<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/_/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED ___
OR
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM OCTOBER 1, 1997 TO JULY 31, 1998
COMMISSION FILE NUMBER 1-9614
VAIL RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 51-0291762
(STATE OR OTHER JURISDICTION OF (I.R.S. Employer
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
POST OFFICE BOX 7 81658
VAIL, COLORADO (Zip Code)
(Address of principal executive office)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (970) 476-5601
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange
Title of Each Class on which Registered
------------------- -------------------
Common Stock, $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
-----------------
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. Yes X 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 amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's outstanding common stock held
by non-affiliates of the registrant on October 15, 1998, determined using the
per share closing price thereof on the New York Stock Exchange Composite Tape,
was approximately $494.6 million. As of October 15, 1998, 34,463,015 shares of
Common Stock were issued and outstanding, of which 7,639,834 shares were Class A
Common Stock and 26,823,181 shares were Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Shareholders to be held December 18,
1998.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PART I
<S> <C>
Item 1. Business............................................................................................. 2
Item 2. Properties........................................................................................... 12
Item 3. Legal Proceedings.................................................................................... 12
Item 4. Submission of Matters to a Vote of Security-Holders.................................................. 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................................ 13
Item 6. Selected Financial Data.............................................................................. 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 15
Item 8. Financial Statements and Supplementary Data.......................................................... F-1
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................. 26
PART III
Item 10. Directors and Executive Officers of the Registrant.................................................. 26
Item 11. Executive Compensation.............................................................................. 26
Item 12. Security Ownership of Certain Beneficial Owners and Management...................................... 26
Item 13. Certain Relationships and Related Transactions...................................................... 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................... 26
</TABLE>
1
<PAGE>
PART I
ITEM 1. BUSINESS
General
Vail Resorts, Inc. and its subsidiaries (collectively, the "Company" or "Vail
Resorts"), is the premier resort operator in North America operating (i) Vail
Mountain, the largest single ski mountain complex in North America, (ii) Beaver
Creek(R) Mountain, one of the world's premier family-oriented mountain resorts,
(iii) Breckenridge Mountain Resort, North America's second most popular ski area
and (iv) Keystone(R) Resort, the third most popular ski area in North America
and a year-round family vacation destination. The Company is one of the most
successful resort operators in the ski industry due to its attractive guest
demographics, favorable weather and snowfall conditions, and ability to attract
both destination resort guests and day travelers from local population centers.
The Company operates the top three mountain resorts in North America and is
uniquely positioned to attract a broad range of guests due to its diverse ski
terrain, varied price points and numerous activities and services. As the
Company's resorts are located within 50 miles of each other, the Company is able
to offer guests the opportunity to visit each resort during one vacation stay
and participate in common loyalty programs. In addition to its resort
operations, the Company owns substantial real estate which strategically
complements its resort business.
The Company's customers are primarily comprised of worldwide resort
destination guests and, to a lesser extent, day skiers from the Denver
Metropolitan area and Eagle and Summit counties. For destination guests, access
to the Company's resorts is facilitated by their close proximity to both Denver
International Airport and Vail/Eagle County Airport. For the 1997-98 season, the
Company believes that destination guests represented slightly over 70% of total
skier days. Although the Company's resorts accommodate a wide range of budgets
and attract guests from different regions of the country and the world, they are
particularly attractive to family-oriented guests who tend to generate higher
and more diversified revenues per guest than skiers from local population
centers. International guests, who tend to have longer average stays and higher
vacation expenditures than other destination guests, accounted for approximately
8% of the Company's destination skier days during the 1997-98 season.
Consistent with the trends in the overall industry, snowboarders represent the
fastest growing segment of the Company's guest demographic. Snowboarders
accounted for nearly 21% of the 54.1 million skier days recorded in the United
States for the 1997-98 season, an 81% increase over the 1994-95 ski season. The
Company is committed to promoting snowboarding as an exciting outgrowth of
traditional skiing. As an example of this commitment, the Company has upgraded
its snowboard facilities, published trail guides for the convenience of
snowboarders and created additional trails, half-pipes and other varied terrain
to attract snowboarders. In the Company's continuous efforts to capture the
rapidly growing snowboarding market, Keystone Mountain is implementing the
newest, most innovative snowboarding park in Colorado for the 1998-99 season.
The Company believes that other trends in the snow-sports product industry, such
as the re-emergence of the Tele-mark ski, introduction of all-mountain fat skis,
and parabolic shaped skis are all healthy for the growth of the ski resort
industry.
A key component of the Company's business strategy has been to expand and
enhance its core ski operations while at the same time increasing the scope,
diversity and quality of the complementary activities and services offered to
its skiing and non-skiing guests throughout the year. This focus has resulted in
growth in lift ticket sales and has also allowed the Company to expand its
revenue base beyond its core ski operations. The Company's focus on developing a
comprehensive destination resort experience has also allowed it to attract a
diverse guest population with an attractive demographic and economic profile.
While the Company's Resort revenue per skier day is currently among the highest
in the industry, management believes that the Company currently captures less
than 20% of the total vacation expenditures of an average destination guest at
its resorts. The Company's business strategy is not only to increase skier days
but also to increase Resort Revenue per skier day by capturing a higher
percentage of the total spending by its year round destination and day guest by
continuing to expand the range and enhance the quality of activities and
services offered by the Company.
The ski resort industry is highly competitive. The Company competes directly
with numerous ski areas in Colorado for the day skier, with major ski areas in
the United States, Canada and Europe for the destination skier and with
worldwide recreation resorts for the vacation guest. The Company's major U.S.
competitors include Utah ski areas, the Lake Tahoe ski areas in California and
Nevada, the New England ski areas and the major Colorado ski areas including
Aspen resorts, Copper Mountain, Crested Butte, Steamboat Springs, Telluride and
Winter Park.
2
<PAGE>
The competitive position of the Company's ski areas is dependent upon many
diverse factors such as proximity to population centers, availability and cost
of transportation to the areas, including direct flight availability by major
airlines, pricing, snowmaking facilities, type and quality of skiing offered,
duration of the ski season, prevailing weather conditions, the number, quality
and price of related services and lodging facilities, and the reputation of the
areas.
MOUNTAIN RESORTS
The Company operates skiing facilities on Vail and Beaver Creek Mountains in
Eagle County, Colorado and Breckenridge and Keystone Mountains in Summit County,
Colorado. For the 1997-98 ski season, the Company's resorts had 4,716,605 total
skier days as compared to 4,889,828 total skier days for the previous season.
Some of the Company's ski areas typically open in mid-October and close in mid-
May each year. The Company currently employs approximately 3,000 year-round and
7,000 seasonal employees.
VAIL
Vail Mountain, opened in 1962, consists of 4,644 acres of skiable terrain.
Vail Mountain is the largest single ski mountain complex in the United States
and for the 1998-99 ski season will have a total of 31 lifts, including ten high
speed quads and a high speed custom-designed gondola, constituting the largest
network of high speed lifts in the world. Vail Mountain had a total of 1,597,932
skier days for the 1997-98 season compared to 1,687,038 for the previous season.
Vail has consistently recorded the highest number of skier days of any North
American resort, and is known for its legendary terrain, exciting nightlife and
world famous ski and snowboard school, and is rapidly becoming known for its
non-traditional snowsport activities. Vail completed the first ever mountaintop
activities center, known as Adventure RidgeTM, during the 1996-97 season with
improvements made during the 1997-98 season and further improvements being made
for the 1998-99 ski season. Adventure RidgeTM offers terrain parks and half-
pipes for skiers and snowboarders, as well as diversions for non-skiers such as
an ice skating rink, a luge run, tubing runs, snowbike and snowmobile tours and
four dining operations. Additionally, the Company has received approval from the
United States Forest Service for infrastructure development of additional bowl
skiing terrain within its current permit area known as Category III. (See
"Business--Regulation and Legislation"). Category III will add approximately 885
acres of new trails to Vail Mountain's world-famous Back Bowls. The terrain's
high, north facing location typically yields reliable snow conditions and should
allow for earlier and later ski season operations than is typical for Vail's
existing south facing Back Bowls. The highlight of the coming ski season will be
the 1999 World Alpine Ski Championships to be hosted jointly with Beaver Creek
Resort. Upgrades to Vail Mountain for the 1998-99 ski season include the
development of "Chaos Canyon", a new mid-mountain attraction for children,
expansion of the grooming fleet, restaurant upgrades, a lobby remodel at The
Lodge at Vail, and additional attractions at Adventure Ridge.
BRECKENRIDGE
Breckenridge Mountain Resort, located approximately 85 miles west of Denver
and 40 miles east of Vail, is the second most popular ski area in the United
States, trailing only Vail Mountain in skier days. Breckenridge's skier days
totaled 1,300,883 for the 1997-98 ski season compared to 1,341,179 for the
previous season. Breckenridge Mountain offers over 2,000 acres of skiing on
four different mountains, including open bowl and excellent beginner and
intermediate terrain. The ski area's four mountains are interconnected by a
network of 22 lifts, including six high speed quad chairlifts. The ski area is
located adjacent to the Town of Breckenridge, a 140-year-old Victorian mining
town, which has numerous apres-ski activities and an extensive and growing bed
base, making Breckenridge Mountain Resort an attractive destination for national
and international skiers. The Company has received approval from the United
States Forest Service for development of Peak 7 and its base area. The
development will add 165 acres of intermediate terrain, a new high speed quad
chairlift and additional snowmaking facilities. The Company has implemented
several improvements to Breckenridge Mountain for the 1998-99 ski season
including the addition of Ten Mile StationTM, the first new on-mountain
restaurant at Breckenridge in ten years. Additional investments are being made
for significant renovations at the Great Divide LodgeTM and the newly purchased
Village at Breckenridge, expansion of the grooming fleet including the addition
of a snowboard half-pipe grooming machine, and additional on-mountain restaurant
upgrades at existing facilities.
3
<PAGE>
KEYSTONE
Keystone Mountain, located 70 miles west of Denver and 15 miles from
Breckenridge, is the third most popular ski area in the United States, achieving
1,149,270 skier days for the 1997-98 ski season compared to 1,217,154 for the
previous season. Comprised of three mountains interconnected by a network of 20
lifts, including two high-speed gondolas and five high-speed quad chairlifts,
Keystone provides 1,861 skiable acres suited to a wide variety of skier ability
levels. Keystone has the largest and most advanced snowmaking capability of any
Colorado resort with snowmaking coverage extending over 49% of Keystone's
skiable acreage. Keystone is typically one of the first Rocky Mountain ski
resorts to open each season and also offers a 12-1/2 hour ski day, providing the
largest single-mountain night skiing experience in North America with 14
lighted trails covering 2,340 vertical feet. The ski area is located adjacent
to the family-oriented community of Keystone Resort, which offers numerous year-
round activities, the majority of which are operated by the Company. These
operations include the Keystone Conference Center, which is the largest
convention center in the Colorado Rocky Mountains. The Company also owns and
operates the Ranch Golf Course, and is in the process of constructing a second
championship course, the River Course at Keystone, which is scheduled to open in
June 2000. Upgrades to Keystone for the 1998-99 ski season include the
installation of the Resort's fifth high speed quad chairlift, which provides
faster and easier access to Keystone's North PeakTM, the addition of Colorado's
newest and most exciting snowboard park, and investment in an additional
snowboard half-pipe grooming machine. Consistent with the Company's initiative
to expand its offering of on-mountain activities, and given the success of
Adventure Ridge at Vail, the Company is developing Adventure PointTM at
Keystone, which will initially feature a tubing hill, an ice climbing wall and a
variety of children's attractions. The Company will also complete the renovation
of the four-star Keystone Lodge. Additionally, the Company, through a joint
venture (the "Keystone JV"), has begun the long-term development of up to 4,600
new residential and lodging units and up to 382,000 square feet of new
commercial space on land contributed to the Keystone JV. The development, which
is expected to be completed over the next 15 years, will create significant new
resort lodging as well as new retail, dining and apres-ski activities, which the
Company believes will attract destination skiers and contribute to growth in
skier days and Resort Revenue.
BEAVER CREEK
Beaver Creek Resort, located ten miles west of Vail Mountain, is one of the
world's premier family-oriented mountain resorts. As one of the fastest
growing mountain resorts in the nation, Beaver Creek is known for its
sophisticated personality and world class skiing. During the 1997-98 season,
the Company completed the Beaver Creek Village core, which includes an outdoor
ice skating rink, all-weather escalators that transport guests from the
pedestrian plaza to the slopes, a multitude of shopping opportunities and fine
dining. The village also contains the Vilar Center for the Arts which was
constructed by the Company in cooperation with various local sponsors. Beaver
Creek Mountain, opened in 1980, offers European-style Village-to-VillageTM
skiing on approximately 1,625 acres of skiable terrain, and will operate 14
lifts interconnecting the Beaver Creek, Bachelor Gulch and Arrowhead villages
for the 1998-99 season. Beaver Creek Mountain was named North America's
sixth "Best Ski Area" by Mountain Sports and Living (f/k/a Snow Country) in the
-------------------------- ------------
magazine's 1998-99 annual ski area ranking. During the 1997-98 season, Beaver
Creek Mountain recorded a total of 668,520 skier days compared to 644,456 for
the previous year, representing 12 straight years of skier day growth. Among
other events, Beaver Creek will host the men's downhill race event for the 1999
World Alpine Ski Championships, perhaps the most-watched and televised event in
skiing. For the 1998-99 ski season, the Company plans to double the size of the
Children's Skiing Center which has a history of great success, implement a new
electronic guest information system that will make it easier for skiers and
snowboarders to find their way around the base area, add additional snowmaking
infrastructure and grooming equipment, and provide further upgrades to the
village core and restaurants in anticipation of the 1999 World Alpine Ski
Championships.
4
<PAGE>
RESORT OPERATIONS
The Company derives Resort Revenue from a wide variety of sources, including
lift ticket sales, ski school, dining operations, retail stores, equipment
rental, convention and hospitality services, travel reservation services,
lodging, property and club management, real estate brokerage, licensing and
sponsorship and other recreational activities. Based on the Company's new fiscal
year ended July 31, the following table sets forth Resort Revenue by line of
business, on a pro forma basis, including Vail, Breckenridge, Keystone and
Beaver Creek for the entire period presented.
<TABLE>
<CAPTION>
Fiscal Year Ended July 31,
--------------------------------------
1998 1997
--------------------------------------
<S> <C> <C>
Lift Tickets....................................................... 42.0% 46.5%
Ski and Snowboard School........................................... 11.0% 11.8%
Dining............................................................. 14.9% 14.8%
Retail/Rental...................................................... 5.9% 5.9%
Hospitality........................................................ 13.4% 11.7%
Other.............................................................. 12.8% 9.3%
--------------------------------------
Total Resort Revenues.............................................. 100.0% 100.0%
Total Non-Lift Ticket Resort Revenue............................... 58.0% 53.5%
======================================
</TABLE>
LIFT TICKET OPERATIONS
Lift ticket revenue represents the Company's single largest revenue source.
The Company's favorable demographics and world-class resort facilities have
enabled the Company to achieve premium ticket pricing. The lead ticket price,
which for the 1997-98 ski season was $56 a day for Vail and Beaver Creek
Mountains and $49 a day for Breckenridge and Keystone Mountains, is among the
highest in the industry. To maximize skier volume during non-peak periods and
attract certain segments of the market, the Company also offers a wide variety
of incentive ticket programs, including season passes, student rates, group
discounts and senior discounts. The Company engages in yield management analysis
to maximize its effective ticket price (defined as total lift ticket revenue
divided by total skier days) which was a combined $31.19 for the 1997-98 ski
season, a 12.3 % increase on a pro forma basis, and among the highest in the
industry. During the 1997-98 ski season, the Company introduced interchangeable
lift tickets which were valid across all four of its resorts. This allowed
guests to ski and snowboard at any of the Company's resorts with one lift
ticket. The Company also introduced Peaks at Vail ResortsTM, a loyalty program
similar to an airline frequent flyer program. The program rewards guests who
frequent the resorts with a system of points that can be accumulated and
redeemed for rewards during subsequent visits.
SKI AND SNOWBOARD SCHOOL
The Company operates the world's largest ski and snowboard school operation
with over 2,000 instructors across the four resorts. The Company estimates that
it has one of the highest guest participation rates in the industry. The success
of the ski and snowboard school comes from (i) personalizing and enhancing the
guest vacation experience, (ii) creating new teaching and learning systems (many
of which have historically been developed by the Company, sold to the
Professional Ski Instructors of America and subsequently adopted as the standard
for the industry), (iii) introducing innovative teaching methods for children,
including separate children's centers, mountain-wide attractions and educational
programs like SKE-cology, themed entertainment and teaching systems geared
toward specific age groups, and (iv) continually creating new techniques to
react to technological advances in ski and snowboard equipment. In addition, the
Company has adopted a pay incentive program to reward instructors based on guest
satisfaction and repeat clientele. Future growth in ski school revenue is
expected to stem from significant growth in the sport of snowboarding, for which
the Company has qualified instructors, as well as teaching opportunities
resulting from the technological advances continuously taking place in alpine
skiing equipment.
5
<PAGE>
DINING OPERATIONS
Dining operations are a key component in providing a satisfying guest
experience and have been an important source of revenue growth for the Company.
The Company believes that by owning and operating both on-mountain and base area
restaurants, it can ensure the quality of products and services offered to its
guests, and capture a greater percentage of the guest's vacation expenditures.
Strategies with respect to dining operations include (i) focusing growth in
venues which allow for dining throughout the day and throughout the year,
including breakfast, lunch, apres-ski, dinner, evening entertainment, group
functions and summer/non-ski season operations, (ii) creating unique, themed
environments to maximize guest enjoyment and revenue opportunities, (iii)
further expanding on-mountain seating, (iv) offering affordable family lunchtime
and evening dining and entertainment, (v) continuing to create additional
private clubs and restaurants which are financed through memberships and the
sale of related real estate, and (vi) continuing affiliations with institutions
such as Johnson and Wales University, one of the largest culinary and restaurant
management schools in the world. The large number of food service facilities
operated by the Company allows it to improve margins through large quantity
purchasing agreements and sponsorship relationships.
The Company's restaurant operations offer a wide variety of cuisine and range
from top-rated fine dining restaurants to trailside express food outlets. For
the 1998-99 ski season, the Company will operate 82 on-mountain and base area
dining operations. These facilities include nine new restaurants, primarily
located in the recently-acquired Village at Breckenridge. The Company operates
24 restaurants on and at the base of Vail Mountain, 19 restaurants on Beaver
Creek Mountain and in Beaver Creek Village, 15 restaurants on and at the base of
Breckenridge Mountain and 24 restaurants on Keystone Mountain and in Keystone
Village. Total seating capacity is approximately 18,600 seats at the Company's
resorts.
RETAIL AND RENTAL OPERATIONS
The Company operated approximately 40 retail and rental outlets across its
four resorts for the 1997-98 ski season. The Company's on-mountain retail
locations offer ski accessories (i.e., hats, gloves, sunglasses, goggles,
handwarmers), snack food and selected logo merchandise, all in locations which
are conveniently located for skiers. Off-mountain, the Company operated both
ski and snowboard equipment rental and full service retail locations. Among
other merchandise, the Company's retail operations typically feature resort-
related logo merchandise and products of the Company's sponsors. The Company's
rental operations offered a wide variety of ski and snowboard equipment for
daily and weekly use.
The Company recently 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 known as SSI
Venture LLC. The Company contributed 36 of its 40 retail and rental locations in
Vail, Breckenridge, Keystone and Beaver Creek for a 52% share of the joint
venture. Specialty Sports, Inc. contributed an additional 30 stores located in
Denver, Boulder, Aspen, Telluride, Vail and Breckenridge. The Company feels the
new joint venture will greatly enhance its guests' experience through increased
focus on quality guest service and retail product selection.
HOSPITALITY SERVICES
The Company's hospitality operations are designed to offer its guests a full
complement of quality resort services and provide the Company with additional
sources of revenue and profitability. These operations include lodging,
property management services, reservations, tour and travel, convention and
conference accommodations.
The Company currently owns seven hotel properties, with over 700 rooms in
total and manages an additional hotel with 42 rooms. The hotels are located
across the Company's four resort base areas and operate under the names: The
Lodge at Vail, Great Divide Lodge, Keystone Lodge, Inn at Keystone, The Pines
Lodge, Inn at Beaver Creek, and two hotel properties from the newly-acquired
Village at Breckenridge--the Village Hotel and the Breckenridge Mountain Lodge.
The Company's property management operation seeks to utilize the Company's
hospitality expertise through the first class management of lodging properties
owned by both the Company and third parties. The Company currently manages
approximately 1,800 residential condominium units. Property management services
performed by the Company include rental management, maintenance services to non-
renting unit owners and homeowners' association management services. The
6
<PAGE>
Company intends to continue to expand its lodging and property management
businesses by bringing additional properties under management and through
further strategic acquisitions.
The Company's reservation center provides information and access to the full
complement of the resorts' services and activities. The center handles over
600,000 telephone calls per year and books and sells airline and ground
transportation, lodging, lift tickets, ski school and most other mountain
activities, earning commissions on each third party sale. These advance
reservation activities have had a significant impact on the Company's ability to
attract direct air service to the Vail/Eagle County Airport. Located 25 miles
from Beaver Creek Resort, the Vail/Eagle County Airport provides non-stop air
service from 12 U.S. cities and one-stop connections from 30 international
destinations. For the 1998-1999 ski season, scheduled in-bound one-way seating
capacity is approximately 300,000 seats.
The Company owns and operates the Keystone Conference Center, which is the
largest convention center in the Colorado Rocky Mountains. With meeting
facilities totaling 32,500 square feet and the capability to accommodate groups
of up to 1,800, the Keystone Conference Center draws groups throughout the year
and is typically sold-out during the non-ski season. The Company is presently
reviewing plans to add 25,000 square feet of exhibit space to the Keystone
Conference Center, which would allow it to accommodate the significant excess
demand currently experienced. In addition to the Keystone Conference Center,
the Company owns and operates various other conference facilities. The Company
believes that conference attendees significantly utilize the resorts' other
recreational facilities and activities, including skiing and snowboarding, golf,
tennis and horseback riding.
OTHER RESORT OPERATIONS
Adventure RidgeTM and Adventure PointTM. Vail completed the first ever
mountaintop activities center, known as Adventure RidgeTM, during the 1996-97
season. Adventure RidgeTM offers terrain parks and half-pipes for skiers and
snowboarders, as well as diversions for non-skiers such as an ice skating rink,
a luge run, tubing runs, snowbikes, snowmobile tours, and four dining
operations. Consistent with the Company's initiative to expand its offering of
on-mountain activities, and given the success of Adventure RidgeTM at Vail, the
Company is developing Adventure PointTM at Keystone, which will initially
feature a tubing hill, ice climbing wall, and a variety of children's
attractions. These non-traditional attractions play a large role in the
expansion of activities for the Company's guests, and create a competitive
advantage for its resorts.
Club Management. The Company is also active in the creation and management of
private membership clubs, which allows the Company to provide high-end services
and amenities to its upper income guest, and evening dining options and other
services and activities to its overall guest population. The Company's current
clubs include (i) the Beaver Creek ClubTM, which offers members luncheon
privileges at Beano's CabinTM and Allies Cabin and certain golf, tennis and
skiing amenities, (ii) Game Creek ClubTM, which offers members luncheon
privileges and is open to the general public for dinner, (iii) the Passport
Clubhouse at Golden PeakTM, which provides members with a reserved parking
space, concierge services, a private dining room and locker and club facilities
at the base of Vail Mountain. In addition to using membership sales to defray
the cost of construction, the Company earns management fees for overseeing club
operations. The Company intends to create selected additional clubs over the
next five years, including the Arrowhead Alpine Club in Arrowhead Village and a
mountain club similar to Beano's CabinTM to be located in Bachelor Gulch
Village. These clubs allow the Company to add to its restaurant operations and
related skier service and retail operations at a relatively modest capital cost.
Commercial Leasing Operations. The Company owns significant base area
restaurant, retail and other commercial space. The strategy of the Company's
leasing operation is to secure the commercial locations adjacent to its resorts
for retail, restaurant and entertainment venues and then to carefully select the
appropriate tenant mix for these locations to provide a high quality and diverse
selection of retailers and restauranteurs. The Company's total leasable
commercial space is currently 242,536 square feet. For the 1998-99 ski season,
approximately 30% of the Company's commercial space will be used for retail
space, 38% for restaurant operations, and the remaining 32% will be leased for
office space and other uses.
Licensing and Sponsorship. An important part of the Company's business strategy
is to leverage its brand name by entering into sponsorship relationships and
strategic alliances with world-class business partners, building its logo and
licensing business and gaining national and international exposure through
hosting of special events. The Company's leading industry position coupled with
the demographics of its customer base make it an attractive partner. The
Company's sponsors include America West, American Airlines, Atlas Snowshoes,
7
<PAGE>
Avis Rent-A-Car, Bailey's Irish Cream, Bolle America, Chevrolet, Coca-Cola,
Coors Brewing Company, Compaq Computers, Continental Airlines, Delta Airlines,
Evian, FILA, Hertz, Kendall-Jackson, MCI Worldcom, Northwest Airlines, Pepsi-
Cola, Sprint Communications, TAG Heuer, Thor.Lo, United Airlines and Yahoo!.
Examples of the types of relationships the Company has with its partners include
Chevy Trucks, which provides the Company with mountain vehicles and national
marketing exposure, and Pepsi-Cola, which, among other things, provides
substantial marketing benefits. The Company's sponsorship arrangements typically
have a three to five year term and provide benefits in the form of cash
payments, expense reductions, capital improvements and/or marketing exposure.
The Company has licensed the use of its trademarks to over one hundred companies
for a variety of products such as apparel and sunglasses. While terms of each
license agreement vary, such agreements generally are for a two-year term and
provide for the payment by the licensee of quarterly royalty payments ranging
from 6% to 8% of the gross wholesale price of the licensed goods.
Promotions and Special Events. The Company's four resorts are frequently the
sites of special events and promotions. In addition to hosting annual World Cup
alpine skiing and World Cup mountain biking events, Vail Mountain and Beaver
Creek Mountain recently hosted the 1997 World Cup Skiing Finals and are the site
for the 1999 World Alpine Ski Championships. Vail previously hosted the World
Championships in 1989 and is the first North American host site to have been
selected by the World Cup governing body twice. These events give the Company
significant international exposure. Television viewership for World Cup skiing
and the World Alpine Ski Championships is estimated to be in excess of 500
million viewers. These events will be organized by and co-hosted with the Vail
Valley Foundation, a non-profit foundation whose mandate is to bring
international sporting and cultural events to the Vail Valley. The Vail Valley
Foundation provides significant funding, volunteers and liability assumption in
conjunction with such events. The Company's facilities are also the site of
numerous skiing, snowboarding and music events sponsored by other entities.
These events generate revenue for the Company through sponsorship fees and
increased skier traffic, and provide national and international brand exposure
through television and advertising campaigns. The Company also owns an interest
in an events production company, Eclipse Television and Sports Marketing, LLC,
which creates and produces made-for-television events.
Brokerage. The Company's real estate brokerage operations are conducted through
a joint venture in which the Company has a 50% interest. The joint venture was
created in June 1994 to facilitate the merger of the Company's brokerage
operations, Vail Associates Real Estate, Inc., with the brokerage operations of
Slifer, Smith & Frampton, which combined the two largest brokerage operations in
the Vail Valley. The joint venture has a large share of both first-time
developer sales and resales throughout the Vail Valley, creating both a
significant source of profitability and a valuable source of information in
planning and marketing the Company's real estate projects. In addition to
profit distributions from the joint venture, the Company will directly receive
certain override payments on all brokerage revenue from sales of its own
property. Brokerage activities at Keystone Resort are conducted by the Keystone
JV.
Other Revenue Sources. In addition to the revenue sources listed above, the
Company provides security and other village services to the Beaver Creek,
Bachelor Gulch and Arrowhead Villages. The Company also derives revenue during
the non-ski season by offering guests a variety of activities and services,
including (i) golf and tennis (ii) gondola and chairlift rides, (iii) on-
mountain and base area bike rentals, (iv) on-mountain lunch operations, (v)
wedding and group functions at mountain and village restaurants, (vi) fly
fishing, hiking and barbecues at Piney River RanchTM and (vii) horseback riding.
REAL ESTATE
The Company's principal real estate activities include (i) the sale of single
family homesites to individual purchasers; (ii) the sale of certain land parcels
to third party developers for condominium, townhome, cluster home, lodge and
mixed use developments; (iii) the zoning, planning, marketing and infrastructure
development of new resort communities (such as Beaver Creek Resort, Bachelor
Gulch Village and Arrowhead); (iv) the development of certain mixed use
condominium projects integral to resort operations (such as the base facility at
Golden Peak); and (v) the purchase of selected strategic land parcels, which the
Company believes can augment its existing land holdings or resort operations.
The Company's current development activities are focused on (i) the completion
of its three resort communities, Bachelor Gulch Village, Arrowhead and River Run
Village at Keystone Resort; (ii) preparing for the redevelopment of the
Lionshead base area at Vail Mountain and adjacent land holdings; (iii) the long-
term planning of the Company's significant real estate holdings in and around
Avon and at the entrance to Beaver Creek Resort; and (iv) the long-term planning
for development of the Company's real estate holdings at Breckenridge Mountain
Resort.
8
<PAGE>
A summary of each of the Company's significant current real estate projects is
set forth below. In addition to the Company's extensive land holdings contained
in the resort communities discussed below, the Company has land holdings in the
Town of Vail, at the base of Beaver Creek Mountain, and elsewhere in the Vail
Valley.
BEAVER CREEK RESORT
Vail Resorts Development Company ("VRDC") has completed the development of the
Beaver Creek Resort village core including the One Beaver Creek, Market Square
and Beaver Creek Village Center developments which were completed for the 1997-
98 ski season. These projects are adjacent to the Company's existing retail
operations and will add significantly to its retail and restaurant operations at
Beaver Creek Resort. The Company's remaining land holdings in Beaver Creek
Resort consist of zoned, multifamily sites which are expected to contain
approximately 200 multifamily residences located near the entrance to Beaver
Creek Resort.
BACHELOR GULCH VILLAGE
The Bachelor Gulch Village development is an upscale residential community
comprised of 1,410 acres of Company-owned land located in a valley between
Arrowhead and Beaver Creek Resort. Through July 1998, the Company has sold 102
single-family homesites in the Bachelor Gulch Village development, a substantial
portion of which have ski-in/ski-out access. The Company has sold five
multifamily parcels for the construction of 12 condominiums, 19 cluster homes,
and 20 townhomes. Three additional multifamily parcels are under contract for
the construction of 28 condominiums, five cluster homes, and four townhomes.
The Company is in discussions with developers regarding the sale of additional
multifamily parcels. The Company's current unsold inventory in Bachelor Gulch
Village consists of three single-family homesites, 11 cluster homesites and 474
condominium, interval and lodge units. The Company expects to complete the sale
of these parcels over the next five years.
In addition, plans for Bachelor Gulch Village incorporate 67,880 square feet
of retail, restaurant and commercial space. Commencing with the 1996-97 ski
season, Bachelor Gulch Village featured a high speed quad chairlift and
approximately 150 acres of mostly intermediate ski terrain on Beaver Creek
Mountain.
ARROWHEAD
Arrowhead, known as "Vail's Private Address," is comprised of over 1,500 acres
of Company-owned land and is recognized for its country club approach to
residential and resort amenities. Home of Country Club of the Rockies, a private
golf club designed by Jack Nicklaus, Arrowhead also features swimming, clay
tennis courts, hiking, mountain biking, private fly-fishing on the Eagle River
and privacy gates that assure controlled access 24 hours a day. Arrowhead
contains the westernmost skiing access point to Beaver Creek Mountain.
The Company's current development activities are focused on the development of
Arrowhead Village, a 213 unit staged development centered around the Arrowhead
Alpine Club. Developers have completed construction of 99 multifamily units and
have commenced construction of an additional 28 multifamily units on land
purchased from the Company. In addition, developers are completing the
construction of 16 duplexes on a parcel located between the base area and the
Eagle River. The remaining parcel containing ten duplexes is expected to be
sold within one year. The Arrowhead Alpine Club commenced construction in
August 1998 with a completion date expected in late calendar 1999. The 85,000
square foot facility consists of 17 residential condominiums (16 of which are
under contract), 21,000 square feet of spa, lounge, locker and athletic training
space and 3,400 square feet of skier service, real estate sales and property
management.
KEYSTONE
In 1994, prior to the Company's ownership of Keystone Resort, 500 acres of
development land at Keystone Resort were contributed to the Keystone JV. The
Keystone JV is involved in a broad range of development activities, including
the planning, infrastructure improvement, construction and marketing of all real
property improvements on its land. The Keystone JV received approval for a
master development plan that the Keystone JV expects to develop over the next 15
years. The plan calls for the creation of six separate neighborhoods, each
featuring distinctive amenities and architecture based on the area's mining,
ranching and railroad history. Full build-out is estimated at 4,600 residential
homes and lodging units and 382,000 square feet of commercial space as well as
more than 300 acres of open space.
9
<PAGE>
The Company will receive 40% to 50% of the profits generated by the Keystone JV
and will have the opportunity to lease commercial space created by the Keystone
JV.
The first two neighborhoods under development by the Keystone JV are River Run
and Ski Tip Ranch. River Run is a ski-in/ski-out pedestrian village and
commercial corridor that will be a new focal point of Keystone Resort. The River
Run development is located at the base of the River Run Gondola and at full
build-out will include an estimated 860 residential units, 250 lodge units and
190,000 square feet of restaurants, retail boutiques and apres-ski cafes. Ski
Tip Ranch is a wooded residential community of 86 townhomes under development at
the easternmost end of Keystone Resort. As of July 31, 1998, the Keystone JV
had constructed 470 condominiums and townhome units in the River Run and Ski Tip
neighborhoods of which 314 units had been sold with another 119 under contract.
An additional 92 condominiums and 81 single family homesites are scheduled for
completion in fiscal 1999 of which 60 condominiums and 55 homesites are under
contract. The homesites surround an 18 hole public/private golf course being
built by the Keystone JV. Commercial space developed through July 1998 totals
125,157 square feet.
BRECKENRIDGE
The Company owns approximately 270 acres of development land at one of the
primary base portals to Breckenridge Mountain as well as 30 acres of development
land near the center of the Town of Breckenridge. The Company is engaged in
development planning for a new base village, which is currently envisioned to
include approximately 850 residential units, new restaurant and retail space,
conference facilities and other recreational amenities. Residential units will
include ski-in/ski-out single family homesites, multifamily condominium and
townhome units. Development plans for the 30-acre site are still in the
preliminary stages but include a mixed-use project of residential units and
commercial space.
The market for undeveloped real estate near ski resorts is subject to
fluctuations due to many factors including changes in the general economy, costs
and availability of borrowed money and conditions in the construction and real
estate industry. In addition, changes in legislation and governmental
regulations, such as local and federal tax laws, land use and zoning
restrictions, and environmental protection, could adversely affect real estate
sales. With respect to the sale of the Company's undeveloped real estate, the
Company has many competitors, not only in the Vail, Breckenridge, Keystone and
Beaver Creek areas but also throughout the Colorado mountain country and in the
other major ski areas in the United States. Management believes that the size,
historically consistent snow conditions and existing amenities of the Company's
resorts give the Company a competitive advantage over many of its competitors.
REGULATION AND LEGISLATION
The Company has 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
Forest Service. The Forest Service has the right to review and comment on the
location, design and construction of improvements in the permit area and on many
operational matters. While virtually all of the skiable terrain on Vail
Mountain, Breckenridge Mountain Resort and Keystone Mountain 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. The Company has received approval from the
Forest Service for infrastructure development of bowl skiing terrain in Category
III which is located within the current Vail Mountain permit area. Certain
opponents of the Category III expansion filed a lawsuit against the Forest
Service seeking to enjoin the project and the Company intervened in such
lawsuit. The federal district court denied the opponents' request for an
injunction and dismissed their case. On appeal to the federal appeals court,
the opponents' request for an injunction was again denied and oral arguments
regarding the opponents' appeal have been set, on an expedited basis, for the
court's January 1999 hearings calendar. The Company also 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 the Breckenridge Mountain
Resort. The deadline for public comment and the filing of administrative
appeals recently expired and certain individuals and groups filed timely
comments and an appeal of the Forest Service's decision. The Forest Service
will make a decision on the appeal within forty-five days of the close of the
administrative appeal process. In addition, with respect to the Breckenridge
improvements, the Company has an application for a wetlands permit pending
before the Army Corps of Engineers. The Army Corps of Engineers has not yet
issued its decision on the Company's wetlands permit application.
The permits originally granted by the Forest Service were (i) 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
10
<PAGE>
requires such termination and (ii) 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 12,590 acres, that
expires October 31, 2031. Breckenridge Mountain operates under a Term Special
Use Permit for the use of 3,156 acres, that expires on December 31, 2029.
Keystone Mountain 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. In December 1992, the Company
exercised its statutory right to convert its dual permits for the Beaver Creek
Mountain Resort into a unified permit for the maximum period of 40 years and is
currently in the process of negotiating the final terms of the unified permit.
All of the Company's Forest Service permits are terminable by the Forest Service
if they determined that termination is required in the public interest. However,
to the Company's knowledge, no recreational Special Use Permit or Term Special
Use Permit for any major ski resort has ever been terminated by the Forest
Service.
For use of its permits, the Company pays a fee to the Forest Service. Under
recently enacted legislation, retroactively effective to fiscal 1996, the
Company pays a fee to the Forest Service ranging from 1.5% to 4.25% of sales
occurring on Forest Service land. However, through fiscal 1998, the Company must
pay the greater of (i) the fee due under the new legislation or (ii) 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.
OTHER RELATED INFORMATION
On October 19, 1998, fires on Vail Mountain destroyed certain of the Company's
facilities including the Ski Patrol Headquarters, a day skier shelter named Camp
One, the Two Elk Lodge restaurant and the chairlift drive housing for the High
Noon Lift (Chair #5). Chair #5 is expected to be fully operational within 60 to
90 days and, in the interim, Sun Up Bowl will be serviced by the Sun Up Lift
(Chair #17). Three other chairlifts suffered minor damage but are expected to
be fully operational for the ski season as originally planned. The fires have
been determined to have been deliberately set and are under investigation by
federal, state and local law enforcement officials. The Company carries
sufficient property insurance coverage, including business interruption
coverage, to reimburse it for all appropriate economic losses occasioned by the
incident. The Company plans to utilize temporary facilities in place of the Ski
Patrol Headquarters, Camp One and Two Elk Lodge while permanent structures are
rebuilt. The fires are not expected to have an impact on Vail Mountain's
opening day for the 1998-99 ski season or the World Alpine Ski Championships
that will be hosted January 30, 1999 through February 14, 1999. In addition,
the Company does not believe the incident will have a material impact on its
financial results.
BUSINESS SEGMENTS
Business segment information is presented in Note 12 to the accompanying
consolidated financial statements.
11
<PAGE>
ITEM 2. PROPERTIES.
The following table sets forth the principal properties owned or leased by the
Company:
<TABLE>
<CAPTION>
LOCATION OWNERSHIP USE
- ------------------------------------- ------------------------ -------------------------------------------------------------------
<S> <C> <C>
Vail Mountain Term Special Use Permit Ski trails
(12,590 acres)
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
Breckenridge Mountain Term Special Use Permits Ski trails
(3,156 acres)
Breckenridge Mountain Owned Ski resort operations, including ski lifts, buildings and other
improvements, commercial space, real estate held
for sale or development
Great Divide Lodge Owned Lodging, dining and conference facilities
Keystone Mountain Term Special Use Permits Ski trails
(5,571 acres)
Keystone Mountain Owned Ski resort operations, including ski lifts, buildings and other
improvements, real estate held for sale or development
Keystone Resort Owned Resort operations, commercial space, real estate held
for sale or development
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 Term Special Use Permit Ski trails
(80 acres)
Beaver Creek Mountain Special Use Permit Ski trails
(2,695 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
The Vail Mountain and Beaver Creek Mountain Forest Service Permits are encumbered.
</TABLE>
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 SECURITYHOLDERS.
None.
12
<PAGE>
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,
1998, 34,463,015 shares of common stock were issued and outstanding, of which
7,639,834 shares were Class A Common Stock held by approximately four holders
and 26,823,181 shares were Common Stock held by approximately 5,500 holders.
The Company distributed a right to receive up to $2.44 per share of Common
Stock (the "Rights") to all stockholders of record on October 11, 1996, with a
maximum aggregate amount payable under the Rights of $50.5 million. The Company
was obligated to make payments under the Rights only to the extent that it
received sufficient gross proceeds upon the closings of certain real estate
contracts which were outstanding as of September 30, 1996. The Company has made
the full payments due under the rights as of October 31, 1997.
Other than the Rights, 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 ten-months ended July 31, 1998, and
the one-month period ended October 31, 1998 and quarters indicated (ended
January 31, April 30, and July 31) and for the fiscal year ended September 30,
1997 and quarters indicated (ended December 31, March 31, and June 30), the
range of high and low sale prices of Vail Resorts common stock as reported on
the NYSE 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.
<TABLE>
<CAPTION>
Vail Resorts Common Stock
---------------------------------
Year Ended September 30, 1997 HIGH Low
----------------------------- ---- ---
<S> <C> <C>
1st Quarter............................... - -
2nd Quarter............................... 24 1/4 18 5/8
3rd Quarter............................... 26 17 3/8
4th Quarter............................... 27 11/16 23
Year Ended July 31, 1998
------------------------
1 month ended 10/31/97.................... 28 7/8 25 1/4
2nd Quarter............................... 28 23 7/8
3rd Quarter............................... 31 7/8 25 13/16
4th Quarter............................... 30 7/8 25 5/8
</TABLE>
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 years ended
September 30, 1994, 1995, 1996 and 1997 are derived from the consolidated
financial statements of the Company, which have been audited by Arthur Andersen
LLP, independent accountants whose 1994 report with respect to Packerland
Packing Company, Inc., a former wholly-owned subsidiary of Vail Associates Inc.,
is based on the report of Ernst & Young LLP. Results of the operations for the
Breckenridge and Keystone Mountain Resorts (collectively, the "Acquired
Resorts"), together with the Arapahoe Basin Mountain Resort and significant
13
<PAGE>
related real estate interests and developable land, have been included in the
fiscal 1997 consolidated statement of operations from January 4, 1997 through
September 30, 1997, except that results of operations for the Arapahoe Basin
Mountain Resort for the period of the Company's ownership have been excluded.
The selected historical consolidated financial data set forth below should be
read in conjunction with the consolidated financial statements of the Company
and the related notes thereto.
The Other Data presented below includes information on Resort Cash Flow.
Resort Cash Flow is defined as revenues from resort operations less resort
operating expenses, excluding depreciation and amortization. Resort Cash Flow is
not a term that has an established meaning under generally accepted accounting
principles. The Company has included information concerning Resort Cash Flow
because management believes it is an indicative measure of a resort company's
operating performance and is generally used by investors to evaluate companies
in the resort industry. Resort Cash Flow does not purport to represent cash
provided by operating activities and should not be considered in isolation or as
a substitute for measures of performance prepared in accordance with generally
accepted accounting principles. For information regarding the Company's
historical cash flows from operating, investing and financing activities see the
Company's consolidated financial statements included in Item 8. Furthermore,
Resort Cash Flow is not available for the discretionary use of management and,
prior to the payment of dividends, the Company uses Resort Cash Flow to meet its
capital expenditure and debt service requirements. Resort EBITDA is defined as
Resort Cash Flow less Corporate Expense and excludes interest, taxes,
depreciation and amortization.
<TABLE>
<CAPTION>
TEN-MONTHS ENDED
JULY 31, FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
1998 1997 1997 1996 1995 1994
------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: (audited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
(In Thousands, Except Per Share Data)
Revenues:
Resort..............................................$336,547 $248,511 $259,038 $140,288 $126,349 $124,982
Real estate......................................... 73,722 61,104 71,485 48,655 16,526 22,203
-----------------------------------------------------------------------------
Total revenues...................................... 410,269 309,615 330,523 188,943 142,875 147,185
Operating expenses
Resort.............................................. 217,764 155,412 172,715 89,890 82,305 78,365
Real estate......................................... 62,619 54,944 66,307 40,801 14,983 20,341
Corporate expense................................... 4,437 3,557 4,663 12,698 6,701 7,160
Depreciation and amortization....................... 36,838 27,604 34,044 18,148 17,968 17,186
-----------------------------------------------------------------------------
Total operating expenses............................ 321,658 241,517 277,729 161,537 121,957 123,052
Income from operations................................ 88,611 68,098 52,794 27,406 20,918 24,133
Net income (after tax)................................ 41,018 30,440 19,698 4,735 3,282 761
=============================================================================
Diluted net income per common share...................$ 1.18 $ 1.02 $ 0.64 $ 0.22 $ 0.16 $ 0.04
=============================================================================
OTHER DATA:
Resort
Resort Revenue......................................$336,547 $248,511 $259,038 $140,288 $126,349 $124,982
Resort Cash Flow.................................... 118,783 93,099 86,323 50,398 44,044 46,617
Resort EBITDA....................................... 114,346 89,542 81,660 37,700 37,343 39,457
Resort EBITDA margin................................ 34.0% 36.0% 31.5% 26.9% 29.6% 31.6%
Skier days.......................................... 4,717 4,273 4,273 2,228 2,136 2,056
Resort Revenue per skier day........................$ 71.35 $58.16 $60.62 $62.97 $59.15 $60.79
Real Estate
Revenues from real estate sales.....................$ 73,722 $ 61,104 $ 71,485 $ 48,655 $ 16,526 $ 22,203
Real estate operating income........................ 11,103 6,160 5,178 7,854 1,543 1,862
Real estate held for sale........................... 138,916 155,672 154,925 84,055 54,858 42,637
BALANCE SHEET DATA:
Total assets..........................................$912,122 $814,816 $855,949 $422,612 $429,628 $450,018
Long-term debt including current maturities........... 284,014 236,347 265,062 144,750 191,313 225,654
Stockholders' equity.................................. 462,624 417,187 405,666 123,907 167,694 162,494
</TABLE>
14
<PAGE>
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 Item 8 to this Form 10-K. To the extent that
such 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 industry, general business and
economic conditions, the weather and other factors discussed in the Company's
filings with the Securities and Exchange Commission.
This Management's Discussion and Analysis contains information regarding
Resort Cash Flow. Resort Cash Flow is defined as revenue from resort operations
less resort operating expenses, excluding depreciation and amortization. Resort
Cash Flow is not a term that has an established meaning under generally accepted
accounting principles. The Company has included information concerning Resort
Cash Flow because management believes it is an indicative measure of a resort
company's operating performance and is generally used by investors to evaluate
companies in the resort industry. Resort Cash Flow does not purport to represent
cash provided by operating activities and should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. Furthermore, Resort Cash Flow is not
available for the discretionary use of management and, prior to the payment of
dividends, the Company uses Resort Cash Flow to meet its capital expenditures
and debt service requirements.
On January 3, 1997, the Company acquired the Breckenridge, Keystone and
Arapahoe Basin mountain resorts as well as significant related real estate
interests and developable land. Pursuant to a consent decree with the United
States Department of Justice, the Company divested the Arapahoe Basin Mountain
Resort on September 5, 1997. The Breckenridge and Keystone mountain resorts are
referred to herein as the "Acquired Resorts."
On September 1, 1997, the Company changed its fiscal year end from September
30 to July 31. Accordingly, the Company's fiscal year 1998 ended on July 31,
1998 and consisted of ten months. This Management's Discussion and Analysis
compares actual results for the ten months ended July 31, 1998 and 1997, and for
the fiscal years ended September 30, 1997 and 1996. Supplemental pro forma
comparisons are presented for the ten and twelve-month periods ended July 31,
1998 and 1997. Ten-month comparisons are presented to conform with the actual
ten-month transitional period, while twelve-month comparisons are presented to
compare year to date results for the Company's new fiscal year ended July 31.
RESULTS OF OPERATIONS
TEN-MONTHS ENDED JULY 31, 1998 COMPARED TO TEN-MONTHS ENDED JULY 31, 1997
The actual results of the ten-months ended July 31, 1998 compared to the
actual results of the ten-months ended July 31, 1997, discussed below are not
comparable due to the acquisition of the Acquired Resorts by the Company on
January 3, 1997. Accordingly, the usefulness of the comparisons presented below
is limited, as the ten-months ended July 31, 1997 includes the results of the
Acquired Resorts for the period from January 4 to July 31 while the ten-months
ended July 31, 1998 includes the results of the Acquired Resorts for the full
ten month period. Please see pro forma results of operations included elsewhere
in this Management's Discussion and Analysis.
Resort Revenue. Resort Revenue for the ten-months ended July 31, 1998 was
$336.5 million, an increase of $88.0 million, or 35.4%, compared to the ten-
months ended July 31, 1997. The increase was primarily attributable to the
inclusion of the the Acquired Resorts for the full ten month period in fiscal
1998 but only for the period from January 4 to July 31 in fiscal 1997, and
increases in lift ticket, ski school, dining, retail and rental, hospitality and
other revenues at all four resorts during fiscal 1998.
Resort Operating Expenses. Resort Operating Expenses were $217.8 million for
the ten-months ended July 31, 1998, an increase of $62.4 million, or 40.2%, as
compared to the ten-months ended July 31, 1997. The increase in Resort
Operating Expenses is attributable to the inclusion of the Acquired Resorts for
the full ten-months in fiscal 1998 but only for the period from January 4 to
July 31 in fiscal 1997, and increased variable expenses resulting from the
increased level of non-lift Resort Revenue during the ten-months ended July 31,
1998.
15
<PAGE>
Resort Cash Flow. Resort Cash Flow was $118.8 million for the ten-months ended
July 31, 1998, an increase of $25.7 million, or 27.6%, as compared to the ten-
months ended July 31, 1997. The increase in Resort Cash Flow is due primarily
to the inclusion of the Acquired Resorts for the full ten month period in fiscal
1998 but only for the period from January 4 to July 31 in fiscal 1997, and the
increased level of Resort Revenue, partially offset by increased expenses as
described above.
Real Estate Revenue. Revenue from real estate operations for the ten-months
ended July 31, 1998 was $73.7 million, an increase of $12.6 million, compared to
the ten-months ended July 31, 1997. Revenue for the ten-months of fiscal 1998
consists primarily of the sales of 37 single family homesites and five
multifamily sites in the Bachelor Gulch Village development ($45.7 million), and
the sale of four luxury residential condominiums at the Golden Peak base area of
Vail Mountain ($18.7 million). Revenue for the first ten-months of fiscal 1997
consisted primarily of the sales of 63 single family homesites in the Bachelor
Gulch Village development ($46.6 million) and eight residential condominiums.
Real Estate Operating Expenses. Real estate operating expenses for the ten-
months ended July 31, 1998 were $62.6 million, an increase of $7.7 million,
compared to the ten-months ended July 31, 1997. Real estate cost of sales for
the first ten-months of fiscal 1998 consists primarily of the cost of sales and
real estate commissions associated with the sale of 37 single family homesites
and five multifamily sites in the Bachelor Gulch Village development and four
luxury residential condominiums at the Golden Peak base area of Vail Mountain.
Real estate cost of sales for the first ten-months of fiscal 1997 consisted
primarily of the cost of sales and real estate commissions associated with the
sale of 63 single family homesites in the Bachelor Gulch Village development and
eight residential condominiums.
Corporate Expense. Corporate expense increased by $880,000 for the ten-months
ended July 31, 1998, as compared to the ten-months ended July 31, 1997.
Corporate expense includes certain executive salaries, directors' and officers'
insurance, investor relations expenses and tax, legal, audit, transfer agent and
other consulting fees. The increase over fiscal 1997 is primarily attributable
to an increase in investor relations costs, transfer agent fees and public
reporting costs.
Depreciation and Amortization. Depreciation and amortization expense increased
by $9.2 million for the ten-months ended July 31, 1998. The increase was
primarily attributable to the inclusion of depreciation expense and amortization
of goodwill for the Acquired Resorts for the full ten month period in fiscal
1998 but only for the period from January 4 to July 31 of fiscal 1997, and
capital expenditures made in fiscal 1997 at all four resorts.
Interest Expense. During the ten-months ended July 31, 1998, and the ten-months
ended July 31, 1997, the Company recorded interest expense of $17.8 million and
$17.2 million, respectively. Interest expense related primarily to the Credit
Facilities (See Note 6(b) of Notes to Consolidated Financial Statements) and the
Industrial Development Bonds (See Note 6(a) of Notes to Consolidated Financial
Statements) in fiscal 1998 and fiscal 1997, as well as the Senior Subordinated
Notes in fiscal 1997. The Company maintained a higher average balance
outstanding under its Credit Facilities in fiscal 1998 due to amounts drawn for
the hotel acquisitions, resort capital expenditures and investments in real
estate. The higher interest on the Credit Facilities in fiscal 1998 was
partially offset by the interest incurred in fiscal 1997 on the $165 million in
debt assumed in the acquisition of the Acquired Resorts, higher interest rates
on the Senior Subordinated Notes, which were outstanding until March 1997, and
the one time contractual redemption premium on the early redemption of the
Senior Subordinated Notes.
Gain/Loss on the Sale of Fixed Assets. During the ten-months ended July 31,
1998 the Company recorded a loss on the sale of fixed assets of $1.7 million.
This loss was primarily attributable to the removal and write-off of a fixed
grip chairlift at Keystone Mountain. The lift is being replaced with a new high
speed quad chairlift consistent with the Company's initiative to increase uphill
skier capacity and overall guest service. Additionally, the company wrote-off
certain retail software systems which will not be used by its new retail joint
venture in fiscal 1999.
16
<PAGE>
FISCAL YEAR ENDED SEPTEMBER 30, 1997 ("FISCAL 1997") COMPARED TO FISCAL YEAR
ENDED SEPTEMBER 30, 1996 ("FISCAL 1996")
Resort Revenue. Resort Revenue for fiscal 1997 was $259.0 million, an increase
of $118.8 million, or 84.7%, compared to fiscal 1996. The increase was
attributable primarily to (i) the inclusion of the results of the Acquired
Resorts from January 4, 1997 ($104.8 million) and (ii) increases in lift ticket,
ski school, food service, retail and rental, hospitality and other revenues.
Resort Operating Expenses. Operating expenses from resort operations ("Resort
Operating Expenses") were $172.7 million for fiscal 1997, representing an
increase of $82.8 million, or 92.1%, as compared to fiscal 1996. The increase in
Resort Operating Expenses is primarily attributable to (i) the inclusion of the
results of the Acquired Resorts from January 4, 1997 ($69.1 million), (ii)
increased variable expenses resulting from the increased level of Vail/Beaver
Creek Resort Revenue and skier days in fiscal 1997, (iii) expenses associated
with new Vail/Beaver Creek food service and retail/rental operations and (iv) a
one-time reorganization charge of $2.2 million in the third quarter of fiscal
1997.
Resort Cash Flow. Resort Cash Flow for fiscal 1997 was $86.3 million, an
increase of $35.9 million, or 71.2%, compared to fiscal 1996. The increase in
Resort Cash Flow is due primarily to the inclusion of the results of the
Acquired Resorts from January 4, 1997 ($35.7 million) and the increased level of
Vail/Beaver Creek Resort Revenue, offset by increased expenses related to new
operations as described above.
Real Estate Revenues. Revenues from real estate operations for fiscal 1997
were $71.5 million, an increase of $22.8 million, compared to fiscal 1996.
Revenue for fiscal 1997 consists primarily of the sales of 65 single family
homesites in the Bachelor Gulch Village development which totaled $47.5 million,
two luxury residential condominiums at the Golden Peak base area of Vail
Mountain totaling $8.0 million, various condominiums in Beaver Creek Village
totaling $4.2 million and Arrowhead Village land sales of approximately $5.1
million. Revenues for fiscal 1996 consisted primarily of the sales of 30 single
family homesites in the Strawberry Park development at Beaver Creek Resort which
totaled $30.9 million.
Real Estate Operating Expenses. Real estate operating expenses for fiscal 1997
were $66.3 million, an increase of $25.5 million, compared to fiscal 1996. Real
estate cost of sales for fiscal 1997 consists primarily of the cost of sales and
real estate commissions associated with the sales of 65 single family homesites
in the Bachelor Gulch Village development, two luxury residential condominiums
at the Golden Peak base area of Vail Mountain, various condominiums in Beaver
Creek Village and Arrowhead Village land sales. Real estate cost of sales for
fiscal 1996 consisted primarily of the cost of sales and real estate commissions
associated with the sale of 30 single family homesites in the Strawberry Park
development at Beaver Creek Resort.
Corporate Expense. Corporate expense was $4.7 million for fiscal 1997, a
decrease of $8.0 million as compared to fiscal 1996. For periods prior to
fiscal 1997, corporate expense included the costs associated with the Company's
holding company structure and overseeing multiple lines of business, including
the discontinued operations. In fiscal 1997, corporate expense includes certain
personnel, tax, legal, directors' and officers' insurance and other consulting
fees relating solely to the Company's resort and real estate operations.
Corporate expense for fiscal 1996 includes the following nonrecurring charges:
(i) $2.1 million related to the termination of an employment agreement with the
Company's former Chairman and Chief Executive Officer, (ii) $4.5 million related
to nonrecurring payments to certain holders of employee stock options, and (iii)
$1.9 million of compensation expense related to the exercise of stock options by
the Company's former Chairman and Chief Executive Officer. Excluding the effect
of those items, corporate expense increased $0.4 million.
Depreciation and Amortization. Depreciation and amortization expense was $34.0
million for fiscal 1997, an increase of $15.9 million, as compared to fiscal
1996. The increase was primarily attributable to the inclusion of the results
of the Acquired Resorts from January 4, 1997 ($14.1 million) and Vail/Beaver
Creek capital expenditures made in fiscal 1996 and the first quarter of fiscal
1997.
Interest Expense. During fiscal 1997 and fiscal 1996, the Company recorded
interest expense of $20.3 million and $14.9 million, respectively, which relates
primarily to the Company's Senior Subordinated Notes, the Industrial Development
Bonds, and the Company's Credit Facilities. The increase in interest expense
from fiscal 1996 to fiscal 1997, is attributable to the interest incurred on the
$165 million in debt assumed in the acquisition of the Acquired Resorts and the
17
<PAGE>
contractual redemption premium incurred in the early redemption of the 12 1/4%
Senior Subordinated Notes due 2004, partially offset by interest reductions due
to redemptions totaling $54.5 million in principal amount of Senior Subordinated
Notes in the first half of fiscal 1996.
PRO FORMA RESULTS OF OPERATIONS--TEN-MONTHS ENDED JULY 31, 1998 COMPARED TO TEN-
MONTHS ENDED JULY 31, 1997
The following unaudited pro forma results of operations of the Company for the
ten-months ended July 31, 1997, assume the acquisition of the Acquired Resorts
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 the Company divested in September 1997. The audited summarized information
for the ten-months ended July 31, 1998, are provided for comparative purposes.
<TABLE>
<CAPTION>
(PRO FORMA)
TEN TEN
MONTHS MONTHS
ENDED ENDED
JULY 31, JULY 31, PERCENTAGE
1998 1997 INCREASE INCREASE
-------------- -------------- --------------- --------------
(unaudited)
(dollars in thousands)
<S> <C> <C> <C> <C>
Resort Revenue.................................. $336,547 $280,949 $55,598 19.8%
Resort Operating Expense........................ 217,764 183,086 34,678 18.9%
Resort Cash Flow................................ 118,783 97,863 20,920 21.4%
</TABLE>
Resort Revenue. Pro forma Resort Revenue for the ten-months ended July 31, 1998
and 1997 are presented by category as follows:
<TABLE>
<CAPTION>
(PRO FORMA)
TEN TEN
MONTHS MONTHS
ENDED ENDED
JULY 31, JULY 31, PERCENTAGE
1998 1997 INCREASE INCREASE
-------------- -------------- --------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Lift Tickets................... $147,128 $135,827 $11,301 8.3%
Ski School..................... 38,647 34,462 4,185 12.1%
Dining......................... 48,246 39,580 8,666 21.9%
Retail/Rental.................. 19,975 17,400 2,575 14.8%
Hospitality.................... 43,127 29,967 13,160 43.9%
Other.......................... 39,424 23,713 15,711 66.3%
---------------- ---------------- ----------------- --------------
Total Resort Revenue........... $336,547 $280,949 $55,598 19.8%
================ ================ ================= ==============
Total Skier Days............... 4,717 4,890 (173) (3.5%)
================ ================ ================= ==============
ETP............................ $31.19 $27.78 $3.41 12.3%
================ ================ ================= ==============
</TABLE>
Lift ticket revenue increased due to a 12.3% increase in effective ticket
price (effective ticket price is defined as total lift ticket revenue divided by
total skier days) ("ETP") 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 the Company's 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
Colorado Front Range (Denver/Colorado Springs) skier days (non-destination skier
days). The Company attributes the increase in destination guests to the
18
<PAGE>
Company's 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 the Company's resorts.
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 who 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 addition of several new dining operations, and dining operations
acquired in three hotel acquisitions. Five dining operations were new to Vail
Mountain in fiscal 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 fiscal 1998 including 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 fiscal 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 visits and number of rooms under management.
Other revenue increased as a result of the increased popularity of the
Adventure Ridge activities center 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 Expenses. Resort Operating Expenses were $217.8 million for
the ten-months ended July 31, 1998, compared to $183.1 million for the ten-
months ended July 31, 1997. As a percentage of Resort Revenue, Resort Operating
Expenses decreased from 65.2% to 64.7% in the ten-months ended July 31, 1998.
The overall increase in Resort Operating Expenses 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.
Resort Cash Flow. Resort Cash Flow was $118.8 million for the ten-months ended
July 31, 1998, compared to $97.9 million for the ten-months ended July 31, 1997.
Resort Cash Flow as a percentage of Resort Revenue increased from 34.8% to 35.3%
in the ten-months ended July 31, 1998. The increase in Resort Cash Flow is due
primarily to the growth in Resort Revenue and diversification into non-lift
businesses such as dining, retail/ rental, hospitality and other operations.
Resort Cash Flow as a percentage of Resort Revenue was relatively consistent
from year to year.
19
<PAGE>
PRO FORMA RESULTS OF OPERATIONS--TWELVE-MONTHS ENDED JULY 31, 1998 COMPARED TO
TWELVE-MONTHS ENDED JULY 31, 1997
The following unaudited pro forma results of operations of the Company for the
twelve-months ended July 31, 1997 assume the acquisition of the Acquired Resorts
occurred on August 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 the Company divested in September 1997. The unaudited summarized
information for the twelve-months ended July 31, 1998 are provided for
comparative purposes.
<TABLE>
<CAPTION>
(PRO FORMA)
TWELVE TWELVE
MONTHS MONTHS
ENDED ENDED
JULY 31, JULY 31, PERCENTAGE
1998 1997 INCREASE INCREASE
-------------- -------------- -------------- --------------
(unaudited)
(dollars in thousands)
<S> <C> <C> <C> <C>
Resort Revenue................. $350,498 $292,127 $58,371 20.0%
Resort Operating Expense....... 238,889 200,488 38,401 19.2%
Resort Cash Flow............... 111,609 91,639 19,970 21.8%
</TABLE>
Resort Revenue. Pro forma Resort Revenue for the twelve-months ended July 31,
1998 and 1997 are presented by category as follows:
<TABLE>
<CAPTION>
(PRO FORMA)
TWELVE TWELVE
MONTHS MONTHS
ENDED ENDED PERCENTAGE
JULY 31, JULY 31, INCREASE INCREASE
1998 1997 (DECREASE) (DECREASE)
---------------- ---------------- ----------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Lift Tickets................... $147,128 $135,827 $11,301 8.3%
Ski School..................... 38,647 34,462 4,185 12.1%
Dining......................... 52,371 43,099 9,272 21.5%
Retail/Rental.................. 20,799 17,165 3,634 21.2%
Hospitality.................... 47,128 34,065 13,063 38.3%
Other.......................... 44,425 27,509 16,916 61.5%
---------------- ---------------- ----------------- --------------
Total Resort Revenue........... $350,498 $292,127 $58,371 20.0%
================ ================ ================= ==============
Total Skier Days............... 4,717 4,890 (173) (3.5%)
================ ================ ================= ==============
ETP............................ $31.19 $27.78 $3.41 12.3%
================ ================ ================= ==============
</TABLE>
Lift ticket revenue increased due to a 12.3% increase in ETP 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 the Company's 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 Colorado Front Range
(Denver/Colorado Springs) skier days (non-destination skier days). The Company
attributes the increase in destination guests to the Company's 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 the Company's resorts.
20
<PAGE>
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 who 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 addition of several new dining operations, and dining operations
acquired in three hotel acquisitions. Five dining operations were new to Vail
Mountain in fiscal 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 fiscal 1998 including the operations acquired in the
acquisitions of the Great Divide Lodge (f/k/a 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 fiscal 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 the
Adventure Ridge activities center 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 Expenses. Resort Operating Expenses were $238.9 million for
the twelve-months ended July 31, 1998, compared to $200.5 million for the
twelve-months ended July 31, 1997. As a percentage of Resort Revenue, Resort
Operating Expenses were 68.2% and 68.6% for the twelve-months ended July 31,
1998 and 1997, respectively. The overall increase in Resort Operating Expenses
is attributable to increased variable expenses resulting from the increased
level of Resort Revenue derived from non-lift businesses such as dining,
retail/rental, hospitality and other operations.
Resort Cash Flow. Resort Cash Flow was $111.6 million for the twelve-months
ended July 31, 1998, compared to $91.6 million for the twelve-months ended July
31, 1997. Resort Cash Flow as a percentage of Resort Revenue was 31.8% and
31.4% for the twelve-months ended July 31, 1998 and 1997, respectively. The
increase in Resort Cash Flow is due primarily to the growth in Resort Revenue
and diversification into non-lift businesses such as dining, retail/rental,
hospitality and other operations. Resort cash flow as a percentage of Resort
Revenue was relatively consistent year to year.
21
<PAGE>
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.
The Company's cash flows from investing activities have historically consisted
of payments for acquisitions, resort capital expenditures, and investments in
real estate. During the ten month period ended July 31, 1998, the Company made
payments of $54.3 million for the acquisition of three hotel properties, $80.5
million for resort capital expenditures, and $15.7 million for investments in
real estate.
During the ten-months ended July 31, 1998, the Company acquired three hotel
properties. On October 1, 1997, the Company purchased the assets constituting
the Great Divide Lodge (f/k/a Breckenridge Hilton) for a total purchase price of
$18.6 million. The Great Divide Lodge is a 208-room full service hotel, located
at the base of Breckenridge Mountain, and includes dining, conference and
fitness facilities. On October 7, 1997, the Company purchased 100% of the
outstanding stock of Lodge Properties, Inc., a Colorado corporation ("LPI"), for
a purchase price of $30.9 million. LPI owns and operates The Lodge at Vail, a
59-room hotel located at the Vail Village base area of Vail Mountain, and
provides management services to an additional 40 condominiums. The Lodge at
Vail includes restaurant and conference facilities as well as other amenities.
In addition to the hotel property, LPI owns a parcel of developable land
strategically located at the primary base area of Vail Mountain. In addition to
the cash purchase price, the Company incurred approximately $7.6 million during
the ten-months ended July 31, 1998 to substantially complete a new wing of The
Lodge at Vail. The wing directly fronts Vail Mountain and includes premium
conference facilities, 18 luxury lodging units, and a penthouse Condominium.
The Company has contracted to sell the penthouse condominium for $3.3 million.
On January 15, 1998 the Company purchased the assets constituting the Inn at
Keystone for a total purchase price of $9.3 million. The Inn at Keystone is a
103-room full service hotel, located near Keystone Mountain, and includes
dining, conference and spa facilities. All acquisitions were accounted for as
purchase combinations and funded with cash from operations or proceeds from the
Revolving Credit Facility.
Resort capital expenditures for the ten-months ended July 31, 1998 were $80.5
million. Investments in real estate for that period were $15.7 million, which
included $3.1 million of mountain improvements, including ski lifts and
snowmaking equipment, which are related to real estate development but which
will also benefit resort operations. The primary projects included in resort
capital expenditures were (i) trail and infrastructure improvements at Keystone
Mountain, (ii) terrain and facilities improvements at Breckenridge Mountain,
(iii) expansion of the grooming fleet at Vail and Beaver Creek Mountains, (iv)
retail/rental and restaurant additions in Beaver Creek Village, (v) new
high-speed quad chairlifts at Breckenridge and Keystone Mountains, (vi) upgrades
to office and front-line information systems, and (vii) the addition of a new
wing at The Lodge at Vail. The primary projects included in investments in real
estate were (i) continuing infrastructure related to Beaver Creek, Bachelor
Gulch and Arrowhead Villages, (ii) golf course development, and (iii)
investments in developable land at strategic locations at all four mountain
resorts.
The Company estimates that it will make resort capital expenditures ranging
between $55-$65 million in preparation for the 1998-99 ski season. The primary
projects are anticipated to include (i) a new high-speed quad chairlift and
additional snowmaking at Keystone, (ii) the introduction of "Chaos Canyon," a
new mid-mountain attraction for children (iii) the expansion of the grooming
fleet at Keystone and Vail, (iv) completion of the Keystone Lodge and the Great
Divide Lodge renovations, (v) expansion of the children's ski school at Beaver
Creek, (vi) addition of a new restaurant on Breckenridge Mountain, and (vii)
infrastructure for the Category III expansion on Vail Mountain. Investments in
real estate during fiscal 1999 are expected to total approximately $40.0
million. The primary projects are anticipated to include (i) infrastructure
related to Bachelor Gulch and Arrowhead Villages, (ii) golf course development,
and (iii) investments in developable land at strategic locations at all four
resorts. The Company plans to fund capital expenditures and investments in real
estate with cash flow from operations and borrowings under its Revolving Credit
Facility.
During the ten-months ended July 31, 1998, the Company generated $21.2 million
in cash flow from its financing activities consisting of net borrowings on its
Revolving Credit Facility and other debt of $15.7 million, $8 million received
from the exercise of employee stock options, the refund of a bond reserve fund
of $3.3 million, and payment of $5.7 million due under the Rights (as described
below).
22
<PAGE>
At September 30, 1997 the Company had $41.2 million of outstanding Industrial
Development Bonds issued by Eagle County, Colorado which accrued interest at 8%
per annum and matured on August 1, 2009. Interest was payable semi-annually on
February 1 and August 1. The Company provided the holder of these bonds a debt
service reserve fund of $3.3 million, which was netted against the principal
amount for financial reporting purposes. The Industrial Development Bonds were
secured by the stock of the subsidiaries of Vail Associates, Inc. and the Vail
and Beaver Creek Mountain United States Forest Service permits. On April 9,
1998, the Industrial Development Bonds issued by Eagle County, Colorado were
refinanced. Under the terms of the new agreement interest accrues at 6.95% per
annum and the $41.2 million bond principal amount matures on August 1, 2019.
Interest is payable semi-annually on February 1 and August 1. The previous debt
service fund of $3.3 million was refunded to the company. The bonds are secured
by the Vail and Beaver Creek Mountain United States Forest Service Permits.
On September 30, 1997, the Company's Credit Facilities consisted of (i) a $175
million Revolving Credit Facility, (ii) a $115 million Tranche A Term Loan
Facility, and (iii) a $50 million Tranche B Term Loan Facility (together with
Tranche A, the "Term Loan Facilities") thereby providing for aggregate debt
financing of $340 million (collectively, the "Credit Facilities"). The
Revolving Credit Facility would have matured on April 15, 2003 and the Term Loan
Facilities required minimum amortization payments ranging from $11.5 to $41.0
million annually from 1998 to 2004. On December 19, 1997, the Company
refinanced its Credit Facilities to provide an increase in aggregate debt
financing from $340.0 million to $450.0 million and to eliminate the required
minimum amortization payments under the Term Loan Facilities. All amounts
outstanding under the Revolving Credit Facility and the Term Loan Facilities at
December 19, 1997 were refinanced under a single Revolving Credit Facility
maturing on December 19, 2002. Interest on outstanding borrowings under the new
Revolving Credit Facility is payable at rates based upon either LIBOR (5.69% at
July 31, 1998) plus a margin ranging from .50% to 1.25% or prime (8.5% at July
31, 1998) plus a margin of up to .125%. The Company also pays a quarterly
unused commitment fee ranging from .125% to .30%. The interest margins
fluctuate based upon the ratio of Funded Debt to the Company's Resort EBITDA (as
defined in the underlying Revolving Credit Facility agreement).
On September 25, 1996, the Company declared a right to receive up to $2.44 per
share of common stock (the "Rights") to all stockholders of record on October
11, 1996, with a maximum aggregate amount payable under the Rights of $50.5
million. As of September 30, 1997, the Company had satisfied $44.8 million of
its obligation under the Rights. On October 31, 1997, the Company paid all
remaining amounts due under the Rights.
During the ten-months ended July 31, 1998, 1,043,371 employee stock options
were exercised at exercise prices ranging from $6.85 to $24.00. Additionally,
8,260 shares were issued to management under the restricted stock plan.
Based on current levels of operations and cash availability, management
believes the Company is in a position to satisfy its working capital, debt
service and capital expenditure requirements.
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 are substantially lower, historically resulting
in losses, in the summer months due to the closure of its ski operations. Based
on the Company's new fiscal year ended July 31, 1998, 87% 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 throughout the fiscal year by investing in
additional summer activities such as golf course development. (See Note 15 of
Notes to Consolidated Financial Statements for Quarterly Financial Highlights).
23
<PAGE>
ECONOMIC DOWNTURN.
Skiing is a discretionary recreational activity that can be impacted by a
significant economic slowdown which 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's business.
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 effect skier days. In the past 20
years the Company's 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 it to offer
it's guests more predictable and more consistent conditions, particularly during
the early and late ski season. Although historically unfavorable weather
conditions 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 a materially adverse effect on the Company's business.
YEAR 2000 COMPLIANCE
The Year 2000 issue is a result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a
system/job failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar business activities.
The Company's integral computer software, Resort POS, has been designed with
the Year 2000 issue in mind, and to be Year 2000 compliant; however, the Company
utilizes many different systems and software programs to process and summarize
business transactions. The Company is continuing the evaluation of its various
operating systems and determining the additional remediation efforts required to
ensure its computer systems will properly utilize dates beyond December 31,
1999. Preliminary results of this assessment have revealed that remediation
efforts required will vary from system to system. For example, it appears some
systems will not require any additional programming efforts, while others may
require significant programming changes.
The Company has begun and, in certain cases, completed remediation efforts for
many of its computer systems identified as non-compliant, beginning with those
systems identified by the Company as "mission critical". The Company has and
will continue to utilize both internal and external resources to test its
software for Year 2000 compliance and to reprogram or replace any non-compliant
software that is identified by the Company as "mission critical". The Company
plans to complete the Year 2000 project before December 31, 1999. The total
estimated multi-year cost of the Year 2000 project is estimated to be between
$750,000 and $1,000,000. These costs are not expected to be material to the
Company's consolidated results of operations. Of the total project cost,
approximately $500,000 is attributable to the purchase of new software or
equipment which will be capitalized. The remaining $250,000 to $500,000 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 which are
Year 2000 compliant. In these instances, the Company may capitalize certain
costs of the new system in accordance with current accounting guidelines.
The Company has initiated formal communications 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 the Company's systems, would not have
a material adverse effect on the Company.
The Company presently believes that with modifications to existing software
and conversions to new software for those sites which it believes may be
affected, the effects of Year 2000 issue can be mitigated. However, if such
24
<PAGE>
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material adverse impact on the operations of the
Company.
The costs of the project and the date on which the Company plans to complete
the Year 2000 modifications are based on management's reasonable 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 guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
RECENT DEVELOPMENTS
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 to be known as SSI
Venture LLC. The Company contributed its retail and rental operations to the
joint venture for a 52% share of the joint venture. Specialty Sports, Inc.
contributed an additional 30 stores located in Denver, Boulder, Aspen,
Telluride, Vail and Breckenridge. The owners and operators of Specialty Sports,
Inc., the Gart family, have been operating in the sporting goods industry in
Colorado since 1929 and will run the day-to-day operations of SSI Venture LLC.
Vail Resorts will participate in the strategic and financial management of the
joint venture.
On August 13, 1998 the Company purchased 100% of the outstanding stock of TBA
Entertainment, Inc. for a total purchase price of $24 million. TBA 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 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, that is
generally considered to be the prime base lodge of Breckenridge Mountain Resort,
but until now, has neither been owned nor managed by the Company. In a related
transaction, the Company will also acquire for $10 million the remainder of
TBA's Breckenridge assets, including the Bell Tower Mall and certain other real
estate parcels for near-term development. Simultaneously, the Company has
entered into a contract to sell these same assets for $10 million to East West
Partners of Avon, Colorado, a highly-experienced mountain resort real estate
developer. The acquisition was funded with proceeds from the Revolving Credit
Facility.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. The Company enters into interest rate swap agreements (the
"Swap Agreement") to reduce its exposure to interest rate fluctuations on its
floating rate debt. The 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, 1998, the Company had Swap Agreements in
effect totaling $150.0 million notional amount of which $75.0 million will
mature in February 2000 with another $75.0 million maturing December 2002. The
borrowings not subject to Swap Agreements at July 31, 1998, totaled $68.0
million. Swap Agreement rates are based on one-month LIBOR. Based on average
floating rate borrowings outstanding throughout fiscal year 1998, a 100-basis
point change in LIBOR would have caused the Company's monthly interest expense
to change by $69,000. The Company believes that these amounts are not
significant to the earnings of the Company.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
VAIL RESORTS, INC.
Consolidated Financial Statements for the Ten-Months Ended July 31, 1998, and
Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Vail Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of VAIL RESORTS,
INC., formerly known as Gillett Holdings, Inc. (a Delaware corporation), and
subsidiaries as of July 31, 1998 and September 30, 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the ten-month period ended July 31, 1998 and for the years ended September 30,
1997 and 1996. 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, 1998 and September 30, 1997 and the results of their
operations and their cash flows for the ten-month period ended July 31, 1998 and
for the years ended September 30, 1997 and 1996.
Denver, Colorado, ARTHUR ANDERSEN LLP
October 15, 1998
F-2
<PAGE>
VAIL RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
<S> <C> <C>
JULY 31, SEPTEMBER 30,
1998 1997
-------------- ----------------
Assets
------
Current assets:
Cash and cash equivalents............................................................ $ 13,366 $ 8,142
Restricted cash...................................................................... 6,146 6,561
Trade Receivables, net of allowances
of $1,220 and $742, respectively................................................... 22,224 17,638
Notes receivable..................................................................... 4,263 4,469
Inventories.......................................................................... 8,893 10,789
Deferred income taxes (Note 9)....................................................... 12,126 24,500
Other current assets................................................................. 4,708 4,253
-------------- ----------------
Total current assets.............................................................. 71,726 76,352
Property, plant and equipment, net (Note 7)............................................ 501,371 411,117
Real estate held for sale.............................................................. 138,916 154,925
Deferred charges and other assets...................................................... 12,605 12,217
Notes receivable, noncurrent portion................................................... 1,372 1,073
Intangible assets, net (Note 7)........................................................ 186,132 200,265
-------------- ----------------
Total assets...................................................................... $ 912,122 $ 855,949
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses (Note 7)....................................... $ 55,012 $ 70,171
Income taxes payable................................................................. 2,239 325
Rights payable to stockholders....................................................... -- 5,707
Long-term debt due within one year (Note 6).......................................... 1,734 1,715
-------------- ----------------
Total current liabilities......................................................... 58,985 77,918
Long-term debt (Note 6)................................................................ 282,280 263,347
Other long-term liabilities............................................................ 28,886 23,281
Deferred income taxes (Note 9)......................................................... 79,347 85,737
Commitments and contingencies (Note 11)
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, $.01 par value, 20,000,000 shares authorized, 76
7,639,834 and 11,639,834 shares issued and outstanding as of
July 31, 1998 and September 30, 1997, respectively................................ 116
Common Stock, $.01 par value, 80,000,000 shares authorized, 26,817,346 269
and 21,765,815 shares issued and outstanding as of July 31, 1998 and
September 30, 1997, respectively.................................................. 218
Additional paid-in capital........................................................... 401,563 385,634
Retained earnings.................................................................... 60,716 19,698
-------------- ----------------
Total stockholders' equity........................................................ 462,624 405,666
-------------- ----------------
Total liabilities and stockholders' equity........................................ $ 912,122 $ 855,949
============== ================
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TEN YEAR YEAR
MONTHS ENDED ENDED ENDED
JULY 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996
------------- ------------- ---------------
<S> <C> <C> <C>
Net revenues:
Resort...................................................................... $ 336,547 $ 259,038 $ 140,288
Real estate................................................................. 73,722 71,485 48,655
------------- ------------- ---------------
Total net revenues......................................................... 410,269 330,523 188,943
Operating expenses:
Resort...................................................................... 217,764 172,715 89,890
Real estate................................................................. 62,619 66,307 40,801
Corporate expense........................................................... 4,437 4,663 12,698
Depreciation and amortization............................................... 36,838 34,044 18,148
------------- ------------- ---------------
Total operating expenses................................................... 321,658 277,729 161,537
------------- ------------- ---------------
Income from operations....................................................... 88,611 52,794 27,406
Other income (expense):
Investment income........................................................... 1,784 1,762 586
Interest expense............................................................ (17,789) (20,308) (14,904)
Loss on disposal of fixed assets............................................ (1,706) (182) (2,630)
Other expense............................................................... (736) (383) (1,500)
------------- ------------- ---------------
Income before income taxes................................................... 70,164 33,683 8,958
Provision for income taxes (Note 9).......................................... (29,146) (13,985) (4,223)
------------- ------------- ---------------
Net income................................................................... $ 41,018 $ 19,698 $ 4,735
============= ============= ===============
Net income per common share (Notes 2 and 4):
Basic...................................................................... $ 1.20 $ 0.66 $ 0.23
============= ============= ===============
Diluted.................................................................... $ 1.18 $ 0.64 $ 0.22
============= ============= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------------
SHARES
---------------------------------------------
ADDITIONAL RETAINED TOTAL
PAID-IN EARNINGS STOCKHOLDERS'
CLASS A COMMON TOTAL AMOUNT CAPITAL (DEFICIT) EQUITY
----------- ---------- ---------- ------ ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995.................. 12,817,692 6,943,984 19,761,676 $198 $135,561 $ 31,935 $167,694
Net income for the year ended September
30, 1996.................................. -- -- -- -- -- 4,735 4,735
Shares issued pursuant to stock grants
(Note 13)................................. -- 238,324 238,324 2 1,989 -- 1,991
Rights payable to stockholders............... -- -- -- -- (13,843) (36,670) (50,513)
Shares of Class A Common Stock con-
verted to Common Stock (Note 14).......... (391,472) 391,472 -- -- -- -- --
---------- ---------- ---------- ---- -------- -------- --------
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 41,018 41,018
ended July 31, 1998.......................... -- -- -- -- --
Issuance of shares pursuant to options -- 1,043,271 1,043,271 11 7,990 -- 8,001
exercised (Note 13).......................
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
========== ========== ========== ==== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TEN YEAR YEAR
MONTHS ENDED ENDED ENDED
JULY 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996
--------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income ................................................................ $ 41,018 $ 19,698 $ 4,735
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ............................................ 36,838 34,044 18,148
Deferred compensation payments in excess of expense ...................... -- (331) (814)
Noncash cost of real estate sales ........................................ 49,112 52,647 32,394
Noncash compensation related to stock grants (Note 13) ................... 285 306 25
Noncash compensation related to stock options ............................ -- 255 1,915
Noncash equity income...................................................... (2,973) (701) --
Deferred financing costs amortized ....................................... 448 389 247
Loss on disposal of fixed assets ......................................... 1,706 182 2,630
Deferred income taxes, net (Note 9) ...................................... 29,146 7,413 2,500
Changes in assets and liabilities:
Restricted cash .......................................................... (415) 529 (575)
Accounts receivable, net ................................................. (4,358) 2,089 475
Notes receivable, net .................................................... (93) (4,469) --
Inventories .............................................................. 2,497 (835) (418)
Accounts payable and accrued expenses .................................... (16,226) (10,712) 9,551
Other assets and liabilities ............................................. (2,642) 2,867 (4,947)
--------------------------------------------------
Net cash provided by operating activities .............................. 134,343 103,371 65,866
Cash flows from investing activities:
Cash paid in resort acquisition, net of cash acquired....................... -- (146,386) --
Cash paid in hotel acquisitions, net of cash acquired....................... (54,250) -- --
Resort capital expenditures ............................................... (80,454) (51,020) (13,912)
Investments in real estate ................................................ (15,661) (56,947) (40,604)
Investment in joint venture ............................................... -- 2,511 (200)
--------------------------------------------------
Net cash used in investing activities ................................... (150,365) (251,842) (54,716)
Cash flows from financing activities:
Proceeds from initial public offering....................................... -- 98,150 --
Proceeds from the exercise of stock options................................. 8,001 -- --
Payments under Rights ..................................................... (5,707) (42,175) --
Refund of bond reserve fund................................................. 3,297 -- --
Proceeds from borrowings under long-term debt ............................. 334,000 235,000 84,000
Payments on long-term debt ................................................ (318,345) (139,984) (130,547)
Net cash provided by (used in) financing activities .................... 21,246 150,991 (46,547)
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents ....................... 5,224 2,520 (35,397)
Cash and cash equivalents:
Beginning of period ....................................................... 8,142 5,622 41,019
End of period ............................................................. $ 13,366 $ 8,142 $ 5,622
==================================================
Cash paid for interest....................................................... $ 16,336 $ 20,166 $ 21,880
Taxes paid, net of refunds................................................... $ -- $ 1,925 $ 400
==================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Issuance of common stock in resort acquisition (Note 5)...................... $ 151,088
Assumption of liabilities in resort acquisition (Note 5)..................... $ 91,480
Option exercise (Note 13).................................................... $ 2,740
Issuance of common stock in purchase of retail space ....................... $ 2,349
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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,
mountain resorts and real estate development. Vail Associates, Inc., a 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. The Breckenridge
and Keystone mountain resorts (collectively, the "Acquired Resorts"), together
with the Arapahoe Basin mountain resort and significant related real estate
interests and developable land, were acquired by the Company on January 3, 1997
(the "Acquisition"). The Company divested the Arapahoe Basin mountain resort on
September 5, 1997. Vail Resorts Development Company ("VRDC"), a wholly-owned
subsidiary of Vail Associates, Inc., conducts the Company's real estate
development activities. The Company's mountain resort business, which is
primarily composed of ski operations and related amenities, is seasonal in
nature with a typical ski season beginning in mid-October and continuing through
mid-May.
On September 1, 1997, the Company announced the change of its fiscal year
end from September 30 to July 31. Accordingly, the Company's fiscal year 1998
ended on July 31, 1998 and consisted of ten-months. For fiscal 1998, the Company
filed a transitional interim report for the four months ended January 31, 1998,
a quarterly report for the three months ended April 30, 1998 and will file this
annual report for the ten-months ended July 31, 1998. This annual report for the
ten-months ended July 31, 1998 includes statements of financial position as of
July 31, 1998, and September 30, 1997, results of operations and statements of
cash flows for the ten-months ended July 31, 1998 and twelve-months ended
September 30, 1997 and 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
Investments in joint ventures 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,
determined using the first-in, first-out (FIFO) method, or market.
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:
<TABLE>
<CAPTION>
Estimated
Life
-------------
<S> <C>
Land improvements............................................................. 40
Buildings and terminals....................................................... 40
Ski lifts..................................................................... 15
Machinery, equipment, furniture and fixtures.................................. 3-12
Automobiles and trucks........................................................ 3-5
</TABLE>
Ski trails are depreciated over the life of their respective United States
Forest Service permits.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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
1997 and 1996 totaled $0.5 million and $2.2 million, respectively. There was no
interest capitalized on real estate development projects during fiscal 1998.
The Company is a partner 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 sheet as of July 31, 1998. The Company recorded $2.9
million and $0.7 million in equity income for the ten-month period ended July
31, 1998 and fiscal year ended September 30, 1997, 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--Interest rate exchange agreements, defined as swaps,
are effective at creating synthetic instruments and thereby modifying the
Company's interest rate exposures. The Company enters into interest rate swaps
to minimize the impact of interest rate movements on the expense associated with
its floating rate debt. Net interest is accrued as either interest receivable
or payable with the offset recorded in interest expense. Any premium paid is
amortized over the life of the agreement.
Intangible Assets--"Reorganization Value in Excess of Amounts Allocable to
Identifiable Assets" ("Excess Reorganization Value") represents the excess of
the Company's reorganization value over the amounts allocated to the net
tangible and other intangible assets of the Company upon emergence from
bankruptcy on October 8, 1992 (the "Effective Date"). 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......................................................... 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, 1998,
management believes that there has not been any impairment of the Company's
long-lived assets, goodwill or other identifiable intangibles.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. 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.
Advertising Costs--Advertising costs are expensed the first time the advertising
takes place. Advertising expense for the ten-month period ended July 31, 1998
and the fiscal years ended September 30, 1997 and 1996 was $8.7 million, $8.8
million and $6.9 million, respectively. At fiscal years ended July 31, 1998 and
September 30 1997, advertising costs of $0.9 million and $1.3 million 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, 1998 and September 30, 1997 are
presented below (in thousands):
<TABLE>
<CAPTION>
JULY 31, 1998 SEPTEMBER 30, 1997
---------------------------- ------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
<S> <C> <C> <C> <C>
Industrial Development Bonds........... $ 64,560 $ 76,935 $ 61,263 $ 65,910
Other Long Term Debt................... $ 1,370 $ 1,414 $ 1,662 $ 1,615
</TABLE>
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.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Reclassifications--Certain reclassifications have been made to the accompanying
consolidated financial statements for the years ended September 30, 1997 and
1996 to conform to the current period presentation.
New Accounting Standards--During fiscal year 1998, the Company adopted the
provisions of SFAS No. 128, "Earnings Per Share," which requires that the
company discloses both basic earnings per share and diluted earnings per share.
The Company adopted the provisions of SFAS No. 128 retroactively for 1997 and
1996, as required.
The Company is required to adopt SFAS No. 130, "Reporting Comprehensive
Income," in the first quarter of fiscal 1999. Upon adoption of SFAS No. 130,
the Company will report all changes in the Company's stockholders' equity other
than transactions with stockholders on the face of the income statement. The
Company currently does not have any transactions that would necessitate
disclosure of comprehensive income, however the Company will continue to
evaluate the impact of the pronouncement.
The Company is required to adopt SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," for fiscal year 1999. SFAS No. 131
will supercede the business segment disclosure requirements currently in effect
under SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise".
SFAS No. 131, among other things, establishes standards regarding the
information a company is reqired to disclose about its operating segments and
provides guidance regarding what constitutes a reportable operating segment. The
Company is currently evaluating disclosures under SFAS No. 131 compared to
current disclosures.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," will not have an effect on the Company because it does
not have a defined benefit pension plan.
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 nongovernmental 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.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
<TABLE>
<CAPTION>
TWELVE-MONTHS
TEN-MONTHS ENDED JULY 31, ENDED JULY 31,
---------------------------------- -------------------
1998 1997 1998
---------------------------------- -------------------
(audited) (unaudited) (unaudited)
<S> <C> <C> <C>
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
============ ============= =================
</TABLE>
F-11
<PAGE>
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. The Company has adopted the requirements of SFAS No. 128 for the ten-
month period ended July 31, 1998. Pro forma presentation and disclosure
requirements are supplied for prior period comparisons in accordance with the
statement.
<TABLE>
<CAPTION>
TEN
MONTHS ENDED
JULY 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996
-----------------------------------------------------------------------------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income Per Common Share
Net Income................................ $ 41,018 $ 41,018 $ 19,698 $ 19,698 $ 4,735 $ 4,735
Weighted average shares outstanding....... 34,204 34,204 30,067 30,067 20,266 20,266
Effect of dilutive stock options.......... -- 547 -- 912 -- 1,189
--------------------------- --------------------------- ---------------------------
Total shares.............................. 34,204 34,751 30,067 30,979 20,266 21,455
--------------------------- --------------------------- ---------------------------
Net Income Per Common Share............... $ 1.20 $ 1.18 $ .66 $ .64 $ .23 $ .22
=========================== =========================== ===========================
</TABLE>
5. ACQUISITIONS
On January 3, 1997, the Company acquired from Ralston Foods, Inc. 100% of the
stock of Ralston Resorts, Inc., ("Ralston Resorts") the owner and operator of
the Breckenridge, Keystone and Arapahoe Basin mountain resorts located in Summit
County, Colorado, for a total purchase price, including direct costs, of $297.3
million. In connection with the Acquisition, the Company refinanced $139.7
million of indebtedness, issued 7,554,406 shares of Common Stock valued at
$151.1 million to Ralston Foods, Inc., assumed liabilities of $59.8 million and
incurred $9.0 million in acquisition costs. Pursuant to a consent decree with
the United States Department of Justice and the Attorney General of the State of
Colorado (the "Consent Decree"), the Company sold the assets constituting the
Arapahoe Basin mountain resort on September 5, 1997 for a sum of $4.0 million.
The Acquisition was accounted for as a purchase combination. Under purchase
accounting, the acquisition cost was allocated to the assets and liabilities of
the Acquired Resorts based on their relative fair values.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following unaudited pro forma results of operations of the Company for the
ten-months ended July 31, 1997 assume that the Acquisition occurred on October
1, 1996. The unaudited pro forma results of operations include the effects of
the Company's initial public offering only from its effective date of February
7, 1997. 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 the Company
divested. The audited summarized financial information for the ten-months ended
July 31, 1998 are provided for comparative purposes.
<TABLE>
<CAPTION>
(PRO FORMA)
TEN TEN
MONTHS MONTHS
ENDED ENDED
JULY 31 JULY 31,
1998 1997
---------------- ----------------
(Unaudited)
<S> <C> <C>
Resort revenue............................................. $336,547 $280,949
Real estate revenue........................................ 73,722 63,025
Total revenues............................................. 410,269 343,974
Net income................................................. 41,018 29,572
Basic net income per common share......................... $ 1.20 $ 0.95
Diluted net income per common share........................ $ 1.18 $ 0.91
</TABLE>
During the ten-months ended July 31, 1998, the Company acquired three hotel
properties. On October 1, 1997, the Company purchased the assets constituting
the Great Divide Lodge (f/k/a Breckenridge Hilton) for a total purchase price of
$18.6 million. The Great Divide Lodge is a 208-room full service hotel, located
at the base of Breckenridge Mountain, and includes dining, conference and
fitness facilities. On October 7, 1997, the Company purchased 100% of the
outstanding stock of Lodge Properties, Inc., a Colorado corporation, ("LPI") for
a total purchase price of $30.9 million. LPI owns and operates The Lodge at
Vail, a 59-room hotel with dining and conference facilities. LPI also provides
management services to an additional 40 condominiums and owns a parcel of
developable land strategically located at the primary base area of Vail
Mountain. On January 15, 1998 the Company purchased the assets constituting the
Inn at Keystone for a total purchase price of $9.3 million. The Inn at Keystone
is a 103-room full service hotel, located near Keystone Mountain, and includes
dining, conference and spa facilities. All acquisitions were accounted for as
purchase combinations and funded with cash from operations or proceeds from the
Revolving Credit Facility.
6. LONG-TERM DEBT
Long-term debt as of July 31, 1998 and September 30, 1997 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
(d)
(e) AVERAGE JULY 31, SEPTEMBER 30,
MATURITY RATE 1998 1997
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Development Bonds (a)................ 1999-2020 7.38% $ 64,560 $ 61,263
Credit Facilities (b)........................... 2003 7.39% 218,000 202,000
Other (c)....................................... 1998-2002 6.09% 1,454 1,799
-------- --------
284,014 265,062
Less: Current Maturities....................... 1,734 1,715
-------- --------
$282,280 $263,347
======== ========
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(a) At September 30, 1997 the Company had $41.2 million of outstanding
Industrial Development Bonds issued by Eagle County, Colorado which accrued
interest at 8% per annum and matured on August 1, 2009. Interest was payable
semi-annually on February 1 and August 1. The Company provided the holder of
these bonds a debt service reserve fund of $3.3 million, which was netted
against the principal amount for financial reporting purposes. The Industrial
Development Bonds were secured by the stock of the subsidiaries of Vail
Associates, Inc. and the Vail and Beaver Creek Mountain United States Forest
Service permits. On April 9, 1998, the Industrial Development Bonds issued by
Eagle County, Colorado were refinanced. Under the terms of the new agreement
interest accrues at 6.95% per annum and the $41.2 million bond principal amount
matures on August 1, 2019. Interest is payable semi-annually on February 1 and
August 1. The previous debt service fund of $3.3 million was refunded to the
company. The bonds are secured by the Vail and Beaver Creek Mountain United
States Forest Service Permits. In connection with the Acquisition, the Company
assumed two series of refunding bonds. The Series 1990 Sports Facilities
Refunding Revenue Bonds have an aggregate principal amount of $20.4 million,
bear interest at rates ranging from 7.2% to 7.875% and mature in installments in
1998, 2006 and 2008. The Series 1991 Sports Facilities Refunding Revenue Bonds
have an aggregate 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) On September 30, 1997, the Company's Credit Facilities consisted of (i) a
$175 million Revolving Credit Facility, (ii) a $115 million Tranche A Term Loan
Facility and (iii) a $50 million Tranche B Term Loan Facility (together with
Tranche A, the "Term Loan Facilities") thereby providing for aggregate debt
financing of $340 million (collectively, the "Credit Facilities"). The Revolving
Credit Facility would have matured on April 15, 2003 and the Term Loan
Facilities required minimum amortization payments ranging from $11.5 to $41.0
million annually from 1998 to 2004. On December 19, 1997, the Company refinanced
its Credit Facilities to provide an increase in aggregate debt financing from
$340.0 million to $450.0 million and to eliminate the required minimum
amortization payments under the Term Loan Facilities. All amounts outstanding
under the Revolving Credit Facility and the Term Loan Facilities at December 19,
1997 were refinanced under a single revolving credit facility maturing on
December 19, 2002. Interest on outstanding borrowings under the new Revolving
Credit Facility is payable at rates based upon either LIBOR (5.69% at July 31,
1998) plus a margin ranging from .50% to 1.25% or prime (8.5% at July 31, 1998)
plus a margin of up to .125%. The Company also pays a quarterly unused
commitment fee ranging from .125% to .30%. The interest margins fluctuate based
upon the ratio of Funded Debt to the Company's Resort EBITDA (as defined in the
underlying Revolving Credit Facility agreement).
(c) Other obligations bear interest at rates ranging from 0.0% to 6.5% and have
maturities ranging from 1998 to 2002.
(d) Average borrowing rate for the ten-months ended July 31, 1998.
(e) Maturity based on fiscal year end July 31, 1998.
Aggregate maturities for debt outstanding are as follows (in thousands):
Due during twelve-months ending July 31. AS OF
JULY 31,
1998
---------
1999............................................................. $ 1,734
2000............................................................. 352
2001............................................................. 353
2002............................................................. 375
2003............................................................. 219,500
Thereafter....................................................... 61,700
---------
Total Debt.................................................. $ 284,014
=========
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. SUPPLEMENTARY BALANCE SHEET INFORMATION (IN THOUSANDS)
The composition of property, plant and equipment follows:
<TABLE>
<S> <C> <C>
JULY 31, SEPTEMBER 30,
1998 1997
----------------- ------------------
Land and land improvements...................................... $115,516 $ 95,124
Buildings and terminals......................................... 227,956 152,171
Machinery and equipment......................................... 175,453 146,741
Automobiles and trucks.......................................... 10,900 14,958
Furniture and fixtures.......................................... 35,968 28,282
Construction in progress........................................ 21,851 33,691
----------------- ------------------
587,644 470,967
Accumulated depreciation and amortization....................... (86,273) (59,850)
----------------- ------------------
$501,371 $411,117
================= ==================
</TABLE>
Depreciation expense for the ten-months ended July 31, 1998 and for the
fiscal years of 1997 and 1996 totaled $28.4 million, $25.1 million and $11.4
million, respectively.
The composition of intangible assets follows:
<TABLE>
<CAPTION>
JULY 31, SEPTEMBER 30,
1998 1997
----------------- ------------------
<S> <C> <C>
Trademarks..................................................... $ 42,611 $ 42,611
Other intangible assets........................................ 38,802 38,244
Goodwill....................................................... 125,307 118,469
Excess Reorganization Value (See Note 2)....................... 24,593 37,702
----------------- ------------------
$231,313 $237,026
Accumulated amortization....................................... (45,181) (36,761)
----------------- ------------------
$186,132 $200,265
================= ==================
</TABLE>
Significant additions to intangible assets during the ten-months ended July
31, 1998 were primarily related to the acquisitions of three hotel properties.
(See Note 5)
Amortization expense for the ten-months ended July 31, 1998 and for the fiscal
years of 1997 and 1996 totaled $8.4 million, $8.9 million and $6.8 million,
respectively.
The composition of accounts payable and accrued expenses follows:
<TABLE>
<CAPTION>
JULY 31, SEPTEMBER 30,
1998 1997
----------------- ------------------
<S> <C> <C>
Trade payables................................................. $24,637 $25,236
Deposits....................................................... 4,516 10,050
Accrued salaries and wages..................................... 8,930 9,026
Accrued Interest............................................... 3,051 1,448
Property taxes................................................. 4,144 5,943
Liability to complete real estate sold......................... 2,910 7,336
Other accruals................................................. 6,824 11,132
----------------- ------------------
$55,012 $70,171
================= ==================
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 attaining the age of 21 and completing
1,500 hours of service since their employment commencement date or one year of
employment with a minimum of 1,000 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 ten-
months ended July 31, 1998 and for the fiscal years of 1997 and 1996 was
$844,000, $731,000 and $594,000, respectively.
9. INCOME TAXES
At July 31, 1998, the Company has total federal net operating loss (NOL)
carryovers of approximately $337 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, 1998 the Company has approximately $2.8 million in unused minimum
tax credit carryovers. These tax credits have an unlimited carryforward period.
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, 1998 and September 30, 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
JULY 31, SEPTEMBER 30,
1998 1997
------------------ ------------------
<S> <C> <C>
Deferred income tax liabilities:
Fixed assets........................................................... $ 64,508 $ 66,324
Intangible assets...................................................... 18,165 20,600
Other, Net............................................................. 745 --
------------------ ------------------
Total............................................................... 83,418 86,924
Gross deferred income tax assets:
Accrued Expenses....................................................... 5,094 5,468
Net operating loss carryforwards....................................... 23,643 45,649
Minimum tax credit..................................................... 2,761 1,729
Other, net............................................................. -- 963
------------------ ------------------
Total............................................................... 31,498 53,809
Valuation allowance for deferred income tax assets....................... (15,301) (28,122)
Deferred income tax assets, net of valuation allowance................... 16,197 25,687
------------------ ------------------
Net deferred income tax liability........................................ $ 67,221 $ 61,237
================== ==================
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The net current and noncurrent components of deferred income taxes recognized
in the July 31, 1998 and September 30, 1997 balance sheets are as follows (in
thousands):
<TABLE>
<CAPTION>
JULY 31, SEPTEMBER 30,
1998 1997
------------------ ------------------
<S> <C> <C>
Net current deferred income tax asset........................................ $12,126 $24,500
Net noncurrent deferred income tax liability................................. 79,347 85,737
------------------ ------------------
Net deferred income tax liability............................................ $67,221 $61,237
================== ==================
</TABLE>
Significant components of the provision for income taxes from continuing
operations are as follows (in thousands):
<TABLE>
<CAPTION>
TEN-MONTHS
ENDED YEAR ENDED YEAR ENDED
JULY 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996
------------------- -------------------- -------------------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 1,157 $ 622 1,193
State............................................ 1,082 277 175
------------------- -------------------- -------------------
Total current................................... 2,239 899 1,368
Deferred:
Federal.......................................... 17,173 6,850 2,065
State............................................ 1,920 727 435
------------------- -------------------- -------------------
Total deferred.................................. 19,093 7,577 2,500
Tax Benefit Related to Exercise of
Stock Options and Restricted Stock................ 7,814 5,509 355
------------------- -------------------- -------------------
$29,146 $13,985 $4,223
=================== ==================== ===================
</TABLE>
A reconciliation of the income tax provision from continuing operations and
the amount computed by applying the U.S. federal statut ory income tax rate to
income from continuing operations before income taxes is as follows:
<TABLE>
<CAPTION>
TEN-MONTHS
ENDED YEAR ENDED YEAR ENDED
JULY 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996
------------------- -------------------- -------------------
<S> <C> <C> <C>
At U.S. federal income tax rate.................... 35.0% 35.0% 35.0%
State income tax, net of federal benefit........... 4.8% 3.3% 4.7%
Goodwill and Excess Reorganization
Value amortization................................. 1.8% 3.8% 8.6%
Other.............................................. (0.1%) (0.6%) (1.2%)
------------------- -------------------- -------------------
41.5% 41.5% 47.1%
=================== ==================== ===================
</TABLE>
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 ten-months ended July 31,
1998 and the years ended September 30, 1997 and 1996 was $417,000, $500,000 and
$500,000, respectively. At July 31, 1998, the Company's liability with respect
to this arrangement was $960,000.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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 1998, 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 years 1998, 1997 and 1996 totaled $4.7 million,
$4.9 million and $5.5 million, respectively. Related amounts due the Company at
July 31, 1998 were $109,000.
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 purchase of lots in the Bachelor Gulch
development. 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) paid
under promissory notes of $438,750 and $350,000 for Mr. Daly's spouse and Mr.
and Mrs. Thompson, respectively. Each are secured by a first deed of trust and
amortized over 25 years at 8% 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. The promissory notes were executed
upon the closings of the lot sales in December 1996.
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 home and
townhome, and lodging units. As of July 31, 1998, the Company has sold 102
single family homesites and 5 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 $15.6 million
at July 31, 1998. The Company has allocated $9.6 million of that amount to the
Bachelor Gulch Village homesites which were sold as of July 31, 1998 and has
recorded that amount as a liability in the accompanying financial statements.
The total subsidy incurred as of July 31, 1998 and 1997 was $2.9 million and
$1.4 million, respectively.
At July 31, 1998, the Company had various other letters of credit
outstanding in the aggregate amount of $17.2 million.
The Company has executed as lessee operating leases for the rental of
office space, employee residential units and office equipment though fiscal
2008. For the ten-month period ended July 31, 1998, and the years ended
September 30, 1997 and 1996, lease expense related to these agreements of $6.4
million, $6.2 million and $3.8 million, respectively, which is included in the
accompanying consolidated statements of operations.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under these leases as of July 31, 1998 are as
follows:
Due during fiscal year ending July 31:
1999............................................................... $ 4,334,493
2000............................................................... 2,992,051
2001............................................................... 2,563,510
2002............................................................... 1,743,934
2003............................................................... 1,689,097
Thereafter......................................................... 6,174,261
-----------
Total....................................................... $19,497,346
===========
The Company is a party to various lawsuits arising in the ordinary course of
business. In the opinion of management, all matters are adequately covered by
insurance or, if not covered, are without merit or are of such kind, or involve
such amounts as would not have a material effect on the financial position,
results of operations and cash flows of the Company if disposed of unfavorably.
12. BUSINESS SEGMENTS
The Company currently operates in two business segments, Resorts and Real
Estate. Data by segment is as follows:
<TABLE>
<CAPTION>
TEN
MONTHS ENDED YEAR ENDED YEAR ENDED
JULY 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996
----------------- ----------------- -----------------
Net revenues:
<S> <C> <C> <C>
Resorts........................................................... $336,547 $259,038 $140,288
Real Estate....................................................... 73,722 71,485 48,655
----------------- ----------------- -----------------
$410,269 $330,523 $188,943
================= ================= =================
Income from operations:
Resorts........................................................... $ 81,945 $ 52,279 $ 32,250
Real Estate....................................................... 11,103 5,178 7,854
Corporate......................................................... (4,437) (4,663) (12,698)
----------------- ----------------- -----------------
$ 88,611 $ 52,794 $ 27,406
================= ================= =================
Depreciation and amortization:
Resorts........................................................... $ 36,838 $ 34,044 $ 18,148
Real Estate....................................................... -- -- --
----------------- ----------------- -----------------
$ 36,838 $ 34,044 $ 18,148
================= ================= =================
Capital expenditures:
Resorts........................................................... $ 80,454 $ 51,020 $ 13,912
Real Estate....................................................... 15,661 56,947 40,604
----------------- ----------------- -----------------
$ 96,115 $107,967 $ 54,516
================= ================= =================
JULY 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996
----------------- ----------------- -----------------
Identifiable assets:
Resorts........................................................... $501,371 $411,117 $197,279
Real Estate....................................................... 138,916 154,925 84,055
----------------- ----------------- -----------------
$640,287 $566,042 $281,334
================= ================= =================
</TABLE>
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. STOCK COMPENSATION PLANS
At July 31, 1998, 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:
<TABLE>
<CAPTION>
JULY 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net Income
As Reported................................................ $ 41,018 $ 19,698 $ 4,735
Pro forma.................................................. $ 39,320 $ 18,211 $ 4,420
Basic net income per share
As Reported................................................ $ 1.20 $ 0.66 $ 0.23
Pro forma.................................................. $ 1.15 $ 0.61 $ 0.22
Diluted net income per share
As Reported................................................ $ 1.18 $ 0.64 $ 0.22
Pro forma.................................................. $ 1.13 $ 0.59 $ 0.21
</TABLE>
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. 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.
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 1998, 1997 and 1996, respectively: dividend yield
of 0% for each year, expected volatility of 14.7%, 29.8% and 29.8%; risk-free
interest rates ranging from 5.49% to 6.61%, 5.66% to 6.68% 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, 1998 and
September 30, 1997 and 1996 and changes during the years ended on those dates is
presented below (in thousands, except per share amounts):
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES SUBJECT EXERCISE
FIXED OPTIONS TO OPTION PRICE
-------------------------------------------
<S> <C> <C>
Balance at September 30, 1995....................................... 2,033 $ 8
Granted.......................................................... 1,711 13
Exercised........................................................ -- --
Forfeited........................................................ (18) 7
------
Balance at September 30, 1996....................................... 3,726 10
Granted.......................................................... 795 23
Exercised........................................................ (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
======
-------------------------------------------
</TABLE>
The following table summarizes information about fixed stock options
outstanding at July 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ---------------------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
EXERCISE SHARES REMAINING AVERAGE SHARES AVERAGE
PRICE RANGE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 6 - 11 701,963 5.6 $ 9.06 616,363 $ 8.84
$ 20 - 25 1,065,000 8.6 22.44 353,667 22.00
$ 26 - 29 70,000 9.7 27.47 --
--------- -------
$ 6 - 29 1,836,963 7.5 $ 17.55 970,030 $13.64
========= =======
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 1998, however 8,260 vested shares were issued.
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, 1998 and
September 30, 1997, 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
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(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. A 4,000,000
share block of Class A Common stock was converted to Common Stock during Fiscal
1998 as they were sold to a non-affiliated company of the prior holder.
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED).
<TABLE>
<CAPTION>
FISCAL 1998 TEN-MONTH TRANSITION PERIOD
------------------------------------------------------------------------
TEN-MONTHS THREE-MONTHS THREE-MONTHS FOUR-MONTHS
ENDED ENDED ENDED ENDED
JULY 31, 1998 JULY 31, 1998 APRIL 30, 1998 JANUARY 31, 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 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
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997
-------------------------------------------------------------------------------------------
TWELVE-MONTHS THREE-MONTHS THREE-MONTHS THREE-MONTHS THREE-MONTHS
ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 JUNE 30, 1997 MARCH 31, 1997 DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Resort Revenue 259,038 22,840 28,031 173,056 35,111
Real Estate Revenue 71,485 9,596 9,878 2,229 49,782
Total Revenue 330,523 32,436 37,909 175,285 84,893
Income from operations 52,794 (22,578) (17,701) 81,407 11,666
Net Income (loss) 19,698 (15,937) (13,895) 44,463 5,067
Basic net income (loss) per common share $ 0.66 $ (0.48) $ (0.42) $ 1.42 $ 0.24
Diluted net income (loss) per common share $ 0.64 $ (0.47) $ (0.40) $ 1.38 $ 0.23
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
FISCAL 1998
-------------------------------------------------------------------------------------------
TWELVE-MONTHS THREE-MONTHS THREE-MONTHS THREE-MONTHS THREE-MONTHS
ENDED ENDED ENDED ENDED ENDED
JULY 31, 1998 JULY 31, 1998 APRIL 30, 1998 JANUARY 31, 1998 OCTOBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 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)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
16. SUBSEQUENT EVENTS
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 to be known as SSI
Venture LLC. The Company contributed its retail and rental operations to the
joint venture for a 52% share of the joint venture. Specialty Sports, Inc.
contributed an additional 30 stores located in Denver, Boulder, Aspen,
Telluride, Vail and Breckenridge. The owners and operators of Specialty Sports,
Inc., the Gart family, have been operating in the sporting goods industry in
Colorado since 1929 and will run the day-to-day operations of SSI Venture LLC.
Vail Resorts will participate in the strategic and financial management of the
joint venture.
On August 13, 1998 the Company purchased 100% of the outstanding stock of
TBA Entertainment, Inc. for a total purchase price of $24 million. TBA 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 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, that is
generally considered to be the prime base lodge of Breckenridge Mountain Resort,
but until now, has neither been owned nor managed by the Company. In a related
transaction, the Company will also acquire for $10 million the remainder of
TBA's Breckenridge assets, including the Bell Tower Mall and certain other real
estate parcels for near-term development. Simultaneously, the Company has
entered into a contract to sell these same assets for $10 million to East West
Partners of Avon, Colorado, a highly-experienced mountain resort real estate
developer. The acquisition was funded with proceeds from the Revolving Credit
Facility.
F-23
<PAGE>
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 18, 1998 which will be available no later than November 13, 1998.
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 18, 1998 which will be available no later than November 13, 1998.
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 18, 1998 which will be available no later than November 13, 1998.
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 18, 1998 which will be available no later than November 13, 1998.
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.
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.
26
<PAGE>
(b) Index to Exhibits
The following exhibits are either filed herewith or, if so indicated,
incorporated by reference to the documents indicated in parentheses which have
previously been filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ----------- ----
<S> <C> <C>
2.1 Stock Purchase Agreement among Vail Resorts, Inc., Ralston Foods,
Inc. and Ralston Resorts, Inc. dated July 22, 1996. (Incorporated by
reference to Exhibit 2.1 of the report on Form 8-K of Vail Resorts,
Inc. dated July 23, 1996).
2.2 First Amendment to the Stock Purchase Agreement among Vail Resorts,
Inc., Ralston Foods, Inc. and Ralston Resorts, Inc. dated December
20, 1996. (Incorporated by reference to Exhibit 2.2 of the report on
Form 8-K of Vail Resorts, Inc. dated January 8, 1997).
2.3 Second Amendment to the Stock Purchase Agreement among Vail Resorts,
Inc., Ralston Foods, Inc. and Ralston Resorts, Inc. dated December
31, 1996. (Incorporated by reference to Exhibit 2.3 of the report on
Form 8-K of Vail Resorts, Inc. dated January 8, 1997).
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.)
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.)
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.)
10.6 Employment Agreement dated October 30, 1992 between Vail Associates,
Inc. and James Kent Myers. (Incorporated by reference to Exhibit
10.10 of the report on Form 10-K of Gillett Holdings, Inc. for the
period from October 9, 1992 through September 30, 1993.)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ----------- ----
<S> <C> <C>
10.7 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.)
10.8(a) 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(b) 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.
10.11(b) Pledge Agreement dated as of January 3, 1997 among the Vail Corporation and
NationsBank of Texas, N.A. as agent.
10.11(c) Credit Agreement dated as of October 10, 1997 among the Vail Corporation
And NationsBank of Texas, N.A., as lender.
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.)
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.)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ----------- ----
<S> <C> <C>
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.)
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.)
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ----------- ----
<S> <C> <C>
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 1992 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 April 1, 1994 between Gillett Holdings, Inc. and
James S. Mandel (Incorporated by reference to Exhibit 10.22 of the report
on Form 10-K of Gillett Holdings, Inc. for the year ended September 30, 1994.)
10.16 Employment Agreement dated April 1, 1994 between Vail Associates, Inc. and
James S. Mandel (Incorporated by reference to Exhibit 10.23 of the report
on Form 10-K of Gillett Holdings, Inc. for the year ended September 30, 1994.)
10.17 Employment Agreement dated October 1, 1996 between Vail Associates, Inc. and
Andrew P. Daly.
10.18 Employment Agreement dated July 29, 1996 between Vail Resorts, Inc. and Adam
M. Aron.
10.19 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.)
10.20 1996 Stock Option Plan (Incorporated by reference from the Company's
Registration Statement on Form S-3, File No. 333-5341).
10.21 Agreement dated October 11, 1996 between Vail Resorts, Inc. and George
Gillett.
10.22 Amended and Restated Credit Agreement among the Vail Corporation
(d/b/a "Vail Associates, Inc.") and Nations Bank of Texas, N.A.
10.23 Sports and Housing Facilities Financing Agreement among the Vail Corporation
(d/b/a "Vail Associates, Inc.") and Eagle County, Colorado, dated April 1,
1998.
16 Letter from Ernst & Young LLP regarding change in certifying accountant.
(Incorporated by reference to Exhibit 16 of the report on Form 8-K of
Gillett Holdings, Inc. for the reportable event occurring on October 25, 1994.)
21.1 Subsidiaries of Vail Resorts, Inc. (Incorporated by reference to Exhibit 21
of the Report on Form 10-K of Gillett Holdings, Inc. for the year ended
September 30, 1995.)
99.1(a) Debtor's Second Amended Joint Disclosure Statement Pursuant to Section 1125
of the Bankruptcy Code for the Second Amended Joint Plan of Reorganization of
the Debtors. (Incorporated by reference to Exhibit T3E.1 of Registrant's
Application for Qualification under the Trust Indenture Act of 1939 on Form
T-3 filed September 15, 1992, File No. 22-22538.)
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
99.1(b) Exhibits to Debtor's Second Amended Joint Disclosure Statement Pursuant to
Section 1125 of the Bankruptcy Code for the Second Amended Joint Plan of
Reorganization of the Debtors. (Incorporated by reference to Exhibit T3E.1 of
Registrant's Application for Qualification under the Trust Indenture Act of 1939
on Form T-3 filed September 15, 1992, File No. 22-22538.)
99.2 Supplement to Debtor's Second Amended Joint Disclosure Statement Pursuant to
Section 1125 of the Bankruptcy Code for the Second Amended Joint Plan of
Reorganization of the Debtors. (Incorporated by reference to Exhibit 28.2 of the
Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-
52854) including all amendments thereto.)
99.3 Exhibits to the Second Amended Joint Plan of Reorganization of the Debtors.
(Incorporated by reference to Exhibit 28.3 of the Registration Statement on Form
S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments
thereto.)
</TABLE>
(c) A Current Report on Form 8-K was filed on January 8, 1997 related to the
Company's acquisition of 100% of the capital stock of Ralston Resorts, Inc.
on January 3, 1997.
A Current Report on Form 8-K was filed on November 6, 1997 announcing the
Company's fiscal year change from September 30 to July 31.
31
<PAGE>
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 on October 30, 1997.
VAIL RESORTS, INC.
By /s/ JAMES P. DONOHUE
------------------------------------
James P. Donohue
Senior Vice President and
Chief Financial Officer
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 the 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 30, 1998
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
/s/ Frank Biondi* Director
- -----------------------
FRANK BIONDI
/s/ Leon D. Black* Director
- -----------------------
LEON D. BLACK
/s/ Craig M. Cogut* Director
- -----------------------
CRAIG M. COGUT
/s/ Stephen C. Hilbert* Director
- -----------------------
STEPHEN C. HILBERT
/s/ Robert A. Katz* Director
- -----------------------
ROBERT A. KATZ
/s/ Thomas H. Lee* Director
- -----------------------
THOMAS H. LEE
32
<PAGE>
SIGNATURE TITLE
--------- -----
/s/ William L. Mack* Director
- -----------------------
WILLIAM L. MACK
/s/ Joseph Micheletto* Director
- -----------------------
JOSEPH MICHELETTO
/s/ Antony P. Ressler* Director
- -----------------------
ANTONY P. RESSLER
/s/ Marc J. Rowan* Director
- -----------------------
MARC J. ROWAN
/s/ John J. Ryan III* Director
- -----------------------
JOHN J. RYAN III
John F. Sorte* Director
- -----------------------
JOHN F. SORTE
/s/ Bruce H. Spector* Director
- -----------------------
BRUCE H. SPECTOR
/s/ William Stiritz* Director
- -----------------------
WILLIAM STIRITZ
/s/ James S. Tisch* Director
- -----------------------
JAMES S. TISCH
* By Attorney-in-Fact
33
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR<F1>
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 19,512
<SECURITIES> 0
<RECEIVABLES> 23,444
<ALLOWANCES> 1,220
<INVENTORY> 4,263
<CURRENT-ASSETS> 16,834
<PP&E> 587,664
<DEPRECIATION> 86,273
<TOTAL-ASSETS> 912,122
<CURRENT-LIABILITIES> 58,985
<BONDS> 0
0
0
<COMMON> 345
<OTHER-SE> 462,279
<TOTAL-LIABILITY-AND-EQUITY> 912,122
<SALES> 0
<TOTAL-REVENUES> 410,269
<CGS> 0
<TOTAL-COSTS> 88,611
<OTHER-EXPENSES> 736
<LOSS-PROVISION> 1,706
<INTEREST-EXPENSE> 17,789
<INCOME-PRETAX> 70,164
<INCOME-TAX> 29,146
<INCOME-CONTINUING> 41,018
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,018
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.18
<FN>
<F1>10-MO FISCAL YEAR ENDING 07/31/1998 (DUE TO CHANGE IN FISCAL YEAR-END).
TRANSITION STATEMENT BEING FILED.
</FN>
</TABLE>
