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.
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>
<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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
<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
<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
<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
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