NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended April 30, 201
7
, 201
6
and 201
5
(In thousands, except share and per share data)
Note 1. Nature of Business and Significant Accounting Policies
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 18 hole golf course in West Dover, Vermont. The Company also manages hotels in Bartlett, New Hampshire; West Dover, Vermont
;
and Hunter, New York.
The Company's revenues are highly seasonal in nature. The vast majority of revenues are generated during the ski season, which occurs during the third and fourth fiscal quarters. Operations occurring outside of the ski season typically result in losses and negative cash flows. Additionally, operations on certain holidays contribute significantly to the Company's revenues, most notably Christmas, Dr. Martin Luther King, Jr. Day and Presidents Day.
The seasonality of the Company's revenues amplifies the effect on the Company's revenues, operating earnings and cash flows of events that are outside the Company's control. While the Company's geographically diverse operating locations help mitigate its effects, adverse weather conditions could limit customer access to the Company's resorts, render snowmaking wholly or partially ineffective in maintaining ski conditions, cause increased energy use and other operating costs related to snowmaking efforts and, in general, can result in decreased skier visits regardless of ski conditions.
The Company’s operating segments are aggregated into a
single
reportable segment. Management has determined a single reportable segment is appropriate based on the uniformity of services and similar operating characteristics
.
Principles of consolidation
: The consolidated financial statements include the accounts of Peak Resorts, Inc., the parent company, and all of its wholly owned subsidiaries, hereinafter collectively referred to as the "Company": Boulder View Tavern, Inc., Deltrecs, Inc. (Deltrecs, Inc. has two wholly owned subsidiaries: Boston Mills Ski Resort, Inc. and Brandywine Ski Resort, Inc.), Hidden Valley Golf Course, Inc., JFBB Ski Areas, Inc. (doing business as "Jack Frost" and "Big Boulder"), L.B.O. Holding, Inc. (doing business as "Attitash Mountain"), Mad River Mountain, Inc., Mount Snow Ltd. (and its wholly owned subsidiaries)
West Lake Water Project, LLC, Carinthia Ski Lodge LLC, Mount Snow Development and Build LLC, Mount Snow GP Services LLC
, Paoli Peaks, Inc., S N H Development, Inc. (doing business as "Crotched Mountain"), Snow Creek, Inc., Sycamore Lake, Inc. (doing business as "Alpine Valley"), WC Acquisition Corp. (doing business as "Wildcat Mountain Ski Area"), and
Hunter Mountain Acquisition, Inc. (Hunter Mountain Acquisition, Inc. has six wholly owned subsidiaries Hunter Mountain Ski Bowl, Inc., Hunter Mountain Festivals, Ltd., Hunter Mountain Rental, Inc., Hunter Resort Vacation, Inc., Hunter Mountain Base Lodge, Inc., and Frostyland, Inc.)
. All material intercompany transactions and balances have been eliminated.
Use of estimates
: The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. Significant items subject to estimates and assumptions include the carrying value of property and equipment, and land held for development. As future events and their effects cannot be determined with certainty, actual results could differ significantly from those estimates.
Statements of cash flows
: For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Additionally, all credit card and debit card transactions that process in less than seven days are classified as cash and cash equivalents. The majority of payments due from banks for third-party credit card and debit card transactions process within 24 to 48 hours, except for transactions occurring on a Friday, which are generally processed the following Monday. The
amounts due from banks for these transactions classified as cash and cash equivalents
totaled
$2,379
and
$1,841
at
April 30, 201
7
and 201
6
, respectively.
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 through December 31 of each fiscal year. In the absence of an event of default under the Company's promissory notes, the requirement to maintain such a deposit is eliminated when the Mount Snow Development Debt discussed in Note 4 is repaid in full. Restricted cash
classified as a current asset
at April 30, 2017 and 2016 is comprised of the interest related escrow balances. The 2016 balance also included
$52 million
of EB-5 investors funds held in escrow.
Reserve for uncollectible accounts receivable
: The Company performs ongoing reviews of the collectability of accounts receivable and, if considered necessary, establishes a reserve for estimated credit losses. In assessing the need for and in determining the amount of any reserve for credit losses, the Company considers the level of historical bad debts, the credit worthiness of significant debtors based on periodic credit evaluations and significant economic developments that could adversely impact upon a customer's ability to pay amounts owed the Company.
Inventory
: Inventory is stated at the lower of cost (first-in, first-out method) or market and consists primarily of retail goods, food and beverage products.
Property and equipment
: Property and equipment is carried at cost net of accumulated depreciation, amortization and impairment charges, if any. Costs to construct significant assets include capitalized interest during the construction and development period. Expenditures for replacements and major betterments or improvements are capitalized; maintenance and repair expenditures are charged to expense as incurred. Depreciation and amortization are determined using both straight-line and accelerated methods over estimated useful lives ranging from
3
to
25
years for land improvements,
5
to
40
years for building and improvements and
3
to
25
years for equipment, furniture and fixtures.
Land held for development
: The land held for development is carried in the accompanying consolidated balance sheets at acquisition cost plus costs attributable to its development, including capitalized interest as part of this ongoing development.
Development costs
: Costs related to major development projects at the Company's ski resorts, including planning, engineering and permitting, are capitalized. When acquiring, developing and constructing real estate assets, the Company capitalizes costs. Capitalization begins when the activities related to development have begun and ceases when activities are substantially complete and the asset is available for use. Costs capitalized include permits, licenses, fees, legal costs, interest, development, and construction costs.
Deferred financing costs
: Debt issuance expenses, included in long-term debt in the accompanying consolidated balance sheets, incurred in connection with certain indebtedness are being amortized under the straight-line basis which approximates the interest method over the term of the related debt.
Goodwill and
i
ntangible
a
ssets:
Go
odwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is not amortized, but is tested for impairment annually as of March 31 and at any time when events or circumstances suggest impairment may have occurred. The Company’s resorts are reporting units and two reporting units have goodwill. The testing for impairment consists first of an assessment of qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. The Company
determines
, based on a qualitative assessment, whether it is more likely than not that its fair value is less than its carrying amount. If the qualitative assessment determines it is more likely than not that the fair value is less than the carrying amount, a quantitative assessment would then be completed. If, based on the quantitative analysis, the carrying amount of the reporting unit, including goodwill, exceeds the fair value, an impairment will be recognized equal to the difference between the carrying value of the reporting unit goodwill and the implied fair value of the goodwill. For the quantitative testing of goodwill for impairment, the Company determines the estimated fair value of its reporting units based upon a discounted future cash flow analysis
.
During 2017, 2016 and 2015, the Company determined no impairment existed.
With the Hunter Mountain acquisition, the Company now has recorded two intangible assets. The intangible assets are customer relationships and trade names. Both of these assets are definite-lived assets and have estimated useful lives of 15 years. The Company utilize
s
straight-line amortization for these intangibles. The intangibles were valued at their fair value at the acquisition date using discounted cash flow models.
Long-lived assets:
The Company evaluates potential impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If the sum of the expected cash
flows, on an undiscounted basis, is less than the carrying amount of the asset, an impairment loss is recognized in the amount by which the carrying amount of the asset exceeds its fair value. The Company does not believe any events or changes in circumstances indicating an impairment of the carrying amount of a long-lived asset occurred during the years ended
April 30, 2017
,
2016
and
2015
.
R
estricted cash
, construction
:
The Company has received funds from the EB-5 Program discussed above in the “Restricted cash” policy that have been earmarked for the construction of the West Lake Water Project and Carinthia Ski Lodge. These funds will be released as qualified expenses of the project are incurred. The funds are considered non-current as they are associated with property and equipment.
Preferred stock:
The Company considers whether substantive redemption features exist in the instrument in which case it may be classified outside of equity, such as temporary equity or as a liability. Additionally, the Company evaluates whether the instrument contains any embedded or stand-alone instruments, which require separate recognition. The Company presents mandatorily redeemable preferred stock as a liability and contingently redeemable preferred stock and preferred stock that is redeemable outside the control of the Company as temporary equity on the consolidated balance sheets.
Warrants:
The Company accounts for its warrants as either equity or liabili
ty awards
based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded at fair value as of the date of issuance on the Company’s balance sheet and no further adjustments to their valuation are made. Warrants classified as a liability are recorded at fair value at each reporting period, and the corresponding non-cash gain or loss is recorded in current period earnings. When warrants are issued in conjunction with preferred stock, the warrants are recorded based on the proceeds received allocated to the two elements’ relative fair values.
The Company has recorded the fair value of the warrants at $3.4 million.
Basic and diluted earnings (loss) per common share:
Basic
earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average common shares issued and outstanding for the period. Net income (loss) available to common shareholders represents net income adjusted for preferred stock dividends including dividends declared, accretions of discounts on preferred stock issuances and cumulative dividends related to the current dividend period that have not been declared as of year-end. In addition, for diluted earnings (loss) per common share, net income (loss) available to common shareholders can be affected by the conversion of the registrant’s convertible preferred stock. Where the effect of this conversion would have been dilutive, net income (loss) available to common shareholders is adjusted by the associated preferred dividends. This adjusted net income (loss) is divided by the weighted average number of common shares issued and outstanding for each period plus amounts representing the dilutive effect of stock options outstanding, restricted stock, restricted stock units, outstanding warrants, and the dilution resulting from the conversion of the registrant’s convertible preferred stock, if applicable. The effects of convertible preferred stock and outstanding warrants and stock options are excluded from the computation of diluted earnings (loss) per common share in periods in which the effect would be antidilutive. Dilutive potential common shares are calculated using the treasury stock and if-converted methods.
Business combinations
: Historical acquisitions were accounted for as purchase transactions. Accordingly, the assets and liabilities of acquired entities were recorded at their estimated fair values at the dates of the acquisitions.
Revenue recognition
: Revenues from operations are generated from a wide variety of sources including snow pass sales, snow sports lessons, equipment rentals, retail product sales, food and beverage operations, and golf course operations. Revenues are recognized as services are provided or products are sold. Sales of season passes are initially deferred in unearned revenue and recognized ratably over the expected ski season which typically runs from early December to mid-April.
Advertising costs
: Advertising costs are expensed at the time such advertising commences. Advertising expense for the years ended April 30,
2017,
2016
and
2015
was
$2,700
,
$
2,784
,
and
$
2,155
, respectively.
Taxes collected from customers
: Taxes collected from customers and remitted to tax authorities are local and state sales taxes on snow pass sales as well as food service and retail transactions at the Company's resorts. Sales taxes collected from customers are recognized as a liability, with such liability being reduced when collected amounts are remitted to the taxing authority.
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 Financial Accounting Standards Board (“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.
With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years
before
20
1
3
due to the statute of limitations
.
The Company’s policy is to accrue income tax related interest and penalties, if applicable, within income tax expense.
Recent accounting pronouncements
:
In July 2015, the FASB issued guidance in Accounting Standards Update (“ASU”) 2015-11, Inventory (Topic 330): “Simplifying the Measurement of Inventory” ("ASU 2015-11”), which requires the Company to subsequently measure inventory at the lower of cost and net realizable value rather than the lower of cost or market. For public business entities, the guidance is effective on a prospective basis for interim and annual periods beginning after December 15, 2016, with early adoption permitted. Pursuant to the Jumpstart Our Business Startups Act (“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 plans to evaluate the impact of the adoption of ASU 2015-11 during fiscal year 2018 on
the consolidated
financial statements, systems, and internal controls of the Company. Based on the results of the evaluation, the Company will determine a transition approach and determine the full impact of the adoption on the
consolidated
financial statements.
In November 2015, the FASB issued guidance in ASU 2015-17, Income Taxes (Topic 740): “Balance Sheet Classification of Deferred Taxes” ("ASU 2015-17”), which requires deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. For public business entities, the guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Pursuant to the JOBS Act, the Company is permitted to adopt the standard for annual reporting periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Early application is permitted for all entities as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of the adoption of ASU 2015
‑17 on the
presentation
of
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.
In
May
201
4
, the FASB issued ASU 201
4
-0
9
, “Revenue from Contracts with Customers (Topic 606)” (“ASU 201
4
-0
9
”)
.
Subsequently, the FASB has issued the following standards related to ASU 2014-09: ASU No. 2016-08,
“
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
”
(“ASU 2016-08”); ASU No. 2016-10,
“
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
”
(“ASU 2016-10”); ASU No. 2016-12,
“
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
”
(“ASU 2016-12”); and ASU No. 2016-20,
“
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
”
(“ASU 2016-20”). The Company must adopt ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 with ASU 2014-09 (collectively, the “new revenue standards”).
The new revenue standards require
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.
The new revenue standards
will replace most existing revenue recognition guidance under U.S. generally accepted accounting principles when
they
become effective and permit the use of either a full retrospective or retrospective with cumulative effect transition method. Early adoption is not permitted. The updated standard
s
become effective for annual reporting periods beginning after December 15, 201
7
, including interim periods within that reporting period. Pursuant to the JOBS Act, the Company is permitted to adopt the standard
s
for annual reporting periods beginning after December 15, 201
8
and interim periods within
that reporting period
.
The Company currently expects to adopt the new revenue standards utilizing
the full retrospective transition method. The Company does not expect adoption of the new revenue standards to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” 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 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 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
consolidated
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. Early adoption is permitted. The guidance requires application using a retrospective transition method to all periods presented.
The Company expects to implement this standard in its first quarter of fiscal year 2020 utilizing the retrospective transition method. The Company, although still evaluating the impact, believes the adoption of this accounting standard will have an impact on the Company’s presentation of the
consolidated
statement of cash flows.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805)” (“ASU 2017-01”). This update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets of businesses. ASU 2017-01 is effective for interim and annual periods beginning after December 15, 2017 on a prospective basis. The Company is currently evaluating the impact that this update will have on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment (Topic 350)” (“ASU 2017-04”). This update eliminates the current two-step approach used to test goodwill for impairment and requires an entity to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for fiscal years, including interim periods within, beginning after December 15, 2019 (upon the first goodwill impairment test performed during that fiscal year). Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. A reporting entity must apply the amendments in ASU 2017-04 using a prospective approach. The Company does not expect the adoption of ASU 2017-04 to have a material impact to its consolidated financial position, results of operations or cash flow.
Note 2. Property and Equipment
Property and equipment consists of the following at April 30, 201
7
and 201
6
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
Land and improvements
|
|
$
|
35,609
|
|
$
|
35,321
|
Buildings and improvements
|
|
|
86,685
|
|
|
86,914
|
Equipment, furniture and fixtures
|
|
|
171,934
|
|
|
163,373
|
|
|
|
294,228
|
|
|
285,608
|
Less: accumulated depreciation and amortization
|
|
|
106,085
|
|
|
93,430
|
|
|
$
|
188,143
|
|
$
|
192,178
|
At April 30, 201
7
and 201
6
, equipment with a cost
of
$7,753
and
$7,668
, respectively, and accumulated depreciation of
$1,084
and
$800
, respectively, was subject
to the capital leases discussed in Note 1
1
.
Depreciation expense for the years ended April 30,
2017,
201
6, and
201
5
totaled
$12,655
,
$10,690
, and
$9,450
, respectively.
Note 3. Goodwill and Intangible Assets
Goodwill
The goodwill balance as of April 30, 2017 and 2016 was
$4,825
and
$5,009
, respectively, which is included in our single business segment, resort operations. The goodwill balance is related to the Hunter Mountain and Alpine Valley acquisitions. The goodwill balances represent the excess of the purchase price over the net assets acquired. Goodwill is not amortized, but tested periodically for impairment. The Company did not record any impairment of goodwill for the years ended April 30, 2017, 2016, and 2015.
The following table displays a rollforward of the carrying amount of goodwill by reportable segment from May 1, 2015 to April 30, 2017
(in thousands):
|
|
Balances as of May 1, 2015
|
|
Aggregate goodwill acquired
|
$ 627
|
Goodwill
|
627
|
Goodwill acquired
|
4,382
|
|
|
Balances as of April 30, 2016
|
|
Aggregate goodwill acquired
|
5,009
|
Goodwill
|
5,009
|
Other adjustments
|
(184)
|
|
|
Balances as of April 30, 2017
|
|
Aggregate goodwill acquired
|
4,825
|
Goodwill
|
$ 4,825
|
Intangible Assets
Intangible assets at April 30, 2017 and 2016 consisted of the following
(dollars in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2017
|
|
Life (years)
|
|
|
Gross carrying amount
|
|
|
Accumulated amortization
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
15
|
|
$
|
768
|
|
$
|
69
|
|
$
|
699
|
Customer relationships
|
15
|
|
|
97
|
|
|
8
|
|
|
89
|
|
|
|
$
|
865
|
|
$
|
77
|
|
$
|
788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2016
|
|
Life (years)
|
|
|
Gross carrying amount
|
|
|
Accumulated amortization
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
15
|
|
$
|
768
|
|
$
|
17
|
|
$
|
751
|
Customer relationships
|
15
|
|
|
97
|
|
|
2
|
|
|
95
|
|
|
|
$
|
865
|
|
$
|
19
|
|
$
|
846
|
Amortization expense for the years ended April 30, 2017, 2016 and 2015 was
$58
,
$19
and
$0
respectively. Amortization expense for intangible assets for the next five fiscal years is estimated to be
$58
each year.
Note 4. Long
‑term Debt
/ Line of Credit
Long
‑
term debt at April 30, 201
7
and 201
6
consisted of borrowings pursuant to the loans and other credit facilities discussed below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2017
|
|
April 30,
2016
|
|
|
|
Attitash/Mount Snow Debt; payable in monthly interest only payments at an increasing interest rate (
11.26%
at April 30, 2017 and
11.10%
at 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 April 30, 2017 and
10.13%
at April 30, 2016); remaining principal and interest due on
December 1, 2034
|
|
|
37,562
|
|
|
37,562
|
|
|
|
West Lake Water Project EB-5 Debt; payable in quarterly interest only payments (
1.0%
at April 30, 2017); remaining principal and interest due on
December 27, 2021
|
|
|
30,000
|
|
|
-
|
|
|
|
Carinthia Ski Lodge EB-5 Debt; payable in quarterly interest only payments (
1.0%
at April 30, 2017); remaining principal and interest due on
December 27, 2021
|
|
|
21,500
|
|
|
-
|
|
|
|
Hunter Mountain Debt; payable in monthly interest only payments at an increasing interest rate (
8.14%
at April 30, 2017 and
8.0%
at April 30, 2016); remaining principal and interest due on
January 5, 2036
|
|
|
21,000
|
|
|
21,000
|
|
|
|
Royal Banks of Missouri Debt; payable in monthly principal payments of
$42
and interest payments at prime plus
1.0%
(
5.0%
at April 30, 2017); remaining principal and interest due on
January 6, 2020
|
|
|
9,875
|
|
|
-
|
|
|
|
Sycamore Lake (Alpine Valley) Debt; payable in monthly interest only payments at an increasing interest rate (
10.72%
at April 30, 2017 and
10.56%
at
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%
; remaining principal and interest due on
December 22, 2020
|
|
|
3,425
|
|
|
3,612
|
|
|
|
Other debt
|
|
|
2,870
|
|
|
3,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less unamortized debt issuance costs
|
|
|
(5,240)
|
|
|
(1,903)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,592
|
|
|
119,102
|
|
|
|
Less: current maturities
|
|
|
1,807
|
|
|
759
|
|
|
|
|
|
$
|
174,785
|
|
$
|
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 and below (collectively, the “Debt Restructure Agreements”). 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 expects to realize significant gains on the sale of the properties to EPR if the option is exercised. The Company will be required to pay capital gains tax on the difference between the purchase price of the properties and the tax basis in the properties, which is expected to be a substantial cost. To date, EPR has not exercised the option.
Additionally, the Company agreed to extend the maturity dates on all non-prepayable notes and mortgages secured by the Mount Snow, Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley properties remaining after the Debt Restructure by seven years to December 1, 2034, and to extend the lease for the Mad River property, previously terminating in 2026, until December 31, 2034 (the “Lease Amendment”).
The Company also granted EPR a right of first refusal to provide all or a portion of the financing associated with any purchase, ground lease, sale/leaseback, management or financing transaction contemplated by the Company with respect to any new or existing ski resort property for a period of
seven
years or until financing provided by EPR for such transactions equals or exceeds
$250
million in the aggregate. Proposed financings from certain types of institutional lenders providing a loan to value ratio of less than
60%
(as relates to the applicable property being financed) are excluded from the right of first refusal. The Company granted EPR a separate right of first refusal in the event that the Company wishes to sell, transfer, convey or otherwise dispose of any or all of the Attitash ski resort for seven years. The Attitash right excludes the financing or mortgaging of Attitash.
In connection with the Debt Restructure, the Company entered into a Master Credit and Security Agreement with EPR (the “Master Credit Agreement”) governing the restructured debt with EPR. Pursuant to the Master Credit Agreement, EPR agreed to maintain the following loans to the Company following the prepayment of certain outstanding debt with proceeds from the Company’s initial public offering: (i) a term loan in the amount of approximately $51.1 million to the Company and its subsidiary Mount Snow, Ltd., (included in the table above as the “Attitash/Mount Snow Debt”); (ii) a term loan in the amount of approximately
$23.3
million to the Company and its subsidiaries Brandywine Ski Resort, Inc. and Boston Mills Ski Resort, Inc. (the “Boston Mills/Brandywine Debt”); (iii) a term loan in the amount of approximately
$14.3
million to the Company and its subsidiary JFBB Ski Areas, Inc. (the “JFBB Debt” and together with the Boston Mills/Brandywine Debt, included in the table above as the “Credit Facility Debt”); and (iv) a term loan in the amount of approximately $4.6 million to the Company and its subsidiary Sycamore Lake, Inc. (included in the table above as the “Sycamore Lake (Alpine Valley) Debt”).
Interest will be charged at a rate of (i)
10.13%
per annum as to each of the Boston Mills/Brandywine Debt and
JFBB
Debt; (ii)
10.40%
per annum as to the Sycamore Lake (Alpine Valley) Debt; and (iii)
10.93%
per annum pursuant to the Attitash/Mount Snow Debt. Each of the notes governing the restructured debt provides that interest will increase each year by the lesser of the following: (x) three times the percentage increase in the Consumer Price Index as defined in the notes
(“CPI”) from the CPI in effect on the applicable adjustment date over the CPI in effect on the immediately preceding adjustment date or (y)
1.5%
(the “Capped CPI Index). Past due amounts will be charged a higher interest rate and be subject to late charges.
The Master Credit Agreement further provides that in addition to interest payments, the Company must pay the following with respect to all restructured debt other than the Attitash/Mount Snow Debt: an additional annual payment equal to
10%
of the gross receipts attributable to the properties serving as collateral of the restructured debt (other than Mount Snow) for such year in excess of an amount equal to the quotient obtained by dividing (i) the annual interest payments payable pursuant to the notes governing the restructured debt (other than with respect to the Attitash/Mount Snow Debt) for the immediately preceding year by (ii) 10%. The Company must pay the following with respect to the Attitash/Mount Snow Debt: an additional annual payment equal to
12%
of the gross receipts generated at Mount Snow for such year in excess of an amount equal to the quotient obtained by dividing (i) the annual interest payments payable under the note governing the Attitash/Mount Snow Debt for the immediately preceding year by (ii) 12%.
An additional interest payment of
$0.2
million was due for the year
s
ended April 30,
2016 and
2017.
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 5, “Private Placement,” 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, (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. During the first two quarters of fiscal year 2017, the Company’s fixed charge coverage ratios fell below the required ratios, resulting in the actions described above. As of April 30, 2017, the Company is in compliance with all debt covenants.
Under the terms of the Master Credit Agreement and pursuant to the Master Cross Default Agreement, as amended, 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. 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:
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Rates as of April 30,
|
|
Attitash/Mount Snow Debt
|
|
Credit Facility
Debt
|
|
Hunter Mountain Debt
|
|
Sycamore Lake/(Alpine Valley) Debt
|
|
|
2017
(1)
|
|
11.26%
|
|
10.28%
|
|
8.14%
|
|
10.72%
|
|
|
2018
|
|
11.43%
|
|
10.43%
|
|
8.28%
|
|
10.88%
|
|
|
2019
|
|
11.60%
|
|
10.59%
|
|
8.43%
|
|
11.04%
|
|
|
2020
|
|
11.77%
|
|
10.75%
|
|
8.57%
|
|
11.21%
|
|
|
2021
|
|
11.95%
|
|
10.91%
|
|
8.72%
|
|
11.38%
|
|
|
2022
|
|
12.13%
|
|
11.07%
|
|
8.88%
|
|
11.55%
|
|
|
(1)
For 2017, the dates of the rates presented are as follows: (i) April 1, 2017 for the Attitash/Mount Snow Debt; (ii) October 1, 2016 for the Credit Facility Debt; (iii) February 1, 2017 for Hunter Mountain Debt and (iv) December 1, 2016 for the Sycamore Lake (Alpine Valley) Debt.
The Capped CPI Index is an embedded derivative, but the Company has concluded that the derivative does not require bifurcation and separate presentation at fair value because the Capped CPI Index was determined to be clearly and closely related to the debt instrument.
Wildcat Mountain Debt
The Wildcat Mountain Debt due December 22, 2020 represents amounts owed pursuant to a promissory note in the principal amount of
$4.5
million made by WC Acquisition Corp. in favor of Wildcat Mountain Ski Area, Inc., Meadow Green
‑
Wildcat Skilift Corp. and Meadow Green
‑
Wildcat Corp. (the “Wildcat Note”). The Wildcat Note, dated November 22, 2010, was made in connection with the acquisition of Wildcat Mountain, which was effective as of October 20, 2010. The interest rate as set forth in the Wildcat Note is fixed at
4.00%
.
Hunter Mountain Debt
On January 6, 2016, the Company completed the acquisition of the Hunter Mountain ski resort located in Hunter, New York through the purchase of all of the outstanding stock of each of Hunter Mountain Ski Bowl, Inc., Hunter Mountain Festivals, Ltd., Hunter Mountain Rentals, Inc., Hunter Resort Vacations, Inc., Hunter Mountain Base Lodge, Inc., and Frosty Land, Inc. (collectively, “Hunter Mountain”) pursuant to the terms of the Stock Purchase Agreement (the “Purchase Agreement”) with Paul Slutzky, Charles B. Slutzky, David Slutzky, Gary Slutzky and Carol Slutzky-Tenerowicz entered into on November 30, 2015. The Company acquired Hunter Mountain for total cash consideration of
$35.0
million plus the assumption of two capital leases estimated at approximately
$1.7
million. A portion of the Hunter Mountain acquisition price was financed pursuant to the Master Credit and Security Agreement (the “Hunter Mountain Credit Agreement”) entered into between the Company and EPR as of January 6, 2016.
The Hunter Mountain Debt due January 5, 2036 represents amounts owed pursuant to a promissory note (the “Hunter Mountain Note”) in the principal amount of $21.0 million made by the Company in favor of EPR pursuant to the Hunter Mountain Credit Agreement, which was effective as of January 6, 2016. The Company used
$20.0
million of the Hunter Mountain Debt to finance the Hunter Mountain acquisition and
$1.0
million to cover closing costs and to add to its interest reserve account.
The Hunter Mountain Credit Agreement and Hunter Mountain Note provide that interest will be charged at an initial rate of 8.00%, subject to an annual increase beginning on February 1, 2017 by the lesser of the following: (x) three times the percentage increase in the CPI (as defined in the Hunter Mountain Note) from the CPI in effect on the applicable adjustment 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. During the first two quarters of fiscal year 2017, the Company’s fixed charge coverage ratios fell below the required ratios, resulting in the actions described above.
As of April 30, 2017, the Company is in compliance with all debt covenants.
Under the terms of the Hunter Mountain Credit Agreement, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) within two years after the effective date of the Hunter Mountain Credit Agreement, the Company’s named executive officers (Messrs. Boyd, Mueller and Deutsch) cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Hunter Mountain Credit Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of those subsidiaries which are borrowers under the Hunter Mountain Credit Agreement. Other events of default include, but are not limited to, a default on other indebtedness of the Company or its subsidiaries.
The Hunter Mountain Note may not be prepaid without the consent of EPR. Upon an event of default, as defined in the Hunter Mountain Note, EPR may, among other things, declare all unpaid principal and interest due and payable. The Hunter Mountain Note matures on January 5, 2036.
In connection with entry into the Hunter Mountain Credit Agreement on January 6, 2016, the Company entered into the Amended and Restated Master Cross-Default Agreement with EPR, which adds the Hunter Mountain Credit Agreement, Hunter Mountain Note and related transaction documents to the scope of loan agreements to which the cross-default provisions of the Master Cross Default Agreement apply.
Also on January 6, 2016, in connection with entry into the Hunter Mountain Credit Agreement, the Company entered into a Guaranty Agreement for the benefit of EPR, which adds the Company’s new Hunter Mountain subsidiary borrowers under the Hunter Mountain Credit Agreement as guarantors pursuant to the same terms of the 2014 Guaranty Agreement and adds the debt evidenced by the Hunter Mountain Credit Agreement and Hunter Mountain Note to the debt guaranteed by the Company pursuant to the 2014 Guaranty Agreement.
Substantially all of the Company’s assets serve as collateral for the Company’s long term debt.
Future aggregate annual principal payments under all indebtedness
, not including deferred financing costs,
reflected by fiscal year are as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
April 30
|
|
|
|
2018
|
|
$
|
2,756
|
|
|
|
2019
|
|
|
1,284
|
|
|
|
2020
|
|
|
9,104
|
|
|
|
2021
|
|
|
2,834
|
|
|
|
2022
|
|
|
51,693
|
|
|
|
Thereafter
|
|
|
114,161
|
|
|
|
|
|
$
|
181,832
|
|
|
|
Deferred financing costs are net of accumulated amortization
of
$1,615
and
$482
at
April 30, 201
7
and 201
6
, respectively.
Amortization of deferred financing costs for the years ended April 30, 2017, 2016 and 2015 was
$1,133
,
$291
and
$141
, respectively.
Amortization of deferred financing costs will be
$949
for
the year
s
ending April 30, 201
8 and
2019
,
$941
for the year ending April 30, 2020,
$932
for the year ending April 30, 2021
and
$652
for the year ending April 30,
2022
.
Line of Credit / Royal Banks of Missouri Debt
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 Line of 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 Line of Credit Agreement to
$20.0
million.
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, pursuant to which the initial amounts borrowed under the Line of Credit Agreement matured on December 22, 2016 and January 6, 2017 and were repaid or converted, as described in the paragraph below. 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.
On December 15, 2016 and January 5, 2017, the Company repaid
$0.5
million and
$5.0
million, respectively, of the total amount outstanding under the Line of Credit Agreement with proceeds from the Private Placement described in Note 5. On January 6, 2017, pursuant to the terms of the Line of Credit Agreement, the Company elected to convert $10.0 million of the outstanding amount to a term loan (included in the table above as the “Royal Banks of Missouri Debt”). The terms of the Royal Banks of Missouri Debt are evidenced by a promissory note in favor of Royal Banks of Missouri in the principal amount of $10.0 million, dated as of January 6, 2017 (the “Royal Banks Note”).
The Royal Banks of Missouri Debt bears interest at the prime rate plus 1.0% per annum. The Royal Banks Note matures on January 6, 2020. Except in the case of default, the Company may prepay the Royal Banks of Missouri Debt without penalty. From and after maturity of the Royal Banks Note and in the case of any default, interest on the unpaid principal and interest shall accrue at an annual rate equal to five percentage points over the rate of interest otherwise payable on outstanding amounts. Events of default under the Royal Banks Note include any default under the terms of the Line of Credit Agreement.
The Royal Banks Note is subject to the terms and conditions set forth in the Line of Credit Agreement, as described herein.
As of April 30, 2017, a total of
$4.5
million remained outstanding under the Line of Credit Agreement, which includes
$1.75
million borrowed pursuant to the terms of the Initial Line of Credit Note and
$2.75
million borrowed pursuant to the Second Line of Credit Note. The remaining line of credit debt is included as a current liability given the initial 12-month
term. The
C
ompany
intends to either pay or convert the full amount
due on each note
on or prior to their respective due dates.
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 April 30, 2017 was
5.0%
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 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. During the first two quarters of fiscal year 2017, the Company’s fixed charge coverage ratios fell below the required ratios, resulting in the actions described above. As of April 30, 2017, the Company is in compliance with all debt covenants.
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.
West Lake Water Project and Carinthia Ski Lodge EB-5 Debt
The Company established two affiliate limited partnerships of Mount Snow, Carinthia Group 1, L.P. and Carinthia Group 2, L.P. (collectively, the ‘‘Partnership’’), to operate two Mount Snow development projects funded by
$52.0
million raised by the Partnership pursuant to 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. Mount Snow GP Services LLC, a wholly owned subsidiary of Mount Snow, Ltd. (wholly owned by the Company), serves as the general partner for the Partnership. The Company has evaluated the Partnership under ASC 810, “Consolidations,” and determined the Partnership does not require consolidation because the Company does not have a variable interest in the Partnership.
The Mount Snow development projects include: (i) the West Lake Water Project, which includes the construction of a new water storage reservoir for snowmaking; and (ii) the Carinthia Ski Lodge Project, which includes the construction of a new skier service building. In December 2016, the first I-526 petition submitted by an investor in the EB-5 Program was approved, and the $52.0 million was released from escrow to the Partnership. Upon release of the EB-5 Program funds, the Company was reimbursed in full for the approximately
$15.0
million that the Company had invested in the construction of the Mount Snow development projects while awaiting release of the funds. The remaining balance is included in long-term asset restricted cash, construction, due to the earmark associated with the Mount Snow development project.
Mount Snow, Ltd. formed West Lake Water Project LLC and Carinthia Ski Lodge LLC, each wholly owned by Mount Snow, Ltd., to manage the construction of the West Lake Water Project and Carinthia Ski Lodge Project, respectively.
Pursuant to the terms of the EB-5 Program, the Partnership is obligated to invest or loan the funds raised from its EB-5 investors in or to a business carrying on a commercial venture. In accordance with these requirements, on December 27, 2016, the Partnership entered into a loan agreement with West Lake Water Project LLC providing West Lake Water Project LLC a line of credit of up to
$30.0
million (the “West Lake Loan Agreement”) to be used in the construction of the West Lake Water Project. In connection with entry into the West Lake Loan Agreement, West Lake Water Project LLC executed a line of credit note in favor of the Partnership in the amount of $30.0 million (the “West Lake Note”). The debt owed pursuant to the West Lake Loan Agreement and West Lake Note is included in the table above as the “West Lake Water Project EB-5 Debt.”
Also on December 27, 2016, the Partnership entered into a loan agreement with Carinthia Ski Lodge LLC providing Carinthia Ski Lodge LLC a line of credit of up to
$22.0
million (the “Carinthia Lodge Loan Agreement”) to be used in the construction of the new Carinthia skier service building. In connection with entry into the Carinthia Lodge Loan Agreement, Carinthia Ski Lodge LLC executed a line of credit note in favor of the Partnership in the amount of $22.0 million (the “Carinthia Lodge Note”). The debt owed pursuant to the Carinthia Lodge Loan Agreement and Carinthia Lodge Note is included in the table above as the “Carinthia Ski Lodge EB-5 Debt.” Amounts borrowed pursuant to the EB-5 Loan Agreements, as defined below, can be used only for construction of the West Lake Water Project and Carinthia Ski Lodge Project.
The terms of the West Lake Loan Agreement and Carinthia Lodge Loan Agreement (together, the “EB-5 Loan Agreements”) and the West Lake Note and Carinthia Lodge Note (together, the “EB-5 Notes”) are identical. Amounts outstanding under the EB-5 Notes accrue simple interest at a fixed rate of
1.0%
per annum until the maturity date, which is
December 27, 2021
, subject to extension of up to an additional two years at the option of the borrowers with lender consent. If the maturity date is extended, amounts outstanding under the EB-5 Notes will accrue simple interest at a fixed rate of
7.0%
per annum during the first year of extension and a fixed rate of
10.0%
per annum during the second year of extension.
Upon an event of default, amounts outstanding shall bear interest at the rate of
5.0%
per annum, subject to the extension increases. Events of default under the EB-5 Loan Agreements include failure to make payments due; breaches of covenants, representations and warranties; incurrence of certain judgments and liens against the borrowers or assets; assignments or notice of bulk sales of assets on behalf of creditors; commencement of bankruptcy or dissolution proceedings; and cessation of the West Lake Water Project or Carinthia Ski Lodge Project prior to completion.
For so long as amounts under the EB-5 Loan Agreements are outstanding, the borrowers are restricted from taking certain actions without the consent of the lenders, including, but not limited to, transferring or disposing of the properties or assets financed with the loan proceeds; selling equity interests to any person other than the Company; merging; and making loans to or investing in affiliates or other persons.
The borrowers under the EB-5 Notes are prohibited from prepaying outstanding amounts owed if such prepayment would jeopardize any of the EB-5 investor limited partners’ ability to be admitted to the U.S. via the EB-5 Program.
As a condition to entry into each of the EB-5 Loan Agreements, the Company executed guaranties of collection (the “EB-5 Guaranties”) with respect to each of the West Lake Loan Agreement and Carinthia Lodge Loan Agreement pursuant to which the Company unconditionally guaranteed all amounts due under the EB-5 Notes owed to the Partnership. Pursuant to the terms of the EB-5 Guaranties, which are guaranties of collection rather than of payment, in the event the borrowers under the EB-5 Loan Agreements fail to make any payments due, or upon the acceleration of payments due, the lenders must exhaust any and all legal remedies for collection against the borrowers before proceeding against the Company.
Bridge Loan Financing
On September 1, 2016, the Company entered into the Master Credit and Security Agreement with EPR (the “Bridge Loan Agreement”) pursuant to which EPR agreed to loan up to
$10.0
million to the Company for working capital purposes, subject to certain conditions and adjustment as provided in the Bridge Loan Agreement and as previously disclosed. Amounts borrowed pursuant to the Bridge Loan Agreement were evidenced by a promissory note (the “Bridge Loan Note”), also dated as of September 1, 2016. The Company borrowed a total of
$5.5
million 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, as defined in Note 5, which closed on November 2, 2016.
Note 5. Private Placement
Purchase Agreement
On August 22, 2016, the Company entered into the securities purchase agreement (the “Securities 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 Securities 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 Securities Purchase Agreement (
$4.79
); (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 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 and an additional
$1.1
million of the proceeds to fund the Interest Letter of Credit also described in Note 4.
The rights and preferences of the Series A Preferred Stock are set forth in the Certificate of Designation of Series A Cumulative Convertible Preferred Stock filed by the Company with the Missouri Secretary of State on October 26, 2016 (the “Certificate of Designation”), and include, among other things, the following:
Ranking; Seniority
The Series A Preferred Stock shall generally rank, with respect to liquidation, dividends and redemption, (i) senior to common stock and to any other junior capital stock; (ii) on parity with any parity capital stock; (iii) junior to any senior capital stock; and (iv) junior to all of the Company’s existing and future indebtedness (except indebtedness issued on or prior to the Expiration Date (as defined below) that is convertible into or exercisable for any class or series of capital stock).
Additionally, until the earlier of (i) such date as no Series A Preferred Stock remains outstanding and (ii) January 1, 2027 (such earlier date, the “Expiration Date”), the Company is prohibited from (i) creating or issuing capital stock (or securities convertible into capital stock) that grants holders the right to receive dividends or interest prior to the Expiration Date when there are accrued or unpaid dividends with respect to the Series A Preferred Stock or the right to receive any liquidation payment prior to the Expiration Date at a time when the Series A Preferred Stock holders have not received their full liquidation value of
$1,000
per share of Series A Preferred Stock (the “Liquidation Value”); (ii) paying any dividend or interest on capital stock (or securities convertible into capital stock) when there are accrued or unpaid dividends with respect to the Series A Preferred Stock; (iii) paying any liquidation payment on capital stock (or securities convertible into capital stock) at a time when the Series A Preferred Stock holders have not received their full Liquidation Value; or (iv) issuing any indebtedness convertible into or exercisable for capital stock.
The Company shall not make any redemption payment on any capital stock (or any security convertible into capital stock) at any time prior to the Expiration Date when any shares of Series A Preferred Stock have not been redeemed except for the redemption of junior securities to the extent permitted under “Dividend Rights” below. The foregoing shall not restrict the Company’s ability to create, authorize the creation of, issue, sell, or obligate itself to issue (i) any indebtedness (other than, prior to the Expiration Date, indebtedness convertible into capital stock); or (ii) any common stock (or any capital stock convertible into common stock (other than any capital stock that is prohibited by this paragraph)).
Dividend Rights
From and after the date that is nine months from the date of issuance, cumulative dividends shall accrue on the Series A Preferred Stock on a daily basis in arrears at the rate of
8%
per annum on the Liquidation Value. All accrued and accumulated dividends on the Series A Preferred Stock shall be paid prior and in preference to any dividend or distribution on or redemption of any junior securities, provided that the Company may, prior to the payment of all accrued and accumulated dividends on the Series A Preferred Stock, (i) declare or pay any dividend or distribution payable on the common stock in shares of common stock; or (ii) repurchase common stock held by employees or consultants of the Company upon termination of their employment or services pursuant to agreements providing for such repurchase. The Company may also redeem or repurchase junior securities at any time when there are no accrued or accumulated unpaid dividends on the Series A Preferred Stock.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment
shall be made to the holders of junior securities, and subject to the rights of any parity or senior securities, an amount in cash equal to $1,000 per share plus all unpaid accrued and accumulated dividends. The Series A Preferred Stock shall not be entitled to any further payment or other participation in any distribution of the available assets of the Company. Neither the consolidation nor merger with or into any other person or entity, nor the voluntary sale, lease, transfer or conveyance of all or substantially all of the Company’s property or business, shall be deemed to constitute a liquidation.
Redemption
The Series A Preferred Stock is subject to redemption at the option of the Company at a price per share equal to
125%
of the Liquidation Value, plus all unpaid accrued and accumulated dividends, whether or not declared, at any time on or after the third anniversary of the issuance of the Series A Preferred Stock that the average closing price of the common stock on the 30 trading days preceding notice of the exercise of the redemption right is greater than 130% of the Conversion Price, as defined below (the “Redemption Price”).
In addition, upon a change of control, any holder of Series A Preferred Stock shall have the right to elect to have all or any portion of its then outstanding Series A Preferred Stock redeemed for cash at the Redemption Price by the Company or the surviving entity of such change of control. The Redemption Price may, at the option of the Company, be paid in shares of common stock. The change in control redemption features results in the Company not being solely in control of the redemption feature.
This means the Company does not control settlement by delivery of its own common shares (because, there is no cap on the maximum number of common shares that could be potentially issuable upon redemption). As such cash settlement of the instrument could be presumed and the instrument is currently classified as temporary equity. As of April 30, 2017, the Series A Preferred Stock has not been adjusted to its redemption amount as the Company does not currently expect to exercise its redemption option and a change of control is not within the Company’s control.
Conversion
Upon the earlier of a change of control or the nine-month anniversary of the date of issuance, the holders of the Series A Preferred Stock have the right to convert the Series A Preferred Stock into shares of common stock equal to the number of shares to be converted, times the Liquidation Value, divided by the Conversion Price and receive in cash all accrued and unpaid dividends. The initial conversion price per share is
$6.29
, subject to adjustment pursuant to the terms of the Certificate of Designation (the “Conversion Price”). The conversion feature is not considered to be a beneficial conversion feature. Holders of the Series A Preferred Stock also have basic anti-dilution rights.
Voting Rights
Each holder of Series A Preferred Stock shall be entitled to vote, 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.
Warrants
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, which are as stated above. 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.
The following table shows the warrants outstanding for the year ending April 30, 2017.
|
|
|
|
|
|
|
|
|
|
Shares
|
Weighted Average Exercise Price
|
Warrants outstanding - beginning of the year
|
|
-
|
$ -
|
|
|
|
|
Warrants exercised
|
|
-
|
-
|
Warrants granted
|
|
2,719,018
|
7.36
|
Warrants expired
|
|
-
|
-
|
|
|
|
|
Warrants outstanding - end of period
|
|
2,719,018
|
$ 7.36
|
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 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.
The Company must apply commercially reasonable efforts to undertake these actions.
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.
Note
6
. Income Taxes
The provision for income taxes for the years ended April 30,
2017,
201
6
,
and
201
5
consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
59
|
|
$
|
-
|
|
$
|
-
|
State taxes based on income
|
|
|
27
|
|
|
-
|
|
|
168
|
|
|
|
86
|
|
|
-
|
|
|
168
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
589
|
|
|
(1,753)
|
|
|
(895)
|
State
|
|
|
(22)
|
|
|
(325)
|
|
|
(51)
|
|
|
|
567
|
|
|
(2,078)
|
|
|
(946)
|
|
|
|
653
|
|
|
(2,078)
|
|
|
(778)
|
Income tax related purchase accounting adjustments
|
|
|
96
|
|
|
-
|
|
|
-
|
|
|
$
|
749
|
|
$
|
(2,078)
|
|
$
|
(778)
|
Deferred income taxes consist of the following at April 30,
2017 and
201
6
(in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
|
|
Deferred gain on sale/leaseback
|
|
$
|
1,081
|
|
$
|
1,194
|
Accrued compensation
|
|
|
341
|
|
|
238
|
Unearned revenue
|
|
|
916
|
|
|
897
|
Net operating loss carryforwards
|
|
|
10,425
|
|
|
11,146
|
|
|
|
12,763
|
|
|
13,475
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Property and equipment
|
|
|
(24,646)
|
|
|
(25,055)
|
|
|
|
(24,646)
|
|
|
(25,055)
|
|
|
$
|
(11,883)
|
|
$
|
(11,580)
|
Deferred income taxes are included in the April 30, 201
7
and 201
6
consolidated balance sheet
s
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
Current assets
|
|
$
|
591
|
|
$
|
1,092
|
Noncurrent liabilities
|
|
|
(12,474)
|
|
|
(12,672)
|
|
|
$
|
(11,883)
|
|
$
|
(11,580)
|
Realization of deferred tax assets is dependent upon sufficient future
taxable
income during the period that the deductible temporary differences and carryforwards are expected to be available to reduce taxable income. Based on
the
reversal patterns of existing taxable temporary differences
, the net deferred tax assets will be recovered. There was
no
valuation allowance deemed necessary.
Loss carryforwards for tax purposes as of April 30, 201
7
, have the following expiration dates (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
Expiration date
|
|
|
|
|
|
|
2031
|
|
|
|
|
$
|
11,336
|
2032
|
|
|
|
|
|
1,939
|
2033
|
|
|
|
|
|
2,907
|
2034
|
|
|
|
|
|
343
|
2035
|
|
|
|
|
|
10,680
|
|
|
|
|
|
$
|
27,205
|
The Company accounts for income taxes in accordance with ASC 740,
“
Income Taxes
” (“ASC 740”)
.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
For fiscal years 201
7
, 201
6
, and 201
5
, the expected income tax rate differs from the statutory rate as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
Computed expected tax expense (benefit)
|
|
$
|
677
|
|
$
|
(1,804)
|
|
$
|
(895)
|
Increase (decrease) in income tax expense (benefit) resulting from:
|
|
|
|
|
|
|
|
|
|
Permanent differences
|
|
|
35
|
|
|
38
|
|
|
41
|
State income tax
|
|
|
2
|
|
|
(325)
|
|
|
60
|
Other
|
|
|
35
|
|
|
13
|
|
|
16
|
Income tax expense (benefit)
|
|
$
|
749
|
|
$
|
(2,078)
|
|
$
|
(778)
|
In connection with the Company’s initial public offering in November 2014, a change of ownership in the Company occurred pursuant to the provisions of the Tax Reform Act of 1986. As a result, the Company’s usage of its net operating loss carryforwards will be limited each year; however, management believes the full benefit of those carryforwards will be realized prior to their respective expiration dates.
The Company accounts for unrecognized tax benefits also in accordance with ASC 740
,
which prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution to any related appeals or litigation, based solely on the technical merits of the position. The Company has no accrual for interest or penalties related to uncertain tax positions at April 30, 201
7
and 201
6
, and did not recognize interest or penalties in the
consolidated s
tatements of
income (loss)
during the years ended April 30,
2017,
201
6
,
and
201
5
.
The major jurisdictions in which the Company files income tax returns include the federal and state jurisdictions within the United States. The tax years after
2010 remain open to examination by federal and state taxing jurisdictions. However, the Company has
net operating losses
beginning in 2001 which
would cause the statute of limitations to remain open for the year in which the
net operating losses
was incurred.
Management regularly assesses the likelihood that its net deferred tax assets will be recovered from future taxable income. To the extent management believes that it is more likely than not that a net deferred tax asset will not be realized, a valuation allowance is established. When a valuation allowance is established or increased, an income tax charge is included in the consolidated financial statements and net deferred tax assets are adjusted accordingly. Changes in tax law, statutory tax rates, and estimates of the Company’s future taxable income levels could result in actual realization of the net deferred tax assets being materially different from the amounts provided for in the consolidated financial statements. If the actual recovery amount of the deferred tax asset is less than anticipated, the Company would be required to write off the remaining deferred tax asset and increase the tax provision, resulting in a reduction of net income and stockholders’ equity.
The Company does
no
t have any unrecognized tax benefits and has
no
t incurred any interest and penalties for fiscal years
2017,
201
6
,
and
201
5
.
Note
7
. 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.” 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, of which the outstanding balance was converted to a term loan that bears interest at the prime rate plus
1.0%
and matures on
January
6, 2020.
Hunter Mountain’s results of operations are included in the accompanying consolidated financial statements for the year ended April 30, 201
6
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
|
Other assets
|
|
4
|
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 adjusted the purchase price allocation in the fourth quarter
of 2016
as a result of obtaining more information regarding the values of certain assets and liabilities. The adjustments were primarily to increase (decrease) buildings and improvements, equipment, intangible assets, goodwill, and the deferred tax liability by
$752
,
$7,470
,
$865
,
$(6,280)
, and
$3,085
, respectively. The income statement effect related to these adjustments was not material.
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 revenue and net loss included in the accompanying consolidated statements of income (loss) for the year ended April 30, 2016 resulting from the Hunter Mountain acquisition since the acquisition date (January 6, 2016) were
$13,614
and
$3,083
, respectively.
The following presents the unaudited pro forma consolidated financial information as if the acquisition of Hunter Mountain was completed on May 1, 2014, the beginning of the Company's 2015 fiscal year. The following pro forma financial information includes adjustments for depreciation and interest paid pursuant to the Hunter Mountain Note and property and equipment recorded at the date of acquisition. This pro forma financial information is presented for informational purposes only and does not purport to be indicative of the results of future operations or the results that would have occurred had the acquisition taken place on May 1, 2014 (in thousands except per share data):
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Year ended April 30
|
|
|
2016
|
|
|
2015
|
Net revenues
|
$
|
102,860
|
|
$
|
132,233
|
Net loss
|
$
|
(9,776)
|
|
$
|
(1,426)
|
Pro forma basis and diluted loss per share
|
$
|
(0.70)
|
|
$
|
(0.17)
|
|
|
|
|
|
|
N
Note
8
. Sale/Leaseback
In November 2005,
the Company sold Mad River Mountain and simultaneously leased the property back for a period of 21 years
. The resultant gain was deferred and is being ratably recognized in income over the term of the lease.
Note 9. Employee Benefit Plan
The Company maintains a tax-deferred savings plan for all eligible employees. Employees become eligible to participate after attaining the age of
21
and completing
one
year of service. Employee contributions to the plan are tax-deferred under Section 401(k) of the Internal Revenue Code of 1986, as amended. Company matching contributions are made at the discretion of the board of directors.
No
contributions were made in 2017, 2016, and 2015.
On November 4, 2015, the Company’s board of directors adopted the Peak Resorts, Inc. 2014 Equity Incentive Plan (the “Incentive Plan”), and on November 5, 2014, the Company’s stockholders approved the Incentive Plan. The stockholders approved a maximum of
559,296
shares to be available for issuance under the Incentive Plan. The Incentive Plan authorizes the Company to grant stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses, other stock based awards, cash awards, or any combination thereof, as defined in and allowed by the Incentive Plan. During fiscal 201
7
, the
C
ompany issued
46,770
restricted stock units to independent directors
and officers.
During fiscal 2016, the
C
ompany issued
63,741
restricted stock units to independent directors, of which
5,334
were forfeited.
As of April 30, 2017
,
t
he Company has a
remaining balance of
463,842
shares available for issuance. The
C
ompany has recorded compensation expense of
$0.2
million associated with these awards during fiscal 201
7
and 2016
.
The
C
ompany did not incur any compensation expense in fiscal 2015.
Note
10
. 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
, accrued salaries
and accrued expenses:
The carrying value of accounts payable
, accrued salaries
and accrued liabilities approximates fair value due to the short
‑ term maturities of these amounts.
Unearned revenue:
The carrying value of unearned revenue approximate their fair value because of their short
‑term nature.
Long
‑term debt:
The fair value of the Company’s long
‑term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The interest rates on the Company’s long
‑term debt instruments are consistent with those currently available to the Company for borrowings with similar maturities and terms and, accordingly, their fair values are consistent with their carrying values.
Concentrations of credit risk:
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and restricted cash. The Company’s cash and cash equivalents and restricted cash are on deposit with financial institutions where such balances will, at times, be in excess of federally insured limits. Excess cash balances are collateralized by the backing of government securities. The Company has not experienced any loss as a result of those deposits.
Note 1
1
. Commitments and Contingencies
Construction commitment:
As of April 30, 2017, the Company had
$3.9
million in third party commitments currently outstanding with its main contractor on the Mount Snow development project.
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
$1,669
,
$1,732
,
and
$1,756
for years ended April 30, 201
7
, 201
6
and 201
5
, 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 April 30, 201
7
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
Operating
|
|
|
Leases
|
|
Leases
|
2018
|
|
$
|
2,096
|
|
$
|
1,653
|
2019
|
|
|
1,952
|
|
|
1,600
|
2020
|
|
|
937
|
|
|
1,564
|
2021
|
|
|
26
|
|
|
1,538
|
2022
|
|
|
1
|
|
|
1,555
|
Thereafter
|
|
|
-
|
|
|
7,284
|
|
|
|
5,012
|
|
$
|
15,194
|
Less: amount representing interest
|
|
|
519
|
|
|
|
|
|
|
4,493
|
|
|
|
Less: current portion
|
|
|
1,785
|
|
|
|
Long-term portion
|
|
$
|
2,708
|
|
|
|
Off-balance sheet arrangement
: We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors
.
Note 1
2
.
Earnings (
Loss
)
Per Share
The computation of basic and diluted earnings (loss) per share for the years ended April 30, 201
7
, 201
6
and 201
5
is as follows (in thousands except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Net earnings (loss)
|
|
$
|
1,241
|
|
$
|
(3,226)
|
|
$
|
(1,854)
|
Adjustment for preferred stock accretive dividends
|
|
|
(800)
|
|
|
|
|
|
|
Net earnings available to common shareholders
for basic and diluted EPS
|
|
|
441
|
|
|
(3,226)
|
|
|
(1,854)
|
Weighted number of shares:
|
|
|
|
|
|
|
|
|
|
Common shares outstanding for basic and diluted earnings (loss) per share
|
|
|
13,982,400
|
|
|
13,982,400
|
|
|
8,420,756
|
Vested restricted stock units for basic and diluted earnings (loss) per share
|
|
|
35,238
|
|
|
12,893
|
|
|
-
|
|
|
|
14,017,638
|
|
|
13,995,293
|
|
|
8,420,756
|
Basic earnings (loss) per share
|
|
|
0.03
|
|
$
|
(0.23)
|
|
$
|
(0.22)
|
Weighted number of shares:
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock units for diluted earnings per share
|
|
|
23,654
|
|
|
-
|
|
|
-
|
|
|
|
14,041,292
|
|
|
13,995,293
|
|
|
8,420,756
|
Diluted earnings (loss) per share
|
|
$
|
0.03
|
|
$
|
(0.23)
|
|
$
|
(0.22)
|
The accounting treatment of the Series A Preferred Stock issued in connection with the Private Placement described in Note 5 is accounted for as temporary equity. As a result, the weighted average number of shares associated with the conversion are included in the diluted earnings (loss) per share calculation if the
e
ffect is not anti-dilutive even though the Company's stock price as of April 30, 2017 is lower than the conversion prices associated with Series A Preferred Stock. For 2017 basic earnings per share, the accretive dividend of
$800
associated with the Series A Preferred Stock dividend free period has been deducted from net earnings to arrive at the net earnings available to common shareholders. For 2017, the Series A Preferred Stock effect has been excluded from the diluted earnings per share as the effect would be anti-dilutive.
Restricted stock units were granted during fiscal year 2016, but the
19,515
outstanding unvested units 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 year ended April 30, 2016.
Note 1
3
. Selected Quarterly Financial Data
Selected quarterly financial data for the years ended April 30, 201
7
, 2016
and 201
5
is as follows (in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
Quarter ended (unaudited)
|
|
|
Year ended April 30, 2017
|
|
April 30, 2017
|
|
January 31, 2017
|
|
October 31, 2016
|
|
July 31, 2016
|
Revenue
|
|
$
|
123,249
|
|
$
|
51,263
|
|
$
|
56,385
|
|
$
|
8,475
|
|
$
|
7,126
|
Income (loss) from operations
|
|
$
|
14,069
|
|
$
|
17,607
|
|
$
|
16,715
|
|
$
|
(10,136)
|
|
$
|
(10,117)
|
Net income (loss)
|
|
$
|
1,241
|
|
$
|
8,962
|
|
$
|
8,165
|
|
$
|
(7,982)
|
|
$
|
(7,904)
|
Basic earnings (loss) per share
|
|
$
|
0.03
|
|
$
|
0.58
|
|
$
|
0.58
|
|
$
|
(0.57)
|
|
$
|
(0.56)
|
Diluted earnings (loss) per share
|
|
$
|
0.03
|
|
$
|
0.52
|
|
$
|
0.47
|
|
$
|
(0.57)
|
|
$
|
(0.56)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
Quarter ended (unaudited)
|
|
|
Year ended April 30, 2016
|
|
April 30, 2016
|
|
January 31, 2016
|
|
October 31, 2015
|
|
July 31, 2015
|
Revenue
|
|
$
|
95,729
|
|
$
|
45,475
|
|
$
|
38,667
|
|
$
|
6,155
|
|
$
|
5,432
|
Other operating income - gain on involuntary conversion
|
|
$
|
195
|
|
$
|
-
|
|
$
|
195
|
|
$
|
-
|
|
$
|
-
|
Income (loss) from operations
|
|
$
|
5,169
|
|
$
|
14,174
|
|
$
|
8,833
|
|
$
|
(8,875)
|
|
$
|
(8,963)
|
Net income (loss)
|
|
$
|
(3,226)
|
|
$
|
7,041
|
|
$
|
3,700
|
|
$
|
(6,888)
|
|
$
|
(7,079)
|
Basic and diluted earnings (loss) per share
|
|
$
|
(0.23)
|
|
$
|
0.50
|
|
$
|
0.26
|
|
$
|
(0.49)
|
|
$
|
(0.51)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
Quarter ended (unaudited)
|
|
|
Year ended April 30, 201
5
|
|
April 30, 2015
|
|
January 31, 201
5
|
|
October 31, 201
4
|
|
July 31, 201
4
|
Revenue
|
|
$
|
104,858
|
|
$
|
47,047
|
|
$
|
45,985
|
|
$
|
6,230
|
|
$
|
5,596
|
Other operating income - gain on settlement of lawsuit
|
|
$
|
2,100
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,100
|
|
$
|
-
|
Income (loss) from operations
|
|
$
|
17,482
|
|
$
|
18,947
|
|
$
|
14,498
|
|
$
|
(6,887)
|
|
$
|
(9,076)
|
Net income (loss)
|
|
$
|
(1,854)
|
|
$
|
9,780
|
|
$
|
3,269
|
|
$
|
(6,743)
|
|
$
|
(8,160)
|
Basic and diluted earnings (loss) per share
|
|
$
|
(0.22)
|
|
$
|
0.70
|
|
$
|
0.27
|
|
$
|
(1.69)
|
|
$
|
(2.05)
|
Note 1
4
. Related Party Transactions
In
February
201
6
, a director was added to the Company’s board of directors. This director is a partner at a law firm utilized by the Company.
In
fiscal 2017,
the
C
ompany incurred expenses
of
$
393
with
the firm.
In
fiscal
2016, the
C
ompany incurred expenses of
$
196
with the firm.
Note 1
5
. Subsequent Events
On July 12, 2017, the Company’s board of directors declared a second quarter fiscal 2018 cash dividend payable on August 11, 2017 to common shareholders of record on July 27, 2017 at a rate of
$0.07
per share.