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Vail Resorts 10-Q 2016

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32
Document


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 April 30, 2016
 
¨
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 (§232.405 of this chapter) 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 June 6, 2016, 36,163,420 shares of the registrant’s common stock were outstanding.




Table of Contents
 
 
 
 
PART I
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements (unaudited).
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.





Vail Resorts, Inc.
Consolidated Condensed Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
 
 
 
April 30, 2016
 
July 31, 2015
 
April 30, 2015
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
68,565

 
$
35,459

 
$
125,214

Restricted cash
 
5,934

 
13,012

 
13,139

Trade receivables, net
 
145,483

 
113,990

 
105,617

Inventories, net
 
68,882

 
73,485

 
62,167

Other current assets
 
57,455

 
52,197

 
64,054

Total current assets
 
346,319

 
288,143

 
370,191

Property, plant and equipment, net (Note 6)
 
1,370,374

 
1,386,275

 
1,259,093

Real estate held for sale and investment
 
116,874

 
129,825

 
137,740

Goodwill, net
 
509,083

 
500,433

 
470,286

Intangible assets, net
 
141,222

 
144,149

 
141,127

Other assets
 
37,428

 
40,796

 
41,068

Total assets
 
$
2,521,300

 
$
2,489,621

 
$
2,419,505

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable and accrued liabilities (Note 6)
 
$
338,089

 
$
331,299

 
$
293,056

Income taxes payable
 
20,059

 
57,194

 
36,161

Long-term debt due within one year (Note 4)
 
13,349

 
10,154

 
256,953

Total current liabilities
 
371,497

 
398,647

 
586,170

Long-term debt (Note 4)
 
615,829

 
806,676

 
379,796

Other long-term liabilities (Note 6)
 
249,298

 
255,916

 
235,932

Deferred income taxes
 
305,134

 
147,796

 
240,133

Total liabilities
 
1,541,758

 
1,609,035

 
1,442,031

Commitments and contingencies (Note 9)
 

 

 

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

 

 

Common stock, $0.01 par value, 100,000,000 shares authorized, 41,595,420, 41,462,941 and 41,309,969 shares issued, respectively
 
416

 
415

 
413

Additional paid-in capital
 
632,148

 
623,510

 
623,274

Accumulated other comprehensive loss
 
(1,167
)
 
(4,913
)
 
(623
)
Retained earnings
 
581,245

 
440,748

 
533,618

Treasury stock, at cost, 5,434,977, 4,949,111, and 4,949,111 shares, respectively (Note 11)
 
(246,979
)
 
(193,192
)
 
(193,192
)
Total Vail Resorts, Inc. stockholders’ equity
 
965,663

 
866,568

 
963,490

Noncontrolling interests
 
13,879

 
14,018

 
13,984

Total stockholders’ equity
 
979,542

 
880,586

 
977,474

Total liabilities and stockholders’ equity
 
$
2,521,300

 
$
2,489,621

 
$
2,419,505

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


2



Vail Resorts, Inc.
Consolidated Condensed Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended April 30,
 
Nine Months Ended April 30,
 
2016
 
2015
 
2016
 
2015
Net revenue:
 
 
 
 
 
 
 
Mountain
$
572,805

 
$
499,551

 
$
1,206,610

 
$
1,022,968

Lodging
72,933

 
67,323

 
200,026

 
185,180

Real estate
1,734

 
12,469

 
14,766

 
29,694

Total net revenue
647,472

 
579,343

 
1,421,402

 
1,237,842

Segment operating expense (exclusive of depreciation and amortization shown separately below):
 
 
 
 
 
 
 
Mountain
281,968

 
244,675

 
729,382

 
645,593

Lodging
57,422

 
54,726

 
176,170

 
166,407

Real estate
3,085

 
14,028

 
17,043

 
35,513

Total segment operating expense
342,475

 
313,429

 
922,595

 
847,513

Other operating (expense) income:
 
 
 
 
 
 
 
Depreciation and amortization
(41,472
)
 
(38,242
)
 
(120,713
)
 
(111,587
)
Gain on sale of real property
19

 
151

 
1,810

 
151

Gain on litigation settlement (Note 5)

 

 

 
16,400

Change in fair value of Contingent Consideration (Note 8)

 

 

 
4,550

Loss on disposal of fixed assets and other, net
(164
)
 
(71
)
 
(3,149
)
 
(852
)
Income from operations
263,380

 
227,752

 
376,755

 
298,991

Mountain equity investment income (loss), net
211

 
(129
)
 
992

 
396

Investment income, net
150

 
119

 
509

 
155

Interest expense
(10,400
)
 
(13,735
)
 
(31,905
)
 
(41,110
)
Income before provision for income taxes
253,341

 
214,007

 
346,351

 
258,432

Provision for income taxes (Note 12)
(95,804
)
 
(80,605
)
 
(131,613
)
 
(73,654
)
Net income
157,537

 
133,402

 
214,738

 
184,778

Net loss attributable to noncontrolling interests
95

 
8

 
289

 
118

Net income attributable to Vail Resorts, Inc.
$
157,632

 
$
133,410

 
$
215,027

 
$
184,896

Per share amounts (Note 3):
 
 
 
 
 
 
 
Basic net income per share attributable to Vail Resorts, Inc.
$
4.35

 
$
3.67

 
$
5.92

 
$
5.09

Diluted net income per share attributable to Vail Resorts, Inc.
$
4.23

 
$
3.56

 
$
5.76

 
$
4.95

Cash dividends declared per share
$
0.8100

 
$
0.6225

 
$
2.0550

 
$
1.4525

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



3




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

 
 
Three Months Ended April 30,
 
Nine Months Ended April 30,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
157,537

 
$
133,402

 
$
214,738

 
$
184,778

Foreign currency translation adjustments, net of tax
 
6,540

 
23

 
3,746

 
(424
)
Comprehensive income
 
164,077

 
133,425

 
218,484

 
184,354

Comprehensive loss attributable to noncontrolling interests
 
95

 
8

 
289

 
118

Comprehensive income attributable to Vail Resorts, Inc.
 
$
164,172

 
$
133,433

 
$
218,773

 
$
184,472

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


4



Vail Resorts, Inc.
Consolidated Condensed Statements of Stockholders’ Equity
(In thousands, except shares)
(Unaudited)
 
Common Stock
Additional Paid in Capital
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Loss
Total Vail Resorts, Inc. Stockholders’ Equity
Noncontrolling Interests
Total Stockholders’ Equity
 
Shares
Amount
 
 
 
 
 
 
 
Balance, July 31, 2014
41,152,800

$
412

$
612,322

$
401,500

$
(193,192
)
$
(199
)
$
820,843

$
13,957

$
834,800

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Net income (loss)



184,896



184,896

(118
)
184,778

Foreign currency translation adjustments, net of tax





(424
)
(424
)

(424
)
Total comprehensive income (loss)
 
 
 
 
 
 
184,472

(118
)
184,354

Stock-based compensation expense


11,718




11,718


11,718

Issuance of shares under share award plans, net of shares withheld for taxes
157,169

1

(4,630
)



(4,629
)

(4,629
)
Tax benefit from share award plans


3,864




3,864


3,864

Dividends



(52,778
)


(52,778
)

(52,778
)
Contributions from noncontrolling interests, net







145

145

Balance, April 30, 2015
41,309,969

$
413

$
623,274

$
533,618

$
(193,192
)
$
(623
)
$
963,490

$
13,984

$
977,474

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, July 31, 2015
41,462,941

$
415

$
623,510

$
440,748

$
(193,192
)
$
(4,913
)
$
866,568

$
14,018

$
880,586

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Net income (loss)



215,027



215,027

(289
)
214,738

Foreign currency translation adjustments, net of tax





3,746

3,746


3,746

Total comprehensive income (loss)
 
 
 
 
 
 
218,773

(289
)
218,484

Stock-based compensation expense


12,665




12,665


12,665

Issuance of shares under share award plans, net of shares withheld for taxes
132,479

1

(8,521
)



(8,520
)

(8,520
)
Tax benefit from share award plans


4,494




4,494


4,494

Repurchases of common stock (Note 11)




(53,787
)

(53,787
)

(53,787
)
Dividends



(74,530
)


(74,530
)

(74,530
)
Contributions from noncontrolling interests, net







150

150

Balance, April 30, 2016
41,595,420

$
416

$
632,148

$
581,245

$
(246,979
)
$
(1,167
)
$
965,663

$
13,879

$
979,542

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


5



Vail Resorts, Inc.
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
 
Nine Months Ended April 30,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net income
 
$
214,738

 
$
184,778

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
120,713

 
111,587

Cost of real estate sales
 
10,508

 
23,058

Stock-based compensation expense
 
12,665

 
11,718

Deferred income taxes, net
 
131,741

 
114,795

Change in fair value of Contingent Consideration
 

 
(4,550
)
Gain on litigation settlement
 

 
(16,400
)
Park City litigation settlement payment
 

 
(10,000
)
Other non-cash income, net
 
(2,847
)
 
(3,009
)
Changes in assets and liabilities:
 
 
 
 
Restricted cash
 
7,078

 
36

Trade receivables, net
 
(27,973
)
 
(7,761
)
Inventories, net
 
4,857

 
5,380

Accounts payable and accrued liabilities
 
(4,641
)
 
(203
)
Other assets and liabilities, net
 
(11,412
)
 
(14,953
)
Net cash provided by operating activities
 
455,427

 
394,476

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(88,307
)
 
(85,583
)
Acquisition of businesses
 
(20,245
)
 
(182,500
)
Other investing activities, net
 
880

 
3,274

Net cash used in investing activities
 
(107,672
)
 
(264,809
)
Cash flows from financing activities:
 
 
 
 
Proceeds from borrowings under Credit Facility Revolver
 
135,000

 
253,000

Payments on Credit Facility Revolver
 
(320,000
)
 
(253,000
)
Payments on Credit Facility Term Loan
 
(6,250
)
 

Payments of other long-term debt
 
(261
)
 
(1,013
)
Dividends paid
 
(74,530
)
 
(52,778
)
Repurchases of common stock
 
(53,787
)
 

Other financing activities, net
 
4,760

 
5,041

Net cash used in financing activities
 
(315,068
)
 
(48,750
)
Effect of exchange rate changes on cash and cash equivalents
 
419

 
(109
)
Net increase in cash and cash equivalents
 
33,106

 
80,808

Cash and cash equivalents:
 
 
 
 
Beginning of period
 
35,459

 
44,406

End of period
 
$
68,565

 
$
125,214

 
 
 
 
 
Non-cash investing and financing activities:
 
 
 
 
Accrued capital expenditures
 
$
5,801

 
$
4,257

Capital expenditures under long-term financing
 
$

 
$
7,037

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


6



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”) operate in three business segments: Mountain, Lodging and Real Estate.

In the Mountain segment, the Company operates nine world-class mountain resort properties at Vail, Breckenridge, Keystone and Beaver Creek mountain resorts in Colorado; Park City mountain resort in Utah (“Park City” comprised of the former standalone Park City Mountain Resort acquired in September 2014 and the former Canyons Resort (“Canyons”) in Park City, Utah); Heavenly, Northstar, and Kirkwood mountain resorts in the Lake Tahoe area of California and Nevada; Perisher Ski Resort (“Perisher,” acquired in June 2015) in New South Wales, Australia; and, the ski areas of Wilmot Mountain in Wisconsin (“Wilmot,” acquired in January 2016), Afton Alps in Minnesota and Mount Brighton in Michigan (“Urban” ski areas); as well as ancillary services, primarily including ski school, dining and retail/rental operations, and for Perisher including lodging and transportation operations. The resorts located in the United States (“U.S.”), except for Northstar, Park City and the Urban ski areas, operate primarily on federal land under the terms of Special Use Permits granted by the United States Department of Agriculture Forest Service (the “Forest Service”). The operations of Perisher are conducted pursuant to a long-term lease and license on land owned by the government of New South Wales, Australia.

In the Lodging segment, the Company owns and/or manages a collection of luxury hotels and condominiums under its RockResorts brand, as well as other strategic lodging properties and a large number of condominiums located in proximity to the Company’s U.S. mountain 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 mountain resorts are seasonal in nature with peak operating seasons primarily from mid-November through mid-April in the U.S. The Company’s operating season at Perisher, its NPS concessionaire properties and its golf courses generally occur from June to early 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 fiscal year ended July 31, 2015. 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 U.S. (“GAAP”) have been condensed or omitted. The Consolidated Condensed Balance Sheet as of July 31, 2015 was derived from audited financial statements.

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

New Accounting Standards— In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, “Revenue Recognition.” This ASU is based on the principle

7



that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of the new revenue standard by one year, and would allow entities the option to early adopt the new revenue standard as of the original effective date. This standard will be effective for the first interim period within fiscal years beginning after December 15, 2017 (the Company’s first quarter of fiscal 2019 if it does not early adopt), using one of two retrospective application methods. The Company is evaluating the impacts, if any, the adoption of this accounting standard will have on the Company’s financial position or results of operations and cash flows and related disclosures and is determining the appropriate transition method.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which amends the consolidation requirements in ASC 810, “Consolidation.” This ASU affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidated analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships and (iv) provide a scope exception for certain entities. The standard will be effective for the first interim period within fiscal years beginning after December 15, 2015 (the Company’s first quarter of fiscal 2017). The standard may be applied retrospectively or through a cumulative effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is evaluating the impacts, if any, the adoption of this accounting standard will have on the Company’s financial position or results of operations and cash flows.

In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance in the new standard is limited to the presentation of debt issuance costs and does not affect the recognition and measurement of debt issuance costs. In June 2015, the FASB issued ASU No. 2015-15, “Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.” The guidance in ASU No. 2015-03 does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU No. 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff stated that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The standard will be effective for the first interim period within fiscal years beginning after December 15, 2015 (the Company’s first quarter of fiscal 2017) and early adoption is permitted for financial statements that have not been previously issued. The standard should be applied on a retrospective basis. The adoption of this new accounting standard will amend presentation and disclosure requirements concerning debt issuance costs; but will not affect the Company’s overall financial position or results of operations and cash flows.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The standard provides guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the software license element of the arrangement should be accounted for as an acquisition of a software license. If a cloud computing arrangement does not include a software license, it should be accounted for as a service contract. The standard will be effective for the first interim period within fiscal years beginning after December 15, 2015 (the Company’s first quarter of fiscal 2017) and may be adopted either retrospectively or prospectively. The adoption of this accounting standard is not expected to have a material impact on the Company’s financial position or results of operations and cash flows.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” This standard provides guidance on the measurement of inventory that is measured using first-in, first-out or average cost. An entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The standard will be effective for the first interim period within fiscal years beginning after December 15, 2016 (the Company’s first quarter of fiscal 2018) and is required to be adopted prospectively and early adoption is permitted. The adoption of this accounting standard is not expected to have a material impact on the Company’s financial position or results of operations and cash flows.

In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.” The standard requires that adjustments to provisional amounts identified during the measurement period of a business combination be recognized in the reporting period in which those adjustments are determined, including the effect on earnings, if any, calculated

8



as if the accounting had been completed at the acquisition date. The standard eliminates the previous requirement to retrospectively account for such adjustments but requires additional disclosures related to the income statement effects of adjustments to provisional amounts identified during the measurement period. The standard is effective for the annual period beginning after December 15, 2015 and interim periods within those annual periods (the Company’s first quarter of fiscal 2017), with early adoption permitted, and is to be applied prospectively. The Company has adopted this standard and will apply this standard, as applicable, on any future measurement period adjustments.

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” The standard changes how deferred taxes are classified on an entity’s balance sheets. The standard eliminates the current requirement for entities to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, entities will be required to classify all deferred tax assets and liabilities as noncurrent. The standard is effective for financial statements issued for annual periods beginning after December 15, 2016 (the Company’s first quarter of fiscal 2018), with early adoption permitted, and may be applied prospectively or retrospectively. The adoption of this new accounting standard will amend presentation requirements, but will not affect the Company’s overall financial position or results of operations and cash flows.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which supersedes “Leases (Topic 840).” The standard requires lessees to recognize the assets and liabilities arising from all leases, including those classified as operating leases under previous accounting guidance, on the balance sheet and disclose key information about leasing arrangements. The standard also allows for an accounting policy election not to recognize on the balance sheet lease assets and liabilities for leases with a term of 12 months or less. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset on their balance sheets, while lessor accounting will be largely unchanged. The standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those years (the Company’s first quarter of fiscal 2020), and must be applied using a modified retrospective transition approach to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with early adoption permitted. The Company is currently evaluating the impacts the adoption of this accounting standard will have on the Company’s financial position or results of operations and cash flows and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The new guidance requires entities to record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement when the awards vest or are settled. The guidance also requires entities to present excess tax benefits as an operating activity and cash paid to a taxing authority to satisfy statutory withholding as a financing activity on the statement of cash flows. Additionally, the guidance allows entities to make a policy election to account for forfeitures either upon occurrence or by estimating forfeitures. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016 (the Company’s first quarter of fiscal 2018), with early adoption permitted. The Company is currently evaluating the impacts the adoption of this accounting standard will have on the Company’s financial position or results of operations and cash flows.

3.
Net Income Per Common Share
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income 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 participate in the earnings of Vail Resorts. Presented below is basic and diluted EPS for the three months ended April 30, 2016 and 2015 (in thousands, except per share amounts):

 
 
Three Months Ended April 30,
 
 
2016
 
2015
 
 
Basic
 
Diluted
 
Basic
 
Diluted
Net income per share:
 
 
 
 
 
 
 
 
Net income attributable to Vail Resorts
 
$
157,632

 
$
157,632

 
$
133,410

 
$
133,410

Weighted-average shares outstanding
 
36,217

 
36,217

 
36,354

 
36,354

Effect of dilutive securities
 

 
1,051

 

 
1,099

Total shares
 
36,217

 
37,268

 
36,354

 
37,453

Net income per share attributable to Vail Resorts
 
$
4.35

 
$
4.23

 
$
3.67

 
$
3.56


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 excluded from the calculation of diluted net income

9



per share because the effect of their inclusion would have been anti-dilutive totaled 24,000 and 15,000 for the three months ended April 30, 2016 and 2015, respectively.
Presented below is basic and diluted EPS for the nine months ended April 30, 2016 and 2015 (in thousands, except per share amounts):

 
 
Nine Months Ended April 30,
 
 
2016
 
2015
 
 
Basic
 
Diluted
 
Basic
 
Diluted
Net income per share:
 
 
 
 
 
 
 
 
Net income attributable to Vail Resorts
 
$
215,027

 
$
215,027

 
$
184,896

 
$
184,896

Weighted-average shares outstanding
 
36,312

 
36,312

 
36,310

 
36,310

Effect of dilutive securities
 

 
1,016

 

 
1,052

Total shares
 
36,312

 
37,328

 
36,310

 
37,362

Net income per share attributable to Vail Resorts
 
$
5.92

 
$
5.76

 
$
5.09

 
$
4.95


The number of shares issuable on the exercise of share based awards excluded from the calculation of diluted net income per share because the effect of their inclusion would have been anti-dilutive totaled 13,000 and 5,000 for the nine months ended April 30, 2016 and 2015, respectively.

During the three and nine months ended April 30, 2016, the Company paid cash dividends of $0.8100 and $2.0550 per share, respectively ($29.3 million and $74.5 million, respectively, in the aggregate). During the three and nine months ended April 30, 2015, the Company paid cash dividends of $0.6225 and $1.4525 per share, respectively ($22.6 million and $52.8 million, respectively, in the aggregate). On June 8, 2016, the Company’s Board of Directors declared a quarterly cash dividend of $0.8100 per share payable on July 13, 2016 to stockholders of record as of June 28, 2016.

4.
Long-Term Debt
Long-term debt as of April 30, 2016July 31, 2015 and April 30, 2015 is summarized as follows (in thousands):

 
 
Maturity (a)
 
April 30, 2016
 
July 31, 2015
 
April 30, 2015
Credit Facility Revolver
 
2020
 
$

 
$
185,000

 
$

Credit Facility Term Loan
 
2020
 
243,750

 
250,000

 

Industrial Development Bonds
 
2020
 

 

 
41,200

Employee Housing Bonds
 
2027-2039
 
52,575

 
52,575

 
52,575

6.50% Notes
 
2019
 

 

 
215,000

Canyons obligation
 
2063
 
321,688

 
317,455

 
316,056

Other
 
2016-2029
 
11,165

 
11,800

 
11,918

Total debt
 
 
 
629,178

 
816,830

 
636,749

Less: Current maturities (b)
 
 
 
13,349

 
10,154

 
256,953

Long-term debt
 
 
 
$
615,829

 
$
806,676

 
$
379,796


(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.


10



Aggregate maturities for debt outstanding as of April 30, 2016 reflected by fiscal year are as follows (in thousands):

 
Total
2016
$
3,269

2017
13,354

2018
13,397

2019
13,455

2020
204,141

Thereafter
381,562

Total debt
$
629,178


The Company incurred gross interest expense of $10.4 million and $13.7 million for the three months ended April 30, 2016 and 2015, respectively, of which $0.2 million and $0.4 million, respectively, were amortization of deferred financing costs. The Company incurred gross interest expense of $31.9 million and $41.1 million for the nine months ended April 30, 2016 and 2015, respectively, of which $0.7 million and $1.1 million, respectively, were amortization of deferred financing costs. The Company had no capitalized interest during the three and nine months ended April 30, 2016 and 2015.

5.
Acquisitions
Wilmot Mountain
On January 19, 2016, the Company, through a wholly-owned subsidiary, acquired all of the assets of Wilmot, a ski area located in Wisconsin near the Illinois state line, for total cash consideration of $20.2 million. The purchase price was allocated to identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair value at the acquisition date. The Company has completed its preliminary purchase price allocation and has recorded $12.5 million in property, plant and equipment, $0.2 million in other assets, $0.4 million in other intangible assets (with a weighted-average amortization period of 10 years) and $0.3 million of assumed liabilities on the date of acquisition. The excess of the purchase price over the aggregate fair value of assets acquired and liabilities assumed was $7.4 million and was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of Wilmot and other factors. The goodwill is expected to be deductible for income tax purposes. The operating results of Wilmot are reported within the Mountain segment.

Perisher Ski Resort
On June 30, 2015, the Company, through a wholly-owned subsidiary, acquired all of the entities that operate Perisher in New South Wales, Australia for total cash consideration of $124.6 million, net of cash acquired. The Company funded the cash purchase price through borrowings under the revolver portion of its senior credit facility (“Credit Agreement”). Perisher holds a long-term lease and license with the New South Wales Government under the National Parks and Wildlife Act, which expires in 2048 with a 20-year renewal option. The Company acquired the entities that hold the assets and conduct operations, including the long-term lease and license with the New South Wales government for the ski area and related amenities of Perisher, as well as assumed liabilities.


11



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

 
Estimates of Fair Value at Effective Date of Transaction
Accounts receivable
$
1,494

Inventory
4,859

Property, plant and equipment
126,287

Intangible assets
5,458

Other assets
525

Goodwill
31,657

Total identifiable assets acquired
$
170,280

Accounts payable and accrued liabilities
$
11,394

Deferred revenue
15,906

Deferred income tax liability, net
18,429

Total liabilities assumed
$
45,729

Total purchase price, net of cash acquired
$
124,551


The estimated fair value of assets acquired and liabilities assumed in the acquisition of Perisher 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 this information provides a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, but the Company is obtaining additional information necessary to finalize those fair value. 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.
The excess of the purchase price over the aggregate fair value of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of Perisher and other factors. None of the goodwill is expected to be deductible for income tax purposes under Australian tax law. The intangible assets primarily consist of trademarks and customer lists. The definite-lived intangible assets have a weighted-average amortization period of approximately 4 years.

Park City Mountain Resort
On September 11, 2014, VR CPC Holdings, Inc. (“VR CPC”), a wholly-owned subsidiary of the Company, and Greater Park City Company, Powdr Corp., Greater Properties, Inc., Park Properties, Inc., and Powdr Development Company (collectively, the “Park City Sellers”) entered into a Purchase and Sale Agreement (the “Purchase Agreement”) providing for the acquisition of substantially all of the assets related to Park City Mountain Resort in Park City, Utah. The cash purchase price was $182.5 million and was funded through borrowings under the revolver portion of the Credit Agreement.

As provided under the Purchase Agreement, the Company acquired the property, assets and operations of Park City Mountain Resort, which includes the ski area and related amenities, from the Park City Sellers and assumed leases of certain realty, acquired certain assets, and assumed certain liabilities of the Park City Sellers relating to Park City Mountain Resort. In addition to the Purchase Agreement, the parties settled the litigation related to the validity of a lease of certain land owned by Talisker Land Holdings, LLC (“Talisker”) under the ski terrain of Park City Mountain Resort (the “Park City Litigation”). In connection with settling the Park City Litigation, the Company recorded a non-cash gain of $16.4 million in the Mountain segment for the nine months ended April 30, 2015. The gain on litigation settlement represented the estimated fair value of the rents (including damages and interest) due the Company from the Park City Sellers for their use of land and improvements from the Canyons transaction date of May 29, 2013 to the Park City Mountain Resort acquisition date. Additionally, the Company assigned a fair value of $10.1 million to the settlement of the Park City Litigation that applied to the period prior to the Canyons transaction. The combined fair value of the Park City Litigation settlement of $26.5 million was determined by applying market capitalization rates to the estimated fair market value of the land and improvements, plus an estimate of statutory damages and interest. The estimated fair value of the Park City Litigation settlement was not received in cash, but was instead reflected as part of the cash price negotiated for the Park City Mountain Resort acquisition. Accordingly, the estimated fair value of the Park City Litigation settlement was included in the total consideration for the acquisition of Park City Mountain Resort. However, the gain on the Park City Litigation settlement was recorded as a separate transaction, as discussed above. Under an agreement entered into in conjunction with the Canyons

12



transaction, the Company made a $10.0 million payment to Talisker in the nine months ended April 30, 2015, resulting from the settlement of the Park City Litigation.

The following summarizes the fair value of the identifiable assets acquired and liabilities assumed at the date the Park City transaction was effective (in thousands):

 
Acquisition Date Fair Value
Accounts receivable
$
930

Other assets
3,075

Property, plant and equipment
76,605

Deferred income tax assets, net
7,428

Real estate held for sale and investment
7,000

Intangible assets
27,650

Goodwill
92,516

Total identifiable assets acquired
$
215,204

Accounts payable and accrued liabilities
$
1,935

Deferred revenue
4,319

Total liabilities assumed
$
6,254

Total purchase price
$
208,950


The excess of the purchase price over the aggregate fair value of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of Park City Mountain Resort and other factors. The majority of goodwill is expected to be deductible for income tax purposes. The intangible assets primarily consist of trademarks, water rights, and customer lists. The intangible assets have a weighted-average amortization period of approximately 46 years. The operating results of Park City, which are recorded in the Mountain segment, contributed $35.4 million and $63.8 million of net revenue (including an allocation of season pass revenue) for the three and nine months ended April 30, 2015, respectively. The Company recognized $0.8 million of transaction related expenses in Mountain operating expense in the Consolidated Condensed Statements of Operations for the nine months ended April 30, 2015.

Certain land and improvements in the Park City Mountain Resort ski area (excluding the base area) were part of the Talisker leased premises to Park City Mountain Resort and were subject to the Park City Litigation as of the Canyons transaction date (May 29, 2013), and as such, were recorded as a deposit (“Park City Deposit”) for the potential future interests in the land and associated improvements at its estimated fair value in conjunction with the Canyons transaction. Upon settlement of the Park City Litigation, the land and improvements associated with the Talisker leased premises became subject to the Canyons lease, and as a result, the Company reclassified the Park City Deposit to the respective assets within property, plant and equipment in the nine months ended April 30, 2015. The inclusion of the land and certain land improvements that was subject to the Park City Litigation and now included in the Canyons lease requires no additional consideration from the Company to Talisker, but the financial contribution from the operations of Park City Mountain Resort will be included as part of the calculation of EBITDA for the resort operations, and as a result, factor into the participating contingent payments (see Note 8, Fair Value Measurements). The majority of the assets acquired under the Park City Mountain Resort acquisition, although not under lease, are subject to the terms and conditions of the Canyons lease.


13



Perisher and Park City Mountain Resort Pro Forma Financial Information
The following presents the unaudited pro forma consolidated financial information of the Company as if the acquisitions of Perisher and Park City Mountain Resort were completed on August 1, 2014. The following unaudited pro forma financial information includes adjustments for (i) depreciation on acquired property, plant and equipment; (ii) amortization of intangible assets recorded at the date of the transactions; (iii) related-party land leases; and (iv) transaction and business integration related costs. This unaudited pro forma financial information is presented for informational purposes only and does not purport to be indicative of the results of future operations or the results that would have occurred had the transaction taken place on August 1, 2014 (in thousands, except per share amounts).

 
 
Three Months Ended April 30,
Nine Months Ended April 30,
 
 
2015
2015
Pro forma net revenue
 
$
579,672

$
1,282,926

Pro forma net income attributable to Vail Resorts, Inc.
 
$
129,187

$
186,810

Pro forma basic net income per share attributable to Vail Resorts, Inc.
 
$
3.55

$
5.14

Pro forma diluted net income per share attributable to Vail Resorts, Inc.
 
$
3.45

$
5.00


6.
Supplementary Balance Sheet Information
The composition of property, plant and equipment follows (in thousands):
 
 
April 30, 2016
 
July 31, 2015
 
April 30, 2015
Land and land improvements
 
$
439,815

 
$
431,854

 
$
413,775

Buildings and building improvements
 
1,028,408

 
1,006,821

 
957,594

Machinery and equipment
 
878,730

 
815,946

 
777,011

Furniture and fixtures
 
305,159

 
286,863

 
284,403

Software
 
112,551

 
106,433

 
105,482

Vehicles
 
62,166

 
61,036

 
59,708

Construction in progress
 
28,019

 
53,158

 
20,245

Gross property, plant and equipment
 
2,854,848

 
2,762,111

 
2,618,218

Accumulated depreciation
 
(1,484,474
)
 
(1,375,836
)
 
(1,359,125
)
Property, plant and equipment, net
 
$
1,370,374

 
$
1,386,275

 
$
1,259,093


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

 
 
April 30, 2016
 
July 31, 2015
 
April 30, 2015
Trade payables
 
$
47,144

 
$
62,099

 
$
52,371

Deferred revenue
 
164,927

 
145,949

 
115,300

Accrued salaries, wages and deferred compensation
 
34,403

 
33,461

 
38,594

Accrued benefits
 
29,625

 
24,436

 
26,459

Deposits
 
21,641

 
19,336

 
18,199

Other accruals
 
40,349

 
46,018

 
42,133

Total accounts payable and accrued liabilities
 
$
338,089

 
$
331,299

 
$
293,056



14



The composition of other long-term liabilities follows (in thousands):
 
 
April 30, 2016
 
July 31, 2015
 
April 30, 2015
Private club deferred initiation fee revenue
 
$
123,341

 
$
126,104

 
$
128,295

Unfavorable lease obligation, net
 
28,005

 
29,997

 
29,325

Other long-term liabilities
 
97,952

 
99,815

 
78,312

Total other long-term liabilities
 
$
249,298

 
$
255,916

 
$
235,932


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 VIEs, and the Company has consolidated these VIEs in its Consolidated Condensed Financial Statements. As a group, as of April 30, 2016, the Employee Housing Entities had total assets of $25.7 million (primarily recorded in property, plant and equipment, net) and total liabilities of $64.3 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 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 leases substantially all of that space. APII had total assets of $4.1 million (primarily recorded in property, plant and equipment, net) and no debt as of April 30, 2016.

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.


15



The table below summarizes the Company’s cash equivalents and Contingent Consideration (as defined below) measured at fair value (all other assets and liabilities measured at fair value are immaterial) (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurement as of April 30, 2016
 
Description
 
Balance at April 30, 2016
 
Level 1
 
Level 2
 
Level 3
 
 
Assets:
 
 
 
 
 
 
 
 
 
Commercial Paper
 
$
2,401

 
$

 
$
2,401

 
$

 
Certificates of Deposit
 
$
2,402

 
$

 
$
2,402

 
$

 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
6,900

 
$

 
$

 
$
6,900

 
 
 
 
 
 
 
Fair Value Measurement as of July 31, 2015
 
Description
 
Balance at July 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
 
 
Money Market
 
$
7,577

 
$
7,577

 
$

 
$

 
Commercial Paper
 
$
2,401

 
$

 
$
2,401

 
$

 
Certificates of Deposit
 
$
2,651

 
$

 
$
2,651

 
$

 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
6,900

 
$

 
$

 
$
6,900

 
 
 
 
 
 
 
Fair Value Measurement as of April 30, 2015
 
Description
 
Balance at April 30, 2015
 
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
 
 
Money Market
 
$
7,578

 
$
7,578

 
$

 
$

 
Commercial Paper
 
$
2,401

 
$

 
$
2,401

 
$

 
Certificates of Deposit
 
$
2,651

 
$

 
$
2,651

 
$

 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
6,000

 
$

 
$

 
$
6,000


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

The changes in Contingent Consideration during the nine months ended April 30, 2016 and 2015 were as follows (in thousands):

Balance as of July 31, 2015 and 2014, respectively
$
6,900

$
10,500

Change in fair value

(4,500
)
Balance as of April 30, 2016 and 2015, respectively
$
6,900

$
6,000


The lease for Canyons provides for participating contingent payments to Talisker of 42% of the amount by which EBITDA for the resort operations, as calculated under the lease, exceed approximately $35 million, as established at the transaction date, with such threshold amount subsequently increased annually by an inflation linked index and a 10% adjustment for any capital improvements or investments made under the lease by the Company (the “Contingent Consideration”). The fair value of Contingent Consideration includes the resort operations of Park City Mountain Resort, following completion of the acquisition, in the calculation of EBITDA on which participating contingent payments are made, and increases the EBITDA threshold before which participating contingent payments are made by 10% of the purchase price paid by the Company for Park City Mountain Resort along with all future capital expenditures associated with Park City Mountain Resort. The Company estimated the fair value of the Contingent Consideration payments using an option pricing valuation model. As of April 30, 2016, key assumptions included a discount rate of 11.5%, volatility of 20.0%, and credit risk of 2.5%. The model also incorporates assumptions for EBITDA and

16



capital expenditures, which are unobservable inputs and thus are considered Level 3 inputs. As Contingent Consideration is classified as a liability, the liability is remeasured to fair value at each reporting date until the contingency is resolved. During the nine months ended April 30, 2016, the Company did not record a change in the estimated fair value of the participating contingent payments. The estimated fair value of the Contingent Consideration is $6.9 million as of April 30, 2016, and this liability is recorded in other long-term liabilities in the Consolidated Condensed Balance Sheets.

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 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 the 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 April 30, 2016July 31, 2015 and April 30, 2015, respectively, with respect to the estimated present value of future RSRMD capital improvement fees. The Company estimates it will make capital improvement fee payments under this arrangement through the fiscal year ending July 31, 2029.

Guarantees/Indemnifications
As of April 30, 2016, the Company had various other letters of credit for $64.6 million, consisting primarily of $53.4 million to support the Employee Housing Bonds and $11.2 million for workers’ compensation, general liability construction related deductibles and other activities. The Company also had surety bonds of $9.3 million as of April 30, 2016, primarily to provide collateral for its workers compensation self-insurance programs.

In addition to the guarantees noted above, the Company has entered into contracts in the normal course of business that 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 related to licensees in connection with third-parties’ use of the Company’s trademarks and logos, liabilities associated with the infringement of other parties’ technology and software products, liabilities associated with the use of easements, liabilities associated with employment of contract workers and the Company’s use of trustees, and liabilities associated with the Company’s use of public lands and environmental matters. The duration of these indemnities generally is indefinite and generally do not limit the future payments the Company could be obligated to make.

As permitted under applicable law, the Company and certain of its subsidiaries have agreed to indemnify their directors and officers over their lifetimes for certain events or occurrences while the officer or director is, or was, serving the Company or its subsidiaries in such a capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that should enable the Company to recover a portion of any future amounts paid.

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


17



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 deemed to be probable losses and estimable. As of April 30, 2016July 31, 2015 and April 30, 2015, 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 mountain resorts and Urban ski areas and related ancillary services. The Lodging segment includes the operations of all of the Company’s owned hotels in the U.S., 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, plus gain on litigation settlement 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 (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, 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 plus gain on litigation settlement. 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 expenses. Assets are not allocated between segments, or used to evaluate performance, except as shown in the table below.

18



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 April 30,
 
Nine Months Ended April 30,
 
2016
 
2015
 
2016
 
2015
Net revenue:
 
 
 
 
 
 
 
Lift
$
334,789

 
$
285,249

 
$
642,627

 
$
524,537

Ski school
74,279

 
66,216

 
139,703

 
123,511

Dining
51,000

 
44,003

 
108,093

 
90,661

Retail/rental
79,384

 
71,078

 
214,748

 
195,563

Other
33,353

 
33,005

 
101,439

 
88,696

Total Mountain net revenue
572,805

 
499,551

 
1,206,610

 
1,022,968

Lodging
72,933

 
67,323

 
200,026

 
185,180

Total Resort net revenue
645,738

 
566,874

 
1,406,636

 
1,208,148

Real estate
1,734

 
12,469

 
14,766

 
29,694

Total net revenue
$
647,472

 
$
579,343

 
$
1,421,402

 
$
1,237,842

Operating expense:
 
 
 
 
 
 
 
Mountain
$
281,968

 
$
244,675

 
$
729,382

 
$
645,593

Lodging
57,422

 
54,726

 
176,170

 
166,407

Total Resort operating expense
339,390

 
299,401

 
905,552

 
812,000

Real estate
3,085

 
14,028

 
17,043

 
35,513

Total segment operating expense
$
342,475

 
$
313,429

 
$
922,595

 
$
847,513

Gain on litigation settlement
$

 
$

 
$

 
$
16,400

Gain on sale of real property
19

 
151

 
1,810

 
151

Mountain equity investment income (loss), net
211

 
(129
)
 
992

 
396

Reported EBITDA:
 
 
 
 
 
 
 
Mountain
$
291,048

 
$
254,747

 
$
478,220

 
$
394,171

Lodging
15,511

 
12,597

 
23,856

 
18,773

Resort
306,559

 
267,344

 
502,076

 
412,944

Real estate
(1,332
)
 
(1,408
)
 
(467
)
 
(5,668
)
Total Reported EBITDA
$
305,227

 
$
265,936

 
$
501,609

 
$
407,276

 
 
 
 
 
 
 
 
Real estate held for sale and investment
$
116,874

 
$
137,740

 
$
116,874

 
$
137,740

 
 
 
 
 
 
 
 
Reconciliation to net income attributable to Vail Resorts, Inc.:
 
 
 
 
 
 
 
Total Reported EBITDA
$
305,227

 
$
265,936

 
$
501,609

 
$
407,276

Depreciation and amortization
(41,472
)
 
(38,242
)
 
(120,713
)
 
(111,587
)
Change in fair value of Contingent Consideration

 

 

 
4,550

Loss on disposal of fixed assets and other, net
(164
)
 
(71
)
 
(3,149
)
 
(852
)
Investment income, net
150

 
119

 
509

 
155

Interest expense
(10,400
)
 
(13,735
)
 
(31,905
)
 
(41,110
)
Income before provision for income taxes
253,341