ASC: Lower losses to shareholders

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American Skiing Co. announced this week that its losses to shareholders in fiscal 2004 were reduced by $25 million to $28.5 million. However, ASC's accounting firm reported it cannot release its official year-end earnings report to the Securities and Exchange Commission until it finishes an assessment of the facts surrounding demands for full redemption by the holder of about $70 million in preferred stock.

Investment firm Cerberus Capital Management owns more than 36,000 shares of Series A Preferred Stock in ASC, the parent of the Steamboat Ski and Resort Corp. Cerberus demanded full redemption of the stock in April. But ASC's board of directors determined it did not have sufficient "legally available funds" to do so.

Now, ASC reports, as part of its plan to refinance its senior loan, it has an agreement with Cerberus to exchange the preferred shares for debt. The deal won't be finalized for at least 12 days.

ASC informed the SEC this week that on Oct. 25 its public accounting firm, KPMG, reported it would be unable to deliver its audit report on the company's finances for the year ended July 25 "because it had not completed its assessment as to whether substantial doubt exists about the company's ability to continue as a going concern."

Its inability to do that, ASC officials wrote, is tied specifically to the demand for redemption of the preferred shares.

Cerberus is a giant company with interests in many industries. One of its most recent acquisitions was the purchase of 226 Burger King restaurants from a Southern California firm. Cerberus agreed to pay $20 million, assume company liabilities and invest another $30 million in the chain of restaurants. Analysts for Piper Jaffray described Cerberus as a "buyout firm," in connection with the Burger King acquisition.

However, David Hirasawa, who oversees investor relations for ASC, said the term "buyout firm" doesn't apply to Cerberus' role with his company.

"It's not quite accurate to refer to them that way in regard to their position with us," Hirasawa said. "They have a very junior position. Oak Hill Capital Partners still owns the majority of our company."

Oak Hill is a private equity partnership founded by Robert M. Bass and a team of investors that controls ASC's board of directors.

ASC's Series A Preferred stock held by Cerberus became redeemable Nov. 12, 2002. When Cerberus demanded full redemption in April, ASC determined that the terms of its senior loans preclude it from redeeming those shares. At that time, company officials told the SEC:

"If we are required to redeem all or any portion of the Series A Preferred Stock, it could have a material adverse effect on our business, results of operations and financial condition. ... We are not permitted to redeem our Series A Preferred Stock under the terms of our Resort Senior Credit Facility. ... If any redemption occurs or the holders of our Series A Preferred Stock obtain and seek to enforce a final judgment against us that is not paid, discharged or stayed, this could result in an event of default ... and the lenders and holders of that debt could declare all amounts outstanding to be due and payable immediately."

Hirasawa said three events last fiscal year helped ASC nearly halve its losses to shareholders. Losses to shareholders in fiscal 2003 totaled $53.5 million in 2003, compared with $28.5 million in fiscal 2004. The auction of remaining inventory at The Canyons Grand Summit generated cash used to reduce debt. However, the key factor was the company's ability to rid itself of some of its resort debt and sell several parcels of undeveloped real estate at its resort in Killington, Vt.

Officials at ASC said they succeeded in taking $80.4 million in real estate debt and accrued interest off the company books through a complex transfer of land and debt at Killington.

-- To reach Tom Ross call 871-4205

or e-mail tross@steamboatpilot.com

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