-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QwYK5M7SzHpp335ACtUZNBV1UzqflQ6kCgNyhdNJpmLbcqZJEwsHXraD9Xu/QQcc FTGgy5CsGgtwMXS7wmHKQQ== 0001043432-06-000011.txt : 20060614 0001043432-06-000011.hdr.sgml : 20060614 20060614143048 ACCESSION NUMBER: 0001043432-06-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060430 FILED AS OF DATE: 20060614 DATE AS OF CHANGE: 20060614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SKIING CO /ME CENTRAL INDEX KEY: 0001043432 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 043373730 STATE OF INCORPORATION: DE FISCAL YEAR END: 0730 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13507 FILM NUMBER: 06904494 BUSINESS ADDRESS: STREET 1: P O BOX 450 STREET 2: SUNDAY RIVER ACCESS RD CITY: BETHEL STATE: ME ZIP: 04217 BUSINESS PHONE: 2078248100 MAIL ADDRESS: STREET 1: P O BOX 450 STREET 2: SUNDAY RIVER ACCESS RD CITY: BETHEL STATE: ME ZIP: 04217 FORMER COMPANY: FORMER CONFORMED NAME: ASC HOLDINGS INC DATE OF NAME CHANGE: 19970805 10-Q 1 formq306.txt 10Q3Q06 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended April 30, 2006 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 1-13507 -------------------------------- American Skiing Company (Exact name of registrant as specified in its charter) Delaware 04-3373730 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 136 Heber Avenue, #303 P.O. Box 4552 Park City, Utah 84060 (Address of principal executive offices) (Zip Code) (435) 615-0340 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report.) 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 |X| No |_| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check One): Large accelerated filer |_| Accelerated filer | | Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| As of June 5, 2006, 31,738,183 shares of common stock were issued and outstanding; of which 14,760,530 shares were Class A common stock. Table of Contents Part I - Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Operations and Changes in Accumulated Deficit for the 13 weeks ended May 1, 2005 and April 30, 2006 (unaudited).........................................3 Condensed Consolidated Statements of Operations and Changes in Accumulated Deficit for the 40 weeks ended May 1, 2005 and the 39 weeks ended April 30, 2006 (unaudited).............................4 Condensed Consolidated Balance Sheets as of July 31, 2005 and April 30, 2006 (unaudited).........................................5 Condensed Consolidated Statements of Cash Flows for the 40 weeks ended May 1, 2005 and the 39 weeks ended April 30, 2006 (unaudited)......7 Notes to Condensed Consolidated Financial Statements (unaudited)......8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General..............................................................22 Liquidity and Capital Resources......................................22 Results of Operations................................................26 Item 3. Quantitative and Qualitative Disclosures about Market Risk...........30 Item 4. Controls and Procedures..............................................30 Part II - Other Information Item 1. Legal Proceedings....................................................31 Item 1A. Other Risk Factors...................................................32 Item 6. Exhibits............................................................33 2 Part I - Financial Information Item 1 Financial Statements Condensed Consolidated Statements of Operations and Changes in Accumulated Deficit (In thousands, except per share amounts) 13 weeks ended 13 weeks ended May 1, 2005 April 30, 2006 (unaudited) (unaudited) -------------- --------------- Net revenues: Resort $ 132,266 $ 132,837 Real estate 2,928 24,185 -------------- --------------- Total net revenues 135,194 157,022 -------------- --------------- Operating expenses: Resort 61,615 61,269 Real estate 2,461 18,832 Marketing, general and administrative 14,261 13,861 Depreciation and amortization 13,020 12,602 -------------- --------------- Total operating expenses 91,357 106,564 -------------- --------------- Income from operations 43,837 50,458 Interest expense (20,002) (21,719) Increase in fair value of interest rate swap agreement - 674 -------------- --------------- Net income $ 23,835 $ 29,413 ============== =============== Accumulated deficit, beginning of period $ (603,429) $ (670,400) Net income 23,835 29,413 -------------- --------------- Accumulated deficit, end of period $ (579,594) $ (640,987) ============== =============== Basic and diluted net income per common share $ 0.29 $ 0.34 ============== =============== Basic and diluted weighted average common shares outstanding 31,738 31,738 ============== =============== See accompanying Notes to Condensed Consolidated Financial Statements. 3 Condensed Consolidated Statements of Operations and Changes in Accumulated Deficit (In thousands, except per share amounts) 40 weeks ended 39 weeks ended May 1, 2005 April 30, 2006 (unaudited) (unaudited) --------------- --------------- Net revenues: Resort $ 253,497 $ 259,871 Real estate 7,317 29,766 --------------- --------------- Total net revenues 260,814 289,637 --------------- --------------- Operating expenses: Resort 153,010 152,998 Real estate 5,724 24,217 Marketing, general and administrative 41,288 43,314 Depreciation and amortization 29,699 28,573 Gain on sale of property - (169) Impairment loss on property sold - 1,533 --------------- --------------- Total operating expenses 229,721 250,466 --------------- --------------- Income from operations 31,093 39,171 Interest expense (61,139) (64,988) Write-off of deferred financing costs and loss on extinguishment of senior subordinated notes (5,983) - Increase in fair value of interest rate swap agreement - 1,710 --------------- --------------- Net loss $ (36,029) $ (24,107) =============== =============== Accumulated deficit, beginning of period $ (543,565) $ (616,880) Net loss (36,029) (24,107) --------------- --------------- Accumulated deficit, end of period $ (579,594) $ (640,987) =============== =============== Basic and diluted net loss per common share $ (1.14) $ (0.76) =============== =============== Basic and diluted weighted average common shares outstanding 31,738 31,738 =============== =============== See accompanying Notes to Condensed Consolidated Financial Statements. 4 Condensed Consolidated Balance Sheets (In thousands, except share and per share amounts) July 31, 2005 April 30, 2006 (unaudited) (unaudited) -------------- -------------- Assets Current assets: Cash and cash equivalents $ 6,216 $ 24,086 Restricted cash 2,557 2,614 Accounts receivable, net 5,627 10,169 Inventory 3,576 4,223 Prepaid expenses and other 3,829 2,982 Deferred income taxes 7,536 7,536 -------------- -------------- Total current assets 29,341 51,610 Property and equipment, net 348,619 329,830 Real estate developed for sale 22,304 3,848 Intangible assets, net 6,307 6,264 Deferred financing costs, net 6,472 5,639 Other assets 9,891 12,133 -------------- -------------- Total assets $ 422,934 $ 409,324 ============== ============== (continued on next page) See accompanying Notes to Condensed Consolidated Financial Statements. 5 Condensed Consolidated Balance Sheets (continued) (In thousands, except share and per share amounts) July 31, 2005 April 30, 2006 (unaudited) (unaudited) -------------- -------------- Liabilities and Shareholders' Deficit Current liabilities: Current portion of long-term debt $ 31,223 $ 6,856 Accounts payable and other current liabilities 43,219 50,129 Deposits and deferred revenue 22,139 17,435 -------------- -------------- Total current liabilities 96,581 74,420 Long-term debt, net of current portion 209,519 198,352 Subordinated notes and debentures 102,813 113,149 Other long-term liabilities 10,635 8,788 Deferred income taxes 7,536 7,536 Mandatorily Redeemable 8 1/2% Series B Convertible Participating Preferred Stock, par value of $0.01 per share; 150,000 shares authorized, issued, and outstanding (redemption value of $0) - - Mandatorily Redeemable Convertible Participating 12% Series C-1 Preferred Stock, par value of $0.01 per share; 40,000 shares authorized, issued, and outstanding, including cumulative dividends (redemption value of $63,574 and $69,452, respectively) 63,203 69,198 Mandatorily Redeemable 15% Nonvoting Series C-2 Preferred Stock, par value of $0.01 per share; 139,453 shares authorized, issued, and outstanding, including cumulative dividends (redemption value of $248,339 and $277,256, respectively) 246,924 276,265 -------------- -------------- Total liabilities 737,211 747,708 -------------- -------------- Shareholders' deficit: Common stock, Class A, par value of $0.01 per share; 15,000,000 shares authorized; 14,760,530 shares issued and outstanding 148 148 Common stock, par value of $0.01 per share; 100,000,000 shares authorized; 16,977,653 shares issued and outstanding 170 170 Additional paid-in capital 302,285 302,285 Accumulated deficit (616,880) (640,987) -------------- -------------- Total shareholders' deficit (314,277) (338,384) -------------- -------------- Total liabilities and shareholders' deficit $ 422,934 $ 409,324 ============== ============== See accompanying Notes to Condensed Consolidated Financial Statements. 6 Condensed Consolidated Statements of Cash Flows (In thousands) 40 weeks ended 39 weeks ended May 1, 2005 April 30, 2006 (unaudited) (unaudited) --------------- --------------- Cash flows from operating activities Net loss $ (36,029) $ (24,107) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 29,699 28,573 Amortization of deferred financing costs and accretion of discount and dividends on mandatorily redeemable preferred stock 35,422 36,169 Non-cash interest on junior subordinated notes 5,637 9,012 Non-cash increase in fair value of interest rate swap agreement - (1,710) Non-cash Phantom Equity Plan compensation expense 456 217 Write-off of deferred financing costs and extinguishment of senior subordinated notes 5,983 - Gain on sale of property (772) (575) Impairment loss on property sold - 1,533 Decrease (increase) in assets: Restricted cash (55) (57) Accounts receivable, net (2,895) (4,542) Inventory 227 (647) Prepaid expenses and other (382) 847 Real estate developed for sale 2,051 18,456 Other assets 1,103 (752) Increase (decrease) in liabilities: Accounts payable and other current liabilities 4,959 6,596 Deposits and deferred revenue (311) (4,704) Other long-term liabilities (278) (740) --------------- --------------- Net cash provided by operating activities 44,815 63,569 --------------- --------------- Cash flows from investing activities Capital expenditures (13,333) (8,545) Proceeds from sale of property 1,041 3,017 --------------- --------------- Net cash used in investing activities (12,292) (5,528) --------------- --------------- Cash flows from financing activities Proceeds from resort senior credit facilities 261,934 47,475 Repayment of principal on resort senior credit facilities (151,402) (62,068) Proceeds from long-term debt 2,550 - Repayment of principal on long-term debt (132,059) (5,224) Repayment of principal on real estate debt (3,060) (20,354) Decrease in restricted cash 2,144 - Deferred financing costs (7,308) - --------------- --------------- Net cash used in financing activities (27,201) (40,171) --------------- --------------- Net increase in cash and cash equivalents 5,322 17,870 Cash and cash equivalents, beginning of period 7,024 6,216 --------------- --------------- Cash and cash equivalents, end of period $ 12,346 $ 24,086 =============== =============== Supplemental disclosures of cash flow information: Cash paid for interest $ 16,637 $ 20,005 Acquisition of equipment held under capital leases 12,674 4,637 Conversion of Series A Preferred Stock to New Junior Subordinated Notes 76,673 - Addition of interest to principal outstanding for New Junior Subordinated Notes 910 8,728 See accompanying Notes to Condensed Consolidated Financial Statements. 7 Notes to Condensed Consolidated Financial Statements (unaudited) 1. General American Skiing Company (ASC), a Delaware corporation, and its subsidiaries (collectively, the Company) own and operate resort facilities, real estate development companies, golf courses, ski and golf schools, retail shops, and other related companies. The Company conducts its resort operations through its wholly owned subsidiaries which operated the following ski resorts during the 39 weeks ended April 30, 2006 and the 40 weeks ended May 1, 2005: Sugarloaf/USA and Sunday River in Maine, Attitash in New Hampshire, Killington and Mount Snow in Vermont, The Canyons in Utah, and Steamboat in Colorado. The Company conducts its real estate development operations through its wholly owned subsidiary, American Skiing Company Resort Properties (Resort Properties), and Resort Properties' subsidiaries, including Grand Summit Resort Properties, Inc. and The Canyons Resort Properties, Inc. The Company reports its results of operations in two business segments, resort operations and real estate operations. The Company's fiscal year is a fifty-two week or fifty-three week period ending on the last Sunday of July. Fiscal 2006 is a fifty-two week reporting period and fiscal 2005 was a fifty-three week reporting period. Each quarter consists of 13 weeks, with the exception of the second quarter of fiscal 2005, which consisted of 14 weeks. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Results for interim periods are not indicative of the results expected for the year due to the seasonal nature of the Company's business. Due to the seasonality of the ski industry, the Company typically incurs significant operating losses in its resort operations segment during its first and fourth fiscal quarters. The unaudited condensed consolidated financial statements should be read in conjunction with the following notes and the Company's consolidated financial statements included in its Form 10-K for the fiscal year ended July 31, 2005 filed with the Securities and Exchange Commission on October 31, 2005. 2. Significant Accounting Policies The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Areas where significant judgments are made include, but are not limited to: allowances for doubtful accounts, litigation accruals, insurance reserves, long-lived asset valuation, realizability and useful lives, and allowances for deferred income tax assets. Actual results could differ materially from these estimates. The following are the Company's significant accounting policies: Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of ASC and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents The Company considers all highly liquid debt instruments with an original maturity to the Company of three months or less to be cash equivalents. Cash equivalents, which consisted of short-term certificates of deposit, totaled approximately $0.9 million as of each of July 31, 2005 and April 30, 2006. 8 Restricted Cash Restricted cash consists of deposits received and held in escrow related to pre-sales of real estate developed for sale, guest advance deposits for lodging reservations, and cash held in cash collateral accounts by lenders on behalf of the real estate companies. The cash becomes available to the Company when the real estate units are sold, the lodging services are provided, or upon approval of expenditures by lenders. Inventory Inventory is stated at the lower of cost (first-in, first-out method) or market, and consists primarily of retail goods, food, and beverage products. Property and Equipment Property and equipment are carried at cost, net of accumulated depreciation, amortization, and impairment charges. Depreciation and amortization are calculated using the straight-line method over the assets' estimated useful lives which range from 9 to 40 years for buildings, 3 to 12 years for machinery and equipment, 10 to 50 years for land improvements, and 5 to 30 years for lifts, lift lines, and trails. Assets held under capital lease obligations are amortized over the shorter of their useful lives or their respective lease lives, unless a bargain purchase option exists at the end of the lease in which case the assets are amortized over their estimated useful lives. Due to the seasonality of the Company's business, the Company records a full year of depreciation and amortization relating to its ski resort operating assets during the second and third quarters of the Company's fiscal year. Real Estate Developed for Sale The Company capitalizes as real estate developed for sale the original acquisition cost of land, direct construction and development costs, property taxes, interest incurred on costs related to real estate under development, and other related costs (engineering, surveying, landscaping, etc.) until the property has been developed to the point it is ready for sale. The cost of sales for individual parcels of real estate or quarter and eighth share units within a project is determined using the relative sales value method. Selling costs are charged to expense in the period in which the related revenue is recognized. Goodwill and Other Intangible Assets As prescribed in Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," certain indefinite-lived intangible assets, including trademarks, are no longer amortized but are subject to annual impairment assessments. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value. Definite-lived intangible assets continue to be amortized on a straight-line basis over their estimated useful lives of 31 years, and assessed for impairment utilizing guidance provided by SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." As of July 31, 2005 and April 30, 2006, other intangible assets consist of the following (in thousands): ------------------------------------------------------------------ July 31, 2005 April 30, 2006 ------------------------------------------------------------------ Definite-lived Intangible Assets: Lease agreements $ 1,853 $ 1,853 Less: accumulated amortization (404) (447) --------------- -------------- 1,449 1,406 Indefinite-lived Intangible Assets: Trade names 170 170 Water rights 4,688 4,688 --------------- -------------- Intangible Assets, net $ 6,307 $ 6,264 =============== ============== ------------------------------------------------------------------ Amortization expense related to definite-lived intangible assets was approximately $44,000 for the 40 weeks ended May 1, 2005 and $43,000 for the 39 weeks ended April 30, 2006. Future amortization expense related to definite-lived intangible assets is estimated to be approximately $58,000 for each of the next five fiscal years. 9 Long-Lived Assets In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," long-lived assets, such as property, equipment, and definite-lived intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases. Revenue Recognition Resort revenues include sales of lift tickets, skier development, golf course and other recreational activities fees, sales from restaurants, bars, and retail and rental shops, and lodging and property management fees (real estate rentals). Daily lift ticket revenue is recognized on the day of purchase. Lift ticket season pass revenue is recognized on a straight-line basis over the ski season, which is the Company's second and third quarters of its fiscal year. The Company's remaining resort revenues are generally recognized as the services are performed. Real estate revenues are recognized under the full accrual method when title has been transferred, initial and continuing investments are adequate to demonstrate a commitment to pay for the property, and no continuing involvement exists. Amounts received from pre-sales of real estate are recorded as restricted cash and deposits and deferred revenue in the accompanying condensed consolidated balance sheets until the earnings process is complete. Stock Option Plan Effective August 1, 1997, the Company established a fixed stock option plan, the American Skiing Company Stock Option Plan (the Plan), which is more fully described in Note 2 of the Company's fiscal 2005 Annual Report on Form 10-K, that provides for the grant of incentive and non-qualified stock options for the purchase of up to 8,688,699 shares of the Company's common stock by officers, management employees, members of the board of directors of the Company and its subsidiaries, and other key persons (eligible for nonqualified stock options only) as designated by the Compensation Committee. The Plan has no restricted stock option component. There have been no options granted since July 2001. Prior to July 31, 2005, as permitted under SFAS No. 123, the Company accounted for its stock option plans following the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, no stock-based compensation had been reflected in net income (loss) for stock options, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant and the related number of shares granted was fixed at that point in time. In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), "Share Based Payment." This statement revised SFAS No. 123 by eliminating the option to account for employee stock options under APB Opinion No. 25 and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (the "fair-value-based" method). Effective August 1, 2005, the Company adopted the fair value recognition provisions of SFAS No. 123(R) using the modified prospective application method. Under this transition method, compensation cost recognized in the 13 and 39 week periods ended April 30, 2006, includes amounts of: (a) compensation cost of all stock-based payments granted prior to, but not yet vested as of, August 1, 2005 (based on grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and previously presented in the pro-forma footnote disclosures), and (b) compensation cost for all stock-based payments granted subsequent to August 1, 2005 (based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R)). In accordance with the modified prospective application method, results for prior periods have not been restated. The effect of adopting SFAS No. 123(R) as of August 1, 2005 for the 39-week period ended April 30, 2006 was less than $1,000 of reported compensation expense. 10 Under the modified prospective application method, results for prior periods have not been restated to reflect the effects of implementing SFAS No. 123(R). The following pro-forma information, as required by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123", is presented for comparative purposes and illustrates the effect on net income (loss) and net income (loss) per common share for the periods presented as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation prior to August 1, 2005 (in thousands, except per share amounts): -------------------------------------------------------------------- 13 weeks ended 40 weeks ended May 1, 2005 May 1, 2005 -------------------------------------------------------------------- Net income (loss) As reported $ 23,835 $ (36,029) Amount allocated to participating securities (14,510) - Stock-based employee compensation determined under fair-value method for all awards, net of tax (33) (101) -------------- -------------- Pro forma $ 9,292 (36,130) ============== ============== Basic and diluted net income (loss) per common share As reported $ 0.29 (1.14) Pro forma 0.29 (1.14) -------------------------------------------------------------------- The following table summarizes stock option activity during the 39 weeks ended April 30, 2006: - ----------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average Remaining Contractual Intrinsic Value Options Exercise Price Term (in years) (In thousands) - ---------------------------------------------------------------------------------------------------------- Outstanding at July 31, 2005 3,811,187 $ 4.26 4.25 Granted - Exercised - Forfeited - --------------- Outstanding at April 30, 2006 3,811,187 $ 4.26 3.48 $ - =============== Vested at April 30, 2006 3,811,187 $ 4.26 3.48 $ - Exercisable at April 30, 2006 3,811,187 $ 4.26 3.48 $ - 2006 - ----------------------------------------------------------------------------------------------------------
As of April 30, 2006, all options have vested. Accordingly, there is no future compensation cost related to non-vested options or non-vested restricted options to be recognized. The following table summarizes information about the stock options outstanding under the Plan as of April 30, 2006: - ----------------------------------------------------------------------------------------------
Weighted Average Weighted Weighted Range of Outstanding Remaining Average Exercisable Average Exercise Prices Contractual Exercise Price Exercise Price life (in years) - ---------------------------------------------------------------------------------------------- $0.72 25,000 5.20 $ 0.72 25,000 $ 0.72 1.75 - 2.50 1,420,337 3.87 2.11 1,420,337 2.11 3.00 - 4.00 1,439,250 3.82 3.18 1,439,250 3.18 7.00 - 8.75 735,750 2.51 7.19 735,750 7.19 14.19 - 18.00 190,850 1.48 17.55 190,850 17.55 ----------- ------------ 3,811,187 3.48 4.26 3,811,187 4.26 =========== ============ - ----------------------------------------------------------------------------------------------
11 Derivative Financial Instruments All derivatives are recognized in the condensed consolidated balance sheets at their fair values. On the date the derivative contract is entered into, the Company designates the derivative as either a hedge of the fair value of a recognized asset or liability ("fair value" hedge), or the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge). During May 2005, the Company entered into a three-year interest rate swap agreement covering a notional amount of $95.0 million related to its Resort Senior Credit Facility. The agreement is adjusted to market value at each reporting period and the increase or decrease is reflected in the condensed consolidated statements of operations. For the 39-week period ended April 30, 2006, the Company recognized approximately $1.7 million of other non-cash income from market value adjustments to this agreement. Accounting for Variable Interest Entities In December 2003, the FASB issued a revision to FASB Interpretation (FIN) No. 46, "Consolidation of Variable Interest Entities" (FIN No. 46(R)). FIN No. 46(R) clarifies the application of ARB No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity risk for the entity to finance its activities without additional subordinated financial support. FIN No. 46(R) requires the consolidation of these entities, known as variable interest entities, by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that will absorb a majority of the variable interest entity's expected losses, receive a majority of the variable interest entity's expected residual returns, or both. Under these guidelines, the Company adopted FIN No. 46(R) during fiscal 2004. On May 14, 2004, Resort Properties completed the restructuring of its real estate term loan facility with Fleet National Bank, Ski Partners, LLC, and Oak Hill Capital Partners. As a result of the restructuring, a new business venture called SP Land Company, LLC (SP Land) was created by Ski Partners, LLC, Resort Properties, and Killington, Ltd. (Killington) (an ASC subsidiary). As part of the restructuring, certain developmental land parcels at the Killington resort and cash with a combined carrying value of approximately $2.2 million were transferred by Resort Properties and Killington into SP Land Company, LLC, together with all indebtedness, including related interest and fees, under the real estate term loan facility held by Fleet National Bank and Ski Partners, LLC totaling $55.4 million. Collectively, Killington and Resort Properties own 25% of the membership interests of SP Land. The remaining 75% of the membership interests in SP Land is owned by Ski Partners, LLC, together with a preferential interest in SP Land of approximately $37.2 million. In accordance with FIN No. 46(R), SP Land is a variable interest entity and is accounted for on the equity method because it does not meet the requirements for consolidation. As part of the restructuring of the real estate term loan facility, Killington also contributed all of its interest in approximately 256 acres of developmental real estate into a joint venture entity called Cherry Knoll Associates, LLC (Cherry Knoll). Each of SP Land and Killington own 50% of the membership interests in Cherry Knoll. In addition, Killington maintains a preferential distribution interest in Cherry Knoll of $1.5 million. In accordance with FIN No. 46(R), Cherry Knoll is a variable interest entity and is accounted for on the equity method because it does not meet the requirements for consolidation. In October 2004, the Company, through one of its subsidiaries, acquired a 49% interest in SS Associates, LLC (SS Associates) by contributing its rights to purchase a building to SS Associates and by making a refundable security deposit of $0.4 million. In accordance with FIN No. 46(R), the Company consolidates SS Associates because it meets the requirements of a variable interest entity for which the Company is the primary beneficiary. SS Associates purchased a building in October 2004 for $3.5 million (including costs to close) with cash and the issuance of long-term debt of $2.5 million. The loan is secured by the building, has 59 monthly payments of $29,000 each, a final payment in October 2009 of $1.5 million, and bears interest at 6.5% per year. SS Associates is obligated on the loan and none of the Company's remaining subsidiaries is obligated. SS Associates leases the building to the Company for $0.5 million per year. The non-ASC owned interest in SS Associates of $0.5 million (owned in part by certain members of mid-level management at the Company's Killington resort) is included in other long-term liabilities in the accompanying condensed consolidated balance sheet as of April 30, 2006. Reclassifications Certain amounts in the prior periods' financial statements and related notes have been reclassified to conform to the current periods' presentation. 12 Recently Issued Accounting Standards In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67." This statement amends SFAS No. 66, "Accounting for Sales of Real Estate," (SFAS No. 66) and SFAS No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects," to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects also applies to real estate time-share transactions. The accounting for those operations and costs is also subject to the guidance of Statement of Position (SOP) 04-2, which provides guidance on the seller's accounting for real estate time-sharing transactions. SFAS No. 152, however, does not change the revenue guidance in SFAS No. 66. The provisions of SFAS No. 152 became effective for the quarter ended October 30, 2005 and were adopted by the Company. There was no material impact to the accompanying condensed consolidated financial statements due to the adoption of this standard. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - an Amendment of APB Opinion No. 29" (SFAS No. 153). This statement amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of SFAS No. 153 became effective for the quarter ended October 30, 2005 and were adopted by the Company. There was no impact to the accompanying condensed consolidated financial statements due to the adoption of this standard. In March 2005, the FASB issued FIN No. 47, "Accounting for Conditional Asset Retirement Obligations" (FIN No. 47). FIN No. 47 clarifies the term "conditional asset retirement obligation" as used in SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. SFAS No. 143 requires an entity to recognize the fair value of a legal obligation to perform asset retirement activities when the obligation is incurred. FIN No. 47 further clarifies when an entity has sufficient information to reasonably estimate the fair value of a conditional asset retirement obligation. The provisions of FIN No. 47 became effective for the quarter ended October 30, 2005 and were adopted by the Company. Management has determined under SFAS No. 143 that it cannot reasonably estimate the fair value of its asset retirement obligations relating to certain provisions in its lease agreements at Attitash, Mount Snow, and Steamboat requiring it to reforest certain ski terrain leased from the U.S. Forest Service, as the option to renew these leases is in the control of the Company and management currently has no intention to terminate the lease. Management has not recorded a liability in its condensed consolidated financial statements for these obligations. Management has determined that these obligations are not conditional on a future event and as such, the adoption of FIN No. 47 had no impact on the accompanying condensed consolidated financial statements. 3. Net Income (Loss) per Common Share Net income (loss) per common share for the periods ended May 1, 2005 and April 30, 2006, was determined based on the following data (in thousands): --------------------------------------------------------------------------------------------------------
13 weeks ended 13 weeks ended 40 weeks ended 39 weeks ended May 1, 2005 April 30, 2006 May 1, 2005 April 30, 2006 -------------------------------------------------------------------------------------------------------- Net income (loss) $ 23,835 $ 29,413 $ (36,029) $ (24,107) Less: amounts allocated to participating securities (14,510) (18,720) - - ---------------- ---------------- ---------------- --------------- Net income (loss) attributable to common shareholders $ 9,325 $ 10,693 $ (36,029) $ (24,107) ================ ================ ================ =============== Weighted average common shares outstanding - basic and diluted 31,738 31,738 31,738 31,738 ================ ================ ================ =============== --------------------------------------------------------------------------------------------------------
13 The Company accounts for its earnings per share under Emerging Issues Task Force Issue No. 03-06, "Participating Securities and the Two Class Method Under FAS No. 128, Earnings per Share". The Company's mandatorily redeemable 12% Series C-1 Convertible Participating Preferred Stock (Series C-1 Preferred Stock) is a participating security because it may participate in dividends with common stock. Accordingly, net income is allocated to each security based on the ratio of the number of shares if-converted to the total number of shares. In periods when a net loss is incurred, the net loss is not allocated to the Series C-1 Preferred Stock because it does not have a contractual obligation to share in the losses of the Company, and the impact of inclusion would be anti-dilutive. As of May 1, 2005 and April 30, 2006, the Company had 14,760,530 shares of its Class A common stock outstanding, which are convertible into shares of the Company's common stock. The shares of the Company's common stock issuable upon conversion of the shares of the Company's Class A common stock have been included in the calculation of the weighted average common shares outstanding. As of May 1, 2005 and April 30, 2006, the Company had 40,000 shares of its Series C-1 Preferred Stock outstanding, which are convertible into shares of the Company's common stock. If converted at their liquidation preferences as of May 1, 2005 and April 30, 2006, these convertible preferred shares would convert into approximately 49,381,000 and 55,561,000 shares of common stock, respectively. For the periods ended May 1, 2005 and April 30, 2006, the common shares into which these preferred securities are convertible have not been included in the dilutive share calculation as the impact of their inclusion would be anti-dilutive. The Company also had 3,811,187 options outstanding to purchase shares of its common stock under the Plan as of each of May 1, 2005 and April 30, 2006. These stock options are excluded from the dilutive share calculation, as the impact of their inclusion would be anti-dilutive. 4. Segment Information In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131), the Company has classified its operations into two business segments, resort operations and real estate operations. Revenues at each of the resorts are derived from the same lines of business which include lift ticket sales, food and beverage, retail sales including rental and repair, skier development, lodging and property management, golf, other summer activities and miscellaneous revenue sources. The performance of the resorts is evaluated on the same basis of profit or loss from operations. Additionally, each of the resorts has historically produced similar operating margins and attracts the same class of customer. Based on the similarities of the operations at each of the resorts, the Company has concluded that the resorts satisfy the aggregation criteria set forth in SFAS No. 131. The Company's real estate revenues are derived from the sale, resale, and leasing of interests in real estate development projects undertaken by the Company at its resorts and the sale of other real property interests. Revenues and operating losses for the two business segments are as follows (in thousands): ---------------------------------------------------------------------------------------------------------
13 weeks ended 13 weeks ended 40 weeks ended 39 weeks ended May 1, 2005 April 30, 2006 May 1, 2005 April 30, 2006 --------------------------------------------------------------------------------------------------------- Revenues: Resort $ 132,266 $ 132,837 $ 253,497 $ 259,871 Real estate 2,928 24,185 7,317 29,766 ---------------- ------------------------------------------------ Total $ 135,194 $ 157,022 $ 260,814 $ 289,637 ================ ================================================ Net income (loss): Resort $ 24,489 $ 24,022 $ (34,059) $ (26,375) Real estate (654) 5,391 (1,970) 2,268 ---------------- ------------------------------------------------ Total $ 23,835 $ 29,413 $ (36,029) $ (24,107) ================ ================================================ ================ ================================================ ---------------------------------------------------------------------------------------------------------
14 Identifiable assets for the two business segments and a reconciliation of the totals reported for the operating segments to the totals reported in the condensed consolidated balance sheets is as follows (in thousands): ------------------------------------------------------------------------ July 31, 2005 April 30, 2006 ------------------------------------------------------------------------ Identifiable Assets: Resort $ 355,483 $ 361,971 Real Estate 58,296 38,242 -------------- --------------- $ 413,779 $ 400,213 ============== =============== Assets: Identifiable assets for segments $ 413,779 $ 400,213 Intangible and deferred income tax assets not allocated to segments 9,155 9,111 -------------- --------------- Total consolidated assets $ 422,934 $ 409,324 ============== =============== ------------------------------------------------------------------------ 5. Long-Term Debt Resort Senior Credit Facility The Company entered into agreements dated November 24, 2004 with Credit Suisse, GE Capital, and other lenders whereby the lenders provided the Company with a $230.0 million senior secured loan facility (Resort Senior Credit Facility) consisting of a revolving credit facility and two term loan facilities. The proceeds of the Resort Senior Credit Facility were used to repay in full the previously existing resort senior credit facility and redeem the Company's $120.0 million senior subordinated notes (Senior Subordinated Notes), as well as to pay fees and expenses related to the transaction. The Resort Senior Credit Facility consists of the following: o Revolving Facility - $40.0 million, including letter of credit (L/C) availability of up to $6.0 million. The amount of availability under this facility is correspondingly reduced by the amount of each L/C issued. o First Lien Term Loan - $85.0 million borrowed on the funding date of November 24, 2004. o Second Lien Term Loan - $105.0 million borrowed on the funding date of November 24, 2004. The Revolving Facility and First Lien Term Loan are provided under a single credit agreement (collectively, the First Lien Credit Agreement), mature in November 2010 and bear interest, at the option of the Company, either at a rate equal to the prime rate, as publicly quoted in The Wall Street Journal, plus 3.5%, or at a rate equal to LIBOR (as defined) plus 4.5%, payable quarterly (10.5% based on the prime rate for the Revolving Facility and 9.28% based on the LIBOR rate for the First Lien Term Loan as of April 30, 2006). The First Lien Term Loan requires 23 quarterly principal payments of $212,500 beginning on January 15, 2005 and a final payment of $80.1 million in November 2010. The Revolving Facility is comprised of two sub-facilities, each in the amount of $20.0 million and each with separate fees for the unused portion of the facilities in the amounts of 1.0% and 4.5% per annum, respectively. The Second Lien Term Loan is provided under a separate credit agreement (Second Lien Credit Agreement), matures in November 2011, bears interest at a rate equal to the prime rate, as publicly quoted in The Wall Street Journal, plus 7.0%, or at a rate equal to LIBOR (as defined) plus 8.0%, payable quarterly (12.56% as of April 30, 2006 based on the LIBOR rate), and principal is due upon maturity. The Revolving Facility and the First Lien Term Loan obligations under the First Lien Credit Agreement are secured by a first-priority security interest in substantially all of the Company's assets, other than assets held by Grand Summit, and the Company's obligations under the Second Lien Credit Agreement are secured by a second-priority security interest in the same assets. Collateral matters between the lenders under the First Lien Credit Agreement and the lenders under the Second Lien Credit Agreement are governed by an inter-creditor agreement. 15 The Resort Senior Credit Facility contains affirmative, negative, and financial covenants customary for this type of credit facility, which includes maintaining a minimum level of EBITDA (as defined), limiting the Company's capital expenditures, maintaining a minimum ratio of appraised asset value to debt, and having a zero balance on the Revolving Credit Facility (excluding L/Cs) on April 1 of each year. The Resort Senior Credit Facility also contains events of default customary for such financings, including but not limited to nonpayment of amounts when due; violation of covenants; cross default and cross acceleration with respect to other material debt; change of control; dissolution; insolvency; bankruptcy events; and material judgments. Some of these events of default allow for grace periods or are qualified by materiality concepts. The Resort Senior Credit Facility requires the Company to offer to prepay the loans with proceeds of certain material asset sales and recovery events, certain proceeds of debt, 50% of excess cash flow, and proceeds from the issuance of capital stock. The Resort Senior Credit Facility also restricts the Company's ability to pay cash dividends on or redeem its common and preferred stock. Pursuant to the requirements of the Resort Senior Credit Facility, on May 23, 2005, the Company entered into an interest rate swap agreement for 50% of the First Lien Term Loan and the Second Lien Term Loan for a notional amount of $95.0 million. Under the swap agreement, during the period from May 16, 2005 to November 15, 2005, the Company paid 4.16% and received the 6-month LIBOR rate. During the period from November 16, 2005 to May 15, 2008, the Company pays 4.16% and receives the 3-month LIBOR rate. As a result of entering into this interest rate swap agreement, the Company has fixed the cash-pay rate on the notional amount until the maturity of the swap agreement in May 2008. Changes in the fair value of the interest rate swap agreement are recorded as an increase in the fair value of this interest rate swap agreement at each reporting period-end. During the 39-week period ended April 30, 2006, the Company recognized approximately $1.7 million of increase in fair value of this agreement due to market value adjustments. The total balance sheet effect as of April 30, 2006 is a net asset of $2.0 million. As of April 30, 2006, the Company had $82.7 million and $105.0 million of principal outstanding under the First Lien Term Loan and Second Lien Term Loan portions of the Resort Senior Credit Facility, respectively. Furthermore, as of April 30, 2006, the Company had $1.6 million in outstanding L/Cs and no outstanding borrowings under the Revolving Credit Facility, with $38.4 million available for additional borrowings. The Company was in compliance with all financial covenants of the Resort Senior Credit Facility through April 30, 2006. Construction Loan Facility The Company conducts substantially all of its real estate development through subsidiaries, each of which is a wholly owned subsidiary of Resort Properties. Grand Summit owns the existing Grand Summit Hotel project at Steamboat, which was primarily financed through a $110.0 million Senior Construction Loan (Senior Construction Loan). Due to construction delays and cost increases at the Steamboat Grand Hotel project, on July 25, 2000, Grand Summit entered into the $10.0 million Subordinated Construction Loan, which was subsequently increased to $10.6 million in December 2003 (Subordinated Construction Loan). Together, the Senior Construction Loan and the Subordinated Construction Loan comprise the "Construction Loan Facility". The Company used the Construction Loan Facility solely for the purpose of funding the completion of the Steamboat Grand Hotel. The Construction Loan Facility is without recourse to ASC and its resort operating subsidiaries and is collateralized by significant real estate assets of Resort Properties and its subsidiaries, including the assets and stock of Grand Summit, ASC's primary hotel development subsidiary. The outstanding principal amounts under the Construction Loan Facility are payable incrementally as quarter and eighth share unit sales are closed, based on a predetermined per unit amount, which approximated between 70% and 80% of the net proceeds of each closing up until the March 18, 2006 auction held at Steamboat and then 85% of all units sold at the auction. Mortgages against the commercial core units and unsold unit inventory at the Grand Summit Hotel at Steamboat and a promissory note from the Steamboat Homeowners Association secured by the Steamboat Grand Hotel parking garage collateralize the Construction Loan Facility, and are subject to covenants, representations, and warranties customary for that type of construction facility. The Senior Construction Loan is without recourse to ASC and its resort operating subsidiaries other than Grand Summit. On December 8, 2005, the Company announced that it would be conducting an auction on March 18, 2006 for the remaining unsold developer inventory at the Grand Summit Hotel at Steamboat. In connection with the auction announcement, on February 14, 2006, Grand Summit entered into a letter agreement with the lenders under the Senior Construction Loan waiving the March 31, 2006 maximum outstanding principal balance requirement and resetting the predetermined per unit principal paydown amount noted above to 85% of all gross proceeds received from this auction. The Senior Construction Loan, as amended, requires that the loan be paid off as of June 30, 2006. 16 The auction, together with subsequent sales activity, resulted in a near sell-out of the remaining inventory of residential units. As of April 30, 2006, sales of $21.0 million had been closed, with an additional $2.2 million in sales contracts pending final closings. As a result, the Company has paid off the Senior Construction Loan, including deferred loan fees of $750,000. In addition, the Company has reduced the balance of the Subordinated Construction Loan by $8.5 million to a remaining balance of $2.1 million as of April 30, 2006. Until July 31, 2005, the Subordinated Construction Loan carried interest at a fixed rate of 20% per annum, payable monthly in arrears. Only 50% of the amount of this interest was due and payable in cash and the other 50%, if no events of default existed under the Subordinated Construction Loan or the Senior Construction Loan was automatically deferred until the final payment date of the Subordinated Construction Loan. Subsequent to July 31, 2005, the interest rate was decreased to 10% per annum, all of which is payable in cash, pursuant to the Eighth Amendment Agreement between Grand Summit and the lenders. The total deferred interest under the Subordinated Construction Loan as of April 30, 2006 was $4.2 million. The Subordinated Construction Loan, as amended, including the related deferred interest balance, matures on November 30, 2007. The Subordinated Construction Loan, including the related deferred interest balance is secured by the same collateral which secured the Senior Construction Loan and is non-recourse to ASC and its subsidiaries other than Grand Summit. Other Long-Term Debt The Company has $15.4 million of other long-term debt as of April 30, 2006. This is comprised of $7.4 million of capital lease obligations and $8.0 million of notes payable with various lenders. 6. Subordinated Notes and Debentures 11.3025% Junior Subordinated Notes Pursuant to the terms of a securities purchase agreement, which closed on August 31, 2001, the Company issued, and Oak Hill Capital Partners, L.P. (together with certain of its related affiliates and associates, Oak Hill) purchased, $12.5 million aggregate principal amount of Junior Subordinated Notes (Junior Subordinated Notes), which are convertible into shares of the Company's Non-voting Series D Participating Preferred Stock (Series D Preferred Stock). The Junior Subordinated Notes are unsecured and bear interest at a rate of 11.3025%, which compounds annually and is due and payable at the maturity of the Junior Subordinated Notes. The Junior Subordinated Notes were amended in connection with the Company's entry into the Resort Senior Credit Facility on November 24, 2004 to extend their maturity to May 2012. The proceeds of the Junior Subordinated Notes were used to fund short-term liquidity needs of Resort Properties by way of the purchase of certain real estate assets by ASC from Resort Properties. As of April 30, 2006, the outstanding balance on the Junior Subordinated Notes was approximately $20.6 million including compounded interest. New Junior Subordinated Notes In connection with the Company's entry into the Resort Senior Credit Facility on November 24, 2004, the Company entered into an exchange agreement with the holder of the Company's Series A Preferred Stock and issued $76.7 million of junior subordinated notes due May 2012 (New Junior Subordinated Notes) to the holder of the Series A Preferred Stock in exchange for all outstanding shares of Series A Preferred Stock. The New Junior Subordinated Notes accrue interest at a rate of 11.25% upon issuance, gradually increasing to a rate of 13.0% in 2012. No principal or interest payments are required to be made on the New Junior Subordinated Notes until maturity. However, interest is added to the principal outstanding on January 1 of each year. On January 1, 2005, $0.9 million of interest was added to the principal outstanding and on January 1, 2006, $8.7 million was added to the principal outstanding. The New Junior Subordinated Notes are subordinated to all of the Company's other debt obligations and all trade payables incurred in the ordinary course of business. None of the Company's subsidiaries are obligated on the New Junior Subordinated Notes, and none of the Company's assets serve as collateral for repayment of the New Junior Subordinated Notes. The indenture governing the New Junior Subordinated Notes also restricts the Company from paying cash dividends or making other distributions to its shareholders subject to certain limited exceptions. As of April 30, 2006, the outstanding balance on the New Junior Subordinated Notes was $86.3 million. Accrued interest as of April 30, 2006 on the New Junior Subordinated Notes was $4.3 million. 17 Other Subordinated Debentures Other subordinated debentures owed by the Company to institutions and individuals as of April 30, 2006 are unsecured and are due as follows (dollars in thousands): ------------------------------ Interest Principal Year Rate Amount ------------------------------ 2010 8% $ 1,292 2012 6% 1,155 2013 6% 1,065 2015 6% 1,500 2016 6% 1,196 --------- $ 6,208 ========== ------------------------------ 7. Mandatorily Redeemable Securities Series A Preferred Stock As of July 25, 2004, the Company had 36,626 shares of Series A Preferred Stock outstanding. In connection with the Company's entry into the Resort Senior Credit Facility on November 24, 2004 all outstanding shares of the Series A Preferred Stock were exchanged for New Junior Subordinated Notes in the principal amount of $76.7 million. Series B Preferred Stock Pursuant to a Preferred Stock Subscription Agreement (the Series B Agreement) dated July 9, 1999, the Company sold 150,000 shares of its 8.5% Series B Convertible Participating Preferred Stock (Series B Preferred Stock) on August 9, 1999 to Oak Hill for $150.0 million. On August 31, 2001, in connection with a recapitalization transaction, the Series B Preferred Stock was stripped of all of its economic and governance rights and preferences, with the exception of its right to elect up to six directors of ASC. The Company issued mandatorily redeemable Series C-1 Preferred Stock and Series C-2 Preferred Stock with an aggregate initial face value of $179.5 million which was equal to the accrued liquidation preference of the Series B Preferred Stock immediately before being stripped of its right to such accrued liquidation preference. The Series B Preferred Stock currently remains outstanding but will lose its remaining rights, including voting rights, upon redemption of the Series C-1 Preferred Stock and Series C-2 Preferred Stock in July 2007. Series C-1 Preferred Stock and Series C-2 Preferred Stock Pursuant to the terms of a securities purchase agreement, which closed on August 31, 2001, the Company issued to Oak Hill two new series of Preferred Stock: (i) $40.0 million face value of Series C-1 Preferred Stock; and (ii) $139.5 million face value of Series C-2 Preferred Stock. The initial face values of the Series C-1 Preferred Stock and Series C-2 Preferred Stock correspond to the accrued liquidation preference of the Series B Preferred Stock immediately before being stripped of its right to such accrued liquidation preference. The Series C-1 Preferred Stock and Series C-2 Preferred Stock are entitled to annual preferred dividends of 12% and 15%, respectively. At the Company's option, dividends can either be paid in cash or in additional shares of preferred stock. The Series C-1 Preferred Stock is convertible into common stock at a price of $1.25 per share, subject to adjustments. The Series C-2 Preferred Stock is not convertible. Both the Series C-1 Preferred Stock and Series C-2 Preferred Stock are mandatorily redeemable and mature in July 2007. As of April 30, 2006, cumulative dividends in arrears totaled approximately $29.5 million and $137.8 million for the Series C-1 Preferred Stock and Series C-2 Preferred Stock, respectively. The Series C-1 Preferred Stock and Series C-2 Preferred Stock have certain voting rights as defined in the securities certificates of designation relating thereto and rank senior in liquidation preference to all common stock and Class A common stock outstanding as of April 30, 2006, common stock, Class A common stock and Series D Preferred Stock issued in the future, and rank pari passu with each other and the Series B Preferred Stock. The Series C-1 Preferred Stock is also participating preferred stock and consequently has the right to participate in any dividends paid or payable to the common stock of the Company on an as-if-converted basis. Series D Preferred Stock The Company has authorized the issuance of 5,000 shares of Series D Preferred Stock. As of April 30, 2006, no shares of Series D Preferred Stock have been issued. The Series D Preferred Stock is junior in right of preference to the Series C-1 Preferred Stock and Series C-2 Preferred Stock, is not entitled to preferred dividends, and is redeemable at the option of the shareholders. 18 8. Dividend Restrictions and Stockholders Agreement Dividend Restrictions Borrowers under the Resort Senior Credit Facility, which include ASC, are restricted from paying cash dividends on any of their preferred or common stock. Grand Summit, the borrower under the Construction Loan Facility, is restricted from declaring dividends or advancing funds to ASC by any other method, unless specifically approved by the Construction Loan Facility lenders. Stockholders Agreement The Company, Oak Hill, and Mr. Leslie B. Otten (Mr. Otten) entered into a Stockholders Agreement, dated as of August 6, 1999, amended on July 31, 2000 (as amended, the Stockholders Agreement), pursuant to which each of Mr. Otten and Oak Hill agreed to vote its capital stock of the Company so as to cause there to be: o Six directors of the Company nominated by Oak Hill, so long as Oak Hill owns 80% of the shares of common stock it owned as of July 31, 2000 on a fully diluted basis, such number of directors decreasing ratably with the percentage of Oak Hill's ownership of the common stock on a fully diluted basis compared to such ownership as of July 31, 2000; and o Two directors of the Company nominated by Mr. Otten, so long as Mr. Otten owns 15% of the shares of common stock outstanding on a fully diluted basis, and one director so nominated, so long as Mr. Otten owns at least 5% of the shares of common stock outstanding on a fully diluted basis. As of April 30, 2006, Oak Hill owned not less than 80% of the shares of common stock it owned as of July 31, 2000, on a fully diluted basis, and Mr. Otten owned not less than 15% of the shares of common stock outstanding on a fully diluted basis. The Stockholders Agreement provides that, so long as Oak Hill owns at least 20% of the outstanding shares of common stock on a fully diluted basis, the affirmative vote of at least one Oak Hill director is required prior to the approval of (i) the Company's annual budget, (ii) significant executive personnel decisions, (iii) material actions likely to have an impact of 5% or more on the Company's consolidated revenues or earnings, amendments to the Company's articles of incorporation or by-laws, (iv) any liquidation, reorganization, or business combination of the Company, (v) the initiation of certain material litigation, and (vi) any material financing of the Company. Under the Stockholders Agreement, Oak Hill and Mr. Otten have agreed not to dispose of their securities of the Company if, (i) as a result of such transfer, the transferee would own more than 10% of the outstanding shares of common stock of the Company (on a fully diluted basis), unless such transfer is approved by the Board of Directors (x) including a majority of the Common Directors (as defined in the Stockholders Agreement), or (y) the public stockholders of the Company are given the opportunity to participate in such transfer on equivalent terms, (ii) the transferee is a competitor of the Company or any of its subsidiaries, unless such transfer is approved by the Board of Directors, or (iii) such transfer would materially disadvantage the business of the Company. The Stockholders Agreement provides for additional customary transfer restrictions applicable to each of Mr. Otten and Oak Hill as well as standstill provisions applicable to Oak Hill. 19 The Stockholders Agreement provides that, upon the Company's issuance of shares of common stock or securities convertible into common stock, subject to certain exceptions, Mr. Otten and Oak Hill will have the right to purchase at the same price and on the same terms, the number of shares of common stock or securities convertible into common stock necessary for each of them to maintain individually the same level of beneficial ownership of common stock of the Company on a fully diluted basis as it owned immediately prior to the issuance. This anti-dilution provision is subject to customary exceptions. 9. Phantom Equity Plan ASC has established the American Skiing Company Phantom Equity Plan (LTIP). Certain of ASC's executive officers participate in the LTIP. Participants are entitled to a payment on awards granted under the LTIP, to the extent vested upon a Valuation Event (as defined below) or in certain cases upon termination of employment. The amount of any award is based ultimately on the Equity Value, as defined by the LTIP, obtained through a Valuation Event. A Valuation Event is defined in the LTIP as any of the following: (i) a sale or disposition of a significant Company operation or property as determined by the Board of Directors; (ii) a merger, consolidation, or similar event of the Company other than one (A) in which the Company is the surviving entity or (B) where no Change in Control (as defined in the LTIP) has occurred; (iii) a public offering of equity securities by the Company that yields net proceeds to the Company in excess of $50 million; or (iv) a Change in Control. Compensation expense relating to the LTIP is estimated and recorded based on the probability of the Company achieving a Valuation Event and its estimated Equity Value. During the 13 weeks and 40 weeks ended May 1, 2005, the Company recorded an expense related to the increase in the value of the LTIP of $0.6 million and $0.5 million, respectively. During the 13 weeks and 39 weeks ended April 30, 2006, the Company recorded expenses relating to the LTIP of approximately $0.1 million and $0.2 million, respectively. These are included in marketing, general, and administrative expenses in the accompanying consolidated statements of operations. The total liability for the LTIP is $1.5 million, and is included in other long-term liabilities in the condensed consolidated balance sheet as of April 30, 2006, 10. Commitments and Contingencies Certain claims, suits and complaints in the ordinary course of business are pending or may arise against the Company, including all of its direct and indirect subsidiaries. In the opinion of management, all matters are adequately covered by insurance or, if not covered, are without merit or are of such kind, or involve such amounts, as are not likely to have a material effect on the financial position, results of operations or liquidity of the Company if disposed of unfavorably. ASC Utah, a subsidiary of the Company, owns and operates The Canyons resort. ASC Utah leases approximately 2,100 acres, including most of the base area and a substantial portion of the skiable terrain at The Canyons resort, under a lease (the "Ground Lease") from Wolf Mountain Resorts, LC ("Wolf"). The initial term of the Ground Lease is 50 years expiring July 2047, with an option to extend for three additional terms of 50 years each. The Ground Lease provides an option to purchase those portions of the leased property that are intended for residential or commercial development, subject to certain reconveyance rights. Included in the leased premises under the Ground Lease is a sub-lease of all of Wolf's interest as tenant in a lease from the Osguthorpe family (the "Osguthorpe Lease"), through which ASC Utah operates additional ski terrain. At various points following its acquisition of The Canyons, ASC Utah entered into direct agreements with the Osguthorpe family amending or modifying the Osguthorpe Lease. On March 31, 2006, Wolf issued to ASC Utah a written notice of default (the "Default Notice") relating to the Osguthorpe Lease. Specifically, Wolf alleged in the Default Notice that ASC Utah breached its obligations under the Ground Lease to obtain Wolf's prior written consent to any modification to the Osguthorpe Lease. In its Default Notice, Wolf demanded that ASC Utah "disavow any claims as a tenant arising from or through the Osguthorpe Lease property and reinstate and transfer to Landlord [Wolf] all of its rights to the leased property the [sic] comprising Osguthorpe Lease." Under the terms of the Ground Lease, ASC Utah had sixty (60) days, or until May 30, 2006, to cure the default alleged in the Default Notice (subject to further extension under certain enumerated circumstances). Wolf agreed in writing to extend this cure period to June 16, 2006. As cure for the allegations in the Default Notice, on June 7, 2006, ASC Utah executed and delivered to Wolf an Assignment, Acknowledgement and Ratification, dated June 5, 2006 (the "Assignment") assigning all of its right title and interest in and to the amendments to the Osguthorpe Lease to Wolf. In addition, ASC Utah delivered to Wolf a consent to assignment executed by the applicable Osguthorpe parties. 20 On June 14, ASC Utah initiated a declaratory judgment action in state court in Summit County, Utah. The action seeks a declaration that the steps taken by ASC Utah in response to the Default Notice are sufficient to cure any alleged default under the Ground Lease, and in the interim seeks a temporary restraining order preventing Wolf from declaring the Ground Lease terminated or from exercising any other rights it may have on account of the alleged defaults raised in the Default Notice until the Court decides this declaratory judgment action. The Company strongly believes that the actions taken by ASC Utah are sufficient to cure the defaults alleged under the Default Notice. There can be no assurance, however, that the Summit County state court will agree that ASC Utah has cured the alleged defaults. In the event that the state court in Summit County finds that the actions taken by ASC Utah are not sufficient to cure the defaults under the Default Notice, and if ASC Utah is unable to effect a cure of such defaults within any remaining cure period, the remedies available to Wolf may include damages to Wolf (which the Company believes to be minimal) and/or termination of the Ground Lease. Termination of the Ground Lease would significantly reduce the value of ASC Utah's operation at The Canyons, and would materially curtail, if not completely eliminate, ASC Utah's ability to obtain recurring revenues from those assets. In the event of termination of the Ground Lease, Wolf would have certain rights to repurchase for fair market value assets of ASC Utah which are used in conjunction with its operation of The Canyons. Wolf's right to terminate the Ground Lease is subject to certain rights of cure and foreclosure in favor of ASC Utah's lenders. In the event of a timely cure by one or more of those lenders, such lenders are entitled to step into the shoes of ASC Utah as a tenant under the Ground Lease. Termination of the Ground Lease by Wolf would likely cause a default under the Company's Resort Senior Credit Facility. In the event of such a default, the Company would engage in discussions with the lenders under those facilities in an effort to satisfactorily address the default. There can be no assurance that such discussions would be successful, and if they were not successful the Company could be forced to refinance such obligations on materially worse terms than those presently available. Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Certain statements contained in this report constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These forward-looking statements are not based on historical facts, but rather reflect our current expectations concerning future results and events. Similarly, statements that describe our objectives, plans or goals are or may be forward-looking statements. We have tried, wherever possible, to identify such statements by using words such as "anticipate", "assume", "believe", "expect", "intend", "plan", and words and terms of similar substance in connection with any discussion of operating or financial performance. Such forward-looking statements involve a number of risks and uncertainties. In addition to factors discussed above, other factors that could cause actual results, performances or achievements to differ materially from those projected include, but are not limited to, the following: the loss or termination of our leasehold rights at The Canyons as a result of a failure to adequately cure alleged defaults under governing lease documents, changes in regional and national business and economic conditions affecting both our resort operating and real estate segments; competition and pricing pressures; negative impact on demand for our products resulting from terrorism and availability of air travel (including the effect of airline bankruptcies); failure to maintain improvements to resort operating performance at the covenant levels required by our Resort Senior Credit Facility; adverse weather conditions regionally and nationally; changes in weather patterns resulting from global warming; seasonal business activity; increased gas and energy prices; changes to federal, state and local regulations affecting both our resort operating and real estate segments; failure to renew land leases and forest service permits; disruptions in water supply that would impact snowmaking operations; the loss of any of our executive officers or key operating personnel; and other factors listed from time to time in our documents we have filed with the Securities and Exchange Commission. We caution the reader that this list is not exhaustive. We operate in a changing business environment and new risks arise from time to time. The forward-looking statements included in this document are made only as of the date of this document and under Section 27A of the Securities Act and Section 21E of the Exchange Act, we do not have or undertake any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. 21 General We are organized as a holding company and operate through various subsidiaries. We are one of the largest operators of alpine ski and snowboard resorts in the United States. We develop, own and operate a range of hospitality-related businesses, including skier development programs, hotels, golf courses, restaurants and retail locations. We also develop, market and operate ski-in/ski-out alpine villages, townhouses, condominiums, and quarter and eighth share ownership hotels. We report our results of operations in two business segments, resort operations and real estate operations. Our operating strategies include taking advantage of our multi-resort network, increasing our revenue per skier, continuing to build brand awareness and customer loyalty, expanding our sales and marketing efforts, continuing to focus on cost management, expanding our golf and convention business, improving our hotel occupancy and operating margins, and capitalizing on real estate growth opportunities through joint ventures. Our revenues are highly seasonal in nature. Each year, we realize approximately 90% of resort operations segment revenues and over 100% of resort operations segment operating income during the period from mid-November through April. In addition, a significant portion of resort operations segment revenue and approximately 20% of annual skier visits are generated during the Christmas and Presidents' Day vacation. Our resorts typically experience operating losses and negative cash flows for the period from May through mid-November. A high degree of seasonality in our revenues increases the impact of certain events on our operating results. Adverse weather conditions, access route closures, equipment failures, and other developments of even moderate or limited duration occurring during peak business periods could reduce revenues. Adverse weather conditions can also increase power and other operating costs associated with snowmaking or could render snowmaking wholly or partially ineffective in maintaining quality skiing conditions. Furthermore, unfavorable weather conditions, regardless of actual skiing conditions, can result in decreased skier visits. The following is our discussion and analysis of financial condition and results of operations as of April 30, 2006 and for the 13 weeks and 39 weeks then ended. As you read the information below, we urge you to carefully consider our fiscal 2005 Annual Report on Form 10-K filed on October 31, 2005 and our unaudited condensed consolidated financial statements and related notes contained elsewhere in this report. Liquidity and Capital Resources Short-Term Liquidity Needs Our primary short-term liquidity needs involve funding seasonal working capital requirements, marketing and selling real estate development projects, funding our fiscal 2006 capital improvement program, and servicing our debt. Our cash requirements for ski-related and real estate sales activities are provided from separate sources. Our primary source of liquidity for ski-related working capital and ski-related capital improvements are cash flows from operating activities of our resort operating subsidiaries and borrowings under our Resort Senior Credit Facility. The total debt outstanding under our Resort Senior Credit Facility as of April 30, 2006 was $187.7 million. Real estate working capital is funded primarily through unit inventory sales and short-term rental of remaining unit inventory. Historically, the Construction Loan Facility funded such working capital. The Construction Loan Facility is without recourse to ASC and its subsidiaries other than Grand Summit and is collateralized by significant real estate assets of Grand Summit. As of April 30, 2006, the carrying value of the total assets that collateralized the Construction Loan Facility was $24.2 million. The total debt outstanding on the Construction Loan Facility as of April 30, 2006 was $2.1 million. See "Real Estate Liquidity" below. 22 Resort Liquidity We entered into agreements dated November 24, 2004 with Credit Suisse, GE Capital, and other lenders whereby the lenders provided us with a $230.0 million Resort Senior Credit Facility consisting of a revolving credit facility and two term loan facilities. The proceeds of the Resort Senior Credit Facility were used to refinance our prior resort senior credit facility and redeem our Senior Subordinated Notes as well as to pay fees and expenses related to the transaction. The Resort Senior Credit Facility consists of the following: o Revolving Facility - $40.0 million, including letter of credit (L/C) availability of up to $6.0 million. The amount of availability under this facility is correspondingly reduced by the amount of each L/C issued. o First Lien Term Loan - $85.0 million borrowed on the funding date of November 24, 2004. o Second Lien Term Loan - $105.0 million borrowed on the funding date of November 24, 2004. The Revolving Facility and First Lien Term Loan are provided under the First Lien Credit Agreement, mature in November 2010 and bear interest, at our option, either at a rate equal to the prime rate as publicly quoted in the Wall Street Journal, plus 3.5%, or at a rate equal to LIBOR (as defined) plus 4.5%, payable quarterly (10.5% based on the prime rate for the Revolving Facility and 9.28% based on the LIBOR rate for the First Lien Term Loan as of April 30, 2006). The First Lien Term Loan requires 23 quarterly principal payments of $212,500 each, beginning on January 15, 2005 and a final payment of $80.1 million in November 2010. The Revolving Facility is comprised of two sub-facilities, each in the amount of $20.0 million and each with separate fees for the unused portion of the facilities (in the amounts of 1.0% and 4.5% per annum, respectively). The Second Lien Term Loan is provided under the Second Lien Credit Agreement, matures in November 2011, bears interest at a rate equal to the prime rate as publicly quoted in the Wall Street Journal plus 7.0% or at a rate equal to LIBOR (as defined) plus 8.0%, payable quarterly (12.56% as of April 30, 2006 based on the LIBOR rate), and principal is due upon maturity. The Revolving Facility and the First Lien Term Loan obligations under the First Lien Credit Agreement are secured by a first-priority security interest in substantially all of our assets, other than assets held by Grand Summit, and our obligations under the Second Lien Credit Agreement are secured by a second-priority security interest in the same assets. Collateral matters between the lenders under the First Lien Credit Agreement and the lenders under the Second Lien Credit Agreement are governed by an inter-creditor agreement. The Resort Senior Credit Facility contains affirmative, negative, and financial covenants customary for this type of credit facility, which includes maintaining a minimum level of EBITDA (as defined), limiting our capital expenditures, maintaining a minimum ratio of appraised asset value to debt, and having a zero balance on the Revolving Credit Facility (excluding L/Cs) on April 1 of each year. The Resort Senior Credit Facility also contains events of default customary for such financings, including but not limited to nonpayment of amounts when due; violation of covenants; cross default and cross acceleration with respect to other material debt; change of control; dissolution; insolvency; bankruptcy events; and material judgments. Some of these events of default allow for grace periods or are qualified by materiality concepts. The Resort Senior Credit Facility requires us to prepay the loans with proceeds of certain material asset sales and recovery events, certain proceeds of debt, 50% of excess cash flow, and proceeds from the issuance of capital stock. The Resort Senior Credit Facility also restricts our ability to pay cash dividends on or redeem our common or preferred stock. Pursuant to the requirements of the Resort Senior Credit Facility, on May 23, 2005, we entered into an interest rate swap agreement for 50% of the First Lien Term Loan and the Second Lien Term Loan for a notional amount of $95.0 million. Under the swap agreement, during the period of May 16, 2005 to November 15, 2005, we paid 4.16% and received the 6-month LIBOR rate. During the period from November 16, 2005 to May 15, 2008, we pay 4.16% and receive the 3-month LIBOR rate. As a result of entering into this interest rate swap agreement, we have fixed the cash-pay rate on the notional amount until the maturity of the swap agreement in May 2008. As of April 30, 2006, the Company had $82.7 million and $105.0 million of principal outstanding under the First Lien Term Loan and Second Lien Term Loan portions of the Resort Senior Credit Facility, respectively. Furthermore, as of April 30, 2006, the Company had $1.6 million in outstanding L/Cs and no outstanding borrowings under the Revolving Credit Facility, with $38.4 million available for additional borrowings under the Revolving Facility. The Company was in compliance with all financial covenants of the Resort Senior Credit Facility through April 30, 2006. We currently anticipate that the remaining borrowing capacity under the Resort Senior Credit Facility will be sufficient to meet our working capital needs at least through the end of our third quarter of fiscal 2007. 23 We have $15.4 million of other long-term debt as of April 30, 2006. This is comprised of $7.4 million of capital lease obligations and $8.0 million of other notes payable with various lenders. We closely monitor our operating results that impact our ability to meet the financial covenants under our Resort Senior Credit Facility. We take various actions to maintain compliance with our financial covenants, including selling non-core assets to increase revenues, and reducing our cost structure during the off-season and seasonal low-visitation at our resorts. In the event of a violation of the financial covenants under our Resort Senior Credit Facility, we would engage in discussions with our lenders for a waiver of those covenants for the period in question. Due to the restrictions under our Resort Senior Credit Facility, we have limited access to alternate sources of funding. Our significant debt levels affect our liquidity. As a result of our highly leveraged position, we have significant cash requirements to service interest and principal payments on our debt. Consequently, cash availability for working capital needs, capital expenditures, and acquisitions is significantly limited, outside of any availability under the Resort Senior Credit Facility. Furthermore, our Resort Senior Credit Facility contains significant restrictions on our ability to obtain additional sources of capital and may affect our liquidity. These restrictions include restrictions on the sale of assets, restrictions on the incurrence of additional indebtedness, and restrictions on the issuance of preferred stock. Real Estate Liquidity To fund working capital and fund its real estate sales plan, Grand Summit relies primarily on unit inventory sales, short-term rental of remaining unit inventory, as well as lease payments from long-term commercial tenants. The Company conducts substantially all of its real estate development through subsidiaries, each of which is a wholly owned subsidiary of Resort Properties. Grand Summit owns the existing Grand Summit Hotel project at Steamboat, which was primarily financed through the $110.0 million Senior Construction Loan. Due to construction delays and cost increases at the Steamboat Grand Hotel project, on July 25, 2000, Grand Summit entered into the $10.0 million Subordinated Construction Loan, which was subsequently increased to $10.6 million in December 2003. Together, the Senior Construction Loan and the Subordinated Construction Loan comprise the Construction Loan Facility. The Company used the Construction Loan Facility solely for the purpose of funding the completion of the Steamboat Grand Hotel. The Construction Loan Facility is without recourse to ASC and its resort operating subsidiaries and is collateralized by significant real estate assets of Resort Properties and its subsidiaries, including the assets and stock of Grand Summit, ASC's primary hotel development subsidiary. The outstanding principal amounts under the Construction Loan Facility are payable incrementally as quarter and eighth share unit sales are closed based on a predetermined per unit amount, which approximated between 70% and 80% of the net proceeds of each closing up until the March 18, 2006 auction held at Steamboat and then 85% of all units sold at the auction. Mortgages against the commercial core units and unsold unit inventory at the Grand Summit Hotel at Steamboat and a promissory note from the Steamboat Homeowners Association secured by the Steamboat Grand Hotel parking garage collateralize the Construction Loan Facility, are subject to covenants, representations, and warranties customary for that type of construction facility. The Senior Construction Loan is without recourse to ASC and its resort operating subsidiaries other than Grand Summit. On December 8, 2005, the Company announced that it would be conducting an auction on March 18, 2006 for the remaining unsold developer inventory at the Grand Summit Hotel at Steamboat. In connection with the auction announcement, on February 14, 2006, Grand Summit entered into a letter agreement with the lenders under the Senior Construction Loan waiving the March 31, 2006 maximum outstanding principal balance requirement and resetting the predetermined per unit principal paydown amount noted above to 85% of all gross proceeds received from this auction. The Senior Construction Loan, as amended, requires that the loan be paid off as of June 30, 2006. The auction, together with subsequent sales activity, resulted in a near sell-out of the remaining inventory of residential units. As of April 30, 2006, sales of $21.0 million had been closed, with an additional $2.2 million in sales contracts pending final closings. As a result, the Company has paid off the Senior Construction Loan, including deferred loan fees of $750,000. In addition, the Company has reduced the balance of the Subordinated Construction Loan by $8.5 million to a remaining balance of $2.1 million as of April 30, 2006. 24 Until July 31, 2005, the Subordinated Construction Loan carried interest at a fixed rate of 20% per annum, payable monthly in arrears. Only 50% of the amount of this interest was due and payable in cash and the other 50%, if no events of default existed under the Subordinated Construction Loan or the Senior Construction Loan was automatically deferred until the final payment date of the Subordinated Construction Loan. Subsequent to July 31, 2005, the interest rate was decreased to 10% per annum, all of which is payable in cash, pursuant to the Eighth Amendment Agreement between Grand Summit and the Lenders. The total deferred interest under the Subordinated Construction Loan as of April 30, 2006 was $4.2 million. The Subordinated Construction Loan, as amended, including the related deferred interest balance, matures on November 30, 2007. The Subordinated Construction Loan, including the related deferred interest balance, is secured by the same collateral which secured the Senior Construction Loan and is without recourse to ASC and its subsidiaries other than Grand Summit. There can be no assurance that Grand Summit will meet the amortization requirements of the Subordinated Construction Loan, in particular with respect to the remaining deferred interest under the facility. If Grand Summit fails to meet those future requirements, there can be no assurance that the lenders under the facility will be willing to enter into a waiver or amendment of those requirements on terms acceptable to Grand Summit or at all. If Grand Summit fails to meet the requirements and is unable to obtain a waiver of such requirements from the existing lenders, Grand Summit will be in payment default under the Construction Loan Facility and the lenders could commence enforcement actions against Grand Summit and the assets of Grand Summit which secure the Construction Loan Facility. The Construction Loan Facility is non-recourse to ASC and its subsidiaries other than Grand Summit. The remaining assets securing the Construction Loan Facility consist of the commercial core of the Steamboat Grand Hotel, a note receivable from the HOA for the Steamboat Grand Hotel, and the phase II development rights relating to the Steamboat Grand Hotel project. Long-Term Liquidity Needs Our primary long-term liquidity needs are to fund skiing-related capital improvements at certain of our resorts. For each of fiscal 2006 and 2007, we anticipate our annual maintenance capital needs to be approximately $10.0 million. There is a considerable degree of flexibility in the timing and scope of our growth capital program. Although we can defer specific capital expenditures for extended periods, continued growth of skier visits, revenues and profitability will require continued capital investment in on-mountain improvements. We finance on-mountain capital improvements through resort cash flows, capital leases, and our Resort Senior Credit Facility. The size and scope of the capital improvement program will generally be determined annually depending upon the strategic importance and expected financial return of certain projects, future availability of cash flows from each season's resort operations, and future borrowing availability and covenant restrictions under the Resort Senior Credit Facility. The Resort Senior Credit Facility places a maximum level of non-real estate capital expenditures for each of fiscal 2006 and 2007 at $15.5 million, including assets purchased under capital leases, with the ability to increase this amount if certain conditions are met. Additionally, the Resort Senior Credit Facility allows the maximum expenditure level to increase for certain specified capital expenditure obligations. We believe that these capital expenditure amounts will be sufficient to meet our non-real estate capital improvement needs for fiscal 2006 and 2007. As described above, the Revolving Facility and First Lien Term Loan of the Resort Credit Facility mature in November 2010. The First Lien Term Loan requires quarterly principal payments of $212,500 each, and a final payment of approximately $80.1 million in November 2010. The Second Lien Term Loan matures in November 2011. The Subordinated Construction Loan, including the related deferred interest balance, matures in November 2007. We also have mandatorily redeemable Series C-1 Preferred Stock with an accreted value including cumulative dividends of $69.5 million as of April 30, 2006 and mandatorily redeemable Series C-2 Preferred Stock with an accreted value including cumulative dividends of $277.3 million as of April 30, 2006, both of which mature in July 2007 and will be required to be redeemed to the extent that the Company has legally available funds to effect such redemption. We do not expect to redeem the Series C-1 Preferred Stock or the Series C-2 Preferred Stock prior to their final maturity. There can be no assurance that the necessary liquidity will be available to effect the redemption on a timely basis. Contractual Obligations There have been no material changes outside the Company's ordinary course of business during the quarterly period ended April 30, 2006. 25 Off-Balance Sheet Arrangements Other than as set forth under "Contractual Obligations" above and our interest rate swap agreement described above under "Resort Liquidity", we do not have any off-balance sheet transactions, arrangements, or obligations (including contingent obligations) that have, or are reasonably likely to have, a material current or future effect on our financial position, results of operations, business prospects, liquidity, capital expenditures, or capital resources. Results of Operations For the 13 weeks ended May 1, 2005 compared to the 13 weeks ended April 30, 2006 Resort Operations: The components of resort operations for the 13 weeks ended May 1, 2005 and the 13 weeks ended April 30, 2006 are as follows (unaudited, in thousands): - -------------------------------------------------------------------------------- --------------------------------- ------------ 13 weeks ended 13 weeks ended Variance May 1, 2005 April 30, 2006 ---------------- ---------------- ------------ Total resort revenues $ 132,266 $ 132,837 $ 571 ---------------- ---------------- ------------ Cost of resort operations 61,615 61,269 (346) Marketing, general and administrative 14,261 13,861 (400) Depreciation and amortization 12,640 12,368 (272) ---------------- ------------------------------ Total resort expenses 88,516 87,498 (1,018) ---------------- ---------------- ------------ Income from resort operations 43,750 45,339 1,589 Interest expense (19,261) (21,991) (2,730) Increase in fair value of interest rate swap agreement - 674 674 ---------------- ---------------- ------------ Net income from resort operations $ 24,489 $ 24,022 $ (467) ================ ================ ============ - -------------------------------------------------------------------------------- Resort revenues were approximately $132.8 million as compared to $132.3 million, an increase of $0.6 million, or 0.4%, for the 13 weeks ended April 30, 2006 when compared to the 13 weeks ended May 1, 2005. Strong destination business at the Company's western resorts, combined with increased revenues from season pass sales at its eastern resorts, offset revenue shortfalls attributable to an overall decrease in skier visitation. Estimated skier visits at the Company's eastern resorts were 24% lower than last year, primarily as a result of significant rain events during key weekends. However estimated skier visits increased 14% and 6%, respectively, at The Canyons and Steamboat resorts due, in part, to favorable weather and abundant natural snowfall. This resulted in estimated total skier visits for the Company as a whole decreasing by 13% for this period over the comparable period of the previous year. Beginning in fiscal 2006, the Company revised the methodology used to estimate skier visitation at its eastern resorts. The Company now uses scanning of certain lift ticket products to estimate skier visitation and believes this methodology to be a more accurate reflection of skier visitation levels. While this methodology has changed, the Company believes that any discrepancies in such methods in comparison with prior years are immaterial to total skier visitation levels reported. 26 Our resort segment generated net income of $24.0 for the 13 weeks ended April 30, 2006, compared $24.5 million for the 13 weeks ended May 1, 2005. This $0.5 million, or 1.9%, decrease resulted primarily from the net effect of the following: Increases in revenues and decreases in costs: (i) $0.6 million increase in revenues; (ii) $0.3 million decrease in cost of operations; (iii) $0.4 million decrease in marketing, general and administrative expenses; (iv) $0.3 million decrease in depreciation expense; and (v) $0.6 million increase of the fair value of the interest rate swap arrangement; More than offset by increases in costs: (vi) $2.7 million increase in interest expense. Recent Trends: In addition to the financial results through April 30, 2006, management has reported early results for the fourth fiscal quarter, reflecting a 1% increase in revenues for the first five weeks of its fiscal 2006 fourth quarter over the first five weeks of its fiscal 2005 fourth quarter. Company-wide hotel bookings for the remainder of the fourth quarter are 10% ahead of pace with the same period in the prior year. Real Estate Operations: The components of real estate operations for the 13 weeks ended May 1, 2005 and the 13 weeks ended April 30, 2006 are as follows (unaudited, in thousands): - -------------------------------------------------------------------------------- -------------------------------- ------------ 13 weeks ended 13 weeks ended Variance May 1, 2005 April 30, 2006 --------------- ---------------- ------------ Total real estate revenues $ 2,928 $ 24,185 $ 21,257 --------------- ---------------- ------------ Cost of real estate operations 2,461 18,832 16,371 Depreciation and amortization 380 234 (146) --------------- ---------------- ------------ Total real estate expenses 2,841 19,066 16,225 --------------- ---------------- ------------ Income from real estate operations 87 5,119 5,032 Interest income (expense) (741) 272 1,013 --------------- ---------------- ------------ Net income (loss) from real estate operations $ (654) $ 5,391 $ 6,045 =============== ================ ============ - -------------------------------------------------------------------------------- Real estate revenues were approximately $24.2 million as compared to $2.9 million, an increase of $21.3 million, for the 13 weeks ended April 30, 2006 when compared to the 13 weeks ended May 1, 2005. This increase is primarily a result of a successful sales auction of the remaining fractional-share units held on March 18, 2006 at the Steamboat Grand Hotel, which generated approximately $21.0 million in revenues in the 13-week period ended April 30, 2006. 27 Our real estate segment generated net income of $5.4 million for the 13 weeks ended April 30, 2006, compared to a loss of $0.6 million for the 13 weeks ended May 1, 2005. This $6.0 million increase in net income results primarily from the net effect of the following: Increases in revenues and decreases in costs: (i) $21.3 million increase in revenues; (ii) $0.1 million decrease in depreciation and amortization; and (iii) $1.0 million decrease in interest expense due to the reduction of the outstanding construction loans and due to a $0.5 million year-to-date correction in the amount of deferred interest attributable to the Subordinated Construction Loan; Partially offset by increases in costs: (iv) $16.4 million increase in cost of operations, due primarily to $15.5 million in cost of sales related to the sales auction of the remaining fractional-share units at the Steamboat Grand Hotel. Recent Trends: As of June 9, 2006, Grand Summit had six eighth-share units remaining with a total projected sales price of $282,000. The Company will continue to focus efforts to sell these remaining units. Income Taxes: We recorded no expense for income taxes for either the 13 weeks ended May 1, 2005 or the 13 weeks ended April 30, 2006. The Company incurred a net loss for the 40 weeks ended May 1, 2005 and for the 39 weeks ended April 30, 2006, recorded a net loss for the year ended July 31, 2005, and expects to incur a net loss for the year ended July 30, 2006. We believe it is more likely than not that we will not realize income tax benefits from operating losses in the foreseeable future, and therefore, have recorded a full valuation allowance against our existing deferred income tax assets. Results of Operations For the 40 weeks ended May 1, 2005 compared to the 39 weeks ended April 30, 2006 Resort Operations: The components of resort operations for the 40 weeks ended May 1, 2005 and the 39 weeks ended April 30, 2006 are as follows (unaudited, in thousands): - -------------------------------------------------------------------------------- --------------------------------- ------------ 40 weeks ended 39 weeks ended Variance May 1, 2005 April 30, 2006 ---------------- ---------------- ------------ Total resort revenues $ 253,497 $ 259,871 $ 6,374 ---------------- ---------------- ------------ Cost of resort operations 153,010 152,998 (12) Marketing, general and administrative 41,288 43,314 2,026 Depreciation and amortization 28,503 27,870 (633) Gain on sale of property - (169) (169) Write-off of deferred financing costs and loss on extinguishment of senior subordinated notes 5,983 - (5,983) ---------------- ---------------- ------------ Total resort expenses 228,784 224,013 (4,771) ---------------- ---------------- ------------ Income from resort operations 24,713 35,858 11,145 Interest expense (58,772) (63,943) (5,171) Increase in fair value of interest rate swap agreement - 1,710 1,710 ---------------- ---------------- ------------ Loss from resort operations $ (34,059) $ (26,375) $ 7,684 ================ ================ ============ - -------------------------------------------------------------------------------- 28 Resort revenues were approximately $259.9 million as compared to $253.5 million, an increase of $6.4 million, or 2.5%, for the 39 weeks ended April 30, 2006 when compared to the 40 weeks ended May 1, 2005. Strong destination business at the Company's western resorts, combined with increased revenues from season pass sales at its eastern resorts, offset revenue shortfalls attributable to an overall decrease in skier visitation. Estimated skier visits at the Company's eastern resorts were 16% lower than last year, primarily as a result of significant rain events during key weekends. However estimated skier visits increased 16% and 8%, respectively, at The Canyons and Steamboat resorts due, in part, to favorable weather and abundant natural snowfall. This resulted in estimated total skier visits for the Company as a whole decreasing by 7% for this period over the comparable period of the previous year. Beginning in fiscal 2006, the Company revised the methodology used to estimate skier visitation at its eastern resorts. The Company now uses scanning of certain lift ticket products to estimate skier visitation and believes this methodology to be a more accurate reflection of skier visitation levels. While this methodology has changed, the Company believes that any discrepancies in such methods in comparison with prior years are immaterial to total skier visitation levels reported. Our resort segment incurred a $26.4 million net loss for the 39 weeks ended April 30, 2006, compared to a $34.1 net loss for the 40 weeks ended May 1, 2005. This $7.7 million, or 22.6%, decrease in the net loss resulted primarily from the net effect of the following: Increases in revenues and decreases in costs: (i) $6.4 million increase in revenues; (ii) $0.6 million decrease in depreciation expense; (iii) $0.2 million increase in net gain on sale of property; (iv) $6.0 million decrease due to the non-recurring write-off of deferred financing costs and loss on extinguishment of senior subordinated notes experienced in 2005 and; (v) $1.7 million increase in fair value of the interest rate swap arrangement; Partially offset by increases in costs: (vi) $2.0 million increase in marketing, general and administrative expense; and (vii) $5.2 million increase in interest expense. Real Estate Operations: The components of real estate operations for the 40 weeks ended May 1, 2005 and the 39 weeks ended April 30, 2006 are as follows (unaudited, in thousands): - -------------------------------------------------------------------------------- --------------- ---------------- ------------ 40 weeks ended 39 weeks ended Variance May 1, 2005 April 30, 2006 --------------- ---------------- ------------ Total real estate revenues $ 7,317 $ 29,766 $ 22,449 --------------- ---------------- ------------ Cost of real estate operations 5,724 24,217 18,493 Depreciation and amortization 1,196 703 (493) Impairment loss on sale of property - 1,533 1,533 --------------- ---------------- ------------ Total real estate expenses 6,920 26,453 19,533 --------------- ---------------- ------------ Income from real estate operations 397 3,313 2,916 Interest expense (2,367) (1,045) 1,322 --------------- ---------------- ------------ Net income (loss) from real estate operations $ (1,970) $ 2,268 $ 4,238 =============== ================ ============ - -------------------------------------------------------------------------------- 29 Real estate revenues were approximately $29.8 million as compared to $7.3 million, an increase of $22.4 million, for the 39 weeks ended April 30, 2006 when compared to the 40 weeks ended May 1, 2005. This increase is primarily a result of a successful sales auction of the remaining fractional-share units at the Steamboat Grand Hotel, which generated approximately $21.0 million in revenues in the 39-week period ended April 30, 2006. Our real estate segment generated net income of $2.2 million for the 39 weeks ended April 30, 2006, compared to a net loss of $2.0 million for the 40 weeks ended May 1, 2005. This $4.2 million increase in net income results primarily from the net effect of the following: Increases in revenues and decreases in costs: (i) $22.4 million increase in revenues; (ii) $0.5 million decrease in depreciation and amortization; and (iii) $1.3 million decrease in interest expense due to the reduction of the outstanding construction loans Partially offset by increases in costs and loss on sale of property: (iv) $18.5 million increase in cost of operations, due primarily to $17.7 million in cost of sales related to increased sales of fractional-share units at the Steamboat Grand Hotel, and a $0.8 million provision for a probable settlement related to real estate development obligations at The Canyons; and (v) $1.5 million impairment loss on the sale of retail commercial property at the Steamboat Grand Hotel. Income Taxes: We recorded no benefit from income taxes for either the 40 weeks ended May 1, 2005 or the 39 weeks ended April 30, 2006. The Company incurred a net loss for the year ended July 31, 2005, and expects to incur a net loss for the year ended July 30, 2006. We believe it is more likely than not that we will not realize income tax benefits from operating losses in the foreseeable future, and therefore, have recorded a full valuation allowance against our existing deferred income tax assets. Item 3 Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in information relating to market risk since our disclosures included in Item 7A of Form 10-K for the fiscal year ended July 31, 2005, as filed with the Securities and Exchange Commission on October 31, 2005. Item 4 Controls and Procedures (a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and our Chief Financial Officer carried out an evaluation of the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, these officers have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective. (b) Changes in internal control over financial reporting. No change occurred in the Company's internal control over financial reporting (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)) during the quarterly period ended April 30, 2006 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their stated goals under all potential future conditions. 30 Part II - Other Information Item 1 Legal Proceedings ASC Utah, a subsidiary of the Company, owns and operates The Canyons resort. ASC Utah leases approximately 2,100 acres, including most of the base area and a substantial portion of the skiable terrain at The Canyons resort, under a lease (the "Ground Lease") from Wolf Mountain Resorts, LC ("Wolf"). The initial term of the Ground Lease is 50 years expiring July 2047, with an option to extend for three additional terms of 50 years each. The Ground Lease provides an option to purchase those portions of the leased property that are intended for residential or commercial development, subject to certain reconveyance rights. Included in the leased premises under the Ground Lease is a sub-lease of all of Wolf's interest as tenant in a lease from the Osguthorpe family (the "Osguthorpe Lease"), through which ASC Utah operates additional ski terrain. At various points following its acquisition of The Canyons, ASC Utah entered into direct agreements with the Osguthorpe family amending or modifying the Osguthorpe Lease. On March 31, 2006, Wolf issued to ASC Utah a written notice of default (the "Default Notice") relating to the Osguthorpe Lease. Specifically, Wolf alleged in the Default Notice that ASC Utah breached its obligations under the Ground Lease to obtain Wolf's prior written consent to any modification to the Osguthorpe Lease. In its Default Notice, Wolf demanded that ASC Utah "disavow any claims as a tenant arising from or through the Osguthorpe Lease property and reinstate and transfer to Landlord [Wolf] all of its rights to the leased property the [sic] comprising Osguthorpe Lease." Under the terms of the Ground Lease, ASC Utah had sixty (60) days, or until May 30, 2006, to cure the default alleged in the Default Notice (subject to further extension under certain enumerated circumstances). Wolf agreed in writing to extend this cure period to June 16, 2006. As cure for the allegations in the Default Notice, on June 7, 2006, ASC Utah executed and delivered to Wolf an Assignment, Acknowledgement and Ratification, dated June 5, 2006 (the "Assignment") assigning all of its right title and interest in and to the amendments to the Osguthorpe Lease to Wolf. In addition, ASC Utah delivered to Wolf a consent to assignment executed by the applicable Osguthorpe parties. On June 14, ASC Utah initiated a declaratory judgment action in state court in Summit County, Utah. The action seeks a declaration that the steps taken by ASC Utah in response to the Default Notice are sufficient to cure any alleged default under the Ground Lease, and in the interim seeks a temporary restraining order preventing Wolf from declaring the Ground Lease terminated or from exercising any other rights it may have on account of the alleged defaults raised in the Default Notice until the Court decides this declaratory judgment action. The Company strongly believes that the actions taken by ASC Utah are sufficient to cure the defaults alleged under the Default Notice. There can be no assurance, however, that the Summit County state court will agree that ASC Utah has cured the alleged defaults. In the event that the state court in Summit County finds that the actions taken by ASC Utah are not sufficient to cure the defaults under the Default Notice, and if ASC Utah is unable to effect a cure of such defaults within any remaining cure period, the remedies available to Wolf may include damages to Wolf (which the Company believes to be minimal) and/or termination of the Ground Lease. Termination of the Ground Lease would significantly reduce the value of ASC Utah's operation at The Canyons, and would materially curtail, if not completely eliminate, ASC Utah's ability to obtain recurring revenues from those assets. In the event of termination of the Ground Lease, Wolf would have certain rights to repurchase for fair market value assets of ASC Utah which are used in conjunction with its operation of The Canyons. Wolf's right to terminate the Ground Lease is subject to certain rights of cure and foreclosure in favor of ASC Utah's lenders. In the event of a timely cure by one or more of those lenders, such lenders are entitled to step into the shoes of ASC Utah as a tenant under the Ground Lease. Termination of the Ground Lease by Wolf would likely cause a default under the Company's Resort Senior Credit Facility. In the event of such a default, the Company would engage in discussions with the lenders under those facilities in an effort to satisfactorily address the default. There can be no assurance that such discussions would be successful, and if they were not successful the Company could be forced to refinance such obligations on materially worse terms than those presently available. 31 Item 1A Other Risk Factors Failure to cure the alleged default under the Ground Lease could have a material adverse effect on the Company. ASC Utah is currently in dispute with Wolf regarding the Gound Lease and ASC Utah has taken actions to cure the alleged default. See "Item 1--Legal Proceedings." Even though the Company strongly believes that the actions taken by ASC Utah are sufficient to cure the defaults alleged under the Default Notice, there can be no assurance that the Summit County state court will agree that ASC Utah has cured the alleged defaults. In the event that the state court in Summit County finds that the actions taken by ASC Utah are not sufficient to cure the defaults under the Default Notice, and if ASC Utah is unable to effect a cure of such defaults within any remaining cure period, the remedies available to Wolf may include damages to Wolf (which the Company believes to be minimal) and/or termination of the Ground Lease. Termination of the Ground Lease would significantly reduce the value of ASC Utah's operation at The Canyons, and would materially curtail, if not completely eliminate, ASC Utah's ability to obtain recurring revenues from those assets. In the event of termination of the Ground Lease, Wolf would have certain rights to repurchase for fair market value assets of ASC Utah which are used in conjunction with its operation of The Canyons. Wolf's right to terminate the Ground Lease is subject to certain rights of cure and foreclosure in favor of ASC Utah's lenders. In the event of a timely cure by one or more of those lenders, such lenders are entitled to step into the shoes of ASC Utah as a tenant under the Ground Lease. In addition, termination of the Ground Lease by Wolf would likely cause a default under the Company's Resort Senior Credit Facility. In the event of such a default, the Company would engage in discussions with the lenders under those facilities in an effort to satisfactorily address the default. There can be no assurance that such discussions would be successful, and if they were not successful the Company could be forced to refinance such obligations on materially worse terms than those presently available. 32 Item 6 Exhibits Included herewith are the following exhibits: Exhibit No. Description 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 33 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. American Skiing Company Date: June 14, 2006 By: /s/ William J. Fair -------------------------------- William J. Fair President and Chief Executive Officer (Principal Executive Officer) By: /s/ Helen E. Wallace -------------------------------- Helen E. Wallace Senior Vice President, Chief Financial Officer (Principal Financial Officer) 34 EX-31 2 form311exhibit0306.txt CERTIFICATION CEO Exhibit 31.1 CERTIFICATION I, William J. Fair, certify that: 1. I have reviewed this quarterly report on Form 10-Q of American Skiing Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 14, 2006 By: /s/ William J. Fair ----------------------------- William J. Fair President and Chief Executive Officer (Principal Executive Officer) EX-31 3 form312exhibit0306.txt CERTIFICATION CFO Exhibit 31.2 CERTIFICATION I, Helen E. Wallace, certify that: 1. I have reviewed this quarterly report on Form 10-Q of American Skiing Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 14, 2006 By: /s/ Helen E. Wallace ------------------------------ Helen E. Wallace Senior Vice President, Chief Financial Officer (Principal Financial Officer) EX-32 4 form321exhibit0306.txt CERTIFICATION CEO Exhibit 32.1 AMERICAN SKIING COMPANY SARBANES-OXLEY ACT SECTION 906 CERTIFICATIONS In connection with the Quarterly Report of American Skiing Company (the "Company") on Form 10-Q for the period ended April 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William J. Fair, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: June 14, 2006 By: /s/ William J. Fair ---------------------------- William J. Fair President and Chief Executive Officer (Principal Executive Officer) EX-32 5 form322exhibit0306.txt CERTIFICATION CFO Exhibit 32.2 AMERICAN SKIING COMPANY SARBANES-OXLEY ACT SECTION 906 CERTIFICATIONS In connection with the Quarterly Report of American Skiing Company (the "Company") on Form 10-Q for the period ended April 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Helen E. Wallace, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: June 14, 2006 By:/s/ Helen E. Wallace --------------------------------- Helen E. Wallace Senior Vice President, Chief Financial Officer (Principal Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----