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 29, 2001
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
15,929,353 shares of common stock, $.01 par value, as of June 13, 2001.
Table of Contents
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations (unaudited) for the
13 weeks ended April 29, 2001 and the 13 weeks ended April 30, 2000..3
Condensed Consolidated Statements of Operations (unaudited) for the
39 weeks ended April 29, 2001 and the 40 weeks ended April 30, 2000..4
Condensed Consolidated Balance Sheets as of April 29, 2001 (unaudited)
and July 30, 2000....................................................5
Condensed Consolidated Statement of Cash Flows (unaudited) for the
39 weeks ended April 29, 2001 and the 40 weeks ended April 30, 2000..6
Notes to (unaudited) Condensed Consolidated Financial Statements......7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General..............................................................10
Liquidity and Capital Resources......................................10
Changes in Results of Operations.....................................16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk...................................................20
Part II -Other Information
Item 1. Legal Proceedings....................................................20
Item 3. Defaults upon Senior Securities......................................20
Item 6. Exhibits and Reports on Form 8-K.....................................21
Part I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
13 weeks ended 13 weeks ended
April 29, 2001 April 30, 2000
(unaudited) (unaudited)
Net revenues:
Resort $ 164,170 $ 149,942
Real estate 15,404 73,153
----------------- ----------------
Total net revenues 179,574 223,095
Operating expenses:
Resort 84,362 74,865
Real estate 16,516 63,450
Marketing, general and
administrative 17,274 13,063
Merger costs (Note 7) 3,593 -
Depreciation and amortization 18,300 19,076
----------------- ----------------
Total operating expenses 140,045 170,454
----------------- ----------------
Income from operations 39,529 52,641
Interest expense 12,758 8,386
----------------- ----------------
Income before provision for income
taxes 26,771 44,255
Provision for income taxes 13,746 17,472
----------------- ----------------
Income before preferred stock
dividends 13,025 26,783
Accretion of discount and
dividends accrued on mandatorily
redeemable preferred stock 5,789 5,319
----------------- ----------------
Net income available to common
shareholders $ 7,236 $ 21,464
================= ================
Accumulated deficit, beginning of
period $ (119,344) $ (75,389)
Net income available to common
shareholders 7,236 21,464
----------------- ----------------
Accumulated deficit, end of period $ (112,108) $ (53,925)
================= ================
Basic earnings per common share
(Note 3)
Net income available to common
shareholders $ 0.24 $ 0.71
================= ================
Weighted average common shares
outstanding 30,509,283 30,423,073
================= ================
Diluted earnings per common share
(Note 3)
Net income available to common
shareholders $ 0.19 $ 0.42
================= ================
Weighted average common shares
outstanding 62,874,599 60,267,685
================= ================
See accompanying notes to (unaudited)
Condensed Consolidated Financial Statements.
3
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
39 weeks ended 40 weeks ended
April 29, 2001 April 30, 2000
(unaudited) (unaudited)
Net revenues:
Resort $ 310,620 $ 275,228
Real estate 73,345 97,849
----------------- ----------------
Total net revenues 383,965 373,077
Operating expenses:
Resort 198,995 177,403
Real estate 66,310 89,220
Marketing, general and
administrative 45,584 40,099
Merger costs (Note 7) 3,593 -
Depreciation and amortization 42,257 43,202
----------------- ----------------
Total operating expenses 356,739 349,924
----------------- ----------------
Income from operations 27,226 23,153
Interest expense 39,800 25,516
----------------- ----------------
Loss before provision for income taxes (12,574) (2,363)
Provision for income taxes - 2,472
----------------- ----------------
Loss before extraordinary item and
accounting change (12,574) (4,835)
Extraordinary loss, net of tax
benefit of $396 - 621
Cumulative effect of accounting
change, net of taxes of $1,538
and ($449) (Note 2) (2,509) 704
----------------- ----------------
Loss before preferred stock dividends (10,065) (6,160)
Accretion of discount and
dividends accrued on mandatorily
redeemable preferred stock 17,280 15,454
----------------- ----------------
Net loss available to common
shareholders $ (27,345) $ (21,614)
================= ================
Accumulated deficit, beginning of
period $ (84,763) $ (32,311)
Net loss available to common
shareholders (27,345) (21,614)
----------------- ----------------
Accumulated deficit, end of period $ (112,108) $ (53,925)
================= ================
Basic and diluted loss per common
share (Note 3)
Loss from continuing operations $ (0.98) $ (0.67)
Extraordinary loss, net of taxes - (0.02)
Cumulative effect of accounting
change, net of taxes 0.08 (0.02)
----------------- ----------------
Net loss available to common
shareholders $ (0.90) $ (0.71)
================= ================
Weighted average common shares
outstanding - basic and diluted 30,482,977 30,375,302
================= ================
See accompanying notes to (unaudited)
Condensed Consolidated Financial Statements.
4
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
April 29, 2001 July 30, 2000
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 9,782 $ 10,085
Restricted cash 8,105 7,424
Accounts receivable 12,270 8,176
Inventory 9,854 10,200
Prepaid expenses 9,232 8,092
Deferred income taxes 1,659 1,566
----------------- ----------------
Total current assets 50,902 45,543
Property and equipment, net 547,369 534,078
Real estate developed for sale 158,414 222,660
Goodwill 73,406 75,003
Intangible assets 21,444 22,055
Deferred financing costs 11,443 10,844
Other assets 28,766 16,595
----------------- ----------------
Total assets $ 891,744 $ 926,778
================= ================
Liabilities, Mandatorily Redeemable
Preferred Stock and Shareholders' Equity
Current liabilities
Current portion of long-term debt
(Note 5) $ 138,893 $ 58,508
Current portion of subordinated
notes and debentures 525 525
Accounts payable and other current
liabilities 92,265 70,957
Deposits and deferred revenue 15,546 15,930
----------------- ----------------
Total current liabilities 247,229 145,920
Long-term debt, excluding current portion
(Note 5) 102,893 249,841
Subordinated notes and debentures,
excluding current portion 127,010 126,810
Other long-term liabilities 35,947 17,494
Deferred income taxes 1,838 200
----------------- ----------------
Total liabilities 514,917 540,265
Mandatorily Redeemable 10 1/2% Preferred
Stock, par value of $1,000 per share;
40,000 shares authorized; 36,626
shares issued and outstanding;
including cumulative dividends
(redemption value of $52,698 and
$48,706, respectively) 52,698 48,706
Mandatorily Redeemable 8 1/2% Series B
Preferred Stock, par value of $1,000 per
share;
150,000 shares authorized, issued and
outstanding; including cumulative
dividends (redemption value of
$173,854 and $162,865, respectively) 165,592 152,310
Shareholders' Equity
Common stock, Class A, par value of
$.01 per share; 15,000,000 shares
authorized; 14,760,530 issued and
outstanding 148 148
Common stock, par value of $.01 per
share; 100,000,000 shares authorized;
15,748,753 and 15,708,633 issued and
outstanding, respectively 157 157
Additional paid-in capital 270,340 269,955
Accumulated deficit (112,108) (84,763)
----------------- ----------------
Total shareholders' equity 158,537 185,497
----------------- ----------------
Total liabilities, mandatorily redeemable
preferred stock and shareholders'
equity $ 891,744 $ 926,778
================= ================
See accompanying notes to (unaudited)
Condensed Consolidated Financial Statements.
5
Condensed Consolidated Statement of Cash Flows
(In thousands)
39 weeks ended 40 weeks ended
April 29, 2001 April 30, 2000
(unaudited) (unaudited)
Cash flows from operating activities
Net loss $ (10,065) $ (6,160)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 42,257 43,202
Amortization of discount on debt 695 274
Deferred income taxes 1,544 1,626
Stock compensation charge 369 388
Extraordinary loss - 1,017
Cumulative effect of change in
accounting principle (4,047) 1,154
Gain from sale of assets (73) (1,477)
Decrease (increase) in assets:
Restricted cash (681) (1,215)
Accounts receivable (4,094) (5,179)
Inventory 346 1,222
Prepaid expenses (1,139) (1,392)
Real estate developed
for sale 38,006 (52,629)
Other assets (5,781) 1,930
Increase (decrease) in liabilities:
Accounts payable and other
current liabilities 21,306 11,926
Deposits and deferred
revenue (384) (7,669)
Other long-term liabilities 8,321 1,300
Other, net - (3)
----------------- ---------------
Net cash provided by (used in)
operating activities 86,580 (11,685)
----------------- ---------------
Cash flows from investing activities
Capital expenditures (25,004) (18,994)
Proceeds from sale of assets 302 10,020
Payments for the purchase of
businesses - (162)
Other, net - (1,278)
----------------- ---------------
Net cash used in investing activities (24,702) (10,414)
----------------- ---------------
Cash flows from financing activities
Net proceeds from issuance of
mandatorily redeemable securities - 136,540
Net proceeds from Senior Credit
Facility (32,038) (123,169)
Proceeds from long-term debt - 147
Proceeds from non-recourse real
estate debt 24,122 104,937
Repayment of long-term debt (5,878) (9,308)
Repayment of non-recourse real
estate debt (49,302) (79,843)
Deferred financing costs (1,096) (4,563)
Repayment of demand note,
Principal Shareholder - (1,830)
Proceeds from exercise of stock
options - 273
Proceeds from issuance of warrants 2,000 -
Other, net 11 -
----------------- ---------------
Net cash provided by (used in) financing
activities (62,181) 23,184
----------------- ---------------
Net increase (decrease) in cash and cash
equivalents (303) 1,085
Cash and cash equivalents, beginning of
period 10,085 9,003
----------------- ---------------
Cash and cash equivalents, end of
period $ 9,782 $ 10,088
================= ===============
6
Supplementary disclosure of non-cash
item:
Non-cash transfer of real estate
developed for sale to fixed assets $ 26,239 $ 28,268
Accretion of discount and dividends
accrued on mandatorily redeemable
preferred stock $ 17,280 $ 15,454
See accompanying notes to (unaudited)
Condensed Consolidated Financial Statements.
Notes to (unaudited) Condensed Consolidated Financial Statements
1. General. American Skiing Company (the "Parent") is organized as a
holding company and operates through various subsidiaries (together with the
Parent, the "Company"). The Company's fiscal year is a fifty-two week or
fifty-three week period ending on the last Sunday of July. Fiscal 2001 is a
fifty-two week reporting period with each quarter consisting of 13 weeks. Fiscal
2000 was a fifty-three week reporting period with the second quarter consisting
of 14 weeks and all other quarters consisting of 13 weeks. The accompanying
unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
Results for interim periods are not indicative of the results expected
for the year due to the seasonal nature of the Company's business. The unaudited
condensed consolidated financial statements should be read in conjunction with
the following notes and the Company's consolidated financial statements in its
Form 10-K, filed with the Securities and Exchange Commission on October 26,
2000. Certain amounts in the prior year's unaudited condensed consolidated
financial statements and the audited financial statements as filed in the
Company's Form 10-K have been reclassified to conform to the current period
presentation.
2. Accounting Change. In the first quarter of fiscal 2001, the Company
changed its method of accounting for interest rate swaps in accordance with its
adoption of Statement of Financial Accounting Standards ("SFAS") No. 133
Accounting for Derivative Instruments and Hedging Activities, SFAS No. 137
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - an Amendment of FASB Statement No.
133 and SFAS No. 138 Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an Amendment of FASB Statement No. 133 (collectively "SFAS
133 as amended").
SFAS 133 as amended requires that derivatives be recorded on the
balance sheet as an asset or liability at fair value. The Company has entered
into three interest rate swap agreements that do not qualify for hedge
accounting under SFAS 133 as amended. As of July 30, 2000, the Company had $8.6
million recorded in Other Long Term Liabilities in the accompanying Consolidated
Balance Sheet and had been recording the net effect of the anticipated $2.1
million in interest savings from these agreements on a straight line basis over
the life of the agreements through the income statement. Upon adoption of SFAS
133 as amended, the fair value of these swaps was recorded as a $6.5 million
asset and an $11.1 million liability, with a corresponding $4.6 million entry to
cumulative effect of accounting change in earnings. The $8.6 million recorded in
Other Long Term Liabilities was also recognized through a cumulative effect of
accounting change in earnings, resulting in a net cumulative effect of
accounting change of $4.0 million (before a $1.5 million provision for income
taxes). Subsequent changes in the fair values of the swaps are being recorded
through the income statement as an adjustment to interest expense.
3. Earnings (loss) per Common Share. Earnings (loss) per common share
for the 13 weeks, and the 39 and 40 weeks ending April 29, 2001 and April 30,
2000, respectively, were determined based on the following data (in thousands):
7
13 weeks ended 13 weeks ended 39 weeks ended 40 weeks ended
April 29, 2001 April 30, 2000 April 29, 2001 April 30, 2000
-------------------------------------------------------------------------
Income (loss)
Income (loss) before preferred stock dividends
and accretion and extraordinary items $ 13,025 $ 26,783 $ (12,574) $ (4,835)
Accretion of discount and dividends accrued on
mandatorily redeemable preferred stock 5,789 5,319 17,280 15,454
----------------- ----------------- ---------------- ----------------
Income (loss) before extraordinary items - basic 7,236 21,464 (29,854) (20,289)
Series B Preferred Stock dividend requirement 4,436 4,093 - -
----------------- ----------------- ---------------- ----------------
Income (loss) before extraordinary item - diluted 11,672 25,557 (29,854) (20,289)
Extraordinary loss, net of taxes - - - 621
Cumulative effect of accounting changes, net of
taxes - - (2,509) 704
----------------- ----------------- ---------------- ----------------
Net income (loss) available to common
shareholders 11,672 25,557 (27,345) (21,614)
================= ================= ================ ================
13 weeks ended 13 weeks ended 39 weeks ended 40 weeks ended
April 29, 2001 April 30, 2000 April 29, 2001 April 30, 2000
-------------------------------------------------------------------------
Shares
Weighted average shares outstanding - basic 30,509 30,423 30,483 30,375
Effect of dilutive securities:
Common stock options - 97 - -
Convertible Series B Preferred Stock 32,366 29,748 - -
----------------- ----------------- ---------------- ----------------
Weighted average shares outstanding - diluted 62,875 60,268 30,483 30,375
================= ================= ================ ================
The Company had outstanding 36,626 shares of Mandatorily Redeemable 10
1/2% convertible preferred stock at April 29, 2001 and 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 2,519,221 and 683,750 exercisable options
outstanding to purchase shares of its common stock under the Company's stock
option plan as of April 29, 2001 and April 30, 2000, respectively. These shares
are also 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. 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
13 weeks ended 13 weeks ended 39 weeks ended 40 weeks ended
April 29, 2001 April 30, 2000 April 29, 2001 April 30, 2000
--------------------------------------------------------------------------
(in thousands)
Revenues:
Resorts $ 164,170 $ 149,942 $ 310,620 $ 275,228
Real Estate 15,404 73,153 73,345 97,849
---------------- ----------------- ---------------- -----------------
Total $ 179,574 $ 223,095 $ 383,965 $ 373,077
---------------- ----------------- ---------------- -----------------
Income (loss) before benefit from income taxes
Resorts $ 35,734 $ 37,935 $ 2,934 $ (3,303)
Real Estate (8,963) 6,320 (15,508) 940
---------------- ----------------- ---------------- -----------------
Total $ 26,771 $ 44,255 $ (12,574) $ (2,363)
---------------- ----------------- ---------------- -----------------
5. Long Term Debt. For the quarter ended April 29, 2001, the Company
would have been in default of certain financial covenants under its senior
credit facility if a waiver was not entered into with the lenders. In a waiver
agreement dated as of May 15, 2001, the lenders under the senior credit facility
agreed to waive these defaults and defer the payment of default interest until
June 13, 2001 while the lenders and the Company negotiated a comprehensive
amendment of the senior credit facility. On June 13, 2001, the lenders under the
senior credit facility extended the waiver period until June 28, 2001, pursuant
to a waiver dated as of June 14, 2001. Because the Company has not completed the
foregoing negotiations or entered into an amendment of the senior credit
facility as of the filing of this report on Form 10-Q, all borrowings
outstanding under the senior credit facility, which totaled $85.3 million on
April 29, 2001, have been reclassified from long-term debt to current portion of
long-term debt on the accompanying unaudited condensed consolidated balance
sheet as of April 29, 2001. For more information regarding the waiver and
amendment process please see Part I, Item 2, "Management's Discussion and
Analysis" of this report.
6. Control by Principal Shareholder. The Stockholders Agreement dated
August 6, 1999 by and among the Company, Oak Hill Capital Partners, L.P. and
related entities ("Oak Hill") and Leslie B. Otten was amended as of July 31,
2000 to provide, among other things: (i) that Oak Hill will have the right to
elect six members of the Company's Board of Directors, provided that Oak Hill
maintains certain ownership levels; (ii) that Mr. Otten will have the right to
elect two members to the Board, provided that he maintains certain ownership
levels; and (iii) that Mr. Otten will have the right to serve on the executive
committee of the Board and on the boards of directors of material subsidiaries
of the Parent. As of April 29, 2001, Oak Hill would own 52.0% of the 63,624,321
shares of common stock of the Company that would be outstanding if all the
shares of the Series B Preferred Stock were converted. This ownership percentage
does not assume the conversion of currently outstanding options or the Company's
Series A Preferred Stock, as those securities are exercisable or convertible, as
applicable, at a price significantly greater than the current trading price of
the Company's common stock.
7. Business Developments. On December 8, 2000, the Company and
MeriStar Hotels & Resorts, Inc. ("MeriStar") entered into a merger agreement
(the "Merger Agreement"), whereby a wholly-owned subsidiary of the Company, ASC
Merger Sub, Inc., would have merged with and into MeriStar (the "MeriStar
Merger"). The Boards of each of the Company and MeriStar met separately on March
22, 2001 and voted to terminate the proposed merger due to changes in economic
conditions and the combined companies' inability to effect the capital markets
transactions required to consummate the merger. The companies each executed a
letter terminating their existing Merger Agreement without liability to the
other. The Company has recorded a $3.6 million charge during its current fiscal
quarter representing all costs incurred in conjunction with the MeriStar Merger.
On March 28, 2001, Leslie B. Otten, the chairman and chief executive
officer of the Company, resigned from his position effective immediately.
Following Mr. Otten's resignation, William Fair, formerly the Company's chief
operating officer, was named chief executive officer of the Company. Mr. Otten
remains a member of the Company's Board of Directors.
9
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking Statements
Certain information contained in this report includes forward-looking
statements, the realization of which may be impacted by the factors discussed
below. The forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. 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. This report contains forward looking statements that are subject to
risks and uncertainties, including, but not limited to: uncertainty as to future
financial results; our substantial leverage; the capital intensive nature of
development of our ski resorts; rapid and substantial growth that could place a
significant strain on our management, employees and operations; the inability to
implement all or any part of the strategic plan described in this report; the
inability to refinance or successfully re-negotiate our current capital
facilities and debt instruments as necessary on terms advantageous to our
company, if at all; uncertainties associated with obtaining additional financing
for future real estate projects and to undertake future capital improvements;
demand for and costs associated with real estate development; changes in market
conditions affecting the interval ownership industry; regulation of marketing
and sales of our quartershare interests; seasonality of resort revenues;
fluctuations in operating results; dependence on favorable weather conditions;
the discretionary nature of consumers' spending for skiing, destination
vacations and resort real estate; regional and national economic conditions;
laws and regulations relating to our land use, development, environmental
compliance and permitting obligations; termination, renewal or extension terms
of our leases and United States Forest Service permits; industry competition;
the adequacy of water supply at our properties; and other risks detailed from
time to time in our filings with the Securities and Exchange Commission. These
risks could cause our actual results for fiscal year 2001 and beyond to differ
materially from those expressed in any forward looking statements made by, or on
behalf of, us. The foregoing list of factors should not be construed as
exhaustive or as any admission regarding the adequacy of disclosure that we have
made prior to the date of this report or the effectiveness of the Private
Securities Litigation Reform Act.
General
The following is our discussion and analysis of financial condition
and results of operations for the quarter ended April 29, 2001. As you read the
material below, we urge you to carefully consider our Consolidated Financial
Statements and related notes contained elsewhere in this report.
Liquidity and Capital Resources
Short-Term. Our primary short-term liquidity needs involve funding
seasonal working capital requirements, continuing and completing real estate
development projects presently under construction, funding our fiscal 2001
capital improvement program and servicing our debt. Our cash requirements for
ski-related and real estate development activities are provided from separate
sources. Our primary source of liquidity for ski-related working capital and
ski-related capital improvements are cash flow from operations of our non-real
estate subsidiaries and borrowings under our senior credit facility. Real estate
development and real estate working capital is funded primarily through
construction financing facilities established for major real estate development
projects, a real estate term facility, and net proceeds from the sale of real
estate developed for sale after required construction loan repayments. These
facilities are without recourse to us and our resort operating subsidiaries and
are collateralized by significant real estate assets of American Skiing Company
Resort Properties Inc., or Resort Properties, and its subsidiaries, including
the assets and stock of Grand Summit Resort Properties, Inc., or Grand Summit,
our primary hotel development subsidiary. As of April 29, 2001, the book value
of the total assets that collateralized these facilities and which are included
in the accompanying consolidated balance sheet was approximately $253.3 million.
On May 30, 2001, we announced a comprehensive strategic plan to
improve our capital structure and enhance future operating performance. The plan
includes the following key components:
10
o Strategic redeployment of management and capital resources
to emphasize the integration and growth of resort village
development and operations
o Intent to sell Steamboat ski resort
o Operational cost savings of approximately $5 million through
reorganization and staff reduction
o Amendments to our senior credit facilities and an
anticipated new capital infusion to enhance financial
flexibility
We have retained Credit Suisse First Boston and Main Street Advisors
to assist with marketing the Steamboat Ski and Resort Corporation in Steamboat
Springs, Colorado, the sale of which is anticipated to close prior to the end of
calendar 2001. We cannot assure you, however, that the proposed sale of
Steamboat Ski and Resort Corporation will close prior to the end of calendar
year 2001, if at all.
As part of our effort to implement the operational cost savings
element of our plan, we have converted 160 full-time year-round positions to
seasonal positions in order to better match our operating cycle. In addition, we
have eliminated approximately 70 full time year-round positions. Prior to this
operational reorganization, we had approximately 1,600 full time, year-round
positions. At peak employment during the ski season, we employ approximately
11,700 people. We have commenced this operational reorganization in order to
provide us with greater flexibility in our cost structure and respond more
appropriately to the seasonal nature of our business.
We estimate that these measures, along with other organizational
changes and cost reduction initiatives, will result in approximately $5 million
of annual cost savings. Although the impact of the cost savings will be
immediate, near-term restructuring costs will likely delay the benefit from cost
savings until the first quarter of fiscal 2002.
There can be no assurance that we will be able to fully implement all
elements of the foregoing strategic plan. The failure to fully implement each of
these elements may have significant adverse effects on our future operating
performance and results.
Resort Liquidity. We maintain a $165 million senior credit facility
with Fleet National Bank, as agent, and certain other lenders, consisting of a
$100 million revolving portion and a $65 million term portion. The revolving
portion of the senior credit facility matures on May 30, 2004, and the term
portion matures on May 31, 2006.
The maximum availability under the revolving portion of the senior
credit facility reduces over its term by certain prescribed amounts. As of June
12, 2001, total borrowings under the revolving credit were $61.6 million, and
$0.6 million of availability was allocated to cover outstanding letters of
credit. The term portion of the senior credit facility amortizes in five annual
installments of $650,000 payable on May 31 of each year, with the remaining
portion of the principal due in two substantially equal installments on May 31,
2005 and May 31, 2006. As of June 2, 2001, the outstanding balance of the term
portion had been reduced by $1.3 to $63.7 million. In addition, the senior
credit facility requires mandatory prepayment of the term portion and a
reduction in the availability under the revolving portion of an amount equal to
50% of the consolidated excess cash flows (as defined in accordance with the
senior credit facility) during any period in which the excess cash flow leverage
ratio exceeds 3.50 to 1. In no event, however, will such mandatory prepayments
reduce the revolving portion of the facility below $74.8 million. We do not
presently expect to generate consolidated excess cash flows during fiscal 2001.
The senior credit facility contains affirmative, negative and
financial covenants customary for this type of credit facility, which includes
maintaining certain financial ratios. The senior credit facility is secured by
substantially all of our assets and subsidiaries except those of our real estate
development subsidiaries. The revolving portion of the facility is subject to an
annual 30-day clean-down requirement, which period must include April 30 of each
year, during which the sum of the outstanding principal balance and letter of
credit exposure shall not exceed $35 million. On April 30, 2001, we successfully
completed our 30-day clean-down requirement for the current year.
The senior credit facility also places a maximum level of non-real
estate capital expenditures of $13 million (of which approximately $7.1 million
had been expended as of April 29, 2001) for fiscal 2001, exclusive of the
Heavenly gondola project as discussed below. Following fiscal 2001, annual
11
resort capital expenditures, exclusive of real estate capital expenditures, are
limited to the lesser of $35 million, or the total of the non-real estate
development subsidiaries' consolidated EBITDA for the four fiscal quarters ended
in April of the previous fiscal year less the consolidated debt service for the
same period. In addition to the foregoing amounts, we are permitted to and
expect to make capital expenditures of up to $30 million for the purchase and
construction of a new gondola at our Heavenly resort in Lake Tahoe, Nevada, on
which construction is currently underway and $25.1 million has been expended as
of April 29, 2001. The Heavenly gondola became operational, and began
transporting skiers in December 2000. We are continuing to evaluate the design
and construction of additional related amenities of the Heavenly gondola
facilities.
The senior credit facility restricts our ability to pay dividends on
our common stock. We are prohibited from paying dividends in excess of 50% of
the consolidated net income of the non-real estate development subsidiaries
after April 25, 1999, and further prohibited from paying dividends under any
circumstances when the effect of such payment would cause the debt to EBITDA
ratio of the non-real estate development subsidiaries to exceed 4.0 to 1. Based
upon these and other restrictions, we do not expect to be able to pay cash
dividends on our common stock, mandatorily redeemable 10.5% preferred stock or
series B preferred stock during fiscal 2001 or fiscal 2002.
For the quarter ended April 29, 2001, we would have been in default of
certain financial covenants under the senior credit facility if a waiver was not
entered into witht he lenders. In a waiver agreement dated as of May 15, 2001,
the lenders under the senior credit facility agreed to waive these defaults and
defer the payment of default interest until June 13, 2001 while we negotiated a
comprehensive amendment of the senior credit facility with the lenders. On June
13, 2001, the lenders under the senior credit facility extended the waiver
period until June 28, 2001, pursuant to a waiver dated as of June 14, 2001. We
are seeking the lenders' consent in the proposed comprehensive amendment to
change the existing financial covenant package to accommodate changes to our
revised business plan and to revise financial covenants for the third quarter of
fiscal 2001 and beyond. We are continuing negotiations with the lenders under
the senior credit facility regarding the proposed amendment and we believe that
such negotiations are in their final stages and will be successfully completed
prior to the June 28, 2001 waiver expiration. In the event that we are unable to
agree to such modifications with the lenders or to obtain an additional
temporary waiver on or before June 28, 2001, we will be in default under the
senior credit facility on June 29, 2001 and will not be entitled to make any
draws upon the revolving portion of that facility. In the event that the lenders
under the senior credit facility accelerate the indebtedness under such
facility, cross defaults would occur under our senior subordinated notes, the
senior credit facility of Resort Properties and the construction loan facility
of Grand Summit. In the event of these defaults, we will be required to pursue
one or more alternative strategies, such as attempting to renegotiate the terms
of the senior credit facility, selling assets, refinancing or restructuring our
indebtedness, selling additional debt or equity securities, and/or any other
alternatives available to us under law while we implement plans and actions to
satisfy our financial obligations. However, we cannot assure you that any
alternative strategies will be available or feasible at the time or prove
adequate. Also, some alternative strategies will require the consent of our
lenders before we engage in those strategies. Our inability to successfully
execute one or more of these alternative strategies would likely have a material
adverse effect on our business and our company.
Because we have not completed the negotiations regarding the proposed
comprehensive amendment to the financial covenant package or entered into an
amendment of the senior credit facility as of the filing of this report on Form
10-Q, all borrowings outstanding under the senior credit facility, which totaled
$85.3 million on April 29, 2001, have been reclassified from long-term debt to
current portion of long-term debt on the accompanying unaudited condensed
consolidated balance sheet as of April 29, 2001. We expect to file restated
financial statements reclassifying such debt as long-term upon completion of the
proposed amendment.
Our high leverage significantly affects our liquidity. As a result of
our leveraged position, we will have significant cash requirements to service
interest and principal payments on our debt. Consequently, cash availability for
working capital needs, capital expenditures and acquisitions is limited, outside
of any availability under the senior credit facility. Furthermore, the senior
credit facility and the indenture governing our 12% senior subordinated notes,
due 2006, each contain significant restrictions on our ability to obtain
additional sources of capital and may affect our liquidity. These restrictions
include restrictions on the sale of assets, restrictions on the incurrence of
additional indebtedness and restrictions on the issuance of preferred stock.
12
Under the indenture governing our 12% senior subordinated notes, due
2006, we are prohibited from paying cash dividends or making other distributions
to our shareholders.
Real Estate Liquidity. A $73 million real estate term facility
provided through Fleet National Bank, as agent, and the net proceeds from the
sale of real estate developed for sale after required construction loan
repayments provides the funding of working capital for Resort Properties and its
fiscal 2001 real estate development program.
Security interests in, and mortgages on, substantially all of Resort
Properties' assets, which primarily consist of undeveloped real property and the
stock of its real estate development subsidiaries (including Grand Summit)
collateralize the real estate term facility. As of April 29, 2001, the book
value of the total assets that collateralized the real estate facilities, and
are included in the accompanying consolidated balance sheet, was approximately
$253.3 million
The real estate term facility is comprised of three tranches, each
with separate interest rates and maturity dates. Tranche A has a maximum
principal amount of $35 million, bears interest at a variable rate equal to the
Fleet National Bank Base Rate plus 8.25%, or a current rate of 15.25%, (payable
monthly in arrears) and matures on December 31, 2002. Mandatory principal
payments on Tranche A of $5.0 million each are payable on April 30, 2002, July
31, 2002 and October 31, 2002. Tranche B has a maximum principal amount of $25
million, bears interest at a fixed rate of 25% per annum and matures on December
31, 2003. Interest calculated at 18% per annum for Tranche B is payable monthly
in arrears. The remaining 7% per annum accrues, is added to the principal
balance of Tranche B and bears interest at 25% per annum, compounded annually.
Tranche C has a maximum principal amount of $13 million, bears interest at an
effective rate of 25% per annum and matures on December 31, 2005. Interest
accrues, is added to the principal balance of Tranche C and is compounded
semi-annually. As of June 12, 2001, the principal balances outstanding,
including accrued and unpaid interest, under Tranches A, B & C of the second
amended real estate facility were $30.0 million, $26.5 million, and $10.0
million, respectively.
Oak Hill Capital Partners, L.P. purchased Tranche C of the real estate
term facility. In connection with this $13 million investment, we entered a
securities purchase agreement with Oak Hill, dated as of July 31, 2000, pursuant
to which we agreed to either issue warrants to Oak Hill for 6,000,000 shares of
our common stock with an exercise price of $2.50 per share, or issue to Oak Hill
common stock in Resort Properties, representing approximately 15% of the voting
interest in that entity. The purchase price of the warrants (or Resort
Properties common stock, as applicable) was $2 million.
As of June 13, 2001, the lenders under the real estate term facility
are entitled to suspend funding under that facility, due to Resort Properties'
failure to meet its budget for income and expenses. Resort Properties' current
operating expenses are being met from the proceeds of the sale of its interest
in Heavenly Resort Properties, LLC, as described below. We are revising our real
estate business plan and are pursuing discussions with our senior lenders
regarding near-term liquidity issues and a package of restructuring initiatives
designed to significantly improve the capital structure and liquidity of Resort
Properties. Components of the business plan that are being negotiated include
restructuring the real estate term facility to substantially reduce interest
rates and extend amortization and maturity dates, a new capital investment and a
reduction in senior debt. We are in advanced discussions with both our senior
lenders and potential sources of additional investment capital for our real
estate subsidiary. Additional capital would both address our near-term liquidity
needs and enhance our ability to execute on the growth opportunities within our
existing portfolio of assets. The terms of such investments, however, would
likely result in substantial dilution to common equity holders. We believe that
these negotiations are in their final stages and will be successfully completed
in the near future.
We cannot assure you that Resort Properties will be successful in its
attempts to restructure the real estate term facility or that we will be
successful in procuring additional investment capital for Resort Properties. In
the event that such efforts are not successful, the lenders under the real
estate term facility could prohibit the additional use of Heavenly sale proceeds
by Resort Properties and Resort Properties would no longer be able to meet its
working capital requirements. In the event that the lenders under the real
13
estate term facility accelerate the indebtedness under that facility, cross
defaults would occur under our senior subordinated notes, our senior credit
facility and Grand Summit's construction loan facility. In the event of such
defaults, we will be required to pursue one or more alternative strategies, such
as attempting to renegotiate the terms of the senior credit facility, selling
assets, refinancing or restructuring our indebtedness, selling additional debt
or equity securities, and/or any other alternatives available to us under law
while we implement plans and actions to satisfy our financial obligations.
However, we cannot assure you that any alternative strategies will be available
or feasible at the time or prove adequate. Also, some alternative strategies
will require the consent of our lenders before we engage in those strategies.
Our inability to successfully execute one or more of these alternative
strategies would likely have a material adverse effect on our business and our
company.
We conduct substantially all of our real estate development through
single purpose subsidiaries, each of which is a wholly owned subsidiary of
Resort Properties. Grand Summit owns our existing Grand Summit Hotel projects,
which primarily financed through a $110 million construction loan facility among
Grand Summit and various lenders, including TFC Textron Financial, the
syndication agent and administrative agent.
As of June 3, 2001, the amount outstanding under the construction loan
facility was $54.1 million. This facility matures on March 31, 2002 and bears
interest at the rate of prime plus 2.5% per annum, or a current rate of 9.5%.
The principal is payable incrementally as quartershare sales are closed based on
a predetermined per unit amount, which approximates between 65% and 80% of the
net proceeds of each closing. Mortgages against the project sites (including the
completed Grand Summit Hotels at Killington, Mount Snow, Sunday River, Attitash
Bear Peak, The Canyons, and Steamboat) collateralize the facility, which is
subject to covenants, representations and warranties customary for this type of
construction facility. The facility is non-recourse to us and our resort
operating subsidiaries (although it is collateralized by substantial assets of
Grand Summit, having a total book value of $169.4 million as of April 29, 2001,
which in turn comprise substantial assets of our business).
Due to construction delays and cost increases at the Steamboat Grand
Hotel project, Grand Summit entered into a $10 million subordinated loan tranche
with TFC Textron Financial on July 25, 2000. We have used this facility solely
for the purpose of funding the completion of the Steamboat Grand Hotel. The
facility bears interest at a fixed rate of 20% per annum, payable monthly in
arrears, provided that only 50% of the amount of this interest shall be due and
payable in cash and the other 50% of such interest shall, if no events of
default exist under the subordinated loan tranche facility or the construction
loan Textron facility, automatically be deferred until the final payment date.
As of June 3, 2001, the amount outstanding under the subordinated loan tranche
facility was $6.5 million.
On May 11, 2001, the agent for the lenders under the construction loan
facility notified Grand Summit that they would no longer be approving advances
under this facility for project costs due to the placement of certain mechanics'
liens on the Steamboat Grand Hotel project. We have entered into a settlement
memorandum with the general contractor for the Steamboat Grand Hotel project
which would resolve all pending claims between the parties, including those
described in Part II, Item 1, of this report, and would result in the removal of
the foregoing mechanics' liens. The settlement memorandum is subject to the
approval of the lenders under the construction loan facility. We have been in
negotiations with the lenders regarding the settlement memorandum terms and are
working with the lenders to agree upon an amendment to the construction loan
facility which would approve the settlement memorandum and allow additional
funding under the construction loan. We are continuing negotiations with the
lenders on the amendment and we believe that these negotiations are in their
final stages and will be successfully completed in the near future. We cannot
assure you that these negotiations will be successful. If the negotiations with
the lenders are not successful and if we cannot otherwise remove the mechanics'
liens, Grand Summit will not be able to meet its future operating expenses. In
the event that the lenders under the construction loan facility accelerate the
indebtedness under such facility, cross defaults would occur under our senior
subordinated notes, the senior credit facility of Resort Properties, and our
senior credit facility. In the event of such defaults, we will be required to
pursue one or more alternative strategies, such as attempting to renegotiate the
terms of the senior credit facility, selling assets, refinancing or
restructuring our indebtedness, selling additional debt or equity securities,
and/or any other alternatives available to us under law while we implement plans
and actions to satisfy our financial obligations. However, we cannot assure you
that any alternative strategies will be available or feasible at the time or
14
prove adequate. Also, some alternative strategies will require the consent of
our lenders before we engage in those strategies. Our inability to successfully
execute one or more of these alternative strategies would likely have a material
adverse effect on our business and our company.
On October 17, 2000, we sold our option rights to certain real estate
in the South Lake Tahoe Redevelopment District to Marriott Ownership Resorts,
Inc., a wholly owned subsidiary of Marriott International, for $8.5 million.
Pursuant to the terms of the option sale, Resort Properties received $4.09
million in cash proceeds on October 17, applied a $0.3 million previously
received deposit and received the remaining $4.09 million from Marriott on
January 15, 2001. Simultaneously with the closing of the sale of its option
rights, our July 28, 1998 development agreement with Marriott was terminated. We
believe that the termination of this agreement will allow Resort Properties to
market more aggressively certain developmental real estate at its resorts to
other potential timeshare investors.
On May 11, 2001, we sold our 85% ownership interest in Heavenly Resort
Properties, LLC, the entity that controls the development rights for the
Heavenly Grand Summit quartershare hotel adjacent to our Heavenly resort in
South Lake Tahoe, CA, to Marriott Vacation Club International, a wholly owned
subsidiary of Marriott International. Pursuant to the terms of the sale, Resort
Properties received $6.2 million in cash proceeds at closing on May 11, 2001 and
will receive an additional $5.0 million payment from Marriott on January 15,
2002. In addition, Resort Properties will receive a contingent sales fee equal
to 14% of the aggregate gross sales proceeds Marriott receives for its sales of
the quartershare units in excess of $100 million up to $134 million. This
contingent sales fee will be paid quarterly commencing on January 15, 2003 and
at the end of each calendar quarter thereafter for as long as such payments are
due. We have not recognized the value of the contingent fee in calculating our
loss on the sale of approximately $0.8 million.
Long-Term. Our primary long-term liquidity needs are to fund
skiing-related capital improvements at certain of our resorts, development of
our slope side real estate and the mandatory redemption of our mandatorily
redeemable 10 1/2% preferred stock on November 15, 2002. With respect to capital
needs, we have invested over $185 million in skiing related facilities since the
beginning of fiscal 1998. As a result, and in keeping with restrictions imposed
under the senior credit facility, we expect our resort capital programs for the
next several fiscal years will be more limited in size. Our fiscal 2001 resort
capital program is estimated at approximately $13 million (of which $7.1 had
been expended as of April 29, 2001). In fiscal 2000, we spent $7.4 million on
the Heavenly gondola project, and during the nine months ended April 29, 2001,
$17.7 million had been spent. The Heavenly gondola became operational, and began
transporting skiers, in December 2000. We are continuing to evaluate the design
and construction of additional related amenities of the Heavenly gondola
facilities.
For our 2001 and 2002 fiscal years, we anticipate our annual
maintenance capital needs to be approximately $10 to $12 million. There is a
considerable degree of flexibility in the timing and, to a lesser degree, scope
of our growth capital program. Although we can defer specific capital
expenditures for extended periods, continued growth of skier visits, revenues
and profitability will require continued capital investment in on-mountain
improvements.
We finance on-mountain capital improvements through resort cash flow,
capital leases and our senior credit facility. The size and scope of the capital
improvement program will generally be determined annually depending upon the
strategic importance and expected financial return of certain projects, future
availability of cash flow from each season's resort operations and future
borrowing availability and covenant restrictions under the senior credit
facility. The senior credit facility places a maximum level of non-real estate
capital expenditures for fiscal 2002 and beyond at the lesser of $35 million, or
the total of the non-real estate development subsidiaries' consolidated EBITDA
for the four fiscal quarters ended in April of the previous fiscal year less
consolidated debt service for the same period. In addition, we are permitted to
and expect to make capital expenditures of up to $30 million for the purchase
and construction of a new gondola at our Heavenly resort in Lake Tahoe, Nevada.
Construction on the Heavenly gondola began in June, 2000 and as of April 29,
2001, we had expended $25.1 million on this project. We believe that these
capital expenditure amounts will be sufficient to meet our non-real estate
capital improvement needs for the near future.
15
Our business plan anticipates the development of Grand Summit hotels,
condominium hotels and townhouses, as well as associated retail and food and
beverage outlets at our resorts. The timing and extent of these projects are
subject to local and state permitting requirements which may be beyond our
control, as well as our cash flow requirements and the availability of external
capital. We undertake real estate development through our real estate
development subsidiary, Resort Properties. Recourse on debt incurred to finance
this real estate development is limited to Resort Properties and its
subsidiaries, which include Grand Summit. This debt is usually collateralized by
the projects that it finances, which, in some cases, constitute a significant
portion of our assets. As of April 29, 2001, the total assets collateralizing
the real estate facilities, included in the accompanying consolidated balance
sheet, totaled approximately $253.3 million. The real estate term facility and
the construction loan facility currently fund Resort Properties' seven existing
development projects.
We expect to undertake future real estate development projects through
special purpose subsidiaries with financing provided principally on a
non-recourse basis to us and our resort operating subsidiaries. Although we
expect this financing to be non-recourse to us and our resort subsidiaries, it
will likely be collateralized by the real estate projects being financed, which
may constitute significant assets to us. We must generate required equity
contributions for these projects before undertaking them, and the projects are
subject to mandatory pre-sale requirements under the real estate 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 the possible sale of equity or debt interests in Resort
Properties or its real estate development subsidiaries. Financing commitments
for future real estate development do not currently exist, and we can offer no
assurance that they will be available on satisfactory terms. We will be required
to establish both equity sources and construction facilities or other financing
arrangements for our projects before undertaking them.
We have 36,626 shares of mandatorily redeemable 10 1/2% preferred
stock outstanding, with an accreted value of $52.7 million as of April 29, 2001.
The mandatorily redeemable 10 1/2% preferred stock is exchangeable at the option
of the holder into our common stock at a conversion price of $17.10 for each
common share. We expect to hold the mandatorily redeemable 10 1/2% preferred
stock until its maturity date of November 15, 2002, at which time we will be
required to redeem the mandatorily redeemable 10 1/2% preferred stock at a
redemption price of approximately $62 million. We can give no assurance that the
necessary liquidity will be available to effect the redemption on a timely
basis.
Changes in Results from Operations
Our fiscal year 2001 consists of a fifty-two week reporting period
compared to fifty-three weeks in fiscal 2000, with the extra week included in
the second fiscal quarter of 2000. The results of the 39 weeks ended April 29,
2001 are not directly comparable to the 40 weeks ended April 30, 2000 because of
the extra week in fiscal year 2000. The extra week in fiscal 2000 had the effect
of pushing forward the current fiscal year by one calendar week when compared to
the prior year. As a result, the current fiscal quarter ends on relatively the
same calendar date as the prior year (April 29, 2001 vs. April 30, 2000).
Therefore, the extra week effectively fell at the beginning of the period
presented for the prior fiscal year, or the week ending August 1, 1999 for the
40-week period ended April 30, 2000. Since this extra week did not fall during
our primary revenue producing season, it would have contributed negligible
revenues and negative earnings to the fiscal 2000 period presented. The
following discussion and analysis isolates the effect of the extra week on the
results of resort operations in the prior fiscal year and provides a more
meaningful comparison to the prior year on a 39-week basis. The extra week in
fiscal 2000 did not effect the comparison of the 13 weeks ended April 29, 2001
and April 30, 2000.
We do not believe that the additional week in fiscal 2000 had a
material impact on the comparability of the results from real estate operations
due to the intermittent nature of our real estate sales activity. Therefore, we
do not address separately the extra week as a part of the changes in results of
real estate operations.
For the 13 weeks ended April 29, 2001 compared to the 13 weeks ended
April 30, 2000
16
Resort Operations:
Resort revenues increased $14.3 million in the third quarter of 2001
compared to the third quarter of fiscal 2000, from $149.9 million to $164.2
million. We experienced a rather strong ski season this year, when compared the
previous season. Our Eastern resorts had solid skier visits due to substantially
improved weather conditions and The Canyons showed strength as that resort
continues to mature. Lack of natural snowfall at our western resorts and
softness in destination business at Steamboat and The Canyons, resulting from a
slowdown in the national economy, weakened our skier visits in the west this
year. Our company-wide skier visits were up 1.3% in third quarter over last year
and our overall revenues per skier visit increased 8.1% this quarter over last
year. We realized a $5.3 million increase in lift ticket revenue this quarter
over last year and a $9.0 million increase in non-ticket revenues. The largest
contributors to the increase in non-ticket revenues were our two new Grand
Summit Hotels. This was the first year of operations for the Steamboat Grand
Hotel and it contributed $2.1 million in resort revenues during the third
quarter. The Grand Summit Hotel at The Canyons opened during the third quarter
of fiscal 2000, and this season we reaped the benefits of its first full season
of operations by realizing $3.4 million in resort revenues in the third quarter,
compared to $1.2 million last year.
Our resort segment generated a $35.7 million profit before income
taxes and preferred dividends for the current fiscal quarter, compared to $37.9
million in the third quarter of fiscal 2000, a decrease of $2.2 million. Current
year results include a $3.6 million charge representing costs we incurred in
connection with the withdrawn merger with MeriStar Hotels and Resorts and $2.1
million in employee severance and restructuring charges relating to our
reorganization efforts. Exclusive of these non-recurring charges, resort
operating profits would have increased $3.5 million over last year, broken down
as follows:
i. an increase in resort EBITDA (earnings before taxes, depreciation and
amortization) of $2.6 million, from $62.0 million last year to $64.6
million this year;
ii. a decrease in resort depreciation and amortization of $1.1 million;
and
iii. an increase in resort interest expense of $0.2 million.
The increase in skier visits this year over last and the full
operation of the Steamboat and Canyons Grand Summit hotels, both of which
contributed to our $14.3 million increase in resort revenues, also generated an
$11.6 million increase in operational and marketing and administrative costs
(exclusive of merger costs and employee severance and restructuring charges).
Our resort EBITDA margin for the quarter (excluding the non-recurring charges
referred to above) was down slightly compared to last year (39% vs 41%). We
expect to see an increase in our resort EBITDA margins going forward as we
execute our strategic plan to reduce operational costs throughout our resort
network.
Real Estate Operations:
Real estate revenues decreased by $57.8 million in the current quarter
compared to fiscal 2000, from $73.2 million to $15.4 million. We realized $5.5
million in sales on the Steamboat Grand Hotel in the third quarter of 2001,
compared to zero last year. We also realized $6.5 million and $0.5 million in
sales at the Canyons Grand Summit Hotel and the Sundial Lodge, respectively, in
the current quarter compared to $40.6 million and $21.2 million, respectively,
in the third quarter of 2000. Continuing sales of quartershare units of Grand
Summit Hotels at our eastern resorts contributed $2.7 million in real estate
revenues for the current quarter compared to $9.5 million in the third quarter
of fiscal 2000, a decrease of $7.0 million.
Our real estate segment generated a loss before income taxes of $9.0
million for the third quarter of fiscal 2001, compared to a $6.3 million profit
in the third quarter of fiscal 2000. The current year operating loss consists of
a $1.1 million loss from real estate EBITDA, $7.2 million in real estate
interest expense and $0.7 million in real estate depreciation and amortization.
The comparative breakdown from the first quarter of fiscal 2000 was real estate
EBITDA of $9.7 million, real estate interest expense of $3.0 million and real
estate depreciation and amortization of $0.4 million. Our real estate EBITDA
loss for the current quarter breaks down as follows:
17
o a $0.9 million gain from unit sales at our western
properties;
o a $0.4 million loss from unit sales at our eastern
properties;
o a $0.8 million loss accrual on the sale of our interest in
the Heavenly Grand Summit hotel site (exclusive of the
contingent sales fee that has not been recognized); and
o $0.8 million in corporate real estate general sales and
administrative expenses.
The $4.2 million increase in real estate interest expense was
primarily the result of lower capitalized interest in fiscal 2001 due to the
completion of the Grand Summit Hotel at The Canyons in the third quarter of
fiscal 2000 and the Steamboat Grand Hotel in the first quarter of fiscal 2001.
We capitalized $4.5 million of real estate interest in the third quarter of
fiscal 2000 and none in the third quarter of 2001. We are no longer capitalizing
any interest on our real estate debt as construction has been completed on all
current projects.
Provision for income taxes decreased $3.8 million, from $17.5 million
in the third quarter last year to $13.7 million this year. We have re-evaluated
our income tax position, and have determined that we do not expect to recognize
any income tax expense or benefit in the foreseeable future. Consequently, in
the current quarter we have reversed the $13.7 million of income tax benefits
recognized in the first and second quarters of fiscal 2001.
Accretion of discount and dividends accrued on mandatorily redeemable
preferred stock increased $0.5 million, from $5.3 million for the third quarter
of fiscal 2000 to $5.8 million for the current quarter. This increase is
primarily attributable to the compounding effect of accruing dividends on
150,000 shares of the Series B Preferred Stock issued to Oak Hill in the first
quarter of fiscal 2000. We are currently accruing dividends on the Series B
Preferred Stock at an effective rate of 9.7%, compounded quarterly, assuming
that dividends will not be paid in cash until the fifth anniversary of the
issuance, which will cause the dividend rate to incrementally increase up to
10.5% by the end of the fifth year.
Changes in Results from Operations
For the 39 weeks ended April 29, 2001 compared to the 40
weeks ended April 30, 2000
Resort Operations:
Resort revenues increased $35.4 million for the 39 weeks ended April
29, 2001 compared to the 40 weeks ended April 30, 2000, from $275.2 million to
$310.6 million. Included in our fiscal 2000 resort revenues were $1.6 million in
non-recurring gains from asset sales, for which there were no comparative
amounts in fiscal 2001. Exclusive of these gains and after adjusting for $1.9
million in additional revenues earned during the first week of fiscal year 2000,
revenues increased $38.9 million over the comparable period of the prior year.
Fiscal 2001 saw a return to more normal weather conditions throughout much of
the country. We saw a strong increase in skier visits in the East and realized
the benefit of our additional snowmaking capacity at Killington. However, this
was offset by a lack of natural snowfall in the West and softness in the
destination business at Steamboat and The Canyons, resulting from a slowdown in
the national economy.
Our company-wide skier visits were up more than 5% over last year
through the end of third quarter and our overall revenues per skier visit
increased more than 7% over last year. We realized a $14.8 million increase in
lift ticket revenue this year over last year and a $20.6 million increase in
non-ticket revenues. The largest contributors to the increase in non-ticket
revenues were our two new Grand Summit Hotels. This was the first year of
operations for the Steamboat Grand Hotel and it contributed $3.6 million in
resort revenues through the end of the third quarter. The Grand Summit Hotel at
The Canyons opened during the third quarter of fiscal 2000, but this season we
reaped the benefits of its first full season of operations by realizing $8.0
million in resort revenues through the end of the third quarter, compared to
$1.2 million last year. We also realized an increase in other resort revenues
(food & beverage, skier development and retail & rental) of over $12 million
combined as a direct result of the increase in skier visits over last year.
18
Our resort segment generated a $2.9 million profit before income taxes
and preferred dividends for the first 39 weeks of fiscal 2001, compared to a
loss of $3.3 million for the first 40 weeks of fiscal 2000. Exclusive of the
$1.6 million of non-recurring gains from asset sales in fiscal 2000, the $5.7
million in non-recurring reorganization and merger costs incurred in the third
quarter of fiscal 2001 and a $1.1 million loss from the first week of fiscal
2000, our resort segment profit increased by $12.4 million on a comparative 39
week basis over last year due to the following:
i. an increase in resort EBITDA of $11.5 million
ii. a decrease in resort depreciation and amortization of $2.0 million
iii. an increase in resort interest expense of $1.1 million
Real Estate Operations:
Real estate revenues decreased by $24.5 million in the current 39 week
period compared to the 40 week period of fiscal 2000, from $97.9 million to
$73.3 million. We realized $37.3 million in revenues from closings of pre-sold
quartershare units in the recently completed Steamboat Grand Hotel and $17.3
million in ongoing sales of quartershare units at The Canyons Grand Summit
Hotel, which opened in the third quarter of fiscal 2000. In addition, we
recognized $2.5 million of revenue in fiscal 2001 from closings of the fully
sold Locke Mountain Townhomes project at Sunday River. Continuing sales of
quartershare units of Grand Summit Hotels at our eastern resorts contributed
$5.5 million in real estate revenues for the current 39 week period compared to
$15.2 million in the corresponding 40 week period of fiscal 2000, a decrease of
$9.7 million. Prior year results include $39.0 million of revenues from closings
of units of the Sundial Lodge at The Canyons, a whole ownership condominium
project that opened during the second quarter of fiscal 2000 and $40.6 million
in sales of the Canyons Grand Summit Hotel.
Also in fiscal 2001, we sold our option rights to certain real estate
in the South Lake Tahoe Redevelopment District to Marriott Ownership Resorts,
Inc., a wholly owned subsidiary of Marriott International, for $8.5 million and
we sold our 85% ownership interest in Heavenly Resort Properties, LLC, the
entity that controls the development rights for the Heavenly Grand Summit
quartershare hotel adjacent to our Heavenly resort in South Lake Tahoe, CA, to
Marriott Vacation Club International, also a wholly owned subsidiary of Marriott
International, for $11.2 million.
Our real estate segment generated a loss before income taxes of $15.5
million for the 39 week period ended April 29, 2001, compared to a $0.9 million
profit for the 40 week period ended April 30, 2000. The current year operating
loss consists of $7.0 million in real estate EBITDA, offset by $20.4 million in
real estate interest expense and $2.1 million in real estate depreciation and
amortization. The comparative breakdown from the first nine months of fiscal
2000 was a real estate EBITDA of $8.6 million, real estate interest expense of
$6.8 million and real estate depreciation and amortization of $0.9 million. Our
real estate EBITDA for the current year breaks down as follows:
o a $2.3 million gain from unit sales at our western
properties;
o a $0.3 million gain from unit sales at our eastern
properties;
o a $7.4 million gain from our sale of land options rights at
South Lake Tahoe;
o a $0.8 million loss accrual on the sale of our interest in
the Heavenly Grand Summit hotel site (exclusive of the
contingent sales fee that has not been recognized); and
o $2.2 million in corporate real estate general sales and
administrative expenses.
The $13.6 million increase in real estate interest expense was
primarily the result of lower capitalized interest in fiscal 2001 due to
completion of the Grand Summit Hotel at The Canyons in the third quarter of
fiscal 2000 and the Steamboat Grand Hotel in the first quarter of fiscal 2001.
We capitalized $12.1 million of real estate interest in the first 40 weeks of
fiscal 2000 and $2.1 million in the first 39 weeks of 2001. We ceased
capitalizing interest at the end of the first quarter of fiscal 2001 on our real
estate debt as construction was completed on all current projects.
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Cumulative effect of accounting changes of $2.5 million (net of $1.5
million tax provision) in fiscal 2001 resulted from recording the fair value of
non-hedging derivatives on our balance sheet in connection with our initial
adoption of SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activities, SFAS No. 137 Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
Amendment of FASB Statement No. 133 and SFAS No. 138 Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of FASB
Statement No. 133. The cumulative effect of accounting changes of $0.7 million
(net of $0.4 million tax benefit) in fiscal 2000 resulted from our write-off of
certain capitalized start-up costs relating to our hotel and retail operations
and the opening of The Canyons resort in fiscal 1998. The accounting change was
due to our adoption of AICPA Statement of Position 98-5, "Reporting on the Costs
of Start-up Activities". SOP 98-5 requires the expensing of all start-up costs
as incurred, rather than capitalizing and subsequently amortizing such costs.
Provision from income taxes decreased from $2.4 million in fiscal 2000
to $0.0 this year. We have re-evaluated our income tax position, and have
determined that we do not expect to recognize any income tax expense or benefit
in the foreseeable future. Consequently, in the current quarter we have reversed
the $13.7 million of income tax benefits recognized in the first and second
quarters of fiscal 2001.
Accretion of discount and dividends accrued on mandatorily redeemable
preferred stock increased $1.8 million, from $15.5 million for fiscal 2000 to
$17.3 million for 2001. This increase is primarily attributable to the
compounding effect of accruing dividends on 150,000 shares of the Series B
Preferred Stock issued to Oak Hill in the first quarter of fiscal 2000. We are
currently accruing dividends on the Series B Preferred Stock at an effective
rate of 9.7%, compounded quarterly, assuming that dividends will not be paid in
cash until the fifth anniversary of the issuance, which will cause the dividend
rate to incrementally increase up to 10.5% by the end of the fifth year.
Item 3
Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in information relating to market
risk since our disclosure included in Item 7A of Form 10-K as filed with the
Securities and Exchange Commission on October 26, 2000.
Part II - Other Information
Item 1
Legal Proceedings
On May 4, 2001, Colorado First/PCL, the general contractor for the
construction of the Steamboat Grand Hotel, filed a complaint against our
subsidiary, Grand Summit Resort Properties, Inc., in the District Court for
Routt County, Colorado. The complaint seeks unspecified damages resulting from
Grand Summit's failure to pay direct and indirect costs relating to the
construction of the Steamboat Grand Hotel, as well as foreclosure of the general
contractor's mechanics' lien in the amount of $6,633,072. Certain subcontractors
on the Steamboat Grand Hotel project have also filed mechanics' liens against
the project in an amount totaling approximately $3,466,0081. Grand Summit and
the general contractor have entered into a memorandum of settlement dated May
17, 2001 for settlement of all claims under the complaint and Grand Summit's
anticipated counterclaim. Under the terms of the settlement memorandum, the
general contractor would be required to satisfy all claims of subcontractors.
The settlement memorandum is subject to the approval of the lenders under Grand
Summit's construction loan facility, and approval is currently in process.
Item 3
Defaults Upon Senior Securities
See "Liquidity and Capital Resources" for a discussion regarding our
defaults under our senior credit facility and under the construction loan
facility of Grand Summit Resort Properties.
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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 13, 2001 /s/ William Fair
- ------------------------------- --------------------------------
William Fair
Chief Executive Officer
(Duly Authorized Officer)
Date: June 13, 2001 /s/ Mark J. Miller
- ------------------------------- -------------------------------
Mark J. Miller
Senior Vice President
Chief Financial Officer
(Principal Financial Officer)
Item 6
Exhibits and Reports on Form 8-K
a) Exhibits
Included herewith are the following material agreements:
Exhibit No. Description
1. Waiver and Agreement dated as of May 15, 2001 by and among American
Skiing Company, the other borrowers party thereto, the lenders party
thereto and Fleet National Bank, N.A. as agent.
2. Waiver and Agreement dated as of June 14, 2001 by and among American
Skiing Company, the other borrowers party thereto, the lenders party
thereto and Fleet National Bank, N.A. as agent.
b) Reports on Form 8-K
We filed a report on Form 8-K on February 23, 2001, reporting an
Amendment to the Agreement and Plan of Merger dated as of December 8, 2000
between American Skiing Company, MeriStar Hotels and Resorts, Inc. and a
wholly-owned subsidiary formed by American Skiing Company for purposes of the
merger.
We filed a report on Form 8-K on March 23, 2001, reporting the
termination of its Agreement and Plan of Merger dated December 8, 2000 with
MeriStar Hotels and Resorts, Inc.
We filed a report on Form 8-K on March 28, 2001, reporting the
resignation of our chairman and chief executive officer, Leslie B. Otten, and
the promotion of its chief operating officer, William Fair, to replace Mr. Otten
as our chief executive officer, effective immediately.
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