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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K. --ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[X] Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
Act Of 1934
[Fee Required]
For the fiscal year ended July 31, 1999
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[_] Transition Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
[No Fee Required]
For the transition period from to
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Commission File Number: 1-9614
Vail Resorts, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 51-0291762
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Post Office Box 7 Vail, Colorado 81658
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (970) 476-5601
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.01 par value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None.
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [_]
The aggregate market value of the common stock held by non-affiliates of the
registrant was approximately $538.5 million on October 15, 1999, and was
calculated using the per share closing price thereof on the New York Stock
Exchange Composite Tape. As of October 15, 1999, 34,574,759 shares were issued
and outstanding, of which 7,439,834 shares were Class A Common Stock and
27,134,925 shares were Common Stock.
Documents Incorporated by Reference
-----------------------------------
The Proxy Statement for the Annual Meeting of Shareholders to be held
December 14, 1999 is incorporated by reference herein into Part III, Items 10
through 13.
Table of Contents
PART I
Item 1. Business.................................................................................... 2
Item 2. Properties.................................................................................. 7
Item 3. Legal Proceedings........................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......................................... 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................... 8
Item 6. Selected Financial Data.................................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................. 22
Item 8. Financial Statements and Supplementary Data................................................ F-1
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure....... 23
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................... 23
Item 11. Executive Compensation...................................................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 23
Item 13. Certain Relationships and Related Transactions.............................................. 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 23
1
PART I
ITEM 1. BUSINESS
General
Vail Resorts, Inc. ("Vail Resorts") was organized as a holding company in 1997
and operates through various subsidiaries (collectively, the "Company"). The
Company is one of the leading resort operators in North America. The Company's
operations are grouped into two segments, Resort and Real Estate, which
represented 91% and 9%, respectively, of the Company's revenues for the 1999
fiscal year. In the Company's Resort segment, the Company owns and operates
five resort properties which provide a comprehensive resort experience
throughout the year to a diverse clientele with an attractive demographic
profile. The Company's Real Estate segment develops, buys and sells real estate
in and around the Company's resort communities. Financial information by
segment is presented in Note 12, Segment Information, of the Notes to the
Consolidated Financial Statements included in Part II, Item 8 of this report.
Resort Segment
The Company's portfolio of resorts currently includes:
. Vail Mountain--the largest and among the most popular single ski
mountain complex in North America ("Vail");
. Beaver Creek Resort--one of the world's premier family-oriented
mountain resorts ("Beaver Creek");
. Breckenridge Mountain--an attractive destination resort with numerous
apres-ski activities and an extensive bed base ("Breckenridge");
. Keystone Resort--a year-round family vacation destination ("Keystone");
and
. Grand Teton Lodge Company--a summer destination resort with four resort
properties in and around Grand Teton National Park ("Grand Teton").
Our resorts derive revenue through a comprehensive package of amenities
available to guests, including lift ticket sales, ski and snowboard lesson
packages, a large inventory of resort accommodations, retail and equipment
rental outlets, a variety of dining venues, meeting and event planning services,
private club operations, and other recreational activities such as golf, tennis,
horseback riding, fishing tours, float trips, and on-mountain activities
centers. In addition to providing extensive guest amenities, the Company also
engages in commercial leasing of restaurant, retail and other commercial space,
real estate brokerage services, and extensive licensing and sponsorship
activities with other brand-name companies. During fiscal 1999, the Company
significantly expanded its dining, hospitality and retail/rental operations
through the opening of new facilities and acquisition of additional operations.
The Company opened TenMile Station, Breckenridge's first new on-mountain
restaurant in over ten years. The acquisition of the Village at Breckenridge
added two hotels, over 300 managed properties, and eight restaurants. The
recently acquired Grand Teton Lodge Company adds three lodging facilities and
eight restaurants.
Vail, Beaver Creek, Breckenridge and Keystone, all located within Colorado,
are year-round mountain resorts offering a full complement of on-snow
activities, including skiing, snowboarding, telemark skiing, skiboarding,
snowshoeing, etc. Grand Teton, which we acquired in June 1999, is an exclusively
summer destination resort with operations within Grand Teton National Park and a
golf and tennis club outside the park.
There are over 800 ski areas in North America and over 500 in the United
States, which range from small ski resort operations which service day skiers to
large resorts which attract both destination resort guests looking for a
comprehensive vacation experience as well as day skiers. Our ski resorts
participate in both categories, due to the resorts' proximity to Colorado's
Front Range (Denver/Colorado Springs metropolitan areas), accessibility from
Denver International Airport and Vail/Eagle County Airport, and the wide range
of amenities available at each resort. Colorado has over 27 ski areas, nine of
which are classified as "Front Range Destination Resorts", catering to both the
Front Range and destination skier markets.
2
The ski industry statistic for measuring performance is skier days, defined as
one person using a ski area for all or any part of a day or night, and
includes both paid and complimentary access. During the 1998-1999 ski season,
combined skier days for all North American ski areas were approximately 70
million, US skier days approximated 52 million, and Colorado ski areas
recorded over 11 million skier days. The Company's four ski resorts had over
4.6 million total skier days during the 1998-1999 ski season, representing an
approximate 42% share of Colorado skier days, an approximate 8.8% share of US
skier days, and an approximate 6.5% share of the North American market. Skier
days at the Company's four resorts declined 2.3% from the 1997-1998 season to
the 1998-1999 season, which the Company attributes to unusually low snowfall,
an unfavorable Canadian exchange rate, and the October 1998 fires on Vail
Mountain. Colorado and US skier days were similarly affected, with declines of
4.8% and 3.7% from the 1997-1998 season, respectively.
The ski resort industry has undergone a period of consolidation in recent
years, as the cost of capital improvements and infrastructure required to remain
competitive has increased. Despite this consolidation, the industry remains
highly fragmented, as no single resort operator accounted for more than 10% of
the United States 52 million skier days during the 1998-1999 season. However, we
believe that the consolidation trend will continue, and as such we will continue
to selectively review and pursue acquisition opportunities which we believe will
provide attractive investment returns.
The ski resort industry is highly competitive. The Company competes with other
ski areas in Colorado, the United States, and world-wide, as well as other
vacation destinations for guests. The Company's major US competitors include ski
resorts in Utah, Lake Tahoe, New England and other major Colorado ski areas
including Aspen area resorts, Copper Mountain, Crested Butte, Steamboat Springs,
Telluride and Winter Park. Ski resorts compete for skiers in a variety of
categories, including terrain, challenge, grooming, service, lifts,
accessibility, value, price, weather/snow and on-and off-mountain amenities. Our
resorts consistently rank in the top 20 resorts in North America according to
industry surveys.
Our ski resorts are highly competitive in all categories with respect to
attracting day skiers and destination guests:
. We have some of the most expansive and varied terrain of any resort in
North America--Vail alone offers over 4,600 skiable acres, and an
additional 850 acres are scheduled to open with the completion of the Blue
Sky Basin expansion in Vail's famous Back Bowls. The Company recently
announced plans to open approximately 500 acres of Blue Sky Basin in
January 2000.
. Our location in the Colorado Rocky Mountains provides average yearly
snowfall of between 20 and 30 feet, which is significantly higher than the
average for all ski resorts in the Rocky Mountains.
. Our resorts are proximate to both Denver International Airport and
Vail/Eagle County Airport, providing ease of access for destination
visitors; day skiers can access our resorts via a major interstate highway.
. We continue to invest in the latest technology in snowmaking systems, and
we have the most extensive fleet of grooming equipment in the world.
. We systematically replace lifts and in the past several years we have
installed seven high-speed four-passenger chairlifts and a state-of-the-art
gondola; and for the 1999-2000 ski season, Breckenridge will have the
United States' first double-loading high-speed six-passenger chairlift.
. We provide a wide variety of quality dining venues both on- and off-
mountain, ranging from top-rated fine dining establishments to trailside
express food service outlets.
. Our nine hotels and inventory of over 2,000 managed properties across
all four resorts provide accommodation options for all guests, from the
budget-conscious traveler to families and those seeking a first-class
vacation experience.
. We have the largest conference facilities in the Colorado Rocky Mountain
region at Keystone.
. We are an industry leader in providing on- and off-mountain amenities,
including substantial full-service retail and equipment rental facilities,
our Adventure Ridge and Adventure Point activities centers, resort-wide
charging, which enables guests to use a lift ticket product to make
purchases at all resort facilities, and our private membership clubs.
. Our innovative frequent guest programs and extensive array of lift ticket
products at varied price points provide value to guests.
. We are strongly committed to providing quality guest service, from our
best-of-class ski and snowboarding schools, to our teams of on-mountain
hosts and our new technology centers, where guests can try the latest
technical innovations in equipment.
We promote our resorts through an extensive marketing and sales program, which
focuses primarily on direct print media advertising in ski industry and
lifestyle publications. Additionally, we market directly to many of our guests
through our website, which provides visitors with information regarding each of
our resorts, including services and amenities, reservations information and
virtual tours (nothing contained on the website shall be deemed incorporated
herein). We continue to enhance our website and internet capabilities, which
will provide the opportunity to improve our overall guest experience and more
successfully market our resorts as use of the internet grows as a vacation
planning tool. We also offer various promotional programs and loyalty programs
which reward frequent guests. Another important part of our marketing strategy
is a focus on attracting groups, corporate meetings, and convention business.
Ski resort operations are highly seasonal in nature, with a typical ski season
beginning in November and running through early May. In an effort to counter-
balance the concentration of revenues in the winter months, we offer many non-
ski season attractions, such as golf, tennis, fishing tours, and float trips.
In addition, we have established ourselves as a leader in the growing sport of
mountain biking; Vail will host the 2000 World Mountain Biking Championships.
3
In addition to summer operations at our ski resorts, we recently completed the
purchase of Grand Teton, our first resort with an exclusively summer operating
season. Grand Teton is based in Jackson Hole, Wyoming and operates within Grand
Teton National Park under a concessionaire contract with the National Park
Service. Grand Teton also owns and operates Jackson Hole Golf & Tennis Club,
which is located outside of the park. Grand Teton's properties have operating
seasons that generally run from mid-May to mid-October; operations are closed
during the winter months due to lack of facility winterization features.
There are 378 areas within the National Park System covering more than 83.3
million acres across the United States and its territories. Of the 378 areas,
54 are classified as National Parks. There are more than 500 National Park
Service concessionaires, ranging from small privately held businesses to large
corporate conglomerates. The National Park Service uses "recreation visits" to
measure visitations within the National Park System. In 1998, areas designated
as National Parks received over 64 million recreation visits. Grand Teton
National Park had 2.7 million recreation visits during 1998, or 4% of total
National Park recreation visits. Grand Teton National Park spans over 300,000
acres. Four concessionaires provide accommodations within the park, including
Grand Teton. Grand Teton offers three lodging options within the National Park:
Jackson Lake Lodge, a full-service 385-room resort with conference facilities
which can accommodate up to 650 people, the Jenny Lake Lodge, a small,
rustically elegant retreat with 37 cabins, and Colter Bay Village, a family-
oriented facility with 166 log cabins, tent cabins, and a 112-space RV park.
Grand Teton offers dining options as extensive as its lodging options, with
cafeterias, casual eateries, and fine-dining establishments. Grand Teton's
resorts provide a wide array of activities for guests to enjoy, including
cruises on Jackson Lake, boat rentals, horseback riding, guided fishing, float
trips and guided park tours. Because of the extensive amenities offered as well
as the tremendous popularity of the National Park System, Grand Teton's resorts
within Grand Teton National Park operate near full capacity during the operating
season.
Jackson Hole Golf & Tennis Club is open to both members and non-members. The
18-hole golf course, designed by Robert Trent Jones, Jr., is rated number one in
the state by Golf Digest Magazine. There are less than 50 golf courses in the
state of Wyoming, and only two in the Jackson Hole area. The tennis facility
offers six Plexicushion courts.
Real Estate Segment
The Company has extensive holdings of real property at our resorts throughout
Summit and Eagle Counties in Colorado and in Jackson Hole, Wyoming. Our real
estate operations include the planning, oversight, marketing, infrastructure
improvement and development of the Company's real property holdings. In addition
to the substantial cash flow generated from real estate sales, these development
activities benefit the Company's resort operations through (1) the creation of
additional resort lodging which is available to our guests, (2) the ability to
control the architectural theming of our resorts, (3) the creation of unique
facilities and venues (primarily restaurant and retail operations) which provide
us with the opportunity to create new sources of recurring revenue and (4) the
expansion of our property management and brokerage operations, which are the
preferred providers of these services for all developments on our land.
In order to facilitate the development and sale of our real estate holdings,
Vail Resorts Development Company ("VRDC"), a wholly owned subsidiary of the
Company, also invests in mountain improvements, such as ski lifts, snowmaking
equipment and trail construction. While these mountain improvements enhance the
value of the real estate held for sale (for example, by providing ski-in/ski-out
accessibility), they also benefit resort operations. In most cases, VRDC seeks
to minimize our exposure to development risks and maximize the long-term value
of our real property holdings by selling developed and entitled land to third
party developers for cash payments prior to the commencement of construction,
while retaining approval of the development plans as well as an interest in the
developer's profit. We also typically retain the option to purchase at cost any
retail/commercial space created in a development. We are able to secure these
benefits from third-party developers because of the high property values and
strong demand associated with property in close proximity to our mountain resort
facilities.
4
VRDC's principal activities include (1) the sale of single family homesites to
individual purchasers, (2) the sale of certain land parcels to third-party
developers for condominium, townhome, cluster home, lodge and mixed use
developments, (3) the zoning, planning and marketing of new resort communities
(such as Beaver Creek, Bachelor Gulch Village and Arrowhead), (4) arranging for
the construction of the necessary roads, utilities and mountain infrastructure
for new resort communities, (5) the development of certain mixed-use condominium
projects which are integral to resort operations (such as properties located at
a main base facility) and (6) the purchase of selected strategic land parcels,
which we believe can augment our existing land holdings or resort operations.
Our current development activities are focused on (1) the completion of three
of our resort communities, Beaver Creek, Bachelor Gulch Village and Arrowhead,
(2) preparing for the redevelopment of the Lionshead base area and adjacent land
holdings located within the town of Vail, (3) preparing for the development of
our real estate holdings in the Town of Breckenridge, (4) participation with our
joint venture partner in the development of our base area land holdings at
Keystone, (5) the planning of our significant real estate holdings in and around
Avon and at the entrance to Beaver Creek, and (6) planning for development of
our land holdings in Jackson Hole.
Employees
We currently employ approximately 6,200 year-round and 7,000 seasonal
employees. Approximately 1% of the seasonal employees are unionized. We consider
our employee relations to be good.
Regulation and Legislation
We have been granted the right to use federal land as the site for ski lifts
and trails and related activities, under the terms of permits with the United
States Forest Service. The Forest Service has the right to review and approve
the location, design and construction of improvements in the permit area and
many operational matters. While virtually all of the skiable terrain on Vail
Mountain, Breckenridge, and Keystone is located on Forest Service land, a
significant portion of the skiable terrain on Beaver Creek Mountain, primarily
in the Bachelor Gulch and Arrowhead Mountain areas, is located on Company-owned
land.
We have received approval from the Forest Service for infrastructure
development of bowl skiing terrain in Category III of Vail Mountain's permit
area (now named Blue Sky Basin), which is located within the current Vail
Mountain permit area. Certain opponents of the Blue Sky Basin expansion filed a
lawsuit against the Forest Service seeking to overturn this approval and enjoin
the project, and we intervened as an additional defendant in the lawsuit. The
federal district court denied the opponents' request for an injunction, entered
judgment for defendants, and dismissed the case. Subsequently, after additional
motions pending appeal, the federal court of appeals affirmed the federal
district court's decision to dismiss the case. We plan to open approximately 500
acres of Blue Sky Basin in January 2000.
In late July 1999, the U.S. Army Corps of Engineers alleged that certain road
construction we have undertaken as part of the Blue Sky Basin expansion involved
discharges of fill material into wetlands in violation of the Clean Water Act.
The Corps did not specify the size of the alleged impact, but our review has
confirmed that it involved approximately seven-tenths of an acre. Three
organizations and one individual collectively notified us and the federal
agencies that if the alleged violations are not remedied within 60 days, they
intend to file a citizen enforcement action under the Clean Water Act, which has
not been filed as of the date of this Form 10-K. Under the Clean Water Act,
unauthorized discharges of fill can give rise to administrative, civil and
criminal enforcement actions seeking monetary penalties and injunctive relief,
including removal of the unauthorized fill. In October 1999, the Environmental
Protection Agency, the lead enforcement agency in this matter, ordered us to
stabilize the road temporarily and restore the wetland next summer. Although the
Agency reserved its right to impose a fine, and although we cannot guarantee a
particular result, we do not anticipate that a material fine will be levied.
5
We have received the approval of the Forest Service to develop a chairlift,
other skier facilities and associated skiing terrain on Peak 7 and a teaching
chairlift, two new ski trails and additional snowmaking on Peak 9, all located
at Breckenridge. As part of that process, certain federal agencies expressed
concern about the analysis of potential future development on private land that
the Company owns below Peak 7. In response to an administrative appeal of the
Forest Service approval decision by certain individuals and groups, the Regional
Forester upheld the approval of these projects in November 1998. We have
subsequently advised the Forest Service that we will postpone the Peak 7
improvements, which will allow the Town of Breckenridge time to review a
development plan for the private land in question. Based upon the Town's
actions, the Forest Service will consider whether to conduct further
environmental review of the Peak 7 improvements. We have applied to the U.S.
Army Corps of Engineers for a wetlands permit for the Peak 7 improvements, but
the Corps of Engineers has not yet issued a final decision on this application.
We have also sought approval from the Forest Service and other agencies to
develop chairlifts, associated skiing terrain, and snowmaking in Jones Gulch,
which is located within the current Keystone permit area. The Forest Service has
advised us that this development will be the subject of an environmental impact
statement, and work on this statement is currently underway. Other agencies will
conduct related reviews. The initial issues include the potential effect of the
expansion on wildlife and wetlands, and it is possible that the future
resolution of these issues could affect whether, in what form, and under what
conditions the project is approved. In December 1998, the Corps of Engineers
notified Keystone that it had preliminarily determined that the wetlands permit
for Keystone's snowmaking diversion limits such diversions to 550 acre-feet
annually. We disagree that the permit limits diversions, and discussions with
the Corps of Engineers are ongoing. We were authorized to divert additional
water to meet our snowmaking needs during the 1998/1999 ski season, and we
believe that we will be authorized by the Corps of Engineers to continue to
divert sufficient water to meet our snowmaking needs during the 1999/2000 ski
season and subsequent years.
Our resort operations require permits and approvals from certain federal,
state, and local authorities, in addition to the Forest Service and Corps of
Engineers approvals discussed above. There can be no assurance that new
applications of existing laws, regulations, and policies, or changes in such
laws, regulations, and policies, will not occur in a manner that could have a
detrimental effect to us, or that material permits, licenses, or approvals will
not be terminated, non-renewed or renewed on terms or interpreted in ways that
are materially less favorable to us. Although we believe that we will be
successful in implementing our development plans and operations, no assurance
can be given that any particular permits and approvals will be obtained or
upheld on judicial review.
The permits originally granted by the Forest Service were (1) Term Special Use
Permits granted for 30-year terms, but which may be terminated upon 30 days
written notice by the Forest Service if it determines that the public interest
requires such termination, and (2) Special Use Permits that are terminable at
will by the Forest Service. In November 1986, a new law was enacted providing
that Term Special Use Permits and Special Use Permits may be combined into a
unified single Term Special Use Permit that can be issued for up to 40 years.
Vail Mountain operates under a unified permit for the use of 12,950 acres that
expires October 31, 2031. Breckenridge operates under a Term Special Use Permit
for the use of 3,156 acres that expires on December 31, 2029. Keystone operates
under a Term Special Use Permit for the use of 5,571 acres that expires on
December 31, 2032. The Beaver Creek property is covered by a Term Special Use
Permit covering 80 acres and a Special Use Permit covering the remaining 2,695
acres, both expiring in 2006. We have exercised our statutory right to convert
our dual permits for the Beaver Creek Mountain Resort into a unified permit for
the maximum period of 40 years, and we are currently in the process of
negotiating the final terms of the unified permit. The Forest Service can
terminate most of these permits if it determines that termination is required in
the public interest. In addition, a large part of the Beaver Creek property
under permit is terminable at will. However, to our knowledge, no recreational
Special Use Permit or Term Special Use Permit for any major ski resort then in
operation has ever been terminated by the Forest Service over the opposition of
the permitee.
For use of our permits, we pay a fee to the Forest Service. Under recently
enacted legislation, retroactively effective to fiscal 1996, we pay a fee to the
Forest Service ranging from 1.5% to 4.25% of sales occurring on Forest Service
land. However, through fiscal 1998, we must pay the greater of (1) the fee due
under the new legislation or (2) the fees actually paid for fiscal 1995 that
were calculated under the former fee calculation method. Included in the
calculation are sales from, among other things, lift tickets, ski school
lessons, food and beverages, rental equipment and retail merchandise sales.
6
Grand Teton operates three resort properties within Grand Teton National Park
under a concession contract with the National Park Service. The concession
contract expires at the end of 2002, at which time the contract renewal will be
subject to a competitive bidding process under the proposed rules to implement
the concession provisions of the National Park Omnibus Management Act of 1998.
Final rules, which are expected to be issued during the first half of 2000, may
be subject to legal challenge by one or more existing concessionaire(s). Should
we not receive the renewal of the concession contract, we would be compensated
for the value of our "possessory interest" in the assets of the three resort
properties operated under the concession contract, which is generally defined as
the replacement cost of such assets less depreciation. Although we cannot
predict or guarantee the outcome of the proposed rules or our prospects for
renewal, we currently anticipate we will be well positioned to obtain the
renewal of the contract on satisfactory terms.
ITEM 2. PROPERTIES.
The following table sets forth the principal properties owned or leased by the
Company:
Location Ownership Use
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Vail Mountain (12,590 acres) Term Special Use Permit Ski trails
Vail Mountain Owned Ski resort operations, including ski lifts, buildings and other
improvements, commercial space
The Lodge at Vail Owned Lodging, dining and conference facilities, real estate held for
sale or development
Breckenridge Mountain (3,156 Term Special Use Permits Ski trails
acres)
Breckenridge Mountain Owned Ski resort operations, including ski lifts, buildings and other
improvements, commercial space, real estate held for sale or
development
Village at Breckenridge Owned Lodging, dining, conference facilities and commercial space
Great Divide Lodge Owned Lodging, dining and conference facilities
Keystone Mountain (5,571 acres) Term Special Use Permits Ski trails
Keystone Mountain Owned Ski resort operations, including ski lifts, buildings and other
improvements, commercial space
Keystone Resort Owned Resort operations, dining, commercial space, dining, conference
facilities
Keystone Lodge Owned Lodging and resort operations, real estate held for sale or
development
Keystone Ranch Owned Golf course and restaurant facilities
Inn at Keystone Owned Lodging, dining and conference facilities
Keystone Conference Center Owned Conference facility
Beaver Creek Mountain (80 acres) Term Special Use Permit Ski trails
Beaver Creek Mountain (2,695 Special Use Permit Ski trails
acres)
Beaver Creek Mountain Owned Ski resort operations, including ski lifts, buildings and other
improvements, commercial space, real estate held for sale or
development
Beaver Creek Resort Owned Golf course, commercial space, employee housing and residential
spaces
Arrowhead Mountain Owned Ski resort operations, including ski lifts, buildings and other
improvements, commercial space, real estate held for sale or
development
Bachelor Gulch Village Owned Ski resort operations, including ski lifts, buildings and other
improvements, commercial space, real estate held for sale or
development
Seasons at Avon Leased Corporate offices
Avon Owned Real estate held for sale or development
Avon Owned Warehouse and commercial facility
Jenny Lake Lodge Concessionaire contract Lodging and resort operations, dining
Jackson Lake Lodge Concessionaire contract Lodging and resort operations, dining, conference facilities
Colter Bay Village Concessionaire contract Lodging and resort operations, dining
Jackson Hole Golf and Tennis Owned Lodging, golf course, tennis facilities, dining, conference
Club facilities, real estate held for sale or development
The Vail Mountain and Beaver Creek Mountain Forest Service Permits are
encumbered as security under the Eagle County Industrial Development Bonds.
7
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to various lawsuits arising in the ordinary course of
business. In the opinion of the Company's management, all matters are adequately
covered by insurance or, if not covered, are without merit, or involve such
amounts as would not have a material effect on the financial position, results
of operations and cash flows of the Company if disposed of unfavorably.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the New York Stock Exchange (MTN). The
Company's Class A Common Stock is not listed on any exchange and is not publicly
traded. Class A Common Stock is convertible into Common Stock. As of October 15,
1999, 34,574,759 shares of common stock were issued and outstanding, of which
7,439,834 shares were Class A Common Stock held by approximately three holders
and 27,134,925 shares were Common Stock held by approximately 5,500 holders.
Other than a rights distribution in October 1996 which gave each stockholder
of record the right to receive $2.44 per share of Common Stock held, the Company
has never paid or declared a cash dividend on its Common Stock or Class A Common
Stock. The declaration of cash dividends in the future will depend on the
Company's earnings, financial condition and capital needs and on other factors
deemed relevant by the Board of Directors at that time. It is the current policy
of the Company's Board of Directors to retain earnings to finance the operations
and expansion of the Company's business, and the Company does not anticipate
paying any cash dividends on its shares of Common Stock or Class A Common Stock
in the foreseeable future.
The following table sets forth, for the fiscal year ended July 31, 1999, and
quarters indicated (ended October 31, January 31, April 30, and July 31) and for
the ten months ended July 31, 1998, and the one month period ended October 31,
1997 and quarters indicated (ended January 31, April 30, and July 31), the range
of high and low sale prices of Vail Resorts, Inc. Common Stock as reported on
the New York Stock Exchange Composite Tape. Prior to the Company's initial
public offering on February 7, 1997, there was no established public trading
market for the Common Stock of the Company.
Vail Resorts Common Stock
---------------------------------
High Low
--------------- ---------------
Fiscal Period Ended July 31, 1998
1 month ended 10/31/97...................................... 28 7/8 26 5/16
2nd Quarter................................................. 28 24 1/4
3rd Quarter................................................. 31 1/4 25 7/8
4th Quarter................................................. 30 5/16 23 3/16
Year Ended July 31, 1999
1st Quarter................................................. 28 5/8 16
2nd Quarter................................................. 26 3/4 20
3rd Quarter................................................. 20 9/16 14 5/16
4th Quarter................................................. 20 3/4 18
8
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical consolidated financial data
of the Company for the periods indicated. The financial data for the fiscal
year ended July 31, 1999, the ten-month fiscal period ended July 31, 1998 and
fiscal years ended September 30, 1995, 1996, and 1997 are derived from the
consolidated financial statements of the Company, which have been audited by
Arthur Anderson LLP, independent accountants, and should be read in conjunction
with those statements and related notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations". The data
presented below are in thousands, except per share amounts.
Ten Month Fiscal
Fiscal Year Fiscal Period Year
Ended Ended Ended
September 30, July 31, July 31,
------------------------------------------ ----------------- -----------
1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------------------
(audited) (audited) (audited) (audited) (audited)
Statement of Operations Data:
Revenue:
Resort............................................ $126,349 $140,288 $259,038 $336,547 $ 431,788
Real estate....................................... 16,526 48,655 71,485 73,722 43,912
- -------------------------------------------------------------------------------------------------------------------------------
Total revenue.................................. 142,875 188,943 330,523 410,269 475,700
Operating expenses:
Resort............................................ 82,305 89,890 172,715 217,764 339,437
Real estate....................................... 14,983 40,801 66,307 62,619 34,386
Corporate expense................................. 6,701 12,698 4,663 4,437 6,250
Depreciation and amortization..................... 17,968 18,148 34,044 36,838 53,256
- -------------------------------------------------------------------------------------------------------------------------------
Total operating expenses....................... 121,957 161,537 277,729 321,658 433,329
Income from operations............................... 20,918 27,406 52,794 88,611 42,371
Net income........................................... 3,282 4,735 19,698 41,018 12,791
Diluted net income per common share.................. $ 0.16 $ 0.22 $ 0.64 $ 1.18 $ 0.37
- -------------------------------------------------------------------------------------------------------------------------------
Other Data:
Resort
Resort EBITDA..................................... 37,343 37,700 81,660 114,346 86,101
Resort EBITDA Margin.............................. 29.6% 26.9% 31.5% 34.0% 19.9%
Skier Days........................................ 2,136 2,228 4,273 4,717 4,606
Resort Revenue per skier day...................... $ 59.15 $ 62.97 $ 60.62 $ 71.35 $ 93.74
Real Estate
Real estate operating income...................... 1,543 7,854 5,178 11,103 9,526
Real estate held for sale......................... 54,858 84,055 154,925 138,916 152,508
Balance Sheet Data
Total assets...................................... $429,628 $422,612 $855,949 $912,122 $1,089,239
Long-term debt (including current maturities)..... 191,313 144,750 265,062 284,014 398,186
Stockholders equity............................... 167,694 123,907 405,666 462,624 476,775
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following is an analysis of the Company's results of operations, liquidity
and capital resources and should be read in conjunction with the Consolidated
Financial Statements included in this Form 10-K. To the extent that the
following Management's Discussion and Analysis contains statements which are not
of a historical nature, such statements are forward-looking statements, which
involve risks and uncertainties. These risks include, but are not limited to,
changes in the competitive environment of the ski and resort industries, general
business and economic conditions, the weather and other factors discussed in the
Company's filings with the Securities and Exchange Commission.
On September 1, 1997, the Company changed its fiscal year end from September
30 to July 31. Accordingly, the 1998 fiscal period ended on July 31, 1998 and
consisted of ten months. This Management's Discussion and Analysis discusses the
following comparisons between the following periods:
. Fiscal year ended July 31, 1999 and pro forma twelve months ended July 31,
1998,
. Fiscal year ended July 31, 1999 and fiscal ten months ended July 31, 1998,
. Fiscal ten months ended July 31, 1998 and pro forma fiscal year ended
September 30, 1997.
The pro forma year ended September 30, 1997 gives effect to the Keystone and
Breckenridge acquisitions and the initial public offering as if they had
occurred on October 1, 1996. The pro forma twelve months ended July 31, 1998
reflects the Company's change in fiscal year end and is presented to compare
year to date results for the new fiscal year.
Results of Operations
Fiscal Year Ended July 31, 1999 versus Pro Forma Twelve Months Ended July 31,
1998 (dollars in thousands)
The unaudited pro forma results of operations for the twelve months ended July
31, 1998 give effect to the Company's change in fiscal year end and exclude the
results of Arapahoe Basin, which the Company divested in September 1997.
Pro Forma
Twelve
Year Months
Ended Ended
July 31, July 31, Percentage
1999 1998 Increase Increase
---------------- ---------------- ---------------- ---------------
(audited) (unaudited)
Resort Revenue........................ $ 431,788 $ 350,498 $ 81,290 23.2%
Resort Operating Expense.............. 339,437 238,889 100,548 42.1%
10
Resort Revenue. Resort Revenue for the fiscal year ended July 31, 1999 and the
twelve months ended July 31, 1998 are presented by category as follows (dollars
in thousands):
Pro Forma
Twelve
Year Months
Ended Ended Percentage
July 31, July 31, Increase Increase
1999 1998 (Decrease) (Decrease)
----------------- ------------------ ----------------- ---------------
(unaudited)
Lift Tickets.......................... $ 138,536 $ 147,128 $ (8,592) (5.8)%
Ski School............................ 37,986 38,647 (661) (1.7)%
Dining................................ 62,382 52,371 10,011 19.1%
Retail/Rental......................... 77,793 20,799 56,994 274.0%
Hospitality........................... 65,839 47,128 18,711 39.7%
Other................................. 49,252 44,425 4,827 10.9%
----------------- ------------------ ----------------- ---------------
Total Resort Revenue.................. $ 431,788 $ 350,498 $ 81,290 23.2%
================= ================== ================= ===============
Total Skier Days...................... 4,606 4,717 (111) (2.4)%
================= ================== ================= ===============
ETP................................... $ 30.08 $ 31.19 $ (1.11) (3.6)%
================= ================== ================= ===============
Lift ticket revenue decreased due to a 2.4% decrease in total skier days as
well as a 3.6% decrease in ETP (effective ticket price, "ETP", is defined as
total lift ticket revenue divided by total skier days). Management attributes
the decrease in skier days to above-average temperatures and below-average
snowfall throughout the majority of the ski season, which had a negative impact
on the entire Colorado market. In addition, the adverse perception resulting
from the October 19, 1998 fires on Vail Mountain, and the Canadian dollar
exchange rate, which favored the Canadian ski industry, also impacted skier
days. The decrease in ETP is the result of a shift in the proportion of total
skier days to local and Front Range (Denver/Colorado Springs metropolitan areas)
skier days. Lift tickets sold to local and Front Range skiers tend to have a
lower ETP than tickets sold to destination guests. This shift mainly occurred
due to the popularity of the Buddy Pass, a discounted four-person season pass
for Keystone and Breckenridge, which accounted for a significant portion of
local and Front Range skier days.
Ski and Snowboard School revenue decreased due to the overall decline in skier
days as well as the shift in the proportion of total skier days from destination
guests to local and Front Range skiers. Local and Front Range skiers are less
likely to purchase lessons than destination skiers are. The decline in revenue
from the drop in skier days was partially offset by price increases as well as
an increase in the percentage of higher-priced packages sold.
The increase in dining revenue is primarily a result of the addition of new
dining facilities through acquisition and new construction, coupled with modest
growth at existing facilities. The Company opened TenMile Station, the first
new on-mountain restaurant at Breckenridge in over 10 years, during the 1998-
1999 ski season. The acquisitions of Village at Breckenridge ("VAB") and Grand
Teton Lodge Company ("Grand Teton") in fiscal 1999 each added eight dining
facilities. In addition, the results of the four dining operations added
through acquisition in fiscal 1998 are reflected for the full fiscal period in
fiscal 1999, as opposed to the truncated period reflected during the acquisition
year.
Retail/rental revenue increased significantly due to the Company's
retail/rental joint venture (SSI Venture LLC), which increased the total number
of retail/rental outlets from approximately 40 in fiscal 1998 to approximately
80 in fiscal 1999. Specialty Sports, Inc., the Company's partner in the joint
venture, is one of the largest retailers of ski- and golf-related sporting goods
in Colorado, and contributed approximately 30 retail and rental outlets to the
joint venture.
11
Hospitality revenue increased as a result of strong performance from existing
operations, achieved through effective yield management and growth of the
managed property inventory. The acquisitions of VAB and Grand Teton in fiscal
1999 also contributed significantly. In addition to adding lodging capacity,
VAB also added property management operations and a vacation services
operation/travel agency. The Company also received the benefit of a full fiscal
year's revenues from its fiscal 1998 hotel acquisitions, rather than the
truncated period from the acquisition date, which also contributed to the
increase.
The increase in other revenue is a result of the increased popularity of
summer mountain activities, including the Alpine Slide at Breckenridge mountain,
as well as expanded contract services for Beaver Creek, Bachelor Gulch, and
Arrowhead Villages, growth in club operations, expanded licensing and
sponsorship contracts, and increases in commercial leasing revenue. The
acquisitions of VAB and Grand Teton also significantly contributed to other
revenue through recreation and special events.
Resort Operating Expense. Resort operating expense for the year ended July 31,
1999 was $339.4 million, an increase of $100.5 million, or 42.1%, compared to
the twelve months ended July 31, 1998. The increase in resort operating expense
is primarily attributable to the incremental operating expenses contributed by
VAB, SSI Venture LLC and Grand Teton. In addition, operating expenses of the
Company's fiscal 1998 acquisitions are reflected for the full fiscal year 1999,
as opposed to the truncated period from the date of acquisition for the twelve
months ended July 31, 1998. A portion of the increase can also be attributed to
the increased variable expenses associated with the increased level of resort
revenue derived from non-lift businesses such as dining, retail/rental and
hospitality operations. These operations tend to have a greater level of
variable operating expenses proportionate to revenues as compared to lift
operations. These increases have been partially offset by cost saving measures
that have been implemented at all levels of our operations throughout the fiscal
year.
Real Estate Revenue. Revenue from real estate operations for the year ended
July 31, 1999 was $43.9 million, a decrease of $40.3 million, or 47.8%, compared
to the twelve months ended July 31, 1998. The decrease is attributed to the
sell-out of homesites at Bachelor Gulch Village in the twelve months ended July
31,1998. Revenue for fiscal 1999 consisted primarily of the sales of the Bell
Tower Mall, one luxury residential penthouse condominium at the Lodge at Vail,
the sale of three development sites at Arrowhead Village, the sale of two
single-family homesites and four multi-family homesites at Bachelor Gulch, as
well as the profit share from the Company's investment in Keystone/Intrawest
LLC. Profits generated by Keystone/Intrawest LLC during fiscal 1999 included
the sale of 195 village condominium units, primarily at the River Run
development, and 60 single-family homesites surrounding an 18-hole golf course
development. Real estate revenue for the twelve months ended July 31, 1998
consisted primarily of the sales of 38 single-family homesites and five multi-
family homesites at Bachelor Gulch, two development sites at Arrowhead, six
luxury residential condominiums at the Golden Peak base area of Vail mountain
and our investment in Keystone/Intrawest LLC.
Real Estate Operating Expense. Real estate operating expense for the year ended
July 31, 1999 was $34.4 million, a decrease of $39.7 million, or 53.6%, compared
to the twelve months ended July 31, 1998. The decrease in real estate operating
expense is due to the sell-out of homesites at Bachelor Gulch Village in the
twelve months ended July 31, 1998. Real estate cost of sales for the year ended
July 31, 1999 consisted primarily of the cost of sales and real estate
commissions associated with the sale of the Bell Tower Mall, one luxury
residential penthouse condominium at the Lodge at Vail, three development sites
at Arrowhead Village and two single-family homesites and four multi-family
homesites at Bachelor Gulch. Real estate cost of sales for the twelve months
ended July 31, 1998 consisted primarily of the cost of sales and real estate
commissions associated with the sales of 38 single-family homesites and five
multi-family homesites at Bachelor Gulch, two development sites at Arrowhead,
and six luxury residential condominiums at the Golden Peak base area of Vail
mountain. Real estate operating expenses include selling, general and
administrative expenses associated with the Company's real estate operations.
Corporate expense. Corporate expense increased by $707,000, or 12.8%, for the
year ended July 31, 1999 as compared to the twelve months ended July 31, 1998.
The increase is primarily attributable to an increase in professional service
fees. Corporate expense includes certain executive salaries, directors' and
officers' insurance, investor relations expenses and tax, legal, audit, transfer
agent, and other consulting fees.
12
Depreciation and Amortization. Depreciation and amortization expense increased
by $10.3 million, or 24.0%, for the year ended July 31, 1999 as compared to the
twelve months ended July 31, 1998. The increase was primarily attributable to
the inclusion of depreciation and amortization associated with the three hotel
acquisitions in fiscal 1998 and one hotel acquisition and the retail/rental
joint venture discussed above in fiscal 1999, and an increased fixed asset base
due to fiscal 1999 capital improvements.
Interest expense. During the year ended July 31, 1999 and the twelve months
ended July 31, 1998, we recorded interest expense of $25.1 million and $20.9
million, respectively, relating primarily to our Credit Facility, the Industrial
Development Bonds and the subordinated debt issued in May 1999. The increase in
interest expense for the year ended July 31, 1999 compared to the twelve months
ended July 31, 1998, is attributable to the outstanding senior subordinated
notes issued in May 1999, offset by a reduction in the balance outstanding on
the Credit Facility.
Fiscal Year Ended July 31, 1999 versus Fiscal Ten Months Ended July 31, 1998
(dollars in thousands)
Year Ten Months
Ended Ended
July 31, July 31, Percentage
1999 1998 Increase Increase
------------------ ---------------- ----------------- ---------------
(audited)
Resort Revenue........................ $ 431,788 $ 336,547 $ 95,241 28.3%
Resort Operating Expense.............. 339,437 217,764 121,673 55.9%
Resort Revenue. Resort Revenue for the year ended July 31, 1999 and the ten
months ended July 31, 1998 are presented by category as follows (dollars in
thousands):
Year Ten Months
Ended Ended Percentage
July 31, July 31, Increase Increase
1999 1998 (Decrease) (Decrease)
------------------ ---------------- ----------------- ---------------
(unaudited)
Lift Tickets.......................... $ 138,536 $ 147,128 $ (8,592) (5.8)%
Ski School............................ 37,986 38,647 (661) (1.7)%
Dining................................ 62,382 48,246 14,136 29.3%
Retail/Rental......................... 77,793 19,975 57,818 289.5%
Hospitality........................... 65,839 43,127 22,712 52.7%
Other................................. 49,252 39,424 9,828 24.9%
------------------ ---------------- ----------------- ---------------
Total Resort Revenue.................. $ 431,788 $ 336,547 $ 95,241 28.3%
================== ================ ================= ===============
Total Skier Days...................... 4,606 4,717 (111) (2.4)%
================== ================ ================= ===============
ETP................................... $ 30.08 $ 31.19 $ (1.11) (3.6)%
================== ================ ================= ===============
13
Lift ticket revenue decreased due to a 2.4% decrease in total skier days as
well as a 3.6% decrease in ETP. Management attributes the decrease in skier
days to above-average temperatures and below-average snowfall throughout the
majority of the ski season, which had a negative impact on the entire Colorado
market. In addition, the adverse perception resulting from the October 19, 1998
fires on Vail Mountain, and the Canadian dollar exchange rate, which favored the
Canadian ski industry, also impacted skier days. The decrease in ETP is the
result of a shift in the proportion of total skier days to local and Front Range
skier days. Lift tickets sold to local and Front Range skiers tend to have a
lower ETP than tickets sold to destination guests. This shift mainly occurred
due to the popularity of the Buddy Pass, which accounted for a significant
portion of local and Front Range skier days.
Ski and Snowboard School revenue decreased due to the overall decline in skier
days as well as the shift in the proportion of total skier days from destination
guests to local and Front Range skiers. Local and Front Range skiers are less
likely to purchase lessons than destination skiers are. The decline in revenue
was partially offset by price increases as well as an increase in the percentage
of higher-priced packages sold.
The increase in dining revenue is primarily a result of the addition of new
dining facilities through acquisition and new construction coupled with modest
growth at existing facilities. The Company opened TenMile Station, the first
new on-mountain restaurant at Breckenridge in over 10 years, during the 1998-
1999 ski season. The acquisitions of VAB and Grand Teton in fiscal 1999 each
added eight dining facilities. In addition, the results of the four dining
operations added through acquisition in fiscal 1998 are reflected for the full
fiscal period in fiscal 1999, as opposed to the truncated period reflected
during the acquisition year.
Retail/rental revenue increased due to the Company's retail/rental joint
venture (SSI Venture LLC), which increased the total number of retail/rental
outlets from approximately 40 in fiscal 1998 to approximately 80 in fiscal 1999.
Specialty Sports, Inc., the Company's partner in the joint venture, is one of
the largest retailers of ski- and golf-related sporting goods in Colorado, and
contributed approximately 30 retail and rental outlets to the joint venture.
Hospitality revenue increased as a result of strong performance from existing
operations, achieved through effective yield management and growth of the
managed property inventory. The acquisitions of VAB and Grand Teton in fiscal
1999 also contributed significantly. In addition to adding lodging capacity,
VAB also added property management operations and a vacation services
operation/travel agency. The results of operations for the three hotel
properties acquired by the Company in fiscal 1998 are also reflected for the
full twelve-month period in fiscal 1999. The Company also received the benefit
of a full fiscal year's revenues from its fiscal 1998 hotel acquisitions, rather
than the truncated period from the acquisition date, which also contributed to
the increase.
The increase in other revenue is a result of the increased popularity of the
summer mountain activities, including the Alpine Slide at Breckenridge mountain,
as well as expanded contract services for Beaver Creek, Bachelor Gulch, and
Arrowhead Villages, growth in club operations, expanded licensing and
sponsorship contracts, and increases in commercial leasing revenue. The
acquisitions of VAB and Grand Teton also significantly contributed to other
revenue through recreation and special events.
Resort Operating Expense. Resort operating expense for the year ended July 31,
1999 was $339.4 million, an increase of $121.7 million, or 55.9%, compared to
the ten months ended July 31, 1998. The increase in resort operating expense is
primarily attributable to the incremental operating expenses contributed by VAB,
SSI Venture LLC and Grand Teton. In addition, operating expenses of the
Company's fiscal 1998 acquisitions are reflected for the full fiscal year 1999,
as opposed to the truncated period from the date of acquisition for the twelve
months ended July 31, 1998. A portion of the increase can also be attributed to
the increased variable expenses associated with the increased level of resort
revenue derived from non-lift businesses such as dining, retail/rental and
hospitality operations. These operations tend to have a greater level of
variable operating expenses proportionate to revenues as compared to lift
operations. These increases have been partially offset by cost saving measures
that have been implemented at all levels of our operations throughout the fiscal
year.
14
Real Estate Revenue. Revenue from real estate operations for the year ended July
31, 1999 was $43.9 million, a decrease of $29.8 million, or 40.4%, compared to
the ten months ended July 31, 1998. The decrease is attributed to the sell-out
of homesites at Bachelor Gulch Village in fiscal 1998. Revenue for fiscal 1999
consisted primarily of the sales of the Bell Tower Mall, one luxury residential
penthouse condominium at the Lodge at Vail, the sale of three development sites
at Arrowhead Village, the sale of two single-family homesites and four multi-
family homesites at Bachelor Gulch, as well as the profit share from the
Company's investment in Keystone/Intrawest LLC. Profits generated by
Keystone/Intrawest LLC during the year ended July 31, 1999 included the sale of
195 village condominium units, primarily at the River Run development, and 60
single-family homesites surrounding an 18-hole golf course development. Real
estate revenue for the ten months ended July 31, 1998 consisted primarily of the
sales of 36 single-family homesites and five multi-family homesites at Bachelor
Gulch, one development site at Arrowhead, five luxury residential condominiums
at the Golden Peak base area of Vail mountain and our investment in
Keystone/Intrawest LLC.
Real Estate Operating Expense. Real estate operating expense for the year ended
July 31, 1999 was $34.4 million, a decrease of $28.2 million, or 45.1%,
compared to the ten months ended July 31, 1998. Real estate cost of sales for
the year ended July 31, 1999 consisted primarily of the cost of sales and real
estate commissions associated with the sale of the Bell Tower Mall, one luxury
residential penthouse condominium at the Lodge at Vail, three development sites
at Arrowhead Village and two single-family homesites and four multi-family
homesites at Bachelor Gulch. Real estate cost of sales for the ten months ended
July 31, 1998 consisted primarily of the cost of sales and real estate
commissions associated with the sales of 36 single-family homesites and five
multi-family homesites at Bachelor Gulch, one development site at Arrowhead, and
five luxury residential condominiums at the Golden Peak base area of Vail
mountain. Real estate operating expenses include selling, general and
administrative expenses associated with the Company's real estate operations.
Corporate expense. Corporate expense increased by $1.8 million, or 40.9%, for
the year ended July 31, 1999 as compared to the ten months ended July 31, 1998.
The increase is primarily attributable to an increase in professional service
fees. Corporate expense includes certain executive salaries, directors' and
officers' insurance, investor relations expenses and tax, legal, audit, transfer
agent, and other consulting fees.
Depreciation and Amortization. Depreciation and amortization expense increased
by $16.4 million, or 44.6%, for the year ended July 31, 1999 as compared to the
ten months ended July 31, 1998. The increase was primarily attributable to the
inclusion of depreciation and amortization associated with the three hotel
acquisitions in fiscal 1998 and one hotel acquisition and the retail/rental
joint venture discussed above in fiscal 1999, and an increased fixed asset base
due to fiscal 1999 capital improvements.
Interest expense. During the year ended July 31, 1999 and the ten months ended
July 31, 1998, we recorded interest expense of $25.1 million and $17.8 million,
respectively, relating primarily to our Credit Facility, the Industrial
Development Bonds and the subordinated debt issued in May 1999. The increase in
interest expense for the year ended July 31, 1999 compared to the ten months
ended July 31, 1998, is attributable to the outstanding subordinated notes
issued May 1999, offset by a reduction in the balance outstanding on the Credit
Facility.
15
Fiscal Ten Months Ended July 31, 1998 versus Pro Forma Fiscal Year Ended
September 30, 1997
The following unaudited pro forma results of operations for the year ended
September 30, 1997, assume the acquisition of Keystone and Breckenridge occurred
on October 1, 1996. These pro forma results are not necessarily indicative of
the actual results of operations that would have been achieved nor are they
necessarily indicative of future results of operations. The unaudited pro forma
financial information below excludes the results of Arapahoe Basin, which was
divested in September 1997. A comparison of actual fiscal year 1997 results to
the ten months ended July 31, 1998 would not be relevant, as the results of
Keystone and Breckenridge would only be reflected from the acquisition date of
January 3, 1997 in the fiscal 1997 actual results, whereas in the ten months
ended July 31, 1998 Keystone and Breckenridge results are reflected for the full
period.
Pro Forma
Ten Months Year
Ended Ended
July 31, September 30, Percentage
1998 1997 Increase Increase
---------------- -------------------- ------------------ ---------------
(audited) (unaudited)
(dollars in thousands)
Resort Revenue........................ $ 336,547 $ 291,203 $ 45,344 15.6%
Resort Operating Expense.............. 217,764 200,515 17,249 8.6%
Resort Revenue. Resort Revenue for the ten months ended July 31, 1998 and for
the fiscal year ended September 30, 1997 are presented by category as follows
(dollars in thousands):
Pro Forma
Ten Months Year
Ended Ended Percentage
July 31, September 30, Increase Increase
1998 1997 (Decrease) (Decrease)
---------------- -------------------- ------------------ ---------------
(unaudited)
Lift Tickets.......................... $ 147,128 $ 135,884 $ 11,244 8.3%
Ski School............................ 38,647 34,471 4,176 12.1%
Dining................................ 48,246 43,704 4,542 10.4%
Retail/Rental......................... 19,975 17,624 2,351 13.3%
Hospitality........................... 43,127 33,984 9,143 26.9%
Other................................. 39,424 25,536 13,888 54.4%
---------------- -------------------- ------------------ ---------------
Total Resort Revenue.................. $ 336,547 $ 291,203 45,344 15.6%
================ ==================== ================== ===============
Total Skier Days...................... 4,717 4,890 (173) (3.5%)
================ ==================== ================== ===============
ETP................................... $ 31.19 $ 27.79 $ 3.40 12.2%
================ ==================== ================== ===============
Lift ticket revenue increased due to a 12.2% increase in effective ticket
price partially offset by a 3.5% decline in the number of total skier days. The
increase in ETP is primarily due to increases in lead ticket prices at each
resort, a less aggressive ticket discounting strategy, and improvement in the
proportion of destination skier days to total skier days. The increase in lead
ticket prices and less aggressive discounting is consistent with our strategy to
provide a high quality guest experience at a premium price. The improvement in
the proportion of destination skier days was driven by an increase in
destination skier days and a decline in local and Front Range skier days (non-
destination skier days). We attribute the increase in destination guests to our
new and innovative marketing and loyalty programs and continuous commitment to
guest service. The decline in local and Front Range skier days is primarily
attributable to unusual weather patterns and below average snowfall for much of
the season at our resorts.
16
Ski school revenue increased primarily due to price increases and an increase
in the number of ski and snowboard lessons sold. The number of lessons increased
due to an increase in the number of destination skiers, whom have a greater
tendency to purchase lessons than do local and Front Range guests.
Additionally, the Beaver Creek children's program has continued its success due
to a number of initiatives designed to increase participation. Demand continued
to be strong for snowboarding and private lessons driven by the popularity of
snowboarding and the increase in destination guests.
Dining revenue increased as a result of strong performance from existing
operations, the opening of several new dining operations, and the addition of
dining operations acquired in three hotel acquisitions. Five dining operations
were new to Vail Mountain in the ten months ended July 31, 1998, including the
addition of two fine dining facilities from The Lodge at Vail acquisition, and
two facilities in the newly renovated and expanded Golden Peak base facility,
resulting in an overall seating capacity increase of 10%. Beaver Creek opened
seven new operations, six of which are located in the recently completed Beaver
Creek Village core, thereby increasing seating capacity by 29%. Four dining
operations were new to Breckenridge and Keystone resorts during the ten months
ended July 31, 1998, consisting of the operations acquired in the acquisitions
of the Great Divide Lodge (formerly Breckenridge Hilton) and the Inn at Keystone
and two new on-mountain operations.
Retail and rental revenues increased due to strong performance from existing
operations and the addition of three new operations. Increases in existing
operations were led by the completion of the Beaver Creek Village core, which
provided a complementary balance of retailers in Beaver Creek Village, making it
an attractive retail shopping destination, and the newly renovated and expanded
Golden Peak facility at the base of Vail Mountain. Two new rental operations
were opened in Beaver Creek Village and one new retail/rental operation was
opened in a strategic location at the base of Peak 8 in Breckenridge, where the
Company formerly had no presence in the retail/rental market. The Company's
retail and rental business also benefited from continuing improvements in
inventory management and store product mix.
Hospitality revenue increased due to an increasing base of property management
services, growth in the travel and reservations businesses, and the acquisitions
of The Lodge at Vail, the Great Divide Lodge (f/k/a Breckenridge Hilton), and
the Inn at Keystone. Property management services contributed toward the growth
over the ten months ended July 31, 1997 due to an increase in occupancy and
average daily rate (defined as revenue divided by room nights) at Beaver Creek
Resort driven by the increase in skier days and number of rooms under
management.
Other revenue increased as a result of the increased popularity of Adventure
Ridge at the top of Vail Mountain, expanded contract services for Beaver Creek,
Bachelor Gulch, and Arrowhead Villages, the expansion of the Beaver Creek Club,
licensing and sponsorship revenue growth, and increases in brokerage and
commercial leasing revenue.
Resort Operating Expense. Resort Operating Expense was $217.8 million for the
ten months ended July 31, 1998, compared to $200.5 million for the year ended
September 30, 1997. As a percentage of Resort Revenue, Resort Operating Expense
decreased from 68.9% in fiscal 1997 to 64.7% in the ten months ended July 31,
1998. The overall increase in Resort Operating Expense is attributable to
increased variable operating expenses resulting from the increased level of
Resort Revenue derived from non-lift businesses such as dining, retail/rental,
hospitality and other operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically provided for operating expenditures, debt
service, capital expenditures and acquisitions through a combination of cash
flow from operations, short-term and long-term borrowings and sales of real
estate.
Cash flows from investing activities have historically consisted of payments
for acquisitions, resort capital expenditures, and investments in real estate.
During the year ended July 31, 1999, the Company made payments of $33.8 million
for the acquisition of the Village at Breckenridge, $10.5 million for the
acquisition of additional retail operations (through the Company's retail/rental
joint venture), $55.0 million for the acquisition of Grand Teton Lodge Company,
$65.2 million for resort capital expenditures, and $32.9 million for investments
in real estate.
17
On August 13, 1998 the Company purchased 100% of the outstanding stock of
Village at Breckenridge for a total purchase price of $33.8 million. Village at
Breckenridge owned and operated The Village at Breckenridge, which is
strategically located at the base of Peak 9 at Breckenridge Mountain Resort.
Included in the acquisition were the 60-room Village Hotel, the 71-room
Breckenridge Mountain Lodge, two property management companies which currently
hold contracts for approximately 360 condominium units, eight restaurants,
approximately 28,000 square feet of retail space leased to third parties, and
approximately 32,000 square feet of convention and meeting space. In addition,
the acquisition included the Maggie Building, which is generally considered to
be the primary base lodge of Breckenridge Mountain Resort, but until now has
neither been owned nor managed by the Company. This transaction also included
Village at Breckenridge's other Breckenridge assets, including the Bell Tower
Mall and certain other real estate parcels which we sold on April 10, 1999 to
East West Partners of Avon, Colorado for $10 million. The acquisition was
funded with proceeds from the Credit Facility.
On August 1, 1998, the Company entered into a joint venture with one of the
largest retailers of ski- and golf-related sporting goods in Colorado. The two
companies merged their retail operations into a joint venture named SSI Venture
LLC. The Company contributed its retail and rental operations to the joint
venture and holds a 51.9% share of the joint venture. Specialty Sports, Inc.
contributed 30 stores located in Denver, Boulder, Aspen, Telluride, Vail and
Breckenridge to the joint venture and holds a 48.1% share in the joint venture.
On June 14, 1999 the Company purchased 100% of the outstanding shares of Grand
Teton Lodge Company ("Grand Teton"), a Wyoming corporation, from CSX Corporation
for a total purchase price of $55 million. Grand Teton operates four resort
properties in the Jackson Hole valley in Wyoming: Jenny Lake Lodge, Jackson Lake
Lodge, Colter Bay Village and Jackson Hole Golf & Tennis Club. Grand Teton
operates the first three properties, all located within the Grand Teton National
Park, under a concessionaire contract with the National Park Service. Jackson
Hole Golf & Tennis Club is located outside the park on property owned by Grand
Teton and includes approximately 30 acres of developable land.
Resort capital expenditures for the year ended July 31, 1999 were $65.2
million. Investments in real estate for that period were $32.9 million. The
primary projects included in resort capital expenditures were (i) trail and
infrastructure improvements and a new high-speed quad chairlift at Keystone
Mountain, (ii) upgrades to the snowmaking system at Keystone, (iii) terrain and
facilities improvements and a new on-mountain restaurant at Breckenridge
Mountain, (iv) expansion of the children's ski school at Beaver Creek, (v)
expansion of Adventure Ridge at Vail, (vi) development of Adventure Point at
Keystone, (vii) expansion of the grooming fleet at all four resorts, (viii)
upgrades to office and front line information systems, (ix) significant
renovations of the Great Divide Lodge as well as minor renovations at our other
hotels, and (x) infrastructure for the Blue Sky Basin expansion on Vail
Mountain. The primary projects included in investments in real estate were (i)
continuing infrastructure related to Beaver Creek, Bachelor Gulch and Arrowhead
Villages, (ii) construction of the Arrowhead Alpine Club, (iii) golf course
development, and (iv) investments in developable land at strategic locations at
all four ski resorts.
The Company estimates that it will make resort capital expenditures of
approximately $55 million to $65 million during fiscal 2000. The primary
projects are anticipated to include (i) continued construction of the Blue Sky
Basin expansion on Vail Mountain, (ii) reconstruction and expansion of Two Elk
lodge on Vail Mountain, (iii) a new high-speed six-passenger chairlift at
Breckenridge, (iv) construction of a 37,500 square foot exhibit hall at the
Keystone Conference Center, (v) a new private on-mountain dining facility at
Beaver Creek, (vi) continued construction of the Arrowhead Alpine Club, and
(vii) upgrades to back office information systems. Investments in real estate
during fiscal 2000 are expected to total approximately $26 million. The primary
projects are anticipated to include (i) continued development of Bachelor Gulch
and Arrowhead Villages, (ii) architectural and engineering planning for future
developments at Breckenridge, Vail and Avon, (iii) golf course development near
Beaver Creek, and (iv) investments in developable land at strategic locations at
all four resorts. The Company plans to fund these capital expenditures and
investments in real estate with cash flow from operations and borrowings under
the Credit Facility.
During the year ended July 31, 1999, the Company generated $106.8 million in
cash from its financing activities, consisting of net long-term debt borrowings
of $114.2 million and $0.7 million received from the exercise of employee stock
options. Cash in the amount of $8.1 million was paid out for deferred financing
costs related to the debt offering and amended credit facility.
18
The Company completed a $200 million debt offering of Senior Subordinated
Notes (the "Notes") on May 11, 1999. The Notes have a fixed annual interest rate
of 8.75%, with interest due semi-annually on May 15 and November 15, beginning
November 15, 1999. The Notes will mature on May 15, 2009 and no principal
payments are due to be paid until maturity. The Company has certain early
redemption options under the terms of the Notes. Substantially all of the
Company's subsidiaries have guaranteed the Notes. The Notes are subordinated to
certain of the Company's debts, including the Credit Facility, and will be
subordinated to certain of the Company's future debts. Net proceeds from the
offering were $194.3 million, and were applied against the outstanding balance
on the Credit Facility. The terms of the Notes restrict the Company's ability
to incur additional debt, pay dividends or dispose of significant assets.
In conjunction with the debt offering the Company amended its Credit Facility
on May 11, 1999. The amended Credit Facility provides the Company with
additional financial flexibility. Borrowings under the amended Credit Facility
bear interest annually, at the Company's option, at the rate of either (i) LIBOR
(5.19% at July 31, 1999) plus a margin ranging from 0.75% to 2.25% or (ii) the
agent's prime lending rate, (8.375% at July 31, 1999) plus a margin of up to
0.75%. The Company also pays a quarterly unused commitment fee ranging from
0.20% to 0.50%. The interest margins fluctuate based upon the ratio of total
Funded Debt to Resort EBITDA (as defined in the underlying Credit Facility). The
Credit Facility matures on December 19, 2002.
During the year ended July 31, 1999, 67,360 employee stock options were
exercised at exercise prices ranging from $6.85 to $10.75. Additionally, 8,195
shares were issued to management under the Company's restricted stock plan.
Based on current levels of operations and cash availability, management
believes the Company is in a position to satisfy its current working capital,
debt service, and capital expenditure requirements for at least the next twelve
months.
YEAR 2000 COMPLIANCE
The Year 2000 issue is a result of certain computer programs being written
using two digits rather than four to define the applicable year. Computer
programs which are date-sensitive may recognize a date using "00" as the year
1900 rather than the year 2000, which could result in major computer system or
program failures or miscalculations or equipment malfunctions. The Company
recognizes that the impact of the Year 2000 issue extends beyond traditional
computer hardware and software to embedded hardware and software contained in
equipment used in operations, such as chairlifts, alarm systems and elevators,
as well as to third parties.
State of Readiness. The Year 2000 issue is being addressed internally by the
Company's individual business units under the direction of the information
systems department. The Company has established a Year 2000 task force
consisting of representatives from all major business units to coordinate its
Year 2000 efforts, and progress is reported periodically to a Year 2000
executive committee consisting of certain senior management members.
The Company has committed resources to conduct risk assessments and to take
corrective action, where required, within each of the following areas:
information technology, operations equipment, and external parties. Information
technology includes telecommunications as well as traditional computer software
and hardware in the mainframe, midrange and distributed applications
environments. Operations equipment includes all automation and embedded chips
used in business operations. External parties include any third party with whom
the Company interacts, or upon whom the Company relies in the performance of
day-to-day operations. The Company's program for addressing the Year 2000 issue
includes the following phases: (1) inventory; (2) assessment; (3) remediation;
(4) testing; and (5) contingency planning. Approximately 10% of the Company's
normal information technology work has been deferred due to the fact that
personnel of the information systems department have dedicated certain portions
of their time to the Year 2000 issue. However, the Company plans to complete
and implement its information technology projects as planned.
19
The Company has traditionally upgraded and replaced its information technology
systems on a regular basis. As a result of this process, most of the Company's
information technology systems and applications are currently Year 2000
compliant. In the remaining information technology area, inventory and
assessment audits in the telecommunications, mainframe, midrange and distributed
applications areas are substantially complete with remediation, verification and
testing expected to be completed by October 31, 1999. With respect to operations
equipment, the Company has identified areas that it considers "mission
critical", in that a Year 2000 failure could impact the health or safety of
employees or resort guests or could have a material adverse effect on the
Company's operations. The Company has engaged a third party consultant to
assist in completing inventory and assessment audits of operations equipment.
The Company has extended its targeted completion date for these audits to
October 31, 1999 to allow the outside consulting firm to perform the necessary
work. The Company now expects remediation, verification and testing with
respect to operations equipment to be completed by November 30, 1999.
The Company is communicating with its significant suppliers to determine the
extent to which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 issue. However, there can be no guarantee that
the systems of other companies on which the Company's systems rely will be
timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with our systems, would not have a material
adverse effect on the Company's operations. Many of the external parties that
the Company relies on provide commodity goods or services that are widely
available from a range of vendors; therefore, third party impact is expected to
be minimal. The Company is seeking confirmation of Year 2000 compliance from
critical suppliers and identifying alternative suppliers as part of its
contingency plans. The Company will seek letters of compliance or other
satisfactory evidence of compliance (for example, web site disclosures) from
certain non-critical suppliers based on risk assessment of such suppliers. Risk
assessment with respect to external parties has been completed although
monitoring of risk in this area will continue throughout 1999, as many external
parties will not have completed their work with respect to the Year 2000 issue.
Costs. The total estimated multi-year cost of the Year 2000 project is
estimated to be between $900,000 and $1,100,000 and is being funded from
operating cash flow. These costs are not expected to be material to the
Company's consolidated results of operations, liquidity or capital resources.
Of the total project cost, approximately $600,000 is attributable to the
purchase of new software or equipment that will be capitalized. The remaining
costs will be expensed as incurred. In a number of instances, the Company may
decide to install new software or upgraded versions of current software programs
that are Year 2000 compliant. In these instances, the Company may capitalize
certain costs of the new system in accordance with current accounting
guidelines. As of July 31, 1999 $773,000 of the total estimated Year 2000
project costs have been incurred of which $300,000 has been expensed and
$473,000 was capitalized. Fiscal 1998 expensed costs were approximately
$150,000, and expensed costs for the year ended July 31, 1999 were approximately
$150,000. Costs exclude expenditures for systems that were replaced under the
Company's regularly planned schedule.
Risks. Failure to address a Year 2000 issue could result in a business
disruption that could materially affect the Company's operations, liquidity or
capital resources. Management believes that the most reasonably likely worst
case scenario would consist of isolated instances of minor system or equipment
failures, for which the Company will have developed contingency plans.
There is still uncertainty around the scope of the Year 2000 issue and its
implications for the Company. At this time management cannot quantify the
potential impact of these failures. Due to the general uncertainty inherent in
the Year 2000 problem, as well as, in part, the uncertainty of the Year 2000
readiness of suppliers and the current status of the Company's Year 2000
program, management is unable to determine at this time whether any Year 2000
failures will have material adverse consequences on the Company's results of
operations, liquidity or financial condition. The Company's Year 2000 program
and related contingency plans are being developed to address issues within the
Company's control and to reduce the level of the Company's uncertainty about its
Year 2000 issues. The program minimizes, but does not eliminate, the issues
relating to external parties. Further, there can be no assurance that the
Company will successfully identify or remediate its potential Year 2000 problems
and failure to do so may have a material adverse effect on the Company.
20
Contingency Plans. The Company is developing contingency plans which will
consider, among other factors, the results and responses from communications
with material third parties in determining the nature and the scope of such
contingency plans. However, generally, the Company's contingency plans will
include, but are not limited to, development of manual work-arounds to system
failures, identification of alternative sources for goods and services and
reasonable increases in the amount of on-hand goods and supplies. Typically
these plans address the anticipated consequences of single events, while the
scope of the Year 2000 issues may cause multiple concurrent events for a longer
duration. Development of contingency plans for single events is expected to be
completed by October 31,1999 and development of contingency plans for multiple
concurrent events is in progress and is expected to be completed by November 30,
1999.
The costs of the project, estimated completion dates, worst-case scenario and
other forward-looking statements above are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantees that these estimates
will be achieved, or that events will occur as projected, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, timely implementation
of and allocation of resources to the Company's Year 2000 program, success in
identifying computer systems and non-information technology systems that contain
two digit date codes, appropriate risk assessment and prioritization of such
systems, the nature and amount of programming and testing required and the time
it actually takes to upgrade, replace or otherwise take corrective action with
respect to each of the affected systems and the success of the Company's
suppliers and other external parties with which the Company interacts in
addressing their Year 2000 issues.
INFLATION
Although the Company cannot accurately determine the precise effect of
inflation on its operations, management does not believe inflation has had a
material effect on the results of operations in the last three fiscal years.
When the cost of operating resorts increases the Company generally has been able
to pass the increase on to its customers, however there can be no assurance that
increases in labor and other operating costs due to inflation will not have an
impact on the Company's future profitability.
SEASONALITY AND QUARTERLY RESULTS
The Company's ski and resort operations are extremely seasonal in nature. In
particular, revenues and profits at the Company's ski resorts are substantially
lower, historically resulting in losses, in the summer months due to the closure
of its ski operations. Conversely, Grand Teton's peak operating season occurs
during the summer months while the winter season generally results in operating
losses due to closure of all revenue operations. However, revenues and profits
generated by Grand Teton's summer operations are not sufficient to fully offset
the Company's off-season losses from its ski resorts. During the 1999 fiscal
year, 79.8% of total resort revenues were earned during the second and third
fiscal quarters. Quarterly results may be materially affected by the timing of
snowfall and the integration of acquisitions. Therefore, the operating results
for any three-month period are not necessarily indicative of the results that
may be achieved for any subsequent fiscal quarter or for a full fiscal year.
The Company is taking steps to smooth its earnings cycle by investing in
additional summer activities such as golf course development, including
acquiring new resorts, such as Grand Teton. (See Note 15 of Notes to
Consolidated Financial Statements for Quarterly Financial Highlights).
ECONOMIC DOWNTURN
Skiing and tourism are discretionary recreational activities that can be
impacted by a significant economic slowdown, which, in turn, could impact the
Company's operating results. Although historically economic downturns have not
had an adverse impact on the Company's operating results, there can be no
assurance that a decrease in the amount of discretionary spending by the public
in the future would not have an adverse effect on the Company.
21
UNFAVORABLE WEATHER CONDITIONS
The ski industry's ability to attract visitors to its resorts is influenced by
weather conditions and the amount of snowfall during the ski season.
Unfavorable weather conditions can adversely affect skier days. In the past 20
years the Company's ski resorts have averaged between 300 and 350 inches of
annual snowfall, significantly in excess of the average for U.S. ski resorts.
Despite the substantial snowfall, the Company manages its exposure to
unfavorable weather conditions by investing in the latest technology in
snowmaking systems and actively acquiring additional water rights, which has
allowed the Company to offer its guests more predictable and more consistent
snow conditions, particularly during the early and late ski season. Although
historically unfavorable weather conditions as a single factor have not had a
materially adverse impact on the Company's operating results, there can be no
assurance that unfavorable weather conditions in the future would not have an
adverse effect on the Company's business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. The Company enters into interest rate swap agreements
("Swap Agreements") to reduce its exposure to interest rate fluctuations on its
floating-rate debt. Swap Agreements exchange floating-rate for fixed-rate
interest payments periodically over the life of the agreement without exchange
of the underlying notional amounts. The notional amounts of interest rate
agreements are used to measure interest to be paid or received and do not
represent an amount of exposure to credit loss. For interest rate instruments
that effectively hedge interest rate exposures, the net cash amounts paid or
received on the agreements are accrued and recognized as an adjustment to
interest expense. As of July 31, 1999, the Company had Swap Agreements in
effect with notional amounts totaling $150.0 million, of which $75.0 million
will mature in February 2000. The remaining $75.0 million will mature December
2002. Borrowings not subject to Swap Agreements at July 31, 1999 totaled $267.9
million. Swap Agreement rates are based on one-month LIBOR. Based on average
floating-rate borrowings outstanding during the year ended July 31, 1999, a 100-
basis point change in LIBOR would have caused the Company's monthly interest
expense to change by $16,417. Management believes that these amounts are not
significant to the Company's earnings.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
VAIL RESORTS, INC.
Consolidated Financial Statements for the Year Ended July 31, 1999, the Ten
Months Ended July 31, 1998, and the Year Ended September 30, 1997
Report of Independent Public Accountants.................................................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets................................................................................. F-3
Consolidated Statements of Operations....................................................................... F-4
Consolidated Statements of Stockholders' Equity............................................................. F-5
Consolidated Statements of Cash Flows....................................................................... F-6
Notes to Consolidated Financial Statements.................................................................. F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Vail Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of VAIL RESORTS,
INC. and subsidiaries as of July 31, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year ended
July 31, 1999, the ten-month period ended July 31, 1998 and the year ended
September 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vail Resorts, Inc. and
subsidiaries as of July 31, 1999 and 1998 and the results of their operations
and their cash flows for the year ended July 31, 1999, the ten-month period
ended July 31, 1998 and the year ended September 30, 1997, in conformity with
generally accepted accounting principals, in conformity with generally accepted
accounting principals.
Arthur Andersen LLP
Denver, Colorado,
October 14, 1999
F-2
Vail Resorts, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
July 31, July 31,
1999 1998
---------- --------
Assets
Current assets:
Cash and cash equivalents............................... $ 18,302 $ 13,366
Restricted cash......................................... 7,022 6,146
Trade receivables, net of allowances of $959 and $1,220,
respectively........................................... 29,650 22,224
Notes receivable........................................ -- 4,263
Inventories............................................. 22,805 8,893
Deferred income taxes (Note 9).......................... 10,404 12,126
Other current assets.................................... 4,512 4,708
---------- --------
Total current assets.................................. 92,695 71,726
Property, plant and equipment, net (Note 7)............... 611,141 501,371
Real estate held for sale and investment.................. 152,508 138,916
Deferred charges and other assets......................... 30,011 12,605
Notes receivable, non-current portion..................... 1,380 1,372
Intangible assets, net (Note 7)........................... 201,504 186,132
---------- --------
Total assets.......................................... $1,089,239 $912,122
========== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses (Note 7).......... $ 89,445 $ 55,012
Income taxes payable.................................... 1,633 2,239
Long-term debt due within one year (Note 6)............. 2,057 1,734
---------- --------
Total current liabilities............................. 93,135 58,985
Long-term debt (Note 6)................................... 396,129 282,280
Other long-term liabilities............................... 31,146 28,886
Deferred income taxes (Note 9)............................ 84,728 79,347
Commitments and contingencies (Note 11) -- --
Minority interest in net assets of consolidated joint
venture 7,326 --
Stockholders' equity (Notes 1 and 14):
Preferred stock, $.01 par value, 25,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock--
Class A common stock, convertible to common stock,
$.01 par value, 20,000,000 shares authorized,
7,439,834 and 7,639,834 shares issued and outstanding
as of July 31, 1999 and July 31, 1998, respectively.. 74 76
Common stock, $.01 par value, 40,000,000 shares
authorized, 27,092,901 and 26,817,346 shares issued
and outstanding as of July 31, 1999 and July 31,
1998, respectively................................... 271 269
Additional paid-in capital............................ 402,923 401,563
Retained earnings..................................... 73,507 60,716
---------- --------
Total stockholders' equity.......................... 476,775 462,624
---------- --------
Total liabilities and stockholders' equity.......... $1,089,239 $912,122
========== ========
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
F-3
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
Year Ten Months Year
Ended Ended Ended
July 31, July 31, September 30,
1999 1998 1997
-------- ---------- -------------
Net revenues:
Resort.............................................................. $431,788 $ 336,547 $ 259,038
Real estate......................................................... 43,912 73,722 71,485
-------- ---------- -------------
Total net revenues................................................ 475,700 410,269 330,523
Operating expenses:
Resort.............................................................. 339,437 217,764 172,715
Real estate......................................................... 34,386 62,619 66,307
Corporate expense................................................... 6,250 4,437 4,663
Depreciation and amortization....................................... 53,256 36,838 34,044
-------- ---------- -------------
Total operating expenses.......................................... 433,329 321,658 277,729
-------- ---------- -------------
Income from operations............................................... 42,371 88,611 52,794
Other income (expense):
Investment income................................................... 1,624 1,784 1,762
Interest expense.................................................... (25,099) (17,789) (20,308)
Gain (loss) on disposal of fixed assets............................. 3,283 (1,706) (182)
Other income (expense).............................................. 63 (736) (383)
Minority interest in net income of consolidated joint venture....... (1,448) -- --
-------- ---------- -------------
Income before income taxes........................................... 20,794 70,164 33,683
Provision for income taxes (Note 9).................................. (8,003) (29,146) (13,985)
-------- ---------- -------------
Net income........................................................... $ 12,791 $ 41,018 $ 19,698
======== ========== =============
Net income per common share (Notes 2 and 4):
Basic............................................................... $ 0.37 $ 1.20 $ 0.66
======== ========== =============
Diluted............................................................. $ 0.37 $ 1.18 $ 0.64
======== ========== =============
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
F-4
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Common Stock
---------------------------------------------
Shares Additional Retained Total
------------------------------------ Paid-in Earnings Stockholders'
Class A Common Total Amount Capital (Deficit) Equity
---------- ---------- ---------- ------ ---------- --------- -------------
Balance, September 30, 1996........ 12,426,220 7,573,780 20,000,000 $ 200 $ 123,707 $ -- $ 123,907
Net income for the year ended
September 30, 1997................ -- -- -- -- -- 19,698 19,698
Issuance of shares pursuant to
options exercised (Note 13)....... -- 744,482 744,482 7 10,212 -- 10,219
Issuance of shares in acquisition
of resort, net (Note 5)........... -- 7,554,406 7,554,406 76 151,012 -- 151,088
Issuance of shares in initial
public offering, net.............. -- 5,000,000 5,000,000 50 98,100 -- 98,150
Issuance of shares in acquisition
of retail space, net.............. -- 106,761 106,761 1 2,348 -- 2,349
Compensation expense related to
employee stock options............ -- -- -- -- 255 -- 255
Shares of Class A Common Stock
Converted to Common Stock (Note
14)............................... (786,386) 786,386 -- -- -- -- --
---------- ---------- ---------- ------ ---------- --------- -------------
Balance, September 30, 1997........ 11,639,834 21,765,815 33,405,649 $ 334 $ 385,634 $ 19,698 $ 405,666
Net income for the ten-month
period ended July 31, 1998........ -- -- -- -- -- 41,018 41,018
Issuance of shares pursuant to
options exercised (Note 13)....... -- 1,043,271 1,043,271 11 7,990 -- 8,001
Tax effect of stock option
exercises......................... -- -- -- -- 7,669 -- 7,669
Restricted stock issued (Note 13).. -- 8,260 8,260 -- 270 -- 270
Shares of Class A Common Stock
Converted to Common Stock (Note
14)............................... (4,000,000) 4,000,000 -- -- -- -- --
---------- ---------- ---------- ------ ---------- --------- -------------
Balance, July 31, 1998............. 7,639,834 26,817,346 34,457,180 $ 345 $ 401,563 $ 60,716 $ 462,624
Net income for the year ended July
31, 1999.......................... -- -- -- -- -- 12,791 12,791
Issuance of shares pursuant to
options exercised (Note 13)....... -- 67,360 67,360 -- 677 -- 677
Tax effect of stock option
exercises......................... -- 435 -- 435
Restricted stock issued (Note 13).. -- 8,195 8,195 -- 248 -- 248
Shares of Class A Common Stock
Converted to Common Stock (Note
14)............................... (200,000) 200,000 -- -- -- -- --
---------- ---------- ---------- ------ ---------- --------- -------------
Balance, July 31, 1999............. 7,439,834 27,092,901 34,532,735 $ 345 $ 402,923 $ 73,507 $ 476,775
========== ========== ========== ====== ========== ========= =============
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
F-5
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ten Months Year
Ended Ended Ended
July 31, July 31, September 30,
1999 1998 1997
--------- ---------- -------------
Cash flows from operating activities:
Net income.................................................................... $ 12,791 $ 41,018 $ 19,698
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................. 53,256 36,838 34,044
Deferred compensation payments in excess of expense........................... -- -- (331)
Non-cash cost of real estate sales............................................ 23,779 49,112 52,647
Non-cash compensation related to stock grants (Note 13)....................... 358 285 306
Non-cash compensation related to stock options................................ -- -- 255
Non-cash equity income........................................................ (224) (2,973) (701)
Deferred financing costs amortized............................................ 742 448 389
(Gain) loss on disposal of fixed assets....................................... (3,283) 1,706 182
Deferred income taxes, net (Note 9)........................................... 8,003 29,146 7,413
Minority interest in net income of consolidated joint venture................. 1,448 -- --
Changes in assets and liabilities:
Restricted cash............................................................... (876) (415) 529
Accounts receivable, net...................................................... (5,728) (4,358) 2,089
Notes receivable, net......................................................... 4,263 (93) (4,469)
Inventories................................................................... (6,554) 2,497 (835)
Accounts payable and accrued expenses......................................... 20,136 (16,226) (10,712)
Other assets and liabilities.................................................. (5,501) (2,642) 2,867
--------- ---------- -------------
Net cash provided by operating activities................................... 102,610 134,343 103,371
Cash flows from investing activities:
Cash paid in resort acquisition, net of cash acquired......................... (48,360) -- (146,386)
Cash paid in hotel acquisitions, net of cash acquired......................... (33,800) (54,250) --
Cash paid by consolidated joint venture in acquisition of retail operations... (10,516)
Cash paid in acquisition of warehouse complex................................. (8,600)
Investments in joint ventures................................................. (5,000) -- 2,511
Resort capital expenditures................................................... (65,168) (80,454) (51,020)
Investments in real estate.................................................... (32,980) (15,661) (56,947)
--------- ---------- -------------
Net cash used in investing activities....................................... (204,424) (150,365) (251,842)
Cash flows from financing activities:
Proceeds from initial public offering......................................... -- -- 98,150
Proceeds from the exercise of stock options................................... 678 8,001 --
Payments under Rights......................................................... -- (5,707) (42,175)
Refund of bond reserve fund................................................... -- 3,297 --
Cash payment of deferred financing costs...................................... (8,100) -- --
Proceeds from borrowings under long-term debt................................. 416,642 334,000 235,000
Payments on long-term debt.................................................... (302,470) (318,345) (139,984)
--------- ---------- -------------
Net cash provided by financing activities................................... 106,750 21,246 150,991
--------- ---------- -------------
Net increase in cash and cash equivalents...................................... 4,936 5,224 2,520
Cash and cash equivalents:
Beginning of period........................................................... 13,366 8,142 5,622
End of period................................................................. $ 18,302 $ 13,366 $ 8,142
========= ========== =============
Cash paid for interest......................................................... $ 21,022 $ 16,336 $ 20,166
========= ========== =============
Taxes paid, net of refunds..................................................... $ 850 $ -- $ 1,925
========= ========== =============
Supplemental disclosure of non-cash transactions:
Issuance of common stock in resort acquisition................................. $ 151,088
=============
Assumption of liabilities in resort acquisition................................ $ 91,480
=============
Option exercise (Note 13)...................................................... $ 2,740
=============
Issuance of common stock in purchase of retail space........................... $ 2,349
=============
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Vail Resorts, Inc. ("Vail Resorts") is organized as a holding company and
operates through various subsidiaries. Vail Resorts and its subsidiaries
(collectively, the "Company") currently operate in two business segments--resort
and real estate. Vail Associates, Inc., an indirect wholly owned subsidiary of
Vail Resorts, and its subsidiaries, (collectively, "Vail Associates") operate
four of the world's largest skiing facilities on Vail, Breckenridge, Keystone
and Beaver Creek mountains in Colorado. In addition to the ski resorts, Vail
Associates owns and operates Grand Teton Lodge Company ("Grand Teton"), which
operates three resorts within Grand Teton National Park (under a National Park
Service concessionaire contract) and the Jackson Hole Golf & Tennis Club in
Wyoming. Vail Resorts Development Company ("VRDC"), a wholly owned subsidiary of
Vail Associates, conducts the Company's real estate development activities. The
Company's mountain resort businesses are seasonal in nature. The Company's ski
resort businesses and related amenities typically have operating seasons from
mid-October through mid-May; the Company's operations at Grand Teton generally
run from mid-May through mid-October.
2. Summary of Significant Accounting Policies
Principles of Consolidation--The accompanying consolidated financial statements
include the accounts of the Company, its wholly owned subsidiaries and
subsidiaries in which the Company holds a controlling interest. Investments in
joint ventures in which the Company does not have a controlling interest are
accounted for under the equity method. All significant intercompany
transactions have been eliminated.
Cash and Cash Equivalents--The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents. The
carrying amounts reported in the balance sheet for cash equivalents are at fair
value.
Restricted Cash--Restricted cash represents amounts held as reserves for self-
insured worker's compensation claims, and owner and guest advance deposits held
in escrow for lodging reservations.
Inventories--The Company's inventories consist primarily of purchased retail
goods, food, and spare parts. Inventories are stated at the lower of cost or
market, determined using an average weighted cost method for retail inventories
and using the first-in, first-out (FIFO) method for all other inventories. The
Company records a reserve for shrinkage and obsolete inventory.
Property, Plant and Equipment--Property, plant and equipment is carried at cost
net of accumulated depreciation. Depreciation is calculated generally on the
straight-line method based on the following useful lives:
Estimated
Life
---------
Land improvements................................ 40
Buildings and terminals.......................... 40
Ski lifts........................................ 15
Machinery, equipment, furniture and fixtures..... 3-12
Automobiles and trucks........................... 3-5
Ski trails are depreciated over the life of their respective United States
Forest Service permits.
Real Estate Held for Sale-- The Company capitalizes as land held for sale the
original acquisition cost (or appraised value as of the effective date, as
defined below), direct construction and development costs, property taxes,
interest incurred on costs related to land under development, and other related
costs (engineering, surveying, landscaping, etc.) until the property reaches its
intended use. The cost of sales for individual parcels of real estate or
condominium units within a project is determined using the relative sales value
method. Selling expenses are charged against income in the period incurred.
Interest capitalized on real estate development projects during fiscal years
1999 and 1997 totaled $0.2 million and $0.5 million, respectively. There was no
interest capitalized on real estate development projects during fiscal 1998.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is a member in the Keystone/Intrawest L.L.C. ("Keystone JV"),
which is a joint venture with Intrawest Resorts, Inc. formed to develop land at
the base of Keystone Mountain. The Company contributed 500 acres of development
land as well as certain other funds to the joint venture. The Company's
investment in the Keystone JV, including the Company's equity earnings from the
inception of the Keystone JV, are reported as real estate held for sale in the
accompanying balance sheets as of July 31, 1999 and 1998. The Company recorded
$7.7 million and $2.9 million in equity income for the fiscal year ended July
31, 1999 and the ten-month period ended July 31, 1998, respectively.
Deferred Financing Costs--Costs incurred with the issuance of debt securities
are included in deferred charges and other assets, net of accumulated
amortization. Amortization is charged to interest expense over the respective
original lives of the applicable debt issues.
Interest Rate Agreements--The Company enters into interest rate exchange
agreements, or swap agreements, to hedge against fluctuating interest rates.
The swap agreements, which are derivatives of the Company's existing debt
agreements, exchange the interest rate on all or a portion of the Company's debt
for either fixed- or floating-rate interest agreements. Net interest is accrued
as either interest receivable or interest payable with the offset recorded in
interest expense. Any premium paid is amortized over the life of the agreement.
Intangible Assets--Upon emergence from bankruptcy on October 8, 1992, the
Company's reorganization value exceeded the amounts allocated to the net
tangible and other intangible assets of the Company. This excess reorganization
value has been classified as an intangible asset on the Company's balance sheet.
The Company has classified as goodwill the cost in excess of fair value of the
net assets of companies acquired in purchase transactions. Intangible assets
are recorded net of accumulated amortization in the accompanying consolidated
balance sheet and amortized using the straight-line method over their estimated
useful lives as follows:
Excess reorganization value................... 20 years
Goodwill...................................... 15-40 years
Trademarks.................................... 40 years
Other intangibles............................. 3-15 years
Long-lived Assets--The Company evaluates potential impairment of long-lived
assets and long-lived assets to be disposed of in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121
establishes procedures for the review of recoverability and measurement of
impairment, if necessary, of long-lived assets, goodwill and certain
identifiable intangibles held and used by an entity. SFAS No. 121 requires that
those assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. SFAS No. 121 also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less estimated selling costs. As of July 31, 1999,
management believes that there has not been any impairment of the Company's
long-lived assets, goodwill or other identifiable intangibles.
Revenue Recognition--Resort Revenues are derived from a wide variety of sources,
including sales of lift tickets, ski school tuition, dining, retail stores,
equipment rental, hotel operations, property management services, travel
reservation services, club management, real estate brokerage, conventions,
licensing and sponsoring activities and other recreational activities, and are
recognized as services are performed. Revenues from real estate sales are not
recognized until title has been transferred, and revenue is deferred if the
receivable is subject to subordination until such time as all costs have been
recovered. Until the initial down payment and subsequent collection of
principal and interest are by contract substantial, cash received from the buyer
is reported as a deposit on the contract.
Deferred Revenue--The Company records deferred revenue related to the sale of
season ski passes and certain daily lift ticket products. The number of season
pass holder visits is estimated based on historical data and the deferred
revenue is recognized throughout the season based on this estimate. During the
ski season the estimated visits are compared to the actual visits and
adjustments are made if necessary.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Advertising Costs--Advertising costs are expensed the first time the advertising
takes place. Advertising expense for the fiscal year ended July 31, 1999, the
ten-month period ended July 31, 1998 and the fiscal year ended September 30,
1997 was $8.8 million, $8.7 million and $8.8 million, respectively. At July 31,
1999 and 1998, advertising costs of $610,000 and $900,000, respectively, are
reported as current assets in the Company's consolidated balance sheets.
Income Taxes--The Company uses the liability method of accounting for income
taxes as prescribed by SFAS No. 109, "Accounting for Income Taxes". Under SFAS
No. 109, a deferred tax liability or asset is recognized for the effect of
temporary differences between financial reporting and income tax reporting (See
Note 9).
Net Income Per Share--In accordance with SFAS 128, "Earnings Per Share", the
company computes net income per share on both the basic and diluted basis (See
Note 4).
Fair Value of Financial Instruments--The recorded amounts for cash and cash
equivalents, receivables, other current assets, and accounts payable and accrued
expenses approximate fair value due to the short-term nature of these financial
instruments. The fair value of amounts outstanding under the Company's Credit
Facilities approximates book value due to the variable nature of the interest
rate associated with that debt. The fair values of the Company's Industrial
Development Bonds and other long-term debt have been estimated using discounted
cash flow analyses based on current borrowing rates for debt with similar
maturities and ratings. The estimated fair values of the Industrial Development
Bonds and other long-term debt at July 31, 1999 and 1998 are presented below (in
thousands):
July 31, 1999 July 31, 1998
------------------- ------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- -------
Senior Subordinated Notes........ $200,000 $153,877 $ -- $ --
Industrial Development Bonds..... $ 63,200 $ 65,746 $64,560 $76,935
Other Long Term Debt............. $ 4,686 $ 4,627 $ 1,370 $ 1,414
Stock Compensation--The Company's stock option plans are accounted for in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". The Company has adopted the disclosure requirements
of SFAS No.123, "Accounting for Stock-Based Compensation" (See Note 13).
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the balance sheet date and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Accounting Standards--The Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income", as of August 1, 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. The adoption
of this standard had no impact on the Company's financial statements, as there
are no differences between net income and comprehensive income for the periods
reported herein.
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", for fiscal year 1999. SFAS No. 131, among
other things, established standards regarding the information a company is
required to disclose about its operating segments and provides guidance
regarding what constitutes a reportable operating segment.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is required to adopt SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", in Fiscal 2001. SFAS No. 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. It requires all derivatives to be recorded
on the balance sheet at fair value. It also requires the recognition of
offsetting changes in value or cash flows of both the hedge and the hedged item
in earnings in the same period for certain types of hedges. For all other types
of derivatives, changes in fair value will be required to be reflected in
earnings in the period of change. The Company is currently evaluating the
impact the requirement will have on its financial statements.
The Accounting Standards Executive Committee ("AcSEC") issued Statement of
Position ("SOP") 98-1 providing guidance on accounting for the costs of computer
software developed or obtained for internal use. The effective date for this
pronouncement is for fiscal years beginning after December 15, 1998. The
Company is in the process of reviewing its current policies for accounting for
costs associated with internal software development projects and how they may be
affected by SOP 98-1.
The AcSEC issued SOP 98-5, which requires that all non-governmental entities
expense costs of start-up activities as incurred. The effective date for this
pronouncement is for fiscal years beginning after December 15, 1998. The
Company is in the process of reviewing its current policies for accounting for
costs associated with start-up activities and how they may be affected by SOP
98-5.
3. Change in Fiscal Year End
On September 1, 1997, the Company changed its fiscal year end from September
30 to July 31, beginning with fiscal year 1998. Comparative results of
operations of the Company for the ten months ended July 31, 1998 and 1997 are as
shown below. Also presented is the Company's 1998 fiscal year restated for the
July 31, 1998 year end.
Twelve Months
Ten Months Ended July 31, Ended July 31,
------------------------- --------------
1998 1997 1998
--------- ----------- --------------
(audited) (unaudited) (unaudited)
Net revenue
Resort......................................... $ 336,547 $ 248,511 $ 350,498
Real estate.................................... 73,722 61,104 84,177
--------- ----------- --------------
Net revenues................................. 410,269 309,615 434,675
Operating expenses
Resort......................................... 217,764 153,212 238,889
Real estate.................................... 62,619 54,944 74,057
Corporate expense.............................. 4,437 3,557 5,543
Depreciation and amortization.................. 36,838 27,604 42,965
Reorganization charge.......................... -- 2,200 --
--------- ----------- --------------
Total operating expenses..................... 321,658 241,517 361,454
--------- ----------- --------------
Income from operations.......................... 88,611 68,098 73,221
Other income (expense)
Investment income.............................. 1,784 1,372 2,174
Interest expense............................... (17,789) (17,236) (20,891)
Gain (loss) on sale of fixed assets............ (1,706) (100) (1,788)
Other.......................................... (736) 87 (1,217)
--------- ----------- --------------
Income before income taxes...................... 70,164 52,221 51,499
Credit (provision) for income taxes............. (29,146) (21,781) (21,426)
--------- ----------- --------------
Net income...................................... $ 41,018 $ 30,440 $ 30,073
========= =========== ==============
Basic net income per common share............... $ 1.20 $ 1.06 $ 0.88
========= =========== ==============
Diluted net income per common share............. $ 1.18 $ 1.02 $ 0.87
========= =========== ==============
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. Net Income Per Common Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" ("EPS") effective for periods ending after December
15, 1997, including interim periods. SFAS No. 128 establishes standards for
computing and presenting earnings per share. SFAS No. 128 requires the dual
presentation of basic (replaces primary EPS) and diluted EPS on the face of the
income statement and requires a reconciliation of numerators (net income) and
denominators (weighted-average shares outstanding) for both basic and diluted
EPS in the footnotes. Basic EPS excludes dilution and is computed by dividing
net income available to common shareholders by the weighted-average shares
outstanding. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised, resulting in
the issuance of common shares that would then share in the earnings of the
Company. Pro forma presentation and disclosure requirements are supplied for
prior period comparisons in accordance with the statement.
Fiscal Year Ended Ten Months Ended Fiscal Year Ended
July 31, July 31, September 30,
1999 1998 1997
----------------- ---------------- -----------------
Basic Diluted Basic Diluted Basic Diluted
------- ------- ------- ------- ------- -------
Net income per common share:
Net income $12,791 $12,791 $41,018 $41,018 $19,698 $19,698
Weighted-average shares outstanding 34,562 34,562 34,204 34,204 30,067 30,067
Effect of dilutive stock options -- 233 -- 547 -- 912
------- ------- ------- ------- ------- -------
Total shares 34,562 34,795 34,204 34,751 30,067 30,979
------- ------- ------- ------- ------- -------
Net income per common share $ 0.37 $ 0.37 $ 1.20 $ 1.18 $ 0.66 $ 0.64
======= ======= ======= ======= ======= =======
5. Acquisitions and Business Combinations
On August 1, 1998, the Company entered into a joint venture with one of the
largest retailers of ski- and golf-related sporting goods in Colorado. The two
companies merged their retail operations into a joint venture named SSI Venture
LLC. The Company contributed its retail and rental operations to the joint
venture and holds a 51.9% share of the joint venture. Specialty Sports, Inc.
contributed 30 stores located in Denver, Boulder, Aspen, Telluride, Vail and
Breckenridge to the joint venture and holds a 48.1% share in the joint venture.
The owners and operators of Specialty Sports, Inc., the Gart family, have been
operating in the sporting goods industry in Colorado since 1929 and run the day-
to-day operations of SSI Venture LLC. The Company participates in the strategic
and financial management of the joint venture. SSI Venture LLC is a fully
consolidated entity in the Company's accompanying financial statements with the
minority interest in earnings and net assets appropriately reflected on the
financial statements.
On August 13, 1998, the Company purchased 100% of the outstanding stock of
The Village at Breckenridge Acquisition Corp., Inc. and Property Management
Acquisition Corp., Inc. (collectively, "VAB") for a total purchase price of
$33.8 million. VAB owned and operated The Village at Breckenridge, which is
strategically located at the base of Peak 9 at Breckenridge Mountain Resort.
Included in the acquisition were the 60-room Village Hotel, the 71-room
Breckenridge Mountain Lodge, two property management companies which currently
hold contracts for approximately 360 condominium units, eight restaurants,
approximately 28,000 square feet of retail space leased to third parties, and
approximately 32,000 square feet of convention and meeting space. In addition,
the acquisition includes the Maggie Building, which is generally considered to
be the primary base lodge of Breckenridge Mountain Resort, but until now had
neither been owned nor managed by the Company. This transaction also included
VAB's other Breckenridge assets, including the Bell Tower Mall and certain other
real estate parcels which the Company sold on April 10, 1999, to East West
Partners of Avon, Colorado for $10 million. The acquisition was funded with
proceeds from the Company's revolving credit facility.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. Acquisitions and Business Combinations (Continued)
On June 14, 1999, the Company purchased 100% of the outstanding shares of
Grand Teton Lodge Company, a Wyoming corporation, from CSX Corporation for a
total purchase price of $55 million. The Grand Teton Lodge Company operates four
resort properties in northwestern Wyoming: Jenny Lake Lodge, Jackson Lake Lodge,
Colter Bay Village and Jackson Hole Golf & Tennis Club. Grand Teton Lodge
Company operates the first three properties, all located within Grand Teton
National Park, under a concessionaire contract with the National Park Service.
Jackson Hole Golf & Tennis Club is located outside the park on property owned by
Grand Teton Lodge Company and includes approximately 30 acres of developable
land.
6. Long-Term Debt
Long-term debt as of July 31, 1999 and 1998 is summarized as follows (in
thousands):
(e) July 31,
Maturity 1999 1998
--------- -------- --------
Industrial Development Bonds (a) 2000-2020 $ 63,200 $ 64,560
Revolving Credit Facilities (b) 2003 130,300 218,000
Senior Subordinated Notes(c) 2009 200,000 --
Other (d) 2000-2029 4,686 1,454
-------- --------
398,186 284,014
Less: Current Maturities 2,057 1,734
-------- --------
$396,129 $282,280
======== ========
a) The Company has $41.2 million of outstanding Industrial Development Bonds
(the "Industrial Development Bonds") issued by Eagle County, Colorado
that mature, subject to prior redemption, on August 1, 2019. These bonds
accrue interest at 6.95% per annum, with interest being payable semi-
annually on February 1 and August 1. In addition, the Company has
outstanding two series of refunding bonds. The Series 1990 Sports
Facilities Refunding Revenue Bonds have an aggregate outstanding
principal amount of $19.0 million, which matures in installments in 2006
and 2008. These bonds bear interest at a rate of 7.75% for bonds maturing
in 2006 and 7.875% for bonds maturing in 2008. The Series 1991 Sports
Facilities Refunding Revenue Bonds have an aggregate outstanding
principal amount of $3 million and bear interest at 7.125% for bonds
maturing in 2002 and 7.375% for bonds maturing in 2010.
b) The Company's credit facilities consist of a revolving credit facility
("Credit Facility") that provides for debt financing up to an aggregate
principal amount of $450 million. In conjunction with the private debt
offering discussed below, the Company amended its Credit Facility on May
11, 1999. Borrowings under the Credit Facility as amended bear interest
annually at the Company's option at the rate of (i) LIBOR (5.19% at July,
31, 1999) plus a margin ranging from 0.75% to 2.25% or (ii) the agent's
prime lending rate, (8.375 at July 31, 1999) plus a margin of up to
0.75%. The Company also pays a quarterly unused commitment fee ranging
from 0.20% to 0.50%. The interest margins fluctuate based upon the ratio
of the Company's total Funded Debt to the Company's Resort EBITDA (as
defined in the underlying Credit Facility). The Credit Facility matures
on December 19, 2002.
On December 30, 1998, SSI Venture LLC established a credit facility ("SSV
Facility") that provides debt financing up to an aggregate principal
amount of $20 million. The SSV Facility consists of (i) a $10 million
Tranche A revolving credit facility and (ii) a $10 million Tranche B term
loan facility. The SSV Facility matures on the earlier of December 31,
2003 or the termination date of the Credit Facility discussed above. Vail
Associates guarantees the SSV Facility. Minimum amortization under the
Tranche B Term Loan Facility is $1.38 million, $1.75 million, $2.25
million, $2.63 million, and $1.38 million during the fiscal years 2000,
2001, 2002, 2003, and 2004, respectively. The SSV Facility bears interest
annually at the rates prescribed above for the Credit Facility. SSI
Venture LLC also pays a quarterly unused commitment fee at the same rates
as the unused commitment fee for the Credit Facility.
c) The Company completed a $200 million debt offering of Senior Subordinated
Notes (the "Notes") on May 11, 1999. The Notes have a fixed annual
interest rate of 8.75%, with interest due semi-annually on May 15 and
November 15, beginning November 15, 1999. The Notes will mature on May
15, 2009 and no principal payments are due to be paid until maturity. The
Company has certain early redemption options under the terms of the
Notes. Substantially all of the Company's subsidiaries have guaranteed
the Notes. The Notes are subordinated to certain of the Company's debts,
including the Credit Facility, and will be subordinated to certain of the
Company's future debts. The proceeds of the offering were used to reduce
the Company's outstanding debt under the Credit Facility.
d) Other obligations bear interest at rates ranging from 0.0% to 6.5% and
have maturities ranging from 1999 to 2028.
e) Maturities are based on the Company's July 31 fiscal year end.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. Long-Term Debt (continued)
Aggregate maturities for debt outstanding are as follows (in thousands):
July 31,
Due during the twelve months ending July 31. 1999
--------
2000................................................. $ 2,057
2001................................................. 2,217
2002................................................. 2,694
2003................................................. 124,980
2004................................................. 1,433
Thereafter........................................... 264,805
--------
Total Debt........................................ $398,186
========
7. Supplementary Balance Sheet Information (in thousands)
The composition of property, plant and equipment follows:
July 31,
1999 1998
--------- --------
Land and land improvements................. $ 133,354 $115,516
Buildings and terminals.................... 287,870 227,956
Machinery and equipment.................... 208,740 175,453
Automobiles and trucks..................... 15,300 10,900
Furniture and fixtures..................... 46,405 35,968
Construction in progress................... 48,649 21,851
--------- --------
740,318 587,644
Accumulated depreciation................... (129,177) (86,273)
--------- --------
Property, Plant and Equipment, net......... $ 611,141 $501,371
========= ========
Depreciation expense for the year ended July 31, 1999, the ten months ended
July 31, 1998 and the year ended September 30, 1997 totaled $43.5 million, $28.4
million, and $25.1 million, respectively.
The composition of intangible assets follows:
July 31,
1999 1998
--------- --------
Trademarks................................. $ 42,611 $ 42,611
Other intangible assets.................... 43,213 38,802
Goodwill................................... 144,775 125,307
Excess reorganization value (See Note 2)... 24,593 24,593
--------- --------
$ 255,192 $231,313
Accumulated amortization................... (53,688) (45,181)
--------- --------
$ 201,504 $186,132
========= ========
Amortization expense for the fiscal year ended July 31, 1999, the ten months
ended July 31, 1998 and for the fiscal year ended September 30, 1997 totaled
$9.8 million, $8.4 million, and $8.9, respectively.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. Supplementary Balance Sheet Information (in thousands)
The composition of accounts payable and accrued expenses follows:
July 31,
1999 1998
------- -------
Trade payables............................................ $42,761 $24,637
Deposits.................................................. 11,894 4,516
Accrued salaries and wages................................ 13,969 8,930
Accrued interest.......................................... 6,301 3,051
Property taxes............................................ 5,770 4,144
Liability to complete real estate sold, short term........ 1,718 2,910
Other accruals............................................ 7,032 6,824
------- -------
$89,445 $55,012
======= =======
8. Retirement and Profit Sharing Plans
The Company maintains a defined contribution retirement plan, qualified under
Section 401(k) of the Internal Revenue Code, for its employees. Employees are
eligible to participate in the plan upon satisfying the following requirements
(1) the employees must be at least 21 years old; and (2) the employees must
complete either (a) 1,500 hours of service since employment commencement date,
provided that no employees who complete 1,500 hours of service are eligible to
participate in the Plan earlier than the first anniversary of their employment
commencement date or (b) a 12 consecutive month period beginning on their
employment commencement date, or any subsequent 12 consecutive month period
beginning on the anniversary of their employment commencement date, during which
they are credited with 1,000 or more hours of service. Participants may
contribute from 2% to 22% of their qualifying annual compensation up to the
annual maximum specified by the Internal Revenue Code. The Company matches an
amount equal to 50% of each participant's contribution up to 6% of a
participant's annual qualifying compensation. The Company's matching
contribution is entirely discretionary and may be reduced or eliminated at any
time.
Total profit sharing plan expense recognized by the Company for the year
ended July 31, 1999, the ten months ended July 31, 1998 and for the year ended
September 30, 1997 was $829,000, $844,000, and $731,000, respectively.
9. Income Taxes
At July 31, 1999, the Company has total federal net operating loss (NOL)
carryovers of approximately $323 million for income tax purposes that expire in
the years 2004 through 2008. The Company will be able to use these NOLs to the
extent of approximately $8.0 million per year through October 8, 2007 (Section
382 amount). Consequently, the accompanying financial statements and table of
deferred items only recognize benefits related to the NOLs to the extent of the
Section 382 amount.
At July 31, 1999 the Company has approximately $2.9 million in unused minimum
tax credit carryovers. These tax credits have an unlimited carryforward period.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. Income Taxes (Continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and income tax purposes. Significant components of the Company's
deferred tax liabilities and assets as of July 31, 1999 and 1998 are as follows
(in thousands):
July 31,
1999 1998
-------- --------
Deferred income tax liabilities:
Fixed assets............................................... $ 70,254 $ 64,508
Intangible assets.......................................... 17,964 18,165
Other, net................................................. 1,757 745
-------- --------
Total.................................................... 89,975 83,418
Gross deferred income tax assets:
Accrued expenses........................................... 3,450 5,094
Net operating loss carryforwards........................... 22,393 23,643
Minimum tax credit......................................... 2,894 2,761
Other, net................................................. 261 --
-------- --------
Total.................................................... 28,998 31,498
Valuation allowance for deferred income tax assets.......... (13,347) (15,301)
Deferred income tax assets, net of valuation allowance...... 15,651 16,197
-------- --------
Net deferred income tax liability........................... $ 74,324 $ 67,221
======== ========
The net current and non-current components of deferred income taxes
recognized in the July 31, 1999 and 1998 balance sheets are as follows (in
thousands):
July 31,
1999 1998
-------- --------
Net current deferred income tax asset....................... $ 10,404 $ 12,126
Net non-current deferred income tax liability............... 84,728 79,347
-------- --------
Net deferred income tax liability......................... $ 74,324 $ 67,221
======== ========
Significant components of the provision for income taxes from continuing
operations are as follows (in thousands):
Year Ten Months Year
Ended Ended Ended
July 31, July 31, September 30,
1999 1998 1997
-------- ---------- -------------
Current:
Federal......................................................... $ 255 $ 1,157 $ 622
State........................................................... 210 1,082 277
-------- ---------- -------------
Total current.................................................. 465 2,239 899
Deferred:
Federal......................................................... 7,880 17,173 6,850
State........................................................... (777) 1,920 727
-------- ---------- -------------
Total deferred................................................. 7,103 19,093 7,577
Tax benefit related to exercise of stock options and issuance of
restricted stock................................................ 435 7,814 5,509
-------- ---------- -------------
$ 8,003 $ 29,146 $ 13,985
======== ========== =============
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. Income Taxes (Continued)
A reconciliation of the income tax provision from continuing operations and
the amount computed by applying the U.S. federal statutory income tax rate to
income from continuing operations before income taxes is as follows:
Year Ten Months Year
Ended Ended Ended
July 31, July 31, September 30,
1999 1998 1997
-------- ---------- -------------
At U.S. federal income tax rate 35.0% 35.0% 35.0%
State income tax, net of federal benefit (0.4%) 4.8% 3.3%
Goodwill and Excess Reorganization Value amortization 3.7% 1.8% 3.8%
Other 0.2% (0.1%) (0.6%)
-------- ---------- -------------
38.5% 41.5% 41.5%
======== ========== =============
10. Related Party Transactions
Corporate expense includes an annual fee of $500,000 for management services
provided by an affiliate of the majority holder of the Company's Class A Common
Stock. This fee is generally settled partially through use of the Company's
facilities and partially in cash. The fee for the year ended July 31, 1999, the
ten months ended July 31, 1998 and the year ended September 30, 1997 was
$500,000, $417,000 and $500,000, respectively. At July 31, 1999, the Company's
liability with respect to this arrangement was $756,000.
Vail Associates has the right to appoint 4 of 9 directors of the Beaver
Creek Resort Company of Colorado ("Resort Company"), a non-profit entity formed
for the benefit of property owners and certain others in Beaver Creek. Vail
Associates has a management agreement with the Resort Company, renewable for
one-year periods, to provide management services on a fixed fee basis. During
fiscal years 1991 through 1999, the Resort Company was able to meet its
operating requirements through its own operations. Management fees and
reimbursement of operating expenses paid to the Company under its agreement with
the Resort Company during fiscal 1999, 1998 and 1997 totaled $5.2 million, $4.7
million and $4.9 million, respectively.
In 1991, the Company loaned to Andrew P. Daly, the Company's President,
$300,000, $150,000 of which bears interest at 9% and the remainder of which is
non-interest bearing. The principal sum plus accrued interest is due no later
than one year following the termination, for any reason, of Mr. Daly's
employment with the Company. The proceeds of the loan were used to finance the
purchase and improvement of real property. The loan is secured by a deed of
trust on such property.
In 1995, Mr. Daly's spouse and James P. Thompson, President of VRDC, and his
spouse received financial terms more favorable than those available to the
general public in connection with their purchases of homesites at Bachelor Gulch
Village. Rather than payment of an earnest money deposit with the entire
balance due in cash at closing, these contracts provide for no earnest money
deposit with the entire purchase price (which was below fair market value) to be
paid under promissory notes of $438,750 and $350,000 for Mr. Daly's spouse and
Mr. and Mrs. Thompson, respectively. Mr. Daly's note is secured by a first deed
of trust and amortized over 25 years at a rate of eight percent per annum
interest, with a balloon payment due on the earlier of five years from the date
of closing or one year from the date employment with the company is terminated.
In 1999, the agreement with respect to Mr Thompson's note was amended to
provide that the promissory note, which continues to accrue at a rate of eight
percent per annum, will be payable in full in the form of one lump sum payment.
The lump sum payment shall be due on the earlier of (i) the date the property is
sold; (ii) two years from the date Mr. Thompson's employment with the Company is
terminated for any reason; or (iii) September 1, 2009. The amended agreement
between the Company and Mr. Thompson also contemplates that the Company's loan
will be subordinated to an anticipated construction loan and, ultimately,
permanent financing on the home, on terms and conditions reasonably acceptable
to the Company.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. Related Party Transactions (Continued)
In 1999, the Company entered into an agreement with William A. Jensen,
Senior Vice President and Chief Operating Officer for Vail, whereby the Company
invested in the purchase of a primary residence for Mr. and Mrs. Jensen in Vail,
Colorado. The Company contributed $1,000,000 towards the purchase price of the
residence and thereby obtained an approximate 49% undivided ownership interest
in such residence. The Company shall be entitled to receive its proportionate
share of the resale price of the residence, less certain deductions, upon the
earlier of the resale of the residence or within approximately 18 months after
Mr. Jensen's termination of employment from the Company.
In September 1999, Marc J. Rowan, a director of the Company and a founding
principal of Apollo Advisors, and Michael Gross, also a founding principal of
Apollo Advisors, each contracted to purchase a homesite at Bachelor Gulch
Village for a price of $378,000, which the Company believes to be the
approximate fair value for each site, less a credit for certain infrastructure
costs necessary for development of each site.
11. Commitments and Contingencies
Smith Creek Metropolitan District ("SCMD") and Bachelor Gulch Metropolitan
District ("BGMD") were organized in November 1994 to cooperate in the financing,
construction and operation of basic public infrastructure serving the Company's
Bachelor Gulch Village development. SCMD was organized primarily to own,
operate and maintain water, street, traffic and safety, transportation, fire
protection, parks and recreation, television relay and translation, sanitation
and certain other facilities and equipment of the BGMD. SCMD is comprised of
approximately 150 acres of open space land owned by the Company and members of
the Board of Directors of the SCMD. In two planned unit developments, Eagle
County has granted zoning approval for 1,395 dwelling units within Bachelor
Gulch Village, including various single-family homesites, cluster homes and
townhomes, and lodging units. As of July 31, 1999, the Company has sold 104
single-family homesites and nine parcels to developers for the construction of
various types of dwelling units. Currently, SCMD has outstanding $44.5 million
of variable rate revenue bonds maturing on October 1, 2035, which have been
enhanced with a $47.2 million letter of credit issued against the Company's
Revolving Credit Facility. It is anticipated that as the Bachelor Gulch
community expands, BGMD will become self supporting and that within 25 to 30
years will issue general obligation bonds, the proceeds of which will be used to
retire the SCMD revenue bonds. Until that time, the Company has agreed to
subsidize the interest payments on the SCMD revenue bonds. The Company has
estimated that the present value of this aggregate subsidy to be $14.0 million
at July 31, 1999. The Company has allocated $8.8 million of that amount to the
Bachelor Gulch Village homesites which were sold as of July 31, 1999 and has
recorded that amount as a liability in the accompanying financial statements.
The total subsidy incurred as of July 31, 1999 and 1998 was $4.3 million and
$2.9 million, respectively.
At July 31, 1999, the Company had various other letters of credit
outstanding in the aggregate amount of $40.0 million.
On October 19, 1998, fires on Vail Mountain destroyed certain of the
Company's facilities including the Ski Patrol Headquarters, a day skier shelter,
the Two Elk Lodge restaurant and the chairlift drive housing for the High Noon
Lift (Chair #5). Chair #5 and three other chairlifts, which sustained minor
damage, have been repaired and are currently fully operational. All of the
facilities damaged are fully covered by the Company's property insurance policy.
During the fiscal year ended July 31, 1999, the Company recorded a $5.4 million
gain on the disposal of the assets destroyed in the fire. The calculation of the
gain was based on current estimates provided by our insurance provider and
advances received to date with respect to our insurance coverage on those
assets. As the amounts recorded are estimates and not based on actual settlement
amount, the actual gain or loss incurred on the disposal of these assets could
differ materially from the estimate currently recorded. The Company's insurance
policy also provides coverage for revenues lost as a result of the fire, as well
as reimbursement of costs incurred by the Company for mitigating measures. As a
result of this coverage, the Company does not believe that amounts related to
lost revenue or mitigating costs will have a material impact on the Company's
results of operations.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. Commitments and Contingencies (Continued)
The Company has executed as lessee operating leases for the rental of office
space, employee residential units and office equipment through fiscal 2008. For
the year ended July 31, 1999, the ten-month period ended July 31, 1998, and the
year ended September 30, 1997, the Company recorded lease expense related to
these agreements of $11.5 million, $6.4 million, $6.2 million, respectively,
which is included in the accompanying consolidated statements of operations.
Future minimum lease payments under these leases as of July 31, 1999 are as
follows (in thousands):
Due during fiscal year ending July 31:
2000........................................................ $ 5,592
2001........................................................ 3,839
2002........................................................ 2,575
2003........................................................ 2,031
2004........................................................ 2,073
Thereafter.................................................. 4,358
-------
Total.................................................... $20,468
=======
The Company is a party to various lawsuits arising in the ordinary course of
business. In the opinion of the Company's management, all matters are adequately
covered by insurance or, if not covered, are without merit, or involve such
amounts as would not have a material effect on the financial position, results
of operations and cash flows of the Company if disposed of unfavorably.
12. Segment Information
The Company has two reportable segments: resort operations and real estate
operations. The Company's resort segment operates mountain resorts and related
amenities. The real estate segment develops, buys and sells real estate in and
around the Company's mountain resort communities. The Company's two reportable
segments, although integral to the success of each other, offer distinctly
different products and services and require different types of management focus.
As such, these segments are managed separately.
The Company evaluates performance and allocates resources to its segments
based on operating revenue and earnings or losses before income taxes,
depreciation, amortization, investment income, interest expense, gains or losses
on asset disposals, and the elimination of minority interests ("EBITDA").
Resort EBITDA consists of net resort revenue less resort operating expense and
corporate expense. Real estate EBITDA consists of net real estate revenue less
real estate operating expense. The accounting policies are the same as those
described in the Summary of Significant Accounting Policies (Note 2).
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. Segment Information (Continued)
Following is key financial information by reportable segment and for the
Company used by management in evaluating performance and allocating resources:
Year Ten Months Year
Ended Ended Ended
July 31, July 31, September 30,
1999 1998 1997
-------- ---------- -------------
Net revenue:
Resort................................................................ $431,788 $ 336,547 $ 259,038
Real estate........................................................... 43,912 73,722 71,485
-------- ---------- -------------
475,700 $ 410,269 $ 330,523
======== ========== =============
EBITDA:
Resort................................................................ $ 86,101 $ 114,346 $ 81,660
Real estate........................................................... 9,526 11,103 5,178
-------- ---------- -------------
$ 95,627 $ 125,449 $ 86,838
======== ========== =============
Depreciation and amortization:
Resort................................................................ $ 53,256 $ 36,838 $ 34,044
Real Estate........................................................... -- -- --
-------- ---------- -------------
$ 53,256 $ 36,838 $ 34,044
======== ========== =============
Capital expenditures:
Resort................................................................ $ 65,168 $ 80,454 $ 51,020
Real Estate........................................................... 32,980 15,661 56,947
-------- ---------- -------------
$ 98,148 $ 96,115 $ 107,967
======== ========== =============
Identifiable assets:
Resort................................................................ $611,141 $ 501,371 $ 411,117
Real Estate........................................................... 152,508 138,916 154,925
-------- ---------- -------------
$763,649 $ 640,287 $ 566,042
Reconciliation to consolidated income before income taxes:
Resort EBITDA......................................................... $ 86,101 $ 114,346 $ 81,660
Real estate EBITDA.................................................... 9,526 11,103 5,178
-------- ---------- -------------
Total EBITDA........................................................ 95,627 125,449 86,838
Depreciation and amortization expense................................. 53,256 36,838 34,044
Other income (expense):
Investment income................................................... 1,624 1,784 1,762
Interest expense.................................................... (25,099) (17,789) (20,308)
Gain (loss) on disposal of fixed assets............................. 3,283 (1,706) (182)
Other income (expense).............................................. 63 (736) (383)
Minority interest in net income of consolidated joint venture....... (1,448) -- --
-------- ---------- -------------
Income before income taxes............................................ $ 20,794 $ 70,164 $ 33,683
======== ========== =============
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. Stock Compensation Plans
At July 31, 1999, the Company has two stock-based compensation plans, which
are described below. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plans. Had compensation cost for
the Company's two stock-based compensation plans been determined consistent with
SFAS No. 123, "Accounting for Stock Based Compensation", the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
July 31, July 31, September 30,
1999 1998 1997
-------- -------- -------------
Net Income
As Reported.......................... $ 12,791 $ 41,018 $ 19,698
Pro forma............................ $ 9,721 $ 39,320 $ 18,211
Basic net income per common share
As Reported.......................... $ 0.37 $ 1.20 $ 0.66
Pro forma............................ $ 0.28 $ 1.15 $ 0.61
Diluted net income per common share
As Reported.......................... $ 0.37 $ 1.18 $ 0.64
Pro forma............................ $ 0.28 $ 1.13 $ 0.59
The Company has two fixed option plans. Under the 1993 Plan, options
covering an aggregate of 2,045,510 shares of Common Stock may be issued to key
employees, directors, consultants, and advisors of the Company or its
subsidiaries and vest in equal installments over five years. Under the 1996
Plan, 1,500,000 shares of Common Stock may be issued to key employees,
directors, consultants, and advisors of the Company or its subsidiaries and vest
in equal installments over three to five years. At July 31, 1999, no options
were available for grant under either plan. Under both plans, the exercise price
of each option equals the market price of the Company's stock on the date of the
grant, and an option's maximum term is ten years.
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, and 1997, respectively: dividend
yield of 0% for each year, expected volatility of 40.7%, 14.7% and 29.8%; risk-
free interest rates ranging from 4.24% to 5.70%, 5.49% to 6.61% and 5.66% to
6.68%; and expected lives ranging from 6 to 8 years for each year. A summary of
the status of the Company's two fixed stock option plans as of July 31, 1999 and
1998 and September 30, 1997 and changes during the years ended on those dates is
presented below (in thousands, except per share amounts):
Weighted
Shares Average
Subject To Exercise
Fixed Options Option Price
---------- --------
Balance at September 30, 1996..... 3,726 $ 10
Granted.......................... 795 23
Exercise......................... (1,573) 11
Forfeited........................ (39) 10
---------- --------
Balance at September 30, 1997..... 2,909 $ 15
Granted.......................... 96 28
Exercised........................ (1,043) 8
Forfeited........................ (125) 17
---------- --------
Balance at July 31, 1998.......... 1,837 $ 18
Granted.......................... 688 23
Exercised........................ (67) 10
Forfeited........................ (79) 21
---------- --------
Balance at July 31, 1999.......... 2,379 $ 19
========== ========
The following table summarizes information about fixed stock options
outstanding at July 31, 1999:
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Exercise Shares Contractual Exercise Shares Exercise
Price Range Outstanding Life Price Exercisable Price
- ----------- ----------- ----------- --------- ----------- ---------
$ 6 - 11 610,603 4.5 $ 8.90 533,011 $ 8.68
$ 20 - 25 1,665,750 8.3 22.79 567,060 22.19
$ 26 - 29 103,000 8.8 27.62 32,333 27.78
- ----------- ----------- ----------- --------- ----------- ---------
$ 6 - 29 2,379,353 7.3 $ 19.44 1,132,404 $ 15.99
During fiscal years 1997 and 1996, the Company granted restricted stock to
certain executives under the 1996 Plan. The aggregate number of shares granted
totaled 12,000 and 62,000 in fiscal 1997 and 1996, respectively. The shares
vest in equal increments over periods ranging from three to five years.
Compensation expense related to these restricted stock awards is charged ratably
over the respective vesting periods. No restricted stock was granted during
fiscal 1999, however 8,195 vested shares were issued.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. Capital Stock
The Company has two classes of Common Stock outstanding, Class A Common
Stock and Common Stock. The rights of holders of Class A Common Stock and Common
Stock are substantially identical, except that, while any Class A Common Stock
is outstanding, holders of Class A Common Stock elect a class of directors that
constitutes two-thirds of the Board and holders of Common Stock elect another
class of directors constituting one-third of the Board. At July 31, 1999 and
1998, one shareholder owned substantially all of the Class A Common Stock and,
as a result, has effective control of the Company's Board of Directors. The
Class A Common Stock is convertible into Common Stock (i) at the option of the
holder, (ii) automatically, upon transfer to a non-affiliate and (iii)
automatically if less than 5,000,000 shares (as such number shall be adjusted by
reason of any stock split, reclassification or other similar transaction) of
Class A Common Stock are outstanding. The Common Stock is not convertible. Each
outstanding share of Class A Common Stock and Common Stock is entitled to vote
on all matters submitted to a vote of stockholders. Blocks of 200,000 shares,
4,000,000 shares, and 786,386 shares of Class A Common stock were converted to
Common Stock during Fiscal 1999, 1998, and 1997, respectively, as they were sold
to a non-affiliated company of the prior holder.
15. Selected Quarterly Financial Data (Unaudited)
Fiscal 1999
------------------------------------------------------------------------------------------
Twelve Months Three Months Three Months Three Months Three Months
Ended Ended Ended Ended Ended
July 31, July 31, April 30, January 31, October 31,
1999 1999 1999 1999 1998
------------- ------------ ------------ ------------ ------------
Resort Revenue......................... $ 431,788 $ 52,442 $ 188,220 $ 156,141 $ 34,985
Real Estate Revenue.................... 43,912 12,503 14,022 3,816 13,571
------------- ------------ ------------ ------------ ------------
Total Revenue......................... 475,700 64,945 202,242 159,957 48,556
Income (loss) from operations.......... 42,371 (25,500) 61,870 36,856 (30,855)
Net income (loss)...................... 12,791 (13,528) 30,247 16,530 (20,458)
Basic net income (loss) per common
share................................. $ 0.37 $ (0.39) $ 0.87 $ 0.48 $ (0.59)
Diluted net income (loss) per common
share................................. $ 0.37 $ (0.39) $ 0.87 $ 0.47 $ (0.59)
Fiscal 1998 Ten Month Transition Period
------------------------------------------------------------------------
Ten Months Three Months Three Months Four Months
Ended Ended Ended Ended
July 31, July 31, April 30, January 31,
1998 1998 1998 1998
------------- ------------ ------------ ------------
Resort Revenue......................... $ 336,547 $ 26,303 $ 170,051 $ 140,193
Real Estate Revenue.................... 73,722 18,417 3,912 51,393
------------- ------------ ------------ ------------
Total Revenue......................... 410,269 44,720 173,963 191,586
Income (loss) from operations.......... 88,611 (21,767) 75,226 35,152
Net income (loss)...................... 41,018 (16,784) 41,663 16,139
Basic net income (loss) per common
share................................. $ 1.20 $ (0.49) $ 1.21 $ 0.47
Diluted net income (loss) per common
share................................. $ 1.18 $ (0.48) $ 1.20 $ 0.47
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During fiscal year 1998, the Company changed its fiscal year end from
September 30 to July 31. Quarterly results restated for twelve-months ended
July 31, 1998 are as follows:
Twelve-Month Period Ended July 31, 1998
------------------------------------------------------------------------------------------
Twelve Months Three Months Three Months Three Months Three Months
Ended Ended Ended Ended Ended
July 31, July 31, April 30, January 31, October 31,
1998 1998 1998 1998 1997
------------- ------------ ------------ ------------ ------------
Resort Revenue......................... $ 350,498 $ 26,303 $ 170,051 $ 136,322 $ 17,822
Real Estate Revenue.................... 84,177 18,417 3,912 51,158 10,690
------------- ------------ ------------ ------------ ------------
Total Revenue......................... 434,675 44,720 173,963 187,480 28,512
Income (loss) from operations.......... 73,221 (21,767) 75,226 50,045 (30,283)
Net income (loss)...................... 30,073 (16,784) 41,663 25,946 (20,752)
Basic net income (loss) per common
share................................. $ 0.88 $ (0.49) $ 1.21 $ 0.76 $ (0.61)
Diluted net income (loss) per common
share................................. $ 0.87 $ (0.48) $ 1.20 $ 0.75 $ (0.59)
16. Guarantor Subsidiaries and Non-Guarantor Subsidiaries
The Company's payment obligations under the 8 3/4% Senior Subordinated Notes
due 2009 (see Note 6), are fully and unconditionally guaranteed on a joint and
several, senior subordinated basis by all of the Company's consolidated
subsidiaries (collectively, and excluding the Non-Guarantor Subsidiaries (as
defined below), the "Guarantor Subsidiaries") except for SSI Venture, LLC and
Vail Associates Investments, Inc. (together, the Non-Guarantor Subsidiaries").
SSI Venture, LLC is a joint venture that is 51.9%-owned by the Company which
owns and operates certain retail and rental operations. Vail Associates
Investments, Inc. is a 100%-owned corporation which owns certain real estate
held for sale.
Presented below is the consolidated condensed financial information of Vail
Resorts, Inc. (the "Parent Company"), the Guarantor Subsidiaries and the Non-
Guarantor Subsidiaries as of July 31, 1999 and for the year then ended. As SSI
Venture LLC began operations on August 1, 1998, no financial information for SSI
Venture, LLC existed prior to that date. In addition, in the Company's opinion,
the financial information of Vail Associates Investments, Inc. as of and prior
to July 31, 1998 is immaterial to the financial position of the Company and
would not provide additional meaningful information to investors. Therefore,
the Company has not presented herein comparative consolidated condensed
financial information for the fiscal period ended July 31, 1998.
Investments in Subsidiaries are accounted for by the Parent Company and
Guarantor Subsidiaries using the equity method of accounting. Net income of
Guarantor and Non-Guarantor Subsidiaries is, therefore, reflected in the Parent
Company's and Guarantor Subsidiaries' investments in and advances to (from)
Subsidiaries. Net income of the Guarantor and Non-Guarantor Subsidiaries is
reflected in Guarantor Subsidiaries and Parent Company as equity in consolidated
subsidiaries. The elimination entries eliminate investments in Non-Guarantor
Subsidiaries and intercompany balances and transactions.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Supplemental Condensed Consolidating Balance Sheet
July 31, 1999
(in thousands)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ ------------
Current assets:
Cash and cash equivalents........................ $ -- $ 25,097 $ 227 $ -- $ 25,324
Receivables...................................... 321 28,790 539 -- 29,650
Inventories, net................................. -- 8,667 14,138 -- 22,805
Deferred income taxes............................ 1,353 9,051 -- -- 10,404
Other current assets............................. -- 4,326 186 -- 4,512
--------- ------------ ------------- ------------ ------------
Total current assets........................... 1,674 75,931 15,090 -- 92,695
Property, plant and equipment, net................ -- 600,497 10,644 -- 611,141
Real estate held for sale......................... -- 147,232 5,276 -- 152,508
Deferred charges and other assets................. 8,752 22,519 120 -- 31,391
Intangible assets, net............................ -- 188,197 13,307 -- 201,504
Investments in subsidiaries and advances to
(from) subsidiaries.............................. 472,609 214,405 (6,122) (680,892) --
--------- ------------ ------------- ------------ ------------
Total assets................................... $ 483,035 $ 1,248,781 $ 38,315 $ (680,892) $ 1,089,239
========= ============ ============= ============ ============
Current liabilities:
Accounts payable and accrued expenses............ $ 5,132 $ 76,341 $ 7,972 $ -- $ 89,445
Income taxes payable............................. -- 1,633 -- -- 1,633
Long-term debt due within one year............... -- 520 1,537 -- 2,057
--------- ------------ ------------- ------------ ------------
Total current liabilities...................... 5,132 78,494 9,509 -- 93,135
Long-term debt.................................... -- 382,829 13,300 -- 396,129
Other long-term liabilities....................... 1,128 30,018 -- -- 31,146
Deferred income taxes............................. -- 84,728 -- -- 84,728
Minority interest in net assets of consolidated
joint venture.................................... -- -- 7,326 -- 7,326
Total stockholders' equity........................ 476,775 672,712 8,180 (680,892) 476,775
--------- ------------ ------------- ------------ ------------
Total liabilities and stockholders' equity..... $ 483,035 $ 1,248,781 $ 38,315 $ (680,892) $ 1,089,239
========= ============ ============= ============ ============
F-24
Supplemental Condensed Consolidating Statement of Operations
For the Year Ended July 31, 1999
(in thousands)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- -------------- --------------- -------------- --------------
Total revenues.................................... $ -- $ 404,168 $ 73,233 $ (1,701) $ 475,700
Total operating expenses.......................... 1,449 364,598 68,983 (1,701) 433,329
--------- -------------- --------------- -------------- --------------
Income (loss) from operations.................... (1,449) 39,570 4,250 -- 42,371
Other income (expense)............................ (3,842) (15,048) (1,239) -- (20,129)
Minority interest in net income of consolidated
joint venture.................................... -- -- (1,448) -- (1,448)
--------- -------------- --------------- -------------- --------------
Income (loss) before income taxes................ (5,291) 24,522 1,563 -- 20,794
Benefit (provision) for income taxes............. 2,036 (10,039) -- -- (8,003)
--------- -------------- --------------- -------------- --------------
Net income (loss) before equity in income of
consolidated subsidiaries........................ (3,255) 14,483 1,563 -- 12,791
Equity in income of consolidated subsidiaries..... 16,046 1,563 -- (17,609) --
--------- -------------- --------------- -------------- --------------
Net income (loss)................................. $ 12,791 $ 16,046 $ 1,563 $ (17,609) $ 12,791
========= ============== =============== ============== ==============
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Supplemental Condensed Consolidating Statement of Cash Flows
For the Year Ended July 31, 1999
(in thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
---------- --------------- ------------ ----------------- ----------------
Cash flows from operating activities............... $ 16,082 $ 81,975 $ 4,553 $ -- $ 102,610
Cash flows from investing activities:
Cash paid in resort acquisitions, net of cash
acquired......................................... -- (48,360) -- -- (48,360)
Cash paid in hotel acquisitions, net of cash
acquired......................................... -- (33,800) -- -- (33,800)
Cash paid by consolidated joint venture in -- -- (10,516) -- (10,516)
acquisition of retail operations.................
Resort capital expenditures....................... -- (57,313) (7,855) -- (65,168)
Investments in real estate........................ -- (32,980) -- -- (32,980)
Cash flows from other investing activities........ -- (13,600) -- -- (13,600)
---------- ---------------- ------------ ----------------- ----------------
Net cash used in investing activities........... -- (186,053) (18,371) -- (204,424)
Cash flows from financing activities:
Proceeds from the exercise of stock options....... -- 678 -- -- 678
Proceeds from borrowings under long-term debt..... -- 385,190 31,452 -- 416,642
Payments on long-term debt........................ -- (281,222) (21,248) -- (302,470)
Cash payment of deferred financing costs.......... -- (8,100) -- -- (8,100)
Advances to (from) affiliates..................... (16,082) 15,443 639 -- --
---------- ---------------- ------------ ----------------- ----------------
Net cash provided by (used in) financing
activities..................................... (16,082) 111,989 10,843 -- 106,750
---------- ---------------- ------------ ----------------- ----------------
Net increase (decrease) in cash and cash
equivalents....................................... -- 7,911 (2,975) -- 4,936
Cash and cash equivalents:
Beginning of period............................... -- 13,366 -- -- 13,366
---------- ---------------- ------------ ----------------- ----------------
End of period..................................... $ -- $ 21,277 $ (2,975) $ -- $ 18,302
========== ================ ============ ================= ================
F-26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated herein by reference from
the Company's proxy statement for the annual meeting of shareholders to be held
December 14, 1999.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by reference
from the Company's proxy statement for the annual meeting of shareholders to be
held December 14, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated herein by reference from
the Company's proxy statement for the annual meeting of shareholders to be held
December 14, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated herein by reference from
the Company's proxy statement for the annual meeting of shareholders to be held
December 14, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a) Index to Financial Statements and Financial Statement Schedules.
i) See "Item 8. Financial Statements and Supplementary Data" for the
index to the Financial Statements.
ii) All other schedules have been omitted because the required
information is not applicable or because the information required
has been included in the financial statements or notes thereto.
iii) Index to Exhibits
The following exhibits are incorporated by reference to the
documents indicated in parentheses, which have previously been
filed with the Securities and Exchange Commission.
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
3.1 Amended and Restated Certificate of Incorporation
filed with the Secretary of State of the State of
Delaware on the Effective Date. (Incorporated by
reference to Exhibit 3.1 of the Registration
Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No 33-52854) including all amendments
thereto.)
3.2 Amended and Restated By-Laws adopted on the Effective
Date. (Incorporated by reference to Exhibit 3.2 of
the Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854) including
all amendments thereto.)
23
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
4.2 Form of Class 2 Common Stock Registration Rights Agreements between the
Company and holders of Class 2 Common Stock. (Incorporated by reference to
Exhibit 4.13 of the Registration Statement on Form S-4 of Gillett Holdings,
Inc. (Registration No. 33-52854) including all amendments thereto.)
4.2 Purchase Agreement, dated as of May 6, 1999 among Vail Resorts, Inc., the
guarantors named on Schedule I thereto, and Bear Sterns & Co. Inc.,
NationsBanc Montgomery Securities LLC, BT Alex. Brown Incorporated, Lehman
Brothers Inc. and Salomon Smith Barney Inc. (Incorporated by reference to
Exhibit 4.2 of the Registration Statement on Form S-4 of Vail Resorts, Inc.
(Registration No. 333-80621) including all amendments thereto.)
4.3 Indenture, dated as of May 11, 1999, among Vail Resorts, Inc, the guarantors
named therein and the United States Trust Company of New York, as trustee.
(Incorporated by reference to Exhibit 4.3 of the Registration Statement on
Form S-4 of Vail Resorts, Inc. (Registration No. 333-80621) including all
amendments thereto.)
4.4 Form of Global Note (Included in Exhibit 4.3 incorporated by reference to
Exhibit 4.3 of the Registration Statement on Form S-4 of Vail Resorts, Inc.
(Registration No. 333-80621) including all amendments thereto.)
4.5 Registration Rights Agreement, dated as of May 11, 1999 among Vail Resorts,
Inc., the guarantors signatory thereto and Bear Stearns & Co. Inc.,
NationsBanc Montgomery Securities LLC, BT Alex. Brown Incorporated, Lehman
Brothers Inc. and Salomon Smith Barney Inc. (Incorporated by reference to
Exhibit 4.5 of the Registration Statement on Form S-4 of Vail Resorts, Inc.
(Registration No. 333-80621) including all amendments thereto.)
4.6 First Supplemental Indenture, dated as of August 22, 1999, among the Company,
the guarantors named therein and the United States Trust Company of New York,
as trustee. (Incorporated by reference to Exhibit 4.6 of the Registration
Statement on Form S-4 of Vail Resorts, Inc. (Registration No. 333-80621)
including all amendments thereto.)
10.1 Management Agreement by and between Beaver Creek Resort Company of Colorado
and Vail Associates, Inc. (Incorporated by reference to Exhibit 10.1 of the
Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No.
33-52854) including all amendments thereto.)
10.2 Forest Service Term Special Use Permit for Beaver Creek ski area.
(Incorporated by reference to Exhibit 10.2 of the Registration Statement on
Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all
amendments thereto.)
10.3 Forest Service Special Use Permit for Beaver Creek ski area. (Incorporated by
reference to Exhibit 10.3 of the Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.)
10.4 Forest Service Unified Permit for Vail ski area. (Incorporated by reference to
Exhibit 10.4 of the Registration Statement on Form S-4 of Gillett Holdings,
Inc. (Registration No. 33-52854) including all amendments thereto.)
10.5 Employment Agreement dated October 8, 1992 between Vail Associates, Inc. and
Andrew P. Daly. (Incorporated by reference to Exhibit 10.15 of the
Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No.
33-52854) including all amendments thereto.)
24
Sequentially
Exhibit Numbered
Number Description Page
-------- ----------- ------------
10.6 Joint Liability Agreement by and among Gillett Holdings, Inc. and the
subsidiaries of Gillett Holdings, Inc. (Incorporated by reference to Exhibit
10.10 of the Registration Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all amendments thereto.)
10.7 Management Agreement between Gillett Holdings, Inc. and Gillett Group
Management, Inc. dated as of the Effective Date. (Incorporated by reference to
Exhibit 10.11 of the Registration Statement on Form S-4 of Gillett Holdings,
Inc. (Registration No. 33-52854) including all amendments thereto.)
10.8 Amendment to Management Agreement by and among the Company and its
subsidiaries dated as of November 23, 1993. (Incorporated by reference to
Exhibit 10.12(b) of the report on Form 10-K of Gillett Holdings, Inc. for the
period from October 9, 1992 through September 30, 1993.)
10.9(a) Tax Sharing Agreement between Gillett Holdings, Inc. dated as of the Effective
Date. (Incorporated by reference to Exhibit 10.12 of the Registration
Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854)
including all amendments thereto.)
10.9(b) Amendment to Tax Sharing Agreement by and among the Company and its
subsidiaries dated as of November 23, 1993. (Incorporated by reference to
Exhibit 10.13(b) of the report on Form 10-K of Gillett Holdings, Inc. for the
period from October 9, 1992 through September 30, 1993.)
10.10 Form of Gillett Holdings, Inc. Deferred Compensation Agreement for certain
GHTV employees. (Incorporated by reference to Exhibit 10.13(b) of the
Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No.
33-52854) including all amendments thereto.)
10.11(a) Credit Agreement dated as of January 3, 1997 among the Vail Corporation, the
Banks named therein and NationsBank of Texas, N.A., as issuing banks and
agent. (Incorporated by reference to Exhibit 10.10(p) of the Registration
Statement on Form S-2 of Vail Resorts, Inc. (Registration # 333-5341)
including all amendments thereto.)
10.11(b) Pledge Agreement dated as of January 3, 1997 among the Vail Corporation and
NationsBank of Texas, N.A. as agent. (Incorporated by reference to Exhibit
10.10(r) of the Registration Statement on Form S-2 of Vail Resorts, Inc.
(Registration # 333-5341) including all amendments thereto.)
10.11(c) Credit Agreement dated as of October 10, 1997 among the Vail Corporation and
NationsBank of Texas, N.A., as lender. (Incorporated by reference to Exhibit
10-11(c) of the report on Form 10-K of Vail Resorts, Inc. for the year ended
September 30, 1997.)
10.11(d) Trust Indenture dated as of September 1, 1992 between Eagle County, Colorado,
and Colorado National Bank, as Trustee, securing Sports Housing Facilities
Revenue Refunding Bonds. (Incorporated by reference to Exhibit 10.16(g) of the
Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No.
33-52854) including all amendments thereto.)
25
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
10.11(e) First Amendment to Trust Indenture dated as of November 23, 1993 between Eagle
County, Colorado and Colorado National Bank, as Trustee, securing Sports and
Housing Facilities Revenue Refunding Bonds. (Incorporated by reference to
Exhibit 10.17(f) of the report on Form 10-K of Gillett Holdings, Inc. for the
period from October 9, 1992 through September 30, 1993.)
10.11(f) Trust Indenture dated as of September 1, 1992 between Eagle County, Colorado,
and Colorado National Bank, as Trustee, securing Sports Facilities Revenue
Refunding Bonds. (Incorporated by reference to Exhibit 10.16(h) of the
Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No.
33-52854) including all amendments thereto.)
10.11(g) First Amendment to Trust Indenture dated as of November 23, 1993 between Eagle
County, Colorado and Colorado National Bank, as Trustee, securing Sports
Facilities Revenue Refunding Bonds. (Incorporated by reference to Exhibit
10.17(h) of the report on Form 10-K of Gillett Holdings, Inc. for the period
from October 9, 1992 through September 30, 1993.)
10.11(h) Sports and Housing Facilities Financing Agreement dated as of September 1,
1992 between Eagle County, Colorado and Vail Associates, Inc. (Incorporated
by reference to Exhibit 10.16(i) of the Registration Statement on Form S-4 of
Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments
thereto.)
10.11(i) First Amendment to Sports and Housing Facilities Financing Agreement and
Assignment and Assumption Agreement dated as of November 23, 1993 between
Eagle County, Colorado, Vail Associates, Inc. and The Vail Corporation.
(Incorporated by reference to Exhibit 10.17(j) of the report on Form 10-K of
Gillett Holdings, Inc. for the period from October 9, 1992 through September
30, 1993.)
10.11(j) Sports Facilities Financing Agreement dated as of September 1, 1992 between
Eagle County, Colorado and Beaver Creek Associates, Inc., with Vail
Associates, Inc. as Guarantor. (Incorporated by reference to Exhibit 10.16(j)
of the Registration Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all amendments thereto.)
10.11(k) First Amendment to Sports Facilities Financing Agreement and Assignment and
Assumption Agreement dated as of November 23, 1993 by and among Eagle County,
Colorado, Beaver Creek Associates, Inc., Vail Associates, Inc., and The Vail
Corporation. (Incorporated by reference to Exhibit 10.17(l) of the report on
Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992
through September 30, 1993.)
10.11(l) Guaranty dated as of September 1, 1992, by Vail Associates, Inc. delivered to
Colorado National Bank, as Trustee. (Incorporated by reference to Exhibit
10.16(k) of the Registration Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all amendments thereto.)
10.12(a) Agreement for Purchase and Sale dated as of August 25, 1993 by and among
Arrowhead at Vail, Arrowhead Ski Corporation, Arrowhead at Vail Properties
Corporation, Arrowhead Property Management Company and Vail Associates, Inc.
(Incorporated by reference to Exhibit 10.19(a) of the report on Form 10-K of
Gillett Holdings, Inc. for the period from October 9, 1992 through September
30, 1993.)
26
Sequentially
Exhibit Numbered
Number Description Page
-------- ----------- ------------
10.12(b) Amendment to Agreement for Purchase and Sale dated September 8, 1993 by and
between Arrowhead at Vail, Arrowhead Ski Corporation, Arrowhead at Vail
Properties Corporation, Arrowhead Property Management Company and Vail
Associates, Inc. (Incorporated by reference to Exhibit 10.19(b) of the report
on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992
through September 30, 1993.)
10.12(c) Second Amendment to Agreement for Purchase and Sale dated September 22, 1993
by and between Arrowhead at Vail, Arrowhead Ski Corporation, Arrowhead at Vail
Properties Corporation, Arrowhead Property Management Company and Vail
Associates, Inc. (Incorporated by reference to Exhibit 10.19(c) of the report
on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992
through September 30, 1993.)
10.12(d) Third Amendment to Agreement for Purchase and Sale dated November 30, 1993 by
and between Arrowhead at Vail, Arrowhead Ski Corporation, Arrowhead at Vail
Properties Corporation, Arrowhead Property Management Company and
Vail/Arrowhead, Inc. (Incorporated by reference to Exhibit 10.19(d) of the
report on Form 10-K of Gillett Holdings, Inc. for the period from October 9,
1992 through September 30, 1993.)
10.13 1993 Stock Option Plan of Gillett Holdings, Inc. (Incorporated by reference to
Exhibit 10.20 of the report on Form 10-K of Gillett Holdings, Inc. for the
period from October 9, 1992 through September 30, 1993.)
10.14 Agreement to Settle Prospective Litigation and for Sale of Personal Property
dated May 10, 1993, between the Company, Clifford E. Eley, as Chapter 7
Trustee of the Debtor's Bankruptcy Estate, and George N. Gillett, Jr.
(Incorporated by reference to Exhibit 10.21 of the report on Form 10-K of
Gillett Holdings, Inc. for the period from October 9, 1992 through September
30, 1993.)
10.15 Employment Agreement dated October 1, 1996 between Vail Associates, Inc. and
Andrew P. Daly. (Incorporated by reference to Exhibit 10.5 of the report on
form S-2/A of Vail Resorts, Inc. (Registration # 333-5341) including all
amendments thereto.)
10.16 Employment Agreement dated July 29, 1996 between Vail Resorts, Inc. and Adam
M. Aron. (Incorporated by reference to Exhibit 10.21 of the report on form
S-2/A of Vail Resorts, Inc. (Registration # 333-5341) including all amendments
thereto.)
10.17 Shareholder Agreement among Vail Resorts, Inc., Ralston Foods, Inc., and
Apollo Ski Partners dated January 3, 1997. (Incorporated by reference to
Exhibit 2.4 of the report on Form 8-K of Vail Resorts, Inc. dated January 8,
1997.)
10.18 1996 Stock Option Plan (Incorporated by reference from the Company's
Registration Statement on Form S-3, File No. 333-5341).
10.19 Agreement dated October 11, 1996 between Vail Resorts, Inc. and George
Gillett. (Incorporated by reference to Exhibit 10.27 of the report on form
S-2/A of Vail Resorts, Inc. (Registration # 333-5341) including all amendments
thereto.)
10.20 Amended and Restated Credit Agreement among the Vail Corporation (d/b/a "Vail
Associates, Inc.") and NationsBank of Texas, N.A. (Incorporated by reference
to Exhibit 10of the report on Form 10-Q of Vail Resorts, Inc. for the quarter
ended January 31, 1998.)
27
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
10.21 Sports and Housing Facilities Financing Agreement among the Vail Corporation
(d/b/a "Vail Associates, Inc.") and Eagle County, Colorado, dated April 1,
1998. (Incorporated by reference to Exhibit 10of the report on Form 10-Q of
Vail Resorts, Inc. for the quarter ended April 30, 1998.)
10.22 Credit agreement dated December 30, 1998 among SSI Venture LLC and NationsBank
of Texas, N.A., (Incorporated by reference to Exhibit 10.23 of the report on
Form 10-Q of Vail Resorts, Inc. for the quarter ended January 31, 1999.)
10.23 Amended and Restated Credit Agreement among The Vail Corporation (d/b/a "Vail
Associates, Inc"), and NationsBank, N.A. and NationsBanc Montgomery Securities
LLC dated as of May 1, 1999. (Incorporated by reference to Exhibit 10.25 of
the report on Form 10-Q of Vail Resorts, Inc. for the quarter ended April 30,
1999.)
21 Subsidiaries of Vail Resorts, Inc. 31
27 Financial Data Schedules
b) Reports on Form 8-K
None.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VAIL RESORTS, INC.
By: /s/ James P. Donohue
----------------------------
James P. Donohue
Senior Vice President and
Chief Financial Officer
Dated: October 28,1999
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
James P. Donohue, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments or supplements
to this Form 10-K and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing necessary or appropriate to be done with
this Form 10-K and any amendments or supplements hereto, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on October 28, 1999.
Signature Title
--------- -----
/s/ Adam M. Aron Chairman of the Board and
----------------------------------- Chief Executive Officer
Adam M. Aron (Principal Chief Executive Officer)
/s/ Andrew P. Daly Director and President
-----------------------------------
Andrew P. Daly
/s/ James P. Donohue Senior Vice President and Chief Financial Officer
-----------------------------------
James P. Donohue
Director
-----------------------------------
Frank J. Biondi
/s/ Leon D. Black Director
-----------------------------------
Leon D. Black
/s/ Craig M. Cogut Director
-----------------------------------
Craig M. Cogut
29
Signature Title
--------- -----
Director
- --------------------------
Stephen C. Hilbert
/s/ Robert A. Katz Director
- --------------------------
Robert A. Katz
/s/ Thomas H. Lee Director
- --------------------------
Thomas H. Lee
/s/ William L. Mack Director
- --------------------------
William L. Mack
/s/ Joseph R. Micheletto Director
- --------------------------
Joseph R. Micheletto
Director
- --------------------------
Antony P. Ressler
/s/ Marc J. Rowan Director
- --------------------------
Marc J. Rowan
Director
- --------------------------
John J. Ryan III
/S/ John F. Sorte Director
- --------------------------
John F. Sorte
Director
- --------------------------
Bruce H. Spector
Director
- --------------------------
William P. Stiritz
/s/ James S. Tisch Director
- --------------------------
James S. Tisch
30