UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended July 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
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value New York Stock Exchange
(Title of Each Class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None None
(Title of Each Class) (Name of exchange on which registered)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's outstanding common stock held by
non-affiliates of the registrant on November 12, 2001, determined using the per
share closing price thereof on the New York Stock Exchange Composite tape, was
approximately $15.1 million. As of November 12, 2001, 31,718,123 shares of
common stock were issued and outstanding, of which 14,760,530 shares were Class
A common stock.
American Skiing Company
Form 10-K Annual Report, for the year ended July 29, 2001
American Skiing Company and Consolidated Subsidiaries
Table of Contents
Page
Part I
Item 1 & Item 2 Business and Properties .......................................1
Item 3 Legal Proceedings....................................................17
Item 4 Submission of Matters to a Vote of Security Holders .................17
Part II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters .....................................................18
Item 6 Selected Financial Data .............................................19
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................21
Item 7A Quantitative and Qualitative Disclosures about
Market Risk .............................................................32
Item 8 Financial Statements and Supplementary Data .........................32
Part III
Item 10 Directors and Executive Officers of the Registrant...................34
Item 11 Executive Compensation...............................................34
Item 12 Security Ownership of Certain Beneficial Owners and
Management...............................................................34
Item 13 Certain Relationships and Related Transactions.......................34
Part IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K......................................................34
Signatures....................................................................39
(i)
PART I
Items 1 and 2 - Business and Properties
American Skiing Company
We are organized as a holding company and operate through various
subsidiaries. Refer to Note 2 - "Basis of Presentation" in the consolidated
financial statements included in Item 8 of this report for a discussion of the
general development of our business, our subsidiaries and predecessors. We
believe that we are the largest operator of alpine ski and snowboard resorts in
the United States. We reinforce and capitalize on this by developing, owning and
operating a range of hospitality-related businesses, including hotels, golf
courses, restaurants and retail locations. We also develop, market and operate
ski-in/ski-out alpine villages, townhouses, condominiums and quarter ownership
hotels. We manage our operations in two business segments, ski resort operations
and mountainside real estate development. For a complete breakdown of
information by reportable segment refer to Note 14 - "Business Segment
Information" in the consolidated financial statements included in Item 8 of this
report.
Our revenues and net loss available to our common shareholders for our year
ended July 29, 2001, or fiscal 2001, were $425.6 million and ($141.6) million,
respectively. Our recurring earnings before interest expense, income taxes,
depreciation and amortization, or EBITDA, excluding certain non-recurring
merger, restructuring and asset impairment charges (as discussed in Note 11 -
"Non-recurring Merger, Restructuring and Asset Impairment Charges" in the
consolidated financial statements included in Item 8 of this report), was $55.1
million for fiscal 2001. Resort revenues and recurring resort EBITDA for fiscal
2001 were $328.7 million and $51.7 million, respectively. Real estate revenues
and recurring real estate EBITDA for fiscal 2001 were $96.9 million and $3.4
million, respectively. Our resort EBITDA and real estate EBITDA, inclusive of
all non-recurring charges, was ($19.7) million and ($2.3) million, respectively,
in fiscal 2001. For more information relating to our financial condition, see
"Certain Considerations - Our business is substantially leveraged and we face a
number of financial risks".
Resort Operations
Our resort business is derived primarily from our ownership and operation
of eight ski resorts, several of which are among the largest in the United
States. During the 2000-2001 ski season we owned nine resorts, which generated
approximately 5.3 million skier visits, representing approximately 9.2% of total
skier visits in the United States. The following table summarizes key statistics
of our resorts. The table includes statistics for the Sugarbush resort, which we
sold following year end, and Steamboat, which we currently plan to sell. See
Note 19 - "Subsequent Events" in the consolidated financial statements included
in Item 8 of this report.
- -------------------------------------------------------------------------------------------------------------------
Skiable Vertical Snowmaking 2000-01
Terrain Drop Total Lifts Coverage Ski Skier
Resort, Location (acres) (feet) Trails (high-speed) Lodges Visits
(000s)
------------------------------------- ---------- ---------- ------ ------------- ------------ -------- ------------
<s> <c> <c> <c> <c> <c> <c> <c>
Killington, VT 1,182 3,050 200 32(8) 70% 8 1,085
Sunday River , ME 660 2,340 127 18(4) 92% 4 547
Mount Snow, VT 765 1,700 132 23(3) 85% 6 558
Sugarloaf, ME 1,410 2,820 129 15(2) 92% 2 355
Attitash Bear Peak, NH 280 1,750 70 12(2) 97% 2 220
The Canyons, UT 3,500 3,190 140 15(6) 5% 3 303
Steamboat, CO 2,939 3,668 142 20(4) 15% 4 1,003
Heavenly, CA/NV 4,800 3,500 84 29(8) 69% 7 848
------------------------------------- ---------- ---------- ------ ------------- ------------ -------- ------------
Total of resorts we currently own 15,536 22,018 1,024 164(37) 36 4,919
Sugarbush, VT 468 2,650 115 18(4) 61% 5 359
------------------------------------- ---------- ---------- ------ ------------- ------------ -------- ------------
Total of resorts we owned in fiscal
2001 16,004 24,668 1,139 182(41) 41 5,278
------------------------------------- ---------- ---------- ------ ------------- ------------ -------- ------------
Resort Properties
Our resorts include several of the top resorts in the United States based
on skier visits, such as Killington, the 5th largest resort in the United States
with approximately 1.1 million skier visits in the 2000-01 ski season,
Steamboat, the 6th largest ski resort in the United States with over 1.0 million
skier visits in the 2000-01 ski season, Sunday River and Mount Snow, which
together with Killington comprised three of the four largest resorts in the
Northeast during the 2000-01 ski season, and Heavenly, which ranked as the 2nd
largest resort in the Pacific West region for the 2000-01 season with
approximately 848,000 skier visits.
The Canyons. When we acquired The Canyons, located in the Wasatch Range of
the Rocky Mountains adjacent to Park City, Utah, in July, 1997, it was primarily
an undeveloped ski resort with significant potential for future operational and
real estate development. The Canyons is one of the most accessible destination
resorts in the world, with the Salt Lake International Airport only 32 miles
away, and has direct access via a major state highway. We believe that The
Canyons has significant growth potential due to its proximity to Salt Lake City
and Park City, its undeveloped ski terrain and its real estate development
opportunities. The Utah Winter Sports Park, which is located immediately
adjacent to the resort, is scheduled to serve as the venue for the ski jumping,
bobsled and luge events in the 2002 Winter Olympic Games. The Canyons has been
selected to host the NBC Today show from its Grand Summit Hotel during the
Olympics which we expect will further increase the awareness and appeal of the
resort.
Since acquiring The Canyons we have invested significant capital and
created a substantial on-mountain skiing infrastructure which we believe is
capable of supporting substantial skier visit growth. During the 1997-98 season,
its first under our management, the resort generated over 167,000 skier visits.
This number increased to over 220,000 in 1998-99, over 248,000 in 1999-00 and
over 300,000 in 2000-2001. We intend to gradually invest additional capital to
improve and expand on-mountain facilities and skiable terrain as skier visits
grow. In fiscal 2000, we completed two significant real estate projects at The
Canyons, a Grand Summit Hotel and the Sundial Lodge. The Sundial Lodge is
substantially sold out and approximately 70% of the units in the Grand Summit
Hotel have been sold. We are focused on selling the remaining inventory and
preparing for new projects. In November, 1999, we obtained final approval of a
master development plan for The Canyons which includes entitlements for
approximately 5 million square feet of development. Our master plan includes
developments by us and by third parties. Two such third party projects, a
timeshare hotel being developed by Westgate Resorts (the first phase of which is
scheduled to open in February, 2002) and a condominium hotel being developed
immediately adjacent to the resort, are currently under construction and will
further add to the bed base surrounding the resort.
Steamboat. The Steamboat ski area is located in the Medicine Bow/Routt
National Forest, Routt County, Colorado on the westerly slopes of Mt. Werner,
approximately 2.5 miles southeast of downtown Steamboat Springs, Colorado. The
area consists of 3,486 acres of land licensed under a special use permit issued
by the United States Forest Service and 245 acres of private land owned by
Steamboat located at the base of the ski area. Steamboat receives a high level
of natural dry snow, averaging 330 inches annually the past 10 ski seasons. In
our 2001 fiscal year, we completed a 300-room Grand Summit Hotel at Steamboat,
which has brought both additional beds and enhanced amenities to the Steamboat
base area. We recently announced as part of our comprehensive restructuring plan
that we intend to sell Steamboat. We are currently negotiating purchase and sale
terms with a small group of potential purchasers and have executed a non-binding
letter of intent with one of the parties. See Part II, Item 7 - "Management's
Discussion of Financial Condition and Results of Operations".
Heavenly. Located on the south shore of Lake Tahoe with three base area
complexes, one in South Lake Tahoe, California and two in Stateline, Nevada,
Heavenly consists of two peaks with a maximum elevation of approximately 10,060
feet. Heavenly ranks as the second largest resort in the Pacific West region
with approximately 848,000 skier visits for the 2000-01 ski season. Access to
the resort is primarily through the Reno Tahoe International Airport and by
automobile via Route 50 from San Francisco and Sacramento, California. Heavenly
has a well-developed bed base in the greater South Lake Tahoe/Stateline area and
benefits from a substantial casino hotel and hospitality industry in the base
area. In our 2001 fiscal year, we completed construction on a new gondola which
provides lift service to the resort from the center of South Lake Tahoe. The
City of South Lake Tahoe has embarked on a substantial redevelopment strategy on
a 34 acre site where the gondola is located. In addition to the gondola and as
part of the redevelopment project, Marriott has begun construction on two large
fractional ownership hotel projects immediately adjacent to the gondola. Both
projects are expected to open in November, 2002 and we believe these facilities,
coupled with the gondola and other elements of the redevelopment project, will
provide substantial growth opportunities for Heavenly.
Killington. Killington, located in central Vermont, is the largest ski
resort in the northeast and the fifth largest in the United States, generating
over 1 million skier visits in 2000-01. Killington is a seven-mountain resort
consisting of approximately 1,200 acres of skiable terrain. We believe the size
and diversity of skiable terrain at Killington make it attractive to all levels
of skiers and one of the most widely recognized of our resorts with regional,
national and international clientele.
During our 2001 fiscal year, we completed construction of a $4 million
snowmaking expansion project which provides the resort with up to 30% more
snowmaking capacity during certain periods. We believe that this additional
capacity should lead to higher early season trail counts and enhanced market
confidence in the quality and reliability of the snow surface.
Killington is a year-round resort offering complete golf amenities
including an 18-hole championship golf course, a golf school, a driving range
and a tennis school. Our real estate strategy at Killington is to expand the
existing Grand Summit Hotel, begin the first phases of a new destination resort
village and expand the bed base surrounding the company-owned golf course in an
area approved for development. We are pursuing a combination of internally
executed projects as well as joint ventures and third party developer projects
to accomplish the build-out of the village infrastructure. The current master
plan for the proposed Killington resort village development includes over 4,450
units in over 5.3 million square feet of total development.
Sunday River. Sunday River, located in the western mountains of Maine and
approximately a three-hour drive from Boston, is New England's fourth largest
ski resort with over 540,000 skier visits during the 2000-01 season. Extending
across eight interconnected mountains, its facilities consist of approximately
660 acres of skiable terrain and an additional 7,000 acres of undeveloped
terrain. Over the past several years, we have developed extensive real estate at
Sunday River, including whole ownership condominiums and townhouses and two
quarter-share hotels, both of which are substantially sold out. We have plans to
develop a resort village at the Jordan Bowl Area (the most westerly peak), which
eventually could include over 1,350 units, a golf course and 1.1 million square
feet of total development.
Mount Snow. Mount Snow, located in West Dover, Vermont, is the third
largest ski resort in the northeast United States with over 550,000 skier visits
in 2000-01. Mount Snow is the southernmost of our eastern resorts. A large
percentage of the skier base for Mount Snow derives from Massachusetts,
Connecticut and New York. Mount Snow hosted the winter X games for the past two
years as part of an effort to strategically position the property in the fast
growing snow boarding market segment. We have developed a Grand Summit Hotel at
Mount Snow and we expect all of the quartershare units at the hotel to be
substantially sold out by the end of fiscal 2002. Mount Snow also owns and
operates an 18-hole championship golf course and is the headquarters of our
"Original Golf School", which consists of eight golf schools located throughout
the east coast.
Sugarloaf. Sugarloaf is located in the Carrabassett Valley of Maine.
Sugarloaf is a single mountain with a 4,237-foot summit and a 2,820-foot
vertical drop. Sugarloaf offers one of the largest ski-in/ski-out base villages
in the Eastern United States, containing numerous restaurants, retail shops and
an abundance of lodging. Sugarloaf is widely recognized for its challenging
terrain and snowfields which represent the only lift-serviced above-tree line
skiing in the Northeast. As a destination resort, Sugarloaf has a broad market,
including areas as distant as New York, New Jersey, Pennsylvania, Washington
D.C. and Canada. Sugarloaf also leases and operates an 18-hole championship golf
course, designed by Robert Trent Jones Jr. and consistently rated as one of the
top 40 public golf courses in the country.
Attitash Bear Peak. Attitash Bear Peak is one of New Hampshire's premier
family vacation resorts. Its 12 lifts (including three quad chairs) constitute
one of New Hampshire's largest lift networks. Attitash Bear Peak is located in
the heart of the Mount Washington Valley which boasts over 200 factory outlet
stores, hundreds of bars and restaurants and a large variety of lodging options,
including a 143-room slopeside Grand Summit Resort Hotel and Conference Center.
Real Estate Properties. We retain ownership of the front desk, retail
space, restaurants and conference facilities, or "commercial core", of hotels
developed by our real estate subsidiaries. We currently own and operate the
commercial core of seven Grand Summit Hotels (two at Sunday River and one each
at Killington, Attitash Bear Peak, Mount Snow, The Canyons and Steamboat) and
one whole-ownership condo/hotel at The Canyons (the Sundial Lodge).
Leased Properties
Our operations are wholly dependent upon our ownership or control over the
real estate underlying each resort. The following summarizes certain non-owned
real estate critical to operations at each of our resorts. We believe each of
the following leases, permits or agreements is in full force and effect and that
we are entitled to their benefit. See "Certain Considerations" for additional
discussion of our leases and forest service permits.
Sunday River leases approximately 1,500 acres, constituting a substantial
portion of its skiable terrain, under a 50-year lease terminating on October 14,
2030. The lease renews automatically thereafter on a year-to-year basis unless
terminated by either the lessor or lessee. This lease was amended on January 23,
1998 to allow Sunday River to purchase portions of the leased property for real
estate development at a predetermined amount per acre. In January 1998, we
acquired an undivided one-half interest in the fee title to the leased parcel.
Mount Snow leases approximately 1,315 acres constituting a substantial
portion of its skiable terrain. Of this total, 893 acres are occupied by Mount
Snow pursuant to a special use permit granted by the United States Forest
Service. The permit has a 40-year term expiring December 31, 2029 and is subject
to renewal at the option of Mount Snow if various conditions are satisfied.
Mount Snow also leases 252 acres of skiable terrain from the Town of Wilmington,
Vermont. The lease expires November 15, 2030 and there are no renewal options.
In addition, Mount Snow leases approximately 169 acres from Sargent Inc. under
two separate leases expiring September 30, 2018, and March 31, 2025,
respectively. Each lease can be renewed for an additional 30-year term. Mount
Snow also has the option to purchase the leased property and a right of first
refusal in the event the lessor receives an offer for the leased properties.
Attitash Bear Peak uses approximately 281 acres of its skiable terrain
pursuant to a special use permit issued by the United States Forest Service. The
permit has a 40-year term expiring July 18, 2034 and is renewable subject to
given conditions. In addition, Attitash Bear Peak leases a portion of its
parking facilities under a lease expiring December 31, 2003. Attitash Bear Peak
has the option to purchase this leased property at any time during the lease
term.
Killington leases approximately 2,500 acres from the State of Vermont. A
substantial portion of that property constitutes skiable terrain. The initial
lease was for a 10-year term which commenced in 1960 but contains nine 10-year
renewal options. Killington exercised the renewal option in 1970, 1980, 1990 and
2000. Assuming continued exercise of the renewal options, the lease will
ultimately expire in the year 2060. The lease is subject to a buy-out option
retained by the State of Vermont, as landlord. At the conclusion of each 10-year
term, or extended term, the State has the option to buy out the lease for an
amount equal to Killington's adjusted capital outlay plus 10% of the gross
receipts from the operation for the preceding three years. Adjusted capital
outlay means total capital expenditures extending back to the date of origin of
the lease depreciated at 1% per annum, except that non-operable assets
depreciate at 2% per annum. This buy-out option will next become exercisable in
the year 2010. Although we have not had confirmation from Vermont State
officials, we have no reason to believe that the State intends to exercise the
buy-out option at that time.
Sugarloaf leases the Sugarloaf Golf Course from the Town of Carrabassett
Valley, Maine pursuant to a lease dated November 16, 2000. The lease term
expires November 2023. Sugarloaf has an option to renew the lease for an
additional 5-year term.
The Canyons leases approximately 2,100 acres, including most of the base
area and a substantial portion of its skiable terrain, under a lease from Wolf
Mountain Resorts, LC. The initial term of this lease is 50 years expiring July
2047, with an option to extend for three additional terms of 50 years each. The
lease provides an option to purchase those portions of the leased property that
are intended for residential or commercial development, subject to certain
reconveyance rights, at a cost of 5.5% of the full capitalized cost of the
development in the case of property that we retain, or 11% of that cost in the
case of property intended for resale. The Canyons also leases approximately 807
acres, which constitutes the area for a planned mid-mountain village and a
substantial portion of its skiable terrain, from the State of Utah School and
Institutional Trust Land Administration. Our lease term ends in 2078 and
provides an option to purchase those portions of the mid-mountain village area
that are intended for real estate development at a cost of 25% of their fair
market value on an undeveloped basis. Our lease with Wolf Mountain Resorts also
includes a sublease of certain skiable terrain owned by the Osguthorpe family.
We have established certain additional ski development rights under a direct
agreement with the Osguthorpe family. The ski development rights for
approximately 3,000 acres of skiable terrain that we have targeted for
development are contained in a development agreement with Iron Mountain
Associates, LLC, which agreement includes a lease of all skiable terrain for a
term ending September 13, 2094. We have recently executed an amendment to this
lease which provides that these ski development rights may be acquired in fee by
The Canyons in 2002.
Heavenly uses approximately 1,543 acres of its skiable terrain located in
California and Nevada under a special use permit issued by the United States
Forest Service. The permit expires on August 5, 2029. Heavenly uses
approximately 2,000 acres of additional skiable terrain in Nevada pursuant to a
special use permit which expires on August 5, 2029.
Steamboat uses approximately 3,486 acres, a substantial portion of which is
skiable terrain, pursuant to a special use permit issued by the United States
Forest Service which expires on August 31, 2029. Under Steamboat's existing
master plan, an additional 958 acres of contiguous National Forest lands can be
added to the permitted area.
The United States Forest Service can terminate most of the foregoing
special use permits if it determines that termination is required in the public
interest. However, to our knowledge, no recreational special use permit or term
special use permit for any major ski resort then in operation has ever been
terminated by the United States Forest Service over the opposition of the permit
holder.
Resort Revenues
Our resort revenues are derived from a wide variety of sources and include
lift ticket sales, food and beverage sales, retail sales including ski rentals
and repairs, skier development, lodging and property management, golf and other
summer activities and miscellaneous other sources. Lift ticket sales represent
the single largest source of resort revenues and produced approximately 44% of
total resort operations revenue for fiscal 2001. See "Management's Discussion
and Analysis of Results of Operations", included in Item 7 of this report, for a
breakdown of the sources of our resort revenues for the last three fiscal years.
Lift Ticket Sales. We manage the yield and features of our lift ticket
programs and products in order to increase and maximize ticket revenues and
operating margins. Lift tickets are sold to customers in packages together with
accommodations in order to maximize total revenue. We offer a wide variety of
incentive-based lift ticket programs designed to maximize skier visits during
non-peak periods, to attract specific market segments and to leverage the
competitive advantage of our extensive resort network.
Food and Beverage. We own and operate substantially all of the food and
beverage facilities at our resorts, with the exception of the Sugarloaf resort,
which is under a long-term concession contract with an unrelated third party.
Our food and beverage strategy involves providing a wide variety of restaurants,
bars, cafes, cafeterias and other food and beverage outlets at our resorts. By
controlling the vast majority of our on-mountain and base area food and beverage
facilities, we are able to capture a larger proportion of guest spending as well
as ensure product and service quality. We currently own and operate over 40
different food and beverage outlets. We are considering a variety of performance
enhancement opportunities, including but not limited to, additional
out-sourcing.
Retail Sales. We own over 80 retail and ski rental shops operating in our
resorts. The large number of retail locations that we operate allows us to
improve margins through large quantity purchase agreements and sponsorship
relationships. On-mountain shops sell ski equipment and accessories such as
skis, snowboards, boots, goggles, sunglasses, hats, gloves and larger soft goods
such as jackets and snowsuits. In addition, all sales locations offer our own
branded apparel which generally provides higher profit margins than other retail
products. In the non-winter seasons, the shops sell mountain bikes, in-line
skates, tennis equipment and warm weather apparel. In addition, we have expanded
our retail operations through off-site retail facilities in high traffic areas,
such as stores on the Killington Access Road and in downtown South Lake Tahoe.
Lodging and Property Management. Our lodging and property management
departments manage our properties as well as properties owned by third parties.
During the 2000-01 ski season, our lodging departments managed approximately
2,300 lodging units at our resorts. The lodging departments perform a full
complement of guest services, which include reservations, property management,
housekeeping and brokerage operations. Most of our resorts have a welcome center
to which newly arriving guests are directed. The center allocates accommodations
and provides guests with information on all of the resort's activities and
services. Our property management operation seeks to maximize the synergies that
exist between lodging and lift ticket promotions. In an effort to further
enhance our lodging management capabilities the Company has retained Meristar
Hotels and Resorts, Inc. to assist in the management of our lodging businesses.
Skier Development. We have been an industry leader in developing
learn-to-ski programs. Our Guaranteed Learn to Ski Program was one of the first
skier development programs to guaranty that a customer would learn to ski in one
day. The success of this program led to the development of "Perfect Turn," which
we believe was the first combined skier development and marketing program in the
ski industry. Perfect Turn ski professionals receive specialized instruction in
coaching, communication, skiing and are also trained to sell related products
and cross-sell other resort goods and services and real estate. We operate a
hard goods marketing program at each of our resorts designed to allow customers
to test skis and snowboards with ski professionals, purchase their equipment
from those professionals and receive ongoing product and technological support
through Perfect Turn. We have also instituted a unique skier development program
throughout our resort network that focuses on the marketing and sales of the
entire mountain resort experience, rather than simply traditional learn-to-ski
concepts.
Resort Operating Strategy
Our operating strategies are the following:
Capitalize on Recent Facilities Expansion and Upgrades. We have invested
over $196 million expanding and upgrading our on-mountain facilities over the
past four fiscal years. We have substantially re-tooled the physical plant at
all of our resorts. As a result of this investment, we believe that we now offer
the most modern on-mountain facilities available in each of our markets.
Capitalizing on this investment is a primary focus of our fiscal 2002 strategic
plan.
Multi-Resort Network. Our network of resorts provides both geographic
diversity and significant operating benefits. We believe our geographic
diversity: reduces the risks associated with unfavorable weather conditions;
insulates us from economic slowdowns in any one particular region; increases the
accessibility and visibility of our network of resorts to the overall North
American skier population; and allows us to offer a wide range of mountain
vacation alternatives.
We believe that owning multiple resorts also provides us with the
opportunity to:
o Create one of the largest cross-marketing programs in the industry,
o Achieve efficiencies and economies of scale when we purchase goods and
services,
o Strengthen our distribution network of travel agents and tour operators
by offering a range of mountain resort alternatives, consistent service
quality, convenient travel booking and incentive packages,
o Establish performance benchmarks for operations across all of our
resorts,
o Utilize specialized individuals and cross-resort teams at the corporate
level as resources for our entire business, and
o Develop and implement consumer information and technology systems for
application across all of our resorts.
Increase Revenues Per Skier. We intend to increase our revenues per skier
by improving our product offerings and expanding our revenue sources at each
resort. We intend to increase non-lift ticket revenue sources by increasing
point-of-sale locations through retail stores, food and beverage services,
equipment rentals, skier development, lodging and property management. In
addition, we believe that cross selling of products and programs, such as our
frequent skier and multi-resort programs, to resort guests will increase our
resort revenues and profitability. We believe that we can increase ticket yields
by enhancing the quality of our product offerings, managing ticket discounts,
closely aligning ticket programs to specific customer market segments, offering
multi-resort ticket products and introducing a variety of programs that offer
packages of tickets with lodging and other services available at our resorts.
Innovative Marketing Programs. Our marketing programs are designed to take
advantage of and promote the strong brands and unique characteristics of each of
our resorts, optimize cross-selling opportunities, and enhance our customer
loyalty. We have established joint marketing programs with major corporations
such as Sprint, Nike, Mobil, Anheuser-Busch, BMW, Suunto American Express,
Quaker Oats, Pepsi/Mountain Dew, Rossignol, Vermont Pure, Kodak, and Green
Mountain Coffee Roasters. We believe these joint marketing programs give us a
high-quality image and strong market presence as well as marketing efficiencies
on both a regional and national basis.
We have established a network of eight high-quality ski resorts, through
which we offer ticket products to our customers that are valid at many, if not
all of our resorts. Examples of these innovative programs are the Ski America
Pass, which allows the purchaser to ski at any of our eight ski resorts
nation-wide; the All East Pass, which allows unlimited skiing at any of our five
eastern resorts; the mEticket, which is a flexible multi-day ticket good at
seven of our resorts, with a sliding price schedule offering discounts based on
the number of days purchased. The mEticket program is the first nation-wide
program targeted at retaining skiers who ski three to twelve days each season,
which our research indicates represents the majority of the ski population. By
giving guests an incentive to purchase their skiing for the year early in the
ski season with the special values offered by the Ski America Pass, the All East
Pass and the mEticket program, we believe that we can encourage guests to ski
more often and do the majority of their skiing at our resorts.
We utilize a variety of marketing media, including direct mail, radio,
television and the Internet. Television and radio marketing efforts include both
strategic and tactical messaging. Strategic advertising promotes the sports and
resorts themselves, while tactical messaging provides current information
related to ski conditions as a means of promoting visits to our resorts. In
addition, each resort uses local cable television networks to provide current
information and cross-sell resort products and services. Internet marketing
activities include individual resort websites which provide current snow
conditions, special deals and online reservation booking, a real estate sales
website promoting our Grand Summit Hotels and Resort Villages, a dedicated site
for mEticket, a site promoting summer vacation activities, on-line retail sales
and a special site promoting learning to ski or snowboard. All sites are linked
through our www.peaks.com site. Guests are increasingly researching conditions
and purchasing tickets and related resort products online. The mEticket program
is specifically designed to be accessed online advancing our e-commerce
strategy. We also offer all of our single and multi-resort season pass programs
online at either our www.peaks.com site or through each of our individual
resorts' web sites.
Expand Golf and Convention Business. We are one of the largest owners and
operators of resort golf courses in New England. We expect that these operations
will increase our off-season revenues. Sugarloaf, Killington and Mount Snow all
operate championship resort golf courses. The Sugarloaf course, designed by
Robert Trent Jones, Jr., has been rated as one of the top 40 public courses in
the country according to a Golf Magazine survey. Our golf program and other
recreational activities draw off-season visitors to our resorts and support our
growing off-season convention business, as well as our real estate development
operations. We also have opportunities to develop additional golf courses at The
Canyons, Sunday River and possibly Attitash.
Improve Hotel Occupancy and Operating Margins. We have entered into a
comprehensive management consulting agreement with MeriStar Hotels & Resorts,
Inc., under which MeriStar will support the management and operations of our
lodging and property management division. We believe that, with MeriStar's
assistance, we can achieve operating efficiencies and improved marketing
strategies which will improve the occupancy levels and operating margins of our
lodging properties.
Mountainside Real Estate Development
In addition to operating alpine resorts, we develop mountainside real
estate which complements the expansion of our on-mountain operations. Our real
estate revenues are derived from the sale and leasing of interests in real
estate development projects that we have constructed at our resorts and the sale
to third parties of developmental real estate at our resorts.
Our real estate development strategy is centered on the creation of "resort
villages" at three of our largest resorts (The Canyons, Killington and Sunday
River) and to a lesser extent, at our other resorts. Development within these
resort villages is focused on projects which we believe will generate the
highest returns. Each resort village is expected to consist of quartershare
hotels, whole and fractional ownership condominium hotels, townhouses and single
family homes, and retail operations.
Grand Summit Hotels. The Grand Summit Hotel is an interval ownership
product that we created. Each hotel is a condominium consisting of fully
furnished residential and commercial units with a voluminous atrium lobby, two
or more restaurants, retail space, a grand ballroom, conference space, a health
club with an outdoor heated pool and other recreational amenities. Residential
units in the hotel are sold in quartershare interests, with each unit consisting
of four 13-week ownership interests spread evenly throughout the year. The
balance of the hotel, including restaurants, retail space and conference
facilities, is typically retained by us and managed by the host resort. The
initial sale of quartershare units typically generates a profit for the real
estate segment, and our resort segment derives a continuing revenue stream from
operating the hotel's retail, restaurant and conference facilities and from
renting quartershare interval interests when not in use by their owners.
Whole Ownership Condominium Hotels. These hotels consist of fully furnished
upscale condominium units operated on a traditional hotel format. The whole
ownership structure satisfies this market segment's desire for traditional real
estate but complements the traditional concept with both hotel-type amenities
and easy access to rental income generated through the hotel rental management
program. We retain ownership of the front desk and other common areas of the
condo/hotels with the expectation of operating these hotels over the long term.
By integrating the condo/hotels with our central reservation system, we are
enhancing our revenue opportunities through vertically integrated resort
operations, simplifying guest reservations, and the revenue splits associated
with this type of product. The Sundial Lodge at The Canyons, as in most of the
resort village condominium products, also creates retail space on the ground
floor that supports a pedestrian village, housing 31,800 square feet of retail
and commercial space. This space rests at the heart of the resort's retail
center.
Townhouses and Single Family. There is a component of resort real estate
purchasers that do not prefer core village areas, choosing instead to be located
in an area which is convenient to the resort but removed from the center of
activity. There is also logical reasoning for decreasing densities of
development as one moves away from the core areas. Within each resort master
plan are areas that can accommodate stacked townhouses with a site density of
about 20 to 30 units per acre, townhouses ranging from 10 to 20 units per acre,
and single family homes structured as both small and large lot product.
Retail. The master plans for each resort village core consist of
approximately 1,200 units of accommodation supported by approximately 140,000
square feet of retail space. A strong component of the retail space is outdoor
recreation-related retail. Each building within a village is expected to consist
of at least one level of underground parking, will generally include ground
floor retail and have three to five stories of residential units. In some cases
(such as the Grand Summit Hotels at The Canyons and Steamboat) the buildings
will be as high as nine stories and utilize steel and concrete construction. As
buildings move to the village periphery, residential, parking and retail density
are reduced.
Local approvals for these resort village plans are at various stages of
completion.
o The Canyons: We secured specially planned area approval from the
appropriate authorities for our master plan at The Canyons on November
15, 1999. Pursuant to this master plan approval, density for the
residential units and commercial development for our 15-year master plan
at The Canyons has been approved. As we seek to develop specific
projects within the master plan at The Canyons, we will need local
approval for specific site plans.
o Killington: The master plan for the Killington Resort Village was
approved by local authorities in November 1999 and state authorities
in July 2000. Killington received partial and conceptual approval for
the ten criteria which are part of the State of Vermont land use
review and approval process. Final approval of each of the criteria
will be rendered upon submittal of actual construction plans for specific
projects.
o Sunday River: The resort village master plan for Jordan Bowl is complete.
Individual permits for projects are all that is required for development.
Alpine Resort Industry
The alpine resort industry is characterized by significant barriers to
entry because the number of attractive sites is limited, the costs of resort
development are high, and environmental regulations impose significant
restrictions on new development. In the United States, approximately 490 ski
areas generated approximately 57.3 million skier visits during the 2000-01 ski
season. Since 1985, the ski resort industry has undergone a period of
consolidation and attrition, resulting in a significant decline in the total
number of ski areas in North America. The number of ski resorts in the United
States has declined from approximately 735 in 1983 to approximately 490 in 2001,
although the number of skier visits has remained relatively flat. Despite the
recent consolidation trend overall, ownership of the smaller regional ski
resorts remains highly fragmented. We believe that technological advances and
rising infrastructure costs are the primary reasons for the ski resort industry
consolidation, and that further consolidation is likely as smaller regional
resorts are acquired by larger resort operators with more sophisticated
management capabilities and increased availability of capital.
The following chart shows a comparison of the industry-wide skier visits
compared to our skier visits in the U.S. regional ski markets during the 2000-01
ski season:
- -----------------------------------------------------------------------------------------------------------------
Skier
2000-01 Visits at
Total Skier Percentage Company Company
Visits* of Total Resorts Regional
(in Skier (in Market
Georgraphic Region millions) Visits millions) Share Company Resorts
- --------------------- ------------- ------------ ------------ ------------ -------------------------------------------
Northeast 13.7 23.9% 3.1 22.8% Killington, Sugarbush**, Mount Snow,
Sunday River, Sugarloaf USA, Attitash
Bear Peak
Southeast 5.5 9.5% - -
Midwest 7.6 13.2% - -
Rocky Mountain 19.3 33.7% 1.3 6.8% Steamboat***, The Canyons
Pacific West 11.3 19.7% 0.9 7.5% Heavenly
- --------------------- ------------- ------------ ------------ ------------ -------------------------------------------
U.S. Overall 57.3 100.0% 5.3 9.2%
- --------------------- ------------- ------------ ------------ ------------ -------------------------------------------
<FN>
(*) Source: Kottke National End of Season Survey 2000/01 Final Report
(**) We sold Sugarbush in September 2001.
(***) We plan to sell Steamboat in fiscal 2002.
</FN>
United States ski resorts range from small operations which cater primarily
to day skiers from nearby population centers to larger resorts which attract
both day skiers and destination resort guests. We believe that day skiers focus
primarily on the quality of the skiing and travel time, while destination
travelers are attracted to the total ski and riding experience, including the
non-skiing amenities and activities available at the resort, as well as the
perceived overall quality of the vacation experience. Destination guests
generate significantly higher resort operating revenue per skier day than day
skiers because of their additional spending on lodging, food and beverages and
other retail items over a multiple-day period.
Since 1985, the total number of skier visits in the United States has been
relatively flat. However, according to the National Ski Area Association, the
number of skier visits represented by snowboarders in the United States has
increased from approximately 9.9 million in the 1996-97 ski season to
approximately 16.2 million in the 2000-01 ski season, a compounded annual growth
rate of approximately 13.1%. We believe that snowboarding will continue to be an
important source of lift ticket, skier development, retail and rental revenue
growth for us.
We believe that we are well positioned to capitalize on certain favorable
trends and developments affecting the alpine resort industry in the United
States. These trends and developments include:
o The existence of approximately 66.7 million members of the "baby boom"
generation that are now approaching the 40 to 59 year age group
where discretionary income, personal wealth and pursuit of leisure
activities are maximized,
o The emergence of the "echo boom" generation (children of baby boomers) as
a significant economic force which is just beginning to enter the
prime entry age for skiing, snowboarding and other "on-snow" sports,
o Advances in ski equipment technology, such as the development of
parabolic skis which make skiing easier to learn and enjoy,
o The continued growth of snowboarding as a significant and enduring
segment of the industry which in turn increases youth participation
in alpine sports,
o A greater focus on leisure and fitness in general, and
o Expanding demand for second home vacation real estate.
There can be no assurance, however, that these trends and developments will
have a favorable impact on the ski industry.
Competition
The ski industry is highly competitive. We compete with mountain resort
areas in the United States, Canada and Europe. We also compete with other
recreation resorts, including warm weather resorts, for vacationers. In order to
cover the high fixed costs of our ski operations, we need to maintain each of
our regional, national and international skier bases. Our prices are directly
impacted by the number and variety of alternatives presented to skiers in these
markets. Our most significant competitors are resorts that are well capitalized,
well managed and have significant capital improvement and resort real estate
development programs.
Our resorts also face strong competition on a regional basis. With
approximately three million skier visits generated by our northeastern resorts,
competition in that region is an important consideration. Our northeastern
markets are located in the major population centers in the northeast,
particularly eastern Massachusetts, northern Connecticut, New York and northern
New Jersey. For example, skier origin data collected at Sunday River indicates
that approximately 43% of its weekend skiers reside in Massachusetts. Similar
data collected at Killington and Mount Snow indicate that approximately 23% and
35%, respectively, of their weekend skiers reside in New York, with high
concentrations from Massachusetts, Connecticut, New Jersey and Vermont. The
Colorado, Utah and California/Nevada ski markets are also highly competitive.
Employees and Labor Relations
We currently employ approximately 1,900 full-time, year-round employees
supporting our resort and real estate operations, including corporate personnel.
At peak season last year we employed approximately 11,500 employees. Less than
1% of our employees are unionized. We believe that we enjoy good relations with
our employees.
Government Regulation
Our resorts are subject to a wide variety of federal, state, regional and
local laws and regulations relating to land use, environmental/health and
safety, water resources, air and water emissions, sewage disposal, and the use,
storage, discharge, emission and disposal of hazardous materials and hazardous
and nonhazardous wastes, and other environmental matters. While we believe that
our resorts are currently in material compliance with all land use and
environmental laws, any failure to comply with these laws could result in costs
to satisfy environmental compliance, remediation requirements or the imposition
of severe penalties or restrictions on operations by government agencies or
courts that could adversely affect our operations. Phase I environmental
assessments have been completed on substantially all of the real estate that we
own or control. The reports identified areas of potential environmental concern
including the need to upgrade existing underground storage tanks at several
facilities and the potential need to remediate petroleum releases. The reports
did not, however, identify any environmental conditions or non-compliance at any
of our properties, the remediation or correction of which we feel would have a
material adverse impact on our business, financial condition, results of
operations or cash flows.
We believe that we possess all the permits, licenses and approvals from
governmental authorities material to our operations as they currently exist. We
have not received any notice of material non-compliance with permits, licenses
or approvals necessary for the operation of any of our properties.
Our resort and real estate capital programs require permits and approvals
from certain federal, state, regional and local authorities. Our operations are
heavily dependent upon our continued ability, under applicable laws,
regulations, policies, permits, licenses or contractual arrangements, to have
access to adequate supplies of water with which to make snow and service the
other needs of our facilities, and otherwise to conduct our operations. There
can be no assurance that new applications of existing laws, regulations and
policies, or changes in these laws, regulations and policies will not occur in a
manner that would have a material adverse effect on our business, or that
important permits, licenses or agreements will not be canceled, not renewed, or
renewed on terms no less favorable to us. Major expansions of any one or more
resorts could require the filing of an environmental impact statement under
environmental laws and applicable regulations if it is determined that the
expansion has a significant impact upon the environment and could require
numerous other federal, state and local approvals. Although we have consistently
been successful in implementing our capital expansion plans, no assurance can be
given that necessary permits and approvals will be obtained.
Systems and Technology
Information Systems. Our information systems are designed to improve the
ski experience by developing more efficient guest service products and programs.
We are pursuing implementation of a comprehensive system and technology plan
which will include an integrated customer database tracking guest preference
information and product purchasing patterns, an extensive data communications
network linking most point-of-sale locations through a central database, a
central reservations system for use in the resort's rental management business
and a skier development reservation and instructor scheduling system that will
simplify the booking process and allow for the best possible use of our
instructors.
Snowmaking Systems and Technology. We believe that we operate the largest
consolidated snowmaking operation in existence, with approximately 4,500 acres
of snowmaking coverage. Our proprietary snowmaking software program allows us to
produce what we believe is the highest quality man-made snow in the industry. We
refer to this ideal quality product as "Retail Snow," a high quality, durable
skiing surface with top to bottom consistency. All of our snowmaking systems are
operated through computer-based control using industrial automation software and
a variety of state of the art hardware and instrumentation. We use efficient
ground based, tower based and fully automated snowgun nozzle technology and have
developed software for determining the optimal snowmaking nozzle setting at
multiple locations on any particular mountain. This system monitors the weather
conditions and system capacities and determines the proper operating water
pressure for each nozzle, eliminating guesswork and ensuring that ideal snow
quality is provided. All of our snowmaking systems are networked to allow the
viewing of information from multiple locations within our resort network.
Another unique feature of our system is the current display of trail status,
lift status, weather conditions and other various on-mountain information at
locations throughout each resort. Much of this information is available on the
Internet at our various web sites.
CERTAIN CONSIDERATIONS
In addition to the other information contained in this Form 10-K, you
should carefully consider the following matters in evaluating our business. This
Form 10-K contains forward looking statements and our actual results could
differ materially from those anticipated by any forward-looking statements as a
result of numerous factors, including those set forth in the following
description of considerations and elsewhere in this Form 10-K. See Part II, Item
7 - "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Forward Looking Statements."
Our business is dependent upon the completion of our previously announced
strategic plan.
On May 30, 2001, we announced a comprehensive strategic plan to improve our
capital structure and enhance future operating performance. We have completed
several aspects of this plan to date, including the restructuring of three of
our major credit agreements, an additional capital infusion by Oak Hill Capital
Partners, L.P. and certain related entities (collectively, "Oak Hill"), and the
implementation of a staff reorganization plan to improve operational
efficiencies. The ultimate success of this comprehensive strategic plan is
dependent on our successful execution of the remaining plan elements, including
obtaining a $14 million capital lease for the Heavenly gondola as required by
our resort senior credit facility and the sale of Steamboat to reduce leverage.
We have recently entered into a non-binding letter of intent to sell Steamboat
and we are continuing negotiations with other potential buyers. In addition, we
have a commitment for the Heavenly gondola capital lease and expect to close
that transaction by late November or early December 2001. Our failure to
complete these transactions in a timely manner may adversely affect our ability
to meet any extraordinary cash flow requirements outside of our normal course of
business or meet the financial covenants of our senior credit facility. See Part
II, Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and Note 1 - "Business
Environment and Management's Plans - Actions in Progress" of the consolidated
financial statements included in Item 8 of this report for a more detailed
discussion on the consequences of a failure to complete the sale of Steamboat
and the capital lease transaction.
Our business is substantially leveraged and we face a number of financial risks.
We are highly leveraged. As of November 1, 2001, we had outstanding $435.5
million of total indebtedness, including $296.1 million of secured indebtedness,
representing 66.3% of our total capital.
Our high level of debt affects our future operations in several important
ways. First of all, we will have significant cash requirements to service our
debt which will in turn reduce the funds available for our operations, capital
expenditures and acquisitions. A decrease in the availability of funds will make
us more vulnerable to adverse general economic and industry conditions.
Secondly, the financial covenants and other restrictions contained in our debt
agreements require us to meet certain financial tests and restrict our ability
to borrow additional funds, make capital expenditures or sell our assets.
Our ability to make scheduled payments or refinance our debt obligations
will depend on our future financial and operating performance, which will be
affected by prevailing economic conditions, financial, business and other
factors. Some of these factors are beyond our control. There can be no assurance
that our operating results, cash flow and capital resources will be sufficient
to pay our indebtedness. If our operating results, cash flow or capital
resources prove inadequate we could face substantial liquidity problems and
might be required to dispose of material assets or operations to meet our debt
and other obligations. We also could be forced to reduce or delay planned
expansions and capital expenditures, sell assets, restructure or refinance our
debt or seek additional equity capital. There can be no assurance that any of
these actions could be effected on terms satisfactory to our business, if at
all.
Although we believe that capital expenditures above maintenance levels can
be deferred to address cash flow or other constraints, these activities can not
be deferred for extended periods without adversely affecting our competitive
position and financial performance.
Our continued growth depends, in part, on our ability to maintain and
expand our facilities and to engage in successful real estate development. To
the extent that we are unable to do so with cash generated from operations, or
through borrowed funds or additional equity investments, the growth and
financial health of our business could be impaired.
We also have significant future capital requirements with respect to the
retirement of debt and other securities. For example, we must retire or
refinance our senior credit facility in May 2004, our 12% senior subordinated
notes (the "Senior Subordinated Notes") in July 2006 and our 11.0325%
convertible subordinated notes (the "Junior Subordinated Notes") in July 2007
and we must redeem our preferred stock, such as our 10 1/2% mandatorily
redeemable preferred stock (the "Series A Preferred Stock") in November 2002 and
our 12% Series C-1 convertible participating preferred stock (the "Series C-1
Preferred Stock") and our 15% Series C-2 preferred stock (the "Series C-2
Preferred Stock") in July 2007. There can be no assurance that we will be able
to retire, redeem, or refinance our indebtedness and preferred stock at their
maturities. Failure to do so could have a material adverse effect on our
business. See Part II, Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
for a description of such payments.
The effects of the September 11, 2001 events may have an adverse effect on
tourism and availability of air travel and could decrease customer traffic to
our resorts.
Acts of terrorism, including the on-going effects of the September 11, 2001
terrorist attacks, on potential customers' propensity to travel to our resorts
is unclear. If these events and the continued economic slowdown were to depress
the public's propensity to take travel vacations, it could have an adverse
effect on our results of operations. Our Steamboat resort in particular is
dependent on customers arriving via air transportation, and any significant
disruption in the public's willingness to travel by air or the supply of
airplane seats could adversely impact financial results of that resort.
If we fail to manage our growth, our business, financial condition and prospects
could be seriously harmed.
We have experienced rapid and substantial growth since 1994. This growth
has placed, and could continue to place, a significant strain on our management,
employees and operations. Our growth has increased our operating complexities
and the level of responsibility for our management. Our ability to compete
effectively and to manage recent and future growth effectively will depend on
our ability to implement and improve financial and management information
systems on a timely basis and to affect changes in our business, such as
implementing internal controls to handle the increased size of our operations
and hiring, as well as training, developing and managing an increasing number of
experienced management-level and line employees. Unexpected difficulties during
expansion, the failure to attract and retain qualified employees, or an
inability to respond effectively to recent growth or planned future expansion,
could adversely effect our business, financial condition and results of
operations.
Our revenues from real estate development are vulnerable to particular risks.
Our ability to generate revenues from real estate development activities
could be adversely affected by a number of factors, such as our ability to
successfully market our resorts, the national and regional economic climate,
local real estate conditions (such as an oversupply of space or a reduction in
demand for real estate), costs to satisfy environmental compliance and
remediation requirements associated with new development/renovation and ongoing
operations, the attractiveness of the properties to prospective purchasers and
tenants, competition from other available property or space, our ability to
obtain all necessary zoning, land use, building, occupancy and other required
governmental permits and authorizations and changes in real estate, zoning, land
use, environmental or tax laws. Many of these factors are beyond our control. In
addition, real estate development will depend on receiving adequate financing on
suitable terms. There can be no assurance as to whether, when or on what terms
such financing may be obtained. Our real estate subsidiaries do not have the
financing available to complete all of their planned real estate development. In
addition, these efforts entail risks associated with development and
construction activities, including cost overruns, shortages of materials or
skilled labor, labor disputes, unforeseen environmental or engineering problems,
work stoppages, and natural disasters, any of which could delay construction and
result in a substantial increase in our costs.
In addition, a material portion of our real estate development business is
conducted within the interval ownership industry. As a result, any changes which
already affect the interval ownership industry, such as an oversupply of
interval ownership units, a reduction in demand for interval ownership units,
changes in travel and vacation patterns, changes in governmental regulations
relating to the interval ownership industry, increases in construction costs or
taxes and tightening of financing availability, could have a material adverse
effect on our real estate development business.
Our business is highly seasonal and unfavorable weather conditions can adversely
affect our business.
Ski resort operations are highly seasonal. Over the last five fiscal years,
we have realized an average of approximately 88% of our resort revenues and over
100% of resort EBITDA and net income during the period from November through
April, and a significant portion of Resort revenue and approximately 18% of
annual skier visits were generated during the Christmas and Presidents Day
vacation weeks. In addition, our resorts typically experience operating losses
and negative cash flows for the period from May to October. During the six-month
period from May to October 2000, for example, we had recurring operating losses
aggregating $47.2 million and negative cash flow from operations aggregating
$96.7 million. The negative cash flow from operations includes $44.0 million
spent developing real estate for resale. There can be no assurance that we will
be able to finance our capital requirements from external sources during this
period.
A high degree of seasonality in our revenues increases the impact of
certain events on our operating results. Adverse weather conditions, access
route closures, equipment failures, and other developments of even moderate or
limited duration occurring during our peak business periods could reduce our
revenues. Adverse weather conditions can also increase power and other operating
costs associated with snowmaking or could render snowmaking wholly or partially
ineffective in maintaining quality skiing conditions. Furthermore, unfavorable
weather conditions, regardless of actual skiing conditions, can result in
decreased skier visits.
We operate in a highly competitive industry which makes maintaining our customer
base a difficult task.
The skiing industry is highly competitive and capital intensive. Our
competitors include major ski resorts throughout the United States, Canada, and
Europe as well as other worldwide recreation resorts, including warm weather
resorts and various alternative leisure activities. Our competitive position
depends on a number of factors, such as our proximity to population centers, the
availability and cost of transportation to and within a resort, natural
snowfall, the quality and coverage of snowmaking operations, resort size, the
attractiveness of terrain, lift ticket prices, prevailing weather conditions,
the appeal of related services, the quality and the availability of lodging
facilities, and resort reputation. In addition, some of our competitors have
greater competitive position and relative ability to withstand adverse
developments. There can be no assurance that our competitors will not be
successful in capturing a portion of our present or potential customer base.
Changes in regional and national economic conditions could adversely affect our
results of operations.
The skiing and real estate development industries are cyclical in nature
and are particularly vulnerable to shifts in regional and national economic
conditions. Skiing and vacation unit ownership are discretionary recreational
activities entailing relatively high costs of participation, and any decline in
the regional or national economies where we operate could adversely impact our
skier visits, real estate sales and revenues. Accordingly, our financial
condition, particularly in light of our highly leveraged condition, could be
adversely affected by any weakening in the regional or national economy.
Our business is subject to heavy environmental and land use regulation.
We are subject to a wide variety of federal, state and local laws and
regulations relating to land use and development and to environmental compliance
and permitting obligations, including those related to the use, storage,
discharge, emission and disposal of hazardous materials. Any failure to comply
with these laws could result in capital or operating expenditures or the
imposition of severe penalties or restrictions on our operations that could
adversely affect our present and future resort operations and real estate
development. In addition, these laws and regulations could change in a manner
that materially and adversely affects our ability to conduct our business or to
implement desired expansions and improvements to our facilities.
A significant portion of our ski resorts are operated under leases or forest
service permits.
We lease a significant portion of the land underlying our ski resorts or
use them pursuant to renewable permits or licenses. If any of these arrangements
were terminated or not renewed on expiration, or renewed on terms materially
less favorable to us, our ability to possess and use the land would be impaired.
A substantial portion of the skiable terrain at our Attitash Bear Peak, Mount
Snow, Steamboat and Heavenly ski resorts is federal land that is used under the
terms of permits with the United States Forest Service. The permits give the
United States Forest Service the right to review and comment on the location,
design and construction of improvements in the permit area and on certain other
operational matters. The permits can also be terminated or modified by the
United States Forest Service to serve the public interest or in the event we
fail to perform any of our obligations under the permits. A termination or
modification of any of our permits could have a material adverse affect on our
results of operations.
A disruption in our water supply would impact our snowmaking capabilities and
impact our operations.
Our current operations and anticipated growth are heavily dependent upon
our ability, under applicable federal, state and local laws, regulations,
permits, and licenses or contractual arrangements, to have access to adequate
supplies of water with which to make snow and otherwise conduct our operations.
There can be no assurance that applicable laws and regulations will not change
in a manner that could have an adverse effect, or that important permits,
licenses or agreements will be renewed, not cancelled, or, if renewed on terms
no less favorable to us. Any failure to have access to adequate water supplies
to support our current operations and anticipated expansion would have a
material adverse effect on our business and operating results.
The loss of any of our executive officers or key personnel would harm our
business.
Our success depends to a significant extent upon the performance and
continued service of various key management and operational personnel. The loss
of the services of these key personnel could have a material adverse effect on
our business and operations.
We are structured as a holding company and have no assets other than the common
stock of our subsidiaries.
We are a holding company and our ability to pay principal and interest on
debt will be dependent upon the receipt of dividends and other distributions, or
the payment of principal and interest on intercompany borrowings, from our
subsidiaries. We do not have, and we do not expect in the future to have, any
material assets other than the common stock of our direct and indirect
subsidiaries. The breach of any of the conditions or provisions under the
documents governing the indebtedness of subsidiaries could result in a default
which in turn could accelerate the maturity of a debt. If the maturity of debt
were accelerated, the indebtedness would be required to be paid in full before
the subsidiary would be permitted to distribute any assets to the parent
company. There can be no assurance that our assets or those of our subsidiaries
would be sufficient to repay all of our outstanding debt. In addition, state law
further restricts the payment of dividends or other distributions to us by its
subsidiaries.
Our business requires significant capital expenditures. These expenditures do
not, however, guarantee improved results.
Historically, a key element of our strategy has been attracting additional
skiers through investment in on-mountain capital improvements. These
improvements are capital intensive and a lack of available funds for capital
expenditures could have a material adverse effect on our ability to implement
our operating strategy. We conduct, and intend to continue to conduct, real
estate development through special purpose subsidiaries and to finance such
activities through non-recourse debt. We intend to finance capital improvements
through internally generated funds, non-recourse financing and proceeds from the
offering of debt and equity. There can be no assurance that sufficient funds
will be available to fund these capital improvements or real estate development
or that these capital improvements will attract additional skiers or generate
additional revenues.
Control of our company by principal stockholders.
As a result of a stockholders' agreement and the terms of the preferred
stock held by Oak Hill, Leslie B. Otten, the holder of all of the 14,760,530
shares of our class A common stock ("Mr. Otten"), and Oak Hill control a
majority of our board of directors. Mr. Otten and Oak Hill may have interests
different from those that hold our common stock.
Item 3
Legal Proceedings
We currently and from time to time are involved in litigation arising in
the ordinary course of our business. We do not believe that we are involved in
any litigation that will, individually or in the aggregate, have a material
adverse effect on our financial condition or results of operations or cash
flows.
Each of our subsidiaries which operate resorts has claims pending and is
regularly subject to personal injury claims related principally to skiing
activities at such resort. Each of our operating companies maintains liability
insurance that we consider adequate in order to insure against claims related to
the usual and customary risks associated with the operation of a ski resort. We
operate a captive insurance company authorized under the laws of the State of
Vermont, which, until early fiscal 1999, provided liability and workers'
compensation coverage for our Vermont resorts. We do not currently use this
insurance subsidiary to provide liability and workers' compensation insurance
coverage, but it is still responsible for future claims arising from insurable
events which may have occurred while it provided this coverage. Our insurance
subsidiary maintains cash reserves in amounts recommended by an independent
actuarial firm and which we believe to be adequate to cover any such claims.
The Killington resort has been identified by the U.S. Environmental
Protection Agency as a potentially responsible party at two sites pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act.
Killington has entered into a settlement agreement with the Environmental
Protection Agency at one of the sites, the Solvents Recovery Service of New
England Superfund site in Southington, Connecticut. Killington rejected an offer
to enter into a de minimis settlement with the Environmental Protection Agency
for the other site, the PSC Resources Superfund site in Palmer, Massachusetts,
because it disputes its designation as a potentially responsible party. In
addition, our Heavenly resort was designated as a potentially responsible party
at a Superfund site in Patterson, CA. We entered into a cash-out settlement
agreement which has been accepted by the Environmental Protection Agency and
funded as part of an overall settlement of the site. We believe that our
liability for these Superfund sites, individually and in the aggregate, will not
have a material adverse effect on our business or financial condition or results
of operations or cash flows.
Item 4
Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5
Market for the Registrant's Common Equity and Related Security Holder Matters.
Our common stock is traded on the New York Stock Exchange under the symbol
"SKI". Our class A common stock is not listed on any exchange and is not
publicly traded, but is convertible into our common stock. As of November 12,
2001, 31,718,123 shares of our common stock were issued and outstanding, of
which 14,760,530 shares were class A common stock held by one holder and
16,957,593 shares of common stock held by approximately 9,000 holders.
The following table lists, for the fiscal quarters indicated, the range of
high and low intra-day sale prices of our common stock as reported on the NYSE
Composite Tape.
American Skiing Company Common Stock (SKI)
Fiscal 2001 Fiscal 2000
----------- -----------
High Low High Low
1st Quarter $ 2.50 $ 1.88 $ 4.69 $ 3.63
2nd Quarter $ 2.94 $ 1.19 $ 5.06 $ 2.31
3rd Quarter $ 1.90 $ 1.06 $ 2.88 $ 1.75
4th Quarter $ 1.50 $ 0.65 $ 2.94 $ 1.63
Market Information
We have not declared or paid any cash dividends on our capital stock. We
intend to retain earnings, to the extent that there are any, to reduce our debt
and to support our capital improvement and growth strategies. We do not
anticipate paying cash dividends on our common stock in the foreseeable future.
The payment of future dividends, if any, will be at the discretion of our board
of directors after they take into account various factors, such as our financial
condition, operating results, current and anticipated cash needs and plans for
capital improvements and expansion. Each of the indenture governing our Senior
Subordinated Notes, the indenture governing our Junior Subordinated Notes, our
$165 million senior credit facility with FleetBoston, N.A. and the terms or our
Series A Preferred Stock, Series C-1 Preferred Stock and Series C-2 Preferred
Stock contain certain restrictive covenants that, among other things, limit the
payment of dividends or the making of distributions on our equity interests. See
Part II, Item 7 - "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
Item 6
Selected Financial Data
The following selected historical financial data has been derived from our
financial statements as audited by Arthur Andersen LLP, independent public
accountants as of and for the fiscal years ended July 25, 1999, July 30, 2000
and July 29, 2001, and data for the years ended July 27, 1997 and July 26, 1998
has been derived from our financial statements as audited by
PricewaterhouseCoopers LLP, independent public accountants.
Historical Year Ended (1)
---------------------------------------------------------------------------------------
July 27, 1997 July 26, 1998 July 25, 1999 July 30, 2000 July 29, 2001
(in thousands, except per share and per skier visit amounts)
Consolidated Statement of Operations
Data:
Net revenues:
Resort (2) $163,310 $277,574 $292,558 $292,077 $328,705
Real estate 10,721 60,992 24,492 132,063 96,864
------------- ------------- ------------- ------------- -------------
Total net revenues 174,031 338,566 317,050 424,140 425,569
Operating expenses:
Resort 107,230 171,246 198,231 203,902 224,719
Real estate 8,950 43,554 26,808 123,837 93,422
Marketing, general and administrative 25,173 40,058 51,434 49,405 52,296
Non-recurring merger, restructuring
and asset impairment charges (3) - - - - 76,045
Stock compensation charge (4) - 14,254 - - -
Depreciation and amortization 18,293 37,965 44,202 47,028 46,996
------------- ------------- ------------- ------------- -------------
Total operating expenses 159,646 307,077 320,675 424,172 493,478
Loss before preferred stock dividends,
extraordinary items and cumulative
effect of accounting changes (5,482) (1,867) (27,950) (30,133) (120,724)
Accretion of discount and dividends
accrued on mandatorily redeemable
preferred stock 444 5,346 4,372 20,994 23,357
------------- ------------- ------------- ------------- -------------
Net loss from continuing operations
available to common shareholders ($5,926) ($7,213) ($32,322) ($51,127) ($144,081)
============= ============= ============= ============= =============
Diluted net loss from continuing
operations per share available to
common shareholders ($6.06) ($0.28) ($1.07) ($1.69) ($4.72)
============= ============= ============= ============= =============
Balance Sheet Data:
Total assets $337,340 $780,899 $907,502 $926,778 $796,225
Long term debt and redeemable preferred
stock, including current maturities 253,151 422,684 546,297 636,700 637,619
Common shareholders' equity 15,101 268,204 236,655 185,497 44,826
Other Data:
Skier visits (000's)(5) 3,025 5,319 5,089 5,006 5,278
Season pass holders (000's) 30.9 44.1 44.2 47.3 49.1
Resort revenues per skier visit $53.99 $52.19 $57.48 $58.34 $62.28
Resort EBITDA(6)(8) $30,907 $66,270 $42,893 $38,770 $51,690
Real estate EBITDA(7)(8) $1,771 $17,438 ($2,316) $8,226 $3,442
<FN>
(1) The historical results of the Company reflect the results of Pico Mountain
since its acquisition in November 1996, the results of operations of The Canyons
resort since its acquisition in July 1997 and the results of operations of the
Steamboat and Heavenly resorts since their acquisition in November 1997.
(2) Resort revenues represents all revenues excluding revenues generated by the
sale of real estate interests.
(3) During Fiscal 2001, we recognized the following non-recurring charges: a
$52.0 million asset impairment charge related to the assets at our Steamboat
resort that are classified as assets held for sale as of July 29, 2001; a $15.1
million asset impairment charge related to the assets at our Sugarbush resort
that are classified as assets held for sale as of July 29, 2001; a $3.6 million
charge related to our terminated merger with Meristar Hotels and Resorts, Inc;
$4.1 million in employee separation, legal and financial consulting charges
related to our strategic restructuring plan; and a $1.3 million write-down to
net realizeable value in the fourth quarter of fiscal 2001 on the remaining
units at the Attitash Grand Summit Hotel.
(4) In the first quarter of fiscal 1998, the Company granted to certain
executive officers and other employees fully vested options to purchase 511,530
shares of Common Stock at an exercise price of $2.00 per share. The Company also
agreed to pay certain tax liabilities which the recipients of the options expect
to incur upon exercise of the options. Because the $2.00 per share exercise
price was below the fair market value of a share of Common Stock on the date of
grant, the Company recognized a one-time compensation charge of $14.3 million in
fiscal 1998.
(5) For the purposes of estimating skier visits, the Company assumes that a
season pass holder visits the Company's resorts a number of times that
approximates the average cost of a season pass divided by the average daily lift
ticket price.
(6) Resort EBITDA represents resort revenues less cost of resort operations and
marketing, general and administrative expense.
(7) Real Estate EBITDA represents revenues from real estate sales less cost of
real estate sold, including selling costs, holding costs, the allocated
capitalized cost of land, construction costs and other costs relating to
property sold.
(8) Resort and Real Estate EBITDA are not measurements calculated in accordance
with GAAP and should not be considered as alternatives to operating or net
income as an indicator of operating performance, cash flows as a measure of
liquidity or any other GAAP determined measurement. Certain items excluded from
Resort and/or Real Estate EBITDA, such as depreciation, amortization and
non-cash charges for stock compensation awards and asset impairments are
significant components in understanding and assessing the Company's financial
performance. Other companies may define Resort and Real Estate EBITDA
differently, and as a result, such measures may not be comparable to the
Company's Resort and Real Estate EBITDA. The Company has included information
concerning Resort and Real Estate EBITDA because management believes they are
indicative measures of the Company's liquidity and financial position, and are
generally used by investors to evaluate companies in the resort industry.
</FN>
Item 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking Statements
Certain statements under the heading Part I, Item 1 & Item 2 - "Business
and Properties", this heading Part II, Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
Annual Report on Form 10-K constitute forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. These forward-looking statements are not based on historical facts, but
rather reflect our current expectations concerning future results and events.
Similarly, statements that describe our objectives, plans or goals are or may be
forward looking statements. We have tried, wherever possible, to identify such
statements by using words such as "anticipate", "assume", "believe", "expect",
"intend", "plan", and words and terms of similar substance in connection with
any discussion of operating or financial performance. Such forward-looking
statements involve a number of risks and uncertainties. In addition to factors
discussed above, other factors that could cause actual results, performances or
achievements to differ materially from those projected include, but are not
limited to, the following: changes in regional and national business and
economic conditions affecting both our resort operating and real estate
segments; competition and pricing pressures; negative impact on demand for our
products resulting from terrorism and availability of air travel (including the
effect of the September 11th attacks); inability to complete our restructuring
plan; failure to effectively manage growth, business and financial condition;
failure of on-mountain improvements and other capital expenditures to generate
incremental revenue; adverse weather conditions regionally and nationally;
seasonal business activity; changes to federal, state and local regulations
affecting both our resort operating and real estate segments; failure to renew
land leases and forest service permits; disruptions in water supply that would
impact snowmaking operations; the loss of any of our executive officers or key
operating personnel; and other factors listed from time to time in our documents
we filed with the SEC. We caution the reader that this list is not exhaustive.
We operate in a changing business environment and new risks arise from time to
time. The forward looking statements included in this document are made only as
of the date of this document and under section 27A of the Securities Act and
section 21E of the Securities Exchange Act, we do not have or undertake any
obligation to publicly update any forward-looking statements to reflect
subsequent events or circumstances.
General
The following is our discussion and analysis of financial condition and
results of operations for the fiscal year ended July 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.
Restructuring Plan. 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:
o A comprehensive financial restructuring package, including amendments to
our senior credit facilities and a new capital infusion to enhance
financial flexibility.
o Intent to sell Steamboat to reduce our debt.
o Operational cost savings and improved financial performance through
reorganization and staff reduction and performance enhancement programs
of approximately $5 million.
o Strategic redeployment of management and capital resources to emphasize
the integration and growth of resort village development and operations.
We have completed several aspects of this plan to date, including the
restructuring of three of our major credit agreements, an additional capital
infusion by Oak Hill, and the implementation of a staff reorganization plan to
improve operational efficiencies. The ultimate success of this comprehensive
strategic plan is dependent on the execution of the remaining plan elements,
including obtaining a $14 million capital lease for equipment related to the
Heavenly gondola as required by our senior credit facility and the sale of
Steamboat to reduce leverage. The tragic events of September 11th have delayed
the completion of these two key plan elements, however, despite these events, we
have made progress on the execution of these elements. We have recently entered
into a non-binding letter of intent to sell Steamboat and we are continuing
negotiations with other potential buyers. In addition, we have a commitment for
the required capital lease and expect to close that transaction by late November
or early December 2001. Although we are confident that the sale of Steamboat can
be completed by the end of calendar 2001 and that the $14 million capital lease
can be obtained by early December 2001, 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. For a more detailed
discussion, see "Resort Liquidity" below.
We have retained Credit Suisse First Boston and Main Street Advisors to
assist with marketing Steamboat, the sale of which is anticipated to close prior
to the end of calendar 2001. We are currently negotiating terms with a small
group of potential purchasers, including the party with whom we have entered
into a non-binding letter of intent and are currently negotiating a purchase and
sales agreement.
As part of our effort to implement the operational cost savings element of
our restructuring 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
resort operations positions. At peak employment during the 2000-01 ski season,
we employed approximately 11,700 people for our resort operations. 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, cost reduction initiatives, and performance enhancement
measures should result in approximately $5 million of annual financial benefits.
Early benefits from these steps were realized during the fourth quarter of
fiscal 2001 and are expected to be more fully realized during the 2002 fiscal
year.
Recapitalization: On July 15, 2001, we entered into a securities purchase
agreement with Oak Hill. Pursuant to the terms of the securities purchase
agreement, which closed on August 31, 2001:
o We issued, and Oak Hill purchased, $12.5 million aggregate principal
amount of Junior Subordinated Notes, which are convertible into our
shares of series D participating preferred stock (the "Series D
Preferred Stock"). These Junior Subordinated Notes bear interest at a
rate of 11.3025%, which compounds annually and is due and payable at
maturity of the Junior Subordinated Notes in July, 2007. The proceeds
of the Junior Subordinated Notes were used to fund short-term
liquidity needs of our real estate subsidiary, American Skiing Company
Resort Properties, Inc. ("Resort Properties") by way of the purchase
of certain real estate assets by us from Resort Properties;
o Oak Hill funded $2.5 million of the $3.5 million of availability
remaining under Tranche C of the Resort Properties credit facility to
facilitate amendments to such credit facility. This was the final
advance under Tranche C, as the maximum availability under this
facility has now been reduced from $13 million to $12 million;
o Oak Hill agreed to provide a guarantee for a $14 million equipment
lease for the Heavenly gondola. As described above, we are currently
negotiating the terms of this lease, which are expected to include a 5
to 7 year term and other market terms. We will use commercially
reasonable efforts to negotiate a provision in the lease allowing for
the release of the guarantee upon a material improvement in our credit
quality;
o Oak Hill purchased one million of our shares of common stock for an
aggregate purchase price of $1 million;
o Oak Hill agreed to cancel an agreement to provide it with warrants for
6 million shares of our common stock or 15% of the common stock of
Resort Properties.
In consideration of Oak Hill's agreements and commitments in accordance
with the terms set forth above, the following has occurred:
o The outstanding Series B Preferred Stock that was held by Oak Hill was
stripped of all of its rights and preferences with the exception of the
right to elect up to six directors;
o We issued to Oak Hill two new series of Preferred Stock; (i) $40 million
of Series C-1 Preferred Stock, and (ii) $139.5 million of Series C-2
Preferred Stock. The initial face value of the Series C-1 Preferred Stock
and Series C-2 Preferred Stock correspond to the accrued liquidation
preference of the Series B Preferred Stock immediately before being
stripped of its right to such accrued liquidation preference. The
Series C-1 Preferred Stock and Series C-2 Preferred Stock carry
preferred dividends of 12% and 15%, respectively. At our option, we can
either pay the dividends in cash or accrue the dividends in additional
shares. The Series C-1 Preferred Stock is convertible into common stock
at a price of $1.25 per share, subject to adjustments. The Series C-2
Preferred Stock is not convertible. Both of Series C-1 Preferred Stock
and Series C-2 Preferred Stock will mature in July, 2007;
o At Oak Hill's option, and subject to the consent of the other lenders
under the Resort Properties term facility, Tranche C of the Resort
Properties term facility will be exchangeable in whole or in part into
our indebtedness when permitted under the existing debt agreements.
Liquidity and Capital Resources
Short-Term. Our primary short-term liquidity needs involve funding seasonal
working capital requirements, marketing and selling our real estate development
projects, funding our fiscal 2002 capital improvement program and servicing our
debt. Our cash requirements for ski-related and real estate development/sales
activities are provided from separate sources. Other than the proceeds from the
recapitalization described above, our primary source of liquidity for
ski-related working capital and ski-related capital improvements are cash flows
from operations of our non-real estate subsidiaries and borrowings under our
senior credit facility. Other than the proceeds from the recapitalization
described above, 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 real estate 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 July 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 $234.1 million.
Resort Liquidity. We maintain a $165 million senior credit facility with
Fleet National Bank, as agent, and certain other lenders. This facility consists
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. On July 12, 2001, we created an additional
credit advance under the existing revolving portion of the facility for the
purpose of funding the July 15, 2001 interest payment on our Senior Subordinated
Notes. As described below, we permanently reduced the term portion by $2.2
million and the availability of the revolving portion of the facility by $3.3
million in conjunction with our sale of Sugarbush. On November 7, 2001, the
outstanding amount of the term loan was $61.6 million. As of November 9, 2001,
we have drawn or committed for letters of credit approximately $91.3 million of
the total $96.7 million available under the revolving portion of our senior
credit facility. We expect to maximize borrowings under the senior credit
facility sometime in November 2001, consistent with our historical experience
when we have had little, if any, borrowing availability under the senior credit
facility.
As a result of the September 11th events, we have been unable to complete
the remaining elements of our strategic plan, including obtaining the $14
million Heavenly gondola capital lease and selling Steamboat to reduce our
leverage. This delay has resulted in a very constrained liquidity position as we
approach the ski season. The provisions of our credit agreements and the
indenture governing our Senior Subordinated Notes significantly restrict our
ability to raise additional capital or incur additional indebtedness. Failure to
manage cash resources or an extraordinary demand for cash outside of our normal
course of business prior to reaching our historical cash flow positive season or
completing the Heavenly gondola capital lease transaction could cause us to
exhaust our cash availability. There can be no assurance that we will reach our
cash flow positive season or complete the Heavenly gondola lease transaction
before our cash availability is exhausted. The failure to complete the Heavenly
gondola capital lease in a timely manner could have a material adverse effect on
our results of operation or financial condition.
We anticipate that we will be able to complete the sale of Steamboat by the
end of calendar 2001 and substantially reduce our leverage from the proceeds of
the sale. Should we complete the Steamboat transaction, we presently anticipate
that we will be able to meet the financial covenants of the amended senior
credit facility for the foreseeable future. In the event that we are unable to
complete the Steamboat sale or make the optional prepayment (described below) by
the end of calendar 2001, we presently anticipate that under normal operating
circumstances, we will still be able to meet the financial covenants of the
senior credit facility through the end of fiscal 2002, at which time we will be
required to renegotiate the financial covenants. There can be no assurance,
however, that we will be able to meet these covenants for the remainder of
fiscal 2002 if we do not complete the Steamboat sale. In November 2001, we
entered into an amendment to the senior credit facility which allows us to raise
an additional $7.2 million through a junior subordinating participating interest
in certain revolving credit advances under the senior credit facility. This
participating interest would be purchased by Oak Hill (who has provided a
commitment for their participation) and the proceeds would be used to make the
January 2002 interest payment on the Senior Subordinated Notes. This new advance
will bear inerest at a fixed rate of 17.5% and would be repaid first by any
proceeds from the sale of Steamboat. In the event that we do not sell Steamboat,
this junior participating interest in the revolver would only be repaid after
all existing revolving credit advances are paid
and the construction loan facility of Grand Summit. Furthermore, if we do not
make the optional prepayment, the senior credit facility will only permit the
January 2002 interest payment on the Senior Subordinated Notes to be made from
the proceeds of a new issuance of equity or junior debt securities. Therefore,
there can be no assurance that we will make the January 2002 interest payment
under the Senior Subordinated Notes.
If we are unable to complete the Heavenly gondola capital lease or the
Steamboat sale or to obtain the necessary waivers to our indebtedness, 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.
On July 12, 2001 we entered into a second amendment to our senior credit
facility, effective as of April 29, 2001, which, among other things, established
a $90 million optional prepayment provision, created the $5.2 million additional
credit advance described above, established monthly maximum revolving credit
amounts, reduced the annual clean-down requirement, amended all of the required
financial covenant ratios beginning with the fourth quarter of fiscal 2001
through the maturity of the facility, increased the interest rate on all term
and revolving credit amounts outstanding and amended our maximum annual resort
capital expenditure amounts. The amended terms of our senior credit facility are
incorporated in the discussions that follow.
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. 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. We also
have the option to make a prepayment of at least $90 million on or before
December 24, 2001 using the net proceeds from an issuance of equity securities
or the sale of a single asset (or a series of related assets). $50 million of
the optional prepayment shall be used to repay existing revolving credit
advances, with the remainder to be applied to the term facility. We anticipate
that we will make the optional prepayment using the net proceeds from our
expected sale of Steamboat, for which we have entered into a non-binding letter
of intent with a potential purchaser.
The interest rate on all term and revolving credit amounts outstanding
(excluding the $5.2 million additional credit advance) is equal to the Fleet
National Bank Base Rate plus 3.0%, until such time that we make the optional
prepayment. Should we make the optional prepayment, the interest rates will be
reset to a new pricing grid under which the rates for both the term and
revolving facilities will vary, based on our leverage ratios, from a minimum of
the Fleet National Bank Base Rate plus 1.25% or LIBOR plus 2.50% to a maximum of
the Fleet National Bank Base Rate plus 2.25% or LIBOR plus 3.75%. Should we fail
to make the optional prepayment, the interest rates on both the revolving and
term facilities will increase incrementally to the Fleet National Bank Base Rate
plus 4.25%. The additional credit advance of $5.2 million bears interest at a
fixed rate of 12%.
The maximum availability of the revolving portion of the senior credit
facility varies between $20.5 million and $98.5 million following a schedule we
negotiated with our lenders. The revolving portion of the facility is also
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 $20 million (which amount shall
be reduced to $5 million if we make the optional prepayment described above). On
April 30, 2001, we successfully completed our 30-day clean-down requirement for
the current year.
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 senior credit facility also places an annual maximum level of
non-real estate capital expenditures, exclusive of amounts expended on the
Heavenly gondola project. For fiscal 2001, we satisfied the maximum capital
expenditure requirement, as our resort capital expenditures were $8.8 million
for the year (excluding the Heavenly gondola). We are permitted to and expect to
make additional capital expenditures of up to $30 million in connection with the
completion of the Heavenly gondola in Lake Tahoe, Nevada. The Heavenly gondola
became operational, and began transporting skiers in December 2000. As of
October 1, 2001, we have expended $23.1 million on the construction of the
Heavenly gondola.
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, Series A preferred Stock, Series B Preferred
Stock, Series C-1 Preferred Stock and Series C-2 Preferred Stock during fiscal
2002 or fiscal 2003.
In July 2001, we paid $700,000 in fees in connection with the closing of
the second amendment to our senior credit facility and the funding of the $5.2
million additional credit advance. An additional $1.6 million in fees are
payable at the earlier of the date of the optional prepayment or December 27,
2001. Should we fail to consummate the optional prepayment, we will be obligated
to pay up to an additional $4.4 million in amendment fees on a periodic basis
through July 31, 2002. All of these contingent fees have been recorded on our
balance sheet as deferred financing costs and will be amortized against income
over the remaining life of the facility.
On September 28, 2001, we closed on the sale of our Sugarbush ski resort in
Warren, VT to Summit Ventures NE, Inc. The proceeds from this sale were used to
reduce the revolving portion of our senior credit facility by $5.2 million, of
which $3.3 million was a permanent reduction, and to permanently reduce the term
portion by $2.2 million. In conjunction with this transaction, we also entered
into a third amendment to our senior credit facility, dated as of September 10,
2001. This amendment, among other things, provides the consent of the lenders to
sell the Sugarbush resort and it further reduces the maximum revolver
availability amounts established in the second amendment to the facility by $1.5
million.
Our high leverage significantly affects our liquidity. As a result of our
leveraged position, we 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 significantly limited,
outside of any availability under the senior credit facility. Furthermore, our
senior credit facility and the indenture governing our Senior Subordinated Notes
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.
Real Estate Liquidity. To fund working capital and fund its fiscal 2002
real estate development plan, Resort Properties relies on the net proceeds from
the sale of real estate developed for sale after required construction loan
repayments, a $73 million real estate credit facility and construction loans
through special purpose subsidiaries. We have revised our real estate business
plan and completed discussions with our senior lenders regarding near-term
liquidity issues and implemented a package of restructuring initiatives designed
to significantly improve the capital structure and liquidity of Resort
Properties. As part of these restructuring initiatives, we amended our real
estate credit facility in August 2001, which substantially reduced interest
rates and extended amortization and maturity dates (discussed in detail below).
We infused $12.5 million in proceeds from the Junior Subordinated Notes issued
by us to Oak Hill on August 31, 2001 into Resort Properties by way of the sale
of certain real estate assets from Resort Properties to us. $6.25 million of the
proceeds were used to reduce debt under the Tranche A of Resort Properties' real
estate credit facility with the remainder being retained to provide liquidity.
We believe the restructuring of the real estate credit facility and the
additional capital infusion both address our near-term real estate liquidity
needs and enhance our ability to execute on the growth opportunities within our
existing portfolio of real estate assets.
Real Estate Credit Facility: As amended, the Resort Properties real estate
credit facility is comprised of three tranches, each with separate interest
rates and maturity dates as follows:
o Tranche A is now a revolving facility which, as of November 1, 2001, has
a current maximum principal amount of $22 million and bears interest at a
variable rate equal to the Fleet National Bank Base Rate plus 2.0%
(payable monthly in arrears), a reduction in rate of approximately
6.50%. Availability was increased approximately $2.5 million before
giving affect to reductions from the sale of certain assets. Mandatory
principal payments on Tranche A of $3.75 million and $2.5 million each
are payable on December 31, 2001 and January 31, 2002, respectively.
Additional mandatory principal reductions will be required in certain
prescribed percentages ranging from 50% to 75% of net proceeds from any
future sales of undeveloped parcels. The remaining principal amount
outstanding under Tranche A will be payable in full on June 30, 2003.
o Tranche B is a term loan facility that has a maximum principal amount of
$25 million, bears interest at a fixed rate of 18% per annum, reduced
from 25%, (10% per annum is payable monthly in arrears and the remaining
8% per annum accrues, is added to the principal balance of Tranche B
and bears interest at 18% per annum, compounded annually). Mandatory
principal payments on Tranche B of $10 million are due on each of
December 31, 2003 and June 30, 2004. The remaining $5 millio n in
principal and all accrued and unpaid interest on Tranche B are due in
full on December 31, 2004.
o Tranche C is now a term loan facility that has a maximum principal amount
of $12 million, bears interest at an effective rate of 25% per annum and
matures on December 31, 2005. In July and August, 2001 Oak Hill funded
$2.5 million of their remaining commitment to provide additional
liquidity to Resort Properties. Interest accrues, is added to the
principal balance of Tranche C and is compounded semi-annually.
As of November 1, 2001, the principal balances outstanding, including
accrued and unpaid interest, under Tranches A, B and C of the second amended
real estate facility were $19.0 million, $27.1 million, and $13.8 million,
respectively.
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 credit facility. As of July 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
$234.1 million.
Construction Loan Facility: 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 are primarily financed through a $110 million construction
loan facility among Grand Summit and various lenders, including TFC Textron
Financial, the syndication and administrative agent. 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.
We have entered into a settlement memorandum with the general contractor
for the Steamboat Grand Hotel project which resolved all pending claims between
the parties and resulted in the removal of certain mechanics' liens. In
connection with these settlements and our restructuring, we entered into
amendments to the construction loan facility.
As of November 1, 2001, the amount outstanding under the construction loan
facility was $51.2 million and there was no availability remaining under this
facility. 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, Mt. 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 $167.7 million
as of July 29, 2001, which in turn comprise substantial assets of our business).
In August 2001, we entered into amendments to our Textron construction loan and
subordinated loan tranche facilities, which, among other things, reduced the
effective interest rates and extended the maturity dates of these facilities.
The maturity date for funds advanced under the Steamboat portion of the senior
Textron facility is March 31, 2003 and the maturity date for funds advanced
under the Canyons portion of the senior Textron facility is September 28, 2002.
The interest rate on funds advanced under the Steamboat portion of the senior
Textron facility is Prime plus 3.5% and the interest rate floor on Steamboat
advances is 9.0%. The interest rate on funds advanced under the Canyons portion
of the senior Textron facility is at Prime plus 2.5%, with a floor of 9.5%.
The amended subordinated loan tranche 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 November 1, 2001, the amount
outstanding under the subordinated loan tranche facility was $6.6 million and
there was approximately $900,000 of availability remaining to fund completion of
certain penthouse units at the Steamboat Grand Hotel.
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 $4.1 million in cash
proceeds on October 17, applied a $0.3 million previously received deposit and
received the remaining $4.1 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 Ownership Resorts, Inc. 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.
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 redemption of our Series A Preferred Stock on November 15,
2002. With respect to capital needs, we have invested over $185 million in
skiing related facilities since the beginning of fiscal 1998. As a result, and
in keeping with restrictions imposed under the senior credit facility, we expect
our resort capital programs for the next several fiscal years will be more
limited in size.
For our 2002 and 2003 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 amended senior credit facility places a maximum level of non-real
estate capital expenditures for fiscal 2002 at $13.8 million. In addition, we
are permitted to and expect to make additional capital expenditures of up to $30
million in connection with the completion of the Heavenly gondola in Lake Tahoe,
Nevada. The Heavenly gondola became operational, and began transporting skiers
in December 2000. As of October 1, 2001, we have expended $23.1 million on the
construction of the Heavenly gondola. We believe that these capital expenditure
amounts will be sufficient to meet our non-real estate capital improvement needs
for the near future.
Our business plan anticipates the rapid sale of remaining real estate
inventory and the development of 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 July 29, 2001, the total
assets collateralizing the real estate facilities, included in the accompanying
consolidated balance sheet, totaled approximately $234.1 million. The real
estate credit 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 credit
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 Series A Preferred Stock outstanding, with an
accreted value of $54.1 million as of July 29, 2001. The Series A 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 do not expect to redeem the
Series A Preferred Stock prior to its final maturity. On November 15, 2002, we
will be required to redeem the Series A 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.
Results of Operations of the Company
Fiscal Year Ended July 29, 2001 ("Fiscal 2001")
Versus Fiscal Year Ended July 30, 2000 ("Fiscal 2000")
Resort Operations:
The components of resort operations for the fiscal years ended July 29,
2001 and July 30, 2000 are as follows:
-----------------------------------------------------------------------------
Year Ended Year Ended Increase/(Decrease)
July 29, 2001 July 30, 2000 Dollar Percent
-----------------------------------------------------------------------------
(in millions, except skier visit and per skier
visit amounts)
Revenue category:
Lift Tickets $ 146.3 $ 131.3 $ 15.0 11.4%
Food and beverage 44.5 40.0 4.5 11.1%
Retail sales 42.1 38.3 3.8 10.0%
Lodging and property 41.5 32.7 8.8 26.8%
Skier development 28.0 24.8 3.2 12.6%
Golf, summer activities
and other 26.3 25.0 1.3 5.9%
------------- ------------- --------- ---------
Total resort revenues $ 328.7 $ 292.1 $ 36.6 12.5%
Cost of resort
operations $ 224.7 $ 203.9 $ 20.8 10.2%
Marketing, general and
administrative 52.3 49.4 2.9 5.9%
Non-recurring merger,
restructuring and
asset impairment
charges 71.3 - 71.3 n/a
Depreciation and
amortization 44.2 45.8 (1.6) -3.5%
Interest expense 25.8 24.4 1.4 5.7%
------------- ------------- --------- ---------
Total resort expenses $ 418.3 $ 323.5 $ 94.8 29.3%
------------- ------------- --------- ---------
Loss from resort
operations $ (89.6) $ (31.4) $ (58.2) 185.3%
------------- ------------- --------- ---------
Loss from resort
operations,
excluding
non-recurring
merger,
restructuring and
asset impairment
charges $ (18.3) $ (31.4) $ 13.1 -41.8%
------------- ------------- --------- ---------
Total Skier Visits
(000's) 5,278 5,006 272 5.4%
Total resort revenue
per skier visit $ 62.3 $ 58.3 $ 3.9 6.7%
----------------------------------------------------------------------------
The 2000-2001 ski season saw a return to more normal levels of snowfall in
the eastern United States, compared to the well below normal amounts in the
prior two seasons. However, natural snowfall totals in the west this season were
below normal levels. As a result of the good ski conditions, natural snow in key
market areas, and generally good weather, and not withstanding a softening
economy, our eastern resorts performed substantially better than last year as
skier visits increased 10% over the 1999-2000 season. The weakening economy and
its direct effect on destination vacations seriously impacted demand at our
western resorts, which are more heavily reliant on destination visits. The lack
of natural snowfall in the west this season also had a negative impact on our
western resorts. The continued expansion of The Canyons in Park City, Utah
helped to negate some of the negative trends in the west, as total skier visits
were down only 1% at our western resorts despite the softening economy and the
lack of snowfall. Over our entire resort network, total skier visits were up
more than 5% over the 1999-2000 ski season.
Revenues from all of our ski-related lines of business were up between 10%
and 13% over the prior year, with the exception of lodging revenues which were
up 27%. These increases resulted from the combination of a 5.4% increase in
skier visits and also a 6.7% increase in revenue per skier visit, which means
that not only did we attract more people to our resorts this year, but these
visitors also spent more money while they were there. The large increase in
lodging services revenues was mainly generated from the new Steamboat Grand
Hotel, which opened in Fiscal 2001, and a full season of operation of the two
hotels at The Canyons, which opened in the middle of the prior fiscal year.
Together, these hotels generated a combined $6.7 million increase in lodging
revenues over the prior year. Profitability at the new Steamboat Grand Hotel was
hampered, however, by its late opening and normal pre-opening expenses.
Excluding non-recurring merger, restructuring and asset impairment charges
of $71.3 million, our Resort segment produced an $18.3 million operating loss in
Fiscal 2001, compared to a $31.4 million operating loss in Fiscal 2000. This
$13.1 million decrease in the recurring operating loss is derived primarily from
a $12.9 million increase in recurring resort earnings before interest, taxes and
depreciation, or EBITDA, exclusive of the non-recurring merger, restructuring
and asset impairment charges. This increase in recurring resort EBITDA is
derived from the net effect of:
(i) $36.6 million increase in resort revenues,
(ii) $20.8 million increase in resort operating expenses, and
(iii) $2.9 million increase in marketing, general and administrative
expenses.
This $12.9 million increase in recurring resort EBITDA is a function of
both the increased revenues from skier visits described above and a higher
EBITDA margin on those revenues (16% in Fiscal 2001 vs. 13% in Fiscal 2000).
The $71.3 million non-recurring merger, restructuring and asset impairment
charge related to our resort operations includes:
(i) $50.0 million valuation allowance to record the estimated fair
value of net assets held for sale in conjunction with the
non-binding letter of intent we entered into for the sale of
Steamboat;
(ii) $14.0 million allowance for loss on the sale of assets at
Sugarbush resulting from the agreement we entered into
subsequent to the end of Fiscal 2001 to sell Sugarbush to Summit
Ventures, Inc.;
(iii) $3.6 million charge representing costs we incurred in connection
with the terminated merger with Meristar Hotels and Resorts; and
(iv) $3.7 million in employee severance and restructuring charges
relating to our reorganization efforts.
Recent Trends: The full impact of the September 11th attacks on our
business has not yet been fully determined and will be difficult to assess for
some time. We do however have some positive indicators for the upcoming ski
season. Through November 11, 2001, our season pass sales are tracking about 12%
ahead of last year system-wide, 13% in the east and 8% in the west.
The events of September 11th lead to a sharp drop in call volume and
reservation activity immediately following the attacks. Although still lower
than last year, we have seen a resurgence in call volume over the last several
weeks. Reservations are down about 8% across our entire network, however,
reservations in the east are tracking 8% higher year-over-year. Reservations in
the west have been weaker as the resorts are largely dependent on destination
visitors. Overall, reservations in the west are off about 21% from last year.
Real Estate Operations:
Real estate revenues decreased by $35.2 million in Fiscal 2001, compared to
Fiscal 2000, from $132.1 million to $96.9 million. Detail of real estate
revenues by project (in thousands) is as follows:
---------------------------------------------------------------------------
Year ended Year ended Increase/
July 29, 2001 July 30, 2000 (Decrease)
---------------------------------------------------------------------------
Steamboat Grand Hotel $ 37,507 $ - $ 37,507
Canyons Grand Summit 21,722 59,420 (37,698)
Sundial Lodge 1,646 40,975 (39,329)
Eastern properties 12,446 20,883 (8,437)
Land sales 22,210 9,341 12,869
Other revenues 1,333 1,444 (111)
------------ ----------- ------------
Total $ 96,864 $ 132,063 $ (35,199)
---------------------------------------------------------------------------
Steamboat Grand: During Fiscal 2001, we commenced delivery of quartershare
units in the new Steamboat Grand Hotel, adjacent to Steamboat in Colorado. We
realized $37.5 million in revenues from closings of units for the year. During
our fourth quarter, disputes with the general contractor resulted in mechanics
liens being placed on the Steamboat Grand Hotel, which caused a temporary halt
in unit closings beginning in early May, 2001. We have been able to negotiate a
settlement with the general contractor that became effective subsequent to the
end of Fiscal 2001. This settlement will allow us to complete construction on
the remaining units of the hotel, including several luxury penthouse units. The
settlement also lead to the removal of all mechanics liens against the project,
which clears the way for us to begin closing on approximately $5 million in
unclosed sales at this project.
The Canyons: Both the Sundial Lodge and the Grand Summit Hotel at The
Canyons in Park City, Utah were completed during Fiscal 2000. We realized a
combined $100.4 million in revenues from unit closings at these two projects
that year, which was mainly due to the high level of pre-sales each project
experienced. During Fiscal 2001, we realized $21.7 million in ongoing sales of
quartershare units at The Canyons Grand Summit Hotel, and $1.6 million from
remaining units at the Sundial Lodge. As of the end of Fiscal 2001, the Sundial
Lodge was 99% sold and the Grand Summit at The Canyons was 70% sold.
Eastern Properties: Revenues from sales at our eastern properties in Fiscal
2001 were down $8.8 million from Fiscal 2000 as our projects at Killington and
Sunday River approached sell-out. Both the Jordan Grand and Killington projects
are virtually sold-out, with only a minor amount of non-standard units
remaining. The Mount Snow project continues to sell as we realized $6.1 million
in revenue from unit sales in Fiscal 2001. As of July 29, 2001, 90% of the units
at Mount Snow have been sold. The Grand Summit at Attitash has realized slower
absorption in the market and 40% of the units remained unsold as of the end of
the year. We have recently instituted programs to bring about a complete
sell-out of the units during Fiscal 2002. One of these programs was an auction
of Attitash units that we held on November 3, 2001, which resulted in the sale
of 147 of the remaining 167 units. In addition to revenues from Grand Summit
Hotel quartershare sales, we recognized $2.5 million of revenue in Fiscal 2001
from closings of the fully sold Locke Mountain Townhouse project at Sunday
River.
Land Sales: During Fiscal 2001, we realized revenue from the sale of three
separate development parcels, as follows:
(i) In August, 2000 we sold our option rights to certain real estate in
the South Lake Tahoe Redevelopment District to Marriott Ownership
Resorts, Inc. for $8.5 million. Marriott has commenced
construction on a fractional ownership hotel located immediately
adjacent to our new gondola project. This hotel is expected to open
in time for the 2002 / 2003 ski season;
(ii) In May, 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 for $11.2 million (excluding future participation
revenues of an estimated $4.8 million which we anticipate receiving
in Fiscal 2003). Marriott has commenced construction on this hotel
as well and expects it to open in November 2002; and
(iii) In July, 2001 we sold a development parcel at Central Park Plaza in
the vicinity of our Steamboat ski resort for $2.5 million.
Our Real Estate segment generated a loss before income taxes of $31.1
million in Fiscal 2001, compared to a $4.5 million pre-tax real estate loss
generated in Fiscal 2000. This $24.6 million increase in the pre-tax loss in
Fiscal 2001 is primarily derived from the net effect of the following:
(i) $4.8 million decrease in recurring real estate EBITDA,
(ii) $4.7 million in non-recurring restructuring and asset impairment
charges
(iii) $15.5 million increase in real estate interest expense, and
(iv) $1.6 million increase in real estate depreciation.
Real estate EBITDA, exclusive of restructuring and impairment charges, for
Fiscal 2001 and Fiscal 2000 (in thousands) is detailed as follows:
---------------------------------------------------------------------------
Year ended Year ended Increase/
July 29, 2001 July 30, 2000 (Decrease)
---------------------------------------------------------------------------
Canyons Grand Summit $ 3,714 $ 12,707 $ (8,993)
Sundial Lodge 220 (836) 1,056
Steamboat Grand Hotel (951) - (951)
Eastern properties 588 3,301 (2,713)
Land sales 5,538 (563) 6,101
General administration
and other (5,667) (6,384) 717
------------- ------------- ------------
Total $ 3,442 $ 8,225 $ (4,783)
---------------------------------------------------------------------------
Steamboat Grand Hotel: Construction cost overruns and the temporary halt in
closings during the summer months both contributed to the negative EBITDA
generated by this project in Fiscal 2001.
Canyons Grand Summit: The $9.0 million reduction in EBITDA from
quartershare closings at The Canyons Grand Summit is mainly due to the $37.7
million reduction in sales revenues compared to Fiscal 2000 when the hotel
opened and we closed on a substantial amount of pre-sold contracts. Our EBITDA
margin on sales decreased slightly in Fiscal 2001 to 17%, from 21% in Fiscal
2000, mainly due to an increase in sales and marketing costs related to this
project in Fiscal 2001.
Eastern Properties: The $2.8 million decrease in EBITDA at our eastern
properties was mainly due to the decrease in sales revenue in Fiscal 2001, as
both the Jordan Grand and Killington projects have essentially reached total
sell-out.
Land Sales: In Fiscal 2001 we recognized a $7.3 million gain from the
August 2000 sale of certain real estate in the South Lake Tahoe Redevelopment
District to Marriott Ownership Resorts. This gain was partially offset by EBITDA
losses of $1.0 million from the sale of the Heavenly Grand Summit site and $0.8
million from the sale of a development parcel at Steamboat. The $1.0 million
loss from the Heavenly Grand Summit site does not take into account
approximately $4.8 million in participation revenues that we expect to receive
in Fiscal 2003 when Marriott Ownership Resorts commences delivery of completed
units.
The $4.7 million non-recurring restructuring and asset impairment charge
related to our real estate segment is comprised of:
(i) $2.0 million asset impairment charge related to the intended sale of
undeveloped land at Steamboat as part of the letter of intent we
entered into to sell Steamboat;
(ii) $1.3 million write-down to net realizeable value on the remaining
units at the Attitash Grand Summit Hotel project;
(iii) $1.1 million write-off of all remaining capitalized costs in
connection with development of a Grand Summit Hotel at Sugarbush as
a result of the sale of that resort; and
(iv) $231,000 in restructuring charges in connection with our strategic
restructuring and reorganization efforts.
The $15.5 million increase in real estate interest expense was primarily
due to a $13.2 million reduction in the amount of interest capitalized to
construction projects in Fiscal 2001. During Fiscal 2000 we capitalized $15.3
million of interest costs as were still completing construction on our two
hotels at The Canyons and one at Steamboat. In Fiscal 2001 we only capitalized
$2.1 million of interest costs related to the final stages of construction on
the Steamboat Grand.
Recent Trends: Over the past several months, we have seen a reduction in
sales volume and sales leads at our properties at Steamboat and The Canyons,
below anticipated levels for this period. We believe that this is primarily the
result of weakening economic conditions, which have impacted destination visits
at both resorts. In addition, well publicized disputes with the contractor
building the Steamboat Grand Hotel, coupled with concerns about our financial
condition, have had an impact on sales and more importantly closings at this
project. We remain cautiously optimistic about our ability to move a significant
number of units at Steamboat and The Canyons this ski season. We are watching
carefully the developing economic conditions and adjusting our real estate
operations and plans accordingly. We do not currently have any new projects in
sales or construction. We are in the development planning stage on several small
projects.
Benefit from income taxes decreased from $5.8 million in Fiscal 2000 to $0
this year. In conjunction with revisions to our strategic plan, we no longer
expect to recognize any income tax expense or benefit in the foreseeable future.
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 (collectively, SFAS No. 133 as amended).
The cumulative effect of accounting changes of $0.7 million (net of $0.4
million tax benefit) in Fiscal 2000 resulted from the 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.
Initial adoption of this SOP was reported as a cumulative effective of a change
in accounting principles. Current start-up costs are being expensed as incurred
and are reflected in their appropriate expense classifications
Extraordinary loss of $0.6 million (net of $0.4 million of tax benefits) in
Fiscal 2000 resulted from the pro-rata write-off of certain existing deferred
financing costs related to our senior credit facility. This write-off was due to
the restructuring of the senior credit facility in connection with the permanent
reduction in the availability of the revolving portion and the pay down of the
term portion of the facility from the proceeds of the series B preferred stock
issuance.
Accretion of discount and dividends accrued on mandatorily redeemable
preferred stock increased $2.4 million, from $21.0 million for Fiscal 2000 to
$23.4 million for Fiscal 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. On
August 31, 2001, the Series B Preferred Stock was stripped of all of its rights
and preferences with the exception of the right to elect up to six directors. We
issued to Oak Hill Series C-1 Preferred Stock with an initial face value of $40
million, accruing dividends at the rate of 12% per annum. We also issued to Oak
Hill Series C-2 Preferred Stock, with an initial face value of $139.5 million,
accruing dividends at the rate of 15% per annum. The initial face value of the
Series C-1 Preferred Stock and Series C-2 Preferred Stock correspond to the
accrued liquidation preference of the Series B Preferred Stock immediately
before being stripped of its right to such accrued liquidation preference.
Fiscal Year Ended July 30, 2000 ("Fiscal 2000")
Versus Fiscal Year Ended July 25, 1999 ("Fiscal 1999")
Resort Operations:
The components of resort operations for the fiscal years ended July 30,
2000 and July 25, 1999 are as follows:
---------------------------------------------------------------------------
Actual Year Actual Year
Ended Ended Increase/(Decrease)
July 30, 2000 July 25, 1999 Dollar Percent
---------------------------------------------------------------------------
Revenue category:
Lift Tickets $ 131.3 $ 134.5 $ (3.2) (2.4%)
Food and beverage 40.0 38.3 1.7 4.4%
Retail sales 38.3 41.5 (3.2) (7.7%)
Lodging and property 32.7 31.6 1.1 3.5%
Skier development 24.8 24.2 0.6 2.5%
Golf, summer
activities and
other 25.0 22.5 2.5 11.1%
------------- ------------- ---------- --------
Total resort revenues $ 292.1 $ 292.6 $ (0.5) 0.1%
------------- ------------- ---------- --------
Total Skier Visits 5,006 5,090 (84) (1.7%)
Cost of resort
operations $ 203.9 $ 198.2 $ 5.7 2.9%
Marketing, general and
administrative 49.4 51.4 (2.0) (3.9%)
Depreciation and
amortization 45.8 43.22 2.6 6.0%
----------------------------------------------------------------------------
Warm weather patterns in early November, a rainy Thanksgiving weekend in
the East and a warm, dry December nationwide all contributed to weak early
season paid skier day levels. The December holiday week was also negatively
impacted by the overall softness in the travel industry due to Y2K concerns and
the lack of natural snowfall in key market areas. Substantial natural snowfall
at all resorts and in key market areas late in our second fiscal quarter revived
sluggish early season skier traffic heading into the third quarter. This
momentum continued into February, during which fresh snowfall and good weather
for the Presidents Holiday weekend produced three-day attendance records at
almost all of our resorts. Skier traffic (and operating results) continued to be
strong into March, but warm weather nation-wide and sustained rainfall in the
East brought an early end to the ski season and as a result April resort
revenues and operating profits fell short of the prior year.
Revenues from lift tickets and retail sales were down a combined $6.4
million, or 3.6%, from the prior year due mainly to the decrease in paid skier
days for the year. Food and beverage and lodging services revenues increased in
Fiscal 2000, as revenues generated from the two new hotels at The Canyons offset
the effect of the decrease in skier days at our eastern resorts. Skier
development revenues actually increased by $0.6 million, or 2.5%, in Fiscal
2000, as we continued to realize the benefits of its new skier development
programs instituted in fiscal 1999 in conjunction with the opening of new Sprint
Perfect Turn Discovery Centers at four of our Eastern resorts. We also realized
$1.6 million in net gains from the sale of non-strategic assets during the first
quarter of Fiscal 2000, which contributed most of the $2.5 million increase in
golf, summer activities and other revenues in Fiscal 2000.
Our Resort segment generated a $31.4 million loss before income taxes in
Fiscal 2000, compared to a $33.4 million pre-tax loss in Fiscal 1999. This $2.0
million decrease in the year-to-date pre-tax loss is derived primarily from an
$8.6 million decrease in interest expense, offset by a $4.1 million decrease in
resort earnings before interest, taxes and depreciation, or EBITDA, and a $2.5
million increase in depreciation expense. The reduction in interest expense in
Fiscal 2000 is due primarily to the reduced level of debt outstanding under our
senior credit facility as a result of the paydown on that facility from the
proceeds of the series B preferred stock issuance. The decrease in resort
earnings before interest, taxes and depreciation is derived from the net effect
of (i) the $0.5 million decrease in resort revenues described above, (ii) a $5.7
million increase in resort operating expenses due mainly to pre-opening and
start-up costs associated with the two new hotels at The Canyons and the
Steamboat Grand Hotel, increased snowmaking and maintenance costs, food and
beverage and lodging costs and retail costs of goods sold, and (iii) a $2.0
million reduction in marketing, general and administrative expenses. The
increase in resort depreciation expense is due to the approximately $30 million
in ski-related capital assets placed in service at our resorts since the end of
the 1998-99 ski season.
Real Estate Operations:
Real estate revenues increased by $107.6 million in Fiscal 2000 compared to
Fiscal 1999, from $24.5 million to $132.1 million. The delivery of units in the
Sundial whole-ownership condominium hotel and the new Grand Summit Hotel at The
Canyons accounted for $41.0 million and $59.4 million, respectively, of real
estate revenues in Fiscal 2000. Additional increases in real estate revenues
during Fiscal 2000 resulted from sales of undeveloped land at Steamboat and The
Canyons (combined $9.3 million in Fiscal 2000 versus $2.9 million in Fiscal
1999) and a $2.5 million increase in quartershare unit sales at the existing
Grand Summit Hotels at our Eastern resorts ($20.9 million in Fiscal 2000
compared to $18.4 million in Fiscal 1999). An offsetting $2.3 million decrease
was due to revenues recognized in Fiscal 1999 from the sale of townhouses at
Sunday River, which did not recur in Fiscal 2000.
Our Real Estate segment generated a loss before income taxes of $4.5
million in Fiscal 2000, a $5.1 million improvement over the $9.6 million pre-tax
real estate loss generated in Fiscal 1999. This $5.1 million decrease in the
pre-tax loss in Fiscal 2000 is primarily derived from the net effect of a $10.6
million increase in real estate EBITDA offset by a $5.1 million increase in real
estate interest expense and a $0.3 million increase in real estate depreciation.
The sale of units at The Canyons Grand Summit Hotel contributed $12.7 in
real estate EBITDA in Fiscal 2000, there were no sales for this project in
fiscal 1999. Offsetting this increase in real estate EBITDA was a decrease of
$1.9 million from the sales of quarter shares at the Eastern Grand Summit
hotels. The Sundial project contributed a negative $.8 million EBITDA to the
Fiscal 2000 results, the first year this project recorded sales. All other
activities contributed a net positive $.6 million to real estate EBITDA compared
to the prior year's results.
The $5.1 million increase in real estate interest expense was primarily due
to an increase in real estate debt outstanding in Fiscal 2000 and lower
capitalized interest due to completion of the two hotels at the Canyons.
Benefit from income taxes decreased $9.3 million, from $15.1 million in
fiscal 1999 to $5.8 million in Fiscal 2000. The decrease in the benefit is due
primarily to $7.4 million in valuation allowances established in Fiscal 2000
relating to certain deferred tax assets for prior net operating losses. As a
result of the sale of our series B preferred stock, the realization of the tax
benefit of certain of our net operating losses and other tax attributes is
dependent upon the occurrence of certain future events. It is our judgment that
a valuation allowance of $3.0 million against our deferred tax assets for net
operating losses and other tax attributes is appropriate because it is more
likely than not that the benefit of such losses and attributes will not be
realized. Based on facts known at this time, we expect to substantially realize
the benefit of the remainder of our net operating losses and other tax
attributes affected by the sale of our series B preferred stock. The remaining
$4.4 million valuation allowance relates to excess net operating losses that may
not be realizable in the State of Vermont.
Extraordinary loss of $0.6 million (net of $0.4 million of tax benefits) in
Fiscal 2000 resulted from the pro-rata write-off of certain existing deferred
financing costs related to our senior credit facility. This write-off was due to
the restructuring of the senior credit facility in connection with the permanent
reduction in the availability of the revolving portion and the pay down of the
term portion of the facility from the proceeds of the series B preferred stock
issuance.
Cumulative effect of a change in accounting principle of $0.7 million (net
of $0.4 million tax benefit) in Fiscal 2000 resulted from the 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.
Initial adoption of this SOP should be reported as a cumulative effective of a
change in accounting principles. Current start-up costs are being expensed as
incurred and are reflected in their appropriate expense classifications
Accretion of discount and dividends accrued on mandatorily redeemable
preferred stock increased $16.6 million from $4.4 million in Fiscal 1999 to
$21.0 million in the current fiscal year. This increase is primarily
attributable to the additional accrual of dividends on 150,000 shares of series
B preferred stock issued to Oak Hill in the first quarter of Fiscal 2000. We are
currently accruing dividends on the series B preferred stock at an effective
rate of 9.7%, with the assumption that dividends will not be paid in cash until
the fifth anniversary of the issuance.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business
Combinations." SFAS No. 141 requires all business combinations initiated after
June 30, 2001 to be accounted for using the purchase method. This statement is
effective for all business combinations initiated after June 30, 2001. We
believe the adoption of SFAS No. 141 will not have a material impact on our
results of operations or financial position.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement applies to goodwill and intangible assets acquired after
June 30, 2001, as well as goodwill and intangible assets previously acquired.
Under this statement goodwill as well as certain other intangible assets
determined to have an infinite life, will no longer be amortized. Instead, these
assets will be reviewed for impairment on a periodic basis. Early adoption of
this statement is permitted for non-calendar year-end companies with fiscal
years beginning after March 15, 2001 and its first interim period financial
statements have not been issued. We plan to early adopt the provisions of SFAS
No. 142 and are evaluating the potential impairment loss. We currently
anticipate recognizing a goodwill impairment charge of between $15 million and
$20 million in the first quarter of fiscal 2002.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002. We
believe the adoption of SFAS No. 143 will not have a material impact on our
results of operations or financial position and will adopt such standards on
July 29, 2002, as required.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supercedes FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." This statement
requires that one accounting model be used for long-lived assets to be disposed
of by sale, whether previously held and used or newly acquired, and it broadens
the presentation of discontinued operations to include more disposal
transactions. The provisions of this statement are effective for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years, with early adoption permitted. We are currently evaluating whether we
will early adopt the provisions of SFAS No. 144, and management will not be able
to determine the ultimate impact of this statement on its results of operations
or financial position until such time as its provisions are applied.
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
Our market risk sensitive instruments do not subject us to material market
risk exposures, except for risks related to interest rate fluctuations. As of
July 29, 2001, we had $219.3 million in floating rate long-term debt
outstanding, including current portion. We currently do not have any interest
rate swap agreements in place which would swap variable rate borrowings to fixed
rate borrowings. Currently, all of our floating rate debt is indexed to the US
Prime lending rate. Borrowings under our senior credit facility can be tied to
the LIBOR 30 day rate, but only after we make the $90 million optional
prepayment on that facility in December, 2001.
The following sensitivity analysis expresses the potential impact on annual
interest expense resulting from a hypothetical 100 basis point increase in the
U.S. Prime lending rate on each of our floating rate debt instruments:
----------------------------------------------------------------------------------------
Balance Average
Outstanding Balance Hypothetical Effect on
as of Outstanding Change in Interest
Variable Rate Debt July 29, 2001 in FY 2001 Rate Index Expense
----------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Senior credit facility $ 142,848 $ 122,746 1.0% $ 1,227
ASCRP Tranche A facility 27,000 28,735 1.0% 287
ASCRP Textron facility 49,424 69,525 1.0% 695
------------- ----------- ----------- ----------
Total variable rate debt $ 219,272 $ 221,006 1.0% $ 2,210
----------------------------------------------------------------------------------------
We believe that the potential effects of a 100-basis point increase in its
floating rate debt instruments are not significant to our earnings and cash
flow.
We have also entered into a series of non-cancelable interest rate swap
agreements in connection with our Senior Subordinated Notes, which are intended
to defer a portion of the cash interest payments on the Notes into later years.
The following table illustrates the key factors of each of these agreements:
- ------------------------------------------------------------------------------------------------------------------
February 9, 1998 - July 15, 2001 July 16, 2001 - July 15, 2006
Notional Company Company Notional Company Company
Amount Pays Receives Amount Pays Receives
- ------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Agreement 1 $ 120,000,000 9.01% 6-month LIBOR $ 127,500,000 9.01% 6-month LIBOR
Agreement 2 $ 120,000,000 6-month LIBOR 12.00% $ 127,500,000 6-month LIBOR 7.40%
- ------------------------------------------------------------------------------------------------------------------
As a result of entering into this interest rate swap arrangement, we have
fixed the cash-pay rate on the Notes until their maturity in July 2006. From the
period February 9, 1998 through July 15, 2001, this swap arrangement resulted in
a net cash receipt to us of $1.8 million per settlement, corresponding with our
interest payments on the Notes each January 15th and July 15th. Beginning with
the January 15, 2002 payment date, we will now be in a net payment position
under this swap arrangement of $1.0 million per settlement, due on January 15th
and July 15th of each year through the maturity of the Notes in July 2006. The
net effect of the swap agreements will result in a $2.1 million cash interest
savings over the life of the agreements. These agreements are non-hedging swaps
which are carried at their fair market value, with fluctuations recorded through
interest expense, in accordance with SFAS No. 133.
Item 8
Financial Statements and Supplementary Data
Selected Quarterly Operating Results
The following table presents certain unaudited quarterly financial
information for the eight quarters ended July 29, 2001. In the opinion of our
management, this information has been prepared on the same basis as the
Consolidated Financial Statements appearing elsewhere in this Form 10-K and
includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial results set forth herein. Results of
operations for any previous quarters are not necessarily indicative of results
for any future period.
Quarter Ended
- ------------------------------------------------------------------------------------------------------------------------------------
Oct.24, 1999 Jan.30, 2000 Apr.30, 2000 Jul.30, 2000 Oct.29, 2000 Jan.28, 2001 Apr.29, 2001 Jul.29,2001
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Net revenues:
Resort $ 20,806 $ 104,480 $ 149,942 $ 16,849 $ 20,912 $ 125,539 $ 164,170 $ 18,084
Real estate 2,549 22,147 73,153 34,214 27,216 30,725 15,404 23,519
------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Total net revenues 23,355 126,627 223,095 51,063 48,128 156,264 179,574 41,603
Operating expenses:
Resort 29,015 73,523 74,865 26,499 30,343 84,291 84,362 25,723
Real estate 3,284 22,486 63,450 34,617 23,578 26,216 16,516 27,112
Marketing, general
and administrative 10,753 16,283 13,063 9,306 10,443 17,867 17,274 6,712
Merger, restructuring
and asset impairment
charges - - - - - - 3,593 72,452
Depreciation and
amortization 3,202 20,924 19,076 3,826 4,002 19,955 18,300 4,739
------------- ------------ ------------ ------------ ------------ ------------ ------------ -----------
Total operating
expenses 46,254 133,216 170,454 74,248 68,366 148,329 140,045 136,738
Income(loss) from
Operations $ (22,899) $ (6,589) $ 52,641 $ (23,185) $ (20,238) $ 7,935 $ 39,529 $ (95,135)
- ------------------------------------------------------------------------------------------------------------------------------------
PART III
Pursuant to General Instruction G of Form 10-K, the information contained
in Part III of this report (Items 10, 11, 12 and 13) is incorporated by
reference from our Definitive Proxy Statement, which is expected to be filed
with the Securities and Exchange Commission on or before November 26, 2001.
PART IV
Item 14
Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report: Page
1. Index to financial statements, financial statement schedules,
and supplementary data, filed as part of this report:
Report of Independent Public Accountants...........................F-1
Consolidated Balance Sheet.........................................F-2
Consolidated Statement of Operations...............................F-3
Consolidated Statement of Changes in Shareholders' Equity .........F-4
Consolidated Statement of Cash Flows...............................F-5
Notes to Consolidated Financial Statements.........................F-6
2. Financial Statement Schedules: All other schedules are omitted because
they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
3. Exhibits filed as part of this report:
Exhibit
No. Description
3.1 Certificate of Incorporation of the Company (incorporated by reference
to Exhibit 3.1 to the Company's Form 10K for the report date of
October 22, 1999).
3.2 Certificate of Designation of 12% Series C-1 Convertible Participating
Preferred Stock of the Company (incorporated by reference to Exhibit
3.2 to the Company's Form 8K for the report date of September 4, 2001)
3.3 Certificate of Designation of 15% Series C-2 Preferred Stock of the
Company (incorporated by reference to Exhibit 3.3 to the Company's
Form 8K for the report date of September 4, 2001)
3.4 Certificate of Designation of Series D Participating Preferred Stock
of the Company (incorporated by reference to Exhibit 3.4 to the
Company's Form 8K for the report date September 4, 2001)
3.5 Amended and Restated Bylaws of the Company Adopted July 10, 2001
(incorporated by reference to Exhibit 3.1 to the Company's Form 8K for
the report date of September 4, 2001)
3.6 Articles of Merger ASC East, Inc. and ASC West, Inc. into American
Skiing Company dated October 5, 1999 with Plan of Merger (incorporated
by reference to Exhibit 4.3 to the Company's Form 8K for the report
date of October 6, 1999).
3.7 Articles of Merger American Skiing Company into ASC Delaware, Inc.
dated October 12, 1999 with Agreement and Plan of Merger (incorporated
by reference to Exhibit 4.3 to the Company's Form 8K for the report
date of October 6, 1999).
4.1. Specimen Certificate for shares of Common Stock, $.01 par value, of
the Company (incorporated by reference to Exhibit 4.1 to the Company's
Form 10K for the report date of October 22, 1999).
4.2 Form of Indenture relating to 10 1/2% Repriced Convertible
Subordinated Debentures (incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-1, Registration No.
333-33483).
4.3 Form of Indenture relating to 11.3025% Convertible Subordinated Notes
Due 2007 dated as of August 31, 2001 (incorporated by reference to
Exhibit 4.1 to the Company's Form 8K for the report date of September
4, 2001)
4.4 Specimen Certificate for Class A Common Stock, $.01 par value, of the
Company
4.5 Specimen Certificate for Series B Convertible Participating Preferred
Stock, $.01 par value, of the Company
4.6 Specimen Certificates for Series C-1 Preferred Stock, $.01 par value,
of the Company
4.7 Specimen Certificates for Series C-2 Preferred Stock, $.01 par value,
of the Company
4.8 Specimen Certificates for Series D Preferred Stock, $.01 par value, of
the Company
10.1 Indenture dated as of June 28, 1996 among ASC East, certain of its
subsidiaries and United States Trust Company of New York, relating to
Series A and Series B 12% Senior Subordinated Notes Due 2006
(incorporated by reference to Exhibit 4.1 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.2 First Supplemental Indenture dated as of November 12, 1997 among ASC
East, Inc., its subsidiaries party thereto, and United States Trust
Company of New York as Trustee (incorporated by reference to Exhibit
10.3 to the Company's quarterly report on Form 10-Q for the quarter
ended October 25, 1998).
10.3 Second Supplemental Indenture dated as of September 4, 1998 among ASC
East, Inc., its subsidiaries party thereto, and United States Trust
Company of New York as Trustee (incorporated by reference to Exhibit
4.3 to the Company's Form 8K for the Report date of October 6, 1999).
10.4 Third Supplemental Indenture dated as of August 6, 1999 among ASC
East, Inc., its subsidiaries party thereto, and United States Trust
Company of New York as Trustee (incorporated by reference to Exhibit
4.3 to the Company's Form 8K for the report date of October 6, 1999).
10.5 Fourth Supplemental Indenture dated as of October 6, 1999 among
Supplemental Indenture dated as of November 12, 1997 among ASC East,
Inc., its subsidiaries party thereto, and United States Trust Company
of New York as Trustee (incorporated by reference to Exhibit 4.3 to
the Company's Form 8K for the report date of October 6, 1999).
10.6 Amended, Restated and Consolidated Credit Agreement dated as October
12, 1999, among the Company, certain Subsidiaries as Borrowers, the
Lenders party thereto, and Fleet National Bank as Agent for the
Lenders (incorporated by reference to Exhibit 10.11 to the Company's
Form 10K for the report date of October 22, 1999).
10.7 First Amendment to Amended Restated and Consolidated Credit Agreement
among Registrant, Fleet National Bank, as Agent, and certain other
lenders party thereto, dated March 6, 2000 (Incorporated by reference
from the Registrant's Form 10-Q for the report date March 14, 2000)
10.8 Second Amendment to the Amended, Restated and Consolidated Credit
Agreement, dated as of April 29, 2001 with respect to the Amended,
Restated and Consolidated Credit Agreement dated as of October 12,
1999 by and among American Skiing Company and the other borrowers
party thereto, the lenders party thereto and Fleet National Bank, N.A.
as agent. (Incorporated by reference from the Registrant's Form 8-K
for the Report date July 16, 2001).
10.9 Amendment to Second Amendment to Amended, Restated and Consolidated
Credit Agreement, dated as of October 15, 2001 with respect to the
Amended, Restated and Consolidated Credit Agreement dated as of
October 12, 1999 by and among American Skiing Company and the other
borrowers party thereto, the lenders party thereto and Fleet National
Bank, N.A. as agent
10.10 Third Amendment to the Amended, Restated and Consolidated Credit
Agreement dated as of September 10, 2001 with respect to the Amended,
Restated and Consolidated Credit Agreement dated as of October 12,
1999 by and among American Skiing Company and the other borrowers
party thereto, the lenders party thereto and Fleet National Bank, N.A.
as agent
10.11 Second Amended and Restated Credit Agreement dated July 31, 2000 among
American Skiing Company Resort Properties, Inc., Fleet National Bank,
as Agent, and the other Lenders party thereto. (Incorporated by
reference from the Registrant's Form 8K for the report date August 2,
2000)
10.12 First Amendment to Second Amended and Restated Credit Agreement Among
American Skiing Company Resort Properties, Inc. and Fleet National
Bank, as agent for the Lenders dated August 20, 2001.
10.13 Loan and Security Agreement among Grand Summit Resort Properties,
Inc., Textron Financial Corporation and certain lenders dated as of
September 1, 1998 (incorporated by reference to Exhibit 10.1 to the
Company's quarterly report on Form 10-Q for the quarter ended October
25, 1998).
10.14 First Amendment Agreement Re: Loan and Security Agreement Among Grand
Summit Resort Properties, Inc., as Borrower and Textron Financial
Corporation, as Administrative Agent dated as of April 5, 1999
(incorporated by reference to Exhibit 10.1 to the Company's quarterly
report on Form 10-Q for the quarter ended April 25, 1999)
10.15 Accession, Loan Sale and Second Amendment Agreement Re: Loan and
Security Agreement among Grand Summit Resort Properties, Inc. and
Textron Financial Corp. and The Lenders Listed therein dated June 24,
1999 (incorporated by reference to Exhibit 10.22 to the Company's
annual report on Form 10-K for the fiscal year ended July 25, 1999).
10.16 Third Amendment Agreement Re: Loan and Security Agreement Among Grand
Summit Resort Properties, Inc., as Borrower and Textron Financial
Corporation, as Administrative Agent dated as of January, 2000
10.17 Fourth Amendment Agreement Re: Loan and Security Agreement Among Grand
Summit Resort Properties, Inc., as Borrower and Textron Financial
Corporation, as Administrative Agent dated as of September 15, 2000.
10.18 Fifth Amendment Agreement Re: Loan and Security Agreement Among Grand
Summit Resort Properties, Inc., as Borrower and Textron Financial
Corporation, as Administrative Agent dated as of August 20, 2001
10.19 Statement of Intention and Special Additional Financing Agreement
dated July 25, 2000 between Grand Summit Resort Properties, Inc. and
Textron Financial Corporation. (Incorporated by reference from the
Registrant's Form 10-K for the report date July 30, 2000)
10.20 First Amendment Agreement to the Statement of Intention and Special
Additional Financing Agreement between Grand Summit Resort Properties,
Inc. and Textron Financial Corporation dated August 20, 2001
10.21 Registration Rights Agreement dated November 10, 1997 by and between
American Skiing Company and ING (U.S.) Capital Corporation
(incorporated by reference to Exhibit 3 to the Company's quarterly
report on Form 10-Q for the quarter ended October 26, 1997).
10.22 Preferred Stock Subscription Agreement dated July 9, 1999 between the
Registrant and the Purchasers listed on Annex A thereto, including a
form of Stockholders' Agreement, Voting Agreement and Certificate of
Designation relating to the preferred stock to be issued (incorporated
by reference to Exhibit 2.1 to the Company's Form 8K for the report
date of July 9, 1999).
10.23 Stockholders' Agreement dated as of August 6, 1999 among Oak Hill
Capital Partners, L.P., and the other entities identified in Annex A
attached thereto, Leslie B. Otten and the Registrant (incorporated by
reference to Exhibit 10.2 to the Company's Form 10K for the report
date of October 22, 1999).
10.24 Amendment to Stockholders' Agreement dated July 31, 2000 among the
Registrant, Oak Hill Capital Partners, L.P. and Leslie B. Otten.
(Incorporated by reference from the Registrant's Form 8K for the
report date July 31, 2000)
10.25 Securities Purchase Agreement dated July 31, 2000 among the
Registrant, American Skiing Company Resort Properties, Inc. and Oak
Hill Capital Partners, L.P. (Incorporated by reference from the
Registrant's Form 8K for the report date July 31, 2000)
10.26 Securities Purchase Agreement dated as of July 15, 2001 among American
Skiing Company, a Delaware corporation, Oak Hill Capital Partners,
L.P., a Delaware limited partnership, and other entities identified in
Annex A thereto. (Incorporated by reference from the Registrant's Form
8-K for the Report date July 16, 2001).
10.27 Amendment No. 1 to Securities Purchase Agreement among American Skiing
Company, A Delaware corporation, Oak Hill Capital Partners, L.P., A
Delaware Limited partnership dated August 22, 2001 (Incorporated by
reference from the Registrant's Form 8-K for the Report date August
31, 2001)
10.28 Stock Purchase Agreement dated as of August 1, 1997, among Kamori
International Corporation, ASC West and the Company (incorporated by
reference to Exhibit 2.1 of the Company's Registration Statement on
Form S-1, Registration No. 333-33483).
10.29 Purchase Agreement dated as of April 13, 1994, among Mt. Attitash Lift
Corporation, certain of its shareholders and L.B.O. Holding, Inc.
(incorporated by reference to Exhibit 10.35 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.30 Stock Purchase Agreement dated August 17, 1994, between Sugarloaf
Mountain Corporation and S-K-I Ltd. (incorporated by reference to
Exhibit 10.36 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.31 Purchase and Sale Agreement dated as of August 30, 1996, among
Waterville Valley Ski Area, Ltd., Cranmore, Inc., ASC East and Booth
Creek Ski Acquisition Corp. (incorporated by reference to Exhibit
10.61 to ASC East's Registration Statement on Form S-4, Registration
No. 333-9763).
10.32 Purchase and Sale Agreement dated as of October 16, 1996, among
Sherburne Pass Mountain Properties, LLC, Pico Mountain Sports Center,
LLC, Pico Mountain Operating Company, LLC, Harold L. and Edith
Herbert, and Pico Ski Area Management Company (incorporated by
reference to Exhibit 10.62 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.33 Purchase and Sale Agreement dated July 3, 1997, between Wolf Mountain
Resorts, L.C., and ASC Utah (incorporated by reference to Exhibit
10.74 to the Company's Registration Statement on Form S-1,
Registration No. 333-33483).
10.34 Letter of Agreement dated August 27, 1996, among SKI Ltd and certain
shareholders of Sugarloaf Mountain Corporation (incorporated by
reference to Exhibit 10.63 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.35 ISDA Master Agreement between BankBoston, N.A. and the Company dated
as of May 12, 1998 (incorporated by reference to Exhibit 10.38 to the
Company's annual report on Form 10-K for the year ended July 26,
1998).
10.36 Credit Support Annex to ISDA Master Agreement between BankBoston, N.A.
and the Company dated as of May 12, 1998 (incorporated by reference to
Exhibit 10.39 to the Company's annual report on Form 10-K for the year
ended July 26, 1998).
10.37 Form of Master Lease Agreement dated as of various dates among
BancBoston Leasing, Inc. as Lessor and Heavenly Valley Limited
Partnership, Killington, Ltd., Mount Snow, Ltd., ASC Leasing, Inc.,
Steamboat Ski & Resort Corporation, and Sunday River Skiway Corp. as
Lessees (incorporated by reference to Exhibit 10.41 to the Company's
annual report on Form 10-K for the year ended July 26, 1998).
10.38 Unlimited Guaranty by the Company in favor of BancBoston Leasing,
Inc., dated as of July 20, 1998 (incorporated by reference to Exhibit
10.40 to the Company's annual report on Form 10-K for the year ended
July 26, 1998).
10.39 $2,750,000 Subordinated Promissory Note dated November, 1996 by Booth
Creek Ski Acquisition Corp., Waterville Valley Ski Resort, Inc. and
Mount Cranmore Ski Resort, Inc., to ASC East (incorporated by
reference to Exhibit 10.72 to the Company's Registration Statement on
Form S-1, Registration No. 333-33483).
10.40 Assignment dated May 30, 1997, between Wolf Mountain Resorts, L.C. and
ASC Utah (incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-1 Registration No. 333-33483).
10.41 Indenture dated October 24, 1990, between Killington Ltd. and The
Howard Bank, as trustee (representative of indentures with respect to
similar indebtedness aggregating approximately $2,995,000 in original
principal amount and maturing at various times from 2015 to 2016)
(incorporated by reference to Exhibit 10.19 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.42 Form of Subordinated Debenture Due 2002 from L.B.O. Holding, Inc. to
former shareholders of Mt. Attitash Lift Corporation (incorporated by
reference to Exhibit 10.34 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.43 Lease dated October 15, 1980, among H. Donald Penley, Joseph Penley,
Albert Penley and Sunday River Skiway Corporation (incorporated by
reference to Exhibit 10.40 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.44 Lease/Option dated July 19, 1984, between John Blake and L.B.O.
Holding, Inc. (incorporated by reference to Exhibit 10.41 to ASC
East's Registration Statement on Form S-4, Registration No. 333-9763).
10.45 Lease dated November 10, 1960, between the State of Vermont and
Sherburne Corporation (predecessor to Killington, Ltd.) (incorporated
by reference to Exhibit 10.44 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.46 Lease Agreement dated as of June 21, 1994, between the Town of
Wilmington, Vermont and Mount Snow, Ltd. (incorporated by reference to
Exhibit 10.46 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.47 Lease Agreement dated April 24, 1995, between Sargent, Inc. and Mount
Snow, Ltd. (incorporated by reference to Exhibit 10.47 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.48 Amended and Restated Lease Agreement between Sugarloaf Mountain
Corporation and the Inhabitants of the Town of Carrabassett Valley,
Maine, concerning the Sugarloaf Golf Course dated November 16, 2000
(incorporated by reference to Exhibit 10.35 to American Skiing
Company's Registration Statement on Form S-4, filed on January 9,
2001).
10.49 Ground Lease Agreement dated July 3, 1997, between ASC Utah and Wolf
Mountain Resorts, L.C. (incorporated by reference to Exhibit 10.64 to
the Company's Registration Statement on Form S-1, Registration No.
333-33483).
10.50 Ground Lease Guaranty dated July 3, 1997, from the Company to Wolf
Mountain Resorts, L.C. (incorporated by reference to Exhibit 10.65 to
the Company's Registration Statement on Form S-1, Registration No.
333-33483).
10.51 Stock Option Plan (incorporated by reference to Exhibit 10.89 to the
Company's Registration Statement on Form S-1, Registration No.
333-33483).
10.52 Form of Non-Qualified Stock Option Agreement (Five-Year Vesting
Schedule) (incorporated by reference to Exhibit 10.90 to the Company's
Registration Statement on Form S-1, Registration No. 333-33483).
10.53 Form of Non-Qualified Stock Option Agreement (Fully-Vested)
(incorporated by reference to Exhibit 10.91 to the Company's
Registration Statement on Form S-1, Registration No. 333-33483).
10.54 Form of Incentive Stock Option Agreement (incorporated by reference to
Exhibit 10.92 to the Company's Registration Statement on Form S-1,
Registration No. 333-33483).
10.55 Terms of Employment between the Registrant and Mark J. Miller dated
October 7, 1999 (incorporated by reference to Exhibit 10.45 to the
Company's annual report for Fiscal Year ended July 30, 2000)
10.56 Employment Agreement between the Registrant and William J. Fair dated
May 17, 2000 (incorporated by reference to Exhibit 10.46 to the
Company's annual report for Fiscal Year ended July 30, 2000)
10.57 Terms of Employment between the Registrant and Hernan Martinez dated
April 28, 2000 (incorporated by reference to Exhibit 10.47 to the
Company's annual report for Fiscal Year ended July 30, 2000)
10.58 The Canyons Resort Village Management Agreement dated as of November
15, 1999. (Incorporated by reference from the Registrant's Form 10-Q
for the quarter ended October 24, 1999)
10.59 Amended and Restated Development Agreement for The Canyons Specially
Planned Area Snyderville Basin, Summit County, Utah dated as of
November 15, 1999 (Incorporated by reference from the Registrant's
Form 10-Q for the quarter ended October 24, 1999)
21.1 Subsidiaries of the Company.
23.2 Consent of Arthur Andersen LLP
(b) Reports filed on Form 8-K.
The Company filed a report on Form 8-K on August 2, 2000, reporting
the Real Estate Financing dated as of August 2, 2000.
The Company filed a report on Form 8-K on December 11, 2000, reporting
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.
The Company 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.
The Company 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.
The Company 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.
The Company filed a report on Form 8-K on July 16, 2001, reporting the
Second Amendment to the Amended, Restated and Consolidated Credit Agreement
between the Company and Fleet National Bank, N.A.
The Company filed a report on Form 8-K on September 4, 2001, reporting
that it had closed on the issuance of $12.5 million of its 11.3025% Convertible
Subordinated Notes due 2007, $40 million of its Series C-1 Convertible
Participating Preferred Stock and $138 million of its Series C-2 Preferred Stock
to Oak Hill Capital Partners, L.P. and its affiliates.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Company has duly caused this instrument to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Bethel,
State of Maine, on this 13th day of November, 2001.
American Skiing Company
By: /s/ William J. Fair
--------------------------------
William J. Fair
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Mark J. Miller
--------------------------------
Mark J. Miller
Senior Vice President, Chief
Financial Officer
(Principal Financial Officer)
By: /s/ Christopher D. Livak
--------------------------------
Christopher D. Livak
Vice President-Accounting
(Principal Accounting Officer)
By: /s/ Leslie B. Otten
--------------------------------
Leslie B. Otten
Director
By:
--------------------------------
Gordon M. Gillies, Director
By: /s/ David Hawkes
--------------------------------
David Hawkes, Director
By:
--------------------------------
Bradford E. Bernstein, Director
By: /s/ Steven Gruber
--------------------------------
Steven Gruber, Director
By: /s/ J. Taylor Crandall
--------------------------------
J. Taylor Crandall, Director
By: /s/ William Janes
--------------------------------
William Janes, Director
By:
--------------------------------
Paul Wachter, Director
By: /s/ Alexandra Hess
--------------------------------
Alexandra Hess, Director
By: /s/ Robert Branson
--------------------------------
Robert Branson, Director
Report of Independent Public Accountants
To American Skiing Company:
We have audited the accompanying consolidated balance sheets of
American Skiing Company and subsidiaries as of July 29, 2001 and July 30,
2000, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the years ended July 29, 2001, July 30,
2000 and July 25, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of American Skiing
Company and subsidiaries as of July 29, 2001 and July 30, 2000 and the results
of its operations and its cash flows for the years ended July 29, 2001, July 30,
2000 and July 25, 1999 in conformity with accounting principles generally
accepted in the United States.
//Arthur Andersen LLP//
Boston, MA
November 13, 2001
American Skiing Company
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
July 30, 2000 July 29, 2001
Assets
Current assets
Cash and cash equivalents $ 10,085 $ 11,592
Restricted cash 7,424 1,372
Accounts receivable 8,176 13,825
Inventory 10,200 7,909
Prepaid expenses 8,092 5,286
Assets held for sale (Note 19) - 98,219
Deferred income taxes 1,566 2,137
--------------- ----------------
Total current assets 45,543 140,340
Property and equipment, net 534,078 440,594
Real estate developed for sale 222,660 137,478
Goodwill 75,003 23,518
Intangible assets 22,055 10,685
Deferred financing costs 10,844 16,707
Other assets 16,595 26,903
--------------- ----------------
Total assets $ 926,778 $ 796,225
=============== ================
Liabilities, Mandatorily Redeemable Preferred Stock and
Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 58,508 $ 74,776
Current portion of subordinated notes and debentures 525 549
Accounts payable and other current liabilities 70,957 64,872
Deposits and deferred revenue 15,930 11,779
--------------- ----------------
Total current liabilities 145,920 151,976
Long-term debt, excluding current portion 249,841 211,362
Subordinated notes and debentures, excluding current portion 126,810 126,564
Other long-term liabilities 17,494 34,992
Deferred income taxes 200 2,137
--------------- ----------------
Total liabilities 540,265 527,031
Mandatorily Redeemable 10 1/2% Series A Preferred Stock par value
$1,000 per share; 40,000 shares authorized; 36,626 issued
and outstanding; including cumulative dividends in arrears
(redemption value of $48,706 at July 30, 2000 and $54,102
at July 29, 2001) 48,706 54,102
Mandatorily Redeemable 8 1/2% Series B Preferred Stock
par value $1,000 per share; 150,000 shares authorized, issued and
outstanding; including cumulative dividends in arrears (redemption
value of $162,865 at July 30, 2000 and $178,016 at July 29, 2001) 152,310 170,266
Shareholders' Equity
Common stock, Class A, par value $.01 per share; 15,000,000 shares
authorized; 14,760,530 issued and outstanding at
July 30, 2000 and July 29, 2001 148 148
Common stock, par value of $.01 per share; 100,000,000
shares authorized; 15,708,633 and 15,957,593 issued and
outstanding at July 30, 2000 and July 29, 2001, respectively 157 160
Additional paid-in capital 269,955 270,853
Accumulated deficit (84,763) (226,335)
--------------- ----------------
Total shareholders' equity 185,497 44,826
--------------- ----------------
Total liabilities, mandatorily redeemable preferred
stock and shareholders' equity $ 926,778 $ 796,225
=============== ================
American Skiing Company
Consolidated Statements of Operations
(in thousands, except per share amounts)
Year Ended
July 25, 1999 July 30, 2000 July 29, 2001
------------ ------------- -------------
Net revenues:
Resort $ 292,558 $ 292,077 $ 328,705
Real estate 24,492 132,063 96,864
------------ ------------- -------------
Total net revenues 317,050 424,140 425,569
------------ ------------- -------------
Operating expenses:
Resort 198,231 203,902 224,719
Real estate 26,808 123,837 93,422
Marketing, general and administrative 51,434 49,405 52,296
Non-recurring merger, restructuring and asset
impairment charges (Note 11) - - 76,045
Depreciation and amortization 44,202 47,028 46,996
------------ ------------- -------------
Total operating expenses 320,675 424,172 493,478
------------ ------------- -------------
Loss from operations (3,625) (32) (67,909)
Interest expense 39,382 35,906 52,815
------------ ------------- -------------
Loss before benefit from income taxes (43,007) (35,938) (120,724)
Benefit from income taxes (15,057) (5,805) -
------------ ------------- -------------
Loss before extraordinary item and cumulative effect
of accounting change (27,950) (30,133) (120,724)
Extraordinary loss, (net of applicable taxes of $396)(Note 6) - 621 -
Cumulative effect of accounting change (net of
applicable taxes of $449 and ($1,538),
respectively) (Note 13) - 704 (2,509)
------------ ------------- -------------
Loss before preferred stock dividends (27,950) (31,458) (118,215)
Accretion of discount and dividends accrued on
mandatorily redeemable preferred stock 4,372 20,994 23,357
------------ ------------- -------------
Net loss available to common shareholders $ (32,322) $ (52,452) $ (141,572)
============ ============= =============
Basic and diluted loss per share: (Note 3)
Loss before extraordinary items and cumulative effect
of accounting change $ (1.07) $ (1.69) $ (4.72)
Extraordinary loss, net of taxes - (0.02) -
Cumulative effect of accounting change, net of taxes - (0.02) 0.08
------------ ------------- -------------
Net loss available to common shareholders $ (1.07) $ (1.73) $ (4.64)
============ ============= =============
Weighted average shares outstanding 30,286 30,393 30,525
============ ============= =============
American Skiing Company
Consolidated Statements of Changes in Shareholders' Equity
(in thousands, except share amounts)
Retained
Additional Earnings/
Class A paid-in (Accumulated
Common stock Common stock capital Deficit) Total
------------------------ ------------------------ ---------- ------------ -----------
Shares Amount Shares Amount
------------ ---------- ------------ ----------
Balance at July 26, 1998 14,760,530 $ 148 15,525,022 $ 155 $ 267,890 $ 11 $ 268,204
Exercise of Common Stock options - - 1,221 - - - -
Issuance of Common Stock options - - - - 773 - 773
Accretion of discount and
issuance costs and
dividends accrued on
mandatorily redeemable
preferred stock - - - - - (4,372) (4,372)
Net loss - - - - - (27,950) (27,950)
------------ ---------- ------------ ---------- ------------ ------------- ------------
Balance at July 25, 1999 14,760,530 $ 148 15,526,243 $ 155 $ 268,663 $ (32,311) $ 236,655
============ ========== ============ ========== ============ ============= ============
Exercise of Common Stock options - - 182,390 2 363 - 365
Issuance of Common Stock options - - - - 929 - 929
Accretion of discount and
issuance costs and
dividends accrued on
mandatorily redeemable
preferred stock - - - - - (20,994) (20,994)
Net loss - - - - - (31,458) (31,458)
------------ ---------- ------------ ---------- ------------ ------------- ------------
Balance at July 30, 2000 14,760,530 $ 148 15,708,633 $ 157 $ 269,955 $ (84,763) $ 185,497
============ ========== ============ ========== ============ ============= ============
Exercise of Common Stock options - - 248,960 3 495 - 498
Issuance of Common Stock options - - - - 387 - 387
Other paid-in capital - - - - 16 - 16
Accretion of discount and
issuance costs and
dividends accrued on
mandatorily redeemable
preferred stock - - - - - (23,357) (23,357)
Net loss - - - - - (118,215) (118,215)
------------ ---------- ------------ ---------- ------------ ------------- ------------
Balance at July 29, 2001 14,760,530 $ 148 15,957,593 $ 160 $ 270,853 $ (226,335) $ 44,826
============ ========== ============ ========== ============ ============= ============
American Skiing Company
Consolidated Statements of Cash Flows
(in thousands)
Year Ended
-------------------------------------------------
July 25, 1999 July 30, 2000 July 29, 2001
------------- ------------- --------------
Cash flows from operating activities
Net loss $(27,950) $ (31,458) $ (118,215)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 44,202 47,028 46,996
Discount on convertible debt 333 368 992
Deferred income taxes (15,517) (7,155) 1,366
Stock compensation charge 773 929 387
Extraordinary loss - 1,017 -
Cumulative effect of accounting change - 1,153 (4,047)
(Gain) loss from sale of assets, net 2,426 (1,449) 66,746
Decrease (increase) in assets:
Restricted cash (368) (796) 6,052
Accounts receivable 1,090 (1,702) (7,539)
Inventory 2,516 637 574
Prepaid expenses (1,600) (3,098) 2,757
Real estate developed for sale (125,331) (43,406) 48,639
Other assets (5,000) 2,318 (3,941)
Increase (decrease) in liabilities:
Accounts payable and other current liabilities 33,579 (6,994) (1,375)
Deposits and deferred revenue 10,635 (4,920) (2,583)
Other long-term liabilities 2,977 3,637 7,767
------------- ------------- --------------
Net cash (used in) provided by operating activities (77,235) (43,891) 44,576
------------- ------------- --------------
Cash flows from investing activities
Payments for purchases of businesses, net of cash
acquired - (345) (171)
Capital expenditures (46,007) (27,229) (23,842)
Long-term investments 1,222 - -
Proceeds from sale of assets 7,198 10,175 623
Other, net 101 (4) -
------------- ------------- --------------
Net cash used in investing activities (37,486) (17,403) (23,390)
------------- ------------- --------------
Cash flows from financing activities
Net borrowings (repayment) under Senior Credit
Facility 7,308 (82,448) 19,612
Proceeds from long-term debt 20,145 139 5,200
Proceeds from real estate debt 115,909 139,026 28,658
Repayment of long-term debt (10,466) (11,105) (7,149)
Repayment of real estate debt (23,088) (113,353) (60,787)
Deferred financing costs (1,438) (4,604) (7,721)
Net proceeds from issuance of mandatorily redeemable
securities - 136,186 -
Payments on demand note (16) (1,830) -
Proceeds from issuance of warrants - - 2,000
Proceeds from exercise of stock options - 365 498
Other, net - - 10
------------- ------------- --------------
Net cash provided by (used in) financing activities 108,354 62,376 (19,679)
------------- ------------- --------------
Net (decrease) increase in cash and cash equivalents (6,367) 1,082 1,507
Cash and cash equivalents, beginning of period 15,370 9,003 10,085
------------- ------------- --------------
Cash and cash equivalents, end of period $ 9,003 $ 10,085 $11,592
============= ============= ==============
Supplemental disclosures of cash flow information
Cash paid for interest $ 41,295 $ 48,754 $ 54,385
Cash refunded for income taxes 10 60 37
Supplemental schedule of noncash investing
and financing activities
Property acquired under capital leases $ 7,425 $ - $ -
Non-cash transfer of real estate developed for sale to
property and equipment - 27,758 26,904
Notes payable issued for purchase of assets 1,395 - -
Accretion of discount and issuance costs and dividends
accrued on Mandatorily redeemable preferred stock 4,372 20,994 23,357
American Skiing Company
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Business Environment and Management's Plans
Existing Situation
American Skiing Company (ASC) and its subsidiaries (collectively, "the
Company") have adopted a comprehensive plan designed to improve financial
performance and address issues related to its high leverage.
Strategic Plan
The Company has recently undertaken a number of initiatives to improve
its financial condition and ongoing operations. The plan includes the following
key components:
o A comprehensive financial restructuring package, including
amendments to our senior credit facilities and a new capital
infusion to enhance financial flexibility.
o Operational cost savings and improved financial performance
through reorganization and staff reduction and performance
enhancement programs of approximately $5 million.
o Intent to sell Steamboat ski resort to reduce the debt of the
company and make the optional prepayment allowed for under the
second amendment to the senior credit facility.
o Strategic redeployment of management and capital resources to
emphasize the integration and growth of resort village
development and operations.
Management has completed several aspects of this plan to date,
including the restructuring of three of the Company's major credit agreements,
an additional capital infusion by Oak Hill, and the implementation of a staff
reorganization plan to improve operational efficiencies. The ultimate success of
this comprehensive strategic plan is dependent on the execution of the remaining
plan elements, including obtaining a $14 million capital lease for equipment
related to the Heavenly gondola as required by the Senior Credit Facility and
the sale of Steamboat to reduce leverage. The tragic events of September 11th
have delayed the completion of these two key plan elements, however, despite
these events, management has made progress on the execution of these elements.
Management has entered into a non-binding letter of intent with a potential
buyer for Steamboat and continues to negotiate with other interested parties. In
addition, management has received a commitment for the capital lease. Management
is confident that the sale of Steamboat can be completed by the end of calendar
2001 and that the $14 million capital lease can be obtained by the end of
November or early December 2001.
Actions in Progress
On July 12, 2001 the Company entered into a Second Amendment to its
Senior Credit Facility, effective as of April 29, 2001, which, among other
things, amended the financial covenant ratios beginning in the fourth quarter of
fiscal 2001, and set monthly maximum borrowing limitations on the revolving
portion of the Senior Credit Facility. (See Note 6 - Senior Credit Facility).
The Second Amendment to the Senior Credit Facility provides an
incentive to the Company to make an optional prepayment of $90 million on or
before December 24, 2001. If the Company makes the optional prepayment by
December 24, 2001, it would avoid the following events:
(i) incremental increases in the rate of interest on all
outstanding borrowings under the facility, up to prime plus
4.25%;
(ii) the payment of 2.0% default interest on all outstanding
borrowings under the facility, retroactive to May 1, 2001;
(iii) an additional $4.4 million in amendment fees payable
periodically through July 31, 2002;
(iv) requirement of the Company to raise an additional $7.2 million
by December 31, 2001, through the issuance of equity
securities or junior subordinated debt for the purpose of
meeting the January 15, 2002 interest payment on its Senior
Subordinated Notes, due 2006 (See Note 19 - Subsequent
Events); and
(v) requirement of the Company to renegotiate all of the financial
covenants of the Senior Credit Facility on or before August 1,
2002.
The Company has 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. Management is currently negotiating terms with a small
group of potential purchasers, including the party with whom the Company has
entered into a non-binding letter of intent and is currently negotiating a
purchase and sales agreement.
In addition, as part of the financial restructuring, the Company has
entered into a securities purchase agreement with Oak Hill to assist the Company
in meeting its current financing needs. Also, the Company has completed
amendments to it key real estate financing facilities (See Note 19 - Subsequent
Events for details regarding this agreement).
As part of its effort to implement the operational cost savings element
of its plan, the Company has converted 160 full-time year-round positions to
seasonal positions in order to better match its operating cycle. In addition, 70
full-time, year-round positions have been eliminated. Prior to this operational
reorganization, the Company had approximately 1,600 full time, year-round resort
operations positions. At peak employment during the 2000-01 ski season, the
Company employed approximately 11,700 people for its resort operations.
Management has commenced this operational reorganization in order to provide
greater flexibility in its cost structure and respond more appropriately to the
seasonal nature of its business. Management estimates that these measures, along
with other organizational changes, cost reduction initiatives, and performance
enhancement measures should result in approximately $5 million of annual
financial benefits. Early benefits from these steps were realized during the
fourth quarter of fiscal 2001, which were partially responsible for the Company
achieving record performance on lower revenues for the quarter, and are expected
to be more fully realized during the 2002 fiscal year.
Further supporting the Company's strategy to reallocate resources to
our highest growth opportunities and reducing debt, subsequent to the end of
fiscal 2001 the Company entered into a purchase and sales agreement to sell
substantially all of the operating assets of its Sugarbush ski resort in Warren,
VT to Summit Ventures NE, Inc. This sale closed on September 28, 2001 and the
proceeds from this sale were used by the Company to permanently pay down the
revolving and term portions of its Senior Credit Facility, on a pro-rata basis,
in accordance with the mandatory prepayment requirements of the facility (See
Note 19 - Subsequent Events).
Management anticipates that the Company will be able to complete the
sale of Steamboat by the end of calendar 2001 and substantially reduce its
leverage from the proceeds of the sale. Management is currently negotiating
purchase and sale terms with a small group of potential purchasers and has
executed a non-binding letter of intent with one of the parties. Should the
Company complete the Steamboat transaction, management anticipates that the
Company will be able to meet the financial covenants of the Senior Credit
Facility, as amended, for the foreseeable future. In the event that the Company
is unable to make the optional prepayment, management presently anticipates that
under normal operating circumstances, the Company will still be able to meet the
financial covenants of the Senior Credit Facility, as amended, through the end
of fiscal 2002, at which time the Company will be required to renegotiate the
financial covenants.
2. Basis of Presentation
ASC is organized as a holding company and operates through various
subsidiaries. The Company operates in two business segments, ski resorts and
real estate development. ASC owns and operates the following ski resorts:
Sugarloaf/USA and Sunday River in Maine, Attitash Bear Peak in New Hampshire,
Killington, Mount Snow and Sugarbush in Vermont, The Canyons in Utah, Steamboat
Ski & Resort Corporation ("Steamboat") in Colorado, and Heavenly Valley Ski &
Resort Corporation ("Heavenly") in California/Nevada. The Company performs its
real estate development through its wholly-owned subsidiary, American Skiing
Company Resort Properties, Inc. ("Resort Properties"), and Resort Properties'
subsidiaries, including Grand Summit Resort Properties, Inc. ("GSRP") and
Canyons Resort Properties, Inc. The Company owns and operates resort facilities,
real estate development companies, golf courses, ski and golf schools, retail
shops and other related companies.
ASC was formed on June 17, 1997, when Leslie B. Otten ("Mr. Otten")
exchanged his 96% ownership interest in ASC East, Inc. ("ASC East") for 100% of
the Common Stock of ASC. In conjunction with the formation of ASC, the Company
recorded the 4% minority interest in ASC East. On January 23, 1998, the Company
and the holders of the minority interest in ASC East entered into an agreement
whereby the Company issued 615,022 shares of Common Stock in exchange for all
shares of ASC East common stock held by the minority shareholders.
On October 10, 1997, the Company approved an increase in authorized
shares of Common Stock, a new issue of Class A Common Stock, the conversion of
100% of the outstanding Common Stock to Class A Common Stock and a 14.76 for 1
stock split of Class A Common Stock. The stock split was given retroactive
effect in the consolidated financial statements as of July 27, 1997.
The Company consummated an initial public offering (the "Offering") on
November 6, 1997. The Company sold 14.75 million shares of common stock in the
Offering at a price of $18.00 per share. Net proceeds to the Company after
expenses of the Offering totaled $244.3 million. Of the 14.75 million shares
sold in the Offering, 833,333 shares were purchased by Mr. Otten.
The Company acquired Heavenly and Steamboat on November 12, 1997 for
approximately $300.5 million, including closing costs and adjustments. The
acquisition was accounted for using the purchase method of accounting. The
accompanying consolidated financial statements reflect the results of operations
of Steamboat and Heavenly subsequent to November 12, 1997.
On August 9, 1999, the Company sold 150,000 shares of its 8.5% Series B
Convertible Participating Preferred Stock ("Series B Preferred Stock") to Oak
Hill Capital Partners, L.P. and certain related entities ("Oak Hill") for $150
million (collectively, the "Oak Hill Transaction"). As part of the Series B
Agreement, the Company also agreed to move its state of incorporation from Maine
to Delaware by merging the Company (ASC East, ASC West and ASC Utah) into a
wholly owned Delaware subsidiary and amending its articles of incorporation (the
"Delaware Reincorporation"). Under the Delaware Reincorporation, which took
place on October 12, 1999, the Company was merged into a newly formed Delaware
subsidiary (ASC Delaware) that survived the merger and that has a capital
structure identical to the Company's prior to the merger.
3. Summary of Significant Accounting Principles
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of American Skiing Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Fiscal Year
The Company's fiscal year is a fifty-two week or fifty-three week
period ending on the last Sunday of July. The periods for 2001 and 1999
consisted of fifty-two weeks. The period for 2000 consisted of fifty-three
weeks.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a
remaining maturity of three months or less to be cash equivalents.
Restricted Cash
Restricted cash represents deposits related to pre-sales of real estate
developed for sale held in escrow and guest advance deposits for lodging
reservations. The cash will be available to the Company when the real estate
units are sold or the lodging services are provided.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market, and consist primarily of retail goods, food and beverage products and
mountain operating supplies.
Property and Equipment
Property and equipment are carried at cost, net of accumulated
depreciation. Depreciation is calculated using the straight-line method over the
assets' estimated useful lives which range from 9 to 40 years for buildings, 3
to 12 years for machinery and equipment, 10 to 50 years for leasehold
improvements and 5 to 30 years for lifts, lift lines and trails. Assets under
capital leases are amortized over the shorter of their useful lives or their
respective lease lives. Due to the seasonality of the Company's business, the
Company records a full year of depreciation relating to its operating assets
over the second and third quarters of its fiscal year.
Real Estate Developed for Sale
The Company capitalizes as real estate developed for sale the original
acquisition cost of land, direct construction and development costs, property
taxes, interest incurred on costs related to real estate under development, and
other related costs (engineering, surveying, landscaping, etc.) until the
property reaches its intended use. The cost of sales for individual parcels of
real estate or quartershare units within a project is determined using the
relative sales value method. Selling costs are charged to expense in the period
in which the related revenue is recognized.
Goodwill and Other Intangible Assets
Intangible assets consist of goodwill and various other intangibles.
The Company has classified as goodwill the excess of fair value of the net
assets (including tax attributes) of companies acquired in purchase transactions
and also the purchase of a minority interest. Intangible assets are recorded net
of accumulated amortization in the accompanying consolidated balance sheets and
are amortized using the straight-line method over their estimated useful lives
as follows:
Goodwill up to 40 years
Tradenames 40 years
Other intangibles 16 - 20 years
Deferred Financing Costs
Costs incurred in connection with the issuance of debt are included in
deferred financing costs, net of accumulated amortization. Amortization is
calculated using the straight-line method over the respective original lives of
the applicable issues. Amortization calculated using the straight-line method is
not materially different from amortization that would have resulted from using
the effective interest method.
Long-Lived Assets
The Company evaluates potential impairment of long-lived assets and
long-lived assets to be disposed of in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). SFAS No.
121 establishes procedures for review of recoverability and measurement of
impairment if necessary, of long-lived assets, goodwill and certain identifiable
intangibles held and used by an entity. SFAS No. 121 requires that those assets
be reviewed for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 also requires
that long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of their carrying amount or fair value less estimated
selling costs. As of July 29, 2001, management believes that there has not been
any significant impairment of the Company's long-lived assets, real estate
developed for sale, goodwill or other identifiable intangibles, except for
assets for which an impairment charge was recognized as reported in Note 11 -
Non-recurring Merger, Restructuring and Asset Impairment Charges.
Revenue Recognition
Resort revenues include sales of lift tickets, tuition from ski
schools, golf course fees and other recreational activities, sales from
restaurants, bars and retail shops, and real estate rentals. Daily lift ticket
revenue is recognized on the day of purchase. Lift ticket season pass revenue is
recognized in equal amounts over the ski season, which is the Company's second
and third quarters of its fiscal year. The Company's remaining revenue is
generally recognized as the services are performed. Real estate revenues are
recognized under the full accrual method when title has been transferred.
Amounts received from pre-sales of real estate are recorded as restricted cash
and deposits and deferred revenue in the accompanying consolidated balance sheet
until the revenue is recognized.
Interest
Interest is expensed as incurred except when it is capitalized in
connection with major capital additions and real estate developed for sale. The
amounts of interest capitalized are determined by applying current interest
rates to the funds required to finance the construction. During 1999, 2000 and
2001, the Company incurred total interest cost of $46.5 million, $51.5 million
and $55.7 million, respectively, of which $7.1 million, $15.6 million, and $2.9
million, respectively, have been capitalized to property and equipment and real
estate developed for sale.
Employee Benefits
As of July 27, 1997, the Company maintained a number of profit sharing
and savings plans pursuant to Section 401(k) of the Internal Revenue Code. In
August 1997, the Company established the ASC 401(k) Retirement Plan pursuant to
Section 401(k) of the Internal Revenue Code (the "Plan") and subsequently merged
the previously existing plans into the Plan. The Plan allows employees to defer
up to 15% of their income and provides for the matching of participant
contributions at the Company's discretion. Matching contributions to the savings
plans for 1999, 2000 and 2001 totaled $395,000, $439,000 and $447,000.
Advertising Costs
Advertising costs are expensed the first time the advertising takes
place. At July 30, 2000 and July 29, 2001, advertising costs of $220,000 and
$255,000, respectively, were recorded in prepaid expenses in the accompanying
consolidated balance sheets. Advertising expense for the years ended July 25,
1999, July 30, 2000 and July 29, 2001 was $9.5 million, $7.3 million and $9.3
million, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts and disclosures reported in the accompanying
consolidated financial statements. Actual results could differ from those
estimates.
Seasonality
The occurrence of adverse weather conditions during key periods of the
ski season could adversely affect the Company's operating results. In addition,
the Company's revenues are highly seasonal in nature, with the majority of its
revenues historically being generated in the second and third fiscal quarters,
of which a significant portion is produced in two key weeks - the Christmas and
Presidents' Day vacation weeks.
Earnings Per Share
SFAS No. 128, "Earnings Per Share" requires presentation of "basic"
earnings per share (which excludes dilution as a result of unexercised stock
options and the Mandatorily Redeemable Preferred Stock) and "diluted" earnings
per share. The Company adopted SFAS No. 128 in fiscal 1998 and all prior periods
presented were retroactively restated. For the years ended July 25, 1999, July
30, 2000 and July 29, 2001, basic and diluted loss per share are as follows:
Year Ended
------------------------------------------
July 25, 1999 July 30, 2000 July 29, 2001
Loss (in thousands, except per share amounts)
Loss before preferred stock dividends and
accretion, extraordinary items and cumulative
effect of accounting change $ (27,950) $ (30,133) $ (120,724)
Accretion of discount and dividends accrued on
mandatorily redeemable preferred stock 4,372 20,994 23,357
------------- ------------ -------------
Loss before extraordinary items and cumulative effect
of accounting change (32,322) (51,127) (144,081)
Extraordinary loss, net of taxes - 621 -
Cumulative effect of accounting change, net of taxes - 704 (2,509)
------------- ------------ -------------
Net loss available to common shareholders $ (32,322) $ (52,452) $ (141,572)
============= ============ =============
Shares
Total weighted average shares outstanding (basic and
diluted) 30,286 30,393 30,525
============= ============ =============
Basic and diluted loss per common share
Loss before extraordinary items $ (1.07) $ (1.69) $ (4.72)
Extraordinary loss, net of taxes - (0.02) -
Cumulative effect of accounting change, net of taxes - (0.02) 0.08
------------- ------------ -------------
Net loss available to common shareholders $ (1.07) $ (1.73) $ (4.64)
============= ============ =============
The Company has outstanding 36,626, 186,626 and 186,626 shares of
convertible preferred stock (represented by two separate classes) at July 25,
1999, July 30, 2000 and July 29, 2001, respectively. These shares are
convertible into shares of the Company's common stock. However, the common stock
shares into which these securities are convertible have not been included in the
dilutive share calculation as the impact of their inclusion would be
anti-dilutive. The Company also has 2,746,048, 1,359,963 and 2,626,069
exercisable options outstanding to purchase shares of its common stock under the
Company's stock option plan as of July 25, 1999, July 30, 2000 and July 29,
2001, respectively. These shares are also excluded from the dilutive share
calculation as the impact of their inclusion would also be anti-dilutive.
Stock Compensation
The Company's stock option plan is accounted for in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation" (See Note 17 - Stock Option Plan).
Fair Value of Financial Instruments
The recorded amounts for cash and cash equivalents, restricted cash,
accounts receivable and accounts payable and other current liabilities
approximate fair value due to the short-term nature of these financial
instruments. The fair value of amounts outstanding under the Company's Senior
Credit Facility and certain other debt instruments approximate their recorded
values in all material respects, as determined by discounting future cash flows
at current market interest rates as of July 29, 2001. The fair value of the
Company's Senior Subordinated Notes has been estimated using quoted market
values. The fair value of the Company's other subordinated debentures have been
estimated using discounted cash flow analyses based on current borrowing rates
for debt with similar maturities and ratings.
The estimated fair values of the Senior Subordinated Notes and other
subordinated debentures at July 30, 2000 and July 29, 2001 are presented below
(in thousands):
July 30, 2000 July 29, 2001
Carrying Fair Carrying Fair
amount value amount value
-------- ------ -------- -------
12% Senior Subordinated Notes $ 117,512 $ 102,300 $ 117,816 $ 81,000
Other subordinated debentures $ 9,823 $ 8,616 $ 9,297 $ 8,261
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes, as set forth in SFAS No. 109, "Accounting for Income Taxes". SFAS
No. 109 requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the financial
statement and tax bases of assets and liabilities, utilizing currently enacted
tax rates. The effect of any future change in tax rates is recognized in the
period in which the change occurs.
Reclassifications
Certain amounts in the prior year financial statements and related
notes have been reclassified to conform to the Fiscal 2001 presentation.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, "Business Combinations." SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method. This statement is effective for all business combinations
initiated after June 30, 2001. The Company believes the adoption of SFAS No. 141
will not have a material impact on its future results of operations or financial
position.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement applies to goodwill and intangible assets
acquired after June 30, 2001, as well as goodwill and intangible assets
previously acquired. Under this statement goodwill as well as certain other
intangible assets determined to have an infinite life, will no longer be
amortized. Instead, these assets will be reviewed for impairment on a periodic
basis. Early adoption of this statement is permitted for non-calendar year-end
companies with fiscal year beginning after March 15, 2001 and its first interim
period financial statements have not been issued. The Company intends to early
adopt the provisions of SFAS No. 142 and management is currently evaluating the
potential impairment loss. The Company anticipates recognizing a goodwill
impairment charge of between $15 million and $20 million in the first quarter of
Fiscal 2002.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company believes the adoption of SFAS No. 143 will not have a material impact on
its results of operations or financial position and will adopt such standards on
July 29, 2002, as required.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supercedes FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
This statement requires that one accounting model be used for long-lived assets
to be disposed of by sale, whether previously held and used or newly acquired,
and it broadens the presentation of discontinued operations to include more
disposal transactions. The provisions of this statement are effective for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years, with early adoption permitted. The Company is currently evaluating
whether it will early adopt the provisions of SFAS No. 144, and management will
not be able to determine the ultimate impact of this statement on its results of
operations or financial position until such time as its provisions are applied.
4. Property and Equipment
Property and equipment consists of the following (in thousands):
July 30, 2000 July 29, 2001
---------------------------------------------------------------
Buildings and grounds $ 195,847 $ 183,121
Machinery and equipment 171,037 145,263
Lifts and lift lines 162,283 156,172
Trails 38,061 26,744
Land improvements 18,708 8,417
------------- -------------
Less: accumulated 585,936 519,717
depreciation 146,973 152,005
------------- -------------
438,963 367,712
Land 78,486 69,850
Construction-in-process 16,629 3,032
------------- -------------
Property and equipment, net $ 534,078 $ 440,594
------------------------------------------------------------
Property and equipment includes approximately $53.3 million and $42.9
million of machinery and equipment and lifts held under capital leases at July
30, 2000 and July 29, 2001, respectively. At July 30, 2000 and July 29, 2001,
related accumulated amortization on property and equipment under capital leases
was approximately $13.1 million and $14.7 million, respectively. Amortization
expense for property and equipment under capital leases was approximately $4.4
million, $4.2 million and $3.1 million for 1999, 2000 and 2001, respectively.
Total depreciation and amortization expense relating to all property and
equipment was $40.4 million, $41.9 million and $40.8 million for 1999, 2000 and
2001, respectively.
5. Long-Term Debt
Long-term debt consists of (dollar amounts in thousands):
------------------------------------------------------------------------------------------------------------------
July 30, 2000 July 29, 2001
------------------------------------------------------------------------------------------------------------------
Senior Credit Facility (See Note 6 - Senior Credit Facility) $118,037 $142,848
Real Estate Term Facility (See Note 7 - Real Estate Term Facility) (See Note 19 -
Subsequent Events). 53,892 62,093
Real estate development note payable with a face value of $110,000. The note
bears interest at a variable rate of prime plus 2.5% per annum, which is
accrued monthly. Principal and interest on the note are payable as real
estate quartershares are sold. Any remaining principal and accrued interest
is due in March 2002. The note is collateralized by the real estate
developed for sale of GSRP. (See Note 19 - Subsequent Events). 92,083 49,424
Real estate development note payable with a face value of $10,000 to provide
additional funds for the completion of the Steamboat Grand Hotel. The note
bears interest at 20% per annum, half of which is payable monthly in arrears
and the remainder is deferred until final payment is made. The stated
maturity date is August 1, 2003. (See Note 19 - Subsequent Events). 2,588 5,180
Note payable in an aggregate principal amount of $3,530 for forbearance fees
for the amended and restated real estate development term loan facility
described above. The note bears interest at 12% per annum and is payable at
maturity. This note was paid off in Fiscal 2001 as part of the restructuring
of the real estate term loan facility. 3,530 -
Real estate mortgage note payable with a face value of $2,427 secured by an
employee housing complex at the Company's Steamboat resort. The note is on a
15-year amortization schedule, maturing in July,2020 and principal and
interest are payable monthly. The interest rate is reset on January 1 of
each year to the prime rate of the lending institution. The $2.3 million
balance outstanding as of July 29, 2001 has been reclassified to Assets Held
for Sale in accordance with FAS 121 due to the pending sale of Steamboat resort. 2,397 -
Note payable with a face value of $2,250. The note bears interest at 9% per
annum, which is payable monthly beginning January 1998 for a 15-year term.
The principal is due in full in December 2012. 2,250 2,250
------------------------------------------------------------------------------------------------------------------
July 30, 2000 July 29, 2001
------------------------------------------------------------------------------------------------------------------
Subordinated debentures issued with an original face value of $2,101. The
initial coupon rate is 6% per annum and is adjusted annually in accordance
with the agreement. Interest is payable annually in May beginning in 1995.
The debentures mature in April 2002. 1,800 1,867
Note payable with a face value of $1,600. Interest is payable monthly
beginning January 1998 for a 30-year term. The interest rate is 7% per annum
for the first 10 years, 8.44% per annum for the second 10 years and 10.55%
per annum for the final 10 years. The principal is due in full in December 2027. 1,600 1,600
Obligations under capital leases 28,630 19,876
Other notes payable 1,542 1,000
------------ -----------
308,349 286,138
Less: current portion 58,508 74,776
------------ -----------
Long-term debt, excluding current portion $ 249,841 $ 211,362
--------------------------------------------------------------------------------------------------------------
The carrying values of the above debt instruments approximate their
respective fair values in all material respects, determined by discounting
future cash flows at current market interest rates as of July 29, 2001.
At July 30, 2000 and July 29, 2001, the Company had letters of credit
outstanding totaling $5.9 million and $0.6 million, respectively.
The non-current portion of long-term debt matures as follows (in
thousands):
- ---------------------------------------------------------------------------
Subordinated
Long-Term Notes and Total
Debt Debentures Debt
- ---------------------------------------------------------------------------
2003 $ 55,824 $ 1,074 $ 56,898
2004 66,203 1,466 67,669
2005 47,374 - 47,374
2006 40,083 120,000 160,083
2007 and thereafter 3,974 6,208 10,182
Interest related to capitalized
leases (2,096) - (2,096)
Debt discount - (2,184) (2,184)
----------- ----------- ----------
Non-current portion of long-term
debt $211,362 $ 126,564 $337,926
- ---------------------------------------------------------------------------
6. Senior Credit Facility
In connection with the Offering, the Company established a senior
credit facility on November 12, 1997 and repaid the indebtedness under the
Company's then existing credit facility. On October 12, 1999, this senior credit
facility was amended, restated and consolidated from two sub-facilities totaling
$215 million to a single facility totaling $165 million (the "Senior Credit
Facility"). The Senior Credit Facility consists of a revolving credit facility
in the amount of $100 million and a term facility in the amount of $65 million.
The revolving portion of the Senior Credit Facility matures on May 31, 2004, and
the term portion matures on May 31, 2006. The Senior Credit Facility is secured
by substantially all the assets of ASC and its subsidiaries, except the real
estate development subsidiaries, which are not borrowers under the Senior Credit
Facility (collectively, the borrowing subsidiaries are referred to as the
"Restricted Subsidiaries"). In conjunction with the restructuring of the Senior
Credit Facility, the Company wrote-off a pro-rata portion of its existing
deferred financing costs in the amount of $1.0 million, or $621,000 net of
income taxes, which is included in the accompanying consolidated statement of
operations for the year ended July 30, 2000 as an extraordinary loss.
The maximum availability under the revolving portion of the Senior
Credit Facility reduces over its term by certain prescribed amounts. The term
portion of the Senior Credit Facility amortizes in five annual installments of
$650,000 payable on May 31 of each year, with the remaining portion of the
principal due in two substantially equal installments on May 31, 2005 and May
31, 2006. As of July 29, 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.
The Senior Credit Facility contains affirmative, negative and financial
covenants customary for this type of credit facility, which includes maintaining
certain financial ratios. 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, the Company
successfully completed the 30-day clean-down requirement for the current year.
The Senior Credit Facility also places an annual maximum level of
non-real estate capital expenditures, exclusive of amounts expended on the
Heavenly gondola project. The Company is permitted to and expects to make
capital expenditures of up to $30 million for the purchase and construction of a
gondola at its Heavenly resort in Lake Tahoe, Nevada. The Heavenly gondola
became operational, and began transporting skiers in December 2000. As of July
29, 2001, the Company has expended $23.1 million on the construction of the
Heavenly gondola and it continues to evaluate the design and construction of
additional related amenities of the gondola facilities.
The Senior Credit Facility restricts the Company's ability to pay
dividends on its common stock. The Company is 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.
On July 12, 2001 the Company entered into a second amendment to the
Senior Credit Facility, effective as of April 29, 2001, which contained the
following provisions:
o Established an optional prepayment provision whereby the
Company can make a prepayment of at least $90 million on or
before December 24, 2001 using the net proceeds form an
issuance of equity securities or the sale of a single asset
(or a series of related assets). $50 million of the optional
prepayment shall be used to repay existing revolving credit
advances, with the remainder to be applied to the term
facility. See Note 1 - Business Environment and Management's
Plans, for a discussion of the ramifications to the Company
should it fail to make this optional prepayment.
o Created an additional credit advance under the existing
revolving portion of the facility for the purpose of funding
the July 15, 2001 interest payment on the Company's 12% senior
subordinated notes, due 2006. This additional credit advance
of $5.2 million bears interest at a fixed rate of 12% and may
only be repaid in conjunction with the optional prepayment
provision of the amendment.
o Established the following maximum revolving credit amounts for
all revolving advances, including the additional credit
advance and amounts allocated to cover outstanding letters of
credit:
Effective Date - July 1, 2001 $72,000,000
July 2, 2001 - August 1, 2001 $87,000,000
August 2, 2001 - December 29, 2001 $100,000,000
December 30, 2001 - January 26, 2002 $87,000,000
January 27, 2002 - February 23, 2002 $67,000,000
February 24, 2002 - March 30, 2002 $47,000,000
March 31, 2002 - April 28, 2002 $22,000,000
April 29, 2002 - June 2, 2002 $52,000,000
June 3, 2002 - June 30, 2002 $67,000,000
July 1, 2002 - July 28, 2002 $77,000,000
Should the Company make the optional prepayment, the maximum
revolving credit advance amount will be reduced to $50 million
for the remainder of the facility. All above amounts are still
subject to the mandatory reduction requirements established
under the original credit facility. As of July 29, 2001, total
borrowings under the revolving credit were $79.1 million
(which includes the $5.2 million additional credit advance),
and $0.6 million of availability was allocated to cover
outstanding letters of credit.
o Reduced the annual clean-down requirement from $35 million to
$20 million, starting in Fiscal 2002. Should the Company make
the optional prepayment, the annual cleandown requirement will
be further reduced to $5 million.
o Amended all of the required financial covenant ratios
beginning with the fourth quarter of Fiscal 2001 through the
maturity of the facility. However, should the Company fail to
make the optional prepayment it will be required to amend all
financial covenant ratios beginning in the first quarter of
Fiscal 2003. The Company successfully satisfied all of the
amended covenant requirements for the quarter ended July 29,
2001.
o Increased the interest rate on all term and revolving credit
amounts outstanding (excluding the $5.2 million additional
credit advance) to the Fleet National Bank Base Rate plus
3.0%, until such time that the Company makes the optional
prepayment. Should the Company make the optional prepayment,
the interest rates will be reset to a new pricing grid under
which the rates for both the term and revolving facilities
will vary, based on the Company's leverage ratios, from a
minimum of the Fleet National Bank Base Rate plus 1.25% or
LIBOR plus 2.50% to a maximum of the Fleet National Bank Base
Rate plus 2.25% or LIBOR plus 3.75%. Should the Company fail
to make the optional prepayment, the interest rates on both
the revolving and term facilities will increase incrementally
to the Fleet National Bank Base Rate plus 4.25%.
o Amended the maximum annual resort capital expenditure amount
to $13.8 million per year (excluding expenditures on the
Heavenly gondola), beginning with Fiscal 2001. Should the
Company make the optional prepayment, it will also be
permitted to make additional expenditures in connection with
the completion of the second phase of the Heavenly gondola, in
an aggregate amount not to exceed $30 million. For Fiscal
2001, the Company satisfied the maximum capital expenditure
requirement, as its capital expenditures subject to this
covenant were $8.7 million for the year (excluding the
Heavenly gondola). As of July 29, 2001, the Company has
expended an aggregate amount of $23.1 million on the Heavenly
gondola project.
Subsequent to the end of fiscal 2001, the Company has entered into a
third and fourth amendment to the Senior Credit Facility (See Note 19 -
Subsequent Events for a detailed discussion of these amendments).
7. Real Estate Term Facility
On July 31, 2000, the Company entered into a Second Amended and
Restated Credit Agreement between Resort Properties, Fleet National Bank and the
lenders party thereto (the "Amended Real Estate Term Facility"). This fully
syndicated $73 million facility replaces Resort Properties' previous
un-syndicated $58 million Real Estate development term loan facility. The
Amended Real Estate Term Facility is collateralized by security interests in,
and mortgages on, substantially all of Resort Properties' assets, which
primarily consist of undeveloped real property and the stock of its real estate
development subsidiaries (including GSRP).
The Amended Real Estate Term Facility is comprised of three tranches,
each with separate interest rates and maturity dates. Tranche A has a maximum
principal amount of $35 million, bears interest at a variable rate equal to the
Fleet National Bank's Base Rate plus 8.25% (payable monthly in arrears) and
matures on December 31, 2002. Tranche B has a maximum principal amount of $25
million, bears interest at a fixed rate of 25% per annum and matures on December
31, 2003. Interest calculated at 18% per annum for Tranche B is payable monthly
in arrears. The remaining 7% per annum accrues, is added to the principal
balance of Tranche B and bears interest at 25% per annum, compounded annually.
Tranche C has a maximum principal amount of $13 million, bears interest at an
effective rate of 25% per annum and matures on December 31, 2005. Interest
accrues, is added to the principal balance of Tranche C and compounds
semi-annually.
Tranche C of the Amended Real Estate Term Facility was purchased by Oak
Hill Capital Partners, L.P. In connection with this $13 million investment, the
Company entered into a Securities Purchase Agreement with Oak Hill, dated as of
July 31, 2000, pursuant to which the Company agreed to either (i) issue warrants
to Oak Hill for 6,000,000 shares of ASC common stock with an exercise price of
$2.50 per share or (ii) issue to Oak Hill common stock in Resort Properties
representing approximately 15% of the voting interest in Resort Properties. The
purchase price of the warrants (or Resort Properties common stock, as
applicable) was $2 million.
As of July 29, 2001, the amounts outstanding, including accrued and
unpaid interest, under Tranches A, B and C of the Amended Real Estate Term
Facility were $27.0 million, $26.8 million, and $12.1 million, respectively. The
Amended Real Estate Term Facility and the Securities Purchase Agreement with Oak
Hill were restructured subsequent to the end of Fiscal 2001 (See Note 19 -
Subsequent Events).
8. Subordinated Notes and Debentures
On June 25, 1996, in connection with the S-K-I Acquisition, ASC East
issued $120.0 million of 12% Senior Subordinated Notes (the "Notes"). In order
to comply with the conditions to closing the Series B Preferred Stock sale (See
Note 9 - Mandatorily Redeemable Securities), certain amendments were made to the
Notes. One of the amendments permitted the consummation of a merger of two of
the Company's wholly owned subsidiaries, ASC East and ASC West, with and into
ASC. This merger was approved by the noteholders on August 1, 1999 and a payment
of approximately $1.5 million was paid to the holders of the Notes. ASC, ASC
East and ASC West were merged on October 6, 1999. In connection with the merger,
ASC assumed all liabilities of ASC East and ASC West and became the primary
obligor under the Notes. In addition, the then current subsidiaries of ASC and
ASC West, as well as ASC Utah, also became additional guarantors under the
Indenture. As a result of the additional guarantee given by certain subsidiaries
of the Company, the noteholders under the Indenture will have priority over the
equity holders of the Company with respect to any claims made on the assets of
those subsidiaries until the obligations under the Indenture have been
satisfied.
The Notes are general unsecured obligations of ASC, subordinated in
right of payment to all existing and future senior debt of ASC, including all
borrowings of the Company under the Senior Credit Facility. The Notes are fully
and unconditionally guaranteed by the Company and all its subsidiaries with the
exception of Ski Insurance, Killington West, Ltd., Mountain Water Company,
Uplands Water Company, Club Sugarbush, Inc., Walton Pond Apartments, Inc. and
Deerfield Operating Company. The guarantor subsidiaries are wholly owned
subsidiaries of the Company and the guarantees are full, unconditional, and
joint and several. The Notes mature July 15, 2006, and will be redeemable at the
option of ASC, in whole or in part, at any time after July 15, 2001. The Notes
were issued with an original issue discount of $3.4 million. Interest on the
Notes is payable semi-annually on January 15 and July 15 of each year. Interest
expense on the Notes amounted to $14.6 million in each of fiscal 1999, 2000, and
2001.
The Company incurred financing costs of $6.7 million in connection with
the issuance of the Notes and an additional $2.5 million in costs related to the
amendments made in connection with the Series B Preferred Stock sale. These
amounts are recorded as deferred financing costs, net of accumulated
amortization, in the accompanying consolidated balance sheets. Amortization
expense included in the accompanying consolidated statements of operations for
the years ended July 25, 1999, July 30, 2000 and July 29, 2001 amounted to
$668,600, $1.0 million and $1.0 million, respectively.
The Company has entered into a series of (non-cancelable) interest rate
swap agreements in connection with its Notes, which were intended to defer a
portion of the cash interest payments on the Notes into later years. The
following table illustrates the key factors of each of these agreements:
- --------------------------------------------------------------------------------------------------------------------
February 9, 1998 - July 15, 2001 July 16, 2001 - July 15, 2006
Notional Company Company Notional Company Company
Amount Pays Receives Amount Pays Receives
- --------------------------------------------------------------------------------------------------------------------
Agreement 1 $120,000,000 9.01% 6-month LIBOR $127,500,000 9.01% 6-month LIBOR
Agreement 2 $120,000,000 6-month LIBOR 12.00% $127,500,000 6-month LIBOR 7.40%
- --------------------------------------------------------------------------------------------------------------------
As a result of entering into this interest rate swap arrangement, the
Company has fixed the cash-pay rate on the Notes until their maturity in July
2006. The net effect of the swap agreements will result in a $2.1 million cash
interest savings over the life of the agreements. These agreements are
non-hedging swaps which are carried at their fair market value, with
fluctuations recorded through interest expense, in accordance with SFAS No. 133.
Other subordinated debentures owed by the Company at July 29, 2001 are
due as follows (in thousands):
------------------------------
Interest Principal
Year Rate Amount
------------------------------
2002 8% 549
2003 8% 1,074
2004 8% 1,466
2010 8% 1,292
2012 6% 1,155
2013 6% 1,065
2015 6% 1,500
2016 6% 1,196
------------
$ 9,297
============
9. Mandatorily Redeemable Securities
Series A Preferred Stock
Pursuant to a Securities Purchase Agreement (the "Series A Agreement")
dated July 2, 1997 (as amended July 16, 1997), the Company issued 17,500 shares
of its Series A 14% Exchangeable Preferred Stock (the "Series A Preferred
Stock") in a private offering to an institutional investor. Pursuant to the
Series A Agreement, the Company issued $17.5 million aggregate principal amount
of its 14% Senior Exchangeable Notes Due 2002 (the "Exchangeable Notes") on July
28, 1997 in a private offering to an institutional investor. On November 15,
1997, subsequent to the completion of the Offering, each share of Series A
Preferred Stock and the Exchangeable Notes were converted into shares of
Mandatorily Redeemable 10 1/2% Preferred Stock. The total number of Mandatorily
Redeemable 10 1/2% Preferred Stock shares issued in association with the
exchange were 36,626 and have a face value of $1,000 per share.
Under the Series A Agreement, the Mandatorily Redeemable 10 1/2%
Preferred Stock shares are exchangeable at the option of the holder into shares
of the Company's Common Stock at a conversion price of $17.10 for each common
share. In the event the Mandatorily Redeemable 10 1/2% Preferred Stock is held
to the maturity date of November 15, 2002, the Company will be required to pay
the holder in cash the face value of $36.6 million plus approximately $25.3
million of cumulative dividends in arrears.
In the event of a default, as defined in the Series A Agreement, there
shall be a mandatory redemption of the Mandatorily Redeemable 10 1/2% Preferred
Stock by the Company unless the holder of the stock elects instead to have
visitation rights to meetings of both the Board of Directors and Management
Committees until the event of default is cured.
The Mandatorily Redeemable 10 1/2% Preferred Stock ranks senior in
liquidation preference to all Common Stock and Class A Common Stock outstanding
at July 29, 2001 as well as any Common Stock and Class A Common Stock issued in
the future.
Series B Preferred Stock
Pursuant to a Preferred Stock Subscription Agreement (the "Series B
Agreement") dated July 9, 1999, the Company sold 150,000 shares of its 8.5%
Series B Convertible Participating Preferred Stock ("Series B Preferred Stock")
on August 9, 1999 to Oak Hill Capital Partners, L.P. and certain related
entities ("Oak Hill") for $150 million. The Company used approximately $129
million of the proceeds to reduce indebtedness under its Senior Credit Facility,
approximately $30 million of which has been reborrowed and invested in the
Company's principal real estate development subsidiary, Resort Properties. The
remainder of the proceeds were used to (1) pay approximately $16 million in fees
and expenses in connection with the Series B Preferred Stock sale (approximately
$13 million) and related transactions (approximately $3 million), and (2)
acquire from Mr. Otten certain strategic assets and to repay a demand note
issued by a subsidiary of the Company to Mr. Otten, in the aggregate amount of
$5.4 million.
The Series B Preferred Stock is convertible into shares of the
Company's common stock at an initial conversion price of $5.25 per share of
common stock. The initial conversion price is subject to an antidilution
adjustment. Assuming all shares of the Series B Preferred Stock are converted
into the Company's common stock at the initial (and current) conversion price,
Oak Hill would own approximately 52.5% of the Company's outstanding common stock
and Class A common stock as of July 29, 2001. Oak Hill is entitled to vote its
shares of Series B Preferred Stock on matters (other than the election of
Directors) as if its shares were converted into the Company's common stock. In
addition, Oak Hill as the holder of Series B Preferred Stock has class voting
rights to elect Directors to the Company's Board of Directors. Furthermore,
under the Series B Agreement, Oak Hill and Mr. Otten have agreed to use best
efforts and to vote their shares in order to ensure that each of them is able to
appoint up to four Directors to the Board (depending on their shareholdings).
Therefore, under the Series B Agreement and the Company's certificate of
incorporation, Oak Hill and Mr. Otten together elect eight of the eleven members
of the Company's Board of Directors.
Dividends on the Series B Preferred Stock are payable at the rate of
8.5% per year. For the first five years, the Company may accrete and compound
dividends payable to the liquidation price instead of paying cash dividends, in
which case the dividend rate will increase to 9.5% after January 31, 2001, and
to 10.5% after January 31, 2002. The Series B Agreement requires dividends to be
paid in cash after July 31, 2004. The dividend rate will revert back to 8.5% at
the time the Company begins paying the dividend in cash. If the Company elects
to accrue dividends on the Series B Preferred Stock to the liquidation price for
the first five years, and thereafter pay all dividends in cash when due,
assuming no intervening stock issuances or repurchases by the Company, the
Series B Preferred Stock would be convertible into 60.4% of the Company's common
stock after the fifth anniversary of its issuance. The Company is currently
accruing dividends on the Series B Preferred Stock at an effective rate of 9.7%,
with the assumption that dividends will not be paid in cash until the fifth
anniversary of the issuance.
The Series B Agreement, dated August 9, 1999, was amended as of July
31, 2000 to provide, among other things: (i) that Oak Hill will have the right
to elect six members of the Company's Board of Directors, provided that Oak Hill
maintains certain ownership levels; (ii) that Mr. Otten will have the right to
elect two members to the Board, provided that he maintains certain ownership
levels; and (iii) that Mr. Otten will have the right to serve on the executive
committee of the Board and on the boards of directors of material subsidiaries
of ASC.
In early Fiscal 2002, the Series B Preferred Stock was stripped of all
of its rights and preferences, with the exception of its right to elect up to
six directors. The Company issued Series C-1 and Series C-2 Preferred Stock with
an aggregate initial face value equal to the accrued liquidation preference of
the Series B Preferred Stock immediately before being stripped of it right to
such accrued liquidation preference. (See Note 19 - Subsequent Events).
10. Capital Stock
The Company has two classes of Common Stock outstanding, Class A Common
Stock and Common Stock. The rights and preferences of holders of Class A Common
Stock and Common Stock are substantially identical, except that, while any Class
A Common Stock is outstanding, holders of Class A Common Stock will elect a
class of directors that constitutes two-thirds of the Board of Directors and
holders of Common Stock will elect a class of directors that constitutes
one-third of the Board of Directors. Each share of Class A Common Stock will be
convertible into one share of Common Stock (i) at the option of the holder at
any time, (ii) automatically upon transfer to any person that is not an
affiliate of Mr. Otten and (iii) automatically if, at any time, the number of
shares of Class A Common Stock outstanding represents less than 20% of
outstanding shares of Common Stock and Class A Common Stock. Mr. Otten holds
100% of the Class A Common Stock, representing approximately 51% of the combined
voting power of all outstanding shares of Common Stock and Class A Common Stock.
11. Non-recurring Merger, Restructuring and Asset Impairment Charges
During Fiscal 2001, the Company recognized certain non-recurring
charges as follows (in thousands):
------------------------------------------------------
Year Ended
July 29, 2001
------------------------------------------------------
Write down of Steamboat assets held for sale $ 52,000
Write down of Sugarbush assets held for sale 15,111
Costs associated with failed merger 3,593
Restructuring charges 4,011
Write-down of Attitash Grand Summit units 1,330
-------------
Total non recurring charges $ 76,045
------------------------------------------------------
Subsequent to the end of Fiscal 2001, the Company entered into an
non-binding letter of intent to sell its Steamboat resort in Steamboat Springs,
CO. In accordance with SFAS No. 121, the Company has recognized an estimated
$52.0 million impairment loss on the net assets held for sale as of July 29,
2001. See Note 19 - Subsequent Events for more detail on this transaction.
Also subsequent to the end of Fiscal 2001, the Company entered into an
agreement to sell its Sugarbush resort in Warren, VT. In accordance with SFAS
No. 121, the Company has recognized an estimated $15.1 impairment loss on these
assets as of July 29, 2001. See Note 19 - Subsequent Events for more detail on
this transaction.
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 recorded a
$3.6 million charge in the third quarter of fiscal 2001 representing all costs
incurred in conjunction with the terminated MeriStar Merger.
On May 30, 2001, the Company announced a comprehensive strategic plan
to improve its capital structure and enhance future operating performance. The
plan includes the following key components:
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 and use the net proceeds
to reduce the debt of the Company.
o Operational cost savings of approximately $5 million through
reorganization and staff reduction and performance enhancement
programs.
o A comprehensive financial restructuring package, including
amendments to senior credit facilities and an anticipated new
capital infusion to enhance financial flexibility.
As of July 29, 2001, the Company has incurred $4.0 million in charges
related to the implementation of its strategic restructuring plan. These costs
consisted mainly of employee separation costs and legal, consulting and
financing costs incurred in connection with the Company's credit facility
amendments and anticipated capital infusion. (See Note 19 - Subsequent Events).
The Grand Summit at Attitash has realized slower absorption in the
market than previously anticipated, and 40% of the units remained unsold as of
July 29, 2001. The Company has recently instituted programs to bring about a
complete sell-out of the units during Fiscal 2002. In accordance with SFAS No.
121, the Company recognized a $1.3 million write-down to net realizeable value
in the fourth quarter of fiscal 2001 on the remaining units at the Attitash
Grand Summit Hotel project.
12. Income Taxes
The provision (benefit) for income taxes charged to operations was as
follows (in thousands):
Year ended
------------------------------------------------
July 25, 1999 July 30, 2000 July 29, 2001
---------------------------------------------------------------------------------
Deferred tax provision (benefit)
Federal $ (11,939) $ (7,728) $ 1,203
State (3,118) 1,923 (1,203)
------------- -------------- -------------
Total provision (benefit) $ (15,057) $ (5,805) $ -
------------------------------- ------------- --- -------------- --- -------------
Deferred income taxes reflect the tax impact of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. Under SFAS No. 109,
the benefit associated with future deductible temporary differences and
operating loss or credit carryforwards is recognized if it is more likely than
not that a benefit will be realized. Deferred tax expense (benefit) represents
the change in the net deferred tax asset or liability balance.
Deferred tax liabilities (assets) are comprised of the following at
July 30, 2000 and July 29, 2001 (in thousands):
-------------------------------------------------------------------------
July 30, 2000 July 29, 2001
-------------------------------------------------------------------------
Property and equipment basis differential $ 57,407 $ 54,581
Other 1,002 1,130
------------- -------------
Gross deferred tax liabilities 58,409 55,711
Tax loss and credit carryforwards (57,272) (80,098)
Capitalized costs (3,849) (6,321)
Deferred revenue and contracts (2,506) (1,822)
Stock compensation charge (1,740) (486)
Reserves and accruals (4,390) (24,148)
------------- -------------
Gross deferred tax assets (69,757) (112,875)
Valuation allowance 9,982 57,164
------------- -------------
Net deferred tax liability (asset) $ (1,366) $ -
============= =============
The provision (benefit) for income taxes differs from the amount of
income tax determined by applying the applicable U.S. statutory income tax rate
of 35% to income (loss) before provision (benefit) for income taxes,
extraordinary loss and cumulative effect of change in accounting principle as a
result of the following differences (in thousands):
Year ended
------------------------------------------------
July 25, 1999 July 30, 2000 July 29, 2001
-----------------------------------------------------------------------------------------------
Income tax benefit at the statutory U.S.
tax rates $ (15,052) $ (12,578) $ (42,254)
Increase (decrease) in rates resulting from:
State taxes, net (3,118) 1,923 (4,166)
Change in valuation allowance - 3,000 47,182
Stock option compensation 1,623 761 -
Nondeductible items 848 498 350
Other 642 591 (1,112)
-------------- ------------- --------------
Income tax benefit at the effective tax rates $ (15,057) $ (5,805) $ -
============== ============= ==============
At July 29, 2001, the Company has federal net operating loss ("NOL")
carryforwards of approximately $239.6 million which expire in varying amounts
though the year 2020, a federal capital loss carryover of approximately $5.0
million that expires in the years 2003 and 2004, and approximately $928,000 in
general business credit carryforwards which expire in varying amounts through
2020. Internal Revenue Code Section 382 limits the amount of NOL carryforwards
incurred before a change in ownership, as defined, that can be used annually
against income generated after the change in ownership. The Company experienced
a change in ownership both in November of 1997 as a result of the Offering and
in August of 1999 as a result of the Oak Hill Transaction. The use of
approximately $84.9 million of the federal NOL carryovers are subject to
limitation under Section 382 as a result of the Oak Hill Transaction. In
addition, approximately $27.3 million of the federal NOL carryforwards are
subject to an additional limitation under Section 382 as a result of the
Offering. Because of recent acquisitions, the limitation for both ownership
changes is required to be allocated to the various subsidiaries based on their
relative fair market values. In addition, certain subsidiaries have separate
pre-change in ownership losses, which are subject to additional annual
limitations as a result of previous changes in ownership. Subsequent changes in
ownership could further affect the limitations in future years.
In addition to the limitations under Section 382, approximately $6.8
million of the federal NOL carryovers are from separate return years, as defined
in the regulations to the Internal Revenue Code, of certain subsidiaries (or
sub-groups), and may only be used to offset each subsidiary's (or sub-group's)
contribution to consolidated taxable income in future years.
A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. During
Fiscal 2001, the valuation allowance was increased by approximately $47.2
million, from $10.0 million at July 30, 2000 to $57.2 million at July 29, 2001.
As a result of the Oak Hill Transaction, the realization of the tax benefit of
certain of the Company's NOL carryovers and other tax attributes is dependent
upon the occurrence of certain future events. It is the judgement of management
that a valuation allowance of $57.2 million against its deferred tax assets for
NOL carryforwards and other tax attributes is appropriate because it is more
likely than not that the benefit of such losses and attributes will not be
realized.
13. Cumulative Effect of Accounting Changes
In Fiscal 2000, the Company adopted American Institute of Certified
Public Accountants (AICPA) Statement Of Position 98-5, "Reporting on the Costs
of Start-Up Activities" ("SOP 98-5"). At adoption, SOP 98-5 required the Company
to write-off any unamortized start-up costs as a cumulative effect of change in
accounting principle and, going forward, expense all start-up activity costs as
they are incurred. The initial adoption of SOP 98-5 resulted in the write-off of
$1.2 million of start-up costs that had previously been capitalized as of July
25, 1999. The net effect of the write-off of $704,000 (which is net of income
tax benefits of $449,000) has been expensed and reflected as a cumulative effect
of an accounting change in the accompanying statement of operations for the year
ended July 30, 2000.
In accordance with SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133," the Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" and SFAS No. 138 "Accounting for Certain Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement No. 133,"
(collectively, SFAS No. 133, as amended) effective July 31, 2000. These
standards were adopted as of the beginning of Fiscal 2001 as a change in
accounting principle and cannot be applied retroactively to financial statements
of prior periods.
SFAS No. 133, as amended, establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, to the extent
effective, and requires that the Company formally document, designate and assess
the effectiveness of transactions that receive hedge accounting. SFAS No. 133,
as amended, in part, allows special hedge accounting for fair value and cash
flow hedges. The statement provides that the gain or loss on a derivative
instrument designated and qualifying as a fair value hedging instrument, as well
as the offsetting changes in the fair value of the hedged item attributable to
the hedged risk, be recognized currently in earnings in the same accounting
period. SFAS No. 133, as amended, provides that the effective portion of the
gain or loss on a derivative instrument designated and qualifying as a cash flow
hedging instrument be reported as a component of other comprehensive income and
be reclassified into earnings in the same period or periods during which the
hedged forecasted transaction affects earnings. The ineffective portion of a
derivative's change in fair value is recognized currently through earnings
regardless of whether the instrument is designated as a hedge.
The Company had five interest rate swap contracts outstanding at the
time of adoption. Two of these contracts were designated as cash flow hedges,
and they have subsequently been terminated by the floating rate payer on
November 17, 2000. Upon adoption, the fair value of these swaps were recorded as
an asset on the balance sheet with a corresponding credit to other comprehensive
income. The cancellation of these swaps effectively resulted in a reversal of
the amounts recognized upon adoption.
The Company has entered into three other interest rate swap agreements
that do not qualify for hedge accounting under SFAS No. 133 as amended. The net
effect of these swaps will be cash interest savings to the Company of $2.1
million over the life of the Senior Subordinated Notes. As of July 30, 2000, the
Company had $8,592,185 recorded in Other Long Term Liabilities in the
accompanying Consolidated Balance Sheet and had been recording the net effect of
the interest savings on a straight line basis over the life of the agreements
through the income statement. Upon adoption, the fair values of these swaps were
recorded as an asset and a liability with a corresponding entry to cumulative
effect of the change in accounting principle in earnings; and the amount
recorded in Other Long Term Liabilities was recognized through a cumulative
effect of the change in accounting principle in earnings. For the twelve months
ended July 29, 2001, the subsequent change in the fair value of the swaps of
$893,000 has been recorded as interest expense through the accompanying
consolidated statement of operations. The net effect of the Change in Accounting
Principle was derived as follows (in thousands):
Cumulative effect of
Other Long Term change in accounting
Debit/(Credit) Asset - Swap Liability-Swap Liabilities principle in earnings
------------------------------------------------------------------------------------------------
Non-hedging Derivatives $6,520 ($11,066) $8,592 ($4,047)
------------------------------------------------------------------------------------------------
The Company has no embedded derivatives under SFAS No. 133 as amended
and is not aware of the potential impact of any other significant matter that
may result from the adoption of these standards.
14. Business Segment Information
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". In accordance with SFAS No. 131, the
Company has classified its operations into two business segments, Resorts and
Real Estate. The two segments are managed differently because they offer
different products and services and require different marketing strategies. Each
segment also has distinctly separate capital structures. The Resort segment
operates nine ski resorts and all of their related activities (lift ticket
sales, retail, food & beverage, skier development, lodging services, golf and
other summer activities). The Real Estate segment develops mountainside real
estate properties at the Company's ski resorts. Data by segment is as follows
(in thousands):
----------------------------------------------------------------------------------
July 25, 1999 July 30, 2000 July 29, 2001
----------------------------------------------------------------------------------
Net revenues:
Resorts $ 292,558 $ 292,077 $ 328,705
Real estate 24,492 132,063 96,864
-------------- --------------- -------------
$ 317,050 $ 424,140 $ 425,569
============== =============== =============
Loss before income taxes:
Resorts $ (33,371) $ (31,409) $ (89,623)
Real estate (9,636) (4,529) (31,101)
-------------- --------------- -------------
$ (43,007) $ (35,938) $ (120,724)
============== =============== =============
----------------------------------------------------------------------------------
July 25, 1999 July 30, 2000 July 29, 2001
----------------------------------------------------------------------------------
Depreciation and amortization:
Resorts $ 43,226 45,759 $ 44,160
Real estate 976 1,269 2,836
-------------- --------------- -------------
$ 44,202 $ 47,028 $ 46,996
============== =============== =============
Capital expenditures:
Resorts $ 52,465 $ 27,229 $ 23,842
Real estate 153,106 166,879 44,783
-------------- --------------- -------------
$ 205,571 $ 194,108 $ 68,625
============== =============== =============
Identifiable assets:
Resorts $ 538,131 $ 527,424
Real estate 291,754 234,122
=============== =============
$ 829,885 $ 761,546
-------------------------------------------------------------------------------
15. Related Party Transactions
Tranche C of the Company's Amended Real Estate Term Facility was
purchased by Oak Hill on July 31, 2001 (See Note 7 - Real Estate Term Facility
and Note 9 - Mandatorily Redeemable Securities). The Company paid a $375,000
financing fee to Oak Hill in connection with this $13 million investment. The
Amended Real Estate Term Facility and the related Securities Purchase Agreement
with Oak Hill were restructured subsequent to the end of Fiscal 2001 (See Note
19 - Subsequent Events).
During Fiscal 2001 the Company paid $150,000 each to Mr. Paul Wachter
and Mr. David Hawkes, both of whom are members of the Company's Board of
Directors, for their participation in the Special Committee that was formed to
evaluate the proposed merger between the Company and Meristar Hotels and
Resorts, Inc. The Company also reimbursed Oak Hill a total amount of $137,000
for their professional and other fees incurred in connection with the Meristar
Merger.
On March 28, 2001, Mr. Otten resigned as the Company's Chairman and
Chief Executive Officer. Mr. Otten is still a major shareholder in the Company
and is a member of the Company's Board of Directors. As part of his separation
agreement, the Company will continue to pay Mr. Otten and his executive
assistant their salary and medical benefits for two years. In addition, the
Company has granted Mr. Otten the use of Company office space for up to two
years and the Company also transferred ownership of one of its vehicles to Mr.
Otten at no charge.
After the consummation of the Series B Preferred Stock sale to Oak
Hill, the Company, through one of its subsidiaries, acquired or obtained rights
to acquire the following assets from entities owned or controlled by Mr. Otten:
o The land underlying the snowmaking ponds at the Sunday River
resort, together with all associated water rights, which were
previously leased by a subsidiary of the Company, for a
purchase price of $2.1 million.
o The Ski Dorm building and land underlying the Snow Cap Inn,
each located at the Sunday River resort, for an aggregate
purchase price of $679,000.
o Approximately 3,300 acres of undeveloped land at the Sunday
River resort, which was optioned to a subsidiary of the
Company for an initial payment of $650,000, which payment may
be applied to the purchase price. The purchase price is
$3,692,000, which is a 12% discount from the appraised value
of the land. The purchase price will be discounted by another
20% or 10% if the option is exercised within 12 and 24 months
of the option date, respectively. As of July 29, 2001, the
Company has not exercised its option to purchase the
undeveloped land.
In connection with the foregoing asset sale, the Company also repaid
the outstanding principal and accrued interest of a note from a subsidiary of
the Company payable to Mr. Otten totaling approximately $2.0 million. The note
was originally issued to Mr. Otten to cover certain tax liabilities generated
when the Company's subsidiary converted from a subchapter S corporation to a
subchapter C corporation.
Mr. Wachter is the founder and Chief Executive Officer of Main Street
Advisors. Main Street Advisors, through Mr. Wachter, is currently acting as one
of the Company's investment bankers in connection with the marketing of the
Steamboat ski resort for sale. Main Street Advisors is entitled to a
percentage-based fee in the event of the sale of the Steamboat ski resort or any
other significant asset of the Company, other than the Sugarbush resort and
certain undeveloped real estate properties.
In May, 2000, the Company, through one of its subsidiaries, purchased
two parcels of land adjacent to the Company's Sugarbush resort from Sugarbush
Land Holdings, Inc., a corporation controlled by Mr. Otten. The two parcels,
totaling approximately 128 acres, were purchased for an aggregate price of
approximately $589,000. The terms of the purchase, including the purchase price,
were reviewed and approved by the Executive Committee and Audit Committee of the
Company's Board of Directors.
In March, 2000, the Company, through one of its subsidiaries, sold
residential units at the Company's Sundial Lodge at The Canyons to Mr. Blaise
Carrig, Mr. Christopher Howard and Mr. Daniel Duquette. Mr. Carrig is President
of the Company's subsidiary which operates The Canyons. At the time of these
transactions, Mr. Howard was the Company's Executive Vice President and Mr.
Duquette was a member of the Company's Board of Directors. Mr. Carrig and Mr.
Howard each purchased one residential unit in the Sundial Lodge for a purchase
price of $201,000. Mr. Duquette purchased one residential unit in the Sundial
Lodge for a purchase price of $345,000. The purchase price which Mr. Carrig, Mr.
Howard and Mr. Duquette purchased these units were the same as those at which
the units (or units of comparable size and finish) were offered for sale to the
general public.
16. Commitments, Lease Contingencies and Contingent Liabilities
The Company leases certain land and facilities used in the operations
of its resorts under several operating lease arrangements. These lease
arrangements expire at various times from the year 2010 through the year 2060.
Lease payments are generally based on a percentage of revenues. Total rent
expense under these operating leases as recorded in resort operating expenses in
the accompanying consolidated statements of operations for 1999, 2000 and 2001
was $2.6 million, $3.1 million and $3.0 million, respectively.
Significant portions of the land underlying certain of the Company's
ski resorts are leased or subleased by the Company or used pursuant to renewable
permits or licenses. If any such lease, sublease, permit or license were to be
terminated or not renewed upon expiration, or renewed on terms materially less
favorable to the Company, the Company's ability to possess and use the land
subject thereto and any improvements thereon would be adversely affected,
perhaps making it impossible for the Company to operate the affected resort. A
substantial portion of the land constituting skiable terrain at Attitash Bear
Peak, Sugarbush, Mount Snow/Haystack and Steamboat is located on federal land
that is used under the terms of the permits with the United States Forest
Service (the "Forest Service"). Generally, under the terms of such permits, the
Forest Service has the right to review and comment on the location, design and
construction of improvements in the permit area and on many operational matters.
The permits can be terminated or modified by the Forest Service to serve the
public interest. A termination or modification of any of the Company's permits
could have a material adverse effect on the results of operations of the
Company. The Company does not anticipate any limitations, modifications, or
non-renewals which would adversely affect the Company's operations.
In connection with the purchase of The Canyons, the Company entered
into an operating lease arrangement with the seller for the lease of certain
land to be used in the operation of the resort and for future real estate
development. The arrangement provides for an initial lease term of 50 years,
with the option to extend for three additional 50-year periods for a fee of $1.0
million for each extension period. Lease payments are based on a percentage of
gross skiing and lodging revenues. The arrangement also provides for additional
one-time payments ranging from $250,000 to $3.0 million upon achievement of
annual skier visit level increases in 100,000 visit increments up to 1,000,000.
Total rent expense under this arrangement, as recorded in resort operating
expenses in the accompanying consolidated statements of operations for 1999,
2000 and 2001 was $311,000, $918,000, and $1.4 million, respectively. In
addition, the Company has the option to purchase parcels of land covered under
the operating lease for real estate development. Payments for these options
total approximately $19.5 million and are payable at various times and in
varying amounts, at the Company's discretion, through December 2001. The Company
is not required to make the option payments for all parcels of land in order to
develop and sell real estate on the land covered under the lease. Through July
29, 2001, the Company has made $13.6 million of option payments, of which $3.6
million has been allocated to the cost of parcels that have been purchased to
date. The remaining $10.0 million in option payments are included in other
assets in the accompanying consolidated balance sheet as of July 29, 2001 and
will eventually be allocated to the cost of future parcels purchased by the
Company.
In addition to the leases described above, the Company is committed
under several operating and capital leases for various facilities, machinery and
equipment. Rent expense under all operating leases was $6.1 million, $7.8
million and $6.4 million for the fiscal years ended 1999, 2000 and 2001,
respectively.
Future minimum lease payments for lease obligations, exclusive of
contingent skier visit payments at The Canyons, at July 29, 2001 are as follows
(in thousands):
------------------------------------------------------------------
Capital Operating
Leases leases
------------------------------------------------------------------
2002 $ 8,027 $ 6,731
2003 5,474 6,947
2004 9,591 6,123
2005 600 5,378
2006 and thereafter - 13,253
------------ -----------
Total payments 23,692 $ 38,432
Less interest (3,816)
------------
Present value of net minimum payments 19,876
Less current portion (6,316)
------------
Long-term obligations $ 13,560
------------------------------------------------------------------
The Company opened the Grand Summit Hotel at Steamboat during Fiscal
2001, although final construction of certain units has yet to be completed.
Total construction costs for this project are estimated to be $122 million and
the Company estimates that as of July 29, 2001, approximately $12 million was
required to complete its construction. The Steamboat Grand Hotel it is primarily
being financed through a $110 million revolving construction loan facility with
TFC Textron and an additional $10 million bulge facility, also with TFC Textron.
The Company also has a $73 million term facility with Fleet National Bank that
can be used for this project as well as general and operating expenditures. 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. The Company has entered into a settlement
memorandum with the general contractor for the Steamboat Grand Hotel project
which would resolve all pending claims between the parties 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.
Subsequent to the end of Fiscal 2001, the Company agreed upon an amendment to
the construction loan facility which approved the settlement memorandum and
allowed additional funding under the construction loan (See Note 19 - Subsequent
Events).
The Killington resort has been identified by the U.S. Environmental
Protection Agency (the "EPA") as a potentially responsible party ("PRP") at two
sites pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "Superfund"). Killington has entered into a
settlement agreement with the EPA at one of the sites, the Solvents Recovery
Service of New England Superfund site in Southington, Connecticut. Killington
rejected an offer to enter into a de minimis settlement with the EPA for the
other site, the PSC Resources Superfund site in Palmer, Massachusetts, on the
basis that Killington disputes its designation as a PRP. In addition, the
Company's Heavenly resort was designated as a PRP at a Superfund site in
Patterson, CA. The Company entered into a cash-out settlement agreement which
has been accepted by the EPA and funded as part of an overall settlement of the
site. The Company believes that its liability for these Superfund sites,
individually and in the aggregate, will not have a material adverse effect on
the business or financial condition of the Company or results of operations or
cash flows.
Certain claims, suits and complaints associated with the ordinary
course of business are pending or may arise against the Company, including all
of its direct and indirect subsidiaries. In the opinion of management, all
matters are adequately covered by insurance or, if not covered, are without
merit or are of such kind, or involve such amounts as would not have a material
effect on the financial position, results of operations or cash flows of the
Company if disposed of unfavorably.
17. Stock Option Plan
Effective August 1, 1997, the Company established a fixed stock option
plan, the American Skiing Company Stock Option Plan (the "Plan"), to provide for
the grant of incentive and non-qualified stock options for the purchase of up to
5,688,699 shares of the Company's common stock by officers, management employees
of the Company and its subsidiaries and other key persons (eligible for
nonqualified stock options only) as designated by the Options Committee. The
Options Committee, which is appointed by the Board of Directors, is responsible
for the Plan's administration. The Options Committee determines the term of each
option, option exercise price, number of shares for which each option is granted
and the rate at which each option is exercisable. Options granted under the Plan
generally expire ten years from the date of grant and vest either immediately or
over a five-year term. Incentive stock options shall not have an exercise price
less than the fair market value of the common stock at the date of grant.
Nonqualified stock options shall be granted at an exercise price as determined
by the Options Committee. The status of the Company's stock option plan is
summarized below:
------------------------------------------------------------
Weighted
Average
Number Exercise
of Shares Price
------------------------------------------------------------
Outstanding at July 26, 1998 2,696,057 $ 14.10
Granted 1,196,000 7.17
Exercised (1,221) 2.00
------------------------------------------------------------
Outstanding at July 25, 1999 3,890,836 $ 11.97
Granted 2,660,000 2.70
Exercised (182,390) 2.00
Returned (2,325,127) 15.60
------------------------------------------------------------
Outstanding at July 30, 2000 4,043,319 $ 4.24
Granted 1,235,000 2.58
Exercised (248,960) 2.00
Returned (439,062) 4.26
------------------------------------------------------------
Outstanding at July 29, 2001 4,590,297 $ 3.91
------------------------------------------------------------
During fiscal 1998, the Company granted nonqualified options under the
Plan to certain key members of management to purchase 672,010 shares of common
stock with an exercise price of $2.00 per share when the fair market value of
the stock was estimated to be $18.00 per share. The majority of these options
(511,530 shares) were granted to members of senior management and were 100%
vested on the date of grant. Accordingly, the Company recognized stock
compensation expense of $8.1 million in Fiscal 1998 relating to the grants based
on the intrinsic value of $16.00 per share. Under these senior management grant
agreements, the Company also agreed to pay the optionees a fixed tax "bonus" in
the aggregate of $5.8 million to provide for certain fixed tax liabilities that
the optionees will incur upon exercise. The liability for this fixed tax bonus
has been reduced to reflect $5.1 million in tax bonus payments made through July
29, 2001 in connection with options exercised. The remaining $0.7 million tax
bonus liability is reflected in accounts payable and other current liabilities
in the accompanying consolidated balance sheet at July 29, 2001. The remainder
of these original $2.00 options (160,480 shares) were granted under the Plan to
certain members of management and were vested 20% on the date of grant and vest
ratably to 100% over the following four years. For fiscal 1999, 2000 and 2001,
the Company recognized $0.8 million, $1.0 million and $0.4 million,
respectively, of stock compensation expense relating to these options.
The following table summarizes information about the stock options
outstanding under the Stock Plan at July 29, 2001:
---------------------------------------------------------------------------------------
Weighted
Average Weighted
Remaining Weighted Average
Range of Outstanding Contractual Average Exercisable Exercise
Exercise Prices @ 7/29/01 Life (in years) Exercise Price @ 7/29/01 Price
---------------------------------------------------------------------------------------
$0 - $5 3,686,897 8.8 $2.58 1,933,319 $2.62
6 - 10 712,550 7.0 7.13 501,900 7.14
11 - 15 22,500 6.0 14.19 22,500 14.19
16 - 18 168,350 7.0 18.00 168,350 18.00
---------------------------------------------------------------------------------------
$0 - $18 4,590,297 8.4 $3.91 2,626,069 $4.57
---------------------------------------------------------------------------------------
The Company continues to account for stock-based compensation using the
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", under which no compensation expense for stock
options is recognized for stock option awards granted to employees at or above
fair market value. The Company has adopted the disclosure-only provisions of
SFAS No. 123. Had stock compensation expense been determined based on the fair
value at the grant dates for awards granted under the Company's stock option
plan, consistent with the provisions of SFAS No. 123, the Company's net loss and
loss per share would have been changed to the pro forma amounts indicated below
(dollar amounts in thousands):
---------------------------------------------------------------------
Fiscal Years Ended 1999 2000 2001
---------------------------------------------------------------------
Net Loss
As reported $ (32,322) $ (52,452) $ (141,572)
Pro forma (32,691) (39,904) (144,712)
Basic and diluted net loss
per common share
As reported $ (1.07) $ (1.73) $ (4.64)
Pro forma (1.08) (1.31) (4.74)
---------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes model with the following weighted average assumptions:
------------------------------------------------------------
Fiscal Years Ended 1999 2000 2001
------------------------------------------------------------
Expected life 10 yrs 10 yrs 10 yrs
Risk-free interest rate 6.0% 6.5% 3.5%
Volatility 68.4% 93.9% 73.9%
Dividend yield - - -
------------------------------------------------------------
The weighted average grant date fair value for the options granted in
fiscal 1999 with an exercise price of $4.00 to $8.75 per share was $5.71 per
share. The weighted average grant date fair value for the options granted in
Fiscal 2000 with an exercise price of $2.00 to $3.00 per share was $2.26 per
share. The weighted average grant date fair value for the options granted in
Fiscal 2001 with an exercise price of $0.72 to $4.00 per share was $1.60 per
share.
18. Quarterly Financial Information (Unaudited)
Following is a summary of unaudited quarterly information (amounts in
thousands, except per share amounts):
-----------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------
Year ended July 29, 2001:
Net sales $ 48,128 $ 156,264 $ 179,574 $ 41,603
Income (loss) from operations (20,238) 7,935 39,529 (95,135)
Income (loss) before preferred stock
dividends (18,490) (4,600) 13,025 (108,150)
Net income (loss) available to common
shareholders (24,176) (10,405) 7,236 (114,227)
Basic income (loss) per share:
Net income (loss) available to common
shareholders $ (0.79) $ (0.34) $ 0.24 $ (3.73)
Weighted average shares outstanding 30,469 30,470 30,509 30,653
Diluted income (loss) per share:
Net income (loss) available to common
shareholders $ (0.79) $ (0.34) $ 0.19 $ (3.73)
Weighted average shares outstanding 30,469 30,470 62,875 30,653
Year ended July 30, 2000:
Net sales $ 23,355 $ 126,627 $ 223,095 $ 51,063
Income (loss) from operations (22,899) (6,589) 52,641 (23,185)
Income (loss) before preferred stock
dividends (23,138) (9,805) 26,783 (25,298)
Net income (loss) available to common
shareholders (27,954) (15,124) 21,464 (30,838)
Basic income (loss) per share:
Net income (loss) available to common
shareholders $ (0.92) $ (0.50) $ 0.71 $ (1.01)
Weighted average shares outstanding 30,287 30,412 30,423 30,448
Diluted income (loss) per share:
Net income (loss) available to common
shareholders $ (0.92) $ (0.50) $ 0.42 $ (1.01)
Weighted average shares outstanding 30,287 30,412 60,268 30,448
-----------------------------------------------------------------------------------------------------
19. Subsequent Events
Recapitalization
On July 15, 2001, the Company entered into a securities purchase agreement
with Oak Hill Capital Partners to assist the Company in meeting its current
financing needs. Pursuant to the terms of the securities purchase agreement,
which closed on August 31, 2001:
o The Company issued, and Oak Hill purchased, $12.5 million
aggregate principal amount of Junior Subordinated Notes, which
are convertible into shares of the Company's series D
participating preferred stock (the "Series D Preferred
Stock"). These Junior Subordinated Notes bear interest at a
rate of 11.3025%, which compounds annually and is due and
payable at maturity of the Junior Subordinated Notes in July,
2007. The proceeds of the Junior Subordinated Notes were used
to fund short-term liquidity needs of Resort Properties by way
of the purchase of certain real estate assets by ASC from
Resort Properties;
o Oak Hill funded $2.5 million of the $3.5 million of
availability remaining under Tranche C of the Resort
Properties credit facility to facilitate amendments to such
credit facility. This was the final advance under Tranche C,
as the maximum availability under this facility has now been
reduced from $13 million to $12 million;
o Oak Hill agreed to provide a guarantee for a $14 million,
equipment lease for the Heavenly gondola. Management is
currently negotiating the terms of this lease, which are
expected to include a 5 to 7 year term and other market terms.
Management will use commercially reasonable efforts to
negotiate a provision in the lease allowing for the release of
the guarantee upon a material improvement in the Company's
credit quality;
o Oak Hill purchased one million shares of the Company's common
stock for an aggregate purchase price of $1 million;
o Oak Hill agreed to cancel an agreement to provide it with
warrants for 6 million shares of the Company's common stock or
15% of the common stock of Resort Properties.
In consideration of Oak Hill's agreements and commitments in accordance
with the terms set forth above, the following has occurred:
o The outstanding Series B Preferred Stock that was held by Oak
Hill was stripped of all of its rights and preferences with
the exception of the right to elect up to six directors;
o The Company issued to Oak Hill two new series of Preferred
Stock; (i) $40 million of Series C-1 Preferred Stock, and (ii)
$139.5 million of Series C-2 Preferred Stock. The initial face
value of the Series C-1 Preferred Stock and Series C-2
Preferred Stock correspond to the accrued liquidation
preference of the Series B Preferred Stock immediately before
being stripped of its right to such accrued liquidation
preference. The Series C-1 Preferred Stock and Series C-2
Preferred Stock carry preferred dividends of 12% and 15%,
respectively. At the Company's option, dividends can either be
paid in cash or accrued in additional shares. The Series C-1
Preferred Stock is convertible into common stock at a price of
$1.25 per share, subject to adjustments. The Series C-2
Preferred Stock is not convertible. Both of Series C-1
Preferred Stock and series C-2 Preferred Stock will mature in
July, 2007;
o At Oak Hill's option, and subject to the consent of the other
lenders under the Resort Properties term facility, Tranche C
of the Resort Properties term facility will be exchangeable in
whole or in part into indebtedness of the Company when
permitted under the existing debt agreements.
Real Estate Debt Agreements
On August 31, 2001, the Company entered into an amendment to the real
estate term facility which substantially reduces interest rates and extends
amortization and maturity dates. The amended real estate term facility is
comprised of three tranches, each with separate interest rates and maturity
dates as follows:
o Tranche A will become a revolving facility which will have a
current maximum principal amount of $22 million and will bear
interest at a variable rate equal to the Fleet National Bank
Base Rate plus 2.0%, payable monthly in arrears, a reduction
in rate of approximately 6,50%. Availability was increased
approximately $2.5 million before giving affect to reductions
from the sale of certain assets. Mandatory principal payments
on Tranche A of $3.75 million and $2.5 million each will be
payable on December 31, 2001 and January 31, 2002,
respectively. Additional mandatory principal reductions will
be required in certain prescribed percentages ranging from 50%
to 75% of net proceeds from any future sales of undeveloped
parcels. The remaining principal amount outstanding under
Tranche A will be payable in full on June 30, 2003.
o Tranche B has a maximum principal amount of $25 million, will
bear interest at a fixed rate of 18% per annum, reduced from
25%, (10% per annum is payable monthly in arrears and the
remaining 8% per annum accrues, is added to the principal
balance of Tranche B and bears interest at 18% per annum,
compounded annually). Mandatory principal payments on Tranche
B of $10 million are due on each of December 31, 2003 and June
30, 2004. The remaining $5 million in principal and all
accrued and unpaid interest on Tranche B will be due in full
on December 31, 2004.
o Tranche C will have a maximum principal amount of $12 million,
will continue to bear interest at an effective rate of 25% per
annum and will mature on December 31, 2005. Oak Hill funded
approximately $2.5 million of its remaining commitment to
provide additional liquidity to Resort Properties. Interest
accrues, is added to the principal balance of Tranche C and is
compounded semi-annually.
In August 2001, the Company entered into amendments to its $110 million
Textron real estate development loan and its $10 million subordinated real
estate note with Textron, which, among other things, reduced the effective
interest rates and extended the maturity dates of these facilities. The maturity
date for funds advanced under the Steamboat portion of the senior Textron
facility has been extended to March 31, 2003 and the maturity date for funds
advanced under the Canyons portion of the senior Textron facility has been
extended to September 28, 2002. The interest rate on funds advanced under the
Steamboat portion of the senior Textron facility is Prime plus 3.5% and the
interest rate floor on Steamboat advances is 9.0%. The interest rate on funds
advanced under the Canyons portion of the senior Textron facility is at Prime
plus 2.5%, with a floor of 9.5%. As a result of the extension of the maturity
dates, both of these facilities are classified as Long-term Debt as of July 29,
2001 in the accompanying consolidated balance sheet.
Sale of Resorts
The Company has previously communicated its intent to sell its
Steamboat ski resort in Steamboat Springs, CO, to reduce the debt of the Company
as part of its strategic plan to improve its financial condition and ongoing
operations. The Company is currently negotiating terms with a small group of
potential purchasers, and on October 16, 2001 it executed a non-binding letter
of intent with one of the parties. The Company is currently negotiating the
terms of a purchase and sales agreement. Management anticipates that the sale of
Steamboat will be consummated prior to the end of calendar 2001.
On September 7, 2001, the Company entered into a purchase and sales
agreement to sell substantially all of the operating assets of its Sugarbush ski
resort in Warren, VT to Summit Ventures NE, Inc. This sale closed on September
28, 2001 and the proceeds were used by the Company to permanently pay down the
revolving and term portions of its senior credit facility, on a pro-rata basis,
in accordance with the mandatory prepayment requirements of the facility. In
conjunction with this transaction, the Company also entered into a third
amendment to its senior credit facility, dated as of September 10, 2001. This
amendment, among other things, provides the consent of the lenders to sell
Sugarbush resort and it further reduces the maximum revolver availability
amounts established in the second amendment to the facility by $1.5 million.
In accordance with SFAS No. 121, the carrying value of the net assets
for both Steamboat and Sugarbush that are subject to their respective sales were
reclassified as assets held for sale on the accompanying consolidated balance
sheet as of July 29, 2001. The assets held for sale have been reduced to their
estimated fair value based on the estimated selling price less costs to sell,
resulting in a combined pre-tax loss of $67.1 million, which is included in the
non-recurring merger, restructuring and asset impairment line in the
accompanying consolidated statement of operations for the year ended July 29,
2001. The components of the net assets held for sale for both Steamboat and
Sugarbush as of July 29, 2001 are as follows (in thousands):
---------------------------------------------------
Net Assets as of July 29, 2001 Total
---------------------------------------------------
Accounts receivable $ 1,890
Inventory 1,717
Prepaid expenses 49
Property & equipment, net 103,153
Real estate developed for sale 9,638
Goodwill 49,529
Intangible assets 10,552
Other assets 29
Accounts payable and accrued
liabilities (4,711)
Deposits and deferred revenues (1,568)
Other liabilities (401)
Debt assumed by purchaser (4,547)
-------------
Assets held for sale 165,330
Allowance for loss on sale (67,111)
-------------
Net assets held for sale $ 98,219
---------------------------------------------------
Summary operating results for Steamboat and Sugarbush resorts on a
combined basis, which have historically been included in the Company's resort
segment in its results of operations, are as follows (in thousands):
- -------------------------------------------------------------------------------
Fiscal Years Ended 1999 2000 2001
- -------------------------------------------------------------------------------
Total revenues $ 67,149 $ 68,592 $ 68,875
Total expenses 61,456 62,049 62,004
------------- ------------- --------------
Total income from operations $ 5,693 $ 6,543 $ 6,871
- --------------------------------------------------------------------------------
Fourth Amendment to Senior Credit Facility
In November, 2001 the Company entered into a fourth amendment to the
Senior Credit Facility which allows it to raise an additional $7.2 million
through a junior subordinating participating interest in certain revolving
credit advances under the Senior Credit Facility. This participating interest
would be purchased by Oak Hill (who has provided a commitment for their
participation) and the proceeds would be used to make the January 2002 interest
payment on the Senior Subordinated Notes. This new advance will bear interest at
a fixed rate of 17.5% and would be repaid first by any proceeds from the sale of
Steamboat. In the event the Company does not sell Steamboat, this junior
participating interest in the revolver would only be repaid after all existing
credit advances are paid.