**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

 

### **FORM10-K**

 
| **ý**                                                                                                                                                                                                                                                                                                                                                                                                                       |   | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**     |
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| **For  the fiscal year ended July 27, 2003**                                                                                                                                                                                                                                                                                                                                                                                     |
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| **or**                                                                                                                                                                                                                                                                                                                                                                                                                           |
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| **o**                                                                                                                                                                                                                                                                                                                                                                                                                            |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                                          |
| **For  the transition period from                                   to                                 .** |

 

**CommissionFile 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)             |

 

Securities registeredpursuant to Section 12(b) of the Act:

 

**None.**

 

Securities registeredpursuant to Section 12(g) of the Act:

 

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

(Title of Each Class)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities and Exchange Act of 1934 during thepreceding 12 months (or shorter period that the registrant was required to filesuch reports), and (2) has been subject to the filing requirements for at leastthe past 90 days.

Yes ýNo o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined by Rule 12b-2 of theExchange Act.

Yes oNo ý

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated by referencein Part III of this Form 10-K or any amendment to this Form 10-K.  ý

 

The aggregate marketvalue of the registrant’s outstanding common stock held by non-affiliates ofthe registrant on September 28, 2003, determined using the per share closingprice thereof on the Over the Counter Bulletin Board, was approximately $3.6million.  As of September 28, 2003,31,738,183 shares of common stock were issued and outstanding, of which14,760,530 shares were Class A common stock.

 

 

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AmericanSkiing Company

 

Form10-K Annual Report, for the year ended July 27, 2003

 

AmericanSkiing Company and Subsidiaries

 

Tableof Contents

 
| Part I                                     |
|--------------------------------------------|
| Item  1 and Item 2 Business and Properties | 1 |
|                                       |
| Item 3                                     | Legal Proceedings | 17 |
|                                       |   |
| Item 4                                     | Submission of Matters to a Vote of Security  Holders | 18 |
|                                       |   |
| Part II                                    |
|                                       |   |
| Item 5                                     | Market for Registrant’s Common Equity and  Related Shareholder Matters | 18 |
|                                       |   |
| Item 6                                | Selected Financial Data | 19 |
|                                       |   |
| Item 7                                     | Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 21 |
|                                       |   |
| Item 7A                                    | Quantitative and Qualitative Disclosures about  Market Risk | 36 |
|                                       |
|                                       |   |
| Item 8                                     | Financial Statements and Supplementary Data | 38 |
|                                       |   |
| Item 9                                     | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure | 39 |
|                                       |   |
| Item 9A                                    | Controls and Procedures | 39 |
|                                       |
| Part III                                   |
|                                       |   |
| Item 10                                    | Directors and Executive  Officers of the Registrant | 39 |
|                                       |   |
| Item 11                                    | Executive Compensation | 39 |
|                                       |   |
| Item 12                                    | Security Ownership of  Certain Beneficial Owners and Management | 39 |
|                                       |   |
| Item 13                                    | Certain Relationships  and Related Transactions | 39 |
|                                       |   |
| Item 14                                    | Controls and Procedures | 39 |
|                                       |   |
| Item 15                                    | Audit Committee  Financial Experts | 39 |
|                                       |   |
| Item 16                                    | Principal Accountant  Fees and Services | 39 |
|                                       |   |
| Part IV                                    |
|                                       |   |
| Item 17                                    | Exhibits, Financial Statement Schedules and  Reports on Form 8-K | 40 |
|                                       |   |
| Signatures                                 | 46 |
|                                            |  |  |  |

 

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**PARTI**

**Items 1 and 2 - Business andProperties**

 

**American Skiing Company**

 

**Business Description**

 

We are organizedas a holding company and operate through various subsidiaries.  Refer to Note 2 - “Basis of Presentation” inthe consolidated financial statements included in this report for a discussionof the general development of our business, our 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-out alpinevillages, townhouses, condominiums, quarter and eighth share ownershiphotels.  We manage our operations in twobusiness segments, ski resort operations and mountainside real estatedevelopment.  For information by reportablesegment refer to Note 16 - “Business Segment Information” in the consolidatedfinancial statements included in this report.

 

Our revenues andnet loss available to our common shareholders for the year ended July 27, 2003(Fiscal 2003) were $264.5 million and $(82.0) million, respectively.  Resort segment revenues and real estatesegment revenues for Fiscal 2003 were $251.6 million and $12.9 million,respectively.  For more informationrelating to our financial condition, see “Certain Considerations – Our businessis substantially leveraged and we face a number of financial risks.”  Cash flows (used in) provided by operatingactivities, investing activities and financing activities for Fiscal 2003 wereapproximately $(8.0) million, $(4.6) million and $12.3 million,respectively.  Resort segment cash flows(used in) provided by operating activities, investing activities and financingactivities for Fiscal 2003 were approximately $(5.9) million, $(4.3) million and$10.0 million, respectively.  Real estatesegment cash flows (used in) provided by operating activities, investingactivities and financing activities for Fiscal 2003 were approximately $(2.1)million, $(0.3) million and $2.3 million, respectively.

 

Our periodic andcurrent reports are available on our website, www.peaks.com, free of charge assoon as is reasonably practicable after such materials are electronically filedwith the Securities and Exchange Commission.

 

**Resort Operations**

 

Our resortbusiness is generated primarily from our ownership and operation of seven skiresorts, several of which are among the largest in the United States.  During the 2002-03 ski season, we ownedseven resorts which generated approximately 4.0 million skier visits, representingapproximately 6.9% of total skier visits in the United States.  The following table summarizes certain keystatistics of our resorts.

 
| **Resort, Location**                   |   | **Skiable  Terrain****(acres)** |   | **Vertical   Drop   (feet)** |   | **Trails** |   | **Total Lifts   (high-speed)** |   | **Snowmaking   Coverage** |   | **Ski   Lodges** |   | **2002-03   Skier Visits   (000s)** |   |
|----------------------------------------|--------|---------------------------------|--------|------------------------------|--------|------------|--------|--------------------------------|--------|---------------------------|--------|------------------|--------|-------------------------------------|--------|
| **Killington/Pico,  VT**               |   | 1,182                           |   | 3,050                        |   | 200        |   | 31 (8                          | )      | 70                        | %      | 8                |   | 1,045                               |   |
| **Sunday  River, ME**                  |   | 660                             |   | 2,340                        |   | 127        |   | 18 (4                          | )      | 92                        | %      | 4                |   | 501                                 |   |
| **Mount  Snow/Haystack, VT**           |   | 757                             |   | 1,700                        |   | 145        |   | 23 (3                          | )      | 75                        | %      | 6                |   | 546                                 |   |
| **Sugarloaf/USA,  ME**                 |   | 1,410                           |   | 2,820                        |   | 129        |   | 15 (2                          | )      | 92                        | %      | 2                |   | 355                                 |   |
| **Attitash  Bear Peak, NH**            |   | 280                             |   | 1,750                        |   | 70         |   | 12 (2                          | )      | 97                        | %      | 2                |   | 196                                 |   |
| **The  Canyons, UT**                   |   | 3,500                           |   | 3,190                        |   | 144        |   | 16 (7                          | )      | 6                         | %      | 3                |   | 333                                 |   |
| **Steamboat,  CO**                     |   | 2,939                           |   | 3,668                        |   | 142        |   | 20 (5                          | )      | 15                        | %      | 4                |   | 1,001                               |   |
| **Total  of resorts we currently own** |   | 10,728                          |   | 18,518                       |   | 957        |   | 135 (31                        | )      |                      |   | 29               |   | 3,977                               |   |

 

**Resort Properties**

 

Our resortsinclude several of the top resorts in the United States based on skiervisits.  This includes Killington, the5th largest resort in the United States and the largest resort in the northeastwith over 1.0 million skier visits in the 2002-03 ski season, Steamboat, the7th largest ski resort in the United States with over 1.0 million skier visitsin the 2002-03 ski season, and Sunday River and Mount Snow, which together withKillington comprised 3 of the 4 largest resorts in the New England region ofthe United States during the 2002-03 ski season.

 

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***The Canyons***.  The Canyons ski resort, which is located in the Wasatch Range ofthe Rocky Mountains adjacent to Park City, Utah, is one of the most accessibledestination resorts in the world, with the Salt Lake International Airport only32 miles away via direct major state highway access.  The Canyons is adjacent to the Utah Winter Sports Park, whichserved as the venue for the ski jumping, bobsled and luge events in the 2002Winter Olympic Games, and generated approximately 333,000 skier visits in the2002-03 ski season.  The Canyonsconsists of 3,500 acres of skiable terrain and receives significant amounts ofnatural snow, averaging 306.6 inches annually over the past 7 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 TheCanyons continues to have significant growth potential due to its proximity toSalt Lake City and Park City, its undeveloped ski terrain, and its real estatedevelopment opportunities.

 

***Steamboat***.  The Steamboat ski area is located in the Medicine Bow/RouttNational Forest, Routt County, Colorado on the westerly slopes of Mt. Werner,approximately 2.5 miles southeast of downtown Steamboat Springs, Colorado.  The area consists of 3,486 acres of landlicensed under a special use permit issued by the United States Forest Serviceand 245 acres of private land which we own located at the base of the skiarea.  Steamboat receives a significantamount of natural dry snow, averaging 330 inches annually over the past 10 skiseasons, and generated approximately 1.0 million skier visits during the2002-03 ski season.  Steamboat is ayear-round resort offering hiking, mountain biking and various other summeramenities.

 

***Killington. ***Killington,located in central Vermont, is the largest ski resort in the northeasternregion of the United States and the fifth largest in the United States,generating approximately 1.0 million skier visits in 2002-03.  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, a golfschool, a driving range, mountain biking, hiking, water slides and an alpineslide.  The current master plan for theproposed Killington resort village development includes over 4,400 units inover 5.3 million square feet of total residential and commercial development.

 

***Sunday River. ***SundayRiver, located in the western mountains of Maine and approximately a three-hourdrive from Boston, is the fourth largest ski resort in the New England regionof the United States with approximately 501,000 skier visits during the 2002-03ski season.  Extending across eightinterconnected mountains, its facilities consist of approximately 660 acres ofskiable terrain and an additional 7,000 acres of undeveloped terrain.  We have approved development plans for aresort village at the Jordan Bowl Area (the most westerly peak), whicheventually could include over 1,350 units and 1.1 million square feet of totaldevelopment.  We recently entered intoan agreement with an unrelated third party for the construction, developmentand operation of a golf course, designed by Robert Trent Jones, Jr., in theJordan Bowl area that is expected to be completed during the summer of2004.  We believe that, when completed,the golf course project will further enhance the value and attractiveness ofthe Sunday River resort as well as real estate development opportunitiescontrolled by us.  Sunday River is ayear-round resort offering mountain biking, hiking and various other summeramenities.

 

***Mount Snow***.  Mount Snow, located in West Dover, Vermont, is the third largestski resort in the New England region of the United States with approximately546,000 skier visits in 2002-03 and consists of 757 acres of skiableterrain.  Mount Snow is the southernmostof our eastern resorts.  A largepercentage of the skier base for Mount Snow originates from Massachusetts,Connecticut and New York.  Mount Snowowns and operates an 18-hole championship golf course and is the headquartersof our “Original Golf School”, which consists of three golf schools located atvarious locations in the eastern United States.

 

***Sugarloaf/USA****. *Sugarloaf/USA is located in the Carrabassett Valley ofMaine.  Sugarloaf/USA is a singlemountain with a 4,237-foot summit and a 2,820-foot vertical drop.  During the 2002-03 ski season, Sugarloaf/USAgenerated approximately 355,000 skier visits. Sugarloaf/USA offers one of the largest ski-in/ski-out base villages inthe eastern United States, containing numerous restaurants, retail shops andlodging facilities, including a Grand Summit Hotel.  Sugarloaf/USA is widely recognized for its challenging terrain andsnowfields which represent the only lift-serviced above-tree line skiing in theNortheast.  As a destination resort,Sugarloaf/USA has a broad market, including areas as distant as New York, NewJersey, Pennsylvania, Washington D.C. and Canada.  Sugarloaf/USA also leases and operates an 18-hole championshipgolf course which is designed by Robert Trent Jones, Jr. and is consistentlyrated as one of the top 100 public golf courses in the United States.

 

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***Attitash Bear Peak***.  Attitash Bear Peak is one of New Hampshire’spremier family vacation resorts.  Its 12lifts (including three quad chairs) constitute one of New Hampshire’s largestlift networks.  During the 2002-03 skiseason, Attitash generated approximately 196,000 skier visits.  Attitash Bear Peak consists of 280 acres ofskiable terrain and is located in the heart of the Mount Washington Valleywhich boasts over 200 factory outlet stores, hundreds of bars and restaurantsand a large variety of lodging options, including a 143-room slopeside GrandSummit Hotel and Conference Center. Attitash is a year-round resort offering mountain biking, a water park,alpine slide and various other summer amenities, and benefits from its closeproximity to major metropolitan populations.

 

***Real Estate Properties***.  We retain ownership of the front desk,retail space, restaurants and conference facilities, or “commercial core”, ofhotels developed by our real estate subsidiaries.  We currently own and operate the commercial core of eight GrandSummit Hotels (two at Sunday River and one each at Killington, Attitash BearPeak, Mount Snow, Sugarloaf/USA, The Canyons and Steamboat) and onewhole-ownership condominium/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.

 

Effective May 20, 2002,our real estate subsidiary, American Skiing Company Resort Properties Inc.(Resort Properties), was in default on its real estate credit facility (RealEstate Term Facility), with borrowings totaling $64.2 million as of July 27,2003, due to its failure to make a mandatory principal payment.  Resort Properties is negotiating with itslenders to restructure this facility. Regardless of the outcome of therestructuring, we may lose control of assets pledged as collateral under theReal Estate Term Facility.  Asubstantial portion of our developable real estate, including substantially allof the developable residential real estate at The Canyons and Steamboat alongwith certain core village real estate at Killington, and the stock of our realestate development subsidiaries (including Grand Summit Resort Properties, Inc.(Grand Summit)) is pledged to Fleet National Bank (Fleet) and the lenders underthe Real Estate Term Facility.  Thecommercial core units at the Sundial Lodge at The Canyons and the Mount SnowGrand Summit Hotel in Vermont are also pledged to Fleet and the lenders.  The Grand Summit unit inventory discussedabove does not secure the Real Estate Term Facility, although the pledge ofstock of Grand Summit to secure the Real Estate Term Facility means that we maylose control of the Grand Summit unit inventory to the lenders under the RealEstate Term Facility.  See “CertainConsiderations – Our primary real estate development subsidiary is in paymentdefault under its senior secured credit agreement, and our ability to achieveany future earnings from the real estate development assets held in thatsubsidiary may be significantly compromised. In addition, our senior construction loan with our real estate hoteldevelopment subsidiary is in default.” and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations – Liquidity andCapital Resources” for further discussion of the status of our efforts torestructure this credit facility and the implications to us and to ResortProperties of the proposed restructuring.

 

The senior constructionloan of Grand Summit (Senior Construction Loan) with Textron FinancialCorporation (Textron) and certain other lenders, totaling $31.7 million as ofJuly 27, 2003, was also in payment default as of June 29, 2003 due to thefailure by Grand Summit to reduce the principal balance outstanding to amaximum of $30.0 million as required under the terms of the agreement.  As a result, Grand Summit’s subordinatedconstruction loan (Subordinated Construction Loan) with Textron, totaling $10.0million as of July 27, 2003, also was in default.  We have not yet been advised by the lenders under the SeniorConstruction Loan and Subordinated Construction Loan whether they intend toaccelerate the remaining balance due thereunder or exercise any of their otherrights as a result of the defaults.  Anamendment to the Senior Construction Loan delayed certain amortizationdeadlines from March 31, 2003 to June 29, 2003.  We paid $35,000 to the lenders for such amendment. An additional$175,000 is due and payable for our failure to reduce the loan balance tocertain requirements at June 29, 2003. As of July 27, 2003, this amount has been accrued for in accountspayable and other current liabilities.

 

Inaddition to the developable real estate discussed above, we also ownsubstantial undeveloped real estate at various resorts which is not pledged ascollateral to the lenders under the Real Estate Term Facility, the SeniorConstruction Loan and the Subordinated Construction Loan (the latter two loanscollectively referred to herein as the Construction Loan Facility).

 

**Leased or Otherwise Committed Properties**

 

Our operations arewholly dependent upon our ownership or long-term control over the skiableterrain located within each resort.  Thefollowing summarizes certain non-owned real estate critical to ski operationsat each

 

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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 “Certain Considerations”for additional discussion of our leases and forest service permits.

 

Sunday Riverleases approximately 1,500 acres, constituting a substantial portion of itsskiable terrain, under a 50-year lease terminating on October 14, 2030.  The lease renews automatically thereafter ona year-to-year basis unless terminated by either the lessor or lessee.  This lease was amended on January 23, 1998to allow Sunday River to purchase portions of the leased property for realestate development at a predetermined amount per acre.  In January 1998, we acquired an undividedone-half interest in the fee title to the leased parcel.

 

Mount Snow leasesapproximately 1,315 acres, constituting a substantial portion of its skiableterrain.  Of this total, 893 acres areoccupied by Mount Snow pursuant to a special use permit granted by the UnitedStates Forest Service.  The permit has a40-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.  Mount Snow also leases 252acres of skiable terrain from the Town of Wilmington, Vermont.  The lease expires November 15, 2030 andwhile there are no specific renewal provisions included in the lease, weanticipate that a renewal could be obtained. Mount Snow also has the option to purchase the Town of Wilmington leasedproperty and a right of first refusal in the event the lessor receives an offerfor the leased property.

 

Attitash Bear Peakuses approximately 280 acres of its skiable terrain pursuant to a special usepermit issued by the United States Forest Service.  The permit has a 40-year term expiring July 18, 2034 and isrenewable subject to given conditions. In addition, Attitash Bear Peak leases a portion of its parkingfacilities under a lease expiring December 31, 2014.

 

Killington leasesapproximately 1,100 acres from the State of Vermont.  A portion of that property constitutes a substantial amount ofKillington’s skiable terrain.  Theinitial lease was for a 10-year term which commenced in 1960 but contains nine10-year renewal options.  Killingtonexercised the renewal option in 1970, 1980, 1990 and 2000.  Assuming continued exercise of the renewaloptions, the lease will ultimately expire in the year 2060.  The lease is subject to a buy-out optionretained by the State of Vermont, as landlord. At the conclusion of each 10-year term, or extended term, the State hasthe option to buy out the lease for an amount equal to Killington’s adjustedcapital outlay plus 10% of the gross receipts from the operation for the precedingthree years.  Adjusted capital outlaymeans total capital expenditures extending back to the date of origin of thelease depreciated at 1% per annum, except that non-operable assets depreciateat 2% per annum.  This buy-out optionwill next become exercisable in the year 2010. Although we have not had confirmation from Vermont State officials, wehave no reason to believe that the State intends to exercise the buy-out optionat that time.

 

Sugarloaf/USAleases the Sugarloaf Golf Course from the Town of Carrabassett Valley, Mainepursuant to a lease dated November 16, 2000. The lease term expires November 2023. Sugarloaf/USA has an option to renew the lease for an additional 5-yearterm.

 

The Canyons leasesapproximately 2,100 acres, including most of the base area and a substantialportion of its skiable terrain, under a lease from Wolf Mountain Resorts,LC.  The initial term of this lease is50 years expiring July 2047, with an option to extend for three additionalterms of 50 years each.  The leaseprovides an option to purchase those portions of the leased property that areintended for residential or commercial development, subject to certainreconveyance rights.  Under theagreement, we pay a cost of 5.5% of the full capitalized cost of the developmentin the case of property that we retain for a certain  number of parcels as defined by the agreement and 11% of the fullcapitalized cost of the development for any remaining  parcels that we retain or intend to resell.  The Canyons also leases approximately 807acres, which constitutes the area for a planned mid-mountain village and asubstantial portion of its skiable terrain, from the State of Utah School andInstitutional Trust Land Administration. Our lease term ends in 2078 and provides an option to purchase thoseportions of the mid-mountain village area that are intended for real estatedevelopment at a cost of 25% of their fair market value on an undevelopedbasis.  Our lease with Wolf MountainResorts also includes a sublease of certain skiable terrain owned by theOsguthorpe family.  We have establishedcertain additional ski development rights under a direct agreement with theOsguthorpe family.

 

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Steamboat usesapproximately 3,486 acres, a substantial portion of which is skiable terrain,pursuant to a special use permit issued by the United States Forest Servicewhich expires on August 31, 2029.  UnderSteamboat’s existing master plan, an additional 958 acres of contiguousNational Forest lands can be added to the permitted area.

 

TheUnited States Forest Service can terminate most of the foregoing special usepermits if it determines that termination is required in the publicinterest.  However, to our knowledge, norecreational special use permit or term special use permit for any major skiresort then in operation has ever been terminated by the United States ForestService over the opposition of the permit holder.

 

**Resort Revenues**

 

Our resortrevenues are generated from a wide variety of sources and include lift ticketsales, food and beverage sales, retail sales including ski rentals and repairs,skier development, lodging and property management, golf and other summeractivities and miscellaneous other sources. Lift ticket sales represent the single largest source of resort revenuesand produced approximately 44% of total resort operations revenue for Fiscal2003.  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 manage the yield and features of our lift ticket programsand products in order to increase and maximize ticket revenues and operatingmargins.  Lift ticket programs includepackages offered with 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.

 

***Food and Beverage****. *We own and operate a substantial majority of the food andbeverage facilities at our resorts, with the exception of the Sugarloaf/USAresort, which is under a long-term concession contract with an unrelated thirdparty.  Our food and beverage strategyinvolves providing a wide variety of restaurants, bars, cafes, cafeterias andother food and beverage outlets at our resorts.  We directly or indirectly control the substantial majority of ouron-mountain and base area food and beverage facilities, which we believe allowsus to capture a larger proportion of guest spending.  We currently own and operate over 90 different food and beverageoutlets.  We are considering a varietyof performance enhancement opportunities to our food and beverage operations,including but not limited to, additional out-sourcing of these operations.

 

***Retail Sales****. *We own approximately 69 retail and ski rental shops operatingin our resorts.  The large number ofretail locations that we operate allows us to improve margins through largequantity purchase agreements and sponsorship relationships.  On-mountain shops sell ski equipment andaccessories such as skis, snowboards, boots, goggles, sunglasses, hats, glovesand larger soft goods such as jackets and snowsuits.  In addition, all sales locations offer our own branded apparelwhich generally provides higher 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****. *Our lodging and propertymanagement departments manage our properties as well as properties owned bythird parties.  During the 2002-03 skiseason, our lodging departments managed approximately 3,078 lodging units atour resorts.  The lodging departmentsperform a full complement of guest services, which include reservations,property management, housekeeping and brokerage operations.  Most of our resorts have a welcome center towhich newly arriving guests are directed. The center allocates accommodations and provides guests with informationon all of the resort’s activities and services.  Our property management operation seeks to maximize the synergiesthat exist between lodging and lift ticket promotions.

 

***Skier Development****.*Our Guaranteed Learn toSki Program was one of the first skier development programs to guarantee that acustomer would learn to ski in one day. The success of this program led to the development of “Perfect Turn,”which we believe was the first combined skier development and marketing programin the ski industry.  Perfect Turn skiprofessionals receive specialized instruction in coaching, communication,skiing and are also trained to sell related products and cross-sell otherresort goods and services and real estate. We operate a  ski equipmentmarketing program at each of our resorts designed to allow customers to testskis and snowboards with ski professionals, purchase their equipment from thoseprofessionals and receive ongoing product and technological support throughPerfect Turn.

 

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**Resort Operating Strategy**

 

Our operatingstrategies include:

 

***Multi-Resort Network. ***Our network of resorts provides both geographicdiversity and significant operating benefits. We believe our geographic diversity: (1) reduces the risks associated with unfavorable weather conditions andinsulates us from economic slowdowns in any one particular region; (2)increases the accessibility and visibility of our network of resorts to theoverall North American skier population; and (3) allows us to offer a widerange of mountain vacation alternatives.

 

We believe thatowning multiple resorts also provides us with the opportunity to:

 

•                  Createone of the largest cross-marketing programs in the industry,

•                  Achieveefficiencies and economies of scale when goods and services are purchased,

•                  Strengthenour distribution network of travel agents and tour operators by offering arange of mountain resort alternatives, consistent service quality, convenienttravel booking and incentive packages,

•                  Establishperformance benchmarks for operations across all of our resorts,

•                  Utilizespecialized individuals and cross-resort teams at the corporate level asresources for our entire business, and

•                  Developand implement consumer information and technology systems for applicationacross all of our resorts.

 

***Increase Revenues Per Skier. ***We intend to continue to increase ourrevenues per skier by increasing our average revenues per ticket, expanding ourrevenue sources at each resort and enhancing the effects of our on-mountainmarketing efforts.  To meet our goals,our approaches will include:  (1)streamlining and enhancing our one day and multi-day ticket packages to moreclosely align ticket programs to specific customer market segments; (2)offering multi-resort ticket products; and (3) introducing a variety ofprograms that offer packages of tickets with lodging and other servicesavailable at our resorts.  We alsointend to continue to improve our product quality to diversify our revenuesources by expanding and enhancing our facilities and services in our retail,food and beverage, equipment rental, skier development, and lodging andproperty management operations.  Inaddition, we believe that our enhanced marketing capabilities and the crossselling of products and programs, such as our frequent skier and multi-resortprograms, to resort guests will increase our resort revenues and profitability.

 

We offer ticketproducts to our customers that are valid at many, if not all of ourresorts.  Examples of these innovativeprograms are the All East Pass, which allows unlimited skiing at any of ourfive eastern resorts; the Ultimate 7 College Pass, which allows the full-timecollege student to ski at any of our seven ski resorts nation-wide; the *mEticket*,which is a flexible multi-day ticket valid at all seven of our resorts, with asliding price schedule offering discounts based on the number of days purchasedas well as a price break for purchasing early. The *mEticket*program is a nation-wide program targeted at retaining skiers whoski six to twelve days each season, which our research indicates represents themajority of the ski population.  Inaddition, for the 2003-04 ski season, we are offering discounted season passes(restricted and unrestricted) for skiing privileges at Attitash Bear Peak andSunday River resorts.  By giving guestsan incentive to purchase their tickets for the year early in the ski seasonwith the special values offered by the All East Pass, the Ultimate 7 CollegePass, the *mEticket*program*,* and the Attitash/Sunday River Pass, we believe that we canencourage guests to ski more often and do the majority of their skiing at ourresorts.

 

***Increase brand awareness and customer loyalty. ***Our marketing programsare designed to take advantage of 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, Quaker Oats, Pepsi/MountainDew, Rossignol, Vermont Pure, Kodak, Starbucks, and Green Mountain CoffeeRoasters.  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 theareas of snowmaking and snow grooming.

 

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***Expand our salesand marketing efforts***. We have restructured and consolidated our sales operations so that theyhave a regional, rather than a resort-specific focus.  We have located our sales and marketing staff near majorcustomers and customer bases, rather than at our resorts.  At the same time, we are directing more ofour marketing resources toward advertising and customer promotions.  We have selected a single advertising agencyto provide all of our advertising services nationwide, rather than relying onseveral regional agencies as we have done in the past.  We continue to focus on the expansion of ourgroup sales activities in the convention and group business areas, as well ason the expansion of our off-season business. For example, each of our resorts has at least one slopeside hotel whichis managed by us and offers services year round, including conference space andfood and beverage support for group bookings.

 

***Continued focus on cost management***.  We believe we have made significant progressin increasing the variability of our cost structure during the last twooperating seasons, which allows us to more effectively adjust operation levelsto in-season demand fluctuations.  Weare further refining our seasonal staffing model to minimize our year-round andshoulder season cost structures.  Wehave also improved our ability to control the ramp-up and ramp-down of ourresort operations during all phases of our resort operating season.  In addition, we are implementing or haverecently implemented cost management plans related to healthcare,property/casualty insurance and mountain operations.

 

***Expand Golf and Convention Business. ***Sugarloaf/USA,Killington and Mount Snow all operate championship resort golf courses.  The Sugarloaf/USA course, designed by RobertTrent Jones, Jr., has been consistently rated as one of the top 100 publiccourses in the country according to a Golf Magazine survey.  Our golf program and other recreationalactivities draw off-season visitors to our resorts and support our growingoff-season convention business, as well as our real estate developmentoperations.  During Fiscal 2003, weentered into an agreement with an unrelated third party for the construction,development and operation of a golf course, designed by Robert Trent Jones,Jr., in the Jordan Bowl area at the Sunday River resort, the financing of whichis being provided by the unrelated third party.  This golf course is expected to begin operations sometime duringthe summer of 2004.  Management believesthat, when completed, the golf course project will further enhance the valueand attractiveness of the Sunday River resort. We also have opportunities to develop additional golf courses at TheCanyons and possibly Attitash.  We areaggressively continuing to expand our in-season and off-season conventionbusiness by improving the quality, size and compensation systems of our salesand marketing staff.

 

***Improve Hotel Occupancy and Operating Margins****. *We have reorganized our easternsales force to continue to achieve operating efficiencies and improvedmarketing strategies which will improve the occupancy levels and operatingmargins of our lodging properties.  Wehave also developed tools to assist us in our yield management, establishedcommittees among our hotels to ensure that “best practices” are used, and havecreated benchmarking templates against our competitors to assist us inidentifying areas of improvement.

 

## **Real Estate Properties and DevelopmentActivities**

 

## **Resort Companies**

 

Within our resort companies, we have retained oracquired ownership of the front desk, retail space, restaurants and conferencefacilities, or “commercial core,” of hotels developed by some of our realestate subsidiaries.  We currently own andoperate the commercial core of four Grand Summit Hotels (two at Sunday Riverand one each at Killington and Sugarloaf/USA). We operate and manage the commercial cores of four hotels within ourreal estate companies (see below).  Wealso own or manage smaller lodging properties, hotels and inns at variousresorts.

 

In addition to the developable real estate discussedbelow, we also own substantial undeveloped real estate at various resorts whichis not pledged as collateral to the lenders under the Real Estate Term Facilityand the Construction Loan Facility.

 

## **Real Estate Companies**

 

The real estate subsidiaries develop mountainside realestate which complements the expansion of our on-mountain operations.  Real estate revenues are generated from thesale and leasing of interests in real estate

 

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developmentprojects that we have constructed at our resorts and the sale to third partiesof developable real estate at our resorts.

 

We currently own and operate the commercial core offour Grand Summit Hotels (one each at Steamboat, The Canyons, Mount Snow andAttitash Bear Peak) and one whole-ownership condominium/hotel at The Canyons(the Sundial Lodge).

 

***Grand Summit Hotels. ***Our primary real estate development activities inrecent years have been the construction of Grand Summit Hotels at each of ourresorts.  The Grand Summit Hotel is aninterval ownership product which is a signature element of our resorts.  Each hotel is a condominium complexconsisting of fully furnished residential and commercial units with a spaciousatrium lobby, one or more restaurants, retail space, a grand ballroom,conference space, a health club with an outdoor heated pool (exceptSugarloaf/USA) and other recreational amenities.  Residential units in the hotel are sold in quarter and eighthshare interests.  The balance of thehotel, including restaurants, retail space and conference facilities, istypically 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 have alsodeveloped a whole ownership condominium hotel at The Canyons (the SundialLodge) and townhouse projects at Sunday River. We continue to develop and market to third parties development sites fortownhomes, single family projects and whole ownership condominium hotels, mostrecently at our Killington, Steamboat, Mount Snow and Sugarloaf/USA resorts.

 

Local approvalsfor our resort village plans are at various stages of completion.

 

•                  *The Canyons: *Wesecured specially planned area approval from the appropriate authorities forour master plan at The Canyons on November 15, 1999.  Pursuant to this master plan approval, density for theresidential units and commercial development for our 15-year master plan at TheCanyons has been approved.  As we seekto develop specific projects within the master plan at The Canyons, we willneed local approval for specific site plans. See “Certain Considerations – Our business is subject to heavyenvironmental and land use regulation” for additional discussion regarding thestatus of our master plan permits at The Canyons.  We have received a notice of non-compliance from the applicablegovernmental regulators and are working with them to resolve these matters ofnon-compliance.

 

•                  *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 were issuedin July 2000.  Killington receivedpartial and conceptual approval for the ten criteria which are part of theState 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.

 

•                  *Sunday River: *The resort village master plan for Jordan Bowl iscomplete.  Individual permits for projectswill be required before beginning development.

 

Resort Propertiesis in default on its Real Estate Term Facility and is negotiating with itslenders to restructure this facility. Our Construction Loan Facility is also in default.  See “Certain Considerations – Our primaryreal estate development subsidiary is in payment default under its seniorsecured credit agreement, and our ability to achieve any future earnings fromthe real estate development assets held in that subsidiary may be significantlycompromised.  In addition, our seniorconstruction loan with our real estate hotel development subsidiary is indefault. “ and “Management’s Discussion and Analysis of Financial Condition andResults of Operations – Liquidity and Capital Resources” for further discussionof the status of our efforts to restructure this credit facility and theimplications to us and to Resort Properties of the proposed restructuring.

 

**Alpine Resort Industry**

 

The alpine resort industry achieved a record number of skier visits intwo of the last three seasons.  Duringthe 2002-03 ski season, approximately 490 ski areas in the United Statesgenerated approximately 57.6 million skier visits, an increase of 5.8% from the2001-02 ski season and 0.4% from the 2000-01 ski season.  In the 2002-03 ski

 

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season,snowboarding continued to grow steadily, accounting for 29.5% of total skiervisits in the United States, up from 28.1% in 2001-02.  In addition, since the 1999-2000 ski season,season pass sales have increased approximately 60%.

 

The alpine resortindustry is characterized by significant barriers to entry because the numberof attractive sites is limited, the costs of resort development are high, andenvironmental regulations impose significant restrictions on newdevelopment.  Since 1985, the ski resortindustry has undergone a period of consolidation and attrition, resulting in asignificant decline in the total number of ski areas in North America.  The number of ski resorts in the UnitedStates has declined from approximately 735 in 1983 to approximately 490 in2003, although the number of skier visits has remained relatively flat.  Despite the recent consolidation trendoverall, 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 followingchart shows a comparison of the industry-wide skier visits compared to ourskier visits in the U.S. regional ski markets during the 2002-03 ski season:

 
| **Geographic  Region** |   | **2002-03   Total Skier   Visits*** |   | **Percentage   of Total   Skier Visits** |   | **Skier Visits   at Company   Resorts** |   | **Company   Regional   Market   Share** |   | **Company Resorts**                                                                    |   |
|------------------------|--------|-------------------------------------|--------|------------------------------------------|--------|-----------------------------------------|--------|-----------------------------------------|--------|----------------------------------------------------------------------------------------|--------|
|                   |   | **(in millions)**                   |   |                                     |   | **(in millions)**                       |   |                                    |   |                                                                                   |   |
| **Northeast**          |   | 14.0                                |   | 24.3                                     | %      | 2.6                                     |   | 18.6                                    | %      | Killington/Pico, Mount  Snow/Haystack, Sunday River, Sugarloaf/USA, Attitash Bear Peak |   |
| **Southeast**          |   | 5.8                                 |   | 10.1                                     | %      | —                                  |   | —                                  |   |                                                                                   |   |
| **Midwest**            |   | 8.1                                 |   | 14.1                                     | %      | —                                  |   | —                                  |   |                                                                                   |   |
| **Rocky  Mountain**    |   | 18.8                                |   | 32.6                                     | %      | 1.4                                     |   | 7.4                                     | %      | Steamboat, The Canyons                                                                 |   |
| **Pacific  West**      |   | 10.9                                |   | 18.9                                     | %      | —                                  |   | —                                  |   |                                                                                   |   |
| **U.S.  Overall**      |   | 57.6                                |   | 100.0                                    | %      | 4.0                                     |   | 6.9                                     | %      |                                                                                   |   |

 

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  (*) Source: Kottke National End of Season Survey 2002/03 Final Report

 

United States skiresorts range from small operations which cater primarily to day skiers fromnearby population centers to larger resorts which attract both day skiers anddestination resort guests.  We believethat day skiers focus primarily on the quality of the skiing and travel time,while destination travelers are attracted to the total ski and riding experience,including the non-skiing amenities and activities available at the resort, aswell as the perceived 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.

 

Since 1985, thetotal number of skier visits in the United States has been relativelyflat.  However, according to theNational Ski Area Association, the number of skier visits represented bysnowboarders in the United States has increased to approximately 29.5% of totalskier visits in the 2002-03 ski season, a compounded annual growth rate since1999-2000 of approximately 6.4%.  Webelieve that snowboarding will continue to be an important source of liftticket, skier development, retail and rental revenue growth for us.

 

We believe that weare well positioned to capitalize on certain favorable trends and developmentsaffecting the alpine resort industry in the United Sates.  These trends and developments include:

 

•                  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,

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

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

•                  The continued growth of snowboardingas a significant and enduring segment of the industry which in turn increasesyouth participation in alpine sports,

 

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•                  A greater focus on leisure andfitness in general, and

•                  Expanding demand for second homevacation real estate.

 

Therecan be no assurance, however, that these trends and developments will have afavorable impact on the ski industry.

 

**Competition**

 

The ski industryis highly competitive.  We compete withmountain resort areas in the United States, Canada and Europe.  We also compete with other recreationresorts, including warm weather resorts, for vacationers.  In order to cover the high fixed costs ofour ski operations, we need to maintain each of our regional, national andinternational skier bases.  Our pricesare directly impacted by the number and variety of alternatives presented toskiers in these markets.  Our mostsignificant competitors are resorts that are well capitalized, well managed andhave significant capital improvement and resort real estate developmentprograms.

 

Our resorts alsoface strong competition on a regional basis. With approximately 2.6 million skier visits generated by ournortheastern resorts, competition in that region is an importantconsideration.  Our northeastern marketsare located in the major population centers in the northeast, particularlyeastern Massachusetts, northern Connecticut, New York and northern NewJersey.  For example, skier origin datacollected at Sunday River indicates that approximately 46% of its weekendskiers reside in the greater Boston metropolitan area.  Similar data collected at Killington andMount Snow indicate that approximately 27% and 42%, respectively, of theirweekend skiers reside in New York, with high concentrations from Pennsylvania,Connecticut, and New Jersey.  TheColorado and Utah ski markets are also highly competitive.

 

**Employees and Labor Relations**

 

We currentlyemploy approximately 1,400 full-time, year-round employees supporting ourresort and real estate operations, including corporate personnel.  At peak season last year, we employed approximately8,000 employees.  Less than 1% of ouremployees are unionized.  We believethat we enjoy satisfactory relations with our employees.

 

**Government Regulation**

 

Our resorts aresubject to a wide variety of federal, state, regional and local laws and regulationsrelating to land use, environmental/health and safety, water resources, air andwater emissions, sewage disposal, and the use, storage, discharge, emission anddisposal of hazardous materials and hazardous and nonhazardous wastes, andother environmental matters.  While webelieve that our resorts are currently in material compliance with all land useand environmental laws, any failure to comply with these laws could result incosts to satisfy environmental compliance, remediation requirements or theimposition of severe penalties or restrictions on operations by governmentagencies or courts that could adversely affect our operations.

 

We believe that wepossess all the permits, licenses and approvals from governmental authoritiesmaterial to our operations as they currently exist.  We have not received any notice of material non-compliance withpermits, licenses or approvals necessary for the operation of any of ourproperties, with the exception of our Development Agreement at The Canyons,where we have received a notice of non-compliance from the applicablegovernmental regulators and are working with them to resolve complianceissues.  See “Certain Considerations -Our business is subject to heavy environmental and land use regulation” foradditional discussion regarding the status of our master plan permits at TheCanyons.

 

Resort and realestate capital programs require permits and approvals from certain federal,state, regional and local authorities. Our operations are heavily dependent upon our continued ability, underapplicable laws, regulations, policies, permits, licenses or contractualarrangements, to have access to adequate supplies of water with which to makesnow and service the other needs of our facilities, and otherwise to conductour operations.  There can be noassurance that new applications of existing laws, regulations and policies, orchanges in these laws, regulations and policies will not occur in a manner thatwould have a material adverse effect on our business, or that importantpermits, licenses or agreements will not be canceled, not renewed, or renewedon less favorable terms.  Majorexpansions of any one or more resorts could require the filing of anenvironmental impact statement under

 

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environmental laws andapplicable regulations if it is determined that the expansion has a significantimpact upon the environment and could require numerous other federal, state andlocal approvals.  Although we haveconsistently been successful in implementing our capital expansion plans, noassurance can be given that necessary permits and approvals will be obtained.

 

**Systems and Technology**

 

***Information Systems. ***Our information systems are designed to improvethe ski experience by developing more efficient guest service products andprograms.  We continue to deploysolutions that improve guest service, create internal efficiency and enablemore direct relationships between us and our guests.  We are implementing extensions to our central reservationssoftware that will provide industry-leading integration between our web andcall center vacation booking channels.

 

***Snowmaking Systems and Technology****. *We believe that we operate one ofthe largest consolidated snowmaking operations in the ski resort industry, withapproximately 4,200 acres of snowmaking coverage.  Our proprietary snowmaking software program allows us to producewhat we believe is some of the highest quality man-made snow in the industry.  Substantially all of our snowmaking systemsare operated through computer-based control using industrial automationsoftware and a variety of state of the art hardware and instrumentation.  We use efficient ground based, tower basedand fully automated snowgun nozzle technology and have developed software fordetermining the optimal snowmaking nozzle setting at multiple locations on anyparticular mountain.  This systemmonitors the weather conditions and system capacities and determines the properoperating water pressure for each nozzle, reducing the need for physicalobservations to make adjustments and ensuring that ideal snow quality isprovided.  In addition, we are activelyinvolved in testing and implementing new technologies to further improve thequality and efficiency of our snow-making operations.

 

**CERTAIN CONSIDERATIONS**

 

In addition to the otherinformation contained in this Form 10-K, you should carefully consider thefollowing matters in evaluating our business. This Form 10-K contains forward-looking statements and our actualresults could differ materially from those anticipated by any forward-lookingstatements as a result of numerous factors, including those set forth in thefollowing description of considerations and elsewhere in this Form 10-K.  See Part II, Item 7 – “Management’sDiscussion and Analysis of Financial Condition and Results of Operations –Forward-Looking Statements”.

 

**Our primary real estate development subsidiary is in paymentdefault under its senior secured credit agreement, and our ability to achieveany future earnings from the real estate development assets held in thatsubsidiary may be significantly compromised. In addition, our senior construction loan with our real estate hoteldevelopment subsidiary is in default.**

 

On March 30, 2002, ourreal estate development subsidiary, Resort Properties, failed to make amandatory principal payment of $3.75 million under its Real Estate TermFacility.  Resort Properties obtained atemporary waiver of this default. Effective May 20, 2002, the temporary waiver was revoked and ResortProperties was in default on the facility. On May 31, 2002, Resort Properties received written confirmation of theacceleration of the remaining principal and accrued interest balance.  As of July 27, 2003, principal, accrued interest,late charges and unpaid agent fees outstanding under the facility totaled $79.0million.  We have been notified by thelenders under the facility that no additional borrowings will be permitted andthat Resort Properties will not be given access to restricted cash accountstotaling approximately $0.6 million to satisfy its obligations.  On November 22, 2002, Resort Propertiesentered into a forbearance agreement with the lenders whereby the lendersagreed to not pursue additional foreclosure remedies and to cease publicationof foreclosure notices for a 30-day period. Although this 30-day period expired, management continues discussionswith Fleet and the other lenders regarding a restructuring of this facility,and Fleet and the other lenders have not exercised any further foreclosureremedies since the expiration of the forbearance agreement.  Management’s ongoing restructuring effortswith the lenders are aimed towards a restructuring of the facility which willestablish a new entity to hold Resort Properties’ real estate developmentassets.  The equity in the new entity isexpected to be held by a combination of the lenders under the facility andResort Properties.  The facility remainsin default pending completion of these negotiations.  There can be no assurance that negotiations will be successfullycompleted, or the terms under which the payment defaults

 

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pending under thefacility may be resolved, if at all. Furthermore, regardless of the outcome of this proposed restructuring,we may lose control of assets pledged as collateral under the facility andfuture access to value creation from these real estate assets.  A substantial portion of our developablereal estate, including substantially all of the developable residential realestate at The Canyons and Steamboat along with certain core village real estateat Killington, and the stock of our real estate development subsidiaries(including Grand Summit) is pledged under the Real Estate Term Facility.  The commercial core units at the SundialLodge at The Canyons and the Mount Snow Grand Summit Hotel in Vermont are alsopledged under this facility.  The GrandSummit unit inventory does not secure the Real Estate Term Facility, althoughthe pledge of stock of Grand Summit to secure the Real Estate Term Facilitymeans that we may lose control of the Grand Summit unit inventory to thelenders under the Real Estate Term Facility. As of July 27, 2003, the carrying value of the total assets that collateralizedthe Real Estate Term Facility was approximately $117.0 million.  This collateral includes $80.3 million ofGrand Summit assets pledged under our $41.7 million Construction Loan Facility.  See “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations – Liquidity and Capital Resources– Real Estate Liquidity”.

 

The Senior ConstructionLoan of Grand Summit was also in payment default as of June 29, 2003 due to thefailure by Grand Summit to reduce the principal balance outstanding to amaximum of $30.0 million as required under the terms of the agreement.  In addition, the Senior Construction Loanfurther required that the loan be reduced to a maximum of $25.0 million by June30, 2003.  As a result, Grand Summit wasalso in default under its $10.0 million Subordinated Construction Loanwith Textron and various lenders.  As ofJuly 27, 2003, $41.7 million was outstanding under the Construction LoanFacility that is made up of the Senior Construction Loan ($31.7 million as ofJuly 27, 2003) and the Subordinated Construction Loan ($10.0 million as of July27, 2003).  We have not yet been advisedby the lenders under the Construction Loan Facility whether they intend toaccelerate the remaining balance due thereunder or exercise any of their otherrights as a result of the payment default. An amendment to this facilitydelayed such deadlines from March 31, 2003 to June 29, 2003.  We paid $35,000 to the lenders for suchamendment.  An additional $175,000 wasdue and payable for our failure to reduce the loan balance to certainrequirements at June 29, 2003.  As ofJuly 27, 2003, this amount has been accrued in accounts payable and othercurrent liabilities.

 

**Pursuantto its terms, our Mandatorily Redeemable****Convertible 101⁄2%****Series A Preferred Stock was redeemable on November 12, 2002 to theextent that there were legally available funds to effect such redemption.****We did notredeem the Mandatorily Redeemable****Convertible 101⁄2%****Series APreferred Stock on that redemption date and can give no assurance that thenecessary liquidity will be available to effect redemption in the future.  Any redemption of our Series A PreferredStock could result in an event of default under some of our outstanding debt.**

 

Wehave 36,626 shares of Mandatorily Redeemable Convertible 101⁄2% Series APreferred Stock (Series A Preferred Stock) outstanding, with an accreted valueof approximately $66.7 million as of July 27, 2003.  Our  Series A PreferredStock was redeemable on November 12, 2002 at an aggregate redemption price ofapproximately $61.9 million, to the extent that we had funds legally availablefor that redemption.  If our Series APreferred Stock is not permitted to be redeemed because there are not legally availablefunds, we must redeem that number of shares of Series A Preferred Stock whichwe can lawfully redeem, and from time to time thereafter, as soon as funds arelegally available, we must redeem shares of the Series A Preferred Stock untilwe have done so in full.  Prior to theNovember 12, 2002 redemption date, based on all relevant factors, our Board ofDirectors determined not to redeem any shares of stock on the redemptiondate.  On January 27, 2003, the holdersof the Series A Preferred Stock demanded that we redeem all of the Series A PreferredStock immediately and on April 8, 2003, the Series A Preferred Stockholdersdemanded pursuant to Delaware law to review certain records.  We will continue to assess our obligationswith respect to the requirements of the redemption provisions of the Series APreferred Stock.  Because the Series APreferred Stock was not redeemed on November 12, 2002, the certificate ofdesignation for the Series A Preferred Stock provides that the holders areentitled to elect two new members of our board of directors.  We have not yet been advised by the holdersof the Series A Preferred Stock whether they intend to exercise their right toelect two directors at or prior to our next annual shareholders meeting orwhether they intend to take any other action, including legal action, to seekto compel our redemption of the Series A Preferred Stock.  If the holders of the Series A PreferredStock were to commence any litigation to compel us to redeem the Series APreferred Stock, based on present facts and circumstances, we would vigorouslycontest that litigation.

 

We are not permitted toredeem our Series A Preferred Stock under the terms of our Resort Senior Credit

 

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Facility and the terms ofthe indenture governing our 12% senior subordinated notes (the SeniorSubordinated Notes).  If any redemptionoccurs or the holders of our Series A Preferred Stock obtain and seek toenforce a final judgment against us that is not paid, discharged or stayed,this could result in an event of default under those debt instruments, and thelenders and holders of that debt could declare all amounts outstanding to bedue and payable immediately.  If we arerequired to redeem all or any portion of our Series A Preferred Stock, eitheras a result of a court judgment or otherwise, we would have to consider seekingan amendment or waiver of the terms of the Resort Senior Credit Facility andthe indenture governing the Senior Subordinated Notes, selling material assetsor operations, refinancing our indebtedness and our Series A Preferred Stock,Seeking to raise additional debt or equity capital, delaying capitalexpenditures and other investments in our business and/or restructuring ourindebtedness and preferred stock.  Noassurance can be given that we would be successful in taking any of these stepsor that we would have the necessary liquidity or assets to effect anyredemption of our Series A Preferred Stock and any indebtedness required to berepaid.  As a result, any redemption of,or legal requirement to redeem, our Series A Preferred Stock could have amaterial adverse effect on us.

 

**Our business is substantially leveraged and we face a numberof financial risks.**

 

We are highlyleveraged.  As of September 28, 2003, wehad $340.5 million of total indebtedness outstanding, including $106.6 millionof secured indebtedness, as well as $308.4 million in redeemable preferredstock (liquidation value).

 

Our high level of debtaffects our operations in several important ways.  First of all, we will have significant cash requirements toservice our debt, which will in turn reduce the funds available for ouroperations and capital expenditures.  Adecrease in the availability of funds will make us more vulnerable to adversegeneral economic and industry conditions. Secondly, the financial covenants and other restrictions contained inour debt agreements require us to meet certain financial tests and restrict ourability to raise additional capital, borrow additional funds, make capitalexpenditures or sell our assets. Failure to manage cash resources or an extraordinary demand for cashoutside of our normal course of business could leave us with no cashavailability.

 

Our ability to makescheduled payments or refinance our debt and preferred stock obligations willdepend on our future financial and operating performance, which will beaffected by prevailing economic conditions, financial, business and otherfactors.  Some of these factors arebeyond our control.  There can be noassurance that our operating results, cash flows and capital resources will besufficient to pay our indebtedness.  Ifour operating results, cash flows or capital resources prove inadequate wecould face substantial liquidity problems and might be required to dispose ofmaterial assets or operations 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.  In addition, further efforts by management to refinance andrestructure our debt and redeemable preferred securities could be negativelyimpacted and result in less favorable terms. There can be no assurance that any of these actions could be effected onterms satisfactory to our business, if at all.

 

Although we believe thatcapital expenditures above maintenance levels can be deferred to address cashflow or other constraints, these activities cannot be deferred for extendedperiods without adversely affecting our competitive position and financialperformance.

 

Continued improvement inour financial performance depends, in part, on our ability to maintain andimprove the quality of our facilities, products and management resources and toengage in successful real estate development (either directly or through thirdparties).  To the extent that we areunable to do so with cash generated from operations, or through borrowed fundsor additional equity investments, the growth and financial health of ourbusiness could be impaired.

 

Wealso have significant future capital requirements with respect to theretirement of debt and other securities. For example, the resort senior credit facility (Resort Senior CreditFacility) matures on April 15, 2006 for the revolving credit facility(Revolving Credit Facility), the tranche A term loan (Tranche A Term Loan), andthe supplemental term loan (Supplemental Term Loan) portions, and June 15, 2006for the tranche B term loan (Tranche B Term Loan) portion.  We must also retire or refinance our SeniorSubordinated Notes in July 2006 and our 11.3025% convertible subordinated notes(the Junior Subordinated Notes) in August 2007.  Our preferred stock must be redeemed in accordance with itsterms.  This includes our Series APreferred Stock, which we did not redeem on November 12, 2002.  We do not expect that the necessaryliquidity will be available from operations to effect such

 

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redemption in the foreseeable future.  This also includes our 12% Series C-1convertible participating preferred stock (the Series C-1 Preferred Stock)which is mandatorily redeemable in July 2007, and our 15% Series C-2 preferredstock (the Series C-2 Preferred Stock) which is mandatorily redeemable in July2007. There can be no assurance that we will be able to retire, redeem, orrefinance our indebtedness and preferred stock in the foreseeable future.  Failure to do so could have a materialadverse effect on our business.  SeePart II, Item 7 – “Management’s Discussion and Analysis of Financial Conditionand Results of Operations – Liquidity and Capital Resources” for a descriptionof such payments.

 

**Our business is highly seasonal and unfavorable weatherconditions can adversely affect our business.**

 

Ski resort operations arehighly seasonal.  For Fiscal 2003, werealized approximately 87% of resort segment revenues and over 100% of resortsegment operating income during the period from November through April.  In addition, a significant portion of resortsegment revenues and approximately 21% of annual skier visits were generatedduring the Christmas and Presidents’ Day vacation weeks in Fiscal 2003.  Also, our resorts typically experienceoperating losses and negative cash flows for the period from May through November.  During the seven-month period from Maythrough November 2002, for example, we had operating losses from resort segmentoperations aggregating $75.9 million and negative cash flows from resortsegment operating activities aggregating $44.4 million.  These losses from resort segment operationsincluded merger, restructuring and asset impairment charges of $20.3 millionand write-off of deferred financing costs of $3.3 million.  There can be no assurance that we will beable to finance our capital requirements from external sources during theperiod from May through November.

 

A high degree ofseasonality in our revenues increases the impact of certain events on ouroperating 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 could 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 future weather patterns or theimpact that weather patterns may have on the results of operations or visitation.

 

**We operate in a highly competitive industry which makesmaintaining our customer base a difficult task.**

 

The skiing industry ishighly competitive and capital intensive. Our competitors include major ski resorts throughout the United States,Canada and Europe as well as other worldwide recreation resorts, including warmweather resorts and various alternative leisure activities.  Our competitive position depends on a numberof factors, such as our proximity to population centers, the availability (includingdirect flights by major airlines) and cost of transportation to and within aresort, natural snowfall, the quality and coverage of snowmaking operations,resort size, the attractiveness of terrain, lift ticket prices, prevailingweather conditions, the appeal of related services, the quality and theavailability of lodging facilities, and resort reputation.  In addition, some of our competitors havegreater competitive positions and relative ability to withstand adversedevelopments.  There can be no assurancethat our competitors will not be successful in capturing a portion of ourpresent or potential customer base.

 

**Our revenues from real estate development are vulnerable toparticular risks.**

 

Our ability to generaterevenues from real estate development activities could be adversely affected bya number of factors, such as our ability to successfully market our resorts,the loss of ownership or control of significant portions of our developablereal estate securing the Real Estate Term Facility, the national and regionaleconomic climate, local real estate conditions (such as an oversupply of spaceor a reduction in demand for real estate), costs of environmental complianceand remediation associated with new development, renovations and ongoing operations,the attractiveness of the properties to prospective purchasers and tenants,competition from other available property or space, our ability to obtain allnecessary zoning, land use, building, occupancy and other required governmentalpermits and authorizations and changes in real estate, zoning, land use,environmental or tax laws.  Many ofthese factors are beyond our control.

 

In addition, real estatedevelopment will depend on receipt by our real estate subsidiaries of adequate

 

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financing on suitableterms.  There can be no assurance as towhether, when or on what terms such financing may be obtained.  Our real estate subsidiaries do not have thefinancing available to complete all of their planned real estatedevelopment.  In addition, these effortsentail risks associated with development and construction activities, includingcost overruns, shortages of materials or skilled labor, labor disputes, unforeseenenvironmental or engineering problems, work stoppages, and natural disasters,any of which could delay construction and result in a substantial increase inour costs. See Part II, Item 7 – “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations – Liquidity and CapitalResources”.

 

In addition, a materialportion of our real estate development business is conducted within theinterval 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.

 

**Changes in regional and national economic conditions couldadversely affect our results of operations.**

 

The skiing and realestate development industries are cyclical in nature and are particularlyvulnerable to shifts in regional and national economic conditions.  Skiing and vacation unit ownership arediscretionary recreational activities entailing relatively high costs of participation,and any decline in the regional or national economies where we operate couldadversely impact our skier visits, real estate sales and revenues.  Accordingly, our financial condition,particularly in light of our highly leveraged condition, could be adverselyaffected by any weakening in the regional or national economy.

 

**Our business is subject to heavy environmental and land useregulation.**

 

We are subject to a widevariety of federal, state and local laws and regulations relating to land useand development and to environmental compliance and permitting obligations,including those related to the use, storage, discharge, emission and disposalof hazardous materials.  Any failure tocomply with these laws could result in capital or operating expenditures or theimposition of severe penalties or restrictions on our operations that couldadversely affect our present and future resort operations and real estatedevelopment.  In addition, these lawsand regulations could change in a manner that materially and adversely affectsour ability to conduct our business or to implement desired expansions andimprovements to our facilities.

 

Our developmentactivities at The Canyons in Utah are governed by permits issued pursuant to aDevelopment Agreement with local authorities. The Development Agreement requires us to achieve certain performancebenchmarks in order to remain in compliance with the Development Agreement andobtain additional permits.  We have notachieved certain of these performance benchmarks within the time framesrequired under the Development Agreement, and the local authorities haveadvised us that these failures potentially constitute defaults under theDevelopment Agreement.  We are workingwith the local authorities to address these failures and reassess theappropriate timing for compliance with these performance benchmarks.  Our failure to satisfy local regulatoryauthorities with respect to these matters may result in our inability to obtainadditional permits under the Development Agreement and could significantlyadversely impact our ability to meet our business and revenue expansion goalsat The Canyons.  Defaults under theDevelopment Agreement could also subject us to risk of litigation with thirdparties whose development plans are adversely impacted by the delay or loss ofpermits under the Development Agreement by virtue of our failure to meetperformance benchmarks.

 

**A disruption in our water supply would impact our snowmakingcapabilities and impact our operations.**

 

Our operations areheavily dependent upon our ability, under applicable federal, state and locallaws, regulations, permits, and licenses or contractual arrangements, to haveaccess to adequate supplies of water with which to make snow and otherwiseconduct our operations.  There can be noassurance that applicable laws and regulations will not change in a manner thatcould have an adverse effect on our operations, or that important permits,licenses or agreements will not be cancelled or will be renewed on terms asfavorable as the current terms.  Any failureto have access to adequate water supplies to support our current operations andanticipated expansion would have a material adverse effect on our financialcondition and  result of operations.

 

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**The loss of any of our executive officers or key personnelwould harm our business.**

 

Our success depends to asignificant extent upon the performance and continued service of various keymanagement and operational personnel. The loss of the services of these key personnel could have a materialadverse effect on our business and operations.

 

**We are structured as a holding company and have no assetsother than the common stock of our subsidiaries.**

 

We are a holding companyand our ability to pay principal and interest on debt will be dependent uponthe receipt of dividends and other distributions, or the payment of principaland interest on intercompany borrowings, from our subsidiaries.  We do not have, and we do not expect in thefuture to have, any material assets other than the common stock of our directand indirect subsidiaries.  The ResortSenior Credit Facility, the Real Estate Term Facility and other agreementsgoverning the debt obligations of our subsidiaries contain contractualrestrictions on the ability of our subsidiaries to make dividend payments orother distributions to us.  In addition,state law further restricts the payment of dividends or other distributions tous by our subsidiaries.  The breach ofany of the provisions of the indebtedness of our subsidiaries could result in adefault, 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.

 

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

 

Although we believe thatcapital expenditures above maintenance levels can be deferred to address cashflow or other constraints, these expenditures cannot be deferred for extended periodswithout adversely affecting our competitive position and financialperformance.  Our financial performancedepends, in part, on our ability to maintain and improve the quality of ourfacilities, products and management resources and to engage in successful realestate development (either directly or through third parties).  In addition, the Resort Senior CreditFacility limits the amount of non-real estate capital expenditures we can make.  To the extent that we are prohibited frommaking capital expenditures or are unable to obtain the funds to do so withcash generated from operations, or from borrowed funds or additional equityinvestments, our financial conditions and results of operations could beaffected.

 

Historically, a keyelement of our strategy has been attracting additional skiers throughinvestment in on-mountain capital improvements.  These improvements are capital intensive and a lack of availablefunds for capital expenditures could have a material adverse effect on ourability to implement our operating strategy. We conduct, and intend to continue to conduct, real estate developmentand to finance such activities through non-recourse debt.  We intend to finance resort capitalimprovements through internally generated funds and proceeds from the offeringof debt and equity.  There can be noassurance that sufficient funds will be available to fund these capitalimprovements or real estate development or that these capital improvements willattract additional skiers or generate additional revenues.

 

**Control of our company by principal shareholders.**

 

As a result of ashareholders’ agreement and the terms of the preferred stock held by Oak HillCapital Partners, L.P. and certain related entities (Oak Hill), and Leslie B.Otten (Mr. Otten), the holder of all of the 14,760,530 shares of Class A commonstock, and Oak Hill control a majority of our board of directors.  Mr. Otten and Oak Hill may have interestsdifferent from the interests of the holders of our common stock.

 

**A significant portion of our ski resorts are operated underleases or forest service permits.**

 

We lease a significantportion of the land underlying our ski resorts or use them pursuant torenewable permits or licenses.  If anyof these arrangements were terminated or not renewed on expiration, or renewedon terms materially less favorable to us, our ability to possess and use theland would be impaired.  A substantialportion of the skiable terrain at our Attitash Bear Peak, Mount Snow andSteamboat ski resorts is federal land that is used under the terms of permitswith 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

 

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certain other operationalmatters.  The permits can also beterminated or modified by the United States Forest Service to serve the publicinterest or in the event we fail to perform any of our obligations under thepermits.  A termination or modificationof any of our permits could have a material adverse affect on our results ofoperations.

 

**Item3****Legal Proceedings**

 

The Killingtonresort has been identified by the U.S. Environmental Protection Agency as a potentially responsible party attwo sites pursuant to the Comprehensive Environmental Response, Compensationand Liability Act.  Killington hasentered into a settlement agreement with the Environmental Protection Agency atone of the sites, the Solvents Recovery Service of New England Superfund sitein Southington, Connecticut.  Killingtonrejected an offer to enter into a de minimis settlement with the EnvironmentalProtection Agency for the other site, the PSC Resources Superfund site inPalmer, Massachusetts, because it disputes its designation as a potentiallyresponsible party.  We believe that ourliability for this Superfund site will not have a material adverse effect onour business or financial condition or results of operations or cash flows.

 

On January 24, 2002, weentered into an agreement with Triple Peaks, LLC for the sale of our Steamboatresort.  We later determined that thesale of our Heavenly resort more closely achieved our restructuring objectivesand concluded that we would not proceed with the sale of our Steamboatresort.  On April 5, 2002, Triple Peaks,LLC filed a lawsuit against American Skiing Company in federal district courtin Denver, alleging breach of contract resulting from our refusal to close onthe proposed sale of our Steamboat resort. The suit seeks both monetary damages resulting from the breach andspecific performance of the contract. On April 16, 2002, before we filed an answer to its complaint, TriplePeaks voluntarily dismissed its suit and re-filed a substantially identicalcomplaint in Colorado state district court in Steamboat, also naming SteamboatSki & Resort Corporation, American Skiing Company Resort Properties andWalton Pond Apartments, Inc. (each direct or indirect subsidiaries of AmericanSkiing Company) as additional defendants. On April 19, 2002, we filed a complaint seeking declaratory judgmentagainst Triple Peaks in federal court in Denver seeking a declaration from thatcourt that our damages under the contract for failure to close on the proposedsale are limited to $500,000.  OnDecember 31, 2002, the Colorado state district court issued summary judgment inour favor and against Triple Peaks, confirming that the damages we owe TriplePeaks under the contract are limited to $500,000.  On January 26, 2003, we received notice that Triple Peaks hadappealed the decision of the Colorado state district court.  That appeal is currently pending.  Subsequent to the issuance of the summaryjudgment order by the Colorado state district court, the companion federalcourt action was dismissed with prejudice at our request.

 

On January 3,2003, American Skiing Company received arbitration demands from two formerexecutive employees, Hernan Martinez and Peter Tomai.  Messrs. Martinez and Tomai each alleged that they resigned fromtheir employment with us for “good reason” under the terms of their executiveemployment agreements with us, and that accordingly they are entitled toseverance payments equal to one year’s salary ($300,000 and $225,000,respectively) and certain other severance benefits, including the maintenanceof health insurance for six months following the termination of theiremployment.  We contested the existenceof “good reason” for their termination of their employment and disputed ourliability for the severance payments and other benefits.  Arbitrations were conducted in each of thesematters in late June and early July 2003. Subsequent to Fiscal 2003, we received notice of arbitrators’ judgmentin our favor with regards to each of these matters.  These arbitration awards are final and non-appealable.

 

Each of oursubsidiaries which operates resorts has claims pending and is regularly subjectto personal injury claims related principally to skiing activities at theresort.  Each of our operating companiesmaintains liability insurance that we consider adequate in order to insureagainst claims related to the usual and customary risks associated with theoperation of a ski resort.  We operate acaptive insurance company authorized under the laws of the State of Vermont,which, until early Fiscal 1999, provided liability and workers’ compensationcoverage for our Vermont resorts.  We donot currently use this insurance subsidiary to provide liability and workers’compensation insurance coverage, but it is still responsible for future claimsarising from insurable events which may have occurred while it provided thiscoverage.  Our insurance subsidiarymaintains cash reserves in amounts recommended by an independent actuarial firmand which we believe to be adequate to cover any such claims.

 

OnApril 22, 2003, we were sued in Utah state court by Westgate Resorts, Ltd.for breach of contract and other related claims arising from disputes involvingtwo contracts between us (through two different subsidiaries,

 

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ASC Utah, Inc. and American Skiing Company ResortProperties, Inc.) and Westgate. Generally, Westgate has alleged that ASC Utah and/or American SkiingCompany Resort Properties, Inc. have breached obligations to Westgate toconstruct certain infrastructure at The Canyons resort and provide marketingsupport for Westgate’s project. Westgate’s claim seeks specific performance of certain aspects of thetwo contracts.  It is not currently feasible to quantify the damages beingsought in this action.  On May 13,2003, we 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 millionin lift tickets and that Westgate’s buildings at The Canyons encroach upon landowned or controlled by ASC Utah and/or American Skiing Company ResortProperties, Inc.  No discovery has beentaken in this matter and no timetable has been set for bringing the matter totrial.

 

**Item4****Submission of Matters to a Vote of Security Holders**

 

Not applicable.

 

**PARTII**

 

**Item5****Market for the Registrant’s Common Equity and Related Shareholder Matters**.

 

Our common stockis currently traded on the Over The Counter Bulletin Board under the symbol“AESK”.  Our Class A common stock is notlisted on any exchange and is not publicly traded, but is convertible into ourcommon stock.  As of September 28, 2003,31,738,183 shares of our common stock were issued and outstanding, of which14,760,530 shares were Class A common stock held by one holder and 16,977,653shares of common stock held by approximately 9,000 holders.

 

The followingtable lists, for the fiscal quarters indicated, the range of high and lowclosing prices of our common stock as reported on the Over the Counter BulletinBoard, as applicable.

 

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

 

|        |   | **Fiscal 2002** |   | **Fiscal 2003** |   |
|-------------|--------|-----------------|--------|-----------------|--------|
|        |   | **High**        |   | **Low**         |   | **High** |   | **Low** |   |
| 1st Quarter |   | $               | 1.05   |            | $      | 0.76 |   | $ | 0.28 |   | $ | 0.14 |   |
| 2nd Quarter |   | $               | 1.01   |            | $      | 0.47 |   | $ | 0.26 |   | $ | 0.13 |   |
| 3rd Quarter |   | $               | 0.49   |            | $      | 0.16 |   | $ | 0.16 |   | $ | 0.08 |   |
| 4th Quarter |   | $               | 0.20   |            | $      | 0.12 |   | $ | 0.13 |   | $ | 0.08 |   |

 

**Market Information**

 

We have notdeclared or paid any cash dividends on our capital stock.  We intend to retain earnings, to the extentthat there are any, to reduce our debt and to support our capital improvementand growth strategies.  We do notanticipate paying cash dividends on our common stock in the foreseeablefuture.  The payment of future dividends,if any, will be at the discretion of our board of directors after they takeinto account various factors, such as our financial condition, operatingresults, current and anticipated cash needs and plans for capital improvementsand expansion.  Each of the indenturesgoverning our Senior Subordinated Notes, our Resort Senior Credit Facility andthe terms of our Series A Preferred Stock, Series C-1 Preferred Stock andSeries C-2 Preferred Stock contain certain restrictive covenants that, amongother things, limit the payment of dividends or the making of distributions onour equity interests.  See Part II, Item7 - “Management’s Discussion and Analysis of Financial Condition and Results ofOperations – Liquidity and Capital Resources”.

 

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**Item6****Selected Financial Data**

 

The followingselected historical financial data has been derived from our consolidatedfinancial statements as audited by: (1) KPMG LLP, as of July 29, 2001, July 28,2002, and July 27, 2003 and for the fiscal years ended July 30, 2000, July 29,2001, July 28, 2002 and July 27, 2003; and (2) Arthur Andersen LLP, as of July25, 1999 and July 30, 2000 and for the fiscal year ended July 25, 1999.  This data, excluding consolidated statementsof 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)**                                     |    |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|---------|
|                                                                                                                                  |   | **July 25, 1999**                                                 |    | **July 30, 2000** |   | **July 29, 2001** |   | **July 28, 2002** |   | **July 27, 2003** |   |
|                                                                                                                                  |   | **(in thousands, except per share and per skier visit  amounts)** |    |
| **Consolidated Statement of Operations Data:**                                                                                        |   |                                                              |    |   |   |   |   |   |   |   |   |
| Net revenues:                                                                                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |
| Resort (2)                                                                                                                            |   | $                                                                 | 239,954 |   | $ | 240,226 |   | $ | 275,686 |   | $ | 243,842 |   | $ | 251,638 |   |
| Real estate                                                                                                                           |   | 24,492                                                            |    | 132,063 |   | 96,864 |   | 28,274 |   | 12,898 |   |
| Total net revenues                                                                                                                    |   | 264,446                                                           |    | 372,289 |   | 372,550 |   | 272,116 |   | 264,536 |   |
|                                                                                                                                  |   |                                                              |    |   |   |   |   |   |   |   |   |
| Operating expenses:                                                                                                                   |   |                                                              |    |   |   |   |   |   |   |   |   |
| Resort                                                                                                                                |   | 164,878                                                           |    | 170,156 |   | 187,715 |   | 166,968 |   | 168,010 |   |
| Real estate                                                                                                                           |   | 26,808                                                            |    | 123,837 |   | 93,422 |   | 30,091 |   | 12,166 |   |
| Marketing, general and administrative                                                                                                 |   | 47,936                                                            |    | 46,903 |   | 49,011 |   | 46,699 |   | 49,645 |   |
| Merger, restructuring and asset  impairment charges (3)                                                                               |   | —                                                            |    | — |   | 76,015 |   | 111,608 |   | 1,451 |   |
| Depreciation and amortization                                                                                                         |   | 34,547                                                            |    | 35,493 |   | 34,941 |   | 26,238 |   | 27,513 |   |
| Write-off of deferred financing costs                                                                                                 |   | —                                                            |    | 1,017 |   | — |   | 3,338 |   | 2,761 |   |
| Total operating expenses                                                                                                              |   | 274,169                                                           |    | 377,406 |   | 441,104 |   | 384,942 |   | 261,546 |   |
|                                                                                                                                  |   |                                                              |    |   |   |   |   |   |   |   |   |
| Loss from continuing operations before preferred stock  dividends and cumulative effect of  changes in  accounting principles         |   | (31,869                                                           | )       | (33,743 | ) | (125,026 | ) | (167,578 | ) | (44,374 | ) |
| Accretion of discount and dividends on  mandatorily redeemable preferred stock                                                        |   | (4,372                                                            | )       | (20,994 | ) | (23,357 | ) | (32,791 | ) | (37,644 | ) |
| Net loss from continuing operations available to  common shareholders before cumulative  effect of  changes in accounting  principles |   | $                                                                 | (36,241 | ) | $ | (54,737 | ) | $ | (148,383 | ) | $ | (200,369 | ) | $ | (82,018 | ) |
| Net loss available to common shareholders                                                                                             |   | $                                                                 | (32,332 | ) | $ | (52,452 | ) | $ | (141,572 | ) | $ | (206,710 | ) | $ | (82,018 | ) |
| Basic and diluted net loss from continuing operations  per share available to common shareholders                                     |   | $                                                                 | (1.20   | ) | $ | (1.81 | ) | $ | (4.86 | ) | $ | (6.34 | ) | $ | (2.59 | ) |
| Basic and diluted net loss  per share available to common shareholders                                                                |   | $                                                                 | (1.07   | ) | $ | (1.73 | ) | $ | (4.64 | ) | $ | (6.54 | ) | $ | (­­2.59 | ) |
|                                                                                                                                  |   |                                                              |    |   |   |   |   |   |   |   |   |
| **Balance Sheet Data:**                                                                                                               |   |                                                              |    |   |   |   |   |   |   |   |   |
| Total assets                                                                                                                          |   | $                                                                 | 907,502 |   | $ | 926,778 |   | $ | 807,038 |   | $ | 521,993 |   | $ | 475,305 |   |
| Long-term debt and redeemable preferred stock, including  current maturities                                                          |   | 543,740                                                           |    | 634,723 |   | 638,620 |   | 582,096 |   | 639,048 |   |
| Common shareholders’ equity (deficit)                                                                                            |   | 236,655                                                           |    | 185,497 |   | 44,826 |   | (155,305 | ) | (237,295 | ) |
|                                                                                                                                  |   |                                                              |    |   |   |   |   |   |   |   |   |
| **Consolidated Statement of Cash Flows Data:**                                                                                        |   |                                                              |    |   |   |   |   |   |   |   |   |
| Cash flows provided by (used in) operating activities                                                                                 |   | $                                                                 | (77,235 | ) | $ | (43,891 | ) | $ | 44,576 |   | $ | (1,092 | ) | $ | (7,999 | ) |
| Cash flows provided by (used in) investing activities                                                                                 |   | (37,486                                                           | )       | (17,403 | ) | (23,390 | ) | 94,683 |   | (4,658 | ) |
| Cash flows provided by (used in) financing activities                                                                                 |   | 108,354                                                           |    | 62,376 |   | (19,679 | ) | (98,259 | ) | 12,329 |   |
|                                                                                                                                  |   |                                                              |    |   |   |   |   |   |   |   |   |
| **Other Data:**                                                                                                                       |   |                                                              |    |   |   |   |   |   |   |   |   |
| Skier visits (000’s)(4)                                                                                                          |   | 4,157                                                             |    | 4,109 |   | 4,430 |   | 3,756 |   | 3,977 |   |
| Season pass holders (000’s)                                                                                                      |   | 40.2                                                              |    | 43.2 |   | 46.1 |   | 39.4 |   | 44.1 |   |
| Resort revenues per skier visit                                                                                                       |   | $                                                                 | 57.72   |   | $ | 58.46 |   | $ | 62.23 |   | $ | 64.92 |   | $ | 63.27 |   |

 

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(1)          Thehistorical data above does not reflect the financial position or results ofoperations for Heavenly.  The financialdata for Heavenly is reflected as discontinued operations because Heavenly wassold during Fiscal 2002.

 

(2)          Resortrevenues represent all revenues, excluding revenues generated by the sale ofreal estate interests.

 

(3)          DuringFiscal 2001, we recognized the following merger, restructuring and assetimpairment charges: a $52.0 million asset impairment charge related to theassets at our Steamboat resort that were previously classified as assets heldfor sale as of July 29, 2001; a $15.1 million asset impairment charge relatedto the assets at our Sugarbush resort that are classified as assets held forsale as of July 29, 2001; a $3.6 million charge related to our terminatedmerger with Meristar Hotels and Resorts, Inc; $4.0 million in employeeseparation, legal and financial consulting charges related to our strategicrestructuring plan; and a $1.3 million impairment

 

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chargeto net realizable value in the fourth quarter of Fiscal 2001 on the remainingunits at the Attitash Grand Summit Hotel. During Fiscal 2002, we recognized the following merger, restructuringand asset impairment charges: a $25.4 million asset impairment charge relatedto the assets at our Steamboat resort that were previously classified as heldfor sale as of July 29, 2001; a $38.7 million charge related to the remainingquartershare units at the Steamboat Grand Hotel and The Canyons Grand SummitHotel; a $18.9 million charge related to land and land options at The Canyons;a $24.8 million charge related to master planning and real estate costs at TheCanyons, Killington, Mount Snow, Sugarloaf/USA, Sunday River and Steamboat; a$1.4 million charge related to a land option at Sunday River and certain resortfixed assets; $2.7 million in legal and financial consulting charges related toour strategic restructuring plan; offset by a $0.3 million gain to finalize thesale of Sugarbush.  During Fiscal 2003,we recognized the following merger, restructuring and asset impairment charges:a $1.2 million charge related to certain resort fixed assets and other assets;$0.4 million charges related to restructuring charges; offset by a $0.2 millionreversal of a previous impairment charge determined not to be needed.

 

(4)          Forpurposes of estimating skier visits, we assume that a season pass holder visitsour resorts a number of times that approximates the average cost of a seasonpass divided by the average daily lift ticket price.

 

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**Item7****Management’s Discussion and Analysis of Financial**

**Condition and Results of Operations**

 

**Forward-Looking Statements**

 

Certain statements under the heading Part I, Item 1and Item 2 – “Business and Properties”, this heading Part II, Item 7 –“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and elsewhere in this Annual Report on Form 10-K constituteforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended (the Securities Act), and Section 21E of the SecuritiesExchange Act of 1934, as amended (the Exchange Act).  These forward-looking statements are not based on historicalfacts, but rather reflect our current expectations concerning future resultsand events.  Similarly, statements thatdescribe our objectives, plans or goals are or may be forward-looking statements.  We have tried, wherever possible, toidentify 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 actual results,performances or achievements to differ materially from those projected include,but are not limited to, the following: changes in regional and nationalbusiness and economic conditions affecting both our resort operating and realestate segments; any redemption of our legal requirement to redeem our Series APreferred Stock competition and pricing pressures; negative impact on demandfor our products resulting from terrorism and availability of air travel(including the effect of airline bankruptcies); the payment defaults under ourReal Estate Term Facility and the Construction Loan Facility and theirrespective effects on the results and operations of our real estate segment;any redemption of or legal requirement to redeem our Series A Preferred Stock;failure to maintain improvements to resort operating performance at the covenantlevels required by our Resort Senior Credit Facility; the possibility ofdomestic terrorist activities and their respective effects on the ski, golf,resort, leisure and travel industries; failure of on-mountain improvements andother capital expenditures to generate incremental revenue; adverse weatherconditions regionally and nationally; seasonal business activity; changes tofederal, state and local regulations affecting both our resort operating andreal estate segments; failure to renew land leases and forest service permits;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 21E of theExchange Act, we do not have or undertake any obligation to publicly update anyforward-looking statements to reflect subsequent events or circumstances*.*

 

## **General**

 

Thefollowing is our discussion and analysis of financial condition and results ofoperations for the fiscal year ended July 27, 2003.  Please read this information in connection with our consolidatedfinancial statements and related notes contained elsewhere in this report.

 

***Real Estate Credit Agreement Defaults.***On March 30, 2002, our real estate development subsidiary, Resort Properties,failed to make a mandatory principal payment of $3.75 million under its RealEstate Term Facility with Fleet National Bank and certain other lenders.  See “- Liquidity and Capital Resources –Real Estate Liquidity – Real Estate Term Facility” below for a discussion ofthe status of our efforts to restructure the Real Estate Term Facility.

 

Asof July 27, 2003, our hotel development subsidiary was also in default underits Construction Loan Facility with Textron and certain other lenders,resulting from the failure to pay down the Senior Construction Loan to $30million by June 29, 2003.  See “—Liquidity and Capital Resources — Real Estate Liquidity — Construction LoanFacility” below for a discussion of the terms of the March 2003 amendment tothe Construction Loan Facility and the current status of the facility.

 

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**Liquidity and Capital Resources**

 

Weare a holding company whose only significant assets are the outstanding commonstocks of our subsidiaries.  Our onlysource of cash to pay our obligations is distributions from our subsidiaries.

 

**Short-Term**.  Our primary short-term liquidity needs involve funding seasonalworking capital requirements, marketing and selling real estate developmentprojects, funding our Fiscal 2004 capital improvement program and servicing ourdebt.  Our cash requirements forski-related and real estate development/sales activities are provided fromseparate sources.

 

As describedbelow, we entered into the Resort Senior Credit Facility on February 14, 2003and used our initial borrowings to refinance the prior resort senior creditfacility.  Our primary source ofliquidity for ski-related working capital and ski-related capital improvementsare cash flows from operations of our non-real estate subsidiaries andborrowings under our Resort Senior Credit Facility.  The total debt outstanding under our Resort Senior CreditFacility as of July 27, 2003 was approximately $77.8 million, withapproximately $9.3 million available for borrowing on such date.

 

Real estatedevelopment and real estate working capital was funded primarily through theConstruction 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 27, 2003, the Construction LoanFacility is in default due to the failure by Grand Summit to reduce theprincipal balance outstanding to a maximum of $30.0 million at June 29, 2003 asrequired under the terms of the agreement. As of July 27, 2003, the carrying value of the total assets thatcollateralized the Construction Loan Facility and which are included in theaccompanying consolidated balance sheet was approximately $80.3 million.  The total debt outstanding under theConstruction Loan Facility as of July 27, 2003 was approximately $41.7million.  See “Real Estate Liquidity –Real Estate Term Facility” below.

 

**Resort Liquidity**.  As part of our comprehensive strategic planto restructure our debt, we entered into an agreement dated February 14, 2003with General Electric Capital Corporation (GE Capital) and CapitalSourceFinance LLC (CapitalSource) whereby GE Capital and CapitalSource provided thenew $91.5 million senior secured loan facility (Resort Senior CreditFacility).  The Resort Senior CreditFacility replaced our prior resort senior credit facility and is secured bysubstantially all of our holding company assets, excluding the stock of ResortProperties and other real estate subsidiaries, and the assets of our resortoperating subsidiaries.  ResortProperties and its subsidiaries are not guarantors of the Resort Senior CreditFacility nor are their assets pledged as collateral under the Resort SeniorCredit Facility.  The prior resortsenior credit facility was repaid in full on February 18, 2003.

 

The Resort SeniorCredit Facility consists of the following:

 

•                  RevolvingCredit Facility - $40.0 million, including letter of credit (L/C) availabilityof up to $5.0 million.  The amount ofavailability under the Revolving Credit Facility will be correspondinglyreduced by the amount of each L/C issued. As of July 27, 2003, we had approximately $26.6 million borrowed on thisfacility and approximately $4.1 million of outstanding L/Cs.

 

•                  TrancheA Term Loan -  $25.0 million borrowed asof July 27, 2003, $0 availability;

 

•                  SupplementalTerm Loan - $6.2 million borrowed as of July 27, 2003, $0 availability; and

 

•                  TrancheB Term Loan -  $20.0 million borrowed asof July 27, 2003, $0 availability.

 

The RevolvingCredit Facility, Tranche A Term Loan, and Supplemental Term Loan portions ofthe Resort Senior Credit Facility mature on April 15, 2006 and bear interest atJPMorgan Chase Bank’s prime rate plus 3.25%, payable monthly (7.25% as of July27, 2003).  The Supplemental Term Loanrequired a principal payment of approximately $342,000 on July 15, 2003 andrequires  payments of approximately $1.0million on January 15 and July 15 of each year, with a final payment ofapproximately $1.0 million on April 15, 2006. The Tranche B Term Loan matures on June 15, 2006 and bears interest atJPMorgan Chase Bank’s prime rate plus 5.0%, payable monthly

 

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(12.25% as of July 27,2003) with an interest rate floor of 12.25%. The Resort Senior Credit Facility contains affirmative, negative andfinancial covenants customary for this type of credit facility, which includesmaintaining a minimum level of EBITDA, as defined, places a limit on ourcapital expenditures and contains an asset monetization covenant which requiresus to refinance the facility or sell assets sufficient to retire the facilityon or prior to December 31, 2005.  Thefinancial covenants of the Resort Senior Credit Facility also restrict ourability to pay cash dividends on or redeem our common and preferred stock.

 

Asof September 28, 2003, we had $30.4 million, $25.0 million, $6.2 million and$20.0 million of principal outstanding under the Revolving Credit Facility,Tranche A Term Loan, Supplemental Term Loan and Tranche B Term Loan portions ofthe Resort Senior Credit Facility, respectively.  Furthermore, as of September 28, 2003 we had approximately $4.1million in outstanding L/Cs with approximately $5.5 million available forfuture borrowings under the Revolving Credit Facility.  We currently anticipate that the remainingborrowing capacity under the Resort Senior Credit Facility will be sufficientto meet our working capital needs through the end of Fiscal 2004.

 

  Our significant debt levels affect ourliquidity.  As a result of our highlyleveraged position, we have significant cash requirements to service interestand principal payments on our debt. Consequently, cash availability for working capital needs, capitalexpenditures and acquisitions is significantly limited, outside of any availabilityunder the Resort Senior Credit Facility. Furthermore, our Resort Senior Credit Facility and the indenturegoverning our Senior Subordinated Notes contain significant restrictions on ourability to obtain additional sources of capital and may affect ourliquidity.  These restrictions includerestrictions on the sale of assets, restrictions on the incurrence ofadditional indebtedness and restrictions on the issuance of preferred stock.

 

**Real Estate Liquidity. **To fund working capitaland fund its real estate development plan, Resort Properties relied on the netproceeds from the sale of real estate developed for sale, the Real Estate TermFacility and the Construction Loan Facility. A substantial portion of our developable real estate and the commercialcore units at the Sundial Lodge at The Canyons and the Mount Snow Grand SummitHotel in Vermont are pledged to the lenders under the Real Estate TermFacility.

 

*Real Estate Term Facility: *Effective May 20, 2002, Resort Properties was indefault on its Real Estate Term Facility due to its failure to make a mandatoryprincipal payment of $3.75 million and the indebtedness was accelerated on May31, 2002.  As a result, all indebtednessunder the facility is currently due and payable.

 

The Real EstateTerm Facility is comprised of three tranches, each with separate interest ratesand maturity dates as follows:

 

•                  Tranche A is a revolving facilitywith a current maximum principal amount of $17.0 million which bears interestat a variable rate equal to the Fleet National Bank Base Rate plus 2.0% (payablemonthly in arrears).  As a result of thedefault, the default interest rate on Tranche A is the Fleet National Bank BaseRate plus 6.0% (10.0% as of July 27, 2003). Prior to the default, mandatory principal reductions were required incertain prescribed percentages ranging from 50% to 75% of net proceeds from anyfuture sales of undeveloped parcels. Prior to the default, the remaining principal amount outstanding underTranche A was scheduled to be paid in full on June 30, 2003.

 

•                  Tranche B is a term loan facilitythat has a maximum principal amount of $25 million, bears interest at a fixedrate of 18% per annum (10% per annum is payable monthly in arrears and theremaining 8% per annum accrues, is added to the principal balance of Tranche Band bears interest at 18% per annum, compounded annually).  As a result of the default, the defaultinterest rate on Tranche B is 29% per annum. Mandatory principal payments on Tranche B of $10 million were due oneach of December 31, 2003 and June 30, 2004. Prior to the default, the remaining $5 million of principal and allaccrued and unpaid interest on Tranche B was scheduled to be paid in full onDecember 31, 2004.

 

•                  Tranche C is a term loan facilitythat has a maximum principal amount of $12 million, bears interest at aneffective rate of 29% per annum and, prior to the default, was scheduled tomature on December 31, 2005.  As aresult of the default, the default interest rate on Tranche C is 29% per annum.  Interest accrues, is added to the principalbalance of Tranche C and is compounded semi-annually.

 

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On March 30, 2002, ourreal estate subsidiary, Resort Properties, failed to make a mandatory principalpayment of $3.75 million under its Real Estate Term Facility.  Resort Properties obtained a temporarywaiver of this default on April 2, 2002. Effective May 20, 2002, the temporarywaiver was revoked and Resort Properties was in default on the facility.  On May 31, 2002, the lenders accelerated thedue date of the entire remaining principal and accrued interest under thefacility.  On November 22, 2002, ResortProperties entered into a forbearance agreement with the lenders whereby thelenders agreed to not pursue additional foreclosure remedies and to ceasepublication of foreclosure notices for a 30-day period. Although this 30-dayperiod expired, management continues discussions with Fleet and the otherlenders regarding a restructuring of this facility, and Fleet and the otherlenders have not exercised any further foreclosure remedies since theexpiration of the forbearance agreement. Management’s ongoing restructuring efforts with the lenders are aimedtowards a restructuring of the facility which will establish a new entity tohold Resort Properties’ real estate development assets.  The equity in the new entity is expected tobe held by a combination of the lenders under the facility and ResortProperties.  The facility remains indefault pending completion of these negotiations.

 

There is no assurancethat negotiations will be successfully completed, or the terms under which thepayment defaults pending under the Real Estate Term Facility may be resolved,if at all.  Furthermore, regardless ofthe outcome of this proposed restructuring, we may lose control of assetspledged as collateral under the facility and future access to value creationfrom these real estate assets. A substantial portion of our developable realestate, including substantially all of the developable residential real estateat The Canyons and Steamboat along with certain core village real estate atKillington, and the stock of our real estate development subsidiaries(including Grand Summit) is pledged to Fleet and the lenders under thefacility.  The commercial core units atthe Sundial Lodge at The Canyons and the Mount Snow Grand Summit Hotel inVermont are also pledged to Fleet and the lenders.  The Grand Summit unit inventory does not secure the Real EstateTerm Facility, although the pledge of the stock of Grand Summit to secure theReal Estate Term Facility means that we may lose control of the Grand Summitunit inventory to the lenders under the Real Estate Term Facility.  Other remedies available to the lendersinclude, but are not limited to, setoff of cash collateral amounts in ResortProperties’ name held at Fleet in the amount of approximately $0.6 million,foreclosure of real and personal property owned by Resort Properties andpledged to the lenders (including all of the capital stock of Grand Summit),and other customary secured creditor remedies. As of July 27, 2003, the carrying value of the total assets thatcollateralized the Real Estate Term Facility was approximately $117.0million.  This collateral includes $80.3million of Grand Summit assets pledged under our Construction LoanFacility.  See “Certain Considerations –Our primary real estate development subsidiary is in payment default under itssenior secured credit agreement, and our ability to achieve any future earningsfrom the real estate development assets held in that subsidiary may besignificantly compromised.  In addition,our senior construction loan with our real estate hotel development subsidiaryis in default.”

 

As of July 27,2003, the principal balances outstanding, including accrued and unpaidinterest, under Tranches A, B and C of the Real Estate Term Facility were $19.5million, $38.1 million, and $21.4 million, respectively.

 

As of September28, 2003, the principal balances outstanding, including accrued and unpaidinterest, under Tranches A, B and C of the Real Estate Term Facility were $19.8million, $39.3 million, and $22.5 million, respectively.

 

*Construction Loan Facility: *We conduct substantially all of our real estatedevelopment through subsidiaries, each of which is a wholly owned subsidiary ofResort Properties.  Grand Summit ownsour existing Grand Summit Hotel projects at Steamboat, The Canyons and AttitashBear Peak, which are primarily financed through the $110 million SeniorConstruction Loan.  Due to constructiondelays and cost increases at the Steamboat Grand Hotel project, on July 25,2000, Grand Summit entered into the $10 million Subordinated ConstructionLoan.  Together they comprise theConstruction Loan Facility.  We used theConstruction Loan Facility solely for the purpose of funding the completion ofthe Steamboat Grand Hotel.  TheConstruction Loan Facility is without recourse to us and our resort operatingsubsidiaries and is collateralized by significant real estate assets of ResortProperties and its subsidiaries, including the assets and stock of GrandSummit, our primary hotel development subsidiary.

 

The Senior ConstructionLoan of Grand Summit was also in payment default as of June 29, 2003 due to thefailure by Grand Summit to reduce the principal balance outstanding to amaximum of $30.0 million as required under the terms of the agreement.  In addition, the Senior Construction Loanfurther required that the loan be reduced

 

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to a maximum of $25.0million by June 30, 2003.  As a result,the Subordinated Construction Loan also was in default.  We have not yet been advised by the lendersunder the Senior Construction Loan and the Subordinated Construction Loanwhether they intend to accelerate the remaining balance due thereunder orexercise any of their other rights as a result of the defaults.  An amendment to the Senior Construction Loandelayed certain amortization deadlines from March 31, 2003 to June 29, 2003.  We paid $35,000 to the lenders for suchamendment. An additional $175,000 was due and payable because of our failure toreduce the loan balance to certain requirements at June 29, 2003.  As of July 27, 2003, this amount has beenaccrued  in accounts payable and othercurrent liabilities.

 

As of July 27,2003, the amount outstanding under the Senior Construction Loan was $31.7****millionand there were no borrowings available under this facility.  The principal is payable incrementally asquarter and eighth share 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 units and unsold unit inventory at the Grand Summit Hotels atThe Canyons and Steamboat, a promissory note from the Steamboat HomeownersAssociation secured by the Steamboat Grand Summit hotel parking garage, and thecommercial core unit at Attitash Bear Park collateralize the SeniorConstruction Loan, which is subject to covenants, representations andwarranties customary for this type of construction facility.  The Senior Construction Loan is non-recourseto us and our resort operating subsidiaries (although it is collateralized bysubstantial assets of Grand Summit, having a total book value of $80.3 millionas of July 27, 2003, which in turn comprise substantial assets of ourbusiness).  The maturity date for fundsadvanced under the Steamboat portion of the Senior Construction Loan is May 31,2004.  The principal balance outstandingunder the Steamboat portion of the Senior Construction Loan was approximately$31.7 million as of July 27, 2003 and had an interest rate on funds advanced ofprime plus 3.5%, with a floor of 9.0% (9.0% as of July 27, 2003).  The Canyons portion of the SeniorConstruction Loan was repaid during March 2003.

 

The SubordinatedConstruction Loan bears interest at a fixed rate of 20% per annum, payablemonthly in arrears, provided that only 50% of the amount of this interest shallbe due and payable in cash and the other 50% of such interest shall, if noevents of default exist under the Subordinated Construction Loan or the SeniorConstruction Loan, automatically be deferred until the final payment date.  The maturity date for funds advanced underthe Subordinated Construction Loan is September 30, 2004.  The principal balance outstanding under theSubordinated Construction Loan was approximately $10.0 million as of July 27,2003.  The Subordinated ConstructionLoan is secured by the same collateral which secures the Senior ConstructionLoan.

 

As of September28, 2003, the amount outstanding under the Senior Construction Loan was $31.2****millionand there were no borrowings available under this facility.  As of September 28, 2003, the amountoutstanding under the Subordinated Construction Loan was $10.0****millionand there were no borrowings available under this facility.

 

**Series APreferred Stock Redemption. **Wehave 36,626 shares of Series A Preferred Stock outstanding, with an accretedvalue of approximately $66.7 million as of July 27, 2003.  The Series A Preferred Stock was redeemableon November 12, 2002 at an aggregate redemption price of approximately $62million, to the extent that we had funds legally available for thatredemption.  If the Series A PreferredStock is not permitted to be redeemed because there are not legally availablefunds, we must redeem that number of shares of Series A Preferred Stock whichwe can lawfully redeem, and from time to time thereafter, as soon as funds arelegally available, we must redeem shares of our Series A Preferred Stock untilwe have done so in full.  Prior to theNovember 12, 2002 redemption date, based on all relevant factors, our Board ofDirectors determined not to redeem any shares of stock on the redemption date.  On January 27, 2003, the holders of the SeriesA Preferred Stock demanded that we redeem all of the Series A Preferred Stockimmediately and on April 8, 2003, the Series A Preferred Stockholders demandedpursuant to Delaware law to review certain of our records.  We will continue to assess our obligationswith respect to the requirements of the redemption provisions of our Series APreferred Stock.  Because the Series APreferred Stock was not redeemed on November 12, 2002, the certificate ofdesignation for the Series A Preferred Stock provides that the holders areentitled to elect two new members of our board of directors.  We have not yet been advised by the holdersof the Series A Preferred Stock whether they intend to exercise their right toelect two directors at or prior to our next annual shareholders meeting orwhether they intend to take any other action, including legal action, to seekto compel our redemption of the Series A Preferred Stock.  If the holders of the Series A PreferredStock were to commence any litigation to compel us to redeem the Series APreferred Stock, based on present facts and circumstances, we would vigorouslycontest that litigation.  If we arerequired to redeem all or any portion of the Series A Preferred Stock, it couldhave a material adverse effect on our business, results of operations andfinancial condition.

 

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**Long-Term**.  Our primary long-term liquidity needs are tofund skiing-related capital improvements at certain of our resorts.  With respect to capital needs, we haveinvested over $175 million in skiing-related facilities since the beginning ofFiscal 1998, excluding investments made at Heavenly and Sugarbush (which weresold in Fiscal 2002).  As a result, andin keeping with restrictions imposed under the Resort Senior Credit Facility,we expect our resort capital programs for the next several fiscal years will bemore limited in size.

 

Foreach of Fiscal 2004 and 2005, we anticipate our annual maintenance capitalneeds to be approximately $8.5 million. There is a considerable degree of flexibility in the timing and, to alesser degree, scope of our capital improvement program.  Although we can defer specific capitalexpenditures for extended periods, continued growth of skier visits, revenuesand profitability will require continued capital investment in on-mountainimprovements.

 

Wefinance on-mountain capital improvements through resort cash flows, capitalleases and our Resort Senior Credit Facility. The size and scope of the capital improvement program will generally bedetermined annually depending upon the strategic importance and expectedfinancial return of certain projects, future availability of cash flows fromeach season’s resort operations and future borrowing availability and covenantrestrictions under the Resort Senior Credit Facility.  The Resort Senior Credit Facility places a maximum level ofnon-real estate capital expenditures for Fiscal 2004 at $8.5 million, with theability to increase this amount in the future if certain conditions aremet.  We believe that these capitalexpenditure amounts will be sufficient to meet our non-real estate capitalimprovement needs for Fiscal 2004.

 

**Contractual Obligations**

 

Our noncancelable,minimum contractual obligations as of July 27, 2003 were as follows (inthousands):

 
|                                                       |   |      |       | **Payments due by period** |       |
|------------------------------------------------------------|--------|-----------|------------|----------------------------|------------|
| **Obligation**                                             |   | **Total** |       | **Less than 1 Year**       |       | **1 to 3 Years** |   | **After 3 years** |   |
|                                                       |   |      | ** ** |                       | ** ** |   | ** ** |   | ** ** |
| Resort long-term debt and  capital lease obligations       |   | $         | 92,548     |                       | $          | 32,359 |   | $ | 54,554 |   | $ | 5,635 |   |
| Real estate long-term debt                                 |   | 108,756   |       | 108,756                    |       | — |   | — |   |
| Subordinated notes and debentures                          |   | 143,011   |       | 1,466                      |       | 120,000 |   | 21,545 |   |
| Mandatorily Redeemable 10 1⁄2% Series A Preferred Stock |   | 66,663    |       | 66,663                     |       | — |   | — |   |
| Mandatorily Redeemable 12% Series C-1 Preferred Stock      |   | 50,105    |       | —                     |       | — |   | 50,105 |   |
| Mandatorily Redeemable 15% Series C-2 Preferred Stock      |   | 184,621   | ** ** | **—**                 | ** ** | **—** |   | 184,621 |   |
| Operating leases                                           |   | 18,967    |       | 5,476                      |       | 5,321 |   | 8,170 |   |
| The Canyons land options obligation                        |   | 2,000     |       | 2,000                      |       | — |   | — |   |
| Obligation to build ski lifts at The Canyons               |   | 2,000     |       | —                     |       | 2,000 |   | — |   |
| Total                                                      |   | $         | 668,671    |                       | $          | 216,720 |   | $ | 181,875 |   | $ | 270,076 |   |

 

The operation of asubstantial portion of our resort activities are dependent upon leased realestate.  Aggregate lease commitmentsunder noncancelable operating leases are included in the table above.  As of July 27, 2003, approximately $108.8million (not including an unamortized original issue discount of approximately$2.5 million) of the real estate long-term debt, which does not include accruedand unpaid interest, was in default. This amount includes the Senior Construction Loan and the SubordinatedConstruction Loan, which were in default as of June 29, 2003 due to failure toreduce the principal balance outstanding to a maximum of $30.0 million asrequired under the terms of the agreement.

 

**Off-Balance Sheet Arrangements**

 

We do not have anyoff-balance sheet transactions, arrangements or obligations (includingcontingent obligations) that have, or are reasonably likely to have, a materialcurrent or future effect on our financial condition, changes in financialcondition, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources.

 

**Critical Accounting Policies**

 

Our discussion andanalysis of our financial condition and results of operations are based uponour consolidated financial statements, which have been prepared in accordancewith accounting principles generally accepted in the United States ofAmerica.  The preparation of these financialstatements requires management to

 

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make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of sales and expenses during the reportingperiods.  Areas where significantjudgments are made include, but are not limited to: allowances for doubtfulaccounts, long-lived asset valuations and useful lives, inventory valuationreserves, and deferred income tax asset valuation allowances.  Actual results could differ materially fromthese estimates.  The following are ourcritical accounting policies:

 

*Property and Equipment*

Property andequipment are carried at cost, net of accumulated depreciation and impairmentcharges. Depreciation is calculated using the straight-line method over theassets’ estimated useful lives which range from 9 to 40 years for buildings, 3to 12 years for machinery and equipment, 10 to 50 years for leaseholdimprovements 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. Due to the seasonality of our business, we record a full year ofdepreciation relating to our resort operating assets during the second andthird quarters of our fiscal year.

 

*Goodwill and Other Intangible Assets*

During Fiscal2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142,“Goodwill and Other Intangible Assets” (SFAS No. 142) and were required toevaluate our existing intangible assets and goodwill in a transitionalimpairment analysis.  As a result of thetransitional impairment analysis, we recorded an impairment loss of$18.7 million representing 100% of our goodwill.  This loss was recorded as a cumulative effect of a change inaccounting principle in the accompanying consolidated statement of operationsfor Fiscal 2002.  Furthermore, asprescribed in SFAS No. 142, certain indefinite-lived intangible assets,including trademarks, are no longer amortized but are subject to annualimpairment assessments.  An impairmentloss is recognized to the extent that the carrying amount exceeds the asset’sfair value.  Definite-lived intangibleassets continue to be amortized on a straight-line basis over their estimateduseful lives of 16 to 20 years, and assessed for impairment utilizing guidanceprovided by SFAS No. 144.

 

Prior to theadoption of SFAS No. 142, goodwill, which represents the excess of the purchaseprice over the fair value of the net assets (including tax attributes andminority interest) acquired in purchase transactions, and otherindefinite-lived intangibles were amortized on a straight-line basis over theexpected periods to be benefited, up to 40 years.  Goodwill and other indefinite-lived intangibles were assessed forrecoverability by determining whether the amortization of the carrying amountsover their remaining useful lives could be recovered through undiscountedfuture cash flows of the acquired operation or assets.

 

*Long-Lived Assets*

On July 30, 2001,we adopted SFAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets”.  Long-lived assets,such as property and equipment, and definite-lived intangibles are reviewed forimpairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by acomparison of the carrying amount of an asset to the estimated undiscountedfuture 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.  Prior to theadoption of SFAS No. 144, we accounted for impairment of long-lived assets andlong-lived assets to be disposed of in accordance with SFAS No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assetsto Be Disposed Of”.  During Fiscal 2002,we completed the sale of our Sugarbush resort and accounted for this sale underSFAS No. 121 and Accounting Principles Board Opinion No. 30 because thedisposal activities relating to the sale of Sugarbush were initiated prior toour adoption of SFAS No. 144.

 

*Revenue Recognition*

Resort revenuesinclude sales of lift tickets, tuition from ski schools, golf course and otherrecreational activities fees, sales from restaurants, bars and retail andrental shops, and lodging and property management fees (real estate rentals).Daily lift ticket revenue is recognized on the day of purchase. Lift ticketseason pass revenue is recognized on a straight-line basis over the ski season,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, adequate initial and continuing investments areadequate to demonstrate a commitment to pay for the property and no continuinginvolvement exits. Amounts

 

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received from pre-salesof real estate are recorded as restricted cash and deposits and deferredrevenue in the accompanying consolidated balance sheets until the earningsprocess is complete.

 

*Seasonality*

Our revenues are highlyseasonal in nature.  For Fiscal 2003, werealized approximately 87% of resort segment revenues and over 100% of resortsegment operating income during the period from November through April.  In addition, a significant portion of resortsegment revenue and approximately 21% of annual skier visits were generatedduring the Christmas and Presidents’ Day vacation weeks in Fiscal 2003.  In addition, our resorts typicallyexperience operating losses and negative cash flows for the period from Maythrough November.

 

A high degree ofseasonality in our revenues increases the impact of certain events on ouroperating results.  Adverse weatherconditions, access route closures, equipment failures, and other developmentsof even moderate or limited duration occurring during peak business periodscould reduce revenues.  Adverse weatherconditions can also increase power and other operating costs associated withsnowmaking or could render snowmaking wholly or partially ineffective inmaintaining quality skiing conditions. Furthermore, unfavorable weather conditions, regardless of actual skiingconditions, can result in decreased skier visits.

 

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**Results of Operations**

 

**Fiscal Year Ended July 27, 2003(Fiscal 2003)Versus Fiscal Year Ended July 28, 2002 (Fiscal 2002)**

 

**Resort Operations:**

The components ofresort operations for Fiscal 2002 and Fiscal 2003 are as follows.  Fiscal 2002 reflects the operations ofHeavenly as discontinued operations due to its sale in May 2002.

** **
|                                                      |   |                                                               |   |            |   | **Increase/ (Decrease)** |   |
|-----------------------------------------------------------|--------|--------------------------------------------------------------------|--------|-----------------|--------|--------------------------|--------|
|                                                      |   | **Fiscal 2002**                                                    |   | **Fiscal 2003** |   | **Dollar**               |   | **Percent** |   |
|                                                      |   | **(in millions, except skier visit  and per skier visit amounts)** |   |
| **Revenue category:**                                     |   |                                                               |   |            |   |                     |   |   |   |
| **Lift tickets**                                          |   | $                                                                  | 104.4  |            | $      | 111.2                    |   | $ | 6.8 |   | 6.5 | % |
| **Food and beverage**                                     |   | 35.6                                                               |   | 36.7            |   | 1.1                      |   | 3.1 | % |
| **Retail sales**                                          |   | 25.1                                                               |   | 25.7            |   | 0.6                      |   | 2.4 | % |
| **Lodging and property**                                  |   | 37.6                                                               |   | 36.5            |   | (1.1                     | )      | -2.9 | % |
| **Skier development**                                     |   | 20.1                                                               |   | 21.1            |   | 1.0                      |   | 5.0 | % |
| **Golf, summer activities and other**                     |   | 21.0                                                               |   | 20.4            |   | (0.6                     | )      | -2.9 | % |
| **Total resort revenues**                                 |   | $                                                                  | 243.8  |            | $      | 251.6                    |   | $ | 7.8 |   | 3.2 | % |
|                                                      |   |                                                               |   |            |   |                     |   |   |   |
| **Cost of resort operations**                             |   | $                                                                  | 167.0  |            | $      | 168.0                    |   | $ | 1.0 |   | 0.6 | % |
| **Marketing, general and administrative**                 |   | 46.6                                                               |   | 49.6            |   | 3.0                      |   | 6.4 | % |
| **Merger, restructuring****and asset impairment charges** |   | 47.9                                                               |   | 1.6             |   | (46.3                    | )      | -96.7 | % |
| **Depreciation and amortization**                         |   | 25.1                                                               |   | 25.8            |   | 0.7                      |   | 2.8 | % |
| **Write-off of deferred financing costs**                 |   | 3.3                                                                |   | 2.8             |   | (0.5                     | )      | -15.2 | % |
| **Interest expense**                                      |   | 36.3                                                               |   | 27.1            |   | (9.2                     | )      | -25.3 | % |
| **Total resort expenses**                                 |   | $                                                                  | 326.2  |            | $      | 274.9                    |   | $ | (51.3 | ) | -15.7 | % |
|                                                      |   |                                                               |   |            |   |                     |   |   |   |
| **Loss from continuing resort operations**                |   | $                                                                  | (82.4  | )               | $      | (23.3                    | )      | $ | 59.1 |   | -71.7 | % |
|                                                      |   |                                                               |   |            |   |                     |   |   |   |
| **Total Skier Visits (000’s)**                       |   | 3,756                                                              |   | 3,977           |   | 221                      |   | 5.9 | % |
| **Total resort revenue per skier visit**                  |   | $                                                                  | 64.9   |            | $      | 63.3                     |   | $ | (1.6 | ) | -2.5 | % |
|                                                           |        |                                                                    |        |                 |        |                          |        |  |  |  |  |  |  |

 

During the 2002-03 skiseason, skier visits from our eastern resorts increased approximately 7.1% fromapproximately 2.5 million to 2.6 million, primarily as a result of our easternresorts experiencing improved snowfall when compared to the prior season.  Skier visits from our western resortsincreased 3.5% during the 2002-03 ski season, primarily as a result of theimproved performance at The Canyons following the 2002 Winter Olympic Games inFiscal 2002.  Over our entire resortnetwork, total skier visits were up 5.9% from the 2001-02 ski season, excludingthe skier visits from Heavenly.

 

Revenues for Fiscal 2003were $251.6 million as compared to $243.8 million for Fiscal 2002, an increaseof $7.8 million, or 3.2%.  Revenues fromall of our ski-related lines of business were up between 2.4% and 6.5% over theprior year.  These increases resultedfrom a 5.9% increase in skier visits offset by a 2.5% decrease in revenue perskier visit.  Lodging revenues decreasedby 2.9% due to a weakening economy which affected our conference salesbusiness.

 

Ourresort segment produced an $23.3 million operating loss in Fiscal 2003,compared to a $82.4 million operating loss in Fiscal 2002.  This $59.1 million decrease in the operatingloss resulted primarily from the following:

 
| (i)   |   | $7.8 million increase  in resort revenues;                                                                                                                     |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  |   | $7.5 million decrease  in resort operating expenses (excluding merger, restructuring and asset  impairment charges and write-off of deferred financing costs); |
| (iii) |   | $3.0 million increase  in marketing, general and administrative expenses; and                                                                                  |
| (iv)  |   | $46.8 million decrease  in merger, restructuring and asset impairment charges and write-off of  deferred financing costs.                                      |

 

29

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We incurred merger,restructuring and asset impairment charges for Fiscal 2003 and Fiscal 2002related to our resort operations.  The$1.6 million of merger, restructuring and asset impairment charges for Fiscal2003 includes:

 
| (i)  |   | $1.2 million of  expenses related to the write-off of certain fixed assets and other assets;  and |
|------|--------|---------------------------------------------------------------------------------------------------|
| (ii) |   | $0.4 million in  employee severance charges.                                                      |

 

The $47.9 million ofmerger, restructuring and asset impairment charges for Fiscal 2002 includes:

 
| (i)   |   | $25.4 million  impairment charge to record the estimated fair value of net assets held for  sale at Steamboat, recorded in the second quarter of Fiscal 2002; |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  |   | $18.9 million  impairment charge on land and the land options at The Canyons;                                                                                 |
| (iii) |   | $1.4 million impairment  charge on certain corporate and Sunday River fixed assets and an option to  purchase undeveloped land at Sunday River;               |
| (iv)  |   | $2.5 million of legal,  consulting and financing costs incurred in connection with capital and debt  restructuring; and                                       |
| (v)   |   | $(0.3) million of gain  to finalize the sale of the Sugarbush resort.                                                                                         |

 

*RecentTrends:*  ThroughSeptember 28, 2003, our season pass sales for the 2003-04 ski season areapproximately $2.7 million greater than at the same time last year.  Our hotel booking pace for the ski season isapproximately $1.1 million behind the pace of our bookings at the same timelast year.  We believe the decreasedhotel booking pace is reflective of a general trend in the leisure industrytoward late to last-minute customer booking patterns.

 

**Real Estate Operations:**

Thecomponents of real estate operations are as follows:

 
|                                                      |   |              |   |            |   | **Increase/ (Decrease)** |   |
|-----------------------------------------------------------|--------|-------------------|--------|-----------------|--------|--------------------------|--------|
|                                                      |   | **Fiscal 2002**   |   | **Fiscal 2003** |   | **Dollar**               |   | **Percent** |   |
|                                                      |   | **(in millions)** |   |
|                                                      |   |              |   |            |   |                     |   |   |   |
| **Total real estate revenues**                            |   | $                 | 28.3   |            | $      | 12.9                     |   | $ | (15.4 | ) | -54.4 | % |
|                                                      |   |              |   |            |   |                     |   |   |   |
| **Cost of real estate operations**                        |   | 30.1              |   | 12.2            |   | (17.9                    | )      | -59.5 | % |
| **Merger, restructuring and asset****impairment charges** |   | 63.7              |   | (0.2            | )      | (63.9                    | )      | -100.3 | % |
| **Depreciation and amortization**                         |   | 1.1               |   | 1.7             |   | 0.6                      |   | 54.5 | % |
| **Interest expense**                                      |   | 18.5              |   | 20.3            |   | 1.8                      |   | 9.7 | % |
| **Total real estate expenses**                            |   | 113.4             |   | 34.0            |   | (79.4                    | )      | -70.0 | % |
|                                                      |   |              |   |            |   |                     |   |   |   |
| **Loss from real estate operations**                      |   | $                 | (85.1  | )               | $      | (21.1                    | )      | $ | 64.0 |   | -75.2 | % |

 

Realestate revenues decreased by $15.4 million in Fiscal 2003 compared to Fiscal2002, from $28.3 million to $12.9 million. Real estate revenues by project (in millions) are as follows:

 
|                      |   | **Fiscal 2002** |     | **Fiscal 2003** |   | **Increase/  (Decrease)** | ** ** |
|---------------------------|--------|-----------------|----------|-----------------|--------|---------------------------|------------|
| Steamboat  Grand          |   | $               | 7.1      |            | $      | 3.2                       |       | $ | (3.9 | ) |
| The  Canyons Grand Summit |   | 8.5             |     | 5.0             |   | (3.5                      | )          |
| Eastern  properties       |   | 7.9             |     | 0.0             |   | (7.9                      | )          |
| Land  sales               |   | 3.8             |     | 3.7             |   | (0.1                      | )          |
| Other  revenues           |   | 1.0             |     | 1.0             |   | —                    |       |
| **Total**                 |   | **$**           | **28.3** | ** **      | **$**  | **12.9**                  | ** ** | **$** | **(15.4** | **)** |

 

*Steamboat Grand*:  During Fiscal 2003, we realized $3.2 millionin revenues from sales of units, compared to $7.1 during Fiscal 2002.  This decrease of $3.9 million was primarilythe result of the continued disruptions

 

30

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related to our real estate restructuring as well ascontinued economic uncertainty.  As ofthe end of Fiscal 2003, the Steamboat Grand was approximately 54% sold.

 

*The Canyons:*DuringFiscal 2002 and 2003, we realized $8.5 million and $5.0 million, respectively,in ongoing sales of units at The Canyons Grand Summit Hotel.  This decrease also relates to the continueddisruptions related to our real estate restructuring as well as continuedeconomic uncertainty.  As of the end ofFiscal 2003, the Grand Summit Hotel at The Canyons was approximately 77% sold.

 

*Eastern Properties: *Revenues from sales at oureastern properties in Fiscal 2003 were down $7.9 million from Fiscal 2002 asour projects in the east were almost completely sold out as of the end ofFiscal 2002.

 

Ourreal estate segment generated a loss before income taxes of $21.1 million inFiscal 2003, compared to a loss before income taxes of $85.1 million in Fiscal2002.  This $64.0 million decrease inloss before income taxes results from the net effect of the following:

 
| (i)   |   | $15.4 million decrease in revenues;                                    |
|-------|--------|------------------------------------------------------------------------|
| (ii)  |   | $17.9 million decrease in cost of operations;                          |
| (iii) |   | $63.9 million decrease in restructuring and asset  impairment charges; |
| (iv)  |   | $1.8 million increase in real estate interest  expense; and            |
| (v)   |   | $0.6 million increase in real estate depreciation.                     |

 

We incurred restructuring and asset impairment chargesfor Fiscal 2003 and Fiscal 2002 related to our real estate segment.  The $(0.2) million reversal of restructuringand asset impairment charges during Fiscal 2003 was due to an impairment chargethat was subsequently determined not to be needed.

 

The $63.7 million ofrestructuring and asset impairment charges during Fiscal 2002 related to ourreal estate segment is comprised of:

 
| (i)   |   | $38.7 million of impairment charges to record the  estimated fair value of the remaining quarter and eighth share inventory at  Steamboat and The Canyons;            |
|-------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  |   | $24.8 million of impairment charges on master planning  and real estate costs at The Canyons, Killington, Mount Snow, Sugarloaf/USA,  Sunday River and Steamboat; and |
| (iii) |   | $0.2 million of legal, consulting and financing  restructuring costs.                                                                                                 |

 

The $1.8 million increase in real estate interestexpense during Fiscal 2003 when compared to Fiscal 2002 was primarily due tothe increase in the amount of debt outstanding to Fleet and the indebtednessaccruing interest at default rates all year.

 

*Recent Trends:* Sales volumes at our Grand Summit propertiesat Steamboat and The Canyons continue to decrease.  We believe that this is primarily related to the continuingdisruptions related to our real estate restructuring efforts, as well as weakeconomic conditions.

 

**Benefit from income taxes. **The benefit from income taxes****was$0 in Fiscal 2002 and Fiscal 2003.  Webelieve it is more likely than not that we will not realize income tax benefitsfrom operating losses in the foreseeable future.

 

**Cumulative effect of a change inaccounting principle. **DuringFiscal 2002, we adopted SFAS No. 142, “Goodwilland Other Intangible Assets”. SFAS No. 142 applies to goodwill and intangible assts acquired afterJune 30, 2001, as well as goodwill and intangible assets previouslyacquired.  As a result of the adoptionof SFAS No. 142, we recorded an impairment charge of $18.7 million, which wasrecorded as a cumulative effect of a change in accounting principle in theaccompanying Fiscal 2002 consolidated statement of operations.

 

**Accretion of discount and dividendsaccrued on mandatorily redeemable preferred stock. **The dividends on mandatorily redeemablepreferred stock increased $4.8 million, from $32.8 million for Fiscal 2002 to$37.6 million for Fiscal 2003.  Thisincrease is attributable to the compounding effect of accruing dividends on thevalue of the preferred shares.

 

31

----

 

**Fiscal Year Ended July 28, 2002(Fiscal 2002)Versus Fiscal Year Ended July 29, 2001 (Fiscal 2001)**

 

**Resort Operations:**

The components ofresort operations for Fiscal 2001 and Fiscal 2002 are as follows.  Both years reflect the operations ofHeavenly as discontinued operations due to its sale in May 2002.

** **
|                                                      |   |                                                               |   |            |   | **Increase/ (Decrease)** |   |
|-----------------------------------------------------------|--------|--------------------------------------------------------------------|--------|-----------------|--------|--------------------------|--------|
|                                                      |   | **Fiscal 2001**                                                    |   | **Fiscal 2002** |   | **Dollar**               |   | **Percent** |   |
|                                                      |   | **(in millions, except skier visit  and per skier visit amounts)** |   |
| **Revenue category:**                                     |   |                                                               |   |            |   |                     |   |   |   |
| **Lift tickets**                                          |   | $                                                                  | 119.3  |            | $      | 104.4                    |   | $ | (14.9 | ) | -12.5 | % |
| **Food and beverage**                                     |   | 39.7                                                               |   | 35.6            |   | (4.1                     | )      | -10.3 | % |
| **Retail sales**                                          |   | 29.8                                                               |   | 25.1            |   | (4.7                     | )      | -15.8 | % |
| **Lodging and property**                                  |   | 40.8                                                               |   | 37.6            |   | (3.2                     | )      | -7.8 | % |
| **Skier development**                                     |   | 22.4                                                               |   | 20.1            |   | (2.3                     | )      | -10.3 | % |
| **Golf, summer activities and other**                     |   | 23.7                                                               |   | 21.0            |   | (2.7                     | )      | -11.4 | % |
| **Total resort revenues**                                 |   | $                                                                  | 275.7  |            | $      | 243.8                    |   | $ | (31.9 | ) | -11.6 | % |
|                                                      |   |                                                               |   |            |   |                     |   |   |   |
| **Cost of resort operations**                             |   | $                                                                  | 187.7  |            | $      | 167.0                    |   | $ | (20.7 | ) | -11.0 | % |
| **Marketing, general and administrative**                 |   | 49.0                                                               |   | 46.6            |   | (2.4                     | )      | -4.9 | % |
| **Merger, restructuring****and asset impairment charges** |   | 71.3                                                               |   | 47.9            |   | (23.4                    | )      | -32.8 | % |
| **Depreciation and amortization**                         |   | 32.9                                                               |   | 25.1            |   | (7.8                     | )      | -23.7 | % |
| **Write-off of deferred financing costs**                 |   | —                                                             |   | 3.3             |   | 3.3                      |   | N/A |   |
| **Interest expense**                                      |   | 28.7                                                               |   | 36.3            |   | 7.6                      |   | 26.5 | % |
| **Total resort expenses**                                 |   | $                                                                  | 369.6  |            | $      | 326.2                    |   | $ | (43.4 | ) | -11.7 | % |
|                                                      |   |                                                               |   |            |   |                     |   |   |   |
| **Loss from continuing resort operations**                |   | $                                                                  | (93.9  | )               | $      | (82.4                    | )      | $ | 11.5 |   | -12.2 | % |
|                                                      |   |                                                               |   |            |   |                     |   |   |   |
| **Total Skier Visits (000’s)**                       |   | 4,430                                                              |   | 3,756           |   | (674                     | )      | -15.2 | % |
| **Total resort revenue per skier visit**                  |   | $                                                                  | 62.2   |            | $      | 64.9                     |   | $ | 2.7 |   | 4.3 | % |

 

During the 2001-02 skiseason, our eastern resorts experienced reduced snowfall and mild temperatureswhen compared to the prior season.  Inaddition, the events of September 11th and the continued softeningof the resort sector economy further contributed to reduced skier visits fromthe previous year.  Skier visits for oureastern resorts in the 2001-02 ski season decreased 10.8% from approximately2.8 million to 2.5 million.  Theweakening resort sector economy, travel concerns following the events ofSeptember 11th, low early season snow fall and the temporarynegative impact from the 2002 Winter Olympic Games at The Canyons negativelyimpacted demand at our western resorts, which are more heavily reliant ondestination visits.  These negativefactors were partially offset by continued growth of skier visits at TheCanyons in the non-Olympic periods with overall western skier visits being downapproximately 1.3% from the prior year. Over our entire resort network, total skier visits were down 7.7% fromthe 2000-01 ski season, excluding the skier visits from Heavenly and Sugarbush.

 

Revenues for Fiscal 2002were $243.8 million as compared to $275.7 million for Fiscal 2001, a decreaseof $31.9 million, or 11.6%.  Sugarbushwas sold on September 28, 2001 and its results of operations are included inour statements of operations through that date.  Excluding results from Sugarbush, revenues for Fiscal 2002 were$243.1 million as compared to $258.6 million in Fiscal 2001, a decrease of$15.5 million, or 6.0%.  ExcludingSugarbush, revenues from all of our ski-related lines of business were downbetween 5.1% and 10.4% over the prior year, with the exception of lodgingrevenues which were down 2.6%.  Thesedecreases resulted from a 7.7% decrease in skier visits offset by a 1.9%increase in revenue per skier visit. Lodging revenues did not decrease as significantly as we have continuedto strengthen our non-ski season conference business and because of the furthermaturing of the Steamboat Grand and the two hotels at The Canyons.

 

Ourresort segment produced a $82.4 million operating loss in Fiscal 2002, comparedto a $93.9 million operating loss in Fiscal 2001.  This $11.5 million decrease in the operating loss resultedprimarily from the following:

 
| (i)  |   | $15.5 million decrease  in resort revenues resulting from decreased skier visits; |
|------|--------|-----------------------------------------------------------------------------------|
| (ii) |   | $8.9 million decrease  in resort operating expenses;                              |

 

32

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| (iii) |   | $0.3 million decrease  in marketing, general and administrative expenses;                                                 |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------|
| (iv)  |   | $20.1 million decrease  in merger, restructuring and asset impairment charges and write-off of  deferred financing costs; |
| (v)   |   | $5.9 million decrease  in depreciation:                                                                                   |
| (vi)  |   | $7.6 million increase  in interest expense; and                                                                           |
| (vii) |   | $0.6 million decrease  in operating income from Sugarbush, which was sold  in September 2001.                        |

 

We incurred merger,restructuring and asset impairment charges for Fiscal 2002 and Fiscal 2001related to our resort operations.  The$47.9 million of merger, restructuring and asset impairment charges for Fiscal2002 includes:

 
| (i)   |   | $25.4 million  impairment charge to record the estimated fair value of net assets held for  sale at Steamboat, recorded in the second quarter of Fiscal 2002; |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  |   | $18.9 million  impairment charge on land and the land options at The Canyons;                                                                                 |
| (iii) |   | $1.4 million impairment  charge on certain corporate and Sunday River fixed assets and an option to  purchase undeveloped land at Sunday River;               |
| (iv)  |   | $2.5 million of legal,  consulting and financing costs incurred in connection with capital and debt  restructuring; and                                       |
| (v)   |   | $(0.3) million of gain  to finalize the sale of the Sugarbush resort.                                                                                         |

 

The $71.3 million ofmerger, restructuring and asset impairment charges for Fiscal 2001 related toour resort operations includes:

 
| (i)   |   | $50.0 million  impairment charge to record the estimated fair value of net assets held for  sale at Steamboat, recorded in the fourth quarter of Fiscal 2001; |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  |   | $14.0 million  impairment of assets held for sale at Sugarbush resulting from the agreement  to sell Sugarbush to Summit Ventures, Inc.;                      |
| (iii) |   | $3.6 million of  expenses incurred in connection with the terminated merger with Meristar  Hotels and Resorts; and                                            |
| (iv)  |   | $3.7 million in  employee severance and restructuring charges.                                                                                                |

 

**Real Estate Operations:**

Thecomponents of real estate operations are as follows:

 
|                                                      |   |              |   |            |   | **Increase/ (Decrease)** |   |
|-----------------------------------------------------------|--------|-------------------|--------|-----------------|--------|--------------------------|--------|
|                                                      |   | **Fiscal 2001**   |   | **Fiscal 2002** |   | **Dollar**               |   | **Percent** |   |
|                                                      |   | **(in millions)** |   |
|                                                      |   |              |   |            |   |                     |   |   |   |
| **Total real estate revenues**                            |   | $                 | 96.9   |            | $      | 28.3                     |   | $ | (68.6 | ) | -70.8 | % |
|                                                      |   |              |   |            |   |                     |   |   |   |
| **Cost of real estate operations**                        |   | 93.5              |   | 30.1            |   | (63.4                    | )      | -67.8 | % |
| **Merger, restructuring and asset****impairment charges** |   | 4.7               |   | 63.7            |   | 59.0                     |   | 1,255.3 | % |
| **Depreciation and amortization**                         |   | 2.0               |   | 1.1             |   | (0.9                     | )      | -45.0 | % |
| **Interest expense**                                      |   | 27.8              |   | 18.5            |   | (9.3                     | )      | -33.5 | % |
| **Total real estate expenses**                            |   | 128.0             |   | 113.4           |   | (14.6                    | )      | -11.4 | % |
|                                                      |   |              |   |            |   |                     |   |   |   |
| **Loss from real estate operations**                      |   | $                 | (31.1  | )               | $      | (85.1                    | )      | $ | (54.0 | ) | 173.6 | % |

 

Realestate revenues decreased by $68.6 million in Fiscal 2002 compared to Fiscal2001, from $96.9 million to $28.3 million. Real estate revenues by project (in millions) are as follows:

 

33

----

 

 
|                      |   | **Fiscal 2001** |     | **Fiscal 2002** |   | **Increase/  (Decrease)** |       |
|---------------------------|--------|-----------------|----------|-----------------|--------|---------------------------|------------|
| Steamboat Grand           |   | $               | 37.5     |            | $      | 7.1                       |       | $ | (30.4 | ) |
| The  Canyons Grand Summit |   | 21.7            |     | 8.5             |   | (13.2                     | )          |
| Sundial  Lodge            |   | 1.7             |     | —          |   | (1.7                      | )          |
| Eastern  properties       |   | 12.5            |     | 7.9             |   | (4.6                      | )          |
| Land  sales               |   | 22.2            |     | 3.8             |   | (18.4                     | )          |
| Other  revenues           |   | 1.3             |     | 1.0             |   | (0.3                      | )          |
| **Total**                 |   | **$**           | **96.9** | ** **      | **$**  | **28.3**                  | ** ** | **$** | **(68.6** | **)** |

 

*Steamboat Grand*:  During Fiscal 2001, we began closing on thesale of quartershare units in the new Steamboat Grand, adjacent to Steamboat inColorado.  We realized $37.5 million inrevenues from closings of units for Fiscal 2001, much of which was the resultof pre-sale activities during the construction and development period.  During the fourth quarter of Fiscal 2001,disputes with the general contractor resulted in mechanics liens being placedon the Steamboat Grand, which caused a temporary halt in unit closingsbeginning in early May 2001.  We wereable to negotiate a settlement with the general contractor that becameeffective in Fiscal 2002.  During Fiscal2002, we resumed selling the quartershare units and realized $7.1 million inrevenues from closings of units.  As ofthe end of Fiscal 2002, the Steamboat Grand was approximately 50% sold.

 

*The Canyons: *Both the Sundial Lodge andthe Grand Summit Hotel at The Canyons in Park City, Utah were completed duringFiscal 2000.  During Fiscal 2001 and2002, we realized $21.7 million and $8.5 million, respectively, in ongoingsales of quartershare units at The Canyons Grand Summit Hotel, and $1.7 millionand none, respectively, from remaining units at the Sundial Lodge.  These decreases relate to the resort sectoreconomic downturn during Fiscal 2002, the events of September 11thand the stage of completion of these facilities.  As of the end of Fiscal 2002, the Sundial Lodge was 100% sold andthe Grand Summit Hotel at The Canyons was approximately 74% sold.

 

*Eastern Properties: *Revenues from sales at oureastern properties in Fiscal 2002 were down $4.6 million from Fiscal 2001 asour projects at Killington and Sunday River were nearly completely sold as ofthe end of Fiscal 2001.  As of July 28,2002, only one non-standard unit was remaining at the Jordan Grand, with thatunit being sold in September 2002.  TheMount Snow, Attitash Bear Peak and Killington Grand Summit Hotels were alsocompletely sold as of July 28, 2002 with $7.9 million in revenue being realizedfrom Eastern unit sales in Fiscal 2002.

 

*Land Sales:*DuringFiscal 2002, land sales decreased by $18.4 million due to the depressed marketfor development land.  During Fiscal2002, land sales were limited to the sale of the Heavenly base parcel inconjunction with the sale of the resort for $2.4 million, land at theSugarloaf/USA resort for $1.0 million and various smaller sales.

 

DuringFiscal 2001, we realized revenue from the sale of three separate developmentparcels, as follows:

 
| (i)   |   | In August 2000, we sold our option rights to certain  real estate in the South Lake Tahoe Redevelopment District to Marriott  Ownership Resorts, Inc. for $8.5 million;                                                                                                                                                                                                                                                                                                                                           |
|-------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  |   | In May 2001 we sold our 85% ownership interest in  Heavenly Resort Properties, LLC, the entity that controls the development  rights for the Heavenly Grand Summit quartershare hotel adjacent to our  Heavenly resort in South Lake Tahoe, CA, to Marriott Vacation Club International  for $11.2 million (excluding future participation revenues we anticipate  receiving in Fiscal 2003).  Marriott  has commenced construction on this hotel and expects it to open during the  2002-03 ski season; and |
| (iii) |   | In July 2001, we sold a development parcel at  Central Park Plaza in the vicinity of our Steamboat ski resort for $2.5  million.                                                                                                                                                                                                                                                                                                                                                                                  |

 

Ourreal estate segment generated a loss before income taxes of $85.1 million inFiscal 2002, compared to a loss before income taxes of $31.1 million in Fiscal2001.  This $54.0 million increase inloss before income taxes results from the net effect of the following:

 

34

----

 
| (i)   |   | $68.6 million decrease in real estate revenues;                        |
|-------|--------|------------------------------------------------------------------------|
| (ii)  |   | $63.4 million decrease in cost of real estate  operations;             |
| (iii) |   | $59.0 million increase in restructuring and asset  impairment charges; |
| (iv)  |   | $9.3 million decrease in real estate interest  expense; and            |
| (v)   |   | $0.9 million decrease in real estate depreciation.                     |

 

We incurred restructuringand asset impairment charges for Fiscal 2002 and Fiscal 2001 related to ourreal estate segment.  The $63.7 millionof restructuring and asset impairment charges during Fiscal 2002 related to ourreal estate segment is comprised of:

 
| (i)   |   | $38.7 million impairment charge to record the  estimated fair value of the remaining quartershare inventory at Steamboat and  The Canyons;                     |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  |   | $24.8 million impairment charges on master planning  and real estate costs at The Canyons, Killington, Mount Snow, Sugarloaf/USA,  Sunday River and Steamboat; |
| (iii) |   | $0.2 million of legal, consulting and financing  restructuring costs.                                                                                          |

 

The $4.7 million of restructuring and asset impairmentcharges during Fiscal 2001 related to our real estate segment is comprised of:

 
| (i)   |   | $2.0 million of asset impairment charges related to  undeveloped land at Steamboat ;                                                                                    |
|-------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  |   | $1.3 million impairment charge related to the  remaining units at the Attitash Grand Summit Hotel project;                                                              |
| (iii) |   | $1.1 million write-off of remaining capitalized  costs in connection with development of a Grand Summit Hotel at Sugarbush as  a result of the sale of that resort; and |
| (iv)  |   | $0.3 million in restructuring charges.                                                                                                                                  |

 

The$9.3 million decrease in real estate interest expense was primarily due to areduction in the amount of debt outstanding during Fiscal 2002 when compared toFiscal 2001.  Also, during Fiscal 2001,we capitalized $2.1 million of interest costs related to the final stages ofconstruction at the Steamboat Grand compared to capitalizing $0 in Fiscal 2002.

 

**Benefit from income taxes. **The benefit from incometaxes****was$0 in Fiscal 2001 and Fiscal 2002.  Webelieve it is more likely than not that we will not realize income tax benefitsfrom operating losses in the foreseeable future.

 

**Cumulative effect of a change inaccounting principle. **DuringFiscal 2002, we adopted SFAS No. 142, “Goodwilland Other Intangible Assets”. SFAS No. 142 applies to goodwill and intangible assets acquired afterJune 30, 2001, as well as goodwill and intangible assets previously acquired.  As a result of the adoption of SFAS No. 142,we recorded an impairment charge of $18.7 million, which has been recorded as acumulative effect of a change in accounting principle in the accompanyingFiscal 2002 consolidated statement of operations.

 

The cumulativeeffect of a change in accounting principle of $2.5 million (net of $1.5 milliontax provision) in Fiscal 2001 resulted from recording the fair value ofnon-hedging derivatives in the accompanying balance sheet in connection withour initial adoption of SFAS No. 133, “Accounting for Derivative Instrumentsand Hedging Activities”, SFAS No. 137, “Accounting for Derivative Instrumentsand Hedging Activities – Deferral of the Effective Date of FASB Statement No.133 – an Amendment of FASB Statement No. 133”, and SFAS No. 138, “Accountingfor Certain Derivative Instruments and Certain Hedging Activities – anAmendment of FASB Statement No. 133” (collectively, SFAS No. 133 as amended).

 

**Accretion of discount and dividendsaccrued on mandatorily redeemable preferred stock. **The dividends on mandatorily redeemablepreferred stock increased $9.4 million, from $23.4 million for Fiscal 2001 to$32.8 million for Fiscal 2002.  Thisincrease is primarily attributable to the recapitalization that occurred duringAugust 2001.  The compounding effect ofaccruing dividends on the value of the preferred shares contributed to theincrease.  On August 31, 2001, theSeries B Preferred Stock was stripped of all of its rights and preferences withthe exception of the right to elect up to six directors in exchange for, amongother things, two new series of Preferred Stock:  (i) $40 million face value of Series C-1 Preferred Stock,accruing dividends at the rate of 12% per annum; and (ii) $139.5 million facevalue of Series C-2 Preferred Stock accruing dividends at the rate of 15% perannum.

 

35

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# **RecentlyIssued Accounting Standards**

 

In November 2002,the FASB issued FASB Interpretations (FIN) No. 45, “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others - an Interpretation of FASB Statements No. 5, 57, and107 and Rescission of FASB Interpretation No. 34”.  This Interpretation elaborates on the disclosures to be made by aguarantor in its interim and annual financial statements about its obligationsunder certain guarantees that it has issued. It also clarifies that a guarantoris required to recognize, at the inception of a guarantee, a liability for thefair value of the obligation undertaken in issuing the guarantee.  The initial recognition and initialmeasurement provisions of FIN No. 45 are to be applied on a prospective basisto guarantees issued or modified after December 31, 2002.  The disclosure requirements of FIN No. 45are effective for financial statements of interim or annual periods endingafter December 15, 2002.  We adopted FINNo. 45 effective for the interim period ended January 26, 2003.  The adoption of FIN No. 45 did not have aneffect on our results of operations or financial position.

 

In January 2003,the FASB issued FASB Interpretations (FIN) No. 46, “Consolidation of VariableInterest Entities - an Interpretation of ARB No. 51”.  This Interpretation addresses consolidation and reporting bybusiness enterprises of variable interest entities.  All enterprises with variable interests in variable interestentities created after January 31, 2003, shall apply the provisions of thisInterpretation to those entities immediately. A public entity with a variableinterest in a variable interest entity created before February 1, 2003, shallapply the provisions of this Interpretation to that entity no later than thebeginning of the first interim or annual reporting period beginning after December13, 2003.  We adopted FIN No. 46effective January 27, 2003.  Theadoption of FIN No. 46 did not have an effect on our results of operations orfinancial position.

 

In May 2003, theFASB issued Statement of Financial Accounting Standards No. 150, “Accountingfor Certain Financial Instruments with Characteristics of Both Liabilities andEquity” (SFAS No. 150).  SFAS No. 150establishes standards for how financial instruments with characteristics ofboth liabilities and equity should be measured and classified and requires thatan issuer classify a financial instrument that is within its scope as aliability.  SFAS No. 150 is effectivefor financial instruments entered into or modified after May 31, 2003, andotherwise is effective at the beginning of the first interim period beginningafter June 15, 2003.  We adopted SFASNo. 150 effective July 28, 2003.  As aresult of adopting SFAS No. 150, approximately $298.7 million will be reclassifiedto liabilities in the consolidated balance sheet in the first quarter of Fiscal2004.  This represents the book value ofall of the classes of preferred stock. In addition, approximately $43.1 million of accretion of discount anddividends on the preferred stock in Fiscal 2004 will be included in interestexpense, whereas previously it was reported as accretion of discount anddividends on mandatorily redeemable preferred stock.

 

**Item7A****Quantitative and Qualitative Disclosures about Market Risk**

 

Our financialinstruments do not subject us to material market risk exposures, except forrisks related to interest rate fluctuations. As of July 27, 2003, we had $126.3 million in floating interest ratelong-term debt outstanding, including current portion.  As of July 27, 2003, we did not have anyinterest rate swap agreements in place which swapped variable interest rateborrowings to fixed interest rate borrowings.

 

The followingsensitivity analysis presents the proforma impact on Fiscal 2003 annualinterest expense resulting from a hypothetical 100 basis point increase in theU.S. Prime lending rate on each of our floating interest rate debt instruments(in thousands).

 

36

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| **Variable Rate Debt (principal only)**  |   | **Balance  Outstanding  as of  July 27, 2003** |    | **Average  Balance  Outstanding  in FY 2003** |   | **Hypothetical  Change in  Rate Index** |   | **Effect on  Interest  Expense** |   |
|------------------------------------------|--------|------------------------------------------------|---------|-----------------------------------------------|--------|-----------------------------------------|--------|----------------------------------|--------|
|                                     |   |                                           |    |                                          |   |                                    |   |                             |   |
| **Resort Senior Credit Facility**        |   | $                                              | 77,779  |                                          | $      | 58,508                                  |   | 1.0                              | %      | $ | 585 |   |
| **Real Estate Term Facility, Tranche A** |   | 16,800                                         |    | 16,800                                        |   | 1.0                                     | %      | 168                              |   |
| **Resort Properties Textron facility**   |   | 31,718                                         |    | 33,631                                        |   | 1.0                                     | %      | 336                              |   |
| **Total variable rate debt**             |   | $                                              | 126,297 |                                          | $      | 108,939                                 |   | 1.0                              | %      | $ | 1,089 |   |

 

We believe thatthe hypothetical effects of a 100-basis point increase in the floating interestrates associated with our debt instruments would not be significant to ourresults of operations and cash flows. The balance outstanding as of July 27, 2003 for Real Estate TermFacility Tranche A does not include approximately $2.7 million of accrued andunpaid interest.

 

37

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**Item8**

**Financial Statements andSupplementary Data**

 

**Selected Quarterly Operating Results**

 

The followingtable presents certain unaudited quarterly financial information for the eightquarters ended July 27, 2003.  In theopinion of our management, this information has been prepared on the same basisas the annual consolidated financial statements (See Item 17 – Exhibits,Financial Statement Schedules and Reports on Form 8-K) appearing elsewhere inthis Form 10-K and includes all adjustments (consisting only of normalrecurring adjustments) necessary to present fairly the financial results setforth herein.  Results of operations forany quarters are not necessarily indicative of results that may be achieved forany future period.  Fiscal 2002information includes the restatement of Heavenly to discontinued operations aspreviously reported in the Form 10-K for the fiscal year ended July 28, 2002(amounts in thousands, except per share amounts):

 

|                                                                                                             |   | **First****Quarter** |   | **Second****Quarter** |   | **Third****Quarter** |   | **Fourth****Quarter** |    |
|------------------------------------------------------------------------------------------------------------------|--------|----------------------|--------|-----------------------|--------|----------------------|--------|-----------------------|---------|
|                                                                                                             |   |                 |   |                  |   |                 |   |                  |    |
| **Fiscal 2003:**                                                                                                 |   |                 |   |                  |   |                 |   |                  |    |
| **Net revenues**                                                                                                 |   | $                    | 20,625 |                  | $      | 100,286              |   | $                     | 127,743 |   | $ | 15,882 |   |
| **Income (loss) from operations**                                                                                |   | (17,900              | )      | 4,593                 |   | 34,362               |   | (18,065               | )       |
| **Income (loss) before cumulative effect of change in****accounting principle**                                  |   | (30,174              | )      | (7,449                | )      | 22,538               |   | (29,289               | )       |
| **Net income (loss) available to common shareholders**                                                           |   | (39,105              | )      | (16,692               | )      | 12,971               |   | (39,192               | )       |
|                                                                                                             |   |                 |   |                  |   |                 |   |                  |    |
| **Basic income (loss) per share:**                                                                               |   |                 |   |                  |   |                 |   |                  |    |
| **Net income (loss) available to common shareholders**                                                           |   | $                    | (1.23  | )                     | $      | (0.53                | )      | $                     | 0.41    |   | $ | (1.24 | ) |
| **Weighted average common shares outstanding**                                                                   |   | 31,724               |   | 31,724                |   | 31,724               |   | 31,725                |    |
|                                                                                                             |   |                 |   |                  |   |                 |   |                  |    |
| **Diluted income (loss) per share:**                                                                             |   |                 |   |                  |   |                 |   |                  |    |
| **Net income (loss) available to common shareholders**                                                           |   | $                    | (1.23  | )                     | $      | (0.53                | )      | $                     | 0.18    |   | $ | (1.24 | ) |
| **Weighted average common shares outstanding**                                                                   |   | 31,724               |   | 31,724                |   | 73,213               |   | 31,725                |    |
|                                                                                                             |   |                 |   |                  |   |                 |   |                  |    |
| **Fiscal 2002:**                                                                                                 |   |                 |   |                  |   |                 |   |                  |    |
| **Net revenues**                                                                                                 |   | $                    | 20,113 |                  | $      | 100,066              |   | $                     | 131,641 |   | $ | 20,296 |   |
| **Income (loss) from operations**                                                                                |   | (21,344              | )      | (23,692               | )      | 36,848               |   | (104,638              | )       |
| **Income (loss) before cumulative effect of change in****accounting principle**                                  |   | (39,205              | )      | (35,433               | )      | 34,485               |   | (115,108              | )       |
| **Income (loss) from discontinued operations**                                                                   |   | (2,727               | )      | 2,523                 |   | 9,853                |   | 2,668                 |    |
| **Net income (loss) available to common shareholders**                                                           |   | (65,549              | )      | (43,699               | )      | 26,180               |   | (123,642              | )       |
|                                                                                                             |   |                 |   |                  |   |                 |   |                  |    |
| **Basic income (loss) per share:**                                                                               |   |                 |   |                  |   |                 |   |                  |    |
| **Net income (loss) available to common shareholders**                                                           |   | $                    | (2.09  | )                     | $      | (1.38                | )      | $                     | 0.82    |   | $ | (3.90 | ) |
| **Income (loss) available to common shareholders before cumulative  effect of changes in accounting principles** |   | $                    | (1.49  | )                     | $      | (1.38                | )      | $                     | 0.82    |   | $ | (3.90 | ) |
| **Weighted average common shares outstanding**                                                                   |   | 31,344               |   | 31,718                |   | 31,718               |   | 31,719                |    |
|                                                                                                             |   |                 |   |                  |   |                 |   |                  |    |
| **Diluted income (loss) per share:**                                                                             |   |                 |   |                  |   |                 |   |                  |    |
| **Net income (loss) available to common shareholders**                                                           |   | $                    | (2.09  | )                     | $      | (1.38                | )      | $                     | 0.39    |   | $ | (3.90 | ) |
| **Income (loss) available to common shareholders before  cumulative effect of changes in accounting principles** |   | $                    | (1.49  | )                     | $      | (1.38                | )      | $                     | 0.39    |   | $ | (3.90 | ) |
| **Weighted average common shares outstanding**                                                                   |   | 31,344               |   | 31,718                |   | 65,347               |   | 31,719                |    |

 

38

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**Item9**

**Changes in and Disagreements withAccountants on Accounting 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 Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)).  Based on that evaluation, these officershave concluded that as of the end of the period covered by this report, ourdisclosure controls and procedures were adequate and effective to ensure thatmaterial information relating to the Company would be made to known to them,particularly during the period in which this report was being prepared.

 

(b)                              Changesin internal controls.  No changeoccurred in the Company’s internal controls concerning financial reportingduring the quarter ended July 27, 2003 that has materially affected, or isreasonably likely to materially affect, the Company’s internal controls overfinancial reporting.

 

It should be notedthat any system of controls, however well designed and operated, can provideonly reasonable, and not absolute, assurance that the objectives of the systemwill be met.  In addition, the design ofany control system is based in part upon certain assumptions about thelikelihood of future events.  Because ofthese and other inherent limitations of control systems, there is onlyreasonable assurance that our controls will succeed in achieving their statedgoals under all potential future conditions.

 

**PARTIII**

 

Pursuant toGeneral Instruction G of Form 10-K, the information contained in Part III ofthis report (Items 10, 11, 12, 13, 15 and 16) is incorporated by reference fromour Definitive Proxy Statement, which is expected to be filed with theSecurities and Exchange Commission on or before November 25, 2003.  Item 14 is not applicable for Fiscal 2003.

 

39

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**PARTIV**

 

**Item17**

**Exhibits, Financial StatementSchedules and Reports on Form 8-K**

 

 
| (a)    | Documents filed as part  of this report: |                                                                                                                                                                                              |   |
|--------|------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                     |                                                                                                                                                                                              |   |   |
| 1.     |                                     | Index to financial  statements,  financial statement  schedules,  and supplementary data, filed as part of this report:                                                                      |
|   |                                     |                                                                                                                                                                                              |   |   |
|   |                                     | Independent Auditors’  Report                                                                                                                                                                |   |   |
|   |                                     |                                                                                                                                                                                              |   |   |
|   |                                     | Consolidated Balance Sheets                                                                                                                                                                       |   |   |
|   |                                     |                                                                                                                                                                                              |   |   |
|   |                                     | Consolidated  Statements of Operations                                                                                                                                                            |   |   |
|   |                                     |                                                                                                                                                                                              |   |   |
|   |                                     | Consolidated  Statements of Shareholders’ Equity (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).                                           |

 

40

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| 4.2    |   | Indenture relating to  10 1/2% Repriced Convertible Subordinated Debentures (incorporated by  reference to Exhibit 4.3 to the Company’s Registration Statement on  Form S-1, Registration No. 333-33483).                                                                                                               |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.3    |   | 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).                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.4    |   | 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).                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.5    |   | 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).                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.6    |   | 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).                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.7    |   | 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).                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.8    |   | 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).                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.9    |   | Indenture dated as of  June 28, 1996 among ASC East, certain of its subsidiaries and United States  Trust Company of New York, relating to Series A and Series B 12% Senior  Subordinated Notes Due 2006 (incorporated by reference to Exhibit 4.1 to ASC  East’s Registration Statement on Form S-4, Registration No. 333-9763). |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.10   |   | First Supplemental Indenture  dated as of November 12, 1997 among ASC East, Inc., its subsidiaries party  thereto, and United States Trust Company of New York as Trustee (incorporated  by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q  for the quarter ended October 25, 1998).                    |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.11   |   | Second Supplemental  Indenture dated as of September 4, 1998 among ASC East, Inc., its  subsidiaries party thereto, and United States Trust Company of New York as  Trustee (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K  for the Report date of October 6, 1999).                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.12   |   | Third Supplemental  Indenture dated as of August 6, 1999 among ASC East, Inc., its subsidiaries  party thereto, and United States Trust Company of New York as Trustee  (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K for the  report date of October 6, 1999).                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.13   |   | Fourth Supplemental  Indenture dated as of October 6, 1999 among ASC East, Inc., its subsidiaries  party thereto, and United States Trust Company of New York as Trustee  (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K for the  report date of October 6, 1999).                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.14   |   | Fifth Supplemental  Indenture dated as of April 19, 2002 among the Company, its subsidiaries  party thereto, and The Bank of New York as Trustee (incorporated by reference  to Exhibit 99.2 to the Company’s Form 8-K for the report date of April 23,  2002).                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.15   |   | Acknowledgement of The  Bank of New York as Trustee dated May 9, 2002 releasing Heavenly Valley,  Limited Partnership from its guaranty under the Indenture dated as of June  28, 1996.                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 4.27   |   | Second Amended and  Restated Credit Agreement dated July 31, 2000 among American Skiing Company  Resort Properties, Inc., Fleet National Bank, as Agent, and the other Lenders  party thereto (incorporated by reference to Exhibit 10.1 to the Company’s  Form 8-K for the report date August 2, 2000).                          |

 

41

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| 4.28   |   | First Amendment to  Second Amended and Restated Credit Agreement among American Skiing Company  Resort Properties, Inc. and Fleet National Bank, as agent for the Lenders  dated August 20, 2001 (incorporated by reference to Exhibit 10.12 to the  Company’s Form 10-K for the report date November 14, 2001).                                           |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.30   |   | 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).                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.31   |   | 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).         |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.32   |   | 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). |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.33   |   | 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).                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.34   |   | 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).                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.35   |   | 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).                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.36   |   | 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).                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.37   |   | 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).                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.38   |   | 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).                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.39   |   | 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).                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.40   |   | $91,500,000 Credit  Agreement dates as of February 14, 2003 among American Skiing Company,  certain of its subsidiaries as borrowers, the lenders from time to time party  thereto, and General Electric Capital Corporation, as Agent (incorporated by  reference to Exhibit 4.1 to the Company’s Form 8-K for the report date of  February 14, 2003).    |

 

42

----

 
| 10.1   |   | 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).                                                                                                                    |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.2   |   | 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). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.3   |   | 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).                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.4   |   | 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).                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.5   |   | 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).                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.6   |   | 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).                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.7   |   | 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).                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.8   |   | 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).                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.9   |   | Purchase Agreement  dated as of April 13, 1994, among Mt.   Attitash Lift Corporation, certain of its shareholders and L.B.O.  Holding, Inc. (incorporated by reference to Exhibit 10.35 to ASC East’s  Registration Statement on Form S-4, Registration No. 333-9763).                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.10  |   | Stock Purchase  Agreement dated August 17, 1994, between Sugarloaf Mountain Corporation and  S-K-I Ltd. (incorporated by reference to Exhibit 10.36 to ASC East’s  Registration Statement on Form S-4, Registration No. 333-9763).                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.11  |   | Purchase and Sale  Agreement dated as of August 30, 1996, among Waterville Valley Ski Area,  Ltd., Cranmore, Inc., ASC East and Booth Creek Ski Acquisition Corp.  (incorporated by reference to Exhibit 10.61 to ASC East’s Registration  Statement on Form S-4, Registration No. 333-9763).                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.12  |   | 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).      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.13  |   | Purchase and Sale  Agreement dated July 3, 1997, between Wolf Mountain Resorts, L.C., and ASC  Utah (incorporated by reference to Exhibit 10.74 to the Company’s  Registration Statement on Form S-1, Registration No. 333-33483).                                                                                                                                           |

 

43

----

 
| 10.14  |   | 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).                                                                                                                                                                   |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.17  |   | 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). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.18  |   | 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).                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.19  |   | $2,750,000 Subordinated  Promissory Note dated November 1996 by Booth Creek Ski Acquisition Corp.,  Waterville Valley Ski Resort, Inc. and Mount Cranmore Ski Resort, Inc., to  ASC East (incorporated by reference to Exhibit 10.72 to the Company’s  Registration Statement on Form S-1, Registration No. 333-33483).                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.20  |   | 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).                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.21  |   | 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).    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.22  |   | 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).                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.23  |   | Lease/Option dated  October 12, 2003, between John Blake and L.B.O. Holding, Inc.                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.24  |   | 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).                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.25  |   | Lease Agreement dated  as of June 21, 1994, between the Town of Wilmington, Vermont and Mount Snow,  Ltd. (incorporated by reference to Exhibit 10.46 to ASC East’s Registration  Statement on Form S-4, Registration No. 333-9763).                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.27  |   | 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).                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.28  |   | 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).                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.29  |   | 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).                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.30  |   | Stock Option Plan  (incorporated by reference to Exhibit 10.89 to the Company’s Registration  Statement on Form S-1, Registration No. 333-33483).                                                                                                                                                                                                                                                             |

 

44

----

 
| 10.31  |   | 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).                                                             |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                        |
| 10.32  |   | 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).                                                                           |
|   |   |                                                                                                                                                                                                                                                                        |
| 10.33  |   | 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).                                                                                               |
|   |   |                                                                                                                                                                                                                                                                        |
| 10.35  |   | Employment Agreement  between the Registrant and William J. Fair dated May 17, 2000 (incorporated  by reference to Exhibit 10.46 to the Company’s annual report for Fiscal Year  ended July 30, 2000).                                                                 |
|   |   |                                                                                                                                                                                                                                                                        |
| 10.36  |   | Executive Employment  Agreement between the Registrant and Foster A. Stewart, Jr. dated as of July  31, 2001 (incorporated by reference to Exhibit 10.36 to the Company’s Form  10-K for the year ended July 28, 2002).                                                |
|   |   |                                                                                                                                                                                                                                                                        |
| 10.37  |   | 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).                                                   |
|   |   |                                                                                                                                                                                                                                                                        |
| 10.38  |   | Employment Letter  between the Registrant and Franklin Carey dated July 21, 2003.                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                        |
| 10.39  |   | 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).                                                                           |
|   |   |                                                                                                                                                                                                                                                                        |
| 10.40  |   | 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). |
|   |   |                                                                                                                                                                                                                                                                        |
| 10.41  |   | 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).                                                                                  |
|   |   |                                                                                                                                                                                                                                                                        |
| 10.42  |   | 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).                                                                                  |
|   |   |                                                                                                                                                                                                                                                                        |
| 10.43  |   | 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).                                                                                  |
|   |   |                                                                                                                                                                                                                                                                        |
| 22.1   |   | Subsidiaries of the  Company.                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                        |
| 23.2   |   | Consent of KPMG LLP                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                        |
| 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.                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                        |
| (b)    |   | Reports filed on Form  8-K.                                                                                                                                                                                                                                                 |

 
| The Company filed a  report on Form 8-K on June 13, 2003 announcing its results for the 13 and 39  weeks ended April 27, 2003. |
|--------------------------------------------------------------------------------------------------------------------------------|

 

45

----

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, as amended, the registranthas duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|                         | American Skiing Company                |
|------------------------------|----------------------------------------|
| Date:  October 27, 2003 |                                   |   |
|                         |                                   |   |
|                         | By:                                    | /s/ William J. Fair |   |
|                         | William J. Fair                        |
|                         | President and Chief  Executive Officer |
|                         | (Principal Executive  Officer)         |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities indicated this 27th day of October, 2003.

 
|   | 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                 |
|        |                                        |                       |        |  |  |  |

 

46

----

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

 

47

----

 

**Independent Auditors’ Report**

 

Tothe Board of Directors and Shareholders of

AmericanSkiing Company:

 

Wehave audited the accompanying consolidated balance sheets of American SkiingCompany and subsidiaries as of July 27, 2003 and July 28, 2002 and the relatedconsolidated statements of operations, shareholders’ equity (deficit) and cashflows for each of the years in the three-year period ended July 27, 2003.  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 auditing standards generally acceptedin the United States of America.  Thosestandards require that we plan and perform the audit to obtain reasonableassurance 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 ouraudits provide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated financial position ofAmerican Skiing Company and subsidiaries as of July 27, 2003 and July 28, 2002and the results of their operations and their cash flows for each of the yearsin the three-year period ended July 27, 2003 in conformity with accountingprinciples generally accepted in the United States of America.

 

Asdiscussed in Note 3 to the consolidated financial statements, the Companyadopted Statement of Financial Accounting Standards No. 142, “Goodwill andOther Intangible Assets, in the fiscal year ended July 28, 2002 and as a resultchanged its method for accounting for goodwill and intangible assets.

 

 

//KPMGLLP//

 

Salt Lake City, Utah

October 6, 2003

 

F-1

----

 

AmericanSkiing Company

Consolidated BalanceSheets

(inthousands, except share and per share amounts)

 
|                                                                                                                                                                                                                                                                     |   | **July 28, 2002** |    | **July 27, 2003** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|-------------------|--------|
| Assets                                                                                                                                                                                                                                                                   |   |              |    |              |   |
| Current assets                                                                                                                                                                                                                                                           |   |              |    |              |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                |   | $                 | 6,924   |              | $      | 6,596 |   |
| Restricted cash                                                                                                                                                                                                                                                          |   | 2,925             |    | 3,829             |   |
| Accounts receivable, net of allowance for doubtful  accounts of  $1,226 and $1,161,  respectively                                                                                                                                                                        |   | 9,818             |    | 5,862             |   |
| Inventory                                                                                                                                                                                                                                                                |   | 4,057             |    | 3,653             |   |
| Prepaid expenses                                                                                                                                                                                                                                                         |   | 4,264             |    | 3,326             |   |
| Deferred income taxes                                                                                                                                                                                                                                                    |   | 6,167             |    | 7,300             |   |
| Other current assets                                                                                                                                                                                                                                                     |   | —            |    | 978               |   |
| Total current assets                                                                                                                                                                                                                                                     |   | 34,155            |    | 31,544            |   |
|                                                                                                                                                                                                                                                                     |   |              |    |              |   |
| Property and equipment, net                                                                                                                                                                                                                                    |   | 397,991           |    | 372,926           |   |
| Real estate developed for sale                                                                                                                                                                                                                                           |   | 50,878            |    | 48,234            |   |
| Intangible assets, net                                                                                                                                                                                                                                                   |   | 7,115             |    | 7,058             |   |
| Deferred financing costs, net                                                                                                                                                                                                                                            |   | 8,561             |    | 6,705             |   |
| Other assets                                                                                                                                                                                                                                                             |   | 23,293            |    | 8,838             |   |
| Total assets                                                                                                                                                                                                                                                             |   | $                 | 521,993 |              | $      | 475,305 |   |
|                                                                                                                                                                                                                                                                     |   |              |    |              |   |
| Liabilities, Mandatorily Redeemable Preferred Stock  and Shareholders’ Equity (Deficit)                                                                                                                                                                             |   |              |    |              |   |
| Current liabilities                                                                                                                                                                                                                                                      |   |              |    |              |   |
| Current portion of long-term debt (Note 5)                                                                                                                                                                                                                               |   | $                 | 103,495 |              | $      | 138,610 |   |
| Current portion of subordinated notes and debentures  (Note 8)                                                                                                                                                                                                           |   | 1,074             |    | 1,466             |   |
| Accounts payable and other current liabilities                                                                                                                                                                                                                           |   | 52,182            |    | 53,058            |   |
| Deposits and deferred revenue                                                                                                                                                                                                                                            |   | 8,533             |    | 9,723             |   |
| Total current liabilities                                                                                                                                                                                                                                                |   | 165,284           |    | 202,857           |   |
|                                                                                                                                                                                                                                                                     |   |              |    |              |   |
| Long-term debt, excluding current portion (Note 5)                                                                                                                                                                                                                       |   | 76,855            |    | 60,178            |   |
| Subordinated notes and debentures, excluding current  portion (Note 8)                                                                                                                                                                                                   |   | 139,617           |    | 140,095           |   |
| Other long-term liabilities                                                                                                                                                                                                                                              |   | 28,320            |    | 3,471             |   |
| Deferred income taxes                                                                                                                                                                                                                                                    |   | 6,167             |    | 7,300             |   |
| Total liabilities                                                                                                                                                                                                                                                        |   | 416,243           |    | 413,901           |   |
| Commitments and contingencies (Note 18)                                                                                                                                                                                                                                  |   |              |    |              |   |
|                                                                                                                                                                                                                                                                     |   |              |    |              |   |
| Mandatorily Redeemable Convertible 101⁄2% Series A Preferred Stock par value of $0.01  per share; 40,000 shares authorized; 36,626 shares issued and outstanding,  including cumulative dividends in arrears (redemption value of $60,032 and  $66,663, respectively) |   | 60,032            |    | 66,663            |   |
| 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 $44,532 and $50,105, respectively)                 |   | 43,884            |    | 49,520            |   |
| 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 $159,404 and $184,621,  respectively)                             |   | 157,139           |    | 182,516           |   |
| Mandatorily Redeemable nonvoting Series D  Participating Preferred Stock 5,000 shares authorized, no shares issued or  outstanding                                                                                                                                       |   | —            |    | —            |   |
|                                                                                                                                                                                                                                                                     |   |              |    |              |   |
| Shareholders’ Equity (Deficit)                                                                                                                                                                                                                                      |   |              |    |              |   |
| Common stock, Class A, par value $.01 per share;  15,000,000 shares authorized;  14,760,530  issued and outstanding                                                                                                                                                      |   | 148               |    | 148               |   |
| Common stock, par value of $.01 per share; 100,000,000  shares authorized;  16,963,611 and  16,977,653 issued and outstanding, respectively                                                                                                                              |   | 170               |    | 170               |   |
| Additional paid-in capital                                                                                                                                                                                                                                               |   | 277,422           |    | 277,450           |   |
| Accumulated deficit                                                                                                                                                                                                                                                      |   | (433,045          | )       | (515,063          | )      |
| Total shareholders’ equity (deficit)                                                                                                                                                                                                                                |   | (155,305          | )       | (237,295          | )      |
| Total liabilities, mandatorily redeemable preferred  stock  and shareholders’ equity (deficit)                                                                                                                                                                      |   | $                 | 521,993 |              | $      | 475,305 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements

 

F-2

----

 

AmericanSkiing Company

ConsolidatedStatements of Operations

(inthousands, except per share amounts)

 
|                                                                                                                       |   | **Year Ended**    |     |
|----------------------------------------------------------------------------------------------------------------------------|--------|-------------------|----------|
|                                                                                                                       |   | **July 29, 2001** |     | **July 28, 2002** |   | **July 27, 2003** |   |
| Net revenues:                                                                                                              |   |              |     |   |   |   |   |
| Resort                                                                                                                     |   | $                 | 275,686  |   | $ | 243,842 |   | $ | 251,638 |   |
| Real estate                                                                                                                |   | 96,864            |     | 28,274 |   | 12,898 |   |
| Total net revenues                                                                                                         |   | 372,550           |     | 272,116 |   | 264,536 |   |
|                                                                                                                       |   |              |     |   |   |   |   |
| Operating expenses:                                                                                                        |   |              |     |   |   |   |   |
| Resort                                                                                                                     |   | 187,715           |     | 166,968 |   | 168,010 |   |
| Real estate                                                                                                                |   | 93,422            |     | 30,091 |   | 12,166 |   |
| Marketing, general and administrative                                                                                      |   | 49,011            |     | 46,699 |   | 49,645 |   |
| Merger, restructuring and asset impairment charges                                                                         |   | 76,015            |     | 111,608 |   | 1,451 |   |
| Depreciation and amortization                                                                                              |   | 34,941            |     | 26,238 |   | 27,513 |   |
| Write-off of deferred financing costs                                                                                      |   | —            |     | 3,338 |   | 2,761 |   |
| Total operating expenses                                                                                                   |   | 441,104           |     | 384,942 |   | 261,546 |   |
|                                                                                                                       |   |              |     |   |   |   |   |
| Income (loss) from operations                                                                                              |   | (68,554           | )        | (112,826 | ) | 2,990 |   |
|                                                                                                                       |   |              |     |   |   |   |   |
| Interest expense, net                                                                                                      |   | 56,472            |     | 54,752 |   | 47,364 |   |
|                                                                                                                       |   |              |     |   |   |   |   |
| Loss from continuing operations before benefit from  income taxes and cumulative effects of change in accounting principle |   | (125,026          | )        | (167,578 | ) | (44,374 | ) |
|                                                                                                                       |   |              |     |   |   |   |   |
| Benefit from income taxes                                                                                                  |   | —            |     | — |   | — |   |
|                                                                                                                       |   |              |     |   |   |   |   |
| Loss from continuing operations before cumulative  effects of change in accounting principle                               |   | (125,026          | )        | (167,578 | ) | (44,374 | ) |
|                                                                                                                       |   |              |     |   |   |   |   |
| Income from discontinued operations of Heavenly resort                                                                     |   | 4,302             |     | 12,317 |   | — |   |
|                                                                                                                       |   |              |     |   |   |   |   |
| Loss before cumulative effects of change in accounting  principle                                                          |   | (120,724          | )        | (155,261 | ) | (44,374 | ) |
|                                                                                                                       |   |              |     |   |   |   |   |
| Cumulative effects of change in accounting principle  (net of income taxes of $1,538 and $0, respectively)                 |   | 2,509             |     | (18,658 | ) | — |   |
|                                                                                                                       |   |              |     |   |   |   |   |
| Net loss                                                                                                                   |   | (118,215          | )        | (173,919 | ) | (44,374 | ) |
|                                                                                                                       |   |              |     |   |   |   |   |
| Accretion of discount and dividends on mandatorily  redeemable preferred stock                                             |   | (23,357           | )        | (32,791 | ) | (37,644 | ) |
|                                                                                                                       |   |              |     |   |   |   |   |
| Net loss available to common shareholders                                                                                  |   | $                 | (141,572 | ) | $ | (206,710 | ) | (82,018 | ) |
|                                                                                                                       |   |              |     |   |   |   |   |
| **Basic and diluted net loss per share:**                                                                                  |   |              |     |   |   |   |   |
| Loss from continuing operations before cumulative  effects of change in accounting principle                               |   | $                 | (4.86    | ) | $ | (6.34 | ) | (2.59 | ) |
| Income from discontinued operations, net of taxes                                                                          |   | 0.14              |     | 0.39 |   | — |   |
| Cumulative effects of change in accounting principle,  net of taxes                                                        |   | 0.08              |     | (0.59 | ) | — |   |
| Net loss available to common shareholders                                                                                  |   | $                 | (4.64    | ) | $ | (6.54 | ) | (2.59 | ) |
| Weighted average common shares outstanding                                                                                 |   | 30,525            |     | 31,628 |   | 31,724 |   |
|                                                                                                                            |        |                   |          |  |  |  |  |  |  |  |

 

Theaccompanying notes are an integral part of these consolidated financialstatements

 

F-3

----

 

AmericanSkiing Company

ConsolidatedStatements of Shareholders’ Equity (Deficit)

(inthousands, except share amounts)

 
|                                                                                              |   | **Class A  Common stock** |   | **Common stock** |   | **Additional  Paid-in  capital** |       | **Accumulated  Deficit** |   |    |   |
|---------------------------------------------------------------------------------------------------|--------|---------------------------|--------|------------------|--------|----------------------------------|------------|--------------------------|--------|---------|--------|
|                                                                                              |   | **Shares**                |   | **Amount**       |   | **Shares**                       |       | **Amount**               |   |    |   | **Total** |   |
|                                                                                              |   |                      |   |             |   |                             |       |                     |   |    |   |   |   |   |   |
| Balance as of July 30, 2000                                                                       |   | 14,760,530                |   | $                | 148    |                             | 15,708,633 |                     | $      | 157     |   | $ | 269,955 |   | $ | (84,763 | ) | $ | 185,497 |   |
| Exercise of Common Stock options                                                                  |   | —                    |   | —           |   | 248,960                          |       | 3                        |   | 495     |   | — |   | 498 |   |
| Amortization of deferred compensation                                                             |   | —                    |   | —           |   | —                           |       | —                   |   | 387     |   | — |   | 387 |   |
| Other paid-in capital                                                                             |   | —                    |   | —           |   | —                           |       | —                   |   | 16      |   | — |   | 16 |   |
| Accretion of discount and issuance costs and dividends  on mandatorily redeemable preferred stock |   | —                    |   | —           |   | —                           |       | —                   |   | —  |   | (23,357 | ) | (23,357 | ) |
| Net loss                                                                                          |   | —                    |   | —           |   | —                           |       | —                   |   | —  |   | (118,215 | ) | (118,215 | ) |
| Balance as of July 29, 2001                                                                       |   | 14,760,530                |   | 148              |   | 15,957,593                       |       | 160                      |   | 270,853 |   | (226,335 | ) | 44,826 |   |
| Exercise of Common Stock options                                                                  |   | —                    |   | —           |   | 6,018                            |       | —                   |   | 12      |   | — |   | 12 |   |
| Amortization of deferred compensation                                                             |   | —                    |   | —           |   | —                           |       | —                   |   | 69      |   | — |   | 69 |   |
| Issuance of Common Stock                                                                          |   | —                    |   | —           |   | 1,000,000                        |       | 10                       |   | 990     |   | — |   | 1,000 |   |
| Extinguishment of warrants in connection with  recapitalization                                   |   | —                    |   | —           |   | —                           |       | —                   |   | 5,501   |   | — |   | 5,501 |   |
| Other paid-in capital                                                                             |   | —                    |   | —           |   | —                           |       | —                   |   | (3      | )      | — |   | (3 | ) |
| Accretion of discount and issuance costs and dividends  on mandatorily redeemable preferred stock |   | —                    |   | —           |   | —                           |       | —                   |   | —  |   | (32,791 | ) | (32,791 | ) |
| Net loss                                                                                          |   | —                    |   | —           |   | —                           |       | —                   |   | —  |   | (173,919 | ) | (173,919 | ) |
| 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 issuance costs 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 | ) |

 

Theaccompanying notes are an integral part of these consolidated financialstatements

 

F-4

----

 

AmericanSkiing Company

ConsolidatedStatements of Cash Flows

(inthousands)

 
|                                                                                              |   | **Year Ended**    |     |
|---------------------------------------------------------------------------------------------------|--------|-------------------|----------|
|                                                                                              |   | **July 29, 2001** |     | **July 28, 2002** |   | **July 27, 2003** |   |
| Cash flows from operating activities                                                              |   |              |     |   |   |   |   |
| Net loss                                                                                          |   | $                 | (118,215 | ) | $ | (173,919 | ) | $ | (44,374 | ) |
| Adjustments to reconcile net loss to net cash (used  in) provided by  operating  activities:      |   |              |     |   |   |   |   |
| Depreciation and amortization                                                                     |   | 43,896            |     | 32,962 |   | 27,513 |   |
| Amortization of deferred financing costs                                                          |   | 3,100             |     | 4,608 |   | 3,116 |   |
| Amortization of discount on convertible debt                                                      |   | 992               |     | 1,436 |   | 1,433 |   |
| Non-cash interest on junior subordinated notes                                                    |   | —            |     | 1,283 |   | 1,554 |   |
| Deferred income taxes                                                                             |   | 1,366             |     | — |   | — |   |
| Stock compensation charge                                                                         |   | 387               |     | 69 |   | — |   |
| Write-off of deferred financing costs                                                             |   | —            |     | 3,338 |   | 2,761 |   |
| Cumulative effects of change in accounting principle                                              |   | (4,047            | )        | 18,658 |   | — |   |
| (Gain) loss from sale / impairment of assets, net                                                 |   | 66,746            |     | 115,264 |   | (499 | ) |
| Decrease (increase) in assets:                                                                    |   |              |     |   |   |   |   |
| Restricted cash                                                                                   |   | 6,052             |     | (1,553 | ) | (904 | ) |
| Accounts receivable, net                                                                          |   | (7,539            | )        | 5,897 |   | 3,956 |   |
| Inventory                                                                                         |   | 621               |     | 2,853 |   | 404 |   |
| Prepaid expenses                                                                                  |   | 2,757             |     | 1,071 |   | 938 |   |
| Real estate developed for sale                                                                    |   | 48,639            |     | 19,901 |   | 5,709 |   |
| Other assets                                                                                      |   | (3,988            | )        | (6,991 | ) | 13,177 |   |
| Increase (decrease) in liabilities:                                                               |   |              |     |   |   |   |   |
| Accounts payable and other current liabilities                                                    |   | (1,375            | )        | (21,741 | ) | 876 |   |
| Deposits and deferred revenue                                                                     |   | (2,583            | )        | (4,814 | ) | 1,190 |   |
| Other long-term liabilities                                                                       |   | 7,767             |     | 586 |   | (24,849 | ) |
| Net cash (used in) provided by operating activities                                               |   | 44,576            |     | (1,092 | ) | (7,999 | ) |
|                                                                                              |   |              |     |   |   |   |   |
| Cash flows from investing activities                                                              |   |              |     |   |   |   |   |
| Payments for purchases of businesses, net of cash  acquired                                       |   | (171              | )        | — |   | — |   |
| Capital expenditures                                                                              |   | (23,842           | )        | (7,531 | ) | (7,084 | ) |
| Proceeds from sale of assets                                                                      |   | 623               |     | 102,214 |   | 2,426 |   |
| Net cash (used in) provided by investing activities                                               |   | (23,390           | )        | 94,683 |   | (4,658 | ) |
|                                                                                              |   |              |     |   |   |   |   |
| Cash flows from financing activities                                                              |   |              |     |   |   |   |   |
| Proceeds from Resort Senior Credit Facility                                                       |   | 139,122           |     | 106,913 |   | 143,801 |   |
| Repayment of Resort Senior Credit Facility                                                        |   | (114,310          | )        | (190,141 | ) | (124,679 | ) |
| Proceeds from long-term debt                                                                      |   | —            |     | 26,500 |   | — |   |
| Repayment of long-term debt                                                                       |   | (7,149            | )        | (26,660 | ) | (5,656 | ) |
| Proceeds from real estate debt                                                                    |   | 29,905            |     | 19,803 |   | 9,715 |   |
| Repayment of real estate debt                                                                     |   | (60,787           | )        | (35,478 | ) | (6,860 | ) |
| Payment of deferred financing costs                                                               |   | (8,968            | )        | (206 | ) | (4,020 | ) |
| Proceeds from issuance of common stock                                                            |   | —            |     | 1,000 |   | — |   |
| Proceeds from issuance of warrants                                                                |   | 2,000             |     | — |   | — |   |
| Proceeds from exercise of stock options                                                           |   | 498               |     | 12 |   | 28 |   |
| Other, net                                                                                        |   | 10                |     | (2 | ) | — |   |
| Net cash (used in) provided by financing activities                                               |   | (19,679           | )        | (98,259 | ) | 12,329 |   |
| Net (decrease) increase in cash and cash equivalents                                              |   | 1,507             |     | (4,668 | ) | (328 | ) |
| Cash and cash equivalents, beginning of year                                                      |   | 10,085            |     | 11,592 |   | 6,924 |   |
| Cash and cash equivalents, end of year                                                            |   | $                 | 11,592   |   | $ | 6,924 |   | $ | 6,596 |   |
|                                                                                              |   |              |     |   |   |   |   |
| **Supplemental disclosures of cash flow information:**                                            |   |              |     |   |   |   |   |
| Cash paid for interest                                                                            |   | $                 | 54,385   |   | $ | 54,499 |   | $ | 42,970 |   |
| Cash paid (refunded) for income taxes, net                                                        |   | (37               | )        | 100 |   | (15 | ) |
|                                                                                              |   |              |     |   |   |   |   |
| **Supplemental schedule of noncash investing and financing  activities:**                         |   |              |     |   |   |   |   |
| Non-cash transfer of real estate developed for sale to  property and equipment                    |   | $                 | 26,904   |   | $ | — |   | $ | — |   |
| Accretion of discount and issuance costs and dividends  on mandatorily redeemable preferred stock |   | 23,357            |     | 32,791 |   | 37,644 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements

 

F-5

----

 

**AmericanSkiing Company**

**Notes to Consolidated FinancialStatements**

 

**1.             Business Environment andManagement’s Plans**

 

*ExistingSituation*

 

AmericanSkiing Company (ASC), a Delaware corporation, and its subsidiaries(collectively, the Company) have adopted a comprehensive strategic plandesigned to improve financial performance and address the issues resulting fromits significant debt levels and lack of liquidity.  The Company’s real estate development subsidiary, American SkiingCompany Resort Properties, Inc. (Resort Properties) is in default under itssenior credit facility (Real Estate Term Facility) with Fleet National Bank(Fleet) and certain other lenders. These lenders have notified Resort Properties that they have acceleratedthe due date for all principal and interest to be due and payable immediately(see Note 7).  In addition, ResortProperties’ hotel development subsidiary, Grand Summit Resort Properties, Inc.(Grand Summit) is also in default under its senior construction loan facility(Senior Construction Loan Facility) with Textron Financial Corporation(Textron) and certain other lenders (see Note 7).  As a result, Grand Summit’s subordinated construction loan(Subordinated Construction Loan) with Textron is also in default.  The Company was required to redeem itsMandatorily Redeemable Convertible 101⁄2% Series A Preferred Stock (Series APreferred Stock) on November 12, 2002, to the extent that the Company had fundslegally available for such redemption. The Series A Preferred Stock was not redeemed on November 12, 2002 (seeNote 9).

 

*ComprehensiveStrategic Plan*

 

TheCompany has undertaken a number of initiatives to improve its financialcondition and ongoing operations.  These initiatives include the following keycomponents:

 

•                  A comprehensive financial restructuring package,including amendments to its senior credit facilities, new capital infusion toenhance financial flexibility and refinancing of its resort senior creditfacility (Resort Senior Credit Facility) to improve financial flexibility.

•                  Reorganization, staff reduction and performanceenhancement programs designed to achieve operational cost savings and improvefinancial performance.

•                  Sale of Heavenly and Sugarbush resorts to reducethe debt of the Company.

•                  Strategic redeployment of management and capitalresources to emphasize the integration and growth of resort village developmentand operations.

 

Management has completedseveral components of this plan, including restructuring certain of theCompany’s most significant credit agreements, obtaining an additional capitalinfusion from Oak Hill Capital Partners, L.P., and certain related entities(Oak Hill) sale of the Heavenly and Sugarbush resorts, implementation of astaff reorganization plan to improve operational efficiencies and strategicredeployment of management.  Theultimate success of this comprehensive strategic plan is dependent on theexecution of the remaining plan element, successfully restructuring the RealEstate Term Facility, Senior Construction Loan Facility, and SubordinatedConstruction Loan.

 

*Actionsin Progress*

 

OnMarch 30, 2002, Resort Properties failed to make a mandatory principal paymentof $3.75 million under its Real Estate Term Facility.  Resort Properties obtained a temporary waiver of this default onApril 2, 2002. Effective May 20, 2002, the temporary waiver was revoked andResort Properties was in default on the facility.  On May 31, 2002, the lenders accelerated the due date of theentire remaining principal and accrued interest under the facility.  On November 22, 2002, Resort Propertiesentered into a forbearance agreement with the lenders whereby the lendersagreed to not pursue additional foreclosure remedies and to cease publicationof foreclosure notices for a 30-day period. Although this 30-day period expired, management continues discussionswith Fleet and the other lenders regarding a restructuring of this facility,and Fleet and the other lenders have not exercised any further foreclosureremedies since the expiration of the forbearance agreement.  Management’s ongoing restructuring effortswith the lenders are aimed towards a restructuring of the facility which willestablish a new entity to hold Resort Properties’ real estate developmentassets.  The equity in the new entity isexpected to be held by a combination of

 

F-6

----

 

the lenders under the facility and ResortProperties.  The facility remains indefault pending completion of these negotiations.

 

TheSenior Construction Loan Facility was also in payment default as of June 29,2003 due to the failure by Grand Summit to reduce the principal balance torequired levels as defined under the terms of the agreement.  As a result, Grand Summit’s SubordinatedConstruction Loan is also in default. We have not yet been advised by the lenders under the Senior ConstructionLoan and the Subordinated Construction Loan whether they intend to accelerate theremaining balance due thereunder or exercise any of their other rights as aresult of the payment default.

 

Thereis no assurance that negotiations will be successfully completed, or that theterms under which the payment defaults pending under the Real Estate TermFacility, Senior Construction Loan, and Subordinated Construction Loan may beresolved, if at all.  Furthermore,regardless of the outcome of this proposed restructuring, the Company may losecontrol of assets pledged as collateral under the facility and future access tovalue creation from these real estate assets. A substantial portion of theCompany’s developable real estate, including substantially all of thedevelopable residential real estate at The Canyons and Steamboat along with certaincore village real estate at Killington, and the stock of the Company’s realestate development subsidiaries (including Grand Summit) is pledged to Fleetand the lenders under the facility.  Thecommercial core units at the Sundial Lodge at The Canyons and the Mount SnowGrand Summit Hotel in Vermont are also pledged to Fleet and the lenders.  The Grand Summit unit inventory and the landat the Sunday River resort do not secure the Real Estate Term Facility, althoughthe pledge of the stock of Grand Summit to secure the Real Estate Term Facilitymeans that the Company may lose control of the Grand Summit unit inventory tothe lenders under the Real Estate Term Facility.  Other remedies available to the lenders include, but are notlimited to, setoff of cash collateral amounts in Resort Properties’ name heldat Fleet in the amount of approximately $0.6 million, foreclosure of real andpersonal property owned by Resort Properties and pledged to the lenders(including all of the capital stock of Grand Summit), and other customarysecured creditor remedies.  As of July27, 2003, the carrying value of the total assets that collateralized the RealEstate Term Facility was approximately $117.0 million.  This collateral includes $80.3 million ofGrand Summit assets pledged under the Company’s $41.7 million real estateSenior Construction Loan and the Subordinated Construction Loan (collectivelythe “Construction Loan Facility”).

 

**2**.             **Basis ofPresentation**

 

ASC is organizedas a holding company and operates through various subsidiaries. The Companyowns and operates resort facilities, real estate development companies, golfcourses, ski and golf schools, retail shops and other related companies.  The Company operates in two businesssegments, ski resort operations and mountainside real estate development (seeNote 16).  ASC owned and operated thefollowing ski resorts during Fiscal 2003: Sugarloaf/USA and Sunday River inMaine, Attitash Bear Peak in New Hampshire, Killington and Mount Snow inVermont, The Canyons in Utah, and Steamboat Ski & Resort Corporation(Steamboat) in Colorado. During Fiscal 2002, ASC owned and operated HeavenlyValley Ski & Resort Corporation (Heavenly) in California/Nevada, which wassold in May 2002.  During Fiscal 2001,ASC also owned and operated the Sugarbush resort in Vermont, which was sold inSeptember 2001. The results of Heavenly’s operations have been reflected asdiscontinued operations for Fiscal 2001 and Fiscal 2002.  The Company conducts its real estatedevelopment operations through its wholly owned subsidiary, Resort Properties,and Resort Properties’ subsidiaries, including Grand Summit and Canyons ResortProperties, Inc.

 

**3.             Summaryof Significant Accounting Principles**

 

**Principles of Consolidation**

The accompanyingconsolidated financial statements include the accounts of American SkiingCompany and its wholly owned subsidiaries. All significant intercompany accounts and transactions have beeneliminated in consolidation.

 

F-7

----

 

**Fiscal Year**

The Company’sfiscal year is a fifty-two week or fifty-three week period ending on the lastSunday of July. The periods ended July 29, 2001, July 28, 2002 and July 27,2003 (Fiscal 2001, Fiscal 2002 and Fiscal 2003, respectively) each consisted offifty-two weeks.

 

**Cash and Cash Equivalents**

The Companyconsiders all highly liquid debt instruments with a remaining maturity of threemonths or less to be cash equivalents. Cash equivalents totaled approximately $2.1 million and $1.4 million asof July 28, 2002 and July 27, 2003, respectively.

 

**Restricted Cash**

Restricted cashconsists of deposits received and held in escrow related to pre-sales of realestate developed for sale, guest advance deposits for lodging reservations, andcash held in cash collateral accounts by lenders on behalf of the real estatecompanies.  The cash becomes availableto the Company when the real estate units are sold,  the lodging services are provided, or upon approval ofexpenditures by lenders.

 

**Inventory**

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

 

**Property and Equipment**

Property andequipment are carried at cost, net of accumulated depreciation and impairmentcharges. Depreciation is calculated using the straight-line method over theassets’ estimated useful lives which range from 9 to 40 years for buildings, 3to 12 years for machinery and equipment, 10 to 50 years for leaseholdimprovements 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. Due to the seasonality of the Company’sbusiness, the Company records a full year of depreciation relating to itsresort operating assets during the second and third quarters of the Company’sfiscal year.

 

**Real Estate Developed for Sale**

The Companycapitalizes as real estate developed for sale the original acquisition cost ofland, direct construction and development costs, property taxes, interestincurred on costs related to real estate under development, and other relatedcosts (engineering, surveying, landscaping, etc.) until the property has beendeveloped to the point it is ready for sale. The cost of sales for individual parcels of real estate or quarter andeighth share units within a project is determined using the relative salesvalue method.  Selling costs are chargedto expense in the period in which the related revenue is recognized.

 

**Goodwill and Other Intangible Assets**

During the firstquarter of Fiscal 2002, the Company adopted Statement of Financial AccountingStandards (SFAS) No. 142, “Goodwill and Other Intangible Assets” and wasrequired to evaluate its existing intangible assets and goodwill in atransitional impairment analysis.  As aresult of the transitional impairment analysis, the Company recorded animpairment loss of $18.7 million representing 100% of its goodwill.  This loss was recorded as a cumulativeeffect of a change in accounting principle in the accompanying consolidatedstatement of operations for Fiscal 2002. Furthermore, as prescribed in SFAS No. 142, certain indefinite-livedintangible assets, including trademarks, are no longer amortized but aresubject to annual impairment assessments. An impairment loss is recognized to the extent that the carrying amountexceeds the asset’s fair value. Definite-lived intangible assets continue to be amortized on astraight-line basis over their estimated useful lives of 16 to 20 years, andassessed for impairment utilizing guidance provided by SFAS No. 144.

 

Prior to theadoption of SFAS No. 142, goodwill, which represents the excess of the purchaseprice over the fair value of the net assets (including tax attributes andminority interest) acquired in purchase transactions, and otherindefinite-lived intangibles were amortized on a straight-line basis over theexpected periods to be benefited, up to 40 years. Goodwill and otherindefinite-lived intangibles were assessed for recoverability by determiningwhether the amortization of the carrying amounts over their remaining usefullives could be recovered through undiscounted future cash flows of the acquiredoperation or assets.

 

F-8

----

 

As of July 28,2002 and July 27, 2003, acquired intangible assets (other than goodwill) relateentirely to the resort segment and consist of the following (in thousands):

 

|                                    |   | **July 28, 2002** |      | **July 27, 2003** |   |
|-----------------------------------------|--------|-------------------|-----------|-------------------|--------|
| **Definite-lived Intangible Assets:**   |   |              |      |              |   |
| Lease agreements                        |   | $                 | 1,853     |              | $      | 1,853 |   |
| Less accumulated amortization           |   | (231              | )         | (288              | )      |
|                                    |   | 1,622             |      | 1,565             |   |
|                                    |   |              |      |              |   |
| **Indefinite-lived Intangible Assets:** |   |              |      |              |   |
| Trade names                             |   | 170               |      | 170               |   |
| Water rights                            |   | 5,323             |      | 5,323             |   |
| **Intangible Assets, net**              |   | **$**             | **7,115** | ** **        | **$**  | **7,058** | ** ** |

 

Amortizationexpense related to goodwill and other intangible assets was approximately $2.4million, $58,000, and $58,000 for Fiscal 2001, Fiscal 2002, and Fiscal 2003,respectively.  Future amortizationexpense related to definite-lived intangible assets is estimated to beapproximately $58,000 for each of the next five fiscal years.

 

Had SFAS No. 142been adopted prior to Fiscal 2002, loss before cumulative effects of changes inaccounting principles and net loss available to common shareholders for Fiscal2001 would have been the pro forma amount indicated below (dollar amounts inthousands):

 

| **Fiscal  Years Ended**                                               |   | **Fiscal 2001** |       |
|-----------------------------------------------------------------------|--------|-----------------|------------|
| **Loss before cumulative effects of change in accounting  principle** |   |            | ** ** |
| **As reported**                                                       |   | $               | (120,724   | ) |
| **Pro forma**                                                         |   | (118,256        | )          |
|                                                                  |   |            |       |
| **Net loss available to common shareholders**                         |   |            |       |
| **As reported**                                                       |   | $               | (141,572   | ) |
| **Pro forma**                                                         |   | (139,104        | )          |
|                                                                  |   |            |       |
| **Net loss per share available to common shareholders**               |   |            |       |
| **As reported**                                                       |   | $               | (4.64      | ) |
| **Pro forma**                                                         |   | (4.56           | )          |

 

**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 astraight-line basis is not materially different from amortization that wouldhave resulted from using the effective interest method.  As of July 28, 2002 and July 27, 2003,deferred financing costs were $8.6 million and $6.7 million, respectively, netof accumulated amortization. Amortization expense related to deferred financing costs, included ininterest expense, was $3.1 million, $4.6 million and $3.1 million for Fiscal2001, Fiscal 2002, and Fiscal 2003, respectively.  In connection with the early extinguishment of debt in Fiscal2002 and Fiscal 2003, the Company recorded a write-off of deferred financingcosts of approximately $3.3 million and $2.8 million, respectively, in theaccompanying consolidated statements of operations.

 

**Long-Lived Assets**

On July 30, 2001,the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets”.  Long-lived assets,such as property and equipment, and definite-lived intangibles are reviewed forimpairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by acomparison of the carrying amount of an asset to the estimated undiscountedfuture 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

 

F-9

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carrying amount of theasset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carryingamount or fair value less costs to sell, and depreciation ceases.  Prior to the adoption of SFAS No. 144, theCompany accounted for impairment of long-lived assets and long-lived assets tobe disposed of in accordance with SFAS No. 121, “Accounting for the Impairmentof Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”.  During Fiscal 2002, the Company completedthe sale of its Sugarbush resort (see Note 19) and accounted for this saleunder SFAS No. 121 and Accounting Principles Board Opinion No. 30 because thedisposal activities relating to the sale of Sugarbush were initiated prior tothe Company’s adoption of SFAS No. 144.

 

**Revenue Recognition**

Resort revenuesinclude sales of lift tickets, tuition from ski schools, golf course and otherrecreational activities fees, sales from restaurants, bars and retail andrental shops, and lodging and property management fees (real estate rentals).Daily lift ticket revenue is recognized on the day of purchase.  Lift ticket season pass revenue isrecognized on a straight-line basis over the ski season, which is the Company’ssecond and third quarters of its fiscal year. The Company’s remaining resort revenues are generally recognized as theservices are performed.  Real estaterevenues are recognized under the full accrual method when title has beentransferred, adequate initial and continuing investments are adequate todemonstrate a commitment to pay for the property and no continuing involvementexists.  Amounts received from pre-salesof real estate are recorded as restricted cash and deposits and deferredrevenue in the accompanying consolidated balance sheets until the earningsprocess is complete.

 

**Interest**

Interest is expensedas incurred except when it is capitalized in connection with significantcapital additions and real estate developed for sale. The amounts of interestcapitalized are determined by applying actual interest rates to the borrowingsrequired to finance the construction. During Fiscal 2001, 2002, and 2003, the Company incurred total interestcosts of $56.5 million, $54.8 million, and $47.4 million, respectively, ofwhich $2.1 million, $0 million, and $0 million, respectively, have beencapitalized to property and equipment and real estate developed for sale.

 

**Employee Savings Plan**

The Company has a401(k) plan that allows non-highly compensated employees, as defined, to deferup to 100% of their income up to a maximum annual deferral of $12,000 if theyare under 50 years old or $14,000 if they are 50 years or older as prescribedby the Internal Revenue Service and provides for the matching of participantcontributions at the Company’s discretion. For highly-compensated employees, as defined, the plan allows employeesto defer up to 7.5% of their income. The Company’s matching contributions to the 401(k) plan for Fiscal 2001,2002, and 2003 were approximately $387,000, $307,000, and $267,000,respectively.

 

**Advertising Costs**

Advertising costsare expensed the first time the advertising takes place.  As of July 28, 2002 and July 27, 2003,advertising costs of approximately $0.2 million and $0.2 million, respectively,were recorded in prepaid expenses in the accompanying consolidated balancesheets.  Advertising expense for Fiscal2001, 2002, and 2003 was approximately $7.9 million, $6.8 million, and $7.1million, respectively.

 

**Seasonality**

The Company’s revenuesare highly seasonal in nature.  ForFiscal 2003, we realized approximately 87% of resort segment revenues and over100% of resort segment operating income during the period from November throughApril.  In addition, a significantportion of resort segment revenue and approximately 21% of annual skier visitswere generated during the Christmas and Presidents’ Day vacation weeks inFiscal 2003.  In addition, the Company’sresorts typically experience operating losses and negative cash flows for theperiod from May through November.

 

A high degree ofseasonality in the Company’s revenues increases the impact of certain events onits operating results.  Adverse weatherconditions, access route closures, equipment failures, and other developmentsof even moderate or limited duration occurring during peak business periodscould reduce revenues.  Adverse weather conditionscan also increase power and other operating costs associated with snowmaking orcould render snowmaking wholly or partially ineffective in maintaining qualityskiing conditions.  Furthermore,unfavorable weather conditions, regardless of actual skiing conditions, canresult in decreased skier visits.

 

F-10

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**Earnings Per Share**

Basic net income(loss) per common share (Basic EPS) excludes dilution and is computed bydividing net income (loss) by the weighted average number of common sharesoutstanding during the year. Diluted net income (loss) 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 share and thereforeare not added to the weighted average shares outstanding.  For Fiscal 2001, 2002, and 2003, basic anddiluted net loss per share are as follows:

 

|                                                                                              |   | **Fiscal 2001**                               |       | **Fiscal 2002** |       | **Fiscal 2003** |       |
|---------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|------------|-----------------|------------|-----------------|------------|
|                                                                                              |   | **(in thousands, except per share  amounts)** |       |
| ***Loss***                                                                                        |   |                                          |       |            |       |            |       |
| **Loss from continuing operations before cumulative effect of****change in accounting principle** |   | $                                             | (125,026   | )               | $          | (167,578        | )          | $ | (44,374 | ) |
| **Income from discontinued operations, net of tax**                                               |   | 4,302                                         |       | 12,317          |       | —          |       |
| **Accretion of discount and dividends on mandatorily****redeemable preferred stock**              |   | (23,357                                       | )          | (32,791         | )          | (37,644         | )          |
| **Loss before cumulative effect of change in accounting****principle****accounting change**       |   | (144,081                                      | )          | (188,052        | )          | (82,018         | )          |
| **Cumulative effect of change in accounting principle,****net of  tax**                      |   | 2,509                                         |       | (18,658         | )          | —          |       |
| **Net loss available to common shareholders**                                                     |   | $                                             | (141,572   | )               | $          | (206,710        | )          | $ | (82,018 | ) |
|                                                                                              |   |                                          |       |            |       |            |       |
| ***Shares***                                                                                      |   |                                          |       |            |       |            |       |
| **Total weighted average common shares outstanding (basic****And diluted)**                       |   | 30,525                                        |       | 31,628          |       | 31,724          |       |
|                                                                                              |   |                                          |       |            |       |            |       |
| ***Basic and diluted loss per common share***                                                     |   |                                          |       |            |       |            |       |
| **Loss from continuing operations before cumulative effect of****change in accounting principle** |   | $                                             | (4.86      | )               | $          | (6.34           | )          | $ | (2.59 | ) |
| **Income from discontinued operations, net of taxes**                                             |   | 0.14                                          |       | 0.39            |       | —          |       |
| **Cumulative effect of change in accounting principle,****net of taxes**                          |   | 0.08                                          |       | (0.59           | )          | —          |       |
| **Net loss available to common shareholders**                                                     |   | **$**                                         | **(4.64**  | **)**           | **$**      | **(6.54**       | **)**      | **$** | **(2.59** | **)** |
|                                                                                              |   |                                          | ** ** |            | ** ** |            | ** ** |

 

The Company hadoutstanding 186,626, 76,626 and 76,626 shares of convertible preferred stock asof July 29, 2001, July 28, 2002, and July 27, 2003, respectively.  These shares are convertible into shares ofthe Company’s common stock (see Note 9). If converted at their liquidation preferences as of July 29, 2001, July28, 2002, and July 27, 2003, these convertible preferred shares would convertinto 37,701,670, 39,136,243 and 43,950,901 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 has4,590,297, 4,226,579 and 3,821,187 options outstanding to purchase shares ofits common stock under the Company’s stock option plan as ofJuly 29, 2001, July 28, 2002, and July 27, 2003, respectively.  These shares are also excluded from theDiluted EPS calculation as the impact of their inclusion would beanti-dilutive.

 

**Stock Compensation**

Effective August1, 1997, the Company established a fixed stock option plan, the American SkiingCompany Stock Option Plan (the Plan), to provide for the grant of incentive andnon-qualified stock options for the purchase of up to 8,688,699 shares of theCompany’s common stock by officers, management employees of the Company and itssubsidiaries and other key persons (eligible for nonqualified stock optionsonly) as designated by the Options Committee. The Options Committee, which is appointed by the Board of Directors, isresponsible for the Plan’s administration. The Options Committee determines the term of each option, optionexercise price, number of shares for which each option is granted and the rateat which each option is exercisable. Options granted under the Plan generally expire ten years from the dateof grant and vest either immediately or over a five-year term. Incentive stockoptions shall not have an exercise price less than the fair market value of thecommon stock at the date of grant.

 

F-11

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Nonqualified stockoptions shall be granted at an exercise price as determined by the OptionsCommittee.  The status of the Company’sstock option plan is summarized below:

 

|                                |   | **Number  of Shares** |       | **Weighted  Average  Exercise  Price** | *** *** |
|-------------------------------------|--------|-----------------------|------------|----------------------------------------|--------------|
| **Outstanding as of July 30, 2000** |   | 4,043,319             |       | $                                      | 4.24         |   |
| **Granted**                         |   | 1,235,000             |       | 2.58                                   |         |
| **Exercised**                       |   | (248,960              | )          | 2.00                                   |         |
| **Forfeited**                       |   | (439,062              | )          | 4.26                                   |         |
| **Outstanding as of July 29, 2001** |   | 4,590,297             |       | 3.91                                   |         |
| **Granted**                         |   | —                |       | —                                 |         |
| **Exercised**                       |   | (6,018                | )          | 2.00                                   |         |
| **Forfeited**                       |   | (357,700              | )          | 1.94                                   |         |
| **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**     | ** ** |

 

During Fiscal1998, the Company granted nonqualified options under the Plan to certain keymembers of management to purchase 672,010 shares of common stock with anexercise price of $2.00 per share when the fair market 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 1998relating to the grants based on the intrinsic value of $16.00 per share.  Under these senior management grantagreements, the Company also agreed to pay the optionees a fixed tax “bonus” inthe aggregate of $5.8 million to provide for certain fixed tax liabilities thatthe optionees will incur upon exercise. The liability for this fixed tax bonushas been reduced to reflect $5.2 million in tax bonus payments made throughJuly 27, 2003 in connection with options exercised.  The remaining $0.6 million tax bonus liability is reflected inaccounts payable and other current liabilities in the accompanying consolidatedbalance sheet as of July 27, 2003.  Theremainder of these original $2.00 options (160,480 shares) were granted underthe Plan to certain members of management and were vested 20% on the date ofgrant and vest ratably to 100% over the following four years.  For Fiscal 2001, Fiscal 2002, and Fiscal2003, the Company recognized $0.4 million, $0.1 million and $0 million,respectively, of stock compensation expense relating to these options.

 

The followingtable summarizes information about the stock options outstanding under theStock Plan as of July 27, 2003:

 

| **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          |   | 7.9                                                              |       | $                                   | 0.72     |            | 25,000        |                                | $      | 0.72 |   |
| **1.75 – 2.50**           |   | 1,420,337       |   | 6.6                                                              |       | 2.11                                |     | 1,357,003       |          | 2.11                                |   |
| **3.00 – 4.00**           |   | 1,449,250       |   | 6.6                                                              |       | 3.17                                |     | 1,212,750       |          | 3.21                                |   |
| **7.00 – 8.75**           |   | 735,750         |   | 5.2                                                              |       | 7.19                                |     | 694,850         |          | 7.20                                |   |
| **14.19 – 18.00**         |   | 190,850         |   | 4.2                                                              |       | 17.55                               |     | 190,850         |          | 17.55                               |   |
|                           |   | **3,821,187**   |   | **6.2**                                                          | ** ** | **$**                               | **4.25** | ** **      | **3,480,453** | ** **                          | **$**  | **4.35** | ** ** |

 

The Companycontinues to account for stock-based compensation using the method prescribedin Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees”, under which no

 

F-12

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compensation expense forstock options is recognized for stock option awards granted to employees at orabove fair market value.  In December 2002, the FASB issued SFAS No.148, “Accounting for Stock-Based Compensation -Transition and Disclosure - anamendment of FAS 123” (SFAS No. 148). This statement amends SFAS No. 123, “Accounting for Stock-BasedCompensation” (SFAS No. 123), 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 to 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 the disclosure-onlyprovisions of SFAS No. 148.  Had stockcompensation expense been determined based on the fair value at the grant datesfor awards granted under the Company’s stock option plan, consistent with theprovisions of SFAS No. 148, the Company’s net loss and loss per share wouldhave been changed to the pro forma amounts indicated below (dollar amounts inthousands):

 

| **Fiscal  Years Ended**                                                                              |   | **2001** |     | **2002** |   | **2003** |   |
|------------------------------------------------------------------------------------------------------|--------|----------|----------|----------|--------|----------|--------|
| **Net loss available to common shareholders**                                                        |   |     |     |     |   |     |   |
| **As reported**                                                                                      |   | $        | (141,572 | )        | $      | (206,710 | )      | $ | (82,018 | ) |
| **Stock-based employee compensation expense included in  reported net loss, net of tax**             |   | 369      |     | 88       |   | —   |   |
| **Stock-based employee compensation determined under  fair-value method for all awards, net of tax** |   | (3,222   | )        | (1,346   | )      | (502     | )      |
| **Pro forma**                                                                                        |   | $        | (144,425 | )        | $      | (207,968 | )      | $ | (82,520 | ) |
| **Basic and diluted net loss per common share**                                                      |   |     |     |     |   |     |   |
| **As reported**                                                                                      |   | $        | (4.64    | )        | $      | (6.54    | )      | $ | (2.59 | ) |
| **Pro forma**                                                                                        |   | (4.73    | )        | (6.58    | )      | (2.60    | )      |

 

The fair value ofeach option grant is estimated on the date of grant using the Black-Scholesoption-pricing model with the following weighted average assumptions:

 

| **Fiscal  Years Ended**     |   | **2001** |   | **2002** |   | **2003** |   |
|-----------------------------|--------|----------|--------|----------|--------|----------|--------|
| **Expected life**           |   | 10 yrs   |   | N/A      |   | N/A      |   |
| **Risk-free interest rate** |   | 5.9      | %      | N/A      |   | N/A      |   |
| **Volatility**              |   | 73.9     | %      | N/A      |   | N/A      |   |
| **Dividend yield**          |   | —   |   | —   |   | —   |   |

 

The weightedaverage grant date fair value for the options granted in Fiscal 2001 with anexercise price of $0.72 to $4.00 per share was $1.65 per share.

 

**Fair Value of Financial Instruments**

The recordedamounts for cash and cash equivalents, restricted cash, accounts receivable andaccounts payable and other current liabilities approximate fair value due tothe short-term nature of these financial instruments. The fair value of amountsoutstanding under the Company’s resort and real estate senior credit facilitiesand certain other debt instruments approximate their recorded values in allmaterial respects, as determined by discounting future cash flows at currentmarket interest rates as of July 27, 2003. The fair value of the Company’s subordinated notes and interest rateswap agreements have been estimated using quoted market values. The fair valueof the Company’s other subordinated debentures have been estimated usingdiscounted cash flow analyses based on current borrowing rates for debt withsimilar maturities and ratings.

 

The estimated fairvalues of the Senior Subordinated Notes, Convertible Subordinated Notes, othersubordinated debentures and interest rate swap agreements as of July 28, 2002and July 27, 2003 are presented below (in thousands):

 

F-13

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|                                          |   | **July 28, 2002**    |    | **July 27, 2003** |   |
|-----------------------------------------------|--------|----------------------|---------|-------------------|--------|
|                                          |   | **Carrying  Amount** |    | **Fair  value**   |   | **Carrying  Amount** |   | **Fair  Value** | *** *** |
| **12% Senior Subordinated Notes**             |   | $                    | 118,160 |              | $      | 84,000 |   | $ | 118,549 |   | $ | 90,000 |   |
| **11.3025% Convertible Subordinated Notes**   |   | 13,783               |    | 14,715            |   | 15,337 |   | 15,904 |   |
| **Other subordinated debentures**             |   | 8,748                |    | 8,118             |   | 7,674 |   | 7,037 |   |
| **Interest rate swap agreements (asset)**     |   | 17,631               |    | 17,631            |   | — |   | — |   |
| **Interest rate swap agreements (liability)** |   | 25,314               |    | 25,314            |   | — |   | — |   |
|                                               |        |                      |         |                   |        |  |  |  |  |  |  |  |  |

 

**Derivative Financial Instruments**

All derivativesare recognized on the balance sheet at their fair values.  On the date the derivative contract isentered into, the Company designates the derivative as either a hedge of thefair value of a recognized asset or liability (“fair value” hedge), or thevariability of cash flows to be received or paid related to a recognized assetor liability (“cash flow” hedge). During Fiscal 2003, the Company terminated its existing interest rate swapagreements in connection with the refinancing of its Resort Senior CreditFacility (see Note 6).

 

**Income Taxes**

The Companyutilizes the asset and liability method of accounting for income taxes, as setforth in SFAS No. 109, “Accounting for Income Taxes”.  SFAS No. 109 requires the recognition of deferred tax assets andliabilities for the expected future tax consequences of temporary differencesbetween the financial statement and tax bases of assets and liabilities,utilizing currently enacted tax rates. The effect of any future change in tax rates is recognized in the periodin which the change occurs.

 

**Use of Estimates**

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America 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 the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

**Reclassifications**

Certain amounts inthe prior years’ financial statements and related notes have been reclassifiedto conform to the Fiscal 2003 presentation.

 

# **Recently Issued Accounting Standards**

In November 2002,the FASB issued FASB Interpretation (FIN) No. 45, “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others - an Interpretation of FASB Statements No. 5, 57, and107 and Rescission of FASB Interpretation No. 34”.  This Interpretation elaborates on the disclosures to be made by aguarantor in its interim and annual financial statements about its obligationsunder certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at theinception of a guarantee, a liability for the fair value of the obligationundertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN No. 45are to be applied on a prospective basis to guarantees issued or modified afterDecember 31, 2002.  The disclosurerequirements of FIN No. 45 are effective for financial statements of interim orannual periods ending after December 15, 2002. The Company adopted FIN No. 45 effective for the interim period endedJanuary 26, 2003.  The adoption of FINNo. 45 did not have an effect on the Company’s results of operations orfinancial position.

 

In January 2003,the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities - anInterpretation of ARB No. 51”.  ThisInterpretation addresses consolidation and reporting by business enterprises ofvariable interest entities.  Allenterprises with variable interests in variable interest entities created afterJanuary 31, 2003, shall apply the provisions of this Interpretation to thoseentities immediately. A public entity with a variable interest in a variableinterest entity created before February 1, 2003, shall apply the provisions ofthis Interpretation to that entity no later than the beginning of the firstinterim or annual reporting period beginning after December 13,

 

F-14

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2003.  The Company adopted FIN No. 46 effectiveJanuary 27, 2003.  The adoption of FINNo. 46 did not have an effect on the Company’s results of operations orfinancial position.

 

In May 2003, theFASB issued Statement of Financial Accounting Standards No. 150, “Accountingfor Certain Financial Instruments with Characteristics of Both Liabilities andEquity” (SFAS No. 150).  SFAS No. 150establishes standards for how financial instruments with characteristics ofboth liabilities and equity should be measured and classified and requires thatan issuer classify a financial instrument that is within its scope as aliability.  SFAS No. 150 is effectivefor financial instruments entered into or modified after May 31, 2003, andotherwise is effective at the beginning of the first interim period beginningafter June 15, 2003.  We adopted SFAS No.150 effective July 28, 2003.  As a resultof adopting SFAS No. 150, approximately $298.7 million will be reclassified toliabilities in the consolidated balance sheet in the first quarter of Fiscal2004.  This represents the book value ofall of the classes of preferred stock. In addition, approximately $43.1 million of accretion of discount anddividends on the preferred stock in Fiscal 2004 will be included in interestexpense, whereas previously it was reported as accretion of discount anddividends on mandatorily redeemable preferred stock.

 

**4.****                                      Propertyand Equipment**

 

Property andequipment consists of the following (in thousands):

 

|                                                |   | **July 28, 2002** |        | **July 27, 2003** |   |
|-----------------------------------------------------|--------|-------------------|-------------|-------------------|--------|
| **Buildings and grounds**                           |   | $                 | 188,968     |              | $      | 188,379 |   |
| **Machinery and equipment**                         |   | 135,130           |        | 122,993           |   |
| **Lifts and lift lines**                            |   | 125,922           |        | 124,880           |   |
| **Trails**                                          |   | 23,315            |        | 25,454            |   |
| **Land improvements**                               |   | 9,294             |        | 9,579             |   |
|                                                |   | 482,629           |        | 471,285           |   |
| **Less: accumulated depreciation and amortization** |   | 167,626           |        | 176,078           |   |
|                                                |   | 315,003           |        | 295,207           |   |
|                                                |   |              |        |              |   |
| **Land**                                            |   | 80,485            |        | 75,923            |   |
| **Construction-in-progress**                        |   | 2,503             |        | 1,796             |   |
| **Property and equipment, net**                     |   | **$**             | **397,991** | ** **        | **$**  | **372,926** | ** ** |

 

Property andequipment includes approximately $31.6 million and $31.2 million of machineryand equipment and lifts held under capital lease obligations as of July 28,2002 and July 27, 2003, respectively. As of July 28, 2002 and July 27, 2003, related accumulated amortizationon property and equipment held under capital lease obligations wasapproximately $9.2 million and $10.8 million, respectively.  Total depreciation and amortization expenserelating to all property and equipment was $32.3 million, $26.7 million, and$27.2 million for Fiscal 2001, Fiscal 2002, and Fiscal 2003, respectively.

 

F-15

----

 

**5.****                                      Long-TermDebt**

 

Long-term debtconsists of (dollar amounts in thousands):

 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | **July 28,  2002** |       | **July 27,  2003** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|------------|--------------------|------------|
| **Resort Senior Credit Facility (see Notes 1 and 6)**                                                                                                                                                                                                                                                                                                                                                                                                  |   | $                  | 58,657     |               | $          | 77,779 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |               |       |               |       |
| **Real Estate Term Facility (see Notes 1 and 7)**                                                                                                                                                                                                                                                                                                                                                                                                      |   | 58,191             |       | 64,187             |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |               |       |               |       |
| **Real estate construction loan facility with a face value of  $110,000 (see Notes 1 and 7)**                                                                                                                                                                                                                                                                                                                                                          |   | 36,555             |       | 31,718             |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |               |       |               |       |
| **Real estate construction loan facility with a face value of  $10,000 to provide liquidity for the hotel development subsidiary and for  completion of the Steamboat Grand Hotel   (see Note 7)**                                                                                                                                                                                                                                                |   | 5,474              |       | 9,965              |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |               |       |               |       |
| **Real estate mortgage note payable with a face value of  $2,427 secured by an employee housing complex at the Company’s Steamboat  resort.  The note is on a 15 - year  amortization schedule, maturing in February 2005 and principal and interest  are payable monthly.  The interest  rate is reset on January 1 of each year to the prime rate of the lending  institution.**                                                      |   | 2,231              |       | 2,097              |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |               |       |               |       |
| **Note payable with a face value of $2,250.  The note bears interest at 9% per annum,  which is payable monthly beginning January 1998 for a 15-year term.  The principal is due in full in December  2012.**                                                                                                                                                                                                                                |   | 2,250              |       | 2,250              |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |               |       |               |       |
| **Real estate note payable to general contractor with a face  value of $3,878 secured by quarter and eighth share inventory at the  Company’s Steamboat resort.  The note  was payable from time to time upon the sale of quarter and eighth share units  with the entire unpaid principal and any interest accrued due on March 31,  2002.  The note is currently in  default and bears interest at a default rate of 18% per annum.** |   | 2,055              |       | 370                |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |               |       |               |       |
| **Note payable with a face value of $1,600. Interest is  payable monthly beginning January 1998 for a 30-year term. The interest rate  is 7% 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.**                                                                                                                                 |   | 1,600              |       | 1,600              |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |               |       |               |       |
| **Obligations under capital leases**                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 13,063             |       | 8,532              |       |
| **Other notes payable**                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 274                |       | 290                |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 180,350            |       | 198,788            |       |
| **Less: current portion**                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 103,495            |       | 138,610            |       |
| **Long-term debt, excluding current portion**                                                                                                                                                                                                                                                                                                                                                                                                          |   | **$**              | **76,855** | ** **         | **$**      | **60,178** | ** ** |

 

The carryingvalues of the above debt instruments approximate their fair values in allmaterial respects, determined by discounting future cash flows at currentmarket interest rates as of July 27, 2003. As of July 27, 2003, the Company had letters of credit outstandingtotaling approximately $4.1 million within the credit facility and $0.5 millionissued outside the facility that is collateralized with cash.

 

F-16

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Long-term debt andsubordinated notes and debentures (see Note 8) mature as follows (inthousands):

 

|                                                                                  |   | **Long-term  debt** |       | **Subordinated  notes and  debentures** |   | **Total  Debt** | *** *** |
|---------------------------------------------------------------------------------------|--------|---------------------|------------|-----------------------------------------|--------|-----------------|--------------|
| **2004**                                                                              |   | $                   | 139,340    |                                    | $      | 1,466           |         | $ | 140,806 |   |
| **2005**                                                                              |   | 9,594               |       | —                                  |   | 9,594           |         |
| **2006**                                                                              |   | 47,060              |       | 120,000                                 |   | 167,060         |         |
| **2007**                                                                              |   | 124                 |       | —                                  |   | 124             |         |
| **2008**                                                                              |   | —              |       | 15,337                                  |   | 15,337          |         |
| **2009 and thereafter**                                                               |   | 3,850               |       | 6,208                                   |   | 10,058          |         |
| **Interest related to capital lease obligations  (rates ranging from 5.0% to 12.2%)** |   | (1,180              | )          | —                                  |   | (1,180          | )            |
| **Debt discount**                                                                     |   | —              |       | (1,450                                  | )      | (1,450          | )            |
|                                                                                  |   | 198,788             |       | 141,561                                 |   | 340,349         |         |
| **Less current portion**                                                              |   | 138,610             |       | 1,466                                   |   | 140,076         |         |
| **Non-current portion of long-term debt**                                             |   | **$**               | **86,799** | ** **                              | **$**  | **140,095**     | ** **   | **$** | **200,273** | ** ** |

 

**6.             ResortSenior Credit Facility**

 

The Company entered intoan agreement dated February 14, 2003 with General Electric Capital Corporation(GE Capital) and CapitalSource Finance LLC (CapitalSource) whereby GE Capitaland CapitalSource have provided a $91.5 million senior secured loan facility(the Resort Senior Credit Facility) including a revolving credit facility(Revolving Credit Facility), tranche A term loan (Tranche A Term Loan),supplemental term loan (Supplemental Term Loan), and tranche B term loan(Tranche B Term Loan).  The ResortSenior Credit Facility replaced the Company’s prior resort senior creditfacility and is secured by substantially all the assets of the Company (exceptfor the stock of its real estate subsidiary) and the assets of its resortoperating subsidiaries.  ResortProperties and its subsidiaries are not guarantors of the Resort Senior CreditFacility nor are their assets pledged as collateral under the Resort SeniorCredit Facility.  The Resort SeniorCredit Facility consists of the following:

 

•                  RevolvingCredit Facility - $40.0 million, including letter of credit (L/C) availabilityof up to $5.0.  The amount ofavailability under the Revolving Credit Facility will be correspondinglyreduced by the amount of each L/C issued.

 

•                  TrancheA Term Loan -  $25.0 million borrowed onthe funding date of February 18, 2003.

 

•                  SupplementalTerm Loan - $6.5 million borrowed on the funding date of February 18, 2003.

 

•                  TrancheB Term Loan -  $20.0 million borrowed onthe funding date of February 18, 2003.

 

The RevolvingCredit Facility, Tranche A Term Loan and Supplemental Term Loan portions of theResort Senior Credit Facility mature on April 15, 2006 and bear interest atJPMorgan Chase Bank’s prime rate plus 3.25% payable monthly (7.25% as of July27, 2003).  The Supplemental Term Loanalso required a principal payment of approximately $342,000 on July 15, 2003,and requires payments of approximately $1.0 million on January 15 and July 15of each year, and a final payment of approximately $1.0 million on April 15, 2006.  The Tranche B Term Loan matures on June 15,2006 and bears interest at JPMorgan Chase Bank’s prime rate plus 5.0% payablemonthly with an interest rate floor of 12.25% (12.25% as of July 27, 2003).  The Resort Senior Credit Facility containsaffirmative, negative and financial covenants customary for this type of creditfacility, requires the Company to have a zero balance on the Revolving CreditFacility on April 1 of each year prior to maturity, which includes maintaininga minimum level of EBITDA, as defined, places a limit on the Company’s capitalexpenditures and contains an asset monetization covenant which requires theCompany to refinance the facility or sell assets sufficient to retire thefacility on or prior to December 31, 2005. The Resort Senior Credit Facility also restricts the Company’s abilityto pay cash dividends on or redeem its common and preferred stock.  The Company was in compliance with allcovenants related to the Resort Senior Credit Facility through July 27, 2003.

 

F-17

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The prior resortsenior credit facility was repaid in full on February 18, 2003.  As of July 27, 2003, the Company had $26.6million, $25.0 million, $6.2 million and $20.0 million of principal outstandingunder the Revolving Credit Facility, Tranche A Term Loan, Supplemental TermLoan and Tranche B Term Loan portions of the Resort Senior Credit Facility,respectively.  Furthermore, as of July27, 2003, the Company had $9.3 million available for future borrowings underthe Revolving Credit Facility.  As ofJuly 27, 2003, the Company had $4.1 million of L/C’s issued under the ResortSenior Credit Facility.

 

In conjunctionwith the restructuring of the prior resort senior credit facility during Fiscal2002, the Company expensed a pro-rata portion of its existing deferredfinancing costs in the amount of $3.3 million. In connection  with therefinancing of the prior resort senior credit facility during Fiscal 2003, theCompany expensed its remaining deferred financing costs associated with thisfacility in the amount of $2.8 million. These amounts are reflected in the accompanying consolidated statementsof operations as a write-off of deferred financing costs.

 

**7.             RealEstate Term Facility and Construction Loan Facility**

 

**Real Estate Term Facility**

On July 31, 2000,the Company entered into a Second Amended and Restated Credit Agreement betweenResort Properties, Fleet and the lenders party thereto (the Real Estate TermFacility).  This fully syndicated $73 millionfacility replaced Resort Properties’ previous un-syndicated $58 million realestate development term loan facility. The Real Estate Term Facility iscollateralized by security interests in, and mortgages on, substantially all ofResort Properties’ assets, which primarily consist of undeveloped real propertyand the stock of its real estate development subsidiaries (including GrandSummit).  Effective May 20, 2002, ResortProperties defaulted on the Real Estate Term Facility due to its failure tomake a mandatory principal payment of $3.75 million.  As a result, all indebtedness under this facility is currentlydue and payable.  The Real Estate TermFacility is comprised of three tranches, each with separate interest rates andmaturity dates as follows:

 
| • |   | Tranche A is a  revolving facility with a current maximum principal amount of $17.0 million  and bears interest at a variable rate equal to the Fleet National Bank Base  Rate plus 2.0%, payable monthly in arrears.   As a result of the default, the default interest rate on Tranche A is  the Fleet National Bank Base Rate plus 6.0% (10.0% as of July 27, 2003).  Prior to the default, mandatory principal  reductions were required in certain prescribed percentages ranging from 50%  to 75% of net proceeds from any future sales of undeveloped parcels.  Prior to the default, the remaining  principal was scheduled to be paid on June 30, 2003.                               |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| • |   | Tranche B is a term  loan facility that has a maximum principal amount of $25 million, bears  interest at a fixed rate of 18% per annum, of which 10% per annum is payable  monthly in arrears.  The remaining 8%  per annum accrues, is added to the principal balance of Tranche B and bears  interest at 18%.  As a result of the  default, the default interest rate on Tranche B is 29%.  Prior to the default, mandatory principal  payments on Tranche B of $10 million were due on each of December 31, 2003  and June 30, 2004.  Prior to the  default, the remaining $5 million principal and all accrued and unpaid interest  on Tranche B was to mature on December 31, 2004. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| • |   | Tranche C is a term  loan facility that has a maximum principal amount of $12 million, bears  interest at an effective rate of 29% per annum and, prior to the default, was  scheduled to mature on December 31, 2005.   As a result of the default, the default interest rate on Tranche C is  29%.  Interest accrues and is added to  the principal balance of Tranche C and is compounded semiannually.                                                                                                                                                                                                                                                                                          |

 

OnMarch 30, 2002, Resort Properties failed to make a mandatory principal paymentof $3.75 million under its Real Estate Term Facility.  Resort Properties obtained a temporary waiver of this default onApril 2, 2002. Effective May 20, 2002, the temporary waiver was revoked andResort Properties was in default on the facility.  On May 31, 2002, the lenders accelerated the due date of theentire remaining principal and accrued interest under the facility.  On November 22, 2002, Resort Propertiesentered into a forbearance agreement with the lenders whereby the lendersagreed to not pursue additional foreclosure remedies and to cease publicationof foreclosure notices for a 30-day period. Although this 30-day periodexpired, management continues discussions with Fleet and the other lendersregarding a restructuring of this facility, and Fleet and the other lendershave not exercised any further

 

F-18

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foreclosure remedies since the expiration of theforbearance agreement.  Management’songoing restructuring efforts with the lenders are aimed towards a restructuringof the facility which will establish a new entity to hold Resort Properties’real estate development assets.  Theequity in the new entity is expected to be held by a combination of the lendersunder the facility and Resort Properties. The facility remains in default pending completion of thesenegotiations.

 

There is noassurance that negotiations will be successfully completed, or that the termsunder which the payment defaults pending under the Real Estate Term Facilitymay be resolved, if at all.  Furthermore,regardless of the outcome of this proposed restructuring, the Company may losecontrol of assets pledged as collateral under the facility and future access tovalue creation from these real estate assets. A substantial portion of theCompany’s developable real estate, including substantially all of thedevelopable residential real estate at The Canyons and Steamboat along withcertain core village real estate at Killington, and the stock of the Company’sreal estate development subsidiaries (including Grand Summit) is pledged toFleet and the lenders under the facility. The commercial core units at the Sundial Lodge at The Canyons and theMount Snow Grand Summit Hotel in Vermont are also pledged to Fleet and thelenders.  The Grand Summit unit inventorydoes not secure the Real Estate Term Facility, although the pledge of the stockof Grand Summit to secure the Real Estate Term Facility means that the Companymay lose control of the Grand Summit unit inventory to the lenders under theReal Estate Term Facility.  Otherremedies available to the lenders include, but are not limited to, setoff ofcash collateral amounts in Resort Properties’ name held at Fleet in the amountof approximately $0.6 million, foreclosure of real and personal property ownedby Resort Properties and pledged to the lenders (including all of the capitalstock of the Company’s hotel development subsidiary, Grand Summit), and othercustomary secured creditor remedies.  Asof July 27, 2003, the carrying value of the total assets that collateralizedthe Real Estate Term Facility was approximately $117.0 million.  This collateral includes $80.3 million ofGrand Summit assets pledged under the Company’s real estate Construction LoanFacility.

 

As of July 27,2003, the principal balances outstanding, including accrued and unpaidinterest, under Tranches A, B and C of the Real Estate Term Facility were $19.5million, $38.1 million, and $21.4 million, respectively.  As of July 27, 2003, the unamortizedoriginal issue discount on Tranche C was approximately $2.5 million.

 

TrancheC of the Real Estate Term Facility was purchased by Oak Hill and itsassociates.  In connection with thisinvestment, the Company entered into a Securities Purchase Agreement with OakHill, dated July 31, 2000, pursuant to which the Company agreed to either (i)issue warrants to Oak Hill for 6,000,000 shares of ASC common stock with anexercise price of $2.50 per share or if certain conditions could not be met byASC; (ii) issue to Oak Hill common stock in Resort Properties representingapproximately 15% of the voting interest in Resort Properties.  The purchase price of the warrants (or theResort Properties common stock) was $2 million.  Under the terms of the agreement, net share settlement wasrequired.  The transaction was accountedfor as debt issued with detachable warrants under Accounting Principles BoardOpinion (APB) No. 14.  APB No. 14requires that the portion of the proceeds allocable to the warrants should beaccounted for as paid-in capital.  Theallocation was based on the relative fair values of the two securities at thetime of issuance.  Upon execution of thetransaction, ASC recorded a $7.7 million long-term liability which representedthe fair value of ASC’s obligation to issue the warrants (or the ResortProperties common stock).  As part ofthe July 15, 2001 securities purchase agreement (see Note 12), which closed onAugust 31, 2001, Oak Hill agreed to cancel its right to receive these warrants,which had an exercise price of $2.50 per share and ASC’s common stock was thentrading at approximately $1 per share. The warrants on that date had a fair value of approximately $2.2million.  The $7.7 million long-termliability was removed from the books in connection with the recording of theissuance of the new 12% Series C-1 Convertible Participating Preferred Stock(Series C-1 Preferred Stock) and the 15% Series C-2 Preferred Stock (Series C-2Preferred Stock).

 

**Construction Loan Facility**

The Companyconducts substantially all of its real estate development through subsidiaries,each of which is a wholly owned subsidiary of Resort Properties.  Grand Summit owns the existing Grand SummitHotel projects, which are primarily financed through a $110 million constructionloan facility (Senior Construction Loan) among Grand Summit and variouslenders, including Textron, the syndication and administrative agent. Due toconstruction delays and cost increases at the Steamboat Grand Hotel project,Grand Summit entered into a $10 million

 

F-19

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subordinated loan tranchewith Textron (Subordinated Construction Loan) on July 25, 2000.  The Company used this facility solely forthe purpose of funding the completion of the Steamboat Grand Hotel.

 

The SeniorConstruction Loan principal is payable incrementally as quarter and eighthshare sales are closed based on a predetermined per unit amount, whichapproximates between 70% and 80% of the net proceeds of each closing. Mortgagesagainst the commercial core units and unsold inventory at the Grand SummitHotels at The Canyons and Steamboat, a promissory note from the SteamboatHomeowners Association secured by the Steamboat Grand Summit hotel parkinggarage, and the commercial core unit at Attitash Bear Peak collateralize theSenior Construction Loan, which is subject to covenants, representations andwarranties customary for this type of construction facility. The SeniorConstruction Loan is non-recourse to the Company and its resort operatingsubsidiaries (although it is collateralized by substantial assets of GrandSummit, having a total book value of $80.3 million as of July 27, 2003, whichin turn comprise substantial assets of the Company’s business).  The maturity date for funds advanced underthe Senior Construction Loan, as amended, is May 31, 2004.  The principal balance outstanding under theSenior Construction Loan was approximately $31.7 million as of July 27, 2003and had an interest rate on funds advanced of prime plus 3.5%, with a floor of9.0% (9.0% as of July 27, 2003).  Thematurity date for funds advanced under the Subordinated Construction Loan, asamended, is September 30, 2004 and the interest rate on funds advanced is 20%.

 

The SeniorConstruction Loan was also in default as of June 29, 2003 due to the failure byGrand Summit to reduce the principal balance outstanding to a maximum of $30.0million as required under the terms of the agreement.  In addition, the Senior Construction Loan further required thatthe loan be reduced to a maximum of $25.0 million by June 30, 2003.  As a result, the Subordinated ConstructionLoan also was in default.  The Companyhas not yet been advised by the lenders under the Senior Construction Loan andSubordinated Construction Loan whether they intend to accelerate the remainingbalance due thereunder or exercise any of their other rights as a result of thedefaults.  An amendment to the SeniorConstruction Loan delayed certain amortization deadlines from March 31, 2003 toJune 29, 2003.  The Company paid $35,000to the lenders for such amendment.  Anadditional $175,000 was due and payable for its failure to reduce the loanbalance to certain requirements at June 29, 2003.  As of July 27, 2003, this amount has been accrued in accountspayable and other current liabilities.

 

The Company andTextron entered into the amendments to the Senior Construction Loan and theSubordinated Construction Loan.  Theterms of the revised agreements waived all previous defaults, and relaxedmandatory principal amortization requirements. As a result of the amendment to the Senior Construction Loan, thematurity date was extended from March 31, 2003 to May 31, 2004.  The release prices, as defined, on theSenior Construction Loan were also adjusted and the amendment allowed forfuture adjustments depending upon certain circumstances.  Upon the repayment of all indebtedness underthe Senior Construction Loan, the Subordinated Construction Loan and all otherfees, Textron will receive a fee equal to 25% of all gross proceeds of sales ofquarter and eighth share units and commercial units occurring subsequent torepayment.  Grand Summit and the lendersalso agreed to use their best efforts to enter into an escrow agreementpursuant to which the appropriate deed-in-lieu documentation in respect to theSenior Construction Loan and the Subordinated Construction Loan shall be placedin escrow.  Finally, the amendment tothe Senior Construction Loan outlined the following maximum outstandingprincipal balances under the Senior Construction Loan as of the followingdates:

 

| September 30, 2003 |   | $ | 20,000,000 |
|--------------------|--------|---|------------|
| December 31, 2003  |   | $ | 10,000,000 |
| March 31, 2004     |   | $ | 5,000,000  |
| May 31, 2004       |   | $ | —     |

 

Asdiscussed previously, the Senior Construction Loan was in default as of June29, 2003 due to the failure by Grand Summit to reduce the principal balanceoutstanding to a maximum of $30.0 million as required under the terms of theagreement.  In addition, the SeniorConstruction Loan further required that the loan be reduced to a maximum of$25.0 million by June 30, 2003.

 

F-20

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**8.             SubordinatedNotes and Debentures**

 

**12% Senior Subordinated Notes**

The Company hasissued $120.0 million of 12% Senior Subordinated Notes (Senior SubordinatedNotes).  The Senior Subordinated Notesare general unsecured obligations of the Company, subordinated in right ofpayment to all existing and future senior debt of the Company, including allborrowings of the Company under its Resort Senior Credit Facility (see Note 6).The Senior Subordinated Notes are fully and unconditionally guaranteed by ASCand all of its subsidiaries, with the exception of Ski Insurance, KillingtonWest, Ltd., Uplands Water Company and Walton Pond Apartments, Inc.  The above listed subsidiaries that are notguarantors are individually and collectively immaterial to the Company’sbalance sheet and results of operations. The guarantor subsidiaries are wholly owned subsidiaries of ASC and theguarantees are full, unconditional, and joint and several.  ASC is a holding company with no significantindependent assets or operations other than its interests in thesubsidiaries.  Some of the guarantorsubsidiaries are restricted in their ability to declare dividends or advancefunds to ASC.  The Senior SubordinatedNotes mature July 15, 2006, and are redeemable at the option of ASC, in wholeor in part, at any time after July 15, 2001. The Senior Subordinated Notes were issued with an original issuediscount of $3.4 million.  As of July27, 2003, the unamortized original issue discount was approximately $1.4million.  Interest on the SeniorSubordinated Notes is payable semi-annually on January 15 and July 15 of eachyear. Interest expense on the Senior Subordinated Notes amounted to $14.4 millionin each of Fiscal 2001, Fiscal 2002, and Fiscal 2003.  The Company has the option to redeem the Senior SubordinatedNotes at the following prices on the dates noted (expressed as a percentage offace value):

 
| Through July 14, 2004              |   | 103.125 | % |
|------------------------------------|--------|---------|---|
| July 15, 2004 – July 14, 2005 |   | 101.563 | % |
| Thereafter                         |   | 100.000 | % |

 

The SeniorSubordinated Notes are not subject to a cross-default resulting from a defaultby the Company’s real estate subsidiaries under certain debt which isnon-recourse to the remainder of the Company, including the Real Estate TermFacility and the Construction Loan Facility. Furthermore, neither a bankruptcy nor a judgment against any of theCompany’s real estate development subsidiaries will constitute a default underthe indenture.

 

TheCompany had previously entered into a series of non-cancelable interest rateswap agreements in connection with the Senior Subordinated Notes. Theseagreements were non-hedging swaps which are carried at their fair market value,with fluctuations recorded through interest expense, in accordance with SFASNo. 133.  In connection with therefinancing of the Company’s prior resort senior credit facility on February18, 2003, the interest rate swap agreements were terminated with no significantgain or loss being incurred.

 

    **11.3025% Junior Subordinated Notes**

On July 15, 2001, the Company entered into asecurities purchase agreement with Oak Hill Capital Partners L.P. to assist theCompany in meeting its current financing needs (see Note 12).  Pursuant to the terms of the securitiespurchase agreement, which closed on August 31, 2001, the Company issued, andOak Hill Capital Partners L.P. purchased, $12.5 million aggregate principalamount of Junior Subordinated Notes, which are convertible into shares of theCompany’s Series D Participating Preferred Stock (Series D PreferredStock).  These Junior Subordinated Notesare unsecured and bear interest at a rate of 11.3025%, which compounds annuallyand is due and payable at the maturity of the Junior Subordinated Notes inAugust 2007.  The proceeds of the JuniorSubordinated Notes were used to fund short-term liquidity needs of ResortProperties by way of the purchase of certain real estate assets by ASC fromResort Properties.  As of July 27, 2003,the outstanding balance on the Junior Subordinated Notes was approximately$15.3 million.

 

**Other Subordinated Debentures**

Other subordinateddebentures owed by the Company as of July 27, 2003 are unsecured and are due asfollows (in thousands):

 

F-21

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| **Year** |   | **Interest****Rate** |       | **Principal****Amount** | *** *** |
|----------|--------|----------------------|------------|-------------------------|--------------|
| **2004** |   | 8                    | %          | **$**                   | 1,466        | ** ** |
| **2010** |   | 8                    | %          | 1,292                   |         |
| **2012** |   | 6                    | %          | 1,155                   |         |
| **2013** |   | 6                    | %          | 1,065                   |         |
| **2015** |   | 6                    | %          | 1,500                   |         |
| **2016** |   | 6                    | %          | 1,196                   |         |
|     |   |                 | ** ** | **$**                   | **7,674**    | ** ** |

 

**9.         MandatorilyRedeemable Securities**

 

**Series A Preferred Stock**

Pursuant to aSecurities Purchase Agreement (the Series A Agreement) dated July 2, 1997 (asamended July 16, 1997), the Company issued 17,500 shares of its Series A 14%Exchangeable Preferred Stock (the Series A Preferred Stock) in a privateoffering to an institutional investor. Pursuant to the Series A Agreement, the Company issued $17.5 millionaggregate principal amount of its 14% Senior Exchangeable Notes Due 2002 (theExchangeable Notes) on July 28, 1997 in a private offering to an institutionalinvestor.  On November 15, 1997, subsequentto the completion of the Offering, each share of Series A Preferred Stock andthe Exchangeable Notes were converted into shares of Mandatorily Redeemable101⁄2% Preferred Stock. The total number of Mandatorily Redeemable 101⁄2% PreferredStock shares issued in association with the exchange was 36,626 and each sharehas a face value of $1,000 per share. As of July 27, 2003, cumulative dividends in arrears totaledapproximately $30.0 million.

 

Under the Series AAgreement, the Mandatorily Redeemable Convertible 101⁄2% Series A Preferred Stockshares are exchangeable at the option of the holder into shares of theCompany’s common stock at a conversion price of $17.10 for each commonshare.  The Series A Preferred Stock wasredeemable on November 12, 2002 at an aggregate redemption price ofapproximately $61.9 million, which includes the face value of $36.6 millionplus approximately $25.3 million of cumulative dividends in arrears, to theextent that the Company had funds legally available for that redemption.  If the Series A Preferred Stock is notpermitted to be redeemed because there are not legally available funds, theCompany must redeem that number of shares of Series A Preferred Stock which itcan lawfully redeem, and from time to time thereafter, as soon as funds arelegally available, the Company must redeem shares of the Series A PreferredStock until it has done so in full. Prior to the November 12, 2002 redemption date, based upon all relevantfactors, the Company’s Board of Directors determined not to redeem any sharesof stock on the redemption date.  OnJanuary 27, 2003, the holders of the Series A Preferred Stock demanded that theCompany redeem all of the Series A Preferred Stock immediately and on April 8,2003, the Series A Preferred Stockholders demanded pursuant to Delaware law toreview certain records.  The Companywill continue to assess its obligations with respect to the requirements of theredemption provisions of for its Series A Preferred Stock.  Because the Series A Preferred Stock was notredeemed on November 12, 2002, the certificate of designation for the Series APreferred Stock provides that the holders are entitled to elect two new membersof the Company’s board of directors. The Company has not yet been advised by the holders of the Series APreferred Stock whether they intend to exercise their right to elect twodirectors at or prior to the next annual shareholders meeting or whether theyintend to take any other action, including legal action, to seek to compel ourredemption of the Series A Preferred Stock. If the holders of the Series A Preferred Stock were to commence anylitigation to compel the Company to redeem the Series A Preferred Stock, basedon present facts and circumstances, the Company would vigorously contest thatlitigation.  If the Company is requiredto redeem all or any portion of the Series A Preferred Stock, it could have amaterial adverse effect on its business, results of operations and financialcondition.

 

The MandatorilyRedeemable 101⁄2% Preferred Stock ranks senior in liquidation preference to allcommon stock and Class A common stock outstanding as of July 27, 2003 as wellas any common stock and Class A common stock issued in the future.

 

**Series B Preferred Stock**

Pursuant to a PreferredStock Subscription Agreement (the Series B Agreement) dated July 9, 1999, theCompany sold 150,000 shares of its 8.5% Series B Convertible ParticipatingPreferred Stock (Series B Preferred

 

F-22

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Stock) on August 9, 1999 toOak Hill for $150 million.

 

On August 31,2001, in connection with a recapitalization transaction, the Series B PreferredStock was stripped of all of its economic and governance rights andpreferences, with the 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 (see Note 12). The Series B Preferred Stock will lose its remaining rights uponredemption of the Series C-1 and C-2 Preferred Stock in July 2007.

 

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

On July 15, 2001, theCompany entered into a securities purchase agreement with Oak Hill to assistthe Company in meeting its current financing needs.  Pursuant to the terms of the securities purchase agreement, whichclosed on August 31, 2001, the Company issued to Oak Hill two new series ofPreferred Stock: (i) $40 million face value of Series C-1 Preferred Stock; and(ii) $139.5 million face value of Series C-2 Preferred Stock.  The initial face values of the Series C-1Preferred Stock and Series C-2 Preferred Stock correspond to the accruedliquidation preference of the Series B Preferred Stock immediately before beingstripped of its right to such accrued liquidation preference (see Note12).  The Series C-1 Preferred Stock andSeries C-2 Preferred Stock are entitled to annual preferred dividends of 12%and 15%, respectively.  At the Company’soption, dividends can either be paid in cash or in additional shares ofpreferred stock.  The Series C-1Preferred Stock is convertible into common stock at a price of $1.25 per share,subject to adjustments.  The Series C-2Preferred Stock is not convertible. Both of the Series C-1 Preferred Stock and Series C-2 Preferred Stockare mandatorily redeemable and mature in July 2007.  As of July 27, 2003, cumulative dividends in arrears totaledapproximately $10.1 million and $45.2 million forthe Series C-1 Preferred Stock and Series C-2 Preferred Stock,respectively.

**Series D Preferred Stock**

The Company hasauthorized the issuance of 5,000 shares of $0.01 par value, non-voting Series DParticipating Preferred Stock (Series D Preferred Stock).  As of July 27, 2003, no shares of Series DPreferred Stock have been issued.  TheSeries D Preferred Stock is junior in right of preference to the Series A,Series C-1 and Series C-2 Preferred Stock, is not entitled to preferreddividends and is redeemable at the option of the shareholder.

**10.          CapitalStock**

 

The Company hastwo classes of Common Stock outstanding, Class A common stock and common stock.The rights and preferences of holders of Class A common stock and common stockare substantially identical, except that, while any Class A common stock isoutstanding, holders of Class A common stock will elect a class of directorsthat constitutes two-thirds of the Board of Directors (other than directorselected by holders of the Company’s various classes of preferred stock) andholders of common stock will elect a class of directors that constitutesone-third of the Board of Directors (other than directors elected by holders ofthe Company’s various classes of preferred stock).  Each share of Class A common stock will be convertible into oneshare of common stock (i) at the option of the holder at any time, (ii)automatically upon transfer to any person that is not an affiliate of Mr. Ottenand (iii) automatically if, at any time, the number of shares of Class A commonstock outstanding represents less than 20% of outstanding shares of commonstock and Class A common stock. Mr. Otten holds 100% of the Class A common stock.

 

**11.          DividendRestrictions and Stockholders Agreement**

 

**Dividend Restrictions**

Borrowers underthe Resort Senior Credit Facility, which include ASC, are restricted frompaying cash dividends on any of their preferred or common stock.

 

Borrowers underthe Real Estate Term Facility, which include Resort Properties and ResortProperties’ subsidiaries, including Grand Summit, are restricted from declaringdividends or advancing funds to ASC by any other method, unless specificallyapproved by these lenders.

 

F-23

----

 

Under theindenture governing the Senior Subordinated Notes, ASC is prohibited frompaying cash dividends or making other distributions to its shareholders.

 

**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 their capital stock of the Company so as to causethere to be:

 

**•**      Sixdirectors of the Company nominated by Oak Hill, so long as Oak Hill owns 80% ofthe shares of common stock it owned as of July 30, 2000 on a fully dilutedbasis, such number of directors decreasing ratably with the percentage of OakHill’s ownership of the common stock on a fully diluted basis compared to suchownership 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.

Oak Hill owns 80% of the shares of common stock itowned as of July 30, 2000, on a fully diluted basis, therefore, two of the fourmembers of the Board of Directors to be elected by Mr. Otten, as sole owner ofthe Class A Common Stock pursuant to the terms of the Company’s certificate ofincorporation will be chosen by Oak Hill and elected by Mr. Otten.

 

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) theinitiation of certain material litigation, and (vi) any material financing ofthe 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 or any of its subsidiaries.  TheStockholders Agreement provides for additional customary transfer restrictionsapplicable to each of Mr. Otten and Oak Hill as well as standstill provisionsapplicable 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 and on the same terms,the number of shares of Common Stock or securities convertible into commonstock necessary for each of them to maintain individually the same level ofbeneficial ownership of common stock of the Company on a fully diluted basis asit owned immediately prior to the issuance. This anti-dilution provision is subject to customary exceptions.

 

**12.          Recapitalization**

 

**Recapitalization**

On July 15, 2001,the Company entered into a securities purchase agreement with Oak Hill toassist the Company in meeting its current financing needs.  The agreement closed on August 31, 2001 andincluded the following key terms:

 
| **•** | **The  Company issued, and Oak Hill purchased, $12.5 million aggregate principal  amount of Junior Subordinated Notes, which are convertible into shares of the  Company’s Series D Preferred Stock;** |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**F-24**

----

** **
| **•** | **Oak  Hill funded $2.5 million of the $3.5 million of availability remaining under  Tranche C of the Real Estate Term Facility to facilitate amendments to that  credit facility.  This was the final  advance under Tranche C, as the maximum availability under this facility was  reduced from $13 million to $12 million;**                                                                                                                             |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **•** | **Oak  Hill agreed to provide a guaranty for a $14 million equipment lease for the  Heavenly gondola, which guaranty was released upon the sale of Heavenly.  The fair value of the lease guaranty was  approximately $1.7 million;**                                                                                                                                                                                                                        |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **•** | **Oak  Hill purchased 1 million shares of the Company’s common stock for an  aggregate purchase price of $1 million;**                                                                                                                                                                                                                                                                                                                                       |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **•** | **Oak  Hill agreed to cancel an agreement to provide it with warrants for 6 million  shares of the Company’s common stock or 15% of the common stock of Resort  Properties, the fair value of which was $2.2 million on the date of the  transaction (see Note 7);**                                                                                                                                                                                         |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **•** | **The  outstanding Series B Preferred Stock that was held by Oak Hill was stripped  of all of its economic and governance rights and preferences, with the  exception of the right to elect up to six directors in exchange for the items  mentioned above and the Company issuing to Oak Hill two new series of  Preferred Stock: (i) $40 million face value of Series C-1 Preferred Stock;  and (ii) $139.5 million face value of Series C-2 Preferred Stock;** |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **•** | **At  Oak Hill’s option, and subject to the consent of the other lenders under the  Real Estate Term Facility, Tranche C of the Real Estate Term Facility is  exchangeable in whole or in part into indebtedness of the Company when  permitted under the existing debt agreements.**                                                                                                                                                                        |

** **

**The termination of the liquidationpreference and other rights of the Series B Preferred Stock in exchange for theissuance of the Series C-1 and Series C-2 Preferred Stock was accounted for asa modification and recapitalization transaction in conjunction with the termsdescribed above.  Accordingly, thecarrying value of the Series B Preferred Stock of $172.1 million (net of $7.4million unamortized discount) as of August 31, 2001 was removed and a correspondingamount recorded as Series C-1 Preferred Stock and Series C-2 PreferredStock.  In addition, the fair values ofthe gondola lease guaranty of  $1.7million and the warrant rights returned to the Company by Oak Hill of $2.2million were added to the recorded value of the Series C-1 and Series C-2Preferred Stock.  The gondola leaseguaranty was accounted for as a prepaid lease cost that was amortized to leaseexpense based on the life of the gondola lease until the Heavenly resort wassold at which time the unamortized portion was written off.  The long-term liability related to thewarrant rights was removed and the difference between its carrying value of$7.7 million and its fair value of $2.2 million was recorded as additionalpaid-in capital.  No gain or loss wasrecognized related to this recapitalization transaction.**

** **

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

 

During Fiscal2001, Fiscal 2002 and Fiscal 2003, the Company recognized certain merger,restructuring and asset impairment charges as follows (in thousands):

 

F-25

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|                                                                                                          |   | **Fiscal 2001** |       | **Fiscal 2002** |   | **Fiscal 2003** |       |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------|------------|-----------------|--------|-----------------|------------|
| **Impairment of Steamboat assets**                                                                            |   | $               | 52,000     |            | $      | 25,444          |       | $ | — |   |
| **Impairment of Steamboat Grand Hotel and The Canyons Grand  Summit Hotel quarter and eighth share units**    |   | —          |       | 38,700          |   | —          |       |
| **Impairment of The Canyons land and land****options**                                                        |   | —          |       | 18,921          |   | —          |       |
| **Impairment of real estate master planning and  infrastructure costs**                                       |   | —          |       | 24,756          |   | (160            | )          |
| **Impairment of resort land option at Sunday River and  certain resort fixed assets and other   assets** |   | —          |       | 1,369           |   | 1,191           |       |
| **Impairment of Sugarbush assets**                                                                            |   | 15,111          |       | (272            | )      | —          |       |
| **Costs associated with failed merger**                                                                       |   | 3,593           |       | —          |   | —          |       |
| **Restructuring charges**                                                                                     |   | 3,981           |       | 2,690           |   | 420             |       |
| **Impairment of Attitash Bear Peak Grand Summit Hotel  quartershare units**                                   |   | 1,330           |       | —          |   | —          |       |
| **Total charges**                                                                                             |   | **$**           | **76,015** | ** **      | **$**  | **111,608**     | ** ** | **$** | **1,451** | ** ** |

 

**Merger and Asset Impairment Charges**

We incurred $1.4 millionof merger, restructuring and asset impairment charges for Fiscal 2003 thatconsisted of  $1.2 million of expensesrelated to the write-off of certain fixed assets and other assets in our resortsegment, $0.4 million in employee severance charges in our resort segment,offset by the reversal of $0.2 million of impairment charges in our real estatesegment that were determined not to be needed.

 

On May 20, 2002,Resort Properties defaulted on the Real Estate Term Facility due to its failureto make a mandatory principal payment of $3.75 million.  Until this time, Resort Properties had beenable to obtain waivers or amendments to the Real Estate Term Facility wheneverthere were defaults.  However, given thecombination of (1) extreme slow down in the resort sector economy andespecially the slowdown in the real estate market, (2) the conservative lendingenvironment, and (3) the negative terms of the Textron restructuring and thepossible negative terms of the Fleet restructuring, management determined thata significant adverse change in the economic environment and in the businessplans of the Company occurred in the fourth quarter of Fiscal 2002.  This adverse change affected therealizability of the Company’s long-lived assets and the Company recordedappropriate impairments.  In accordancewith SFAS No. 144, the Company evaluated the carrying values of long-livedassets as of July 27, 2002.  In additionto the $25.4 million of asset impairments recorded on Steamboat fixed assetsduring the second quarter of Fiscal 2002 (as discussed below), approximately$83.5 million of asset impairments were recorded during the fourth quarter ofFiscal 2002 and are summarized as follows:

 

*Real Estate Business Segment*
| • | $38.7 million for  quarter and eighth share inventory at the Steamboat Grand Hotel and The  Canyons Grand Summit Hotel based on expected future cash flows,                                     |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Approximately $24.8  million for master planning and real estate costs at The Canyons, Killington,  Mount Snow, Sugarloaf/USA, Sunday River and Steamboat based on expected  future cash flows. |

 

*Resort Business Segment*
| • | Approximately $18.9  million for land and land options at The Canyons based on appraisals and  expected future cash flows,      |
|--------|---------------------------------------------------------------------------------------------------------------------------------|
| • | Approximately $1.4  million for certain resort fixed assets and a land option at Sunday River  based on expected realizability, |
| • | Approximately ($0.3)  million gain to finalize the sale of Sugarbush.                                                           |

 

Duringthe first quarter of Fiscal 2002, the Company entered into a non-binding letterof intent to sell its Steamboat resort in Steamboat Springs, Colorado.  In accordance with SFAS No. 121, the Companyrecognized a $52.0 million impairment loss on the net assets held for sale asof July 29, 2001.  An additional $25.4million impairment charge was recorded in the second quarter of Fiscal 2002based on modifications from preliminary

 

F-26

----

 

estimatesto the final proposed purchase and sale agreement.  The Company withdrew from the sale of Steamboat on March 26,2002.

 

In the firstquarter of Fiscal 2002, the Company finalized its sale of its Sugarbush resortin Warren, Vermont.  In accordance withSFAS No. 121, the Company recognized a $15.1 impairment loss on these assets asof July 29, 2001.  Upon completion ofthe sale of Sugarbush on September 28, 2001, the Company recorded a gain ofapproximately $272,000 which was reflected as an offset to the previouslyrecorded impairment charges.

 

OnDecember 8, 2000, the Company and MeriStar Hotels & Resorts, Inc.(‘‘MeriStar’’) entered into a merger agreement (the ‘‘Merger Agreement’’)whereby a wholly owned subsidiary of the Company, ASC Merger Sub, Inc., wouldhave merged with and into MeriStar (the ‘‘MeriStar Merger’’). The Boardsof each of the Company and MeriStar met separately on March 22, 2001 and votedto terminate the proposed merger due to changes in economic conditions and thecombined companies’ inability to effect the capital markets transactionsrequired to consummate the merger.  Thecompanies each executed a letter terminating their existing Merger Agreementwithout liability to the other.  TheCompany recorded a $3.6 million charge in the third quarter of Fiscal 2001 forthe costs incurred in conjunction with the terminated MeriStar Merger.  This $3.6 million charge included $2.5million in legal, accounting and other consultation and professional servicesrendered in conjunction with the proposed merger, $0.8 million in fees paid tolenders related to the Company’s application for a new senior credit facilitythat would have been established for the surviving merged enterprise, and $0.3million in fees incurred for the preparation and distribution of a consentsolicitation statement seeking the approval of the proposed merger from theholders of the Company’s Notes.

 

TheAttitash Bear Peak Grand Summit Hotel had realized slower absorption in themarket than previously anticipated, and 40% of the units remained unsold as ofJuly 29, 2001.  As a result, the Companyinstituted programs to bring about a complete sell-out of the units duringFiscal 2002.  In accordance with SFASNo. 121, the Company recognized a $1.3 million impairment charge to recognizethe net realizable value of the remaining quartershare units in the fourthquarter of Fiscal 2001.  The remainingunits were sold during Fiscal 2002.

 

**Restructuring Charges**

OnMay 30, 2001, the Company initiated a comprehensive strategic plan to improveits capital structure and enhance future operating performance.  The plan included the following keycomponents:

 
| • |   | Strategic  redeployment of management and capital resources to emphasize the integration  and growth of resort village development and operations.                             |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • |   | Intent  to sell the Steamboat resort and use the net proceeds to reduce the debt of  the Company.                                                                              |
| • |   | Reorganization,  staff reduction and performance enhancement programs to achieve operational  cost savings and improve financial performance.                                  |
| • |   | A  comprehensive financial restructuring package, including amendments to senior  credit facilities and an anticipated new capital infusion to enhance  financial flexibility. |

 

DuringFiscal 2001, the Company incurred $4.0 million in charges related to the implementationof its comprehensive strategic plan.  Ofthis amount, $2.8 million represents amounts paid for employee separation costsrelated to the termination of employees throughout the Company including severalsenior management positions.  As of July29, 2001, all planned employee terminations had been completed.  These terminations and restructuringsconsisted of converting 160 full-time, year-round positions to seasonalpositions and the elimination of approximately 70 full-time, year-round positions.  The remaining $1.2 million consisted mainlyof legal and financial consulting costs incurred in connection with evaluatingcapital restructuring alternatives, including amendments to the Company’scredit facilities and the recapitalization of the Company (see Note 12).  All of the amounts recognized in Fiscal 2001were paid or accrued for services rendered prior to July 29, 2001.

 

During Fiscal2002, the Company incurred $2.7 million in charges related to theimplementation of its comprehensive strategic plan.  These costs consisted mainly of legal, consulting and financingcosts incurred in connection with its resort and real estate credit facilityamendments.  All of the amountsrecognized during Fiscal 2002 were paid or accrued for services rendered priorto July 28, 2002.

 

F-27

----

 

Each of theamounts for Fiscal 2001 and Fiscal 2002 are included in merger, restructuringand asset impairment charges in the accompanying consolidated statements ofoperations.

 

**14.      IncomeTaxes**

 

The (provision) benefitfor income taxes charged to operations was as follows (in thousands):

 

|                                  |   | **Fiscal  2001** |       | **Fiscal  2002** |   | **Fiscal  2003** |       |
|---------------------------------------|--------|------------------|------------|------------------|--------|------------------|------------|
| **Deferred  tax (provision) benefit** |   |             |       |             |   |             |       |
| **Federal**                           |   | $                | (1,203     | )                | $      | —           |       | $ | — |   |
| **State**                             |   | 1,203            |       | —           |   | —           |       |
|                                  |   |             |       |             |   |             |       |
| **Total  (provision) benefit**        |   | **$**            | **—** | ** **       | **$**  | **—**       | ** ** | **$** | **—** | ** ** |

 

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 operating loss or creditcarryforwards is recognized if it is more likely than not that a benefit willbe realized.  Deferred tax (expense)benefit represents the change in the net deferred tax asset or liabilitybalance.

 

Deferredtax (liabilities) assets are comprised of the following as of July 28, 2002 andJuly 27, 2003 (in thousands):

 

|                                           |   | **July 28,  2002** |       | **July 27,  2003** |   |
|------------------------------------------------|--------|--------------------|------------|--------------------|--------|
| **Property  and equipment basis differential** |   | $                  | (50,261    | )                  | $      | (49,545 | ) |
| **Other**                                      |   | (6,528             | )          | (8,771             | )      |
| **Gross  deferred tax liabilities**            |   | (56,789            | )          | (58,316            | )      |
|                                           |   |               |       |               |   |
| **Tax  loss and credit carryforwards**         |   | 103,314            |       | 119,442            |   |
| **Capitalized  costs**                         |   | 4,351              |       | 4,715              |   |
| **Deferred  revenue and contracts**            |   | 2,339              |       | 2,533              |   |
| **Stock  compensation charge**                 |   | 248                |       | 603                |   |
| **Reserves  and accruals**                     |   | 71,433             |       | 72,980             |   |
| **Gross  deferred tax assets**                 |   | 181,685            |       | 200,273            |   |
|                                           |   |               |       |               |   |
| **Valuation  allowance**                       |   | (124,896           | )          | (141,957           | )      |
| **Net  deferred tax (liability) asset**        |   | **$**              | **—** | ** **         | **$**  | **—** | ** ** |

 

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, cumulative effect ofchange in accounting principle and income from discontinued operations as aresult of the following differences (in thousands):

 
|                                                    |   | **Fiscal  2001** |       | **Fiscal  2002** |   | **Fiscal  2003** |       |
|---------------------------------------------------------|--------|------------------|------------|------------------|--------|------------------|------------|
| **Income  tax benefit at the statutory U.S. tax rates** |   | $                | 43,759     |             | $      | 58,652           |       | $ | 15,531 |   |
| **Increase  (decrease) in rates resulting from:**       |   |             |       |             |   |             |       |
| **State  taxes, net**                                   |   | 4,166            |       | 10,416           |   | 3,054            |       |
| **Change  in valuation allowance**                      |   | (47,182          | )          | (67,732          | )      | (17,061          | )          |
| **Stock  option compensation**                          |   | —           |       | (163             | )      | —           |       |
| **Nondeductible  items**                                |   | (350             | )          | (360             | )      | (1,461           | )          |
| **Other**                                               |   | (393             | )          | (813             | )      | (63              | )          |
| **Income  tax benefit at the effective tax rates**      |   | **$**            | **—** | ** **       | **$**  | **—**       | ** ** | **$** | **—** | ** ** |

 

As of July 27, 2003, theCompany has federal net operating loss (NOL) carryforwards of approximately$275 million which expire in varying amounts though Fiscal 2023, andapproximately $1 million in general

 

F-28

----

 

business creditcarryforwards which expire in varying amounts through Fiscal 2022.  The utilization of all or some of theselosses and carryforwards will be limited pursuant to Internal Revenue CodeSection 382 as a result of ownership changes.

 

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 $124.9 million and $142.0 million has been established to reduce thedeferred tax assets as of July 28, 2002 and July 27, 2003, respectively.

 

# **15.      CumulativeEffect of Change in Accounting Principle**

 

During Fiscal2002, the Company adopted SFAS No. 142, “Goodwill and Other IntangibleAssets”.  SFAS No. 142 applies togoodwill and intangible assets acquired after June 30, 2001, as well asgoodwill and intangible assets previously acquired.  As a result of the adoption of SFAS No. 142, the Company recordeda goodwill impairment loss of $18.7 million, which has been recorded as acumulative effect of change in accounting principle in the accompanyingconsolidated statement of operations for Fiscal 2002.

 

In accordance with SFASNo. 137, “Accounting for Derivative Instruments and Hedging Activities –Deferral of the Effective Date of FASB Statement No. 133,” the Company adoptedSFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”and SFAS No. 138, “Accounting for Certain Derivative Instruments and HedgingActivities, an Amendment of FASB Statement No. 133,” (collectively, SFAS No.133, as amended) effective July 31, 2000. These standards were adopted as of the beginning of Fiscal 2001 as acumulative effect of a change in accounting principle.

 

SFAS No. 133, asamended, establishes accounting and reporting standards requiring that everyderivative instrument (including certain derivative instruments embedded inother contracts) be recorded in the balance sheet as either an asset orliability measured at its fair value. Special accounting for qualifying hedges allows a derivative’s gains andlosses to offset related results on the hedged item in the income statement, tothe extent effective, and requires that the Company formally document,designate and assess the effectiveness of transactions that receive hedgeaccounting.  SFAS No. 133, as amended,in part, allows special hedge accounting for fair value and cash flowhedges.  The statement provides that thegain or loss on a derivative instrument designated and qualifying as a fairvalue hedging instrument, as well as the offsetting changes in the fair valueof the hedged item attributable to the hedged risk, be recognized currently inoperations in the same accounting period. SFAS No. 133, as amended, provides that the effective portion of thegain or loss on a derivative instrument designated and qualifying as a cashflow hedging instrument be reported as a component of other comprehensiveincome and be reclassified into operations in the same period or periods duringwhich the hedged forecasted transaction affects operations.  The ineffective portion of a derivative’schange in fair value is recognized currently through operations regardless ofwhether the instrument is designated as a hedge.

 

TheCompany had five interest rate swap contracts outstanding at the time ofadoption. Two of these contracts were designated as cash flow hedges, and weresubsequently terminated by the floating rate payer on November 17, 2000.  Upon adoption, the fair value of these swapswere recorded as an asset on the balance sheet with a corresponding credit toother comprehensive income.  Thecancellation of these swaps effectively resulted in a reversal of the amountsrecognized upon adoption.

#### ** **

TheCompany entered into three other interest rate swap agreements that did notqualify for hedge accounting under SFAS No. 133, as amended.  As of July 30, 2000, the Company had $8.6million recorded in other long term liabilities in the accompanyingconsolidated balance sheet and had been recording the net effect of theinterest savings on a straight line basis over the life of the agreementsthrough the statement of operations. Upon adoption, the fair values of these swaps were recorded as an assetand a liability with a corresponding entry to cumulative effect of a change inaccounting principle in operations; and the amount recorded in other long termliabilities was recognized through a cumulative effect of a change inaccounting principle in operations.  ForFiscal 2001, Fiscal 2002 and Fiscal 2003 (through the date terminated, see Note8), the subsequent change in the fair value of the swaps of $0.9 million, $1.3million and $0.4 million, respectively, was recorded as interest expense in the

 

F-29

----

 

accompanying consolidated statements ofoperations.  The net effect of thecumulative change in accounting principle was derived as follows (inthousands):

 

| **Debit/(Credit)**           |   | **Asset -  Swap** |   | **Liability  - Swap** |   | **Other Long  Term  Liabilities** |   | **Cumulative  effect of a change in accounting   principle (pre-tax)** |   |
|------------------------------|--------|-------------------|--------|-----------------------|--------|-----------------------------------|--------|------------------------------------------------------------------------|--------|
| **Non-hedging  Derivatives** |   | $                 | 6,520  |                  | $      | (11,065                           | )      | $                                                                      | 8,592  |   | $ | (4,047 | ) |
|                              |        |                   |        |                       |        |                                   |        |                                                                        |        |  |  |  |  |

 

The Company has noembedded derivatives under SFAS No. 133, as amended.

 

**16.      BusinessSegment Information**

 

The Company hasclassified its operations into two business segments, resorts and real estate.  Revenues at each of the resorts are derivedfrom the same lines of business which include lift ticket sales, food andbeverage, retail sales including rental and repair, skier development, lodgingand property management, golf, other summer activities and miscellaneousrevenue sources.  The performance of theresorts is evaluated on the same basis of profit or loss.  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 theresorts satisfy the aggregation criteria set forth in SFAS No. 131.

 

The Company’s realestate revenues are derived from the sale and leasing of interests in realestate development projects undertaken by the Company at its resorts and thesale of other real property interests. The accounting policies of the operating segments are the same as thosedescribed in the summary of significant accounting policies.  Data by segment is as follows (inthousands):

 

F-30

----

** **

|                                                    |   | **July 29, 2001** |     | **July 28, 2002** |   | **July 27, 2003** |   |
|---------------------------------------------------------|--------|-------------------|----------|-------------------|--------|-------------------|--------|
|                                                    |   |              |     |              |   |              |   |
| **Net revenues:**                                       |   |              |     |              |   |              |   |
| **Resorts**                                             |   | $                 | 275,686  |              | $      | 243,842           |   | $ | 251,638 |   |
| **Real estate**                                         |   | 96,864            |     | 28,274            |   | 12,898            |   |
|                                                    |   | $                 | 372,550  |              | $      | 272,116           |   | $ | 264,536 |   |
|                                                    |   |              |     |              |   |              |   |
| **Loss before income taxes:**                           |   |              |     |              |   |              |   |
| **Resorts**                                             |   | $                 | (93,925  | )                 | $      | (82,494           | )      | $ | (23,319 | ) |
| **Real estate**                                         |   | (31,101           | )        | (85,084           | )      | (21,055           | )      |
|                                                    |   | $                 | (125,026 | )                 | $      | (167,578          | )      | $ | (44,374 | ) |
|                                                    |   |              |     |              |   |              |   |
| **Depreciation and amortization:**                      |   |              |     |              |   |              |   |
| **Resorts**                                             |   | $                 | 32,929   |              | $      | 25,152            |   | $ | 25,791 |   |
| **Real estate**                                         |   | 2,014             |     | 1,086             |   | 1,722             |   |
|                                                    |   | $                 | 34,941   |              | $      | 26,238            |   | $ | 27,513 |   |
|                                                    |   |              |     |              |   |              |   |
| **Interest Expense:**                                   |   |              |     |              |   |              |   |
| **Resorts**                                             |   | $                 | 28,641   |              | $      | 36,267            |   | $ | 27,139 |   |
| **Real estate**                                         |   | 27,831            |     | 18,485            |   | 20,225            |   |
|                                                    |   | $                 | 56,472   |              | $      | 54,752            |   | $ | 47,364 |   |
|                                                    |   |              |     |              |   |              |   |
| **Merger, restructuring and asset impairment charges:** |   |              |     |              |   |              |   |
| **Resorts**                                             |   | $                 | 71,316   |              | $      | 47,912            |   | $ | 1,611 |   |
| **Real estate**                                         |   | 4,699             |     | 63,696            |   | (160              | )      |
|                                                    |   | $                 | 76,015   |              | $      | 111,608           |   | $ | 1,451 |   |
|                                                    |   |              |     |              |   |              |   |
| **Capital expenditures:**                               |   |              |     |              |   |              |   |
| **Resorts**                                             |   | $                 | 7,477    |              | $      | 6,903             |   | $ | 7,084 |   |
| **Real estate**                                         |   | 44,783            |     | 10,190            |   | 6,457             |   |
|                                                    |   | $                 | 52,260   |              | $      | 17,093            |   | $ | 13,541 |   |
| **Identifiable assets:**                                |   |              |     |              |   |              |   |
| **Resorts**                                             |   | $                 | 434,813  |              | $      | 389,270           |   | $ | 349,300 |   |
| **Real estate**                                         |   | 234,122           |     | 124,764           |   | 116,971           |   |
|                                                    |   | $                 | 668,935  |              | $      | 514,034           |   | $ | 466,271 |   |

 

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.  A reconciliation of thetotals reported for the operating segments to the totals reported in theconsolidated financial statements is as follows:

 

F-31

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|                                                                       |   | **July 29, 2001** |   | **July 28, 2002** |    | **July 27, 2003** |   |
|----------------------------------------------------------------------------|--------|-------------------|--------|-------------------|---------|-------------------|--------|
| **Capital expenditures:**                                                  |   |              |   |              |    |              |   |
| **Resort capital expenditures**                                            |   | $                 | 7,477  |              | $       | 6,903             |   | $ | 7,084 |   |
| **Capital expenditures for****discontinued  operations**                   |   | 16,365            |   | 628               |    | —            |   |
|                                                                       |   | $                 | 23,842 |              | $       | 7,531             |   | $ | 7,084 |   |
| **Assets:**                                                                |   |              |   |              |    |              |   |
| **Identifiable assets for segments**                                       |   |              |   | $                 | 514,034 |              | $      | 466,272 |   |
| **Assets of discontinued operations**                                      |   |              |   | —            |    | —            |   |
| **Intangible and deferred income tax****assets not allocated to segments** |   |              |   | 7,959             |    | 9,034             |   |
| **Total consolidated assets**                                              |   |              |   | $                 | 521,993 |              | $      | 475,305 |   |

 

**17.      RelatedParty Transactions**

 

Tranche C of theReal Estate Term Facility was purchased by Oak Hill on July 31, 2001 (see Note7).  The Company paid a $375,000financing fee to Oak Hill in connection with this $13 million investment.  The Real Estate Term Facility and therelated Securities Purchase Agreement with Oak Hill were restructured during thefirst quarter of Fiscal 2002.

 

During Fiscal2001, the Company paid $150,000 each to Mr. Paul Wachter and Mr. David Hawkes,both of whom are members of the Company’s Board of Directors, for theirparticipation in the Special Committee that was formed to evaluate the proposedmerger between the Company and Meristar Hotels and Resorts, Inc.  The Company also reimbursed Oak Hill a totalamount of $137,000 for its professional and other fees incurred in connectionwith the proposed Meristar Merger.

 

On March 28, 2001,Mr. Otten resigned as the Company’s Chairman and Chief Executive Officer.  Mr. Otten is still a major shareholder ofthe Company and is a member of the Company’s Board of Directors.  As part of his separation agreement, theCompany paid Mr. Otten and his executive assistant their salaries and medicalbenefits for two years.  These amountstotaled approximately $480,000 on an annual basis.  In addition, the Company granted Mr. Otten the use of Companyoffice space for up to two years and the Company also transferred ownership ofone of its vehicles (valued at approximately $20,000) to Mr. Otten at nocharge.

 

In April, 2003, the Company engaged in 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. This transaction was reviewed and approved by the Audit Committee of theCompany’s Board of Directors.

 

Mr. Wachter is thefounder and Chief Executive Officer of Main Street Advisors.  Main Street Advisors, throughMr. Wachter, acted as one of the Company’s investment bankers inconnection with the marketing of the Steamboat and Heavenly resorts forsale.  Main Street Advisors is entitledto a percentage-based fee in the event of the sale of any significant asset ofthe Company, other than the Sugarbush resort and certain undeveloped realestate properties.  During Fiscal 2001,Fiscal 2002, and Fiscal 2003, the Company paid Main Street Advisors $0, $1.1million and $0, respectively, in connection with these services.

 

**18.      Commitmentsand Contingencies**

 

The Company leasescertain land and facilities used in the operations of its resorts under severaloperating lease arrangements.  Theselease arrangements expire at various times from the year 2010 through the year2060. Lease payments are generally based on a percentage of revenues.  Total rent expense under these operating leasesas recorded in resort operating expenses in the accompanying consolidatedstatements of operations for Fiscal 2001, 2002, and 2003 was $4.3 million, $4.2million, and $4.2 million, respectively.

 

F-32

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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 Bear Peak, Mount Snow andSteamboat is located on federal land that is used under the terms of thepermits with the United States Forest Service (the Forest Service). Generally,under the terms of such permits, the Forest Service has the right to review andcomment on the location, design and construction of improvements in the permitarea and on many operational matters. The permits can be terminated or modified by the Forest Service to servethe public interest.  The Company doesnot anticipate any limitations, modifications, or non-renewals which wouldadversely affect the Company’s operations.

 

Killington leasescertain 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 has the option to buy out thelease for an amount equal to Killington’s adjusted capital outlay plus 10% ofthe gross receipts 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 Vermont State officials, we have no reason tobelieve that the State intends to exercise the buy-out option at that time.

 

Sunday Riverleases approximately 1,500 acres, constituting a substantial portion of itsskiable terrain, under a 50-year lease terminating on October 14, 2030.  The lease renews automatically thereafter ona year-to-year basis unless terminated by either the lessor or lessee.  This lease was amended on January 23, 1998to allow Sunday River to purchase portions of the leased property for realestate development at a predetermined amount per acre.  In January 1998, we acquired an undividedone-half interest in the fee title to the leased parcel.

 

The Company isalso subject 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.

 

In connection withthe purchase of The Canyons, the Company entered into an operating leasearrangement with the seller for the lease of certain land to be used in theoperation of the resort and for future real estate development.  The arrangement provides for an initiallease term of 50 years, with the option to extend for three additional 50-yearperiods for a fee of $1.0 million for each extension period.  Lease payments are based on a percentage ofgross skiing and lodging revenues.  Thearrangement also provides for additional one-time payments ranging from$250,000 to $3.0 million upon achievement of annual skier visit level increasesin 100,000 visit increments up to 1,000,000. Total rent expense under this arrangement, as recorded in resort operatingexpenses in the accompanying consolidated statements of operations for Fiscal2001, 2002, and 2003 was $1.4 million, $1.2 million, and $1.2 million,respectively.  In addition, the Companyhas the option to purchase parcels of land covered under the operating leasefor real estate development.  Paymentsfor these options total approximately $19.4 million and were payable at varioustimes and in varying amounts through May 2003. Through July 27, 2003, the Company has made $17.4 million of optionpayments.  The remaining $2.0 million inoption payments have been accrued in other current liabilities in theaccompanying consolidated balance sheet as of July 27, 2003 as the Company hasentered into a non-cancelable agreement to make these payments.

 

The skidevelopment rights for approximately 3,000 acres of skiable terrain that theCompany 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 amendmentto this lease which provided that these ski development rights be acquired infee by The Canyons by April 2003.  InFiscal 2003, the Company paid approximately $5.0 million for the acquisition ofthese development rights.  Thisagreement will also require the Company to build two lifts over the next threeyears for an estimated total cost of approximately $2.0 million.

 

The Company hasentered into an agreement with a third party land owner at The Canyons resort foran exchange of development properties which will include an obligation of theCompany to complete certain road and utility infrastructure on the subjectparcels.  The estimated cost of theportion of this infrastructure for which the

 

F-33

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Company is responsible is$0.8 million.  In addition, the Companyis required to provide culinary water rights, which the Company owns, to thethird party owner.

 

The Company’sdevelopment activities at The Canyons in Utah are governed by permits issuedpursuant to a Development Agreement with local authorities.  The Development Agreement requires theCompany to achieve certain performance benchmarks in order to remain incompliance with the Development Agreement and obtain additional permits.  The Company has not achieved certain ofthese performance benchmarks within the time frames required under theDevelopment Agreement, and the local authorities have advised management that thesefailures potentially constitute defaults under the Development Agreement.  Management is working with the localauthorities to address these failures and reassess the appropriate timing forcompliance with these performance benchmarks.

 

In addition to theleases described above, the Company is committed under several operating andcapital leases for various facilities, machinery and equipment. Rent expenseunder all operating leases was $9.8 million, $10.3 million, and $9.3 millionfor Fiscal 2001, 2002, and 2003, respectively.

 

Future minimumlease payments for lease obligations, exclusive of contingent skier visitpayments, as of July 27, 2003 are as follows (in thousands):

 

|                                                    |   | **Capital  Leases** |      | **Operating  Leases** | ** ** |
|---------------------------------------------------------|--------|---------------------|-----------|-----------------------|------------|
| **2004**                                                |   | $                   | 4,152     |                  | $          | 5,476 |   |
| **2005**                                                |   | 5,560               |      | 3,278                 |       |
| **2006**                                                |   | —              |      | 2,043                 |       |
| **2007**                                                |   | —              |      | 1,284                 |       |
| **2008**                                                |   | —              |      | 922                   |       |
| **2009 and thereafter**                                 |   | —              |      | 5,964                 |       |
| **Total payments**                                      |   | 9,712               |      | $                     | 18,967     |   |
| **Less interest (rates ranging from 5.0%****to 12.2%)** |   | 1,180               |      |                  |       |
| **Present value of net minimum payments**               |   | 8,532               |      |                  |       |
| **Less current portion**                                |   | 3,417               |      |                  |       |
| **Long-term obligations**                               |   | **$**               | **5,115** | ** **            |       | ** ** |

 

The Killingtonresort has been identified by the U.S. Environmental Protection Agency (theEPA) as a potentially responsible party (PRP) at two sites pursuant to theComprehensive Environmental Response, Compensation and Liability Act (CERCLA orSuperfund).  Killington has entered intoa settlement agreement with the EPA at one of the sites, the Solvents RecoveryService of New England Superfund site in Southington, Connecticut.  Killington rejected an offer to enter into ade minimis settlement with the EPA for the other site, the PSC ResourcesSuperfund site in Palmer, Massachusetts, on the basis that Killington disputesits designation as a PRP.  The Companybelieves that its liability for these Superfund sites, individually and in theaggregate, will not have a material adverse effect on the business, financialcondition, results of operations or liquidity of the Company.

 

In connection withits Real Estate Term Facility, the Company is obligated to pay a contingent feeto the lenders in the event there exists unsold quarter and eighth shareinventory after the Construction Loan Facility and Tranches A and B of the RealEstate Term Facility have been repaid. This contingent fee would be equal to 0.7168% of the revenues realizedon the sales of the remaining units. Based on current projections of future sales of the remaining units,management believes that the probability of making such a payment isremote.  Therefore, no liability hasbeen recorded in the accompanying consolidated balance sheets.

 

In connection withits membership in the Resort Village Management Association (RVMA) at TheCanyons, the Company is obligated to fund $3 million of the estimated $18million in construction costs for a golf course to be built at The Canyons.  Part or all of this obligation may besatisfied by various capital improvements which would benefit the resort aswell as the golf course.  Since themethod of satisfying this obligation as well as the

 

F-34

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ultimate construction ofthe golf course is contingent upon the RVMA being able to obtain sufficientfunding, no liability has been recorded in the accompanying consolidatedbalance sheets for the $3 million obligation.

 

On January 24, 2002, the Company entered into anagreement with Triple Peaks, LLC (Triple Peaks) for the sale of the Company’sSteamboat resort.  Management laterdetermined that the sale of the Company’s Heavenly resort more closely achievedits restructuring objectives and concluded that the Company would not proceedwith the sale of the Steamboat resort. On April 5, 2002, Triple Peaks filed a lawsuit against American SkiingCompany in federal district court in Denver, alleging breach of contractresulting from its refusal to close on the proposed sale of the Steamboatresort.  The suit seeks both monetarydamages resulting from the breach and specific performance of thecontract.  On April 16, 2002, before theCompany filed an answer to its complaint, Triple Peaks voluntarily dismissedits suit and re-filed a substantially identical complaint in Colorado statedistrict court in Steamboat, also naming Steamboat Ski & ResortCorporation, American Skiing Company Resort Properties and Walton PondApartments, Inc.  (each direct or indirectsubsidiaries of American Skiing Company) as additional defendants.  On April 19, 2002, the Company filed acomplaint seeking declaratory judgment against Triple Peaks in federal court inDenver seeking a declaration from that court that the damages under thecontract for failure to close on the proposed sale are limited to$500,000.  On December 31, 2002, theColorado state district court issued summary judgment in the Company’s favorand against Triple Peaks, confirming that the damages owed Triple Peaks underthe contract are limited to $500,000. This judgment was subject to a 45-day appeal period.  On January 26, 2003, the Company receivednotice that Triple Peaks had appealed the decision of the Colorado statedistrict court.  Subsequent to the issuanceof the summary judgment order by the Colorado state district court, thecompanion federal court action was dismissed with prejudice at the Company’srequest.

 

On January 3,2003, American Skiing Company received arbitration demands from two former executiveemployees, Hernan Martinez and Peter Tomai. Messrs. Martinez and Tomai each alleged that they resigned from theiremployment with us for “good reason” under the terms of their executiveemployment agreements with us, and that accordingly they are entitled toseverance payments equal to one year’s salary ($300,000 and $225,000,respectively) and certain other severance benefits, including the maintenanceof health insurance for six months following the termination of theiremployment.  We contested the existenceof “good reason” for their termination of their employment and disputed ourliability for the severance payments and other benefits.  Arbitrations were conducted in each of thesematters in late June and early July 2003. In September 2003, we received notice of judgment in our favor withregards to each of these matters.  Thesearbitration awards are final and non-appealable.

 

On April 22, 2003,we were sued in Utah state court by Westgate Resorts, Ltd. for breach ofcontract and other related claims arising from disputes involving two contractsbetween us (through two different subsidiaries, ASC Utah, Inc. and AmericanSkiing Company Resort Properties, Inc.) and Westgate.  Generally, Westgate has alleged that ASC Utah and/or AmericanSkiing Company Resort Properties, Inc. have breached obligations to Westgate toconstruct certain infrastructure at The Canyons resort and provide marketingsupport for Westgate’s project. Westgate’s claim seeks specific performance of certain aspects of thetwo contracts.  It is not currently feasible to quantify the damages beingsought in this action.  On May 13,2003, we answered Westgate’s complaint and filed a counterclaim, alleging,among other things, that Westgate was in default on a joint promotional agreementwith ASC Utah for failing to purchase approximately $2 million in lifttickets and that Westgate’s buildings at The Canyons encroach upon land ownedor controlled by ASC Utah and/or American Skiing Company Resort Properties,Inc.  No discovery has been taken inthis matter and no timetable has been set for bringing the matter to trial.

 

The Company hasissued approximately $4.1 million of letters of credit within the Resort SeniorCredit Facility.  The Company has issueda letter of credit for $0.3 million related to certain workers compensationobligations outside of the Resort Senior Credit Facility.  This letter of credit is secured by certaincash deposits of one of the Company’s wholly owned subsidiaries.  In addition, we also have approximately $0.2million of letters of credit issued through financial institutions outside ofthe Resort Senior Credit Facility.

 

ASChas established the American Skiing Company Phantom Equity Plan (the“LTIP”).  Certain of ASC’s ExecutiveOfficers participate in this plan. Participants are entitled to a payment on awards granted under the LTIP,to the extent vested upon a Valuation Event or in certain cases upontermination of employment.  The amountof any awards are based ultimately on the Equity Value, as defined, obtainedthrough a Valuation Event.  A ValuationEvent is any of the following: (i) a sale or disposition of a significant Company operation orproperty as determined by the

 

F-35

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Board; (ii) a merger, consolidation or similarevent of the Company other than one (A) in which the Company is the survivingentity or (B) where no Change in Control has occurred; (iii) a publicoffering of equity securities by the Company that yields net proceeds to the Companyin excess of $50 million; or (iv) a Change in Control, as defined.  The LTIP was ratified by the Company’s Boardof Directors on March 6, 2003.  Inconjunction with the ratification of the LTIP, the Company recorded an expenseof $0.4 million and also recorded approximately $0.2 million for the period ofadoption to the end of Fiscal 2003.

 

TheCompany has entered into employment agreements with three of its executiveofficers.  These employment agreementsprovide for guaranteed annual base salaries ranging from $214,000 to $259,000per person.  The employment agreementsalso provide for contingent annual bonuses ranging from 30% to 75% 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.

 

TheCompany entered into a comprehensive management consulting agreement beginningin Fiscal 2002 with Interstate Hotels & Resorts, Inc., under whichInterstate was supporting the management and operations of the Company’slodging and property management division. The agreement was for a 5-year term ending on July 30, 2006.  However, at either party’s option, thisagreement could be terminated during the 60-day period commencing on July 30,2003.  The Company gave notice toInterstate in August 2003 that it was terminating the consulting agreement.  The agreement provides for a basic fee of$0.6 million per year as well as an incentive fee determined and paid inaccordance with the agreement.  TheCompany has made accruals at levels they deem appropriate in accounts payableand other current liabilities for incentive fees as of July 27, 2003.

 

Certain claims,suits and complaints in the ordinary course of business are pending or mayarise against the Company, including all of its direct and indirectsubsidiaries.  In the opinion ofmanagement, all matters are adequately covered by insurance or, if not covered,are without merit or are of such kind, or involve such amounts as would nothave a material effect on the financial position, results of operations orliquidity of the Company if disposed of unfavorably.

 

**19.      Assets/LiabilitiesHeld For Sale and Discontinued Operations**

 

    **Heavenly Sale**

On May 9, 2002,the Company completed the sale of Heavenly to Vail Resorts, Inc. (Vail).  Management determined that the sale ofHeavenly more closely achieved the Company’s restructuring objectives andresulted in a significantly higher asset valuation than the previouslyannounced Steamboat sale transaction. As a result, management concluded that the Company would not proceedwith the sale of the Steamboat resort. Total consideration for the sale of Heavenly was $104.9 million, whichwas comprised of a $102.0 million sales price, less $2.4 million in purchaseprice adjustments, plus $5.3 million of current liabilities assumed byVail.  Vail also assumed $2.8 million incapital lease obligations leaving $96.8 million in net proceeds afterassumption of the capital lease obligations. At closing, the Company paid $1.8 million in costs related to the salewith net proceeds after transaction costs of $95.0 million.

 

The Company paidfees and accrued interest totaling $2.8 million related to the prior resortsenior credit facility out of the sales proceeds and an early prepaymentpenalty associated with the retirement of a term loan, including accruedinterest.  After these payments, theCompany made reductions to its outstanding debt of the following amounts:

 

| Real  Estate Term Facility                             |   | $     | 2.0      |    | million |   |
|--------------------------------------------------------|--------|-------|----------|---------|---------|--------|
| Prior  resort senior credit facility, term portion     |   | 28.6  |     | million |    |
| Prior  resort senior credit facility, revolver portion |   | 44.1  |     | million |    |
| Heavenly  capital lease                                |   | 12.8  |     | million |    |
| **Total**                                              |   | **$** | **87.5** |    | million |   |

 

F-36

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In connection withthe completion of the sale of Heavenly, the availability under the revolvingportion of the prior resort senior credit facility was reduced from $94.6million to $52.1 million.  Afterprepayment penalties of $0.7 million and the total debt reduction of $87.5million, the remaining proceeds from the sale of $4 million were deposited intoa temporary cash account.  Inconjunction with the repayment of the Heavenly capital lease, the guarantyprovided by Oak Hill to secure that loan was released.

 

The sale ofHeavenly has been accounted for in accordance with SFAS No. 144.  In accordance with SFAS No. 144, the resultsof operations for Heavenly for Fiscal 2001 and Fiscal 2002 have been removedfrom continuing operations and classified as discontinued operations.  The gain on sale of Heavenly was $2.9 millionwhich is included in income from discontinued operations in the accompanyingconsolidated statement of operations for Fiscal 2002.  Revenues applicable to the operations of Heavenly were $53.0million and $51.6 million for Fiscal 2001 and 2002, respectively.

 

    **Sugarbush Sale**

On September 28,2001, the Company finalized the sale of its Sugarbush resort in Warren, Vermontto Summit Ventures NE, Inc. This sale generated net proceeds of $5.2 millionthat were used by the Company to permanently pay down the revolving and termportions of its prior resort senior credit facility, on a pro-rata basis, inaccordance with the mandatory prepayment requirements of the facility.

 

The sale of theSugarbush resort was accounted for in accordance with SFAS No. 121 and APB No.30, since the disposal activities were initiated prior to the Company’sadoption of SFAS No. 144.  In accordancewith SFAS No. 121, the carrying value of the net assets for Sugarbush that weresubject to sale were reclassified as assets held for sale.  The assets held for sale were reduced totheir estimated fair value based on the estimated selling price less costs tosell, resulting in an impairment charge of $15.1 million, which is included inmerger, restructuring and asset impairment charges in the accompanyingconsolidated statement of operations for Fiscal 2001.

 

Summary resortsegment operating results for Sugarbush, excluding the $15.1 million assetimpairment charge in Fiscal 2001, are as follows (in thousands):

 

| **Fiscal  Years Ended**           |   | **2001** |    | **2002**   |   |
|-----------------------------------|--------|----------|---------|------------|--------|
| **Total revenues**                |   | $        | 17,471  |       | $      | 781 |   |
| **Total expenses**                |   | 16,475   |    | 1,696      |   |
| **Income (loss) from operations** |   | **$**    | **996** | ** ** | **$**  | **(915** | **)** |

 

F-37

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**20.      QuarterlyFinancial Information (Unaudited)**

 

Following is asummary of unaudited quarterly information. All amounts are in thousands, except per share amounts.

 

|                                                                                                           |   | **First**   |   | **Second**  |       | **Third**   |       | **Fourth**  |       |
|----------------------------------------------------------------------------------------------------------------|--------|-------------|--------|-------------|------------|-------------|------------|-------------|------------|
|                                                                                                           |   | **Quarter** |   | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
|                                                                                                           |   |        |   |        |       |        |       |        |       |
| **Fiscal 2003:**                                                                                               |   |        |   |        |       |        |       |        |       |
| **Net revenues**                                                                                               |   | $           | 20,625 |        | $          | 100,286     |       | $           | 127,743    |   | $ | 15,882 |   |
| **Income (loss) from operations**                                                                              |   | (17,900     | )      | 4,593       |       | 34,362      |       | (18,065     | )          |
| **Income (loss) before cumulative effect of change in****accounting principle**                                |   | (30,174     | )      | (7,449      | )          | 22,538      |       | (29,289     | )          |
| **Net income (loss) available to common shareholders**                                                         |   | (39,105     | )      | (16,692     | )          | 12,971      |       | (39,192     | )          |
|                                                                                                           |   |        |   |        |       |        |       |        |       |
| **Basic income (loss) per share:**                                                                             |   |        |   |        |       |        |       |        |       |
| **Net income (loss) available to common shareholders**                                                         |   | $           | (1.23  | )           | $          | (0.53       | )          | $           | 0.41       |   | $ | (1.24 | ) |
| **Weighted average common shares outstanding**                                                                 |   | 31,724      |   | 31,724      |       | 31,724      |       | 31,725      |       |
|                                                                                                           |   |        |   |        |       |        |       |        |       |
| **Diluted income (loss) per share:**                                                                           |   |        |   |        |       |        |       |        |       |
| **Net income (loss) available to common shareholders**                                                         |   | $           | (1.23  | )           | $          | (0.53       | )          | $           | 0.18       |   | $ | (1.24 | ) |
| **Weighted average common shares outstanding**                                                                 |   | 31,724      |   | 31,724      |       | 73,213      |       | 31,725      |       |
|                                                                                                           |   |        |   |        |       |        |       |        |       |
| **Fiscal 2002:**                                                                                               |   |        |   |        |       |        |       |        |       |
| **Net revenues**                                                                                               |   | $           | 20,113 |        | $          | 100,066     |       | $           | 131,641    |   | $ | 20,296 |   |
| **Income (loss) from operations**                                                                              |   | (21,344     | )      | (23,692     | )          | 36,848      |       | (104,638    | )          |
| **Income (loss) before cumulative effect of change in****accounting principle**                                |   | (39,205     | )      | (35,433     | )          | 34,485      |       | (115,108    | )          |
| **Income (loss) from discontinued operations**                                                                 |   | (2,727      | )      | 2,523       |       | 9,853       |       | 2,668       |       |
| **Net income (loss) available to common shareholders**                                                         |   | (65,549     | )      | (43,699     | )          | 26,180      |       | (123,642    | )          |
|                                                                                                           |   |        |   |        |       |        |       |        |       |
| **Basic income (loss) per share:**                                                                             |   |        |   |        |       |        |       |        |       |
| **Net income (loss) available to common shareholders**                                                         |   | $           | (2.09  | )           | $          | (1.38       | )          | $           | 0.82       |   | $ | (3.90 | ) |
| **Income (loss) available to common shareholders before  cumulative effect of change in accounting principle** |   | $           | (1.49  | )           | $          | (1.38       | )          | $           | 0.82       |   | $ | (3.90 | ) |
| **Weighted average common shares outstanding**                                                                 |   | 31,344      |   | 31,718      |       | 31,718      |       | 31,719      |       |
|                                                                                                           |   |        |   |        |       |        |       |        |       |
| **Diluted income (loss) per share:**                                                                           |   |        |   |        |       |        |       |        |       |
| **Net income (loss) available to common shareholders**                                                         |   | $           | (2.09  | )           | $          | (1.38       | )          | $           | 0.39       |   | $ | (3.90 | ) |
| **Income (loss) available to common shareholders before  cumulative effect of change in accounting principle** |   | $           | (1.49  | )           | $          | (1.38       | )          | $           | 0.39       |   | $ | (3.90 | ) |
| **Weighted average common shares outstanding**                                                                 |   | 31,344      |   | 31,718      |       | 65,347      |       | 31,719      |       |

 

Certain itemsrelated to merger, restructuring and impairment charges recorded during Fiscal2002 are material to the results of the quarterly information above.  These charges are discussed in Note 13.  Certain amounts in the prior year'squarterly financial information have been reclassified to conform to the Fiscal2003 presentation.

 

F-38

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