================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q. --QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 For the quarterly period ended October 31, 1999 [_] Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 For the transition period from ____________________ to ________________________ Commission File Number: 1-9614 ------------------------------------------------------- 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 December 9, 1999, 7,439,834 shares of Class A Common Stock and 27,177,698 shares of Common Stock were issued and outstanding.
Table of Contents PART I FINANCIAL INFORMATION <TABLE> <S> <C> Item 1. Financial Statements.......................................................................... F-1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 1 Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................... 6 PART II OTHER INFORMATION Item 1. Legal Proceedings............................................................................. 7 Item 2. Changes in Securities and Use of Proceeds..................................................... 7 Item 3. Defaults Upon Senior Securities............................................................... 7 Item 4. Submission of Matters to a Vote of Security Holders........................................... 7 Item 5. Other Information............................................................................. 7 Item 6. Exhibits and Reports on Form 8-K.............................................................. 7 </TABLE>
PART I FINANCIAL INFORMATION Item 1. Financial Statements <TABLE> <S> <C> Consolidated Condensed Balance Sheets as of October 31, 1999, July 31, 1999 and October 31, 1998......................................................................... F-2 Consolidated Condensed Statements of Operations for the Three Months Ended October 31, 1999 and 1998................................................................................. F-3 Consolidated Condensed Statements of Cash Flows for the Three Months Ended October 31, 1999 and 1998................................................................................. F-4 Notes to Consolidated Condensed Financial Statements......................................... F-5 </TABLE> F-1
Vail Resorts, Inc. Consolidated Condensed Balance Sheets (In thousands, except share and per share amounts) (Unaudited) <TABLE> <CAPTION> October 31, July 31, October 31, 1999 1999 1998 ------------- -------------- ----------- <S> <C> <C> <C> Assets Current assets: Cash and cash equivalents...................................... $ 18,954 $ 25,324 $ 20,542 Receivables, net............................................... 26,304 29,650 25,485 Income taxes receivable........................................ 268 -- -- Inventories.................................................... 29,013 22,805 28,329 Deferred income taxes.......................................... 10,404 10,404 12,126 Other current assets........................................... 6,993 4,512 4,673 ------------- ---------- ----------- Total current assets...................................... 91,936 92,695 91,155 Property, plant and equipment, net................................. 626,549 611,141 536,954 Real estate held for sale and investment........................... 156,628 152,508 156,683 Deferred charges and other assets.................................. 31,235 31,391 19,540 Intangible assets, net ............................................ 198,924 201,504 199,801 ------------- ---------- ----------- Total assets.............................................. $ 1,105,272 $1,089,239 $ 1,004,133 ============= ========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses.......................... $ 121,007 $ 89,445 $ 104,623 Income taxes payable........................................... -- 1,633 2,239 Long-term debt due within one year (Note 4).................... 1,478 2,057 737 ------------- ---------- ----------- Total current liabilities................................. 122,485 93,135 107,599 Long-term debt (Note 4)............................................ 424,102 396,129 356,475 Other long-term liabilities........................................ 30,726 31,146 27,068 Deferred income taxes.............................................. 67,772 84,728 64,833 Commitments and contingencies (Note 2)............................. -- -- -- Minority interest in net assets of consolidated joint venture...... 5,612 7,326 5,443 Stockholders' equity: Common stock-- Class A common stock, $0.01 par value, 20,000,000 shares authorized, 7,439,834, 7,439,834 and 7,439,834 shares issued and outstanding at October 31, 1999, July 31, 1999 and October 31, 1998, respectively............... 74 74 75 Common stock, $0.01 par value, 40,000,000 shares authorized, 27,137,285, 27,092,901 and 27,026,781 shares issued and outstanding at October 31, 1999, July 31, 1999 and October 31, 1998, respectively...... 271 271 270 Additional paid-in capital..................................... 403,167 402,923 402,111 Retained earnings.............................................. 51,063 73,507 40,259 ------------- ---------- ----------- Total stockholders' equity................................ 454,575 476,775 442,715 ------------- ---------- ----------- Total liabilities and stockholders' equity................ $ 1,105,272 $1,089,239 $ 1,004,133 ============= ========== =========== </TABLE> F-2
Vail Resorts, Inc. Consolidated Condensed Statements of Operations (In thousands, except per share amounts) (Unaudited) <TABLE> <CAPTION> Three Months Ended October 31, 1999 1998 ------------- ------------- <S> <C> <C> Net revenues: Resort......................................................................... $ 56,859 $ 34,985 Real estate.................................................................... 8,970 13,571 ------------- ------------- Total net revenues........................................................ 65,829 48,556 Operating expenses: Resort......................................................................... 77,298 60,000 Real estate.................................................................... 5,863 7,610 Depreciation and amortization.................................................. 14,900 11,801 ------------- ------------- Total operating expenses.................................................. 98,061 79,411 ------------- ------------- Loss from operations............................................................... (32,232) (30,855) Other income (expense): Investment income.............................................................. 355 415 Interest expense............................................................... (8,883) (5,660) Gain (loss) on disposal of fixed assets........................................ (42) 13 Other income (expense)......................................................... (17) 3 Minority interest in consolidated joint venture................................ 1,444 1,114 ------------- ------------- Loss before income taxes........................................................... (39,375) (34,970) Credit for income taxes............................................................ 16,931 14,512 ------------- ------------- Net loss........................................................................... $ (22,444) $ (20,458) ============= ============= Net loss per common share (Note 3): Basic.......................................................................... $ (0.65) $ (0.59) ============= ============= Diluted........................................................................ $ (0.64) $ (0.59) ============= ============= </TABLE> F-3
Vail Resorts, Inc. Consolidated Condensed Statements of Cash Flows (In thousands) (Unaudited) <TABLE> <CAPTION> Three Months Ended October 31, 1999 1998 ------------ ------------ <S> <C> <C> Cash flows from operating activities: Net income..................................................................... $ (22,444) $ (20,458) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................................... 14,900 11,801 Non-cash cost of real estate sales.......................................... 3,081 5,048 Non-cash compensation related to stock grants............................... 81 90 Non-cash equity income...................................................... (2,042) (653) Deferred financing costs amortized.......................................... 478 146 Loss (gain) on disposal of fixed assets..................................... 42 (13) Deferred income taxes, net ................................................. (16,956) (14,512) Minority interest in consolidated joint venture............................. (1,444) (5,443) Changes in assets and liabilities: Receivables, net............................................................ 3,346 2,012 Inventories................................................................. (6,208) (14,822) Accounts payable and accrued expenses....................................... 31,562 43,884 Income taxes payable and receivable......................................... (1,900) -- Other assets and liabilities, net........................................... (2,124) 623 ------------ ------------ Net cash provided by operating activities............................... 372 7,703 Cash flows from investing activities: Cash paid in hotel acquisitions, net of cash acquired.......................... -- (33,800) Cash paid by consolidated joint venture in acquisition of retail operations.... -- (10,516) Resort capital expenditures.................................................... (26,392) (23,428) Investments in real estate..................................................... (8,058) (12,031) ------------ ------------ Net cash used in investing activities....................................... (34,450) (79,775) Cash flows from financing activities: Proceeds from the exercise of stock options.................................... 314 112 Proceeds from borrowings under long-term debt.................................. 51,750 74,366 Payments on long-term debt..................................................... (24,356) (1,376) ------------ ------------ Net cash provided by financing activities................................... 27,708 73,102 ------------ ------------ Net increase (decrease) in cash and cash equivalents............................... (6,370) 1,030 Cash and cash equivalents: Beginning of period............................................................ 25,324 19,512 ------------ ------------ End of period.................................................................. $ 18,954 $ 20,542 ============ ============ </TABLE> F-4
Vail Resorts, Inc. Notes to Consolidated Condensed Financial Statements (Unaudited) 1. Basis of Presentation Vail Resorts, Inc. ("Vail Resorts") is organized as a holding company and operates through various subsidiaries. Vail Resorts and its subsidiaries (collectively, the "Company") currently operate in two business segments--resort and real estate. Vail Associates, Inc., an indirect wholly owned subsidiary of Vail Resorts, and its subsidiaries, (collectively, "Vail Associates") operate four of the world's largest skiing facilities on Vail, Breckenridge, Keystone and Beaver Creek mountains in Colorado. In addition to the ski resorts, Vail Associates owns and operates Grand Teton Lodge Company ("Grand Teton"), which operates three resorts within Grand Teton National Park (under a National Park Service concessionaire contract) and the Jackson Hole Golf & Tennis Club in Wyoming. Vail Resorts Development Company ("VRDC"), a wholly owned subsidiary of Vail Associates, conducts the Company's real estate development activities. The Company's mountain resort businesses are seasonal in nature. The Company's ski resort businesses and related amenities typically have operating seasons from mid-October through mid-May; the Company's operations at Grand Teton generally run from mid-May through mid-October. In the opinion of the Company, the accompanying consolidated condensed financial statements reflect all adjustments necessary to present fairly the Company's financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. Results for interim periods are not indicative of the results for the entire year. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended July 31, 1999, included in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1999. 2. Commitments and Contingencies Smith Creek Metropolitan District ("SCMD") and Bachelor Gulch Metropolitan District ("BGMD") were organized in November 1994 to cooperate in the financing, construction and operation of basic public infrastructure serving the Company's Bachelor Gulch Village development. SCMD was organized primarily to own, operate and maintain water, street, traffic and safety, transportation, fire protection, parks and recreation, television relay and translation, sanitation and certain other facilities and equipment of BGMD. SCMD is comprised of approximately 150 acres of open space land owned by the Company and members of the Board of Directors of SCMD. In two planned unit developments, Eagle County has granted zoning approval for 1,395 dwelling units within Bachelor Gulch Village, including various single family homesites, cluster homes, townhomes, and lodging units. As of October 31, 1999, the Company has sold 104 single-family homesites and eight parcels to developers for the construction of various types of dwelling units. Currently, SCMD has outstanding $44.5 million of variable rate revenue bonds maturing on October 1, 2035, which have been enhanced with a $47.2 million letter of credit issued against the Company's Credit Facility as defined herein. It is anticipated that, as Bachelor Gulch Village expands, BGMD will become self supporting and that within 25 to 30 years it will issue general obligation bonds, the proceeds of which will be used to retire the SCMD revenue bonds. Until that time, the Company has agreed to subsidize the interest payments on the SCMD revenue bonds. The Company has estimated the present value of the remaining aggregate subsidy to be $13.4 million at October 31, 1999. The Company has allocated $9.8 million of that amount to the Bachelor Gulch Village homesites which were sold as of October 31, 1999 and has recorded that amount as a liability in the accompanying financial statements. The total subsidy incurred as of October 31, 1999 and July 31, 1999 was $5.2 million and $4.3 million, respectively. At October 31, 1999 the Company had various other letters of credit outstanding in the aggregate amount of $42.3 million. F-5
Vail Resorts, Inc. Notes to Consolidated Condensed Financial Statements--(Continued) (Unaudited) 2. Commitments and Contingencies (Continued) On October 19, 1998, fires on Vail Mountain destroyed certain of the Company's facilities including the Ski Patrol Headquarters, a day skier shelter, the Two Elk Lodge restaurant and the chairlift drive housing for the High Noon Lift (Chair #5). Chair #5 and three other chairlifts, which sustained minor damage, have been repaired and are currently fully operational. All of the facilities damaged are fully covered by the Company's property insurance policy. Although the Company is unable to estimate the total amount which will be recovered through insurance proceeds, the Company does not expect to record a loss related to the property damage. The incident is also covered under the Company's business interruption insurance policy. The Company incurred business interruption losses as a result of the incident, however, due to mitigating measures being undertaken by the Company and the insurance coverage, the Company expects the net impact of the business interruption will not have a material effect on its results of operations and cash flows. The Company is a party to various lawsuits arising in the ordinary course of business. Management believes the Company has adequate insurance coverage and accrued loss contingencies for all matters and that, although the ultimate outcome of such claims cannot be ascertained, current pending and threatened claims are not expected to have a material adverse impact on the financial position, results of operations and cash flows of the Company. The Company has executed as lessee operating leases for the rental of office space, employee residential units and office equipment through fiscal 2008. For the three months ended October 31, 1999 and 1998, lease expense of $3.2 million and $2.2 million, respectively, related to these agreements was recorded and is included in the accompanying consolidated statements of operations. Future minimum lease payments under these leases as of October 31, 1999 are as follows (in thousands): Due during fiscal year ending July 31: 2000....................................................... $ 4,218 2001....................................................... 3,846 2002....................................................... 2,575 2003....................................................... 2,031 2004....................................................... 2,073 Thereafter................................................. 4,358 ----------- Total.................................................. $ 19,101 =========== F-6
Vail Resorts, Inc. Notes to Consolidated Condensed Financial Statements--(Continued) (Unaudited) 3. Net Earnings Per Common Share Basic earnings per share ("EPS") excludes dilution and is computed by dividing net income available to common shareholders by the weighted average shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised resulting in the issuance of common shares that would then share in the earnings of the Company. <TABLE> <CAPTION> Three Months Ended October 31, -------------------------------------------------------- 1999 1998 ------------------------ -------------------------- (In thousands, except per share amounts) Basic Diluted Basic Diluted ------------- ----------- ---------- ----------- <S> <C> <C> <C> <C> Net loss per common share: Net loss................................................ $ (22,444) $ (22,444) $ (20,458) $ (20,458) Weighted average shares outstanding..................... 34,647 34,647 34,519 34,519 Effect of dilutive stock options........................ 206 303 ----------- ----------- --------- --------- Total shares............................................ 34,647 34,853 34,519 34,822 ----------- ----------- --------- --------- Net loss per common share............................... $ (0.65) $ (0.64) $ (0.59) $ (0.59) =========== =========== ========= ========= </TABLE> 4. Long-Term Debt Long-term debt as of October 31, 1999 and July 31, 1999 is summarized as follows (in thousands): <TABLE> <CAPTION> October 31, July 31, Maturity(e) 1999 1999 -------------------------------------------------- <S> <C> <C> <C> Industrial Development Bonds(a)........... 2002-2020 $ 63,200 $ 63,200 Credit Facilities (b)..................... 2003 157,800 130,300 Senior Subordinated Notes (c)............. 2009 200,000 200,000 Other(d).................................. 2000-2029 4,580 4,686 --------------- --------------- 425,580 398,186 Less: Maturities due within 12 months..... 1,478 2,057 --------------- --------------- $ 424,102 $ 396,129 =============== =============== </TABLE> a) The Company has $41.2 million of outstanding Industrial Development Bonds (the "Industrial Development Bonds") issued by Eagle County, Colorado that mature, subject to prior redemption, on August 1, 2019. These bonds accrue interest at 6.95% per annum, with interest being payable semi-annually on February 1 and August 1. In addition, the Company has outstanding two series of refunding bonds. The Series 1990 Sports Facilities Refunding Revenue Bonds have an aggregate outstanding principal amount of $19.0 million, which matures in installments in 2006 and 2008. These bonds bear interest at a rate of 7.75% for bonds maturing in 2006 and 7.875% for bonds maturing in 2008. The Series 1991 Sports Facilities Refunding Revenue Bonds have an aggregate outstanding principal amount of $3.0 million and bear interest at 7.125% for bonds maturing in 2002 and 7.375% for bonds maturing in 2010. F-7
Vail Resorts, Inc. Notes to Consolidated Condensed Financial Statements--(Continued) (Unaudited) 4. Long-Term Debt (Continued) b) The Company's credit facilities consist of a revolving credit facility ("Credit Facility") that provides for debt financing up to an aggregate principal amount of $450 million. In conjunction with the debt offering discussed in c) below, the Company amended its Credit Facility on May 11, 1999. Borrowings under the Credit Facility as amended bear interest annually at the Company's option at the rate of (i) LIBOR (5.40% at October, 31, 1999) plus a margin ranging from 0.75% to 2.25% or (ii) the agent's prime lending rate, (8.25% at October 31, 1999) plus a margin of up to 0.75%. The Company also pays a quarterly unused commitment fee ranging from 0.20% to 0.50%. The interest margins fluctuate based upon the ratio of the Company's total Funded Debt to the Company's Resort EBITDA (as defined in the underlying Credit Facility). The Credit Facility matures on December 19, 2002. On December 30, 1998, SSI Venture LLC established a credit facility ("SSV Facility") that provides debt financing up to an aggregate principal amount of $20 million. On October 15, 1999, the SSV Facility was amended to increase the aggregate principal amount to $25 million. The amended SSV Facility consists of (i) a $15 million Tranche A revolving credit facility and (ii) a $10 million Tranche B term loan facility. The SSV Facility matures on the earlier of December 31, 2003 or the termination date of the Credit Facility discussed above. Vail Associates guarantees the SSV Facility. Minimum amortization under the Tranche B Term Loan Facility as amended is $0.75 million, $1.0 million, $1.0 million, $1.0 million and $5.25 million during fiscal years 2000, 2001, 2002, 2003, and 2004, respectively. The SSV Facility bears interest annually at the rates prescribed above for the Credit Facility. SSI Venture LLC also pays a quarterly unused commitment fee at the same rates as the unused commitment fee for the Credit Facility. c) The Company completed a $200 million debt offering of Senior Subordinated Notes (the "Notes") on May 11, 1999. The Notes have a fixed annual interest rate of 8.75%, with interest due semi- annually on May 15 and November 15, beginning November 15, 1999. The Notes will mature on May 15, 2009 and no principal payments are due to be paid until maturity. The Company has certain early redemption options under the terms of the Notes. Substantially all of the Company's subsidiaries have guaranteed the Notes. The Notes are subordinated to certain of the Company's debts, including the Credit Facility, and will be subordinated to certain of the Company's future debts. The proceeds of the offering were used to reduce the Company's outstanding debt under the Credit Facility. d) Other obligations bear interest at rates ranging from 0.0% to 6.5% and have maturities ranging from 2000 to 2028. e) Maturities are based on the Company's July 31 fiscal year end. Aggregate maturities for debt outstanding are as follows (in thousands): <TABLE> <CAPTION> As of October 31, Due during fiscal years ending July 31. 1999 -------------- <S> <C> 2000.......................................... $ 1,221 2001.......................................... 1,447 2002.......................................... 1,444 2003.......................................... 151,105 2004.......................................... 5,558 Thereafter.................................... 264,805 -------------- Total Debt................................ $ 425,580 ============== </TABLE> F-8
Vail Resorts, Inc. Notes to Consolidated Condensed Financial Statements--(Continued) (Unaudited) 5. Guarantor Subsidiaries and Non-Guarantor Subsidiaries The Company's payment obligations under the 8 3/4% Senior Subordinated Notes due 2009 (see Note 4), are fully and unconditionally guaranteed on a joint and several, senior subordinated basis by substantially all of the Company's consolidated subsidiaries (collectively, and excluding the Non-Guarantor Subsidiaries (as defined below), the "Guarantor Subsidiaries") except for SSI Venture, LLC and Vail Associates Investments, Inc. (together, the "Non- Guarantor Subsidiaries"). SSI Venture, LLC is a 51.9%-owned joint venture which owns and operates certain retail and rental operations. Vail Associates Investments, Inc. is a 100%-owned corporation which owns certain real estate held for sale. Presented below is the consolidated condensed financial information of Vail Resorts, Inc. (the "Parent Company"), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries as of October 31, 1999 and 1998 and for the three months then ended. Investments in Subsidiaries are accounted for by the Parent Company and Guarantor Subsidiaries using the equity method of accounting. Net income of Guarantor and Non-Guarantor Subsidiaries is, therefore, reflected in the Parent Company's and Guarantor Subsidiaries' investments in and advances to (from) Subsidiaries. Net income of the Guarantor and Non-Guarantor Subsidiaries is reflected in Guarantor Subsidiaries and Parent Company as equity in consolidated subsidiaries. The elimination entries eliminate investments in Non-Guarantor Subsidiaries and intercompany balances and transactions. 5. F-9
Vail Resorts, Inc. Notes to Consolidated Condensed Financial Statements--(Continued) (Unaudited) 5. Guarantor Subsidiaries and Non-Guarantor Subsidiaries (Continued) Supplemental Condensed Consolidating Balance Sheet (in thousands) <TABLE> <CAPTION> Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------------ ------------ ------------ ------------ October 31, 1999 -------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Current assets: Cash and cash equivalents..................... $ -- $ 18,173 $ 781 $ -- $ 18,954 Receivables................................... 321 25,657 326 -- 26,304 Income taxes receivable....................... -- 268 -- -- 268 Inventories, net.............................. -- 7,172 21,841 -- 29,013 Deferred income taxes......................... 1,353 9,051 -- -- 10,404 Other current assets.......................... -- 6,069 924 -- 6,993 ---------- ----------- ---------- ---------- ----------- Total current assets........................ 1,674 66,390 23,872 -- 91,936 Property, plant and equipment, net................ -- 615,657 10,892 -- 626,549 Real estate held for sale......................... -- 151,352 5,276 -- 156,628 Deferred charges and other assets................. 8,688 22,299 248 -- 31,235 Intangible assets, net............................ -- 186,109 12,815 -- 198,924 Investments in subsidiaries and advances to (from) subsidiaries........................... 646,207 (27,146) (5,610) (613,451) -- ---------- ----------- ---------- ---------- ----------- Total assets................................ $ 656,569 $ 1,014,661 $ 47,493 $ (613,451) $ 1,105,272 ========== =========== ========== ========== =========== Current liabilities: Accounts payable and accrued expenses......... $ 866 $ 101,565 $ 18,576 $ -- $ 121,007 Income taxes payable.......................... -- -- -- -- -- Long-term debt due within one year............ -- 463 1,015 -- 1,478 ---------- ----------- ---------- ---------- ----------- Total current liabilities................... 866 102,028 19,591 -- 122,485 Long-term debt.................................... 200,000 208,302 15,800 -- 424,102 Other long-term liabilities....................... 1,128 29,598 -- -- 30,726 Deferred income taxes............................. -- 67,772 -- -- 67,772 Minority interest in net assets of consolidated joint venture................................. -- -- 5,612 -- 5,612 Total stockholders' equity........................ 454,575 606,961 6,490 (613,451) 454,575 ---------- ----------- ---------- ---------- ----------- Total liabilities and stockholders' equity.. $ 656,569 $ 1,014,661 $ 47,493 $ (613,451) $ 1,105,272 ========== =========== ========== ========== =========== <CAPTION> October 31, 1998 -------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Current assets: Cash and cash equivalents..................... $ -- $ 21,777 $ (1,235) $ -- $ 20,542 Receivables................................... 321 24,681 483 -- 25,485 Inventories, net.............................. -- 6,493 21,836 -- 28,329 Deferred income taxes......................... 1,353 10,773 -- -- 12,126 Other current assets.......................... -- 4,321 352 -- 4,673 ---------- ----------- ---------- ---------- ----------- Total current assets........................ 1,674 68,045 21,436 -- 91,155 Property, plant and equipment, net................ -- 527,853 9,101 -- 536,954 Real estate held for sale......................... -- 152,357 4,326 -- 156,683 Deferred charges and other assets................. 34 18,369 1,137 -- 19,540 Intangible assets, net............................ -- 187,348 12,453 -- 199,801 Investments in subsidiaries and advances to (from) subsidiaries........................... 443,472 206,538 (19,954) (630,056) -- ---------- ----------- ---------- ---------- ----------- Total assets................................ $ 445,180 $ 1,160,510 $ 28,499 $ (630,056) $ 1,004,133 ========== =========== ========== ========== =========== Current liabilities: Accounts payable and accrued expenses......... $ 1,337 $ 86,205 $ 17,081 $ -- $ 104,623 Income taxes payable.......................... -- 2,239 -- -- 2,239 Long-term debt due within one year............ -- 601 136 -- 737 ---------- ----------- ---------- ---------- ----------- Total current liabilities................... 1,337 89,045 17,217 -- 107,599 Long-term debt.................................... -- 356,460 15 -- 356,475 Other long-term liabilities....................... 1,128 25,940 -- -- 27,068 Deferred income taxes............................. -- 64,833 -- -- 64,833 Minority interest in net assets of consolidated joint venture................................. -- -- 5,443 -- 5,443 Total stockholders' equity........................ 442,715 624,232 5,824 (630,056) 442,715 ---------- ----------- ---------- ---------- ----------- Total liabilities and stockholders' equity.. $ 445,180 $ 1,160,510 $ 28,499 $ (630,056) $ 1,004,133 ========== =========== ========== ========== =========== </TABLE> F-10
Vail Resorts, Inc., Notes to Consolidated Condensed Financial Statements--(Continued) (Unaudited) 5. Guarantor Subsidiaries and Non-Guarantor Subsidiaries (Continued) Supplemental Condensed Consolidating Statement of Operations (in thousands) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ ------------ For the Three Months Ended October 31, 1999 ------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Total revenues..................................... $ -- $ 54,108 $ 11,860 $ (139) $ 65,829 Total operating expenses........................... 706 82,921 14,573 (139) 98,061 ---------- --------- ---------- ---------- ---------- Income (loss) from operations.................. (706) (28,813) (2,713) -- (32,232) Other income (expense)............................. (4,326) (3,972) (289) -- (8,587) Minority interest in net income of consolidated joint venture.................................. -- -- 1,444 -- 1,444 ---------- --------- ---------- ---------- ---------- Income (loss) before income taxes.............. (5,032) (32,785) (1,558) -- (39,375) Benefit (provision) for income taxes........... 2,164 14,767 -- -- 16,931 ---------- --------- ---------- ---------- ---------- Net income (loss) before equity in income of consolidated subsidiaries...................... (2,868) (18,018) (1,558) -- (22,444) Equity in income of consolidated subsidiaries...... (19,576) (1,558) -- 21,134 -- ---------- --------- ---------- ---------- ---------- Net income (loss).................................. $ (22,444) $ (19,576) $ (1,558) $ 21,134 $ (22,444) ========== ========= ========== ========== ========== <CAPTION> For the Three Months Ended October 31, 1998 ------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Total revenues..................................... $ -- $ 39,542 $ 9,162 $ (148) $ 48,556 Total operating expenses........................... 265 67,938 11,356 (148) 79,411 ---------- --------- ---------- ---------- ---------- Income (loss) from operations.................. (265) (28,396) (2,194) -- (30,855) Other income (expense)............................. -- (5,106) (123) -- (5,229) Minority interest in net income of consolidated joint venture.................................. -- -- 1,114 -- 1,114 ---------- --------- ---------- ---------- ---------- Income (loss) before income taxes.............. (265) (33,502) (1,203) -- (34,970) Benefit (provision) for income taxes........... 110 14,402 -- -- 14,512 ---------- --------- ---------- ---------- ---------- Net income (loss) before equity in income of consolidated subsidiaries...................... (155) (19,100) (1,203) -- (20,458) Equity in income of consolidated subsidiaries...... (20,303) (1,203) -- 21,506 -- ---------- --------- ---------- ---------- ---------- Net income (loss).................................. $ (20,458) $ (20,303) $ (1,203) $ 21,506 $ (20,458) ========== ========= ========== ========== ========== </TABLE> F-11
Vail Resorts, Inc., Notes to Consolidated Condensed Financial Statements--(Continued) (Unaudited) 5. Guarantor Subsidiaries and Non-Guarantor Subsidiaries (Continued) Supplemental Condensed Consolidating Statement of Cash Flows For the Three Months Ended October 31, 1999 (in thousands) <TABLE> <CAPTION> Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ For the Three Months Ended October 31, 1999 ------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Cash flows from operating activities........................ $ (1,311) $ 1,458 $ 225 $ -- $ 372 Cash flows from investing activities: Resort capital expenditures............................. -- (25,254) (1,138) -- (26,392) Investments in real estate.............................. -- (8,058) -- -- (8,058) ---------- ---------- -------- ------- ---------- Net cash provided by (used in) investing activities... -- (33,312) (1,138) -- (34,450) Cash flows from financing activities: Proceeds from the exercise of stock options............. 314 -- -- -- 314 Proceeds from borrowings under long-term debt........... -- 49,772 1,978 -- 51,750 Payments on long-term debt.............................. -- (24,356) -- -- (24,356) Advances to (from) affiliates........................... 997 (485) (512) -- -- ---------- ---------- -------- ------- ---------- Net cash provided by financing activities............ 1,311 24,931 1,466 -- 27,708 ---------- ---------- -------- ------- ---------- Net increase in cash and cash equivalents................... -- (6,923) 553 -- (6,370) Cash and cash equivalents: Beginning of period..................................... -- 25,096 228 -- 25,324 ---------- ---------- -------- ------- ---------- End of period........................................... $ -- $ 18,173 $ 781 $ -- $ 18,954 ========== ========== ======== ======= ========== <CAPTION> For the Three Months Ended October 31, 1998 ------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Cash flows from operating activities........................ $ (20,953) $ 35,752 $ (7,096) $ -- $ 7,703 Cash flows from investing activities: Cash paid in hotel acquisitions, net of cash acquired... -- (33,800) -- -- (33,800) Cash paid by consolidated joint venture in acquisition of retail operations...................... -- -- (10,516) -- (10,516) Resort capital expenditures............................. -- (21,562) (1,866) -- (23,428) Investments in real estate.............................. -- (12,031) -- -- (12,031) ---------- ---------- -------- ------- ---------- Net cash provided by (used in) investing activities... -- (67,393) (12,382) -- (79,775) Cash flows from financing activities: Proceeds from the exercise of stock options............. 112 -- -- -- 112 Proceeds from borrowings under long-term debt........... -- 74,366 -- -- 74,366 Payments on long-term debt.............................. -- (1,376) -- -- (1,376) Advances to (from) affiliates........................... 20,841 (39,084) 18,243 -- -- ---------- ---------- -------- ------- ---------- Net cash provided by financing activities............ 20,953 33,906 18,243 -- 73,102 ---------- ---------- -------- ------- ---------- Net increase in cash and cash equivalents................... -- 2,265 (1,235) -- 1,030 Cash and cash equivalents: Beginning of period..................................... -- 19,512 -- -- 19,512 ---------- ---------- -------- ------- ---------- End of period........................................... $ -- $ 21,777 $ (1,235) $ -- $ 20,542 ========== ========== ======== ======= ========== </TABLE> F-12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the Company's July 31, 1999 Annual Report on Form 10-K and the consolidated condensed interim financial statements as of October 31, 1999 and 1998 and for the three month periods ended October 31, 1999 and 1998, included in Part I, Item 1 of this Form 10-Q, which provide additional information regarding the financial position, results of operations and cash flows of the Company. Three Months Ended October 31, 1999 versus Three Months Ended October 31, 1998 <TABLE> <CAPTION> Three Months Ended October 31, Percentage 1999 1998 Increase Increase --------------- --------------- --------------- --------------- (unaudited) (dollars in thousands) <S> <C> <C> <C> <C> Resort Revenue..................................... $ 56,859 $ 34,985 $21,874 62.5 Resort Operating Expense........................... 77,298 60,000 17,298 28.8 </TABLE> Resort Revenue. Resort Revenue for the three months ended October 31, 1999 and 1998 is presented by category as follows: <TABLE> <CAPTION> Three Months Ended October 31, Percentage 1999 1998 Increase Increase --------------- --------------- --------------- --------------- (unaudited) (dollars and skier days in thousands) <S> <C> <C> <C> <C> Lift Ticket....................................... $ 465 $ 177 $ 288 162.7 Ski School........................................ 36 19 17 89.5 Dining............................................ 11,789 6,808 4,981 73.2 Retail/Rental..................................... 14,964 9,396 5,568 59.3 Hospitality....................................... 15,468 9,934 5,534 55.7 Other............................................. 14,137 8,651 5,486 63.4 ----------- ------------ ------------- ---------- Total Resort Revenue.............................. $ 56,859 $ 34,985 $ 21,874 62.5 =========== ============ ============= ========== Total Skier Days.................................. 19 10 9 90.0 =========== ============ ============= ========== ETP............................................... $ 24.47 $ 17.70 $ 6.77 38.3 =========== ============ ============= ========== </TABLE> Lift ticket revenue increased due to a 90.0% increase in total skier days as well as a 38.3% increase in ETP (effective ticket price ("ETP") is defined as total lift ticket revenue divided by total skier days). The increase in skier days is due to an earlier opening of Breckenridge Mountain for the 1999-2000 ski season as compared to the 1998-1999 season. The increase in ETP is primarily attributable to a higher sales price on the Company's Buddy Pass season pass product, a discounted season pass product for Keystone and Breckenridge Mountains. Buddy Pass users make up a significant portion of early season resort guests. The increase in Ski School revenue is consistent with the increase in skier days. Dining revenue increased primarily as a result of the addition of eight dining operations with the acquisition of Grand Teton Lodge Company ("GTLC") on June 14, 1999, as well as the increase in skier days at the Company's Colorado resorts. In addition, the Company experienced increased conference business, which contributed to the revenue increase through increased banquet services. 1
The increase in Retail/Rental revenue is attributable to the acquisition of additional retail/rental outlets by the Company's retail/rental joint venture, Specialty Sports Venture LLC, in October 1998. Hospitality revenue increased as a result of the Company's acquisition of GTLC in June 1999, which included three lodging operations. In addition, existing operations had modest growth as a result of the increase in skier days and increased conference business. The increase in Other revenue is primarily attributable to the GTLC acquisition, which provided a golf course operation and substantial other recreational services. In addition, the Company had increased private club membership sales related to the new Arrowhead Alpine Club and membership resales at Beaver Creek Club. The Company's Licensing and Sponsorship activity increased, and an increase in brokerage operations also contributed to the increase in Other revenue. Resort Operating Expense. Resort Operating Expense for the three months ended October 31, 1999 was $77.3 million, an increase of $17.3 million, or 28.8%, compared to the three months ended October 31, 1998. The increase in Resort Operating Expense is primarily attributable to the incremental operating expenses contributed by GTLC's operations. A portion of the increase can also be attributed to a shift in the revenue mix from lift tickets to revenues derived from lower-margin lines of business such as dining, retail/rental and hospitality operations. These operations tend to have a greater level of variable operating expenses proportionate to revenues as compared to lift operations. Real Estate Revenue. Revenue from real estate operations for the three months ended October 31, 1999 was $9.0 million, a decrease of $4.6 million, or 33.9%, compared to the three months ended October 31, 1998. The decrease is due to a decrease in the Company's profit share from its investment in Keystone/Intrawest LLC, as there is less inventory available for sale in the first quarter of fiscal 2000 as compared to the first quarter of fiscal 1999. Profits generated by Keystone/Intrawest LLC during the quarter ended October 31, 1999 included the sale of 30 village condominium units, primarily at the River Run development. In addition, during the first quarter of fiscal 2000, the Company sold two multi-family homesites at Bachelor Gulch Village and one multi-unit development site at Arrowhead Village. Profits from Keystone/Intrawest LLC during the quarter ended October 31, 1998 included the sale of 106 village condominium units and 56 single-family homesites surrounding the golf course; the Company also sold one single-family homesite at Bachelor Gulch Village and three multi-unit developer sites at Arrowhead. Real Estate Operating Expense. Real estate operating expense for the three months ended October 31, 1999 was $5.9 million, a decrease of $1.7 million, or 23.0%, compared to the three months ended October 31, 1998. Real estate operating expense consists primarily of the cost of sales and related real estate commissions associated with the Bachelor Gulch and Arrowhead real estate sales detailed above for both fiscal 2000 and fiscal 1999. Profits generated by Keystone/Intrawest LLC are recorded using the equity method, therefore there are no operating expenses associated with this joint venture. Real estate operating expense also includes the selling, general and administrative expenses associated with the Company's real estate operations. Depreciation and Amortization. Depreciation and amortization expense increased by $3.1 million, or 26.3%, for the three months ended October 31, 1999 as compared to the three months ended October 31, 1998. The increase was primarily attributable to the inclusion of depreciation and amortization associated with the GTLC acquisition and an increased fixed asset base due to fiscal 1999 capital improvements. Interest expense. During the three months ended October 31, 1999 and October 31, 1998, the Company recorded interest expense of $8.9 million and $5.7 million, respectively, relating primarily to the Company's Credit Facility and the Industrial Development Bonds. In addition, the three months ended October 31, 1999 reflect interest expense related to the Company's subordinated debt issued in May 1999. The increase in interest expense for the three months ended October 31, 1999 related to the subordinated debt is partially offset by a reduction in the balance outstanding on the Credit Facility. 2
Other. As the Company previously announced, we have softer than normal bookings for the second quarter of fiscal 2000, especially during the millennium holiday period, which is showing weakness across the whole of the U.S. travel industry, although the current bookings for the Company's third quarter of fiscal 2000 are encouraging. As the Company also stated, there have been positive business developments for the Company for the 1999-2000 ski season including increased season pass sales, positive booking trends at Vail/Eagle County Airport and the scheduled opening of Vail Mountain's Blue Sky Basin on January 6, 2000. Liquidity and Capital Resources The Company has historically provided for operating expenditures, debt service, capital expenditures and acquisitions through a combination of cash flow from operations, short-term and long-term borrowings and sales of real estate. The Company's cash flows used for investing activities have historically consisted of payments for acquisitions, resort capital expenditures, and investments in real estate. During the three months ended October 31, 1999, the Company made payments of $26.4 million for resort capital expenditures and $8.1 million for investments in real estate. The primary projects included in resort capital expenditures were a) continued construction of the Blue Sky Basin expansion on Vail Mountain, b) reconstruction and expansion of Two Elk lodge on Vail Mountain, c) a new high-speed six-passenger chairlift at Breckenridge Mountain, and d) construction of a new private on-mountain dining facility at Beaver Creek. The primary projects included in investments in real estate were a) continued construction of the Arrowhead Alpine Club, b) architectural and engineering planning for future developments at Breckenridge, Vail and Avon, c) continued development of Bachelor Gulch and Arrowhead Villages, and d) investments in developable land at strategic locations at Breckenridge. The Company estimates that it will make resort capital expenditures totaling between $40 and $50 million during the remainder of fiscal 2000. The primary projects are anticipated to include a) construction of a 37,500 square foot exhibit hall at the Keystone Conference Center, and b) continuing enhancements and upgrades to existing facilities at all resorts. Investments in real estate during the remainder of fiscal 2000 are expected to total approximately $42 million. The primary projects are anticipated to include a) continued development of Bachelor Gulch and Arrowhead Villages, b) architectural and engineering planning for future developments at Breckenridge, Vail and Avon, c) golf course development near Beaver Creek, d) completion of construction of the Arrowhead Alpine Club, and e) investments in developable land at strategic locations at all four Colorado resorts. The Company plans to fund these capital expenditures and investments in real estate with cash flow from operations and borrowings under the Credit Facility. During the three months ended October 31, 1999, the Company generated $27.7 million in cash flows from its financing activities consisting of net long-term debt borrowings of $27.4 million and $0.3 million received from the exercise of employee stock options. During the three months ended October 31, 1999, 35,633 employee stock options were exercised at exercise prices ranging from $6.85 to $10.75. Additionally, 8,751 shares were issued to management under the Company's restricted stock plan. Based on current levels of operations and cash availability, management believes the Company is in a position to satisfy its current working capital, debt service, and capital expenditure requirements for at least the next twelve months. Year 2000 Compliance The Year 2000 issue is a result of certain computer programs being written using two digits rather than four to define the applicable year. Computer programs which are date-sensitive may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in major computer system or program failures or miscalculations or equipment malfunctions. The Company recognizes that the impact of the Year 2000 issue extends beyond traditional computer hardware and software to embedded hardware and software contained in equipment used in operations, such as chairlifts, alarm systems and elevators, as well as to third parties. 3
State of Readiness. The Year 2000 issue is being addressed internally by the Company's individual business units under the direction of the information systems department. The Company has established a Year 2000 task force consisting of representatives from all major business units to coordinate its Year 2000 efforts, and progress is reported periodically to a Year 2000 executive committee consisting of certain senior management members. The Company has committed resources to conduct risk assessments and to take corrective action, where required, within each of the following areas: information technology, operations equipment, and external parties. Information technology includes telecommunications as well as traditional computer software and hardware in the mainframe, midrange and distributed applications environments. Operations equipment includes all automation and embedded chips used in business operations. External parties include any third party with whom the Company interacts, or upon whom the Company relies in the performance of day-to-day operations. The Company's program for addressing the Year 2000 issue includes the following phases: (1) inventory; (2) assessment; (3) remediation; (4) testing; and (5) contingency planning. Approximately 10% of the Company's normal information technology work has been deferred due to the fact that personnel of the information systems department have dedicated certain portions of their time to the Year 2000 issue. However, the Company plans to complete and implement its information technology projects as planned. The Company has traditionally upgraded and replaced its information technology systems on a regular basis. As a result of this process, most of the Company's information technology systems and applications are currently Year 2000 compliant. In the remaining information technology area, inventory and assessment audits in the telecommunications, mainframe, midrange and distributed applications areas are complete. With respect to operations equipment, the Company has identified areas that it considers "mission critical", in that a Year 2000 failure could impact the health or safety of employees or resort guests or could have a material adverse effect on the Company's operations. The Company has engaged a third party consultant to assist in completing inventory and assessment audits of operations equipment, these audits are substantially complete. The Company has substantially completed remediation, verification and testing with respect to operations. The Company is communicating with its significant suppliers to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 issue. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with our systems, would not have a material adverse effect on the Company's operations. Many of the external parties that the Company relies on provide commodity goods or services that are widely available from a range of vendors; therefore, third party impact is expected to be minimal. The Company is seeking confirmation of Year 2000 compliance from critical suppliers and identifying alternative suppliers as part of its contingency plans. The Company will seek letters of compliance or other satisfactory evidence of compliance (for example, web site disclosures) from certain non-critical suppliers based on risk assessment of such suppliers. Risk assessment with respect to external parties has been completed, although monitoring of risk in this area will continue throughout 1999, as many external parties will not have completed their work with respect to the Year 2000 issue. Costs. The total estimated multi-year cost of the Year 2000 project is estimated to be between $900,000 and $1,100,000 and is being funded from operating cash flow. These costs are not expected to be material to the Company's consolidated results of operations, liquidity or capital resources. Of the total project cost, approximately $600,000 is attributable to the purchase of new software or equipment that will be capitalized. The remaining costs will be expensed as incurred. In a number of instances, the Company may decide to install new software or upgraded versions of current software programs that are Year 2000 compliant. In these instances, the Company may capitalize certain costs of the new system in accordance with current accounting guidelines. As of October 31, 1999, $800,000 of the total estimated Year 2000 project costs have been incurred, of which $300,000 has been expensed and $500,000 was capitalized. Fiscal 1999 and 1998 expensed costs were approximately $150,000 and $150,000, respectively. Costs exclude expenditures for systems that were replaced under the Company's regularly planned schedule. 4
Risks. Failure to address a Year 2000 issue could result in a business disruption that could materially affect the Company's operations, liquidity or capital resources. Management believes that the most reasonably likely worst case scenario would consist of isolated instances of minor system or equipment failures, for which the Company will have developed contingency plans. There is still uncertainty around the scope of the Year 2000 issue and its implications for the Company. At this time management cannot quantify the potential impact of these failures. Due to the general uncertainty inherent in the Year 2000 problem, as well as, in part, the uncertainty of the Year 2000 readiness of suppliers and the current status of the Company's Year 2000 program, management is unable to determine at this time whether any Year 2000 failures will have material adverse consequences on the Company's results of operations, liquidity or financial condition. The Company's Year 2000 program and related contingency plans are being developed to address issues within the Company's control and to reduce the level of the Company's uncertainty about its Year 2000 issues. The program minimizes, but does not eliminate, the issues relating to external parties. Further, there can be no assurance that the Company will successfully identify or remediate its potential Year 2000 problems and failure to do so may have a material adverse effect on the Company. Contingency Plans. The Company is developing contingency plans which will consider, among other factors, the results and responses from communications with material third parties in determining the nature and the scope of such contingency plans. However, generally, the Company's contingency plans will include, but are not limited to, development of manual work-arounds to system failures, identification of alternative sources for goods and services and reasonable increases in the amount of on-hand goods and supplies. Typically these plans address the anticipated consequences of single events, while the scope of the Year 2000 issues may cause multiple concurrent events for a longer duration. Development of contingency plans is now expected to be completed by December 15, 1999. The costs of the project, estimated completion dates, worst-case scenario and other forward-looking statements above are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantees that these estimates will be achieved, or that events will occur as projected, and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, timely implementation of and allocation of resources to the Company's Year 2000 program, success in identifying computer systems and non-information technology systems that contain two digit date codes, appropriate risk assessment and prioritization of such systems, the nature and amount of programming and testing required and the time it actually takes to upgrade, replace or otherwise take corrective action with respect to each of the affected systems and the success of the Company's suppliers and other external parties with which the Company interacts in addressing their Year 2000 issues. Cautionary Statement Statements in this Form 10-Q, other than statements of historical information, are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Such risks and uncertainties include, but are not limited to: . a significant downturn in general business and economic conditions, . adverse weather conditions, particularly inadequate snowfall for the millennium holiday period and the 1999/2000 ski season, . Year 2000 failures, including Year 2000 impacts on travel patterns, . competition in the ski and resort industry, and . failure to successfully integrate acquisitions. Readers are also referred to the uncertainties and risks identified in the Company's Registration Statement on Form S-4 for its Senior Subordinated Debt exchange notes (Commission File No. 333-80621) and the Annual Report on Form 10-K for the year ended July 31, 1999. 5
Item 3. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk. The Company enters into interest rate swap agreements ("Swap Agreements") to reduce its exposure to interest rate fluctuations on its floating-rate debt. Swap Agreements exchange floating-rate for fixed-rate interest payments periodically over the life of the agreement without exchange of the underlying notional amounts. The notional amounts of interest rate agreements are used to measure interest to be paid or received and do not represent an amount of exposure to credit loss. For interest rate instruments that effectively hedge interest rate exposures, the net cash amounts paid or received on the agreements are accrued and recognized as an adjustment to interest expense. As of October 31, 1999 the Company had Swap Agreements in effect with notional amounts totaling $150.0 million, of which $75.0 million will mature in February 2000. The remaining $75.0 million will mature December 2002. Borrowings not subject to Swap Agreements at October 31, 1999 totaled $275.6 million. Swap Agreement rates are based on one-month LIBOR. Based on average floating-rate borrowings outstanding during the year ended October 31, 1999, a 100-basis point change in LIBOR would have caused the Company's monthly interest expense to change by $31,951. Management believes that these amounts are not significant to the Company's earnings. 6
PART II OTHER INFORMATION Item 1. Legal Proceedings. None Item 2. Changes In Securities And Use Of Proceeds. On November 1, 1999 the Company issued 40,413 shares of Common Stock in the aggregate in connection with the acquisition of VailNet, Inc. and InterNetWorks, Inc. as partial consideration for the purchase price. The securities were issued in a private placement in reliance on Section 4(2) of the Securities Act of 1933, as amended. Item 3. Defaults Upon Senior Securities. None Item 4. Submission Of Matters To A Vote Of Security Holders. None Item 5. Other Information. None Item 6. Exhibits And Reports On Form 8-K. a) Index to Exhibits The following exhibits are either filed herewith or, if so indicated, incorporated by reference to the documents indicated in parentheses, which have previously been filed with the Securities and Exchange Commission. <TABLE> <CAPTION> Sequentially Exhibit Numbered Number Description Page ------ ----------- ---- <S> <C> <C> 3.1 Amended and Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware on the Effective Date. (Incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No 33-52854) including all amendments thereto.) 3.2 Amended and Restated By-Laws adopted on the Effective Date. (Incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.) 4.2 Form of Class 2 Common Stock Registration Rights Agreements between the Company and holders of Class 2 Common Stock. (Incorporated by reference to Exhibit 4.13 of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.) 4.2 Purchase Agreement, dated as of May 6, 1999 among Vail Resorts, Inc., the guarantors named on Schedule I thereto, and Bear Sterns & Co. Inc., NationsBanc Montgomery Securities LLC, BT Alex. Brown Incorporated, Lehman Brothers Inc. and Salomon Smith Barney Inc. (Incorporated by reference to Exhibit 4.2 of the Registration Statement on Form S-4 of Vail Resorts, Inc. (Registration No. 333-80621) including all amendments thereto.) </TABLE> 7
<TABLE> <CAPTION> Sequentially Exhibit Numbered Number Description Page ------ ----------- ---- <S> <C> <C> 4.3 Indenture, dated as of May 11, 1999, among Vail Resorts, Inc, the guarantors named therein and the United States Trust Company of New York, as trustee. (Incorporated by reference to Exhibit 4.3 of the Registration Statement on Form S-4 of Vail Resorts, Inc. (Registration No. 333-80621) including all amendments thereto.) 4.4 Form of Global Note (Included in Exhibit 4.3 incorporated by reference to Exhibit 4.3 of the Registration Statement on Form S-4 of Vail Resorts, Inc. (Registration No. 333-80621) including all amendments thereto.) 4.5 Registration Rights Agreement, dated as of May 11, 1999 among Vail Resorts, Inc., the guarantors signatory thereto and Bear Stearns & Co. Inc., NationsBanc Montgomery Securities LLC, BT Alex. Brown Incorporated, Lehman Brothers Inc. and Salomon Smith Barney Inc. (Incorporated by reference to Exhibit 4.5 of the Registration Statement on Form S-4 of Vail Resorts, Inc. (Registration No. 333-80621) including all amendments thereto.) 4.6 First Supplemental Indenture, dated as of August 22, 1999, among the Company, the guarantors named therein and the United States Trust Company of New York, as trustee. (Incorporated by reference to Exhibit 4.6 of the Registration Statement on Form S-4 of Vail Resorts, Inc. (Registration No. 333-80621) including all amendments thereto.) 10.1 Management Agreement by and between Beaver Creek Resort Company of Colorado and Vail Associates, Inc. (Incorporated by reference to Exhibit 10.1 of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.) 10.2 Forest Service Term Special Use Permit for Beaver Creek ski area. (Incorporated by reference to Exhibit 10.2 of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.) 10.3 Forest Service Special Use Permit for Beaver Creek ski area. (Incorporated by reference to Exhibit 10.3 of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.) 10.4 Forest Service Unified Permit for Vail ski area. (Incorporated by reference to Exhibit 10.4 of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.) 10.6 Joint Liability Agreement by and among Gillett Holdings, Inc. and the subsidiaries of Gillett Holdings, Inc. (Incorporated by reference to Exhibit 10.10 of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33- 52854) including all amendments thereto.) 10.7 Management Agreement between Gillett Holdings, Inc. and Gillett Group Management, Inc. dated as of the Effective Date. (Incorporated by reference to Exhibit 10.11 of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.) 10.8 Amendment to Management Agreement by and among the Company and its subsidiaries dated as of November 23, 1993. (Incorporated by reference to Exhibit 10.12(b) of the report on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992 through September 30, 1993.) </TABLE> 8
<TABLE> <CAPTION> Sequentially Exhibit Numbered Number Description Page ------ ----------- ---- <S> <C> <C> 10.9(a) Tax Sharing Agreement between Gillett Holdings, Inc. dated as of the Effective Date. (Incorporated by reference to Exhibit 10.12 of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.) 10.9(b) Amendment to Tax Sharing Agreement by and among the Company and its subsidiaries dated as of November 23, 1993. (Incorporated by reference to Exhibit 10.13(b) of the report on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992 through September 30, 1993.) 10.10 Form of Gillett Holdings, Inc. Deferred Compensation Agreement for certain GHTV employees. (Incorporated by reference to Exhibit 10.13(b) of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33- 52854) including all amendments thereto.) 10.11(a) Credit Agreement dated as of January 3, 1997 among the Vail Corporation, the Lenders named therein and NationsBank of Texas, N.A. as agent. (Incorporated by reference to Exhibit 10.11(a) of the report on Form 10-K of Vail Resorts, Inc. for the year ended September 30, 1997.) 10.11(b) Pledge Agreement dated as of January 3, 1997 among the Vail Corporation and NationsBank of Texas, N.A. as agent. (Incorporated by reference to Exhibit 10.11(b) of the report on Form 10-K of Vail Resorts, Inc. for the year ended September 30, 1997.) 10.11(c) Credit Agreement dated as of October 10, 1997 among the Vail Corporation and NationsBank of Texas, N.A., as lender. (Incorporated by reference to Exhibit 10-11(c) of the report on Form 10-K of Vail Resorts, Inc. for the year ended September 30, 1997.) 10.11(d) Trust Indenture dated as of September 1, 1992 between Eagle County, Colorado, and Colorado National Bank, as Trustee, securing Sports Housing Facilities Revenue Refunding Bonds. (Incorporated by reference to Exhibit 10.16(g) of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.) 10.11(e) First Amendment to Trust Indenture dated as of November 23, 1993 between Eagle County, Colorado and Colorado National Bank, as Trustee, securing Sports and Housing Facilities Revenue Refunding Bonds. (Incorporated by reference to Exhibit 10.17(f) of the report on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992 through September 30, 1993.) 10.11(f) Trust Indenture dated as of September 1, 1992 between Eagle County, Colorado, and Colorado National Bank, as Trustee, securing Sports Facilities Revenue Refunding Bonds. (Incorporated by reference to Exhibit 10.16(h) of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.) 10.11(g) First Amendment to Trust Indenture dated as of November 23, 1993 between Eagle County, Colorado and Colorado National Bank, as Trustee, securing Sports Facilities Revenue Refunding Bonds. (Incorporated by reference to Exhibit 10.17(h) of the report on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992 through September 30, 1993.) </TABLE> 9
<TABLE> <CAPTION> Sequentially Exhibit Numbered Number Description Page ------ ----------- ---- <S> <C> <C> 10.11(h) Sports and Housing Facilities Financing Agreement dated as of September 1, 1992 between Eagle County, Colorado and Vail Associates, Inc. (Incorporated by reference to Exhibit 10.16(i) of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.) 10.11(i) First Amendment to Sports and Housing Facilities Financing Agreement and Assignment and Assumption Agreement dated as of November 23, 1993 between Eagle County, Colorado, Vail Associates, Inc. and The Vail Corporation. (Incorporated by reference to Exhibit 10.17(j) of the report on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992 through September 30, 1993.) 10.11(j) Sports Facilities Financing Agreement dated as of September 1, 1992 between Eagle County, Colorado and Beaver Creek Associates, Inc., with Vail Associates, Inc. as Guarantor. (Incorporated by reference to Exhibit 10.16(j) of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.) 10.11(k) First Amendment to Sports Facilities Financing Agreement and Assignment and Assumption Agreement dated as of November 23, 1993 by and among Eagle County, Colorado, Beaver Creek Associates, Inc., Vail Associates, Inc., and The Vail Corporation. (Incorporated by reference to Exhibit 10.17(l) of the report on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992 through September 30, 1993.) 10.11(l) Guaranty dated as of September 1, 1992, by Vail Associates, Inc. delivered to Colorado National Bank, as Trustee. (Incorporated by reference to Exhibit 10.16(k) of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.) 10.12(a) Agreement for Purchase and Sale dated as of August 25, 1993 by and among Arrowhead at Vail, Arrowhead Ski Corporation, Arrowhead at Vail Properties Corporation, Arrowhead Property Management Company and Vail Associates, Inc. (Incorporated by reference to Exhibit 10.19(a) of the report on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992 through September 30, 1993.) 10.12(b) Amendment to Agreement for Purchase and Sale dated September 8, 1993 by and between Arrowhead at Vail, Arrowhead Ski Corporation, Arrowhead at Vail Properties Corporation, Arrowhead Property Management Company and Vail Associates, Inc. (Incorporated by reference to Exhibit 10.19(b) of the report on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992 through September 30, 1993.) 10.12(c) Second Amendment to Agreement for Purchase and Sale dated September 22, 1993 by and between Arrowhead at Vail, Arrowhead Ski Corporation, Arrowhead at Vail Properties Corporation, Arrowhead Property Management Company and Vail Associates, Inc. (Incorporated by reference to Exhibit 10.19(c) of the report on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992 through September 30, 1993.) </TABLE> 10
<TABLE> <CAPTION> Sequentially Exhibit Numbered Number Description Page ------ ----------- ---- <S> <C> <C> 10.12(d) Third Amendment to Agreement for Purchase and Sale dated November 30, 1993 by and between Arrowhead at Vail, Arrowhead Ski Corporation, Arrowhead at Vail Properties Corporation, Arrowhead Property Management Company and Vail/Arrowhead, Inc. (Incorporated by reference to Exhibit 10.19(d) of the report on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992 through September 30, 1993.) 10.13 1993 Stock Option Plan of Gillett Holdings, Inc. (Incorporated by reference to Exhibit 10.20 of the report on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992 through September 30, 1993.) 10.14 Agreement to Settle Prospective Litigation and for Sale of Personal Property dated May 10, 1993, between the Company, Clifford E. Eley, as Chapter 7 Trustee of the Debtor's Bankruptcy Estate, and George N. Gillett, Jr. (Incorporated by reference to Exhibit 10.21 of the report on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992 through September 30, 1993.) 10.15 Employment Agreement dated October 1, 1996 between Vail Associates, Inc. and Andrew P. Daly. (Incorporated by reference to Exhibit 10.5 of the report on Form S-2/A of Vail Resorts, Inc. (Registration # 333-5341) including all amendments thereto.) 10.16 Employment Agreement dated July 29, 1996 between Vail Resorts, Inc. and Adam M. Aron. (Incorporated by reference to Exhibit 10.21 of the report on form S-2/A of Vail Resorts, Inc. (Registration # 333-5341) including all amendments thereto.) 10.17 Shareholder Agreement among Vail Resorts, Inc., Ralston Foods, Inc., and Apollo Ski Partners dated January 3, 1997. (Incorporated by reference to Exhibit 2.4 of the report on Form 8-K of Vail Resorts, Inc. dated January 8, 1997.) 10.18 1996 Stock Option Plan (Incorporated by reference from the Company's Registration Statement on Form S-3, File No. 333-5341). 10.19 Agreement dated October 11, 1996 between Vail Resorts, Inc. and George Gillett. (Incorporated by reference to Exhibit 10.27 of the report on form S-2/A of Vail Resorts, Inc. (Registration # 333-5341) including all amendments thereto.) 10.20 Amended and Restated Credit Agreement among the Vail Corporation (d/b/a "Vail Associates, Inc.") and NationsBank of Texas, N.A. (Incorporated by reference to Exhibit 10 of the report on Form 10-Q of Vail Resorts, Inc. for the quarter ended January 31, 1998.) 10.21 Sports and Housing Facilities Financing Agreement among the Vail Corporation (d/b/a "Vail Associates, Inc.") and Eagle County, Colorado, dated April 1, 1998. (Incorporated by reference to Exhibit 10 of the report on Form 10-Q of Vail Resorts, Inc. for the quarter ended April 30, 1998.) 10.22 Credit agreement dated December 30, 1998 among SSI Venture LLC and NationsBank of Texas, N.A., (Incorporated by reference to Exhibit 10.24 of the report on Form 10-Q of Vail Resorts, Inc. for the quarter ended January 31, 1999.) </TABLE> 11
<TABLE> <CAPTION> Sequentially Exhibit Numbered Number Description Page ------ ----------- ---- <S> <C> <C> 10.23 Amended and Restated Credit Agreement among The Vail Corporation (d/b/a "Vail Associates, Inc"), and NationsBank, N.A. and NationsBanc Montgomery Securities LLC dated as of May 1, 1999. (Incorporated by reference to Exhibit 10.25 of the report on Form 10-Q of Vail Resorts, Inc. for the quarter ended April 30, 1999.) 10.24 Employment Agreement dated October 28, 1996 by and between Vail Resorts, Inc. and James P. Donohue. 14 21 Subsidiaries of Vail Resorts, Inc. (Incorporated by reference to Exhibit 21 of the report on Form 10-K of Vail Resorts, Inc. for the fiscal year ended July 31, 1999.) 27 Financial Data Schedules </TABLE> b) Reports on Form 8-K None. 12
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on December 14, 1999. VAIL RESORTS, INC. Date: December 14, 1999 By /s/ James P. Donohue --------------------------- James P. Donohue Senior Vice President and Chief Financial Officer 13