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Section 1: 10-Q (QUARTERLY REPORT)

20141031 10Q Q2 Filing

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2014.

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                   to                  .

Commission file number 001-35363

Peak Resorts, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Missouri

 

43-1793922

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

17409 Hidden Valley Drive

 

63025

Wildwood, Missouri

 

(Zip Code)

(Address of principal executive offices)

 

 

 

(636) 938-7474
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer

Non-accelerated filer     (Do not check if a smaller reporting company)Smaller reporting company 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes   No

As of January 5, 2015, 13,982,400 shares of the registrant’s common stock were outstanding.


 

TABLE OF CONTENTS

PART I FINANICAL INFORMATION

 

 

 

 

 

 

 

 

Page

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of October 31, 2014 (unaudited) and April 30, 2014

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Loss for the Three and Six Months Ended October 31, 2014 and 2013 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended October 31, 2014 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended October 31, 2014 and 2013 (unaudited)

 

6

 

 

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

26

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

26

 

 

 

 

 

 

Part II

OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

27

 

 

 

 

 

 

Item 1A.

Risk Factors

 

27

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

39

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

39

 

 

 

 

 

 

Item 5.

Other Information

 

39

 

 

 

 

 

 

Item 6.

Exhibits

 

39

 

 

 

 

 

 

SIGNATURES

 

40

 

 

 

 

 

EXHIBIT INDEX

 

41

 

 

 

 

 

 


 

 

 

PART IFINANCIAL INFORMATION

 

Item 1.    Financial Statements

Peak Resorts Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

October 31,

 

 

April 30,

 

 

 

 

2014

 

 

2014

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,109 

 

$

13,186 

 

Restricted cash balances

 

 

15,954 

 

 

13,063 

 

Deferred income taxes

 

 

875 

 

 

875 

 

Income tax receivable

 

 

9,528 

 

 

 -

 

Accounts receivable

 

 

220 

 

 

396 

 

Inventory

 

 

2,765 

 

 

1,541 

 

Prepaid expenses and deposits

 

 

2,167 

 

 

1,433 

 

 

 

 

37,618 

 

 

30,494 

 

Property and equipment-net

 

 

138,403 

 

 

136,696 

 

Land held for development

 

 

36,932 

 

 

36,877 

 

Other assets

 

 

3,502 

 

 

3,224 

 

 

 

$

216,455 

 

$

207,291 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

7,871 

 

$

5,050 

 

Accrued salaries, wages and related taxes and benefits

 

 

945 

 

 

886 

 

Unearned revenue

 

 

14,556 

 

 

7,458 

 

EB-5 investor funds in escrow

 

 

12,801 

 

 

 -

 

Current portion of deferred gain on sale/leaseback

 

 

333 

 

 

333 

 

Current portion of long-term debt and capitalized lease obligation

 

 

1,325 

 

 

1,059 

 

 

 

 

37,831 

 

 

14,786 

 

Long-term debt

 

 

174,403 

 

 

174,652 

 

Capitalized lease obligation

 

 

1,646 

 

 

191 

 

Deferred gain on sale/leaseback

 

 

3,678 

 

 

3,844 

 

Deferred income taxes

 

 

9,682 

 

 

9,682 

 

Other liabilities

 

 

630 

 

 

648 

 

Stockholders' Equity

 

 

 

 

 

 

 

Common stock, $.01 par value, 20,000,000 shares authorized, 3,982,400 shares issued

 

 

40 

 

 

40 

 

Additional paid-in capital

 

 

385 

 

 

385 

 

Retained earnings (deficit)

 

 

(11,840)

 

 

3,063 

 

 

 

 

(11,415)

 

 

3,488 

 

 

 

$

216,455 

 

$

207,291 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

3

 


 

Peak Resorts, Inc. and Subsidiaries

Condensed Consolidated Statements of Loss (Unaudited)

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
October 31,

 

 

Six months ended
October 31,

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

6,230 

 

$

6,187 

 

$

11,826 

 

$

11,207 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Resort operating expenses

 

 

11,151 

 

 

10,839 

 

 

21,597 

 

 

20,577 

Depreciation and amortization

 

 

2,308 

 

 

2,287 

 

 

4,614 

 

 

4,574 

General and administrative expenses

 

 

947 

 

 

820 

 

 

2,033 

 

 

1,655 

Land and building rent

 

 

357 

 

 

349 

 

 

714 

 

 

696 

Real estate and other taxes

 

 

454 

 

 

460 

 

 

931 

 

 

948 

 

 

 

15,217 

 

 

14,755 

 

 

29,889 

 

 

28,450 

Other Operating Income-gain on settlement of lawsuit

 

 

2,100 

 

 

 -

 

 

2,100 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from Operations

 

 

(6,887)

 

 

(8,568)

 

 

(15,963)

 

 

(17,243)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest, net of interest capitalized of $157 and $286  in 2014 and $76 and $126 in 2013

 

 

(4,298)

 

 

(4,262)

 

 

(8,640)

 

 

(8,536)

Gain on sale/leaseback

 

 

83 

 

 

83 

 

 

166 

 

 

166 

Investment income

 

 

 

 

 

 

 

 

 

 

 

(4,212)

 

 

(4,177)

 

 

(8,468)

 

 

(8,364)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income tax (benefit)

 

 

(11,099)

 

 

(12,745)

 

 

(24,431)

 

 

(25,607)

Income tax benefit

 

 

(4,356)

 

 

(5,005)

 

 

(9,528)

 

 

(9,986)

Net loss

 

$

(6,743)

 

$

(7,740)

 

$

(14,903)

 

$

(15,621)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$

(1.69)

 

$

(1.94)

 

$

(3.74)

 

$

(3.92)

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

4

 


 

Peak Resorts Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

(In thousands except shares)

Six Months ended October 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Retained

 

 

 

 

 

 

Shares

 

Dollars

 

Capital

 

Earnings (deficit)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, May 1, 2014

 

 

3,982,400 

 

$           40

 

$                   385

 

$                     3,063

 

 

$               3,488

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 -

 

 -

 

 -

 

(14,903)

 

 

(14,903)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, October 31, 2014

 

 

3,982,400 

 

$           40

 

$                   385

 

$                 (11,840)

 

 

$            (11,415)

See Notes to Unaudited Condensed Consolidated Financial Statements. 

5

 


 

Peak Resorts, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Six Months ended October 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

 

2013

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net loss

 

$

(14,903)

 

$

(15,621)

 

Adjustments to reconcile net loss to net cash

 

 

 

 

 

 

 

used in operating activities:

 

 

 

 

 

 

 

 Depreciation and amortization of property and equipment

 

 

4,587 

 

 

4,540 

 

 Amortization and writeoff of deferred financing costs

 

 

27 

 

 

34 

 

 Amortization of other liabilities

 

 

(18)

 

 

(18)

 

 Gain on sale/leaseback

 

 

(166)

 

 

(166)

 

Changes in operating assets and liabilities, net of effect of acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Income tax receivable

 

 

(9,528)

 

 

(9,986)

 

  Accounts receivable

 

 

176 

 

 

48 

 

  Inventory

 

 

(1,224)

 

 

(1,046)

 

  Prepaid expenses and deposits

 

 

(734)

 

 

(333)

 

  Other assets

 

 

(303)

 

 

(6)

 

  Accounts payable and accrued expenses

 

 

2,821 

 

 

882 

 

  Accrued salaries, wages and related taxes and benefits

 

 

59 

 

 

28 

 

  Unearned revenue

 

 

7,098 

 

 

8,874 

 

 

 

 

 

 

 

 

 

   Net cash used in operating activities

 

 

(12,108)

 

 

(12,770)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(4,442)

 

 

(1,392)

 

Additions to land held for development

 

 

(55)

 

 

(1,203)

 

Change in restricted cash

 

 

(2,891)

 

 

9,137 

 

   Net cash (used in) provided by investing activities

 

 

(7,388)

 

 

6,542 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

Payments on long-term debt and capitalized lease obligation

 

 

(382)

 

 

(206)

 

Additions to EB-5 investor funds held in escrow

 

 

12,801 

 

 

 -

 

Distributions to stockholders

 

 

 -

 

 

(40)

 

   Net cash provided by (used in) financing activities

 

 

12,419 

 

 

(246)

 

 

 

 

 

 

 

 

 

Net Decrease in Cash and Cash Equivalents

 

 

(7,077)

 

 

(6,474)

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents, May 1

 

 

13,186 

 

 

11,971 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents, October 31

 

$

6,109 

 

$

5,497 

 

 

 

 

 

 

 

 

 

Supplemental Schedule of Cash Flow Information

 

 

 

 

 

 

 

Cash paid for interest, including  $286 and $126 capitalized in 2014 and 2013, respectively

 

$

8,923 

 

$

8,662 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Noncash Investing

 

 

 

 

 

 

 

and Financing Activities

 

 

 

 

 

 

 

Capital lease agreements to acquire equipment

 

$

1,853 

 

$

373 

 

Acquisition of equipment with long-term borrowings

 

$

 -

 

$

1,266 

 

Alpine Valley improvements financed with long-term borrowings

 

$

 -

 

$

1,453 

 

Land held for development financed with long-term borrowings

 

$

 -

 

$

1,000 

 

 

 

 

 

 

 

 

 

                            See Notes to Unaudited Condensed Consolidated Financial Statements.

6

 


 

 


PEAK RESORTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended October 31, 2014 and 2013

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; and West Dover, Vermont and an eighteen‑hole golf course in West Dover, Vermont. The Company also manages hotels in Bartlett, New Hampshire and West Dover, Vermont and operates a restaurant in Lake Harmony, Pennsylvania.

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 April 30, 2014 audited consolidated financial statements, including notes thereto, as included in the Company’s final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933, as amended, dated November 20, 2014. 

Note 2. New Accounting Standards

Recent accounting pronouncements:  In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013‑11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”). ASU 2013‑11, requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and not combined with deferred tax assets. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), the Company is permitted to adopt the standard for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption and retrospective application is permitted. The Company is currently evaluating the impact of the adoption of ASU 2013‑11 on the consolidated financial statements.

In May 2014, the FASB issued ASU 2014‑09, Revenue from Contracts with Customers (Topic 606) (“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 2014-09 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.

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 FASB 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, and therefore, the adoption did not have a material impact on the Company’s financial position or results of operations.

The income tax receivable is a result of the expected tax rate for the fiscal year ending April 30, 2015 applied to the loss before income tax for the quarters ended July 31 and October 31, 2014. 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 

Long‑term debt at October 31, 2014, April 30, 2014 and pro forma consisted of borrowings pursuant to the loans and other credit facilities discussed below, as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 31, 2014

 

April 30, 2014

 

 

Pro Forma after debt restructure
   

Attitash/Mount Snow Debt; payable in monthly interest only payments at an increasing interest rate (10.93% at October 31, 2014 and April 30, 2014); remaining principal and interest due on April 3, 2027

 

$

63,500 

 

$

63,500 

 

$

51,050 

Mount Snow Development Debt; payable in monthly interest‑only payments at 10.00%; remaining principal and interest due April 1, 2016

 

 

42,907 

 

 

42,907 

 

 

 -

Credit Facility Debt; payable in monthly interest only payments at an increasing interest rate (9.98% at October 31, 2014 and April 30, 2014); remaining principal and interest due on October 29, 2027

 

 

47,029 

 

 

47,029 

 

 

37,562 

Crotched Mountain Debt; payable in monthly interest only payments at an increasing interest rate (10.27% at October 31, 2014 and April 30, 2014); remaining principal and interest due on March 10, 2027

 

 

10,972 

 

 

10,972 

 

 

 -

Sycamore Lake (Alpine Valley) Debt; payable in monthly interest only payments at an increasing interest rate (10.20% at October 31, 2014 and April 30, 2014); remaining principal and interest due on December 19, 2032

 

 

4,550 

 

 

4,550 

 

 

4,550 

Wildcat Mountain Debt; payable in monthly installments of $27,300, including interest at a rate of 4.00%, with remaining principal and interest due on December 22, 2020

 

 

3,877 

 

 

3,962 

 

 

3,877 

Other debt

 

 

2,125 

 

 

2,311 

 

 

2,125 

 

 

 

174,960 

 

 

175,231 

 

 

99,164 

Less: current maturities

 

 

557 

 

 

579 

 

 

557 

 

 

$

174,403 

 

$

174,652 

 

$

98,607 

See Note 8, “Subsequent Events” for a discussion of the restructure of a portion of the Company’s long-term debt.

The Attitash/Mount Snow Debt due April 3, 2027 in the foregoing table represents amounts borrowed by the Company as follows:

$15.7 million borrowed pursuant to a Loan Agreement entered into by and between the Company, as borrower, and EPT Mount Attitash, Inc., as lender, dated as of April 4, 2007, as evidenced by a promissory note in the amount of $15.7 million dated as of April 4, 2007 and modified on October 30, 2007 (collectively, the “Attitash Loan Documents”); and

$59.0 million borrowed pursuant to a Loan Agreement entered into by and between the Company, as borrower, and EPT Mount Snow, Inc., as lender, dated as of April 4, 2007, as modified by the First Modification Agreement by and between such parties, dated as of June 30, 2009 (the “Mount Snow First Modification Agreement”), as evidenced by an amended and restated promissory note in the amount of $59.0 million, dated as of June 30, 2009 (collectively, the “Mount Snow Loan Documents”).

The Company entered into the Attitash Loan Documents and Mount Snow Loan Documents in connection with the 2007 acquisitions of Attitash and Mount Snow. In addition to the funds borrowed on the date of the acquisitions, the Attitash Loan Documents and the Mount Snow Loan Documents provided for $25.0 million of additional borrowing capacity as of the date of the acquisitions to be drawn to fund improvements and capital expenditures at Attitash and Mount Snow, subject to the approval of the lender. At October 31, 2014, $10.0 million remained available to fund approved capital expenditures and improvements in future years.

The $59.0 million borrowed pursuant to the Mount Snow Loan Documents includes $1.2 million of additional funds available under the Mount Snow First Modification Agreement to be used for purposes stipulated by such agreement or other purposes as approved by the lender. No borrowings have been made under this arrangement.

Commencing April 1, 2008 and each April 1 thereafter, the interest rates relating to the debt outstanding under the Attitash Loan Documents and Mount Snow Loan Documents will increase from the prior interest rate measurement date by the lesser of three times the percentage increase in the Consumer Price Index (CPI) or a factor of 1.015 (the “Capped CPI Index”) unless specified debt service coverage ratios are maintained for a period of two consecutive years. If the target debt service coverage ratios are attained and maintained, the interest rate will be 100 basis points lower than it otherwise would have been. For the six months ended October 31, 2014 and the year ended April 30, 2014, the Company has not maintained the specified debt service coverage ratios, and therefore, the interest rates have increased. The target debt service coverage ratio for the six months ended October 31, 2014 and the fiscal year ended April 30, 2014 is 2.0 to 1.0 under both the Mount Snow Loan Documents and the Attitash Loan Documents.

The table below illustrates the range of potential interest rates  for each of the next five years assuming rates are to increase by the Capped CPI Index annually:

Attitash/Mount Snow Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specific Debt Service

 

 

 

Coverage

Rate Effective at April 1:

 

 

Attained

 

Not Attained

2014

 

 

9.93% 

 

10.93% 

2015

 

 

10.09% 

 

11.09% 

2016

 

 

10.24% 

 

11.26% 

2017

 

 

10.39% 

 

11.43% 

2018

 

 

10.54% 

 

11.60% 

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.

The Attitash Loan Documents and the Mount Snow Loan Documents provide for additional interest payments under certain circumstances. Specifically, if the gross receipts of the respective property during any fiscal year exceed an amount determined by dividing the amount of interest otherwise due during that period by 12%, an additional interest payment equal to 12% of such excess is required. Similar to the minimum required interest payments as described above, the parties have agreed that if specific target debt service coverage ratios are achieved for two consecutive years and are maintained, the interest rate used in determining both the amount of the excess gross receipts and the rate applied thereto would be reduced to 11%. No additional interest payments were due for the six months ended October 31, 2014 and the year ended April 30, 2014.

The Mount Snow Development Debt due April 1, 2016 represents obligations incurred to provide financing for the acquisition of land at Mount Snow that is in development stages. On April 4, 2007, the Company and Mount Snow, Ltd., as borrowers, entered into a promissory note in favor of EPT Mount Snow, Inc., as lender, in the amount of $25.0 million, which was later modified by (i) the Modification Agreement dated as of April 1, 2010 to increase the amount of funds available to $41.0 million, (ii) the Second Modification Agreement dated as of July 13, 2012 to change the maturity date to April 1, 2013, and (iii) the Third Modification Agreement dated as of April 1, 2013 to change the maturity date to April 1, 2016 and to acknowledge the outstanding principal and interest owing under the promissory note as of April 1, 2013 (approximately $42.9 million) (collectively, the “Mount Snow Development Loan Documents”). The outstanding balance under the Mount Snow Development Loan Documents accrues interest at a rate of 10.00% annually. Principal payments are required to be made from all proceeds from any sale of development land at Mount Snow with any remaining principal due at maturity.

The Credit Facility Debt due October 29, 2027 represents amounts due pursuant to the Amended and Restated Credit and Security Agreement, dated as of October 30, 2007, among the Company and certain of its affiliates, as borrowers, and EPT Ski Properties, Inc., as lender (the “Credit Facility Agreement”), as modified by the terms of the Loan Agreement among the parties dated July 13, 2012. In connection with entry into the Credit Facility Agreement, the borrowers executed an amended and restated promissory note, dated as of October 30, 2007, in the amount of $31.0 million, which was later modified by (i) a second amended and restated promissory note, dated as of August 5, 2008, which increased the amount of funds available to $41.0 million, (ii) a third amended and restated promissory note, dated as of December 15, 2011, which increased the amount available to $50.0 million, (iii) a fourth amended and restated promissory note, dated as of May 14, 2012, which increased the amount available to approximately $53.0 million, and (v) a fifth amended and restated promissory note, dated as of July 13, 2012, which increased the amount available to approximately $56.0 million (collectively with the Credit Facility Agreement, the “Credit Facility Documents”). At October 31, 2014, approximately $9.0 million remained available under the Credit Facility Documents for approved capital expenditures. The interest rate for borrowings under the Credit Facility Documents increases each October 1 during the term of the Credit Facility Documents, such increase to be the lesser of two times the increase in the CPI or Capped CPI Index.

On each of October 30, 2007 and November 19, 2012, the Company entered into Option Agreements with EPT Ski Properties, Inc., a subsidiary of its lender, Entertainment Properties Trust, Inc., pursuant to which EPT Ski Properties, Inc. has the option to (i) purchase Hidden Valley, Snow Creek, Brandywine, Boston Mills, Alpine Valley and the portion of Paoli Peaks that the Company owns, at the prices set forth in the Option Agreements, and (ii) assume the Company’s lease relating to the portion of Paoli Peaks that the Company leases. According to the terms of the Option Agreements, EPT Ski Properties, Inc. may exercise its option relating to one or more properties on or after April 11, 2011 until the Company satisfies its obligations under the Credit Facility Documents. If EPT Ski Properties, Inc. exercises its option with respect to any of the properties, it is required under the Option Agreements to immediately lease or sublease such properties back to the Company on substantially the same terms as the existing financing or lease arrangements relating to the properties.

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 EPT Ski Properties, Inc. 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, EPT Ski Properties, Inc. has not exercised the option.

The Crotched Mountain Debt due March 10, 2027 noted in the table above represents amounts due to EPT Crotched Mountain, Inc. pursuant to a promissory note made by SNH Development, Inc., the Company’s wholly‑owned subsidiary. The promissory note, dated as of  March 10, 2006 (the “Crotched Mountain Note”), was made in the principal amount of $8.0 million, the proceeds of which were used to pay off all outstanding debt secured by the Crotched Mountain ski resort and for general working capital purposes. The Crotched Mountain Note was amended on July 13, 2012 to increase the funds available to approximately $11.0 million. The interest rate applicable to the outstanding debt under the Crotched Mountain Note increases each April 1 during the term of the Crotched Mountain Note, such increase to be the lesser of the rate of interest in the previous year multiplied by the Capped CPI Index or the sum of the rate of interest in the previous year plus the product of (x) the rate of interest in the previous year and (y) the percentage increase in the CPI from the CPI in effect on April 1 of the current year over the CPI in effect on the April 1 of the immediately preceding year.

The Sycamore Lake (Alpine Valley) Debt due December 19, 2032 represents amounts due to EPT Ski Properties, Inc. pursuant to the Loan Agreement between Sycamore Lake, Inc. and EPT Ski Properties, Inc., dated as of November 19, 2012, as modified by the First Amendment to Loan Agreement dated July 26, 2013. On November 19, 2012, Sycamore Lake entered into a promissory note in favor of EPT Ski Properties, Inc. (the “Sycamore Lake (Alpine Valley) Note”) in the principal amount of approximately $5.1 million, the proceeds of which were used to acquire the outstanding stock of Sycamore Lake, Inc. and to finance the expansion of the Alpine Valley ski resort. The interest rate applicable to the outstanding debt under the Sycamore Lake (Alpine Valley) Note increases each December 19 during the term of the Sycamore Lake (Alpine Valley) Note, such increase to be the lesser of three times the percentage increase in the CPI from the previous December 19 or 2.0%.

The debt agreements discussed above contain various restrictions, including distributions. The Company may declare and pay cash dividends to its shareholders as long as no Potential Default or Event of Default, as defined in the Security Agreement, exists prior to or as a result from paying a dividend.

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 rates increase by the Capped CPI Index:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit

 

Crotched

 

Sycamore Lake

Rate effective April 1:

 

 

Facility Debt

 

Mountain Debt

 

(Alpine Valley)

2014

 

 

9.98% 

 

10.27% 

 

10.20% 

2015

 

 

10.13% 

 

10.42% 

 

10.40% 

2016

 

 

10.28% 

 

10.58% 

 

10.61% 

2017

 

 

10.43% 

 

10.74% 

 

10.82% 

2018

 

 

10.59% 

 

10.90% 

 

11.04% 

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%.

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 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

October 31, 2014

 

 

Pro Forma (Note 8)

 

 

 

 

 

 

 

2015

 

$

557 

 

$

557 

2016

 

 

43,469 

 

 

562 

2017

 

 

816 

 

 

816 

2018

 

 

546 

 

 

546 

2019

 

 

599 

 

 

599 

Thereafter

 

 

128,973 

 

 

96,084 

 

 

$

174,960 

 

$

99,164 

 

 

 

 

Note 5. 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 6. 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.

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 $512,000 and $1,003,700 for the three and six months ended October 31, 2014, resprctively and $532,400 and $1,006,700 for the three and six months ended October 31, 2013, 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 October 31, 2014 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

Operating

 

 

Leases

 

Leases

2015

 

$

957 

 

$

1,687 

2016

 

 

614 

 

 

1,609 

2017

 

 

464 

 

 

1,562 

2018

 

 

445 

 

 

1,562 

2019

 

 

402 

 

 

1,561 

Thereafter

 

 

 

 

11,445 

 

 

 

2,882 

 

$

19,426 

Less: amount representing interest

 

 

468 

 

 

 

 

 

 

2,414 

 

 

 

Less: current portion

 

 

768 

 

 

 

Long-term portion

 

$

1,646 

 

 

 

 

 

 

 

Note 7. Loss Per share

The computation of basic and diluted loss per share for the three and six month periods ended October 31, 2014 and 2013 is as follows (in thousands except share and per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months ended

 

 

Six Months ended

 

 

October 31, 2014

 

October 31, 2013

 

October 31, 2014

 

October 31, 2013

Net loss

 

$

(6,743)

 

$

(7,740)

 

$

(14,903)

 

$

(15,621)

Weighted number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding for basic and diluted loss per share

 

 

3,982,400 

 

 

3,982,400 

 

 

3,982,400 

 

 

3,982,400 

Basic and diluted loss per share

 

$

(1.69)

 

$

(1.94)

 

$

(3.74)

 

$

(3.92)

 

 

 

 

Note 8. Subsequent Events

             On November 4, 2014,  the Company’s board of directors adopted the Peak Resorts, Inc. 2014 Equity Incentive Plan (the ‘‘Incentive Plan’’), and on November 5, 2014, the Company’s stockholders approved the Incentive Plan. The Incentive Plan became effective concurrently with the completion of the Company’s initial public offering. The stockholders approved a maximum of 559,296 shares to be available for issuance under the Incentive Plan. The Incentive Plan authorizes the Company to grant Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Stock Bonuses, Other Stock Based Awards, Cash Awards, or any combination thereof, as defined in and allowed by the Incentive Plan.

 

            On November 8, 2014, the Company’s board of directors approved a 100 for 1 common stock split which was effected immediately prior to the consummation of the initial public offering. All references to shares in the financial statements and the accompanying notes, including, but not limited to, the number of shares and per share amounts, unless otherwise noted, have been adjusted to reflect the stock split retroactively.

 

On November 10, 2014, in connection with the Company’s initial public offering, the Company entered into a Restructure Agreement (the “Restructure Agreement”) with EPR Properties (“EPR”), its 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 SEC 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.

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 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 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.

                The initial public offering of the Company’s common stock was effective on November 20, 2014. In connection with the offering, the Company sold 10,000,000 shares of its common stock at $9.00 per share. The net proceeds of the offering are as follows  (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

Gross offering proceeds

$

90,000 

Underwriters discount and commission

 

(6,300)

Costs of the offering

 

(1,428)

Net proceeds

$

82,272 

 

 

 

 

 

 

 

 

 

 

 

On December 8, 2014, the Company declared a cash dividend of 10.91 cents per share of common stock. The dividend is payable on February 20, 2015, to stockholders of record on January 2, 2015. The declared amount was calculated based on an initial quarterly rate of 13.75 cents per share, prorated for a 73-day period from the November 20, 2014, effective date of the company’s initial public offering through January 31, 2015, the end of the company’s third fiscal quarter. The current indicated annual dividend would be 55 cents per share.

 

 

 

 

 

7

 


 

 

 

 

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 our prospectus filed with the Securities and Exchange Commission (the “SEC”), pursuant to Rule 424(b) under the Securities Act of 1933 (the “Securities Act”), as amended, dated November 20, 2014. 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 “Cautionary Note About 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 13 ski resorts primarily located in the Northeast and Midwest, 12 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 ten ski resorts since our incorporation in 1997, and we expect to continue executing this strategy.

 

Factors Affecting our Business

 

Economic Conditions. Weak economic conditions in the U.S. could have a material adverse effect on our industry. An economic downturn could reduce consumer spending on recreational activities such as those our resorts offer, resulting in decreased skier visits and consumer spending at our ski resorts. Such events could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows. In addition, we may be unable to increase the price of our lift tickets, season passes or other offerings during an economic downturn despite our history of being successful in raising such prices under a variety of economic conditions.

 

Weather. The ability to attract visitors to our resorts is influenced by weather conditions and by the number of cold weather days during the ski season. Unseasonably warm weather can adversely affect skier visits and our revenue and profits. For example, warm weather may result in inadequate natural snowfall and render snowmaking wholly or partially ineffective in maintaining quality skiing conditions. Also, the early season snow conditions and skier perceptions of early season snow conditions influence the momentum and success of the overall season. There is no way for us to predict future weather patterns or the impact that weather patterns may have on our results of operations or visitation.

 

Seasonality and Fluctuations in Quarterly Results. Our resort operations are highly seasonal. Although the air temperatures and timing and amount of snowfall can influence the number and type of skier visits, the majority of the skier visits are from mid-December to early April. Our resorts typically experience operating losses and negative cash flows during the first and second quarters of each fiscal year as a result of the seasonality of our business. Operating results for any three-month period are not indicative of the results that may be achieved for any subsequent quarter or for a full fiscal year.

 

A high degree of seasonality in our revenues and our dependence on weekends and the three major ski holidays increases the impact of certain events on our operating results. Adverse weather conditions, equipment failures, and other developments of even moderate or limited duration occurring during these peak business periods could significantly reduce our revenues.

 

Variation in peak periods. Depending on how peak periods, holidays and weekends fall on the calendar, in any given year we may have more or fewer peak periods, holidays and weekends in our third fiscal quarter compared to prior years, with a corresponding difference in our fourth fiscal quarter. These differences can result in material differences in our quarterly results of operations and affect the comparability of our results of operations.

 

Competition. The skiing industry is highly competitive and capital intensive. Our ski resorts located in the Northeastern U.S., such as Mount Snow, Attitash and Wildcat Mountain, and those located in the Southeastern U.S. (which includes Pennsylvania for purposes of ski industry statistics), such as Jack Frost and Big Boulder, compete against other ski resorts in their markets for both day and overnight drive skiers. Our competitive position depends on a number of factors, such as the quality and coverage of snowmaking operations, resort size, the attractiveness of terrain, lift ticket prices, prevailing weather conditions, the appeal of related services and resort reputation. Some of our competitors have stronger competitive positions in respect of one or more of these factors, which may adversely affect our ability to maintain or grow our customer base.

 

We believe that while our Midwestern U.S. ski resorts face only limited competition from other ski resorts in the area, our competitors in the Midwest primarily include other recreation resorts, including warm weather resorts and various alternative leisure activities. Our resorts in the Northeastern and Southeastern U.S. face similar competition, in addition to the competition outlined above. Our ability to maintain our levels of skier visits depends on, among other things, weather conditions, costs of lift tickets and related skier services relative to the costs of other leisure activities and our ability to attract people interested in recreational sports.

 

Consumer tastes and preferences. Our success depends on our ability to attract visitors to our ski resorts. Changes in consumer tastes and preferences, particularly those affecting the popularity of skiing, snowboarding and tubing, and other social and demographic trends could adversely affect the number of skier visits during a ski season. Furthermore, a reduction in average household income in some of the areas near our resorts, compared to historic levels, combined with the increasing cost of skiing, snowboarding and tubing, may make these activities unaffordable for a large percentage of that population. A significant decline in skier visits compared to historical levels would have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

 

Recent Events

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 (of which $0.4 million was deferred as of October 31, 2014), 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 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 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.

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 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.

 

Results of Operations

 

The following historical unaudited consolidated statements of operations during the three and six months ended October 31, 2014 and 2013 have been derived from the condensed unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

 

Comparison of Operating Results for the Three Months Ended October 31, 2013 and 2014 

 

The following table presents our condensed unaudited consolidated statements of operations for the three months ended October 31, 2014 and 2013 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
October 31,

 

 

 

 

 

 

 

 

2014

 

 

2013

 

 

$ change

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

6,230 

 

$

6,187 

 

$

43 

 

0.7% 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

Resort operating expenses

 

 

11,151 

 

 

10,839 

 

 

312 

 

2.9% 

Depreciation and amortization

 

 

2,308 

 

 

2,287 

 

 

21 

 

0.9% 

General and administrative expenses

 

 

947 

 

 

820 

 

 

127 

 

15.5% 

Land and building rent

 

 

357 

 

 

349 

 

 

 

2.3% 

Real estate and other taxes

 

 

454 

 

 

460 

 

 

(6)

 

-1.3%

 

 

 

15,217 

 

 

14,755 

 

 

462 

 

3.1% 

Other operating income-gain on settlement of lawsuit

 

 

2,100 

 

 

 -

 

 

2,100 

 

100% 

Loss from Operations

 

 

(6,887)

 

 

(8,568)

 

 

1,681 

 

-19.6%

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest, net of interest capitalized of $157  and $76 in 2014 and 2013, respectively

 

 

(4,298)

 

 

(4,262)

 

 

(36)

 

0.8% 

Gain on sale/leaseback

 

 

83 

 

 

83 

 

 

 -

 

0.0% 

Investment income

 

 

 

 

 

 

 

50.0% 

 

 

 

(4,212)

 

 

(4,177)

 

 

(35)

 

0.8% 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income tax (benefit)

 

 

(11,099)

 

 

(12,745)

 

 

1,646 

 

12.9% 

Income tax benefit

 

 

(4,356)

 

 

(5,005)

 

 

649 

 

13.0% 

Net loss

 

$

(6,743)

 

$

(7,740)

 

$

997 

 

-12.9%

Total reported EBITDA

 

$

(6,480)

 

$

(6,241)

 

$

(239)

 

-3.8%

 

 

 

Revenue increased $0.04 million, or 0.7%, for the three months ended October 31, 2014 compared to the three months ended October 31, 2013. The increase is a result an increase in summer visits.

Resort operating expenses increased $0.3 million, or 2.9%, for the three months ended October 31, 2014 compared to the three months ended October 31, 2013 primarily as a result of an increase in salaries and wages of $0.1 million and an increase in workman’s compensation insurance expense of $0.2 million. Salary and wage expense increased as a result of wage increases for full time employees implemented in October 2013. The increase in workman’s compensation expense is a result of an increase in rates.

General and administrative expenses increased $0.1 million, or 15.5%, for the three months ended October 31, 2014 compared to the three months ended October 31, 2013 primarily due to an increase in legal fees related to litigation settled in the second quarter of fiscal 2015. The charge related to the ultimate settlement of this litigation was recognized in the consolidated financial statements for the year ended April 30, 2014.

The Company settled a lawsuit in the three months ended October 31, 2014 which resulted in $2.1 million of income.

The increase in interest expense, net of $0.04 million, was a result of an increase in interest rates for the three months ended October 31, 2014 compared to the three months ended October 31, 2013.

Income tax benefit decreased $0.6 million as a result of an decrease in the loss before income tax benefit of $1.6 million for the three months ended October 31, 2014 compared to the three months ended October 31, 2013.

 

 

Comparison of Operating Results for the Six Months Ended October 31, 2014 and 2013 

 

The following table presents our condensed unaudited consolidated statements of operations for the six months ended October 31, 2014 and 2013 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended
October 31,

 

 

 

 

 

 

 

 

2014

 

 

2013

 

 

$ change

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

11,826 

 

$

11,207 

 

$

619 

 

5.5% 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

Resort operating expenses

 

 

21,597 

 

 

20,577 

 

 

1,020 

 

5.0% 

Depreciation and amortization

 

 

4,614 

 

 

4,574 

 

 

40 

 

0.9% 

General and administrative expenses

 

 

2,033 

 

 

1,655 

 

 

378 

 

22.8% 

Land and building rent

 

 

714 

 

 

696 

 

 

18 

 

2.6% 

Real estate and other taxes

 

 

931 

 

 

948 

 

 

(17)

 

-1.8%

 

 

 

29,889 

 

 

28,450 

 

 

1,439 

 

5.1% 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,063)

 

 

(17,243)

 

 

(820)

 

-4.8%

Other operating income-gain on settlement of lawsuit

 

 

2,100 

 

 

 -

 

 

2,100 

 

100.0% 

Loss from Operations

 

 

(15,963)

 

 

(17,243)

 

 

1,280 

 

-7.4%

Other Income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest, net of interest capitalized of $286  and $126 in 2014 and 2013, respectively

 

 

(8,640)

 

 

(8,536)

 

 

(104)

 

1.2% 

Gain on sale/leaseback

 

 

166 

 

 

166 

 

 

 -

 

0.0% 

Investment income

 

 

 

 

 

 

 -

 

0.0%