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Vail Resorts 10-Q 2013

Documents found in this filing:

  1. 10-Q
  2. Ex-4.1
  3. Ex-4.2
  4. Ex-31.1
  5. Ex-31.2
  6. Ex-32
  7. Ex-32
MTN 2013.01.31 Q2


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2013
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-09614

Vail Resorts, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
51-0291762
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
390 Interlocken Crescent
Broomfield, Colorado
 
80021
(Address of Principal Executive Offices)
 
(Zip Code)
(303) 404-1800
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    ý  No
As of March 1, 2013, 35,909,069 shares of the registrant’s common stock were outstanding.




Table of Contents
 




PART I FINANCIAL INFORMATION
Item 1. Financial Statements — Unaudited
 

F-1





Vail Resorts, Inc.
Consolidated Condensed Balance Sheets
(In thousands, except share and per share amounts)
 
 
 
January 31, 2013 (Unaudited)
 
July 31, 2012
 
January 31, 2012 (Unaudited)
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
136,579

 
$
46,053

 
$
95,642

Restricted cash
 
12,194

 
14,284

 
16,221

Trade receivables, net
 
53,486

 
65,743

 
48,430

Inventories, net
 
70,341

 
65,873

 
62,594

Other current assets
 
49,633

 
40,417

 
56,998

Total current assets
 
322,233

 
232,370

 
279,885

Property, plant and equipment, net (Note 6)
 
1,057,399

 
1,049,207

 
1,057,930

Real estate held for sale and investment
 
216,815

 
237,668

 
257,169

Goodwill, net
 
271,762

 
269,769

 
268,058

Intangible assets, net
 
92,590

 
92,070

 
90,196

Other assets
 
42,950

 
46,530

 
45,997

Total assets
 
$
2,003,749

 
$
1,927,614

 
$
1,999,235

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable and accrued liabilities (Note 6)
 
$
317,504

 
$
227,538

 
$
301,473

Income taxes payable
 
14,979

 
20,721

 
19,569

Long-term debt due within one year (Note 4)
 
806

 
990

 
1,058

Total current liabilities
 
333,289

 
249,249

 
322,100

Long-term debt (Note 4)
 
489,497

 
489,775

 
490,302

Other long-term liabilities (Note 6)
 
230,157

 
232,869

 
235,629

Deferred income taxes
 
140,704

 
139,393

 
129,962

Commitments and contingencies (Note 9)
 

 

 

Stockholders’ equity:
 
 
 
 
 
 
Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued and outstanding
 


 


 


Common stock, $0.01 par value, 100,000,000 shares authorized, 40,855,859 (unaudited), 40,531,204 and 40,477,796 (unaudited) shares issued, respectively
 
409

 
405

 
405

Additional paid-in capital
 
593,424

 
586,691

 
581,217

Accumulated other comprehensive income (loss)
 
198

 
(255
)
 

Retained earnings
 
395,175

 
408,662

 
396,335

Treasury stock, at cost; 4,949,111 (unaudited), 4,949,111 and 4,468,181 (unaudited) shares, respectively (Note 11)
 
(193,192
)
 
(193,192
)
 
(170,696
)
Total Vail Resorts, Inc. stockholders’ equity
 
796,014

 
802,311

 
807,261

Noncontrolling interests
 
14,088

 
14,017

 
13,981

Total stockholders’ equity (Note 2)
 
810,102

 
816,328

 
821,242

Total liabilities and stockholders’ equity
 
$
2,003,749

 
$
1,927,614

 
$
1,999,235

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


F-2



Vail Resorts, Inc.
Consolidated Condensed Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended January 31,
 
Six Months Ended January 31,
 
 
2013
 
2012
 
2013
 
2012
Net revenue:
 
 
 
 
 
 
 
 
Mountain
 
$
361,741

 
$
315,938

 
$
413,653

 
$
365,608

Lodging
 
46,543

 
48,306

 
99,051

 
101,900

Real estate
 
14,167

 
9,088

 
26,097

 
22,197

Total net revenue
 
422,451

 
373,332

 
538,801

 
489,705

Segment operating expense (exclusive of depreciation and amortization shown separately below):
 
 
 
 
 
 
 
 
Mountain
 
220,997

 
195,489

 
328,545

 
294,044

Lodging
 
44,803

 
47,093

 
96,609

 
102,394

Real estate
 
16,739

 
12,563

 
32,353

 
30,410

Total segment operating expense
 
282,539

 
255,145

 
457,507

 
426,848

Other operating expense:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
(33,418
)
 
(33,050
)
 
(65,097
)
 
(61,980
)
Loss on disposal of fixed assets, net
 
(531
)
 
(919
)
 
(533
)
 
(1,033
)
Income (loss) from operations
 
105,963

 
84,218

 
15,664

 
(156
)
Mountain equity investment income, net
 
99

 
178

 
533

 
608

Investment income, net
 
99

 
310

 
153

 
374

Interest expense, net
 
(8,534
)
 
(8,542
)
 
(16,909
)
 
(16,783
)
Income (loss) before (provision) benefit from income taxes
 
97,627

 
76,164

 
(559
)
 
(15,957
)
(Provision) benefit from income taxes
 
(37,098
)
 
(29,743
)
 
485

 
6,644

Net income (loss)
 
60,529

 
46,421

 
(74
)
 
(9,313
)
Net loss (income) attributable to noncontrolling interests
 
22

 
(32
)
 
45

 
(7
)
Net income (loss) attributable to Vail Resorts, Inc.
 
$
60,551

 
$
46,389

 
$
(29
)
 
$
(9,320
)
Per share amounts (Note 3):
 
 
 
 
 
 
 
 
Basic net income (loss) per share attributable to Vail Resorts, Inc.
 
$
1.69

 
$
1.29

 
$

 
$
(0.26
)
Diluted net income (loss) per share attributable to Vail Resorts, Inc.
 
$
1.65

 
$
1.27

 
$

 
$
(0.26
)
Cash dividends declared per share
 
$
0.1875

 
$
0.15

 
$
0.3750

 
$
0.30

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



F-3




Vail Resorts, Inc.
Consolidated Condensed Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)

 
 
Three Months Ended January 31,
 
Six Months Ended January 31,
 
 
2013
 
2012
 
2013
 
2012
Net income (loss)
 
$
60,529

 
$
46,421

 
$
(74
)
 
$
(9,313
)
Foreign currency translation adjustments, net of tax
 
159

 

 
453

 

Comprehensive income (loss)
 
60,688

 
46,421

 
379

 
(9,313
)
Comprehensive loss (income) attributable to noncontrolling interests
 
22

 
(32
)
 
45

 
(7
)
Comprehensive income (loss) attributable to Vail Resorts, Inc.
 
$
60,710

 
$
46,389

 
$
424

 
$
(9,320
)
The accompanying Notes are an integral part of these consolidated condensed financial statements.


F-4



Vail Resorts, Inc.
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
 
Six Months Ended January 31,
 
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(74
)
 
$
(9,313
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
65,097

 
61,980

Cost of real estate sales
 
19,900

 
16,385

Stock-based compensation expense
 
6,631

 
6,820

Deferred income taxes, net
 
(485
)
 
(6,644
)
Other non-cash income, net
 
(4,060
)
 
(2,875
)
Changes in assets and liabilities:
 
 
 
 
Restricted cash
 
2,100

 
(3,783
)
Trade receivables, net
 
12,677

 
9,919

Inventories, net
 
(3,822
)
 
(8,622
)
Investments in real estate
 
(1,410
)
 
(1,850
)
Accounts payable and accrued liabilities
 
83,200

 
75,225

Other assets and liabilities, net
 
(8,477
)
 
147

Net cash provided by operating activities
 
171,277

 
137,389

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(53,920
)
 
(93,186
)
Acquisition of businesses
 
(19,958
)
 
342

Other investing activities, net
 
246

 
(904
)
Net cash used in investing activities
 
(73,632
)
 
(93,748
)
Cash flows from financing activities:
 
 
 
 
Proceeds from borrowings under long-term debt
 
96,000

 
56,000

Payments of long-term debt
 
(96,444
)
 
(56,383
)
Repurchases of common stock
 

 
(7,869
)
Dividends paid
 
(13,458
)
 
(10,801
)
Other financing activities, net
 
6,722

 
911

Net cash used in financing activities
 
(7,180
)
 
(18,142
)
Effect of exchange rate changes on cash and cash equivalents
 
61

 

Net increase in cash and cash equivalents
 
90,526

 
25,499

Cash and cash equivalents:
 
 
 
 
Beginning of period
 
46,053

 
70,143

End of period
 
$
136,579

 
$
95,642

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


F-5



Vail Resorts, Inc.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
 

1.
Organization and Business
Vail Resorts, Inc. (“Vail Resorts” or the “Parent Company”) is organized as a holding company and operates through various subsidiaries. Vail Resorts and its subsidiaries (collectively, the “Company”) currently operate in three business segments: Mountain, Lodging and Real Estate. In the Mountain segment, the Company operates the seven world-class ski resort properties of Vail, Breckenridge, Keystone and Beaver Creek mountain resorts in Colorado, and Heavenly, Northstar and Kirkwood mountain resorts in the Lake Tahoe area of California and Nevada; the ski areas of Afton Alps in Minnesota and Mount Brighton in Michigan; as well as ancillary services, primarily including ski school, dining and retail/rental operations. These resorts (with the exception of Northstar, Afton Alps and Mount Brighton) operate primarily on Federal land under the terms of Special Use Permits granted by the USDA Forest Service (the “Forest Service”). In the Lodging segment, the Company owns and/or manages a collection of luxury hotels under its RockResorts brand, as well as other strategic lodging properties and a large number of condominiums located in proximity to the Company’s ski resorts; National Park Service (“NPS”) concessionaire properties including the Grand Teton Lodge Company (“GTLC”), which operates destination resorts in the Grand Teton National Park; Colorado Mountain Express (“CME”), a Colorado resort ground transportation company; and mountain resort golf courses. Vail Resorts Development Company (“VRDC”), a wholly-owned subsidiary, conducts the operations of the Company’s Real Estate segment, which owns and develops real estate in and around the Company’s resort communities. The Company’s mountain business and its lodging properties at or around the Company’s ski resorts are seasonal in nature with peak operating seasons from mid-November through mid-April. The Company’s operations at its NPS concessionaire properties and its golf courses generally operate from mid-May through mid-October. The Company also has non-majority owned investments in various other entities, some of which are consolidated (see Note 7, Variable Interest Entities).
 

2.
Summary of Significant Accounting Policies
Basis of Presentation
Consolidated Condensed Financial Statements— In the opinion of the Company, the accompanying Consolidated Condensed Financial Statements reflect all adjustments necessary to state fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. Results for interim periods are not indicative of the results for the entire fiscal year. The accompanying Consolidated Condensed Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2012. Certain information and footnote disclosures, including significant accounting policies, normally included in fiscal year financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. The Consolidated Condensed Balance Sheet as of July 31, 2012 was derived from audited financial statements.
Presentation of Comprehensive Income — Effective August 1, 2012, the Company adopted Accounting Standard Update ("ASU") No. 2011-05 -“Comprehensive Income (Topic 220): Presentation of Comprehensive Income” which amends existing guidance by allowing two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, a statement of comprehensive income or (2) in two separate but consecutive financial statements, an income statement followed by a separate statement of other comprehensive income. The Company also adopted ASU No. 2011-12—“Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05” which defers until further notice ASU No. 2011-05's requirement that items that are reclassified from other comprehensive income to net income be presented on the face of the financial statements. ASU No. 2011-05 required retrospective application. The adoption of these standards only amended presentation and disclosure requirements concerning comprehensive income; therefore, the adoption of these standards did not affect the Company’s financial position or results of operations. The Company elected to present the total of comprehensive income (loss), the components of net income (loss) (i.e. statements of operations), and the components of other comprehensive income (loss) for both the three and six months ended January 31, 2013 and 2012, in two separate but consecutive statements.
New Accounting Standards -- In January 2013, the FASB issued ASU No. 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income", to improve the transparency of reporting these reclassifications. The amendments in this ASU supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU No. 2011-05 (issued in June 2011) and ASU No.

F-6



2011-12 (issued in December 2011). This amendment does not change the current requirements for reporting net income or other comprehensive income in financial statements, but the standard requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. If a component is not required to be reclassified to net income in its entirety, companies would instead cross reference to the related footnote for additional information. The amendments are effective for fiscal years beginning after December 15, 2012 (the Company's 2014 first fiscal quarter). The Company does not currently have any components of other comprehensive income that require reclassification to net income, as such, the adoption of this standard is not expected to have an impact on the presentation of the Company's financial statements.
Use of Estimates— The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Noncontrolling Interests in Consolidated Financial Statements— Net income/loss attributable to noncontrolling interests along with net income/loss attributable to the stockholders of the Company are reported separately in the Consolidated Condensed Statement of Operations. Additionally, noncontrolling interests in the consolidated subsidiaries of the Company are reported as a separate component of equity in the Consolidated Condensed Balance Sheet, apart from the Company’s equity. The following table summarizes the changes in total stockholders’ equity (in thousands):
 
 
 
For the Six Months Ended January 31,
 
 
2013
 
2012
 
 
Vail Resorts
Stockholders’
Equity
 
Noncontrolling
Interests
 
Total
Stockholders' Equity
 
Vail Resorts
Stockholders’
Equity
 
Noncontrolling
Interests
 
Total
Stockholders' Equity
Balance, beginning of period
 
$
802,311

 
$
14,017

 
$
816,328

 
$
829,723

 
$
13,996

 
$
843,719

Net (loss) income
 
(29
)
 
(45
)
 
(74
)
 
(9,320
)
 
7

 
(9,313
)
Stock-based compensation expense
 
6,631

 

 
6,631

 
6,820

 

 
6,820

Issuance of shares under share award plans, net of shares withheld for taxes
 
(3,792
)
 

 
(3,792
)
 
(2,219
)
 

 
(2,219
)
Tax benefit from share award plans
 
3,898

 

 
3,898

 
927

 

 
927

Cash dividends paid on common stock
 
(13,458
)
 

 
(13,458
)
 
(10,801
)
 

 
(10,801
)
Repurchases of common stock
 

 

 

 
(7,869
)
 

 
(7,869
)
Contributions (distributions) from/to noncontrolling interests, net
 

 
116

 
116

 

 
(22
)
 
(22
)
Foreign currency translation adjustments
 
453

 

 
453

 

 

 

Balance, end of period
 
$
796,014

 
$
14,088

 
$
810,102

 
$
807,261

 
$
13,981

 
$
821,242

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

F-7



 
 
January 31, 2013
 
 
Carrying
Value
 
Fair
Value
6.50% Notes
 
$
390,000

 
$
421,200

Industrial Development Bonds
 
$
41,200

 
$
47,364

Other long-term debt
 
$
6,527

 
$
7,097



3.
Net Income (Loss) Per Common Share
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income (loss) attributable to Vail Resorts stockholders by the weighted-average shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of shares of common stock that would then share in the earnings of Vail Resorts. Presented below is basic and diluted EPS for the three months ended January 31, 2013 and 2012 (in thousands, except per share amounts):
 
 
 
Three Months Ended January 31,
 
 
2013
 
2012
 
 
Basic
 
Diluted
 
Basic
 
Diluted
Net income per share:
 
 
 
 
 
 
 
 
Net income attributable to Vail Resorts
 
$
60,551

 
$
60,551

 
$
46,389

 
$
46,389

Weighted-average shares outstanding
 
35,895

 
35,895

 
36,005

 
36,005

Effect of dilutive securities
 

 
768

 

 
646

Total shares
 
35,895

 
36,663

 
36,005

 
36,651

Net income per share attributable to Vail Resorts
 
$
1.69

 
$
1.65

 
$
1.29

 
$
1.27


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

Presented below is basic and diluted EPS for the six months ended January 31, 2013 and 2012 (in thousands, except per share amounts):
 
 
Six Months Ended January 31,
 
 
2013
 
2012
 
 
Basic
 
Diluted
 
Basic
 
Diluted
Net loss per share:
 
 
 
 
 
 
 
 
Net loss attributable to Vail Resorts
 
$
(29
)
 
$
(29
)
 
$
(9,320
)
 
$
(9,320
)
Weighted-average shares outstanding
 
35,798

 
35,798

 
36,036

 
36,036

Effect of dilutive securities
 

 

 

 

Total shares
 
35,798

 
35,798

 
36,036

 
36,036

Net loss per share attributable to Vail Resorts
 
$

 
$

 
$
(0.26
)
 
$
(0.26
)

The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the period. The number of shares issuable on the exercise of share based awards that were excluded from the calculation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive totaled 842,000 and 666,000 for the six months ended January 31, 2013 and 2012, respectively.
On June 7, 2011 the Company’s Board of Directors approved the commencement of a regular quarterly cash dividend on the Company's common stock at an annual rate of $0.60 per share, subject to quarterly declaration. On March 5, 2012 the Company’s Board of Directors approved a 25% increase to the annual cash dividend to an annual rate of $0.75 per share, subject to quarterly declaration. During the three and six months ended January 31, 2013, the Company paid cash dividends of $0.1875 and $0.3750 per share, respectively ($6.7 million and $13.5 million, respectively, in the aggregate). During the three and six months ended January 31, 2012, the Company paid cash dividends of $0.15 and $0.30 per share, respectively ($5.4

F-8



million and $10.8 million, respectively, in the aggregate). On March 4, 2013 the Company’s Board of Directors approved an approximate 10% increase to its annual cash dividend on its common stock, subject to quarterly declaration. As a result, a quarterly cash dividend of $0.2075 per share was declared by the Company's Board of Directors payable on April 9, 2013 to stockholders of record as of March 25, 2013.
 
4.
Long-Term Debt
Long-term debt as of January 31, 2013July 31, 2012 and January 31, 2012 is summarized as follows (in thousands):
 
 
 
Maturity (a)
 
January 31, 2013
 
July 31, 2012
 
January 31, 2012
Credit Facility Revolver
 
2016
 
$

 
$

 
$

Industrial Development Bonds
 
2020
 
41,200

 
41,200

 
41,200

Employee Housing Bonds
 
2027-2039
 
52,575

 
52,575

 
52,575

6.50% Notes
 
2019
 
390,000

 
390,000

 
390,000

Other
 
2013-2029
 
6,528

 
6,990

 
7,585

Total debt
 
 
 
490,303

 
490,765

 
491,360

Less: Current maturities (b)
 
 
 
806

 
990

 
1,058

Long-term debt
 
 
 
$
489,497

 
$
489,775

 
$
490,302

 
(a)
Maturities are based on the Company’s July 31 fiscal year end.
(b)
Current maturities represent principal payments due in the next 12 months.

Aggregate maturities for debt outstanding as of January 31, 2013 reflected by fiscal year are as follows (in thousands):
 
 
 
2013
$
553

2014
509

2015
533

2016
244

2017
257

Thereafter
488,207

 
 
Total debt
$
490,303

 
 
The Company incurred gross interest expense of $8.5 million for both the three months ended January 31, 2013 and 2012, of which $0.5 million was amortization of deferred financing costs. The Company had no capitalized interest during the three months ended January 31, 2013 and 2012. The Company incurred gross interest expense of $16.9 million for both the six months ended January 31, 2013 and 2012, of which $1.0 million was amortization of deferred financing costs. The Company had no capitalized interest during the six months ended January 31, 2013. The Company capitalized $0.1 million of interest during the six months ended and January 31, 2012.
 
5.
Acquisitions

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


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

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

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

6.
Supplementary Balance Sheet Information
The composition of property, plant and equipment follows (in thousands):
 
 
January 31, 2013
 
July 31, 2012
 
January 31, 2012
Land and land improvements
 
$
289,127

 
$
281,729

 
$
277,061

Buildings and building improvements
 
854,130

 
838,780

 
833,331

Machinery and equipment
 
598,944

 
563,309

 
559,897

Furniture and fixtures
 
257,496

 
243,587

 
237,585

Software
 
92,473

 
81,659

 
77,533

Vehicles
 
48,307

 
44,798

 
44,760

Construction in progress
 
15,423

 
36,979

 
16,618

Gross property, plant and equipment
 
2,155,900

 
2,090,841

 
2,046,785

Accumulated depreciation
 
(1,098,501
)
 
(1,041,634
)
 
(988,855
)
Property, plant and equipment, net
 
$
1,057,399

 
$
1,049,207

 
$
1,057,930

The composition of accounts payable and accrued liabilities follows (in thousands): 
 
 
January 31, 2013
 
July 31, 2012
 
January 31, 2012
Trade payables
 
$
63,914

 
$
56,508

 
$
75,751

Deferred revenue
 
117,812

 
78,793

 
104,570

Accrued salaries, wages and deferred compensation
 
30,838

 
21,242

 
24,143

Accrued benefits
 
21,870

 
20,216

 
23,256

Deposits
 
26,411

 
12,031

 
20,730

Accrued interest
 
7,896

 
8,015

 
7,914

Other accruals
 
48,763

 
30,733

 
45,109

Total accounts payable and accrued liabilities
 
$
317,504

 
$
227,538

 
$
301,473


F-10




The composition of other long-term liabilities follows (in thousands):
 
 
January 31, 2013
 
July 31, 2012
 
January 31, 2012
Private club deferred initiation fee revenue
 
$
133,432

 
$
135,660

 
$
137,922

Unfavorable lease obligation, net
 
34,723

 
36,058

 
37,393

Other long-term liabilities
 
62,002

 
61,151

 
60,314

Total other long-term liabilities
 
$
230,157

 
$
232,869

 
$
235,629

 
7.    Variable Interest Entities
The Company is the primary beneficiary of four employee housing entities (collectively, the “Employee Housing Entities”), Breckenridge Terrace, LLC, The Tarnes at BC, LLC, BC Housing, LLC and Tenderfoot Seasonal Housing, LLC, which are variable interest entities (“VIEs”), and has consolidated them in its Consolidated Condensed Financial Statements. As a group, as of January 31, 2013, the Employee Housing Entities had total assets of $30.4 million (primarily recorded in property, plant and equipment, net) and total liabilities of $63.0 million (primarily recorded in long-term debt as “Employee Housing Bonds”). The Company’s lenders have issued letters of credit totaling $53.4 million under the Company's senior credit facility (“Credit Agreement”) related to Employee Housing Bonds. Payments under the letters of credit would be triggered in the event that one of the entities defaults on required payments. The letters of credit have no default provisions.
The Company is the primary beneficiary of Avon Partners II, LLC (“APII”), which is a VIE. APII owns commercial space and the Company currently leases substantially all of that space. APII had total assets of $4.8 million (primarily recorded in property, plant and equipment, net) and no debt as of January 31, 2013.
 
8.    Fair Value Measurements
The FASB issued fair value guidance that establishes how reporting entities should measure fair value for measurement and disclosure purposes. The guidance establishes a common definition of fair value applicable to all assets and liabilities measured at fair value and prioritizes the inputs into valuation techniques used to measure fair value. Accordingly, the Company uses valuation techniques which maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value. The three levels of the hierarchy are as follows:
Level 1: Inputs that reflect unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities;
Level 2: Inputs include quoted prices for similar assets and liabilities in active and inactive markets or that are observable for the asset or liability either directly or indirectly; and
Level 3: Unobservable inputs which are supported by little or no market activity.
The table below summarizes the Company’s cash equivalents measured at fair value (all other assets and liabilities measured at fair value are immaterial) (in thousands):
 

F-11



 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurement as of January 31, 2013
 
Description
 
Balance at January 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
 
Money Market
 
$
19,025

 
$
19,025

 
$

 
$

 
Commercial Paper
 
$
10,626

 
$

 
$
10,626

 
$

 
Certificates of Deposit
 
$
630

 
$

 
$
630

 
$

 
 
 
 
 
 
 
Fair Value Measurement as of July 31, 2012
 
Description
 
Balance at July 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Money Market
 
$
6,581

 
$
6,581

 
$

 
$

 
Commercial Paper
 
$
2,441

 
$

 
$
2,441

 
$

 
Certificates of Deposit
 
$
1,260

 
$

 
$
1,260

 
$

 
 
 
 
 
 
 
Fair Value Measurement as of January 31, 2012
 
Description
 
Balance at January 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Money Market
 
$
8,386

 
$
8,386

 
$

 
$

 
Commercial Paper
 
$
19,990

 
$

 
$
19,990

 
$

 
Certificates of Deposit
 
$
1,890

 
$

 
$
1,890

 
$


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

9.    Commitments and Contingencies
Metropolitan Districts
The Company credit-enhances $8.0 million of bonds issued by Holland Creek Metropolitan District (“HCMD”) through an $8.1 million letter of credit issued under the Company’s Credit Agreement. HCMD’s bonds were issued and used to build infrastructure associated with the Company’s Red Sky Ranch residential development. The Company has agreed to pay capital improvement fees to Red Sky Ranch Metropolitan District (“RSRMD”) until RSRMD’s revenue streams from property taxes are sufficient to meet debt service requirements under HCMD’s bonds, and the Company has recorded a liability of $1.8 million primarily within “other long-term liabilities” in the accompanying Consolidated Condensed Balance Sheets, as of January 31, 2013July 31, 2012 and January 31, 2012, respectively, with respect to the estimated present value of future RSRMD capital improvement fees. The Company estimates that it will make capital improvement fee payments under this arrangement through the year ending July 31, 2028.
Guarantees/Indemnifications
As of January 31, 2013, the Company had various other letters of credit in the amount of $59.5 million, consisting primarily of $53.4 million in support of the Employee Housing Bonds and $4.5 million for workers’ compensation and general liability deductibles related to construction and development activities.
In addition to the guarantees noted above, the Company has entered into contracts in the normal course of business which include certain indemnifications under which it could be required to make payments to third parties upon the occurrence or non-occurrence of certain future events. These indemnities include indemnities to licensees in connection with the licensees’ use of the Company’s trademarks and logos, indemnities for liabilities associated with the infringement of other parties’ technology and software products, indemnities related to liabilities associated with the use of easements, indemnities related to employment of contract workers, the Company’s use of trustees, indemnities related to the Company’s use of public lands and environmental indemnifications. The duration of these indemnities generally is indefinite and generally do not limit the future payments the Company could be obligated to make.
As permitted under applicable law, the Company and certain of its subsidiaries indemnify their directors and officers over their lifetimes for certain events or occurrences while the officer or director is, or was, serving the Company or its subsidiaries in such a capacity. The maximum potential amount of future payments the Company could be required to make under these

F-12



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

Unless otherwise noted, the Company has not recorded any significant liabilities for the letters of credit, indemnities and other guarantees noted above in the accompanying Consolidated Condensed Financial Statements, either because the Company has recorded on its Consolidated Condensed Balance Sheets the underlying liability associated with the guarantee, the guarantee is with respect to the Company’s own performance and is therefore not subject to the measurement requirements as prescribed by GAAP, or because the Company has calculated the fair value of the indemnification or guarantee to be immaterial based upon the current facts and circumstances that would trigger a payment under the indemnification clause. In addition, with respect to certain indemnifications it is not possible to determine the maximum potential amount of liability under these guarantees due to the unique set of facts and circumstances that are likely to be involved in each particular claim and indemnification provision. Historically, payments made by the Company under these obligations have not been material.
As noted above, the Company makes certain indemnifications to licensees in connection with their use of the Company’s trademarks and logos. The Company does not record any liabilities with respect to these indemnifications.
Self Insurance
The Company is self-insured for claims under its health benefit plans and for the majority of workers’ compensation claims, subject to a stop loss policy. The self-insurance liability related to workers’ compensation is determined actuarially based on claims filed. The self-insurance liability related to claims under the Company’s health benefit plans is determined based on analysis of actual claims. The amounts related to these claims are included as a component of accrued benefits in accounts payable and accrued liabilities (see Note 6, Supplementary Balance Sheet Information).
Legal
The Company is a party to various lawsuits arising in the ordinary course of business. Management believes the Company has adequate insurance coverage and/or has accrued for loss contingencies for all known matters that are deemed to be probable losses and estimable. As of January 31, 2013July 31, 2012 and January 31, 2012, the accrual for the above loss contingencies was not material individually and in the aggregate.
 
10.    Segment Information
The Company has three reportable segments: Mountain, Lodging and Real Estate. The Mountain segment includes the operations of the Company’s ski resorts/areas and related ancillary services. The Lodging segment includes the operations of all of the Company’s owned hotels, RockResorts, NPS concessionaire properties, condominium management, CME and mountain resort golf operations. The Real Estate segment owns and develops real estate in and around the Company’s resort communities. The Company’s reportable segments, although integral to the success of each other, offer distinctly different products and services and require different types of management focus. As such, these segments are managed separately.
The Company reports its segment results using Reported EBITDA (defined as segment net revenue less segment operating expenses, plus or minus segment equity investment income or loss), which is a non-GAAP financial measure. The Company reports segment results in a manner consistent with management’s internal reporting of operating results to the chief operating decision maker (the Chief Executive Officer) for purposes of evaluating segment performance.
Reported EBITDA is not a measure of financial performance under GAAP. Items excluded from Reported EBITDA are significant components in understanding and assessing financial performance. Reported EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income (loss), net change in cash and cash equivalents or other financial statement data presented in the Consolidated Condensed Financial Statements as indicators of financial performance or liquidity. Because Reported EBITDA is not a measurement determined in accordance with GAAP and thus is susceptible to varying calculations, Reported EBITDA as presented may not be comparable to other similarly titled measures of other companies.

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

F-13



The following table presents financial information by reportable segment which is used by management in evaluating performance and allocating resources (in thousands):
 
 
 
Three Months Ended January 31,
 
Six Months Ended January 31,
 
 
2013
 
2012
 
2013
 
2012
Net revenue:
 
 
 
 
 
 
 
 
Lift tickets
 
$
175,658

 
$
153,699

 
$
175,658

 
$
153,699

Ski school
 
41,723

 
37,252

 
41,723

 
37,252

Dining
 
29,826

 
24,722

 
36,199

 
30,369

Retail/rental
 
83,748

 
73,850

 
110,473

 
100,814

Other
 
30,786

 
26,415

 
49,600

 
43,474

Total Mountain net revenue
 
361,741

 
315,938

 
413,653

 
365,608

Lodging
 
46,543

 
48,306

 
99,051

 
101,900

Total Resort net revenue
 
408,284

 
364,244

 
512,704

 
467,508

Real estate
 
14,167

 
9,088

 
26,097

 
22,197

Total net revenue
 
$
422,451

 
$
373,332

 
$
538,801

 
$
489,705

Operating expense:
 
 
 
 
 
 
 
 
Mountain
 
$
220,997

 
$
195,489

 
$
328,545

 
$
294,044

Lodging
 
44,803

 
47,093

 
96,609

 
102,394

Total Resort operating expense
 
265,800

 
242,582

 
425,154

 
396,438

Real estate
 
16,739

 
12,563

 
32,353

 
30,410

Total segment operating expense
 
$
282,539

 
$
255,145

 
$
457,507

 
$
426,848

Mountain equity investment income, net
 
$
99

 
$
178

 
$
533

 
$
608

Reported EBITDA:
 
 
 
 
 
 
 
 
Mountain
 
$
140,843

 
$
120,627

 
$
85,641

 
$
72,172

Lodging
 
1,740

 
1,213

 
2,442

 
(494
)
Resort
 
142,583

 
121,840

 
88,083

 
71,678

Real estate
 
(2,572
)
 
(3,475
)
 
(6,256
)
 
(8,213
)
Total Reported EBITDA
 
$
140,011

 
$
118,365

 
$
81,827

 
$
63,465

 
 
 
 
 
 
 
 
 
Real estate held for sale and investment
 
$
216,815

 
$
257,169

 
$
216,815

 
$
257,169

 
 
 
 
 
 
 
 
 
Reconciliation to net income (loss) attributable to Vail Resorts, Inc.:
 
 
 
 
 
 
 
 
Total Reported EBITDA
 
$
140,011

 
$
118,365

 
$
81,827

 
$
63,465

Depreciation and amortization
 
(33,418
)
 
(33,050
)
 
(65,097
)
 
(61,980
)
Loss on disposal of fixed assets, net
 
(531
)
 
(919
)
 
(533
)
 
(1,033
)
Investment income, net
 
99

 
310

 
153

 
374

Interest expense, net
 
(8,534
)
 
(8,542
)
 
(16,909
)
 
(16,783
)
Income (loss) before (provision) benefit from income taxes
 
97,627

 
76,164

 
(559
)
 
(15,957
)
(Provision) benefit from income taxes
 
(37,098
)
 
(29,743
)
 
485

 
6,644

Net income (loss)
 
$
60,529

 
$
46,421

 
$
(74
)
 
$
(9,313
)
Net loss (income) attributable to noncontrolling interests
 
22

 
(32
)
 
45

 
(7
)
Net income (loss) attributable to Vail Resorts, Inc.
 
$
60,551

 
$
46,389

 
$
(29
)
 
$
(9,320
)


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

F-14



existing repurchase authorization. Shares of common stock purchased pursuant to the repurchase program will be held as treasury shares and may be used for the issuance of shares under the Company’s employee share award plan.
 

12.    Guarantor Subsidiaries and Non-Guarantor Subsidiaries
The Company’s payment obligations under the 6.50% Notes (see Note 4, Long-Term Debt) are fully and unconditionally guaranteed on a joint and several, senior subordinated basis by substantially all of the Company’s consolidated subsidiaries (collectively, and excluding Non-Guarantor Subsidiaries (as defined below), the “Guarantor Subsidiaries”), except for Eagle Park Reservoir Company, Larkspur Restaurant & Bar, LLC, Black Diamond Insurance, Inc., Skiinfo AS and certain other insignificant entities (together, the “Non-Guarantor Subsidiaries”). APII and the Employee Housing Entities are included with the Non-Guarantor Subsidiaries for purposes of the consolidated financial information, but are not considered subsidiaries under the indenture governing the 6.50% Notes.
Presented below is the consolidated financial information of the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. Financial information for the Non-Guarantor Subsidiaries is presented in the column titled “Other Subsidiaries.” Balance sheets are presented as of January 31, 2013, July 31, 2012, and January 31, 2012. Statements of operations and statements of comprehensive income (loss) are presented for the three and six months ended January 31, 2013 and 2012. Statements of cash flows are presented for the six months ended January 31, 2013 and 2012.
Investments in subsidiaries are accounted for by the Parent Company and Guarantor Subsidiaries using the equity method of accounting. Net income (loss) of Guarantor and Non-Guarantor Subsidiaries is, therefore, reflected in the Parent Company’s and Guarantor Subsidiaries’ investments in and advances to (from) subsidiaries. Net income (loss) of the Guarantor and Non-Guarantor Subsidiaries is reflected in Guarantor Subsidiaries and Parent Company as equity in consolidated subsidiaries. The elimination entries eliminate investments in Other Subsidiaries and intercompany balances and transactions for consolidated reporting purposes.

F-15



Supplemental Condensed Consolidating Balance Sheet
As of January 31, 2013
(in thousands)
(Unaudited)
 
 
 
Parent
Company
 
100%
Owned
Guarantor
Subsidiaries
 
Other
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
129,258

 
$
7,321

 
$

 
$
136,579

Restricted cash
 

 
10,979

 
1,215

 

 
12,194

Trade receivables, net
 

 
49,475

 
4,011

 

 
53,486

Inventories, net
 

 
70,095

 
246

 

 
70,341

Other current assets
 
27,586

 
20,988

 
1,059

 

 
49,633

Total current assets
 
27,586

 
280,795

 
13,852

 

 
322,233

Property, plant and equipment, net
 

 
1,010,349

 
47,050

 

 
1,057,399

Real estate held for sale and investment
 

 
216,815

 

 

 
216,815

Goodwill, net
 

 
269,875

 
1,887

 

 
271,762

Intangible assets, net
 

 
73,022

 
19,568

 

 
92,590

Other assets
 
6,573

 
41,469

 
4,367

 
(9,459
)
 
42,950

Investments in subsidiaries
 
1,788,271

 
(1,798
)
 

 
(1,786,473
)
 

Advances
 
(446,303
)
 
443,135

 
3,168

 

 

Total assets
 
$
1,376,127

 
$
2,333,662

 
$
89,892

 
$
(1,795,932
)
 
$
2,003,749

Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
6,502

 
$
302,077

 
$
8,925

 
$

 
$
317,504

Income taxes payable
 
14,979

 

 

 

 
14,979

Long-term debt due within one year
 

 
587

 
219

 

 
806

Total current liabilities
 
21,481

 
302,664

 
9,144

 

 
333,289

Long-term debt
 
390,000

 
41,759

 
57,738

 

 
489,497

Other long-term liabilities
 
28,050

 
200,968

 
10,598

 
(9,459
)
 
230,157

Deferred income taxes
 
140,582

 

 
122

 

 
140,704

Total Vail Resorts, Inc. stockholders’ equity (deficit)
 
796,014

 
1,788,271

 
(1,798
)
 
(1,786,473
)
 
796,014

Noncontrolling interests
 

 

 
14,088

 

 
14,088

Total stockholders’ equity
 
796,014

 
1,788,271

 
12,290

 
(1,786,473
)
 
810,102

Total liabilities and stockholders’ equity
 
$
1,376,127

 
$
2,333,662

 
$
89,892

 
$
(1,795,932
)
 
$
2,003,749



F-16



Supplemental Condensed Consolidating Balance Sheet
As of July 31, 2012
(in thousands)
 
 
 
Parent
Company
 
100%
Owned
Guarantor
Subsidiaries
 
Other
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
38,380

 
$
7,673

 
$

 
$
46,053

Restricted cash
 

 
13,300

 
984

 

 
14,284

Trade receivables, net
 

 
64,185

 
1,558

 

 
65,743

Inventories, net
 

 
65,673

 
200

 

 
65,873

Other current assets
 
24,458

 
15,522

 
437

 

 
40,417

Total current assets
 
24,458

 
197,060

 
10,852

 

 
232,370

Property, plant and equipment, net
 

 
1,000,767

 
48,440

 

 
1,049,207

Real estate held for sale and investment
 

 
237,668

 

 

 
237,668

Goodwill, net
 

 
268,058

 
1,711

 

 
269,769

Intangible assets, net
 

 
72,751

 
19,319