Item 1.
Financial Statements
Peak Resorts Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
July 31,
|
|
|
April 30,
|
|
|
|
|
2016
|
|
|
2016
|
|
Assets
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,437
|
|
$
|
5,396
|
|
Restricted cash balances
|
|
|
55,946
|
|
|
61,099
|
|
Income tax receivable
|
|
|
5,176
|
|
|
-
|
|
Accounts receivable
|
|
|
1,896
|
|
|
4,772
|
|
Inventory
|
|
|
2,801
|
|
|
2,730
|
|
Deferred income taxes
|
|
|
1,092
|
|
|
1,092
|
|
Prepaid expenses and deposits
|
|
|
2,636
|
|
|
2,680
|
|
|
|
|
71,984
|
|
|
77,769
|
|
Property and equipment
,
net
|
|
|
190,425
|
|
|
192,178
|
|
Land held for development
|
|
|
37,550
|
|
|
37,542
|
|
Intangible assets, net
|
|
|
832
|
|
|
846
|
|
Goodwill
|
|
|
5,009
|
|
|
5,009
|
|
Other assets
|
|
|
619
|
|
|
619
|
|
|
|
$
|
306,419
|
|
$
|
313,963
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Acquisition line of credit
|
|
$
|
17,250
|
|
$
|
15,500
|
|
Accounts payable and accrued expenses
|
|
|
18,149
|
|
|
18,696
|
|
Accrued salaries, wages and related taxes and benefits
|
|
|
1,060
|
|
|
919
|
|
Unearned revenue
|
|
|
14,074
|
|
|
13,233
|
|
EB-5 investor funds in escrow
|
|
|
50,504
|
|
|
52,004
|
|
Current portion of deferred gain on sale/leaseback
|
|
|
333
|
|
|
333
|
|
Current portion of long-term debt and capitalized lease obligation
|
|
|
2,598
|
|
|
2,456
|
|
|
|
|
103,968
|
|
|
103,141
|
|
Long-term debt
|
|
|
118,238
|
|
|
118,343
|
|
Capitalized lease obligation
|
|
|
4,102
|
|
|
4,419
|
|
Deferred gain on sale/leaseback
|
|
|
3,095
|
|
|
3,178
|
|
Deferred income taxes
|
|
|
12,672
|
|
|
12,672
|
|
Other liabilities
|
|
|
567
|
|
|
576
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
Common stock,
$.01
par value,
20,000,000
shares authorized,
13,982,400
shares issued
|
|
|
140
|
|
|
140
|
|
Additional paid-in capital
|
|
|
82,775
|
|
|
82,728
|
|
Accumulated Deficit
|
|
|
(19,138)
|
|
|
(11,234)
|
|
|
|
|
63,777
|
|
|
71,634
|
|
|
|
$
|
306,419
|
|
$
|
313,963
|
|
See Notes to
Unaudited
Condensed Consolidated Financial Statements.
Peak Resorts, Inc. and Subsidiaries
Condensed Consolidated Statements of Loss (Unaudited)
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
Three months ended
July 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
$
|
7,126
|
|
$
|
5,432
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
Resort operating expenses
|
|
|
|
11,764
|
|
|
10,207
|
Depreciation and amortization
|
|
|
|
3,217
|
|
|
2,448
|
General and administrative expenses
|
|
|
|
1,372
|
|
|
936
|
Land and building rent
|
|
|
|
327
|
|
|
338
|
Real estate and other taxes
|
|
|
|
563
|
|
|
466
|
|
|
|
|
17,243
|
|
|
14,395
|
Loss from Operations
|
|
|
|
(10,117)
|
|
|
(8,963)
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
Interest, net of interest capitalized of
$384
and
$91
in 2016 and 2015, respectively
|
|
|
|
(3,048)
|
|
|
(2,721)
|
Gain on sale/leaseback
|
|
|
|
83
|
|
|
83
|
Investment income
|
|
|
|
2
|
|
|
2
|
|
|
|
|
(2,963)
|
|
|
(2,636)
|
|
|
|
|
|
|
|
|
Loss before Income Tax Benefit
|
|
|
|
(13,080)
|
|
|
(11,599)
|
Income Tax Benefit
|
|
|
|
(5,176)
|
|
|
(4,520)
|
Net Loss
|
|
|
$
|
(7,904)
|
|
$
|
(7,079)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
|
$
|
(0.56)
|
|
$
|
(0.51)
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
|
$
|
-
|
|
$
|
0.1375
|
See Notes to
Unaudited
Condensed Consolidated Financial Statements.
Peak Resorts Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
(In thousands
except share
data
)
Three
Months ended
J
ul
y
31, 201
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Dollars
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, April 30, 2016
|
|
|
13,982,400
|
|
$
|
140
|
|
$
|
82,728
|
|
$
|
(11,234)
|
|
$
|
71,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,904)
|
|
|
(7,904)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
-
|
|
|
-
|
|
|
47
|
|
|
-
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, July 31, 2016
|
|
|
13,982,400
|
|
$
|
140
|
|
$
|
82,775
|
|
$
|
(19,138)
|
|
$
|
63,777
|
See Notes to
Unaudited
Condensed Consolidated Financial Statements
.
Peak Resorts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three
Months ended
J
ul
y
31
,
|
|
|
|
|
|
|
|
|
|
Three months ended July 31,
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,904)
|
|
$
|
(7,079)
|
|
Adjustments to reconcile loss to net cash
|
|
|
|
|
|
|
|
used in operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment and intangibles
|
|
|
3,217
|
|
|
2,448
|
|
Amortization of deferred financing costs
|
|
|
161
|
|
|
12
|
|
Amortization of other liabilities
|
|
|
(9)
|
|
|
(9)
|
|
Gain on sale/leaseback
|
|
|
(83)
|
|
|
(83)
|
|
Stock based compensation
|
|
|
47
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax receivable
|
|
|
(5,176)
|
|
|
(4,520)
|
|
Accounts receivable
|
|
|
2,876
|
|
|
976
|
|
Inventory
|
|
|
(71)
|
|
|
(132)
|
|
Prepaid expenses and deposits
|
|
|
44
|
|
|
(26)
|
|
Other assets
|
|
|
-
|
|
|
(9)
|
|
Accounts payable and accrued expenses
|
|
|
(1,247)
|
|
|
992
|
|
Accrued salaries, wages and related taxes and benefits
|
|
|
141
|
|
|
(187)
|
|
Unearned revenue
|
|
|
841
|
|
|
2,054
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(7,163)
|
|
|
(5,563)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(750)
|
|
|
(4,689)
|
|
Additions to land held for development
|
|
|
(8)
|
|
|
-
|
|
Change in restricted cash
|
|
|
5,153
|
|
|
(5,813)
|
|
Net cash provided by (used in) investing activities
|
|
|
4,395
|
|
|
(10,502)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
Borrowings on long-term debt and capitalized lease obligation
|
|
|
33
|
|
|
3,950
|
|
Borrowings on line of credit
|
|
|
1,750
|
|
|
|
|
(Refunds) additions to EB-5 investor funds held in escrow
|
|
|
(1,500)
|
|
|
8,551
|
|
Payment on long-term debt and capital lease obligations
|
|
|
(474)
|
|
|
(381)
|
|
Distributions to stockholders
|
|
|
-
|
|
|
(1,922)
|
|
Net cash (used in) provided by financing activities
|
|
|
(191)
|
|
|
10,198
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash and Cash Equivalents
|
|
|
(2,959)
|
|
|
(5,867)
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, April 30
|
|
|
5,396
|
|
|
16,849
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, July 31
|
|
$
|
2,437
|
|
$
|
10,982
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Cash Flow Information
|
|
|
|
|
|
|
|
Cash paid for interest, including
$384
and
$91
capitalized in 2016 and 2015, respectively
|
|
$
|
3,040
|
|
$
|
2,804
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Noncash Investing
|
|
|
|
|
|
|
|
and Financing Activities
|
|
|
|
|
|
|
|
Assets under construction included in accounts payable
|
|
$
|
700
|
|
$
|
-
|
|
See Notes to
Unaudited
Condensed Consolidated Financial Statements.
PEAK RESORTS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended
J
ul
y
31, 201
6
and 201
5
Note 1. Nature of Business
Description of business
: Peak Resorts, Inc. (the “Company”) and its subsidiaries operate in a
single
business segment—ski resort operations. The Company’s ski resort operations consist of snow skiing, snowboarding and snow sports areas in Wildwood and Weston, Missouri; Bellefontaine and Cleveland, Ohio; Paoli, Indiana; Blakeslee and Lake Harmony, Pennsylvania; Bartlett, Bennington and Pinkham Notch, New Hampshire; West Dover, Vermont
; and Hunter, New York;
and an eighteen
‑hole golf course in West Dover, Vermont. The Company also manages hotels in Bartlett, New Hampshire
;
West Dover, Vermont
;
and Hunter, New York
.
In the opinion of management, the accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with Rule 10
‑01 of Regulation S
‑X and include all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation of the interim periods presented.
Results for interim periods are not indicative of the results expected for a full fiscal year due to the seasonal nature of the Company’s business. Due to the seasonality of the ski industry, the Company typically incurs significant operating losses during its first and second fiscal quarters.
The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the
fiscal
year ended April 30, 201
6
.
Note 2. New Accounting Standards
In July 2015, the F
inancial Accounting Standards Board (“FASB”)
issued guidance in
Accounting Standards Update (“
ASU
”)
2015-11, Inventory (Topic 330): “Simplifying the Measurement of Inventory” ("ASU 2015-11"), which requires the Company to subsequently measure inventory at the lower of cost and net realizable value rather than the lower of cost or market. For public business entities, the guidance is effective on a prospective basis for interim and annual periods beginning after December 15, 2016, with early adoption permitted.
Pursuant to the JOBS Act, the Company is permitted to adopt the standard for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments in this update should be applied prospectively with earlier application permitted for all entities as of the beginning of an interim or annual reporting period
.
The Company is currently evaluating the impact of the adoption of ASU 2015
‑11 on the consolidated financial statements.
In November 2015, the FASB issued guidance in ASU 2015-17, Income Taxes (Topic 740): “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”), which requires deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. For public business entities, the guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Pursuant to the JOBS Act, the Company is permitted to adopt the standard for annual reporting periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Early application is permitted for all entities as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of the adoption of ASU 2015
‑17 on the consolidated financial statements.
In February 2016
,
the FASB issued ASU 2016-02, “Leases (Topic 842).” The pronouncement requires the recognition of a liability for lease obligations and a corresponding right-of-use asset on the balance sheet and disclosure of key information about leasing arrangements. This pronouncement is effective for reporting periods beginning after December 15, 2018 using a modified retrospective adoption method. While the Company is currently evaluating the provisions of ASU 2016-02 to determine how it will be affected, the primary effect of adopting the new standard will be to record assets and obligations for current operating leases.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606)”, an update of ASU 2014-09, requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2016-08 will replace most existing revenue recognition guidance under
U.S. generally accepted accounting principles when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Pursuant to the JOBS Act, the Company is permitted to adopt the standard for annual reporting periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The new guidance requires entities to record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement when the awards vest or are settled. The guidance also requires entities to present excess tax benefits as an operating activity and cash paid to a taxing authority to satisfy statutory withholding as a financing activity on the statement of cash flows. Additionally, the guidance allows entities to make a policy election to account for forfeitures either upon occurrence or by estimating forfeitures. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016 (the Company’s first quarter of fiscal 2018), with early adoption permitted. The Company is currently evaluating the impacts the adoption of this accounting standard will have on the Company’s financial position or results of operations and cash flows.
Note
3
. Income Taxes
Deferred income tax assets and liabilities are measured at enacted tax rates in the respective jurisdictions where the Company operates. In assessing the ability to realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all deferred tax assets will not be realized and a valuation allowance would be provided if necessary. The
F
ASB Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes,” also provides guidance with respect to the accounting for uncertainty in income taxes recognized in a Company’s consolidated financial statements, and it prescribes a recognition threshold and measurement attribute criteria for the consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company does not have any material uncertain tax positions
.
The income tax receivable is a result of the expected tax rate for the fiscal year ending April 30, 201
7
applied to the loss before income tax for the quarter ended July 31
,
201
6
. Due to the seasonality of the ski industry, the Company typically incurs significant operating losses during its first and second fiscal quarters.
Note
4
. Long
‑term Debt
/
Line of Credit
Long
‑term debt at
J
uly
31, 201
6
and April 30, 201
6
consisted of borrowings pursuant to the loans and other credit facilities discussed below, as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
July 31,
2016
|
|
April 30,
2016
|
|
|
|
Attitash/Mount Snow Debt; payable in monthly interest only payments at an increasing interest rate (
11.10%
at July 31, 2016 and April 30, 2016); remaining principal and interest due on
December 1, 2034
|
|
$
|
51,050
|
|
$
|
51,050
|
|
|
|
Credit Facility Debt; payable in monthly interest only payments at an increasing interest rate (
10.13%
at July 31, 2016 and April 30, 2016); remaining principal and interest due on
December 1, 2034
|
|
|
37,562
|
|
|
37,562
|
|
|
|
Hunter Mountain Debt; payable in monthly interest only payments at an increasing interest rate (
8.0%
at July 31, 2016 and April 30, 2016); remaining principal and interest due on
January 5, 2036
|
|
|
21,000
|
|
|
21,000
|
|
|
|
Sycamore Lake (Alpine Valley) Debt; payable in monthly interest only payments at an increasing interest rate (
10.56%
at July 31, 2016 and April 30, 2016); remaining principal and interest due on
December 1, 2034
|
|
|
4,550
|
|
|
4,550
|
|
|
|
Wildcat Mountain Debt; payable in monthly installments of
$27
, including interest at a rate of
4.00%;
with remaining principal and interest due on
December 22, 2020
|
|
|
3,565
|
|
|
3,612
|
|
|
|
Other debt
|
|
|
3,163
|
|
|
3,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less unamortized debt issuance costs
|
|
|
(1,742)
|
|
|
(1,903)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,148
|
|
|
119,102
|
|
|
|
Less: current maturities
|
|
|
910
|
|
|
759
|
|
|
|
|
|
$
|
118,238
|
|
$
|
118,343
|
|
|
|
Debt Restructure
On November 10, 2014, in connection with the Company’s initial public offering, the Company entered into a Restructure Agreement with certain affiliates of EPR Properties (“EPR”), the Company’s primary lender, providing for the (i) prepayment of approximately
$75.8
million of formerly non-prepayable debt secured by the Crotched Mountain, Attitash, Paoli Peaks, Hidden Valley and Snow Creek resorts and (ii) retirement of one of the notes associated with the future development of Mount Snow (the “Debt Restructure”). On December 1, 2014, the Company entered into various agreements in order to effectuate the Debt Restructure, as more fully described in the Company’s Current Report on Form 8-K filed with the S
ecurities and Exchange Commission
on December 5, 2014. Pursuant to the Debt Restructure, the Company paid a defeasance fee of
$5.0
million to EPR in addition to the consideration described below.
In exchange for the prepayment right, the Company granted EPR a purchase option on the Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley properties, subject to certain conditions. If EPR exercises a purchase option, EPR will enter into an agreement with the Company for the lease of each such acquired property for an initial term of
20
years, plus options to extend the lease for two additional periods of
ten
years each. All previously existing option agreements between the Company and EPR were terminated.
Over the years, the Company has depreciated the book value of these properties pursuant to applicable accounting rules, and as such, it has a low basis in the properties. As a result, the Company will realize significant gains on the sale of the properties to EPR if the option is exercised. The Company will be required to pay capital gains tax on the difference between the purchase price of the properties and the tax basis in the properties, which is expected to be a substantial cost. To date, EPR has not exercised the option.
Additionally, the Company agreed to extend the maturity dates on all non-prepayable notes and mortgages secured by the Mount Snow, Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley properties remaining after the Debt Restructure by
seven
years to December 1, 2034, and to extend the lease for the Mad River property, previously terminating in 2026, until December 31, 2034
(the
“
Lease Amendment”)
.
The Company also granted EPR a right of first refusal to provide all or a portion of the financing associated with any purchase, ground lease, sale/leaseback, management or financing transaction contemplated by the Company with respect to any new or existing ski resort property for a period of
seven
years or until financing provided by EPR for such transactions equals or exceeds
$250
million in the aggregate. Proposed financings from certain types of institutional lenders providing a loan to value ratio of less than
60%
(as relates to the applicable property being financed) are excluded from the right of first refusal. The Company granted EPR a separate right of first refusal in the event that the Company wishes to sell, transfer, convey or otherwise dispose of any or all of the Attitash ski resort for seven years. The Attitash right excludes the financing or mortgaging of Attitash.
In connection with the Debt Restructure, the Company entered into a Master Credit and Security Agreement with EPR (the “Master Credit Agreement”) governing the restructured debt with EPR. Pursuant to the Master Credit Agreement, EPR agreed to maintain the following loans to the Company following the prepayment of certain outstanding debt with proceeds from the Company’s initial public offering: (i) a term loan in the amount of approximately $51.1 million to the Company and its subsidiary Mount Snow, Ltd., (included in the table above as the “Attitash/Mount Snow Debt”); (ii) a term loan in the amount of approximately
$23.3
million to the Company and its subsidiaries Brandywine Ski Resort, Inc. and Boston Mills Ski Resort, Inc. (the “Boston Mills/Brandywine Debt”); (iii) a term loan in the amount of approximately
$14.3
million to the Company and its subsidiary JFBB Ski Areas, Inc. (the “JFBB Debt” and together with the Boston Mills/Brandywine Debt, included in the table above as the “Credit Facility Debt”); and (iv) a term loan in the amount of
approximately $4.6 million to the Company and its subsidiary Sycamore Lake, Inc. (included in the table above as the “Sycamore Lake (Alpine Valley) Debt”).
Interest will be charged at a rate of (i)
10.13%
per annum as to each of the Boston Mills/Brandywine Debt and JFBB Debt; (ii)
10.40%
per annum as to the Sycamore Lake (Alpine Valley) Debt; and (iii)
10.93%
per annum pursuant to the Attitash/Mount Snow Debt. Each of the notes governing the restructured debt provides that interest will increase each year by the lesser of the following: (x) three times the percentage increase in the Consumer Price Index as defined in the notes (“CPI”) from the CPI in effect on the applicable adjustment date over the CPI in effect on the immediately preceding adjustment date or (y)
1.5%
(the “Capped CPI Index). Past due amounts will be charged a higher interest rate and be subject to late charges.
The Master Credit Agreement further provides that in addition to interest payments, the Company must pay the following with respect to all restructured debt other than the Attitash/Mount Snow Debt: an additional annual payment equal to 10% of the gross receipts attributable to the properties serving as collateral of the restructured debt (other than Mount Snow) for such year in excess of an amount equal to the quotient obtained by dividing (i) the annual interest payments payable pursuant to the notes governing the restructured debt (other than with respect to the Attitash/Mount Snow Debt) for the immediately preceding year by (ii)
10%
. The Company must pay the following with respect to the Attitash/Mount Snow Debt: an additional annual payment equal to
12%
of the gross receipts generated at Mount Snow for such year in excess of an amount equal to the quotient obtained by dividing (i) the annual interest payments payable under the note governing the Attitash/Mount Snow Debt for the immediately preceding year by (ii) 12%.
No additional interest payments were due for
the
three months
ended
July 31, 2016
.
The Master Credit Agreement includes restrictions on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence of certain additional debt and liens. Financial covenants set forth in the Master Credit Agreement consist of a maximum leverage ratio (as defined in the Master Credit Agreement) of
65%
, above which the Company and certain of its subsidiaries are prohibited from incurring additional indebtedness, and a consolidated fixed charge coverage ratio (as defined in the Master Credit Agreement) covenant, which (i) requires the Company to increase the balance of its debt service reserve account if the Company’s consolidated fixed charge coverage ratio falls below
1.50
:1.00 and (ii) prohibits the Company from paying dividends if the ratio is below
1.25
:1.00. The payment of dividends is also prohibited during default situations.
As of
the
most recent fiscal year end and for the quarter ended July 31, 2016,
the
fixed charge ratio fell below the 1:50:1:00 coverage ratio, but was above the 1.25:1.00 ratio. As a result,
the Company is
are required to increase the balance of
the
debt service reserve account by $3.3 million. EPR has agreed to delay the additional interest reserve payment until the 2016/2017 ski season
, with 1/3 due in January 2017, 1/3 due in February 2017, and 1/3 due in March 2017
.
Under the terms of the Master Credit Agreement, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) within two years after the effective date of the Master Credit Agreement, the Company’s named executive officers (Messrs. Timothy Boyd, Stephen Mueller and Richard Deutsch) cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Master Credit Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of those subsidiaries which are borrowers under the Master Credit Agreement. Other events of default include, but are not limited to, a default on other indebtedness of the Company or its subsidiaries.
None of the restructured debt may be prepaid without the consent of EPR. Upon an event of default, as defined in the Debt Restructure Agreements, EPR may, among other things, declare all unpaid principal and interest due and payable. Each of the notes governing the restructured debt matures on December 1, 2034.
As a condition to the Debt Restructure, the Company entered into the Master Cross Default Agreement with EPR (the “Master Cross Default Agreement”). The Master Cross Default Agreement provides that any event of default under existing or future loan or lien agreements between the Company or its affiliates and EPR, and any event of default under the Lease Amendment, shall automatically constitute an event of default under each of such loan and lien agreements and Lease Amendment, upon which EPR will be entitled to all of the remedies provided under such agreements and Lease Amendment in the case of an event of default.
Also in connection with the Debt Restructure, the Company and EPR entered into the Guaranty Agreement (the “
2014
Guaranty Agreement”). The
2014
Guaranty Agreement obligates the Company and its subsidiaries as guarantors of all debt evidenced by the Debt Restructure Agreements.
The table below illustrates the potential interest rates applicable to the Company’s fluctuating interest rate debt for each of the next five years, assuming an effective rate increase by the Capped CPI Index:
|
|
|
|
|
|
|
|
|
|
|
Rates as of July 31,
|
|
Attitash/Mount Snow Debt
|
|
Credit Facility
Debt
|
|
Hunter Mountain Debt
|
|
Sycamore Lake/(Alpine Valley) Debt
|
|
|
2016
(1)
|
|
11.10%
|
|
10.13%
|
|
8.00%
|
|
10.56%
|
|
|
2017
|
|
11.27%
|
|
10.28%
|
|
8.14%
|
|
10.72%
|
|
|
2018
|
|
11.44%
|
|
10.44%
|
|
8.28%
|
|
10.88%
|
|
|
2019
|
|
11.61%
|
|
10.59%
|
|
8.43%
|
|
11.04%
|
|
|
2020
|
|
11.78%
|
|
10.75%
|
|
8.57%
|
|
11.21%
|
|
|
2021
|
|
11.96%
|
|
10.91%
|
|
8.72%
|
|
11.38%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
For 201
6
, the dates of the rates presented are as follows: (i) April 1, 201
6
for the Attitash/Mount Snow Debt; (ii) October 1, 201
6
for the Credit Facility Debt;
Ja
nu
ary 6, 2016 for the Hunter Mountain Debt
and (iii) December 1, 2015 for the Sycamore Lake (Alpine Valley) Debt.
The Capped CPI Index is an embedded derivative, but the Company has concluded that the derivative does not require bifurcation and separate presentation at fair value because the Capped CPI Index was determined to be clearly and closely related to the debt instrument.
Wildcat Mountain Debt
The Wildcat Mountain Debt due
December 22, 2020
represents amounts owed pursuant to a promissory note in the principal amount of
$4.5
million made by WC Acquisition Corp. in favor of Wildcat Mountain Ski Area, Inc., Meadow Green
‑Wildcat Skilift Corp. and Meadow Green
‑Wildcat Corp. (the “Wildcat Note”). The Wildcat Note, dated November 22, 2010, was made in connection with the acquisition of Wildcat Mountain, which was effective as of October 20, 2010. The interest rate as set forth in the Wildcat Note is fixed at 4.00%.
H
unter Mountain Debt
On January 6, 2016, the Company completed the acquisition of the Hunter Mountain ski
resort located in Hunter, New York
through the purchase of all of the outstanding stock of each of Hunter Mountain Ski Bowl, Inc., Hunter Mountain Festivals, Ltd., Hunter Mountain Rentals, Inc., Hunter Resort Vacations, Inc., Hunter Mountain Base Lodge, Inc., and Frosty Land, Inc. (collectively, “Hunter Mountain”) pursuant to the terms of the Stock Purchase Agreement (the “Purchase Agreement”) with Paul Slutzky, Charles B. Slutzky, David Slutzky, Gary Slutzky and Carol Slutzky-Tenerowicz entered into on November 30, 2015. The Company acquired Hunter Mountain for total cash consideration of
$35
.0
million plus the assumption of two capital leases estimated at approximately
$1.
7
million. A portion of the Hunter Mountain acquisition price was financed pursuant to the Master Credit and Security Agreement (the “Hunter Mountain Credit Agreement”) entered into between the Company and
EPR as of January 6, 2016.
The Hunter Mountain Debt due January 5, 2036 represents amounts owed pursuant to a promissory note (the “Hunter Mountain Note”) in the principal amount of $21.0 million made by the Company in favor of EPR pursuant to the Hunter Mountain Credit Agreement, which was effective as of January 6, 2016. The Company used
$20.0
million of the Hunter Mountain Debt to finance the Hunter Mountain acquisition and
$1.0
million to cover closing costs and to add to its interest reserve account.
The Hunter Mountain Credit Agreement and Hunter Mountain Note provide that
interest will be charged at an initial rate of 8.00%, subject to an annual increase beginning on February 1, 2017 by the lesser of the following: (x) three times the percentage increase in the CPI (as defined in the Hunter Mountain Note) from the CPI in effect on the applicable adjustment date over the CPI in effect on the immediately preceding adjustment date or (y) 1.75%. Past due amounts will be charged a higher interest rate and be subject to late charges
.
The Hunter Mountain Credit Agreement further provides that in addition to interest payments, the Company must pay an additional annual payment equal to
8.00%
of the gross receipts in excess of
$35.0
million that are attributable to all collateral under the Hunter Mountain Note for such year.
The Hunter Mountain Credit Agreement includes restrictions or limitations on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence or guaranty of certain additional debt and liens. Financial covenants set forth in the Hunter Mountain Credit
Agreement consist of a maximum leverage ratio (as defined in the Hunter Mountain Credit Agreement) of 65%, above which the Company is prohibited from incurring
additional indebtedness. The Company must also maintain a consolidated fixed charge coverage ratio (as defined in the Hunter Mountain Credit Agreement) which (i) requires the Company to increase the balance of its debt service reserve account if the Company’s consolidated fixed charge coverage ratio falls below 1.50:1.00 and (ii) prohibits the Company from paying dividends if the ratio is below 1.25:1.00. The payment of dividends is also prohibited during potential default or default situations
.
As of
the
most recent fiscal year end and for the qu
arter ended July 31, 2016
,
the Company’
s
fixed charge ratio fell below the 1:50:1:00 coverage ratio, but was above the 1.25:1.00 ratio. As a result,
the Company is
required to increase the balance of
the
debt service reserve account by
$3.3
million. EPR has agreed to delay the additional interest reserve payment until the 2016/2017 ski season
, with 1/3 due in January 2017, 1/3 due in February 2017, and 1/3 due in March 2017.
Under the terms of the Hunter Mountain Credit Agreement, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) within two years after the effective date of the Hunter Mountain Credit Agreement, the Company’s named executive officers (Messrs. Boyd, Mueller and Deutsch) cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Hunter Mountain Credit Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of those subsidiaries which are borrowers under the Hunter Mountain Credit Agreement. Other events of default include, but are not limited to, a default on other indebtedness of the Company or its subsidiaries.
The Hunter Mountain Note may not be prepaid without the consent of EPR. Upon an event of default, as defined in the Hunter Mountain Note, EPR may, among other things, declare all unpaid principal and interest due and payable. The Hunter Mountain Note matures on January 5, 2036.
In connection with entry into the Hunter Mountain Credit Agreement on January 6, 2016, the Company entered into the Amended and Restated Master Cross-Default Agreement with EPR, which adds the Hunter Mountain Credit Agreement, Hunter Mountain Note and related transaction documents to the scope of loan agreements to which the cross-default provisions of the Master Cross Default Agreement apply.
Also on January 6, 2016, in connection with entry into the Hunter Mountain Credit Agreement, the Company entered into a Guaranty Agreement for the benefit of EPR, which adds the Company’s new Hunter Mountain subsidiary borrowers under the Hunter Mountain Credit Agreement as guarantors pursuant to the same terms of the 2014 Guaranty Agreement and adds the debt evidenced by the Hunter Mountain Credit Agreement and Hunter Mountain Note to the debt guaranteed by the Company pursuant to the 2014 Guaranty Agreement.
Substantially all of the Company’s assets serve as collateral for the Company’s long term debt.
Future aggregate annual principal payments under all indebtedness
(including the Company’ line of credit, current debt and long-term debt)
reflected by fiscal year are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
July 31,
|
|
|
|
2017 (Remaining)
|
|
$
|
18,341
|
|
|
|
2018
|
|
|
1,836
|
|
|
|
2019
|
|
|
767
|
|
|
|
2020
|
|
|
215
|
|
|
|
2021
|
|
|
2,820
|
|
|
|
Thereafter
|
|
|
114,161
|
|
|
|
|
|
$
|
138,140
|
|
|
|
Deferred financing costs are net of accumulated amortization of
$
643
and
$
482
at
J
uly
31, 2016 and
April 3
0
, 2016
, respectively. Amortization of deferred financing costs will
be
$
303
(remaining) for the
year
ending April 30, 201
7
, and
$
90
for each of the
four
years ending April 30,
2018,
201
9
,
20
20
and
202
1
.
Line of Credit
The remaining
$15.0
million of the Hunter Mountain acquisition price was financed with funds drawn on the Company’s line of credit with Royal Banks of Missouri pursuant to the Credit Facility, Loan and Security Agreement (the “Line of Credit Agreement”) between the Company and Royal Banks of Missouri, effective as of December 22, 2015
.
The Company drew an additional
$0.5
million to pay closing costs.
On July 20, 2016 the Company borrowed an additional
$1.75
million under the Credit
Agreement for working capital purposes.
The Line of Credit Agreement provides for a 12-month line of credit for up to
$20.0
million to be used for acquisition purposes and working capital of up to
5.0%
of the acquisition purchase price, subject to the Company’s ability to extend the line of credit for up to an additional
12
-month period upon the satisfaction of certain conditions. In connection with entry into the Line of Credit Agreement, the Company executed a promissory note (the “Line of Credit Note”) in favor of Royal Banks of Missouri
,
maturing on
December 22, 2016
. The line of credit debt is included as a current liability given the initial 12-month term.
Interest on the
amounts borrowed are
charged at the prime rate plus
1.0%
, provided that past due amounts shall be subject to higher interest rates and late charges.
The effective rate at
J
uly
31, 2016 was
4.5%
on the line of credit borrowings.
Amounts outstanding under the Line of Credit Agreement are secured by the assets of each of the subsidiary borrowers under the Line of Credit Agreement.
The Line of Credit Agreement includes restrictions or limitations on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence of certain additional debt and liens. Financial covenants set forth in the Line of Credit Agreement consist of a maximum leverage ratio (as defined in the Line of Credit Agreement) of
65%
, above which the Company is prohibited from incurring additional indebtedness, and a debt service coverage ratio (as defined in the Line of Credit Agreement) of
1:25
to 1 on a fiscal year basis. The Company must also maintain a consolidated fixed charge coverage ratio (as defined in the Master Credit Agreement) which (i) requires the Company to increase the balance of its debt service reserve account if the Company’s consolidated fixed charge coverage ratio falls below
1.50
:1.00 and (ii) prohibits the Company from paying dividends if the ratio is below
1.25
:1.00. The payment of dividends is also prohibited during potential default or default situations.
As of
the
most recent fiscal year end and for the quarter ended July 31, 2016,
the Company’s
fixed charge ratio fell below the 1:50:1:00 coverage ratio, but was above the 1.25:1.00 ratio. As a result,
the Company is
required to increase the balance of
the
debt service reserve account by $3.3 million. EPR has agreed to delay the additional interest reserve payment until the 2016/2017 ski season
, with 1/3 due in January 2017, 1/3 due in February 2017, and 1/3 due in March 2017.
If the outstanding
l
ine of
c
redit
d
ebt is not paid in full by the maturity date, and the Company is otherwise i
n
full compliance with the terms and conditions of the Line of Credit Agreement and Line of Credit Note, the Company may elect to convert the outstanding
l
ine of
c
redit
d
ebt to a
three
-year term loan, subject to an additional extension, with principal payments amortized over a
20
-year period bearing interest
at
the prime rate plus
1.0%
per annum.
Except in the case of a default, the Company may prepay all or any portion of the outstanding
l
ine of
c
redit
d
ebt and all accrued and unpaid interest due prior to the maturity date without prepayment penalty.
In the case of a default, the outstanding Line of Credit Debt shall, at the lender’s option, bear interest at the rate of
5.0%
percent per annum in excess of the interest rate otherwise payable thereon, which interest shall be payable on demand.
Under the terms of the Line of Credit Agreement, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) for so long as the
l
ine of
c
redit
d
ebt is outstanding and such individuals are employed by the Company, the Company’s key shareholders (Messrs. Timothy Boyd, Stephen Mueller and Richard Deutsch) cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Line of Credit Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of the subsidiary borrowers. Other events of default include, but are not limited to, a default on other indebtedness of the Company or its subsidiaries.
Note
5
. Acquisition
Effective January 6, 2016, the Company acquired all of the outstanding common stock of Hunter Mountain in Hunter, New York, for
$35.0
million paid to the sellers in cash and the Company’s assumption of
$1.7
million in capitalized lease obligations.
During the year ended April 30, 2016, t
he Company incurred approximately
$0.1
million in transaction costs. The
C
ompany also incurred
$1.3
million of financing costs which were capitalized as deferred financing costs associated with the debt obligations.
The Company financed
$20.0
million, of the acquisition price pursuant to the terms of the Hunter Mountain Credit Agreement and Hunter Mountain Note with EPR, which bears interest at a rate of
8.0%
, subject to annual increases as discussed in Note 4, “Long-term Debt
/Line of Credit
.” The Company borrowed an additional
$1.0
million under the Hunter Mountain Credit Agreement to fund closing and other costs. Debt under the Hunter Mountain Note requires monthly interest payments until its maturity on January 5, 2036. An additional
$15.0
million of the Hunter Mountain acquisition price was financed through a draw on the Company’s line of credit with Royal Banks of Missouri, which bears interest at the prime rate plus
1.0%
and matures on December 22, 2016, as discussed in Note 4 above under the title “
Long-term Debt/
Line of Credit”.
Hunter Mountain’s results of operations are included in the accompanying consolidated financial statements for the
quarter
ended
July 31
, 2016 from the date of acquisition. The preliminary allocation of the purchase price is as follows (in thousands):
|
|
|
Cash and cash equivalents
|
$
|
1,640
|
Accounts receivable
|
|
395
|
Inventories
|
|
341
|
Prepaids
|
|
246
|
Buildings and improvements
|
|
14,052
|
Land
|
|
6,200
|
Equipment
|
|
19,120
|
Other assets
|
|
4
|
Goodwill
|
|
4,382
|
Intangible assets
|
|
865
|
Total assets acquired
|
|
47,245
|
Accounts payable and accrued expenses
|
|
1,481
|
Accrued salaries, wages and related taxes & benefits
|
|
250
|
Unearned revenue and deposits
|
|
2,993
|
Capital Lease Obligations
|
|
1,724
|
Deferred tax liability
|
|
5,797
|
Net assets acquired
|
$
|
35,000
|
The purchase price allocation is preliminary, mainly due to continued review of
buildings and improvements
,
deferred tax liability and intangibles.
The Company paid
$35.0
million for the transaction and as part of the allocation received
$1.6
million in cash, resulting in a net cash change of
$33.4
million in cash. As part of the transaction, the Company has recognized goodwill associated with the expected synergies of combining operations as well as the overall enterprise value of the resort. No goodwill will arise for income tax purposes and accordingly, none of the book goodwill will be deductible for tax purposes. Hunter Mountain will be considered its own reporting unit with respect to goodwill impairment, which will be completed at least annually.
The following presents the unaudited pro forma consolidated financial information as if the acquisition of Hunter Mountain was completed on May 1,
2015
, the beginning of the Company's
2016
fiscal year. The following pro forma financial information includes adjustments for depreciation and interest paid pursuant to the Hunter Mountain Note and property and equipment recorded at the date of acquisition. This pro forma financial information is presented for informational purposes only and does not purport to be indicative of the results of future operations or the results that would have occurred had the acquisition taken place on May 1, 201
5
. (In thousands except per share data)
|
|
|
|
|
(Unaudited)
|
|
|
|
Three months ended July 31, 2015
|
|
|
|
|
|
Net revenues
|
$
|
7,821
|
|
Net loss
|
$
|
(8,870)
|
|
Pro forma basic and diluted loss per share
|
$
|
(0.63)
|
|
Note
6
. Financial Instruments and Concentrations of Credit Risk
The following methods and assumptions were used to estimate the fair value of each class of financial instruments to which the Company is a party:
Cash and cash equivalents, restricted cash:
Due to the highly liquid nature of the Company’s short
‑term investments, the carrying values of cash and cash equivalents and restricted cash approximate their fair values.
Accounts receivable:
The carrying value of accounts receivable approximate their fair value because of their short
‑term nature.
Accounts payable and accrued expenses:
The carrying value of accounts payable and accrued liabilities approximates fair value due to the short
‑ term maturities of these amounts.
Long
‑term debt:
The fair value of the Company’s long
‑term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The interest rates on the Company’s long
‑term debt instruments are consistent with those currently available to the Company for borrowings with similar maturities and terms and, accordingly, their fair values are consistent with their carrying values.
Concentrations of credit risk:
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and restricted cash. The Company’s cash and cash equivalents and restricted cash are on deposit with financial institutions where such balances will, at times, be in excess of federally insured limits. Excess cash balances are collateralized by the backing of government securities. The Company has not experienced any loss as a result of those deposits.
Note
7
. Commitments and Contingencies
Restricted cash:
The provisions of certain of the Company’s debt instruments generally require that the Company make and maintain a deposit, to be held in escrow for the benefit of the lender, in an amount equal to the estimated minimum interest payment for the upcoming fiscal year.
In addition, the Company has funds it is holding in escrow in connection with its efforts to raise funds under the U.S.
government’s Immigrant Investor Program, commonly known as the EB-5 program (the “EB-5 Program”). The EB-5 Program was first enacted in 1992 to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors. In turn, these foreign investors are, pending petition approval, granted visas for lawful residence in the U.S. under the EB-5 Program, a limited number of visas are reserved for such foreign investors each year. The Company intends to use the current and future funds for future development.
Loss contingencies:
The Company is periodically involved in various claims and legal proceedings, many of which occur in the normal course of business. Management routinely assesses the likelihood of adverse judgments or outcomes, including consideration of its insurable coverage and discloses or records estimated losses in accordance with ASC 450, “Contingencies”. After consultation with legal counsel, the Company does not anticipate that liabilities arising out of these claims would, if plaintiffs are successful, have a material adverse effect on its business, operating results or financial condition.
Leases:
The Company leases certain land, land improvements, buildings and equipment under non
‑cancelable operating leases. Certain of the leases contain escalation provisions based generally on changes in the CPI with maximum annual percentage increases capped at
1.5%
to
4.5%
. Additionally, certain leases contain contingent rental provisions which are based on revenue. The amount of contingent rentals was insignificant in all periods presented. Total rent expense under such operating leases was
$
4
07
and
$
43
3
for the three months ended
J
ul
y
31, 201
6
and 2015
, respectively. The Company also leases certain equipment under capital leases.
Future minimum rentals under all non
‑cancelable leases with remaining lease terms of one year or more for years subsequent to
J
uly
31,
2016
are as follows
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
Operating
|
|
|
Leases
|
|
Leases
|
2017 (Remaining)
|
|
$
|
1,738
|
|
$
|
1,249
|
2018
|
|
|
2,066
|
|
|
1,620
|
2019
|
|
|
1,922
|
|
|
1,576
|
2020
|
|
|
923
|
|
|
1,543
|
2021
|
|
|
23
|
|
|
1,518
|
Thereafter
|
|
|
-
|
|
|
8,822
|
|
|
|
6,672
|
|
$
|
16,328
|
Less: amount representing interest
|
|
|
882
|
|
|
|
|
|
|
5,790
|
|
|
|
Less: current portion
|
|
|
1,688
|
|
|
|
Long-term portion
|
|
$
|
4,102
|
|
|
|
Note
8
.
Loss
Per share
The computation of basic and diluted
loss
per share for the three month periods ended
July
31, 201
6
and 201
5
is as follows (in thousands except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended July 31,
|
|
|
|
2016
|
|
2015
|
Net Loss
|
|
|
$
|
(7,904)
|
|
$
|
(7,079)
|
Weighted number of shares:
|
|
|
|
|
|
|
|
Common shares outstanding for basic and diluted loss per share
|
|
|
|
13,982,400
|
|
|
13,982,400
|
Vested restricted stock units
|
|
|
|
38,892
|
|
|
-
|
|
|
|
|
14,021,292
|
|
|
13,982,400
|
Basic and diluted loss per share
|
|
|
$
|
(0.56)
|
|
$
|
(0.51)
|
The Company has
19,515
outstanding unvested
restricted stock
units that have not been included in the calculation of diluted earnings per share because the impact is anti-dilutive due to the net loss for the period ended July 31, 2016.
The
vested restricted stock units above include
9,723
vested restricted stock units
for the former
d
irector Mr. Staenberg. See details of the cash
buyout
of these
restricted stock units
in Note 9
.
“Subsequent Events” below.
Note
9
. Subsequent Events
Line of Credit
As previously reported, on December 22, 2015, the Company, together with its subsidiaries Hidden Valley Golf and Ski, Inc., Paoli Peaks, Inc., Snow Creek, Inc., LBO Holding, Inc. and SNH Development, Inc., as borrowers (together, the “Subsidiaries” and collectively with the Company, the “Borrowers”), entered into a $20.00 million Credit Facility, Loan and Security Agreement (the “
Royal Bank
Credit Agreement”) with Royal Banks of Missouri, as lender (the “Lender”).
On August 5, 2016, the Company borrowed the remaining
$2.75
million under the
Royal Bank
Credit Agreement for working capital purposes, pursuant to a Promissory Note issued under and subject to the terms of the
Royal Bank
Credit Agreement (the “Second Promissory Note”), bringing the total principal amount borrowed under the
Royal Bank
Credit Agreement to
$20
million.
The Second Promissory Note is subject to the terms of the
Royal Bank
Credit Agreement except for any provisions in the
Royal Bank
Credit Agreement related to renewal or conversion of the Second Promissory Note. The terms of the Second Promissory Note provide that interest on the outstanding principal amount of the
Second Promissory
Note shall be charged at
6.0%
per annum, provided that past due amounts shall be subject to higher interest rates and late charges. The debt evidenced by the Second Promissory Note is secured by the assets of each of the Subsidiaries and matures on August 5, 2017. The Company is required to make interest only payments under the Second Promissory Note.
Except in the case of a default, the Borrowers may prepay all or any portion of the outstanding debt under the Second Promissory Note and all accrued and unpaid interest due prior to the maturity date without prepayment penalty. In the case of a default, the outstanding balance due on the Second Promissory Note bear
s
interest at the rate of
5.0%
percent per annum in excess of the interest rate otherwise payable thereon, which interest shall be payable on demand.
Series A Cumulative Convertible Preferred Stock
On August 22, 2016,
the Company
entered into a securities purchase agreement (the “Purchase Agreement”) with CAP 1 LLC (the “Investor”) in connection with the sale and issuance (the “Investor Private Placement”) of
$20
million in Series A Cumulative Convertible Preferred Stock, par value
$0.01
per share, (the “Series A Preferred”) and three warrants (the “Warrants”), exercisable for
twelve
years, to purchase (i)
1,538,462
shares of the Company’s common stock, par value
$0.01
per share (the “Common Stock”) at
$6.50
per share, (ii)
625,000
shares of Common Stock at
$8.00
per share and (iii)
555,556
shares of Common Stock at
$9.00
per share, in each case, subject to adjustments. The Series A Preferred and the Warrants are being offered to the Investor in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506 of Regulation D promulgated thereunder.
The closing of the Investor Private Placement (the “Closing”) is conditioned upon (i) the reduction by the Company’s senior lenders, EPT Ski Properties, Inc. and EPT Mount Snow, Inc., in the additional interest reserve requirement related to the breakage of the Fixed Charge Coverage Ratio Covenant, (ii) the approval of the
Investor Private Placement and certain amendment
s
to the Company’s amended and restated articles of incorporation
by the shareholders of the Company, and (iii) certain other customary closing conditions in the Purchase Agreement. The Company intends to seek such approval at its annual meeting of shareholders.
The Series A Preferred and the Warrants will not be issued, and the Company will not receive any investment funds, until the Closing.
In addition, the Purchase Agreement grants to the Company the right to issue to the Investor an additional
20,000
shares of Series A Preferred, along with additional Warrants, all on the same terms and conditions as the Investor Private Placement, as long as (i) there is no material adverse effect, (ii) the average closing price of the Common Stock for the ten trading days prior to the execution of the documents for such additional shares is not less than the average closing price of the Common Stock for the ten trading days prior to the execution of the Purchase Agreement, (iii) the Investor is reasonably satisfied with the manner in which the Company intends to use the net cash proceeds of such issuance, and (iv) the Company has successfully implemented an EB-5 Immigrant Investor Program with respect to Mount Snow and one investor’s application has approved.
The Purchase Agreement may be terminated (i) by mutual agreement, (ii) by either party if the applicable conditions are incapable of fulfillment, or (iii) by either party if Closing has not occurred on or before November 15, 2016. If the Purchase Agreement is terminated because of the failure to obtain shareholder approval and the Board of Directors of the Company has failed to recommend or continue to recommend or has withdrawn or modified its recommendation to vote in favor of the Investor Private Placement, the Company shall not later than three business days after a request by the Investor, reimburse the Investor for its out of pocket expenses (including legal fees) incurred in connection with the Investor Private Placement up to a maximum aggregate amount of
$125,000
.
The Company intends to use the net proceeds from the sale of the Series A Preferred and Warrants for working capital and general corporate purposes and for the execution of its strategy for future growth, including expansion through acquisition.
Bridge Loan Financing
On September 1, 2016, the Company and Mount Snow, Ltd., a subsidiary of the Company (“Mount Snow” and, together with the Company, the “Borrowers”), closed on a loan on the terms set forth in a credit agreement and related documents with EPT Mount Snow, Inc. (the “Lender”), an affiliate of its primary lender, EPR Properties. The Company received an initial advance of
$4.0
million
at closing, which funded the Lender’s
$100,000
closing fee, fees and expenses of the Company’s legal counsel and the interest reserve.
Pursuant to the Master Credit and Security Agreement (the “Credit Agreement”) among the Borrowers and the Lender, dated as of September 1, 2016, the Lender agreed to loan to the Company up to
$10.0
million (the “Loan”), as evidenced by the Promissory Note (the “Note”) from the Borrowers, dated as of September 1, 2016.
The Credit Agreement provides that the Borrowers may borrow up to
$5.5
million until three business days prior to December 31, 2016. Any other advances under the
Loan
will be made at the discretion of the Lender
but no amount may be borrowed under the Loan after December 31, 2016
. The maximum amount available under the
Loan
will be reduced from
$10.0
to
$5.0
upon the
Company receiving the proceeds
of
the EB-5 funding,
and upon the
receipt of any
of such funds, the Borrowers shall prepay (a) the amount by which outstanding principal under the
Loan
exceeds $5.0 million and (b) accrued interest on such excess amount. The Company may make additional voluntary prepayments, without penalty, in an amount of not less
than the lesser of
$1.0
million
or the outstanding principal balance of the Loan
.
The Note provides that interest will be charged at a rate of
9.00%
. Past due amounts will be charged a higher interest rate and be subject to late charges. The Credit Agreement requires the Company to maintain an interest
and lease payment
reserve
, and any interest expected to accrue on any advance shall be withheld by the Lender
.
The debt evidenced by the Note is secured by the assets of each of the Borrowers.
The Credit Agreement provides that the proceeds shall be used to fund working capital and other general business purposes, provided that no more than
$750,000
shall be used to fund any payment or reimbursement related to the West Lake project. The West Lake project includes the construction of a new water storage reservoir for snowmaking with capacity of up to
120
million gallons, three new pump houses and the installation of snowmaking pipelines and ancillary equipment.
The Credit Agreement includes restrictions or limitations on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence or guaranty of certain additional debt and liens. The payment of dividends
and redemption of stock are
prohibited at any time that the
Loan
remains unpaid and,
notwithstanding any
repayment of the
Loan
, are also prohibited so long as any other credit facility with the Lender’s affiliates remains outstanding unless (a) there are no potential default or default situations and (b) the EB-5 funds have been released or other identifiable and committed funds are held in escrow by an unrelated person or entity sufficient to complete the West Lake project. The Credit Agreement requires that all construction activities related to the West Lake project cease until the EB-5 funds have been released or other identifiable and committed funds are held in escrow by an unrelated person or entity sufficient to complete the West Lake project.
Regardless of whether the credit facility set forth in the Master Credit and Security Agreement (the “Hunter Mountain Credit Agreement”) among the Company, Hunter Mountain Acquisition, Inc., Hunter Mountain Ski Bowl Inc., Hunter Mountain Festivals, Ltd., Hunter Mountain Rentals Ltd., Hunter Resort Vacations, Inc., Hunter Mountain Base Lodge, Inc. and Frosty Land, Inc. (together, the “Hunter Mountain Borrowers”) and EPT Ski Properties, Inc., as lender remains outstanding, the Borrowers shall comply with the financial covenants set forth in the Hunter Mountain Credit Agreement. Those financial covenants consist of (a) a maximum leverage ratio (as defined in the Hunter Mountain Credit Agreement) of 65%, above which Borrowers are prohibited from incurring additional indebtedness and (b) a consolidated fixed charge coverage ratio (as defined in the Hunter Mountain Credit Agreement) that (i) requires the Company to increase the balance of its debt service reserve account if the Company’s consolidated fixed charge coverage ratio falls below 1.50:1.00 and (ii) prohibits the Company from paying dividends if the ratio is below 1.25:1.00.
As of
the
most recent fiscal year end and for the quarter ended July 31, 2016,
the
fixed charge ratio fell below the 1:50:1:00 coverage ratio, but was above the 1.25:1.00 ratio. As a result,
the Company is
required to increase the balance of
the
debt service reserve account by $3.3 million. EPR has agreed to delay the additional interest reserve payment until the 2016/2017 ski season
, with 1/3 due in January 2017, 1/3 due in February 2017, and 1/3 due in March 2017.
Under the terms of the Credit Agreement, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) within two years after the effective date of the Credit Agreement, the Company’s named executive officers (Messrs. Timothy Boyd, Stephen Mueller and Richard Deutsch)
, as long as they are employed by any Borrower,
cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Credit Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of Mount Snow. Other events of default include, but are not limited to, a default on other indebtedness
, and certain defaults under material contracts and material licenses,
of the Company or its subsidiaries.
Upon an event of default, as defined in the
Credit Agreement, the Lender
may, among other things, declare all unpaid principal and interest due and payable. The Note matures on March 31, 2017, provided that
(a)
if the EB-5 funding is not received by March 31, 2017 and no event of default is then existing, the Borrowers may elect to extend the maturity of the loan to March 31, 2018 upon written notice to the Lender and payment of a
$125,000
fee and
(b)
if the EB-5 funding is not received by March 31, 2018 and no event of default is then existing, the Borrowers may elect to extend the maturity of the loan to March 31, 2019 upon written notice to the Lender and payment of a $125,000 fee.
Boston Mills / Brandywine Flood
On August 10, 2016 the main lodge and maintenance buildings at the Boston Mills Ski Resort in northeastern Ohio w
ere flooded.
The Company is currently working with its insurance company to estimate damages. The Company does not believe this flooding will have any impact on the resort’s ski season.
Staenberg Restricted Stock Units
In February 2016, Mr. Staenberg, a member of
the
Board of Directors, resigned from his position. Per the Restricted Stock Unit Agreement, Mr. Staenberg’
s
9,723
vested shares
were payable to him in
the
form of stock or cash
six months after
his resignation
. The Board of Directors decided to pay his shares in
the
form of
a
cash
payment of
$48
effective as of
August
3,
2016. The payment was made in September 2016.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with
the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 201
6
. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q
.
Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to the “Company”, “Peak”, “our”, “us”, or “we” refer to Peak Resorts, Inc. and its consolidated subsidiaries.
Overview
We are a leading owner and operator of high-quality, individually branded ski resorts in the U.S. We currently operate 1
4
ski resorts primarily located in the Northeast and Midwest, 1
3
of which we own. The majority of our resorts are located within 100 miles of major metropolitan markets, including New York City, Boston, Philadelphia, Cleveland and St. Louis, enabling day and overnight drive accessibility. Our resorts are comprised of nearly 1,650 acres of skiable terrain that appeal to a wide range of ages and abilities. We offer a breadth of activities, services and amenities, including skiing, snowboarding, terrain parks, tubing, dining, lodging, equipment rentals and sales, ski and snowboard instruction and mountain biking and other summer activities. We believe that both the day and overnight drive segments of the ski industry are appealing given their stable revenue base, high margins and attractive risk-adjusted returns. We have successfully acquired and integrated
eleven
ski resorts since our incorporation in 1997 and we expect to continue executing this strategy.
We and our subsidiaries operate in a single business segment—resort operations. The consolidated unaudited financial data presented in this Quarterly Report on Form 10-Q is comprised of the data of our 1
4
ski resorts. Also included in the financial information presented are ancillary services, primarily consisting of food and beverage services, equipment rental, ski instruction, hotel/lodging and retail.
Seasonality and Quarterly Results
Our resort operations are seasonal in nature. In particular, revenue and profits for our operations are substantially lower and historically result in losses from late spring to late fall, which occur during our first and second fiscal quarters. Revenue and profits generated by our summer operations are not sufficient to fully offset our off-season expenses from our operations. Therefore, the operating results for any interim period are not necessarily indicative of the results that may be achieved for any subsequent quarter or for a full year.
Recent Events
Financing/Liquidity
The Company has experienced lower than normal liquidity levels as of the beginning of fiscal 2017. The weather during the
preceding
ski season was unfavorably warm which resulted in fewer ski days and lower profitability for the Company. In addition, the Company is still waiting on the first investor’s approval with regards to our approved EB-5 program. In anticipation of the EB-5 approval, which would release all funds from escrow and allow those funds to
be
spen
t
on project related activities, the
C
ompany has spent more than $13 million of our working capital on starting the West Lake project, which is part of the overall Mt. Snow Development Project. The board made the decision in
April 2016
that it would not be prudent to declare a dividend for the first quarter of 2017 due to lower cash levels primarily caused by the delay in the approval of our EB-5 program, as well as the unseasonably warm weather during the 2015/2016 ski season
,
which drove down revenue compared to the prior season.
In addition, the Master Credit Agreement includes financial covenants consisting of a maximum Leverage Ratio (as defined in the Master Credit Agreement) of 65%, above which the Company and certain of its subsidiaries are prohibited from incurring additional indebtedness, and a Consolidated Fixed Charge Coverage Ratio (as defined in the Master Credit Agreement) covenant, which (a) requires the Company to increase the balance of its debt service reserve account if the Company's Consolidated Fixed Charge Coverage Ratio falls below 1.50:1.00, and (b) prohibits the Company from paying
dividends if the ratio is below 1.25:1.00. As of our most recent fiscal year end, our fixed charge ratio fell below the 1:50:1:00 coverage ratio, but was above the 1.25:1.00 ratio. As a result, the Company must increase the balance of its debt service reserve by $3.3 million. EPR has agreed to defer the payment of the reserve until the end of the 2016/2017 ski season
, with 1/3 due in January 2017, 1/3 due in February 2017, and 1/3 due in March 2017.
Please refer below in the MD&A section for more specific information on our liquidity, the EB-5 program, and the West Lake construction project.
Investor Private Placement and New Debt Financings
In light of the Company’s current and near-term working capital and debt service requirements, and in an effort to satisfy our short-term working capital needs and enhance the Company’s long-term liquidity position, our Board of Directors
formed a Special Committee of independent directors, to evaluate
various financing alternatives.
While the
reimbursement of approximately $13.0 million
from
the released EB-5 program funds would improve our short-term cash position and the Company had received approval as of April 30, 2016 for a total of $10 million in short-term financing options, the Board of Directors believed that it is in the best interests of the Company and stockholders to evaluate long-term financing structures to enhance our long-term liquidity position, support our cash position and ensure sufficient funds for continued growth.
To this end, after extensive analysis and consideration, the Special Committee and the Board of Directors approved a private placement of the Company’s securities.
On August 22, 2016, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with CAP 1 LLC (the “Investor”) in connection with the sale and issuance (the “Investor Private Placement”) of $20 million in Series A Cumulative Convertible Preferred Stock, par value $0.01 per share, (the “Series A Preferred”) and three warrants (the “Warrants”), exercisable for twelve years, to purchase (i) 1,538,462 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”) at $6.50 per share, (ii) 625,000 shares of Common Stock at $8.00 per share and (iii) 555,556 shares of Common Stock at $9.00 per share, in each case, subject to adjustments. The Series A Preferred and the Warrants are being offered to the Investor in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506 of Regulation D promulgated thereunder.
The Company intends to hold a meeting of its shareholders in order to, among other things, vote upon the approval of: (i) an increase in the Company’s authorized Common Stock, (ii) the authorization of blank check preferred stock and
certain
conforming changes to the Company’s
a
mended and
r
estated
a
rticles of
i
ncorporation, and (iii) the
Investor Private Placement
as required by the Nasdaq Listing Rules. Without shareholder approval of these actions, this proposed
Investor Private Placement
will not be completed.
To provide the Company with additional cash for operations in the meantime, the Company borrowed an additional $4.5 million from Royal Banks of Missouri and an additional $5.5 million from EPT Mount Snow, Inc. The Investor Private Placement and these loans are discussed in greater detail in Note 9. “Subsequent Events.”
Resort Acquisition
On January 6, 2016, the Company completed the acquisition of the Hunter Mountain ski resort located in Hunter, New York, through the purchase of all of the outstanding stock of each of Hunter Mountain Ski Bowl, Inc., Hunter Mountain Festivals, Ltd., Hunter Mountain Rentals, Inc., Hunter Resort Vacations, Inc., Hunter Mountain Base Lodge, Inc., and Frosty Land, Inc. (collectively, “Hunter Mountain”) pursuant to the terms of the Stock Purchase Agreement (the “Purchase Agreement”) with Paul Slutzky, Charles B. Slutzky, David Slutzky, Gary Slutzky and Carol Slutzky-Tenerowicz entered into on November 30, 2015. The Company acquired Hunter Mountain for total cash consideration of $35.0 million plus the assumption of two capital leases estimated at approximately $1.7 million.
A portion of the Hunter Mountain acquisition price was financed pursuant to the Master Credit and Security Agreement (the “Hunter Mountain Credit Agreement”) entered into between the Company and
EPR, the Company’s primary lender, on January 6, 2016. The remainder was financed with funds drawn on the Company’s line of credit with Royal Banks of Missouri pursuant to the Credit Facility, Loan and Security Agreement (the “Line of Credit Agreement”) between the Company and Royal Banks of Missouri, effective as of December 22, 2015. See “Liquidity and Capital Resources—Significant Sources of Cash” for additional information.
Initial Public Offering
On November 20, 2014, we completed our initial public offering of our common stock, selling 10,000,000 shares of our common stock at $9.00 per share. After deducting $6.3 million of underwriting discounts and commissions and $1.4 million of offering expenses payable by us, we received net proceeds of $82.3 million.
Debt Restructure
On November 10, 2014, in connection with our initial public offering, we entered into a Restructure Agreement (the “Restructure Agreement”) with certain affiliates of EPR Properties (“EPR”), our primary lender, providing for the (i) prepayment of approximately $75.8 million of formerly non-prepayable debt secured by the Crotched Mountain, Attitash, Paoli Peaks, Hidden Valley and Snow Creek resorts and (ii) retirement of one of the notes associated with the future development of Mount Snow (the “Debt Restructure”). On December 1, 2014, we entered into various agreements in order to effectuate the Debt Restructure, as more fully described in the Company’s Current Report on Form 8-K filed with the SEC on December 5, 2014. Pursuant to the Debt Restructure, we paid a defeasance fee of $5 million to EPR in addition to the consideration described below.
In exchange for the prepayment right, we granted EPR a purchase option on the Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley properties, subject to certain conditions. If EPR exercises a purchase option, EPR will enter into an agreement with the Company for the lease of each such acquired property for an initial term of 20 years, plus options to extend the lease for two additional periods of ten years each. All previously existing option agreements between the Company and EPR were terminated.
Additionally, we agreed to extend the maturity dates on all non-prepayable notes and mortgages secured by the Mount Snow, Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley properties remaining after the Debt Restructure by seven years to December 1, 2034, and to extend the lease for the Mad River property, previously terminating in 2026, until December 31, 2034
(the “Mad River Lease Amendment”).
We also granted EPR a right of first refusal to provide all or a portion of the financing associated with any purchase, ground lease, sale/leaseback, management or financing transaction contemplated by the Company with respect to any new or existing ski resort property for a period of seven years or until financing provided by EPR for such transactions equals or exceeds $250 million in the aggregate. Proposed financings from certain types of institutional lenders providing a loan to value ratio of less than 60% (as relates to the applicable property being financed) are excluded from the right of first refusal. We granted EPR a separate right of first refusal in the event that the Company wishes to sell, transfer, convey or otherwise dispose of any or all of the Attitash ski resort for seven years. The Attitash right excludes the financing or mortgaging of Attitash.
In connection with the Debt Restructure, we entered into a Master Credit and Security Agreement with EPR (the “Master Credit Agreement”) containing additional terms and conditions governing our restructure debt with EPR, including restrictions on certain transactions and the payment of dividends and required financial covenants.
Capital Projects
The Company did not have any major capital projects in the quarter ended July 31, 2016. In fiscal 2016, the Company had one major capital project. We started the construction of the West Lake project which will be financed through the EB-5 program, once our first investor is approved. The West Lake project includes the construction of a new water storage reservoir for snowmaking with capacity of up to 120 million gallons.
Results of Operations
The following historical unaudited consolidated statements of operations during the three months ended
J
ul
y
31, 201
6
and 201
5
have been derived from the condensed unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Effective January 6, 2016, we acquired the Hunter Mountain ski resort. The results of operations of Hunter Mountain have been included in our financial statements since the date of the acquisition.
Comparison of Operating Results for the Three Months Ended
July
31,
2016
and
2015
The
following table presents our condensed unaudited consolidated statements of operations for the three months ended
J
ul
y
31, 201
6
and 201
5
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
July 31,
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
$ change
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Food and beverage
|
|
$
|
2,487
|
|
$
|
1,322
|
|
|
1,165
|
|
88.1%
|
Hotel/lodging
|
|
|
1,808
|
|
|
1,460
|
|
|
348
|
|
23.8%
|
Retail
|
|
|
149
|
|
|
159
|
|
|
(10)
|
|
-6.3%
|
Summer activities
|
|
|
1,864
|
|
|
1,923
|
|
|
(59)
|
|
-3.1%
|
Other
|
|
|
818
|
|
|
568
|
|
|
250
|
|
44.0%
|
|
|
|
7,126
|
|
|
5,432
|
|
|
1,694
|
|
31.2%
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Resort operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
Labor and labor related expenses
|
|
|
7,707
|
|
|
6,231
|
|
|
1,476
|
|
23.7%
|
Retail and food and beverage cost of sales
|
|
|
761
|
|
|
516
|
|
|
245
|
|
47.5%
|
Power and utilities
|
|
|
588
|
|
|
583
|
|
|
5
|
|
0.9%
|
Other
|
|
|
2,708
|
|
|
2,877
|
|
|
(169)
|
|
-5.9%
|
|
|
|
11,764
|
|
|
10,207
|
|
|
1,557
|
|
15.3%
|
Depreciation and amortization
|
|
|
3,217
|
|
|
2,448
|
|
|
769
|
|
31.4%
|
General and administrative expenses
|
|
|
1,372
|
|
|
936
|
|
|
436
|
|
46.6%
|
Land and building rent
|
|
|
327
|
|
|
338
|
|
|
(11)
|
|
-3.3%
|
Real estate and other taxes
|
|
|
563
|
|
|
466
|
|
|
97
|
|
20.8%
|
|
|
|
17,243
|
|
|
14,395
|
|
|
2,848
|
|
19.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(10,117)
|
|
|
(8,963)
|
|
|
(1,154)
|
|
12.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of interest capitalized of $384 and $91 in 2016 and 2015, respectively
|
|
|
(3,048)
|
|
|
(2,721)
|
|
|
(327)
|
|
12.0%
|
Gain on sale/leaseback
|
|
|
83
|
|
|
83
|
|
|
-
|
|
0.0%
|
Investment income
|
|
|
2
|
|
|
2
|
|
|
-
|
|
0.0%
|
|
|
|
(2,963)
|
|
|
(2,636)
|
|
|
(327)
|
|
12.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(13,080)
|
|
|
(11,599)
|
|
|
(1,480)
|
|
12.8%
|
Income tax benefit
|
|
|
(5,176)
|
|
|
(4,520)
|
|
|
656
|
|
-14.5%
|
Net Loss
|
|
$
|
(7,904)
|
|
$
|
(7,079)
|
|
$
|
(825)
|
|
11.7%
|
Total Reported EBITDA
|
|
$
|
(6,900)
|
|
$
|
(6,515)
|
|
$
|
(385)
|
|
5.9%
|
Revenue
increased
$
1.
7
million, or
31.2
%, for the three months ended
July
31, 2016 compared to the three months ended J
ul
y 31, 2015. The
increase
is primarily
attributable to
the impact of the Hunter Mountain acquisition, which was effective January 6, 2016.
Hunter Mountain
’s impact is included in
food and beverage, hotel/lodging, and other revenue categories, mainly driven by multiple summer festivals.
Resort operating expenses increased $1.6 million, or 15.3%, for the three months ended July 31, 2016 compared to the same period in the prior year. This was primarily attributable to the impact of the Hunter Mountain acquisition, specifically driving up labor and labor related expenses and retail and food and beverage cost of sales.
Power and utility expense
increased minimally by 0.9% for the three months ended July 31, 2016 compared to the three months ended July 31, 2015. The impact of the addition
of
Hunter Mountain was offset by
lower power and fuel costs at all other resorts due to a
continued focus
on energy efficiency.
Depreciation and amortization increased $0
.
8
million, or
31.4
%, for the
three months ended July 31, 2016 compared to the three months ended July 31, 2015
as a result of
assets acquired from the Hunter Mountain acquisition
.
General and administrative expenses increased $0.
4
million, or
46.6
%, for the three months ended
July 31, 2016
compared to the three months ended
July 31, 2015
primarily due to an increase in professional fees related to incremental
legal costs,
public company expenses
and travel
as well as the addition of Hunter Mountain.
The
increase
in interest expense net, of $
0.3
million, result
ed
from the
additional interest associated with the debt incurred for the acquisition of Hunter Mountain.
Income tax
benefit
in
creased $
0.
7
million as a result of
a
n
in
crease in the
loss
before income tax
benefit
of $
1.
5
million for the three months ended
July
31, 2016 compared to the three months ended
July
31, 2015.
Non-GAAP Financial Measures
Reported EBITDA is not a measure of financial performance under U.S.
generally accepted accounting principles (“
GAAP
”)
.
The following table includes a reconciliation of Reported EBITDA to net loss (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
July 31
|
|
|
|
|
2016
(1)
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,904)
|
|
$
|
(7,079)
|
|
Income tax benefit
|
|
|
(5,176)
|
|
|
(4,520)
|
|
Interest expense, net
|
|
|
3,048
|
|
|
2,721
|
|
Depreciation and amortization
|
|
|
3,217
|
|
|
2,448
|
|
Investment income
|
|
|
(2)
|
|
|
(2)
|
|
Gain on sale/leaseback
|
|
|
(83)
|
|
|
(83)
|
|
|
|
$
|
(6,900)
|
|
$
|
(6,515)
|
|
|
(1)
|
|
Effective January 6, 2016, we acquired the Hunter Mountain ski resort. The results of operations of Hunter Mountain have been included in the reconciliation since the date of the acquisition.
|
We have chosen to specifically include Reported EBITDA (defined as net income before interest, income taxes, depreciation and amortization, gain on sale leaseback, investment income, other income or expense and other non
‑recurring items) as a measurement of our results of operations because we consider this measurement to be a significant indication of our financial performance and available capital resources. Because of large depreciation and other charges relating to our ski resorts, it is difficult for management to fully and accurately evaluate our financial results and available capital resources using net income. Management believes that by providing investors with Reported EBITDA, investors will have a clearer understanding of our financial performance and cash flow because Reported EBITDA: (i) is widely used in the ski industry to measure a company’s operating performance without regard to items excluded from the calculation of such measure, which can vary by company primarily based upon the structure or existence of their financing; (ii) helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating structure; and (iii) is used by our management for various purposes, including as a measure of performance of our operating entities and as a basis for planning.
Items excluded from Reported EBITDA are significant components in understanding and assessing financial performance or liquidity. Reported EBITDA should not be considered in isolation or as alternative to, or substitute for, net income, net change in cash and cash equivalents or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Reported EBITDA is not a measurement determined in accordance with GAAP and is susceptible to varying calculations, Reported EBITDA as presented may not be comparable to other similarly titled measures of other companies.
Liquidity and Capital Resources
Significant Sources of Cash
Our available cash is the highest in our fourth quarter primarily due to the seasonality of our resort business.
However, the Company has experienced lower than normal liquidity levels at the beginning of fiscal 2017. The weather during the 2015/2016 ski season was unfavorably warm, which resulted in fewer ski days and lower profitability for the Company.
We had $
2.4
million of cash and cash equivalents at
July
31, 201
6
compared to $
5.
4
million at April 30, 201
6
.
Cash
of
$
7.2
million
was
used
by
operating
activities during the
three
months ended
July
31, 201
6
compared to $
5.6
million
of
cash used in the
three
months ended
July
31, 201
5
. We generate the majority of our cash from operations during the ski season, which occurs in our third and fourth quarters. We currently anticipate that
cash flow from operations
will continue to provide a significant source of our future cash flows. We expect that our liquidity needs for the near term and the next fiscal year will be met by continued operating cash flows (primarily those generated in our third and fourth fiscal quarters)
and additional borrowings
under our loan arrangements
discussed below
, as needed.
In addition, the Company has
borrowed $4.5 million from Royal Banks of Missouri and $5.5 million from EPT Mount Snow, Inc. and has signed the Purchase Agreement to issue the Series A Preferred and Warrants
in an effort
to strengthen the liquidity position of the Company.
These items were executed
subsequent to
July 31, 2016 and are discussed in Note
9
. “Subsequent Events
.
”
Long-term debt at
J
ul
y
31, 201
6
and April 30, 201
6
consisted of borrowings pursuant to the loans and other credit facilities with EPR, our primary lender. As discussed in “Recent Events”, in November 2014, we entered into a Restructure Agreement with EPR providing for the prepayment of a portion of our outstanding debt.
Furthermore, as discussed in “Resort Acquisition”, we entered into the Hunter Mountain Credit Agreement in connection with our acquisition of Hunter Mountain.
We have presented in the table below the borrowings at
July
31, 201
6
and April 30, 201
6
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
July 31,
2016
|
|
April 30,
2016
|
|
|
|
Attitash/Mount Snow Debt; payable in monthly interest only payments at an increasing interest rate (11.10% at July 31, 2016 and April 30, 2016); remaining principal and interest due on December 1, 2034
|
|
$
|
51,050
|
|
$
|
51,050
|
|
|
|
Credit Facility Debt; payable in monthly interest only payments at an increasing interest rate (10.13% at July 31, 2016 and April 30, 2016); remaining principal and interest due on December 1, 2034
|
|
|
37,562
|
|
|
37,562
|
|
|
|
Hunter Mountain Debt; payable in monthly interest only payments at an increasing interest rate (8.0% at July 31, 2016 and April 30, 2016); remaining principal and interest due on January 5, 2036
|
|
|
21,000
|
|
|
21,000
|
|
|
|
Sycamore Lake (Alpine Valley) Debt; payable in monthly interest only payments at an increasing interest rate (10.56% at July 31, 2016 and April 30, 2016); remaining principal and interest due on December 1, 2034
|
|
|
4,550
|
|
|
4,550
|
|
|
|
Wildcat Mountain Debt; payable in monthly installments of $27, including interest at a rate of 4.00%; with remaining principal and interest due on December 22, 2020
|
|
|
3,565
|
|
|
3,612
|
|
|
|
Other debt
|
|
|
3,163
|
|
|
3,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less unamortized debt issuance costs
|
|
|
(1,742)
|
|
|
(1,903)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,148
|
|
|
119,102
|
|
|
|
Less: current maturities
|
|
|
910
|
|
|
759
|
|
|
|
|
|
$
|
118,238
|
|
$
|
118,343
|
|
|
|
Debt Restructure
In connection with the Debt Restructure, the Company entered into the Master Credit Agreement with EPR governing the restructured debt with EPR. Pursuant to the Master Credit Agreement, EPR agreed to maintain the following loans to the Company following the prepayment of certain outstanding debt with proceeds from the Company’s initial public offering: (i) a term loan in the amount of approximately $51.1 million to the Company and its subsidiary Mount Snow, Ltd., (included in the table above as the “Attitash/Mount Snow Debt”); (ii) a term loan in the amount of approximately $23.3 million to the Company and its subsidiaries Brandywine Ski Resort, Inc. and Boston Mills Ski Resort, Inc. (the “Boston Mills/Brandywine Debt”); (iii) a term loan in the amount of approximately $14.3 million to the Company and its subsidiary JFBB Ski Areas, Inc. (the “JFBB Debt” and together with the Boston Mills/Brandywine Debt, included in the table above as
the “Credit Facility Debt”); and (iv) a term loan in the amount of approximately $4.6 million to the Company and its subsidiary Sycamore Lake, Inc. (included in the table above as the “Sycamore Lake (Alpine Valley) Debt”).
Interest will be charged at a rate of (i) 10.13% per annum as to each of the Boston Mills/Brandywine Debt and JFBB Debt; (ii) 10.40% per annum as to the Sycamore Lake (Alpine Valley) Debt; and (iii) 10.93% per annum pursuant to the Attitash/Mount Snow Debt. Each of the notes governing the restructured debt provides that interest will increase each year by the lesser of the following: (x) three times the percentage increase in the Consumer Price Index as defined in the notes (“CPI”) from the CPI in effect on the applicable adjustment date over the CPI in effect on the immediately preceding adjustment date or (y) 1.5%. Past due amounts will be charged a higher interest rate and be subject to late charges.
The Master Credit Agreement further provides that in addition to interest payments, the Company must pay the following with respect to all restructured debt other than the Attitash/Mount Snow Debt: an additional annual payment equal to 10% of the gross receipts attributable to the properties serving as collateral of the restructured debt (other than Mount Snow) for such year in excess of an amount equal to the quotient obtained by dividing (i) the annual interest payments payable pursuant to the notes governing the restructured debt (other than with respect to the Attitash/Mount Snow Debt) for the immediately preceding year by (ii)
10%
. The Company must pay the following with respect to the Attitash/Mount Snow Debt: an additional annual payment equal to
12%
of the gross receipts generated at Mount Snow for such year in excess of an amount equal to the quotient obtained by dividing (i) the annual interest payments payable under the note governing the Attitash/Mount Snow Debt for the immediately preceding year by (ii) 12%. No additional interest payments were due for
three months
ended
July 31, 2016
.
The Master Credit Agreement includes restrictions on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence of certain additional debt and liens. Financial covenants set forth in the Master Credit Agreement consist of a maximum leverage ratio (as defined in the Master Credit Agreement) of
65%
, above which the Company and certain of its subsidiaries are prohibited from incurring additional indebtedness, and a consolidated fixed charge coverage ratio (as defined in the Master Credit Agreement) covenant, which (i) requires the Company to increase the balance of its debt service reserve account if the Company’s consolidated fixed charge coverage ratio falls below
1.50
:1.00 and (ii) prohibits the Company from paying dividends if the ratio is below
1.25
:1.00. The payment of dividends is also prohibited during default situations.
As of our most recent fiscal year end and for the quarter ended July 31, 2016, our fixed charge ratio fell below the 1:50:1:00 coverage ratio, but was above the 1.25:1.00 ratio. As a result, we are required to increase the balance of our debt service reserve account by $3.3 million. EPR has agreed to delay the additional interest reserve payment until the 2016/2017 ski season
, with 1/3 due in January 2017, 1/3 due in February 2017, and 1/3 due in March 2017.
Wildcat Mountain Debt
The Wildcat Mountain Debt due December 22, 2020 represents amounts owed pursuant to a promissory note in the principal amount of $4.5 million made by WC Acquisition Corp. in favor of Wildcat Mountain Ski Area, Inc., Meadow Green-Wildcat Skilift Corp. and Meadow Green-Wildcat Corp. (the “Wildcat Note”). The Wildcat Note, dated November 22, 2010, was made in connection with the acquisition of Wildcat Mountain, which was effective as of October 20, 2010. The interest rate as set forth in the Wildcat Note is fixed at 4.00%.
Hunter Mountain
Debt
The Hunter Mountain Debt due January 5, 2036 represents amounts owed pursuant to a promissory note (the “Hunter Mountain Note”) in the principal amount of $21.0 million made by the Company in favor of EPR pursuant to the Hunter Mountain Credit Agreement in connection with the Company’s acquisition of Hunter Mountain, which was effective as of January 6, 2016. The Company used $20.0 million of the Hunter Mountain Debt to finance the Hunter Mountain acquisition and $1.0 million to cover closing costs and to add to its interest reserve account.
The Hunter Mountain Credit Agreement and Hunter Mountain Note provide that interest will be charged at an initial rate of 8.00%, subject to an annual increase beginning on February 1, 2017 by the lesser of the following: (x) three times the percentage increase in the CPI (as defined in the Hunter Mountain Note) from the CPI in effect on the applicable adjustment date over the CPI in effect on the immediately preceding adjustment date or (y) 1.75%. Past due amounts will be charged a higher interest rate and be subject to late charges.
The Hunter Mountain Credit Agreement further provides that in addition to interest payments, the Company must pay an additional annual payment equal to 8.00% of the gross receipts in excess of $35.0 million that are attributable to all collateral under the Hunter Mountain Note for such year.
The Hunter Mountain Credit Agreement includes restrictions or limitations on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence or guaranty of certain additional debt and liens. Financial covenants set forth in the Hunter Mountain Credit Agreement consist of a maximum leverage ratio (as defined in the Hunter Mountain Credit Agreement) of 65%, above which the Company is prohibited from incurring additional indebtedness. The Company must also maintain a consolidated fixed charge coverage ratio (as defined in the Hunter Mountain Credit Agreement) which (i) requires the Company to increase the balance of its debt service reserve account if the Company’s consolidated fixed charge coverage ratio falls below 1.50:1.00 and (ii) prohibits the Company from paying dividends if the ratio is below 1.25:1.00. The payment of dividends is also prohibited during potential default or default situations.
As of our most recent fiscal year end and for the quarter ended July 31, 2016,
the Company’s
fixed charge ratio fell below the 1:50:1:00 coverage ratio, but was above the 1.25:1.00 ratio. As a result,
the Company is
required to increase the balance of
the
debt service reserve account by $3.3 million. EPR has agreed to delay the additional interest reserve payment until the 2016/2017 ski season
, with 1/3 due in January 2017, 1/3 due in February 2017, and 1/3 due in March 2017.
Under the terms of the Hunter Mountain Credit Agreement, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) within two years after the effective date of the Hunter Mountain Credit Agreement, the Company’s named executive officers (Messrs. Timothy Boyd, Stephen Mueller and Richard Deutsch) cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Hunter Mountain Credit Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of those subsidiaries which are borrowers under the Hunter Mountain Credit Agreement. Other events of default include, but are not limited to, a default on other indebtedness of the Company or its subsidiaries.
The Hunter Mountain Note may not be prepaid without the consent of EPR. Upon an event of default, as defined in the Hunter Mountain Note, EPR may, among other things, declare all unpaid principal and interest due and payable. The Hunter Mountain Note matures on January 5, 2036.
As a condition to the Debt Restructure described above, the Company entered into the Master Cross Default Agreement with EPR (the “Master Cross Default Agreement”), which provides that any event of default under existing or future loan or lien agreements between the Company or its affiliates and EPR, and any event of default under the Mad River Lease Amendment, shall automatically constitute an event of default under each of such loan and lien agreements and Mad River Lease Amendment, upon which EPR will be entitled to all of the remedies provided under such agreements and Mad River Lease Amendment in the case of an event of default. In connection with entry into the Hunter Mountain Credit Agreement on January 6, 2016, the Company entered into the Amended and Restated Master Cross-Default Agreement with EPR, which adds the Hunter Mountain Credit Agreement, Hunter Mountain Note and related transaction documents to the scope of loan agreements to which the cross-default provisions of the Master Cross Default Agreement apply.
Also in connection with the Debt Restructure, the Company and EPR entered into the Guaranty Agreement (the “2014 Guaranty Agreement”). The 2014 Guaranty Agreement obligates the Company and its subsidiaries as guarantors of all debt evidenced by the evidenced by the Master Credit Agreement and other Debt Restructure agreements. On January 6, 2016, in connection with entry into the Hunter Mountain Credit Agreement, the Company entered into a Guaranty Agreement for the benefit of EPR, which adds the Company’s new Hunter Mountain subsidiary borrowers under the Hunter Mountain Credit Agreement as guarantors pursuant to the same terms of the 2014 Guaranty Agreement and adds the debt evidenced by the Hunter Mountain Credit Agreement and Hunter Mountain Note to the debt guaranteed by the Company pursuant to the 2014 Guaranty Agreement.
Substantially all of the Company’s assets serve as collateral for the Company’s long term debt.
Line of Credit
Effective as of December 22, 2015, the Company entered into the Line of Credit Agreement with Royal Banks of Missouri.
The Line of Credit Agreement provides for a 12-month line of credit for up to $20.0 million to be used for acquisition purposes and working capital of up to 5.0% of the acquisition purchase price, subject to the Company’s ability to ability to extend the line of credit for up to an additional 12-month period upon the satisfaction of certain conditions. In connection with entry into the Line of Credit Agreement, the Company executed a promissory note (the “Line of Credit Note”) in favor of Royal Banks of Missouri
,
maturing on December 22, 2016. In connection with the Hunter Mountain acquisition, the Company borrowed $15.
5
million
, of which $0.5 million was used for closing and other costs,
to fund a portion of the purchase price.
On July 20, 2016 the Company borrowed an additional $1.75 million under the Credit Agreement for working capital purposes.
The line of credit debt is included as a current liability given the initial 12-month term.
Interest on
amounts borrowed under the line of credit are
charged at the prime rate plus 1.0%, provided that past due amounts shall be subject to higher interest rates and late charges.
The effective rate at J
ul
y 31,
2016 was 4.5% on the line
of credit borrowings.
Amounts outstanding under the Line of Credit Agreement are secured by the assets of each of the subsidiary borrowers under the Line of Credit Agreement.
The Line of Credit Agreement includes restrictions or limitations on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence of certain additional debt and liens. Financial covenants set forth in the Line of Credit Agreement consist of a maximum leverage ratio (as defined in the Line of Credit Agreement) of 65%, above which the Company is prohibited from incurring additional indebtedness, and a debt service coverage ratio (as defined in the Line of Credit Agreement) of 1:25 to 1 on a fiscal year basis. The Company must also maintain a consolidated fixed charge coverage ratio (as defined in the Master Credit Agreement) which (i) requires the Company to increase the balance of its debt service reserve account if the Company’s consolidated fixed charge coverage ratio falls below 1.50:1.00 and (ii) prohibits the Company from paying dividends if the ratio is below 1.25:1.00. The payment of dividends is also prohibited during potential default or default situations.
As of our most recent fiscal year end and for the quarter ended July 31, 2016,
the Company’
fixed charge ratio fell below the 1:50:1:00 coverage ratio, but was above the 1.25:1.00 ratio. As a result,
the Company is
required to increase the balance of our debt service reserve account by $3.3 million. EPR has agreed to delay the additional interest reserve payment until the 2016/2017 ski season
, with 1/3 due in January 2017, 1/3 due in February 2017, and 1/3 due in March 2017.
If the outstanding
l
ine of
c
redit
d
ebt is not paid in full by the maturity date, and the Company is otherwise i
n
full compliance with the terms and conditions of the Line of Credit Agreement and Line of Credit Note, the Company may elect to convert the outstanding
line of credit debt
to a three-year term loan, subject to an additional extension, with principal payments amortized over a 20-year period bearing interest the prime rate plus 1.0% per annum.
Except in the case of a default, the Company may prepay all or any portion of the outstanding
line of credit debt
and all accrued and unpaid interest due prior to the maturity date without prepayment penalty.
In the case of a default, the outstanding
line of credit debt
shall, at the lender’s option, bear interest at the rate of 5.0% percent per annum in excess of the interest rate otherwise payable thereon, which interest shall be payable on demand.
Under the terms of the Line of Credit Agreement, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) for so long as the
l
ine of
c
redit
d
ebt is outstanding and such individuals are employed by the Company, the Company’s key shareholders (Messrs. Boyd, Mueller and Deutsch) cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Line of Credit Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of the subsidiary borrowers. Other events of default include, but are not limited to, a default on other indebtedness of the Company or its subsidiaries.
Three
Months Ended
July
31, 201
6
Compared to the
Three
Months Ended
July
31, 201
5
Cash of $
7.
2
million
was
used in
operating activities in the first
three
months of fiscal 201
7
, a
n
in
crease
of $
1.6
million when compared to the $
5.6
million used in the first
three
months of fiscal 201
6
.
The
decrease
in operating cash flows was
primarily
a result of a
n
increase
in the loss from operations
,
due to the addition of Hunter Mountain. Similar to our other resorts, Hunter Mountain generates the majority of its operating cash in the
third
and
fourth
quarters and traditionally
operates
at a loss during the
first
and
second
quarter
s
of the year.
Cash
of $
4.
4
million was provided by
investing activities
in
the first
three
months of fiscal 201
7
, an inc
rease
of
$
14.
9
million
when compared to the $
10.5
million used in the first
three
months of fiscal 201
6
.
The
increase
was a result of
a
decreased
spending on property additions
as well as a decrease in the restricted cash accounts
. The
decrease
in restricted cash is a result of the
timing of
EB-5
funds being deposited in fiscal year 2016
.
Cash
of $0.2 million was used in
financing activities
in
the first
three
months of fiscal 201
7
, a
decrease
of
$
10.4
million
when compared to the $
10.2
million
provided by in
the first
three
months of fiscal 201
6
.
The decrease
primarily related to
the EB-5 investor funds
being funded in fiscal 2016 and
borrowings of
capital leases in fiscal 201
6
. This was offset by no dividends being declared or paid to
investors in the
three
months ended
July
31, 2016
.
Significant Uses of Cash
Our cash uses currently include operating expenditures and capital expenditures for assets to be used in operations. We have historically invested significant cash in capital expenditures for our resort operations and expect to continue to invest in the future. Resort capital expenditures for fiscal 201
6
were
approximately $1
5.9
million
,
of which
$11.8 million is related to the West Lake project.
We currently anticipate we will spend
approximately $
3
.0 million to $
4.0
million on resort
capital expenditures
in fiscal 2017.
There are no major capital expenditure projects for fiscal 2017 anticipated. We currently
plan to use cash on hand, borrowings and/or cash flow generated from future operations to provide the cash necessary to execute our capital plans and believe that these sources of cash will be adequate to meet our needs.
The Company is also pursuing other sources of financing to meet long-term liquidity needs, including the $4.5 million draw on the Royal Banks of Missouri line of credit, the $5.5 million new credit facility with EPT Mount Snow, Inc., and the proposed issuance of Series A Preferred pursuant to the Investor Private Placement. Details of these transactions can be found in Note
9
. “Subsequent Events.”
As part of the acquisition of Hunter Mountain discussed in
“
Recent Events
”
above, we assumed $1.7 million related to
six
capital leases. The leases were used to finance equipment throughout the resort. The leases expire between 2016 and 2020, with payments being required only during the peak ski season. Annual lease expenses are $0.4 million in 2017, $0.4 million in 2018, $0.3 million in 2019, and $0.3 million in 2020.
In October 2014, we entered into a capital lease to finance the construction of the Zip Rider at Attitash. The lease is payable in 60 monthly payments of $38,800, commencing November 2014. The Company has a $1.00 purchase option at the end of the lease term. Messrs. Boyd, Mueller and Deutsch have personally guaranteed the lease.
In addition, in June 2015, the Company entered into capital leases to finance the installation of Low-E snow guns at Mount Snow, Attitash and Wildcat, as well as to fund the purchase of groomers for Mount Snow and Attitash. The Low-E snow guns lease is payable in 48 monthly payments of $61,770 and the groomers lease is payable in 60 monthly payments of $23,489, both commencing July 2015. The Company has a $1.00 purchase option at the end of each lease term.
Messrs. Boyd, Mueller and Deutsch have personally guaranteed the leases.
The Company originally funded these purchases during fiscal 201
5
with operating cash.
We have $2.
0
million in third party commitments currently outstanding with our main contractor on the Mount Snow development. We may incur additional costs to support the ongoing Mount Snow development, subject to obtaining required permits and approvals. We plan to finance any future development activity through operating cash reserves, initial condominium deposits and bridge loans, which would be paid upon project completion mostly through the receipt of remaining committed condominium unit sales. We intend to fund our Mount Snow development by raising funds under the Immigrant Investor Program administered by the U.S. Citizenship and Immigration Services (‘‘USCIS’’) pursuant to the Immigration and Nationality Act. This program was created to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors. The program allocates 10,000 immigrant visas (‘‘EB-5 Visas’’) per year to qualified individuals seeking lawful permanent resident status on the basis of their investment in a U.S. commercial enterprise. Under the regional center pilot immigration program first enacted in 1992, certain EB-5 Visas also are set aside for investors in regional centers designated by the USCIS based on proposals for promoting economic growth. Regional centers are organizations, either publicly owned by cities, states or regional development agencies or privately owned, which facilitate investment in job-creating economic development projects by pooling capital raised under the EB-5 Immigrant Investor Program. Areas within regional centers that are rural areas or areas experiencing unemployment numbers higher than the national unemployment average rates are designated as Targeted Employment Areas (‘‘TEA’’). The regional center pilot program was recently extended and is set to expire in September 2016. Both the Senate and House leadership have been working on reforms to the program and various bills have been proposed. We do not expect this process to have a negative effect on our current EB-5 offering. We refer to the Immigrant Investor Program and the regional center pilot program herein as the ‘‘EB-5 program.’’
We have established two wholly-owned
affiliate
limited partnerships (collectively, the ‘‘Partnership’’) of Mount Snow to operate within a TEA within the State of Vermont Regional Center. Through the Partnership, we sought to raise $52.0 million by offering units in the Partnership to qualified accredited EB-5 investors for a subscription price of $500,000 per unit, which is the minimum investment that an investor in a TEA project is required to make pursuant to EB-5 program rules. The proceeds of the offering will be used to fund loans that will be advanced to newly-created
affiliates
of Mount Snow to finance the development of two capital projects at Mount Snow—the West Lake Project and the Carinthia Ski Lodge Project (together, the ‘‘Projects’’). The terms of these loans are expected to be 1.0% fixed for five years with up to a two year extension at 7.0% in year six and 10.0% in year seven. Upon funding of the loans, the Company will receive a development fee equal to 15.0% of the loans as well as costs incurred in developing the program. The Mount Snow EB-5 program must be approved by both the State of Vermont Regional Business Center and the USCIS. We have received approval from both the State of Vermont’s Regional Business Center and the USCIS.
The West Lake Project includes the construction of a new water storage reservoir for snowmaking with capacity of up to 120 million gallons, three new pump houses and the installation of snowmaking pipelines, trail upgrades and expansion, new ski lift and ancillary equipment. The Carinthia Ski Lodge Project includes the construction of Carinthia Ski Lodge, a new three-story, approximately 36,000-square foot skier service building located at the base of the Carinthia slopes. Carinthia
Ski Lodge will include a restaurant, cafeteria and bars with seating for over 600 people, a retail store, convenience store and sales center for lift tickets and rentals. The anticipated overall cost of the Projects is $66.0 million, of which $52.0 million is intended to be funded with the proceeds from the EB-5 offering. The remaining $14.0 million has been provided by Mount Snow with investments in land, snow gun installations, and improved snowmaking technology.
The Partnership has offered the units to investors primarily located in China, Taiwan, Vietnam and certain countries in the Middle East either directly or through relationships with agents qualified in their respective countries, in which case the Partnership typically pays a sales commission. Once an investor’s subscription and funds are accepted by the Partnership, the investor must file a petition (‘‘I-526 Petition’’) with the USCIS seeking, among other things, approval of the investment’s suitability under the EB-5 program requirements and the investor’s suitability and source of funds. All investments will be held in a non-interest bearing escrow account and will not be released until the USCIS approves the first I-526 Petition filed by an investor in the Partnership.
As of
July
3
1
, 2016, we had commitments for $5
0.5
million in Partnership investments, all of which has been funded and is being held in escrow
. We
have had 3
investors withdraw for personal reasons
during the first quarter of 2017
, which is allowed under the program while the fund are still in escrow.
It is the Company’s intent to replace the withdrawn funds with funds from new investors.
Two
additional investors
have
submitted the appropriate documentation and funds
subsequent to
July 31, 2016.
A third investor has submitted the documentation and
is expected to wire funds.
The first investor’s I-526 Petition was filed in May 2014 and is pending approval by the USCIS. The Projects commenced in the second half of calendar year 2015, and due to the delay in the investor’
s
I-526 petition approval, we now estimate that the Projects will be substantially completed in advance of the 2017-2018 ski season.
Due to the Company still waiting on the first investor’s I-526 Petition to be approved by the USCIS, as well as the unseasonably warm weather during the 2015/2016 ski season which drove down revenue compared to the prior season, the Company’s Board of Directors decided it was not prudent to declare a dividend in the first quarter of 2017.
The Company’s board of directors declared
a
cash dividends of $0.1375
during the
three
-month period ended
July
3
1
, 201
5
. The dividend w
as
payable on August 21, 2015
to shareholders of record on July 10, 2015. We cannot assure you that this initial dividend rate will be reinstated or that we will continue to pay dividends in the future. The declaration and payment of future dividends will be at the sole discretion of our board of directors and will depend on many factors, including our actual results of operations, financial condition, capital requirements, contractual restrictions, restrictions in our debt agreements, economic conditions and other factors that could differ materially from our current expectations.
The Master Credit Agreement includes financial covenants consisting of a maximum Leverage Ratio (as defined in the Master Credit Agreement) of 65%, above which the Company and certain of its subsidiaries are prohibited from incurring additional indebtedness, and a Consolidated Fixed Charge Coverage Ratio (as defined in the Master Credit Agreement) covenant, which (a) requires the Company to increase the balance of its debt service reserve account if the Company's Consolidated Fixed Charge Coverage Ratio falls below 1.50:1.00, and (b) prohibits the Company from paying dividends if the ratio is below 1.25:1.00. The payment of dividends is also prohibited during default situations under the terms of the Master Credit Agreement. Furthermore, our results of operations and financial condition could be materially and adversely affected by the factors described in th
e
"Risk Factors" section
of our Annual Report on Form 10-K and the “Risk Factors” section of this Quarterly Report on Form 10-Q
, which could limit our ability to pay dividends in the future. As of our most recent fiscal year end
and the quarter ended July 31, 2016
,
the Company’s
fixed charge ratio fell below the 1:50:1:00 coverage ratio, but was above the 1.25:1.00 ratio. As a result,
the Company is
required increase the balance of our debt service reserve account by $3.3 million. EPR has agreed to delay the additional interest reserve payment until the 2016/2017 ski season
, with 1/3 due in January 2017, 1/3 due in February 2017, and 1/3 due in March 2017
.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors
.
Forward-Looking Statements
Except for any historical information contained herein, the matters discussed in this Form 10-Q contain certain “forward-looking statements'' within the meaning of the federal securities laws. This includes statements regarding our future financial position, economic performance, results of operations, business strategy, budgets, projected costs, plans and objectives of management for future operations, and the information referred to under “Management's Discussion and Analysis of Financial Condition and Results of Operations''.
These forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,'' “will,'' “expect,'' “intend,'' “estimate,'' “anticipate,'' “believe,'' “continue'' or similar terminology, although not all forward-looking statements contain these words
.
These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control
.
Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict
.
Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements
.
Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this Form 10-Q
.
Important factors that could cause actual results to differ materially from our exp
ectations include, among others
:
|
·
|
|
weather, including climate change;
|
|
·
|
|
competition with other indoor and outdoor winter leisure activities and ski resorts;
|
|
·
|
|
the leases and permits for property underlying certain of our ski resorts;
|
|
·
|
|
ability to integrate new acquisitions;
|
|
·
|
|
environmental laws and regulations;
|
|
·
|
|
our dependence on key personnel;
|
|
·
|
|
funds for capital expenditures, including funds raised under the EB-5 program;
|
|
·
|
|
the effect of declining revenues on margins;
|
|
·
|
|
the future development and continued success of our Mount Snow ski resort;
|
|
·
|
|
our reliance on information technology;
|
|
·
|
|
our current dependence on a single lender and the lender's option to purchase certain of our ski resorts;
|
|
·
|
|
our dependence on a seasonal workforce; and
|
|
·
|
|
the securities markets,
|
In addition to other factors and matters contained or incorporated in this document, we believe the following factors related to the Investor Private Placement could cause actual results to differ materially from those discussed in the forward-looking statements:
|
·
|
|
the occurrence of any event, change or other circumstances that could give rise to the termination of the Purchase Agreement;
|
|
·
|
|
the failure or inability to complete the Investor Private Placement due to the failure to satisfy any conditions to closing of the Investor Private Placement or otherwise;
|
|
·
|
|
business uncertainty and contractual restrictions during the pendency of the Investor Private Placement;
|
|
·
|
|
the amount of the costs, fees, expenses and charges related to the Investor Private Placement, including any fees and expenses due upon the termination of the Purchase Agreement;
|
|
·
|
|
diversion of management’s attention from ongoing business concerns;
|
|
·
|
|
the effect of the announcement of the Investor Private Placement on our business and customer relationships, operating results and business generally, including our ability to retain key employees;
|
|
·
|
|
risks that the proposed Investor Private Placement disrupts current plans and operations; and
|
|
·
|
|
the possible adverse effect on our business and the price of our common stock if the Investor Private Placement is not completed in a timely fashion or at all.
|
You should also refer to
Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K and
Part II, Item 1A, “Risk Factors”,
of this Form 10-Q for a discussion of factors that may cause our actual results to differ materially from those
expressed or implied by our forward-looking statements
.
As a result of these factors, we cannot assure you that the forward-looking statements in this Form 10-Q will prove to be accurate, Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material
.
In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time-frame, or at all.