UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JANUARY 25, 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
incorporation or organization) Identification No.)
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 16,120,044
shares of common stock $.01 par value outstanding as of June 3, 1998.
AMERICAN SKIING COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
Part I - Financial Information . . . . . . . . . . . . . . . . . . . . . . 1
Item 1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statement of Operations (Unaudited) for the
Three Months Ended January 25, 1998 and January 26, 1997. . . . . . . 2
Condensed Consolidated Statement of Operations (Unaudited) for the
Six Months Ended January 25, 1998 and January 26, 1997. . . . . . . . 3
Condensed Consolidated Balance Sheet (Unaudited) as of
January 25, 1998 and July 27, 1997. . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statement of Cash Flows (Unaudited) for
the Six Months Ended January 25, 1998 and January 26, 1997. . . . . . 6
Notes to (Unaudited) Condensed Consolidated Financial Statements. . . 8
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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. . . . . . . . . . . . . . . . . . . . . . . . 22
i
PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
This Form 10-Q/A 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
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
Mountainside Corporation Properties, Inc.
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 Club Sugarbush, 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
January 25, 1998 January 26, 1997
(Unaudited) (Unaudited)
(Restated -Note 1)
------------------------------------
Net revenues:
Resort $107,425 $59,418
Real estate 7,890 1,740
------------------------------------
Total net revenues 115,315 61,158
Operating expenses:
Resort 64,244 38,995
Real estate 5,223 935
Marketing, general and administrative 13,621 7,709
Depreciation and amortization 15,009 7,344
------------------------------------
Total operating expenses 98,097 54,983
------------------------------------
Income from operations 17,218 6,175
Interest expense 9,094 5,557
------------------------------------
Income before provision for income taxes 8,124 618
Provision for income tax expense 3,169 235
------------------------------------
Income from continuing operations 4,955 383
Extraordinary loss, net of income tax benefit of $3,248 5,081 -
------------------------------------
Net income (loss) (126) 383
Accretion of discount and dividends accrued on
mandatorily redeemable preferred stock 740 -
------------------------------------
Net income (loss) available to common shareholders $(866) $383
------------------------------------
------------------------------------
Retained earnings (accumulated deficit), beginning of period $(11,121) $7,838
Add: Net income (loss) available to common shareholders (866) 383
------------------------------------
Retained earnings (accumulated deficit), end of period $(11,987) $8,221
------------------------------------
------------------------------------
EARNINGS PER COMMON SHARE - BASIC:
Net income from continuing operations $0.18 $0.39
Extraordinary loss ($0.18) -
Net income (loss) ($0.03) $0.39
EARNINGS PER COMMON SHARE - DILUTED:
Net income from continuing operations $0.17 $0.39
Extraordinary loss ($0.18) -
Net income (loss) ($0.03) $0.39
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 Six Months Ended
January 25, 1998 January 26, 1997
(Unaudited) (Unaudited)
(Restated-Note 1)
Net revenues:
Resort $121,236 $71,146
Real estate 8,700 3,309
------------------------------------
Total net revenues 129,936 74,455
Operating expenses:
Resort 82,052 54,029
Real estate 6,148 1,967
Marketing, general and administrative 20,466 12,501
Stock compensation charge (Note 8) 14,254 -
Depreciation and amortization 16,515 8,871
------------------------------------
Total operating expenses 139,435 77,368
------------------------------------
Loss from operations (9,499) (2,913)
Interest expense 17,542 13,071
------------------------------------
Loss before benefit from income taxes (27,041) (15,984)
Benefit from income tax expense (10,545) (6,074)
Minority interest in loss of subsidiary (456) -
------------------------------------
Loss from continuing operations (16,040) (9,910)
Extraordinary loss, net of income tax benefit of $3,248 5,081 -
------------------------------------
Net loss (21,121) (9,910)
Accretion of discount and dividends accrued on
mandatorily redeemable preferred stock 3,171 -
------------------------------------
Net loss available to common shareholders $(24,292) $(9,910)
------------------------------------
------------------------------------
Retained earnings, beginning of period $12,305 $18,131
Add: Net loss (24,292) (9,910)
------------------------------------
Retained earnings (accumulated deficit), end of period $(11,987) $8,221
------------------------------------
------------------------------------
EARNINGS PER COMMON SHARE (BASIC AND DILUTED):
Net loss from continuing operations $(0.75) $(10.13)
Extraordinary item $(0.24) -
Net loss $(1.14) $(10.13)
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
3
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
January 25, 1998 July 27, 1997
(Unaudited)
(Restated-Note 1)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $36,393 $15,558
Restricted cash 3,799 2,812
Accounts receivable 11,907 3,801
Inventory 17,892 7,282
Prepaid expenses 2,935 1,579
Assets held for resale 5,780 -
Deferred tax assets 770 422
------------------------------------
TOTAL CURRENT ASSETS 79,476 31,454
Property and equipment, net 473,547 252,346
Real estate developed for sale 100,412 23,540
Long-term investments 2,432 3,507
Goodwill 97,006 10,664
Deferred financing costs 9,792 9,431
Investment in real estate partnership 4,994 -
Other assets 22,131 6,398
------------------------------------
TOTAL ASSETS $789,790 $337,340
------------------------------------
------------------------------------
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
4
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
January 25, 1998 July 27, 1997
(Unaudited)
(Restated-Note 1)
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit and current portion of long-term debt $24,905 $39,748
Accounts payable and other current liabilities 60,181 25,738
Due to stockholder 1,933 1,933
Deposits and deferred revenue 29,647 4,379
------------------------------------
TOTAL CURRENT LIABILITIES 116,666 71,798
Long-term debt 215,374 46,833
Subordinated notes and debentures 127,867 149,749
Minority interest - 626
Other long-term liabilities 23,046 7,898
Deferred income taxes 14,929 28,514
------------------------------------
TOTAL LIABILITIES 497,882 305,418
Mandatorily redeemable preferred stock 37,359 16,821
SHAREHOLDERS' EQUITY
Common stock, Class A 148 10
Common stock 154 -
Additional paid-in capital 266,234 2,786
Retained earnings (accumulated deficit) (11,987) 12,305
------------------------------------
TOTAL SHAREHOLDERS' EQUITY 254,549 15,101
------------------------------------
TOTAL LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY $789,790 $337,340
------------------------------------
------------------------------------
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
5
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
- -----------------------------------------------------------------------------------------------------
For the Six Months Ended
- -----------------------------------------------------------------------------------------------------
January 25, 1998 January 26, 1997
(Unaudited) (Unaudited)
(Restated-Note 1)
Cash flows from operating activities:
Net loss $(21,121) $(9,910)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Stock option compensation charge 14,254 -
Depreciation and amortization 16,515 8,871
Discount on convertible debt 927 -
Minority interest (456) -
Deferred income taxes (13,933) (363)
Non cash portion of extraordinary loss 3,298 -
Decreases (increases) in assets:
Restricted cash (810) -
Investments held in escrow - 7,240
Accounts receivable (7,976) (489)
Income taxes receivable - (6,074)
Inventory (6,627) (1,703)
Prepaid expenses (869) (247)
Other current assets - 723
Real estate developed for sale (48,848) -
Other assets (3,133) 197
Increases (decreases) in liabilities:
Accounts payable and other accrued expenses 17,861 20,333
Deposits and deferred revenue 20,470 8,892
Other long-term liabilities 5,232 -
------------------------------------
Net cash flow provided by (used in) operating activities (25,216) 28,196
Cash flows from investing activities:
Assets held for resale (5,780) 14,921
Additions to property and equipment (50,062) (18,351)
Purchase of ski resorts (288,499) -
Purchase of ski resort minority interest - (2,492)
Sale (purchase) of long-term investment 1,075 (2,582)
------------------------------------
Net cash used in investing activities (343,266) (8,504)
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
6
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
- -----------------------------------------------------------------------------------------------------
For the Six Months Ended
- -----------------------------------------------------------------------------------------------------
January 25, 1998 January 26, 1997
(Unaudited) (Unaudited)
(Restated-Note 1)
Cash flows from financing activities:
Reductions in note payable to shareholder - (621)
Net proceeds from initial public offering 244,619 -
Proceeds from construction loan 50,432 -
Proceeds from term loan 105,000 -
Proceeds from revolving line of credit 61,765 -
Repayment of revolving line of credit (59,623) -
Proceeds from subordinated notes 16,920 -
Repayment of subordinated debt (21,882) -
Additions (reductions) to long-term debt (7,914) (19,717)
------------------------------------
Net cash provided by (used in) financing activities 389,317 (20,338)
Net increase (decrease) in cash and cash equivalents 20,835 (646)
Cash and cash equivalents at beginning of period 15,558 4,087
------------------------------------
Cash and cash equivalents at end of period $36,393 $3,441
------------------------------------
------------------------------------
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
7
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. AMENDMENT TO FORM 10-Q/A. The Form 10-Q/A for the three months ended
January 25, 1998, as previously filed on May 7, 1998, is being amended to
properly reflect interest expense and accrued interest on the Company's New
Credit Facility. The adjustment results in an increase of $3.5 million in
interest expense for the three months ended January 25, 1998 from $5.6
million, as previously filed, to $9.1 million and an increase of $3.5 million
in interest expense for the six months ended January 25, 1998 from $14.0
million, as previously filed, to $17.5 million. Also, the provision for
(benefit from) income tax expense has decreased (increased) $1.4 million for
the three months ended January 25, 1998 from $4.5 million to $3.1 million and
from $(9.1) million to $(10.5) million for the six months ended January 25,
1998. The impact of these adjustments on the (Unaudited) Condensed
Consolidated Statement of Operations for the three months ended January 25,
1998 decreased net income available to common shareholders $2.1 million from
$1.3 million to $(.9) million, decreased basic earnings per common share $.08
from $.05 to $(.03) and decreased diluted earnings per share $.07 from $.04
to $(.03). The impact of these adjustments on the (Unaudited) Condensed
Consolidated Statement of Operations for the six months ended January 25,
1998 increased net loss available to common shareholders $2.1 million from
$(22.2) million to $(24.3) million and increased basic and diluted loss per
common share $.10 from $(1.04) to $(1.14). Accumulated deficit per the
(Unaudited) Condensed Consolidated Balance Sheet at January 25, 1998
increased $2.1 million from $(9.8) million, as previously filed, to $(11.9)
million.
As a result of the adjustment to interest expense as discussed
above, the Company was in violation of a financial covenant under its credit
facility. Subsequent to January 25, 1998, the violation was waived by the
lender as of the balance sheet date and therefore, amounts due under the
credit facility beyond one year from January 25, 1998 have been classified as
long-term.
2. 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 January 25, 1998, the
results of operations for the three months ended January 25, 1998 and January
26, 1997, and the statement of cash flows for the six months ended January 25,
1998 and January 26, 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.
3. 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.
4. INCOME TAXES. The provision for (benefit from) 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.
5. 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.
8
6. NET INCOME PER COMMON SHARE. Effective January 25, 1998, the Company
adopted the provisions of Financial Accounting Standards Board's Statement of
Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 specifies the computation, presentation, and disclosure requirements
for earnings per share for public entities. Earnings (loss) per share for
the three and six months ended January 25, 1998 and January 26, 1997 were
determined as follows:
(in thousands) Three Months Ended Six Months Ended
January 25, January 26, January 25, January 26,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Restated-Note 1) (Restated-Note 1)
--------------------------------------------------------------------
INCOME (loss)
Income (loss) from
continuing operations $4,955 $383 ($16,040) ($9,910)
Preferred stock accretion (740) - (3,171) -
Extraordinary item (5,081) - (5,081) -
--------------------------------------------------------------------
Net income (loss) available
to common shareholders
(basic and diluted) ($866) $383 ($24,292) ($9,910)
--------------------------------------------------------------------
--------------------------------------------------------------------
SHARES
Weighted-average shares
outstanding (basic) 27,991 978 21,376 978
Dilutive common stock options 539 - - -
--------------------------------------------------------------------
Weighted average shares
outstanding (diluted) 28,530 978 21,376 978
--------------------------------------------------------------------
--------------------------------------------------------------------
7. ADJUSTMENTS AND RECLASSIFICATIONS. Certain amounts in the prior
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.
8. 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.
9
9. PRO FORMA DISCLOSURE. The following pro forma statements of operations
for the three and six month periods ended January 25, 1998 and January 26, 1997
are presented for purposes of comparison. The following pro forma adjustments
have been made for the following periods:
The three months ended January 25, 1998 - There are no pro forma
adjustments.
The three months ended January 26, 1997 - The results of operations for
Steamboat, Heavenly and the Canyons have been added based on their historical
results for the three months ended January 26, 1997.
The six months ended January 25, 1998 - The results of operations for
Steamboat and Heavenly have been added based on their historical results for
the three months ended October 26, 1997.
The six months ended January 26, 1997 - The results of operations for
Steamboat, Heavenly and the Canyons have been added based on their historical
results for the six months ended January 26, 1997.
Resort EBITDA represents resort revenues less cost of resort operations and
marketing, general and administrative expense. Real estate EBITDA represents
revenues from real estate less cost of real estate sold which includes selling
costs, holding costs, the allocated capitalized cost of land, construction costs
and other costs relating to property sold.
Pro forma adjustments have been posted to depreciation and amortization
expense to reflect the purchase accounting for the assets of Heavenly and
Steamboat and the changes in the capital structure of the Company.
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.
The minority interest in loss of subsidiary has been removed to reflect the
exchange of the ASC East minority shareholders.
10
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PRO FORMA
Three Months Ended Six Months Ended
Jan. 25, 1998 Jan. 26, 1997 Jan. 25, 1998 Jan. 26, 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Restated-Note 1) (Restated-Note 1)
Net revenues:
Resort $107,425 $91,897 $124,623 $108,457
Real estate 7,890 1,740 8,700 3,309
------------------------------------------------------------------
Total net revenues 115,315 93,637 133,323 111,766
------------------------------------------------------------------
Operating expenses:
Resort 64,244 57,804 89,445 81,953
Real estate 5,223 935 6,148 1,967
Marketing, general and administrative 13,621 11,565 24,260 19,267
Stock compensation charge - - 14,254 -
Depreciation and amortization 15,009 14,511 18,107 17,413
------------------------------------------------------------------
Total operating expenses 98,097 84,815 152,214 120,600
------------------------------------------------------------------
Income (loss) from operations 17,218 8,822 (18,891) (8,834)
Interest expense 9,322 6,247 18,165 14,572
------------------------------------------------------------------
Income (loss) before provision (benefit) for income
taxes and minority interest in loss of subsidiary 7,896 2,575 (37,056) (23,406)
Provision (benefit) for income taxes 3,356 1,004 (14,452) (9,128)
Minority interest in loss of subsidiary - - (456) -
------------------------------------------------------------------
Income (loss) from continuing operations 4,540 1,571 (22,604) (14,278)
Extraordinary loss 5,081 - 5,081 -
------------------------------------------------------------------
Net income (loss) (541) 1,571 (27,685) (14,278)
Accretion of discounts and dividends accrued on
mandatorily redeemable preferred stock 740 - 3,171 -
------------------------------------------------------------------
Net income (loss) available to common shareholders $(1,281) $1,571 $(30,856) $(14,278)
------------------------------------------------------------------
------------------------------------------------------------------
EARNINGS (loss) PER COMMON SHARE - BASIC:
Net income (loss) from continuing operations $0.16 $1.61 ($1.06) ($14.60)
Extraordinary loss ($0.18) - ($0.24) -
Net income (loss) ($0.05) $1.61 ($1.44) ($14.60)
EARNINGS (loss) PER COMMON SHARE - DILUTED:
Net income (loss) from continuing operations $0.16 $1.61 ($1.03) ($14.60)
Extraordinary loss ($0.18) - ($0.23) -
Net income (loss) ($0.04) $1.61 ($1.41) ($14.60)
SUPPLEMENTAL DATA:
Resort EBITDA $29,560 $22,528 $10,918 $7,237
Real Estate EBITDA 2,667 805 2,552 1,342
------------------------------------------------------------------
Total EBITDA $32,227 $23,333 $13,470 $8,579
11
10. SIGNIFICANT EVENTS. On November 5, 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 13, 1997 and include the balance sheet of the
acquired resorts as of January 25, 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 a subsidiary of the Company, ASC East, Inc. This
exchange is being 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.
12
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 first and second quarters
of fiscal 1998. The results include the Steamboat and Heavenly resorts acquired
during the second quarter. 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 5, 1997 and February 10, 1998.
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 (up to $65 million of which is currently
available) is available for borrowings by ASC East, Inc. and its subsidiaries
(the "East Facility") and $140 million of which is available for borrowings by
the Company excluding ASC East, Inc. and its subsidiaries (the "West Facility").
The East Facility consists of a six-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 a six-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 rations.
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.
13
The West Facility is secured by substantially all the assets of the Company
and its subsidiaries, except ASC East, Inc. and its subsidiaries.
The Company retained approximately $15 million of unexpended proceeds from
its initial public offering.
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.
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% Convertible Exchangeable Preferred Stock of the Company.
The Company's summer 1998 capital program is expected to total between $40
million and $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 is considering the issuance of up to $50 million in senior
subordinated bonds prior to close of its 1998 fiscal year and either
soliciting the consent of holders of ASC East, Inc.'s $120 million 12% Senior
Subordinated to certain covenant changes in the 12% Note Indenture, or making
an exchange offer to holders of the $120 million Senior Subordinated Notes to
exchange those obligations for substantially similar obligations of the
Company. The precise nature of the transaction, and whether it will actually
be effected, has not yet been determined by the Company.
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 was 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 projects scheduled for completion 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. This real estate development is not
currently funded and will require construction financing to proceed. It is
anticipated that construction financing will consist of two components. The
senior component is expected to be a conventional construction loan arranged
on a limited recourse basis similar to the existing real estate development
construction facility. A portion of the development costs are expected to be
financed through either a mezanine debt facility established directly with
the real estate subsidiary pursuing the projects or equity infused by the
Company derived from additional subordinated debt incurred by the Company.
14
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.
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. 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 SECOND QUARTER OF FISCAL 1998 COMPARED TO THE SECOND QUARTER OF
FISCAL 1997.
1. RESORT REVENUES. Resort revenues increased 80.8% from $59.4 million
for the second quarter of fiscal 1997 to $107.4 for the second quarter of fiscal
1998. The $48.0 million increase in revenue is principally attributable to the
addition of the Steamboat and Heavenly resorts acquired on November 12, 1997.
Additionally, our existing pre-acquisition group of resorts also reflected
positive overall revenue growth driven primarily by increases in skier visits,
and the acquisition of various retail and food and beverage operations, as well
as yield increases of 5%.
2. REAL ESTATE REVENUES. Real estate revenues increased $6.2 million in
the second quarter of fiscal 1998 as compared to the second quarter of fiscal
1997. The increase is attributable to closed sales at two of the Company's new
quartershare hotels at Sunday River and Attitash.
3. COST OF RESORT OPERATIONS. Cost of resort operations increased 64.8%
from $39.0 million to $64.2 million. The $25.2 million increase is principally
attributable to the inclusion of Steamboat and Heavenly resorts. The results of
our existing pre-acquisition resorts also reflected increases in cost of resort
operations consistent with their related resort revenue growth.
4. COST OF REAL ESTATE. Cost of real estate increased $4.3 million in
the second quarter of fiscal 1998 as compared to the second fiscal quarter of
1997. The primary reason for the increase is from increased sales of
quartershare units and additional costs associated with the start up of new
development projects at eastern and western resorts.
15
5. MARKETING, GENERAL, AND ADMINISTRATIVE. Marketing, general, and
administrative costs increased 77% from $7.7 million to $13.6 million. The
inclusion of Steamboat and Heavenly resorts accounted for approximately 37% of
this increase. The remainder of the increase can be attributed to increased
costs associated with the new Edge card program, direct to lift programs, and
other marketing and real estate development initiatives throughout our resorts.
6. DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased from $7.3 million for the second quarter of fiscal 1997 to $15.0
million for the second quarter of fiscal 1998. The increase is principally
attributable to the acquisitions of Steamboat, Heavenly, and the Canyons and
last years capital program at the Company's eastern resorts.
7. INTEREST EXPENSE (RESTATED-NOTE 1). Interest expense increased from
$5.6 million for the second quarter of fiscal 1997 to $9.1 million for the
second quarter of fiscal 1998. The increase of $3.5 million is primarily
related to additional debt which was incurred as a result of the acquisition of
Heavenly, Steamboat, and The Canyons.
8. PROVISION FOR INCOME TAX EXPENSE (RESTATED-NOTE 1). Provision for
income tax expense increased from $.2 million for the three months ended January
26, 1997 to $3.2 million for the three months ended January 25, 1998. The $3.0
million increase is directly related to the increase in net income for the
period.
9. EXTRAORDINARY LOSS. The extraordinary expense recorded by the Company
is due 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. The total amount related to this extraordinary
expense was $8.3 million; net of the income tax benefit the amount was $5.1
million.
10. ACCRETION OF PREFERRED STOCK. The $.7 million balance at January 25,
1998 represents dividends accrued on the 10 1/2% Convertible Exchangeable
Preferred Stock which was issued on November 12, 1997.
16
CHANGES IN RESULTS OF OPERATIONS
CHANGES FOR THE FIRST SIX MONTHS OF FISCAL 1998 COMPARED TO THE FIRST SIX
MONTHS OF FISCAL 1997.
1. RESORT REVENUES. Resort revenues increased 71% from $71.1 million for
the six months ended January 26, 1997 to $121.2 million for the six months ended
January 25, 1998. The $50.1 million increase in revenue is principally
attributable to the addition of Steamboat and Heavenly resorts which were
acquired on November 12, 1997. Additionally, our existing pre-acquisition
group of resorts also reflected positive overall revenue growth driven
primarily by increases in skier visits and increased yields per skier visit.
2. REAL ESTATE REVENUES. Real estate revenues increased $5.4 million for
the six months ended January 25, 1998 as compared to the six months ended
January 26, 1997. The increase is attributable to closed sales at two of the
Company's new quartershare condominium hotels at Sunday River and Attitash.
3. COST OF RESORT OPERATIONS. Cost of resort operations increased 51.9%
from $54.0 million to $82.1 million. The $28.1 million increase is principally
attributable to the inclusion of Steamboat and Heavenly resorts. The results of
our existing pre-acquisition resorts also reflected increases in cost of resort
operations consistent with their related resort revenue growth.
4. COST OF REAL ESTATE. Cost of real estate sold increased $4.2 million
for the six months ended January 25,1998 as compared to the six months ended
January 26, 1997. The increase is consistent with the increase in sales of real
estate.
5. MARKETING, GENERAL, AND ADMINISTRATIVE. Marketing, general, and
administrative costs increased 64.0% from $12.5 million to $20.5 million. The
inclusion of Steamboat and Heavenly resorts accounted for approximately 31% of
this increase. The remainder of the increase 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. INTEREST EXPENSE (RESTATED-NOTE 1). Interest expense increased $4.5
million or 34.2% from $13.1 million for the six months ended January 26, 1997 to
$17.5 million for the six months ended January 25, 1998. The increase in
primarily related to additional debt which was incurred as a result of the
acquisition of Heavenly, Steamboat, and The Canyons.
7. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$7.6 million for the six months ended January 25,1998 as compared to the six
months ended January 26, 1997. The increase is principally attributable to the
acquisitions of Steamboat, Heavenly, and the Canyons and the additional plant,
property and equipment related to the 1997 capital improvement expenditures.
8. BENEFIT FROM INCOME TAX EXPENSE (RESTATED-NOTE 1). The benefit from
income tax expense increased from $6.1 million for the six months ended January
26, 1997 to $10.5 million for the six months ended January 25, 1998. The $4.5
million increase is directly related to the results from operations for the
period, which included a $14.3 million stock compensation charge that is
considered a non recurring event by the Company.
9. EXTRAORDINARY LOSS. The extraordinary expense recorded by the Company
is due to the early retirement of the Company's revolving line of credit, Junior
subordinated discount notes, and acquisition
17
indebtedness related to the acquisition of Sugarbush. The total amount related
to this extraordinary expense was $8.3 million; net of the income tax benefit
the amount was $5.1 million.
10. ACCRETION OF PREFERRED STOCK. The accretion of discounts and
dividends accrued on the mandatorily redeemable preferred stock of $3.2 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 six months ended January 25, 1998 also includes $.7 million of
dividends accrued on the 10 1/2% Convertible, Exchangeable 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 SIX MONTHS OF FISCAL 1998 COMPARED TO YEAR-END FISCAL
1997.
1. CASH AND CASH EQUIVALENTS. Cash and cash equivalents increased 133.9%
or $20.8 million from $15.6 million as of July 27, 1997 to $36.4 million as of
January 25, 1998. The three primary reasons for the increase are 1) the
operating cycle of the Company, 2) the cash balances at the acquired resorts,
and 3) cash retained at the parent Company for future investment.
2. ACCOUNTS RECEIVABLE. Accounts receivable increased 213.2% or $8.1
million from $3.8 million as of July 27, 1997 to $11.9 million as of January 25,
1998. The primary reason for the increase is due to increased operating
activities.
3. INVENTORY. Inventories increased 145.7% or $10.6 million from $7.3
million as of July 27, 1997 to $17.9 million as of January 25, 1998. The
majority of the increase related to the operating cycle of the Company and $4.0
million of the increase is related to the acquisition of Heavenly and Steamboat
ski resorts.
4. PREPAID EXPENSES. Prepaid expenses increased 85.9% or $1.4 million
from $1.6 million as of July 27, 1997 to $2.9 million as of January 25, 1998.
The primary reason for the increase is due to the prepaid expenses associated
with the pre-sales of the three quartershare hotel projects at Killington, Mount
Snow, and Sunday River ski resorts.
5. ASSETS HELD FOR RESALE. Assets held for resale is the estimated net
proceeds from the Orlando golf resort which was purchased with the Heavenly and
Steamboat ski resorts. The golf course was sold on February 2, 1998 for $5.6
million.
6. PROPERTY AND EQUIPMENT, NET. Property and equipment, net increased
87.7% or $221.2 million from $252.3 million as of July 27, 1997 to $473.5
million as of January 25, 1998. The acquisition of the Heavenly and Steamboat
ski resorts accounts 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.
7. REAL ESTATE DEVELOPED FOR SALE. Real estate developed for sale
increased 326.6% or $76.9 million from $23.0 million as of July 27, 1997 to
$100.4 million as of January 25, 1998. The increase is from the following: 1)
$40.3 million related to the construction of three quartershare hotel projects
at Killington, Mount Snow and Sunday River ski resorts, 2) $28.0 million
related to land held for development
18
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.
8. GOODWILL. Goodwill increased 809.7% or $86.3 million from $10.7
million as of July 27, 1997 to $97.0 million as of January 25, 1998. The
acquisition of the Heavenly and Steamboat ski resorts accounts for $77.9 million
of the increase, with the 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. INVESTMENT IN REAL ESTATE PARTNERSHIP. The $5.0 million balance in
investment in real estate partnership was acquired with the Heavenly and
Steamboat ski resorts and is from a 50% general partnership interest in a
partnership that is engaged in the development and sale of residential real
estate adjacent to the Steamboat ski resort.
10. OTHER ASSETS. Other assets increased 245.9% or $15.7 million from
$6.4 million as of July 27, 1997 to $22.1 million as of January 25, 1998. The
primary reason for the increase is the inclusion of various intangibles related
to the acquisition of the Steamboat and Heavenly ski resorts.
11. LINE OF CREDIT AND CURRENT PORTION OF LONG-TERM DEBT. Current portion
of long-term debt decreased 37.3% or $14.8 million from $39.7 as of July 27,
1997 to $24.9 million as of January 25, 1998. The primary reason for the
decrease is the restructuring of the Company's revolving lines of credit and the
addition of term loans which replaced a portion of the amounts previously funded
by revolving lines of credit.
12. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES (RESTATED-NOTE 1).
Accounts payable increased 133.8% or $34.4 million from $25.7 million as of
July 27, 1997 to $60.2 million as of January 25, 1998. The acquisition of the
Heavenly and Steamboat ski resorts accounts for $10.0 million of the
increase. The balance of the increase is due to the operating cycle of the
Company, construction activities related to the quartershare hotel projects,
and accrued interest on the New Credit Facility of approximately $3.5 million
as of January 25, 1998.
13. DEPOSITS AND DEFERRED REVENUE. Deposits and deferred revenue
increased 577.0% or $25.3 million from $4.4 million as of July 27, 1997 to $29.6
million as of January 25, 1998. $10.1 million is related to the acquisition of
Heavenly and Steamboat ski resorts, with the balance of the increase due to the
operating cycle of the Company.
14. LONG-TERM DEBT. Long-term debt increased 359.9% or $168.5 million
from $46.8 million as of July 27, 1997 to $215.4 million as of January 25, 1998.
The primary reasons for the increase are the result of 1) the proceeds of $114.4
million from a loan and revolving line of credit (net of current portion) at ASC
West, 2) a $50.4 million dollar increase in the construction loan associated
with the three quartershare hotel projects, and 3) $3.5 million associated with
land acquired for future development at the Canyons ski resort in Utah.
15. SUBORDINATED NOTES AND DEBENTURES. Subordinated notes and debentures
decreased 14.6% or $21.8 million due to the early retirement of ASC East's
subordinated discount notes on December 20, 1997.
16. OTHER LONG-TERM LIABILITIES. Other long-term liabilities increased
191.8% or $15.1 million from $7.9 million as of July 27, 1997 to $23.0 million
as of January 25, 1998. The primary reason for the increase is due to the
acquisition of the Heavenly and Steamboat ski resorts.
19
17. DEFERRED INCOME TAXES (RESTATED-NOTE 1). Deferred income taxes
decreased 47.6% or $13.6 million from $28.5 million as of July 27, 1997 to $14.9
million as of January 25, 1998. The decrease is due to the net loss generated
from July 28, 1997 to January 25, 1998.
18. MANDATORILY REDEEMABLE PREFERRED STOCK. Mandatorily redeemable
preferred stock increased 122.1% or $20.6 million from $16.8 million as of July
27, 1997 to $37.4 million as of January 25, 1998. The increase is due to the
conversion of $16.6 million of 14% convertible notes which were issued on July
29, 1997 to 10 1/2% preferred stock on November 5, 1997. The remaining increase
of $3.1 million is related to $.7 million of dividend accrual and $2.4 million
of accretion of discounts associated with the issuance costs and the accretion
of the exchange feature of the Series A exchangeable preferred stock.
19. ADDITIONAL PAID-IN CAPITAL. Additional paid-in capital increased
9456.1% or $263.4 million from $2.8 million as of July 27, 1997 to $266.2
million as of January 25, 1998. The increase is due to 1) the Company's initial
public offering on November 6, 1997 which generated additional paid-in capital
of $244.6 million, 2) purchase of the minority interest in ASC East, Inc. which
resulted 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 which
increased paid-in capital $8.5 million.
20. RETAINED EARNINGS (ACCUMULATED DEFICIT) (RESTATED-NOTE 1). Retained
earnings decreased from $12.3 million as of July 27, 1997 to an accumulated
deficit of $12.0 million as of January 25, 1998. The decrease is directly
attributable to the $24.3 million loss for the six months ended January 25,
1998. The loss for this period included a $14.2 million charge related to a
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
temporary investments.
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% CONVERTIBLE, EXCHANGEABLE 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% convertible,
exchangeable preferred stock.
CONSENT SOLICITATION. Contemporaneously with the other November 12, 1997
closings, the Company closed the Consent Solicitation transaction described in
its November 5, 1997 Registration Statement.
20
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.
SUBSEQUENT EVENTS
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.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this section of the report,
including those under "Financial Condition," 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.
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.
21
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 $37.3 million principal amount of
its 10 1/2% Convertible Exchangeable 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.
22
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 3, 1998 /s/ Thomas M. Richardson
-------------- -------------------------
Thomas M. Richardson
Senior Vice President Finance Chief Financial
Officer (Principal Financial and Accounting
Officer)
Date: June 3, 1998 /s/ Christopher E. Howard
-------------- --------------------------
Christopher E. Howard
Chief Administrative Officer and General
Counsel (Duly Authorized Officer)
23