UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED JANUARY 26, 2003
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)
136 Heber Avenue, #303
P.O. Box 4552
Park City, Utah 84060
(Address of principal executive office)
(Zip Code)
(435) 615-0340
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act.
Yes [ ] No [X]
The number of shares outstanding of each of the issuer's classes of common stock
were 14,760,530 shares of Class A common stock, $.01 par value, and 16,963,611
shares of common stock, $.01 par value, as of February 23, 2003.
American Skiing Company and Subsidiaries
Table of Contents
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the 13 weeks
ended January 27, 2002 and January 26, 2003 (unaudited)..........3
Condensed Consolidated Statements of Operations for the 26 weeks
ended January 27, 2002 and January 26, 2003 (unaudited)..........4
Condensed Consolidated Balance Sheets as of July 28, 2002
and January 26, 2003 (unaudited).................................5
Condensed Consolidated Statements of Cash Flows for the 26 weeks
ended January 27, 2002 and January 26, 2003 (unaudited)..........6
Notes to Condensed Consolidated Financial Statements (unaudited)......7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General..............................................................14
Liquidity and Capital Resources......................................16
Results of Operations................................................22
Item 3. Quantitative and Qualitative Disclosures
About Market Risk...............................................29
Item 4. Controls and Procedures..............................................29
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds............................29
Item 5. Other Information....................................................29
Item 6. Exhibits and Reports on Form 8-K....................................29
2
American Skiing Company and Subsidiaries
Part I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
13 weeks ended 13 weeks ended
January 27, 2002 January 26, 2003
(unaudited) (unaudited)
Net revenues:
Resort $ 87,986 $ 98,961
Real estate 12,080 1,325
------------------- -------------------
Total net revenues 100,066 100,286
------------------- -------------------
Operating expenses:
Resort 60,799 65,794
Real estate 11,953 1,898
Marketing, general and
administrative 15,154 16,552
Restructuring and asset
impairment charges 26,253 -
Depreciation and amortization 10,757 11,978
------------------- -------------------
Total operating expenses 124,916 96,222
------------------- -------------------
Income (loss) from operations (24,850) 4,064
Interest expense, net 13,106 11,513
------------------- -------------------
Loss from continuing operations (37,956) (7,449)
Income from discontinued
operations of Heavenly resort 2,523 -
------------------- -------------------
Net loss (35,433) (7,449)
Accretion of discount and
dividends on mandatorily
redeemable preferred stock (8,266) (9,243)
------------------- -------------------
Net loss available to common
shareholders $ (43,699) $ (16,692)
=================== ===================
Accumulated deficit,
beginning of period $(291,884) $ (472,150)
Net loss available to common
shareholders (43,699) (16,692)
------------------- -------------------
Accumulated deficit, end
of period $(335,583) $ (488,842)
=================== ===================
Basic and diluted net loss per common share:
Loss from continuing
operations $ (1.46) $ (0.53)
Income from discontinued
operations 0.08 -
------------------- -------------------
Net loss available to common
shareholders $ (1.38) $ (0.53)
=================== ===================
Weighted average common shares
outstanding - basic
and diluted 31,718,123 31,724,141
=================== ===================
See accompanying notes to Condensed Consolidated Financial Statements.
3
American Skiing Company and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
26 weeks ended 26 weeks ended
January 27, 2002 January 26, 2003
(unaudited) (unaudited)
Net revenues:
Resort $ 105,308 $ 115,872
Real estate 14,871 5,039
-------------- --------------
Total net revenues 120,179 120,911
-------------- --------------
Operating expenses:
Resort 84,210 88,294
Real estate 16,062 5,474
Marketing, general and
administrative 24,959 26,585
Restructuring and asset
impairment charges 27,879 -
Depreciation and
amortization 14,686 15,549
-------------- --------------
Total operating
expenses 167,796 135,902
-------------- --------------
Loss from operations (47,617) (14,991)
Interest expense, net 26,817 22,632
-------------- --------------
Loss from continuing operations
before cumulative effect
of a change in accounting
principle (74,434) (37,623)
Loss from discontinued
operations of Heavenly resort (204) -
-------------- --------------
Loss before cumulative effect
of a change in accounting
principle (74,638) (37,623)
Cumulative effect of a change
in accounting principle (18,658) -
-------------- --------------
Net loss (93,296) (37,623)
Accretion of discount and
dividends on mandatorily
redeemable preferred stock (15,952) (18,174)
-------------- --------------
Net loss available to
common shareholders $ (109,248) $ (55,797)
============== ==============
Accumulated deficit,
beginning of period $ (226,335) $ (433,045)
Net loss available to
common shareholders (109,248) (55,597)
--------------- --------------
Accumulated deficit,
end of period $ (335,583) $ (488,842)
=============== ==============
Basic and diluted net loss per common share:
Loss from continuing
operations before cumulative
effect of a change in
accounting principle $ (2.87) $ (1.76)
Loss from discontinued
operations (0.01) -
Cumulative effect of a
change in accounting
principle (0.59) -
--------------- --------------
Net loss available to
common shareholders $ (3.47) $ (1.76)
=============== ==============
Weighted average common
shares outstanding -
basic and diluted 31,541,327 31,724,141
=============== ==============
See accompanying notes to Condensed Consolidated Financial Statements.
4
American Skiing Company and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
July 28, 2002 January 26, 2003
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $ 6,924 $ 14,446
Restricted cash 2,925 2,679
Accounts receivable, net 9,818 9,995
Inventory 4,057 7,362
Prepaid expenses 4,264 6,568
Deferred income taxes 6,167 6,167
----------------- ------------------
Total current assets 34,155 47,217
Property and equipment, net 395,566 387,485
Real estate developed for sale 50,878 48,217
Intangible assets, net 9,540 9,516
Deferred financing costs, net 8,561 7,368
Other assets 23,293 28,564
----------------- ------------------
$521,993 $ 528,367
================= ==================
Liabilities, Mandatorily Redeemable Preferred Stock and Shareholders' Deficit
Current liabilities
Current portion of long-term debt $103,495 $105,672
Current portion of subordinated notes and debentures 1,074 1,074
Accounts payable and other current liabilities 52,182 72,298
Deposits and deferred revenue 8,533 38,921
----------------- ------------------
Total current liabilities 165,284 217,965
Long-term debt, excluding current portion 76,855 64,984
Subordinated notes and debentures, excluding current portion 139,617 140,570
Other long-term liabilities 28,320 30,554
Deferred income taxes 6,167 6,167
----------------- ------------------
Total liabilities 416,243 460,240
----------------- ------------------
Mandatorily Redeemable Convertible 10 1/2% Series A Preferred Stock, par value of $0.01
per share; 40,000 shares authorized; 36,626 shares issued and outstanding, including
cumulative dividends (redemption value of $60,032 and $63,260, respectively) 60,032 63,260
Mandatorily Redeemable 8 1/2% Series B Preferred Stock; 150,000 shares authorized,
issued and outstanding (redemption value of $0) - -
Mandatorily Redeemable Convertible 12% Series C-1 Preferred Stock, par value of $0.01
per share; 40,000 shares authorized, issued and outstanding, including cumulative
dividends (redemption value of $44,532 and $47,237, respectively) 43,884 46,617
Mandatorily Redeemable 15% Nonvoting Series C-2 Preferred Stock, par value of
$0.01 per share; 139,453 shares authorized, issued and outstanding, including
cumulative dividends (redemption value of $159,404 and $171,550, respectively) 157,139 169,352
Mandatorily Redeemable Nonvoting Series D Preferred Stock, par value of $0.01 per
share; 5,000 shares authorized; no shares issued or outstanding - -
Shareholders' Deficit
Common stock, Class A, par value of $0.01 per share; 15,000,000 shares
authorized; 14,760,530 shares issued and outstanding 148 148
Common stock, par value of $0.01 per share; 100,000,000 shares authorized;
16,963,611 shares issued and outstanding 170 170
Additional paid-in capital 277,422 277,422
Accumulated deficit (433,045) (488,842)
----------------- ------------------
Total shareholders' deficit (155,305) (211,102)
----------------- ------------------
Total liabilities, mandatorily redeemable preferred stock and
shareholders' deficit $521,993 $528,367
================= ==================
See accompanying notes to Condensed Consolidated Financial Statements.
5
American Skiing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
26 weeks ended 26 weeks ended
January 27, 2002 January 26, 2003
(unaudited) (unaudited)
Cash flows from operating activities
Net loss $ (93,296) $ (37,623)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 18,838 15,549
Discount on convertible debt 252 189
Non-cash interest on junior
subordinated notes 550 764
Stock compensation charge 69 -
Cumulative effect of a change in
accounting principle 18,658 -
Gain from sale of assets (483) (486)
Decrease (increase) in assets:
Restricted cash (449) 246
Accounts receivable, net 2,752 (177)
Inventory (5,651) (3,305)
Prepaid expenses (2,492) (2,304)
Real estate developed for sale 9,350 2,661
Other assets (2,767) (5,418)
Increase (decrease) in liabilities:
Accounts payable and other
current liabilities 10,459 20,116
Deposits and deferred revenue 21,185 30,388
Other long-term liabilities 912 2,234
Other, net 34,057 -
------------------- ------------------
Net cash provided by
operating activities 11,944 22,834
------------------- ------------------
Cash flows from investing activities
Capital expenditures (5,349) (5,833)
Proceeds from sale of assets 9,598 705
Other, net (1) -
------------------- ------------------
Net cash provided by
(used in) investing
activities 4,248 (5,128)
------------------- ------------------
Cash flows from financing activities
Proceeds from Resort Senior
Credit Facility 47,112 53,434
Repayment of Resort Senior
Credit Facility (69,065) (65,449)
Proceeds from long-term debt 26,500 -
Repayment of long-term debt (3,113) (944)
Proceeds from real estate debt 17,619 6,353
Repayment of real estate debt (25,099) (3,088)
Payment of deferred financing costs (206) (490)
Proceeds from issuance of common stock 1,000 -
Other, net (3) -
------------------- ------------------
Net cash used in
financing activities (5,255) (10,184)
------------------- ------------------
Net increase in cash and cash equivalents 10,937 7,522
Cash and cash equivalents, beginning
of period 11,592 6,924
------------------- ------------------
Cash and cash equivalents, end of period $ 22,529 $ 14,446
=================== ==================
Supplemental disclosure of cash flow information:
Accretion of discount and dividends
on mandatorily redeemable
preferred stock $ 15,952 $ 18,174
Cash paid for interest 27,589 22,036
See accompanying notes to Condensed Consolidated Financial Statements.
6
American Skiing Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. General
American Skiing Company (ASC) is organized as a holding company and
operates through various subsidiaries (collectively, the Company). The Company
operates in two business segments, resort operations and real estate
development. 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. (Grand Summit). The Company's fiscal year is a fifty-two week
or fifty-three week period ending on the last Sunday of July. Fiscal 2003 and
Fiscal 2002 are fifty-two week reporting periods, with each quarter consisting
of 13 weeks. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included.
Results for interim periods are not indicative of the results expected
for the year due to the seasonal nature of the Company's business. Due to the
seasonality of the ski industry, the Company typically incurs losses related to
resort operations during its first and fourth fiscal quarters. The unaudited
condensed consolidated financial statements should be read in conjunction with
the following notes and the Company's consolidated financial statements included
in its Form 10-K for the fiscal year ended July 28, 2002, filed with the
Securities and Exchange Commission on March 7, 2003. The accompanying condensed
consolidated financial statements reflect adjustments and reclassifications made
to the unaudited quarterly financial information presented in Note 21 of the
Company's Fiscal 2002 Form 10-K.
2. Discontinued Operations
On May 9, 2002, the Company completed the sale of its Heavenly resort
(Heavenly) in South Lake Tahoe to Vail Resorts, Inc. The sale of Heavenly has
been accounted for in accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS No. 144). In accordance with SFAS No. 144, the results of
operations for Heavenly for the first quarter of Fiscal 2002 have been reflected
as discontinued operations. Revenues applicable to the operations of Heavenly
were $21.1 million and $24.1 million for the 13 weeks and 26 weeks ended January
27, 2002, respectively.
3. Critical Accounting Policies
The discussion and analysis of the Company's financial condition and
results of operations are based upon its condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of sales and expenses during the reporting periods. Areas
where significant judgments are made include, but are not limited to: allowance
for doubtful accounts, long-lived asset valuation, realizability and useful
lives, and deferred income tax asset valuation allowance. Actual results could
differ materially from these estimates. The following are the Company's critical
accounting policies:
Property and Equipment
Property and equipment are carried at cost, net of accumulated
depreciation and impairment charges. 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 held under capital lease obligations 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 resort operating assets during the second and third
quarters of the Company's fiscal year.
Goodwill and Other Intangible Assets
During the first quarter of Fiscal 2002, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets" and was required to evaluate its existing intangible assets and goodwill
in a transitional impairment analysis. As a result of the transitional
impairment analysis, the Company recorded an impairment loss of $18.7 million
representing 100% of its goodwill. This loss was recorded as a cumulative effect
of a change in accounting principle in the accompanying condensed consolidated
statement of operations for the first quarter of Fiscal 2002. Furthermore, as
prescribed in SFAS No. 142, certain indefinite-lived intangible assets,
including trademarks, are no longer amortized but are subject to annual
7
American Skiing Company and Subsidiaries
impairment assessments. An impairment loss is recognized to the extent that the
carrying amount exceeds the asset's fair value. Definite-lived intangible assets
continue to be amortized on a straight-line basis over their estimated useful
lives of 16 to 20 years, and assessed for impairment utilizing guidance provided
by SFAS No. 144.
As of July 28, 2002 and January 26, 2003, acquired intangible assets
relate entirely to the resort segment and consist of the following (in
thousands):
------------------------------------------------------------------
July 28, 2002 January 26, 2003
------------------------------------------------------------------
Definite-lived Intangible
Assets:
Lease agreements $ 1,853 $ 1,853
Less accumulated (231) (255)
amortization
---------------- ----------------
1,622 1,598
Indefinite-lived Intangible
Assets:
Trade names 170 170
Water rights 7,748 7,748
---------------- ----------------
Intangible Assets, net $ 9,540 $ 9,516
------------------------------------------------------------------
Amortization expense related to intangible assets was approximately
$14,000 and $28,000 for the 13 weeks and 26 weeks ended January 27, 2002,
respectively, and was approximately $13,000 and $24,000 for the 13 weeks and 26
weeks ended January 26, 2003, respectively. Future amortization expense related
to definite-lived intangible assets is estimated to be approximately $58,000 for
each of the next five fiscal years.
Long-Lived Assets
On July 30, 2001, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets to Be Disposed Of". Long-lived
assets, such as property, plant and equipment, and definite-lived intangibles
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to the estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized in the amount by which the
carrying amount of the asset exceeds the fair value of the asset. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell, and depreciation ceases. Prior to the adoption of SFAS No. 144,
the Company accounted for impairment of long-lived assets and long-lived assets
to be disposed of in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
During the first quarter of Fiscal 2002, the Company completed the sale of its
Sugarbush resort and accounted for this sale under SFAS No. 121 and Accounting
Principles Board Opinion No. 30 because the disposal activities relating to the
sale of Sugarbush were initiated prior to the Company's adoption of SFAS No.
144.
Revenue Recognition
Resort revenues include sales of lift tickets, tuition from ski
schools, golf course and other recreational activities fees, sales from
restaurants, bars and retail shops, and lodging and property management fees
(real estate rentals). Daily lift ticket revenue is recognized on the day of
purchase. Lift ticket season pass revenue is recognized on a straight-line basis
over the ski season, which is the Company's second and third quarters of its
fiscal year. The Company's remaining resort revenues are generally recognized as
the services are performed. Real estate revenues are recognized under the full
accrual method when title has been transferred, adequate initial and continuing
investment has been received and no continuing involvement exists. Amounts
received from pre-sales of real estate are recorded as restricted cash and
deposits and deferred revenue in the accompanying condensed consolidated balance
sheets until the earnings process is complete.
Seasonality
The Company's revenues are highly seasonal in nature. Over the last
five fiscal years, the Company has realized an average of approximately 86% of
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, the Company's resorts typically
experience operating losses and negative cash flows for the period from May
through November.
8
American Skiing Company and Subsidiaries
A high degree of seasonality in the Company's revenues increases the
impact of certain events on its operating results. Adverse weather conditions,
access route closures, equipment failures, and other developments of even
moderate or limited duration occurring during peak business periods could reduce
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.
4. Cumulative Effect of a Change in Accounting Principle
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 and other indefinite-lived
intangibles are no longer amortized. Instead, these assets are reviewed for
impairment on a periodic basis or when certain triggering events occur. The
Company adopted the provisions of SFAS No. 142 during the fiscal quarter ended
October 28, 2001. As a result of the adoption of SFAS No. 142, the Company
recorded an impairment charge of $18.7 million, which has been recorded as a
cumulative effect of a change in accounting principle in the accompanying
condensed consolidated statement of operations for the 26 weeks ended January
27, 2002.
5. Loss per Common Share
Loss per common share for the 13 weeks and 26 weeks ended January 27,
2002 and January 26, 2003, respectively, were determined based on the following
data (in thousands):
- --------------------------------------------------------------------------------------------------------------------------
13 weeks ended 13 weeks 26 weeks ended 26 weeks
January 27, ended January January 27, ended January
2002 26, 2003 2002 26, 2003
- --------------------------------------------------------------------------------------------------------------------------
Loss
Loss from continuing operations before accretion of
discount, preferred stock dividends and cumulative effect
of a change in accounting principle $ (37,956) $ (7,449) $ (74,434) $ (37,623)
Accretion of discount and dividends on mandatorily
redeemable preferred stock (8,266) (9,243) (15,952) (18,174)
---------------- --------------- ---------------- ---------------
Loss from continuing operations before cumulative
effect of a Change in accounting principle (46,222) (16,692) (90,386) (55,797)
Income (loss) from discontinued operations 2,523 - (204) -
Cumulative effect of a change in accounting principle - - (18,658) -
---------------- --------------- ---------------- ---------------
Net loss available to common shareholders $ (43,699) $ (16,692) $ (109,248) $ (55,797)
================ ================================ ===============
Shares
Weighted average common shares outstanding (basic and
diluted) 31,718 31,724 31,541 31,724
- --------------------------------------------------------------------------------------------------------------------------
As of January 27, 2002 and January 26, 2003, the Company had 14,760,530
shares of its Class A common stock outstanding, which are convertible into
shares of the Company's common stock. The shares of the Company's common stock
issuable upon conversion of the shares of the Company's Class A common stock
have been included in the calculation of the weighted average common shares
outstanding. As of January 27, 2002 and January 26, 2003, the Company had 36,626
shares of its mandatorily redeemable 10 1/2% convertible preferred stock (Series
A Preferred Stock) and 40,000 shares of its 12% Series C-1 convertible
participating preferred stock (Series C-1 Preferred Stock) outstanding, both of
which are convertible into shares of the Company's common stock. If converted at
their liquidation preferences as of January 27, 2002 and January 26, 2003, these
convertible preferred shares would convert into 36,964,063 and 41,489,015 shares
of common stock, respectively. For a description of the issuance of the shares
of Series C-1 Preferred Stock and the agreement by the holders of shares of
Series B Preferred Stock to strip the shares of Series B Preferred Stock of all
rights (including the right to convert such shares into shares of the Company's
common stock), except for the right to elect directors of the Company, see Note
8. The common stock shares into which these preferred securities are convertible
have not been included in the dilutive share calculation as the impact of their
inclusion would be anti-dilutive. The Company also had 4,226,097 and 3,891,179
of options outstanding to purchase shares of its common stock under its stock
option plan as of January 27, 2002 and January 26, 2003, respectively. These
stock options are also excluded from the dilutive share calculation as the
impact of their inclusion would be anti-dilutive.
9
American Skiing Company and Subsidiaries
6. Segment Information
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", the Company has classified its operations
into two business segments, resorts and real estate. Revenues at each of the
resorts are derived from the same lines of business which include lift ticket
sales, food and beverage, retail sales including rental and repair, skier
development, lodging and property management, golf, other summer activities and
miscellaneous revenue sources. The performance of the resorts is evaluated on
the same basis of profit or loss from operations before interest, taxes,
depreciation and amortization, and restructuring and asset impairment charges
(EBITDA). Additionally, each of the resorts has historically produced similar
EBITDA margins and attracts the same class of customer. Based on the
similarities of the operations at each of the resorts, the Company has concluded
that the resorts satisfy the aggregation criteria set forth in SFAS No. 131. The
Company's chief operating decision makers for each business segment monitor the
results of those business segments utilizing EBITDA, which the Company believes
is an indicative measure of the business segments' operating performance and is
generally used by investors to evaluate companies in the resort industry. The
Company's real estate revenues are derived from the sale and leasing of
interests in real estate development projects undertaken by the Company at its
resorts and the sale of other real property interests. Certain reclassifications
have been made to the prior period amounts as a result of accounting for the
sale of Heavenly as discontinued operations. Revenues and operating losses for
the two business segments, excluding discontinued operations, are as follows
(in thousands):
--------------------------------------------------------------------------------------------------------------
13 weeks ended 13 weeks ended 26 weeks ended 26 weeks ended
January 27, 2002 January 26, 2003 January 27, 2002 January 26, 2003
--------------------------------------------------------------------------------------------------------------
Revenues:
Resort $ 87,986 $ 98,961 $ 105,308 $ 115,872
Real estate 12,080 1,325 14,871 5,039
--------------- ---------------- --------------- ----------------
Total $ 100,066 $ 100,286 $ 120,179 $ 120,911
=============== ================ =============== ================
Loss from continuing operations before
cumulative effect of a change in accounting principle
Resort $ (33,243) $ (1,282) $ (63,302) $ (26,140)
Real estate (4,713) (6,167) (11,132) (11,483)
--------------- ---------------- --------------- ----------------
Total $ (37,956) $ (7,449) $ (74,434) $ (37,623)
=============== ================ =============== ================
EBITDA:
Resort $ 12,033 $ 16,615 $ (3,861) $ 993
Real estate 127 (573) (1,191) (435)
--------------- ---------------- --------------- ----------------
Total $ 12,160 $ 16,042 $ (5,052) $ 558
=============== ================ =============== ================
--------------------------------------------------------------------------------------------------------------
A reconciliation of total EBITDA to amounts reported in the condensed
consolidated statements of operations is as follows:
--------------------------------------------------------------------------------------------------------------
13 weeks ended 13 weeks ended 26 weeks ended 26 weeks ended
January 27, 2002 January 26, 2003 January 27, 2002 January 26, 2003
--------------------------------------------------------------------------------------------------------------
EBITDA:
Loss from continuing operations before
cumulative effect of a change in
accounting Principle $ (37,956) $ (7,449) $ (74,434) $ (37,623)
Depreciation and amortization 10,757 11,978 14,686 15,549
Interest expense 13,106 11,513 26,817 22,632
Restructuring and asset impairment charges 26,253 - 27,879 -
--------------- ---------------- --------------- ----------------
$ 12,160 $ 16,042 $ (5,052) $ 558
=============== ================ =============== ================
--------------------------------------------------------------------------------------------------------------
Management believes that EBITDA is an indicative measure of a resort
company's operating performance and is generally used by investors to evaluate
companies in the resort industry. However, EBITDA as used in this report may not
be comparable to similarly titled measures reported by other companies.
10
American Skiing Company and Subsidiaries
7. Long-Term Debt
On March 30, 2002, Resort Properties failed to make a mandatory
principal payment of $3.75 million under its real estate credit facility (Real
Estate Term Facility) with Fleet National Bank (Fleet) and other lenders. Resort
Properties obtained a temporary waiver of this default on April 2, 2002.
Effective May 20, 2002, the temporary waiver was revoked and Resort Properties
was in default on the facility. On May 31, 2002, the lenders accelerated the due
date of the entire remaining principal and accrued interest under the facility.
On November 22, 2002, Resort Properties entered into a forbearance agreement
with the lenders whereby the lenders agreed to not pursue additional
foreclosure remedies and to cease publication of foreclosure notices for a
30-day period. Although this 30-day period has expired, management continues
discussions with Fleet and the other lenders regarding a restructuring of this
facility, and Fleet and the other lenders have not exercised any further
foreclosure remedies since the expiration of the forbearance agreement.
Management's ongoing restructuring efforts with the lenders are aimed towards a
restructuring of the facility which will establish a new entity to hold Resort
Properties' real estate development assets. The equity in the new entity is
expected to be held by a combination of the lenders under the facility and
Resort Properties. The facility remains in default pending completion of these
negotiations. As of January 26, 2003, the principal balance outstanding,
including accrued and unpaid interest, under the Real Estate Term Facility was
$71.7 million.
There can be no assurance that negotiations will be successfully
completed, or that acceptable terms will be agreed to under which the payment
defaults under the Real Estate Term Facility may be resolved, if at all.
Furthermore, regardless of the outcome of this proposed restructuring, the
Company may lose control of assets pledged as collateral under the facility and
future access to value creation from these real estate assets. A substantial
portion of the Company's developable real estate, including substantially all of
the developable residential real estate at The Canyons and Steamboat along with
certain core village real estate at Killington, and the stock of the Company's
real estate development subsidiaries (including Grand Summit Resort Properties,
Inc. (Grand Summit) is pledged to Fleet and the other lenders under the
facility. The commercial core units at the Sundial Lodge at The Canyons and the
Mount Snow Grand Summit Hotel in Vermont are also pledged to Fleet and the other
lenders. The Grand Summit unit inventory does not secure the Real Estate Term
Facility, although the pledge of the stock of Grand Summit to secure the Real
Estate Term Facility means that the Company may lose control of the Grand Summit
unit inventory to the lenders under the Real Estate Term Facility. Other
remedies available to the lenders include, but are not limited to, setoff of
cash collateral amounts in Resort Properties' name held at Fleet in the amount
of approximately $1.1 million, foreclosure of real and personal property owned
by Resort Properties and pledged to the lenders (including all of the capital
stock of the Company's hotel development subsidiary, Grand Summit), and other
customary secured creditor remedies. As of January 26, 2003, the carrying value
of the total assets that collateralized the Real Estate Term Facility was
approximately $120.1 million. This collateral includes $83.7 million of Grand
Summit assets pledged under the Company's $41.5 million real estate construction
loan facility (Construction Loan Facility).
As of July 28, 2002, the Company was also in default under its
construction loan facility with Textron Financial Corporation (Textron) and
certain other lenders, resulting from a cross-default on the Real Estate Term
Facility and non-payment of the $3.8 million note to the general contractor at
Steamboat. Effective August 29, 2002, the Company and Textron entered into
amendments to the Company's $110 million construction loan facility (Senior
Construction Loan) and the Company's $10 million subordinated loan tranche
Subordinated Construction Loan (Subordinated Construction Loan) under the
Construction Loan Facility. The terms of the revised agreements waived all
previous defaults, relax mandatory principal amortization requirements and
provide additional liquidity to support ongoing sales and marketing activities
of the remaining quartershare units at The Canyons Grand Summit and Steamboat
Grand hotels. As a result of the amendment to the Senior Construction Loan, the
maturity dates were extended from March 31, 2003 to May 31, 2004 for the
Steamboat portion of the Senior Construction Loan and from September 28, 2002 to
March 31, 2003 for The Canyons portion of the Senior Construction Loan. The
principal balances outstanding under the Steamboat portion and The Canyons
portion of the Senior Construction Loan were approximately $32.9 million and
$0.6 million, respectively, as of January 26, 2003. The release prices, as
defined, on Steamboat have also been adjusted and the amendment allows for
future adjustments depending upon certain circumstances. Upon the repayment of
all indebtedness under the Senior Construction Loan, the Subordinated
Construction Loan and all other fees, Textron will receive a fee equal to 25% of
all gross proceeds of sales of quartershare units and commercial units occurring
subsequent to repayment. Grand Summit and the lenders have also agreed to use
their best efforts to enter into an escrow agreement pursuant to which the
appropriate deed-in-lieu documentation in respect to the Senior Construction
Loan and the Subordinated Construction Loan shall be placed in escrow. Finally,
the amendment to the Senior Construction Loan outlines the following maximum
outstanding principal balances under the Senior Construction Loan as of the
following dates:
11
American Skiing Company and Subsidiaries
March 31, 2003 $30,000,000
June 30, 2003 $25,000,000
September 30, 2003 $20,000,000
December 31, 2003 $10,000,000
March 31, 2004 $ 5,000,000
May 31, 2004 $ -
As a result of the amendment to the Subordinated Construction Loan, the
maturity date was extended from August 1, 2003, to September 30, 2004. In
addition, the Subordinated Construction Loan was reopened to provide additional
borrowing availability of approximately $4.5 million. The Subordinated
Construction Loan will continue to bear interest at 20%, payable monthly in
arrears, provided that 50% of the 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 Construction Loan or the Senior Construction Loan, automatically be
deferred until the final payment date of September 30, 2004.
As discussed in Note 10, the Company completed the refinancing of its
resort senior credit facility (Resort Senior Credit Facility) on February 14,
2003, which was funded on February 18, 2003.
8. Dividend Restrictions
Borrowers under the Resort Senior Credit Facility and the Company's New
Resort Credit Facility, which include ASC, are restricted from paying cash
dividends on any of their preferred or common stock.
Borrowers under the Real Estate Term Facility, which include Resort
Properties and Resort Properties' subsidiaries, including Grand Summit, are
restricted from declaring dividends or advancing funds to ASC by any other
method, unless specifically approved by these lenders.
Under the indenture governing the Senior Subordinated Notes, ASC is
prohibited from paying cash dividends or making other distributions to its
shareholders.
9. Restructuring and Asset Impairment Charges
For the 13 weeks and 26 weeks ended January 27, 2002, the Company
incurred $0.9 million and $2.5 million of expenses related to the implementation
of its strategic restructuring plan. These costs consisted mainly of legal,
consulting and accounting fees. There were no employee termination costs
included in these charges, as the Company had completed the staff reduction
phase of its strategic restructuring plan prior to the end of Fiscal 2001. All
of the amounts recognized in 13 weeks and 26 weeks ended January 27, 2002 were
paid or accrued for services previously rendered in connection with this plan.
The Company has not established any reserves for anticipated future
restructuring charges. The Company recognizes expenses associated with its
strategic restructuring plan as they are incurred.
During the first quarter of Fiscal 2002, the Company entered into a
non-binding letter of intent to sell its Steamboat resort in Steamboat Springs,
Colorado (Steamboat). In accordance with SFAS No. 121, the Company recognized a
$52.0 million impairment loss on the net assets held for sale as of July 29,
2001. An additional $25.4 million impairment charge was recorded for the 13
weeks ended January 27, 2002 based on modifications from preliminary estimates
to the final proposed purchase and sale agreement. The Company withdrew from the
sale of Steamboat on March 26, 2002.
10. Subsequent Events
As part of its comprehensive strategic plan to restructure its debt,
the Company entered into an agreement dated February 14, 2003 with General
Electric Capital Corporation (GE Capital) and CapitalSource Finance LLC
(CapitalSource) whereby GE Capital and CapitalSource have provided a new $91.5
million senior secured loan facility (the New Resort Credit Facility). The New
Resort Credit Facility replaces the Company's existing Resort Senior Credit
Facility and is secured by substantially all the assets of the Company and the
assets of its resort operating subsidiaries. Resort Properties and its
subsidiaries are not guarantors of the New Resort Credit Facility nor are their
assets pledged as collateral under the New Resort Credit Facility. The New
Resort Credit Facility consists of the following:
o Revolving Credit Facility - $40.0 million, including letter of credit
(L/C) availability of up to $5.0 million. The amount of availability
under the Revolving Credit Facility will be correspondingly reduced by
the amount of each L/C issued.
o Tranche A Term Loan - $25.0 million borrowed on the funding date of
February 18, 2003.
o Supplemental Term Loan - $6.5 million borrowed on the funding date of
February 18, 2003.
o Tranche B Term Loan - $20.0 million borrowed on the funding date of
February 18, 2003.
12
American Skiing Company and Subsidiaries
The Revolving, Tranche A Term Loan and Supplemental Term Loan portions
of the New Resort Credit Facility mature on April 15, 2006 and bear interest at
JPMorgan Chase Bank's prime rate plus 3.25% (payable monthly). The Supplemental
Term Loan also requires a principal payment of approximately $342,000 on July
15, 2003, payments of approximately $1.0 million on January 15 and July 15 of
each year, and a final payment of approximately $1.0 million on April 15, 2006.
The Tranche B Term Loan matures on June 15, 2006 and bears interest at JPMorgan
Chase Bank's prime rate plus 5.0% (payable monthly) with an interest rate floor
of 12.25%. The New Resort Credit Facility contains affirmative, negative and
financial covenants customary for this type of credit facility, which includes
maintaining a minimum level of EBITDA, as defined, places a limit on the
Company's capital expenditures and contains an asset monetization covenant which
requires the Company to refinance the facility or sell assets sufficient to
retire the facility on or prior to December 31, 2005. The financial covenants of
the New Resort Credit Facility are less restrictive than those of the Resort
Senior Credit Facility. The New Resort Credit Facility also restricts the
Company's ability to pay cash dividends on or redeem its common and preferred
stock.
ASC has established the American Skiing Company Phantom Equity Plan
(the "LTIP"), which was ratified by our Board of Directors on March 6, 2003.
Certain of ASC's Executive Officers participate in this plan. Participants are
entitled to a payment on awards granted under the LTIP, to the extent vested
upon a Valuation Event or in certain cases upon termination of employment. The
amount of any awards are based ultimately on the Equity Value, as defined,
obtained through a Valuation Event. A Valuation Event is any of the following:
(i) a sale or disposition of a significant Company operation or property as
determined by the Board; (ii) a merger, consolidation or similar event of the
Company other than one (A) in which the Company is the surviving entity or (B)
where no Change in Control has occurred; (iii) a public offering of equity
securities by the Company that yields net proceeds to the Company in excess of
$50 million; or (iv) a Change in Control, as defined. Compensation expense will
be estimated and recorded based on the probability of the Company achieving a
Valuation Event.
13
American Skiing Company and Subsidiaries
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking Statements
Certain statements contained in this report constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the Securities Act), and Section 21E of the Securities Exchange Act of
1934, as amended (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 airline bankruptcies); inability to complete
our restructuring plan; failure to maintain improvements to resort operating
performance at the covenant levels required by our New Resort Credit Facility;
the possibility of war or threats of domestic terrorist activities and their
respective effects on the ski, golf, resort, leisure and travel industries;
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 have 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 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 13 and 26 weeks ended January 26, 2003. As you
read the material below, we urge you to carefully consider our Fiscal 2002
Annual Report on Form 10-K filed on March 7, 2003 and our unaudited condensed
consolidated financial statements and related notes contained elsewhere in this
report.
Real Estate Credit Agreement Defaults
On March 30, 2002, our real estate development subsidiary, Resort
Properties, failed to make a mandatory principal payment of $3.75 million under
its Real Estate Term Facility with Fleet National Bank and certain other
lenders. See "-Liquidity and Capital Resources - Real Estate Liquidity - Real
Estate Term Facility" below for a discussion of the status of our efforts to
restructure the Real Estate Term Facility.
As of July 28, 2002, our hotel development subsidiary (Grand Summit)
was also in default under its construction loan facility with Textron Financial
Corporation (Textron) and certain other lenders, resulting from a cross-default
on the Real Estate Term Facility and from the non-payment of the $3.8 million
note to the general contractor at Steamboat. Effective August 29, 2002, Grand
Summit and Textron and the lenders amended the senior construction loan and the
subordinated construction loan (collectively, the Construction Loan Facility).
See "-- Liquidity and Capital Resources -- Real Estate Liquidity -- Construction
"Loan Facility" below for a discussion of the terms of the amendment to the
Construction Loan Facility.
14
American Skiing Company and Subsidiaries
Restructuring Plan
On May 30, 2001, we announced a comprehensive strategic plan to
improve our capital structure and enhance future operating performance. The plan
included the following key components:
o A comprehensive financial restructuring package, including amendments
to our senior credit facilities and 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.
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. On May 9, 2002, we completed the sale of
Heavenly to Vail Resorts, Inc. (Vail). We determined that the sale of Heavenly
more closely achieved our restructuring objectives and resulted in a
significantly higher asset valuation than the previously announced Steamboat
sale transaction. As a result, we concluded that we would not proceed with the
sale of our Steamboat resort.
On March 30, 2002, Resort Properties failed to make a mandatory
principal payment of $3.75 million under its real estate credit facility (Real
Estate Term Facility) with Fleet National Bank (Fleet) and other lenders. Resort
Properties obtained a temporary waiver of this default. Effective May 20, 2002,
the temporary waiver was revoked and Resort Properties was in default on the
facility. On May 31, 2002, Resort Properties received written confirmation of
the acceleration of the remaining principal and accrued interest balance. On
November 22, 2002, Resort Properties entered into a forbearance agreement with
the lenders whereby the lenders agreed to not pursue additional foreclosure
remedies and to cease publication of foreclosure notices for a 30-day period.
Although this 30-day period has expired, management continues discussions with
Fleet and the other lenders regarding a restructuring of this facility, and
Fleet and the other lenders have not exercised any further foreclosure remedies
since the expiration of the forbearance agreement. Management's ongoing
restructuring efforts with the lenders are aimed towards a restructuring of the
facility which will establish a new entity to hold Resort Properties' real
estate development assets. The equity in the new entity is expected to be held
by a combination of the lenders under the facility and Resort Properties. The
Real Estate Term Facility remains in default pending completion of these
negotiations. There can be no assurance that negotiations will be successfully
completed, or that acceptable terms will be agreed to under which the payment
defaults under the facility may be resolved. Furthermore, regardless of the
outcome of this proposed restructuring, we may lose control of assets pledged as
collateral under the Real Estate Term Facility. Other remedies available to the
lenders include, but are not limited to, setoff of cash collateral amounts in
Resort Properties' name held at Fleet in the amount of approximately $1.1
million, foreclosure of real and personal property owned by Resort Properties
and pledged to the lenders (including all of the capital stock of Grand Summit),
and other customary secured creditor remedies. A substantial portion of our
developable real estate, including substantially all of the developable
residential real estate at The Canyons and Steamboat along with certain core
village real estate at Killington, and the stock of our real estate development
subsidiaries (including Grand Summit) is pledged under the Real Estate Term
Facility. The commercial core units at the Sundial Lodge at The Canyons and the
Mount Snow Grand Summit Hotel in Vermont are also pledged under this facility.
The Grand Summit unit inventory does not secure the Real Estate Term Facility,
although the pledge of stock of Grand Summit Resort Properties, Inc. to secure
the Real Estate Term Facility means that we may lose control of the Grand Summit
unit inventory to the lenders under the Real Estate Term Facility. As of January
26, 2003, the carrying value of the total assets that collateralized the Real
Estate Term Facility was approximately $120.1 million. This collateral includes
$83.7 million of Grand Summit assets pledged under our Construction Loan
Facility.
In addition to the developable real estate discussed above, we also own
substantial undeveloped real estate at various resorts which is not pledged as
collateral to the Real Estate Term Facility.
Effective August 29, 2002, we and Textron entered into amendments to our
$110 million construction loan facility (Senior Construction Loan) and our $10
million subordinated loan tranche Subordinated Construction Loan (Subordinated
Construction Loan) under the Construction Loan Facility. The terms of the
revised agreements waived all previous defaults, relax mandatory principal
amortization requirements and provide additional liquidity to support ongoing
sales and marketing activities of the remaining quartershare units at The
Canyons Grand Summit and Steamboat Grand hotels. As a result of the amendment to
the Senior Construction Loan, the maturity dates were extended from March 31,
2003 to May 31, 2004 for the Steamboat portion of the Senior Construction Loan
15
American Skiing Company and Subsidiaries
and from September 28, 2002 to March 31, 2003 for The Canyons portion of the
Senior Construction Loan. The release prices, as defined, on Steamboat have also
been adjusted and the amendment allows for future adjustments depending upon
certain circumstances. Upon the repayment of all indebtedness under the Senior
Construction Loan, the Subordinated Construction Loan and all other fees,
Textron will receive a fee equal to 25% of all gross proceeds of sales of
quartershare units and commercial units occurring subsequent to repayment. Grand
Summit and the lenders have also agreed to use their best efforts to enter into
an escrow agreement pursuant to which the appropriate deed-in-lieu documentation
in respect to the Senior Construction Loan and the Subordinated Construction
Loan shall be placed in escrow. Finally, the amendment to the Senior
Construction Loan outlines the following maximum outstanding principal balances
under the Senior Construction Loan as of the following dates:
March 31, 2003 $30,000,000
June 30, 2003 $25,000,000
September 30, 2003 $20,000,000
December 31, 2003 $10,000,000
March 31, 2004 $ 5,000,000
May 31, 2004 $ -
As a result of the amendment to the Subordinated Construction Loan, the
maturity date was extended from August 1, 2003, to September 30, 2004. In
addition, the Subordinated Construction Loan was reopened to provide additional
borrowing availability of approximately $4.5 million. The Subordinated
Construction Loan will continue to bear interest at 20%, payable monthly in
arrears, provided that 50% of the 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 Construction Loan or the Senior Construction Loan, automatically be
deferred until the final payment date of September 30, 2004.
On April 19, 2002, we completed an amendment to the indenture governing
our Senior Subordinated Notes. Pursuant to that amendment, the indenture and
Senior Subordinated Notes are no longer subject to a cross-default resulting
from a default by our real estate subsidiaries under certain debt which is
non-recourse to the remainder of the Company, including the Real Estate Term
Facility and the Construction Loan Facility. The amendment also provides that
neither a bankruptcy nor a judgment against any of our real estate development
subsidiaries will constitute a default under the indenture.
The most significant remaining element of our restructuring plan is the
restructuring of the credit facilities of our real estate development
subsidiaries. For a more detailed discussion, see "Real Estate Liquidity" below.
Liquidity and Capital Resources
Short-Term
Our primary short-term liquidity needs involve funding seasonal working
capital requirements, marketing and selling real estate development projects,
funding our Fiscal 2003 capital improvement program and servicing our debt. Our
cash requirements for ski-related and real estate development/sales activities
are provided from separate sources.
As described below, we entered into a new $91.5 million senior secured
loan facility (the New Resort Credit Facility) on February 14, 2003 and used our
initial borrowings to refinance the Resort Senior Credit Facility.
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 New Resort Credit Facility. The
total debt outstanding on our Resort Senior Credit Facility as of January 26,
2003 was approximately $46.6 million. The total debt outstanding on our New
Resort Credit Facility as of February 18, 2003 was approximately $57.2 million.
The Resort Senior Credit Facility was repaid in full on February 18, 2003.
16
American Skiing Company and Subsidiaries
Real estate development and real estate working capital is funded
primarily through the Construction Loan Facility established for major real
estate development projects and net proceeds from the sale of real estate
developed for sale after required construction loan repayments. The Construction
Loan Facility is without recourse to ASC and the resort operating subsidiaries
and is collateralized by significant real estate assets of Resort Properties
and its subsidiaries, including the assets and stock of Grand Summit. As of
January 26, 2003, the carrying value of the total assets that collateralized the
Construction Loan Facility and which are included in the accompanying condensed
consolidated balance sheet was approximately $83.7 million. The total debt
outstanding on the Construction Loan Facility as of January 26, 2003 was
approximately $42.3 million. See "Real Estate Liquidity - Real Estate Credit
Facility" below.
Resort Liquidity
As part of our comprehensive strategic plan to restructure our debt, we
entered into an agreement dated February 14, 2003 with General Electric Capital
Corporation (GE Capital) and CapitalSource Finance LLC (CapitalSource) whereby
GE Capital and CapitalSource have provided the New Resort Credit Facility. The
New Resort Credit Facility replaces our Resort Senior Credit Facility and is
secured by substantially all our assets and the assets of our resort operating
subsidiaries. Resort Properties and its subsidiaries are not guarantors of the
New Resort Credit Facility nor are their assets pledged as collateral under the
New Resort Credit Facility. The New Resort Credit Facility consists of the
following:
o Revolving Credit Facility - $40.0 million, including letter of credit
(L/C) availability of up to $5.0 million. The amount of availability
under the Revolving Credit Facility will be correspondingly reduced by
the amount of each L/C issued. Immediately after funding, we had
availability under the Revolving Credit Facility of $34.3 million.
o Tranche A Term Loan - $25.0 million borrowed on the funding date of
February 18, 2003.
o Supplemental Term Loan - $6.5 million borrowed on the funding date of
February 18, 2003.
o Tranche B Term Loan - $20.0 million borrowed on the funding date of
February 18, 2003.
The Revolving, Tranche A Term Loan and Supplemental Term Loan portions
of the New Resort Credit Facility mature on April 15, 2006 and bear interest at
JPMorgan Chase Bank's prime rate plus 3.25% (payable monthly). The Supplemental
Term Loan also requires a principal payment of approximately $342,000 on July
15, 2003, payments of approximately $1.0 million on January 15 and July 15 of
each year, and a final payment of approximately $1.0 million on April 15, 2006.
The Tranche B Term Loan matures on June 15, 2006 and bears interest at JPMorgan
Chase Bank's prime rate plus 5.0% (payable monthly) with an interest rate floor
of 12.25%. The New Resort Credit Facility contains affirmative, negative and
financial covenants customary for this type of credit facility, which includes
maintaining a minimum level of EBITDA, as defined, places a limit on our capital
expenditures and contains an asset monetization covenant which requires us to
refinance the facility or sell assets sufficient to retire the facility on or
prior to December 31, 2005. The financial covenants of the New Resort Credit
Facility are less restrictive than those of the Resort Senior Credit Facility.
As of February 23, 2003, we had $0, $25.0 million, $6.5 million and
$20.0 million of principal outstanding under the Revolving Credit Facility,
Tranche A Term Loan, Supplemental Term Loan and Tranche B Term Loan portions of
the New Resort Credit Facility, respectively. Furthermore, as of February 23,
2003, we had $40.0 million available for future borrowings under the Revolving
Credit Facility. As of February 23, 2003, we had $4.5 million of L/C's issued
outside of the New Resort Credit Facility. These L/C's have been collateralized
by cash balances and do not reduce availability under the Revolving Credit
Facility.
Our significant debt levels affect our liquidity. As a result of our
highly 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 New Resort Credit Facility.
Furthermore, our New Resort 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. The New Resort Credit Facility also restricts our ability to
pay cash dividends on or redeem our common and preferred stock.
17
American Skiing Company and Subsidiaries
Real Estate Liquidity
To fund working capital and fund its real estate development plan,
Resort Properties relied on the net proceeds from the sale of real estate
developed for sale after required construction loan repayments, a $73 million
Real Estate Term Facility and the Construction Loan Facility. A substantial
portion of our developable real estate and the commercial core units at the
Sundial Lodge at The Canyons and the Mount Snow Grand Summit Hotel in Vermont
are pledged to the lenders under the Real Estate Term Facility.
Real Estate Term Facility: Effective May 20, 2002, Resort Properties was in
default on its Real Estate Term Facility due to its failure to make a mandatory
principal payment of $3.75 million and the indebtedness was accelerated on May
31, 2002. As a result, all indebtedness under the facility is currently due and
payable.
18
American Skiing Company and Subsidiaries
The Real Estate Term Facility is comprised of three tranches, each with
separate interest rates and maturity dates as follows:
o Tranche A is a revolving facility which bears interest at a variable
rate equal to the Fleet National Bank Base Rate plus 2.0% (payable
monthly in arrears). As a result of the default, the default interest
rate on Tranche A is the Fleet National Bank Base Rate plus 6.0%
(6.25% as of January 26, 2003). Prior to the default, mandatory
principal reductions were required in certain prescribed percentages
ranging from 50% to 75% of net proceeds from any future sales of
undeveloped parcels. Prior to the default, the remaining principal
amount outstanding under Tranche A was scheduled to be paid 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 (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). As a result of the
default, the default interest rate on Tranche B is 29% per annum.
Mandatory principal payments on Tranche B of $10 million were due on
each of December 31, 2003 and June 30, 2004. Prior to the default, the
remaining $5 million of principal and all accrued and unpaid interest
on Tranche B was scheduled to be paid in full on December 31, 2004.
o Tranche C is a term loan facility that has a maximum principal amount
of $12 million, bears interest at an effective rate of 25% per annum
and, prior to the default, was scheduled to mature on December 31,
2005. As a result of the default, the default interest rate on Tranche
C is 29% per annum. Interest accrues, is added to the principal
balance of Tranche C and is compounded semi-annually.
As of January 26, 2003, the principal balances outstanding, including
accrued and unpaid interest, under Tranches A, B and C of the Real Estate Term
Facility were $18.6 million, $34.5 million, and $18.6 million, respectively.
On March 30, 2002, our real estate development subsidiary, Resort
Properties, failed to make a mandatory principal payment of $3.75 million under
its Real Estate Term Facility. Resort Properties obtained a temporary waiver of
this default on April 2, 2002. Effective May 20, 2002, the temporary waiver was
revoked and Resort Properties was in default on the facility. On May 31, 2002,
the lenders accelerated the due date of the entire remaining principal and
accrued interest under the facility. On November 22, 2002, Resort Properties
entered into a forbearance agreement with the lenders whereby the lenders agreed
to not pursue additional foreclosure remedies and to cease publication of
foreclosure notices for a 30-day period. Although this 30-day period has
expired, management continues discussions with Fleet and the other lenders
regarding a restructuring of this facility, and Fleet and the other lenders have
not exercised any further foreclosure remedies since the expiration of the
forbearance agreement. Management's ongoing restructuring efforts with the
lenders are aimed towards a restructuring of the facility which will establish a
new entity to hold Resort Properties' real estate development assets. The equity
in the new entity is expected to be held by a combination of the lenders under
the facility and Resort Properties. The facility remains in default pending
completion of these negotiations.
There is no assurance that negotiations will be successfully completed,
or that acceptable terms will be agreed to under which the payment defaults
pending under the Real Estate Term Facility may be resolved. Furthermore,
regardless of the outcome of this proposed restructuring, we may lose control of
assets pledged as collateral under the facility and future access to value
creation from these real estate assets. A substantial portion of our developable
real estate, including substantially all of the developable residential real
estate at The Canyons and Steamboat along with certain core village real estate
at Killington, and the stock of our real estate development subsidiaries
(including Grand Summit) is pledged to Fleet and the other lenders under the
facility. The commercial core units at the Sundial Lodge at The Canyons and the
Mount Snow Grand Summit Hotel in Vermont are also pledged to Fleet and the other
lenders. The Grand Summit unit inventory does not secure the Real Estate Term
Facility. Other remedies available to the lenders include, but are not limited
to, setoff of cash collateral amounts in Resort Properties' name held at Fleet
in the amount of approximately $1.1 million, foreclosure of real and personal
property owned by Resort Properties and pledged to the lenders (including all of
the capital stock of Grand Summit), and other customary secured creditor
remedies. As of January 26, 2003, the carrying value of the total assets that
collateralized the Real Estate Term Facility was approximately $120.1 million.
This collateral includes $83.7 million of Grand Summit assets pledged on our
Construction Loan Facility.
19
American Skiing Company and Subsidiaries
As of February 23, 2003, the principal balances outstanding, including
accrued and unpaid interest, under Tranches A, B and C of the Real Estate Term
Facility were $18.8 million, $35.1 million, and $19.0 million, respectively.
Construction Loan Facility: We conduct substantially all of our real estate
development through subsidiaries, each of which is a wholly owned subsidiary of
Resort Properties. Grand Summit owns our existing Grand Summit Hotel projects at
Steamboat, The Canyons and Attitash Bear Peak, which are primarily financed
through the Senior Construction Loan among Grand Summit and various lenders,
including Textron, 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 Textron (Subordinated
Construction Loan) on July 25, 2000. We used this facility solely for the
purpose of funding the completion of the Steamboat Grand Hotel.
As of July 28, 2002, Grand Summit was also in default under its Senior
Construction Loan and Subordinated Construction Loan under the Construction Loan
Facility, resulting from a cross-default on the Real Estate Term Facility and
from the non-payment of the $3.8 million note to the general contractor at
Steamboat. Effective August 29, 2002, Grand Summit and Textron and the lenders
entered into amendments to the Senior Construction Loan and the Subordinated
Construction Loan. The terms of the revised agreements waived all previous
defaults, relax mandatory principal amortization requirements and provide
additional liquidity to support ongoing sales and marketing activities of the
remaining quartershare units at The Canyons Grand Summit and Steamboat Grand
hotels. Upon the repayment of all indebtedness under the Senior Construction
Loan, the Subordinated Construction Loan and all other fees, Textron will
receive a fee equal to 25% of all gross proceeds of sales of quartershare units
and commercial units occurring subsequent to repayment.
As of January 26, 2003, the amount outstanding under the Senior
Construction Loan was $33.5 million and there were no borrowings available 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 Attitash Bear Peak, The Canyons,
and Steamboat) collateralize the Senior Construction Loan, which is subject to
covenants, representations and warranties customary for this type of
construction facility. The Senior Construction Loan is non-recourse to ASC and
its resort operating subsidiaries (although it is collateralized by substantial
assets of Grand Summit, having a total book value of $83.7 million as of January
26, 2003, which in turn comprise substantial assets of our business). The
maturity date for funds advanced under the Steamboat portion of the Senior
Construction Loan, is May 31, 2004 and the maturity date for funds advanced
under The Canyons portion of the Senior Construction Loan is March 31, 2003. The
principal balance outstanding under the Steamboat portion of the Senior
Construction Loan was approximately $32.9 million as of January 26, 2003 and had
an interest rate on funds advanced of prime plus 3.5%, with a floor of 9.0%
(9.0% as of January 26, 2003). The principal balance outstanding under The
Canyons portion of the Senior Construction Loan was approximately $0.6 million
as of January 26, 2003 and had an interest rate on funds advanced of prime plus
2.5%, with a floor of 9.5% (9.5% as of January 26, 2003). Finally, the Senior
Construction Loan outlines the following maximum outstanding principal balances
as of the following dates:
March 31, 2003 $30,000,000
June 30, 2003 $25,000,000
September 30, 2003 $20,000,000
December 31, 2003 $10,000,000
March 31, 2004 $ 5,000,000
May 31, 2004 $ -
The Subordinated Construction Loan 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
Construction Loan or the Senior Construction Loan, automatically be deferred
until the final payment date. The maturity date for funds advanced under the
Subordinated Construction Loan is September 30, 2004. As of January 26, 2003,
the amount outstanding under the Subordinated Construction Loan was $8.8 million
and there were $1.2 million of borrowings available under this facility.
As of February 23, 2003, the amount outstanding under the Senior
Construction Loan was $33.0 million and there were no borrowings available under
this facility. The principal balances outstanding under the Steamboat portion
and The Canyons portion of the Senior Construction Loan were approximately $32.8
million and $0.2 million, respectively, as of February 23, 2003. As of February
23, 2003, the amount outstanding under the Subordinated Construction Loan was
$9.1 million and there were no borrowings available under this facility. It is
uncertain that we will be able to make the principal payments necessary to bring
the outstanding balance under the Senior Construction Loan to $30.0 million at
March 31, 2003. If we are unable to make the necessary payments, remedies
available to the lenders include, but are not limited to, foreclosure of real
and personal property owned by Grand Summit and pledged to the lenders, and
other customary secured creditor remedies.
20
American Skiing Company and Subsidiaries
Series A Preferred Stock Redemption
We have 36,626 shares of Series A Preferred Stock outstanding, with an
accreted value of approximately $63.3 million as of January 26, 2003. The Series
A Preferred Stock was redeemable on November 12, 2002 at an aggregate redemption
price of approximately $62 million, to the extent that we had funds legally
available for such redemption. If the Series A Preferred Stock is not permitted
to be redeemed because there are not legally available funds, we must redeem
that number of shares of Series A Preferred Stock which we can lawfully redeem,
and from time to time thereafter, as soon as funds are legally available, we
must redeem shares of the Series A Preferred Stock until we have done so in
full. Prior to the November 12, 2002 redemption date, based upon all relevant
factors, our Board of Directors determined not to redeem any such shares of
stock on such redemption date. On January 27, 2003, the holders of the Series A
Preferred Stock demanded that we redeem all of the Series A Preferred Stock
immediately. We are not permitted to redeem the Series A Preferred Stock under
the terms of our New Resort Credit Facility and the indenture governing our
Senior Subordinated Notes. Also, we can give no assurance that the necessary
liquidity will be available to effect such redemption. We will continue to
assess our obligations with respect to the requirements of the redemption
provisions of the Series A Preferred Stock. Because the Series A Preferred Stock
was not redeemed on November 12, 2002, the certificate of designation for the
Series A Preferred Stock provides that the holders are entitled to elect two
additional members of our board of directors. We have not yet been advised by
the holders of the Series A Preferred Stock whether they intend to exercise
their right to elect two directors at or prior to our next annual shareholders
meeting or whether they intend to take any other action, including legal action.
If the holders of the Series A Preferred Stock were to commence any litigation
to compel us to redeem the Series A Preferred Stock, based upon present facts
and circumstances we would vigorously contest any such litigation. If we are
required to redeem all or any portion of the Series A Preferred Stock, it could
have a material adverse effect on our business, results of operations and
financial condition.
Long-Term
Our primary long-term liquidity needs are to fund skiing-related
capital improvements at certain of our resorts. With respect to capital needs,
we have invested over $168 million in skiing-related facilities since the
beginning of Fiscal 1998, excluding investments made at Heavenly and Sugarbush
(which were sold in Fiscal 2002). As a result, and in keeping with restrictions
imposed under the New Resort Credit Facility, we expect our resort capital
programs for the next several fiscal years will be more limited in size.
For Fiscal 2003 and 2004, we anticipate our annual maintenance capital
needs to be approximately $8.5 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 flows,
capital leases and our New Resort 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 flows from each season's resort operations and
future borrowing availability and covenant restrictions under the New Resort
Credit Facility. The New Resort Credit Facility places a maximum level of
non-real estate capital expenditures for Fiscal 2003 at $8.5 million, with the
ability to increase this amount in the future if certain conditions are met. We
believe that these capital expenditure amounts will be sufficient to meet our
non-real estate capital improvement needs for the foreseeable future.
21
American Skiing Company and Subsidiaries
Results of Operations
For the 13 weeks ended January 27, 2002 compared
to the 13 weeks ended January 26, 2003
Resort Operations:
Sale of Sugarbush: We completed the sale of Sugarbush resort on
September 28, 2001. Results of Sugarbush operations are included in our
condensed consolidated statement of operations through that date, which covers
the first two months of the fiscal year. For comparability, the results of
operations at Sugarbush are excluded from both current and prior year results in
the discussion of the results of resort operations. The components of resort
operations reflect the operations of Heavenly as discontinued operations for the
first quarter of Fiscal 2002 due to its sale in May 2002. The following table
reconciles results from resort operations as reported for the 13 weeks ended
January 27, 2002 and January 26, 2003, both including and excluding the results
of Sugarbush resort (in thousands):
- --------------------------------------------------------------------------------------------------------------------------
Resort Results as Reported Sugarbush Results Results Excluding Sugarbush Variance
13 Weeks ended 13 Weeks ended 13 Weeks ended Excluding
------------------------ --------------------- -----------------------
1/27/02 1/26/03 1/27/02 1/26/03 1/27/02 1/26/03 Sugarbush
------------ ----------- ---------- ---------- ----------- ----------- ------------
Total resort revenues $ 87,986 $ 98,961 $ 1 $ - $ 87,985 $ 98,961 $ 10,976
------------ ----------- ---------- ---------- ----------- ----------- ------------
Cost of resort operations 60,799 65,794 12 - 60,787 65,794 5,007
Marketing, general and
administrative costs 15,154 16,552 10 - 15,144 16,552 1,408
Restructuring and asset
impairment charges 26,013 - - - 26,013 - (26,013)
Depreciation and amortization 10,161 11,318 - - 10,161 11,318 1,157
Interest expense 9,102 6,579 24 - 9,078 6,579 (2,499)
------------ ----------- ---------- ---------- ----------- ----------- ------------
Total resort expenses 121,229 100,243 46 - 121,183 100,243 (20,940)
------------ ----------- ---------- ---------- ----------- ----------- ------------
Loss from resort operations $(33,243) $ (1,282) $ (45) $ - $(33,198) $ (1,282) $ 31,916
============ =========== ========== ========== =========== =========== ============
Reconciliation to EBITDA:
Loss from resort operations $(33,243) $ (1,282) $ (45) $ - $(33,198) $ (1,282) $ 31,916
Restructuring and asset
impairment charges 26,013 - - - 26,013 - (26,013)
Depreciation and amortization 10,161 11,318 - - 10,161 11,318 1,157
Interest expense 9,102 6,579 24 - 9,078 6,579 (2,499)
------------ ----------- ---------- ---------- ----------- ----------- ------------
Resort EBITDA(1) $ 12,033 $ 16,615 $ (21) $ - $ 12,054 $ 16,615 $ 4,561
============ =========== ========== ========== =========== =========== ============
- --------------------------------------------------------------------------------------------------------------------------
(1) EBITDA represents our loss from operations before interest, taxes,
depreciation and amortization and restructuring and asset impairment
charges. We believe that EBITDA is an indicative measure of a resort
company's operating performance and is generally used by investors to
evaluate companies in the resort industry. However, EBITDA as used in this
report may not be comparable to similarly titled measures reported by other
companies.
Resort revenues were 12.5% higher in the 13 weeks ended January 26,
2003 when compared to the 13 weeks ended January 27, 2002. This is a result of
improved snow conditions when compared to the prior year. Resort operating
expenses (including marketing, general and administrative costs) for the 13
weeks ended January 26, 2003 were $20.9 million lower than the same period of
Fiscal 2002, primarily as a result of the following:
(i) $2.5 million decrease in interest expense resulting from a decrease in
overall debt balances,
(ii) $26.0 million decrease in restructuring and asset impairment charges,
(iii)$5.0 million increase in cost of resort operations, primarily from
increased skier visits,
(iv) $1.4 million increase in marketing, general and administrative costs,
primarily from the increase in resort operating activity, and
(v) $1.2 million increase in depreciation.
22
American Skiing Company and Subsidiaries
The $26.0 million of restructuring and asset impairment charges for the 13
weeks ended January 27, 2002 includes:
(i) $25.4 million impairment charge to record the estimated fair value of
net assets held for sale at Steamboat, and
(ii) $0.6 million of legal, consulting and financing costs incurred in
connection with capital and debt restructuring.
Excluding these restructuring and asset impairment charges, EBITDA was
$4.6 million higher in the 13 weeks ended January 26, 2003 when compared to the
same period of Fiscal 2002.
Recent Trends: Although our operating results from July 29, 2002
through January 26, 2003 were stronger than the comparable period of the prior
year, we have experienced significant softening in skier visits, call volume and
reservation activity in recent weeks which may be attributable to extreme cold
weekend and holiday temperatures in the East, the soft economy, as well as
concerns about the potential for war in the Middle East and terrorist activity
in the United States. This recent trend has partially offset improvements in
operating results through January 26, 2003. Furthermore, consumers continue to
book their reservations more closely to the actual date of travel making it
difficult for us to forecast future performance.
Real Estate Operations:
The components of real estate operations are as follows:
- --------------------------------------------------------------------------------
13 weeks ended
-------------------------------- ------------
1/27/02 1/26/03 Variance
--------------- ---------------- ------------
Total real estate revenues $ 12,080 $ 1,325 $ (10,755)
--------------- ---------------- ------------
Cost of real estate operations 11,953 1,898 (10,055)
Restructuring charges 240 - (240)
Depreciation and amortization 596 660 64
Interest expense 4,004 4,934 930
--------------- ---------------- ------------
Total real estate expenses 16,793 7,492 (9,301)
--------------- ---------------- ------------
Loss from real estate operations $ (4,713) $ (6,167) $ (1,454)
=============== ================ ============
Reconciliation to EBITDA:
Loss from real estate operations $ (4,713) $ (6,167) $ (1,454)
Restructuring charges 240 - (240)
Depreciation and amortization 596 660 64
Interest expense 4,004 4,934 930
--------------- ---------------- ------------
Real estate EBITDA $ 127 $ (573) $ (700)
=============== ================ ============
- --------------------------------------------------------------------------------
Real estate revenues decreased by $10.8 million in the 13 weeks ended
January 26, 2003 when compared to the same period in Fiscal 2002, from $12.1
million to $1.3 million. This was a result primarily of the following:
(i) $5.2 million decrease in revenues recognized on the closings of
quartershare units at Steamboat and The Canyons, and
(ii) $5.6 million decrease in revenues recognized on the closings of
quartershare units at our eastern resorts.
The decrease in revenues from closings of quartershare units at our
eastern resorts is the result of having completed the sell-out of our remaining
inventory. The decrease in revenues from closings of quartershare units at The
Canyons and Steamboat relates primarily to continuing disruptions related to our
real estate restructuring efforts as well as weakening economic conditions and
difficulty of potential buyers obtaining end-loan financing for fractional real
estate purchases.
23
American Skiing Company and Subsidiaries
Our loss from real estate operations increased by $1.5 million, from
$4.7 million in the 13 weeks ended January 27, 2002 to $6.2 million in the 13
weeks ended January 26, 2003. This was a result primarily of the following:
(i) $10.8 million decrease in revenues recognized on the closings of
quartershare units,
(ii) $10.1 million decrease in cost of real estate operations,
(iii)$0.9 million increase in interest expense resulting from an increase
in debt balances, and
(iv) $0.2 million decrease in restructuring charges, which include legal,
consulting and financing costs incurred in connection with capital and
debt restructuring.
As a result of the above, EBITDA was $0.7 million lower in the 13 weeks
ended January 26, 2003 when compared to the same period of Fiscal 2002. We
believe that EBITDA is an indicative measure of a real estate company's
operating performance and is generally used by investors to evaluate companies
in the real estate industry.
Recent Trends: Over the past several months, we have seen a reduction
in sales volume and sales leads at our Grand Summit properties at Steamboat and
The Canyons. These reduced sales volumes are below management's anticipated
levels for this period. We believe that this is primarily the result of
continuing disruptions related to our real estate restructuring efforts, which
have impacted real estate sales interest at both resorts, as well as weakening
economic conditions and difficulty of potential buyers obtaining end-loan
financing for fractional real estate purchases. We remain cautiously optimistic
about our ability to sell an increased number of units at Steamboat and The
Canyons this ski season as we have completed the Construction Loan Facility
restructuring and are progressing on a potential restructuring of the Real
Estate Term Facility. We are monitoring developing economic conditions and
implementing new and re-energized sales and marketing programs to take advantage
of visitation during the remaining ski season.
Benefit from income taxes. The benefit from income taxes was $0 in both
the 13 weeks ended January 27, 2002 and the 13 weeks ended January 26, 2003. We
believe it is more likely than not that we will not realize income tax benefits
from operating losses in the foreseeable future.
Accretion of discount and dividends on mandatorily redeemable preferred
stock. The dividends on mandatorily redeemable preferred stock increased $0.9
million, from $8.3 million for the 13 weeks ended January 27, 2002 to $9.2
million for the 13 weeks ended January 26, 2003. This increase is primarily
attributable to the compounding effect of accruing dividends on the value of the
preferred shares.
24
American Skiing Company and Subsidiaries
Results of Operations
For the 26 weeks ended January 27, 2002 compared
to the 26 weeks ended January 26, 2003
Resort Operations:
Sale of Sugarbush: We completed the sale of Sugarbush resort on
September 28, 2001. Results of Sugarbush operations are included in our
condensed consolidated statement of operations through that date, which covers
the first two months of the fiscal year. For comparability, the results of
operations at Sugarbush are excluded from both current and prior year results in
the discussion of the results of resort operations. The components of resort
operations reflect the operations of Heavenly as discontinued operations for the
first quarter of Fiscal 2002 due to its sale in May 2002. The following table
reconciles results from resort operations as reported for the 26 weeks ended
January 27, 2002 and January 26, 2003, both including and excluding the results
of Sugarbush resort (in thousands):
- --------------------------------------------------------------------------------------------------------------------------
Resort Results as Reported Sugarbush Results Results Excluding Sugarbush Variance
26 Weeks ended 26 Weeks ended 26 Weeks ended Excluding
------------------------ --------------------- -----------------------
1/27/02 1/26/03 1/27/02 1/26/03 1/27/02 1/26/03 Sugarbush
------------ ----------- ---------- ---------- ----------- ----------- ------------
Total resort revenues $ 105,308 $ 115,872 $ 698 $ - $ 104,610 $ 115,872 $ 11,262
------------ ----------- ---------- ---------- ----------- ----------- ------------
Cost of resort operations 84,210 88,294 1,153 - 83,057 88,294 5,237
Marketing, general and
administrative costs 24,959 26,585 468 - 24,491 26,585 2,094
Restructuring and asset
impairment charges 27,639 - - - 27,639 - (27,639)
Depreciation and amortization 13,428 14,290 - - 13,428 14,290 862
Interest expense 18,374 12,843 32 - 18,342 12,843 (5,499)
------------ ----------- ---------- ---------- ----------- ----------- ------------
Total resort expenses 168,610 142,012 1,653 - 166,957 142,012 (24,945)
------------ ----------- ---------- ---------- ----------- ----------- ------------
Loss from resort operations $ (63,302) $ (26,140) $ (955) $ - $ (62,347) $ (26,140) $ 36,207
============ =========== ========== ========== =========== =========== ============
Reconciliation to EBITDA:
Loss from resort operations $ (63,302) $ (26,140) $ (955) $ - $ (62,347) $ (26,140) $ 36,207
Restructuring and asset
impairment charges 27,639 - - - 27,639 - (27,639)
Depreciation and amortization 13,428 14,290 - - 13,428 14,290 862
Interest expense 18,374 12,843 32 - 18,342 12,843 (5,499)
------------ ----------- ---------- ---------- ----------- ----------- ------------
Resort EBITDA(1) $ (3,861) $ 993 $ (923) $ - $ (2,938) $ 993 $ 3,931
============ =========== ========== ========== =========== =========== ============
- --------------------------------------------------------------------------------------------------------------------------
(1) EBITDA represents our loss from operations before interest, taxes,
depreciation and amortization and restructuring and asset impairment
charges. We believe that EBITDA is an indicative measure of a resort
company's operating performance and is generally used by investors to
evaluate companies in the resort industry. However, EBITDA as used in this
report may not be comparable to similarly titled measures reported by other
companies.
Resort revenues were 10.8% higher in the 26 weeks ended January 26,
2003 when compared to the 26 weeks ended January 27, 2002. This is a result of
improved snow conditions when compared to the prior year. Resort operating
expenses (including marketing, general and administrative costs) for the 26
weeks ended January 26, 2003 were $24.9 million lower than the same period of
Fiscal 2002, primarily as a result of the following:
(i) $5.5 million decrease in interest expense resulting from a decrease in
overall debt balances,
(ii) $27.6 million decrease in restructuring and asset impairment charges,
(iii)$5.2 million increase in cost of resort operations, primarily from
increased skier visits,
(iv) $2.1 million increase in marketing, general and administrative costs,
primarily from the increase in resort operating activity, and
(v) $0.9 million increase in depreciation.
25
American Skiing Company and Subsidiaries
The $27.6 million of restructuring and asset impairment charges for the 26
weeks ended January 27, 2002 includes:
(i) $25.4 million impairment charge to record the estimated fair value of
net assets held for sale at Steamboat, and
(ii) $2.2 million of legal, consulting and financing costs incurred in
connection with capital and debt restructuring.
Excluding these restructuring and asset impairment charges, EBITDA was
$3.9 million higher in the 26 weeks ended January 26, 2003 when compared to the
same period of Fiscal 2002.
Real Estate Operations:
The components of real estate operations are as follows:
- --------------------------------------------------------------------------------
26 weeks ended
-------------------------------- ------------
1/27/02 1/26/03 Variance
--------------- ------------------------------
Total real estate revenues $ 14,871 $ 5,039 $ (9,832)
--------------- ---------------- ------------
Cost of real estate operations 16,062 5,474 (10,588)
Restructuring charges 240 - (240)
Depreciation and amortization 1,258 1,259 1
Interest expense 8,443 9,789 1,346
--------------- ---------------- ------------
Total real estate expenses 26,003 16,522 (9,481)
--------------- ---------------- ------------
Loss from real estate operations $ (11,132) $ (11,483) $ (351)
=============== ================ ============
Reconciliation to EBITDA:
Loss from real estate operations $ (11,132) $ (11,483) $ (351)
Restructuring charges 240 - (240)
Depreciation and amortization 1,258 1,259 1
Interest expense 8,443 9,789 1,346
--------------- ---------------- ------------
Real estate EBITDA $ (1,191) $ (435) $ 756
=============== ================ ============
- --------------------------------------------------------------------------------
Real estate revenues decreased by $9.8 million in the 26 weeks ended
January 26, 2003 when compared to the same period in Fiscal 2002, from $14.9
million to $5.1 million. This was a result primarily of the following:
(i) $3.8 million decrease in revenues recognized on the closings of
quartershare units at Steamboat and The Canyons, and
(ii) $6.2 million decrease in revenues recognized on the closings of
quartershare units at our eastern resorts.
The decrease in revenues from closings of quartershare units at our
eastern resorts is the result of having completed the sell-out of our remaining
inventory. The decrease in revenues from closings of quartershare units at The
Canyons and Steamboat relates primarily to continuing disruptions related to our
real estate restructuring efforts as well as weakening economic conditions and
difficulty of potential buyers obtaining end-loan financing for fractional real
estate purchases.
26
American Skiing Company and Subsidiaries
Our loss from real estate operations increased by $0.4 million, from
$11.1 million in the 26 weeks ended January 27, 2002 to $11.5 million in the 26
weeks ended January 26, 2003. This was a result primarily of the following:
(i) $9.8 million decrease in revenues recognized on the closings of
quartershare units,
(ii) $10.6 million decrease in cost of real estate operations,
(iii)$1.4 million increase in interest expense resulting from an increase
in debt balances, and
(iv) $0.2 million decrease in restructuring charges, which include legal,
consulting and financing costs incurred in connection with capital and
debt restructuring.
As a result of the above, EBITDA was $0.8 million higher in the 26
weeks ended January 26, 2003 when compared to the same period of Fiscal 2002. We
believe that EBITDA is an indicative measure of a real estate company's
operating performance and is generally used by investors to evaluate companies
in the real estate industry.
Benefit from income taxes. The benefit from income taxes was $0 in both
the 26 weeks ended January 27, 2002 and the 26 weeks ended January 26, 2003. We
believe it is more likely than not that we will not realize income tax benefits
from operating losses in the foreseeable future.
Accretion of discount and dividends on mandatorily redeemable preferred
stock. The dividends on mandatorily redeemable preferred stock increased $2.2
million, from $16.0 million for the 26 weeks ended January 27, 2002 to $18.2
million for the 26 weeks ended January 26, 2003. This increase is primarily
attributable to the compounding effect of accruing dividends on the value of the
preferred shares.
Cumulative effect of a change in accounting principle. During Fiscal 2002,
we adopted SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142
applies to goodwill and intangible assets acquired after June 30, 2001, as well
as goodwill and intangible assets previously acquired. As a result of the
adoption of SFAS No. 142, we recorded an impairment charge of $18.7 million,
which has been recorded as a cumulative effect of a change in accounting
principle in the 26 weeks ended January 27, 2002.
Recently Issued Accounting Standards
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
adopted SFAS No. 143 in the first quarter of Fiscal 2003. The adoption of this
pronouncement did not have a material impact on our results of operations,
financial position, or liquidity.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This statement addresses the
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". SFAS No. 146 is
effective for exit or disposal activities initiated after December 31, 2002. The
adoption of this pronouncement did not have a material impact on our results of
operations, financial position, or liquidity.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB
Statement No. 123". This statement provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS No. 148 is effective for financial statements issued for fiscal
years ending after December 15, 2002. The adoption of SFAS No. 148 is not
expected to have a material effect on our results of operations or financial
position.
In November 2002, the FASB issued FASB Interpretations (FIN) No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others - an Interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34".
This Interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition and
27
American Skiing Company and Subsidiaries
initial measurement provisions of FIN No. 45 are to be applied on a prospective
basis to guarantees issued or modified after December 31, 2002. The disclosure
requirements of FIN No. 45 are effective for financial statements of interim or
annual periods ending after December 15, 2002. The adoption of FIN No. 45 did
not have an effect on our results of operations or financial position.
In January 2003, the FASB issued FASB Interpretations (FIN) No. 46,
"Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51.
This Interpretation addresses consolidation and reporting by business
enterprises of variable interest entities. All enterprises with variable
interests in variable interest entities created after January 31, 2003, shall
apply the provisions of this Interpretation to those entities immediately. A
public entity with a variable interest in a variable interest entity created
before February 1, 2003, shall apply the provisions of this Interpretation to
that entity no later than the beginning of the first interim or annual reporting
period beginning after June 15, 2003. The adoption of FIN No. 46 did not have an
effect on our results of operations or financial position.
28
American Skiing Company and Subsidiaries
Item 3
Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in information relating to market
risk since our disclosure included in Item 7A of Form 10-K for the fiscal year
ended July 28, 2002, as filed with the Securities and Exchange Commission on
March 7, 2003.
Item 4
Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive
Officer and Chief Financial Officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in
the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as
of a date within 90 days of the filing date of this Quarterly Report
on Form 10-Q (the "Evaluation Date")), have concluded that as of the
Evaluation Date, our disclosure controls and procedures were adequate
and effective to ensure that material information relating to us and
our consolidated subsidiaries would be made known to them by others
within those entities, particularly during the period in which this
Quarterly Report on Form 10-Q was being prepared.
(b) Changes in Internal Controls. There were no significant changes in our
internal controls or in other factors that could significantly affect
our internal controls subsequent to the date of their evaluation, nor
any significant deficiencies or material weaknesses in such internal
controls requiring corrective actions. As a result, no corrective
actions were taken.
Part II - Other Information
Item 2
Changes in Securities and Use of Proceeds
None.
Item 5
Other Information
None.
Item 6
Exhibits and Reports on Form 8-K
a) Exhibits
Included herewith are the following exhibits:
Exhibit No. Description
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
b) Reports on Form 8-K
The Company filed a report on Form 8-K on March 7, 2003, announcing
its Fiscal 2003 First Quarter and 2002 Year End Results.
29
American Skiing Company and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
American Skiing Company
Date: March 12, 2003
By: /s/ William J. Fair
--------------------------------
William J. Fair
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Helen E. Wallace
--------------------------------
Helen E. Wallace
Senior Vice President, Chief
Financial Officer
(Principal Financial Officer)
30
American Skiing Company and Subsidiaries
CERTIFICATIONS
I, William J. Fair, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Skiing
Company (the "Company");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in
this quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit
committee of the Company's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial data
and have identified for the Company's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's
internal controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 12, 2003
By: /s/ William J. Fair
--------------------------------
William J. Fair
President and Chief Executive Officer
(Principal Executive Officer)
31
American Skiing Company and Subsidiaries
CERTIFICATIONS (continued)
I, Helen E. Wallace, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Skiing
Company (the "Company");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in
this quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit
committee of the Company's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial data
and have identified for the Company's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's
internal controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 12, 2003
By: /s/ Helen E. Wallace
--------------------------------
Helen E. Wallace
Senior Vice President, Chief Financial Officer
(Principal Financial Officer)
32