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Section 1: 10-Q (10-Q)

SKIS - 2019 20181031 10Q Q2 (17 UGT)



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, 2018.

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 every Interactive Data File required to be submitted 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, a  smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer

Non-accelerated filer   Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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 December 10, 2018, 15,165,832 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, 2018 (unaudited) and April 30, 2018

 

3

 



 

 

 

 



Condensed Consolidated Statements of Operations for the Three and Six Months Ended October 31, 2018 and 2017 (unaudited)

 

5

 



 

 

 

 



Condensed Consolidated Statements of Cash Flows for the Six Months Ended October 31, 2018 and 2017 (unaudited)

 

6

 



 

 

 

 



Notes to Unaudited Condensed Consolidated Financial Statements

 

8

 



 

 

 

 

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

 

31

 



 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

31

 



 

 

 

 

Item 4.

Mine Safety Disclosures

 

31

 



 

 

 

 

Item 5.

Other Information

 

31

 



 

 

 

 

Item 6.

Exhibits

 

22

 



 

 

 

 

SIGNATURES

 

33

 



 

 

 

EXHIBIT INDEX

 

34

 





 

 

 


 





PART I:  FINANCIAL INFORMATION



Item 1.  Financial Statements

Peak Resorts Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(dollars in thousands, except per share amounts)



 

 

 

 

 

 

 



 

 

October 31,

 

 

April 30,

 

Assets

 

 

2018

 

 

2018

 



 

 

(Unaudited)

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,362 

 

$

23,091 

 

Restricted cash

 

 

1,245 

 

 

1,163 

 

Income tax receivable

 

 

8,857 

 

 

 -

 

Accounts receivable

 

 

764 

 

 

8,560 

 

Inventory

 

 

3,356 

 

 

1,971 

 

Prepaid expenses and deposits

 

 

7,839 

 

 

12,731 

 

Total current assets

 

 

28,423 

 

 

47,516 

 



 

 

 

 

 

 

 

Property and equipment, net

 

 

217,266 

 

 

204,095 

 

Land held for development

 

 

37,646 

 

 

37,634 

 

Restricted cash, construction

 

 

3,006 

 

 

12,175 

 

Goodwill

 

 

4,382 

 

 

4,382 

 

Intangible assets, net

 

 

702 

 

 

731 

 

Other assets

 

 

2,206 

 

 

1,797 

 

Total assets

 

$

293,631 

 

$

308,330 

 



 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Revolving lines of credit

 

$

12,415 

 

$

12,415 

 

Current maturities of long-term debt

 

 

2,151 

 

 

2,614 

 

Accounts payable and accrued expenses

 

 

17,508 

 

 

12,079 

 

Accrued salaries, wages and related taxes and benefits

 

 

947 

 

 

922 

 

Unearned revenue

 

 

22,108 

 

 

16,084 

 

Current portion of deferred gain on sale/leaseback

 

 

333 

 

 

333 

 

Total current liabilities

 

 

55,462 

 

 

44,447 

 



 

 

 

 

 

 

 

Long-term debt, less current maturities

 

 

165,777 

 

 

165,837 

 

Deferred gain on sale/leaseback

 

 

2,346 

 

 

2,512 

 

Deferred income taxes

 

 

7,809 

 

 

7,809 

 

Other liabilities

 

 

486 

 

 

504 

 

Total liabilities

 

 

231,880 

 

 

221,109 

 



 

 

 

 

 

 

 

Series A preferred stock, $0.01 par value per share, $1,000 liquidation

 

 

 

 

 

 

 

preference per share, 40,000 shares authorized, 20,000 shares

 

 

 

 

 

 

 

issued and outstanding

 

 

17,401 

 

 

17,401 

 



 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 



 

 

 

 

 

 

 

3


 

Stockholders' equity:

 

 

 

 

 

 

 

Common stock, $0.01 par value per share, 40,000,000 shares

 

 

 

 

 

 

 

authorized, 13,982,400 shares issued and outstanding

 

 

140 

 

 

140 

 

Additional paid-in capital

 

 

86,738 

 

 

86,631 

 

Accumulated deficit

 

 

(42,528)

 

 

(16,951)

 

Total stockholders' equity

 

 

44,350 

 

 

69,820 

 

Total liabilities and stockholders' equity

 

$

293,631 

 

$

308,330 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


 



Peak Resorts, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(dollars in thousands, except per share amounts)

(Unaudited)





 

 

 

 

 

 

 

 

 

 

 



 

Three months ended
October 31,

 

 

Six months ended
October 31,



 

2018

 

 

2017

 

 

2018

 

 

2017



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Net revenue

$

7,984 

 

$

8,838 

 

$

14,991 

 

$

16,358 



 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Resort operating costs

 

13,718 

 

 

15,121 

 

 

27,989 

 

 

28,660 

Depreciation and amortization

 

3,434 

 

 

3,154 

 

 

6,732 

 

 

6,299 

General and administrative

 

1,903 

 

 

1,529 

 

 

3,159 

 

 

2,777 

Real estate and other non-income taxes

 

605 

 

 

471 

 

 

1,292 

 

 

1,155 

Land and building rent

 

336 

 

 

339 

 

 

672 

 

 

692 

Restructuring charges

 

13 

 

 

 -

 

 

190 

 

 

 -

Loss from operations

 

(12,025)

 

 

(11,776)

 

 

(25,043)

 

 

(23,225)



 

 

 

 

 

 

 

 

 

 

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

Interest, net of amounts capitalized of

 

 

 

 

 

 

 

 

 

 

 

$325 and $498 in 2018 and $514

 

 

 

 

 

 

 

 

 

 

 

and $945 in 2017, respectively

 

(3,346)

 

 

(3,196)

 

 

(6,825)

 

 

(6,207)

Gain on sale/leaseback

 

83 

 

 

83 

 

 

166 

 

 

166 

Other income

 

15 

 

 

34 

 

 

47 

 

 

89 



 

(3,248)

 

 

(3,079)

 

 

(6,612)

 

 

(5,952)



 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(15,273)

 

 

(14,855)

 

 

(31,655)

 

 

(29,177)

Income tax benefit

 

(4,270)

 

 

(5,941)

 

 

(8,857)

 

 

(11,668)

Net loss

$

(11,003)

 

$

(8,914)

 

$

(22,798)

 

$

(17,509)



 

 

 

 

 

 

 

 

 

 

 

Less declaration and accretion of Series A preferred

 

 

 

 

 

 

 

 

 

 

 

stock dividends

 

(400)

 

 

(400)

 

 

(800)

 

 

(800)

Net loss attributable to common shareholders

$

(11,403)

 

$

(9,314)

 

$

(23,598)

 

$

(18,309)



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

$

(0.81)

 

$

(0.66)

 

$

(1.67)

 

$

(1.30)



 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

$

0.07 

 

$

0.07 

 

$

0.14 

 

$

0.14 



 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per preferred share

$

20.00 

 

$

20.00 

 

$

40.00 

 

$

20.00 



See accompanying notes to unaudited condensed consolidated financial statements.



5


 

Peak Resorts, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)



 

 

 

 

 

 

 



 

Six months ended
October 31,



 

2018

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(22,798)

 

$

(17,509)

 

Adjustments to reconcile net loss to net cash

 

 

 

 

 

 

 

used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

 

 

 

 

 

 

and intangibles

 

 

6,732 

 

 

6,299 

 

Amortization of deferred financing costs

 

 

543 

 

 

521 

 

Stock based compensation

 

 

107 

 

 

157 

 

Amortization of other liabilities

 

 

(18)

 

 

(18)

 

Gain on sale/leaseback

 

 

(166)

 

 

(166)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Income tax receivable

 

 

(8,857)

 

 

(11,668)

 

Accounts receivable

 

 

7,796 

 

 

4,371 

 

Inventory

 

 

(1,385)

 

 

(415)

 

Prepaid expenses and deposits

 

 

4,892 

 

 

(4,743)

 

Other assets

 

 

(229)

 

 

(28)

 

Accounts payable and accrued expenses

 

 

4,238 

 

 

(1,173)

 

Accrued salaries, wages and related taxes and benefits

 

 

25 

 

 

10 

 

Unearned revenue

 

 

6,024 

 

 

4,661 

 

Net cash used in operating activities

 

 

(3,096)

 

 

(19,701)

 



 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(18,704)

 

 

(18,597)

 

Additions to land held for development

 

 

(12)

 

 

(18)

 

Net cash used in investing activities

 

 

(18,716)

 

 

(18,615)

 



 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments on long-term debt and capital lease obligations

 

 

(1,066)

 

 

(12,101)

 

Distributions to stockholders

 

 

(2,758)

 

 

(1,958)

 

Payment of deferred financing costs

 

 

(180)

 

 

(138)

 

Payments on lines of credit

 

 

 -

 

 

(4,500)

 

Borrowings on lines of credit

 

 

 -

 

 

12,375 

 

   Net cash used in financing activities

 

 

(4,004)

 

 

(6,322)

 



 

 

 

 

 

 

 

Net decrease in cash, cash equivalents

 

 

 

 

 

 

 

and restricted cash

 

 

(25,816)

 

 

(44,638)

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

36,429 

 

 

78,478 

 

Cash, cash equivalents, and restricted cash, end of period

 

$

10,613 

 

$

33,840 

 



 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Cash paid income taxes

 

$

 -

 

$

 -

 

Cash paid interest, including amounts prepaid

 

 

 

 

 

 

 

of $0 and $2,201, respectively.

 

$

110 

 

$

9,112 

 



 

 

 

 

 

 

 

Supplemental disclosure of noncash investing

 

 

 

 

 

 

 

and financing activities:

 

 

 

 

 

 

 

6


 

Assets under construction included in accounts payable

 

$

1,405 

 

$

38 

 

Reclassification of EB-5 funds from escrow to long term debt

 

$

 -

 

$

500 

 

Accretive dividends - Series A preferred stock

 

$

 -

 

$

400 

 

Accrued dividends, common and preferred

 

$

1,379 

 

$

1,379 

 

                          

See accompanying notes to unaudited condensed consolidated financial statements. 

7


 

PEAK RESORTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

(Unaudited)



1. Basis of Presentation

Unaudited Interim Condensed Consolidated Financial Statements



The unaudited interim condensed consolidated financial statements of Peak Resorts, Inc. and its subsidiaries (the “Company”) reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of its financial position, results of operations and cash flows.  The results for the three and six months ended October 31, 2018 are not necessarily indicative of the results expected for a full fiscal year. Due to the seasonality of the ski industry, the Company typically incurs significant operating losses during its first and second fiscal quarters. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended April 30, 2018, filed with the Securities and Exchange Commission. 

Nature of business

The Company is a leading owner and operator of high-quality, individually branded ski resorts in the U.S. and, as of October 31, 2018, operated 14 ski resorts primarily located in the Northeast and Midwest, 13 of which are owned. The majority of the 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. The Company’s resorts are comprised of nearly 1,859 acres of skiable terrain appropriate to a wide range of ages and abilities. The activities, services and amenities available at the Company’s resorts include skiing, snowboarding, terrain parks, tubing, dining, lodging, equipment rentals and sales, ski and snowboard instruction, zip lines, mountain coasters, mountain biking, hiking and other summer activities. The Company operates in a single business segment—ski resort operations. 

On November 21, 2018, the Company acquired Snow Time, Inc. (“Snow Time”). Snow Time’s businesses include Liberty Mountain Resort, Roundtop Mountain Resort and Whitetail Resort, which are day and overnight drive ski resorts located in southern Pennsylvania serving the Baltimore and Washington, D.C. metropolitan areas. The acquired resorts also include two 18-hole golf courses, a 115-room hotel and conference center and more than 20 food and beverage locations across the three resorts, among other amenities. See Note 11.

Principles of Consolidation



The accompanying condensed consolidated financial statements include the accounts of Peak Resorts, Inc. and its wholly-owned subsidiaries.  All intercompany accounts and transactions have been eliminated in consolidation. 

8


 

Cash and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the condensed consolidated balance sheet to the total of the same such amounts shown in the consolidated statements of cash flow:





 

 

 

 

 

 



 

October 31,



 

2018

 

2017

Cash and cash equivalents

 

$

6,362 

 

$

12,962 

Restricted cash

 

 

1,245 

 

 

1,339 

Restricted cash, construction

 

 

3,006 

 

 

19,539 

  Total cash, cash equivalents, and restricted

 

 

 

 

 

 

     cash, end of period

 

$

10,613 

 

$

33,840 





Note 2. Recently Issued Accounting Standards

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, which provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards. As an emerging growth company, the Company may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.



In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” which requires lessees to recognize most leases on the balance sheet. This ASU requires modified retrospective adoption and will be applicable for the Company as of April 30, 2020, with early adoption permitted.  The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements. While the Company expects the pattern of expense for leases it currently classifies as operating will be similar under the old and new guidance, it expects adoption of the new standard will result in a significant increase in assets and liabilities for right of use assets and lease obligations, respectively, for leases it currently classifies as operating. As of October 31, 2018, future minimum lease payments under operating leases was approximately $13,538.



In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which was subsequently modified by other ASUs from 2015 through 2017. This ASU, as amended, provides new guidance for the recognition of revenue and provides for a five-step analysis of transactions to determine when and how revenue is recognized. This ASU establishes a core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  It also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.  This ASU may be adopted using either a full or modified retrospective approach and will be applicable for the Company as of April 30, 2020, with early adoption permitted.   The Company expects to adopt this ASU using the full retrospective approach and does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.



In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which provides new guidance related to accounting for share-based payments. This ASU requires entities to record the income tax effect of share-based payments when the awards vest or are settled and clarifies the cash flow statement presentation of excess tax benefits and withholding tax payments. In addition, the ASU allows for a policy election to account for forfeitures either upon occurrence or by estimating forfeitures. This ASU requires prospective adoption and will be applicable for the Company as of April 30, 2019, with early adoption permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements. 

9


 

Note 3. Income Taxes

The Company’s effective income tax rates were 28.0% and 40.0% for the six months ended October 31, 2018 and 2017, respectively. The 2018 tax rate reflects the enactment of the Tax Cuts and Job Act of 2017, which permanently reduced the U.S. corporate statutory rate from 35.0% to 21.0% as of January 1, 2018. 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.

Income tax receivable of $8,857 as of October 31, 2018, is a result of the expected tax rate for the Company’s fiscal year ending April 30, 2019, applied to its loss before income tax for the six months ended October 31, 2018. Due to the seasonality of the ski industry, the Company typically incurs significant operating losses during its first and second fiscal quarters.

The Company does not have any material uncertain tax positions.

Note 4. Fixed Assets

The composition of property and equipment is as follows:













 

 

 

 

 

 



 

October 31,

 

April 30,



 

2018

 

2018

Land and improvements

 

$

54,819 

 

$

54,785 

Buildings and improvements

 

 

75,368 

 

 

75,321 

Equipment, furniture and fixtures

 

 

176,256 

 

 

175,532 

Construction in progress

 

 

35,834 

 

 

16,787 



 

 

342,277 

 

 

322,425 

Less: accumulated depreciation and amortization

 

 

125,011 

 

 

118,330 



 

$

217,266 

 

$

204,095 







Note 5. Credit Facilities and Long‑term Debt

The composition of long-term debt is as follows:



 

 

 

 

 



 

 

 

 

 



October 31,

 

April 30,



2018

 

2018

EPR Secured Notes due 2034

$

93,162 

 

$

93,162 

EPR Secured Notes due 2036

 

21,000 

 

 

21,000 

EB-5 Development Notes due 2021

 

52,000 

 

 

52,000 

Wildcat Mountain Note due 2020

 

3,131 

 

 

3,231 

Capital Leases

 

1,733 

 

 

2,426 

Other borrowings

 

911 

 

 

1,184 

Less: Unamortized debt issuance costs

 

(4,009)

 

 

(4,552)



 

167,928 

 

 

168,451 

Less: Current maturities

 

(2,151)

 

 

(2,614)



$

165,777 

 

$

165,837 



In addition to the credit facilities listed above, the Company maintains a $10,000 working capital line of credit and a $15,000  acquisition line of credit with Royal Banks of Missouri. As of October 31, 2018, $12,415 was

10


 

outstanding under the acquisition line of credit and nothing was outstanding under the working capital line of credit, and $10,000 and $2,585 was unused and available under the lines of credit, respectively.

As of October 31, 2018, the Company was in compliance will all debt covenants under its various credit facility and debt agreements.



Note 6. Concentrations of Credit Risk and Fair Value Measures

Concentrations of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company’s cash, cash equivalents and restricted cash are on deposit with financial institutions where such balances will, at times, be in excess of federally insured limits. The Company has not experienced any losses associated with such deposits.





Fair Value of Measurements



The Company measures the fair value of assets and liabilities using a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1 - observable inputs such as quoted prices in active markets; Level 2 - inputs, other than quoted market prices in active markets, which are observable, either directly or indirectly; and Level 3 - valuations derived from valuation techniques in which one or more significant inputs are unobservable.  In addition, the Company may use various valuation techniques, including the market approach, using comparable market prices; the income approach, using present value of future income or cash flow; and the cost approach, using the replacement cost of assets.



The Company’s financial instruments consist of cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, long-term debt and preferred stock.  For cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate fair market value due to their short-term nature. 



The estimated fair values of the Company’s debt instruments and preferred stock as of October 31, 2018, is as follows:







 

 

 

 

 

 

 



October 31, 2018

 

 



Fair Value

 

Carrying Amount

 

Balance Sheet Classification

EPR Secured Notes due 2034

$

98,309 

 

$

93,162 

 

Long-term debt, less current maturities

EPR Secured Notes due 2036

 

16,917 

 

 

21,000 

 

Long-term debt, less current maturities

EB-5 Development Notes due 2021

 

43,136 

 

 

52,000 

 

Long-term debt, less current maturities

Wildcat Mountain Note due 2020

 

2,961 

 

 

3,131 

 

Long-term debt, including current maturities

Capital leases and other borrowings

 

2,644 

 

 

2,644 

 

Long-term debt, less current maturities

Series A Preferred Stock

 

17,994 

 

 

17,401 

 

Series A preferred stock



11


 

The Company estimated the fair value of the EPR Secured Notes, EB-5 Development Notes and Wildcat Mountain Note using a discounted cash flow approach and Level 2 inputs, including market borrowing yields for instruments of similar maturities and Level 3 inputs, including the Company’s credit rating. The Company estimated the fair value of the Series A Cumulative Convertible Preferred Stock (the Series A Preferred Stock)  using Level 2 inputs, including market yields for similar instruments. The Company estimated the fair value of capital leases and other borrowings to approximate their carrying value.

Note 7. Commitments and Contingencies

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 insurance coverage and, in the opinion of the Company’s management, the ultimate liabilities resulting from such claims and proceedings will not have a material adverse effect on its business, financial condition, results of operations or cash flows.

Leases

The Company leases certain land, land improvements, buildings and equipment under noncancelable operating leases. Certain of the leases contain escalation provisions based generally on changes in the consumer price index with maximum annual percentage increases capped at rates between 1.5% to 4.5%. Additionally, certain leases contain contingent rental provisions which are based on revenue. The Company paid no contingent rentals in the periods presented.

Note 8. Stock-Based Compensation

Stock-based compensation expense was recognized in general and administrative expense in the accompanying consolidated condensed statements of operations for the three and six months ended October 31, 2018 in the amounts of $51 and $107, respectively; and for the three and six months ended October 31, 2017 in the amounts of $94 and $157, respectively.

Restricted Stock Units



Under the Company’s 2014 Equity Incentive Plan (the “2014 Plan”), the Company granted 43,600 restricted stock units (“RSUs”) during the six months ended October 31, 2018, with a weighted-average grant date fair value per unit of $5.18; and granted 45,938 RSUs during the six months ended October 31, 2017, with a weighted-average grant date fair value per unit of $4.30.  The 2014 Plan requires that whenever the Company pays a cash dividend on its common shares it also pay an equivalent dividend in the form of RSUs on any RSUs outstanding as of the dividend date. During the six months ended October 31, 2018 and 2017, the Company issued 4,119 RSUs and 2,664 RSUs, respectively, as payment of dividends on outstanding RSUs. As of October 31, 2018, 187,094 RSUs were outstanding, of which 150,899 were vested.

 







12


 

Note 9. Loss Per share

The computation of basic and diluted loss per share for the three and six months ended October 31, 2018 and 2017 is as follows:





 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended October 31,

 

Six Months Ended October 31,



2018

 

2017

 

2018

 

2017

Net loss attributable to common shareholders

$

(11,403)

 

$

(9,314)

 

$

(23,598)

 

$

(18,309)

Weighted number of shares:

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

13,982,400 

 

 

13,982,400 

 

 

13,982,400 

 

 

13,982,400 

Outstanding vested Restricted Stock Units

 

120,369 

 

 

60,297 

 

 

112,700 

 

 

55,020 



 

14,102,769 

 

 

14,042,697 

 

 

14,095,100 

 

 

14,037,420 

Basic and diluted loss per share

$

(0.81)

 

$

(0.66)

 

$

(1.67)

 

$

(1.30)



 

 

 

 

 

 

 

 

 

 

 





The Company’s 36,195 and 52,690 outstanding unvested RSUs as of October 31, 2018 and 2017, respectively, have been excluded from the calculations of diluted earnings per share because their impact would be anti-dilutive. In addition, warrants to purchase 2,719,018 shares of common stock and the effect of the Company’s Series A Preferred Stock have been excluded from the calculation of diluted earnings per share for the three and six months ended October 31, 2018 and 2017, because the impact would be anti-dilutive.



Note 10. Restructuring and Impairment

As of April 30, 2018, the Company closed a restaurant and certain hotel-like amenities at a condominium building adjacent to its Attitash ski resort and terminated a related rental management agreement (the “Attitash Hotel Closure”).  For the three and six months ended October 31, 2018, the Company incurred restructuring charges of $13 and $190, respectively, in connection with the Attitash Hotel Closure, which included professional service fees and costs to maintain the facility until the date of its disposal in August 2018.



Total costs through October 31, 2018, associated with the Attitash Hotel Closure include $1,586 of asset impairment charges, $36 of severance expense and $260 of other costs. As of October 31, 2018, the Company expects it will not incur future additional charges related to the Attitash Hotel Closure.

Note 11. The Snow Time Acquisition and Related Financing

The Snow Time Acquisition

On November 21, 2018, the Company completed its acquisition of all of the issued and outstanding shares of common stock of Snow Time pursuant to the Stock Purchase Agreement (the “Purchase Agreement”) entered into with the stockholders of Snow Time (the “Sellers”), dated as of September 24, 2018 (the “Snow Time Acquisition”). Consideration for the Snow Time Acquisition totaled $73,119, which consisted of $67,142 in cash and 1,183,432 shares of common stock with a value of $5,977 based on the Company’s closing stock price on the day the transaction closed. The number of shares issued to the Sellers was determined pursuant to the Purchase Agreement, which provided that the Sellers had the right to receive $6,000 of common stock as determined using the average closing price of the common stock for the 20 trading days immediately preceding the closing, which was $5.07. The purchase price is subject to customary post-closing adjustments related to prepaid services, working capital and transaction expenses as provided by the Purchase Agreement. The Company acquired Snow Time in order to expand its portfolio of resorts.

Snow Time’s businesses include Liberty Mountain Resort, Roundtop Mountain Resort and Whitetail Resort, which are day and overnight drive ski resorts located in southern Pennsylvania serving the Baltimore and Washington, D.C. metropolitan areas. The acquired resorts also include two 18-hole golf courses, a 115-room hotel and conference center and more than 20 food and beverage locations across the three resorts, among other amenities.

13


 

During the three and six months ended October 31, 2018, the Company incurred $331 of acquisition related costs which have been included in general and administrative costs in the condensed consolidated statements of operations.

Because the Snow Time Acquisition closed on November 21, 2018, the Company has not yet completed its initial accounting and is still in process of gathering information necessary to determine i) the fair value of acquired tangible and intangible assets and ii) the working capital adjustment to the purchase price. As a result, the Company has determined it is impracticable to provide certain disclosures required under the Accounting Standards Codification 805, “Business Combinations” (“ASC 805”), including an allocation of the purchase price to the assets acquired and liabilities assumed and required pro forma information.  The Company intends to present the disclosures required by ASC 805 in its Quarterly Report on Form 10-Q for the fiscal quarter ending January 31, 2019.

Term Loan Financing

The Company financed part of the cash consideration paid to the Sellers in the Snow Time Acquisition with a $50,000 senior secured term loan (the “Term Loan”) from Cap 1 LLC (“Cap 1”) pursuant to the terms of the Credit Agreement entered into with Cap 1 on November 21, 2018 (the “Credit Agreement”). The Term Loan has an initial term of two years and bears interest at 6.95%, payable quarterly, subject to a 2.0% increase upon an event of default. The Term Loan is secured by all real property on which the Snow Time resorts are located and improvements thereon.  Amounts due under the Term Loan may be prepaid without penalty.

The Term Loan matures on November 30, 2020 and may be extended for an additional one-year period at the Company’s option, so long as no event of default has occurred. If extended, the Company has agreed to issue Cap 1 a warrant to purchase 666,667 shares of common stock, exercisable immediately from the issuance date and for up to ten years from the date of issuance, at $7.50 per share (the “Extension Warrant”). The Extension Warrant was not issued upon closing the Term Loan and will only be issued if the Company exercises the one-year Term Loan extension right.



As consideration for the Term Loan and in lieu of fees, the Company also issued Cap 1 a warrant to purchase 1,750,000 shares of common stock at $10.00 per share, which is exercisable immediately and expires ten years from the date of issuance (the “Financing Warrant”).

Issuance of Preferred Stock and Warrants

As a condition to the funding of the Term Loan, and for aggregate consideration of $20,000, the Company exercised its existing option (the “Cap 1 Option”) to issue to Cap 1 an additional 20,000 shares of Series A Preferred Stock, along with additional warrants (the “Option Warrants”) to purchase shares of common stock  that expire 12 years from the date of issuance, as follows: i) 1,538,462 shares of common stock at $6.50 per share; ii) 625,000 shares of common stock at $8.00 per share; and iii) 555,556 shares of common stock at $9.00 per share.  The Cap 1 Option is provided for in the terms of the Securities Purchase Agreement between the Company and Cap 1, dated as of August 22, 2016, entered into in connection with the issuance of the initial 20,000 shares of Series A Preferred Stock and accompanying warrants to Cap 1 in November 2016. The Company used the Cap 1 Option proceeds to fund the remainder of the cash portion of the Snow Time Acquisition purchase price.

The exercise prices of the Option Warrants must be paid in cash. At the Company’s option, the exercise price of the Financing Warrant may be paid in whole or in part in cash or settled through a cashless exercise.  The Company entered into a Registration Rights Agreement with Cap 1, dated November 21, 2018, granting certain registration rights with respect to the shares of common stock underlying the Series A Preferred Stock, Option Warrants and Financing Warrant. The terms and registration rights applicable to the Extension Warrant, if issued, are expected to be substantially the same as those applicable to the Financing Warrant.



14


 

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q (the “Report”) and with the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2018 filed with the Securities and Exchange Commission. In addition to historical financial information, the following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Unless the context suggests otherwise, references in this Report to the “Company”, “Peak”, “our”, “us”, or “we” refer to Peak Resorts, Inc. and its consolidated subsidiaries.



Forward-Looking Statements

Except for any historical information contained herein, the matters discussed in this Report contain certain “forward-looking statements'' within the meaning of the federal securities laws. This includes statements regarding our future financial position, economic performance, results of operations, business strategy, budgets, projected costs, plans and objectives of management for future operations, and the information referred to under “Management's Discussion and Analysis of Financial Condition and Results of Operations.”



These forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,'' “will,'' “expect,'' “intend,'' “estimate,'' “anticipate,'' “believe,'' “continue'' or similar terminology, although not all forward-looking statements contain these words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this Report. Important factors that could cause actual results to differ materially from our expectations include, among others:



·

weather, including climate change;

·

seasonality;

·

availability of funds for capital expenditures and operations;

·

competition with other indoor and outdoor winter leisure activities and ski resorts;

·

the leases and permits for property underlying certain of our ski resorts;

·

ability to integrate new acquisitions and transition acquired operations, systems and personnel;

·

environmental laws and regulations;

·

our dependence on key personnel;

·

the effect of declining revenues on margins;

·

the future development and continued success of our Mount Snow and Hunter Mountain ski resorts;

·

our reliance on information technology;

·

our current dependence on our primary lender and the lender's option to purchase certain of our ski resorts;

·

our dependence on a seasonal workforce;

·

our ability to avoid or recover from cyber and other security breaches and other disruptions; and

·

the securities market.

 

 

 

 



 

 

 

15


 

You should also refer to Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K, and Part II, Item 1A, “Risk Factors” of this Report, for a discussion of factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time-frame, or at all.



Recent Events - The Snow Time Acquisition and Related Financing

The Snow Time Acquisition

On November 21, 2018, we completed our acquisition of all of the issued and outstanding shares of common stock of Snow Time, Inc. (“Snow Time”) pursuant to the Stock Purchase Agreement (the “Purchase Agreement”) entered into with the stockholders of Snow Time (the “Sellers”), dated as of September 24, 2018 (the “Snow Time Acquisition”). Consideration for the Snow Time Acquisition totaled $73.1 million, which consisted of $67.1 million in cash and 1,183,432 shares of common stock with a value of $6.0 million.  The number of shares issued to the Sellers was determined pursuant to the Purchase Agreement, which provided that the Sellers had the right to receive $6.0 million of common stock as determined using the average closing price of the common stock for the 20 trading days immediately preceding the closing, which was $5.07.  The purchase price is subject to customary post-closing adjustments related to prepaid services, working capital and transaction expenses as provided by the Purchase Agreement. The Company acquired Snow Time in order to expand our portfolio of resorts.

Snow Time’s businesses include Liberty Mountain Resort, Roundtop Mountain Resort and Whitetail Resort, which are day and overnight drive ski resorts located in southern Pennsylvania serving the Baltimore and Washington, D.C. metropolitan areas. The acquired resorts also include two 18-hole golf courses, a 115-room hotel and conference center and more than 20 food and beverage locations across the three resorts, among other amenities.

Term Loan Financing

The Company financed part of the cash consideration paid to the Sellers in the Snow Time Acquisition with a $50.0 million senior secured term loan (the “Term Loan”) from Cap 1 LLC (“Cap 1”) pursuant to the terms of the Credit Agreement entered into with Cap 1 on November 21, 2018 (the “Credit Agreement”). The Term Loan has an initial term of two years and bears interest at 6.95%, payable quarterly, subject to a 2.0% increase upon an event of default. The Term Loan is secured by all real property on which the Snow Time resorts are located and improvements thereon.  Amounts due under the Term Loan may be prepaid without penalty.

The Term Loan matures on November 30, 2020 and may be extended for an additional one-year period at the Company’s option, so long as no event of default has occurred. If extended, the Company has agreed to issue Cap 1 a warrant to purchase 666,667 shares of common stock, exercisable immediately from the issuance date and for up to ten years from the date of issuance, at $7.50 per share (the “Extension Warrant”). The Extension Warrant was not issued upon closing the Term Loan and will only be issued if the Company exercises the one-year Term Loan extension right.

As consideration for the Term Loan and in lieu of fees, the Company also issued Cap 1 a warrant to purchase 1,750,000 shares of common stock at $10.00 per share, which is exercisable immediately and expires ten years from the date of issuance (the “Financing Warrant”).



Issuance of Preferred Stock and Warrants

As a condition to the funding of the Term Loan, and for aggregate consideration of $20.0 million, the Company exercised its existing option (the “Cap 1 Option”) to issue to Cap 1 an additional 20,000 shares of Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock), along with additional warrants (the “Option Warrants”) to purchase shares of common stock  that expire 12 years from the date of issuance, as follows: i) 1,538,462 shares of common stock at $6.50 per share; ii) 625,000 shares of common stock at $8.00 per share; and iii) 555,556 shares of common stock at $9.00 per share.  The Cap 1 Option is provided for in the terms of the Securities Purchase Agreement between the Company and Cap 1, dated as of August 22, 2016, entered into

16


 

in connection with the issuance of the initial 20,000 shares of Series A Preferred Stock and accompanying warrants to Cap 1 in November 2016. The Company used the Cap 1 Option proceeds to fund the remainder of the cash portion of the Snow Time Acquisition purchase price.

The exercise prices of the Option Warrants must be paid in cash. At the Company’s option, the exercise price of the Financing Warrant may be paid in whole or in part in cash or settled through a cashless exercise. The Company entered into a Registration Rights Agreement with Cap 1, dated November 21, 2018, granting certain registration rights with respect to the shares of common stock underlying the Series A Preferred Stock, Option Warrants and Financing Warrant. The terms and registration rights applicable to the Extension Warrant, if issued, are expected to be substantially the same as those applicable to the Financing Warrant.

Company Overview



We are a leading owner and operator of high-quality, individually branded ski resorts in the U.S.  With the acquisition of Snow Time, we operate 17 ski resorts primarily located in the Northeast and Midwest, 16 of which we own. The majority of our resorts are located within 100 miles of major metropolitan markets, including New York City, Boston, Philadelphia, Baltimore, Washington D.C.,  Cleveland, Kansas City and St. Louis, enabling day and overnight drive accessibility. Our resorts are comprised of nearly 2,200 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 zip lines, 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 14 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.



Business Overview

Capital Projects 

As part of our mission to build value by investing in our current properties through expansions, new products and amenities that will elevate our customers’ skiing and off-season experiences, during the first half of fiscal 2019 we continued to move forward with capital improvement projects at our Hunter Mountain, Mount Snow and Hidden Valley resorts.

·

At Hunter Mountain, we continued the Hunter North expansion project to increase the resort’s skiable acreage by approximately 25% and add automated snowmaking, a six-passenger detachable high-speed chair lift and parking area. We expect to complete the project by the end of calendar 2018.  



·

At Mount Snow, we continued construction on the Carinthia Ski Lodge project. The Carinthia Ski Lodge project includes the construction of a new ski lodge at the resort’s Carinthia base, comprised of a three-story, 36,000-square foot skier service building which will include i) a restaurant, cafeteria and bars with seating for over 600 people, ii) retail facilities, and iii) a sales center for lift tickets and equipment rentals. Portions of the Carinthia Ski Lodge were opened to the public in November 2018 and we expect it will be fully operational by the end of calendar 2018.



·

At Hidden Valley, we completed the permitting process and began to source materials and make site improvements for the construction of a zip line tour which we anticipate will generate additional sales and diversify that resort’s revenue base.  We anticipate completing the project during the spring of 2019.

Seasonality of Business

Our resort operations are seasonal in nature and revenue and profits from operations are substantially lower and have historically resulted 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 have historically not been sufficient to fully offset our operating expenses during the same timeframe. Therefore, our 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.

 

17


 



Results of Operations



Three Months Ended October 31, 2018, Compared with the Three Months ended October 31, 2017



The following table presents our condensed unaudited consolidated statements of operations for the three months ended October 31, 2018 and 2017 (dollars in thousands):







 

 

 

 

 

 

 

 

 

 

 



 

Three months ended
October 31,

 

 

 

 

 



 

2018

 

2017

 

$ change

 

% change



 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

  Lift and tubing tickets

 

$

120 

 

$

 -

 

$

120 

 

100.0% 

  Food and beverage

 

 

2,647 

 

 

2,735 

 

 

(88)

 

-3.2%

  Equipment rental

 

 

 

 

 -

 

 

 

100.0% 

  Ski instruction

 

 

27 

 

 

 -

 

 

27 

 

100.0% 

  Hotel/lodging

 

 

1,444 

 

 

2,014 

 

 

(570)

 

-28.3%

  Retail

 

 

526 

 

 

429 

 

 

97 

 

22.6% 

  Summer activities

 

 

2,527 

 

 

2,578 

 

 

(51)

 

-2.0%

  Other

 

 

689 

 

 

1,082 

 

 

(393)

 

-36.3%



 

 

7,984 

 

 

8,838 

 

 

(854)

 

-9.7%

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Resort operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 Labor and labor related expenses

 

 

7,191 

 

 

8,999 

 

 

(1,808)

 

-20.1%

 Retail and food and beverage cost of sales

 

 

1,163 

 

 

1,118 

 

 

45 

 

4.0% 

 Power and utilities

 

 

1,113 

 

 

800 

 

 

313 

 

39.1% 

 Other

 

 

4,251 

 

 

4,204 

 

 

47 

 

1.1% 



 

 

13,718 

 

 

15,121 

 

 

(1,403)

 

-9.3%



 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,434 

 

 

3,154 

 

 

280 

 

8.9% 

General and administrative expenses

 

 

1,903 

 

 

1,529 

 

 

374 

 

24.5% 

Real estate and other non-income taxes

 

 

605 

 

 

471 

 

 

134 

 

28.5% 

Land and building rent

 

 

336 

 

 

339 

 

 

(3)

 

-0.9%

Restructuring charges

 

 

13 

 

 

 -

 

 

13 

 

100.0% 



 

 

20,009 

 

 

20,614 

 

 

(605)

 

-2.9%

Loss from operations

 

 

(12,025)

 

 

(11,776)

 

 

(249)

 

2.1% 



 

 

 

 

 

 

 

 

 

 

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

Interest, net of interest capitalized of $325 and $498 in 2018 and 2017, respectively

 

 

(3,346)

 

 

(3,196)

 

 

(150)

 

4.7% 

Gain on sale/leaseback

 

 

83 

 

 

83 

 

 

 -

 

0.0% 

Other income

 

 

15 

 

 

34 

 

 

(19)

 

-55.9%



 

 

(3,248)

 

 

(3,079)

 

 

(169)

 

5.5% 



 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(15,273)

 

 

(14,855)

 

 

(418)

 

2.8% 

Income tax benefit

 

 

(4,270)

 

 

(5,941)

 

 

1,671 

 

-28.1%

Net loss

 

$

(11,003)

 

$

(8,914)

 

$

(2,089)

 

23.4% 

Reported EBITDA

 

$

(8,247)

 

$

(8,622)

 

$

375 

 

-4.3%











18


 

Net Revenue. Net revenue decreased $0.9 million, or 9.7%, for the three months ended October 31, 2018, compared with the three months ended October 31, 2017. The decrease is primarily attributable to reduced lodging and food and beverage sales at our Attitash resort as a result of our decision to cease operations of a hotel/restaurant facility as of May 1, 2018 (the “Attitash Hotel Closure”), partially offset by revenue during the quarter from lift and tubing tickets, equipment rentals and ski instruction. Two of our resorts opened for the 2018/2019 ski season on the last weekend of our second quarter, whereas all of our resorts began winter sports operations for the 2017/2018 ski season during the third quarter of our 2018 fiscal year.

Resort Operating Costs. Resort operating costs decreased $1.4 million, or 9.3%, for the three months ended October 31, 2018, compared with the same period in the prior year.  A $1.8 million decline in labor costs was partially offset by a $0.3 million increase in power and utility costs and a $0.1 million increase in other operating costs.



A decline in labor costs associated with i) the Attitash Hotel Closure, ii) reduced workers compensation insurance expense as a result of the return of premiums following the final settlement of certain policy years and iii) management of staffing levels by more closely tying seasonal hiring to visitation levels, was partially offset by increased labor costs at our resorts in New York and Vermont, as a result of increased state minimum wage rates. Power and utility costs were up as we ramped up operations to open two of our resorts for the last weekend of the second quarter and due to increased electric transmission charges associated with two of our Pennsylvania resorts. Other operating expenses increased due to i) increased information technology costs associated with a new customer marketing project and ii) costs associated with new snow groomer equipment leased prior to the 2017/2018 ski season, partially offset by iii) a reduction in supplies and repairs and maintenance costs which were pulled forward into the first quarter.



General and Administrative Costs. General and administrative expenses of approximately $1.9 million for the three months ended October 31, 2018, increased by approximately $0.4 million, or 24.5%, primarily as a result of $0.3 million of professional fees and travel expenses associated with the Snow Time Acquisition. 

Real estate and other non-income taxes. Real estate and other non-income taxes of $0.6 million for the three months ended October 31, 2018, increased by $0.1 million, or 28.5%, as compared to the $0.5 million of real estate and other non-income taxes for the same period in fiscal 2018. The increase is a result of real estate tax refunds we received in fiscal 2018 as a result of an appeal of certain prior year taxes.

Restructuring charges. In September 2018, we disposed of the long-term assets related to our Attitash Hotel operations which ceased as of the beginning of fiscal 2019. During the second quarter of fiscal 2019, we incurred minimal related costs, and total costs through October 31, 2018 associated with the Attitash Hotel Closure include $1.6 million of asset impairment charges and $0.3 million of other costs. As of October 31, 2018, we do not expect to incur any additional related costs.



Interest, net. Net interest expense of $3.3 million for the three months ended October 31, 2018, increased by $0.1 million, or 4.7%, as compared to the $3.2 million of net interest expense for the three months ended October 31, 2017. The increase in net interest expense relates primarily to i) a $0.2 million decrease in the amount of capitalized interest during the second quarter of fiscal 2019, as compared to the same quarter in fiscal 2018, as a result of the completion of the West Lake Water project in November 2017, partially offset by ii) an increase in interest rates on variable rate debt.

Income Taxes. Income tax benefit decreased $1.7 million, or 28.1%, to $4.3 million for the three months ended October 31, 2018 as compared with the three months ended October 31, 2017, as a  result of a decrease in our effective tax rate applied to a larger loss before income taxes. Our effective income tax rates were 28.0% and 40.0% for the three months ended October 31, 2018 and 2017, respectively. The 2018 tax rate reflects the enactment of the Tax Cuts and Jobs Act of 2017, which permanently reduced the U.S. corporate statutory rate from 35.0% to 21.0% as of January 1, 2018.

19


 

Reported EBITDA. We have specifically chosen to include “Reported EBITDA” (which we define as net income before interest, income taxes, depreciation, amortization, gain on sale/leaseback, other income and expense and other non-recurring items) as a measurement of our results of operations because we consider this measurement to be a significant indication of our financial performance and available capital resources.  Because of large depreciation and other charges relating to our ski resorts operations, it is difficult for management to fully and accurately evaluate our financial results and available capital resources using net income alone. In addition, the use of this non-U.S. GAAP measure provides an indication of our ability to service debt, and we consider it an appropriate measure to use because of our highly leveraged position. 

We believe that by providing investors with Reported EBITDA, they will have a clearer understanding of our financial performance and cash flows because Reported EBITDA i) is widely used in the ski industry to measure a company’s operating performance without regard to items excluded from the calculation of such measure; ii) helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating results; and iii) is used by our board of directors, management and our lenders for various purposes, including as a measure of our operating performance and as a basis for planning.



The items we exclude from net income to arrive at Reported EBITDA are significant components for understanding and assessing our financial performance and liquidity. Reported EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, net change in cash and cash equivalents or other financial statement data presented in our condensed consolidated financial statements as indicators of financial performance or liquidity. Because Reported EBITDA is not a measurement determined in accordance with U. S. GAAP and is susceptible to varying calculations, Reported EBITDA, as presented, may not be comparable to other similarly titled measures of other companies, limiting its usefulness as a comparative measure.



Reconciliations of net loss to EBITDA for the three months ended October 31, 2018 and 2017, were as follows (dollars in thousands):







 

 

 

 

 

 

 



 

Three months ended

 



 

October 31,

 



 

2018

 

2017

 



 

 

 

 

 

 

 

Net loss

 

$

(11,003)

 

$

(8,914)

 

Income tax benefit

 

 

(4,270)

 

 

(5,941)

 

Interest expense, net

 

 

3,346 

 

 

3,196 

 

Depreciation and amortization

 

 

3,434 

 

 

3,154 

 

Acquisition related costs

 

 

331 

 

 

 -

 

Restructuring charges

 

 

13 

 

 

 -

 

Other income

 

 

(15)

 

 

(34)

 

Gain on sale/leaseback

 

 

(83)

 

 

(83)

 

Reported EBITDA

 

$

(8,247)

 

$

(8,622)

 



Reported EBITDA loss decreased by $0.4 million, or 4.3%, for the three months ended October 31, 2018, as compared with the same period in the prior year, primarily as a result of lower resort operating costs partially offset by lower revenues and increased property tax expense.



Six Months Ended October 31, 2018, Compared with the Six Months ended October 31, 2017



The following table presents our unaudited condensed consolidated statements of operations for the six months ended October 31, 2018 and 2017 (dollars in thousands):







 

 

 

 

 

 

 

 

 

 

 

20


 



 

Six months ended
October 31,

 

 

 

 

 



 

2018

 

2017

 

 

$ change

 

% change



 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

  Lift and tubing tickets

 

$

120 

 

$

 -

 

$

120 

 

100.0% 

  Food and beverage

 

 

5,392 

 

 

5,565 

 

 

(173)

 

-3.1%

  Equipment rental

 

 

 

 

 -

 

 

 

100.0% 

  Ski instruction

 

 

27 

 

 

 -

 

 

27 

 

100.0% 

  Hotel/lodging

 

 

2,888 

 

 

3,855 

 

 

(967)

 

-25.1%

  Retail

 

 

738 

 

 

670 

 

 

68 

 

10.1% 

  Summer activities

 

 

4,436 

 

 

4,459 

 

 

(23)

 

-0.5%

  Other

 

 

1,386 

 

 

1,809 

 

 

(423)

 

-23.4%



 

 

14,991 

 

 

16,358 

 

 

(1,367)

 

-8.4%

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Resort operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 Labor and labor related expenses

 

 

15,579 

 

 

17,610 

 

 

(2,031)

 

-11.5%

 Retail and food and beverage cost of sales

 

 

2,057 

 

 

1,870 

 

 

187 

 

10.0% 

 Power and utilities

 

 

2,080 

 

 

1,589 

 

 

491 

 

30.9% 

 Other

 

 

8,273 

 

 

7,591 

 

 

682 

 

9.0% 



 

 

27,989 

 

 

28,660 

 

 

(671)

 

-2.3%



 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

6,732 

 

 

6,299 

 

 

433 

 

6.9% 

General and administrative expenses

 

 

3,159