<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 April 30, 2000
--------------------------------------------------
[_] 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
---------------------------------------------------------
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
--------------------------------------------------------------------------------
(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 June 9, 2000, 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
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
<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................................. 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................... 8
Item 2. Changes in Securities and Use of Proceeds.................................................. 8
Item 3. Defaults Upon Senior Securities............................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders........................................ 8
Item 5. Other Information.......................................................................... 8
Item 6. Exhibits and Reports on Form 8-K........................................................... 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Condensed Balance Sheets as of April 30, 2000 and July 31, 1999
and April 30, 1999............................................................ F-2
Consolidated Condensed Statements of Operations for the Three Months Ended
April 30, 2000 and 1999....................................................... F-3
Consolidated Condensed Statements of Operations for the Nine Months Ended
April 30, 2000 and 1999....................................................... F-4
Consolidated Condensed Statements of Cash Flows for the Nine Months Ended
April 30, 2000 and 1999....................................................... F-5
Notes to Consolidated Condensed Financial Statements............................ F-6
</TABLE>
F-1
<PAGE>
Vail Resorts, Inc.
Consolidated Condensed Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
April 30, July 31, April 30,
2000 1999 1999
---------- ---------- ----------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................ $ 29,864 $ 25,324 $ 10,063
Receivables, net................................................. 43,078 29,650 47,917
Inventories...................................................... 21,665 22,805 19,581
Deferred income taxes............................................ 10,404 10,404 12,126
Other current assets............................................. 6,143 4,512 4,717
---------- ---------- ----------
Total current assets.......................................... 111,154 92,695 94,404
Property, plant and equipment, net................................. 637,703 611,141 553,104
Real estate held for sale and investment........................... 144,067 152,508 152,141
Deferred charges and other assets.................................. 31,157 31,391 19,028
Intangible assets, net............................................. 196,692 201,504 196,133
---------- ---------- ----------
Total assets.................................................. $1,120,773 $1,089,239 $1,014,810
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses............................ $ 116,967 $ 89,445 $ 89,419
Income taxes payable............................................. -- 1,633 2,239
Long-term debt due within one year (Note 4)...................... 1,455 2,057 530
---------- ---------- ----------
Total current liabilities..................................... 118,422 93,135 92,188
Long-term debt (Note 4)............................................ 342,016 396,129 293,332
Other long-term liabilities........................................ 30,665 31,146 28,398
Deferred income taxes.............................................. 110,243 84,728 101,338
Commitments and contingencies (Note 2)............................. -- -- --
Minority interest in net assets of consolidated joint venture...... 9,937 7,326 9,582
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 April 30, 2000, July 31, 1999
and April 30, 1999, respectively............................ 74 74 74
Common stock, $0.01 par value, 40,000,000 shares authorized,
27,177,698, 27,092,901 and 27,087,701 shares issued and
outstanding at April 30, 2000, July 31, 1999 and April 30,
1999, respectively.......................................... 272 271 271
Additional paid-in capital....................................... 404,304 402,923 402,592
Retained earnings................................................ 104,840 73,507 87,035
---------- ---------- ----------
Total stockholders' equity.................................... 509,490 476,775 489,972
---------- ---------- ----------
Total liabilities and stockholders' equity.................... $1,120,773 $1,089,239 $1,014,810
========== ========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-2
<PAGE>
Vail Resorts, Inc.
Consolidated Condensed Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
2000 1999
---------- ----------
<S> <C> <C>
Net revenues:
Resort......................................................................... $ 223,761 $ 188,220
Real estate.................................................................... 26,028 14,022
---------- ----------
Total net revenues......................................................... 249,789 202,242
Operating expenses:
Resort......................................................................... 125,446 112,830
Real estate.................................................................... 23,223 14,108
Depreciation and amortization.................................................. 16,005 13,434
---------- ----------
Total operating expenses................................................... 164,674 140,372
---------- ----------
Income from operations............................................................ 85,115 61,870
Other income (expense):
Investment income.............................................................. 308 738
Interest expense............................................................... (8,720) (5,755)
Gain on disposal of fixed assets............................................... 1,952 18
Other income (expense)......................................................... 45 (9)
Minority interest in consolidated joint venture................................ (2,579) (1,914)
---------- ----------
Income before income taxes........................................................ 76,121 54,948
Provision for income taxes........................................................ (33,291) (24,701)
---------- ----------
Net income........................................................................ $ 42,830 $ 30,247
========== ==========
Net income per common share (Note 3):
Basic.......................................................................... $ 1.24 $ 0.87
========== ==========
Diluted........................................................................ $ 1.23 $ 0.87
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-3
<PAGE>
Vail Resorts, Inc.
Consolidated Condensed Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
2000 1999
----------- -----------
<S> <C> <C>
Net revenues:
Resort......................................................................... $ 441,748 $ 379,346
Real estate.................................................................... 36,747 31,409
----------- -----------
Total net revenues......................................................... 478,495 410,755
Operating expenses:
Resort......................................................................... 315,775 278,455
Real estate.................................................................... 32,831 26,248
Depreciation and amortization.................................................. 45,928 38,181
----------- -----------
Total operating expenses................................................... 394,534 342,884
----------- -----------
Income from operations............................................................ 83,961 67,871
Other income (expense):
Investment income.............................................................. 1,006 1,643
Interest expense............................................................... (27,619) (17,593)
Gain on disposal of fixed assets............................................... 1,878 44
Other income (expense)......................................................... (45) 130
Minority interest in consolidated joint venture................................ (3,230) (3,715)
----------- -----------
Income before income taxes........................................................ 55,951 48,380
Provision for income taxes........................................................ (24,618) (22,061)
----------- -----------
Net income........................................................................ $ 31,333 $ 26,319
=========== ===========
Net earnings per common share (Note 3):
Basic.......................................................................... $ 0.91 $ 0.76
=========== ===========
Diluted........................................................................ $ 0.90 $ 0.76
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-4
<PAGE>
Vail Resorts, Inc.
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 31,333 $ 26,319
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 45,928 38,181
Non-cash cost of real estate sales............................................. 22,213 8,326
Non-cash compensation related to stock grants.................................. 81 268
Non-cash equity (income) loss.................................................. (4,475) 1,424
Deferred financing costs amortized............................................. 1,076 448
Gain on disposal of fixed assets............................................... (1,878) (44)
Deferred income taxes, net..................................................... 25,515 22,061
Minority interest in consolidated joint venture................................ 3,230 3,715
Changes in assets and liabilities:
Receivables, net............................................................... (13,428) (20,420)
Inventories.................................................................... 1,140 (6,074)
Accounts payable and accrued expenses.......................................... 27,522 29,652
Income taxes payable and receivable............................................ (1,633) --
Other assets and liabilities, net.............................................. (1,900) (2,550)
--------- ---------
Net cash provided by operating activities................................... 134,724 101,306
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)
Cash received from sale of assets................................................ 252 --
Resort capital expenditures...................................................... (52,982) (53,691)
Investments in real estate....................................................... (22,434) (22,850)
--------- ---------
Net cash used in investing activities....................................... (75,164) (120,857)
Cash flows from financing activities:
Proceeds from the exercise of stock options...................................... 314 628
Deferred financing costs paid.................................................... (618) --
Proceeds from borrowings under long-term debt.................................... 142,850 132,866
Payments on long-term debt....................................................... (197,566) (123,392)
--------- ---------
Net cash provided by (used in) financing activities......................... (55,020) 10,102
--------- ---------
Net increase (decrease) in cash and cash equivalents.............................. 4,540 (9,449)
Cash and cash equivalents:
Beginning of period.............................................................. 25,324 19,512
--------- ---------
End of period.................................................................... $ 29,864 $ 10,063
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-5
<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. The Vail Corporation (d/b/a 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 ("GTLC"), 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 GTLC 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 April 30, 2000, the Company has sold 104 single-family
homesites and thirteen parcels to developers for the construction of various
types of dwelling units. Currently, SCMD has outstanding $38.4 million of
variable rate revenue bonds maturing on October 1, 2035, which have been
enhanced with a $40.7 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 35 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 $20.4
million at April 30, 2000. The Company has allocated $12.0 million of that
amount to the Bachelor Gulch Village homesites which were sold as of April 30,
2000 and has recorded that amount as a liability in the accompanying financial
statements. The total subsidy incurred as of April 30, 2000 and July 31, 1999
was $6.4 million and $4.3 million, respectively.
At April 30, 2000 the Company had various other letters of credit
outstanding in the aggregate amount of $39.1 million.
On October 19, 1998, fires on Vail Mountain destroyed certain of the
Company's facilities including the Ski Patrol Headquarters, a day skier shelter,
the Two Elk Lodge restaurant and the chairlift drive housing for the High Noon
Lift (Chair #5). Three other chairlifts sustained minor damage. The Company has
completed the reconstruction and reparation of all of the damaged and destroyed
facilities. During the third quarter, the Company settled its insurance claim
related to the fires for $24.5 million, including both the property and business
interruption loss claims. The incident did not have a net material impact on the
Company's results of operations or cash flows.
F-6
<PAGE>
Vail Resorts, Inc.
Notes to Consolidated Condensed Financial Statements--(Continued)
(Unaudited)
2. Commitments and Contingencies (Continued)
The Company purchased a Reduced Skier Day Insurance Policy, a customized
insurance product, at the outset of the ski season. Under this policy, the
Company receives a fixed payment for each paid skier day below certain targeted
levels for the season. For the nine months ended April 30, 2000, the net
benefit recognized in the financial statements from the policy was $10.7
million. The proceeds from the insurance policy have not yet been received, and
the claims adjustment process recently started. The Company expects to settle
the insurance claim by the end of calendar 2000.
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 nine months ended April 30, 2000 and 1999, lease expense of $5.8 million and
$4.8 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 April 30, 2000 are
as follows (in thousands):
Due during fiscal years ending July 31:
2000....................................................... $ 1,002
2001....................................................... 3,846
2002....................................................... 2,575
2003....................................................... 2,031
2004....................................................... 2,073
Thereafter................................................. 4,358
-------
Total................................................... $15,885
=======
F-7
<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
April 30,
----------------------------------------------------
2000 1999
------------------------ ------------------------
(In thousands, except per share amounts)
Basic Diluted Basic Diluted
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net income per common share:
Net income.......................................... $ 42,830 $ 42,830 $ 30,247 $ 30,247
Weighted average shares outstanding................. 34,618 34,618 34,571 34,571
Effect of dilutive stock options.................... 163 196
--------- ----------- --------- -----------
Total shares........................................ 34,618 34,781 34,571 34,767
--------- ----------- --------- -----------
Net income per common share......................... $ 1.24 $ 1.23 $ 0.87 $ 0.87
========= =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
April 30,
----------------------------------------------------
2000 1999
------------------------ ------------------------
(In thousands, except per share amounts)
Basic Diluted Basic Diluted
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net income per common share:
Net income.......................................... $ 31,333 $ 31,333 $ 26,319 $ 26,319
Weighted average shares outstanding................. 34,593 34,593 34,557 34,557
Effect of dilutive stock options.................... 185 252
--------- ----------- --------- -----------
Total shares........................................ 34,593 34,778 34,557 34,809
--------- ----------- --------- -----------
Net income per common share......................... $ 0.91 $ 0.90 $ 0.76 $ 0.76
========= =========== ========= ===========
</TABLE>
4. Long-Term Debt
Long-term debt as of April 30, 2000 and July 31, 1999 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
April 30, July 31,
Maturity(e) 2000 1999
-------------------------------------------
<S> <C> <C> <C>
Industrial Development Bonds(a)............... 2002-2020 $ 63,200 $ 63,200
Credit Facilities (b)......................... 2003 75,750 130,300
Senior Subordinated Notes (c)................. 2009 200,000 200,000
Other(d)...................................... 2000-2029 4,521 4,686
-------- --------
343,471 398,186
Less: Maturities due within 12 months......... 1,455 2,057
-------- --------
$342,016 $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-8
<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. The Credit Facility was amended again on December 31, 1999
and April 21, 2000 to revise the definition of Resort EBITDA used
therein. Borrowings under the Credit Facility as amended bear interest
annually at the Company's option at the rate of (i) LIBOR (6.29% at
April 30, 2000) plus a margin ranging from 0.75% to 2.25% or (ii) the
agent's prime lending rate, (9.00% at April 30, 2000) 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. The outstanding principal
balance on the SSV Facility Tranche B term loan was $8.75 million at
April 30, 2000. Future minimum amortization under the Tranche B Term
Loan Facility as amended is $0.25 million, $1.0 million, $1.0 million,
$1.0 million and $5.5 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. 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 2029.
e) Maturities are based on the Company's July 31 fiscal year end.
Aggregate maturities for debt outstanding are as follows (in thousands):
As of
April 30,
Due during fiscal years ending July 31. 2000
---------
2000..................................................... $ 604
2001..................................................... 1,503
2002..................................................... 1,438
2003..................................................... 69,563
2004..................................................... 5,558
Thereafter............................................... 264,805
---------
Total Debt............................................ $ 343,471
=========
F-9
<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 8.75% 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 April 30, 2000 and July 31, 1999 and for the nine
months ended April 30, 2000 and 1999.
Investments in subsidiaries are accounted for by the Parent Company and
Guarantor Subsidiaries using the equity method of accounting. Net income of
Guarantor and Non-Guarantor Subsidiaries is, therefore, reflected in the Parent
Company's and Guarantor Subsidiaries' investments in and advances to (from)
subsidiaries. Net income of the Guarantor and Non-Guarantor Subsidiaries is
reflected in Guarantor Subsidiaries and Parent Company as equity in consolidated
subsidiaries. The elimination entries eliminate investments in Non-Guarantor
Subsidiaries and intercompany balances and transactions.
F-10
<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>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
April 30, 2000
-----------------------------------------------------------------
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents..................................... $ -- $ 27,122 $ 2,742 $ -- $ 29,864
Receivables................................................... 321 41,485 1,272 -- 43,078
Inventories, net.............................................. -- 7,514 14,151 -- 21,665
Deferred income taxes......................................... 1,353 9,051 -- -- 10,404
Other current assets.......................................... -- 5,391 752 -- 6,143
--------- ------------ ------------ ------------ ------------
Total current assets........................................ 1,674 90,563 18,917 -- 111,154
Property, plant and equipment, net.............................. -- 625,291 12,412 -- 637,703
Real estate held for sale....................................... -- 138,433 5,634 -- 144,067
Deferred charges and other assets............................... 13,172 17,725 260 -- 31,157
Intangible assets, net.......................................... -- 184,338 12,354 -- 196,692
Investments in subsidiaries and advances to (from) subsidiaries. 704,804 (3,837) (5,780) (695,187) --
--------- ------------ ------------ ------------ ------------
Total assets................................................ $ 719,650 $ 1,052,513 $ 43,797 $ (695,187) $ 1,120,773
========= ============ ============ ============ ============
Current liabilities:
Accounts payable and accrued expenses......................... $ 9,158 $ 94,016 $ 13,793 $ -- $ 116,967
Income taxes payable.......................................... -- -- -- -- --
Long-term debt due within one year............................ -- 455 1,000 -- 1,455
--------- ------------ ------------ ------------ ------------
Total current liabilities................................... 9,158 94,471 14,793 -- 118,422
Long-term debt.................................................. 200,000 134,266 7,750 -- 342,016
Other long-term liabilities..................................... 1,002 29,663 -- -- 30,665
Deferred income taxes........................................... -- 110,243 -- -- 110,243
Minority interest in net assets of consolidated joint venture... -- -- 9,937 -- 9,937
Total stockholders' equity...................................... 509,490 683,870 11,317 (695,187) 509,490
--------- ------------ ------------ ------------ ------------
Total liabilities and stockholders' equity.................. $ 719,650 $ 1,052,513 $ 43,797 $ (695,187) $ 1,120,773
========= ============ ============ ============ ============
<CAPTION>
July 31, 1999
-----------------------------------------------------------------
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents..................................... $ -- $ 25,097 $ 227 $ -- $ 25,324
Receivables................................................... 321 28,790 539 -- 29,650
Inventories, net.............................................. -- 8,667 14,138 -- 22,805
Deferred income taxes......................................... 1,353 9,051 -- -- 10,404
Other current assets.......................................... -- 4,326 186 -- 4,512
--------- ------------ ------------ ------------ ------------
Total current assets........................................ 1,674 75,931 15,090 -- 92,695
Property, plant and equipment, net.............................. -- 600,497 10,644 -- 611,141
Real estate held for sale....................................... -- 147,232 5,276 -- 152,508
Deferred charges and other assets............................... 8,752 22,519 120 -- 31,391
Intangible assets, net.......................................... -- 188,197 13,307 -- 201,504
Investments in subsidiaries and advances to (from) subsidiaries. 472,609 214,405 (6,122) (680,892) --
--------- ------------ ------------ ------------ ------------
Total assets................................................ $ 483,035 $ 1,248,781 $ 38,315 $ (680,892) $ 1,089,239
========= ============ ============ ============ ============
Current liabilities:
Accounts payable and accrued expenses......................... $ 5,132 $ 76,341 $ 7,972 $ -- $ 89,445
Income taxes payable.......................................... -- 1,633 -- -- 1,633
Long-term debt due within one year............................ -- 520 1,537 -- 2,057
--------- ------------ ------------ ------------ ------------
Total current liabilities................................... 5,132 78,494 9,509 -- 93,135
Long-term debt.................................................. -- 382,829 13,300 -- 396,129
Other long-term liabilities..................................... 1,128 30,018 -- -- 31,146
Deferred income taxes........................................... -- 84,728 -- -- 84,728
Minority interest in net assets of consolidated joint venture... -- -- 7,326 -- 7,326
Total stockholders' equity...................................... 476,775 672,712 8,180 (680,892) 476,775
--------- ------------ ------------ ------------ ------------
Total liabilities and stockholders' equity.................. $ 483,035 $ 1,248,781 $ 38,315 $ (680,892) $ 1,089,239
========= ============ ============ ============ ============
</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 Operations
(in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
For the Nine Months Ended April 30, 2000
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues..................................... $ -- $ 409,921 $ 70,812 $ (2,238) $ 478,495
Total operating expenses........................... 1,810 332,406 62,556 (2,238) 394,534
------------ ------------ ------------ ------------ ------------
Income (loss) from operations.................... (1,810) 77,515 8,256 -- 83,961
Other expense...................................... (13,076) (10,793) (911) -- (24,780)
Minority interest in net income of consolidated
joint venture.................................... -- -- (3,230) -- (3,230)
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes................ (14,886) 66,722 4,115 -- 55,951
Credit (provision) for income taxes.............. 6,550 (31,168) -- -- (24,618)
------------ ------------ ------------ ------------ ------------
Net income (loss) before equity in income of
consolidated subsidiaries........................ (8,336) 35,554 4,115 -- 31,333
Equity in income of consolidated
subsidiaries..................................... 39,669 4,115 -- (43,784) --
------------ ------------ ------------ ------------ ------------
Net income ........................................ $ 31,333 $ 39,669 $ 4,115 $ (43,784) $ 31,333
============ ============ ============ ============ ============
<CAPTION>
For the Nine Months Ended April 30, 1999
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues..................................... $ -- $ 348,017 $ 64,326 $ (1,588) $ 410,755
Total operating expenses........................... 916 287,545 56,011 (1,588) 342,884
------------ ------------ ------------ ------------ ------------
Income (loss) from operations.................... (916) 60,472 8,315 -- 67,871
Other income (expense)............................. 187 (15,371) (592) -- (15,776)
Minority interest in net income of consolidated
joint venture.................................... -- -- (3,715) -- (3,715)
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes................ (729) 45,101 4,008 -- 48,380
Credit for income taxes.......................... 332 (22,393) -- -- (22,061)
------------ ------------ ------------ ------------ ------------
Net income (loss) before equity in income of
consolidated subsidiaries........................ (397) 22,708 4,008 -- 26,319
Equity in income of consolidated
subsidiaries..................................... 26,716 4,008 -- (30,724) --
------------ ------------ ------------ ------------ ------------
Net income ........................................ $ 26,319 $ 26,716 $ 4,008 $ (30,724) $ 26,319
============ ============ ============ ============ ============
</TABLE>
F-12
<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
(in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
For the Nine Months Ended April 30, 2000
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating activities.................. $ 3,031 $ 118,058 $ 13,635 $ -- $ 134,724
Cash flows from investing activities:
Resort capital expenditures................................ -- (48,009) (4,973) -- (52,982)
Investments in real estate................................. -- (22,434) -- -- (22,434)
Cash received from sale of assets.......................... -- 252 -- -- 252
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities.................... -- (70,191) (4,973) -- (75,164)
Cash flows from financing activities:
Proceeds from borrowings under long-term debt.............. (73) (231) -- -- (304)
Payments on long-term debt................................. -- 142,850 -- -- 142,850
Other financing activities................................. -- (191,479) (6,087) -- (197,566)
Advances (to) from affiliates.............................. (2,958) 3,019 (61) --
------------ ------------ ------------ ------------ ------------
Net cash used in financing activities.................... (3,031) (45,841) (6,148) -- (55,020)
------------ ------------ ------------ ------------ ------------
Net increase in cash and cash equivalents.................... -- 2,026 2,514 -- 4,540
Cash and cash equivalents:
Beginning of period........................................ -- 25,096 228 -- 25,324
------------ ------------ ------------ ------------ ------------
End of period.............................................. $ -- $ 27,122 $ 2,742 $ -- $ 29,864
============ ============ ============ ============ ============
<CAPTION>
For the Nine Months Ended April 30, 1999
--------------------------------------------------------------------
Cash flows provided by (used in) operating activities........ $ (397) $ 92,142 $ 9,561 $ -- $ 101,306
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................................ -- (49,370) (4,321) -- (53,691)
Investments in real estate................................. -- (22,850) -- -- (22,850)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities.................... -- (106,020) (14,837) -- (120,857)
Cash flows from financing activities:
Proceeds from the exercise of stock options................ 628 -- -- -- 628
Proceeds from borrowings under long-term debt.............. -- 128,020 4,846 -- 132,866
Payments on long-term debt................................. -- (123,392) -- -- (123,392)
Advances to (from) affiliates.............................. (231) (1,016) 1,247 -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities................ 397 3,612 6,093 -- 10,102
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents......... -- (10,266) 817 -- (9,449)
Cash and cash equivalents:
Beginning of period........................................ -- 19,512 -- -- 19,512
------------ ------------ ------------ ------------ ------------
End of period.............................................. $ -- $ 9,246 $ 817 $ -- $ 10,063
============ ============ ============ ============ ============
</TABLE>
F-13
<PAGE>
Vail Resorts, Inc.
Notes to Consolidated Condensed Financial Statements--(Continued)
(Unaudited)
6. Acquisitions
On June 14, 1999, the Company purchased 100% of the outstanding shares of
GTLC, a Wyoming corporation, from CSX Corporation for a total purchase price of
$55 million. The acquisition was accounted for under the purchase method of
accounting. GTLC operates four resort properties in northwestern Wyoming: Jenny
Lake Lodge, Jackson Lake Lodge, Colter Bay Village and Jackson Hole Golf &
Tennis Club. GTLC operates the first three resorts, all located within Grand
Teton National Park, under a concessionaire contract with the National Park
Service. Jackson Hole Golf & Tennis Club is located outside the park on
property owned by GTLC and includes approximately 30 acres of developable land.
The following unaudited pro forma revenue for the nine months ended April
30, 1999 assumes the acquisition of GTLC occurred on August 1, 1998. The pro
forma revenue is not necessarily indicative of the actual revenue that would
have been recognized, nor is it necessarily indicative of future revenue. The
unaudited revenue for the nine months ended April 30, 2000 is provided for
comparative purposes. Pro forma net income and EPS are not presented as the pro
forma adjustments are immaterial to the actual net income and EPS of the
Company, and, in the opinion of the Company, would not provide additional
meaningful information to the reader.
Pro Forma
Nine Months Nine Months
Ended Ended
April 30, April 30,
2000 1999
(unaudited)
Total revenue $ 478,495 $ 425,048
=========== ===========
F-14
<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 April 30, 2000 and 1999 and for the three and nine
months ended April 30, 2000 and 1999, 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 April 30, 2000 versus Three Months Ended April 30, 1999
<TABLE>
<CAPTION>
Three Months Ended
April 30, Percentage
2000 1999 Increase Increase
---------- ---------- --------- ----------
(unaudited)
(dollars in thousands)
<S> <C> <C> <C> <C>
Resort Revenue............................. $ 223,761 $ 188,220 $ 35,541 18.9
Resort Operating Expense................... 125,446 112,830 12,616 11.2
</TABLE>
Resort Revenue. Resort revenue for the three months ended April 30, 2000 and
1999 is presented by category as follows:
<TABLE>
<CAPTION>
Three Months Ended
April 30, Percentage
2000 1999 Increase Increase
---------- ---------- --------- ----------
(unaudited)
(dollars and skier days in thousands, except ETP)
<S> <C> <C> <C> <C>
Lift Ticket................................ $ 85,757 $ 75,637 $ 10,120 13.4
Ski School................................. 24,894 22,151 2,743 12.4
Dining..................................... 29,800 27,497 2,303 8.4
Retail/Rental.............................. 30,460 26,878 3,582 13.3
Hospitality................................ 25,341 22,990 2,351 10.2
Other...................................... 27,509 13,067 14,442 110.5
---------- ---------- --------- ----------
Total Resort Revenue....................... $ 223,761 $ 188,220 $ 35,541 18.9
========== ========== ========= ==========
Total Skier Days........................... 2,618 2,497 121 4.8
========== ========== ========= ==========
ETP........................................ $32.76 $30.29 $2.47 8.2
========== ========== ========= ==========
</TABLE>
Lift ticket revenue increased due to a 4.8% increase in total skier days along
with an 8.2% increase in ETP (effective ticket price ("ETP") is defined as total
lift ticket revenue divided by total skier days). The increase in ETP is
primarily attributable to a favorable shift in the skier demographic mix, an
increase in lead ticket prices at Keystone and Breckenridge and a higher sales
price on the Company's Buddy Pass season pass product, a discounted season pass
product for Keystone and Breckenridge Mountains.
The increase in Ski School revenue is due to increased skier days combined
with the favorable shift in the skier demographic noted above, which resulted in
increased ski school participation by a higher percentage of the Company's ski
resort guests. In addition, the favorable demographic drove an increase in
private lesson sales versus group lessons as well as increased enrollment in
children's' ski school programs.
Dining revenue increased primarily due to the re-opening of Two Elk Lodge on
Vail Mountain in December 1999, increased skier days, and successful
repositioning of one of the Company's fine dining restaurants. In addition, a
dining joint venture which had previously been accounted for under the equity
method is now being fully consolidated due to the Company's increased investment
in the joint venture.
1
<PAGE>
The increase in Retail/Rental revenue is attributable to strong performance by
the retail/rental outlets operated by SSI Venture LLC, which was driven by
increases in skier days.
Hospitality revenue increased as a result of increased skier days and an
effective yield management program.
The increase in Other revenue is primarily attributable to the estimated net
insurance claim for the quarter on the Company's Reduced Skier Day Insurance
Policy along with the final settlement of business interruption claims from the
Vail fires (see Note 2, Part I, Item 1 of this Form 10-Q), increased commercial
leasing and private club operations and revenue related to the internet service
provider and website development company purchased in November 1999.
Resort Operating Expense. Resort operating expense for the three months ended
April 30, 2000 was $125.4 million, an increase of $12.6 million, or 11.2%,
compared to the three months ended April 30, 1999. The increase in Resort
operating expense is commensurate with the increase in revenue over fiscal 1999,
particularly with respect to the increases in our non-lift ticket lines of
business, which have greater levels of variable operating expenses associated
with them. These increases have been partially offset by a cost management
program implemented at all levels of the Company.
Real Estate Revenue. Revenue from real estate operations for the three months
ended April 30, 2000 was $26.0 million, an increase of $12.0 million, or 85.6%,
compared to the three months ended April 30, 1999. Revenue for the three months
ended April 30, 2000 consists primarily of the sale of 17 residential
condominiums and one multi-family homesite in Arrowhead, one multi-family
homesite in Bachelor Gulch, and one developable land parcel in Avon, and the
Company's share of profit from the Company's investment in Keystone/Intrawest
LLC. Profits generated by Keystone/Intrawest LLC during the quarter ended April
30, 2000 included the sale of 25 Village condominiums, primarily at the River
Run development and six golf course single-family lots. Revenue for the three
months ended April 30, 1999 consisted primarily of the sale of one single-family
homesite and one multi-family homesite in Bachelor Gulch, the sale of the Bell
Tower Mall and certain other real estate parcels at The Village at Breckenridge,
and the Company's share of profit from the Company's investment in
Keystone/Intrawest LLC. Profits generated by Keystone/Intrawest LLC during the
quarter ended April 30, 1999 included the sale of seven Village condominiums at
the River Run development.
Real Estate Operating Expense. Real estate operating expense for the three
months ended April 30, 2000 was $23.2 million, an increase of $9.1 million, or
64.6%, compared to the three months ended April 30, 1999. Real estate operating
expense consists primarily of the cost of sales and related real estate
commissions associated with the 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 $2.6 million, or 19.1%, for the three months ended April 30, 2000
as compared to the three months ended April 30, 1999. 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 April 30, 2000 and April 30,
1999, the Company recorded interest expense of $8.7 million and $5.8 million,
respectively, relating primarily to the Company's Credit Facility and the
Industrial Development Bonds. In addition, the three months ended April 30,
2000 reflect interest expense related to the Company's senior subordinated debt
issued in May 1999. The increase in interest expense for the three months ended
April 30, 2000 related to the subordinated debt is partially offset by a
reduction in the balance outstanding on the Credit Facility.
2
<PAGE>
Nine Months Ended April 30, 2000 versus Nine Months Ended April 30, 1999
<TABLE>
<CAPTION>
Nine Months Ended
April 30, Percentage
2000 1999 Increase Increase
------------- ------------- ------------- -------------
(unaudited)
(dollars in thousands)
<S> <C> <C> <C> <C>
Resort Revenue............................. $ 441,748 $ 379,346 $ 62,402 16.4
Resort Operating Expense................... 315,775 278,455 37,320 13.4
</TABLE>
Resort Revenue. Resort revenue for the nine months ended April 30, 2000 and
1999 is presented by category as follows:
<TABLE>
<CAPTION>
Nine Months Ended
April 30, Percentage
2000 1999 Increase Increase
------------- ------------- ------------- -------------
(unaudited)
(dollars and skier days in thousands, except ETP)
<S> <C> <C> <C> <C>
Lift Ticket................................ $ 143,607 $ 135,667 $ 7,940 5.9
Ski School................................. 39,897 37,833 2,064 5.5
Dining..................................... 60,080 52,325 7,755 14.8
Retail/Rental.............................. 75,237 66,198 9,039 13.7
Hospitality................................ 58,939 50,886 8,053 15.8
Other...................................... 63,988 36,437 27,551 75.6
------------- ------------- ------------- -------------
Total Resort Revenue....................... $ 441,748 $ 379,346 $ 62,402 16.4
============= ============= ============= =============
Total Skier Days........................... 4,595 4,579 16 0.3
============= ============= ============= =============
ETP........................................ $ 31.25 $ 29.63 $ 1.62 5.5
============= ============= ============= =============
</TABLE>
Lift ticket revenue increased due to a 5.5% increase in ETP. The
increase in ETP is primarily attributable to a favorable shift in the skier
demographic, an increase in lead ticket prices at Keystone and Breckenridge and
a higher sales price on the Company's Buddy Pass season pass product. In
addition, the Company had strong skier visitation at its resorts in the third
quarter, which offset the impact of poor early season weather and aberrant
travel patterns during the New Year's holiday due to Year 2000 concerns.
The increase in Ski School revenue is due to the favorable shift in the
skier demographic noted above, which resulted in increased ski school
participation by a higher percentage of the Company's ski resort guests. In
addition, the favorable demographic drove an increase in private lesson sales
versus group lessons as well as increased enrollment in children's ski school
programs.
Dining revenue increased primarily as a result of the addition of eight
dining operations with the acquisition of GTLC on June 14, 1999. A portion of
the increase is also attributable to the re-opening of Two Elk Lodge in December
1999 and the successful repositioning of one of the Company's fine dining
restaurants. In addition, a dining joint venture which had previously been
accounted for under the equity method is now being fully consolidated due to the
Company's increased investment in the joint venture.
The increase in Retail/Rental revenue is attributable to the Company's
acquisition of GTLC in June 1999 along with strong performance by the
retail/rental outlets operated by SSI Venture LLC.
Hospitality revenue increased as a result of the Company's acquisition of
GTLC in June 1999, which included three lodging operations. In addition, the
Company implemented an effective yield management program.
3
<PAGE>
The increase in Other revenue is primarily attributable to the estimated
net insurance claim from the Company's Reduced Skier Day Insurance Policy along
with the final settlement of business interruption claims from the Vail fires
(see Note 2, Part I, Item 1 of this Form 10-Q), and the GTLC acquisition, which
provided a golf course operation and substantial other recreational services. In
addition, the Company had increases in private membership club operations,
licensing and sponsorship activity, and commercial leasing and brokerage
operations. The Company's purchase of an internet service provider and website
development company in November 1999 was also a factor in the increased revenue.
Resort Operating Expense. Resort operating expense for the nine months
ended April 30, 2000 was $315.8 million, an increase of $37.3 million, or 13.4%,
compared to the nine months ended April 30, 1999. Much of the increase in Resort
operating expense is attributable to the incremental operating expenses
contributed by GTLC's operations. In addition, the increase is commensurate with
the increase in revenue over fiscal 1999, particularly with respect to the
increases in our non-lift ticket business, which have greater levels of variable
operating expenses associated with them. These increases have been partially
offset by a cost management program implemented at all levels of the Company.
Real Estate Revenue. Revenue from real estate operations for the nine
months ended April 30, 2000 was $36.7 million, an increase of $5.3 million, or
17.0%, compared to the nine months ended April 30, 1999. Revenue for the nine
months ended April 30, 2000 consists primarily of the sale of four multi-family
homesites at Bachelor Gulch Village, 17 residential condominiums and two multi-
unit development sites at Arrowhead Village, one developable land parcel in
Avon, and the Company's share of profits from the Company's investment in
Keystone/Intrawest LLC. Profits generated by Keystone/Intrawest LLC during the
nine months ended April 30, 2000 include the sale of 60 village condominiums and
seven golf course single-family lots. Revenue for the nine months ended April
30, 1999 included the sale of one luxury residential penthouse condominium at
the Lodge at Vail, the sale of the Bell Tower Mall, two single-family homesites
and one multi-family homesite at Bachelor Gulch Village and three multi-family
homesites at Arrowhead, as well as the Company's share of profits from
Keystone/Intrawest LLC, which included the sale of 137 village condominium
units, primarily at River Run, and 57 single-family homesites surrounding the
River Run golf course.
Real Estate Operating Expense. Real estate operating expense for the nine
months ended April 30, 2000 was $32.8 million, an increase of $6.6 million, or
25.1%, compared to the nine months ended April 30, 1999. Real estate operating
expense consists primarily of the cost of sales and related real estate
commissions associated with the 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 $7.7 million, or 20.3%, for the nine months ended April 30, 2000 as
compared to the nine months ended April 30, 1999. 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 nine months ended April 30, 2000 and April
30, 1999, the Company recorded interest expense of $27.6 million and $17.6
million, respectively, relating primarily to the Company's Credit Facility and
the Industrial Development Bonds. In addition, the nine months ended April 30,
2000 reflect interest expense related to the Company's senior subordinated debt
issued in May 1999. The increase in interest expense for the nine months ended
April 30, 2000 related to the subordinated debt is partially offset by a
reduction in the balance outstanding on the Credit Facility.
4
<PAGE>
Liquidity and Capital Resources
The Company has historically provided for operating expenditures, debt
service, capital expenditures and acquisitions through a combination of cash
flow from operations, short-term and long-term borrowings and sales of real
estate.
The Company's cash flows used for investing activities have historically
consisted of payments for acquisitions, resort capital expenditures, and
investments in real estate. During the nine months ended April 30, 2000 the
Company made payments of $53.0 million for resort capital expenditures and $22.4
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, d) construction of the River Course golf course at Keystone, e)
expansion of the Keystone Conference Center, and f) 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, d) development of the Red Sky Ranch golf
course near Beaver Creek and e) investments in developable land at strategic
locations at Breckenridge.
The Company estimates that it will make resort capital expenditures
totaling between $15 and $25 million during the remainder of fiscal 2000. The
primary projects are anticipated to include a) continued construction of a
37,500 square foot exhibit hall at the Keystone Conference Center, b) continued
development and construction of Blue Sky Basin at Vail Mountain, including a new
high-speed quad chairlift and c) 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 $10 to $20 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) development of the
Red Sky Ranch golf course 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 nine months ended April 30, 2000, the Company used $55.0
million in cash in its financing activities consisting of net long-term debt
payments of $54.7 million and $0.3 million used in other financing activities.
During the nine months ended April 30, 2000, 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, and 40,413 shares were issued as partial consideration for the purchase of
an internet service provider and website development company.
The Company received $12.1 million in proceeds during the nine months ended
April 30, 2000 in conjunction with the final settlement of the Company's
insurance claim related to the fires on Vail Mountain in October 1998. In
addition, the Company expects to settle its claim under the Reduced Skier Day
Insurance policy by the end of calendar 2000; the Company has reflected the net
claim of $10.7 million in its results of operations for the nine months ended
April 30, 2000.
Based on current anticipated 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.
5
<PAGE>
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.
Year 2000 Impact. The Company's Year 2000 Project has achieved project
close out with no Year 2000-related failures that had a material impact upon the
Company's operations or financial condition. The remaining systems that could be
adversely affected by the Year 2000 problems are very minor embedded chip
systems. We will monitor these systems but do not believe that any significant
problems with these systems will occur. The Company has not experienced any
disruption in service from its significant vendors as a result of the Year 2000
issue. The Company was impacted by a decline in vacation travel around the New
Year's holiday due to Year 2000 concerns, but such decline did not have a
material adverse effect on the company's operations or financial condition.
Costs. The final multi-year cost of the Year 2000 project was approximately
$900,000 and funded from operating cash flow. There has been no material change
in our Year 2000 project costs. 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. In a number
of instances, the Company decided 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 April 30, 2000, the entire total estimated
Year 2000 project costs have been incurred, of which $300,000 has been expensed
and $600,000 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.
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. You
can identify those statements by forward-looking words such as "may", "will",
"expect", "plan", "intend", "anticipate", "believe", "estimate", and "continue"
or similar words. 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,
. competition in the ski and resort industry,
. failure to successfully integrate acquisitions,
. adverse changes in vacation real estate markets, and
. failure or delay in receiving reduced skier day insurance proceeds.
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.
6
<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 April 30, 2000 the Company had Swap Agreements in
effect with notional amounts totaling $75.0 million, which will mature December
2002. Borrowings not subject to Swap Agreements at April 30, 2000 totaled
$268.5 million. Swap Agreement rates are based on one-month LIBOR. Based on
average floating-rate borrowings outstanding during the nine months ended April
30, 2000, a 100-basis point change in LIBOR would have caused the Company's
monthly interest expense to change by $21,000. Management believes that these
amounts are not significant to the Company's earnings.
7
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
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> <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.)
4.1 Form of Class 2 Common Stock Registration Rights Agreements between the
Company and holders of Class 2 Common Stock. (Incorporated by reference to
Exhibit 4.13 of the Registration Statement on Form S-4 of Gillett Holdings,
Inc. (Registration No. 33-52854) including all amendments thereto.)
4.2 Purchase Agreement, dated as of May 6, 1999 among Vail Resorts, Inc., the
guarantors named on Schedule I thereto, and Bear Sterns & Co. Inc.,
NationsBanc Montgomery Securities LLC, BT Alex. Brown Incorporated, Lehman
Brothers Inc. and Salomon Smith Barney Inc. (Incorporated by reference to
Exhibit 4.2 of the Registration Statement on Form S-4 of Vail Resorts, Inc.
(Registration No. 333-80621) including all amendments thereto.)
4.3 Indenture, dated as of May 11, 1999, among Vail Resorts, Inc., the guarantors
named therein and the United States Trust Company of New York, as trustee.
(Incorporated by reference to Exhibit 4.3 of the Registration Statement on
Form S-4 of Vail Resorts, Inc. (Registration No. 333-80621) including all
amendments thereto.)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<C> <S> <C>
4.4 Form of Global Note (Included in Exhibit 4.3 incorporated by reference to
Exhibit 4.3 of the Registration Statement on Form S-4 of Vail Resorts, Inc.
(Registration No. 333-80621) including all amendments thereto.)
4.5 Registration Rights Agreement, dated as of May 11, 1999 among Vail Resorts,
Inc., the guarantors signatory thereto and Bear Stearns & Co. Inc.,
NationsBanc Montgomery Securities LLC, BT Alex. Brown Incorporated, Lehman
Brothers Inc. and Salomon Smith Barney Inc. (Incorporated by reference to
Exhibit 4.5 of the Registration Statement on Form S-4 of Vail Resorts, Inc.
(Registration No. 333-80621) including all amendments thereto.)
4.6 First Supplemental Indenture, dated as of August 22, 1999, among the Company,
the guarantors named therein and the United States Trust Company of New York,
as trustee. (Incorporated by reference to Exhibit 4.6 of the Registration
Statement on Form S-4 of Vail Resorts, Inc. (Registration No. 333-80621)
including all amendments thereto.)
10.1 Management Agreement by and between Beaver Creek Resort Company of Colorado
and Vail Associates, Inc. (Incorporated by reference to Exhibit 10.1 of the
Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No.
33-52854) including all amendments thereto.)
10.2 Forest Service Term Special Use Permit for Beaver Creek ski area.
(Incorporated by reference to Exhibit 10.2 of the Registration Statement on
Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all
amendments thereto.)
10.3 Forest Service Special Use Permit for Beaver Creek ski area. (Incorporated by
reference to Exhibit 10.3 of the Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.)
10.4 Forest Service Unified Permit for Vail ski area. (Incorporated by reference to
Exhibit 10.4 of the Registration Statement on Form S-4 of Gillett Holdings,
Inc. (Registration No. 33-52854) including all amendments thereto.)
10.5 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.)
10.6 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.)
10.7 Amendment to Management Agreement by and among the Company and its
subsidiaries dated as of November 23, 1993. (Incorporated by reference to
Exhibit 10.12(b) of the report on Form 10-K of Gillett Holdings, Inc. for the
period from October 9, 1992 through September 30, 1993.)
10.8(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.)
10.8(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.)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<C> <S> <C>
10.9 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.)
10.10(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.)
10.10(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.)
10.10(c) Second Amendment to Agreement for Purchase and Sale dated September 22, 1993
by and between Arrowhead at Vail, Arrowhead Ski Corporation, Arrowhead at Vail
Properties Corporation, Arrowhead Property Management Company and Vail
Associates, Inc. (Incorporated by reference to Exhibit 10.19(c) of the report
on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992
through September 30, 1993.)
10.10(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.)
10.11 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.)
10.12 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.)
10.13 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.)
10.14 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.)
10.15(a) Shareholder Agreement among Vail Resorts, Inc., Ralston Foods, Inc., and
Apollo Ski Partners, L.P. 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.)
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<C> <S> <C>
10.15(b) First Amendment to the Shareholder Agreement dated as of November 1, 1999,
among Vail Resorts, Inc., Ralcorp Holdings, Inc. (f/k/a Ralston Foods, Inc.)
and Apollo Ski Partners, L.P. (Incorporated by reference to Exhibit 10.17(b)
of the report on Form 10-Q of Vail Resorts, Inc. for the quarter ended January
31, 2000.)
10.16 1996 Stock Option Plan (Incorporated by reference from the Company's
Registration Statement on Form S-3, File No. 333-5341).
10.17 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.)
10.18(a) 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.)
10.18(b) Trust Indenture dated as of April 1, 1998 securing Sports and Housing
Facilities Revenue Refunding Bonds by and between Eagle County, Colorado and
US Bank, N.A., as Trustee. (Incorporated by reference to Exhibit 10.1 of the
report on Form 10-Q of Vail Resorts, Inc. for the quarter ended April 30,
1998.)
10.19 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.)
10.20(a) 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.)
10.20(b) First Amendment and Consent to Amended and Restated Credit Agreement among The 13
Vail Corporation (d/b/a "Vail Associates, Inc."), Bank of America, N.A., and
the lenders named therein dated as of December 31, 1999.
10.20(c) Second Amendment to Amended and Restated Credit Agreement among The Vail 19
Corporation (d/b/a "Vail Associates, Inc."), Bank of America, N.A., and the
lenders named therein dated as of April 21, 2000 but effective as of February
1, 2000.
10.21 Employment Agreement dated October 28, 1996 by and between Vail Resorts, Inc.
and James P. Donohue. (Incorporated by reference to Exhibit 10.24 of the
report on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31,
1999.)
10.22 Vail Resorts, Inc. 1999 Long Term Incentive and Share Award Plan.
(Incorporated by reference to the Company's registration statement on Form
S-8, File No. 333-32320).
21 Subsidiaries of Vail Resorts, Inc. 29
27 Financial Data Schedules
</TABLE>
b) Reports on Form 8-K
None.
11
<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 June 13, 2000.
VAIL RESORTS, INC.
Date: June 13, 2000 By /s/
-----------------------------------
James P. Donohue
Senior Vice President and
Chief Financial Officer
12
