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 2013.10.31 Q1

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 October 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 December 2, 2013, 36,125,333 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.	14
Item 4.	Controls and Procedures.	14

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings.	14
Item 1A.	Risk Factors.	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	15
Item 3.	Defaults Upon Senior Securities.	15
Item 4.	Mine Safety Disclosures.	15
Item 5.	Other Information.	15
Item 6.	Exhibits.	16

PART I FINANCIAL INFORMATION

Item 1. Financial Statements — Unaudited



Consolidated Condensed Balance Sheets as of October 31, 2013, July 31, 2013 and October 31, 2012						F-2
Consolidated Condensed Statements of Operations for the Three Months Ended October 31, 2013 and 2012						F-3
Consolidated Condensed Statements of Comprehensive Income (Loss) for the Three Months Ended October 31, 2013 and 2012						F-4
Consolidated Condensed Statements of Cash Flows for the Three Months Ended October 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)

(Unaudited)



	October 31, 2013			July 31, 2013			October 31, 2012
Assets
Current assets:
Cash and cash equivalents	$	114,225		$	138,604		$	43,985
Restricted cash	12,403			12,624			14,526
Trade receivables, net	37,551			79,037			29,721
Inventories, net	89,531			68,318			84,752
Other current assets	57,334			44,886			49,115
Total current assets	311,044			343,469			222,099
Property, plant and equipment, net (Note 6)	1,185,513			1,169,288			1,056,643
Real estate held for sale and investment	188,205			195,230			227,662
Goodwill, net	346,625			348,824			269,859
Intangible assets, net	120,489			121,344			91,619
Other assets	97,998			97,267			45,553
Total assets	$	2,249,874		$	2,275,422		$	1,913,435
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities (Note 6)	$	369,551		$	269,519		$	318,258
Income taxes payable	39,946			42,822			17,026
Long-term debt due within one year (Note 4)	1,003			994			848
Total current liabilities	410,500			313,335			336,132
Long-term debt (Note 4)	797,062			795,928			489,525
Other long-term liabilities (Note 6)	240,725			242,906			231,800
Deferred income taxes	43,035			85,384			103,549
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, 41,072,903, 40,903,731 and 40,826,977 shares issued, respectively	411			409			408
Additional paid-in capital	600,215			598,675			589,763
Accumulated other comprehensive (loss) income	(56		)	(67		)	39
Retained earnings	337,178			418,043			341,353
Treasury stock, at cost; 4,949,111, 4,949,111 and 4,949,111 shares, respectively (Note 11)	(193,192		)	(193,192		)	(193,192		)
Total Vail Resorts, Inc. stockholders’ equity	744,556			823,868			738,371
Noncontrolling interests	13,996			14,001			14,058
Total stockholders’ equity (Note 2)	758,552			837,869			752,429
Total liabilities and stockholders’ equity	$	2,249,874		$	2,275,422		$	1,913,435

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 October 31,
	2013			2012
Net revenue:
Mountain	$	57,331		$	51,912
Lodging	57,214			52,508
Real estate	8,846			11,930
Total net revenue	123,391			116,350
Segment operating expense (exclusive of depreciation and amortization shown separately below):
Mountain	124,774			107,548
Lodging	56,905			51,806
Real estate	9,231			15,614
Total segment operating expense	190,910			174,968
Other operating expense:
Depreciation and amortization	(34,156		)	(31,679		)
Loss on disposal of fixed assets, net	(429		)	(2		)
Loss from operations	(102,104		)	(90,299		)
Mountain equity investment income, net	603			434
Investment income, net	95			54
Interest expense	(16,098		)	(8,375		)
Loss before benefit from income taxes	(117,504		)	(98,186		)
Benefit from income taxes	44,067			37,583
Net loss	(73,437		)	(60,603		)
Net loss attributable to noncontrolling interests	61			23
Net loss attributable to Vail Resorts, Inc.	$	(73,376	)	$	(60,580	)
Per share amounts (Note 3):
Basic net loss per share attributable to Vail Resorts, Inc.	$	(2.04	)	$	(1.70	)
Diluted net loss per share attributable to Vail Resorts, Inc.	$	(2.04	)	$	(1.70	)
Cash dividends declared per share	$	0.2075		$	0.1875

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 October 31,
	2013			2012
Net loss	$	(73,437	)	$	(60,603	)
Foreign currency translation adjustments, net of tax	11			294
Comprehensive loss	(73,426		)	(60,309		)
Comprehensive loss attributable to noncontrolling interests	61			23
Comprehensive loss attributable to Vail Resorts, Inc.	$	(73,365	)	$	(60,286	)

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)



	Three Months Ended October 31,
	2013			2012
Cash flows from operating activities:
Net loss	$	(73,437	)	$	(60,603	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	34,156			31,679
Cost of real estate sales	6,713			9,241
Stock-based compensation expense	3,492			3,472
Deferred income taxes, net	(44,067		)	(37,583		)
Other non-cash income, net	(1,611		)	(2,712		)
Changes in assets and liabilities:
Trade receivables, net	43,818			35,223
Inventories, net	(21,032		)	(18,879		)
Investments in real estate	(462		)	(477		)
Accounts payable and accrued liabilities	95,052			85,627
Other assets and liabilities, net	(13,329		)	(10,411		)
Net cash provided by operating activities	29,293			34,577
Cash flows from investing activities:
Capital expenditures	(46,751		)	(35,907		)
Other investing activities, net	100			255
Net cash used in investing activities	(46,651		)	(35,652		)
Cash flows from financing activities:
Dividends paid	(7,489		)	(6,729		)
Other financing activities, net	445			5,704
Net cash used in financing activities	(7,044		)	(1,025		)
Effect of exchange rate changes on cash and cash equivalents	23			32
Net decrease in cash and cash equivalents	(24,379		)	(2,068		)
Cash and cash equivalents:
Beginning of period	138,604			46,053
End of period	$	114,225		$	43,985

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 eight world-class ski resort properties at the Vail, Breckenridge, Keystone and Beaver Creek mountain resorts in Colorado; the Heavenly, Northstar, and Kirkwood mountain resorts in the Lake Tahoe area of California and Nevada; the Canyons mountain resort in Park City, Utah; and the ski areas of Afton Alps in Minnesota and Mount Brighton in Michigan ("Urban" ski areas); as well as ancillary services, primarily including ski school, dining and retail/rental operations. These resorts (with the exception of Northstar, Canyons and the Urban ski areas) 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 primarily 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, 2013. 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, 2013 was derived from audited 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.

F-6

Noncontrolling Interests in Consolidated Financial Statements— Net loss attributable to noncontrolling interests along with net 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 Three Months Ended October 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	$	823,868		$	14,001		$	837,869		$	802,311		$	14,017		$	816,328
Net loss	(73,376		)	(61		)	(73,437		)	(60,580		)	(23		)	(60,603		)
Stock-based compensation expense	3,492			—			3,492			3,472			—			3,472
Issuance of shares under share award plans, net of shares withheld for taxes	(4,793		)	—			(4,793		)	(3,989		)	—			(3,989		)
Tax benefit from share award plans	2,843			—			2,843			3,592			—			3,592
Cash dividends paid on common stock	(7,489		)	—			(7,489		)	(6,729		)	—			(6,729		)
Contributions from noncontrolling interests, net	—			56			56			—			64			64
Foreign currency translation adjustments, net of tax	11			—			11			294			—			294
Balance, end of period	$	744,556		$	13,996		$	758,552		$	738,371		$	14,058		$	752,429

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 Canyons obligation (Note 4, Long-Term Debt) has been estimated using discounted cash flow analyses based on the discount rate established under the initial purchase accounting (Note 5, Acquisitions) (a Level 3 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, Canyons obligation, Industrial Development Bonds and other long-term debt as of October 31, 2013 are presented below (in thousands):



	October 31, 2013
	Carrying Value		Fair Value
6.50% Notes	$	390,000	$	415,350
Canyons obligation	$	307,706	$	307,706
Industrial Development Bonds	$	41,200	$	45,359
Other long-term debt	$	6,584	$	6,837


3.	Net Loss Per Common Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net 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 October 31, 2013 and 2012 (in thousands, except per share amounts):

F-7



	Three Months Ended October 31,
	2013						2012
	Basic			Diluted			Basic			Diluted
Net loss per share:
Net loss attributable to Vail Resorts	$	(73,376	)	$	(73,376	)	$	(60,580	)	$	(60,580	)
Weighted-average shares outstanding	36,026			36,026			35,700			35,700
Effect of dilutive securities	—			—			—			—
Total shares	36,026			36,026			35,700			35,700
Net loss per share attributable to Vail Resorts	$	(2.04	)	$	(2.04	)	$	(1.70	)	$	(1.70	)

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 1.5 million and 1.4 million for the three months ended October 31, 2013 and 2012, respectively.

The Company paid cash dividends of $0.2075 per share and $0.1875 per share ($7.5 million and $6.7 million in the aggregate) during the three months ended October 31, 2013 and 2012, respectively. On December 6, 2013 the Company’s Board of Directors declared a quarterly cash dividend of $0.2075 per share payable on January 10, 2014 to stockholders of record as of December 26, 2013.


4.	Long-Term Debt

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



	Maturity (a)	October 31, 2013		July 31, 2013		October 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
Canyons obligation (b)	2063	307,706		306,320		—
Other	2014-2029	6,584		6,827		6,598
Total debt		798,065		796,922		490,373
Less: Current maturities (c)		1,003		994		848
Long-term debt		$	797,062	$	795,928	$	489,525


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

(b)

On May 24, 2013, VR CPC Holdings, Inc. (“VR CPC”), a wholly-owned subsidiary of the Company entered into a transaction agreement (the "Transaction Agreement") with affiliate companies of Talisker Corporation ("Talisker") pursuant to which the parties entered into a master lease agreement (the "Lease") and certain ancillary transaction documents on May 29, 2013 (see Note 5, Acquisitions). The obligation at October 31, 2013 represents future fixed lease payments for the remaining initial lease term of 50 years (including annual increases at the floor of 2%) discounted using an interest rate of 10%, and includes accreted interest expense of $2.4 million.


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

F-8

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



	Total
2014	$	772
2015	854
2016	262
2017	265
2018	271
Thereafter	795,641
Total debt	$	798,065

The Company incurred gross interest expense of $16.1 million and $8.4 million for the three months ended October 31, 2013 and 2012, respectively, of which $0.5 million was amortization of deferred financing costs for both periods. The Company had no capitalized interest during the three months ended October 31, 2013 and 2012.


5.	Acquisitions

Canyons

VR CPC and Talisker entered into the Transaction Agreement, the Lease and ancillary transaction documents, pursuant to which the Company assumed the resort operations of Canyons mountain resort in Park City, Utah, which includes the ski area, property management and related amenities effective May 29, 2013. Canyons is a year round mountain resort providing a comprehensive offering of recreational activities, including both snow sports and summer activities. The Lease between VR CPC and Talisker has an initial term of 50 years with six 50-year renewal options. The Lease provides for $25 million in annual fixed payments, which increase each year by an inflation linked index of CPI less 1%, with a floor of 2% per annum. In addition, the Lease includes participating contingent payments to Talisker of 42% of the amount by which EBITDA for the resort operations, as calculated under the Lease, exceeds approximately $35 million, with such threshold amount increased by an inflation linked index and a 10% adjustment for any capital improvements or investments made under the Lease by the Company (the "Contingent Consideration"). The Parent Company has guaranteed the payments under the Lease.

The following summarizes the preliminary estimated fair values of the identifiable assets acquired and liabilities assumed at the date the transaction was effective (in thousands).



	Estimates of Fair Value at Effective Date of Transaction
Accounts receivable	$	1,805
Other current assets	1,564
Property, plant and equipment	5,475
Property, plant and equipment (under capital lease)	127,885
Deferred income tax assets, net	44,744
Intangible assets	30,700
Park City Mountain Resort ("PCMR") deposit	57,800
Goodwill	74,788
Total identifiable assets acquired	$	344,761
Accounts payable and accrued liabilities	$	7,349
Deferred revenue	1,212
Other liabilities	21,766
Canyons obligation	305,334
Contingent consideration	9,100
Total liabilities assumed	$	344,761

F-9

The estimated fair values of assets acquired and liabilities assumed in the Canyons transaction are preliminary and are based on the information that was available as of the transaction 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, including a complete evaluation of the deductibility of goodwill for income tax purposes. 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 transaction date.

Land and certain improvements under the Park City Mountain Resort ski area are subject to on-going litigation. The Company has recorded a deposit ("PCMR deposit") for the land and associated improvements at its estimated fair value. The excess of the aggregate fair values of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies, including the potential inclusion of the ski terrain of Park City Mountain Resort in the Lease, the assembled workforce of Canyons and other factors. The preliminary measurements of fair value assumes that the majority of the goodwill is not deductible for income tax purposes. The intangible assets have a weighted-average amortization period of approximately 50 years. The operating results of Canyons which are recorded in the Mountain and Lodging segments contributed $5.2 million of net revenue for the three months ended October 31, 2013. Additionally, the Company has recognized $2.7 million of transaction related expenses in the Consolidated Condensed Statements of Operations for the three months ended October 31, 2013. As of October 31, 2013, there were no changes to the Contingent Consideration liability.

The following presents the unaudited pro forma consolidated financial information of the Company as if the Canyons transaction was completed on August 1, 2012. The following unaudited pro forma financial information includes adjustments for (i) depreciation on acquired property, plant and equipment; (ii) amortization of intangible assets recorded at the date of the transaction; and (iii) interest expense relating to the Canyons obligation. This unaudited pro forma financial information is presented for informational purposes only and does not purport to be indicative of the results of future operations or the results that would have occurred had the transaction taken place on August 1, 2012 (in thousands, except per share amounts).



	Three Months Ended October 31,
	2012
Pro forma net revenue	$	120,624
Pro forma net loss attributable to Vail Resorts, Inc.	$	(70,813	)
Pro forma basic net loss per share attributable to Vail Resorts, Inc.	$	(1.98	)
Pro forma diluted net loss per share attributable to Vail Resorts, Inc.	$	(1.98	)

Urban Ski Areas

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 recorded $17.8 million in property, plant and equipment, $1.0 million in other assets, $2.0 million in goodwill, $1.0 million in other intangible assets (with a weighted-average amortization period of 10 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.

F-10


6.	Supplementary Balance Sheet Information

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



	October 31, 2013			July 31, 2013			October 31, 2012
Land and land improvements	$	343,971		$	343,982		$	282,161
Buildings and building improvements	885,054			884,307			838,745
Machinery and equipment	647,856			646,102			566,368
Furniture and fixtures	262,334			259,693			245,295
Software	93,188			92,553			85,122
Vehicles	49,789			49,356			46,972
Construction in progress	88,490			49,102			62,907
Gross property, plant and equipment	2,370,682			2,325,095			2,127,570
Accumulated depreciation	(1,185,169		)	(1,155,807		)	(1,070,927		)
Property, plant and equipment, net	$	1,185,513		$	1,169,288		$	1,056,643

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



	October 31, 2013		July 31, 2013		October 31, 2012
Trade payables	$	100,125	$	61,364	$	87,422
Deferred revenue	166,705		93,759		134,963
Accrued salaries, wages and deferred compensation	16,857		27,946		19,882
Accrued benefits	18,135		19,787		19,397
Deposits	12,972		14,331		9,633
Accrued interest	13,447		8,018		13,433
Other accruals	41,310		44,314		33,528
Total accounts payable and accrued liabilities	$	369,551	$	269,519	$	318,258

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



	October 31, 2013		July 31, 2013		October 31, 2012
Private club deferred initiation fee revenue	$	130,108	$	131,760	$	134,134
Unfavorable lease obligation, net	33,369		34,037		35,390
Other long-term liabilities	77,248		77,109		62,276
Total other long-term liabilities	$	240,725	$	242,906	$	231,800

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 October 31, 2013, the Employee Housing Entities had total assets of $28.6 million (primarily recorded in property, plant and equipment, net) and total liabilities of $63.2 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 $4.4 million (primarily recorded in property, plant and equipment, net) and no debt as of October 31, 2013.

8. Fair Value Measurements

F-11

The Financial Accounting Standards Board ("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 and Contingent Consideration (see Note 5) measured at fair value (all other assets and liabilities measured at fair value are immaterial) (in thousands):




	Fair Value Measurement as of October 31, 2013
Description	Balance at October 31, 2013		Level 1		Level 2		Level 3
Description	Balance at October 31, 2013		Level 1		Level 2		Level 3
Assets:
Money Market	$	9,023	$	9,023	$	—	$	—
Commercial Paper	$	630	$	—	$	630	$	—
Certificates of Deposit	$	630	$	—	$	630	$	—

Liabilities:
Contingent Consideration (Note 5)	$	9,100	$	—	$	—	$	9,100

	Fair Value Measurement as of July 31, 2013
Description	Balance at July 31, 2013		Level 1		Level 2		Level 3
Assets:
Money Market	$	34,029	$	34,029	$	—	$	—
Commercial Paper	$	630	$	—	$	630	$	—
Certificates of Deposit	$	630	$	—	$	630	$	—

Liabilities:
Contingent Consideration (Note 5)	$	9,100	$	—	$	—	$	9,100

	Fair Value Measurement as of October 31, 2012
Description	Balance at October 31, 2012		Level 1		Level 2		Level 3
Assets:
Money Market	$	9,025	$	9,025	$	—	$	—
Commercial Paper	$	630	$	—	$	630	$	—
Certificates of Deposit	$	630	$	—	$	630	$	—

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. The Company used discounted cash flow projection valuation models and Level 3 inputs to estimate the fair value of Contingent Consideration in connection with the Canyons transaction.

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

F-12

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 October 31, 2013, July 31, 2013 and October 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 October 31, 2013, the Company had various other letters of credit in the amount of $58.6 million, consisting primarily of $53.4 million in support of the Employee Housing Bonds and $3.4 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 have agreed to indemnify their directors and officers over their lifetimes for certain events or occurrences while the officer or director is, or was, serving the Company or its subsidiaries in such a capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that should enable the Company to recover a portion of any future amounts paid.

Unless otherwise noted, the Company has not recorded any significant liabilities for the letters of credit, indemnities and other guarantees noted above in the accompanying Consolidated Condensed Financial Statements, either because the Company has recorded on its Consolidated Condensed Balance Sheets the underlying liability associated with the guarantee, the guarantee 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 potential obligations 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 October 31, 2013, July 31, 2013 and October 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

F-13

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-14

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 October 31,
	2013			2012
Net revenue:
Lift	$	—		$	—
Ski school	—			—
Dining	7,464			6,373
Retail/rental	28,900			26,725
Other	20,967			18,814
Total Mountain net revenue	57,331			51,912
Lodging	57,214			52,508
Total Resort net revenue	114,545			104,420
Real estate	8,846			11,930
Total net revenue	$	123,391		$	116,350
Operating expense:
Mountain	$	124,774		$	107,548
Lodging	56,905			51,806
Total Resort operating expense	181,679			159,354
Real estate	9,231			15,614
Total segment operating expense	$	190,910		$	174,968
Mountain equity investment income, net	$	603		$	434
Reported EBITDA:
Mountain	$	(66,840	)	$	(55,202	)
Lodging	309			702
Resort	(66,531		)	(54,500		)
Real estate	(385		)	(3,684		)
Total Reported EBITDA	$	(66,916	)	$	(58,184	)

Real estate held for sale and investment	$	188,205		$	227,662

Reconciliation to net loss attributable to Vail Resorts, Inc.:
Total Reported EBITDA	$	(66,916	)	$	(58,184	)
Depreciation and amortization	(34,156		)	(31,679		)
Loss on disposal of fixed assets, net	(429		)	(2		)
Investment income, net	95			54
Interest expense	(16,098		)	(8,375		)
Loss before benefit from income taxes	(117,504		)	(98,186		)
Benefit from income taxes	44,067			37,583
Net loss	$	(73,437	)	$	(60,603	)
Net loss attributable to noncontrolling interests	61			23
Net loss attributable to Vail Resorts, Inc.	$	(73,376	)	$	(60,580	)

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. During both the three months ended October 31, 2013 and 2012, the Company did not repurchase any shares of common stock. Since inception of its stock repurchase program through October 31, 2013, the Company has repurchased 4,949,111 shares at a cost of approximately $193.2 million. As of October 31, 2013, 1,050,889 shares remained available to

F-15

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 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 October 31, 2013, July 31, 2013, and October 31, 2012. Statements of operations, statements of comprehensive income (loss), and statements of cash flows are presented for the three months ended October 31, 2013 and 2012. As of October 31, 2012, the Company revised its classification of advances from affiliates in the amount of $428.3 million to present it separately in the Supplemental Condensed Consolidating Balance Sheet from advances to affiliates. The Company has determined that this revision is not material to the Supplemental Condensed Consolidating Balance Sheet.

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-16

Supplemental Condensed Consolidating Balance Sheet

As of October 31, 2013

(in thousands)

(Unaudited)



	Parent Company		100% Owned Guarantor Subsidiaries			Other Subsidiaries			Eliminating Entries			Consolidated
Current assets:
Cash and cash equivalents	$	—	$	107,053		$	7,172		$	—		$	114,225
Restricted cash	—		10,846			1,557			—			12,403
Trade receivables, net	198		34,522			2,831			—			37,551
Inventories, net	—		89,317			214			—			89,531
Other current assets	26,524		29,674			1,136			—			57,334
Total current assets	26,722		271,412			12,910			—			311,044
Property, plant and equipment, net	—		1,140,942			44,571			—			1,185,513
Real estate held for sale and investment	—		188,205			—			—			188,205
Goodwill, net	—		344,865			1,760			—			346,625
Intangible assets, net	—		101,071			19,418			—			120,489
Other assets	5,796		97,473			4,188			(9,459		)	97,998
Investments in subsidiaries	1,751,058		(5,045		)	—			(1,746,013		)	—
Advances to affiliates	—		522,510			2,945			(525,455		)	—
Total assets	$	1,783,576	$	2,661,433		$	85,792		$	(2,280,927	)	$	2,249,874
Current liabilities:
Accounts payable and accrued liabilities	$	12,877	$	348,128		$	8,546		$	—		$	369,551
Income taxes payable	39,946		—			—			—			39,946
Long-term debt due within one year	—		772			231			—			1,003
Total current liabilities	52,823		348,900			8,777			—			410,500
Advances from affiliates	525,455		—			—			(525,455		)	—
Long-term debt	390,000		349,555			57,507			—			797,062
Other long-term liabilities	27,673		211,920			10,591			(9,459		)	240,725
Deferred income taxes	43,069		—			(34		)	—			43,035
Total Vail Resorts, Inc. stockholders’ equity (deficit)	744,556		1,751,058			(5,045		)	(1,746,013		)	744,556
Noncontrolling interests	—		—			13,996			—			13,996
Total stockholders’ equity	744,556		1,751,058			8,951			(1,746,013		)	758,552
Total liabilities and stockholders’ equity	$	1,783,576	$	2,661,433		$	85,792		$	(2,280,927	)	$	2,249,874

F-17

Supplemental Condensed Consolidating Balance Sheet

As of July 31, 2013

(in thousands)

(Unaudited)



	Parent Company		100% Owned Guarantor Subsidiaries			Other Subsidiaries			Eliminating Entries			Consolidated
Current assets:
Cash and cash equivalents	$	—	$	130,970		$	7,634		$	—		$	138,604
Restricted cash	—		10,890			1,734			—			12,624
Trade receivables, net	—		77,725			1,312			—			79,037
Inventories, net	—		68,101			217			—			68,318
Other current assets	25,190		18,475			1,221			—			44,886
Total current assets	25,190		306,161			12,118			—			343,469
Property, plant and equipment, net	—		1,124,004			45,284			—			1,169,288
Real estate held for sale and investment	—		195,230			—			—			195,230
Goodwill, net	—		347,078			1,746			—			348,824
Intangible assets, net	—		101,913			19,431			—			121,344
Other assets	6,057		96,337			4,332			(9,459		)	97,267
Investments in subsidiaries	1,861,509		(3,510		)	—			(1,857,999		)	—
Advances to affiliates	—		513,283			2,906			(516,189		)	—
Total assets	$	1,892,756	$	2,680,496		$	85,817		$	(2,383,647	)	$	2,275,422
Current liabilities:
Accounts payable and accrued liabilities	$	6,600	$	256,094		$	6,825		$	—		$	269,519
Income taxes payable	42,822		—			—			—			42,822
Long-term debt due within one year	—		775			219			—			994
Total current liabilities	49,422		256,869			7,044			—			313,335
Advances from affiliates	516,189		—			—			(516,189		)	—
Long-term debt	390,000		348,190			57,738			—			795,928
Other long-term liabilities	27,851		213,928			10,586			(9,459		)	242,906
Deferred income taxes	85,426		—			(42		)	—			85,384
Total Vail Resorts, Inc. stockholders’ equity (deficit)	823,868		1,861,509			(3,510		)	(1,857,999		)	823,868
Noncontrolling interests	—		—			14,001			—			14,001
Total stockholders’ equity	823,868		1,861,509			10,491			(1,857,999		)	837,869
Total liabilities and stockholders’ equity	$	1,892,756	$	2,680,496		$	85,817		$	(2,383,647	)	$	2,275,422

F-18

Supplemental Condensed Consolidating Balance Sheet

As of October 31, 2012

(in thousands)

(Unaudited)



	Parent Company		100% Owned Guarantor Subsidiaries			Other Subsidiaries			Eliminating Entries			Consolidated
Current assets:
Cash and cash equivalents	$	—	$	36,779		$	7,206		$	—		$	43,985
Restricted cash	—		13,578			948			—			14,526
Trade receivables, net	—		26,639			3,082			—			29,721
Inventories, net	—		84,548			204			—			84,752
Other current assets	25,782		22,827			506			—			49,115
Total current assets	25,782		184,371			11,946			—			222,099
Property, plant and equipment, net	—		1,008,799			47,844			—			1,056,643
Real estate held for sale and investment	—		227,662			—			—			227,662
Goodwill, net	—		268,058			1,801			—			269,859
Intangible assets, net	—		72,262			19,357			—			91,619
Other assets	6,836		42,299			5,877			(9,459		)	45,553
Investments in subsidiaries	1,684,088		(1,996		)	—			(1,682,092		)	—
Advances to affiliates	—		425,366			2,933			(428,299		)	—
Total assets	$	1,716,706	$	2,226,821		$	89,758		$	(2,119,850	)	$	1,913,435
Current liabilities:
Accounts payable and accrued liabilities	$	12,906	$	297,715		$	7,637		$	—		$	318,258
Income taxes payable	17,026		—			—			—			17,026
Long-term debt due within one year	—		629			219			—			848
Total current liabilities	29,932		298,344			7,856			—			336,132
Advances from affiliates	428,299		—			—			(428,299		)	—
Long-term debt	390,000		41,787			57,738			—			489,525
Other long-term liabilities	28,050		202,602			10,607			(9,459		)	231,800
Deferred income taxes	102,054		—			1,495			—			103,549
Total Vail Resorts, Inc. stockholders’ equity (deficit)	738,371		1,684,088			(1,996		)	(1,682,092		)	738,371
Noncontrolling interests	—		—			14,058			—			14,058
Total stockholders’ equity	738,371		1,684,088			12,062			(1,682,092		)	752,429
Total liabilities and stockholders’ equity	$	1,716,706	$	2,226,821		$	89,758		$	(2,119,850	)	$	1,913,435

F-19

Supplemental Condensed Consolidating Statement of Operations

For the three months ended October 31, 2013

(in thousands)

(Unaudited)



	Parent Company			100% Owned Guarantor Subsidiaries			Other Subsidiaries			Eliminating Entries			Consolidated
Total net revenue	$	—		$	123,488		$	2,815		$	(2,912	)	$	123,391
Total operating expense	92			223,528			4,749			(2,874		)	225,495
Loss from operations	(92		)	(100,040		)	(1,934		)	(38		)	(102,104		)
Other expense, net	(6,601		)	(9,097		)	(343		)	38			(16,003		)
Equity investment income, net	—			603			—			—			603
Loss before benefit from income taxes	(6,693		)	(108,534		)	(2,277		)	—			(117,504		)
Benefit from income taxes	2,848			40,990			229			—			44,067
Net loss before equity in loss of consolidated subsidiaries	(3,845		)	(67,544		)	(2,048		)	—			(73,437		)
Equity in loss of consolidated subsidiaries	(69,531		)	(1,987		)	—			71,518			—
Net loss	(73,376		)	(69,531		)	(2,048		)	71,518			(73,437		)
Net loss attributable to noncontrolling interests	—			—			61			—			61
Net loss attributable to Vail Resorts, Inc.	$	(73,376	)	$	(69,531	)	$	(1,987	)	$	71,518		$	(73,376	)

Supplemental Condensed Consolidating Statement of Operations

For the three months ended October 31, 2012

(in thousands)

(Unaudited)



	Parent Company			100% Owned Guarantor Subsidiaries			Other Subsidiaries			Eliminating Entries			Consolidated
Total net revenue	$	—		$	116,004		$	3,011		$	(2,665	)	$	116,350
Total operating expense	113			204,358			4,805			(2,627		)	206,649
Loss from operations	(113		)	(88,354		)	(1,794		)	(38		)	(90,299		)
Other expense, net	(6,610		)	(1,414		)	(335		)	38			(8,321		)
Equity investment income, net	—			434			—			—			434
Loss before benefit from income taxes	(6,723		)	(89,334		)	(2,129		)	—			(98,186		)
Benefit from income taxes	2,610			34,791			182			—			37,583
Net loss before equity in loss of consolidated subsidiaries	(4,113		)	(54,543		)	(1,947		)	—			(60,603		)