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Section 1: 10-K (10-K)

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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

(Mark One)

   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended April 30, 2019.

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

 

 

 

Common Stock, $0.01 par value per share

SKIS

NASDAQ Global Market

 

Securities registered pursuant to section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐   No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐   No

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 such files). Yes  No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. 

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 October 31, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was $51.0 million.

As of June 25, 2019, 15,165,832 shares of the registrant’s common stock were outstanding.

Documents incorporated by reference:

Portions of the registrant’s Definitive Proxy Statement for its 2019 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10‑K, to be filed within 120 days of the registrant’s fiscal year ended April 30, 2019.

 

 

Table of Contents

Table of Contents

 

PART I

 

 

 

 

Item 1. 

Business.

4

Item 1A. 

Risk Factors.

13

Item 1B. 

Unresolved Staff Comments.

27

Item 2. 

Properties.

28

Item 3. 

Legal Proceedings.

29

Item 4. 

Mine Safety Disclosures.

29

 

 

PART II

29

Item 5. 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

29

Item 6. 

Selected Financial Data.

29

Item 7. 

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

32

Item 7A. 

Quantitative and Qualitative Disclosures About Market Risk.

48

Item 8. 

Financial Statements and Supplementary Data.

F-1

Item 9. 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

49

Item 9A. 

Controls and Procedures.

49

Item 9B. 

Other Information.

49

 

 

PART III

50

 

 

 

Item 10. 

Directors, Executive Officers and Corporate Governance.

50

Item 11. 

Executive Compensation.

50

Item 12. 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

50

Item 13. 

Certain Relationships and Related Transactions, and Director Independence.

50

Item 14. 

Principal Accounting Fees and Services.

50

 

 

PART IV

 

Item 15. 

Exhibits, Financial Statement Schedules.

51

Item 16. 

Form 10‑K Summary.

51

 

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CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS

Statements made in this Annual Report on Form 10-K (the “Report”) include the use of the terms “we,” “us” and “our” which unless specified otherwise refer collectively to Peak Resorts, Inc. (“Peak Resorts”) and its subsidiaries. 

 

Except for any historical information contained herein, the matters discussed in this Form 10-K 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 markets.

You should also refer to Part I, 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.

 

 

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Item 1. Business.

 

General

We are a leading owner and operator of high-quality, individually branded ski resorts in the U.S.  We currently operate 17 ski resorts primarily located in the Northeast, Mid-Atlantic and Midwest United States, 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, Washington D.C., Baltimore, Cleveland, Kansas City and St. Louis, enabling day and overnight drive accessibility. Our resorts are comprised of more than 2,300 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, zip tours, golf, 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 14 ski resorts since our incorporation in 1997, and we expect to continue executing this strategy.

 

We have built an award-winning portfolio of individually branded entertainment properties, most of which are recognized as leading ski resorts in their respective markets. Our devotion to maintaining high quality standards across our portfolio through strategic investments and upgrades has created a loyal customer base that contributes to a significant number of repeat visits at each of our resorts. In particular, our investment over the last decade in the latest high-efficiency snowmaking equipment has earned us the reputation as an industry leader in snowmaking efficiency, capacity and quality. Our strong branding reinforces customer loyalty and serves to attract new visitors through focused marketing campaigns and word of mouth.

 

Combined, our resorts generated approximately 2.4 million ski and tubing visits in the 2018/2019 ski season.  With the addition of three resorts acquired in November 2018 and organic revenue growth at our existing resorts, we recorded record revenue of $184.4 million for fiscal 2019, an increase of 40.1% over fiscal 2018.  Our three new resorts contributed revenue of $42.3 million; and revenue for fiscal 2019 from our existing resorts was up $10.4 million as compared to the prior year due to growth in visits and season pass sales. As the U.S. economy continues to improve, our resorts are well-positioned to benefit from increased consumer spending on leisure activities, and we expect to continue to increase our lift ticket prices and drive more skier visits to our resorts.

The U.S. ski industry is highly fragmented, with less than 15% of the 476 ski resorts being owned by companies with four or more ski resorts. We believe our proven ability to efficiently operate multiple resorts as well as our track record of successful acquisitions has created our reputation in the marketplace as a preferred buyer. We believe our extensive experience in acquiring ski resorts and investing in snowmaking, lifts and other skier services, as well as the synergies we create by operating multiple resorts, drives increased revenues and profitability. Our capabilities serve as a competitive advantage in sourcing and executing investment opportunities as sellers will often provide us a "first look" at opportunities outside of a broader marketing process, allowing us to expand both within our existing markets and into new markets.

We operate in a single business segment—resort operations. We are not dependent on any single customer, the loss of which would have a material impact on our financial statements, and we derive no revenue from foreign sources.

Our History

Peak Resorts, Inc. was incorporated in Missouri on September 24, 1997, as a holding company to own or lease and operate day and overnight drive ski resorts through its wholly owned subsidiaries. Throughout the history of the Company, including the development of the Hidden Valley and Snow Creek ski resorts before the incorporation of Peak Resorts, Inc., the Company has acquired or developed a total of 17 ski resorts.

 

On November 20, 2014, we completed our initial public offering (“IPO”) of our common stock, selling 10 million shares 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. Our common stock is traded on the NASDAQ Global Market under the symbol “SKIS”.

On January 6, 2016, we 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

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Festivals, Ltd., Hunter Mountain Rentals, Inc., Hunter Resort Vacations, Inc., Hunter Mountain Base Lodge, Inc., and Frosty Land, Inc. (collectively, “Hunter Mountain”). 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.

On November 2, 2016, we completed a private placement (the “Private Placement”) of securities to CAP 1 LLC (“Cap 1”). The securities issued in the Private Placement included $20 million in Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”) and warrants to purchase up to 2,719,018 shares of our common stock at prices ranging from $6.50 per share to $9.00 per share (the “2016 Warrants”). In connection with the Private Placement, we entered into a Stockholders’ Agreement granting Cap 1 the right to nominate a director to sit on the Company’s board of directors, preemptive rights with respect to certain future issuances of securities, and consent rights regarding certain acquisitions and dispositions, in each case subject to stock ownership requirements and exceptions.

On November 21, 2018, we completed the acquisition of all of the issued and outstanding shares of common stock of Snow Time Inc. (“Snow Time”), the owner of the Liberty Mountain, Roundtop Mountain  and Whitetail resorts located in Pennsylvania serving the Baltimore and Washington D.C. metropolitan areas. Consideration paid to acquire Snow Time totaled $71.6 million, which consisted of cash of $66.6 million, net of cash acquired of $1.0 million, and 1,183,432 shares of common stock with a value of $6.0 million. Snow Time’s 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.

We financed part of the cash consideration paid in the Snow Time acquisition with a $50.0 million senior secured term loan (the “Term Loan”) from Cap 1 and the remaining cash consideration from proceeds received upon issuance of an additional $20 million in Series A Preferred Stock and warrants to purchase up to 2,719,018 shares of common stock to Cap 1 on terms identical to those issued to Cap 1 in connection with the Private Placement (the “2018 Option Warrants”). As consideration for the Term Loan and in lieu of fees, we also issued Cap 1 a warrant to purchase 1,750,000 shares of common stock at $10.00 per share (the “Financing Warrant” and, together with the 2016 Warrants and 2018 Option Warrants, the “Warrants”). At this time, the Stockholders’ Agreement entered into with Cap 1 in 2016 was amended to account for the issuance of the new shares of Series A Preferred Stock and warrants, but otherwise remained unchanged (referred to herein as the “Stockholders’ Agreement”). See Notes 5 and 6 to the accompanying consolidated financial statements.

Our Resorts

Our 17 ski resorts consist of 6 overnight drive ski resorts and 11 day-ski resorts located across seven states, ranging from Missouri to New Hampshire, and appeal to a wide range of visitors. All of our ski resorts employ high-capacity snowmaking capabilities on over 90% of their terrain as well as food and beverage, equipment rental and retail outlets. All of our properties offer alternative snow activities, such as terrain parks and tubing, in addition to skiing and snowboarding. The diversity of our services and amenities allows us to capture a larger proportion of customer spending as well as ensure product and service quality at our resorts.

During the 2016/2017 ski season, the Company introduced the Peak Pass, a season pass which currently features a total of 6 pass options valid at 14 different mountain locations across 5 states in the Northeast, Mid-Atlantic and Midwest U.S. Participating resorts include Mount Snow in Vermont; Attitash, Wildcat and Crotched Mountains in New Hampshire; Hunter Mountain in New York; Liberty Mountain, Whitetail Mountain, Roundtop Mountain, Jack Frost and Big Boulder in Pennsylvania; and Alpine Valley, Boston Mills, Brandywine and Mad River Mountain in Ohio. The Company believes the variety of each resort's on-mountain experience, as well as the proximity of these resorts, makes the Peak Pass a unique and affordable product for the vast majority of skiers and riders in the Northeastern, Mid-Atlantic and Midwest U.S. In the 2018/2019 ski season we introduced the Ohio Peak Pass add-on, which allowed season pass holders from our individual Ohio resorts to enjoy skiing at our existing Peak Pass resorts.

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The following table summarizes key statistics relating to each of our resorts as of April 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

 

    

Population 

    

 

    

 

    

 

 

 

 

 

Developed/ 

 

 

 

Base 

 

Skiable 

 

Total

 

Vertical Drop

Property

    

State

    

Acquired

    

Nearest Metro MSA

    

(millions)

    

Acres

    

Lifts

    

(ft.)

Alpine Valley

 

OH

 

2012

 

Cleveland, Akron, Canton

 

7.1

 

 54

 

 7

 

 260

Attitash Mountain Resort

 

NH

 

2007

 

Boston

 

13.9

 

 307

 

 11

 

 1,750

Big Boulder

 

PA

 

2005

 

Philadelphia, New York City

 

27.3

 

 65

 

 11

 

 475

Boston Mills

 

OH

 

2002

 

Cleveland, Akron, Canton

 

7.1

 

 40

 

 8

 

 264

Brandywine

 

OH

 

2002

 

Cleveland, Akron, Canton

 

7.1

 

 48

 

 10

 

 264

Crotched Mountain

 

NH

 

2003

 

Boston

 

13.9

 

 105

 

 5

 

 1,000

Hidden Valley

 

MO

 

1982

 

St Louis

 

3.9

 

 60

 

 9

 

 310

Hunter Mountain

 

NY

 

2016

 

New York City, Boston, Albany

 

27.4

 

 285

 

 12

 

 1,600

Jack Frost Ski Resort

 

PA

 

2005

 

Philadelphia, New York City

 

27.3

 

 80

 

 12

 

 600

Liberty Mountain Resort

 

PA

 

2018

 

Baltimore, Washington DC

 

9.7

 

 98

 

 9

 

 620

Mad River Mountain

 

OH

 

2001

 

Columbus, Dayton

 

2.8

 

 144

 

 12

 

 300

Mount Snow

 

VT

 

2007

 

New York City, Boston, Albany

 

27.4

 

 490

 

 20

 

 1,700

Paoli Peaks

 

IN

 

1997

 

Louisville, Nashville

 

3.0

 

 65

 

 8

 

 300

Roundtop Mountain Resort

 

PA

 

2018

 

Baltimore, Washington DC

 

9.7

 

 106

 

 9

 

 600

Snow Creek

 

MO

 

1985

 

Kansas City

 

2.9

 

 40

 

 6

 

 300

Whitetail Mountain

 

PA

 

2018

 

Baltimore, Washington DC

 

9.7

 

 125

 

 9

 

 935

Wildcat Mountain

 

NH

 

2010

 

Boston

 

13.9

 

 225

 

 5

 

 2,112

 

We operate portions or all of certain of our resorts pursuant to lease agreements with third parties or pursuant to Forest Service special use permits with the federal government.  We own the remaining land underlying our resorts. For a description of our ownership and use of the land underlying our resorts, see Item 2, “Properties” of this Report.

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 fiscal 2019 we completed two major projects and continued to move forward with capital improvement projects at our other resorts.

·

At Hunter Mountain, we completed the Hunter North expansion project that increased the resort’s skiable acreage by approximately 25% and added automated snowmaking, a six-passenger detachable high-speed chair lift and parking area.

·

At Mount Snow, we completed the Carinthia Ski Lodge project. The Carinthia Ski Lodge project included 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 includes 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.

·

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.  The zip tour opened in May 2019.

Ski Industry        

The National Ski Areas Association (“NSAA”) Kottke National End of Season Survey - Preliminary Report (the “Kottke Report”) estimated the U.S. ski industry had approximately 59.1 million skier visits in the 2018/2019 ski season, up 5.8 million, or 10.9%, from the 2017/2018 ski season.  The Kottke Report also reported that there were 476 ski areas operating during the 2018/2019 ski season in the U.S., up 4 areas from the 2017/2018 ski season.  Given the consistency and strength of annual skier visits over the last 30 years, as well as the state of the economy, we believe that skier participation will remain strong in the coming years.

The ski industry divides ski resorts into three distinct categories: overnight fly, overnight drive and day ski resorts. Overnight fly ski resorts are defined as ski resorts which primarily serve skiers who fly or drive considerable distances and stay for multiple nights. These resorts depend, in large part, on long-distance travel by their visitors and on the development of adjacent real estate for housing, hospitality and retail uses. Overnight drive ski resorts are ski resorts which primarily serve skiers from the regional drive market who stay overnight. Day ski resorts are typically located within 50 miles of a major metropolitan statistical area (“MSA”) and do not generally offer dedicated lodging.

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Day and overnight drive ski resorts tend to be smaller in size and are usually located near metropolitan areas. As an owner and operator of primarily day and overnight drive ski resorts, we focus on selling lift tickets, renting ski equipment, selling ski lessons, offering food and beverage services and catering to the targeted local market. We target skiers of all levels from beginners who are skiing for the first time to intermediate and advanced skiers who are honing their skills.

The ski industry statistics stated in the foregoing sections have been derived from data published by the Kottke National End of Season Survey 2017/2018 and other industry publications, including those of the NSAA.

Revenue Components

The following table shows our net revenue by the principal revenue category from which it was derived (dollars in thousands). Snow Time data is included from the date of acquisition.

 

 

 

 

 

 

 

 

 

 

 

 

Year ended April 30, 

 

    

2019

    

2018

    

2017

Revenues

 

 

 

 

 

 

 

 

 

Lift and tubing tickets

 

$

93,168

 

$

61,683

 

$

58,100

Food and beverage

 

 

32,210

 

 

24,749

 

 

23,078

Equipment rental

 

 

15,065

 

 

9,991

 

 

8,582

Ski instruction

 

 

15,256

 

 

9,128

 

 

8,562

Hotel/lodging

 

 

8,909

 

 

9,874

 

 

9,731

Retail

 

 

9,277

 

 

6,748

 

 

6,395

Summer activities

 

 

4,727

 

 

4,459

 

 

4,549

Other

 

 

5,814

 

 

5,030

 

 

4,252

 

 

$

184,426

 

$

131,662

 

$

123,249

 

·

Lift and Tubing Tickets— Lift tickets are our most important source of operating revenues. We place heavy emphasis on sales of season passes and advance group ticket sales to schools, religious organizations and other social groups at a discount. We market our season passes and advance group ticket sales to our ski visitors and the communities we serve. The cost of lift tickets at each of our resorts varies according to geographic region, session time and day of the week.

·

Food and Beverage—Our day drive resorts generally offer cafeteria-style and self-service options to provide a limited menu of simple foods, liquor, beer and wine. In addition to self-service options, our overnight drive resorts feature casual dining options with table service geared to their base of customers. We try to maximize revenues and simplify operations by focusing on a limited menu that requires minimal special preparation and related personnel costs.

·

Equipment Rental— Day ski resorts generally attain a higher percentage of rental revenue than overnight fly destination ski resorts and overnight drive ski resorts because a large majority of day ski resort skiers are novices, who typically do not own ski equipment. Equipment rental rates generally range between $30 and $54 per person per session. We have focused on improving our equipment rental facilities to provide quick access to new and high-quality equipment, self-service options with expert advice and fitting available, and immediate access to the lifts and ski instruction areas from the rental facility. By eliminating equipment rental bottlenecks, we believe we have significantly enhanced the skiers' resort experience, which corresponds to increased rental revenues and return visits by first-time skiers.

·

Ski Instruction— Ski instruction is considered important to operations because of the large numbers of novice or early intermediate skiers who typically visit day ski resorts. We offer low group lesson prices to encourage participation, which range from $15 to $54 per person per lesson. Individual instructions and private lessons may range from $45 to $135 or more per lesson.

·

Hotel/Lodging— Because we primarily operate day ski resorts, not all of our resorts offer hotel or other lodging services. At our resorts where we own hotels, we derive revenue from room rentals, and the operation of retail, restaurant, banquet, conference, spa and health club facilities. At our resorts with condominium properties we

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operate as hotels under rental management agreements, we also derive revenue from housekeeping and other services provided to individual unit owners.

During fiscal 2019, we operated hotels at our Hunter Mountain and Mount Snow ski resorts, where third parties own 100% of all available quarter-share interval interests, and we retain ownership of common areas and commercial space of the hotel. At Mount Snow, we manage other condominium properties from which we derive rental and property management fees. At our Mount Snow and Liberty Mountain resorts, we own and operate traditional hotel properties. During fiscal 2018 we sold our interest in the commercial space of a condominium property at our Attitash resort which had operated as a hotel under a rental management agreement with third-party quarter-share interval owners.

·

Retail— Like ski instruction services, retail also represents a relatively small percentage of our total revenues. Some of our resorts offer a selection of more substantial ski-related equipment, such as boots, skis and snowsuits, while others maintain only a minimal selection of smaller items, such as gloves and goggles. Merchandise selection and pricing decisions are made in light of consumer trends and local demographic conditions. To an extent, we have centralized our retail purchasing function, however individual ski resort management personnel oversee their merchandise selection as they see fit for their markets. At certain resorts we lease merchandise operations to third-party merchants.

·

Summer Activities— Although the majority of our resorts do not have material operations during the summer months, we do operate several resorts during the summer.  Activities include golf, zip tours, water parks, mountain coasters, weddings and conferences, camps, paintball and festivals.

Seasonality

 

Our revenues are highly seasonal in nature. The vast majority of revenue is generated during the ski season, which occurs during the winter months in our third and fourth fiscal quarters.  Some of our properties offer off season attractions, such as golf, zip tours, water parks, mountain coasters, weddings and conferences, camps, and festivals; however, these activities do not comprise a substantial portion of our annual revenues.  As a result, our resorts typically experience operating losses and negative operating cash flows during the first and second quarters of each fiscal year.

The seasonality of our revenues amplifies the effect of events outside our control, especially weather. While our geographically diverse operating locations help mitigate the effect of weather conditions, adverse weather could lower attendance due to suboptimal skiing conditions or limited access to our resorts, render snowmaking wholly or partially ineffective in maintaining ski conditions, and increase operating costs related to snowmaking efforts and inefficient labor utilization.

The opening and closing dates of our ski resorts are dependent upon weather conditions, but our peak ski season generally runs from early December to mid-April.  The following table illustrates the opening and closing dates of our resorts over the last five ski seasons:

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2018/2019

 

2017/2018

 

2016/2017

 

2015/2016

 

2014/2015

Resort

    

Open Dates

    

Open Dates

    

Open Dates

    

Open Dates

    

Open Dates

Alpine Valley

 

Dec 19 - Mar 10

 

Dec 9 - Feb 18

 

Dec 11 - Mar 17

 

Jan 3 - Mar 6

 

Dec 30 - Mar 22

Attitash Mountain Resort

 

Dec 8 - Apr 7

 

Dec 15 - Apr 8

 

Dec 26 - Apr 20

 

Dec 26 - Mar 27

 

Dec 6 - Apr 5

Big Boulder

 

Nov 16 - Apr 7

 

Nov 11 - Apr 8

 

Nov 25 - Apr 9

 

Jan 2 - Mar 27

 

Nov 20 - Apr 19

Boston Mills

 

Dec 19 - Mar 23

 

Dec 9 - Mar 26

 

Dec 16 - Mar 19

 

Jan 4 - Mar 8

 

Jan 1 - Mar 22

Brandywine

 

Dec 19 - Mar 23

 

Dec 9 - Mar 26

 

Dec 16 - Mar 5

 

Jan 5 - Mar 11

 

Jan 2 - Apr 1

Crotched Mountain

 

Dec 8 - Mar 30

 

Dec 15 - Apr 1

 

Dec 10 - Apr 9

 

Dec 29 - Mar 20

 

Nov 28 - Apr 5

Hidden Valley

 

Dec 21 - Mar 17

 

Dec 15 - Mar 4

 

Dec 10 - Feb 20

 

Jan 10 - Mar 6

 

Jan 2 - Mar 8

Hunter Mountain (1)

 

Nov 17 - Apr 7

 

Nov 21 - Apr 14

 

Nov 25 - Apr 9

 

Dec 13 - Mar 27

 

Jack Frost Ski Resort

 

Nov 16 - Mar 29

 

Nov 11 -Apr 1

 

Dec 10 - Mar 19

 

Dec 26 - Mar 13

 

Dec 12 - Mar 29

Liberty Mountain Resort (1)

 

Dec 23 - Mar 24

 

 

 

 

Mad River Mountain

 

Dec 19 - Mar 24

 

Dec 9 - Mar 25

 

Dec 16 - Mar 19

 

Jan 2 - Mar 8

 

Dec 20 - Mar 22

Mount Snow

 

Oct 27 - Apr 14

 

Nov 11 - Apr 22

 

Nov 23 - Apr 16

 

Nov 26 - Apr 3

 

Nov 21 - Apr 19

Paoli Peaks

 

Jan 12 - Mar 10

 

Dec 15 - Feb 19

 

Dec 16 - Feb 20

 

Jan 4 - Mar 6

 

Dec 31 - Mar 8

Roundtop Mountain Resort (1)

 

Dec 23 - Mar 24

 

 

 

 

Snow Creek

 

Dec 22 - Mar 17

 

Dec 26 - Mar 11

 

Dec 16 - Mar 5

 

Dec 31 - Mar 6

 

Dec 31 - Mar 8

Whitetail Mountain (1)

 

Dec 23 - Mar 17

 

 

 

 

Wildcat Mountain

 

Oct 27 - Apr 28

 

Nov 11 - Apr 22

 

Nov 24 - Apr 29

 

Nov 26 - Apr 24

 

Nov 9 - Apr 30


(1)

We acquired the Hunter Mountain ski resort in January 2016 and the Liberty Mountain, Roundtop Mountain and Whitetail ski resorts in November 2018.

Marketing

We promote our resorts through both on-site marketing and external marketing. We encourage visitors to return to our resorts by offering complimentary skier orientations at our resorts. We also have marketing programs in place directed at attracting groups, such as religious organizations, social clubs, corporate entities, schools and civic organizations, and we offer discounts to active military personnel. We believe that group discounts encourage new participants to try snow sports. Student passes are also sold through schools, and season passes are promoted through targeted direct mail marketing, the internet and local sporting goods stores.

Our resorts attempt to maximize community awareness through social media, radio advertisements, special events and promotions and “free media” advertising, when possible. We host competitions and charity events, and issue media passes and encourage live radio and television broadcasts for news segments such as weather or sports. Events we have hosted include the Dew Tour, X-Games, Tough Mudder, SAM Cutters Camp, Transworld Trans-am Snowboard Event, Mountain Dew Vertical Challenge, NCAA National Downhill Championships, Special Olympics Games, Military Salutes, Taste of Country Music Festival, and U.S. National Mountain Biking Championships.

Competition

We believe there are high barriers to entry for new ski resorts due to i) the limited private lands on which ski resorts can be developed, ii) the difficulty in getting necessary government approvals and permits to build on public land and iii) the substantial capital resources needed to construct necessary ski infrastructure. As such, we believe the risk that our market will become saturated with new industry participants is relatively low. We believe our resorts do not directly compete with overnight fly destination ski resorts, such as the larger ski resorts in Colorado, California, Nevada, Utah and other destination ski resorts worldwide. Rather, we believe we compete primarily with other existing day and overnight drive ski resorts and non-ski related day vacations.

 

Our competition varies by geographical area. While we believe our Midwestern market ski resorts face only limited competition within their relative metropolitan markets, there are many other day and overnight drive ski resorts which compete with our Northeastern and Mid-Atlantic market ski resorts. We compete with approximately 145 resorts in the Northeastern market and 47 resorts in the Mid-Atlantic market, which includes Pennsylvania.

 

Competitive Strengths

We believe our strengths are as follows:

We own a high-quality branded portfolio.  We own 16 and operate 17 high-quality ski resorts, each of which is individually branded and recognized to be a leading ski resort in its respective regional market. Our devotion to

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maintaining high quality standards through strategic investments and upgrades has created a loyal customer base at each of our resorts. Our strong branding reinforces customer loyalty and serves to attract new guests through focused marketing campaigns and word of mouth.

 

We have a history of investing in targeted capital projects to increase profitability.  We are continuously evaluating our property-level performance and are committed to increasing our profitability. Many ski resort operators are unwilling to invest in improvements due to capital constraints and the perceived risk of such investments. Over our history, we have made significant investments throughout our portfolio of resorts in an effort to improve the profitability of our ski resorts through energy-efficient snowmaking machinery, high-speed/high-capacity lifts, new and renovated lodges and lodging facilities and additional features such as terrain parks, zip tours, and various other infrastructure investments. We believe the costs of these improvements are significantly outweighed by the benefits realized, which include higher quality and less costly snow, shorter lift lines, terrain expansion, off season revenue generation and customer satisfaction. We have found that our ability to transport customers up the mountain on high-speed chairlifts and otherwise reduce lift lines attracts skiers, promotes a better skiing experience, and leads to higher restaurant and retail sales and increased customer satisfaction. Our most recent expansive capital projects that were completed in fiscal 2019 include the construction of snow making infrastructure and the new Carinthia ski lodge at our Mount Snow ski resort in Vermont and expansion of the terrain and installation of a new lift at our Hunter Mountain ski resort in New York.

 

We are an experienced and successful acquirer and integrator.  We have grown our Company significantly since inception by acquiring strategically located ski resorts with the potential for increased revenue growth and margin expansion. We have successfully acquired and integrated 14 ski resorts since 1997. We adhere to a disciplined acquisition strategy by pursuing opportunities at attractive acquisition prices that can create additional value through operational improvements and efficiencies. After acquiring a ski resort, we implement a strategic repositioning program designed during the underwriting process and integrate the resort into our portfolio. We believe our track record for acquiring and integrating ski resorts makes us an industry leader and gives us a competitive advantage over other buyers.

 

Our experienced senior management team is dedicated to providing a reliable and enjoyable ski experience.    Our senior executive team has over 60 years of combined experience owning, operating and acquiring ski resorts in the United States. Since 1982, it has been our vision to offer a reliable and enjoyable skiing experience to our customers. As a result of this vision, our management team constantly strives to enhance and improve our snowmaking capabilities to ensure our ski resorts maintain high-quality snow throughout the season. In addition, our management team strives to provide our ski resorts with a full range of amenities to augment our customers' overall skiing experience.

 

Overnight drive and day ski resorts experience lower sensitivity to the economy.  We believe our portfolio of resorts provides a more attractive risk-adjusted return than overnight fly resorts due to the stability in our visits. Furthermore, we believe customers are more likely to visit overnight drive and day ski resorts during an economic downturn as compared to other higher cost overnight fly ski resorts, resulting in less sensitivity to downturns in the economy.

 

The ski industry possesses high barriers to entry.  A limited number of ski resorts have been developed in the past 30 years. Skiable land is scarce and demanding to develop due to the difficulty in aggregating suitable terrain, obtaining government permitting, resolving accessibility issues and addressing heightened environmental concerns. Operating a ski resort requires a high level of expertise and strict regulatory and environmental compliance. Additionally, many resorts have built significant customer loyalty and brand awareness over multiple generations, which can be difficult for a new entrant to overcome. These factors have contributed to the number of ski resorts decreasing 35.2%, from 735 in 1984 to 476 in 2019 as smaller, poorly capitalized resorts have been unable to compete effectively. With our large existing portfolio, proven capital investment strategy and strong customer loyalty, we believe our portfolio of resorts is competitively well-positioned.

 

Our ski resort portfolio is diverse.  Our portfolio of 17 ski resorts consists of 6 overnight drive ski resorts and 11 day ski resorts located across seven states ranging from Missouri to New Hampshire. We believe our portfolio mix enables us to reach a large customer base seeking high-quality ski resorts within driving distance

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of major metropolitan areas. Each of our ski resorts is located within reasonable drive times from major metropolitan areas such as New York City, Boston, Philadelphia, Baltimore, Washington D.C., Cleveland Kansas City and St. Louis, which we believe provides us with a consistent repeat customer base and increases our new customer outreach potential. We believe that the size and geographic diversity of our portfolio helps insulate our financial performance against adverse economic and weather conditions.

 

We are a proven operator of ski resorts.  We have operated numerous ski resorts since our incorporation in 1997. Due to our extensive operating expertise, we believe we have a profitable and efficient platform that positions us to take advantage of growth initiatives and cost controls.

 

Management’s and our common stockholders’ interests are aligned.  Our management team owns approximately 15% of our current outstanding shares of common stock. We believe this ownership by management aligns our interests with those of our common stockholders.

Intellectual Property

We understand the importance to the sales and marketing of our resorts that a strong brand can maintain. Wildcat Mountain Ski AreaSM,  Mount Snow®, Boston Mills Ski ResortSM,  Hidden ValleySM,  Crotched Mountain Ski AreaSMAlpine Valley, Hunter MountainSM, Liberty Mountain ResortSM, Whitetail ResortSM, Roundtop Mountain ResortSM, Mountain PassportSM, and NIGHT Club CardSM are trademarks, service marks and trade names owned by certain subsidiaries of Peak Resorts, Inc. 

Regulation and Legislation

The 1986 Ski Area Permit Act and Master Development Plans

The 1986 Ski Area Permit Act (the "1986 Act") allows the National Forest Service to grant special use permits for the operation of ski resorts and construction of related facilities on National Forest lands. In addition, the permits granted to our ski resorts under the 1986 Act require a master development plan for each ski resort that is granted a special use permit. Of our 17 resorts, only Wildcat Mountain and portions of Attitash and Mount Snow operate under special use permits under the 1986 Act. The skiable terrain at our other resorts is located on land that we own or lease from third parties, including state governments.

Each area of National Forest land maintains a land and resource management plan, which establishes standards and guidelines for the Forest Service to follow and consider in reviewing and approving proposed uses. Under the 1986 Act, the Forest Service has the right to review and approve the locations, design and construction of improvements in the permit area and many other operational matters.

Our special use permits expire as follows: Attitash ski resort—April 4, 2047; Mount Snow ski resort—April 4, 2047; and Wildcat Mountain ski resort—November 18, 2050. We intend to request new special use permits for each of these resorts as provided by the Forest Service regulations and terms of the existing special use permits. To our knowledge, the Forest Service has never refused to issue a new special use permit to replace an expiring special use permit for an operating ski resort.

Special use permits contain requirements and impose obligations on our part, including that we indemnify the Forest Service from third-party claims arising out of our operations under the special use permits and that we comply with all applicable laws. We are required to pay an annual fee to the Forest Service for special use permits which could range from 1.5% to 4.0% of revenue from sales and services provided on Forest Service land. Historically we have paid fees ranging from 1.5% to 2.5% of such revenue and do not expect that this will change in the near future. The calculation of the fee is based on sales from lift tickets, season passes, ski instruction, food, beverages and merchandise, as well as equipment rental fees, and other ancillary services.

Special use permits may be amended by mutual agreement between us and the Forest Service to change the applicable ski resort or permitted uses. The Forest Service may also modify special use permits to accommodate changes in plans or

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operations. Permit amendments must be consistent with the land and resource management plan and are subject to the provisions of the National Environmental Policy Act ("NEPA").

The Forest Service may terminate a special use permit if it determines that termination is required for specific compelling reasons. However, to our knowledge, no special use permit for a ski resort has ever been terminated by the Forest Service without the consent of the operator.

We must propose a master development plan for all improvements we intend to make on National Forest lands and submit such plans to the Forest Service for review and acceptance. Once the Forest Service accepts a master development plan, individual projects contemplated by the plan are approved by the Forest Service through separate applications.

National Environmental Policy Act

Under NEPA, our major proposed actions on all National Forest land, such as the expansion of a ski resort or installation of new snowmaking equipment, must be assessed to determine the environmental impacts of such actions. Upon our application to the Forest Service to undertake major projects, the Forest Service must conduct an environmental study, which can impact the time it takes to complete a project. During these studies, the Forest Service is required to consider alternatives to proposed actions and impacts that may be unavoidable. We may not get the Forest Service's approval to undertake a project or may be required to take alternative action, depending on the results of the environmental studies.

Underground Storage Tank Regulations

We have underground storage tanks ("USTs") on our ski resort properties in Ohio, New Hampshire, New York Pennsylvania and Vermont for the purpose of storing gasoline, fuel oil and propane that we use in the operation of our resorts, lodges and skier service buildings. The federal Solid Waste Disposal Act gives the Environmental Protection Agency ("EPA") the authority to regulate USTs. State UST programs which are at least as strict as the federal regulations and which have been approved by the EPA, govern the USTs in lieu of the federal regulations. The objectives of the state UST programs are to ensure that:

·

USTs are properly constructed and designed in accordance with recognized industry standards;

·

Installations, repairs and removals are conducted and inspected by qualified and trained individuals;

·

Active USTs are properly operated and monitored for the release of substances; and

·

Upon closure, USTs are properly decommissioned and sites are assessed for contamination.

We believe that the USTs at our facilities meet all state and federal construction and operation standards. Compliance with these UST regulations has not had a material impact on our capital expenditures, earnings or competitive position, and we do not expect it to have a material impact in the future.

Employees 

 

As of April 30, 2018, our Company employed 659 year-round full-time employees and 304 year-round part-time employees.  In addition, during the height of our 2018/2019 ski season, we employed approximately 9,000 seasonal employees.

 

Availability of Information

 

Our principal executive offices are located at 17409 Hidden Valley Drive, Wildwood, Missouri 63025, telephone (636) 938-7474. We maintain a website at www.peakresorts.com. We make available on our website, free of charge, the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy and information statements as soon as practicable after we file these reports with the Securities and Exchange Commission (the “SEC”). The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (http://www.sec.gov).

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Item 1A. Risk Factors.

You should carefully read and consider the risks described below, together with all of the other information set forth in this Report. Our business, results of operations, financial condition, cash flows and the trading price of our common stock could be materially and adversely harmed by any of the following risks. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations.

Risks Related to Our Business and Industry

Our industry is sensitive to weakness in the economy, and we are subject to risks associated with the overall leisure industry.

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

Our business is vulnerable to the risk of unseasonably warm weather conditions and skier perceptions of weather conditions.

Our ability to operate and attract visitors to our resorts is influenced by weather conditions. Unseasonably warm weather can adversely affect our resorts’ opening and closing dates, the number of days we operate during a ski season, our ability to manufacture snow and maintain good ski conditions, and the number of skier visits to our resorts. Such events could have a material adverse effect on our business, financial condition, results of operations or cash flows. For example, warm weather may result in inadequate natural snowfall and render snowmaking wholly or partially ineffective in maintaining quality skiing conditions. Early season snow conditions and skier perceptions of such snow conditions may influence the momentum and success of the overall season. There is no way for us to predict future weather patterns or the impact weather patterns may have on our business, financial condition, results of operations or cash flows.

Climate change and greenhouse effects may adversely impact our results of operations.

There is a growing political and scientific consensus that emissions of greenhouse gases continue to alter the composition of the global atmosphere in ways that are affecting and are expected to continue affecting the global climate. The effects of climate change, including any impact of global warming, could have a material adverse effect on our results of operations. Warmer weather may result in inadequate natural snowfall and render snowmaking wholly or partially ineffective in maintaining quality skiing conditions. In addition, a steady increase in global temperatures could shorten the ski season in the future. Climate change may also cause an increase in changes to precipitation and extreme weather events in ways we cannot currently predict. Such changes to the amount of natural snowfall and extreme differences in weather patterns may increase our snowmaking expense, inhibit our snowmaking capabilities and negatively impact skier visits.

Our business is highly seasonal and the occurrence of certain events during our peak times could have a negative effect on our revenues.

Our resort operations are highly seasonal. Air temperatures and the timing and amount of snowfall controls our resorts’ opening and closing dates and can influence the number and type of skier visits. The majority of our skier visits are from mid-December to early April. Accordingly, during the past three fiscal years, we generated, on average, 89.3% of our revenues during the third and fourth fiscal quarters. In addition, throughout our peak quarters, we generate the highest revenues on weekends and during three major holiday periods: Christmas, Dr. Martin Luther King, Jr. Day and Presidents Day. During the 2018/2019 ski season, we generated 48.6% of our revenues on weekends and 26.7% of our revenues during these three major holiday periods.

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Our resorts typically experience operating losses and negative cash flows during the first and second quarters of each fiscal year while our resorts’ winter sports activities are not in operation. Operating results for any fiscal quarter are not indicative of the results that may be achieved for any subsequent quarter or for a full fiscal year. A high degree of seasonality in our revenues and our dependence on weekends and major holidays increases the impact of weather and other events on our operating results. Adverse weather conditions, equipment failures, and other developments of even moderate or limited duration occurring during these peak business periods could have a material adverse effect on our business, financial condition, results of operations or cash flows.

We may not be able to fully utilize our net operating loss or interest carryforwards.

The Tax Cuts and Jobs Act legislation (the “2017 Tax Act”) included a provision under which net operating losses (“NOLs”), incurred in calendar year 2018 and thereafter may be carried forward for an indefinite period.  However, the 2017 Tax Act limited the amount of income that such NOL carryforwards can be used to offset in a subsequent tax year. The 2017 Tax Act also placed limitations on our ability to deduct interest expense in a given tax year. However, the 2017 Tax Act provides that interest expense not deducted in the year incurred by virtue of those limitations, may be carried forward indefinitely.  The interest limitations of the 2017 Tax Act may increase the likelihood that our NOL carryovers arising prior to calendar year 2018 will be utilized prior to their expiration.  However, because any interest carryover amounts retain their character as interest, in future years we may not be able to realize the benefit of any accumulated interest carryforwards.

Uncertainty exists with respect to the future realization of the NOL carryforwards and the amount of any NOL carryforwards we will be able to utilize in a given future period. To the extent available, we intend to use these NOL carryforwards to offset future taxable income. There can be no assurance, however, that we will generate sufficient taxable income in the carryforward period to utilize any NOL carryforwards before they expire. In addition, Section 382 and related provisions of the Internal Revenue Code of 1986, as amended (the "Code"), contains rules that limit for U.S. federal income tax purposes the ability of a company that undergoes an "ownership change" to utilize its NOLs and certain other tax attributes existing as of the date of such ownership change. In connection with our IPO in November 2014, a change in ownership occurred pursuant to the provisions of the Code. Our acquisition of the Hunter Mountain ski resort resulted in a change in ownership of that entity under the Code. As a result, usage of NOL carryforwards which existed prior to our IPO and usage of NOL carryforwards acquired in the Hunter Mountain ski resort acquisition will be limited each year and may expire before we have the ability to utilize them.

Variations in the timing of peak periods, holidays and weekends may affect the comparability of our results of operations.

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

We compete with other leisure activities and ski resorts, which makes maintaining our customer base difficult.

The ski industry is highly competitive and capital intensive. Our ski resorts located in the Northeast and Mid-Atlantic states, compete against other ski resorts in their markets for both day and overnight drive skiers. Our competitive position depends on several factors, such as the quality and coverage of snowmaking operations, resort size, the attractiveness of terrain, lift ticket prices, prevailing weather conditions, the appeal of related services and resort reputation. Some of our competitors have stronger competitive positions in respect of one or more of these factors, which may have a material adverse effect on our business, financial condition, results of operations or cash flows.

We believe that while our Midwestern ski resorts face only limited competition from other ski resorts in the region, our competitors in the Midwest primarily include other recreation resorts, including warm weather resorts and various alternative leisure activities. Our resorts in the Northeastern and Mid-Atlantic states face similar competition from non-ski competitors. Our ability to maintain or improve skier visits at our resorts depends on, among other things, weather conditions, costs of lift tickets and related skier services relative to the costs of other leisure activities and our ability to attract people interested in recreational sports. Our failure to compete on these or other factors could have a material adverse effect on our business, financial condition, results of operations or cash flows.

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Changes in consumer behavior and preferences may affect skier visits at our ski resorts.

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

We may engage in acquisitions that could harm our business, operating results or financial condition.

A key component of our business strategy is to identify and acquire properties that are complementary to our core business. We frequently evaluate potential acquisitions and intend to actively pursue acquisition opportunities, some of which could be significant.  We cannot make assurances that we will be able to successfully integrate and manage acquired properties and businesses and increase our profits from these operations.

The integration of acquired businesses may result in disruption to other parts of our business and may require that we incur significant restructuring charges. To integrate acquired businesses, we must implement our management information systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations. The difficulties of the integrations may be further complicated by such factors as geographic distances, lack of experience operating in the geographic market or industry sector of the acquired business, delays and challenges associated with integrating the business with our existing businesses, diversion of management's attention from daily operations of the business, potential loss of key employees and customers of the acquired business, the potential for deficiencies in internal controls at the acquired business, performance problems with the acquired business' technology, exposure to unanticipated liabilities of the acquired business, insufficient revenues to offset increased expenses associated with the acquisition, and our ability to achieve the growth prospects and synergies expected from any such acquisition. Even when an acquired business has already developed and marketed products and services, there can be no assurance that product or service enhancements will be made in a timely fashion or that all pre-acquisition due diligence will have identified all possible issues that might arise with respect to such acquired assets.

Future acquisitions may also cause us to i) assume liabilities, ii) record goodwill and intangible assets which are subject to impairment, iii) incur amortization expense related to intangible assets and iv) increase our expenses and working capital requirements, all of which may reduce our return on invested capital. Failure to manage and successfully integrate the acquisitions we make could have a material adverse effect on our business, financial condition, results of operations or cash flows.

We may be unsuccessful in identifying suitable acquisition candidates which may negatively impact our growth strategy.

There can be no assurance we will be able to identify additional suitable acquisition candidates or consummate future acquisitions or strategic transactions on acceptable terms. Failure to successfully consummate future acquisitions or strategic transactions on acceptable terms could disrupt our business strategy and have a material adverse effect on our business, financial condition, results of operations or cash flows.

We rely on information technology to operate our businesses and maintain our competitiveness, and a failure to adapt to technological developments or industry trends could harm our business.

We depend on the use of information technology systems, including systems used for lift access, central reservations, point of sale, procurement and administration. We must continuously improve and upgrade our systems and infrastructure to offer enhanced products, services, features and functionality, while maintaining the reliability and integrity of our systems and infrastructure. Our future success also depends on our ability to adapt our infrastructure to meet rapidly evolving consumer trends and demands and to respond to competitive service and product offerings.

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We may not be able to maintain our existing systems or replace or introduce new technologies and systems as quickly as we would like or in a cost-effective manner. Delays or difficulties in implementing new or enhanced systems may keep us from achieving the desired results in a timely manner, to the extent anticipated, or at all. Any interruptions, outages or delays in our systems, or deterioration in their performance, could impair our ability to process transactions and could decrease our quality of service that we offer to our guests. Also, we may be unable to devote financial resources to new technologies and systems in the future. The occurrence of any of these events could have a material adverse effect on our business, financial condition, results of operations or cash flows. 

If we experience any service interruptions, data corruption or cyber or other security breaches, our operations could be disrupted.

We rely on information technology systems which are susceptible to damage, disruption or shutdowns as a result of various circumstances including, for example, failures during the process of upgrading or replacing technology, power outages, hardware failures, computer viruses, computer hackers, telecommunication failures, user errors, or catastrophic events.  If our information technology systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, our business maybe disrupted, resulting in an inability to operate our business.

We possess sensitive customer and employee information which is stored on our own systems, on hosted third-party servers, and which may be shared with third-party service providers such as those we use for payroll and management of employee benefits. While we believe we have taken reasonable and appropriate security measures to protect this information, hackers and data thieves may operate sophisticated attacks that could breach our information systems and compromise this information. Consequently, a security breach could result in unauthorized disclosure of confidential information.   In addition, we are required to comply with increasingly complex regulations designed to protect our business and personal data. 

A breach of our network security, a third-party’s network security or our failure to comply with applicable regulations may result in i) the loss of valuable business data and/or our customers’ or employees’ personal information, ii) increased costs to implement additional protections and processes, iii) a disruption of our business and a loss of revenue, iv) damage to our relationships and reputation, v) fines or lawsuits, vi) costs related to cyber or other security threats or breaches which may not be fully insured or indemnified, or vii) other circumstances which could have a material adverse effect on our business, financial condition, results of operations or cash flows. 

Failure to maintain the integrity of guest data could result in damage to our reputation and/or subject us to costs, fines or lawsuits.

We collect personally identifiable information relating to our guests for various business purposes, including marketing and promotional purposes. The integrity and privacy of our guests’ information is important to us, and our guests have a high expectation that we will adequately protect their personal information. The regulatory environment governing privacy laws is increasingly demanding, and privacy laws continue to evolve and, on occasion, may be inconsistent from one jurisdiction to another. Maintaining compliance with applicable privacy regulations may increase our operating costs and/or adversely impact our ability to market our products, properties and services to our guests. Furthermore, i) non-compliance with applicable privacy regulations by us or by third parties engaged by us, ii) a breach of security on systems storing our guest data, iii) a loss of guest data, or iv) fraudulent use of guest data could adversely impact our reputation or result in fines or other damages and litigation.

We are subject to extensive environmental laws and regulations in the ordinary course of business.

Our operations are subject to a variety of federal, state and local environmental laws and regulations, including those relating to emissions to the air; discharges to water; storage, treatment and disposal of wastes; land use; remediation of contaminated sites; and protection of natural resources such as wetlands. For example, future expansions of certain of our ski facilities may be required to comply with applicable forest management plans approved under the National Forest Management Act or local zoning requirements. In addition, most projects to improve, upgrade or expand our ski resorts are subject to environmental review under the NEPA. For our resorts that operate on National Forest land, both acts require the U.S. Forest Service to study any proposal for potential environmental impacts and include in its analysis various alternatives. Our ski resort improvement proposals may not be approved or may be approved with modifications

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that substantially increase the cost or decrease the desirability of implementing the project and which could have a material adverse effect on our business, financial condition, results of operations or cash flows. 

Our facilities are subject to risks associated with mold and other indoor building contaminants. From time to time our operations are subject to inspections by environmental regulators or other regulatory agencies. We are also subject to worker health and safety requirements.

We are subject to regulation and liability for i) the presence or release of regulated materials at, on or emanating from properties we now or formerly own or lease and operate and  ii) newly discovered environmental conditions or contamination associated at or from any of our properties. In the future, we may also be subject to greater liability a result of changes in environmental laws and regulations or their enforcement. We believe our operations are in substantial compliance with applicable environmental, health and safety requirements; however, our compliance efforts do not eliminate the risk that we may be held liable for remediation costs, incur fines or be subject to claims for damages. The amount of any such liability for remediation costs, fines, or damages or remediation costs may be material which could have a material adverse effect on our business, financial condition, results of operations or cash flows.    

If we lose key management, operations, or sales and marketing personnel, or if we experience high employee turnover, we could experience reduced revenues, an inefficient operating environment and diversion of management resources.

Our success depends largely on the continued contributions of our key management, administration, operations, and sales and marketing personnel, many of whom would be difficult to replace. With the exception of certain of our executive officers, we generally do not have employment or non-compete agreements with our key employees. If one or more members of our senior management or key professionals were to resign, the loss of personnel could result in loss of sales, an inefficient operating environment and diversion of management resources, which would have a negative effect on our business. We do not maintain “key man” insurance policies on any of our personnel.

We rely on the collective experience of our employees, particularly in resort operations, to ensure we continuously evaluate and adapt to new ski industry trends in order remain competitive. Although we are not generally dependent on any one employee involved in our operations, we may experience significantly high employee turnover. If we are not able to replace departing employees with new employees who have comparable skills and capabilities, our operations could suffer, and we may be unable to meet our customers’ expectations or adapt to new trends in our industry and may not be able to compete effectively.

We are subject to risks related to certain payment methods.

We accept payments using a variety of methods, including credit cards, debit cards and gift cards. As we offer new payment options to consumers, we may be subject to additional regulations, compliance requirements and fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We are also subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult for us to comply. As our business changes, we may also be subject to different rules under existing standards, which may require new assessments that involve costs above what we currently pay for compliance. If we are not in compliance with all applicable rules and certification requirements or if the volume of fraud in our transactions rises to certain levels, we may be subject to fines, higher transaction fees or loss of or restrictions on our ability to accept credit and debit card payments from customers. If any of these events were to occur it could have a material adverse effect on our business, financial condition, results of operations or cash flows.    

Our business requires significant capital expenditures to maintain and improve our ski resorts, and our strategy to expand our business through acquisitions requires the availability of additional sources of capital. The lack of available funds for capital expenditures or acquisitions could have a material adverse effect on our operating strategy and business.

Sustaining our successful financial performance depends, in part, on our ability to maintain and improve the quality of our facilities, products, and management resources, which requires significant capital expenditures. Although we believe capital expenditures above maintenance levels can be deferred to address cash flow or other constraints, these expenditures cannot be deferred for extended periods without adversely affecting our competitive position and financial

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performance. Historically, a key element of our strategy has been attracting additional skiers through investment in on-mountain capital improvements, and these improvements are generally capital intensive. We may finance resort capital expenditures through internally generated funds, available lines of credit or proceeds from the issuance of debt or equity. There can be no assurance that sufficient funds will be available to fund these capital expenditures or that these capital expenditures will sustain our customer base, attract additional skiers or generate additional revenues. To the extent we are unable to obtain the necessary funds, it could have a material adverse effect on our business, financial condition, results of operations or cash flows.    

Future acquisitions may require the use of internally generated funds, available lines of credit and the proceeds from the offering of additional debt or equity financing. The use of debt to finance acquisitions would increase our leverage position and the use of equity to finance acquisitions would be dilutive to our existing stockholders. Any decline in our perceived credit-worthiness associated with an acquisition could adversely affect our ability to borrow and result in more restrictive borrowing terms. As a result, we may not be able to complete acquisitions or strategic transactions in the future to the same extent as in the past, or at all. These and other factors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition and could have a material adverse effect on our business, financial condition, results of operations or cash flows.    

We are dependent on significant infrastructure and equipment.

Our infrastructure and equipment, including snowmaking equipment and ski lifts, are costly to maintain, repair and replace and are susceptible to unscheduled maintenance. Much of our infrastructure and equipment will eventually need to be replaced or significantly repaired or modernized, which could result in interruptions to our business, particularly during our peak periods. In certain cases, the cost of infrastructure or equipment repair or replacement may not be justified by the revenues at the applicable resort which could have a material adverse effect on our business, financial condition, results of operations or cash flows.    

The high fixed cost structure of ski resort operations can result in significantly lower operating income if revenues decline.

The cost structure of ski resort operations has a significant fixed component with variable expenses including, but not limited to, resort related fees, credit card fees, retail/rental cost of sales and labor, ski school labor and dining operations. Any material declines in the economy, elevated geopolitical uncertainties and/or significant changes in historical snowfall patterns, as well as other factors, could adversely affect revenue and operating costs. As such, our operating income, profits and cash flows may be materially reduced due to declines in revenue given our relatively high fixed cost structure. In addition, increases in wages and other labor costs, energy, healthcare, insurance, transportation, fuel, and other expenses included in our fixed cost structure may also reduce our margins, profits and cash flows.

We generate a significant portion of our annual revenues from Mount Snow and Hunter Mountain. Conditions or events that could negatively impact Mount Snow or Hunter Mountain could have a material adverse effect on our financial condition and results of operations.

Revenue generated from Mount Snow and Hunter Mountain in fiscal 2019 represented approximately 42.4% of our total fiscal 2019 revenues. Mount Snow and Hunter Mountain, like our other resorts, are subject to various risks such as those described in this Report, including natural disasters, changes in consumer behavior, competition from other area ski resorts, and regional weather. The occurrence of such events or conditions that negatively impact Mount Snow and Hunter Mountain would have a material adverse effect on our business, financial condition, results of operations or cash flows.    

We lease all or some of the land underlying certain of our resorts from third parties.

We lease some or all of our property at Paoli Peaks and Mad River Mountain from third parties. Our lease at Paoli Peaks terminates in 2078 and our lease at Mad River Mountain terminates in 2034. Combined, these resorts contributed 4.5% of our total revenues for the year ended April 30, 2019. The termination of either of these leases or our inability to renew these leases on commercial terms could have a material adverse effect on our business, financial condition, results of operations or cash flows.    

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A substantial portion of the skiable terrain at certain of our resorts is used under the terms of Forest Service permits.

A substantial portion of the skiable terrain at our Attitash and Mount Snow resorts and all of the land underlying the Wildcat Mountain resort is federal land that is used under the terms of permits with the U.S. Forest Service. The permits give the U.S. Forest Service the right to review and comment on the location, design, and construction of improvements in the permit area and on certain other operational matters. The permits can also be terminated or modified by the U.S. Forest Service for specific compelling reasons or in the event we fail to perform any of our obligations under the permits. Otherwise, the permits may be renewed. A termination or modification of any of our permits could have a material adverse effect on our results of operations. Currently, our permits expire as follows:

 

 

 

 

 

 

Ski Resort

 

Special Use Permit Expiration Date

Attitash

 

April 4, 2047

Mount Snow

 

April 4, 2047

Wildcat Mountain

 

November 18, 2050

We depend on a seasonal workforce and have experienced a shrinking labor pool in some of the areas we operate our business.

Our resort operations are highly dependent on a large seasonal workforce, and in recent years we have experienced a shrinking labor pool in some of the areas where we operate resorts. We recruit year-round to fill thousands of seasonal staffing needs each season and work to manage seasonal wages and the timing of the hiring process to ensure the appropriate workforce is in place. We cannot guarantee that we will be able to recruit and hire adequate personnel as the business requires, and material increases in the cost of securing our workforce may be possible in the future. Increased seasonal wages or an inadequate workforce could have a material adverse effect on our business, financial condition, results of operations or cash flows. 

We are subject to risks associated with our workforce.

In addition, we are subject to various federal and state laws governing matters such as minimum wage requirements, overtime compensation and other working conditions, healthcare benefits, discrimination and family and medical leave. Immigration law reform could also impact our workforce because we recruit and hire foreign nationals as part of our seasonal workforce. If our labor-related expenses continue to increase, our operating expenses will increase which could have a material adverse effect on our business, financial condition, results of operations or cash flows. 

A natural disaster could damage our property and reduce the number of guests who visit our resorts.

A severe natural disaster, such as a forest fire, flood, tornado or landslide, may interrupt our operations, damage our properties and reduce the number of guests who visit our resorts in affected areas. Damage to our properties could take a long time to repair and there is no guarantee that we would have adequate insurance to cover the costs of repair or the expense of the interruption to our business. Furthermore, such a disaster may interrupt or impede access to our affected properties or require evacuations and may cause visits to our affected properties to decrease for an indefinite period. The ability to attract visitors to our resorts is also influenced by the aesthetics and natural beauty of the outdoor environment where our resorts are located. A severe forest fire or other severe impacts from naturally occurring events could negatively impact the natural beauty of our resorts and have a long-term negative impact on our overall guest visitation as it would take several years for the environment to recover.

We are subject to litigation in the ordinary course of business because of the nature of our business.

The safety of guests and employees is a major concern and focus for all managers and employees of our company. By the nature of our activities, we are exposed to the risk that guests or employees may be involved in accidents during the use, operation or maintenance of ski lifts, rides and other resort facilities. As a result, we are, from time to time, subject to various asserted or unasserted legal proceedings and claims. Any such claims, regardless of merit, could be time-consuming and expensive to defend and could divert management's attention and resources. While we believe we have

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adequate insurance coverage, the outcome of all current or future litigation may nonetheless have a material adverse effect on our business, financial condition, results of operations or cash flows. 

If we fail to manage future growth effectively, our business could be harmed.

We have experienced, and expect to continue to experience, periods of rapid growth. This growth has placed significant demands on our management, operational and financial infrastructure. To manage growth effectively, we must continue to improve and enhance our managerial, operational and financial controls, train and manage our employees, and expand our employee base. We must also manage new and existing relationships with vendors, business partners and other third parties. These activities require significant expenditures and allocation of valuable management resources. If we fail to maintain the efficiency of our organization as we grow, our profit margins may decrease, and we may be unable to achieve our business objectives.

A disruption in our water supply would impact our snowmaking capabilities and impact our operations.

Our operations are heavily dependent upon our access to adequate supplies of water with which to make snow and otherwise conduct our operations. Our resorts in Pennsylvania, New Hampshire, New York and Vermont are subject to state laws and regulations regarding our use of water. There can be no assurance that applicable laws and regulations will not change in a manner that could have an adverse effect on our operations, or that important permits, licenses, or agreements will be renewed on terms as favorable as the current terms, or at all. Any failure to have access to adequate water supplies to support our current operations and future operations could have a material adverse effect on our business, financial condition, results of operations or cash flows. 

Risks Related to Our Capital Structure and Ownership of Our Common Stock

We may not be able to pay dividends on our common stock.

We declared our first quarterly cash dividend on our common stock in January 2015 and briefly suspended dividend payments as a result of operating performance, debt agreement covenant compliance, and liquidity considerations.  We resumed quarterly dividend payments in February 2017. We cannot assure you that the current dividend rate will be sustained or that we will pay dividends in the future. The declaration and payment of future dividends to holders of our common stock will be at the sole discretion of our board of directors and will depend on many factors, including our results of operations, financial condition, capital requirements, restrictions on dividends set by the terms of debt agreements and Series A Preferred Stock, economic conditions and other factors.  The board may suspend the payment of dividends on common stock at any time and for any reason if it deems such action to be in the best interests of the Company and its stockholders. If we do not pay dividends, the price of our common stock must appreciate for investors to realize a gain on their investment. This appreciation may not occur and our stock may decline in value.

We are a holding company with no operations of our own and depend on our subsidiaries for cash.

We are a holding company with no operations of our own. Accordingly, our working capital needs and our ability to service debt and pay dividends on our common and preferred stock is dependent on the distribution of cash from our subsidiaries. Each of our subsidiaries is a distinct legal entity, and, under certain circumstances, legal, contractual and debt covenant restrictions contained in existing financing agreements may limit or prevent any of them from making distributions to us. In addition, future financing or other arrangements entered into by our subsidiaries could limit their ability to make distributions to us. In the event that we do not receive adequate distributions from our subsidiaries, we may not be able to meet our working capital needs and may be unable to service our debt or make dividend payments on our common or preferred stock.

Cancellation of or modifications to the Immigrant Investor Program, or our failure to successfully raise capital under the program's guidelines, could adversely affect our ability to execute our growth strategy and improve our resorts.

We have funded certain capital projects, and may fund other future capital projects, by raising funds under the Immigrant Investor Program (the “EB-5 Program”), administered by the United States Citizenship and Immigration

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Services (the “USCIS”) pursuant to the Immigration and Nationality Act. This program was created to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors.

Under the EB-5 Program, an annual allocation of immigrant visas (‘‘EB-5 Visas’’) is made available for qualified individuals seeking lawful permanent resident status on the basis of their investment in a new commercial enterprise that generates jobs. Currently and since 2015, the demand for the annual allocation of EB-5 Visas has exceeded the supply, and potential investors may be subject to lengthy waiting periods for such visas. These waiting periods could exceed fifteen years. Furthermore, raising funds pursuant to the EB-5 Program has become significantly more difficult, and USCIS subjects EB-5 investor applicants to lengthy adjudications that can exceed two or three years.

The EB-5 Program is not a permanent program and has been extended on a year-to-year basis. The continuity of the EB-5 Program is dependent on future action by Congress and is subject to political uncertainty, and Congress may materially modify aspects of the EB-5 Program in ways that would make it unfeasible for us to rely on EB-5 financing for future financing. The Department of Homeland Security may also issue more restrictive regulations governing the minimum investment amounts or other aspects of the EB-5 Program.

We cannot guarantee we will be able to rely on the EB-5 Program as a potential source of funding to implement future plans to improve our resorts. In this case, conventional financing options, such as loans, may prove too costly or may not be available, which could result in cancellation of our development and improvement plans and could have a material adverse effect on our business, financial condition, results of operations or cash flows. 

We rely on one primary lender and its affiliates as the source for the majority of our financing and credit.

We have historically relied on one lender and its affiliates, EPR Properties (“EPR”), for substantially all of our financing and credit needs, including financing relating to our resort acquisitions. As of April 30, 2019, amounts due to EPR totaled $114.2 million. EPR is an entertainment, entertainment-related, recreation and specialty real estate company with its common stock listed on the New York Stock Exchange under the symbol "EPR". In the event EPR is not available to extend us credit, we may not be able to obtain financing on terms as favorable to us as those under our arrangements with EPR. As a result, we may be subject to more stringent financial covenants and higher interest rates.

EPR has an option to purchase, or assume our leases relating to, certain of our ski resorts. If EPR exercises this option, we would incur significant tax obligations.

Pursuant to the terms of our borrowing agreements with EPR, we have entered into an option agreement (the “Option Agreement”) that provides EPR with a purchase option on our Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley ski resorts. The purchase option is exercisable as to any one or more of such properties on the maturity date of the applicable underlying promissory note at a purchase price to be calculated in accordance with the terms of the Option Agreement. Upon the closing of any sale under the Option Agreement, EPR will enter into an agreement with the Company or one of its subsidiaries 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 10 years each.

We have a low adjusted tax basis in these properties as we have taken tax depreciation since the time they were acquired. As a result, we would realize significant taxable gains on the sale of the properties if EPR exercises a purchase option, and we may be required to pay substantial income taxes on taxable gains from any such sale.

Under certain circumstances, our insurance coverage may not cover all possible losses, and we may not be able to renew our insurance policies on favorable terms, or at all.

Although we maintain various property and casualty insurance policies, our insurance policies do not cover all types of losses and liabilities, and our levels of coverage may not be sufficient to cover the ultimate cost of claims. If we are held liable for amounts exceeding the limits of our insurance coverage or for claims outside the scope of our coverage, it could have a material adverse effect on our business, financial condition, results of operations or cash flows. 

In addition, we may not be able to renew our current insurance policies on favorable terms, or at all. Our ability to obtain future insurance coverage at commercially reasonable rates could be adversely affected if we or other companies within or outside our industry sustain significant losses or make significant insurance claims.

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We qualify as an emerging growth company, smaller reporting company and a non-accelerated filer under Rule 12b-2 of the Securities Exchange Act of 1934. As a result, we are not required by Section 404 of the Sarbanes-Oxley Act to have our independent registered public accounting firm attest to the effectiveness of our internal controls over financial reporting and are able to use extended transition periods for complying with new or revised accounting standards.

Our management is required by Section 404 of the Sarbanes-Oxley Act to make a formal assessment of the effectiveness of our internal controls over financial reporting. Our independent registered public accounting firm, however, is not required to attest to the effectiveness of our internal controls over financial reporting until such time as we are no longer either an emerging growth company or a non-accelerated filer as defined by Rule 12b-2 of the Securities Exchange Act of 1934. This lack of attestation by our independent registered accounting firm may increase the risk that we fail to detect and remedy any weakness of deficiencies in our internal control over financial reporting. Additionally, at such time as we are subject to the auditor attestation requirements, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. If we are unable to establish and maintain effective internal controls it could have a material adverse effect on our business, financial condition, results of operations or cash flows. 

Until such time as we no longer qualify as an emerging growth company, we may take advantage of extended transition periods for complying with new or revised accounting standards and reduced disclosure options. As a result, our financial statements and disclosures may not be comparable to other companies who do not qualify as an emerging growth company.

The issuance of shares of our Series A Preferred Stock and Warrants reduces the relative voting power of holders of our common stock, may dilute the ownership of such holders and may adversely affect the market price of our common stock.  

Cap 1, as holder of our Series A Preferred Stock, is entitled to vote, on an as-converted basis, together with holders of our common stock on all matters submitted to a vote of the holders of our common stock. As such, the issuance of the Series A Preferred Stock reduces the relative voting power of the holders of our common stock.  Current stockholders have no preemptive rights to purchase any securities in order to maintain their proportionate interest in the Company. 

In addition, conversion of the Series A Preferred Stock to common stock and exercise of the Warrants by Cap 1would dilute the ownership interest of existing holders of our common stock, and any sales of the underlying shares of common stock in the public market could adversely affect prevailing market prices of our common stock. Sales by holders of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock. 

Cap 1 may exercise significant influence over us.

Because Cap 1 is entitled to vote its Series A Preferred Stock on an as-converted basis, Cap 1 and its affiliates currently own approximately 37.9% of the Company’s outstanding voting power. Assuming the conversion of the Series A Preferred Stock and exercise of the Warrants also owned by Cap 1, Cap 1 and its affiliates would own approximately 53.4% of the outstanding shares of our common stock and voting power.  Additional pre-emptive rights and rights of first offer in the documents governing our Series A Preferred Stock may allow Cap 1 to maintain its ownership position. Cap 1 has agreed to vote shares of common stock issued upon exercise of the Warrants in favor of the board of directors’ recommendations as to the election of directors and matters submitted to a vote of the stockholders (except in the case of non-routine matters such as tender offers, mergers, acquisitions and similar transactions) for up to three years after the issuance date or until a change of control. However, Cap 1 has the ability to significantly influence, and may in the future be able to control, the outcome of any matter submitted for the vote of the holders of our common stock.

Under the terms of the Series A Preferred Stock, the Series A Preferred Stock generally ranks, with respect to the liquidation, dividends and redemption, senior to other securities.  The Stockholders’ Agreement provides that, so long as Cap 1 beneficially owns, on an as-converted basis, at least 11.4% of the outstanding  equity securities of the Company,  Cap 1’s approval is required in order for the Company or any subsidiary to i) materially change the nature of its business from owning, operating and managing ski resorts or ii) acquire or dispose of any resorts, assets or properties for aggregate consideration equal to or greater than 30% of the enterprise value of the Company and its subsidiaries. 

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The Stockholders’ Agreement grants Cap 1 the right to nominate a director so long as it beneficially owns, on an as-converted basis, at least 20% of the outstanding equity securities of the Company, subject to satisfaction of reasonable qualification standards and Nominating and Corporate Governance Committee approval of the nominee.  Notwithstanding the fact that all directors will be subject to fiduciary duties to us and to applicable law, the interests of the directors designated by Cap 1 may differ from the interests of our security holders as a whole or of our other directors.

Our Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could adversely affect our liquidity and financial condition, and may result in the interests of the holder of our Series A Preferred Stock differing from those of our common stockholders.

The holder of our Series A Preferred Stock has the right to receive a liquidation preference entitling it to be paid out of our assets available for distribution to stockholders before any payment may be made to holders of any other class or series of capital stock as well as a preferential right to receive cumulative dividends at the rate of 8% per annum on the liquidation value of $1,000 per share. The holder of our Series A Preferred Stock also has certain redemption and conversion rights, and there are limitations on the Company’s ability to redeem other securities. 

These dividend obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holder of our Series A Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have a material adverse effect on our business, financial condition, results of operations or cash flows.  The preferential rights could also result in divergent interests between the holder of shares of Series A Preferred Stock and holders of our common stock. 

Provisions in our amended and restated articles of incorporation, our amended and restated bylaws and Missouri law might discourage, delay, or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Provisions of our amended and restated articles of incorporation, our amended and restated bylaws and Missouri law might discourage, delay, or prevent a merger, acquisition, or other change in control that stockholders consider favorable, including transactions in which our stockholders might otherwise receive a premium for shares of our common stock. These provisions might also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include:

·

The additional authorized shares of common stock and preferred stock could be used to dilute the stock ownership or voting rights of persons seeking to obtain control of us or could be issued to persons allied with the board of directors or management and thereby have the effect of making it more difficult to remove directors or members of management by diluting the stock ownership or voting rights of persons seeking to effect such a removal.

·

The blank check preferred stock could be used by the board of directors for adoption of a stockholder rights plan or “poison pill.”

·

Existing provisions of our governing documents, including the limitations on director removal, the threshold vote required for stockholders to call a special meeting of the stockholders or act by written consent, the advance notice required for stockholder proposals and director nominations, the limitations on the increase in the number of directors and the inability of stockholders to amend the bylaws, may have anti-takeover effects. 

·

Similarly, applicable provisions of Missouri law, such as the business combination and control share acquisition statutes, may have anti-takeover effects, making it more difficult for or preventing a third party from acquiring control of us or changing our board of directors and management. These provisions may also have the effect of deterring hostile takeovers or delaying changes in control of us or in our management.

The existence of the foregoing provisions and anti-takeover measures could limit the price that investors are willing to pay in the future for shares of our common stock. They could also deter potential acquirers of the Company, thereby reducing the likelihood that our stockholders could receive a premium for our common stock in an acquisition.

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We do not believe the issuance of the Series A Preferred Stock, the Warrants and the common stock issuable upon conversion or exercise thereof will have a significant impact on any attempt to gain control of the Company. It is possible, however, that the existence of a single stockholder with a significant ownership percentage and director nomination rights could discourage third parties from attempting to gain control. It should be noted that any action taken by the Company to discourage an attempt to acquire control of the Company might result in stockholders not being able to participate in any possible premiums which might be obtained in the absence of anti-takeover provisions. Any transaction which may be so discouraged or avoided could be a transaction that the Company's common stockholders might consider to be in their best interests. However, the board of directors has a fiduciary duty to act in the best interests of the Company's stockholders at all times. 

Pursuant to executive employment agreements between the Company and certain of its executive officers (the “Executives”), each Executive is entitled to change of control payments in the event of a termination of Executive's employment by the Company without cause or notice by the Company of non-renewal of the agreement, within one year of a change in control of the Company. A “change in control” includes an event or series of events by which any person or group becomes the beneficial owner, directly or indirectly, of 35% or more of the equity securities of the Company entitled to vote for members of the board of directors or equivalent governing body of the Company on a fully-diluted basis. 

The market price of our common stock has been and will likely continue to be volatile, and you could lose all or part of your investment.

The market price of our common stock has been and may continue to be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed above and elsewhere in this Report, factors that could cause fluctuations in the market price of our common stock include the following:

·

quarterly variations in our results of operations;

·

results of operations that vary from those of our competitors;

·

changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;

·

failure to realize benefits and synergies anticipated in connection with the Snow Time acquisition;

·

sales, or perception of sales, in the market by our principal stockholders;

·

announcements by us, our competitors or our vendors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;

·

announcements by third parties of significant claims or proceedings against us;

·

fluctuations in trading volume;

·

future sales of our common stock; and

·

changes in investor sentiment toward the stock of ski resort and recreational services companies in general.

Furthermore, the stock market has experienced extreme volatility that in some cases has been unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could be a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.

Our principal stockholders may exert substantial influence over us and may exercise their control in a manner adverse to your interests.

As a group, Timothy Boyd, Richard Deutsch and Stephen Mueller (the “Management Stockholders”) together with Cap 1 currently own 48.3% of the Company’s total voting power. As a result, these holders are able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment to our amended and restated articles of incorporation and approval of significant corporate transactions. This ability could have the effect of delaying or preventing a change of control of the Company or changes in management,

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and will make the approval of certain transactions difficult or impossible without the support of these stockholders. It is possible that these persons will exercise control over us in a manner adverse to your interests.

Future sales of our common stock may cause our stock price to decline.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline. These sales might also make it more difficult for us to sell additional equity securities at a time and price that we deem appropriate. All of the outstanding shares of our common stock are freely tradable in the public market, except for any shares held by our affiliates as defined in Rule 144 of the Securities Act.

We also registered all 559,296 shares of common stock that we may issue under the Peak Resorts, Inc. 2014 Equity Incentive Plan that has been adopted by the board of directors and stockholders.  These shares can be freely sold in the public market upon issuance, subject to vesting conditions.  As of April 30, 2019, 357,001 shares remained available for issuance.   

We may not be able to refinance, extend or repay our debt when it comes due, which would have a material adverse effect on our financial condition.

 

 

The $12.4 million Royal Banks line of credit debt outstanding at April 30, 2019 matures in full on December 27, 2019, unless extended or renewed by agreement of the parties. The $50.0 million Cap 1 Term Loan debt outstanding at April 30, 2019 matures in full on November 30, 2020, subject to a one-year extension at our option. The $52.0 million EB-5 Development Notes debt outstanding at April 30, 2019 matures in full on December 27, 2021, subject to extension of up to an additional two years at the option of the borrowers with lender consent.

 

We may need to renew or extend the Royal Banks line of credit debt prior to its maturity. In addition, we anticipate that we will need to refinance the Term Loan debt and EB-5 Development Notes debt in order to repay the outstanding amounts when they mature, which may include entering into new credit facilities or the issuance of debt or equity capital. If we are unable to repay this debt at maturity, and we are otherwise unable to extend the maturity dates or refinance these obligations, we would be in default. We cannot provide any assurances that we have or will be able to raise the necessary amount of capital to repay this debt as it matures, or that we will be able to extend the maturity dates or otherwise refinance these obligations. A default on the Term Loan would result in a default under certain other existing credit agreements, and our lenders would have the right to exercise their rights and remedies to collect, which would include foreclosing on our assets and may require us to seek bankruptcy protection.

 

Receipt of the Term Loan funds and issuance of additional Series A Preferred Stock significantly increases our leverage and further reduces the cash available, which may impair our flexibility to operate our business.

 

Receipt of the Term Loan significantly increased our already substantial debt. As a result, we face increased risk of default on our debt obligations and an increase in debt service requirements. We may also incur additional indebtedness in the future.

 

The amount of our outstanding debt and debt service obligations, as well as our increased Series A Preferred Stock dividend obligations, may have significant, and potentially adverse, consequences to us and our stockholders, including:

 

·

impairing our ability to meet one or more of the financial covenants contained in our existing debt agreements or to generate cash sufficient to pay interest or principal due under those agreements, which could result in an acceleration of some or all of our outstanding debt;

·

limiting our ability to borrow money, dispose of assets, or fund our working capital, capital expenditures, dividend payments, debt service, strategic initiatives or other obligations;

·

limiting our flexibility in planning for, or reacting to, changes in the economy, the markets, regulatory requirements, our operations or our business;

·

making us more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;

·

making us more vulnerable to downturns in the economy or our business;

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·

requiring a substantial portion of our cash flow from operations to make debt service payments;

·

preventing us from taking advantage of business opportunities, including other resort acquisitions, as they arise; and

·

inhibiting our ability to pay cash dividends on our common stock, repurchase common stock or redeem Series A Preferred Stock.

 

To the extent that we incur additional indebtedness, the risks described above could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to service our outstanding debt or to repay the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets, or otherwise raise funds on acceptable terms, or at all, to service or refinance our debt.

 

 Risks Relating to the Snow Time Acquisition

The Snow Time acquisition could harm our business, operating results, or financial condition.

 

We may incur substantial expenses in connection with the integration of the business, policies, procedures, operations, technologies, and systems of Snow Time.  There are a large number of systems and functions that must continue to be integrated, including, but not limited to, management information, accounting and finance, payroll, and benefits and regulatory compliance.  Acquisitions are particularly challenging because the prior practices of target companies may not meet the requirements of the Sarbanes-Oxley Act of 2002 or U.S. GAAP standards applicable to publicly traded companies.  While we have assumed that a certain level of expenses would be incurred, there are a number of factors beyond our control that could affect the total amount or the timing of all of the expected integration expenses.  Moreover, many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time.

We may be unable to successfully integrate our business with the business of Snow Time and realize the anticipated benefits of the Snow Time acquisition.

 

The Snow Time acquisition involves the combination of the businesses of two companies that have operated as independent companies.  Our management has been and will continue to be required to devote significant attention and resources to integrating our business practices and operations with those of Snow Time. Potential difficulties we may encounter as part of the integration process include, but are not limited to, the following:

·

inability to successfully combine our business with the business of Snow Time in a manner that permits us to achieve the full synergies anticipated from the acquisition;

·

complexities associated with managing our business and the business of Snow Time, including the challenge of integrating complex systems, technology, networks, and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees, and other constituencies;

·

integrating the workforces of the two companies while maintaining focus on providing consistent, high quality customer service; and

·

potential unknown liabilities and unforeseen increased expenses or delays associated with the acquisition, including costs to integrate the two companies that may exceed anticipated costs.

 

Any of the difficulties listed above could adversely affect our ability to maintain relationships with resort visitors, suppliers, employees, lenders, and other constituencies or our ability to achieve the anticipated benefits of the Snow Time acquisition.

Our actual financial and operating results after the Snow Time acquisition could differ materially from any expectations or guidance provided by us concerning future results, including (without limitation) expectations or guidance with respect to the financial impact of any cost savings and other potential synergies.

We currently expect to realize an increase in gross revenue and other synergies as a result of the Snow Time Acquisition.  These expectations are subject to numerous assumptions, however, including assumptions derived from our diligence efforts concerning the status of and prospects for Snow Time’s business, and assumptions relating to the near-term prospects for our industry generally and the markets for Snow Time’s resorts in particular.

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Additional assumptions that we have made include, without limitation, the following:

·

projections of future revenues;

·

anticipated cost savings and other synergies associated with the Snow Time acquisition;

·

amount of goodwill and intangibles that will result from the Snow Time acquisition;

·

the fair value of the assets acquired and liabilities assumed from Snow Time;

·

other financial and strategic risks of the Snow Time acquisition.

 

We cannot provide any assurances with respect to the accuracy of our assumptions, including our assumptions with respect to future revenues or revenue growth rates, if any, of Snow Time, and we cannot provide assurances with respect to our ability to realize any cost savings that we currently anticipate. Risks and uncertainties that could cause our actual results to differ materially from currently anticipated results include, but are not limited to, those discussed in this “Risk Factors” section and those relating to our business and industry as discussed in our filings with the SEC. Any failure to integrate Snow Time successfully and to realize the financial benefits we currently anticipate from the Snow Time acquisition would have a material adverse impact on our future operating results and financial condition and could materially and adversely affect the trading price or trading volume of our common stock.

 

The obligations and liabilities of Snow Time, some of which may be unanticipated or unknown, may be greater than we have anticipated, which may diminish the value of Snow Time to us.

 

Snow Time’s obligations and liabilities, some of which may not have been disclosed to us or may not be reflected or reserved for in Snow Time’s historical financial statements, may be greater than we have anticipated. The obligations and liabilities of Snow Time could have a material adverse effect on Snow Time’s value to our business, financial condition or results of operations. In the event we are responsible for liabilities substantially in excess of any amounts recovered through rights to indemnification or alternative remedies that might be available to us, or any applicable insurance, we could suffer consequences that would substantially reduce our earnings and cash flows or otherwise materially and adversely affect our business, financial condition, or results of operations.

 

Item 1B. Unresolved Staff Comments.

None

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Item 2. Properties.

 

 

 

 

 

 

 

 

 

 

 

Total

 

Skiable

 

 

 

 

Ski Resort/Location

    

Acres

    

Acres

    

Ownership

    

Usage

Alpine Valley, Chesterland, OH

 

135

 

54

 

Owned

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities and food/beverage facilities

Attitash Mountain Resort, Bartlett, NH

 

1,134

 

307

    

Partially owned/partially used per terms of a special use permit (1) (2)

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities, food/beverage facilities, hotel/lodging facilities and conference/meeting rooms

Big Boulder, Blakeslee, PA

 

107

 

65

 

Owned

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities and food/beverage facilities

Boston Mills, Sagamore Hills, OH

 

100

 

40

 

Owned

 

Ski resort operations, including ski lifts, ski trails, terrain park, rental/retail facilities and food/beverage facilities

Brandywine, Sagamore Hills, OH

 

102

 

48

 

Owned

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities and food/beverage facilities

Crotched Mountain, Bennington, NH

 

251

 

105

 

Owned

 

Ski resort operations, including ski lifts, ski trails, terrain park, rental/retail facilities and food/beverage facilities

Hidden Valley, Wildwood, MO

 

250

 

60

 

Owned

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities and food/beverage facilities; headquarters offices

Hunter Mountain, Hunter, NY

 

1,537

 

285

 

Owned

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities, food/beverage facilities, hotel/lodging facilities and conference/meeting rooms

Jack Frost Ski Resort, Blakeslee, PA

 

201

 

80

 

Owned

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities and food/beverage facilities

Liberty Mountain Resort, Carrol Valley, PA

 

454

 

98

 

Owned

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities, food/beverage facilities, hotel/lodging facilities, golf course and conference/meeting rooms

Mad River Mountain, Zanesfield, OH

 

324

 

144

 

Leased (3)

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities and food/beverage facilities

Mount Snow, West Dover, VT

 

588

 

490

 

Partially owned/partially used per terms of a special use permit (1)

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities, food/beverage facilities, hotel/lodging facilities, conference/meeting rooms, golf course and developable land

Paoli Peaks, Paoli, IN

 

65

 

65

 

Partially leased/partially owned (4)

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities and food/beverage facilities

Roundtop Mountain Resort, Lewisburry, PA

 

1,112

 

106

 

Owned

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities and food/beverage facilities

Snow Creek, Weston, MO

 

460

 

40

 

Owned

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities and food/beverage facilities

Whitetail Mountain, Mercersburg, PA

 

1,261

 

125

 

Owned

 

Ski resort operations, including ski lifts, ski trails, terrain park, tubing, rental/retail facilities, food/beverage facilities, golf course and developable land

Wildcat Mountain, Jackson, NH

 

225

 

225

 

Used per terms of a special use permit (5)

 

Ski resort operations, including ski lifts, ski trails, terrain park, rental/retail facilities and food/beverage facilities


(1)

A substantial portion of the skiable terrain at Attitash and Mount Snow is federal land that we use pursuant to the terms of renewable permits with the U.S. Forest Service. The Attitash and Mount Snow special use permits expire on April 4, 2047.

(2)

During fiscal 2019, we sold our interest in the commercial space of a condominium property at our Attitash resort which had operated as a hotel under a rental management agreement with third party quarter-share intervals.

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(3)

The Mad River Mountain lease terminates in 2034. The Company has the right of first offer to purchase the Mad River Mountain property should the lessor desire to transfer the property to another third-party ski resort operator, subject to certain exceptions.

(4)

The Paoli Peaks lease terminates in 2078.

(5)

All of the land underlying Wildcat Mountain is federal land that we use pursuant to the terms of a renewable permit with the U.S. Forest Service. The Wildcat Mountain special use permit expires on November 18, 2050.

 

Item 3. Legal Proceedings

We are not aware of any pending or threatened legal proceedings against us that could have a material adverse effect on our business, operating results or financial conditions. The ski industry is characterized by periodic litigation and as a result, we may be involved in various additional legal proceedings from time to time.

Item 4. Mine Safety Disclosures

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock has been listed on the NASDAQ Global Market under the symbol “SKIS” since November 21, 2014, following the completion of our IPO. Prior to that time, there was no public market for our common stock. As of June 25, 2019, 15,165,832 shares of our common stock were outstanding, held by approximately 28 holders of record.

Dividends

In fiscal 2015, the Company’s board of directors approved the commencement of a regular quarterly cash dividend on our common stock at a quarterly rate of $0.1375 per share.  In April 2016, the board suspended common stock dividends in consideration of our then current operating performance, debt agreement covenant compliance and liquidity position. The board approved the reinstatement of the common stock dividend in February 2017 at the quarterly rate of $0.07 per share. During fiscal 2019 and 2018, we paid quarterly cash dividends of $0.07 per share of common stock.

The declaration and payment of future dividends to holders of our common stock will be at the sole discretion of our board of directors, subject to applicable state law, and will depend on many factors, including our actual results of operations, financial condition, capital requirements, any future contractual restrictions, restrictions in our debt agreements and terms of outstanding Series A Preferred Stock, economic conditions and other factors that could differ materially from our current expectations. As a holding company, our ability to declare and pay dividends is also dependent on our subsidiaries’ ability to make cash available to us by dividend, distribution or otherwise. Each of our subsidiaries is a distinct legal entity, and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from them.

In addition, from and after the date that is nine months from the date of issuance, cumulative dividends accrue on the outstanding shares of Series A Preferred Stock on a daily basis in arrears at the rate of 8% per annum on the liquidation value of $1,000 per share.

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for further information regarding restrictions on and terms governing our common stock and Series A Preferred Stock dividend payments.

 

Item 6. Selected Financial Data.

The table below summarizes our selected consolidated financial information as of and for the periods indicated. You should read the following selected consolidated financial data together with our consolidated financial statements and related notes filed as part of this annual report. Our historical results for any prior period are not necessarily indicative of

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results to be expected in any future period. The data presented in the table and footnotes below are in thousands, except per share and per visit amounts.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended April 30, 

 

    

2019

    

2018

    

2017

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Statement Information

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Revenues

 

$

184,426

 

$

131,662

 

$

123,249

 

$

95,729

 

$

104,858

Operating expense (1)

 

 

134,309

 

 

106,811

 

 

95,072

 

 

78,660

 

 

78,586

Depreciation and amortization

 

 

19,618

 

 

13,231

 

 

12,713

 

 

10,709

 

 

9,450

Land and building rent

 

 

1,393

 

 

1,401

 

 

1,395

 

 

1,386

 

 

1,440

Settlement of lawsuits

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,100

Gain on involuntary conversion

 

 

 —

 

 

 —

 

 

 —

 

 

195

 

 

 —

Interest expense, net

 

 

15,788

 

 

13,322

 

 

12,473

 

 

10,814

 

 

15,458

Defeasance fee paid with debt restructure

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

5,000

Gain on sale/leaseback

 

 

333

 

 

333

 

 

333

 

 

333

 

 

333

Other income

 

 

159

 

 

160

 

 

61

 

 

 8

 

 

11

Income (loss) before income tax

 

 

13,620

 

 

(2,610)

 

 

1,990

 

 

(5,304)

 

 

(2,632)

Net income (loss)

 

$

8,916

 

$

1,352

 

$

1,241

 

$

(3,226)

 

$

(1,854)

Basic earnings (loss) per share

 

$

0.45

 

$

(0.02)

 

$

0.03

 

$

(0.23)

 

$

(0.22)

Diluted earnings (loss) per share

 

$

0.45

 

$

(0.02)

 

$

0.03

 

$

(0.23)

 

$

(0.22)

Other Financial Information (unaudited)

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Reported EBITDA (2)

 

$

49,769

 

$

25,585

 

$

26,782

 

$

16,240

 

$

25,400

Capital expenditures

 

$

30,515

 

$

31,019

 

$

11,454

 

$

12,407

 

$

12,116

Other Data (unaudited)

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Operations:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Skier visits (3)

 

 

2,112

 

 

1,652

 

 

1,538

 

 

1,166

 

 

1,554

Revenue per skier visit (4)

 

$

87.32

 

$

79.70

 

$

80.14

 

$

82.11

 

$

67.45

Revenue per visit (5)

 

$

76.11

 

$

71.75

 

$

71.95

 

$

73.32

 

$

61.34

Tube visits

 

 

311

 

 

183

 

 

175

 

 

140

 

 

155

Total visits

 

 

2,423

 

 

1,835

 

 

1,713

 

 

1,306

 

 

1,709

Other Balance Sheet Data

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Cash and cash equivalents

 

$

30,194

 

$

23,091

 

$

33,665

 

$

5,396

 

$

16,849

Restricted cash (6)

 

$

5,240

 

$

13,338

 

$

44,813

 

$

61,099

 

$

37,519

Total assets (7)

 

$

410,648

 

$

308,330

 

$

319,946

 

$

312,871

 

$

240,570

Long-term debt (including current portions and revolving lines of credit) (7)

 

$

229,797

 

$

180,866

 

$

185,585

 

$

140,718

 

$

100,062

Net debt (8)

 

$

199,603

 

$

157,775

 

$

151,920

 

$

135,322

 

$

83,213

Dividends declared

 

$

5,682

 

$

5,516

 

$

1,958

 

$

5,768

 

$

3,449

Total stockholders' equity

 

$

82,225

 

$

69,820

 

$

73,761

 

$

71,634

 

$

80,438


(1)

Operating expenses before depreciation and amortization and land and building rent, and restructuring and impairment.

(2)

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reported EBITDA” for a definition of Reported EBITDA and reconciliation to net income (loss).

(3)

A skier visit represents a person utilizing a ticket or pass to access a mountain resort for any part of one day and includes both paid and complimentary access and excludes tube visits.

(4)

Revenue per skier visit is calculated by dividing total revenue by total skier visits during the respective periods.

(5)

Revenue per visit is calculated by dividing total revenue by total visits (ski and tube) during the respective periods.

(6)

Includes cash balances restricted i) per debt agreements for payment of interest, ii) per debt agreements for certain construction projects, and iii) per limited partnership agreements, and held in escrow pending the completion of fundraising for the respective limited partnership.

(7)

Reflects reclassification of prior periods to reflect the adoption of the Financial Accounting Standards Board’s (“FASB”) i) Accounting Standards Update (“ASU”) 2015‑03, “Interest—Imputation of Interest

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(Subtopic 835‑30): Simplifying the Presentation of Debt Issuance Costs,” 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 liability, and ii) ASU 2015‑17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which requires the presentation of deferred tax assets and liabilities on a net basis by jurisdiction. The Company adopted ASU 2015‑03 in fiscal 2015 and ASU 2015‑17 in fiscal 2018.

(8)

Net debt is defined as long-term debt and capital lease obligations plus long-term debt and capital lease obligations due within one year, less cash and cash equivalents.

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Item 7.  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 consolidated financial statements and the notes thereto included elsewhere in this Report.

Overview

We own or lease and operate 17 ski resorts throughout the Northeast, Mid-Atlantic and Midwest, United States. Our ski resorts, which include both day ski resorts and overnight drive ski resorts, offer snow skiing, snowboarding and other snow sports. During the last two ski seasons, we had an average of 1.9 million skier visits each year.

We operate in a single reportable business segment—resort operations. The consolidated financial data presented in this Report is comprised of the data of our 17 ski resorts, including data of Liberty Mountain, Roundtop Mountain and Whitetail resorts since the date of the Snow Time acquisition.

The opening and closing dates of our ski resorts are dependent upon weather conditions, but our peak ski season generally runs from early December through mid-April. See Item 1, “Business—Seasonality” for information about the historical opening and closing dates for our resorts.

Like other day ski resort and overnight drive ski resort operators, we earn our revenues in six principal categories. In order of their contribution, they are: lift and tubing tickets, food and beverage sales, equipment rentals, hotel/lodging, ski instruction, and retail.

Our largest source of revenue is the sale of lift tickets (including season passes) which represented approximately 50.5%, 46.8% and 47.1% of net revenue for the years ending April 30, 2019, 2018 and 2017, respectively. Lift ticket revenue is driven by the volume of lift tickets and season passes sold and the pricing of these items. Most of our season pass products are sold before the start of the ski season. For the 2018/2019, 2017/2018 and 2016/2017 ski seasons, approximately 34.2%, 36.3% and 34.5%, respectively, of total lift revenue recognized was comprised of season pass revenue. Season pass revenue, although collected prior to the ski season, is recognized ratably over the ski season based upon the number of days our resorts are open.

The cost structure of our operations has significant fixed and variable components. Our significant variable expenses include retail and food and beverage cost of sales, labor costs and power and utilities. As such, operating margins can fluctuate based on the level of revenues.

Recent Developments  - 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 for total consideration of  $71.6 million, which consisted of $66.6 million in cash, net of cash acquired of $1.0 million, and 1,183,432 shares of common stock with a value of $6.0 million based on the Company’s closing stock price on the day the transaction closed. 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. We acquired Snow Time in order to expand our portfolio of resorts.

Snow Time’s resort properties 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.

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Term Loan Financing and Issuance of Preferred Stock and Warrants

 

We financed $50.0 million of the Snow Time consideration with the $50.0 million Term Loan from Cap 1 pursuant to the terms of the Credit Agreement entered into with Cap 1 on November 21, 2018 (the “Credit Agreement”).

As consideration for the Term Loan and in lieu of fees, we issued Cap 1 the Financing Warrant to purchase 1,750,000 shares of common stock at $10.00 per share.

As a condition to the funding of the Term Loan, and for aggregate consideration of $20.0 million, we exercised our existing option (the “Cap 1 Option”) to issue to Cap 1 an additional 20,000 shares of Series A Preferred Stock, along with the 2018 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 was 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 2016 Private Placement. The Company used the Cap 1 Option proceeds to fund the remainder of the cash portion of the Snow Time Acquisition purchase price. See “—Liquidity and Capital Resources” and Notes 5 and 6 to the accompanying consolidated financial statements.

 

The exercise prices of the 2018 Option Warrants must be paid in cash. At our option, the exercise price of the Financing Warrant may be paid in whole or in part in cash or settled through a cashless exercise. 

Stockholders’ Agreement

On November 21, 2018, in connection with the closing of the Term Loan and the Snow Time acquisition, the Company, Cap 1 and the Management Stockholders entered into the Amended and Restated Stockholders’ Agreement which added the new shares of Series A Preferred Stock, 2018 Option Warrants, Financing Warrant and Extension Warrant, and the shares of common stock underlying such securities, to the scope of Stockholders’ Agreement entered into by the parties in 2016. The Stockholders’ Agreement otherwise remains unchanged and  i) provides Cap 1 a right to nominate a director to sit on the Company’s board of directors so long as Cap 1 beneficially owns, on a fully diluted, as-converted basis, at least 20% of the outstanding equity securities of the Company, ii) restricts transfers of the Company’s securities by Cap 1 and the Management Stockholders, iii) provides Cap 1 with a right of first offer to purchase shares of the Company’s common stock from the Management Stockholders, iv) grants Cap 1 preemptive rights with respect to future issuances of securities, and v) requires Cap 1’s approval, so long as it meets certain ownership requirements (as defined), in order for the Company to a) materially change the nature of its business or b) acquire or dispose of any resorts, assets or properties for aggregate consideration equal to or greater than 30% of the enterprise value (as defined) of the Company and its subsidiaries.

Seasonality

Our revenues are highly seasonal in nature. The vast majority of revenue is generated during the ski season, which occurs during the winter months in our third and fourth fiscal quarters. Some of our properties offer off season attractions, such as golf, roller coasters, swimming, summer concerts and zip rides; however, these activities do not comprise a substantial portion of our annual revenues.  As a result, our resorts typically experience operating losses and negative operating cash flows during the first and second quarters of each fiscal year.

The seasonality of our revenues amplifies the effect of events outside our control, especially weather. While our geographically diverse operating locations help mitigate the effect of weather conditions, adverse weather could lower attendance due to suboptimal skiing conditions or limited access to our resorts, render snowmaking wholly or partially ineffective in maintaining ski conditions, and increase operating costs related to snowmaking efforts and inefficient labor utilization. During years ended April 30, 2019, 2018 and 2017, the percentage of revenue we recognized in our third and fourth fiscal quarters, combined, was 91.9%, 87.6% and 87.3%, respectively. As a result, the operating results for any quarterly period are not necessarily indicative of the results that may be achieved for any subsequent quarter or for a full year.

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Weather Impact

The timing and duration of favorable weather conditions significantly influences the timing and volume of skier visits and the associated revenue. While natural snowfall early in the ski season influences skier visits, all of our ski resorts have snowmaking capabilities in the event that the natural snowfall is insufficient. Cold weather, however, is essential to a successful ski season and there is no way to predict future weather conditions. We sell season passes prior to the start of the ski season to help mitigate any negative effects unfavorable weather may have on our revenues.

During the 2018/2019 ski season we experienced favorable weather conditions in the Northeast that allowed two of our resorts to open in October, which was a first for these resorts while under our ownership. We did, however, experience some weather challenges which delayed the opening of some of our Midwest and Mid-Atlantic resorts until after the Christmas holiday. During the 2017/2018 ski season we encountered significant weather-driven challenges, including bitterly cold weather which depressed skier visits at times and rainy weather during a holiday weekend which depressed skier visits during one of our historically busiest weekends. Favorable weather conditions in the Northeast towards the end of the ski season helped to mitigate the impact of unfavorable weather conditions in the middle of the season. Similarly, we faced significant weather challenges during the 2016/2017 ski season due to unseasonably warm weather in the Midwest midway through the ski season.

In addition to our continued investment in snow making technologies and infrastructure, we rely on our season pass products to help mitigate the impact on our revenues from adverse weather.

Season Pass Products

For the 2016/2017 ski season we introduced the Peak Pass which currently allows skiers to utilize any of our resorts in the Northeast and Mid-Atlantic United States, in addition to certain of our resorts in the Midwest United States. The introduction of the Peak Pass contributed to the increased revenue we experienced in our 2019 and 2018 fiscal years as compared to our 2017 fiscal year, despite significant weather challenges during those fiscal years. Our pre-season season pass sales for the upcoming 2019/2020 increased 19.8% in dollars and 20.8% in units as compared to the 2018/2019 season, inclusive of sales from the resorts acquired in the Snow Time acquisition in both periods. Our 2018/2019 season pre-season pass sales had increased 8.6% in both dollars and units as compared to the same period for the 2017/2018 ski season.

Skier Visits

Our ski resorts operate in the Northeast, Mid-Atlantic and Midwest United States. Our skier visits of 2.1 million in fiscal 2019, which includes visit to the resorts acquired from Snow Time, were up 27.8% from fiscal 2018. Our skier visits increased 7.1% at legacy Peak Resorts properties. This compares to a 4.3% increase in total skier visits across the entire industry to Northeast, Mid-Atlantic and Midwest resorts as reported by the Kottke Report. Our total resort visits, which include tubing visits, were up 32.0% from fiscal 2018. Total visits to our Northeast and Mid-Atlantic resorts, in particular, increased to 1.81 million in fiscal 2019 from 1.25 million in fiscal 2018. Total visits to our Midwest resorts increased to 0.61 million in fiscal 2019 from 0.59 million in fiscal 2018.

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 fiscal 2019 we completed two major projects and continued to move forward with capital improvement projects at our other resorts.

·

At Hunter Mountain, we completed the Hunter North expansion project which increased the resort’s skiable acreage by approximately 25% and added automated snowmaking, a six-passenger detachable high-speed chair lift and parking area.

·

At Mount Snow, we completed the Carinthia Ski Lodge project. The Carinthia Ski Lodge project included 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 includes 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.

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·

At Hidden Valley, we completed the permitting process and substantially completed the construction of a zip line tour which we anticipate will generate additional sales and diversify that resort’s revenue base.  The zip line tour opened in May 2019.

Results of Operations

The following table presents our consolidated statements of operations for the years ended April 30, 2019, 2018 and 2017 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent

 

 

Percent

 

 

 

 

 

 

 

 

 

 

 

 

 

increase

 

 

increase

 

 

 

Year ended April 30, 

 

 

(decrease)

 

 

(decrease)

 

 

    

2019

    

2018

    

2017

 

    

2019/2018

 

    

2018/2017

 

Revenues:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

Lift and tubing tickets

 

$

93,168

 

$

61,683

 

$

58,100

 

 

51.0

%

 

6.2

%

Food and beverage

 

 

32,210

 

 

24,749

 

 

23,078

 

 

30.1

%

 

7.2

%

Equipment rental

 

 

15,065

 

 

9,991

 

 

8,582

 

 

50.8

%

 

16.4

%

Ski instruction

 

 

15,256

 

 

9,128

 

 

8,562

 

 

67.1

%

 

6.6

%

Hotel/lodging

 

 

8,909

 

 

9,874

 

 

9,731

 

 

(9.8)

%

 

1.5

%

Retail

 

 

9,277

 

 

6,748

 

 

6,395

 

 

37.5

%

 

5.5

%

Summer activities

 

 

4,727

 

 

4,459

 

 

4,549

 

 

6.0

%

 

(2.0)

%

Other

 

 

5,814

 

 

5,030

 

 

4,252

 

 

15.6

%

 

18.3

%

 

 

 

184,426

 

 

131,662

 

 

123,249

 

 

40.1

%

 

6.8

%

Costs and Expenses:

 

 

  

 

 

  

 

 

  

 

 

 

 

 

  

 

Resort operating costs:

 

 

  

 

 

  

 

 

  

 

 

 

 

 

  

 

Labor and labor related expenses

 

 

61,440

 

 

53,026

 

 

48,253

 

 

15.9

%

 

9.9

%

Retail and food and beverage cost of sales

 

 

14,903

 

 

11,855

 

 

10,820

 

 

25.7

%

 

9.6

%

Power and utilities

 

 

11,417

 

 

8,331

 

 

7,843

 

 

37.0

%

 

6.2

%

Other

 

 

31,977

 

 

23,381

 

 

20,403

 

 

36.8

%

 

14.6

%

 

 

 

119,737

 

 

96,593

 

 

87,319

 

 

24.0

%

 

10.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

19,618

 

 

13,231

 

 

12,713

 

 

48.3

%

 

4.1

%

General and administrative expenses

 

 

11,221

 

 

5,797

 

 

5,431

 

 

93.6

%

 

6.7

%

Real estate and other non-income taxes

 

 

3,351

 

 

2,286

 

 

2,322

 

 

46.6

%  

 

(1.6)

%  

Land and building rent

 

 

1,393

 

 

1,401

 

 

1,395

 

 

(0.6)

%

 

0.4

%

Restructuring and impairment charges

 

 

190

 

 

2,135