UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended July 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)
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Delaware
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51-0291762
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(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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390
Interlocken Crescent
Broomfield,
Colorado
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80021
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(303)
404-1800
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(Registrant’s
Telephone Number, Including Area Code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class:
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Name
of each exchange on which registered:
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Common
Stock, $0.01 par value
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
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None.
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(Title
of Class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. x Yes No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes x No
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. x
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 Act).
Yes x No
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, based on the closing price of $23.32 per share
as reported on the New York Stock Exchange Composite Tape on January 30, 2009
(the last business day of the Registrant's most recently completed second
quarter) was $700,131,580.
As of
September 18, 2009, 36,174,979 shares of Common Stock were
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The Proxy
Statement for the Annual Meeting of Shareholders is incorporated by reference
herein into Part III, Items 10 through 14.
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Table
of Contents
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PART
I
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Item
1.
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3
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Item
1A.
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17
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Item
1B.
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25
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Item
2.
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25
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Item
3.
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27
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Item
4.
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27
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PART
II
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Item
5.
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28
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Item
6.
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29
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Item
7.
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32
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Item
7A.
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51
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Item
8.
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F-1
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Item
9.
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52
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Item
9A.
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52
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Item
9B.
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52
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Item
10.
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53
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Item
11.
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53
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Item
12.
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53
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Item
13.
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53
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Item
14.
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53
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Item
15.
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53
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FORWARD-LOOKING
STATEMENTS
Except
for any historical information contained herein, the matters discussed in this
Annual Report on Form 10-K (this “Form 10-K”) contain certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements relate to analyses and other information,
which are based on forecasts of future results and estimates of amounts not yet
determinable. These statements also relate to our future prospects,
developments and business strategies.
These
forward-looking statements are identified by their use of terms and phrases such
as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,”
“plan,” “predict,” “project,” “will” and similar terms and phrases, including
references to assumptions. Although we believe that our plans,
intentions and expectations reflected in or suggested by such forward-looking
statements are reasonable, we cannot assure you that such plans, intentions or
expectations will be achieved. Important factors that could cause
actual results to differ materially from our forward-looking statements include,
but are not limited to:
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prolonged
downturn in general economic conditions, including continued adverse
affects on the overall travel and leisure related
industries;
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unfavorable
weather conditions or natural
disasters;
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competition
in our mountain and lodging
businesses;
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our
ability to grow our resort and real estate
operations;
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our
ability to successfully complete real estate development projects and
achieve the anticipated financial benefits from such
projects;
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further
adverse changes in real estate
markets;
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continued
volatility in credit markets;
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our
ability to obtain financing on terms acceptable to us to finance our real
estate development, capital expenditures and growth
strategy;
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our
reliance on government permits or approvals for our use of Federal land or
to make operational improvements;
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adverse
consequences of current or future legal
claims;
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our
ability to hire and retain a sufficient seasonal
workforce;
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willingness
of our guests to travel due to terrorism, the uncertainty of military
conflicts or outbreaks of contagious diseases, and the cost and
availability of travel options;
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negative
publicity or unauthorized use of our trademarks which diminishes the value
of our brands;
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our
ability to integrate and successfully operate future acquisitions;
and
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implications
arising from new Financial Accounting Standards Board
(“FASB”)/governmental legislation, rulings or
interpretations.
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All
forward-looking statements attributable to us or any persons acting on our
behalf are expressly qualified in their entirety by these cautionary
statements.
If one or
more of these risks or uncertainties materialize, or if underlying assumptions
prove incorrect, our actual results may vary materially from those expected,
estimated or projected. Given these uncertainties, users of the
information included in this Form 10-K, including investors and prospective
investors, are cautioned not to place undue reliance on such forward-looking
statements. Actual results may differ materially from those suggested
by the forward-looking statements that the Company makes for a number of reasons
including those described in Part I, Item 1A, “Risk Factors” of this Form
10-K. All forward-looking statements are made only as of the date
hereof. Except as may be required by law, the Company does not intend to update
these forward-looking statements, even if new information, future events or
other circumstances have made them incorrect or misleading.
General
Vail
Resorts, Inc. was organized as a public holding company in 1997 and operates
through various subsidiaries (collectively, the “Company”). The
Company's operations are grouped into three business segments: Mountain, Lodging
and Real Estate, which represented approximately 63%, 18% and 19%, respectively,
of the Company's net revenue for the year ended July 31, 2009 (“Fiscal
2009”). The Company's Mountain segment owns and operates five
world-class ski resort properties as well as ancillary businesses, primarily
including ski school, dining and retail/rental operations, which provide a
comprehensive resort experience to a diverse clientele with an attractive
demographic profile. The Company's Lodging segment 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 (the
“Park”), Colorado Mountain Express (“CME”), a resort ground transportation
company, and golf courses. Collectively, the Mountain and Lodging
segments are considered the Resort segment. The Company's Real Estate
segment owns and develops real estate in and around the Company's resort
communities. Financial information by segment is presented in Note
15, Segment Information, of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this Form 10-K.
Mountain
Segment
The
Company's portfolio of world-class ski resorts currently includes:
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Vail
Mountain (“Vail Mountain”) – the single most visited ski resort in the
United States for the 2008/2009 ski season and the single largest ski
mountain in the United States. Vail offers some of the most
expansive and varied terrain with approximately 5,300 skiable acres
including seven world renowned back bowls and the rustic Blue Sky Basin
area of the resort.
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Breckenridge
Ski Resort (“Breckenridge”) – the second most visited ski resort in the
United States for the 2008/2009 ski season and host of the highest
chairlift in North America, the Imperial Express Super Chair, reaching
12,840 feet and offering above tree line expert
terrain. Breckenridge is well known for its historic town,
vibrant night-life and progressive and award-winning pipes and
parks.
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Keystone
Resort (“Keystone”) – the fourth most visited ski resort in the United
States for the 2008/2009 ski season and home to the highly renowned A51
Terrain Park as well as the largest area of night skiing in
Colorado. Keystone also offers guests a unique skiing
opportunity through guided snow cat ski tours accessing five
bowls.
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Beaver
Creek Resort (“Beaver Creek”) – the seventh most visited ski resort in the
United States for the 2008/2009 ski season. Beaver Creek is a
European –style resort with multiple villages and also includes a world
renowned children’s ski school program focused on providing a first-class
experience with unique amenities such as a dedicated children’s
gondola.
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Heavenly
Mountain Resort (“Heavenly”) – the ninth most visited ski resort in the
United States for the 2008/2009 ski season and the second largest ski
resort in the United States with over 4,800 skiable
acres. Heavenly straddles the border of California and Nevada
and offers unique and spectacular views of Lake Tahoe. Heavenly
boasts the largest snowmaking capacity in the Lake Tahoe region and offers
great night life including its proximity to several
casinos.
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Vail
Mountain, Beaver Creek, Breckenridge and Keystone, all located in the Colorado
Rocky Mountains, and Heavenly, located in the Lake Tahoe area of
California/Nevada, are year-round mountain resorts. Each offers a
full complement of recreational activities, including skiing, snowboarding,
snowshoeing, sight-seeing, mountain biking, guided hiking, children’s activities
and other recreational activities.
The
Company's Mountain segment derives revenue through the sale of lift tickets and
season passes as well as a comprehensive offering of amenities available to
guests, including ski and snowboard lessons, equipment rentals and retail
merchandise sales, a variety of dining venues, private club operations and other
recreational activities. In addition to providing extensive guest
amenities, the Company also engages in, among other activities, the leasing out
of the Company’s owned commercial space around its base resorts for restaurants
and retail stores.
Ski
Industry/Market
There are
approximately 760 ski areas in North America and approximately 470 in the United
States, ranging from small ski area operations that service day skiers to large
resorts that attract both day skiers and destination resort guests looking for a
comprehensive vacation experience. One of the primary ski industry
statistics for measuring performance is “skier visit,” which represents a person
utilizing a ticket or pass to access a mountain resort for any part of one day,
and includes both paid and complimentary access. During the 2008/2009
ski season, combined skier visits for all the United States ski areas were
approximately 57.4 million and all North American skier visits were
approximately 76.1 million. The Company's ski resorts had 5.9 million
skier visits during the 2008/2009 ski season, or approximately 10.3% of United
States skier visits, and an approximate 7.8% share of the North American
market's skier visits.
The
Company's Colorado ski resorts appeal to both day skiers and destination guests
due to the resorts' proximity to Colorado's Front Range (Denver/Colorado
Springs/Boulder metropolitan areas), accessibility from several airports,
including Denver International Airport and Eagle County Airport, and the wide
range of amenities available at each resort. Colorado has 29 ski
areas, six of which are considered “Front Range Destination Resorts,” including
all of the Company's Colorado resorts, catering to both the Colorado Front Range
and destination-skier markets. All Colorado ski resorts combined
recorded approximately 11.9 million skier visits for the 2008/2009 ski season
with skier visits at the Company's Colorado ski resorts totaling 5.1 million, or
approximately 42.9% of all Colorado skier visits for the 2008/2009 ski
season.
Lake
Tahoe, which straddles the border of California and Nevada, is a major skiing
destination less than 100 miles from Sacramento and Reno and approximately 200
miles from San Francisco, making it a convenient destination for both day skiers
and destination guests. South Lake Tahoe, where Heavenly is located,
is also a popular year-round vacation destination, featuring extensive summer
attractions and casinos in addition to its winter sports
offerings. Heavenly is proximate to both the Reno/Tahoe International
Airport and the Sacramento International Airport. California and
Nevada have 33 ski areas. Heavenly had 802,000 skier visits for the
2008/2009 ski season, capturing approximately 11.8% of California's and Nevada's
6.8 million total skier visits for the 2008/2009 ski season.
Competition
There are
significant barriers to entry for new ski areas due to the limited private lands
on which ski areas could be built, the difficulty in getting the appropriate
governmental approvals to build on public lands and the significant capital
needed to construct the necessary infrastructure. As such, there has
been virtually no new supply of major resorts in North America for the past 25
years which has and should continue to allow the best positioned resorts,
including all of the Company’s resorts, to capture a majority of future industry
growth. The Company’s resorts compete with other major ski resorts,
including Aspen/Snowmass, Copper Mountain, Deer Valley, Mammoth Mountain,
Northstar-at-Tahoe, Park City Mountain Resort, Squaw Valley USA, Steamboat,
Whistler Blackcomb and Winter Park, as well as other ski areas in Colorado and
the Lake Tahoe area, other destination ski areas worldwide and non-ski related
vacation destinations.
While the
ski industry has performed well in recent years in terms of number of skier
visits, with the eight best seasons occurring in the past nine years for United
States visitation, a particular ski area's growth is also largely dependent on
either attracting skiers away from other resorts, generating more revenue per
skier visit and/or generating more visits from each skier. Better
capitalized ski resorts, including all five mountain resorts operated by the
Company, are expanding their offerings, as well as enhancing the quality and
experience by adding new high speed chairlifts, gondolas, terrain parks, state
of the art grooming machines, expanded terrain and amenities at the base areas
of the resorts, all of which are aimed at increasing guest visitation and
revenue per skier visit. The Company believes it invests more in
capital improvements than the vast majority of its competitors and can also
create synergies by operating multiple resorts thus enhancing the Company’s
profitability. Additionally, the Company through its sales of season
passes (including the new Epic Season Pass introduced in the 2008/2009 ski
season, which offers unrestricted and unlimited access to all five of its
resorts) provides its guests with a strong value option, in return for the guest
committing to ski at its resorts prior to, or very early into the ski season,
which the Company believes attracts more guests to its resorts. All
five of the Company’s resorts typically rank in the top ten most visited ski
resorts in the United States. Additionally, all of the Company's
resorts consistently rank in the top 25 ranked ski resorts in North America
according to industry surveys, which the Company attributes to its resorts'
ability to provide a high-quality experience.
The ski
industry statistics stated in this section have been derived from data published
by Colorado Ski Country USA, Canadian Ski Council, Kottke National End of Season
Survey 2008/2009 (the “Kottke Survey”) and other industry
publications.
All of
the Company's ski resorts maintain the unique distinction of competing
effectively as both market share leaders and quality leaders. The
following inherent and strategic factors contribute directly to each resort’s
success:
Exceptional mountain
experience --
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World-Class
Mountain Resorts and Integrated Base Resort
Areas
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All five
of the Company’s mountain resorts offer a multitude of skiing and snowboarding
experiences for the beginner, intermediate, advanced and expert
levels. Each resort is also fully integrated into expansive resort
areas offering a broad array of lodging, dining, retail, spas, nightlife and
other amenities to the resort’s guests, some of which are owned or managed by
the Company.
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Snow
Conditions
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The
Company's resorts are located in areas that receive significantly higher than
average snowfall compared to most other ski resort locations in the United
States. The Company’s resorts in the Colorado Rocky Mountains and
Heavenly in the Sierra Nevada Mountains all receive average yearly snowfall
between 20 and 30 feet. Even in these abundant snowfall areas, the
Company has significant snowmaking systems that can help provide a more
consistent experience, especially in the early season. Additionally,
the Company provides many acres of groomed terrain at its resorts with extensive
fleets of snow grooming equipment.
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Lift
Service
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The
Company systematically upgrades its lifts to streamline skier traffic and
maximize guest experience. For the 2008/2009 ski season, the Company
replaced its existing gondola at Keystone with an eight-passenger gondola
including a mid-station feature. In the past three fiscal years, the
Company has installed several high-speed chairlifts and gondolas across its
resorts, including an eight-passenger gondola at Breckenridge with two
mid-station features; an eight-passenger gondola at Beaver Creek; two
four-passenger high-speed chairlifts at Vail Mountain; and a four-passenger
high-speed chairlift at Heavenly.
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Terrain
Parks
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The
Company's resorts are committed to leading the industry in terrain park design,
education and events for the growing segment of freestyle skiers and
snowboarders. Each resort has multiple terrain parks that include
progressively-challenging features. This park structure, coupled with
new freestyle ski school programs, promotes systematic learning from basic to
professional skills.
Extraordinary
service and amenities --
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Commitment
to Guest Service
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The
Company’s mission is to provide quality service at every level of the guest
experience. Prior to arrival, guests can receive personal assistance
through the Company’s full-service, in-house travel center to book desired
lodging accommodations, lift tickets, ski school lessons, equipment rentals and
air and ground travel. On-mountain ambassadors engage guests and
answer questions and all personnel, from lift operators to ski patrol, convey a
guest-oriented culture. The Company solicits guest feedback through a
variety of surveys and results are utilized to ensure high levels of customer
satisfaction to understand trends and develop future resort programs and
amenities.
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Season
Pass Products
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The
Company offers a variety of season pass products for all of its ski resorts,
marketed towards both out-of-state and international guests (“Destination”) and
in-state and local guests (“In-State”). The Company’s season pass
products are available for purchase predominately during the period prior to the
start of the ski season. The Company’s season pass products provide a
value option to its guests and in turn develops a loyal customer base that
commit to ski at the Company’s resorts, ski multiple days each season at the
Company’s resorts and return to purchase season pass products year after
year. In addition, the Company’s season pass products attract new
guests to its resorts. Growth in sales of season pass products is a
key strategic factor for the Company and also creates strong synergies between
its resorts. In the 2008/2009 ski season the Company introduced a new
pass product, (the “Epic Season Pass”) primarily marketed to its Destination
guests (and also available to In-State guests) allowing pass holders unlimited
and unrestricted access to all five ski resorts. Season pass products
provided approximately 34% of the Company’s total lift ticket revenue for the
2008/2009 ski season.
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Premier
Ski Schools
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The
Company’s resorts are home to some of the finest and most recognized ski and
snowboard schools in the industry. Through a combination of
outstanding training and abundant work opportunities, the schools have become
home to many of the most experienced and credentialed professionals in the
business. The Company complements its instructor staff with
state-of-the-art facilities and extensive learning terrain, all with a keen
attention to guest needs, including offering a wide variety of adult and child
group and private lesson options with a goal of creating lifelong skiers and
riders.
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On-Mountain
Activities
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The
Company is a ski industry leader in providing comprehensive destination vacation
experiences, including on-mountain activities designed to appeal to a broad
range of interests. In addition to the Company’s exceptional ski
experiences, guests can choose from a variety of non-ski related activities
including snow tubing, snow shoeing, guided snowmobile and scenic cat tours,
horse-drawn sleigh rides and a year-round zip line in addition to high altitude
dining. During the summer, on-mountain recreational activities
provide guests with a wide array of options including scenic chairlift and
gondola rides, mountain biking, alpine slide and zip-line rides, horseback
riding and hiking.
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Dining
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The
Company’s resorts provide a variety of quality on-mountain and base village
dining venues, ranging from top-rated fine dining restaurants to trailside
express food service outlets. The Company operates over 90 of such
dining options at its five mountain resorts. Furthermore, the Company
is committed to serving healthy food options to its guests at these dining
venues through the Company’s “Appetite for Life” program.
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Retail/rental
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The
Company, through SSI Venture, LLC (“SSV”), has over 150 retail/rental locations
specializing in sporting goods including ski, snowboard, golf and cycling
equipment. In addition to providing a major retail/rental presence at
each of the Company's ski resorts, the Company also has retail/rental locations
throughout the Colorado Front Range and at other Colorado, California and Utah
ski resorts, as well as the San Francisco Bay Area and Salt Lake
City. Many of the locations in the Colorado Front Range and in the
San Francisco Bay Area also offer a prime venue for selling the Company’s season
pass products.
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Lodging
and Real Estate Development
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Quality
lodging options are an integral part of providing a complete resort
experience. The Company’s 14 owned and managed hotels proximate to
its five mountain resorts, including four RockResorts branded hotels, and a
significant inventory of managed condominium rooms provide numerous
accommodation options for the Company’s mountain resort guests. The
Company’s real estate development efforts provide the Company with the ability
to add profitability to the Company while expanding the destination bed base and
upgrading its resorts through the development of amenities such as luxury
hotels, private clubs, spas, parking and commercial space for restaurants and
retail shops. The Company’s Lodging and Real Estate segments have and
continue to invest in resort related assets as part of their initiatives which
enhance the overall resort experience. Examples include: the
Arrabelle at Vail Square hotel (the “Arrabelle”), a RockResort property which
opened in the 2007/2008 ski season; the major renovation of The Osprey at Beaver
Creek (formerly the Inn at Beaver Creek), a RockResort property that opened in
the 2008/2009 ski season; a new spa, guest rooms and renovated ballroom and
meeting spaces at The Lodge at Vail for the 2008/2009 ski season; the
Crystal Peak Lodge in Breckenridge which opened for the 2008/2009 ski season;
and the Vail Mountain and Arrabelle Clubs, private mountain clubs which opened
for the 2008/2009 ski season.
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Environmental
Stewardship
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As part
of the Company’s long-standing commitment to responsible stewardship of its
natural mountain settings, the Company has several initiatives in environmental
sustainability which transcend throughout all of the Company’s
operations. During Fiscal 2009, the Company announced an “energy
layoff” initiative aimed at reducing overall energy consumption by 10%, with a
goal of a 5% reduction in the first year and a 5% reduction in the second
year. The Company reduced its energy consumption by 6.1% in Fiscal
2009, exceeding its first year goal. In addition, the Company
recently introduced a “paperless” initiative with plans to substantially
eliminate the internal use of paper by the end of calendar year
2011. In Fiscal 2009, the Company has also offset approximately 100%
of its electrical usage by purchasing megawatt-hours of wind energy credits for
its five mountain resorts, its lodging properties including RockResorts, its
retail/rental locations and its corporate headquarters in Broomfield,
Colorado. The Company’s headquarters is LEED-certified and the
Company’s planned Ever Vail project is expected to be the largest LEED-certified
project for resort use in North America. Additionally, the Company
has partnered with the National Forest Foundation to raise funds for various
conservation projects in the White River National Forest in Colorado and the
National Forest of Tahoe Basin in California/Nevada where the Company operates
its five mountain resorts. As a result of these efforts, the Company
was honored by Conde Nast
Traveler as a leader in social responsibility in the travel industry as a
winner of the magazine’s 2008 World Savers Awards in the category of
environmental protection.
Accessibility from major
metropolitan areas --
The
Company’s ski resorts are well located and easily accessible by both Destination
and In-State guests.
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Colorado
resorts
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The
Colorado Front Range market, with a population of approximately 4.3 million, and
growing faster than the national average, is within approximately 100 miles from
each of the Company's Colorado resorts, with access via a major interstate
highway. Additionally, the Company's Colorado resorts are proximate
to both Denver International Airport and Eagle County Airport.
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Heavenly
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Heavenly
is proximate to two large California population centers, the Sacramento/Central
Valley and the San Francisco Bay Area. Heavenly is within 100 miles
of Sacramento/Central Valley and approximately 200 miles from the San Francisco
Bay area via major interstate highways. Heavenly is serviced by the
Reno/Tahoe International Airport, Sacramento International Airport and the San
Francisco International Airport.
Marketing and
Sales
The
Company promotes its resorts through extensive marketing and sales programs,
which include direct marketing to a targeted audience, promotional programs,
print media advertising in lifestyle and industry publications, loyalty programs
that reward frequent guests and sales and marketing directed at attracting
groups, corporate meetings and convention business. Additionally, the
Company markets directly to many of its guests through its websites and internet
presence, including using social media outlets, which provides guests with
information regarding each of the Company's resorts, including services and
amenities, reservations information and virtual tours (nothing contained on the
websites shall be deemed incorporated herein). The Company also
enters into strategic sponsorships with selected “name brand” companies to
increase its market exposure and create opportunities for
cross-marketing.
Seasonality
Ski
resort operations are highly seasonal in nature, with a typical ski season
beginning in mid-November and running through mid-April. In an effort
to partially counterbalance the concentration of revenue in the winter months,
the Company offers non-ski season attractions such as sight-seeing, mountain
biking, guided hiking, alpine slides and zip-line rides, children’s activities
and other recreational activities such as golf (included in the operations of
the Lodging segment). These activities also help attract destination
conference and group business to the Company's resorts.
Lodging
Segment
The
Company's Lodging segment includes the following operations:
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·
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RockResorts
-- a luxury hotel management company with a current portfolio of eight
properties, including four Company-owned and four managed third-party
owned resort hotels with locations in Colorado, Wyoming, New Mexico and
St. Lucia, West Indies as well as six properties currently under
development that the Company will
manage;
|
|
·
|
Six
additional independently flagged Company-owned hotels, management of the
Vail Marriott Mountain Resort & Spa (“Vail Marriott”), Mountain
Thunder Lodge, Crystal Peak Lodge and Austria Haus Hotel and condominium
management operations, all of which are in and around the Company's
Colorado ski resorts;
|
|
·
|
GTLC
-- a summer destination resort with three resort properties in the Grand
Teton National Park and the Jackson Hole Golf & Tennis Club
(“JHG&TC”) near Jackson,
Wyoming;
|
|
·
|
CME
-- a resort ground transportation company;
and
|
|
·
|
Five
Company-owned resort golf courses in Colorado and one in
Wyoming.
|
The
Lodging segment currently includes approximately 3,900 owned and managed hotel
and condominium rooms. The Company's resort hotels collectively
offer a wide range of services to guests.
The
Company's portfolio of owned or managed luxury resort hotels and other hotels
and resorts currently includes:
|
Name
|
Location
|
Own/Manage
|
Rooms
|
|
RockResorts:
|
|||
|
The
Lodge at Vail
|
Vail,
CO
|
Own
|
169*
|
|
The
Arrabelle at Vail Square
|
Vail,
CO
|
Own
|
88*
|
|
The
Pines Lodge
|
Beaver
Creek, CO
|
Own
|
68*
|
|
The
Osprey at Beaver Creek
|
Beaver
Creek, CO
|
Own
|
47*
|
|
La
Posada de Santa Fe
|
Santa
Fe, NM
|
Manage
|
157
|
|
Snake
River Lodge & Spa
|
Teton
Village, WY
|
Manage
|
153
|
|
Hotel
Jerome
|
Aspen,
CO
|
Manage
|
94
|
|
The
Landings St. Lucia
|
St.
Lucia, West Indies
|
Manage
|
71
|
|
Other
Hotels and Resorts:
|
|||
|
The
Great Divide Lodge
|
Breckenridge,
CO
|
Own
|
208
|
|
The
Keystone Lodge
|
Keystone,
CO
|
Own
|
152
|
|
Inn
at Keystone
|
Keystone,
CO
|
Own
|
103
|
|
Breckenridge
Mountain Lodge
|
Breckenridge,
CO
|
Own
|
71
|
|
Village
Hotel
|
Breckenridge,
CO
|
Own
|
60
|
|
Ski
Tip Lodge
|
Keystone,
CO
|
Own
|
10
|
|
Jackson
Lake Lodge
|
Grand
Teton Nat'l Pk., WY
|
Concessionaire
Contract
|
385
|
|
Colter
Bay Village
|
Grand
Teton Nat'l Pk., WY
|
Concessionaire
Contract
|
166
|
|
Jenny
Lake Lodge
|
Grand
Teton Nat'l Pk., WY
|
Concessionaire
Contract
|
37
|
|
Vail
Marriott Mountain Resort & Spa
|
Vail,
CO
|
Manage
|
344
|
|
Mountain
Thunder Lodge
|
Breckenridge,
CO
|
Manage
|
100
|
|
Crystal
Peak Lodge
|
Breckenridge,
CO
|
Manage
|
26
|
|
Austria
Haus Hotel
|
Vail,
CO
|
Manage
|
25
|
|
*Includes
individual owner units that are in a rental program managed by the
Company.
|
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Created
by Laurance S. Rockefeller in 1956, the portfolio of RockResorts properties was
purchased by the Company in December 2001. The RockResorts collection
includes luxury hotels influenced by a strong connection to the natural
surrounding environment and feature award-winning dining, and state-of-the-art
RockResorts spas and fitness centers. The properties incorporate the
indigenous environment into the guest experience and feature access to a variety
of year-round outdoor activities ranging from skiing to golf.
The
Company's lodging strategy seeks to complement and enhance its mountain resort
operations through the ownership or management of lodging properties and
condominiums in proximity to its mountain resorts and management of luxury
resorts in premier destination locations. Additionally, the Company
continues to pursue new management contracts, which may include, in addition to
management fees, marketing license fees and technical service fees in
conjunction with a project’s design, development and sales.
The
Company’s lodging strategy, through RockResorts, is focused on the resort hotel
niche within the luxury segment and competes for boutique full-service hotel
management contracts with other hotel management companies, including Rosewood
Hotels & Resorts, the KOR group and Auberge Resorts.
During
Fiscal 2009, RockResorts announced the addition of two luxury properties, which
are currently under development, to its managed hotel portfolio; Balcones Del
Atlantico, a beachfront resort in the village of Las Terrenas on the Samana
Peninsula of the Dominican Republic, and the Mansfield Inn at Stowe, a mountain
resort property located in the mountain resort community of Stowe,
Vermont. Additionally, current properties under development as
RockResorts managed resorts include: Tempo Miami, Miami, Florida; One Ski Hill
Place, Breckenridge; Rum Cay Resort Marina, Bahamas and the Third Turtle Club
& Spa, Turks & Caicos.
In
November 2008, the Company acquired CME, which represents the first point of
contact with many of the Company’s guests when they arrive by air to
Colorado. CME offers year-round ground transportation from Denver
International Airport and Eagle County Airport to the Vail Valley (locations in
and around Vail, Beaver Creek, Avon and Edwards), Aspen (locations in and around
Aspen and Snowmass) and Summit County (includes Keystone, Breckenridge, Copper
Mountain, Frisco and Silverthorne) for ski and snowboard and other mountain
resort experiences. CME offers four primary types of services;
including door-to-door shuttle business, point-to-point shuttle business with
centralized drop-off at transportation hubs, private chartered vans and premier
luxury charter vehicles. The vehicle fleet consists of approximately
250 vans and luxury SUV’s, and transported approximately 300,000 resort guests
over the past year.
Lodging
Industry/Market
Hotels
are categorized by Smith Travel Research, a leading lodging industry research
firm, as luxury, upper upscale, upscale, mid-price and economy. The
service quality and level of accommodations of the RockResorts’ hotels place
them in the luxury category, which represents hotels achieving the highest
average daily rates (“ADR”) in the industry, and includes such brands as the
Four Seasons, Ritz-Carlton and Starwood's Luxury Collection
hotels. The Company’s other hotels are categorized in the upper
upscale and upscale segments of the hotel market. The luxury and
upper upscale segments consist of approximately 695,000 rooms at approximately
1,950 properties in the United States as of July 2009. For Fiscal
2009, the Company's owned hotels, which includes a combination of certain
RockResorts, as well as other hotels in proximity to the Company’s ski resorts,
had an overall ADR of $183.59, a paid occupancy rate of 58.3% and revenue per
available room (“RevPAR”) of $107.06, as compared to the upper upscale segment’s
ADR of $149.49, a paid occupancy rate of 64.5% and RevPAR of $96.40. The Company
believes that this comparison to the upper upscale category is appropriate as
its mix of owned hotels include those in the luxury and upper upscale
categories, as well as certain of its hotels that fall in the upscale
category. The highly seasonal nature of the Company's lodging
properties generally results in lower average occupancy as compared to the upper
upscale segment of the lodging industry.
Competition
Competition
in the hotel industry is generally based on quality and consistency of rooms,
restaurant and meeting facilities and services, attractiveness of locations,
availability of a global distribution system, price and other
factors. The Company's properties compete within their geographic
markets with hotels and resorts that include locally owned independent hotels,
as well as facilities owned or managed by national and international chains,
including such brands as Four Seasons, Hilton, Hyatt, Marriott, Ritz-Carlton,
Starwood's Luxury Collection and Westin. The Company's properties
also compete for convention and conference business across the national
market. The Company believes it is highly competitive in the resort
hotel niche for the following reasons:
|
·
|
All
of the Company's hotels are located in unique highly desirable resort
destinations.
|
|
·
|
The
Company's hotel portfolio has achieved some of the most prestigious hotel
designations in the world, including seven properties and five hotel
restaurants in its portfolio that are currently rated as AAA
4-Diamond.
|
|
·
|
The
RockResorts brand is a historic brand name with a rich tradition
associated with high quality luxury resort
hotels.
|
|
·
|
Many
of the Company's hotels (both owned and managed) are designed to provide a
look that feels indigenous to their surroundings, enhancing the guest's
vacation experience.
|
|
·
|
Each
RockResorts hotel provides the same high level of quality and services,
while still providing unique characteristics which distinguish the resorts
from one another. This appeals to travelers looking for
consistency in quality and service offerings together with an experience
more unique than typically offered by larger luxury hotel
chains.
|
|
·
|
Many
of the hotels in the Company's portfolio provide a wide array of amenities
available to the guest such as access to world-class ski and golf resorts,
spa and fitness facilities, water sports and a number of other outdoor
activities as well as highly acclaimed dining
options.
|
|
·
|
Conference
space with the latest technology is available at most of the Company's
hotels. In addition, guests at Keystone can use the
Company-owned Keystone Conference Center, the largest conference facility
in the Colorado Rocky Mountain region with more than 100,000 square feet
of meeting, exhibit and function
space.
|
|
·
|
The
Company has a central reservations system that leverages off of its ski
resort reservations system and has a brand new online planning and booking
platform, offering guests a much more seamless and useful way to make
reservations at the Company’s
resorts.
|
|
·
|
The
Company actively upgrades the quality of the accommodations and amenities
available at its hotels through capital improvements. Capital
funding for third-party owned properties is provided by the owners of
those properties to maintain standards required by our management
contracts. Recently completed projects include a full
renovation of The Osprey at Beaver Creek (formerly known as the Inn at
Beaver Creek), extensive upgrades to The Lodge at Vail including a fully
renovated ballroom and meeting spaces, room upgrades and the addition of a
7,500 square foot spa and extensive room upgrades at GTLC’s historic
Jackson Lake Lodge.
|
National Park
Concession
The
Company owns GTLC, which is based in the Jackson Hole area in Wyoming and
operates within the Grand Teton National Park under a 15 year concessionaire
agreement (that expires December 31, 2021) with the National Park Service
(“NPS”). GTLC also owns JHG&TC, which is located outside of the
Grand Teton National Park near Jackson, Wyoming. GTLC's operations
within the Grand Teton National Park and JHG&TC have operating seasons that
generally run from mid-May to mid-October.
There are
391 areas within the National Park System covering approximately 85 million
acres across the United States and its territories. Of the 391 areas,
58 are classified as National Parks. While there are more than 500
NPS concessionaires, ranging from small privately-held businesses to large
corporate conglomerates, the Company primarily competes with such companies as
Aramark Parks & Resorts, Delaware North Companies Parks & Resorts,
Forever Resorts and Xanterra Parks & Resorts in retaining and obtaining
National Park Concessionaire agreements. The NPS uses “recreation
visits” to measure visitation within the National Park System. In
calendar 2008, areas designated as National Parks received approximately 61.2
million recreation visits. The Grand Teton National Park, which spans
approximately 310,000 acres, had 2.5 million recreation visits during calendar
2008, or approximately 4% of total National Park recreation
visits. Four concessionaires provide accommodations within the Grand
Teton National Park, including GTLC. GTLC offers three lodging
options within the Grand Teton National Park: Jackson Lake Lodge, a
full-service, 385-room resort with 17,000 square feet of conference facilities
which can accommodate up to 600 people; the Jenny Lake Lodge, a small,
rustically elegant retreat with 37 cabins; and Colter Bay Village, a facility
with 166 log cabins, 66 tent cabins, 361 campsites and a 112-space RV
park. GTLC offers dining options as extensive as its lodging options,
with cafeterias, casual eateries and fine dining
establishments. GTLC's resorts provide a wide range of activities for
guests to enjoy, including cruises on Jackson Lake, boat rentals, horseback
riding, guided fishing, float trips, golf and guided Grand Teton National Park
tours. As a result of the extensive amenities offered as well as the
tremendous popularity of the National Park System, GTLC's accommodations within
the Grand Teton National Park operate near full capacity during their operating
season.
Marketing and
Sales
The
Company promotes its luxury and resort hotels and seeks to maximize lodging
revenue by using its marketing network established at the Company's ski
resorts. This network includes local, national and international
travel relationships which provide the Company's central reservation systems
with a significant volume of transient guests. The Company also
promotes a comprehensive vacation experience through various package offerings
and promotions (combining lodging, lift tickets, transportation and
dining). Additionally, the individual hotels and the Company have
active sales forces to generate conference and group business.
Seasonality
The
Company's lodging business is highly seasonal in nature, with peak seasons
primarily in the winter months (with the exception of GTLC, certain managed
properties and golf operations). In recent years, the Company has
grown its business by promoting its extensive conference facilities and offering
more off-season activities to help offset the seasonality of the Company's
lodging business. The Company owns and operates six golf courses: The
Beaver Creek Golf Club, The Keystone Ranch Golf Course, The River Course at
Keystone, JHG&TC and the Tom Fazio and Greg Norman courses at Red Sky Ranch
near the Beaver Creek Resort. JHG&TC was ranked the fourth best
course in Wyoming for 2009 by Golf Digest, the Tom Fazio
course was ranked the fourth best course in Colorado in the State by State
ranking for 2009 by Golfweek and ranked the
fourteenth best course in Colorado for 2009 by Golf Digest, and the Greg
Norman course was ranked the eighth best course in Colorado in the State by
State ranking for 2009 by Golfweek and ranked the tenth
best course in Colorado for 2009 by Golf Digest. Red
Sky Ranch was ranked one of America’s Top 100 Golf Communities in 2009 by Travel & Leisure
Golf.
Real
Estate Segment
The
Company has extensive holdings of real property at its resorts throughout Summit
and Eagle Counties in Colorado. The Company's real estate operations,
through Vail Resorts Development Company (“VRDC”), a wholly owned subsidiary of
the Company, include the planning, oversight, infrastructure improvement,
development, marketing and sale of the Company's real property
holdings. In addition to the cash flow generated from real estate
development sales, these development activities benefit the Company's Mountain
and Lodging segments through (i) the creation of additional resort lodging and
other resort related facilities and venues (primarily restaurants, spas,
commercial space, private mountain clubs, skier services facilities and parking
structures) which provide the Company with the opportunity to create new sources
of recurring revenue, enhance the guest experience at the resort and expand the
destination bed base; (ii) the ability to control the architectural themes of
the Company's resorts; and (iii) the expansion of the Company's property
management and commercial leasing operations. Additionally, in order
to facilitate the sale of real estate development projects, these projects have
included the construction of resort assets benefiting the development, such as
chairlifts, gondolas, ski trails or golf courses. While these
improvements enhance the value of the real estate held for sale (for example, by
providing ski-in/ski-out accessibility), they also benefit the Mountain and
Lodging segments’ operations.
In recent
years the Company has primarily focused on projects that involve significant
vertical development. In addition to recently completed projects
including the Arrabelle, Vail’s Front Door and Crystal Peak Lodge at
Breckenridge, the Company has two vertical development projects currently under
construction: One Ski Hill Place at Breckenridge and The Ritz-Carlton
Residences, Vail. The Company attempts to mitigate the risk of
vertical development by often utilizing guaranteed maximum price construction
contracts (although certain construction costs may not be covered by contractual
limitations), pre-selling all or a portion of the project, requiring significant
non-refundable deposits, and potentially obtaining non-recourse financing for
certain projects. In some instances as warranted by the Company’s
business model, VRDC occasionally attempts to minimize the Company's exposure to
development risks and maximize the long-term value of the Company's real
property holdings by selling improved and entitled land to third-party
developers while often retaining the right to approve the development plans, as
well as an interest in the developer's profit. The Company also
typically retains the option to purchase, at cost, any retail/commercial space
created in a development.
VRDC's
principal activities include (i) the vertical development of certain residential
mixed-use projects that consist of both the sales of real estate units to third
parties and the construction of resort depreciable assets such as hotels,
restaurants, spas, private clubs, commercial space, skier service facilities,
parking structures and other amenities that the Company will own and operate and
that will benefit the Company’s Mountain and Lodging segments; (ii) the sale of
single-family homesites to individual purchasers; (iii) the sale of certain land
parcels to third-party developers for condominium, townhome, cluster home,
single family home, lodge and mixed use developments; (iv) the zoning, planning
and marketing of resort communities; (v) arranging for the construction of the
necessary roads, utilities and resort infrastructure for new resort communities;
and (vi) the purchase of selected strategic land parcels for future
development.
VRDC’s
current construction activities include the following major
projects:
|
·
|
One Ski Hill Place at
Breckenridge -- This development consists of 88
ski-in/ski-out residences and certain amenities which include a slopeside
skiers' plaza, a skier restaurant, après-ski bar, owner's ski lounge,
parking garage, conference space and retail space, all of which are
located at the base of Peak 8 and will connect to the Town of Breckenridge
via the BreckConnect gondola. This development will be branded
a RockResorts property upon
completion.
|
|
·
|
The Ritz-Carlton Residences,
Vail -- Located in the western part of Vail, this project consists
of 71 whole ownership luxury residences and 45 Ritz-Carlton Club
fractional ownership units. This development will offer
exclusive amenities, including a great room with bar, fitness facility and
a heated parking garage with valet
service.
|
Additionally,
VRDC continues to plan for numerous projects at all five of its mountain
resorts, including the Ever Vail project in Vail.
Employees
The
Company, through certain operating subsidiaries, currently employs approximately
3,500 year-round employees and during the height of its operating season employs
approximately 10,600 seasonal employees. In addition, the Company
manages approximately 700 year-round and 160 seasonal employees on behalf of the
owners of the managed hotel properties. None of the Company's
employees are unionized. The Company considers employee relations to
be good.
Regulation
and Legislation
Federal
Regulation
The 1986
Ski Area Permit Act (the “1986 Act”) allows the USDA Forest Service (the “Forest
Service”) to grant Term Special Use Permits (each, an “SUP”) for the operation
of ski areas and construction of related facilities on National Forest
lands. In addition, the 1986 Act requires a Master Development Plan
for each ski area that is granted an SUP. Each of the Company’s
five ski resorts operates under an SUP.
Each
distinct area of National Forest lands is required by the National Forest
Management Plan to develop and maintain a Land and Resource Management Plan (a
“Forest Plan”), which establishes standards and guidelines for the Forest
Service to follow and consider in reviewing and approving proposed actions by
the Company.
Under the
1986 Act, the Forest Service has the right to review and approve the location,
design and construction of improvements in the permit area and many operational
matters. Virtually all of the skiable terrain on Vail Mountain,
Breckenridge, Heavenly and Keystone is located on Forest Service
land. While Beaver Creek also operates on Forest Service land, a
significant portion of the skiable terrain, primarily in the lower main
mountain, Western Hillside, Bachelor Gulch and Arrowhead Mountain areas, is
located on Company-owned land.
Special Use
Permits
Vail
Mountain operates under an SUP for the use of 12,226 acres that expires October
31, 2031. Breckenridge operates under an SUP for the use of 5,702
acres that expires December 31, 2029. Keystone operates under an SUP
for the use of 8,376 acres that expires December 31, 2032. Beaver
Creek operates under an SUP for the use of 3,849 acres that expires December 31,
2038. Heavenly operates under an SUP for the use of 7,050 acres that
expires May 1, 2042.
Each SUP
contains a number of requirements, including that the Company indemnify the
Forest Service from third-party claims arising out of its operation under the
SUP and that it comply with applicable laws, such as those relating to water
quality and endangered or threatened species.
For use
of the SUPs, the Company pays a fee to the Forest Service ranging from 1.5% to
4.0% of sales for services occurring on Forest Service land. Included
in the calculation are sales from, among other things, lift tickets, season
passes, ski school lessons, food and beverages, equipment rentals and retail
merchandise.
The SUPs
may be amended by the Company or by the Forest Service to change the permit area
or permitted uses. The Forest Service may amend an SUP if it
determines that such amendment is in the public interest to do
so. While the Forest Service is required to seek the permit-holders
consent to any amendment, an amendment can be finalized over permit-holder
objections. Permit amendments must be consistent with the Forest Plan
and are subject to the provisions of the National Environmental Policy Act
(“NEPA”), both of which are discussed below.
The
Forest Service can also terminate a SUP if it determines that termination is
required in the public interest. However, to the Company's knowledge,
no SUP has ever been terminated by the Forest Service over the opposition of the
permitee.
Master Development
Plans
All
improvements that the Company proposes to make on National Forest lands under
any of its SUPs must be included in a Master Development Plan. Master
Development Plans describe the existing and proposed facilities, developments
and area of activity within the permit area. Master Development Plans
are prepared by the Company and set forth a conceptual overview of all potential
projects at each resort. The Master Development Plans are reviewed by
the Forest Service for compliance with the Forest Plan and other applicable law
and, if found to be compliant, are accepted by the Forest
Service. Notwithstanding acceptance by the Forest Service of the
conceptual Master Development Plans, individual projects still require separate
applications to be submitted evidencing compliance with NEPA and other
applicable laws before the Forest Service will approve such
projects. The Company updates or amends its Master Development Plans
for Vail Mountain, Beaver Creek, Keystone, Breckenridge and Heavenly from time
to time.
White River National Forest
Plan
Operational
and development activities on National Forest System lands at the Company's four
Colorado ski resorts are subject to the additional regulatory and planning
requirements set forth in the April 2002 Record of Decision (“ROD”) for the
White River National Forest Land and Resources Management Plan (the “White River
Forest Plan”).
When
approving Company applications for development, area expansion and other
activities on National Forest lands in Colorado, the Forest Service must adhere
to the White River Forest Plan and ROD. Any such decision may be
subject to judicial review in Federal court if a party, with standing,
challenges a Forest Service decision that applies the ROD at one of the
Company’s four Colorado ski resorts.
National Environmental
Policy Act; California Environmental Quality Act
NEPA
requires an assessment of the environmental impacts of “major” proposed actions
of the Company on National Forest land, such as expansion of a ski area,
installation of new lifts or snowmaking facilities, or construction of new
trails or buildings. The Company must comply with NEPA when seeking
Forest Service approval of such improvements. The Forest Service is responsible
for preparing and compiling the required environmental studies, usually through
third-party consultants. NEPA allows for different types of
environmental studies, depending on the scope and size of the expected impact of
the proposed project. An Environmental Assessment (“EA”) is typically
used for projects where the environmental impact is expected to be
limited. For projects with more significant expected impacts, an
Environmental Impact Statement (“EIS”) is more commonly required. An
EIS is more detailed and broader in scope than an EA. The Forest
Service usually takes more time to compile, review and issue an
EIS. Consequently, projects that require an EIS typically take longer
to approve.
During
the requisite environmental study, the Forest Service is required to analyze
alternatives to the proposed action (including not taking the proposed action)
as well as impacts that may be unavoidable. Following completion of
the requisite environmental study, the Forest Service may decide not to approve
the proposed action or may decide to approve an alternative. In
either case the Company may be forced to abandon or alter its development or
expansion plans.
In
limited cases, projects can be subject to a Categorical Exclusion, which allows
approval by the Forest Service without preparation of an environmental study
required by NEPA. The Forest Service has a list of available
Categorical Exclusions, which typically are only available for projects that are
not expected to have an environmental impact, such as certain utilities
installed in an existing, previously disturbed corridor.
Proposed
actions at Heavenly may also be subject to the California Environmental Quality
Act (“CEQA”), which is similar to NEPA in that it requires that the California
governmental entity approving any proposed action on the California portion of
Heavenly study potential environmental impacts. Projects with
significant expected impacts require an Environmental Impact Report while more
limited projects may be approved based on a Mitigated Negative
Declaration.
Breckenridge Regulatory
Matters
The
Company submitted an updated Master Development Plan for Breckenridge, which was
accepted by the Forest Service in January 2008. The Master
Development Plan was updated to include, among other things, additional skiable
area, snowmaking and lift improvements.
In
January 2008, the Forest Service commenced public scoping of the Company’s
proposal to develop a portion of Peak 6, which adjoins the Breckenridge Ski Area
to the north. Approval of the Peak 6 development requires the
preparation of an EIS, in compliance with NEPA. The initial round of
public scoping has been completed and the Forest Service is preparing the
EIS. It is not possible at this time to determine whether the
expansion will be approved as proposed.
Keystone Regulatory
Matters
In
November 2007, the Forest Service approved the extension and replacement of the
River Run Gondola, as contemplated by the Keystone Ski Area Master Development
Plan. This approval did not require extensive review under NEPA as it
qualified for a Categorical Exclusion. The new gondola was installed
during summer 2008 and was operational for the 2008/2009 ski
season.
The
Company has submitted an updated Keystone Ski Area Master Development Plan which
includes, among other things, ski area expansion, construction of new lifts,
trails and snowmaking systems, and construction or redevelopment of skier
buildings and other facilities. The Company anticipates acceptance of
the updated Master Development Plan by the Forest Service prior to the beginning
of the 2009/2010 ski season.
Vail Regulatory
Matters
In
September 2007, the updated Vail Master Development Plan was accepted by the
Forest Service. The Vail Master Development Plan includes, among
other things, additional snowmaking on Vail Mountain, additional lifts, and a
race facility expansion at Vail's Golden Peak. In October 2007, the
Company submitted to the Forest Service its first proposal under the updated
Master Development Plan to install a new chair lift in Vail's Sundown Bowl and
to upgrade the existing chair 5 to a high-speed, detachable quad chair
lift. NEPA requires that an EIS be prepared in connection with the
approval of this proposal. Due to proposed project changes, the
Forest Service is preparing a supplement to the EIS, which the Company
anticipates will be issued in September 2009, with the final EIS and approval of
the projects anticipated by November 2009.
In March
2006, the Forest Service approved a proposal to construct a chairlift to service
existing and potential future residential and commercial development in the
proposed Ever Vail area. However, since receiving approval, the
Company has modified the plans for the chairlift and has requested approval from
the Forest Service of the modified plans. The Company anticipates
approval by May 2010.
Beaver Creek Regulatory
Matters
The
Company is in the final stages of updating the Beaver Creek Master Development
Plan to include, among other things, certain chairlift and snowmaking upgrades
and adjustments to visitor capacity parameters in light of prior lift and trail
upgrades contemplated in the Master Development Plan. The Company
intends to submit the updated Master Development Plan to the Forest Service in
December 2009.
Heavenly Regulatory
Matters
During
summer 2007, an amendment to the Heavenly Master Plan (the “Master Plan
Amendment”) to include new and upgraded trails, lifts, snowmaking, lodges and
other facilities was accepted by the Forest Service and approved by the Tahoe
Regional Planning Agency (“TRPA”) and the underlying units of local government
with jurisdiction. Portions of the Master Plan Amendment applying to
the California side of the resort were subject to the approval of TRPA and El
Dorado County, which required compliance with CEQA. The Master Plan
Amendment was approved by TRPA and El Dorado County after completion of a joint
TRPA/Forest Service EIS/Environmental Impact Report to comply with both CEQA and
NEPA. Approval of the Master Plan Amendment included approval by the
Forest Service and TRPA of the Phase I projects contemplated in the Master Plan
Amendment. The Company has begun planning for the implementation of
the next phase of projects contemplated in the Master Plan Amendment, which will
require compliance with NEPA, CEQA and TRPA regulations and other local
laws.
The
Company has been conducting ongoing monitoring of groundwater contamination
levels using three existing monitoring wells and a seasonal, downstream seep as
required by the State of California Regional Water Quality Control Board,
Lahontan Region (“Lahontan”), and the El Dorado County Department of
Environmental Management. This requirement was imposed in response to
an accidental release of waste oil at a vehicle maintenance shop in 1998 by the
prior owner/operator of Heavenly. All cleanup work has been completed
in accordance with the approved work plan. The Company has filed its final
monitoring report and closure request and is waiting for a decision from
Lahontan.
In July
2003, Heavenly received updated waste discharge requirements ("WDRs") relating
to storm runoff on the California portions of the resort. WDRs are
normally valid for ten years. The approved WDRs will permit Heavenly
to continue year round operations and to continue with implementation of the
approved Master Plan Amendment. The WDRs required the retrofit of
certain existing facilities within California. All of the required
work has been completed.
GTLC Concession
Contract
GTLC
operates three lodging properties, food and beverage services, retail, camping
and other services within the Grand Teton National Park under a concession
contract with the NPS. The Company’s concession contract with the NPS
for GTLC expires on December 31, 2021. Upon expiration of the
concession contract, the Company will have to bid against other prospective
concessionaires for award of a new contract.
The NPS
may suspend operation under the concession contract at any time if the NPS
determines it is necessary to protect visitors or resources within the National
Park. NPS also has the right to terminate the contract for breach,
following notice and a 15 day cure period or if it believes termination is
necessary to protect visitors or resources within the National
Park.
The
Company pays a fee to the NPS of 8.01% on the majority of sales occurring in the
Grand Teton National Park.
Water
The
Company relies on a supply of water for operation of its ski areas for domestic
and snowmaking purposes and for real estate development. Availability
of water depends on existence of adequate water rights as well as physical
delivery of the water when and where it is needed.
Snowmaking
To
provide a level of predictability in dates of operation of its ski areas, the
Company relies on snowmaking. Snowmaking requires a significant
volume of water, which is viewed as a non-consumptive use – approximately 80% of
the water is returned to the watershed at spring runoff.
In
Colorado, the Company owns or has ownership interest in water rights in
reservoir companies, reservoirs, groundwater wells, and other
sources. The primary source of water for Keystone and Breckenridge is
the Clinton Reservoir, in which the Company owns a non-controlling
interest. For Vail Mountain and Beaver Creek, the primary water
source is Eagle Park Reservoir, in which the Company owns a controlling
interest. The Company believes that it has rights to sufficient
quantities of water for the operation of the Company’s four Colorado resorts for
the foreseeable future.
Delivery
of the water to each resort is typically by stream, from which the water is
diverted by the Company to on-site storage facilities or directly into the
snowmaking system. The streams that deliver the water are subject to
minimum stream flows, freezing and other limitations that may prevent or reduce
the amount of water physically available to the resort.
Unlike
the Company’s other Colorado resorts, Keystone does not have on-site storage for
snowmaking water and so is more vulnerable to interruptions in delivery of a
physical supply of water.
Heavenly’s
primary sources of water are the South Tahoe Public Utility District and
Kingsbury General Improvement District, which are California and Nevada public
utilities, respectively. Heavenly has short term contracts with both
utility companies and pays prevailing rates. While the Company
believes that both sources of water will be available long term, the Company has
no contractual guaranty of service, delivery or future
pricing. Further, the delivery systems of each utility are limited
and may not be able to provide the immediate physical supply of water needed for
optimal snowmaking.
Available
Information
The
Company reports to the Securities and Exchange Commission (“SEC”) information,
including its annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Act”) that are
available free of charge on the Company's corporate website
(www.vailresorts.com) as soon as reasonably practicable after the information is
electronically filed with or furnished to the SEC. In addition, the
Company's Code of Ethics and Business Conduct is available on its
website. None of the content of the Company's corporate website is
incorporated by reference herein. Copies of any materials the Company
files with the SEC can be obtained at www.sec.gov or at the SEC's Public
Reference Room at 100 F Street, N.E., Washington, D.C.
20549. Information on the operation of the Public Reference Room is
available by calling the SEC at 1-800-SEC-0330.
The risks
described below should carefully be considered together with the other
information contained in this report. The risks described below are
not the only risks facing us. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial may also
materially affect our business, financial condition and results of
operations.
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Risks
Related to Our Business
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We are subject to the risk of a
prolonged economic downturn including continued adverse affects on the overall
travel and leisure related industries. The economic recession
that has affected the U.S. and global economies, the tightened credit markets
and eroded consumer confidence had a negative impact on overall trends in the
travel and leisure industries and on our results of operations for Fiscal
2009. As a result of the economic downturn we experienced, among
other items: a decrease in overall visitation at our resorts, primarily as a
result of decreased visitation from Destination guests; a significant decrease
in overall guest spending on ancillary services including ski school, dining and
retail/rental; and a change in booking trends such that guest reservations were
made much closer to the actual date of stay. We cannot predict at
what level these negative trends will continue, worsen or improve and the
ultimate impact it will have on our future results of operations. The actual or perceived
fear of the extent of the recession could also lead to continued decreased
spending by our guests. Skiing, travel and tourism are discretionary
recreational activities that can entail a relatively high cost of participation
and is adversely affected by economic slowdown or recession. This could further
be exacerbated by the fact that we charge some of the highest prices for our
lift tickets and ancillary services in the ski industry. In the event
of a further decrease in visitation and overall guest spending we may be
required to offer a higher amount of discounts and incentives than we have
historically.
Leisure and business travel are
particularly susceptible to various factors outside of our control, including
terrorism, the uncertainty of military conflicts, outbreaks of contagious
diseases and the cost and availability of travel options. Our
business is sensitive to the willingness of our guests to
travel. Acts of terrorism, the spread of contagious diseases,
regional political events and developments in military conflicts in areas of the
world from which we draw our guests could depress the public’s propensity to
travel and cause severe disruptions in both domestic and international air
travel and consumer discretionary spending, which could reduce the number of
visitors to our resorts and have an adverse affect on our results of
operations. Many of our guests travel by air and the impact of higher
prices for commercial airline services and availability of air services could
cause a decrease in visitation by Destination guests to our
resorts. Also, many of our guests travel by vehicle and higher
gasoline prices could adversely impact our guests’ willingness to travel to our
resorts. Higher cost of travel may also affect the amount that guests
are willing to spend at our resorts and could negatively impact our revenue
particularly for lodging, ski school, dining and retail/rental.
Our business is highly
seasonal. Our mountain and lodging operations are highly
seasonal in nature. In particular, revenue and profits from our
mountain and most of our lodging operations are substantially lower and
historically result in losses from late spring to late
fall. Conversely, peak operating seasons for GTLC, certain managed
hotel properties and our golf courses occur during the summer months while the
winter season generally results in operating losses. Revenue and
profits generated by GTLC's summer operations, management fees from certain
managed properties, certain other lodging properties and golf operations are not
nearly sufficient to fully offset our off-season losses from our mountain and
other lodging operations. For Fiscal 2009, 79% of total combined
Mountain and Lodging segment net revenue was earned during our fiscal second and
third quarters. In addition, the timing of major holidays can impact
vacation patterns and therefore visitation at our ski resorts. If we were to
experience an adverse event or realized a significant deterioration in our
operating results during our peak periods (our fiscal second and third quarters)
we would be unable to fully recover any significant declines due to the
seasonality of our business. Operating results for any
three-month period are not necessarily indicative of the results that may be
achieved for any subsequent quarter or for a full fiscal year (see Note 16,
Selected Quarterly Financial Data, of the Notes to Consolidated Financial
Statements).
We are vulnerable to the risk of
unfavorable weather conditions and the impact of natural
disasters. The ability to attract visitors to our resorts is
influenced by weather conditions and by the amount and timing of snowfall during
the ski season. Unfavorable weather conditions can adversely affect
skier visits and our revenue and profits. Unseasonably warm weather
may result in inadequate natural snowfall and reduce skiable terrain which
increases the cost of snowmaking and could render snowmaking wholly or partially
ineffective in maintaining quality skiing conditions, including in areas which
are not accessible by snowmaking equipment. In addition, a severe and
prolonged drought could affect our otherwise adequate snowmaking water supplies
or increase the cost of snowmaking. Excessive natural snowfall may
materially increase the costs incurred for grooming trails and may also make it
difficult for visitors to obtain access to our mountain resorts. In
the past 20 years, our ski resorts have averaged between 20 and 30 feet of
annual snowfall which is significantly in excess of the average for United
States ski resorts. However, there is no assurance that our resorts
will receive seasonal snowfalls near the historical average in the
future. Also, the early season snow conditions and skier perceptions
of early season snow conditions influence the momentum and success of the
overall season. Unfavorable weather conditions can adversely affect
our resorts and lodging properties as vacationers tend to delay or postpone
vacations if conditions differ from those that typically prevail at such resorts
for a given season. There is no way for us to predict future weather
patterns or the impact that weather patterns may have on our results of
operations or visitation.
A severe
natural disaster, such as a forest fire, may interrupt our operations, damage
our properties and reduce the number of guests who visit our resorts in affected
areas. Damage to our properties could take a long time to repair and
there is no guarantee that we would have adequate insurance to cover the costs
of repair. Furthermore, such a disaster may interrupt or impede
access to our affected properties or require evacuations and may cause visits to
our affected properties to decrease for an indefinite period. The
ability to attract visitors to our resorts is also influenced by the aesthetics
and natural beauty of the outdoor environment where our resorts are
located. A severe forest fire or other severe impacts from naturally
occurring events could negatively impact the natural beauty of our resorts and
have a long-term negative impact on our overall guest visitation as it would
take several years for the environment to recover.
We face significant
competition. The ski resort and lodging industries are highly
competitive. The number of people who ski in the United States (as
measured in skier visits) has generally ranged between 52 million and 61 million
annually over the last decade, with approximately 57.4 million visits for the
2008/2009 ski season. The factors that we believe are important to
customers include:
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proximity
to population centers;
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availability
and cost of transportation to ski
areas;
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ease
of travel to ski areas (including direct flights by major
airlines);
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pricing
of lift tickets and/or season passes and the number, quality and price of
related ancillary services (ski school, dining and retail/rental),
amenities and lodging;
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snowmaking
facilities;
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type
and quality of skiing and snowboarding
offered;
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duration
of the ski season;
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weather
conditions; and
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reputation.
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We have
many competitors for our ski vacationers, including other major resorts in
Colorado, the Lake Tahoe area and other major destination ski areas
worldwide. Our guests can choose from any of these alternatives, as
well as non-skiing vacation destinations around the world. In
addition, other forms of leisure such as sporting events and participation in
other competing indoor and outdoor recreational activities are available to
potential guests.
RockResorts
hotels and our other hotels compete with numerous other hotel companies that may
have greater financial resources than we do and they may be able to adapt more
quickly to changes in customer requirements or devote greater resources to
promotion of their offerings than us. We believe that developing and
maintaining a competitive advantage will require us to make continued capital
investment in our resorts. We cannot assure that we will have
sufficient resources to make the necessary capital investments to do so, and we
cannot assure that we will be able to compete successfully in this market or
against such competitors.
The high fixed cost structure of ski
resort operations can result in significantly lower margins if revenues decline.
The cost structure of ski resort operations is primarily fixed, with
variable expenses including, but not limited to, Forest Service fees, other
resort related fees, credit card fees, retail/rental operations, ski school
labor and dining operations. Any material declines in the economy,
elevated geopolitical uncertainties and/or significant changes in historical
snowfall patterns, as well as other risk factors discussed herein could
adversely affect revenue. As such, our margins, profits and cash
flows may be materially reduced due to declines in revenue given our high fixed
cost structure. In addition, increases in wages and other labor
costs, energy, healthcare, insurance, transportation and fuel, and other
expenses included in our fixed cost structure may also reduce our margin,
profits and cash flows.
Our future real estate development
projects might not be successful. We have significant
development plans for our properties and/or operations. We could
experience significant difficulties in initiating or completing these projects,
due to among other things:
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sustained
deterioration in real estate
markets;
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escalation
in construction costs due to price increases in commodities, unforeseen
conditions, inadequate design or drawings, or other
causes;
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difficulty
in selling units or the ability of buyers to obtain necessary funds to
close on units;
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work
stoppages;
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weather
interferences;
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shortages
in obtaining materials;
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difficulty
in financing real estate development
projects;
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difficulty
in receiving the necessary regulatory
approvals;
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difficulty
in obtaining qualified contractors or subcontractors;
and
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unanticipated
incremental remediation costs related to design and construction
issues.
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Our real
estate development projects are designed to make our resorts attractive to our
guests and to maintain competitiveness. If these projects are not
successful, in addition to not realizing intended profits from the real estate
developments, our guests may choose to go to other resorts that they perceive
have better amenities and our results of operations could be materially
adversely affected.
There are significant risks associated with our
current real estate projects under development, which could adversely affect our
financial condition, results of operations or anticipated cash flows from these
projects. We currently have two real estate projects under
development, One Ski Hill Place in Breckenridge and The Ritz-Carlton Residences,
Vail. We have increased risk associated with selling and closing
units for these projects as a result of the instability in the capital and
credit markets and a slowdown in the overall real estate market. For
instance, we may have difficulty selling units due to a reduction in demand or
oversupply and, as a result we may not be able to sell such properties for a
profit or at the prices or selling pace we anticipate. Furthermore,
given the current economic climate, certain buyers may be unable to close on
their units due to a reduction in funds available to buyers and/or decreases in
mortgage availability, or certain buyers who have entered into purchase and
sales contracts with us may attempt to challenge the legality of the contracts
in an effort to invalidate their purchase commitment and obtain a refund of
their deposit. We are currently self funding the development for
these two projects and estimate to incur between $190 million and $210 million
in cash expenditures subsequent to July 31, 2009 to complete these projects
which will cause a decline in future cash being generated from operating
activities, potentially requiring us to borrow under the revolver component of
our senior credit facility (the “Credit Facility”) from time to time,
which would increase our leverage until we close and receive proceeds
from the sale of units from these projects. As such, due to the
overall macro-economic environment, the ensuing deterioration in real estate
markets and the tightening of credit markets, among other factors, there is no
assurance that units will be sold and/or closed upon completion of these
projects which could increase our leverage, including related interest costs,
for a prolonged period of time which could have an adverse effect on our results
of operations.
We may not be able to fund resort
capital expenditures and investment in real estate. In
addition to the self funding of real estate under development, we currently
anticipate resort capital expenditures (primarily related to the Mountain and
Lodging segments) will be approximately $50 million to $60 million for calendar
year 2009. Our ability to fund these investments will depend on our
ability to generate sufficient cash flow from operations, obtain pre-sale
deposits and/or to borrow from third parties. We cannot provide
assurances that our operations will be able to generate sufficient cash flow to
fund such development costs, or that we will be able to obtain sufficient
financing on adequate terms, or at all. Our ability to generate cash
flow and to obtain third-party financing will depend upon many factors,
including:
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our
future operating performance;
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general
economic conditions and economic conditions affecting the resort industry,
the ski industry and the general capital
markets;
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our
ability to meet our pre-sell targets on our vertical real estate
development projects;
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competition;
and
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legislative
and regulatory matters affecting our operations and
business.
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We could
finance future expenditures from any combination of the following
sources:
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cash
flow from operations;
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construction
financing, including non-recourse or other
financing;
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bank
borrowings;
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public
offerings of debt or equity; and
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private
placements of debt or equity.
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Any
inability to generate sufficient cash flows from operations or to obtain
adequate third-party financing could cause us to delay or abandon certain
development projects and/or plans.
We rely on government
permits. Our resort operations require permits and approvals
from certain Federal, state, and local authorities, including the Forest Service
and U.S. Army Corps of Engineers. Virtually all of our ski trails and
related activities at Vail Mountain, Breckenridge, Keystone and Heavenly and a
majority of Beaver Creek are located on Federal land. The Forest
Service has granted us permits to use these lands, but maintains the right to
review and approve many operational matters, as well as the location, design and
construction of improvements in these areas. Currently, our permits
expire December 31, 2029 for Breckenridge, October 31, 2031 for Vail Mountain,
December 31, 2032 for Keystone, December 31, 2038 for Beaver Creek and May 1,
2042 for Heavenly. The Forest Service can terminate or amend these permits if,
in its opinion, such termination is required in the public
interest. A termination or amendment of any of our permits could have
a materially adverse affect on our business and operations.
In order
to undertake improvements and new development, we must apply for permits and
other approvals. These efforts, if unsuccessful, could impact our
expansion efforts. Furthermore, Congress may materially increase the
fees we pay to the Forest Service for use of these Federal lands.
We are subject to extensive
environmental laws and regulations in the ordinary course of
business. Our operations are subject to a variety of Federal,
state and local environmental laws and regulations including those relating to
emissions to the air, discharges to water, storage, treatment and disposal of
wastes, land use, remediation of contaminated sites and protection of natural
resources such as wetlands. For example, future expansions of certain of our ski
facilities must comply with applicable forest plans approved under the National
Forest Management Act or local zoning requirements. In addition, most
projects to improve, upgrade or expand our ski areas are subject to
environmental review under the NEPA and, for California projects at Heavenly,
the CEQA. Both acts require that the Forest Service study any proposal for
potential environmental impacts and include in its analysis various
alternatives. Our ski area improvement proposals may not be approved
or may be approved with modifications that substantially increase the cost or
decrease the desirability of implementing the project. Our facilities
are subject to risks associated with mold and other indoor building
contaminants. From time to time our operations are subject to
inspections by environmental regulators or other regulatory agencies. We are
also subject to worker health and safety requirements. We believe our
operations are in substantial compliance with applicable material environmental,
health and safety requirements. However, our efforts to comply do not eliminate
the risk that we may be held liable, incur fines or be subject to claims for
damages, and that the amount of any liability, fines, damages or remediation
costs may be material for, among other things, the presence or release of
regulated materials at, on or emanating from properties we now or formerly owned
or operated, newly discovered environmental impacts or contamination at or from
any of our properties, or changes in environmental laws and regulations or their
enforcement.
Failure to maintain the integrity of
guest data could result in damages of reputation and/or subject us to costs,
fines or lawsuits. We collect personally identifiable
information relating to our guests for various business purposes, including
marketing and promotional purposes. The integrity and privacy of our
guest’s information is important to us and our guests have a high expectation
that we will adequately protect their personal information. The
regulatory environment governing privacy laws is increasingly demanding and
privacy laws continue to evolve and on occasion may be inconsistent from one
jurisdiction to another. Maintaining compliance with applicable
privacy regulations may increase our operating costs and/or adversely impact our
ability to market our products, properties and services to our
guests. Furthermore, non-compliance with applicable privacy
regulations by us (or in some circumstances non-compliance by third parties
engaged by us), breach of security on systems storing our guest data, a loss of
guest data or fraudulent use of guest data could adversely impact our reputation
or result in fines or other damages and litigation.
We are subject to litigation in the
ordinary course of business. We are, from time to time,
subject to various asserted or unasserted legal proceedings and
claims. Any such claims, regardless of merit, could be time-consuming
and expensive to defend and could divert management’s attention and
resources. While we believe we have adequate insurance coverage
and/or accrue for loss contingencies for all known matters that are probable and
can be reasonably estimated, we cannot assure that the outcome of all current or
future litigation will not have a material adverse effect on us and our results
of operations. For a more detailed discussion of our legal
proceedings see Legal Proceedings under Item 3 and Note 14, Commitments and
Contingencies, of the Notes to Consolidated Financial Statements.
Any failure to protect our trademarks
could have a negative impact on the value of our brand names and adversely
affect our business. Our trademarks are an important component
of our business and the continued success of our business depends in part upon
our continued ability to use our trademarks to increase brand awareness and
further develop our brand in both domestic and international markets. The
unauthorized use of our trademarks could diminish the value of our brand and its
market acceptance, competitive advantages or goodwill, which could adversely
affect our business. Litigation has been and may continue to be
necessary to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others. Additionally,
negative public image or other adverse events which become associated with one
of our brands could adversely affect our revenue and profitability.
We depend on a seasonal
workforce. Our mountain and lodging operations are highly
dependent on a large seasonal workforce. We recruit year-round to
fill thousands of seasonal staffing needs each season and work to manage
seasonal wages and the timing of the hiring process to ensure the appropriate
workforce is in place. We cannot guarantee that material increases in
the cost of securing our seasonal workforce will not be necessary in the
future. Furthermore, we cannot guarantee that we will be able to
recruit and hire adequate seasonal personnel as the business
requires. Increased seasonal wages or an inadequate workforce could
have an adverse impact on our results of operations.
If we do not retain our key
personnel, our business may suffer. The success of our
business is heavily dependent on the leadership of key management personnel,
including our Chief Executive Officer, Chief Financial Officer, Co- Presidents
of our Mountain Division, President of VRDC, General Counsel and each of our
Senior Vice Presidents. If any of these persons were to leave, it
could be difficult to replace them, and our business could be
harmed. We do not maintain “key-man” life insurance on any of our
employees.
Our future acquisitions might not be
successful. Historically, we have acquired certain ski
resorts, other destination resorts, hotel properties and businesses
complementary to our own, as well as developable land in proximity to our
resorts. We cannot make assurances that we will be able to
successfully integrate and manage acquired properties and businesses and
increase our profits from these operations. We continually evaluate
potential acquisitions and intend to actively pursue acquisition opportunities,
some of which could be significant. We could face various risks from
additional acquisitions, including:
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inability
to integrate acquired businesses into our
operations;
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diversion
of our management’s attention;
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potential
increased debt leverage;
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litigation
arising from acquisition activity;
and
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unanticipated
problems or liabilities.
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In
addition, we run the risk that any new acquisitions may fail to perform in
accordance with expectations, and that estimates of the costs of improvements
for such properties may prove inaccurate.
We may be required to write-off a
portion of our goodwill and/or indefinite lived intangible asset balances as a
result of a more prolonged and severe economic
recession. Under accounting principles generally accepted in
the United States of America (“GAAP”), we are required to test goodwill for
impairment annually as well as on an interim basis to the extent factors or
indicators become apparent that could reduce the fair value of our goodwill or
indefinite lived intangible assets below book value. We evaluate the
recoverability of goodwill by estimating the future discounted cash flows of our
reporting units and terminal values of the businesses using projected future
levels of income as well as business trends, prospects and market and economic
conditions. We evaluate the recoverability of indefinite lived
intangible assets using the income approach based upon estimated future revenue
streams (see Critical Accounting Policies in Item 7 of this Form
10-K). If a more severe prolonged economic downturn were to occur it
could cause less than expected growth and/or reduction in terminal values of our
reporting units and could result in a goodwill and/or indefinite lived
intangible asset impairment charge attributable to certain goodwill and/or
indefinite lived intangible assets, negatively impacting our results of
operations and stockholders’ equity.
We are subject to accounting
regulations and use certain accounting estimates and judgments that may differ
significantly from actual results. Implementation of existing
and future legislation, rulings, standards and interpretations from the FASB or
other regulatory bodies could affect the presentation of our financial
statements and related disclosures. Future regulatory requirements
could significantly change our current accounting practices and
disclosures. Such changes in the presentation of our financial
statements and related disclosures could change an investor’s interpretation or
perception of our financial position and results of operations.
We use
many methods, estimates and judgments in applying our accounting policies (see
Critical Accounting Policies in Item 7 of this Form 10-K). Such
methods, estimates and judgments are, by their nature, subject to substantial
risks, uncertainties and assumptions, and factors may arise over time that lead
us to change our methods, estimates and judgments. Changes in those methods,
estimates and judgments could significantly affect our results of
operations.
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Risks
Relating to Our Capital Structure
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Our stock price is highly
volatile. The market price of our stock is highly volatile and
subject to wide fluctuations in response to factors such as the following, some
of which are beyond our control:
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quarterly
variations in our operating
results;
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operating
results that vary from the expectations of securities analysts and
investors;
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change
in valuations, including our future real estate
developments;
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changes
in the overall travel, gaming, hospitality and leisure
industries;
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changes
in expectations as to our future financial performance, including
financial estimates by securities analysts and investors or such guidance
provided by us;
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announcements
by us or companies in the travel, gaming, hospitality and leisure
industries of significant contracts, acquisitions, dispositions, strategic
partnerships, joint ventures, capital commitments, plans, prospects,
service offerings or operating
results;
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additions
or departures of key personnel;
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future
sales of our securities;
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trading
and volume fluctuations;
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|
other
risk factors as discussed above;
and
|
|
·
|
other
unforeseen events.
|
Stock
markets in the United States have and often experience extreme price and volume
fluctuations. Market fluctuations, as well as general political and
economic conditions such as acts of terrorism, a recession or interest rate or
currency rate fluctuations, could adversely affect the market price of our
stock.
We have not historically paid cash
dividends to our common stockholders. We have not declared or
paid any cash dividends on our common shares since becoming publicly traded in
1997. Payment of any future dividends on our common stock will depend
upon our earnings and capital requirements, the terms of our debt instruments
and other factors the Board of Directors considers appropriate.
Anti-takeover provisions affecting us
could prevent or delay a change of control that is beneficial to our
shareholders. Provisions of our certificate of incorporation
and bylaws, provisions of our debt instruments and other agreements and
provisions of applicable Delaware law and applicable Federal and state
regulations may discourage, delay or prevent a merger or other change of control
that holders of our securities may consider favorable. These
provisions could:
|
·
|
delay,
defer or prevent a change in control of the
Company;
|
|
·
|
discourage
bids for our securities at a premium over the market
price;
|
|
·
|
adversely
affect the market price of, and the voting and other rights of the holders
of our securities; or
|
|
·
|
impede
the ability of the holders of our securities to change our
management.
|
Our indebtedness could adversely
affect our financial health and prevent us from fulfilling our
obligations. Our level of indebtedness could have important
consequences even though principal payments on the vast majority of our
long-term debt are not due until fiscal 2014 and beyond. For example,
it could:
|
·
|
make
it more difficult for us to satisfy our
obligations;
|
|
·
|
increase
our vulnerability to general adverse economic and industry
conditions;
|
|
·
|
require
us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness, thereby reducing the availability of our
cash flow to fund working capital, capital expenditures, real estate
developments, marketing efforts and other general corporate
purposes;
|
|
·
|
limit
our flexibility in planning for, or reacting to, changes in our business
and the industry in which we
operate;
|
|
·
|
place
us at a competitive disadvantage compared to our competitors that have
less debt; and
|
|
·
|
limit
our ability to borrow additional
funds.
|
We may be
able to incur substantial additional indebtedness in the future. The
terms of our Indenture
(as
defined below) do not fully prohibit us from doing so. Our Credit
Facility permits additional borrowings of up to $304.7 million as of July 31,
2009. If new debt is added to our current debt levels, the related
risks that we face could intensify.
There are restrictions imposed by the
terms of our indebtedness. The operating and financial
restrictions and covenants in our Credit Facility and the Indenture, dated as of
January 29, 2004 among us, the guarantors therein and the Bank of New York
Mellon Trust Company, N.A., as Trustee (“Indenture”), governing the 6.75% Senior
Subordinated Notes due 2014 (“6.75% Notes”) may adversely affect our ability to
finance future operations or capital needs or to engage in other business
activities that may be in our long-term best interests. For example,
the Indenture and the Credit Facility contain a number of restrictive covenants
that impose significant operating and financial restrictions on us, including
restrictions on our ability to, among other things:
|
·
|
incur
additional debt;
|
|
·
|
pay
dividends, repurchase our stock and make other restricted
payments;
|
|
·
|
create
liens;
|
|
·
|
make
investments;
|
|
·
|
engage
in sales of assets and subsidiary
stock;
|
|
·
|
enter
into sale-leaseback transactions;
|
|
·
|
enter
into transactions with affiliates;
|
|
·
|
transfer
all or substantially all of our assets or enter into merger or
consolidation transactions; and
|
|
·
|
make
capital expenditures.
|
In
addition, there can be no assurance that we will meet the financial covenants
contained in our Credit Facility. If we breach any of these
restrictions or covenants, or suffer a material adverse change which restricts
our borrowing ability under our Credit Facility, we would not be able to borrow
funds thereunder without a waiver, which inability could have an adverse effect
on our business, financial condition and results of operations. In
addition, a breach, if uncured, could cause a default under the 6.75% Notes and
our other debt. Our indebtedness may then become immediately due and
payable. We may not have or be able to obtain sufficient funds to
make these accelerated payments, including payments on the 6.75%
Notes.
Our Credit Facility is scheduled to
mature in 2012 and our 6.75% Notes are due in 2014. Recent
events in the financial markets have had an adverse impact on the credit markets
and, as a result, credit has become significantly more expensive and difficult
to obtain, if available at all. We currently have no borrowings under
our Credit Facility, which is scheduled to mature in 2012; however, a sustained
economic recession and its potential impact on our cash flows from operating
activities, combined with our plan to self-fund our current real estate under
development could require us to borrow significant funds under the revolver
component of our Credit Facility. In addition to our Credit Facility, we have
outstanding $390.0 million of 6.75% Notes due in 2014. The credit
markets are volatile and may pose challenges and have an adverse effect on our
ability to re-finance or obtain new financing on terms that are acceptable to
us. There is no assurance that we will be able to obtain new
financing or financing on acceptable terms.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
None.
The
following table sets forth the principal properties owned or leased by the
Company for use in its operations:
|
Location
|
Ownership
|
Use
|
||
|
Arrowhead
Mountain, CO
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements, commercial space and real estate held for sale or
development
|
||
|
BC
Housing Riveredge, CO
|
26%
Owned
|
Employee
housing facilities
|
||
|
Bachelor
Gulch Village, CO
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements and commercial space
|
||
|
Beaver
Creek Resort, CO
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements, commercial space and real estate held for sale or
development
|
||
|
Beaver
Creek Mountain, CO (3,849 acres)
|
Special
Use Permit
|
Ski
trails, ski lifts, buildings and other improvements
|
||
|
Beaver
Creek Mountain Resort, CO
|
Owned
|
Golf
course, clubhouse, commercial space and residential
spaces
|
||
|
Breckenridge
Ski Resort, CO
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements, commercial space and real estate held for sale or
development
|
||
|
Breckenridge
Mountain, CO (5,702 acres)
|
Special
Use Permit
|
Ski
trails, ski lifts, buildings and other improvements
|
||
|
Breckenridge
Mountain Lodge
|
Owned
|
Lodging
|
||
|
Breckenridge
Terrace, CO
|
50%
Owned
|
Employee
housing facilities
|
||
|
Broomfield,
CO
|
Leased
|
Corporate
offices
|
||
|
Colter
Bay Village, WY
|
Concessionaire
contract
|
Lodging
and dining facilities
|
||
|
Eagle-Vail,
CO
|
Owned
|
Warehouse
facility
|
||
|
Edwards,
CO
|
Leased
|
Administrative
offices
|
||
|
Great
Divide Lodge, CO
|
Owned
|
Lodging,
dining and conference facilities
|
||
|
Heavenly
Mountain Resort, CA & NV
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements and commercial space
|
||
|
Heavenly
Mountain Resort, CA & NV (7,050 acres)
|
Special
Use Permit
|
Ski
trails, ski lifts, buildings and other improvements
|
||
|
Inn
at Keystone, CO
|
Owned
|
Lodging,
dining and conference facilities
|
||
|
Jackson
Hole Golf & Tennis Club, WY
|
Owned
|
Golf
course, clubhouse, tennis facilities, dining and real estate held for sale
or development
|
||
|
Jackson
Lake Lodge, WY
|
Concessionaire
contract
|
Lodging,
dining and conference facilities
|
||
|
Jenny
Lake Lodge, WY
|
Concessionaire
contract
|
Lodging
and dining facilities
|
||
|
Keystone
Conference Center, CO
|
Owned
|
Conference
facility
|
||
|
Keystone
Lodge, CO
|
Owned
|
Lodging,
spa, dining and conference facilities
|
||
|
Keystone
Resort, CO
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements, commercial space, dining and real estate held for sale or
development
|
||
|
Keystone
Mountain, CO (8,376 acres)
|
Special
Use Permit
|
Ski
trails, ski lifts, buildings and other improvements
|
||
|
Keystone
Ranch, CO
|
Owned
|
Golf
course, clubhouse and dining facilities
|
||
|
Red
Sky Ranch, CO
|
Owned
|
Golf
courses, clubhouses, dining facilities and real estate held for sale or
development
|
||
|
River
Course at Keystone, CO
|
Owned
|
Golf
course and clubhouse
|
||
|
Seasons
at Avon, CO
|
Leased/50%
Owned
|
Administrative
offices
|
||
|
Ski
Tip Lodge, CO
|
Owned
|
Lodging
and dining facilities
|
||
|
The
Arrabelle at Vail Square, CO
|
Owned
|
Lodging,
spa, dining and conference facilities
|
||
|
The
Lodge at Vail, CO
|
Owned
|
Lodging,
spa, dining and conference facilities
|
||
|
The
Osprey at Beaver Creek, CO
|
Owned
|
Lodging,
dining and conference facilities
|
||
|
The
Tarnes at Beaver Creek, CO
|
31%
Owned
|
Employee
housing facilities
|
||
|
Tenderfoot
Housing, CO
|
50%
Owned
|
Employee
housing facilities
|
||
|
The
Pines Lodge at Beaver Creek, CO
|
Owned
|
Lodging,
dining and conference facilities
|
||
|
Vail
Mountain, CO
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements, commercial space and real estate held for sale or
development
|
||
|
Vail
Mountain, CO (12,226 acres)
|
Special
Use Permit
|
Ski
trails, ski lifts, buildings and other improvements
|
||
|
Village
at Breckenridge, CO
|
Owned
|
Lodging,
dining, conference facilities and commercial space
|
||
|
SSV
Properties
|
69.3%
Owned
|
Over
150 retail stores (of which 71 stores are currently held under lease) for
recreational products including
rental
|
The
Forest Service SUPs are encumbered under certain debt instruments of the
Company. Many of the Company's properties are used across all
segments in complementary and interdependent ways.
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 and other business operations. Management
believes the Company has adequate insurance coverage and/or has accrued for loss
contingencies for all known matters and that, although the ultimate outcome of
such claims cannot be ascertained, current pending and threatened claims are not
expected to have a material, individually and in the aggregate, adverse impact
on the financial position, results of operations and cash flows of the
Company.
The Canyons Ski Resort
Litigation
During
the fourth quarter of the year ended July 31, 2007 (“Fiscal 2007”), the Company
entered into an agreement with Peninsula Advisors, LLC (“Peninsula”) for the
negotiation and mutual acquisition of The Canyons and the land underlying The
Canyons. On July 15, 2007, American Skiing Company (“ASC”) entered
into an agreement to sell The Canyons to Talisker Corporation and Talisker
Canyons Finance Company, LLC (together “Talisker”). On July 27, 2007,
the Company filed a complaint in the District Court in Colorado against
Peninsula and Talisker claiming, among other things, breach of contract by
Peninsula and intentional interference with contractual relations and
prospective business relations by Talisker and seeking damages, specific
performance and injunctive relief. On October 19, 2007, the Company’s
request for a preliminary injunction to prevent the closing of the acquisition
by Talisker of The Canyons from ASC was denied. On November 8, 2007,
Talisker filed an answer to the Company’s complaint along with three
counterclaims. On November 12, 2007, Peninsula filed a motion to
dismiss and for partial summary judgment, which was heard on March 21, 2009 and
denied. The matter has been set for trial commencing July 19,
2010. The Company is unable to predict the ultimate outcome of the above
described actions.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART
II
The
Company's common stock is traded on the New York Stock Exchange under the symbol
“MTN”. As of September 18, 2009, 36,174,979 shares of common stock
were outstanding, held by approximately 392 holders of record.
The
declaration of cash dividends in the future will depend on the Company's
earnings, financial condition, capital needs, restrictions under debt
instruments and on other factors deemed relevant by the Board of Directors at
that time. It is the current policy of the Company's Board of
Directors to retain earnings to finance the operations and expansion of the
Company's business.
The
following table sets forth, for Fiscal 2009 and the year ended July 31, 2008
(“Fiscal 2008”), and quarters indicated (ended October 31, January 31, April 30,
and July 31) the range of high and low per share sales prices of the Company’s
common stock as reported on the New York Stock Exchange Composite
Tape.
|
Vail
Resorts
|
||||||
|
Common
Stock
|
||||||
|
High
|
Low
|
|||||
|
Year
Ended July 31, 2009
|
||||||
|
1st
Quarter
|
$
|
52.00
|
$
|
21.67
|
||
|
2nd
Quarter
|
33.43
|
14.79
|
||||
|
3rd
Quarter
|
30.42
|
14.76
|
||||
|
4th
Quarter
|
31.10
|
23.71
|
||||
|
Year
Ended July 31, 2008
|
||||||
|
1st
Quarter
|
$
|
66.25
|
$
|
48.41
|
||
|
2nd
Quarter
|
60.15
|
40.94
|
||||
|
3rd
Quarter
|
51.65
|
39.32
|
||||
|
4th
Quarter
|
51.38
|
30.03
|
||||
Repurchase
of Equity Securities
The
following table summarizes the purchase of the Company’s equity securities
during the fourth quarter of Fiscal 2009:
|
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(1)
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or Programs
(1)
|
||||||||
|
May
1, 2009 – May 31, 2009
|
--
|
$
|
--
|
--
|
2,399,765
|
|||||||
|
June
1, 2009 – June 30, 2009
|
278,300
|
26.93
|
278,300
|
2,121,465
|
||||||||
|
July
1, 2009 – July 31, 2009
|
--
|
--
|
--
|
2,121,465
|
||||||||
|
Total
|
278,300
|
$
|
26.93
|
278,300
|
|
(1)
|
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. Acquisitions under the share
repurchase program may be made from time to time at prevailing prices as
permitted by applicable laws, and subject to market conditions and other
factors. The stock repurchase program may be discontinued at
any time.
|
Performance
Graph
The total return graph is presented for the period from the end of the Company’s 2004 fiscal year through the end of Fiscal 2009. The comparison assumes that $100 was invested at the beginning of the period in the common stock of the Company (“MTN”), The Russell 2000, The Standard & Poor’s 500 Stock Index and the Dow Jones U.S. Travel and Leisure Stock Index. The Company included the Dow Jones U.S. Travel and Leisure Index as the Company believes it competes in the travel and leisure industry.
The
performance graph is not deemed filed with the SEC and is not to be incorporated
by reference into any of the Company’s filings under the Securities Act of 1933
or the Exchange Act of 1934, unless it specifically incorporates the performance
graph by reference therein.
The
following table presents selected historical consolidated financial data of the
Company derived from the Company's Consolidated Financial Statements for the
periods indicated. The financial data for Fiscal 2009, Fiscal 2008
and Fiscal 2007 and as of July 31, 2009 and 2008 should be read in conjunction
with the Consolidated Financial Statements, related notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere in this Form 10-K. The table presented
below is unaudited. The data presented below are in thousands, except
for diluted net income per share, effective ticket price (“ETP”), ADR and RevPAR
amounts.
|
Year
Ended July 31,
|
|||||||||||||||||||
|
2009(1)
|
2008(1)
|
2007(1)
|
2006(1)
|
2005 (1)
|
|||||||||||||||
|
Statement
of Operations Data:
|
|||||||||||||||||||
|
Revenue:
|
|||||||||||||||||||
|
Mountain
|
$
|
614,597
|
$
|
685,533
|
$
|
665,377
|
$
|
620,441
|
$
|
540,855
|
|||||||||
|
Lodging
|
176,241
|
170,057
|
162,451
|
155,807
|
196,351
|
||||||||||||||
|
Real
estate
|
186,150
|
296,566
|
112,708
|
62,604
|
72,781
|
||||||||||||||
|
Total
net revenue
|
976,988
|
1,152,156
|
940,536
|
838,852
|
809,987
|
||||||||||||||
|
Segment
operating expense:
|
|||||||||||||||||||
|
Mountain
|
451,025
|
470,362
|
462,708
|
443,116
|
391,889
|
||||||||||||||
|
Lodging
|
169,482
|
159,832
|
144,252
|
142,693
|
177,469
|
||||||||||||||
|
Real
estate
|
142,070
|
251,338
|
115,190
|
56,676
|
58,254
|
||||||||||||||
|
Total
segment operating expense
|
762,577
|
881,532
|
722,150
|
642,485
|
627,612
|
||||||||||||||
|
Depreciation
and amortization
|
(107,213
|
)
|
(93,794
|
)
|
(87,664
|
)
|
(86,098
|
)
|
(89,968
|
)
|
|||||||||
|
Gain
on sale of real property
|
--
|
709
|
--
|
--
|
--
|
||||||||||||||
|
Mountain
equity investment income, net
|
817
|
5,390
|
5,059
|
3,876
|
2,303
|
||||||||||||||
|
Lodging
equity investment loss, net
|
--
|
--
|
--
|
--
|
(2,679
|
)
|
|||||||||||||
|
Real
estate equity investment income, net
|
--
|
--
|
--
|
791
|
(102
|
)
|
|||||||||||||
|
Investment
income, net
|
1,793
|
8,285
|
12,403
|
7,995
|
2,066
|
||||||||||||||
|
Interest
expense, net
|
(27,548
|
)
|
(30,667
|
)
|
(32,625
|
)
|
(36,478
|
)
|
(40,298
|
)
|
|||||||||
|
Contract
dispute credit (charges), net
|
--
|
11,920
|
(4,642
|
)
|
(3,282
|
)
|
--
|
||||||||||||
|
Income
before provision for income taxes
|
79,594
|
166,013
|
100,651
|
75,010
|
37,623
|
||||||||||||||
|
Net
income
|
$
|
48,950
|
$
|
102,927
|
$
|
61,397
|
$
|
45,756
|
$
|
23,138
|
|||||||||
|
Diluted
net income per share
|
$
|
1.33
|
$
|
2.64
|
$
|
1.56
|
$
|
1.19
|
$
|
0.64
|
|||||||||
|
Other
Data:
|
|||||||||||||||||||
|
Mountain
|
|||||||||||||||||||
|
Skier
visits(2)
|
5,864
|
6,195
|
6,219
|
6,288
|
5,940
|
||||||||||||||
|
ETP
(3)
|
$
|
47.16
|
$
|
48.74
|
$
|
46.15
|
$
|
41.83
|
$
|
39.30
|
|||||||||
|
Lodging
|
|||||||||||||||||||
|
ADR(4)
|
$
|
225.12
|
$
|
230.17
|
$
|
216.83
|
$
|
202.27
|
$
|
196.26
|
|||||||||
|
RevPAR(5)
|
$
|
93.10
|
$
|
106.43
|
$
|
99.58
|
$
|
92.41
|
$
|
90.98
|
|||||||||
|
Real
Estate
|
|||||||||||||||||||
|
Real
estate held for sale and investment(6)
|
$
|
311,485
|
$
|
249,305
|
$
|
357,586
|
$
|
259,384
|
$
|
154,874
|
|||||||||
|
Other
Balance Sheet Data
|
|||||||||||||||||||
|
Cash
and cash equivalents(7)
|
$
|
69,298
|
$
|
162,345
|
$
|
230,819
|
$
|
191,794
|
$
|
136,580
|
|||||||||
|
Total
assets
|
$
|
1,884,480
|
$
|
1,925,954
|
$
|
1,909,123
|
$
|
1,687,643
|
$
|
1,525,921
|
|||||||||
|
Long-term
debt (including long-term debt due within one year)
|
$
|
491,960
|
$
|
556,705
|
$
|
594,110
|
$
|
531,228
|
$
|
521,710
|
|||||||||
|
Net
debt(8)
|
$
|
422,662
|
$
|
394,360
|
$
|
363,291
|
$
|
339,434
|
$
|
385,130
|
|||||||||
|
Stockholders'
equity
|
$
|
765,295
|
$
|
728,756
|
$
|
714,039
|
$
|
642,777
|
$
|
540,529
|
|||||||||
(footnotes
to selected financial data appear on following page)
Footnotes
to Selected Financial Data:
|
(1)
|
The
Company has made several acquisitions and dispositions which impact
comparability between years during the past five years. The
more significant of those include the acquisitions of: Colorado Mountain
Express (“CME”) (acquired in November 2008), 18 retail/rental locations
(acquired by SSV in June 2007), two licensed Starbucks stores (acquired in
June 2007) and six retail locations (acquired by SSV in August
2006). Additionally, the Company sold its majority interest in
RTP, LLC (“RTP”) (sold in April 2007), Snake River Lodge & Spa
(“SRL&S”) (sold in January 2006), The Lodge at Rancho Mirage (“Rancho
Mirage”) (sold in July 2005), Vail Marriott (sold in June 2005) and its
minority interest in Ritz-Carlton, Bachelor Gulch (“BG Resort”) (sold in
December 2004). Effective August 1, 2005, the Company adopted Statement of
Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment”
(“SFAS 123R”). See Note 2, Summary of Significant Accounting
Policies, of the Notes to Consolidated Financial Statements in Item 8 of
this Form 10-K for the impact to the Consolidated Statements of Operations
as a result of the adoption of SFAS
123R.
|
|
(2)
|
A
skier visit represents a person utilizing a ticket or pass to access a
mountain resort for any part of one day, and includes both paid and
complimentary access.
|
|
(3)
|
ETP
is calculated by dividing lift ticket revenue by total skier visits during
the respective periods.
|
|
(4)
|
ADR
is calculated by dividing total room revenue (includes both owned and
managed condominium room revenue) by the number of occupied rooms during
the respective periods.
|
|
(5)
|
RevPAR
is calculated by dividing total room revenue (includes both owned and
managed condominium room revenue) by the number of rooms that are
available to guests during the respective
periods.
|
|
(6)
|
Real
estate held for sale and investment includes all land, development costs
and other improvements associated with real estate held for sale and
investment, as well as investments in real estate joint
ventures.
|
|
(7)
|
Cash
and cash equivalents excludes restricted
cash.
|
|
(8)
|
Net
debt is defined as long-term debt plus long-term debt due within one year
less cash and cash equivalents.
|
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations of the Company should be read in conjunction with the
Consolidated Financial Statements and notes related thereto included in this
Form 10-K. To the extent that the following Management's Discussion
and Analysis contains statements which are not of a historical nature, such
statements are forward-looking statements which involve risks and
uncertainties. These risks include, but are not limited to, those
discussed in Item 1A, “Risk Factors” in this Form 10-K. The following
discussion and analysis should be read in conjunction with the Forward-Looking
Statements and Item 1A, “Risk Factors” each included in this Form
10-K.
Management’s
Discussion and Analysis includes discussion of financial performance within each
of the Company’s segments. The Company has chosen to specifically
include 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) and Net Debt (defined as
long-term debt plus long-term debt due within one year less cash and cash
equivalents), in the following discussion because management considers these
measurements to be significant indications of the Company’s financial
performance and available capital resources. Reported EBITDA and Net
Debt are not measures of financial performance or liquidity under
GAAP. The Company utilizes Reported EBITDA in evaluating performance
of the Company and in allocating resources to its
segments. Refer to the end of the Results of Operations section
for a reconciliation of Reported EBITDA to net income. Management
also believes that Net Debt is an important measurement as it is an indicator of
the Company’s ability to obtain additional capital resources for its future cash
needs. Refer to the end of the Results of Operations section for a
reconciliation of Net Debt.
Items
excluded from Reported EBITDA and Net Debt are significant components in
understanding and assessing financial performance or
liquidity. Reported EBITDA and Net Debt 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 Financial Statements as indicators of financial performance or
liquidity. Because Reported EBITDA and Net Debt are not measurements
determined in accordance with GAAP and are thus susceptible to varying
calculations, Reported EBITDA and Net Debt as presented may not be comparable to
other similarly titled measures of other companies.
Overview
The
Company's operations are grouped into three integrated and interdependent
segments: Mountain, Lodging and Real Estate. Resort is the
combination of the Mountain and Lodging segments. Revenue from the
Mountain, Lodging and Real Estate segments represented 63%, 18% and 19%,
respectively, of the Company’s net revenue for Fiscal 2009.
Mountain Segment
The
Mountain segment is comprised of the operations of five ski resort properties as
well as ancillary businesses, primarily including ski school, dining and
retail/rental operations. The Company's five ski resorts were open
for business for the 2008/2009 ski season from mid-November through mid-April,
which is the peak operating season for the Mountain segment. The
Company’s single largest source of Mountain segment revenue is the sale of lift
tickets (including season passes), which represented approximately 45%, 44% and
43% of Mountain segment net revenue for Fiscal 2009, Fiscal 2008 and Fiscal
2007, respectively.
Lift
ticket revenue is driven by volume and pricing. Pricing is impacted
by both absolute pricing as well as the demographic mix of guests, which impacts
the price points at which various products are purchased. The
demographic mix of guests is divided into two primary categories: (i)
Destination guests and (ii) In-State guests. For the 2008/2009 ski
season, Destination guests comprised approximately 57% of the Company's skier
visits, while In-State guests comprised approximately 43% of the Company's skier
visits, which compares to approximately 63% and 37%, respectively, for the
2007/2008 ski season and 64% and 36%, respectively, for the 2006/2007 ski
season.
Destination
guests generally purchase the Company's higher-priced lift ticket products and
utilize more ancillary services such as ski school, dining and retail/rental, as
well as the lodging at or around the Company’s resorts. Destination
guest visitation is less likely to be impacted by changes in the weather due to
the advance planning generally required for vacation trips, but can be more
impacted by adverse economic conditions or the global geopolitical
climate. In-State guests tend to be more value-oriented and weather
sensitive. Prior to the 2008/2009 ski season, the Company primarily
marketed season passes to In-State guests in an effort to offer a value option
in turn for a commitment predominately prior to the beginning of the ski season
by In-State guests to ski at the Company’s resorts. This in turn has
developed a loyal customer base that generally skis multiple days each season at
the Company’s resorts and provides a more stabilized stream of lift revenue to
the Company. Given the success of In-State pass products, the Company
introduced a new season pass product (the “Epic Season Pass”) for the 2008/2009
ski season, marketed to its Destination guests (and also marketed to In-State
guests) allowing pass holders unlimited and unrestricted access to all five of
its ski resorts during the entire ski season. All of the Company’s
season pass products, including the Epic Season Pass, are sold predominately
prior to the start of the ski season. Season pass revenue, although
primarily collected prior to the ski season, is recognized in the Consolidated
Condensed Statement of Operations ratably over the ski season. For
the 2008/2009, 2007/2008 and 2006/2007 ski season approximately 34%, 26% and
25%, respectively, of total lift revenue recognized was comprised of season pass
revenue.
The cost
structure of ski resort operations is primarily fixed, with variable expenses
including, but not limited to, USDA Forest Service (“Forest Service”) fees,
credit card fees, retail/rental cost of goods sold and labor, ski school labor
and dining operations; as such, profit margins can fluctuate greatly based on
the level of revenues.
Lodging
Segment
Operations
within the Lodging segment include (i) ownership/management of a group of luxury
hotels through the RockResorts brand, including several proximate to the
Company's ski resorts; (ii) ownership/management of non-RockResorts branded
hotels and condominiums proximate to the Company's ski resorts; (iii) Grand
Teton Lodge Company (“GTLC”); (iv) Colorado Mountain Express (“CME”), a resort
ground transportation company acquired in November 2008; and (v) golf
courses.
Lodging
properties (including managed condominium rooms) at or around the Company’s ski
resorts, and CME, are closely aligned with the performance of the Mountain
segment, particularly with respect to visitation by Destination guests and
represented approximately 68%, 63% and 61% of Lodging segment revenue for Fiscal
2009, Fiscal 2008 and Fiscal 2007, respectively. Revenue of the
Lodging segment during the Company's first and fourth fiscal quarters is
generated primarily by the operations of GTLC (as GTLC's operating season
generally occurs from mid-May to mid-October), golf operations and seasonally
low operations from the Company's other owned and managed properties as well as
CME.
Real
Estate Segment
The Real
Estate segment owns and develops real estate in and around the Company's resort
communities and primarily engages in the vertical development of projects, as
well as, occasionally the sale of land to third-party developers which often
includes a contingent revenue structure based on the ultimate sale of the
developed units. Revenue from vertical development projects is not
recognized until closing of individual units within a project which occurs after
substantial completion of the project. Contingent future profits from land
sales, if any, are recognized only when received. The Company
attempts to mitigate the risk of vertical development by often utilizing
guaranteed maximum price construction contracts (although certain construction
costs may not be covered by contractual limitations), pre-selling a portion of
the project, requiring significant non-refundable deposits, and potentially
obtaining non-recourse financing for certain projects. The Company's
real estate development projects also may result in the creation of certain
resort assets that provide additional benefit to the Mountain and Lodging
segments. The Company’s revenue from the Real Estate segment, and
associated expense, fluctuate based upon the timing of closings and the type of
real estate being sold, causing volatility in the Real Estate segment’s
operating results from period to period.
Recent
Trends, Risks and Uncertainties
The data
provided in this section should be read in conjunction with the risk factors
identified in Item 1A and elsewhere in this Form 10-K. The Company's
management has identified the following important factors (as well as
uncertainties associated with such factors) that could impact the Company's
future financial performance:
|
·
|
The
economic recession that has affected the U.S. and global economies, the
tightened credit markets and eroded consumer confidence had a negative
impact on overall trends in the travel and leisure industries and on the
Company’s results of operations for Fiscal 2009. In this
environment, the Company experienced a 5.3% decrease in overall skier
visitation for the 2008/2009 ski season and a 4.5 percentage point
decrease in occupancy at the Company’s owned hotels and managed
condominium properties (all proximate to the Company’s ski resorts) for
Fiscal 2009. Additionally, the Company experienced, a decrease
in overall guest spending on ancillary services, including ski school,
dining and retail/rental. Furthermore, the Company experienced
a change in booking trends such that guest reservations were made much
closer to the actual date of stay. The Company cannot predict
the extent to which these negative trends will continue, worsen or improve
or the timing and nature of any changes to the macroeconomic environment,
including the impact it may have on the Company’s future results of
operations, in particular on the 2009/2010 ski
season.
|
|
·
|
The
timing and amount of snowfall can have an impact on Mountain and Lodging
revenue particularly in regards to skier visits and the duration and
frequency of guest visitation. To mitigate this impact, the
Company focuses efforts on the sale of season passes prior to the
beginning of the season to In-State guests and Destination
guests. Additionally, the Company has invested in snowmaking
upgrades in an effort to address the inconsistency of early season
snowfall where possible. During the past two ski seasons, early
season snowfall has been significantly lower than average, which the
Company believes had a negative impact on early season
visitation.
|
|
·
|
The
Company’s season pass products provide a value option to its guests which
in turn provides a guest commitment predominately prior to the start of
the ski season resulting in a more stabilized stream of lift revenue for
the Company. The Company introduced the Epic Season Pass for
the 2008/2009 ski season, which largely contributed to season pass revenue
as a percentage of total lift revenue increasing from 26% for the
2007/2008 ski season to 34% for the 2008/2009 ski season. In
March 2009, the Company began its pass sales campaign for the 2009/2010
ski season, including the Epic Season Pass, and as of July 31, 2009 season
pass sales have increased $10.0 million, or 32.2%, compared to season pass
sales as of July 31, 2008 for the 2008/2009 ski season. The
Company cannot predict if this trend will continue through the fall 2009
pass sales campaign or the impact that season pass sales may have on total
lift revenue or ETP for the 2009/2010 ski
season.
|
|
·
|
The
Company has historically implemented annual price
increases. However, the Company held prices flat for most
multi-day lift ticket and certain other products and services for the
2008/2009 ski season. Prices for the 2009/2010 ski season have
not yet been finalized; and as such there are no assurances as to the
level of price increases, if any, which will occur or the impact that
pricing may have on visitation or
revenue.
|
|
·
|
The
Company operates its ski areas under various Forest Service permits, and
many of the Company's operations require permits and approval from
governmental authorities; therefore many of the Company’s on-mountain
capital improvements must go through an approval
process. Changes or impacts to the applicable regulatory
environment may have detrimental effects on the
Company.
|
|
·
|
Real
Estate Reported EBITDA is highly dependent on, among other things, the
timing of closings on real estate under contract, which determines when
revenue and associated cost of sales is recognized. Changes to
the anticipated timing or mix of closing on one or more real estate
projects, or unit closings within a real estate project, could materially
impact Real Estate Reported EBITDA for a particular quarter or fiscal
year. The Company has two real estate projects currently under development
which are scheduled to be completed in the spring/summer of 2010 (One Ski
Hill Place in Breckenridge) and the fall of 2010 (The Ritz-Carlton
Residences, Vail) and has entered into definitive sales contracts with a
value of approximately $324.3 million, which represents approximately 68%
of the total current estimated sales value for these two
projects. The Company has increased risk associated with
selling and closing real estate as a result of the continued instability
in the capital and credit markets and slowdown in the overall real estate
market. In April 2009, in response to current market
conditions, the Company announced a reduction of approximately 20% to the
listed selling prices of its Ritz-Carlton Residences, Vail, as well as
price reductions of approximately 15% for purchasers currently under
contract. The Company cannot predict the ultimate number of
units that it will sell, the ultimate price it will receive, or when the
units will sell. Additionally, if a more severe prolonged
economic downturn were to occur the Company may have to further adjust its
selling prices in an effort to sell and close on units currently under
development, although it currently has no plans to do
so.
|
|
·
|
The
Company had $69.3 million in cash and cash equivalents as of July 31, 2009
as well as $304.7 million available under the revolver component of its
Credit Facility. The Company’s plan to continue to self-fund its
current real estate projects under construction (the Company estimates to
incur between $190 million and $210 million in cash expenditures
subsequent to July 31, 2009) combined with historically low operating cash
flows during the Company’s first fiscal quarter will likely require the
Company to borrow under the revolver component of its Credit Facility from
time to time beginning in the first quarter of fiscal 2010. The
Company currently believes it has adequate capacity under its revolver to
address potential borrowing needs, even in the event of a more sustained
negative economic environment.
|
|
·
|
Under
GAAP, the Company is required to test goodwill for impairment annually,
which the Company does so during the fourth quarter of each fiscal
year. The Company evaluates the recoverability of its goodwill
by estimating the future discounted cash flows of its reporting units and
terminal values of the businesses using projected future levels of income
as well as business trends, prospects and market and economic
conditions. The Company evaluates the recoverability of
indefinite-lived intangible assets using the income approach based upon
estimated future revenue streams. The Company’s 2009 annual
impairment test did not result in a goodwill or indefinite-lived
intangible asset impairment (see Critical Accounting Policies in this
section of this Form 10-K). However, if a more severe prolonged
economic downturn were to occur it could cause less than expected growth
and/or reduction in terminal values of the Company’s reporting units which
may result in a goodwill and/or indefinite-lived intangible asset
impairment charge attributable to certain goodwill and/or indefinite
lived-intangible assets, particularly related to its lodging and
retail/rental operations.
|
Results
of Operations
Summary
Shown
below is a summary of operating results for Fiscal 2009, Fiscal 2008 and Fiscal
2007 (in thousands):
|
Year
Ended July 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Mountain
Reported EBITDA
|
$
|
164,389
|
$
|
220,561
|
$
|
207,728
|
||||||
|
Lodging
Reported EBITDA
|
6,759
|
10,225
|
18,199
|
|||||||||
|
Resort
Reported EBITDA
|
171,148
|
230,786
|
225,927
|
|||||||||
|
Real
Estate Reported EBITDA
|
44,080
|
45,937
|
(2,482
|
)
|
||||||||
|
Income
before provision for income taxes
|
79,594
|
166,013
|
100,651
|
|||||||||
|
Net
income
|
$
|
48,950
|
$
|
102,927
|
$
|
61,397
|
||||||
Mountain
Segment
Mountain
segment operating results for Fiscal 2009, Fiscal 2008 and Fiscal 2007 are
presented by category as follows (in thousands, except ETP):
|
Percentage
|
|||||||||||||||
|
Year
Ended July 31,
|
Increase/(Decrease)
|
||||||||||||||
|
2009
|
2008
|
2007
|
2009/2008
|
2008/2007
|
|||||||||||
|
Net
Mountain revenue:
|
|||||||||||||||
|
Lift
tickets
|
$
|
276,542
|
$
|
301,914
|
$
|
286,997
|
(8.4
|
)
%
|
5.2
|
%
|
|||||
|
Ski
school
|
65,336
|
81,384
|
78,848
|
(19.7
|
)
%
|
3.2
|
%
|
||||||||
|
Dining
|
52,259
|
62,506
|
59,653
|
(16.4
|
)
%
|
4.8
|
%
|
||||||||
|
Retail/rental
|
147,415
|
168,765
|
160,542
|
(12.7
|
)
%
|
5.1
|
%
|
||||||||
|
Other
|
73,045
|
70,964
|
79,337
|
2.9
|
%
|
(10.6
|
)%
|
||||||||
|
Total
Mountain net revenue
|
$
|
614,597
|
$
|
685,533
|
$
|
665,377
|
(10.3
|
)
%
|
3.0
|
%
|
|||||
|
Mountain
operating expense:
|
|||||||||||||||
|
Labor
and labor-related benefits
|
$
|
165,550
|
$
|
175,674
|
$
|
167,442
|
(5.8
|
)
%
|
4.9
|
%
|
|||||
|
Retail
cost of sales
|
66,022
|
72,559
|
69,218
|
(9.0
|
)
%
|
4.8
|
%
|
||||||||
|
Resort
related fees
|
33,102
|
36,335
|
34,943
|
(8.9
|
)
%
|
4.0
|
%
|
||||||||
|
General
and administrative
|
83,117
|
81,220
|
81,983
|
2.3
|
%
|
(0.9
|
)%
|
||||||||
|
Other
|
103,234
|
104,574
|
109,122
|
(1.3
|
)
%
|
(4.2
|
)%
|
||||||||
|
Total
Mountain operating expense
|
$
|
451,025
|
$
|
470,362
|
$
|
462,708
|
(4.1
|
)
%
|
1.7
|
%
|
|||||
|
Mountain
equity investment income, net
|
817
|
5,390
|
5,059
|
(84.8
|
)
%
|
6.5
|
%
|
||||||||
|
Total
Mountain Reported EBITDA
|
$
|
164,389
|
$
|
220,561
|
$
|
207,728
|
(25.5
|
)
%
|
6.2
|
%
|
|||||
|
Total
skier visits
|
5,864
|
6,195
|
6,219
|
(5.3
|
)
%
|
(0.4
|
)%
|
||||||||
|
ETP
|
$
|
47.16
|
$
|
48.74
|
$
|
46.15
|
(3.2
|
)
%
|
5.6
|
%
|
|||||
Total Mountain Reported EBITDA includes $4.8 million, $3.8 million and $3.8 million of stock-based compensation expense for Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively.
Fiscal
2009 compared to Fiscal 2008
Lift
revenue decreased $25.4 million, or 8.4%, for Fiscal 2009 compared to Fiscal
2008, primarily as a result of a $42.2 million, or 18.8%, decline in lift
revenue excluding season pass revenue, partially offset by an increase in season
pass revenue of $16.8 million, or 21.7%. The increase in season pass
revenue was driven by higher season pass sales resulting primarily from the
introduction of the Epic Season Pass in the 2008/2009 ski
season. Additionally, a portion of the decline in lift revenue
excluding season pass revenue was caused by a shift in Destination guests
purchasing the Epic Season Pass instead of other lift ticket
products.
Total
skier visitation was down 5.3% in the 2008/2009 ski season compared to the
2007/2008 ski season, with overall visitation for the four Colorado resorts
(excluding Heavenly) being down 3.5%. The overall visitation decline
was primarily as a result of an estimated 15% decrease in visitation from
Destination guests, partially offset by strong visitation from season pass
holders, especially from the new Epic Season Pass holders, who on average skied
more in the current year per pass than holders of our other pass
products. ETP decreased 3.2%, driven by an increase in average season
pass holder visitation per pass sold, partially offset by a 2.9% increase in ETP
excluding season pass products, driven by price increases on certain lift ticket
products.
Revenues
for the Company's ski school, dining and retail/rental operations, were all
negatively impacted by the severe downturn in the economic environment which
resulted from the decrease in Destination guest visitation as well as overall
spending per guest. Ski school revenue decreased $16.0 million, or
19.7%, in Fiscal 2009 compared to Fiscal 2008, as ski school revenue is
primarily driven by Destination guests. Dining revenue decreased
$10.2 million, or 16.4%, in Fiscal 2009 compared to Fiscal 2008, due to an
approximate 11% decrease in the number of total on-mountain food and beverage
transactions, coupled with an even greater decline in fine
dining. Revenue from retail/rental operations decreased $21.4
million, or 12.7%, in Fiscal 2009 compared to Fiscal 2008 primarily due to lower
sales and rental volumes at the Company’s mountain resort stores.
Other
revenue mainly consists of private club revenue (which includes both club dues
and amortization of initiation fees), summer visitation and other mountain
activities revenue, allocated strategic alliance revenue, commercial leasing
revenue, employee housing revenue, municipal services revenue and other
recreation activity revenue. For Fiscal 2009 other revenues
increased $2.1 million, or 2.9%, compared to Fiscal 2008, primarily due to
private club operations (which revenue increased $4.1 million) resulting from
the opening of the Vail Mountain Club in November 2008.
Operating
expense decreased $19.3 million, or 4.1%, during Fiscal 2009 compared to Fiscal
2008. This decrease primarily resulted from a decrease in labor and
labor-related benefits expense of $10.1 million, or 5.8%, due to decreased
staffing levels driven by lower volume in ski school, dining and retail/rental
operations as well as the impacts of cost reduction initiatives including the
suspension of the Company’s matching contribution to its 401(k) program
effective January 2009 and a company-wide wage reduction plan implemented in
April 2009 and a $6.5 million, or 9.0%, decrease in retail cost of sales
(commensurate with the decrease in retail revenue). Additionally, resort related
fees (including Forest Service fees, other resort-related fees, credit card fees
and commissions) decreased $3.2 million, or 8.9%, compared to Fiscal 2008 due to
overall declines in revenue that those fees are calculated on and other expenses
decreased $1.3 million, or 1.3%, due primarily to lower food and beverage cost
of sales, supplies and fuel expense, partially offset by higher property taxes,
utilities and repairs and maintenance expense. All of the above
decreases were slightly offset by a $1.9 million, or 2.3%, increase in general
and administrative expenses primarily due to higher allocated corporate
expenses.
Mountain
equity investment income primarily includes the Company's share of income from
the operations of a real estate brokerage joint venture. The decrease
in equity investment income for Fiscal 2009 compared to Fiscal 2008 is primarily
due to decreased commissions earned by the brokerage due to a lower level of
real estate closures compared to Fiscal 2008.
Fiscal
2008 compared to Fiscal 2007
Lift
ticket revenue increased $14.9 million, or 5.2%, for Fiscal 2008 compared to
Fiscal 2007, primarily as a result of a 7.6% increase in ETP excluding season
pass products, which was driven by an increase in absolute
pricing. Season pass revenue increased $5.5 million, or 7.7%, for
Fiscal 2008 compared to Fiscal 2007. This increase in season pass
revenue was due to an increase in pricing, with season pass holders’ average
visitation per pass increasing for the 2007/2008 ski season compared to the
2006/2007 ski season which offset the increase in ETP resulting from price
increases. Skier visits excluding season pass holders decreased 3.0%
for the 2007/2008 ski season compared to the 2006/2007 ski season as a result of
lower skier visitation excluding season pass holders in non-peak periods,
including the early season (prior to December 24) due to below average snow
conditions, and early March and April due in part to the timing of Easter which
was in March for Fiscal 2008 versus April for Fiscal 2007. The
decrease in skier visits excluding season pass holders was offset by significant
increases in international visitation which was higher by an estimated 26% for
Fiscal 2008.
Revenue
for the Company’s ski school and dining increased $2.5 million, or 3.2%, and
$2.9 million, or 4.8%, respectively, for Fiscal 2008 compared to Fiscal 2007,
primarily as a result of absolute price increases. The increase in
ski school revenue was impacted by a decline in skier visitation excluding
season pass holders (as discussed above) as these guests have a higher
participation rate in ski school. The increase in dining revenue was
favorably impacted by the acquisition of two licensed Starbucks stores in June
2007. Retail/rental revenue increased $8.2 million, or 5.1%, for
Fiscal 2008 compared to Fiscal 2007, primarily due to increased operations
related to the 18 Breeze Ski Rental locations that were acquired in June
2007.
Other
revenues decreased $8.4 million, or 10.6%, in Fiscal 2008 compared to Fiscal
2007, due to the disposition of the Company’s investment in RTP in April
2007. Excluding RTP, other revenue would have increased $0.6 million,
or 0.8%, for Fiscal 2008 compared to Fiscal 2007.
Operating
expense increased $7.7 million, or 1.7%, during Fiscal 2008 compared to Fiscal
2007. This increase primarily resulted from an increase in labor and
labor-related benefits expense of $8.2 million, or 4.9%, due to wage increases,
increased staffing in retail/rental due to the acquisition of 18 Breeze stores
and higher workers’ compensation costs and a $3.3 million, or 4.8%, increase in
retail cost of sales (which was commensurate with the increase in retail
revenue). Additionally, resort related fees (including Forest Service
fees, other resort-related fees, credit card fees and commissions) increased
$1.4 million, or 4.0%, in Fiscal 2008 compared to Fiscal 2007 and was due to
overall increases in revenue that those fees are calculated
on. These increases were partially offset by a decrease in other
expenses of $4.5 million, or 4.2%, due to the sale of RTP (April 2007), which
incurred $8.8 million in expenses (included in other operating expenses) for
Fiscal 2007. Excluding the impact of RTP, other operating expenses
increased $4.3 million, or 4.3%, due primarily to higher food and beverage cost
of sales, property taxes, utilities and fuel expense, partially offset by lower
repairs and maintenance expense.
Mountain
equity investment income primarily includes the Company’s share of income from
operations of a real estate brokerage joint venture. The increase in
equity investment income in Fiscal 2008 compared to Fiscal 2007 is due primarily
to increased commissions earned by the brokerage associated with increased real
estate closures surrounding the Company’s Colorado resorts, both from
residential and multi-unit projects.
Lodging
Segment
Lodging
segment operating results for Fiscal 2009, Fiscal 2008 and Fiscal 2007 are
presented by category as follows (in thousands, except ADR and
RevPAR):
|
Percentage
|
|||||||||||||
|
Year
Ended July 31,
|
Increase/(Decrease)
|
||||||||||||
|
2009
|
2008
|
2007
|
2009/2008
|
2008/2007
|
|||||||||
|
Lodging
net revenue:
|
|||||||||||||
|
Owned
hotel rooms
|
$
|
43,153
|
$
|
46,806
|
$
|
42,179
|
(7.8
|
)
|
%
|
11.0
|
%
|
||
|
Managed
condominium rooms
|
34,571
|
37,132
|
36,657
|
(6.9
|
)
|
%
|
1.3
|
%
|
|||||
|
Dining
|
30,195
|
31,763
|
28,191
|
(4.9
|
)
|
%
|
12.7
|
%
|
|||||
|
Transportation
|
17,975
|
--
|
--
|
--
|
%
|
--
|
%
|
||||||
|
Golf
|
15,000
|
16,224
|
15,185
|
(7.5
|
)
|
%
|
6.8
|
%
|
|||||
|
Other
|
35,347
|
38,132
|
40,239
|
(7.3
|
)
|
%
|
(5.2
|
)
|
%
|
||||
|
Total
Lodging net revenue
|
$
|
176,241
|
$
|
170,057
|
$
|
162,451
|
3.6
|
%
|
4.7
|
|
%
|
||
|
Lodging
operating expense
|
|||||||||||||
|
Labor
and labor-related benefits
|
$
|
81,290
|
$
|
75,746
|
$
|
67,224
|
7.3
|
%
|
12.7
|
%
|
|||
|
General
and administrative
|
27,823
|
26,877
|
26,408
|
3.5
|
%
|
1.8
|
%
|
||||||
|
Other
|
60,369
|
57,209
|
50,620
|
5.5
|
%
|
13.0
|
%
|
||||||
|
Total
Lodging operating expense
|
$
|
169,482
|
$
|
159,832
|
$
|
144,252
|
6.0
|
%
|
10.8
|
%
|
|||
|
Total
Lodging Reported EBITDA
|
$
|
6,759
|
$
|
10,225
|
$
|
18,199
|
(33.9
|
)
|
%
|
(43.8
|
)
|
%
|
|
|
Owned
hotel statistics:
|
|||||||||||||
|
ADR
|
$
|
183.59
|
$
|
184.42
|
$
|
167.15
|
(0.5
|
)
|
%
|
10.3
|
%
|
||
|
RevPar
|
$
|
107.06
|
$
|
118.97
|
$
|
108.10
|
(10.0
|
)
|
%
|
10.1
|
%
|
||
|
Managed
condominium statistics:
|
|||||||||||||
|
ADR
|
$
|
273.38
|
$
|
280.37
|
$
|
268.83
|
(2.5
|
)
|
%
|
4.3
|
%
|
||
|
RevPar
|
$
|
84.50
|
$
|
98.68
|
$
|
94.50
|
(14.4
|
)
|
%
|
4.4
|
%
|
||
|
Owned
hotel and managed condominium statistics (combined):
|
|||||||||||||
|
ADR
|
$
|
225.12
|
$
|
230.17
|
$
|
216.83
|
(2.2
|
)
|
%
|
6.2
|
%
|
||
|
RevPar
|
$
|
93.10
|
$
|
106.43
|
$
|
99.58
|
(12.5
|
)
|
%
|
6.9
|
%
|
||
Total
Lodging Reported EBITDA includes $1.8 million, $1.3 million and $1.1 million of
stock-based compensation expense for Fiscal 2009, Fiscal 2008 and Fiscal 2007,
respectively.
Fiscal
2009 compared to Fiscal 2008
Total
Lodging net revenue for Fiscal 2009 increased $6.2 million, or 3.6%, compared to
Fiscal 2008, primarily due to the acquisition of CME on November 1, 2008 and a
full year of operations at The Arrabelle at Vail Square hotel (the “Arrabelle”)
which opened in January 2008. CME operations contributed $18.0
million in net revenue for Fiscal 2009 and the full year operations of the
Arrabelle contributed $11.3 million in revenue for Fiscal 2009 compared to net
revenue of $5.2 million for the partial year of operations of the Arrabelle in
Fiscal 2008.
Revenue
from owned hotel rooms, including the Arrabelle, decreased $3.7 million, or
7.8%, for Fiscal 2009 compared to Fiscal 2008, which was driven by a decrease in
occupancy of 6.2 percentage points which primarily occurred at the lodging
properties proximate to the Company’s ski resorts. This was due to a
decline in Destination visitation as discussed in the Company’s Mountain segment
and declines in group business (including a decrease in GTLC’s room revenue of
$0.8 million in the fourth quarter of Fiscal 2009 compared to the fourth quarter
of Fiscal 2008 primarily due to a decline in group business) as well as
decreases in ADR of 0.5%, partially offset by the full year of operations at the
Arrabelle (the Arrabelle generated $0.8 million of incremental owned hotel room
revenue for Fiscal 2009 compared to Fiscal 2008). Revenue from
managed condominium rooms decreased $2.6 million, or 6.9%, for Fiscal 2009, due
to decreases in visitation as noted above, declines in group business primarily
at Keystone and decreases in ADR of 2.5%, partially offset by the full year of
operations at the Arrabelle which includes condominium property management (the
Arrabelle generated $2.1 million of incremental revenue from managed properties
for Fiscal 2009 compared to Fiscal 2008).
Dining
revenue for Fiscal 2009 decreased $1.6 million, or 4.9%, as compared to Fiscal
2008 mainly due to decreased overall guest and group visitation as well as
decreases in guest spending per visit (GTLC’s dining revenue decreased $1.0
million in the fourth quarter of Fiscal 2009 compared to the fourth quarter of
Fiscal 2008 primarily due to a decline in group business). The
decline in dining revenue was partially offset by a full year of dining
operations at the Arrabelle (the Arrabelle generated $1.2 million of incremental
dining revenue for Fiscal 2009 compared to Fiscal 2008).
Golf
revenues decreased $1.2 million, or 7.5%, for Fiscal 2009 compared to Fiscal
2008, primarily resulting from a 6.0% decrease in the number of golf rounds
played. Other revenue decreased $2.8 million, or 7.3%, in Fiscal 2009
compared to Fiscal 2008 primarily due to a reduction in commissions earned from
reservations booked through the Company’s central reservation system, which were
partially offset by a full year of spa operations at the Arrabelle (the
Arrabelle generated $0.9 million of incremental spa revenue for Fiscal 2009
compared to Fiscal 2008).
Operating
expense increased $9.7 million, or 6.0%, for Fiscal 2009 compared to Fiscal
2008. Operating expenses for Fiscal 2009 included $12.8 million of
CME operating expenses as well as an increase in operating expenses at the
Arrabelle of $6.8 million as a result of a full year of operations in Fiscal
2009, which was partially offset by $3.1 million of start-up and pre-opening
expenses associated with the Arrabelle recorded in Fiscal 2008. Excluding the
impact of CME operating expenses and operating expenses for the Arrabelle due to
a full year of operations (net of start-up and pre-opening expenses recorded in
Fiscal 2008), total operating expenses decreased $6.9 million, or 4.6%, in
Fiscal 2009 compared to Fiscal 2008, primarily due to (i) a decrease in labor
and labor-related benefits of $4.9 million, or 6.9%, due primarily to lower
staffing levels associated with decreased occupancy and wage decreases as a
result of a company-wide wage reduction plan and (ii) a decrease in other
expenses of $3.0 million, or 5.6%, primarily due to decreased variable operating
costs associated with lower revenue resulting in lower food and beverage cost of
sales and credit card fees, offset by an increase in general and administrative
expenses of $1.0 million due to higher allocated corporate
expenses.
Fiscal
2008 compared to Fiscal 2007
Total
Lodging net revenue for Fiscal 2008 increased $7.6 million, or 4.7%, as compared
to Fiscal 2007. Included in net revenue for Fiscal 2007 was the
recognition of $5.4 million in termination fees (included in other revenue)
primarily associated with the termination of the management agreements at The
Equinox and The Lodge at Rancho Mirage (pursuant to the terms of the management
agreements). Excluding these termination fees, Lodging net revenue
would have increased $13.0 million, or 8.3% for Fiscal 2008, compared to Fiscal
2007.
Lodging
net revenue was positively impacted by revenue from owned hotel rooms which
increased $4.6 million, or 11.0%, for Fiscal 2008 compared to Fiscal
2007. ADR for owned hotel rooms increased 10.3% for the same period
due to high demand during peak periods in the year (partially offset by lower
visitation during non-peak periods, including the early season and the timing of
Easter as described in the Mountain segment discussion) and as a result of the
addition of the Arrabelle (which generated $2.0 million in room revenue from its
opening in January 2008 through July 31, 2008). Owned hotel room
RevPAR increased 10.1% for Fiscal 2008 compared to Fiscal 2007, which, in
addition to increases in ADR, was driven by an increase in conference and group
room nights, occurring primarily at GTLC during the Company’s fourth quarter of
Fiscal 2008. Revenue from managed condominium rooms remained
relatively flat for Fiscal 2008 compared to Fiscal 2007 mainly due to a RevPAR
increase of 4.4% which was driven by an increase in ADR of 4.3% due to high
demand during peak periods as noted above and an increase in group room nights
occurring primarily at Keystone, all of which was offset by a 3.4% reduction in
managed condominium available room nights primarily at Keystone.
Dining
revenue for Fiscal 2008 increased $3.6 million, or 12.7%, as compared to Fiscal
2007 mainly due to the addition of the Arrabelle (which generated $2.2 million
in dining revenue from its opening in January 2008 through July 31, 2008) and
group visitation at GTLC. Golf revenues increased $1.0 million, or
6.8%, for Fiscal 2008 compared to Fiscal 2007, primarily resulting from an
increase in the number of golf rounds due to improvements made at the Company’s
Jackson Hole Golf & Tennis Club (“JHG&TC”) and Beaver Creek Golf Club,
which caused the golf courses to be shut down for a portion of the season in
Fiscal 2007. Excluding the $5.4 million in termination fees, other
revenues increased $3.3 million, or 9.3% for Fiscal 2008 compared to Fiscal
2007, due to higher resort amenity fees charged to guests and increases in spa
and retail revenue.
Operating
expense increased $15.6 million, or 10.8%, for Fiscal 2008 compared to Fiscal
2007. Operating expenses for Fiscal 2008 included approximately $3.1
million of start-up and pre-opening expenses for the Arrabelle (recorded in
labor and labor-related benefits and other expenses) and incremental fees paid
to the National Park Service by GTLC of $1.0 million (recorded in other
expenses) resulting from a new concession contract which became effective
January 2007. Excluding the Fiscal 2008 start-up and pre-opening
expenses of the Arrabelle, and the increase in fees paid to the National Park
Service, total operating expenses increased by approximately $11.4 million, or
8.0%, for Fiscal 2008 compared to Fiscal 2007, which primarily includes (i) an
increase in labor and labor-related benefits of $6.5 million, or 9.7%, due
primarily to wage increases, increases in labor hours to support the higher
Lodging segment revenues, as well as increased staffing levels due to the
opening of the Arrabelle in January 2008, and (ii) an increase in other expenses
of $4.4 million, or 9.1%, due to variable operating costs associated with
incremental revenue resulting in higher food and beverage cost of sales and
credit card fees, and higher operating costs associated with the Arrabelle after
its opening, primarily in property taxes and utilities.
Real
Estate Segment
Real
Estate segment operating results for Fiscal 2009, Fiscal 2008 and Fiscal 2007
are presented by category as follows (in thousands):
|
Percentage
|
||||||||||||||||||
|
Year
Ended July 31,
|
Increase/(Decrease)
|
|||||||||||||||||
|
2009
|
2008
|
2007
|
2009/2008
|
2008/2007
|
||||||||||||||
|
Total
Real Estate net revenue
|
$
|
186,150
|
$
|
296,566
|
$
|
112,708
|
(37.2
|
)
|
%
|
163.1
|
%
|
|||||||
|
Total
Real Estate operating expense
|
142,070
|
251,338
|
115,190
|
(43.5
|
)
|
%
|
118.2
|
%
|
||||||||||
|
Gain
on sale of real property
|
--
|
709
|
--
|
(100.0
|
)
|
%
|
--
|
%
|
||||||||||
|
Total
Real Estate Reported EBITDA
|
$
|
44,080
|
$
|
45,937
|
$
|
(2,482
|
)
|
(4.0
|
)
|
%
|
1,950.8
|
%
|
||||||
Total
Real Estate Reported EBITDA includes $4.1 million, $3.1 million and $2.1 million
of stock-based compensation expense for Fiscal 2009, Fiscal 2008 and Fiscal
2007, respectively.
The
Company’s Real Estate operating revenue is primarily determined by the timing of
closings and the mix of real estate sold in any given
period. Different types of projects have different revenue and
expense volumes and margins; therefore, as the real estate inventory mix changes
it can greatly impact Real Estate segment net revenue, operating expense and
Real Estate Reported EBITDA.
Fiscal
2009
Real
Estate net revenue for Fiscal 2009 was driven primarily by the closings of eight
Chalets units ($111.5 million of revenue with an average selling price per unit
of $13.9 million and an average price per square foot of $2,860), 42 residences
at Crystal Peak Lodge ($54.9 million of revenue with an average selling price
per unit of $1.3 million and an average price per square foot of $1,038) and two
condominium units at the Arrabelle ($16.7 million of revenue with an average
selling price per unit of $8.4 million and an average price per square foot of
$1,623). The higher average price per square foot for the Chalet
units was driven by their premier location at the base of Vail mountain in Vail
Village and the fact that this development consisted of only 13 exclusive
chalets. The Arrabelle average price per square foot is driven by its
ski-in/ski-out location in Vail, and the comprehensive offering of amenities
resulting from this project. The Crystal Peak Lodge average price per
square foot though significantly lower than the Vail project real estate sales,
is significantly higher than historical Breckenridge project real estate sales
and is primarily driven by its ski-in/ski-out location at the base of Peak 7 in
Breckenridge and close proximity to the BreckConnect Gondola.
Operating expense for Fiscal 2009 included cost of sales of $101.1 million
commensurate with revenue recognized, primarily driven by the closing on eight
Chalets units ($54.1 million in cost of sales with an average cost per square
foot of $1,387), 42 residences at Crystal Peak Lodge ($34.2 million in cost of
sales with an average cost per square foot of $654) and two units at the
Arrabelle ($12.4 million in cost of sales with an average cost per square foot
of $1,204). The cost per square foot for the Arrabelle and Chalets are
reflective of the high-end features and amenities associated with these projects
and the relatively high construction costs associated with mountain resort
development. The cost per square foot for Crystal Peak Lodge is reflective
of its less complicated design features and fewer amenities associated with this
project relative to the Arrabelle and Chalets. Operating expenses also
included sales commissions of approximately $10.6 million commensurate with
revenue recognized and general and administrative costs of approximately $27.6
million (including $4.1 million of stock-based compensation
expense). General and administrative costs were primarily comprised
of marketing expenses for the major real estate projects under development
(including those that have not yet closed), overhead costs such as labor and
labor-related benefits and allocated corporate costs. In addition,
included in segment operating expense for Fiscal 2009, the Company recorded $2.8
million of estimated costs in excess of anticipated sales proceeds for an
affordable housing commitment resulting from the cancellation of a contract by a
third party developer related to its JHG&TC development.
Fiscal
2008
Real
Estate net revenue for Fiscal 2008 was driven primarily by the closings
of 64 condominium units at the Arrabelle ($213.6 million of revenue
with an average selling price per unit of $3.3 million and an average price per
square foot of $1,220), the closings of five Chalet units ($58.8 million of
revenue with an average selling price per unit of $11.8 million and an average
price per square foot of $2,336), the closings of the remaining JHG&TC
cabins ($9.0 million of revenue with an average selling price per unit of $0.8
million and an average price per square foot of $360) and contingent gains of
$13.0 million on development parcel sales that closed in previous
periods. The higher average price per square foot for the Chalet
units was driven by the premier location at the base of Vail mountain in Vail
Village and the fact that this development consisted of only 13 exclusive
chalets. The Arrabelle average price per square foot is driven by its
ski-in/ski-out location in Vail, and the comprehensive offering of amenities
resulting from this project. The JHG&TC cabins yielded a lower
price per square foot as its location is proximate to golf and tennis facilities
which does not have as strong of a demand compared to real estate featuring
ski-in/ski-out locations proximate to our ski resorts.
Operating
expense for Fiscal 2008 included cost of sales of $208.8 million commensurate
with revenue recognized, primarily driven by the closing on 64 units at the
Arrabelle ($171.2 million in cost of sales with an average cost per square foot
of $978), the closing on five Chalet units ($27.7 million in cost of sales with
an average cost per square foot of $1,100) and the closing of the remaining
JHG&TC cabins ($8.9 million in cost of sales with an average cost per square
foot of $355). The cost per square foot for the Arrabelle and Chalets are
reflective of the high-end features and amenities associated with these projects
and the relatively high construction costs associated with mountain resort
development. The average cost per square foot for the JHG&TC was
significantly lower than for other projects closed during the period due to the
fact that this project did not include the typical high-end features of our
projects that are in close proximity to our mountain resorts; however, the cost
of sales for the JHG&TC cabins were relatively high compared to the revenue
earned due to unanticipated incremental design and construction related
costs. Operating expenses also included sales commissions of
approximately $17.1 million commensurate with revenue recognized and general and
administrative costs of approximately $25.4 million (including $3.1 million of
stock-based compensation expense). General and administrative costs
were primarily comprised of marketing expenses for the major real estate
projects under development (including those that have not yet closed), overhead
costs such as labor and labor-related benefits and allocated corporate
costs.
Fiscal
2007
Real
Estate net revenue for Fiscal 2007 was driven primarily by the closings of ten
residences at Gore Creek Place ($42.9 million of revenue with an average selling
price per unit of $4.3 million and an average price per square foot of $1,081),
34 residences at Mountain Thunder ($24.1 million of revenue with an average
selling price per unit of $0.7 million and an average price per square foot of
$515) and 12 cabins at JHG&TC ($14.2 million of revenue with an average
selling price per unit of $1.2 million and an average price per square foot of
$502). The higher average price per square foot for the Gore Creek
Place units was driven by its location in Vail’s Lionshead Village and the fact
that this development consisted of only 16 exclusive townhomes. The
Mountain Thunder average price per square foot is reflective of its location
(not at the base area of the ski mountain) in Breckenridge. The
JHG&TC cabins yielded a lower price per square foot as its location is
proximate to golf and tennis facilities which does not have as strong of a
demand compared to real estate featuring ski-in/ski-out locations proximate to
our ski resorts. In addition, Real Estate net revenue included the
sale of land together with certain related infrastructure improvements in Red
Sky Ranch and Breckenridge to third-party developers of $12.1 million, the sale
of the sole asset in the FFT Investment Partners real estate joint venture of
$6.7 million and contingent gains on development parcel sales that closed in
previous periods of $7.2 million.
Operating
expense for Fiscal 2007 included cost of sales of $77.9 million commensurate
with revenue recognized, primarily driven by the closing on ten
residences at Gore Creek Place ($29.1 million in cost of sales with an average
cost per square foot of $733), 34 residences at Mountain Thunder ($19.2 million
in cost of sales with an average cost per square foot of $409), and 12 cabins at
JHG&TC ($13.8 million in cost of sales with an average cost per square foot
of $486). The cost per square foot for the Gore Creek Place is
reflective of the high-end features associated with the projects and the
relatively high construction costs associated with mountain resort
development. The average cost per square foot for the Mountain
Thunder and JHG&TC was significantly lower than for other projects closed
during the period due to the fact that the projects did not include the typical
high-end features of our projects that are at the base of our mountain
resorts. In addition, the cost of sales for the JHG&TC cabins
were relatively high compared to the revenue earned due to unanticipated
incremental design and construction related costs, which resulted in a $7.6
million charge for estimated total project costs in excess of anticipated sales
proceeds which was recorded during Fiscal 2007. Operating expenses
also included sales commissions of approximately $5.6 million commensurate with
revenue recognized and general and administrative costs of approximately $24.0
million (including $2.1 million of stock-based compensation
expense). General and administrative costs were primarily comprised
of marketing expenses for the major real estate projects under development
(including those that have not yet closed), overhead costs such as labor and
labor-related benefits and allocated corporate costs.
Other
Items
In
addition to segment operating results, the following material items contribute
to the Company's overall financial position.
Depreciation and
amortization. Depreciation and amortization expense for Fiscal
2009 and Fiscal 2008 increased primarily due to a higher level of capital
expenditures and the timing of placing in service significant resort assets,
which included, among other assets, the Arrabelle (including amenities such as a
private club, spa, commercial leasing space, and other skier services
facilities), a new skier services building, a private club (the Vail Mountain
Club) in Vail Village and multiple gondolas and lifts within the last two
years.
Investment
income. The decrease in investment income for Fiscal 2009
compared to Fiscal 2008 is primarily due to a reduction in the average interest
earned on investments (the average annualized interest rate earned decreased by
approximately 2.5 percentage points in Fiscal 2009 versus Fiscal 2008), as well
as a decrease in average invested cash during Fiscal 2009 compared to Fiscal
2008. The decrease in investment income for Fiscal 2008 compared
to Fiscal 2007 is primarily due to a reduction in the average interest earned on
investments, a decrease in average invested cash during the period and a $1.0
million impairment on a short-term investment resulting from a commercial paper
write-down.
Interest expense,
net. The reduction in interest expense, net for Fiscal 2009
compared to Fiscal 2008, is attributable to the payoff of a scheduled debt
maturity in the current year and capitalized interest on self-funded real estate
projects. The decrease in interest expense for Fiscal 2008 compared
to Fiscal 2007 is primarily due to a reduction in the average variable borrowing
rate of the employee housing bonds and an increase in capitalized interest
associated with real estate and related resort development.
Contract dispute credit,
net. On October 19, 2007, RockResorts received payment of the
final settlement from Cheeca Holdings, LLC (the “Cheeca settlement”), 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 Fiscal 2008.
Income
taxes. The Company's tax provision and effective tax
rate are driven primarily by the amount of pre-tax income, which is adjusted for
items that are deductible/non-deductible for tax purposes only (i.e. permanent
items), and taxable income generated by state jurisdictions that varies from the
consolidated pre-tax income. The effective tax rate was 38.5%, 38.0%
and 39.0% in Fiscal 2009, Fiscal 2008 and Fiscal 2007,
respectively. The income tax provision recorded for Fiscal 2008
reflects the impact of a favorable tax settlement with state tax authorities of
$1.0 million.
In 2005,
the Company amended previously filed tax returns (for the tax years from 1997
through 2002) in an effort to remove restrictions under Section 382 of the
Internal Revenue Code on approximately $73.8 million of net operating losses
(“NOLs”) relating to fresh start accounting from the Company’s reorganization in
1992. As a result, the Company requested a refund related to the
amended returns in the amount of $6.2 million and has reduced its Federal tax
liability in the amount of $19.6 million in subsequent tax
returns. In 2006, the Internal Revenue Service (“IRS”) completed its
examination of the Company’s filing position in its amended returns and
disallowed the Company’s request for refund and its position to remove the
restriction on the NOLs. The Company appealed the examiner’s
disallowance of the NOLs to the Office of Appeals. In December 2008,
the Office of Appeals denied the Company’s appeal, as well as a request for
mediation. The Company disagrees with the IRS interpretation
disallowing the utilization of the NOLs and in August 2009, filed a complaint in
the United States District Court for the District of Colorado seeking recovery
of $6.2 million in over payments that were previously denied by the IRS, plus
interest. Due to the uncertainty surrounding the utilization of the
NOLs, the Company has not reflected any of the benefits of the utilization of
the NOLs within its financial statements; thus if the Company is unsuccessful in
its action regarding this matter it will not negatively impact the Company’s
results of operations.
Reconciliation
of Non-GAAP Measures
The
following table reconciles from segment Reported EBITDA to net income (in
thousands):
|
Year
Ended July 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Mountain
Reported EBITDA
|
$
|
164,389
|
$
|
220,561
|
$
|
207,728
|
||||||
|
Lodging
Reported EBITDA
|
6,759
|
10,225
|
18,199
|
|||||||||
|
Resort
Reported EBITDA
|
171,148
|
230,786
|
225,927
|
|||||||||
|
Real
Estate Reported EBITDA
|
44,080
|
45,937
|
(2,482
|
)
|
||||||||
|
Total
Reported EBITDA
|
215,228
|
276,723
|
223,445
|
|||||||||
|
Depreciation
and amortization
|
(107,213
|
)
|
(93,794
|
)
|
(87,664
|
)
|
||||||
|
Relocation
and separation charges
|
--
|
--
|
(1,433
|
)
|
||||||||
|
Loss
on disposal of fixed assets, net
|
(1,064
|
)
|
(1,534
|
)
|
(1,083
|
)
|
||||||
|
Investment
income, net
|
1,793
|
8,285
|
12,403
|
|||||||||
|
Interest
expense, net
|
(27,548
|
)
|
(30,667
|
)
|
(32,625
|
)
|
||||||
|
Loss
on sale of business, net
|
--
|
--
|
(639
|
)
|
||||||||
|
Contract
dispute credit (charges), net
|
--
|
11,920
|
(4,642
|
)
|
||||||||
|
Gain
on put option, net
|
--
|
690
|
||||||||||
|
Minority
interest in income of consolidated subsidiaries, net
|
(1,602
|
)
|
(4,920
|
)
|
(7,801
|
)
|
||||||
|
Income
before provision for income taxes
|
79,594
|
166,013
|
100,651
|
|||||||||
|
Provision
for income taxes
|
(30,644
|
)
|
(63,086
|
)
|
(39,254
|
)
|
||||||
|
Net
income
|
$
|
48,950
|
$
|
102,927
|
$
|
61,397
|
||||||
The
following table reconciles Net Debt (defined as long-term debt plus long-term
debt due within one year less cash and cash equivalents) (in
thousands):
|
July
31,
|
||||||
|
2009
|
2008
|
|||||
|
Long-term
debt
|
$
|
491,608
|
$
|
541,350
|
||
|
Long-term
debt due within one year
|
352
|
15,355
|
||||
|
Total
debt
|
491,960
|
556,705
|
||||
|
Less:
cash and cash equivalents
|
69,298
|
162,345
|
||||
|
Net
Debt
|
$
|
422,662
|
$
|
394,360
|
||
Liquidity
and Capital Resources
Significant
Sources of Cash
Historically,
the Company has lower cash available as of its fiscal year end (as well as at
the end of its first fiscal quarter of each year) as compared to its second and
third fiscal quarters end primarily due to the seasonality of its Mountain
segment operations. Additionally, cash provided by operating
activities can be significantly impacted by the timing or mix of closings on and
investment in real estate development projects. The Company had $69.3
million of cash and cash equivalents as of July 31, 2009, compared to $162.3
million as of July 31, 2008. The Company generated $134.3 million of
cash from operating activities during Fiscal 2009 compared to $217.0 million and
$118.4 million generated during Fiscal 2008 and Fiscal 2007,
respectively. The Company currently anticipates that Resort Reported
EBITDA will continue to provide a significant source of future operating cash
flows. Additionally, anticipated closings of real estate projects
currently under development will provide a source of future cash flows from
operations in fiscal year 2010 and beyond, partially offset by further
investments in real estate to complete these projects (as further discussed
below within Significant Uses of Cash).
In
addition to the Company’s $69.3 million of cash and cash equivalents at July 31,
2009, the Company has available $304.7 million under its Credit Facility (which
represents the total commitment of $400.0 million less certain letters of credit
outstanding of $95.3 million). The Company’s plan to self-fund its current real
estate under development (the Company estimates to incur between $190 million
and $210 million in cash expenditures subsequent to July 31, 2009 for projects
under development) combined with historically lower operating cash flows during
the Company’s first fiscal quarter will likely require the Company to borrow
under the revolver component of its Credit Facility from time to time beginning
in the first quarter of fiscal 2010. The Company expects that its
liquidity needs in the near term will be met by continued utilization of
operating cash flows (primarily those generated in its second and third fiscal
year quarters) and borrowings under the Credit Facility. The Company
believes the Credit Facility, which matures in 2012, provides adequate
flexibility and is priced favorably with any new borrowings currently being
priced at LIBOR plus 0.75%.
Fiscal
2009 compared to Fiscal 2008
Net cash
provided by operating activities decreased $82.7 million for Fiscal 2009
compared to Fiscal 2008 and was primarily impacted by the timing and mix of real
estate closings as proceeds from Real Estate sales decreased $105.7 million and
deposits received on projects under development decreased $43.7 million,
partially offset by a reduction in investments in real estate of $55.9
million. Further contributing to the decrease in cash provided by
operating activities was a decrease in cash generated by resort operations
including a decrease in Resort Reported EBITDA of $59.6 million for Fiscal 2009
compared to Fiscal 2008 and a decline in accounts payable and other accrued
liabilities of $25.5 million primarily as a result of a decline in real estate
investment activity and lower trade payables associated with lower operating
volume, as well as the receipt of $11.9 million in cash (net of legal costs) for
the Cheeca settlement in Fiscal 2008. Offsetting the above items was
the receipt of $40.8 million in proceeds for the final installment related to
private club initiation fees to the Vail Mountain Club that opened in November
2008 and a reduction in restricted cash of $51.1 million which became available
for general purpose use due to the payoff of the Company’s non-recourse real
estate financings.
Cash used
in investing activities decreased by $3.5 million for Fiscal 2009 due to a
decrease in resort capital expenditures of $44.4 million offset by the
acquisition of CME for $38.2 million.
Cash used
in financing activities decreased $54.6 million primarily due to a decrease in
repurchased common stock of $77.3 million in Fiscal 2009 compared to Fiscal
2008, which was partially offset by an increase in net payments of debt related
to non-recourse real estate financings of $11.9 million and the payment of $15.0
million for a scheduled debt maturity during Fiscal 2009.
Fiscal
2008 compared to Fiscal 2007
Net cash
provided by operating activities increased $98.6 million for Fiscal 2008
compared to Fiscal 2007 and was impacted by the timing and mix of real estate
closings as proceeds from Real Estate sales increased $144.1 million which was
partially offset by a decrease in deposits received on projects under
development of $27.6 million and an increase in investments in real estate of
$38.3 million. Additionally, the Company received $11.9 million in
cash (net of legal costs) for the Cheeca settlement in Fiscal
2008. Further contributing to the increase in cash provided by
operating activities was an increase in cash generated by resort operations
including an increase in Resort Reported EBITDA of $4.9 million for Fiscal 2008
compared to Fiscal 2007.
Cash used
in investing activities increased by $16.0 million for Fiscal 2008 due to an
increase in resort capital expenditures of $31.7 million partially offset by the
purchase of an additional interest in the Company’s retail/rental operations,
SSI Venture LLC, during Fiscal 2007 for $8.4 million.
Net cash
provided by financing activities for Fiscal 2008 decreased by $190.1 million
compared to Fiscal 2007 due to the decrease in net non-recourse borrowings of
$111.0 million as well as an $84.6 million increase in repurchases of the
Company’s common stock during Fiscal 2008. Additionally, cash
proceeds from the exercise of stock options decreased by $14.6 million
(including tax benefits) for Fiscal 2008 compared to Fiscal
2007.
Significant
Uses of Cash
The
Company’s cash needs currently include providing for operating expenditures as
well as capital expenditures for both assets to be used in operations and real
estate projects under construction.
The
Company expects to spend approximately $160 million to $180 million in calendar
year 2009 for real estate under development, including the construction of
associated resort-related depreciable assets, of which approximately $90 million
was spent as of July 31, 2009, leaving approximately $70 million to $90 million
to spend in the remainder of the calendar year 2009. The Company has
entered into contracts with third parties to provide services to the Company
throughout the course of project development; commitments for future services to
be performed under such current contracts total approximately $164 million and
are expected to be performed primarily over the next two years.
The
Company has historically invested significant cash in capital expenditures for
its resort operations, and expects to continue to invest in the future; however,
plans for such investment in the near term have been reduced given the
significant level of capital expenditures made in the past few years including
individually significant projects that do not annually re-occur including
gondolas and major hotel renovations coupled with the current economic
recession. Current capital expenditure levels will primarily include
investments that allow the Company to maintain its high quality standards, as
well as certain incremental discretionary improvements at the Company’s five ski
resorts and throughout its owned hotels. The Company evaluates
additional capital improvements based on expected strategic impacts and/or
expected return on investment. The Company currently anticipates it
will spend approximately $50 million to $60 million of resort capital
expenditures for calendar year 2009, excluding resort depreciable assets arising
from real estate activities noted above, of which approximately $20 million was
spent as of July 31, 2009, leaving approximately $30 million to $40 million to
spend in the remainder of the calendar year 2009. Included in these
capital expenditures are approximately $32 million to $37 million which are
necessary to maintain appearance and level of service appropriate to the
Company’s resort operations, including routine replacement of snow grooming
equipment and rental fleet equipment. The Company currently plans to
utilize cash on hand, borrowing available under its Credit Facility and/or cash
flow from future operations to provide the cash necessary to execute its capital
plans.
Principal
payments on the vast majority of the Company’s long-term debt ($489.2 million of
the total $492.0 million debt outstanding as of July 31, 2009) are not due until
fiscal 2014 and beyond. As of July 31, 2009 and 2008, total long-term
debt (including long-term debt due within one year) was $492.0 million and
$556.7 million, respectively, with the decrease at July 31, 2009 being primarily
due to the pay-off of the non-recourse real estate financings related to the
Company’s vertical development projects and the payment of a scheduled debt
maturity. Net Debt (defined as long-term debt plus long-term debt due
within one year less cash and cash equivalents) increased from $394.4 million as
of July 31, 2008 to $422.7 million as of July 31, 2009 due primarily to the
decrease in cash and cash equivalents partially offset by the pay-off of the
Company’s non-recourse real estate financings.
The
Company’s debt service requirements can be impacted by changing interest rates
as the Company had $52.6 million of variable-rate debt outstanding as of July
31, 2009. A 100-basis point change in LIBOR would cause the Company’s
annual interest payments to change by approximately $0.5 million. The
fluctuation in the Company’s debt service requirements, in addition to interest
rate changes, may be impacted by future borrowings under its Credit Facility or
other alternative financing arrangements, including non-recourse real estate
financings, it may enter into. The Company’s long term liquidity
needs are dependent upon operating results that impact the borrowing capacity
under the Credit Facility, which can be mitigated by adjustments to capital
expenditures, flexibility of investment activities and the ability to obtain
favorable future financing. The Company can respond to liquidity
impacts of changes in the business and economic environment by managing its
capital expenditures and the timing of new real estate development
activity.
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 Fiscal 2009 the Company repurchased 874,427 shares of
common stock at a cost of $22.4 million. Since inception of this
stock repurchase plan through July 31, 2009, the Company has repurchased
3,878,535 shares at a cost of approximately $147.8 million. As of
July 31, 2009, 2,121,465 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. Acquisitions under the stock repurchase program may be made
from time to time at prevailing prices as permitted by applicable laws, and
subject to market conditions and other factors. The timing as well as
the number of shares that may be repurchased under the program will depend on a
number of factors, including the Company’s future financial performance, the
Company’s available cash resources and competing uses for cash that may arise in
the future, the restrictions in the Company’s Fourth Amended and Restated Credit
Agreement, dated as of January 28, 2005, as amended, between The Vail
Corporation (a wholly-owned subsidiary of the Company), Bank of America, N.A. as
administrative agent and the Lenders party thereto (the “Credit Agreement”)
governing the Company’s Credit Facility and the Indenture, governing the 6.75%
Notes, prevailing prices of the Company’s common stock and the number of shares
that become available for sale at prices that the Company believes are
attractive. The stock repurchase program may be discontinued at any
time.
Covenants
and Limitations
The
Company must abide by certain restrictive financial covenants under its Credit
Facility and the Indenture. The most restrictive of those covenants
include the following Credit Facility covenants: Net Funded Debt to Adjusted
EBITDA ratio, Interest Coverage ratio and the Minimum Net Worth (each as defined
in the Credit Agreement). In addition, the Company’s financing
arrangements, including the Indenture, limit its ability to incur certain
indebtedness, make certain restricted payments, enter into certain investments,
make certain affiliate transfers and may limit its ability to enter into certain
mergers, consolidations or sales of assets. The Company’s borrowing
availability under the Credit Facility is primarily determined by the Net Funded
Debt to Adjusted EBITDA ratio, which is based on the Company’s segment operating
performance, as defined in the Credit Agreement.
The
Company was in compliance with all restrictive financial covenants in its debt
instruments as of July 31, 2009. The Company expects it will meet all
applicable financial maintenance covenants in its Credit Agreement, including
the Net Funded Debt to Adjusted EBITDA ratio throughout the year ending July 31,
2010. However, there can be no assurance that the Company will meet
such financial covenants. If such covenants are not met, the Company
would be required to seek a waiver or amendment from the banks participating in
the Credit Facility. While the Company anticipates that it would
obtain such waiver or amendment, if any were necessary, there can be no
assurance that such waiver or amendment would be granted, which could have a
material adverse impact on the liquidity of the Company.
Contractual
Obligations
As part
of its ongoing operations, the Company enters into arrangements that obligate
the Company to make future payments under contracts such as debt agreements,
construction agreements in conjunction with the Company’s development activities
and lease agreements. Debt obligations, which total $492.0 million as
of July 31, 2009, are recognized as liabilities in the Company's Consolidated
Balance Sheet as of July 31, 2009. Obligations under construction contracts are
not recognized as liabilities in the Company’s Consolidated Balance Sheet until
services and/or goods are received which is in accordance with
GAAP. Additionally, operating lease and service contract obligations,
which total $81.6 million as of July 31, 2009, are not recognized as liabilities
in the Company's Consolidated Balance Sheet, which is in accordance with
GAAP. A summary of the Company's contractual obligations as of July
31, 2009 is as follows (in thousands):
|
Payments
Due by Period
|
|||||||||||||||
|
Fiscal
|
2-3
|
4-5
|
More
than
|
||||||||||||
|
Contractual
Obligations
|
Total
|
2010
|
years
|
years
|
5
years
|
||||||||||
|
Long-Term
Debt (1)
|
$
|
491,960
|
$
|
352
|
$
|
2,132
|
$
|
390,538
|
$
|
98,938
|
|||||
|
Fixed
Rate Interest (1)
|
165,958
|
29,634
|
59,073
|
58,975
|
18,276
|
||||||||||
|
Operating
Leases and Service Contracts
|
81,608
|
17,350
|
23,710
|
16,847
|
23,701
|
||||||||||
|
Purchase
Obligations (2)
|
380,884
|
309,812
|
71,072
|
--
|
--
|
||||||||||
|
Other
Long-Term Obligations (3)
|
1,882
|
340
|
132
|
106
|
1,304
|
||||||||||
|
Total
Contractual Cash Obligations
|
$
|
1,122,292
|
$
|
357,488
|
$
|
156,119
|
$
|
466,466
|
$
|
142,219
|
|||||
(1) The fixed-rate interest payments, as
well as long-term debt payments, included in the table above assume that all
fixed-rate debt outstanding as of July 31, 2009 will be held to
maturity. Interest payments associated with variable-rate debt have
not been included in the table. Assuming that the amounts outstanding
under variable-rate long-term debt as of July 31, 2009 are held to maturity, and
utilizing interest rates in effect at July 31, 2009, the Company’s annual
interest payments (including commitment fees and letter of credit fees) on
variable rate long-term debt as of July 31, 2009 is anticipated to be
approximately $1.0 million for at least each of the next five
years. The future annual interest obligations noted herein are
estimated only in relation to debt outstanding as of July 31, 2009, and do not
reflect interest obligations on potential future debt.
(2) Purchase
obligations include amounts which are classified as trade payables, real estate
development payables, accrued payroll and benefits, accrued fees and
assessments, accrued taxes (including taxes for uncertain tax positions),
liabilities to complete real estate projects on the Company's Consolidated
Balance Sheet as of July 31, 2009 and other commitments for goods and services
not yet received, including construction contracts not included on the Company’s
balance sheet as of July 31, 2009 in accordance with GAAP.
(3) Other long-term obligations include
amounts which become due based on deficits in underlying cash flows of the
metropolitan district as described in Note 14, Commitments and Contingencies, of
the Notes to Consolidated Financial Statements.
Off
Balance Sheet Arrangements
The
Company does not have off balance sheet transactions that are expected to have a
material effect on the Company's financial condition, revenue, expenses, results
of operations, liquidity, capital expenditures or capital
resources.
Critical
Accounting Policies
The
preparation of Consolidated Financial Statements in conformity with GAAP
requires the Company to select appropriate accounting policies and to make
judgments and estimates affecting the application of those accounting
policies. In applying the Company's accounting policies, different
business conditions or the use of different assumptions may result in materially
different amounts reported in the Consolidated Financial
Statements.
The
Company has identified the most critical accounting policies which were
determined by considering accounting policies that involve the most complex or
subjective decisions or assessments. The Company also has other
policies considered key accounting policies; however, these policies do not meet
the definition of critical accounting policies because they do not generally
require the Company to make estimates or judgments that are complex or
subjective. The Company has reviewed these critical accounting
policies and related disclosures with the Company’s Audit Committee of the Board
of Directors.
Real Estate
Revenue and Cost of Sales.
Description
The
Company utilizes the relative sales value method to determine cost of sales for
individual parcels of real estate and/or condominium units sold within a
project, when specific identification of costs cannot be reasonably
determined. The determination of cost of sales may utilize estimates
for the fair value of resort depreciable assets that may be part of a mixed-use
real estate development project and total costs to be incurred on a real estate
development project.
Judgments
and Uncertainties
Changes
to either the relative sales values of the components of a project, which may
include resort depreciable assets, or the total projected costs to be incurred
to determine cost of sales may cause significant variances in the profit margins
recognized on individual parcels of real estate and/or condominium units within
a project.
Effect
if Actual Results Differ From Assumptions
A 10%
change in the estimates of either the relative sales values of the components of
a project or remaining costs to be incurred for projects utilizing the relative
sales value method would have changed the profit margin recognized by
approximately $7.7 million for Fiscal 2009.
Goodwill
and Intangible Assets.
Description
The
carrying value of goodwill and indefinite-lived intangible assets are evaluated
for possible impairment on an annual basis or between annual tests if an event
occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit or indefinite-lived intangible asset below its
carrying value. Other intangible assets are evaluated for impairment
when there is evidence that events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable. The Company
is required to determine goodwill impairment using a two-step
process. The first step is used to identify potential impairment by
comparing the fair value of a reporting unit with its carrying
amount. If the carrying amount of a reporting unit exceeds its fair
value, the second step of the impairment test is performed to measure the amount
of impairment loss, if any. If the carrying amount of the reporting
unit’s goodwill exceeds the implied fair value of that goodwill, an impairment
loss is recognized in an amount equal to that excess. The impairment
test for indefinite-lived intangible assets consists of a comparison of the
estimated fair value of the intangible asset with its carrying
value. If the carrying value of the intangible asset exceeds its fair
value, an impairment loss is recognized in an amount equal to that
excess.
Judgments
and Uncertainties
Application
of the goodwill and indefinite-lived intangible asset impairment test requires
judgment, including the identification of reporting units, assignment of assets
and liabilities to reporting units, assignment of goodwill to reporting units
and determination of the fair value of reporting units and indefinite-lived
intangible assets. The Company determines the estimated fair value of
its reporting units using a discounted cash flow analysis. The
estimated fair value of indefinite-lived intangible assets is primarily
determined using the income approach based upon estimated future revenue
streams. These analyses require significant judgments, including
estimation of future cash flows, which is dependent on internal forecasts,
available industry/market data, estimation of the long-term rate of growth for
the Company’s business, estimation of the useful life over which cash flows will
occur (including terminal multiples), and determination of the respective
weighted average cost of capital. Changes in these estimates and
assumptions could materially affect the determination of fair value and
impairment for each reporting unit and indefinite-lived intangible
asset. The Company evaluates its reporting units on an annual basis
and allocates goodwill to its reporting units based on the reporting
units expected to benefit from the acquisition generating the
goodwill.
Effect
if Actual Results Differ From Assumptions
Goodwill
and indefinite-lived intangible assets are at least tested for impairment
annually as of May 1st of
each year. Based upon the Company’s annual impairment test during the
fourth fiscal quarter of 2009 the estimated fair value of the Company’s
reporting units and indefinite-lived intangible assets were in excess of their
respective carrying values. As such, no impairment of goodwill or
indefinite-lived intangible assets was recorded.
In order
to evaluate the sensitivity of the estimated fair value calculations of the
Company’s reporting units and indefinite-lived intangible assets, the Company
applied a hypothetical 10% decrease to the estimated fair values of the
Company's reporting units and indefinite-lived intangible
assets. This hypothetical decrease of 10% would not have had an
impact on the conclusion that the estimated fair value of the Company’s
reporting units and significant indefinite-lived intangible assets were in
excess of their respective carrying values.
Tax
Contingencies.
Description
The
Company must make certain estimates and judgments in determining income tax
expense for financial statement purposes. These estimates and
judgments occur in the calculation of tax credits and deductions and in the
calculation of certain tax assets and liabilities, which arise from differences
in the timing of recognition of revenue and expense for tax and financial
statement purposes, as well as the interest and penalties relating to uncertain
tax positions. The calculation of the Company’s tax liabilities
involves dealing with uncertainties in the application of complex tax
regulations. The Company recognizes liabilities for uncertain tax
positions based on a two-step process. The first step is to evaluate
the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step requires the Company to estimate
and measure the tax benefit as the largest amount that is more than 50% likely
of being realized upon ultimate settlement. It is inherently
difficult and subjective to estimate such amounts, as this requires the Company
to determine the probability of various possible outcomes. This
evaluation is based on factors including, but not limited to, changes in facts
or circumstances, changes in tax law, effectively settled issues under audit and
new audit activity. A significant amount of
time may pass before a particular matter, for which the Company may have
established a reserve, is audited and fully
resolved.
Judgments
and Uncertainties
The
estimates of the Company's tax contingencies reserve contains uncertainty
because management must use judgment to estimate the potential exposure
associated with the Company's various filing positions.
Effect
if Actual Results Differ From Assumptions
Although
management believes that the estimates and judgments discussed herein are
reasonable and it has adequate reserves for its tax contingencies, actual
results could differ, and the Company may be exposed to increases or decreases
in those reserves and tax provisions that could be material.
An
unfavorable tax settlement could require the use of cash and could possibly
result in an increased tax expense and effective tax rate in the year of
resolution. A favorable tax settlement could possibly result in a
reduction in the Company's tax expense, effective tax rate, income taxes
payable, other long-term liabilities and/or adjustments to its deferred tax
assets, deferred tax liabilities or intangible assets in the year of settlement
or in future years.
Depreciable
Lives of Assets.
Description
Mountain
and lodging operational assets, furniture and fixtures, computer equipment,
software, vehicles and leasehold improvements are primarily depreciated using
the straight-line method over the estimated useful life of the
asset. Assets may become obsolete or require replacement before the
end of their useful life in which the remaining book value would be written-off
or the Company could incur costs to remove or dispose of assets no longer in
use.
Judgments
and Uncertainties
The
estimates of the Company’s useful life of the assets contain uncertainty because
management must use judgment to estimate the useful life of the
asset.
Effect
if Actual Results Differ From Assumptions
Although
management believes that the estimates and judgments discussed herein are
reasonable, actual results could differ, and the Company may be exposed to
increased expense related to depreciable assets disposed of, removed or taken
out of service prior to its originally estimated useful life, which may be
material. A 10% decrease in the estimated useful lives of depreciable
assets would have increased depreciation expense by approximately $11.3 million
for Fiscal 2009.
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 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. In February 2008, the FASB issued Staff
Position (“FSP”) 157-2, “Effective Date of FASB Statement No.
157.” This FSP delayed the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial 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 adoption of SFAS 157 for financial assets and
liabilities was effective for the Company on August 1, 2008 and did not have a
material impact on the Company’s financial position or results of
operations. The Company does not anticipate that the adoption of the
provisions of SFAS 157 for nonfinancial assets and liabilities will have a
material impact on the Company’s financial position or results of
operations.
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. SFAS 141R
will be applicable 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).
In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation
of Other-Than-Temporary Impairments” (“FSP 115-2”) which establishes a new model
for measuring other-than-temporary impairments for debt securities, including
establishing criteria for when to recognize a write-down through earnings versus
other comprehensive income. The FSP also requires additional interim
and annual disclosures for impaired securities. The requirements of
the FSP were effective for the Company as of July 31, 2009 and did not have a
material impact on the Company’s financial position or results of
operations.
In May
2009, the FASB issued SFAS 165, “Subsequent Events” (“SFAS 165”) which
establishes the general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. SFAS 165 requires entities to
recognize in their financial statements the effects of all subsequent events
that provide additional evidence about conditions that existed at the date of
the balance sheet, including the estimates inherent in the process of preparing
financial statements. Entities shall not recognize subsequent events
that provide evidence about conditions that did not exist at the date of the
balance sheet but arose subsequent to that date. In addition,
entities are required to disclose the period through which subsequent events
have been evaluated. The provisions of SFAS 165 were effective for
the Company as of July 31, 2009.
In June
2009, the FASB issued SFAS 167, “Amendments to FASB Interpretation No. 46(R)”
(“SFAS 167”) which amends the consolidation guidance under FASB Interpretation
No. 46R, “Consolidation of Variable Interest Entities, an interpretation of ARB
No. 51” (“FIN 46R”). SFAS 167 requires entities to perform a
qualitative assessment in determining the primary beneficiary of a variable
interest entity. The qualitative assessment includes, among other
things, consideration as to whether a variable interest holder has the power to
direct the activities that most significantly impact the economic performance of
the variable interest entity and the obligation to absorb losses or the right to
receive benefits of the variable interest entity that could potentially be
significant to the variable interest entity. Pursuant to SFAS 167,
the requirement to assess whether an entity should be deemed the primary
beneficiary is an on-going reconsideration. The provisions of SFAS
167 are effective for the Company beginning August 1, 2011 (the Company’s fiscal
year ending July 31, 2012). The Company is currently evaluating the
impacts, if any, the adoption of the provisions of SFAS 167 will have
on the Company’s financial position or results of operations.
Inflation
Although
the Company cannot accurately determine the precise effect of inflation on its
operations, management does not believe inflation has had a material effect on
the results of operations in the last three fiscal years. When the
costs of operating resorts increase, the Company generally has been able to pass
the increase on to its customers. However, there can be no assurance
that increases in labor and other operating costs due to inflation will not have
an impact on the Company's future profitability.
Seasonality
and Quarterly Results
The
Company's mountain and lodging operations are seasonal in nature. In
particular, revenue and profits for the Company's mountain and most of its
lodging operations are substantially lower and historically result in losses
from late spring to late fall. Conversely, peak operating seasons for
GTLC, certain managed hotel properties and the Company's owned golf courses
occur during the summer months while the winter season results in operating
losses. Revenue and profits generated by GTLC's summer operations,
management fees from certain managed properties, certain other lodging
properties and golf operations are not nearly sufficient to fully offset the
Company's off-season losses from its mountain and other lodging
operations. During Fiscal 2009, 79% of total combined Mountain and
Lodging segment net revenue was earned during the second and third fiscal
quarters. Therefore, the operating results for any three-month period
are not necessarily indicative of the results that may be achieved for any
subsequent quarter or for a full year (see Note 16, Selected Quarterly Financial
Data, of the Notes to Consolidated Financial Statements).
Interest Rate
Risk. The Company's exposure to market risk is limited
primarily to the fluctuating interest rates associated with variable rate
indebtedness. At July 31, 2009, the Company had $52.6 million of
variable rate indebtedness, representing 10.7% of the Company's total debt
outstanding, at an average interest rate during Fiscal 2009 of
2.8%. Based on variable-rate borrowings outstanding as of July 31,
2009, a 100-basis point (or 1.0%) change in LIBOR would result in the Company's
annual interest payments to change by $0.5 million. The Company's
market risk exposure fluctuates based on changes in underlying interest
rates.
Vail
Resorts, Inc.
Consolidated
Financial Statements for the Years Ended July 31, 2009, 2008 and
2007
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F-2
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F-3
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Consolidated
Financial Statements
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F-4
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F-5
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F-6
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F-7
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F-8
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Financial
Statement Schedule:
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The
following consolidated financial statement schedule of the Company is
filed as part of this Report on Form 10-K and should be read in
conjunction with the Company's Consolidated Financial
Statements:
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60
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Management
of Vail Resorts, Inc. (the “Company”) is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is
defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of
1934. The Company's internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles in the United States of
America.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of the effectiveness of internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management,
including the Company's Chief Executive Officer and Chief Financial Officer,
assessed the effectiveness of the Company's internal control over financial
reporting as of July 31, 2009. In making this assessment, management
used the criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management concluded
that, as of July 31, 2009, the Company's internal control over financial
reporting was effective.
The
Company’s independent registered public accounting firm, PricewaterhouseCoopers
LLP, has issued an audit report on the Company’s internal control over financial
reporting as of July 31, 2009, as stated in the Report of Independent Registered
Public Accounting Firm on the following page.
To the
Shareholders and Board of Directors
of Vail
Resorts, Inc.:
<