American Skiing Company and Subsidiaries
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED APRIL 26, 1998
_____________________________
Commission File Number 333-33483
_____________________________
American Skiing Company
(Exact name of registrant as specified in its charter)
Maine 04-3373730
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation organization)
P.O. Box 450 04217
Bethel, Maine
(Address of principal executive office) (Zip Code)
(207) 824-5196
(Registrant's telephone number, including area code)
Not Applicable (Former name, former address and former fiscal year, if
changed since last report.)
Indicated by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock were 14,760,530 of class A common stock $.01 par value and 15,505,044
shares of common stock $.01 par value outstanding as of June 10, 1998.
Table of Contents
Part I - Financial Information............................................. 1
Item 1 Financial Statements ............................................... 2
Condensed Consolidated Statement of Operations (Unaudited) for the
Three Months Ended April 26, 1998 and April 27, 1997.............. 2
Condensed Consolidated Statement of Operations (Unaudited) for the
Nine Months Ended April 26, 1998 and April 27, 1997............... 3
Condensed Consolidated Balance Sheet as of April 26, 1998 (Unaudited)
and July 27, 1997................................................. 4
Condensed Consolidated Statement of Cash Flows (Unaudited) for
the Nine Months Ended April 26, 1998 and April 27, 1997........... 6
Notes to (Unaudited) Condensed Consolidated Financial Statements.. 8
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 12
General.......................................................... 12
Liquidity and Capital Resources.................................. 13
Changes in Results of Operations................................. 15
Changes in Financial Condition................................... 18
Significant Events................................................ 20
Subsequent Events................................................. 21
Forward Looking Statements........................................ 21
Part II - Other Information............................................... 23
i
Part I - Financial Information
Item 1
Financial Statements
This Form 10-Q is filed by the American Skiing Company ("ASC") for
itself and its following wholly-owned subsidiaries:
Sunday River Skiway Corporation Sunday River, Ltd.
Sunday River Transportation Perfect Turn, Inc.
LBO Holding, Inc. Sugarbush Resort Holdings, Inc.
Mountain Wastewater Treatment, Inc. Sugarbush Leasing Company
Sugarbush Restaurants, Inc. AJT, Inc. (f/k/a Cranmore, Inc.)
Grand Summit Resort Properties, Inc. S-K-I Limited
Grand Summit Resort Properties II, Inc. Club Sugarbush, Inc.
Mount Snow, Ltd. Killington, Ltd.
Sugarloaf Mountain Corporation WVSAL, Inc. (f/k/a Waterville
Dover Restaurants, Inc..... Valley Ski Area, Ltd.)
Killington Restaurants, Inc. ASC East, Inc.
Resort Software Services, Inc. Resort Technologies, Inc.
Sugartech ASC Utah
Pico Ski Area Management Deerfield Operating Company
ASC West, Inc. American Skiing Company Resort
Properties, Inc. Mountainside Corporation
Heavenly Valley Limited Partnership Heavenly Corporation
Heavenly Ski Resort Corporation Orlando Resort Corporation
Steamboat Ski and Resort Corporation Killington West, Ltd.
Steamboat Development Corporation Mountain Water Company
Ski Insurance Company Heavenly Resort Properties, Inc.
Steamboat Resort Properties, Inc. Canyons Resort Properties, Inc.
Sugarloaf Resort Properties, Inc. Killington Resort Properties, Inc.
Mount Snow Resort Properties, Inc. Sugarbush Resort Properties, Inc.
Sunday River Resort Properties, Inc. Attitash Resort Properties, Inc.
As used herein, the term "the Company" means and refers to American Skiing
Company and the subsidiary registrants listed above on a consolidated basis.
1
Condensed Consolidated Statement of Operations
(In thousands except share and per share amounts)
For the Three Months Ended
April 26, 1998 April 27, 1997
(Unaudited) (Unaudited)
Net revenues:
Resort $144,641 $81,673
Real estate 40,914 2,674
----------------------------------------------------------------
Total net revenues 185,555 84,347
Operating expenses:
Resort 65,413 37,981
Real estate 28,334 2,167
Marketing, general and administrative 12,623 9,097
Depreciation and amortization 17,960 8,075
----------------------------------------------------------------
Total operating expenses 124,330 57,320
----------------------------------------------------------------
Income from operations 61,225 27,027
Interest expense 7,486 5,325
----------------------------------------------------------------
Income before provision for income taxes 53,739 21,702
Provision for income tax expense 20,958 8,623
----------------------------------------------------------------
Income from continuing operations 32,781 13,079
Dividends accrued on mandatorily redeemable preferred stock 1,091 -
----------------------------------------------------------------
Net income available to common shareholders $31,690 $13,079
================================================================
Retained earnings (accumulated deficit), beginning of period $(11,987) $8,221
Add: Net income available to common shareholders 31,690 13,079
----------------------------------------------------------------
Retained earnings, end of period $19,703 $21,300
================================================================
Earnings per common share - basic:
Income from continuing operations $1.08 $13.37
Net income available to common shareholders $1.05 $13.37
Earnings per common share - diluted:
Income from continuing operations $1.07 $13.37
Net income available to common shareholders $1.03 $13.37
See accompanying Notes to (Unaudited) Condensed Consolidated Financial Statements.
2
Condensed Consolidated Statement of Operations
(in thousands except share and per share amounts)
For the Nine Months Ended
April 26, 1998 April 27, 1997
(Unaudited) (Unaudited)
Net revenues:
Resort $265,877 $157,747
Real estate 49,614 5,983
-----------------------------------------------------------------
Total net revenues 315,491 163,730
Operating expenses:
Resort 147,465 96,192
Real estate 34,482 4,880
Marketing, general and administrative. 33,089 21,598
Stock compensation charge (Note 7) 14,254 -
Depreciation and amortization 34,475 16,946
-----------------------------------------------------------------
Total operating expenses 263,765 139,616
-----------------------------------------------------------------
Income from operations 51,726 24,114
Interest expense 25,028 18,396
-----------------------------------------------------------------
Income before provision for income taxes 26,698 5,718
Provision for income tax expense 10,413 2,549
Minority interest in loss of subsidiary (456) -
-----------------------------------------------------------------
Income from continuing operations 16,741 3,169
Extraordinary loss, net of income tax benefit of $3,248 5,081 -
-----------------------------------------------------------------
Net income 11,660 3,169
Accretion of discount and dividends accrued on mandatorily
redeemable preferred stock 4,262 -
-----------------------------------------------------------------
Net income available to common shareholders $7,398 $3,169
=================================================================
Retained earnings, beginning of period $12,305 $18,131
Add: Net income available to common shareholders 7,398 3,169
=================================================================
Retained earnings, end of period $19,703 $21,300
=================================================================
Earnings (loss) per common share-basic:
Income from continuing operations $0.69 $3.24
Extraordinary loss ($0.21) -
Net income available to common shareholders $0.30 $3.24
Earnings (loss) per common share - diluted:
Income from continuing operations $0.68 $3.24
Extraordinary loss ($0.21) -
Net income available to common shareholders $0.30 $3.24
See accompanying Notes to (Unaudited) Condensed Consolidated Financial Statements.
3
Condensed Consolidated Balance Sheet
(in thousands)
April 26, 1998 July 27, 1997
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $32,588 $15,558
Restricted cash 2,753 2,812
Accounts receivable 19,364 3,801
Inventory 13,823 7,282
Prepaid expenses 2,192 1,579
Deferred tax assets 770 422
---------------------------------------------------------
Total current assets 71,490 31,454
Property and equipment, net 472,271 252,346
Real estate developed for sale 97,228 23,540
Long-term investments 7,979 3,507
Goodwill 103,621 10,664
Deferred financing costs 9,481 9,431
Other assets 22,430 6,398
=========================================================
Total assets $784,500 $337,340
=========================================================
See accompanying Notes to (Unaudited) Condensed Consolidated Financial Statements.
4
Condensed Consolidated Balance Sheet
(in thousands)
April 26, 1998 July 27, 1997
(Unaudited)
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit and current portion of long-term debt $28,675 $39,748
Accounts payable and other current liabilities 56,948 25,738
Due to stockholder 1,891 1,933
Deposits and deferred revenue 5,248 4,379
----------------------------------------------------------
Total current liabilities 92,762 71,798
Long-term debt, excluding current portion 195,231 46,833
Subordinated notes and debentures 127,899 149,749
Minority interest - 626
Other long-term liabilities 6,373 7,898
Deferred income taxes 36,138 28,514
----------------------------------------------------------
Total liabilities 458,403 305,418
Mandatorily redeemable preferred stock 38,381 16,821
Shareholders' equity
Common stock, Class A 148 10
Common stock 161 -
Additional paid-in capital 267,704 2,786
Retained earnings 19,703 12,305
------------------------------ ---------------------------
Total shareholders' equity 287,716 15,101
Total liabilities, mandatorily redeemable preferred stock and
shareholders' equity $784,500 $337,340
==========================================================
See accompanying Notes to (Unaudited) Condensed Consolidated Financial Statements.
5
Condensed Consolidated Statement of Cash Flows
(in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended
- -----------------------------------------------------------------------------------------------------------------------------------
April 26, 1998 April 27, 1997
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $11,660 $3,169
Adjustments to reconcile net income to net cash provided by
operating activities:
Stock option compensation charge 14,254 -
Depreciation and amortization 33,088 19,099
Discount on convertible debt 342 -
Minority interest (456) 3,950
Deferred income taxes 6,960 -
Non-cash portion of extraordinary loss 3,242 -
Preferred stock original issue discount 1,841 -
Decreases (increases) in assets:
Restricted cash (733) 5,200
Accounts receivable (14,287) (2,494)
Inventory (2,475) (1,355)
Prepaid expenses (490) 1,332
Other current assets - 733
Real estate developed for sale (45,919) 13,721
Other assets (5,657) (1,311)
Increases (decreases) in liabilities:
Accounts payable and other current liabilities 13,630 (383)
Income taxes payable - (270)
Deposits and deferred revenue (2,914) (406)
Accrued interest - 3,552
Other long-term liabilities (6,161) 2,883
-----------------------------------------------------------------
Cash flow provided by operating activities 5,925 47,420
Cash flows from investing activities:
Assets held for resale - (9,070)
Additions to property and equipment (70,371) (22,661)
Purchase of ski resorts, net of cash purchase (294,364) -
Purchase of ski resort minority interest - (2,492)
Sale (purchase) of long-term investment 497 144
Net proceeds from sale of assets 11,599 -
-----------------------------------------------------------------
Net cash used in investing activities (352,639) (34,079)
Cash flows from financing activities:
Reductions in note payable to shareholder (43) (3,409)
Net proceeds from initial public offering 244,555 -
Proceeds from construction loan 31,219 -
6
Proceeds from term loan 105,000 -
Proceeds from revolving line of credit 50,787 -
Repayment of revolving line of credit (59,623) (11,839)
Proceeds from subordinated notes 17,500 -
Repayment of subordinated debt (21,882) -
Net additions (reductions) to other long-term debt (3,769) 237
----------------------------------------------------------------
Net cash provided by (used in) financing activities 363,744 (15,011)
Net increase (decrease) in cash and cash equivalents 17,030 (1,670)
Cash and cash equivalents at beginning of period 15,558 4,087
----------------------------------------------------------------
Cash and cash equivalents at end of period $32,588 $ 2,417
================================================================
See accompanying Notes to (Unaudited) Condensed Consolidated Financial Statements.
7
Notes to (Unaudited) Condensed Consolidated Financial Statements
1. General. In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of April 26, 1998, the
results of operations for the three and nine months ended April 26, 1998 and
April 27, 1997, and the statement of cash flows for the nine months ended April
26, 1998 and April 27, 1997. All adjustments are of a normal recurring nature.
The unaudited condensed consolidated financial statements should be read in
conjunction with the following notes and the Company's audited consolidated
financial statements as of and for the year ended July 27, 1997 and the
unaudited condensed consolidated financial statements as of and for the three
months ended October 26, 1997 as included in the Form S-1, filed with the
Securities and Exchange Commission on February 10, 1998.
2. Inventories. Inventories are stated at the lower of cost (first-in,
first-out) or market, and consist primarily of retail goods, food and beverage
products and mountain operating supplies.
3. Income Taxes. The provision (benefit) for income taxes is based on a
projected annual effective tax rate of 39%. The net deferred income tax
liability includes the cumulative reduction in current income taxes payable
resulting principally from the excess of depreciation reported for income tax
purposes over that reported for financial reporting purposes.
4. Seasonal Business. Results for interim periods are not indicative of the
results expected for the year due to the seasonal nature of the Company's
business, which is the development and operation of ski resorts.
5. Earnings per Common Share. Effective January 25, 1998, the Company
adopted the provisions of Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 specifies the computation, presentation, and disclosure requirements for
earnings per share for public entities. Earnings per share for the three
and nine months ended April 26, 1998 and April 27, 1997 were determined as
follows:
8
(in thousands) Three Months Ended Nine Months Ended
April 26, April 27, April 26, April 27,
Income 1998 1997 1998 1997
---------------- -------------- ----------------- ---------------
Income from continuing operations $32,781 $13,079 $16,741 $3,169
Preferred stock accretion (1,091) - (4,262) -
Extraordinary loss - - (5,081) -
---------------- -------------- ----------------- ---------------
Net income available to common shareholders (basic
and diluted) $31,690 $13,079 $7,398 $3,169
================ ============== ================= ===============
Shares
Weighted-average shares outstanding (basic) 30,265 978 24,348 978
Dilutive common stock options 463 - 339 -
---------------- -------------- ----------------- ---------------
Weighted average shares outstanding (diluted)
30,728 978 24,687 978
================ ============== ================= ===============
6. Adjustments and Reclassifications. Certain amounts in the prior year's
unaudited condensed consolidated financial statements and the audited financial
statements filed with the Company's Registration Statement on February 10, 1998
with the Securities and Exchange Commission have been reclassified to conform to
the current presentation.
7. Stock Option Plan. The Company recorded a compensation expense charge of
$14.3 million in the quarter ended October 26, 1997 to recognize compensation
expense for stock options granted to certain key members of management. This
charge is based on the difference between the exercise price of $2.00 and the
estimated fair market value as of the date of grant of $18.00. Certain members
of senior management are also being granted a cash payment on the date the
options are exercised to cover individual federal and state income tax liability
generated by exercising the options. The estimated amount of the tax liability
payment of $5.7 million has been fully accrued along with the stock option
compensation charge of $8.6 million.
8. Pro Forma Disclosure. The following pro forma statements of operations
for the three and nine months ended April 26, 1998 and April 27, 1997 are
presented for purposes of comparison. The following pro forma adjustments have
been made for the following periods:
The three months ended April 26, 1998 - There are no pro forma adjustments.
The three months ended April 27, 1997 - The results of operations for
Steamboat, Heavenly and The Canyons have been added based on their historical
results for the three months ended April 27, 1997.
The nine months ended April 26, 1998 - The results of operations for
Steamboat and Heavenly have been added based on their historical results for the
period from August 1, 1997 through the date of their acquisition on November 12,
1997. The minority interest in loss of subsidiary has been removed to reflect
the exchange of the ASC East minority shareholders.
9
The nine months ended April 27, 1997 - The results of operations for
Steamboat, Heavenly and the Canyons have been added based on their historical
results for the nine months ended April 27, 1997.
The following pro forma adjustments have been made for all periods
presented in the Pro Forma Consolidated Statement of Operations:
Pro forma adjustments have been made to depreciation and amortization to
reflect the purchase accounting for the assets of Steamboat and Heavenly and the
changes in the Company's capital structure.
Pro forma adjustments have been posted to interest expense to reflect the
change in the capital structure of the Company related to the acquisition of
Heavenly and Steamboat and the initial public offering of the Company on
November 6, 1997.
10
Consolidated Statement of Operations
(In thousands of dollars except per share amounts)
Pro Forma
Three Months Ended Nine Months Ended
April 26, April 27, April 26, April 27,
1998 1997 1998 1997
Net revenues:
Resort $ 144,641 $ 129,154 $ 269,483 $242,538
Real estate 40,914 2,674 49,614 5,983
--------------------------------------------------------------------
Total net revenues 185,555 131,828 319,097 248,521
--------------------------------------------------------------------
Operating expenses:
Resort 65,413 57,229 156,050 143,362
Real estate 28,334 2,167 34,482 4,880
Marketing, general and administrative 12,623 11,986 38,067 31,253
Stock compensation charge - - 14,254 -
Depreciation and amortization 17,960 15,242 36,073 32,655
--------------------------------------------------------------------
Total operating expenses 124,330 86,624 278,926 212,150
--------------------------------------------------------------------
Income from operations 61,225 45,204 40,171 36,371
Interest expense 7,486 6,076 25,848 20,648
--------------------------------------------------------------------
Income before provision for income taxes 53,739 39,128 14,323 15,723
Provision for income taxes 20,958 15,419 5,587 6,451
--------------------------------------------------------------------
Income from continuing operations 32,781 23,709 8,736 9,272
Extraordinary loss - - 5,081 -
--------------------------------------------------------------------
Net income 32,781 23,709 3,655 9,272
Accretion of discounts and dividends accrued on
mandatorily redeemable preferred stock 1,091 - 4,262 -
--------------------------------------------------------------------
Net income (loss) available to common shareholders $31,690 $23,709 $(607) $9,272
====================================================================
Earnings (loss) per common share - basic:
Income from continuing operations $1.08 $0.80 $0.29 $0.31
Extraordinary loss - - ($0.17) -
Net income (loss) $1.05 $0.80 ($0.02) $0.31
Earnings (loss) per common share - diluted:
Income from continuing operations $1.07 $0.80 $0.29 $0.31
Extraordinary loss - - ($0.17) -
Net income (loss) $1.03 $0.80 ($0.02) $0.31
11
9. Significant Events. On November 6, 1997, the Securities and Exchange
Commission declared effective the Company's Form S-1 Registration Statement for
purposes of registering the Company's common stock. On November 12, 1997, the
Company settled the sale of (i)833,333 shares of common stock directly to the
Principal Shareholder at $18.00 a share and (ii) 13,916,667 shares of common
stock to the public at $18.00 per share in the public offering by the
underwriters. Total gross proceeds of $265.5 million were received in connection
with the offering.
On November 12, 1997, the Company closed the acquisition of the Steamboat
and Heavenly resorts for a purchase price, including closing costs and
adjustments, of approximately $298 million. The acquisition was accounted for
using the purchase accounting method. The consolidated financial statements
herein reflect the results of operations of the acquired Steamboat and Heavenly
ski resorts subsequent to November 12, 1997 and include the balance sheet of the
acquired resorts as of April 26, 1998.
On November 12, 1997, the Company entered into a new senior secured credit
facility with a group of lenders pursuant to which the Company may borrow up to
$215 million. A portion of the net proceeds of the common stock offering,
together with borrowings under the senior credit facility, were used to fund the
purchase of Steamboat and Heavenly ski resorts for approximately $290 million,
Also on November 12, 1997, a portion of the proceeds from the common stock
offering were used to make a $33.6 million investment in the common stock of one
of the Company's major subsidiaries, ASC East, Inc. This investment in ASC East,
Inc. was primarily used to redeem its outstanding subordinated discount notes,
which redemption was effected on December 30, 1997.
The Company has also exchanged shares of the Company's common stock for
shares of common stock in ASC East, Inc. This exchange was made to enable three
beneficial owners of the minority interests to acquire common stock in the
Company at substantially the same exchange ratio as Leslie B. Otten, the
principal shareholder of the Company, exchanged his shares of ASC East, Inc.
common stock for shares of common stock in connection with the formation of the
Company. The Company believes this will eliminate potential conflicts of
interest between minority holders and shareholders of the Company.
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
We are pleased to present to you management's discussion and analysis of
financial condition and results of operations for the third quarter of fiscal
1998 and the nine months ended April 26, 1998. The results include the Steamboat
and Heavenly resorts which were acquired on November 12, 1998. As you read the
material below, we urge you to carefully consider our (Unaudited) Condensed
Consolidated Financial Statements and related notes contained elsewhere in this
report and the audited financial statements and related notes contained in our
Form S-1 Registration Statements filed November 6, 1997 and February 10, 1998.
12
Liquidity and Capital Resources
Short-Term. The Company's primary short-term liquidity needs are funding
seasonal working capital requirements, its summer 1998 capital improvement
program, and servicing indebtedness. The summer 1998 capital improvements will
include expenditures on lifts, trails, snow-making equipment and base
facilities, as well as real estate development. Cash requirements for
ski-related and real estate development activities are provided by separate
sources. The Company's primary sources of liquidity for working capital and
ski-related capital improvements are unexpended proceeds from the initial public
offering, cash flow from operations of its subsidiaries and borrowings under the
senior credit facility. Real estate development will be funded primarily through
construction financing facilities established for major real estate development
projects.
The Company established a new credit facility on November 12, 1997 (the
"New Credit Facility"). The New Credit Facility is divided into two
sub-facilities, $75 million of which ($30 million of which is available at April
26, 1998) is available for borrowings by ASC East, Inc. and its subsidiaries
(the "East Facility") and $140 million of which ($30 million of which is
available at April 26, 1998) is available for borrowings by the Company
excluding ASC East, Inc. and its subsidiaries (the "West Facility"). The East
Facility consists of a eight-year revolving credit facility in the amount of $45
million and an eight-year term facility in the amount of $30 million. The West
Facility consists of an eight-year revolving facility in the amount of $65
million and an eight-year term facility in the amount of $75 million.
The revolving facilities are subject to annual 30-day clean down
requirements to an outstanding balance of not more than $10 million for the East
Facility and not more that $35 million for the West Facility. The maximum
availability under the revolving facilities will reduce over the term of the New
Credit Facility by certain prescribed amounts. The term facilities amortize at a
rate of approximately 1.0% of the principal amount for the first six years with
the remaining portion of the principal due in two substantially equal
installments in years seven and eight. Beginning July 1999, the New Credit
Facility requires mandatory prepayment of 50% of excess cash flows during any
period in which the ratio of the Company's total senior debt to EBITDA exceeds
3.50 to 1. In no event, however, will such mandatory prepayments reduce either
revolving facility commitment below $35 million. The New Credit Facility
contains affirmative, negative and financial covenants customary for this type
of senior credit facility including maintenance of customary financial ratios.
Except for a leverage test, compliance with financial covenants is determined on
a consolidated basis notwithstanding the bifurcation of the New Credit Facility
into sub-facilities. The East Facility is secured by substantially all the
assets of ASC East and its subsidiaries, except our real estate development
subsidiaries, which are not borrowers under the New Credit Facility. The West
Facility is secured by substantially all the assets of the Company and its
subsidiaries, except ASC East, Inc. and its subsidiaries and our real estate
development subsidiaries.
The Company retained approximately $15 million of unexpended proceeds from
its initial public offering, which it holds in cash equivalents.
ASC East, Inc. is prohibited under the indenture governing its $120 million
12% Senior Subordinated Notes due 2006 from paying dividends or making other
distributions to the Company. Therefore, excess cash flow from ASC East, Inc.
cannot be distributed to the Company for use by the Company or its other
subsidiaries.
13
The Company issued $17.5 million of convertible, preferred stock and $17.5
million convertible notes in July, 1997 to fund development at its new resort in
Utah called The Canyons. These securities were converted on November 12, 1997,
into 10 1/2% Mandatorily Redeemable Preferred Stock of the Company.
The Company's summer 1998 capital program is expected to total
approximately $60 million, excluding real estate development. The combination of
unexpended proceeds from its initial public offering, cash flow from resort
operations, capital leases and the New Credit Facility is expected to provide
sufficient funds to meet short term liquidity needs for working capital and
skiing related capital expenditures.
The Company expects to issue approximately $100 million in senior
subordinated bonds prior to close of its 1998 fiscal year ("Bond Offering") and
is in the process of making an offer to holders of ASC East, Inc.'s 12% $120
million Senior Subordinated Notes to exchange those obligations for 12% $120
million of Senior Subordinated Bonds of the Company, with a covenant structure
which will be similar, in all material respects, to the Company's Bond Offering
("Exchange Offer"). Although the Bond Offering and the Exchange Offer are in
process, no assurance can be given that these transactions will be consummated.
The Company is simultaneously pursuing an alternative to the Bond Offering with
its senior lending group and has received a term sheet for arranging an increase
in its senior facility to $350 million ("Additional Senior Credit Facility"). No
assurance can be given that the Additional Senior Credit Facility will be
consummated.
The Company runs its real estate development through single purpose
subsidiaries. Construction of existing Grand Summit Hotel projects are financed
through an independent construction loan facility with recourse limited to the
real estate development subsidiaries. The facility is a customary construction
lending facility allowing for periodic draw down as construction progresses.
Each advance is subject to certain conditions, including obtaining certain
levels of preconstruction sales. The loan is secured by first mortgages on the
Grand Summit properties. Principal is repaid from 80% to 85% of the proceeds
generated by quartershare sales. The construction facility matures December,
2000. This facility, together with funds invested by the Company, is sufficient
to fund the Grand Summit Hotel projects which were substantially completed
during the 1997-1998 ski season.
The Company intends to continue real estate development at its eastern
resorts, and initiate real estate development projects at certain of its western
resorts during the summer of 1998. The financing for summer 1998 projects will
consist of two components. The Company is in the process of finalizing a $145
million senior component, which is a conventional construction loan arranged on
a limited recourse basis with Textron Financial, the Company's existing project
lender. A portion of the development costs are expected to be financed through
equity infused by the Company derived from either the Bond Offering or the
Additional Senior Credit Facility.
Long-Term. The Company's primary long-term liquidity needs are to fund
skiing related capital improvements at certain of its resorts, extensive
development of its slopeside real estate and any future acquisitions of resort
properties.
14
The Company's largest long-term capital needs relate to The Canyons resort
in Utah and the Company's real estate development program. The Canyons resort
will require an estimated $40 million over the next four years to fully develop
on-mountain facilities in time for the 2002 Winter Olympic Games.
There is a considerable degree of flexibility in the timing and, to a
lesser degree, scope of these capital improvements. Although specific capital
expenditures can be deferred for extended periods, continued growth of skier
visits, revenues and profitability will require continued capital investment in
on-mountain improvements. The Company's practice is to finance on-mountain
capital improvements through resort cash flow and its senior credit facility.
The size and scope of the capital improvement program will generally be
determined annually depending upon future availability of cash flow from each
season's resort operations and future borrowing availability under the senior
credit facility.
Development of Grand Summit hotels at several resorts and alpine villages
at Sunday River, Killington, The Canyons and Steamboat will require substantial
funding. The Company expects to undertake these projects through special purpose
subsidiaries with financing provided principally on a limited recourse basis.
The Company's ability to directly contribute equity toward or otherwise
guarantee real estate development is limited to $25 million under the New Credit
Facility. As currently contemplated, the Bond Offering or Additional Senior
Credit Facility covenants would enable a significantly higher level of
contribution to real estate development; however, neither of those transactions
have been consummated and no assurance can be given that either transaction will
be consummated. Financing commitments for future real estate development do not
currently exist. The Company will be required to establish construction
facilities for these projects before undertaking each development.
Changes in Results of Operations
Changes for the Third Quarter of Fiscal 1998 compared to the Third Quarter
of Fiscal 1997.
1. Resort revenues. Resort revenues increased 77.1% from $81.7 million for
the third quarter of fiscal 1997 to $144.6 for the third quarter of fiscal 1998.
The acquisition of the Steamboat and Heavenly resorts acquired on November 12,
1997, and The Canyons resort acquired in July 1997, accounted for $59.0 million
of the increase in revenue. The remaining $3.9 million of the increase is
principally attributable to increases in skier visits, the acquisition of new
retail and food and beverage operations, and increased yield per skier visit in
our pre-acquisition group of resorts.
2. Real estate revenues. Real estate revenues increased $38.2 million in
the third quarter of fiscal 1998 as compared to the third quarter of fiscal
1997. The increase is attributable to completion of the Company's new
quartershare hotels at Killington, Mount Snow and Sunday River and closing
quartershare sales at those projects.
3. Cost of resort operations. Cost of resort operations increased 72.2%
from $38.0 million to $65.4 million. The acquisition of the Steamboat, Heavenly,
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and The Canyons resorts accounted for $21.9 million of the increase. The
remaining $5.5 million of the increase is principally attributable to the
increases in skier visits and business volume at our pre-acquisition resorts.
4. Cost of real estate. Cost of real estate increased $26.2 million in the
third quarter of fiscal 1998 as compared to the third fiscal quarter of 1997.
This increase is attributable principally to increased sales, as outlined above,
and to non-capitalizable costs associated with new projects under development at
Killington, The Canyons and Steamboat.
5. Marketing, general, and administrative. Marketing, general, and
administrative costs increased 38.5% from $9.1 million to $12.6 million. The
inclusion of Steamboat, Heavenly, and The Canyons resorts accounted for nearly
all of the increase.
6. Depreciation and amortization. Depreciation and amortization increased
from $8.1 million for the third quarter of fiscal 1997 to $18.0 million for the
third quarter of fiscal 1998. The increase is principally attributable to the
acquisitions of Steamboat, Heavenly and The Canyons and the summer 1997 capital
program at the Company's eastern resorts.
7. Interest expense. Interest expense increased from $5.3 million for the
third quarter of fiscal 1997 to $7.5 million for the third quarter of fiscal
1998. This increase is primarily attributable to the Company's New Credit
Facility, which was established contemporaneously with the closing of its
initial public offering and the acquisition of Steamboat and Heavenly on
November 12, 1997.
8. Provision for income taxes. Provision for income taxes increased from
$8.6 million for the three months ended April 27, 1997 to $21.0 million for the
three months ended April 26, 1998. The increase is directly related to the
increase in net income for the period.
9. Accrued dividends. The $1.1 million balance at April 26, 1998 represents
dividends accrued on the 10 1/2% Mandatorily Redeemable Preferred Stock which
was issued on November 12, 1997.
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Changes in Results of Operations
Changes for the First Nine Months of Fiscal 1998 compared to the First Nine
Months of Fiscal 1997.
1. Resort revenues. Resort revenues increased 68.5% from $157.8 million for
the nine months ended April 27, 1997 to $265.9 million for the nine months ended
April 26, 1998. The acquisition of the Steamboat and Heavenly resorts acquired
on November 12, 1997, and The Canyons resort acquired in July 1997, accounted
for $95.2 million of the increase. The remaining $12.9 million of the increase
in revenue is principally attributable to increases in skier visits, the
acquisition of new retail and food and beverage operations and increased yields
per skier visit in our pre-acquisition group of resorts.
2. Real estate revenues. Real estate revenues increased $43.6 million for
the nine months ended April 26, 1998 as compared to the nine months ended April
27, 1997. The increase is attributable to completion of the Company's new
quartershare condominium hotels at Killington, Mount Snow and Sunday River and
closing quartershare sales at those projects.
3. Cost of resort operations. Cost of resort operations increased 53.3%
from $96.2 million to $147.5 million. The acquisition of Steamboat, Heavenly,
and The Canyons resorts accounted for $42.3 million of the increase. The
remaining $9.0 million of the increase is principally attributable to the
increases in skier visits and business volume at our pre-acquisition resorts.
4. Cost of real estate. Cost of real estate sold increased $29.6 million
for the nine months ended April 26,1998 as compared to the nine months ended
April 27, 1997. The increase is attributable principally to increased sales,
as outlined above, and to non-capitalizeable costs associated with new
projects under development at Killington, The Canyons, and Steamboat.
5. Marketing, general, and administrative. Marketing, general, and
administrative costs increased 53.2% from $21.6 million to $33.1 million. The
inclusion of Steamboat, Heavenly, and The Canyons accounted for approximately
$6.6 million of this increase. The remainder can be attributed to increased
costs associated with the establishment of ASC corporate offices, the new Edge
card program, direct to lift programs, and other marketing and real estate
initiatives throughout our resorts.
6. Depreciation and amortization. Depreciation and amortization increased
$17.5 million for the nine months ended April 26,1998 as compared to the nine
months ended April 27, 1997. The increase is principally attributable to the
acquisitions of Steamboat, Heavenly, and The Canyons and the additional plant
and equipment related to the summer 1997 capital improvement program.
7. Interest expense. Interest expense increased from $18.4 million for the
nine months ended April 27, 1997 to $25.0 million for the nine months ended
April 26, 1998. This increase is primarily attributable to the Company's New
Credit Facility, which was established contemporaneously with the closing of its
initial public offering and the acquisition of Steamboat and Heavenly on
November 12, 1997.
8. Provision for income taxes. The provision for income taxes increased
from $2.6 million for the nine months ended April 27, 1997 to $10.4 million for
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the nine months ended April 26, 1998. The $7.8 million increase is directly
related to the results from operations for the period, which included a
non-recurring $14.3 million stock compensation charge.
9. Extraordinary loss. The extraordinary loss recorded by the Company is
related to the early retirement of the Company's revolving line of credit,
Junior subordinated discount notes, and acquisition indebtedness related to the
acquisition of Sugarbush.
10. Accretion of preferred stock. The accretion of discounts and dividends
accrued on the mandatorily redeemable preferred stock of $4.3 million represents
the accretion of the exchange feature, the amortization of the issuance costs
and the accrual of dividends relating to the Series A Exchangeable Preferred
Stock prior to its exchange. The activity in this component for the nine months
ended April 26, 1998 also includes $1.8 million of dividends accrued on the 10
1/2% Mandatorily Redeemable Preferred Stock subsequent to its exchange from the
Series A Exchangeable Preferred Stock on November 12, 1997.
Changes in Financial Condition
Changes for the First Nine Months of Fiscal 1998 Compared to year-end
Fiscal 1997.
1. Cash and cash equivalents. Cash and cash equivalents increased 109.5% or
$17.0 million from $15.6 million as of July 27, 1997 to $32.6 million as of
April 26, 1998. The three primary reasons for the increase are (1) the seasonal
operating cycle of the Company, (2) the cash balances at the acquired resorts,
and (3) unexpended proceeds form the Company's initial public offering.
2. Accounts receivable. Accounts receivable increased 409.4% or $15.6
million from $3.8 million as of July 27, 1997 to $19.4 million as of April 26,
1998. The primary reasons for the increase are (1) the seasonal operating cycle
of the Company, (2) balances at the acquired resorts, and (3) increased real
estate sales activity.
3. Inventory. Inventories increased 89.0% or $6.5 million from $7.3 million
as of July 27, 1997 to $13.8 million as of April 26, 1998. The $2.9 million
increase is related to the acquisition of Heavenly, Steamboat, and The Canyons
resorts with the balance of the increase related to newly acquired retail, food
and beverage operations and to the seasonal operating cycle of the Company.
4. Prepaid expenses. Prepaid expenses increased 37.5% or $.6 million from
$1.6 million as of July 27, 1997 to $2.2 million as of April 26, 1998. This is
due primarily to balances at acquired resorts and to prepaid expenses associated
with the pre-sales of quartershare hotel projects at Steamboat and The Canyons.
5. Property and equipment, net. Property and equipment, net increased 87.2%
or $220.0 million from $252.3 million as of July 27, 1997 to $472.3 million as
of April 26, 1998. The acquisition of the Heavenly and Steamboat ski resorts
accounted for $186.0 million of the increase. The remaining increase is related
to capital improvements at the existing resorts, and the acquisition of land and
businesses, net of $15.0 million of depreciation.
6. Real estate developed for sale. Real estate developed for sale increased
313.6% or $73.7 million from $23.5 million as of July 27, 1997 to $97.2 million
18
as of April 26, 1998. The increase is from the following: (1) $40.3 million
related to the construction of three quartershare hotel projects being
constructed at Killington, Mount Snow, and Sunday River ski resorts, (2) $28
million related to land held for development acquired with the Steamboat ski
resort, (3) $7.0 million related to land purchased at The Canyons in Utah for
future development, and (4) $1.6 million related to the construction of
townhouses at Sunday River.
7. Long-term investments. Long-term investments increased 127.5% or $4.5
million from $3.5 million as of July 27, 1997 to $8.0 million as of April 26,
1998. The primary reason for the increase was the acquisition of Steamboat
which included investment in a real estate development partnership.
8. Goodwill. Goodwill increased 868.2% or $92.9 million from $10.7 million
as of July 27, 1997 to $103.6 million as of April 26, 1998. The acquisition of
the Heavenly and Steamboat ski resorts accounted for $77.9 million of the
increase. The remaining balance of $8.4 million (net of amortization of existing
goodwill) related to the Company's purchase of the minority interest in ASC
East.
9. Other assets. Other assets increased 250.0% or $16.0 million from $6.4
million as of July 27, 1997 to $22.4 million as of April 26, 1998. The primary
reason for the increase is the inclusion of various intangibles related to the
acquisition of the Steamboat and Heavenly ski resorts.
10. Current portion of long-term debt. Current portion of long-term debt
decreased 27.7% or $11.0 million from $39.7 as of July 27, 1997 to $28.7 million
as of April 26, 1998. The primary reason for the decrease is the restructuring
of the Company's revolving lines of credit and the addition of term loans that
replaced a portion of the amounts previously funded by revolving lines of
credit.
11. Accounts payable and other current liabilities. Accounts payable
increased 121.4% or $31.2 million from $25.7 million as of July 27, 1997 to
$56.9 million as of April 26, 1998. $10.0 million of the increase is related to
the acquisition of Heavenly and Steamboat ski resorts with the balance of the
increase resulting from the operating cycle of the Company and construction
activities related to the quartershare hotel projects.
12. Deposits and deferred revenue. Deposits and deferred revenue increased
18.2% or $.8 million from $4.4 million as of July 27, 1997 to $5.2 million as of
April 26, 1998. The increase is due to deposits taken on pre-sales of real
estate at The Canyons and Steamboat.
13. Long-term debt, excluding current portion. Long-term debt, excluding
current portion increased 316.9% or $148.4 million from $46.8 million as of July
27, 1997 to $195.2 million as of April 26, 1998. The primary reasons for the
increase are (1) proceeds of $114.4 million related to the New Credit Facility
(net of current portion) at ASC West, (2) a $34.0 million increase in the
construction loan associated with the three recently completed quartershare
hotel projects, and (3) $3.5 million associated with land acquired for future
development at The Canyons ski resort in Utah.
14. Subordinated notes and debentures. Subordinated notes and debentures
decreased 14.6% or $21.9 million due to the early retirement of ASC East's
subordinated discount notes on December 30, 1997.
19
15. Deferred income taxes. Deferred income taxes increased 20% or $5.6
million from $28.5 million as of July 27, 1997 to $36.2 million as of April 26,
1998. The reason for the increase is net income generated from July 28, 1997 to
April 26, 1998.
16. Other long-term liabilities. Other long-term liabilities decreased
19.0% or $1.5 million from $7.9 million as of July 27, 1997 to $6.4 million as
of April 26, 1998. The primary reason for the decrease is the acquisition of
Heavenly and Steamboat ski resorts.
17. Mandatorily redeemable preferred stock. Mandatorily redeemable
preferred stock increased 128.6% or $21.6 million from $16.8 million as of July
27, 1997 to $38.4 million as of April 26, 1998. This increase is due primarily
to the conversion on November 6, 1997 of $16.6 million of 14% convertible notes
issued on July 29, 1997 to 10 1/2% mandatorily redeemable preferred stock. The
remaining increase represents accretion of the exchange feature, amortization of
issuance costs and accrual of dividends.
18. Additional paid-in capital. Additional paid-in capital increased
9460.7% or $264.9 million from $2.8 million as of July 27, 1997 to $267.7
million as of April 26, 1998. The increase is primarily due to (1) the Company's
initial public offering closed November 6, 1997, which generated additional
paid-in capital of $244.6 million, (2) purchase of the minority interest in ASC
East, Inc. resulting in an increase of $8.7 million to additional paid-in
capital, and (3) the Company recording a stock compensation charge of $14.3
million resulting in a $8.5 million increase to paid-in capital.
19. Retained earnings. Retained earnings increased from $12.3 million as of
July 27, 1997 to $19.7 million as of April 26, 1998. The increase is directly
attributable to the net income of $7.4 million for the nine months ended April
26, 1998. The income for this period included a $14.3 million dollar
non-recurring stock compensation charge and a $5.1 million extraordinary loss
related to the early retirement of debt.
Significant Events
IPO Closing and Acquisition. The Company closed on the initial public
offering of 14.75 million shares of its common stock on November 12, 1997. The
proceeds were primarily used to (1) fund the acquisition of Steamboat and
Heavenly in an amount totaling $173.3 million, (2) redeem ASC East, Inc.'s 13
3/4% subordinated discount notes due 2007 for an aggregate redemption price of
approximately $27.7 million, and (3) repay approximately $7.7 million of a
subsidiary's outstanding debt in connection with the closing of the Company's
initial public offering.
The Company has retained approximately $15 million of offering proceeds in
short-term investments which are classified as cash equivalents in the
accompanying (Unaudited) Condensed Consolidated Balance Sheet.
New Credit Facility. The Company established the New Credit Facility
described above under the heading "Liquidity and Capital Resources"
contemporaneously with the closing of its initial public offering and the
acquisition of Steamboat and Heavenly on November 12, 1997.
10 1/2% Mandatorily Redeemable Preferred Stock. Contemporaneously with the
other November 12, 1997 closings, the Company converted its $17.5 million
principal amount of convertible notes and its $17.5 million face amount of
convertible preferred stock at a conversion price, including accrued interest
and accumulated dividends, of $36.3 million into its 10 1/2% mandatorily
redeemable preferred stock.
20
Consent Solicitation. Contemporaneously with the other November 12, 1997
closings, the Company closed the Consent Solicitation transaction described in
its November 6, 1997 Registration Statement.
Land Exchange. The Company consummated a land exchange with the State of
Vermont on December 1, 1997. The exchange results in the Company coming into
ownership of over 1,000 acres of valuable development real estate at the base of
the Killington resort.
Interest Rate Swap. On February 5, 1998 the Company entered into an
interest rate swap arrangement with BankBoston that effectively lowers the
interest rate on its $120 million senior subordinated notes due 2002 to 9%. The
Company's principal risk on the transaction is that LIBOR decreases below 6.9%
in July 2001 when another swap agreement can be entered into.
Appointment of Directors. On February 11th, the Company appointed three of
its four independent directors. The fourth director is committed to joining the
board before the end of the fiscal year after fulfilling existing obligations.
The three directors are: Joel B. Alvord, former Chairman of Fleet Financial
Group and currently, President and Managing Director of Shawmut Capital
Partners, Inc.; Christopher J. Nassetta, Executive Vice President and Chief
Operating Officer for Host Marriott Corp., formerly Co-founder of Bailey Capital
Corp., a real estate investment and advisory firm; and Gordon Gillies, a former
attorney and current faculty member of Hebron Academy in Maine.
Subsequent Events
On May 8, 1998 the Company initiated an Exchange Offer and Consent
Solicitation whereby the Company offered to Exchange up to $120 million of its
Senior Subordinated notes for the outstanding ASC East, Inc. 12% Senior
Subordinated Notes due 2006. The Company filed a report on Form 8-K making
publicly available certain portions of its Exchange Offer and Consent
Solicitation relating to the Exchange Offer. The deadline for response to the
Exchange Offer has been extended from June 5, 1998 to June 12, 1998.
Forward-Looking Statements
Certain of the statements contained in this section of the report,
including those under "Future Events" are forward-looking. While the Company
believes that these statements are accurate, its business is highly seasonal and
is dependent upon weather and general economic conditions and various conditions
specific to its industry. Future trends and results cannot be predicted with
certainty and actual results could differ materially from any forward-looking
statements. In particular:
1. Ski and resort operations are highly seasonal. Over the last five fiscal
years, the Company realized an average of approximately 86% of its resort
revenues during the period from November through April and a significant portion
of resort revenues (and approximately 23% of annual skier visits) was generated
during the Christmas and Presidents' Day vacation weeks. Adverse weather or
market conditions during these periods could materially adversely effect
operating results and financial performance.
21
2. The development of ski resorts is capital intensive. The Company's
expansion of its resorts is dependent upon availability of necessary capital.
There can be no assurance that the Company will have adequate funds, from
internal or external sources, to make all planned and required capital
expenditures over the long term.
3. Real estate development and the Company's ability to generate revenues
therefrom may be adversely affected by numerous factors, many of which are
beyond the control of the Company, including the national and regional economic
climate and the ability of the company to obtain all necessary zoning, land use,
buildings, occupancy and other required governmental permits and authorizations
and changes in real estate, zoning, land use, environmental or tax laws. In
addition, real estate development will be dependent upon, among other things,
receipt of adequate financing on suitable terms, obtaining and maintaining the
requisite permits and licenses and, in certain circumstances, acquiring
additional real estate. There can be no assurance as to whether, when or on what
terms such financing, permits, licenses and real estate may be obtained.
22
Part II - Other Information
Item 2
Changes In Securities And Use Of Proceeds
On November 12, 1997, the Company established the New Credit Facility
described above under the heading "Liquidity and Capital Resources." The New
Credit Facility contains a limitation on the Company making dividends or
distributions, or redeeming any shares of its stock in excess of 50% of
cumulative consolidated net income after July 31, 1997, provided that after the
distribution or redemption the ratio of consolidated total debt to consolidated
earnings before interest, taxes, depreciation and amortization does not exceed 4
to 1.
On November 12, 1997, the Company issued $36.3 million principal amount of
its 10 1/2% Mandatorily Redeemable Preferred Stock ("Preferred Stock"). The
Certificate of Designation for the preferred stock establishes the following
limitations on the rights of the holders of Common Stock:
1. The Preferred Stock ranks prior to Common Stock with respect to (a)
payment of dividends and (b) distributions upon liquidation or dissolution of
the Company; and
2. In the event of any default upon the Preferred Stock, the number of
members of the Company's Board of Directors will be increased by two, and both
new directors will be elected by the holders of Preferred Stock.
23
Item 6
Exhibits
Included herewith is the Financial Data Schedule submitted as Exhibit 27 in
accordance with Item 601(c) of Regulation S-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN SKIING COMPANY
Date: June 10, 1998 /s/ Thomas M. Richardson
Thomas M. Richardson
Senior Vice President Finance Chief
Financial Officer (Principal Financial and
Accounting Officer)
Date: June 10, 1998 /s/ Christopher E. Howard
Christopher E. Howard
Chief Administrative Officer and General
Counsel (Duly Authorized Officer)
24