form10q.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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 January 31, 2009

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from       to

Commission File Number:  001-09614


Vail Resorts, Inc.
(Exact Name of Registrant as Specified in Its Charter)


Delaware
  
51-0291762
(State or Other Jurisdiction of Incorporation or Organization)
  
(I.R.S. Employer Identification No.)
     
390 Interlocken Crescent
Broomfield, Colorado
  
80021
(Address of Principal Executive Offices)
  
(Zip Code)

(303) 404-1800
(Registrant’s Telephone Number, Including Area Code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x                                                                                    Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes x No

As of March 6, 2009, 36,407,238 shares of the registrant’s common stock were outstanding.



 
 
 

Table of Contents
     
PART I
FINANCIAL INFORMATION
  
     
Item 1.
F-1
Item 2.
1
Item 3.
12
Item 4.
12
     
     
PART II
OTHER INFORMATION
  
     
Item 1.
12
Item 1A.
13
Item 2.
13
Item 3.
13
Item 4.
13
Item 5.
14
Item 6.
14




 
 
 


PART I
FINANCIAL INFORMATION
  
     
Item 1.
  
     
F-2
F-3
F-4
F-5
F-6







 
 
 

Vail Resorts, Inc.
Consolidated Condensed Balance Sheets
(In thousands, except share and per share amounts)

     
January 31,
      
July 31,
      
January 31,
  
     
2009
      
2008
      
2008
  
     
(Unaudited)
              
(Unaudited)
  
Assets
                        
Current assets:
                        
Cash and cash equivalents
  
$
139,172
    
$
162,345
    
$
274,433
  
Restricted cash
    
14,603
      
58,437
      
56,286
  
Trade receivables, net
    
50,495
      
50,185
      
44,756
  
Inventories, net
    
52,189
      
49,708
      
51,513
  
Other current assets
    
39,112
      
38,220
      
52,603
  
Total current assets
    
295,571
      
358,895
      
479,591
  
Property, plant and equipment, net (Note 5)
    
1,084,031
      
1,056,837
      
983,858
  
Real estate held for sale and investment
    
247,329
      
249,305
      
381,379
  
Goodwill, net
    
167,950
      
142,282
      
142,011
  
Intangible assets, net
    
79,785
      
72,530
      
72,658
  
Other assets
    
42,931
      
46,105
      
42,318
  
Total assets
  
$
1,917,597
    
$
1,925,954
    
$
2,101,815
  
                         
Liabilities and Stockholders’ Equity
                        
Current liabilities:
                        
Accounts payable and accrued liabilities (Note 5)
  
$
302,118
    
$
294,182
    
$
412,872
  
Income taxes payable
    
33,315
      
57,474
      
30,810
  
Long-term debt due within one year (Note 4)
    
304
      
15,355
      
100,710
  
Total current liabilities
    
335,737
      
367,011
      
544,392
  
Long-term debt (Note 4)
    
491,777
      
541,350
      
554,411
  
Other long-term liabilities (Note 5)
    
221,814
      
183,643
      
167,020
  
Deferred income taxes
    
93,469
      
75,279
      
86,303
  
Commitments and contingencies (Note 8)
                        
Minority interest in net assets of consolidated subsidiaries
    
30,918
      
29,915
      
28,805
  
Stockholders’ equity:
                        
Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued and outstanding
    
--
      
--
      
--
  
Common stock, $0.01 par value, 100,000,000 shares authorized, 40,007,068 (unaudited), 39,926,496 and 39,883,167 (unaudited) shares issued, respectively
    
400
      
399
      
399
  
Additional paid-in capital
    
549,729
      
545,773
      
540,377
  
Retained earnings
    
334,086
      
308,045
      
231,824
  
Treasury stock, at cost; 3,600,235 (unaudited), 3,004,108 and 1,185,083 (unaudited) shares, respectively (Note 10)
    
(140,333)
      
(125,461
)
    
(51,716
)
Total stockholders’ equity
    
743,882
      
728,756
      
720,884
  
Total liabilities and stockholders’ equity
  
$
1,917,597
    
$
1,925,954
    
$
2,101,815
  

The accompanying Notes are an integral part of these consolidated condensed financial statements.
 
Vail Resorts, Inc.
Consolidated Condensed Statements of Operations
(In thousands, except per share amounts)
(Unaudited)

   
Three Months Ended
  
   
January 31,
  
     
2009
      
2008
  
Net revenue:
                
Mountain
  
$
258,489
    
$
279,722
  
Lodging
    
41,150
      
34,827
  
Real estate
    
89,157
      
45,471
  
Total net revenue
    
388,796
      
360,020
  
Segment operating expense:
                
Mountain
    
156,188
      
163,188
  
Lodging
    
38,697
      
36,782
  
Real estate
    
59,508
      
44,409
  
Total segment operating expense
    
254,393
      
244,379
  
Other operating income (expense):
                
Depreciation and amortization
    
(27,438
)
    
(23,621
)
Gain on sale of real property
    
--
      
709
  
Loss on disposal of fixed assets, net
    
(422
)
    
(157
)
Income from operations
    
106,543
      
92,572
  
Mountain equity investment income, net
    
1,161
      
926
  
Investment income
    
336
      
2,019
  
Interest expense, net
    
(7,295
)
    
(7,535
)
Minority interest in income of consolidated subsidiaries, net
    
(3,788
)
    
(4,910
)
Income before provision for income taxes
    
96,957
      
83,072
  
Provision for income taxes
    
(36,412
)
    
(31,753
)
Net income
  
$
60,545
    
$
51,319
  
                 
Per share amounts (Note 3):
                
Basic net income per share
  
$
1.66
    
$
1.32
  
Diluted net income per share
  
$
1.65
    
$
1.31
  

The accompanying Notes are an integral part of these consolidated condensed financial statements.
 
Vail Resorts, Inc.
Consolidated Condensed Statements of Operations
(In thousands, except per share amounts)
(Unaudited)

   
Six Months Ended
  
   
January 31,
  
     
2009
      
2008
  
Net revenue:
                
Mountain
  
$
299,267
    
$
322,258
  
Lodging
    
86,403
      
78,144
  
Real estate
    
155,907
      
57,504
  
Total net revenue
    
541,577
      
457,906
  
Segment operating expense:
                
Mountain
    
237,411
      
244,136
  
Lodging
    
83,595
      
78,018
  
Real estate
    
110,885
      
51,322
  
Total segment operating expense
    
431,891
      
373,476
  
Other operating income (expense):
                
Depreciation and amortization
    
(52,516
)
    
(44,383
)
Gain on sale of real property
    
--
      
709
  
Loss on disposal of fixed assets, net
    
(602
)
    
(391
)
Income from operations
    
56,568
      
40,365
  
Mountain equity investment income, net
    
2,176
      
2,895
  
Investment income
    
979
      
5,237
  
Interest expense, net
    
(15,242
)
    
(15,179
)
Contract dispute credit, net (Note 8)
    
--
      
11,920
  
Minority interest in income of consolidated subsidiaries, net
    
(1,437
)
    
(2,847
)
Income before provision for income taxes
    
43,044
      
42,391
  
Provision for income taxes
    
(17,003
)
    
(15,685
)
Net income
  
$
26,041
    
$
26,706
  
                 
Per share amounts (Note 3):
                
Basic net income per share
  
$
0.71
    
$
0.69
  
Diluted net income per share
  
$
0.71
    
$
0.68
  

The accompanying Notes are an integral part of these consolidated condensed financial statements.

 
 
 

Vail Resorts, Inc.
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)

   
Six Months Ended
   
January 31,
   
2009
  
2008
Cash flows from operating activities:
                
Net income
  
$
26,041
    
$
26,706
  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization
    
52,516
      
44,383
  
Cost of real estate sales
    
87,631
      
35,757
  
Stock-based compensation expense
    
5,242
      
4,057
  
Deferred income taxes, net
    
16,204
      
12,560
  
Minority interest in income of consolidated subsidiaries, net
    
1,437
      
2,847
  
Other non-cash income, net
    
(3,998
)
    
(3,464
)
Changes in assets and liabilities:
                
Restricted cash
    
43,834
      
(1,537
)
Accounts receivable, net
    
358
      
(6,824
)
Inventories, net
    
(2,481
)
    
(3,449
)
Investments in real estate
    
(80,567
)
    
(112,718
)
Accounts payable and accrued liabilities
    
36,725
      
82,399
  
Deferred real estate deposits
    
(36,117
)
    
23,128
  
Private club deferred initiation fees and deposits
    
39,667
      
8,691
  
Other assets and liabilities, net
    
(19,828
)
    
(20,881
)
Net cash provided by operating activities
    
166,664
      
91,655
  
Cash flows from investing activities:
                
Capital expenditures
    
(77,560
)
    
(91,177
)
Acquisition of business
    
(38,170
)
    
--
  
Other investing activities, net
    
(417
)
    
3,029
  
Net cash used in investing activities
    
(116,147
)
    
(88,148
)
Cash flows from financing activities:
                
Repurchases of common stock
    
(14,872
)
    
(25,870
)
Proceeds from borrowings under non-recourse real estate financings
    
9,013
      
85,984
  
Payments of non-recourse real estate financings
    
(58,407
)
    
(25,201
)
Proceeds from borrowings under other long-term debt
    
55,782
      
64,145
  
Payments of other long-term debt
    
(71,013
)
    
(64,447
)
Other financing activities, net
    
5,807
      
5,496
  
Net cash (used in) provided by financing activities
    
(73,690
)
    
40,107
  
Net (decrease) increase in cash and cash equivalents
    
(23,173
)
    
43,614
  
Cash and cash equivalents:
                
Beginning of period
    
162,345
      
230,819
  
End of period
  
$
139,172
    
$
274,433
  
                 

The accompanying Notes are an integral part of these consolidated condensed financial statements.

 
 
 

Vail Resorts, Inc.
Notes to Consolidated Condensed Financial Statements
(Unaudited)

1.           Organization and Business
 
Vail Resorts, Inc. (“Vail Resorts” or the “Parent Company”) is organized as a holding company and operates through various subsidiaries.  Vail Resorts and its subsidiaries (collectively, the “Company”) currently operate in three business segments: Mountain, Lodging and Real Estate.  In the Mountain segment, the Company owns and operates five world-class ski resort properties at the Vail, Breckenridge, Keystone and Beaver Creek mountain resorts in Colorado and the Heavenly Mountain Resort in the Lake Tahoe area of California and Nevada, as well as ancillary businesses, primarily including ski school, dining and retail/rental operations.  These resorts operate primarily on Federal land under the terms of Special Use Permits granted by the USDA Forest Service (the “Forest Service”).  The Company holds a 69.3% interest in SSI Venture, LLC (“SSV”), a retail/rental company.  In the Lodging segment, the Company owns and/or manages a collection of luxury hotels under its RockResorts International, LLC (“RockResorts”) brand, as well as other strategic lodging properties and a large number of condominiums located in proximity to the Company’s ski resorts, the Grand Teton Lodge Company (“GTLC”), which operates three destination resorts at Grand Teton National Park (under a National Park Service concessionaire contract), Colorado Mountain Express (“CME”), a resort ground transportation company, and golf courses.  Vail Resorts Development Company (“VRDC”), a wholly-owned subsidiary, conducts the operations of the Company’s Real Estate segment, which owns and develops real estate in and around the Company’s resort communities.  The Company’s mountain business and its lodging properties at or around the Company’s ski resorts are seasonal in nature with peak operating seasons from mid-November through mid-April.  The Company’s operations at GTLC and its golf courses generally operate from mid-May through mid-October.  The Company also has non-majority owned investments in various other entities, some of which are consolidated (see Note 6, Variable Interest Entities).

In the opinion of the Company, the accompanying Consolidated Condensed Financial Statements reflect all adjustments necessary to state fairly the Company's financial position, results of operations and cash flows for the interim periods presented.  All such adjustments are of a normal recurring nature.  Results for interim periods are not indicative of the results for the entire year.  The accompanying Consolidated Condensed Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended July 31, 2008.  Certain information and footnote disclosures, including significant accounting policies, normally included in fiscal year financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  The July 31, 2008 Consolidated Condensed Balance Sheet was derived from audited financial statements.

2.           Summary of Significant Accounting Policies

Use of Estimates-- The preparation of financial statements in conformity with GAAP 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 revenue and expenses during the reporting period.  Actual results could differ from those estimates.

Reclassification of Book Overdrafts-- Book overdrafts represent checks issued that had not been presented for payment to the banks and are classified as accounts payable in the Company’s Consolidated Condensed Balance Sheets.  The Company typically funds these overdrafts through normal collections of funds or transfers from other bank balances.  For the six months ended January 31, 2008, the Company revised its presentation of changes in book overdrafts from a financing activity to an operating activity in its Consolidated Condensed Statement of Cash Flows to conform to its current year presentation.  In the Company’s Annual Report on Form 10-K for the year ended July 31, 2008, the Company also presented changes in book overdrafts as an operating activity.  The effect of this change increased cash provided by operating activities for the six months ended January 31, 2008 from $85.1 million (as previously disclosed in the prior year’s Quarterly Report on Form 10-Q) to $91.7 million with a corresponding decrease in the cash flows provided by financing activities for the six months ended January 31, 2008 from $46.7 million (as previously disclosed in the prior year’s Quarterly Report on Form 10-Q) to $40.1 million.

New Accounting Pronouncements-- In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  SFAS 157 does not require any new fair value measurements, but rather provides guidance on how to measure fair value by providing a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value.  The Company adopted SFAS 157 beginning August 1, 2008 (see Note 7, Fair Value Measurements, for more information on the adoption of SFAS 157).

In February 2008, the FASB issued Staff Position 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”).  This FSP delays the effective date of SFAS 157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008 (the Company's fiscal year ending July 31, 2010) and interim periods within the fiscal year of adoption.  The Company has deferred the application of SFAS 157 for nonfinancial assets and liabilities as prescribed by FSP 157-2.  The Company is currently evaluating the impacts, if any, the adoption of the provisions of SFAS 157 for nonfinancial assets and liabilities will have on the Company’s financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159 provides the Company the irrevocable option to carry many financial assets and liabilities at fair value, with changes in fair value recognized in earnings.  The requirements of SFAS 159 became effective for the Company beginning August 1, 2008; however, the Company did not elect the fair value measurement option for any of its financial assets or liabilities.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination.  SFAS 141R also requires acquisition-related transaction expenses and restructuring costs be expensed as incurred rather than capitalized as a component of the business combination.  The Company will apply SFAS 141R prospectively to business combinations consummated after July 31, 2009 (the Company’s fiscal year ending July 31, 2010).

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the balance sheet.  Currently, noncontrolling interests (minority interests) are reported as a liability in the Company’s consolidated balance sheet and the related income (loss) attributable to minority interests is reflected as an expense (credit) in arriving at net income.  Upon adoption of SFAS 160, the Company will be required to report its minority interests as a separate component of stockholders’ equity and present net income allocable to the minority interests along with net income attributable to the stockholders of the Company separately in its consolidated statement of operations.  SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests.  All other requirements of SFAS 160 shall be applied prospectively.  The requirements of SFAS 160 are effective for the Company beginning August 1, 2009 (the Company’s fiscal year ending July 31, 2010).

3.           Net Income Per Common Share

SFAS No. 128, “Earnings Per Share” (“SFAS 128”), establishes standards for computing and presenting earnings per share (“EPS”).  SFAS 128 requires the dual presentation of basic and diluted EPS on the face of the Consolidated Condensed Statements of Operations and requires a reconciliation of numerators (net income/loss) and denominators (weighted-average shares outstanding) for both basic and diluted EPS in the footnotes.  Basic EPS excludes dilution and is computed by dividing net income/loss available to holders of common stock by the weighted-average shares outstanding.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of shares of common stock that would then share in the earnings of the Company.  Presented below is basic and diluted EPS for the three months ended January 31, 2009 and 2008 (in thousands, except per share amounts):

   
Three Months Ended January 31,
   
2009
  
2008
   
Basic
  
Diluted
  
Basic
  
Diluted
Net income per share:
                                
Net income
  
$
60,545
    
$
60,545
    
$
51,319
    
$
51,319
  
                                 
Weighted-average shares outstanding
    
36,570
      
36,570
      
38,796
      
38,796
  
Effect of dilutive securities
    
--
      
93
      
--
      
349
  
Total shares
    
36,570
      
36,663
      
38,796
      
39,145
  
                                 
Net income per share
  
$
1.66
    
$
1.65
    
$
1.32
    
$
1.31
  

The number of shares issuable on the exercise of share based awards that were excluded from the calculation of diluted net income per share because the effect of their inclusion would have been anti-dilutive totaled 438,000 and 53,000 for the three months ended January 31, 2009 and 2008, respectively.

Presented below is basic and diluted EPS for the six months ended January 31, 2009 and 2008 (in thousands, except per share amounts):

   
Six Months Ended January 31,
   
2009
  
2008
   
Basic
  
Diluted
  
Basic
Diluted
Net income per share:
                              
Net income
  
$
26,041
    
$
26,041
    
$
26,706
  
$
26,706
  
                               
Weighted-average shares outstanding
    
36,728
      
36,728
      
38,883
    
38,883
  
Effect of dilutive securities
    
--
      
184
      
--
    
388
  
Total shares
    
36,728
      
36,912
      
38,883
    
39,271
  
                               
Net income per share
  
$
0.71
    
$
0.71
    
$
0.69
  
$
0.68
  

The number of shares issuable on the exercise of share based awards that were excluded from the calculation of diluted net income per share because the effect of their inclusion would have been anti-dilutive totaled 207,000 and 79,000 for the six months ended January 31, 2009 and 2008, respectively.

4.           Long-Term Debt

Long-term debt as of January 31, 2009, July 31, 2008 and January 31, 2008 is summarized as follows (in thousands):

   
January 31,
July 31,
January 31,
 
Maturity (a)
2009
2008
2008
Credit Facility Revolver
2012
$
--
$
--
$
--
SSV Facility
2011
  
--
  
--
  
--
Industrial Development Bonds (b)
2011-2020
  
42,700
  
57,700
  
57,700
Employee Housing Bonds
2027-2039
  
52,575
  
52,575
  
52,575
Non-Recourse Real Estate Financings (c)
--
  
--
  
49,394
  
147,665
6.75% Senior Subordinated Notes ("6.75% Notes")
2014
  
390,000
  
390,000
  
390,000
Other
2009-2029
  
6,806
  
7,036
  
7,181
Total debt
    
492,081
  
556,705
  
655,121
Less:  Current maturities (d)
    
304
  
15,355
  
100,710
Long-term debt
  
$
491,777
$
541,350
$
554,411

(a)  
Maturities are based on the Company's July 31 fiscal year end.

(b)  
The Company has outstanding $42.7 million of industrial development bonds (collectively, the “Industrial Development Bonds”), of which $41.2 million were issued by Eagle County, Colorado and mature, subject to prior redemption, on August 1, 2019.  The Series 1991 Sports Facilities Refunding Revenue Bonds, issued by Summit County, Colorado, have an aggregate outstanding principal amount of $1.5 million and mature, subject to prior redemption, on September 1, 2010.  On August 29, 2008, $15.0 million of borrowings under the Series 1990 Sports Facilities Refunding Revenue Bonds, issued by Summit County, Colorado were paid in full at maturity.

(c)  
Non-recourse real estate financings borrowings under the original $123.0 million construction agreement for The Chalets at The Lodge at Vail, LLC (“Chalets”) were paid in full during the six months ended January 31, 2009.  As of July 31, 2008 non-recourse real estate financings included borrowings under the construction agreement for the Chalets of $49.4 million.  As of January 31, 2008 non-recourse real estate financings consisted of borrowings of $85.3 million under the original $175.0 million construction agreement for Arrabelle at Vail Square, LLC (“Arrabelle”) and under the construction agreement for the Chalets of $62.3 million.

(d)  
Current maturities represent principal payments due in the next 12 months.


Aggregate maturities for debt outstanding as of January 31, 2009 reflected by fiscal year are as follows (in thousands):

2009
$
119
2010
  
349
2011
  
1,831
2012
  
305
2013
  
319
Thereafter
  
489,158
Total debt
$
492,081




The Company incurred gross interest expense of $8.7 million and $11.7 million for the three months ended January 31, 2009 and 2008, respectively, of which $0.4 million and $0.6 million was amortization of deferred financing costs.  The Company incurred gross interest expense of $18.4 million and $22.8 million for the six months ended January 31, 2009 and 2008, respectively, of which $1.2 million and $1.2 million was amortization of deferred financing costs.  The Company capitalized $1.4 million and $4.1 million of interest during the three months ended January 31, 2009 and 2008, respectively.  The Company capitalized $3.1 million and $7.6 million of interest during the six months ended January 31, 2009 and 2008, respectively.

5.           Supplementary Balance Sheet Information

The composition of property, plant and equipment follows (in thousands):

     
January 31,
  
July 31,
  
January 31,
     
2009
  
2008
  
2008
Land and land improvements
  
$
262,930
    
$
265,123
    
$
252,552
  
Buildings and building improvements
    
752,217
      
685,393
      
650,694
  
Machinery and equipment
    
497,795
      
457,825
      
459,427
  
Furniture and fixtures
    
162,745
      
149,251
      
127,515
  
Software
    
43,753
      
39,605
      
34,933
  
Vehicles
    
34,573
      
28,829
      
28,170
  
Construction in progress
    
27,243
      
80,601
      
47,408
  
 
Gross property, plant and equipment
    
1,781,256
      
1,706,627
      
1,600,699
  
Accumulated depreciation
    
(697,225
)
    
(649,790
)
    
(616,841
)
 
Property, plant and equipment, net
  
$
1,084,031
    
$
1,056,837
    
$
983,858
  

The composition of accounts payable and accrued liabilities follows (in thousands):

     
January 31,
  
July 31,
  
January 31,
     
2009
  
2008
  
2008
Trade payables
  
$
56,758
    
$
53,187
    
$
84,016
  
Real estate development payables
    
38,098
      
52,574
      
43,913
  
Deferred revenue
    
81,995
      
45,805
      
70,684
  
Deferred real estate and other deposits
    
28,871
      
58,421
      
109,137
  
Accrued salaries, wages and deferred compensation
    
18,578
      
22,397
      
25,552
  
Accrued benefits
    
25,118
      
22,777
      
26,205
  
Accrued interest
    
13,910
      
14,552
      
14,634
  
Liabilities to complete real estate projects, short term
    
6,950
      
4,199
      
7,808
  
Other accruals
    
31,840
      
20,270
      
30,923
  
 
Total accounts payable and accrued liabilities
  
$
302,118
    
$
294,182
    
$
412,872
  

The composition of other long-term liabilities follows (in thousands):

     
January 31,
  
July 31,
  
January 31,
     
2009
  
2008
  
2008
Private club deferred initiation fee revenue and deposits
  
$
155,195
    
$
121,947
    
$
117,928
  
Deferred real estate deposits
    
46,240
      
45,775
      
34,316
  
Other long-term liabilities
    
20,379
      
15,921
      
14,776
  
 
Total other long-term liabilities
  
$
221,814
    
$
183,643
    
$
167,020
  

On November 1, 2008, the Company acquired substantially all of the assets of Colorado Mountain Express (“CME”), a resort ground transportation business, for a total consideration of $38.3 million, as well as $0.9 million to reimburse the seller for certain new capital expenditures as provided for in the agreement.  The acquisition was accounted for as a business purchase combination using the purchase method of accounting under the provisions of SFAS No. 141, “Business Combinations”.  The purchase price was allocated to tangible and identifiable intangible assets acquired based on their estimated fair values at the acquisition date.  The Company has completed its preliminary purchase price allocation and has recorded $25.7 million in goodwill and $7.5 million in intangible assets on the date of acquisition.

6.           Variable Interest Entities

The Company is the primary beneficiary of four employee housing entities (collectively, the “Employee Housing Entities”), Breckenridge Terrace, LLC, The Tarnes at BC, LLC (“Tarnes”), BC Housing, LLC and Tenderfoot Seasonal Housing, LLC, which are Variable Interest Entities (“VIEs”), and has consolidated them in its Consolidated Condensed Financial Statements.  As a group, as of January 31, 2009, the Employee Housing Entities had total assets of $38.0 million (primarily recorded in property, plant and equipment, net) and total liabilities of $70.2 million (primarily recorded in long-term debt as “Employee Housing Bonds”).  All of the assets ($7.9 million as of January 31, 2009) of Tarnes serve as collateral for Tarnes' Tranche B Employee Housing Bonds.  The Company has issued under its senior credit facility (the “Credit Facility”) $38.3 million letters of credit related to the Tranche A Employee Housing Bonds and $12.6 million letters of credit related to the Tranche B Employee Housing Bonds.  The letters of credit would be triggered in the event that one of the entities defaults on required payments.  The letters of credit have no default provisions.

The Company is the primary beneficiary of Avon Partners II, LLC (“APII”), which is a VIE.  APII owns commercial space and the Company currently leases substantially all of that space.  APII had total assets of $5.7 million (primarily recorded in property, plant and equipment, net) and no debt as of January 31, 2009.

The Company, through various lodging subsidiaries, manages hotels in which the Company has no ownership interest in the entities that own such hotels.  These entities were formed by unrelated third parties to acquire, own, operate and realize the value in resort hotel properties.  The Company managed the day-to-day operations of six hotel properties as of January 31, 2009.  The Company has determined that the entities that own the hotel properties are VIEs, and the management contracts are significant variable interests in these VIEs.  The Company has also determined that it is not the primary beneficiary of these entities and, accordingly, is not required to consolidate any of these entities.  Based upon the latest information provided by these third party entities, these VIEs had estimated total assets of approximately $236 million and total liabilities of approximately $148 million.  The Company's maximum exposure to loss as a result of its involvement with these VIEs is limited to a $2.2 million note receivable including accrued interest from one of the third parties and the net book value of the intangible asset associated with a management agreement in the amount of $0.6 million as of January 31, 2009.

7.           Fair Value Measurements

SFAS 157 establishes how reporting entities should measure fair value for measurement and disclosure purposes.  The Standard does not require any new fair value measurements but rather establishes a common definition of fair value applicable to all assets and liabilities measured at fair value.  SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value hierarchy established by SFAS 157 prioritizes the inputs into valuation techniques used to measure fair value.  Accordingly, the Company uses valuation techniques which maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value.  The three levels of the hierarchy are as follows:

Level 1: Inputs that reflect unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities;

Level 2: Inputs include quoted prices for similar assets and liabilities in active and inactive markets or that are observable for the asset or liability either directly or indirectly; and

Level 3: Unobservable inputs which are supported by little or no market activity.

The table below summarizes the Company’s financial assets and liabilities measured at fair value in accordance with SFAS 157 as of January 31, 2009 (all other financial assets and liabilities applicable to SFAS 157 are immaterial) (in thousands):

     
Fair Value Measurements at Reporting Date Using
   
Balance at
            
   
January 31,
            
Description
  
2009
  
Level 1
  
Level 2
  
Level 3
Cash equivalents
  
$
111,536
  
$
93,036
  
$
18,500
  
$
--

The Company’s cash equivalents include money market funds and time deposits which are measured using Level 1 and Level 2 inputs utilizing quoted market prices or pricing models whereby all significant inputs are either observable or corroborated by observable market data.

8.           Commitments and Contingencies

Metropolitan Districts

The Company credit-enhances $8.5 million of bonds issued by Holland Creek Metropolitan District (“HCMD”) through an $8.6 million letter of credit issued against the Company's Credit Facility.  HCMD's bonds were issued and used to build infrastructure associated with the Company's Red Sky Ranch residential development.  The Company has agreed to pay capital improvement fees to Red Sky Ranch Metropolitan District (“RSRMD”) until RSRMD's revenue streams from property taxes are sufficient to meet debt service requirements under HCMD's bonds, and the Company has recorded a liability of $1.5 million, $1.6 million and $1.3 million, primarily within “other long-term liabilities” in the accompanying Consolidated Condensed Balance Sheets, as of January 31, 2009, July 31, 2008 and January 31, 2008, respectively, with respect to the estimated present value of future RSRMD capital improvement fees.  The Company estimates that it will make capital improvement fee payments under this arrangement through the year ending July 31, 2018.

Guarantees

As of January 31, 2009, the Company had various other guarantees, primarily in the form of letters of credit in the amount of $88.0 million, consisting primarily of $51.0 million in support of the Employee Housing Bonds, $29.2 million of construction and development related guarantees and $6.1 million for workers’ compensation and general liability deductibles related to construction and development activities.

In addition to the guarantees noted above, the Company has entered into contracts in the normal course of business which include certain indemnifications within the scope of FASB Financial Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”) under which it could be required to make payments to third parties upon the occurrence or non-occurrence of certain future events.  These indemnities include indemnities to licensees in connection with the licensees’ use of the Company’s trademarks and logos, indemnities for liabilities associated with the infringement of other parties’ technology and software products, indemnities related to liabilities associated with the use of easements, indemnities related to employment of contract workers, the Company’s use of trustees, indemnities related to the Company’s use of public lands and environmental indemnifications.  The duration of these indemnities generally is indefinite and generally do not limit the future payments the Company could be obligated to make.

As permitted under applicable law, the Company and certain of its subsidiaries indemnify their directors and officers over their lifetimes for certain events or occurrences while the officer or director is, or was, serving the Company or its subsidiaries in such a capacity.  The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that should enable the Company to recover a portion of any future amounts paid.

Unless otherwise noted, the Company has not recorded any significant liabilities for the letters of credit, indemnities and other guarantees noted above in the accompanying Consolidated Condensed Financial Statements, either because the Company has recorded on its Consolidated Condensed Balance Sheets the underlying liability associated with the guarantee, the guarantee or indemnification existed prior to January 1, 2003, the guarantee is with respect to the Company’s own performance and is therefore not subject to the measurement requirements of FIN 45, or because the Company has calculated the fair value of the indemnification or guarantee to be immaterial based upon the current facts and circumstances that would trigger a payment under the indemnification clause.  In addition, with respect to certain indemnifications it is not possible to determine the maximum potential amount of liability under these guarantees due to the unique set of facts and circumstances that are likely to be involved in each particular claim and indemnification provision.  Historically, payments made by the Company under these obligations have not been material.

As noted above, the Company makes certain indemnifications to licensees in connection with their use of the Company’s trademarks and logos.  The Company does not record any liabilities with respect to these indemnifications.

Self Insurance

The Company is self-insured for claims under its health benefit plans and for workers’ compensation claims, subject to a stop loss policy.  The self-insurance liability related to workers' compensation is determined actuarially based on claims filed.  The self-insurance liability related to claims under the Company’s health benefit plans is determined based on analysis of actual claims.  The amounts related to these claims are included as a component of accrued benefits in accounts payable and accrued liabilities (see Note 5, Supplementary Balance Sheet Information).

Legal

The Company is a party to various lawsuits arising in the ordinary course of business, including Resort (Mountain and Lodging) related cases and contractual and commercial litigation that arises from time to time in connection with the Company's real estate operations.  Management believes the Company has adequate insurance coverage or has accrued for loss contingencies for all known matters that are deemed to be probable losses and estimable.  As of January 31, 2009, July 31, 2008 and January 31, 2008 the accrual for the above loss contingencies was not material individually and in the aggregate.

Cheeca Lodge & Spa Contract Dispute

On October 19, 2007, RockResorts received payment of the final settlement from Cheeca Holdings, LLC, related to the disputed contract termination of the formerly managed RockResorts Cheeca Lodge & Spa property, in the amount of $13.5 million, of which $11.9 million (net of final attorney’s fees) is recorded in “Contract dispute credit, net” in the Consolidated Condensed Statement of Operations for the six months ended January 31, 2008.

9.           Segment Information

The Company has three reportable segments: Mountain, Lodging and Real Estate.  The Mountain segment includes the operations of the Company’s ski resorts and related ancillary activities.  The Lodging segment includes the operations of all of the Company’s owned hotels, RockResorts, GTLC, CME, condominium management and golf operations.  The Resort segment is the combination of the Mountain and Lodging segments.  The Real Estate segment owns and develops real estate in and around the Company’s resort communities.  The Company’s reportable segments, although integral to the success of the others, offer distinctly different products and services and require different types of management focus.  As such, these segments are managed separately.
 
The Company reports its segment results using Reported EBITDA (defined as segment net revenue less segment operating expense, plus segment equity investment income and for the Real Estate segment plus gain on sale of real property), which is a non-GAAP financial measure.  SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” requires the Company to report segment results in a manner consistent with management’s internal reporting of operating results to the chief operating decision maker (Chief Executive Officer) for purposes of evaluating segment performance.

Reported EBITDA is not a measure of financial performance under GAAP.  Items excluded from Reported EBITDA are significant components in understanding and assessing financial performance.  Reported EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, net change in cash and cash equivalents or other financial statement data presented in the consolidated condensed financial statements as indicators of financial performance or liquidity.  Because Reported EBITDA is not a measurement determined in accordance with GAAP and thus is susceptible to varying calculations, Reported EBITDA as presented may not be comparable to other similarly titled measures of other companies.

The Company utilizes Reported EBITDA in evaluating performance of the Company and in allocating resources to its segments.  Mountain Reported EBITDA consists of Mountain net revenue less Mountain operating expense plus Mountain equity investment income.  Lodging Reported EBITDA consists of Lodging net revenue less Lodging operating expense.  Real Estate Reported EBITDA consists of Real Estate net revenue less Real Estate operating expense plus gain on sale of real property.  All segment expenses include an allocation of corporate administrative expense.  Assets are not allocated between segments, or used to evaluate performance, except as shown in the table below.

Following is key financial information by reportable segment which is used by management in evaluating performance and allocating resources (in thousands):

       
Three Months Ended
  
Six Months Ended
       
January 31,
  
January 31,
       
2009
  
2008
  
2009
  
2008
Net revenue:
                              
Lift tickets
$
127,158
    
$
133,998
    
$
127,158
    
$
133,998
  
Ski school
  
28,962
      
35,155
      
28,962
      
35,155
  
Dining
  
20,281
      
22,895
      
24,210
      
27,658
  
Retail/rental
  
59,238
      
66,771
      
81,664
      
90,311
  
Other
  
22,850
      
20,903
      
37,273
      
35,136
  
Total Mountain net revenue
  
258,489
      
279,722
      
299,267
      
322,258
  
Lodging
  
41,150
      
34,827
      
86,403
      
78,144
  
Total Resort net revenue
  
299,639
      
314,549
      
385,670
      
400,402
  
Real Estate
  
89,157
      
45,471
      
155,907
      
57,504
  
Total net revenue
$
388,796
    
$
360,020
    
$
541,577
    
$
457,906
  
Operating expense:
                              
Mountain
$
156,188
    
$
163,188
    
$
237,411
    
$
244,136
  
Lodging
  
38,697
      
36,782
      
83,595
      
78,018
  
Total Resort operating expense
  
194,885
      
199,970
      
321,006
      
322,154
  
Real estate
  
59,508
      
44,409
      
110,885
      
51,322
  
Total segment operating expense
$
254,393
    
$
244,379
    
$
431,891
    
$
373,476
  
Gain on sale of real property
$
--
    
$
709
    
$
--
    
$
709
  
Mountain equity investment income, net
$
1,161
    
$
926
    
$
2,176
    
$
2,895
  
                               
Reported EBITDA:
                              
Mountain
$
103,462
    
$
117,460
    
$
64,032
    
$
81,017
  
Lodging
  
2,453
      
(1,955
)
    
2,808
      
126
  
Resort
  
105,915
      
115,505
      
66,840
      
81,143
  
Real Estate
  
29,649
      
1,771
      
45,022
      
6,891
  
Total Reported EBITDA
$
135,564
    
$
117,276
    
$
111,862
    
$
88,034
  
                               
Real estate held for sale and investment
$
247,329
    
$
381,379
    
$
247,329
    
$
381,379
  
                               
Reconciliation to net income:
                              
Total Reported EBITDA
$
135,564
    
$
117,276
    
$
111,862
    
$
88,034
  
Depreciation and amortization
  
(27,438
)
    
(23,621
)
    
(52,516
)
    
(44,383
)
Loss on disposal of fixed assets, net
  
(422
)
    
(157
)
    
(602
)
    
(391
)
Investment income
  
336
      
2,019
      
979
      
5,237
  
Interest expense, net
  
(7,295
)
    
(7,535
)
    
(15,242
)
    
(15,179
)
Contract dispute credit, net
  
--
      
--
      
--
      
11,920
  
Minority interest in income of consolidated subsidiaries, net
  
(3,788
)
    
(4,910
)
    
(1,437
)
    
(2,847
)
Income before provision for income taxes
  
96,957
      
83,072
      
43,044
      
42,391
  
 
Provision for income taxes
  
(36,412
)
    
(31,753
)
    
(17,003
)
    
(15,685
)
Net income
$
60,545
    
$
51,319
    
$
26,041
    
$
26,706
  

10.           Stock Repurchase Plan

On March 9, 2006, the Company’s Board of Directors approved the repurchase of up to 3,000,000 shares of common stock and on July 16, 2008 approved an increase of the Company’s common stock repurchase authorization by an additional 3,000,000 shares.  During the three and six months ended January 31, 2009, the Company repurchased 317,727 and 596,127 shares of common stock at a cost of $7.5 million and $14.9 million, respectively.  Since inception of this stock repurchase plan through January 31, 2009, the Company has repurchased 3,600,235 shares at a cost of approximately $140.3 million.  As of January 31, 2009, 2,399,765 shares remained available to repurchase under the existing repurchase authorization.  Shares of common stock purchased pursuant to the repurchase program will be held as treasury shares and may be used for the issuance of shares under the Company's employee share award plans.

11.           Guarantor Subsidiaries and Non-Guarantor Subsidiaries

The Company’s payment obligations under the 6.75% Notes (see Note 4, Long-Term Debt) are fully and unconditionally guaranteed on a joint and several, senior subordinated basis by substantially all of the Company’s consolidated subsidiaries (collectively, and excluding Non-Guarantor Subsidiaries (as defined below), the “Guarantor Subsidiaries”) except for Eagle Park Reservoir Company, Gros Ventre Utility Company, Mountain Thunder, Inc., SSV, Larkspur Restaurant & Bar, LLC, Gore Creek Place, LLC and certain other insignificant entities (together, the “Non-Guarantor Subsidiaries”).  APII and the Employee Housing Entities are included with the Non-Guarantor Subsidiaries for purposes of the consolidated financial information, but are not considered subsidiaries under the indenture governing the 6.75% Notes (the “Indenture”).

Presented below is the consolidated financial information of the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries.  Financial information for the Non-Guarantor Subsidiaries is presented in the column titled “Other Subsidiaries.”  Balance sheet data is presented as of January 31, 2009, July 31, 2008 and January 31, 2008.  Statements of operations are presented for the three and six months ended January 31, 2009 and 2008.  Statements of cash flows are presented for the six months ended January 31, 2009 and January 31, 2008.

Investments in subsidiaries are accounted for by the Parent Company and Guarantor Subsidiaries using the equity method of accounting.  Net income (loss) of Non-Guarantor Subsidiaries is, therefore, reflected in the Parent Company's and Guarantor Subsidiaries' investments in and advances to (from) subsidiaries.  Net income (loss) of the Guarantor and Non-Guarantor Subsidiaries is reflected in Guarantor Subsidiaries and Parent Company as equity in income (loss) of consolidated subsidiaries.  The elimination entries eliminate investments in Other Subsidiaries and intercompany balances and transactions for consolidated reporting purposes.


 
 
 

Supplemental Condensed Consolidating Balance Sheet
As of January 31, 2009
(in thousands)
(Unaudited)
                                 
             
100% Owned
                  
       
Parent
    
Guarantor
    
Other
    
Eliminating
    
       
Company
    
Subsidiaries
    
Subsidiaries
  
Entries
    
Consolidated
Current assets:
                            
 
Cash and cash equivalents
$
--
  
$
135,264
  
$
3,908
  
$
--
  
$
139,172
 
Restricted cash
  
--
    
14,268
    
335
    
--
    
14,603
 
Trade receivables, net
  
--
    
46,253
    
4,242
    
--
    
50,495
 
Inventories, net
  
--
    
11,079
    
41,110
    
--
    
52,189
 
Other current assets
  
17,129
    
19,655
    
2,328
    
--
    
39,112
   
Total current assets
  
17,129
    
226,519
    
51,923
    
--
    
295,571
Property, plant and equipment, net
  
--
    
1,014,366
    
69,665
    
--
    
1,084,031
Real estate held for sale and investment
  
--
    
247,329
    
--
    
--
    
247,329
Goodwill, net
  
--
    
148,702
    
19,248
    
--
    
167,950
Intangible assets, net
  
--
    
63,933
    
15,852
    
--
    
79,785
Other assets
  
3,581
    
34,284
    
5,066
    
--
    
42,931
Investments in subsidiaries and advances to (from) parent
  
1,255,605
    
362,310
    
(20,886
)
  
(1,597,029
)
  
--
 
Total assets
$
1,276,315
  
$
2,097,443
  
$
140,868
  
$
(1,597,029
)
$
1,917,597
                                 
Current liabilities:
                            
 
Accounts payable and accrued liabilities
$
12,507
  
$
266,525
  
$
23,086
  
$
--
  
$
302,118
 
Income taxes payable
  
33,315
    
--
    
--
    
--
    
33,315
 
Long-term debt due within one year
  
--
    
11
    
293
    
--
    
304
   
Total current liabilities
  
45,822
    
266,536
    
23,379
    
--
    
335,737
Long-term debt
  
390,000
    
42,720
    
59,057
    
--
    
491,777
Other long-term liabilities
  
3,142
    
215,861
    
2,811
    
--
    
221,814
Deferred income taxes
  
93,469
    
--
    
--
    
--
    
93,469
Minority interest in net assets of consolidated subsidiaries
  
--
    
--
    
--
    
30,918
    
30,918
Total stockholders' equity
  
743,882
    
1,572,326
    
55,621
    
(1,627,947
)
  
743,882
   
Total liabilities and stockholders' equity
$
1,276,315
  
$
2,097,443
  
$
140,868
  
$
(1,597,029
)
$
1,917,597
 
 
Supplemental Condensed Consolidating Balance Sheet
As of July 31, 2008
(in thousands)
 
           
100% Owned
                        
   
Parent
  
Guarantor
  
Other
  
Eliminating
        
   
Company
  
Subsidiaries
  
Subsidiaries
  
Entries
  
Consolidated
Current assets:
                                        
Cash and cash equivalents
  
$
--
    
$
156,782
    
$
5,563
    
$
--
    
$
162,345
  
Restricted cash
    
--
      
10,526
      
47,911
      
--
      
58,437
  
Trade receivables, net
    
--
      
47,953
      
2,232
      
--
      
50,185
  
Inventories, net
    
--
      
11,786
      
37,922
      
--
      
49,708
  
Other current assets
    
15,142
      
19,205
      
3,873
      
--
      
38,220
  
Total current assets
    
15,142
      
246,252
      
97,501
      
--
      
358,895
  
Property, plant and equipment, net
    
--
      
806,696
      
250,141
      
--
      
1,056,837
  
Real estate held for sale and investment
    
--
      
204,260
      
45,045
      
--
      
249,305
  
Goodwill, net
    
--
      
123,034
      
19,248
      
--
      
142,282
  
Intangible assets, net
    
--
      
56,650
      
15,880
      
--
      
72,530
  
Other assets
    
3,936
      
34,922
      
7,247
      
--
      
46,105
  
Investments in subsidiaries and advances to (from) parent
    
1,248,019
      
599,199
      
(61,968
)
    
(1,785,250
)
    
--
  
Total assets
  
$
1,267,097
    
$
2,071,013
    
$
373,094
    
$
(1,785,250
)
  
$
1,925,954
  
                                         
Current liabilities:
                                        
Accounts payable and accrued liabilities
  
$
12,446
    
$
196,360
    
$
85,376
    
$
--
    
$
294,182
  
Income taxes payable
    
57,474
      
--
      
--
      
--
      
57,474
  
Long-term debt due within one year
    
--
      
15,022
      
333
      
--
      
15,355
  
Total current liabilities
    
69,920
      
211,382
      
85,709
      
--
      
367,011
  
Long-term debt
    
390,000
      
42,722
      
108,628
      
--
      
541,350
  
Other long-term liabilities
    
3,142
      
149,557
      
30,944
      
--
      
183,643
  
Deferred income taxes
    
75,279
      
--
      
--
      
--
      
75,279
  
Minority interest in net assets of consolidated subsidiaries
    
--
      
--
      
--
      
29,915
      
29,915
  
Total stockholders’ equity
    
728,756
      
1,667,352
      
147,813
      
(1,815,165
)
    
728,756
  
Total liabilities and stockholders’ equity
  
$
1,267,097
    
$
2,071,013
    
$
373,094
    
$
(1,785,250
)
  
$
1,925,954
  
 
 
 
 
 
Supplemental Condensed Consolidating Balance Sheet
As of January 31, 2008
(in thousands)
(Unaudited)
                                 
             
100% Owned
                  
       
Parent
    
Guarantor