VAIL RESORTS INC - Annual Report: 2009 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended July 31, 2009
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
transition period from to
Commission
File Number: 001-09614
Vail
Resorts, Inc.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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51-0291762
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(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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390
Interlocken Crescent
Broomfield,
Colorado
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80021
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(303)
404-1800
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(Registrant’s
Telephone Number, Including Area Code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class:
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Name
of each exchange on which registered:
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Common
Stock, $0.01 par value
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
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None.
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(Title
of Class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. x Yes No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes x No
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
x Yes No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
¨ Yes ¨ No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer x Accelerated
filer ¨
Non-accelerated filer
¨ (Do not check if
a smaller reporting company) Smaller reporting
company ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes x No
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, based on the closing price of $23.32 per share
as reported on the New York Stock Exchange Composite Tape on January 30, 2009
(the last business day of the Registrant's most recently completed second
quarter) was $700,131,580.
As of
September 18, 2009, 36,174,979 shares of Common Stock were
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The Proxy
Statement for the Annual Meeting of Shareholders is incorporated by reference
herein into Part III, Items 10 through 14.
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Table
of Contents
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PART
I
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Item
1.
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3
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Item
1A.
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17
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Item
1B.
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25
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Item
2.
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25
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Item
3.
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27
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Item
4.
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27
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PART
II
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Item
5.
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28
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Item
6.
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29
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Item
7.
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32
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Item
7A.
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51
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Item
8.
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F-1
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Item
9.
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52
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Item
9A.
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52
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Item
9B.
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52
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Item
10.
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53
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Item
11.
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53
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Item
12.
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53
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Item
13.
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53
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Item
14.
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53
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Item
15.
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53
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FORWARD-LOOKING
STATEMENTS
Except
for any historical information contained herein, the matters discussed in this
Annual Report on Form 10-K (this “Form 10-K”) contain certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements relate to analyses and other information,
which are based on forecasts of future results and estimates of amounts not yet
determinable. These statements also relate to our future prospects,
developments and business strategies.
These
forward-looking statements are identified by their use of terms and phrases such
as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,”
“plan,” “predict,” “project,” “will” and similar terms and phrases, including
references to assumptions. Although we believe that our plans,
intentions and expectations reflected in or suggested by such forward-looking
statements are reasonable, we cannot assure you that such plans, intentions or
expectations will be achieved. Important factors that could cause
actual results to differ materially from our forward-looking statements include,
but are not limited to:
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prolonged
downturn in general economic conditions, including continued adverse
affects on the overall travel and leisure related
industries;
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unfavorable
weather conditions or natural
disasters;
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competition
in our mountain and lodging
businesses;
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our
ability to grow our resort and real estate
operations;
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our
ability to successfully complete real estate development projects and
achieve the anticipated financial benefits from such
projects;
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further
adverse changes in real estate
markets;
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continued
volatility in credit markets;
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our
ability to obtain financing on terms acceptable to us to finance our real
estate development, capital expenditures and growth
strategy;
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our
reliance on government permits or approvals for our use of Federal land or
to make operational improvements;
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adverse
consequences of current or future legal
claims;
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our
ability to hire and retain a sufficient seasonal
workforce;
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willingness
of our guests to travel due to terrorism, the uncertainty of military
conflicts or outbreaks of contagious diseases, and the cost and
availability of travel options;
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negative
publicity or unauthorized use of our trademarks which diminishes the value
of our brands;
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our
ability to integrate and successfully operate future acquisitions;
and
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implications
arising from new Financial Accounting Standards Board
(“FASB”)/governmental legislation, rulings or
interpretations.
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All
forward-looking statements attributable to us or any persons acting on our
behalf are expressly qualified in their entirety by these cautionary
statements.
If one or
more of these risks or uncertainties materialize, or if underlying assumptions
prove incorrect, our actual results may vary materially from those expected,
estimated or projected. Given these uncertainties, users of the
information included in this Form 10-K, including investors and prospective
investors, are cautioned not to place undue reliance on such forward-looking
statements. Actual results may differ materially from those suggested
by the forward-looking statements that the Company makes for a number of reasons
including those described in Part I, Item 1A, “Risk Factors” of this Form
10-K. All forward-looking statements are made only as of the date
hereof. Except as may be required by law, the Company does not intend to update
these forward-looking statements, even if new information, future events or
other circumstances have made them incorrect or misleading.
General
Vail
Resorts, Inc. was organized as a public holding company in 1997 and operates
through various subsidiaries (collectively, the “Company”). The
Company's operations are grouped into three business segments: Mountain, Lodging
and Real Estate, which represented approximately 63%, 18% and 19%, respectively,
of the Company's net revenue for the year ended July 31, 2009 (“Fiscal
2009”). The Company's Mountain segment owns and operates five
world-class ski resort properties as well as ancillary businesses, primarily
including ski school, dining and retail/rental operations, which provide a
comprehensive resort experience to a diverse clientele with an attractive
demographic profile. The Company's Lodging segment owns and/or
manages a collection of luxury hotels under its RockResorts brand, as well as
other strategic lodging properties and a large number of condominiums located in
proximity to the Company's ski resorts, the Grand Teton Lodge Company (“GTLC”),
which operates three destination resorts at Grand Teton National Park (the
“Park”), Colorado Mountain Express (“CME”), a resort ground transportation
company, and golf courses. Collectively, the Mountain and Lodging
segments are considered the Resort segment. The Company's Real Estate
segment owns and develops real estate in and around the Company's resort
communities. Financial information by segment is presented in Note
15, Segment Information, of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this Form 10-K.
Mountain
Segment
The
Company's portfolio of world-class ski resorts currently includes:
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Vail
Mountain (“Vail Mountain”) – the single most visited ski resort in the
United States for the 2008/2009 ski season and the single largest ski
mountain in the United States. Vail offers some of the most
expansive and varied terrain with approximately 5,300 skiable acres
including seven world renowned back bowls and the rustic Blue Sky Basin
area of the resort.
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Breckenridge
Ski Resort (“Breckenridge”) – the second most visited ski resort in the
United States for the 2008/2009 ski season and host of the highest
chairlift in North America, the Imperial Express Super Chair, reaching
12,840 feet and offering above tree line expert
terrain. Breckenridge is well known for its historic town,
vibrant night-life and progressive and award-winning pipes and
parks.
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Keystone
Resort (“Keystone”) – the fourth most visited ski resort in the United
States for the 2008/2009 ski season and home to the highly renowned A51
Terrain Park as well as the largest area of night skiing in
Colorado. Keystone also offers guests a unique skiing
opportunity through guided snow cat ski tours accessing five
bowls.
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Beaver
Creek Resort (“Beaver Creek”) – the seventh most visited ski resort in the
United States for the 2008/2009 ski season. Beaver Creek is a
European –style resort with multiple villages and also includes a world
renowned children’s ski school program focused on providing a first-class
experience with unique amenities such as a dedicated children’s
gondola.
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Heavenly
Mountain Resort (“Heavenly”) – the ninth most visited ski resort in the
United States for the 2008/2009 ski season and the second largest ski
resort in the United States with over 4,800 skiable
acres. Heavenly straddles the border of California and Nevada
and offers unique and spectacular views of Lake Tahoe. Heavenly
boasts the largest snowmaking capacity in the Lake Tahoe region and offers
great night life including its proximity to several
casinos.
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Vail
Mountain, Beaver Creek, Breckenridge and Keystone, all located in the Colorado
Rocky Mountains, and Heavenly, located in the Lake Tahoe area of
California/Nevada, are year-round mountain resorts. Each offers a
full complement of recreational activities, including skiing, snowboarding,
snowshoeing, sight-seeing, mountain biking, guided hiking, children’s activities
and other recreational activities.
The
Company's Mountain segment derives revenue through the sale of lift tickets and
season passes as well as a comprehensive offering of amenities available to
guests, including ski and snowboard lessons, equipment rentals and retail
merchandise sales, a variety of dining venues, private club operations and other
recreational activities. In addition to providing extensive guest
amenities, the Company also engages in, among other activities, the leasing out
of the Company’s owned commercial space around its base resorts for restaurants
and retail stores.
Ski
Industry/Market
There are
approximately 760 ski areas in North America and approximately 470 in the United
States, ranging from small ski area operations that service day skiers to large
resorts that attract both day skiers and destination resort guests looking for a
comprehensive vacation experience. One of the primary ski industry
statistics for measuring performance is “skier visit,” which represents a person
utilizing a ticket or pass to access a mountain resort for any part of one day,
and includes both paid and complimentary access. During the 2008/2009
ski season, combined skier visits for all the United States ski areas were
approximately 57.4 million and all North American skier visits were
approximately 76.1 million. The Company's ski resorts had 5.9 million
skier visits during the 2008/2009 ski season, or approximately 10.3% of United
States skier visits, and an approximate 7.8% share of the North American
market's skier visits.
The
Company's Colorado ski resorts appeal to both day skiers and destination guests
due to the resorts' proximity to Colorado's Front Range (Denver/Colorado
Springs/Boulder metropolitan areas), accessibility from several airports,
including Denver International Airport and Eagle County Airport, and the wide
range of amenities available at each resort. Colorado has 29 ski
areas, six of which are considered “Front Range Destination Resorts,” including
all of the Company's Colorado resorts, catering to both the Colorado Front Range
and destination-skier markets. All Colorado ski resorts combined
recorded approximately 11.9 million skier visits for the 2008/2009 ski season
with skier visits at the Company's Colorado ski resorts totaling 5.1 million, or
approximately 42.9% of all Colorado skier visits for the 2008/2009 ski
season.
Lake
Tahoe, which straddles the border of California and Nevada, is a major skiing
destination less than 100 miles from Sacramento and Reno and approximately 200
miles from San Francisco, making it a convenient destination for both day skiers
and destination guests. South Lake Tahoe, where Heavenly is located,
is also a popular year-round vacation destination, featuring extensive summer
attractions and casinos in addition to its winter sports
offerings. Heavenly is proximate to both the Reno/Tahoe International
Airport and the Sacramento International Airport. California and
Nevada have 33 ski areas. Heavenly had 802,000 skier visits for the
2008/2009 ski season, capturing approximately 11.8% of California's and Nevada's
6.8 million total skier visits for the 2008/2009 ski season.
Competition
There are
significant barriers to entry for new ski areas due to the limited private lands
on which ski areas could be built, the difficulty in getting the appropriate
governmental approvals to build on public lands and the significant capital
needed to construct the necessary infrastructure. As such, there has
been virtually no new supply of major resorts in North America for the past 25
years which has and should continue to allow the best positioned resorts,
including all of the Company’s resorts, to capture a majority of future industry
growth. The Company’s resorts compete with other major ski resorts,
including Aspen/Snowmass, Copper Mountain, Deer Valley, Mammoth Mountain,
Northstar-at-Tahoe, Park City Mountain Resort, Squaw Valley USA, Steamboat,
Whistler Blackcomb and Winter Park, as well as other ski areas in Colorado and
the Lake Tahoe area, other destination ski areas worldwide and non-ski related
vacation destinations.
While the
ski industry has performed well in recent years in terms of number of skier
visits, with the eight best seasons occurring in the past nine years for United
States visitation, a particular ski area's growth is also largely dependent on
either attracting skiers away from other resorts, generating more revenue per
skier visit and/or generating more visits from each skier. Better
capitalized ski resorts, including all five mountain resorts operated by the
Company, are expanding their offerings, as well as enhancing the quality and
experience by adding new high speed chairlifts, gondolas, terrain parks, state
of the art grooming machines, expanded terrain and amenities at the base areas
of the resorts, all of which are aimed at increasing guest visitation and
revenue per skier visit. The Company believes it invests more in
capital improvements than the vast majority of its competitors and can also
create synergies by operating multiple resorts thus enhancing the Company’s
profitability. Additionally, the Company through its sales of season
passes (including the new Epic Season Pass introduced in the 2008/2009 ski
season, which offers unrestricted and unlimited access to all five of its
resorts) provides its guests with a strong value option, in return for the guest
committing to ski at its resorts prior to, or very early into the ski season,
which the Company believes attracts more guests to its resorts. All
five of the Company’s resorts typically rank in the top ten most visited ski
resorts in the United States. Additionally, all of the Company's
resorts consistently rank in the top 25 ranked ski resorts in North America
according to industry surveys, which the Company attributes to its resorts'
ability to provide a high-quality experience.
The ski
industry statistics stated in this section have been derived from data published
by Colorado Ski Country USA, Canadian Ski Council, Kottke National End of Season
Survey 2008/2009 (the “Kottke Survey”) and other industry
publications.
All of
the Company's ski resorts maintain the unique distinction of competing
effectively as both market share leaders and quality leaders. The
following inherent and strategic factors contribute directly to each resort’s
success:
Exceptional mountain
experience --
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World-Class
Mountain Resorts and Integrated Base Resort
Areas
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All five
of the Company’s mountain resorts offer a multitude of skiing and snowboarding
experiences for the beginner, intermediate, advanced and expert
levels. Each resort is also fully integrated into expansive resort
areas offering a broad array of lodging, dining, retail, spas, nightlife and
other amenities to the resort’s guests, some of which are owned or managed by
the Company.
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Snow
Conditions
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The
Company's resorts are located in areas that receive significantly higher than
average snowfall compared to most other ski resort locations in the United
States. The Company’s resorts in the Colorado Rocky Mountains and
Heavenly in the Sierra Nevada Mountains all receive average yearly snowfall
between 20 and 30 feet. Even in these abundant snowfall areas, the
Company has significant snowmaking systems that can help provide a more
consistent experience, especially in the early season. Additionally,
the Company provides many acres of groomed terrain at its resorts with extensive
fleets of snow grooming equipment.
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Lift
Service
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The
Company systematically upgrades its lifts to streamline skier traffic and
maximize guest experience. For the 2008/2009 ski season, the Company
replaced its existing gondola at Keystone with an eight-passenger gondola
including a mid-station feature. In the past three fiscal years, the
Company has installed several high-speed chairlifts and gondolas across its
resorts, including an eight-passenger gondola at Breckenridge with two
mid-station features; an eight-passenger gondola at Beaver Creek; two
four-passenger high-speed chairlifts at Vail Mountain; and a four-passenger
high-speed chairlift at Heavenly.
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Terrain
Parks
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The
Company's resorts are committed to leading the industry in terrain park design,
education and events for the growing segment of freestyle skiers and
snowboarders. Each resort has multiple terrain parks that include
progressively-challenging features. This park structure, coupled with
new freestyle ski school programs, promotes systematic learning from basic to
professional skills.
Extraordinary
service and amenities --
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Commitment
to Guest Service
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The
Company’s mission is to provide quality service at every level of the guest
experience. Prior to arrival, guests can receive personal assistance
through the Company’s full-service, in-house travel center to book desired
lodging accommodations, lift tickets, ski school lessons, equipment rentals and
air and ground travel. On-mountain ambassadors engage guests and
answer questions and all personnel, from lift operators to ski patrol, convey a
guest-oriented culture. The Company solicits guest feedback through a
variety of surveys and results are utilized to ensure high levels of customer
satisfaction to understand trends and develop future resort programs and
amenities.
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Season
Pass Products
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The
Company offers a variety of season pass products for all of its ski resorts,
marketed towards both out-of-state and international guests (“Destination”) and
in-state and local guests (“In-State”). The Company’s season pass
products are available for purchase predominately during the period prior to the
start of the ski season. The Company’s season pass products provide a
value option to its guests and in turn develops a loyal customer base that
commit to ski at the Company’s resorts, ski multiple days each season at the
Company’s resorts and return to purchase season pass products year after
year. In addition, the Company’s season pass products attract new
guests to its resorts. Growth in sales of season pass products is a
key strategic factor for the Company and also creates strong synergies between
its resorts. In the 2008/2009 ski season the Company introduced a new
pass product, (the “Epic Season Pass”) primarily marketed to its Destination
guests (and also available to In-State guests) allowing pass holders unlimited
and unrestricted access to all five ski resorts. Season pass products
provided approximately 34% of the Company’s total lift ticket revenue for the
2008/2009 ski season.
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Premier
Ski Schools
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The
Company’s resorts are home to some of the finest and most recognized ski and
snowboard schools in the industry. Through a combination of
outstanding training and abundant work opportunities, the schools have become
home to many of the most experienced and credentialed professionals in the
business. The Company complements its instructor staff with
state-of-the-art facilities and extensive learning terrain, all with a keen
attention to guest needs, including offering a wide variety of adult and child
group and private lesson options with a goal of creating lifelong skiers and
riders.
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On-Mountain
Activities
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The
Company is a ski industry leader in providing comprehensive destination vacation
experiences, including on-mountain activities designed to appeal to a broad
range of interests. In addition to the Company’s exceptional ski
experiences, guests can choose from a variety of non-ski related activities
including snow tubing, snow shoeing, guided snowmobile and scenic cat tours,
horse-drawn sleigh rides and a year-round zip line in addition to high altitude
dining. During the summer, on-mountain recreational activities
provide guests with a wide array of options including scenic chairlift and
gondola rides, mountain biking, alpine slide and zip-line rides, horseback
riding and hiking.
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Dining
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The
Company’s resorts provide a variety of quality on-mountain and base village
dining venues, ranging from top-rated fine dining restaurants to trailside
express food service outlets. The Company operates over 90 of such
dining options at its five mountain resorts. Furthermore, the Company
is committed to serving healthy food options to its guests at these dining
venues through the Company’s “Appetite for Life” program.
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Retail/rental
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The
Company, through SSI Venture, LLC (“SSV”), has over 150 retail/rental locations
specializing in sporting goods including ski, snowboard, golf and cycling
equipment. In addition to providing a major retail/rental presence at
each of the Company's ski resorts, the Company also has retail/rental locations
throughout the Colorado Front Range and at other Colorado, California and Utah
ski resorts, as well as the San Francisco Bay Area and Salt Lake
City. Many of the locations in the Colorado Front Range and in the
San Francisco Bay Area also offer a prime venue for selling the Company’s season
pass products.
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Lodging
and Real Estate Development
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Quality
lodging options are an integral part of providing a complete resort
experience. The Company’s 14 owned and managed hotels proximate to
its five mountain resorts, including four RockResorts branded hotels, and a
significant inventory of managed condominium rooms provide numerous
accommodation options for the Company’s mountain resort guests. The
Company’s real estate development efforts provide the Company with the ability
to add profitability to the Company while expanding the destination bed base and
upgrading its resorts through the development of amenities such as luxury
hotels, private clubs, spas, parking and commercial space for restaurants and
retail shops. The Company’s Lodging and Real Estate segments have and
continue to invest in resort related assets as part of their initiatives which
enhance the overall resort experience. Examples include: the
Arrabelle at Vail Square hotel (the “Arrabelle”), a RockResort property which
opened in the 2007/2008 ski season; the major renovation of The Osprey at Beaver
Creek (formerly the Inn at Beaver Creek), a RockResort property that opened in
the 2008/2009 ski season; a new spa, guest rooms and renovated ballroom and
meeting spaces at The Lodge at Vail for the 2008/2009 ski season; the
Crystal Peak Lodge in Breckenridge which opened for the 2008/2009 ski season;
and the Vail Mountain and Arrabelle Clubs, private mountain clubs which opened
for the 2008/2009 ski season.
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Environmental
Stewardship
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As part
of the Company’s long-standing commitment to responsible stewardship of its
natural mountain settings, the Company has several initiatives in environmental
sustainability which transcend throughout all of the Company’s
operations. During Fiscal 2009, the Company announced an “energy
layoff” initiative aimed at reducing overall energy consumption by 10%, with a
goal of a 5% reduction in the first year and a 5% reduction in the second
year. The Company reduced its energy consumption by 6.1% in Fiscal
2009, exceeding its first year goal. In addition, the Company
recently introduced a “paperless” initiative with plans to substantially
eliminate the internal use of paper by the end of calendar year
2011. In Fiscal 2009, the Company has also offset approximately 100%
of its electrical usage by purchasing megawatt-hours of wind energy credits for
its five mountain resorts, its lodging properties including RockResorts, its
retail/rental locations and its corporate headquarters in Broomfield,
Colorado. The Company’s headquarters is LEED-certified and the
Company’s planned Ever Vail project is expected to be the largest LEED-certified
project for resort use in North America. Additionally, the Company
has partnered with the National Forest Foundation to raise funds for various
conservation projects in the White River National Forest in Colorado and the
National Forest of Tahoe Basin in California/Nevada where the Company operates
its five mountain resorts. As a result of these efforts, the Company
was honored by Conde Nast
Traveler as a leader in social responsibility in the travel industry as a
winner of the magazine’s 2008 World Savers Awards in the category of
environmental protection.
Accessibility from major
metropolitan areas --
The
Company’s ski resorts are well located and easily accessible by both Destination
and In-State guests.
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Colorado
resorts
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The
Colorado Front Range market, with a population of approximately 4.3 million, and
growing faster than the national average, is within approximately 100 miles from
each of the Company's Colorado resorts, with access via a major interstate
highway. Additionally, the Company's Colorado resorts are proximate
to both Denver International Airport and Eagle County Airport.
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Heavenly
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Heavenly
is proximate to two large California population centers, the Sacramento/Central
Valley and the San Francisco Bay Area. Heavenly is within 100 miles
of Sacramento/Central Valley and approximately 200 miles from the San Francisco
Bay area via major interstate highways. Heavenly is serviced by the
Reno/Tahoe International Airport, Sacramento International Airport and the San
Francisco International Airport.
Marketing and
Sales
The
Company promotes its resorts through extensive marketing and sales programs,
which include direct marketing to a targeted audience, promotional programs,
print media advertising in lifestyle and industry publications, loyalty programs
that reward frequent guests and sales and marketing directed at attracting
groups, corporate meetings and convention business. Additionally, the
Company markets directly to many of its guests through its websites and internet
presence, including using social media outlets, which provides guests with
information regarding each of the Company's resorts, including services and
amenities, reservations information and virtual tours (nothing contained on the
websites shall be deemed incorporated herein). The Company also
enters into strategic sponsorships with selected “name brand” companies to
increase its market exposure and create opportunities for
cross-marketing.
Seasonality
Ski
resort operations are highly seasonal in nature, with a typical ski season
beginning in mid-November and running through mid-April. In an effort
to partially counterbalance the concentration of revenue in the winter months,
the Company offers non-ski season attractions such as sight-seeing, mountain
biking, guided hiking, alpine slides and zip-line rides, children’s activities
and other recreational activities such as golf (included in the operations of
the Lodging segment). These activities also help attract destination
conference and group business to the Company's resorts.
Lodging
Segment
The
Company's Lodging segment includes the following operations:
|
·
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RockResorts
-- a luxury hotel management company with a current portfolio of eight
properties, including four Company-owned and four managed third-party
owned resort hotels with locations in Colorado, Wyoming, New Mexico and
St. Lucia, West Indies as well as six properties currently under
development that the Company will
manage;
|
|
·
|
Six
additional independently flagged Company-owned hotels, management of the
Vail Marriott Mountain Resort & Spa (“Vail Marriott”), Mountain
Thunder Lodge, Crystal Peak Lodge and Austria Haus Hotel and condominium
management operations, all of which are in and around the Company's
Colorado ski resorts;
|
|
·
|
GTLC
-- a summer destination resort with three resort properties in the Grand
Teton National Park and the Jackson Hole Golf & Tennis Club
(“JHG&TC”) near Jackson,
Wyoming;
|
|
·
|
CME
-- a resort ground transportation company;
and
|
|
·
|
Five
Company-owned resort golf courses in Colorado and one in
Wyoming.
|
The
Lodging segment currently includes approximately 3,900 owned and managed hotel
and condominium rooms. The Company's resort hotels collectively
offer a wide range of services to guests.
The
Company's portfolio of owned or managed luxury resort hotels and other hotels
and resorts currently includes:
|
Name
|
Location
|
Own/Manage
|
Rooms
|
|
RockResorts:
|
|||
|
The
Lodge at Vail
|
Vail,
CO
|
Own
|
169*
|
|
The
Arrabelle at Vail Square
|
Vail,
CO
|
Own
|
88*
|
|
The
Pines Lodge
|
Beaver
Creek, CO
|
Own
|
68*
|
|
The
Osprey at Beaver Creek
|
Beaver
Creek, CO
|
Own
|
47*
|
|
La
Posada de Santa Fe
|
Santa
Fe, NM
|
Manage
|
157
|
|
Snake
River Lodge & Spa
|
Teton
Village, WY
|
Manage
|
153
|
|
Hotel
Jerome
|
Aspen,
CO
|
Manage
|
94
|
|
The
Landings St. Lucia
|
St.
Lucia, West Indies
|
Manage
|
71
|
|
Other
Hotels and Resorts:
|
|||
|
The
Great Divide Lodge
|
Breckenridge,
CO
|
Own
|
208
|
|
The
Keystone Lodge
|
Keystone,
CO
|
Own
|
152
|
|
Inn
at Keystone
|
Keystone,
CO
|
Own
|
103
|
|
Breckenridge
Mountain Lodge
|
Breckenridge,
CO
|
Own
|
71
|
|
Village
Hotel
|
Breckenridge,
CO
|
Own
|
60
|
|
Ski
Tip Lodge
|
Keystone,
CO
|
Own
|
10
|
|
Jackson
Lake Lodge
|
Grand
Teton Nat'l Pk., WY
|
Concessionaire
Contract
|
385
|
|
Colter
Bay Village
|
Grand
Teton Nat'l Pk., WY
|
Concessionaire
Contract
|
166
|
|
Jenny
Lake Lodge
|
Grand
Teton Nat'l Pk., WY
|
Concessionaire
Contract
|
37
|
|
Vail
Marriott Mountain Resort & Spa
|
Vail,
CO
|
Manage
|
344
|
|
Mountain
Thunder Lodge
|
Breckenridge,
CO
|
Manage
|
100
|
|
Crystal
Peak Lodge
|
Breckenridge,
CO
|
Manage
|
26
|
|
Austria
Haus Hotel
|
Vail,
CO
|
Manage
|
25
|
|
*Includes
individual owner units that are in a rental program managed by the
Company.
|
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Created
by Laurance S. Rockefeller in 1956, the portfolio of RockResorts properties was
purchased by the Company in December 2001. The RockResorts collection
includes luxury hotels influenced by a strong connection to the natural
surrounding environment and feature award-winning dining, and state-of-the-art
RockResorts spas and fitness centers. The properties incorporate the
indigenous environment into the guest experience and feature access to a variety
of year-round outdoor activities ranging from skiing to golf.
The
Company's lodging strategy seeks to complement and enhance its mountain resort
operations through the ownership or management of lodging properties and
condominiums in proximity to its mountain resorts and management of luxury
resorts in premier destination locations. Additionally, the Company
continues to pursue new management contracts, which may include, in addition to
management fees, marketing license fees and technical service fees in
conjunction with a project’s design, development and sales.
The
Company’s lodging strategy, through RockResorts, is focused on the resort hotel
niche within the luxury segment and competes for boutique full-service hotel
management contracts with other hotel management companies, including Rosewood
Hotels & Resorts, the KOR group and Auberge Resorts.
During
Fiscal 2009, RockResorts announced the addition of two luxury properties, which
are currently under development, to its managed hotel portfolio; Balcones Del
Atlantico, a beachfront resort in the village of Las Terrenas on the Samana
Peninsula of the Dominican Republic, and the Mansfield Inn at Stowe, a mountain
resort property located in the mountain resort community of Stowe,
Vermont. Additionally, current properties under development as
RockResorts managed resorts include: Tempo Miami, Miami, Florida; One Ski Hill
Place, Breckenridge; Rum Cay Resort Marina, Bahamas and the Third Turtle Club
& Spa, Turks & Caicos.
In
November 2008, the Company acquired CME, which represents the first point of
contact with many of the Company’s guests when they arrive by air to
Colorado. CME offers year-round ground transportation from Denver
International Airport and Eagle County Airport to the Vail Valley (locations in
and around Vail, Beaver Creek, Avon and Edwards), Aspen (locations in and around
Aspen and Snowmass) and Summit County (includes Keystone, Breckenridge, Copper
Mountain, Frisco and Silverthorne) for ski and snowboard and other mountain
resort experiences. CME offers four primary types of services;
including door-to-door shuttle business, point-to-point shuttle business with
centralized drop-off at transportation hubs, private chartered vans and premier
luxury charter vehicles. The vehicle fleet consists of approximately
250 vans and luxury SUV’s, and transported approximately 300,000 resort guests
over the past year.
Lodging
Industry/Market
Hotels
are categorized by Smith Travel Research, a leading lodging industry research
firm, as luxury, upper upscale, upscale, mid-price and economy. The
service quality and level of accommodations of the RockResorts’ hotels place
them in the luxury category, which represents hotels achieving the highest
average daily rates (“ADR”) in the industry, and includes such brands as the
Four Seasons, Ritz-Carlton and Starwood's Luxury Collection
hotels. The Company’s other hotels are categorized in the upper
upscale and upscale segments of the hotel market. The luxury and
upper upscale segments consist of approximately 695,000 rooms at approximately
1,950 properties in the United States as of July 2009. For Fiscal
2009, the Company's owned hotels, which includes a combination of certain
RockResorts, as well as other hotels in proximity to the Company’s ski resorts,
had an overall ADR of $183.59, a paid occupancy rate of 58.3% and revenue per
available room (“RevPAR”) of $107.06, as compared to the upper upscale segment’s
ADR of $149.49, a paid occupancy rate of 64.5% and RevPAR of $96.40. The Company
believes that this comparison to the upper upscale category is appropriate as
its mix of owned hotels include those in the luxury and upper upscale
categories, as well as certain of its hotels that fall in the upscale
category. The highly seasonal nature of the Company's lodging
properties generally results in lower average occupancy as compared to the upper
upscale segment of the lodging industry.
Competition
Competition
in the hotel industry is generally based on quality and consistency of rooms,
restaurant and meeting facilities and services, attractiveness of locations,
availability of a global distribution system, price and other
factors. The Company's properties compete within their geographic
markets with hotels and resorts that include locally owned independent hotels,
as well as facilities owned or managed by national and international chains,
including such brands as Four Seasons, Hilton, Hyatt, Marriott, Ritz-Carlton,
Starwood's Luxury Collection and Westin. The Company's properties
also compete for convention and conference business across the national
market. The Company believes it is highly competitive in the resort
hotel niche for the following reasons:
|
·
|
All
of the Company's hotels are located in unique highly desirable resort
destinations.
|
|
·
|
The
Company's hotel portfolio has achieved some of the most prestigious hotel
designations in the world, including seven properties and five hotel
restaurants in its portfolio that are currently rated as AAA
4-Diamond.
|
|
·
|
The
RockResorts brand is a historic brand name with a rich tradition
associated with high quality luxury resort
hotels.
|
|
·
|
Many
of the Company's hotels (both owned and managed) are designed to provide a
look that feels indigenous to their surroundings, enhancing the guest's
vacation experience.
|
|
·
|
Each
RockResorts hotel provides the same high level of quality and services,
while still providing unique characteristics which distinguish the resorts
from one another. This appeals to travelers looking for
consistency in quality and service offerings together with an experience
more unique than typically offered by larger luxury hotel
chains.
|
|
·
|
Many
of the hotels in the Company's portfolio provide a wide array of amenities
available to the guest such as access to world-class ski and golf resorts,
spa and fitness facilities, water sports and a number of other outdoor
activities as well as highly acclaimed dining
options.
|
|
·
|
Conference
space with the latest technology is available at most of the Company's
hotels. In addition, guests at Keystone can use the
Company-owned Keystone Conference Center, the largest conference facility
in the Colorado Rocky Mountain region with more than 100,000 square feet
of meeting, exhibit and function
space.
|
|
·
|
The
Company has a central reservations system that leverages off of its ski
resort reservations system and has a brand new online planning and booking
platform, offering guests a much more seamless and useful way to make
reservations at the Company’s
resorts.
|
|
·
|
The
Company actively upgrades the quality of the accommodations and amenities
available at its hotels through capital improvements. Capital
funding for third-party owned properties is provided by the owners of
those properties to maintain standards required by our management
contracts. Recently completed projects include a full
renovation of The Osprey at Beaver Creek (formerly known as the Inn at
Beaver Creek), extensive upgrades to The Lodge at Vail including a fully
renovated ballroom and meeting spaces, room upgrades and the addition of a
7,500 square foot spa and extensive room upgrades at GTLC’s historic
Jackson Lake Lodge.
|
National Park
Concession
The
Company owns GTLC, which is based in the Jackson Hole area in Wyoming and
operates within the Grand Teton National Park under a 15 year concessionaire
agreement (that expires December 31, 2021) with the National Park Service
(“NPS”). GTLC also owns JHG&TC, which is located outside of the
Grand Teton National Park near Jackson, Wyoming. GTLC's operations
within the Grand Teton National Park and JHG&TC have operating seasons that
generally run from mid-May to mid-October.
There are
391 areas within the National Park System covering approximately 85 million
acres across the United States and its territories. Of the 391 areas,
58 are classified as National Parks. While there are more than 500
NPS concessionaires, ranging from small privately-held businesses to large
corporate conglomerates, the Company primarily competes with such companies as
Aramark Parks & Resorts, Delaware North Companies Parks & Resorts,
Forever Resorts and Xanterra Parks & Resorts in retaining and obtaining
National Park Concessionaire agreements. The NPS uses “recreation
visits” to measure visitation within the National Park System. In
calendar 2008, areas designated as National Parks received approximately 61.2
million recreation visits. The Grand Teton National Park, which spans
approximately 310,000 acres, had 2.5 million recreation visits during calendar
2008, or approximately 4% of total National Park recreation
visits. Four concessionaires provide accommodations within the Grand
Teton National Park, including GTLC. GTLC offers three lodging
options within the Grand Teton National Park: Jackson Lake Lodge, a
full-service, 385-room resort with 17,000 square feet of conference facilities
which can accommodate up to 600 people; the Jenny Lake Lodge, a small,
rustically elegant retreat with 37 cabins; and Colter Bay Village, a facility
with 166 log cabins, 66 tent cabins, 361 campsites and a 112-space RV
park. GTLC offers dining options as extensive as its lodging options,
with cafeterias, casual eateries and fine dining
establishments. GTLC's resorts provide a wide range of activities for
guests to enjoy, including cruises on Jackson Lake, boat rentals, horseback
riding, guided fishing, float trips, golf and guided Grand Teton National Park
tours. As a result of the extensive amenities offered as well as the
tremendous popularity of the National Park System, GTLC's accommodations within
the Grand Teton National Park operate near full capacity during their operating
season.
Marketing and
Sales
The
Company promotes its luxury and resort hotels and seeks to maximize lodging
revenue by using its marketing network established at the Company's ski
resorts. This network includes local, national and international
travel relationships which provide the Company's central reservation systems
with a significant volume of transient guests. The Company also
promotes a comprehensive vacation experience through various package offerings
and promotions (combining lodging, lift tickets, transportation and
dining). Additionally, the individual hotels and the Company have
active sales forces to generate conference and group business.
Seasonality
The
Company's lodging business is highly seasonal in nature, with peak seasons
primarily in the winter months (with the exception of GTLC, certain managed
properties and golf operations). In recent years, the Company has
grown its business by promoting its extensive conference facilities and offering
more off-season activities to help offset the seasonality of the Company's
lodging business. The Company owns and operates six golf courses: The
Beaver Creek Golf Club, The Keystone Ranch Golf Course, The River Course at
Keystone, JHG&TC and the Tom Fazio and Greg Norman courses at Red Sky Ranch
near the Beaver Creek Resort. JHG&TC was ranked the fourth best
course in Wyoming for 2009 by Golf Digest, the Tom Fazio
course was ranked the fourth best course in Colorado in the State by State
ranking for 2009 by Golfweek and ranked the
fourteenth best course in Colorado for 2009 by Golf Digest, and the Greg
Norman course was ranked the eighth best course in Colorado in the State by
State ranking for 2009 by Golfweek and ranked the tenth
best course in Colorado for 2009 by Golf Digest. Red
Sky Ranch was ranked one of America’s Top 100 Golf Communities in 2009 by Travel & Leisure
Golf.
Real
Estate Segment
The
Company has extensive holdings of real property at its resorts throughout Summit
and Eagle Counties in Colorado. The Company's real estate operations,
through Vail Resorts Development Company (“VRDC”), a wholly owned subsidiary of
the Company, include the planning, oversight, infrastructure improvement,
development, marketing and sale of the Company's real property
holdings. In addition to the cash flow generated from real estate
development sales, these development activities benefit the Company's Mountain
and Lodging segments through (i) the creation of additional resort lodging and
other resort related facilities and venues (primarily restaurants, spas,
commercial space, private mountain clubs, skier services facilities and parking
structures) which provide the Company with the opportunity to create new sources
of recurring revenue, enhance the guest experience at the resort and expand the
destination bed base; (ii) the ability to control the architectural themes of
the Company's resorts; and (iii) the expansion of the Company's property
management and commercial leasing operations. Additionally, in order
to facilitate the sale of real estate development projects, these projects have
included the construction of resort assets benefiting the development, such as
chairlifts, gondolas, ski trails or golf courses. While these
improvements enhance the value of the real estate held for sale (for example, by
providing ski-in/ski-out accessibility), they also benefit the Mountain and
Lodging segments’ operations.
In recent
years the Company has primarily focused on projects that involve significant
vertical development. In addition to recently completed projects
including the Arrabelle, Vail’s Front Door and Crystal Peak Lodge at
Breckenridge, the Company has two vertical development projects currently under
construction: One Ski Hill Place at Breckenridge and The Ritz-Carlton
Residences, Vail. The Company attempts to mitigate the risk of
vertical development by often utilizing guaranteed maximum price construction
contracts (although certain construction costs may not be covered by contractual
limitations), pre-selling all or a portion of the project, requiring significant
non-refundable deposits, and potentially obtaining non-recourse financing for
certain projects. In some instances as warranted by the Company’s
business model, VRDC occasionally attempts to minimize the Company's exposure to
development risks and maximize the long-term value of the Company's real
property holdings by selling improved and entitled land to third-party
developers while often retaining the right to approve the development plans, as
well as an interest in the developer's profit. The Company also
typically retains the option to purchase, at cost, any retail/commercial space
created in a development.
VRDC's
principal activities include (i) the vertical development of certain residential
mixed-use projects that consist of both the sales of real estate units to third
parties and the construction of resort depreciable assets such as hotels,
restaurants, spas, private clubs, commercial space, skier service facilities,
parking structures and other amenities that the Company will own and operate and
that will benefit the Company’s Mountain and Lodging segments; (ii) the sale of
single-family homesites to individual purchasers; (iii) the sale of certain land
parcels to third-party developers for condominium, townhome, cluster home,
single family home, lodge and mixed use developments; (iv) the zoning, planning
and marketing of resort communities; (v) arranging for the construction of the
necessary roads, utilities and resort infrastructure for new resort communities;
and (vi) the purchase of selected strategic land parcels for future
development.
VRDC’s
current construction activities include the following major
projects:
|
·
|
One Ski Hill Place at
Breckenridge -- This development consists of 88
ski-in/ski-out residences and certain amenities which include a slopeside
skiers' plaza, a skier restaurant, après-ski bar, owner's ski lounge,
parking garage, conference space and retail space, all of which are
located at the base of Peak 8 and will connect to the Town of Breckenridge
via the BreckConnect gondola. This development will be branded
a RockResorts property upon
completion.
|
|
·
|
The Ritz-Carlton Residences,
Vail -- Located in the western part of Vail, this project consists
of 71 whole ownership luxury residences and 45 Ritz-Carlton Club
fractional ownership units. This development will offer
exclusive amenities, including a great room with bar, fitness facility and
a heated parking garage with valet
service.
|
Additionally,
VRDC continues to plan for numerous projects at all five of its mountain
resorts, including the Ever Vail project in Vail.
Employees
The
Company, through certain operating subsidiaries, currently employs approximately
3,500 year-round employees and during the height of its operating season employs
approximately 10,600 seasonal employees. In addition, the Company
manages approximately 700 year-round and 160 seasonal employees on behalf of the
owners of the managed hotel properties. None of the Company's
employees are unionized. The Company considers employee relations to
be good.
Regulation
and Legislation
Federal
Regulation
The 1986
Ski Area Permit Act (the “1986 Act”) allows the USDA Forest Service (the “Forest
Service”) to grant Term Special Use Permits (each, an “SUP”) for the operation
of ski areas and construction of related facilities on National Forest
lands. In addition, the 1986 Act requires a Master Development Plan
for each ski area that is granted an SUP. Each of the Company’s
five ski resorts operates under an SUP.
Each
distinct area of National Forest lands is required by the National Forest
Management Plan to develop and maintain a Land and Resource Management Plan (a
“Forest Plan”), which establishes standards and guidelines for the Forest
Service to follow and consider in reviewing and approving proposed actions by
the Company.
Under the
1986 Act, the Forest Service has the right to review and approve the location,
design and construction of improvements in the permit area and many operational
matters. Virtually all of the skiable terrain on Vail Mountain,
Breckenridge, Heavenly and Keystone is located on Forest Service
land. While Beaver Creek also operates on Forest Service land, a
significant portion of the skiable terrain, primarily in the lower main
mountain, Western Hillside, Bachelor Gulch and Arrowhead Mountain areas, is
located on Company-owned land.
Special Use
Permits
Vail
Mountain operates under an SUP for the use of 12,226 acres that expires October
31, 2031. Breckenridge operates under an SUP for the use of 5,702
acres that expires December 31, 2029. Keystone operates under an SUP
for the use of 8,376 acres that expires December 31, 2032. Beaver
Creek operates under an SUP for the use of 3,849 acres that expires December 31,
2038. Heavenly operates under an SUP for the use of 7,050 acres that
expires May 1, 2042.
Each SUP
contains a number of requirements, including that the Company indemnify the
Forest Service from third-party claims arising out of its operation under the
SUP and that it comply with applicable laws, such as those relating to water
quality and endangered or threatened species.
For use
of the SUPs, the Company pays a fee to the Forest Service ranging from 1.5% to
4.0% of sales for services occurring on Forest Service land. Included
in the calculation are sales from, among other things, lift tickets, season
passes, ski school lessons, food and beverages, equipment rentals and retail
merchandise.
The SUPs
may be amended by the Company or by the Forest Service to change the permit area
or permitted uses. The Forest Service may amend an SUP if it
determines that such amendment is in the public interest to do
so. While the Forest Service is required to seek the permit-holders
consent to any amendment, an amendment can be finalized over permit-holder
objections. Permit amendments must be consistent with the Forest Plan
and are subject to the provisions of the National Environmental Policy Act
(“NEPA”), both of which are discussed below.
The
Forest Service can also terminate a SUP if it determines that termination is
required in the public interest. However, to the Company's knowledge,
no SUP has ever been terminated by the Forest Service over the opposition of the
permitee.
Master Development
Plans
All
improvements that the Company proposes to make on National Forest lands under
any of its SUPs must be included in a Master Development Plan. Master
Development Plans describe the existing and proposed facilities, developments
and area of activity within the permit area. Master Development Plans
are prepared by the Company and set forth a conceptual overview of all potential
projects at each resort. The Master Development Plans are reviewed by
the Forest Service for compliance with the Forest Plan and other applicable law
and, if found to be compliant, are accepted by the Forest
Service. Notwithstanding acceptance by the Forest Service of the
conceptual Master Development Plans, individual projects still require separate
applications to be submitted evidencing compliance with NEPA and other
applicable laws before the Forest Service will approve such
projects. The Company updates or amends its Master Development Plans
for Vail Mountain, Beaver Creek, Keystone, Breckenridge and Heavenly from time
to time.
White River National Forest
Plan
Operational
and development activities on National Forest System lands at the Company's four
Colorado ski resorts are subject to the additional regulatory and planning
requirements set forth in the April 2002 Record of Decision (“ROD”) for the
White River National Forest Land and Resources Management Plan (the “White River
Forest Plan”).
When
approving Company applications for development, area expansion and other
activities on National Forest lands in Colorado, the Forest Service must adhere
to the White River Forest Plan and ROD. Any such decision may be
subject to judicial review in Federal court if a party, with standing,
challenges a Forest Service decision that applies the ROD at one of the
Company’s four Colorado ski resorts.
National Environmental
Policy Act; California Environmental Quality Act
NEPA
requires an assessment of the environmental impacts of “major” proposed actions
of the Company on National Forest land, such as expansion of a ski area,
installation of new lifts or snowmaking facilities, or construction of new
trails or buildings. The Company must comply with NEPA when seeking
Forest Service approval of such improvements. The Forest Service is responsible
for preparing and compiling the required environmental studies, usually through
third-party consultants. NEPA allows for different types of
environmental studies, depending on the scope and size of the expected impact of
the proposed project. An Environmental Assessment (“EA”) is typically
used for projects where the environmental impact is expected to be
limited. For projects with more significant expected impacts, an
Environmental Impact Statement (“EIS”) is more commonly required. An
EIS is more detailed and broader in scope than an EA. The Forest
Service usually takes more time to compile, review and issue an
EIS. Consequently, projects that require an EIS typically take longer
to approve.
During
the requisite environmental study, the Forest Service is required to analyze
alternatives to the proposed action (including not taking the proposed action)
as well as impacts that may be unavoidable. Following completion of
the requisite environmental study, the Forest Service may decide not to approve
the proposed action or may decide to approve an alternative. In
either case the Company may be forced to abandon or alter its development or
expansion plans.
In
limited cases, projects can be subject to a Categorical Exclusion, which allows
approval by the Forest Service without preparation of an environmental study
required by NEPA. The Forest Service has a list of available
Categorical Exclusions, which typically are only available for projects that are
not expected to have an environmental impact, such as certain utilities
installed in an existing, previously disturbed corridor.
Proposed
actions at Heavenly may also be subject to the California Environmental Quality
Act (“CEQA”), which is similar to NEPA in that it requires that the California
governmental entity approving any proposed action on the California portion of
Heavenly study potential environmental impacts. Projects with
significant expected impacts require an Environmental Impact Report while more
limited projects may be approved based on a Mitigated Negative
Declaration.
Breckenridge Regulatory
Matters
The
Company submitted an updated Master Development Plan for Breckenridge, which was
accepted by the Forest Service in January 2008. The Master
Development Plan was updated to include, among other things, additional skiable
area, snowmaking and lift improvements.
In
January 2008, the Forest Service commenced public scoping of the Company’s
proposal to develop a portion of Peak 6, which adjoins the Breckenridge Ski Area
to the north. Approval of the Peak 6 development requires the
preparation of an EIS, in compliance with NEPA. The initial round of
public scoping has been completed and the Forest Service is preparing the
EIS. It is not possible at this time to determine whether the
expansion will be approved as proposed.
Keystone Regulatory
Matters
In
November 2007, the Forest Service approved the extension and replacement of the
River Run Gondola, as contemplated by the Keystone Ski Area Master Development
Plan. This approval did not require extensive review under NEPA as it
qualified for a Categorical Exclusion. The new gondola was installed
during summer 2008 and was operational for the 2008/2009 ski
season.
The
Company has submitted an updated Keystone Ski Area Master Development Plan which
includes, among other things, ski area expansion, construction of new lifts,
trails and snowmaking systems, and construction or redevelopment of skier
buildings and other facilities. The Company anticipates acceptance of
the updated Master Development Plan by the Forest Service prior to the beginning
of the 2009/2010 ski season.
Vail Regulatory
Matters
In
September 2007, the updated Vail Master Development Plan was accepted by the
Forest Service. The Vail Master Development Plan includes, among
other things, additional snowmaking on Vail Mountain, additional lifts, and a
race facility expansion at Vail's Golden Peak. In October 2007, the
Company submitted to the Forest Service its first proposal under the updated
Master Development Plan to install a new chair lift in Vail's Sundown Bowl and
to upgrade the existing chair 5 to a high-speed, detachable quad chair
lift. NEPA requires that an EIS be prepared in connection with the
approval of this proposal. Due to proposed project changes, the
Forest Service is preparing a supplement to the EIS, which the Company
anticipates will be issued in September 2009, with the final EIS and approval of
the projects anticipated by November 2009.
In March
2006, the Forest Service approved a proposal to construct a chairlift to service
existing and potential future residential and commercial development in the
proposed Ever Vail area. However, since receiving approval, the
Company has modified the plans for the chairlift and has requested approval from
the Forest Service of the modified plans. The Company anticipates
approval by May 2010.
Beaver Creek Regulatory
Matters
The
Company is in the final stages of updating the Beaver Creek Master Development
Plan to include, among other things, certain chairlift and snowmaking upgrades
and adjustments to visitor capacity parameters in light of prior lift and trail
upgrades contemplated in the Master Development Plan. The Company
intends to submit the updated Master Development Plan to the Forest Service in
December 2009.
Heavenly Regulatory
Matters
During
summer 2007, an amendment to the Heavenly Master Plan (the “Master Plan
Amendment”) to include new and upgraded trails, lifts, snowmaking, lodges and
other facilities was accepted by the Forest Service and approved by the Tahoe
Regional Planning Agency (“TRPA”) and the underlying units of local government
with jurisdiction. Portions of the Master Plan Amendment applying to
the California side of the resort were subject to the approval of TRPA and El
Dorado County, which required compliance with CEQA. The Master Plan
Amendment was approved by TRPA and El Dorado County after completion of a joint
TRPA/Forest Service EIS/Environmental Impact Report to comply with both CEQA and
NEPA. Approval of the Master Plan Amendment included approval by the
Forest Service and TRPA of the Phase I projects contemplated in the Master Plan
Amendment. The Company has begun planning for the implementation of
the next phase of projects contemplated in the Master Plan Amendment, which will
require compliance with NEPA, CEQA and TRPA regulations and other local
laws.
The
Company has been conducting ongoing monitoring of groundwater contamination
levels using three existing monitoring wells and a seasonal, downstream seep as
required by the State of California Regional Water Quality Control Board,
Lahontan Region (“Lahontan”), and the El Dorado County Department of
Environmental Management. This requirement was imposed in response to
an accidental release of waste oil at a vehicle maintenance shop in 1998 by the
prior owner/operator of Heavenly. All cleanup work has been completed
in accordance with the approved work plan. The Company has filed its final
monitoring report and closure request and is waiting for a decision from
Lahontan.
In July
2003, Heavenly received updated waste discharge requirements ("WDRs") relating
to storm runoff on the California portions of the resort. WDRs are
normally valid for ten years. The approved WDRs will permit Heavenly
to continue year round operations and to continue with implementation of the
approved Master Plan Amendment. The WDRs required the retrofit of
certain existing facilities within California. All of the required
work has been completed.
GTLC Concession
Contract
GTLC
operates three lodging properties, food and beverage services, retail, camping
and other services within the Grand Teton National Park under a concession
contract with the NPS. The Company’s concession contract with the NPS
for GTLC expires on December 31, 2021. Upon expiration of the
concession contract, the Company will have to bid against other prospective
concessionaires for award of a new contract.
The NPS
may suspend operation under the concession contract at any time if the NPS
determines it is necessary to protect visitors or resources within the National
Park. NPS also has the right to terminate the contract for breach,
following notice and a 15 day cure period or if it believes termination is
necessary to protect visitors or resources within the National
Park.
The
Company pays a fee to the NPS of 8.01% on the majority of sales occurring in the
Grand Teton National Park.
Water
The
Company relies on a supply of water for operation of its ski areas for domestic
and snowmaking purposes and for real estate development. Availability
of water depends on existence of adequate water rights as well as physical
delivery of the water when and where it is needed.
Snowmaking
To
provide a level of predictability in dates of operation of its ski areas, the
Company relies on snowmaking. Snowmaking requires a significant
volume of water, which is viewed as a non-consumptive use – approximately 80% of
the water is returned to the watershed at spring runoff.
In
Colorado, the Company owns or has ownership interest in water rights in
reservoir companies, reservoirs, groundwater wells, and other
sources. The primary source of water for Keystone and Breckenridge is
the Clinton Reservoir, in which the Company owns a non-controlling
interest. For Vail Mountain and Beaver Creek, the primary water
source is Eagle Park Reservoir, in which the Company owns a controlling
interest. The Company believes that it has rights to sufficient
quantities of water for the operation of the Company’s four Colorado resorts for
the foreseeable future.
Delivery
of the water to each resort is typically by stream, from which the water is
diverted by the Company to on-site storage facilities or directly into the
snowmaking system. The streams that deliver the water are subject to
minimum stream flows, freezing and other limitations that may prevent or reduce
the amount of water physically available to the resort.
Unlike
the Company’s other Colorado resorts, Keystone does not have on-site storage for
snowmaking water and so is more vulnerable to interruptions in delivery of a
physical supply of water.
Heavenly’s
primary sources of water are the South Tahoe Public Utility District and
Kingsbury General Improvement District, which are California and Nevada public
utilities, respectively. Heavenly has short term contracts with both
utility companies and pays prevailing rates. While the Company
believes that both sources of water will be available long term, the Company has
no contractual guaranty of service, delivery or future
pricing. Further, the delivery systems of each utility are limited
and may not be able to provide the immediate physical supply of water needed for
optimal snowmaking.
Available
Information
The
Company reports to the Securities and Exchange Commission (“SEC”) information,
including its annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Act”) that are
available free of charge on the Company's corporate website
(www.vailresorts.com) as soon as reasonably practicable after the information is
electronically filed with or furnished to the SEC. In addition, the
Company's Code of Ethics and Business Conduct is available on its
website. None of the content of the Company's corporate website is
incorporated by reference herein. Copies of any materials the Company
files with the SEC can be obtained at www.sec.gov or at the SEC's Public
Reference Room at 100 F Street, N.E., Washington, D.C.
20549. Information on the operation of the Public Reference Room is
available by calling the SEC at 1-800-SEC-0330.
The risks
described below should carefully be considered together with the other
information contained in this report. The risks described below are
not the only risks facing us. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial may also
materially affect our business, financial condition and results of
operations.
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Risks
Related to Our Business
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We are subject to the risk of a
prolonged economic downturn including continued adverse affects on the overall
travel and leisure related industries. The economic recession
that has affected the U.S. and global economies, the tightened credit markets
and eroded consumer confidence had a negative impact on overall trends in the
travel and leisure industries and on our results of operations for Fiscal
2009. As a result of the economic downturn we experienced, among
other items: a decrease in overall visitation at our resorts, primarily as a
result of decreased visitation from Destination guests; a significant decrease
in overall guest spending on ancillary services including ski school, dining and
retail/rental; and a change in booking trends such that guest reservations were
made much closer to the actual date of stay. We cannot predict at
what level these negative trends will continue, worsen or improve and the
ultimate impact it will have on our future results of operations. The actual or perceived
fear of the extent of the recession could also lead to continued decreased
spending by our guests. Skiing, travel and tourism are discretionary
recreational activities that can entail a relatively high cost of participation
and is adversely affected by economic slowdown or recession. This could further
be exacerbated by the fact that we charge some of the highest prices for our
lift tickets and ancillary services in the ski industry. In the event
of a further decrease in visitation and overall guest spending we may be
required to offer a higher amount of discounts and incentives than we have
historically.
Leisure and business travel are
particularly susceptible to various factors outside of our control, including
terrorism, the uncertainty of military conflicts, outbreaks of contagious
diseases and the cost and availability of travel options. Our
business is sensitive to the willingness of our guests to
travel. Acts of terrorism, the spread of contagious diseases,
regional political events and developments in military conflicts in areas of the
world from which we draw our guests could depress the public’s propensity to
travel and cause severe disruptions in both domestic and international air
travel and consumer discretionary spending, which could reduce the number of
visitors to our resorts and have an adverse affect on our results of
operations. Many of our guests travel by air and the impact of higher
prices for commercial airline services and availability of air services could
cause a decrease in visitation by Destination guests to our
resorts. Also, many of our guests travel by vehicle and higher
gasoline prices could adversely impact our guests’ willingness to travel to our
resorts. Higher cost of travel may also affect the amount that guests
are willing to spend at our resorts and could negatively impact our revenue
particularly for lodging, ski school, dining and retail/rental.
Our business is highly
seasonal. Our mountain and lodging operations are highly
seasonal in nature. In particular, revenue and profits from our
mountain and most of our lodging operations are substantially lower and
historically result in losses from late spring to late
fall. Conversely, peak operating seasons for GTLC, certain managed
hotel properties and our golf courses occur during the summer months while the
winter season generally results in operating losses. Revenue and
profits generated by GTLC's summer operations, management fees from certain
managed properties, certain other lodging properties and golf operations are not
nearly sufficient to fully offset our off-season losses from our mountain and
other lodging operations. For Fiscal 2009, 79% of total combined
Mountain and Lodging segment net revenue was earned during our fiscal second and
third quarters. In addition, the timing of major holidays can impact
vacation patterns and therefore visitation at our ski resorts. If we were to
experience an adverse event or realized a significant deterioration in our
operating results during our peak periods (our fiscal second and third quarters)
we would be unable to fully recover any significant declines due to the
seasonality of our business. Operating results for any
three-month period are not necessarily indicative of the results that may be
achieved for any subsequent quarter or for a full fiscal year (see Note 16,
Selected Quarterly Financial Data, of the Notes to Consolidated Financial
Statements).
We are vulnerable to the risk of
unfavorable weather conditions and the impact of natural
disasters. The ability to attract visitors to our resorts is
influenced by weather conditions and by the amount and timing of snowfall during
the ski season. Unfavorable weather conditions can adversely affect
skier visits and our revenue and profits. Unseasonably warm weather
may result in inadequate natural snowfall and reduce skiable terrain which
increases the cost of snowmaking and could render snowmaking wholly or partially
ineffective in maintaining quality skiing conditions, including in areas which
are not accessible by snowmaking equipment. In addition, a severe and
prolonged drought could affect our otherwise adequate snowmaking water supplies
or increase the cost of snowmaking. Excessive natural snowfall may
materially increase the costs incurred for grooming trails and may also make it
difficult for visitors to obtain access to our mountain resorts. In
the past 20 years, our ski resorts have averaged between 20 and 30 feet of
annual snowfall which is significantly in excess of the average for United
States ski resorts. However, there is no assurance that our resorts
will receive seasonal snowfalls near the historical average in the
future. Also, the early season snow conditions and skier perceptions
of early season snow conditions influence the momentum and success of the
overall season. Unfavorable weather conditions can adversely affect
our resorts and lodging properties as vacationers tend to delay or postpone
vacations if conditions differ from those that typically prevail at such resorts
for a given season. There is no way for us to predict future weather
patterns or the impact that weather patterns may have on our results of
operations or visitation.
A severe
natural disaster, such as a forest fire, may interrupt our operations, damage
our properties and reduce the number of guests who visit our resorts in affected
areas. Damage to our properties could take a long time to repair and
there is no guarantee that we would have adequate insurance to cover the costs
of repair. Furthermore, such a disaster may interrupt or impede
access to our affected properties or require evacuations and may cause visits to
our affected properties to decrease for an indefinite period. The
ability to attract visitors to our resorts is also influenced by the aesthetics
and natural beauty of the outdoor environment where our resorts are
located. A severe forest fire or other severe impacts from naturally
occurring events could negatively impact the natural beauty of our resorts and
have a long-term negative impact on our overall guest visitation as it would
take several years for the environment to recover.
We face significant
competition. The ski resort and lodging industries are highly
competitive. The number of people who ski in the United States (as
measured in skier visits) has generally ranged between 52 million and 61 million
annually over the last decade, with approximately 57.4 million visits for the
2008/2009 ski season. The factors that we believe are important to
customers include:
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proximity
to population centers;
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availability
and cost of transportation to ski
areas;
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ease
of travel to ski areas (including direct flights by major
airlines);
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pricing
of lift tickets and/or season passes and the number, quality and price of
related ancillary services (ski school, dining and retail/rental),
amenities and lodging;
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snowmaking
facilities;
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type
and quality of skiing and snowboarding
offered;
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duration
of the ski season;
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weather
conditions; and
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reputation.
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We have
many competitors for our ski vacationers, including other major resorts in
Colorado, the Lake Tahoe area and other major destination ski areas
worldwide. Our guests can choose from any of these alternatives, as
well as non-skiing vacation destinations around the world. In
addition, other forms of leisure such as sporting events and participation in
other competing indoor and outdoor recreational activities are available to
potential guests.
RockResorts
hotels and our other hotels compete with numerous other hotel companies that may
have greater financial resources than we do and they may be able to adapt more
quickly to changes in customer requirements or devote greater resources to
promotion of their offerings than us. We believe that developing and
maintaining a competitive advantage will require us to make continued capital
investment in our resorts. We cannot assure that we will have
sufficient resources to make the necessary capital investments to do so, and we
cannot assure that we will be able to compete successfully in this market or
against such competitors.
The high fixed cost structure of ski
resort operations can result in significantly lower margins if revenues decline.
The cost structure of ski resort operations is primarily fixed, with
variable expenses including, but not limited to, Forest Service fees, other
resort related fees, credit card fees, retail/rental operations, ski school
labor and dining operations. Any material declines in the economy,
elevated geopolitical uncertainties and/or significant changes in historical
snowfall patterns, as well as other risk factors discussed herein could
adversely affect revenue. As such, our margins, profits and cash
flows may be materially reduced due to declines in revenue given our high fixed
cost structure. In addition, increases in wages and other labor
costs, energy, healthcare, insurance, transportation and fuel, and other
expenses included in our fixed cost structure may also reduce our margin,
profits and cash flows.
Our future real estate development
projects might not be successful. We have significant
development plans for our properties and/or operations. We could
experience significant difficulties in initiating or completing these projects,
due to among other things:
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sustained
deterioration in real estate
markets;
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escalation
in construction costs due to price increases in commodities, unforeseen
conditions, inadequate design or drawings, or other
causes;
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difficulty
in selling units or the ability of buyers to obtain necessary funds to
close on units;
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work
stoppages;
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weather
interferences;
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shortages
in obtaining materials;
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difficulty
in financing real estate development
projects;
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difficulty
in receiving the necessary regulatory
approvals;
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difficulty
in obtaining qualified contractors or subcontractors;
and
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unanticipated
incremental remediation costs related to design and construction
issues.
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Our real
estate development projects are designed to make our resorts attractive to our
guests and to maintain competitiveness. If these projects are not
successful, in addition to not realizing intended profits from the real estate
developments, our guests may choose to go to other resorts that they perceive
have better amenities and our results of operations could be materially
adversely affected.
There are significant risks associated with our
current real estate projects under development, which could adversely affect our
financial condition, results of operations or anticipated cash flows from these
projects. We currently have two real estate projects under
development, One Ski Hill Place in Breckenridge and The Ritz-Carlton Residences,
Vail. We have increased risk associated with selling and closing
units for these projects as a result of the instability in the capital and
credit markets and a slowdown in the overall real estate market. For
instance, we may have difficulty selling units due to a reduction in demand or
oversupply and, as a result we may not be able to sell such properties for a
profit or at the prices or selling pace we anticipate. Furthermore,
given the current economic climate, certain buyers may be unable to close on
their units due to a reduction in funds available to buyers and/or decreases in
mortgage availability, or certain buyers who have entered into purchase and
sales contracts with us may attempt to challenge the legality of the contracts
in an effort to invalidate their purchase commitment and obtain a refund of
their deposit. We are currently self funding the development for
these two projects and estimate to incur between $190 million and $210 million
in cash expenditures subsequent to July 31, 2009 to complete these projects
which will cause a decline in future cash being generated from operating
activities, potentially requiring us to borrow under the revolver component of
our senior credit facility (the “Credit Facility”) from time to time,
which would increase our leverage until we close and receive proceeds
from the sale of units from these projects. As such, due to the
overall macro-economic environment, the ensuing deterioration in real estate
markets and the tightening of credit markets, among other factors, there is no
assurance that units will be sold and/or closed upon completion of these
projects which could increase our leverage, including related interest costs,
for a prolonged period of time which could have an adverse effect on our results
of operations.
We may not be able to fund resort
capital expenditures and investment in real estate. In
addition to the self funding of real estate under development, we currently
anticipate resort capital expenditures (primarily related to the Mountain and
Lodging segments) will be approximately $50 million to $60 million for calendar
year 2009. Our ability to fund these investments will depend on our
ability to generate sufficient cash flow from operations, obtain pre-sale
deposits and/or to borrow from third parties. We cannot provide
assurances that our operations will be able to generate sufficient cash flow to
fund such development costs, or that we will be able to obtain sufficient
financing on adequate terms, or at all. Our ability to generate cash
flow and to obtain third-party financing will depend upon many factors,
including:
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our
future operating performance;
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general
economic conditions and economic conditions affecting the resort industry,
the ski industry and the general capital
markets;
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our
ability to meet our pre-sell targets on our vertical real estate
development projects;
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competition;
and
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legislative
and regulatory matters affecting our operations and
business.
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We could
finance future expenditures from any combination of the following
sources:
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cash
flow from operations;
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construction
financing, including non-recourse or other
financing;
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bank
borrowings;
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public
offerings of debt or equity; and
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private
placements of debt or equity.
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Any
inability to generate sufficient cash flows from operations or to obtain
adequate third-party financing could cause us to delay or abandon certain
development projects and/or plans.
We rely on government
permits. Our resort operations require permits and approvals
from certain Federal, state, and local authorities, including the Forest Service
and U.S. Army Corps of Engineers. Virtually all of our ski trails and
related activities at Vail Mountain, Breckenridge, Keystone and Heavenly and a
majority of Beaver Creek are located on Federal land. The Forest
Service has granted us permits to use these lands, but maintains the right to
review and approve many operational matters, as well as the location, design and
construction of improvements in these areas. Currently, our permits
expire December 31, 2029 for Breckenridge, October 31, 2031 for Vail Mountain,
December 31, 2032 for Keystone, December 31, 2038 for Beaver Creek and May 1,
2042 for Heavenly. The Forest Service can terminate or amend these permits if,
in its opinion, such termination is required in the public
interest. A termination or amendment of any of our permits could have
a materially adverse affect on our business and operations.
In order
to undertake improvements and new development, we must apply for permits and
other approvals. These efforts, if unsuccessful, could impact our
expansion efforts. Furthermore, Congress may materially increase the
fees we pay to the Forest Service for use of these Federal lands.
We are subject to extensive
environmental laws and regulations in the ordinary course of
business. Our operations are subject to a variety of Federal,
state and local environmental laws and regulations including those relating to
emissions to the air, discharges to water, storage, treatment and disposal of
wastes, land use, remediation of contaminated sites and protection of natural
resources such as wetlands. For example, future expansions of certain of our ski
facilities must comply with applicable forest plans approved under the National
Forest Management Act or local zoning requirements. In addition, most
projects to improve, upgrade or expand our ski areas are subject to
environmental review under the NEPA and, for California projects at Heavenly,
the CEQA. Both acts require that the Forest Service study any proposal for
potential environmental impacts and include in its analysis various
alternatives. Our ski area improvement proposals may not be approved
or may be approved with modifications that substantially increase the cost or
decrease the desirability of implementing the project. Our facilities
are subject to risks associated with mold and other indoor building
contaminants. From time to time our operations are subject to
inspections by environmental regulators or other regulatory agencies. We are
also subject to worker health and safety requirements. We believe our
operations are in substantial compliance with applicable material environmental,
health and safety requirements. However, our efforts to comply do not eliminate
the risk that we may be held liable, incur fines or be subject to claims for
damages, and that the amount of any liability, fines, damages or remediation
costs may be material for, among other things, the presence or release of
regulated materials at, on or emanating from properties we now or formerly owned
or operated, newly discovered environmental impacts or contamination at or from
any of our properties, or changes in environmental laws and regulations or their
enforcement.
Failure to maintain the integrity of
guest data could result in damages of reputation and/or subject us to costs,
fines or lawsuits. We collect personally identifiable
information relating to our guests for various business purposes, including
marketing and promotional purposes. The integrity and privacy of our
guest’s information is important to us and our guests have a high expectation
that we will adequately protect their personal information. The
regulatory environment governing privacy laws is increasingly demanding and
privacy laws continue to evolve and on occasion may be inconsistent from one
jurisdiction to another. Maintaining compliance with applicable
privacy regulations may increase our operating costs and/or adversely impact our
ability to market our products, properties and services to our
guests. Furthermore, non-compliance with applicable privacy
regulations by us (or in some circumstances non-compliance by third parties
engaged by us), breach of security on systems storing our guest data, a loss of
guest data or fraudulent use of guest data could adversely impact our reputation
or result in fines or other damages and litigation.
We are subject to litigation in the
ordinary course of business. We are, from time to time,
subject to various asserted or unasserted legal proceedings and
claims. Any such claims, regardless of merit, could be time-consuming
and expensive to defend and could divert management’s attention and
resources. While we believe we have adequate insurance coverage
and/or accrue for loss contingencies for all known matters that are probable and
can be reasonably estimated, we cannot assure that the outcome of all current or
future litigation will not have a material adverse effect on us and our results
of operations. For a more detailed discussion of our legal
proceedings see Legal Proceedings under Item 3 and Note 14, Commitments and
Contingencies, of the Notes to Consolidated Financial Statements.
Any failure to protect our trademarks
could have a negative impact on the value of our brand names and adversely
affect our business. Our trademarks are an important component
of our business and the continued success of our business depends in part upon
our continued ability to use our trademarks to increase brand awareness and
further develop our brand in both domestic and international markets. The
unauthorized use of our trademarks could diminish the value of our brand and its
market acceptance, competitive advantages or goodwill, which could adversely
affect our business. Litigation has been and may continue to be
necessary to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others. Additionally,
negative public image or other adverse events which become associated with one
of our brands could adversely affect our revenue and profitability.
We depend on a seasonal
workforce. Our mountain and lodging operations are highly
dependent on a large seasonal workforce. We recruit year-round to
fill thousands of seasonal staffing needs each season and work to manage
seasonal wages and the timing of the hiring process to ensure the appropriate
workforce is in place. We cannot guarantee that material increases in
the cost of securing our seasonal workforce will not be necessary in the
future. Furthermore, we cannot guarantee that we will be able to
recruit and hire adequate seasonal personnel as the business
requires. Increased seasonal wages or an inadequate workforce could
have an adverse impact on our results of operations.
If we do not retain our key
personnel, our business may suffer. The success of our
business is heavily dependent on the leadership of key management personnel,
including our Chief Executive Officer, Chief Financial Officer, Co- Presidents
of our Mountain Division, President of VRDC, General Counsel and each of our
Senior Vice Presidents. If any of these persons were to leave, it
could be difficult to replace them, and our business could be
harmed. We do not maintain “key-man” life insurance on any of our
employees.
Our future acquisitions might not be
successful. Historically, we have acquired certain ski
resorts, other destination resorts, hotel properties and businesses
complementary to our own, as well as developable land in proximity to our
resorts. We cannot make assurances that we will be able to
successfully integrate and manage acquired properties and businesses and
increase our profits from these operations. We continually evaluate
potential acquisitions and intend to actively pursue acquisition opportunities,
some of which could be significant. We could face various risks from
additional acquisitions, including:
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inability
to integrate acquired businesses into our
operations;
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diversion
of our management’s attention;
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potential
increased debt leverage;
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litigation
arising from acquisition activity;
and
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unanticipated
problems or liabilities.
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In
addition, we run the risk that any new acquisitions may fail to perform in
accordance with expectations, and that estimates of the costs of improvements
for such properties may prove inaccurate.
We may be required to write-off a
portion of our goodwill and/or indefinite lived intangible asset balances as a
result of a more prolonged and severe economic
recession. Under accounting principles generally accepted in
the United States of America (“GAAP”), we are required to test goodwill for
impairment annually as well as on an interim basis to the extent factors or
indicators become apparent that could reduce the fair value of our goodwill or
indefinite lived intangible assets below book value. We evaluate the
recoverability of goodwill by estimating the future discounted cash flows of our
reporting units and terminal values of the businesses using projected future
levels of income as well as business trends, prospects and market and economic
conditions. We evaluate the recoverability of indefinite lived
intangible assets using the income approach based upon estimated future revenue
streams (see Critical Accounting Policies in Item 7 of this Form
10-K). If a more severe prolonged economic downturn were to occur it
could cause less than expected growth and/or reduction in terminal values of our
reporting units and could result in a goodwill and/or indefinite lived
intangible asset impairment charge attributable to certain goodwill and/or
indefinite lived intangible assets, negatively impacting our results of
operations and stockholders’ equity.
We are subject to accounting
regulations and use certain accounting estimates and judgments that may differ
significantly from actual results. Implementation of existing
and future legislation, rulings, standards and interpretations from the FASB or
other regulatory bodies could affect the presentation of our financial
statements and related disclosures. Future regulatory requirements
could significantly change our current accounting practices and
disclosures. Such changes in the presentation of our financial
statements and related disclosures could change an investor’s interpretation or
perception of our financial position and results of operations.
We use
many methods, estimates and judgments in applying our accounting policies (see
Critical Accounting Policies in Item 7 of this Form 10-K). Such
methods, estimates and judgments are, by their nature, subject to substantial
risks, uncertainties and assumptions, and factors may arise over time that lead
us to change our methods, estimates and judgments. Changes in those methods,
estimates and judgments could significantly affect our results of
operations.
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Risks
Relating to Our Capital Structure
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Our stock price is highly
volatile. The market price of our stock is highly volatile and
subject to wide fluctuations in response to factors such as the following, some
of which are beyond our control:
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quarterly
variations in our operating
results;
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operating
results that vary from the expectations of securities analysts and
investors;
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change
in valuations, including our future real estate
developments;
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changes
in the overall travel, gaming, hospitality and leisure
industries;
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changes
in expectations as to our future financial performance, including
financial estimates by securities analysts and investors or such guidance
provided by us;
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announcements
by us or companies in the travel, gaming, hospitality and leisure
industries of significant contracts, acquisitions, dispositions, strategic
partnerships, joint ventures, capital commitments, plans, prospects,
service offerings or operating
results;
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additions
or departures of key personnel;
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future
sales of our securities;
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|
·
|
trading
and volume fluctuations;
|
|
·
|
other
risk factors as discussed above;
and
|
|
·
|
other
unforeseen events.
|
Stock
markets in the United States have and often experience extreme price and volume
fluctuations. Market fluctuations, as well as general political and
economic conditions such as acts of terrorism, a recession or interest rate or
currency rate fluctuations, could adversely affect the market price of our
stock.
We have not historically paid cash
dividends to our common stockholders. We have not declared or
paid any cash dividends on our common shares since becoming publicly traded in
1997. Payment of any future dividends on our common stock will depend
upon our earnings and capital requirements, the terms of our debt instruments
and other factors the Board of Directors considers appropriate.
Anti-takeover provisions affecting us
could prevent or delay a change of control that is beneficial to our
shareholders. Provisions of our certificate of incorporation
and bylaws, provisions of our debt instruments and other agreements and
provisions of applicable Delaware law and applicable Federal and state
regulations may discourage, delay or prevent a merger or other change of control
that holders of our securities may consider favorable. These
provisions could:
|
·
|
delay,
defer or prevent a change in control of the
Company;
|
|
·
|
discourage
bids for our securities at a premium over the market
price;
|
|
·
|
adversely
affect the market price of, and the voting and other rights of the holders
of our securities; or
|
|
·
|
impede
the ability of the holders of our securities to change our
management.
|
Our indebtedness could adversely
affect our financial health and prevent us from fulfilling our
obligations. Our level of indebtedness could have important
consequences even though principal payments on the vast majority of our
long-term debt are not due until fiscal 2014 and beyond. For example,
it could:
|
·
|
make
it more difficult for us to satisfy our
obligations;
|
|
·
|
increase
our vulnerability to general adverse economic and industry
conditions;
|
|
·
|
require
us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness, thereby reducing the availability of our
cash flow to fund working capital, capital expenditures, real estate
developments, marketing efforts and other general corporate
purposes;
|
|
·
|
limit
our flexibility in planning for, or reacting to, changes in our business
and the industry in which we
operate;
|
|
·
|
place
us at a competitive disadvantage compared to our competitors that have
less debt; and
|
|
·
|
limit
our ability to borrow additional
funds.
|
We may be
able to incur substantial additional indebtedness in the future. The
terms of our Indenture
(as
defined below) do not fully prohibit us from doing so. Our Credit
Facility permits additional borrowings of up to $304.7 million as of July 31,
2009. If new debt is added to our current debt levels, the related
risks that we face could intensify.
There are restrictions imposed by the
terms of our indebtedness. The operating and financial
restrictions and covenants in our Credit Facility and the Indenture, dated as of
January 29, 2004 among us, the guarantors therein and the Bank of New York
Mellon Trust Company, N.A., as Trustee (“Indenture”), governing the 6.75% Senior
Subordinated Notes due 2014 (“6.75% Notes”) may adversely affect our ability to
finance future operations or capital needs or to engage in other business
activities that may be in our long-term best interests. For example,
the Indenture and the Credit Facility contain a number of restrictive covenants
that impose significant operating and financial restrictions on us, including
restrictions on our ability to, among other things:
|
·
|
incur
additional debt;
|
|
·
|
pay
dividends, repurchase our stock and make other restricted
payments;
|
|
·
|
create
liens;
|
|
·
|
make
investments;
|
|
·
|
engage
in sales of assets and subsidiary
stock;
|
|
·
|
enter
into sale-leaseback transactions;
|
|
·
|
enter
into transactions with affiliates;
|
|
·
|
transfer
all or substantially all of our assets or enter into merger or
consolidation transactions; and
|
|
·
|
make
capital expenditures.
|
In
addition, there can be no assurance that we will meet the financial covenants
contained in our Credit Facility. If we breach any of these
restrictions or covenants, or suffer a material adverse change which restricts
our borrowing ability under our Credit Facility, we would not be able to borrow
funds thereunder without a waiver, which inability could have an adverse effect
on our business, financial condition and results of operations. In
addition, a breach, if uncured, could cause a default under the 6.75% Notes and
our other debt. Our indebtedness may then become immediately due and
payable. We may not have or be able to obtain sufficient funds to
make these accelerated payments, including payments on the 6.75%
Notes.
Our Credit Facility is scheduled to
mature in 2012 and our 6.75% Notes are due in 2014. Recent
events in the financial markets have had an adverse impact on the credit markets
and, as a result, credit has become significantly more expensive and difficult
to obtain, if available at all. We currently have no borrowings under
our Credit Facility, which is scheduled to mature in 2012; however, a sustained
economic recession and its potential impact on our cash flows from operating
activities, combined with our plan to self-fund our current real estate under
development could require us to borrow significant funds under the revolver
component of our Credit Facility. In addition to our Credit Facility, we have
outstanding $390.0 million of 6.75% Notes due in 2014. The credit
markets are volatile and may pose challenges and have an adverse effect on our
ability to re-finance or obtain new financing on terms that are acceptable to
us. There is no assurance that we will be able to obtain new
financing or financing on acceptable terms.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
None.
The
following table sets forth the principal properties owned or leased by the
Company for use in its operations:
|
Location
|
Ownership
|
Use
|
||
|
Arrowhead
Mountain, CO
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements, commercial space and real estate held for sale or
development
|
||
|
BC
Housing Riveredge, CO
|
26%
Owned
|
Employee
housing facilities
|
||
|
Bachelor
Gulch Village, CO
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements and commercial space
|
||
|
Beaver
Creek Resort, CO
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements, commercial space and real estate held for sale or
development
|
||
|
Beaver
Creek Mountain, CO (3,849 acres)
|
Special
Use Permit
|
Ski
trails, ski lifts, buildings and other improvements
|
||
|
Beaver
Creek Mountain Resort, CO
|
Owned
|
Golf
course, clubhouse, commercial space and residential
spaces
|
||
|
Breckenridge
Ski Resort, CO
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements, commercial space and real estate held for sale or
development
|
||
|
Breckenridge
Mountain, CO (5,702 acres)
|
Special
Use Permit
|
Ski
trails, ski lifts, buildings and other improvements
|
||
|
Breckenridge
Mountain Lodge
|
Owned
|
Lodging
|
||
|
Breckenridge
Terrace, CO
|
50%
Owned
|
Employee
housing facilities
|
||
|
Broomfield,
CO
|
Leased
|
Corporate
offices
|
||
|
Colter
Bay Village, WY
|
Concessionaire
contract
|
Lodging
and dining facilities
|
||
|
Eagle-Vail,
CO
|
Owned
|
Warehouse
facility
|
||
|
Edwards,
CO
|
Leased
|
Administrative
offices
|
||
|
Great
Divide Lodge, CO
|
Owned
|
Lodging,
dining and conference facilities
|
||
|
Heavenly
Mountain Resort, CA & NV
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements and commercial space
|
||
|
Heavenly
Mountain Resort, CA & NV (7,050 acres)
|
Special
Use Permit
|
Ski
trails, ski lifts, buildings and other improvements
|
||
|
Inn
at Keystone, CO
|
Owned
|
Lodging,
dining and conference facilities
|
||
|
Jackson
Hole Golf & Tennis Club, WY
|
Owned
|
Golf
course, clubhouse, tennis facilities, dining and real estate held for sale
or development
|
||
|
Jackson
Lake Lodge, WY
|
Concessionaire
contract
|
Lodging,
dining and conference facilities
|
||
|
Jenny
Lake Lodge, WY
|
Concessionaire
contract
|
Lodging
and dining facilities
|
||
|
Keystone
Conference Center, CO
|
Owned
|
Conference
facility
|
||
|
Keystone
Lodge, CO
|
Owned
|
Lodging,
spa, dining and conference facilities
|
||
|
Keystone
Resort, CO
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements, commercial space, dining and real estate held for sale or
development
|
||
|
Keystone
Mountain, CO (8,376 acres)
|
Special
Use Permit
|
Ski
trails, ski lifts, buildings and other improvements
|
||
|
Keystone
Ranch, CO
|
Owned
|
Golf
course, clubhouse and dining facilities
|
||
|
Red
Sky Ranch, CO
|
Owned
|
Golf
courses, clubhouses, dining facilities and real estate held for sale or
development
|
||
|
River
Course at Keystone, CO
|
Owned
|
Golf
course and clubhouse
|
||
|
Seasons
at Avon, CO
|
Leased/50%
Owned
|
Administrative
offices
|
||
|
Ski
Tip Lodge, CO
|
Owned
|
Lodging
and dining facilities
|
||
|
The
Arrabelle at Vail Square, CO
|
Owned
|
Lodging,
spa, dining and conference facilities
|
||
|
The
Lodge at Vail, CO
|
Owned
|
Lodging,
spa, dining and conference facilities
|
||
|
The
Osprey at Beaver Creek, CO
|
Owned
|
Lodging,
dining and conference facilities
|
||
|
The
Tarnes at Beaver Creek, CO
|
31%
Owned
|
Employee
housing facilities
|
||
|
Tenderfoot
Housing, CO
|
50%
Owned
|
Employee
housing facilities
|
||
|
The
Pines Lodge at Beaver Creek, CO
|
Owned
|
Lodging,
dining and conference facilities
|
||
|
Vail
Mountain, CO
|
Owned
|
Ski
resort operations, including ski lifts, ski trails, buildings and other
improvements, commercial space and real estate held for sale or
development
|
||
|
Vail
Mountain, CO (12,226 acres)
|
Special
Use Permit
|
Ski
trails, ski lifts, buildings and other improvements
|
||
|
Village
at Breckenridge, CO
|
Owned
|
Lodging,
dining, conference facilities and commercial space
|
||
|
SSV
Properties
|
69.3%
Owned
|
Over
150 retail stores (of which 71 stores are currently held under lease) for
recreational products including
rental
|
The
Forest Service SUPs are encumbered under certain debt instruments of the
Company. Many of the Company's properties are used across all
segments in complementary and interdependent ways.
The
Company is a party to various lawsuits arising in the ordinary course of
business, including Resort (Mountain and Lodging) related cases and contractual
and commercial litigation that arises from time to time in connection with the
Company's real estate and other business operations. Management
believes the Company has adequate insurance coverage and/or has accrued for loss
contingencies for all known matters and that, although the ultimate outcome of
such claims cannot be ascertained, current pending and threatened claims are not
expected to have a material, individually and in the aggregate, adverse impact
on the financial position, results of operations and cash flows of the
Company.
The Canyons Ski Resort
Litigation
During
the fourth quarter of the year ended July 31, 2007 (“Fiscal 2007”), the Company
entered into an agreement with Peninsula Advisors, LLC (“Peninsula”) for the
negotiation and mutual acquisition of The Canyons and the land underlying The
Canyons. On July 15, 2007, American Skiing Company (“ASC”) entered
into an agreement to sell The Canyons to Talisker Corporation and Talisker
Canyons Finance Company, LLC (together “Talisker”). On July 27, 2007,
the Company filed a complaint in the District Court in Colorado against
Peninsula and Talisker claiming, among other things, breach of contract by
Peninsula and intentional interference with contractual relations and
prospective business relations by Talisker and seeking damages, specific
performance and injunctive relief. On October 19, 2007, the Company’s
request for a preliminary injunction to prevent the closing of the acquisition
by Talisker of The Canyons from ASC was denied. On November 8, 2007,
Talisker filed an answer to the Company’s complaint along with three
counterclaims. On November 12, 2007, Peninsula filed a motion to
dismiss and for partial summary judgment, which was heard on March 21, 2009 and
denied. The matter has been set for trial commencing July 19,
2010. The Company is unable to predict the ultimate outcome of the above
described actions.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART
II
The
Company's common stock is traded on the New York Stock Exchange under the symbol
“MTN”. As of September 18, 2009, 36,174,979 shares of common stock
were outstanding, held by approximately 392 holders of record.
The
declaration of cash dividends in the future will depend on the Company's
earnings, financial condition, capital needs, restrictions under debt
instruments and on other factors deemed relevant by the Board of Directors at
that time. It is the current policy of the Company's Board of
Directors to retain earnings to finance the operations and expansion of the
Company's business.
The
following table sets forth, for Fiscal 2009 and the year ended July 31, 2008
(“Fiscal 2008”), and quarters indicated (ended October 31, January 31, April 30,
and July 31) the range of high and low per share sales prices of the Company’s
common stock as reported on the New York Stock Exchange Composite
Tape.
|
Vail
Resorts
|
||||||
|
Common
Stock
|
||||||
|
High
|
Low
|
|||||
|
Year
Ended July 31, 2009
|
||||||
|
1st
Quarter
|
$
|
52.00
|
$
|
21.67
|
||
|
2nd
Quarter
|
33.43
|
14.79
|
||||
|
3rd
Quarter
|
30.42
|
14.76
|
||||
|
4th
Quarter
|
31.10
|
23.71
|
||||
|
Year
Ended July 31, 2008
|
||||||
|
1st
Quarter
|
$
|
66.25
|
$
|
48.41
|
||
|
2nd
Quarter
|
60.15
|
40.94
|
||||
|
3rd
Quarter
|
51.65
|
39.32
|
||||
|
4th
Quarter
|
51.38
|
30.03
|
||||
Repurchase
of Equity Securities
The
following table summarizes the purchase of the Company’s equity securities
during the fourth quarter of Fiscal 2009:
|
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(1)
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or Programs
(1)
|
||||||||
|
May
1, 2009 – May 31, 2009
|
--
|
$
|
--
|
--
|
2,399,765
|
|||||||
|
June
1, 2009 – June 30, 2009
|
278,300
|
26.93
|
278,300
|
2,121,465
|
||||||||
|
July
1, 2009 – July 31, 2009
|
--
|
--
|
--
|
2,121,465
|
||||||||
|
Total
|
278,300
|
$
|
26.93
|
278,300
|
|
(1)
|
On
March 9, 2006, the Company’s Board of Directors approved the repurchase of
up to 3,000,000 shares of common stock and on July 16, 2008 approved an
increase of the Company’s common stock repurchase authorization by an
additional 3,000,000 shares. Acquisitions under the share
repurchase program may be made from time to time at prevailing prices as
permitted by applicable laws, and subject to market conditions and other
factors. The stock repurchase program may be discontinued at
any time.
|
Performance
Graph
The total return graph is presented for the period from the end of the Company’s 2004 fiscal year through the end of Fiscal 2009. The comparison assumes that $100 was invested at the beginning of the period in the common stock of the Company (“MTN”), The Russell 2000, The Standard & Poor’s 500 Stock Index and the Dow Jones U.S. Travel and Leisure Stock Index. The Company included the Dow Jones U.S. Travel and Leisure Index as the Company believes it competes in the travel and leisure industry.
The
performance graph is not deemed filed with the SEC and is not to be incorporated
by reference into any of the Company’s filings under the Securities Act of 1933
or the Exchange Act of 1934, unless it specifically incorporates the performance
graph by reference therein.
The
following table presents selected historical consolidated financial data of the
Company derived from the Company's Consolidated Financial Statements for the
periods indicated. The financial data for Fiscal 2009, Fiscal 2008
and Fiscal 2007 and as of July 31, 2009 and 2008 should be read in conjunction
with the Consolidated Financial Statements, related notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere in this Form 10-K. The table presented
below is unaudited. The data presented below are in thousands, except
for diluted net income per share, effective ticket price (“ETP”), ADR and RevPAR
amounts.
|
Year
Ended July 31,
|
|||||||||||||||||||
|
2009(1)
|
2008(1)
|
2007(1)
|
2006(1)
|
2005 (1)
|
|||||||||||||||
|
Statement
of Operations Data:
|
|||||||||||||||||||
|
Revenue:
|
|||||||||||||||||||
|
Mountain
|
$
|
614,597
|
$
|
685,533
|
$
|
665,377
|
$
|
620,441
|
$
|
540,855
|
|||||||||
|
Lodging
|
176,241
|
170,057
|
162,451
|
155,807
|
196,351
|
||||||||||||||
|
Real
estate
|
186,150
|
296,566
|
112,708
|
62,604
|
72,781
|
||||||||||||||
|
Total
net revenue
|
976,988
|
1,152,156
|
940,536
|
838,852
|
809,987
|
||||||||||||||
|
Segment
operating expense:
|
|||||||||||||||||||
|
Mountain
|
451,025
|
470,362
|
462,708
|
443,116
|
391,889
|
||||||||||||||
|
Lodging
|
169,482
|
159,832
|
144,252
|
142,693
|
177,469
|
||||||||||||||
|
Real
estate
|
142,070
|
251,338
|
115,190
|
56,676
|
58,254
|
||||||||||||||
|
Total
segment operating expense
|
762,577
|
881,532
|
722,150
|
642,485
|
627,612
|
||||||||||||||
|
Depreciation
and amortization
|
(107,213
|
)
|
(93,794
|
)
|
(87,664
|
)
|
(86,098
|
)
|
(89,968
|
)
|
|||||||||
|
Gain
on sale of real property
|
--
|
709
|
--
|
--
|
--
|
||||||||||||||
|
Mountain
equity investment income, net
|
817
|
5,390
|
5,059
|
3,876
|
2,303
|
||||||||||||||
|
Lodging
equity investment loss, net
|
--
|
--
|
--
|
--
|
(2,679
|
)
|
|||||||||||||
|
Real
estate equity investment income, net
|
--
|
--
|
--
|
791
|
(102
|
)
|
|||||||||||||
|
Investment
income, net
|
1,793
|
8,285
|
12,403
|
7,995
|
2,066
|
||||||||||||||
|
Interest
expense, net
|
(27,548
|
)
|
(30,667
|
)
|
(32,625
|
)
|
(36,478
|
)
|
(40,298
|
)
|
|||||||||
|
Contract
dispute credit (charges), net
|
--
|
11,920
|
(4,642
|
)
|
(3,282
|
)
|
--
|
||||||||||||
|
Income
before provision for income taxes
|
79,594
|
166,013
|
100,651
|
75,010
|
37,623
|
||||||||||||||
|
Net
income
|
$
|
48,950
|
$
|
102,927
|
$
|
61,397
|
$
|
45,756
|
$
|
23,138
|
|||||||||
|
Diluted
net income per share
|
$
|
1.33
|
$
|
2.64
|
$
|
1.56
|
$
|
1.19
|
$
|
0.64
|
|||||||||
|
Other
Data:
|
|||||||||||||||||||
|
Mountain
|
|||||||||||||||||||
|
Skier
visits(2)
|
5,864
|
6,195
|
6,219
|
6,288
|
5,940
|
||||||||||||||
|
ETP
(3)
|
$
|
47.16
|
$
|
48.74
|
$
|
46.15
|
$
|
41.83
|
$
|
39.30
|
|||||||||
|
Lodging
|
|||||||||||||||||||
|
ADR(4)
|
$
|
225.12
|
$
|
230.17
|
$
|
216.83
|
$
|
202.27
|
$
|
196.26
|
|||||||||
|
RevPAR(5)
|
$
|
93.10
|
$
|
106.43
|
$
|
99.58
|
$
|
92.41
|
$
|
90.98
|
|||||||||
|
Real
Estate
|
|||||||||||||||||||
|
Real
estate held for sale and investment(6)
|
$
|
311,485
|
$
|
249,305
|
$
|
357,586
|
$
|
259,384
|
$
|
154,874
|
|||||||||
|
Other
Balance Sheet Data
|
|||||||||||||||||||
|
Cash
and cash equivalents(7)
|
$
|
69,298
|
$
|
162,345
|
$
|
230,819
|
$
|
191,794
|
$
|
136,580
|
|||||||||
|
Total
assets
|
$
|
1,884,480
|
$
|
1,925,954
|
$
|
1,909,123
|
$
|
1,687,643
|
$
|
1,525,921
|
|||||||||
|
Long-term
debt (including long-term debt due within one year)
|
$
|
491,960
|
$
|
556,705
|
$
|
594,110
|
$
|
531,228
|
$
|
521,710
|
|||||||||
|
Net
debt(8)
|
$
|
422,662
|
$
|
394,360
|
$
|
363,291
|
$
|
339,434
|
$
|
385,130
|
|||||||||
|
Stockholders'
equity
|
$
|
765,295
|
$
|
728,756
|
$
|
714,039
|
$
|
642,777
|
$
|
540,529
|
|||||||||
(footnotes
to selected financial data appear on following page)
Footnotes
to Selected Financial Data:
|
(1)
|
The
Company has made several acquisitions and dispositions which impact
comparability between years during the past five years. The
more significant of those include the acquisitions of: Colorado Mountain
Express (“CME”) (acquired in November 2008), 18 retail/rental locations
(acquired by SSV in June 2007), two licensed Starbucks stores (acquired in
June 2007) and six retail locations (acquired by SSV in August
2006). Additionally, the Company sold its majority interest in
RTP, LLC (“RTP”) (sold in April 2007), Snake River Lodge & Spa
(“SRL&S”) (sold in January 2006), The Lodge at Rancho Mirage (“Rancho
Mirage”) (sold in July 2005), Vail Marriott (sold in June 2005) and its
minority interest in Ritz-Carlton, Bachelor Gulch (“BG Resort”) (sold in
December 2004). Effective August 1, 2005, the Company adopted Statement of
Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment”
(“SFAS 123R”). See Note 2, Summary of Significant Accounting
Policies, of the Notes to Consolidated Financial Statements in Item 8 of
this Form 10-K for the impact to the Consolidated Statements of Operations
as a result of the adoption of SFAS
123R.
|
|
(2)
|
A
skier visit represents a person utilizing a ticket or pass to access a
mountain resort for any part of one day, and includes both paid and
complimentary access.
|
|
(3)
|
ETP
is calculated by dividing lift ticket revenue by total skier visits during
the respective periods.
|
|
(4)
|
ADR
is calculated by dividing total room revenue (includes both owned and
managed condominium room revenue) by the number of occupied rooms during
the respective periods.
|
|
(5)
|
RevPAR
is calculated by dividing total room revenue (includes both owned and
managed condominium room revenue) by the number of rooms that are
available to guests during the respective
periods.
|
|
(6)
|
Real
estate held for sale and investment includes all land, development costs
and other improvements associated with real estate held for sale and
investment, as well as investments in real estate joint
ventures.
|
|
(7)
|
Cash
and cash equivalents excludes restricted
cash.
|
|
(8)
|
Net
debt is defined as long-term debt plus long-term debt due within one year
less cash and cash equivalents.
|
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations of the Company should be read in conjunction with the
Consolidated Financial Statements and notes related thereto included in this
Form 10-K. To the extent that the following Management's Discussion
and Analysis contains statements which are not of a historical nature, such
statements are forward-looking statements which involve risks and
uncertainties. These risks include, but are not limited to, those
discussed in Item 1A, “Risk Factors” in this Form 10-K. The following
discussion and analysis should be read in conjunction with the Forward-Looking
Statements and Item 1A, “Risk Factors” each included in this Form
10-K.
Management’s
Discussion and Analysis includes discussion of financial performance within each
of the Company’s segments. The Company has chosen to specifically
include Reported EBITDA (defined as segment net revenue less segment operating
expense, plus or minus segment equity investment income or loss and for the Real
Estate segment, plus gain on sale of real property) and Net Debt (defined as
long-term debt plus long-term debt due within one year less cash and cash
equivalents), in the following discussion because management considers these
measurements to be significant indications of the Company’s financial
performance and available capital resources. Reported EBITDA and Net
Debt are not measures of financial performance or liquidity under
GAAP. The Company utilizes Reported EBITDA in evaluating performance
of the Company and in allocating resources to its
segments. Refer to the end of the Results of Operations section
for a reconciliation of Reported EBITDA to net income. Management
also believes that Net Debt is an important measurement as it is an indicator of
the Company’s ability to obtain additional capital resources for its future cash
needs. Refer to the end of the Results of Operations section for a
reconciliation of Net Debt.
Items
excluded from Reported EBITDA and Net Debt are significant components in
understanding and assessing financial performance or
liquidity. Reported EBITDA and Net Debt should not be considered in
isolation or as an alternative to, or substitute for, net income, net change in
cash and cash equivalents or other financial statement data presented in the
Consolidated Financial Statements as indicators of financial performance or
liquidity. Because Reported EBITDA and Net Debt are not measurements
determined in accordance with GAAP and are thus susceptible to varying
calculations, Reported EBITDA and Net Debt as presented may not be comparable to
other similarly titled measures of other companies.
Overview
The
Company's operations are grouped into three integrated and interdependent
segments: Mountain, Lodging and Real Estate. Resort is the
combination of the Mountain and Lodging segments. Revenue from the
Mountain, Lodging and Real Estate segments represented 63%, 18% and 19%,
respectively, of the Company’s net revenue for Fiscal 2009.
Mountain Segment
The
Mountain segment is comprised of the operations of five ski resort properties as
well as ancillary businesses, primarily including ski school, dining and
retail/rental operations. The Company's five ski resorts were open
for business for the 2008/2009 ski season from mid-November through mid-April,
which is the peak operating season for the Mountain segment. The
Company’s single largest source of Mountain segment revenue is the sale of lift
tickets (including season passes), which represented approximately 45%, 44% and
43% of Mountain segment net revenue for Fiscal 2009, Fiscal 2008 and Fiscal
2007, respectively.
Lift
ticket revenue is driven by volume and pricing. Pricing is impacted
by both absolute pricing as well as the demographic mix of guests, which impacts
the price points at which various products are purchased. The
demographic mix of guests is divided into two primary categories: (i)
Destination guests and (ii) In-State guests. For the 2008/2009 ski
season, Destination guests comprised approximately 57% of the Company's skier
visits, while In-State guests comprised approximately 43% of the Company's skier
visits, which compares to approximately 63% and 37%, respectively, for the
2007/2008 ski season and 64% and 36%, respectively, for the 2006/2007 ski
season.
Destination
guests generally purchase the Company's higher-priced lift ticket products and
utilize more ancillary services such as ski school, dining and retail/rental, as
well as the lodging at or around the Company’s resorts. Destination
guest visitation is less likely to be impacted by changes in the weather due to
the advance planning generally required for vacation trips, but can be more
impacted by adverse economic conditions or the global geopolitical
climate. In-State guests tend to be more value-oriented and weather
sensitive. Prior to the 2008/2009 ski season, the Company primarily
marketed season passes to In-State guests in an effort to offer a value option
in turn for a commitment predominately prior to the beginning of the ski season
by In-State guests to ski at the Company’s resorts. This in turn has
developed a loyal customer base that generally skis multiple days each season at
the Company’s resorts and provides a more stabilized stream of lift revenue to
the Company. Given the success of In-State pass products, the Company
introduced a new season pass product (the “Epic Season Pass”) for the 2008/2009
ski season, marketed to its Destination guests (and also marketed to In-State
guests) allowing pass holders unlimited and unrestricted access to all five of
its ski resorts during the entire ski season. All of the Company’s
season pass products, including the Epic Season Pass, are sold predominately
prior to the start of the ski season. Season pass revenue, although
primarily collected prior to the ski season, is recognized in the Consolidated
Condensed Statement of Operations ratably over the ski season. For
the 2008/2009, 2007/2008 and 2006/2007 ski season approximately 34%, 26% and
25%, respectively, of total lift revenue recognized was comprised of season pass
revenue.
The cost
structure of ski resort operations is primarily fixed, with variable expenses
including, but not limited to, USDA Forest Service (“Forest Service”) fees,
credit card fees, retail/rental cost of goods sold and labor, ski school labor
and dining operations; as such, profit margins can fluctuate greatly based on
the level of revenues.
Lodging
Segment
Operations
within the Lodging segment include (i) ownership/management of a group of luxury
hotels through the RockResorts brand, including several proximate to the
Company's ski resorts; (ii) ownership/management of non-RockResorts branded
hotels and condominiums proximate to the Company's ski resorts; (iii) Grand
Teton Lodge Company (“GTLC”); (iv) Colorado Mountain Express (“CME”), a resort
ground transportation company acquired in November 2008; and (v) golf
courses.
Lodging
properties (including managed condominium rooms) at or around the Company’s ski
resorts, and CME, are closely aligned with the performance of the Mountain
segment, particularly with respect to visitation by Destination guests and
represented approximately 68%, 63% and 61% of Lodging segment revenue for Fiscal
2009, Fiscal 2008 and Fiscal 2007, respectively. Revenue of the
Lodging segment during the Company's first and fourth fiscal quarters is
generated primarily by the operations of GTLC (as GTLC's operating season
generally occurs from mid-May to mid-October), golf operations and seasonally
low operations from the Company's other owned and managed properties as well as
CME.
Real
Estate Segment
The Real
Estate segment owns and develops real estate in and around the Company's resort
communities and primarily engages in the vertical development of projects, as
well as, occasionally the sale of land to third-party developers which often
includes a contingent revenue structure based on the ultimate sale of the
developed units. Revenue from vertical development projects is not
recognized until closing of individual units within a project which occurs after
substantial completion of the project. Contingent future profits from land
sales, if any, are recognized only when received. The Company
attempts to mitigate the risk of vertical development by often utilizing
guaranteed maximum price construction contracts (although certain construction
costs may not be covered by contractual limitations), pre-selling a portion of
the project, requiring significant non-refundable deposits, and potentially
obtaining non-recourse financing for certain projects. The Company's
real estate development projects also may result in the creation of certain
resort assets that provide additional benefit to the Mountain and Lodging
segments. The Company’s revenue from the Real Estate segment, and
associated expense, fluctuate based upon the timing of closings and the type of
real estate being sold, causing volatility in the Real Estate segment’s
operating results from period to period.
Recent
Trends, Risks and Uncertainties
The data
provided in this section should be read in conjunction with the risk factors
identified in Item 1A and elsewhere in this Form 10-K. The Company's
management has identified the following important factors (as well as
uncertainties associated with such factors) that could impact the Company's
future financial performance:
|
·
|
The
economic recession that has affected the U.S. and global economies, the
tightened credit markets and eroded consumer confidence had a negative
impact on overall trends in the travel and leisure industries and on the
Company’s results of operations for Fiscal 2009. In this
environment, the Company experienced a 5.3% decrease in overall skier
visitation for the 2008/2009 ski season and a 4.5 percentage point
decrease in occupancy at the Company’s owned hotels and managed
condominium properties (all proximate to the Company’s ski resorts) for
Fiscal 2009. Additionally, the Company experienced, a decrease
in overall guest spending on ancillary services, including ski school,
dining and retail/rental. Furthermore, the Company experienced
a change in booking trends such that guest reservations were made much
closer to the actual date of stay. The Company cannot predict
the extent to which these negative trends will continue, worsen or improve
or the timing and nature of any changes to the macroeconomic environment,
including the impact it may have on the Company’s future results of
operations, in particular on the 2009/2010 ski
season.
|
|
·
|
The
timing and amount of snowfall can have an impact on Mountain and Lodging
revenue particularly in regards to skier visits and the duration and
frequency of guest visitation. To mitigate this impact, the
Company focuses efforts on the sale of season passes prior to the
beginning of the season to In-State guests and Destination
guests. Additionally, the Company has invested in snowmaking
upgrades in an effort to address the inconsistency of early season
snowfall where possible. During the past two ski seasons, early
season snowfall has been significantly lower than average, which the
Company believes had a negative impact on early season
visitation.
|
|
·
|
The
Company’s season pass products provide a value option to its guests which
in turn provides a guest commitment predominately prior to the start of
the ski season resulting in a more stabilized stream of lift revenue for
the Company. The Company introduced the Epic Season Pass for
the 2008/2009 ski season, which largely contributed to season pass revenue
as a percentage of total lift revenue increasing from 26% for the
2007/2008 ski season to 34% for the 2008/2009 ski season. In
March 2009, the Company began its pass sales campaign for the 2009/2010
ski season, including the Epic Season Pass, and as of July 31, 2009 season
pass sales have increased $10.0 million, or 32.2%, compared to season pass
sales as of July 31, 2008 for the 2008/2009 ski season. The
Company cannot predict if this trend will continue through the fall 2009
pass sales campaign or the impact that season pass sales may have on total
lift revenue or ETP for the 2009/2010 ski
season.
|
|
·
|
The
Company has historically implemented annual price
increases. However, the Company held prices flat for most
multi-day lift ticket and certain other products and services for the
2008/2009 ski season. Prices for the 2009/2010 ski season have
not yet been finalized; and as such there are no assurances as to the
level of price increases, if any, which will occur or the impact that
pricing may have on visitation or
revenue.
|
|
·
|
The
Company operates its ski areas under various Forest Service permits, and
many of the Company's operations require permits and approval from
governmental authorities; therefore many of the Company’s on-mountain
capital improvements must go through an approval
process. Changes or impacts to the applicable regulatory
environment may have detrimental effects on the
Company.
|
|
·
|
Real
Estate Reported EBITDA is highly dependent on, among other things, the
timing of closings on real estate under contract, which determines when
revenue and associated cost of sales is recognized. Changes to
the anticipated timing or mix of closing on one or more real estate
projects, or unit closings within a real estate project, could materially
impact Real Estate Reported EBITDA for a particular quarter or fiscal
year. The Company has two real estate projects currently under development
which are scheduled to be completed in the spring/summer of 2010 (One Ski
Hill Place in Breckenridge) and the fall of 2010 (The Ritz-Carlton
Residences, Vail) and has entered into definitive sales contracts with a
value of approximately $324.3 million, which represents approximately 68%
of the total current estimated sales value for these two
projects. The Company has increased risk associated with
selling and closing real estate as a result of the continued instability
in the capital and credit markets and slowdown in the overall real estate
market. In April 2009, in response to current market
conditions, the Company announced a reduction of approximately 20% to the
listed selling prices of its Ritz-Carlton Residences, Vail, as well as
price reductions of approximately 15% for purchasers currently under
contract. The Company cannot predict the ultimate number of
units that it will sell, the ultimate price it will receive, or when the
units will sell. Additionally, if a more severe prolonged
economic downturn were to occur the Company may have to further adjust its
selling prices in an effort to sell and close on units currently under
development, although it currently has no plans to do
so.
|
|
·
|
The
Company had $69.3 million in cash and cash equivalents as of July 31, 2009
as well as $304.7 million available under the revolver component of its
Credit Facility. The Company’s plan to continue to self-fund its
current real estate projects under construction (the Company estimates to
incur between $190 million and $210 million in cash expenditures
subsequent to July 31, 2009) combined with historically low operating cash
flows during the Company’s first fiscal quarter will likely require the
Company to borrow under the revolver component of its Credit Facility from
time to time beginning in the first quarter of fiscal 2010. The
Company currently believes it has adequate capacity under its revolver to
address potential borrowing needs, even in the event of a more sustained
negative economic environment.
|
|
·
|
Under
GAAP, the Company is required to test goodwill for impairment annually,
which the Company does so during the fourth quarter of each fiscal
year. The Company evaluates the recoverability of its goodwill
by estimating the future discounted cash flows of its reporting units and
terminal values of the businesses using projected future levels of income
as well as business trends, prospects and market and economic
conditions. The Company evaluates the recoverability of
indefinite-lived intangible assets using the income approach based upon
estimated future revenue streams. The Company’s 2009 annual
impairment test did not result in a goodwill or indefinite-lived
intangible asset impairment (see Critical Accounting Policies in this
section of this Form 10-K). However, if a more severe prolonged
economic downturn were to occur it could cause less than expected growth
and/or reduction in terminal values of the Company’s reporting units which
may result in a goodwill and/or indefinite-lived intangible asset
impairment charge attributable to certain goodwill and/or indefinite
lived-intangible assets, particularly related to its lodging and
retail/rental operations.
|
Results
of Operations
Summary
Shown
below is a summary of operating results for Fiscal 2009, Fiscal 2008 and Fiscal
2007 (in thousands):
|
Year
Ended July 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Mountain
Reported EBITDA
|
$
|
164,389
|
$
|
220,561
|
$
|
207,728
|
||||||
|
Lodging
Reported EBITDA
|
6,759
|
10,225
|
18,199
|
|||||||||
|
Resort
Reported EBITDA
|
171,148
|
230,786
|
225,927
|
|||||||||
|
Real
Estate Reported EBITDA
|
44,080
|
45,937
|
(2,482
|
)
|
||||||||
|
Income
before provision for income taxes
|
79,594
|
166,013
|
100,651
|
|||||||||
|
Net
income
|
$
|
48,950
|
$
|
102,927
|
$
|
61,397
|
||||||
Mountain
Segment
Mountain
segment operating results for Fiscal 2009, Fiscal 2008 and Fiscal 2007 are
presented by category as follows (in thousands, except ETP):
|
Percentage
|
|||||||||||||||
|
Year
Ended July 31,
|
Increase/(Decrease)
|
||||||||||||||
|
2009
|
2008
|
2007
|
2009/2008
|
2008/2007
|
|||||||||||
|
Net
Mountain revenue:
|
|||||||||||||||
|
Lift
tickets
|
$
|
276,542
|
$
|
301,914
|
$
|
286,997
|
(8.4
|
)
%
|
5.2
|
%
|
|||||
|
Ski
school
|
65,336
|
81,384
|
78,848
|
(19.7
|
)
%
|
3.2
|
%
|
||||||||
|
Dining
|
52,259
|
62,506
|
59,653
|
(16.4
|
)
%
|
4.8
|
%
|
||||||||
|
Retail/rental
|
147,415
|
168,765
|
160,542
|
(12.7
|
)
%
|
5.1
|
%
|
||||||||
|
Other
|
73,045
|
70,964
|
79,337
|
2.9
|
%
|
(10.6
|
)%
|
||||||||
|
Total
Mountain net revenue
|
$
|
614,597
|
$
|
685,533
|
$
|
665,377
|
(10.3
|
)
%
|
3.0
|
%
|
|||||
|
Mountain
operating expense:
|
|||||||||||||||
|
Labor
and labor-related benefits
|
$
|
165,550
|
$
|
175,674
|
$
|
167,442
|
(5.8
|
)
%
|
4.9
|
%
|
|||||
|
Retail
cost of sales
|
66,022
|
72,559
|
69,218
|
(9.0
|
)
%
|
4.8
|
%
|
||||||||
|
Resort
related fees
|
33,102
|
36,335
|
34,943
|
(8.9
|
)
%
|
4.0
|
%
|
||||||||
|
General
and administrative
|
83,117
|
81,220
|
81,983
|
2.3
|
%
|
(0.9
|
)%
|
||||||||
|
Other
|
103,234
|
104,574
|
109,122
|
(1.3
|
)
%
|
(4.2
|
)%
|
||||||||
|
Total
Mountain operating expense
|
$
|
451,025
|
$
|
470,362
|
$
|
462,708
|
(4.1
|
)
%
|
1.7
|
%
|
|||||
|
Mountain
equity investment income, net
|
817
|
5,390
|
5,059
|
(84.8
|
)
%
|
6.5
|
%
|
||||||||
|
Total
Mountain Reported EBITDA
|
$
|
164,389
|
$
|
220,561
|
$
|
207,728
|
(25.5
|
)
%
|
6.2
|
%
|
|||||
|
Total
skier visits
|
5,864
|
6,195
|
6,219
|
(5.3
|
)
%
|
(0.4
|
)%
|
||||||||
|
ETP
|
$
|
47.16
|
$
|
48.74
|
$
|
46.15
|
(3.2
|
)
%
|
5.6
|
%
|
|||||
Total Mountain Reported EBITDA includes $4.8 million, $3.8 million and $3.8 million of stock-based compensation expense for Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively.
Fiscal
2009 compared to Fiscal 2008
Lift
revenue decreased $25.4 million, or 8.4%, for Fiscal 2009 compared to Fiscal
2008, primarily as a result of a $42.2 million, or 18.8%, decline in lift
revenue excluding season pass revenue, partially offset by an increase in season
pass revenue of $16.8 million, or 21.7%. The increase in season pass
revenue was driven by higher season pass sales resulting primarily from the
introduction of the Epic Season Pass in the 2008/2009 ski
season. Additionally, a portion of the decline in lift revenue
excluding season pass revenue was caused by a shift in Destination guests
purchasing the Epic Season Pass instead of other lift ticket
products.
Total
skier visitation was down 5.3% in the 2008/2009 ski season compared to the
2007/2008 ski season, with overall visitation for the four Colorado resorts
(excluding Heavenly) being down 3.5%. The overall visitation decline
was primarily as a result of an estimated 15% decrease in visitation from
Destination guests, partially offset by strong visitation from season pass
holders, especially from the new Epic Season Pass holders, who on average skied
more in the current year per pass than holders of our other pass
products. ETP decreased 3.2%, driven by an increase in average season
pass holder visitation per pass sold, partially offset by a 2.9% increase in ETP
excluding season pass products, driven by price increases on certain lift ticket
products.
Revenues
for the Company's ski school, dining and retail/rental operations, were all
negatively impacted by the severe downturn in the economic environment which
resulted from the decrease in Destination guest visitation as well as overall
spending per guest. Ski school revenue decreased $16.0 million, or
19.7%, in Fiscal 2009 compared to Fiscal 2008, as ski school revenue is
primarily driven by Destination guests. Dining revenue decreased
$10.2 million, or 16.4%, in Fiscal 2009 compared to Fiscal 2008, due to an
approximate 11% decrease in the number of total on-mountain food and beverage
transactions, coupled with an even greater decline in fine
dining. Revenue from retail/rental operations decreased $21.4
million, or 12.7%, in Fiscal 2009 compared to Fiscal 2008 primarily due to lower
sales and rental volumes at the Company’s mountain resort stores.
Other
revenue mainly consists of private club revenue (which includes both club dues
and amortization of initiation fees), summer visitation and other mountain
activities revenue, allocated strategic alliance revenue, commercial leasing
revenue, employee housing revenue, municipal services revenue and other
recreation activity revenue. For Fiscal 2009 other revenues
increased $2.1 million, or 2.9%, compared to Fiscal 2008, primarily due to
private club operations (which revenue increased $4.1 million) resulting from
the opening of the Vail Mountain Club in November 2008.
Operating
expense decreased $19.3 million, or 4.1%, during Fiscal 2009 compared to Fiscal
2008. This decrease primarily resulted from a decrease in labor and
labor-related benefits expense of $10.1 million, or 5.8%, due to decreased
staffing levels driven by lower volume in ski school, dining and retail/rental
operations as well as the impacts of cost reduction initiatives including the
suspension of the Company’s matching contribution to its 401(k) program
effective January 2009 and a company-wide wage reduction plan implemented in
April 2009 and a $6.5 million, or 9.0%, decrease in retail cost of sales
(commensurate with the decrease in retail revenue). Additionally, resort related
fees (including Forest Service fees, other resort-related fees, credit card fees
and commissions) decreased $3.2 million, or 8.9%, compared to Fiscal 2008 due to
overall declines in revenue that those fees are calculated on and other expenses
decreased $1.3 million, or 1.3%, due primarily to lower food and beverage cost
of sales, supplies and fuel expense, partially offset by higher property taxes,
utilities and repairs and maintenance expense. All of the above
decreases were slightly offset by a $1.9 million, or 2.3%, increase in general
and administrative expenses primarily due to higher allocated corporate
expenses.
Mountain
equity investment income primarily includes the Company's share of income from
the operations of a real estate brokerage joint venture. The decrease
in equity investment income for Fiscal 2009 compared to Fiscal 2008 is primarily
due to decreased commissions earned by the brokerage due to a lower level of
real estate closures compared to Fiscal 2008.
Fiscal
2008 compared to Fiscal 2007
Lift
ticket revenue increased $14.9 million, or 5.2%, for Fiscal 2008 compared to
Fiscal 2007, primarily as a result of a 7.6% increase in ETP excluding season
pass products, which was driven by an increase in absolute
pricing. Season pass revenue increased $5.5 million, or 7.7%, for
Fiscal 2008 compared to Fiscal 2007. This increase in season pass
revenue was due to an increase in pricing, with season pass holders’ average
visitation per pass increasing for the 2007/2008 ski season compared to the
2006/2007 ski season which offset the increase in ETP resulting from price
increases. Skier visits excluding season pass holders decreased 3.0%
for the 2007/2008 ski season compared to the 2006/2007 ski season as a result of
lower skier visitation excluding season pass holders in non-peak periods,
including the early season (prior to December 24) due to below average snow
conditions, and early March and April due in part to the timing of Easter which
was in March for Fiscal 2008 versus April for Fiscal 2007. The
decrease in skier visits excluding season pass holders was offset by significant
increases in international visitation which was higher by an estimated 26% for
Fiscal 2008.
Revenue
for the Company’s ski school and dining increased $2.5 million, or 3.2%, and
$2.9 million, or 4.8%, respectively, for Fiscal 2008 compared to Fiscal 2007,
primarily as a result of absolute price increases. The increase in
ski school revenue was impacted by a decline in skier visitation excluding
season pass holders (as discussed above) as these guests have a higher
participation rate in ski school. The increase in dining revenue was
favorably impacted by the acquisition of two licensed Starbucks stores in June
2007. Retail/rental revenue increased $8.2 million, or 5.1%, for
Fiscal 2008 compared to Fiscal 2007, primarily due to increased operations
related to the 18 Breeze Ski Rental locations that were acquired in June
2007.
Other
revenues decreased $8.4 million, or 10.6%, in Fiscal 2008 compared to Fiscal
2007, due to the disposition of the Company’s investment in RTP in April
2007. Excluding RTP, other revenue would have increased $0.6 million,
or 0.8%, for Fiscal 2008 compared to Fiscal 2007.
Operating
expense increased $7.7 million, or 1.7%, during Fiscal 2008 compared to Fiscal
2007. This increase primarily resulted from an increase in labor and
labor-related benefits expense of $8.2 million, or 4.9%, due to wage increases,
increased staffing in retail/rental due to the acquisition of 18 Breeze stores
and higher workers’ compensation costs and a $3.3 million, or 4.8%, increase in
retail cost of sales (which was commensurate with the increase in retail
revenue). Additionally, resort related fees (including Forest Service
fees, other resort-related fees, credit card fees and commissions) increased
$1.4 million, or 4.0%, in Fiscal 2008 compared to Fiscal 2007 and was due to
overall increases in revenue that those fees are calculated
on. These increases were partially offset by a decrease in other
expenses of $4.5 million, or 4.2%, due to the sale of RTP (April 2007), which
incurred $8.8 million in expenses (included in other operating expenses) for
Fiscal 2007. Excluding the impact of RTP, other operating expenses
increased $4.3 million, or 4.3%, due primarily to higher food and beverage cost
of sales, property taxes, utilities and fuel expense, partially offset by lower
repairs and maintenance expense.
Mountain
equity investment income primarily includes the Company’s share of income from
operations of a real estate brokerage joint venture. The increase in
equity investment income in Fiscal 2008 compared to Fiscal 2007 is due primarily
to increased commissions earned by the brokerage associated with increased real
estate closures surrounding the Company’s Colorado resorts, both from
residential and multi-unit projects.
Lodging
Segment
Lodging
segment operating results for Fiscal 2009, Fiscal 2008 and Fiscal 2007 are
presented by category as follows (in thousands, except ADR and
RevPAR):
|
Percentage
|
|||||||||||||
|
Year
Ended July 31,
|
Increase/(Decrease)
|
||||||||||||
|
2009
|
2008
|
2007
|
2009/2008
|
2008/2007
|
|||||||||
|
Lodging
net revenue:
|
|||||||||||||
|
Owned
hotel rooms
|
$
|
43,153
|
$
|
46,806
|
$
|
42,179
|
(7.8
|
)
|
%
|
11.0
|
%
|
||
|
Managed
condominium rooms
|
34,571
|
37,132
|
36,657
|
(6.9
|
)
|
%
|
1.3
|
%
|
|||||
|
Dining
|
30,195
|
31,763
|
28,191
|
(4.9
|
)
|
%
|
12.7
|
%
|
|||||
|
Transportation
|
17,975
|
--
|
--
|
--
|
%
|
--
|
%
|
||||||
|
Golf
|
15,000
|
16,224
|
15,185
|
(7.5
|
)
|
%
|
6.8
|
%
|
|||||
|
Other
|
35,347
|
38,132
|
40,239
|
(7.3
|
)
|
%
|
(5.2
|
)
|
%
|
||||
|
Total
Lodging net revenue
|
$
|
176,241
|
$
|
170,057
|
$
|
162,451
|
3.6
|
%
|
4.7
|
|
%
|
||
|
Lodging
operating expense
|
|||||||||||||
|
Labor
and labor-related benefits
|
$
|
81,290
|
$
|
75,746
|
$
|
67,224
|
7.3
|
%
|
12.7
|
%
|
|||
|
General
and administrative
|
27,823
|
26,877
|
26,408
|
3.5
|
%
|
1.8
|
%
|
||||||
|
Other
|
60,369
|
57,209
|
50,620
|
5.5
|
%
|
13.0
|
%
|
||||||
|
Total
Lodging operating expense
|
$
|
169,482
|
$
|
159,832
|
$
|
144,252
|
6.0
|
%
|
10.8
|
%
|
|||
|
Total
Lodging Reported EBITDA
|
$
|
6,759
|
$
|
10,225
|
$
|
18,199
|
(33.9
|
)
|
%
|
(43.8
|
)
|
%
|
|
|
Owned
hotel statistics:
|
|||||||||||||
|
ADR
|
$
|
183.59
|
$
|
184.42
|
$
|
167.15
|
(0.5
|
)
|
%
|
10.3
|
%
|
||
|
RevPar
|
$
|
107.06
|
$
|
118.97
|
$
|
108.10
|
(10.0
|
)
|
%
|
10.1
|
%
|
||
|
Managed
condominium statistics:
|
|||||||||||||
|
ADR
|
$
|
273.38
|
$
|
280.37
|
$
|
268.83
|
(2.5
|
)
|
%
|
4.3
|
%
|
||
|
RevPar
|
$
|
84.50
|
$
|
98.68
|
$
|
94.50
|
(14.4
|
)
|
%
|
4.4
|
%
|
||
|
Owned
hotel and managed condominium statistics (combined):
|
|||||||||||||
|
ADR
|
$
|
225.12
|
$
|
230.17
|
$
|
216.83
|
(2.2
|
)
|
%
|
6.2
|
%
|
||
|
RevPar
|
$
|
93.10
|
$
|
106.43
|
$
|
99.58
|
(12.5
|
)
|
%
|
6.9
|
%
|
||
Total
Lodging Reported EBITDA includes $1.8 million, $1.3 million and $1.1 million of
stock-based compensation expense for Fiscal 2009, Fiscal 2008 and Fiscal 2007,
respectively.
Fiscal
2009 compared to Fiscal 2008
Total
Lodging net revenue for Fiscal 2009 increased $6.2 million, or 3.6%, compared to
Fiscal 2008, primarily due to the acquisition of CME on November 1, 2008 and a
full year of operations at The Arrabelle at Vail Square hotel (the “Arrabelle”)
which opened in January 2008. CME operations contributed $18.0
million in net revenue for Fiscal 2009 and the full year operations of the
Arrabelle contributed $11.3 million in revenue for Fiscal 2009 compared to net
revenue of $5.2 million for the partial year of operations of the Arrabelle in
Fiscal 2008.
Revenue
from owned hotel rooms, including the Arrabelle, decreased $3.7 million, or
7.8%, for Fiscal 2009 compared to Fiscal 2008, which was driven by a decrease in
occupancy of 6.2 percentage points which primarily occurred at the lodging
properties proximate to the Company’s ski resorts. This was due to a
decline in Destination visitation as discussed in the Company’s Mountain segment
and declines in group business (including a decrease in GTLC’s room revenue of
$0.8 million in the fourth quarter of Fiscal 2009 compared to the fourth quarter
of Fiscal 2008 primarily due to a decline in group business) as well as
decreases in ADR of 0.5%, partially offset by the full year of operations at the
Arrabelle (the Arrabelle generated $0.8 million of incremental owned hotel room
revenue for Fiscal 2009 compared to Fiscal 2008). Revenue from
managed condominium rooms decreased $2.6 million, or 6.9%, for Fiscal 2009, due
to decreases in visitation as noted above, declines in group business primarily
at Keystone and decreases in ADR of 2.5%, partially offset by the full year of
operations at the Arrabelle which includes condominium property management (the
Arrabelle generated $2.1 million of incremental revenue from managed properties
for Fiscal 2009 compared to Fiscal 2008).
Dining
revenue for Fiscal 2009 decreased $1.6 million, or 4.9%, as compared to Fiscal
2008 mainly due to decreased overall guest and group visitation as well as
decreases in guest spending per visit (GTLC’s dining revenue decreased $1.0
million in the fourth quarter of Fiscal 2009 compared to the fourth quarter of
Fiscal 2008 primarily due to a decline in group business). The
decline in dining revenue was partially offset by a full year of dining
operations at the Arrabelle (the Arrabelle generated $1.2 million of incremental
dining revenue for Fiscal 2009 compared to Fiscal 2008).
Golf
revenues decreased $1.2 million, or 7.5%, for Fiscal 2009 compared to Fiscal
2008, primarily resulting from a 6.0% decrease in the number of golf rounds
played. Other revenue decreased $2.8 million, or 7.3%, in Fiscal 2009
compared to Fiscal 2008 primarily due to a reduction in commissions earned from
reservations booked through the Company’s central reservation system, which were
partially offset by a full year of spa operations at the Arrabelle (the
Arrabelle generated $0.9 million of incremental spa revenue for Fiscal 2009
compared to Fiscal 2008).
Operating
expense increased $9.7 million, or 6.0%, for Fiscal 2009 compared to Fiscal
2008. Operating expenses for Fiscal 2009 included $12.8 million of
CME operating expenses as well as an increase in operating expenses at the
Arrabelle of $6.8 million as a result of a full year of operations in Fiscal
2009, which was partially offset by $3.1 million of start-up and pre-opening
expenses associated with the Arrabelle recorded in Fiscal 2008. Excluding the
impact of CME operating expenses and operating expenses for the Arrabelle due to
a full year of operations (net of start-up and pre-opening expenses recorded in
Fiscal 2008), total operating expenses decreased $6.9 million, or 4.6%, in
Fiscal 2009 compared to Fiscal 2008, primarily due to (i) a decrease in labor
and labor-related benefits of $4.9 million, or 6.9%, due primarily to lower
staffing levels associated with decreased occupancy and wage decreases as a
result of a company-wide wage reduction plan and (ii) a decrease in other
expenses of $3.0 million, or 5.6%, primarily due to decreased variable operating
costs associated with lower revenue resulting in lower food and beverage cost of
sales and credit card fees, offset by an increase in general and administrative
expenses of $1.0 million due to higher allocated corporate
expenses.
Fiscal
2008 compared to Fiscal 2007
Total
Lodging net revenue for Fiscal 2008 increased $7.6 million, or 4.7%, as compared
to Fiscal 2007. Included in net revenue for Fiscal 2007 was the
recognition of $5.4 million in termination fees (included in other revenue)
primarily associated with the termination of the management agreements at The
Equinox and The Lodge at Rancho Mirage (pursuant to the terms of the management
agreements). Excluding these termination fees, Lodging net revenue
would have increased $13.0 million, or 8.3% for Fiscal 2008, compared to Fiscal
2007.
Lodging
net revenue was positively impacted by revenue from owned hotel rooms which
increased $4.6 million, or 11.0%, for Fiscal 2008 compared to Fiscal
2007. ADR for owned hotel rooms increased 10.3% for the same period
due to high demand during peak periods in the year (partially offset by lower
visitation during non-peak periods, including the early season and the timing of
Easter as described in the Mountain segment discussion) and as a result of the
addition of the Arrabelle (which generated $2.0 million in room revenue from its
opening in January 2008 through July 31, 2008). Owned hotel room
RevPAR increased 10.1% for Fiscal 2008 compared to Fiscal 2007, which, in
addition to increases in ADR, was driven by an increase in conference and group
room nights, occurring primarily at GTLC during the Company’s fourth quarter of
Fiscal 2008. Revenue from managed condominium rooms remained
relatively flat for Fiscal 2008 compared to Fiscal 2007 mainly due to a RevPAR
increase of 4.4% which was driven by an increase in ADR of 4.3% due to high
demand during peak periods as noted above and an increase in group room nights
occurring primarily at Keystone, all of which was offset by a 3.4% reduction in
managed condominium available room nights primarily at Keystone.
Dining
revenue for Fiscal 2008 increased $3.6 million, or 12.7%, as compared to Fiscal
2007 mainly due to the addition of the Arrabelle (which generated $2.2 million
in dining revenue from its opening in January 2008 through July 31, 2008) and
group visitation at GTLC. Golf revenues increased $1.0 million, or
6.8%, for Fiscal 2008 compared to Fiscal 2007, primarily resulting from an
increase in the number of golf rounds due to improvements made at the Company’s
Jackson Hole Golf & Tennis Club (“JHG&TC”) and Beaver Creek Golf Club,
which caused the golf courses to be shut down for a portion of the season in
Fiscal 2007. Excluding the $5.4 million in termination fees, other
revenues increased $3.3 million, or 9.3% for Fiscal 2008 compared to Fiscal
2007, due to higher resort amenity fees charged to guests and increases in spa
and retail revenue.
Operating
expense increased $15.6 million, or 10.8%, for Fiscal 2008 compared to Fiscal
2007. Operating expenses for Fiscal 2008 included approximately $3.1
million of start-up and pre-opening expenses for the Arrabelle (recorded in
labor and labor-related benefits and other expenses) and incremental fees paid
to the National Park Service by GTLC of $1.0 million (recorded in other
expenses) resulting from a new concession contract which became effective
January 2007. Excluding the Fiscal 2008 start-up and pre-opening
expenses of the Arrabelle, and the increase in fees paid to the National Park
Service, total operating expenses increased by approximately $11.4 million, or
8.0%, for Fiscal 2008 compared to Fiscal 2007, which primarily includes (i) an
increase in labor and labor-related benefits of $6.5 million, or 9.7%, due
primarily to wage increases, increases in labor hours to support the higher
Lodging segment revenues, as well as increased staffing levels due to the
opening of the Arrabelle in January 2008, and (ii) an increase in other expenses
of $4.4 million, or 9.1%, due to variable operating costs associated with
incremental revenue resulting in higher food and beverage cost of sales and
credit card fees, and higher operating costs associated with the Arrabelle after
its opening, primarily in property taxes and utilities.
Real
Estate Segment
Real
Estate segment operating results for Fiscal 2009, Fiscal 2008 and Fiscal 2007
are presented by category as follows (in thousands):
|
Percentage
|
||||||||||||||||||
|
Year
Ended July 31,
|
Increase/(Decrease)
|
|||||||||||||||||
|
2009
|
2008
|
2007
|
2009/2008
|
2008/2007
|
||||||||||||||
|
Total
Real Estate net revenue
|
$
|
186,150
|
$
|
296,566
|
$
|
112,708
|
(37.2
|
)
|
%
|
163.1
|
%
|
|||||||
|
Total
Real Estate operating expense
|
142,070
|
251,338
|
115,190
|
(43.5
|
)
|
%
|
118.2
|
%
|
||||||||||
|
Gain
on sale of real property
|
--
|
709
|
--
|
(100.0
|
)
|
%
|
--
|
%
|
||||||||||
|
Total
Real Estate Reported EBITDA
|
$
|
44,080
|
$
|
45,937
|
$
|
(2,482
|
)
|
(4.0
|
)
|
%
|
1,950.8
|
%
|
||||||
Total
Real Estate Reported EBITDA includes $4.1 million, $3.1 million and $2.1 million
of stock-based compensation expense for Fiscal 2009, Fiscal 2008 and Fiscal
2007, respectively.
The
Company’s Real Estate operating revenue is primarily determined by the timing of
closings and the mix of real estate sold in any given
period. Different types of projects have different revenue and
expense volumes and margins; therefore, as the real estate inventory mix changes
it can greatly impact Real Estate segment net revenue, operating expense and
Real Estate Reported EBITDA.
Fiscal
2009
Real
Estate net revenue for Fiscal 2009 was driven primarily by the closings of eight
Chalets units ($111.5 million of revenue with an average selling price per unit
of $13.9 million and an average price per square foot of $2,860), 42 residences
at Crystal Peak Lodge ($54.9 million of revenue with an average selling price
per unit of $1.3 million and an average price per square foot of $1,038) and two
condominium units at the Arrabelle ($16.7 million of revenue with an average
selling price per unit of $8.4 million and an average price per square foot of
$1,623). The higher average price per square foot for the Chalet
units was driven by their premier location at the base of Vail mountain in Vail
Village and the fact that this development consisted of only 13 exclusive
chalets. The Arrabelle average price per square foot is driven by its
ski-in/ski-out location in Vail, and the comprehensive offering of amenities
resulting from this project. The Crystal Peak Lodge average price per
square foot though significantly lower than the Vail project real estate sales,
is significantly higher than historical Breckenridge project real estate sales
and is primarily driven by its ski-in/ski-out location at the base of Peak 7 in
Breckenridge and close proximity to the BreckConnect Gondola.
Operating expense for Fiscal 2009 included cost of sales of $101.1 million
commensurate with revenue recognized, primarily driven by the closing on eight
Chalets units ($54.1 million in cost of sales with an average cost per square
foot of $1,387), 42 residences at Crystal Peak Lodge ($34.2 million in cost of
sales with an average cost per square foot of $654) and two units at the
Arrabelle ($12.4 million in cost of sales with an average cost per square foot
of $1,204). The cost per square foot for the Arrabelle and Chalets are
reflective of the high-end features and amenities associated with these projects
and the relatively high construction costs associated with mountain resort
development. The cost per square foot for Crystal Peak Lodge is reflective
of its less complicated design features and fewer amenities associated with this
project relative to the Arrabelle and Chalets. Operating expenses also
included sales commissions of approximately $10.6 million commensurate with
revenue recognized and general and administrative costs of approximately $27.6
million (including $4.1 million of stock-based compensation
expense). General and administrative costs were primarily comprised
of marketing expenses for the major real estate projects under development
(including those that have not yet closed), overhead costs such as labor and
labor-related benefits and allocated corporate costs. In addition,
included in segment operating expense for Fiscal 2009, the Company recorded $2.8
million of estimated costs in excess of anticipated sales proceeds for an
affordable housing commitment resulting from the cancellation of a contract by a
third party developer related to its JHG&TC development.
Fiscal
2008
Real
Estate net revenue for Fiscal 2008 was driven primarily by the closings
of 64 condominium units at the Arrabelle ($213.6 million of revenue
with an average selling price per unit of $3.3 million and an average price per
square foot of $1,220), the closings of five Chalet units ($58.8 million of
revenue with an average selling price per unit of $11.8 million and an average
price per square foot of $2,336), the closings of the remaining JHG&TC
cabins ($9.0 million of revenue with an average selling price per unit of $0.8
million and an average price per square foot of $360) and contingent gains of
$13.0 million on development parcel sales that closed in previous
periods. The higher average price per square foot for the Chalet
units was driven by the premier location at the base of Vail mountain in Vail
Village and the fact that this development consisted of only 13 exclusive
chalets. The Arrabelle average price per square foot is driven by its
ski-in/ski-out location in Vail, and the comprehensive offering of amenities
resulting from this project. The JHG&TC cabins yielded a lower
price per square foot as its location is proximate to golf and tennis facilities
which does not have as strong of a demand compared to real estate featuring
ski-in/ski-out locations proximate to our ski resorts.
Operating
expense for Fiscal 2008 included cost of sales of $208.8 million commensurate
with revenue recognized, primarily driven by the closing on 64 units at the
Arrabelle ($171.2 million in cost of sales with an average cost per square foot
of $978), the closing on five Chalet units ($27.7 million in cost of sales with
an average cost per square foot of $1,100) and the closing of the remaining
JHG&TC cabins ($8.9 million in cost of sales with an average cost per square
foot of $355). The cost per square foot for the Arrabelle and Chalets are
reflective of the high-end features and amenities associated with these projects
and the relatively high construction costs associated with mountain resort
development. The average cost per square foot for the JHG&TC was
significantly lower than for other projects closed during the period due to the
fact that this project did not include the typical high-end features of our
projects that are in close proximity to our mountain resorts; however, the cost
of sales for the JHG&TC cabins were relatively high compared to the revenue
earned due to unanticipated incremental design and construction related
costs. Operating expenses also included sales commissions of
approximately $17.1 million commensurate with revenue recognized and general and
administrative costs of approximately $25.4 million (including $3.1 million of
stock-based compensation expense). General and administrative costs
were primarily comprised of marketing expenses for the major real estate
projects under development (including those that have not yet closed), overhead
costs such as labor and labor-related benefits and allocated corporate
costs.
Fiscal
2007
Real
Estate net revenue for Fiscal 2007 was driven primarily by the closings of ten
residences at Gore Creek Place ($42.9 million of revenue with an average selling
price per unit of $4.3 million and an average price per square foot of $1,081),
34 residences at Mountain Thunder ($24.1 million of revenue with an average
selling price per unit of $0.7 million and an average price per square foot of
$515) and 12 cabins at JHG&TC ($14.2 million of revenue with an average
selling price per unit of $1.2 million and an average price per square foot of
$502). The higher average price per square foot for the Gore Creek
Place units was driven by its location in Vail’s Lionshead Village and the fact
that this development consisted of only 16 exclusive townhomes. The
Mountain Thunder average price per square foot is reflective of its location
(not at the base area of the ski mountain) in Breckenridge. The
JHG&TC cabins yielded a lower price per square foot as its location is
proximate to golf and tennis facilities which does not have as strong of a
demand compared to real estate featuring ski-in/ski-out locations proximate to
our ski resorts. In addition, Real Estate net revenue included the
sale of land together with certain related infrastructure improvements in Red
Sky Ranch and Breckenridge to third-party developers of $12.1 million, the sale
of the sole asset in the FFT Investment Partners real estate joint venture of
$6.7 million and contingent gains on development parcel sales that closed in
previous periods of $7.2 million.
Operating
expense for Fiscal 2007 included cost of sales of $77.9 million commensurate
with revenue recognized, primarily driven by the closing on ten
residences at Gore Creek Place ($29.1 million in cost of sales with an average
cost per square foot of $733), 34 residences at Mountain Thunder ($19.2 million
in cost of sales with an average cost per square foot of $409), and 12 cabins at
JHG&TC ($13.8 million in cost of sales with an average cost per square foot
of $486). The cost per square foot for the Gore Creek Place is
reflective of the high-end features associated with the projects and the
relatively high construction costs associated with mountain resort
development. The average cost per square foot for the Mountain
Thunder and JHG&TC was significantly lower than for other projects closed
during the period due to the fact that the projects did not include the typical
high-end features of our projects that are at the base of our mountain
resorts. In addition, the cost of sales for the JHG&TC cabins
were relatively high compared to the revenue earned due to unanticipated
incremental design and construction related costs, which resulted in a $7.6
million charge for estimated total project costs in excess of anticipated sales
proceeds which was recorded during Fiscal 2007. Operating expenses
also included sales commissions of approximately $5.6 million commensurate with
revenue recognized and general and administrative costs of approximately $24.0
million (including $2.1 million of stock-based compensation
expense). General and administrative costs were primarily comprised
of marketing expenses for the major real estate projects under development
(including those that have not yet closed), overhead costs such as labor and
labor-related benefits and allocated corporate costs.
Other
Items
In
addition to segment operating results, the following material items contribute
to the Company's overall financial position.
Depreciation and
amortization. Depreciation and amortization expense for Fiscal
2009 and Fiscal 2008 increased primarily due to a higher level of capital
expenditures and the timing of placing in service significant resort assets,
which included, among other assets, the Arrabelle (including amenities such as a
private club, spa, commercial leasing space, and other skier services
facilities), a new skier services building, a private club (the Vail Mountain
Club) in Vail Village and multiple gondolas and lifts within the last two
years.
Investment
income. The decrease in investment income for Fiscal 2009
compared to Fiscal 2008 is primarily due to a reduction in the average interest
earned on investments (the average annualized interest rate earned decreased by
approximately 2.5 percentage points in Fiscal 2009 versus Fiscal 2008), as well
as a decrease in average invested cash during Fiscal 2009 compared to Fiscal
2008. The decrease in investment income for Fiscal 2008 compared
to Fiscal 2007 is primarily due to a reduction in the average interest earned on
investments, a decrease in average invested cash during the period and a $1.0
million impairment on a short-term investment resulting from a commercial paper
write-down.
Interest expense,
net. The reduction in interest expense, net for Fiscal 2009
compared to Fiscal 2008, is attributable to the payoff of a scheduled debt
maturity in the current year and capitalized interest on self-funded real estate
projects. The decrease in interest expense for Fiscal 2008 compared
to Fiscal 2007 is primarily due to a reduction in the average variable borrowing
rate of the employee housing bonds and an increase in capitalized interest
associated with real estate and related resort development.
Contract dispute credit,
net. On October 19, 2007, RockResorts received payment of the
final settlement from Cheeca Holdings, LLC (the “Cheeca settlement”), related to
the disputed contract termination of the formerly managed RockResorts Cheeca
Lodge & Spa property, in the amount of $13.5 million, of which $11.9 million
(net of final attorney’s fees) is recorded in “Contract dispute credit, net” in
the Consolidated Condensed Statement of Operations for Fiscal 2008.
Income
taxes. The Company's tax provision and effective tax
rate are driven primarily by the amount of pre-tax income, which is adjusted for
items that are deductible/non-deductible for tax purposes only (i.e. permanent
items), and taxable income generated by state jurisdictions that varies from the
consolidated pre-tax income. The effective tax rate was 38.5%, 38.0%
and 39.0% in Fiscal 2009, Fiscal 2008 and Fiscal 2007,
respectively. The income tax provision recorded for Fiscal 2008
reflects the impact of a favorable tax settlement with state tax authorities of
$1.0 million.
In 2005,
the Company amended previously filed tax returns (for the tax years from 1997
through 2002) in an effort to remove restrictions under Section 382 of the
Internal Revenue Code on approximately $73.8 million of net operating losses
(“NOLs”) relating to fresh start accounting from the Company’s reorganization in
1992. As a result, the Company requested a refund related to the
amended returns in the amount of $6.2 million and has reduced its Federal tax
liability in the amount of $19.6 million in subsequent tax
returns. In 2006, the Internal Revenue Service (“IRS”) completed its
examination of the Company’s filing position in its amended returns and
disallowed the Company’s request for refund and its position to remove the
restriction on the NOLs. The Company appealed the examiner’s
disallowance of the NOLs to the Office of Appeals. In December 2008,
the Office of Appeals denied the Company’s appeal, as well as a request for
mediation. The Company disagrees with the IRS interpretation
disallowing the utilization of the NOLs and in August 2009, filed a complaint in
the United States District Court for the District of Colorado seeking recovery
of $6.2 million in over payments that were previously denied by the IRS, plus
interest. Due to the uncertainty surrounding the utilization of the
NOLs, the Company has not reflected any of the benefits of the utilization of
the NOLs within its financial statements; thus if the Company is unsuccessful in
its action regarding this matter it will not negatively impact the Company’s
results of operations.
Reconciliation
of Non-GAAP Measures
The
following table reconciles from segment Reported EBITDA to net income (in
thousands):
|
Year
Ended July 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Mountain
Reported EBITDA
|
$
|
164,389
|
$
|
220,561
|
$
|
207,728
|
||||||
|
Lodging
Reported EBITDA
|
6,759
|
10,225
|
18,199
|
|||||||||
|
Resort
Reported EBITDA
|
171,148
|
230,786
|
225,927
|
|||||||||
|
Real
Estate Reported EBITDA
|
44,080
|
45,937
|
(2,482
|
)
|
||||||||
|
Total
Reported EBITDA
|
215,228
|
276,723
|
223,445
|
|||||||||
|
Depreciation
and amortization
|
(107,213
|
)
|
(93,794
|
)
|
(87,664
|
)
|
||||||
|
Relocation
and separation charges
|
--
|
--
|
(1,433
|
)
|
||||||||
|
Loss
on disposal of fixed assets, net
|
(1,064
|
)
|
(1,534
|
)
|
(1,083
|
)
|
||||||
|
Investment
income, net
|
1,793
|
8,285
|
12,403
|
|||||||||
|
Interest
expense, net
|
(27,548
|
)
|
(30,667
|
)
|
(32,625
|
)
|
||||||
|
Loss
on sale of business, net
|
--
|
--
|
(639
|
)
|
||||||||
|
Contract
dispute credit (charges), net
|
--
|
11,920
|
(4,642
|
)
|
||||||||
|
Gain
on put option, net
|
--
|
690
|
||||||||||
|
Minority
interest in income of consolidated subsidiaries, net
|
(1,602
|
)
|
(4,920
|
)
|
(7,801
|
)
|
||||||
|
Income
before provision for income taxes
|
79,594
|
166,013
|
100,651
|
|||||||||
|
Provision
for income taxes
|
(30,644
|
)
|
(63,086
|
)
|
(39,254
|
)
|
||||||
|
Net
income
|
$
|
48,950
|
$
|
102,927
|
$
|
61,397
|
||||||
The
following table reconciles Net Debt (defined as long-term debt plus long-term
debt due within one year less cash and cash equivalents) (in
thousands):
|
July
31,
|
||||||
|
2009
|
2008
|
|||||
|
Long-term
debt
|
$
|
491,608
|
$
|
541,350
|
||
|
Long-term
debt due within one year
|
352
|
15,355
|
||||
|
Total
debt
|
491,960
|
556,705
|
||||
|
Less:
cash and cash equivalents
|
69,298
|
162,345
|
||||
|
Net
Debt
|
$
|
422,662
|
$
|
394,360
|
||
Liquidity
and Capital Resources
Significant
Sources of Cash
Historically,
the Company has lower cash available as of its fiscal year end (as well as at
the end of its first fiscal quarter of each year) as compared to its second and
third fiscal quarters end primarily due to the seasonality of its Mountain
segment operations. Additionally, cash provided by operating
activities can be significantly impacted by the timing or mix of closings on and
investment in real estate development projects. The Company had $69.3
million of cash and cash equivalents as of July 31, 2009, compared to $162.3
million as of July 31, 2008. The Company generated $134.3 million of
cash from operating activities during Fiscal 2009 compared to $217.0 million and
$118.4 million generated during Fiscal 2008 and Fiscal 2007,
respectively. The Company currently anticipates that Resort Reported
EBITDA will continue to provide a significant source of future operating cash
flows. Additionally, anticipated closings of real estate projects
currently under development will provide a source of future cash flows from
operations in fiscal year 2010 and beyond, partially offset by further
investments in real estate to complete these projects (as further discussed
below within Significant Uses of Cash).
In
addition to the Company’s $69.3 million of cash and cash equivalents at July 31,
2009, the Company has available $304.7 million under its Credit Facility (which
represents the total commitment of $400.0 million less certain letters of credit
outstanding of $95.3 million). The Company’s plan to self-fund its current real
estate under development (the Company estimates to incur between $190 million
and $210 million in cash expenditures subsequent to July 31, 2009 for projects
under development) combined with historically lower operating cash flows during
the Company’s first fiscal quarter will likely require the Company to borrow
under the revolver component of its Credit Facility from time to time beginning
in the first quarter of fiscal 2010. The Company expects that its
liquidity needs in the near term will be met by continued utilization of
operating cash flows (primarily those generated in its second and third fiscal
year quarters) and borrowings under the Credit Facility. The Company
believes the Credit Facility, which matures in 2012, provides adequate
flexibility and is priced favorably with any new borrowings currently being
priced at LIBOR plus 0.75%.
Fiscal
2009 compared to Fiscal 2008
Net cash
provided by operating activities decreased $82.7 million for Fiscal 2009
compared to Fiscal 2008 and was primarily impacted by the timing and mix of real
estate closings as proceeds from Real Estate sales decreased $105.7 million and
deposits received on projects under development decreased $43.7 million,
partially offset by a reduction in investments in real estate of $55.9
million. Further contributing to the decrease in cash provided by
operating activities was a decrease in cash generated by resort operations
including a decrease in Resort Reported EBITDA of $59.6 million for Fiscal 2009
compared to Fiscal 2008 and a decline in accounts payable and other accrued
liabilities of $25.5 million primarily as a result of a decline in real estate
investment activity and lower trade payables associated with lower operating
volume, as well as the receipt of $11.9 million in cash (net of legal costs) for
the Cheeca settlement in Fiscal 2008. Offsetting the above items was
the receipt of $40.8 million in proceeds for the final installment related to
private club initiation fees to the Vail Mountain Club that opened in November
2008 and a reduction in restricted cash of $51.1 million which became available
for general purpose use due to the payoff of the Company’s non-recourse real
estate financings.
Cash used
in investing activities decreased by $3.5 million for Fiscal 2009 due to a
decrease in resort capital expenditures of $44.4 million offset by the
acquisition of CME for $38.2 million.
Cash used
in financing activities decreased $54.6 million primarily due to a decrease in
repurchased common stock of $77.3 million in Fiscal 2009 compared to Fiscal
2008, which was partially offset by an increase in net payments of debt related
to non-recourse real estate financings of $11.9 million and the payment of $15.0
million for a scheduled debt maturity during Fiscal 2009.
Fiscal
2008 compared to Fiscal 2007
Net cash
provided by operating activities increased $98.6 million for Fiscal 2008
compared to Fiscal 2007 and was impacted by the timing and mix of real estate
closings as proceeds from Real Estate sales increased $144.1 million which was
partially offset by a decrease in deposits received on projects under
development of $27.6 million and an increase in investments in real estate of
$38.3 million. Additionally, the Company received $11.9 million in
cash (net of legal costs) for the Cheeca settlement in Fiscal
2008. Further contributing to the increase in cash provided by
operating activities was an increase in cash generated by resort operations
including an increase in Resort Reported EBITDA of $4.9 million for Fiscal 2008
compared to Fiscal 2007.
Cash used
in investing activities increased by $16.0 million for Fiscal 2008 due to an
increase in resort capital expenditures of $31.7 million partially offset by the
purchase of an additional interest in the Company’s retail/rental operations,
SSI Venture LLC, during Fiscal 2007 for $8.4 million.
Net cash
provided by financing activities for Fiscal 2008 decreased by $190.1 million
compared to Fiscal 2007 due to the decrease in net non-recourse borrowings of
$111.0 million as well as an $84.6 million increase in repurchases of the
Company’s common stock during Fiscal 2008. Additionally, cash
proceeds from the exercise of stock options decreased by $14.6 million
(including tax benefits) for Fiscal 2008 compared to Fiscal
2007.
Significant
Uses of Cash
The
Company’s cash needs currently include providing for operating expenditures as
well as capital expenditures for both assets to be used in operations and real
estate projects under construction.
The
Company expects to spend approximately $160 million to $180 million in calendar
year 2009 for real estate under development, including the construction of
associated resort-related depreciable assets, of which approximately $90 million
was spent as of July 31, 2009, leaving approximately $70 million to $90 million
to spend in the remainder of the calendar year 2009. The Company has
entered into contracts with third parties to provide services to the Company
throughout the course of project development; commitments for future services to
be performed under such current contracts total approximately $164 million and
are expected to be performed primarily over the next two years.
The
Company has historically invested significant cash in capital expenditures for
its resort operations, and expects to continue to invest in the future; however,
plans for such investment in the near term have been reduced given the
significant level of capital expenditures made in the past few years including
individually significant projects that do not annually re-occur including
gondolas and major hotel renovations coupled with the current economic
recession. Current capital expenditure levels will primarily include
investments that allow the Company to maintain its high quality standards, as
well as certain incremental discretionary improvements at the Company’s five ski
resorts and throughout its owned hotels. The Company evaluates
additional capital improvements based on expected strategic impacts and/or
expected return on investment. The Company currently anticipates it
will spend approximately $50 million to $60 million of resort capital
expenditures for calendar year 2009, excluding resort depreciable assets arising
from real estate activities noted above, of which approximately $20 million was
spent as of July 31, 2009, leaving approximately $30 million to $40 million to
spend in the remainder of the calendar year 2009. Included in these
capital expenditures are approximately $32 million to $37 million which are
necessary to maintain appearance and level of service appropriate to the
Company’s resort operations, including routine replacement of snow grooming
equipment and rental fleet equipment. The Company currently plans to
utilize cash on hand, borrowing available under its Credit Facility and/or cash
flow from future operations to provide the cash necessary to execute its capital
plans.
Principal
payments on the vast majority of the Company’s long-term debt ($489.2 million of
the total $492.0 million debt outstanding as of July 31, 2009) are not due until
fiscal 2014 and beyond. As of July 31, 2009 and 2008, total long-term
debt (including long-term debt due within one year) was $492.0 million and
$556.7 million, respectively, with the decrease at July 31, 2009 being primarily
due to the pay-off of the non-recourse real estate financings related to the
Company’s vertical development projects and the payment of a scheduled debt
maturity. Net Debt (defined as long-term debt plus long-term debt due
within one year less cash and cash equivalents) increased from $394.4 million as
of July 31, 2008 to $422.7 million as of July 31, 2009 due primarily to the
decrease in cash and cash equivalents partially offset by the pay-off of the
Company’s non-recourse real estate financings.
The
Company’s debt service requirements can be impacted by changing interest rates
as the Company had $52.6 million of variable-rate debt outstanding as of July
31, 2009. A 100-basis point change in LIBOR would cause the Company’s
annual interest payments to change by approximately $0.5 million. The
fluctuation in the Company’s debt service requirements, in addition to interest
rate changes, may be impacted by future borrowings under its Credit Facility or
other alternative financing arrangements, including non-recourse real estate
financings, it may enter into. The Company’s long term liquidity
needs are dependent upon operating results that impact the borrowing capacity
under the Credit Facility, which can be mitigated by adjustments to capital
expenditures, flexibility of investment activities and the ability to obtain
favorable future financing. The Company can respond to liquidity
impacts of changes in the business and economic environment by managing its
capital expenditures and the timing of new real estate development
activity.
On March
9, 2006, the Company’s Board of Directors approved the repurchase of up to
3,000,000 shares of common stock and on July 16, 2008 approved an increase of
the Company’s common stock repurchase authorization by an additional 3,000,000
shares. During Fiscal 2009 the Company repurchased 874,427 shares of
common stock at a cost of $22.4 million. Since inception of this
stock repurchase plan through July 31, 2009, the Company has repurchased
3,878,535 shares at a cost of approximately $147.8 million. As of
July 31, 2009, 2,121,465 shares remained available to repurchase under the
existing repurchase authorization. Shares of common stock purchased
pursuant to the repurchase program will be held as treasury shares and may be
used for the issuance of shares under the Company’s employee share award
plans. Acquisitions under the stock repurchase program may be made
from time to time at prevailing prices as permitted by applicable laws, and
subject to market conditions and other factors. The timing as well as
the number of shares that may be repurchased under the program will depend on a
number of factors, including the Company’s future financial performance, the
Company’s available cash resources and competing uses for cash that may arise in
the future, the restrictions in the Company’s Fourth Amended and Restated Credit
Agreement, dated as of January 28, 2005, as amended, between The Vail
Corporation (a wholly-owned subsidiary of the Company), Bank of America, N.A. as
administrative agent and the Lenders party thereto (the “Credit Agreement”)
governing the Company’s Credit Facility and the Indenture, governing the 6.75%
Notes, prevailing prices of the Company’s common stock and the number of shares
that become available for sale at prices that the Company believes are
attractive. The stock repurchase program may be discontinued at any
time.
Covenants
and Limitations
The
Company must abide by certain restrictive financial covenants under its Credit
Facility and the Indenture. The most restrictive of those covenants
include the following Credit Facility covenants: Net Funded Debt to Adjusted
EBITDA ratio, Interest Coverage ratio and the Minimum Net Worth (each as defined
in the Credit Agreement). In addition, the Company’s financing
arrangements, including the Indenture, limit its ability to incur certain
indebtedness, make certain restricted payments, enter into certain investments,
make certain affiliate transfers and may limit its ability to enter into certain
mergers, consolidations or sales of assets. The Company’s borrowing
availability under the Credit Facility is primarily determined by the Net Funded
Debt to Adjusted EBITDA ratio, which is based on the Company’s segment operating
performance, as defined in the Credit Agreement.
The
Company was in compliance with all restrictive financial covenants in its debt
instruments as of July 31, 2009. The Company expects it will meet all
applicable financial maintenance covenants in its Credit Agreement, including
the Net Funded Debt to Adjusted EBITDA ratio throughout the year ending July 31,
2010. However, there can be no assurance that the Company will meet
such financial covenants. If such covenants are not met, the Company
would be required to seek a waiver or amendment from the banks participating in
the Credit Facility. While the Company anticipates that it would
obtain such waiver or amendment, if any were necessary, there can be no
assurance that such waiver or amendment would be granted, which could have a
material adverse impact on the liquidity of the Company.
Contractual
Obligations
As part
of its ongoing operations, the Company enters into arrangements that obligate
the Company to make future payments under contracts such as debt agreements,
construction agreements in conjunction with the Company’s development activities
and lease agreements. Debt obligations, which total $492.0 million as
of July 31, 2009, are recognized as liabilities in the Company's Consolidated
Balance Sheet as of July 31, 2009. Obligations under construction contracts are
not recognized as liabilities in the Company’s Consolidated Balance Sheet until
services and/or goods are received which is in accordance with
GAAP. Additionally, operating lease and service contract obligations,
which total $81.6 million as of July 31, 2009, are not recognized as liabilities
in the Company's Consolidated Balance Sheet, which is in accordance with
GAAP. A summary of the Company's contractual obligations as of July
31, 2009 is as follows (in thousands):
|
Payments
Due by Period
|
|||||||||||||||
|
Fiscal
|
2-3
|
4-5
|
More
than
|
||||||||||||
|
Contractual
Obligations
|
Total
|
2010
|
years
|
years
|
5
years
|
||||||||||
|
Long-Term
Debt (1)
|
$
|
491,960
|
$
|
352
|
$
|
2,132
|
$
|
390,538
|
$
|
98,938
|
|||||
|
Fixed
Rate Interest (1)
|
165,958
|
29,634
|
59,073
|
58,975
|
18,276
|
||||||||||
|
Operating
Leases and Service Contracts
|
81,608
|
17,350
|
23,710
|
16,847
|
23,701
|
||||||||||
|
Purchase
Obligations (2)
|
380,884
|
309,812
|
71,072
|
--
|
--
|
||||||||||
|
Other
Long-Term Obligations (3)
|
1,882
|
340
|
132
|
106
|
1,304
|
||||||||||
|
Total
Contractual Cash Obligations
|
$
|
1,122,292
|
$
|
357,488
|
$
|
156,119
|
$
|
466,466
|
$
|
142,219
|
|||||
(1) The fixed-rate interest payments, as
well as long-term debt payments, included in the table above assume that all
fixed-rate debt outstanding as of July 31, 2009 will be held to
maturity. Interest payments associated with variable-rate debt have
not been included in the table. Assuming that the amounts outstanding
under variable-rate long-term debt as of July 31, 2009 are held to maturity, and
utilizing interest rates in effect at July 31, 2009, the Company’s annual
interest payments (including commitment fees and letter of credit fees) on
variable rate long-term debt as of July 31, 2009 is anticipated to be
approximately $1.0 million for at least each of the next five
years. The future annual interest obligations noted herein are
estimated only in relation to debt outstanding as of July 31, 2009, and do not
reflect interest obligations on potential future debt.
(2) Purchase
obligations include amounts which are classified as trade payables, real estate
development payables, accrued payroll and benefits, accrued fees and
assessments, accrued taxes (including taxes for uncertain tax positions),
liabilities to complete real estate projects on the Company's Consolidated
Balance Sheet as of July 31, 2009 and other commitments for goods and services
not yet received, including construction contracts not included on the Company’s
balance sheet as of July 31, 2009 in accordance with GAAP.
(3) Other long-term obligations include
amounts which become due based on deficits in underlying cash flows of the
metropolitan district as described in Note 14, Commitments and Contingencies, of
the Notes to Consolidated Financial Statements.
Off
Balance Sheet Arrangements
The
Company does not have off balance sheet transactions that are expected to have a
material effect on the Company's financial condition, revenue, expenses, results
of operations, liquidity, capital expenditures or capital
resources.
Critical
Accounting Policies
The
preparation of Consolidated Financial Statements in conformity with GAAP
requires the Company to select appropriate accounting policies and to make
judgments and estimates affecting the application of those accounting
policies. In applying the Company's accounting policies, different
business conditions or the use of different assumptions may result in materially
different amounts reported in the Consolidated Financial
Statements.
The
Company has identified the most critical accounting policies which were
determined by considering accounting policies that involve the most complex or
subjective decisions or assessments. The Company also has other
policies considered key accounting policies; however, these policies do not meet
the definition of critical accounting policies because they do not generally
require the Company to make estimates or judgments that are complex or
subjective. The Company has reviewed these critical accounting
policies and related disclosures with the Company’s Audit Committee of the Board
of Directors.
Real Estate
Revenue and Cost of Sales.
Description
The
Company utilizes the relative sales value method to determine cost of sales for
individual parcels of real estate and/or condominium units sold within a
project, when specific identification of costs cannot be reasonably
determined. The determination of cost of sales may utilize estimates
for the fair value of resort depreciable assets that may be part of a mixed-use
real estate development project and total costs to be incurred on a real estate
development project.
Judgments
and Uncertainties
Changes
to either the relative sales values of the components of a project, which may
include resort depreciable assets, or the total projected costs to be incurred
to determine cost of sales may cause significant variances in the profit margins
recognized on individual parcels of real estate and/or condominium units within
a project.
Effect
if Actual Results Differ From Assumptions
A 10%
change in the estimates of either the relative sales values of the components of
a project or remaining costs to be incurred for projects utilizing the relative
sales value method would have changed the profit margin recognized by
approximately $7.7 million for Fiscal 2009.
Goodwill
and Intangible Assets.
Description
The
carrying value of goodwill and indefinite-lived intangible assets are evaluated
for possible impairment on an annual basis or between annual tests if an event
occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit or indefinite-lived intangible asset below its
carrying value. Other intangible assets are evaluated for impairment
when there is evidence that events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable. The Company
is required to determine goodwill impairment using a two-step
process. The first step is used to identify potential impairment by
comparing the fair value of a reporting unit with its carrying
amount. If the carrying amount of a reporting unit exceeds its fair
value, the second step of the impairment test is performed to measure the amount
of impairment loss, if any. If the carrying amount of the reporting
unit’s goodwill exceeds the implied fair value of that goodwill, an impairment
loss is recognized in an amount equal to that excess. The impairment
test for indefinite-lived intangible assets consists of a comparison of the
estimated fair value of the intangible asset with its carrying
value. If the carrying value of the intangible asset exceeds its fair
value, an impairment loss is recognized in an amount equal to that
excess.
Judgments
and Uncertainties
Application
of the goodwill and indefinite-lived intangible asset impairment test requires
judgment, including the identification of reporting units, assignment of assets
and liabilities to reporting units, assignment of goodwill to reporting units
and determination of the fair value of reporting units and indefinite-lived
intangible assets. The Company determines the estimated fair value of
its reporting units using a discounted cash flow analysis. The
estimated fair value of indefinite-lived intangible assets is primarily
determined using the income approach based upon estimated future revenue
streams. These analyses require significant judgments, including
estimation of future cash flows, which is dependent on internal forecasts,
available industry/market data, estimation of the long-term rate of growth for
the Company’s business, estimation of the useful life over which cash flows will
occur (including terminal multiples), and determination of the respective
weighted average cost of capital. Changes in these estimates and
assumptions could materially affect the determination of fair value and
impairment for each reporting unit and indefinite-lived intangible
asset. The Company evaluates its reporting units on an annual basis
and allocates goodwill to its reporting units based on the reporting
units expected to benefit from the acquisition generating the
goodwill.
Effect
if Actual Results Differ From Assumptions
Goodwill
and indefinite-lived intangible assets are at least tested for impairment
annually as of May 1st of
each year. Based upon the Company’s annual impairment test during the
fourth fiscal quarter of 2009 the estimated fair value of the Company’s
reporting units and indefinite-lived intangible assets were in excess of their
respective carrying values. As such, no impairment of goodwill or
indefinite-lived intangible assets was recorded.
In order
to evaluate the sensitivity of the estimated fair value calculations of the
Company’s reporting units and indefinite-lived intangible assets, the Company
applied a hypothetical 10% decrease to the estimated fair values of the
Company's reporting units and indefinite-lived intangible
assets. This hypothetical decrease of 10% would not have had an
impact on the conclusion that the estimated fair value of the Company’s
reporting units and significant indefinite-lived intangible assets were in
excess of their respective carrying values.
Tax
Contingencies.
Description
The
Company must make certain estimates and judgments in determining income tax
expense for financial statement purposes. These estimates and
judgments occur in the calculation of tax credits and deductions and in the
calculation of certain tax assets and liabilities, which arise from differences
in the timing of recognition of revenue and expense for tax and financial
statement purposes, as well as the interest and penalties relating to uncertain
tax positions. The calculation of the Company’s tax liabilities
involves dealing with uncertainties in the application of complex tax
regulations. The Company recognizes liabilities for uncertain tax
positions based on a two-step process. The first step is to evaluate
the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step requires the Company to estimate
and measure the tax benefit as the largest amount that is more than 50% likely
of being realized upon ultimate settlement. It is inherently
difficult and subjective to estimate such amounts, as this requires the Company
to determine the probability of various possible outcomes. This
evaluation is based on factors including, but not limited to, changes in facts
or circumstances, changes in tax law, effectively settled issues under audit and
new audit activity. A significant amount of
time may pass before a particular matter, for which the Company may have
established a reserve, is audited and fully
resolved.
Judgments
and Uncertainties
The
estimates of the Company's tax contingencies reserve contains uncertainty
because management must use judgment to estimate the potential exposure
associated with the Company's various filing positions.
Effect
if Actual Results Differ From Assumptions
Although
management believes that the estimates and judgments discussed herein are
reasonable and it has adequate reserves for its tax contingencies, actual
results could differ, and the Company may be exposed to increases or decreases
in those reserves and tax provisions that could be material.
An
unfavorable tax settlement could require the use of cash and could possibly
result in an increased tax expense and effective tax rate in the year of
resolution. A favorable tax settlement could possibly result in a
reduction in the Company's tax expense, effective tax rate, income taxes
payable, other long-term liabilities and/or adjustments to its deferred tax
assets, deferred tax liabilities or intangible assets in the year of settlement
or in future years.
Depreciable
Lives of Assets.
Description
Mountain
and lodging operational assets, furniture and fixtures, computer equipment,
software, vehicles and leasehold improvements are primarily depreciated using
the straight-line method over the estimated useful life of the
asset. Assets may become obsolete or require replacement before the
end of their useful life in which the remaining book value would be written-off
or the Company could incur costs to remove or dispose of assets no longer in
use.
Judgments
and Uncertainties
The
estimates of the Company’s useful life of the assets contain uncertainty because
management must use judgment to estimate the useful life of the
asset.
Effect
if Actual Results Differ From Assumptions
Although
management believes that the estimates and judgments discussed herein are
reasonable, actual results could differ, and the Company may be exposed to
increased expense related to depreciable assets disposed of, removed or taken
out of service prior to its originally estimated useful life, which may be
material. A 10% decrease in the estimated useful lives of depreciable
assets would have increased depreciation expense by approximately $11.3 million
for Fiscal 2009.
New
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”), which defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value
measurements. SFAS 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy which prioritizes the inputs to valuation techniques used
to measure fair value. In February 2008, the FASB issued Staff
Position (“FSP”) 157-2, “Effective Date of FASB Statement No.
157.” This FSP delayed the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually),
to fiscal years beginning after November 15, 2008 (the Company's fiscal year
ending July 31, 2010) and interim periods within the fiscal year of
adoption. The adoption of SFAS 157 for financial assets and
liabilities was effective for the Company on August 1, 2008 and did not have a
material impact on the Company’s financial position or results of
operations. The Company does not anticipate that the adoption of the
provisions of SFAS 157 for nonfinancial assets and liabilities will have a
material impact on the Company’s financial position or results of
operations.
In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations”
(“SFAS 141R”), which establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS 141R also requires acquisition-related
transaction expenses and restructuring costs be expensed as incurred rather than
capitalized as a component of the business combination. SFAS 141R
will be applicable prospectively to business combinations consummated after July
31, 2009 (the Company’s fiscal year ending July 31, 2010).
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51”
(“SFAS 160”), which will change the accounting and reporting for minority
interests, which will be recharacterized as noncontrolling interests and
classified as a component of equity within the balance
sheet. Currently, noncontrolling interests (minority interests) are
reported as a liability in the Company’s consolidated balance sheet and the
related income (loss) attributable to minority interests is reflected as an
expense (credit) in arriving at net income. Upon adoption of SFAS
160, the Company will be required to report its minority interests as a separate
component of stockholders’ equity and present net income allocable to the
minority interests along with net income attributable to the stockholders of the
Company separately in its consolidated statement of operations. SFAS
160 requires retroactive adoption of the presentation and disclosure
requirements for existing minority interests. All other requirements
of SFAS 160 shall be applied prospectively. The requirements of
SFAS 160 are effective for the Company beginning August 1, 2009 (the
Company’s fiscal year ending July 31, 2010).
In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation
of Other-Than-Temporary Impairments” (“FSP 115-2”) which establishes a new model
for measuring other-than-temporary impairments for debt securities, including
establishing criteria for when to recognize a write-down through earnings versus
other comprehensive income. The FSP also requires additional interim
and annual disclosures for impaired securities. The requirements of
the FSP were effective for the Company as of July 31, 2009 and did not have a
material impact on the Company’s financial position or results of
operations.
In May
2009, the FASB issued SFAS 165, “Subsequent Events” (“SFAS 165”) which
establishes the general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. SFAS 165 requires entities to
recognize in their financial statements the effects of all subsequent events
that provide additional evidence about conditions that existed at the date of
the balance sheet, including the estimates inherent in the process of preparing
financial statements. Entities shall not recognize subsequent events
that provide evidence about conditions that did not exist at the date of the
balance sheet but arose subsequent to that date. In addition,
entities are required to disclose the period through which subsequent events
have been evaluated. The provisions of SFAS 165 were effective for
the Company as of July 31, 2009.
In June
2009, the FASB issued SFAS 167, “Amendments to FASB Interpretation No. 46(R)”
(“SFAS 167”) which amends the consolidation guidance under FASB Interpretation
No. 46R, “Consolidation of Variable Interest Entities, an interpretation of ARB
No. 51” (“FIN 46R”). SFAS 167 requires entities to perform a
qualitative assessment in determining the primary beneficiary of a variable
interest entity. The qualitative assessment includes, among other
things, consideration as to whether a variable interest holder has the power to
direct the activities that most significantly impact the economic performance of
the variable interest entity and the obligation to absorb losses or the right to
receive benefits of the variable interest entity that could potentially be
significant to the variable interest entity. Pursuant to SFAS 167,
the requirement to assess whether an entity should be deemed the primary
beneficiary is an on-going reconsideration. The provisions of SFAS
167 are effective for the Company beginning August 1, 2011 (the Company’s fiscal
year ending July 31, 2012). The Company is currently evaluating the
impacts, if any, the adoption of the provisions of SFAS 167 will have
on the Company’s financial position or results of operations.
Inflation
Although
the Company cannot accurately determine the precise effect of inflation on its
operations, management does not believe inflation has had a material effect on
the results of operations in the last three fiscal years. When the
costs of operating resorts increase, the Company generally has been able to pass
the increase on to its customers. However, there can be no assurance
that increases in labor and other operating costs due to inflation will not have
an impact on the Company's future profitability.
Seasonality
and Quarterly Results
The
Company's mountain and lodging operations are seasonal in nature. In
particular, revenue and profits for the Company's mountain and most of its
lodging operations are substantially lower and historically result in losses
from late spring to late fall. Conversely, peak operating seasons for
GTLC, certain managed hotel properties and the Company's owned golf courses
occur during the summer months while the winter season results in operating
losses. Revenue and profits generated by GTLC's summer operations,
management fees from certain managed properties, certain other lodging
properties and golf operations are not nearly sufficient to fully offset the
Company's off-season losses from its mountain and other lodging
operations. During Fiscal 2009, 79% of total combined Mountain and
Lodging segment net revenue was earned during the second and third fiscal
quarters. Therefore, the operating results for any three-month period
are not necessarily indicative of the results that may be achieved for any
subsequent quarter or for a full year (see Note 16, Selected Quarterly Financial
Data, of the Notes to Consolidated Financial Statements).
Interest Rate
Risk. The Company's exposure to market risk is limited
primarily to the fluctuating interest rates associated with variable rate
indebtedness. At July 31, 2009, the Company had $52.6 million of
variable rate indebtedness, representing 10.7% of the Company's total debt
outstanding, at an average interest rate during Fiscal 2009 of
2.8%. Based on variable-rate borrowings outstanding as of July 31,
2009, a 100-basis point (or 1.0%) change in LIBOR would result in the Company's
annual interest payments to change by $0.5 million. The Company's
market risk exposure fluctuates based on changes in underlying interest
rates.
Vail
Resorts, Inc.
Consolidated
Financial Statements for the Years Ended July 31, 2009, 2008 and
2007
|
F-2
|
|
|
F-3
|
|
|
Consolidated
Financial Statements
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
F-8
|
|
|
Financial
Statement Schedule:
|
|
|
The
following consolidated financial statement schedule of the Company is
filed as part of this Report on Form 10-K and should be read in
conjunction with the Company's Consolidated Financial
Statements:
|
|
|
60
|
Management
of Vail Resorts, Inc. (the “Company”) is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is
defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of
1934. The Company's internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles in the United States of
America.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of the effectiveness of internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management,
including the Company's Chief Executive Officer and Chief Financial Officer,
assessed the effectiveness of the Company's internal control over financial
reporting as of July 31, 2009. In making this assessment, management
used the criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management concluded
that, as of July 31, 2009, the Company's internal control over financial
reporting was effective.
The
Company’s independent registered public accounting firm, PricewaterhouseCoopers
LLP, has issued an audit report on the Company’s internal control over financial
reporting as of July 31, 2009, as stated in the Report of Independent Registered
Public Accounting Firm on the following page.
To the
Shareholders and Board of Directors
of Vail
Resorts, Inc.:
In our
opinion, the consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Vail
Resorts, Inc. and its subsidiaries at July 31, 2009 and 2008, and the results of
their operations and their cash flows for each of the three years in the period
ended July 31, 2009 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of July 31, 2009, based on criteria
established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's
management is responsible for these financial statements and financial statement
schedule, for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management's Report on Internal Control
over Financial Reporting. Our responsibility is to express opinions
on these financial statements, on the financial statement schedule, and on the
Company's internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
Denver,
Colorado
September
23, 2009
Vail
Resorts, Inc.
(In
thousands, except share and per share amounts)
|
July
31,
|
||||||
|
2009
|
2008
|
|||||
|
Assets
|
||||||
|
Current
assets:
|
||||||
|
Cash
and cash equivalents
|
$
|
69,298
|
$
|
162,345
|
||
|
Restricted
cash
|
11,065
|
58,437
|
||||
|
Trade
receivables, net of allowances of $1,877 and $1,666,
respectively
|
58,063
|
50,185
|
||||
|
Inventories,
net of reserves of $1,455 and $1,211, respectively
|
48,947
|
49,708
|
||||
|
Deferred
income taxes (Note 12)
|
21,297
|
15,142
|
||||
|
Other
current assets
|
20,318
|
23,078
|
||||
|
Total
current assets
|
228,988
|
358,895
|
||||
|
Property,
plant and equipment, net (Note 5)
|
1,057,658
|
1,056,837
|
||||
|
Real
estate held for sale and investment
|
311,485
|
249,305
|
||||
|
Deferred
charges and other assets
|
31,976
|
38,054
|
||||
|
Notes
receivable
|
6,994
|
8,051
|
||||
|
Goodwill,
net (Note 5)
|
167,950
|
142,282
|
||||
|
Intangible
assets, net (Note 5)
|
79,429
|
72,530
|
||||
|
Total
assets
|
$
|
1,884,480
|
$
|
1,925,954
|
||
|
Liabilities
and Stockholders' Equity
|
||||||
|
Current
liabilities:
|
||||||
|
Accounts
payable and accrued expenses (Note 5)
|
$
|
245,536
|
$
|
294,182
|
||
|
Income
taxes payable
|
5,460
|
57,474
|
||||
|
Long-term
debt due within one year (Note 4)
|
352
|
15,355
|
||||
|
Total
current liabilities
|
251,348
|
367,011
|
||||
|
Long-term
debt (Note 4)
|
491,608
|
541,350
|
||||
|
Other
long-term liabilities (Note 5)
|
233,169
|
183,643
|
||||
|
Deferred
income taxes (Note 12)
|
112,234
|
75,279
|
||||
|
Commitments
and contingencies (Note 14)
|
||||||
|
Minority
interest in net assets of consolidated subsidiaries
|
30,826
|
29,915
|
||||
|
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, and 40,049,988 and
39,926,496 shares issued, respectively
|
400
|
399
|
||||
|
Additional
paid-in capital
|
555,728
|
545,773
|
||||
|
Retained
earnings
|
356,995
|
308,045
|
||||
|
Treasury
stock, at cost; 3,878,535 and 3,004,108 shares, respectively (Note
17)
|
(147,828
|
)
|
(125,461
|
)
|
||
|
Total
stockholders’ equity
|
765,295
|
728,756
|
||||
|
Total
liabilities and stockholders’ equity
|
$
|
1,884,480
|
$
|
1,925,954
|
||
The
accompanying Notes are an integral part of these consolidated financial
statements.
Vail
Resorts, Inc.
(In
thousands, except per share amounts)
|
Year
ended July 31,
|
||||||||||
|
2009
|
2008
|
2007
|
||||||||
|
Net
revenue:
|
||||||||||
|
Mountain
|
$
|
614,597
|
$
|
685,533
|
$
|
665,377
|
||||
|
Lodging
|
176,241
|
170,057
|
162,451
|
|||||||
|
Real
estate
|
186,150
|
296,566
|
112,708
|
|||||||
|
Total
net revenue
|
976,988
|
1,152,156
|
940,536
|
|||||||
|
Segment
operating expense (exclusive of depreciation and amortization shown
separately below):
|
||||||||||
|
Mountain
|
451,025
|
470,362
|
462,708
|
|||||||
|
Lodging
|
169,482
|
159,832
|
144,252
|
|||||||
|
Real
estate
|
142,070
|
251,338
|
115,190
|
|||||||
|
Total
segment operating expense
|
762,577
|
881,532
|
722,150
|
|||||||
|
Other
operating (expense) income:
|
||||||||||
|
Gain
on sale of real property
|
--
|
709
|
--
|
|||||||
|
Depreciation
and amortization
|
(107,213
|
)
|
(93,794
|
)
|
(87,664
|
)
|
||||
|
Relocation
and separation charges (Note 9)
|
--
|
--
|
(1,433
|
)
|
||||||
|
Loss
on disposal of fixed assets, net
|
(1,064
|
)
|
(1,534
|
)
|
(1,083
|
)
|
||||
|
Income
from operations
|
106,134
|
176,005
|
128,206
|
|||||||
|
Mountain
equity investment income, net
|
817
|
5,390
|
5,059
|
|||||||
|
Investment
income, net
|
1,793
|
8,285
|
12,403
|
|||||||
|
Interest
expense, net
|
(27,548
|
)
|
(30,667
|
)
|
(32,625
|
)
|
||||
|
Loss
on sale of business, net (Note 10)
|
--
|
--
|
(639
|
)
|
||||||
|
Contract
dispute credit (charges), net (Note 14)
|
--
|
11,920
|
(4,642
|
)
|
||||||
|
Gain
on put option, net (Note 10)
|
--
|
--
|
690
|
|||||||
|
Minority
interest in income of consolidated subsidiaries, net
|
(1,602
|
)
|
(4,920
|
)
|
(7,801
|
)
|
||||
|
Income
before provision for income taxes
|
79,594
|
166,013
|
100,651
|
|||||||
|
Provision
for income taxes (Note 12)
|
(30,644
|
)
|
(63,086
|
)
|
(39,254
|
)
|
||||
|
Net
income
|
$
|
48,950
|
$
|
102,927
|
$
|
61,397
|
||||
|
Per
share amounts (Note 3):
|
||||||||||
|
Basic
net income per share
|
$
|
1.34
|
$
|
2.67
|
$
|
1.58
|
||||
|
Diluted
net income per share
|
$
|
1.33
|
$
|
2.64
|
$
|
1.56
|
||||
The
accompanying Notes are an integral part of these consolidated financial
statements.
Vail
Resorts, Inc.
(In
thousands, except share amounts)
|
Additional
|
Total
|
|||||||||||||||||||||||
|
Common
Stock
|
Paid-in
|
Retained
|
Treasury
|
Stockholders’
|
||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
Stock
|
Equity
|
|||||||||||||||||||
|
Balance,
July 31, 2006
|
39,036,282
|
$
|
390
|
$
|
509,505
|
$
|
143,721
|
$
|
(10,839
|
)
|
$
|
642,777
|
||||||||||||
|
Net
income
|
--
|
--
|
--
|
61,397
|
--
|
61,397
|
||||||||||||||||||
|
Stock-based
compensation
|
||||||||||||||||||||||||
|
(Note
18)
|
--
|
--
|
6,965
|
--
|
--
|
6,965
|
||||||||||||||||||
|
Issuance
of shares
|
||||||||||||||||||||||||
|
under
share
|
||||||||||||||||||||||||
|
award
plans (Note 18)
|
711,694
|
7
|
10,975
|
--
|
--
|
10,982
|
||||||||||||||||||
|
Tax
benefit from share
|
||||||||||||||||||||||||
|
award
plans
|
--
|
--
|
6,925
|
--
|
--
|
6,925
|
||||||||||||||||||
|
Repurchases
of common stock
|
||||||||||||||||||||||||
|
(Note
17)
|
--
|
--
|
--
|
--
|
(15,007
|
)
|
(15,007
|
)
|
||||||||||||||||
|
Balance,
July 31, 2007
|
39,747,976
|
397
|
534,370
|
205,118
|
(25,846
|
)
|
714,039
|
|||||||||||||||||
|
Net
income
|
--
|
--
|
--
|
102,927
|
--
|
102,927
|
||||||||||||||||||
|
Stock-based
compensation
|
||||||||||||||||||||||||
|
(Note
18)
|
--
|
--
|
8,414
|
--
|
--
|
8,414
|
||||||||||||||||||
|
Issuance
of shares
|
||||||||||||||||||||||||
|
under
share
|
||||||||||||||||||||||||
|
award
plans (Note 18)
|
178,520
|
2
|
1,122
|
--
|
--
|
1,124
|
||||||||||||||||||
|
Tax
benefit from share
|
||||||||||||||||||||||||
|
award
plans
|
--
|
--
|
1,867
|
--
|
--
|
1,867
|
||||||||||||||||||
|
Repurchases
of common stock
|
||||||||||||||||||||||||
|
(Note
17)
|
--
|
--
|
--
|
--
|
(99,615
|
)
|
(99,615
|
)
|
||||||||||||||||
|
Balance,
July 31, 2008
|
39,926,496
|
399
|
545,773
|
308,045
|
(125,461
|
)
|
728,756
|
|||||||||||||||||
|
Net
income
|
--
|
--
|
--
|
48,950
|
--
|
48,950
|
||||||||||||||||||
|
Stock-based
compensation
|
||||||||||||||||||||||||
|
(Note
18)
|
--
|
--
|
10,741
|
--
|
--
|
10,741
|
||||||||||||||||||
|
Issuance
of shares
|
||||||||||||||||||||||||
|
under
share
|
||||||||||||||||||||||||
|
award
plans (Note 18)
|
123,492
|
1
|
(550
|
)
|
--
|
--
|
(549
|
)
|
||||||||||||||||
|
Tax
benefit from share
|
||||||||||||||||||||||||
|
award
plans
|
--
|
--
|
(236
|
)
|
--
|
--
|
(236
|
)
|
||||||||||||||||
|
Repurchases
of common stock
|
||||||||||||||||||||||||
|
(Note
17)
|
--
|
--
|
--
|
--
|
(22,367
|
)
|
(22,367
|
)
|
||||||||||||||||
|
Balance,
July 31, 2009
|
40,049,988
|
$
|
400
|
$
|
555,728
|
$
|
356,995
|
$
|
(147,828
|
)
|
$
|
765,295
|
||||||||||||
The
accompanying Notes are an integral part of these consolidated financial
statements.
Vail
Resorts, Inc.
(In
thousands)
|
Year
Ended July 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income
|
$
|
48,950
|
$
|
102,927
|
$
|
61,397
|
||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
107,213
|
93,794
|
87,664
|
|||||||||
|
Cost
of real estate sales
|
103,893
|
208,820
|
81,176
|
|||||||||
|
Stock-based
compensation expense
|
10,741
|
8,414
|
6,998
|
|||||||||
|
Loss
on sale of business, net
|
--
|
--
|
639
|
|||||||||
|
Deferred
income taxes, net
|
30,767
|
2,980
|
(3,968
|
)
|
||||||||
|
Minority
interest in net income of consolidated subsidiaries, net
|
1,602
|
4,920
|
7,801
|
|||||||||
|
Other
non-cash (income) expense, net
|
(5,300
|
)
|
(7,268
|
)
|
720
|
|||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Restricted
cash
|
47,372
|
(3,688
|
)
|
(34,427
|
)
|
|||||||
|
Accounts
receivable, net
|
(7,833
|
)
|
(12,173
|
)
|
(4,496
|
)
|
||||||
|
Inventories,
net
|
761
|
(1,643
|
)
|
(5,171
|
)
|
|||||||
|
Investments
in real estate
|
(161,608
|
)
|
(217,482
|
)
|
(179,234
|
)
|
||||||
|
Accounts
payable and accrued expenses
|
(19,568
|
)
|
5,946
|
30,691
|
||||||||
|
Income
taxes payable
|
(27,297
|
)
|
20,033
|
19,924
|
||||||||
|
Deferred
real estate deposits
|
(46,011
|
)
|
(2,308
|
)
|
25,330
|
|||||||
|
Private
club deferred initiation fees and deposits
|
41,591
|
15,867
|
21,438
|
|||||||||
|
Other
assets and liabilities, net
|
9,003
|
(2,143
|
)
|
1,960
|
||||||||
|
Net
cash provided by operating activities
|
134,276
|
216,996
|
118,442
|
|||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Capital
expenditures
|
(106,491
|
)
|
(150,892
|
)
|
(119,232
|
)
|
||||||
|
Acquisition
of business
|
(38,170
|
)
|
--
|
--
|
||||||||
|
Cash
received from sale of business
|
--
|
--
|
3,544
|
|||||||||
|
Purchase
of minority interests
|
--
|
--
|
(8,387
|
)
|
||||||||
|
Other
investing activities, net
|
36
|
2,757
|
(8,071
|
)
|
||||||||
|
Net
cash used in investing activities
|
(144,625
|
)
|
(148,135
|
)
|
(132,146
|
)
|
||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Repurchases
of common stock
|
(22,367
|
)
|
(99,615
|
)
|
(15,007
|
)
|
||||||
|
Proceeds
from borrowings under non-recourse real estate financings
|
9,013
|
136,519
|
75,019
|
|||||||||
|
Payments
of non-recourse real estate financings
|
(58,407
|
)
|
(174,008
|
)
|
(1,493
|
)
|
||||||
|
Proceeds
from borrowings under other long-term debt
|
67,280
|
77,641
|
64,612
|
|||||||||
|
Payments
of other long-term debt
|
(82,632
|
)
|
(78,121
|
)
|
(75,284
|
)
|
||||||
|
Other
financing activities, net
|
4,415
|
249
|
4,882
|
|||||||||
|
Net
cash (used in) provided by financing activities
|
(82,698
|
)
|
(137,335
|
)
|
52,729
|
|||||||
|
Net
(decrease) increase in cash and cash equivalents
|
(93,047
|
)
|
(68,474
|
)
|
39,025
|
|||||||
|
Cash
and cash equivalents:
|
||||||||||||
|
Beginning
of period
|
162,345
|
230,819
|
191,794
|
|||||||||
|
End
of period
|
$
|
69,298
|
$
|
162,345
|
$
|
230,819
|
||||||
|
Cash
paid for interest, net of amounts capitalized
|
$
|
25,556
|
$
|
34,298
|
$
|
23,573
|
||||||
|
Taxes
paid, net
|
$
|
25,545
|
$
|
35,483
|
$
|
16,357
|
||||||
The
accompanying Notes are an integral part of these consolidated financial
statements.
1. Organization
and Business
Vail
Resorts, Inc. (“Vail Resorts” or the “Parent Company”) is organized as a holding
company and operates through various subsidiaries. Vail Resorts and
its subsidiaries (collectively, the “Company”) currently operate in three
business segments: Mountain, Lodging and Real Estate. In the Mountain
segment, the Company owns and operates five world-class ski resort properties at
the Vail, Breckenridge, Keystone and Beaver Creek mountain resorts in Colorado
and the Heavenly Mountain Resort (“Heavenly”) in the Lake Tahoe area of
California and Nevada, as well as ancillary businesses, primarily including ski
school, dining and retail/rental operations. These resorts operate
primarily on Federal land under the terms of Special Use Permits granted by the
USDA Forest Service (the “Forest Service”). The Company holds a 69.3%
interest in SSI Venture, LLC (“SSV”), a retail/rental company. In the
Lodging segment, the Company owns and/or manages a collection of luxury hotels
under its RockResorts brand, as well as other strategic lodging properties and a
large number of condominiums located in proximity to the Company’s ski resorts,
the Grand Teton Lodge Company (“GTLC”), which operates three destination resorts
at Grand Teton National Park (under a National Park Service concessionaire
contract), Colorado Mountain Express (“CME”), a resort ground transportation
company, and golf courses. Vail Resorts Development Company (“VRDC”),
a wholly-owned subsidiary, conducts the operations of the Company’s Real Estate
segment, which owns and develops real estate in and around the Company’s resort
communities. The Company’s mountain business and its lodging
properties at or around the Company’s ski resorts are seasonal in nature with
peak operating seasons from mid-November through mid-April. The
Company’s operations at GTLC and its golf courses generally operate from mid-May
through mid-October. The Company also has non-majority owned
investments in various other entities, some of which are consolidated (see Note
6, Investments in Affiliates and Note 7, Variable Interest
Entities).
2. Summary
of Significant Accounting Policies
Principles of Consolidation--
The accompanying Consolidated Financial Statements include the accounts of the
Company, its majority-owned subsidiaries and all variable interest entities for
which the Company is the primary beneficiary. Investments in which
the Company does not have a controlling interest or is not the primary
beneficiary are accounted for under the equity method. All
significant intercompany transactions have been eliminated in
consolidation.
Cash and Cash Equivalents--
The Company considers all highly liquid investments with maturities of
three months or less at the date of purchase to be cash
equivalents.
Restricted Cash-- Restricted
cash primarily represents certain deposits received from real estate development
related transactions, amounts held as state-regulated reserves for self-insured
workers' compensation claims and owner and guest advance deposits held in escrow
for lodging reservations.
Trade Receivables-- The
Company records trade accounts receivable in the normal course of business
related to the sale of products or services. The Company generally
charges interest on past due accounts at a rate of 18% per annum. The
allowance for doubtful accounts is based on a specific reserve analysis and on a
percentage of accounts receivable, and takes into consideration such factors as
historical write-offs, the economic climate and other factors that could affect
collectability. Write-offs are evaluated on a case by case
basis.
Inventories-- The Company's
inventories consist primarily of purchased retail goods, food and beverage items
and spare parts. Inventories are stated at the lower of cost or fair
value, determined using primarily an average weighted cost
method. The Company records a reserve for estimated shrinkage and
obsolete or unusable inventory.
Property, Plant and Equipment--
Property, plant and equipment is carried at cost net of accumulated
depreciation. Repairs and maintenance are expensed as
incurred. Expenditures that improve the functionality of the related
asset or extend the useful life are capitalized. When property, plant
and equipment is retired or otherwise disposed of, the related gain or loss is
included in operating income. Depreciation is calculated on the
straight-line method generally based on the following useful lives:
|
Estimated
Life
|
|
|
in
Years
|
|
|
Land
improvements
|
10-35
|
|
Buildings
and building improvements
|
7-30
|
|
Machinery
and equipment
|
2-30
|
|
Furniture
and fixtures
|
3-10
|
|
Software
|
3
|
|
Vehicles
|
3-4
|
The
Company capitalizes interest on non-real estate construction projects expected
to take longer than one year to complete and cost more than $1.0
million. The Company records capitalized interest once construction
activities commence and capitalized $0.8 million, $1.6 million and $1.1 million
of interest on non-real estate projects during the years ended July 31, 2009,
2008 and 2007, respectively.
The
Company has certain assets being used in resort operations that were constructed
as amenities in conjunction with real estate development and included in project
costs and expensed as the real estate was sold. Accordingly, there is
no carrying value and no depreciation expense related to these assets in the
Company's Consolidated Financial Statements. These assets were
primarily placed in service from 1995 to 1997 with an original cost of
approximately $33.0 million and an average estimated useful life of 15
years.
Real Estate Held for Sale and
Investment-- The Company capitalizes as real estate held for sale and
investment the original land acquisition cost, direct construction and
development costs, property taxes, interest incurred on costs related to real
estate under development and other related costs, including costs that will be
capitalized as resort depreciable assets associated with mixed-use real estate
development projects for which the Company cannot specifically identify the
components at the time of incurring such cash outflows until the property
reaches its intended use. Sales and marketing expenses are charged
against income in the period incurred. Sales commission expenses are
charged against income in the period that the related revenue is
recorded. The Company records capitalized interest once construction
activities commence and real estate deposits have been utilized in
construction. Interest capitalized on real estate development
projects during the years ended July 31, 2009, 2008 and 2007 was $6.8 million,
$11.8 million and $8.2 million, respectively.
Deferred Financing Costs--
Costs incurred with the issuance of debt securities are included in
deferred charges and other assets, net of accumulated
amortization. Amortization is charged to interest expense over the
respective term of the applicable debt issues.
Goodwill and Intangible
Assets-- The Company has classified as goodwill the cost in excess of
fair value of the net assets of companies acquired in purchase
transactions. The Company's major intangible asset classes are
trademarks, water rights, customer lists, property management contracts, Forest
Service permits and excess reorganization value. Goodwill and certain
indefinite-lived intangible assets, including trademarks, water rights and
excess reorganization value, are not amortized, but are subject to at least
annual impairment testing. The Company tests annually (or more often,
if necessary) for impairment as of May 1. Amortizable intangible
assets are amortized over the shorter of their contractual terms or estimated
useful lives.
The
testing for impairment consists of a comparison of the fair value of the asset
with its carrying value. If the carrying amount of the asset exceeds
its fair value, an impairment will be recognized in an amount equal to that
excess. If the carrying amount of the asset does not exceed the fair
value, no impairment is recognized. The Company determines the
estimated fair value of its reporting units using a discounted cash flow
analysis. The fair value of indefinite-lived intangible assets is
estimated using an income approach. The Company determined that there
was no impairment to goodwill or intangible assets during the years ended July
31, 2009, 2008 and 2007.
Long-lived Assets-- The
Company evaluates potential impairment of long-lived assets and long-lived
assets to be disposed of whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. If
the sum of the expected cash flows, undiscounted and without interest, is less
than the carrying amount of the asset, an impairment loss is recognized as the
amount by which the carrying amount of the asset exceeds its fair
value. The Company does not believe any events or changes in
circumstances indicating an impairment of the carrying amount of an asset
occurred during the years ended July 31, 2009, 2008 and 2007.
Revenue Recognition--
Mountain and Lodging revenue is derived from a wide variety of sources,
including, among other things, sales of lift tickets (including season passes),
ski school operations, dining operations, retail sales, equipment rentals, hotel
operations, property management services, private club dues and golf course
greens fees, and are recognized as products are delivered or services are
performed. Revenue from arrangements with multiple deliverables is
bifurcated into units of accounting based on relative fair values and revenue is
separately recognized for each unit of accounting. If fair market
value cannot be established for an arrangement, revenue is deferred until all
deliverables have been performed. Revenues from private club
initiation fees are recognized over the estimated life of the club facilities on
a straight-line basis upon inception of the club. As of July 31,
2009, the weighted average remaining period over which the private club
initiation fees will be recognized is approximately 23 years. Certain
club initiation fees are refundable in 30 years after the date of acceptance of
a member. Under these memberships, the difference between the amount
paid by the member and the present value of the refund obligation is recorded as
deferred initiation fee revenue in the Company’s Consolidated Balance Sheet and
recognized as revenue on a straight-line basis over 30 years. The
present value of the refund obligation is recorded as an initiation deposit
liability and accretes over the nonrefundable term using the effective interest
method. The accretion is included in interest expense.
Revenue
from real estate primarily involves the sale of condominium/townhome units and
land parcels (including related improvements). Recognition of revenue
from all condominium unit sales are recorded using the full accrual method and
occurs only upon the following: (i) substantial completion of the entire
development project, (ii) receipt of certificates of occupancy or temporary
certificates of occupancy from local governmental agencies, if applicable, (iii)
closing of the sales transaction including receipt of all, or substantially all,
of sales proceeds (including any deposits previously received), and (iv)
transfer of ownership. The percentage-of-completion method is used
for sales of land parcels where the Company has a commitment to complete certain
improvements or amenities (i.e. access roads, utilities, and site improvements)
at the time of consummation of the sales transaction. The Company
recorded revenue under the percentage-of-completion method of approximately $1.5
million, $1.4 million and $7.1 million for the years ended July 31, 2009, 2008
and 2007, respectively. Contingent future profits, including future
profits from land sales, if any, are recognized only when
received. Additionally, the Company uses the deposit method for sales
that have not been completed for which payments have been received from buyers
(reflected as deferred real estate deposits in the Company’s Consolidated
Balance Sheets), and as such no profit is recognized until the sale is
consummated.
Real Estate Cost of Sales--
Costs of real estate transactions include direct project costs, common cost
allocations (primarily determined on relative sales value) and may include
accrued liabilities for costs to be incurred subsequent to the sales
transaction. The Company utilizes the relative sales value method to
determine cost of sales for individual parcels of real estate or condominium
units sold within a project, when specific identification of costs cannot be
reasonably determined. Estimates of project costs and cost
allocations are reviewed at the end of each financial reporting period until a
project is substantially completed and available for sale. Costs are
revised and reallocated as necessary for material changes on the basis of
current estimates and are reported as a change in estimate in the current
period. The Company recorded changes in estimates that (decreased)
increased real estate cost of sales by approximately $(0.4) million, $0.1
million and $(0.6) million for the years ended July 31, 2009, 2008 and 2007,
respectively. Additionally, for the year ended July 31, 2009 the
Company recorded a $2.8 million charge for an affordable housing commitment
related to the Jackson Hole Golf & Tennis Club (“JHG&TC”) development;
and, for the year ended July 31, 2007 recorded a $7.6 million charge for
incremental remediation costs to complete the JHG&TC cabins that had design
and construction issues.
Deferred Revenue-- In
addition to deferring certain revenue related to private club initiation fees
and the real estate sales as noted above, the Company records deferred revenue
related to the sale of season ski passes. The number of season pass
holder visits is estimated based on historical data and the deferred revenue is
recognized throughout the season based on this estimate, or on a straight-line
basis if usage patterns cannot be determined based on available historical
data.
Reserve Estimates-- The
Company uses estimates to record reserves for certain liabilities, including
medical claims, workers' compensation, third-party loss contingencies,
liabilities for the completion of real estate sold by the Company, property
taxes and loyalty reward programs among other items. The Company
estimates the potential costs related to these liabilities that will be incurred
and records that amount as a liability in its financial
statements. These estimates are reviewed and adjusted as the facts
and circumstances related to the liabilities change. The Company
records legal costs related to defending claims as incurred.
Advertising Costs--
Advertising costs are expensed at the time such advertising
commences. Advertising expense for the years ended July 31, 2009,
2008 and 2007 was $17.9 million, $17.6 million and $17.5 million,
respectively. At both July 31, 2009 and 2008, prepaid advertising
costs of $0.4 million is reported as “other current assets” in the Company's
Consolidated Balance Sheets.
Income Taxes-- The Company’s
provision for income taxes is based on current pre-tax income, changes in
deferred tax assets and liabilities and changes in estimates with regard to
uncertain tax positions. Deferred tax assets and liabilities are
recorded for the estimated future tax effects of temporary differences between
the tax bases of assets and liabilities and amounts reported in the accompanying
Consolidated Balance Sheets and for operating loss and tax credit
carryforwards. The change in deferred tax assets and liabilities for
the period measures the deferred tax provision or benefit for the
period. Effects of changes in enacted tax laws on deferred tax assets
and liabilities are reflected as adjustments to the tax provision or benefit in
the period of enactment. The Company's deferred tax assets have been
reduced by a valuation allowance to the extent it is deemed to be more likely
than not that some or all of the deferred tax assets will not be realized (see
Note 12, Income Taxes, for more information related to deferred tax assets and
liabilities).
On August
1, 2007, the Company adopted the Financial Accounting Standards Board’s (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an
Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
prescribes a two-step process to determine the amount of tax benefit to be
recognized. However, the tax position must be evaluated to determine
the likelihood that it will be sustained upon examination. If the tax
position is deemed “more-likely-than-not” to be sustained, the tax position is
then valued to determine the amount of benefit to be recognized in the financial
statements (see Note 12, Income Taxes, for more information related to the
application of FIN 48).
Fair Value of Financial
Instruments-- The recorded amounts for cash and cash equivalents,
receivables, other current assets, and accounts payable and accrued expenses
approximate fair value due to their short-term nature. The fair value
of amounts outstanding under the Employee Housing Bonds (as defined in 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 6.75%
Notes (as defined in Note 4, Long-Term Debt) is based on quoted market
price. The fair value of the Company's Industrial Development Bonds
(as defined in 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. The estimated
fair value of the 6.75% Notes, Industrial Development Bonds and other long-term
debt as of July 31, 2009 and 2008 is presented below (in
thousands):
|
July
31, 2009
|
July
31, 2008
|
|||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||
|
Value
|
Value
|
Value
|
Value
|
|||||||||
|
6.75%
Notes
|
$
|
390,000
|
$
|
374,400
|
$
|
390,000
|
$
|
362,700
|
||||
|
Industrial
Development Bonds
|
$
|
42,700
|
$
|
43,702
|
$
|
57,700
|
$
|
57,556
|
||||
|
Other
long-term debt
|
$
|
6,685
|
$
|
6,651
|
$
|
7,036
|
$
|
6,590
|
||||
Stock-Based Compensation--
Stock-based compensation expense is measured at the grant date based upon
the fair value of the portion of the award that are ultimately expected to vest
and is recognized as expense over the applicable vesting period of the award
generally using the straight-line method (see Note 18, Stock Compensation Plan
for more information). The following table shows total stock-based
compensation expense for the years ended July 31, 2009, 2008 and 2007 included
in the Consolidated Statements of Operations (in thousands):
|
Year
Ended July 31,
|
|||||||||||
|
2009
|
2008
|
2007
|
|||||||||
|
Mountain
operating expense
|
$
|
4,826
|
$
|
3,834
|
$
|
3,824
|
|||||
|
Lodging
operating expense
|
1,778
|
1,294
|
1,091
|
||||||||
|
Real
estate operating expense
|
4,129
|
3,136
|
2,083
|
||||||||
|
Pre-tax
stock-based compensation expense
|
10,733
|
8,264
|
6,998
|
||||||||
|
Less:
benefit for income taxes
|
4,071
|
3,134
|
2,628
|
||||||||
|
Net
stock-based compensation expense
|
$
|
6,662
|
$
|
5,130
|
$
|
4,370
|
|||||
Concentration of Credit Risk--
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and restricted
cash. The Company places its cash and temporary cash investments in
high quality credit institutions, but these investments may be in excess of FDIC
insurance limits. The Company does not enter into financial
instruments for trading or speculative purposes. Concentration of
credit risk with respect to trade and notes receivables is limited due to the
wide variety of customers and markets in which the Company transacts business,
as well as their dispersion across many geographical areas. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral, but does require advance deposits on certain
transactions.
Use of Estimates-- The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“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.
New Accounting
Pronouncements-- In September 2006, the FASB issued SFAS No. 157,
“Fair Value Measurements” (“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. SFAS 157 does not require any new fair
value measurements, but provides guidance on how to measure fair value by
providing a fair value hierarchy which prioritizes the inputs to valuation
techniques used to measure fair value. In February 2008, the FASB
issued Staff Position (“FSP”) 157-2, “Effective Date of FASB Statement No.
157.” This FSP delayed the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually),
to fiscal years beginning after November 15, 2008 (the Company's fiscal year
ending July 31, 2010) and interim periods within the fiscal year of
adoption. The adoption of SFAS 157 for financial assets and
liabilities was effective for the Company on August 1, 2008 and did not have a
material impact on the Company’s financial position or results of
operations. The Company does not anticipate that the adoption of the
provisions of SFAS 157 for nonfinancial assets and liabilities will have a
material impact on the Company’s financial position or results of
operations.
In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations”
(“SFAS 141R”), which establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS 141R also requires acquisition-related
transaction expenses and restructuring costs be expensed as incurred rather than
capitalized as a component of the business combination. SFAS 141R
will be applicable prospectively to business combinations consummated after July
31, 2009 (the Company’s fiscal year ending July 31, 2010).
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51”
(“SFAS 160”), which will change the accounting and reporting for minority
interests, which will be recharacterized as noncontrolling interests and
classified as a component of equity within the balance
sheet. Currently, noncontrolling interests (minority interests) are
reported as a liability in the Company’s consolidated balance sheet and the
related income (loss) attributable to minority interests is reflected as an
expense (credit) in arriving at net income. Upon adoption of SFAS
160, the Company will be required to report its minority interests as a separate
component of stockholders’ equity and present net income allocable to the
minority interests along with net income attributable to the stockholders of the
Company separately in its consolidated statement of operations. SFAS
160 requires retroactive adoption of the presentation and disclosure
requirements for existing minority interests. All other requirements
of SFAS 160 shall be applied prospectively. The requirements of
SFAS 160 are effective for the Company beginning August 1, 2009 (the
Company’s fiscal year ending July 31, 2010).
In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation
of Other-Than-Temporary Impairments” (“FSP 115-2”) which establishes a new model
for measuring other-than-temporary impairments for debt securities, including
establishing criteria for when to recognize a write-down through earnings versus
other comprehensive income. The FSP also requires additional interim
and annual disclosures for impaired securities. The requirements of
the FSP were effective for the Company as of July 31, 2009 and did not have a
material impact on the Company’s financial position or results of
operations.
In May
2009, the FASB issued SFAS 165, “Subsequent Events” (“SFAS 165”) which
establishes the general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. SFAS 165 requires entities to
recognize in their financial statements the effects of all subsequent events
that provide additional evidence about conditions that existed at the date of
the balance sheet, including the estimates inherent in the process of preparing
financial statements. Entities shall not recognize subsequent events
that provide evidence about conditions that did not exist at the date of the
balance sheet but arose subsequent to that date. In addition,
entities are required to disclose the period through which subsequent events
have been evaluated. The provisions of SFAS 165 were effective for the Company
as of July 31, 2009. Accordingly, the Company evaluated events and
transactions occurring after July 31, 2009 through September 23, 2009, the date
these financial statements were available to be issued.
In June
2009, the FASB issued SFAS 167, “Amendments to FASB Interpretation No. 46(R)”
(“SFAS 167”) which amends the consolidation guidance under FASB Interpretation
No. 46R, “Consolidation of Variable Interest Entities, an interpretation of ARB
No. 51” (“FIN 46R”). SFAS 167 requires entities to perform a
qualitative assessment in determining the primary beneficiary of a variable
interest entity. The qualitative assessment includes, among other
things, consideration as to whether a variable interest holder has the power to
direct the activities that most significantly impact the economic performance of
the variable interest entity and the obligation to absorb losses or the right to
receive benefits of the variable interest entity that could potentially be
significant to the variable interest entity. Pursuant to SFAS 167,
the requirement to assess whether an entity should be deemed the primary
beneficiary is an on-going reconsideration. The provisions of SFAS
167 are effective for the Company beginning August 1, 2011 (the Company’s fiscal
year ending July 31, 2012). The Company is currently evaluating the
impacts, if any, the adoption of the provisions of SFAS 167 will have
on the Company’s financial position or results of operations.
3. Net
Income Per Common Share
Basic
earnings per share (“EPS”) excludes dilution and is computed by dividing net
income available to holders of common stock by the weighted-average shares
outstanding. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised,
resulting in the issuance of shares of common stock that would then share in the
earnings of the Company. Presented below is basic and diluted EPS for
the years ended July 31, 2009, 2008 and 2007 (in thousands, except per share
amounts):
|
Year
Ended July 31,
|
||||||||||||||||||||||||
|
2009
|
2008
|
2007
|
||||||||||||||||||||||
|
Basic
|
Diluted
|
Basic
|
Diluted
|
Basic
|
Diluted
|
|||||||||||||||||||
|
Net
income per share:
|
||||||||||||||||||||||||
|
Net
income
|
$
|
48,950
|
$
|
48,950
|
$
|
102,927
|
$
|
102,927
|
$
|
61,397
|
$
|
61,397
|
||||||||||||
|
Weighted-average
shares outstanding
|
36,546
|
36,546
|
38,616
|
38,616
|
38,849
|
38,849
|
||||||||||||||||||
|
Effect
of dilutive securities
|
--
|
127
|
--
|
318
|
--
|
525
|
||||||||||||||||||
|
Total
shares
|
36,546
|
36,673
|
38,616
|
38,934
|
38,849
|
39,374
|
||||||||||||||||||
|
Net
income per share
|
$
|
1.34
|
$
|
1.33
|
$
|
2.67
|
$
|
2.64
|
$
|
1.58
|
$
|
1.56
|
||||||||||||
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 795,000, 63,000 and
18,000 for the years ended July 31, 2009, 2008 and 2007,
respectively.
4. Long-Term
Debt
Long-term
debt as of July 31, 2009 and 2008 is summarized as follows (in
thousands):
|
Fiscal
Year
|
July
31,
|
July
31,
|
|||||
|
Maturity
(i)
|
2009
|
2008
|
|||||
|
Credit
Facility Revolver (a)
|
2012
|
$
|
--
|
$
|
--
|
||
|
SSV
Facility (b)
|
2011
|
--
|
--
|
||||
|
Industrial
Development Bonds (c)
|
2011-2020
|
42,700
|
57,700
|
||||
|
Employee
Housing Bonds (d)
|
2027-2039
|
52,575
|
52,575
|
||||
|
Non-Recourse
Real Estate Financings (e)
|
--
|
--
|
49,394
|
||||
|
6.75%
Senior Subordinated Notes (f)
|
2014
|
390,000
|
390,000
|
||||
|
Other
(g)
|
2010-2029
|
6,685
|
7,036
|
||||
|
Total
debt
|
491,960
|
556,705
|
|||||
|
Less: Current
maturities (h)
|
352
|
15,355
|
|||||
|
Long-term
debt
|
$
|
491,608
|
$
|
541,350
|
|
(a)
|
On
March 20, 2008, The Vail Corporation (“Vail Corp.”), a wholly-owned
subsidiary of the Company, exercised the accordion feature under the
revolver component of its senior credit facility (the “Credit Facility”)
as provided in the existing Fourth Amended and Restated Credit Agreement,
dated as of January 28, 2005, as amended, between The Vail Corp., Bank of
America, N.A. as administrative agent and the Lenders party thereto (the
“Credit Agreement”) governing the Company’s Credit Facility and the
Indenture, dated as of January 29, 2004 among the Company, the guarantors
therein and The Bank of New York Mellon Trust Company, N.A. as Trustee
(“Indenture”), governing the 6.75% Senior Subordinated Notes due 2014
(“6.75% Notes”), which expanded the borrowing capacity from $300.0 million
to $400.0 million at the same terms existing in the Credit
Agreement.
Vail
Corp. obligations under the Credit Agreement are guaranteed by the Company
and certain of its subsidiaries and are collateralized by a pledge of all
of the capital stock of Vail Corp., substantially all of its subsidiaries
and the Company's interest in SSV. The proceeds of loans made
under the Credit Agreement may be used to fund the Company's working
capital needs, capital expenditures, investment in real estate,
acquisitions and other general corporate purposes, including the issuance
of letters of credit. Borrowings under the Credit Agreement
bear interest annually at the Company's option currently at the rate of
(i) LIBOR plus 0.5% (0.78% at July 31, 2009) or (ii) the Agent's prime
lending rate plus, in certain circumstances, a margin (3.25% at July 31,
2009). Interest rate margins fluctuate based upon the ratio of
the Company's Net Funded Debt to Adjusted EBITDA (as defined in the Credit
Agreement) on a trailing twelve-month basis. The Credit
Agreement also includes a quarterly unused commitment fee, which is equal
to a percentage determined by the Net Funded Debt to Adjusted EBITDA
ratio, as defined in the Credit Agreement, times the daily amount by which
the Credit Agreement commitment exceeds the total of outstanding loans and
outstanding letters of credit. The unused amounts are
accessible to the extent that the Net Funded Debt to Adjusted EBITDA ratio
does not exceed the maximum ratio allowed at quarter-end. The
unused amount available for borrowing under the Credit Agreement was
$304.7 million as of July 31, 2009, net of certain letters of credit of
$95.3 million outstanding under the Credit Agreement. The
Credit Agreement provides for affirmative and negative covenants that
restrict, among other things, the Company's ability to incur indebtedness,
dispose of assets, make capital expenditures, make distributions and make
investments. In addition, the Credit Agreement includes the
following restrictive financial covenants: Net Funded Debt to Adjusted
EBITDA ratio, Interest Coverage ratio, and Minimum Net Worth (each as
defined in the Credit Agreement).
|
|
(b)
|
The
SSV Credit Facility (“SSV Facility”) provides for financing up to an
aggregate $33.0 million consisting of (i) an $18.0 million working capital
revolver, (ii) a $10.0 million reducing revolver and (iii) a $5.0 million
acquisition revolver. Obligations under the SSV Facility are
collateralized by a first priority security interest in all the assets of
SSV ($91.6 million at July 31, 2009). Availability under the
SSV Facility is based on the book values of accounts receivable,
inventories and rental equipment of SSV. Borrowings bear
interest annually at SSV's option of (i) LIBOR plus 0.875% (1.15% at July
31, 2009) or (ii) U.S. Bank's prime rate minus 1.75% (1.50% at July 31,
2009). Proceeds under the working capital revolver are for
SSV's seasonal working capital needs. No principal payments are
due until maturity, and principal may be drawn and repaid at any
time. Principal under the reducing revolver may be drawn and
repaid at any time. The reducing revolver commitments decrease
by $0.3 million on January 31, April 30, July 31 and October 31 of each
year beginning January 31, 2006 ($5.3 million available at July 31,
2009). Any outstanding balance in excess of the reduced
commitment amount is due on the day of each commitment
reduction. The acquisition revolver is to be utilized to make
acquisitions subject to U.S. Bank's approval. Principal under
the acquisition revolver may be drawn and repaid at any
time. The acquisition revolver commitments decrease by $0.2
million on January 31, April 30, July 31 and October 31 of each year
beginning January 31, 2007 ($3.3 million available at July 31,
2009). Any outstanding balance in excess of the reduced
commitment amount is due on the day of each commitment
reduction. The SSV Facility contains certain restrictive
financial covenants, including a Consolidated Leverage Ratio and a Minimum
Fixed Charge Coverage Ratio (each as defined in the underlying credit
agreement).
|
|
(c)
|
The
Company has outstanding $42.7 million of industrial development bonds
(collectively, the “Industrial Development Bonds”), of which $41.2 million
were issued by Eagle County, Colorado (the “Eagle County Bonds”) and
mature, subject to prior redemption, on August 1, 2019. These
bonds accrue interest at 6.95% per annum, with interest being payable
semi-annually on February 1 and August 1. The promissory note
with respect to the Eagle County Bonds between Eagle County and the
Company is collateralized by the Forest Service permits for Vail and
Beaver Creek. The Series 1991 Sports Facilities Refunding
Revenue Bonds, issued by Summit County, Colorado, have an aggregate
outstanding principal amount of $1.5 million maturing in the year ending
July 31, 2011 and bear interest at 7.375%. The promissory note
with respect to the Summit County Bonds between Summit County and the
Company is pledged and endorsed to the Bank of New York as Trustee under
the Indenture of Trust underlying the Summit County Bonds. The
promissory note is also collateralized in accordance with a guaranty from
Ralston Purina Company (subsequently assumed by Vail Corp. to the Trustee
for the benefit of the registered owners of the bonds). On
August 29, 2008, $15.0 million of borrowings under the Series 1990 Sports
Facilities Refunding Revenue Bonds, issued by Summit County, Colorado was
paid in full.
|
|
(d)
|
The
Company has recorded for financial reporting purposes the outstanding debt
of four Employee Housing Entities (each an “Employee Housing Entity” and
collectively the “Employee Housing Entities”): Breckenridge Terrace,
Tarnes, BC Housing and Tenderfoot. The proceeds of the Employee
Housing Bonds were used to develop apartment complexes designated
primarily for use by the Company's seasonal employees at its mountain
resorts. The Employee Housing Bonds are variable rate,
interest-only instruments with interest rates tied to LIBOR plus 0% to
0.05% (0.28% to 0.33% at July 31, 2009). Interest on the
Employee Housing Bonds is paid monthly in arrears and the interest rate is
adjusted weekly. No principal payments are due on the Employee
Housing Bonds until maturity. Each Employee Housing Entity’s
bonds were issued in two series. The bonds for each Employee
Housing Entity are backed by letters of credit issued under the Credit
Facility. The table below presents the principal amounts
outstanding for the Employee Housing Bonds as of July 31, 2009 (in
thousands):
|
|
Maturity
(i)
|
Tranche
A
|
Tranche
B
|
Total
|
|||||||
|
Breckenridge
Terrace
|
2039
|
$
|
14,980
|
$
|
5,000
|
$
|
19,980
|
|||
|
Tarnes
|
2039
|
8,000
|
2,410
|
10,410
|
||||||
|
BC
Housing
|
2027
|
9,100
|
1,500
|
10,600
|
||||||
|
Tenderfoot
|
2035
|
5,700
|
5,885
|
11,585
|
||||||
|
Total
|
$
|
37,780
|
$
|
14,795
|
$
|
52,575
|
|
(e)
|
In
March 2007, The Chalets at The Lodge at Vail, LLC (“Chalets”), a
wholly-owned subsidiary of the Company, entered into a construction loan
agreement (“Chalets Facility”) in the amount of up to $123.0 million with
Wells Fargo, as administrative agent, book manager, and joint lead
arranger, U.S. Bank as joint lead arranger and syndication agent, and the
lenders party thereto. Borrowings under the Chalets Facility
were non-revolving and had to be used for the payment of certain costs
associated with the construction and development of The Lodge at Vail
Chalets, a residential development consisting of 13 luxury condominium
units, as well as a private mountain club, a spa, skier services building
and parking structure. As of July 31, 2008
borrowings under the Chalets Facility were $49.4
million. The Chalets Facility was paid in full during the year
ended July 31, 2009.
|
|
(f)
|
The
Company has outstanding $390.0 million of 6.75% Notes issued in January
2004. The 6.75% Notes have a fixed annual interest rate of
6.75% with interest due semi-annually on February 15 and August
15. No principal payments are due to be paid until
maturity. The Company has certain early redemption options
under the terms of the 6.75% Notes. The premium for early
redemption of the 6.75% Notes ranges from 0% to 3.375%, depending on the
date of redemption. The 6.75% Notes are subordinated to certain
of the Company's debts, including the Credit Facility. The
Company's payment obligations under the 6.75% Notes are jointly and
severally guaranteed by substantially all of the Company's current and
future domestic subsidiaries (see Note 20, Guarantor Subsidiaries and
Non-Guarantor Subsidiaries). The Indenture governing the 6.75%
Notes contains restrictive covenants which, among other things, limit the
ability of the Company and its Restricted Subsidiaries (as defined in the
Indenture) to (i) borrow money or sell preferred stock, (ii) create liens,
(iii) pay dividends on or redeem or repurchase stock, (iv) make certain
types of investments, (v) sell stock in the Restricted Subsidiaries, (vi)
create restrictions on the ability of the Restricted Subsidiaries to pay
dividends or make other payments to the Company, (vii) enter into
transactions with affiliates, (viii) issue guarantees of debt and (ix)
sell assets or merge with other
companies.
|
|
(g)
|
Other
obligations primarily consist of a $6.2 million note outstanding to the
Colorado Water Conservation Board, which matures in the year ending July
31, 2029, and capital leases totaling $0.5 million. Other
obligations, including the Colorado Water Conservation Board note and the
capital leases, bear interest at rates ranging from 3.5% to 6.0% and have
maturities ranging from in the year ending July 31, 2010 to the year
ending July 31, 2029.
|
|
(h)
|
Current
maturities represent principal payments due in the next 12
months.
|
|
(i)
|
Maturities
are based on the Company's July 31 fiscal year
end.
|
Aggregate
maturities for debt outstanding as of July 31, 2009 reflected by fiscal year are
as follows (in thousands):
|
Total
|
||
|
2010
|
$
|
352
|
|
2011
|
1,827
|
|
|
2012
|
305
|
|
|
2013
|
319
|
|
|
2014
|
390,219
|
|
|
Thereafter
|
98,938
|
|
|
Total
debt
|
$
|
491,960
|
The
Company recorded gross interest expense of $35.2 million, $44.1 million and
$41.9 million for the years ended July 31, 2009, 2008 and 2007, respectively, of
which $2.0 million, $2.5 million and $1.9 million was amortization of deferred
financing costs. The Company capitalized $7.6 million, $13.4 million
and $9.3 million of interest during the years ended July 31, 2009, 2008 and
2007, respectively. The Company was in compliance with all of its
financial and operating covenants required to be maintained under its debt
instruments for all periods presented.
5. Supplementary
Balance Sheet Information
The
composition of property, plant and equipment follows (in
thousands):
|
July
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Land
and land improvements
|
$
|
261,263
|
$
|
265,123
|
||||
|
Buildings
and building improvements
|
750,063
|
685,393
|
||||||
|
Machinery
and equipment
|
496,963
|
457,825
|
||||||
|
Furniture
and fixtures
|
174,770
|
149,251
|
||||||
|
Software
|
44,584
|
39,605
|
||||||
|
Vehicles
|
33,991
|
28,829
|
||||||
|
Construction
in progress
|
40,724
|
80,601
|
||||||
|
Gross
property, plant and equipment
|
1,802,358
|
1,706,627
|
||||||
|
Accumulated
depreciation
|
(744,700
|
)
|
(649,790
|
)
|
||||
|
Property,
plant and equipment, net
|
$
|
1,057,658
|
$
|
1,056,837
|
||||
Depreciation
expense for the years ended July 31, 2009, 2008 and 2007 totaled $106.6 million,
$93.3 million and $84.0 million, respectively.
The
composition of intangible assets follows (in thousands):
|
July
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Indefinite
lived intangible assets
|
||||||||
|
Trademarks
|
$
|
66,013
|
$
|
61,714
|
||||
|
Water
rights
|
10,684
|
10,684
|
||||||
|
Excess
reorganization value
|
14,145
|
14,145
|
||||||
|
Other
intangible assets
|
6,200
|
6,200
|
||||||
|
Gross
indefinite-lived intangible assets
|
97,042
|
92,743
|
||||||
|
Accumulated
amortization
|
(24,713
|
)
|
(24,713
|
)
|
||||
|
Indefinite-lived
intangible assets, net
|
72,329
|
68,030
|
||||||
|
Goodwill
|
||||||||
|
Goodwill
|
185,304
|
159,636
|
||||||
|
Accumulated
amortization
|
(17,354
|
)
|
(17,354
|
)
|
||||
|
Goodwill,
net
|
167,950
|
142,282
|
||||||
|
Amortizable
intangible assets
|
||||||||
|
Customer
lists
|
19,414
|
17,814
|
||||||
|
Property
management contracts
|
4,412
|
4,412
|
||||||
|
Forest
Service permits
|
5,902
|
5,905
|
||||||
|
Other
intangible assets
|
16,759
|
15,159
|
||||||
|
Gross
amortizable intangible assets
|
46,487
|
43,290
|
||||||
|
Accumulated
amortization
|
||||||||
|
Customer
lists
|
(17,934
|
)
|
(17,814
|
)
|
||||
|
Property
management contracts
|
(3,809
|
)
|
(3,726
|
)
|
||||
|
Forest
Service permits
|
(2,348
|
)
|
(2,174
|
)
|
||||
|
Other
intangible assets
|
(15,296
|
)
|
(15,076
|
)
|
||||
|
Accumulated
amortization
|
(39,387
|
)
|
(38,790
|
)
|
||||
|
Amortizable
intangible assets, net
|
7,100
|
4,500
|
||||||
|
Total
gross intangible assets
|
328,833
|
295,669
|
||||||
|
Total
accumulated amortization
|
(81,454
|
)
|
(80,857
|
)
|
||||
|
Total
intangible assets, net
|
$
|
247,379
|
$
|
214,812
|
||||
Amortization
expense for intangible assets subject to amortization for the years ended July
31, 2009, 2008 and 2007 totaled $0.6 million, $0.5 million and $3.7 million,
respectively, and is estimated to be approximately $0.7 million annually, on
average, for the next five fiscal years.
The
changes in the net carrying amount of goodwill allocated between the Company’s
segments for the years ended July 31, 2009 and 2008 are as follows (in
thousands):
|
Mountain
|
Lodging
|
Goodwill,
net
|
|||||||
|
Balance
at July 31, 2007
|
$
|
107,139
|
$
|
34,560
|
$
|
141,699
|
|||
|
Acquisition
|
583
|
--
|
583
|
||||||
|
Balance
at July 31, 2008
|
107,722
|
34,560
|
142,282
|
||||||
|
Acquisition
|
--
|
25,668
|
25,668
|
||||||
|
Balance
at July 31, 2009
|
$
|
107,722
|
$
|
60,228
|
$
|
167,950
|
On
November 1, 2008, the Company acquired substantially all of the assets of CME, a
resort ground transportation business, for a total consideration of $38.2
million, as well as $0.9 million to reimburse the seller for certain new capital
expenditures as provided for in the purchase agreement. The
acquisition was accounted for as a business purchase combination using the
purchase method of accounting. The purchase price was allocated to
tangible and identifiable intangible assets acquired based on their estimated
fair values at the acquisition date. The Company has completed its
preliminary purchase price allocation and has recorded $25.7 million in
goodwill, $4.3 million in indefinite- lived intangible assets, $6.1 million of
fixed assets and $3.2 million of other intangibles (with a weighted-average
amortization period of 8.3 years) on the date of acquisition. The
operating results of CME are reported within the Lodging segment. In
December 2007, the Company acquired a retail/rental business, resulting in $0.6
million of goodwill.
The
composition of accounts payable and accrued expenses follows (in
thousands):
|
July
31,
|
||||||
|
2009
|
2008
|
|||||
|
Trade
payables
|
$
|
42,591
|
$
|
53,187
|
||
|
Real
estate development payables
|
45,681
|
52,574
|
||||
|
Deferred
revenue
|
57,171
|
45,805
|
||||
|
Deferred
real estate and other deposits
|
21,576
|
58,421
|
||||
|
Accrued
salaries, wages and deferred compensation
|
15,202
|
22,397
|
||||
|
Accrued
benefits
|
23,496
|
22,777
|
||||
|
Accrued
interest
|
14,002
|
14,552
|
||||
|
Liability
to complete real estate projects, short term
|
3,972
|
4,199
|
||||
|
Other
accruals
|
21,845
|
20,270
|
||||
|
Total
accounts payable and accrued expenses
|
$
|
245,536
|
$
|
294,182
|
||
The
composition of other long-term liabilities follows (in thousands):
|
July
31,
|
||||||
|
2009
|
2008
|
|||||
|
Private
club deferred initiation fee revenue and deposits
|
$
|
153,265
|
$
|
121,947
|
||
|
Deferred
real estate deposits
|
32,792
|
45,775
|
||||
|
Other
long-term liabilities
|
47,112
|
15,921
|
||||
|
Total
other long-term liabilities
|
$
|
233,169
|
$
|
183,643
|
||
6. Investments
in Affiliates
The
Company held the following investments in equity method affiliates as of July
31, 2009:
|
Equity
Method Affiliates
|
Ownership
Interest
|
||
|
Slifer,
Smith, and Frampton/Vail Associates Real Estate, LLC
(“SSF/VARE”)
|
50
|
%
|
|
|
KRED
|
50
|
%
|
|
|
Clinton
Ditch and Reservoir Company
|
43
|
%
|
|
The
Company had total net investments in equity method affiliates of $7.8 million
and $8.6 million as of July 31, 2009 and 2008, respectively, classified as
“deferred charges and other assets” in the accompanying Consolidated Balance
Sheets. The amount of retained earnings that represent undistributed
earnings of 50-percent-or-less-owned entities accounted for by the equity method
was $4.6 million and $5.5 million as of July 31, 2009 and 2008,
respectively. During the years ended July 31, 2009, 2008 and 2007,
distributions in the amounts of $1.7 million, $2.3 million and $5.8 million,
respectively, were received from equity method affiliates.
7. Variable
Interest Entities
The
Company is the primary beneficiary of the Employee Housing Entities, which are
Variable Interest Entities (“VIEs”), and has consolidated them in its
Consolidated Financial Statements. As a group, as of July 31, 2009,
the Employee Housing Entities had total assets of $36.2 million (primarily
recorded in property, plant and equipment, net) and total liabilities of $70.0
million (primarily recorded in long-term debt as “Employee Housing
Bonds”). The Company has issued under its Credit Facility $53.4
million letters of credit related to Employee Housing Bonds. The
letters of credit would be triggered in the event that one of the entities
defaults on required payments. The letters of credit have no default
provisions.
The
Company is the primary beneficiary of Avon Partners II, LLC (“APII”), which is a
VIE. APII owns commercial space and the Company currently leases
substantially all of that space. APII had total assets of $5.3
million (primarily recorded in property, plant and equipment) and no debt as of
July 31, 2009.
The
Company, through various lodging subsidiaries, manages hotels in which the
Company has no ownership interest in the entities that own such
hotels. The Company has extended a $2.0 million note receivable to
one of these entities. These entities were formed by unrelated third
parties to acquire, own, operate and realize the value in resort hotel
properties. The Company managed the day-to-day operations of six
hotel properties as of July 31, 2009. The Company has determined that
the entities that own the hotel properties are VIEs, and the management
contracts are significant variable interests in these VIEs. The
Company has also determined that it is not the primary beneficiary of these
entities and, accordingly, is not required to consolidate any of these
entities. Based upon the latest information provided by these third
parties, these VIEs had estimated total assets of approximately $229 million
(unaudited) and total liabilities of approximately $151 million
(unaudited). The Company's maximum exposure to loss as a result of
its involvement with these VIEs is limited to the note receivable and accrued
interest of approximately $2.3 million and the net book value of the intangible
asset associated with a management agreement in the amount of $0.6 million as of
July 31, 2009.
8. Fair
Value Measurements
SFAS 157
establishes how reporting entities should measure fair value for measurement and
disclosure purposes. SFAS 157 does not require any new fair value
measurements but rather establishes a common definition of fair value applicable
to all assets and liabilities measured at fair value. SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value hierarchy established by SFAS
157 prioritizes the inputs into valuation techniques used to measure fair
value. Accordingly, the Company uses valuation techniques which
maximize the use of observable inputs and minimize the use of unobservable
inputs when determining fair value. The three levels of the hierarchy
are as follows:
Level 1:
Inputs that reflect unadjusted quoted prices in active markets that are
accessible to the Company for identical assets or liabilities;
Level 2:
Inputs include quoted prices for similar assets and liabilities in active and
inactive markets or that are observable for the asset or liability either
directly or indirectly; and
Level 3:
Unobservable inputs which are supported by little or no market
activity.
The table
below summarizes the Company’s financial assets and liabilities measured at fair
value in accordance with SFAS 157 as of July 31, 2009 (all other financial
assets and liabilities applicable to SFAS 157 are immaterial) (in
thousands):
|
Fair
Value Measurements at Reporting Date Using
|
||||||||||||
|
Balance
at
|
||||||||||||
|
July
31,
|
||||||||||||
|
Description
|
2009
|
Level
1
|
Level
2
|
Level
3
|
||||||||
|
Cash
equivalents
|
$
|
61,215
|
$
|
47,915
|
$
|
13,300
|
$
|
--
|
||||
The
Company’s cash equivalents include money market funds and time deposits which
are measured using Level 1 and Level 2 inputs utilizing quoted market prices or
pricing models whereby all significant inputs are either observable or
corroborated by observable market data.
9. Relocation
and Separation Charges
In
February 2006, the Company announced a plan to relocate its corporate
headquarters; the plan was formally approved by the Company’s Board of Directors
in April 2006. The relocation process (which also included the
consolidation of certain other operations of the Company) was completed by July
31, 2007. Charges associated with the relocation for the year ended
July 31, 2007 were $1.4 million. This amount excludes any of the
benefits realized from the relocation and consolidation of offices.
10. Sale
of Business
On April
30, 2007, the Company sold its 54.5% interest in RTP to RTP’s minority
shareholder for approximately $3.5 million. As part of this
transaction the Company retained source code rights to its internal use software
and internet solutions. The net impact to income before provision for
income taxes in the accompanying Consolidated Statement of Operations for the
year ended July 31, 2007 from this transaction was a gain of $0.1 million
comprised of (i) a net loss of $0.6 million on the sale of its investment in
RTP, which was recorded in “loss on sale of business, net” and (ii) a net gain
of $0.7 million related to the elimination of the put option liability to RTP’s
minority shareholder and the write-off of the associated put option intangible
asset which was recorded in “gain on put option, net”.
11. Put
and Call Option
On March
31, 2007, the Company acquired 20% of GSSI LLC’s (“GSSI”), the minority
shareholder in SSV, ownership interest in SSV for $8.4 million. As a
result of this transaction, the Company holds an approximate 69.3% ownership
interest in SSV. In addition, the put and call rights for GSSI’s
remaining interest in SSV were extended to begin August 1, 2010, as discussed
below, and the existing management agreement was extended to coincide with the
exercise of the remaining put and call rights.
The
Company’s and GSSI’s remaining put and call rights are as follows: (i) beginning
August 1, 2010 and each year thereafter, each of the Company and GSSI have the
right to call or put, respectively, 100% of GSSI's ownership interest in SSV to
the Company during certain periods each year and (ii) GSSI has the right to put
to the Company 100% of its ownership interest in SSV at any time after GSSI has
been removed as manager of SSV or after an involuntary transfer of the Company's
ownership interest in SSV has occurred. The put and call pricing is
generally based on the trailing twelve month EBITDA (as defined in the operating
agreement) of SSV for the fiscal period ended prior to the commencement of the
put or call period, as applicable. As of July 31, 2009, the estimated
price at which the put/call option for the remaining interest could be expected
to be settled was $15.4 million.
12. Income
Taxes
As of
July 31, 2009, the Company had utilized all available Federal net operating loss
(“NOL”) carryforwards. These NOL carryforwards expired in the year
ended July 31, 2008 and were limited in deductibility each year under Section
382 of the Internal Revenue Code. The Company had only been able to
use these NOL carryforwards to the extent of approximately $8.0 million per year
through December 31, 2007 (the “Section 382 Amount”). However, during
the year ended July 31, 2005, the Company amended previously filed tax returns
(for tax years 1997-2002) in an effort to remove the restrictions under Section
382 of the Internal Revenue Code on approximately $73.8 million of NOL
carryforwards to reduce future taxable income. As a result, the
Company requested a refund related to the amended returns in the amount of $6.2
million and has reduced its federal tax liability in the amount of $19.6 million
in subsequent returns. These NOL carryforwards relate to fresh start
accounting from the Company's reorganization in 1992. During the year
ended July 31, 2006, the Internal Revenue Service (“IRS”) completed its
examination of the Company’s filing position in these amended returns and
disallowed the Company’s request for refund and its position to remove the
restrictions under Section 382 of the Internal Revenue
Code. Consequently, the accompanying financial statements and table
of deferred items and components of the tax provision have only recognized
benefits related to the NOL carryforwards to the extent of the Section 382
Amount reported in its tax returns prior to its amendments. The
Company appealed the examiner's disallowance of these NOL carryforwards to the
Office of Appeals. In December 2008, the Office of Appeals denied the
Company’s appeal, as well as a request for mediation. The Company
disagrees with the IRS interpretation disallowing the utilization of the NOL’s
and in August 2009 filed a complaint in the United States District Court for the
District of Colorado seeking recovery of $6.2 million in over payments that were
previously denied by the IRS, plus interest. The Company cannot
predict the ultimate outcome of this matter or when this matter will be
resolved. If the Company is unsuccessful in this matter, it will not
negatively impact the Company’s results of operations.
The
Company has state NOL carryforwards (primarily California) totaling $25.1
million which expire by the year ending July 31, 2015. As of July 31,
2009, the Company has recorded a valuation allowance of $1.6 million, primarily
due to California NOL carryforwards generated in prior years, as the Company has
determined that it is more likely than not that these NOL carryforwards will not
be realized.
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
income tax purposes. Significant components of the Company's deferred
tax liabilities and assets are as follows (in thousands):
|
July
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Deferred
income tax liabilities:
|
||||||||
|
Fixed
assets
|
$
|
108,417
|
$
|
89,343
|
||||
|
Intangible
assets
|
27,878
|
26,542
|
||||||
|
Real
estate and other investments
|
944
|
--
|
||||||
|
Other,
net
|
2,647
|
2,455
|
||||||
|
Total
|
139,886
|
118,340
|
||||||
|
Deferred
income tax assets:
|
||||||||
|
Deferred
membership revenue
|
28,722
|
30,807
|
||||||
|
Real
estate and other investments
|
652
|
11,007
|
||||||
|
Deferred
compensation and other accrued expenses
|
18,315
|
14,083
|
||||||
|
Net
operating loss carryforwards other tax credits
|
1,444
|
2,775
|
||||||
|
Other,
net
|
1,404
|
1,119
|
||||||
|
Total
|
50,537
|
59,791
|
||||||
|
Valuation
allowance for deferred income taxes
|
(1,588
|
)
|
(1,588
|
)
|
||||
|
Deferred
income tax assets, net of valuation allowance
|
48,949
|
58,203
|
||||||
|
Net
deferred income tax liability
|
$
|
90,937
|
$
|
60,137
|
||||
The net
current and non-current components of deferred income taxes recognized in the
Consolidated Balance Sheets are as follows (in thousands):
|
July
31,
|
|||||||
|
2009
|
2008
|
||||||
|
Net
current deferred income tax asset
|
$
|
21,297
|
$
|
15,142
|
|||
|
Net
non-current deferred income tax liability
|
112,234
|
75,279
|
|||||
|
Net
deferred income tax liability
|
$
|
90,937
|
$
|
60,137
|
|||
Significant
components of the provision (benefit) for income taxes are as follows (in
thousands):
|
Year
Ended July 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$
|
(242
|
)
|
$
|
50,169
|
$
|
37,962
|
|||||
|
State
|
119
|
6,710
|
5,566
|
|||||||||
|
Total
current
|
(123
|
)
|
56,879
|
43,528
|
||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
27,358
|
5,533
|
(4,125
|
)
|
||||||||
|
State
|
3,409
|
674
|
(149
|
)
|
||||||||
|
Total
deferred
|
30,767
|
6,207
|
(4,274
|
)
|
||||||||
|
Provision
for income taxes
|
$
|
30,644
|
$
|
63,086
|
$
|
39,254
|
||||||
A
reconciliation of the income tax provision from continuing operations and the
amount computed by applying the United States Federal statutory income tax rate
to income before income taxes is as follows:
|
Year
Ended July 31,
|
|||||||||||
|
2009
|
2008
|
2007
|
|||||||||
|
At
U.S. Federal income tax rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
|||||
|
State
income tax, net of Federal benefit
|
2.9
|
%
|
2.9
|
%
|
3.5
|
%
|
|||||
|
Nondeductible
compensation
|
--
|
%
|
--
|
%
|
0.4
|
%
|
|||||
|
Nondeductible
meals or entertainment
|
0.2
|
%
|
0.1
|
%
|
0.2
|
%
|
|||||
|
General
business credits
|
(0.8
|
)
|
%
|
(0.4
|
)
|
%
|
(0.6
|
)
|
%
|
||
|
Other
|
1.2
|
%
|
0.4
|
%
|
0.5
|
%
|
|||||
|
38.5
|
%
|
38.0
|
%
|
39.0
|
%
|
||||||
The
Company adopted the provisions of FIN 48 on August 1, 2007. As of the
date of adoption, the accrual for uncertain tax positions was $13.1
million. The adoption of FIN 48 did not impact the amount of the
Company’s unrecognized tax benefits. However, the adoption did result
in a reclassification of $2.8 million of liabilities for unrecognized tax
benefits from deferred income tax liabilities to other long-term liabilities to
conform to the balance sheet presentation requirements of FIN 48. A
reconciliation of the beginning and ending amount of unrecognized tax benefits
associated with uncertain tax positions, excluding associated deferred tax
benefits and accrued interest and penalties, if applicable, is as follows (in
thousands):
|
Unrecognized
Tax Benefits
|
|||
|
Balance
as of August 1, 2007
|
$
|
12,257
|
|
|
Additions
based on tax positions related to the current year
|
--
|
||
|
Additions
for tax positions of prior years
|
6,331
|
||
|
Reductions
for tax positions of prior years
|
(237
|
)
|
|
|
Settlements
|
(555
|
)
|
|
|
Balance
as of July 31, 2008
|
$
|
17,796
|
|
|
Additions
based on tax positions related to the current year
|
--
|
||
|
Additions
for tax positions of prior years
|
9,524
|
||
|
Reductions
for tax positions of prior years
|
--
|
||
|
Settlements
|
--
|
||
|
Balance
as of July 31, 2009
|
$
|
27,320
|
|
As of
July 31, 2009, the amount of unrecognized tax benefits recorded in other
long-term liabilities was $27.3 million, of which $1.5 million would, if
recognized, decrease the Company’s effective tax rate. The Company’s
policy is to accrue income tax related interest and penalties, if applicable,
within income tax expense. As of July 31, 2009 and 2008, accrued
interest and penalties, net of tax, is $2.4 million and $1.9 million,
respectively. For the years ended July 31, 2009, 2008 and 2007, the
Company recognized $0.5 million, $1.1 million and $0.8 million of interest
expense and penalties, net of tax, respectively.
The
Company files income tax returns in the U.S. federal jurisdiction and various
state jurisdictions. The IRS has completed its examination of the Company’s tax
returns for tax years 2001 through 2003 and has issued a report of its
findings. As discussed above, the examiner’s primary finding is the
disallowance of the Company’s position to remove the restrictions under Section
382 of the Internal Revenue Code of approximately $73.8 million of NOL
carryforwards; however, the Company has filed a complaint in Federal
court. With the exception of the utilization of NOL carryforwards as
discussed above, the Company is no longer subject to U.S. Federal examinations
for tax years prior to 2006. With few exceptions, the Company is no
longer subject to examination by various state jurisdictions for tax years prior
to 2004.
13. Related
Party Transactions
The
Company has the right to appoint 4 of 9 directors of the Beaver Creek Resort
Company of Colorado (“BCRC”), a non-profit entity formed for the benefit of
property owners and certain others in Beaver Creek. The Company has a
management agreement with the BCRC, renewable for one-year periods, to provide
management services on a fixed fee basis. Management fees and
reimbursement of operating expenses paid to the Company under its agreement with
the BCRC during the years ended July 31, 2009, 2008 and 2007 totaled $8.0
million, $7.5 million and $7.1 million, respectively.
SSF/VARE
is a real estate brokerage with multiple locations in Eagle and Summit Counties,
Colorado in which the Company has a 50% ownership interest. SSF/VARE
is the broker for several of the Company's developments. The Company
recorded net real estate commissions expense of approximately $9.6 million,
$14.7 million and $3.4 million for payments made to SSF/VARE during the years
ended July 31, 2009, 2008 and 2007, respectively. SSF/VARE leases
space for real estate offices from the Company. The Company
recognized approximately $0.5 million, $0.4 million and $0.4 million in revenue
related to these leases for the years ended July 31, 2009, 2008 and 2007,
respectively.
In
December 2008, Robert A. Katz, Chairman of the Board of Directors and Chief
Executive Officer of the Company, purchased a unit at The Lodge at Vail Chalets
project located near the Vista Bahn at the base of Vail Mountain for a total
purchase price of $14.0 million. The sale of the unit by the Company
to Mr. Katz was approved by the Board of Directors of the Company in accordance
with the Company's related party transactions policy.
In
December 2004, Adam Aron, the former Chairman of the Board of Directors and
Chief Executive Officer of the Company, and Ronald Baron, an affiliate of a
significant shareholder in the Company, reserved the purchase of condominium
units at the Arrabelle at Vail Square project. In July 2008, Mr. Aron
and Mr. Baron each purchased a condominium unit for $4.6 million and $15.6
million, respectively. The sale of the condominiums was approved by
the Board of Directors of the Company in accordance with the Company's related
party transactions policy.
14. Commitments
and Contingencies
Metropolitan
Districts
The
Company credit-enhances $8.5 million of bonds issued by Holland Creek
Metropolitan District (“HCMD”) through an $8.6 million letter of credit issued
against the Company's Credit Facility. HCMD's bonds were issued and
used to build infrastructure associated with the Company's Red Sky Ranch
residential development. The Company has agreed to pay capital
improvement fees to Red Sky Ranch Metropolitan District (“RSRMD”) until RSRMD's
revenue streams from property taxes are sufficient to meet debt service
requirements under HCMD's bonds, and the Company has recorded a liability of
$1.9 million and $1.6 million, primarily within “other long-term liabilities” in
the accompanying Consolidated Balance Sheets as of July 31, 2009 and 2008,
respectively, with respect to the estimated present value of future RSRMD
capital improvement fees. The Company estimates that it will make
capital improvement fee payments under this arrangement through the year ending
July 31, 2016.
Guarantees
As of
July 31, 2009, the Company had various other guarantees, primarily in the form
of letters of credit in the amount of $88.6 million, consisting primarily of
$53.4 million in support of the Employee Housing Bonds, $28.7 million of
construction and development related guarantees and $6.1 million for workers’
compensation and general liability deductibles related to construction and
development activities.
In
addition to the guarantees noted above, the Company has entered into contracts
in the normal course of business which include certain indemnifications under
which it could be required to make payments to third parties upon the occurrence
or non-occurrence of certain future events. These indemnities include
indemnities to licensees in connection with the licensees’ use of the Company’s
trademarks and logos, indemnities for liabilities associated with the
infringement of other parties’ technology and software products, indemnities
related to liabilities associated with the use of easements, indemnities related
to employment of contract workers, the Company’s use of trustees, indemnities
related to the Company’s use of public lands and environmental
indemnifications. The duration of these indemnities generally is
indefinite and generally do not limit the future payments the Company could be
obligated to make.
As
permitted under applicable law, the Company and certain of its subsidiaries
indemnify their directors and officers over their lifetimes for certain events
or occurrences while the officer or director is, or was, serving the Company or
its subsidiaries in such a capacity. The maximum potential amount of
future payments the Company could be required to make under these
indemnification agreements is unlimited; however, the Company has a director and
officer insurance policy that should enable the Company to recover a portion of
any future amounts paid.
Unless
otherwise noted, the Company has not recorded any significant liabilities for
the letters of credit, indemnities and other guarantees noted above in the
accompanying Consolidated Financial Statements, either because the Company has
recorded on its Consolidated 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 product warranty liability with respect to these
indemnifications.
Commitments
The
Company has executed as lessee operating leases for the rental of office and
commercial space, employee residential units, office equipment and vehicles
through fiscal 2024. Certain of these leases have renewal terms at
the Company's option, escalation clauses, rent holidays and leasehold
improvement incentives. Rent holidays and rent escalation clauses are
recognized on a straight-line basis over the lease term. Leasehold
improvement incentives are recorded as leasehold improvements and amortized over
the shorter of their economic lives or the term of the lease. For the
years ended July 31, 2009, 2008 and 2007, the Company recorded lease expense
related to these agreements of $28.8 million, $24.8 million and $22.3 million,
respectively, which is included in the accompanying Consolidated Statements of
Operations.
Future
minimum lease payments under these leases as of July 31, 2009 are as follows (in
thousands):
|
2010
|
$
|
16,550
|
|
2011
|
13,120
|
|
|
2012
|
10,583
|
|
|
2013
|
9,269
|
|
|
2014
|
7,578
|
|
|
Thereafter
|
23,701
|
|
|
Total
|
$
|
80,801
|
Self
Insurance
The
Company is self-insured for claims under its health benefit plans and for
workers’ compensation claims, subject to a stop loss policy. The
self-insurance liability related to workers' compensation is determined
actuarially based on claims filed. The self-insurance liability
related to claims under the Company’s health benefit plans is determined based
on analysis of actual claims. The amounts related to these claims are
included as a component of accrued benefits in accounts payable and accrued
expenses (see Note 5, Supplementary Balance Sheet Information).
Legal
The
Company is a party to various lawsuits arising in the ordinary course of
business, including Resort (Mountain and Lodging) related cases and contractual
and commercial litigation that arises from time to time in connection with the
Company’s real estate operations. Management believes the Company has
adequate insurance coverage and/or has accrued for loss contingencies for all
known matters that are deemed to be probable losses and estimable. As
of July 31, 2009 and 2008, the accrual for the above loss contingencies was not
material individually and in the aggregate.
Cheeca Lodge & Spa
Contract Dispute
On
October 19, 2007, RockResorts received payment of the final settlement from
Cheeca Holdings, LLC, related to the disputed contract termination of the
formerly managed RockResorts Cheeca Lodge & Spa property, in the amount of
$13.5 million, of which $11.9 million (net of final attorney’s fees) is recorded
in “Contract dispute credit, net” in the Consolidated Condensed Statement of
Operations for the year ended July 31, 2008.
15. Segment
Information
The
Company has three reportable segments: Mountain, Lodging and Real
Estate. The Mountain segment includes the operations of the Company’s
ski resorts and related ancillary activities. The Lodging segment
includes the operations of all of the Company’s owned hotels, RockResorts, GTLC,
condominium management, CME and 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 the others, offer distinctly different products and services and
require different types of management focus. As such, these segments
are managed separately.
The
Company reports its segment results using Reported EBITDA (defined as segment
net revenue less segment operating expenses, plus or minus segment equity
investment income or loss, and for the Real Estate segment, plus gain on sale of
real property) which is a non-GAAP financial measure. The Company
reports segment results in a manner consistent with management’s internal
reporting of operating results to the chief operating decision maker (Chief
Executive Officer) for purposes of evaluating segment performance.
Reported
EBITDA is not a measure of financial performance under GAAP. Items
excluded from Reported EBITDA are significant components in understanding and
assessing financial performance. Reported EBITDA should not be
considered in isolation or as an alternative to, or substitute for, net income,
net change in cash and cash equivalents or other financial statement data
presented in the consolidated financial statements as indicators of financial
performance or liquidity. Because Reported EBITDA is not a
measurement determined in accordance with GAAP and thus is susceptible to
varying calculations, Reported EBITDA as presented may not be comparable to
other similarly titled measures of other companies.
The
Company utilizes Reported EBITDA in evaluating performance of the Company and in
allocating resources to its segments. Mountain Reported EBITDA
consists of Mountain net revenue less Mountain operating expense plus or minus
Mountain equity investment income or loss. Lodging Reported EBITDA
consists of Lodging net revenue less Lodging operating expense. Real
Estate Reported EBITDA consists of Real Estate net revenue less Real Estate
operating expense plus gain on sale of real property. All segment
expenses include an allocation of corporate administrative
expense. Assets are not allocated between segments, or used to
evaluate performance, except as shown in the table below. The
accounting policies specific to each segment are the same as those described in
Note 2, Summary of Significant Accounting Policies.
Following
is key financial information by reportable segment which is used by management
in evaluating performance and allocating resources (in thousands):
|
Year
Ended July 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
revenue:
|
||||||||||||
|
Lift
tickets
|
$
|
276,542
|
$
|
301,914
|
$
|
286,997
|
||||||
|
Ski
school
|
65,336
|
81,384
|
78,848
|
|||||||||
|
Dining
|
52,259
|
62,506
|
59,653
|
|||||||||
|
Retail/rental
|
147,415
|
168,765
|
160,542
|
|||||||||
|
Other
|
73,045
|
70,964
|
79,337
|
|||||||||
|
Total
Mountain net revenue
|
614,597
|
685,533
|
665,377
|
|||||||||
|
Lodging
|
176,241
|
170,057
|
162,451
|
|||||||||
|
Resort
|
790,838
|
855,590
|
827,828
|
|||||||||
|
Real
estate
|
186,150
|
296,566
|
112,708
|
|||||||||
|
Total
net revenue
|
$
|
976,988
|
$
|
1,152,156
|
$
|
940,536
|
||||||
|
Segment
operating expense:
|
||||||||||||
|
Mountain
|
$
|
451,025
|
$
|
470,362
|
$
|
462,708
|
||||||
|
Lodging
|
169,482
|
159,832
|
144,252
|
|||||||||
|
Resort
|
620,507
|
630,194
|
606,960
|
|||||||||
|
Real
estate
|
142,070
|
251,338
|
115,190
|
|||||||||
|
Total
segment operating expense
|
$
|
762,577
|
$
|
881,532
|
$
|
722,150
|
||||||
|
Gain
on sale of real property
|
$
|
--
|
$
|
709
|
$
|
--
|
||||||
|
Mountain
equity investment income, net
|
$
|
817
|
$
|
5,390
|
$
|
5,059
|
||||||
|
Reported
EBITDA:
|
||||||||||||
|
Mountain
|
$
|
164,389
|
$
|
220,561
|
$
|
207,728
|
||||||
|
Lodging
|
6,759
|
10,225
|
18,199
|
|||||||||
|
Resort
|
171,148
|
230,786
|
225,927
|
|||||||||
|
Real
estate
|
44,080
|
45,937
|
(2,482
|
)
|
||||||||
|
Total
Reported EBITDA
|
$
|
215,228
|
$
|
276,723
|
$
|
223,445
|
||||||
|
Real
estate held for sale and investment
|
$
|
311,485
|
$
|
249,305
|
$
|
357,586
|
||||||
|
Reconciliation
to net income:
|
||||||||||||
|
Total
Reported EBITDA
|
$
|
215,228
|
$
|
276,723
|
$
|
223,445
|
||||||
|
Depreciation
and amortization
|
(107,213
|
)
|
(93,794
|
)
|
(87,664
|
)
|
||||||
|
Relocation
and separation charges
|
--
|
--
|
(1,433
|
)
|
||||||||
|
Loss
on disposal of fixed assets, net
|
(1,064
|
)
|
(1,534
|
)
|
(1,083
|
)
|
||||||
|
Investment
income, net
|
1,793
|
8,285
|
12,403
|
|||||||||
|
Interest
expense, net
|
(27,548
|
)
|
(30,667
|
)
|
(32,625
|
)
|
||||||
|
Loss
from sale of business, net
|
--
|
--
|
(639
|
)
|
||||||||
|
Contact
dispute credit (charges), net
|
--
|
11,920
|
(4,642
|
)
|
||||||||
|
Gain
on put option, net
|
--
|
--
|
690
|
|||||||||
|
Minority
interest in income of consolidated subsidiaries, net
|
(1,602
|
)
|
(4,920
|
)
|
(7,801
|
)
|
||||||
|
Income
before provision for income taxes
|
79,594
|
166,013
|
100,651
|
|||||||||
|
Provision
for income taxes
|
(30,644
|
)
|
(63,086
|
)
|
(39,254
|
)
|
||||||
|
Net
income
|
$
|
48,950
|
$
|
102,927
|
$
|
61,397
|
||||||
16. Selected
Quarterly Financial Data (Unaudited--in thousands, except per share
amounts)
|
2009
|
||||||||||||||||||||
|
Year
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
||||||||||||||||
|
Ended
|
Ended
|
Ended
|
Ended
|
Ended
|
||||||||||||||||
|
July
31,
|
July
31,
|
April
30,
|
January
31,
|
October
31,
|
||||||||||||||||
|
2009
|
2009
|
2009
|
2009
|
2008
|
||||||||||||||||
|
Mountain
revenue
|
$
|
614,597
|
$
|
36,150
|
$
|
279,180
|
$
|
258,489
|
$
|
40,778
|
||||||||||
|
Lodging
revenue
|
176,241
|
44,942
|
44,896
|
41,150
|
45,253
|
|||||||||||||||
|
Real
estate revenue
|
186,150
|
20,836
|
9,407
|
89,157
|
66,750
|
|||||||||||||||
|
Total
net revenue
|
976,988
|
101,928
|
333,483
|
388,796
|
152,781
|
|||||||||||||||
|
Income
(loss) from operations
|
106,134
|
(58,014
|
)
|
107,580
|
106,543
|
(49,975
|
)
|
|||||||||||||
|
Net
income (loss)
|
$
|
48,950
|
$
|
(38,730
|
)
|
$
|
61,639
|
$
|
60,545
|
$
|
(34,504
|
)
|
||||||||
|
Basic
net income (loss) per common share
|
$
|
1.34
|
$
|
(1.07
|
)
|
$
|
1.69
|
$
|
1.66
|
$
|
(0.93
|
)
|
||||||||
|
Diluted
net income (loss) per common share
|
$
|
1.33
|
$
|
(1.07
|
)
|
$
|
1.68
|
$
|
1.65
|
$
|
(0.93
|
)
|
||||||||
|
2008
|
||||||||||||||||||||
|
Year
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
||||||||||||||||
|
Ended
|
Ended
|
Ended
|
Ended
|
Ended
|
||||||||||||||||
|
July
31,
|
July
31,
|
April
30,
|
January
31,
|
October
31,
|
||||||||||||||||
|
2008
|
2008
|
2008
|
2008
|
2007
|
||||||||||||||||
|
Mountain
revenue
|
$
|
685,533
|
$
|
37,549
|
$
|
325,726
|
$
|
279,722
|
$
|
42,536
|
||||||||||
|
Lodging
revenue
|
170,057
|
48,323
|
43,590
|
34,827
|
43,317
|
|||||||||||||||
|
Real
estate revenue
|
296,566
|
184,587
|
54,474
|
45,471
|
12,034
|
|||||||||||||||
|
Total
net revenue
|
1,152,156
|
270,459
|
423,790
|
360,020
|
97,887
|
|||||||||||||||
|
Income
(loss) from operations
|
176,005
|
(15,824
|
)
|
151,461
|
92,572
|
(52,204
|
)
|
|||||||||||||
|
Contract
dispute credit, net
|
11,920
|
--
|
--
|
--
|
11,920
|
|||||||||||||||
|
Net
income (loss)
|
$
|
102,927
|
$
|
(11,123
|
)
|
$
|
87,341
|
$
|
51,319
|
$
|
(24,610
|
)
|
||||||||
|
Basic
net income (loss) per common share
|
$
|
2.67
|
$
|
(0.29
|
)
|
$
|
2.26
|
$
|
1.32
|
$
|
(0.63
|
)
|
||||||||
|
Diluted
net income (loss) per common share
|
$
|
2.64
|
$
|
(0.29
|
)
|
$
|
2.24
|
$
|
1.31
|
$
|
(0.63
|
)
|
||||||||
17. Stock
Repurchase Plan
On March
9, 2006, the Company’s Board of Directors approved the repurchase of up to
3,000,000 shares of common stock and on July 16, 2008 approved an increase of
the Company’s common stock repurchase authorization by an additional 3,000,000
shares. During the year ended July 31, 2009, the Company repurchased
874,427 shares of common stock at a cost of $22.4 million. Since
inception of this stock repurchase plan through July 31, 2009, the Company has
repurchased 3,878,535 shares at a cost of approximately $147.8
million. As of July 31, 2009, 2,121,465 shares remained available to
repurchase under the existing repurchase authorization. Shares of
common stock purchased pursuant to the repurchase program will be held as
treasury shares and may be used for the issuance of shares under the Company's
employee share award plans.
18. Stock
Compensation Plan
The
Company has a share award plan (the “Plan”) which has been approved by the
Company's shareholders. Under the Plan, 5 million shares of common
stock could be issued in the form of options, stock appreciation rights,
restricted shares, restricted share units, performance shares, performance share
units, dividend equivalents or other share-based awards to employees, directors
or consultants of the Company or its subsidiaries or affiliates. The
terms of awards granted under the Plan, including exercise price, vesting period
and life, are set by the Compensation Committee of the Board of
Directors. All share-based awards (except for restricted shares and
restricted share units) granted under these plans have a life of ten
years. Most awards vest ratably over three years; however some have
been granted with different vesting schedules. To date, no awards
have been granted to non-employees (except those granted to non-employee members
of the Board of Directors of the Company and of a consolidated subsidiary) under
the Plan. At July 31, 2009, approximately 1.3 million share-based
awards were available to be granted under the Plan.
The fair
value of stock-settled stock appreciation rights (“SARs”) granted in the years
ended July 31, 2009, 2008 and 2007 were estimated on the date of grant using a
lattice-based option valuation model that applies the assumptions noted in the
table below. A lattice-based model considers factors such as exercise
behavior, and assumes employees will exercise equity awards at different times
over the contractual life of the equity awards. As a lattice-based
model considers these factors, and is more flexible, the Company considers it to
be a better method of valuing equity awards than a closed-form Black-Scholes
model. Because lattice-based option valuation models incorporate
ranges of assumptions for inputs, those ranges are
disclosed. Expected volatility is based on historical volatility of
the Company's stock. The Company uses historical data to estimate
equity award exercises and employee terminations within the valuation model;
separate groups of employees that have similar historical exercise behavior are
considered separately for valuation purposes. The expected term of
equity awards granted is derived from the output of the option valuation model
and represents the period of time that equity awards granted are expected to be
outstanding; the range given below results from certain groups of employees
exhibiting different behavior. The risk-free rate for periods within
the contractual life of the equity award is based on the United States Treasury
yield curve in effect at the time of grant.
|
Year
Ended July 31,
|
||||||||
|
2009
|
2008
|
2007
|
||||||
|
Expected
volatility
|
37.1-
41.0
|
%
|
36.6
|
%
|
37.4
|
%
|
||
|
Expected
dividends
|
--
|
%
|
--
|
%
|
--
|
%
|
||
|
Expected
term (average in years)
|
5.4
– 5.7
|
5.4
|
5.3
|
|||||
|
Risk-free
rate
|
2.1-4.9
|
%
|
4.0-5.1
|
%
|
4.3-4.8
|
%
|
||
The
Company has estimated forfeiture rates that range from 12.4% to 16.1% in its
calculation of stock-based compensation expense for the year ended July 31,
2009. These estimates are based on historical forfeiture behavior
exhibited by employees of the Company.
A summary
of aggregate option and SARs award activity under the share-based compensation
plan as of July 31, 2007, 2008 and 2009, and changes during the years then ended
is presented below (in thousands, except exercise price and contractual
term):
|
Weighted-Average
|
Weighted-Average
|
Aggregate
|
|||||||||||
|
Exercise
|
Remaining
|
Intrinsic
|
|||||||||||
|
Awards
|
Price
|
Contractual
Term
|
Value
|
||||||||||
|
Outstanding
at July 31, 2006
|
1,783
|
$
|
22.18
|
||||||||||
|
Granted
|
227
|
42.37
|
|||||||||||
|
Exercised
|
(649
|
)
|
17.71
|
||||||||||
|
Forfeited
or expired
|
(165
|
)
|
28.63
|
||||||||||
|
Outstanding
at July 31, 2007
|
1,196
|
$
|
27.55
|
||||||||||
|
Granted
|
221
|
59.56
|
|||||||||||
|
Exercised
|
(117
|
)
|
20.40
|
||||||||||
|
Forfeited
or expired
|
(81
|
)
|
45.71
|
||||||||||
|
Outstanding
at July 31, 2008
|
1,219
|
$
|
32.83
|
||||||||||
|
Granted
|
1,055
|
27.88
|
|||||||||||
|
Exercised
|
(31)
|
17.54
|
|||||||||||
|
Forfeited
or expired
|
(60)
|
38.97
|
|||||||||||
|
Outstanding
at July 31, 2009
|
2,183
|
$
|
30.49
|
7.8
years
|
$
|
9,438
|
|||||||
|
Exercisable
at July 31, 2009
|
999
|
$
|
29.23
|
6.0
years
|
$
|
3,555
|
|||||||
The
weighted-average grant-date fair value of SARs granted during the years ended
July 31, 2009, 2008 and 2007 was $10.34, $21.64 and $16.18,
respectively. The total intrinsic value of options exercised during
the years ended July 31, 2009, 2008 and 2007 was $0.3 million, $4.1 million and
$19.8 million, respectively. The Company had 315,000, 308,000 and
508,000 options and SARs that vested during the years ended July 31, 2009, 2008
and 2007, respectively. These awards had a total fair value of $1.5
million, $9.5 million and $10.9 million at the date of vesting for the years
ended July 31, 2009, 2008 and 2007, respectively. The Company granted 397,000
restricted share units during the year ended July 31, 2009 with a
weighted-average grant-date fair value of $26.83. The Company granted
97,000 restricted share units during the year ended July 31, 2008 with a
weighted-average grant-date fair value of $57.72. The Company granted
102,000 restricted share units during the year ended July 31, 2007 with a
weighted-average grant-date fair value of $41.76. The Company had
137,000, 79,000 and 75,000 restricted share awards/units that vested during the
years ended July 31, 2009, 2008 and 2007, respectively. These
awards/units had a total fair value of $3.1 million, $4.8 million and $3.0
million at the date of vesting for the years ended July 31, 2009, 2008 and 2007,
respectively.
A summary
of the status of the Company's nonvested options and SARs as of July 31, 2009,
and changes during the year then ended, is presented below (in thousands, except
fair value amounts):
|
Weighted-Average
|
||||||
|
Grant-Date
|
||||||
|
Awards
|
Fair
Value
|
|||||
|
Outstanding
at August 1, 2008
|
497
|
$
|
16.98
|
|||
|
Granted
|
1,055
|
10.34
|
||||
|
Vested
|
(315)
|
15.22
|
||||
|
Forfeited
|
(53)
|
14.60
|
||||
|
Nonvested
at July 31, 2009
|
1,184
|
$
|
11.64
|
|||
A summary
of the status of the Company's nonvested restricted share units as of July 31,
2009, and changes during the year then ended, is presented below (in thousands,
except fair value amounts):
|
Weighted-Average
|
||||||
|
Grant-Date
|
||||||
|
Awards
|
Fair
Value
|
|||||
|
Outstanding
at August 1, 2008
|
186
|
$
|
43.32
|
|||
|
Granted
|
397
|
28.63
|
||||
|
Vested
|
(137)
|
36.62
|
||||
|
Forfeited
|
(23)
|
38.29
|
||||
|
Nonvested
at July 31, 2009
|
423
|
$
|
30.29
|
|||
As of
July 31, 2009, there was $16.9 million of total unrecognized compensation
expense related to nonvested share-based compensation arrangements granted under
the share-based compensation plan, of which $8.9 million, $6.6 million and $1.4
million of expense is expected to be recognized in the years ending July 31,
2010, 2011 and 2012, respectively, assuming no future share-based awards are
granted.
Cash
received from options exercised under all share-based payment arrangements was
$0.6 million, $2.0 million and $11.5 million for the years ended July 31, 2009,
2008 and 2007, respectively. The tax benefit realized or to be
realized for the tax deductions from options/SARs exercised and restricted stock
awards/units vested was $1.6 million, $3.1 million and $8.3 million for the
years ended July 31, 2009, 2008 and 2007, respectively.
The
Company has a policy of using either authorized and unissued shares or treasury
shares, including shares acquired by purchase in the open market or in private
transactions, to satisfy equity award exercises.
19. Retirement
and Profit Sharing Plans
The
Company maintains a defined contribution retirement plan (the “Retirement
Plan”), qualified under Section 401(k) of the Internal Revenue Code, for its
employees. Under this Retirement Plan, employees are eligible to make
before-tax contributions on the first day of the calendar month following the
later of: (i) their employment commencement date or (ii) the date they turn
21. Participants may contribute up to 100% of their
qualifying annual compensation up to the annual maximum specified by the
Internal Revenue Code. Prior to January 1, 2009, the Company matched
an amount equal to 50% of each participant's contribution up to 6% of a
participant's bi-weekly qualifying compensation upon obtaining the later
of: (i) 12 consecutive months of employment and 1,000 service hours or (ii)
1,500 service hours since the employment commencement date. On
January 1, 2009, the Company suspended making matching contributions to the
Retirement Plan for an indefinite period of time. The Company's
matching contribution is entirely discretionary and may be reinstated, reduced
or eliminated at any time.
Total
Retirement Plan expense recognized by the Company for the years ended July 31,
2009, 2008 and 2007 was $1.3 million, $2.9 million and $2.8 million,
respectively.
20. Guarantor
Subsidiaries and Non-Guarantor Subsidiaries
The
Company’s payment obligations under the 6.75% Notes (see Note 4, Long-Term Debt)
are fully and unconditionally guaranteed on a joint and several, senior
subordinated basis by substantially all of the Company’s consolidated
subsidiaries (collectively, and excluding Non-Guarantor Subsidiaries (as defined
below), the “Guarantor Subsidiaries”) except for Eagle Park Reservoir Company,
Gros Ventre Utility Company, Mountain Thunder, Inc., SSV, Larkspur Restaurant
& Bar, LLC, Gore Creek Place, LLC and certain other insignificant entities
(together, the “Non-Guarantor Subsidiaries”). APII and the Employee
Housing Entities are included with the Non-Guarantor Subsidiaries for purposes
of the consolidated financial information, but are not considered subsidiaries
under the Indenture governing the 6.75% Notes.
Presented
below is the consolidated financial information of the Parent Company, the
Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. Financial
information for the Non-Guarantor subsidiaries is presented in the column titled
“Other Subsidiaries.” Balance sheets are presented as of July 31,
2009 and 2008. Statements of operations and statements of cash flows
are presented for the years ended July 31, 2009, 2008 and 2007.
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.
Supplemental
Condensed Consolidating Balance Sheet
As
of July 31, 2009
(in
thousands)
|
100%
Owned
|
|||||||||||||||||||||
|
Parent
|
Guarantor
|
Other
|
Eliminating
|
||||||||||||||||||
|
Company
|
Subsidiaries
|
Subsidiaries
|
Entries
|
Consolidated
|
|||||||||||||||||
|
Current
assets:
|
|||||||||||||||||||||
|
Cash
and cash equivalents
|
$
|
--
|
$
|
66,364
|
$
|
2,934
|
$
|
--
|
$
|
69,298
|
|||||||||||
|
Restricted
cash
|
--
|
11,065
|
--
|
--
|
11,065
|
||||||||||||||||
|
Trade
receivables, net
|
--
|
56,834
|
1,229
|
--
|
58,063
|
||||||||||||||||
|
Inventories,
net
|
--
|
11,895
|
37,052
|
--
|
48,947
|
||||||||||||||||
|
Other
current assets
|
21,333
|
18,407
|
1,875
|
--
|
41,615
|
||||||||||||||||
|
Total
current assets
|
21,333
|
164,565
|
43,090
|
--
|
228,988
|
||||||||||||||||
|
Property,
plant and equipment, net
|
--
|
991,027
|
66,631
|
--
|
1,057,658
|
||||||||||||||||
|
Real
estate held for sale and investment
|
--
|
311,485
|
--
|
--
|
311,485
|
||||||||||||||||
|
Goodwill,
net
|
--
|
148,702
|
19,248
|
--
|
167,950
|
||||||||||||||||
|
Intangible
assets, net
|
--
|
63,580
|
15,849
|
--
|
79,429
|
||||||||||||||||
|
Other
assets
|
3,226
|
30,710
|
5,034
|
--
|
38,970
|
||||||||||||||||
|
Investments
in subsidiaries and advances to (from) parent
|
1,290,532
|
307,124
|
(15,179
|
)
|
(1,582,477
|
)
|
--
|
||||||||||||||
|
Total
assets
|
$
|
1,315,091
|
$
|
2,017,193
|
$
|
134,673
|
$
|
(1,582,477
|
)
|
$
|
1,884,480
|
||||||||||
|
Current
liabilities:
|
|||||||||||||||||||||
|
Accounts
payable and accrued expenses
|
$
|
12,412
|
$
|
214,021
|
$
|
19,103
|
$
|
--
|
$
|
245,536
|
|||||||||||
|
Income
taxes payable
|
5,460
|
--
|
--
|
--
|
5,460
|
||||||||||||||||
|
Long-term
debt due within one year
|
--
|
9
|
343
|
--
|
352
|
||||||||||||||||
|
Total
current liabilities
|
17,872
|
214,030
|
19,446
|
--
|
251,348
|
||||||||||||||||
|
Long-term
debt
|
390,000
|
42,716
|
58,892
|
--
|
491,608
|
||||||||||||||||
|
Other
long-term liabilities
|
29,690
|
200,974
|
2,505
|
--
|
233,169
|
||||||||||||||||
|
Deferred
income taxes
|
112,234
|
--
|
--
|
--
|
112,234
|
||||||||||||||||
|
Minority
interest in net assets of consolidated subsidiaries
|
--
|
--
|
--
|
30,826
|
30,826
|
||||||||||||||||
|
Total
stockholders’ equity
|
765,295
|
1,559,473
|
53,830
|
(1,613,303
|
)
|
765,295
|
|||||||||||||||
|
Total
liabilities and stockholders’ equity
|
$
|
1,315,091
|
$
|
2,017,193
|
$
|
134,673
|
$
|
(1,582,477
|
)
|
$
|
1,884,480
|
||||||||||
Supplemental
Condensed Consolidating Balance Sheet
As
of July 31, 2008
(in
thousands)
|
100%
Owned
|
|||||||||||||||||||||
|
Parent
|
Guarantor
|
Other
|
Eliminating
|
||||||||||||||||||
|
Company
|
Subsidiaries
|
Subsidiaries
|
Entries
|
Consolidated
|
|||||||||||||||||
|
Current
assets:
|
|||||||||||||||||||||
|
Cash
and cash equivalents
|
$
|
--
|
$
|
156,782
|
$
|
5,563
|
$
|
--
|
$
|
162,345
|
|||||||||||
|
Restricted
cash
|
--
|
10,526
|
47,911
|
--
|
58,437
|
||||||||||||||||
|
Trade
receivables, net
|
--
|
47,953
|
2,232
|
--
|
50,185
|
||||||||||||||||
|
Inventories,
net
|
--
|
11,786
|
37,922
|
--
|
49,708
|
||||||||||||||||
|
Other
current assets
|
15,142
|
19,205
|
3,873
|
--
|
38,220
|
||||||||||||||||
|
Total
current assets
|
15,142
|
246,252
|
97,501
|
--
|
358,895
|
||||||||||||||||
|
Property,
plant and equipment, net
|
--
|
806,696
|
250,141
|
--
|
1,056,837
|
||||||||||||||||
|
Real
estate held for sale and investment
|
--
|
204,260
|
45,045
|
--
|
249,305
|
||||||||||||||||
|
Goodwill,
net
|
--
|
123,034
|
19,248
|
--
|
142,282
|
||||||||||||||||
|
Intangible
assets, net
|
--
|
56,650
|
15,880
|
--
|
72,530
|
||||||||||||||||
|
Other
assets
|
3,936
|
34,922
|
7,247
|
--
|
46,105
|
||||||||||||||||
|
Investments
in subsidiaries and advances to (from) parent
|
1,248,019
|
599,199
|
(61,968
|
)
|
(1,785,250
|
)
|
--
|
||||||||||||||
|
Total
assets
|
$
|
1,267,097
|
$
|
2,071,013
|
$
|
373,094
|
$
|
(1,785,250
|
)
|
$
|
1,925,954
|
||||||||||
|
Current
liabilities:
|
|||||||||||||||||||||
|
Accounts
payable and accrued expenses
|
$
|
12,446
|
$
|
196,360
|
$
|
85,376
|
$
|
--
|
$
|
294,182
|
|||||||||||
|
Income
taxes payable
|
57,474
|
--
|
--
|
--
|
57,474
|
||||||||||||||||
|
Long-term
debt due within one year
|
--
|
15,022
|
333
|
--
|
15,355
|
||||||||||||||||
|
Total
current liabilities
|
69,920
|
211,382
|
85,709
|
--
|
367,011
|
||||||||||||||||
|
Long-term
debt
|
390,000
|
42,722
|
108,628
|
--
|
541,350
|
||||||||||||||||
|
Other
long-term liabilities
|
3,142
|
149,557
|
30,944
|
--
|
183,643
|
||||||||||||||||
|
Deferred
income taxes
|
75,279
|
--
|
--
|
--
|
75,279
|
||||||||||||||||
|
Minority
interest in net assets of consolidated subsidiaries
|
--
|
--
|
--
|
29,915
|
29,915
|
||||||||||||||||
|
Total
stockholders’ equity
|
728,756
|
1,667,352
|
147,813
|
(1,815,165
|
)
|
728,756
|
|||||||||||||||
|
Total
liabilities and stockholders’ equity
|
$
|
1,267,097
|
$
|
2,071,013
|
$
|
373,094
|
$
|
(1,785,250
|
)
|
$
|
1,925,954
|
||||||||||
Supplemental
Condensed Consolidating Statement of Operations
For
the year ended July 31, 2009
(in
thousands)
|
100%
Owned
|
||||||||||||||||||||
|
Parent
|
Guarantor
|
Other
|
Eliminating
|
|||||||||||||||||
|
Company
|
Subsidiaries
|
Subsidiaries
|
Entries
|
Consolidated
|
||||||||||||||||
|
Total
net revenue
|
$
|
--
|
$
|
828,300
|
$
|
158,016
|
$
|
(9,328
|
)
|
$
|
976,988
|
|||||||||
|
Total
operating expense
|
498
|
724,985
|
154,547
|
(9,176
|
)
|
870,854
|
||||||||||||||
|
(Loss)
income from operations
|
(498
|
)
|
103,315
|
3,469
|
(152
|
)
|
106,134
|
|||||||||||||
|
Other
(expense) income, net
|
(27,035
|
)
|
3,813
|
(2,685
|
)
|
152
|
(25,755
|
)
|
||||||||||||
|
Equity
investment income, net
|
--
|
817
|
--
|
--
|
817
|
|||||||||||||||
|
Minority
interest in income of consolidated subsidiaries, net
|
--
|
--
|
--
|
(1,602
|
)
|
(1,602
|
)
|
|||||||||||||
|
(Loss)
income before income taxes
|
(27,533
|
)
|
107,945
|
784
|
(1,602
|
)
|
79,594
|
|||||||||||||
|
Benefit
(provision) for income taxes
|
10,600
|
(41,244
|
)
|
--
|
--
|
(30,644
|
)
|
|||||||||||||
|
Net
(loss) income before equity in income of consolidated
subsidiaries
|
(16,933
|
)
|
66,701
|
784
|
(1,602
|
)
|
48,950
|
|||||||||||||
|
Equity
in income (loss) of consolidated subsidiaries
|
65,883
|
(818
|
)
|
--
|
(65,065
|
)
|
--
|
|||||||||||||
|
Net
income
|
$
|
48,950
|
$
|
65,883
|
$
|
784
|
$
|
(66,667
|
)
|
$
|
48,950
|
|||||||||
Supplemental
Condensed Consolidating Statement of Operations
For
the year ended July 31, 2008
(in
thousands)
|
100%
Owned
|
||||||||||||||||||||
|
Parent
|
Guarantor
|
Other
|
Eliminating
|
|||||||||||||||||
|
Company
|
Subsidiaries
|
Subsidiaries
|
Entries
|
Consolidated
|
||||||||||||||||
|
Total
net revenue
|
$
|
--
|
$
|
709,572
|
$
|
453,741
|
$
|
(11,157
|
)
|
$
|
1,152,156
|
|||||||||
|
Total
operating expense
|
127
|
599,954
|
387,075
|
(11,005
|
)
|
976,151
|
||||||||||||||
|
(Loss)
income from operations
|
(127
|
)
|
109,618
|
66,666
|
(152
|
)
|
176,005
|
|||||||||||||
|
Other
(expense) income, net
|
(27,015
|
)
|
20,740
|
(4,339
|
)
|
152
|
(10,462
|
)
|
||||||||||||
|
Equity
investment income, net
|
--
|
5,390
|
--
|
--
|
5,390
|
|||||||||||||||
|
Minority
interest in income of consolidated subsidiaries, net
|
--
|
--
|
--
|
(4,920
|
)
|
(4,920
|
)
|
|||||||||||||
|
(Loss)
income before income taxes
|
(27,142
|
)
|
135,748
|
62,327
|
(4,920
|
)
|
166,013
|
|||||||||||||
|
Benefit
(provision) for income taxes
|
10,341
|
(73,401
|
)
|
(26
|
)
|
--
|
(63,086
|
)
|
||||||||||||
|
Net
(loss) income before equity in income of consolidated
subsidiaries
|
(16,801
|
)
|
62,347
|
62,301
|
(4,920
|
)
|
102,927
|
|||||||||||||
|
Equity
in income of consolidated subsidiaries
|
119,728
|
46,449
|
--
|
(166,177
|
)
|
--
|
||||||||||||||
|
Net
income
|
$
|
102,927
|
$
|
108,796
|
$
|
62,301
|
$
|
(171,097
|
)
|
$
|
102,927
|
|||||||||
Supplemental
Condensed Consolidating Statement of Operations
For
the year ended July 31, 2007
(in
thousands)
|
100%
Owned
|
||||||||||||||||||||
|
Parent
|
Guarantor
|
Other
|
Eliminating
|
|||||||||||||||||
|
Company
|
Subsidiaries
|
Subsidiaries
|
Entries
|
Consolidated
|
||||||||||||||||
|
Total
net revenue
|
$
|
--
|
$
|
719,258
|
$
|
234,780
|
$
|
(13,502
|
)
|
$
|
940,536
|
|||||||||
|
Total
operating expense
|
510
|
612,972
|
210,301
|
(11,453
|
)
|
812,330
|
||||||||||||||
|
(Loss)
income from operations
|
(510
|
)
|
106,286
|
24,479
|
(2,049
|
)
|
128,206
|
|||||||||||||
|
Other
(expense) income, net
|
(27,037
|
)
|
5,950
|
(3,929
|
)
|
152
|
(24,864
|
)
|
||||||||||||
|
Equity
investment income, net
|
--
|
5,059
|
--
|
--
|
5,059
|
|||||||||||||||
|
Loss
on sale of business, net
|
--
|
(639
|
)
|
--
|
--
|
(639
|
)
|
|||||||||||||
|
Gain
on put option, net
|
--
|
690
|
--
|
--
|
690
|
|||||||||||||||
|
Minority
interest in income of consolidated subsidiaries, net
|
--
|
--
|
--
|
(7,801
|
)
|
(7,801
|
)
|
|||||||||||||
|
(Loss)
income before income taxes
|
(27,547
|
)
|
117,346
|
20,550
|
(9,698
|
)
|
100,651
|
|||||||||||||
|
Benefit
(provision) for income taxes
|
10,743
|
(50,124
|
)
|
127
|
--
|
(39,254
|
)
|
|||||||||||||
|
Net
(loss) income before equity in income of consolidated
subsidiaries
|
(16,804
|
)
|
67,222
|
20,677
|
(9,698
|
)
|
61,397
|
|||||||||||||
|
Equity
in income of consolidated subsidiaries
|
78,201
|
--
|
--
|
(78,201
|
)
|
--
|
||||||||||||||
|
Net
income
|
$
|
61,397
|
$
|
67,222
|
$
|
20,677
|
$
|
(87,899
|
)
|
$
|
61,397
|
|||||||||
Supplemental
Condensed Consolidating Statement of Cash Flows
For
the year ended July 31, 2009
(in
thousands)
|
100%
Owned
|
||||||||||||||||
|
Parent
|
Guarantor
|
Other
|
||||||||||||||
|
Company
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
|||||||||||||
|
Net
cash provided by operating activities
|
$
|
(11,385
|
)
|
$
|
137,693
|
$
|
7,968
|
$
|
134,276
|
|||||||
|
Cash
flows from investing activities:
|
||||||||||||||||
|
Capital
expenditures
|
--
|
(97,215
|
)
|
(9,276
|
)
|
(106,491
|
)
|
|||||||||
|
Acquisition
of business
|
--
|
(38,170
|
)
|
--
|
(38,170
|
)
|
||||||||||
|
Other
investing activities, net
|
--
|
(496
|
)
|
532
|
36
|
|||||||||||
|
Net
cash used in investing activities
|
--
|
(135,881
|
)
|
(8,744
|
)
|
(144,625
|
)
|
|||||||||
|
Cash
flows from financing activities:
|
||||||||||||||||
|
Repurchase
of common stock
|
(22,367
|
)
|
--
|
--
|
(22,367
|
)
|
||||||||||
|
Proceeds
from borrowings under Non-Recourse Real Estate
Financings
|
--
|
9,013
|
--
|
9,013
|
||||||||||||
|
Payments
of Non-Recourse Real Estate Financings
|
--
|
(58,407
|
)
|
--
|
(58,407
|
)
|
||||||||||
|
Proceeds
from borrowings under other long-term debt
|
--
|
--
|
67,280
|
67,280
|
||||||||||||
|
Payments
of other long-term debt
|
--
|
(15,019
|
)
|
(67,613
|
)
|
(82,632
|
)
|
|||||||||
|
Advances
from (to) affiliates
|
33,010
|
(32,032
|
)
|
(978
|
)
|
--
|
||||||||||
|
Other
financing activities, net
|
742
|
4,215
|
(542
|
)
|
4,415
|
|||||||||||
|
Net
cash provided by (used in) financing activities
|
11,385
|
(92,230
|
)
|
(1,853
|
)
|
(82,698
|
)
|
|||||||||
|
Net
decrease in cash and cash equivalents
|
--
|
(90,418
|
)
|
(2,629
|
)
|
(93,047
|
)
|
|||||||||
|
Cash
and cash equivalents
|
||||||||||||||||
|
Beginning
of period
|
--
|
156,782
|
5,563
|
162,345
|
||||||||||||
|
End
of period
|
$
|
--
|
$
|
66,364
|
$
|
2,934
|
$
|
69,298
|
||||||||
Supplemental
Condensed Consolidating Statement of Cash Flows
For
the year ended July 31, 2008
(in
thousands)
|
100%
Owned
|
||||||||||||||||
|
Parent
|
Guarantor
|
Other
|
||||||||||||||
|
Company
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
|||||||||||||
|
Net
cash provided by operating activities
|
$
|
9,792
|
$
|
103,610
|
$
|
103,594
|
$
|
216,996
|
||||||||
|
Cash
flows from investing activities:
|
||||||||||||||||
|
Capital
expenditures
|
--
|
(95,291
|
)
|
(55,601
|
)
|
(150,892
|
)
|
|||||||||
|
Other
investing activities, net
|
--
|
2,956
|
(199
|
)
|
2,757
|
|||||||||||
|
Net
cash used in investing activities
|
--
|
(92,335
|
)
|
(55,800
|
)
|
(148,135
|
)
|
|||||||||
|
Cash
flows from financing activities:
|
||||||||||||||||
|
Repurchase
of common stock
|
(99,615
|
)
|
--
|
--
|
(99,615
|
)
|
||||||||||
|
Proceeds
from borrowings under Non-Recourse Real Estate
Financings
|
--
|
--
|
136,519
|
136,519
|
||||||||||||
|
Payments
of Non-Recourse Real Estate Financings
|
--
|
--
|
(174,008
|
)
|
(174,008
|
)
|
||||||||||
|
Proceeds
from borrowings under other long-term debt
|
--
|
--
|
77,641
|
77,641
|
||||||||||||
|
Payments
of other long-term debt
|
--
|
(65
|
)
|
(78,056
|
)
|
(78,121
|
)
|
|||||||||
|
Advances
from (to) affiliates
|
85,962
|
(85,048
|
)
|
(914
|
)
|
--
|
||||||||||
|
Other
financing activities, net
|
3,861
|
4,668
|
(8,280
|
)
|
249
|
|||||||||||
|
Net
cash used in financing activities
|
(9,792
|
)
|
(80,445
|
)
|
(47,098
|
)
|
(137,335
|
)
|
||||||||
|
Net
(decrease) increase in cash and cash equivalents
|
--
|
(69,170
|
)
|
696
|
(68,474
|
)
|
||||||||||
|
Cash
and cash equivalents
|
||||||||||||||||
|
Beginning
of period
|
--
|
225,952
|
4,867
|
230,819
|
||||||||||||
|
End
of period
|
$
|
--
|
$
|
156,782
|
$
|
5,563
|
$
|
162,345
|
||||||||
Supplemental
Condensed Consolidating Statement of Cash Flows
For
the year ended July 31, 2007
(in
thousands)
|
100%
Owned
|
|||||||||||||||||
|
Parent
|
Guarantor
|
Other
|
|||||||||||||||
|
Company
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
||||||||||||||
|
Net
cash (used in) provided by operating activities
|
$
|
(41,046
|
)
|
$
|
191,441
|
$
|
(31,953
|
)
|
$
|
118,442
|
|||||||
|
Cash
flows from investing activities:
|
|||||||||||||||||
|
Capital
expenditures
|
--
|
(76,563
|
)
|
(42,669
|
)
|
(119,232
|
)
|
||||||||||
|
Cash
received from sale of businesses
|
--
|
3,544
|
--
|
3,544
|
|||||||||||||
|
Purchase
of minority interest
|
--
|
(8,387
|
)
|
--
|
(8,387
|
)
|
|||||||||||
|
Other
investing activities, net
|
--
|
(2,561
|
)
|
(5,510
|
)
|
(8,071
|
)
|
||||||||||
|
Net
cash used in investing activities
|
--
|
(83,967
|
)
|
(48,179
|
)
|
(132,146
|
)
|
||||||||||
|
Cash
flows from financing activities:
|
|||||||||||||||||
|
Repurchase
of common stock
|
(15,007
|
)
|
--
|
--
|
(15,007
|
)
|
|||||||||||
|
Net
proceeds (payments) from borrowings under
long-term
debt
|
--
|
(9,898
|
)
|
72,752
|
62,854
|
||||||||||||
|
Advances
from (to) affiliates
|
38,926
|
(53,384
|
)
|
14,458
|
--
|
||||||||||||
|
Other
financing activities, net
|
17,127
|
1,762
|
(14,007
|
)
|
4,882
|
||||||||||||
|
Net
cash provided by (used in) financing activities
|
41,046
|
(61,520
|
)
|
73,203
|
52,729
|
||||||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
--
|
45,954
|
(6,929
|
)
|
39,025
|
||||||||||||
|
Cash
and cash equivalents
|
|||||||||||||||||
|
Beginning
of period
|
--
|
179,998
|
11,796
|
191,794
|
|||||||||||||
|
End
of period
|
$
|
--
|
$
|
225,952
|
$
|
4,867
|
$
|
230,819
|
|||||||||
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
Disclosure
Controls and Procedures
Management
of the Company, including the Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”), have evaluated the effectiveness of the Company's
disclosure controls and procedures as of the end of the period covered by this
Form 10-K. The term “disclosure controls and procedures” means
controls and other procedures established by the Company that are designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
Act is accumulated and communicated to the Company's management, including its
CEO and CFO, as appropriate, to allow timely decisions regarding required
disclosure.
Based
upon their evaluation of the Company's disclosure controls and procedures, the
CEO and the CFO concluded that the disclosure controls are effective to provide
reasonable assurance that information required to be disclosed by the Company in
the reports that it files or submits under the Act is accumulated and
communicated to management, including the CEO and CFO, as appropriate, to allow
timely decisions regarding required disclosure and are effective to provide
reasonable assurance that such information is recorded, processed, summarized
and reported within the time periods specified by the SEC's rules and
forms.
The
Company, including its CEO and CFO, does not expect that the Company's internal
controls and procedures will prevent or detect all error and all
fraud. A control system, no matter how well conceived or operated,
can provide only reasonable, not absolute, assurance that the objectives of the
control system are met.
Management's
Annual Report on Internal Control Over Financial Reporting
The
report of management required under this Item 9A is contained in Item 8 of this
Form 10-K under the caption “Management's Report on Internal Control over
Financial Reporting.”
Attestation
Report of the Independent Registered Public Accounting Firm
The
attestation report required under this Item 9A is contained in Item 8 of this
Form 10-K under the caption “Report of Independent Registered Public Accounting
Firm.”
Changes in Internal Control Over
Financial Reporting
There
were no changes in the Company's internal control over financial reporting
during the quarter ended July 31, 2009 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
None.
PART
III
Code of Ethics and Business
Conduct. The Company has adopted a code of ethics that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions. The code of ethics and business conduct is posted in the
corporate governance section of the Company's website at
www.vailresorts.com. The Company will post any waiver to the code of
ethics and business conduct granted to any of its officers on its
website.
The New
York Stock Exchange requires chief executive officers of listed corporations to
certify that they are not aware of any violations by their company of the
exchange’s corporate governance listing standards. Following the 2008
annual meeting of stockholders, the Company submitted the annual certification
by the Chief Executive Officer to the New York Stock Exchange.
The
Company has filed with the Securities and Exchange Commission, as an exhibit to
this Form 10-K for the year ended July 31, 2009, the Sarbanes-Oxley Act Section
302 certification regarding the quality of the Company’s public
disclosure.
The
additional information required by this item is incorporated herein by reference
from the Company's proxy statement for the 2009 annual meeting of
stockholders.
The
information required by this item is incorporated herein by reference from the
Company's proxy statement for the 2009 annual meeting of
stockholders.
The
information required by this item is incorporated herein by reference from the
Company's proxy statement for the 2009 annual meeting of
stockholders.
The
information required by this item is incorporated herein by reference from the
Company's proxy statement for the 2009 annual meeting of
stockholders.
The
information required by this item is incorporated herein by reference from the
Company's proxy statement for the 2009 annual meeting of
stockholders.
PART
IV
a) Index
to Financial Statements and Financial Statement Schedules.
|
|
(1)
|
See
“Item 8. Financial Statements and Supplementary Data” for the
index to the Financial Statements.
|
|
|
(2)
|
All
other schedules have been omitted because the required information is not
applicable or because the information required has been included in the
financial statements or notes
thereto.
|
(3) Index
to Exhibits.
The
following exhibits are either filed herewith or, if so indicated, incorporated
by reference to the documents indicated in parentheses, which have previously
been filed with the Securities and Exchange Commission.
|
Posted
Exhibit Number
|
Description
|
Sequentially
Numbered Page
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of Vail Resorts, Inc., dated
January 5, 2005. (Incorporated by reference to Exhibit 3.1 on
Form 10-Q of Vail Resorts, Inc. for the quarter ended January 31,
2005.)
|
|
|
3.2
|
Amended
and Restated By-Laws. (Incorporated by reference to Exhibit 3.1 on Form
8-K of Vail Resorts, Inc. filed February 6, 2009.)
|
|
|
4.1(a)
|
Indenture,
dated as of January 29, 2004, among Vail Resorts, Inc., the guarantors
therein and the Bank of New York as Trustee (Including Exhibit A, Form of
Global Note). (Incorporated by reference to Exhibit 4.1 on Form
8-K of Vail Resorts, Inc. filed on February 2, 2004.)
|
|
|
4.1(b)
|
Supplemental
Indenture, dated as of March 10, 2006 to Indenture dated as of January 29,
2004 among Vail Resorts, Inc., as Issuer, the Guarantors named therein, as
Guarantors, and The Bank of New York, as Trustee. (Incorporated
by reference to Exhibit 10.34 on Form 10-Q of Vail Resorts, Inc. for the
quarter ended January 31, 2006.)
|
|
|
4.1(c)
|
Form
of Global Note. (Incorporated by reference to Exhibit 4.1 on
Form 8-K of Vail Resorts, Inc. filed February 2, 2004.)
|
|
|
4.1(d)
|
Supplemental
Indenture, dated as of April 26, 2007 to Indenture dated as of January 29,
2004 among Vail Resorts, Inc., as Issuer, the Guarantors named therein, as
Guarantors, and The Bank of New York, as Trustee. (Incorporated
by reference to Exhibit 4.1(d) on Form 10-K of Vail Resorts, Inc. for the
year ended July 31, 2008.)
|
|
|
4.1(e)
|
Supplemental
Indenture, dated as of July 11, 2008 to Indenture dated as of January 29,
2004 among Vail Resorts, Inc., as Issuer, the Guarantors named therein, as
Guarantors, and The Bank of New York Mellon Trust Company, N.A., as
Trustee. (Incorporated by reference to Exhibit 4.1(e) on Form
10-K of Vail Resorts, Inc. for the year ended July 31,
2008.)
|
|
|
4.1(f)
|
Supplemental
Indenture, dated as of January 29, 2009 to Indenture dated as of January
29, 2004 among Vail Resorts, Inc., as Issuer, the Guarantors named
therein, as Guarantors, and The Bank of New York Mellon Trust Company,
N.A., as Trustee. (Incorporated by reference to Exhibit
4.1(f) on Form 10-Q of Vail Resorts, Inc. for the quarter ended January
31, 2009.)
|
|
|
4.1(g)
|
Supplemental
Indenture, dated as of August 24, 2009 to Indenture dated as of January
29, 2004 among Vail Resorts, Inc., as Issuer, the Guarantors named
therein, as Guarantors, and The Bank of New York Mellon Trust Company,
N.A., as Trustee.
|
63
|
|
10.1
|
Forest
Service Unified Permit for Heavenly ski area, dated April 29,
2002. (Incorporated by reference to Exhibit 99.13 of the report
on Form 10-Q of Vail Resorts, Inc. for the quarter ended April 30,
2002.)
|
|
|
10.2(a)
|
Forest
Service Unified Permit for Keystone ski area, dated December 30,
1996. (Incorporated by reference to Exhibit 99.2(a) on Form
10-Q of Vail Resorts, Inc. for the quarter ended October 31,
2002.)
|
|
|
10.2(b)
|
Amendment
No. 2 to Forest Service Unified Permit for Keystone ski
area. (Incorporated by reference to Exhibit 99.2(b) on Form
10-Q of Vail Resorts, Inc. for the quarter ended October 31,
2002.)
|
|
|
10.2(c)
|
Amendment
No. 3 to Forest Service Unified Permit for Keystone ski area.
(Incorporated by reference to Exhibit 10.3 (c) on Form 10-K of Vail
Resorts, Inc. for the year ended July 31, 2005.)
|
|
|
10.2(d)
|
Amendment
No. 4 to Forest Service Unified Permit for Keystone ski area.
(Incorporated by reference to Exhibit 10.3 (d) on Form 10-K of Vail
Resorts, Inc. for the year ended July 31, 2005.)
|
|
|
10.2(e)
|
Amendment
No. 5 to Forest Service Unified Permit for Keystone ski area.
(Incorporated by reference to Exhibit 10.3 (e) on Form 10-K of Vail
Resorts, Inc. for the year ended July 31, 2005.)
|
|
|
10.3(a)
|
Forest
Service Unified Permit for Breckenridge ski area, dated December 30,
1996. (Incorporated by reference to Exhibit 99.3(a) on Form
10-Q of Vail Resorts, Inc. for the quarter ended October 31,
2002.)
|
|
|
10.3(b)
|
Amendment
No. 1 to Forest Service Unified Permit for Breckenridge ski
area. (Incorporated by reference to Exhibit 99.3(b) on Form
10-Q of Vail Resorts, Inc. for the quarter ended October 31,
2002.)
|
|
|
10.3(c)
|
Amendment
No. 2 to Forest Service Unified Permit for Breckenridge ski area.
(Incorporated by reference to Exhibit 10.4 (c) on Form 10-K of Vail
Resorts, Inc. for the year ended July 31, 2005.)
|
|
|
10.3(d)
|
Amendment
No. 3 to Forest Service Unified Permit for Breckenridge ski area.
(Incorporated by reference to Exhibit 10.4 (d) on Form 10-K of Vail
Resorts, Inc. for the year ended July 31, 2005.)
|
|
|
10.3(e)
|
Amendment
No. 4 to Forest Service Unified Permit for Breckenridge ski area.
(Incorporated by reference to Exhibit 10.4 (e) on Form 10-K of Vail
Resorts, Inc. for the year ended July 31, 2005.)
|
|
|
10.3(f)
|
Amendment
No. 5 to Forest Service Unified Permit for Breckenridge ski area.
(Incorporated by reference to Exhibit 10.4(f) on Form 10-Q of Vail
Resorts, Inc. for the quarter ended January 31, 2006.)
|
|
|
10.4(a)
|
Forest
Service Unified Permit for Beaver Creek ski area. (Incorporated
by reference to Exhibit 99.4(a) on Form 10-Q of Vail Resorts, Inc. for the
quarter ended October 31, 2002.)
|
|
|
10.4(b)
|
Exhibits
to Forest Service Unified Permit for Beaver Creek ski
area. (Incorporated by reference to Exhibit 99.4(b) on Form
10-Q of Vail Resorts, Inc. for the quarter ended October 31,
2002.)
|
|
|
10.4(c)
|
Amendment
No. 1 to Forest Service Unified Permit for Beaver Creek ski area.
(Incorporated by reference to Exhibit 10.5(c) on Form 10-K of Vail
Resorts, Inc. for the year ended July 31, 2005.)
|
|
|
10.4(d)
|
Amendment
No. 2 to Forest Service Unified Permit for Beaver Creek ski area.
(Incorporated by reference to Exhibit 10.5(d) on Form 10-K of Vail
Resorts, Inc. for the year ended July 31, 2005.)
|
|
|
10.4(e)
|
Amendment
to Forest Service Unified Permit for Beaver Creek ski area. (Incorporated
by reference to Exhibit 10.5(e) on Form 10-K of Vail Resorts, Inc. for the
year ended July 31, 2005.)
|
|
|
10.4(f)
|
Amendment
No. 3 to Forest Service Unified Permit for Beaver Creek ski
area. (Incorporated by reference to Exhibit 10.4(f) on Form
10-K of Vail Resorts, Inc. for the year ended July 31,
2008.)
|
|
|
10.5(a)
|
Forest
Service Unified Permit for Vail ski area, dated November 23,
1993. (Incorporated by reference to Exhibit 99.5(a) on Form
10-Q of Vail Resorts, Inc. for the quarter ended October 31,
2002.)
|
|
|
10.5(b)
|
Exhibits
to Forest Service Unified Permit for Vail ski
area. (Incorporated by reference to Exhibit 99.5(b) on Form
10-Q of Vail Resorts, Inc. for the quarter ended October 31,
2002.)
|
|
|
10.5(c)
|
Amendment
No. 2 to Forest Service Unified Permit for Vail ski
area. (Incorporated by reference to Exhibit 99.5(c) on Form
10-Q of Vail Resorts, Inc. for the quarter ended October 31,
2002.)
|
|
|
10.5(d)
|
Amendment
No. 3 to Forest Service Unified Permit for Vail ski area. (Incorporated by
reference to Exhibit 10.6 (d) on Form 10-K of Vail Resorts, Inc. for the
year ended July 31, 2005.)
|
|
|
10.5(e)
|
Amendment
No. 4 to Forest Service Unified Permit for Vail ski area. (Incorporated by
reference to Exhibit 10.6 (e) on Form 10-K of Vail Resorts, Inc. for the
year ended July 31, 2005.)
|
|
|
10.6(a)
|
Purchase
and Sale Agreement by and between VAHMC, Inc. and DiamondRock Hospitality
Limited Partnership, dated May 3, 2005. (Incorporated by
reference to Exhibit 10.18(a) on Form 10-Q of Vail Resorts, Inc. for the
quarter ended April 30, 2005.)
|
|
|
10.6(b)
|
First
Amendment to Purchase and Sale Agreement by and between VAHMC, Inc. and
DiamondRock Hospitality Limited Partnership, dated May 10,
2005. (Incorporated by reference to Exhibit 10.18(b) on Form
10-Q of Vail Resorts, Inc. for the quarter ended April 30,
2005.)
|
|
|
10.7(a)
|
Sports
and Housing Facilities Financing Agreement between the Vail Corporation
(d/b/a “Vail Associates, Inc.”) and Eagle County, Colorado, dated April 1,
1998. (Incorporated by reference to Exhibit 10 on Form 10-Q of Vail
Resorts, Inc. for the quarter ended April 30, 1998.)
|
|
|
10.7(b)
|
Trust
Indenture, dated as of April 1, 1998 securing Sports and Housing
Facilities Revenue Refunding Bonds by and between Eagle County, Colorado
and U.S. Bank, N.A., as Trustee. (Incorporated by reference to
Exhibit 10.1 on Form 10-Q of Vail Resorts, Inc. for the quarter ended
April 30, 1998.)
|
|
|
10.8(a)
|
Fourth
Amended and Restated Credit Agreement, dated as of January 28, 2005 among
The Vail Corporation (d/b/a Vail Associates, Inc.), as borrower, Bank of
America, N.A., as Administrative Agent, U.S. Bank National Association and
Wells Fargo Bank, National Association as Co-Syndication Agents, Deutsche
Bank Trust Company Americas and LaSalle Bank National Association as
Co-Documentation Agents the Lenders party thereto and Banc of America
Securities LLC, as Sole Lead Arranger and Sole Book
Manager.
|
69
|
|
10.8(b)
|
First
Amendment to Fourth Amended and Restated Credit Agreement, dated as of
June 29, 2005 among The Vail Corporation (d/b/a Vail Associates, Inc.), as
borrower and Bank of America, N.A., as Administrative
Agent. (Incorporated by reference to Exhibit 10.16(b) on Form
10-K of Vail Resorts, Inc. for the year ended July 31,
2005.)
|
|
|
10.8(c)
|
Second
Amendment to Fourth Amended and Restated Credit Agreement among The Vail
Corporation, the Required Lenders and Bank of America, as Administrative
Agent. (Incorporated by reference to Exhibit 10.3 of Form 8-K
of Vail Resorts, Inc. filed on March 3, 2006.)
|
|
|
10.8(d)
|
Limited
Waiver, Release, and Third Amendment to Fourth Amended and Restated Credit
Agreement, dated March 13, 2007.
|
196
|
|
10.8(e)
|
Fourth
Amendment to Fourth Amended and Restated Credit Agreement, dated April 30,
2008, among The Vail Corporation (d/b/a Vail Associates, Inc.) as
borrower, the lenders party thereto and Bank of America, N.A., as
Administrative Agent. (Incorporated by reference to Exhibit
10.1 of the report on Form 10-Q of Vail Resorts, Inc. for the quarter
ended April 30, 2008.)
|
|
|
10.9(a)
|
Construction
Loan Agreement, dated January 31, 2006 among Arrabelle at Vail Square,
LLC, U.S. Bank National Association and Wells Fargo Bank,
N.A.. (Incorporated by reference to Exhibit 10.33(a) on Form
10-Q of Vail Resorts, Inc. for the quarter ended January 31,
2006.)
|
|
|
10.9(b)
|
Completion
Guaranty Agreement by and between The Vail Resorts Corporation and U.S.
Bank National Association, dated January 31,
2006. (Incorporated by reference to Exhibit 10.33(b) on Form
10-Q of Vail Resorts, Inc. for the quarter ended January 31,
2006.)
|
|
|
10.9(c)
|
Completion
Guaranty Agreement by and between Vail Resorts, Inc. and U.S. Bank
National Association dated January 31, 2006. (Incorporated by reference to
Exhibit 10.33(c) on Form 10-Q of Vail Resorts, Inc. for the quarter ended
January 31, 2006.)
|
|
|
10.10(a)**
|
Construction
Loan Agreement, dated March 19, 2007 among The Chalets at The Lodge at
Vail, LLC, and Wells Fargo Bank, N.A. (Incorporated by
reference to Exhibit 10.3 of the report on Form 10-Q of Vail Resorts, Inc.
for the quarter ended April 30, 2007.)
|
|
|
10.10(b)
|
Completion
Guaranty Agreement by and between The Vail Corporation and Wells Fargo
Bank, N.A., dated March 19, 2007. (Incorporated by reference to
Exhibit 10.4 of the report on Form 10-Q of Vail Resorts, Inc. for the
quarter ended April 30, 2007.)
|
|
|
10.10(c)
|
Completion
Guaranty Agreement by and between Vail Resorts, Inc. and Wells Fargo Bank,
N.A., dated March 19, 2007. (Incorporated by reference to
Exhibit 10.5 of the report on Form 10-Q of Vail Resorts, Inc. for the
quarter ended April 30, 2007.)
|
|
|
10.10(d)
|
Development
Agreement Guaranty by and between The Vail Corporation and Wells Fargo
Bank, N.A., dated March 19, 2007. (Incorporated by reference to
Exhibit 10.6 of the report on Form 10-Q of Vail Resorts, Inc. for the
quarter ended April 30, 2007.)
|
|
|
10.10(e)
|
Development
Agreement Guaranty by and between Vail Resorts, Inc. and Wells Fargo Bank,
N.A., dated March 19, 2007. (Incorporated by reference to
Exhibit 10.7 of the report on Form 10-Q of Vail Resorts, Inc. for the
quarter ended April 30, 2007.)
|
|
|
10.11
|
Amended
and Restated Revolving Credit and Security Agreement between SSI Venture,
LLC and U.S. Bank National Association, dated September 23, 2005.
(Incorporated by reference to Exhibit 10.1 on Form 8-K of Vail Resorts,
Inc. filed on September 29, 2005.)
|
|
|
10.12*
|
Vail
Resorts, Inc. 1993 Stock Option Plan (Incorporated by reference to Exhibit
4.A of the registration statement on Form S-8 of Vail Resorts, Inc., dated
October 21, 1997, File No. 333-38321.)
|
|
|
10.13*
|
Vail
Resorts, Inc. 1996 Long Term Incentive and Share Award Plan (Incorporated
by reference to the Exhibit 4.B of the registration statement on Form S-8
of Vail Resorts, Inc., dated October 21, 1997, File No.
333-38321.)
|
|
|
10.14*
|
Vail
Resorts, Inc. 1999 Long Term Incentive and Share Award
Plan. (Incorporated by reference to Exhibit 4.1 of the
registration statement on Form S-8 of Vail Resorts, Inc., dated September
7, 2007, File No. 333-145934.)
|
|
|
10.15*
|
Vail
Resorts, Inc. Amended and Restated 2002 Long Term Incentive and Share
Award Plan. (Incorporated by reference to Exhibit 4.2 of the
registration statement on Form S-8 of Vail Resorts, Inc., dated September
7, 2007, File No. 333-145934.)
|
|
|
10.16*
|
Form
of Stock Option Agreement. (Incorporated by reference to
Exhibit 10.20 of Form 10-K of Vail Resorts, Inc. for the year ended July
31, 2007.)
|
|
|
10.17*
|
Form
of Restricted Share [Unit] Agreement. (Incorporated by
reference to Exhibit 10.17 on Form 10-K of Vail Resorts, Inc. for the year
ended July 31, 2008.)
|
|
|
10.18*
|
Form
of Share Appreciation Rights Agreement. (Incorporated by
reference to Exhibit 10.18 on Form 10-K of Vail Resorts, Inc. for the year
ended July 31, 2008.)
|
|
|
10.19*
|
Stock
Option Agreement between Vail Resorts, Inc. and Jeffrey W. Jones, dated
September 30, 2005. (Incorporated by reference to Exhibit 10.6
on Form 8-K of Vail Resorts, Inc. filed on March 3, 2006.)
|
|
|
10.20*
|
Summary
of Vail Resorts, Inc. Director Compensation, effective March 10,
2009.
|
231
|
|
10.21*
|
Vail
Resorts Deferred Compensation Plan, effective as of October 1,
2000. (Incorporated by reference to Exhibit 10.23 on Form 10-K
of Vail Resorts, Inc. for the year ended July 31, 2000.)
|
|
|
10.22
|
Vail
Resorts Deferred Compensation Plan, effective as of January 1,
2005.
|
232
|
|
10.23*
|
Vail
Resorts, Inc. Executive Perquisite Fund Program. (Incorporated by
reference to Exhibit 10.27 on Form 10-K of Vail Resorts, Inc. for the year
ended July 31, 2007.)
|
|
|
10.24*
|
Vail
Resorts, Inc. Management Incentive Plan. (Incorporated by reference to
Exhibit 10.7 of the report on Form 10-Q of Vail Resorts, Inc. for the
quarter ended October 31, 2008.)
|
|
|
10.25*
|
Agreement,
dated January 7, 2008, by and among Vail Associates, Inc., William A.
Jensen and Intrawest ULC. (Incorporated by reference to Exhibit
10.1 of the report on Form 10-Q of Vail Resorts, Inc. for the quarter
ended January 31, 2008.)
|
|
|
10.26*
|
Executive
Employment Agreement made and entered into October 15, 2008 by and between
Vail Resorts, Inc. and Robert A. Katz. (Incorporated by
reference to Exhibit 10.1 of the report on Form 10-Q of Vail Resorts, Inc.
for the quarter ended October 31, 2008.)
|
|
|
10.27(a)*
|
Executive
Employment Agreement made and entered into October 15, 2008 by and between
Jeffrey W. Jones and Vail Resorts, Inc. (Incorporated by reference to
Exhibit 10.2 of the report on Form 10-Q of Vail Resorts, Inc. for the
quarter ended October 31, 2008.)
|
|
|
10.27(b)*
|
Restated
First Amendment to Amended and Restated Employment Agreement, dated
September 18, 2008, by and between Vail Resorts, Inc. and Jeffrey W.
Jones. (Incorporated by reference to Exhibit 10.28(b) of Form 10-K of Vail
Resorts, Inc. for the year ended July 31, 2008.)
|
|
|
10.28*
|
Executive
Employment Agreement made and entered into October 15, 2008 by and between
Vail Holdings, Inc., a wholly-owned subsidiary of Vail Resorts, Inc., and
Keith Fernandez. (Incorporated by reference to Exhibit 10.3 of
the report on Form 10-Q of Vail Resorts, Inc. for the quarter ended
October 31, 2008.)
|
|
|
10.29*
|
Executive
Employment Agreement made and entered into October 15, 2008 by and between
Vail Holdings, Inc., a wholly-owned subsidiary of Vail Resorts, Inc., and
John McD. Garnsey. (Incorporated by reference to Exhibit 10.4
of the report on Form 10-Q of Vail Resorts, Inc. for the quarter ended
October 31, 2008.)
|
|
|
10.30(a)*
|
Executive
Employment Agreement made and entered into October 15, 2008 by and between
Vail Holdings, Inc., a wholly-owned subsidiary of Vail Resorts, Inc., and
Blaise Carrig. (Incorporated by reference to Exhibit 10.5 of
the report on Form 10-Q of Vail Resorts, Inc. for the quarter ended
October 31, 2008.)
|
|
|
10.30(b)*
|
Addendum
to the Employment Agreement, dated September 1, 2002, between Blaise
Carrig and Heavenly Valley, Limited Partnership. (Incorporated by
reference to Exhibit 10.31(b) of Form 10-K of Vail Resorts, Inc. for the
year ended July 31, 2008.)
|
|
|
10.31
|
Form
of Indemnification Agreement. (Incorporated by reference to
Exhibit 10.8 of the report on Form 10-Q of Vail Resorts, Inc. for the
quarter ended October 31, 2008.)
|
|
|
21
|
Subsidiaries
of Vail Resorts, Inc.
|
258
|
|
22
|
Consent
of Independent Registered Public Accounting Firm.
|
264
|
|
23
|
Power
of Attorney. Included on signature pages
hereto.
|
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
265
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
266
|
|
32
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
267
|
|
*Management
contracts and compensatory plans and arrangements.
|
||
|
**Portions
of this Exhibit have been omitted pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
|
||
b) Exhibits
The
exhibits filed herewith as indicated in the exhibit listed above following the
Signatures section of this report.
c) Financial
Statement Schedules
|
Consolidated
Financial Statement Schedule
|
|||||||||||||
|
(in
thousands)
|
|||||||||||||
|
For
the Years Ended July 31,
|
|||||||||||||
|
Balance
at
|
Charged
to
|
Balance
at
|
|||||||||||
|
Beginning
of
|
Costs
and
|
End
of
|
|||||||||||
|
Period
|
Expenses
|
Deductions
|
Period
|
||||||||||
|
2007
|
|||||||||||||
|
Inventory
Reserves
|
$
|
755
|
$
|
2,202
|
$
|
(2,131
|
)
|
$
|
826
|
||||
|
Valuation
Allowance on Income Taxes
|
1,605
|
--
|
(17
|
)
|
1,588
|
||||||||
|
Trade
Receivable Allowances
|
1,388
|
1,638
|
(908
|
)
|
2,118
|
||||||||
|
2008
|
|||||||||||||
|
Inventory
Reserves
|
826
|
2,729
|
(2,344
|
)
|
1,211
|
||||||||
|
Valuation
Allowance on Income Taxes
|
1,588
|
--
|
--
|
1,588
|
|||||||||
|
Trade
Receivable Allowances
|
2,118
|
670
|
(1,122
|
)
|
1,666
|
||||||||
|
2009
|
|||||||||||||
|
Inventory
Reserves
|
1,211
|
2,496
|
(2,252
|
)
|
1,455
|
||||||||
|
Valuation
Allowance on Income Taxes
|
1,588
|
--
|
--
|
1,588
|
|||||||||
|
Trade
Receivable Allowances
|
$
|
1,666
|
$
|
2,109
|
$
|
(1,898
|
)
|
$
|
1,877
|
||||
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
Date: September
24, 2009
|
Vail
Resorts, Inc.
|
|
|
By:
|
/s/ Jeffrey W. Jones
|
|
|
Jeffrey
W. Jones
|
||
|
Senior
Executive Vice President and
|
||
|
Chief
Financial Officer
|
||
|
(Principal
Financial Officer)
|
||
|
Date: September
24, 2009
|
Vail
Resorts, Inc.
|
|
|
By:
|
/s/ Mark L. Schoppet
|
|
|
Mark
L. Schoppet
|
||
|
Vice
President, Controller and
|
||
|
Chief
Accounting Officer
|
||
|
(Principal
Accounting Officer)
|
||
POWER
OF ATTORNEY
Each
person whose signature appears below hereby constitutes and appoints Jeffrey W.
Jones or Mark L. Schoppet his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any or all amendments or
supplements to this Form 10-K and to file the same with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing necessary or
appropriate to be done with this Form 10-K and any amendments or supplements
hereto, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on September 24, 2009.
|
Signature
|
Title
|
|
/s/
Robert A. Katz
|
Chief
Executive Officer and Chairman of the Board
|
|
Robert
A. Katz
|
(Principal
Executive Officer)
|
|
/s/
Jeffrey W. Jones
|
Senior
Executive Vice President,
|
|
Jeffrey
W. Jones
|
Chief
Financial Officer and Director
|
|
(Principal
Financial Officer)
|
|
|
/s/
Roland A. Hernandez
|
|
|
Roland
A. Hernandez
|
Director
|
|
/s/
Thomas D. Hyde
|
|
|
Thomas
D. Hyde
|
Director
|
|
/s/
Richard D. Kincaid
|
|
|
Richard
D. Kincaid
|
Director
|
|
/s/
John T. Redmond
|
|
|
John
T. Redmond
|
Director
|
|
/s/
John F. Sorte
|
|
|
John
F. Sorte
|
Director
|
|
/s/
William P. Stiritz
|
|
|
William
P. Stiritz
|
Director
|