10-Q 1 skis-20161031x10q.htm 10-Q 20161031 10Q Q2



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2016.

OR

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

Commission file number 001-35363

Peak Resorts, Inc.

(Exact name of registrant as specified in its charter)



 

 

Missouri

 

43-1793922

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)



 

 

17409 Hidden Valley Drive

 

63025

Wildwood, Missouri

 

(Zip Code)

(Address of principal executive offices)

 

 



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

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

Yes   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   No

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

Large accelerated filer Accelerated filer

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

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

As of December  8, 2016,  13,982,400 shares of the registrant’s common stock were outstanding.


 

TABLE OF CONTENTS

PART I FINANICAL INFORMATION



 

 

 

 



 

 

Page

 

Item 1.

Financial Statements

 

 

 



 

 

 

 



Condensed Consolidated Balance Sheets as of October 31, 2016 (unaudited) and April 30, 2016

 

3

 



 

 

 

 



Condensed Consolidated Statements of Loss for the Three and Six Months Ended October 31, 2016 and 2015 (unaudited)

 

4

 



 

 

 

 



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

 

5

 



 

 

 

 



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

 

6

 



 

 

 

 



Notes to Unaudited Condensed Consolidated Financial Statements

 

7

 



 

 

 

 

Item 2.

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

 

20

 



 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

36

 



 

 

 

 

Item 4.

Controls and Procedures

 

36

 



 

 

 

 

Part II

OTHER INFORMATION

 

 

 



 

 

 

 

Item 1.

Legal Proceedings

 

37

 



 

 

 

 

Item 1A.

Risk Factors

 

37

 



 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 



 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

39

 



 

 

 

 

Item 4.

Mine Safety Disclosures

 

39

 



 

 

 

 

Item 5.

Other Information

 

39

 



 

 

 

 

Item 6.

Exhibits

 

39

 



 

 

 

 

SIGNATURES

 

40

 



 

 

 

EXHIBIT INDEX

 

41

 





 

 

 


 





PART IFINANCIAL INFORMATION



Item 1.    Financial Statements



Peak Resorts Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)



 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 



 

 

October 31,

 

 

April 30,

 



 

 

2016

 

 

2016

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,732 

 

$

5,396 

 

Restricted cash balances

 

 

54,461 

 

 

61,099 

 

Income tax receivable

 

 

10,402 

 

 

 -

 

Accounts receivable

 

 

1,184 

 

 

4,772 

 

Inventory

 

 

3,510 

 

 

2,730 

 

Deferred income taxes

 

 

1,092 

 

 

1,092 

 

Prepaid expenses and deposits

 

 

2,683 

 

 

2,680 

 



 

 

77,064 

 

 

77,769 

 

Property and equipment-net

 

 

188,563 

 

 

192,178 

 

Land held for development

 

 

37,559 

 

 

37,542 

 

Intangible assets, net

 

 

817 

 

 

846 

 

Goodwill

 

 

5,009 

 

 

5,009 

 

Other assets

 

 

625 

 

 

619 

 



 

$

309,637 

 

$

313,963 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Acquisition line of credit

 

$

20,000 

 

$

15,500 

 

Bridge loan

 

 

5,500 

 

 

 -

 

Accounts payable and accrued expenses

 

 

16,164 

 

 

18,696 

 

Accrued salaries, wages and related taxes and benefits

 

 

1,205 

 

 

919 

 

Unearned revenue

 

 

17,848 

 

 

13,233 

 

EB-5 investor funds in escrow

 

 

52,004 

 

 

52,004 

 

Current portion of deferred gain on sale/leaseback

 

 

333 

 

 

333 

 

Current portion of long-term debt and capitalized lease obligation

 

 

2,611 

 

 

2,456 

 



 

 

115,665 

 

 

103,141 

 

Long-term debt

 

 

118,114 

 

 

118,343 

 

Capitalized lease obligation

 

 

3,793 

 

 

4,419 

 

Deferred gain on sale/leaseback

 

 

3,012 

 

 

3,178 

 

Deferred income taxes

 

 

12,672 

 

 

12,672 

 

Other liabilities

 

 

558 

 

 

576 

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

Common stock, $.01 par value, 20,000,000 shares authorized, 13,982,400 shares issued

 

 

140 

 

 

140 

 

Additional paid-in capital

 

 

82,803 

 

 

82,728 

 

Accumulated Deficit

 

 

(27,120)

 

 

(11,234)

 



 

 

55,823 

 

 

71,634 

 



 

$

309,637 

 

$

313,963 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

3


 

Peak Resorts, Inc. and Subsidiaries

Condensed Consolidated Statements of Loss (Unaudited)

(In thousands, except share and per share data)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

(Unaudited)

 

 

(Unaudited)



 

 

Three months ended
October 31,

 

 

Six months ended
October 31,



 

 

2016

 

 

2015

 

 

2016

 

 

2015



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

8,475 

 

$

6,155 

 

$

15,601 

 

$

11,587 



 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Resort operating expenses

 

 

13,015 

 

 

10,783 

 

 

24,779 

 

 

20,990 

Depreciation and amortization

 

 

3,216 

 

 

2,465 

 

 

6,433 

 

 

4,913 

General and administrative expenses

 

 

1,517 

 

 

1,029 

 

 

2,889 

 

 

1,965 

Land and building rent

 

 

326 

 

 

338 

 

 

653 

 

 

676 

Real estate and other taxes

 

 

537 

 

 

415 

 

 

1,100 

 

 

881 



 

 

18,611 

 

 

15,030 

 

 

35,854 

 

 

29,425 



 

 

 

 

 

 

 

 

 

 

 

 

Loss from Operations

 

 

(10,136)

 

 

(8,875)

 

 

(20,253)

 

 

(17,838)



 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest, net of interest capitalized of $398 and $782 in 2016 and $91 and $196 in 2015, respectively

 

 

(3,156)

 

 

(2,557)

 

 

(6,204)

 

 

(5,278)

Gain on sale/leaseback

 

 

83 

 

 

83 

 

 

166 

 

 

166 

Investment income

 

 

 

 

 

 

 

 



 

 

(3,072)

 

 

(2,472)

 

 

(6,035)

 

 

(5,108)



 

 

 

 

 

 

 

 

 

 

 

 

Loss before Income Tax Benefit

 

 

(13,208)

 

 

(11,347)

 

 

(26,288)

 

 

(22,946)

Income Tax Benefit

 

 

(5,226)

 

 

(4,459)

 

 

(10,402)

 

 

(8,979)

Net Loss

 

$

(7,982)

 

$

(6,888)

 

$

(15,886)

 

$

(13,967)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$

(0.57)

 

$

(0.49)

 

$

(1.13)

 

$

(1.00)



 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

 -

 

$

0.1375 

 

$

 -

 

$

0.2750 



See Notes to Unaudited Condensed Consolidated Financial Statements.

4


 

Peak Resorts Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

(In thousands except share data)

Six Months ended October 31, 2016





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 



 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

 



 

 

Shares

 

 

Dollars

 

 

Capital

 

 

Deficit

 

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, April 30, 2016

 

 

13,982,400 

 

$

140 

 

$

82,728 

 

$

(11,234)

 

$

71,634 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 -

 

 

 -

 

 

 -

 

 

(15,886)

 

 

(15,886)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

 -

 

 

 -

 

 

75 

 

 

 -

 

 

75 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, October 31, 2016

 

 

13,982,400 

 

$

140 

 

$

82,803 

 

$

(27,120)

 

$

55,823 

See Notes to Unaudited Condensed Consolidated Financial Statements. 

5


 

Peak Resorts, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Six Months ended October 31,



 

 

 

 

 

 

 



 

Six months ended October 31,



 

 

 

 

 

 

 



 

 

2016

 

 

2015

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net loss

 

$

(15,886)

 

$

(13,967)

 

Adjustments to reconcile loss to net cash

 

 

 

 

 

 

 

used in operating activities:

 

 

 

 

 

 

 

 Depreciation and amortization of property and equipment and intangibles

 

 

6,433 

 

 

4,913 

 

 Amortization of deferred financing costs

 

 

373 

 

 

25 

 

 Amortization of other liabilities

 

 

(18)

 

 

(18)

 

 Gain on sale/leaseback

 

 

(166)

 

 

(166)

 

 Stock based compensation

 

 

75 

 

 

 -

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 



 

 

 

 

 

 

 

  Income tax receivable

 

 

(10,402)

 

 

(8,979)

 

  Accounts receivable

 

 

3,588 

 

 

1,110 

 

  Inventory

 

 

(780)

 

 

(1,156)

 

  Prepaid expenses and deposits

 

 

(3)

 

 

(267)

 

  Other assets

 

 

(6)

 

 

(16)

 

  Accounts payable and accrued expenses

 

 

(3,474)

 

 

5,841 

 

  Accrued salaries, wages and related taxes and benefits

 

 

286 

 

 

144 

 

  Unearned revenue

 

 

4,615 

 

 

6,530 

 



 

 

 

 

 

 

 

   Net cash used in operating activities

 

 

(15,365)

 

 

(6,006)

 



 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(1,847)

 

 

(11,004)

 

Additions to land held for development

 

 

(17)

 

 

 -

 

Change in restricted cash

 

 

6,638 

 

 

(15,980)

 

   Net cash provided by (used in) investing activities

 

 

4,774 

 

 

(26,984)

 



 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

Borrowings on long-term debt and capitalized lease obligation

 

 

44 

 

 

3,950 

 

Borrowings on line of credit and bridge loan

 

 

10,000 

 

 

 -

 

Additions to EB-5 investor funds held in escrow

 

 

 -

 

 

21,502 

 

Payment on long-term debt and capital lease obligations

 

 

(915)

 

 

(804)

 

Payment of deferred financing costs

 

 

(202)

 

 

(80)

 

Distributions to stockholders

 

 

 -

 

 

(3,845)

 

   Net cash  provided by financing activities

 

 

8,927 

 

 

20,723 

 



 

 

 

 

 

 

 

Net Decrease in Cash and Cash Equivalents

 

 

(1,664)

 

 

(12,267)

 



 

 

 

 

 

 

 

Cash and Cash Equivalents, April 30

 

 

5,396 

 

 

16,849 

 



 

 

 

 

 

 

 

Cash and Cash Equivalents, October 31

 

$

3,732 

 

$

4,582 

 



 

 

 

 

 

 

 

Supplemental Schedule of Cash Flow Information

 

 

 

 

 

 

 

Cash paid for interest, including $782 and $196 capitalized in 2016 and 2015, respectively

 

$

6,789 

 

$

5,556 

 



 

 

 

 

 

 

 

Supplemental Disclosure of Noncash Investing

 

 

 

 

 

 

 

and Financing Activities

 

 

 

 

 

 

 

Assets under construction included in accounts payable

 

$

942 

 

$

 -

 

                          

See Notes to Unaudited Condensed Consolidated Financial Statements.

6


 




PEAK RESORTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended October 31, 2016 and 2015

Note 1. Nature of Business

Description of business:  Peak Resorts, Inc. (the “Company”) and its subsidiaries operate in a single business segment—ski resort operations. The Company’s ski resort operations consist of snow skiing, snowboarding and snow sports areas in Wildwood and Weston, Missouri; Bellefontaine and Cleveland, Ohio; Paoli, Indiana; Blakeslee and Lake Harmony, Pennsylvania; Bartlett, Bennington and Pinkham Notch, New Hampshire; West Dover, Vermont; and Hunter, New York; and an eighteen‑hole golf course in West Dover, Vermont. The Company also manages hotels in Bartlett, New Hampshire; West Dover, Vermont; and Hunter, New York.

In the opinion of management, the accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with Rule 10‑01 of Regulation S‑X and include all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation of the interim periods presented.

Results for interim periods are not indicative of the results expected for a full fiscal year due to the seasonal nature of the Company’s business. Due to the seasonality of the ski industry, the Company typically incurs significant operating losses during its first and second fiscal quarters. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2016. 

Note 2. New Accounting Standards

In July 2015, the Financial Accounting Standards Board (FASB) issued guidance in Accounting Standards Update (ASU) 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which requires the Company to subsequently measure inventory at the lower of cost and net realizable value rather than the lower of cost or market. For public business entities, the guidance is effective on a prospective basis for interim and annual periods beginning after December 15, 2016, with early adoption permitted.  Pursuant to the JOBS Act, the Company is permitted to adopt the standard for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017.  The amendments in this update should be applied prospectively with earlier application permitted for all entities as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of the adoption of ASU 2015‑11 on the consolidated financial statements.

In November 2015, the FASB issued guidance in ASU 2015-17, Income Taxes (Topic 740): “Balance Sheet Classification of Deferred Taxes,” which requires deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. For public business entities, the guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  Pursuant to the JOBS Act, the Company is permitted to adopt the standard for annual reporting periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018.  Early application is permitted for all entities as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of the adoption of ASU 2015‑17 on the consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” ("ASU 2016-02”). The pronouncement requires the recognition of a liability for lease obligations and a corresponding right-of-use asset on the balance sheet and disclosure of key information about leasing arrangements. This pronouncement is effective for reporting periods beginning after December 15, 2018 using a modified retrospective adoption method.  While the Company is currently evaluating the provisions of ASU 2016-02 to determine how it will be affected, the primary effect of adopting the new standard will be to record assets and obligations for current operating leases. 

 

7


 

In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2016-08”), an update of ASU 2014-09, requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2016-08 will replace most existing revenue recognition guidance under U.S. generally accepted accounting principles when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Pursuant to the JOBS Act, the Company is permitted to adopt the standard for annual reporting periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The new guidance requires entities to record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement when the awards vest or are settled. The guidance also requires entities to present excess tax benefits as an operating activity and cash paid to a taxing authority to satisfy statutory withholding as a financing activity on the statement of cash flows. Additionally, the guidance allows entities to make a policy election to account for forfeitures either upon occurrence or by estimating forfeitures. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016.  Pursuant to the JOBS Act, the Company is permitted to adopt the standard for annual reporting periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impacts the adoption of this accounting standard will have on the Company’s financial position or results of operations and cash flows. 



In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.”  The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows.  For public business entities, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Pursuant to the JOBS Act,   the Company is permitted to adopt the standard for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method.  The Company is currently evaluating the impacts the adoption of this accounting standard will have on the Company’s statement of cash flows.



In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.”  The new guidance is intended to add and clarify guidance on the classification and presentation of restricted cash in the statement of cash flows.  For public business entities, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Pursuant to the JOBS Act, the Company is permitted to adopt the standard for fiscal years beginning after December 15, 2018, and interim periods thereafter. Early adoption is permitted. The guidance requires application using a retrospective transition method to all periods presentedThe Company is currently evaluating the impacts the adoption of this accounting standard will have on the Company’s statement of cash flows.

Note 3. Income Taxes

Deferred income tax assets and liabilities are measured at enacted tax rates in the respective jurisdictions where the Company operates. In assessing the ability to realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all deferred tax assets will not be realized and a valuation allowance would be provided if necessary. The FASB Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes,” also provides guidance with respect to the accounting for uncertainty in income taxes recognized in a Company’s consolidated financial statements, and it prescribes a recognition threshold and measurement attribute criteria for the consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company does not have any material uncertain tax positions.

The income tax receivable is a result of the expected tax rate for the fiscal year ending April 30, 2017 applied to the loss before income tax for the six months ended October 31, 2016. Due to the seasonality of the ski industry, the Company typically incurs significant operating losses during its first and second fiscal quarters.

8


 

Note 4. Long‑term Debt / Line of Credit / Bridge Loan Financing

Long‑term debt at October 31, 2016 and April 30, 2016 consisted of borrowings pursuant to the loans and other credit facilities discussed below, as follows (dollars in thousands):



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

(Unaudited)
October 31,
2016

 


April 30,
2016

 

 

 

Attitash/Mount Snow Debt; payable in monthly interest only payments at an increasing interest rate (11.10% at October 31, 2016 and April 30, 2016); remaining principal and interest due on December 1, 2034 

 

$

51,050 

 

$

51,050 

 

 

 

Credit Facility Debt; payable in monthly interest only payments at an increasing interest rate (10.28% at October 31, 2016 and  10.13% at April 30, 2016); remaining principal and interest due on December 1, 2034

 

 

37,562 

 

 

37,562 

 

 

 

Hunter Mountain Debt; payable in monthly interest only payments at an increasing interest rate (8.0% at October 31, 2016 and April 30, 2016); remaining principal and interest due on January 5, 2036

 

 

21,000 

 

 

21,000 

 

 

 

Sycamore Lake (Alpine Valley) Debt; payable in monthly interest only payments at an increasing interest rate (10.56% at October 31, 2016 and April 30, 2016); remaining principal and interest due on December 1, 2034

 

 

4,550 

 

 

4,550 

 

 

 

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

 

 

3,519 

 

 

3,612 

 

 

 

Other debt

 

 

3,062 

 

 

3,231 

 

 

 



 

 

 

 

 

 

 

 

 

Less unamortized debt issuance costs

 

 

(1,733)

 

 

(1,903)

 

 

 



 

 

 

 

 

 

 

 

 



 

 

119,010 

 

 

119,102 

 

 

 

Less: current maturities

 

 

896 

 

 

759 

 

 

 



 

$

118,114 

 

$

118,343 

 

 

 



Debt Restructure

On November 10, 2014, in connection with the Company’s initial public offering, the Company entered into a Restructure Agreement with certain affiliates of EPR Properties (“EPR”), the Company’s primary lender, providing for the (i) prepayment of approximately $75.8 million of formerly non-prepayable debt secured by the Crotched Mountain, Attitash, Paoli Peaks, Hidden Valley and Snow Creek resorts and (ii) retirement of one of the notes associated with the future development of Mount Snow (the “Debt Restructure”). On December 1, 2014, the Company entered into various agreements in order to effectuate the Debt Restructure, as more fully described in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 5, 2014.  Pursuant to the Debt Restructure, the Company paid a defeasance fee of $5.0 million to EPR in addition to the consideration described below.

In exchange for the prepayment right, the Company granted EPR a purchase option on the Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley properties, subject to certain conditions.  If EPR exercises a purchase option, EPR will enter into an agreement with the Company for the lease of each such acquired property for an initial term of 20 years, plus options to extend the lease for two additional periods of ten years each. All previously existing option agreements between the Company and EPR were terminated.

Over the years, the Company has depreciated the book value of these properties pursuant to applicable accounting rules, and as such, it has a low basis in the properties. As a result, the Company will realize significant gains on the sale of the properties to EPR if the option is exercised. The Company will be required to pay capital gains tax on the difference between the purchase price of the properties and the tax basis in the properties, which is expected to be a substantial cost. To date, EPR has not exercised the option.

9


 

Additionally, the Company agreed to extend the maturity dates on all non-prepayable notes and mortgages secured by the Mount Snow, Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley properties remaining after the Debt Restructure by seven years to December 1, 2034, and to extend the lease for the Mad River property, previously terminating in 2026, until December 31, 2034 (the “Lease Amendment”).

The Company also granted EPR a right of first refusal to provide all or a portion of the financing associated with any purchase, ground lease, sale/leaseback, management or financing transaction contemplated by the Company with respect to any new or existing ski resort property for a period of seven years or until financing provided by EPR for such transactions equals or exceeds $250 million in the aggregate. Proposed financings from certain types of institutional lenders providing a loan to value ratio of less than 60% (as relates to the applicable property being financed) are excluded from the right of first refusal. The Company granted EPR a separate right of first refusal in the event that the Company wishes to sell, transfer, convey or otherwise dispose of any or all of the Attitash ski resort for seven years.  The Attitash right excludes the financing or mortgaging of Attitash.

In connection with the Debt Restructure, the Company entered into a Master Credit and Security Agreement with EPR (the “Master Credit Agreement”) governing the restructured debt with EPR. Pursuant to the Master Credit Agreement, EPR agreed to maintain the following loans to the Company following the prepayment of certain outstanding debt with proceeds from the Company’s initial public offering: (i) a term loan in the amount of approximately $51.1 million to the Company and its subsidiary Mount Snow, Ltd., (included in the table above as the “Attitash/Mount Snow Debt”); (ii) a term loan in the amount of approximately $23.3 million to the Company and its subsidiaries Brandywine Ski Resort, Inc. and Boston Mills Ski Resort, Inc. (the “Boston Mills/Brandywine Debt”); (iii) a term loan in the amount of approximately $14.3 million to the Company and its subsidiary JFBB Ski Areas, Inc. (the “JFBB Debt” and together with the Boston Mills/Brandywine Debt, included in the table above as the “Credit Facility Debt”); and (iv) a term loan in the amount of approximately $4.6 million to the Company and its subsidiary Sycamore Lake, Inc. (included in the table above as the “Sycamore Lake (Alpine Valley) Debt”).

Interest will be charged at a rate of (i) 10.13% per annum as to each of the Boston Mills/Brandywine Debt and JFBB Debt; (ii) 10.40% per annum as to the Sycamore Lake (Alpine Valley) Debt; and (iii) 10.93% per annum pursuant to the Attitash/Mount Snow Debt.  Each of the notes governing the restructured debt provides that interest will increase each year by the lesser of the following: (x) three times the percentage increase in the Consumer Price Index as defined in the notes (“CPI”) from the CPI in effect on the applicable adjustment date over the CPI in effect on the immediately preceding adjustment date or (y) 1.5% (the “Capped CPI Index).  Past due amounts will be charged a higher interest rate and be subject to late charges.

 The Master Credit Agreement further provides that in addition to interest payments, the Company must pay the following with respect to all restructured debt other than the Attitash/Mount Snow Debt: an additional annual payment equal to 10% of the gross receipts attributable to the properties serving as collateral of the restructured debt (other than Mount Snow) for such year in excess of an amount equal to the quotient obtained by dividing (i) the annual interest payments payable pursuant to the notes governing the restructured debt (other than with respect to the Attitash/Mount Snow Debt) for the immediately preceding year by (ii) 10%.  The Company must pay the following with respect to the Attitash/Mount Snow Debt: an additional annual payment equal to 12% of the gross receipts generated at Mount Snow for such year in excess of an amount equal to the quotient obtained by dividing (i) the annual interest payments payable under the note governing the Attitash/Mount Snow Debt for the immediately preceding year by (ii) 12%.  No additional interest payments were due for the three months and six months ended October 31, 2016.

  The Master Credit Agreement includes restrictions on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence of certain additional debt and liens. The Master Credit Agreement includes certain financial covenants, some of which were modified by the terms set forth in the Modification of Master Credit Agreements entered into by the Company and EPR effective as of October 24, 2016 (the “Modification Agreement”). The Modification Agreement modified the financial covenants of the Master Credit Agreement, Hunter Mountain Credit Agreement and Bridge Loan Agreement, as defined herein (together, the “EPR Credit Agreements”).

Financial covenants set forth in the Master Credit Agreement consist of a maximum leverage ratio (as defined in the Master Credit Agreement) of 65%, above which the Company and certain of its subsidiaries are prohibited from incurring additional indebtedness, and a consolidated fixed charge coverage ratio (as defined in the Master Credit Agreement) covenant. As modified by the Modification Agreement, no later than 30 days after the closing of the Private Placement with CAP 1 LLC, as defined in Note 9, “Subsequent Events, the Company shall deliver to the lender either (the “One Month Interest Obligation”) (i) a letter of credit in favor of the lender in the amount equal to one month of the lease payment obligations and debt service payments, as defined in the EPR Credit Agreements; or (ii) cash equal to the same amount. The terms of the Modification Agreement further provide that the lender may draw upon any letter of credit issued pursuant to the Modification Agreement upon the occurrence of certain events (the “Letter of Credit Events”), including, but not limited to,

10


 

(i) any event of default under the EPR Credit Agreements; (ii) the Company’s failure to maintain a consolidated fixed charge coverage ratio of 1.50:1.00 on a rolling four quarter basis, as calculated pursuant to the terms of the EPR Credit Agreements, on or after May 1, 2017; and (iii) at any time within 60 days prior to the expiration date of any letter of credit. In the event of the occurrence of any Letter of Credit Events, the Company must replace the One Month Interest Obligation with (i) a replacement letter of credit in favor of the lender in the amount equal to three months of lease payment obligations and debt service payments, as defined in the EPR Credit Agreements; or (ii) cash in the same amount. Pursuant to the terms of the Modification Agreement, the Company must obtain the consent of the lender prior to redeeming any preferred or common stock.  The Private Placement closed on November 2, 2016, and the Company provided EPR with the One Month Interest Obligation letter of credit (the “Interest Letter of Credit”) in the amount of $1.1 million on December 1, 2016 in accordance with the terms of the Modification Agreement. The Interest Letter of Credit is collateralized by a certificate of deposit in the amount of $1.1 million.  The Master Credit Agreement prohibits the Company from paying dividends if the fixed charge coverage ratio is below 1.25:1.00 and during default situations. As of October 31, 2016, the fixed charge coverage ratio fell below both the 1.50:1.00 and 1.25:1.00 thresholds. As a result, the Company is restricted from issuing any dividends.

Under the terms of the Master Credit Agreement, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) within two years after the effective date of the Master Credit Agreement, the Company’s named executive officers (Messrs. Timothy Boyd, Stephen Mueller and Richard Deutsch) cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Master Credit Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of those subsidiaries which are borrowers under the Master Credit Agreement.  Other events of default include, but are not limited to, a default on other indebtedness of the Company or its subsidiaries.

None of the restructured debt may be prepaid without the consent of EPR. Upon an event of default, as defined in the Debt Restructure Agreements, EPR may, among other things, declare all unpaid principal and interest due and payable.  Each of the notes governing the restructured debt matures on December 1, 2034.

As a condition to the Debt Restructure, the Company entered into the Master Cross Default Agreement with EPR (the “Master Cross Default Agreement”). The Master Cross Default Agreement provides that any event of default under existing or future loan or lien agreements between the Company or its affiliates and EPR, and any event of default under the Lease Amendment, shall automatically constitute an event of default under each of such loan and lien agreements and Lease Amendment, upon which EPR will be entitled to all of the remedies provided under such agreements and Lease Amendment in the case of an event of default.

Also in connection with the Debt Restructure, the Company and EPR entered into the Guaranty Agreement (the “2014 Guaranty Agreement”).  The 2014 Guaranty Agreement obligates the Company and its subsidiaries as guarantors of all debt evidenced by the Debt Restructure Agreements. The table below illustrates the potential interest rates applicable to the Company’s fluctuating interest rate debt for each of the next five years, assuming an effective rate increase by the Capped CPI Index:



 

 

 

 

 

 

 

 

 

 



 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Rates as of October 31,

 

Attitash/Mount Snow Debt

 

Credit Facility
Debt

 

Hunter Mountain Debt

 

Sycamore Lake/(Alpine Valley) Debt

 

 

2016(1)

 

11.10% 

 

10.28% 

 

8.00% 

 

10.56% 

 

 

2017

 

11.27% 

 

10.43% 

 

8.14% 

 

10.72% 

 

 

2018

 

11.44% 

 

10.59% 

 

8.28% 

 

10.88% 

 

 

2019

 

11.61% 

 

10.75% 

 

8.43% 

 

11.04% 

 

 

2020

 

11.78% 

 

10.91% 

 

8.57% 

 

11.21% 

 

 

2021

 

11.96% 

 

11.07% 

 

8.72% 

 

11.38% 

 

 



 

 

 

 

 

 

 

 

 

 



(1)  For 2016, the dates of the rates presented are as follows: (i) April 1, 2016 for the Attitash/Mount Snow Debt; (ii) October 1, 2016 for the Credit Facility Debt; (iii) January 6, 2016 for the Hunter Mountain Debt; and (iv) December 1, 2015 for the Sycamore Lake (Alpine Valley) Debt.

The Capped CPI Index is an embedded derivative, but the Company has concluded that the derivative does not require bifurcation and separate presentation at fair value because the Capped CPI Index was determined to be clearly and closely related to the debt instrument.

11


 

Wildcat Mountain Debt

The Wildcat Mountain Debt due December 22, 2020 represents amounts owed pursuant to a promissory note in the principal amount of $4.5 million made by WC Acquisition Corp. in favor of Wildcat Mountain Ski Area, Inc., Meadow Green‑Wildcat Skilift Corp. and Meadow Green‑Wildcat Corp. (the “Wildcat Note”). The Wildcat Note, dated November 22, 2010, was made in connection with the acquisition of Wildcat Mountain, which was effective as of October 20, 2010. The interest rate as set forth in the Wildcat Note is fixed at 4.00%.

Hunter Mountain Debt

On January 6, 2016, the Company completed the acquisition of the Hunter Mountain ski resort located in Hunter, New York through the purchase of all of the outstanding stock of each of Hunter Mountain Ski Bowl, Inc., Hunter Mountain Festivals, Ltd., Hunter Mountain Rentals, Inc., Hunter Resort Vacations, Inc., Hunter Mountain Base Lodge, Inc., and Frosty Land, Inc. (collectively, “Hunter Mountain”) pursuant to the terms of the Stock Purchase Agreement (the “Purchase Agreement”) with Paul Slutzky, Charles B. Slutzky, David Slutzky, Gary Slutzky and Carol Slutzky-Tenerowicz entered into on November 30, 2015.  The Company acquired Hunter Mountain for total cash consideration of $35.0 million plus the assumption of two capital leases estimated at approximately $1.7 million. A portion of the Hunter Mountain acquisition price was financed pursuant to the Master Credit and Security Agreement (the “Hunter Mountain Credit Agreement”) entered into between the Company and EPR as of January 6, 2016.

The Hunter Mountain Debt due January 5, 2036 represents amounts owed pursuant to a promissory note (the “Hunter Mountain Note”) in the principal amount of $21.0 million made by the Company in favor of EPR pursuant to the Hunter Mountain Credit Agreement, which was effective as of January 6, 2016.  The Company used $20.0 million of the Hunter Mountain Debt to finance the Hunter Mountain acquisition and $1.0 million to cover closing costs and to add to its interest reserve account.

The Hunter Mountain Credit Agreement and Hunter Mountain Note provide that interest will be charged at an initial rate of 8.00%, subject to an annual increase beginning on February 1, 2017 by the lesser of the following: (x) three times the percentage increase in the CPI (as defined in the Hunter Mountain Note) from the CPI in effect on the applicable adjustment date over the CPI in effect on the immediately preceding adjustment date or (y) 1.75%.  Past due amounts will be charged a higher interest rate and be subject to late charges.

The Hunter Mountain Credit Agreement further provides that in addition to interest payments, the Company must pay an additional annual payment equal to 8.00% of the gross receipts in excess of $35.0 million that are attributable to all collateral under the Hunter Mountain Note for such year.

 The Hunter Mountain Credit Agreement includes restrictions or limitations on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence or guaranty of certain additional debt and liens. Financial covenants and dividend restrictions set forth in the Hunter Mountain Credit Agreement are identical to those set forth in the Master Credit Agreement, as modified by the Modification Agreement, described above.  In accordance with the terms of the Modification Agreement, the Company provided EPR with the Interest Letter of Credit on December 1, 2016 in the amount of $1.1 million, collateralized by a certificate of deposit for the same amount. As of October 31, 2016, the fixed charge coverage ratio fell below both the 1.50:1.00 and 1.25:1.00 thresholds. As a result, the Company is restricted from issuing any dividends.

 Under the terms of the Hunter Mountain Credit Agreement, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) within two years after the effective date of the Hunter Mountain Credit Agreement, the Company’s named executive officers (Messrs. Boyd, Mueller and Deutsch) cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Hunter Mountain Credit Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of those subsidiaries which are borrowers under the Hunter Mountain Credit Agreement.  Other events of default include, but are not limited to, a default on other indebtedness of the Company or its subsidiaries.

The Hunter Mountain Note may not be prepaid without the consent of EPR. Upon an event of default, as defined in the Hunter Mountain Note, EPR may, among other things, declare all unpaid principal and interest due and payable. The Hunter Mountain Note matures on January 5, 2036.

In connection with entry into the Hunter Mountain Credit Agreement on January 6, 2016, the Company entered into the Amended and Restated Master Cross-Default Agreement with EPR, which adds the Hunter Mountain Credit Agreement, Hunter Mountain Note and related transaction documents to the scope of loan agreements to which the cross-default provisions of the Master Cross Default Agreement apply. 

12


 

Also on January 6, 2016, in connection with entry into the Hunter Mountain Credit Agreement, the Company entered into a Guaranty Agreement for the benefit of EPR, which adds the Company’s new Hunter Mountain subsidiary borrowers under the Hunter Mountain Credit Agreement as guarantors pursuant to the same terms of the 2014 Guaranty Agreement and adds the debt evidenced by the Hunter Mountain Credit Agreement and Hunter Mountain Note to the debt guaranteed by the Company pursuant to the 2014 Guaranty Agreement.

Substantially all of the Company’s assets serve as collateral for the Company’s long term debt.

Future aggregate annual principal payments under all indebtedness (including the Company’ line of credit, bridge loan, current debt and long-term debt) reflected by fiscal year are as follows (in thousands):





 

 

 

 

 

 



 

 

(Unaudited)

 

 

 



 

 

October 31,

 

 

 

2017 (Remaining)

 

$

21,945 

 

 

 

2018

 

 

6,334 

 

 

 

2019

 

 

767 

 

 

 

2020

 

 

215 

 

 

 

2021

 

 

2,820 

 

 

 

Thereafter

 

 

114,162 

 

 

 



 

$

146,243 

 

 

 





Deferred financing costs are net of accumulated amortization of $854 and $482 at October 31, 2016 and April 30, 2016, respectively. Amortization of deferred financing costs will be $245 for the remainder of the year ending April 30, 2017, $141 for the year ended April 30, 2018 and $90 for each of the three years ending April 30, 2019,  2020 and 2021.

Line of Credit

The remaining $15.0 million of the Hunter Mountain acquisition price was financed with funds drawn on the Company’s line of credit with Royal Banks of Missouri pursuant to the Credit Facility, Loan and Security Agreement (the “Line of Credit Agreement”) between the Company and Royal Banks of Missouri, effective as of December 22, 2015. The Company drew an additional $0.5 million to pay closing costs.  On July 20, 2016, the Company borrowed an additional $1.75 million under the Credit Agreement for working capital purposes.  Additionally, on August 5, 2016, the Company borrowed the remaining $2.75 million under the Credit Agreement for working capital purposes, bringing the total principal amount borrowed under the Credit Agreement to $20 million, all of which was outstanding at October 31, 2016.

The Line of Credit Agreement provides for a 12-month line of credit for up to $20.0 million to be used for acquisition purposes and working capital of up to 5.0% of the acquisition purchase price, subject to the Company’s ability to extend the line of credit for up to an additional 12-month period upon the satisfaction of certain conditions. In connection with entry into the Line of Credit Agreement, the Company executed a promissory note (the “Initial Line of Credit Note”) in favor of Royal Banks of Missouri, maturing on December 22, 2016. The additional $1.75 million borrowed by the Company on July 20, 2016 was borrowed pursuant to the terms of the Initial Line of Credit Note.  The remaining $2.75 million drawn under the Line of Credit Agreement on August 5, 2016 was borrowed pursuant to a second promissory note executed by the Company on August 5, 2016 (the “Second Line of Credit Note”), maturing on August 5, 2017. The line of credit debt is included as a current liability given the initial 12-month term.

Interest on the amounts borrowed pursuant to the Initial Line of Credit Note is charged at the prime rate plus 1.0%, provided that past due amounts shall be subject to higher interest rates and late charges.  The effective rate at October 31, 2016 was 4.5% on the line of credit borrowings made pursuant to the Initial Line of Credit Note.

Interest on the amount borrowed pursuant to the Second Line of Credit Note is charged at 6.00% per annum, provided that past due amounts shall be subject to higher interest rates and late charges. The Company is required to make interest only payments under the Second Line of Credit Note.

The Line of Credit Agreement includes restrictions or limitations on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence of certain additional debt and liens. Financial covenants set forth in the Line of Credit Agreement consist of a maximum leverage ratio (as defined in the Line of Credit Agreement) of 65%, above which the Company is prohibited from incurring additional indebtedness, and a debt service coverage ratio (as defined in the Line of Credit Agreement) of 1.25:1.00 on a fiscal year basis. The Line of Credit Agreement requires that the Company comply with the consolidated fixed charge coverage ratio requirements and provisions set forth in the Master Credit Agreement, as modified by the Modification Agreement, and includes identical dividend payment

13


 

restrictions as the Master Credit Agreement.   In accordance with the terms of the Modification Agreement, the Company provided EPR with the Interest Letter of Credit on December 1, 2016 in the amount of $1.1 million, collateralized by a certificate of deposit for the same amount. As of October 31, 2016, the fixed charge coverage ratio fell below both the 1.50:1.00 and 1.25:1.00 thresholds set forth in the Master Credit Agreement. As a result, the Company is restricted from issuing any dividends. 

If the outstanding line of credit debt is not paid in full by the maturity date, and the Company is otherwise in full compliance with the terms and conditions of the Line of Credit Agreement and Initial Line of Credit Note, the Company may elect to convert only the outstanding debt borrowed pursuant to the Initial Line of Credit Note to a three-year term loan, subject to an additional extension, with principal payments amortized over a 20-year period bearing interest at the prime rate plus 1.00% per annum. The amount borrowed pursuant to the Second Line of Credit Note is not subject to the renewal and conversion provisions of the Line of Credit Agreement.

Except in the case of a default, the Company may prepay all or any portion of the outstanding line of credit debt and all accrued and unpaid interest due prior to the maturity date without prepayment penalty.

In the case of a default, the outstanding line of credit debt shall, at the lender’s option, bear interest at the rate of 5.0% percent per annum in excess of the interest rate otherwise payable thereon, which interest shall be payable on demand.

Under the terms of the Line of Credit Agreement, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) for so long as the line of credit debt is outstanding and such individuals are employed by the Company, the Company’s key shareholders (Messrs. Timothy Boyd, Stephen Mueller and Richard Deutsch) cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Line of Credit Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of the subsidiary borrowers.  Other events of default include, but are not limited to, a default on other indebtedness of the Company or its subsidiaries.

Amounts outstanding under the Line of Credit Agreement are secured by the assets of each of the subsidiary borrowers under the Line of Credit Agreement.

Bridge Loan Financing

On September 1, 2016, the Company entered into the Master Credit and Security Agreement with EPR pursuant to which EPR agreed to loan up to $10.0 million to the Company for working capital purposes (the “Bridge Loan Agreement”), as evidenced by a promissory note (the “Bridge Loan Note”), also dated as of September 1, 2016.

The Bridge Loan Agreement provides that the Company may borrow up to $5.5 million until three business days prior to December 31, 2016.  Any other advances under the Bridge Loan Agreement will be made at the discretion of the lender, but no amount may be borrowed under the Bridge Loan Agreement after December 31, 2016.  The maximum amount available under the Bridge Loan Agreement will be reduced from $10.0 to $5.0 upon the Company receiving the proceeds of the EB-5 funding, and upon the receipt of any of such funds, the Company shall prepay (i) the amount by which outstanding principal under the Bridge Loan Agreement exceeds $5.0 million and (ii) accrued interest on such excess amount.  The Company may make additional voluntary prepayments, without penalty, in an amount of not less than the lesser of $1.0 million or the outstanding principal balance under the Bridge Loan Agreement.  The Company received an initial advance of $4.0 million at closing, which funded the lender’s $100,000 closing fee, fees and expenses of the Company’s legal counsel and the interest reserve, as described herein.

The Bridge Loan Note provides that interest will be charged at a rate of 9.00%.  Past due amounts will be charged a higher interest rate and be subject to late charges. The Bridge Loan Agreement requires the Company to maintain an interest and lease payment reserve, and any interest expected to accrue on any advance shall be withheld by the lender.  The debt evidenced by the Bridge Loan Note is secured by the assets of each of the borrowers under the Bridge Loan Agreement.

The Bridge Loan Agreement includes restrictions or limitations on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence or guaranty of certain additional debt and liens. The payment of dividends and redemption of stock are prohibited at any time that the bridge loan remains unpaid and, notwithstanding any repayment of the loan, are also prohibited so long as any other credit facility with the lender’s affiliates remains outstanding unless (i) there are no potential default or default situations and (ii) the EB-5 program funds have been released or other identifiable and committed funds are held in escrow by an unrelated person or entity sufficient to complete the Company’s West Lake project.  The Bridge Loan Agreement requires that all construction activities related to the West Lake project cease until the EB-5 funds have been released or other identifiable and committed funds are held in escrow by an unrelated person or entity sufficient to complete the West Lake project.

The Bridge Loan Agreement provides that regardless of whether the credit facility set forth in the Hunter Mountain Credit Agreement remains outstanding, the Company shall comply with the financial covenants set forth in the Hunter

14


 

Mountain Credit Agreement, which have been modified by the Modification Agreement.  In accordance with the terms of the Modification Agreement, the Company provided EPR with the Interest Letter of Credit on December 1, 2016 in the amount of $1.1 million, collateralized by a certificate of deposit for the same amount. As of October 31, 2016, the fixed charge coverage ratio fell below both the 1.50:1.00 and 1.25:1.00 thresholds set forth in the Hunter Mountain Credit Agreement. As a result, the Company is restricted from issuing any dividends.

Under the terms of the Bridge Loan Agreement, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) within two years after the effective date of the Bridge Loan Agreement, the Company’s named executive officers (Messrs. Timothy Boyd, Stephen Mueller and Richard Deutsch), as long as they are employed by any borrower, cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Bridge Loan Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of Mount Snow.  Other events of default include, but are not limited to, a default on other indebtedness, and certain defaults under material contracts and material licenses, of the Company or its subsidiaries.

Upon an event of default, as defined in the Bridge Loan Agreement, the lender may, among other things, declare all unpaid principal and interest due and payable. The Bridge Loan Note matures on March 31, 2017, provided that (i) if the EB-5 program funding is not received by March 31, 2017 and no event of default is then existing, the Company may elect to extend the maturity of the loan to March 31, 2018 upon written notice to the lender and payment of a $125,000 fee and (ii) if the EB-5 funding is not received by March 31, 2018 and no event of default is then existing, the Company may elect to extend the maturity of the loan to March 31, 2019 upon written notice to the lender and payment of a $125,000 fee.

In connection with entry into the Bridge Loan Agreement, also on September 1, 2016, the Company entered into the First Addendum to the Amended and Restated Master Cross-Default Agreement with EPR, which adds the Bridge Loan Agreement, Bridge Loan Note and related transaction documents to the scope of loan agreements to which the cross-default provisions of the Amended and Restated Master Cross Default Agreement apply. 

Also on September 1, 2016, in connection with entry into the Bridge Loan Agreement, the Company entered into a Guaranty Agreement for the benefit of EPR, which adds the debt evidenced by the Bridge Loan Agreement and Bridge Loan Note to the debt guaranteed by the Company pursuant to the 2014 Guaranty Agreement.

The Bridge Loan Agreement debt is included as a current liability. At October 31, 2016, $5.5 million remained outstanding under the Bridge Loan Agreement and Bridge Loan Note. The total outstanding balance and all interest due was repaid by the Company upon receipt of the proceeds from the Private Placement which closed on November 2, 2016.  



Note 5. Acquisition



Effective January 6, 2016, the Company acquired all of the outstanding common stock of Hunter Mountain in Hunter, New York, for $35.0 million paid to the sellers in cash and the Company’s assumption of $1.7 million in capitalized lease obligations. During the year ended April 30, 2016, the Company incurred approximately $0.1 million in transaction costs.  The Company also incurred $1.3 million of financing costs which were capitalized as deferred financing costs associated with the debt obligations.

The Company financed $20.0 million of the acquisition price pursuant to the terms of the Hunter Mountain Credit Agreement and Hunter Mountain Note with EPR, which bears interest at a rate of 8.0%, subject to annual increases as discussed in Note 4, “Long-term Debt/Line of Credit/Bridge Loan Financing.”  The Company borrowed an additional $1.0 million under the Hunter Mountain Credit Agreement to fund closing and other costs. Debt under the Hunter Mountain Note requires monthly interest payments until its maturity on January 5, 2036. An additional $15.0 million of the Hunter Mountain acquisition price was financed through a draw on the Company’s line of credit with Royal Banks of Missouri, which bears interest at the prime rate plus 1.0% and matures on December 22, 2016, as discussed in Note 4.

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





 

 

Cash and cash equivalents

$

1,640 

Accounts receivable

 

395 

Inventories

 

341 

Prepaids

 

246 

Buildings and improvements

 

14,052 

Land

 

6,200 

Equipment

 

19,120 

15


 

Other assets

 

Goodwill

 

4,382 

Intangible assets

 

865 

 Total assets acquired

 

47,245 

Accounts payable and accrued expenses

 

1,481 

Accrued salaries, wages and related taxes & benefits

 

250 

Unearned revenue and deposits

 

2,993 

Capital Lease Obligations

 

1,724 

Deferred tax liability

 

5,797 

 Net assets acquired

$

35,000 



 

The Company paid $35.0 million for the transaction and as part of the allocation received $1.6 million in cash, resulting in a net cash change of $33.4 million in cash. As part of the transaction, the Company has recognized goodwill associated with the expected synergies of combining operations as well as the overall enterprise value of the resort.  No goodwill will arise for income tax purposes and accordingly, none of the book goodwill will be deductible for tax purposes.  Hunter Mountain will be considered its own reporting unit with respect to goodwill impairment, which will be completed at least annually. 



The following presents the unaudited pro forma consolidated financial information as if the acquisition of Hunter Mountain was completed on May 1, 2015, the beginning of the Company's 2016 fiscal year. The following pro forma financial information includes adjustments for depreciation and interest paid pursuant to the Hunter Mountain Note and property and equipment recorded at the date of acquisition. This pro forma financial information is presented for informational purposes only and does not purport to be indicative of the results of future operations or the results that would have occurred had the acquisition taken place on May 1, 2015. (In thousands except per share data) 







 

 

 

 

 



(Unaudited)

 

 

(Unaudited)



 

Three months ended October 31, 2015

 

 

Six months ended October 31, 2015



 

 

 

 

 

Net revenues

$

8,290 

 

$

16,111 

Net loss

$

(8,204)

 

$

(17,283)

Pro forma basic and diluted loss per share

$

(0.59)

 

$

(1.24)



































Note 6. Financial Instruments and Concentrations of Credit Risk

The following methods and assumptions were used to estimate the fair value of each class of financial instruments to which the Company is a party:

Cash and cash equivalents, restricted cash:  Due to the highly liquid nature of the Company’s short‑term investments, the carrying values of cash and cash equivalents and restricted cash approximate their fair values.

Accounts receivable:  The carrying value of accounts receivable approximate their fair value because of their short‑term nature.

Accounts payable and accrued expenses:  The carrying value of accounts payable and accrued liabilities approximates fair value due to the short‑ term maturities of these amounts.

Long‑term debt:  The fair value of the Company’s long‑term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The interest rates on the Company’s long‑term debt instruments are consistent with those currently available to the Company for borrowings with similar maturities and terms and, accordingly, their fair values are consistent with their carrying values.

16


 

Concentrations of credit risk:  The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and restricted cash. The Company’s cash and cash equivalents and restricted cash are on deposit with financial institutions where such balances will, at times, be in excess of federally insured limits. Excess cash balances are collateralized by the backing of government securities. The Company has not experienced any loss as a result of those deposits.

Note 7. Commitments and Contingencies

Restricted cash:  The provisions of certain of the Company’s debt instruments generally require that the Company make and maintain a deposit, to be held in escrow for the benefit of the lender, in an amount equal to the estimated minimum interest payment for the upcoming fiscal year.  In addition, the Company has funds it is holding in escrow in connection with its efforts to raise funds under the U.S. government’s Immigrant Investor Program, commonly known as the EB-5 program (the “EB-5 Program”).  The EB-5 Program was first enacted in 1992 to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors.  In turn, these foreign investors are, pending petition approval, granted visas for lawful residence in the U.S. under the EB-5 Program, a limited number of visas are reserved for such foreign investors each year.  The Company intends to use the current and future funds for future development.

Loss contingencies:  The Company is periodically involved in various claims and legal proceedings, many of which occur in the normal course of business. Management routinely assesses the likelihood of adverse judgments or outcomes, including consideration of its insurable coverage and discloses or records estimated losses in accordance with ASC 450, “Contingencies”. After consultation with legal counsel, the Company does not anticipate that liabilities arising out of these claims would, if plaintiffs are successful, have a material adverse effect on its business, operating results or financial condition.

Leases:  The Company leases certain land, land improvements, buildings and equipment under non‑cancelable operating leases. Certain of the leases contain escalation provisions based generally on changes in the CPI with maximum annual percentage increases capped at 1.5% to 4.5%. Additionally, certain leases contain contingent rental provisions which are based on revenue. The amount of contingent rentals was insignificant in all periods presented. Total rent expense under such operating leases was $404 and $813 for the three and six months ended October 31, 2016, respectively, and $425 and $860 for the three and six months ended October 31, 2015, respectively. The Company also leases certain equipment under capital leases.

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



 

 

 

 

 

 



 

 

 

 

 

 



 

Capital

 

Operating



 

Leases

 

Leases

2017 (Remaining)

 

$

1,289 

 

$

845 

2018

 

 

2,070 

 

 

1,620 

2019

 

 

1,925 

 

 

1,576 

2020

 

 

926 

 

 

1,543 

2021

 

 

26 

 

 

1,518 

Thereafter

 

 

 

 

8,822 



 

 

6,237 

 

$

15,924 

Less: amount representing interest

 

 

729 

 

 

 



 

 

5,508 

 

 

 

Less: current portion

 

 

1,715 

 

 

 

Long-term portion

 

$

3,793 

 

 

 















Note 8. Loss Per share

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

17


 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

Three Months ended October 31,

 

 

Six Months ended October 31,



 

2016

 

2015

 

2016

 

2015

Net Loss

 

$

(7,982)

 

$

(6,888)

 

$

(15,886)

 

$

(13,967)

Weighted number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding for basic and diluted loss per share

 

 

13,982,400 

 

 

13,982,400 

 

 

13,982,400 

 

 

13,982,400 

Vested restricted stock units

 

 

29,486 

 

 

 -

 

 

34,163 

 

 

 -



 

 

14,011,886 

 

 

13,982,400 

 

 

14,016,563 

 

 

13,982,400 

Basic and diluted loss per share

 

$

(0.57)

 

$

(0.49)

 

$

(1.13)

 

$

(1.00)



The Company has 57,655 outstanding unvested restricted stock units that have not been included in the calculation of diluted earnings per share because the impact is anti-dilutive due to the net loss for the periods ended October 31, 2016.



The vested restricted stock units above include 9,723 vested restricted stock units through August 3, 2016 for the former director Mr. Staenberg, whose shares were paid out in cash.













Note 9. Subsequent Events

Private Placement

On August 22, 2016, the Company entered into the securities purchase agreement (the “Purchase Agreement”) with CAP 1 LLC (the “Investor”) in connection with the sale and issuance (the “Private Placement”) of $20 million in Series A Cumulative Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), and three warrants (the “Warrants”) to purchase shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), as follows: (i) 1,538,462 shares of Common Stock at $6.50 per share; (ii) 625,000 shares of Common Stock at $8.00 per share; and (iii) 555,556 shares of Common Stock at $9.00 per share.   

The Purchase Agreement also grants to the Company the right to require the Investor to purchase an additional 20,000 shares of Series A Preferred Stock for $1,000 per share, along with additional warrants, all on the same terms and conditions as the Private Placement, as long as (i) there is no material adverse effect; (ii) the average closing price of the Common Stock for the ten trading days prior to the execution of the documents for such additional shares is not less than the average closing price of the Common Stock for the ten trading days prior to the execution of the Purchase Agreement; (iii) the Investor is reasonably satisfied with the manner in which the Company intends to use the net cash proceeds of such issuance; and (iv) the Company has successfully implemented an EB-5 Immigrant Investor Program with respect to Mount Snow and one investor’s application has approved.  The Company’s  right to require the additional purchase expires two years from the closing of the Private Placement.

The Company’s stockholders approved the issuance of the Series A Preferred Stock and the Warrants at the Company’s 2016 Annual Meeting of Stockholders held on October 24, 2016. On November 2, 2016, the Company completed the sale and issuance of the Series A Preferred Stock and Warrants to the Investor. On November 4, 2016, the Company used a portion of the proceeds from the Private Placement to repay the entire $5.5 million borrowed pursuant to the Bridge Loan Agreement and Bridge Loan Note described in Note 4.

Registration Rights Agreement

 In connection with the closing of the Private Placement, on November 2, 2016, the Company entered into a Registration Rights Agreement with the Investor that grants the following registration rights with respect to the common stock issuable upon conversion of the Series A Preferred Stock and exercise of the Warrants, exercisable by the holders of a majority of the registrable securities: (i) at any time after six months following the closing date, demand registration rights on a Form S-3 (i.e., a short-form registration); (ii) at any time after six months following the closing date, demand registration rights on a Form S-1 (i.e., a long-form registration); and (iii) piggyback registration rights.

 

The Company is not required to effect more than four short-form registrations or two long-form registrations during any nine-month period or any demand registration unless the number of registrable securities sought to be registered is at least 30% of the registrable securities for a short-form registration or 50% of the registrable securities for a long-form registration and, in any event, not less than 100,000 registrable securities. The Company may delay the filing of or causing to be effective any registration statement if the Company determines in good faith that such registration will (i) materially and adversely affect

18


 

the negotiation or consummation of any actual or pending material transaction; or (ii) otherwise have a material adverse effect, provided that the Company may not exercise such right to delay more than once in any consecutive 12 month period or for more than 90 days. The Registration Rights Agreement also includes customary provisions regarding market standoffs, registration procedures and expenses, blackout periods, indemnification, reporting required to comply with Rule 144 under the Securities Act of 1933, as amended, and confidentiality.

 

Stockholders’ Agreement

 On November 2, 2016, in connection with the closing of the Private Placement, the Company entered into the Stockholders’ Agreement (the “Stockholders’ Agreement”) together with Timothy D. Boyd, Stephen J. Mueller and Richard K. Deutsch (the “Management Stockholders”) and the Investor.

 

The Stockholders’ Agreement provides that Investor has a right to nominate a director to sit on the Company’s board of directors so long as it beneficially owns, on a fully diluted, as-converted basis, at least 20% of the outstanding equity securities of the Company, subject to satisfaction of reasonable qualification standards and Nominating and Corporate Governance Committee approval of the nominee. On November 2, 2016, the board of directors appointed Rory A. Held to serve as a director of the Company upon the nomination of the Investor pursuant to the terms of the Stockholders’ Agreement and the recommendation of the Nominating and Corporate Governance Committee.



The Stockholders’ Agreement restricts transfers of the Company’s securities by the Investor and the Management Stockholders, or subjects such transfers to certain conditions, except (i) to permitted transferees; (ii) pursuant to a public sale; (iii) pursuant to a merger or similar transaction; or (iv) with respect to the Investor, with the prior consent of the Company, which shall not be unreasonably withheld. Transferees of Management Stockholders (other than transferees pursuant to a public sale or merger or similar transaction) generally remain bound by the Stockholders’ Agreement. Transferees of the Investor (other than affiliates) do not have all of the Investor’s rights thereunder.

 

In the event of a desired transfer of equity securities held by Management Stockholders (other than pursuant to clauses (i) through (iii) in the paragraph above) the Investor may exercise a right of first offer to purchase all, but not less than all, of the offered shares and has tag along rights providing the Investor the right to participate in the transfer in accordance with the terms of the Stockholders’ Agreement.  In the event of a desired transfer of equity securities held by the Investor (other than pursuant to clauses (i) through (iii) in the paragraph above) the Company shall have a right of first refusal to purchase all, but not less than all, of the offered shares.

 

Pursuant to the terms of the Stockholders’ Agreement, for so long as at least 50% of the Series A Preferred Stock issued in the Private Placement is outstanding and the Investor beneficially owns, on a fully diluted, as-converted basis, at least 11.4% of the outstanding equity securities of the Company (the “11.4% Ownership Requirement”), the Investor shall have pre-emptive rights with respect to future issuances of securities, subject to standard exceptions. Furthermore, for so long as the Investor meets the 11.4% Ownership Requirement, the Investor’s approval is required in order for the Company or any subsidiary to (i) materially change the nature of its business from owning, operating and managing ski resorts; (ii) acquire or dispose of any resorts, assets or properties for aggregate consideration equal to or greater than 30% of the enterprise value of the Company and its subsidiaries; or (iii) agree to do any of the foregoing.

 

The Stockholders’ Agreement terminates upon the earliest of (i) the date on which none of the Investor or the Management Stockholders owns any equity securities; (ii) the dissolution, liquidation or winding up of the Company; (iii) a change of control; or (iv) the unanimous agreement of all stockholders party to the Stockholders’ Agreement.

 

 Letter of Credit

In accordance with the terms of the Modification Agreement described in Note 4 above, the Company provided EPR with an Interest Letter of Credit on December 1, 2016 in the amount of $1.1 million, collateralized by a certificate of deposit for the same amount.









19


 

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

The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2016. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q.

Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to the “Company”, “Peak”, “our”, “us”, or “we” refer to Peak Resorts, Inc. and its consolidated subsidiaries.

Overview



We are a leading owner and operator of high-quality, individually branded ski resorts in the U.S.  We currently operate 14 ski resorts primarily located in the Northeast and Midwest, 13 of which we own. The majority of our resorts are located within 100 miles of major metropolitan markets, including New York City, Boston, Philadelphia, Cleveland and St. Louis, enabling day and overnight drive accessibility. Our resorts are comprised of nearly 1,650 acres of skiable terrain that appeal to a wide range of ages and abilities. We offer a breadth of activities, services and amenities, including skiing, snowboarding, terrain parks, tubing, dining, lodging, equipment rentals and sales, ski and snowboard instruction and mountain biking and other summer activities. We believe that both the day and overnight drive segments of the ski industry are appealing given their stable revenue base, high margins and attractive risk-adjusted returns. We have successfully acquired and integrated 11 ski resorts since our incorporation in 1997 and we expect to continue executing this strategy.



We and our subsidiaries operate in a single business segment—resort operations. The consolidated unaudited financial data presented in this Quarterly Report on Form 10-Q is comprised of the data of our 14 ski resorts. Also included in the financial information presented are ancillary services, primarily consisting of food and beverage services, equipment rental, ski instruction, hotel/lodging and retail.

Seasonality and Quarterly Results

Our resort operations are seasonal in nature. In particular, revenue and profits for our operations are substantially lower and historically result in losses from late spring to late fall, which occur during our first and second fiscal quarters. Revenue and profits generated by our summer operations are not sufficient to fully offset our off-season expenses from our operations. Therefore, the operating results for any interim period are not necessarily indicative of the results that may be achieved for any subsequent quarter or for a full year.



Recent Events

Since the beginning of fiscal 2017, the Company has experienced lower than normal liquidity levels. The weather during the 2015/2016 ski season was unfavorably warm, which resulted in fewer ski days and lower profitability for the Company. Furthermore, we have experienced unexpected delays in the release of funds raised pursuant to the U.S. government’s Immigrant Investor Program (the “EB-5 program”) to finance the development of two capital projects at our Mount Snow resort—the West Lake Project and the Carinthia Ski Lodge Project. We have raised $52.0 million for the Mount Snow development projects, which is in escrow pending the approval of the first program investor’s I-526 Petition.

Based on the timeline originally anticipated for approval of the first investor’s I-526 Petition and corresponding release of EB-5 program funds from escrow, we commenced construction of the West Lake Project in the second half of calendar year 2015. To date, we have funded approximately $12.0 million of the West Lake Project costs, for which we will be reimbursed once the EB-5 funds are released from escrow.  Due to the delay in the investors’ I-526 Petition approval, we have limited construction of the project for the remaining fiscal year.  We now estimate, pending the first I-526 Petition approval during the current fiscal year, that the West Lake Project will be substantially completed in advance of the 2017-2018 ski season, and the Carinthia Lodge Project substantially completed in advance of the 2018-2019 ski season.       

Due to our constrained liquidity position as a result of the unfavorable weather during the prior ski season and delay in the release of EB-5 program funds, the Company has taken a number of steps in fiscal 2017 to manage cash flow and improve the Company’s liquidity position. Until EB-5 program funds are released from escrow, the West Lake Project is on hold. The Company also initiated lean operating measures including reduced staffing and spending levels during the first half of the year. In addition, the Company’s board of directors made the decision in April 2016 to suspend the declaration of dividends and intends to revisit the matter upon the release of EB-5 program funds from escrow. Finally, the Company borrowed additional funds for working capital and received significant capital in connection with a private placement, as

20


 

discussed in more detail below. As a result of these steps, we believe that our current cash position is sufficient to carry us through the 2017/2018 ski season and provide necessary working capital as we await the release of EB-5 program funds and incoming ski season revenues.

Financing

On July 20, 2016 and August 5, 2016, the Company borrowed an additional $1.75 million and $2.75 million, respectively, under its line of credit with Royal Banks of Missouri for working capital purposes. In addition, the Company entered into a new credit agreement with EPR Properties (“EPR”), its primary lender, pursuant to which the Company borrowed $5.5 million as a bridge loan for working capital purposes. See “Liquidity and Capital Resources—Line of Credit” and “Liquidity and Capital Resources—Bridge Loan Financing” for additional information. On November 4, 2016, we used a portion of the proceeds from the closing of the Private Placement discussed below to repay the entire $5.5 million outstanding under this credit agreement.

Private Placement

On August 22, 2016, the Company entered into the securities purchase agreement (the “Purchase Agreement”) with CAP 1 LLC (the “Investor”) in connection with the sale and issuance (the “Private Placement”) of $20 million in Series A Cumulative Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), and three warrants (the “Warrants”) to purchase shares of the Company’s common stock, as follows: (i) 1,538,462 shares of common stock at $6.50 per share; (ii) 625,000 shares of common stock at $8.00 per share; and (iii) 555,556 shares of common stock at $9.00 per share.   

The Purchase Agreement also grants to the Company the right to require the Investor to purchase an additional 20,000 shares of Series A Preferred Stock for $1,000 per share, along with additional warrants, all on the same terms and conditions as the Private Placement, as long as (i) there is no material adverse effect; (ii) the average closing price of the common stock for the ten trading days prior to the execution of the documents for such additional shares is not less than the average closing price of the common stock for the ten trading days prior to the execution of the Purchase Agreement; (iii) the Investor is reasonably satisfied with the manner in which the Company intends to use the net cash proceeds of such issuance; and (iv) the Company has successfully implemented an EB-5 Immigrant Investor Program with respect to Mount Snow and one investor’s application has been approved.  The Company’s right to require the additional purchase expires two years from the closing of the Private Placement.

In order to close the Private Placement, the Company’s stockholders were required to approve amendments to the Company’s amended and restated articles of incorporation to provide for an increase in the number of authorized shares of common stock and authorize the creation of preferred stock. Pursuant to applicable rules of The Nasdaq Stock Market, the Company’s stockholders were also required to approve the issuance of the Series A Preferred Stock and the Warrants, as well as the issuance of shares of common stock upon the conversion of the Series A Preferred Stock and exercise of the Warrants pursuant to the terms of the Private Placement. The Company’s stockholders approved these matters on October 24, 2016 at the Company’s 2016 Annual Meeting of Stockholders. On November 2, 2016, the Company completed the sale and issuance of the Series A Preferred Stock and the Warrants to the Investor in the Private Placement.

The terms of the Series A Preferred Stock are set forth in the Certificate of Designation filed by the Company with the Missouri Secretary of State on October 26, 2016. The key terms of the Series A Preferred Stock are as follows:

·

Convertible upon a change of control, or after nine months, into a number of shares of common stock equal to the number of shares to be converted times the liquidation value, divided by $6.29;

·

Initial nine-month, dividend-free period with a subsequent cumulative dividend of 8.0% per annum on the liquidation value of $1,000 per share;

·

Redeemable by the Company after three years at 125% of the liquidation value, plus accrued and unpaid dividends if the common stock trades at more than 130% of the conversion price for a 30-day period;

·

$1,000 per share liquidation value;

·

Senior as to dividends, liquidation and redemption, with limitations on the Company’s ability to issue convertible debt and senior securities; and

·

Voting rights on an as-converted basis with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company.

21


 

The terms of the Warrants issued in the Private Placement are all identical except for the number of shares for which the Warrants are exercisable and the exercise prices of each of the Warrants. Each of the Warrants may be exercised in whole or in part at any time for a period of 12 years from the date of issuance. The exercise price must be paid in cash. The exercise price of the Warrants and the number of shares of common stock issuable upon exercise of the Warrants are subject to adjustment in the event of a stock split, stock dividend, reorganization, reclassification, consolidation, merger, sale and similar transaction.

Concurrently with the closing of the Private Placement, the Company entered into the Registration Rights Agreement with the Investor providing the Investor with certain on-demand and piggy-back registration rights with respect to the common stock issuable upon conversion of the Series A Preferred Stock and exercise of the Warrants. In addition, the Company, management stockholders and the Investor executed the Stockholders’ Agreement upon the Private Placement closing, generally granting the Investor pre-emptive rights, rights of first offer, director nomination rights and approval rights over certain changes in the Company’s business and certain acquisitions and divestitures.

On November 2, 2016, the board of directors appointed Rory A. Held to serve as a director of the Company upon the nomination of the Investor pursuant to the terms of the Stockholders’ Agreement and the recommendation of the Nominating and Corporate Governance Committee.

Modification Agreement

The Company is currently a party to credit agreements with EPR that required the Company to pay to EPR an additional three months of lease payment obligations and debt service payments upon the Company’s failure to maintain a consolidated fixed charge coverage ratio of 1.50:1.00 on a rolling four quarter basis. In June 2016, the Company and EPR had determined that the Company did not maintain the necessary consolidated fixed charge coverage ratio for the year ended April 30, 2016.  The amount of the additional debt service deposits due to EPR was approximately $3.23 million.

Effective as of October 24, 2016, the Company and EPR entered into an agreement that eliminates the need of the Company to pay these additional debt service deposits, as required by the credit agreements. Instead, pursuant to the modification agreement, the additional debt service deposits due to EPR have been reduced to $1.1 million in cash or letter of credit, subject to increase upon failure to meet the fixed charge coverage ratio, which will not be measured again until on or after May 1, 2017.

The terms of the modification agreement became effective in connection with the closing of the Private Placement on November 2, 2016. On December 1, 2016, the Company provided a letter of credit to EPR in the amount of $1.1 million in satisfaction of the terms of the modification agreement. See “Liquidity and Capital Resources—Debt Restructure” for a more detailed discussion of the modification agreement.

Resort Acquisition

On January 6, 2016, the Company completed the acquisition of the Hunter Mountain ski resort located in Hunter, New York, through the purchase of all of the outstanding stock of each of Hunter Mountain Ski Bowl, Inc., Hunter Mountain Festivals, Ltd., Hunter Mountain Rentals, Inc., Hunter Resort Vacations, Inc., Hunter Mountain Base Lodge, Inc., and Frosty Land, Inc. (collectively, “Hunter Mountain”) pursuant to the terms of the Stock Purchase Agreement (the “Purchase Agreement”) with Paul Slutzky, Charles B. Slutzky, David Slutzky, Gary Slutzky and Carol Slutzky-Tenerowicz entered into on November 30, 2015.  The Company acquired Hunter Mountain for total cash consideration of $35.0 million plus the assumption of two capital leases estimated at approximately $1.7 million.

A portion of the Hunter Mountain acquisition price was financed pursuant to the Master Credit and Security Agreement (the “Hunter Mountain Credit Agreement”) entered into between the Company and EPR, the Company’s primary lender, on January 6, 2016. The remainder was financed with funds drawn on the Company’s line of credit with Royal Banks of Missouri pursuant to the Credit Facility, Loan and Security Agreement (the “Line of Credit Agreement”) between the Company and Royal Banks of Missouri, effective as of December 22, 2015. See “Liquidity and Capital Resources—Significant Sources of Cash” for additional information.

Capital Projects 

The Company did not have any major capital projects in the quarter ended October 31, 2016.  In fiscal 2016, the Company had one major capital project. We started the construction of the West Lake Project at Mount Snow which will be financed through the EB-5 program once the first investor’s I-526 Petition is approved.  The West Lake Project includes the construction of a new water storage reservoir for snowmaking with capacity of up to 120 million gallons.

 Results of Operations



The following historical unaudited consolidated statements of operations during the three and six months ended October 31, 2016 and 2015 have been derived from the condensed unaudited consolidated financial statements included

22


 

elsewhere in this Quarterly Report on Form 10-Q.  Effective January 6, 2016, we acquired the Hunter Mountain ski resort. The results of operations of Hunter Mountain have been included in our financial statements since the date of the acquisition.



Comparison of Operating Results for the Three Months Ended October 31, 2016 and 2015



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







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

Three months ended
October 31,

 

 

 

 

 



 

 

2016

 

 

2015

 

 

$ change

 

% change



 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

  Food and beverage

 

$

2,728 

 

$

1,619 

 

 

1,109 

 

68.5% 

  Hotel/lodging

 

 

2,052 

 

 

1,314 

 

 

738 

 

56.2% 

  Retail

 

 

273 

 

 

297 

 

 

(24)

 

-8.1%

  Summer activities

 

 

2,727 

 

 

2,381 

 

 

346 

 

14.5% 

  Other

 

 

695 

 

 

544 

 

 

151 

 

27.8% 



 

 

8,475 

 

 

6,155 

 

 

2,320 

 

37.7% 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

Resort operating expenses

 

 

 

 

 

 

 

 

 

 

 

 Labor and labor related expenses

 

 

7,810 

 

 

6,322 

 

 

1,488 

 

23.5% 

 Retail and food and beverage cost of sales

 

 

912 

 

 

751 

 

 

161 

 

21.4% 

 Power and utilities

 

 

843 

 

 

664 

 

 

179 

 

27.0% 

 Other

 

 

3,450 

 

 

3,046 

 

 

404 

 

13.3% 



 

 

13,015 

 

 

10,783 

 

 

2,232 

 

20.7% 

Depreciation and amortization

 

 

3,216 

 

 

2,465 

 

 

751 

 

30.5% 

General and administrative expenses

 

 

1,517 

 

 

1,029 

 

 

488 

 

47.4% 

Land and building rent

 

 

326