U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1999
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NO. 0-15030
WINTER SPORTS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
MONTANA 81-0221770
- -------------------- -------------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER I.D. NO.)
P.O. BOX 1400, WHITEFISH, MONTANA 59937
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE (406) 862-1900
==============
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FORMER NAME, FORMER ADDRESS & FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS, AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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AS OF APRIL 9, 1999 THE NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON
STOCK, NO PAR VALUE, WAS 1,008,368.
TRANSITION SMALL BUSINESS DISCLOSURE FORMAT YES NO X
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WINTER SPORTS, INC.
INDEX
PAGE NO.
PART I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
AT:
FEBRUARY 28, 1999
MARCH 1, 1998
MAY 31, 1998
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS:
DECEMBER 7, 1998 - FEBRUARY 28, 1999
DECEMBER 8, 1997 - MARCH 1, 1998
JUNE 1, 1998 - FEBRUARY 28, 1999
JUNE 1, 1997 - MARCH 1, 1998
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS:
JUNE 1, 1998 - FEBRUARY 28, 1999
JUNE 1, 1997 - MARCH 1, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
WINTER SPORTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
2/28/99 3/1/98 5/31/98
---------- ---------- ----------
ASSETS
- ------
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 530,064 $ 320,471 $ 150,005
CERTIFICATES OF DEPOSIT 0 249,000 249,000
RECEIVABLES (NET OF RESERVE FOR BAD
DEBTS OF $11,090, $16,539 AND $14,690,
RESPECTIVELY) 153,010 120,986 67,197
RECEIVABLES - RELATED PARTIES 1,711 2,465 5,432
INCOME TAX REFUND RECEIVABLE 325,555 8,121 275,615
CURRENT DEFERRED TAX ASSET 51,767 55,020 51,767
INVENTORIES 511,427 529,561 405,566
PREPAID EXPENSES 199,336 212,615 163,567
---------- ---------- ----------
TOTAL CURRENT ASSETS 1,772,870 1,498,239 1,368,149
---------- ---------- ----------
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT, AT COST 22,504,766 18,911,020 22,465,183
ACCUMULATED DEPRECIATION AND
AMORTIZATION (11,627,938) (10,446,376) (10,823,427)
---------- ---------- ----------
10,876,828 8,464,644 11,641,756
CONSTRUCTION IN PROGRESS 1,035,012 5,568,378 2,645,350
LAND AND DEVELOPMENT COSTS 6,050,450 2,102,535 2,115,106
---------- ---------- ----------
NET PROPERTY AND EQUIPMENT 17,962,290 16,135,557 16,402,592
---------- ---------- ----------
OTHER ASSETS 280,685 288,776 282,044
---------- ---------- ----------
TOTAL ASSETS $20,015,845 $17,922,572 $18,052,785
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 1,012,042 $ 721,994 $ 1,044,474
ACCOUNTS PAYABLE - RELATED PARTIES 0 63,892 79,065
EMPLOYEE COMPENSATION AND RELATED
EXPENSES 385,290 340,193 174,998
TAXES OTHER THAN INCOME AND PAYROLL 89,229 220,780 120,140
INCOME TAXES PAYABLE 0 0 50
CURRENT PORTION OF LONG-TERM DEBT 61,628 0 0
DEPOSITS AND OTHER UNEARNED INCOME 804,637 1,164,408 451,507
OTHER CURRENT LIABILITIES 9,121 2,583 5,583
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 2,361,947 2,513,850 1,875,817
LONG-TERM DEBT, LESS CURRENT PORTION 8,299,213 5,252,602 6,334,945
DEFERRED INCOME TAXES 1,361,554 1,343,227 1,361,554
---------- ---------- ----------
TOTAL LIABILITIES 12,022,714 9,109,679 9,572,316
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
PREFERRED STOCK (950 SHARES AUTHORIZED;
$100 PAR VALUE; 4% CUMULATIVE; 0, 245
AND 0 SHARES OUTSTANDING) 0 24,500 0
COMMON STOCK (5,000,000 SHARES AUTHORIZED;
NO PAR VALUE;1,008,368, 1,008,368 AND
1,008,368 SHARES OUTSTANDING) 4,099,174 4,099,174 4,099,174
ADDITIONAL PAID-IN CAPITAL 20,519 20,519 20,519
RETAINED EARNINGS 3,873,438 4,668,703 4,360,776
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 7,993,131 8,812,896 8,480,469
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $20,015,845 $17,922,575 $18,052,785
========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
WINTER SPORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THIRD QUARTER YEAR TO DATE
------------- ------------
12/7/98 12/8/97 6/1/98 6/1/97
TO TO TO TO
2/28/99 3/1/98 2/28/99 3/1/98
---------- ---------- ---------- ----------
REVENUE
LIFTS $ 3,005,625 $ 2,961,929 $ 3,467,462 $ 3,508,380
FOOD, BEVERAGE & RETAIL 869,158 869,997 1,314,616 1,283,169
EQUIPMENT RENTAL & REPAIR 390,381 356,224 427,911 385,834
LODGING 108,173 86,827 174,808 149,538
LEASE, MANAGEMENT & OTHER
FEES 761,975 701,414 1,043,197 927,059
LEASE, MANAGEMENT & OTHER
FEES - RELATED PARTIES 38,974 37,528 74,186 78,165
REAL ESTATE SALES 1,736,797 335,000 1,736,797 917,792
---------- ---------- ---------- ----------
TOTAL REVENUE 6,911,083 5,348,919 8,238,977 7,249,937
---------- ---------- ---------- ----------
COSTS AND EXPENSES
DIRECT EXPENSES - LIFTS 716,460 615,357 1,231,095 1,210,738
DEPRECIATION - LIFTS 494,127 401,665 494,127 401,665
COST OF FOOD, BEVERAGE &
RETAIL 341,751 332,955 515,437 487,241
COST OF REAL ESTATE SALES 1,522,587 116,565 1,522,587 253,681
PAYROLL & RELATED EXPENSES 1,102,332 981,187 2,244,381 2,014,739
DIRECT EXPENSES 511,501 347,829 1,028,596 844,842
DIRECT EXPENSES - RELATED
PARTIES 5,000 39,605 6,347 39,605
MARKETING 419,600 277,180 1,008,435 696,067
MARKETING - RELATED PARTIES 35 200 1,094 3,988
DEPRECIATION & AMORTIZATION 286,961 293,814 313,668 324,803
GENERAL & ADMINISTRATIVE 177,184 237,016 621,887 686,907
GENERAL & ADMINISTRATIVE -
RELATED PARTIES 6,784 8,273 22,312 13,696
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 5,584,322 3,651,646 9,009,966 6,977,972
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) 1,326,761 1,697,273 (770,989) 271,965
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
INTEREST INCOME 10,138 0 19,460 1,226
INTEREST EXPENSE (155,281) (97,004) (429,041) 241,343)
GAIN (LOSS) OF DISPOSAL
OF ASSETS 0 6,215 24,899 (2,176)
OTHER INCOME (EXPENSE) 42,358 242 342,776 (47,847)
--------- ---------- ---------- ----------
TOTAL OTHER INCOME (EXPENSE) (102,785) (90,547) (41,906) (290,140)
--------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAX 1,223,976 1,606,726 (812,895) (18,175)
PROVISION FOR (RECOVERY OF)
INCOME TAX 489,178 643,296 (325,556) (7,270)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 734,798 $ 963,430 $ (487,339) $ (10,905)
========== ========== ========== =========
NET INCOME (LOSS) PER
COMMON SHARE $ 0.73 $ 0.96 $ (0.48) $ 0.01)
========== ========== ========== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
WINTER SPORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
6/1/98 6/1/97
TO TO
2/28/99 3/1/98
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $(1,142,575) $ 642,952
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF CERTIFICATES OF DEPOSIT 0 (249,000)
REDEMPTION OF CERTIFICATES OF DEPOSIT 249,000 0
PROCEEDS FROM SALES OF ASSETS 34,899 18,324
PROPERTY AND EQUIPMENT ACQUISITIONS (787,161) (2,822,679)
---------- ----------
NET CASH (USED IN) INVESTING ACTIVITIES (503,262) (3,053,355)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM DRAWS ON LONG-TERM REVOLVER 5,407,344 7,078,132
PROCEEDS FROM DRAWS ON CONSTRUCTION LOAN 3,738,935 0
PRINCIPAL PAYMENTS ON LONG-TERM REVOLVER (5,478,881) (4,469,580)
PRINCIPAL PAYMENTS ON CONSTRUCTION LOAN (1,641,502) 0
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,025,896 2,613,152
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 380,059 198,149
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 150,005 122,322
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 530,064 $ 320,471
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH PAID YEAR-TO-DATE FOR:
INTEREST (NET OF CAPITALIZED INTEREST) $ 412,235 $ 241,597
INCOME TAXES (NET OF REFUNDS) $ (275,565) $ 157,832
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
WINTER SPORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
THE FINANCIAL STATEMENTS INCLUDED HEREIN ARE CONDENSED ACCORDING TO 10-QSB
REPORTING REQUIREMENTS. THEY DO NOT CONTAIN ALL INFORMATION REQUIRED BY
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO BE INCLUDED IN A SET OF AUDITED
FINANCIAL STATEMENTS. ACCORDINGLY, THE FINANCIAL STATEMENTS SHOULD BE READ IN
CONJUNCTION WITH THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTAINED HEREIN
IN THE COMPANY'S ANNUAL REPORT FOR THE YEAR ENDED MAY 31, 1998.
IN THE OPINION OF MANAGEMENT, THE ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS CONTAIN ALL ADJUSTMENTS (CONSISTING OF NORMAL RECURRING ACCRUALS)
NECESSAARY FOR THE FAIR PRESENTATION OF THE INTERIM PERIODS PRESENTED.
CERTAIN AMOUNTS IN THE MARCH 1, 1998 FINANCIAL STATEMENTS HAVE BEEN RECLASSIFIED
TO CONFORM WITH THE FEBRUARY 28, 1999 PRESENTATION.
NOTE 2 - MAY 31, 1998
THE BALANCE SHEET AT MAY 31, 1998 HAS BEEN CONDENSED FROM THE AUDITED FINANCIAL
STATEMENTS OF THAT DATE.
NOTE 3 - NET INCOME (LOSS) PER COMMON SHARE
THE WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING WERE 1,008,368 AND
1,008,368 FOR THE QUARTERS ENDED FEBRUARY 28, 1999 AND MARCH 1, 1998.
NOTE 4 - SEASONAL NATURE OF OPERATIONS
THE COMPANY'S OPERATIONS ARE HIGHLY SEASONAL IN NATURE. REVENUES, EARNINGS AND
CASH FLOW ARE GENERATED PRINCIPALLY FROM THE WINTER OPERATION OF LIFTS AND
RELATED FACILITIES. IT IS THE COMPANY'S PRACTICE TO RECOGNIZE SUBSTANTIALLY ALL
OF THE YEAR'S DEPRECIATION EXPENSE IN THE THIRD AND FOURTH QUARTERS IN ORDER TO
BETTER MATCH EXPENSES INCURRED IN GENERATING REVENUE DURING THE COMPANY'S MAIN
PERIODS OF BUSINESS. THE COMPANY ALSO GENERATES REVENUES FROM THE SALE OF REAL
ESTATE WHICH IS ONGOING THROUGHOUT THE FISCAL YEAR. THEREFORE, THE RESULTS OF
OPERATIONS FOR THE INTERIM AND YEAR-TO-DATE PERIODS ENDED FEBRUARY 28, 1999 AND
MARCH 1, 1998 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR
THE FULL YEAR.
NOTE 5 - LEGAL PROCEEDINGS AND CONTINGENCIES
THE COMPANY IS A DEFENDANT IN A LAWSUIT FILED BY AN INDIVIDUAL WHO IS SEEKING
DAMAGES OF AN UNSPECIFIED AMOUNT, FOR ALLEGED PERSONAL INJURIES RESULTING FROM
AN ACCIDENT OCCURRED ON THE COMPANY'S PROPERTY. THE COMPANY INTENDS TO
VIGOROUSLY DEFEND THE CLAIM. THE COMPANY'S INSURANCE CARRIER PROVIDES DEFENSE
AND COVERAGE FOR THIS CLAIM AND THE COMPANY'S PARTICIPATION HAS BEEN LIMITED TO
ITS POLICY DEDUCTIBLE. SUCH AMOUNTS ARE CHARGED TO GENERAL AND ADMINISTRATIVE
EXPENSE UPON SETTLEMENT.
NOTE 6 - NOTES PAYABLE
THE COMPANY CURRENTLY HAS A LOAN AGREEMENT WITH BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, DOING BUSINESS AS SEAFIRST BANK (SEAFIRST). THE
AGREEMENT PROVIDES FOR A $9,750,000 REVOLVING REDUCING LINE OF CREDIT WHICH
MATURES ON JUNE 1, 2008. THE AGREEMENT CONTAINS COVENANTS THAT REQUIRE MINIMUM
NET WORTH, A FIXED CHARGE COVERAGE RATIO AND RESTRICTS INVESTMENT, DISPOSITION
OF ASSETS, CAPITAL EXPENDITURES, OUTSIDE BORROWING AND PAYMENT OF DIVIDENDS.
EACH JUNE 1, THE AMOUNT AVAILABLE UNDER THE LINE REDUCES BY $750,000. AT
FEBRUARY 28, 1999 $3,647,657 WAS UNUSED AND AVAILABLE UNDER THE $9,750,000
INSTRUMENT. AT MARCH 1, 1998 $3,497,398 WAS UNUSED OF THE $8,750,000 THEN
AVAILABLE UNDER THE INSTRUMENT. THE INSTRUMENT WAS RESTRUCTURED IN JUNE OF
1998. THE LOAN BEARS INTEREST AT OR BELOW SEAFIRST'S REFERENCE RATE.
THE COMPANY ALSO HAS A LOAN AGREEMENT WITH WHITEFISH CREDIT UNION FOR THE
FINANCING OF THE CONSTRUCTION OF THE KINTLA LODGE, A MIXED-USE CONDOMINIUM
PROJECT. THE AGREEMENT PROVIDES FOR A $3,900,000 LINE OF CREDIT WHICH IS DUE
AND PAYABLE ON SEPTEMBER 1, 1999. THE COMPANY HAS SECURED LONG-TERM FINANCING
WITH WHITEFISH CREDIT UNION FOR THE PRINCIPAL BALANCE, IF ANY, AT SEPTEMBER 1,
1999. UNDER THE LONG-TERM FINANCING AGREEMENT $61,628 OF THE OUTSTANDING
BALANCE IS CLASSIFIED AS A CURRENT LIABILITY AT FEBRUARY 28, 1999. THE LOAN
BEARS INTEREST AT PRIME UNDER BOTH THE CURRENT INSTRUMENT AND UNDER THE LONG-
TERM INSTRUMENT.
NOTE 7 - BUSINESS SEGMENT INFORMATION
THE COMPANY OPERATES PRINCIPALLY IN TWO INDUSTRIES: THE OPERATION OF A SKI AREA
AND THE SALE OF REAL ESTATE. FINANCIAL INFORMATION BY INDUSTRY SEGMENT FOR THE
THIRD QUARTER AND YEAR-TO-DATE FOR 1999 AND 1998 IS SUMMARIZED AS FOLLOWS:
SKI AREA REAL ESTATE CONSOLIDATED
------------ ------------ ------------
THIRD QUARTER
- -------------
QUARTER ENDED 2/28/99
TOTAL REVENUE $ 5,065,414 $ 1,845,669 $ 6,911,083
OPERATING PROFIT (LOSS) $ 1,047,472 $ 279,289 $ 1,326,761
DEPRECIATION AND AMORTIZATION $ 773,928 $ 7,160 $ 781,088
IDENTIFIABLE ASSETS $ 14,644,206 $ 5,371,639 $ 20,015,845
CAPITAL EXPENDITURES $ 352,640 $ 0 $ 352,640
QUARTER ENDED 3/1/98
TOTAL REVENUE $ 5,009,919 $ 339,000 $ 5,348,919
OPERATING PROFIT (LOSS) $ 1,532,860 $ 164,413 $ 1,697,273
DEPRECIATION AND AMORTIZATION $ 691,666 $ 3,813 $ 695,479
IDENTIFIABLE ASSETS $ 12,488,858 $ 2,256,892 $ 17,922,574
CAPITAL EXPENDITURES $ 14,108 $ 0 $ 14,108
6/1/98 TO 2/28/99
TOTAL REVENUE $ 6,391,936 $ 1,847,041 $ 8,238,977
OPERATING PROFIT (LOSS) $ (806,174) $ 35,185 $ (770,989)
DEPRECIATION AND AMORTIZATION $ 775,681 $ 16,057 $ 791,738
IDENTIFIABLE ASSETS $ 14,644,206 $ 5,371,639 $ 20,015,845
CAPITAL EXPENDITURES $ 787,161 $ 0 $ 787,161
6/1/97 TO 3/1/98
TOTAL REVENUE $ 6,328,145 $ 921,792 $ 7,249,937
OPERATING PROFIT (LOSS) $ (242,691) $ 514,656 $ 271,965
DEPRECIATION AND AMORTIZATION $ 712,316 $ 14,152 $ 726,468
IDENTIFIABLE ASSETS $ 12,488,858 $ 2,256,982 $ 17,922,574
CAPITAL EXPENDITURES $ 2,822,679 $ 0 $ 2,822,679
WINTER SPORTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
FOR THE FOR THE
PERIOD PERIOD
6/1/98 6/1/97
TO TO
2/28/99 3/1/98
------------ ------------
GROSS REVENUE $ 8,238,977 $ 7,249,937
NET INCOME (LOSS) $ (487,339) $ (10,905)
INCOME (LOSS) PER COMMON SHARE $ (0.48) $ (0.01)
TOTAL ASSETS $ 20,015,845 $ 17,922,572
LONG-TERM DEBT LESS CURRENT PORTION $ 8,299,213 $ 5,252,602
RESULTS OF OPERATIONS, THIRD QUARTER AND YEAR-TO-DATE
REVENUES
- --------
TOTAL REVENUES FOR THE THIRD QUARTER WERE $6,911,084, AN INCREASE OF $1,562,165
(29%) FROM THE SAME QUARTER OF THE PRIOR YEAR. THE INCREASE IS DUE TO HIGHER
REAL ESTATE SALES. THE COMPANY COMPLETED A TWENTY UNIT CONDOMINIUM PROJECT AT
THE BEGINNING OF THE QUARTER AND HAD SOLD SIX OF THE UNITS BY THE END OF THE
THIRD QUARTER. LODGING REVENUES WERE 25% HIGHER IN THE THIRD QUARTER OF THIS
YEAR COMPARED TO THE SAME QUARTER LAST YEAR.
YEAR TO DATE REVENUES WERE $989,040 HIGHER THAN THE PREVIOUS YEAR DUE PRIMARILY
TO THE HIGHER REAL ESTATE SALES IN THE THIRD QUARTER. THE COMPANY EXPECTS REAL
ESTATE SALES TO INCREASE THROUGH THE FOURTH QUARTER OF THIS YEAR.
OPERATING COSTS AND EXPENSES
- ----------------------------
TOTAL OPERATING COSTS AND EXPENSES INCREASED BY $1,932,677 (53%) FROM THE SAME
QUARTER OF THE PREVIOUS YEAR. THE INCREASE WAS PRIMARILY DUE TO THE RESULTANT
COSTS FROM THE SALES OF REAL ESTATE, ALTHOUGH THE COMPANY SAW INCREASED EXPENSES
FOR DIRECT EXPENSES - LIFTS, PAYROLL & RELATED EXPENSES, DIRECT EXPENSES AND
MARKETING.
YEAR TO DATE OPERATING COSTS AND EXPENSES HAVE INCREASED 29% OR $2,031,994. THE
MAJORITY OF THESE COSTS ($1,268,906) WERE FROM THE COSTS OF REAL ESTATE SOLD.
PAYROLL & RELATED EXPENSES AS WELL AS MARKETING EXPENSES INCREASED FROM THE
PRIOR YEAR BY $229,642 AND $312,368, RESPECTIVELY. THE COMPANY EXPECTS TO SEE
INCREASED MARKETING EXPENDITURES FOR THE REMAINDER OF THIS FISCAL YEAR.
OTHER INCOME AND EXPENSE
- ------------------------
INTEREST EXPENSE FOR THE QUARTER ENDED FEBRUARY 28, 1999 WAS $155,281, AN
INCREASE OF $58,297 OR 60% HIGHER THAN THE THIRD QUARTER OF LAST YEAR. INTEREST
EXPENSE ROSE BY $187,698 OR 78% OVER THE FIRST THREE QUARTERS OF THE CURRENT
FISCAL YEAR. THESE INCREASES WERE DUE TO HIGHER LEVELS OF INTEREST BEARING DEBT
FOR THE THIRD QUARTER AND THE FIRST THREE QUARTERS OF THE YEAR. THE YEAR TO
DATE INTEREST EXPENSE OF $429,041 FOR FISCAL 1999 AND $241,343 FOR FISCAL 1998
IS NET OF CAPITALIZED CONSTRUCTION PERIOD INTEREST OF $78,507 AND $19,499 IN THE
RESPECTIVE PERIODS.
NET INCOME (LOSS)
- -----------------
THE THIRD QUARTER NET INCOME OF $734,798 WAS $228,632 OR 24% LESS THAN THE SAME
QUARTER LAST YEAR. THE YEAR TO DATE NET LOSS OF $487,339 WAS $476,434 MORE THAN
DURING THE SAME TIME PERIOD LAST YEAR.
THE COMPANY'S MAIN PERIODS OF BUSINESS OCCUR IN ITS FISCAL THIRD QUARTER, FROM
MID-NOVEMBER THROUGH MID-APRIL. DUE TO THE SEASONAL NATURE OF THE COMPANY'S
BUSINESS, RESULTS IN ANY ONE QUARTER ARE NOT NECESSARILY INDICATIVE OF THE
RESULTS FOR THE ENTIRE YEAR.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AT THE END OF THE THIRD QUARTER OF 1999 WAS $(527,450). THIS
REPRESENTS AN INCREASE OF $488,161 FROM THE END OF THE SAME QUARTER LAST YEAR.
THE INCREASE IS PRIMARILY DUE TO INCREASES IN CASH AND REFUNDABLE INCOME TAXES
COUPLED WITH LOWER DEFERRED REVENUE COMPARED TO THE END OF THE SAME QUARTER LAST
YEAR.
TOTAL LIABILITIES OF $12,022,714 REPRESENT 150% OF SHAREHOLDERS' EQUITY AT
FEBRUARY 28, 1999 COMPARED TO $9,109,679 OR 103% OF SHAREHOLDERS' EQUITY AT
MARCH 1, 1998.
MANAGEMENT CONTINUALLY EVALUATES THE COMPANY'S CASH AND FINANCING REQUIREMENTS.
OVER THE YEARS, THE COMPANY HAS OBTAINED FAVORABLE FINANCING FROM FINANCIAL
INSTITUTIONS WHEN NECESSARY TO FUND OFF-SEASON CASH REQUIREMENTS AND CAPITAL
ACQUISITIONS. THE COMPANY HAS A REDUCING REVOLVING CREDIT AGREEMENT WHICH
PROVIDES FLEXIBLE FINANCIAL RESOURCES ALLOWING THE COMPANY TO MEET SHORT-TERM
NEEDS AND FUND CAPITAL EXPENDITURES. THE $9.75 MILLION AGREEMENT REDUCES
AVAILABLE CAPACITY BY $750,000 EACH JUNE 1. AT FEBRUARY 28, 1999, THERE WAS
$3,647,657 OUTSTANDING ON THE LINE OF CREDIT. FINANCING OF FUTURE DEVELOPMENT
AND BUSINESS OPPORTUNITIES IS ANTICIPATED TO INCLUDE CASH GENERATED FROM
OPERATIONS, ISSUANCE OF ADDITIONAL DEBT AND MAY ALSO INCLUDE ADDITIONAL EQUITY
FINANCING.
YEAR 2000
THE YEAR 2000 ("Y2K") PROBLEM RELATES TO COMPUTER SYSTEMS AND EMBEDDED CHIPS
WITH PROGRAMMING CODES IN WHICH CALENDAR YEAR DATA IS ABBREVIATED TO ONLY TWO
DIGITS. AS A RESULT OF THIS DESIGN, SOME SYSTEMS COULD FAIL TO OPERATE OR FAIL
TO PRODUCE CORRECT RESULTS IN THE YEAR 2000 IF "00" IS INTERPRETED TO MEAN THE
YEAR 1900, RATHER THAN THE YEAR 2000. AS A RESULT, COMPANIES ARE AT RISK FOR
POSSIBLE MISCALCULATIONS OR FAILURES IN EITHER THEIR OWN SYSTEMS OR THE SYSTEMS
OF THIRD PARTIES WHICH COULD CAUSE DISRUPTION IN BUSINESS OPERATIONS.
THE COMPANY HAS IMPLEMENTED A PROJECT (THE "PROJECT") TO ADDRESS THE Y2K ISSUES
THAT COULD AFFECT THE COMPANY'S BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL
CONDITION. THE PROJECT ADDRESSES INFORMATION TECHNOLOGY ("IT") SYSTEMS AND
SOFTWARE APPLICATIONS AS WELL AS NON-IT SYSTEMS, INCLUDING BOTH THOSE USED
INTERNALLY BY THE COMPANY AND THOSE USED BY CERTAIN THIRD PARTIES WITH WHOM THE
COMPANY DOES BUSINESS. THE PROJECT IS ORGANIZED INTO SIX PHASES: (1) INVENTORY
OF ALL SYSTEMS AND APPLICATIONS OF THE COMPANY AS WELL AS THOSE OF CERTAIN
THIRD-PARTY SUPPLIERS AND SERVICE PROVIDERS TO IDENTIFY ALL POTENTIAL Y2K
PROBLEMS; (2) ASSESSMENT OF Y2K COMPLIANCE FOR EACH SYSTEM AND APPLICATION SO
IDENTIFIED; (3) CORRECTION/REMEDIATION OF THOSE SYSTEMS AND APPLICATIONS
DETERMINED NOT TO BE Y2K COMPLIANT; (4) TESTING OF CORRECTED/REMEDIATED SYSTEMS
AND APPLICATIONS; (5) IMPLEMENTATION OF NEW AND/OR CORRECTED SYSTEMS AND
APPLICATIONS; AND (6) CONTINGENCY PLANNING. THE COMPANY EXPECTS ALL OF ITS
INTERNAL SYSTEMS AND SOFTWARE APPLICATIONS TO BE Y2K COMPLIANT BEFORE JANUARY 1,
2000.
THE INVENTORY AND ASSESSMENT PHASES OF THE PROJECT WERE COMPLETED AS OF OCTOBER
21, 1998 FOR ALL OF THE COMPANY'S INTERNAL SYSTEMS AND SOFTWARE APPLICATIONS.
THE COMPANY HAS DETERMINED THAT CERTAIN OF ITS SYSTEMS AND APPLICATIONS ARE
ALREADY Y2K COMPLIANT, AND THE COMPANY HAS BEGUN THE CORRECTION/REMEDIATION
PHASE WITH RESPECT TO ITS OTHER SYSTEMS AND APPLICATIONS. THE TESTING PHASE WILL
BE ONGOING AS HARDWARE OR SYSTEM SOFTWARE IS ADDED, REMEDIATED, UPGRADED OR
REPLACED.
THE COMPANY IS ALSO IN THE PROCESS OF IDENTIFYING AND CONTACTING THIRD PARTIES
WITH WHOM THE COMPANY HAS MATERIAL RELATIONSHIPS IN ORDER TO VERIFY THEIR Y2K
READINESS. THESE THIRD PARTIES INCLUDE UTILITY PROVIDERS, TELECOMMUNICATIONS
PROVIDERS, MANUFACTURERS OF SKI LIFTS, AS WELL AS SERVICE PROVIDERS SUCH AS
FINANCIAL INSTITUTIONS AND COMPANIES WHICH PROVIDE EMPLOYEE BENEFITS SERVICES TO
THE COMPANY. THE FAILURE OF SUCH THIRD PARTIES TO CORRECT MATERIAL Y2K PROBLEMS
COULD RESULT IN AN INTERRUPTION IN, OR A FAILURE OF, CERTAIN NORMAL BUSINESS
ACTIVITIES OR OPERATIONS OF THE COMPANY, AND SUCH FAILURES COULD MATERIALLY AND
ADVERSELY AFFECT THE COMPANY'S RESULTS OF OPERATIONS, LIQUIDITY AND FINANCIAL
CONDITION.
THE COMPANY CURRENTLY ESTIMATES THE ENTIRE PROJECT WILL BE COMPLETED BY MAY 31,
1999. IN THE EVENT THAT UNFORESEEN CIRCUMSTANCES PREVENT THE COMPANY FROM
COMPLETING THE PROJECT BY THIS DATE, THE PROJECT TIMETABLE ALLOWS SUFFICIENT
TIME FOR THE COMPANY TO CONCLUDE THE PROJECT PRIOR TO JANUARY 1, 2000.
THE TOTAL COST ASSOCIATED WITH THE PROJECT, INCLUDING THE REPLACEMENT COST OF
ANY NON-Y2K COMPLIANT SYSTEMS, SOFTWARE OR HARDWARE, IS NOT EXPECTED TO BE
MATERIAL TO THE COMPANY'S BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL
CONDITION. COSTS INCURRED IN CONNECTION WITH THE PROJECT ARE EXPENSED AS
INCURRED, EXCEPT FOR THE COST OF REPLACEMENT SYSTEMS OR HARDWARE WHICH WILL BE
CAPITALIZED AND DEPRECIATED OVER THEIR ESTIMATED USEFUL LIVES. PROJECT COSTS ARE
BEING FUNDED THROUGH OPERATING CASH FLOWS.
DUE TO THE GENERAL UNCERTAINTY INHERENT IN THE Y2K PROBLEM, RESULTING IN PART
FROM THE UNCERTAINTY OF THE Y2K READINESS OF THIRD-PARTY SUPPLIERS AND SERVICE
PROVIDERS, THE COMPANY IS UNABLE TO DETERMINE AT THIS TIME WHETHER THE
CONSEQUENCES OF Y2K FAILURES WILL HAVE A MATERIAL IMPACT ON THE COMPANY'S
RESULTS OF OPERATIONS, LIQUIDITY OR FINANCIAL CONDITION. HOWEVER, THE COMPANY
COULD BE MATERIALLY ADVERSELY AFFECTED BY A TEMPORARY INABILITY TO CONDUCT
BUSINESS IN THE ORDINARY COURSE FOR A PERIOD OF TIME AFTER JANUARY 1, 2000
THROUGH A FAILURE TO IDENTIFY AND REMEDIATE ALL ITS SUSCEPTIBLE SYSTEMS OR IF
THIRD-PARTY VENDORS AND SUPPLIERS WHOSE SYSTEMS AND OPERATIONS IMPACT THE
COMPANY DID NOT BECOME Y2K COMPLIANT IN TIME. THIS COULD RESULT IN THE INABILITY
TO OPERATE SKI LIFTS OR PROVIDE ESSENTIAL GUEST SERVICES ON SCHEDULE WHICH COULD
CAUSE A DECREASE IN THE COMPANY'S REVENUES. COMPLETION OF THE ASSESSMENT PHASE
OF THE PROJECT IN PARTICULAR, THE ASSESSMENT OF THE Y2K READINESS OF ITS
CRITICAL VENDORS AND SERVICE PROVIDERS IS EXPECTED TO SIGNIFICANTLY REDUCE THE
COMPANY'S LEVEL OF UNCERTAINTY ABOUT THE Y2K PROBLEM. TO THE EXTENT THAT THIRD-
PARTY RESPONSES TO THE COMPANY'S Y2K COMPLIANCE QUESTIONNAIRES OR THE COMPANY'S
TESTING OF SUCH RESPONSES ARE UNSATISFACTORY, THE COMPANY WILL CREATE
CONTINGENCY PLANS WHICH COULD INCLUDE CHANGING VENDORS OR SERVICE PROVIDERS TO
THOSE WHO HAVE DEMONSTRATED Y2K READINESS.
THE PROJECT IS AN ONGOING PROCESS AND THE ESTIMATES OF COSTS AND COMPLETION
DATES DESCRIBED ABOVE ARE SUBJECT TO CHANGE.
INFORMATION AND STATEMENTS CONTAINED HEREIN REGARDING THE COMPANY'S Y2K PROJECT
ARE "YEAR 2000 READINESS DISCLOSURES" AS DEFINED BY THE YEAR 2000 INFORMATION
AND READINESS DISCLOSURES ACT OF 1998, ENACTED ON OCTOBER 19, 1998.
FORWARD-LOOKING STATEMENTS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS REGARDING MATTERS THAT ARE
SUBJECT TO RISKS AND UNCERTAINTIES. FOR SUCH STATEMENTS, THE COMPANY CLAIMS THE
PROTECTION OF THE SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS CONTAINED IN
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY'S
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN EACH FORWARD-LOOKING
STATEMENT DUE TO VARIOUS FACTORS WHICH ARE OUTSIDE THE COMPANY'S CONTROL.
WINTER SPORTS, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
REFERENCE IS MADE TO NOTE 5 OF THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS OF THIS FORM 10-QSB, WHICH IS INCORPORATED HEREIN BY
REFERENCE.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NO REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED FEBRUARY 28,
1999.
WINTER SPORTS, INC.
FORM 10-QSB
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE EXCHANGE ACT, THE REGISTRANT CAUSED
THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
WINTER SPORTS, INC.
-------------------
(REGISTRANT)
DATE: APRIL 9, 1999 /S/ MICHAEL COLLINS
----------------------
MICHAEL COLLINS
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE
OFFICER)
DATE: APRIL 9, 1999 /S/ JOANN M. GOULD
----------------------
JOANN M. GOULD
CONTROLLER AND ASSISTANT
SECRETARY
(PRINCIPAL ACCOUNTING
OFFICER)
DATE: APRIL 9, 1999 /S/ THOMAS E. CULLEN
----------------------
THOMAS E. CULLEN
TREASURER
(PRINCIPAL FINANCIAL
OFFICER)