SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
FOR THE YEAR ENDED COMMISSION FILE
SEPTEMBER 30, 1997 NUMBER: 1-9614
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 81658
VAIL, COLORADO (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (970) 476-5601
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on which Registered
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Common Stock, $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III or this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's outstanding common stock
held by non-affiliates of the registrant on December 15, 1997, determined using
the per share closing price thereof on the New York Stock Exchange Composite
Tape, was approximately $585.7 million. As of December 15, 1997, 34,114,435
shares of Common Stock were issued and outstanding, of which 11,639,834 shares
were Class A Common Stock and 22,474,601 shares were Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Shareholders to be held February 9,
1998.
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TABLE OF CONTENTS
PART I
Item 1. Business........................................................... 2
Item 2. Properties......................................................... 11
Item 3. Legal Proceedings.................................................. 11
Item 4. Submission of Matters to a Vote of Security-Holders................ 11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................... 12
Item 6. Selected Financial Data............................................ 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 14
Item 8. Financial Statements and Supplementary Data........................F-1
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.............................................. 22
PART III
Item 10. Directors and Executive Officers of the Registrant............... 22
Item 11. Executive Compensation............................................ 22
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 22
Item 13. Certain Relationships and Related Transactions................... 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 22
1
PART I
ITEM 1. BUSINESS.
Vail Resorts, Inc. and its subsidiaries (collectively, the "Company" or
"Vail Resorts"), is the premier resort operator in North America operating (i)
Vail Mountain, the largest single ski mountain complex in North America, (ii)
Beaver Creek Mountain, one of the world's premier family-oriented mountain
resorts, (iii) Breckenridge Mountain Resort, North America's second most popular
ski area and (iv) Keystone Resort, the third most popular ski area in North
America and a year-round family vacation destination. The Company is one of the
most successful resort operators in the ski industry due to its attractive guest
demographics, favorable weather and snowfall conditions, ability to attract both
destination resort guests and day travelers from local population centers and
proximity to both Denver International Airport and Vail/Eagle County Airport.
The Company operates the top three mountain resorts in North America and is
uniquely positioned to attract a broad range of guests due to its diverse ski
terrain, varied price points and numerous activities and services. As the
Company's resorts are located within 50 miles of each other, the Company is able
to offer guests the opportunity to visit each resort during one vacation stay
and participate in common loyalty programs. In addition to its resort
operations, the Company owns substantial real estate which strategically
complements its resort business.
A key component of the Company's business strategy has been to expand and
enhance its core ski operations while at the same time increasing the scope,
diversity and quality of the complementary activities and services offered to
its skiing and non-skiing guests throughout the year. This focus has resulted in
growth in skier days and lift ticket sales and has also allowed the Company to
expand its revenue base beyond its core ski operations. The Company's focus on
developing a comprehensive destination resort experience has also allowed it to
attract a diverse guest population with an attractive demographic and economic
profile, including a significant number of affluent and family-oriented
destination guests, who tend to generate higher and more diversified revenues
per guest than day skiers from local population centers. While the Company's
Resort Revenue per skier day is currently among the highest in the industry,
management believes that the Company currently captures less than 20% of the
total vacation expenditures of an average destination guest at its resorts. The
Company's business strategy is not only to increase skier days but also to
increase Resort Revenue per skier day by capturing a higher percentage of the
total spending by its year round destination and day guest by continuing to
expand the range and enhance the quality of activities and services offered by
the Company.
RESORTS
The Company operates skiing facilities on Vail and Beaver Creek mountains
in Eagle County, Colorado and Breckenridge and Keystone mountains in Summit
County, Colorado. For the 1996-1997 ski season, the Company's resorts had
4,890,032 total skiers as compared to 4,643,777 total skiers for the previous
year. The operation of a ski resort business is seasonal. The Company's ski
areas typically open in mid-October and close in mid-May each year. The Company
currently employs approximately 3,000 year-round and 7,000 seasonal employees.
Vail Mountain, opened in 1962, consists of 4,644 acres of skiable terrain.
Vail Mountain is the largest single ski mountain complex in the United States
and for the 1997-98 ski season, will have a total of 30 lifts, including 10 high
speed quads and a high speed custom-designed gondola, constituting the largest
network of high speed lifts in the world. Vail Mountain had a total of 1,687,038
skiers for the 1996-97 season compared to 1,652,170 for the previous year. The
1996-97 total was the highest number of skier days of any North American ski
mountain and a new record for Vail Mountain. The Company has received approval
from the United States Forest Service (the "Forest Service") for infrastructure
development of bowl skiing terrain within its current permit area known as
Category III. (See "Business--Regulation and Legislation"). Category III will
add approximately 2,000 additional acres of ski terrain to Vail Mountain's back
bowls, including 850 acres of new trails and an additional 1,150 acres of
undisturbed gladed skiing, increasing the ski terrain on Vail Mountain by
approximately 40%. The terrain's high, north facing location typically yields
reliable snow conditions and should allow for earlier and later ski season
operations than is typical for Vail's existing south facing back bowls. Upgrades
to Vail Mountain for the 1997-1998 ski season include the completion of the
Golden Peak base lodge, including two new restaurants within the facility,
improvements to Adventure Ridge, a non-ski activity center located at the top of
Vail Mountain, and a thirty percent increase in grooming capacity.
2
Beaver Creek Resort is a year-round recreational complex located
approximately ten miles west of the Town of Vail. Beaver Creek Mountain
consists of the Beaver Creek, Arrowhead and Bachelor Gulch ski areas. Beaver
Creek Mountain, opened in 1980, consists of approximately 1,625 acres of skiable
terrain. For the 1996-97 ski season, the Company completed the development of
the ski infrastructure in Bachelor Gulch in connection with its real estate
development activities (see "Business--Real Estate"), thereby interconnecting
the Beaver Creek, Bachelor Gulch and Arrowhead ski areas. Beaver Creek Mountain
will operate 14 lifts for the 1997-98 ski season. Beaver Creek Mountain is among
the nation's 20 largest ski areas (based upon the annual number of skiers).
During the 1996-97 season, Beaver Creek Mountain recorded a total of 644,456
skier days compared to 576,249 for the previous year. For the 1997-1998 ski
season, the Company invested approximately $17 million in improvements including
a new high-speed quad chairlift, the completion of the Beaver Creek Village core
with the addition of the Vilar Center for the Arts, an outdoor skating rink, two
residential and retail complexes and three covered, all-weather escalators that
transport guests form the pedestrian plaza to the slopes.
Breckenridge Mountain Resort is North America's second most popular ski
area, trailing only Vail Mountain in skier days. Breckenridge's skier visits
totaled 1,341,179 for the 1996-1997 ski season compared to 1,357,790 for the
previous year. Breckenridge Mountain offers over 2,000 acres of skiing on four
different mountains, including open bowl and excellent beginner and intermediate
terrain. The ski area's four mountains are interconnected by a network of 19
lifts, including 6 high speed quad chairlifts. The ski area is located adjacent
to the Town of Breckenridge, a 140-year-old Victorian mining town, which has
numerous apres ski activities and an extensive and growing bed base, making
Breckenridge Mountain Resort an attractive destination for national and
international skiers. The Company has implemented several improvements to
Breckenridge Mountain for the 1997-1998 ski season including (i) upgrades of
certain older lift equipment and the addition of two new high-speed quads, which
will reduce lift lines and improve on-mountain skier circulation, (ii) a
significant expansion of the mountain's snowmaking coverage, to ensure a better
early and late season ski product and (iii) an expansion of the Company's ski
school, food service, retail and rental operations. In addition, the Company
owns certain strategic land parcels at the base of the mountain and in the Town
of Breckenridge which are currently in the planning stages for significant
residential and commercial development.
Keystone Mountain is the third most popular ski area in North America,
achieving 1,217,359 skier visits for the 1996-1997 ski season compared to
1,057,568 for the previous year. Comprised of three mountains and interconnected
by a network of 16 lifts, including two high-speed gondolas and four high speed
quad chairlifts, Keystone provides 1,749 skiable acres suited to a wide variety
of skier ability levels. Keystone Mountain has the largest and most advanced
snowmaking capability of any Colorado mountain resort with snowmaking coverage
extending over 49% of Keystone's skiable acreage. Keystone Mountain is located
within the planned family-oriented community of Keystone Resort, which offers
numerous year-round activities, the majority of which are operated by the
Company, including Keystone Conference Center, which is the largest convention
center in the Colorado Rocky Mountains. Keystone Mountain provides the largest
single-mountain night skiing experience in North America, with 14 lighted trails
covering 2,340 vertical feet, offering a 12 1/2 hour ski day. Upgrades to
Keystone for the 1997-1998 ski season include the installation of a new high
speed quad access lift from one of the resort's major base areas and continued
snowboarding related improvements. In addition, Keystone, through a joint
venture (the "Keystone JV"), received approval for and has begun the long-term
development of up to 4,600 new residential and lodging units and up to 382,000
square feet of new commercial space on land contributed to the Keystone JV.
This development will supplement the resort's existing 1,273 residential and
lodging units and approximately 144,000 square feet of commercial real estate.
The development, which is expected to be completed over the next 20 years, will
create significant new resort lodging as well as new retail, food service and
apres ski activities, which the Company believes will attract destination skiers
and contribute to growth in skier days and Resort Revenue.
Given their location in the Colorado Rocky Mountains, the Company's
mountain resorts receive some of the most reliable snowfall experienced anywhere
in the world. Vail and Beaver Creek mountains have averaged over 340 inches of
annual snowfall over the last 20 years, while Breckenridge and Keystone
mountains have averaged approximately 300 and 230 inches of annual snowfall,
respectively, over the last 20 years, significantly in excess of the average for
all ski resorts in the Rocky Mountains for such period. Despite the substantial
snowfall, the Company continues to invest in the latest technology in snowmaking
systems and actively acquires additional water rights, which has allowed it to
offer its guests more predictable and consistent conditions, particularly during
the early and late ski season.
3
The Company's customers are primarily comprised of worldwide resort
destination guests and, to a lesser extent, day skiers from the Denver
Metropolitan area, and Eagle and Summit counties. For the 1996-1997 season, the
Company believes that destination guests represented approximately 70% of total
skier days. Although the Company's resorts accommodate a wide range of budgets
and attract guests from different regions of the country and the world, they are
particularly attractive to family-oriented guests who tend to generate higher
and more diversified revenues per guest than skiers from local population
centers. International guests, who tend to have longer average stays and higher
vacation expenditures than other destination guests, accounted for approximately
8% of the company's destination skier days during the 1996-1997 season.
Consistent with the trends in the overall ski market, snowboarders
represent the fastest growing segment of the Company's guest demographic. The
Company is committed to promoting snowboarding as an exciting outgrowth of
traditional skiing. As an example of this commitment, the Company has upgraded
its snowboard facilities, published trail maps for the convenience of
snowboarders and created additional trails, half-pipes and other varied terrain
to attract snowboarders. Keystone Mountain allowed snowboarders for the first
time during the 1996-1997 ski season, providing a significant opportunity for
Keystone to capture a share of this growing market.
RESORT OPERATIONS
The Company derives Resort Revenue from a wide variety of sources,
including lift ticket sales, ski school, food service, retail stores, equipment
rental, convention and hospitality services, travel reservation services,
lodging, property and club management, real estate brokerage, licensing and
sponsorship activities and other recreational activities.
Lift Ticket Sales. Lift ticket revenue represents the Company's single
largest revenue source. The Company's favorable demographics and world class
resort facilities have enabled the Company to achieve premium ticket pricing.
The lead ticket price, which for the 1996-1997 ski season was $52 a day for Vail
and Beaver Creek Mountains and $48 a day for Breckenridge and Keystone
Mountains, is among the highest in the industry. To maximize skier volume
during non-peak periods and attract certain segments of the market, the Company
also offers a wide variety of incentive ticket programs, including season
passes, student rates, group discounts and senior discounts. The Company engages
in sophisticated yield management analysis to maximize its effective ticket
price (defined as total ticket revenue divided by total skier days) which was a
combined $27.79 for the 1996-1997 ski season, among the highest in the industry.
During the 1996-97 ski season, the Company introduced interchangeable lift
tickets across all four of its resorts, allowing guests to ski at any of the
Company's resorts with one lift ticket. For the 1997-1998 ski season, the
Company has implemented a loyalty program similar to an airline frequent flyer
program. The program rewards guests who frequent the resorts with a system of
points that can be accumulated and redeemed for rewards during subsequent
visits.
Ski School. The Company operates the world's largest ski school
operation with over 2000 instructors across the four resorts. The Company
estimates that it has a guest participation rate of approximately 8% which it
believes to be one of the highest in the industry. The success of the ski school
comes from (i) personalizing and enhancing the guest vacation experience, (ii)
creating new teaching and learning systems (many of which have historically been
purchased from the Company by the Professional Ski Instructors of America and
adopted as the standard for the industry), (iii) introducing innovative teaching
methods for children, including separate children's centers, mountain-wide
attractions, themed entertainment and teaching systems geared toward specific
age groups, and (iv) continually creating new techniques to react to
technological advances in ski/snowboard equipment. In addition, the Company has
adopted a pay incentive program to reward instructors based on guest
satisfaction and repeat students. Future growth in ski school revenue is
expected to stem from the significant growth in the sport of snowboarding, for
which the Company has qualified instructors, and technological advances
currently taking place in alpine skiing equipment.
4
Food Service. Food service is a key component in providing a
satisfying guest experience and has been an important source of revenue growth
for the Company. The Company believes that by owning and operating both on-
mountain and base area restaurants, it can ensure the quality of products and
services offered to its guests, as well as capture a greater percentage of the
guest's vacation expenditures. Strategies with respect to food service
operations include (i) focusing growth in venues which allow for food service
throughout the day and throughout the year, including breakfast, lunch, apres-
ski, dinner, evening entertainment, group functions and summer/non-ski season
operations, (ii) creating unique themed environments to maximize guest enjoyment
and revenue opportunities, (iii) further expanding on-mountain seating, (iv)
offering affordable family lunchtime and evening dining and entertainment, (v)
continuing to create additional private clubs and restaurants which are financed
through memberships and the sale of related real estate and (vi) continuing
affiliations with institutions such as Johnson and Wales, one of the largest
culinary and restaurant management schools in the world. The large number of
food service facilities operated by the Company allows it to improve margins
through large quantity purchasing agreements and sponsorship relationships.
The Company's restaurant operations offer a wide variety of cuisine and
range from top-rated, full service sit-down restaurants to trailside express
food outlets. For the 1997-98 ski season, the Company will operate 46 on
mountain and 23 base area food service facilities. These facilities include
eight new restaurants, primarily located in the Vail and Beaver Creek base
areas. The Company operates 24 restaurants on and at the base of Vail Mountain,
16 restaurants on Beaver Creek Mountain and in Beaver Creek Village, 8
restaurants on and at the base of Breckenridge Mountain and 23 restaurants on
Keystone Mountain and in Keystone Village. Total seating capacity by resort is
approximately 7,127, 1,885, 4,465 and 3,479 seats for Vail Mountain,
Breckenridge Mountain, Keystone Mountain and Beaver Creek Mountain,
respectively.
Retail/Rental Operations. The Company's retail division owns and
operates all on-mountain locations and selected base area locations. The
company has taken several steps to significantly expand the scope of its retail
and rental operations in order to maximize revenue derived from these
activities. This expansion will increase retail space from 61,640 square feet
in the 1996-97 ski season to 69,125 square feet in the 1997-98 ski season. The
Company opened 3 new retail and rental locations for the 1997-98 ski season. In
addition, the Company has remodeled or relocated several existing retail
locations to maximize revenue and take advantage of current trends such as
snowboarding and snowshoeing.
The Company's on-mountain retail locations offer ski accessories (i.e.,
hats, gloves, sunglasses, goggles, warmers), snack food and selected logo
merchandise, all in locations which are conveniently located for skiers. Off-
mountain, the Company operates both ski equipment rental and retail locations.
The Company's retail operations typically feature Company or resort-related logo
merchandise and products of the Company's sponsors. The Company's rental
operations offer a wide variety of ski and snowboard equipment for daily and
weekly use. The Company intends to utilize certain locations within the
Company's newly leasable space (see "Business--Commercial Leasing Operations")
as newly created retail and rental operations, while continuing to maintain a
significant presence of third party tenants.
Convention/Hospitality Services. The Company's hospitality operations
are designed to offer the Company's guests a full complement of quality resort
services and provide the company with additional sources of revenue and
profitability. These operations include reservations, tour and travel
operations, lodging, convention and conference accommodations and property and
club management.
The Company's reservation center provides information and access to the
full complement of the resorts' services and activities. The center handles
over 600,000 calls per year and is capable of booking and selling airline and
ground transportation, lodging, lift tickets, ski school and most other mountain
activities, earning commissions on each third party sale. These advance
reservation activities have had a significant impact on the Company's ability to
attract direct air service to the Vail/Eagle County Airport. Located 25 miles
from Beaver Creek Resort, the Vail/Eagle County Airport provides non-stop air
service from 12 U.S. cities and one-stop connections from 30 international
destinations. For the 1997-1998 ski season, scheduled inbound one-way seating
capacity is 303,508, an increase of 14% over the prior season.
5
The Company's property management operation seeks to utilize the
Company's hospitality expertise through the first class management of lodging
properties owned by both the Company and third parties. The Company currently
manages 41 properties, including hotels, timeshare projects and condominiums.
Property management services performed by the Company include rental management,
maintenance services to non-renting unit owners and association management
services to condominium associations. Company owned lodging properties include
the Pines Lodge in Beaver Creek Resort (a 60 room luxury hotel), the Keystone
Lodge, a 152 room hotel located within Keystone Resort, as well as the newly
acquired Breckenridge Hilton and Lodge at Vail properties. The Company intends
to continue to expand its lodging and property management businesses by bringing
additional properties under management and through further strategic
acquisitions.
The Company owns and operates the Keystone Conference center, which is
the largest convention center in the Colorado Rocky Mountains. With meeting
facilities totaling 32,500 square feet and capable of accommodating groups of up
to 1,800, the Keystone Conference Center draws groups throughout the year and is
typically sold-out during the non-ski season. The Company is presently reviewing
plans to add 25,000 square feet of exhibit space to the Keystone Conference
Center, which would allow it to accommodate the significant excess demand which
it currently experiences. In addition to the Keystone Conference Center, the
Company owns and operates various other conference facilities, of which the
Company believes that attendees significantly utilize the resort's other
recreational facilities and activities, including skiing and snowboarding, golf,
tennis and horseback riding.
The Company is also active in the creation and management of private
membership clubs, which allows the Company to provide high-end services and
amenities to its upper income guest, and evening dining options and other
services and activities to its overall guest population. The Company's current
clubs include (i) the Beaver Creek Club, which offers members luncheon
privileges at Beano's Cabin (which are open to the general public for dinner)
and certain golf, tennis and skiing amenities, (ii) Game Creek Club, which
offers members luncheon privileges and is open to the general public for dinner,
(iii) the Passport Clubhouse at Golden Peak/TM/, which provides members with a
reserved parking space, concierge services, a private dining room and locker
and club facilities at the base of Vail Mountain. In addition to using
membership sales to defray and in some cases entirely pay for the cost of
construction, the Company earns management fees for overseeing club operations.
The Company intends to create selected additional clubs over the next five
years, including Arrowhead Alpine Club at Arrowhead Village and a mountain club
to be located in Bachelor Gulch Village similar to Beano's Cabin. These clubs
allow the Company to add to its restaurant operations and related skier service
and retail operations at a relatively modest capital cost.
Commercial Leasing Operations. The Company owns significant base area
restaurant, retail and other commercial space. The strategy of the Company's
leasing operation is to secure the commercial locations adjacent to its resorts
for retail, restaurant and entertainment venues and then to carefully select the
appropriate tenant mix for these locations to provide a high quality and diverse
selection of retailers and restauranteurs. For the 1996-97 ski season, the
Company's leasable restaurant and retail space totaled 124,959 square feet. For
the 1997-98 ski season, the Company will have a total of 172,428 leasable square
feet. Significant new space resulted from the completion of the Beaver Creek
Village core (32,681 square feet), and St. James commercial space purchased by
the Company in May 1997 (14,788 square feet). The Company expects to further
expand its commercial leasing operations through the real estate development
activities of the Keystone JV at Keystone Resort and through the Company's real
estate development activities at the Breckenridge Mountain Resort. See
"Business--Real Estate."
Licensing and Sponsorship. An important part of the Company's
business strategy is to leverage its brand name by (i) entering into sponsorship
relationships and strategic alliances with world-class business partners, (ii)
building its logo and licensing business and (iii) gaining national and
international exposure through hosting of special events. The Company's leading
industry position coupled with the demographics of its customer base make it an
attractive partner. Examples of the Company's sponsors include (i) FILA, which
is supplying certain of the Company's employee ski uniforms over a six-year
period and has launched a line of clothing using the Vail name and logo, (ii)
Chevy Trucks, which provides the Company with mountain vehicles and national
marketing exposure and (iii) Pepsi, which, among other things, provides
substantial marketing benefits. The Company's sponsorship arrangements
typically have a three to five year term and provide benefits in the form of
cash payments, expense reductions, capital improvements and/or marketing
exposure. The Company has licensed the use of its trademarks to over one
hundred companies for a variety of products
6
such as apparel and sunglasses. While terms of each license agreement vary, such
agreements generally are for a two-year term and provide for the payment by the
licensee of quarterly royalty payments ranging from 6% to 8% of the gross
wholesale price of the licensed goods.
The Company's four resorts are frequently the sites of special events
and promotions. In addition to hosting annual World Cup Skiing and World Cup
Biking events, Vail Mountain and Beaver Creek Mountain have recently hosted the
1997 World Cup Skiing Finals and have collectively been chosen as the site for
the 1999 World Alpine Skiing Championships, an event previously hosted by Vail
in 1989, marking the first time a North American site has been selected twice.
These events give the Company significant international exposure. Television
viewership in Europe for World Cup Skiing and the World Alpine Skiing
Championships is estimated to be in excess of 250 million viewers. These events
will be organized by and co-hosted with the Vail Valley Foundation, a non-profit
foundation whose mandate is to bring international sporting and cultural events
to the Vail Valley. The Foundation provides significant funding, volunteers and
liability assumption in conjunction with such events. The Company's facilities
are also the site of numerous skiing, snowboarding and music events sponsored by
corporations. These events generate revenue for the Company through sponsorship
fees and increased skier traffic, as well as provide national and international
brand exposure through television and advertising campaigns. The Company also
owns an interest in an events production company, Eclipse Television and Sports
Marketing, LLC, which creates and produces made-for-TV events.
Brokerage. The Company's real estate brokerage operations are
conducted through a joint venture in which the Company has a 50% interest. The
joint venture was created in June 1994 to facilitate the merger of the Company's
brokerage operations, Vail Associates Real Estate, Inc., with the brokerage
operations of Slifer, Smith and Frampton, which combined the two largest
operations in the Vail Valley. The joint venture has a large share of both
first time developer sales and resales throughout the Vail Valley, creating both
a significant source of profitability and a valuable source of information in
planning and marketing the Company's real estate projects. In addition to
profit distributions from the joint venture, the Company will directly receive
certain override payments on all brokerage revenue from sales of its own
property. Brokerage activities at Keystone Resort are conducted by the Keystone
JV.
Other Revenue Sources. The Company also derives revenue during the
non-ski season by offering guests a variety of activities and services,
including (i) gondola and chairlift rides, (ii) on-mountain and base area bike
rentals, (iii) on-mountain lunch operations, (iv) wedding and group functions at
mountain and village restaurants, (v) golf and tennis, (vi) fly fishing, hiking
and barbecues at Piney River Ranch/TM/ and (vii) shopping at the Company's
retail locations.
REAL ESTATE
The Company's principal real estate activities include (i) the sale of
single family homesites to individual purchasers; (ii) the sale of certain land
parcels to third party developers for condominium, townhome, cluster home, lodge
and mixed use developments; (iii) the zoning, planning, marketing and
infrastructure development of new resort communities (such as Beaver Creek
Resort, Bachelor Gulch Village and Arrowhead); (iv) the development of certain
mixed use condominium projects integral to resort operations (such as the base
facility at Golden Peak); and (v) the purchase of selected strategic land
parcels, which the Company believes can augment its existing land holdings or
resort operations. The Company's current development activities are focused on
(i) the completion of its three resort communities, Beaver Creek Resort,
Bachelor Gulch Village and Arrowhead; (ii) preparing for the redevelopment of
the Lionshead base area at Vail Mountain and adjacent land holdings; (iii) the
long-term planning of the Company's significant real estate holdings in and
around Avon and at the entrance to Beaver Creek Resort; and (iv) the long-term
planning for development of the Company's real estate holdings at Breckenridge
Mountain Resort.
A summary of each of the Company's significant current real estate
projects is set forth below. In addition to the Company's extensive land
holdings contained in the resort communities discussed below, the Company has
land holdings in the Town of Vail, at the base of Beaver Creek Mountain, and
elsewhere in the Vail Valley.
7
Beaver Creek Resort
Over the past 18 months, VRDC has completed extensive development
planning to complete the Beaver Creek Resort village core including the One
Beaver Creek, Market Square and Beaver Creek Village Center developments which
were completed for the 1997-98 ski season. These projects are adjacent to the
Company's existing retail operations and will contain the majority of the
Company's retail and restaurant operations in Beaver Creek Resort. The Company's
remaining land holdings in Beaver Creek Resort consists of zoned multi-family
sites which are expected to contain approximately 200 multi-family residences
located at the entrance to Beaver Creek Resort.
Bachelor Gulch Village
The Bachelor Gulch Village development is a private, upscale residential
resort community comprised of 1,410 acres of Company-owned land located in a
valley between Arrowhead and Beaver Creek Resort. Through December 1997, the
Company had sold 101 single-family homesites in the Bachelor Gulch Village
development, a substantial portion of which have ski-in/ski-out access. The
Company has contracted to sell to a developer three multifamily parcels for
construction of 40 condominium units, 18 cluster homes and 24 townhomes, and is
in discussions with developers regarding the sale of additional multifamily
parcels. The Company's current unsold inventory in Bachelor Gulch Village
consists of 4 single-family homesites, 11 cluster homesites and development
parcels zoned for 474 condominium, timeshare and lodge units. The Company
expects to complete the sale of these parcels over the next five years.
In addition, plans for Bachelor Gulch Village incorporate 67,880 square
feet of retail, restaurant and commercial space. Commencing with the 1996-97 ski
season, Bachelor Gulch Village featured a high speed quad chairlift and
approximately 150 acres of mostly intermediate ski terrain on Beaver Creek
Mountain.
Arrowhead
Arrowhead, known as "Vail's Private Address," is comprised of over 1,500
acres of Company-owned land and is recognized for its country club approach to
residential and resort amenities. Home of the Country Club of the Rockies, a
private golf club designed by Jack Nicklaus, Arrowhead features swimming, clay
tennis courts, hiking, mountain biking, private fly-fishing on the Eagle River
and privacy gates that assure controlled access 24 hours a day. Arrowhead
contains the westernmost skiing access point to Beaver Creek Mountain.
The Company's current development activities are focused on the
development of Arrowhead Village, a 217 residential unit staged development
centered around an alpine club. Developers have completed construction of 44
multifamily units and have commenced construction of an additional 54
multifamily units on land purchased from the Company. The Company has extensive
additional holdings in Arrowhead, including land zoned for 26 single-family
homesites, 34 cluster homesites and 26 duplex homesites, as well as land for an
additional 150 multifamily units which are planned, but not yet zoned. The
proposed Arrowhead Alpine Club is expected to contain 18 residential
condominiums and 24,000 square feet of spa and athletic training space and 3,200
square feet of retail, skier service, real estate sales and property management
facilities.
Keystone
In 1994, prior to the Company's ownership of Keystone Resort, 500 acres
of development land at Keystone Resort were contributed to the Keystone JV. The
Keystone JV is involved in a broad range of development activities, including
the planning, infrastructure improvement, construction and marketing of all real
property improvements on its land. The Keystone JV has received approval for a
master development plan that the Keystone JV expects to develop over the next 20
years. The plan calls for the creation of six separate neighborhoods, each
featuring distinctive amenities and architecture based on the area's mining,
ranching and railroad history. Full build-out is estimated at 4,600 residential
homes and lodging units and 382,000 square feet of commercial space as well as
more than 300 acres of open space. The Company will receive 40% to 50% of the
profits generated by the Keystone JV and will have the opportunity to lease
commercial space created by the Keystone JV.
8
The first two neighborhoods under development by the Keystone JV are
River Run and Ski Tip Ranch. River Run is a ski-in/ski-out pedestrian village
and commercial corridor that will be a new focal point of Keystone Resort. The
River Run development is located at the base of the River Run Gondola and at
full build-out will include an estimated 860 residential units, 250 lodge units
and 190,000 square feet of restaurants, retail boutiques and apres-ski cafes.
Ski Tip Ranch is a wooded residential community of 86 townhomes under
development at the easternmost end of Keystone Resort. As of September 30, 1997,
the Keystone JV had constructed 165 condominium and townhome units in the River
Run and Ski Tip neighborhoods of which 161 units had been sold. Additionally,
232 units of 305 condominium and townhome units currently under construction and
scheduled for completion in fiscal 1998 are under contract. Commercial space
developed through December 1997 totals 65,320 square feet.
Breckenridge
The Company owns approximately 270 acres of development land at one of
the primary base portals to Breckenridge Mountain as well as 30 acres of
development land near the center of the Town of Breckenridge. The Company is
engaged in development planning for a new base village, which is currently
envisioned to include approximately 850 residential units, new restaurant and
retail space, conference facilities and other recreational amenities.
Residential units will include ski-in/ski-out single family homesites,
multifamily condominium units and townhome units. Development plans for the 30
acre site are still in the preliminary stages but include a mixed use project of
residential units and commercial space.
COMPETITION. The ski industry is highly competitive. The Company
competes directly with numerous ski areas in Colorado for the day skier, with
major ski resort areas in the United States, Canada and Europe for the
destination skier and with worldwide recreation resorts for the vacation guest.
The Company's major U.S. competitors include the Utah ski areas, the Lake Tahoe
area in California and Nevada, the New England ski areas and the major Colorado
areas including Crested Butte, Copper Mountain, Telluride, Steamboat Springs,
Winter Park and the Aspen resorts. The competitive position of the Company's ski
areas is dependent upon many diverse factors such as proximity to population
centers, availability and cost of transportation to the areas, including direct
flight availability by major airlines, pricing, snowmaking facilities, type and
quality of skiing offered, duration of the ski season, prevailing weather
conditions, the number, quality and price of related services and lodging
facilities, and the reputation of the areas.
Maintaining the ski resorts and improving the facilities is capital
intensive. In order to be competitive, the Company has focused on improving the
resort facilities and related amenities available to skiers at its resorts and
has substantially upgraded the facilities at all four resorts. Resort capital
expenditures for fiscal 1997 totaled $51.0 million.
The market for undeveloped real estate near ski resorts is subject to
fluctuations due to many factors including changes in the general economy, costs
and availability of borrowed money and conditions in the construction and real
estate industry. In addition, changes in legislation and governmental
regulations, such as local and federal tax laws, land-use and zoning
restrictions, and environmental protection, could adversely affect real estate
sales. With respect to the sale of the Company's undeveloped real estate, the
Company has many competitors, not only in the Vail, Breckenridge, Keystone and
Beaver Creek areas but also throughout the Colorado mountain country and in the
other major ski areas in the United States. Management believes that the size,
historically consistent snow conditions and existing amenities of the Company's
resorts give the Company a competitive advantage over many of its competitors.
REGULATION AND LEGISLATION. The Company has been granted the right to
use federal land as the site for ski lifts and trails and related activities
under the terms of permits with the Forest Service. The Forest Service has the
right to review and comment on the location, design and construction of
improvements in the permit area and on many operational matters. While virtually
all of the skiable terrain on Vail Mountain, Breckenridge Mountain and Keystone
Mountain is located on Forest Service land, a significant portion of the skiable
terrain on Beaver Creek Mountain, primarily in the Bachelor Gulch and Arrowhead
Mountain areas, is located on Company owned land. The Company has received
approval from the Forest Service for infrastructure development of bowl skiing
terrain in Category III which is located within the current Vail Mountain permit
area. Certain opponents of the Category III expansion have stated that they
intend to file a lawsuit seeking to overturn the decision of the Forest Service.
9
The permits originally granted by the Forest Service were (i) Term
Special Use Permits granted for 30 year terms, but which may be terminated upon
30 days written notice by the Forest Service if it determines that the public
interest requires such termination and (ii) Special Use Permits that are
terminable at will by the Forest Service. In November 1986, a new law was
enacted providing that Term Special Use Permits and Special Use Permits may be
combined into a unified single term special use permit that can be issued for up
to 40 years. Vail Mountain operates under a unified permit for the use of 12,590
acres, which expires October 31, 2031. Breckenridge Mountain operates under a
Term Special Use Permit, that expires on December 31, 2029. Keystone Mountain
operates under a Term Special Use Permit, that expires on December 31, 2032.
The Beaver Creek property is covered by a Term Special Use Permit covering 80
acres and a Special Use Permit covering the remaining 2,695 acres, both expiring
in 2006. In December 1992, the Company exercised its statutory right to convert
its dual permits for the Beaver Creek Mountain Resort into a unified permit for
the maximum period of 40 years and is currently in the process of negotiating
the final terms of the unified permit. All of the Company's Forest Service
permits are terminable by the Forest Service if determined by the Forest Service
that termination is required in the public interest. However, to the Company's
knowledge, no recreational Special Use Permit or Term Special Use Permit for any
major ski resort has ever been terminated by the Forest Service.
For use of its permits, the Company pays a fee to the Forest Service.
Under recently enacted legislation, retroactively effective to fiscal 1996, the
Company pays a fee to the Forest Service ranging from 1.5% to 4.25% of sales
occurring on Forest Service land. However, through fiscal 1998, the Company must
pay the greater of (i) the fee due under the new legislation or (ii) the fees
actually paid for fiscal 1995 that were calculated under the former fee
calculation method. Included in the calculation are sales from, among other
things, lift tickets, ski school lessons, food and beverages, rental equipment
and retail merchandise sales.
BUSINESS SEGMENTS
Business segment information is presented in Note 10 to the accompanying
consolidated financial statements.
INITIAL PUBLIC OFFERING
The Company consummated an initial public offering (the "Offering") on
February 7, 1997. The Company sold 5 million shares of common stock in the
Offering at a price of $22.00 per share. Net proceeds to the Company after
direct expenses of the Offering totaled $98.2 million. The Company used $68.6
million of the proceeds to redeem all of the 12 1/4% Senior Subordinated Notes
due 2004, including a contractual early redemption premium of 4% and accrued
interest up to the redemption date of March 10, 1997. The Company used the
remainder of the proceeds for general corporate purposes.
10
ITEM 2. PROPERTIES.
The following table sets forth the principal properties owned or leased
by the Company:
LOCATION OWNERSHIP USE
- --------------------------- ----------------------- --------------------------
Vail Mountain Owned Ski resort operations,
commercial space
Beaver Creek Owned Ski resort operations,
Mountain commercial space, real
estate held
for sale or development
Arrowhead Mountain Owned Ski resort operations,
commercial space, real
estate held for sale or
development, ski lifts and
trails
Bachelor Gulch Owned Ski resort operations,
Village commercial space, real
estate held for sale or
development, ski lifts and
trails
Vail Mountain Term Special Use Permit Ski lifts, ski trails,
(12,590 acres) buildings and other
improvements
Beaver Creek Term Special Use Permit Ski lifts, ski trails,
Mountain buildings and other
(80 acres) improvements
Beaver Creek Special Use Permit Ski trails
Mountain
(2,695 acres)
Beaver Creek Owned Golf course, employee
Resort housing and residential
spaces
Avon, CO Leased Corporate offices
Avon, CO Owned Real estate held for sale
or development
Keystone Mountain Owned Ski resort operations,
commercial space, real
estate held for sale or
development
Breckenridge Owned Ski resort operations,
Mountain commercial space, real
estate held for sale or
development
Keystone Resort Owned Resort operations, real
estate held for sale or
development
Keystone Lodge Owned Lodging and resort
operations, real estate
held for sale or
development
Keystone Owned Conference facility
Conference Center
Keystone Ranch Owned Golf course and
restaurant facilities
Keystone Mountain Term Special Use Ski lifts, ski trails,
(5,571 acres) Permits buildings and other
improvements
Breckenridge Term Special Use Ski lifts, ski trails,
Mountain Permits buildings and other
(3,156 acres) improvements
The Vail and Beaver Creek Forest Service Permits are encumbered.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to various lawsuits arising in the ordinary
course of business. In the opinion of the Company's management, all matters are
adequately covered by insurance or, if not covered, are without merit, or
involve such amounts as would not have a material effect on the financial
position, results of operations and cash flows of the Company if disposed of
unfavorably.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the New York Stock Exchange
(MTN). The Company's Class A Common Stock is not listed on any exchange and is
not publicly traded. Class A Common Stock is convertible into Common Stock. As
of December 15, 1997, 34,114,435 shares of common stock were issued and
outstanding, of which 11,639,834 shares were Class A Common Stock held by
approximately three holders and 22,474,601 shares were Common Stock held by
approximately 180 holders.
The Company distributed 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. The
Company was obligated to make payments under the Rights only to the extent that
it received sufficient gross proceeds upon the closings of certain real estate
contracts which were outstanding as of September 30, 1996. The Company has made
the full payments due under the rights as of October 31, 1997.
Other than the Rights, the Company has never paid or declared a cash
dividend on its Common Stock or Class A Common Stock. The declaration of cash
dividends in the future will depend on the Company's earnings, financial
condition and capital needs and on other factors deemed relevant by the Board of
Directors at that time. It is the current policy of the Company's Board of
Directors to retain earnings to finance the operations and expansion of the
Company's business, and the Company does not anticipate paying any cash
dividends on its shares of Common Stock or Class A Common Stock in the
foreseeable future.
The following table sets forth, for the fiscal quarters indicated (ended
December 31, March 31, June 30 and September 30), the range of high and low sale
prices of Vail Resorts common stock as reported on the NYSE Composite Tape.
Prior to the Offering on February 7, 1997, there was no established public
trading market for the common stock of the Company.
VAIL RESORTS COMMON STOCK
-------------------------
FISCAL 1997 HIGH LOW
----------- ------- ------
1/st/ Quarter................................ - -
2/nd/ Quarter................................ 24 1/4 18 5/8
3/rd/ Quarter................................ 26 17 3/8
4/th/ Quarter................................ 27 11/16 23
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected historical consolidated financial
data of the Company for the periods indicated. The financial data for the years
ended September 30, 1993, 1994, 1995, 1996 and 1997 are derived from the
consolidated financial statements of the Company, which have been audited by
Arthur Andersen LLP, independent accountants whose 1994 report with respect to
Packerland Packing Company, Inc., a former wholly-owned subsidiary of Vail
Associates, is based on the report of Ernst & Young LLP. Results of the
operations acquired in the Acquisition have been included in the fiscal 1997
consolidated statement of operations from January 4, 1997 through September 30,
1997, except that results of operations for the Arapahoe Basin Mountain Resort
for the period of the Company's ownership have been excluded. The selected
historical consolidated financial data set forth below should be read in
conjunction with the consolidated financial statements of the Company and the
related notes thereto.
12
The Other Data presented below includes information on Resort Cash Flow.
Resort Cash Flow is defined as revenues 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. For information regarding the Company's
historical cash flows from operating, investing and financing activities see the
Company's consolidated financial statements included in Item 8. 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. The data presented below are
in thousands except per share amounts.
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995 1996 1997
---------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Revenues:
Resort.......................... $114,623 $124,982 $126,349 $140,288 $259,038
Real estate..................... 4,610 22,203 16,526 48,655 71,485
-------- -------- -------- -------- --------
Total revenues............ 119,233 147,185 142,875 188,943 330,523
Operating expenses:
Resort.......................... 69,749 78,365 82,305 89,890 172,715
Real estate..................... 5,165 20,341 14,983 40,801 66,307
Corporate expense............... 6,467 7,160 6,701 12,698 4,663
Depreciation and amortization... 13,404 17,186 17,968 18,148 34,044
-------- -------- -------- -------- --------
94,785 123,052 121,957 161,537 277,729
Income from operations................... 24,448 24,133 20,918 27,406 52,794
Net income (after-tax)................... (146) 761 3,282 4,735 19,698
Earnings per common share................ $ (.01) $ .04 $ .16 $ .22 $ .64
======== ======== ======== ======== ========
OTHER DATA:
Resort
Resort Revenue................ $114,623 $124,982 $126,349 $140,288 $259,038
Resort Cash Flow.............. 44,874 46,617 44,044 50,398 86,593
Skier days.................... 2,059 2,056 2,136 2,228 4,273
Resort Revenue/skier day...... $ 55.67 $ 60.79 $ 59.15 $ 62.97 $ 60.62
Real estate
Revenues from real estate
sales........................ $ 4,610 $ 22,203 $ 16,526 $ 48,655 $ 71,485
Real estate operating profit.. (555) 1,862 1,543 7,854 5,178
Real estate assets............ 15,673 42,637 54,858 84,055 154,925
BALANCE SHEET DATA:
Total assets............................ $459,131 $450,018 $429,628 $422,612 $855,949
Long-term debt including current
maturities............................. 250,56 225,654 191,313 144,750 265,062
Stockholders' equity.................... 131,97 162,494 167,694 123,907 405,666
13
ITEM 7. 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 consolidated
financial statements as of September 30, 1997 and 1996 and for the years ended
September 30, 1997, 1996 and 1995, included in Item 8 to this Form 10-K, 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. (See Note 3 to the consolidated financial
statements.) The Breckenridge and Keystone mountain resorts are referred to
herein as the "Acquired Resorts."
The Company's business is seasonal. Historically the Company has
generated the vast majority of its revenues in the first and second quarters of
each fiscal year. The Company typically has negative Resort Cash Flow and
reports losses for the third and fourth quarters of each fiscal year.
The Company has elected to change 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. The Company will file quarterly reports for
fiscal 1998 for the interim periods ending January 31, 1998 and April 30, 1998.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1997 ("FISCAL 1997") VERSUS FISCAL YEAR ENDED
SEPTEMBER 30, 1996 ("FISCAL 1996")
The actual results of fiscal 1997 versus the actual results of fiscal
1996 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 since January 3, 1997 while fiscal 1996 does not include
any results of the Acquired Resorts. Please see pro forma comparisons elsewhere
in this Management's Discussion and Analysis.
Resort Revenue. Resort Revenue for fiscal 1997 was $259.0 million, an
increase of $118.8 million, or 84.7%, compared to fiscal 1996. The increase was
attributable primarily to (i) the inclusion of the results of the Acquired
Resorts from January 4, 1997 ($104.8 million) and (ii) increases in lift ticket,
ski school, food service, retail and rental, hospitality and other revenues.
14
Resort Operating Expenses. Operating expenses from resort operations
("Resort Operating Expenses") were $172.7 million for fiscal 1997, representing
an increase of $82.8 million, or 92.1%, as compared to fiscal 1996. The increase
in Resort Operating Expenses is primarily attributable to (i) the inclusion of
the results of the Acquired Resorts from January 4, 1997 ($69.1 million), (ii)
increased variable expenses resulting from the increased level of Vail/Beaver
Creek Resort Revenue and skier days in fiscal 1997, (iii) expenses associated
with new Vail/Beaver Creek food service and retail/rental operations and (iv) a
one-time reorganization charge of $2.2 million in the third quarter of fiscal
1997.
Resort Cash Flow. Resort Cash Flow for fiscal 1997 was $86.3 million,
an increase of $35.9 million, or 71.2%, compared to fiscal 1996. The increase in
Resort Cash Flow is due primarily to the inclusion of the results of the
Acquired Resorts from January 4, 1997 ($35.7 million) and the increased level of
Vail/Beaver Creek Resort Revenue, offset by increased expenses related to new
operations as described above.
Real Estate Revenues. Revenues from real estate operations for fiscal
1997 were $71.5 million, an increase of $22.8 million, compared to fiscal 1996.
Revenue for fiscal 1997 consists primarily of the sales of 65 single family
homesites in the Bachelor Gulch Village development which totaled $47.5 million,
two condominiums in the Golden Peak base facility totaling $8.0 million, various
condominiums in Beaver Creek Village totaling $4.2 million and Arrowhead Village
land sales of approximately $5.1 million. Revenue for fiscal 1996 consisted
primarily of the sales of 30 single family homesites in the Strawberry Park
development at Beaver Creek Resort which totaled $30.9 million.
Real Estate Operating Expenses. Real estate operating expenses for
fiscal 1997 were $66.3 million, an increase of $25.5 million, compared to fiscal
1996. Real estate cost of sales for fiscal 1997 consists primarily of the cost
of sales and real estate commissions associated with the sales of 65 single
family homesites in the Bachelor Gulch Village development, two Golden Peak
condominiums, various condominiums in Beaver Creek Village and Arrowhead Village
land sales. Real estate cost of sales for fiscal 1996 consisted primarily of the
cost of sales and real estate commissions associated with the sale of 30 single
family homesites in the Strawberry Park development at Beaver Creek Resort.
Corporate Expense. Corporate expense was $4.7 million for fiscal 1997,
a decrease of $8.0 million as compared to fiscal 1996. For periods prior to
fiscal 1997, corporate expense included the costs associated with the Company's
holding company structure and overseeing multiple lines of business, including
the discontinued operations. In fiscal 1997, corporate expense includes certain
personnel, tax, legal, directors' and officers' insurance and other consulting
fees relating solely to the Company's resort and real estate operations.
Corporate expense for fiscal 1996 includes the following nonrecurring charges:
(i) $2.1 million related to the termination of an employment agreement with the
Company's former Chairman and Chief Executive Officer, (ii) $4.5 million related
to nonrecurring payments to certain holders of employee stock options, and (iii)
$1.9 million of compensation expense related to the exercise of stock options by
the Company's former Chairman and Chief Executive Officer. Excluding the effect
of those items, corporate expense increased $0.4 million.
Depreciation and Amortization. Depreciation and amortization expense
was $34.0 million for fiscal 1997, an increase of $15.9 million, as compared to
fiscal 1996. The increase was primarily attributable to the inclusion of the
results of the Acquired Resorts from January 4, 1997 ($14.1 million ) and
Vail/Beaver Creek capital expenditures made in fiscal 1996 and the first quarter
of fiscal 1997.
Interest Expense. During fiscal 1997 and fiscal 1996, the Company
recorded interest expense of $20.3 million and $14.9 million, respectively,
which relates primarily to the Company's Senior Subordinated Notes, the
Industrial Development Bonds, and the Company's credit facilities. The increase
in interest expense from fiscal 1996 to fiscal 1997, is attributable to the
interest incurred on the $165 million in debt assumed in the Acquired Resorts
and the contractual redemption premium incurred in the early redemption of the
12 1/4% Senior Subordinated Notes due 2004, partially offset by interest
reductions due to redemptions totaling $54.5 million in principal amount of
Senior Subordinated Notes in the first half of fiscal 1996. See "Liquidity and
Capital Resources."
15
FISCAL 1996 VERSUS YEAR ENDED SEPTEMBER 30, 1995 ("FISCAL 1995")
Resort Revenue. Resort Revenue for fiscal 1996 was $140.3 million, an
increase of $13.9 million, or 11.0%, compared to fiscal 1995. The increase was
attributable primarily to (i) an 8.4% increase in lift ticket revenue due to a
4.3% increase in skier days (a 5.3% increase at Vail Mountain and a 1.5%
increase at Beaver Creek Mountain) and an increase in effective ticket price
(defined as total lift ticket revenue divided by total skier days "ETP") from
$29.96 to $31.12, or 3.9%, (ii) a 9.6% increase in ski school revenue due to
increases in lesson prices and increases in lesson volume driven primarily by
snowboarding and children's lessons, (iii) a 9.8% increase in food service
revenues due to price increases and the increase in skier days, (iv) a 19.1%
increase in retail and rental revenues due to favorable changes in product mix,
the growth in popularity of snowboarding and new ski technology, and the
increase in skier days, and (v) a 17.2% increase in hospitality revenues due
primarily to enhanced marketing efforts for the Company's property management
activities.
Resort Operating Expenses. Operating expenses from resort operations
("Resort Operating Expenses") were $89.9 million for fiscal 1996, representing
an increase of $7.6 million, or 9.2%, as compared to fiscal 1995. As a
percentage of Resort Revenue, Resort Operating Expenses declined from 65.1% to
64.1% in fiscal 1996. The increase in Resort Operating Expenses is primarily
attributable to (i) increased variable expenses resulting from the increased
level of Resort Revenue and skier days in fiscal 1996, (ii) a $1.6 million
increase in the accrual for long term incentive compensation associated with the
improvement in the operating results of the resorts segment during fiscal 1996,
and (iii) a $1.1 million increase in labor related expenses due to expanded
operations.
Resort Cash Flow. Resort Cash Flow for fiscal 1996 was $50.4 million,
an increase of $6.4 million, or 14.4%, compared to fiscal 1995. Resort Cash Flow
as a percentage of Resort Revenue increased to 35.9% for fiscal 1996 as compared
to 34.9% for fiscal 1995. The increase in Resort Cash Flow is primarily due to
the increase in skier days and ETP as discussed above.
Real Estate Revenues. Revenues from real estate operations for fiscal
1996 were $48.7 million, an increase of $32.1 million, compared to fiscal 1995.
The increase is due primarily to the closings of sales of 30 single family lots
in the Strawberry Park development at Beaver Creek Resort in December 1995 and
February 1996, which generated $30.9 million in gross proceeds.
Real Estate Operating Expenses. Real estate operating expenses for
fiscal 1996 were $40.8 million, an increase of $25.8 million, compared to fiscal
1995. The increase resulted primarily from the cost of sales and commissions
associated with the sale of the Strawberry Park lots which totaled $24.7
million.
Corporate Expense. Corporate expense was $12.7 million for fiscal
1996, an increase of $6.0 million as compared to fiscal 1995. Corporate expense
for fiscal 1996 includes the following nonrecurring charges: (i) $2.1 million
related to the termination of an employment agreement with the Company's former
Chairman and Chief Executive Officer, (ii) $4.5 million related to nonrecurring
payments to certain holders of employee stock options and (iii) $1.9 million of
compensation expense related to the exercise of stock options by the Company's
former Chairman and Chief Executive Officer. Excluding the effect of those
items, corporate expense decreased $2.5 million. This decrease was primarily due
to the inclusion in fiscal 1995, of $1.6 million of compensation expense related
to shares of Common Stock granted to the Company's former Chief Executive
Officer pursuant to an employment agreement dated October 8, 1992. Those shares
were earned over the three year period beginning on the date of the employment
agreement and ending on October 8, 1995. Accordingly, compensation expense was
charged to corporate expense ratably over that period. The remaining decrease
was attributable to reductions in payroll expense and other office expenses
related to the partial closure of the Company's Denver office as of December 31,
1995.
Depreciation and Amortization. Depreciation and amortization expense
increased by $180,000 for fiscal 1996 over fiscal 1995, primarily due to capital
expenditures made in fiscal 1995.
16
Interest Expense. During fiscal 1996 and fiscal 1995, the Company
recorded interest expense of $14.9 million and $19.5 million, respectively,
which relates primarily to the Company's Senior Subordinated Notes, the
Industrial Development Bonds, and the Company's existing credit facilities. The
decrease in interest expense from fiscal 1995 to fiscal 1996, is attributable to
the redemptions of $30 million and $24.5 million in principal amount of Senior
Subordinated Notes on December 11, 1995 and February 2, 1996, respectively,
offset by call premiums paid in connection with those redemptions. See
"Liquidity and Capital Resources."
Loss on disposal of fixed assets. The loss on disposal of fixed assets
for fiscal 1996 was $2.6 million compared to $849,000 for fiscal 1995. The loss
for fiscal 1996 consists primarily of a $2.3 million loss on the retirement of
the Lionshead gondola and a $340,000 loss on the retirement of the Golden Peak
chairlift. Both lifts have been replaced with upgraded equipment. The loss for
fiscal 1995 consists primarily of a $600,000 loss on the write off of lift
equipment which was replaced during an upgrade of a Vail Mountain chairlift..
Other income (expense). The significant components of other income
(expense) for fiscal 1996 are (i) a $725,000 increase in the reserves related to
the Company's indemnity to the purchaser of a former subsidiary of the Company,
(ii) a $690,000 increase in the estimate of the pension liability related to
three founders of the Company, (iii) a $600,000 increase in reserves related to
a change in the estimate of the Company's obligation to a medical research
foundation, and (iv) $373,000 in income related to a favorable retrospective
adjustment on a worker's compensation insurance policy of a former subsidiary of
the Company. The significant components of other income (expense) for fiscal
1995 are (i) a $1.2 million gain on the sale of securities, (ii) income of
$687,000 related to the elimination of reserves for pre-petition bankruptcy
claims and (iii) $1.6 million in income related to a change in the estimate of
the Company's obligation to a medical research foundation.
PRO FORMA RESULTS OF OPERATIONS--FISCAL 1997 VERSUS FISCAL 1996
The following unaudited pro forma results of operations of the Company
for fiscal 1997 and fiscal 1996 assume that the Acquisition occurred on October
1, 1995. The unaudited pro forma financial information below excludes the
results of Arapahoe Basin Mountain Resort, which the Company divested on
September 5, 1997. Resort Operating Expenses and Resort Cash Flow for the year
ended September 30, 1997, include the effect of a one-time restructuring charge
in the amount of $2.2 million recorded in the third quarter of fiscal 1997.
These unaudited 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.
YEAR YEAR
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------------- -------------
(UNAUDITED)
(IN THOUSANDS)
Resort Revenue............. $291,203 $267,409
Resort Operating Expenses.. 200,515 182,581
-------- --------
Resort Cash Flow........... 90,688 84,828
17
Resort Revenue. Pro forma Resort Revenue for the year ended September
30, 1997 was $291.2 million, an increase of $23.8 million, or 8.9%, compared to
the year ended September 30, 1996. Revenue by category is as follows:
YEAR YEAR
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(IN THOUSANDS)
Lift tickets... $135,884 $127,663
Ski school..... 34,471 33,091
Food service... 43,704 38,133
Retail/rental.. 17,624 13,362
Hospitality.... 33,984 31,822
Other.......... 25,536 23,338
-------- --------
Total revenue $291,203 $267,409
======== ========
Lift ticket revenue increased due to an increase in effective ticket
price from $27.49 to $27.79, or 1.1% and a 5.3% increase in skier days. The
increase in ETP is primarily due to increases in the lead ticket prices at each
resort, offset by higher usage of discounted tickets targeted at skiers from the
Denver/Colorado Springs area and an increase in late season skier days which
tend to have a lower ETP. The increase in skier days was due primarily to (i) an
increase in snowboarders at Keystone Mountain as the 1996-97 ski season
represented the first time that snowboarding had been permitted on Keystone
Mountain and (ii) increases at Beaver Creek Mountain due in part to the 30%
terrain expansion with the opening of Bachelor Gulch. Ski school revenue
increased 4.2% due primarily to increases in the number of snowboarding lessons
and children's lessons sold. Food service revenue increased 14.6% primarily as a
result of the opening of six new operations, expansion of existing operations
and price increases at Vail and Beaver Creek mountains. Retail and rental
revenues increased 31.9% due to the opening of nine new operations and the
repositioning of existing operations to take advantage of current trends such as
snowboarding, as well as greater product diversity throughout the Company's
retail operations. Hospitality revenue increased 6.8% primarily due to (i)
increases in property management revenue at Beaver Creek Resort attributable to
increases in the number of units under management and the average daily revenue
per unit and (ii) increases in lodging revenue at Company owned and managed
lodging facilities at Beaver Creek Resort and Keystone Resort attributable to
price increases and higher occupancy rates.
Resort Operating Expenses. Pro forma Resort Operating Expenses were
$200.5 million for the year ended September 30, 1997, compared to $182.6 million
for the year ended September 30, 1996. Resort operating expenses as a
percentage of Resort Revenue increased from 68.3% to 68.9% in the year ended
September 30, 1997. The increase in Resort Operating Expenses is attributable to
(i) increased variable expenses resulting from the increased level of Resort
Revenue, (ii) expenses associated with new food service and retail/rental
operations, (iii) increases in the operating expenses of the Acquired Resorts
and (iv) a one-time reorganization charge of $2.2 million in the third quarter
of fiscal 1997.
Resort Cash Flow. Resort Cash Flow was $90.7 million for the year ended
September 30, 1997, compared to $84.8 million for the year ended September 30,
1996. Resort Cash Flow as a percentage of Resort Revenue decreased from 31.7%
to 31.1% in the year ended September 30, 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, a one-time reorganization charge of $2.2
million and increases in the Acquired Resorts' operating expenses as described
above.
18
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically provided funds for 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. In fiscal 1997, cash used in investing activities of
$251.8 million was attributable primarily to cash paid for the Acquired Resorts,
including direct costs and offset by cash acquired, of $146.4 million, resort
capital expenditures of $51.0 million and investments in real estate of $56.9
million.
Resort capital expenditures for the year ended September 30, 1997 were
$51.0 million. Investments in real estate for that period were $56.9 million,
which included $7.0 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) the new Lionshead gondola, (ii) the renovation and
expansion of the Eagles Nest facility and the creation of Adventure Ridge and
(iii) new retail, restaurant and skier service facilities in the renovated
Golden Peak base facility. The primary projects included in investments in real
estate were (i) the completion of six luxury condominiums located in the new
Golden Peak base facility, (ii) infrastructure related to the Bachelor Gulch
real estate development, (iii) construction costs associated with Beaver Creek
Village Center, (iv) infrastructure related to Arrowhead Village, (v)
infrastructure related to the snowmaking reservoir at Beaver Creek, Bachelor
Gulch and Arrowhead villages and (vi) a new high speed quad chairlift at Beaver
Creek Resort.
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. In connection with this acquisition, the Company
paid cash of $139.7 million, assumed indebtedness of $59.8 million and issued
7,554,406 shares of Common Stock valued at $151.1 million to Ralston Foods, Inc.
Direct expenses incurred in the transaction approximated $9.0 million. Pursuant
to a Consent Decree with the United States Department of Justice, the Company
was required to divest the Arapahoe Basin mountain resort. On September 5,
1997, the Company sold the Arapahoe Basin mountain resort for a sum of $4.0
million.
The Company estimates that it will make resort capital expenditures
totaling between $50.0 and $70.0 million in fiscal 1998. The primary projects
are anticipated to include (i) trail and infrastructure improvements at Keystone
Mountain, (ii) terrain and facilities improvements at Breckenridge Mountain,
(iii) expansion of the grooming fleets at Vail and Beaver Creek mountains, (iv)
upgrades to the back office and front line information systems and (v)
infrastructure for the Category III expansion on Vail Mountain. Investments in
real estate in fiscal 1998 are anticipated to be between $40.0 and $50.0
million. The primary projects are anticipated to include (i) continuing
infrastructure related to Bachelor Gulch Village and Arrowhead Village, (ii)
golf course development, (iii) investments in developable land at strategic
locations at the four ski resorts and (iv) investments in a joint venture to
develop property located at the base of Keystone Mountain.
The Company continues to pursue strategic resort acquisition
opportunities as well as opportunities to expand its presence in lodging,
property management, retail, food service and commercial leasing activities
within its existing resorts. See "Recent Developments."
The Company generated cash from financing activities of $151.0 million
in fiscal 1997, consisting of proceeds from the initial public offering, net of
direct costs, of $98.2 million, proceeds from borrowings under long-term debt of
$235.0 million, offset by payments on long-term debt of $140.0 million and
payments under the Rights of $42.2 million.
At September 30, 1996, the Company had $44.0 million in outstanding
borrowings under its former credit facilities. Through January 3, 1997, the
Company borrowed an additional $26.0 million under those facilities. On January
3, 1997, in connection with the closing of the Acquisition, all amounts
outstanding under the Company's former credit facilities were repaid with
proceeds from the Company's Credit Facilities. The Credit Facilities provide for
debt financing up to an aggregate principal amount of $340 million and consist
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"). The Term Loan Facilities
were used to finance $139.7 million of the Acquisition purchase price and the
balance of the Term Loan Facilities was used to repay borrowings under the
Company's former credit facilities. The Revolving Credit Facility matures on
April 15, 2003. The minimum amortization under the Term Loan Facilities is $11.5
19
million, $14.0 million, $19.0 million, $21.5 million, $26.5 million, $31.5
million and $41.0 million during the fiscal years ending September 30, 1998,
1999, 2000, 2001, 2002, 2003 and 2004, respectively. The Company is also
required to make mandatory amortization payments under the Term Loan Facilities
with excess cash flow (as defined in the Credit Agreement), proceeds from asset
sales, and proceeds from certain equity and debt offerings. During the year
ended September 30, 1997, the Company repaid credit facility borrowings totaling
$77.0 million.
The Credit Facilities require that no more than $125.0 million in the
aggregate be outstanding under the Revolving Credit Facility for a period of 30
consecutive days during each fiscal year, such period to include April 15. The
proceeds of loans made under the Revolving Credit Facility may be used to fund
the Company's working capital needs, capital expenditures and other general
corporate purposes, including the issuance of letters of credit.
The Company consummated its initial public offering (the "Offering") on
February 7, 1997. The Company sold 5 million shares of common stock in the
Offering at a price of $22.00 per share. Net proceeds to the Company after
direct expenses of the Offering totaled $98.2 million. The Company used $68.6
million of the proceeds to redeem all of the Senior Subordinated Notes,
including a contractual early redemption premium of 4% and accrued interest up
to the redemption date of March 10, 1997. The Company used the remainder of the
proceeds for general corporate purposes. The Company was not required to use any
of the proceeds from the Offering to make payments under the Term Loan
Facilities.
On September 25, 1996, the Company declared a right to receive up to
$2.44 per share of common stock to all stockholders of record on October 11,
1996, with a maximum aggregate amount payable under the Rights of $50.5 million.
The Company was obligated to make payments under the Rights only to the extent
that it received proceeds under certain real estate contracts outstanding at
September 30, 1996. As of September 30, 1997, the Company had received gross
proceeds under the applicable contracts totaling $49.9 million and had made
payments under the Rights of $42.2 million. In addition, the Company's former
Chairman and Chief Executive Officer waived his right to receive approximately
$2.7 million in payments under the Rights in exchange for the payment of the
exercise price on certain stock warrants that he held. On October 31, 1997, the
Company paid all remaining amounts due under the Rights.
Based on current levels of operations and cash availability, the
Company believes that it will be able to satisfy its debt service and capital
expenditure requirements from cash flow from operations, and borrowings under
the Credit Facilities.
The Company believes that inflation during the past three years has had
little effect on its results of operations and any impact on costs has been
largely offset by increased pricing.
The Company is currently in the process of evaluating its software and
hardware for Year 2000 compliance. Although a final assessment has not been
completed, the Company believes that the costs to be incurred will not be
material to the overall presentation of the consolidated financial statements.
RISK MANAGEMENT
The Company uses interest rate swaps to modify its exposure to interest
rate movements and reduce its borrowing costs. The Company enters into interest
rate swap agreements for certain of its floating rate borrowings outstanding
under its Term Credit Facilities. The Company's Term Credit Facilities and the
Revolving Credit Facility are indexed to LIBOR. The Company utilizes a
sensitivity analysis technique to evaluate the effect that changes in LIBOR will
have on the Company's borrowings that are indexed to that rate. At September 30,
1997, the borrowings that were not subject to interest rate swap agreements
totaled $127 million. Based on the average floating rating borrowings
outstanding throughout fiscal 1997, a 100 basis point change in LIBOR, would
cause the Company's monthly interest expense to change by $111,000. The Company
believes that these amounts are not significant to the earnings of the Company.
20
RECENT DEVELOPMENTS
On October 1, 1997, the Company purchased the assets constituting the
Breckenridge Hilton for a total purchase price of $18.6 million. The purchase
price includes a cash payment of $18.1 million, $0.2 million in assumed
liabilities and $0.3 million to provide for contingent consideration that may be
paid pursuant to the purchase agreement. The Breckenridge Hilton is a 208-room
full service hotel, located at the base of Breckenridge Mountain, and includes
dining, conference and fitness facilities. The acquisition was accounted for as
a purchase combination.
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 $30.2 million. LPI owns and operates The Lodge at Vail (the "Lodge"), a 59-
room hotel located in Vail, Colorado, 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 expects to
incur approximately $9.2 million to complete a new wing of the hotel which is
currently under construction. The acquisition was accounted for as a purchase
combination.
The Company funded the above acquisitions with proceeds from its
Revolving Credit Facilities.
On October 10, 1997, the Company borrowed an additional $32 million
under a new line of credit with its Credit Facility provider (the "Line of
Credit"), the proceeds of which were used to reduce the Revolving Credit
Facility balance. Borrowings under the Line of Credit bear interest annually at
the Company's option at the rate of LIBOR (5.7% at September 30, 1997) plus a
margin, or 7.5%.
In December 1997, the Company received a commitment from its lender, as
agent, to amend the Credit Facilities (the "Amended Credit Facilities"). The
Amended Credit Facilities will provide for an increase in debt financing from
$340 million to an aggregate principal amount of $450 million in the Revolving
Credit Facility that will mature on December 19, 2002. Interest on outstanding
advances under the Amended Credit Facilities is payable at rates based upon
either LIBOR plus a margin ranging from .50% to 1.25% or prime plus a margin of
up to .125%.
21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated herein from the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held
February 9, 1998 which will be available no later than January 30, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein from the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held
February 9, 1998 which will be available no later than January 30, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein from the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held
February 9, 1998 which will be available no later than January 30, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein from the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held
February 9, 1998 which will be available no later than January 30, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Index to Financial Statements and Financial Statement Schedules.
(i) See "Item 8. Financial Statements and Supplementary Data" for the
index to the Financial Statements.
All other schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements or notes thereto.
22
(b) 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.
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
2.1 Stock Purchase Agreement among Vail Resorts, Inc.,
Ralston Foods, Inc. and Ralston Resorts, Inc. dated
July 22, 1996. (Incorporated by reference to
Exhibit 2.1 of the report on Form 8-K of Vail
Resorts, Inc. dated July 23, 1996).
2.2 First Amendment to the Stock Purchase Agreement
among Vail Resorts, Inc., Ralston Foods, Inc. and
Ralston Resorts, Inc. dated December 20, 1996.
(Incorporated by reference to Exhibit 2.2 of the
report on Form 8-K of Vail Resorts, Inc. dated
January 8, 1997).
2.3 Second Amendment to the Stock Purchase Agreement
among Vail Resorts, Inc., Ralston Foods, Inc. and
Ralston Resorts, Inc. dated December 31, 1996.
(Incorporated by reference to Exhibit 2.3 of the
report on Form 8-K of Vail Resorts, Inc. dated
January 8, 1997).
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.)
10.1 Management Agreement by and between Beaver Creek
Resort Company of Colorado and Vail Associates,
Inc. (Incorporated by reference to Exhibit 10.1 of
the Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854)
including all amendments thereto.)
10.2 Forest Service Term Special Use Permit for Beaver
Creek ski area. (Incorporated by reference to
Exhibit 10.2 of the Registration Statement on Form
S-4 of Gillett Holdings, Inc. (Registration No. 33-
52854) including all amendments thereto.)
10.3 Forest Service Special Use Permit for Beaver Creek
ski area. (Incorporated by reference to Exhibit
10.3 of the Registration Statement on Form S-4 of
Gillett Holdings, Inc. (Registration No. 33-52854)
including all amendments thereto.)
10.4 Forest Service Unified Permit for Vail ski area.
(Incorporated by reference to Exhibit 10.4 of the
Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854)
including all amendments thereto.)
10.5 Employment Agreement dated October 8, 1992 between
Vail Associates, Inc. and Andrew P. Daly.
(Incorporated by reference to Exhibit 10.15 of the
Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854)
including all amendments thereto.)
10.6 Employment Agreement dated October 30, 1992 between
Vail Associates, Inc. and James Kent Myers.
(Incorporated by reference to Exhibit 10.10 of the
report on Form 10-K of Gillett Holdings, Inc. for
the period from October 9, 1992 through September
30, 1993.)
23
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- -------
10.7 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.)
10.8(a) 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(b) Amendment to Management Agreement by and among the
Company and its subsidiaries dated as of November
23, 1993. (Incorporated by reference to Exhibit
10.12(b) of the report on Form 10-K of Gillett
Holdings, Inc. for the period from October 9, 1992
through September 30, 1993.)
10.9(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 Banks named therein and
NationsBank of Texas, N.A., as issuing banks and
agent.
10.11(b) Pledge Agreement dated as of January 3, 1997 among
the Vail Corporation and NationsBank of Texas, N.A.
as agent.
10.11(c) Credit Agreement dated as of October 10, 1997 among
the Vail Corporation And NationsBank of Texas,
N.A., as lender.
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.)
24
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
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.)
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.)
25
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
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 1992 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 April 1, 1994 between
Gillett Holdings, Inc. and James S. Mandel
(Incorporated by reference to Exhibit 10.22 of the
report on Form 10-K of Gillett Holdings, Inc. for
the year ended September 30, 1994.)
10.16 Employment Agreement dated April 1, 1994 between
Vail Associates, Inc. and James S. Mandel
(Incorporated by reference to Exhibit 10.23 of the
report on Form 10-K of Gillett Holdings, Inc. for
the year ended September 30, 1994.)
10.17 Employment Agreement dated October 1, 1996 between
Vail Associates, Inc. and Andrew P. Daly.
10.18 Employment Agreement dated July 29, 1996 between
Vail Resorts, Inc. and Adam M. Aron.
10.19 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.)
10.20 1996 Stock Option Plan (Incorporated by reference
from the Company's Registration Statement on Form S-
3, File No. 333-5341).
10.21 Agreement dated October 11, 1996 between Vail
Reosrts, Inc. and George Gillett.
16 Letter from Ernst & Young LLP regarding change in
certifying accountant. (Incorporated by reference
to Exhibit 16 of the report on Form 8-K of Gillett
Holdings, Inc. for the reportable event occurring
on October 25, 1994.)
21.1 Subsidiaries of Vail Resorts, Inc. (Incorporated by
reference to Exhibit 21 of the Report on Form 10-K
of Gillett Holdings, Inc. for the year ended
September 30, 1995.)
99.1(a) Debtor's Second Amended Joint Disclosure Statement
Pursuant to Section 1125 of the Bankruptcy Code for
the Second Amended Joint Plan of Reorganization of
the Debtors. (Incorporated by reference to Exhibit
T3E.1 of Registrant's Application for Qualification
under the Trust Indenture Act of 1939 on Form T-3
filed September 15, 1992, File No. 22-22538.)
99.1(b) Exhibits to Debtor's Second Amended Joint
Disclosure Statement Pursuant to Section 1125 of
the Bankruptcy Code for the Second Amended Joint
Plan of Reorganization of the Debtors.
(Incorporated by reference to Exhibit T3E.1 of
Registrant's Application for Qualification under
the Trust Indenture Act of 1939 on Form T-3 filed
September 15, 1992, File No. 22-22538.)
26
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
99.2 Supplement to Debtor's Second Amended Joint
Disclosure Statement Pursuant to Section 1125 of
the Bankruptcy Code for the Second Amended Joint
Plan of Reorganization of the Debtors.
(Incorporated by reference to Exhibit 28.2 of the
Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854)
including all amendments thereto.)
99.3 Exhibits to the Second Amended Joint Plan of
Reorganization of the Debtors. (Incorporated by
reference to Exhibit 28.3 of the Registration
Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all
amendments thereto.)
(c) A Current Report on Form 8-K was filed on January 8, 1997 related to the
Company's acquisition of 100% of the capital stock of Ralston Resorts, Inc.
on January 3, 1997.
A Current Report on Form 8-K was filed on November 6, 1997 announcing the
Company's fiscal year change from September 30 to July 31.
27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
VAIL RESORTS, INC.
Consolidated Financial Statements for the Years Ended September 30, 1997, 1996
and 1995
Report of Independent Public Accountants.................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Vail Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of VAIL
RESORTS, INC., formerly known as Gillett Holdings, Inc. (a Delaware
corporation), and subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Vail Resorts, Inc.
and subsidiaries as of September 30, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado,
November 5, 1997
F-2
VAIL RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
ASSETS
------
Current assets:
Cash and cash equivalents............ $ 8,142 $ 5,622
Restricted cash...................... 6,561 7,090
Receivables.......................... 17,638 4,660
Notes receivable..................... 4,469 -
Inventories.......................... 10,789 4,639
Deferred income taxes (Note 7)....... 24,500 17,200
Other current assets................. 4,253 5,490
-------- --------
Total current assets 76,352 44,701
Property, plant and equipment, net
(Note 5).................................... 411,117 197,279
Real estate held for sale.................... 154,925 84,055
Deferred charges and other assets............ 12,217 5,940
Notes receivable, noncurrent portion......... 1,073 5,581
Intangible assets, net (Note 5).............. 200,265 85,056
-------- --------
Total assets $855,949 $422,612
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued
expenses (Note 5).................. $ 70,171 $ 48,096
Income taxes payable................ 325 325
Rights payable to stockholders
(Note 9)........................... 5,707 50,513
Long-term debt due within one
year (Note 4)...................... 1,715 63
-------- --------
Total current liabilities........ 77,918 98,997
Long-term debt (Note 4)...................... 263,347 144,687
Other long-term liabilities.................. 23,281 15,521
Deferred income taxes (Note 7)............... 85,737 39,500
Commitments and contingencies (Note 9)
Stockholders' equity (Notes 1 and 12):
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 and 12,426,220
shares issued and outstanding as of
September 30, 1997 and 1996,
respectively....................... 116 124
Common Stock, $.01 par value,
80,000,000 shares authorized,
21,765,815 and 7,573,780 shares
issued and outstanding as of
September 30, 1997 and 1996,
respectively.............. 218 76
Additional paid-in capital.......... 385,634 123,707
Retained earnings................... 19,698 -
-------- --------
Total stockholders' equity 405,666 123,907
-------- --------
Total liabilities and
stockholders' equity............ $855,949 $422,612
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
YEAR YEAR YEAR
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
-------------- -------------- --------------
Net revenues:
Resort.......................... $ 259,038 $ 140,288 $ 126,349
Real estate..................... 71,485 48,655 16,526
----------- ----------- -----------
Total net revenues............. 330,523 188,943 142,875
Operating expenses:
Resort.......................... 172,715 89,890 82,305
Real estate..................... 66,307 40,801 14,983
Corporate expense............... 4,663 12,698 6,701
Depreciation and amortization... 34,044 18,148 17,968
----------- ----------- -----------
Total operating expenses....... 277,729 161,537 121,957
----------- ----------- -----------
Income from operations.................. 52,794 27,406 20,918
Other income (expense):
Investment income............... 1,762 586 3,295
Interest expense................ (20,308) (14,904) (19,498)
Loss on disposal of fixed
assets......................... (182) (2,630) (849)
Other income (expense).......... (383) (1,500) 3,291
----------- ----------- -----------
Income before income taxes.............. 33,683 8,958 7,157
Provision for income taxes (Note 7)..... (13,985) (4,223) (3,875)
----------- ----------- -----------
Net income.............................. 19,698 4,735 3,282
=========== =========== ===========
Earnings per common share (Note 2):
Net income..................... $.64 $.22 $.16
=========== =========== ===========
Weighted average shares
outstanding................... 30,979,448 21,455,352 20,582,776
=========== =========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-4
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK
-------------
ADDITIONAL RETAINED TOTAL
SHARES PAID-IN EARNINGS STOCKHOLDERS'
CLASS A COMMON TOTAL AMOUNT CAPITAL (DEFICIT) EQUITY
------------- ---------- ---------- -------- ---------- --------- ------------
Balance, September 30, 1994.............. 14,249,414 5,273,936 19,523,350 $ 196 $133,645 $ 28,653 $162,494
Net income for the year ended September
30, 1995.............................. -- -- -- -- -- 3,282 3,282
Shares issued pursuant to stock grants
(Note 11)............................. -- 238,326 238,326 2 1,916 -- 1,918
Shares of Class A Common Stock con-
verted to Common Stock (Note 12)...... (1,431,722) 1,431,722 -- -- -- -- --
------------ ---------- ---------- -------- ---------- --------- ----------
Balance, September 30, 1995.............. 12,817,692 6,943,984 19,761,676 198 135,561 31,935 167,694
Net income for the year ended September
30, 1996.............................. -- -- -- -- -- 4,735 4,735
Shares issued pursuant to stock grants
(Note 11)............................. -- 238,324 238,324 2 1,989 -- 1,991
Rights payable to stockholders........... -- -- -- -- (13,843) (36,670) (50,513)
Shares of Class A Common Stock con-
verted to Common Stock (Note 12)...... (391,472) 391,472 -- -- -- -- --
------------ ---------- ---------- -------- ---------- --------- ----------
Balance, September 30, 1996.............. 12,426,220 7,573,780 20,000,000 200 123,707 -- 123,907
Net income for the year ended September
30, 1997.............................. -- -- -- -- -- 19,698 19,698
Issuance of shares pursuant to options
exercised (Note 11)..................... -- 744,482 744,482 7 10,212 -- 10,219
Issuance of shares in acquisition of
resort, net (Note 3)................... -- 7,554,406 7,554,406 76 151,012 -- 151,088
Issuance of shares in initial public
offering, net (Note 1)................. -- 5,000,000 5,000,000 50 98,100 -- 98,150
Issuance of shares in acquisition of
retail space, net...................... -- 106,761 106,761 1 2,348 -- 2,349
Compensation expense related to employee
stock options.......................... -- -- -- -- 255 -- 255
Shares of Class A Common Stock con-
verted to Common Stock (Note 12)...... (786,386) 786,386 -- -- -- -- --
------------ ---------- ---------- -------- ---------- --------- ----------
Balance, September 30, 1997.............. 11,639,834 21,765,815 33,405,649 $ 334 $385,634 $ 19,698 $405,666
============ ========== ========== ======== ========== ========= ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements
F-5
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR YEAR YEAR
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
-------------- -------------- --------------
Cash flows from operating activities:
Net income.................................................. $ 19,698 $ 4,735 $ 3,282
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 34,044 18,148 17,968
Deferred compensation payments in excess of expense........ (331) (814) (1,325)
Noncash cost of real estate sales.......................... 52,647 32,394 9,208
Noncash compensation related to stock grants (Note 11)..... 306 25 1,633
Noncash compensation related to stock options.............. 255 1,915 --
Noncash equity income...................................... (701) -- --
Deferred financing costs amortized......................... 389 247 237
Loss on disposal of fixed assets........................... 182 2,630 849
Deferred real estate revenue............................... -- -- 1,500
Deferred income taxes, net (Note 7)........................ 7,413 2,500 2,900
Changes in assets and liabilities:
Restricted cash............................................ 529 (575) (3,738)
Accounts receivable, net................................... 2,089 475 (349)
Notes receivable, net...................................... (4,469) -- --
Inventories................................................ (835) (418) (1,236)
Accounts payable and accrued expenses...................... (10,712) 9,551 10,141
Other assets and liabilities............................... 2,867 (4,947) (3,704)
--------- --------- ---------
Net cash provided by operating activities................ 103,371 65,866 37,366
Cash flows from investing activities:
Cash paid in resort acquisition, net of cash acquired............. (146,386) -- --
Resort capital expenditures....................................... (51,020) (13,912) (20,320)
Investments in real estate........................................ (56,947) (40,604) (22,477)
Investment in joint venture....................................... 2,511 (200) (400)
Other............................................................. -- -- 953
--------- --------- ---------
Net cash used in investing activities.................... (251,842) (54,716) (42,244)
Cash flows from financing activities:
Proceeds from initial public offering............................. 98,150 -- --
Payments under Rights............................................. (42,175) -- --
Proceeds from borrowings under long-term debt..................... 235,000 84,000 253,400
Payments on long-term debt........................................ (139,984) (130,547) (287,741)
--------- --------- ---------
Net cash provided by (used in) financing activities..... 150,991 (46,547) (34,341)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents................ 2,520 (35,397) (39,219)
Cash and cash equivalents:
Beginning of period............................................... 5,622 41,019 80,238
--------- --------- ---------
End of period..................................................... $ 8,142 $ 5,622 $ 41,019
========= ========= =========
Cash paid for interest.............................................. $ 20,166 $ 21,880 $ 13,852
========= ========= =========
Taxes paid, net of refunds.......................................... $ 1,925 $ 400 $ 400
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Issuance of common stock in resort acquisition (Note 3)............ $ 151,088
=========
Assumption of liabilities in resort acquisition (Note 3)........... $ 91,480
=========
Option exercise (Note 11)........................................... $ 2,740
=========
Issuance of common stock in purchase of retail space................ $ 2,349
=========
The accompanying notes to consolidated financial statements
are an integral part of these 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, ski
resorts and real estate development. Vail Associates, Inc., a wholly-owned
subsidiary of Vail Resorts, and its subsidiaries (collectively, "Vail
Associates") operates one of the world's largest skiing facilities on Vail
Mountain and Beaver Creek Mountain in Colorado. On January 3, 1997, Vail
Associates acquired the Breckenridge, Keystone and Arapahoe Basin mountain
resorts (the "Acquired Resorts") and significant related real estate interests
and developable land (the "Acquisition"). The Company has since divested the
Arapahoe Basin mountain resort pursuant to the Consent Decree with the
Department of Justice (see Note 3). The ski resorts are operated on United
States Forest Service land under Term Special Use Permits expiring in 2031 for
Vail Mountain, 2006 for Beaver Creek Mountain, 2029 for Breckenridge Mountain
and 2032 for Keystone Mountain. Vail Resorts Development Company ("VRDC") is a
wholly-owned subsidiary of Vail Associates, Inc. and 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.
In January 1997, the Company declared a 2 for 1 stock split on its Class
A Common Stock and Common Stock. All share and per share amounts in the
accompanying consolidated financial statements have been adjusted to reflect
this stock split.
The Company consummated an offering of common stock (the "Offering") on
February 7, 1997. The Company sold 5 million shares of Common Stock in the
Offering at a price of $22.00 per share. Net proceeds to the Company after
expenses of the Offering totaled $98.2 million. Certain selling shareholders
sold an additional 7.1 million shares in the Offering. The Company did not
receive any of the proceeds from the sale of those shares.
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. Results
of the operations acquired in the Acquisition have been included in the fiscal
1997 consolidated statement of operations from January 4, 1997 through September
30, 1997, except that results of operations for the Arapahoe Basin mountain
resort for the period of the Company's ownership have been excluded (see pro
forma financial information in Note 3).
Cash and Cash Equivalents--The Company considers all highly liquid debt
instruments with an original maturity of three months or less to be cash
equivalents.
Restricted Cash--Restricted cash represents amounts held as reserves for
self-insured worker's compensation claims, and owner and guest advance deposits
held in escrow for lodging reservations.
Inventories--The Company's inventories consist primarily of purchased
retail goods, food, and spare parts. Inventories are stated at the lower of
cost, determined using the first-in, first-out (FIFO) method, or market.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property, Plant and Equipment--Property, plant and equipment is carried
at cost net of accumulated depreciation. Depreciation is calculated generally on
the straight-line method based on the following useful lives:
YEARS
-----
Land improvements......................................... 40
Buildings and terminals................................... 40
Ski lifts................................................. 15
Machinery, equipment, furniture and fixtures.............. 3-12
Automobiles and trucks .................................. 3-5
Ski trails are depreciated over the life of their respective forest service
permits.
Real Estate Held for Sale-- The Company capitalizes as land held for
sale the original acquisition cost (or appraised value as of the Effective Date,
as defined below), direct construction and development costs, property taxes,
interest incurred on costs related to land under development, and other related
costs (engineering, surveying, landscaping, etc.) until the property reaches its
intended use. The cost of sales for individual parcels of real estate or
condominium units within a project is determined using the relative sales value
method. Selling expenses are charged against income in the period incurred.
Interest capitalized on real estate development projects during fiscal years
1997, 1996 and 1995 totaled $0.5 million, $2.2 million and $1.4 million,
respectively.
The Company is a partner in the Keystone/Intrawest L.L.C. ("Keystone
JV"), which is a joint venture with Intrawest Resorts, Inc. formed to develop
land at the base of Keystone Mountain. The Company contributed 500 acres of
development land as well as certain other funds to the joint venture. The
Company's investment in the Keystone JV including the Company's equity earnings
from the inception of the Keystone JV, are reported as real estate held for sale
in the accompanying balance sheet as of September 30, 1997.
Deferred Financing Costs--Costs incurred with the issuance of debt
securities are included in deferred charges and other assets, net of accumulated
amortization. Amortization is charged to income over the respective original
lives of the applicable debt issues and is included in interest expense.
Interest Rate Agreements--Interest rate exchange agreements, defined as
swaps and caps and floors, are effective at creating synthetic instruments and
thereby modifying the Company's interest rate exposures. The Company enters into
interest rate exchange agreements to create synthetic instruments. Net interest
is accrued as either interest receivable or payable with the offset recorded in
interest expense. Any premium paid is amortized over the life of the agreement.
Intangible Assets--"Reorganization Value in Excess of Amounts Allocable
to Identifiable Assets" ("Excess Reorganization Value") represents the excess of
the Company's reorganization value over the amounts allocated to the net
tangible and other intangible assets of the Company upon emergence from
bankruptcy on October 8, 1992 (the "Effective Date"). The Company has classified
as goodwill the cost in excess of fair value of the net assets of companies
acquired in purchase transactions. Intangible assets are recorded net of
accumulated amortization in the accompanying consolidated balance sheet and
amortized using the straight-line method over their estimated useful lives as
follows:
Excess reorganization value................................. 20 years
Goodwill.................................................... 40 years
Trademarks.................................................. 40 years
Other intangibles........................................... 3-15 years
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-lived Assets--The Company evaluates potential impairment of long-
lived assets and long-lived assets to be disposed of in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS No. 121"). SFAS No. 121 establishes procedures for review of
recoverability, and measurement of impairment if necessary, of long-lived
assets, goodwill and certain identifiable intangibles held and used by an
entity. SFAS No. 121 requires that those assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be fully recoverable. SFAS No. 121 also requires that long-
lived assets and certain identifiable intangibles to be disposed of be reported
at the lower of carrying amount or fair value less estimated selling costs. As
of September 30, 1997, management believes that there has not been any
impairment of the Company's long-lived assets, goodwill or other identifiable
intangibles.
Revenue Recognition--Resort Revenues are derived from a wide variety of
sources, including sales of lift tickets, ski school tuition, food service,
retail stores, equipment rental, travel reservation services, lodging, property
and club management, real estate brokerage, conventions, licensing and
sponsoring activities and other recreational activities, and are recognized as
services are performed. Revenues from real estate sales are not recognized until
title has been transferred and revenue is deferred if the receivable is subject
to subordination until such time as all costs have been recovered. Until the
initial down payment and subsequent collection of principal and interest are by
contract substantial, cash received from the buyer is reported as a deposit on
the contract.
Advertising Costs--Advertising costs are expensed the first time the
advertising takes place. Advertising expense for the years ended September 30,
1997, 1996 and 1995 was $8.8 million, $6.9 million and $6.3 million,
respectively. At September 30, 1997 and 1996, advertising costs of $1.3 million
and $1.7 million are reported as current assets in the Company's consolidated
balance sheet.
Income Taxes--The Company uses the liability method of accounting for
income taxes as prescribed by Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS No. 109, a deferred
tax liability or asset is recognized for the effect of temporary differences
between financial reporting and income tax reporting.
Earnings Per Share--Earnings per common share is based on the weighted
average number of shares outstanding during the period after consideration of
the dilutive effect of stock grants, warrants and options (see Note 11).
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share", which will be effective for the Company in the
second quarter of fiscal 1998. When adopted, SFAS No. 128 will replace the
presentation of primary earnings per share (EPS) with basic EPS. Basic EPS
excludes dilution and is computed by dividing net income available for common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted EPS, which reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted,
must also be disclosed.
Fair Value of Financial Instruments--The recorded amounts for cash and
cash equivalents, receivables, other current assets, and accounts payable and
accrued expenses approximate fair value due to the short-term nature of these
financial instruments. The fair value of amounts outstanding under the Company's
Credit Facilities approximates book value due to the variable nature of the
interest rate associated with that debt. The fair values of the Company's
Industrial Development Bonds have been estimated using discounted cash flow
analyses based on current borrowing rates for debt with similar maturities and
ratings. The estimated fair values of the Senior Subordinated Notes and
Industrial Development Bonds at September 30, 1997 and 1996 are presented below
(in thousands):
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
Senior Subordinated Notes........ - - $62,647 $ 76,369
Industrial Development Bonds..... $61,263 $ 65,910 $37,903 $ 43,701
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the balance
sheet date and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock Compensation--The Company's stock option plans are accounted for
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." The Company has adopted the disclosure requirements
of Statement of Financial Accounting Standards No. 123, ("SFAS 123"),
"Accounting for Stock-Based Compensation" (Note 11 ).
Reclassifications--Certain reclassifications have been made to the
accompanying consolidated financial statements for the years ended September 30,
1996 and 1995 to conform to the current period presentation.
3. ACQUISITIONS
On January 3, 1997, the Company acquired from Ralston Foods, Inc. 100%
of the stock of Ralston Resorts, Inc., ("Ralston Resorts") 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 "Consent Decree"), 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. The
purchase price was allocated to the fair values of Ralston Resorts' assets and
liabilities at the date of the acquisition as follows (in thousands):
FAIR VALUE OF
NET ASSETS ACQUIRED
-------------------
Cash........................................................ $ 2,321
Accounts receivable......................................... 15,067
Inventory................................................... 5,315
Property, and equipment, net................................ 180,663
Real estate held for sale................................... 59,466
Intangible assets........................................... 6,984
Goodwill.................................................... 118,469
Other assets................................................ 542
--------
Total assets.............................................. 388,827
--------
Accounts payable and accrued expenses....................... 32,456
Other liabilities........................................... 2,040
Debt assumed................................................ 25,296
Deferred income taxes....................................... 31,688
--------
Total liabilities......................................... 91,480
========
Total net assets acquired................................. $297,347
========
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following unaudited pro forma results of operations of the Company
for the years ended September 30, 1997 and 1996, assume that the Acquisition
occurred on October 1, 1995. The pro forma results of operations include the
effects of the Company's initial public offering only from the effective date of
the Offering. 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 mountain
resort, which the Company divested pursuant to the Consent Decree.
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Resort revenue........................... $291,203 $267,409
Real estate revenue...................... 71,737 49,831
Total revenues........................... 362,940 317,240
Net income............................... 17,822 8,505
Net income per common share.............. 0.54 0.29
4. LONG-TERM DEBT
Long-term debt as of September 30, 1997 and 1996 is summarized as follows
(in thousands):
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
---- ----
Senior Subordinated Notes (a)..................... $ - $ 62,647
Industrial Development Bonds (b).................. 61,263 37,903
Credit Facilities (c)............................. 202,000 44,000
Other (d)......................................... 1,799 200
-------- --------
265,062 144,750
Less--current maturities..................... 1,715 63
-------- --------
$263,347 $144,687
======== ========
(a) The Senior Subordinated Notes bore interest at 12/1//4% and had an original
maturity date of June 30, 2002. On March 10, 1997, the Company redeemed all
of the Senior Subordinated Notes with proceeds from the Offering. In
connection with the redemption, the Company paid a contractual early
redemption premium of 4% of the balance redeemed, which is included in
interest expense for the year ended September 30, 1997.
(b) The Company has $41.2 million of outstanding Industrial Development Bonds
issued by Eagle County, Colorado which accrue interest at 8% per annum and
mature on August 1, 2009. Interest is payable semi-annually on February 1
and August 1. The Company has provided the holder of these bonds a debt
service reserve fund of $3.3 million, which has been netted against the
principal amount for financial reporting purposes. The Industrial
Development Bonds are secured by the stock of the subsidiaries of Vail
Associates and the United States Forest Service permits. In connection with
the Acquisition, the Company assumed two series of refunding bonds. The
Series 1990 Sports Facilities Refunding Revenue Bonds have an aggregate
principal amount of $20.4 million, bear interest at rates ranging from 7.2%
to 7.875% and mature in installments in 1998, 2006 and 2008. The Series 1991
Sports Facilities Refunding Revenue Bonds have an aggregate principal amount
of $3 million and bear interest at 7.125% for bonds maturing in 2002 and
7.375% for bonds maturing in 2010.
(c) On January 3, 1997, in connection with the closing of the Acquisition, all
amounts outstanding under the Company's former credit facilities were repaid
with proceeds from new credit facilities (the "Credit Facilities"). The
Credit Facilities provide for debt financing up to an aggregate principal
amount of $340 million and consist of (i) a $175
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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"). The Term Loan Facilities were used
to refinance $139.7 million of the $165 million of debt assumed in the
Acquisition and the balance of the Term Loan Facilities was used to repay
borrowings under the Company's former credit facilities. The proceeds of the
loans made under the Revolving Credit Facility may be used to fund the
Company's working capital needs, capital expenditures and other general
corporate purposes, including the issuance of letters of credit.
The Revolving Credit Facility matures on April 15, 2003. The minimum
amortization under the Term Loan Facilities is $11.5 million, $14.0 million,
$19.0 million, $21.5 million, $26.5 million, $31.5 million, and $41 million
during the fiscal years 1998, 1999, 2000, 2001, 2002, 2003, and 2004,
respectively. The Company is also required to make mandatory amortization
payments under the Term Loan Facilities with excess cash flow, proceeds from
asset sales and proceeds from equity and debt offerings.
The Credit Facilities require that no more than $125.0 million in the
aggregate be outstanding under the Revolving Credit Facility for a period of
30 consecutive days during each fiscal year, such period to include April
15.
Borrowings under the Credit Facilities bear interest annually at the
Company's option at the rate of (i) LIBOR (5.7 % at September 30, 1997) plus
a margin (ranging from .50% to 1.75% in the case of Tranche A and the
Revolving Credit Facility and 2.25% in the case of Tranche B) or (ii) the
Base Rate (defined as, generally, the higher of the Federal Funds Rate, as
published by the Federal Reserve Bank of New York, plus 0.5%, or the Agent's
prime lending rate, which was 8.50% at September 30, 1997) plus a margin up
to .375%. In addition, the Company must pay a fee on the face amount of each
letter of credit outstanding at a rate ranging from .625% to 1.875%. The
Company also pays a quarterly unused commitment fee ranging from .20% to
.50%. The interest margins and fees described in this paragraph fluctuate
based upon the ratio of Funded Debt to the Company's Resort EBITDA (as
defined in the Credit Agreement).
(d) Other obligations bear interest at rates ranging from 6.5% to 7.5% and have
maturities ranging from 1999 to 2002.
Aggregate maturities for debt outstanding are as follows (in thousands):
AS OF
SEPTEMBER 30,
1997
-------------
Due during year ending September 30:
1998......................................... $ 1,715
1999......................................... 374
2000......................................... 342
2001......................................... 353
2002......................................... 1,875
Thereafter................................... 260,403
--------
Total debt................................ $265,062
========
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. SUPPLEMENTARY BALANCE SHEET INFORMATION (IN THOUSANDS)
The composition of property, plant and equipment follows:
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
Land and land improvements.......................................... $ 95,124 $ 66,966
Buildings and terminals............................................. 152,171 60,928
Machinery and equipment............................................. 146,741 68,286
Automobiles and trucks.............................................. 14,958 3,729
Furniture and fixtures.............................................. 28,282 12,817
Construction in progress............................................ 33,691 19,728
------------ ------------
470,967 232,454
Accumulated depreciation and amortization........................... (59,850) (35,175)
------------ ------------
$ 411,117 $ 197,279
============ ============
Depreciation expense for fiscal years 1997, 1996 and 1995 totaled $25.1
million, $11.4 million and $11.3 million, respectively.
The composition of intangible assets follows:
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------ ------------
Trademarks.......................................................... $ 42,611 $ 41,096
Other intangible assets............................................. 38,244 32,639
Goodwill............................................................ 118,469 -
Excess Reorganization Value (Note 2)................................ 37,702 37,702
------------ ------------
$ 237,026 $ 111,437
Accumulated amortization............................................ (36,761) (26,381)
------------ ------------
$200,265 $ 85,056
============ ============
Amortization expense for fiscal years 1997, 1996 and 1995 totaled $8.9
million, $6.8 million and $6.7 million, respectively.
The composition of accounts payable and accrued expenses follows:
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
Trade payables...................................................... $25,236 $20,219
Deposits............................................................ 10,050 8,044
Accrued salaries and wages.......................................... 9,026 5,705
Property taxes...................................................... 5,943 3,182
Liability to complete real estate sold.............................. 7,336 1,948
Other accruals...................................................... 12,580 8,998
------------- -------------
$70,171 $48,096
============= =============
6. RETIREMENT AND PROFIT SHARING PLANS
The Company maintains a defined contribution retirement plan, qualified
under Section 401(k) of the Internal Revenue Code, for its employees. Employees
are eligible to participate in the plan upon attaining the age of 21 and
completing one year of employment with a minimum of 1,000 hours of service.
Participants may contribute from 2% to 15% of their qualifying annual
compensation up to the annual maximum specified by the Internal Revenue Code.
The Company matches an amount equal to 50% of each participant's contribution up
to 6% of a participant's annual qualifying compensation. The Company's matching
contribution is entirely discretionary and may be reduced or eliminated at any
time.
Total profit sharing plan expense recognized by the Company for the
years ended September 30, 1997, 1996 and 1995 was $731,000, $594,000 and
$493,000, respectively.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
At September 30, 1997, the Company has total federal net operating loss
(NOL) carryovers of approximately $336.0 million for income tax purposes that
expire in the years 2003 through 2008, $40.0 million of which are not subject to
any limitation under Section 382 of the Internal Revenue Code. The Company will
be able to use NOLs which existed on October 8, 1992 (Effective Date NOLs) to
the extent of approximately $8 million per year through October 8, 2007. In
addition, the Company is limited to use Effective Date NOLs to the extent that
built-in gains (excess of fair market value over tax basis at October 8, 1992)
are recognized in asset sales prior to October 8, 1997. As the Company will be
unable to recognize a significant portion of the remaining Effective Date NOLs,
the accompanying financial statements and tables of deferred items below do not
recognize any benefits related to the remaining Effective Date NOLs, except to
the extent realized. To the extent any additional tax benefits from these
Effective Date NOLs are recognized, there will be a reduction in the
reorganization value in excess of amounts allocable to identifiable assets
recorded at October 8, 1992. During the years ended September 30, 1996 and
1995, the Company recognized the benefit of Effective Date tax attributes which
were recorded as reductions to the reorganization value in excess of amounts
allocable to identifiable assets of $814,000 and $278,000, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and income tax purposes. Significant components of the Company's
deferred tax liabilities and assets as of September 30, 1997 and 1996 are as
follows (in thousands):
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------------- --------------
Deferred income tax liabilities:
Fixed assets........................... $ 66,324 $ 35,916
Intangible assets...................... 20,600 19,928
-------- --------
Total............................... 86,924 55,844
Gross deferred income tax assets:
Deferred compensation.................. 1,941 3,081
Net operating loss carryforwards....... 45,649 46,356
Minimum tax credit..................... 1,729 1,208
Other, net............................. 4,490 5,443
-------- --------
Total............................... 53,809 56,088
Valuation allowance for deferred income
tax assets.............................. (28,122) (22,544)
======== ========
Deferred income tax assets, net of
valuation allowance..................... 25,687 33,544
-------- --------
Net deferred income tax liability........ $ 61,237 $ 22,300
======== ========
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net current and noncurrent components of deferred income taxes
recognized in the September 30, 1997 and 1996 balance sheets are as follows (in
thousands):
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
Net current deferred income tax asset.... $ 24,500 $ 17,200
Net noncurrent deferred income tax
liability............................... 85,737 39,500
------------- -------------
Net deferred income tax liability........ $ 61,237 $ 22,300
============ =============
Significant components of the provision for income taxes from continuing
operations are as follows (in thousands):
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
-------------- -------------- --------------
Current:
Federal......................... $ 5,411 $ 1,502 $ 621
State........................... 997 221 354
------------- -------------- -------------
Total current................ 6,408 1,723 975
Deferred:
Federal......................... 6,850 2,065 2,066
State........................... 727 435 834
------------- ------------- -------------
Total deferred............... 7,577 2,500 2,900
------------- ------------- -------------
$ 13,985 $ 4,223 $ 3,875
============= ============= =============
For the fiscal years ended September 30, 1997, 1996 and 1995, the
Company recognized income tax benefits pertaining to the exercise of stock
options and restricted stock of $5,509,000, $355,000 and $288,000, respectively,
which are accounted for as a direct increase to additional paid in capital and
do not reduce reported income tax expense.
A reconciliation of the income tax provision from continuing operations
and the amount computed by applying the U.S. federal statutory income tax rate
to income from continuing operations before income taxes is as follows (in
thousands):
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
---------- ---------- ----------
At U.S. federal income tax rate.......... $ 11,789 $ 3,135 $ 2,505
State income tax, net of federal benefit. 1,121 426 714
Excess Reorganization Value amortization. 1,290 773 727
Other.................................... (215) (111) (71)
---------- ---------- ----------
$ 13,985 $ 4,223 $ 3,875
========== ========== ==========
8. RELATED PARTY TRANSACTIONS
Corporate expense for each of the years ended September 30, 1997, 1996
and 1995 includes an annual fee of $500,000 for management services provided by
an affiliate of the majority holder of the Company's Common Stock. This fee is
generally settled partially through use of the Company's facilities and
partially in cash. At September 30, 1997, the Company's liability with respect
to this arrangement was $673,000.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Vail Associates has the right to appoint 4 of 9 directors of the Beaver
Creek Resort Company (Resort Company), a non-profit entity formed for the
benefit of property owners in Beaver Creek. Vail Associates has a management
agreement with the Resort Company, renewable for one-year periods, to provide
management services on a fixed fee basis. In addition, in accordance with a cash
flow agreement effective through 2000, Vail Associates will fund the cash needs
of the Resort Company that are not otherwise met through the Resort Company's
operations or borrowings. During fiscal years 1991 through 1997, the Resort
Company was able to meet its operating requirements through its own operations.
Management fees and reimbursement of operating expenses paid to the Company
under its agreement with the Resort Company during fiscal years 1997, 1996 and
1995 totaled $4.9 million, $5.5 million and $7.0 million, respectively. Related
amounts due the Company at September 30, 1996 were $599,000. All amounts due
the Company have been paid as of September 30, 1997.
In 1991, the Company loaned to Andrew P. Daly, the Company's President,
$300,000, $150,000 of which bears interest at 9% and the remainder of which is
non-interest bearing. The principal sum plus accrued interest is due no later
than one year following the termination, for any reason, of Mr. Daly's
employment with the Company. The proceeds of the loan were used to finance the
purchase and improvement of real property. The loan is secured by a deed of
trust on such property.
In 1995, Mr. Daly's spouse and James P. Thompson, President of VRDC, and
his spouse received financial terms more favorable than those available to the
general public in connection with their purchase of lots in the Bachelor Gulch
development. Rather than payment of an earnest money deposit with the entire
balance due in cash at closing, these contracts provide for no earnest money
deposit with the entire purchase price (which was below fair market value) paid
under promissory notes of $438,750 and $350,000 for Mr. Daly's spouse and Mr.
and Mrs. Thompson, respectively, each secured by a first deed of trust and
amortized over 25 years at 8% per annum interest, with a balloon payment due on
the earlier of five years from the date of closing or one year from the date
employment with the Company is terminated. The promissory notes were executed
upon the closings of the lot sales in December 1996.
9. COMMITMENTS AND CONTINGENCIES
As of September 30, 1997, the Company had entered into real estate
contracts for the sale of certain real estate and related amenities for gross
proceeds of approximately $29.6 million. The Company estimates that subsequent
to September 30, 1997, it will incur additional holding and infrastructure costs
of $31.6 million in connection with the sale of the properties under contract
and properties closed as of September 30, 1997. The Company has entered into
repurchase agreements with certain developers who have purchased real estate
from the Company to repurchase certain retail and residential space in the
completed developments. At September 30, 1997, the Company has agreed to
repurchase various retail and residential space for amounts totaling $10.0
million.
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. The Company was obligated to make payments under the Rights only
to the extent it receives proceeds under certain real estate contracts
outstanding at September 30, 1996. As of September 30, 1997, the Company has
received gross proceeds under the applicable contracts totaling $49.9 million
and has made payments under the Rights of $42.2 million. In addition, the
Company's former Chairman and Chief Executive Officer waived his right to
receive approximately $2.7 million under the Rights in exchange for the payment
of the exercise price on certain stock warrants that he held. On October 31,
1997, the Company paid all remaining amounts due under the Rights.
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
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. As of September 30, 1997, the Company has sold 65
single family homesites, has entered into contracts for the sale of 35
additional single family homesites and is preparing to offer additional parcels
of land to individuals and 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 Facilities. 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 $16.8 million at September 30, 1997. The Company has
allocated $8.3 million of that amount to the Bachelor Gulch Village single
family homesites which were sold as of September 30, 1997 and has recorded that
amount as a liability in the accompanying financial statements. The total
subsidy incurred as of September 30, 1997 and 1996 was $1,361,168 and $684,642,
respectively.
At September 30, 1997, the Company has various other letters of credit
outstanding in the aggregate amount of $64.2 million.
The Company has executed operating leases for the rental of office
space, employee residential units and office equipment though fiscal 2009. For
the years ended September 30, 1997, 1996 and 1995, lease expense related to
these agreements of $6.2 million, $3.8 million and $3.8 million, respectively,
is included in the accompanying consolidated statements of operations.
Future minimum lease payments under these leases as of September 30,
1997 are as follows:
Due during fiscal year ending September 30:
1998.............................................................. $ 4,183,769
1999.............................................................. 2,931,506
2000.............................................................. 2,269,587
2001.............................................................. 1,931,717
2002.............................................................. 1,170,907
Thereafter........................................................ 6,710,671
-----------
Total.................................................. $19,198,157
===========
The Company is a party to various lawsuits arising in the ordinary
course of business. In the opinion of management, all matters are adequately
covered by insurance or, if not covered, are without merit or are of such kind,
or involve such amounts as would not have a material effect on the financial
position, results of operations and cash flows of the Company if disposed of
unfavorably.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. BUSINESS SEGMENTS
The Company currently operates in two business segments, Resorts and Real
Estate. Data by segment is as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
------------ ------------ ------------
Net revenues:
Resorts......................... $259,038 $140,288 $126,349
Real Estate..................... 71,485 48,655 16,526
-------- -------- --------
$330,523 $188,943 $142,875
======== ======== ========
Income from operations:
Resorts......................... $ 52,279 $ 32,250 $ 26,076
Real Estate..................... 5,178 7,854 1,543
Corporate....................... (4,663) (12,698) (6,701)
-------- -------- --------
$ 52,794 $ 27,406 $ 20,918
======== ======== ========
Depreciation and amortization:
Resorts......................... $ 34,044 $ 18,148 $ 17,968
Real Estate..................... -- -- --
-------- -------- --------
$ 34,044 $ 18,148 $ 17,968
======== ======== ========
Capital expenditures:
Resorts......................... $ 51,020 $ 13,912 $ 20,320
Real Estate..................... 56,947 40,604 22,477
-------- -------- --------
$107,967 $ 54,516 $ 42,797
======== ======== ========
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------- --------
Identifiable assets:
Resorts......................... $411,117 $197,279
Real Estate..................... 154,925 84,055
-------- --------
$566,042 $281,334
======== ========
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. STOCK COMPENSATION PLANS
At September 30, 1997, the Company has two stock-based compensation
plans, which are described below. The Company applies APB Opinion No. 25 and
related Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans. Had
compensation cost for the Company's two stock-based compensation plans been
determined consistent with FASB Statement No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
Net Income As Reported $19,698 $4,735
Pro forma $18,211 $4,420
Primary earnings per share As Reported $ .64 $ .22
Pro forma $ .59 $ .21
The Company has two fixed option plans. Under the 1993 Plan, options
covering an aggregate of 2,045,510 shares of Common Stock may be issued to key
employees, directors, consultants, and advisors of the Company or its
subsidiaries and vest in equal installments over five years. Under the 1996
Plan, 1,500,000 shares of Common Stock may be issued to key employees,
directors, consultants, and advisors of the Company or its subsidiaries and vest
in equal installments over three to five years. Under both plans, the exercise
price of each option equals the market price of the Company's stock on the date
of the grant, and an option's maximum term is ten years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996, respectively: dividend yield of 0%
and expected volatility of 29.8% for both years; risk-free interest rates
ranging from 5.66% to 6.68%; and expected lives ranging from 6 to 8 years. A
summary of the status of the Company's two fixed stock option plans as of
September 30, 1997 and 1996 and changes during the years ended on those dates is
presented below (in thousands, except per share amounts):
1997 1996
------------------------------ ------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE
- -------------------------------- ----------- --------- ----------- ---------
Outstanding at beginning of year 3,726 $ 10 2,033 $ 8
Granted 795 23 1,711 13
Exercised (1,573) 11 - -
Forfeited (39) 10 (18) 7
----------- -----------
Outstanding at end of year 2,909 15 3,726 10
Options exercisable at year-end 1,384 1,177
Weighted-average fair value of
options granted during the year $ 10 $ 8
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about fixed stock options
outstanding at September 30, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- ---------------------------
NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVG. EXERCISABLE AVERAGE
EXERCISE PRICES AT 9/30/97 CONTRACTUAL LIFE EXERCISE PRICE AT 9/30/97 EXERCISE PRICE
- ----------------- -------------- ---------------- -------------- ----------- --------------
$ 6 to 11 1,753,734 6.0 years $ 8 1,312,348 $ 7
20 to 25 1,155,000 9.5 22 72,000 20
------------ ---------
$ 6 to 25 2,908,734 7.4 $ 14 1,384,348 $ 8
============ =========
During fiscal years 1997 and 1996, the Company granted restricted
stock to certain executives under the 1996 Plan. The aggregate number of shares
granted totaled 12,000 and 62,000 in fiscal 1997 and 1996, respectively. The
shares vest in equal increments over periods ranging from three to five years.
Compensation expense related to these restricted stock awards is charged ratably
over the respective vesting periods.
On October 11, 1996 the Company's former Chairman and Chief Executive
Officer waived his right to payments under the Rights with respect to 714,976
shares of Common Stock that he owned and warrants to purchase 408,164 shares of
Common Stock in exchange for the payment of the exercise price on those
warrants. In addition, he exchanged 1,164,808 long-term stock options for
336,318 shares of Common Stock. The options exercised and the options exchanged
are reported as options exercised during fiscal 1997 in the table above.
12. CAPITAL STOCK
The Company has two classes of Common Stock outstanding, Class A
Common Stock and Common Stock. The rights of holders of Class A Common Stock
and Common Stock are substantially identical, except that, while any Class A
Common Stock is outstanding, holders of Class A Common Stock elect a class of
directors that constitutes two-thirds of the Board and holders of Common Stock
elect another class of directors constituting one-third of the Board. At
September 30, 1997 and 1996, one shareholder owned substantially all of the
Class A Common Stock and as a result, has effective control of the Company's
Board of Directors. The Class A Common Stock is convertible into Common Stock
(i) at the option of the holder, (ii) automatically, upon transfer to a non-
affiliate and (iii) automatically if less than 5,000,000 shares (as such number
shall be adjusted by reason of any stock split, reclassification or other
similar transaction) of Class A Common Stock are outstanding. The Common Stock
is not convertible. Each outstanding share of Class A Common Stock and Common
Stock is entitled to vote on all matters submitted to a vote of stockholders.
In January 1997, the Company increased the number of authorized shares of Common
Stock to 80,000,000 shares.
13. SUBSEQUENT EVENTS
On October 1, 1997, the Company purchased the assets constituting the
Breckenridge Hilton for a total purchase price of $18.6 million. The purchase
price includes a cash payment of $18.1 million, $0.2 million in assumed
liabilities and $0.3 million to provide for contingent consideration that may be
paid pursuant to the purchase agreement. The Breckenridge Hilton is a 208-room
full service hotel, located at the base of Breckenridge Mountain, and includes
dining, conference and fitness facilities. The acquisition was accounted for as
a purchase combination.
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On October 7, 1997, the Company purchased 100% of the outstanding stock
of Lodge Properties, Inc., a Colorado corporation ("LPI"), for a total purchase
price of $30.2 million. LPI owns and operates The Lodge at Vail (the "Lodge"),
a 59-room hotel located in Vail, Colorado, 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 expects to
incur approximately $9.2 million to complete a new wing of the hotel which is
currently under construction. The acquisition was accounted for as a purchase
combination.
The Company funded the above acquisitions with proceeds from its
Revolving Credit Facilities.
On October 10, 1997, the Company borrowed an additional $32.0 million
under a new line of credit with its Credit Facility provider ("the Line of
Credit"), the proceeds of which were used to reduce the Revolving Credit
Facility balance. Borrowings under the Line of Credit bear interest annually at
the Company's option at the rate of LIBOR (5.7% at September 30, 1997) plus a
margin, or .75%.
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 will
end on July 31, 1998 and consist of ten months.
F-21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 18, 1997.
Vail Resorts, Inc.
/s/ James P. Donohue
By____________________________________
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 December 18, 1997.
SIGNATURE TITLE
--------- -----
/s/ Adam M. Aron* Chairman of the Board and
________________________________ Chief Executive Officer
ADAM M. ARON (Principal Chief Executive Officer)
/s/ Andrew P. Daly* Director and President
________________________________
ANDREW P. DALY
/s/ Frank Biondi* Director
________________________________
FRANK BIONDI
/s/ Leon D. Black* Director
________________________________
LEON D. BLACK
/s/ Craig M. Cogut* Director
________________________________
CRAIG M. COGUT
/s/ Stephen C. Hilbert* Director
________________________________
STEPHEN C. HILBERT
/s/ Robert A. Katz* Director
________________________________
ROBERT A. KATZ
/s/ Thomas H. Lee* Director
________________________________
THOMAS H. LEE
/s/ William L. Mack* Director
________________________________
WILLIAM L. MACK
/s/ Joseph Micheletto* Director
________________________________
JOSEPH MICHELETTO
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SIGNATURE TITLE
--------- -----
/s/ Marc J. Rowan* Director
________________________________
MARC J. ROWAN
/s/ John J. Ryan III* Director
________________________________
JOHN J. RYAN III
John F. Sorte* Director
________________________________
JOHN F. SORTE
/s/ Bruce H. Spector* Director
________________________________
BRUCE H. SPECTOR
/s/ William Stiritz* Director
________________________________
WILLIAM STIRITZ
/s/ James S. Tisch* Director
________________________________
JAMES S. TISCH
/s/ James P. Donohue* Senior Vice President and Chief
________________________________ Financial Officer
JAMES P. DONOHUE
/s/ Robert A. Katz* Director
________________________________
ROBERT A. KATZ
* By Attorney-in-Fact
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