================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q [_] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] TRANSITION REPORT PURSUANT TO SECTION B OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM OCTOBER 1, 1997 TO JANUARY 31, 1998 --------------- ---------------- COMMISSION FILE NUMBER: 1-9614 VAIL RESORTS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 51-0291762 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) POST OFFICE BOX 7 VAIL, COLORADO 81658 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (970) 476-5601 ---------------------- FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT. NONE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No --- --- As of March 13, 1998, 34,166,695 shares of common stock were issued and outstanding, of which 11,639,834 shares were Class A Common Stock and 22,526,861 shares were Common Stock. ================================================================================
TABLE OF CONTENTS PART I <TABLE> <CAPTION> <S> <C> <C> Item 1. Financial Statements.......................................... F-1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 1 PART II Item 1. Legal Proceedings............................................. 9 Item 2. Changes in Securities......................................... 9 Item 3. Defaults Upon Senior Securities............................... 9 Item 4. Submission of Matters to a Vote of Security-Holders........... 9 Item 5. Other Information............................................. 9 Item 6. Exhibits and Reports on Form 8-K.............................. 10 </TABLE>
PART I <TABLE> <CAPTION> ITEM 1. FINANCIAL STATEMENTS <S> <C> Consolidated Balance Sheets as of January 31, 1998, October 31, 1997 and September 30, 1997... F-2 Consolidated Statements of Operations for the One Month Ended October 31, 1997 and 1996....... F-3 Consolidated Statements of Operations for the Three Months Ended January 31, 1998 and 1997.... F-4 Consolidated Statements of Operations for the Four Months Ended January 31, 1998 and 1997..... F-5 Consolidated Statements of Cash Flows for the Four Months Ended January 31, 1998 and 1997..... F-6 Notes to Consolidated Financial Statements.................................................... F-7 </TABLE>
VAIL RESORTS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) <TABLE> <CAPTION> JANUARY 31, OCTOBER 31, SEPTEMBER 30, 1998 1997 1997 ----------- ------------ -------------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> ASSETS ------ Current assets: Cash and cash equivalents.................................... $ 28,058 $ 15,251 $ 14,703 Receivables.................................................. 28,777 21,172 22,107 Inventories.................................................. 12,989 12,302 10,789 Deferred income taxes........................................ 28,268 27,194 24,500 Other current assets......................................... 4,195 3,173 4,253 -------- -------- -------- Total current assets........................................ 102,287 79,092 76,352 Property, plant, and equipment, net............................ 491,587 465,984 411,117 Real estate held for sale...................................... 138,660 166,007 154,925 Deferred charges and other assets.............................. 12,988 13,629 13,290 Intangible assets.............................................. 202,582 203,527 200,265 -------- -------- -------- Total assets................................................ $948,104 $928,239 $855,949 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable and accrued expenses........................ $102,814 $ 86,385 $ 70,171 Income taxes payable......................................... 325 325 325 Rights payable to stockholders............................... - - 5,707 Long-term debt due within one year (Note 3).................. 1,715 1,715 1,715 -------- -------- -------- Total current liabilities................................... 104,854 88,425 77,918 Long-term debt (Note 3)........................................ 289,326 336,614 263,347 Other long-term liabilities.................................... 24,109 23,348 23,281 Deferred income taxes.......................................... 97,107 78,870 85,737 Commitments and contingencies (Note 4) Stockholders' equity: Preferred stock, $.01 par value, 25,000,000 shares authorized, no shares issued and outstanding................ - - - Common stock- Class A Common Stock, $.01 par value, 20,000,000 shares authorized, 11,639,834 shares issued and outstanding as of January 31, 1998, October 31, 1997 and September 30, 1997, respectively...................... 116 116 116 Common Stock, $.01 par value, 80,000,000 shares authorized, 22,488,361, 22,117,541, and 21,765,815 shares issued and outstanding as of January 31, 1998, October 31, 1997, and September 30, 1997, respectively.............................................. 225 221 218 Additional paid-in capital................................... 396,530 390,754 385,634 Retained earnings............................................ 35,837 9,891 19,698 -------- -------- -------- Total stockholders' equity................................ 432,708 400,982 405,666 -------- -------- -------- Total liabilities and stockholders' equity................ $948,104 $928,239 $855,949 ======== ======== ======== </TABLE> See accompanying notes to consolidated financial statements. F-2
VAIL RESORTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) <TABLE> <CAPTION> ONE ONE MONTH MONTH ENDED ENDED OCTOBER 31, OCTOBER 31, 1997 1996 ------------ ------------ <S> <C> <C> Net revenues: Resort.............................................. $ 3,871 $ 1,400 Real estate......................................... 235 28 -------- ------- Total net revenues................................. 4,106 1,428 Operating expenses: Resort.............................................. 14,744 6,973 Real estate......................................... 516 411 Corporate expense................................... 344 178 Depreciation and amortization....................... 3,395 1,436 -------- ------- Total operating expenses........................... 18,999 8,998 -------- ------- Income (loss) from operations......................... (14,893) (7,570) Other income (expense): Investment income................................... 120 140 Interest expense.................................... (1,985) (1,064) Other............................................... (6) - -------- ------- Income (loss) before income taxes..................... (16,764) (8,494) Income tax benefit (Note 2)........................... 6,957 3,567 -------- ------- Net income (loss)..................................... $ (9,807) $(4,927) ======== ======= Net income (loss) per common share (Notes 2 and 5): Basic.............................................. $ (0.29) $ (0.25) ======== ======= Diluted............................................ $ (0.29) $ (0.24) ======== ======= </TABLE> See accompanying notes to consolidated financial statements. F-3
VAIL RESORTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) <TABLE> <CAPTION> THREE THREE MONTHS MONTHS ENDED ENDED JANUARY 31, JANUARY 31, 1998 1997 ----------- ----------- <S> <C> <C> Net revenues: Resort....................................... $136,322 $ 83,072 Real estate.................................. 51,158 50,003 -------- -------- Total net revenues.......................... 187,480 133,075 Operating expenses: Resort....................................... 82,270 47,121 Real estate.................................. 43,693 42,916 Corporate expense............................ 1,319 896 Depreciation and amortization................ 10,153 6,912 -------- -------- Total operating expenses.................... 137,435 97,845 -------- -------- Income from operations......................... 50,045 35,230 Other income (expense): Investment income............................ 585 27 Interest expense............................. (6,108) (4,311) Loss on sale of fixed assets................. - (25) Other........................................ (214) (560) -------- -------- Income before income taxes..................... 44,308 30,361 Provision for income taxes (Note 2)............ (18,362) (12,751) -------- -------- Net income..................................... $ 25,946 $ 17,610 ======== ======== Net income per common share (Notes 2 and 5): Basic....................................... $ 0.76 $ 0.76 ======== ======== Diluted..................................... $ 0.75 $ 0.73 ======== ======== </TABLE> See accompanying notes to consolidated financial statements. F-4
VAIL RESORTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) <TABLE> <CAPTION> FOUR FOUR MONTHS MONTHS ENDED ENDED JANUARY 31, JANUARY 31, 1998 1997 ----------- ----------- <S> <C> <C> Net revenues: Resort....................................... $140,193 $ 84,472 Real estate.................................. 51,393 50,031 -------- -------- Total net revenues.......................... 191,586 134,503 Operating expenses: Resort....................................... 97,014 54,094 Real estate.................................. 44,209 43,327 Corporate expense............................ 1,663 1,074 Depreciation and amortization................ 13,548 8,348 -------- -------- Total operating expenses.................... 156,434 106,843 -------- -------- Income from operations......................... 35,152 27,660 Other income (expense): Investment income............................ 705 167 Interest expense............................. (8,093) (5,375) Loss on disposal of fixed assets............. - (25) Other........................................ (220) (560) -------- -------- Income before income taxes..................... 27,544 21,867 Provision for income taxes (Note 2)............ (11,405) (9,184) -------- -------- Net income..................................... $ 16,139 $ 12,683 ======== ======== Net income per common share (Notes 2 and 5): Basic....................................... $ 0.47 $ 0.57 ======== ======== Diluted..................................... $ 0.47 $ 0.54 ======== ======== </TABLE> See accompanying notes to consolidated financial statements. F-5
VAIL RESORTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) <TABLE> <CAPTION> FOUR FOUR MONTHS MONTHS ENDED ENDED JANUARY 31, JANUARY 31, 1998 1997 ----------- ----------- <S> <C> <C> Cash flows from operating activities: Net income....................................................................... $ 16,139 $ 12,683 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................................. 13,548 8,348 Deferred compensation payments in excess of expense........................... (32) (267) Noncash cost of real estate sales............................................. 37,032 36,645 Noncash compensation related to stock grants.................................. 119 87 Deferred financing costs amortized............................................ 159 99 Loss on disposal of fixed assets.............................................. (25) Changes in assets and liabilities: Deferred income taxes......................................................... 11,405 9,184 Accounts receivable, net...................................................... (6,628) (22) Inventories................................................................... (1,591) (1,612) Accounts payable and accrued expenses......................................... 29,633 2,000 Other assets and liabilities.................................................. 1,295 (3,775) --------- --------- Net cash provided by operating activities................................... 101,079 63,345 Cash flows from investing activities: Cash paid in acquisition of resort, net of cash acquired......................... (149,259) Cash paid in hotel acquisitions, net of cash acquired............................ (54,637) Resort capital expenditures...................................................... (45,410) (22,524) Investments in real estate....................................................... (13,197) (18,119) --------- --------- Net cash used in investing activities....................................... (113,244) (189,902) Cash flows from financing activities: Proceeds from the exercise of stock options...................................... 5,248 - Payments under Rights............................................................ (5,707) - Proceeds from borrowings under long-term debt.................................... 288,000 197,361 Payments on long-term debt....................................................... (262,021) (70,421) --------- --------- Net cash provided by financing activities................................... 25,520 126,940 --------- --------- Net increase in cash and cash equivalents.......................................... 13,355 383 Cash and cash equivalents: Beginning of period.............................................................. 14,703 12,712 --------- --------- End of period.................................................................... $ 28,058 $ 13,095 ========= ========= SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS: Issuance of common stock in resort acquisition................................... $ -- $ 151,088 ========= ========= Assumption of liabilities in resort acquisition.................................. $ -- $ 91,480 ========= ========= Option exercise.................................................................. $ -- $ 2,740 ========= ========= Assumption of liabilities in hotel acquisitions.................................. $ 3,272 $ -- ========= ========= Issuance of shares under restricted stock grants................................. $ 288 $ -- ========= ========= </TABLE> See accompanying notes to consolidated financial statements. F-6
VAIL RESORTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION Vail Resorts, Inc. ("Vail Resorts") is organized as a holding company and operates through various subsidiaries. Vail Resorts and its subsidiaries (collectively, the "Company") currently operate in two business segments, mountain resorts and real estate development. Vail Associates, Inc., a wholly- owned subsidiary of Vail Resorts, and its subsidiaries (collectively, "Vail Associates") operate one of the world's largest skiing facilities on Vail, Breckenridge, Keystone and Beaver Creek mountains in Colorado. The Breckenridge and Keystone mountain resorts (collectively, the "Acquired Resorts"), together with the Arapahoe Basin mountain resort and significant related real estate interests and developable land, were acquired by the Company on January 3, 1997 (the "Acquisition"). The Company divested the Arapahoe Basin mountain resort on September 5, 1997. Vail Resorts Development Company ("VRDC"), a wholly-owned subsidiary of Vail Associates, Inc., conducts the Company's real estate development activities. The Company's mountain resort business is seasonal with a typical ski season beginning in mid-October and continuing through mid-May. On November 5, 1997, the Company announced the change of its fiscal year end from September 30 to July 31. Accordingly, the Company's fiscal year 1998 will end on July 31, 1998 and consist of ten months. For fiscal 1998, the Company has filed this transitional interim report for the four months ended January 31, 1998 and will file a quarterly report for the three months ended April 30, 1998 and an annual report for the ten months ended July 31, 1998, all on a comparative basis with the prior year. This interim report for the four months ended January 31, 1998 includes statements of financial position as of September 30, 1997, October 31, 1997 and January 31, 1998, comparative results of operations for the four and three month periods ended January 31, 1998, and for the one month transitional period ended October 31, 1997, and comparative statements of cash flows for the four months ended January 31, 1998. In the opinion of the Company, the accompanying consolidated 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 of the Acquired Resorts have been included for the period from January 4 to January 3l in fiscal 1997 and for the full four month period in fiscal 1998. The assets and liabilities, and results of operations of Arapahoe Basin, which the Company divested in September 1997, have been excluded from the accompanying financial statements for all periods presented. 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 September 30, 1997 included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1997. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation--The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Investments in joint ventures are accounted for under the equity method. All significant intercompany transactions have been eliminated. Income Taxes--The Company accounts for income taxes using the liability method required by Statement on Financial Accounting Standards No. 109, "Accounting for Income Taxes". The Company has provided for income taxes in the accompanying interim statements of operations at the estimated effective income tax rates for fiscal 1998 and 1997, respectively. F-7
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Earnings Per Common Share-- In accordance with Statement on Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", the Company computes earnings per share on both the basic and diluted basis. Reclassifications-- Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. 3. LONG-TERM DEBT Long-term debt as of January 31, 1998, October 31, 1997, and September 30, 1997 is summarized as follows (in thousands): <TABLE> <CAPTION> JANUARY 31, OCTOBER 31, SEPTEMBER 30, 1998 1997 1997 ----------- ----------- ------------- <S> <C> <C> <C> Industrial Development Bonds... 61,263 61,263 61,263 Credit Facilities.............. 228,000 275,273 202,000 Other.......................... 1,778 1,793 1,799 -------- -------- -------- 291,041 338,329 265,062 Less-current maturities........ 1,715 1,715 1,715 -------- -------- -------- $289,326 $336,614 $263,347 ======== ======== ======== </TABLE> At September 30, 1997, the Company's Credit Facilities consisted of (i) a $175 million Revolving Credit Facility, (ii) a $115 million Tranche A Term Loan Facility and (iii) a $50 million Tranche B Term Loan Facility (together with Tranche A, the "Term Loan Facilities") thereby providing for aggregate debt financing of $340 million. The Revolving Credit Facility would have matured on April 15, 2003 and the Term Loan Facilities required minimum amortization payments ranging from $11.5 to $41.0 million annually from 1998 to 2004. On December 19, 1997, the Company amended its Credit Facilities to provide an increase in aggregate debt financing from $340.0 million to $450.0 million and to eliminate the required minimum amortization payments under the Term Loan Facilities. All amounts outstanding under the Revolving Credit Facility and the Term Loan Facilities at December 19, 1997 were refinanced under a single revolving credit facility maturing on December 19, 2002. Interest on outstanding borrowings under the new Revolving Credit Facility is payable at rates based upon either LIBOR (5.62% at January 31, 1998) plus a margin ranging from .50% to 1.25% or prime (8.5% at January 31, 1998) plus a margin of up to .125%. The Company also pays a quarterly unused commitment fee ranging from .125% to .30%. The interest margins fluctuate based upon the ratio of Funded Debt to the Company's Resort EBITDA (as defined in the underlying Credit Agreement). 4. COMMITMENTS AND CONTINGENCIES Smith Creek Metropolitan District ("SCMD") and Bachelor Gulch Metropolitan District ("BGMD") were organized in November 1994 to cooperate in the financing, construction and operation of basic public infrastructure serving the Company's Bachelor Gulch Village development. SCMD was organized primarily to own, operate and maintain water, street, traffic and safety, transportation, fire protection, parks and recreation, television relay and translation, sanitation and certain other facilities and equipment of the BGMD. SCMD is comprised of approximately 150 acres of open space land owned by the Company and members of the Board of Directors of the SCMD. In two planned unit developments, Eagle County has granted zoning approval for 1,395 dwelling units within Bachelor Gulch Village, including various single family homesites, cluster home and townhome, and lodging units. F-8
4. COMMITMENTS AND CONTINGENCIES--(CONTINUED) As of January 31, 1998, the Company has sold 100 single family homesites and has entered into contracts for the sale of 3 parcels to developers for the construction of various types of dwelling units. Currently, SCMD has outstanding $44.5 million of variable rate revenue bonds maturing on October 1, 2035, which have been enhanced with a $47.2 million letter of credit issued against the Company's Revolving Credit Facility. It is anticipated that as the Bachelor Gulch community expands, BGMD will become self supporting and that within 25 to 30 years will issue general obligation bonds, the proceeds of which will be used to retire the SCMD revenue bonds. Until that time, the Company has agreed to subsidize the interest payments on the SCMD revenue bonds. The Company has estimated that the present value of this aggregate subsidy to be $16.2 million at January 31, 1998. The Company has allocated $9.5 million of that amount to the Bachelor Gulch Village single family homesites which were sold as of January 31, 1998 and has recorded that amount as a liability in the accompanying financial statements. The total subsidy incurred as of January 31, 1998 and 1997 was $2,065,743 and $1,065,794, respectively. At January 31, 1998, the Company had various other letters of credit outstanding in the aggregate amount of $17.2 million. 5. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share" ("EPS") effective for periods ending after December 15, 1997, including interim periods. SFAS No. 128 establishes standards for computing and presenting earnings per share. SFAS No. 128 requires the dual presentation of basic (replaces primary EPS) and diluted EPS on the face of the income statement and requires a reconciliation of numerators (net income) and denominators (weighted average shares outstanding) for both basic and diluted EPS in the footnotes. Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted average shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised resulting in the issuance of common shares that would then share in the earnings of the Company. The Company has adopted the requirements of SFAS No. 128 for the four and three month periods ended January 31, 1998, and the one month period ended October 31, 1997. Pro forma presentation and disclosure requirements are supplied for prior period comparisons in accordance with the statement. <TABLE> <CAPTION> ONE THREE FOUR MONTH MONTHS MONTHS ENDED ENDED ENDED OCTOBER 31, JANUARY 31, JANUARY 31, 1997 1998 1998 ------------ ----------- ----------- <S> <C> <C> <C> Basic EPS Computation: Net income............................ $ (9,807) $ 25,946 $ 16,139 ----------- ----------- ----------- Weighted average shares outstanding... 33,467,649 34,193,935 34,010,887 ----------- ----------- ----------- Basic EPS............................. $ (0.29) $ 0.76 $ 0.47 =========== =========== =========== Diluted EPS Computation: Net income............................ $ (9,807) $ 25,946 $ 16,139 ----------- ----------- ----------- Weighted average shares outstanding... 33,467,649 34,193,935 34,010,887 Effect of dilutive stock options...... 876,079 535,209 623,856 ----------- ----------- ----------- Total shares......................... 34,343,728 34,729,144 34,634,743 ----------- ----------- ----------- Diluted EPS........................... $ (0.29) $ 0.75 $ 0.47 =========== =========== =========== </TABLE> F-9
5. EARNINGS PER SHARE--(CONTINUED) <TABLE> <CAPTION> ONE THREE FOUR MONTHS MONTHS MONTH ENDED ENDED ENDED JANUARY 31, JANUARY 31, OCTOBER 31, 1997 1997 1997 ----------- ----------- ----------- <S> <C> <C> <C> Basic EPS Computation: Net income............................ $ (4,927) $ 17,610 12,683 ----------- ----------- ------------- Weighted average shares outstanding... 19,885,150 23,105,649 22,335,526 ----------- ----------- ------------- Basic EPS............................. $ (0.25) $ 0.76 $ 0.57 =========== =========== ============= Diluted EPS Computation: Net income............................ $ (4,927) $ 17,610 $ 12,683 ----------- ----------- ------------- Weighted average shares outstanding... 19,885,150 23,105,649 22,335,526 Effect of dilutive stock options...... 1,034,368 1,034,368 1,034,368 ----------- ----------- ------------- Total shares......................... 20,919,518 24,140,017 23,369,894 ----------- ----------- ------------- Diluted EPS........................... $ (0.24) $ 0.73 $ 0.54 =========== =========== ============= </TABLE> 6. Acquisition On January 3, 1997, the Company acquired from Ralston Foods, Inc. 100% of the stock of Ralston Resorts, Inc., the owner and operator of the Breckenridge, Keystone and Arapahoe Basin mountain resorts located in Summit County, Colorado, for a total purchase price, including direct costs, of $297.3 million. In connection with the Acquisition, the Company refinanced $139.7 million of indebtedness, issued 7,554,406 shares of Common Stock valued at $151.1 million to Ralston Foods, Inc., assumed liabilities of $59.8 million and incurred $9.0 million in acquisition costs. Pursuant to a Consent Decree with the United States Department of Justice and the Attorney General of the State of Colorado, the Company sold the assets constituting the Arapahoe Basin mountain resort on September 5, 1997 for a sum of $4.0 million. The Acquisition was accounted for as a purchase combination. Under purchase accounting, the acquisition cost was allocated to the assets and liabilities of the Acquired Resorts based on their relative fair values. The following unaudited pro forma results of operations of the Company for the four months ended January 31, 1997 assume that the Acquisition occurred on October 1, 1996. The unaudited pro forma results of operations include the effects of the Company's initial public offering only from its effective date of February 7, 1997. These pro forma results are not necessarily indicative of the actual results of operations that would have been achieved nor are they necessarily indicative of future results of operations. The unaudited pro forma financial information below excludes the results of Arapahoe Basin, which the Company divested. The unaudited summarized financial information for the four months ended January 31, 1998 are provided for comparative purposes. <TABLE> <CAPTION> (PRO FORMA) FOUR FOUR MONTHS MONTHS ENDED ENDED JANUARY 31, JANUARY 31, 1998 1997 -------------------- ------------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> Resort revenue........................ $140,193 $115,305 Real estate revenue................... 51,393 50,209 Total revenues........................ 191,586 165,514 Net income............................ 16,139 11,123 Basic net income per common share..... 0.47 0.39 Diluted net income per common share... 0.47 0.38 </TABLE> F-10
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 September 30, 1997 annual report on Form 10-K and the consolidated interim financial statements as of January 31, 1998, October 31, 1997 and September 30, 1997, and for the four and three month periods ended January 31, 1998 and 1997, and the one month periods ended October 31, 1997 and 1996 included in Part I, Item 1 of this Form 10-Q, which provide additional information regarding financial condition and operating results. This Management's Discussion and Analysis contains information regarding Resort Cash Flow. Resort Cash Flow is defined as revenue from resort operations less resort operating expenses, excluding depreciation and amortization. Resort Cash Flow is not a term that has an established meaning under generally accepted accounting principles. The Company has included information concerning Resort Cash Flow because management believes it is an indicative measure of a resort company's operating performance and is generally used by investors to evaluate companies in the resort industry. Resort Cash Flow does not purport to represent cash provided by operating activities and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Furthermore, Resort Cash Flow is not available for the discretionary use of management and, prior to the payment of dividends, the Company uses Resort Cash Flow to meet its capital expenditure and debt service requirements. On January 3, 1997, the Company acquired the Breckenridge, Keystone and Arapahoe Basin mountain resorts as well as significant related real estate interests and developable land. Pursuant to a consent decree with the United States Department of Justice, the Company divested the Arapahoe Basin Mountain Resort on September 5, 1997. The Breckenridge and Keystone mountain resorts are referred to herein as the "Acquired Resorts." During fiscal 1998, the Company changed its fiscal year end from September 30 to July 31. Accordingly, the Company's fiscal year 1998 will end on July 31, 1998 and consist of ten months. This Management's Discussion and Analysis compares actual results for the four months ended January 31, 1998 and 1997. Management believes that separate comparisons of the actual results for the three months ended January 31, 1998 and 1997, and the month ended October 31, 1997 and 1996, would provide minimal benefit to investors beyond that provided in the four month comparisons and, accordingly, have not been presented herein. Supplemental pro forma comparisons are presented for the three, four, and six month periods ended January 31, 1998 and 1997. Four month comparisons are presented to conform with the actual four month transitional period, while three and six month comparisons are presented to compare results for the Company's new second quarter and first half ended January 31, 1998 and 1997. FOUR MONTHS ENDED JANUARY 31, 1998 VERSUS FOUR MONTHS ENDED JANUARY 31, 1997 The actual results of fiscal 1998 versus the actual results of fiscal 1997 discussed below are not comparable due to the acquisition of the Acquired Resorts by the Company on January 3, 1997. Accordingly, the usefulness of the comparisons presented below is limited as fiscal 1997 includes the results of the Acquired Resorts for the period from January 4 to January 31 while fiscal 1998 includes the results of the Acquired Resorts for the full four month period. Please see pro forma Results of Operations included elsewhere in this Management's Discussion and Analysis. Resort Revenue. Resort Revenue for the four months ended January 31, 1998 was $140.2 million, an increase of $55.7 million, or 65.9%, compared to the four months ended January 31, 1997. The increase was primarily attributable to the inclusion of the results of the Acquired Resorts for the full four month period in fiscal 1998 but only for the period from January 4 to January 31 of fiscal 1997, and increases in lift ticket, ski school, dining, retail and rental, hospitality and other revenues at all four resorts during fiscal 1998. 1
Resort Operating Expenses. Resort Operating Expenses were $97 million for the four months ended January 31, 1998, an increase of $42.9 million, or 79.3%, as compared to the four months ended January 31, 1997. The increase in Resort Operating Expenses is attributable to the inclusion of the results of the Acquired Resorts for the full four months in fiscal 1998 but only for the period from January 4 to January 31 of fiscal 1997, and increased variable expenses resulting from the increased level of Resort Revenue in the four months ended January 31, 1998. Resort Cash Flow. Resort Cash Flow was $43.2 million for the four months ended January 31, 1998, an increase of $12.8 million, or 42.1%, as compared to the four months ended January 31, 1997. The increase in Resort Cash Flow is due primarily to the inclusion of the results of the Acquired Resorts for the full four months in fiscal 1998 but only for the period from January 4 to January 31 of fiscal 1997, and the increased level of Resort Revenue, offset by increased expenses as described above. Real Estate Revenue. Revenue from real estate operations for the four months ended January 31, 1998 was $51.4 million, an increase of $1.4 million, compared to the four months ended January 31, 1997. Revenue for the first four months of fiscal 1998 consists primarily of the sales of 35 single family homesites in the Bachelor Gulch Village development ($30.0 million) and the sale of four luxury residential condominiums at the Golden Peak base area of Vail Mountain ($18.7 million). Revenue for the first four months of fiscal 1997 consisted primarily of the sales of 63 single family homesites in the Bachelor Gulch Village development which totaled $46.6 million. Real Estate Operating Expenses. Real estate operating expenses for the four months ended January 31, 1998 were $44.2 million, an increase of $.9 million, compared to the four months ended January 31, 1997. Real estate cost of sales for the first four months of fiscal 1998 consists primarily of the cost of sales and real estate commissions associated with the sale of 35 single family homesites in the Bachelor Gulch Village development and four luxury residential condominiums at the Golden Peak base area of Vail Mountain. Real estate cost of sales for the first four months of fiscal 1997 consisted primarily of the cost of sales and real estate commissions associated with the sale of 63 single family homesites in the Bachelor Gulch Village development. Corporate expense. Corporate expense increased by $589,000 for the four months ended January 31, 1998 as compared to the four months ended January 31, 1997. Corporate expense includes certain executive salaries, directors' and officers' insurance, investor relations expenses and tax, legal, audit, transfer agent, and other consulting fees. The increase over fiscal 1997 is primarily attributable to an increase in investor relations costs, transfer agent fees and other costs associated with being a public company. Depreciation and Amortization. Depreciation and amortization expense increased by $5.2 million for the four months ended January 31, 1998. The increase was primarily attributable to the inclusion of depreciation expense and amortization of goodwill for the Acquired Resorts for the full four month period in fiscal 1998 but only for the period from January 4 to January 31 of fiscal 1997, and capital expenditures made in fiscal 1997 at all four resorts. Interest expense. During the four months ended January 31, 1998 and the four months ended January 31, 1997, the Company recorded interest expense of $8.1 million and $5.4 million, respectively, relating primarily to the Credit Facilities and the Industrial Development Bonds in fiscal 1998 and fiscal 1997, as well as the Senior Subordinated Notes for fiscal 1997. The increase in interest expense for the four months ended January 31, 1998 compared to the four months ended January 31, 1997, is attributable to a higher average balance outstanding on the Credit Facilities due to amounts drawn for (i) hotel acquisitions made in October 1997 and (ii) investments in resort and real estate capital improvements. This increase is partially offset by (i) interest incurred on the $165 million in debt assumed in the acquisition of Ralston Resorts which was outstanding for the partial period from January 4 to January 31 of fiscal 1997, and (ii) higher interest rates on the Senior Subordinated Notes which were outstanding for the entire four month period in fiscal 1997 and redeemed with proceeds from the Company's initial public offering in March 1997. 2
PRO FORMA RESULTS OF OPERATIONS--FOUR AND THREE MONTHS ENDED JANUARY 31, 1998 VERSUS FOUR AND THREE MONTHS ENDED JANUARY 31, 1997 The following unaudited pro forma results of operations of the Company for the four and three months ended January 31, 1997 assume the Acquisition occurred on October 1, 1996. These pro forma results are not necessarily indicative of the actual results of operations that would have been achieved nor are they necessarily indicative of future results of operations. The unaudited pro forma financial information below excludes the results of Arapahoe Basin which the Company divested in September 1997. The unaudited summarized information for the four and three months ended January 31, 1998 are provided for comparative purposes. Due to the seasonal nature of the Company's business, the pro forma results for the four months ended January 31, 1998 and 1997 do not differ materially from the pro forma results for the three months ended January 31, 1998 and 1997, and, accordingly, the analysis of both the four and the three month periods has been presented as a single presentation. <TABLE> <CAPTION> (PRO FORMA) FOUR FOUR MONTHS MONTHS ENDED ENDED JANUARY 31, JANUARY 31, PERCENTAGE 1998 1997 INCREASE INCREASE ------------ ------------- ------------ ----------- (unaudited) (in thousands) <S> <C> <C> <C> <C> Resort Revenue............. $140,193 $115,305 $24,888 21.6% Resort Operating Expenses.. 97,014 80,656 16,358 20.3% Resort Cash Flow........... 43,179 34,649 8,530 24.6% (PRO FORMA) THREE THREE MONTHS MONTHS ENDED ENDED JANUARY 31, JANUARY 31, PERCENTAGE 1998 1997 INCREASE INCREASE ------------ ------------ ------------ ----------- (unaudited) (in thousands) Resort Revenue............. $136,322 $111,997 $24,325 21.7% Resort Operating Expenses.. 82,270 67,708 14,562 21.5% Resort Cash Flow........... 54,052 44,289 9,763 22.0% Resort Revenue. Pro forma Resort Revenue for the four and three months ended January 31, 1998 and 1997 are presented by category as follows: (PRO FORMA) FOUR FOUR MONTHS MONTHS ENDED ENDED JANUARY 31, JANUARY 31, PERCENTAGE 1998 1997 INCREASE INCREASE ---------- ------------ ----------- ----------- (in thousands) Lift Tickets............... $ 63,940 $ 59,011 $ 4,929 8.4% Ski School................. 16,540 14,183 2,357 16.6% Dining..................... 18,079 14,145 3,934 27.8% Retail/Rental.............. 8,764 7,190 1,574 21.9% Hospitality................ 15,347 11,012 4,335 39.4% Other...................... 17,523 9,764 7,759 79.5% -------- -------- ------- ---- Total Resort Revenue....... $140,193 $115,305 $24,888 21.6% ======== ======== ======= ==== Total Skier Visits......... 2,141 2,140 1 0.0% ======== ======== ======= ==== ETP........................ $ 29.86 $ 27.58 $ 2.29 8.3% ======== ======== ======= ==== </TABLE> 3
<TABLE> <CAPTION> (PRO FORMA) THREE THREE MONTHS MONTHS ENDED ENDED JANUARY 31, JANUARY 31, PERCENTAGE 1998 1997 INCREASE INCREASE ----------- ------------ ---------- --------- (in thousands) <S> <C> <C> <C> <C> Lift Tickets........... $ 63,618 $ 58,746 $ 4,872 8.3% Ski School............. 16,522 14,154 2,368 16.7% Dining................. 17,340 13,651 3,689 27.0% Retail/Rental.......... 8,590 7,047 1,543 21.9% Hospitality............ 14,163 9,848 4,315 43.8% Other.................. 16,089 8,551 7,538 88.2% -------- -------- ------- ---- Total Resort Revenue... $136,322 $111,997 $24,325 21.7% ======== ======== ======= ==== Total Skier Visits..... 2,122 2,120 2 0.1% ======== ======== ======= ==== ETP.................... $ 29.98 $ 27.71 $ 2.27 8.2% ======== ======== ======= ==== </TABLE> Lift ticket revenue increased due to an increase in effective ticket price (defined as total lift ticket revenue divided by total skier visits "ETP") on a .1% increase in the number of skier visits. The increase in ETP is primarily due to increases in lead ticket prices at each resort, and a favorable improvement in the proportion of destination skier visits to total skier visits. Tickets sold to destination guests tend to have a higher ETP than tickets sold to local and Front Range (Denver/Colorado Springs area) skiers. The Company believes the increase in destination guests is the result of the Company's new and innovative marketing programs, including its new loyalty award program. Ski school revenue increased due primarily to price increases and an increase in the number of private lessons. The number of private lessons increased due to the increase in the number of destination guests and the continued growth of snowboarding. Additionally, the Beaver Creek children's program has shown strong growth due to a number of initiatives designed to increase participation. Dining revenue increased as a result of (i) the opening of five new operations at the base of and on Vail Mountain which increased seating capacity by 10%, (ii) the opening of six new operations at the base of Beaver Creek Mountain which increased seating capacity by 29%, (iii) increased usage of Keystone's banquet facilities and the addition of two new dining operations at that resort, (iv) the addition of two new dining facilities at Breckenridge, coupled with (v) price increases at existing dining facilities, and (vi) volume growth at Vail Mountain's Eagles Nest venue due to the success of the adjacent Adventure Ridge night time activities center. Retail and rental revenues increased due to (i) the opening of two new rental and one new retail operation, (ii) strong performance from existing Beaver Creek operations due to the completion of the One Beaver Creek Place and Market Square developments in the Beaver Creek Village core, (iii) increased revenue from the newly renovated Golden Peak base facility retail and rental operations, and (iv) improvements in inventory management and store product mix which help to take advantage of current trends such as snowboarding and children's accessories. Hospitality revenue increased primarily due to (i) the acquisitions of The Lodge at Vail, the Breckenridge Hilton, and the Inn at Keystone, and (ii) increases at Keystone Resort due to improved lodging occupancy and increased use of conference center facilities. Property management services also contributed toward the growth over fiscal 1997 due to an increase in the number of units under management, primarily at Beaver Creek and Arrowhead, and an improvement in the average daily rate (defined as hospitality revenue divided by number of room nights) at Beaver Creek Resort. 4
Other revenue increased as a result of (i) increased popularity of the Adventure Ridge activities center, (ii) enhanced village services at the Beaver Creek, Bachelor Gulch, and Arrowhead Village developments, (iii) club initiation fees for the expansion of the Beaver Creek Club, and (iv) increases in sponsorship revenue. Resort Operating Expenses. Resort Operating Expenses were $97.0 million for the four months ended January 31, 1998, compared to $80.7 million for the four months ended January 31, 1997. As a percentage of Resort Revenue, Resort Operating Expenses decreased from 70.0% to 69.2% in the four months ended January 31, 1998. Resort Operating Expenses were $82.3 million for the three months ended January 31, 1998, compared to $67.7 million for the three months ended January 31, 1997. As a percentage of Resort Revenue, Resort Operating Expenses were 60.3% for the three months ended January 31, 1998, compared to 60.4% for the three months ended January 31, 1998. The overall increase in Resort Operating Expenses is attributable to increased variable expenses resulting from the increased level of Resort Revenue and expenses associated with new dining, retail/rental and hospitality operations. Resort Cash Flow. Resort Cash Flow was $43.2 million for the four months ended January 31, 1998, compared to $34.6 million for the four months ended January 31, 1997. Resort Cash Flow as a percentage of Resort Revenue increased from 30.0% to 30.8% in the four months ended January 31, 1998. Resort Cash Flow was $54.1 million for the three months ended January 31, 1998, compared to $44.3 million for the three months ended January 31, 1997. Resort Cash Flow as a percentage of Resort Revenue was 39.7% for the three months ended January 31, 1998, compared to 39.6% for the three months ended January 31, 1997. The increase in Resort Cash Flow is due primarily to the increased level of Resort Revenue offset by increased expenses related to new operations as described above. PRO FORMA RESULTS OF OPERATIONS--SIX MONTHS ENDED JANUARY 31, 1998 VERSUS SIX MONTHS ENDED JANUARY 31, 1997 The following unaudited pro forma results of operations of the Company for the six months ended January 31, 1997 assume the Acquisition occurred on August 1, 1996. These pro forma results are not necessarily indicative of the actual results of operations that would have been achieved nor are they necessarily indicative of future results of operations. The unaudited pro forma financial information below excludes the results of Arapahoe Basin which the Company divested in September 1997. The unaudited summarized information for the six months ended January 31, 1998 are provided for comparative purposes. <TABLE> <CAPTION> (PRO FORMA) SIX SIX MONTHS MONTHS ENDED ENDED JANUARY 31, JANUARY 31, PERCENTAGE 1998 1997 INCREASE INCREASE ------------ ------------ -------- ----------- (unaudited) (in thousands) <S> <C> <C> <C> <C> Resort Revenue.............. $154,144 $128,088 $26,056 20.3% Resort Operating Expenses... 118,139 101,370 16,769 16.5% Resort Cash Flow............ 36,005 26,718 9,287 34.8% </TABLE> 5
Resort Revenue. Pro forma Resort Revenue for the six months ended January 31, 1998 and 1997 are presented by category as follows: <TABLE> <CAPTION> (PRO FORMA) SIX SIX MONTHS MONTHS ENDED ENDED JANUARY 31, JANUARY 31, PERCENTAGE 1998 1997 INCREASE INCREASE ----------- ------------ -------- ----------- (in thousands) <S> <C> <C> <C> <C> Lift Tickets......... $ 63,935 $ 58,999 $ 4,936 8.4% Ski School........... 16,524 14,180 2,344 16.5% Dining............... 22,203 17,664 4,539 25.7% Retail/Rental........ 9,591 7,537 2,054 27.3% Hospitality.......... 19,348 15,140 4,208 27.8% Other................ 22,543 14,568 7,975 54.7% -------- -------- ------- ---- $154,144 $128,088 $26,056 20.3% ======== ======== ======= ==== Total Skier Visits... 2,141 2,140 1 0.0% ======== ======== ======= ==== ETP.................. $29.86 $27.57 $ 2.29 8.3% ======== ======== ======= ==== </TABLE> Lift ticket revenue increased due to an increase in ETP on a .1% increase in the number of skier visits. The increase in ETP is primarily due to increases in lead ticket prices at each resort, and a favorable improvement in the proportion of destination skier visits to total skier visits. Tickets sold to destination guests tend to have a higher ETP than tickets sold to local and Front Range (Denver/Colorado Springs area) skiers. The Company believes the increase in destination guests is the result of the Company's new and innovative marketing programs, including its new loyalty award program. Ski school revenue increased due primarily to price increases and an increase in the number of private lessons. The number of private lessons increased due to the increase in the number of destination guests and the continued growth of snowboarding. Additionally, the Beaver Creek children's program has shown strong growth due to a number of initiatives designed to increase participation. Dining revenue increased as a result of (i) the opening of five new operations at the base of and on Vail Mountain which increased seating capacity by 10%, (ii) the opening of six new operations at Beaver Creek Mountain which increased seating capacity by 29%, (iii) increased usage of Keystone's banquet facilities and the addition of one new year round and one new seasonal dining operation at that resort, (iv) the addition of two new dining facilities at Breckenridge, coupled with (v) price increases at existing dining facilities, and (vi) volume growth at Vail Mountain's Eagles Nest venue due to the success of the adjacent Adventure Ridge night time activities center and increased late summer business due to closures for renovation and construction in the prior year. Retail and rental revenues increased due to (i) the opening of two new rental and one new retail operation, (ii) strong performance from existing Beaver Creek operations due to the completion of the One Beaver Creek Place and Market Square developments in the Beaver Creek Village core, (iii) increased revenue from the newly renovated Golden Peak base facility retail and rental operations, and (iv) improvements in inventory management and store product mix which help to take advantage of current trends such as snowboarding and children's accessories. Hospitality revenue increased primarily due to (i) the acquisitions of The Lodge at Vail, the Breckenridge Hilton, and the Inn at Keystone, and (ii) increases at Keystone Resort due to improved lodging occupancy and increased use of conference center facilities. Property management services also contributed toward the growth over fiscal 1997 due to an increase in the number of units under management, primarily at Beaver Creek and Arrowhead, and an improvement in the average daily at Beaver Creek Resort. 6
Other revenue increased as a result of (i) increased popularity of the Adventure Ridge activities center, (ii) enhanced village services at the Beaver Creek, Bachelor Gulch, and Arrowhead Village developments, (iii) club initiation fees for the expansion of the Beaver Creek Club, and (iv) increases in sponsorship revenue. Resort Operating Expenses. Resort Operating Expenses were $118.1 million for the six months ended January 31, 1998, compared to $101.4 million for the six months ended January 31, 1997. As a percentage of Resort Revenue, Resort Operating Expenses decreased from 79.2% to 76.6% in the six months ended January 31, 1998. The overall increase in Resort Operating Expenses is attributable to increased variable expenses resulting from the increased level of Resort Revenue and expenses associated with new dining, retail/rental and hospitality operations. Resort Cash Flow. Resort Cash Flow was $36.0 million for the six months ended January 31, 1998, compared to $26.8 million for the six months ended January 31, 1997. Resort Cash Flow as a percentage of Resort Revenue increased from 20.8% to 23.4% in the six months ended January 31, 1998. The increase in Resort Cash Flow is due primarily to the increased level of Resort Revenue offset by increased expenses related to new operations as described above. LIQUIDITY AND CAPITAL RESOURCES The Company has historically provided for operating expenditures, debt service, capital expenditures and acquisitions through a combination of cash flow from operations, short-term and long-term borrowings and sales of real estate. The Company's cash flows from investing activities have historically consisted of payments for acquisitions, resort capital expenditures, and investments in real estate. During the four month period ended January 31, 1998, payments of $54.6 million were made for the acquisition of three hotels, resort capital expenditures totaled $45.4 million, and investments in real estate totaled $13.2 million. During the four months ended January 31, 1998, the Company acquired three hotel properties. On October 1, 1997, the Company purchased the assets constituting the Breckenridge Hilton for a total purchase price of $18.6 million. The Breckenridge Hilton is a 208-room full service hotel, located at the base of Breckenridge Mountain, and includes dining, conference and fitness facilities. On October 7, 1997, the Company purchased 100% of the outstanding stock of Lodge Properties, Inc., a Colorado corporation ("LPI"), for a purchase price of $30.9 million. LPI owns and operates The Lodge at Vail (the "Lodge"), a 59-room hotel located at the Vail Village base area of Vail Mountain, and provides management services to an additional 40 condominiums. The Lodge includes restaurant and conference facilities as well as other amenities. In addition to the hotel property, LPI owns a parcel of developable land strategically located at the primary base area of Vail Mountain. In addition to the cash purchase price, the Company incurred approximately $5.8 million during the four months ended January 31, 1998 to substantially complete a new wing of the hotel. The wing directly fronts Vail Mountain and includes premium conference facilities, 18 luxury lodging units, and a penthouse apartment. The Company has contracted to sell the penthouse apartment for $3.3 million. On January 15, 1998 the Company purchased the assets constituting the Inn at Keystone for a total purchase price of $9.2 million. The Inn at Keystone is a 103-room full service hotel, located near Keystone Mountain, and includes dining, conference and spa facilities. All acquisitions were accounted for as purchase combinations and funded with cash from operations or proceeds from the Revolving Credit Facility. Resort capital expenditures for the four months ended January 31, 1998 were $45.4 million. Investments in real estate for that period were $13.2 million, which included $2.0 million of mountain improvements, including ski lifts and snowmaking equipment, which are related to real estate development but which will also benefit resort operations. The primary projects included in resort capital expenditures were (i) trail and infrastructure improvements at Keystone Mountain, (ii) terrain and facilities improvements at Breckenridge Mountain, (iii) expansion of the grooming fleet at Vail and Beaver Creek mountains, (iv) upgrades to back office and front line information systems, and (v) the addition of a new wing at the Lodge at Vail. The primary projects included in investments in real estate were (i) continuing infrastructure related to Beaver Creek, Bachelor Gulch and Arrowhead Villages, and (ii) investments in developable land at strategic locations at all four mountain resorts. 7
The Company estimates that it will make resort capital expenditures totaling between $20 and $30 million during the remainder of fiscal 1998. The primary projects are anticipated to include (i) new high speed quad chair lifts at Keystone and Breckenridge Mountains, (ii) completion of the Keystone Lodge remodel and renovation of the Breckenridge Hilton, (iii) trail and lift expansion of Peak 7 at Breckenridge, (iv) addition of a new restaurant on Breckenridge Mountain, and (v) infrastructure for the Category III expansion on Vail Mountain. Investments in real estate during the remainder of fiscal 1998 are expected to total between $10 and $20 million. The primary projects are anticipated to include (i) infrastructure related to Bachelor Gulch and Arrowhead Villages, (ii) golf course development, and (iii) investments in developable land at strategic locations at all four resorts. The Company plans to fund capital expenditures and investments in real estate for the remainder of fiscal 1998 with cash flow from operations and borrowings under its Revolving Credit Facility. The Company generated cash flow from financing activities of $25.5 million for the four months ended January 31, 1998, consisting of $288.0 million in borrowings from the Revolving Credit Facility net of $262.0 million in repayments. In addition, the Company made the final cash payment of $5.7 million due under the Rights (as defined below) in October 1997 and stock option exercises generated cash proceeds of $5.2 million. At September 30, 1997, the Company's Credit Facilities consisted of (i) a $175 million Revolving Credit Facility, (ii) a $115 million Tranche A Term Loan Facility and (iii) a $50 million Tranche B Term Loan Facility (together with Tranche A, the "Term Loan Facilities") thereby providing for aggregate debt financing of $340 million. The Revolving Credit Facility would have matured on April 15, 2003 and the Term Loan Facilities required minimum amortization payments ranging from $11.5 to $41.0 million annually from 1998 to 2004. On December 19, 1997, the Company amended its Credit Facilities to provide an increase in aggregate debt financing from $340.0 million to $450.0 million and to eliminate the required minimum amortization payments under the Term Loan Facilities. All amounts outstanding under the Revolving Credit Facility and the Term Loan Facilities at December 19, 1997 were refinanced under a single revolving credit facility maturing on December 19, 2002. Interest on outstanding borrowings under the new Revolving Credit Facility is payable at rates based upon either LIBOR (5.62% at January 31, 1998) plus a margin ranging from .50% to 1.25% or prime (8.5% at January 31, 1998) plus a margin of up to .125%. The Company also pays a quarterly unused commitment fee ranging from .125% to .30%. The interest margins fluctuate based upon the ratio of Funded Debt to the Company's Resort EBITDA (as defined in the underlying Credit Agreement). On September 25, 1996, the Company declared a right to receive up to $2.44 per share of common stock (the "Rights") to all stockholders of record on October 11, 1996, with a maximum aggregate amount payable under the Rights of $50.5 million. As of September 30, 1997, the Company had satisfied $44.8 million of its obligation under the Rights. On October 31, 1997, the Company paid all remaining amounts due under the Rights. During the four months ended January 31, 1998, 714,286 employee stock options were exercised at exercise prices ranging from $6.85 to $10.75. Additionally, 8,260 shares were issued to management under the restricted stock plan. Based on current levels of operations and cash availability, management believes the Company is in a position to satisfy its working capital and debt service requirements while continuing to make long-term investments for future growth, including strategic resort acquisitions, investments in joint ventures, capital improvements, and investments in real estate development. Statements in this Form 10-Q, other than statements of historical information, are forward looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. Such risks and uncertainties include, but are not limited to, general business and economic conditions; competitive factors in the ski and resort industry; and the weather. 8
PART II ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES. 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. 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Index to Exhibits The following exhibits, with the exception of exhibit 10, are incorporated by reference to the documents indicated in parentheses which have previously been filed with the Securities and Exchange Commission. Sequentially Exhibit Numbered Number Description Page - ------ ----------- ------------ 3.1 Restated Certificate of Incorporation of the Company. (Incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-2 of Vail Resorts, Inc. (Registration No. 333-5341)). 3.2 Restated By-Laws of the Company. (Incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-2 of Vail Resorts, Inc. (Registration No. 333-5341)). 10 Amended and Restated Credit Agreement among the Vail Corporation (d/b/a "Vail Associates, Inc.") and Nations Bank of Texas, N.A. (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K on November 6, 1997 announcing a change in its fiscal year end from September 30 to July 31. 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 MARCH 17, 1998. VAIL RESORTS, INC. By /s/ JAMES P. DONOHUE ----------------------------------- James P. Donohue Senior Vice President and Chief Financial Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 17, 1998. Signature TITLE --------- ----- /s/ JAMES P. DONOHUE - ------------------------------- James P. Donohue Senior Vice President and Chief Financial Officer 10