**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

### **FORM 10-K**

### ** **

**ý****          ****ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For the fiscal year ended July 31, 2005**

 

**or**

 

**o****          ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For the transition period from                to                .**

 

**Commission File Number 1-13507**

 

#### **American Skiing Company**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                                                    | ** ** | **04-3373730**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer Identification No.) |

 

**136 Heber Avenue, #303**

**P.O.  Box 4552**

**Park City, Utah 84060**

(Address of principal executive office)

(Zip code)

 

**(435) 615-0340**

** **(Registrant’s telephone number,including area code)

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 

**None.**

 

Securitiesregistered pursuant to Section 12(g) of the Act:

 

**Common Stock, $.01 par value**

(Titleof Each Class)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities and Exchange Act of1934 during the preceding 12 months (or shorter period that the registrant wasrequired to file such reports) and (2) has been subject to the filing requirementsfor at least the past 90 days.

Yesý No o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof the registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.  ý

 

Indicateby check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2of the Exchange Act.

Yeso No ý

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). 

Yeso No ý

 

Theaggregate market value of the registrant’s outstanding common stock held bynonaffiliates of the registrant on January 30, 2005, determined using theper share closing price thereof on the Over the Counter Bulletin Board, wasapproximately $13.3 million.  As of October 1,2005, 31,738,183 shares of common stock were issued and outstanding, of which14,760,530 shares were Class A common stock.

 

DOCUMENTS INCORPORATEDBY REFERENCE

 

TheDefinitive Proxy Statement for the next Annual Meeting of Shareholders isincorporated by reference herein into Part III, Items 10 through 14.

 

 

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AmericanSkiing Company

 

Form 10-KAnnual Report, for the year ended July 31, 2005

 

Tableof Contents

 
| Part I                            |                                                                                             |
|----------------------------------------|--------------------------------------------------------------------------------------------------|
|                                   |                                                                                             |
| Items 1 and 2 Business and  Properties |                                                                                             |
|                                   |                                                                                             |   |
| Item 3                                 | Legal Proceedings                                                                                |   |
|                                   |                                                                                             |   |
| Item 4                                 | Submission of Matters to a Vote of Security Holders                                              |   |
|                                   |                                                                                             |   |
| Part II                           |                                                                                             |
|                                   |                                                                                             |   |
| Item 5                                 | Market for Registrant’s Common Equity, Related  Stockholder Matters                         |   |
|                                   |                                                                                             |   |
| Item 6                                 | Selected Financial Data                                                                          |   |
|                                   |                                                                                             |   |
| Item 7                                 | Management’s Discussion and Analysis of Financial  Condition and Results of Operations      |   |
|                                   |                                                                                             |   |
| Item 7A                                | Quantitative and Qualitative  Disclosures about Market Risk                                      |   |
|                                   |                                                                                             |   |
| Item 8                                 | Financial Statements and Supplementary  Data                                                     |   |
|                                   |                                                                                             |   |
| Item 9                                 | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure            |   |
|                                   |                                                                                             |   |
| Item 9A                                | Controls and Procedures                                                                          |   |
|                                   |                                                                                             |   |
| Part III                          |                                                                                             |
|                                   |                                                                                             |   |
| Item  10                               | Directors  and Executive Officers of the Registrant                                              |   |
|                                   |                                                                                             |   |
| Item  11                               | Executive  Compensation                                                                          |   |
|                                   |                                                                                             |   |
| Item  12                               | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters |   |
|                                   |                                                                                             |   |
| Item  13                               | Certain  Relationships and Related Transactions                                                  |   |
|                                   |                                                                                             |   |
| Item  14                               | Principal  Accountant Fees and Services                                                          |   |
|                                   |                                                                                             |   |
| Part IV                           |                                                                                             |
|                                   |                                                                                             |   |
| Item 15                                | Exhibits, Financial Statement  Schedules                                                         |   |
|                                   |                                                                                             |   |
| Signatures                             |                                                                                             |

 

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**PART I**

**Items1 and 2 - Business and Properties**

 

**American Skiing Company**

 

**Business Description**

 

We were incorporated in 1997 and are organizedas a holding company, operating through various wholly owned subsidiaries.  Refer to Note 1 - “Basis of Presentation” inthe consolidated financial statements included in this report for a discussionof the general development of our business, subsidiaries, andpredecessors.  We are one of the largestoperators of alpine ski and snowboard resorts in the United States.  We develop, own, and operate a range ofhospitality-related businesses, including skier development programs, hotels,golf courses, restaurants, and retail locations.  We also develop, market, and operate ski-in/ski-outalpine villages, townhouses, condominiums, and quarter and eighth shareownership hotels.  We report our resultsof operations in two business segments, resort operations and real estateoperations.  For information by segment,refer to Note 13 - “Business Segment Information” in the consolidated financialstatements included in this report.

 

Our revenues and net loss attributable to commonshareholders for the year ended July 31, 2005 (fiscal 2005) were $276.5million and $73.3 million, respectively. Resort segment revenues and real estate segment revenues for fiscal 2005were $267.3 million and $9.2 million, respectively.  For more information relating to our financialcondition, see “Certain Considerations – Our business is substantially leveragedand we face a number of financial risks” in Part I for additionaldiscussion.  Cash flows provided by (usedin) operating activities, investing activities, and financing activities forfiscal 2005 were approximately $34.6 million, $(11.9) million, and $(20.7)million, respectively.  Resort segmentcash flows provided by (used in) operating activities, investing activities,and financing activities for fiscal 2005 were approximately $29.0 million,$(16.3) million, and $(13.8) million, respectively.  Real estate segment cash flows provided by(used in) operating activities, investing activities, and financing activitiesfor fiscal 2005 were approximately $5.6 million, $4.4 million, and $(6.9)million, respectively.

 

Our periodic and current reports are availableon our website, www.peaks.com, free of charge as soon as is reasonablypracticable after such materials are electronically filed with the Securitiesand Exchange Commission.

 

**Resort Operations**

 

Our resort business is generated primarily fromour ownership and operation of seven ski resorts, several of which are amongthe largest in the United States.  Duringthe 2004-05 ski season, our resorts generated approximately 4.0 million skiervisits, representing approximately 7.0% of total skier visits in the UnitedStates.  The following table summarizescertain key statistics of our resorts.

 
| **Resort,  Location**           | ** ** | **Skiable  Terrain****(acres)** | ** ** | **Vertical  Drop  (feet)** | ** ** | **Trails** | ** ** | **Total Lifts  (high-speed)** | ** ** | **Snowmaking  Coverage** | ** ** | **Ski  Lodges** | ** ** | **2004-05  Skier Visits  (000s)** | ** ** |
|---------------------------------|------------|---------------------------------|------------|----------------------------|------------|------------|------------|-------------------------------|------------|--------------------------|------------|-----------------|------------|-----------------------------------|------------|
| **Western Resorts**             |       |                            |       |                       |       |       |       |                          |       |                     |       |            |       |                              |       |
| Steamboat, Colorado             |       | 2,939                           |       | 3,668                      |       | 142        |       | 20                            | (5)        | 15                       | %          | 4               |       | 972                               |       |
| The Canyons, Utah               |       | 3,500                           |       | 3,190                      |       | 144        |       | 16                            | (7)        | 6                        | %          | 3               |       | 403                               |       |
| **Eastern Resorts**             |       |                            |       |                       |       |       |       |                          |       |                     |       |            |       |                              |       |
| Killington/Pico, Vermont        |       | 1,182                           |       | 3,050                      |       | 200        |       | 31                            | (8)        | 70                       | %          | 8               |       | 986                               |       |
| Sunday River, Maine             |       | 660                             |       | 2,340                      |       | 127        |       | 18                            | (4)        | 92                       | %          | 4               |       | 525                               |       |
| Mount Snow/Haystack(1), Vermont |       | 757                             |       | 1,700                      |       | 145        |       | 23                            | (3)        | 75                       | %          | 6               |       | 524                               |       |
| Sugarloaf/USA, Maine            |       | 1,410                           |       | 2,820                      |       | 129        |       | 15                            | (2)        | 92                       | %          | 2               |       | 366                               |       |
| Attitash, New Hampshire         |       | 280                             |       | 1,750                      |       | 70         |       | 12                            | (2)        | 97                       | %          | 2               |       | 211                               |       |
| Total                           |       | 10,728                          |       | 18,518                     |       | 957        |       | 135                           | (31)       |                     |       | 29              |       | 3,987                             |       |

 

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(1) Afterthe conclusion of the 2004-05 ski season, we sold the Haystack ski resort,which is included in Mount Snow ski resort statistics above.  See “Item 7” below.

 

**Resort Properties**

 

Our resorts include several of the top resortsin the United States based on skier visits. This includes Killington, the 7th largest ski resort in the UnitedStates and the largest resort in the northeast with just under 1.0 millionskier visits in the 2004-05 ski season, Steamboat, the 8th largest resort in the United States with just

 

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under 1.0 million skiervisits in the 2004-05 ski season, and Sunday River and Mount Snow, whichtogether with Killington comprised 3 of the 5 largest resorts in New Englandduring the 2004-05 ski season.

 

***Steamboat***. Steamboat is the eighth largest ski resort in the United Statesgenerating approximately 972,000 skier visits in the 2004-05 ski season.  The Steamboat ski area is located in theMedicine Bow/Routt National Forest, Routt County, Colorado on the westerlyslopes of Mt. Werner, approximately 2.5 miles southeast of downtown SteamboatSprings, Colorado.  Steamboat is servicedduring the ski season by 5 major airline carriers with nonstop flights from eightcities, with convenient connections nationwide. The area consists of approximately 3,486 acres of land licensed under aspecial use permit issued by the United States Forest Service and approximately245 acres of private land which we own, license, or lease from third parties,which are located at the base of the ski area. Steamboat consists of 2,939 acres of skiable terrain and receives a significantamount of natural dry snow, averaging 305 inches annually over the past 6 skiseasons.  Steamboat is a year-roundresort offering hiking, mountain biking, and various other summer amenities.

 

***The Canyons***.  The Canyons ski resort, which is located inthe Wasatch Range of the Rocky Mountains, adjacent to Park City, Utah, is oneof the most accessible destination resorts in the world, with the Salt LakeCity International Airport only 32 miles away via direct major state highwayaccess. The Canyons generated approximately 403,000 skier visits in the 2004-05ski season and is located adjacent to the Utah Winter Sports Park, which servedas the venue for the ski jumping, bobsled, and luge events in the 2002 WinterOlympic Games.  The Canyons consists of3,500 acres of skiable terrain and receives significant amounts of naturalsnow, averaging 317 inches annually over the past 6 seasons.  The Canyons is a year-round resort offeringhiking, mountain biking, and various other summer amenities.  The current master development plan for TheCanyons includes entitlements for approximately 5 million square feet ofdevelopment.  We believe that The Canyonscontinues to have significant growth potential due to its proximity to SaltLake City and Park City, its expansive ski terrain, and its extensive realestate development opportunities.

 

***Killington. ***Killington,located in central Vermont, is the largest ski resort in the northeasternregion of the United States and the seventh largest in the United States,generating approximately 986,000 skier visits in the 2004-05 ski season.  Killington is a seven-mountain resortconsisting of 1,182 acres of skiable terrain. We believe the size and diversity of skiable terrain at Killington makeit attractive to all levels of skiers and one of the most widely recognized ofour resorts with regional, national, and international clientele.  Killington is a year-round resort offeringcomplete golf amenities, including an 18-hole championship golf course, adriving range, mountain biking, hiking, water slides, and an alpine slide.

 

***Sunday River. ***SundayRiver, located in the western mountains of Maine and approximately a three-hourdrive from Boston, is the fourth largest ski resort in New England withapproximately 525,000 skier visits during the 2004-05 ski season.  Extending across eight interconnectedmountains, its facilities consist of approximately 660 acres of skiable terrainand an additional 7,000 acres of undeveloped terrain.  We have development plans for a resortvillage at the Jordan Bowl Area (the most westerly peak), which eventuallycould include over 1,350 units and 1.1 million square feet of totaldevelopment.  Sunday River is ayear-round resort offering hiking and various other summer amenities.  We entered into an agreement with anunrelated third party for the construction, development, and operation of an 18-holechampionship golf course, designed by Robert Trent Jones, Jr., in theJordan Bowl area which was opened during the summer of 2005.  We believe that the golf course project willfurther enhance the value and attractiveness of the Sunday River resort as wellas real estate development opportunities controlled by us.

 

***Mount Snow***. Mount Snow, located in West Dover, Vermont, is the fifth largest skiresort in New England with approximately 524,000 skier visits in the 2004-05ski season and consists of 757 acres of skiable terrain.   Mount Snow is the southernmost of oureastern resorts and is the closest major Vermont ski resort to the New Yorkmetropolitan area.  A large percentage ofthe skier base for Mount Snow originates from Massachusetts, Connecticut, NewYork, and New Jersey.  Mount Snow ownsand operates an 18-hole championship golf course and is the headquarters of our“Original Golf School”, which consists of three golf schools, two of which weoperate and the other that we franchise in the eastern United States.  After the conclusion of the 2004-05 skiseason, we sold the Haystack resort which was a part of Mount Snow.  The statistics above include the results ofthe Haystack resort.  The sale ofHaystack is expected to reduce skier visits to our resorts by approximately31,000 in the upcoming ski season.  See “Item7” below.

 

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***Sugarloaf/USA****. *Sugarloaf/USA,located in the Carrabassett Valley of Maine, is the eighth largest ski resortin New England with approximately 366,000 skier visits in the 2004-05 skiseason.  Sugarloaf/USA is a singlemountain with a 4,237-foot summit, a 2,820-foot vertical drop and 1,410 acresof skiable terrain.  Sugarloaf/USA offerslarge ski-in/ski-out base villages, containing numerous restaurants, retailshops and lodging facilities, including a Grand Summit Hotel.  Sugarloaf/USA is widely recognized for itschallenging terrain and snowfields which represent the only lift-servicedabove-tree line skiing in the Northeast. As a destination resort, Sugarloaf/USA has a broad market, includingareas as distant as New York, New Jersey, Pennsylvania, Washington D.C., andCanada.  Sugarloaf/USA also leases andoperates an 18-hole championship golf course which was designed by Robert TrentJones, Jr. and is consistently rated one of the top 100 public golfcourses in the United States by Golf Digest and is the #1 rated public coursein New England according to the New England Golf Journal.

 

***Attitash***. Attitash is one of New Hampshire’s premier family vacation resorts.  Its 12 lifts (including three quad chairs)constitute one of New Hampshire’s largest lift networks.  During the 2004-05 ski season, Attitashgenerated approximately 211,000 skier visits. Attitash consists of 280 acres of skiable terrain and is located in theheart of the Mount Washington Valley which boasts over 200 factory outletstores, hundreds of bars and restaurants, and a large variety of lodgingoptions, including a 143-room slopeside Grand Summit Hotel and ConferenceCenter which we operate.  Attitash is ayear-round resort offering mountain biking, a water park, alpine slide, andvarious other summer amenities, and benefits from its close proximity to majormetropolitan populations.

 

***Real Estate Properties***.  We retain ownership of the front desk, retailspace, restaurants, and conference facilities, or “commercial core”, of hotelsdeveloped by our real estate subsidiaries. We currently own and operate the commercial core of eight Grand SummitHotels (two at Sunday River and one each at Killington, Attitash, Mount Snow,Sugarloaf/USA, The Canyons, and Steamboat) and one whole-ownershipcondominium/hotel at The Canyons (the Sundial Lodge).  We also own smaller lodging properties,hotels, and inns at our various resorts and manage these properties along withother properties owned by third parties. We continue to market and sell our inventory of developed units at ourGrand Summit Hotels at Steamboat and Sugarloaf. We have sold all of our existing inventory of developed units at each ofour remaining Grand Summit Hotels.

 

In addition to our revenue producing properties, weown a significant amount of non-operating assets, the majority of which arecomprised of land available for development or sale.  While we do not engage in real estatedevelopment as a core business focus, from time to time we elect to sell suchproperties in order to generate cash for use in debt repayment, to financecapital spending projects at the resort level and to facilitate furtherdevelopment of bed base at our resorts. We also develop certain real estate projects ourselves when they requirea relatively small capital outlay in relation to the projected return fromsales.

 

**Leased or Otherwise Committed Properties**

 

Our operations are dependent upon our ownershipor long-term control over the skiable terrain located within each resort.  The following summarizes certain non-ownedreal estate critical to ski operations at each of our resorts.  We believe each of the following leases,permits, or agreements is in full force and effect and that we are entitled totheir benefit.  See “CertainConsiderations – A significant portion of our ski resorts are operated underleases or forest services permits” in Part I for additional discussion ofour leases and forest service permits.

 

Sunday River leases approximately 1,500 acres,constituting a substantial portion of its skiable terrain, under a 50-yearlease terminating on October 14, 2030. The lease renews automatically thereafter on a year-to-year basis unlessterminated by either the lessor or lessee. This lease was amended on January 23, 1998 to allow Sunday River topurchase portions of the leased property for real estate development at apredetermined amount per acre.  We own anundivided one-half interest in the fee title underlying the leased parcel.

 

Mount Snow leases approximately 893 acres,constituting a substantial portion of its skiable terrain, pursuant to aspecial use permit granted by the United States Forest Service. The permit hasa 40-year term expiring December 31, 2029 and is subject to renewal for anadditional 30-year term at the option of Mount Snow if various conditions aresatisfied.

 

Attitash uses approximately 280 acres of itsskiable terrain pursuant to a special use permit issued by the United StatesForest Service.  The permit has a 40-yearterm expiring July 18, 2034 and is renewable subject to

 

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given conditions.  In addition, Attitash leases a portion of itsparking facilities under a lease expiring December 31, 2014.

 

Killington leases approximately 1,100 acres fromthe state of Vermont.  A portion of thatproperty constitutes a substantial amount of Killington’s skiable terrain.  The initial lease was for a 10-year termwhich commenced in 1960 but contains nine 10-year renewal options.  Killington exercised the renewal option in1970, 1980, 1990, and 2000.  Assumingcontinued exercise of the renewal options, the lease will ultimately expire inthe year 2060.  The lease is subject to abuy-out option retained by the state of Vermont, as landlord.  At the conclusion of each 10-year term, orextended term, the state of Vermont has the option to buy out the lease for anamount equal to Killington’s adjusted capital outlay plus 10% of the grossreceipts from the operation for the preceding three years.  Adjusted capital outlay means total capitalexpenditures extending back to the date of origin of the lease depreciated at1% per annum, except that non-operable assets depreciate at 2% per annum.  This buy-out option will next becomeexercisable in the year 2010.  Althoughwe have not had confirmation from state of Vermont officials, we have no reasonto believe that the State of Vermont intends to exercise the buy-out option atthat time.

 

Killingtonleases from Farm & Wilderness, Inc., a Vermont non-profitcorporation, the right to withdraw water for snowmaking purposes from theWoodward reservoir and transport the water over land owned by the lessor.  The lease has an initial term of 15 years,ending on December 31, 2012.  Killington has the right to renew the lease for three renewal terms of25 years each.

 

Killingtonalso leases from SP Land Company, LLC (“SP Land”) the right to use certainparking facilities and a golf course clubhouse at the Killington resort.  The parking facilities are leased for aperiod of 25 years, ending on March 31, 2029, although the lessor has theright to terminate the lease upon 12 months prior notice to Killington as toany portion of the property which the lessor then intends to develop.  The lessor delivered this notice in April,2005, and Killington is presently engaged in permitting efforts for replacementparking. There can be no assurance that the replacement parking will be inplace before it is needed.  However,Killington has created contingency plans to provide supplemental parking shouldreplacement parking be delayed. The golf course clubhouse and certain parkingancillary thereto are leased for a period of 25 years, also ending on March 31,2029.  This lease automatically renewsfor up to 10 successive 10-year periods unless Killington provides prior noticeof its intent to terminate the lease.

 

Sugarloaf/USA leases the Sugarloaf golf coursefrom the Town of Carrabassett Valley, Maine pursuant to a lease dated November 16,2000.  The lease term expires November 2023.  Sugarloaf/USA has an option to renew thelease for an additional 5-year term.

 

The Canyons leases approximately 2,100 acres,including most of the base area and a substantial portion of its skiableterrain, under a lease from Wolf Mountain Resorts, LC.  The initial term of this lease is 50 yearsexpiring July 2047, with an option to extend for three additional terms of50 years each.  The lease provides anoption to purchase those portions of the leased property that are intended forresidential or commercial development, subject to certain reconveyance rights.  Under the agreement, we pay a cost of 5.5% ofthe full capitalized cost of development in the case of certain administrativeand skier services space as defined by the agreement and 11% of the fullcapitalized cost of the development for any remaining parcels that we retain orintend to resell.  The Canyons alsoleases approximately 807 acres, which constitutes the area for a plannedmid-mountain village and a substantial portion of its skiable terrain, from theState of Utah School and Institutional Trust Land Administration.  Our lease ends in 2078 and provides an optionto purchase those portions of the mid-mountain village area that are intendedfor real estate development at a cost of 25% of their fair market value on anundeveloped basis.  The Canyons alsoholds an easement for ski terrain from the Osguthorpe family under a long-termeasement agreement with a term expiring on August 14, 2024.

 

Steamboat uses approximately 3,486 acres, asubstantial portion of which is skiable terrain, pursuant to a special usepermit issued by the United States Forest Service which expires on August 31,2029.  Under Steamboat’s existing masterplan, an additional 958 acres of contiguous National Forest lands can be addedto the permitted area.

 

Steamboatlicenses the use of a portion of its base area operations from SteamboatPartners II, LLC (“Steamboat Partners”) (an unrelated third party).  The license terminates automatically uponcommencement of physical development of the subject parcel by SteamboatPartners.  Steamboat also licensescertain overflow parking areas from Steamboat Partners for use during the skiseason under a perpetual license.  Underthe license, Steamboat

 

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Partners has the right to relocate the overflow parking to structuredparking facilities constructed by Steamboat Partners.

 

The United States Forest Service can terminate most ofour special use permits if it determines that termination is required in thepublic interest.  However, to ourknowledge, no recreational special use permit or term special use permit forany major ski resort then in operation has ever been terminated by the UnitedStates Forest Service over the opposition of the permit holder.

 

**Resort Revenues**

 

Our resort revenues are generated from a widevariety of sources and include lift ticket sales, food and beverage sales,retail sales including ski rentals and repairs, skier development, lodging andproperty management, golf and other summer activities, and miscellaneous othersources.  Lift ticket sales (includingseason pass sales) represent the single largest source of resort revenues andproduced approximately 45% of total resort segment revenue for fiscal2005.  See “Management’s Discussion andAnalysis of Financial Condition and Results of Operations”, included in Item 7of this report, for more information about the sources of our resort revenuesfor the last three fiscal years.

 

***Lift Ticket Sales****. *We managethe yield and features of our lift ticket programs and products in order toincrease and maximize ticket revenues and operating margins.  Lift ticket programs include packages offeredwith accommodations in order to maximize total revenue.  We offer a wide variety of incentive-basedlift ticket programs designed to maximize skier visits during non-peak periods,to attract specific market segments, and to leverage the competitive advantageof our extensive resort network.

 

***Season Passes. ***We have traditionallyattracted high frequency skiers to each of our resorts with season passes,which allow skiers unlimited access to lifts at each respective resort on anyday of the week throughout the ski season. We also offer ticket products to our customers that are valid at many,if not all, of our resorts.  Examples ofthese innovative programs are the Ski America Pass, which allows unlimitedskiing at any of our seven resorts, the Ultimate 7 College Pass, which allowsthe full-time college student to ski any of our seven resorts nationwide, theAll for One Pass, which can be used at any of our five eastern resorts and isoffered on a sliding scale pricing basis designed to attract skiers to ourportfolio of eastern resorts, and the mEticket, which is a flexiblenon-consecutive multi-day ticket valid at all seven resorts, with a slidingprice schedule offering discounts based on the number of days purchased aswell as a price discount for purchasing early. We believe that these and other product introductions enhanced ourfiscal 2005 season pass revenues, served to mitigate the in-season variabilityassociated with day ticket sales, acted as a hedge against early seasonmarginal snow fall, and improved our market share in the region.

 

***Food and Beverage****. *We own andoperate a substantial majority of the food and beverage facilities at ourresorts, with the exception of the Sugarloaf/USA resort, which is under along-term concession contract with an unrelated third party.  Our food and beverage strategy involvesproviding a wide variety of restaurants, bars, cafes, cafeterias, and otherfood and beverage outlets at our resorts. Over the past two years, we have made substantial improvements in thequality, consistency, and profitability of our food and beverageoperations.  We currently own and operateover 80 different food and beverage outlets.  We directly or indirectlycontrol the substantial majority of our on-mountain and base area food andbeverage facilities, which we believe allows us to capture a larger proportionof guest spending.

 

***Retail Sales****. *We ownapproximately 70 retail and ski rental shops operating at our resorts.  The large number of retail locations that weoperate allows us to improve margins through large quantity purchase agreementsand sponsorship relationships. On-mountain shops sell ski equipment and accessories such as skis,snowboards, boots, goggles, sunglasses, hats, gloves and larger soft goods suchas jackets and snowsuits.  In addition,all sales locations offer our own branded apparel which generally provideshigher profit margins than other retail products.  In the non-winter seasons, the shops sellmountain bikes, in-line skates, tennis equipment, and warm weather apparel.

 

***Lodging and Property Management****. *We currently ownand operate the commercial core of eight Grand Summit Hotels (two at SundayRiver and one each at Killington, Attitash, Mount Snow, Sugarloaf/USA, TheCanyons, and Steamboat), and one whole-ownership condominium/hotel at TheCanyons (the Sundial Lodge).  We also ownsmaller lodging properties, hotels, and inns at our various resorts and managethese properties along with

 

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other properties owned by third parties.  During the 2004-05 ski season, our lodgingdepartments managed approximately 3,100 lodging units at our resorts.  The lodging departments perform a fullcomplement of guest services, which include reservations, property management,housekeeping, and brokerage operations. The Steamboat Grand Resort Hotel and the Grand Summit Resort Hotel atThe Canyons have gained widespread recognition for delivering elite levels ofguest service and amenities, both of which were awarded the *Four Diamond* designation by the AutomobileAssociation of America (“AAA”).  Thisdistinction places them in a select group comprising less than 3% of theestimated 30,000 AAA-rated lodging establishments nationwide.

 

***Skier Development****.*Our Guaranteed Learn to Ski Program wasone of the first skier development programs to guarantee that a customer wouldlearn to ski in one day.  The success ofthis program led to the development of “Perfect Turn,” which we believe was thefirst combined skier development and marketing program in the skiindustry.  Perfect Turn ski professionalsreceive specialized instruction in coaching, communication, and skiing, and aretrained to sell related products, cross-sell other resort goods and services,and real estate.  At all of our resorts,we operate a variety of skier and snowboarder development programs for youngchildren, teenagers, and adults.

 

**Resort Operating Strategy**

 

Ouroperating strategies include:

 

***Multi-Resort Network****.**** ***Our networkof resorts provides both geographic diversity and significant operatingbenefits.  We believe our geographicdiversity reduces the risks associated with unfavorable weather conditions andinsulates us from economic slowdowns in any one particular region.  This geographic diversity, coupled with theunique terrain and distinctive feel of each resort, increases the accessibilityand visibility of our network of resorts to the overall North American skier populationand allows us to offer a wide range of mountain vacation alternatives.

 

We believe that owning multiple resorts alsoprovides us with the opportunity to:

 

•  Create one of the largest cross-marketingprograms in the industry,

•  Achieve efficiencies and economies ofscale when goods and services are purchased,

•  Strengthen our distribution network oftravel agents and tour operators by offering a range of mountain resortalternatives, consistent service quality, convenient travel booking, andincentive packages,

•  Establish performance benchmarks foroperations across all of our resorts,

•  Utilize specialized individuals andcross-resort teams at the corporate level as resources for our entire business,and

•  Develop and implement consumerinformation and technology systems for application across all of our resorts.

 

***Improve SnowmakingCapabilities. ***Our snowmaking capabilities and coverage atour Eastern resorts are already well-known within the industry. We plan toexpand our snowmaking capabilities with equipment featuring new low energytechnology.   This equipment issignificantly more efficient at higher temperature levels, thus providingbetter snow coverage within a wider range of temperatures typically experiencedin the early part of the ski season. Additionally, as snowmaking is the most significant component ofelectricity and fuel costs at our Eastern resorts, this equipment will enableus to effectively reduce these costs.

 

***Increase Revenues Per Skier****.**** ***We intend tocontinue to increase our revenues per skier by increasing our average revenuesper ticket, expanding our revenue sources at each resort, and enhancing theeffects of our on-mountain and in-market marketing efforts.  To meet our goals, we are: (1) continuingto offer multi-resort ticket products; (2) integrating more closely thesales staff with resort management teams; and (3) providing a morecomprehensive vacation planning experience through enhanced Internetstore-fronts.  We continue to expand andenhance our facilities, services, and product offerings in our retail, food andbeverage, equipment rental, skier development, and lodging and propertymanagement operations.  In addition, webelieve that our enhanced in-market programs and continued cross selling ofproducts and programs, such as our frequent skier and multi-resort programs, toresort guests will increase our resort revenues and profitability and furtherdiversify our revenue sources.

 

We offer ticket products to our customers that arevalid at many, if not all of our resorts. Examples of these innovative programs are the Ultimate 7 College Pass,which allows the full-time college student to ski at any of our

 

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seven ski resortsnation-wide; and the *mEticket*, whichis a flexible multi-day ticket valid at all seven of our resorts, with asliding price schedule offering discounts based on the number of dayspurchased as well as a price break for purchasing early.  The *mEticket*programis a nation-wide program targeted at retaining skiers who ski 6 to 12 days eachseason, which our research indicates represents the majority of the skipopulation.  Beginning with the 2004-05ski season, we created the “All for One” Pass which can be used at any of ourfive Eastern resorts.  This product isoffered on a sliding scale pricing basis designed to attract skiers to ourportfolio of Eastern resorts.  Theintroduction of this product last year enhanced our season pass revenues andalso served to mitigate the in-season variability associated with day ticketsales, and improve our market share in the region.  By giving guests an incentive to purchasetheir tickets for the year early in the ski season with the special valuesoffered by the Ultimate 7 College Pass, the *mEticket*program*,* and the “All for One” Pass, we believe that we canencourage guests to ski more often and do the majority of their skiing at ourresorts.

 

***Continue to Build Brand Awarenessand Customer Loyalty and to Improve our Guests Experience****.**** ***Ourmarketing programs build on and promote the strong brands and uniquecharacteristics of each of our resorts, optimize cross-selling opportunities,and enhance our customer loyalty.  Wehave established joint marketing programs with major corporations such asSprint, Mobil, Anheuser-Busch, American Express, Charles Schwab, QuakerOats/Gatorade, Pepsi/Mountain Dew, Red Bull, Rossignol, Nestle Waters/Poland Spring, Nature Valley, LL Bean andStarbucks.  We believe these jointmarketing programs give us a high-quality image and strong market presence, aswell as access to operational and marketing resources on both a regional andnational basis.  We believe that ourcustomer loyalty can be increased through guest service initiatives used tosupport brand differentiation and our continued industry leadership in the areasof snowmaking and snow grooming. Additionally, we have begun a companywide initiative to further promoteon-hill safety, including:

 

•      Increase the education of skiers andriders about the risks of unsafe skiing and riding,

•      Establish stricter policy enforcement forreckless skiing,

•      Provide on-mountain safety communicationsin resort brochures and other marketing collateral materials, and

•      Support public efforts where appropriatefor legislation of tougher reckless skiing/riding laws and regulations.

 

***Continued Focus on CostManagement***. We believe we have made significant progress in increasing thevariability of our cost structure during the last three operating seasons,which allows us to more effectively adjust operation levels to meet in-seasondemand fluctuations.  We are furtherrefining our seasonal staffing model to minimize our year-round coststructures.  We continue to work onimproving our ability to control and more quickly manage the ramp-up andramp-down of our resort operations during the customary beginning and ending ofour resort operating season based upon ski conditions and expected visitationlevels.  In addition, we have recentlyimplemented cost management plans related to property/casualty insurance andmountain operations.  Additionally, weare working to more effectively instill best workplace safety practices toensure our employees’ safety while on the job and to decrease our workers’compensation costs.  We havesophisticated computerized snowmaking control systems at our Eastern resorts,which allow us to optimize snowmaking production while controlling relatedenergy costs.

 

***Expand Golf and ConventionBusiness****.**** ***Sugarloaf/USA,Killington, Mount Snow, and Sunday River all operate championship resort golfcourses.  The Sugarloaf/USA course,designed by Robert Trent Jones, Jr., has been consistently rated as one ofthe top 100 public courses in the country according to *Golf Digest* and the #1 public course inNew England according to the *New EnglandGolf Journal*.  Mount Snow ownsand operates an 18-hole championship golf course and is the headquarters of our“Original Golf School”, which consists of three golf schools, two of which weoperate and the other that we franchise in the eastern United States.  We entered into an agreement with anunrelated third party for the construction, development, and operation of agolf course at Sunday River, designed by Robert Trent Jones, Jr.  The course was opened during the summer of2005.  Our golf program and otherrecreational activities draw off-season visitors to our resorts and support ourgrowing off-season convention business, as well as our real estate developmentoperations.  We also have opportunitiesto develop golf courses at The Canyons and Attitash.  We are aggressively continuing to expand ourin-season and off-season convention business by improving the quality, size,and compensation systems of our sales and marketing staff.

 

***Capitalize on Real Estate GrowthOpportunities****.*  We creatively enter into opportunities withdevelopers to utilize our existing real estate holdings to help expand the bedcount, service offerings, and infrastructure of our resorts, while makingminimal capital expenditures.  Forexample, we are engaged in specific discussions with

 

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private real estate developers to develop land holdings in exchange forfunding capital expenditure projects for new lifts and mountain access pointsat several of our resorts.  We alsodevelop and sell single-family lot projects at our resorts which satisfycustomer demand while allowing us to pre-sell lots with a minimum of riskcapital to us.  The proceeds from thesereal estate projects allow us to increase on-mountain capital spending andfurther reduce our outstanding indebtedness.

 

## **Real Estate Propertiesand Real Estate Development Activities**

 

We ownconsiderable developable real estate properties (both in acreage and value),which we offer for sale from time to time. We continue to market and sell our inventory of developed units at ourGrand Summit Hotels at Steamboat and Sugarloaf. We have sold all of our existing inventory of developed units at each ofour remaining Grand Summit Hotels.  Inaddition to our revenue producing properties, we own a significant amount ofnon-operating assets, the majority of which are comprised of land available fordevelopment or sale.  While we do notengage in real estate development as a core business focus, from time to timewe elect to sell such properties in order to generate cash for use in debtrepayment, to finance capital spending projects at the resort level and tofacilitate further development of bed base at our resorts.  We also develop certain real estate projectsourselves when they require a relatively small capital outlay in relation tothe projected return from sales. The continued development of commercial andresidential real estate at or adjacent to our resorts helps us to driveincreased revenues, skier visits, and summer guests to the mountain resorts.

 

Inaddition to developable real estate, we also operate and manage multipleon-mountain lodging properties at each of our resorts.  As a result of past real estate developmentactivities, we have retained ownership of the front desk, retail space,restaurants, and conference facilities, or “commercial core”, of hotelsdeveloped by our real estate subsidiaries.  Our resort companies currentlyown and operate the commercial cores of seven Grand Summit Hotels (two atSunday River and one each at Killington, Mount Snow, The Canyons, Attitash andSugarloaf/USA) and one whole-ownership condominium/hotel at The Canyons (theSundial Lodge).  Our resort company also operates and manages thecommercial core of the Steamboat Grand Summit hotel owned by our real estatecompany (see below).  In addition, we ownsmaller lodging properties, hotels, and inns at our various resorts and managethese properties along with other properties owned by third parties.

 

***Grand Summit Hotels****.** ***TheGrand Summit Hotel is an interval ownership product which is a signatureelement of our resorts.  Each hotel is acondominium complex consisting of fully furnished residential and commercialunits with a spacious atrium lobby, one or more restaurants, retail space, agrand ballroom, conference space, a health club with an outdoor heated pool(except Sugarloaf/USA), and other recreational amenities.  Residential units in the hotel are sold inquarter and eighth share interests.  Thebalance of the hotel, including restaurants, retail space, and conference facilities,is typically retained by us and managed by the host resort.  The initial sale of quarter and eighth shareunits generates revenue for the real estate segment, and our resort segmentgenerates a continuing revenue stream from operating the hotel’s retail,restaurant, and conference facilities and from renting interval interests whennot in use by their owners.

 

We continue to develop and market to third parties development sitesfor townhomes, single family projects, and whole ownership condominium hotels,most recently at our Killington, Mount Snow, Sunday River and Sugarloaf/USAresorts.

 

Local approvals for our real estate development plans are at variousstages of completion.  With the exceptionof The Canyons and Killington, local approvals are on a parcel by parcel basisand in most cases are subject to final approval by local and/or stateofficials.

 

•  *The Canyons: *Pursuantto our November 1999 approved master plan, density for the residentialunits and commercial development for our 15-year master plan has beenapproved.  As we seek to develop specificprojects within the master plan at The Canyons, we will need local approval forspecific site plans.  See “CertainConsiderations – Our business is subject to heavy environmental and land use regulation”in Part I for additional discussion regarding the status of our masterplan permits at The Canyons.

 

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•  *Killington: *Themaster plan for the Killington Resort Village was approved by local voters inthe town of Killington in November 1999 and local and state permits wereissued in July 2000.  Killingtonreceived partial and conceptual approval for the ten criteria which are part ofthe state of Vermont land use review and approval process.  Final approval of each of the criteria willbe rendered upon submittal of actual construction plans for specific projects.

 

**Alpine Resort Industry**

 

The alpine resortindustry has achieved strong performances in the past five seasons, includingthe four best seasons ever recorded all occurring during this timeframe.   During the 2004-05 ski season, approximately492 ski areas in the United States generated approximately 56.9 million skiervisits, down slightly by 0.3% from 2003-04 and down 1.2% from the record 57.6million total skier visits in 2002-03. As compared to their 10-year averages, all U.S. regions, except for thePacific West, performed above their averages during the 2004-05 ski season,including the Northeast (up 5.3%), Southeast (up 7.7%), Midwest (up 5.3%), andRockies (up 4.6%).  Skier visits in thenorthern areas of the Pacific West region were significantly off due toextremely unfavorable weather conditions throughout most of the season, whilethe southern areas of the region were well above their averages due to anabundance of snow.  In addition, sincethe 2000-01 ski season, season pass sales have increased approximately 32%.

 

The alpine resort industry is characterized bysignificant barriers to entry because the number of attractive sites is limited,the costs of resort development are high, and environmental regulations imposesignificant restrictions on new development. Since 1985, the ski resort industry has undergone a period ofconsolidation and attrition, resulting in a significant decline in the totalnumber of ski areas in North America. The number of ski resorts in the United States has declined fromapproximately 735 in 1983 to approximately 492 in 2005, although the number ofskier visits has remained relatively flat, other than the recent growthtrend.  Despite the recent consolidationtrend overall, ownership of the smaller regional ski resorts remains highlyfragmented.  We believe thattechnological advances and rising infrastructure costs are the primary reasonsfor the ski resort industry consolidation, and that further consolidation ispossible as smaller regional resorts are acquired by larger resort operatorswith more sophisticated management capabilities and increased availability ofcapital.

 

The following chart shows a comparison of theindustry-wide skier visits compared to our skier visits in the U.S. regionalski markets during the 2004-05 ski season:

 
| **Geographic Region** | ** ** | **2004-05  Total Skier  Visits* (in  millions)** | ** ** | **Percentage  of Total  Skier Visits** | ** ** | **Skier Visits  at Company  Resorts  (in millions)** | ** ** | **Company  Regional  Market  Share** | ** ** | **Company Resorts**                                                             | ** ** |
|-----------------------|------------|--------------------------------------------------|------------|----------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| **Northeast**         |       | 13.7                                             |       | 24.1                                   | %          | 2.6                                                  |       | 19.0                                 | %          | Killington/Pico, Mount Snow/Haystack(1), Sunday  River, Sugarloaf/USA, Attitash |       |
| **Southeast**         |       | 5.5                                              |       | 9.7                                    | %          | —                                               |       | —                               |       |                                                                            |       |
| **Midwest**           |       | 7.5                                              |       | 13.2                                   | %          | —                                               |       | —                               |       |                                                                            |       |
| **Rocky Mountain**    |       | 19.6                                             |       | 34.4                                   | %          | 1.4                                                  |       | 7.1                                  | %          | Steamboat, The Canyons                                                          |       |
| **Pacific West**      |       | 10.6                                             |       | 18.6                                   | %          | —                                               |       | —                               |       |                                                                            |       |
| **U.S. Overall**      |       | 56.9                                             |       | 100.0                                  | %          | 4.0                                                  |       | 7.0                                  | %          |                                                                            |       |

 

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(*)Source:  Kottke National End of SeasonSurvey 2004/05 Final Report.

(1)After the conclusion of the 2004-05 ski season, we sold the Haystack skiresort, which is included in Mount Snow ski resort statistics above.  See “Item 7” below.

 

United States ski resorts range from smalloperations, which cater primarily to day skiers from nearby population centers,to larger resorts that attract both day skiers and destination resortguests.  We believe that day skiers focusprimarily on the quality of the skiing and travel time, while destinationtravelers are attracted to the total ski and riding experience, including thenon-skiing amenities and activities available at the resort, as well as theperceived overall quality of the vacation experience.  Destination guests generate significantlyhigher resort operating revenue per skier day than day skiers because of theiradditional spending on lodging, food and beverages, and other retail items overa multiple-day period.

 

The ski industry has enjoyed solid growth overthe past quarter of a century, including a notable rebound in recent years fromthe overall participation trough experienced in 2000.  Baby boomers that drove the industry growthin the 1960’s and 1970’s are entering peak spending years, generatingsignificantly more travel volume than other

 

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demographic groups.  These baby boomers have above averagehousehold income and their numbers are expected to grow through 2012, accordingto the U.S. Department of Commerce.  Accordingto the National Ski Area Association, the number of skier visits represented bysnowboarders in the United States has increased steadily until the 2003-04 skiseason, when approximately 28.8% of total skier visits were fromsnowboarders.  In the 2004-05 ski season,the percentage remained essentially unchanged. Although the explosive growth insnowboarders has slowed, this market segment will continue to be important andwelcomed to all our resorts, as its lower-than-average age members are keyinfluencers in the choice of resorts and are critical to the future of our resorts.

 

We believe that we are well positioned tocapitalize on certain trends and developments affecting the alpine resortindustry in the United States.  Thesetrends and developments include:

 

•      Advances in ski equipment technology,such as the development of parabolic skis which make skiing easier to learn andenjoy,

•      The continued growth of snowboarding as asignificant and enduring segment of the industry which in turn increases youthparticipation in alpine sports,

•      A greater focus on leisure and fitness ingeneral,

•      Expanding demand for second home vacationreal estate,

•      The existence of approximately 66.7million members of the baby boom generation who are now approaching the 40 to59 year age group where discretionary income, personal wealth, and pursuit ofleisure activities are maximized, and

•      The emergence of the echo boom generation(children of baby boomers) as a significant economic force which is justbeginning to enter the prime entry age for skiing, snowboarding, and other “on-snow”sports.

 

There can be noassurance, however, that these trends and developments will have a favorableimpact on the ski industry.

 

**Competition**

 

The ski industry is highly competitive.  We compete with mountain resort areas in theUnited States, Canada, and Europe.  Wealso compete with other recreation resorts, including warm weather resorts, forvacationers.  In order to broadencustomer base, we market our resorts regionally, nationally, andinternationally.  Our prices are directlyimpacted by the number and variety of alternatives presented to skiers in thesemarkets and we look to provide competitive prices and ski packages comparablewith other leading resorts.

 

Our most significant competitors are resortsthat are well capitalized, well managed, and have significant capitalimprovement and resort real estate development programs.  While most North American ski areas areindividually owned and operated, recent years have seen the emergence ofseveral major corporations, including the Company, which own the leading skiareas. These other major corporations include the operators of WhistlerBlackcomb, Copper Mountain, Vail, Beaver Creek, Heavenly, Mammoth Mountain andStratton.

 

**Employees and Labor Relations**

 

We currently employ approximately 1,300full-time, year-round employees supporting our resort and real estateoperations, including corporate personnel. At peak season last year, we employed approximately 8,300employees.  Less than 1% of our employeesare unionized.  We believe that we enjoysatisfactory relations with our employees.

 

**Government Regulation**

 

Our resorts are subject to a wide variety offederal, state, regional, and local laws and regulations relating to land use,environmental/health and safety, water resources, air and water emissions, sewagedisposal, and the use, storage, discharge, emission, and disposal of hazardousmaterials and hazardous and non-hazardous wastes, and other environmentalmatters.  While we believe that ourresorts are currently in material compliance with all land use andenvironmental laws, any failure to comply with these laws could result in coststo satisfy environmental compliance, remediation requirements, or theimposition of severe penalties or restrictions on operations by governmentagencies or courts that could adversely affect our operations.

 

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We believe that we possess all the permits,licenses, and approvals from governmental authorities material to ouroperations as they currently exist.  Wehave not received any notice of material non-compliance with permits, licenses,or approvals necessary for the operation of any of our properties, with theexception of our Development Agreement at The Canyons, where we have received anotice of non-compliance from the applicable governmental regulators and areworking with them to resolve compliance issues. See “Certain Considerations - Our business is subject to heavyenvironmental and land use regulation” in Part I for additional discussionregarding the status of our master plan permits at The Canyons.

 

Resort and real estate capital programs requirepermits and approvals from certain federal, state, regional, and localauthorities.  Our operations are heavilydependent upon our continued ability, under applicable laws, regulations,policies, permits, licenses, or contractual arrangements, to have access toadequate supplies of water with which to make snow and service the other needsof our facilities, and otherwise to conduct our operations.  There can be no assurance that newapplications of existing laws, regulations, and policies, or changes in theselaws, regulations, and policies will not occur in a manner that would have amaterial adverse effect on our business, or that important permits, licenses,or agreements will not be canceled, not renewed, or renewed on less favorableterms.  Major expansions of any one ormore resorts could require the filing of an environmental impact statementunder environmental laws and applicable regulations if it is determined thatthe expansion has a significant impact upon the environment and could requirenumerous other federal, state, and local approvals.  Although we have consistently been successfulin implementing our capital expansion plans, no assurance can be given that necessarypermits and approvals will be obtained.

 

**Systems and Technology**

 

***Information Systems****.**** ***Ourinformation systems are designed to improve the ski experience by developingmore efficient guest service products and programs.  We continue to deploy solutions that improveguest service, create internal efficiency, and enable more direct relationshipsbetween us and our guests.  We areimplementing extensions to our central reservations software that will provideindustry-leading integration between our web and call center vacation bookingchannels.

 

***Snowmaking Systems and Technology****. *We believethat we operate one of the largest consolidated snowmaking operations in theski resort industry, with approximately 4,200 acres of snowmakingcoverage.  Our proprietary snowmakingsoftware program allows us to produce what we believe is some of the highestquality man-made snow in the industry. Substantially all of our snowmaking systems are operated throughcomputer-based control using industrial automation software and a variety ofstate of the art hardware and instrumentation. We use efficient ground based, tower based, and fully automated snowgunnozzle technology and have developed software for determining the optimal snowmakingnozzle setting at multiple locations on any particular mountain.  This system monitors the weather conditionsand system capacities and determines the proper operating water pressure foreach nozzle, reducing the need for physical observations to make adjustmentsand ensuring that ideal snow quality is provided.  In addition, we are actively involved intesting and implementing new technologies to further improve the quality andefficiency of our snowmaking operations.

 

**CERTAIN CONSIDERATIONS**

 

Inaddition to the other information contained in this Form 10-K, you shouldcarefully consider the following matters in evaluating our business.  This Form 10-K contains forward-lookingstatements and our actual results could differ materially from thoseanticipated by any forward-looking statements as a result of numerous factors,including those set forth in the following description of considerations andelsewhere in this Form 10-K.  See Part II,Item 7 – “Management’s Discussion and Analysis of Financial Condition andResults of Operations – Forward-Looking Statements”.

 

**Ourbusiness is substantially leveraged and we face a number of financial risks.**

 

We arehighly leveraged.  As of September 30,2005, we had $673.7 million of total indebtedness outstanding, including $251.1million of secured indebtedness and $319.4 million in redeemable preferredstock (liquidation value).

 

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Ourhigh level of debt affects our operations in several important ways.  First of all, we will have significant cashrequirements to service our debt, which will in turn reduce the funds availablefor our operations and capital expenditures. A decrease in the availability of funds will make us more vulnerable toadverse general economic and industry conditions.  Secondly, the financial covenants and otherrestrictions contained in our debt agreements require us to meet certainfinancial tests and restrict our ability to raise additional equity capital,borrow additional funds, make capital expenditures, or sell our assets.  Failure to manage cash resources or anextraordinary demand for cash outside of our normal course of business couldleave us with no cash availability.

 

Althoughwe believe we have sufficient liquidity to fund our operations through fiscal2006, our ability to make scheduled payments or refinance our debt andpreferred stock obligations will depend on our future financial and operatingperformance, which will be affected by prevailing economic conditions,financial, business, and other factors. Some of these factors are beyond our control.  There can be no assurance that our operatingresults, cash flows, and capital resources will be sufficient to pay ourindebtedness.  If our operating results,cash flows, or capital resources prove inadequate, we could face substantialliquidity challenges and might be required to dispose of material assets oroperations to meet our debt and other obligations.  We also could be forced to reduce or delayplanned expansions and capital expenditures, sell assets, restructure orrefinance our debt, or seek additional equity capital.  There can be no assurance that any of theseactions could be effected on terms satisfactory to our business, if at all.

 

Althoughwe believe that capital expenditures above maintenance levels can be deferredto address cash flow or other constraints, these activities cannot be deferredfor extended periods without adversely affecting our competitive position andfinancial performance.

 

Continuedimprovement in our financial performance depends, in part, on our ability tomaintain and improve the quality of our facilities, products, and managementresources, and to engage in successful real estate development (either directlyor through third parties).  To the extentthat we are unable to do so with cash generated from operating activities, orthrough borrowed funds or additional equity investments, the growth andfinancial health of our business could be impaired.

 

We also have significant future capital requirementswith respect to the retirement of debt and other securities.  For example, the $85.0 million First LienTerm Loan requires 23 quarterly principal payments of $212,500 and a finalpayment of $80.1 million in November 2010. The $105.0 million Second Lien Term Loan matures in November 2011with principal due on maturity. Additionally, the New Junior Subordinated Notes of $76.7 million are duein 2012 and the 11.302% Junior Subordinated Notes of $19.0 million are due May 2012,both accruing interest which is not due in cash until maturity. Furthermore,the First and Second Lien Term Loans and a $40.0 million Revolving Facility(collectively, the “Resort Senior Credit Facility”) require quarterly interestpayments.  Our preferred stock must beredeemed in accordance with its terms. This includes our 12% Series C-1 convertible participatingpreferred stock (the Series C-1 Preferred Stock) which is mandatorilyredeemable in July 2007, and our 15% Series C-2 preferred stock (the Series C-2Preferred Stock) which is mandatorily redeemable in July 2007.  There can be no assurance that we will beable to retire, redeem, or refinance our indebtedness and preferred stock inthe foreseeable future.  Failure to do socould have a material adverse effect on our business.  See Part II, Item 7 – “Management’sDiscussion and Analysis of Financial Condition and Results of Operations –Liquidity and Capital Resources” for a description of these payments.

 

**Ourbusiness is highly seasonal and unfavorable weather conditions can adverselyaffect our business.**

 

Skiresort operations are highly seasonal. For fiscal 2005, we realized approximately 89% of resort segmentrevenues and over 100% of resort segment operating income during the periodfrom mid-November through April.  Inaddition, a significant portion of resort segment revenues and approximately20% of annual skier visits were generated during the Christmas and Presidents’Day vacation weeks in fiscal 2005.  Also,our resorts typically experience operating losses and negative cash flows forthe period from May to mid-November. During the seven-month period from May through November 2004,for example, we had operating losses from resort segment operations aggregating$102.0 million and negative cash flows from resort segment operating activitiesaggregating $31.6 million.  These lossesfrom resort segment operations included write off of financing costs and costsrelated to the extinguishment of the senior subordinated notes of $6.0 millionand non-cash interest and dividendson mandatorily redeemable preferred stock of $30.6 million included in interestexpense.  There can be no assurance thatwe will be able to finance our capital requirements from external sourcesduring the period from May through

 

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November.

 

A highdegree of seasonality in our revenues increases the impact of certain events onour operating results.  Adverse weatherconditions, access route closures, equipment failures, and other developmentsof even moderate or limited duration occurring during our peak business periodscould reduce our revenues.  Adverseweather conditions can also increase power and other operating costs associatedwith snowmaking or can render snowmaking wholly or partially ineffective inmaintaining quality skiing conditions. Furthermore, unfavorable weather conditions, regardless of actual skiingconditions, can result in decreased skier visits and the early ski season snowconditions and skier perception of early ski season snow conditions influencethe momentum and success of the overall ski season.  There is no way for us to predict futureweather patterns or the impact that weather patterns may have on the results ofoperations or visitation.

 

**Weoperate in a highly competitive industry which makes maintaining our customerbase difficult.**

 

Theskiing industry is highly competitive and capital intensive.  Our competitors include major ski resortsthroughout the United States, Canada, and Europe as well as other worldwiderecreation resorts, including warm weather resorts and various alternativeleisure activities.  Our competitiveposition depends on a number of factors, such as our proximity to populationcenters, the availability (including direct flights by major airlines) and costof transportation to and within a resort, natural snowfall, the quality andcoverage of snowmaking operations, resort size, the attractiveness of terrain,lift ticket prices, prevailing weather conditions, the appeal of relatedservices, the quality and the availability of lodging facilities, and resortreputation.  In addition, some of ourcompetitors have stronger competitive positions and relative ability towithstand adverse developments.  Ourcompetitors may be successful in capturing a portion of our present orpotential customer base.

 

**Changesin regional and national economic conditions could adversely affect our resultsof operations.**

 

Theskiing and real estate development industries are cyclical in nature and areparticularly vulnerable to shifts in regional and national economicconditions.  Skiing and vacation unitownership are discretionary recreational activities entailing relatively highcosts of participation, and any decline in the regional or national economieswhere we operate could adversely impact our skier visits, real estate sales,and revenues.  Accordingly, our financialcondition, particularly in light of our highly leveraged condition, could beadversely affected by any weakening in the regional or national economy.

 

**Ourbusiness is subject to heavy environmental and land use regulation.**

 

We aresubject to a wide variety of federal, state, and local laws and regulationsrelating to land use and development and to environmental compliance andpermitting obligations, including those related to the use, storage, discharge,emission, and disposal of hazardous materials. Any failure to comply with these laws could result in capital oroperating expenditures or the imposition of severe penalties or restrictions onour operations that could adversely affect our present and future resortoperations and real estate development. In addition, these laws and regulations could change in a manner thatmaterially and adversely affects our ability to conduct our business or toimplement desired expansions and improvements to our facilities.

 

Ourdevelopment activities at The Canyons in Utah are governed by permits issuedpursuant to a Development Agreement with local authorities.  The Development Agreement requires us toachieve certain performance benchmarks in order to remain in compliance withthe Development Agreement and obtain additional permits.  In particular, the Development Agreementrequires that we ensured completion of a golf course at The Canyons by November 2002.  This golf course has not yet been completed,and the local authorities have advised us that this failure potentiallyconstitutes a default under the Development Agreement.  We are working with the local authorities toaddress this failure and reassess the appropriate timing for compliance withthis performance benchmark. Our failure to satisfy local regulatory authoritieswith respect to these matters may result in our inability to obtain additionalpermits under the Development Agreement and could significantly adverselyimpact our ability to meet our business and revenue expansion goals at TheCanyons.  Defaults under the DevelopmentAgreement could also subject us to risk of litigation with third parties whosedevelopment plans are adversely impacted by the delay or loss of permits underthe Development Agreement by virtue of our failure to meet performancebenchmarks.

 

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**Adisruption in our water supply would impact our snowmaking capabilities andimpact our operations.**

 

Ouroperations are heavily dependent upon our ability, under applicable federal,state, and local laws, regulations, permits, and licenses, or contractualarrangements, to have access to adequate supplies of water with which to makesnow and otherwise conduct our operations. There can be no assurance that applicable laws and regulations will notchange in a manner that could have an adverse effect on our operations, or thatimportant permits, licenses, or agreements will not be canceled or will berenewed on terms as favorable as the current terms.  Any failure to have access to adequate watersupplies to support our current operations and anticipated expansion would havea material adverse effect on our financial condition and results of operations.

 

**Ourrevenues from real estate development are vulnerable to particular risks.**

 

Ourability to generate revenues from real estate development activities could beadversely affected by a number of factors, such as our ability to successfullymarket our resorts, the national and regional economic climate, local realestate conditions (such as an oversupply of space or a reduction in demand forreal estate), costs of environmental compliance and remediation associated withnew development, renovations and ongoing operations, the attractiveness of the propertiesto prospective purchasers and tenants, competition from other availableproperty or space, our ability to obtain all necessary zoning, land use,building, occupancy, and other required governmental permits andauthorizations, and changes in real estate, zoning, land use, environmental, ortax laws.  Many of these factors arebeyond our control.

 

Inaddition, a portion of our real estate development business is conducted withinthe interval ownership industry.  As aresult, any changes affecting the interval ownership industry, such as anoversupply of interval ownership units, a reduction in demand for intervalownership units, changes in travel and vacation patterns, changes ingovernmental regulations relating to the interval ownership industry, increasesin construction costs, or taxes and tightening of financing availability, couldhave a material adverse effect on our real estate development business.

 

**The lossof any of our executive officers or key personnel would harm our business.**

 

Oursuccess depends to a significant extent upon the performance and continuedservice of various key management and operational personnel.  The loss of the services of these keypersonnel could have a material adverse effect on our business and operations.

 

**Our businessrequires significant capital expenditures. These expenditures do not, however, guarantee improved results.**

 

Althoughwe believe that capital expenditures above maintenance levels can be deferredto address cash flow or other constraints, these expenditures cannot bedeferred for extended periods without adversely affecting our competitiveposition and financial performance.  Ourfinancial performance depends, in part, on our ability to maintain and improvethe quality of our facilities, products, and management resources and to engagein successful real estate development (either directly or through thirdparties).  In addition, the Resort SeniorCredit Facility limits the amount of non-real estate capital expenditures wecan make.  To the extent that we areprohibited from making capital expenditures or are unable to obtain the fundsto do so with cash generated from operating activities, or from borrowed fundsor additional equity investments, our financial condition and results ofoperations could be affected.

 

Historically,a key element of our strategy has been attracting additional skiers throughinvestment in on-mountain capital improvements. These improvements are capital intensive and a lack of available fundsfor capital expenditures could have a material adverse effect on our ability toimplement our operating strategy.  Weconduct, and intend to continue to conduct, real estate development and tofinance such activities through non-recourse debt.  We intend to finance resort capital improvementsthrough internally generated funds and proceeds from the offering of debt andequity.  There can be no assurance thatsufficient funds will be available to fund these capital improvements or realestate development or that these capital improvements will attract additionalskiers or generate additional revenues.

 

**Ourcompany is controlled by a small number of principal stockholders.**

 

As a result of a stockholders’ agreement and the terms of the preferredstock held by Oak Hill Capital

 

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Partners, L.P. and certain related entities (OakHill), and Leslie B. Otten (Mr. Otten), the holder of all of the14,760,530 shares of Class A common stock, Oak Hill controls a majority ofour board of directors.  Oak Hill mayhave interests different from the interests of the holders of our common stock.

 

**We arestructured as a holding company and have no assets other than the common stockof our subsidiaries.**

 

We area holding company and our ability to pay principal and interest on debt will bedependent upon the receipt of dividends and other distributions, or the paymentof principal and interest on intercompany borrowings, from oursubsidiaries.  We do not have, and we donot expect in the future to have, any material assets other than the commonstock of our direct and indirect subsidiaries. The Resort Senior Credit Facility and other agreements governing thedebt obligations of our subsidiaries contain contractual restrictions on theability of our subsidiaries to make dividend payments or other distributions tous.  In addition, state law furtherrestricts the payment of dividends or other distributions to us by oursubsidiaries.  The breach of any of theprovisions of the indebtedness of our subsidiaries could result in a default,which in turn could accelerate the maturity of our subsidiaries’indebtedness.  If the maturity of anysuch indebtedness of our subsidiaries were accelerated, the indebtedness wouldbe required to be paid in full before that subsidiary would be permitted todistribute any assets to us.  There canbe no assurance that our assets or those of our subsidiaries would besufficient to repay all of our outstanding debt.

 

**Asignificant portion of our ski resorts are operated under leases or forestservice permits.**

 

Welease a significant portion of the land underlying our ski resorts or use thempursuant to renewable permits or licenses. If any of these arrangements were terminated or not renewed onexpiration, or renewed on terms materially less favorable to us, our ability topossess and use the land would be impaired. A substantial portion of the skiable terrain at our Attitash, MountSnow, and Steamboat ski resorts is federal land that is used under the terms ofpermits with the United States Forest Service. The permits give the United States Forest Service the right to reviewand comment on the location, design, and construction of improvements in thepermit area and on certain other operational matters.  The permits can also be terminated ormodified by the United States Forest Service to serve the public interest or inthe event we fail to perform any of our obligations under the permits.  Otherwise, the Company has the right to renewthese leases.  A termination ormodification of any of our permits could have a material adverse affect on ourresults of operations.

 

On September 29,2005, we received a notice from Wolf Mountain Resorts, LC, one of our landlordsat The Canyons, stating that we had failed to perform two of our obligationsunder the Ground Lease with Wolf Mountain; specifically an obligation totransfer title to an as-of-yet unplatted subdivision to the Landlord and anobligation to provide a leasehold mortgage on our interest in a separate leaseat The Canyons to secure certain obligations under the Wolf Mountainlease.  The Company is aware of and is diligently pursuing completion ofeach of these obligations within the 60 day pre-default cure period.  The land under the Ground Lease with WolfMountain constitutes a significant portion of our ski terrain and developmentalland at The Canyons.  Although managementis confident that the obligations raised in the notice from Wolf Mountain willbe fully satisfied within the 60 day cure period, there can be no assurancethat each of these items will be cured in such timeframe and any disruption inour rights under the Wolf Mountain lease would have significant adverse effectson our financial results for so long as such disruption continued.

 

**Item 3**

**Legal Proceedings**

 

On April 22, 2003, we were sued in Utah statecourt by Westgate Resorts, Ltd. (“Westgate”) for breach of contract and otherrelated claims arising from disputes involving two contracts between us andWestgate.  Generally, Westgate hasalleged that the Company has breached obligations to Westgate to constructcertain infrastructure at The Canyons resort and provide marketing support forWestgate’s project.  Westgate’s claimseeks specific performance of certain aspects of the two contracts.  It isnot currently feasible to quantify the damages being sought in thisaction.  On May 13, 2003, weanswered Westgate’s complaint and filed a counterclaim alleging, among otherthings, that Westgate was in default on a joint promotional agreement with theCompany for failing to purchase approximately $2.0 million (now over $4.0million) in lift tickets and that Westgate’s buildings at The Canyons

 

15

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encroach upon landowned or controlled by the Company. Limited discovery has been taken in this matter and no timetable hasbeen set for bringing the matter to trial.

 

In July 2003, the homeowners association ofthe Mount Snow Grand Summit Hotel filed a claim against Grand Summit fordamages of $2.0 million for improper roof/insulation construction at thathotel.  Grand Summit has filed an answerand a crossclaim against the architect and general contractor for theproject.  Discovery in this matter is ata very preliminary stage and no timetable has been set for bringing the matterto trial.

 

Each of our subsidiaries which operates resortshas claims pending and is regularly subject to personal injury claims relatedprincipally to skiing activities at the resort. Each of our operating companies maintains liability insurance that weconsider adequate in order to insure against claims related to the usual andcustomary risks associated with the operation of a ski resort.  We operate a captive insurance companyauthorized under the laws of the state of Vermont, which, until early fiscal1999, provided liability and workers’ compensation coverage for our Vermontresorts.  We do not currently use thisinsurance subsidiary to provide liability and workers’ compensation insurancecoverage, but it is still responsible for future claims arising from insurableevents which may have occurred while it provided this coverage.  Our insurance subsidiary maintains cashreserves in amounts recommended by an independent actuarial firm and which webelieve to be adequate to cover any such claims.

 

**Item 4**

**Submission of Matters to a Voteof Security Holders**

 

Notapplicable.

 

**PART II**

 

**Item 5**

**Market for the Registrant’sCommon Equity and Related Stockholder Matters**.

 

Our common stock is currently traded on the OverThe Counter Bulletin Board under the symbol “AESK”.  Our Class A common stock is not listed onany exchange and is not publicly traded, but is convertible into our commonstock.  As of October 1, 2005,31,738,183 shares of our common stock were issued and outstanding, of which14,760,530 shares were Class A common stock held by one holder and16,977,653 shares were common stock held by approximately 9,000 holders.

 

The following table lists, for the fiscalquarters indicated, the range of high and low closing prices of our commonstock as reported on the Over the Counter Bulletin Board, as applicable.

 

**American Skiing Company Common Stock (AESK)**

 

| ** **  | ** ** | **Fiscal 2004** | ** ** | **Fiscal 2005** | ** ** |
|-------------|------------|-----------------|------------|-----------------|------------|
| ** **  | ** ** | **High**        | ** ** | **Low**         | ** ** | **High** | ** ** | **Low** | ** ** |
|        |       |            |       |            |       |   |   |   |   |   |   |   |   |
| 1st Quarter |       | $               | 0.22       |            | $          | 0.09 |   | $ | 0.25 |   | $ | 0.12 |   |
| 2nd Quarter |       | 0.20            |       | 0.10            |       | 0.70 |   | 0.23 |   |
| 3rd Quarter |       | 0.16            |       | 0.10            |       | 0.48 |   | 0.25 |   |
| 4th Quarter |       | 0.15            |       | 0.10            |       | 0.33 |   | 0.27 |   |

 

**Market Information**

 

We have not declared or paid any cash dividendson our capital stock.  We intend toretain earnings, to the extent that there are any, to reduce our debt and tosupport our capital improvement and growth strategies.  We do not anticipate paying cash dividends onour common stock in the foreseeable future. The payment of future dividends, if any, will be at the discretion ofour board of directors after they take into account various factors, such asour financial condition, operating results, current and anticipated cash needsand plans for capital improvements and expansion.  Each of the indentures governing our New JuniorSubordinated Notes, our Resort Senior Credit Facility, and the terms of our Series C-1Preferred Stock and Series C-2 Preferred Stock contain certain restrictivecovenants that, among other things, limit the payment of dividends or themaking of distributions on our equity

 

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interests.  See Part II, Item 7 - “Management’sDiscussion and Analysis of Financial Condition and Results of Operations –Liquidity and Capital Resources”.

 

**Item 6**

**Selected Financial Data**

 

The following selected historical financial datahas been derived from our consolidated financial statements as audited by KPMGLLP.  This data, excluding consolidatedstatements of cash flows data, has been restated to reflect Heavenly as discontinuedoperations and also includes certain reclassifications to be consistent withthe current year presentation.

 
| ** **                                                                                                                                           | ** ** | **Historical Year Ended (1)(2)**                                  | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                                                           | ** ** | **July 29, 2001**                                            | ** ** | **July 28, 2002** | ** ** | **July 27, 2003** | ** ** | **July 25, 2004** | ** ** | **July 31, 2005** | ** ** |
| ** **                                                                                                                                           | ** ** | **(in thousands, except per share  and per skier visit amounts)** | ** ** |
| **Consolidated Statements of  Operations Data:**                                                                                                     |       |                                                              |       |   |   |   |   |   |   |   |   |
| Net  revenues:                                                                                                                                       |       |                                                              |       |   |   |   |   |   |   |   |   |
| Resort (3)                                                                                                                                           |       | $                                                                 | 275,686    |   | $ | 243,842 |   | $ | 251,638 |   | $ | 250,706 |   | $ | 267,314 |   |
| Real estate                                                                                                                                          |       | 96,864                                                            |       | 28,274 |   | 12,898 |   | 33,405 |   | 9,163 |   |
| Total net revenues                                                                                                                                   |       | 372,550                                                           |       | 272,116 |   | 264,536 |   | 284,111 |   | 276,477 |   |
|                                                                                                                                                 |       |                                                              |       |   |   |   |   |   |   |   |   |
| Operating expenses:                                                                                                                                  |       |                                                              |       |   |   |   |   |   |   |   |   |
| Resort                                                                                                                                               |       | 187,715                                                           |       | 166,968 |   | 168,010 |   | 167,518 |   | 173,855 |   |
| Real estate                                                                                                                                          |       | 93,422                                                            |       | 30,091 |   | 12,166 |   | 24,661 |   | 7,185 |   |
| Marketing, general and administrative                                                                                                                |       | 49,011                                                            |       | 46,699 |   | 49,645 |   | 54,801 |   | 50,439 |   |
| Merger, restructuring and asset impairment charges (4)                                                                                               |       | 76,015                                                            |       | 111,608 |   | 1,451 |   | 137 |   | — |   |
| Depreciation and amortization                                                                                                                        |       | 34,941                                                            |       | 26,238 |   | 27,513 |   | 26,477 |   | 31,798 |   |
| Write-off of deferred financing costs                                                                                                                |       | —                                                            |       | 3,338 |   | 2,761 |   | — |   | 5,983 |   |
| Total operating expenses                                                                                                                             |       | 441,104                                                           |       | 384,942 |   | 261,546 |   | 273,594 |   | 269,260 |   |
|                                                                                                                                                 |       |                                                              |       |   |   |   |   |   |   |   |   |
| Operating income (loss)                                                                                                                              |       | (68,554                                                           | )          | (112,826 | ) | 2,990 |   | 10,517 |   | 7,217 |   |
| Other income (expense):                                                                                                                              |       |                                                              |       |   |   |   |   |   |   |   |   |
| Interest expense, net                                                                                                                                |       | (56,472                                                           | )          | (54,752 | ) | (47,364 | ) | (87,603 | ) | (81,668 | ) |
| Gain on sale of Haystack resort                                                                                                                      |       | —                                                            |       | — |   | — |   | — |   | 822 |   |
| Increase in fair value of interest rate swap agreement                                                                                               |       | —                                                            |       | — |   | — |   | — |   | 314 |   |
| Gain on extinguishment of debt                                                                                                                       |       | —                                                            |       | — |   | — |   | 23,091 |   | — |   |
| Gain on transfer of assets associated with extinguishment of debt                                                                                    |       | —                                                            |       | — |   | — |   | 25,493 |   | — |   |
|                                                                                                                                                 |       |                                                              |       |   |   |   |   |   |   |   |   |
| Loss from continuing operations before accretion of discount, preferred  stock dividends, and cumulative effects of changes in accounting principles |       | (125,026                                                          | )          | (167,578 | ) | (44,374 | ) | (28,502 | ) | (73,315 | ) |
| Accretion of discount and dividends on mandatorily redeemable preferred  stock                                                                       |       | (23,357                                                           | )          | (32,791 | ) | (37,644 | ) | — |   | — |   |
| Loss from continuing operations attributable to  common shareholders before cumulative effects of  changes in accounting principles             |       | $                                                                 | (148,383   | ) | $ | (200,369 | ) | $ | (82,018 | ) | $ | (28,502 | ) | $ | (73,315 | ) |
| Net loss attributable to  common shareholders                                                                                                        |       | $                                                                 | (141,572   | ) | $ | (206,710 | ) | $ | (82,018 | ) | $ | (28,502 | ) | $ | (73,315 | ) |
| Basic and diluted net loss from continuing operations per share  attributable to common shareholders                                                 |       | $                                                                 | (4.86      | ) | $ | (6.34 | ) | $ | (2.59 | ) | $ | (0.90 | ) | $ | (2.31 | ) |
| Basic and diluted net loss per share attributable to common  stockholders                                                                            |       | $                                                                 | (4.64      | ) | $ | (6.54 | ) | $ | (2.59 | ) | $ | (0.90 | ) | $ | (2.31 | ) |
|                                                                                                                                                 |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Consolidated Balance Sheets  Data:**                                                                                                               |       |                                                              |       |   |   |   |   |   |   |   |   |
| Total assets                                                                                                                                         |       | $                                                                 | 807,038    |   | $ | 521,993 |   | $ | 475,305 |   | $ | 430,800 |   | $ | 422,934 |   |
| Long-term debt and redeemable preferred stock, including current  maturities                                                                         |       | 638,620                                                           |       | 582,096 |   | 638,928 |   | 603,563 |   | 653,682 |   |
| Common shareholders’ equity  (deficit)                                                                                                          |       | 44,826                                                            |       | (155,305 | ) | (237,295 | ) | (240,962 | ) | (314,277 | ) |
|                                                                                                                                                 |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Consolidated Statements of Cash Flows Data:**                                                                                                      |       |                                                              |       |   |   |   |   |   |   |   |   |
| Cash flows provided by (used in) operating activities                                                                                                |       | $                                                                 | 44,576     |   | $ | (1,092 | ) | $ | (7,999 | ) | $ | 22,160 |   | $ | 34,558 |   |
| Cash flows provided by (used in) investing activities                                                                                                |       | (23,390                                                           | )          | 94,683 |   | (4,658 | ) | (7,359 | ) | (11,940 | ) |
| Cash flows provided by (used in) financing activities                                                                                                |       | (19,679                                                           | )          | (98,259 | ) | 12,329 |   | (17,130 | ) | (20,669 | ) |
|                                                                                                                                                 |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Other Data:**                                                                                                                                      |       |                                                              |       |   |   |   |   |   |   |   |   |
| Skier visits (000’s)(5)                                                                                                                         |       | 4,430                                                             |       | 3,756 |   | 3,977 |   | 3,887 |   | 3,987 |   |
| Resort revenues per skier  visit                                                                                                                     |       | $                                                                 | 62.23      |   | $ | 64.92 |   | $ | 63.27 |   | $ | 64.50 |   | $ | 67.05 |   |

 

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(1)   The historical data above does notreflect the financial position and results of operations for our Heavenlyresort (Heavenly).  The financial datafor Heavenly is reflected as discontinued operations because Heavenly was soldduring fiscal 2002.

 

(2)   The historical data above includes thefinancial position and results of operations for the Haystack resort, which waspart of the Mount Snow resort.  TheHaystack resort was sold in June 2005. The financial data for the Haystack resort is not reflected asdiscontinued operations as it does not meet the requirements in SFAS No. 144.

 

(3)   Resort revenues represent all revenues,excluding revenues generated by the sale of real estate interests.

 

(4)   During fiscal 2001, we recognized thefollowing merger, restructuring, and asset impairment charges: a $52.0 millionasset impairment charge related to the assets at our Steamboat resort that werepreviously classified as assets held for sale as of July 29, 2001; a $15.1million asset impairment charge related to the assets at our Sugarbush resort thatare classified as assets held for sale as of July 29, 2001; a $3.6 millioncharge related to our terminated merger with MeriStar Hotels and Resorts, Inc;$4.0 million in employee separation, legal, and financial consulting chargesrelated to our strategic restructuring plan; and a $1.3 million impairmentcharge to net realizable value in the fourth quarter of fiscal 2001 to reducethe remaining units at the Attitash Grand Summit Hotel to their net realizablevalue.  During fiscal 2002, we recognizedthe following merger, restructuring, and asset impairment charges: a $25.4million asset impairment charge related to the assets at our Steamboat resortthat were previously classified as held for sale as of July 29, 2001; a$38.7 million charge related to the remaining quartershare units at theSteamboat Grand Hotel and The Canyons Grand Summit Hotel; a $18.9 millioncharge related to land and land options at The Canyons; a $24.8 million chargerelated to master planning and real estate costs at The Canyons, Killington,Mount Snow, Sugarloaf/USA, Sunday River, and Steamboat; a $1.4 million chargerelated to a land option at Sunday River and certain resort fixed assets; $2.7million in legal and financial consulting charges related to our strategicrestructuring plan; offset by a $0.3 million gain to finalize the sale ofSugarbush.  During fiscal 2003, werecognized the following merger, restructuring and asset impairment charges: a$1.2 million charge related to certain resort fixed assets and other assets;and $0.4 million in restructuring charges; offset by a $0.2 million reversal ofa previous impairment charge determined not to be needed.  During fiscal 2004, we recognized thefollowing in merger, restructuring, and asset impairment charges: a  $0.1 million restructuring charge.  During fiscal 2005, we recognized no merger,restructuring, and asset impairment charges.

 

(5)   For purposes of estimating skier visits,we assume that a season pass holder visits our resorts a number of times thatapproximates the average cost of a season pass divided by the average dailylift ticket price.

 

**Item 7**

**Management’s Discussion andAnalysis of Financial**

**Condition and Results ofOperations**

 

**Forward-LookingStatements**

 

Certainstatements under the heading Part I, Item 1 and Item 2 – “Business andProperties”, this heading Part II, Item 7 – “Management’s Discussion andAnalysis of Financial Condition and Results of Operations,” and elsewhere inthis Annual Report on Form 10-K constitute forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933, asamended (the Securities Act), and Section 21E of the Securities ExchangeAct of 1934, as amended (the Exchange Act). These forward-looking statements are not based on historical facts, butrather reflect our current expectations concerning future results andevents.  Similarly, statements thatdescribe our objectives, plans or goals are or may be forward-lookingstatements.  We have tried, whereverpossible, to identify such statements by using words such as “anticipate”, “assume”,“believe”, “expect”, “intend”, “plan”, and words and terms of similar substancein connection with any discussion of operating or financial performance.  Such forward-looking statements involve anumber of risks and uncertainties.  Inaddition to factors discussed above, other factors that could cause actualresults, performances, or achievements to differ materially from thoseprojected include, but are not limited to, the following: changes in regionaland national business and economic conditions affecting both our resortoperating and real estate segments; competition and pricing pressures; negativeimpact on demand for our products resulting from terrorism and availability ofair travel (including the effect of airline bankruptcies); failure to maintainimprovements to resort operating performance at the covenant levels required byour Resort Senior Credit Facility; failure to meet amortization requirements ofthe Construction Loan Facility; adverse weather conditions regionally andnationally; changes in weather patterns resulting from global warming; seasonalbusiness activity; significant changes in energy prices; changes to federal,state, and local regulations affecting both our resort operating and realestate segments; failure to renew land leases and forest service permits;failure to cure pending defaults under our ground lease at The Canyons resortand any resulting disruption in access to ski terrain at such resort;disruptions in water supply that would impact snowmaking operations; the lossof any of our executive officers or key operating personnel; and other factorslisted from time to time in our documents we have filed with the Securities andExchange Commission.  We caution thereader that this list is not exhaustive. We operate in a changing business environment and new risks arise fromtime to time.  The forward-lookingstatements included in this document are made only as of the date of thisdocument and under Section 27A of the Securities Act and Section 21Eof the Exchange Act, we do not have or undertake any obligation to publiclyupdate any forward-looking statements to reflect subsequent events orcircumstances*.*

 

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## **General**

 

We are organized as a holding company and operatethrough various subsidiaries.  We are oneof the largest operators of alpine ski and snowboard resorts in the UnitedStates.  We have a network of sevenmountain resorts, geographically diversified across the Rocky Mountain andNortheast regions of the United States. We develop, own, and operate a range ofhospitality-related businesses, including skier development programs, hotels,golf courses, restaurants, and retail locations.  We also develop, market, and operateski-in/ski-out alpine villages, townhomes, condominiums, and quarter and eighthshare ownership hotels.  We report ourresults of operations in two business segments, resort operations and real estateoperations.

 

TheCompany’s fiscal year is a 52-week or 53-week period ending on the last Sundayof July. The periods ended July 27, 2003 and July 25, 2004 (fiscal 2003 andfiscal 2004, respectively) each consisted of 52 weeks while the period endedJuly 31, 2005 (fiscal 2005) consisted of 53 weeks.  As compared to the prior year, this extraweek of operations occurred during the summer of fiscal 2005 and resulted inthe Company incurring $0.7 million in additional net expenses.

 

Our resort operating strategies include takingadvantage of our multi-resort network, improving snowmaking capabilities at ourEastern resorts, increasing our revenue per skier, continuing to build brandawareness and customer loyalty, continuing to focus on cost management,expanding our golf and convention business, and capitalizing on real estategrowth opportunities through joint ventures. Our fiscal 2005 results of operations were favorable as compared to theprior year due to significantly improved snow conditions at our Westernresorts, a company-wide increase in our season pass revenues primarily as theresult of the successful introduction of the All For One Pass at our Easternresorts, revisions to our lift ticket pricing structure and comprehensive yieldmanagement at our resorts, reductions in our fixed cost structure, effectiveimplementation of certain operational initiatives within our Food and Beveragebusiness along with our Retail, Rental, and Repair business, and day-to-daymanagement of peak season operating costs.

 

## **One of our financial objectives for fiscal 2005 was to restructure our resort debt facilitiesand preferred stock obligations to more closely align them with our long-termstrategic objectives.  During fiscal2005, we entered into an agreement for a new $230 million Resort Senior CreditFacility, the proceeds of which were used to repay our prior resort seniorcredit facility and redeem our Senior Subordinated Notes.  We also issued junior subordinated notesmaturing in 2012 in the amount of $76.7 million in exchange for our Series APreferred Stock.  For further informationabout our existing indebtedness, including the new debt arrangements we enteredinto during fiscal 2005, see “Liquidity and Capital Resources – ResortLiquidity” below.**

## ** **

## **During fiscal 2004 andfiscal 2005, we successfully amended our real estate construction loanfacilities.  In addition, during fiscal2004 an auction was held at The Canyons to sell substantially all of theremaining units at The Canyons Grand Summit Hotel, which resulted in a $10.8million paydown of our real estate construction loan facilities.  We also successfully restructured our realestate term facility (“Real Estate Term Facility”).**

 

DuringJune 2005, we completed the sale of certain of the assets of Mount Snowcomprising the Haystack ski resort to Tyringham Ridge, Inc. (Buyer).  The purchase price was $5.0 million, subjectto certain customary adjustments.  Theagreement includes a two year right of first refusal in favor of the Buyer forcertain developmental land owned by Mount Snow (but not used in its ski resortoperations) known as the Howe Farm. Under the terms of the agreement, Mount Snow will continue to be allowedto withdraw water from sources at the Haystack resort after the closing inamounts which approximate Mount Snow’s historical use from this source. Inaddition, Mount Snow has a right of first refusal to reacquire the Haystackresort (not including certain developmental real estate assets) for 20-yearsfollowing the date of closing.  Net proceedsto us from the sale of the Haystack resort were used to reduce borrowings underthe Resort Senior Credit Facility, including approximately $1.0 million paid topermanently reduce the amount of the First Lien Term Loan.

 

Thefollowing is our discussion and analysis of financial condition and results ofoperations for fiscal  2005.  Please read this information in connectionwith our consolidated financial statements and related notes containedelsewhere in this report.

 

19

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**Liquidity and Capital Resources**

 

We are a holding companywhose only significant assets are the outstanding common stocks of oursubsidiaries.  Our only source of cash topay our obligations is distributions from our subsidiaries.

 

**Short-term**.  Our primary short-term liquidity needs forresort operations include funding seasonal working capital requirements,funding our fiscal 2006 and fiscal 2007 capital improvement programs, andservicing debt and other contractual obligations.  Our primary short-term liquidity needs for realestate operations are funding costs relating to marketing and sales of our realestate development projects and servicing debt. Our cash requirements for ski-related and real estate development/salesactivities are provided from separate sources.

 

Ourprimary source of liquidity for ski-related working capital and ski-relatedcapital improvements are cash flows from operating activities of our non-realestate subsidiaries, proceeds from sales of non-operating assets (less anyportion required to paydown debt under the Resort Senior Credit Facility), andborrowings under our Resort Senior Credit Facility.  The total debt outstanding under our ResortSenior Credit Facility as of July 31, 2005 was approximately $202.8 millionwith approximately $24.0 million available for borrowing on that date (notincluding approximately $1.6 million in undrawn letters of credit issued underthe Resort Senior Credit Facility).  Asof July 31, 2005, we were in compliance with all covenants of the Resort SeniorCredit Facility.

 

Realestate development and real estate working capital are funded primarily throughthe Construction Loan Facility established for major real estate developmentprojects and net proceeds from the sale of real estate developed for sale afterrequired construction loan repayments. The Construction Loan Facility is without recourse to us and our resortoperating subsidiaries and is collateralized by significant real estate assetsof Resort Properties and its subsidiaries, including the assets and stock ofGrand Summit, our primary hotel development subsidiary.  As of July 31, 2005, the total debtoutstanding under the Construction Loan Facility was approximately $22.4million, and the carrying value of the total assets that collateralized theConstruction Loan Facility and which are included in the accompanyingconsolidated balance sheet was approximately $44.7 million.  On July 28, 2005, The Canyons andAttitash  resort operating subsidiariespurchased from Grand Summit the respective commercial cores of their GrandSummit Hotels for $4.0 million. As of July 31, 2005, we were in compliance withall covenants of the Construction Loan Facility, as amended.  See “Real Estate Liquidity – ConstructionLoan Facility” below.

 

**ResortLiquidity**.  We enteredinto agreements dated November 24, 2004 with Credit Suisse First Boston (CSFB),GE Capital, and other lenders whereby the lenders have provided a $230.0million Resort Senior Credit Facility consisting of a revolving credit facilityand two term loan facilities.  Theproceeds of the Resort Senior Credit Facility were used to refinance our priorresort senior credit facility and redeem our Senior Subordinated Notes as wellas to pay fees and expenses related to the transaction.  The Resort Senior Credit Facility consists ofthe following:

 

•                  RevolvingFacility - $40.0 million, including letter of credit (L/C) availability of upto $6.0 million.  The amount ofavailability under this facility is correspondingly reduced by the amount ofeach L/C issued.

 

•                  FirstLien Term Loan - $85.0 million borrowed on the funding date of November 24,2004.

 

•                  SecondLien Term Loan - $105.0 million borrowed on the funding date of November 24,2004.

 

TheRevolving Facility and First Lien Term Loan are provided under a single creditagreement (the “First Lien Credit Agreement”), mature in November 2010 and bearinterest, at our option, either at a rate equal to the prime rate, as publiclyquoted in The Wall Street Journal, plus 3.5% or at a rate equal to LIBOR (asdefined) plus 4.5%, payable quarterly (9.75% based on the prime rate for theRevolving Facility and 8.0% based on the LIBOR rate for the First Lien TermLoan as of July 31, 2005).  The FirstLien Term Loan requires 23 quarterly principal payments of $212,500 beginningon January 15, 2005 and a final payment of $80.1 million in November 2010. TheRevolving Facility is comprised of two sub-facilities, each in the amount of$20.0 million and each with separate fees for the unused portion of thefacilities in the amounts of 1.0% and 4.5% per annum, respectively. The SecondLien Term Loan is provided under a separate credit agreement (the “Second LienCredit Agreement”), matures in November 2011, bears interest at a rate equal tothe prime rate, as publicly quoted in The Wall Street Journal, plus

 

20

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7.0% or at a rate equalto LIBOR (as defined) plus 8.0% (11.5% as of July 31, 2005 based on the LIBORrate), payable quarterly, and principal is due upon maturity.

 

TheRevolving Facility and the First Lien Term Loan obligations under the FirstLien Credit Agreement and the related guarantees are secured by afirst-priority security interest in substantially all of the our assets, otherthan assets held by Grand Summit, and our obligations under the Second LienCredit Agreement and the Company’s subsidiaries’ obligations under the relatedguarantees are secured by a second-priority security interest in the sameassets.  Collateral matters between thelenders under the First Lien Credit Agreement and the lenders under the SecondLien Credit Agreement are governed by an intercreditor agreement.

 

The Resort Senior Credit Facility contains affirmative, negative, and financial covenants customary for this type of credit facility, which includes maintaining a minimum level of EBITDA (as defined), limiting our capital expenditures, requiring us to maintain a minimum ratio of appraised asset value to debt, and requiring us to have a zero balance on the Revolving Credit Facility (excluding L/Cs) on April 1 of each year.  The Resort Senior Credit Facility also contains events of default customary for such financings, including but not limited to non-payment of amounts when due; violation of covenants; cross default and cross acceleration with respect to other material debt; change of control; dissolution; insolvency; bankruptcy events; and material judgments.  Some of these events of default allow for grace periods or are qualified by materiality concepts.  The Resort Senior Credit Facility requires us to offer to prepay portions of the loans with proceeds of certain material asset sales and recovery events, certain proceeds of debt, 50% of excess cash flow, and proceeds from the issuance of capital stock. The Resort Senior Credit Facility also restricts our ability to pay cash dividends on or redeem our common or preferred stock.

 

On May 16, 2005, the Company entered into a 6-month LIBOR contract at 3.49% for a notional loan amount of $188.2 million, which expires on November 15, 2005. Pursuant to the requirements of the Resort Senior Credit Facility, on May 23, 2005, we entered into an interest rate swap agreement for 50% of the First Lien Term Loan and the Second Lien Term Loan for a notional amount of $95.0 million.  Under the swap agreement, during the period from May 16, 2005 to November 15, 2005, we pay 4.16% and receive the 6-month LIBOR rate.  During the period from November 16, 2005 to May 15, 2008, we pay 4.16% and receive the 3-month LIBOR rate.  As a result of entering into this interest rate swap agreement, we have fixed the cash-pay rate on the notional amount until the maturity of the swap agreement in May 2008.

 

In conjunction with the Resort Senior Credit Facility,we closed a tender offer and repurchased $118.5 million of the $120.0 millionprincipal amount of outstanding Senior Subordinated Notes.  The total consideration payable in connectionwith the offer was $120.4 million ($118.5 million in principal and $1.9 millionin a redemption premium) plus accrued interest of $5.1 million for the tenderedSenior Subordinated Notes.  We alsocalled for redemption on November 24, 2004 of all the remaining $1.5 million inprincipal amount of outstanding Senior Subordinated Notes which were redeemedand paid in January 2005.

 

In addition, as part of therefinancing, we entered into an Exchange Agreement with the holder of ourSeries A Preferred Stock and issued $76.7 million of new junior subordinatednotes (New Junior Subordinated Notes) due 2012 to the holder of our Series APreferred Stock in exchange for all outstanding shares of Series A PreferredStock.  The New Junior Subordinated Notesaccrue interest at a rate of 11.25% upon issuance, gradually increasing to arate of 13.0% in 2012.  However, interestis added to the principal outstanding on January 1 of each year.  On January 1, 2005, $0.9 million of interestwas added to the principal outstanding. No principal or interest payments are required to be made on the NewJunior Subordinated Notes until maturity. The New Junior Subordinated Notes are subordinated to all of our otherdebt obligations and all trade payables incurred in the ordinary course of ourbusiness.  None of our subsidiaries areobligated on the New Junior Subordinated Notes, and none of our assets serve ascollateral for repayment of the New Junior Subordinated Notes.  The indenture governing the New JuniorSubordinated Notes also restricts us from paying cash dividends or making otherdistributions to our shareholders, subject to certain limited exceptions.

 

As part of the refinancing,the indenture for our 11.3025% junior subordinated notes (Junior SubordinatedNotes) was amended to extend the maturity to May 2012.

 

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Asof September 30, 2005, we had $26.2 million, $83.2 million, and $105.0 millionof principal outstanding under the Revolving Facility, First Lien Term Loan,and Second Lien Term Loan portions of the Resort Senior Credit Facility,respectively.  Furthermore, as ofSeptember 30, 2005, we had $1.6 million in outstanding L/Cs with $12.3 millionavailable for additional borrowings under the Revolving Facility.  We currently anticipate that the remainingborrowing capacity under the Resort Senior Credit Facility will be sufficientto meet our working capital needs for our resort operations through the end offiscal 2006.

 

We are required to bring the Revolving Credit Facility to a zerobalance (excluding outstanding letters of credit) on April 1 of each year, andwe met this requirement on April 1, 2005. We were in compliance with all other financial covenants of the ResortSenior Credit Facility through the end of fiscal 2005.

 

We have $15.5 million of other long-term debt as ofJuly 31, 2005.  This is comprised of $7.3million of capital lease obligations which is secured debt and $8.2 million ofnotes payable with various lenders of which a portion is secured.

 

Oursignificant debt levels affect our liquidity. As a result of our highly leveraged position, we have significant cashrequirements to service interest and principal payments on our debt.  Consequently, cash availability for workingcapital needs, capital expenditures, and acquisitions is significantly limited,outside of any availability under the Resort Senior Credit Facility.  Furthermore, our Resort Senior CreditFacility contains significant restrictions on our ability to obtain additionalsources of capital and may affect our liquidity.  These restrictions include restrictions onthe sale of assets, restrictions on the incurrence of additional indebtedness,and restrictions on the issuance of preferred stock.

 

**Real Estate Liquidity. **To fund working capital and meet theamortization requirements of the Construction Loan Facility, Grand SummitResort Properties relies on the net proceeds from the sale of real estatedeveloped for sale, mortgage payment received for the Steamboat Grand Hotelparking facility, the lease of the commercial core at Steamboat to the resortcompany, and the revenues from short-term rental of unsold unit inventory.

 

*Construction Loan Facility: *We have historically conducted our realestate interval-ownership product development through Grand Summit, which is awholly owned subsidiary of Resort Properties. Grand Summit owns our existing Grand Summit Hotel project at Steamboat,which is primarily financed through the $110.0 million Senior ConstructionLoan.  Due to construction delays andcost increases at the Steamboat Grand Hotel project, on July 25, 2000, GrandSummit entered into the $10.0 million Subordinated Construction Loan, which wassubsequently increased to $10.6 million. Together they comprise the Construction Loan Facility.  We used the Construction Loan Facilityprimarily for the purpose of funding the completion of the Steamboat GrandHotel.  As of July 31, 2005, there are nofuture borrowings available under the Construction Loan Facility.

 

Theoutstanding principal amount under the Construction Loan Facility is payableincrementally as unit sales are closed based on a predetermined per unitamount, which approximates between 70% and 80% of the net proceeds of eachclosing.  Mortgages against thecommercial core unit at the Grand Summit Hotel at Steamboat, unsold unitinventory at the Steamboat Grand Hotel, and a promissory note from theSteamboat Homeowners Association secured by the Steamboat Grand Hotel parkinggarage collateralize the Senior Construction Loan.  This facility is subject to covenants,representations, and warranties customary for this type of constructionfacility.  The Senior Construction Loanis non-recourse to us and our subsidiaries other than Grand Summit. As of July31, 2005, the carrying value of the total assets that collateralized the SeniorConstruction Loan was $44.7 million.  Theprincipal balance outstanding under the Senior Construction Loan was $11.8million as of July 31, 2005 and had an interest rate on funds advanced of primeplus 3.5%, with a floor of 9.0% (9.75% as of July 31, 2005) and there were noborrowings available under this facility.

 

TheSenior Construction Loan, as amended, must have the following maximumoutstanding principal balances as of the following dates:

 

| July 31, 2005      |   | $          | 12,000,000 |   |
|--------------------|--------|------------|------------|--------|
| September 30, 2005 |   | 10,000,000 |       |
| December 31, 2005  |   | 8,000,000  |       |
| March 31, 2006     |   | 5,000,000  |       |
| June 30, 2006      |   | —     |       |

 

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GrandSummit did not meet the required reduction of the Senior Construction Loanprincipal balance in effect at March 31, 2005. In April 2005, Grand Summit received a letter from the lenders waivingthis default.  Grand Summit continueddiscussions with the lenders under the Construction Loan Facility regarding theterms of the amortization requirements and entered into amended agreements forboth the Senior Construction Loan and the Subordinated Construction Loan as ofJune 30, 2005. On July 28, 2005, The Canyons and Attitash  resort operating subsidiaries purchased fromGrand Summit the respective commercial cores of their Grand Summit Hotels for$4.0 million.  Grand Summit met themaximum borrowing requirements under the amended Construction Loan Facility asof July 31, 2005.

 

OnSeptember 30, 2005 the outstanding balance of the Senior Construction Loan was$10.3 million, or $300,000 in excess of the maximum outstanding principalbalance under the Senior Construction Loan. On September 30, 2005, Grand Summit received a letter from the lenderswaiving the September 30, 2005 maximum outstanding principal balance.

 

TheSubordinated Construction Loan bears interest at an annual fixed rate of 20%,payable monthly in arrears, provided that only 50% of the amount of thisinterest is due and payable in cash and the other 50% will, if no events ofdefault exist under the Subordinated Construction Loan or the SeniorConstruction Loan, automatically be deferred until the final payment date.  The Subordinated Construction Loan providesfor a maximum borrowing capacity of $10.6 million.  All $10.6 million had been borrowed under theSubordinated Construction Loan as of July 31, 2005.  Accrued interest on the SubordinatedConstruction Loan as of July 31, 2005 was $4.3 million.  The Subordinated Construction Loan is securedby the same collateral which secures the Senior Construction Loan.

 

TheSubordinated Construction Loan, as amended, must have the following maximumoutstanding principal balances as of the following dates:

 

| June 30, 2006     |   | $         | 10,000,000 |   |
|-------------------|--------|-----------|------------|--------|
| December 31, 2006 |   | 8,000,000 |       |
| March 31, 2007    |   | 5,000,000 |       |
| June 30, 2007     |   | 2,500,000 |       |
| November 30, 2007 |   | —    |       |

 

Asof September 30, 2005, the amount outstanding under the Senior Construction Loanwas $10.3****million and there were no borrowingsavailable under this facility.  As ofSeptember 30, 2005, the amounts outstanding under the Subordinated ConstructionLoan were $10.6****million plus accrued interest of$4.5 million and there were no borrowings available under this facility.

 

Therecan be no assurance that Grand Summit will meet the future mandatoryamortization requirements of the Senior Construction Loan or the SubordinatedConstruction Loan.  If Grand Summit failsto meet those future mandatory amortization requirements, there can be noassurance that the lenders under those facilities will be willing to enter intoa waiver or amendment in the future on terms acceptable to Grand Summit.  Grand Summit is also engaged in efforts torefinance the Senior Construction Loan and Subordinated Construction Loan withdifferent lenders in a restructured facility, but similarly there can be noassurance that a refinancing will be completed prior to the existing mandatoryamortization dates.  If Grand Summit isunable to obtain a waiver from the existing lenders or refinance theConstruction Loan Facility, and Grand Summit does not meet the amortizationrequirements of the Senior Construction Loan or Subordinated Construction Loan,Grand Summit will be in payment default under the Construction Loan Facilityand the lenders could commence enforcement actions against Grand Summit and theassets of Grand Summit which secure the Construction Loan Facility.  The Senior Construction Loan is non-recourseto us and our subsidiaries other than Grand Summit.

 

*Real Estate Term Facility: *On May 14, 2004, Resort Propertiesrestructured its Real Estate Term Facility from Fleet National Bank, SkiPartners, LLC, and Oak Hill Capital Partners. As a result of the restructuring, a new business venture called SP Landwas created by Ski Partners, LLC, Resort Properties (an ASC subsidiary), andKillington, Ltd. (an ASC subsidiary). Certain developmental land parcels at the Killington resort and cashwith a combined carrying value of approximately $2.2 million were transferredby Resort Properties and Killington into SP Land, together with allindebtedness, including related interest and fees, under the Real Estate TermFacility held by Fleet National Bank and Ski Partners, LLC (Tranche A and B ofthe Real Estate Term Facility) totaling $55.4 million.   All of the remaining collateral for the RealEstate Term Facility, including all of the capital stock of Grand Summit, alldevelopmental real estate at The Canyons, the commercial unit in the GrandSummit Hotel at Mount

 

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Snow, and the Rams Head parking lotat the Killington resort, was released as security for the obligations underthe Real Estate Term Facility. Collectively Killington and Resort Properties own 25% of the membershipinterests of SP Land.  The remaining 75%of the membership interests in SP Land are owned by Ski Partners, LLC, togetherwith a preferential interest in SP Land of approximately $37.2 million.  In accordance with FASB Interpretation No.46R, “*Consolidation of Variable InterestEntities*” (FIN No. 46R) and “*TheEquity Method of Accounting for Investment in Common Stock*” (APB No.18), SP Land is a variable interest entity and is accounted for on the equity method because it does not meet therequirements for consolidation.

 

Inconjunction with the restructuring of the Real Estate Term Facility, the $25.0million in debt from Resort Properties to Oak Hill Capital Partners and itsaffiliate, OHSF ASTC, LLC, (Tranche C of the Real Estate Term Facility) wascontributed by Oak Hill to ASC as additional paid-in capital.  This contribution was made for no additionalconsideration, and no equity was issued by ASC in return for thecontribution.  As a result of thetransfer of the $55.4 million in indebtedness (including interest and fees)from Resort Properties to SP Land and the exchange of $25.0 million in debtfrom Oak Hill for additional paid-in capital of ASC, approximately $80.4million in real estate debt and related accrued interest and fees are no longerobligations of  ASC.

 

Aspart of the restructuring of the Real Estate Term Facility, Killington alsocontributed all of its interest in approximately 256 acres of developmentalreal estate with a carrying value of approximately $0.9 million into a jointventure entity called Cherry Knoll Associates, LLC (“Cherry Knoll”).   Each of SP Land and Killington own 50% ofthe membership interests in Cherry Knoll. In addition, Killington maintains a preferential distribution interestin Cherry Knoll of $1.5 million.  Inaccordance with FIN No. 46R and APB No. 18, Cherry Knoll is a variable interestentity and is accounted for on the equity method because it does not meet therequirements for consolidation.

 

Immediatelyfollowing the restructuring of the Real Estate Term Facility, Resort Propertiesbecame a co-borrower under the Resort Senior Credit Facility and ResortProperties pledged its remaining assets as collateral security under the ResortSenior Credit Facility.  These assetsremain as collateral to the new Resort Senior Credit Facility entered intoNovember 24, 2004.

 

**Long-term**.  Our primary long-term liquidity needs are tofund skiing-related capital improvements at certain of our resorts.  For fiscal 2005, our annual maintenancecapital requirements (excluding capital expenditures of SS Associates, LLC)were $11.7 million.  For each of fiscal2006 and fiscal 2007, we anticipate our on-going capital spending to be approximately$15.5 million and $15.5 million, as allowed under our Resort Senior CreditFacility and excluding any contractually committed capital expenditures alsoallowed under our Resort Senior Credit Facility.  There is a considerable degree of flexibilityin the timing and, to a lesser degree, scope of our growth capitalprogram.  Although we can defer specificcapital expenditures for extended periods, continued growth of skier visits,revenues, and profitability will require continued capital investment inon-mountain improvements.

 

Wefinance on-mountain capital improvements through resort cash flows, capitalleases, proceeds from sales of non-operating assets, and our Resort SeniorCredit Facility.  The size and scope ofthe capital improvement program will generally be determined annually dependingupon the strategic importance and expected financial return of certainprojects, future availability of cash flows from each season’s resortoperations, and future borrowing availability and covenant restrictions underthe Resort Senior Credit Facility.  TheResort Senior Credit Facility places a maximum level of non-real estate capitalexpenditures for fiscal 2006 and fiscal 2007 at $15.5 million each year,including assets purchased under capital leases, with the ability to increasethis amount if certain conditions are met. During fiscal 2005, and as required under the terms of our Resort SeniorCredit Facility, we converted certain types of lease agreements that wehistorically entered into as operating leases into terms that qualified them tobe treated as capital leases.  We believethat the capital expenditure limits under the Resort Senior Credit Facilitywill be sufficient to meet our non-real estate capital improvement needs forfiscal 2006 and fiscal 2007.

 

Weclosely monitor our operating results that impact our ability to meet thefinancial covenants under our Resort Senior Credit Facility.  We take various actions to maintaincompliance with our financial covenants, including selling non-core assets toincrease revenues, and reducing our cost structure during the off-season andseasonal low-visitation at our resorts. In the event of a violation of the financial covenants under our ResortSenior Credit Facility, we would engage in a discussion with our lenders for awaiver of those covenants for the period in question.  Due to the restrictions under our ResortSenior Credit Facility, we have limited access to alternate sources of funding.

 

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Wealso have mandatorily redeemable convertible participating 12% preferred stock(Series C-1 Preferred Stock) with an accreted redeemable value of $63.6 millionas of July 31, 2005 and mandatorily redeemable 15% non-voting preferred stock(Series C-2 Preferred Stock) with an accreted redeemable value of $248.3million as of July 31, 2005 which mature in July 2007 to the extent that wehave legally available funds to effect such redemption.  We do not expect to redeem the Series C-1Preferred Stock and the Series C-2 Preferred Stock prior to their final maturities.  We can give no assurance that the necessaryliquidity will be available to effect the redemption on a timely basis.  In conjunction with the funding of the ResortSenior Credit Facility, the holders of the Series C-1 Preferred Stock andSeries C-2 Preferred Stock (collectively, the Holders) agreed with the lendersunder the Resort Senior Credit Facility that the Holders will not exercise anyremedies as a result of the failure to redeem the Series  C-1 Preferred Stock and the Series C-2Preferred Stock prior to their final maturities, other than an increase of 2% inthe accretion rate of the Series C-1 Preferred Stock and the appointment ofadditional seats on our Board of Directors.

 

**Contractual Obligations**

 

Ournon-cancelable, minimum contractual obligations as of July 31, 2005 were asfollows (in thousands):

 
| ** **                                            | ** ** | ** ** | ** ** | **Payments due by period** | ** ** |
|-------------------------------------------------------|------------|------------|------------|----------------------------|------------|
| **Obligation**                                        | ** ** | **Total**  | ** ** | **Less than 1 Year**       | ** ** | **1 to 3 Years** | ** ** | **3 to 5 Years** | ** ** | **After 5 Years** | ** ** |
| ** **                                            | ** ** | ** ** | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Resort long-term debt and capital  lease obligations  |       | $          | 219,657    |                       | $          | 19,567 |   | $ | 7,072 |   | $ | 5,036 |   | $ | 187,982 |   |
| Real estate long-term debt                            |       | 22,422     |       | 12,422                     |       | 10,000 |   | — |   | — |   |
| Subordinated notes and debentures                     |       | 102,813    |       | —                     |       | — |   | 1,292 |   | 101,521 |   |
| Mandatorily Redeemable 12% Series C-1 Preferred Stock |       | 63,574     |       | —                     |       | 63,574 |   | — |   | — |   |
| Mandatorily Redeemable 15% Series C-2 Preferred Stock |       | 248,339    | ** ** | **—**                 |       | 248,339 |   | — |   | — |   |
| Operating leases                                      |       | 8,720      |       | 1,658                      |       | 1,954 |   | 1,264 |   | 3,844 |   |
| The Canyons infrastructure costs                      |       | 900        |       | 900                        |       | — |   | — |   | — |   |
| The Canyons golf course obligations                   |       | 3,000      |       | 3,000                      |       | — |   | — |   | — |   |
| The Canyons land options obligation                   |       | 1,500      |       | 1,500                      |       | — |   | — |   | — |   |
| The Canyons obligation to build ski lifts             |       | 4,000      |       | 2,000                      |       | 2,000 |   | — |   | — |   |
| The Canyons skier visit obligation                    |       | 750        |       | 750                        |       | — |   | — |   | — |   |
| Killington replacement parking obligation             |       | 1,500      |       | 1,500                      |       | — |   | — |   | — |   |
| Killington transportation center obligation           |       | 800        |       | —                     |       | 800 |   | — |   | — |   |
| Steamboat air program contribution obligation         |       | 1,100      |       | 1,100                      |       | — |   | — |   | — |   |
| Total                                                 |       | $          | 679,075    |                       | $          | 44,397 |   | $ | 333,379 |   | $ | 7,592 |   | $ | 293,347 |   |

 

Theoperation of a substantial portion of our resort activities are dependent uponleased real estate.  The Company leasescertain land and facilities used in the operations of its resorts under severaloperating lease arrangements that expire at various times from the year 2010through the year 2060.  The related leasepayments are generally based on a percentage of revenues.  Since these obligations are contingent onfuture revenues, they are not included in the table above. Such contingentrental payments totaled $4.6 million in fiscal 2005. In addition, the Companyis subject to additional one-time payments ranging from $1.0 million to $3.0million upon achievement of incremental annual skier visit levels.  These amounts are not included in the tableabove since it is unknown as to the timing and probability of these payments.

 

**Off-Balance Sheet Arrangements**

 

Otherthan as set forth in the table above and our interest rate swap agreementdescribed above under “Resort Liquidity”, we do not have any off-balance sheettransactions, arrangements, or obligations (including contingent obligations)that have, or are reasonably likely to have, a material current or futureeffect on our financial position, results of operations, business prospects,liquidity, capital expenditures, or capital resources.

 

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**Critical Accounting Policies**

 

Ourdiscussion and analysis of our financial condition and results of operationsare based upon our consolidated financial statements, which have been preparedin accordance with generally accepted accounting principles in the UnitedStates of America.  The preparation ofthese financial statements requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of sales and expenses during the reporting periods.  Areas where significant judgments are madeinclude, but are not limited to: allowances for doubtful accounts, long-livedasset valuations and useful lives, inventory valuation reserves, litigation andclaims reserves, and deferred income tax asset valuation allowances.  Actual results could differ materially fromthese estimates.  The following are ourcritical accounting policies:

 

*Property and Equipment*

Propertyand equipment are carried at cost, net of accumulated depreciation andimpairment charges. Depreciation is calculated using the straight-line methodover the assets’ estimated useful lives which range from 9 to 40 years forbuildings, 3 to 12 years for machinery and equipment, 10 to 50 years for landimprovements, and 5 to 30 years for lifts, lift lines, and trails. Assets heldunder capital lease obligations are amortized over the shorter of their usefullives or their respective lease lives, unless a bargain purchase option existsat the end of the lease in which case the assets are being depreciated overtheir estimated useful lives.  Due to theseasonality of our business, we record a full year of depreciation relating toour resort operating assets during the second and third quarters of our fiscalyear.

 

*Goodwill and Other Intangible Assets*

Asprescribed in Statement of Financial Accounting Standards (SFAS) No. 142, “*Goodwill and Other Intangible Assets*”,certain indefinite-lived intangible assets, including trademarks, are no longeramortized but are subject to annual impairment assessments.  An impairment loss is recognized to theextent that the carrying amount exceeds the asset’s fair value.  Definite-lived intangible assets continue tobe amortized on a straight-line basis over their estimated useful lives of 31years, and assessed for impairment utilizing guidance provided by SFAS No. 144.

 

*Long-Lived Assets*

Inaccordance with SFAS No. 144, “*Accountingfor the Impairment or Disposal of Long-Lived Assets*”,  long-lived assets, such as property andequipment, and definite-lived intangibles are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Recoverability of assets to be held and used is measured by comparingthe carrying amount of an asset to the estimated undiscounted future cash flowsexpected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cashflows, an impairment charge is recognized in the amount by which the carryingamount of the asset exceeds the fair value of the asset.  Assets to be disposed of are reported at thelower of the carrying amount or fair value less costs to sell, and depreciationceases.

 

*Revenue Recognition*

Resortrevenues include sales of lift tickets, skier development, golf course andother recreational activities fees, sales from restaurants, bars, and retailand rental shops, and lodging and property management fees (real estaterentals). Daily lift ticket revenue is recognized on the day of purchase. Liftticket season pass revenue is recognized on a straight-line basis over the skiseason, which is the second and third quarters of our fiscal year.  Our remaining resort revenues are generallyrecognized as the services are performed. Real estate revenues are recognized under the full accrual method whentitle has been transferred, initial and continuing investments are adequate todemonstrate a commitment to pay for the property, and no continuing involvementexits. Amounts received from pre-sales of real estate are recorded asrestricted cash and deposits and deferred revenue in the accompanyingconsolidated balance sheets until the earnings process is complete.

 

*Seasonality*

Our revenues are highlyseasonal in nature.  For fiscal 2005, werealized approximately 88% of resort segment revenues and over 100% of resortsegment operating income during the period from mid-November throughApril.  In addition, a significantportion of resort segment revenue and approximately 20% of annual skier visitswere generated during the Christmas and Presidents’ Day vacation weeks infiscal 2005.  In addition, our resortstypically experience operating losses and negative cash flows for the periodfrom May to mid-November.

 

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Ahigh degree of seasonality in our revenues increases the impact of certainevents on our operating results.  Adverseweather conditions, access route closures, equipment failures, and otherdevelopments of even moderate or limited duration occurring during peakbusiness periods could reduce revenues. Adverse weather conditions can also increase power and other operatingcosts associated with snowmaking or could render snowmaking wholly or partiallyineffective in maintaining quality skiing conditions.  Furthermore, unfavorable weather conditions, regardlessof actual skiing conditions, can result in decreased skier visits.

 

**Results of Operations**

 

**Fiscal Year Ended July 31, 2005 (fiscal 2005)**

**Versus Fiscal Year Ended July 25, 2004 (fiscal2004)**

 

**Resort Operations:**

 

The components of resortoperations for fiscal 2004 and fiscal 2005 are as follows:

 
| ** **                                                     | ** ** | ** **                                                         | ** ** | ** **      | ** ** | **Increase/ (Decrease)** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------|------------|--------------------------|------------|
| ** **                                                     | ** ** | **Fiscal 2004**                                                    | ** ** | **Fiscal 2005** | ** ** | **Dollars**              | ** ** | **Percent** | ** ** |
| ** **                                                     | ** ** | **(in millions, except skier  visit and per skier visit amounts)** | ** ** |
| **Revenue category:**                                          |       |                                                               |       |            |       |                     |       |   |   |
| **Lift tickets**                                               |       | $                                                                  | 112.6      |            | $          | 120.8                    |       | $ | 8.2 |   | 7.3 | % |
| **Food and beverage**                                          |       | 35.4                                                               |       | 39.6            |       | 4.2                      |       | 11.9 | % |
| **Retail sales**                                               |       | 23.9                                                               |       | 25.8            |       | 1.9                      |       | 7.9 | % |
| **Lodging and property**                                       |       | 37.7                                                               |       | 39.0            |       | 1.3                      |       | 3.4 | % |
| **Skier development**                                          |       | 22.8                                                               |       | 24.3            |       | 1.5                      |       | 6.6 | % |
| **Golf, summer activities, and other**                         |       | 18.3                                                               |       | 17.8            |       | (0.5                     | )          | (2.7 | )% |
| **Total resort revenues**                                      |       | 250.7                                                              |       | 267.3           |       | 16.6                     |       | 6.6 | % |
|                                                           |       |                                                               |       |            |       |                     |       |   |   |
| **Cost of resort operations**                                  |       | 167.5                                                              |       | 173.9           |       | 6.4                      |       | 3.8 | % |
| **Marketing, general, and  administrative**                    |       | 54.8                                                               |       | 50.4            |       | (4.4                     | )          | (8.0 | )% |
| **Merger, restructuring,  and  asset impairment charges** |       | 0.1                                                                |       | —          |       | (0.1                     | )          | (100.0 | )% |
| **Depreciation and amortization**                              |       | 24.8                                                               |       | 30.2            |       | 5.4                      |       | 21.8 | % |
| **Write-off of deferred financing  costs**                     |       | —                                                             |       | 6.0             |       | 6.0                      |       | n/a |   |
| **Total resort expenses**                                      |       | 247.2                                                              |       | 260.5           |       | 13.3                     |       | 5.4 | % |
|                                                           |       |                                                               |       |            |       |                     |       |   |   |
| **Income from resort operations**                              |       | 3.5                                                                |       | 6.8             |       | 3.3                      |       | 94.3 | % |
|                                                           |       |                                                               |       |            |       |                     |       |   |   |
| **Other income (expense):**                                    |       |                                                               |       |            |       |                     |       |   |   |
| **Interest expense, net**                                      |       | (70.1                                                              | )          | (78.5           | )          | (8.4                     | )          | (12.0 | )% |
| **Gain on sale of Haystack Resort,**                           |       | —                                                             |       | 0.8             |       | 0.8                      |       | n/a |   |
| **Increase in fair value of interest rate swap arrangement**   |       | —                                                             |       | 0.3             |       | 0.3                      |       | n/a |   |
| **Loss before income taxes**                                   |       | $                                                                  | (66.6      | )               | $          | (70.6                    | )          | $ | (4.0 | ) | 6.0 | % |
|                                                           |       |                                                               |       |            |       |                     |       |   |   |
| **Total skier visits (000’s)**                            |       | 3,887                                                              |       | 3,987           |       | 10                       |       | 0.2 | % |
| **Total resort revenue per skier  visit**                      |       | $                                                                  | 64.5       |            | $          | 67.1                     |       | $ | 3.8 |   | 6.0 | % |

 

During the 2004-05 skiseason, skier visits at our Eastern resorts increased approximately 4.1% fromapproximately 2,510,000 to 2,612,000, primarily due to the successfulintroduction of the All For One Pass and strong spring snow conditions thathelped to offset extreme negative weather conditions experienced duringDecember and January.  Skier visits atour Western resorts decreased slightly during the 2004-05 ski season from approximately 1,377,000 toapproximately 1,375,000, due to slightly below normal snow conditionsexperienced at Steamboat for much of the season.  Over our entire resort network, total skiervisits were up 2.6% over the 2003-04 ski season from 3,887,000 to 3,987,000.

 

Percentage revenueincreases outpaced the increase in skier visits with fiscal 2005 revenuestotaling $267.3 million as compared to $250.7 million for fiscal 2004, anincrease of $16.6 million, or 6.6%. Sales of the new All For One Pass at our Eastern resorts accounted for$6.3 million of a $6.6 million increase in season pass revenue.  Comprehensive yield management programs atall resorts helped improve lift ticket revenues, resulting in a 2% increase inday ticket yield.  Revenues from food andbeverage and retail sales increased due to specific operational

 

27

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initiatives implemented for both businesses throughout the year.  Revenues from skier development increased asa result of expanded efforts company-wide to increase pre-sold business.  Golf, summer activities, and other declineddue to lower summer visits caused by a conscious decision by us to delay summeropenings at most of our resorts to better match our expected guest visitationpatterns and occasional poor weather on certain weekends during the summer ofcalendar 2005.

 

Ourresort segment produced a $70.6 million operating loss in fiscal 2005, comparedto a $66.6 million operating loss in fiscal 2004.  This $4.0 million increase in the operatingloss resulted primarily from the net effect of the following:

 

Decreasesin revenues and increases in costs:

(i)                                        $11.8million increase in cost of resort operations and depreciation andamortization.  This increase resultedfrom (a) the increase in cost of operations necessary to generate the increasein revenues, (b) replacing certain operating leases with capital leases and theresulting increased amortization costs, and (c) offset by savings resultingfrom effective management of day-to-day peak season costs and other costcontainment initiatives;

(ii)                                     $6.0million increase in write-off of deferred financing costs as a result of theNovember 24, 2004 restructuring of our Resort Senior Credit Facility and theredeeming of our Senior Subordinated Notes;

(iii)                                  $8.4million increase in interest expense due primarily to increasing the size ourResort Senior Credit Facility during its restructuring, the increase in bothLIBOR and Prime Rates over recent historical rates, and the issuance of the NewJunior Subordinated Notes;

 

Offset by increases in revenues and decreases incosts:

(iv)                                 $16.6million increase in resort revenues;

(v)                                    $4.4million net decrease in marketing, general, and administrative expenses due to(a) non-recurrence of certain costs associated with the fiscal 2004 settlementof the Triple Peaks litigation, (b) decrease in marketing expenses, and (c)offset partially by increased expenses associated with compliance with theSarbanes-Oxley Act;

(vi)                                 $0.1million decrease in merger, restructuring, and asset impairment charges; and

(vii)                              $1.1million increase in other income due to the sale of the Haystack resort and anincrease in fair value of the interest rate swap arrangement.

 

*RecentTrends:*Through October 16, 2005, both our western andeastern resorts season pass sales for the 2005-06 ski season are pacingslightly ahead of sales for same period last year.  Our hotel lodging conference bookings at ourwestern resorts for first quarter fiscal 2006 have been behind pace for thesame period last year by 21%, however our hotel lodging conference bookings atour eastern resorts are pacing well ahead of last year by 22%.  Overall, hotel lodging bookings for the skiseason (our 2nd and 3rd quarters for fiscal 2006) areapproximately $1.6 million or 13% ahead of our bookings at the same period lastyear led primarily by improved bookings at our western resorts offset slightlyby an aggregate decrease in bookings at our eastern resorts.

 

Impacts from the 2005hurricane season could include increases to, among other things, fuel, powerand commodities costs and could impact travel patterns.  At the present time, management has not seena measurable impact from these factors on projected business levels for the2005-2006 ski season.

 

28

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**Real Estate Operations:**

 

Thecomponents of real estate operations for fiscal 2004 and fiscal 2005 are asfollows:

 
| ** **                                                            | ** ** | ** **        | ** ** | ** **      | ** ** | **Increase/ (Decrease)** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|--------------------------|------------|
| ** **                                                            | ** ** | **Fiscal 2004**   | ** ** | **Fiscal 2005** | ** ** | **Dollars**              | ** ** | **Percent** | ** ** |
| ** **                                                            | ** ** | **(in millions)** | ** ** |
|                                                                  |       |              |       |            |       |                     |       |   |   |
| **Total real estate revenues**                                        |       | $                 | 33.4       |            | 9.2        |                     | $          | (24.2 | ) | (72.4 | )% |
|                                                                  |       |              |       |            |       |                     |       |   |   |
| **Cost of real estate operations**                                    |       | 24.7              |       | 7.2             |       | (17.5                    | )          | (70.9 | )% |
| **Depreciation and amortization**                                     |       | 1.7               |       | 1.6             |       | (0.1                     | )          | (5.9 | )% |
| **Total real estate expenses**                                        |       | 26.4              |       | 8.8             |       | (17.6                    | )          | (66.7 | )% |
|                                                                  |       |              |       |            |       |                     |       |   |   |
| **Other income (expense):**                                           |       |              |       |            |       |                     |       |   |   |
| **Interest expense, net**                                             |       | (17.5             | )          | (3.1            | )          | 14.4                     |       | 82.3 | % |
| **Gain on extinguishment of debt**                                    |       | 23.1              |       | —          |       | (23.1                    | )          | n/a |   |
| **Gain on transfer of assets associated with extinguishment of debt** |       | 25.5              |       | —          |       | (25.5                    | )          | n/a |   |
| **Loss from real estate operations before taxes**                     |       | $                 | 38.1       |            | $          | (2.7                     | )          | $ | (40.8 | ) | 107.1 | % |
|                                                                       |            |                   |            |                 |            |                          |            |  |  |  |  |  |

 

Realestate revenues decreased by $24.2 million in fiscal 2005 compared to fiscal2004, from $33.4 million to $9.2 million. The decrease is primarily due to the sale of three developmental landparcels at our Steamboat resort totaling $8.9 million and the sale of intervalunits at The Canyons Grand Summit Hotel totaling $11.5 million in fiscal 2004,for which comparable sales did not occur in fiscal 2005.  Sales of units at the Steamboat Grand Hoteltotaled $3.3 million in fiscal 2005 compared to $3.1 million in fiscal 2004. Asof the end of fiscal 2005, 62% of the units at the Steamboat Grand Hotel havebeen sold. In addition to the fiscal 2005 real estate revenues discussed above,Resort Properties sold the commercial cores of The Canyons and Attitash GrandSummit Hotels to their respective resort operating subsidiaries for $4.0million.  This transaction is notincluded above because it eliminates in consolidation.

 

Ourreal estate segment generated a loss before income taxes of $2.7 million infiscal 2005, compared to income before income taxes of $38.1 million in fiscal2004.  This $40.8 million decreaseresults primarily from the net effect of the following:

 

Decreases in revenues and increases in costs:

(i)                                 $23.1million decrease in other income due to gain on extinguishment of debt infiscal 2004 that was not repeated in fiscal 2005;

(ii)                              $25.5million decrease in other income due to gain on transfer of assets associatedwith extinguishment of debt in fiscal 2004 that was not repeated in fiscal2005;

(iii)                           $24.2 million decrease inrevenues as explained above;

 

Offsetby increases in revenues and decreases in costs:

(iv)                          $17.6million decrease in cost of operations in cost of operations and depreciationand amortization.  This resultedprimarily from the decrease in revenues and the reduction in real estate sales staffdue to the completion of sales of all units at The Canyons in fiscal 2004; and

(v)                             $14.4million decrease in real estate interest expense due to the restructuring ofour Real Estate Term Facility on May 14, 2004 and the paydown from the proceedsof the sales of all remaining units at The Canyons Grand Summit Hotel in 2004.

 

Thegain on extinguishment of debt of approximately $23.1 million and the gain ontransfer of assets associated with extinguishment of debt of approximately$25.5 million during fiscal 2004 were due to the restructuring of the RealEstate Term Facility. (See “Real Estate Term Facility “ above.)

 

*Recent Trends:* Unit sales volumes at our Grand Summit Hotelat Steamboat are slightly ahead of the pace of the prior year.

 

**Benefit from income taxes. **The benefit from incometaxes****was $0 in each of fiscal 2004 andfiscal 2005.  We believe it is morelikely than not that we will not realize income tax benefits from operatinglosses in the foreseeable future.

 

29

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**Results of Operations**

 

**Fiscal Year Ended July 25, 2004 (fiscal 2004)**

**Versus Fiscal Year Ended July 27, 2003 (fiscal2003)**

 

**Resort Operations:**

 

The components of resortoperations for fiscal 2003 and fiscal 2004 are as follows:

 
| ** **                                                     | ** ** | ** **                                                         | ** ** | ** **      | ** ** | **Increase/ (Decrease)** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------|------------|--------------------------|------------|
| ** **                                                     | ** ** | **Fiscal 2003**                                                    | ** ** | **Fiscal 2004** | ** ** | **Dollars**              | ** ** | **Percent** | ** ** |
| ** **                                                     | ** ** | **(in millions, except skier  visit and per skier visit amounts)** | ** ** |
| **Revenue category:**                                          |       |                                                               |       |            |       |                     |       |   |   |
| **Lift tickets**                                               |       | $                                                                  | 111.2      |            | $          | 112.6                    |       | $ | 1.4 |   | 1.3 | % |
| **Food and beverage**                                          |       | 36.7                                                               |       | 35.4            |       | (1.3                     | )          | (3.5 | )% |
| **Retail sales**                                               |       | 25.7                                                               |       | 23.9            |       | (1.8                     | )          | (7.0 | )% |
| **Lodging and property**                                       |       | 36.5                                                               |       | 37.7            |       | 1.2                      |       | 3.3 | % |
| **Skier development**                                          |       | 21.1                                                               |       | 22.8            |       | 1.7                      |       | 8.1 | % |
| **Golf, summer activities, and other**                         |       | 20.4                                                               |       | 18.3            |       | (2.1                     | )          | (10.3 | )% |
| **Total resort revenues**                                      |       | 251.6                                                              |       | 250.7           |       | (0.9                     | )          | (0.4 | )% |
|                                                           |       |                                                               |       |            |       |                     |       |   |   |
| **Cost of resort operations**                                  |       | 168.0                                                              |       | 167.5           |       | (0.5                     | )          | (0.3 | )% |
| **Marketing, general, and administrative**                     |       | 49.6                                                               |       | 54.8            |       | 5.2                      |       | 10.5 | % |
| **Merger, restructuring,  and  asset impairment charges** |       | 1.6                                                                |       | 0.1             |       | (1.5                     | )          | (93.8 | )% |
| **Depreciation and amortization**                              |       | 25.8                                                               |       | 24.8            |       | (1.0                     | )          | (3.9 | )% |
| **Write-off of deferred financing  costs**                     |       | 2.8                                                                |       | —          |       | (2.8                     | )          | (100.0 | )% |
| **Total resort expenses**                                      |       | 247.8                                                              |       | 247.2           |       | (0.6                     | )          | (0.0 | )% |
|                                                           |       |                                                               |       |            |       |                     |       |   |   |
| **Income from resort operations**                              |       | 3.8                                                                |       | 3.5             |       | (0.3                     | )          | (7.9 | )% |
|                                                           |       |                                                               |       |            |       |                     |       |   |   |
| **Other income (expense):**                                    |       |                                                               |       |            |       |                     |       |   |   |
| **Interest expense, net**                                      |       | (27.1                                                              | )          | (70.1           | )          | (43.0                    | )          | (158.7 | )% |
|                                                           |       |                                                               |       |            |       |                     |       |   |   |
| **Loss from resort operations before taxes**                   |       | $                                                                  | (23.3      | )               | $          | (66.6                    | )          | $ | (43.3 | ) | 185.8 | % |
|                                                           |       |                                                               |       |            |       |                     |       |   |   |
| **Total Skier Visits (000’s)**                            |       | 3,977                                                              |       | 3,887           |       | (90                      | )          | (2.3 | )% |
| **Total resort revenue per skier  visit**                      |       | $                                                                  | 63.3       |            | $          | 64.5                     |       | $ | 1.2 |   | 1.9 | % |

 

During the 2003-04 skiseason, skier visits at our Eastern resorts decreased approximately 5.0% fromapproximately 2,642,000 to 2,510,000, primarily due to extreme negative weatherconditions, including three separate rain events over the Christmas holidayperiod, extreme cold and high winds during mid-winter weekends, and lack ofnatural snowfall throughout the winter. Skier visits at our Western resorts increased 3.1% during the 2003-04ski season from approximately 1,335,000 to approximately 1,377,000, due totimely natural snowfall throughout the winter. Over our entire resort network, total skier visits were down 2.3% fromthe 2002-03 ski season from 3,977,000 to 3,887,000.

 

Despite a moresubstantial shortfall in skier visits, revenues for fiscal 2004 were $250.7million, as compared to $251.6 million for fiscal 2003, a decrease of only $0.9million, or 0.4%.  Sales of the newdiscounted season pass at Attitash and Sunday River accounted for $3.0 millionof a $3.5 million increase in season pass revenue.  Revisions to the lift ticket pricingstructure at Steamboat and comprehensive yield management programs at allresorts mitigated the impact of the decrease in lift ticket revenues, resultingin a 6.5% increase in day ticket yield. Revenues from food and beverage and retail sales decreased with thedecrease in skier visits.  However,revenues from skier development increased as a result of growth in destinationbusiness at our Western resorts and expanded efforts company-wide to increasepre-sold business.  Golf, summeractivities, and other declined due to lower summer visits caused by poorweather and a soft economy during the summer of calendar 2003.

 

Ourresort segment produced a $66.6 million operating loss in fiscal 2004, comparedto a $23.3 million operating loss in fiscal 2003.  This $43.3 million increase in the operatingloss resulted primarily from the net effect of the following:

 

30

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Decreasesin revenues and increases in costs:

(i)                                           $0.9million decrease in resort revenues as explained above;

(ii)                                        $5.2million increase in marketing, general, and administrative expenses due tocosts associated with the settlement of the Triple Peaks litigation (seeFootnote 16, “Commitment and Contingencies” in the attached Notes toConsolidated Financial Statements”) and other legal matters, increased expensesassociated with compliance with the Sarbanes-Oxley Act, and  continuation of building a corporate humanresource group, offset by a decrease in marketing expenses;

(iii)                                     $43.0million increase in interest expense due primarily to approximately $43.1million of  accretion of discount anddividends on our mandatorily redeemable preferred stock for fiscal 2004 beingclassified as interest expense due to the adoption of SFAS No. 150, whereas inthe prior year it was classified as accretion of discount and dividends onmandatorily redeemable preferred stock;

 

Offsetby increases in revenues and decreases in costs:

(iv)                                    $1.5million decrease in cost of resort operations and depreciation and amortizationdue to reductions in our fixed cost structure undertaken prior to the beginningof the ski season, effective management of the ramp-up and ramp-down ofseasonal operations, and day-to-day management of peak season operating costs(excluding merger, restructuring, and asset impairment charges and write-off ofdeferred financing costs);

(v)                                       $1.5million decrease in merger, restructuring, and asset impairment charges asexplained below; and

(vi)                                    $2.8million decrease in write-off of deferred financing costs as a result of theResort Senior Credit Facility replacing a previously existing senior creditfacility during the current year.

 

We incurred merger,restructuring and asset impairment charges for fiscal 2004 and fiscal 2003related to our resort operations.  The$0.1 million of merger, restructuring and asset impairment charges for fiscal2004 is for employee severance charges. The $1.6 million of merger,restructuring, and asset impairment charges for fiscal 2003 includes:

 

(i)                         $1.2million of expenses related to the write-off of certain fixed assets and otherassets; and

(ii)                      $0.4 millionin employee severance charges.

 

**Real Estate Operations:**

 

Thecomponents of real estate operations for fiscal 2003 and fiscal 2004 are asfollows:

 
| ** **                                                            | ** ** | ** **        | ** ** | ** **      | ** ** | **Increase/ (Decrease)** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|--------------------------|------------|
| ** **                                                            | ** ** | **Fiscal 2003**   | ** ** | **Fiscal 2004** | ** ** | **Dollars**              | ** ** | **Percent** | ** ** |
| ** **                                                            | ** ** | **(in millions)** | ** ** |
|                                                                  |       |              |       |            |       |                     |       |   |   |
| **Total real estate revenues**                                        |       | $                 | 12.9       |            | $          | 33.4                     |       | $ | 20.5 |   | 158.9 | % |
|                                                                  |       |              |       |            |       |                     |       |   |   |
| **Cost of real estate operations**                                    |       | 12.2              |       | 24.7            |       | 12.5                     |       | 102.5 | % |
| **Merger, restructuring, and asset  impairment charges**         |       | (0.2              | )          | —          |       | 0.2                      |       | (100.0 | )% |
| **Depreciation and amortization**                                     |       | 1.7               |       | 1.7             |       | —                   |       | 0.0 | % |
| **Total real estate expenses**                                        |       | 13.7              |       | 26.4            |       | (17.7                    | )          | (67.0 | )% |
|                                                                  |       |              |       |            |       |                     |       |   |   |
| **Other income (expense):**                                           |       |              |       |            |       |                     |       |   |   |
| **Interest expense, net**                                             |       | (20.3             | )          | (17.5           | )          | (2.8                     | )          | (13.8 | )% |
| **Gain on extinguishment of debt**                                    |       | —            |       | 23.1            |       | 23.1                     |       | n/a |   |
| **Gain on transfer of assets associated with extinguishment of debt** |       | —            |       | 25.5            |       | 25.5                     |       | n/a |   |
| **Loss from real estate operations before taxes**                     |       | $                 | (21.1      | )               | $          | 38.1                     |       | $ | 59.2 |   | (280.6 | )% |

 

Realestate revenues increased by $20.5 million in fiscal 2004 compared to fiscal2003, from $12.9 million to $33.4 million. The increase is primarily due to the sale of three developmental landparcels at our Steamboat resort for $8.9 million, and an increase of $11.5million in unit sales at The Canyons Grand Summit Hotel due to an

 

31

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auction inFebruary 2004 in which the Company sold all of the remaining units except forone.  As of the end of fiscal 2004, 58%of the units at the Steamboat Grand Hotel were sold.

 

Ourreal estate segment generated income before income taxes of $38.1 million infiscal 2004, compared to a loss before income taxes of $21.1 million in fiscal2003.  This $59.2 million increaseresults primarily from the net effect of the following:

 

Increases in revenues and decreases in costs:

(i)                                               $20.5million increase in revenues;

(ii)                                            $23.1million increase in other income due to gain on extinguishment of debt asexplained below;

(iii)                                    $25.5 millionincrease in other income due to gain on transfer of assets associated withextinguishment of debt as explained below;

(iv)                                   $2.8million decrease in real estate interest expense due to the restructuring ofour Real Estate Term Facility on May 14, 2004;

 

Offsetby decreases in revenues and increases in costs:

(vi)                                   $12.5million increase in cost of operations due to an increase in revenues; and

(vii)                                $1.5 million increasein merger, restructuring, and asset impairment charges as explained below.

 

Thegain on extinguishment of debt of approximately $23.1 million and the gain ontransfer of assets associated with extinguishment of debt of approximately$25.5 million during fiscal 2004 were due to the restructuring of the RealEstate Term Facility (see “Real Estate Term Facility” above).

 

The$(0.2) million reversal of restructuring and asset impairment charges duringfiscal 2003 was due to an impairment charge taken in fiscal 2002 that wassubsequently determined not to be needed.

 

**      Benefit from income taxes. **The benefit from incometaxes****was $0 in each of fiscal 2003 andfiscal 2004.  We believe it is morelikely than not that we will not realize income tax benefits from operatinglosses in the foreseeable future.

 

**                Accretionof discount and dividends accrued on mandatorily redeemable preferredstock. **The dividendson mandatorily redeemable preferred stock for fiscal 2003 were $37.6 million.For fiscal 2004,  accretion of discount and dividends onmandatorily redeemable preferred stock of $43.1 million is not recorded asaccretion of discount and dividends on mandatorily redeemable preferred stockbut has been included in interest expense due to the adoption of SFAS No.150.  This increase of the accretion isattributable to the compounding effect of accruing dividends on the value ofthe preferred shares.

 

# **RecentlyIssued Accounting Standards**

 

InDecember 2004, the FASB issued SFAS No. 123R, which replaces SFAS No. 123and supersedes APB No. 25. SFAS No. 123R requiresthe measurement of all employee share-based compensation arrangements toemployees, including grants of employee stock options, using a fair-value-basedmethod and the recording of such expense in the consolidated statements ofoperations. Further, the adoption ofSFAS No. 123R will require additional accounting related to the income taxeffects and additional disclosure regarding the cash flow effects resultingfrom share-based payment arrangements.

 

Aspermitted by SFAS No. 123, the Company currently  accounts forstock-based compensation using the method prescribed in APB No. 25, under whichno compensation expense for stock options is recognized for stock option awardsgranted to employees at or above fair value. However, the effect of expensing stock options on the results ofoperations using a Black-Scholes option-pricing model is presented above.  The accounting provisions of SFAS No. 123R are effectivebeginning the first quarter of the Company’sfiscal 2006,at which time pro forma disclosures previously permitted under SFASNo. 123 no longer will be an alternative to financial statementrecognition.

 

SFASNo. 123R permits public companies to adopt its requirements using one of twomethods; “modified prospective” method and “modified retrospective”method.  Under the “modified prospective”method, compensation cost is recognized beginning with the effective date(a) based on the requirements of SFAS No.123R for all new awards and forawards modified, repurchased, or canceled after the effective date, and (b)  for all awards

 

32

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granted to employees prior tothe effective date of SFAS No. 123R that remain unvested on the effective date.The “modified retrospective” method includes the requirements of the modifiedprospective method described above, but also permits entities to restate basedon the amounts previously recognized under SFAS No. 123 for purposes of proforma disclosures for either (a) all prior periods presented or(b) prior interim periods of the year of adoption. The Company plans toadopt SFAS No. 123R using the modified prospective method. Accordingly, theadoption of SFAS No. 123R’s fair value method will have a de minimus impact onthe Company’s operating expenses for fiscal 2006 as only 2,000 stock optionsremain unvested as of July 31, 2005.

 

InDecember 2004, the FASB issued SFAS No. 152, “*Accountingfor Real Estate Time-Sharing Transactions*” – an amendment of FASBStatements No. 66 and 67.  This statementamends SFAS No. 66 “Accounting for Sales of Real Estate” and SFAS No. 67, “*Accounting for Costs and Initial Rental Operations ofReal Estate Projects*” to state that the guidance for (a) incidentaloperations and (b) costs incurred to sell real estate projects does not applyto real estate time-share transactions. The accounting for those operations and costs is subject to the guidanceof Statement of Position (“SOP”) 04-2, which provides guidance on the seller’saccounting for real estate time-sharing transactions.  The FASB, however, does not change therevenue guidance in SFAS No. 66.  SFASNo. 152 is effective beginning the first quarter of the Company’s fiscal2006.   Management anticipates that thecompany’s  adoption of SFAS No. 152 infiscal 2006 will not have a material impact on the Company’s consolidatedfinancial position, liquidity or results of operations

 

InDecember 2004, the FASB issued SFAS No. 153, “*Exchangesof Nonmonetary Assets - an Amendment of APB Opinion No. 29*”.  This statement amends APB Opinion No. 29 toeliminate the exception for nonmonetary exchanges of similar productive assetsand replaces it with a general exception for exchanges of nonmonetary assetsthat do not have commercial substance.  Anonmonetary exchange has commercial substance if the future cash flows of theentity are expected to change significantly as a result of the exchange.  The provisions of SFAS No. 153 are effectivefor the Company’s fiscal year ending July 30, 2006.  Management anticipates that the company’sadoption of SFAS No. 153 in fiscal 2006 will not have a material impact on theCompany’s consolidated financial position, liquidity or results of operations.

 

InMarch 2005, the FASB issued FIN. 47, “*Accountingfor Conditional Asset Retirement Obligations*”.  FIN No. 47 clarifies the term “conditionalasset retirement obligation” as used in SFAS No. 143  “*Accountingfor Asset Retirement Obligations*”. SFAS No.143 refers to a legal obligation to perform an asset retirementactivity in which the timing and (or) method of settlement are conditional on afuture event that may or may not be within the control of the entity.  SFAS No.143 requires an entity to recognizethe fair value of a legal obligation to perform asset retirement activitieswhen the obligation is incurred.   FINNo. 47 further clarifies when an entity has sufficient information toreasonably estimate the fair value of an asset retirement obligation.  Management has determined that FIN No. 47’sconditional asset retirement obligation relates solely to the Company’s U.S.Forest Services long-term leases at Attitash, Mount Snow, and Steamboat but therelated obligations are not currently reasonably estimatable and are notconditional on a future event. The accounting provisions of FIN No. 47 areeffective beginning the first quarter of the Company’s fiscal 2006**.**

 

**Item7A**

**Quantitative and Qualitative Disclosures aboutMarket Risk**

 

The Company’s financial instruments do not subject it to material market risk exposures, except for risks related to interest rate fluctuations.  As of July 31, 2005, we have an interest rate swap agreement in place which swapped variable interest rate borrowings to fixed interest rate borrowings in the notional amount of $95 million.  Under the swap agreement, during the period from May 16, 2005 to November 15, 2005, we pay 4.16% and receive the 6-month LIBOR rate.  During the period from November 16, 2005 to May 15, 2008, we pay 4.16% and receive the 3-month LIBOR rate.  As a result of entering into this interest rate swap agreement, we have fixed the cash-pay rate on the notional amount until the maturity of the swap agreement in May 2008.  The agreement is adjusted to fair value at the end of each reporting period.  During the year ended July 31, 2005, the Company recognized $314,405 of other income from market value adjustments to this agreement.

 

Asof July 31, 2005 including the impact of the swap agreement, we had $119.6million, or approximately 35% of our outstanding debt, in floating interestrate long-term debt instruments.  Had wefully drawn on our Revolving Credit Facility, approximately 39% of our debtwould be in floating interest rate debt instruments.  The

 

33

----

 

following sensitivityanalysis presents the pro forma impact on fiscal 2005 annual interestexpense  and cash flows resulting fromhypothetical basis point increases in the U.S. prime lending rate (6.25% as ofJuly 31, 2005) on each of our floating interest rate debt instruments (inthousands).

 
| **Variable Rate Debt (principal  only)**           | ** ** | **Rate Index and  Margin**           | ** ** | **Interest Rate  Floor** | ** ** | **Balance  Outstanding  as of  July 31, 2005** | ** ** | **Average  Balance  Outstanding  in FY 2005 (1)** | ** ** | **Hypothetical  1% Change in  Rate Index(2)** | ** ** | **Hypothetical  2% Change in  Rate Index(2)** | ** ** |
|----------------------------------------------------|------------|--------------------------------------|------------|--------------------------|------------|------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| **Resort Senior Credit Facility:**                 |       |                                 |       |                     |       |                                           |       |                                              |       |                                          |       |                                          |       |
| Revolving Credit Facility and First Lien Term Loan |       | Prime Rate + 3.50%  or LIBOR + 4.50% |       | n/a                      |       | $                                              | 97,759     |                                              | $          | 92,964                                        |       | $                                             | 505        |   | $ | 1,009 |   |
| Second Lien Term Loan                              |       | Prime Rate + 7.00%  or LIBOR + 8.00% |       | n/a                      |       | 105,000                                        |       | 105,000                                           |       | 525                                           |       | 1,050                                         |       |
| **Construction Loan Facility**                     |       | Prime Rate + 3.50%                   |       | 9.00                     | %          | 11,822                                         |       | 16,236                                            |       | 162                                           |       | 325                                           |       |
|                                               |       |                                 |       |                     |       | $                                              | 214,581    |                                              | $          | 214,200                                       |       | $                                             | 1,192      |   | $ | 2,384 |   |

 

----

(1)          AverageBalance of Revolving Credit Facility, First Lien Term Loan and the Second LienTerm Loan determined for period new loans have been outstanding November 24, 2005through July 31, 2005 (includes only the new Resort Senior Credit Facility).

(2)          Pro formaimpact calculated after giving effect to interest rate swap.

 

**Item8**

**Financial Statements and Supplementary Data**

 

**SelectedQuarter Operating Results**

 

Thefollowing table presents certain unaudited quarterly financial information forthe eight quarters ended July 31, 2005. In the opinion of our management, this information has been prepared onthe same basis as the annual consolidated financial statements (See Item 17 —Exhibits, Financial Statement Schedules and Reports on Form 8-K) appearingelsewhere in this Form 10-K and includes all adjustments (consisting only ofnormal recurring adjustments) necessary to present fairly the financial resultsset forth herein.  We have adoptedEmerging Issues Task Force Issue No. 03-06, “Participating Securities and theTwo Class Method Under FAS No. 128, Earnings Per Share.”  The Series C-1 Preferred Stock is aparticipating security because it may participate in dividends with commonstock.  Accordingly, net income isallocated to each security based on the ratio of the number of sharesif-converted to the total number of shares. In periods when a net loss is incurred, the net loss is not allocated tothe Series C-1 Preferred Stock as it does not have a contractual obligation toshare in the losses of the Company and the impact of inclusion would beanti-dilutive.  Results of operations forany quarters are not necessarily indicative of results that may be achieved forany future period or any full fiscal year (amounts in thousands, except pershare amounts):

 
| ** **                                                                                 | ** ** | **First****Quarter** | ** ** | **Second****Quarter** | ** ** | **Third****Quarter** | ** ** | **Fourth****Quarter** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------|------------|-----------------------|------------|----------------------|------------|-----------------------|------------|
|                                                                                       |       |                 |       |                  |       |                 |       |                  |       |
| **Fiscal 2005:**                                                                           |       |                 |       |                  |       |                 |       |                  |       |
| **Net revenues**                                                                           |       | $                    | 19,546     |                  | $          | 106,074              |       | $                     | 135,194    |   | $ | 15,663 |   |
| **Income (loss) from operations**                                                          |       | (18,267              | )          | 5,523                 |       | 43,837               |       | (23,876               | )          |
| **Net income (loss)**                                                                      |       | (37,720              | )          | (22,144               | )          | 23,835               |       | (37,286               | )          |
| **Net income (loss) available (attributable) to common shareholders**                      |       | (37,720              | )          | (22,144               | )          | 9,325                |       | (37,286               | )          |
|                                                                                       |       |                 |       |                  |       |                 |       |                  |       |
| **Basic income (loss) per common  share:**                                                 |       |                 |       |                  |       |                 |       |                  |       |
| **Net income (loss) available (attributable) to common shareholders**                      |       | $                    | (1.19      | )                     | $          | (0.70                | )          | $                     | 0.29       |   | $ | (1.17 | ) |
| **Weighted average common shares  outstanding**                                            |       | 31,738               |       | 31,738                |       | 31,738               |       | 31,738                |       |
|                                                                                       |       |                 |       |                  |       |                 |       |                  |       |
| **Diluted income (loss) per  common share:**                                               |       |                 |       |                  |       |                 |       |                  |       |
| **Net income (loss) available (attributable) to common shareholders**                      |       | $                    | (1.19      | )                     | $          | (0.70                | )          | $                     | 0.29       |   | $ | (1.17 | ) |
| **Weighted average common shares  outstanding**                                            |       | 31,738               |       | 31,738                |       | 31,738               |       | 31,738                |       |
|                                                                                       |       |                 |       |                  |       |                 |       |                  |       |
| **Fiscal 2004:**                                                                           |       |                 |       |                  |       |                 |       |                  |       |
| **Net revenues**                                                                           |       | $                    | 18,473     |                  | $          | 102,960              |       | $                     | 145,670    |   | $ | 17,008 |   |
| **Income (loss) from operations**                                                          |       | (18,430              | )          | 891                   |       | 47,276               |       | (19,220               | )          |
| **Net income (loss)**                                                                      |       | (41,258              | )          | (21,689               | )          | 24,506               |       | 9,939                 |       |
| **Less preferred stock dividends and amounts  allocated to participating securities** |       | —               |       | —                |       | (14,208              | )          | (5,834                | )          |
| **Net income (loss) available (attributable) to common shareholders**                      |       | (41,258              | )          | (21,689               | )          | 10,298               |       | 4,105                 |       |
|                                                                                       |       |                 |       |                  |       |                 |       |                  |       |
| **Basic income (loss) per common share:**                                                  |       |                 |       |                  |       |                 |       |                  |       |
| **Net income (loss) available (attributable) to common shareholders**                      |       | $                    | (1.30      | )                     | $          | (0.68                | )          | $                     | 0.32       |   | $ | 0.13 |   |
| **Weighted average common shares outstanding**                                             |       | 31,738               |       | 31,738                |       | 31,738               |       | 31,738                |       |
|                                                                                       |       |                 |       |                  |       |                 |       |                  |       |
| **Diluted income (loss) per common share:**                                                |       |                 |       |                  |       |                 |       |                  |       |
| **Net income (loss) available (attributable) to common shareholders**                      |       | $                    | (1.30      | )                     | $          | (0.68                | )          | $                     | 0.32       |   | $ | 0.13 |   |
| **Weighted average common shares outstanding**                                             |       | 31,738               |       | 31,738                |       | 31,738               |       | 31,738                |       |

 

34

----

 

**Item9**

**Changes in and Disagreements with Accountants onAccounting and Financial Disclosure**

 

None.

 

**Item9A**

**Controls and Procedures**

 

(a)                                Evaluationof disclosure controls and procedures. Our Chief Executive Officer and our Chief Financial Officer carried outan evaluation of the effectiveness of our “disclosure controls and procedures”(as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)).  Based on that evaluation, these officers haveconcluded that as of the end of the period covered by this report, ourdisclosure controls and procedures were adequate and effective.

 

(b)                              Changesin internal controls over financial reporting. No change occurred in the Company’s internal control over financialreporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) duringthe quarter ended July 31, 2005 that has materially affected, or is reasonablylikely to materially affect, the Company’s internal control over financial reporting.

 

Itshould be noted that any system of controls, however well designed andoperated, can provide only reasonable, and not absolute, assurance that theobjectives of the system will be met.  Inaddition, the design of any control system is based in part upon certainassumptions about the likelihood of future events.  Because of these and other inherentlimitations of control systems, there is only reasonable assurance that ourcontrols will succeed in achieving their stated goals under all potentialfuture conditions.

 

**PARTIII**

 

Pursuantto General Instruction G of Form 10-K, the information contained in Part III ofthis report (Items 10, 11, 12, 13, and 14) is incorporated by reference fromour Definitive Proxy Statement, which is expected to be filed with theSecurities and Exchange Commission on or before November 30, 2005.

 

35

----

 

**PARTIV**

 

**Item15**

**Exhibits and Financial Statement Schedules**

 
| Documents  filed as part of this report: |                                                                                                                                                                                        |
|------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                     |                                                                                                                                                                                        |
| 1.                                       | Index  to financial statements, financial statement schedules, and supplementary  data, filed as part of this report:                                                                       |   |
|                                     |                                                                                                                                                                                        |   |
|                                     | Report of  Independent Registered Public Accounting Firm                                                                                                                                    |   |
|                                     |                                                                                                                                                                                        |   |
|                                     | Consolidated  Balance Sheets                                                                                                                                                                |   |
|                                     |                                                                                                                                                                                        |   |
|                                     | Consolidated  Statements of Operations                                                                                                                                                      |   |
|                                     |                                                                                                                                                                                        |   |
|                                     | Consolidated  Statements of Shareholders’ Deficit                                                                                                                                      |   |
|                                     |                                                                                                                                                                                        |   |
|                                     | Consolidated  Statements of Cash Flows                                                                                                                                                      |   |
|                                     |                                                                                                                                                                                        |   |
|                                     | Notes to  Consolidated Financial Statements                                                                                                                                                 |   |
|                                     |                                                                                                                                                                                        |   |
| 2.                                       | Financial  Statement Schedules: All schedules are omitted because they are not  applicable or the required information is shown in the consolidated financial  statements or notes thereto. |   |
|                                     |                                                                                                                                                                                        |   |
| 3.                                       | Exhibits  filed as part of this report:                                                                                                                                                     |   |

 
| **Exhibit  No.** | ** ** | **Description**                                                                                                                                                                                                                                   |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                                                                                                              |
| 3.1              |       | Certificate  of Incorporation of American Skiing Company (incorporated by reference to  Exhibit 3.1 to the Company’s Form 10-K for the report date of October 22,  1999).                                                                    |
|             |       |                                                                                                                                                                                                                                              |
| 3.2              |       | Certificate of  Designation of 12% Series C-1 Convertible Participating Preferred Stock of  the Company (incorporated by reference to Exhibit 3.2 to the Company’s Form  8-K for the report date of September 4, 2001).                      |
|             |       |                                                                                                                                                                                                                                              |
| 3.3              |       | Certificate of  Designation of 15% Series C-2 Preferred Stock of the Company (incorporated by  reference to Exhibit 3.3 to the Company’s Form 8-K for the report date of  September 4, 2001).                                                |
|             |       |                                                                                                                                                                                                                                              |
| 3.4              |       | Certificate of  Designation of Series D Participating Preferred Stock of the Company  (incorporated by reference to Exhibit 3.4 to the Company’s Form 8-K for the  report date September 4, 2001).                                           |
|             |       |                                                                                                                                                                                                                                              |
| 3.5              |       | Amended and Restated  Bylaws of the Company Adopted July 10, 2001 (incorporated by reference to  Exhibit 3.1 to the Company’s Form 8-K for the report date of September 4,  2001).                                                           |
|             |       |                                                                                                                                                                                                                                              |
| 3.6              |       | Articles  of Merger ASC East, Inc. and ASC West, Inc. into American Skiing Company  dated October 5, 1999 with Plan of Merger (incorporated by reference to  Exhibit 4.3 to the Company’s Form 8-K for the report date of October 6,  1999). |
|             |       |                                                                                                                                                                                                                                              |
| 3.7              |       | Articles  of Merger American Skiing Company into ASC Delaware, Inc. dated October 12,  1999 with Agreement and Plan of Merger (incorporated by reference to Exhibit  4.3 to the Company’s Form 8-K for the report date of October 6, 1999).  |
|             |       |                                                                                                                                                                                                                                              |
| 4.1.             |       | Specimen  Certificate for shares of Common Stock, $.01 par value, of the Company  (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-K for the  report date of October 22, 1999).                                            |

 

36

----

 
| 4.2    |   | Indenture relating to  11.3025% Convertible Subordinated Notes Due 2007 dated as of August 31, 2001  (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K for the  report date of September 4, 2001).                                                                                                                                 |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 4.3    |   | Specimen  Certificate for Class A Common Stock, $.01 par value, of the Company  (incorporated by reference to Exhibit 4.4 to the Company’s Form 10-K for the  report date of November 14, 2001).                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 4.4    |   | Specimen  Certificate for Series B Convertible Participating Preferred Stock, $.01 par  value, of the Company (incorporated by reference to Exhibit 4.5 to the  Company’s Form 10-K for the report date of November 14, 2001).                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 4.5    |   | Specimen  Certificates for Series C-1 Preferred Stock, $.01 par value, of the Company  (incorporated by reference to Exhibit 4.6 to the Company’s Form 10-K for the  report date of November 14, 2001).                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 4.6    |   | Specimen  Certificates for Series C-2 Preferred Stock, $.01 par value, of the Company  (incorporated by reference to Exhibit 4.7 to the Company’s Form 10-K for the  report date of November 14, 2001).                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 4.7    |   | Specimen  Certificates for Series D Preferred Stock, $.01 par value, of the Company  (incorporated by reference to Exhibit 4.8 to the Company’s Form 10-K for the  report date of November 14, 2001).                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 4.8    |   | Indenture, dated as of November 24, 2004, between the  Company and Madeline LLC as trustee (incorporated by reference to Exhibit  10.3 to the Company’s Form 10-Q filed December 8, 2004).                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 4.9    |   | Supplemental Indenture, dated as of November 24, 2004,  between the Company and Oak Hill Capital Partners, L.P. as trustee  (incorporated by reference from exhibit to Form 8-K filed December 1, 2004).                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.1   |   | Loan  and Security Agreement among Grand Summit Resort Properties, Inc., Textron  Financial Corporation and certain lenders dated as of September 1, 1998  (incorporated by reference to Exhibit 10.1 to the Company’s quarterly report  on Form 10-Q for the quarter ended October 25, 1998).                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.2   |   | First Amendment Agreement  Re: Loan and Security Agreement Among Grand Summit Resort Properties, Inc.,  as Borrower and Textron Financial Corporation, as Administrative Agent dated  as of April 5, 1999 (incorporated by reference to Exhibit 10.1 to the  Company’s quarterly report on Form 10-Q for the quarter ended April 25,  1999).         |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.3   |   | Accession, Loan Sale  and Second Amendment Agreement Re: Loan and Security Agreement among Grand  Summit Resort Properties, Inc. and Textron Financial Corp. and The Lenders  Listed therein dated June 24, 1999 (incorporated by reference to Exhibit  10.22 to the Company’s annual report on Form 10-K for the fiscal year ended  July 25, 1999). |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.4   |   | Third Amendment  Agreement Re: Loan and Security Agreement Among Grand Summit Resort  Properties, Inc., as Borrower and Textron Financial Corporation, as  Administrative Agent dated as of January 2000 (incorporated by reference to  Exhibit 10.16 to the Company’s Form 10-K for the report date November 14,  2002).                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.5   |   | Fourth Amendment  Agreement Re: Loan and Security Agreement Among Grand Summit Resort  Properties, Inc., as Borrower and Textron Financial Corporation, as  Administrative Agent dated as of September 15, 2000 (incorporated by  reference to Exhibit 10.17 to the Company’s Form 10-K for the report date  November 14, 2002).                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.6   |   | Fifth Amendment  Agreement Re: Loan and Security Agreement Among Grand Summit Resort  Properties, Inc., as Borrower and Textron Financial Corporation, as  Administrative Agent dated as of August 20, 2001 (incorporated by reference  to Exhibit 10.18 to the Company’s Form 10-K for the report date November 14,  2002).                         |

 

37

----

 
| 10.7   |   | Sixth Amendment  Agreement Re: Loan and Security Agreement Among Grand Summit Resort  Properties, Inc., as Borrower and Textron Financial Corporation, as  Administrative Agent dated as of August 29, 2002 (incorporated by reference  to Exhibit 99.2 to the Company’s Form 8-K for the report date October 11,  2002).                                                                        |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.8   |   | Statement  of Intention and Special Additional Financing Agreement dated July 25, 2000  between Grand Summit Resort Properties, Inc. and Textron Financial  Corporation (incorporated by reference from the Registrant’s Form 10-K for  the fiscal year ended July 30, 2000).                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.9   |   | First Amendment Agreement  to the Statement of Intention and Special Additional Financing Agreement  between Grand Summit Resort Properties, Inc. and Textron Financial  Corporation dated August 20, 2001 (incorporated by reference to Exhibit 10.20  to the Company’s Form 10-K for the report date November 14, 2002).                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.10  |   | Second Amendment  Agreement to the Statement of Intention and Special Additional Financing  Agreement between Grand Summit Resort Properties, Inc. and Textron Financial  Corporation dated as of August 29, 2002 (incorporated by reference to Exhibit  99.2 to the Company’s Form 8-K for the report date October 11, 2002).                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.11  |   | Seventh Amendment Agreement  Re: Loan and Security Agreement Among Grand Summit Resort Properties, Inc.,  as Borrower and Textron Financial Corporation, as Administrative Agent dated  as of December 31, 2003 (incorporated  by reference to Exhibit 4.1 to the Company’s Form 10-Q for the quarter ended  January 25, 2004).                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.12  |   | Third Amendment Agreement  to the Statement of Intention and Special Additional Financing Agreement  between Grand Summit Resort Properties, Inc. and Textron Financial  Corporation dated as of December 31, 2003 (incorporated by reference to  Exhibit 4.2 to the Company’s Form 10-Q for the quarter ended January 25,  2004).                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.13  |   | Eighth  Amendment Agreement Re: Loan and Security Agreement Among Grand Summit  Resort Properties, Inc., as Borrower and Textron Financial Corporation, as  Administrative Agent dated as of June  30, 2005(incorporated by reference to Exhibit 10.1 to the Company’s  Form 8-K for the report date of May 27, 2005).                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.14  |   | Fourth  Amendment Agreement to the Statement of Intention and Special  Additional Financing Agreement between Grand Summit Resort Properties, Inc.  and Textron Financial Corporation dated as of June 30, 2005 (incorporated by  reference to Exhibit 10.2 to the Company’s Form 8-K for the report date of  July 7, 2005).                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.15  |   | Amendment Letter dated as of December 30, 2004 to Loan  and Security Agreement dated as of September 1, 1998 among Grand Summit  Resort Properties, Inc., the lenders named therein, and Textron Financial  Corporation as administrative agent (incorporated by reference from Exhibit  10.1 to the Company’s Form 8-K filed January 4, 2005).                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.16  |   | Waiver  Letter dated as of September 30, 2005 to Loan and Security Agreement dated as  of September 1, 1998 among Grand Summit Resort Properties, Inc., the Lenders  named therein, and Textron Financial Corporation as administrative agent (incorporated by reference from Exhibit 10.1 to  the Company’s Form 8-K filed October 6, 2005).                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.17  |   | Loan Settlement  Agreement dated as of March 31, 2004 among American Skiing Company,  Killington Ltd., American Skiing Company Resort Properties, Inc., The Canyons  Resort Properties, Inc., Fleet National Bank, Ski Partners LLC, Oak Hill  Capital Partners, L.P. and OHSF ASTC, LLC (incorporated by reference to  Exhibit 4.1 to the Company’s Form 8-K for the report date June 9, 2004). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.18  |   | Agreement Regarding  Killington Resort and Certain Nearby Properties dated as of March 31, 2004,  among American Skiing Company, American Skiing Company Resort Properties,  Inc., Killington Ltd. And SP Land Company, LLC (incorporated by reference to  Exhibit 4.2 to the Company’s Form 8-K for the report date June 9, 2004).                                                              |

 

38

----

 
| 10.19  |   | Schedule to Industry  standard 1992 ISDA Master Agreement (the “Agreement”) dated May 23, 2005 with  Credit Suisse First Boston International (the “Counterparty”) in connection  with the Company’s obligation to mitigate certain floating rate interest risk  pursuant to the terms of its existing first lien and second lien credit  agreements (the “Credit Agreements”) and entered into an interest rate swap  transaction (the “Swap Transaction”) with the Counterparty. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.20  |   | Registration  Rights Agreement dated November 10, 1997 by and between American Skiing  Company and ING (U.S.) Capital Corporation (incorporated by reference to  Exhibit 3 to the Company’s quarterly report on Form 10-Q for the quarter  ended October 26, 1997).                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.21  |   | Preferred Stock Subscription Agreement dated July 9,  1999 between the Registrant and the Purchasers listed on Annex A thereto,  including a form of Stockholders Agreement, Voting Agreement and Certificate  of Designation relating to the preferred stock to be issued (incorporated by  reference to Exhibit 2.1 to the Company’s Form 8-K for the report date of  July 9, 1999).                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.22  |   | Stockholders Agreement  dated as of August 6, 1999 among Oak Hill Capital Partners, L.P., and the  other entities identified in Annex A attached thereto, Leslie B. Otten and  the Registrant (incorporated by reference to Exhibit 10.2 to the Company’s  Form 10-K for the report date of October 22, 1999).                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.23  |   | Amendment to  Stockholders Agreement dated July 31, 2000 among the Registrant, Oak Hill  Capital Partners, L.P. and Leslie B. Otten (incorporated by reference to  Exhibit 10.2 to the Company’s Form 8-K for the report date of July 31, 2000).                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.24  |   | Securities Purchase  Agreement dated July 31, 2000 among the Registrant, American Skiing Company  Resort Properties, Inc. and Oak Hill Capital Partners, L.P. (incorporated by  reference to Exhibit 2.1 to the Company’s Form 8-K for the report date of  July 31, 2000).                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.25  |   | Securities Purchase  Agreement dated as of July 15, 2001 among American Skiing Company, a Delaware  corporation, Oak Hill Capital Partners, L.P., a Delaware limited partnership,  and other entities identified in Annex A thereto (incorporated by reference  to Exhibit 99.2 to the Company’s Form 8-K for the report date of July 16,  2001).                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.26  |   | Amendment No. 1 to  Securities Purchase Agreement among American Skiing Company, a Delaware  corporation, Oak Hill Capital Partners, L.P., a Delaware limited partnership  dated August 22, 2001 (incorporated by reference to Exhibit 10.1 to the  Company’s Form 8-K for the report date of August 31, 2001).                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.27  |   | Stock  Purchase Agreement dated as of August 1, 1997, among Kamori International  Corporation, ASC West and the Company (incorporated by reference to Exhibit  2.1 of the Company’s Registration Statement on Form S-1, Registration No.  333-33483).                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.28  |   | Purchase  and Sale Agreement dated as of October 16, 1996, among Sherburne Pass  Mountain Properties, LLC, Pico Mountain Sports Center, LLC, Pico Mountain  Operating Company, LLC, Harold L. and Edith Herbert, and Pico Ski Area  Management Company (incorporated by reference to Exhibit 10.62 to ASC East’s  Registration Statement on Form S-4, Registration No. 333-9763).                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.29  |   | Letter  of Agreement dated August 27, 1996, among SKI Ltd and certain shareholders of  Sugarloaf Mountain Corporation (incorporated by reference to Exhibit 10.63 to  ASC East’s Registration Statement on Form S-4, Registration No. 333-9763).                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.30  |   | Form  of Master Lease Agreement dated as of various dates among BancBoston Leasing,  Inc. as Lessor and Heavenly Valley Limited Partnership, Killington, Ltd.,  Mount Snow, Ltd., ASC Leasing, Inc., Steamboat Ski & Resort Corporation,  and Sunday River Skiway Corp. as Lessees (incorporated by reference to  Exhibit 10.41 to the Company’s annual report on Form 10-K for the year ended  July 26, 1998).                                                                                                        |

 

39

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| 10.31  |   | Unlimited  Guaranty by the Company in favor of BancBoston Leasing, Inc., dated as of  July 20, 1998 (incorporated by reference to Exhibit 10.40 to the Company’s  annual report on Form 10-K for the year ended July 26, 1998).                                                                                                                                                                                 |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.32  |   | Assignment  dated May 30, 1997, between Wolf Mountain Resorts, L.C. and ASC Utah  (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement  on Form S-1 Registration No. 333-33483).                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.33  |   | Indenture  dated October 24, 1990, between Killington Ltd. and The Howard Bank, as  trustee (representative of indentures with respect to similar indebtedness  aggregating approximately $2,995,000 in original principal amount and  maturing at various times from 2015 to 2016) (incorporated by reference to  Exhibit 10.19 to ASC East’s Registration Statement on Form S-4, Registration  No. 333-9763). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.34  |   | Lease  dated October 15, 1980, among H. Donald Penley, Joseph Penley, Albert Penley  and Sunday River Skiway Corporation (incorporated by reference to Exhibit  10.40 to ASC East’s Registration Statement on Form S-4, Registration No.  333-9763).                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.35  |   | Lease/Option  dated October 12, 2003, between John Blake and L.B.O. Holding, Inc.  (incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K for  the fiscal year ended July 27, 2003).                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.36  |   | Lease  dated November 10, 1960, between the State of Vermont and Sherburne  Corporation (predecessor to Killington, Ltd.) (incorporated by reference to  Exhibit 10.44 to ASC East’s Registration Statement on Form S-4, Registration  No. 333-9763).                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.37  |   | Amended  and Restated Lease Agreement between Sugarloaf Mountain Corporation and the  Inhabitants of the Town of Carrabassett Valley, Maine, concerning the  Sugarloaf Golf Course dated November 16, 2000 (incorporated by reference to  Exhibit 10.35 to American Skiing Company’s Registration Statement on Form  S-4, filed on January 9, 2001).                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.38  |   | Ground  Lease Agreement dated July 3, 1997, between ASC Utah and Wolf Mountain  Resorts, L.C. (incorporated by reference to Exhibit 10.64 to the Company’s  Registration Statement on Form S-1, Registration No. 333-33483).                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.39  |   | Ground  Lease Guaranty dated July 3, 1997, from the Company to Wolf Mountain Resorts,  L.C. (incorporated by reference to Exhibit 10.65 to the Company’s  Registration Statement on Form S-1, Registration No. 333-33483).                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.40  |   | Stock  Option Plan (incorporated by reference to Exhibit 10.89 to the Company’s  Registration Statement on Form S-1, Registration No. 333-33483).                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.41  |   | Form  of Non-Qualified Stock Option Agreement (Five-Year Vesting Schedule)  (incorporated by reference to Exhibit 10.90 to the Company’s Registration  Statement on Form S-1, Registration No. 333-33483).                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.42  |   | Form  of Non-Qualified Stock Option Agreement (Fully-Vested) (incorporated by  reference to Exhibit 10.91 to the Company’s Registration Statement on Form  S-1, Registration No. 333-33483).                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.43  |   | Form  of Incentive Stock Option Agreement (incorporated by reference to Exhibit  10.92 to the Company’s Registration Statement on Form S-1, Registration No.  333-33483).                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.44  |   | Executive Employment  Agreement between the Registrant and Foster A. Stewart, Jr. dated as of  September 1, 2003 (incorporated by reference to Exhibit 10.1 to the Company’s  Form 10-Q for the quarter ended January 25, 2004).                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.45  |   | Executive Employment  Agreement between the Registrant and Helen E. Wallace dated as of November 7,  2002 (incorporated by reference to Exhibit 10.37 to the Company’s Form 10-K  for the year ended July 28, 2002).                                                                                                                                                                                            |

 

40

----

 
| 10.46  |   | Employment Letter  between the Registrant and Franklin Carey dated July 21, 2003 (incorporated  by reference to Exhibit 10.23 to the Company’s Form 10-K for the fiscal year  ended July 27, 2003).                                                                                                                                                                                |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.47  |   | The Canyons Resort  Village Management Agreement dated as of November 15, 1999 (incorporated by  reference to Exhibit 2 to the Company’s Form 10-Q for the quarter ended  October 24, 1999).                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.48  |   | Amended and Restated  Development Agreement for The Canyons Specially Planned Area Snyderville  Basin, Summit County, Utah dated as of November 15, 1999 (incorporated by  reference to Exhibit 3 to the Company’s Form 10-Q for the quarter ended  October 24, 1999).                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.49  |   | American Skiing Company  Phantom Equity Plan dated as of December 1, 2001 (incorporated by reference  to Exhibit 10.41 to the Company’s Form 10-K for the year ended July 28,  2002).                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.50  |   | Form of Phantom Equity  Plan Grant Agreement (Five Year Vesting Schedule) (incorporated by reference  to Exhibit 10.42 to the Company’s Form 10-K for the year ended July 28,  2002).                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.51  |   | Form of Phantom Equity  Plan Grant Agreement (Four Year Vesting Schedule) (incorporated by reference  to Exhibit 10.43 to the Company’s Form 10-K for the year ended July 28,  2002).                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.52  |   | Amended and Restated  Limited Liability Company Operating Agreement of SP Land Company, LLC  (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the  quarter ended April 25, 2004).                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.53  |   | Limited Liability  Operating Agreement of Cherry Knoll Development, LLC (incorporated by  reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended  April 25, 2004).                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.54  |   | Full Release and  Settlement Agreement dated July 8, 2004 among American Skiing Company,  Steamboat Ski & Resort Corporation, Walton Pond Apartments, Inc.,  American Skiing Company Resort Properties, Inc., Triple Peaks, LLC and  Steamboat, LLC (incorporated by reference to Exhibit 4.2 to the Company’s  Form 8-K for the report date July 13, 2004).                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.55  |   | Restatement of  Agreement dated August 1, 2001, by and among D.A. Osguthorpe, D.A. Osguthorpe  Family Partnership, D. A. Osguthorpe as trustee of The Dr. D.A. Osguthorpe  Trust, Stephen A. Osguthorpe and ASC Utah. Utah (incorporated by reference to  Exhibit 10.37 to the Company’s Form 10-K for the fiscal year ended July 26,  2004).                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.56  |   | Amended and Restated  Lease Agreement Number 419 between The State of Utah, acting through the  School and Institutional Trust Lands Administration and ASC Utah, d/b/a The  Canyons, dated July 1, 1998. (incorporated by reference to Exhibit 10.38 to  the Company’s Form 10-K for the fiscal year ended July 26, 2004).                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.57  |   | Agreement dated August  18, 1997, between Killington, Ltd. and Farm and Wilderness Foundation, Inc.  (incorporated by reference to Exhibit 10.39 to the Company’s Form 10-K for  the fiscal year ended July 26, 2004).                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.58  |   | Third  Amendment to Ground Lease Agreement dated September 16, 2004 among Wolf  Mountain Resorts, L.C. and ASC Utah Inc. (incorporated by reference to  Exhibit 10.40 to the Company’s Form 10-K for the fiscal year ended July 26,  2004)                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.59  |   | First Lien Credit Agreement, dated as of November 24,  2004, among the Company, certain of its domestic subsidiaries, certain  lenders, General Electric Capital Corporation, as administrative agent and  collateral agent, and Credit Suisse First Boston, as syndication agent  (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed  December 8, 2004). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.60  |   | Second Lien Credit Agreement, dated as of November 24,  2004, among the Company, certain of its domestic subsidiaries, certain  lenders, General Electric Capital Corporation, as administrative agent and                                                                                                                                                                              |

 

41

----

 
|   |   | collateral agent, and Credit Suisse First Boston, as  syndication agent (incorporated by reference to Exhibit 10.2 to the Company’s  Form 10-Q filed December 8, 2004).                                                                                                                                             |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 10.61  |   | Exchange Agreement, dated as of October 12, 2004,  between the Company and Madeline LLC (incorporated by reference to Exhibit  10.6 to the Company’s Form 10-Q filed December 8, 2004).                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 10.62  |   | Executive Employment Agreement effective as of March  23, 2005 between American Skiing Company and William J. Fair (incorporated by  reference to Form 8-K filed March 31, 2005).                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 10.63  |   | Phantom Equity Award dated as of March 23, 2005  between American Skiing Company and William J. Fair (incorporated by  reference to Form 8-K filed March 31, 2005).                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 10.64  |   | Waiver Agreement dated as of April 28, 2005 to Loan  and Security Agreement dated as of September 1, 1998 among Grand Summit  Resort Properties, Inc., the lenders named therein, and Textron Financial  Corporation as administrative agent (incorporated by reference from exhibit  to Form 8-K filed April 29, 2005). |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 21.1   |   | Subsidiaries  of the Company.                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 23.1   |   | Consent  of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 31.1   |   | Certification  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002.                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 31.2   |   | Certification  of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002.                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 32.1   |   | Certification  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 32.2   |   | Certification  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                      |

 

42

----

 

**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, as amended, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                          | American  Skiing Company               |
|-------------------------------|----------------------------------------|
| Date:  October  31, 2005 |                                   |
|                          |                                   |
|                          | By:                                    |   /s/  William J. Fair |   |
|                          | William  J. Fair                       |
|                          | President  and Chief Executive Officer |
|                          | (Principal  Executive Officer)         |

 

                Pursuant to the requirements ofthe Securities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities indicatedthis 31sr day of October, 2005.

 
|   | By:                                    |   /s/  William J. Fair  |   |
|--------|----------------------------------------|-----------------------------------|--------|
|   | William  J. Fair                       |
|   | President  and Chief Executive Officer |
|   | (Principal  Executive Officer)         |
|   |                                   |                              |
|   |                                   |                              |
|   | By:                                    |   /s/  Helen E. Wallace |   |
|   | Helen  E. Wallace                      |
|   | Senior  Vice President,                |
|   | Chief  Financial Officer               |
|   | (Principal  Financial Officer)         |
|   | (Principal  Accounting Officer)        |
|   |                                   |                              |
|   |                                   |                              |
|   | By:                                    | /s/  Leslie B. Otten              |   |
|   | Leslie  B. Otten, Director             |
|   |                                   |                              |
|   | By:                                    | /s/  Gordon M. Gillies            |   |
|   | Gordon  M. Gillies, Director           |
|   |                                   |                              |
|   | By:                                    | /s/  David Hawkes                 |   |
|   | David  Hawkes, Director                |
|   |                                   |                              |
|   | By:                                    | /s/  Edward V. Dardani            |   |
|   | Edward  V. Dardani, Director           |
|   |                                   |                              |
|   | By:                                    | /s/  Steven Gruber                |   |
|   | Steven  Gruber, Director               |
|   |                                   |                              |
|   | By:                                    | /s/  J. Taylor Crandall           |   |
|   | J.  Taylor Crandall, Director          |

 

43

----

 
|   | By:                        | /s/  William Janes   |   |
|--------|----------------------------|----------------------|--------|
|   | William  Janes, Director   |
|   |                       |                 |
|   | By:                        |                 |   |
|   | Paul  Wachter, Director    |
|   |                       |                 |
|   | By:                        | /s/  Robert Branson  |   |
|   | Robert  Branson, Director  |
|   |                       |                 |
|   | By:                        | /s/  William J. Fair |   |
|   | William  J. Fair, Director |

 

44

----

 

**Report of IndependentRegistered Public Accounting Firm**

 

 

TheBoard of Directors and Shareholders of

AmericanSkiing Company:

 

Wehave audited the accompanying consolidated balance sheets of American SkiingCompany and subsidiaries as of July 25, 2004 and July 31, 2005, and the relatedconsolidated statements of operations, shareholders’ deficit, and cash flowsfor each of the years in the three-year period ended July 31, 2005.  These consolidated financial statements arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of American SkiingCompany and subsidiaries as of July 25, 2004 and July 31, 2005, and the resultsof their operations and their cash flows for each of the years in thethree-year period ended July 31, 2005, in conformity with U.S. generallyaccepted accounting principles.

 

Asdiscussed in Note 2 to the consolidated financial statements, the Companyadopted Statement of Financial Accounting Standards No. 150, “Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity,” inthe fiscal year ended July 25, 2004 and as a result changed its method forclassifying certain of the Company’s financial instruments.

 

 
|                 | //KPMG  LLP// |   |
|----------------------|---------------|--------|
|                 |          |   |
|                 |          |   |
| Salt Lake City, Utah |          |   |
| October 7, 2005      |          |   |

 

F-1

----

 

American Skiing Company and Subsidiaries

ConsolidatedBalance Sheets

(In thousands,except share and per share amounts)

 
| ** **                                                                                                                                    | ** ** | **July 25, 2004** | ** ** | **July 31, 2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| **Assets**                                                                                                                                    |       |              |       |              |       |
| Current assets                                                                                                                                |       |              |       |              |       |
| Cash and cash  equivalents                                                                                                                    |       | $                 | 4,267      |              | $          | 6,216 |   |
| Restricted cash                                                                                                                               |       | 7,603             |       | 2,557             |       |
| Accounts  receivable, net of allowance for doubtful accounts of $1,057 and $579,  respectively, including related party amounts (see Note 14) |       | 5,628             |       | 5,627             |       |
| Inventory                                                                                                                                     |       | 3,628             |       | 3,576             |       |
| Prepaid expenses  and other                                                                                                                   |       | 3,731             |       | 3,829             |       |
| Deferred income  taxes                                                                                                                        |       | 6,354             |       | 7,536             |       |
| Total current  assets                                                                                                                         |       | 31,211            |       | 29,341            |       |
|                                                                                                                                          |       |              |       |              |       |
| Property and equipment, net                                                                                                                   |       | 353,509           |       | 348,619           |       |
| Real estate developed for sale                                                                                                                |       | 25,024            |       | 22,304            |       |
| Intangible assets, net                                                                                                                        |       | 6,365             |       | 6,307             |       |
| Deferred financing costs, net                                                                                                                 |       | 3,933             |       | 6,472             |       |
| Other assets, including related party amounts (see  Note 14)                                                                                  |       | 10,758            |       | 9,891             |       |
| Total assets                                                                                                                                  |       | $                 | 430,800    |              | $          | 422,934 |   |

 

See accompanyingnotes to consolidated financial statements.

 

F-2

----

 
| ** **                                                                                                                                                                                                                                                                         | ** ** | **July 25, 2004** | ** ** | **July 31, 2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| **Liabilities, Mandatorily Redeemable Preferred  Stock, and Shareholders’ Deficit**                                                                                                                                                                                           |       |              |       |              |       |
| Current liabilities                                                                                                                                                                                                                                                                |       |              |       |              |       |
| Current portion  of long-term debt                                                                                                                                                                                                                                                 |       | $                 | 45,191     |              | $          | 31,223 |   |
| Accounts payable  and other current liabilities                                                                                                                                                                                                                                    |       |              |       |              |       |
| Accounts payable,  including related party amounts (see Note 14)                                                                                                                                                                                                                   |       | 9,841             |       | 9,936             |       |
| Accrued interest                                                                                                                                                                                                                                                                   |       | 4,619             |       | 8,992             |       |
| Other current  liabilities                                                                                                                                                                                                                                                         |       | 29,394            |       | 24,291            |       |
| Deposits and  deferred revenue                                                                                                                                                                                                                                                     |       | 13,144            |       | 22,139            |       |
| Mandatorily  Redeemable Convertible 101/2% Series A Preferred Stock,  par value of $0.01 per share; 40,000 shares authorized; 36,626 shares and 0  shares issued and outstanding, respectively, including cumulative dividends  (redemption value of $73,947 and $0, respectively) |       | 73,947            |       | —            |       |
| Total current  liabilities                                                                                                                                                                                                                                                         |       | 176,136           |       | 96,581            |       |
|                                                                                                                                                                                                                                                                               |       |              |       |              |       |
| Long-term debt, net of current portion                                                                                                                                                                                                                                             |       | 74,384            |       | 209,519           |       |
| Subordinated notes and debentures                                                                                                                                                                                                                                                  |       | 142,260           |       | 102,813           |       |
| Other long-term liabilities                                                                                                                                                                                                                                                        |       | 4,757             |       | 10,635            |       |
| Deferred income taxes                                                                                                                                                                                                                                                              |       | 6,354             |       | 7,536             |       |
| Mandatorily  Redeemable 81/2 % Series B Preferred Stock; 150,000  shares authorized, issued, and outstanding (redemption value of $0)                                                                                                                                              |       | —            |       | —            |       |
| Mandatorily  Redeemable Convertible Participating 12% Series C-1 Preferred Stock, par  value of $0.01 per share; 40,000 shares authorized, issued, and outstanding,  including cumulative dividends (redemption value of $56,376 and $63,574,  respectively)                       |       | 55,880            |       | 63,203            |       |
| Mandatorily  Redeemable 15% Nonvoting Series C-2 Preferred Stock, par value of $0.01 per  share; 139,453 shares authorized, issued, and outstanding, including  cumulative dividends (redemption value of $213,826 and $248,339,  respectively)                                    |       | 211,991           |       | 246,924           |       |
| Mandatorily  Redeemable Nonvoting Series D Participating Preferred Stock, par value of  $0.01 per share; 5,000 shares authorized; no shares issued or outstanding                                                                                                                  |       | —            |       | —            |       |
| Total  liabilities and mandatorily redeemable preferred stock                                                                                                                                                                                                                      |       | 671,762           |       | 737,211           |       |
|                                                                                                                                                                                                                                                                               |       |              |       |              |       |
| Shareholders’ deficit                                                                                                                                                                                                                                                         |       |              |       |              |       |
| Common stock,  Class A, par value of $0.01 per share; 15,000,000 shares authorized;  14,760,530 shares issued and outstanding                                                                                                                                                      |       | 148               |       | 148               |       |
| Common stock,  par value of $0.01 per share; 100,000,000 shares authorized; 16,977,653  shares issued and outstanding                                                                                                                                                              |       | 170               |       | 170               |       |
| Additional  paid-in capital                                                                                                                                                                                                                                                        |       | 302,285           |       | 302,285           |       |
| Accumulated  deficit                                                                                                                                                                                                                                                               |       | (543,565          | )          | (616,880          | )          |
| Total  shareholders’ deficit                                                                                                                                                                                                                                                  |       | (240,962          | )          | (314,277          | )          |
| Total  liabilities, mandatorily redeemable preferred stock, and shareholders’  deficit                                                                                                                                                                                        |       | $                 | 430,800    |              | $          | 422,934 |   |

 

See accompanyingnotes to consolidated financial statements.

 

F-3

----

 

American Skiing Company and Subsidiaries

ConsolidatedStatements of Operations

(In thousands, except per share amounts)

 
| ** **                                                                     | ** ** | **Year Ended**    | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                     | ** ** | **July 27, 2003** | ** ** | **July 25, 2004** | ** ** | **July 31, 2005** | ** ** |
| Net revenues:                                                                  |       |              |       |   |   |   |   |
| Resort                                                                         |       | $                 | 251,638    |   | $ | 250,706 |   | $ | 267,314 |   |
| Real estate                                                                    |       | 12,898            |       | 33,405 |   | 9,163 |   |
| Total net revenues                                                             |       | 264,536           |       | 284,111 |   | 276,477 |   |
|                                                                           |       |              |       |   |   |   |   |
| Operating expenses:                                                            |       |              |       |   |   |   |   |
| Resort                                                                         |       | 168,010           |       | 167,518 |   | 173,855 |   |
| Real estate                                                                    |       | 12,166            |       | 24,661 |   | 7,185 |   |
| Marketing, general, and administrative                                         |       | 49,645            |       | 54,801 |   | 50,439 |   |
| Merger, restructuring, and asset impairment charges, net                       |       | 1,451             |       | 137 |   | — |   |
| Depreciation and amortization                                                  |       | 27,513            |       | 26,477 |   | 31,798 |   |
| Write off of  financing costs                                                  |       | 2,761             |       | — |   | 5,983 |   |
| Total operating expenses                                                       |       | 261,546           |       | 273,594 |   | 269,260 |   |
|                                                                           |       |              |       |   |   |   |   |
| Income from operations                                                         |       | 2,990             |       | 10,517 |   | 7,217 |   |
|                                                                           |       |              |       |   |   |   |   |
| Interest expense, net                                                          |       | (47,364           | )          | (87,603 | ) | (81,668 | ) |
| Gain on sale of Haystack  resort                                               |       | —            |       | — |   | 822 |   |
| Increase in fair value of  interest rate swap agreement                        |       | —            |       | — |   | 314 |   |
| Gain on extinguishment of debt                                                 |       | —            |       | 23,091 |   | — |   |
| Gain on transfer of assets  associated with extinguishment of debt             |       | —            |       | 25,493 |   | — |   |
|                                                                           |       |              |       |   |   |   |   |
| Loss before benefit for income  taxes                                          |       | (44,374           | )          | (28,502 | ) | (73,315 | ) |
|                                                                           |       |              |       |   |   |   |   |
| Benefit for income taxes                                                       |       | —            |       | — |   | — |   |
|                                                                           |       |              |       |   |   |   |   |
| Net loss                                                                       |       | (44,374           | )          | (28,502 | ) | (73,315 | ) |
|                                                                           |       |              |       |   |   |   |   |
| Accretion of discount and dividends on mandatorily redeemable preferred  stock |       | (37,644           | )          | — |   | — |   |
|                                                                           |       |              |       |   |   |   |   |
| Net loss attributable to  common shareholders                                  |       | $                 | (82,018    | ) | $ | (28,502 | ) | $ | (73,315 | ) |
|                                                                           |       |              |       |   |   |   |   |
| Basic and diluted net loss  attributable to common shareholders                |       | $                 | (2.59      | ) | $ | (0.90 | ) | $ | (2.31 | ) |
| Weighted average common shares  outstanding                                    |       | 31,724            |       | 31,738 |   | 31,738 |   |

 

See accompanyingnotes to consolidated financial statements.

 

F-4

----

 

American Skiing Company and Subsidiaries

ConsolidatedStatements of Shareholders’ Deficit

(In thousands, except share amounts)

 
| ** **                                                                     | ** ** | **Class A  Common stock** | ** ** | **Common stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Total**  | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------|------------|------------------|------------|----------------------------------|------------|--------------------------|------------|------------|------------|
| ** **                                                                     | ** ** | **Shares**                | ** ** | **Amount**       | ** ** | **Shares**                       | ** ** | **Amount**               | ** ** | ** ** | ** ** | ** ** |
|                                                                           |       |                      |       |             |       |                             |       |                     |       |       |       |   |   |   |   |
| Balance as of July 28, 2002                                                    |       | 14,760,530                |       | $                | 148        |                             | 16,963,611 |                     | $          | 170        |       | $ | 277,422 |   | $ | (433,045 | ) | $ | (155,305 | ) |
| Exercise of common stock options                                               |       | —                    |       | —           |       | 14,042                           |       | —                   |       | 28         |       | — |   | 28 |   |
| Accretion of discount and dividends on mandatorily redeemable preferred  stock |       | —                    |       | —           |       | —                           |       | —                   |       | —     |       | (37,644 | ) | (37,644 | ) |
| Net loss                                                                       |       | —                    |       | —           |       | —                           |       | —                   |       | —     |       | (44,374 | ) | (44,374 | ) |
| Balance as of July 27, 2003                                                    |       | 14,760,530                |       | 148              |       | 16,977,653                       |       | 170                      |       | 277,450    |       | (515,063 | ) | (237,295 | ) |
|                                                                           |       |                      |       |             |       |                             |       |                     |       |       |       |   |   |   |   |
| Exchange of debt for capital contribution                                      |       | —                    |       | —           |       | —                           |       | —                   |       | 24,835     |       | — |   | 24,835 |   |
| Net loss                                                                       |       | —                    |       | —           |       | —                           |       | —                   |       | —     |       | (28,502 | ) | (28,502 | ) |
| Balance as of July 25, 2004                                                    |       | 14,760,530                |       | 148              |       | 16,977,653                       |       | 170                      |       | 302,285    |       | (543,565 | ) | (240,962 | ) |
|                                                                           |       |                      |       |             |       |                             |       |                     |       |       |       |   |   |   |   |
| Net loss                                                                       |       | —                    |       | —           |       | —                           |       | —                   |       | —     |       | (73,315 | ) | (73,315 | ) |
| Balance as of July 31, 2005                                                    |       | 14,760,530                |       | $                | 148        |                             | 16,977,653 |                     | $          | 170        |       | $ | 302,285 |   | $ | (616,880 | ) | $ | (314,277 | ) |

 

See accompanyingnotes to consolidated financial statements.

 

F-5

----

 

American Skiing Company and Subsidiaries

ConsolidatedStatements of Cash Flows

(In thousands)

 
| ** **                                                                                 | ** ** | **Year Ended**    | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                 | ** ** | **July 27, 2003** | ** ** | **July 25, 2004** | ** ** | **July 31, 2005** | ** ** |
| Cash flows from operating activities                                                       |       |              |       |   |   |   |   |
| Net loss                                                                                   |       | $                 | (44,374    | ) | $ | (28,502 | ) | $ | (73,315 | ) |
| Adjustments to reconcile net loss to net cash (used in) provided by  operating activities: |       |              |       |   |   |   |   |
| Depreciation and amortization                                                              |       | 27,513            |       | 26,477 |   | 31,798 |   |
| Non-cash interest and amortization of deferred financing costs                             |       | 3,116             |       | 46,182 |   | 46,491 |   |
| Non-cash increase in fair value of interest rate swap agreement                            |       | —            |       | — |   | (314 | ) |
| Amortization of discount on convertible debt                                               |       | 1,433             |       | 837 |   | 161 |   |
| Non-cash interest on junior subordinated notes                                             |       | 1,554             |       | 1,724 |   | 8,453 |   |
| Non-cash compensation expense                                                              |       | 563               |       | 156 |   | 523 |   |
| Write-off of deferred financing costs                                                      |       | 2,761             |       | — |   | 5,983 |   |
| Gain from sale or impairment of assets, net                                                |       | (499              | )          | (1,147 | ) | (1,172 | ) |
| Gain on extinguishment of debt                                                             |       | —            |       | (23,091 | ) | — |   |
| Gain on transfer of assets associated with extinguishment of debt                          |       | —            |       | (25,493 | ) | — |   |
| Decrease (increase) in assets:                                                             |       |              |       |   |   |   |   |
| Restricted cash                                                                            |       | (904              | )          | (4,376 | ) | 5,046 |   |
| Accounts receivable, net                                                                   |       | 3,956             |       | 234 |   | 1 |   |
| Inventory                                                                                  |       | 404               |       | 25 |   | 52 |   |
| Prepaid expenses and other                                                                 |       | 938               |       | 194 |   | (98 | ) |
| Real estate developed for sale                                                             |       | 5,709             |       | 18,950 |   | 2,378 |   |
| Other assets                                                                               |       | 13,177            |       | (831 | ) | 126 |   |
| Increase (decrease) in liabilities:                                                        |       |              |       |   |   |   |   |
| Accounts payable and other current liabilities                                             |       | 876               |       | 6,735 |   | (321 | ) |
| Deposits and deferred revenue                                                              |       | 1,190             |       | 3,301 |   | 8,995 |   |
| Other long-term liabilities                                                                |       | (25,412           | )          | 785 |   | (229 | ) |
| Net cash provided by (used in) operating activities                                        |       | (7,999            | )          | 22,160 |   | 34,558 |   |
|                                                                                       |       |              |       |   |   |   |   |
| Cash flows from investing activities                                                       |       |              |       |   |   |   |   |
| Capital expenditures                                                                       |       | (7,084            | )          | (9,573 | ) | (17,953 | ) |
| Proceeds from sale of assets                                                               |       | 2,426             |       | 2,214 |   | 6,013 |   |
| Net cash used in investing activities                                                      |       | (4,658            | )          | (7,359 | ) | (11,940 | ) |
|                                                                                       |       |              |       |   |   |   |   |
| Cash flows from financing activities                                                       |       |              |       |   |   |   |   |
| Proceeds from borrowings under previous Resort Senior Credit Facility                      |       | 143,801           |       | 68,465 |   | 22,659 |   |
| Repayment of principal under previous Resort Senior Credit Facility                        |       | (124,679          | )          | (67,203 | ) | (101,701 | ) |
| Proceeds from borrowings under current Resort Senior Credit Facility                       |       | —            |       | — |   | 262,794 |   |
| Repayment of principal under current Resort Senior Credit Facility                         |       | —            |       | — |   | (60,035 | ) |
| Proceeds from issuance of long-term debt                                                   |       | —            |       | — |   | 2,550 |   |
| Repayment of principal on long-term debt                                                   |       | (5,656            | )          | (4,915 | ) | (10,844 | ) |
| Repayment of Subordinate debt                                                              |       | —            |       | — |   | (121,875 | ) |
| Proceeds from issuance of real estate debt                                                 |       | 9,715             |       | 6,159 |   | — |   |
| Repayment of principal on real estate debt                                                 |       | (6,860            | )          | (19,166 | ) | (6,911 | ) |
| Payment of deferred financing costs                                                        |       | (4,020            | )          | — |   | (7,306 | ) |
| Payment for costs of extinguishment of debt                                                |       | —            |       | (470 | ) | — |   |
| Proceeds from exercise of stock options                                                    |       | 28                |       | — |   | — |   |
| Net cash (used in) provided by financing activities                                        |       | 12,329            |       | (17,130 | ) | (20,669 | ) |
| Net (decrease) increase in cash and cash equivalents                                       |       | (328              | )          | (2,329 | ) | 1,949 |   |
| Cash and cash equivalents, beginning of year                                               |       | 6,924             |       | 6,596 |   | 4,267 |   |
| Cash and cash equivalents, end of year                                                     |       | $                 | 6,596      |   | $ | 4,267 |   | $ | 6,216 |   |
|                                                                                       |       |              |       |   |   |   |   |
| Supplemental disclosures of cash flow information:                                         |       |              |       |   |   |   |   |
| Cash paid for interest                                                                     |       | $                 | 42,970     |   | $ | 39,268 |   | $ | 22,522 |   |
| Cash refunded for income taxes, net                                                        |       | (15               | )          | (113 | ) | — |   |
| Supplemental schedule of non-cash investing and financing activities:                      |       |              |       |   |   |   |   |
| Accretion of discount and dividends on mandatorily redeemable preferred  stock             |       | 37,644            |       | — |   | — |   |
| Exchange of debt for capital contribution                                                  |       | —            |       | 24,835 |   | — |   |
| Acquisition of  equipment under capital leases                                             |       | —            |       | — |   | 12,655 |   |
| Conversion of  Series A Preferred Stock to New Junior Subordinated Notes                   |       | —            |       | — |   | 76,673 |   |
| Addition of  interest to principal outstanding on New Junior Subordinated Notes            |       | —            |       | — |   | 911 |   |

 

See accompanyingnotes to consolidated financial statements.

 

F-6

----

 

**American Skiing Company**

**Notes to Consolidated FinancialStatements**

 

1.             **Basis of Presentation**

 

AmericanSkiing Company (ASC), a Delaware corporation, and its subsidiaries(collectively, the Company) own and operate resort facilities, real estatedevelopment companies, golf courses, ski and golf schools, retail shops, andother related companies.  The Companyreports its results of operations in two business segments, resort operationsand real estate operations (see Note 13). The Company has historically conducted its resort operations through aseries of its wholly owned subsidiaries which operated the following skiresorts during fiscal 2005 and fiscal 2004: Sugarloaf/USA and Sunday River inMaine, Attitash in New Hampshire, Killington and Mount Snow in Vermont, TheCanyons in Utah, and Steamboat in Colorado. The Company has historically conducted its real estate developmentoperations through its wholly owned subsidiary, American Skiing Company ResortProperties (Resort Properties), and Resort Properties’ subsidiaries, includingGrand Summit and The Canyons Resort Properties, Inc.

 

**BusinessConditions**

 

For fiscal 2003, fiscal 2004, and fiscal 2005, theCompany generated revenues of $264.5 million, $284.1 million, and $276.5million, respectively, incurred net losses attributable to common shareholdersof $82.0 million, $28.5 million, and $73.3 million, respectively, and generatedcash flows (used in) provided by operating activities of $(8.0) million, $22.2million, and $34.6 million, respectively. As of July 31, 2005, the Company had an accumulated deficit of$616.9  million and had negative workingcapital of $67.2  million.

 

**StrategicPlan**

 

TheCompany has undertaken a strategic plan designed to mitigate the effects ofthese negative business conditions and improve the Company’s financialcondition, liquidity, and results of operations.  This planincludes the following key components:

 

•                  Comprehensive financial restructuring package, including amendments toits resort and real estate construction credit facilities and redeemablepreferred stock, additional capital infusions, and the refinancing of itsResort Senior Credit Facility and its Senior Subordinated Notes along with its Real EstateTerm Facility to improve financialflexibility,

•                  Reorganization, staff reduction, and performance enhancement programsdesigned to achieve operational cost savings and improve financial performance,

•                  Strategic redeployment of management and capital resources to emphasizethe integration and growth of resort village development and operations,

•                  Improvement of the financial performance of Killington Ski Resort throughcontinued enhancements both in the physical appearance and guest serviceexperience of the resort,

•                  Implementation of the All for One all eastern season pass programdesigned to lock in skier visitation through increase in season pass sales,increase related net resort operating revenues, increase market share in theeast and to hedge against poor weather conditions in the east during the skiseason, and

•                  Reorganization of marketing and sales functions, strengthen sales staffcapabilities, increase marketing dollar spend into in-market needs to achievebroader marketing and sales coverage in our designated markets.

 

Managementhas completed several components of this plan, including refinancing theCompany’s Resort Senior Credit Facility, Senior Subordinated Notes, and SeriesA Preferred Stock, obtaining the additional capital infusions from Oak HillCapital Partners, L.P. and certain related entities (collectively, Oak Hill),implementing a staff reorganization plan to improve operational efficiencies,and strategically redeploying management. Also, during fiscal 2004, the Company successfully amended its real estate construction loan facilities toextend the timing of mandatory principal payments and provide additional liquidityto support ongoing sales and marketing activities for the remaining units to besold.  During fiscal 2004, the Companyheld an auction to sell substantially all of the remaining units at The CanyonsGrand Summit Hotel, which resulted in a $10.8 million reduction in theborrowings under the real estate construction loan facilities.  The Company also successfully restructuredits Real Estate Term Facility (see Note 6). During fiscal 2005, the Company requested and received principal paydown waivers from its lenders regarding its real estate construction loan (SeeNote 6). As of July 31, 2005, the Company is in compliance with all debtcovenants and other terms of its debt instruments.  Although there can be no assurance,management

 

F-7

----

 

believes theCompany has adequate liquidity and borrowing capacity to finance its operationsthrough at least the end of fiscal 2006.

 

During fiscal 2005, theCompany obtained a new senior secured credit facility.  The new facility totals $230.0 million andconsists of a revolving credit facility with a maximum borrowing capacity of$40.0 million and term loan facilities with maximum borrowing capacities of$190.0 million.  The proceeds from thesecredit facilities were used to repay in full the Company’s previously existingResort Senior Credit Facility and the Company’s Senior Subordinated Notes, aswell as to pay fees and expenses related to the transaction.

 

During fiscal2005, the Company entered into an Exchange Agreement with the holder of theSeries A Preferred Stock.  Pursuant tothe terms of the Exchange Agreement, the Company issued new junior subordinatednotes due 2012 (New Junior Subordinated Notes) to the holder of the Series APreferred Stock in exchange for all outstanding shares of Series A PreferredStock.  The New Junior Subordinated Notesaccrue non-cash interest at a rate of 11.25%, gradually increasing to a rate of13.0% in 2012.  No principal or interestpayments are required to be made on the New Junior Subordinated Notes untilmaturity.  The New Junior SubordinatedNotes are subordinated to all of the Company’s other debt obligations and alltrade payables incurred in the ordinary course of business.  None of the Company’s subsidiaries areobligated on the New Junior Subordinated Notes, and none of the Company’sassets will serve as collateral for repayment of the New Junior SubordinatedNotes.

 

DuringJune 2005, the Company completed the sale of certain assets comprising theHaystack ski resort (previously operated as part of the Mount Snow ski resort)to Tyringham Ridge, Inc. (Buyer).  Theselling price was $5.0 million, subject to certain customary adjustments.  The agreement includes a two-year right offirst refusal in favor of the Buyer for certain developmental land owned byMount Snow (but not used in its ski resort operations) known as the HoweFarm.  Under the terms of the agreement,Mount Snow will continue to be allowed to withdraw water from sources at theHaystack ski resort after the closing in amounts which approximate Mount Snow’shistorical use from this source. In addition, Mount Snow has a right of firstrefusal to reacquire the Haystack ski resort (not including certaindevelopmental real estate assets) for 20 years following the date ofclosing.  Net proceeds to the Companyfrom the sale of the Haystack ski resort were used to reduce borrowings underthe Resort Senior Credit Facility, including approximately $1.0 million paid topermanently reduce the amount of the First Lien Term Loan (see Note 5).  Under the terms of the Resort Senior CreditFacility, 50% of the proceeds from the sale of resort assets in excess of $4.0million during any fiscal year must be used to permanently repay the First LienTerm Loan.

 

**2.****            ****Summary of Significant Accounting Policies**

 

**Principles of Consolidation**

Theaccompanying consolidated financial statements include the accounts of ASC andits wholly owned subsidiaries.  Allsignificant intercompany accounts and transactions have been eliminated inconsolidation.

 

**Fiscal Year**

TheCompany’s fiscal year is a 52week or 53-week period ending on the last Sundayof July. The periods ended July 27, 2003 and July 25, 2004 (fiscal 2003 andfiscal 2004, respectively) each consisted of 52 weeks, while the period endedJuly 31, 2005 (fiscal 2005) consisted of 53 weeks.

 

**Cash and Cash Equivalents**

TheCompany considers all highly liquid debt instruments with an original maturityof three months or less to be cash equivalents. Cash equivalents, which consisted of short-term certificates of deposit,totaled approximately $1.0 million and $0.9 million as of July 25, 2004 and July 31, 2005, respectively.

 

**Restricted Cash**

Restrictedcash consists of deposits received and held in escrow related to pre-sales ofreal estate developed for sale, guest advance deposits for lodgingreservations, and cash held in cash collateral accounts by lenders on behalf ofthe real estate companies.  The cashbecomes available to the Company when the real estate units are sold,  the lodging services are provided, or uponapproval of expenditures by lenders.

 

F-8

----

 

**Inventory**

Inventoryis stated at the lower of cost (first-in, first-out method) or market, andconsists primarily of retail goods, food, and beverage products.

 

**Property and Equipment**

Propertyand equipment are carried at cost, net of accumulated depreciation,amortization, and impairment charges. Depreciation and amortization arecalculated using the straight-line method over the assets’ estimated usefullives which range from 9 to 40 years for buildings, 3 to 12 years for machineryand equipment, 10 to 50 years for land improvements, and 5 to 30 years forlifts, lift lines, and trails. Assets held under capital lease obligations areamortized over the shorter of their useful lives or their respective leaselives, unless a bargain purchase option exists at the end of the lease in whichcase the assets are amortized over their estimated useful lives. Due to theseasonality of the Company’s business, the Company records a full year ofdepreciation and amortization relating to its resort operating assets duringthe second and third quarters of the Company’s fiscal year.

 

**Real Estate Developed for Sale**

TheCompany capitalizes as real estate developed for sale the original acquisitioncost of land, direct construction and development costs, property taxes,interest incurred on costs related to real estate under development, and otherrelated costs (engineering, surveying, landscaping, etc.) until the propertyhas been developed to the point it is ready for sale.  The cost of sales for individual parcels ofreal estate or quarter and eighth share units within a project is determinedusing the relative sales value method. Selling costs are charged to expense in the period in which the relatedrevenue is recognized.

 

**Goodwill and Other Intangible Assets**

Asprescribed in Statement of Financial Accounting Standards (SFAS) No. 142, “*Goodwill and Other Intangible Assets*”,certain indefinite-lived intangible assets, including trademarks, are no longeramortized but are subject to annual impairment assessments.  An impairment loss is recognized to theextent that the carrying amount exceeds the asset’s fair value.  Definite-lived intangible assets continue tobe amortized on a straight-line basis over their estimated useful lives of 31years, and assessed for impairment utilizing guidance provided by SFAS No. 144,“*Accounting for the Impairment or Disposalof Long-Lived Assets*”.

 

As of July 25,2004 and July 31, 2005, acquired intangible assets (other than goodwill) relateentirely to the resort segment and consist of the following (in thousands):

 
| ** **                               | ** ** | **July 25, 2004** | ** ** | **July 31, 2005** | ** ** |
|------------------------------------------|------------|-------------------|------------|-------------------|------------|
| **Definite-lived Intangible  Assets:**   |       |              |       |              |       |
| Lease agreements                         |       | $                 | 1,853      |              | $          | 1,853 |   |
| Less accumulated amortization            |       | (346              | )          | (404              | )          |
|                                     |       | 1,507             |       | 1,449             |       |
|                                     |       |              |       |              |       |
| **Indefinite-lived Intangible  Assets:** |       |              |       |              |       |
| Trade names                              |       | 170               |       | 170               |       |
| Water rights                             |       | 4,688             |       | 4,688             |       |
| **Intangible Assets, net**               | ** ** | **$**             | **6,365**  | ** **        | **$**      | **6,307** | ** ** |

 

Amortization expense fordefinite-lived intangible assets was approximately $58,000 for each of fiscal2003, fiscal 2004, and fiscal 2005. Future amortization expense related to definite-lived intangible assetsis estimated to be approximately $58,000 for each of the next five fiscalyears.

 

**Deferred Financing Costs**

Costs incurred inconnection with the issuance of debt are included in deferred financing costs,net of accumulated amortization. Amortization is calculated on a straight-line basis over the respectiveoriginal lives of the applicable issues. Amortization calculated on a straight-line basis is not materiallydifferent from amortization that would have resulted from using the effectiveinterest method.  As of July 25, 2004 andJuly 31, 2005, deferred financing costs were $3.9 million and $6.5 million,respectively, net of accumulated amortization of $6.8 million and $0.9 million,respectively.  Amortization expenserelated to deferred financing costs is included in interest expense

 

F-9

----

 

and totaled $3.1 million, $2.6 million, and $1.5million for fiscal 2003, fiscal 2004, and fiscal 2005, respectively.  In connection with the early extinguishmentsof debt in fiscal 2003 and fiscal 2005, the Company wrote-off unamortizeddeferred financing costs of approximately $2.8 million and $3.3 million,respectively.  In fiscal 2004,approximately $0.2 million of deferred financing costs were included as part ofthe Tranche C portion of the Real Estate Term Facility restructuring asdescribed in Note 6.

 

**Long-Lived Assets**

Inaccordance with SFAS No. 144, “*Accountingfor the Impairment or Disposal of Long-Lived Assets*,” long-livedassets, such as property, equipment, and definite-lived intangibles arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and usedis measured by a comparison of the carrying amount of an asset to the estimatedundiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceedsits estimated future cash flows, an impairment charge is recognized in theamount by which the carrying amount of the asset exceeds the fair value of theasset.  Assets to be disposed of arereported at the lower of the carrying amount or fair value less costs to sell,and depreciation ceases.

 

**Revenue Recognition**

Resortrevenues include sales of lift tickets, skier development, golf course andother recreational activities fees, sales from restaurants, bars, and retailand rental shops, and lodging and property management fees (real estaterentals). Daily lift ticket revenue is recognized on the day of purchase.  Lift ticket season pass revenue is recognizedon a straight-line basis over the ski season, which is the Company’s second andthird quarters of its fiscal year.  TheCompany’s remaining resort revenues are generally recognized as the servicesare performed.  Real estate revenues arerecognized under the full accrual method when title has been transferred,initial and continuing investments are adequate to demonstrate a commitment topay for the property, and no continuing involvement exists.  Amounts received from pre-sales of realestate are recorded as restricted cash and deposits and deferred revenue in theaccompanying consolidated balance sheets until the earnings process iscomplete.

 

**Interest**

Interestis expensed as incurred except when it is capitalized in connection withsignificant capital additions and real estate developed for sale. The amountsof interest capitalized are determined by applying actual interest rates to theborrowings required to finance the construction.  During fiscal 2003, fiscal 2004, and fiscal2005, the Company incurred total interest costs of $47.4 million, $41.9million, and $35.0 million, respectively, of which no amounts were capitalizedto property, equipment, and real estate developed for sale.

 

**Employee Savings Plan**

TheCompany has a 401(k) plan that allows non-highly compensated employees, as defined,to defer up to 100% of their income up to a maximum annual deferral of $14,000if they are under 50 years old or $18,000 if they are 50 years or older asprescribed by the Internal Revenue Service. This plan also provides for the matching of participant contributions atthe Company’s discretion.  Forhighly-compensated employees, as defined, the plan allows employees to defer upto 7.5% of their income.  The Company’smatching contributions to the 401(k) plan for fiscal 2003, fiscal 2004, andfiscal 2005 were approximately $267,000, $340,000, and $285,000, respectively.

 

**Advertising Costs**

Advertisingcosts are expensed the first time the advertising takes place.  As of July 25, 2004 and July 31, 2005,advertising costs of approximately $0.1 million each year, were recorded inprepaid expenses in the accompanying consolidated balance sheets.  Advertising expense for fiscal 2003, fiscal2004, and fiscal 2005 was approximately $7.1 million, $10.1 million, and $11.6 million,respectively.

 

**Seasonality**

The Company’s revenuesare highly seasonal in nature.  In fiscal2005, the Company realized approximately 88% of resort segment revenues andover 100% of resort segment operating income during the period frommid-November through April.  In addition,a significant portion of resort segment revenue and approximately 20% of annualskier visits were generated during the Christmas and Presidents’ Day vacationweeks in fiscal 2005.  The Company’sresorts typically experience operating losses and negative cash flows for theperiod from May to mid-November.

 

F-10

----

 

Ahigh degree of seasonality in the Company’s revenues increases the impact ofcertain events on its operating results. Adverse weather conditions, access route closures, equipment failures,and other developments of even moderate or limited duration occurring duringpeak business periods could reduce revenues. Adverse weather conditions can also increase power and other operatingcosts associated with snowmaking or could render snowmaking wholly or partiallyineffective in maintaining quality skiing conditions.  Furthermore, unfavorable weather conditions,regardless of actual skiing conditions, can result in decreased skier visits.

 

**Earnings per Share**

Basicnet income (loss) per common share (Basic EPS) excludes dilution and iscomputed by dividing net income (loss) by the weighted average number of commonshares outstanding during the year. Diluted net income per common share(Diluted EPS) reflects the potential dilution that could occur if stock optionsor other contracts to issue common stock (such as mandatorily redeemablepreferred stock) were exercised or converted into common stock.  In periods where losses are recorded,potentially dilutive securities would decrease the loss per common share andtherefore are not added to the weighted average common shares outstanding.  For fiscal 2003, fiscal 2004, and fiscal2005, basic and diluted net loss per common share are as follows:

 
| ** **                                                                              | ** ** | **Fiscal 2003**                               | ** ** | **Fiscal 2004** | ** ** | **Fiscal 2005** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                                                                              | ** ** | **(in thousands, except per share  amounts)** | ** ** |
| ***Net Loss***                                                                          | ** ** | ** **                                    | ** ** |
| **Net loss**                                                                            |       | $                                             | (44,374    | )               | $          | (28,502         | )          | $ | (73,315 | ) |
| **Accretion of discount and dividends on mandatorily  redeemable preferred stock** |       | (37,644                                       | )          | —          |       | —          |       |
| **Net loss attributable to common  shareholders**                                       |       | $                                             | (82,018    | )               | $          | (28,502         | )          | $ | (73,315 | ) |
|                                                                                    |       |                                          |       |            |       |            |       |
| ***Shares***                                                                            |       |                                          |       |            |       |            |       |
| **Total weighted average common shares outstanding (basic  and diluted)**          |       | 31,724                                        |       | 31,738          |       | 31,738          |       |
|                                                                                    |       |                                          |       |            |       |            |       |
| ***Basic and diluted loss per common share***                                           |       |                                          |       |            |       |            |       |
| Net loss                                                                                |       | $                                             | (1.40      | )               | $          | (0.90           | )          | $ | (2.31 | ) |
| **Accretion of discount and dividends on mandatorily redeemable  preferred stock**      |       | (1.19                                         | )          | —          |       | —          |       |
| **Net loss attributable to common  shareholders**                                       |       | $                                             | (2.59      | )               | $          | (0.90           | )          | $ | (2.31 | ) |

 

TheCompany had outstanding 76,626 shares of convertible preferred stock as of July27, 2003 and, July 25, 2004, and 40,000 shares at July 31, 2005.  These shares are convertible into shares ofthe Company’s common stock (see Note 8). If converted at their liquidation preferences as of July 27, 2003, July25, 2004, and July 31, 2005, these convertible preferred shares would convertinto 43,950,901, 49,425,186, and 50,858,787 shares of common stock,respectively.  However, the common stockshares into which these securities are convertible have not been included inthe Diluted EPS calculation as the impact of their inclusion would beanti-dilutive.  The Company also had3,821,187 options outstanding to purchase shares of its common stock under theCompany’s stock option plan as of July 27, 2003, and 3,811,187 options outstandingas of July 25, 2004 and July 31, 2005. These shares are also excluded from the Diluted EPS calculation as theimpact of their inclusion would be anti-dilutive.

 

In May 2003, theFASB issued Statement of Financial Accounting Standards No. 150, “*Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity*” (SFAS No. 150).  SFAS No. 150 establishes standards for howfinancial instruments with characteristics of both liabilities and equityshould be measured and classified and requires that an issuer classify afinancial instrument that is within its scope as a liability.  SFAS No. 150 is effective for financialinstruments entered into or modified after May 31, 2003, and otherwise iseffective at the beginning of the first interim period beginning after June 15,2003.  The Company adopted SFAS No. 150effective July 28, 2003.  As a result,approximately $43.1 million of accretion of discount and dividends on thepreferred stock in fiscal 2004 was included in interest expense, whereaspreviously it was reported as accretion of discount and dividends onmandatorily redeemable preferred stock.

 

F-11

----

 

**StockCompensation**

EffectiveAugust 1, 1997, the Company established a fixed stock option plan, the AmericanSkiing Company Stock Option Plan (the Plan), to provide for the grant ofincentive and non-qualified stock options for the purchase of up to 8,688,699shares of the Company’s common stock by officers, management employees of theCompany, and other key persons (eligible for non-qualified stock options only)as designated by the Compensation Committee. The Compensation Committee, which is appointed by the Board ofDirectors, is responsible for the Plan’s administration.  The Compensation Committee determines theterm of each option, option exercise price, number of shares for which eachoption is granted, and the rate at which each option is exercisable.  Options granted under the Plan generallyexpire ten years from the date of grant and vest either immediately or over afive-year term. Incentive stock options may not have an exercise price lessthan the fair value of the common stock at the date of grant.  Non-qualified stock options are granted at anexercise price as determined by the Compensation Committee.  Compensation expense is recorded for optionsgranted at an exercise price less than fair value as determined on the date ofthe grant.

 

Thestatus of the Company’s stock option plan is summarized below:

 
| ** **                          | ** ** | **Number  of Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|-------------------------------------|------------|-----------------------|------------|----------------------------------------|------------|
| **Outstanding as of July 28, 2002** |       | 4,226,579             |       | $                                      | 4.08       |   |
| ** **                          |       |                  |       |                                   |       |
| **Granted**                         |       | —                |       | —                                 |       |
| **Exercised**                       |       | (14,042               | )          | 2.00                                   |       |
| **Forfeited**                       |       | (391,350              | )          | 2.46                                   |       |
| **Outstanding as of July 27, 2003** |       | 3,821,187             |       | 4.25                                   |       |
| ** **                          |       |                  |       |                                   |       |
| **Granted**                         |       | —                |       | —                                 |       |
| **Exercised**                       |       | —                |       | —                                 |       |
| **Forfeited**                       |       | (10,000               | )          | 3.00                                   |       |
| **Outstanding as of July 25, 2004** |       | 3,811,187             |       | 4.26                                   |       |
| ** **                          |       |                  |       |                                   |       |
| **Granted**                         |       | —                |       | —                                 |       |
| **Exercised**                       |       | —                |       | —                                 |       |
| **Forfeited**                       |       | —                |       | —                                 |       |
| **Outstanding as of July 31, 2005** | ** ** | **3,811,187**         | ** ** | **$**                                  | **4.26**   | ** ** |

 

Duringfiscal 1998, the Company granted non-qualified options under the Plan tocertain key members of management to purchase 672,010 shares of common stockwith an exercise price of $2.00 per share when the fair value of the stock wasestimated to be $18.00 per share. The majority of these options (511,530shares) were granted to members of senior management and were 100% vested onthe date of grant.  Accordingly, theCompany recognized stock compensation expense of $8.1 million in fiscal 1998 relatingto the grants based on the intrinsic value of the option of $16.00 pershare.  Under these senior managementgrant agreements, the Company also agreed to pay the optionees a fixed tax “bonus”in the aggregate of $5.8 million to provide for certain fixed tax liabilitiesthat the optionees would incur upon exercise. The liability for this fixed tax bonus has been reduced to reflect $5.3million in tax bonus payments made through July 31, 2005 in connection withoptions exercised.  The remaining $0.5million tax bonus liability is reflected in accounts payable and other currentliabilities in the accompanying consolidated balance sheet as of July 31,2005.  The remainder of these original$2.00 options (160,480 shares) were granted under the Plan to certain membersof management and are fully vested as of July 31, 2005.  For fiscal 2003, fiscal 2004, and fiscal2005, the Company did not recognize stock compensation expense relating tothese options.

 

F-12

----

 

Thefollowing table summarizes information about the stock options outstandingunder the Plan as of July 31, 2005:

 
| **Range of  Exercise  Prices** | ** ** | **Outstanding** | ** ** | **Weighted  Average  Remaining  Contractual  Life (in years)** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|--------------------------------|------------|-----------------|------------|----------------------------------------------------------------|------------|---------------------------------------|------------|-----------------|------------|---------------------------------------|------------|
| **$0.72**                      |       | 25,000          |       | 5.9                                                            |       | $                                     | 0.72       |            | 25,000     |                                  | $          | 0.72 |   |
| **1.75 – 2.50**           |       | 1,420,337       |       | 4.6                                                            |       | 2.11                                  |       | 1,418,337       |       | 2.11                                  |       |
| **3.00 – 4.00**           |       | 1,439,250       |       | 4.6                                                            |       | 3.18                                  |       | 1,439,250       |       | 3.18                                  |       |
| **7.00 – 8.75**           |       | 735,750         |       | 3.2                                                            |       | 7.19                                  |       | 733,750         |       | 7.19                                  |       |
| **14.19 – 18.00**         |       | 190,850         |       | 2.2                                                            |       | 17.55                                 |       | 190,850         |       | 17.55                                 |       |
| ** **                     | ** ** | **3,811,187**   | ** ** | **4.2**                                                        | ** ** | **4.26**                              | ** ** | **3,809,187**   | ** ** | **4.26**                              | ** ** |
|                                |            |                 |            |                                                                |            |                                       |            |                 |            |                                       |            |  |  |

 

TheCompany continues to account for stock-based compensation using the methodprescribed in Accounting Principles Board Opinion (“APB”) No. 25, “*Accounting for Stock Issued to Employees*”,under which no compensation expense for stock options is recognized for stockoption awards granted to employees at or above fair value.  In December2002, the Financial Accounting Standard Board (“FASB”) issued SFAS No. 148, “*Accounting for Stock-Based Compensation -Transitionand Disclosure - an Amendment of FAS 123*”.  SFAS No. 148 amends SFAS No. 123, “Accountingfor Stock-Based Compensation”, to provide alternative methods of transition fora voluntary change to the fair-value-based method of accounting for stock-basedemployee compensation, and amends the disclosure requirements of SFAS No. 123to require prominent disclosures in both annual and interim financialstatements about the method of accounting for stock-based employee compensationand the effect of the method used on reported results.  The Company has adopted thedisclosure-only provisions of SFAS No. 148. Had stock compensation expense been determined based on the fair valueat the grant dates for awards granted under the Company’s stock option plan,consistent with the provisions of SFAS No. 123, the Company’s net lossattributable to common shareholders and the basic and diluted net loss percommon share would have been changed to the pro forma amounts indicated below(dollar amounts in thousands):

 
| **Fiscal Years Ended**                                                                                       | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Net loss attributable to common shareholders**                                                             |       |     |       |     |       |     |       |
| **As reported**                                                                                              |       | $        | (82,018    | )        | $          | (28,502  | )          | $ | (73,315 | ) |
| **Stock-based employee compensation expense determined under fair-value  method for all awards, net of tax** |       | (408     | )          | (330     | )          | (129     | )          |
| **Pro forma**                                                                                                |       | $        | (82,426    | )        | $          | (28,832  | )          | $ | (73,444 | ) |
| **Basic  and diluted net loss per common share**                                                             |       |     |       |     |       |     |       |
| **As reported**                                                                                              |       | $        | (2.59      | )        | $          | (0.90    | )          | $ | (2.31 | ) |
| **Pro forma**                                                                                                |       | (2.60    | )          | (0.91    | )          | (2.31    | )          |

 

Thefair value of each option grant is estimated on the date of grant using theBlack-Scholes option-pricing model.  Forfiscal 2003, fiscal 2004, and fiscal 2005, there were no options granted underthe Plan.

 

**FairValue of Financial Instruments**

Therecorded amounts for cash and cash equivalents, restricted cash, accountsreceivable, and accounts payable and other current liabilities approximate fairvalue due to the short-term nature of these financial instruments.  The fair value of amounts outstanding underthe Company’s resort and real estate senior credit facilities and certain otherdebt instruments approximate their recorded values in all material respects, asdetermined by discounting future cash flows at current market interest rates asof July 31, 2005.  The fair value of theCompany’s subordinated notes have been estimated using quoted marketvalues.  The fair value of the Company’sother subordinated debentures have been estimated using discounted cash flowanalyses based on current borrowing rates for debt with similar maturities andratings.  The fair values of the Company’spreferred stock issuances have not been determined as such stock is not tradedin the open market and a market price is not readily available.

 

F-13

----

 

Theestimated fair values of the Senior Subordinated Notes, ConvertibleSubordinated Notes, New Junior Subordinated Notes, and other subordinateddebentures as of July 25, 2004 and July 31, 2005 are presented below (inthousands):

 
| ** **                                  | ** ** | **July 25, 2004**    | ** ** | **July 31, 2005** | ** ** |
|---------------------------------------------|------------|----------------------|------------|-------------------|------------|
| ** **                                  | ** ** | **Carrying  Amount** | ** ** | **Fair  Value**   | ** ** | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** |
| **12% Senior Subordinated Notes**           |       | $                    | 118,991    |              | $          | 90,000 |   | $ | — |   | $ | — |   |
| **11.3025% Convertible Subordinated Notes** |       | 17,061               |       | 15,526            |       | 19,021 |   | 17,496 |   |
| **New Junior Subordinated Notes**           |       | —               |       | —            |       | 77,584 |   | 75,079 |   |
| **Other subordinated debentures**           |       | 6,208                |       | 5,534             |       | 6,208 |   | 5,534 |   |
|                                             |            |                      |            |                   |            |  |  |  |  |  |  |  |  |

 

**Derivative Financial Instruments**

Allderivatives are recognized on the consolidated balance sheets at their fairvalues.  On the date the derivativecontract is entered into, the Company designates the derivative as either ahedge of the fair value of a recognized asset or liability (“fair value”hedge), or the variability of cash flows to be received or paid related to arecognized asset or liability (“cash flow” hedge).  As of July 27, 2003 and July 25, 2004, theCompany was not party to any derivative financial instruments.  During fiscal 2005, the Company entered intoan interest rate swap agreement covering a notional amount of $95.0 millionrelated to its Resort Senior Credit Facility. The agreement is adjusted to market value at each reporting period andthe increase or decrease is reflected in the consolidated statement ofoperations.  During the year ended July31, 2005, the Company recognized $314,405 of other non-cash income from marketvalue adjustments to this agreement.

 

**Income Taxes**

TheCompany utilizes the asset and liability method of accounting for income taxes,as set forth in SFAS No. 109, “*Accountingfor Income Taxes*”.  SFAS No.109 requires the recognition of deferred tax assets and liabilities for theexpected future tax consequences of temporary differences between the financialstatement and tax bases of assets and liabilities, and net operating loss andtax credit carryforwards, utilizing enacted tax rates expected to apply totaxable income in the years in which these temporary differences are expectedto be recovered or settled.  The effectof any future change in income tax rates is recognized in the period thatincludes the enactment date.

 

**Use of Estimates**

Thepreparation of consolidated financial statements in conformity with U.S.generally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities as of the date of theconsolidated financial statements and the reported amounts of revenues andexpenses during the reporting period. Areas where significant judgments are made include, but are not limitedto: allowances for doubtful accounts, long-lived asset valuations and usefullives, inventory valuation reserves, litigation and claims reserves, anddeferred income tax asset valuation allowances. Actual results could differ from those estimates.

 

**Reclassifications**

Certainamounts in the prior years’ consolidated financial statements and related noteshave been reclassified to conform to the fiscal 2005 presentation.

 

# **Accounting for Variable Interest Entities**

In December 2003,the FASB issued a revision to FASB Interpretation (“FIN”) No. 46, “*Consolidation of Variable Interest Entities*”(FIN No. 46R).  FIN No. 46R clarifies theapplication of ARB No. 51, “*ConsolidatedFinancial Statements*,” to certain entities in which equity investorsdo not have the characteristics of a controlling financial interest or do nothave sufficient equity risk for the entity to finance its activities withoutadditional subordinated financial support. FIN No. 46R requires the consolidation of these entities, known asvariable interest entities, by the primary beneficiary of the entity.  The primary beneficiary is the entity, ifany, that will absorb a majority of the entities expected losses, receive amajority of the entity’s expected residual returns, or both.  Under these guidelines, the Company adoptedFIN 46R during fiscal 2004.

 

F-14

----

 

On May 14, 2004, Resort Propertiescompleted the restructuring of the Real Estate Term Facility from FleetNational Bank, Ski Partners, LLC, and Oak Hill Capital Partners.  As a result of the restructuring, a newbusiness venture called SP Land Company, LLC (SP Land) was created by SkiPartners, LLC, Resort Properties (an ASC subsidiary), and Killington, Ltd.(Killington) (an ASC subsidiary).  Aspart of the restructuring, certain developmental land parcels at the Killingtonresort and cash with a combined carrying value of approximately $2.2 millionwere transferred by Resort Properties and Killington into SP Land Company, LLC,together with all indebtedness, including related interest and fees, under theReal Estate Term Facility held by Fleet National Bank and Ski Partners, LLC(Tranche A and B of the Real Estate Term Facility) totaling $55.4 million.   Collectively, Killington and ResortProperties own 25% of the membership interests of SP Land.  The remaining 75% of the membership interestsin SP Land is owned by Ski Partners, LLC, together with a preferential interestin SP Land of approximately $37.2 million. In accordance with FIN No. 46R and APB No. 18, SP Land is a variableinterest entity and is accounted for on the equity method because it does notmeet the requirements for consolidation (see Note 6).

 

Aspart of the restructuring of the Real Estate Term Facility, Killington alsocontributed all of its interest in approximately 256 acres of developmentalreal estate into a joint venture entity called Cherry Knoll Associates, LLC (“CherryKnoll”).   Each of SP Land and Killingtonown 50% of the membership interests in Cherry Knoll.  In addition, Killington maintains apreferential distribution interest in Cherry Knoll of $1.5 million.  In accordance with FIN No. 46R and APB No.18, Cherry Knoll is a variable interest entity and is accounted for on theequity method because it does not meet the requirements for consolidation (seeNote 6).

 

InOctober 2004, the Company, through one of its subsidiaries, acquired a 49%interest in SS Associates, LLC (SS Associates) by contributing its rights topurchase the building to SS Associates and by making a refundable securitydeposit of $0.4 million.  In accordancewith FIN No. 46R and APB No. 18, the Company consolidates SS Associates as itmeets the requirements of a variable interest entity for which the Company isthe primary beneficiary.

 

SSAssociates purchased a building in October 2004 for $3.5 million (includingcosts to close) through cash and long-term debt of $2.5 million.  The loan is secured by the building and has59 monthly payments of $29,000 and a final payment in October 2009 of $1.5million and bears interest at 6.5% per year. SS Associates is obligated on the loan and none of the Company’s remainingsubsidiaries are obligated.  SSAssociates leases the building to the Company for $0.5 million per year.  The non-ASC owned interest in SS Associatesof $0.5 million (owned in part by certain members of mid-level management atthe Company’s Killington resort) is included in other long-term liabilities inthe accompanying consolidated balance sheet as of July 31, 2005.

 

# **Recently Issued Accounting Standards**

InDecember 2004, the FASB issued SFAS No. 123R which replaces SFAS No. 123and supersedes APB No. 25. SFAS No. 123R requiresthe measurement of all employee share-based compensation arrangements toemployees, including grants of employee stock options, using a fair-value-basedmethod and the recording of such expense in the consolidated statements ofoperations. Further, the adoption ofSFAS No. 123R will require additional accounting related to the income taxeffects and additional disclosure regarding the cash flow effects resultingfrom share-based payment arrangements.

 

Aspermitted by SFAS No. 123, the Company currently accounts for stock-based compensation using the methodprescribed in APB No. 25, under which no compensation expense for stock optionsis recognized for stock option awards granted to employees at or above fairvalue.  However, the effect of expensingstock options on the results of operations using a Black-Scholes option-pricingmodel is presented above.    The accounting provisions ofSFAS No. 123R are effective beginningthe first quarter of the Company’s fiscal 2006 at which time pro forma disclosures previously permittedunder SFAS No. 123 no longer will be an alternative to financial statementrecognition.

 

SFASNo. 123R permits public companies to adopt its requirements using one of twomethods; “modified prospective” method and “modified retrospective”method.  Under the “modified prospective”method, compensation cost is recognized beginning with the effective date(a) based on the requirements of SFAS No.123R for all new awards and forawards modified, repurchased, or cancelled after the effective date, and(b)  for all

 

F-15

----

 

awards granted toemployees prior to the effective date of SFAS No. 123R that remain unvested onthe effective date. The “modified retrospective” method includes therequirements of the modified prospective method described above, but alsopermits entities to restate based on the amounts previously recognized underSFAS No. 123 for purposes of pro forma disclosures for either (a) allprior periods presented or (b) prior interim periods of the year ofadoption. The Company plans to adopt SFAS No. 123R using the modifiedprospective method. Accordingly, the adoption of SFAS No. 123R’s fair valuemethod will have a de minimus impact on the Company’s operating expenses forfiscal 2006 as only 2,000 stock options remain unvested as of July 31, 2005.

 

InDecember 2004, the FASB issued SFAS No. 152, “*Accountingfor Real Estate Time-Sharing Transactions*” – an amendment of FASBStatements No. 66 and 67.  This statementamends SFAS No. 66 “*Accounting for Sales ofReal Estate*” and SFAS No. 67, “*Accountingfor Costs and Initial Rental Operations of Real Estate Projects*” tostate that the guidance for (a) incidental operations and (b) costs incurred tosell real estate projects does not apply to real estate time-sharetransactions.  The accounting for thoseoperations and costs is subject to the guidance of Statement of Position (“SOP”)04-2, which provides guidance on the seller’s accounting for real estatetime-sharing transactions.  The FASBhowever, does not change the revenue guidance in SFAS No. 66. SFAS No. 152 iseffective beginning the first quarter of the Company’s fiscal 2006.   Management anticipates that the company’sadoption of SFAS No. 152 in fiscal 2006 will not have a material impact on theCompany’s consolidated financial position, liquidity or results of operations

 

InDecember 2004, the FASB issued SFAS No. 153, “*Exchangesof Nonmonetary Assets - an Amendment of APB Opinion No. 29*”.  This statement amends APB Opinion No. 29 toeliminate the exception for nonmonetary exchanges of similar productive assetsand replaces it with a general exception for exchanges of nonmonetary assetsthat do not have commercial substance.  Anonmonetary exchange has commercial substance if the future cash flows of theentity are expected to change significantly as a result of the exchange.  The provisions of SFAS No. 153 are effectivebeginning the first quarter of the Company’s fiscal 2006.  Management anticipates that the company’sadoption of SFAS No. 153 in fiscal 2006 will not have a material impact on theCompany’s consolidated financial position, liquidity or results of operations.

 

InMarch 2005, the FASB issued revised FIN. 47, “*Accountingfor Conditional Asset Retirement Obligations*”.  FIN No. 47 clarifies the term “conditionalasset retirement obligation” as used in SFAS No. 143 “*Accounting for Asset Retirement Obligations*”.  SFAS No.143 refers to a legal obligation toperform an asset retirement activity in which the timing and (or) method ofsettlement are conditional on a future event that may or may not be within thecontrol of the entity.  SFAS No.143requires an entity to recognize the fair value of a legal obligation to performasset retirement activities when the obligation is incurred.   FIN No. 47 further clarifies when an entityhas sufficient information to reasonably estimate the fair value of an assetretirement obligation.  Management hasdetermined that FIN No. 47’s conditional asset retirement obligation relatessolely to the Company’s U.S. Forest Services long-term leases at Attitash,Mount Snow, and Steamboat but the fair value of the related obligations are notcurrently reasonably estimatable and are not conditional on a futureevent.  The accounting provisions of FINNo. 47 are effective beginning the first quarter of the Company’s fiscal 2006**.**  Managementanticipates that the company’s adoption of FIN No. 47 in fiscal 2006 will nothave a material impact on the Company’s consolidated financial position,liquidity or results of operations.

 

F-16

----

 

**3.****            ****Property and Equipment**

 

Propertyand equipment consists of the following (in thousands):

 
| ** **                                          | ** ** | **July 25, 2004** | ** **  | **July 31, 2005** | ** ** |
|-----------------------------------------------------|------------|-------------------|-------------|-------------------|------------|
| **Buildings and grounds**                           |       | $                 | 189,039     |              | $          | 191,298 |   |
| **Machinery and equipment**                         |       | 123,620           |        | 135,760           |       |
| **Lifts and lift lines**                            |       | 125,066           |        | 126,806           |       |
| **Trails**                                          |       | 25,536            |        | 25,201            |       |
| **Land improvements**                               |       | 9,830             |        | 10,144            |       |
|                                                |       | 473,091           |        | 489,209           |       |
| **Less: accumulated depreciation and amortization** |       | (196,356          | )           | (218,044          | )          |
|                                                |       | 276,735           |        | 271,165           |       |
|                                                |       |              |        |              |       |
| **Land**                                            |       | 74,761            |        | 74,485            |       |
| **Construction-in-progress**                        |       | 2,013             |        | 2,969             |       |
| **Property and equipment, net**                     | ** ** | **$**             | **353,509** | ** **        | **$**      | **348,619** | ** ** |

 

Propertyand equipment includes approximately $22.1 million and $11.1 million ofmachinery, equipment, and lifts held under capital lease obligations as of July25, 2004 and July 31, 2005, respectively. As of July 25, 2004 and July 31, 2005, related accumulated amortizationon property and equipment held under capital lease obligations was approximately$7.4 million and $3.6 million, respectively. Total depreciation and amortization expense relating to property andequipment was $27.2 million, $26.2 million, and $31.0 million for fiscal 2003,fiscal 2004, and fiscal 2005, respectively.

 

**4.****            ****Long-Term Debt**

 

Long-termdebt consists of (in thousands):

 
| ** **                                                                                                                                                                                                                                                                                                                                | ** ** | **July 25,  2004** | ** ** | **July 31,  2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| **Resort Senior Credit Facility (see Note 5)**                                                                                                                                                                                                                                                                                            |       | $                  | 79,043     |               | $          | 202,759 |   |
|                                                                                                                                                                                                                                                                                                                                      |       |               |       |               |       |
| **Real estate construction loan facility with a face value of $110,000  (see Note 6)**                                                                                                                                                                                                                                                    |       | 18,732             |       | 11,822             |       |
|                                                                                                                                                                                                                                                                                                                                      |       |               |       |               |       |
| **Real estate construction loan facility with a face value of $10,600  to provide liquidity for the hotel development subsidiary and for completion  of the Steamboat Grand Hotel (see Note 6)**                                                                                                                                          |       | 10,600             |       | 10,600             |       |
|                                                                                                                                                                                                                                                                                                                                      |       |               |       |               |       |
| **Real estate mortgage note payable with a face value of $1.9 million  secured by an employee housing complex at the Company’s Steamboat resort. The  note is on a 5-year amortization schedule maturing in March 2010 and  principal and interest (6.25% as of July 31, 2005) are payable monthly.**                                |       | 1,955              |       | 1,831              |       |
|                                                                                                                                                                                                                                                                                                                                      |       |               |       |               |       |
| **Real  estate mortgage note payable with a face value of $2.5 million secured by  commercial property at Killington. The note is on a 10-year amortization  schedule maturing in October 2009 and principal and interest (6.5% as of July  31, 2005) are payable monthly.**                                                              |       | —             |       | 2,404              |       |
|                                                                                                                                                                                                                                                                                                                                      |       |               |       |               |       |
| **Note payable bearing interest at 9% per annum, which is payable  monthly beginning January 1998 for a 15-year term and is secured by a  building at Killington. The principal is due in full in December 2012.**                                                                                                                        |       | 2,250              |       | 2,250              |       |
|                                                                                                                                                                                                                                                                                                                                      |       |               |       |               |       |
| **Note payable with interest payable monthly beginning January 1998 for  a 30-year term. The interest rate is 7.00% per annum for the first 10 years,  8.44% per annum for the second 10 years and 10.55% per annum for the final 10  years. The principal is due in full in December 2027. The note is secured by  land at Killington.** |       | 1,600              |       | 1,600              |       |
|                                                                                                                                                                                                                                                                                                                                      |       |               |       |               |       |
| **Obligations  under capital leases (see Note 15)**                                                                                                                                                                                                                                                                                       |       | 5,188              |       | 7,342              |       |
| **Other notes payable**                                                                                                                                                                                                                                                                                                                   |       | 207                |       | 134                |       |
|                                                                                                                                                                                                                                                                                                                                      |       | 119,575            |       | 240,742            |       |
| **Less: current portion**                                                                                                                                                                                                                                                                                                                 |       | (45,191            | )          | (31,223            | )          |
| **Long-term debt, net of current portion**                                                                                                                                                                                                                                                                                                | ** ** | **$**              | **74,384** | ** **         | **$**      | **209,519** | ** ** |

 

F-17

----

 

Asof July 31, 2005, the Company had letters of credit outstanding under theResort Senior Credit Facility totaling approximately $1.6 million.

 

Long-termdebt, capital leases and subordinated notes and debentures (see Note 5, 6 and7) mature as follows (in thousands):

 
| ** **                                                                                 | ** ** | **Long-term  Debt and  Capital  Leases** | ** **  | **Subordinated  Notes and  Debentures** | ** ** | **Total  Debt and  Capital  Leases** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------------------------|-------------|-----------------------------------------|------------|--------------------------------------|------------|
| **2006**                                                                                   |       | $                                        | 31,989      |                                    | $          | —                               |       | $ | 31,989 |   |
| **2007**                                                                                   |       | 11,634                                   |        | —                                  |       | 11,634                               |       |
| **2008**                                                                                   |       | 5,438                                    |        | —                                  |       | 5,438                                |       |
| **2009**                                                                                   |       | 1,185                                    |        | —                                  |       | 1,185                                |       |
| **2010**                                                                                   |       | 3,851                                    |        | 1,292                                   |       | 5,143                                |       |
| **2011 and thereafter**                                                                    |       | 187,982                                  |        | 101,521                                 |       | 289,503                              |       |
| **Interest related to capital lease obligations  (rates ranging from 5.0% to 12.2%)** |       | (1,337                                   | )           | —                                  |       | (1,337                               | )          |
|                                                                                       |       | 240,742                                  |        | 102,813                                 |       | 343,555                              |       |
| **Less current portion**                                                                   |       | (31,223                                  | )           | —                                  |       | (31,223                              | )          |
| **Long-term debt and subordinated notes and debentures, net of current  portion**          | ** ** | **$**                                    | **209,519** | ** **                              | **$**      | **102,813**                          | ** ** | **$** | **312,332** | ** ** |

 

**5.****            ****Resort Senior Credit Facility**

 

The Company entered intoagreements dated November 24, 2004 with Credit Suisse First Boston (CSFB), GECapital, and other lenders whereby the lenders have provided a $230.0 millionsenior secured loan facility (Resort Senior Credit Facility) consisting of arevolving credit facility and two term loan facilities.  The proceeds of the Resort Senior CreditFacility were used to repay in full the previously existing resort seniorcredit facility and redeem the Company’s $120.0 million senior subordinatednotes (Senior Subordinated Notes), as well as to pay fees and expenses relatedto the transaction.  The Resort SeniorCredit Facility consists of the following:

 

•                  RevolvingFacility - $40.0 million, including letter of credit (L/C) availability of upto $6.0 million.  The amount ofavailability under this facility is correspondingly reduced by the amount ofeach L/C issued.

 

•                  FirstLien Term Loan - $85.0 million borrowed on the funding date of November 24, 2004.

 

•                  SecondLien Term Loan - $105.0 million borrowed on the funding date of November 24,2004.

 

The Revolving Facility and First Lien Term Loan are provided under a single credit agreement (collectively the “First Lien Credit Agreement”), mature in November 2010 and bear interest, at the option of the Company, either at a rate equal to the prime rate, as publicly quoted in The Wall Street Journal, plus 3.5% or at a rate equal to LIBOR (as defined) plus 4.5%, payable quarterly (9.75% based on the prime rate for the Revolving Facility and 8.0% based on the LIBOR rate for the First Lien Term Loan as of July 31, 2005).  The First Lien Term Loan requires 23 quarterly principal payments of $212,500 beginning on January 15, 2005 and a final payment of $80.1 million in November 2010. The Revolving Facility is comprised of two sub-facilities, each in the amount of $20.0 million and each with separate fees for the unused portion of the facilities in the amounts of 1.0% and 4.5% per annum, respectively.  The Second Lien Term Loan is provided under a separate credit agreement (the “Second Lien Credit Agreement”), matures in November 2011, bears interest at a rate equal to the prime rate, as publicly quoted in The Wall Street Journal, plus 7.0% or at a rate equal to LIBOR (as defined) plus 8.0%, payable quarterly (11.5% as of July 31, 2005 based on the LIBOR rate), and principal is due upon maturity.

 

F-18

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The Revolving Facility and the First Lien Term Loan obligations under the First Lien Credit Agreement and the related guarantees are secured by a first-priority security interest in substantially all of the Company’s assets, other than assets held by Grand Summit, and the Company’s obligations under the Second Lien Credit Agreement and the Company’s subsidiaries’ obligations under the related guarantees are secured by a second-priority security interest in the same assets.   Collateral matters between the lenders under the First Lien Credit Agreement and the lenders under the Second Lien Credit Agreement are governed by an intercreditor agreement.

 

TheResort Senior Credit Facility contains affirmative, negative, and financialcovenants customary for this type of credit facility, which includesmaintaining a minimum level of EBITDA (as defined), limiting the Company’scapital expenditures, requiring the Company to maintain a minimum ratio ofappraised asset value to debt, and requiring the Company to have a zero balanceon the Revolving Credit Facility (excluding L/Cs) on April 1 of each year.  The Resort Senior Credit Facility alsocontains events of default customary for such financings, including but notlimited to nonpayment of amounts when due; violation of covenants; crossdefault and cross acceleration with respect to other material debt; change ofcontrol; dissolution; insolvency; bankruptcy events; and materialjudgments.  Some of these events ofdefault allow for grace periods or are qualified by materiality concepts.  The Resort Senior Credit Facility requires theCompany to offer to prepay the loans with proceeds of certain material assetsales and recovery events, certain proceeds of debt, 50% of excess cash flow,and proceeds from the issuance of capital stock. The Resort Senior CreditFacility also restricts the Company’s ability to pay cash dividends on orredeem its common and preferred stock. Pursuant to the requirements of the Resort Senior Credit Facility, onMay 23, 2005, the Company entered into a interest rate swap agreement for 50%of the First Lien Term Loan and the Second Lien Term Loan for a notional amountof $95.0 million.  Under the swapagreement, during the period from May 16, 2005 to November 15, 2005, theCompany pays 4.16% and receives the 6-month LIBOR rate.  During the period from November 16, 2005 toMay 15, 2008, the Company pays 4.16% and receives the 3-month LIBOR rate.  As a result of entering into this interestrate swap agreement, the Company has fixed the cash-pay rate on the notionalamount until the maturity of the swap agreement in May 2008.  Changes in the fair value of the interestrate swap agreement are recorded as interest expense (income) at each reportingperiod.  During the year ended July 31,2005, the Company recognized $314,405 of interest income from market valueadjustments to this agreement.

 

Asof July 31, 2005, the Company had $14.4 million, $83.4 million, and $105.0million of principal outstanding under the Revolving Facility, First Lien TermLoan, and Second Lien Term Loan portions of the Resort Senior Credit Facility,respectively.  Furthermore, as of July31, 2005, the Company had $1.6 million in outstanding L/Cs with $24.0 millionavailable for additional borrowings under the Revolving Facility.  The Company was in compliance with allfinancial covenants of the Resort Senior Credit Facility through July 31, 2005.

 

Inconnection with the refinancing of the previously existing resort senior creditfacility and the Senior Subordinated Notes in November 2004, the Companyexpensed its remaining deferred financing costs associated with thesefacilities in the amount of $3.3 million. These amounts are reflected in the accompanying fiscal 2005 consolidatedstatement of operations, along with $1.9 million of premium and $0.8 million ofdiscount associated with extinguishment of Senior Subordinated Notes,  as a write-off of financing costs totaling$6.0 million.  The Company also recorded$7.3 million of deferred financing costs in connection with the Resort SeniorCredit Facility.

 

**6.****            ****Real Estate Construction Loan Facility and Term Facility**

 

**ConstructionLoan Facility**

TheCompany conducts substantially all of its real estate development throughsubsidiaries, each of which is a wholly owned subsidiary of ResortProperties.  Grand Summit owns theexisting Grand Summit Hotel project at Steamboat, which is primarily financedthrough the $110.0 million Senior Construction Loan.  Due to construction delays and cost increasesat the Steamboat Grand Hotel project, on July 25, 2000, Grand Summit enteredinto the $10.0 million Subordinated Construction Loan, which was subsequentlyincreased to $10.6 million in December 2003. Together, the Senior Construction Loan and the Subordinated ConstructionLoan comprise the Construction Loan Facility. The Company used the Construction Loan Facility solely for the purposeof funding the completion of the Steamboat Grand Hotel.  The Construction Loan Facility is withoutrecourse to ASC and its resort operating subsidiaries and is collateralized bysignificant real estate assets of Resort Properties and its subsidiaries,including the assets and stock of Grand Summit, ASC’s primary hotel developmentsubsidiary.

 

F-19

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Theoutstanding principal amount under the Construction Loan Facility is payableincrementally as quarter and eighth share unit sales are closed based on apredetermined per unit amount, which approximates between 70% and 80% of thenet proceeds of each closing.  Mortgagesagainst the commercial core units and unsold unit inventory at the Grand SummitHotel at Steamboat and a promissory note from the Steamboat HomeownersAssociation secured by the Steamboat Grand Hotel parking garage collateralizethe Senior Construction Loan, which is subject to covenants, representations,and warranties customary for this type of construction facility.  The Senior Construction Loan is non-recourseto ASC and its resort operating subsidiaries other than Grand Summit.  Grand Summit has assets with a total carryingvalue of $44.7 million as of July 31, 2005, which collateralize the SeniorConstruction Loan.  The maturity date forfunds advanced under the Senior Construction Loan is June 30, 2006.  The principal balance outstanding under theSenior Construction Loan was $11.8 million as of July 31, 2005 and had aninterest rate on funds advanced of prime plus 3.5% (9.75% as of July 31, 2005),with a floor of 9.0%.

 

TheSenior Construction Loan, as amended, must have the following maximumoutstanding principal balances as of the following dates:

 
| July 31, 2005      |   | $          | 12,000,000 |   |
|--------------------|--------|------------|------------|--------|
| September 30, 2005 |   | 10,000,000 |       |
| December 31, 2005  |   | 8,000,000  |       |
| March 31, 2006     |   | 5,000,000  |       |
| June 30, 2006      |   | —     |       |

 

TheSubordinated Construction Loan bears interest at a fixed rate of 20% per annum,payable monthly in arrears.  Only 50% ofthe amount of this interest is due and payable in cash and the other 50%, if noevents of default exist under the Subordinated Construction Loan or the SeniorConstruction Loan, is automatically deferred until the final payment date.  The Subordinated Construction Loan, asamended, matures on November 30, 2007. All $10.6 million had been borrowed under the Subordinated ConstructionLoan as of July 31, 2005.  TheSubordinated Construction Loan is secured by the same collateral which securesthe Senior Construction Loan.

 

TheSubordinated Construction Loan, as amended, must have the following maximumoutstanding principal balances as of the following dates:

 
| June 30, 2006     |   | $         | 10,000,000 |   |
|-------------------|--------|-----------|------------|--------|
| December 31, 2006 |   | 8,000,000 |       |
| March 31, 2007    |   | 5,000,000 |       |
| June 30, 2007     |   | 2,500,000 |       |
| November 30, 2007 |   | —    |       |

 

GrandSummit did not meet the required reduction of the Senior Construction Loanprincipal balance in effect at March 31, 2005. In April 2005, Grand Summit received a letter from the lenders waivingthis default.  Grand Summit continueddiscussions with the lenders under the Construction Loan Facility regarding theterms of the amortization requirements and entered into amended agreements forboth the Senior Construction Loan and the Subordinated Construction Loan as ofJune 30, 2005. On July 28, 2005, The Canyons and Attitash resort operatingsubsidiaries purchased from Grand Summit the respective commercial cores oftheir Grand Summit Hotels for $4.0 million. Grand Summit met the maximum borrowing requirements under the amendedConstruction Loan Facility as of July 31, 2005.

 

OnSeptember 30, 2005 the outstanding balance of the Senior Construction Loan was$10.3 million, or $300,000 in excess of the maximum outstanding principalbalance under the Senior Construction Loan. On September 30, 2005, Grand Summit received a letter from the lenderswaiving the September 30, 2005 maximum outstanding principal balance.

 

Therecan be no assurance that Grand Summit will meet the future mandatoryamortization requirements of the Senior Construction Loan or the SubordinatedConstruction Loan.  If Grand Summit failsto meet those future mandatory amortization requirements, there can be noassurance that the lenders under those facilities will be willing to enter intoa waiver or amendment in the future on terms acceptable to Grand Summit.  Grand Summit is also engaged in efforts torefinance the Senior Construction Loan and Subordinated Construction Loan withdifferent lenders in a restructured facility, but similarly there can be noassurance that a refinancing will be completed prior to

 

F-20

----

 

the existing mandatoryamortization dates.  If Grand Summit isunable to obtain a waiver from the existing lenders or refinance the ConstructionLoan Facility, and Grand Summit does not meet the amortization requirements ofthe Senior Construction Loan or Subordinated Construction Loan, Grand Summitwill be in payment default under the Construction Loan Facility and the lenderscould commence enforcement actions against Grand Summit and the assets of GrandSummit which secure the Construction Loan Facility.  The Senior Construction Loan is non-recourseto the Company and its subsidiaries other than Grand Summit.

 

**Real Estate Term Facility**

OnMay 14, 2004, Resort Properties completed the restructuring of the Real EstateTerm Facility with Fleet National Bank, Ski Partners, LLC, and Oak Hill CapitalPartners.  As a result of therestructuring, a new business venture called SP Land Company, LLC (“SP Land”)was created by Ski Partners, LLC, Resort Properties (an ASC subsidiary), andKillington, Ltd. (“Killington”) (an ASC subsidiary).  Certain developmental land parcels at theKillington resort and cash with a combined carrying value of approximately $2.2million were transferred by Resort Properties and Killington into SP Land,together with all indebtedness, including related interest and fees, under theReal Estate Term Facility held by Fleet National Bank and Ski Partners, LLC(Tranches A and B of the Real Estate Term Facility) totaling $55.4million.  All of the remaining collateralfor the Real Estate Term Facility, including all of the capital stock of GrandSummit, all developmental real estate at The Canyons, the commercial unit(core) in the Grand Summit Hotel at Mount Snow, and the Rams Head parking lotat the Killington resort, was released as security for the obligations underthe Real Estate Term Facility. Collectively, Killington and Resort Properties own 25% of the membershipinterests of SP Land.  The remaining 75%of the membership interest in SP Land is owned by Ski Partners, LLC, togetherwith a preferential interest in SP Land of approximately $37.2 million.  In accordance with FIN No. 46R and APB No.18,  the Company accounts for SP Land onthe equity method as it does not meet the requirements as a variable interestentity that requires consolidation.

 

Inconjunction with the restructuring of the Real Estate Term Facility, the $25.0million in debt from Resort Properties to Oak Hill Capital Partners and itsaffiliate, OHSF ASTC, LLC (Tranche C of the Real Estate Term Facility) wascontributed by Oak Hill to ASC as additional paid-in capital.  This contribution was made for no additionalconsideration, and no equity was issued by ASC in return for thecontribution.  As a result of thetransfer of the $55.4 million in indebtedness (including accrued interest andfees) from Resort Properties to SP Land and the exchange of $25.0 million indebt from Oak Hill as additional paid-in capital of ASC, approximately $80.4million in real estate debt and related accrued interest and fees have beensettled and are no longer obligations of the Company.

 

Aspart of the restructuring of the Real Estate Term Facility, Killington alsocontributed all of its interest in approximately 256 acres of developmentalreal estate with a carrying value of approximately $0.9 million into a jointventure entity called Cherry Knoll.  Each of SP Land and Killington own 50% of the membership interests inCherry Knoll.  In addition, Killingtonmaintains a preferential distribution interest in Cherry Knoll of $1.5million.  In accordance with FIN No. 46Rand APB No. 18, the Company accounts for Cherry Knoll on the equity method asit does not meet the requirements as a variable interest entity that requiresconsolidation.

 

Immediatelyfollowing the restructuring of the Real Estate Term Facility, Resort Propertiesbecame a co-borrower under the Resort Senior Credit Facility and pledged itsremaining assets as collateral security thereunder.

 

Asa result of the restructuring of the Real Estate Term Facility, all previousdefaults under the facility have been waived by the lenders and the Company isin compliance with all debt covenants and other terms of the remaining debt instrumentsas of July 31, 2005.

 

Interestexpense applicable to the Real Estate Term Facility was $13.3 million and $0million for fiscal 2004 and fiscal 2005, respectively.  No interest expense was recorded on thefacility in fiscal 2005 since no borrowings remained outstanding.

 

F-21

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**7.             Subordinated Notes and Debentures**

 

**12%Senior Subordinated Notes**

Asof July 25, 2004, the Company had $120.0 million of Senior Subordinated Notesoutstanding.  In connection with therefinancing of the Resort Senior Credit Facility as described in Note 5, theCompany repurchased or redeemed all Senior Subordinated Notes.  For the early redemption, $1.9 million inpremium was paid to holders. Unamortized discount of $0.8 million along withthe $1.9 million in premium are included in the fiscal 2005 consolidatedstatement of operations as write-off of financing costs and are included withinthe write off of financing costs contained on the consolidated statements ofoperations.

 

**11.3025%Junior Subordinated Notes**

On July 15, 2001, the Company entered into asecurities purchase agreement with Oak Hill Capital Partners to assist theCompany in meeting its current financing needs. Pursuant to the terms of the securities purchase agreement, which closedon August 31, 2001, the Company issued, and Oak Hill Capital Partnerspurchased, $12.5 million aggregate principal amount of Junior SubordinatedNotes, which are convertible into shares of the Company’s Series DParticipating Preferred Stock (Series D Preferred Stock).  These Junior Subordinated Notes are unsecuredand bear interest at a rate of 11.3025%, which compounds annually and is dueand payable at the maturity of the Junior Subordinated Notes.  The Junior Subordinated Notes were amended inconnection with the refinancing of the Resort Senior Credit Facility to extendthe maturity to May 2012. The proceeds of the Junior Subordinated Notes wereused to fund short-term liquidity needs of Resort Properties by way of thepurchase of certain real estate assets by ASC from Resort Properties.  As of July 25, 2004 and July 31, 2005, theoutstanding balance on the Junior Subordinated Notes was approximately $17.1million and $19.0 million, respectively, including compounded interest.

 

**New JuniorSubordinated Notes**

In connection with the refinancing of the ResortSenior Credit Facility, the Company entered into an exchange agreement with theholder of the Company’s Series A Preferred Stock and issued $76.7 million ofnew junior subordinated notes due May 2012 (New Junior Subordinated Notes) tothe holder of the Series A Preferred Stock in exchange for all outstandingshares of Series A Preferred Stock.  TheNew Junior Subordinated Notes accrue interest at a rate of 11.25%, graduallyincreasing to a rate of 13.0% in 2012. No principal or interest payments are required to be made on the NewJunior Subordinated Notes until maturity. However, interest is added to the principal outstanding on January 1 ofeach year.  On January 1, 2005, $0.9million of interest was added to the principal outstanding.  The New Junior Subordinated Notes aresubordinated to all of the Company’s other debt obligations and all tradepayables incurred in the ordinary course of business.  None of the Company’s subsidiaries areobligated on the New Junior Subordinated Notes, and none of the Company’sassets serve as collateral for repayment of the New Junior SubordinatedNotes.  The indenture governing the NewJunior Subordinated Notes also restricts the Company from paying cash dividendsor making other distributions to its shareholders subject to certain limitedexceptions. As of July 31, 2005, the outstanding balance on the New JuniorSubordinated Notes was $77.6 million. Accrued interest as of July 31, 2005 on the New Junior SubordinatedNotes was $5.6 million.

 

**OtherSubordinated Debentures**

Othersubordinated debentures owed by the Company to institutions and individuals asof July 31, 2005 are unsecured and are due as follows (in thousands):

 
| **Year**   | ** ** | **Interest  Rate** | ** ** | **Principal  Amount** | ** ** |
|------------|------------|--------------------|------------|-----------------------|------------|
| **2010**   |       | 8                  | %          | $                     | 1,292      |   |
| **2012**   |       | 6                  | %          | 1,155                 |       |
| **2013**   |       | 6                  | %          | 1,065                 |       |
| **2015**   |       | 6                  | %          | 1,500                 |       |
| **2016**   |       | 6                  | %          | 1,196                 |       |
| ** ** | ** ** | ** **         | ** ** | **$**                 | **6,208**  | ** ** |

 

F-22

----

 

**8.****            ****Mandatorily Redeemable Securities**

 

**Series A Preferred Stock**

As ofJuly 25, 2004, the Company had 36,626 shares of Series A Preferred Stockoutstanding.  As part of the refinancingof the Resort Senior Credit Facility on November 24, 2004 all outstandingshares of the Series A Preferred Stock were exchanged for New Junior SubordinatedNotes in the principal amount of $76.7 million (see Note 7).

 

**Series B Preferred Stock**

Pursuantto a Preferred Stock Subscription Agreement (the Series B Agreement) dated July9, 1999, the Company sold 150,000 shares of its 8.5% Series B ConvertibleParticipating Preferred Stock (Series B Preferred Stock) on August 9, 1999 toOak Hill for $150.0 million.

 

On August 31, 2001, inconnection with a recapitalization transaction, the Series B Preferred Stockwas stripped of all of its economic and governance rights and preferences, withthe exception of its right to elect up to six directors.  The Company issued mandatorily redeemableSeries C-1 and Series C-2 Preferred Stock with an aggregate initial face valueof $179.5 million which was equal to the accrued liquidation preference of theSeries B Preferred Stock immediately before being stripped of its right to suchaccrued liquidation preference.  TheSeries B Preferred Stock currently remains outstanding but will lose itsremaining rights, including voting rights, upon redemption of the Series C-1and C-2 Preferred Stock in July 2007.

 

**Series C-1 and C-2 Preferred Stock**

OnJuly 15, 2001, the Company entered into a securities purchase agreement withOak Hill to assist the Company in meeting its current financing needs.  Pursuant to the terms of the securitiespurchase agreement, which closed on August 31, 2001, the Company issued to OakHill two new series of Preferred Stock: (i) $40.0 million face value of SeriesC-1 Preferred Stock; and (ii) $139.5 million face value of Series C-2 PreferredStock.  The initial face values of theSeries C-1 Preferred Stock and Series C-2 Preferred Stock correspond to theaccrued liquidation preference of the Series B Preferred Stock immediatelybefore being stripped of its right to such accrued liquidation preference.  The Series C-1 Preferred Stock and Series C-2Preferred Stock are entitled to annual preferred dividends of 12% and 15%,respectively.  At the Company’s option,dividends can either be paid in cash or in additional shares of preferredstock.  The Series C-1 Preferred Stock isconvertible into common stock at a price of $1.25 per share, subject toadjustments.  The Series C-2 PreferredStock is not convertible.  Both theSeries C-1 Preferred Stock and Series C-2 Preferred Stock are mandatorilyredeemable and mature in July 2007.  Asof July 31, 2005, cumulative dividends in arrears totaled approximately $23.7million and $109.3 million for the Series C-1 Preferred Stock and Series C-2Preferred Stock, respectively.  TheSeries C-1 Preferred Stock and Series C-2 Preferred Stock have certain votingrights as defined in the securities certificates of designation relatingthereto and rank senior in liquidation preference to all common stock and ClassA common stock outstanding as of July 31, 2005, common stock and Class A commonstock issued in the future, rank pari passu with each other and the Series BPreferred Stock, and rank senior to the non-voting Series D ParticipatingPreferred Stock.  The Series C-1 PreferredStock is also participating preferred stock and consequently has the right toparticipate in any dividends paid or payable to the Common Stock of the Companyon an as-if-converted basis.

 

**Series D Preferred Stock**

The Company has authorized the issuance of 5,000shares of $0.01 par value, non-voting Series D Participating Preferred Stock(Series D Preferred Stock).  As of July31, 2005, no shares of Series D Preferred Stock have been issued.  The Series D Preferred Stock is junior inright of preference to the Series C-1 and Series C-2 Preferred Stock, is notentitled to preferred dividends, and is redeemable at the option of theshareholders.

 

**9.****            ****Capital Stock**

 

TheCompany has two classes of common stock outstanding, Class A common stock andcommon stock. The rights and preferences of holders of Class A common stock andcommon stock are substantially identical, except that, while any Class A commonstock is outstanding, holders of Class A common stock will elect a class ofdirectors that constitutes two-thirds of the Board of Directors (other thandirectors elected by holders of the Company’s various classes of preferredstock) and holders of common stock will elect a class of directors thatconstitutes one-third

 

F-23

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ofthe Board of Directors (other than directors elected by holders of the Company’svarious classes of preferred stock). Each share of Class A common stock is convertible into one share ofcommon stock (i) at the option of the holder at any time, (ii) automaticallyupon transfer to any person that is not an affiliate of Leslie B Otten (Mr.Otten) the holder of 100% of the 14,760,530 shares of Class A common stock, and(iii) automatically if, at any time, the number of shares of Class A common stockoutstanding represents less than 20% of outstanding shares of common stock andClass A common stock.

 

**10.****          DividendRestrictions and Stockholders Agreement**

 

**Dividend Restrictions**

Borrowers under theResort Senior Credit Facility, which include ASC, are restricted from payingcash dividends on any of their preferred or common stock.

 

Grand Summit, theborrower under the Construction Loan Facility is restricted from declaringdividends or advancing funds to ASC by any other method, unless specificallyapproved by the Construction Loan Facility lenders.

 

**Stockholders Agreement**

The Company, Oak Hill, and Mr. Otten entered into aStockholders Agreement, dated as of August 6, 1999, amended on July 31, 2000(as amended, the “Stockholders Agreement”), pursuant to which each of Mr. Ottenand Oak Hill agreed to vote its capital stock of the Company so as to causethere to be:

 

**•**                  Six directors of the Company nominated by Oak Hill,so long as Oak Hill owns 80% of the shares of common stock it owned as of July30, 2000 on a fully diluted basis, such number of directors decreasing ratablywith the percentage of Oak Hill’s ownership of the common stock on a fullydiluted basis compared to such ownership as of July 30, 2000; and

 

**•**                  Two directors of the Company nominated by Mr. Otten,so long as Mr. Otten owns 15% of the shares of common stock outstanding on afully diluted basis, and one director so nominated, so long as Mr. Otten ownsat least 5% of the shares of common stock outstanding on a fully diluted basis.

 

As of July 31, 2005, Oak Hill owned not less than 80%of the shares of common stock it owned as of July 30, 2000, on a fully dilutedbasis, and Mr. Otten owned not less than 15% of the shares of common stockoutstanding on a fully diluted basis.

 

The Stockholders Agreement provides that, so long asOak Hill owns at least 20% of the outstanding shares of common stock on a fullydiluted basis, the affirmative vote of at least one Oak Hill director isrequired prior to the approval of (i) the Company’s annual budget, (ii)significant executive personnel decisions, (iii) material actions likely tohave an impact of 5% or more on the Company’s consolidated revenues orearnings, amendments to the Company’s articles of incorporation or bylaws, (iv)any liquidation, reorganization, or business combination of the Company, (v)the initiation of certain material litigation, and (vi) any material financingof the Company.

 

Under the Stockholders Agreement, Oak Hill and Mr.Otten have agreed not to dispose of their securities of the Company if, (i) asa result of such transfer, the transferee would own more than 10% of theoutstanding shares of common stock of the Company (on a fully diluted basis),unless such transfer is approved by the Board of Directors (x) including amajority of the Common Directors, as defined, or (y) the public stockholders ofthe Company are given the opportunity to participate in such transfer onequivalent terms, (ii) the transferee is a competitor of the Company or any ofits subsidiaries, unless such transfer is approved by the Board of Directors,or (iii) such transfer would materially disadvantage the business of theCompany.  The Stockholders Agreementprovides for additional customary transfer restrictions applicable to each ofMr. Otten and Oak Hill as well as standstill provisions applicable to Oak Hill.

 

TheStockholders Agreement provides that, upon the Company’s issuance of shares ofcommon stock or securities convertible into common stock, Mr. Otten and OakHill will have the right to purchase at the same price

 

F-24

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and on the sameterms, the number of shares of common stock or securities convertible intocommon stock necessary for each of them to maintain individually the same levelof beneficial ownership of common stock of the Company on a fully diluted basisas it owned immediately prior to the issuance. This anti-dilution provision is subject to customary exceptions.

 

**11.****          Merger,Restructuring, and Asset Impairment Charges**

 

The company incurred $1.4 million of merger,restructuring, and asset impairment charges for fiscal 2003 that consisted of$1.2 million of expenses related to the write-off of certain fixed assts andother assets in the resort segment, $0.4 million in employee severance changesin its resort segment, offset by the reversal of $0.2 million of impairmentcharges in its real estate segment that were determined not to be needed.  Employee severance changes were paid infiscal 2003.

 

The Company incurred and paid $0.1 million in employeeseverance charges in its resort segment in fiscal 2004.

 

**12.****   ****Income Taxes**

 

There was no provision orbenefit for income taxes recorded in operations for fiscal 2003, fiscal 2004,or fiscal 2005.  Deferred income taxesreflect the tax impact of temporary differences between the amounts of assetsand liabilities for financial reporting purposes and such amounts as measuredby tax laws and regulations. Under SFAS No. 109, the benefit associated withfuture deductible temporary differences and net operating loss or income taxcredit carryforwards is recognized if it is more likely than not that a benefitwill be realized.  The Company recordedno deferred tax (expense) benefit because there was no change in the netdeferred tax asset or liability balance.

 

Deferredtax (liabilities) assets are comprised of the following as of July 25, 2004 andJuly 31, 2005 (in thousands):

 
| ** **                                    | ** ** | **July 25, 2004** | ** ** | **July 31, 2005** | ** ** |
|-----------------------------------------------|------------|-------------------|------------|-------------------|------------|
| **Property and equipment basis differential** |       | $                 | (59,749    | )                 | $          | (53,108 | ) |
| **Other**                                     |       | (8,887            | )          | (11,034           | )          |
| **Gross deferred tax liabilities**            |       | (68,636           | )          | (64,142           | )          |
|                                          |       |              |       |              |       |
| **Tax loss and credit carryforwards**         |       | 126,899           |       | 129,224           |       |
| **Capitalized costs**                         |       | 3,108             |       | 3,857             |       |
| **Deferred revenue and contracts**            |       | 4,150             |       | 7,010             |       |
| **Stock compensation charge**                 |       | 667               |       | 869               |       |
| **Reserves and accruals**                     |       | 67,944            |       | 66,277            |       |
| **Gross deferred tax assets**                 |       | 202,768           |       | 207,237           |       |
|                                          |       |              |       |              |       |
| **Valuation allowance**                       |       | (134,132          | )          | (143,095          | )          |
| **Net deferred tax (liability) asset**        | ** ** | **$**             | **—** | ** **        | **$**      | **—** | ** ** |

 

Reconciliation of deferred tax (liabilities) assetsand valuation allowance is comprised of the following as of July 25, 2004 andJuly 31, 2005 (in thousands):

 
| ** **                                         | ** ** | **July 25, 2004**                         | ** ** | **July 31, 2005**        | ** ** |
|----------------------------------------------------|------------|-------------------------------------------|------------|--------------------------|------------|
| ** **                                         | ** ** | **Gross Deferred  Tax (Liability) Asset** | ** ** | **Valuation  Allowance** | ** ** | **Net Deferred Tax  (Liability) Asset** | ** ** | **Gross Deferred  Tax (Liability) Asset** | ** ** | **Valuation  Allowance** | ** ** | **Net Deferred Tax  (Liability) Asset** | ** ** |
| **Net  current deferred tax asset**                |       | $                                         | 18,400     |                     | $          | (12,046 | ) | $ | 6,354 |   | $ | 23,590 |   | $ | (16,054 | ) | $ | 7,536 |   |
|                                               |       |                                      |       |                     |       |   |   |   |   |   |   |   |   |
| **Net long  term deferred tax (liability) asset:** |       |                                      |       |                     |       |   |   |   |   |   |   |   |   |
| **Long  term asset**                               |       | 184,368                                   |       | (122,086                 | )          | 62,282 |   | 183,647 |   | (127,041 | ) | 56,606 |   |
| **Long  term Liability**                           |       | (68,636                                   | )          |                     |       | (68,636 | ) | (64,142 | ) | — |   | (64,142 | ) |
| **Total  valuation allowance**                     |       |                                      |       | (134,132                 | )          |   |   |   |   | (143,095 | ) |   |   |
| **Net long  term deferred tax liability**          |       |                                      |       |                     |       | $ | (6,354 | ) |   |   |   |   | $ | (7,536 | ) |
| **Net  deferred tax (liability) asset**            |       |                                      |       |                     |       | $ | — |   |   |   |   |   | $ | — |   |
|                                                    |            |                                           |            |                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-25

----

 

The(provision) benefit for income taxes differs from the amount of income taxdetermined by applying the applicable U.S. statutory income tax rate of 35% toincome (loss) before (provision) benefit for income taxes as a result of thefollowing differences (in thousands):

 
| ** **                                                                                                       | ** ** | **Fiscal 2003** | ** ** | **Fiscal 2004** | ** ** | **Fiscal 2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| **Income  tax provision (benefit) at the statutory U.S. tax rate**                                               |       | $               | 15,531     |            | $          | (10,028         | )          | $ | (25,660 | ) |
| **Increase  (decrease) in rate resulting from:**                                                                 |       |            |       |            |       |            |       |
| **State  income taxes, net**                                                                                     |       | 3,054           |       | (413            | )          | (2,193          | )          |
| **Change  in valuation allowance**                                                                               |       | (17,061         | )          | (7,825          | )          | 8,963           |       |
| **Accretion  of discount and dividends on Mandatorily Redeemable Preferred Stock included  as interest expense** |       | —          |       | 15,092          |       | 18,475          |       |
|                                                                                                             |       |            |       |            |       |            |       |
| **Non-deductible  items**                                                                                        |       | (1,461          | )          | 1,450           |       | 231             |       |
| **Other**                                                                                                        |       | (63             | )          | 1,724           |       | 184             |       |
| **Income  tax benefit at the effective tax rate**                                                                | ** ** | **$**           | **—** | ** **      | **$**      | **—**      | ** ** | **$** | **—** | ** ** |
|                                                                                                                  |            |                 |            |                 |            |                 |            |  |  |  |  |

 

As of July 31, 2005, theCompany has federal net operating loss carryforwards of approximately $270.5million which expire in varying amounts though fiscal 2025, and approximately$1.7 million in general business credit carryforwards which expire in varyingamounts through fiscal 2025.  The utilizationof some of these losses and carryforwards will be limited pursuant to InternalRevenue Code Section 382 as a result of ownership changes.  State net operating loss carryforwards totalapproximately $453.7 million and expire in varying amounts and at varying timesthrough fiscal 2025. Subsequent ownership changes, if any, could cause there tobe additional limitations on existing net operating loss and creditcarryforwards.

 

Management has concludedthat it is more likely than not that the Company will not have sufficienttaxable income of an appropriate character within the carryback andcarryforward period permitted by current law to allow for the utilization ofcertain carryforwards and other tax attributes generating the net deferred taxasset.  Therefore, a valuation allowanceof approximately $134.1 million and $143.1 million has been established toreduce the deferred tax assets to their net realizable value as of July 25,2004 and July 31, 2005, respectively.

 

**13.          Business Segment Information**

 

TheCompany has classified its operations into two business segments: resortoperations and real estate operations. Revenues at each of the resorts are derived from the same lines ofbusiness which include lift ticket sales, food and beverage, retail sales includingrental and repair, skier development, lodging and property management, golf,other summer activities, and miscellaneous revenue sources.  The performance of the resorts is evaluatedon the same basis of profit or loss from operations.  Additionally, each of the resorts hashistorically produced similar margins and attracts the same class ofcustomer.  Based on the similarities ofthe operations at each of the resorts, the Company has concluded that the resortssatisfy the aggregation criteria set forth in SFAS No. 131, “Disclosures AboutSegments of an Enterprise and Related Information.”  The Company’s real estate revenues arederived from the sale and leasing of interests in real estate developmentprojects undertaken by the Company at its resorts and the sale of other realproperty interests.

 

F-26

----

 

Theaccounting policies of the operating segments are the same as those describedin the summary of significant accounting policies.  Data by segment is as follows (in thousands):

 
| ** **                                                                                                                                                        | ** ** | **July 27, 2003** | ** ** | **July 25, 2004** | ** ** | **July 31, 2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
|                                                                                                                                                              |       |              |       |              |       |              |       |
| **Net  revenues:**                                                                                                                                                |       |              |       |              |       |              |       |
| **Resorts**                                                                                                                                                       |       | $                 | 251,638    |              | $          | 250,706           |       | $ | 267,314 |   |
| **Real estate**                                                                                                                                                   |       | 12,898            |       | 33,405            |       | 9,163             |       |
|                                                                                                                                                              |       | $                 | 264,536    |              | $          | 284,111           |       | $ | 276,477 |   |
|                                                                                                                                                              |       |              |       |              |       |              |       |
| **Income (loss) before income  taxes:**                                                                                                                           |       |              |       |              |       |              |       |
| **Resorts**                                                                                                                                                       |       | $                 | (23,319    | )                 | $          | (66,611           | )          | $ | (70,646 | ) |
| **Real estate**                                                                                                                                                   |       | (21,055           | )          | 38,109            |       | (2,669            | )          |
|                                                                                                                                                              |       | $                 | (44,374    | )                 | $          | (28,502           | )          | $ | (73,315 | ) |
|                                                                                                                                                              |       |              |       |              |       |              |       |
| **Depreciation and amortization:**                                                                                                                                |       |              |       |              |       |              |       |
| **Resorts**                                                                                                                                                       |       | $                 | 25,791     |              | $          | 24,750            |       | $ | 30,280 |   |
| **Real estate**                                                                                                                                                   |       | 1,722             |       | 1,727             |       | 1,518             |       |
|                                                                                                                                                              |       | $                 | 27,513     |              | $          | 26,477            |       | $ | 31,798 |   |
|                                                                                                                                                              |       |              |       |              |       |              |       |
| **Interest expense, net:(2)**                                                                                                                                     |       |              |       |              |       |              |       |
| **Resorts**                                                                                                                                                       |       | $                 | 27,139     |              | $          | 70,111            |       | $ | 78,225 |   |
| **Real estate**                                                                                                                                                   |       | 20,225            |       | 17,492            |       | 3,129             |       |
|                                                                                                                                                              |       | $                 | 47,364     |              | $          | 87,603            |       | $ | 81,354 |   |
|                                                                                                                                                              |       |              |       |              |       |              |       |
| **Merger, restructuring, and asset impairment charges, gain on  extinguishment of debt, and gain on transfer of assets associated with  extinguishment of debt:** |       |              |       |              |       |              |       |
| **Resorts**                                                                                                                                                       |       | $                 | 1,611      |              | $          | 137               |       | $ | — |   |
| **Real estate**                                                                                                                                                   |       | (160              | )          | (48,584           | )          | —            |       |
|                                                                                                                                                              |       | $                 | 1,451      |              | $          | (48,447           | )          | $ | — |   |
|                                                                                                                                                              |       |              |       |              |       |              |       |
| **Capital expenditures:**                                                                                                                                         |       |              |       |              |       |              |       |
| **Resorts**(1)                                                                                                                                                    |       | $                 | 6,819      |              | $          | 9,573             |       | $ | 17,953 |   |
| **Real estate**                                                                                                                                                   |       | 6,722             |       | —            |       | —            |       |
|                                                                                                                                                              |       | $                 | 13,541     |              | $          | 9,573             |       | $ | 17,953 |   |
| **Identifiable assets:**                                                                                                                                          |       |              |       |              |       |              |       |
| **Resorts**                                                                                                                                                       |       |              |       | $                 | 340,965    |              | $          | 355,583 |   |
| **Real estate**                                                                                                                                                   |       |              |       | 81,804            |       | 58,296            |       |
|                                                                                                                                                              |       |              |       | $                 | 422,769    |              | $          | 413,779 |   |

 

----

(1)          Duringfiscal 2005, and as required under the terms of our Resort Senior CreditFacility, we converted certain types of lease agreements that we historicallyentered into as operating leases into terms that qualified them to be treatedas capital leases.  These convertedcapital leases totaled $12.7 million and are not within the $18.0 million notedabove for fiscal year 2005.

(2)          Duringfiscal 2005, the Company entered into an interest rate swap agreement which hasa fixed cash-pay rate for a portion of the Resort Senior Credit Facility (seeNote 5).  Changes in the fair value ofthe interest rate swap agreement are recorded as interest expense (income) ateach reporting period.  During the yearended July 31, 2005, the Company recognized $314,405 of interest income frommarket value adjustments to this agreement. This amount is reported separately in the Consolidated Statements ofOperations but is included above in the Resorts interest expense, net amount.

 

Capitalexpenditures for the Company’s real estate segment include the net change inreal estate held for sale and real estate operating expenses for the periodspresented.

 

F-27

----

 

Areconciliation of the totals reported for the operating segments to the totalsreported in the consolidated financial statements is as follows:

 
| ** **                                                              | ** ** | **July 27, 2003** | ** ** | **July 25, 2004** | ** ** | **July 31, 2005** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| **Capital  expenditures:**                                              |       |              |       |              |       |              |       |
| **Resort capital expenditures**                                         |       | $                 | 6,819      |              | $          | 9,573             |       | $ | 17,953 |   |
| **Real estate capital  expenditures**                                   |       | 265               |       | —            |       | —            |       |
|                                                                    |       | $                 | 7,084      |              | $          | 9,573             |       | $ | 17,953 |   |
| **Assets:**                                                             |       |              |       |              |       |              |       |
| **Identifiable assets for segments**                                    |       |              |       | $                 | 422,769    |              | $          | 413,779 |   |
| **Intangible and deferred income tax assets not allocated to segments** |       |              |       | 8,031             |       | 9,155             |       |
| **Total  consolidated assets**                                          |       |              |       | $                 | 430,800    |              | $          | 422,934 |   |
|                                                                         |            |                   |            |                   |            |                   |            |  |  |  |  |  |

 

**14.****         ****Related Party Transactions**

 

OnMarch 28, 2001, Mr. Otten resigned as the Company’s Chairman and ChiefExecutive Officer.  Mr. Otten is still amajor shareholder of the Company and is a member of the Company’s Board ofDirectors.  As part of his separationagreement, the Company paid Mr. Otten and his executive assistant theirsalaries and medical benefits for two years. These amounts totaled approximately $480,000 on an annual basis.  In addition, the Company granted Mr. Ottenthe use of Company office space for up to two years and the Company alsotransferred ownership of one of its vehicles (valued at approximately $20,000)to Mr. Otten at no charge.

 

In April 2003, the Company entered into a transactionwith Mr. Otten at the Company’s Sunday River resort wherein the Company grantedto Mr. Otten certain easements necessary for him to develop a restaurant nearthe resort in exchange for the grant by Mr. Otten of certain parking and accesseasements beneficial to the resort.  Thistransaction was reviewed and approved by the Audit Committee of the Company’sBoard of Directors.

 

Mr.Wachter is a member of the Company’s Board of Directors.  Additionally, he is the founder and ChiefExecutive Officer of Main Street Advisors. Main Street Advisors, through Mr. Wachter, acted as one of the Company’sinvestment bankers in connection with the marketing of the Steamboat andHeavenly resorts for sale in 2001 and 2002. During fiscal 2004, the Company recorded an expense for an obligation toMain Street Advisors of $0.4 million in connection with services relating tocertain settlement negotiations involving the Steamboat resort (See Note 15).

 

On November 24, 2004, theCompany entered into a new Resort Senior Credit Facility.  The new facility totals $230.0 million, andconsists of a revolving credit facility and term loan facilities.  The proceeds of the facilities were used torefinance the Company’s existing resort senior credit facility and the Company’ssenior subordinated notes as well as to pay fees and expenses related to thetransaction.  Oak Hill Securities Fund,LP has lent $40 million in principal amount under the new facility.  The amounts lent by Oak Hill Securities Fund,LP were made on the same terms as those offered to other lenders under thefacility, except that Oak Hill Securities Fund, LP received from the arrangersof the new facility the consideration paid to such arrangers by the Companywith respect to loan amounts made by Oak Hill Securities Fund, LP.  With respect to $20.0 million of the newfacility which was furnished by Oak Hill Securities Fund, LP under therevolving portion of the new facility, such portion receives a commitment feeequal to the margin payable to term loan lenders under the new facility in lieuof the commitment fee otherwise payable to revolving loan lenders.

 

In conjunction with theResort Senior Credit Facility and the issuance of the New Junior Subordinated Notes,Oak Hill and the Company entered into a supplemental indenture to the indenturegoverning its 11.3025% notes due 2007. The supplemental indenture extends the maturity of the notes to May2012.  Also, in conjunction with the ResortSenior Credit Facility, Oak Hill confirmed to the lenders under the new facilitythat Oak Hill’s remedies in the event of the Company’s failure to redeem theSeries C-1 Preferred Stock or Series C-2 Preferred Stock on their

 

F-28

----

 

respective mandatory redemption dates will be limited to an increase inaccretion rate and the right to elect additional members to the Company’s Boardof Directors.

 

The Company ownscommercial space in all eight of its Grand Summit hotels, as well as othercommercial condominium units within the base village complexes at several ofits resorts.  These commercial intereststypically comprise between 10% and 25% of the ownership and voting interests oftheir respective condominium associations, for which the Company also providesassociation management services. Included in accounts receivable as of July 25, 2004 and July 31, 2005were $2.1 million and $1.8 million, respectively, of amounts due from theseassociations under such management arrangements.  Included in other assets as of July 25, 2004 andJuly 31, 2005 were $0 and $0.4 million (net of allowances of $0 and $0.3million), respectively, of amounts due from these associations.  Included in accounts payable as of July 25,2004 and July 31, 2005 were $0.4 million and $0.8 million of amounts due tothese associations for association fees.

 

InOctober 2004, the Company, through one of its subsidiaries, acquired a 49%interest in SS Associates, LLC (SS Associates). The non-ASC owned interest in SS Associates is owned in part by certainmembers of mid-level management at the Company’s Killington resort. SSAssociates leases the building to the Company for $0.5 million per year (seeNote 1).

 

In 1999, The ResortVillage Management Association (“RVMA”), a Utah nonprofit corporation, wasformed for the purpose of operating, managing and developing The CanyonsSpecially Planned Area (“SPA”) in Park City, Utah.  Membership consists of two classes:  Class A member is the Company and may electfour members to the Board of Trustees; Class B members include all of the otherland owners within the SPA and may elect three members to the Board ofTrustees.  The RVMA does not haveoutstanding stock.  Members of the RVMAhave no voting rights other than the right to elect the members of the Board ofTrustees (see Note 15).

 

**15.          Commitments and Contingencies**

 

TheCompany leases certain land and facilities used in the operations of itsresorts under several operating lease arrangements.  These lease arrangements expire at varioustimes from the year 2010 through the year 2060. Lease payments are generallybased on a percentage of revenues.  Totalrent expense under these operating leases as recorded in resort operatingexpenses in the accompanying consolidated statements of operations for fiscal2003, fiscal 2004, and fiscal 2005 was $4.2 million, $4.3 million, and $4.6million, respectively.

 

Significantportions of the land underlying certain of the Company’s ski resorts are leasedor subleased by the Company or used pursuant to renewable permits orlicenses.  A substantial portion of theland constituting skiable terrain at Attitash, Mount Snow, and Steamboat islocated on federal land that is used under the terms of the permits with theUnited States Forest Service (the Forest Service). Generally, under the termsof such permits, the Forest Service has the right to review and comment on thelocation, design, and construction of improvements in the permit area and onmany operational matters.  The Companyhas the right to renew these leases and under some circumstances if the leasesare not renewed, the Company must re-vegetate and remediate the land back toits original state within a reasonable amount of time (See Note 2 - RecentlyIssued Accounting Standards).  Thepermits can be terminated or modified by the Forest Service to serve the publicinterest.  The Company does notanticipate any limitations, modifications, or non-renewals which wouldadversely affect the Company’s operations.

 

Killingtonleases certain land from the State of Vermont. The lease is subject to a buy-out option retained by the State ofVermont, as landlord.  At the conclusionof each 10-year term, or extended term, the State of Vermont has the option tobuy out the lease for an amount equal to Killington’s adjusted capital outlayplus 10% of the gross receipts from the operation for the preceding threeyears.  Adjusted capital outlay meanstotal capital expenditures extending back to the date of origin of the leasedepreciated at 1% per annum, except that non-operable assets depreciate at 2%per annum.  This buy-out option will nextbecome exercisable in the year 2010. Although the Company has not had confirmation from State of Vermontofficials, it has no reason to believe that the State of Vermont intends toexercise the buy-out option at that time.

 

Killingtonleases certain land from SP Land (see Note 6) that it uses as a parkinglot.  The lease is terminable in whole orin part upon 12 months notice and upon termination, Killington will be requiredto replace any parking spaces on the terminated portion of the lease with newparking spaces located on different parcels of

 

F-29

----

 

land owned byKillington.  Part or all of thisobligation may be satisfied by various capital improvements which would benefitthe resort.  The estimated cost of thisinfrastructure for which the Company will be responsible is $1.5 million.   In addition, upon development of the parcelssubject to the parking lot lease, Killington will be obligated to construct newtransportation facilities supporting the resort.  The estimated cost of this infrastructure forwhich the Company will be responsible is $0.8 million.

 

SundayRiver leases approximately 1,500 acres, constituting a substantial portion ofits skiable terrain, under a 50-year lease terminating on October 14,2030.  The lease renews automaticallythereafter on a year-to-year basis unless terminated by either the lessor orlessee.  This lease was amended onJanuary 23, 1998 to allow Sunday River to purchase portions of the leasedproperty for real estate development at a predetermined amount per acre.  In January 1998, the Company acquired anundivided one-half interest in the fee title to the leased parcel.

 

TheCompany is also subject to a wide variety of federal, state, and local laws andregulations relating to land use and development and to environmentalcompliance and permitting obligations, including those related to the use,storage, discharge, emission, and disposal of hazardous materials.

 

Inconnection with the purchase of The Canyons, the Company entered into anoperating lease arrangement with the seller for the lease of certain land to beused in the operation of the resort and for future real estatedevelopment.  The arrangement providesfor an initial lease term of 50 years, with the option to extend for threeadditional 50-year periods for a fee of $1.0 million for each extensionperiod.  Lease payments are based on apercentage of gross skiing and lodging revenues.  The arrangement also provides for additionalone-time payments ranging from $250,000 to $3.0 million upon achievement ofannual skier visit level increases in 100,000 visit increments up to1,000,000.  The Company paid $250,000during fiscal 2005 under this agreement. The Company has entered into a modification to the agreement for thenext skier visit level that obligates the Company to pay $750,000 on April2006.  This obligation is accrued as ofJuly 31, 2005 in accounts payable and other current liabilities and a deferredcharge has been established in other current assets that will be amortized overa one-year period.  Total rent expenseunder this arrangement, as recorded in resort operating expenses in theaccompanying consolidated statements of operations for fiscal 2003, fiscal2004, and fiscal 2005 was $1.2 million, $1.3 million, and $1.5 million,respectively.  In addition, the Companyhas the option to purchase parcels of land covered under the operating leasefor real estate development.  The Companywas obligated to make payments for these options totaling approximately $19.4million at various times and in varying amounts through May 2003.  Cumulatively through July 31, 2005, theCompany has made $17.9 million of option payments.  The remaining $1.5 million in option paymentshas been accrued in other current liabilities in the accompanying consolidatedbalance sheet as of July 31, 2005 as the Company has entered into anon-cancelable agreement to make these payments.

 

Theski development rights for approximately 3,000 acres of skiable terrain thatthe Company has targeted for development at The Canyons are contained in adevelopment agreement with Iron Mountain Associates, LLC, which agreementincludes a lease of all skiable terrain for a term ending September 13, 2094.  The Company executed an amendment to thislease which provided that these ski development rights be acquired by April2003.  In fiscal 2003, the Company paidapproximately $5.0 million for the acquisition of these development rights.  In connection with the agreement, the Companywill also be required to build two lifts over the next three years effectivefiscal 2006, which will be owned by the Company, for an estimated total cost ofapproximately $4.0 million.

 

TheCompany entered into an agreement with a third-party land owner at The Canyonsresort for an exchange of development properties which will include anobligation of the Company to complete certain road and utility infrastructureon the Company’s property adjacent to the third-party land ownersproperty.  The estimated cost of theportion of this infrastructure for which the Company is responsible is $0.9million.  In addition, the Company isrequired to provide culinary water rights to the third-party owner, whichrights the Company owns but for which there is no carrying value in theaccompanying consolidated balance sheets due to their impairment.

 

The Company’s development activities at The Canyons inUtah are governed by permits issued pursuant to a Development Agreement withlocal authorities.  The Development Agreementrequires the Company to achieve certain performance benchmarks in order toremain in compliance with the Development Agreement and obtain additionalpermits.  The Company has not achievedcertain of these performance benchmarks within the time frames

 

F-30

----

 

required under theDevelopment Agreement, and the local authorities have advised management thatthese failures potentially constitute defaults under the DevelopmentAgreement.  In particular, the DevelopmentAgreement requires that the Company ensured completion of a golf course at TheCanyons by November 2002.  This golfcourse has not yet been completed, and the local authorities have advised theCompany that this failure potentially constitutes a default under theDevelopment Agreement.  Management isworking with the local authorities to address this failure and reassess theappropriate timing for compliance with this performance benchmark.  Pursuant to a contractual undertaking with anunrelated third party at The Canyons, Resort Properties is obligated to fund upto $3.0 million in construction costs or other capital support for the golfcourse.  Part or all of this obligationmay be satisfied by various capital improvements which would benefit the resortas well as the golf course. The Company has been in discussions with SummitCounty, unrelated third-party land owners who will also have obligations totransfer land into this project and certain lenders to finance the remainder ofthe project.   As of July 31, 2005, it isnot practical to determine if there will be any negative impact to the Company’sfinancial position or results of operations as a result of not completingconstruction of the golf course and no liability with respect to this matterhas been included in the accompanying consolidated financial statements

 

TheCompany believes that it possesses all the permits, licenses, and approvalsfrom governmental authorities material to the operations as they currentlyexist.  The Company has not received anynotice of material non-compliance with permits, licenses, or approvalsnecessary for the operation of any of its properties, with the exception of theDevelopment Agreement at The Canyons, where the Company has received a noticeof non-compliance from the applicable governmental regulators and is workingwith them to resolve compliance issues.

 

OnApril 22, 2003, the Company was sued in Utah state court by WestgateResorts, Ltd. for breach of contract and other related claims arising from disputesinvolving two contracts between the Company (through two differentsubsidiaries, ASC Utah, Inc. (“ASC Utah”) and Resort Properties) andWestgate.  Generally, Westgate hasalleged that ASC Utah and/or Resort Properties have breached obligations to Westgateto construct certain infrastructure at The Canyons resort and provide marketingsupport for Westgate’s project.  Westgate’sclaim seeks specific performance of certain aspects of the twocontracts.   On May 13, 2003,the Company answered Westgate’s complaint and filed a counterclaim, alleging,among other things, that Westgate was in default on a joint promotionalagreement with ASC Utah for failing to purchase approximately $2.0 million(now over $4.0 million) in lift tickets and that Westgate’s buildings at TheCanyons encroach upon land owned or controlled by ASC Utah and/or ResortProperties No discovery has been taken in this matter and no timetable has beenset for bringing the matter to trial.  Itis not currently feasible to quantify the damages being sought in this action.

 

The Company is a member in the RVMA at TheCanyons.  In conjunction with its effortsto develop a golf course at The Canyons, the RVMA purchased 200 irrigationwater shares from the Company and an unrelated third party.  Fifty of these 200 shares were purchased fromthe Company (the Company Shares) in fiscal 2004.  The RVMA’s purchase of the 200 water sharestriggered a third-party obligation to provide to the Company an additional 111culinary water shares (the Additional Shares). In order to finance the purchase of the 200 irrigation water shares, theRVMA obtained a loan (the Water Loan) collateralized by the water shares thatit purchased.  As further collateral forthe Water Loan, the Company pledged to the lender its interest in the 111Additional Shares, and deferred its right to receive the $500,000 purchaseprice for the Company Shares from the RVMA until after repayment in full of theWater Loan.  The Company is not directlyobligated for any portion of the water loan, and provided no credit support forthe Water Loan other than the Additional Shares and the deferral of purchaseprice.

 

OnSeptember 29, 2005, the Company received a notice stating that the Company hadfailed to perform two of its obligations under the Ground Lease with WolfMountain which comprises a significant portion of the ski terrain anddevelopmental land at The Canyons; specifically an obligation to transfer titleto an as-of-yet unplatted subdivision Wolf Mountain and an obligation to providea leasehold mortgage on the Company’s interest in a separate lease at TheCanyons to secure certain obligations under the Wolf Mountain lease.  TheCompany is diligently pursuing completion of each of these obligations withinthe 60 day pre-default cure period.

 

Inaddition to the leases described above, the Company is committed under severaloperating and capital leases for various facilities, machinery, and equipment.Rent expense under all operating leases was $10.5 million, $11.2 million, and$7.1 million (inclusive of $4.2 million, $4.3 million, and $4.6 million ofcontingent rental

 

F-31

----

 

payments) for fiscal2003, fiscal 2004, and fiscal 2005, respectively.  In fiscal year 2005, the Company converted severalequipment leases from operating leases to capital leases.

 

Futureminimum lease payments for lease obligations, exclusive of contingent skiervisit payments (discussed above), as of July 31, 2005 are as follows (inthousands):

 
| ** **                                           | ** ** | **Capital  Leases** | ** ** | **Operating  Leases** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|-----------------------|------------|
| **2006**                                             |       | $                   | 4,039      |                  | $          | 1,658 |   |
| **2007**                                             |       | 2,865               |       | 1,132                 |       |
| **2008**                                             |       | 1,775               |       | 822                   |       |
| **2009**                                             |       | —              |       | 728                   |       |
| **2010**                                             |       | —              |       | 536                   |       |
| **2011 and thereafter**                              |       | —              |       | 3,844                 |       |
| **Total payments**                                   |       | 8,679               |       | $                     | 8,720      |   |
| **Less interest (rates ranging from 5.0% to 12.2%)** |       | (1,337              | )          |                  |       |
| **Present value of net minimum payments**            |       | 7,342               |       |                  |       |
| **Less current portion**                             |       | (3,273              | )          |                  |       |
| **Long-term obligations**                            |       | $                   | 4,069      |                  |       |   |
|                                                      |            |                     |            |                       |            |  |  |  |

 

ASC entered into anagreement on January 22, 2002 with Triple Peaks, LLC for the sale of theSteamboat resort.  The Company laterdetermined that the sale of its Heavenly resort more closely achieved theCompany’s restructuring objectives and concluded that it would not proceed withthe sale of the Steamboat resort. Subsequently, Triple Peaks, LLC (“Triple Peaks”) brought a lawsuitseeking both monetary damages resulting from the breach and specificperformance of the contract.  On July 12,2004, the Company reached a settlement with Triple Peaks regarding thislitigation.  In return for a cashsettlement of $5.14 million, Triple Peaks agreed to a full dismissal of allclaims relating to the proposed sale of the Steamboat resort, and the Companyexpensed these settlement costs in fiscal 2004. The Company paid an initial payment of $3.0 million and established aliability in accounts payable and other accrued liabilities for the remaining$2.14 million as of July 25, 2004.  Thisamount was paid in April 2005.   Inaddition, the Company is required to make a bonus payment to Triple Peaks of$860,000 if the Company sells or transfers substantially all of its assets to athird party on or prior to December 31, 2005 and the closing occurs on orbefore April 1, 2006.  Triple Peaks alsohas the right of first refusal to buy Steamboat if the sale is pursued on astand-alone basis.

 

TheCompany enters into certain programs with various airlines that provide airlineservice to an airport near its Steamboat resort.  Payments on these programs to the airlinesare contingent upon number of seats used during the ski season.  As these payments are contingent upon theactual flights flown and usage of such flights, the Company has no recordedliability in the accompanying consolidated balance sheets for thisobligation.  The Company recorded anexpense relating to these programs of $1.4 million, $1.0 million, and $1.0million for fiscal 2003, fiscal 2004, and fiscal 2005, respectively.

 

InJuly 2003, the homeowners association of the Mount Snow Grand Summit Hotelfiled a claim against Grand Summit for damages of $2.0 million for improperroof/insulation construction at that hotel. Grand Summit has filed an answer and a crossclaim against the architectand general contractor for the project. Discovery in this matter is at a very preliminary stage and no timetablehas been set for bringing the matter to trial.

 

Certainclaims, suits, and complaints in the ordinary course of business are pending ormay arise against the Company or its direct and indirect subsidiaries.  In the opinion of management, all matters arewithout merit or are of such kind, or involve such amounts, that their ultimateresolution would not have a material effect on the financial position, resultsof operations, or liquidity of the Company if disposed of unfavorably.

 

TheCompany has issued approximately $1.6 million of letters of credit under theResort Senior Credit Facility as of July 31, 2005.  The Company has also issued a letter ofcredit for $0.3 million related to certain

 

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workers compensationobligations outside of the Resort Senior Credit Facility.  This $0.3 million letter of credit is securedby certain cash deposits of one of the Company’s wholly owned subsidiaries.

 

ASC has established theAmerican Skiing Company Phantom Equity Plan ( “LTIP”).  Certain of ASC’s Executive Officersparticipate in this plan.  Participantsare entitled to a payment on awards granted under the LTIP, to the extentvested upon a Valuation Event or in certain cases upon termination ofemployment.  The amount of any award isbased ultimately on the Equity Value, as defined by the LTIP, obtained througha Valuation Event.  A Valuation Event isany of the following:  (i) a sale ordisposition of a significant Company operation or property as determined by theBoard; (ii) a merger, consolidation, or similar event of the Company otherthan one (A) in which the Company is the surviving entity or (B) where noChange in Control has occurred; (iii) a public offering of equitysecurities by the Company that yields net proceeds to the Company in excess of$50 million; or (iv) a Change in Control, as defined by the LTIP.  The LTIP was ratified by the Company’s Boardof Directors on March 6, 2003. Compensation expense relating to the LTIP is estimated and recordedbased on the probability of the Company achieving a Valuation Event.  During fiscal 2003, fiscal 2004, and fiscal2005, the Company recorded expenses relating to the LTIP of approximately $0.6million, $0.1 million, and $0.5 million, respectively, which are included inmarketing, general, and administrative expenses in the accompanyingconsolidated statements of operations. At July 25, 2004 and July 31, 2005, the total liability for the LTIP is$0.7 million and $1.2 million, respectively, and is included in other long-termliabilities in the consolidated balance sheets.

 

TheCompany has entered into employment agreements with four of its executiveofficers.  These employment agreementsprovide for guaranteed annual base salaries ranging from $245,000 to $400,000per person.  The employment agreementsalso provide for contingent annual bonuses ranging from 30% to 100% of annualbase salaries, involuntary termination benefits, termination benefits resultingfrom a change in control of the Company, LTIP participation levels, and, incertain cases, benefits where the termination of employment was voluntary.  These agreements also provide for certainbenefits in the event of the death of the executive.

 

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