20,000,000)
2001 Quarter 1 ($20,000,000)
2001 Quarter 2 $20,000,000
2001 Quarter 3 $65,000,000
2001 Quarter 4 ($20,000,000)
2002 Quarter 1 ($20,000,000)
2002 Quarter 2 $22,000,000
The Credit Facility Amendment also places restrictions on the maximum
amount outstanding under the revolving portion of the Senior Credit Facility for
the period from May 1 through December 3, 2000. During this period, revolving
credit advances shall not exceed the following amounts at any time during the
indicated montly periods:
Monthly Maximum
Period Ending Revolver Usage
----------------------------------------------------
June 4, 2000 $39,000,000
July 2, 2000 $53,000,000
July 30, 2000 $60,000,000
September 3, 2000 $70,000,000
October 1, 2000 $80,000,000
October 29, 2000 $85,000,000
December 3, 2000 $90,000,000
10
<PAGE>
7. Series B Preferred Stock Transaction. Pursuant to a Preferred Stock
Subscription Agreement (the "Series B Agreement") dated July 9, 1999, the
Company sold 150,000 shares of its 8.5% Series B Convertible Participating
Preferred Stock ("Series B Preferred Stock") on August 9, 1999 to Oak Hill
Capital Partners, L.P. and certain related entities ("Oak Hill") for $150
million. The Company used approximately $129 million of the proceeds to reduce
indebtedness under its Senior Credit Facility, approximately $30 million of
which has been reborrowed and invested in the Company's principal real estate
development subsidiary, American Skiing Company Resort Properties, Inc.,
("Resort Properties"). The remainder of the proceeds were used to (1) pay
approximately $16 million in fees and expenses in connection with the Series B
Preferred Stock sale (approximately $13 million) and related transactions
(approximately $3 million), and (2) acquire from the Company's principal
shareholder certain strategic assets and to repay a demand note issued by a
subsidiary of the Company to the Company's principal shareholder, in the
aggregate amount of $5.4 million.
The Series B Preferred Stock is convertible into shares of the Company's
common stock at an initial conversion price of $5.25 per share of common stock.
The initial conversion price is subject to an antidilution adjustment. Assuming
all shares of the Series B Preferred Stock are converted into the Company's
common stock at the initial (and current) conversion price, Oak Hill would own
approximately 50.0% of the Company's outstanding common stock and Class A common
stock as of April 30, 2000. Oak Hill is entitled to vote its shares of Series B
Preferred Stock on matters (other than the election of Directors) as if its
shares were converted into the Company's common stock. In addition, Oak Hill as
the holder of Series B Preferred Stock has class voting rights to elect
Directors to the Company's Board of Directors. Furthermore, under the Series B
Agreement, Oak Hill and the Chairman and Chief Executive Officer of the Company,
Leslie B. Otten, have agreed to use best efforts and to vote their shares in
order to ensure that each of them is able to appoint up to four Directors to the
Board (depending on their shareholdings). Therefore, under the Series B
Agreement and the Company's certificate of incorporation, Oak Hill and Mr. Otten
together elect eight of the eleven members of the Company's Board.
Dividends on the Series B Preferred Stock are payable at the rate of 8.5%
per year. For the first five years, the Company may accrete and compound
dividends payable to the liquidation price instead of paying cash dividends, in
which case the dividend rate will increase to 9.5% after January 31, 2001, and
to 10.5% after January 31, 2002. The Series B Agreement requires dividends to be
paid in cash after July 31, 2004. The dividend rate will revert back to 8.5% at
the time the Company begins paying the dividend in cash. If the Company elects
to accrue dividends on the Series B Preferred Stock to the liquidation price for
the first five years, and thereafter pay all dividends in cash when due,
assuming no intervening stock issuances or repurchases by the Company, the
Series B Preferred Stock would be convertible into 60.4% of the Company's common
stock after the fifth anniversary of its issuance. The Company is currently
accruing dividends on the Series B Preferred Stock at an effective rate of 9.7%,
with the assumption that dividends will not be paid in cash until the fifth
anniversary of the issuance.
11
<PAGE>
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The following is management's discussion and analysis of financial
condition and results of operations for the 13 and 40 weeks ended April 30,
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 and the audited financial statements and related notes contained in our
Form 10-K filed with the Securities and Exchange Commission on October 23, 1999.
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.
The Oak Hill Transaction. On August 9, 1999, the Company consummated
the sale of 150,000 shares of its Series B Convertible Exchangeable Preferred
Stock (the "Series B Preferred Stock") to Oak Hill Capital Partners, L.P. and
certain related entities ("Oak Hill"). The Company realized gross proceeds of
$150 million on the Series B Preferred Stock sale. The Company used $128.6
million of the proceeds to reduce indebtedness under its Senior Credit Facility
(as defined in Footnote 6 to the accompanying financial statements),
approximately $30 million of which has been reborrowed and invested in the
Company's principal real estate development subsidiary, American Skiing Company
Resort Properties, Inc., ("Resort Properties"). The remainder of the proceeds
were used to (1) pay approximately $16 million in fees and expenses in
connection with the Series B Preferred Stock sale (approximately $13 million)
and related transactions (approximately $3 million), and (2) acquire from the
Company's principal shareholder certain strategic assets and to repay a demand
note issued by a subsidiary of the Company to the Company's principal
shareholder, in the aggregate amount of $5.4 million.
Liquidity and Capital Resources
Short-Term. The Company's primary short-term liquidity needs are
funding seasonal working capital requirements, continuing and completing real
estate development projects presently under construction, funding its fiscal
2000 capital improvement program and servicing indebtedness. Cash requirements
for ski-related and real estate development activities are provided by separate
sources. The Company's primary sources of liquidity for ski-related working
capital and ski-related capital improvements are cash flow from operations of
its non-real estate subsidiaries and borrowings under the 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 $58 million term loan facility established
through Resort Properties (the "Resort Properties Term Facility") and net
proceeds from the sale of real estate developed for sale after required
construction loan repayments. These construction financing facilities and Resort
Properties Term Facility (collectively, the "Real Estate Facilities") are
without recourse to the Company and its resort operating subsidiaries. The Real
Estate Facilities are collateralized by significant real estate assets of Resort
Properties and its subsidiaries, including, without limitation, the assets and
stock of Grand Summit Resort Properties, Inc. ("GSRP"), the Company's primary
hotel development subsidiary. As of April 30, 2000, the book value of the total
assets that collateralized the Real Estate Facilities, and are included in the
accompanying consolidated balance sheet, were approximately $304.2 million.
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Resort Liquidity. The Company has established a $165 million senior
credit facility (the "Senior Credit Facility") consisting of a $100 million
revolving portion and a $65 million term portion. As of June 2, 2000, total
borrowings under the revolving credit were $42.4 million and $7.6 million of
availability was allocated to cover outstanding letters of credit. 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. The term
portion of the Senior Credit Facility amortizes in five annual installments of
$650,000 payable on May 31 of each year, commencing May 31, 2000, with the
remaining portion of the principal due in two substantially equal installments
on May 31, 2005 and May 31, 2006. As of June 2, 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
mandatory reduction in the availability under the revolving portion of an amount
equal to 50% of Consolidated Excess Cash Flows (as defined in the credit
agreement) during any period in which the Excess Cash Flow Leverage Ratio (as
defined in the credit agreement) exceeds 3.50 to 1. In no event, however, will
such mandatory prepayments reduce the revolving portion of the facility below
$74.8 million. Management does not presently expect to generate Consolidated
Excess Cash Flows during fiscal 2000 or fiscal 2001.
The Senior Credit Facility contains affirmative, negative and financial
covenants customary for this type of credit facility, including maintenance of
certain financial ratios. The Senior Credit Facility is secured by substantially
all the assets of the Company, except those of its real estate development
subsidiaries (consisting of Resort Properties and its subsidiaries which are not
borrowers under the Senior Credit Facility) (collectively, the borrowing
subsidiaries are referred to as the "Restricted 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 $25
million for fiscal 2000 and $35 million for each fiscal year thereafter. The
Company successfully completed the 30-day clean down requirement for fiscal 2000
on April 30, 2000.
The Senior Credit Facility contains restrictions on the payment of
dividends by the Company on its common stock. Those restrictions prohibit the
payment of dividends in excess of 50% of the Restricted Subsidiaries'
consolidated net income after April 25, 1999, and further prohibit the payment
of dividends under any circumstances when the effect of such payment would be to
cause the Restricted Subsidiaries' debt to EBITDA ratio (as defined within the
Senior Credit Facility) to exceed 4.0 to 1. Based upon these restrictions (as
well as additional restrictions discussed below), the Company does not expect
that it will be able to pay cash dividends on its common stock, 10.5% Senior
Preferred Stock or Series B Senior Preferred Stock during fiscal 2001 or fiscal
2002.
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Due to the adverse weather conditions in the eastern United States, Utah
and the Sierra Nevadas during the Company's second fiscal quarter of 2000, and
its effect on the Company's second quarter revenue, EBITDA and net income, the
Company entered into an amendment to the Senior Credit Facility on March 6, 2000
(the "Credit Facility Amendment") which (i) suspended the Company's second
quarter financial covenant requirements, (ii) significantly modified the
financial covenant requirements of the Senior Credit Facility for the Company's
second and third fiscal quarters and on a prospective basis, (iii) established
minimum quarterly EBITDA levels starting with the Company's third quarter of
fiscal 2000 through the second quarter of fiscal 2002, and (iv) established
monthly restrictions on the maximum amount outstanding under the revolving
portion of the Senior Credit Facility for the period from May 1 through December
3, 2000. The Company exceeded its required minimum EBITDA level of $60 million
under the Credit Facility Amendment for the third fiscal quarter of 2000 and the
Company successfully fulfilled the maximum usage requirement for the monthly
period ended June 4, 2000. Based upon historical operations, management
presently anticipates that the Company will be able to meet the financial
covenants of the Senior Credit Facility, as amended by the Credit Facility
Amendment. 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, such default would also constitute defaults under one or
more of the Textron Facility, the Resort Properties Term Loan, and the Indenture
(each as hereinafter defined), the consequences of which would likely be
material and adverse to the Company.
The Credit Facility Amendment also places a maximum level of non-real
estate capital expenditures of $20 million for fiscal 2000 and $13 million for
fiscal 2001 (exclusive of certain capital expenditures in connection with the
sale of Series B Preferred Stock during the first quarter of fiscal 2000).
Following fiscal 2001, annual resort capital expenditures (exclusive of real
estate capital expenditures) are capped at the lesser of (i) $35 million or (ii)
the total of the Restricted Subsidiaries' consolidated EBITDA (as defined
therein) for the four fiscal quarters ended in April of the previous fiscal year
less consolidated debt service for the same period. In addition to the foregoing
amounts, the Company is permitted to and expects to make capital expenditures of
up to $30 million for the purchase and construction of a new gondola at its
Heavenly resort in Lake Tahoe, Nevada, which the Company currently plans to
construct during the 2000 and 2001 fiscal years.
The Company's liquidity is significantly affected by its high leverage.
As a result of its leveraged position, the Company will have significant cash
requirements to service interest and principal payments on its debt.
Consequently, cash availability for working capital needs, capital expenditures
and acquisitions is limited, outside of the availability under the Senior Credit
Facility. Furthermore, the Senior Credit Facility and the Indenture each contain
significant restrictions on the ability of the Company and its subsidiaries to
obtain additional sources of capital and may affect the Company's 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.
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Management believes that its current capital resources, along with
anticipated results from operations, will be sufficient to fund non-real estate
operating and maintenance capital needs at the Company's resorts for the
foreseeable future.
Under the Indenture related to the 12% Senior Subordinated Notes, due
2006 (the "Indenture"), the Company is prohibited from paying cash dividends or
making other distributions to its shareholders, except under certain
circumstances (which are not currently applicable and are not anticipated to be
applicable in the foreseeable future).
Real Estate Liquidity. Funding of working capital for Resort Properties
and its fiscal 2000 real estate development program is provided by the Resort
Properties Term Facility and net proceeds from the sale of real estate developed
for sale after required construction loan repayments.
The Resort Properties Term Facility has a maximum principal amount of
$58 million (reduced by a reserve for interest payments), bears interest at a
variable rate equal to Fleet National Bank's base rate plus 8.25%, or a current
rate of 17.75% per annum (payable monthly in arrears), and matures on June 30,
2001. As of June 2, 2000, the Resort Properties Term Facility was fully drawn
with $53.9 million outstanding and a $4.1 million interest reserve. The Resort
Properties 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 GSRP). As of April 30, 2000, the book value
of the total assets that collateralized the Resort Properties Term Facility, and
are included in the accompanying consolidated balance sheet, was approximately
$304.2 million. The Resort Properties Term Facility is non-recourse to the
Parent and its resort operating subsidiaries.
In conjunction with the Resort Properties Term Facility, Resort
Properties entered into a syndication letter with Fleet National Bank (the
"Syndication Letter") pursuant to which Fleet National Bank agreed to syndicate
up to $43 million of the Resort Properties Term Facility. Under the terms of the
Syndication Letter, one or more of the terms of the Resort Properties Term
Facility (excepting certain terms such as the maturity date and commitment fee)
may be altered depending on the requirements for syndication of the facility;
however, no alteration of the terms of the facility may occur without the
consent of Resort Properties. It may be necessary for one or more of the terms
of the Resort Properties Term Facility to be altered in order to syndicate the
facility, and such alterations could be material and adverse to the Company. As
of June 1, 2000, Fleet National Bank was actively engaged in syndicating the
Resort Properties Term Facility. The Syndication Letter also provides that,
prior to syndication of at least $33 million of the Resort Properties Term
Facility, Fleet National Bank may at its option, require repayment of the
outstanding balance of the facility within 120 days of its request for repayment
by Resort Properties. If the syndication is unsuccessful and Fleet National Bank
were to require repayment, there can be no assurance that the Company could
secure replacement financing for the Resort Properties Term Facility. The
failure to secure replacement financing on terms similar to those existing under
the Resort Properties Term Facility could result in a material adverse effect on
the liquidity of Resort Properties and its subsidiaries, including GSRP, and
could also result in a default under the Indenture and the Senior Credit
Facility.
The Company runs substantially all of its real estate development
through single purpose subsidiaries, each of which is a wholly owned subsidiary
of Resort Properties. In its fourth fiscal quarter of 1998, the Company
commenced construction on three new hotel projects (two at The Canyons in Utah
and one at Steamboat in Colorado). Two of these new hotel projects are Grand
Summit Hotels that are being constructed by GSRP. The Grand Summit Hotels at The
Canyons and Steamboat are being financed through a $110 million construction
loan facility among GSRP and various lenders, including TFC Textron Financial,
the syndication agent and administrative agent, which closed on September 25,
1998 (the "Textron Facility").
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As of June 2, 2000, the amount outstanding under the Textron Facility
was $93.5 million. The Textron Facility matures on September 24, 2002 and bears
interest at the rate of prime plus 2.5% per annum, or a current rate of 11.5%.
The principal of the Textron Facility is payable incrementally as quartershare
sales are closed based on a predetermined per unit amount, which approximates
between 50% and 80% of the net proceeds of each closing. The Textron 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), and is subject to covenants, representations and warranties
customary for this type of construction facility. The Textron Facility is
non-recourse to the Company and its resort operating subsidiaries (although it
is collateralized by substantial assets of GSRP, having a total book value of
$220.3 million as of April 30, 2000, which comprise substantial assets of the
Company). The Grand Summit Hotel at The Canyons opened during the Company's
third fiscal quarter, during which the Company received $40.6 million in
proceeds from the closing of pre-sales. Eighty percent of the net proceeds from
the closings of those pre-sales have been applied to the outstanding principal
balance of the Textron Facility.
The remaining hotel project commenced by the Company in 1998, the
Sundial Lodge project at The Canyons, was financed through (i) a $29 million
construction loan facility between Canyons Resort Properties, Inc., (a wholly
owned subsidiary of Resort Properties) and KeyBank, N.A. (the "Key Facility")
and (ii) an $8 million intercompany loan from Resort Properties. The Sundial
Lodge opened during the Company's second fiscal quarter, during which the
Company received $17.8 million in proceeds from the closing of pre-sales. The
Company received an additional $21.2 million in proceeds from unit sale closings
at this project in its third fiscal quarter. The proceeds of these unit sales
have been used to fully repay the Key Facility.
The Company's fiscal 2000 business plan anticipates the commencement of
between one and three real estate projects in the Summer of 2000. The projects
presently under consideration for Summer 2000 commencement are: a Grand Summit
Hotel at Heavenly and townhomes at The Canyons and Sunday River. The timing and
extent of these projects are subject to factors which may be beyond the
Company's control, including local and state permitting requirements, market
demand, the Company's cash flow requirements and the availability of external
capital.
Due to construction delays and cost increases at the Company's Canyons
and Steamboat Grand Summit Hotel projects, real estate capital resources
and liquidity are limited. While management believes Resort Properties'
capital resources and liquidity are currently adequate to complete the Steamboat
project (the Canyons project has already been completed), further delays
or cost overruns, at the Steamboat project, could result in shortfalls in
available capital and delay completion of that project.
Long-Term. The Company's primary long-term liquidity needs are to fund
skiing-related capital improvements at certain of its resorts and development of
its slope side real estate. The Company has invested over $165 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, the Company
expects its resort capital programs for the next several fiscal years will be
more limited in size. The Company's fiscal 2000 resort capital program is
estimated at approximately $20 million, exclusive of the $2.8 million of assets
purchased in conjunction with the Oakhill Transaction, (of which $12.9 million
had been expended as of April 30, 2000), plus such additional amounts as are
expended on the Heavenly Gondola project, on which construction has commenced
and $4.6 million had been expended as of April 30, 2000. The Company's
preliminary estimate of its fiscal 2001 resort capital program is approximately
$13 million.
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The Company's largest long-term capital needs relate to: (i) certain
resort capital expenditure projects (including the Heavenly Gondola for
approximately $30 million), (ii) the Company's real estate development program,
and (iii) repayment of the Company's Mandatorily Redeemable 10.5% Preferred
Stock (discussed below). For its 2001 and 2002 fiscal years, the Company
anticipates its annual maintenance capital needs to be approximately $12
million. There is a considerable degree of flexibility in the timing and, to a
lesser degree, scope of the Company's 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.
The Company's practice is to finance on-mountain capital improvements
through resort cash flow, capital leases and its 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
(i) $35 million or (ii) the total of (a) the Restricted Subsidiaries'
consolidated EBITDA (as defined therein) for the four fiscal quarters ended in
April of the previous fiscal year less (b) consolidated debt service for the
same period. In addition to the foregoing amounts, the Company is permitted to
and expects to make capital expenditures of up to $30 million for the purchase
and construction of a new gondola at its Heavenly resort in Lake Tahoe, Nevada,
which the Company currently plans to construct during the 2000 and 2001 fiscal
years. Management believes that these capital expenditure amounts will be
sufficient to meet the Company's needs for non-real estate capital improvements
for the near future.
The Company's business plan anticipates the development of Grand Summit
hotels, condominium hotels and townhouses at its 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
beyond the Company's control, as well as to the Company's cash flow requirements
and availability of external capital. The Company's real estate development is
undertaken through the Company's real estate development subsidiary, Resort
Properties. Recourse on indebtedness incurred to finance this real estate
development is limited to Resort Properties and/or its subsidiaries (including
GSRP). Such indebtedness is generally collateralized by the projects financed
under the particular indebtedness, which, in some cases, constitutes a
significant portion of the assets of the Company. As of April 30, 2000, the
total assets that collateralized the Real Estate Facilities, and are included in
the accompanying consolidated balance sheet, totaled approximately $304.2
million. Resort Properties' seven existing development projects are currently
being funded by the Resort Properties Term Facility and the Textron Facility,
The Company expects to undertake future real estate development
projects through special purpose subsidiaries with financing provided
principally on a non-recourse basis to the Company and its resort operating
subsidiaries. Although this financing is expected to be non-recourse to the
Company and its resort subsidiaries, it will likely be collateralized by
existing and future real estate projects of the Company that may constitute
significant assets of the Company. Required equity contributions for these
projects must be generated before those projects can be undertaken, and the
projects are subject to mandatory pre-sale requirements under the Resort
Properties Term 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 potential sales of equity or debt
interests in Resort Properties and/or its real estate development subsidiaries.
Financing commitments for future real estate development do not currently exist,
and no assurance can be given that they will be available on satisfactory terms.
The Company will be required to establish both equity sources and construction
facilities or other financing arrangements for these projects before undertaking
each development.
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The Company issued $17.5 million of convertible preferred stock and
$17.5 million of convertible notes in July 1997 to fund development at The
Canyons. These securities were converted on November 12, 1997 into Mandatorily
Redeemable 10 1/2% Preferred Stock of the Company. The Mandatorily Redeemable 10
1/2% Preferred Stock is exchangeable at the option of the holder into shares of
the Company's common stock at a conversion price of $17.10 for each common
share. In the event that the Mandatorily Redeemable 10 1/2% Preferred Stock is
held to its maturity date of November 15, 2002, the Company will be required to
pay the holders the face value of $36.6 million plus an estimated $25.4 million
of dividends in arrears. So long as the Mandatorily Redeemable 10 1/2% Preferred
Stock remains outstanding, the Company may not pay any cash dividends on its
common stock or Series B Preferred Stock unless accrued and unpaid dividends on
the Mandatorily Redeemable 10 1/2% Preferred Stock have been paid in cash on the
most recent due date. Because the Company has been accruing unpaid dividends on
the Mandatorily Redeemable 10 1/2% Preferred Stock, the Company is not presently
able to pay cash dividends on its common stock or Series B Preferred Stock and
management does not expect that the Company will have this ability during fiscal
2001 and fiscal 2002.
Changes in Results of Operations
For the 13 weeks ended April 30, 2000 compared to the 13 weeks ended
April 25,1999.
The Company's fiscal year 2000 consists of a fifty-three week reporting
period compared to fifty-two weeks in fiscal 1999, with the additional week
included in the Company's second fiscal quarter. Because the second quarter
extended one week later in fiscal 2000, the 13 week time period that comprises
the current third fiscal quarter includes one more week at the end of the ski
season (the week ending April 30, 2000), during which time the Company usually
experiences operating losses, in the place of one week during the height of the
ski season (the week ending January 30, 2000), during which time the Company
usually generates significant resort revenues and operating profits. Therefore,
the results of the 13 weeks ended April 30, 2000 (January 31, 2000 to April 30,
2000) are not directly comparable to the 13 weeks ended April 25, 1999 (January
24, 1999 to April 25, 1999). The following discussion and analysis compares the
results of resort operations in the current fiscal quarter to the comparable
time period in the prior year, as if the third quarter of fiscal 1999 went from
February 1, 1999 to May 1, 1999 ("the Comparable Quarter"). The different weeks
in quarter 3 of fiscal 2000 as compared to quarter 3 of fiscal 1999 is not
considered to have a material impact on the comparability of the results from
real estate operations due to the intermittent nature of the Company's real
estate sales activity. Therefore, the timing of the weeks in the fiscal quarters
is not addressed separately in the discussion of the changes in results of real
estate operations.
Resort Operations:
Substantial natural snowfall at all resorts and in key market areas
late in the Company's second fiscal quarter revived sluggish early season skier
traffic heading into the current third quarter. This momentum continued into
February, during which fresh snowfall and good weather for the Presidents
Holiday weekend produced three-day attendance records at almost all of the
Company's resorts. Skier traffic (and operating results) continued to be strong
into March, but warm weather nation-wide and sustained rainfall in the East
brought an early end to the ski season and as a result April resort revenues and
operating profits fell short of the prior year.
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Resort revenues decreased slightly in the third fiscal quarter of 2000
compared to the third quarter of fiscal 1999, from $154.3 million to $149.9
million. However, when matched-up to the Comparable Quarter in fiscal 1999,
resort revenues actually increased by $6.7 million. $1.5 million of this
increase is attributable to lodging, food & beverage and retail revenues
generated at the recently opened Sundial and Grand Summit Hotels at The Canyons.
Paid skier days of 1.8 million for the current quarter were consistent with the
Comparable Quarter of fiscal 1999. Resort revenues, exclusive of the $1.5
million from the new hotels at The Canyons, were up $5.2 million over the
Comparable Quarter in fiscal 1999 on similar paid skier days as a result of
higher yields per paid skier day across all resorts. These increased yields were
due mainly to enhanced pricing on lift tickets, food & beverage and lodging
services.
The Resort segment generated a $37.9 million profit before income taxes
and preferred dividends for the current fiscal quarter, compared to a $37.8
million profit in the third quarter of fiscal 1999. However, Resort operating
profit before income taxes and preferred dividends actually increased by $6.5
million over the Comparable Quarter in fiscal 1999. The $6.7 million increase in
resort revenues noted above was offset by a $3.6 million increase in resort
operating costs, the majority of which (approximately $2.5 million) were related
to the opening of the two new hotels at The Canyons and pre-opening charges
incurred for the Grand Summit Hotel at Steamboat, which is currently under
construction. The Company also experienced a $2.6 million reduction in resort
interest expense in the current quarter due to the reduced level of debt
outstanding under the Company's senior credit facility in fiscal 2000 resulting
from the pay-down on that facility from the proceeds of the Series B Preferred
Stock issuance.
Real Estate Operations:
Real estate revenues increased by $62.9 million in the current quarter
compared to fiscal 1999, from $10.3 million to $73.2 million. During its second
fiscal quarter, the Company began delivering units in the Sundial Lodge
whole-ownership condominium hotel located at The Canyons resort in Park City,
Utah. The delivery of substantially all of the remaining units in the Sundial
Lodge occurred in the Company's current third fiscal quarter, accounting for
$21.2 million of real estate revenues in the quarter. Also at The Canyons, the
Company commenced delivery of quartershare units in its new Grand Summit Hotel,
contributing an additional $40.6 million in revenues during the current quarter.
Continuing sales of quartershare units of the existing Grand Summit Hotels at
the Company's Eastern resorts contributed $9.5 million in real estate revenues
for the current quarter compared to $8.3 million in the third quarter of fiscal
1999, an increase of $1.2 million. 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
65% and Attitash Bear Peak over 55% sold-out.
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The Real Estate segment generated a profit before income taxes of $6.3
million for the third quarter of fiscal 2000, compared to a $0.6 million loss in
the third quarter of fiscal 1999. The initial delivery of quartershare units in
the new Grand Summit Hotel at the Company's resort at The Canyons generated
$13.3 million in pre-tax earnings during the current quarter. Pre-tax profits
form the sale of quartershare units in the existing Grand Summit Hotels at the
Company's Eastern resorts decreased by $0.8 million, from $3.8 million in the
third quarter of fiscal 1999 to $3.0 million in the current quarter. The reduced
profit margins on the sale of Eastern resort quartershare units is attributed to
additional costs incurred to up-fit the remaining units, as well as an
aggressive pricing plan implemented to accelerate final unit sales at Killington
and Sunday River. Marketing, general and administrative costs increased by $4.8
million in the current quarter compared to the third quarter of fiscal 1999,
mainly due to sales commissions and marketing activity related to unit sales at
the Sundial Lodge and Grand Summit Hotel at The Canyons.
Accretion of discount and dividends accrued on mandatorily redeemable
preferred stock increased $4.2 million, from $1.1 million for the third quarter
of fiscal 1999 to $5.3 million for the current quarter. This increase is
primarily attributable to the additional accrual of dividends on 150,000 shares
of 8 1/2% Series B Preferred Stock issued to Oak Hill in the first quarter of
fiscal 2000. The Company is currently accruing dividends on the Series B
Preferred Stock at an effective rate of 9.7%, with the assumption 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.
Changes in Results of Operations
For the 40 weeks ended April 30, 2000 compared to the 39 weeks ended
April 25, 1999.
Resort Operations:
Resort revenues decreased $2.6 million, or 1.0%, for the nine months
ended April 30, 2000 compared to the nine months ended April 25, 1999, from
$277.8 million to $275.2 million. Paid skier days were down approximately 5.8%
over the same period, from 3.2 million in fiscal 1999 to 3.0 million in fiscal
2000. This decrease was primarily due to warm weather patterns in early
November, a rainy Thanksgiving weekend in the East and a warm, dry December
nationwide. The December holiday week was also negatively impacted by the
overall softness in the travel industry due to Y2K concerns and the lack of
natural snowfall in key market areas. Substantial natural snowfall at all
resorts and in key market areas late in the Company's second fiscal quarter
revived sluggish early season skier traffic. This momentum continued into
February, during which fresh snowfall and good weather for the Presidents
holiday weekend produced three-day attendance records at almost all of the
Company's resorts. Skier traffic continued to be strong into March, but warm
weather nation-wide and sustained rainfall in the East brought an early end to
the ski season and April revenues fell short of the prior year.
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Revenues from lift ticket and retail sales were down a combined $5.3
million, or 3%, from the prior year due mainly to the decrease in paid days for
the year. Food and beverage and lodging services revenues were relatively flat
compared to the prior year, as revenues generated from the two new hotels at The
Canyons offset the effect of the decrease in skier days. Skier development
revenues actually increased by $0.7 million, or 3%, in the fiscal 2000 period,
as the Company continued to realize the benefits of its new skier development
programs instituted in fiscal 1999 in conjunction with the opening of new Sprint
Perfect Turn Discovery Centers at four of its Eastern resorts. The Company also
realized $1.6 million in net gains from the sale of non-strategic assets during
the first quarter of fiscal 2000.
The Resort segment generated a $3.3 million loss before income taxes
for the nine months ended April 30, 2000, compared to a $2.6 million pre-tax
loss in the corresponding period of the prior year. This $0.7 million increase
in the year-to-date pre-tax loss is derived from (i) a $5.0 million decrease in
resort earnings before interest, taxes and depreciation, (ii) a $1.6 million
increase in depreciation expense, and (iii) an offsetting $5.7 million decrease
in interest expense. The decrease in resort earnings before interest, taxes and
depreciation is derived from the net effect of (i) the $2.6 million decrease in
resort revenues described above, (ii) a $5.5 million increase in resort
operating expenses due mainly to costs associated with the activities necessary
to prepare for the openings of the two new hotels at The Canyons and the Grand
Summit Hotel at Steamboat, increased snowmaking and maintenance costs, food and
beverage and lodging costs and retail costs of goods sold, and (iii) a $3.2
million reduction in marketing, general and administrative expenses. The
increase in resort depreciation expense is due to the approximately $19 million
in capital expenditures made at the Company's resorts during fiscal 2000. The
reduction in interest expense in fiscal 2000 is due primarily to the reduced
level of debt outstanding under the Company's Senior Credit Facility as a result
of the paydown on that facility from the proceeds of the Series B Preferred
Stock issuance.
Real Estate Operations:
Real estate revenues increased by $76.7 million for the first nine
months of fiscal 2000 compared to the same period in fiscal 1999, from $21.1
million to $97.8 million. The delivery of units in the Sundial whole-ownership
condominium hotel and the new Grand Summit Hotel at The Canyons accounted for
$39.0 million and $40.6 million, respectively, of real estate revenues in fiscal
2000. Slight decreases in real estate revenues are derived from (i) $2.4 million
of revenue recognized in fiscal 1999 from the sale of townhouses at Sunday
River, with no corresponding sales of townhouses at Sunday River in fiscal 2000
and (ii) a $0.7 million decrease in revenue from quartershare unit sales at the
existing Grand Summit Hotels at the Company's Eastern resorts.
The Real Estate segment generated a profit before income taxes of $0.9
million for the nine months ended April 30, 2000, compared to a $4.8 million
pre-tax loss in the comparable period of fiscal 1999. The Company has realized
$13.3 million in pre-tax profit from the sale of units at the new Grand Summit
Hotel at The Canyons resort for the nine months ending April 30, 2000.
Offsetting this increase was (i) a $4.1 million increase in sales and marketing
and administrative costs primarily related to unit sales at the Sundial Lodge
and Grand Summit Hotel at The Canyons, (ii) a $1.5 million decrease in gross
profit from sales of Eastern Grand Summit quartershare units, (iii) a $2.0
million increase in real estate interest expense as a result of an increase in
real estate related debt outstanding, and (iv) certain non-recurring charges
related to final settlement costs for construction of the Grand Summit Hotels at
Sunday River and Killington.
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Provision for (benefit from) income taxes increased $3.3 million, from a
benefit of $0.8 million in the first nine months of fiscal 1999 to a provision
of $2.5 million in the first nine months of fiscal 2000. The increase in the
provision is due primarily to a $3.0 million valuation allowance established in
the first quarter of fiscal 2000 relating to certain deferred tax assets for
prior net operating losses. As a result of the Oak Hill Transaction, the
realization of the tax benefit of certain of the Company's net operating losses
and other tax attributes is dependent upon the occurrence of certain future
events. It is the judgment of the Company that a valuation allowance of $3.0
million against its deferred tax assets for net operating losses and other tax
attributes is appropriate because it is more likely than not that the benefit of
such losses and attributes will not be realized. Based on facts known at this
time, the Company expects to substantially realize the benefit of the remainder
of its net operating losses and other tax attributes affected by the Oak Hill
Transaction.
Extraordinary loss of $0.6 million (net of $0.4 million of tax benefits)
in the first nine months of fiscal 2000 resulted from the pro-rata write-off of
certain existing deferred financing costs related to the Company's Senior Credit
Facility. This write-off was due to the restructuring of the Senior Credit
Facility in connection with the permanent reduction in the availability of the
revolving portion and the pay down of the term portion of the facility from the
proceeds of the Series B Preferred Stock issuance.
Cumulative effect of a change in accounting principle of $0.7 million (net
of $0.4 million tax benefit) in the first nine months of fiscal 2000 resulted
from the write-off of certain capitalized start-up costs relating to the
Company's hotel and retail operations and the opening of the Canyons resort in
fiscal 1998. The accounting change was due to the Company's 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. Initial adoption of this
SOP should be reported as a cumulative effective of a change in accounting
principles. Current start-up costs are being expensed as incurred and are
reflected in their appropriate expense classifications
Accretion of discount and dividends accrued on mandatorily redeemable
preferred stock increased $12.2 million from $3.2 million for the first nine
months of fiscal 1999 to $15.4 million for the first nine months of the current
fiscal year. This increase is primarily attributable to the additional accrual
of dividends on 150,000 shares of Series B Preferred Stock issued to Oak Hill in
the first quarter of fiscal 2000. The Company is currently accruing dividends on
the Series B Preferred Stock at an effective rate of 9.7%, with the assumption
that dividends will not be paid in cash until the fifth anniversary of the
issuance.
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Forward-Looking Statements
Certain information contained herein 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 (the "Act").
This report contains forward looking statements that are subject to risks and
uncertainties, including, but not limited to, uncertainty as to future financial
results; substantial leverage of the Company; the capital intensive nature of
development of the Company's ski resorts; rapid and substantial growth that
could place a significant strain on the Company's management, employees and
operations; uncertainties associated with fully syndicating the Resort
Properties Term Facility; 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 the Company's 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 the Company's land use,
development, environmental compliance and permitting obligations; termination,
renewal or extension terms of the Company's leases and United States Forest
Service permits; industry competition; the adequacy of water supply at the
Company's properties; and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission. These risks could
cause the Company's actual results for fiscal year 2000 and beyond to differ
materially from those expressed in any forward looking statements made by, or on
behalf of, the Company. The foregoing list of factors should not be construed as
exhaustive or as any admission regarding the adequacy of disclosures made by the
Company prior to the date hereof or the effectiveness of said Act.
Item 3
Quantitative and Qualitative Disclosures about Market Risk
As of July 25, 1999, the Company had entered into two non-cancellable
interest rate swap agreements to be used as a cash flow hedge against the
interest payments on the Company's $120 million 12% Senior Subordinated Notes,
due 2006 (the "Notes"). The notional amount of both agreements was $120 million.
The first swap agreement matures on July 15, 2001. With respect to this swap
agreement, the Company receives interest at a rate of 12% per annum and pays
interest at a variable rate based on the six month LIBOR rate. The second swap
agreement expires July 15, 2006 (after increasing its notional amount to $127.5
million on July 15, 2001) and requires the Company to pay interest at a rate of
9.01% per annum and receive interest at a variable rate, also based on the six
month LIBOR rate. The two variable portions of the swap agreements offset each
other until July 15, 2001, thus eliminating any interest rate risk to the
Company until that date, and the Company effectively pays interest at a rate of
9.01% on the Notes until that date. Under the scenario in effect at the end of
fiscal 1999, the Company would be exposed to interest rate risk from July 16,
2001 until July 15, 2006 under the second swap agreement. However, this master
swap agreement includes an option for the Company to enter into a new swap
agreement on July 16, 2001 to replace the expiring agreement.
During the second quarter of fiscal 2000 the Company entered into a
third swap agreement which will take effect on July 16, 2001, after the
expiration of the first agreement. This third swap agreement will have a
notional amount of $127.5 million and will require the Company to pay interest
at a variable rate, based on the six month LIBOR rate, and to receive interest
at a fixed rate of 7.40%. Going forward from that date, the Company will
continue to pay interest at a fixed rate of 9.01% per annum and receive interest
at a variable rate on the existing second swap agreement. As a result of
entering into this new third swap agreement, the Company has eliminated the
interest rate risk that would have existed at July 15, 2001 when the first swap
agreement expires, and has fully executed its cash flow hedge by fixing the cash
pay rate on the Notes until their maturity in July 2006. The net effect of the
three swap agreements will result in a $2.1 million interest savings to the
Company over the life of the agreements. This amount is currently being
recognized against interest expense on a straight-line basis prospectively from
the second fiscal quarter of 2000 until July 2006.
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There have been no material changes (other than those noted above) 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 23, 1999.
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 did not file any reports on Form 8-K during the third quarter of
fiscal 2000.
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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: June 14, 2000 /s/ Christopher E. Howard
---------------------- ----------------------------
Christopher E. Howard
Executive Vice President
(Duly Authorized Officer)
Date: June 14, 2000 /s/ Mark J. Miller
---------------------- ----------------------------
Mark J. Miller
Senior Vice President
Chief Financial Officer
Principal Financial Officer)
25
