Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

20160131 10Q Q3

 

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 January 31, 2016.

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 March 14, 2016,  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 January 31, 2016 (unaudited) and April 30, 2015

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (Loss) for the Three and Nine Months Ended January 31, 2016 and 2015 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended January 31, 2016 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2016 and 2015 (unaudited)

 

6

 

 

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

 

Item 2.

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

 

17

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

30

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

30

 

 

 

 

 

 

Part II

OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

31

 

 

 

 

 

 

Item 1A.

Risk Factors

 

31

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

31

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

31

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

31

 

 

 

 

 

 

Item 5.

Other Information

 

31

 

 

 

 

 

 

Item 6.

Exhibits

 

31

 

 

 

 

 

 

SIGNATURES

 

32

 

 

 

 

 

EXHIBIT INDEX

 

33

 

 

 

 

 

 


 

 

 

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)

 

 

 

 

 

 

 

January 31,

 

 

April 30,

 

 

 

 

2016

 

 

2015

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,461 

 

$

16,849 

 

Restricted cash balances

 

 

55,520 

 

 

37,519 

 

Income tax receivable

 

 

6,564 

 

 

 -

 

Accounts receivable

 

 

1,458 

 

 

1,639 

 

Inventory

 

 

3,585 

 

 

1,583 

 

Deferred income taxes

 

 

970 

 

 

970 

 

Prepaid expenses and deposits

 

 

2,704 

 

 

1,930 

 

 

 

 

82,262 

 

 

60,490 

 

Property and equipment-net

 

 

183,838 

 

 

143,944 

 

Land held for development

 

 

37,534 

 

 

35,780 

 

Other assets

 

 

11,908 

 

 

1,326 

 

 

 

$

315,542 

 

$

241,540 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Acquisition line of credit

 

$

15,500 

 

$

 -

 

Accounts payable and accrued expenses

 

 

23,205 

 

 

8,218 

 

Accrued salaries, wages and related taxes and benefits

 

 

2,168 

 

 

927 

 

Unearned revenue

 

 

16,661 

 

 

8,606 

 

EB-5 investor funds in escrow

 

 

52,004 

 

 

30,002 

 

Current portion of deferred gain on sale/leaseback

 

 

333 

 

 

333 

 

Current portion of long-term debt and capitalized lease obligation

 

 

2,738 

 

 

999 

 

 

 

 

112,609 

 

 

49,085 

 

Long-term debt

 

 

118,168 

 

 

97,569 

 

Capitalized lease obligation

 

 

4,972 

 

 

1,494 

 

Deferred gain on sale/leaseback

 

 

3,262 

 

 

3,511 

 

Deferred income taxes

 

 

11,543 

 

 

8,831 

 

Other liabilities

 

 

585 

 

 

612 

 

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

 

 

82,538 

 

 

82,538 

 

Accumulated Deficit

 

 

(18,275)

 

 

(2,240)

 

 

 

 

64,403 

 

 

80,438 

 

 

 

$

315,542 

 

$

241,540 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

3


 

Peak Resorts, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Loss) (Unaudited)

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

Three months ended
January 31,

 

 

Nine months ended
January 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

38,667 

 

$

45,985 

 

$

50,254 

 

$

57,811 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Resort operating expenses

 

 

25,346 

 

 

27,198 

 

 

46,336 

 

 

48,795 

Depreciation and amortization

 

 

2,558 

 

 

2,451 

 

 

7,471 

 

 

7,065 

General and administrative expenses

 

 

1,104 

 

 

1,046 

 

 

3,069 

 

 

3,079 

Land and building rent

 

 

357 

 

 

351 

 

 

1,033 

 

 

1,065 

Real estate and other taxes

 

 

664 

 

 

441 

 

 

1,545 

 

 

1,372 

 

 

 

30,029 

 

 

31,487 

 

 

59,454 

 

 

61,376 

Other Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

Gain on settlement of lawsuit

 

 

 -

 

 

 -

 

 

 -

 

 

2,100 

Gain on involuntary conversion

 

 

195 

 

 

 -

 

 

195 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (Loss) from Operations

 

 

8,833 

 

 

14,498 

 

 

(9,005)

 

 

(1,465)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest, net of interest capitalized of $83 and $279 in 2016 and $101 and $387 in 2015

 

 

(2,802)

 

 

(4,224)

 

 

(8,080)

 

 

(12,864)

Defeasance fee paid with debt restructure

 

 

 

 

 

(5,000)

 

 

 

 

 

(5,000)

Gain on sale/leaseback

 

 

84 

 

 

84 

 

 

250 

 

 

250 

Investment income

 

 

 -

 

 

 

 

 

 

 

 

 

(2,718)

 

 

(9,139)

 

 

(7,826)

 

 

(17,607)

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (Loss) before income tax benefit

 

 

6,115 

 

 

5,359 

 

 

(16,831)

 

 

(19,072)

Income tax expense (benefit)

 

 

2,415 

 

 

2,090 

 

 

(6,564)

 

 

(7,438)

Net Income (Loss)

 

$

3,700 

 

$

3,269 

 

$

(10,267)

 

$

(11,634)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share

 

$

0.26 

 

$

0.27 

 

$

(0.73)

 

$

(1.76)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.1375 

 

$

0.1091 

 

$

0.4125 

 

$

0.1091 

 

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)

Nine Months ended January 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Dollars

 

 

Capital

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, April 30, 2015

 

 

13,982,400 

 

$

140 

 

$

82,538 

 

$

(2,240)

 

$

80,438 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 -

 

 

 -

 

 

 -

 

 

(10,267)

 

 

(10,267)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

 

 -

 

 

 -

 

 

 -

 

 

(5,768)

 

 

(5,768)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 31, 2016

 

 

13,982,400 

 

$

140 

 

$

82,538 

 

$

(18,275)

 

$

64,403 

See Notes to Unaudited Condensed Consolidated Financial Statements. 

5


 

Peak Resorts, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Nine Months ended January 31,

 

 

 

 

 

 

 

 

 

Nine months ended January 31,

 

 

 

 

 

 

 

 

 

 

2016

 

 

2015

Cash Flows from Operating Activities

 

 

 

 

 

 

Net loss

 

$

(10,267)

 

$

(11,634)

Adjustments to reconcile loss to net cash

 

 

 

 

 

 

provided by (used in) operating activities:

 

 

 

 

 

 

 Depreciation and amortization of property and equipment

 

 

7,471 

 

 

6,988 

 Amortization and write-off of deferred financing costs

 

 

 -

 

 

154 

 Amortization of other liabilities

 

 

(27)

 

 

(27)

 Gain on sale/leaseback

 

 

(250)

 

 

(250)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

  Income tax receivable

 

 

(6,564)

 

 

(7,438)

  Accounts receivable

 

 

181 

 

 

(895)

  Inventory

 

 

(1,661)

 

 

(1,420)

  Prepaid expenses and deposits

 

 

(518)

 

 

(618)

  Other assets

 

 

197 

 

 

(525)

  Accounts payable and accrued expenses

 

 

13,070 

 

 

7,460 

  Accrued salaries, wages and related taxes and benefits

 

 

1,241 

 

 

512 

  Unearned revenue

 

 

5,235 

 

 

6,979 

 

 

 

 

 

 

 

   Net cash provided by (used in) operating activities

 

 

8,108 

 

 

(714)

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

Additions to property and equipment

 

 

(16,626)

 

 

(9,970)

Business Combination (net)

 

 

(33,236)

 

 

 -

Additions to land held for development

 

 

(100)

 

 

(82)

Change in restricted cash

 

 

(18,001)

 

 

(8,939)

   Net cash used in investing activities

 

 

(67,963)

 

 

(18,991)

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

Borrowings on long-term debt and capitalized lease obligation

 

 

3,950 

 

 

 -

Proceeds from Hunter Loan Financing

 

 

36,500 

 

 

 -

Additions to EB-5 investor funds held in escrow

 

 

22,002 

 

 

22,001 

Payment on long-term debt and capital lease obligations

 

 

(1,293)

 

 

(76,606)

Net proceeds from issuance of common stock

 

 

 -

 

 

82,253 

Involuntary conversion of assets

 

 

410 

 

 

 -

Payment of deferred financing costs

 

 

(1,334)

 

 

(198)

Distributions to stockholders

 

 

(5,768)

 

 

 -

   Net cash provided by financing activities

 

 

54,467 

 

 

27,450 

 

 

 

 

 

 

 

Net (Decrease) Increase in Cash and Cash Equivalents

 

 

(5,388)

 

 

7,745 

 

 

 

 

 

 

 

Cash and Cash Equivalents, April 30

 

 

16,849 

 

 

13,186 

 

 

 

 

 

 

 

Cash and Cash Equivalents, January 31

 

$

11,461 

 

$

20,931 

 

 

 

 

 

 

 

Supplemental Schedule of Cash Flow Information

 

 

 

 

 

 

Cash paid for interest, including $279 and $387 capitalized in 2016 and 2015, respectively

 

$

8,351 

 

$

13,036 

 

 

 

 

 

 

 

Supplemental Disclosure of Noncash Investing

 

 

 

 

 

 

and Financing Activities

 

 

 

 

 

 

Capital lease agreements to acquire equipment

 

$

 -

 

$

2,028 

Land held for development financed with long-term borrowings

 

$

100 

 

$

 -

6


 

                            See Notes to Unaudited Condensed Consolidated Financial Statements.

7


 

 


PEAK RESORTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Nine Months Ended January 31, 2016 and 2015

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, 2015. 

Due to a business combination during the period ended January 31, 2016, we now have a material balance related to goodwill on our balance sheet and as such need to disclose our accounting policies associated with goodwill.  The transaction of Hunter Mountain included $10.7 million of goodwill which is included in Other Assets on the balance sheet.  In a business combination, the consideration is first assigned to identifiable assets and liabilities, based on estimated fair values, with any excess recorded as goodwill. Determining fair value requires significant estimates and assumptions based on an evaluation of a number of factors and assistance from third party experts. Goodwill is not amortized and will be assessed for impairment at least annually.  Annual evaluations for the impairment of goodwill are based on valuations models that incorporate assumptions and internal projections of expected future cash flows and operating plans.  The Company believes assumptions are also comparable to those that would be used by other marketplace participants.  Goodwill is written down if the impairment tests imply a reduction in value.  A discussion of the business combination and the related goodwill balance is disclosed below in “Note 5 - Acquisition”. 

 

Note 2. New Accounting Standards

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. In July 2015, the FASB affirmed its proposal to defer the effective date of the new revenue standards for all entities by one year.  The updated standard becomes effective for annual reporting periods beginning after December 15, 2017. Pursuant to the JOBS Act, the Company is permitted to adopt the standard for annual reporting periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. 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 April 2015, the FASB issued guidance in ASU 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt

8


 

liability, and no longer recording these costs as assets. ASU 2015-03 is effective for annual periods beginning after December 15, 2015. As early adoption was permitted, the Company elected to incorporate the early adoption of this guidance into its financial statements filed as part of its first Annual Report on Form 10-K for the year ended April 30, 2015, including applying the guidance retrospectively to all prior periods presented.  The transition method used involved reclassification of the Company’s balance sheet of the unamortized debt issuance costs.  The prior period unamortized debt issuance costs were retrospectively adjusted from an asset to a liability in the financial statements.

In July 2015, the FASB issued guidance in 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 guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our 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.

The income tax receivable is a result of the expected tax rate for the fiscal year ending April 30, 2016 applied to the loss before income tax for the quarters ended July 31, 2015, October 31, 2015 and January 31, 2016. 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 January 31, 2016 and April 30, 2015 consisted of borrowings pursuant to the loans and other credit facilities discussed below, as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited) January 31, 2016

 

April 30, 2015

 

 

 

9


 

Attitash/Mount Snow Debt; payable in monthly interest only payments at an increasing interest rate (10.93% at January 31, 2016 and April 30, 2015 ); 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 January 31, 2016 and April 30, 2015); 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 January 31, 2016); remaining principal and interest due on January 5, 2036

 

 

21,000 

 

 

 -

 

 

 

Sycamore Lake (Alpine Valley) Debt; payable in monthly interest only payments at an increasing interest rate (10.40% at January 31, 2016 and April 30, 2015); 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 

 

 

3,657 

 

 

3,790 

 

 

 

Other debt

 

 

3,306 

 

 

1,931 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less unamortized debt issuance costs

 

 

(2,028)

 

 

(811)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

119,097 

 

 

98,072 

 

 

 

Less: current maturities

 

 

929 

 

 

503 

 

 

 

 

 

$

118,168 

 

$

97,569 

 

 

 

 

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 Securities 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

10


 

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%.  An additional interest payment of $0.2 million was due for the three months ended January 31, 2016.  No additional interest payments were due for the year ended April 30, 2015.

 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.

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

11


 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attitash/Mount Snow Debt

 

Credit Facility Debt

 

Hunter Mountain Debt

 

Sycamore Lake/(Alpine Valley) Debt

 

 

2015 (1)

 

10.93% 

 

10.28% 

 

 -

 

10.56% 

 

 

2016

 

11.09% 

 

10.43% 

 

8.00% 

 

10.71% 

 

 

2017

 

11.26% 

 

10.59% 

 

8.14% 

 

10.88% 

 

 

2018

 

11.43% 

 

10.75% 

 

8.28% 

 

11.04% 

 

 

2019

 

11.60% 

 

10.91% 

 

8.43% 

 

11.20% 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)  For 2015, the dates of the rates presented are as follows: (i) April 1, 2015 for the Attitash/Mount Snow Debt; (ii) October 1, 2015 for the Credit Facility Debt; Jauary 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%.

Hunter 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

12


 

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.

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 reflected by fiscal year are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)    

 

 

 

 

 

 

January 31, 2016

 

 

 

2016 (Remaining)

 

$

140 

 

 

 

2017

 

 

1,220 

 

 

 

2018

 

 

1,822 

 

 

 

2019

 

 

752 

 

 

 

2020

 

 

210 

 

 

 

Thereafter

 

 

116,981 

 

 

 

 

 

$

121,125 

 

 

 

 

 

Deferred financing costs are net of accumulated amortization of $289 and $157 at January 31, 2016 and 2015, respectively. Amortization of deferred financing costs will be $285 the year ending April 30, 2016, $458 for the year ending April 30, 2017 and $82 for each of the three years ending April 30, 2018, 2019 and 2020.

 

13


 

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.

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 January 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.

If the outstanding line of credit debt is not paid in full by the maturity date, and the Company is otherwise is 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 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 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 line of redit debt 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 total consideration of $36.7 million, which includes $35.0 million paid to the sellers in cash and the Company’s assumption of $1.7 million in capitalized lease obligations. The Company incurred approximately $1.4 million in transaction costs, of which $1.3 million 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.”  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 “Line of Credit”.

14


 

Hunter Mountain’s results of operations are included in the accompanying consolidated financial statements for the three and nine months ended January 31, 2016 from the date of acquisition. The preliminary allocation of the purchase price is as follows (in thousands):

 

 

 

 

Cash and cash equivalents

$

1,764 

Inventories

 

341 

Prepaids

 

256 

Buildings and improvements

 

13,300 

Land

 

6,200 

Equipment

 

11,650 

Goodwill

 

10,662 

 Total assets acquired

 

44,173 

Accounts payable and accrued expenses

 

1,918 

Unearned revenue and deposits

 

2,820 

Capital Lease Obligations

 

1,723 

Deferred tax liability

 

2,712 

 Net assets acquired

$

35,000 

 

The purchase price allocation is preliminary, mainly due to continued review of the deferred tax liability and intangibles.  We paid $35.0 million for the transaction and as part of the allocation received $1.8 million in cash, resulting in a net cash change of $33.2 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.  The impact of the deferred tax liability on goodwill was $2.7 million.  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, 2014, the beginning of the Company's 2015 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, 2014. (In thousands except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

Three months ended
January 31,

 

 

Nine months ended
January 31,

 

 

2016

 

 

2015

 

 

2016

 

2015

Net revenues

$

40,302 

 

$

56,265 

 

$

57,385 

$

73,698 

Net earnings (loss)

$

1,761 

 

$

4,370 

 

$

(15,517)

$

(12,893)

Pro forma basic and diluted earnings (loss) per share

$

0.13 

 

$

0.37 

 

$

(1.11)

$

(1.95)

 

 

 

 

 

 

 

 

 

 

 

 

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.

15


 

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 $435 and $1,294 for the three and nine months ended January 31, 2016,  respectively, and $444 and $1,328 for the three and nine months ended January 31, 2015, respectively. The Company also leases certain equipment under capital leases.

Future minimum rentals under all non‑cancelable leases, including Hunter Mountain, with remaining lease terms of one year or more for years subsequent to January 31, 2016 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

Operating

 

 

Leases

 

Leases

2016 (Remaining)

 

$

807 

 

$

433 

2017

 

 

2,132 

 

 

1,649 

2018

 

 

2,064 

 

 

1,612 

2019

 

 

1,919 

 

 

1,574 

2020

 

 

920 

 

 

1,543 

Thereafter

 

 

23 

 

 

10,340 

 

 

 

7,865 

 

$

17,151 

Less: amount representing interest

 

 

1,084 

 

 

 

 

 

 

6,781 

 

 

 

Less: current portion

 

 

1,809 

 

 

 

Long-term portion

 

$

4,972 

 

 

 

 

 

 

 

 

 

 

16


 

 

Note 8.  Earnings  (Loss) Per share

The computation of basic and diluted earnings (loss) per share for the three and nine month periods ended January 31, 2016 and 2015 is as follows (in thousands except share and per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months ended January 31,

 

 

Nine Months ended January 31,

 

 

2016

 

2015

 

2016

 

2015

Net Earnings (loss)

 

$

3,700 

 

$

3,269 

 

$

(10,267)

 

$

(11,634)

Weighted number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding for basic and diluted earnings (loss) per share

 

 

13,982,400 

 

 

11,971,183 

 

 

13,982,400 

 

 

6,627,328 

Basic and diluted earnings (loss) per share

 

$

0.26 

 

$

0.27 

 

$

(0.73)

 

$

(1.76)

 

 

 

 

 

 

 

 

Note 9. Subsequent Events

On February 24, 2016, the Company paid a cash dividend to stockholders of record on January 4, 2016.  The current indicated annualized dividend would be 55 cents per share.

 

 

 

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, 2015. 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 14 ski resorts primarily located in the Northeast and Midwest, 13 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 14 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.

 

17


 

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

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

18


 

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.

 Results of Operations

 

The following historical unaudited consolidated statements of operations during the three and nine months ended January 31, 2016 and 2015 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 January 31, 2016 and 2015

 

The following table presents our condensed unaudited consolidated statements of operations for the three months ended January 31, 2016 and 2015 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
January 31,

 

 

 

 

 

 

 

 

2016

 

 

2015

 

 

$ change

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

  Lift and tubing tickets

 

$

20,717 

 

$

24,652 

 

$

(3,935)

 

-16.0%

  Food and beverage

 

 

5,972 

 

 

7,415 

 

 

(1,443)

 

-19.5%

  Equipment rental

 

 

3,354 

 

 

4,066 

 

 

(712)

 

-17.5%

  Ski instruction

 

 

3,384 

 

 

3,970 

 

 

(586)

 

-14.8%

  Hotel/lodging

 

 

2,080 

 

 

2,358 

 

 

(278)

 

-11.8%

  Retail

 

 

2,133 

 

 

2,622 

 

 

(489)

 

-18.7%

  Other

 

 

1,027 

 

 

902 

 

 

125 

 

13.9% 

 

 

 

38,667 

 

 

45,985 

 

 

(7,318)

 

-15.9%

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

Resort operating expenses

 

 

 

 

 

 

 

 

 

 

 

 Labor and labor related expenses

 

 

13,858 

 

 

13,836 

 

 

22 

 

0.2% 

 Retail and food and beverage cost of sales

 

 

3,426 

 

 

4,331 

 

 

(905)

 

-20.9%

 Power and utilities

 

 

2,478 

 

 

3,245 

 

 

(767)

 

-23.6%

 Other

 

 

5,584 

 

 

5,786 

 

 

(202)

 

-3.5%

 

 

 

25,346 

 

 

27,198 

 

 

(1,852)

 

-6.8%

Depreciation and amortization

 

 

2,558 

 

 

2,451 

 

 

107 

 

4.4% 

General and administrative expenses

 

 

1,104 

 

 

1,046 

 

 

58 

 

5.5% 

Land and building rent

 

 

357 

 

 

351 

 

 

 

1.7% 

Real estate and other taxes

 

 

664 

 

 

441 

 

 

223 

 

50.6% 

 

 

 

30,029 

 

 

31,487 

 

 

(1,458)

 

-4.6%

Other operating income

 

 

 

 

 

 

 

 

 

 

 

Gain on involuntary conversion

 

 

195 

 

 

 -

 

 

195 

 

100.0% 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from Operations

 

 

8,833 

 

 

14,498 

 

 

(5,665)

 

-39.1%

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (expense)

 

 

 

 

 

 

 

 

 

 

 

19


 

Interest, net of interest capitalized of $83 and $101 in 2016 and 2015, respectively

 

 

(2,802)

 

 

(4,224)

 

 

1,422 

 

-33.7%

Defeasance fee paid with debt restructure

 

 

 -

 

 

(5,000)

 

 

5,000