Edgar Filing: VAIL RESORTS INC

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 April 30, 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

¨ 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 May 29, 2009, 36,434,853 shares of the registrant’s common stock were outstanding.

Table of Contents

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements.	F-1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	1
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	13
Item 4.	Controls and Procedures.	13


PART II	OTHER INFORMATION

Item 1.	Legal Proceedings.	14
Item 1A.	Risk Factors.	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	14
Item 3.	Defaults Upon Senior Securities.	14
Item 4.	Submission of Matters to a Vote of Security Holders.	14
Item 5.	Other Information.	14
Item 6.	Exhibits.	14

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements -- Unaudited

Consolidated Condensed Balance Sheets as of April 30, 2009, July 31, 2008 and April 30, 2008		F-2
Consolidated Condensed Statements of Operations for the Three Months Ended April 30, 2009 and 2008		F-3
Consolidated Condensed Statements of Operations for the Nine Months Ended April 30, 2009 and 2008		F-4
Consolidated Condensed Statements of Cash Flows for the Nine Months Ended April 30, 2009 and 2008		F-5
Notes to Consolidated Condensed Financial Statements		F-6

Vail Resorts, Inc.

Consolidated Condensed Balance Sheets

(In thousands, except share and per share amounts)

		April 30,			July 31,			April 30,
		2009			2008			2008
		(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	170,537		$	162,345		$	304,133
Restricted cash		10,129			58,437			60,562
Trade receivables, net		47,729			50,185			39,054
Inventories, net		45,667			49,708			45,084
Other current assets		34,761			38,220			41,846
Total current assets		308,823			358,895			490,679
Property, plant and equipment, net (Note 5)		1,066,165			1,056,837			979,511
Real estate held for sale and investment		276,952			249,305			394,008
Goodwill, net		167,950			142,282			142,011
Intangible assets, net		79,607			72,530			72,597
Other assets		41,154			46,105			42,620
Total assets	$	1,940,651		$	1,925,954		$	2,121,426

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities (Note 5)	$	220,927		$	294,182		$	315,373
Income taxes payable		32,156			57,474			25,418
Long-term debt due within one year (Note 4)		350			15,355			74,192
Total current liabilities		253,433			367,011			414,983
Long-term debt (Note 4)		491,668			541,350			575,275
Other long-term liabilities (Note 5)		221,462			183,643			172,380
Deferred income taxes		131,970			75,279			129,487
Commitments and contingencies (Note 8)
Minority interest in net assets of consolidated subsidiaries		33,578			29,915			33,133
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, 40,034,958 (unaudited), 39,926,496 and 39,914,385 (unaudited) shares issued, respectively		400			399			399
Additional paid-in capital		552,748			545,773			543,318
Retained earnings		395,725			308,045			319,165
Treasury stock, at cost; 3,600,235 (unaudited), 3,004,108 and 1,506,233 (unaudited) shares, respectively (Note 10)		(140,333	)		(125,461	)		(66,714	)
Total stockholders’ equity		808,540			728,756			796,168
Total liabilities and stockholders’ equity	$	1,940,651		$	1,925,954		$	2,121,426

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
	April 30,
		2009			2008
Net revenue:
Mountain	$	279,180		$	325,726
Lodging		44,896			43,590
Real estate		9,407			54,474
Total net revenue		333,483			423,790
Segment operating expense (exclusive of depreciation and amortization shown separately below):
Mountain		144,998			157,807
Lodging		38,988			35,513
Real estate		14,129			53,562
Total segment operating expense		198,115			246,882
Other operating (expense) income:
Depreciation and amortization		(27,582	)		(25,471	)
(Loss) gain on disposal of fixed assets, net		(206	)		24
Income from operations		107,580			151,461
Mountain equity investment (loss) income, net		(410	)		698
Investment income		449			2,459
Interest expense, net		(6,490	)		(8,441	)
Minority interest in income of consolidated subsidiaries, net		(2,753	)		(4,621	)
Income before provision for income taxes		98,376			141,556
Provision for income taxes		(36,737	)		(54,215	)
Net income	$	61,639		$	87,341

Per share amounts (Note 3):
Basic net income per share	$	1.69		$	2.26
Diluted net income per share	$	1.68		$	2.24

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)

	Nine Months Ended
	April 30,
		2009			2008
Net revenue:
Mountain	$	578,447		$	647,984
Lodging		131,299			121,734
Real estate		165,314			111,978
Total net revenue		875,060			881,696
Segment operating expense (exclusive of depreciation and amortization shown separately below):
Mountain		382,409			401,942
Lodging		122,583			113,530
Real estate		125,014			104,885
Total segment operating expense		630,006			620,357
Other operating (expense) income:
Depreciation and amortization		(80,098	)		(69,854	)
Gain on sale of real property		--			709
Loss on disposal of fixed assets, net		(808	)		(367	)
Income from operations		164,148			191,827
Mountain equity investment income, net		1,766			3,592
Investment income		1,428			7,697
Interest expense, net		(21,732	)		(23,620	)
Contract dispute credit, net (Note 8)		--			11,920
Minority interest in income of consolidated subsidiaries, net		(4,190	)		(7,468	)
Income before provision for income taxes		141,420			183,948
Provision for income taxes		(53,740	)		(69,901	)
Net income	$	87,680		$	114,047

Per share amounts (Note 3):
Basic net income per share	$	2.39		$	2.94
Diluted net income per share	$	2.39		$	2.91

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)

	Nine Months Ended
	April 30,
	2009			2008
Cash flows from operating activities:
Net income	$	87,680		$	114,047
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		80,098			69,854
Cost of real estate sales		94,330			79,244
Stock-based compensation expense		7,794			6,194
Deferred income taxes, net		53,549			54,935
Minority interest in income of consolidated subsidiaries, net		4,190			7,468
Other non-cash income, net		(4,286	)		(5,913	)
Changes in assets and liabilities:
Restricted cash		48,308			(5,813	)
Accounts receivable, net		2,999			(1,222	)
Inventories, net		4,041			2,980
Investments in real estate		(117,895	)		(168,964	)
Accounts payable and accrued liabilities		(42,715	)		(5,437	)
Deferred real estate deposits		(36,078	)		18,869
Private club deferred initiation fees and deposits		40,960			14,670
Other assets and liabilities, net		(14,964	)		(12,768	)
Net cash provided by operating activities		208,011			168,144
Cash flows from investing activities:
Capital expenditures		(87,089	)		(112,602	)
Acquisition of business		(38,170	)		--
Other investing activities, net		(355	)		2,943
Net cash used in investing activities		(125,614	)		(109,659	)
Cash flows from financing activities:
Repurchases of common stock		(14,872	)		(40,868	)
Proceeds from borrowings under non-recourse real estate financings		9,013			125,418
Payments of non-recourse real estate financings		(58,407	)		(70,226	)
Proceeds from borrowings under other long-term debt		63,396			70,837
Payments of other long-term debt		(78,689	)		(71,236	)
Other financing activities, net		5,354			904
Net cash (used in) provided by financing activities		(74,205	)		14,829
Net increase in cash and cash equivalents		8,192			73,314
Cash and cash equivalents:
Beginning of period		162,345			230,819
End of period	$	170,537		$	304,133

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. The Company’s mountain business is seasonal in nature with its peak operating season from mid-November through mid-April. In the Lodging segment, the Company owns and/or manages a collection of luxury hotels under its 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. The Company’s 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 only operate from mid-May through mid-October. 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 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 fiscal 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 nine months ended April 30, 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 nine months ended April 30, 2008 from $147.1 million (as previously disclosed in the April 30, 2008 Quarterly Report on Form 10-Q) to $168.1 million with a corresponding decrease in the cash flows provided by financing activities for the nine months ended April 30, 2008 from $35.9 million (as previously disclosed in the April 30, 2008 Quarterly Report on Form 10-Q) to $14.8 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 impact, 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) and denominators (weighted-average shares outstanding) for both basic and diluted EPS in the footnotes. Basic EPS excludes dilution and is computed by dividing net income available to 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 April 30, 2009 and 2008 (in thousands, except per share amounts):

	Three Months Ended April 30,
	2009				2008
	Basic		Diluted		Basic		Diluted
Net income per share:
Net income	$	61,639	$	61,639	$	87,341	$	87,341

Weighted-average shares outstanding		36,574		36,574		38,655		38,655
Effect of dilutive securities		--		99		--		274
Total shares		36,574		36,673		38,655		38,929

Net income per share	$	1.69	$	1.68	$	2.26	$	2.24

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 696,000 and 78,000 for the three months ended April 30, 2009 and 2008, respectively.

Presented below is basic and diluted EPS for the nine months ended April 30, 2009 and 2008 (in thousands, except per share amounts):

	Nine Months Ended April 30,
	2009				2008
	Basic		Diluted		Basic		Diluted
Net income per share:
Net income	$	87,680	$	87,680	$	114,047	$	114,047

Weighted-average shares outstanding		36,624		36,624		38,809		38,809
Effect of dilutive securities		--		128		--		327
Total shares		36,624		36,752		38,809		39,136

Net income per share	$	2.39	$	2.39	$	2.94	$	2.91

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 816,000 and 81,000 for the nine months ended April 30, 2009 and 2008, respectively.

4. Long-Term Debt

Long-term debt as of April 30, 2009, July 31, 2008 and April 30, 2008 is summarized as follows (in thousands):

		April 30,		July 31,		April 30,
	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		142,075
6.75% Senior Subordinated Notes ("6.75% Notes")	2014		390,000		390,000		390,000
Other	2009-2029		6,743		7,036		7,117
Total debt			492,018		556,705		649,467
Less: Current maturities (d)			350		15,355		74,192
Long-term debt		$	491,668	$	541,350	$	575,275

(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)

The non-recourse real estate financing for The Chalets at The Lodge at Vail, LLC (“Chalets”) was paid in full during the nine months ended April 30, 2009. As of July 31, 2008 non-recourse real estate financings consisted of borrowings under the construction agreement for the Chalets of $49.4 million. As of April 30, 2008 non-recourse real estate financings consisted of borrowings of $58.8 million under the construction agreement for Arrabelle at Vail Square, LLC (“Arrabelle”) and borrowings of $83.3 million under the construction agreement for the Chalets.

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

Aggregate maturities for debt outstanding as of April 30, 2009 reflected by fiscal year are as follows (in thousands):

2009	$	59
2010		349
2011		1,830
2012		305
2013		318
Thereafter		489,157
Total debt	$	492,018

The Company incurred gross interest expense of $8.4 million and $11.1 million for the three months ended April 30, 2009 and 2008, respectively, of which $0.4 million and $0.6 million was amortization of deferred financing costs. The Company capitalized $1.9 million and $2.7 million of interest during the three months ended April 30, 2009 and 2008, respectively. The Company incurred gross interest expense of $26.7 million and $33.9 million for the nine months ended April 30, 2009 and 2008, respectively, of which $1.6 million and $1.8 million was amortization of deferred financing costs. The Company capitalized $5.0 million and $10.3 million of interest during the nine months ended April 30, 2009 and 2008, respectively.

5. Supplementary Balance Sheet Information

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

		April 30,			July 31,			April 30,
		2009			2008			2008
Land and land improvements		$	262,974		$	265,123		$	254,475
Buildings and building improvements			747,775			685,393			653,964
Machinery and equipment			498,771			457,825			462,966
Furniture and fixtures			169,465			149,251			131,021
Software			44,114			39,605			35,811
Vehicles			34,300			28,829			28,260
Construction in progress			32,063			80,601			54,799
	Gross property, plant and equipment		1,789,462			1,706,627			1,621,296
Accumulated depreciation			(723,297	)		(649,790	)		(641,785	)
	Property, plant and equipment, net	$	1,066,165		$	1,056,837		$	979,511

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

		April 30,		July 31,		April 30,
		2009		2008		2008
Trade payables		$	49,657	$	53,187	$	65,269
Real estate development payables			34,925		52,574		52,131
Deferred revenue			42,516		45,805		29,924
Deferred real estate and other deposits			18,737		58,421		89,740
Accrued salaries, wages and deferred compensation			17,167		22,397		23,467
Accrued benefits			27,251		22,777		27,058
Accrued interest			6,591		14,552		6,844
Liabilities to complete real estate projects, short term			5,639		4,199		7,327
Other accruals			18,444		20,270		13,613
	Total accounts payable and accrued liabilities	$	220,927	$	294,182	$	315,373

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

		April 30,		July 31,		April 30,
		2009		2008		2008
Private club deferred initiation fee revenue and deposits		$	154,950	$	121,947	$	122,952
Deferred real estate deposits			46,151		45,775		34,997
Other long-term liabilities			20,361		15,921		14,431
	Total other long-term liabilities	$	221,462	$	183,643	$	172,380

On November 1, 2008, the Company acquired substantially all of the assets of CME, a resort ground transportation business, for a total consideration of $38.2 million, as well as $0.9 million to reimburse the seller for certain new capital expenditures as provided for in the purchase 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. The operating results of CME are reported within the Lodging segment.

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, 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 April 30, 2009, the Employee Housing Entities had total assets of $37.9 million (primarily recorded in property, plant and equipment, net) and total liabilities of $70.5 million (primarily recorded in long-term debt as “Employee Housing Bonds”). The Company has issued under its senior credit facility (the “Credit Facility”) $53.4 million letters of credit related to 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 $5.5 million (primarily recorded in property, plant and equipment, net) and no debt as of April 30, 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 April 30, 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 $229 million and total liabilities of approximately $151 million. The Company's maximum exposure to loss as a result of its involvement with these VIEs is limited to a $2.3 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 April 30, 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 April 30, 2009 (all other financial assets and liabilities applicable to SFAS 157 are immaterial) (in thousands):

			Fair Value Measurements at Reporting Date Using
	Balance at
	April 30,
Description	2009			Level 1		Level 2		Level 3
Cash equivalents	$	156,742		$	121,742	$	35,000	$	--

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 $1.4 million, $1.6 million and $1.7 million, primarily within “other long-term liabilities” in the accompanying Consolidated Condensed Balance Sheets, as of April 30, 2009, July 31, 2008 and April 30, 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 April 30, 2009, the Company had various other guarantees, primarily in the form of letters of credit in the amount of $88.9 million, consisting primarily of $53.4 million in support of the Employee Housing Bonds, $29.0 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 April 30, 2009, July 31, 2008 and April 30, 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 nine months ended April 30, 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. Resort 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 or minus segment equity investment income or loss 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 or minus Mountain equity investment income or loss. 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						Nine Months Ended
		April 30,						April 30,
		2009			2008			2009			2008
Net revenue:
Lift tickets		$	149,384		$	167,793		$	276,542		$	301,791
Ski school			36,374			46,229			65,336			81,384
Dining			24,246			30,344			48,456			58,002
Retail/rental			48,214			59,533			129,878			149,844
Other			20,962			21,827			58,235			56,963
Total Mountain net revenue			279,180			325,726			578,447			647,984
Lodging			44,896			43,590			131,299			121,734
Total Resort net revenue			324,076			369,316			709,746			769,718
Real Estate			9,407			54,474			165,314			111,978
Total net revenue		$	333,483		$	423,790		$	875,060		$	881,696
Operating expense:
Mountain		$	144,998		$	157,807		$	382,409		$	401,942
Lodging			38,988			35,513			122,583			113,530
Total Resort operating expense			183,986			193,320			504,992			515,472
Real estate			14,129			53,562			125,014			104,885
Total segment operating expense		$	198,115		$	246,882		$	630,006		$	620,357
Gain on sale of real property		$	--		$	--		$	--		$	709
Mountain equity investment (loss) income, net		$	(410	)	$	698		$	1,766		$	3,592

Reported EBITDA:
Mountain		$	133,772		$	168,617		$	197,804		$	249,634
Lodging			5,908			8,077			8,716			8,204
Resort			139,680			176,694			206,520			257,838
Real Estate			(4,722	)		912			40,300			7,802
Total Reported EBITDA		$	134,958		$	177,606		$	246,820		$	265,640

Real estate held for sale and investment		$	276,952		$	394,008		$	276,952		$	394,008

Reconciliation to net income:
Total Reported EBITDA		$	134,958		$	177,606		$	246,820		$	265,640
Depreciation and amortization			(27,582	)		(25,471	)		(80,098	)		(69,854	)
(Loss) gain on disposal of fixed assets, net			(206	)		24			(808	)		(367	)
Investment income			449			2,459			1,428			7,697
Interest expense, net			(6,490	)		(8,441	)		(21,732	)		(23,620	)
Contract dispute credit, net			--			--			--			11,920
Minority interest in income of consolidated subsidiaries, net			(2,753	)		(4,621	)		(4,190	)		(7,468	)
Income before provision for income taxes			98,376			141,556			141,420			183,948
	Provision for income taxes		(36,737	)		(54,215	)		(53,740	)		(69,901	)
Net income		$	61,639		$	87,341		$	87,680		$	114,047

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. The Company did not repurchase any shares of common stock during the three months ended April 30, 2009. During the nine months ended April 30, 2009, the Company repurchased 596,127 shares of common stock at a cost of $14.9 million. Since inception of this stock repurchase plan through April 30, 2009, the Company has repurchased 3,600,235 shares at a cost of approximately $140.3 million. As of April 30, 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.

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 sheets are presented as of April 30, 2009, July 31, 2008 and April 30, 2008. Statements of operations are presented for the three and nine months ended April 30, 2009 and 2008. Statements of cash flows are presented for the nine months ended April 30, 2009 and 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 Parent Company and Guarantor Subsidiaries 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 April 30, 2009
(in thousands)
(Unaudited)

						100% Owned
				Parent		Guarantor		Other			Eliminating
				Company		Subsidiaries		Subsidiaries			Entries			Consolidated
Current assets:
	Cash and cash equivalents		$	--	$	161,853	$	8,684		$	--		$	170,537
	Restricted cash			--		9,881		248			--			10,129
	Trade receivables, net			--		45,990		1,739			--			47,729
	Inventories, net			--		10,321		35,346			--			45,667
	Other current assets			18,102		14,770		1,889			--			34,761
		Total current assets		18,102		242,815		47,906			--			308,823
Property, plant and equipment, net				--		999,086		67,079			--			1,066,165
Real estate held for sale and investment				--		276,952		--			--			276,952
Goodwill, net				--		148,702		19,248			--			167,950
Intangible assets, net				--		63,757		15,850			--			79,607
Other assets				3,403		32,700		5,051			--			41,154
Investments in subsidiaries and advances to (from) parent				1,350,254		307,604		(13,220	)		(1,644,638	)		--
	Total assets		$	1,371,759	$	2,071,616	$	141,914		$	(1,644,638	)	$	1,940,651

Current liabilities:
	Accounts payable and accrued liabilities		$	5,951	$	198,486	$	16,490		$	--		$	220,927
	Income taxes payable			32,156		--		--			--			32,156
	Long-term debt due within one year			--		9		341			--			350
		Total current liabilities		38,107		198,495		16,831			--			253,433
Long-term debt				390,000		42,717		58,951			--			491,668
Other long-term liabilities				3,142		216,118		2,202			--			221,462
Deferred income taxes				131,970		--		--			--			131,970
Minority interest in net assets of consolidated subsidiaries				--		--		--			33,578			33,578
Total stockholders' equity				808,540		1,614,286		63,930			(1,678,216	)		808,540
		Total liabilities and stockholders' equity	$	1,371,759	$	2,071,616	$	141,914		$	(1,644,638	)	$	1,940,651

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 April 30, 2008
(in thousands)
(Unaudited)

						100% Owned
				Parent		Guarantor		Other		Eliminating
				Company		Subsidiaries		Subsidiaries		Entries		Consolidated
Current assets:
	Cash and cash equivalents		$	--	$	288,205	$	15,928	$	--	$	304,133
	Restricted cash			--		10,212		50,350		--		60,562
	Trade receivables, net			--		36,711		2,343		--		39,054
	Inventories, net			--		9,611		35,473		--		45,084
	Other current assets			17,395		15,406		9,045		--		41,846
		Total current assets		17,395		360,145		113,139		--		490,679
Property, plant and equipment, net				--		798,732		180,779		--		979,511
Real estate held for sale and investment				--		98,314		295,694		--		394,008
Goodwill, net				--		123,034		18,977		--		142,011
Intangible assets, net				--		56,715		15,882		--		72,597
Other assets				4,114