Edgar Filing: VAIL RESORTS INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

MTN 2013.01.31 Q2

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2013



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-09614

Vail Resorts, Inc.

(Exact Name of Registrant as Specified in Its Charter)



Delaware		51-0291762
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

390 Interlocken Crescent Broomfield, Colorado		80021
(Address of Principal Executive Offices)		(Zip Code)

(303) 404-1800

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

As of March 1, 2013, 35,909,069 shares of the registrant’s common stock were outstanding.

Table of Contents




PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements.	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	18
Item 4.	Controls and Procedures.	18

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings.	18
Item 1A.	Risk Factors.	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	19
Item 3.	Defaults Upon Senior Securities.	19
Item 4.	Mine Safety Disclosures.	19
Item 5.	Other Information.	19
Item 6.	Exhibits.	20

PART I FINANCIAL INFORMATION

Item 1. Financial Statements — Unaudited



Consolidated Condensed Balance Sheets as of January 31, 2013, July 31, 2012 and January 31, 2012						F-2
Consolidated Condensed Statements of Operations for the Three and Six Months Ended January 31, 2013 and 2012						F-3
Consolidated Condensed Statements of Comprehensive Income (Loss) for the Three and Six Months Ended January 31, 2013 and 2012						F-4
Consolidated Condensed Statements of Cash Flows for the Six Months Ended January 31, 2013 and 2012						F-5
Notes to Consolidated Condensed Financial Statements						F-6

F-1

Vail Resorts, Inc.

Consolidated Condensed Balance Sheets

(In thousands, except share and per share amounts)



	January 31, 2013 (Unaudited)			July 31, 2012			January 31, 2012 (Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	136,579		$	46,053		$	95,642
Restricted cash	12,194			14,284			16,221
Trade receivables, net	53,486			65,743			48,430
Inventories, net	70,341			65,873			62,594
Other current assets	49,633			40,417			56,998
Total current assets	322,233			232,370			279,885
Property, plant and equipment, net (Note 6)	1,057,399			1,049,207			1,057,930
Real estate held for sale and investment	216,815			237,668			257,169
Goodwill, net	271,762			269,769			268,058
Intangible assets, net	92,590			92,070			90,196
Other assets	42,950			46,530			45,997
Total assets	$	2,003,749		$	1,927,614		$	1,999,235
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities (Note 6)	$	317,504		$	227,538		$	301,473
Income taxes payable	14,979			20,721			19,569
Long-term debt due within one year (Note 4)	806			990			1,058
Total current liabilities	333,289			249,249			322,100
Long-term debt (Note 4)	489,497			489,775			490,302
Other long-term liabilities (Note 6)	230,157			232,869			235,629
Deferred income taxes	140,704			139,393			129,962
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued and outstanding
Common stock, $0.01 par value, 100,000,000 shares authorized, 40,855,859 (unaudited), 40,531,204 and 40,477,796 (unaudited) shares issued, respectively	409			405			405
Additional paid-in capital	593,424			586,691			581,217
Accumulated other comprehensive income (loss)	198			(255		)	—
Retained earnings	395,175			408,662			396,335
Treasury stock, at cost; 4,949,111 (unaudited), 4,949,111 and 4,468,181 (unaudited) shares, respectively (Note 11)	(193,192		)	(193,192		)	(170,696		)
Total Vail Resorts, Inc. stockholders’ equity	796,014			802,311			807,261
Noncontrolling interests	14,088			14,017			13,981
Total stockholders’ equity (Note 2)	810,102			816,328			821,242
Total liabilities and stockholders’ equity	$	2,003,749		$	1,927,614		$	1,999,235

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

F-2

Vail Resorts, Inc.

Consolidated Condensed Statements of Operations

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended January 31,						Six Months Ended January 31,
	2013			2012			2013			2012
Net revenue:
Mountain	$	361,741		$	315,938		$	413,653		$	365,608
Lodging	46,543			48,306			99,051			101,900
Real estate	14,167			9,088			26,097			22,197
Total net revenue	422,451			373,332			538,801			489,705
Segment operating expense (exclusive of depreciation and amortization shown separately below):
Mountain	220,997			195,489			328,545			294,044
Lodging	44,803			47,093			96,609			102,394
Real estate	16,739			12,563			32,353			30,410
Total segment operating expense	282,539			255,145			457,507			426,848
Other operating expense:
Depreciation and amortization	(33,418		)	(33,050		)	(65,097		)	(61,980		)
Loss on disposal of fixed assets, net	(531		)	(919		)	(533		)	(1,033		)
Income (loss) from operations	105,963			84,218			15,664			(156		)
Mountain equity investment income, net	99			178			533			608
Investment income, net	99			310			153			374
Interest expense, net	(8,534		)	(8,542		)	(16,909		)	(16,783		)
Income (loss) before (provision) benefit from income taxes	97,627			76,164			(559		)	(15,957		)
(Provision) benefit from income taxes	(37,098		)	(29,743		)	485			6,644
Net income (loss)	60,529			46,421			(74		)	(9,313		)
Net loss (income) attributable to noncontrolling interests	22			(32		)	45			(7		)
Net income (loss) attributable to Vail Resorts, Inc.	$	60,551		$	46,389		$	(29	)	$	(9,320	)
Per share amounts (Note 3):
Basic net income (loss) per share attributable to Vail Resorts, Inc.	$	1.69		$	1.29		$	—		$	(0.26	)
Diluted net income (loss) per share attributable to Vail Resorts, Inc.	$	1.65		$	1.27		$	—		$	(0.26	)
Cash dividends declared per share	$	0.1875		$	0.15		$	0.3750		$	0.30

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

F-3

Vail Resorts, Inc.

Consolidated Condensed Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)



	Three Months Ended January 31,					Six Months Ended January 31,
	2013		2012			2013			2012
Net income (loss)	$	60,529	$	46,421		$	(74	)	$	(9,313	)
Foreign currency translation adjustments, net of tax	159		—			453			—
Comprehensive income (loss)	60,688		46,421			379			(9,313		)
Comprehensive loss (income) attributable to noncontrolling interests	22		(32		)	45			(7		)
Comprehensive income (loss) attributable to Vail Resorts, Inc.	$	60,710	$	46,389		$	424		$	(9,320	)

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

F-4

Vail Resorts, Inc.

Consolidated Condensed Statements of Cash Flows

(In thousands)

(Unaudited)



	Six Months Ended January 31,
	2013			2012
Cash flows from operating activities:
Net loss	$	(74	)	$	(9,313	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	65,097			61,980
Cost of real estate sales	19,900			16,385
Stock-based compensation expense	6,631			6,820
Deferred income taxes, net	(485		)	(6,644		)
Other non-cash income, net	(4,060		)	(2,875		)
Changes in assets and liabilities:
Restricted cash	2,100			(3,783		)
Trade receivables, net	12,677			9,919
Inventories, net	(3,822		)	(8,622		)
Investments in real estate	(1,410		)	(1,850		)
Accounts payable and accrued liabilities	83,200			75,225
Other assets and liabilities, net	(8,477		)	147
Net cash provided by operating activities	171,277			137,389
Cash flows from investing activities:
Capital expenditures	(53,920		)	(93,186		)
Acquisition of businesses	(19,958		)	342
Other investing activities, net	246			(904		)
Net cash used in investing activities	(73,632		)	(93,748		)
Cash flows from financing activities:
Proceeds from borrowings under long-term debt	96,000			56,000
Payments of long-term debt	(96,444		)	(56,383		)
Repurchases of common stock	—			(7,869		)
Dividends paid	(13,458		)	(10,801		)
Other financing activities, net	6,722			911
Net cash used in financing activities	(7,180		)	(18,142		)
Effect of exchange rate changes on cash and cash equivalents	61			—
Net increase in cash and cash equivalents	90,526			25,499
Cash and cash equivalents:
Beginning of period	46,053			70,143
End of period	$	136,579		$	95,642

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

F-5

Vail Resorts, Inc.

Notes to Consolidated Condensed Financial Statements

(Unaudited)


1.	Organization and Business

Vail Resorts, Inc. (“Vail Resorts” or the “Parent Company”) is organized as a holding company and operates through various subsidiaries. Vail Resorts and its subsidiaries (collectively, the “Company”) currently operate in three business segments: Mountain, Lodging and Real Estate. In the Mountain segment, the Company operates the seven world-class ski resort properties of Vail, Breckenridge, Keystone and Beaver Creek mountain resorts in Colorado, and Heavenly, Northstar and Kirkwood mountain resorts in the Lake Tahoe area of California and Nevada; the ski areas of Afton Alps in Minnesota and Mount Brighton in Michigan; as well as ancillary services, primarily including ski school, dining and retail/rental operations. These resorts (with the exception of Northstar, Afton Alps and Mount Brighton) operate primarily on Federal land under the terms of Special Use Permits granted by the USDA Forest Service (the “Forest Service”). In the Lodging segment, the Company owns and/or manages a collection of luxury hotels under its RockResorts brand, as well as other strategic lodging properties and a large number of condominiums located in proximity to the Company’s ski resorts; National Park Service (“NPS”) concessionaire properties including the Grand Teton Lodge Company (“GTLC”), which operates destination resorts in the Grand Teton National Park; Colorado Mountain Express (“CME”), a Colorado resort ground transportation company; and mountain resort golf courses. Vail Resorts Development Company (“VRDC”), a wholly-owned subsidiary, conducts the operations of the Company’s Real Estate segment, which owns and develops real estate in and around the Company’s resort communities. The Company’s mountain business and its lodging properties at or around the Company’s ski resorts are seasonal in nature with peak operating seasons from mid-November through mid-April. The Company’s operations at its NPS concessionaire properties and its golf courses generally operate from mid-May through mid-October. The Company also has non-majority owned investments in various other entities, some of which are consolidated (see Note 7, Variable Interest Entities).


2.	Summary of Significant Accounting Policies

Basis of Presentation

Consolidated Condensed Financial Statements— In the opinion of the Company, the accompanying Consolidated Condensed Financial Statements reflect all adjustments necessary to state fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. Results for interim periods are not indicative of the results for the entire fiscal year. The accompanying Consolidated Condensed Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2012. Certain information and footnote disclosures, including significant accounting policies, normally included in fiscal year financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. The Consolidated Condensed Balance Sheet as of July 31, 2012 was derived from audited financial statements.

Presentation of Comprehensive Income — Effective August 1, 2012, the Company adopted Accounting Standard Update ("ASU") No. 2011-05 -“Comprehensive Income (Topic 220): Presentation of Comprehensive Income” which amends existing guidance by allowing two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, a statement of comprehensive income or (2) in two separate but consecutive financial statements, an income statement followed by a separate statement of other comprehensive income. The Company also adopted ASU No. 2011-12—“Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05” which defers until further notice ASU No. 2011-05's requirement that items that are reclassified from other comprehensive income to net income be presented on the face of the financial statements. ASU No. 2011-05 required retrospective application. The adoption of these standards only amended presentation and disclosure requirements concerning comprehensive income; therefore, the adoption of these standards did not affect the Company’s financial position or results of operations. The Company elected to present the total of comprehensive income (loss), the components of net income (loss) (i.e. statements of operations), and the components of other comprehensive income (loss) for both the three and six months ended January 31, 2013 and 2012, in two separate but consecutive statements.

New Accounting Standards -- In January 2013, the FASB issued ASU No. 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income", to improve the transparency of reporting these reclassifications. The amendments in this ASU supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU No. 2011-05 (issued in June 2011) and ASU No.

F-6

2011-12 (issued in December 2011). This amendment does not change the current requirements for reporting net income or other comprehensive income in financial statements, but the standard requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. If a component is not required to be reclassified to net income in its entirety, companies would instead cross reference to the related footnote for additional information. The amendments are effective for fiscal years beginning after December 15, 2012 (the Company's 2014 first fiscal quarter). The Company does not currently have any components of other comprehensive income that require reclassification to net income, as such, the adoption of this standard is not expected to have an impact on the presentation of the Company's financial statements.

Use of Estimates— The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Noncontrolling Interests in Consolidated Financial Statements— Net income/loss attributable to noncontrolling interests along with net income/loss attributable to the stockholders of the Company are reported separately in the Consolidated Condensed Statement of Operations. Additionally, noncontrolling interests in the consolidated subsidiaries of the Company are reported as a separate component of equity in the Consolidated Condensed Balance Sheet, apart from the Company’s equity. The following table summarizes the changes in total stockholders’ equity (in thousands):



	For the Six Months Ended January 31,
	2013									2012
	Vail Resorts Stockholders’ Equity			Noncontrolling Interests			Total Stockholders' Equity			Vail Resorts Stockholders’ Equity			Noncontrolling Interests			Total Stockholders' Equity
Balance, beginning of period	$	802,311		$	14,017		$	816,328		$	829,723		$	13,996		$	843,719
Net (loss) income	(29		)	(45		)	(74		)	(9,320		)	7			(9,313		)
Stock-based compensation expense	6,631			—			6,631			6,820			—			6,820
Issuance of shares under share award plans, net of shares withheld for taxes	(3,792		)	—			(3,792		)	(2,219		)	—			(2,219		)
Tax benefit from share award plans	3,898			—			3,898			927			—			927
Cash dividends paid on common stock	(13,458		)	—			(13,458		)	(10,801		)	—			(10,801		)
Repurchases of common stock	—			—			—			(7,869		)	—			(7,869		)
Contributions (distributions) from/to noncontrolling interests, net	—			116			116			—			(22		)	(22		)
Foreign currency translation adjustments	453			—			453			—			—			—
Balance, end of period	$	796,014		$	14,088		$	810,102		$	807,261		$	13,981		$	821,242

Fair Value Instruments— The recorded amounts for cash and cash equivalents, trade receivables, other current assets, and accounts payable and accrued liabilities approximate fair value due to their short-term nature. The fair value of amounts outstanding under the Employee Housing Bonds (Note 4, Long-Term Debt) approximate book value due to the variable nature of the interest rate associated with that debt. The fair value of the 6.50% Senior Subordinated Notes due 2019 (“6.50% Notes”) (Note 4, Long-Term Debt) are based on quoted market prices (a Level 1 input). The fair value of the Company’s Industrial Development Bonds (Note 4, Long-Term Debt) and other long-term debt have been estimated using discounted cash flow analyses based on current borrowing rates for debt with similar remaining maturities and ratings (a Level 3 input). The estimated fair values of the 6.50% Notes, Industrial Development Bonds and other long-term debt as of January 31, 2013 are presented below (in thousands):

F-7



	January 31, 2013
	Carrying Value		Fair Value
6.50% Notes	$	390,000	$	421,200
Industrial Development Bonds	$	41,200	$	47,364
Other long-term debt	$	6,527	$	7,097


3.	Net Income (Loss) Per Common Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income (loss) attributable to Vail Resorts stockholders by the weighted-average shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of shares of common stock that would then share in the earnings of Vail Resorts. Presented below is basic and diluted EPS for the three months ended January 31, 2013 and 2012 (in thousands, except per share amounts):



	Three Months Ended January 31,
	2013				2012
	Basic		Diluted		Basic		Diluted
Net income per share:
Net income attributable to Vail Resorts	$	60,551	$	60,551	$	46,389	$	46,389
Weighted-average shares outstanding	35,895		35,895		36,005		36,005
Effect of dilutive securities	—		768		—		646
Total shares	35,895		36,663		36,005		36,651
Net income per share attributable to Vail Resorts	$	1.69	$	1.65	$	1.29	$	1.27

The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the period. The number of shares issuable on the exercise of share based awards that were excluded from the calculation of diluted net income per share because the effect of their inclusion would have been anti-dilutive totaled 1,000 and 38,000 for the three months ended January 31, 2013 and 2012, respectively.

Presented below is basic and diluted EPS for the six months ended January 31, 2013 and 2012 (in thousands, except per share amounts):



	Six Months Ended January 31,
	2013						2012
	Basic			Diluted			Basic			Diluted
Net loss per share:
Net loss attributable to Vail Resorts	$	(29	)	$	(29	)	$	(9,320	)	$	(9,320	)
Weighted-average shares outstanding	35,798			35,798			36,036			36,036
Effect of dilutive securities	—			—			—			—
Total shares	35,798			35,798			36,036			36,036
Net loss per share attributable to Vail Resorts	$	—		$	—		$	(0.26	)	$	(0.26	)

The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the period. The number of shares issuable on the exercise of share based awards that were excluded from the calculation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive totaled 842,000 and 666,000 for the six months ended January 31, 2013 and 2012, respectively.

On June 7, 2011 the Company’s Board of Directors approved the commencement of a regular quarterly cash dividend on the Company's common stock at an annual rate of $0.60 per share, subject to quarterly declaration. On March 5, 2012 the Company’s Board of Directors approved a 25% increase to the annual cash dividend to an annual rate of $0.75 per share, subject to quarterly declaration. During the three and six months ended January 31, 2013, the Company paid cash dividends of $0.1875 and $0.3750 per share, respectively ($6.7 million and $13.5 million, respectively, in the aggregate). During the three and six months ended January 31, 2012, the Company paid cash dividends of $0.15 and $0.30 per share, respectively ($5.4

F-8

million and $10.8 million, respectively, in the aggregate). On March 4, 2013 the Company’s Board of Directors approved an approximate 10% increase to its annual cash dividend on its common stock, subject to quarterly declaration. As a result, a quarterly cash dividend of $0.2075 per share was declared by the Company's Board of Directors payable on April 9, 2013 to stockholders of record as of March 25, 2013.


4.	Long-Term Debt

Long-term debt as of January 31, 2013, July 31, 2012 and January 31, 2012 is summarized as follows (in thousands):



	Maturity (a)	January 31, 2013		July 31, 2012		January 31, 2012
Credit Facility Revolver	2016	$	—	$	—	$	—
Industrial Development Bonds	2020	41,200		41,200		41,200
Employee Housing Bonds	2027-2039	52,575		52,575		52,575
6.50% Notes	2019	390,000		390,000		390,000
Other	2013-2029	6,528		6,990		7,585
Total debt		490,303		490,765		491,360
Less: Current maturities (b)		806		990		1,058
Long-term debt		$	489,497	$	489,775	$	490,302


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


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

Aggregate maturities for debt outstanding as of January 31, 2013 reflected by fiscal year are as follows (in thousands):




2013	$	553
2014	509
2015	533
2016	244
2017	257
Thereafter	488,207

Total debt	$	490,303

The Company incurred gross interest expense of $8.5 million for both the three months ended January 31, 2013 and 2012, of which $0.5 million was amortization of deferred financing costs. The Company had no capitalized interest during the three months ended January 31, 2013 and 2012. The Company incurred gross interest expense of $16.9 million for both the six months ended January 31, 2013 and 2012, of which $1.0 million was amortization of deferred financing costs. The Company had no capitalized interest during the six months ended January 31, 2013. The Company capitalized $0.1 million of interest during the six months ended and January 31, 2012.


5.	Acquisitions

Skiinfo

On February 1, 2012, the Company acquired the capital stock of Skiinfo, AS, a Norwegian company which owns and operates several European websites focused on the ski and snowboarding industry, for total cash consideration of $5.7 million, net of cash assumed. The purchase price was allocated to identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The Company completed its purchase price allocation and has recorded $2.4 million in property plant and equipment, $2.7 million in other assets, $1.8 million in goodwill, $0.7 million in indefinite-lived intangible assets, $0.5 million in other intangible assets (with a weighted-average amortization period of 6.7 years), and $2.6 million of assumed liabilities on the date of acquisition. The operating results of Skiinfo are reported within the Mountain segment.

F-9

Kirkwood Mountain Resort

On April 12, 2012, the Company acquired substantially all of the assets of Kirkwood Mountain Resort (“Kirkwood”), a mountain resort located in Lake Tahoe, California, for total cash consideration of approximately $18.2 million, net of cash assumed, subject to certain working capital adjustments as provided for in the purchase agreement. The purchase price was allocated to identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The Company has completed its preliminary purchase price allocation and has recorded $16.8 million in property, plant and equipment, $2.5 million in other assets, $0.8 million in indefinite-lived intangible assets, $1.2 million in other intangible assets (with a weighted-average amortization period of 21.5 years), and $3.1 million of assumed liabilities on the date of acquisition. The operating results of Kirkwood are reported within the Mountain segment.

Afton Alps and Mount Brighton

In December 2012, the Company acquired all of the assets of two ski areas in the Midwest, Afton Alps in Minnesota and Mount Brighton in Michigan, for total cash consideration of $20.0 million, net of cash assumed. The purchase price was allocated to identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The Company has completed its preliminary purchase price allocation and has recorded $17.8 million in property plant and equipment, $1.0 million in other assets, $1.8 million in goodwill, $1.2 million in other intangible assets (with a weighted-average amortization period of 5 years), and $1.8 million of assumed liabilities on the date of acquisition. The operating results of Afton Alps and Mount Brighton are reported within the Mountain segment.

The estimated fair values of assets acquired and liabilities assumed for the acquisitions of Afton Alps and Mount Brighton are preliminary and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. The Company believes that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is obtaining additional information necessary to finalize those fair values. Therefore, the preliminary measurements of fair value reflected are subject to change. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.


6.	Supplementary Balance Sheet Information

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



	January 31, 2013			July 31, 2012			January 31, 2012
Land and land improvements	$	289,127		$	281,729		$	277,061
Buildings and building improvements	854,130			838,780			833,331
Machinery and equipment	598,944			563,309			559,897
Furniture and fixtures	257,496			243,587			237,585
Software	92,473			81,659			77,533
Vehicles	48,307			44,798			44,760
Construction in progress	15,423			36,979			16,618
Gross property, plant and equipment	2,155,900			2,090,841			2,046,785
Accumulated depreciation	(1,098,501		)	(1,041,634		)	(988,855		)
Property, plant and equipment, net	$	1,057,399		$	1,049,207		$	1,057,930

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



	January 31, 2013		July 31, 2012		January 31, 2012
Trade payables	$	63,914	$	56,508	$	75,751
Deferred revenue	117,812		78,793		104,570
Accrued salaries, wages and deferred compensation	30,838		21,242		24,143
Accrued benefits	21,870		20,216		23,256
Deposits	26,411		12,031		20,730
Accrued interest	7,896		8,015		7,914
Other accruals	48,763		30,733		45,109
Total accounts payable and accrued liabilities	$	317,504	$	227,538	$	301,473

F-10

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



	January 31, 2013		July 31, 2012		January 31, 2012
Private club deferred initiation fee revenue	$	133,432	$	135,660	$	137,922
Unfavorable lease obligation, net	34,723		36,058		37,393
Other long-term liabilities	62,002		61,151		60,314
Total other long-term liabilities	$	230,157	$	232,869	$	235,629

7. Variable Interest Entities

The Company is the primary beneficiary of four employee housing entities (collectively, the “Employee Housing Entities”), Breckenridge Terrace, LLC, The Tarnes at BC, LLC, BC Housing, LLC and Tenderfoot Seasonal Housing, LLC, which are variable interest entities (“VIEs”), and has consolidated them in its Consolidated Condensed Financial Statements. As a group, as of January 31, 2013, the Employee Housing Entities had total assets of $30.4 million (primarily recorded in property, plant and equipment, net) and total liabilities of $63.0 million (primarily recorded in long-term debt as “Employee Housing Bonds”). The Company’s lenders have issued letters of credit totaling $53.4 million under the Company's senior credit facility (“Credit Agreement”) related to Employee Housing Bonds. Payments under the letters of credit would be triggered in the event that one of the entities defaults on required payments. The letters of credit have no default provisions.

The Company is the primary beneficiary of Avon Partners II, LLC (“APII”), which is a VIE. APII owns commercial space and the Company currently leases substantially all of that space. APII had total assets of $4.8 million (primarily recorded in property, plant and equipment, net) and no debt as of January 31, 2013.

8. Fair Value Measurements

The FASB issued fair value guidance that establishes how reporting entities should measure fair value for measurement and disclosure purposes. The guidance establishes a common definition of fair value applicable to all assets and liabilities measured at fair value and prioritizes the inputs into valuation techniques used to measure fair value. Accordingly, the Company uses valuation techniques which maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value. The three levels of the hierarchy are as follows:

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

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

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

The table below summarizes the Company’s cash equivalents measured at fair value (all other assets and liabilities measured at fair value are immaterial) (in thousands):

F-11




	Fair Value Measurement as of January 31, 2013
Description	Balance at January 31, 2013		Level 1		Level 2		Level 3
Description	Balance at January 31, 2013		Level 1		Level 2		Level 3
Money Market	$	19,025	$	19,025	$	—	$	—
Commercial Paper	$	10,626	$	—	$	10,626	$	—
Certificates of Deposit	$	630	$	—	$	630	$	—

	Fair Value Measurement as of July 31, 2012
Description	Balance at July 31, 2012		Level 1		Level 2		Level 3
Money Market	$	6,581	$	6,581	$	—	$	—
Commercial Paper	$	2,441	$	—	$	2,441	$	—
Certificates of Deposit	$	1,260	$	—	$	1,260	$	—

	Fair Value Measurement as of January 31, 2012
Description	Balance at January 31, 2012		Level 1		Level 2		Level 3
Money Market	$	8,386	$	8,386	$	—	$	—
Commercial Paper	$	19,990	$	—	$	19,990	$	—
Certificates of Deposit	$	1,890	$	—	$	1,890	$	—

The Company’s cash equivalents are measured utilizing quoted market prices or pricing models whereby all significant inputs are either observable or corroborated by observable market data.

9. Commitments and Contingencies

Metropolitan Districts

The Company credit-enhances $8.0 million of bonds issued by Holland Creek Metropolitan District (“HCMD”) through an $8.1 million letter of credit issued under the Company’s Credit Agreement. HCMD’s bonds were issued and used to build infrastructure associated with the Company’s Red Sky Ranch residential development. The Company has agreed to pay capital improvement fees to Red Sky Ranch Metropolitan District (“RSRMD”) until RSRMD’s revenue streams from property taxes are sufficient to meet debt service requirements under HCMD’s bonds, and the Company has recorded a liability of $1.8 million primarily within “other long-term liabilities” in the accompanying Consolidated Condensed Balance Sheets, as of January 31, 2013, July 31, 2012 and January 31, 2012, respectively, with respect to the estimated present value of future RSRMD capital improvement fees. The Company estimates that it will make capital improvement fee payments under this arrangement through the year ending July 31, 2028.

Guarantees/Indemnifications

As of January 31, 2013, the Company had various other letters of credit in the amount of $59.5 million, consisting primarily of $53.4 million in support of the Employee Housing Bonds and $4.5 million for workers’ compensation and general liability deductibles related to construction and development activities.

In addition to the guarantees noted above, the Company has entered into contracts in the normal course of business which include certain indemnifications under which it could be required to make payments to third parties upon the occurrence or non-occurrence of certain future events. These indemnities include indemnities to licensees in connection with the licensees’ use of the Company’s trademarks and logos, indemnities for liabilities associated with the infringement of other parties’ technology and software products, indemnities related to liabilities associated with the use of easements, indemnities related to employment of contract workers, the Company’s use of trustees, indemnities related to the Company’s use of public lands and environmental indemnifications. The duration of these indemnities generally is indefinite and generally do not limit the future payments the Company could be obligated to make.

As permitted under applicable law, the Company and certain of its subsidiaries indemnify their directors and officers over their lifetimes for certain events or occurrences while the officer or director is, or was, serving the Company or its subsidiaries in such a capacity. The maximum potential amount of future payments the Company could be required to make under these

F-12

indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that should enable the Company to recover a portion of any future amounts paid.

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

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

Self Insurance

The Company is self-insured for claims under its health benefit plans and for the majority of workers’ compensation claims, subject to a stop loss policy. The self-insurance liability related to workers’ compensation is determined actuarially based on claims filed. The self-insurance liability related to claims under the Company’s health benefit plans is determined based on analysis of actual claims. The amounts related to these claims are included as a component of accrued benefits in accounts payable and accrued liabilities (see Note 6, Supplementary Balance Sheet Information).

Legal

The Company is a party to various lawsuits arising in the ordinary course of business. Management believes the Company has adequate insurance coverage and/or has accrued for loss contingencies for all known matters that are deemed to be probable losses and estimable. As of January 31, 2013, July 31, 2012 and January 31, 2012, the accrual for the above loss contingencies was not material individually and in the aggregate.

10. Segment Information

The Company has three reportable segments: Mountain, Lodging and Real Estate. The Mountain segment includes the operations of the Company’s ski resorts/areas and related ancillary services. The Lodging segment includes the operations of all of the Company’s owned hotels, RockResorts, NPS concessionaire properties, condominium management, CME and mountain resort golf operations. The Real Estate segment owns and develops real estate in and around the Company’s resort communities. The Company’s reportable segments, although integral to the success of each other, offer distinctly different products and services and require different types of management focus. As such, these segments are managed separately.

The Company reports its segment results using Reported EBITDA (defined as segment net revenue less segment operating expenses, plus or minus segment equity investment income or loss), which is a non-GAAP financial measure. The Company reports segment results in a manner consistent with management’s internal reporting of operating results to the chief operating decision maker (the Chief Executive Officer) for purposes of evaluating segment performance.

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

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

F-13

The following table presents financial information by reportable segment which is used by management in evaluating performance and allocating resources (in thousands):



	Three Months Ended January 31,						Six Months Ended January 31,
	2013			2012			2013			2012
Net revenue:
Lift tickets	$	175,658		$	153,699		$	175,658		$	153,699
Ski school	41,723			37,252			41,723			37,252
Dining	29,826			24,722			36,199			30,369
Retail/rental	83,748			73,850			110,473			100,814
Other	30,786			26,415			49,600			43,474
Total Mountain net revenue	361,741			315,938			413,653			365,608
Lodging	46,543			48,306			99,051			101,900
Total Resort net revenue	408,284			364,244			512,704			467,508
Real estate	14,167			9,088			26,097			22,197
Total net revenue	$	422,451		$	373,332		$	538,801		$	489,705
Operating expense:
Mountain	$	220,997		$	195,489		$	328,545		$	294,044
Lodging	44,803			47,093			96,609			102,394
Total Resort operating expense	265,800			242,582			425,154			396,438
Real estate	16,739			12,563			32,353			30,410
Total segment operating expense	$	282,539		$	255,145		$	457,507		$	426,848
Mountain equity investment income, net	$	99		$	178		$	533		$	608
Reported EBITDA:
Mountain	$	140,843		$	120,627		$	85,641		$	72,172
Lodging	1,740			1,213			2,442			(494		)
Resort	142,583			121,840			88,083			71,678
Real estate	(2,572		)	(3,475		)	(6,256		)	(8,213		)
Total Reported EBITDA	$	140,011		$	118,365		$	81,827		$	63,465

Real estate held for sale and investment	$	216,815		$	257,169		$	216,815		$	257,169

Reconciliation to net income (loss) attributable to Vail Resorts, Inc.:
Total Reported EBITDA	$	140,011		$	118,365		$	81,827		$	63,465
Depreciation and amortization	(33,418		)	(33,050		)	(65,097		)	(61,980		)
Loss on disposal of fixed assets, net	(531		)	(919		)	(533		)	(1,033		)
Investment income, net	99			310			153			374
Interest expense, net	(8,534		)	(8,542		)	(16,909		)	(16,783		)
Income (loss) before (provision) benefit from income taxes	97,627			76,164			(559		)	(15,957		)
(Provision) benefit from income taxes	(37,098		)	(29,743		)	485			6,644
Net income (loss)	$	60,529		$	46,421		$	(74	)	$	(9,313	)
Net loss (income) attributable to noncontrolling interests	22			(32		)	45			(7		)
Net income (loss) attributable to Vail Resorts, Inc.	$	60,551		$	46,389		$	(29	)	$	(9,320	)

11. Stock Repurchase Plan

On March 9, 2006, the Company’s Board of Directors approved the repurchase of up to 3,000,000 shares of common stock and on July 16, 2008 approved an increase of the Company’s common stock repurchase authorization by an additional 3,000,000 shares. The Company did not repurchase any shares of common stock during the three and six months ended January 31, 2013. Since inception of its stock repurchase program through January 31, 2013, the Company has repurchased 4,949,111 shares at a cost of approximately $193.2 million. As of January 31, 2013, 1,050,889 shares remained available to repurchase under the

F-14

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 plan.

12. Guarantor Subsidiaries and Non-Guarantor Subsidiaries

The Company’s payment obligations under the 6.50% Notes (see Note 4, Long-Term Debt) are fully and unconditionally guaranteed on a joint and several, senior subordinated basis by substantially all of the Company’s consolidated subsidiaries (collectively, and excluding Non-Guarantor Subsidiaries (as defined below), the “Guarantor Subsidiaries”), except for Eagle Park Reservoir Company, Larkspur Restaurant & Bar, LLC, Black Diamond Insurance, Inc., Skiinfo AS and certain other insignificant entities (together, the “Non-Guarantor Subsidiaries”). APII and the Employee Housing Entities are included with the Non-Guarantor Subsidiaries for purposes of the consolidated financial information, but are not considered subsidiaries under the indenture governing the 6.50% Notes.

Presented below is the consolidated financial information of the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. Financial information for the Non-Guarantor Subsidiaries is presented in the column titled “Other Subsidiaries.” Balance sheets are presented as of January 31, 2013, July 31, 2012, and January 31, 2012. Statements of operations and statements of comprehensive income (loss) are presented for the three and six months ended January 31, 2013 and 2012. Statements of cash flows are presented for the six months ended January 31, 2013 and 2012.

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

F-15

Supplemental Condensed Consolidating Balance Sheet

As of January 31, 2013

(in thousands)

(Unaudited)



	Parent Company			100% Owned Guarantor Subsidiaries			Other Subsidiaries			Eliminating Entries			Consolidated
Current assets:
Cash and cash equivalents	$	—		$	129,258		$	7,321		$	—		$	136,579
Restricted cash	—			10,979			1,215			—			12,194
Trade receivables, net	—			49,475			4,011			—			53,486
Inventories, net	—			70,095			246			—			70,341
Other current assets	27,586			20,988			1,059			—			49,633
Total current assets	27,586			280,795			13,852			—			322,233
Property, plant and equipment, net	—			1,010,349			47,050			—			1,057,399
Real estate held for sale and investment	—			216,815			—			—			216,815
Goodwill, net	—			269,875			1,887			—			271,762
Intangible assets, net	—			73,022			19,568			—			92,590
Other assets	6,573			41,469			4,367			(9,459		)	42,950
Investments in subsidiaries	1,788,271			(1,798		)	—			(1,786,473		)	—
Advances	(446,303		)	443,135			3,168			—			—
Total assets	$	1,376,127		$	2,333,662		$	89,892		$	(1,795,932	)	$	2,003,749
Current liabilities:
Accounts payable and accrued liabilities	$	6,502		$	302,077		$	8,925		$	—		$	317,504
Income taxes payable	14,979			—			—			—			14,979
Long-term debt due within one year	—			587			219			—			806
Total current liabilities	21,481			302,664			9,144			—			333,289
Long-term debt	390,000			41,759			57,738			—			489,497
Other long-term liabilities	28,050			200,968			10,598			(9,459		)	230,157
Deferred income taxes	140,582			—			122			—			140,704
Total Vail Resorts, Inc. stockholders’ equity (deficit)	796,014			1,788,271			(1,798		)	(1,786,473		)	796,014
Noncontrolling interests	—			—			14,088			—			14,088
Total stockholders’ equity	796,014			1,788,271			12,290			(1,786,473		)	810,102
Total liabilities and stockholders’ equity	$	1,376,127		$	2,333,662		$	89,892		$	(1,795,932	)	$	2,003,749

F-16

Supplemental Condensed Consolidating Balance Sheet

As of July 31, 2012

(in thousands)



	Parent Company			100% Owned Guarantor Subsidiaries			Other Subsidiaries			Eliminating Entries			Consolidated
Current assets:
Cash and cash equivalents	$	—		$	38,380		$	7,673		$	—		$	46,053
Restricted cash	—			13,300			984			—			14,284
Trade receivables, net	—			64,185			1,558			—			65,743
Inventories, net	—			65,673			200			—			65,873
Other current assets	24,458			15,522			437			—			40,417
Total current assets	24,458			197,060			10,852			—			232,370
Property, plant and equipment, net	—			1,000,767			48,440			—			1,049,207
Real estate held for sale and investment	—			237,668			—			—			237,668
Goodwill, net	—			268,058			1,711			—			269,769
Intangible assets, net	—			72,751			19,319			—			92,070
Other assets	7,113			42,939			5,937			(9,459		)	46,530
Investments in subsidiaries	1,775,195			(553		)	—			(1,774,642		)	—
Advances	(421,115		)	418,001			3,114			—			—
Total assets	$	1,385,651		$	2,236,691		$	89,373		$	(1,784,101	)	$	1,927,614
Current liabilities:
Accounts payable and accrued liabilities	$	6,542		$	215,308		$	5,688		$	—		$	227,538
Income taxes payable	20,721			—			—			—			20,721
Long-term debt due within one year	—			782			208			—			990
Total current liabilities	27,263			216,090			5,896			—			249,249
Long-term debt	390,000			41,817			57,958			—			489,775
Other long-term liabilities	28,104			203,589			10,635			(9,459		)	232,869
Deferred income taxes	137,973			—			1,420			—			139,393
Total Vail Resorts, Inc. stockholders’ equity (deficit)	802,311			1,775,195			(553		)	(1,774,642		)	802,311
Noncontrolling interests	—			—			14,017			—			14,017
Total stockholders’ equity	802,311			1,775,195			13,464			(1,774,642		)	816,328
Total liabilities and stockholders’ equity	$	1,385,651		$	2,236,691		$	89,373		$	(1,784,101	)	$	1,927,614

F-17

Supplemental Condensed Consolidating Balance Sheet

As of January 31, 2012

(in thousands)

(Unaudited)



	Parent Company			100% Owned Guarantor Subsidiaries			Other Subsidiaries			Eliminating Entries			Consolidated
Current assets:
Cash and cash equivalents	$	—		$	88,164		$	7,478		$	—		$	95,642
Restricted cash	—			15,164			1,057			—			16,221
Trade receivables, net	—			47,513			917			—			48,430
Inventories, net	—			62,340			254			—			62,594
Other current assets	31,801			24,847			350			—			56,998
Total current assets	31,801			238,028			10,056			—			279,885
Property, plant and equipment, net	—			1,010,430			47,500			—			1,057,930
Real estate held for sale and investment	—			257,169			—			—			257,169
Goodwill, net	—			268,058			—			—			268,058
Intangible assets, net	—			72,041			18,155			—			90,196
Other assets	7,620			33,826			4,551			—			45,997
Investments in subsidiaries	1,718,870			(4,657		)	—			(1,714,213		)	—
Advances	(376,815		)	381,611			(4,796		)	—			—
Total assets	$	1,381,476		$	2,256,506		$	75,466		$	(1,714,213	)	$	1,999,235
Current liabilities:
Accounts payable and accrued liabilities	$	6,579		$	288,258		$	6,636		$	—		$	301,473
Income taxes payable	19,569			—			—			—			19,569
Long-term debt due within one year	—			850			208			—			1,058
Total current liabilities	26,148			289,108			6,844			—			322,100
Long-term debt	390,000			42,344			57,958			—			490,302
Other long-term liabilities	28,105			206,184			1,340			—			235,629
Deferred income taxes	129,962			—			—			—			129,962
Total Vail Resorts, Inc. stockholders’ equity (deficit)	807,261			1,718,870			(4,657		)	(1,714,213		)	807,261
Noncontrolling interests	—			—			13,981			—			13,981
Total stockholders’ equity	807,261			1,718,870			9,324			(1,714,213		)	821,242
Total liabilities and stockholders’ equity	$	1,381,476		$	2,256,506		$	75,466		$	(1,714,213	)	$	1,999,235

F-18

Supplemental Condensed Consolidating Statement of Operations

For the three months ended January 31, 2013

(in thousands)

(Unaudited)



	Parent Company			100% Owned Guarantor Subsidiaries		Other Subsidiaries		Eliminating Entries			Consolidated
Total net revenue	$	—		$	419,427	$	6,363	$	(3,339	)	$	422,451
Total operating expense	105			313,727		5,957		(3,301		)	316,488
(Loss) income from operations	(105		)	105,700		406