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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION B OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER: 1-9614
VAIL RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 51-0291762
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
POST OFFICE BOX 7
VAIL, COLORADO 81658
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (970) 476-5601
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FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.
NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
--- ---
As of February 12, 1997, 33,298,888 shares of Common Stock were issued and
outstanding, of which 11,759,056 shares were Class A Common Stock and 21,539,832
shares were Common Stock.
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TABLE OF CONTENTS
PART I
Item 1. Financial Statements......................................... F-1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 2
PART II
Item 1. Legal Proceedings............................................ 7
Item 2. Changes in Securities........................................ 7
Item 3. Defaults Upon Senior Securities.............................. 7
Item 4. Submission of Matters to a Vote of Security-Holders.......... 7
Item 5. Other Information............................................ 7
Item 6. Exhibits and Reports on Form 8-K............................. 8
PART I
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1996 and September 30, 1996................... F-2
Consolidated Statements of Operations for the Three Months Ended December 31, 1996 and 1995.. F-3
Consolidated Statements of Cash Flows for the Three Months Ended December 31, 1996 and 1995.. F-4
Notes to Consolidated Financial Statements................................................... F-5
1
VAIL RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 15,208 $ 12,712
Receivables..................................................................... 14,238 5,741
Inventories..................................................................... 6,284 4,639
Deferred income taxes........................................................... 22,709 17,200
Other current assets............................................................ 4,663 5,490
-------- --------
Total current assets.............................................................. 63,102 45,782
Property, plant, and equipment, net............................................... 212,611 192,669
Real estate held for sale......................................................... 82,417 88,665
Deferred charges and other assets................................................. 8,608 10,440
Intangible assets................................................................. 83,476 85,056
-------- --------
Total assets...................................................................... $450,214 $422,612
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........................................... $ 66,427 $ 48,096
Income taxes payable............................................................ 325 325
Rights payable to stockholders.................................................. 47,778 50,513
Long-term debt due within one year (Note 3)..................................... 778 63
-------- --------
Total current liabilities......................................................... 115,308 98,997
Long-term debt (Note 3)........................................................... 129,362 144,687
Other long-term liabilities....................................................... 23,397 15,521
Deferred income taxes............................................................. 42,954 39,500
Commitments and contingencies (Note 4)
Stockholders' equity:
Common stock-
Class A Common Stock, $.01 par value, 20,000,000 shares authorized,
12,426,226 shares issued and outstanding as of December 31, 1996
and September 30, 1996, respectively......................................... 124 124
Common Stock, $.01 par value, 80,000,000 shares authorized,
8,318,256 and 7,573,774 shares issued and outstanding as of
December 31, 1996 and September 30, 1996, respectively....................... 83 76
Additional paid-in capital...................................................... 133,919 123,707
Retained earnings............................................................... 5,067 --
-------- --------
Total stockholders' equity........................................................ 139,193 123,907
-------- --------
Total liabilities and stockholders' equity....................................... $450,214 $422,612
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-1
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE THREE
MONTHS MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
----------- -----------
Net revenues:
Resort........................................ $ 35,111 $ 32,063
Real estate................................... 49,782 27,827
----------- -----------
Total net revenues.............................. 84,893 59,890
Operating expenses:
Resort........................................ 24,784 22,688
Real estate................................... 42,613 23,481
Corporate expense............................. 800 991
Depreciation and amortization................. 5,030 4,736
----------- -----------
Total operating expenses........................ 73,227 51,896
----------- -----------
Income from operations.......................... 11,666 7,994
Other income (expense):
Investment income............................. 161 452
Interest expense.............................. (3,262) (6,328)
Gain (loss) on disposal of fixed assets....... (13) 6
Other......................................... 7 109
----------- -----------
Income before income taxes...................... 8,559 2,233
Provision for income taxes (Note 2)............. (3,492) (950)
----------- -----------
Net income...................................... $ 5,067 $ 1,283
=========== ===========
Net income per common share (Note 2):
Net income................................. $.23 $.06
=========== ===========
Weighted average shares outstanding........ 21,738,144 20,584,868
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-2
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE THREE
MONTHS MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
-------- --------
Cash flows from operating
activities:
Net income..................................................................... $ 5,067 $ 1,283
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 5,030 4,736
Deferred compensation payments in excess of expense....................... (203) (203)
Noncash cost of real estate sales......................................... 41,204 19,366
Noncash compensation related to stock grants.............................. 63 -
Deferred financing costs amortized........................................ 62 62
(Gain) loss on disposal of fixed assets................................... 13 (6)
Deferred income taxes..................................................... (2,055) 850
Changes in assets and liabilities:
Accounts receivable, net.................................................. (8,497) (2,386)
Inventories............................................................... (1,645) (1,650)
Accounts payable and accrued expenses..................................... 8,302 1,414
Other assets and liabilities.............................................. 3,237 904
-------- --------
Net cash provided by operating activities............................. 50,578 24,370
Cash flows from investing activities:
Resort capital expenditures.................................................... (12,247) (1,878)
Investments in real estate..................................................... (17,020) (8,723)
Receipts from investments in joint ventures (net).............................. 801 --
-------- --------
Net cash used in investing activities................................. (28,466) (10,601)
Cash flows from financing activities:
Proceeds from borrowings under long-term debt.................................. 26,000 14,000
Payments on long-term debt..................................................... (45,616) (64,015)
-------- --------
Net cash used in financing activities................................. (19,616) (50,015)
-------- --------
Net increase (decrease) in cash and cash equivalents................................ 2,496 (36,246)
Cash and cash equivalents:
Beginning of period............................................................ 12,712 47,534
-------- --------
End of period.................................................................. $ 15,208 $ 11,288
======== ========
Supplemental disclosure of non-cash transactions:
Option exercise (See Note 4)................................................... $ 2,740 $ -
======== ========
Issuance of promissory note for lift equipment (See Note 3).................... $ 5,006 $ -
======== ========
Resort capital incurred but unpaid at balance sheet date....................... $ 5,444 $ 2,371
======== ========
Investments in real estate incurred but unpaid at balance sheet date........... $ 4,788 $ 253
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-3
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Vail Resorts, Inc. ("VRI") and its subsidiaries (collectively, the
"Company") operate mountain resorts and participate in related real estate
development. The Company is the premier mountain resort operator in North
America, operating one of the world's largest skiing facilities on Vail, Beaver
Creek, Breckenridge and Keystone mountains located in Colorado. The Company's
mountain resort business is seasonal with a typical ski season beginning in
mid-November and ending in mid-April.
In the opinion of the Company, the accompanying consolidated financial
statements reflect all adjustments necessary to present fairly its financial
position, results of operations and cash flows for the interim periods
presented. All such adjustments are of a normal recurring nature. Results for
interim periods are not indicative of the results for the entire year. The
accompanying consolidated financial statements should be read in conjunction
with the audited consolidated financial statements for the year ended September
30, 1996 included in VRI's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes--The Company accounts for income taxes using the liability
method required by Statement on Financial Accounting Standards No. 109,
"Accounting for Income Taxes". The Company has provided for income taxes in
the accompanying interim statements of operations at the estimated effective
income tax rates for fiscal years 1997 and 1996, respectively.
Earnings Per Common 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 outstanding stock options.
Reclassifications--Certain amounts in the prior year financial statements
have been reclassified to conform to the current year presentation.
3. LONG-TERM DEBT
Long-term debt as of December 31, 1996 and September 30, 1996 is
summarized as follows (in thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
Senior Subordinated Notes.......... $ 62,647 $ 62,647
Industrial Development Bonds....... 37,903 37,903
Credit facilities.................. 24,400 44,000
Other.............................. 5,190 200
-------- --------
130,140 144,750
Less-current maturities............ 778 63
-------- --------
$129,362 $144,687
======== ========
F-4
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT--(CONTINUED)
On January 3, 1997, in connection with the closing of the Acquisition
(see Note 5), all amounts outstanding under the Company's former credit
facilities were repaid with proceeds from new credit facilities (the "New Credit
Facilities"). The New 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 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.
During the first quarter of fiscal 1996, the Company financed a portion
of the purchase price of a new gondola lift in the amount of $5,006,000. A
payment on this note of $715,000 is due on January 1, 1997 with the balance due
in equal installments on January 1, 1998 and 1999. Interest accrues on the
unpaid balance at the prime rate (8.25% at December 31, 1996) and is payable on
each principal payment date.
4. COMMITMENTS AND CONTINGENCIES
As of September 30, 1996, the Company had entered into real estate
contracts for the sale of real estate and certain related amenities for gross
proceeds of $106.9 million. During the first quarter of fiscal 1997, the Company
sold properties subject to those contracts totaling $47.7 million. The Company
estimates that subsequent to December 31, 1996, it will incur additional
infrastructure costs of $19.6 million including certain mountain improvements in
connection with all properties sold as of that date. That amount is reported as
a liability in the accompanying consolidated balance sheet. At December 31,
1996, the Company had outstanding real estate contracts totaling $58.5 million.
The Company estimates that subsequent to December 31, 1996, it will incur
additional selling, holding and real estate infrastructure costs of $15.3
million. The Company also expects to make $14 million of mountain improvements
to benefit the real estate described above and certain other real estate
property currently held for sale. The Company has entered into agreements with
certain developers who have purchased real estate from the Company to repurchase
certain retail and residential space in the completed developments. As of
December 31, 1996, the Company has agreed to repurchase various retail and
residential space for amounts totaling $8.7 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 will make payments under the Rights only to the
extent it receives sufficient gross proceeds from those real estate contracts
outstanding at September 30, 1996 to make such payments. As of February 14,
1997, the Company has received gross proceeds under the applicable contracts
totaling $48.7 million and expects to make payments under the Rights of
approximately $42.2 million on February 19, 1997. Remaining payments under the
Rights are expected to be made during the remainder of 1997. Pursuant to the
terms of an agreement dated October 11, 1996 between the Company and George N.
Gillett Jr., the Company's former Chairman and Chief Executive Officer, Mr.
Gillett waived his right to receive payment under the Rights with respect to
714,976 shares of common stock which Mr. Gillett owned as of that date and with
respect to his warrants to purchase 408,164 shares of common stock, in exchange
for the payment of the exercise price on those warrants. The aggregate amount
payable under the Rights which were waived totaled approximately $2,740,000.
F-5
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
On July 1, 1996, Eagle County Air Terminal Corporation, a Colorado
nonprofit corporation, (the "Issuer") issued $10,130,000 of Airport Terminal
Project Revenue Bonds (the "Bonds"), the proceeds of which were used to design,
construct and equip a new public passenger air terminal on land leased from
Eagle County, Colorado (the "County") located at the County's regional airport
(the "Project"). Certain legal actions related to the Project were filed on
April 1, 1996 in the District Court of Eagle County, Colorado by the operator of
an existing passenger air terminal facility, Fixed Based Operators, Inc.
("FBO"), against various parties including the Issuer and the County. Among
other claims, these actions claim that the Project is illegally competitive with
the facility owned and operated by FBO and seek damages and specific injunctive
relief. The Company is a beneficiary of the Project in that the additional
terminal has expanded air service into the Vail/Eagle Airport. The Company
believed that the aforementioned legal actions could have interfered with the
completion of the Project and accordingly, on July 9, 1996, the Company entered
into a Standby Bond Purchase Agreement under which the Company has agreed to
purchase the Bonds if the lawsuit causes a default in the payment of principal
or interest on the Bonds when due, or causes the bond indenture trustee to
transfer certain funds to provide for the payment of principal or interest on
the Bonds. The Company was recently served with a third party summons and
complaint in the litigation described above. The Company believes that the
ultimate outcome of the litigation will not have a material adverse effect on
the financial position or operations of the Company.
Smith Creek Metropolitan District ("SCMD") and Bachelor Gulch
Metropolitan District ("BGMD") were organized in November 1994 to cooperate in
the financing, construction and operation of basic public infrastructure serving
the Company's Bachelor Gulch Village development. SCMD was organized primarily
to own, operate and maintain water, street, traffic and safety, transportation,
fire protection, parks and recreation, television relay and translation,
sanitation and certain other facilities and equipment of BGMD. In two planned
unit developments, Eagle County has granted zoning approval for 1,395 dwelling
units within Bachelor Gulch Village, including various single family homesites,
cluster home, townhome, and lodging units. During the first quarter of fiscal
1997, the Company. As of December 31, 1996, the Company has sold 63 single
family homesites, has entered into contracts for the sale of 30 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 $26 million of variable rate revenue
bonds maturing on October 1, 2035, which have been credit enhanced with a $27.6
million letter of credit issued against the Company's Credit Facilities. It is
anticipated that as Bachelor Gulch Village 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 the present value of this aggregate
subsidy to be $20.7 million at December 31, 1996. The Company has allocated $6.0
million of that amount to the Bachelor Gulch Village single family homesites
which were sold as of December 31, 1996 and has recorded that amount as a
liability in the accompanying consolidated financial statements. The remainder
of this obligation has not been reflected in the consolidated financial
statements. The total subsidy paid through September 30, 1996 and December 31,
1996 was $505,000 and $770,000, respectively.
At December 31, 1996, the Company has various other letters of credit
outstanding in the aggregate amount of $9.8 million.
F-6
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. SUBSEQUENT EVENTS
Acquisition
- -----------
On January 3, 1997, the Company acquired 100% of the stock of Ralston
Resorts, Inc. ("Ralston Resorts"), a wholly-owned subsidiary of Ralston Foods,
Inc. ("Foods"), which owns and operates the Breckenridge, Keystone and Arapahoe
Basin mountain resorts located in Summit County, Colorado. In connection with
the Acquisition, the Company assumed $25.3 million and refinanced $139.7 million
of indebtedness of Ralston Resorts, and issued 7,554,406 shares of Common Stock
to Foods. The number of shares issued to Foods may be increased as a result of
certain post-closing adjustments which are not expected to be material. Pursuant
to a Stipulation and Final Judgment (the "Consent Decree") with the United
States Department of Justice (the "DOJ"), the Company is required to divest the
Arapahoe Basin mountain resort. The Company entered into the Consent Decree to
resolve certain antitrust concerns of the DOJ raised by the Acquisition. Under
the Consent Decree, the Company must use its best efforts to complete the
divestiture as expeditiously as possible, but in any event, by June 2, 1997
(unless such date is extended by the DOJ).
The Acquisition will be accounted for as a purchase combination. Under
purchase accounting, the acquisition cost will be allocated to the assets and
liabilities of Ralston Resorts based on their relative fair values. The Company
has not yet received the results of appraisals nor has it made a final
determination of the useful lives of the assets acquired. The Company expects
that the final allocation of the purchase cost will be completed no later than
January 3, 1998.
The following unaudited pro forma results of operations of the Company
for the three months ended December 31, 1996 and 1995, assume that the
Acquisition occurred on October 1, 1996 and 1995, respectively. 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 includes the
results of Arapahoe Basin.
THREE THREE
MONTHS MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Resort revenue.................. $ 64,308 $59,543
Real estate revenue............. 49,835 28,088
Total revenues.................. 114,143 87,631
Net income...................... 1,583 (1,110)
Net income per common share..... .05 (.04)
On January 8, 1997, the Company filed a Current Report on Form 8-K
describing this transaction.
Stock Split
- -----------
All share and per share amounts in the accompanying consolidated
financial statements reflect a 2 for 1 stock split which the Company declared on
January 31, 1997.
F-7
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
5. SUBSEQUENT EVENTS--(CONTINUED)
Initial Public Offering
- -----------------------
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
estimated expenses of the Offering totaled $99.4 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.
F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the September 30,
1996 Form 10-K and the consolidated financial statements as of December 31, 1996
and September 30, 1996, and for the three month periods ended December 31, 1996
and 1995, included in Part I, Item 1 of this Form 10-Q, which provide additional
information regarding financial condition and operating results.
THREE MONTHS ENDED DECEMBER 31, 1996 VERSUS THREE MONTHS ENDED DECEMBER 31, 1995
Resort Revenue. Resort Revenue for the three months ended December 31, 1996
was $35.1 million, an increase of $3.0 million, or 9.5%, compared to the three
months ended December 31, 1995. The increase was attributable primarily to (i)
an 8.4% increase in lift ticket revenue due to an increase in effective ticket
price (defined as total lift ticket revenue divided by total skier days) ("ETP")
from $29.12 to $32.74, or 12.4%, offset by a 3.3% decrease in skier days, (ii) a
2.9% increase in food service revenue due to an expansion of food service
operations and price increases, offset by the decrease in skier days and
construction activities which delayed the opening of several facilities on Vail
Mountain, (iii) a 17.6% increase in retail and rental revenues attributable to
the opening of three new operations and the repositioning of certain of the
Company's existing operations, (iv) a 30.5% increase in hospitality revenues due
to an increase in the number of units under management and an increase in the
occupancy rate of those units as well as an increase in occupancy and average
daily room revenue at the Company-owned Pines Lodge and (v) increases in
brokerage, commercial leasing, and licensing and sponsorship revenues. The above
increases were offset by a 2.8% decrease in ski school revenues as a result of
the decrease in skier days and a decrease in the average price per lesson due to
promotional activities. The results of operations for the three months ended
December 31, 1996 exclude five days of the "Christmas/Holiday" period which
ended on January 5, 1997, while the results for the prior year quarter exclude
only one day of the "Christmas/Holiday" period which ended on January 1, 1996.
The increase in ETP is primarily due to a $4.00 increase in the lead ticket
price and an increase in the proportion of skier days falling during peak
periods which have a higher ETP. The decline in skier days is partially due to
the impact of the shift in the "Christmas/Holiday" period.
Resort Operating Expenses. Resort Operating Expenses were $24.8 million for
the three months ended December 31, 1996, representing an increase of $2.1
million, or 9.2%, as compared to the three months ended December 31, 1995. The
increase in Resort Operating Expenses is attributable primarily to (i) increased
variable expenses resulting from the increased level of Resort Revenue and (ii)
expenses associated with new operations . As a percentage of Resort Revenue,
Resort Operating Expenses decreased from 70.8% to 70.6% in the three months
ended December 31, 1996.
Resort Cash Flow. Resort Cash Flow was $10.3 million for the three months
ended December 31, 1996, representing an increase of $948,000, or 10.2%, as
compared to the three months ended December 31, 1995. The increase in Resort
Cash Flow is due primarily to the increased level of Resort Revenue. Resort Cash
Flow as a percentage of Resort Revenue increased from 29.2% to 29.4% in the
three months ended December 31, 1996. 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.
-2-
Real Estate Revenue. Revenue from real estate operations for the three months
ended December 31, 1996 was $49.8 million, an increase of $22.0 million,
compared to the three months ended December 31, 1995. Revenue for the first
quarter of fiscal 1997 consists primarily of the sales of 63 single family
homesites in the Bachelor Gulch Village development which totaled $46.6 million.
Revenue for the first quarter of fiscal 1996 consisted primarily of the sales of
27 single family homesites in the Strawberry Park development at Beaver Creek
Resort which totaled $27.3 million.
Real Estate Operating Expenses. Real estate operating expenses for the three
months ended December 31, 1996 were $42.6 million, an increase of $19.1 million,
compared to the three months ended December 31, 1995. Real estate cost of sales
for the first quarter of fiscal 1997 consists primarily of the cost of sales and
real estate commissions associated with the sale of 63 single family homesites
in the Bachelor Gulch Village development which totaled $39.9 million. Real
estate cost of sales for the first quarter of fiscal 1996 consisted primarily of
the cost of sales and real estate commissions associated with the sale of 27
single family homesites in the Strawberry Park development at Beaver Creek
Resort which totaled $22.0 million.
Corporate expense. Corporate expense decreased by $191,000 for the three
months ended December 31, 1996 as compared to the three months ended December
31, 1995. The decrease was primarily due 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. Those decreases were offset by salary and stock
award expenses of the Company's Chief Executive Officer and Chief Financial
Officer, who joined the Company on July 29, 1996 and October 28, 1996,
respectively.
Depreciation and Amortization. Depreciation and amortization expense increased
by $294,000 for the three months ended December 31, 1996, primarily due to
capital expenditures made in fiscal 1995.
Interest expense. During the three months ended December 31, 1996 and the
three months ended December 31, 1995, the Company recorded interest expense of
$3.3 million and $6.3 million, respectively, which relates primarily to the
Company's Senior Subordinated Notes, Industrial Development Bonds, and Credit
Facilities. The decrease in interest expense from the three months ended
December 31, 1995 to the three months ended December 31, 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.
PRO FORMA RESULTS OF OPERATIONS--THREE MONTHS ENDED DECEMBER 31, 1996 VERSUS
THREE MONTHS ENDED DECEMBER 31, 1995
The following unaudited pro forma results of operations of the Company for the
three months ended December 31, 1996 and 1995 assume that the Acquisition
occurred on October 1, 1996 and 1995, respectively. 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 includes the
results of Arapahoe Basin which the Company is required to divest pursuant to
the Consent Decree.
-3-
Resort Revenue. Pro forma Resort Revenue for the three months ended
December 31, 1996 was $64.3 million, an increase of $4.8 million, or 8.0%,
compared to the three months ended December 31, 1995. Revenue by category is as
follows:
THREE THREE
MONTHS MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS)
Lift tickets................... $ 31,349 $ 29,430
Ski school..................... 8,324 8,400
Food service................... 7,575 7,546
Retail/rental.................. 4,221 3,366
Hospitality.................... 6,463 5,834
Other.......................... 6,376 4,967
--------- ---------
Total revenue.................. $ 64,308 $ 59,543
========= =========
The results of operations for the three months ended December 31, 1996
exclude five days of the "Christmas/Holiday" period which ended on January 5,
1997, while the results for the prior year quarter exclude only one day of the
"Christmas/Holiday" period which ended on January 1, 1996. Lift ticket revenue
increased due to an increase in ETP from $25.41 to $26.72, or 5.1% and a 1.3%
increase in skier days. ETP increased due to ticket price increases at all
resorts offset by higher season pass usage and a higher proportion of Front
Range discounts at Keystone and Breckenridge mountains. The increase in skier
days was due promarily to an increase in snowboarders at Keystone Mountain as
the 1996-97 ski season represents the first time that snowboarding has been
permitted on Keystone Mountain, offset in part by the impact of the shift in the
"Christmas/Holiday" period. Ski school revenue decreased 0.9% due to modest
growth in skier days offset by a decrease in the average price per lesson due to
increased promotional activities. Food service revenue increased 0.4% as a
result of increases at Vail and Beaver Creek mountains due to price increases
and expanded operations offset by decreases in off-mountain food service
operations at Keystone Resort due to a reduction in room nights at the Company's
lodges and managed properties. Retail and rental revenues increased 25.4% 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 10.8% primarily due to increases in property management
revenue at Beaver Creek Resort attributable to an increase in the number of
units under management and the occupancy rates of those units offset by lower
occupancy rates at Company owned and managed lodging facilities at Keystone
Resort.
Resort Operating Expenses. Resort Operating Expenses were $51.1 million
for the three months ended December 31, 1996, compared to $45.8 million for the
three months ended December 31, 1995. 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 operations and (iii)
anticipated higher operating expenses at Keystone, Breckenridge and Arapahoe
Basin mountain resorts due to early season staffing and wage increases for
certain hourly positions. As a percentage of Resort Revenue, Resort Operating
Expenses increased from 77.0% to 79.5% in the three months ended December 31,
1996.
-4-
Resort Cash Flow. Resort Cash Flow was $13.2 million for the three months
ended December 31, 1996, compared to $13.7 million for the three months ended
December 31, 1995. Resort Cash Flow as a percentage of Resort Revenue decreased
from 23.0% to 20.5% in the three months ended December 31, 1996. The decrease in
Resort Cash Flow was primarily due to an increase in Resort Cash Flow at Vail
and Beaver Creek mountain resorts offset by a decrease at Keystone, Breckenridge
and Arapahoe Basin mountain resorts. The decrease in Resort Cash Flow at
Keystone, Breckenridge and Arapahoe Basin mountain resorts was attributable to
higher operating expenses as described above.
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.
Resort capital expenditures for the three months ended December 31, 1996
were $12.2 million. Investments in real estate for that period were $17.0
million, which included $4.0 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 Eagles
Nest Adventure Ridge facility and (iii) the allocated cost of the 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 renovation of the Golden Peak base facility, including a new high speed quad
chairlift, (ii) infrastructure related to Bachelor Gulch Village, including a
new high speed quad chairlift and related snowmaking equipment, (iii)
preliminary construction costs associated with Beaver Creek Village Center, (iv)
infrastructure related to Arrowhead Village and (v) infrastructure related to
the Strawberry Park development at Beaver Creek Resort.
The Company estimates that it will make resort capital expenditures
totaling approximately $52 million during the remainder of fiscal 1997. The
primary projects are anticipated to include (i) trail and infrastructure
improvements, including lift upgrades, at Breckenridge and Keystone mountains,
(ii) expansion of snowmaking at Beaver Creek and Breckenridge mountains, (iii)
upgrades to lodging properties at Keystone Resort, (iv) the purchase of and
improvements to retail space at Beaver Creek Resort, (v) upgrades to and the
expansion of food service operations at Beaver Creek Resort, (vi) upgrades to
technology and guest service systems and (vii) infrastructure for the Category
III expansion on Vail Mountain. Investments in real estate during the remainder
of fiscal 1997 are expected to total approximately $65 million. The primary
projects are anticipated to include (i) infrastructure related to Bachelor Gulch
Village and Arrowhead Village, (ii) completion of the Beaver Creek Village
retail and parking facilities and (iii) investments in a joint venture to
develop property located at the base of Keystone Mountain. The Company plans to
fund capital expenditures and investments in real estate for the remainder of
fiscal 1997 with borrowings under its New Credit Facilities.
On January 3, 1997, the Company acquired 100% of the stock of Ralston
Resorts, Inc. ("Ralston Resorts"), a wholly-owned subsidiary of Ralston Foods,
Inc. ("Foods"), which owns and operates the Breckenridge, Keystone and Arapahoe
Basin mountain resorts located in Summit County, Colorado. In connection with
the Acquisition, the Company assumed $25.3 million and refinanced $139.7 million
of indebtedness of Ralston Resorts, and issued 7,554,406 shares of Common Stock
to Foods. The number of shares issued to Foods may be increased as a result of
certain post-closing adjustments which are not expected to be material. Pursuant
to a Consent Decree with the United States Department of Justice (the "DOJ"),
the Company is required to divest the Arapahoe Basin mountain resort. Under the
Consent Decree, the Company must use its best efforts to complete the
divestiture as expeditiously as possible, but in any event, by June 2, 1997
(unless such date is extended by the DOJ).
-5-
At September 30, 1996, the Company had $44.0 million in outstanding
borrowings under its Credit Facilities. During the three months ended December
31, 1996, the Company borrowed $26.0 million and repaid $45.6 million resulting
in an outstanding balance of $24.4 million at December 31, 1996. On January 3,
1997, in connection with the closing of the Acquisition, all amounts outstanding
under the Company's credit facilities were repaid with proceeds from the New
Credit Facilities. The New 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 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 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
$41.0 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.
The New 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 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
estimated expenses of the Offering totaled $99.4 million. The Company has used
$68.6 million of the proceeds to defease 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 intends to use the
remainder of the proceeds for general corporate purposes. The Company is 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 (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 will make payments under the Rights only to the
extent it receives sufficient gross proceeds from real estate contracts
outstanding at September 30, 1996 (totaling $106.9 million) to make such
payments. As of February 14, 1997, the Company has received gross proceeds under
the applicable contracts totaling $48.7 million and expects to make payments
under the Rights of approximately $42.2 million on February 19, 1997. Remaining
payments under the Rights are expected to be made during the remainder of 1997.
-6-
PART II
ITEM 1. LEGAL PROCEEDINGS.
A wholly-owned subsidiary of the Company was recently served with a third
party summons and complaint in a civil action captioned Board of Commissioners,
-----------------------
County of Eagle, State of Colorado v. Fixed Base Operators, Inc. v. Eagle County
- --------------------------------------------------------------------------------
Air Terminal Corporation, The Vail Corporation and John Does 1 through 100. The
- ---------------------------------------------------------------------------
case has been pending in the District Court of Eagle County, Colorado since
April 1, 1996. Such action involves a dispute between the Board of Commissioners
of Eagle County, Colorado and the owner/operator of one of the terminals located
at the Vail/Eagle Airport ("FBO"). The Company's subsidiary is a party to a
Standby Bond Purchase Agreement which could obligate the subsidiary to purchase
$10.1 million of Eagle County Air Terminal Corporation Terminal Project Revenue
Bonds (the "Revenue Bonds") if the lawsuit causes a default in, or the bond
indenture trustee to transfer certain funds for, payment of the Revenue Bonds.
The proceeds of the Revenue Bonds were used to build a new commercial air
terminal at the Vail/Eagle Airport which is operated by the Board of
Commissioners of Eagle County, Colorado and which FBO claims is illegally
competitive. FBO seeks damages and specific injunctive relief. The Company
believes that the ultimate outcome of the litigation will not have a material
adverse effect on the financial position or operations of the Company. (See Note
4 to the Company's consolidated financial statements.)
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
-7-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Index to Exhibits
The following exhibits are incorporated by reference to the documents
indicated in parentheses which have previously been filed with the Securities
and Exchange Commission.
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
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 Restated Certificate of Incorporation of the Company. (Incorporated by reference
to Exhibit 3.1 of the Registration Statement on Form S-2 of Vail Resorts, Inc.
(Registration No. 333-5341)).
3.2 Restated By-Laws of the Company. (Incorporated by reference to Exhibit 3.2 of the
Registration Statement on Form S-2 of Vail Resorts, Inc. (Registration No. 333-5341)).
10.1 Employment Agreement dated October 1, 1996 between the Company and Andrew P. Daly.
(Incorporated by reference to Exhibit 10.5 of the Registration Statement on Form
S-2 of Vail Resorts, Inc. (Registration No. 333-5341)).
10.2 Credit Agreement dated as of January 3, 1997 among the Vail Corporation, the lenders
referred to therein and NationsBank of Texas, N.A., as agent. (Incorporated by
reference to Exhibit 10.10(p) of the Registration Statement on Form S-2 of Vail
Resorts, Inc. (Registration No. 333-5341)).
10.3 Second Amendment dated as of December 30, 1996 to Pledge Agreement dated as of
November 23, 1993 among The Vail Corporation, Vail Associates, Inc., Beaver Creek
Associates, Inc., Vail Associates Real Estate Group, Inc., Vail Associates Real Inc.,
as obligors and NationsBank of Texas, N.A., as collateral agent. (Incorporated by
reference to Exhibit 10.10(r) of the Registration Statement on Form S-2 of Vail
Resorts, Inc. (Registration No. 333-5341)).
10.4 Shareholder Agreement among Vail Resorts, Inc., Ralston Foods, Inc. and Apollo Ski
Partners, L.P. dated January 3, 1997. (Incorporated by reference to Exhibit 2.4 of
the report on Form 8-K of Vail Resorts, Inc. dated January 8, 1997.)
10.5 1996 Stock Option Plan. (Incorporated by reference to Exhibit 10.21 of the Registration
Statement on Form S-2 of Vail Resorts, Inc. (Registration No. 333-5341)).
-8-
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
10.6 Agreement dated October 11, 1996 between Vail Resorts, Inc. and George N.
Gillett Jr. (Incorporated by reference to Exhibit 10.22 of the Registration
Statement on Form S-2 of Vail Resorts, Inc. (Registration No. 333-5341)).
(b) A 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. (See Note 5 to the accompanying consolidated financial
statements.)
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON FEBRUARY 14, 1997.
VAIL RESORTS, INC.
By /s/ JAMES P. DONOHUE
-----------------------------------
James P. Donohue
Senior Vice President and Chief
Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON FEBRUARY 14, 1997.
SIGNATURE TITLE
--------- -----
/s/ JAMES P. DONOHUE
- -------------------------
James P. Donohue Senior Vice President and Chief Financial Officer
-9-
5
1,000
3-MOS
SEP-30-1997
OCT-01-1996
DEC-31-1996
15,208
0
14,238
0
6,284
63,102
212,611
0
450,214
115,308
0
0
0
207
138,986
450,214
84,893
84,893
0
73,227
0
0
3,262
8,559
3,492
5,067
0
0
0
5,067
0.23
0