<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q. --QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[X] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
Act Of 1934
For the quarterly period ended October 31, 1999
[_] Transition Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
For the transition period from ____________________ to ________________________
Commission File Number: 1-9614
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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
Vail, Colorado 81658
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(970) 476-5601
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(Registrant's telephone number, including area code)
None.
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [_] No
As of December 9, 1999, 7,439,834 shares of Class A Common Stock and
27,177,698 shares of Common Stock were issued and outstanding.
<PAGE>
Table of Contents
PART I FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements.......................................................................... F-1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 1
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................... 6
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 7
Item 2. Changes in Securities and Use of Proceeds..................................................... 7
Item 3. Defaults Upon Senior Securities............................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders........................................... 7
Item 5. Other Information............................................................................. 7
Item 6. Exhibits and Reports on Form 8-K.............................................................. 7
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<S> <C>
Consolidated Condensed Balance Sheets as of October 31, 1999, July 31, 1999 and
October 31, 1998......................................................................... F-2
Consolidated Condensed Statements of Operations for the Three Months Ended October 31, 1999
and 1998................................................................................. F-3
Consolidated Condensed Statements of Cash Flows for the Three Months Ended October 31, 1999
and 1998................................................................................. F-4
Notes to Consolidated Condensed Financial Statements......................................... F-5
</TABLE>
F-1
<PAGE>
Vail Resorts, Inc.
Consolidated Condensed Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
October 31, July 31, October 31,
1999 1999 1998
------------- -------------- -----------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents...................................... $ 18,954 $ 25,324 $ 20,542
Receivables, net............................................... 26,304 29,650 25,485
Income taxes receivable........................................ 268 -- --
Inventories.................................................... 29,013 22,805 28,329
Deferred income taxes.......................................... 10,404 10,404 12,126
Other current assets........................................... 6,993 4,512 4,673
------------- ---------- -----------
Total current assets...................................... 91,936 92,695 91,155
Property, plant and equipment, net................................. 626,549 611,141 536,954
Real estate held for sale and investment........................... 156,628 152,508 156,683
Deferred charges and other assets.................................. 31,235 31,391 19,540
Intangible assets, net ............................................ 198,924 201,504 199,801
------------- ---------- -----------
Total assets.............................................. $ 1,105,272 $1,089,239 $ 1,004,133
============= ========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses.......................... $ 121,007 $ 89,445 $ 104,623
Income taxes payable........................................... -- 1,633 2,239
Long-term debt due within one year (Note 4).................... 1,478 2,057 737
------------- ---------- -----------
Total current liabilities................................. 122,485 93,135 107,599
Long-term debt (Note 4)............................................ 424,102 396,129 356,475
Other long-term liabilities........................................ 30,726 31,146 27,068
Deferred income taxes.............................................. 67,772 84,728 64,833
Commitments and contingencies (Note 2)............................. -- -- --
Minority interest in net assets of consolidated joint venture...... 5,612 7,326 5,443
Stockholders' equity:
Common stock--
Class A common stock, $0.01 par value, 20,000,000 shares
authorized, 7,439,834, 7,439,834 and 7,439,834 shares
issued and outstanding at October 31, 1999, July 31,
1999 and October 31, 1998, respectively............... 74 74 75
Common stock, $0.01 par value, 40,000,000 shares
authorized, 27,137,285, 27,092,901 and 27,026,781
shares issued and outstanding at October 31, 1999,
July 31, 1999 and October 31, 1998, respectively...... 271 271 270
Additional paid-in capital..................................... 403,167 402,923 402,111
Retained earnings.............................................. 51,063 73,507 40,259
------------- ---------- -----------
Total stockholders' equity................................ 454,575 476,775 442,715
------------- ---------- -----------
Total liabilities and stockholders' equity................ $ 1,105,272 $1,089,239 $ 1,004,133
============= ========== ===========
</TABLE>
F-2
<PAGE>
Vail Resorts, Inc.
Consolidated Condensed Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1999 1998
------------- -------------
<S> <C> <C>
Net revenues:
Resort......................................................................... $ 56,859 $ 34,985
Real estate.................................................................... 8,970 13,571
------------- -------------
Total net revenues........................................................ 65,829 48,556
Operating expenses:
Resort......................................................................... 77,298 60,000
Real estate.................................................................... 5,863 7,610
Depreciation and amortization.................................................. 14,900 11,801
------------- -------------
Total operating expenses.................................................. 98,061 79,411
------------- -------------
Loss from operations............................................................... (32,232) (30,855)
Other income (expense):
Investment income.............................................................. 355 415
Interest expense............................................................... (8,883) (5,660)
Gain (loss) on disposal of fixed assets........................................ (42) 13
Other income (expense)......................................................... (17) 3
Minority interest in consolidated joint venture................................ 1,444 1,114
------------- -------------
Loss before income taxes........................................................... (39,375) (34,970)
Credit for income taxes............................................................ 16,931 14,512
------------- -------------
Net loss........................................................................... $ (22,444) $ (20,458)
============= =============
Net loss per common share (Note 3):
Basic.......................................................................... $ (0.65) $ (0.59)
============= =============
Diluted........................................................................ $ (0.64) $ (0.59)
============= =============
</TABLE>
F-3
<PAGE>
Vail Resorts, Inc.
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ (22,444) $ (20,458)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization............................................... 14,900 11,801
Non-cash cost of real estate sales.......................................... 3,081 5,048
Non-cash compensation related to stock grants............................... 81 90
Non-cash equity income...................................................... (2,042) (653)
Deferred financing costs amortized.......................................... 478 146
Loss (gain) on disposal of fixed assets..................................... 42 (13)
Deferred income taxes, net ................................................. (16,956) (14,512)
Minority interest in consolidated joint venture............................. (1,444) (5,443)
Changes in assets and liabilities:
Receivables, net............................................................ 3,346 2,012
Inventories................................................................. (6,208) (14,822)
Accounts payable and accrued expenses....................................... 31,562 43,884
Income taxes payable and receivable......................................... (1,900) --
Other assets and liabilities, net........................................... (2,124) 623
------------ ------------
Net cash provided by operating activities............................... 372 7,703
Cash flows from investing activities:
Cash paid in hotel acquisitions, net of cash acquired.......................... -- (33,800)
Cash paid by consolidated joint venture in acquisition of retail operations.... -- (10,516)
Resort capital expenditures.................................................... (26,392) (23,428)
Investments in real estate..................................................... (8,058) (12,031)
------------ ------------
Net cash used in investing activities....................................... (34,450) (79,775)
Cash flows from financing activities:
Proceeds from the exercise of stock options.................................... 314 112
Proceeds from borrowings under long-term debt.................................. 51,750 74,366
Payments on long-term debt..................................................... (24,356) (1,376)
------------ ------------
Net cash provided by financing activities................................... 27,708 73,102
------------ ------------
Net increase (decrease) in cash and cash equivalents............................... (6,370) 1,030
Cash and cash equivalents:
Beginning of period............................................................ 25,324 19,512
------------ ------------
End of period.................................................................. $ 18,954 $ 20,542
============ ============
</TABLE>
F-4
<PAGE>
Vail Resorts, Inc.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1. Basis of Presentation
Vail Resorts, Inc. ("Vail Resorts") is organized as a holding company and
operates through various subsidiaries. Vail Resorts and its subsidiaries
(collectively, the "Company") currently operate in two business segments--resort
and real estate. Vail Associates, Inc., an indirect wholly owned subsidiary of
Vail Resorts, and its subsidiaries, (collectively, "Vail Associates") operate
four of the world's largest skiing facilities on Vail, Breckenridge, Keystone
and Beaver Creek mountains in Colorado. In addition to the ski resorts, Vail
Associates owns and operates Grand Teton Lodge Company ("Grand Teton"), which
operates three resorts within Grand Teton National Park (under a National Park
Service concessionaire contract) and the Jackson Hole Golf & Tennis Club in
Wyoming. Vail Resorts Development Company ("VRDC"), a wholly owned subsidiary of
Vail Associates, conducts the Company's real estate development activities. The
Company's mountain resort businesses are seasonal in nature. The Company's ski
resort businesses and related amenities typically have operating seasons from
mid-October through mid-May; the Company's operations at Grand Teton generally
run from mid-May through mid-October.
In the opinion of the Company, the accompanying consolidated condensed
financial statements reflect all adjustments necessary to present fairly the
Company's financial position, results of operations and cash flows for the
interim periods presented. All such adjustments are of a normal recurring
nature. Results for interim periods are not indicative of the results for the
entire year. The accompanying consolidated financial statements should be read
in conjunction with the audited consolidated financial statements for the year
ended July 31, 1999, included in the Company's Annual Report on Form 10-K for
the fiscal year ended July 31, 1999.
2. 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 BGMD. SCMD is comprised of approximately 150
acres of open space land owned by the Company and members of the Board of
Directors of SCMD. In two planned unit developments, Eagle County has granted
zoning approval for 1,395 dwelling units within Bachelor Gulch Village,
including various single family homesites, cluster homes, townhomes, and lodging
units. As of October 31, 1999, the Company has sold 104 single-family homesites
and eight 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 Credit Facility as defined
herein. It is anticipated that, as Bachelor Gulch Village expands, BGMD will
become self supporting and that within 25 to 30 years it 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 the present value
of the remaining aggregate subsidy to be $13.4 million at October 31, 1999. The
Company has allocated $9.8 million of that amount to the Bachelor Gulch Village
homesites which were sold as of October 31, 1999 and has recorded that amount as
a liability in the accompanying financial statements. The total subsidy incurred
as of October 31, 1999 and July 31, 1999 was $5.2 million and $4.3 million,
respectively.
At October 31, 1999 the Company had various other letters of credit
outstanding in the aggregate amount of $42.3 million.
F-5
<PAGE>
Vail Resorts, Inc.
Notes to Consolidated Condensed Financial Statements--(Continued)
(Unaudited)
2. Commitments and Contingencies (Continued)
On October 19, 1998, fires on Vail Mountain destroyed certain of the
Company's facilities including the Ski Patrol Headquarters, a day skier shelter,
the Two Elk Lodge restaurant and the chairlift drive housing for the High Noon
Lift (Chair #5). Chair #5 and three other chairlifts, which sustained minor
damage, have been repaired and are currently fully operational. All of the
facilities damaged are fully covered by the Company's property insurance policy.
Although the Company is unable to estimate the total amount which will be
recovered through insurance proceeds, the Company does not expect to record a
loss related to the property damage. The incident is also covered under the
Company's business interruption insurance policy. The Company incurred business
interruption losses as a result of the incident, however, due to mitigating
measures being undertaken by the Company and the insurance coverage, the Company
expects the net impact of the business interruption will not have a material
effect on its results of operations and cash flows.
The Company is a party to various lawsuits arising in the ordinary course
of business. Management believes the Company has adequate insurance coverage and
accrued loss contingencies for all matters and that, although the ultimate
outcome of such claims cannot be ascertained, current pending and threatened
claims are not expected to have a material adverse impact on the financial
position, results of operations and cash flows of the Company.
The Company has executed as lessee operating leases for the rental of
office space, employee residential units and office equipment through fiscal
2008. For the three months ended October 31, 1999 and 1998, lease expense of
$3.2 million and $2.2 million, respectively, related to these agreements was
recorded and is included in the accompanying consolidated statements of
operations.
Future minimum lease payments under these leases as of October 31, 1999 are
as follows (in thousands):
Due during fiscal year ending July 31:
2000....................................................... $ 4,218
2001....................................................... 3,846
2002....................................................... 2,575
2003....................................................... 2,031
2004....................................................... 2,073
Thereafter................................................. 4,358
-----------
Total.................................................. $ 19,101
===========
F-6
<PAGE>
Vail Resorts, Inc.
Notes to Consolidated Condensed Financial Statements--(Continued)
(Unaudited)
3. Net Earnings Per Common Share
Basic earnings per share ("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.
<TABLE>
<CAPTION>
Three Months Ended
October 31,
--------------------------------------------------------
1999 1998
------------------------ --------------------------
(In thousands, except per share amounts)
Basic Diluted Basic Diluted
------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net loss per common share:
Net loss................................................ $ (22,444) $ (22,444) $ (20,458) $ (20,458)
Weighted average shares outstanding..................... 34,647 34,647 34,519 34,519
Effect of dilutive stock options........................ 206 303
----------- ----------- --------- ---------
Total shares............................................ 34,647 34,853 34,519 34,822
----------- ----------- --------- ---------
Net loss per common share............................... $ (0.65) $ (0.64) $ (0.59) $ (0.59)
=========== =========== ========= =========
</TABLE>
4. Long-Term Debt
Long-term debt as of October 31, 1999 and July 31, 1999 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
October 31, July 31,
Maturity(e) 1999 1999
--------------------------------------------------
<S> <C> <C> <C>
Industrial Development Bonds(a)........... 2002-2020 $ 63,200 $ 63,200
Credit Facilities (b)..................... 2003 157,800 130,300
Senior Subordinated Notes (c)............. 2009 200,000 200,000
Other(d).................................. 2000-2029 4,580 4,686
--------------- ---------------
425,580 398,186
Less: Maturities due within 12 months..... 1,478 2,057
--------------- ---------------
$ 424,102 $ 396,129
=============== ===============
</TABLE>
a) The Company has $41.2 million of outstanding Industrial
Development Bonds (the "Industrial Development Bonds") issued by
Eagle County, Colorado that mature, subject to prior redemption,
on August 1, 2019. These bonds accrue interest at 6.95% per
annum, with interest being payable semi-annually on February 1
and August 1. In addition, the Company has outstanding two series
of refunding bonds. The Series 1990 Sports Facilities Refunding
Revenue Bonds have an aggregate outstanding principal amount of
$19.0 million, which matures in installments in 2006 and 2008.
These bonds bear interest at a rate of 7.75% for bonds maturing
in 2006 and 7.875% for bonds maturing in 2008. The Series 1991
Sports Facilities Refunding Revenue Bonds have an aggregate
outstanding principal amount of $3.0 million and bear interest at
7.125% for bonds maturing in 2002 and 7.375% for bonds maturing
in 2010.
F-7
<PAGE>
Vail Resorts, Inc.
Notes to Consolidated Condensed Financial Statements--(Continued)
(Unaudited)
4. Long-Term Debt (Continued)
b) The Company's credit facilities consist of a revolving credit
facility ("Credit Facility") that provides for debt financing up
to an aggregate principal amount of $450 million. In conjunction
with the debt offering discussed in c) below, the Company amended
its Credit Facility on May 11, 1999. Borrowings under the Credit
Facility as amended bear interest annually at the Company's
option at the rate of (i) LIBOR (5.40% at October, 31, 1999) plus
a margin ranging from 0.75% to 2.25% or (ii) the agent's prime
lending rate, (8.25% at October 31, 1999) plus a margin of up to
0.75%. The Company also pays a quarterly unused commitment fee
ranging from 0.20% to 0.50%. The interest margins fluctuate based
upon the ratio of the Company's total Funded Debt to the
Company's Resort EBITDA (as defined in the underlying Credit
Facility). The Credit Facility matures on December 19, 2002.
On December 30, 1998, SSI Venture LLC established a credit
facility ("SSV Facility") that provides debt financing up to an
aggregate principal amount of $20 million. On October 15, 1999,
the SSV Facility was amended to increase the aggregate principal
amount to $25 million. The amended SSV Facility consists of (i) a
$15 million Tranche A revolving credit facility and (ii) a $10
million Tranche B term loan facility. The SSV Facility matures on
the earlier of December 31, 2003 or the termination date of the
Credit Facility discussed above. Vail Associates guarantees the
SSV Facility. Minimum amortization under the Tranche B Term Loan
Facility as amended is $0.75 million, $1.0 million, $1.0 million,
$1.0 million and $5.25 million during fiscal years 2000, 2001,
2002, 2003, and 2004, respectively. The SSV Facility bears
interest annually at the rates prescribed above for the Credit
Facility. SSI Venture LLC also pays a quarterly unused commitment
fee at the same rates as the unused commitment fee for the Credit
Facility.
c) The Company completed a $200 million debt offering of Senior
Subordinated Notes (the "Notes") on May 11, 1999. The Notes have
a fixed annual interest rate of 8.75%, with interest due semi-
annually on May 15 and November 15, beginning November 15, 1999.
The Notes will mature on May 15, 2009 and no principal payments
are due to be paid until maturity. The Company has certain early
redemption options under the terms of the Notes. Substantially
all of the Company's subsidiaries have guaranteed the Notes. The
Notes are subordinated to certain of the Company's debts,
including the Credit Facility, and will be subordinated to
certain of the Company's future debts. The proceeds of the
offering were used to reduce the Company's outstanding debt under
the Credit Facility.
d) Other obligations bear interest at rates ranging from 0.0% to
6.5% and have maturities ranging from 2000 to 2028.
e) Maturities are based on the Company's July 31 fiscal year end.
Aggregate maturities for debt outstanding are as follows (in thousands):
<TABLE>
<CAPTION>
As of
October 31,
Due during fiscal years ending July 31. 1999
--------------
<S> <C>
2000.......................................... $ 1,221
2001.......................................... 1,447
2002.......................................... 1,444
2003.......................................... 151,105
2004.......................................... 5,558
Thereafter.................................... 264,805
--------------
Total Debt................................ $ 425,580
==============
</TABLE>
F-8
<PAGE>
Vail Resorts, Inc.
Notes to Consolidated Condensed Financial Statements--(Continued)
(Unaudited)
5. Guarantor Subsidiaries and Non-Guarantor Subsidiaries
The Company's payment obligations under the 8 3/4% Senior Subordinated
Notes due 2009 (see Note 4), are fully and unconditionally guaranteed on a joint
and several, senior subordinated basis by substantially all of the Company's
consolidated subsidiaries (collectively, and excluding the Non-Guarantor
Subsidiaries (as defined below), the "Guarantor Subsidiaries") except for SSI
Venture, LLC and Vail Associates Investments, Inc. (together, the "Non-
Guarantor Subsidiaries"). SSI Venture, LLC is a 51.9%-owned joint venture which
owns and operates certain retail and rental operations. Vail Associates
Investments, Inc. is a 100%-owned corporation which owns certain real estate
held for sale.
Presented below is the consolidated condensed financial information of Vail
Resorts, Inc. (the "Parent Company"), the Guarantor Subsidiaries and the
Non-Guarantor Subsidiaries as of October 31, 1999 and 1998 and for the three
months then ended.
Investments in Subsidiaries are accounted for by the Parent Company and
Guarantor Subsidiaries using the equity method of accounting. Net income of
Guarantor and Non-Guarantor Subsidiaries is, therefore, reflected in the Parent
Company's and Guarantor Subsidiaries' investments in and advances to (from)
Subsidiaries. Net income of the Guarantor and Non-Guarantor Subsidiaries is
reflected in Guarantor Subsidiaries and Parent Company as equity in consolidated
subsidiaries. The elimination entries eliminate investments in Non-Guarantor
Subsidiaries and intercompany balances and transactions. 5.
F-9
<PAGE>
Vail Resorts, Inc.
Notes to Consolidated Condensed Financial Statements--(Continued)
(Unaudited)
5. Guarantor Subsidiaries and Non-Guarantor Subsidiaries (Continued)
Supplemental Condensed Consolidating Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ ------------
October 31, 1999
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $ -- $ 18,173 $ 781 $ -- $ 18,954
Receivables................................... 321 25,657 326 -- 26,304
Income taxes receivable....................... -- 268 -- -- 268
Inventories, net.............................. -- 7,172 21,841 -- 29,013
Deferred income taxes......................... 1,353 9,051 -- -- 10,404
Other current assets.......................... -- 6,069 924 -- 6,993
---------- ----------- ---------- ---------- -----------
Total current assets........................ 1,674 66,390 23,872 -- 91,936
Property, plant and equipment, net................ -- 615,657 10,892 -- 626,549
Real estate held for sale......................... -- 151,352 5,276 -- 156,628
Deferred charges and other assets................. 8,688 22,299 248 -- 31,235
Intangible assets, net............................ -- 186,109 12,815 -- 198,924
Investments in subsidiaries and advances to
(from) subsidiaries........................... 646,207 (27,146) (5,610) (613,451) --
---------- ----------- ---------- ---------- -----------
Total assets................................ $ 656,569 $ 1,014,661 $ 47,493 $ (613,451) $ 1,105,272
========== =========== ========== ========== ===========
Current liabilities:
Accounts payable and accrued expenses......... $ 866 $ 101,565 $ 18,576 $ -- $ 121,007
Income taxes payable.......................... -- -- -- -- --
Long-term debt due within one year............ -- 463 1,015 -- 1,478
---------- ----------- ---------- ---------- -----------
Total current liabilities................... 866 102,028 19,591 -- 122,485
Long-term debt.................................... 200,000 208,302 15,800 -- 424,102
Other long-term liabilities....................... 1,128 29,598 -- -- 30,726
Deferred income taxes............................. -- 67,772 -- -- 67,772
Minority interest in net assets of consolidated
joint venture................................. -- -- 5,612 -- 5,612
Total stockholders' equity........................ 454,575 606,961 6,490 (613,451) 454,575
---------- ----------- ---------- ---------- -----------
Total liabilities and stockholders' equity.. $ 656,569 $ 1,014,661 $ 47,493 $ (613,451) $ 1,105,272
========== =========== ========== ========== ===========
<CAPTION>
October 31, 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $ -- $ 21,777 $ (1,235) $ -- $ 20,542
Receivables................................... 321 24,681 483 -- 25,485
Inventories, net.............................. -- 6,493 21,836 -- 28,329
Deferred income taxes......................... 1,353 10,773 -- -- 12,126
Other current assets.......................... -- 4,321 352 -- 4,673
---------- ----------- ---------- ---------- -----------
Total current assets........................ 1,674 68,045 21,436 -- 91,155
Property, plant and equipment, net................ -- 527,853 9,101 -- 536,954
Real estate held for sale......................... -- 152,357 4,326 -- 156,683
Deferred charges and other assets................. 34 18,369 1,137 -- 19,540
Intangible assets, net............................ -- 187,348 12,453 -- 199,801
Investments in subsidiaries and advances to
(from) subsidiaries........................... 443,472 206,538 (19,954) (630,056) --
---------- ----------- ---------- ---------- -----------
Total assets................................ $ 445,180 $ 1,160,510 $ 28,499 $ (630,056) $ 1,004,133
========== =========== ========== ========== ===========
Current liabilities:
Accounts payable and accrued expenses......... $ 1,337 $ 86,205 $ 17,081 $ -- $ 104,623
Income taxes payable.......................... -- 2,239 -- -- 2,239
Long-term debt due within one year............ -- 601 136 -- 737
---------- ----------- ---------- ---------- -----------
Total current liabilities................... 1,337 89,045 17,217 -- 107,599
Long-term debt.................................... -- 356,460 15 -- 356,475
Other long-term liabilities....................... 1,128 25,940 -- -- 27,068
Deferred income taxes............................. -- 64,833 -- -- 64,833
Minority interest in net assets of consolidated
joint venture................................. -- -- 5,443 -- 5,443
Total stockholders' equity........................ 442,715 624,232 5,824 (630,056) 442,715
---------- ----------- ---------- ---------- -----------
Total liabilities and stockholders' equity.. $ 445,180 $ 1,160,510 $ 28,499 $ (630,056) $ 1,004,133
========== =========== ========== ========== ===========
</TABLE>
F-10
<PAGE>
Vail Resorts, Inc.,
Notes to Consolidated Condensed Financial Statements--(Continued)
(Unaudited)
5. Guarantor Subsidiaries and Non-Guarantor Subsidiaries (Continued)
Supplemental Condensed Consolidating Statement of Operations
(in thousands)
<TABLE>
<CAPTION> Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
For the Three Months Ended October 31, 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues..................................... $ -- $ 54,108 $ 11,860 $ (139) $ 65,829
Total operating expenses........................... 706 82,921 14,573 (139) 98,061
---------- --------- ---------- ---------- ----------
Income (loss) from operations.................. (706) (28,813) (2,713) -- (32,232)
Other income (expense)............................. (4,326) (3,972) (289) -- (8,587)
Minority interest in net income of consolidated
joint venture.................................. -- -- 1,444 -- 1,444
---------- --------- ---------- ---------- ----------
Income (loss) before income taxes.............. (5,032) (32,785) (1,558) -- (39,375)
Benefit (provision) for income taxes........... 2,164 14,767 -- -- 16,931
---------- --------- ---------- ---------- ----------
Net income (loss) before equity in income of
consolidated subsidiaries...................... (2,868) (18,018) (1,558) -- (22,444)
Equity in income of consolidated subsidiaries...... (19,576) (1,558) -- 21,134 --
---------- --------- ---------- ---------- ----------
Net income (loss).................................. $ (22,444) $ (19,576) $ (1,558) $ 21,134 $ (22,444)
========== ========= ========== ========== ==========
<CAPTION>
For the Three Months Ended October 31, 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues..................................... $ -- $ 39,542 $ 9,162 $ (148) $ 48,556
Total operating expenses........................... 265 67,938 11,356 (148) 79,411
---------- --------- ---------- ---------- ----------
Income (loss) from operations.................. (265) (28,396) (2,194) -- (30,855)
Other income (expense)............................. -- (5,106) (123) -- (5,229)
Minority interest in net income of consolidated
joint venture.................................. -- -- 1,114 -- 1,114
---------- --------- ---------- ---------- ----------
Income (loss) before income taxes.............. (265) (33,502) (1,203) -- (34,970)
Benefit (provision) for income taxes........... 110 14,402 -- -- 14,512
---------- --------- ---------- ---------- ----------
Net income (loss) before equity in income of
consolidated subsidiaries...................... (155) (19,100) (1,203) -- (20,458)
Equity in income of consolidated subsidiaries...... (20,303) (1,203) -- 21,506 --
---------- --------- ---------- ---------- ----------
Net income (loss).................................. $ (20,458) $ (20,303) $ (1,203) $ 21,506 $ (20,458)
========== ========= ========== ========== ==========
</TABLE>
F-11
<PAGE>
Vail Resorts, Inc.,
Notes to Consolidated Condensed Financial Statements--(Continued)
(Unaudited)
5. Guarantor Subsidiaries and Non-Guarantor Subsidiaries (Continued)
Supplemental Condensed Consolidating Statement of Cash Flows
For the Three Months Ended October 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
For the Three Months Ended October 31, 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities........................ $ (1,311) $ 1,458 $ 225 $ -- $ 372
Cash flows from investing activities:
Resort capital expenditures............................. -- (25,254) (1,138) -- (26,392)
Investments in real estate.............................. -- (8,058) -- -- (8,058)
---------- ---------- -------- ------- ----------
Net cash provided by (used in) investing activities... -- (33,312) (1,138) -- (34,450)
Cash flows from financing activities:
Proceeds from the exercise of stock options............. 314 -- -- -- 314
Proceeds from borrowings under long-term debt........... -- 49,772 1,978 -- 51,750
Payments on long-term debt.............................. -- (24,356) -- -- (24,356)
Advances to (from) affiliates........................... 997 (485) (512) -- --
---------- ---------- -------- ------- ----------
Net cash provided by financing activities............ 1,311 24,931 1,466 -- 27,708
---------- ---------- -------- ------- ----------
Net increase in cash and cash equivalents................... -- (6,923) 553 -- (6,370)
Cash and cash equivalents:
Beginning of period..................................... -- 25,096 228 -- 25,324
---------- ---------- -------- ------- ----------
End of period........................................... $ -- $ 18,173 $ 781 $ -- $ 18,954
========== ========== ======== ======= ==========
<CAPTION>
For the Three Months Ended October 31, 1998
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities........................ $ (20,953) $ 35,752 $ (7,096) $ -- $ 7,703
Cash flows from investing activities:
Cash paid in hotel acquisitions, net of cash acquired... -- (33,800) -- -- (33,800)
Cash paid by consolidated joint venture in
acquisition of retail operations...................... -- -- (10,516) -- (10,516)
Resort capital expenditures............................. -- (21,562) (1,866) -- (23,428)
Investments in real estate.............................. -- (12,031) -- -- (12,031)
---------- ---------- -------- ------- ----------
Net cash provided by (used in) investing activities... -- (67,393) (12,382) -- (79,775)
Cash flows from financing activities:
Proceeds from the exercise of stock options............. 112 -- -- -- 112
Proceeds from borrowings under long-term debt........... -- 74,366 -- -- 74,366
Payments on long-term debt.............................. -- (1,376) -- -- (1,376)
Advances to (from) affiliates........................... 20,841 (39,084) 18,243 -- --
---------- ---------- -------- ------- ----------
Net cash provided by financing activities............ 20,953 33,906 18,243 -- 73,102
---------- ---------- -------- ------- ----------
Net increase in cash and cash equivalents................... -- 2,265 (1,235) -- 1,030
Cash and cash equivalents:
Beginning of period..................................... -- 19,512 -- -- 19,512
---------- ---------- -------- ------- ----------
End of period........................................... $ -- $ 21,777 $ (1,235) $ -- $ 20,542
========== ========== ======== ======= ==========
</TABLE>
F-12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the Company's July
31, 1999 Annual Report on Form 10-K and the consolidated condensed interim
financial statements as of October 31, 1999 and 1998 and for the three month
periods ended October 31, 1999 and 1998, included in Part I, Item 1 of this Form
10-Q, which provide additional information regarding the financial position,
results of operations and cash flows of the Company.
Three Months Ended October 31, 1999 versus Three Months Ended October 31, 1998
<TABLE>
<CAPTION>
Three Months Ended
October 31, Percentage
1999 1998 Increase Increase
--------------- --------------- --------------- ---------------
(unaudited)
(dollars in thousands)
<S> <C> <C> <C> <C>
Resort Revenue..................................... $ 56,859 $ 34,985 $21,874 62.5
Resort Operating Expense........................... 77,298 60,000 17,298 28.8
</TABLE>
Resort Revenue. Resort Revenue for the three months ended October 31, 1999
and 1998 is presented by category as follows:
<TABLE>
<CAPTION>
Three Months Ended
October 31, Percentage
1999 1998 Increase Increase
--------------- --------------- --------------- ---------------
(unaudited)
(dollars and skier days in thousands)
<S> <C> <C> <C> <C>
Lift Ticket....................................... $ 465 $ 177 $ 288 162.7
Ski School........................................ 36 19 17 89.5
Dining............................................ 11,789 6,808 4,981 73.2
Retail/Rental..................................... 14,964 9,396 5,568 59.3
Hospitality....................................... 15,468 9,934 5,534 55.7
Other............................................. 14,137 8,651 5,486 63.4
----------- ------------ ------------- ----------
Total Resort Revenue.............................. $ 56,859 $ 34,985 $ 21,874 62.5
=========== ============ ============= ==========
Total Skier Days.................................. 19 10 9 90.0
=========== ============ ============= ==========
ETP............................................... $ 24.47 $ 17.70 $ 6.77 38.3
=========== ============ ============= ==========
</TABLE>
Lift ticket revenue increased due to a 90.0% increase in total skier days
as well as a 38.3% increase in ETP (effective ticket price ("ETP") is defined as
total lift ticket revenue divided by total skier days). The increase in skier
days is due to an earlier opening of Breckenridge Mountain for the 1999-2000 ski
season as compared to the 1998-1999 season. The increase in ETP is primarily
attributable to a higher sales price on the Company's Buddy Pass season pass
product, a discounted season pass product for Keystone and Breckenridge
Mountains. Buddy Pass users make up a significant portion of early season resort
guests.
The increase in Ski School revenue is consistent with the increase in skier
days.
Dining revenue increased primarily as a result of the addition of eight
dining operations with the acquisition of Grand Teton Lodge Company ("GTLC") on
June 14, 1999, as well as the increase in skier days at the Company's Colorado
resorts. In addition, the Company experienced increased conference business,
which contributed to the revenue increase through increased banquet services.
1
<PAGE>
The increase in Retail/Rental revenue is attributable to the acquisition of
additional retail/rental outlets by the Company's retail/rental joint venture,
Specialty Sports Venture LLC, in October 1998.
Hospitality revenue increased as a result of the Company's acquisition of
GTLC in June 1999, which included three lodging operations. In addition,
existing operations had modest growth as a result of the increase in skier days
and increased conference business.
The increase in Other revenue is primarily attributable to the GTLC
acquisition, which provided a golf course operation and substantial other
recreational services. In addition, the Company had increased private club
membership sales related to the new Arrowhead Alpine Club and membership resales
at Beaver Creek Club. The Company's Licensing and Sponsorship activity
increased, and an increase in brokerage operations also contributed to the
increase in Other revenue.
Resort Operating Expense. Resort Operating Expense for the three months
ended October 31, 1999 was $77.3 million, an increase of $17.3 million, or
28.8%, compared to the three months ended October 31, 1998. The increase in
Resort Operating Expense is primarily attributable to the incremental operating
expenses contributed by GTLC's operations. A portion of the increase can also be
attributed to a shift in the revenue mix from lift tickets to revenues derived
from lower-margin lines of business such as dining, retail/rental and
hospitality operations. These operations tend to have a greater level of
variable operating expenses proportionate to revenues as compared to lift
operations.
Real Estate Revenue. Revenue from real estate operations for the three
months ended October 31, 1999 was $9.0 million, a decrease of $4.6 million, or
33.9%, compared to the three months ended October 31, 1998. The decrease is due
to a decrease in the Company's profit share from its investment in
Keystone/Intrawest LLC, as there is less inventory available for sale in the
first quarter of fiscal 2000 as compared to the first quarter of fiscal 1999.
Profits generated by Keystone/Intrawest LLC during the quarter ended October 31,
1999 included the sale of 30 village condominium units, primarily at the River
Run development. In addition, during the first quarter of fiscal 2000, the
Company sold two multi-family homesites at Bachelor Gulch Village and one
multi-unit development site at Arrowhead Village. Profits from
Keystone/Intrawest LLC during the quarter ended October 31, 1998 included the
sale of 106 village condominium units and 56 single-family homesites surrounding
the golf course; the Company also sold one single-family homesite at Bachelor
Gulch Village and three multi-unit developer sites at Arrowhead.
Real Estate Operating Expense. Real estate operating expense for the three
months ended October 31, 1999 was $5.9 million, a decrease of $1.7 million, or
23.0%, compared to the three months ended October 31, 1998. Real estate
operating expense consists primarily of the cost of sales and related real
estate commissions associated with the Bachelor Gulch and Arrowhead real estate
sales detailed above for both fiscal 2000 and fiscal 1999. Profits generated by
Keystone/Intrawest LLC are recorded using the equity method, therefore there are
no operating expenses associated with this joint venture. Real estate operating
expense also includes the selling, general and administrative expenses
associated with the Company's real estate operations.
Depreciation and Amortization. Depreciation and amortization expense
increased by $3.1 million, or 26.3%, for the three months ended October 31, 1999
as compared to the three months ended October 31, 1998. The increase was
primarily attributable to the inclusion of depreciation and amortization
associated with the GTLC acquisition and an increased fixed asset base due to
fiscal 1999 capital improvements.
Interest expense. During the three months ended October 31, 1999 and
October 31, 1998, the Company recorded interest expense of $8.9 million and $5.7
million, respectively, relating primarily to the Company's Credit Facility and
the Industrial Development Bonds. In addition, the three months ended October
31, 1999 reflect interest expense related to the Company's subordinated debt
issued in May 1999. The increase in interest expense for the three months ended
October 31, 1999 related to the subordinated debt is partially offset by a
reduction in the balance outstanding on the Credit Facility.
2
<PAGE>
Other. As the Company previously announced, we have softer than normal
bookings for the second quarter of fiscal 2000, especially during the millennium
holiday period, which is showing weakness across the whole of the U.S. travel
industry, although the current bookings for the Company's third quarter of
fiscal 2000 are encouraging. As the Company also stated, there have been
positive business developments for the Company for the 1999-2000 ski season
including increased season pass sales, positive booking trends at Vail/Eagle
County Airport and the scheduled opening of Vail Mountain's Blue Sky Basin on
January 6, 2000.
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 used for investing activities have historically
consisted of payments for acquisitions, resort capital expenditures, and
investments in real estate. During the three months ended October 31, 1999, the
Company made payments of $26.4 million for resort capital expenditures and $8.1
million for investments in real estate. The primary projects included in resort
capital expenditures were a) continued construction of the Blue Sky Basin
expansion on Vail Mountain, b) reconstruction and expansion of Two Elk lodge on
Vail Mountain, c) a new high-speed six-passenger chairlift at Breckenridge
Mountain, and d) construction of a new private on-mountain dining facility at
Beaver Creek. The primary projects included in investments in real estate were
a) continued construction of the Arrowhead Alpine Club, b) architectural and
engineering planning for future developments at Breckenridge, Vail and Avon, c)
continued development of Bachelor Gulch and Arrowhead Villages, and d)
investments in developable land at strategic locations at Breckenridge.
The Company estimates that it will make resort capital expenditures
totaling between $40 and $50 million during the remainder of fiscal 2000. The
primary projects are anticipated to include a) construction of a 37,500 square
foot exhibit hall at the Keystone Conference Center, and b) continuing
enhancements and upgrades to existing facilities at all resorts. Investments in
real estate during the remainder of fiscal 2000 are expected to total
approximately $42 million. The primary projects are anticipated to include a)
continued development of Bachelor Gulch and Arrowhead Villages, b) architectural
and engineering planning for future developments at Breckenridge, Vail and Avon,
c) golf course development near Beaver Creek, d) completion of construction of
the Arrowhead Alpine Club, and e) investments in developable land at strategic
locations at all four Colorado resorts. The Company plans to fund these capital
expenditures and investments in real estate with cash flow from operations and
borrowings under the Credit Facility.
During the three months ended October 31, 1999, the Company generated $27.7
million in cash flows from its financing activities consisting of net long-term
debt borrowings of $27.4 million and $0.3 million received from the exercise of
employee stock options.
During the three months ended October 31, 1999, 35,633 employee stock
options were exercised at exercise prices ranging from $6.85 to $10.75.
Additionally, 8,751 shares were issued to management under the Company's
restricted stock plan.
Based on current levels of operations and cash availability, management
believes the Company is in a position to satisfy its current working capital,
debt service, and capital expenditure requirements for at least the next twelve
months.
Year 2000 Compliance
The Year 2000 issue is a result of certain computer programs being written
using two digits rather than four to define the applicable year. Computer
programs which are date-sensitive may recognize a date using "00" as the year
1900 rather than the year 2000, which could result in major computer system or
program failures or miscalculations or equipment malfunctions. The Company
recognizes that the impact of the Year 2000 issue extends beyond traditional
computer hardware and software to embedded hardware and software contained in
equipment used in operations, such as chairlifts, alarm systems and elevators,
as well as to third parties.
3
<PAGE>
State of Readiness. The Year 2000 issue is being addressed internally by
the Company's individual business units under the direction of the information
systems department. The Company has established a Year 2000 task force
consisting of representatives from all major business units to coordinate its
Year 2000 efforts, and progress is reported periodically to a Year 2000
executive committee consisting of certain senior management members.
The Company has committed resources to conduct risk assessments and to take
corrective action, where required, within each of the following areas:
information technology, operations equipment, and external parties. Information
technology includes telecommunications as well as traditional computer software
and hardware in the mainframe, midrange and distributed applications
environments. Operations equipment includes all automation and embedded chips
used in business operations. External parties include any third party with whom
the Company interacts, or upon whom the Company relies in the performance of
day-to-day operations. The Company's program for addressing the Year 2000 issue
includes the following phases: (1) inventory; (2) assessment; (3) remediation;
(4) testing; and (5) contingency planning. Approximately 10% of the Company's
normal information technology work has been deferred due to the fact that
personnel of the information systems department have dedicated certain portions
of their time to the Year 2000 issue. However, the Company plans to complete and
implement its information technology projects as planned.
The Company has traditionally upgraded and replaced its information
technology systems on a regular basis. As a result of this process, most of the
Company's information technology systems and applications are currently Year
2000 compliant. In the remaining information technology area, inventory and
assessment audits in the telecommunications, mainframe, midrange and distributed
applications areas are complete. With respect to operations equipment, the
Company has identified areas that it considers "mission critical", in that a
Year 2000 failure could impact the health or safety of employees or resort
guests or could have a material adverse effect on the Company's operations. The
Company has engaged a third party consultant to assist in completing inventory
and assessment audits of operations equipment, these audits are substantially
complete. The Company has substantially completed remediation, verification and
testing with respect to operations.
The Company is communicating with its significant suppliers to determine
the extent to which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 issue. However, there can be no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted, or that a failure to convert by another company, or a conversion that
is incompatible with our systems, would not have a material adverse effect on
the Company's operations. Many of the external parties that the Company relies
on provide commodity goods or services that are widely available from a range of
vendors; therefore, third party impact is expected to be minimal. The Company is
seeking confirmation of Year 2000 compliance from critical suppliers and
identifying alternative suppliers as part of its contingency plans. The Company
will seek letters of compliance or other satisfactory evidence of compliance
(for example, web site disclosures) from certain non-critical suppliers based on
risk assessment of such suppliers. Risk assessment with respect to external
parties has been completed, although monitoring of risk in this area will
continue throughout 1999, as many external parties will not have completed their
work with respect to the Year 2000 issue.
Costs. The total estimated multi-year cost of the Year 2000 project is
estimated to be between $900,000 and $1,100,000 and is being funded from
operating cash flow. These costs are not expected to be material to the
Company's consolidated results of operations, liquidity or capital resources. Of
the total project cost, approximately $600,000 is attributable to the purchase
of new software or equipment that will be capitalized. The remaining costs will
be expensed as incurred. In a number of instances, the Company may decide to
install new software or upgraded versions of current software programs that are
Year 2000 compliant. In these instances, the Company may capitalize certain
costs of the new system in accordance with current accounting guidelines. As of
October 31, 1999, $800,000 of the total estimated Year 2000 project costs have
been incurred, of which $300,000 has been expensed and $500,000 was capitalized.
Fiscal 1999 and 1998 expensed costs were approximately $150,000 and $150,000,
respectively. Costs exclude expenditures for systems that were replaced under
the Company's regularly planned schedule.
4
<PAGE>
Risks. Failure to address a Year 2000 issue could result in a business
disruption that could materially affect the Company's operations, liquidity or
capital resources. Management believes that the most reasonably likely worst
case scenario would consist of isolated instances of minor system or equipment
failures, for which the Company will have developed contingency plans.
There is still uncertainty around the scope of the Year 2000 issue and its
implications for the Company. At this time management cannot quantify the
potential impact of these failures. Due to the general uncertainty inherent in
the Year 2000 problem, as well as, in part, the uncertainty of the Year 2000
readiness of suppliers and the current status of the Company's Year 2000
program, management is unable to determine at this time whether any Year 2000
failures will have material adverse consequences on the Company's results of
operations, liquidity or financial condition. The Company's Year 2000 program
and related contingency plans are being developed to address issues within the
Company's control and to reduce the level of the Company's uncertainty about its
Year 2000 issues. The program minimizes, but does not eliminate, the issues
relating to external parties. Further, there can be no assurance that the
Company will successfully identify or remediate its potential Year 2000 problems
and failure to do so may have a material adverse effect on the Company.
Contingency Plans. The Company is developing contingency plans which will
consider, among other factors, the results and responses from communications
with material third parties in determining the nature and the scope of such
contingency plans. However, generally, the Company's contingency plans will
include, but are not limited to, development of manual work-arounds to system
failures, identification of alternative sources for goods and services and
reasonable increases in the amount of on-hand goods and supplies. Typically
these plans address the anticipated consequences of single events, while the
scope of the Year 2000 issues may cause multiple concurrent events for a longer
duration. Development of contingency plans is now expected to be completed by
December 15, 1999.
The costs of the project, estimated completion dates, worst-case scenario
and other forward-looking statements above are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantees that
these estimates will be achieved, or that events will occur as projected, and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, timely implementation
of and allocation of resources to the Company's Year 2000 program, success in
identifying computer systems and non-information technology systems that contain
two digit date codes, appropriate risk assessment and prioritization of such
systems, the nature and amount of programming and testing required and the time
it actually takes to upgrade, replace or otherwise take corrective action with
respect to each of the affected systems and the success of the Company's
suppliers and other external parties with which the Company interacts in
addressing their Year 2000 issues.
Cautionary Statement
Statements in this Form 10-Q, other than statements of historical
information, are forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Such risks and uncertainties include,
but are not limited to:
. a significant downturn in general business and economic
conditions,
. adverse weather conditions, particularly inadequate snowfall for
the millennium holiday period and the 1999/2000 ski season,
. Year 2000 failures, including Year 2000 impacts on travel
patterns,
. competition in the ski and resort industry, and
. failure to successfully integrate acquisitions.
Readers are also referred to the uncertainties and risks identified in the
Company's Registration Statement on Form S-4 for its Senior Subordinated Debt
exchange notes (Commission File No. 333-80621) and the Annual Report on Form
10-K for the year ended July 31, 1999.
5
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk. The Company enters into interest rate swap agreements
("Swap Agreements") to reduce its exposure to interest rate fluctuations on its
floating-rate debt. Swap Agreements exchange floating-rate for fixed-rate
interest payments periodically over the life of the agreement without exchange
of the underlying notional amounts. The notional amounts of interest rate
agreements are used to measure interest to be paid or received and do not
represent an amount of exposure to credit loss. For interest rate instruments
that effectively hedge interest rate exposures, the net cash amounts paid or
received on the agreements are accrued and recognized as an adjustment to
interest expense. As of October 31, 1999 the Company had Swap Agreements in
effect with notional amounts totaling $150.0 million, of which $75.0 million
will mature in February 2000. The remaining $75.0 million will mature December
2002. Borrowings not subject to Swap Agreements at October 31, 1999 totaled
$275.6 million. Swap Agreement rates are based on one-month LIBOR. Based on
average floating-rate borrowings outstanding during the year ended October 31,
1999, a 100-basis point change in LIBOR would have caused the Company's monthly
interest expense to change by $31,951. Management believes that these amounts
are not significant to the Company's earnings.
6
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes In Securities And Use Of Proceeds.
On November 1, 1999 the Company issued 40,413 shares of Common Stock in the
aggregate in connection with the acquisition of VailNet, Inc. and InterNetWorks,
Inc. as partial consideration for the purchase price. The securities were issued
in a private placement in reliance on Section 4(2) of the Securities Act of
1933, as amended.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission Of Matters To A Vote Of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits And Reports On Form 8-K.
a) 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>
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.)
4.2 Purchase Agreement, dated as of May 6, 1999 among Vail Resorts,
Inc., the guarantors named on Schedule I thereto, and Bear
Sterns & Co. Inc., NationsBanc Montgomery Securities LLC, BT
Alex. Brown Incorporated, Lehman Brothers Inc. and Salomon
Smith Barney Inc. (Incorporated by reference to Exhibit 4.2 of
the Registration Statement on Form S-4 of Vail Resorts, Inc.
(Registration No. 333-80621) including all amendments thereto.)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<S> <C> <C>
4.3 Indenture, dated as of May 11, 1999, among Vail Resorts, Inc,
the guarantors named therein and the United States Trust
Company of New York, as trustee. (Incorporated by reference
to Exhibit 4.3 of the Registration Statement on Form S-4 of
Vail Resorts, Inc. (Registration No. 333-80621) including all
amendments thereto.)
4.4 Form of Global Note (Included in Exhibit 4.3 incorporated by
reference to Exhibit 4.3 of the Registration Statement on
Form S-4 of Vail Resorts, Inc. (Registration No. 333-80621)
including all amendments thereto.)
4.5 Registration Rights Agreement, dated as of May 11, 1999 among
Vail Resorts, Inc., the guarantors signatory thereto and Bear
Stearns & Co. Inc., NationsBanc Montgomery Securities LLC, BT
Alex. Brown Incorporated, Lehman Brothers Inc. and Salomon
Smith Barney Inc. (Incorporated by reference to Exhibit 4.5
of the Registration Statement on Form S-4 of Vail Resorts,
Inc. (Registration No. 333-80621) including all amendments
thereto.)
4.6 First Supplemental Indenture, dated as of August 22, 1999,
among the Company, the guarantors named therein and the
United States Trust Company of New York, as trustee.
(Incorporated by reference to Exhibit 4.6 of the Registration
Statement on Form S-4 of Vail Resorts, Inc. (Registration No.
333-80621) including all amendments thereto.)
10.1 Management Agreement by and between Beaver Creek Resort
Company of Colorado and Vail Associates, Inc. (Incorporated
by reference to Exhibit 10.1 of the Registration Statement on
Form S-4 of Gillett Holdings, Inc. (Registration No.
33-52854) including all amendments thereto.)
10.2 Forest Service Term Special Use Permit for Beaver Creek ski
area. (Incorporated by reference to Exhibit 10.2 of the
Registration Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all amendments
thereto.)
10.3 Forest Service Special Use Permit for Beaver Creek ski area.
(Incorporated by reference to Exhibit 10.3 of the
Registration Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all amendments
thereto.)
10.4 Forest Service Unified Permit for Vail ski area.
(Incorporated by reference to Exhibit 10.4 of the
Registration Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all amendments
thereto.)
10.6 Joint Liability Agreement by and among Gillett Holdings, Inc.
and the subsidiaries of Gillett Holdings, Inc. (Incorporated
by reference to Exhibit 10.10 of the Registration Statement
on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-
52854) including all amendments thereto.)
10.7 Management Agreement between Gillett Holdings, Inc. and
Gillett Group Management, Inc. dated as of the Effective
Date. (Incorporated by reference to Exhibit 10.11 of the
Registration Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all amendments
thereto.)
10.8 Amendment to Management Agreement by and among the Company
and its subsidiaries dated as of November 23, 1993.
(Incorporated by reference to Exhibit 10.12(b) of the report
on Form 10-K of Gillett Holdings, Inc. for the period from
October 9, 1992 through September 30, 1993.)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<S> <C> <C>
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 Lenders named therein and NationsBank of
Texas, N.A. as agent. (Incorporated by reference to Exhibit
10.11(a) of the report on Form 10-K of Vail Resorts, Inc.
for the year ended September 30, 1997.)
10.11(b) Pledge Agreement dated as of January 3, 1997 among the Vail
Corporation and NationsBank of Texas, N.A. as agent.
(Incorporated by reference to Exhibit 10.11(b) of the report
on Form 10-K of Vail Resorts, Inc. for the year ended
September 30, 1997.)
10.11(c) Credit Agreement dated as of October 10, 1997 among the Vail
Corporation and NationsBank of Texas, N.A., as lender.
(Incorporated by reference to Exhibit 10-11(c) of the report
on Form 10-K of Vail Resorts, Inc. for the year ended
September 30, 1997.)
10.11(d) Trust Indenture dated as of September 1, 1992 between Eagle
County, Colorado, and Colorado National Bank, as Trustee,
securing Sports Housing Facilities Revenue Refunding Bonds.
(Incorporated by reference to Exhibit 10.16(g) of the
Registration Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all amendments
thereto.)
10.11(e) First Amendment to Trust Indenture dated as of November 23,
1993 between Eagle County, Colorado and Colorado National
Bank, as Trustee, securing Sports and Housing Facilities
Revenue Refunding Bonds. (Incorporated by reference to
Exhibit 10.17(f) of the report on Form 10-K of Gillett
Holdings, Inc. for the period from October 9, 1992 through
September 30, 1993.)
10.11(f) Trust Indenture dated as of September 1, 1992 between Eagle
County, Colorado, and Colorado National Bank, as Trustee,
securing Sports Facilities Revenue Refunding Bonds.
(Incorporated by reference to Exhibit 10.16(h) of the
Registration Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all amendments
thereto.)
10.11(g) First Amendment to Trust Indenture dated as of November 23,
1993 between Eagle County, Colorado and Colorado National
Bank, as Trustee, securing Sports Facilities Revenue
Refunding Bonds. (Incorporated by reference to Exhibit
10.17(h) of the report on Form 10-K of Gillett Holdings,
Inc. for the period from October 9, 1992 through September
30, 1993.)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<S> <C> <C>
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>
10
<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 1993 Stock Option Plan of Gillett Holdings, Inc.
(Incorporated by reference to Exhibit 10.20 of the report on
Form 10-K of Gillett Holdings, Inc. for the period from
October 9, 1992 through September 30, 1993.)
10.14 Agreement to Settle Prospective Litigation and for Sale of
Personal Property dated May 10, 1993, between the Company,
Clifford E. Eley, as Chapter 7 Trustee of the Debtor's
Bankruptcy Estate, and George N. Gillett, Jr. (Incorporated
by reference to Exhibit 10.21 of the report on Form 10-K of
Gillett Holdings, Inc. for the period from October 9, 1992
through September 30, 1993.)
10.15 Employment Agreement dated October 1, 1996 between Vail
Associates, Inc. and Andrew P. Daly. (Incorporated by
reference to Exhibit 10.5 of the report on Form S-2/A of
Vail Resorts, Inc. (Registration # 333-5341) including all
amendments thereto.)
10.16 Employment Agreement dated July 29, 1996 between Vail
Resorts, Inc. and Adam M. Aron. (Incorporated by reference
to Exhibit 10.21 of the report on form S-2/A of Vail
Resorts, Inc. (Registration # 333-5341) including all
amendments thereto.)
10.17 Shareholder Agreement among Vail Resorts, Inc., Ralston
Foods, Inc., and Apollo Ski Partners dated January 3, 1997.
(Incorporated by reference to Exhibit 2.4 of the report on
Form 8-K of Vail Resorts, Inc. dated January 8, 1997.)
10.18 1996 Stock Option Plan (Incorporated by reference from the
Company's Registration Statement on Form S-3, File No.
333-5341).
10.19 Agreement dated October 11, 1996 between Vail Resorts, Inc.
and George Gillett. (Incorporated by reference to Exhibit
10.27 of the report on form S-2/A of Vail Resorts, Inc.
(Registration # 333-5341) including all amendments thereto.)
10.20 Amended and Restated Credit Agreement among the Vail
Corporation (d/b/a "Vail Associates, Inc.") and NationsBank
of Texas, N.A. (Incorporated by reference to Exhibit 10 of
the report on Form 10-Q of Vail Resorts, Inc. for the
quarter ended January 31, 1998.)
10.21 Sports and Housing Facilities Financing Agreement among the
Vail Corporation (d/b/a "Vail Associates, Inc.") and Eagle
County, Colorado, dated April 1, 1998. (Incorporated by
reference to Exhibit 10 of the report on Form 10-Q of Vail
Resorts, Inc. for the quarter ended April 30, 1998.)
10.22 Credit agreement dated December 30, 1998 among SSI Venture
LLC and NationsBank of Texas, N.A., (Incorporated by
reference to Exhibit 10.24 of the report on Form 10-Q of
Vail Resorts, Inc. for the quarter ended January 31, 1999.)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<S> <C> <C>
10.23 Amended and Restated Credit Agreement among The Vail
Corporation (d/b/a "Vail Associates, Inc"), and NationsBank,
N.A. and NationsBanc Montgomery Securities LLC dated as of
May 1, 1999. (Incorporated by reference to Exhibit 10.25 of
the report on Form 10-Q of Vail Resorts, Inc. for the quarter
ended April 30, 1999.)
10.24 Employment Agreement dated October 28, 1996 by and between
Vail Resorts, Inc. and James P. Donohue. 14
21 Subsidiaries of Vail Resorts, Inc. (Incorporated by reference
to Exhibit 21 of the report on Form 10-K of Vail Resorts,
Inc. for the fiscal year ended July 31, 1999.)
27 Financial Data Schedules
</TABLE>
b) Reports on Form 8-K
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements 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 December 14, 1999.
VAIL RESORTS, INC.
Date: December 14, 1999 By /s/ James P. Donohue
---------------------------
James P. Donohue
Senior Vice President and
Chief Financial Officer
13
<PAGE>
Exhibit 10.24
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of October 28, 1996 by and between VAIL
RESORTS, INC., a Delaware corporation ("VRI") and JAMES P. DONOHUE (hereinafter
referred to as "Executive").
RECITALS
1. VRI desires to employ Executive to render services to it for the
period and upon the terms and conditions provided for in this Agreement; and
2. Executive wishes to serve in the employ of VRI for its benefit for
the period and upon the terms and conditions provided for in this Agreement.
COVENANTS
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment.
----------
(a) VRI hereby employs Executive to serve as Senior Vice
President & Chief Financial Officer of VRI on the terms and conditions set forth
herein. In such capacities, Executive shall have the responsibilities normally
associated with such positions, subject to the supervision and control of the
Board of Directors (the "Board") and chief executive officer (the "CEO").
(b) Executive accepts employment by VRI and agrees that,
during the term of his employment, he will devote substantially all his time and
best efforts to the performance of his duties hereunder, which duties shall be
performed in an efficient and competent manner and to the best of his ability.
Executive further agrees that, during the term of this Agreement, he will not,
without the prior written consent of the CEO, directly or indirectly engage in
any manner in any business or other endeavor, either as an owner, employee,
officer, director, independent contractor, agent, partner, advisor, or in any
other capacity calling for the rendition of his personal services. This
restriction will not preclude Executive from having passive investments, and
devoting reasonable time to the supervision thereof (so long as such does not
create a conflict of interest or interfere with Executive's obligations
hereunder), in any business or enterprise which is not in competition with any
business or enterprise of VRI or an of its subsidiaries or affiliates, including
Vail Associates, Inc., (collectively, the "Companies").
2. Compensation.
------------
For all services rendered by Executive to or on behalf of the
Companies, VRI shall pay to Executive, subject to any and all withholdings and
deductions required by law, the following compensation in accordance with the
normal payroll practices of VRI:
14
<PAGE>
(a) Base Salary. Executive shall receive regular compensation at the
-----------
initial rate of Three Hundred Thousand Dollars ($300,000) per year (the "Base
Salary"). Executive's Base Salary shall be reviewed annually by the CEO and the
Board. Any increases or decreases in such Base Salary shall be at the discretion
of the CEO and the Board, and Executive acknowledges that the CEO and the Board
are not obligated to make any increases. Executive's Base Salary shall not be
lowered from the initial Base Salary set forth above during the term of this
Agreement without his written consent.
(b) Bonuses, etc. Executive shall also be considered annually for
------------
bonuses, deferred compensation, and/or stock options based upon his performance
in light of objectives established by the Board, it being understood that any
such awards are at the discretion of the CEO and the Board. Without limiting the
generality of the foregoing, Executive shall be eligible to participate in (i)
the Long-Term Incentive Plan of VRI (the "LTIP"), and (ii) any other bonus,
incentive, deferred compensation and fringe benefit plans as VRI shall make
generally available to other employees in senior management positions in
accordance with the terms of the relevant contracts, policies or plans providing
such benefits, all on such terms as the Board may determine. If any such
compensation or benefits are paid or made available, it shall be at such time or
times as the Board shall determine, based upon such factors, if any, as the
Board may establish. Executive specifically acknowledges that the LTIP as
currently in effect, and envisioned for the future, provides for deferral and
possible forfeiture of earned bonus compensation depending on future year
performance.
(c) Insurance. Executive shall also receive, at VRI's expense, health,
---------
medical, dental, long-term disability and life insurance pursuant to such plans
as are from time to time adopted by the Board.
(d) Expense Reimbursement; Club Memberships. Executive shall have a
---------------------
travel and entertainment budget which is reasonable in light of his position and
responsibilities and shall be reimbursed for all reasonable business-related
travel and entertainment expenses incurred by him thereunder upon submission of
appropriate documentation thereof. Executive shall, subject to applicable rules
and bylaws in effect from time to time, be entitled to the benefits of
membership at the Beaver Creek Club and the Game Creek Club, provided however,
that Executive shall not actually be a member of such clubs and in no event
shall Executive be entitled to any claim of reimbursement of any initiation or
similar fee. Further, Executive shall be solely responsible for the payment of
any and all charges incurred at such clubs, excluding only the payment of any
regular dues which Executive shall not be obligated to pay.
(e) Relocation Reimbursement. Executive shall be entitled to up to
------------------------
$100,000 to reimburse all documented moving and relocation expenses, including a
tax equivalency payment (i.e., a "gross-up" for state and federal income taxes).
Reimbursement shall be made to Executive within 15 days of written request
therefor accompanied by appropriate documentation of such expenses, and shall
include repayment of (i) all costs incurred by Executive in selling his
residence in California, including legal fees, transfer and stamp taxes,
brokers' commissions, and other customary closing costs, and (ii) all costs of
moving and or storing Executive's furniture, other possessions and automobiles.
15
<PAGE>
3. Term and Termination.
--------------------
(a) Term and Renewal. The Effective Date of this Agreement shall be
October 1, 1996. Unless terminated earlier, as hereinafter provided, the term of
this Agreement shall be for the period commencing with the Effective Date and
continuing through September 30, 1999; provided, however, that unless either VRI
or Executive gives written notice of non-renewal to the other not less than 120
days prior to the then-current scheduled expiration date, this Agreement shall
thereafter be automatically renewed for successive one-year periods.
(b) Termination for Cause. VRI, acting through the CEO, may terminate
---------------------
this Agreement at any time for cause by giving Executive written notice
specifying the effective date of such termination and the circumstances
constituting such cause. For purposes of this Agreement, "cause" shall mean (i)
any conduct involving dishonesty, gross negligence, gross mismanagement, the
unauthorized disclosure of confidential information or trade secrets or a
violation of VRI's code of conduct which has a material detrimental impact on
the reputation, goodwill or business position of any of the Companies; (ii)
gross obstruction of business operations or illegal or disreputable conduct by
Executive which materially impairs the reputation, goodwill or business position
of any of the Companies, including acts of unlawful sexual harassment; or (iii)
any action involving a material breach of the terms of the Agreement including,
without limitation after 15 days' written notice and opportunity to cure to the
Board's satisfaction, material inattention to or material neglect of duties. In
the event of a termination for cause, Executive shall be entitled to receive
only his then-current Base Salary through the date of such termination and any
fully vested stock options or shares and other applicable benefits generally
available to terminated executives at VRI (not to be deemed to include severance
payments or salary continuation). Further, Executive acknowledges that in the
event of such a termination for cause, he shall not be entitled to receive any
LTIP or other bonus for the year of termination nor any portion of any deferred
LTIP or other deferred compensation.
(c) Termination Without Cause or Non-Renewal. VRI may terminate this
----------------------------------------
Agreement at any time without cause, by giving Executive written notice
specifying the effective date of such termination. In the event of a termination
without cause, or if VRI gives notice of non-renewal of this Agreement as
provided in Section 3(a), and provided that Executive executes a written release
in connection with such termination substantially in the form attached hereto as
Annex I (the "Release"), Executive shall be entitled to receive (i) his
then-current Base Salary through the date of such termination or non-renewal,
(ii) in the event that the applicable Board-established performance targets for
the year are achieved, a pro-rated bonus for the portion of the year in which
such termination or non-renewal occurs, which pro-rated bonus shall be payable
in the same form and at the same time as bonus payments are made to VRI's senior
executives generally, (iii) continuation of his then-current Base Salary through
the first anniversary of the date of termination or non-renewal, (iv) any fully
vested stock options or shares, and (v) all deferred LTIP compensation earned by
Executive with respect to prior years, which amounts shall be payable at VRI's
option either in a lump sum within 30 days of termination or in accordance with
the terms of the applicable LTIP. Notwithstanding the foregoing, should VRI and
Executive mutually agree to waive, in writing, Executive's compliance with the
provisions of Section 4 hereof within 60 days of such termination or expiration,
then Executive shall be under an obligation to mitigate damages by seeking other
employment and the Base Salary continuation shall be reduced by compensation
received by Executive from other employment or self-employment following such
waiver.
16
<PAGE>
(d) Termination By Executive For Good Reason. Executive shall be
----------------------------------------
entitled to terminate this Agreement at any time for good reason by giving VRI
not less than ninety (90) days prior written notice. For purposes of this
Agreement, "good reason" shall mean (i) VRI shall breach its obligations
hereunder in any material respect and shall fail to cure such breach within 60
days following written notice thereof from Executive, (ii) VRI or Vail
Associates, Inc. shall cease to operate any major ski resort in Colorado, or
(iii) VRI shall effect a material diminution in Executive's reporting
responsibilities, titles, authority, offices or duties as in effect immediately
prior to such change. In such event, provided that Executive has executed the
Release, Executive shall be entitled to receive (i) his then-current Base Salary
through the date of such termination, (ii) in the event that the applicable
Board-established performance targets for the year are achieved, a pro-rated
bonus for the portion of the year in which such termination occurs, which
pro-rated bonus shall be payable in the same form and at the same time as bonus
payments are made to VRI's senior executives generally, and (iii) continuation
of his then-current Base Salary through the first anniversary of the date of
such termination, (iv) any fully vested stock options or shares, and (v) all
deferred LTIP compensation earned by Executive with respect to prior years,
which amounts shall be payable at VRI's option either in a lump sum within 30
days of termination or in accordance with the terms of the applicable LTIP.
(e) Termination By Executive Without Good Reason. Executive may also
--------------------------------------------
terminate this Agreement at any time without good reason by giving VRI at least
one hundred twenty (120) days prior written notice. In such event, provided that
Executive has executed the Release, Executive shall be entitled to receive only
his then-current Base Salary through the date of termination and any fully
vested stock options or shares and other applicable benefits generally available
to terminated executives at VRI (not to be deemed to include severance payments
or salary continuation). Further, Executive acknowledges that in the event of
such a termination without good reason, he shall not be entitled to receive any
LTIP or other bonus for the year of termination nor any portion of any deferred
LTIP or other deferred compensation.
(f) Termination Due To Disability. In the event that Executive becomes
-----------------------------
permanently disabled (as determined by the CEO and the Board in good faith
according to applicable law), VRI shall have the right to terminate this
Agreement upon written notice to Executive; provided, however, that in the event
that Executive executes the Release, Executive shall be entitled to receive (i)
his then-current Base Salary through the date of such termination, (ii) in the
event the applicable Board-established performance targets for the year are
achieved, a pro-rated bonus for the portion of the year in which such
termination occurs, which pro-rated bonus shall be payable in the same form and
at the same time as bonus payments are made to VRI's senior executives generally
and (iii) continuation of his then-current Base Salary through, the earlier of
(x) the scheduled expiration date of this Agreement (but in no event less than
12 months from the date of disability) or (y) the date on which his long-term
disability insurance payments commence. Further, Executive shall be entitled to
retain all fully vested stock options and shares.
17
<PAGE>
(g) Termination Due To Death. This Agreement shall be deemed
------------------------
automatically terminated upon the death of Executive. In such event, provided
Executives personal representative executes a release substantially in the form
or the Release, Executive's personal representative shall be entitled to receive
(i) the Executive's then-current Base Salary through such date of termination,
and (ii) in the event that the applicable Board-established performance targets
for the year are achieved, a pro-rated bonus for the portion of the year in
which such termination occurs, which pro-rated bonus shall be payable in the
same form and at the same time as bonus payments are made to senior executives
generally. Further, Executive's personal representative shall be entitled to
retain any stock options pursuant to the terms of the applicable stock option
agreement.
(h) Change in Control. Notwithstanding the above, in the event that at
-----------------
any time after six (6) months following a change in control of VRI (i) this
Agreement is terminated by VRI without cause, (ii) this Agreement is terminated
by Executive for good reason, or (iii) VRI gives notice of non-renewal of this
Agreement, then in any such case, provided that Executive has executed the
Release, Executive shall be entitled to receive (i) his then-current Base Salary
through the date of such termination or non-renewal, (ii) in the event that the
applicable Board-established performance targets for the year are achieved, a
pro-rated bonus for the portion of the year in which such termination occurs,
which pro-rated bonus shall be payable in the same form and at the same time as
bonus payments are made to senior executives generally, (iii) continuation of
his then-current Base Salary for a period of 18 months from the date of
termination or non-renewal, (iv) any fully vested stock options or shares, and
(v) all deferred LTIP compensation earned by Executive with respect to prior
years, which amounts shall be payable at VRI's option either in a lump sum
within 30 days of termination or in accordance with the terms of the applicable
LTIP. For purposes of this Agreement, a "change in control" shall mean the
acquisition by any person or group of affiliated persons (other than Apollo Ski
Partners, L.P. and its affiliates) of equity securities of VRI or Vail
Associates, Inc. representing either a majority of the combined ordinary voting
power of all outstanding voting securities of VRI or Vail Associates, Inc. or a
majority of the common equity interest in VRI or Vail Associates, Inc.
(i) Other Benefits. During any period in which Executive is entitled to
--------------
Base Salary continuation following termination or expiration of this Agreement
under the terms of this Section 3, Executive shall also be entitled to
continuation of then-current health, dental and other insurance benefits for
Executive and his dependents at VRI's expense. Except as expressly set forth in
this Section 3, Executive shall not be entitled to receive any compensation or
other benefits in connection with termination of his employment; provided,
however, that termination of Executive's employment hereunder shall not affect
his right to receive deferred compensation earned prior to such termination
(which amounts shall be payable at VRI's option either in a lump sum within 30
days of termination or in accordance with the terms of the applicable plan) or
his rights to vested retirement benefits, in accordance with the terms of the
applicable plan. Notwithstanding the foregoing, all deferred compensation shall
be forfeited by Executive in the event of termination of employment pursuant to
Section 3(b) or Section 3(e) of this Agreement.
18
<PAGE>
(j) Payment of Salary Continuation. Payment of Base Salary following
------------------------------
termination of this Agreement as required by this Section 3 shall be made in
accordance with VRI normal payroll practices; provided, however, that in the
event of a breach by Executive of the provisions of Sections 4, 5, 6 or 7
hereof, VRI shall be entitled to cease all such payments. No termination of this
Agreement shall affect any of the rights and obligations of the parties hereto
under Sections 4, 5, 6 and 7, but such rights and obligations shall survive such
termination in accordance with the terms of such sections.
4. Non-Competition.
---------------
The provisions of this Section 4 shall apply for a period of one (1) year
beginning with the date of termination of Executive's employment with VRI
for any reason. During such period, Executive will not, without the prior
written consent of the CEO, directly or indirectly, become associated,
either as owner, employee, officer, director, independent contractor, agent,
partner, advisor or in any other capacity calling for the rendition of
personal services, with any individual, partnership, corporation, or other
organization (i) in Eagle County or Summit County, Colorado whose business
or enterprise is competitive in any way with any of the businesses or
enterprises of any of the Companies or (ii) in the states of Colorado,
Nevada, Idaho, California or Utah whose business or enterprise is alpine or
nordic ski area operation; provided, however, that the foregoing shall not
preclude Executive from having passive investments in less than five percent
(5%) of the outstanding capital stock of a competitive corporation which is
listed on a national securities exchange or regularly traded in the
over-the-counter market or which have been approved in writing by the CEO.
If, for any reason, any portion of this covenant shall be held to be
unenforceable it shall be deemed to be reformed so that it is enforceable to
the maximum extent permitted by law.
Further, Executive covenants and agrees that, during his employment by
VRI and for the period of one year thereafter, Executive will not solicit for
another business or enterprise any person who is a managerial or higher level
employee of VRI at the time of Executive's termination.
5. Document Return; Resignations.
-----------------------------
Upon termination of Executive's employment with VRI for any reason,
Executive agrees that he shall promptly surrender to VRI all letters, papers,
documents, instruments, records, books, products, and any other materials owned
by any of the Companies or used by Executive in the performance of his duties
under this Agreement. Additionally, upon termination of Executive's employment
with VRI for any reason, Executive agrees to immediately resign from, and
execute appropriate resignation letters relating to, all management or board
positions he may have by reason of his employment or involvement with VRI,
specifically including but not limited to the Board, any of the Companies, the
Beaver Creek Resort Company of Colorado and the various homeowner and industry
associations in which Executive serves at the direction of VRI (the
"Associations").
19
<PAGE>
6. Confidentiality.
---------------
During the term of this Agreement, and at all times following tile
termination of Executive's employment with VRI for any reason, Executive shall
not disclose, directly or indirectly, to any person, firm or entity, or any
officer, director, stockholder, partner, associate, employee, agent or
representative thereof, any confidential information or trade secrets of any of
the Companies, the Beaver Creek Resort Company of Colorado or the Associations.
7. Non-Disparagement.
-----------------
For a period of five (5) years following the termination of Executive's
employment with VRI for any reason, Executive agrees that he shall not make
any statements disparaging of any of the Companies, the Board, and the
officers, directors, stockholders, or employees of any of the Companies, the
Beaver Creek Resort Company of Colorado or the Associations. VRI shall
similarly not disparage Executive following such termination, it being
understood that, subject to the terms of this Section 7, VRI and Executive,
as appropriate, may respond truthfully to inquiries from prospective
employers of Executive, or as may be required by any governmental or
judicial body acting in their official capacity.
8. Injunctive Relief.
-----------------
The parties acknowledge that the remedy at law for any violation or
threatened violation of this Agreement will be inadequate and that, accordingly,
either party shall be entitled to injunctive relief in the event of such a
violation or threatened violation without being required to post bond or other
surety. The above stated remedies shall be in addition to, and not in limitation
of, any other rights or remedies to which either party is or may be entitled at
law, in equity, or under this Agreement.
9. Non-Assignability.
-----------------
It is understood that this Agreement has been entered into personally
by the parties. Neither party shall have the right to assign, transfer, encumber
or dispose of any duties, rights or payments due hereunder, which duties, rights
and payments with respect hereto are expressly declared to be non-assignable and
non-transferable, being based upon the personal services of Executive, and any
attempted assignment or transfer shall be null and void and without binding
effect on either party; provided, however, that, subject to Executive's rights
under Section 3(h) hereof, VRI may assign this Agreement to any affiliate or
successor corporation.
10. Complete Agreement
------------------
This Agreement constitutes the full understanding and entire employment
agreement of the parties, and supersedes and is in lieu of any and all other
understandings or agreements between VRI and Executive. Nothing herein is
intended to limit any rights or duties Executive has under the terms of any
applicable stock option, incentive or other similar agreements.
20
<PAGE>
11. Arbitration.
-----------
Any controversy or claim arising out of or in relation to this
Agreement or any breach thereof shall be settled by arbitration in Vail,
Colorado in accordance with the Commercial Arbitration Rules then in effect of
the American Arbitration Association (hereinafter "AAA Rules") before a panel of
three arbitrators, one of whom shall be selected by VRI, the second of whom
shall be selected by Executive and the third of whom shall be selected by the
other two arbitrators; provided, however, that to the extent that any of the AAA
Rules or any portion thereof is inconsistent with the provisions of this Section
11, the provisions of this Section shall govern. If for any reason the AAA Rules
cannot be followed or if any one of the parties fails or refuses to select an
arbitrator within thirty (30) days after the time of notification of demand for
arbitration by the other, or if the arbitrators selected by the parties to this
Agreement cannot agree on the selection of a third arbitrator within thirty (30)
days after such time as VRI and Executive have each been notified of the
selection of the other's arbitrator, the necessary arbitrator or arbitrators
shall be selected by the Chief Judge of the Fifth Judicial District or, if that
officer fails or refuses to make an appointment, by the President of the
Colorado Bar Association. In the event that any controversy or claim is
submitted for arbitration hereunder relating to the failure or refusal by VRI or
Executive to perform in full all of its obligations hereunder, VR1 or Executive,
as applicable, shall have the burden of proof (as to both production of evidence
and persuasion) with respect to the justification for such failure or refusal.
Any award entered by the arbitrators shall be final, binding and non-appealable,
and judgment may be entered thereon by any party in accordance with the
applicable law in any court of competent jurisdiction. The arbitrators shall
award the prevailing party its reasonable attorneys' fees and costs. The
arbitrators shall not have the power to direct equitable relief.
12. Amendments.
----------
Any amendment to this Agreement shall be made only in writing and
signed by each of the parties hereto.
13. Governing Law.
-------------
The internal laws of the State of Colorado law shall govern the
construction and enforcement of this Agreement.
14. Notices.
-------
Any notice required or authorized hereunder shall be deemed delivered
with deposited, postage prepaid, in the United States mail, certified, with
return receipt requested, addressed to the parties as follows:
21
<PAGE>
James P. Donohue
P.O. Box 1526
Avon, Colorado 81620
Vail Resorts, Inc.
P.O. Box 7
Vail, Colorado 81658
Attn: Chief Executive Officer
cc: General Counsel
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 28th day of October, 1996.
EMPLOYER:
VAIL RESORTS, INC.
By: ______________________________________
Its: ____________________________________
EXECUTIVE:
__________________________________________
James P. Donohue
22
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