UNITED STATES

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K



x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 31, 2005

or

¨ 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: 1-9614

 

           Vail Resorts, Inc.            

(Exact name of registrant as specified in its charter)

 

                                Delaware                                

 

                                51-0291762                                

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

     

           Post Office Box 7, Vail, Colorado           

 

                              81658                              

(Address of principal executive offices)

 

(Zip Code)

 

Registrant's telephone number, including area code: (970) 845-2500

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

 

Name of each exchange on which registered:

Common Stock, $0.01 par value

 

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act:

       None.       

(Title of class)

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. x

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
x Yes    ¨ No

 

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

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the per share closing price on the New York Stock Exchange Composite Tape as of January 31, 2005 (the last business day of the registrant's most recently completed second fiscal quarter) was approximately $799.8 million.

 

As of September 26, 2005, 36,736,325 shares of Common Stock were issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

The Proxy Statement for the Annual Meeting of Shareholders is incorporated by reference herein into Part III, Items 10 through 14.



Table of Contents

 

PART I

   

Item 1.

Business.

3

Item 2. 

Properties.

14

Item 3.    

Legal Proceedings.

15

Item 4.    

Submission of Matters to a Vote of Security Holders.

17

   

PART II

 
   

Item 5.    

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

18

Item 6.    

Selected Financial Data.

20

Item 7.    

Management's Discussion and Analysis of Financial Condition and Results of Operations.

22

Item 7A. 

Quantitative and Qualitative Disclosures About Market Risk.

40

Item 8.    

Financial Statements and Supplementary Data.

F-1

Item 9.    

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

41

Item 9A.

Controls and Procedures.

41

Item 9B.

Other Information.

41

   

PART III

 
   

Item 10.  

Directors and Executive Officers of the Registrant.

41

Item 11.  

Executive Compensation.

42

Item 12.  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

42

Item 13.  

Certain Relationships and Related Transactions.

42

Item 14.

Principal Accountant Fees and Services.

42

   

PART IV

 
   

Item 15.  

Exhibits, Financial Statements Schedules.

42



FORWARD-LOOKING STATEMENTS

Except for any historical information contained herein, the matters discussed in this Annual Report on Form 10-K contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies.

These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases, including references to assumptions.

Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that such plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from our forward-looking statements include, among others, economic downturns; terrorist acts upon the United States; threat of or actual war; our ability to obtain financing on terms acceptable to us to finance our capital expenditure and growth strategy; our ability to develop our resort and real estate operations; competition in our Mountain and Lodging businesses; failure to commence or complete the planned real estate development projects; failure to achieve the anticipated short and long-term financial benefits from the planned real estate development projects; implications arising from new Financial Accounting Standards Board ("FASB")/governmental legislation, rulings or interpretations; termination of existing hotel management contracts; our reliance on government permits or approval for our use of federal land or to make additional improvements; our ability to integrate and successfully operate future acquisitions; expenses or adverse consequences of current or future legal claims; shortages or rising costs in construction materials; adverse changes in the real estate market and unfavorable weather conditions.. All forward-looking statements attributable to us or any persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. Given these uncertainties, users of the information included in this Annual Report on Form 10-K, including investors and prospective investors, are cautioned not to place undue reliance on such forward-looking statements. We might not update these forward-looking statements, even if new information, future events or other circumstances have made them incorrect or misleading.

PART I

ITEM 1.  BUSINESS.

General

Vail Resorts, Inc. was organized as a public holding company in 1997 and operates through various subsidiaries (collectively, the "Company"). The Company's operations are grouped into three segments: Mountain, Lodging, and Real Estate, which represented approximately 67%, 24%, and 9%, respectively, of the Company's revenues for the 2005 fiscal year. The Company's Mountain segment owns and operates five premier ski resort properties which provide a comprehensive resort experience throughout the year to a diverse clientele with an attractive demographic profile. The Company's Lodging segment owns and/or manages a collection of luxury hotels, a destination resort at Grand Teton National Park, and a series of strategic lodging properties located in proximity to the Company's ski resorts. Collectively, the Mountain and Lodging segments are considered the Resort segment. The Company's Real Estate segment holds, develops, buys and sells real estate in and around the Company's resort communities. Financial information by segment is presented in Note 14, Segment Information, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

Mountain Segment

The Company's portfolio of ski resorts currently includes:

Vail, Beaver Creek, Breckenridge and Keystone, all located in the Colorado Rocky Mountains, and Heavenly, located in the Lake Tahoe area of California/Nevada, are year-round mountain resorts. Each offers a full complement of recreational activities, including skiing, snowboarding, snowshoeing, mountain biking, sight-seeing and other recreational activities.

The Company's Mountain segment derives revenue primarily through the sale of lift tickets and a comprehensive offering of amenities available to guests, including ski and snowboard lessons, retail and equipment rental, a variety of dining venues, private club operations and other recreational activities. In addition to providing extensive guest amenities, the Company also engages in real estate brokerage services, technology services and the leasing of restaurant, retail and other commercial space.

The following paragraphs discuss certain ski industry related statistics. Colorado ski statistics are derived from data published by Colorado Ski Country USA. Canadian ski statistics are from data published by the Canadian Ski Council. U.S. and California ski statistics are derived from the Kottke National End of Season Survey 2004/05.

There are approximately 750 ski areas in North America and approximately 490 in the United States, ranging from small ski area operations which service day skiers to large resorts which attract both day skiers and destination resort guests looking for a comprehensive vacation experience. One of the primary ski industry statistics for measuring performance is "skier visit", which represents a person utilizing a ticket or pass to access a mountain resort for any part of one day, and includes both paid and complimentary access. During the 2004/05 ski season, combined skier visits for all North American ski areas were approximately 75.1 million and U.S. skier visits approximated 56.9 million. The Company's ski resorts had 5.9 million skier visits during the 2004/05 ski season, or approximately 10.4% of U.S. skier visits, and an approximate 7.9% share of the North American market's skier visits.

The Company's Colorado ski resorts appeal to both day skiers and destination guests due to the resorts' proximity to Colorado's Front Range (Denver/Colorado Springs metropolitan areas), accessibility from several airports, including Denver International Airport and Eagle County Regional Airport, and the wide range of amenities available at each resort. Colorado has approximately 25 ski areas, six of which are classified as "Front Range Destination Resorts", including all of the Company's Colorado resorts, catering to both the Front Range and destination-skier markets. All Colorado ski resorts combined recorded approximately 11.8 million skier visits for the 2004/05 ski season, up 5.0% from the 2003/04 ski season. Skier visits at the Company's Colorado ski resorts totaled approximately 4.9 million, and accounted for 71% of Colorado's total Front Range Destination Resort skier visits and 42% of all Colorado skier visits for the 2004/05 ski season.

Lake Tahoe, which straddles the border of California and Nevada, is a major skiing destination less than 100 miles from Sacramento and Reno and approximately 200 miles from San Francisco, making it a convenient destination for both driving and destination guests. South Lake Tahoe, where Heavenly is located, is also a popular year-round vacation destination, featuring extensive summer attractions and casinos in addition to its winter sports offerings. Heavenly is proximate to both the Reno/Tahoe International Airport and the Sacramento International Airport. California and Nevada have approximately 22 ski resorts. Heavenly had approximately 1.1 million skier visits for the 2004/05 ski season, capturing approximately 13.3% of California's and Nevada's 8.3 million total skier visits for the ski season.

There are significant barriers to entry for new ski areas, due to the limited private lands on which ski areas could be built, the difficulty in getting the appropriate governmental approvals to build on public lands and the significant capital needed to construct the necessary infrastructure. While most North American ski areas are individually owned and operated, recent years have seen the emergence of several major corporations, including the Company, which own the leading ski areas. These other major corporations include the operators of Whistler Blackcomb, Copper Mountain, Mammoth Mountain, Winter Park, Killington, Steamboat and Northstar-at-Tahoe.

The ski industry is highly competitive. While the ski industry has performed well in recent years, with the four best seasons in history, in terms of visitation, occurring in the past five years, a particular ski area's growth is also largely dependent on either attracting skiers away from other resorts or generating more revenue per skier visit. This has spawned a trend of increased spending on resort improvements to ensure the newest and best technology and to create new attractions and has also resulted in intense competition in pricing. Larger ski resort owners, including the Company, generally have a competitive advantage over the individual operator, as the larger owners typically have better access to the capital markets and are also able to create synergies within their operations which enhance profitability. Attracting and retaining new participants to the sport will be the key to long-term sustainable growth for the industry. To this end, the Company has focused efforts in recent years on developing programs geared to entry-level participants as well as expanding attractions for non-skiers. The Company's primary competitors include the ski areas noted above, other ski areas in Colorado and Lake Tahoe, and other destination ski areas worldwide, as well as non-ski related vacation destinations.

There are a variety of factors which contribute to a skier's choice of ski resort, including terrain, challenge, grooming, service, lifts, accessibility, value, weather, snowfall and on- and off-mountain amenities. The Company's resorts consistently rank in the top 20 ski resorts in North America according to industry surveys, which the Company attributes to its resorts' ability to provide a high-quality experience in each of the above mentioned categories.

The Company's ski resorts compete effectively in all categories with respect to attracting day skiers and destination guests for the following reasons:

 

The Company promotes its resorts through an extensive marketing and sales program, which includes print media advertising in lifestyle and ski industry publications, direct marketing to a targeted audience, promotional programs, loyalty programs which reward frequent guests and sales and marketing directed at attracting groups, corporate meetings and convention business. Additionally, the Company markets directly to many of its guests through its websites and internet presence, which provide visitors with information regarding each of the Company's resorts, including services and amenities, reservations information and virtual tours (nothing contained on the websites shall be deemed incorporated herein). The Company also enters into strategic partnerships with selected "name brand" companies to increase its market exposure and create opportunities for cross-marketing.

Ski resort operations are highly seasonal in nature, with a typical ski season beginning in mid-November and running through mid-April. In an effort to counterbalance the concentration of revenues in the winter months, the Company offers non-ski season attractions, such as golf (included in the operations of the Lodging segment), hiking, sight-seeing and mountain biking. These activities also help attract destination convention business to the Company's resorts.

Lodging Segment

The Company's Lodging segment includes the following operations:

The Lodging segment includes approximately 4,700 owned and managed hotel and condominium rooms in seven states. All of the Company's resort hotels are mid-size and offer a wide range of services to guests.

The Company's portfolio of luxury and resort hotels currently includes:

       

Name

Location

Own/Manage

Rooms

       

RockResorts:

     

The Lodge at Rancho Mirage

Rancho Mirage, CA

Manage

240

Cheeca Lodge & Spa

Islamorada, FL

Manage

199

The Equinox

Manchester Village, VT

Manage

183

The Lodge at Vail

Vail, CO

Own

166

La Posada de Santa Fe

Santa Fe, NM

Manage

157

The Keystone Lodge

Keystone, CO

Own

152

Snake River Lodge & Spa

Teton Village, WY

Own

138

Rosario Resort & Spa

San Juan Islands, WA

Manage

116

The Pines Lodge

Beaver Creek, CO

Own

66

The Lodge & Spa at Cordillera

Edwards, CO

Manage

66

       

Other Hotels:

     

Jackson Lake Lodge

Grand Teton Nat'l Pk., WY

Concessionaire Contract

385

Colter Bay Village

Grand Teton Nat'l Pk., WY

Concessionaire Contract

166

Jenny Lake Lodge

Grand Teton Nat'l Pk., WY

Concessionaire Contract

37

Vail Marriott Mountain Resort & Spa

Vail, CO

Manage

346

The Great Divide Lodge

Breckenridge, CO

Own

208

Inn at Keystone

Keystone, CO

Own

103

Breckenridge Mountain Lodge

Breckenridge, CO

Own

71

Village Hotel

Breckenridge, CO

Own

60

Inn at Beaver Creek

Beaver Creek, CO

Own

46

Ski Tip Lodge

Keystone, CO

Own

10

       


The Company's Lodging strategy seeks to complement and enhance its ski resort operations through the ownership or management of lodging properties in proximity to its ski resorts. The Company initiated a strategy in fiscal 2005 to sell or optimize its owned hotel properties, obtaining management contracts where desirable. In addition, the Company will continue to seek additional hotel management opportunities through its RockResorts brand.

Hotels are categorized by Smith Travel Research, a leading lodging industry research firm, as luxury, upscale, mid-price and economy. The service quality and level of accommodations of the Company's resort hotels place them in the luxury segment of the hotel market, which represents hotels achieving the highest average daily rates ("ADR") in the industry, and includes such brands as the Ritz-Carlton, Four Seasons and Starwood's Luxury Collection hotels. The luxury segment consists of approximately 575,000 rooms at over 1,500 properties worldwide as of July 2005 During fiscal 2005, the Company's owned hotels had an overall average ADR of $166.34 and paid occupancy rate of 62.3%, while the luxury industry segment's average was an ADR of $147.72 and paid occupancy rate of 71.7%. The highly seasonal nature of the Company's hotel properties results in lower average occupancy as compared to general industry experience.

Competition in the hotel industry is generally based on quality and consistency of rooms, restaurant and meeting facilities and services, attractiveness of locations, availability of a global distribution system, price and other factors. The Company's properties compete within their geographic markets with hotels and resorts that include locally owned independent hotels as well as facilities owned or managed by national and international chains, including such brands as Ritz-Carlton, Four Seasons, Westin, Hyatt, Hilton, Marriott and Starwood's Luxury Collection. The Company's lodging strategy, through RockResorts, is focused on the resort hotel niche within the luxury market. The Company's properties also compete for convention and conference business across the national market. The Company believes it is highly competitive in this niche for the following reasons:

The Company promotes its luxury and resort hotels and seeks to maximize lodging revenues by using its marketing network initially established at the Company's ski resorts. The Company's marketing network includes local, national and international travel relationships which provide the Company's central reservation systems with a significant volume of transient customers. The hotels and the Company have active sales forces to generate conference and group business.

The Company also owns and operates GTLC, which was the Company's first resort with a predominantly summer operating season. GTLC is based in the Jackson Hole area in Wyoming and operates within Grand Teton National Park (the "Park") under a concessionaire contract with the National Park Service, which is currently up for bid as part of the required renewal process. For more information regarding the renewal process of the concessionaire contract, refer to the Regulation and Legislation section below. GTLC also owns the Jackson Hole Golf & Tennis Club ("JHG&TC"), which is located outside of the Park near Jackson, Wyoming. GTLC's operations within the Park and JHG&TC have operating seasons that generally run from mid-May to mid-October.

There are over 385 areas within the National Park System covering more than 84 million acres across the United States and its territories. Of the over 385 areas, approximately 57 are classified as National Parks. There are more than 500 National Park Service concessionaires, ranging from small privately-held businesses to large corporate conglomerates. The National Park Service uses "recreation visits" to measure visitation within the National Park System. In calendar 2004, areas designated as National Parks received approximately 88.8 million recreation visits. The Park, which spans approximately 310,000 acres, had 2.4 million recreation visits during calendar 2004, or approximately 3% of total National Park recreation visits. Four concessionaires provide accommodations within the Park, including GTLC. GTLC offers three lodging options within the Park: Jackson Lake Lodge, a full-service, 385-room resort with conference facilities which can accommodate up to 700 people; the Jenny Lake Lodge, a small, rustically elegant retreat with 37 cabins; and Colter Bay Village, a facility with 166 log cabins, 66 tent cabins, 350 campsites and a 112-space RV park. GTLC offers dining options as extensive as its lodging options, with cafeterias, casual eateries, and fine-dining establishments. GTLC's resorts provide a wide range of activities for guests to enjoy, including cruises on Jackson Lake, boat rentals, horseback riding, guided fishing, float trips, golf and guided park tours. Because of the extensive amenities offered as well as the tremendous popularity of the National Park System, GTLC's accommodations within the Park operate near full capacity during their operating season.

The Company's lodging business is highly seasonal in nature, with peak seasons primarily in the winter months (with the exception of GTLC, certain managed properties and golf operations). In recent years, the Company has grown its business to help offset the seasonality by offering more off-season activities for the Company's lodging business, including golf and group business. The Company owns and operates six golf courses: The Beaver Creek Golf Club, The Keystone Ranch Golf Course, The River Course at Keystone, The Jackson Hole Golf & Tennis Club, and the Tom Fazio and Greg Norman Courses at Red Sky Ranch. The Jackson Hole Golf & Tennis Club was ranked the second best course in Wyoming for 2005 by Golf Digest, the Tom Fazio course was ranked the fourth best course in Colorado and 90th in the U.S. in the 2004 "Top 100 You Can Play" by Golf Magazine, and the Greg Norman Course was ranked the top course in Colorado and 25th in the U.S. in the 2004 "Top 100 You Can Play" by Golf Magazine.

Real Estate Segment

The Company has extensive holdings of real property at its resorts throughout Summit and Eagle Counties in Colorado and in Teton County, Wyoming. The Company's real estate operations, through Vail Resorts Development Company ("VRDC"), a wholly owned subsidiary of the Company, include the planning, oversight, marketing, infrastructure improvement and development of the Company's real property holdings. In addition to the substantial cash flow generated from real estate sales, these development activities benefit the Company's Mountain and Lodging operations through (1) the creation of additional resort lodging which is available to guests, (2) the ability to control the architectural themes of the Company's resorts, (3) the creation of unique facilities and venues (primarily restaurant, retail and private club operations) which provide the Company with the opportunity to create new sources of recurring revenue and (4) the expansion of the Company's property management and commercial leasing operations, which are the preferred providers of these services for all developments on the Company's land.

In order to facilitate the sale of real estate development projects, the projects often include the construction of amenities for the benefit of the development, such as chairlifts, ski trails or golf courses. While these mountain improvements enhance the value of the real estate held for sale (for example, by providing ski-in/ski-out accessibility), they also benefit mountain and lodging operations. VRDC often seeks to minimize the Company's exposure to development risks and maximize the long-term value of the Company's real property holdings by selling developed and entitled land to third party developers for cash payments prior to the commencement of construction, while retaining approval of the development plans as well as an interest in the developer's profit. The Company also typically retains the option to purchase, at cost, any retail/commercial space created in a development. The Company is able to secure these benefits from third party developers because of the high property values and strong demand associated with property in close proximity to the Company's mountain resort facilities. In instances where the Company determines the business model warrants, in a growing trend, the Company will undertake the risk of vertical development itself, as it is doing or proposes to do for certain of the projects in the Vail's New Dawn, JHG&TC and Breckenridge developments.

VRDC's principal activities include (1) the development of certain residential and mixed-use condominium projects which are integral to the Company's Mountain and Lodging operations (such as properties located at a main base facility), (2) the sale of single-family homesites to individual purchasers, (3) the sale of certain land parcels to third-party developers for condominium, townhome, cluster home, single family home, lodge and mixed use developments, (4) the zoning, planning and marketing of new resort communities (such as Red Sky Ranch, JHG&TC and Breckenridge Peaks 7 and 8), (5) arranging for the construction of the necessary roads, utilities and mountain infrastructure for new resort communities and (6) the purchase of selected strategic land parcels for future development.

VRDC's current development activities are focused on (1) the redevelopment of the LionsHead base area, including the development of the Arrabelle at Vail Square and the Gore Creek Place residences, (2) the planning and development of the Vail Front Door project in the Town of Vail, (3) the Jackson Hole area residential and golf development, (4) expansion of infrastructure at Red Sky Ranch to facilitate additional lot sales at the Red Sky residential development, (5) planning for the development and/or sale of land parcels at base areas of Breckenridge Peaks 7 and 8, (6) continued development of the Mountain Thunder project in Breckenridge and (7) additional planning and development projects in and around each of the Company's resorts.

Employees

The Company, through certain operating subsidiaries, currently employs approximately 3,700 year-round and 9,900 seasonal employees. In addition, the Company employs approximately 1,300 year-round and 200 seasonal employees on behalf of the managed hotel properties. As of the end of fiscal 2005, none of the Company's employees were unionized. The Company considers employee relations to be good.

Regulation and Legislation

Special Use Permits

The Company has been granted the right to use federal land as the site for ski lifts and trails and related activities, under the terms of Special Use Permits granted by the United States Forest Service (the "Forest Service"). The Forest Service has the right to review and approve the location, design and construction of improvements in the permit area and many operational matters. While virtually all of the skiable terrain on Vail, Breckenridge, Heavenly and Keystone is located on Forest Service land, a significant portion of the skiable terrain on Beaver Creek Mountain, primarily in the lower main mountain, Western Hillside, Bachelor Gulch and Arrowhead Mountain areas, is located on Company-owned land.

The permits originally granted by the Forest Service were (1) Term Special Use Permits granted for 30-year terms, but which may be terminated upon 30 days written notice by the Forest Service if it determines that the public interest requires such termination and (2) Special Use Permits that are terminable at will by the Forest Service. In November 1986, a new law was enacted providing that Term Special Use Permits and Special Use Permits may be combined into a unified single Term Special Use Permit that can be issued for up to 40 years. These unified Special Use Permits were amended in 2003 to reflect the permit boundary maps and acreage amounts set forth in the new White River National Forest Plan. Changes to the permit boundaries are not material to the Company's plans. Vail operates under a unified Term Special Use permit for the use of 12,226 acres that expires October 31, 2031. Breckenridge operates under a unified Term Special Use Permit for the use of 5,553 acres that expires on December 31, 2029. Keystone operates under a unified Term Special Use Permit for the use of 8,376 acres that expires on December 31, 2032. Beaver Creek operates under a unified Term Special Use Permit for the use of 3,801 acres that expires on December 31, 2038. Heavenly operates under a Term Special Use Permit for the use of 7,050 acres, is administered by the Lake Tahoe Basin Management Unit, and expires May 1, 2042. In addition, Heavenly operates four separate base areas, all of which are located on Company-owned lands.

For use of the Special Use Permits, the Company pays a fee to the Forest Service ranging from 1.5% to 4.0% of sales occurring on Forest Service land. Included in the calculation are sales from, among other things, lift tickets, ski school lessons, food and beverages, rental equipment and retail merchandise sales.

The Forest Service can terminate most of the Company's permits if it determines that termination is required in the public interest. However, to the Company's knowledge, no recreational Special Use Permit or Term Special Use Permit for any major ski resort then in operation has ever been terminated by the Forest Service over the opposition of the permitee.

Federal Regulations, Company Proposals and Related Approvals

Certain of the Company's resort and lodging operations require permits and approvals from certain federal, state, and local authorities, in addition to the Forest Service and U.S. Army Corps of Engineers approvals, discussed herein. In particular, the Company's operations are subject to environmental laws and regulations, and compliance with such laws and regulations may require expenditures or modifications of the Company's development plans and operations in a manner that could have a detrimental effect on it. There can be no assurance that new applications of existing laws, regulations and policies, or changes in such laws, regulations and policies, will not occur in a manner that could have a detrimental effect to the Company, or that material permits, licenses, or approvals will not be terminated, not be renewed or be renewed on terms or interpreted in ways that are materially less favorable to the Company. Although the Company believes that it will be successful in implementing its development plans and operations in ways satisfactory to it, no assurance can be given that any particular permits and approvals will be obtained or upheld on judicial review.

Breckenridge Regulatory Matters

In August 1998, the Company received the approval of the Forest Service to develop a chairlift, other skier facilities and associated skiing terrain on Peak 7 and a teaching chairlift, two new ski trails and additional snowmaking on Peak 9, all located at Breckenridge. Part of the trail and mountain improvements on Peak 7 have been completed and the new trails were open for skiing for the 2001/02 ski season and direct lift service for the trails was provided in the 2002/03 ski season. The Company has also received approval from the Forest Service to change the proposed location of a restaurant initially proposed for the top of Peak 7 to its midway point. To date, the Company has completed a small portion of the snowmaking improvements.

As part of the Peak 7 approval and development process, certain federal agencies expressed concern about the analysis of potential future development on private land that the Company owns at the base of Peak 7. In response to an administrative appeal of the Forest Service approval decision by certain individuals and groups, the Regional Forester upheld the approval of the Peak 7 and 9 projects in November 1998. The Forest Service subsequently reviewed the Company's proposed changes to develop gondola access to the Peak 7 base area and to move the lower terminal of the lift servicing the terrain and base area from public lands to private land owned by the Company. Based on an interdisciplinary review of the proposed changes, the Forest Service determined in September 2000 that the new information and changes to the proposal did not require an update or revision of the 1998 Environmental Assessment or decision notice.

The U.S. Army Corps of Engineers considered the development of the base facilities on private land and the ski area improvements on public land as combined actions and issued one permit for the combined projects. The permit contains strict conditions related to the permissible impact to wetlands connected with the real estate project. In May 2002, the Company signed a Preliminary Agreement with the Town of Breckenridge, which allows the Company to proceed with the review of the Master Plan with specified density. In September 2002, the town approved a Development Agreement which allowed the Planning Commission to review the Company's Master Plan amendment with certain components that would otherwise have varied from the town's Development Code. The amended Master Plan was approved by the Town of Breckenridge in June 2003. In the summer of 2005, the Company submitted a proposal to the Town of Breckenridge to further amend its Master Plan to transfer up to 60 units of density which were not constructed at Mountain Thunder up to the Peak 7 development. The Company expects to receive a response on this proposed amendment in the spring of 2006. While the Company cannot predict or guarantee the prospects for obtaining approval of this amendment, the Company is optimistic for a satisfactory outcome.

In August 2005, the Company received approval from the Forest Service for construction of a chairlift to the summit of Peak 8 of the Breckenridge Ski Area (the "Imperial Lift"). The Company expects the Imperial Lift to be completed in time for the start of the 2005/06 ski season. Finally, the Company will begin the process of preparing a programmatic update to the Breckenridge Ski Area Master Development Plan this fall. No environmental documentation will be required for this update, with project specific analysis occurring prior to project implementation.

Keystone Regulatory Matters

In March 2000, the Company announced that Keystone and the Forest Service would conduct a joint water quality study of possible impacts on four streams from snowmaking operations at Keystone. This study was completed in 2001 and concluded that the levels of tested metals were within applicable Colorado state water quality standards. Because this study only examined one calendar year of measurement, Keystone agreed to conduct ongoing water quality monitoring combined with a use attainability analysis for the Colorado Water Quality Control Commission (the "Commission") to further assess water quality conditions at Keystone. In March 2004, the Commission adopted a regulation which rejected a proposal to add four streams at Keystone to the list of Colorado streams which do not achieve water quality standards. Importantly, in June 2005, the U.S. Environmental Protection Agency then upheld the Commission's decision. Ongoing monitoring of water quality at Keystone indicates compliance with all applicable water quality standards.

In 2003, the Company submitted a proposal to conduct snowcat skiing on 861 additional skiable acres within the Keystone permit boundary on Little Bowl and Erickson Bowl. This proposal was approved and Keystone conducted snowcat skiing operations during the 2004/05 ski season and will continue to do so. In May 2005, Keystone submitted a proposal for additional snowcat skiing in an area north of Keystone but also within its permit boundaries. The Company expects to receive approval for 400 additional skiable acres of snowcat skiing at Keystone prior to the 2005/06 ski season. The Company is currently revising the Keystone Master Ski Area Development Plan and expects that process to be concluded in late 2005. Finally, the Company is preparing an environmental assessment for a proposed four mile pipeline to transport water from Keystone's Montezuma Shaft diversion point to the Keystone River snowmaking pumping station. When completed, this project will significantly increase the efficiency and quality of snowmaking at Keystone.

Vail and Beaver Creek Regulatory Matters

In the spring of 2000, the Company submitted a proposal to the Forest Service concerning additional snowmaking on Vail and a race facility expansion at Vail's Golden Peak. The Company withdrew this proposal and intends to submit a new proposal to combine these projects with a new master plan update for Vail. Also, the Company is in the process of a land exchange with the Forest Service involving land at the Vail Village base area in connection with the Company's Vail's Front Door development project. In 2003, the Company submitted a proposal to the Forest Service to install a new chair lift in Vail's Sundown Bowl and to upgrade the existing Chair 5 to a high-speed, detachable quad chair lift. This proposal has been put on hold temporarily. Finally, in 2004 the Company submitted a proposal to the Forest Service to replace Vail Chairs 10 and 14. This proposal was approved and Vail expects to complete this project in the next several years.

In 2001, the Company submitted a proposal to the Forest Service concerning the construction of a gondola connecting the Town of Avon with Beaver Creek (the "Gondola Proposal"), a portion of which would cross public lands on Beaver Creek within the Company's existing permit boundaries. The Gondola Proposal was approved by the Forest Service but was modified in 2003, whereby the gondola conveyance was replaced with the installation of two individual chairlifts prior to the 2004/05 ski season. These new chairlifts carry guests from the bottom of Bachelor Gulch to Beaver Creek. Contingent on the Company's sale of certain land located in the Town of Avon, and subject to various governmental and regulatory approvals, a gondola connection from lower Bachelor Gulch to the Town of Avon may still be constructed. In the event all contingencies are satisfied and approvals obtained, this gondola would likely be operated by the Company but owned by a quasi-governmental agency. However, no assurance can be given that any required approvals will be obtained.

Revision of Forest Plan

The Record of Decision (the "ROD") approving the new White River National Forest Land Resource Management Plan (the "Forest Plan") was issued by the Forest Service in April of 2002. The Forest Plan sets certain broad regulatory and planning requirements, as well as land use planning, that pertain to recreational, operational and development activities at the Company's four Colorado ski resorts. The ROD was appealed to the Chief of the Forest Service by the Company and several other interested parties, including environmental groups holding positions opposite to those of the Company. The Chief's decision on the appeals was issued on September 22, 2004, and was further modified by a Discretionary Review of the Deputy Undersecretary of Agriculture on December 2, 2004. The Company prevailed on several important issues in both the Chief's decision and the Discretionary Review.

To date, no appellant has filed an action for judicial review of the final decision in Federal Court. It is impossible at this time to predict whether an action for judicial review will be filed, and if so, whether the resolution of it would have a material adverse impact on the Company.

Heavenly Regulatory Matters

Prior to the Company's acquisition of Heavenly, the State of California Regional Water Quality Control Board, Lahontan Region, and the El Dorado County Department of Environmental Management required Heavenly's prior owner to conduct an environmental compliance cleanup at a vehicle maintenance facility at Heavenly. This requirement was imposed in response to an accidental release of waste oil at a vehicle maintenance shop in 1998. All cleanup work has been completed in accordance with the approved work plan and a new underground vault, piping and overflow protection system was installed to prevent any further releases. A final report was submitted on March 31, 2003 to the above two agencies. In late 2004, Heavenly was notified by the State of California that additional monitoring and reporting would be required following snowmelt in 2005 using the three existing monitoring wells. No new well was required to be installed. In 2005, the sampling and reporting was completed as prescribed by the State. The final report has been submitted as required. No response from the State has been provided.

In March 2005, Heavenly received a one year extension for the submittal of the final site development plan for the 120-unit Planned Development at Stagecoach Lodge in Douglas County, Nevada, which was originally approved in 2000. The extension was granted by the Douglas County Board of County Commissioners and is valid until February 2006.

Also in March 2003, Heavenly received an allocation of 55 water units (each water unit equals approximately 500 gallons/day) for the same Stagecoach Lodge Planned Development project from the Kingsbury General Improvement District ("KGID"). KGID is the water and sewer district that services the Stagecoach Lodge. Water allocation units for this service area are limited by the State of Nevada. However, based on KGID's gallons/day consumptive use formula, the 55 water allocation units are sufficient to serve the 120 units approved by Douglas County.

In July 2003, Heavenly received updated waste discharge requirements ("WDRs") for all lands and facilities within the resort which are located within the State of California. This includes National Forest lands as well as fee-owned lands. The approval was given by the State of California Water Resources Control Board, Lahontan Region. The approved WDRs will permit Heavenly to continue winter and summer operations and to continue with implementation of the approved Heavenly Ski Area Master Plan ("Master Plan"). WDRs are normally valid for ten years.

In 1996, the Master Plan was approved by the Forest Service, the Tahoe Regional Planning Agency and the underlying units of local government with jurisdiction. Heavenly updated the Master Plan which requests revisions to permit new and upgraded trails, lifts, snowmaking, lodges and other facilities ("Master Plan Update"). In 2005, Heavenly submitted this Master Plan Update to the agencies that approved the original Master Plan in 1996. The review and approval process has commenced and is scheduled to conclude in 2006. The Company expects to complete the first phase of the capital projects contained in the amended Master Plan in 2006, with the remainder proceeding in accordance with the implementation schedule contained therein.

In the spring of 2005, Heavenly requested approval from the Forest Service for construction of one high-speed four-passenger lift. While this lift was scheduled for completion prior to the start of the 2005/06 ski season, Heavenly has not yet received the required approval. Heavenly does expect to receive this approval in sufficient time to ensure construction during the summer of 2006 and completion prior to the start of the 2006/07 ski season.

GTLC Concession Contract Process

GTLC operates three lodging properties and a variety of food and beverage, retail, camping and other services within the Park under a concession contract with the National Park Service that expired on December 31, 2002. GTLC has been granted three (3) one-year extensions of this contract, with the current extension term scheduled to end December 31, 2005. On June 1, 2005, the National Park Service issued a prospectus soliciting offers to operate the Park concession (the "Prospectus") from interested parties with an original deadline of September 28, 2005, now extended to October 20, 2005. In the Prospectus, the National Park Service announced that a new contract will be awarded, negotiated and entered into on or before January 1, 2006. The award of a new contract is subject to a competitive bidding process and formal, independent evaluation of all submissions under the rules promulgated to implement the concession provisions of the National Park Omnibus Management Act of 1998. Both before and after issuance of the Prospectus, the Company has been diligently working on its comprehensive responses to the principal and secondary selection criteria set out in the Prospectus and will be timely submitting its formal offer on or before the October 20, 2005 deadline. After all interested parties have submitted their formal offers, the contract will be sent to Congress for a sixty (60) day review period. Previous congressional reviews show that Congress has generally confirmed the National Park Service's concessionaire selection. Nevertheless, in the event the National Park Service is unable to meet its January 1, 2006 deadline for award of a new contract, the Company has requested a fourth extension of its contract at least through the 2006 summer operating season and possibly until December 31, 2006. The Company cannot predict or guarantee the prospects for success in award of a new contract, although the Company believes GTLC is well positioned to obtain a new concession contract on satisfactory terms. In the event GTLC is not the successful bidder for the new concession contract, under the existing contract GTLC is required to sell to the new concessionaire its "possessory interest" in improvements and its other property used in connection with the concession operations. GTLC would then be entitled to receive compensation from the successful bidder for the value of its "possessory interest" in the assets as well as compensation for any personal property and inventories purchased by the new owner. Under an amendment to the contract, in the summer of 2003, GTLC and the National Park Service agreed upon the possessory interest value which is contained in the Prospectus soliciting bids for the contract.

Available Information

The Company's SEC information, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Act") are available free of charge on the Company's corporate website (www.vailresorts.com) as soon as reasonably practicable after the information is electronically filed with or furnished to the SEC. In addition, the Company's Code of Ethics is available on its website. No content of the Company's corporate website is incorporated by reference herein. Copies of any materials the Company files with the SEC can be obtained at www.sec.gov or at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the public reference room is available by calling the SEC at 1-800-SEC-0330.

ITEM 2. PROPERTIES.

The following table sets forth the principal properties owned or leased by the Company for use in its operations:

                        Location                     

 

           Ownership          

 

                                   Use                                

Arrowhead Mountain, CO 

 

Owned

 

Ski trails and ski resort operations, including ski lifts, buildings and other improvements, commercial space

Avon, CO

 

Owned

 

Real estate held for sale or development

BC Housing Riveredge, CO

 

26% Owned

 

Employee housing facilities

Bachelor Gulch Village, CO  

 

Owned

 

Ski resort operations, including ski lifts, ski trails, buildings and other improvements, commercial space

Beaver Creek Mountain, CO 

 

Owned

 

Ski resort operations, including ski lifts, buildings and other improvements, commercial space, real estate held for sale or development

Beaver Creek Mountain, CO (3,801 acres)

 

Special Use Permit

 

Ski trails

Beaver Creek Resort, CO 

 

Owned

 

Golf course, commercial space and residential spaces

Breckenridge Mountain, CO

 

Owned

 

Ski resort operations, including ski lifts, buildings and other improvements, commercial space, real estate held for sale or development

Breckenridge Mountain, CO (5,553 acres)

 

Special Use Permit

 

Ski trails

Breckenridge Terrace, CO

 

50% Owned

 

Employee housing facilities

Colter Bay Village, WY

 

Concessionaire contract

 

Lodging, dining

Great Divide Lodge, CO

 

Owned

 

Lodging, dining and conference facilities

Heavenly Mountain Resort, CA

 

Owned

 

Ski resort operations, including ski lifts, buildings and other improvements, commercial space

Heavenly Mountain, CA (7,050 acres)

 

Special Use Permit

 

Ski trails

Inn at Beaver Creek, CO

 

Owned

 

Lodging, dining and conference facilities

Inn at Keystone, CO

 

Owned

 

Lodging, dining and conference facilities

Jackson Hole Golf and Tennis Club, WY

 

Owned

 

Golf course, tennis facilities, dining, real estate held for sale or development

Jackson Lake Lodge, WY

 

Concessionaire contract

 

Lodging, dining, conference facilities

Jenny Lake Lodge, WY

 

Concessionaire contract

 

Lodging, dining

Keystone Conference Center, CO

 

Owned

 

Conference facility

Keystone Lodge, CO

 

Owned

 

Lodging, dining and conference facilities

Keystone Mountain, CO

 

Owned

 

Ski resort operations, including ski lifts, buildings and other improvements, commercial space

Keystone Mountain, CO (8,376 acres)

 

Special Use Permit

 

Ski trails

Keystone Ranch, CO

 

Owned

 

Golf course and restaurant facilities

Keystone Resort, CO

 

Owned

 

Resort operations, dining, commercial space, conference facilities, real estate held for sale or development

Red Sky Ranch, CO

 

Owned

 

Golf course and real estate held for sale and development

River Course at Keystone, CO

 

Owned

 

Golf course

RockResorts, CO

 

Leased

 

RockResorts offices

Seasons at Avon, CO

 

Leased/50% owned

 

Corporate offices

Ski Tip Lodge, CO

 

Owned

 

Lodging and dining facilities

Snake River Lodge & Spa, WY

 

Owned

 

Lodging, dining, conference and spa facilities

The Lodge at Vail, CO

 

Owned

 

Lodging, dining and conference facilities, real estate held for sale or development

The Tarnes at Beaver Creek, CO

 

31% Owned

 

Employee housing facilities

Tenderfoot Housing, CO

 

50% Owned

 

Employee housing facilities

The Pines Lodge at Beaver Creek, CO

 

Owned

 

Lodging, dining, conference facilities

Vail Mountain, CO 

 

Owned

 

Ski resort operations, including ski lifts, buildings and other improvements, commercial space

Vail Mountain, CO (12,226 acres)

 

Special Use Permit

 

Ski resort operations, including ski lifts, trails, buildings and other improvements

Village at Breckenridge, CO

 

Owned

 

Lodging, dining, conference facilities and commercial space

SSV Properties

 

61.7%-owned

 

Over 100 retail stores for recreational products



The Forest Service permits of the Company's operating subsidiaries are encumbered under certain debt instruments of the Company. Many of the Company's properties are used across all segments in complementary and interdependent ways.

ITEM 3. LEGAL PROCEEDINGS.

The Company is a party to various lawsuits arising in the ordinary course of business, including Resort related cases and contractual and commercial litigation that arises from time to time in connection with the Company's real estate and other business operations. Management believes the Company has adequate insurance coverage and accrued loss contingencies for all known matters and that, although the ultimate outcome of such claims cannot be ascertained, current pending and threatened claims are not expected to have a material adverse impact on the financial position, results of operations and cash flows of the Company.

SEC Investigation Terminated

In February 2003, the SEC issued a formal order of investigation with respect to the Company. On September 19, 2005, the Central Regional Office of the SEC informed the Company that its investigation has been terminated, and that no enforcement action has been recommended regarding the Company. The Company has also been informed that no enforcement action has been recommended with respect to any present or former directors, officers or employees of the Company in regard to the matters that had been under investigation.

Gilman Litigation Appeal

The Company appealed an adverse decision by the Eagle County District Court of Colorado, rendered on September 24, 2003, relating to the Company's interest in real property in Eagle County, Colorado commonly known as the "Gilman" property. The litigation commenced in November 1999 involving a dispute between a Company subsidiary, as the holder of an option to acquire a 50% interest in the entity that owned the property, and Turkey Creek LLC ("Turkey Creek"), the owner of the property. The property consists of approximately 6,000 acres of rugged, high altitude land in close proximity to Vail Mountain. Turkey Creek assembled the property over many years from various parcels, old mining claims and other property.

Vail Associates originally acquired the option in 1992 under an option agreement between Vail Associates and Turkey Creek. The option agreement was amended and extended several times over the years between 1992 and 1999. During those years, Vail Associates funded all of the acquisition costs to buy the parcels comprising the property and holding costs related to the property, such as real estate taxes and litigation costs to perfect title to the property. Between 1992 and 1999, Vail Associates invested approximately $4.8 million of such funds to maintain and preserve its 50% option interest.

In November 1999, a Company subsidiary (the successor to Vail Associates under the option) exercised the option to acquire the 50% interest in the entity that owned the property. Turkey Creek, however, refused the exercise, claiming that the Company's proposal to pursue a strategy to find a buyer who would put most of the property into conservation or open space uses was a breach of the option agreement, which contemplated "prompt and diligent development" of the property upon exercise of the option.

The Court found that the Company's subsidiary repudiated the option agreement in advance of the exercise of the option by not committing to prompt and diligent development and that "development" did not include selling the land to a buyer for conservation. The Court further found that Turkey Creek was entitled to terminate the contract and refuse the exercise and that the Company's subsidiary was not entitled to any interest in the property.

As a result of the Court's decision, the Company recorded a non-cash asset impairment charge of $4.8 million in fiscal 2003, the amount previously carried on the Company's consolidated balance sheet reflecting its investment. The Company appealed the adverse decision, primarily on the basis that the Court applied the wrong legal standard in deciding the issue. In August 2005, a three judge panel vacated the trial court's judgment and remanded the case back to the trial court to apply the correct legal standard and identify facts that meet the correct legal standard. The appellee's motion for reconsideration of the Court of Appeals decision was denied.

During the pendency of the appeal, Turkey Creek sold the property for approximately $33 million to an unrelated third party developer. Accordingly, the outcome of the case will relate only to an economic resolution between the parties and will not affect the real property now owned by the third party. The Company cannot predict the ultimate outcome of the matter.

Breckenridge Terrace Employee Housing Construction Defect/Water Intrusion Claims

During fiscal 2004, the Company became aware of water intrusion and condensation problems causing mold damage in the 17 building, employee housing facility owned by Breckenridge Terrace, LLC ("Breckenridge Terrace"), an employee housing entity in which the Company is a member and manager. As a result, the facility was not available for occupancy during the 2003/04 ski season. All buildings at the facility required mold remediation and reconstruction and this work began in fiscal 2004. Breckenridge Terrace recorded a $7.0 million liability in fiscal 2004 for the estimated cost of remediation and reconstruction efforts. These costs were funded by a loan to Breckenridge Terrace from the Company member of the LLC. As of July 31, 2005, Breckenridge Terrace had a remaining liability of $871,000 for future remaining remediation and reconstruction costs. With the exception of one building which has been kept in its original design and construction for evidentiary purposes (see discussion below), the remaining 16 buildings became available for occupancy in the second quarter of fiscal 2005. The Company anticipates it will incur the remaining amount of remediation and reconstruction costs during fiscal 2006.

Forensic construction experts retained by Breckenridge Terrace have determined that the water intrusion and condensation problems are the result of construction and design defects. In accordance with Colorado law, Breckenridge Terrace served separate notices of claims on the general contractor, architect and developer and initiated arbitration proceedings. In September 2005, Breckenridge Terrace agreed to settle its claims against the general contractor and the architect for an aggregate amount of $800,000 and will recognize the settlement amount as reduction of the remediation expense upon receipt. Claims against the developer were not settled and Breckenridge Terrace is reviewing its legal options in that regard.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PUCHASES OF EQUITY SECURITIES.

The Company's Common Stock is traded on the New York Stock Exchange under the symbol "MTN". As of September 26, 2005, 36,736,325 shares of common stock were issued and outstanding, held by approximately 475 holders of record.

Other than a rights distribution in October 1996 which gave each stockholder of record the right to receive $2.44 per share of Common Stock held, the Company has never paid nor declared a cash dividend on its Common Stock or Class A Common Stock. The declaration of cash dividends in the future will depend on the Company's earnings, financial condition, capital needs, restrictions under debt instruments and on other factors deemed relevant by the Board of Directors at that time. It is the current policy of the Company's Board of Directors to retain earnings to finance the operations and expansion of the Company's business.

The following table sets forth, for the fiscal years ended July 31, 2005 and 2004, and quarters indicated (ended October 31, January 31, April 30, and July 31) the range of high and low per share sales prices of Vail Resorts, Inc. Common Stock as reported on the New York Stock Exchange Composite Tape.

 

Vail Resorts

 

Common Stock

 

    High    

 

    Low    

Year Ended July 31, 2005

     
 

1st Quarter

$ 20.21

 

$ 17.50

 

2nd Quarter

23.97

 

19.00

 

3rd Quarter

26.25

 

23.06

 

4th Quarter

29.44

 

25.33

       

Year Ended July 31, 2004

     
 

1st Quarter

$ 16.10

 

$ 12.35

 

2nd Quarter

18.30

 

12.97

 

3rd Quarter

18.24

 

15.50

 

4th Quarter

19.65

 

13.73



Securities authorized for issuance under equity compensation plans

The following table summarizes the Company's equity compensation plans as of July 31, 2005:

 

(a)

(b)

(c)

     

Number of securities

     

remaining available for

 

Number of securities to

Weighted average

future issuance under

 

be issued upon exercise

exercise price of

equity compensation

 

of outstanding options,

outstanding options,

plans (excluding securities

              Plan category              

warrants and rights

warrants and rights

 reflected in column (a)) 

 

(in thousands)

 

(in thousands)

Equity compensation plans approved by security holders (1)

3,880

$18.64

1,351

Equity compensation plans not approved by security holders

       --

        --

       --

Total

3,880

$18.64

1,351

       

(1)

Columns (a) and (b) do not include 30,500 shares of restricted stock which are subject to vesting over the next two years.



The Company's stock-based compensation plans are described in Note 18, Stock Compensation Plans, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

 

ITEM 6.  SELECTED FINANCIAL DATA.

The following table presents selected historical consolidated financial data of the Company derived from the Company's consolidated financial statements for the periods indicated. The financial data for the fiscal years ended July 31, 2005, 2004 and 2003 should be read in conjunction with the Consolidated Financial Statements, related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this Annual Report on Form 10-K (the "Form 10-K"). The table presented below is unaudited. The data presented below are in thousands, except per share, effective ticket price ("ETP") and resort revenue per skier visit amounts.

   

                 Fiscal Year Ended July 31,                   

   

 2005 (1)

 

  2004 (1) 

 

  2003 (1)

 

   2002 (1)

 

  2001 (1)

Statement of Operations Data:

                   

Revenue:

                   
 

Mountain

 

$   540,855

 

$   500,995

 

$  460,568

 

$  396,572

 

$   391,373

 

Lodging

 

196,351

 

180,525

 

172,003

 

154,834

 

124,207

 

Real estate

 

       72,781

 

       45,123

 

      80,401

 

      63,854

 

       28,200

 

Total net revenue

 

809,987

 

726,643

 

712,972

 

615,260

 

543,780

Segment operating expense:

                   
 

Mountain

 

391,889

 

368,875

 

362,131

 

305,299

 

299,414

 

Lodging

 

177,469

 

165,983

 

161,846

 

140,856

 

109,664

 

Real estate

 

      58,254

 

      16,791

 

      66,642

 

      51,326

 

      23,110

 

Total segment operating expense

 

627,612

 

551,649

 

590,619

 

497,481

 

432,188

Gain on transfer of property, net

 

--

 

2,147

 

--

 

--

 

--

Mountain equity investment income, net

2,303

1,376

1,009

1,748

1,084

Lodging equity investment loss, net

 

(2,679)

 

(3,432)

 

(5,995)

 

(57)

 

(1,352)

Real estate equity investment (loss) income, net

 

(102)

 

460

 

3,962

 

2,744

 

7,043

Interest expense

 

(40,298)

 

(47,479)

 

(50,001)

 

(38,788)

 

(31,735)

Depreciation and amortization

 

(89,968)

 

(86,377)

 

(82,242)

 

(68,480)

 

(65,580)

Loss on extinguishment of debt

 

(612)

 

(37,084)

 

--

 

--

 

--

Mold remediation charge

 

--

 

(5,500)

 

--

 

--

 

--

Loss from sale of businesses, net

 

(7,353)

 

--

 

--

 

--

 

--

Income (loss) before cumulative effect of change in accounting principle(2)

 

23,138

 

(5,959)

 

(8,527)

 

8,758

 

11,452

Net income (loss)

 

$   23,138

 

$      (5,959)

 

$   (8,527)

 

$      7,050

 

$    11,452

Diluted per share income (loss) before cumulative effect of change in accounting principle(2)

 

$      0.64

 

$       (0.17)

 

$     (0.24)

 

$        0.25

 

$        0.33

Diluted per share net income (loss)

 

$      0.64

 

$       (0.17)

 

$     (0.24)

 

$        0.20

 

$        0.33

Other Data:

                   

Mountain

                   
 

Skier visits(3)

 

5,940

 

5,636

 

5,730

 

4,732

 

4,975

 

ETP (4)

 

$       39.30

 

$       37.67

 

$      34.13

 

$      34.22

 

$       31.98

Resort

                   
 

Resort revenue per skier visit(5)

 

$     112.09

 

$     109.72

 

$      99.18

 

$    106.53

 

$       97.67

Real Estate

                   
 

Real estate held for sale and investment(6)

 

$   154,874

 

$   134,548

 

$  123,223

 

$  161,778

 

$   159,177

Other Balance Sheet Data

                   
 

Total assets

 

$1,525,921

 

$1,533,957

 

$1,455,442

 

$1,449,026

 

$1,188,546

 

Long-term debt (including current maturities)

 

521,710

 

625,803

 

584,151

 

602,786

 

388,380

 

Stockholders' equity

 

$   540,529

 

$   491,163

 

$  496,246

 

$   504,004

 

$   494,000



 

(footnotes to selected financial data appear on following page)

Footnotes to Selected Financial Data:

(1)

The Company has made several acquisitions and dispositions which impact comparability between years during the past five years: Heavenly Ski Resort (acquired in May 2002), Vail Marriott (acquired in December 2001 and subsequently sold in June 2005), The Lodge at Rancho Mirage (acquired in November 2001 and subsequently sold in July 2005), RockResorts (acquired in November 2001), Resort Technology Partners, LLC (acquired in March 2001), investment in Ritz-Carlton, Bachelor Gulch (opened November 2002 and subsequently sold in December 2004) and SRL&S (acquired in December 2000). In addition, the Company consolidated several entities in fiscal 2004 as a result of the adoption of FASB Interpretation No. 46, "Consolidation of Variable Interest Entities-an Interpretation of ARB No. 51, Revised" ("FIN 46R"). See Note 7, Variable Interest Entities, of the Notes to Consolidated Financial Statements included in Item 8 of this report on Form 10-K for information regarding the entities consolidated under FIN 46R. A discussion of the impacts of consolidation of these entities is included in "Management's Discussion and Analysis" included in Item 7 of this report on Form 10-K.

(2)

In fiscal 2002, the Company recorded a goodwill impairment charge in connection with the implementation of Statement of Financial Accounting Standards No. 142, "Goodwill and Intangible Assets" associated with the Village at Breckenridge of $1.7 million, net of income taxes, which was recorded as "cumulative effect of a change in accounting principle" in the consolidated statements of operations.

(3)

A skier visit represents a person utilizing a ticket or pass to access a mountain resort for any part of one day, and includes both paid and complimentary access.

(4)

ETP is defined as lift ticket revenue divided by total skier visits.

(5)

Resort revenue per skier visit is defined as the sum of the Mountain and Lodging revenue (excluding revenue generated by GTLC, SRL&S, The Lodge at Rancho Mirage and RockResorts) divided by skier visits.

(6)

Real estate held for sale and investment includes all land, development costs and other improvements associated with real estate held for sale and investment, as well as investments in real estate joint ventures.



 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following is an analysis of the Company's results of operations, liquidity and capital resources and should be read in conjunction with the Consolidated Financial Statements and notes related thereto included in this Form 10-K. To the extent that the following Management's Discussion and Analysis contains statements which are not of a historical nature, such statements are forward-looking statements which involve risks and uncertainties. These risks include, but are not limited to, changes in the competitive environment of the mountain and lodging industries, general business and economic conditions, the weather and other factors discussed elsewhere herein and in the Company's other filings with the SEC. The following discussion and analysis should be read in conjunction with the Cautionary Statement included at the end of this section.

The following Management's Discussion and Analysis includes discussion of financial performance within each of the Company's segments. The Company has chosen to specifically address a non-GAAP measure, Reported EBITDA (defined as segment net revenues less segment specific operating expenses plus gain on transfer of property, as applicable, plus segment equity income), in the following discussion because management considers this measurement to be a significant indication of the Company's financial performance. The Company evaluates performance and allocates resources to its segments based on Reported EBITDA. In addition, because of the significant long-lived assets to the operations of the Company and the level of the Company's indebtedness, the Company believes that Reported EBITDA is useful in measuring the Company's ability to fund expenditures and service debt. The Company uses Reported EBITDA targets in determining management bonuses. Refer to the end of the Results of Operations section for a reconciliation of Reported EBITDA to net income (loss).

Reported EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of America. 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, cash flows generated by operations, investing or financing activities or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Reported EBITDA is not a measurement determined in accordance with accounting principles generally accepted in the United States and is thus susceptible to varying calculations, Reported EBITDA as presented may not be comparable to other similarly titled measures of other companies.

Overview

The Company's operations are grouped into three integrated and interdependent segments: Mountain, Lodging and Real Estate, which represented 67%, 24% and 9%, respectively, of the Company's revenues for fiscal 2005. The Mountain segment is comprised of the operation of five ski resort properties and related amenities, primarily including ski school, dining, and retail/rental operations. Operations within the Lodging segment include 1) ownership/management of a group of ten luxury hotels through the RockResorts brand, including three proximate to the Company's ski resorts, 2) the operations of GTLC, 3) the ownership/management of non-RockResorts branded hotels and condominiums proximate to the Company's ski resorts and 4) golf course operations. The Real Estate segment is involved with the development of property in and around the Company's resort properties.

The Company's single largest source of revenue is the sale of lift tickets (including season passes), which represented approximately 29% of total fiscal 2005 net revenue. Lift ticket revenues are driven by volume (skier visits) and average pricing. Pricing is impacted by both absolute pricing as well as the demographic mix of guests, which impacts the price points at which various products are purchased. The demographic mix of guests is divided into two primary categories: 1) out-of-state and international guests ("Destination") and 2) in-state and local visitors ("In-State"). Destination guests comprise approximately 60% of the Company's skier visits, while the In-State market comprises approximately 40% of the Company's skier visits. Nearly 50% of total visitors and 79% of Destinations visitors fly to the Company's resorts. Destination guests generally purchase the Company's higher-priced lift ticket products and utilize more ancillary services like ski school and lodging. Destination guests are less likely to be impacted by changes in the weather, due to the advance planning required for their trip, but can be impacted by the economy (including the strength of the U.S. dollar) and the global geopolitical climate. In-State guests tend to be more weather-sensitive and value-oriented; to mitigate against this, approximately 20-25% of total lift revenue is generated from the sale of season passes, which are marketed primarily to In-State guests. The cost structure of ski resort operations is largely fixed; as such, incremental revenue generally has high associated profit margin.

Revenues of the Lodging properties at or around the Company's ski resorts are closely aligned with the performance of the Mountain segment, particularly with respect to visitation from Destination guests. Revenues from hotel management operations under the RockResorts brand not located around the Company's ski resorts are generated through management fees based upon the revenue of the individual hotel properties within the RockResorts portfolio, and are therefore subject to trends within the overall travel industry. GTLC, which is a National Park Service ("NPS") concession within Grand Teton National Park, benefits from the enormous popularity of the National Park system. GTLC's pricing is regulated by the NPS.

The Company's Real Estate segment engages in both 1) the sale of land to developers, which generally includes the retention of some control in the oversight and design of the projects and a contingent revenue structure based on the sale of the developed units and, 2) in a growing trend, vertical development of projects. The Company mitigates the risk of vertical development by utilizing fixed price contracts, pre-selling the project, requiring significant non-refundable deposits and the obtaining of non-recourse financing for certain projects. The Company's real estate projects generally are geared to provide additional benefit to the Mountain and Lodging segments.

Trends, Risks and Uncertainties

The Company's management has identified the following important factors (as well as risks and uncertainties associated with such factors) that could impact the Company's future financial performance:

The data provided in this section should be read in conjunction with the risk factors identified elsewhere in this document.

Results of Operations

Summary

The 2004/05 ski season was a record year in terms of both total revenue and skier visits for the Mountain segment, supported by overall increases in destination visitation and ETP. The record skier revenue and skier visitation also drove improvement in the Lodging segment for properties proximate to the Company's ski resorts. In addition, management believes that the cost cutting initiatives implemented in fiscal 2004 were sustained in fiscal 2005. The Company's net income of $23.1 million for fiscal 2005 improved significantly over fiscal 2004's net loss of $6.0 million driven primarily by an increase in Resort Reported EBITDA of $22.9 million, a $7.2 million decrease in interest expense, as well as a $36.5 million decrease in loss on extinguishment of debt and a $5.5 million decrease in mold remediation charges, partially offset by a $16.5 million decrease in Reported Real Estate EBITDA and the fiscal 2005 net loss from the sale of businesses of $7.4 million (all as discussed further below). In addition, Corporate selling, general and administrative expenses ("Corporate SG&A"), which are allocated between each of the three segments, increased significantly in fiscal 2005 versus fiscal 2004 due primarily to first year SOX 404 compliance costs which increased by $3.2 million and increased legal costs of $4.5 million.

Mountain Segment

Mountain segment operating results for the fiscal years ended July 31, 2005, 2004 and 2003 are presented by category as follows (in thousands, except ETP):

             

Percentage Change

 

Fiscal Year Ended July 31,

 

Increase/(Decrease)

 

    2005    

 

    2004    

 

    2003       

 

2005/2004

 

2004/2003

 

----------(unaudited)----------

       
                   

Lift tickets

$    233,458

 

$    212,329

 

$    195,571

 

10.0%

 

8.6%

Ski school

63,915

 

58,526

 

55,392

 

9.2%

 

5.7%

Dining

53,688

 

51,511

 

48,333

 

4.2%

 

6.6%

Retail/rental

120,149

 

115,044

 

107,714

 

4.4%

 

6.8%

Other

       69,645

 

       63,585

 

        53,558

 

        9.5%

 

     18.7%

Total Mountain net revenue

      540,855

 

     500,995

 

      460,568

 

        8.0%

 

       8.8%

                   

Total Mountain operating expense

391,889

 

368,875

 

362,131

 

6.2%

 

1.9%

Mountain equity investment income, net

         2,303

 

        1,376

 

         1,009

 

      67.4%

 

     36.4%

Total Mountain Reported EBITDA

$    151,269

 

$     133,496

 

$     99,446

 

      13.3%

 

     34.2%

                   

Total skier visits

5,940

 

5,636

 

5,730

 

5.4%

 

(1.6)%

                   

ETP

$       39.30

 

$         37.67

 

$      34.13

 

4.3%

 

10.4%



Mountain segment revenues and Reported EBITDA have increased significantly since fiscal 2003. This increase is due primarily to increased lift revenues as a result of higher ETP and, for fiscal 2005, increased skier visits. The increases in ETP, which is lift revenue divided by skier visits, is a function of 1) increased absolute pricing for both lift tickets and season passes and 2) increased Destination guest visitation driving the purchase of higher-priced lift ticket products. The absolute price increases were supported by substantial new capital improvements, including expanded grooming and snowmaking efforts and new high-speed lifts. During fiscal 2004 and continuing in fiscal 2005, the U.S. travel industry began to recover from the effects of the terrorist attacks of September 11, 2001 and the Iraq War in fiscal 2003. As a result, the skier visit mix changed in fiscal 2004 and continued to change in fiscal 2005 compared to fiscal 2003 as the Company experienced a higher mix of Destination, including international visitors, favorably impacting skier visits and ETP. Ancillary business revenues including ski school, mountain dining and retail/rental increased consistent with the increase in lift ticket revenues for fiscal 2005 and 2004. Ski school also benefited from an increase in absolute pricing and increased market penetration. In addition to the impact from increased skier visits, retail/rental also experienced favorable results in fiscal 2005 due to additional retail locations and an increase in ecommerce. Other factors impacting revenue were: 1) the timing of Easter, which fell in March in the current fiscal year and April in fiscal 2004 and 2003, enabling the company to maximize pricing for Easter visitors in its peak month of March and 2) an unseasonably warm month of March in fiscal 2004, contributing to the decline in fiscal 2004 skier visits, partially offset by 3) the loss of an extra day of peak season operations due to the 2004 Leap Year, and the timing of the Christmas and New Year's holidays, which both fell on Saturday in fiscal 2005.

The increase in other revenue for fiscal 2005 versus fiscal 2004 is due primarily to: 1) increased private clubs revenue from dues increases, a full year of operations of the spa at The Ritz-Carlton, Bachelor Gulch and higher amortization of deferred club initiation fees due to increased memberships ($1.6 million), 2) increased allocated employee housing revenue due to the re-opening of a facility that closed in fiscal 2004 ($698,000), 3) increased commercial leasing revenue as a result of a full twelve months of increased available space and increased percentage rents ($894,000), 4) increased municipal services revenue due to expanded services in Beaver Creek and Bachelor Gulch villages ($583,000) and 5) a full year of consolidation of the Company's four employee housing entities, which were consolidated in the second quarter of fiscal 2004 ($381,000). The increases in other revenues in fiscal 2004 as compared to fiscal 2003 is primarily due to 1) consolidation of employee housing entities ($1.8 million), 2) increased revenues related to technology services ($1.7 million), 3) operations of the spa at the Ritz-Carlton, Bachelor Gulch, which opened in November 2002 ($1.5 million) and 4) increased summer visitation.

Mountain operating expense is generally not expected to increase commensurate with an increase in revenue due to the primarily fixed-cost nature of the business. However, new initiatives to expand grooming and snowmaking caused an increase in operating costs including labor, utilities and fuel for fiscal 2005. The Company also incurred incremental costs associated with the installation of additional chairlifts in fiscal 2005. In addition, fiscal 2005 allocated Corporate SG&A increased due to higher legal, first year SOX 404 compliance costs, operating costs associated with the re-opening of Breckenridge Terrace ($390,000), which was closed for the entire ski season last year and a full year of consolidation of the four employee housing entities of $513,000.

In fiscal 2004, the Company changed its cost structure by decreasing the amount of fixed costs in the Mountain segment through staffing changes, reduced marketing costs, changes in summer trail maintenance and more closely monitoring the hours of certain dining establishments. The Mountain segment also benefited from cost reductions realized in allocated Corporate SG&A expenses. These changes to the cost structure helped offset increased expenses due to the consolidation of four employee housing entities ($2.0 million), normal cost increases associated with inflation, payroll increases and energy prices as well as increased incentive compensation.

Mountain equity investment income primarily includes the Company's share of income or loss from the operations of a real estate brokerage; the increase in equity investment income is due primarily to increased commissions earned by the brokerage associated with increased real estate activity in Eagle County, including the Company's development activities in LionsHead.

Lodging Segment

Lodging segment operating results for the fiscal years ended July 31, 2005, 2004 and 2003 are presented by category as follows (dollars in thousands):

             

Percentage Change

 

Fiscal Year Ended July 31,

 

Increase/(Decrease)

 

    2005    

 

    2004    

 

    2003    

 

2005/2004

 

2004/2003

 

----------(unaudited)----------

       
                   

Total Lodging net revenue

$    196,351

 

$    180,525

 

$    172,003

 

8.8%

 

5.0%

                   

Total Lodging operating expense

177,469

 

165,983

 

161,846

 

6.9%

 

2.6%

Lodging equity investment loss, net

      (2,679)

 

      (3,432)

 

      (5,995)

 

     (21.9)%

 

      (42.8)%

Total Lodging Reported EBITDA

$     16,203

 

$     11,110

 

$      4,162

 

      45.8%

 

      166.9%

                   

Average Daily Rate ("ADR")

$     196.26

 

$     187.90

 

$     184.25

 

4.4%

 

2.0%



Lodging segment revenues and Reported EBITDA have increased significantly since fiscal 2003 as a result of improved ADR while controlling related variable expenses. Additionally, paid occupancy increased 7.2% from fiscal 2004 to fiscal 2005 and 2.4% from fiscal 2003 to fiscal 2004. The Lodging segment's non-RockResorts branded properties, which are all proximate to the Company's ski resorts, and the Company's RockResorts properties located in close proximity to the Company's ski resorts have also benefited from the increase in skier visits and increased destination guests, and have experienced an increase in group business (primarily within the Vail, Beaver Creek and Keystone properties). Management believes the increase in group business is the result of an increased focus on this segment coupled with improvements in the overall lodging industry related to economic rebound and decreased travel-related concerns. The Company's RockResorts properties not located in close proximity to its ski resorts also performed favorably in fiscal 2005 along with the overall lodging industry related to economic rebound and decreased travel-related concerns. Particularly, SRL&S's contribution to Reported EBITDA has improved significantly compared to last year ($1.2 million), primarily as a result of increased room rates and expanded property management operations. In addition, RockResorts' revenues for fiscal 2005 include a $417,000 fee related to the termination of the Casa Madrona management agreement as well as $218,000 in marketing fee revenue reimbursements from the former owners of Cheeca Lodge & Spa. GTLC, which is only open from May to October, operating performance improved by approximately $370,000 as a result of reporting incremental days of operations.

In fiscal 2004, the Company implemented new measures to reduce the Lodging segment cost structure, such as closing seasonal properties during their off-seasons and furloughing employees during slower times. These cost reductions measurably improved operating margins from fiscal 2003 to fiscal 2004, and were maintained in fiscal 2005 despite the increase in allocated Corporate SG&A expenses.

In fiscal 2005, the Company sold its minority equity interest in BG Resort and the assets constituting the Vail Marriott and Rancho Mirage. Fiscal 2005 Lodging Reported EBITDA includes revenue of $40.2 million, operating expense of $34.9 million and equity investment loss of $2.7 million related to these entities, prior to their sale. Fiscal 2004 and 2003 Lodging Reported EBITDA includes, respectively, revenue of $40.2 million and $34.9 million, expense of $35.7 million and $33.5 million and equity investment loss of $3.3 million and $5.8 million related to these entities. Commencing with the sale of the Vail Marriott and Rancho Mirage, the Company is earning management fees of approximately 3% of the hotels' revenue. The impact to Lodging Reported EBITDA from these increased management fees was not significant in fiscal 2005 due to the timing of the sale of these businesses. See Note 8, Sale of Businesses, of the Notes to Consolidated Financial Statements, for more information regarding the Company's dispositions.

The consolidation of the Employee Housing Entities as of November 1, 2003 caused a $415,000 and a $473,000 increase in Lodging revenue and Lodging operating expense, respectively, in fiscal 2004.

Lodging equity loss consists primarily of the Company's share of losses from BG Resort. As the Company sold its investment in BG Resort in December 2004, the fiscal 2005 equity loss only reflects five months of operations. Fiscal 2003 was the first year of operations of the hotel, and therefore included significant start-up costs that did not recur in fiscal 2004 or 2005.

Real Estate Segment

Real Estate segment operating results for the fiscal years ended July 31, 2005, 2004 and 2003 are presented by major categories as follows (dollars in thousands):

             

Percentage Change

 

Fiscal Year Ended July 31,

 

Increase/(Decrease)

 

    2005    

 

    2004    

 

    2003    

 

2005/2004

 

2004/2003

 

----------(unaudited)----------

       
                   

Single family land sales

$   26,922

 

$       12,602

 

$      27,496

 

113.6%

 

(54.2)%

Land sales to developers

12,751

 

20,617

 

4,987

 

(38.2)%

 

313.4%

Residential and commercial condominiums

16,835

 

5,844

 

39,647

 

188.1%

 

(85.3)%

Parking unit sales

11,684

 

--

 

--

 

100.0%

 

--%

Other

     4,589

 

          6,060

 

         8,271

 

     (24.3)%

 

    (26.7)%

Total Real Estate net revenue

   72,781

 

        45,123

 

       80,401

 

       61.3%

 

    (43.9)%

                   

Gain on transfer of property

--

 

2,147

 

--

 

(100.0)%

 

100.0%

Real Estate operating expense

58,254

 

16,791

 

66,642

 

246.9%

 

(74.8)%

Real Estate equity investment (loss) income, net

      (102)

 

            460

 

         3,962

 

    (122.2)%

 

    (88.4)%

Total Real Estate Reported EBITDA

$   14,425

 

$      30,939

 

$      17,721

 

      (53.4)%

 

      74.6%



Fluctuations in Real Estate Reported EBITDA from year to year generally are the result of changes in the product mix and number of units available for sale; land sales generally have much higher margins than condominiums. In fiscal 2004 however, a $15.1 million liability associated with capital improvement fees for Smith Creek Metropolitan District ("SCMD") was relieved (with a corresponding decrease to Real Estate operating expense) as a result of Bachelor Gulch Metropolitan District's bond issuance in fiscal 2004, the proceeds of which were used to completely pay off all of SCMD's outstanding bonds, resulting in the elimination of the capital improvement fee liability. Fiscal 2005 Real Estate revenue included revenue recognition associated with sales of single-family lots at JHG&TC, Vail, Bachelor Gulch and Red Sky Ranch, developer land sales in the Beaver Creek area, the sale of parking spaces in Vail's Founders' Garage and the sale of a warehouse facility in Avon as well as recognition of a previously deferred $2.5 million land gain associated with the sale of BG Resort in December 2004 and recognition of $2.3 million of contingent gains (included in Other) associated with a development parcel sold in fiscal 2004. Fiscal 2004 Real Estate revenue included revenue recognition associated with the sale of development parcels in Bachelor Gulch and Arrowhead, single-family lot sales at Breckenridge's Timber Trail and sales of Mountain Thunder Lodge condominiums. In addition, in fiscal 2004, the Company recorded a $2.1 million gain on the transfer of property related to executive non-cash deferred compensation (see Note 17, Non-Cash Deferred Compensation, of the Notes to Consolidated Financial Statements for more information). In fiscal 2003, Real Estate Reported EBITDA was primarily driven by the large volume of condominiums sold, primarily consisting of sales at the Mountain Thunder Lodge development and luxury condominiums at the Vail Marriott.

Real estate equity income/(loss) primarily includes the Company's share of income or loss from the operations of KRED as well as the Company's share of profit associated with the sale of condominiums at The Ritz-Carlton, Bachelor Gulch through the Company's investment in BG Resort. Of the 23 condominiums developed at The Ritz-Carlton, Bachelor Gulch, 22 were sold in fiscal 2003 and the final condominium was sold in fiscal 2004. In December 2003, KRED distributed substantially all of its assets to its members, resulting in a significant decrease in KRED's activities subsequent to the distribution.

Real Estate operating expense consists primarily of the cost of sales and related selling expenses associated with sales of real estate, and also include general and administrative expenses associated with real estate operations and an allocation of Corporate SG&A expenses. In addition to the relief of the $15.1 million SCMD liability in fiscal 2004, the Company has recorded changes in estimates that increased (decreased) reported real estate cost of sales by approximately $435,000, ($1.8 million) and $475,000 for the fiscal years ended July 31, 2005, 2004 and 2003, respectively. The changes in estimates were a result of 1) changes is the estimated percentage-of-completion on certain projects and 2) changes in the estimated costs to complete projects relating to the sale of individual parcels within a development project, including the reversal of $1.2 million of expense in fiscal 2004 relating to the remaining obligation for the construction of amenities that the Company deemed were not necessary to construct.

Other Items

In addition to segment operating results, the following material items contribute to the Company's overall financial position.

Depreciation and amortization. Depreciation and amortization expense has increased over the last two years primarily as a result of 1) the acceleration of depreciation of approximately $7.3 million for certain assets which are being retired in advance of their previously estimated useful lives as a result of fiscal 2005 decisions related to redevelopment and capital improvements, 2) an increased fixed asset base due to normal capital expenditures and 3) incremental depreciation expense of $533,000 in fiscal 2005 and $1.6 million in fiscal 2004 for the first full year associated with the consolidation of the Employee Housing Entities as of November 1, 2003, partially offset by 4) fixed asset retirements as well as assets which are still used in the Company's operations becoming fully depreciated. The average depreciation rate was 8.1%, 7.7% and 8.1% for fiscal years 2005, 2004 and 2003, respectively.

Asset impairment charges. The Company recorded a $1.6 million asset impairment charge in fiscal 2005 associated with an intangible asset related to the RockResorts call option (see Note 9, Put and Call Options, of the Notes to Consolidated Financial Statements), a $536,000 asset impairment charge associated with the termination of the Casa Madrona management agreement in May 2005 and a $440,000 asset impairment charge related to projects that were abandoned prior to completion. In fiscal 2004, the Company recorded a $1.1 million impairment charge after abandoning development of certain projects and the write-down of a warehouse facility. The Company recorded a $4.8 million impairment charge in fiscal 2003 related to an option held on certain development land near Vail due to an unexpected adverse court decision in connection with litigation involving the option. (See Note 10, Asset Impairment Charges, of the Notes to Consolidated Financial Statements.)

Mold remediation charge. In fiscal 2004, the Company expensed $5.5 million related to the estimated cost of remediation of water intrusion and condensation problems at its Breckenridge Terrace employee housing facility. See Note 13, Commitments and Contingencies, of the Notes to Consolidated Financial Statements, for more information regarding this charge.

Interest expense. The Company's primary sources of interest expense are the Credit Facility, the Industrial Development Bonds and the 6.75% Notes. The $7.2 million decrease in interest expense for fiscal 2005 compared to fiscal 2004 is due to 1) the replacement of the 8.75% Notes with the 6.75% Notes in January 2004, which resulted in a full year benefit versus six months in fiscal 2004, 2) extinguishment of the Credit Facility Term Loan in January 2005, 3) improved pricing and lower commitment fees relating to the Credit Facility refinancing in January 2005 as well as 4) an improved Funded Debt to Adjusted EBITDA ratio (as defined in the Credit Agreement) and lower average borrowings under the Credit Facility. These reductions are partially offset by the consolidation of the Employee Housing Entities under FIN 46R. Overall, interest expense decreased from fiscal 2003 to 2004 due to 1) the replacement of the 8.75% Notes with the 6.75% Notes in January 2004, 2) reduced pricing of the term loan portion of the Credit Facility and 3) lower average borrowings on the Credit Facility, partially offset by increased principal outstanding under the 6.75% Notes as compared to the 8.75% Notes and the consolidation of the Employee Housing Entities under FIN 46R. Average borrowings under the Credit Facility Revolver were $6.6 million, $22.9 million and $45.2 million in fiscal 2005, 2004 and 2003, respectively.

Loss on extinguishment of debt. The Company recorded a $612,000 debt extinguishment charge in January 2005 in connection with the refinancing of the Company's Credit Facility. The debt extinguishment charge is related to the write-off of unamortized issuance costs associated with the Credit Facility Term Loan, which was completely paid off.

The Company recorded a $37.1 million debt extinguishment charge in fiscal 2004 in connection with the tender for the 8.75% Notes. The charge included a tender premium of $65.06 per $1,000 principal amount of 8.75% Notes, which accounts for $23.8 million of the total charge. Other costs in the charge include transaction fees, the write-off of unamortized issuance costs and unamortized original issue discount on the 8.75% Notes, and other costs such as legal and printing fees. In connection with the tender for the 8.75% Notes, in January 2004 the Company issued the 6.75% Notes. The proceeds from the 6.75% Notes were used to repurchase the 8.75% Notes, and to pay associated premiums, fees and expenses. (See Note 4, Long-Term Debt, of the Notes to Consolidated Financial Statements.)

Loss on sale of businesses, net. The net $7.4 million loss consists of 1) a $10.9 million loss in the fourth quarter of fiscal 2005 associated with the sale of the assets constituting Rancho Mirage and 2) a $2.1 million loss in the fourth quarter of fiscal 2005 associated with the sale of the assets constituting the Vail Marriott offset by 3) a $5.7 million gain associated with the sale of the Company's interest in BG Resort (see Note 8, Sale of Businesses, of the Notes to Consolidated Financial Statements).

Gain/loss on put options. The value of put options fluctuates based on the estimated fair market value of the put options as of the end of each period. The net gain in fiscal 2005 was related to the decrease in the estimated fair value of the liabilities associated with the SSV and RTP put options. The net loss in fiscal 2004 was related to the increase in the estimated fair market value of the SSV and RTP put options. The net gain in fiscal 2003 was related to the decrease in the estimated fair market value of the put option that Olympus had to the Company with respect to RockResorts. See Note 9, Put and Call Options, of the Notes to Consolidated Financial Statements, for more information regarding the Company's put options.

Minority interest in income of consolidated subsidiaries. Minority interest in income of consolidated subsidiaries is a function of the performance of the Company's consolidated subsidiaries. Fiscal 2005 improvements in SSV's and SRL&S's net income is primarily responsible for the increase in minority interest in fiscal 2005. Improvement in SSV's fiscal 2004 net income is primarily responsible for the increase in minority interest in fiscal 2004.

Income taxes. The changes in the Company's effective tax rate are driven primarily by the amount of pre-tax income (loss), non-deductible executive compensation, and other non-deductible items and taxable income generated by state jurisdictions that varies from the consolidated pre-tax income (loss). The effective tax rate was 38.5%, (30.0)% and (39.1)% in fiscal 2005, 2004 and 2003, respectively. During fiscal year 2003, the Company entered into a closing agreement with the Internal Revenue Service, which successfully closed the audit of the 1995 - 1998 tax years. However, the Internal Revenue Service is currently examining the 2001 – 2003 tax years, the outcome of which is presently unknown.

 

The following table reconciles from segment Reported EBITDA to net income (loss):

 

Fiscal Year Ended

 

July 31,

 

     2005   

 

     2004   

 

    2003    

           

Mountain Reported EBITDA

$   151,269

 

$   133,496

 

$      99,446

Lodging Reported EBITDA

      16,203

 

       11,110

 

         4,162

 

Resort Reported EBITDA

167,472

 

144,606

 

103,608

Real Estate Reported EBITDA

      14,425

 

       30,939

 

       17,721

 

Total Reported EBITDA

181,897

 

   175,545

 

121,329

Depreciation and amortization

(89,968)

 

(86,377)

 

(82,242)

Asset impairment charges

(2,550)

 

(1,108)

 

(4,830)

Mold remediation charge

--

 

(5,500)

 

--

Loss on disposal of fixed assets, net

(1,528)

 

(2,345)

 

(794)

Investment income, net

2,066

 

1,886

 

2,011

Interest expense

(40,298)

 

(47,479)

 

(50,001)

Loss on extinguishment of debt

(612)

 

(37,084)

 

--

Loss from sale of businesses, net

(7,353)

 

--

 

--

Gain (loss) on put options, net

1,158

 

(1,875)

 

1,569

Other income (expense), net

50

 

(179)

 

17

Minority interest in income of consolidated subsidiaries, net

     (5,239)

 

       (4,000)

 

      (1,064)

Income (loss) before (provision) benefit for income taxes

37,623

 

(8,516)

 

(14,005)

 

(Provision) benefit for income taxes

   (14,485)

 

          2,557

 

         5,478

Net income (loss)

$    23,138

 

$     (5,959)

 

$    (8,527)



SEC Investigation Terminated

In February 2003, the SEC issued a formal order of investigation with respect to the Company. On September 19, 2005, the Central Regional Office of the SEC informed the Company that its investigation has been terminated, and that no enforcement action has been recommended regarding the Company. The Company has also been informed that no enforcement action has been recommended with respect to any present or former directors, officers or employees of the Company in regard to the matters that had been under investigation.

Liquidity and Capital Resources

Significant Sources of Cash

The Company's liquidity profile improved substantially in fiscal 2005. The Company had no borrowings under its Credit Facility and had $136.6 million of non-restricted cash, including $82.5 million which was invested in overnight securities and short term commercial paper. The Company's Funded Debt to Adjusted EBITDA ratio (as defined under the Credit Facility), which the Company considers to be a key credit statistic, improved more than half a turn over fiscal 2004, and its leverage ratio (total debt to Reported EBITDA) and net leverage ratio (total debt less cash to Reported EBITDA) also each improved by more than half a turn. In addition, the Company reduced its total long-term debt outstanding by $104.1 million from July 31, 2004 to July 31, 2005 including the complete payoff of the Credit Facility Term Loan. Several factors contributed to the improvement: 1) improved free cash flow (Resort Reported EBITDA less resort capital expenditures and applicable interest expense) generated by the Resort segment, aided by improved Resort Reported EBITDA of $22.9 million in fiscal 2005 compared to fiscal 2004; 2) reduction of interest expense of $7.2 million, 3) the Company sold two hotel properties and its investment in BG Resort for total cash proceeds of $108.4 million; 4) the Company received $21.9 million cash from stock option exercises during fiscal 2005 and 5) the pre-sales process for the Arrabelle and Gore Creek Place developments generated $43.4 million in cash received for deposits on units, which the Company will use to offset related construction costs.

In the past two fiscal years, the Company has favorably restructured its key debt instruments. In fiscal 2004, the Company completed a tender offer for the outstanding 8.75% Notes and issued the 6.75% Notes, resulting in $5.2 million annual cash interest expense savings and extending the maturity of the 6.75% Notes to fiscal 2014. The Company paid a tender premium of $23.8 million associated with the 8.75% Notes in fiscal 2004. In January 2005, the Company refinanced its Credit Facility, and in the process completely paid off the $100 million Credit Facility Term Loan. Key modifications to the Credit Facility included, among other things, the expansion of the Credit Facility revolving credit commitments to $400 million from $325 million, extension of the maturity on the Credit Facility Revolver to January 2010 from June 2007, improved pricing for interest rate margins and commitment fees, and improved flexibility in the Company's ability to make investments and distributions. There were no borrowings outstanding under the Credit Facility as of July 31, 2005.

In addition, in July 2005, Gore Creek Place, LLC ("Gore Creek"), a wholly-owned subsidiary of the Company, obtained project-specific non-recourse financing (the "Gore Creek Facility") for the construction of the Gore Creek Place development. The Gore Creek Facility is non-revolving and provides for financing up to $30 million. The Gore Creek Facility matures on July 19, 2007, and principal payments are due at the earlier of closing of sales for the Gore Creek residences or maturity. Gore Creek is an Unrestricted Subsidiary (as defined in the Credit Agreement and the indenture governing the 6.75% Notes (the "Indenture")) of the Company and is therefore not included in the covenants of the Company's Credit Facility or 6.75% Notes. In connection with the Gore Creek Facility, The Vail Corporation, a wholly-owned subsidiary of the Company, entered into a Completion Guaranty Agreement, pursuant to which The Vail Corporation guarantees the completion of the construction of the project (but not the repayment of amounts borrowed under the Gore Creek Facility), provided the lender continues to fund the construction. The Gore Creek Facility contains non-recourse provisions to the Company with respect to repayment, and upon an event of default, the lender has recourse only against Gore Creek's assets and enforcement of the Completion Guaranty Agreement. The lender does not have recourse against the assets of The Vail Corporation or any other Company subsidiary. All assets of Gore Creek are provided as collateral under the Gore Creek Facility agreement, which includes the underlying land and the advance deposits. Borrowings under the Gore Creek Facility are expected to be repaid from funds received at closing on the units sold.

In addition to continued utilization of operating cash flows (including sales of real estate) and borrowings, if necessary, under the Credit Facility, the Company expects that its near-term (less than five years) liquidity needs will also be met through borrowings under the Gore Creek Facility, obtaining additional project-specific non-recourse financing for other real estate development projects, and the expected sale of the assets constituting SRL&S. The Company cannot predict whether cash generated from stock option exercises will continue at the level generated in fiscal 2005; however, as of July 31, 2005, there were 2.4 million exercisable options outstanding with a weighted-average exercise price of $19.58 per share.

The Company also anticipates that, for the near-term, it will continue to have excess cash. Management is currently evaluating how best to utilize its excess cash reserve, which is currently invested in overnight securities and short term commercial paper. The Credit Agreement and the Indenture contain restrictions that limit the Company's ability to make investments or distributions (including the payment of dividends). In addition, the Indenture restricts how the funds from sales of businesses can be used, generally requiring the net proceeds from such transactions to be invested in capital improvements or used to tender a portion of the 6.75% Notes outstanding. The Company will not be obligated to tender a portion of the 6.75% Notes outstanding with the proceeds on asset sales to date as a result of the reinvestment of such proceeds for capital expenditures.

Significant Uses of Cash

The Company's cash needs typically include providing for operating expenditures, debt service requirements and capital expenditures for both assets to be used in operations and real estate development projects. In addition, the Company expects that beginning with the 2006 fiscal year, it will incur significant cash income tax expense (generally expected to equal its statutory income tax rate). The consolidated statement of cash flows included in the accompanying financial statements provides information with respect to the Company's historical sources and uses of cash.

As indicated in the table of contractual obligations below, the Company has significant cash commitments in the near term. These commitments are primarily related to the completion of certain real estate development projects, most notably the construction of the Gore Creek Place townhomes for an estimated $26.0 million, the Arrabelle project for an estimated $42.4 million, the JHG&TC cabins and clubhouse for an estimated $6.5 million, and $4.3 million in other commitments related to the Company's development activities in LionsHead, all of which represent obligations in the next 12 months. In addition to these projects, the Company expects to spend approximately $45 million to $55 million in the remainder of calendar 2005 on capital expenditures related to real estate development projects. The real estate capital expenditures include approximately $25 million to $30 million of costs for assets which will ultimately be capitalized as fixed assets. The Company expects real estate capital expenditures will be higher than historical levels for the near term as the Company continues development associated with Vail's New Dawn. As noted above, the Company obtained non-recourse financing to fund construction of the Gore Creek Place project; the Company expects to utilize similar financing arrangements for certain other development projects, including Arrabelle. In addition to utilizing project-specific financing, the Company also pre-sells units requiring deposits in a proposed development prior to committing to the completion of the development, thereby helping to ensure sufficient funds are available to complete the project.

The Company has historically invested significant cash in capital expenditures for its Resort operations, and expects to continue to invest significant cash in the future. The Company believes that annual capital expenditures of approximately $30 million to $40 million are necessary to sustain the appearance and level of service appropriate to the Company's Resort operations. The Company evaluates additional capital improvements based on expected strategic impacts and/or expected return on investment. An estimated $45 million to $55 million is expected to be spent during the remainder of calendar 2005 under the Company's capital plan. Primary projects are expected to include two new high-speed chairlifts (one at Beaver Creek and one at Breckenridge), and dining facility upgrades at Heavenly and Vail. The Company has not finalized its capital plan for calendar 2006. The Company plans to utilize cash flow from operations, cash on hand and, as necessary, borrowings under long-term debt to provide the cash necessary to execute its capital plan.

Principal payments on the vast majority of the Company's long-term debt ($491.3 million of the total $521.7 million debt outstanding as of July 31, 2005) are not due until fiscal 2011 and beyond. Fiscal 2006 maturities, which total $2.0 million, include $1.1 million under the SSV Facility, which was refinanced in September 2005 (See Note 4, Long-Term Debt, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report, for more information). Interest payments under the Company's fixed-rate debt will be approximately $31.2 million in fiscal 2006, assuming the debt remains at its current level.

The Company's debt service requirements can be impacted by changing interest rates as the Company had $62.0 million of variable-rate debt outstanding as of July 31, 2005. A 100-basis point change in LIBOR would cause the Company's annual interest expense to change by approximately $620,000. The fluctuation in the Company's debt service requirements, in addition to interest rate changes, may be impacted by future borrowings under its Credit Facility or other alternative financing arrangements it may enter into. The Company's long term liquidity needs are dependent upon operating results which impact the borrowing capacity under the Credit Facility, which can be mitigated by adjustments to capital expenditures, flexibility of investment activities and the ability to obtain favorable future financing. The Company manages changes in the business and economic environment by managing its capital expenditures and real estate development activities.

Covenants and Limitations

The Company must abide by certain restrictive financial covenants in relation to its bank credit facilities and the Indenture. The most restrictive of those covenants include the Funded Debt to Adjusted EBITDA ratio, Senior Debt to Adjusted EBITDA ratio, Minimum Fixed Charge Coverage ratio, Minimum Net Worth and the Interest Coverage ratio (each as defined in the underlying credit agreements). In addition, the Company's financing arrangements limit its ability to incur certain indebtedness, make certain restricted payments, make certain investments, make certain affiliate transfers and may limit its ability to enter into certain mergers, consolidations or sales of assets. The Company's borrowing availability under the Credit Facility is primarily determined by the Funded Debt to Adjusted EBITDA ratio, which is based on the Company's segment operating performance, as defined in the Credit Agreement.

The Company was in compliance with all relevant covenants in its debt instruments as of July 31, 2005. The Company expects it will meet all applicable quarterly financial tests in its debt instruments, including the Funded Debt to Adjusted EBITDA ratio, in fiscal 2006. However, there can be no assurance that the Company will meet its financial covenants. If such covenants are not met, the Company would be required to seek a waiver or amendment from the banks participating in the Credit Facility. While the Company anticipates that it would obtain such waiver or amendment, if any were necessary, there can be no assurance that such waiver or amendment would be granted, which could have a material adverse impact on the liquidity of the Company.

Capital Structure

In September 2004, the Company and Ski Partners, L.P. ("Apollo") entered into a Conversion and Registration Rights Agreement (the "Agreement"), pursuant to which Apollo converted all of its Class A common stock into the Company's common shares. Apollo distributed the shares to its partners in proportion to each partner's interest in the partnership. Apollo did not dissolve after this distribution and continues to exist as a partnership. The Company, pursuant to the Agreement, filed a shelf registration statement in November 2004 covering certain of the shares to be owned by the limited partners of Apollo. As a result of this agreement, the Company now has only one class of directors. Previously, the Class A common stock elected the Class 1 directors and the common stock elected the Class 2 directors.

Contractual Obligations

As part of its ongoing operations, the Company enters into arrangements that obligate the Company to make future payments under contracts such as lease agreements and debt agreements. Debt obligations, which total $521.7 million, are currently recognized as liabilities in the Company's consolidated balance sheet. Operating lease obligations, which total $33.5 million as of July 31, 2005, are not recognized as liabilities in the Company's consolidated balance sheet, which is in accordance with accounting principles generally accepted in the United States of America. A summary of the Company's contractual obligations at the end of fiscal 2005 is as follows:

 

Payments Due by Period (in thousands)

Contractual Obligations

Total

2006 Fiscal Year

2-3 years

4 - 5 years

More than 5 years

Long-Term Debt (1)

$  521,710

$      2,004

$  12,980

$   15,408

$  491,318 

Fixed Rate Interest (1)

289,181

31,159

61,830

59,868

136,324

Operating Leases and Service Contracts

33,491

10,354

14,393

6,356

2,388

Purchase Obligations (2)

324,604

318,005

6,599

--

--

Other Long-Term Obligations (3)

      1,742

          532

      1,210

            --

              --

Total Contractual Cash Obligations

$1,170,728

$   362,054

$ 97,012 

$ 81,632 

$  630,030

   

(1)

The fixed-rate interest payments included in the table above assume that all fixed-rate debt outstanding as of July 31, 2005 will be held to maturity. Interest payments associated with variable-rate debt have not been included in the table. Assuming that the amounts outstanding under variable-rate long-term debt as of July 31, 2005 are held to maturity, and utilizing interest rates in effect at July 31, 2005, the Company anticipates that its annual interest payments (including commitment fees and letter of credit fees) on variable rate long-tem debt as of July 31, 2005 will be in the range of $2.0 million to $4.0 million for at least the next five years. The future annual interest obligations noted herein are estimated only in relation to debt outstanding as of July 31, 2005, and do not reflect interest obligations on potential future debt, such as non-recourse financing associated with real estate development.

   

(2)

Purchase obligations include amounts which are classified as trade payables, accrued payroll and benefits, accrued fees and assessments, accrued taxes, accrued interest, and liabilities (including advances) to complete real estate projects on the Company's consolidated balance sheet as of July 31, 2005 and other obligations for goods and services not yet recorded.

(3)

Other long-term obligations include amounts which become due based on deficits in underlying cash flows of the metropolitan district as described in Note 13, Commitments and Contingencies, of the Notes to Consolidated Financial Statements.

Off Balance Sheet Arrangements

The Company does not have off balance sheet transactions that are expected to have a material effect on the Company's financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires the Company to select appropriate accounting policies and to make judgments and estimates affecting the application of those accounting policies. In applying the Company's accounting policies, different business conditions or the use of different assumptions may result in materially different amounts reported in the Consolidated Financial Statements.

The Company has identified the most critical accounting policies upon which its financial status depends. The critical principles were determined by considering accounting policies that involve the most complex or subjective decisions or assessments. The Company also has other policies considered key accounting policies; however, these policies do not meet the definition of critical accounting policies because they do not generally require us to make estimates or judgments that are complex or subjective.

Real Estate Held for Sale.

Description

The Company utilizes the relative sales value method to determine cost of sales for individual parcels of real estate or condominium units sold within a project. The determination of cost of sales under the relative sales value method utilizes significant estimates for both the ultimate total revenues to be generated and total costs to be incurred on a real estate development project. Real estate development projects generally span several years.

Additionally, the "percentage of completion" method is used for revenue recognition on real estate sales for which the Company has not completed its obligations to the buyer at the time of closing. This requires estimation of the total cost to complete the obligations to determine the amount of revenue and cost of sales to recognize on a periodic basis.

Judgments and Uncertainties

Changes to cost of sales percentages for a project based upon changes in the estimates are accounted for on a "cumulative catch-up" basis for past sales; other changes are accounted for on a prospective basis. As a result, changes in the estimates underlying the cost of sales calculation can cause significant variances in cost of sales as a percentage of revenue applied year-to-year throughout the life of a project

Effect if Actual Results Differ From Assumptions

A 10% change in the estimates for future revenues or costs yet to be incurred as of July 31, 2005 would have changed the profit margin recognized by approximately $325,000 for the fiscal year ended July 31, 2005. A 10% change in the cost to complete the projects accounted for under the percentage of completion method and recorded through fiscal 2005 would have changed cost of sales by approximately $350,000 for the fiscal year ended July 31, 2005.

Workers' Compensation.

Description

The Company is self-insured for workers' compensation for its operations in the states of Colorado and California. Workers' compensation claims are reserved based on actuarial estimates for the ultimate development of existing claims and claims incurred but not yet reported.

Judgments and Uncertainties

Variances in actual claims experience versus the actuarial reserve can affect the timing of workers' compensation expense between fiscal years.

Effect if Actual Results Differ From Assumptions

A 10% change in the estimated development factors for fiscal 2005 claims would have changed fiscal 2005 workers' compensation expense recognized by approximately $430,000.

Deferred Club Initiation Fees.

Description

Revenues from club initiation fees are initially deferred and recognized over the expected life of the club facilities.

Judgments and Uncertainties

The life of the club facilities is an estimate determined by management based on consideration of standard building life estimates. Changes in the estimates of the club facilities' lives do not impact the aggregate amount of club related revenues recognized; however, the changes would impact the timing of the revenue recognition. If an estimate is changed, the remaining club revenues would be recognized in a straight-line pattern over the new estimated remaining life of the club facilities.

Effect if Actual Results Differ From Assumptions

If the estimated remaining lives of all of the Company's private club facilities were shortened by five years as of August 1, 2004, fiscal 2005 revenue would have increased approximately $103,000. Similarly, if the estimated lives had been extended by five years as of August 1, 2004, fiscal 2005 revenue would have decreased approximately $97,000.

Intangible Assets.

Description

The Company frequently obtains intangible assets, including goodwill, primarily through business combinations. The assignment of value to individual intangible assets generally requires the assistance of a specialist, such as an appraiser. The assumptions used in the appraisal process are forward-looking, and thus are subject to significant interpretation. Because individual intangible assets (i) may be expensed immediately upon acquisition; (ii) amortized over their estimated useful life; or (iii) not amortized, the assigned values and lives, when applicable, could have a material effect on current and future period results of operations. Further, intangibles are subject to certain judgments when evaluating impairment pursuant to Statement of Financial Accounting Standards No. 142, "Goodwill and Intangible Assets", discussed further in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements. The Company tests goodwill and indefinite lived intangible assets annually for impairment under SFAS No. 142 as of May 1, or whenever events may indicate a possible impairment exists. Future operating results could dictate significant future non-cash impairment charges.

Judgments and Uncertainties

The Company determines fair value using current market values and widely accepted valuation techniques, including discounted cash flows and a royalty rate model. These types of analyses require the Company to make certain assumptions and estimates regarding economic factors and the future operating results of certain business operations.

Effect if Actual Results Differ From Assumptions

The Company completed the annual impairment testing of intangible assets in the fourth quarter of fiscal 2005, which resulted in no impairment being recorded, using the methodology described herein. A 10% decrease in the estimated fair value of the goodwill and intangible assets tested would not have had a significant impact on the test results.

Income Taxes.

Description

The Company is required to estimate its income taxes in each jurisdiction in which it operates. This process requires the Company to estimate the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These temporary differences result in deferred tax assets and liabilities on the Company's consolidated balance sheets. The Company must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent recovery is not likely, must establish a valuation allowance. This assessment is complicated by the fact that the Company files its tax return on a calendar year basis which is different from its fiscal year end. As of July 31, 2005, the Company had total deferred tax assets of $60.3 million (before valuation allowances) and total deferred tax liabilities of $118.5 million. The net deferred tax asset contains a valuation allowance representing the portion that management does not believe will be recovered from future taxable income. Management believes that sufficient taxable income will be generated in the future, primarily through the reversal of the deferred tax liabilities, to realize the benefit of the Company's deferred tax assets for which valuation allowances have not been recorded against.

Judgments and Uncertainties

The Company has approximately $15.5 million (tax-effected) of net operating loss and other carryforwards and credits as of July 31, 2005 for which it has not recorded a valuation allowance against. The Company is primarily relying on the reversal of deferred tax liabilities to utilize these carryforwards and credits.

Effect if Actual Results Differ From Assumptions

If the Company were to incur substantial tax losses for a number of years, the carryforwards and credits for which it has not recorded a valuation allowance against could expire without being utilized resulting in an increased tax expense in the period that the Company believes that it more likely than not the carryforwards or credits will not be realized.

Tax Contingencies.

Description

The Company is subject to periodic review by domestic tax authorities for audit of the Company's income tax returns. These audits generally include questions regarding the Company's tax filing positions, including the amount and timing of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposures associated with the Company's various tax filing positions, including state and local taxes, the Company recorded reserves for probable exposure. A significant amount of time may pass before a particular matter, for which the Company may have established a reserve, is audited and fully resolved. As of the end of fiscal 2005, three open years (2001 – 2003) were undergoing examination by the Internal Revenue Service.

Judgments and Uncertainties

The estimates of the Company's tax contingencies reserve contains uncertainty because management must use judgment to estimate the potential exposure associated with the Company's various filing positions.

Effect if Actual Results Differ From Assumptions

Although management believes that the estimates and judgments discussed herein are reasonable and it has adequate reserves for its tax contingencies, actual results could differ, and the Company may be exposed to increases or decreases in those reserves that could be material.

To the extent the Company prevails in matters for which reserves have been established, or is required to pay amounts in excess of the Company's reserve, the Company's effective tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would require the use of cash and could possibly result in an increased tax expense and effective tax rate in the year of resolution. A favorable tax settlement could possibly result in a reduction in the Company's tax expense and effective tax rate in the year of resolution.

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS 123R, which replaces SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees". SFAS 123R requires the measurement of all employee share-based compensation arrangements to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in the consolidated statements of operations. The accounting provisions of SFAS 123R are effective for fiscal years beginning after June 15, 2005, with early adoption permitted. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition.

SFAS 123R permits public companies to adopt its requirements using one of two methods. Under the "modified prospective" method, compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123R for all share-based compensation arrangements granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date. The "modified retrospective" method includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures for either (a) all prior periods presented or (b) prior interim periods of the year of adoption. The Company plans to adopt SFAS 123R using the modified prospective method.

As permitted by SFAS 123, the Company currently accounts for share-based compensation arrangements to employees using APB 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123R's fair value method will impact the Company's results of operations, although it will have no impact on the Company's overall financial position. The adoption of SFAS 123R will increase the Company's operating expenses by approximately $3.5 million, $2.2 million and $270,000 for the years ended July 31, 2006, 2007 and 2008, respectively, for options that remain unvested as of July 31, 2005. The full impact of adoption of SFAS 123R cannot be reasonably estimated at this time because it will depend on levels and type of share-based compensation arrangements in the future, along with the valuation model used and related assumptions. However, had the Company adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income (loss) per share in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements.  In September 2005, the Company granted approximately 163,850 shares of restricted stock and options to purchase approximately 442,500 shares of common stock at an exercise price of $28.08 per share.  The vesting period for the restricted stock ranges from one to three years, and the vesting period for the stock options is three years.  The Company is currently evaluating the effect these share-based compensation arrangements will have on its future results of operations.

Inflation

Although the Company cannot accurately determine the precise effect of inflation on its operations, management does not believe inflation has had a material effect on the results of operations in the last three fiscal years. When the costs of operating resorts increase, the Company generally has been able to pass the increase on to its customers. However, there can be no assurance that increases in labor and other operating costs due to inflation will not have an impact on the Company's future profitability.

Seasonality and Quarterly Results

The Company's Mountain and Lodging operations are seasonal in nature. In particular, revenues and profits for the Company's Mountain and most of its Lodging operations are substantially lower and historically result in losses from late spring to late fall. Conversely, peak operating seasons for GTLC, certain managed hotel properties and the Company's owned golf courses occur during the summer months while the winter season generally results in operating losses. However, revenues and profits generated by GTLC's summer operations, management fees from those managed properties and golf operations are not sufficient to fully offset the Company's off-season losses from its Mountain and other Lodging operations. During the 2005 fiscal year, 77.3% of total combined Mountain and Lodging revenues were earned during the second and third fiscal quarters. Quarterly results may also be materially affected by the timing of snowfall and other unforeseen external factors. Therefore, the operating results for any three-month period are not necessarily indicative of the results that may be achieved for any subsequent fiscal quarter or for a full fiscal year. (See Note 15, Selected Quarterly Financial Data, of the Notes to Consolidated Financial Statements).

Economic Downturn

Skiing, travel and tourism are discretionary recreational activities that can be adversely affected by a significant economic slowdown, which, in turn, could reduce the Company's operating results. There can be no assurance that a continued or future decrease in the amount of discretionary spending by the public would not have an adverse effect on the Company.

Unfavorable Weather Conditions

The ability to attract visitors to ski resorts is influenced by weather conditions and by the amount and timing of snowfall during the ski season. Unfavorable weather conditions can adversely affect skier visits and the Company's revenues and profits. In the past 20 years, the Company's Colorado ski resorts have averaged between 20 and 30 feet of annual snowfall and Heavenly receives average yearly snowfall of between 25 and 35 feet, significantly in excess of the average for United States ski resorts. However, there is no assurance that the Company's resorts will receive seasonal snowfalls near the historical average in the future. Also, the early season snow conditions and skier perceptions of early season snow conditions influence the momentum and success of the overall season. In addition, a severe and prolonged drought could affect our otherwise adequate snowmaking water supplies. Unfavorable weather conditions such as drought, hurricanes, tropical storms and tornadoes can adversely affect the Company's other resorts and lodging properties as vacationers tend to delay or postpone vacations if weather conditions differ from those that typically prevail at such resorts for a given season. There is no way for the Company to predict future weather patterns or the impact that weather patterns may have on results of operations or visitation. To some extent, the Company mitigates against impacts from weather through the sales of season passes.

Labor Market

The Company's Mountain and Lodging operations are largely dependent on a seasonal workforce. The Company recruits worldwide to fill staffing needs each season and utilizes visas to enable the use of foreign workers. In addition, the Company manages seasonal wages and the timing of the hiring process to ensure the appropriate workforce is in place. While the Company does not currently foresee the need to increase seasonal wages to attract employees, the Company cannot guarantee that such an increase will not be necessary in the future. In addition, the Company cannot guarantee that it will be able to obtain the visas necessary to hire foreign workers who are an important source for the seasonal workforce. Increased seasonal wages or an inadequate workforce could have an adverse impact on the Company's results of operations; however, the Company is unable to predict with any certainty whether such situations will arise or the potential impact on results of operations.

Terrorist Acts upon the United States and Acts of War

The terrorist acts carried out against the United States on September 11, 2001 and the war with Iraq and its aftermath have had an adverse effect on the global travel and leisure industry. Additional terrorist acts against the United States and the threat of or actual war by or upon the United States could result in further degradation of discretionary travel, upon which the Company's operations are highly dependent. Such degradation could have a material adverse impact on the Company's results of operations.

Cautionary Statement

Statements in this Form 10-K, other than statements of historical information, are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as "may", "will", "expect", "plan", "intend", "anticipate", "believe", "estimate", and "continue" or similar words. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Such risks and uncertainties include, but are not limited to:

Readers are also referred to the uncertainties and risks identified elsewhere in this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk. The Company's exposure to market risk is limited primarily to the fluctuating interest rates associated with variable rate indebtedness. At July 31, 2005, the Company had $62.0 million of variable rate indebtedness, representing 11.9% of the Company's total debt outstanding, at an average interest rate during fiscal 2005 of 9.3%. The Company's average interest rate includes letter of credit fees, unused fees and deferred financing charges (see Note 4, Long-Term Debt, of the Notes to Consolidated Financial Statements). Based on floating-rate borrowings outstanding as of July 31, 2005, a 100-basis point change in LIBOR would have caused the Company's annual interest expense to change by $620,000, respectively. The Company's market risk exposure fluctuates based on changes in underlying interest rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Vail Resorts, Inc.

Consolidated Financial Statements for the Years Ended July 31, 2005, 2004 and 2003

Management's Report on Internal Control Over Financial Reporting

F-2

   

Report of Independent Registered Public Accounting Firm

F-3

   

Consolidated Financial Statements

 
 

Consolidated Balance Sheets

F-5

 

Consolidated Statements of Operations

F-6

 

Consolidated Statements of Stockholders' Equity

F-7

 

Consolidated Statements of Cash Flows

F-8

 

Supplemental Schedule of Non-Cash Transactions

F-9

 

Notes to Consolidated Financial Statements

F-10

   

Financial Statement Schedule:

 
 

The following consolidated financial statement schedule of the Company is filed as part of this Report on Form 10-K and should be read in conjunction with the Company's Consolidated Financial Statements:

 
 

Schedule II Valuation and Qualifying Accounts

47



Management's Report on Internal Control over Financial Reporting

Management of Vail Resorts Inc. ("the Company") is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles of the United States of America.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, including the Company's Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial reporting as of July 31, 2005. In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of July 31, 2005, the Company's internal control over financial reporting was effective.

The Company's independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited management's assessment of the effectiveness of the Company's internal control over financial reporting as of July 31, 2005, as stated in their report which appears herein.

 

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

of Vail Resorts, Inc.:

We have completed an integrated audit of Vail Resorts, Inc.'s 2005 consolidated financial statements and of its internal control over financial reporting as of July 31, 2005 and audits of its 2004 and 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Vail Resorts, Inc. and its subsidiaries at July 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 7 to the accompanying consolidated financial statements, the Company adopted FASB Interpretation No. 46 "Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51, Revised" during the year ended July 31, 2004.

Internal control over financial reporting

Also, in our opinion, management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting that the Company maintained effective internal control over financial reporting as of July 31, 2005 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

/s/ PricewaterhouseCoopers, LLP

Denver, Colorado

October 4, 2005

 

 

Vail Resorts, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)

   

July 31,

   

      2005     

 

      2004     

         

Assets

       

Current assets:

       
 

Cash and cash equivalents

 

$   136,580

 

$    46,328

 

Restricted cash

 

18,253

 

16,031

 

Trade receivables, net of allowances of $1,335 and $1,265, respectively

 

33,136

 

31,915

 

Income taxes receivable

 

--

 

5,042

 

Inventories, net of reserves of $719 and $738, respectively

 

36,078

 

31,151

 

Deferred income taxes (Note 11)

 

11,405

 

12,077

 

Other current assets

 

20,697

 

13,193

 

Assets held for sale (Note 2)

 

     26,735

 

          --

   

Total current assets

 

282,884

 

155,737

Property, plant and equipment, net (Note 5)

 

843,047

 

968,772

Real estate held for sale and investment

 

154,874

 

134,548

Deferred charges and other assets

 

23,172

 

31,311

Notes receivable

 

9,463

 

13,296

Goodwill, net (Note 5)

 

135,507

 

145,090

Intangible assets, net (Note 5)

 

     76,974

 

     85,203

 

Total assets

 

$1,525,921

 

$1,533,957

         

Liabilities and Stockholders' Equity

       

Current liabilities:

       
 

Accounts payable and accrued expenses (Note 5)

 

$  209,369

 

$ 198,868

 

Income taxes payable

 

     12,979

 

          --

 

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

 

       2,004

 

      3,159

 

Total current liabilities

 

224,352

 

202,027

Long-term debt (Note 4)

 

519,706

 

622,644

Other long-term liabilities (Note 5)

 

140,421

 

97,616

Deferred income taxes (Note 11)

 

71,209

 

79,745

Commitments and contingencies (Note 13)

 

--

 

--

Put option liabilities (Note 9)

 

34

 

3,657

Minority interest in net assets of consolidated subsidiaries

 

29,670

 

37,105

Stockholders' equity:

       
 

Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued and outstanding

 

--

 

--

 

Common stock:

       
 

Class A common stock, convertible to common stock, $0.01 par value, zero shares authorized and outstanding as of July 31, 2005, and 20,000,000 shares authorized and 6,114,834 shares issued and outstanding as of July 31, 2004 (Note 16)

 

--

 

61

 

Common stock, $0.01 par value, 100,000,000 and 80,000,000 shares authorized, respectively, and 36,596,193 and 29,222,828 shares issued and outstanding, respectively

 

366

 

292

Additional paid-in capital

 

442,527

 

416,660

Deferred compensation

(329)

(677)

Retained earnings

 

     97,965

 

    74,827

 

Total stockholders' equity

 

    540,529

 

   491,163

 

Total liabilities and stockholders' equity

 

$1,525,921

 

$1,533,957



The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

Vail Resorts, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)

 

Year Ended

 

July 31,

 

    2005    

 

    2004    

 

    2003    

Net revenue:

         
 

Mountain

$  540,855

 

$  500,995

 

$  460,568

 

Lodging

196,351

 

180,525

 

172,003

 

Real estate

    72,781

 

    45,123

 

    80,401

 

Total net revenue

809,987

 

726,643

 

712,972

Operating expense:

         
 

Mountain

391,889

 

368,875

 

362,131

 

Lodging

177,469

 

165,983

 

161,846

 

Real estate

    58,254

 

    16,791

 

    66,642

Total segment operating expense

627,612

 

551,649

 

590,619

Other operating income (expense):

         
 

Gain on transfer of property, net

--

 

2,147

 

--

 

Depreciation and amortization

(89,968)

 

(86,377)

 

(82,242)

 

Asset impairment charges (Note 10)

(2,550)

 

(1,108)

 

(4,830)

 

Mold remediation charge (Note 13)

--

 

(5,500)

 

--

 

Loss on disposal of fixed assets, net

    (1,528)

 

    (2,345)

 

       (794)

Income from operations

88,329

 

81,811

 

34,487

Mountain equity investment income, net

2,303

 

1,376

 

1,009

Lodging equity investment loss, net

(2,679)

 

(3,432)

 

(5,995)

Real estate equity investment (loss) income, net

(102)

 

460

 

3,962

Investment income, net

2,066

 

1,886

 

2,011

Interest expense

(40,298)

 

(47,479)

 

(50,001)

Loss on extinguishment of debt

(612)

 

(37,084)

 

--

Loss from sale of businesses, net (Note 8)

(7,353)

 

--

 

--

Gain (loss) on put options, net (Note 9)

1,158

 

(1,875)

 

1,569

Other income (expense), net

50

 

(179)

 

17

Minority interest in income of consolidated subsidiaries, net

     (5,239)

 

     (4,000)

 

     (1,064)

 

Income (loss) before (provision) benefit for income taxes

37,623

 

(8,516)

 

(14,005)

(Provision) benefit for income taxes (Note 11)

    (14,485)

 

      2,557

 

       5,478

 

Net income (loss)

$    23,138

 

$   (5,959)

 

$ (8,527)

           

Per share amounts (Note 3):

         
 

Basic net income (loss) per share

$        0.65

 

$     (0.17)

 

$     (0.24)

 

Diluted net income (loss) per share

$        0.64

 

$     (0.17)

 

$     (0.24)

             


The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

Vail Resorts, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)

 

                          Common Stock                          

 

Additional

Paid-in

Capital

 

Deferred Compensation

 

Retained

Earnings

 

Total Stockholders' Equity

 

               Shares               

                   
 

Class A

 

Common

 

Total

 

Amount

               
                               

Balance, July 31, 2002

7,439,834

 

27,714,220

 

35,154,054

 

$      351

 

$  415,688

 

$         (1,348)

 

$    89,313

 

$       504,004

 

Net loss

--

 

--

 

--

 

--

 

--

 

--

 

(8,527)

 

(8,527)

 

Amortization of deferred compensation

--

 

--

 

--

 

--

 

--

 

1,346

 

--

 

1,346

 

Issuance of shares pursuant to options exercised (Note 18)

--

 

30,727

 

30,727

 

--

 

498

 

--

 

--

 

498

 

Purchase of stock pursuant to issuance of restricted shares, net

--

 

90,095

 

90,095

 

1

 

(1,163)

 

--

 

--

 

(1,162)

 

Tax effect of stock option exercises

--

 

--

 

--

 

--

 

87

 

--

 

--

 

87

 

Forfeiture of unvested restricted stock granted

--

 

--

 

--

 

--

 

(58)

 

58

 

--

 

--

 

Restricted stock granted

              --

 

          --

 

                --

 

            --

 

           254

 

             (254)

 

              --

 

                   --

Balance, July 31, 2003

7,439,834

 

27,835,042

 

35,274,876

 

352

 

415,306

 

(198)

 

80,786

 

496,246

 

Net loss

--

 

--

 

--

 

--

 

--

 

--

 

(5,959)

 

(5,959)

 

Conversion of Class A shares to common shares

(1,325,000)

 

1,325,000

 

--

 

--

 

--

 

--

 

--

 

--

 

Amortization of deferred compensation

--

 

--

 

--

 

--

 

--

 

250

 

--

 

250

 

Issuance of shares pursuant to options exercised (Note 18)

--

 

62,786

 

62,786

 

1

 

561

 

--

 

--

 

562

 

Tax effect of stock option exercises

--

 

--

 

--

 

--

 

64

 

--

 

--

 

64

 

Restricted stock granted

              --

 

          --

 

                --

 

            --

 

           729

 

             (729)

 

              --

 

                   --

Balance, July 31, 2004

6,114,834

 

29,222,828

 

35,337,662

 

353

 

416,660

 

(677)

 

74,827

 

491,163

 

Net income

--

 

--

 

--

 

--

 

--

 

--

 

23,138

 

23,138

 

Conversion of Class A shares to common shares (Note 16)

(6,114,834)

 

6,114,834

 

--

 

--

 

--

 

--

 

--

 

--

 

Amortization of deferred compensation

--

 

--

 

--

 

--

 

--

 

348

 

--

 

348

 

Issuance of shares pursuant to options exercised and issuance of restricted shares (Note 18)

--

 

1,258,531

 

1,258,531

 

13

 

21,928

 

--

 

--

 

21,941

 

Tax effect of stock option exercises

             --

 

          --

 

                --

 

            --

 

       3,939

 

                 --

 

             --

 

         3,939

Balance, July 31, 2005

             --

 

36,596,193

 

 36,596,193

 

$     366

 

$   442,527

 

$           (329)

 

$   97,965

 

$    540,529



The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

Vail Resorts, Inc.
Consolidated Statements of Cash Flows
(In thousands)

 

Year Ended July 31,

 

     2005    

 

     2004    

 

     2003    

Cash flows from operating activities:

         
 

Net income (loss)

$  23,138

 

$ (5,959)

 

$ (8,527)

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

         
 

Depreciation and amortization

89,968

 

86,377

 

82,242

 

Non-cash cost of real estate sales

38,425

 

(1,654)

 

45,473

 

Non-cash gain on transfer of property

--

 

(2,147)

 

--

 

Asset impairment charges

2,550

 

1,108

 

4,830

 

Mold remediation charge

--

 

5,500

 

--

 

Loss on sale of businesses, net

7,353

 

--

 

--

 

Cash received from private club membership sales

8,324

 

8,358

 

19,652

 

Loss on extinguishment of debt

612

 

37,084

 

--

 

Deferred income taxes, net

(7,514)

 

(1,018)

 

4,275

 

Minority interest in net income of consolidated subsidiaries

5,239

 

4,000

 

1,064

 

Other non-cash (income) expense, net

(2,996)

 

5,956

 

7,545

 

Changes in assets and liabilities:

         
 

Restricted cash

(2,222)

 

(4,965)

 

1,789

 

Accounts receivable

(3,665)

 

7,254

 

(83)

 

Notes receivable

4,052

 

1,685

 

3,928

 

Inventories

(5,074)

 

605

 

570

 

Accounts payable and accrued expenses

26,443

 

20,512

 

5,974

 

Income taxes receivable/payable

21,960

 

6,940

 

(17,201)

 

Real estate deposits

29,755

 

11,453

 

7,128

 

Other assets and liabilities, net

     (16,007)

 

      (152)

 

  (4,089)

 

Net cash provided by operating activities

220,341

 

180,937

 

154,570

Cash flows from investing activities:

         
 

Capital expenditures

(79,975)

 

(62,960)

 

(106,338)

 

Investments in real estate

(72,164)

 

(27,802)

 

(22,572)

 

Distributions from joint ventures

6,588

 

4,849

 

3,120

 

Cash received from disposal of fixed assets

     2,019

 

2,658

 

635

 

Cash received from sale of businesses

108,399

 

--

 

--

 

Purchase of minority interests

(9,748)

 

--

 

--

 

Other investing

           --

 

      (110)

 

    (5,568)

 

Net cash used in investing activities

(44,881)

 

(83,365)

 

(130,723)

Cash flows from financing activities:

         
 

Proceeds from borrowings under 6.75% Notes

--

 

390,000

 

--

 

Payment of tender and call of 8.75% Notes

--

 

(360,000)

 

--

 

Payment of tender premium

--

 

(23,825)

 

--

 

Payment of financing costs

    (1,774)

 

(6,828)

 

(3,854)

 

Payment of Credit Facility Term Loan

(98,750)

 

(1,000)

 

(250)

 

Proceeds from borrowings under other long-term debt

176,423

 

173,253

 

458,446

 

Payments of other long-term debt

(181,239)

 

(234,234)

 

(482,997)

 

Distributions from joint ventures to minority shareholders

(1,807)

 

(1,474)

 

(926)

 

Proceeds from the exercise of stock options

    21,939

 

      562

 

     498

 

Net cash used in financing activities

  (85,208)

 

   (63,546)

 

 (29,083)

 

Net increase (decrease) in cash and cash equivalents

90,252

 

34,026

 

(5,236)

 

Net increase in cash due to adoption of FIN 46R

--

 

4,428

 

--

Cash and cash equivalents:

         
 

Beginning of period

   46,328

 

    7,874

 

   13,110

 

End of period

$ 136,580

 

$  46,328

 

$   7,874

           

Cash paid for interest, net of amounts capitalized

$  38,158

 

$  38,578

 

$  46,244

Taxes paid, net of refunds received

--

 

(8,827)

 

7,703



The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

Vail Resorts, Inc.
Supplemental Schedule of Non-Cash Transactions

(In thousands)

 

Year Ended

 

July 31,

 

    2005    

 

    2004    

 

    2003    

 

Distributions (net of liabilities assumed) from KRED

$             --

 

$   25,600

 

$           --

 

Capital leases entered into for operating fixed assets

--

 

1,312

 

--

 

Increase in assets due to adoption of FIN 46R

--

 

49,860

 

--

 

Increase in liabilities due to adoption of FIN 46R

--

 

48,972

 

--

           


The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.


Notes to Consolidated Financial Statements

1.  Organization and Business

Vail Resorts, Inc. ("Vail Resorts") is organized as a holding company and operates through various subsidiaries. Vail Resorts and its subsidiaries (collectively, the "Company") currently operate in three business segments: Mountain, Lodging and Real Estate. In the Mountain segment, the Company owns and operates five world-class ski resorts and related amenities at Vail, Breckenridge, Keystone and Beaver Creek mountains in Colorado and the Heavenly Ski Resort ("Heavenly") in the Lake Tahoe area of California and Nevada. The Company also holds a 61.7% interest in SSI Venture LLC ("SSV"), a retail/rental company. In the Lodging segment, the Company owns and operates various hotels, RockResorts International LLC ("RockResorts"), a luxury hotel management company, and Grand Teton Lodge Company ("GTLC"), which operates three resorts within Grand Teton National Park (under a National Park Service concessionaire contract) and the Jackson Hole Golf & Tennis Club in Wyoming. Vail Resorts Development Company ("VRDC"), a wholly-owned subsidiary of the Company, conducts the operations of the Company's Real Estate segment. The Company's Mountain and Lodging businesses are seasonal in nature with peak operating seasons from mid-November through mid-April. The Company's operations at GTLC generally run from mid-May through mid-October. The Company also has non-majority owned investments in various other entities, some of which are consolidated (see Note 6, Investments in Affiliates and Note 7, Variable Interest Entities).

2.  Summary of Significant Accounting Policies

Principles of Consolidation-- The accompanying Consolidated Financial Statements include the accounts of the Company, its majority-owned subsidiaries and all variable interest entities for which the Company is the primary beneficiary. Investments in which the Company does not have a controlling interest or is not the primary beneficiary are accounted for under the equity method. All significant intercompany transactions have been eliminated in consolidation.

Cash and Cash Equivalents-- The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Restricted Cash-- Restricted cash represents amounts held as state-regulated reserves for self-insured workers' compensation claims, owner and guest advance deposits held in escrow for lodging reservations and certain deposits received from real estate transactions. The workers' compensation reserve, which was $11.9 million at July 31, 2005, is invested in money market accounts, highly liquid U.S. Treasury and similar-grade obligations, in accordance with reserve restrictions.

Trade and Notes Receivable-- The Company records trade accounts receivable in the normal course of business related to the sale of products or services. The Company charges interest on past due accounts at a rate of 18% per annum. The allowance for doubtful accounts is based on a specific reserve analysis and on a percentage of accounts receivable, and takes into consideration such factors as historical write-offs, the economic climate and other factors that could affect collectibility. Write-offs are evaluated on a case by case basis. Delinquency status on accounts receivable is based on contractual terms.

Inventories-- The Company's inventories consist primarily of purchased retail goods, food and beverage items, and spare parts. Inventories are stated at the lower of cost or fair value, determined using primarily an average weighted cost method. The Company records a reserve for estimated shrinkage and obsolete or unusable inventory.

Property, Plant and Equipment-- Property, plant and equipment is carried at cost net of accumulated depreciation. Routine repairs and maintenance are expensed as incurred. Expenditures that improve the functionality of the related equipment or extend the useful life are capitalized. When property, plant and equipment is retired or otherwise disposed of, the related gain or loss is included in operating income. Depreciation is calculated on the straight-line method generally based on the following useful lives:

 

Estimated Life

 

       in Years       

   

Land improvements

20

Buildings and building improvements

15-30

Machinery and equipment

3-30

Furniture and fixtures

3-10

Vehicles

3



In November 2002, after a review of the useful lives of the Company's assets, management changed the depreciable lives of buildings to 30 years from 40 years. The Company believes 30 years to be a more appropriate estimate. The change increased depreciation expense by approximately $450,000 per quarter.

The Company capitalizes interest on non-real estate construction projects expected to take longer than one year to complete and cost more than $1 million. The Company records capitalized interest once construction activities commence. The Company did not capitalize interest on projects during fiscal years 2005 and 2004. Interest capitalized on non-real estate projects during fiscal year 2003 totaled $405,000.

The Company has certain assets being used in resort operations that were constructed as amenities in conjunction with real estate development and included in project costs and expensed as the real estate was sold. Accordingly, there is no carrying value and no related depreciation expense related to these assets in the Company's Consolidated Financial Statements. These assets were primarily placed in service from 1995 to 1997 with an original cost of approximately $33 million and an average estimated useful life of 15 years.

Real Estate Held for Sale-- The Company capitalizes as land held for sale the original acquisition cost, direct construction and development costs, property taxes, interest incurred on costs related to land under development and other related costs (engineering, surveying, landscaping, etc.) until the property reaches its intended use. The cost of sales for individual parcels of real estate or condominium units within a project is determined using the relative sales value method. Sales and marketing expenses are charged against income in the period incurred. Sales commission expenses are charged against income in the period that the related revenues are recorded. The Company capitalizes interest on real estate projects expected to take longer than one year to complete and cost more than $1 million. The Company records capitalized interest once construction activities commence and real estate deposits have been used. Interest capitalized on real estate development projects during fiscal years 2005 and 2003 totaled approximately $14,000 and $849,000, respectively. No interest was capitalized on real estate development projects in fiscal 2004.

The Company is a member in KRED, which is a joint venture with Intrawest Resorts, Inc. formed to develop land at the base of Keystone Mountain. The Company contributed 500 acres of development land as well as certain other funds to the joint venture. The Company's investment in KRED, including the Company's equity earnings from the inception of KRED, is reported as "real estate held for sale and investment" in the accompanying consolidated balance sheets as of July 31, 2005 and 2004. In December 2003, KRED distributed a majority of its assets to its members. The Company received a non-cash distribution of $25.6 million (net of assumed liabilities of $14.0 million) under the distribution. The Company primarily received various parcels of developable land and approximately 91,000 square feet of commercial space in the distribution. There was no gain or loss recorded upon distribution. The Company recorded equity (loss)/income of ($102,000), $99,000 and $1.0 million for the fiscal years ended July 31, 2005, 2004 and 2003, respectively, related to KRED.

Assets Held for Sale-- During the fourth quarter of fiscal 2005, the Company entered into a process to market the assets constituting SRL&S for sale in accordance with the Company's strategy to reduce certain hotel ownership in favor of increasing its managed property portfolio. The Company expects to sell the assets constituting SRL&S during fiscal 2006. As a result, the Company has classified $26.7 million of long-term assets, including $26.5 million of net property, plant and equipment and $185,000 of goodwill, as "assets held for sale" in the accompanying consolidated balance sheet as of July 31, 2005.

Deferred Financing Costs-- Costs incurred with the issuance of debt securities are included in deferred charges and other assets, net of accumulated amortization. Amortization is charged to interest expense over the respective lives of the applicable debt issues.

Interest Rate Agreements-- In October 2000, the Company canceled certain interest-rate swap agreements in exchange for a cash payment of $1.1 million. The $1.1 million gain was deferred and recognized over the remaining life of the related debt, in accordance with Financial Accounting Standards Board ("FASB") Emerging Issues Task Force Issue No. 84-7, "Termination of Interest Rate Swaps". The Company had recognized the full $1.1 million gain related to the cancellation of the Swap Agreements as of July 31, 2003.

Goodwill and Intangible Assets-- The Company has classified as goodwill the cost in excess of fair value of the net assets of companies acquired in purchase transactions. The Company's major intangible asset classes are trademarks, water rights, customer lists, property management contracts, intellectual property, United States Forest Service permits, franchise agreements and excess reorganization value. As proscribed in Statement of Financial Accounting Standards No. 142, "Goodwill and Intangible Assets" goodwill and certain indefinite lived intangible assets, including excess reorganization value and certain trademarks, are no longer amortized, but are subject to annual impairment testing. The Company tests annually for impairment under SFAS No. 142 as of May 1; the Company determined that there was no impairment to goodwill and intangible assets during fiscal years 2005, 2004 and 2003.

Long-lived Assets-- The Company evaluates potential impairment of long-lived assets and long-lived assets to be disposed of in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 establishes procedures for the review of recoverability and measurement of impairment, if necessary, of long-lived assets held and used by an entity. SFAS No. 144 requires that those assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. SFAS No. 144 requires that long-lived assets to be disposed of be reported at the lower of carrying amount or fair value less estimated selling costs. See Note 10, Asset Impairment Charges, for more information related to impaired long-lived assets.

Revenue Recognition-- Mountain and Lodging revenues are derived from a wide variety of sources, including, among other things, sales of lift tickets, ski school tuition, food and beverage operations, retail sales, equipment rental, hotel operations, property management services, private club dues, technology services, and golf course greens fees, and are recognized as products are delivered or services are performed. Revenues from private club initiation fees are recognized over the estimated life of the club facilities. Revenues from arrangements with multiple deliverables are bifurcated into units of accounting based on relative fair values and revenue is separately recognized for each unit of accounting. If a fair market value cannot be established for an arrangement, revenue is deferred until all deliverables have been performed.

Revenues from real estate primarily involve the sale of single-family homesites, condominiums/townhomes, and undeveloped land parcels. Revenue is not recognized until a sale is fully consummated as evidenced by 1) a binding contract, 2) receipt of consideration (generally the Company receives full cash payment upon closing) and 3) transfer to the buyer the usual risks and rewards of ownership. Contingent future profits, if any, are recognized only when received. The Company generally applies the "full accrual" method of revenue recognition thereby recognizing revenue and the related profit upon transfer of title to the buyer. However, if the Company has an obligation to complete improvements of lots sold or to construct amenities or other facilities as contractually required by sales that have been consummated, the Company utilizes the "percentage-of-completion" method of revenue recognition. The Company recorded revenue under the percentage-of-completion method of approximately $11.2 million, $16.1 million and $8.1 million for the fiscal years ended July 31, 2005, 2004 and 2003, respectively. Additionally, the Company uses the "deposit" method for sales that have not been completed for which payments have been received from buyers, and as such no profit is recognized until the sale is consummated.

Real Estate Cost of Sales-- Costs of real estate transactions include direct project costs, common cost allocations (primarily determined on relative sales value) and may include accrued commitment liabilities for costs to be incurred subsequent to sales transaction. Estimates of project costs and cost allocations are reviewed at the end of each financial reporting period until a project is substantially completed and available for sale. Costs are revised and reallocated as necessary for material changes on the basis of current estimates and are reported as a change in estimate in the current period. The Company recorded changes in estimates that increased (decreased) reported real estate cost of sales by approximately $435,000, ($16.9 million) and $475,000 for the fiscal years ended July 31, 2005, 2004 and 2003, respectively (see Note 13, Commitments and Contingencies, for more information).

Deferred Revenue-- In addition to deferring certain revenues related to private club initiation fees and the real estate sales as noted above, the Company records deferred revenue related to the sale of season ski passes and certain daily lift ticket products. The number of season pass holder visits is estimated based on historical data, and the deferred revenue is recognized throughout the season based on this estimate. During the ski season the estimated visits are compared to the actual visits and adjustments are made if necessary.

Reserve Estimates-- The Company uses estimates to record reserves for certain liabilities, including medical claims, workers' compensation, third-party loss contingencies, liabilities for the completion of real estate sold by the Company, allowance for doubtful accounts, metropolitan district interest subsidies and mold remediation costs among other items. The Company estimates the potential costs related to these liabilities that will be incurred and records that amount as a liability in its financial statements. These estimates are reviewed and appropriately adjusted as the facts and circumstances related to the liabilities change.

Advertising Costs-- Advertising costs are expensed at the time such advertising commences. Advertising expense for the fiscal years ended July 31, 2005, 2004 and 2003 was $15.1 million, $14.6 million and $16.0 million, respectively. At July 31, 2005 and 2004, prepaid advertising costs of $885,000 and $451,000, respectively, are reported as "other current assets" in the Company's consolidated balance sheets.

Income Taxes-- The Company uses the liability method of accounting for income taxes as proscribed by SFAS No. 109, "Accounting for Income Taxes". Under SFAS No. 109, deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets and for operating loss and tax credit carryforwards. The change in deferred tax assets and liabilities for the period measures the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to the tax provision or benefit in the period of enactment. The Company's deferred tax assets have been reduced by a valuation allowance to the extent it is deemed to be more likely than not that some or all of the deferred tax assets will not be realized. (See Note 11, Income Taxes, for more information related to deferred tax assets and liabilities).

Net Income (Loss) Per Share-- In accordance with SFAS No. 128, "Earnings Per Share", the Company computes net income per share on both the basic and diluted basis (See Note 3, Net Income (Loss) Per Common Share).

Fair Value of Financial Instruments-- The recorded amounts for cash and cash equivalents, receivables, other current assets, and accounts payable and accrued expenses approximate fair value due to the short-term nature of these financial instruments. The fair value of amounts outstanding under the Company's credit facilities and Employee Housing Bonds approximate book value due to the variable nature of the interest rate associated with that debt. The fair values of the Company's Industrial Development Bonds and other long-term debt have been estimated using discounted cash flow analyses based on current borrowing rates for debt with similar remaining maturities and ratings. The fair value of the 6.75% Notes is based on quoted market price. The estimated fair values of the 6.75% Notes, Industrial Development Bonds and other long-term debt at July 31, 2005 and 2004 are presented below (in thousands):

 

       July 31, 2005    

 

     July 31, 2004     

 

Carrying

 

Fair

 

Carrying

 

Fair

   Value  

   Value  

   Value  

   Value  

6.75% Notes

$390,000

 

$397,800

 

$390,000

 

$384,150

Industrial Development Bonds

61,700

71,266

61,700

67,061

Other long-term debt

8,006

 

9,074

 

9,354

 

11,044



Stock Compensation-- At July 31, 2005, the Company had four stock-based compensation plans. The Company applies Accounting Principles Board ("APB") Opinion No. 25 and related interpretations in accounting for stock-based compensation to employees. Accordingly, no compensation cost has been recognized for its fixed stock option plans. Had compensation cost for the Company's four stock-based compensation plans been determined consistent with SFAS No. 123, "Accounting for Stock Based Compensation", the Company's net income (loss) and earnings (loss) per share would have been the pro forma amounts indicated below (in thousands, except per share amounts):

 

Fiscal Year Ended

 

July 31,

 

    2005   

 

    2004   

 

    2003   

           
           

Net income (loss)

         
 

As reported

$  23,138

 

$  (5,959)

 

$   (8,527)

 

Add: stock-based employee compensation expense included in reported net income (loss), net of related tax effects

273

 

155

 

871

 

Deduct: total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects

    (2,987)

 

    (2,546)

 

    (3,177)

 

Pro forma

$  20,424

 

   (8,350)

 

$ (10,833)

           

Basic net income (loss) per common share

         
 

As reported

$     0.65

 

$   (0.17)

 

$     (0.24)

 

Pro forma

$     0.57

 

$   (0.24)

 

$    (0.31)

           

Diluted net income (loss) per common share

         
 

As reported

$     0.64

 

$   (0.17)

 

$     (0.24)

 

Pro forma

$     0.56

 

$   (0.24)

 

$     (0.31)



As a result of changes to the calculation of forfeitures and the period over which pro forma expense would be taken if the fair value method was applied, the presentations of pro forma net loss and basic and diluted net loss per common share for fiscal years 2004 and 2003 have been changed, resulting in an increase in the pro forma net loss per common share of $0.06 and $0.02 for the fiscal years ended July 31, 2004 and 2003, respectively, as compared to the presentation in the Company's previously filed Annual Reports on Form 10-K for those periods.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2005, 2004 and 2003, respectively: dividend yield of 0% for each year, expected volatility of 35.3%, 38.7% and 32.2%; risk-free interest rates of 3.28%, 2.92% and 2.19%; and an expected life of five years for each year. The weighted-average grant-date fair value per share of stock options granted in the fiscal years ended July 31, 2005, 2004 and 2003 was $6.83, $5.63 and $5.17, respectively.

Concentration of Credit Risk-- The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments in high quality credit institutions. At times, such investments may be in excess of FDIC insurance limits. Concentration of credit risk with respect to trade receivables is limited due to the wide variety of customers and markets in which the Company transacts business, as well as their dispersion across many geographical areas. As a result, as of July 31, 2005, the Company did not consider itself to have any significant concentrations of credit risk. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains allowances for potential credit losses, but does require advance deposits on certain transactions, and historical losses have been within management's expectations. The Company does not enter into financial instruments for trading or speculative purposes.

Use of Estimates-- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications-- Certain reclassifications have been made to the accompanying Consolidated Financial Statements as of and for the years ended July 31, 2004 and 2003 to conform to the current period presentation.

New Accounting Pronouncements-- In December 2004, the FASB issued SFAS 123R which replaces SFAS 123 and supersedes APB 25. SFAS 123R requires the measurement of all employee share-based compensation arrangements to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in the consolidated statements of operations. The accounting provisions of SFAS 123R are effective for fiscal years beginning after June 15, 2005, with early adoption permitted. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition.

SFAS 123R permits public companies to adopt its requirements using one of two methods. Under the "modified prospective" method, compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123R for all share-based compensation arrangements granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date. The "modified retrospective" method includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures for either (a) all prior periods presented or (b) prior interim periods of the year of adoption. The Company plans to adopt SFAS 123R using the modified prospective method.

As permitted by SFAS 123, the Company currently accounts for share-based compensation arrangements to employees using APB 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123R's fair value method will impact the Company's results of operations, although it will have no impact on the Company's overall financial position. The adoption of SFAS 123R will increase the Company's operating expenses by approximately $3.5 million, $2.2 million and $270,000 for the years ended July 31, 2006, 2007 and 2008, respectively, for options that remain unvested as of July 31, 2005. The full impact of adoption of SFAS 123R cannot be reasonably estimated at this time because it will depend on levels and type of share-based compensation arrangements in the future, along with the valuation model used and related assumptions. However, had the Company adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income (loss) per share, as discussed above.  In September 2005, the Company granted approximately 163,850 shares of restricted stock and options to purchase approximately 442,500 shares of common stock at an exercise price of $28.08 per share.  The vesting period for the restricted stock ranges from one to three years, and the vesting period for the stock options is three years.  The Company is currently evaluating the effect these share-based compensation arrangements will have on its future results of operations.

3. Net Income (Loss) Per Common Share

SFAS No. 128, "Earnings per Share" ("EPS"), establishes standards for computing and presenting EPS. SFAS No. 128 requires the dual presentation of basic and diluted EPS on the face of the income statement and requires a reconciliation of numerators (net income/loss) and denominators (weighted-average shares outstanding) for both basic and diluted EPS in the footnotes. Basic EPS excludes dilution and is computed by dividing net income/loss available to common shareholders by the weighted-average shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of common shares that would then share in the earnings of the Company.

 

Fiscal Year Ended

 

July 31,

 

            2005            

 

            2004            

 

             2003            

           
 

(In thousands, except per share amounts)

 

   Basic   

 

 Diluted 

 

   Basic   

 

 Diluted 

 

  Basic   

 

 Diluted 

Net income (loss) per common share:

                     

Net income (loss)

$  23,138

 

$  23,138

 

$ (5,959)

 

$  (5,959)

 

$ (8,527)

 

$  (8,527)

                       

Weighted-average shares outstanding

35,712

 

35,712

 

35,294

 

35,294

 

35,170

 

35,170

Effect of dilutive securities

         -- 

 

      648 

 

           --

 

            --

 

            --

 

             --

Total shares

  35,712

 

  36,360

 

   35,294

 

    35,294

 

    35,170

 

    35,170

                       

Net income (loss) per common share

$     0.65

 

$     0.64

 

$   (0.17)

 

$   (0.17)

 

$   (0.24)

 

$    (0.24)



The number of shares issuable on the exercise of common stock options that were excluded from the calculation of diluted net income (loss) per share because the effect of their inclusion would have been anti-dilutive totaled 631,000, 4.5 million and 3.9 million, in fiscal 2005, 2004 and 2003, respectively. In fiscal 2005, the shares were anti-dilutive because the exercise price exceeded the average share price for the year. In fiscal 2004 and 2003, the shares were anti-dilutive due to the Company's net loss position.

4. Long-Term Debt

Long-term debt as of July 31, 2005 and July 31, 2004 is summarized as follows (in thousands):

 

Fiscal year

 

July 31,

 

July 31,

 

 Maturity (i)

 

    2005    

 

    2004    

           

Credit Facility Revolver (a)

2010

 

$             --

 

$              --

Credit Facility Term Loan (a)

2011

 

--

 

98,750

SSV Facility (b)

2006

 

9,429

 

13,424

Industrial Development Bonds (c)

2007-2020

 

     61,700

 

    61,700

Employee Housing Bonds (d)

2027-2039

 

52,575

 

52,575

Gore Creek Facility (e)

2007

 

--

 

--

6.75% Notes(f)

2014

 

390,000

 

390,000

Other (g)

2006-2029

 

        8,006

 

        9,354

521,710

625,803

Less: current maturities (h)

   

        2,004

 

        3,159

     

$   519,706

 

$   622,644



(a)

The Company amended its senior credit facility ("Credit Facility") in January 2005. Key modifications to the Credit Facility included, among other things, payoff of the $100 million term loan ("Credit Facility Term Loan"), the expansion of the revolving credit facility ("Credit Facility Revolver") to $400 million from $325 million, extension of the maturity on the Credit Facility Revolver to January 2010 from June 2007, reduced pricing for interest rate margins and commitment fees, and improved flexibility in the Company's ability to make investments and distributions. The Company recorded a $612,000 loss on extinguishment of debt in the year ended July 31, 2005 for the remaining unamortized deferred financing costs associated with the pay off of the Credit Facility Term Loan.

The amended credit agreement, the Fourth Amended and Restated Credit Agreement ("Credit Agreement"), is between The Vail Corporation (a wholly owned subsidiary of the Company), Bank of America, N.A., as administrative agent and the Lenders party thereto, and consists of a $400 million revolving credit facility. The Vail Corporation's obligations under the Credit Agreement are guaranteed by the Company and certain of its subsidiaries and are collateralized by a pledge of all of the capital stock of The Vail Corporation, substantially all of its subsidiaries and the Company's interest in SSV. The proceeds of loans made under the Credit Agreement may be used to fund the Company's working capital needs, capital expenditures, acquisitions and other general corporate purposes, including the issuance of letters of credit. The Credit Agreement matures January 2010. Borrowings under the Credit Agreement bear interest annually at the Company's option at the rate of (i) LIBOR plus a margin (4.73% at July 31, 2005) or (ii) the Agent's prime lending rate plus, in certain circumstances, a margin (6.25% at July 31, 2005). Interest rate margins fluctuate based upon the ratio of the Company's Funded Debt to Adjusted EBITDA (as defined in the Credit Agreement) on a trailing twelve-month basis. The Credit Agreement also includes a quarterly unused commitment fee, which is equal to a percentage determined by the Funded Debt to EBITDA ratio, as defined in the Credit Agreement, times the daily amount by which the Credit Agreement commitment exceeds the total of outstanding loans and outstanding letters of credit. The unused amounts are accessible to the extent that the Funded Debt to Adjusted EBITDA ratio does not exceed the maximum ratio allowed at quarter-ends. The unused amount available for borrowing under the Credit Facility was $321.4 million as of July 31, 2005, net of letters of credit of $78.6 million outstanding under the Credit Facility. The Credit Agreement provides for affirmative and negative covenants that restrict, among other things, the Company's ability to incur indebtedness, dispose of assets, make capital expenditures, make distributions and make investments. In addition, the Credit Agreement includes the following restrictive financial covenants: Maximum Funded Debt to Adjusted EBITDA ratio, Maximum Senior Debt to Adjusted EBITDA ratio, Minimum Fixed Charge Coverage ratio, Minimum Net Worth and the Minimum Interest Coverage ratio (each as defined in the Credit Agreement).

   

(b)

SSV has a credit facility ("SSV Facility") consisting of (i) a $20.0 million revolving credit facility, (ii) an $8.0 million term loan A and (iii) a $4.0 million term loan B. Keybank N.A. is agent with certain other financial institutions as lenders. SSV's obligations under the SSV Facility are collateralized by substantially all of SSV's assets and a $4.2 million letter of credit issued against the Credit Facility. The proceeds of the loans made under the SSV Facility may be used to fund SSV's working capital needs, capital expenditures, acquisitions and other general corporate purposes, including the issuance of letters of credit. Borrowings bear interest annually at SSV's option at the rate of (i) LIBOR plus a margin or (ii) the agent's prime lending rate minus a margin. Interest rates on the borrowings fluctuate based upon the Consolidated Leverage ratio (as defined in the underlying agreement). The SSV Facility originally matured in May 2006; SSV refinanced the facility subsequent to year-end (see below). The revolving credit facility also includes a quarterly unused commitment fee. SSV must make quarterly principal payments on the term loan A in the amount of $285,715. SSV has the option to prepay the term loan A at any time; however, such repayments cannot subsequently be re-borrowed under the term loan A facility. No principal payments are due under the term loan B until maturity. SSV has the option to prepay the term loan B at any time; however, such repayments cannot subsequently be re-borrowed under the term loan B facility. The principal amount outstanding on the SSV Facility was $9.4 million as of July 31, 2005. The average interest rate for the fiscal years ending July 31, 2005 and 2004 were 4.9% and 3.0%, respectively. The SSV Facility provides for negative covenants that restrict, among other things, SSV's ability to incur indebtedness, dispose of assets, make capital expenditures and make investments. In addition, the SSV Facility includes certain restrictive financial covenants, including the Consolidated Leverage ratio, Minimum Fixed Charge Coverage ratio and Minimum Net Worth (as defined in the SSV Facility).

In September 2005, SSV entered into a new credit facility, with US Bank National Association ("U.S. Bank") as lender, to refinance the SSV Facility and to provide additional financing for future acquisitions. The new facility provides for financing up to an aggregate $33 million (collectively, the "New Facility"), consisting of (i) an $18 million working capital revolver, (ii) a $10 million reducing revolver and (iii) a $5 million acquisition revolver. Obligations under the New Facility are collateralized by a first priority security interest in all the assets of SSV. Availability under the New Facility is based on the book values of accounts receivable, inventories and rental equipment. Borrowings bear interest annually at SSV's option of (i) LIBOR plus a margin or (ii) U.S. Bank's prime rate minus a margin. The New Facility matures five years from the date of closing. Proceeds under the working capital revolver are for SSV's seasonal working capital needs. No principal payments are due until maturity, and principal may be drawn and repaid at any time. Proceeds under the reducing revolver are to be used to pay off SSV's existing credit facility. Principal under the reducing revolver may be drawn and repaid at any time. The reducing revolver commitments decrease by $312,500 on January 31, April 30, July 31 and October 31 of each year beginning January 31, 2006. Any outstanding balance in excess of the reduced commitment amount will be due on the day of each commitment reduction. The acquisition revolver is to be utilized to make acquisitions subject to U.S. Bank's approval. Principal under the acquisition revolver may be drawn and repaid at any time. The acquisition revolver commitments decrease by $156,250 on January 31, April 30, July 31 and October 31 of each year beginning January 31, 2007. Any outstanding balance in excess of the reduced commitment amount will be due on the day of each commitment reduction. The New Facility contains certain restrictive financial covenants, including the Consolidated Leverage Ratio and Minimum Fixed Charge Coverage Ratio (each as defined in the New Facility). As a result of the refinancing, debt outstanding under the SSV Facility is classified as long-term in the accompanying consolidated balance sheet at July 31, 2005, to the extent that principal payments under the New facility are not due in the next twelve months.

   

(c)

The Company has outstanding $61.7 million of industrial development bonds (collectively, the "Industrial Development Bonds"). $41.2 million of the Industrial Development Bonds were issued by Eagle County, Colorado (the "Eagle County Bonds") and mature, subject to prior redemption, on August 1, 2019. These bonds accrue interest at 6.95% per annum, with interest being payable semi-annually on February 1 and August 1. The Promissory Note with respect to the Eagle County Bonds between Eagle County and the Company is collateralized by the U.S. Forest Service Permits for Vail Mountain and Beaver Creek Mountain. In addition, the Company has outstanding two series of refunding bonds (collectively, the "Summit County Bonds"). The Series 1990 Sports Facilities Refunding Revenue Bonds, issued by Summit County, Colorado, have an aggregate outstanding principal amount of $19.0 million, maturing in installments in 2006 and 2008. These bonds bear interest at a rate of 7.75% for bonds maturing in fiscal 2007 and 7.875% for bonds maturing in fiscal 2009. The Series 1991 Sports Facilities Refunding Revenue Bonds, issued by Summit County, Colorado, have an aggregate outstanding principal amount of $1.5 million maturing in fiscal 2011 and bear interest at 7.375%. The Promissory Note with respect to the Summit County Bonds between Summit County and the Company is pledged and endorsed to The Bank of New York as Trustee under the Indenture of Trust. The Promissory Note is also collateralized in accordance with a Guaranty from Ralston Purina Company (subsequently assumed by The Vail Corporation) to the Trustee for the benefit of the registered owners of the bonds.

   

(d)

As of November 1, 2003, the Company began consolidating four employee housing entities (collectively, the "Employee Housing Entities"), Breckenridge Terrace, Tarnes, BC Housing and Tenderfoot. The Employee Housing Entities had previously been accounted for under the equity method (see Note 7, Variable Interest Entities). Accordingly, the outstanding indebtedness of the entities (collectively, the "Employee Housing Bonds") is included in the Company's consolidated balance sheets as of July 31, 2005 and 2004. The proceeds of the Employee Housing Bonds were used to develop apartment complexes designated primarily for use by the Company's employees. The Employee Housing Bonds are variable rate, interest-only instruments with interest rates tied to LIBOR plus a margin (3.49% to 3.54% at July 31, 2005). Interest on the Employee Housing Bonds is paid monthly in arrears, and the interest rate is adjusted weekly. No principal payments are due on the Employee Housing Bonds until maturity. Each entity's bonds were issued in two series. The Series A bonds for each employee housing entity and the Series B bonds for Breckenridge Terrace, BC Housing and Tenderfoot are backed by letters of credit issued under the Credit Facility. The Series B bonds for Tarnes are backed by a letter of credit issued by a bank, for which the assets of Tarnes serve as collateral ($8.1 million at July 31, 2005). The chart below presents the principal amounts outstanding for the Employee Housing Bonds as of July 31, 2005 and 2004 (in thousands):

Maturity

Tranche A

Tranche B

     Total    

Breckenridge Terrace

2039

$ 14,980

$    5,000

$   19,980

Tarnes

2039

8,000

2,410

10,410

BC Housing

2027

9,100

1,500

10,600

Tenderfoot

2035

   5,700

   5,885

   11,585

Total

$ 37,780

$  14,795

$   52,575

(e)

On July 19, 2005, Gore Creek Place, LLC ("Gore Creek"), a wholly-owned subsidiary of the Company, entered into a Construction Loan Agreement (the "Gore Creek Facility") in the amount of up to $30 million with U.S. Bank National Association ("U.S. Bank"), as administrative agent and lender. Borrowings under the Gore Creek Facility are non-revolving and must be used for the payment of certain costs associated with the construction and development of Gore Creek Place, a residential development consisting of 16 luxury duplex residences. The Gore Creek Facility matures on July 19, 2007, and principal payments are due at the earlier of closing of sales for the Gore Creek residences or maturity. Gore Creek has the option to extend maturity for six months, subject to certain requirements. Borrowings under the Gore Creek Facility bear interest annually at Gore Creek's option at the rate of (i) LIBOR plus a margin (5.02% at July 31, 2005) or (ii) the administrative agent's prime commercial lending rate (6.25% at July 31, 2005). Interest is payable monthly in arrears. The Gore Creek Facility provides for affirmative and negative covenants that restrict, among other things, Gore Creek's ability to dispose of assets, transfer or pledge its equity interest, incur indebtedness and make investments or distributions. The Gore Creek Facility contains non-recourse provisions to the Company with respect to repayment, whereby under event of default, U.S. Bank has recourse only against Gore Creek's assets ($9.8 million at July 31, 2005) and the Completion Guaranty Agreement ("Guaranty Agreement") described below. U.S. Bank does not have recourse against assets held by the Company or The Vail Corporation. All assets of Gore Creek are provided as collateral under the Gore Creek Facility.

In connection with the Gore Creek Facility, The Vail Corporation, a wholly-owned subsidiary of the Company, entered into the Guaranty Agreement, pursuant to which The Vail Corporation guarantees the completion of the construction of the project (but not the repayment of borrowings under the Gore Creek Facility). However, The Vail Corporation could be responsible to pay damages to U.S. Bank under very limited circumstances. If the Guaranty Agreement is enforced, U.S. Bank will continue to provide borrowings to The Vail Corporation for the construction and development of Gore Creek Place.

(f)

The Company has outstanding $390 million of Senior Subordinated Notes (the "6.75% Notes") issued in January 2004, the proceeds of which were used to purchase the previously outstanding $360 million principal amount of Senior Subordinated Notes due 2009 (the "8.75% Notes") and pay related premiums, fees and expenses. The 6.75% Notes have a fixed annual interest rate of 6.75% with interest due semi-annually on February 15 and August 15, beginning August 15, 2004. The 6.75% Notes will mature February 2014 and no principal payments are due to be paid until maturity. The Company has certain early redemption options under the terms of the 6.75% Notes. The premium for early redemption of the 6.75% Notes ranges from 3.375% to 0%, depending on the date of redemption. The 6.75% Notes are subordinated to certain of the Company's debts, including the Credit Facility, and will be subordinated to certain of the Company's future debts. The Company's payment obligations under the 6.75% Notes are jointly and severally guaranteed by substantially all of the Company's current and future domestic subsidiaries (See Note 21, Guarantor Subsidiaries and Non-Guarantor Subsidiaries). The indenture governing the 6.75% Notes contains restrictive covenants which, among other things, limit the ability of Vail Resorts, Inc. and its Restricted Subsidiaries (as defined in the Indenture) to a) borrow money or sell preferred stock, b) create liens, c) pay dividends on or redeem or repurchase stock, d) make certain types of investments, e) sell stock in the Restricted Subsidiaries, f) create restrictions on the ability of the Restricted Subsidiaries to pay dividends or make other payments to the Company, g) enter into transactions with affiliates, h) issue guarantees of debt and i) sell assets or merge with other companies.

(g)

Other obligations primarily consist of a $6.8 million note outstanding to the Colorado Water Conservation Board, which matures in fiscal 2029, and capital leases totaling $779,000. Other obligations, including the Colorado Water Conservation Board note and the capital leases, bear interest at rates ranging from 3.5% to 6.0% and have maturities ranging from fiscal 2006 to 2029.

   

(h)

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

   

(i)

Maturities are based on the Company's July 31 fiscal year end.



Aggregate maturities for debt outstanding as of July 31, 2005 are as follows (in thousands):

2006

 

$    2,004

2007

 

12,662

2008

 

318

2009

 

15,203

2010

 

205

Thereafter

 

  491,318

Total debt

 

$ 521,710



The Company incurred gross interest expense of $40.3 million, $47.5 million and $51.5 million for the fiscal years ended July 31, 2005, 2004 and 2003, respectively. The Company was in compliance with all of its financial and operating covenants required to be maintained under its debt instruments for all periods presented.

5.  Supplementary Balance Sheet Information (in thousands)

The composition of property, plant and equipment follows:

 

July 31,

 

     2005     

 

     2004     

       
       

Land and land improvements

$ 236,424

 

$   245,540

Buildings and building improvements

504,662

 

606,727

Machinery and equipment

398,342

 

381,628

Vehicles

24,449

 

22,738

Furniture and fixtures

97,780

 

117,216

Construction in progress

     47,973

 

       29,283

 

1,309,630

 

1,403,132

Accumulated depreciation

  (466,583)

 

 (434,360)

Property, plant and equipment, net

$ 843,047

 

$   968,772



Depreciation expense for the fiscal years ended July 31, 2005, 2004 and 2003 totaled $87.6 million, $83.2 million and $78.4 million, respectively.

The composition of intangible assets follows:

 

July 31,

 

2005

 

2004

Indefinite lived intangible assets

     

Trademarks

$    58,142

 

$    58,291

Water rights

11,180

 

11,180

Other intangible assets

6,143

 

8,007

Excess reorganization value

      14,145

 

      14,145

 

89,610

 

91,623

Accumulated amortization

    (24,752)

 

   (24,752)

Indefinite lived intangible assets, net

      64,858

 

      66,871

       

Goodwill

     

Goodwill

152,861

 

162,444

Accumulated amortization

    (17,354)

 

  (17,354)

Goodwill, net

    135,507

 

    145,090

       

Amortizable intangible assets

     

Trademarks

176

 

293

Customer lists

17,814

 

17,814

Property management contracts

10,869

 

12,042

Intellectual property

4,754

 

4,754

United States Forest Service permits

5,010

 

5,010

Franchise agreement

--

 

3,380

Other intangible assets

      15,278

 

      15,313

 

     53,901

 

     58,606

Accumulated amortization

    (41,785)

 

    (40,274)

Amortizable intangible assets, net

      12,116

 

      18,332

       

Total intangible assets

296,372

 

312,673

Total accumulated amortization

    (83,891)

 

    (82,380)

 

$  212,481

 

$  230,293



Amortization expense for intangible assets subject to amortization for the fiscal years ended July 31, 2005, 2004 and 2003 totaled $2.3 million, $3.2 million and $3.8 million, respectively, and is estimated to be approximately $1.2 million annually, on average, for the next five fiscal years.

The weighted-average amortization period for intangible assets subject to amortization is as follows:

 

July 31,

 

2005

 

2004

Trademarks

10

 

10

Customer lists

8

 

8

Property management contracts

14

 

9

Intellectual property

6

 

6

United States Forest Service permits

37

 

37

Franchise agreement

20

 

20

Other intangible assets

8

 

8



The changes in the net carrying amount of goodwill for the years ended July 31, 2005, 2004 and 2003 are as follows (in thousands):

Balance at July 31, 2002

 

$     139,600

Purchase accounting adjustments

 

           5,449

Balance at July 31, 2003

 

$     145,049

Put exercise adjustment

 

                41

Balance at July 31, 2004

$     145,090

Sale of Rancho Mirage

 

(6,396)

Assets held for sale adjustment

 

(185)

Purchase of minority interest

 

(1,775)

Put exercise adjustment

 

        (1,227)

Balance at July 31, 2005

 

$     135,507



The purchase accounting adjustments to goodwill in fiscal 2003 primarily consist of adjustments to Heavenly in the amount of $5.3 million and to The Lodge at Rancho Mirage ("Rancho Mirage") in the amount of $0.2 million. In July 2005, the Company sold the assets constituting Rancho Mirage, resulting in a $6.4 million decrease of associated goodwill. The assets held for sale adjustment in fiscal 2005 relates to the goodwill associated with SRL&S which has been classified as held for sale (see Note 2, Summary of Significant Accounting Polices.) The purchase of minority interest in fiscal 2005 consists of an adjustment to reduce goodwill for the purchase of the remaining SRL&S minority interest at less than carrying value. The put exercise adjustment in fiscal 2005 consists of an adjustment to reduce goodwill for the purchase of the remaining RockResorts minority interest.

The composition of accounts payable and accrued expenses follows:

 

July 31,

 

    2005    

 

    2004    

       

Trade payables

$  67,368

 

$   55,858

Deferred revenue

32,474

 

25,180

Deposits

21,609

 

30,727

Accrued salaries, wages and deferred compensation

26,571

 

23,591

Accrued benefits

19,379

 

20,541

Accrued interest

14,274

 

14,022

Liability to complete real estate projects, short term

5,188

 

9,063

Other accruals

    22,506

 

     19,886

 

Total accounts payable and accrued expenses

$ 209,369

 

$ 198,868



The composition of other long-term liabilities follows:

 

July 31,

 

     2005     

 

     2004     

       

Private club deferred initiation fee revenue

$    92,395

 

$      82,921

Real estate deposits

37,829

 

--

Other long-term liabilities

      10,197

 

        14,695

 

Total other long-term liabilities

$  140,421

 

$      97,616



6.  Investments in Affiliates

The Company held the following investments in equity method affiliates as of July 31, 2005:

Equity Method Investees

 

Ownership Interest

KRED

 

50%

Slifer, Smith, and Frampton/Vail Associates Real Estate, LLC ("SSF/VARE")

 

50%

Clinton Ditch and Reservoir Company

 

43%

Eclipse Television & Sports Marketing, LLC

 

20%

BG Resort

 

*

     

* The Company had a 49% ownership interest in BG Resort which it sold on December 8, 2004.

   


The Company's ownership interests in the Employee Housing Entities, Avon Partners II, LLC ("APII") and FFT Investment Partners ("FFT") were formerly accounted for under the equity method. In connection with the Company's implementation of FIN 46R in fiscal 2004, the Company determined it is the primary beneficiary of these six entities, which are VIEs, and therefore has consolidated them in its Consolidated Financial Statements as of July 31, 2005 and 2004 (see Note 7, Variable Interest Entities).

The Company had total net investments in equity method affiliates of $6.2 million and $16.5 million as of July 31, 2005 and 2004, respectively. Of this balance, as of July 31, 2005 and 2004, respectively, $844,000 and $4.3 million is classified as "real estate held for sale and investment" and $5.4 million and $12.2 million is classified as "deferred charges and other assets" in the accompanying consolidated balance sheets. The amount of retained earnings that represent undistributed earnings of 50-percent-or-less-owned entities accounted for by the equity method was $1.8 million and $9.0 million as of July 31, 2005 and 2004, respectively.

The Company's carrying amount of the equity method investment in KRED differs from the value of the underlying equity in net assets due to the difference in the book value and fair market value of the land contributed by the Company to the entities. The land basis difference for KRED was $58,000 as of July 31, 2005. The Company will recognize this difference in basis as revenue when the land is sold. In addition, the Company recorded an impairment charge of $850,000 on the KRED investment in fiscal 2003. In addition, the Company historically carried a basis difference related to its investment in BG Resort associated with the land beneath BG Resort's hotel facility. The Company recognized a $2.5 million gain in real estate revenue in fiscal 2005 as a result of the sale of the Company's investment in BG Resort.

Condensed financial data for SSF/VARE, BG Resort and all other affiliates is summarized below (in thousands). Fiscal 2005 results of operations for BG Resort are included for the period from August 1, 2004 through December 8, 2004, as BG Resort was sold on December 8, 2004.

SSF/VARE

BG Resort

All Other Affiliates

Financial data for 2005:

 

Current assets

$       6,177 

 

$          --

 

$         1,655

 

Other assets

          3,458

 

           --

 

         13,514

 

Total assets

$        9,635

 

$          --

 

$       15,169

 

Current liabilities

$        4,686

 

$          --

 

$           237 

 

Other liabilities

--

 

--

 

502

 

Shareholders' equity

          4,949

 

            --

 

         14,430

 

Total liabilities and shareholders' equity

$        9,635

 

$          --

 

$       15,169

             

Net revenue

$      52,381

$   8,006

$      17,522

 

Operating income (loss)

4,462

 

(2,355)

 

(42)

 

Net income (loss)

4,496

 

 (5,730)

 

(88)

             

Financial data for 2004:

         
 

Current assets

$        5,969

 

$     4,504

 

$       4,938

 

Other assets

         3,922

 

    81,291

 

      14,162

 

Total assets

$        9,891

 

$   85,795

 

$     19,100

             
 

Current liabilities

$        4,075

 

$     9,465

 

$         486

 

Other liabilities

576

 

57,804

 

4,758

 

Shareholders' equity

        5,240

 

    18,526

 

      13,856

 

Total liabilities and shareholders' equity

$        9,891

 

$   85,795

 

$     19,100

             
 

Net revenue

$      38,276

 

$   30,573

 

$     26,912

 

Operating income (loss)

3,293

 

(2,482)

 

961

 

Net income (loss)

3,224

 

(5,895)

 

646

             

Financial data for 2003:

         
 

Net revenue

$      22,960

 

$   20,382

 

$    34,463

 

Operating income (loss)

2,383

 

(587)

 

1,911

 

Net income (loss)

2,371

 

(1,968)

 

(1,778)



 

7.  Variable Interest Entities 

The Company has determined that it is the primary beneficiary of the Employee Housing Entities, which are VIEs, and has consolidated them in its Consolidated Financial Statements as of November 1, 2003. In accordance with the guidance in FIN 46R, prior periods were not restated. As a group, as of July 31, 2005, the Employee Housing Entities had total assets of $45.3 million (primarily recorded in property, plant and equipment) and total liabilities of $64.2 million (primarily recorded in long-term debt). All of the assets of Tarnes serve as collateral for Tarnes' Tranche B obligations ($2.4 million as of July 31, 2005). The Company has issued under its credit facility $38.3 million letters of credit related to the Tranche A Employee Housing Bonds and $12.6 million letters of credit related to the Tranche B Employee Housing Bonds. The letters of credit would be triggered in the event that one of the entities defaults on required payments. The letters of credit have no default provisions.

The Company has determined that it is the primary beneficiary of APII, which is a VIE. APII owns commercial space and the Company currently leases substantially all of that space for its corporate headquarters. APII had total assets of $4.0 million (primarily recorded in property, and equipment) and no debt as of July 31, 2005. APII has been consolidated by the Company since February 1, 2004.

The Company has determined that it is the primary beneficiary of FFT, which is a VIE. FFT owns a private residence in Eagle County, Colorado. The entity had total assets of $5.6 million (primarily recorded in real estate held for sale) and no debt as of July 31, 2005. FFT has been consolidated by the Company since February 1, 2004.

The Company, through various lodging subsidiaries, manages the operations of several entities that own hotels in which the Company has no ownership interest. The Company also has extended a $1.5 million note receivable to one of these entities. These entities were formed to acquire, own, operate and realize the value in resort hotel properties. The Company has managed the day-to-day operations of four of the hotel properties since November 2001 and began managing three of the properties during the fourth quarter of fiscal 2005. The Company has determined that the entities that own the hotel properties are VIEs, and the management contracts are significant variable interests in these VIEs. The Company has also determined that it is not the primary beneficiary of these entities and, accordingly, is not required to consolidate any of these entities. These VIEs had total assets of approximately $183.9 million and total liabilities of approximately $103.0 million as of July 31, 2005. The Company's maximum exposure to loss as a result of its involvement with these VIEs is limited to the note receivable and accrued interest of approximately $1.5 million and the net book value of the intangible asset associated with the management agreements in the amount of $5.6 million at July 31, 2005.

8.  Sale of Businesses

On December 8, 2004, the Company sold its 49% minority equity interest in BG Resort, the entity that owns The Ritz-Carlton, Bachelor Gulch, for $13.0 million, with net cash proceeds to the Company of $12.7 million. This transaction resulted in a $5.7 million gain on disposal of the investment, which is included in "loss from sale of businesses, net" in the accompanying statement of operations for fiscal 2005. In addition, the Company recognized $2.5 million of deferred Real Estate revenue associated with the recognition of the basis difference in land originally contributed to the entity and $369,000 of deferred interest income related to advances previously made to the entity. In conjunction with the sale, the Company has guaranteed payment, if any, of certain contingencies of BG Resort which have reduced the amount of the gain recognized. The Company's interest was acquired by GHR, LLC, a new joint venture between Gencom BG, LLC and Lehman BG, LLC.

On June 24, 2005, VAMHC, Inc., a subsidiary of the Company, sold the assets constituting the Vail Marriott Mountain Resort & Spa (the "Vail Marriott") to DiamondRock Hospitality Limited Partnership ("DiamondRock") for $62.0 million, the proceeds of which were adjusted for normal working capital prorations. An agreement to sell the hotel was reached in May 2005, after DiamondRock expressed its interest in acquiring the property. The carrying value of the assets sold (net of liabilities assumed) was $60.1 million. Additionally, the Company is required to complete certain capital projects that were part of the Company's 2005 capital plan as well as fund, in certain circumstances, certain other future improvements, the total of which is not expected to exceed $3.1 million. The Company recorded a $2.1 million loss in fiscal 2005 after consideration of all costs involved, which is included in "loss from sale of businesses, net" in the accompanying statement of operations for fiscal 2005. The Company will continue to manage the Vail Marriott pursuant to a 15-year management agreement with DiamondRock.

On July 28, 2005, VA Rancho Mirage Resort, L.P., a limited partnership owned by wholly-owned subsidiaries of the Company, sold the assets constituting Rancho Mirage to GENLB-Rancho LLC ("Gen LB"), a partnership led by the Gencom Group ("Gencom"), for $33.0 million, the proceeds of which were adjusted for normal working capital prorations. Gencom is an affiliate of GHR, LLC, the company which acquired the Company's interest in BG Resort earlier in fiscal 2005. An agreement to sell the hotel was reached in early July 2005, after Gencom expressed its interest in acquiring the property. The carrying value of the assets sold (net of liabilities assumed) was $43.3 million. Additionally, the Company is required to complete certain capital projects that were part of the Company's 2005 capital plan, the total of which is not expected to exceed $299,000. The Company recorded a $10.9 million loss in fiscal 2005 after consideration of all costs involved, which is included in "loss from sale of businesses, net" in the accompanying statement of operations for fiscal 2005. The Company will continue to manage Rancho Mirage pursuant to a multi-year management agreement with GenLB.

9.  Put and Call Options

In November 2004, GSSI LLC ("GSSI"), the minority shareholder in SSV, notified the Company of its intent to exercise its put (the "2004 Put") for 20% of its ownership interest in SSV; in January 2005, the 2004 Put was exercised and settled for a price of $5.8 million. As a result, the Company now holds an approximate 61.7% ownership interest in SSV. The Company had determined that the price to settle the 2004 Put should be marked to fair value through earnings. During the year ended July 31, 2005, the Company recorded a gain of $612,000 related to the decrease in the estimated fair value of the liability associated with the 2004 Put. The Company recorded a loss of $1.8 million for the year ended July 31, 2004, representing the increase in the estimated fair value of the 2004 Put.

The Company and GSSI have remaining put and call rights with respect to SSV: a) beginning August 1, 2007 and each year thereafter, each of the Company and GSSI shall have the right to call or put 100% of GSSI's ownership interest in SSV during certain periods each year; b) GSSI has the right to put to the Company 100% of its ownership interest in SSV at any time after GSSI has been removed as manager of SSV or an involuntary transfer of the Company's ownership interest in SSV has occurred. The put and call pricing is generally based on the trailing twelve month EBITDA (as defined in the operating agreement) of SSV for the fiscal period ended prior to the commencement of the put period.

In November 2001, the Company entered into a written put option in conjunction with its purchase of an interest in RockResorts. The minority shareholder in RockResorts ("Olympus") had the option to put to the Company its equity interest in RockResorts at a price based on management fees generated by certain properties under RockResorts management on a trailing twelve month basis. The put option was exercisable between October 1, 2004 and September 30, 2005. If the put option was not exercised, then the Company had a call option on Olympus' equity interest which was valued at $1.6 million and recorded as an intangible asset at the time that the written option was entered into. The Company marked the put option to fair value through earnings each period. There was no impact on earnings related to changes in the fair market value of the put liability for the years ended July 31, 2005 and 2004 as the estimated fair market value of the put option did not exceed the book value of the minority shareholder's interest during those periods. The Company recorded a gain of $1.6 million representing a decrease in the estimated fair value of the put liability during the year ended July 31, 2003. Olympus notified the Company of its intent to exercise the put option for 100% of its interest in RockResorts in October 2004; however, due to a dispute over the settlement price of the put, the parties did not agree on a settlement price until April 2005. In May 2005, the put was settled for a price of $1.3 million. As a result, the Company now holds a 100% ownership interest in RockResorts. When the put price was settled, the call option no longer had value, and the Company recorded a $1.6 million charge in the year ended July 31, 2005 to write the value of the call option to zero.

In March 2001, in connection with the Company's acquisition of a 51% ownership interest in RTP, LLC ("RTP"), the Company and RTP's minority shareholder entered into a put agreement whereby the minority shareholder can put up to 33% of its interest in RTP to the Company during the period August 1 through October 31 annually. The put price is determined primarily by the trailing twelve month EBITDA (as defined in the underlying agreement) for the period ending prior to the beginning of each put period. The Company has determined that this put option should be marked to fair value through earnings. For the year ended July 31, 2005, the Company recorded a gain of $546,000 representing a decrease in the estimated fair value of the put option liability during the period. For the year ended July 31, 2004, the Company recorded a loss of $118,000 representing the increase in the estimated fair value of the put option liability during the period. There was no gain or loss related to changes in the estimated fair market value of the put liability for fiscal 2003 as the estimated fair value of the put option did not exceed the book value of the minority interest. As of July 31, 2004, the Company had a 52.1% ownership interest in RTP. In October 2004, the minority shareholder in RTP exercised a portion of its put option for approximately 5.1% of the minority shareholder's remaining ownership interest for a put price of approximately $324,000. As a result, the Company now holds an approximate 54.5% ownership interest in RTP.

10.  Asset Impairment Charges

In fiscal 2005, the Company recorded $2.6 million of impairment losses on long-lived assets consisting of 1) $1.6 million to write off the value of the RockResorts call option intangible upon settlement of the Olympus put in May 2005 (see Note 9, Put and Call Options), 2) $536,000 to write off the intangible asset associated with the Casa Madrona property management contract which was terminated in May 2005, 3) $273,000 to write off construction in progress costs related to a water rights expansion project resulting from the termination of a cooperation agreement in June 2005 after failing to obtain a necessary permit and 4) $167,000 to write off construction in progress costs associated with a Keystone water reservoir project which management decided to abandon due to difficulty in obtaining necessary permits and the high cost of continuing the project.

In fiscal 2004, the Company recorded a $933,000 impairment charge related to costs previously capitalized for the proposed Beaver Creek gondola project which was replaced by a plan to install two high-speed chairlifts and the abandonment of a project to relocate Beaver Creek's maintenance facilities. The previously proposed gondola project and the new maintenance facilities were classified as construction in progress. Additionally, in fiscal 2004, the Company recorded a write-down on a warehouse facility in the amount of $175,000. The Company determined that the warehouse met the held for sale criteria of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets". Accordingly, the carrying value of the warehouse was written down to its estimated fair value less costs to sell ($7.7 million), which was determined based on quoted market prices of similar assets. The warehouse was sold in fiscal 2005 for $7.7 million.

In fiscal 2003, the Company recorded an asset impairment charge of $4.8 million related to an option to acquire a 50% interest in real property in Eagle County, Colorado commonly known as the "Gilman" property. The property consists of approximately 6,000 acres of rugged, high altitude land in close proximity to Vail Mountain. The Eagle County District Court of Colorado found that the Company had repudiated the terms of the option agreement. The Court further found that the owner of the property was entitled to terminate the contract and refuse the exercise and that the Company was not entitled to any interest in the property. The Company is appealing the decision, primarily on the basis that the Court applied the wrong legal standard in deciding the issue (see Note 13, Commitments and Contingencies).

11.  Income Taxes

At July 31, 2005, the Company has total federal net operating loss ("NOL") carryovers of approximately $138.8 million for income tax purposes, all of which expire in fiscal 2008 and are limited in deductibility each year under Section 382 of the Internal Revenue Code. The Company will only be able to use these NOLs to the extent of approximately $8.0 million per year through December 31, 2007 (the "Section 382 Amount"). However, during fiscal 2005 the Company amended previously filed tax returns (for tax years 1997-2002) in an effort to remove the restrictions under Section 382 of the Internal Revenue Code on approximately $73.8 million of the above NOLs to reduce future taxable income. These NOLs relate to fresh start accounting from the Company's reorganization in 1992. To the extent that the Company reduces future taxable income from the utilization of these NOLs, it will result in a corresponding reduction in intangible assets existing at the date of fresh start. The Internal Revenue Service is currently examining the Company's filing position in these amended returns. Consequently, the accompanying financial statements and table of deferred items have only recognized benefits related to the NOLs to the extent of the Section 382 Amount reported in its tax returns prior to its amendments. Additionally, the Company has state NOLs (primarily California) totaling $25.1 million. The state NOLs primarily expire by fiscal 2015.

At July 31, 2005, the Company has approximately $3.1 million in unused general business credit carryovers that expire in the years 2010 through 2025 and approximately $5.1 million in unused minimum tax credit carryovers that do not expire. Additionally, at July 31, 2005, the Company has $1.5 million of charitable contribution carryforwards that may be carried forward to future years' tax returns for the next five years.

The Internal Revenue Service is currently examining the Company's tax returns for tax years 2001 through 2003. Management believes that the ultimate resolution of this examination will not result in a material adverse effect to the Company's financial position or results of operations, however, no guarantee can be as to the ultimate outcome.

In fiscal 2005, the valuation allowance increased by approximately $919,000 due to the increase in the California NOLs generated in the current year. Management has determined that it is more likely than not that a portion of its deferred tax assets, those primarily generated from California NOL carryovers, will not be realized.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of July 31, 2005 and July 31, 2004 are as follows (in thousands):

 

July 31,

 

    2005   

 

    2004   

       

Deferred income tax liabilities:

     
 

Fixed assets and investments

$   97,307

 

$  109,313

 

Intangible assets

19,309

 

21,280

 

Other, net

      1,893

 

       1,366

 

Total

118,509

 

131,959

Deferred income tax assets:

     
 

Accrued expenses

11,675

 

14,021

 

Net operating loss carryforwards and minimum and other tax credits

17,106

 

21,122

 

Deferred membership revenue

29,284

 

26,215

 

Other, net

      2,245

 

       3,619

 

Total

60,310

 

64,977

Valuation allowance for deferred income taxes

    (1,605)

 

     (686)

Deferred income tax assets, net of valuation allowance

    58,705

 

     64,291

Net deferred income tax liability

$   59,804

 

$    67,668



The net current and non-current components of deferred income taxes recognized in the consolidated balance sheets are as follows (in thousands):

 

July 31,

 

    2005    

 

    2004    

       
       

Net current deferred income tax asset

$  11,405

 

$    12,077

Net non-current deferred income tax liability

   71,209

 

      79,745

 

Net deferred income tax liability

$  59,804

 

$    67,668



Significant components of the provision (benefit) for income taxes are as follows (in thousands):

 

Fiscal Year Ended

 

July 31,

 

    2005  

 

    2004   

 

    2003   

           

Current:

         
 

Federal

$   15,317

 

$  (1,822)

 

$ (9,775)

 

State

      2,604

 

         219

 

        (65)

 

Total current

17,921

 

(1,603)

 

(9,840)

Deferred:

         
 

Federal

(6,731)

 

(843)

 

4,361

 

State

       (644)

 

       (175)

 

        (86)

 

Total deferred

(7,375)

 

(1,018)

 

4,275

Tax benefit related to exercise of stock options and issuance of restricted stock

      3,939

 

            64

 

           87

Provision (benefit) for income taxes

$   14,485

 

$  (2,557)

 

$ (5,478)



A reconciliation of the income tax provision (benefit) from continuing operations and the amount computed by applying the U.S. federal statutory income tax rate to income (loss) before income taxes is as follows:

 

Fiscal Year Ended

 

July 31,

 

    2005  

 

    2004  

 

    2003  

       
           

At U.S. federal income tax rate

35.0%

 

(35.0)%

 

(35.0)%

State income tax, net of federal benefit

3.3%

 

--%

 

(2.6)%

Benefit of state tax reduction

--%

 

--%

 

(4.1)%

Nondeductible compensation

0.7%

 

6.0%

 

8.0%

Nondeductible meals or entertainment

0.6%

 

2.5%

 

2.2%

General business credits

(1.2)%

 

(4.5)%

 

(3.9)%

Other

      0.1%

 

      1.0%

 

   (3.7)%

 

    38.5%

 

  (30.0)%

 

  (39.1)%



12.  Related Party Transactions

Historically, the Company has paid a fee to Apollo Advisors for management services and expenses related thereto. In fiscal 2004, this fee was $500,000. In connection with the conversion by Apollo Ski Partners, L.P. ("Apollo") of its Class A Common Stock into shares of Common Stock, this arrangement was terminated effective October 1, 2004. The Company recorded $83,000 of expense related to this fee in the year ended July 31, 2005 (see Note 16, Class A Common Stock Conversion, for more information regarding this matter).

The Company has the right to appoint 4 of 9 directors of the Beaver Creek Resort Company of Colorado ("BCRC"), a non-profit entity formed for the benefit of property owners and certain others in Beaver Creek. The Company has a management agreement with the BCRC, renewable for one-year periods, to provide management services on a fixed fee basis. Management fees and reimbursement of operating expenses paid to the Company under its agreement with the BCRC during the years ended July 31, 2005, 2004 and 2003 totaled $6.3 million, $6.9 million and $6.2 million, respectively. The Company had a receivable with respect to this arrangement of $50,000 and $230,000 as of July 31, 2005 and 2004, respectively.

The Company previously had a 49% ownership interest in BG Resort, which it sold in December 2004. In August 2004, BG Resort repaid the $4.9 million principal balance note receivable which was outstanding to the Company as of July 31, 2004 from funds obtained by BG Resort in a debt refinancing.

In August 2003, the Company became the bookkeeper for BG Resort. The Company's responsibilities include maintaining the books and records of BG Resort and overseeing the annual financial statement audit. The Company recorded revenues of $85,000 and $108,000 in fiscal 2005 and 2004, respectively, related to this agreement.

In November 2002, the Company purchased an approximately 20,000 square foot spa and skier services area and 30 parking spaces from BG Resort for $13.3 million. The Company recorded revenues of $2.5 million, $2.3 million and $1.1 million during fiscal years 2005, 2004 and 2003, respectively, related to use of the spa by guests of the Ritz-Carlton, Bachelor Gulch (the "Ritz").

On December 7, 2000, the Company and BG Resort entered into a Golf Course Access Agreement (the "Golf Agreement") which gave Ritz guests preferential tee times at Red Sky Ranch Golf Course (the "Course"). For this privilege, BG Resort paid a one-time access fee of $3.0 million to the Company. The term of the Golf Agreement commenced with the opening date of the Course and will expire on the later of (1) 50 years after the opening date of the Course or (2) the date on which the Operating Agreement expires or is terminated. The Company recognized approximately $60,000, $60,000 and $30,000 in revenues related to the Golf Agreement in fiscal 2005, 2004 and 2003, respectively.

As of July 31, 2005, the Company has outstanding a $500,000 long-term note receivable from KRED, an entity in which the Company has a 50% interest. This note is related to the fair market value of the land originally contributed to the partnership, and is repaid as the underlying land is sold to third parties. KRED made principal payments totaling $2.0 million in fiscal 2005 related to this note. In addition, the Company previously had a receivable from KRED in the amount of $355,000 related to advances used for development project funding. In the fourth quarter of fiscal 2005, this receivable, including accrued interest, was converted to equity in KRED in lieu of payment of the receivable by KRED. The Company received interest payment from KRED of $49,000, $59,000 and $229,000 during fiscal years 2005, 2004 and 2003, respectively.

SSF/VARE is a real estate brokerage with multiple locations in Eagle and Summit counties, Colorado in which the Company has a 50% interest. SSF/VARE is the broker for several of the Company's developments. The Company paid real estate commissions of approximately $695,000, $1.0 million and $2.4 million to SSF/VARE in fiscal 2005, 2004 and 2003, respectively. SSF leases several spaces for real estate offices from the Company. The Company recognized approximately $370,000, $330,000 and $464,000 in revenues related to these leases in fiscal 2005, 2004 and 2003, respectively.

The Company, through various lodging subsidiaries, serves as the management company for seven hotels not owned by the Company. Receivables from management fees and other items from these seven properties were $345,000 and $380,000 at July 31, 2005 and 2004, respectively, which is included in "trade receivables" in the accompanying consolidated balance sheets. The Company recorded management fee revenue of $2.7 million, $2.3 million and $2.3 million in fiscal 2005, 2004 and 2003, respectively, with regards to these agreements. The Company received reimbursements of $1.5 million, $1.5 million and $3.7 million in fiscal 2005, 2004 and 2003, respectively, for out-of-pocket expenses from the managed hotels. Although the employees of the managed hotels are employees of the Company, their payroll is paid by the hotel owners. Payroll costs for these employees of $18.8 million, $18.8 million and $23.7 million were paid by the hotel owners in fiscal 2005, 2004 and 2003, respectively.

In September 2004, James P. Thompson, former President of VRDC, repaid the $350,000 principal balance note receivable and associated accrued interest which was outstanding to the Company as of July 31, 2004 under a note originally extended to Mr. Thompson and his wife in 1995. Mr. Thompson ceased to be an employee on May 31, 2005.

In October 2003, Andrew P. Daly, the Company's former President, repaid the $300,000 principal balance note receivable and associated accrued interest under a note extended to Mr. Daly in 1991. Effective October 31, 2002, Mr. Daly ceased to be an employee of the Company. The Company recorded $1.3 million of compensation expense in its first fiscal quarter of 2003 in relation to Mr. Daly's severance agreement.

In 1999, the Company entered into an agreement with William A. Jensen, Senior Vice President and Chief Operating Officer for Vail Mountain, whereby the Company invested in the purchase of a primary residence for Mr. and Mrs. Jensen in Vail, Colorado. The Company contributed $1.0 million towards the purchase price of the residence and thereby obtained an approximate 49% undivided ownership interest in such residence. The Company shall be entitled to receive its proportionate share of the fair value of the residence, less certain deductions, upon the earlier of the resale of the residence or within approximately 18 months after Mr. Jensen's termination of employment from the Company.

In February 2001, the Company invested in the purchase of a primary residence in the Vail Valley for Martin White, former Senior Vice President of marketing for the Company. The Company contributed $600,000 towards the purchase price of the residence and thereby obtained an approximate 37.5% undivided ownership interest in such residence. In July 2003, Mr. White ceased to be an employee of the Company. In June 2004, Mr. White's former residence was sold for $1.8 million. The net proceeds to the Company for its 37.5% ownership interest were approximately $644,000, $44,000 in excess of the Company's investment.

In February 2001, the Company invested in the purchase of a primary residence in Breckenridge, Colorado for Roger McCarthy, Senior Vice President and Chief Operating Officer for Breckenridge. The Company contributed $400,000 towards the purchase price of the residence and thereby obtained an approximate 40% undivided ownership interest in such residence. The Company shall be entitled to receive its proportionate share of the fair value of the residence, less certain deductions, upon the earlier of the resale of the residence or within approximately 18 months after Mr. McCarthy's termination of employment from the Company.

In July 2002, RockResorts entered into an agreement with Edward E. Mace, President of RockResorts and of Vail Resorts Lodging Company, whereby RockResorts invested in the purchase of a residence for Mr. Mace and his family in Eagle County, Colorado. RockResorts contributed $900,000 towards the purchase price of the residence and thereby obtained an approximate 47% undivided ownership in such residence. RockResorts shall be entitled to receive its proportionate share of the fair value of the residence, less certain deductions, upon the earlier of the resale of the residence or within approximately 18 months after Mr. Mace's termination of employment from RockResorts.

In July 2002, the Company purchased from Richard Lesman, former Vice President of Sales for the Company, and his spouse, Mary Lesman, his former residence located in Carmel, Indiana, for a price of $511,250, which approximated the appraised value at the time. The purchase was made to facilitate Mr. Lesman's move in connection with his employment by the Company. In June 2003, the Company sold the home for $476,000. In July 2003, Mr. Lesman ceased to be an employee of the Company.

In November 2002, Heavenly Valley Limited Partnership ("Heavenly LP"), a wholly owned subsidiary of the Company, invested in the purchase of a residence in the greater Lake Tahoe area for Blaise Carrig, Chief Operating Officer for Heavenly. Heavenly LP contributed $449,500 toward the purchase price of the residence and thereby obtained a 50% undivided ownership interest in such residence. Heavenly LP shall be entitled to receive its proportionate share of the fair value of the residence, less certain deductions, upon the earlier of the resale of the residence or within approximately 18 months after Mr. Carrig's termination of employment from Heavenly LP.

In September 2003, the Company invested in the purchase of a residence in Eagle County, Colorado for Jeffrey W. Jones, the Company's Senior Vice President and Chief Financial Officer, and his family. The Company contributed $650,000 toward the purchase price of the residence and thereby obtained a 46.1% undivided ownership interest in such residence. The Company shall be entitled to receive its proportionate share of the fair value of the residence, less certain deductions, upon the earlier of the resale of the residence or within approximately 18 months after Mr. Jones' termination of employment from the Company.

In February 2003, Marc J. Rowan, a director of the Company and a founding principal of Apollo Advisors, and Michael Gross (also a founding principal of Apollo Advisors) each purchased a homesite at Bachelor Gulch Village. The purchases occurred pursuant to the September 1999 contracts between the Company and the purchasers, as previously disclosed in the Company's annual proxy statements since 1999. The purchase price for each site was $378,000, which the Company believed at the time to be the approximate fair market value of the sites at the time of the original contracts, less a credit of $132,300 for certain infrastructure costs, such as architectural plans, necessary to develop the sites. The Company determined the sales price at the time of discussions with Mr. Rowan about a possible purchase more than a year prior to the September 1999 execution of the contracts based on a formula used by VRDC for establishing the base land price of a development parcel for multiple homesites under contract at the time to a third party developer, and the assumed square footage of the residence expected to be built on the sites as indicated by Messrs. Rowan and Gross. Also, as previously stated in the Company's proxy statements, the contracts were amended to extend the original closing dates on each property from January 2001 to January 2003. As previously disclosed in the Company's Form 10-Q for the third quarter of 2003, the Company believes that, at the time of the closing of the purchases by Messrs. Rowan and Gross in February 2003, the fair market value of each site was approximately $1.6-$1.7 million, based generally on the Company's familiarity with appreciated values of Bachelor Gulch real estate. Additionally, the Company has been advised by Mr. Rowan and Mr. Gross that each has sold the properties for approximately that amount. Upon further review of the transactions, the Company has determined that, due to differences between the expected sizes of the residences to be built on the properties contracted to be sold to Mr. Rowan and Mr. Gross, as compared to properties under contract with the third party developer, and in light of the actual sales prices of homesites in excess of the base land prices as sold by the third party developer, the market value of the two sites at the time of execution of the contracts with Mr. Rowan and Mr. Gross should have been approximately $601,000 each. The infrastructure credit corresponded to an estimate by VRDC of the amount the Company would have had to spend on infrastructure had the properties been sold to the third party developer. Mr. Rowan and Mr. Gross have each made a supplemental payment of $223,000 (reflecting the difference between $601,000 and the stated purchase price), plus an additional payment equal to the amount of the infrastructure credit and any additional amounts that the Company paid for infrastructure in connection with the lots, plus interest on these amounts from the date of closing of the properties to receipt of the payments.

In December 2004, Adam Aron, Chairman of the Board of Directors and Chief Executive Officer of the Company, and Ronald Baron, a significant shareholder in the Company, reserved the purchase of condominium units at the planned "Arrabelle" project located in the core of LionsHead. In April 2005, Mr. Aron executed a purchase and sale agreement for the purchase of a condominium unit for a total purchase price of $4.6 million. Mr. Aron provided earnest money deposits totaling $690,000. In May 2005, Mr. Baron and his wife executed a purchase and sale agreement for the purchase of a condominium unit for a total purchase price of $14.0 million. Mr. and Mrs. Baron provided earnest money deposits totaling $2.1 million. The earnest money deposits will be used to fund the construction of the Arrabelle project, which began in May 2005. The earnest money deposits are only refundable at the Company's discretion or if the Company fails to complete the project. Closing on the condominiums is expected in late fiscal 2007. The sale of the condominiums has been approved by the Board of Directors of the Company, in accordance with the Company's related party transactions policy.

13.  Commitments and Contingencies

Metropolitan Districts

The Company credit-enhances $8.5 million of bonds issued by Holland Creek Metropolitan District ("HCMD") through an $8.6 million letter of credit issued against the Company's bank credit facility. HCMD's bonds were issued and used to build infrastructure associated with the Company's Red Sky Ranch residential development. The Company has agreed to pay capital improvement fees to Red Sky Ranch Metropolitan District ("RSRMD") until RSRMD's revenue streams from property taxes are sufficient to meet debt service requirements under HCMD's bonds, and the Company has recorded a liability of $1.7 million and $1.9 million, primarily within "other long-term liabilities" in the accompanying consolidated balance sheets, at July 31, 2005 and 2004, 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 fiscal 2008.

The Company previously had a $15.1 million liability for capital improvements fees payable to Bachelor Gulch Metropolitan District ("BGMD") in connection with bonds issued by Smith Creek Metropolitan District ("SCMD"), the proceeds of which were used to build infrastructure associated with development of Bachelor Gulch Village. In March 2004, BGMD issued bonds and the proceeds were used to retire the SCMD bonds. As a result, the Company no longer has an obligation to pay capital improvement fees to BGMD, and in fiscal 2004 the associated liability was relieved with the offset a reduction to Real Estate segment operating expense.

Guarantees

As of July 31, 2005, the Company had various other letters of credit outstanding in the amount of $71.1 million, a portion of which are not issued against the Credit Facility, consisting primarily of $51.0 million in support of the Employee Housing Bonds, $6.1 million related to workers' compensation for Heavenly and Rancho Mirage, a $4.2 million letter of credit issued in support of the SSV Facility, $6.9 million of construction performance guarantees and $2.3 million for workers' compensation and general liability deductibles related to the construction of Gore Creek Place and Arrabelle at Vail Square.

In addition to the guarantees noted above, the Company has entered into contracts in the normal course of business which include certain indemnifications within the scope of FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" 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 based upon the Company's 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 indemnifies its directors and officers over their lifetimes for certain events or occurrences while the officer or director is, or was, serving the Company 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 limits exposure and should enable the Company to recover a portion of any future amounts paid. The Company has not recorded a liability associated with this indemnification as of July 31, 2005 because the Company has assessed the fair market value associated with potential payment obligations under the indemnification to be immaterial or because the indemnifications were entered into prior to January 1, 2004.

The Company guarantees the revenue streams associated with selected routes flown by certain airlines into Eagle County Regional Airport; these guarantees are generally capped at certain levels. As of July 31, 2005, the Company has recorded a liability related to the airline guarantees of $700,000, which also represents the maximum amount the Company would be required to pay. Payments, if any, under these guarantees are expected to be made in fiscal 2006.

In conjunction with the Company's sale of its ownership interest in BG Resort (See Note 8, Sale of Businesses), the Company has guaranteed payment, if any, of certain contingencies of BG Resort upon settlement. As of July 31, 2005, the Company has recorded a liability related to these contingencies in the amount of $130,000. The maximum amount that the Company would be required to pay under this agreement is approximately $424,000.

Unless otherwise noted, the Company has not recorded a liability for the letters of credit, indemnities and other guarantees noted above in the accompanying Consolidated Financial Statements, either because the Company has recorded on its consolidated balance sheet the underlying liability associated with the guarantee, the guarantee or indemnification existed prior to January 1, 2003 and is therefore not subject to the measurement requirements of FIN 45, or because the Company has calculated the fair value of the indemnification or guarantee to be de minimus based upon the current facts and circumstances that would trigger a payment under the indemnification clause. In addition, with respect to certain indemnifications it is not possible to determine the maximum potential amount of liability under these guarantees due to the unique set of facts and circumstances that are likely to be involved in each particular claim and indemnification provision. Historically, payments made by the Company under these obligations have not been material.

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

Commitments

In the ordinary course of obtaining necessary zoning and other approvals for the Company's potential real estate development projects, the Company may contingently commit to the completion of certain infrastructure, improvements and other costs related to the projects. Fulfillment of such commitments is required only if the Company moves forward with the development project. The determination of whether the Company ultimately completes a development project is entirely at the Company's discretion, and is generally contingent upon, among other considerations, receipt of satisfactory zoning and other approvals and the current status of the Company's analysis of the economic viability of the project, including the costs associated with the contingent commitments. The Company currently has obligations, recorded as liabilities in the accompanying consolidated balance sheets, to complete or fund certain improvements with respect to real estate developments; the Company has estimated such costs to be approximately $8.0 million as of July 31, 2005, and anticipates completion of the majority of these commitments within the next two years.

In connection with the Arrowhead real estate development, the Company recorded certain obligations for the construction of amenities benefiting the real estate development. In fiscal 2004, in connection with the consummation of the sale of the last parcel at Arrowhead, the Company recorded a $1.2 million reduction to real estate cost of sales, representing the remaining obligations for the construction of amenities that the Company deemed were not necessary to construct with the closing of the last parcel sale.

The Company agreed to install two new chairlifts and related infrastructure at Beaver Creek for the 2004/05 ski season and one chairlift and related infrastructure by the 2005/06 ski season pursuant to agreements with Bachelor Gulch Village Association ("BGVA"), BCRC and Beaver Creek Property Owner Association. In connection with these agreements, BGVA had deposited $5 million, BCRC had deposited $4 million and the Company had deposited $1 million into an escrow account to be used by the Company to fund the construction of the chairlifts. As of July 31, 2005, all of the escrowed funds have been remitted to the Company as reimbursement for construction costs of the chairlifts and related infrastructure. The funds received from BGVA and BCRC reduced the book value of the chairlifts and related infrastructure. The Company completed the chairlifts and related infrastructure as required for the 2004/05 ski season. The estimated net cost to the Company to complete the remaining lift and related infrastructure as of July 31, 2005 is $4.1 million.

The Company has executed as lessee operating leases for the rental of office and commercial space, employee residential units and office equipment through fiscal 2011. Certain of these leases have renewal terms at the Company's option and/or escalation clauses (primarily based on the Consumer Price Index). For the fiscal years ended July 31, 2005, 2004 and 2003, the Company recorded lease expense related to these agreements of $13.7 million, $16.3 million and $22.5 million, respectively, which is included in the accompanying consolidated statements of operations.

Future minimum lease payments under these leases as of July 31, 2005 are as follows (in thousands):

2006

$ 10,354

2007

7,896

2008

6,497

2009

3,657

2010

2,699

Thereafter

     2,388

Total

$ 33,491



Self Insurance

The Company is self-insured for medical and workers' compensation under a stop loss arrangement. The self-insurance liability related to workers' compensation is determined actuarially based on claims filed. The self-insurance liability related to medical claims is determined based on internal and external analysis of actual claims. The amounts related to these claims are included as a component of accrued benefits in accounts payable and accrued expenses (see Note 5, Supplementary Balance Sheet Information).

Legal

The Company is a party to various lawsuits arising in the ordinary course of business, including Resort related cases and contractual and commercial litigation that arises from time to time in connection with the Company's real estate and other business operations. Management believes the Company has adequate insurance coverage or has accrued for loss contingencies for all known matters that are deemed to be probable losses and estimable.

Gilman Litigation Appeal

The Company appealed an adverse decision by the Eagle County District Court of Colorado, rendered on September 24, 2003, relating to the Company's interest in real property in Eagle County, Colorado commonly known as the "Gilman" property. The litigation commenced in November 1999 involving a dispute between a Company subsidiary, as the holder of an option to acquire a 50% interest in the entity that owned the property, and Turkey Creek LLC ("Turkey Creek"), the owner of the property. The property consists of approximately 6,000 acres of rugged, high altitude land in close proximity to Vail Mountain. Turkey Creek assembled the property over many years from various parcels, old mining claims and other property.

Vail Associates originally acquired the option in 1992 under an option agreement between Vail Associates and Turkey Creek. The option agreement was amended and extended several times over the years between 1992 and 1999. During those years, Vail Associates funded all of the acquisition costs to buy the parcels comprising the property and holding costs related to the property, such as real estate taxes and litigation costs to perfect title to the property. Between 1992 and 1999, Vail Associates invested approximately $4.8 million of such funds to maintain and preserve its 50% option interest.

In November 1999, a Company subsidiary (the successor to Vail Associates under the option) exercised the option to acquire the 50% interest in the entity that owned the property. Turkey Creek, however, refused the exercise, claiming that the Company's proposal to pursue a strategy to find a buyer who would put most of the property into conservation or open space uses was a breach of the option agreement, which contemplated "prompt and diligent development" of the property upon exercise of the option.

The Court found that the Company's subsidiary repudiated the option agreement in advance of the exercise of the option by not committing to prompt and diligent development and that "development" did not include selling the land to a buyer for conservation. The Court further found that Turkey Creek was entitled to terminate the contract and refuse the exercise and that the Company's subsidiary was not entitled to any interest in the property.

As a result of the Court's decision, the Company recorded a non-cash asset impairment charge of $4.8 million in fiscal 2003, the amount previously carried on the Company's consolidated balance sheet reflecting its investment. The Company appealed the adverse decision, primarily on the basis that the Court applied the wrong legal standard in deciding the issue. In August 2005, a three judge panel vacated the trial court's judgment and remanded the case back to the trial court to apply the correct legal standard and identify facts that meet the correct legal standard. The appellee's motion for reconsideration of the Court of Appeals decision was denied.

During the pendency of the appeal, Turkey Creek sold the property for approximately $33 million to an unrelated third party developer. Accordingly, the outcome of the case will relate only to an economic resolution between the parties and will not affect the real property now owned by the third party. The Company cannot predict the ultimate outcome of the matter.

Breckenridge Terrace Employee Housing Construction Defect/Water Intrusion Claims

During fiscal 2004, the Company became aware of water intrusion and condensation problems causing mold damage in the 17 building, employee housing facility owned by Breckenridge Terrace, LLC ("Breckenridge Terrace"), an employee housing entity in which the Company is a member and manager. As a result, the facility was not available for occupancy during the 2003/04 ski season. All buildings at the facility required mold remediation and reconstruction (the "reconstruction") and this work began in fiscal 2004. Breckenridge Terrace recorded a $7.0 million liability in fiscal 2004 for the estimated cost of remediation and reconstruction efforts. These costs were funded by a loan to Breckenridge Terrace from the Company member of the LLC. As of July 31, 2005, Breckenridge Terrace had a remaining liability of $871,000 for future remaining remediation and reconstruction costs. With the exception of one building which has been kept in its original design and construction for evidentiary purposes (see discussion below), the remaining 16 buildings became available for occupancy in the second quarter of fiscal 2005. The Company anticipates it will incur the remaining amount of remediation and reconstruction costs before the end of fiscal 2006.

Forensic construction experts retained by Breckenridge Terrace have determined that the water intrusion and condensation problems are the result of construction and design defects. In accordance with Colorado law, Breckenridge Terrace served separate notices of claims on the general contractor, architect and developer and initiated arbitration proceedings. In September 2005, Breckenridge Terrace agreed to settle its claims against the general contractor and the architect for an aggregate amount of $800,000 and will recognize the settlement amount as reduction of the remediation expense upon receipt. Claims against the developer were not settled and Breckenridge Terrace is reviewing its legal options in that regard.

SEC Investigation Terminated

In February 2003, the SEC issued a formal order of investigation with respect to the Company. On September 19, 2005, the Central Regional Office of the SEC informed the Company that its investigation has been terminated, and that no enforcement action has been recommended regarding the Company. The Company has also been informed that no enforcement action has been recommended with respect to any present or former directors, officers or employees of the Company in regard to the matters that had been under investigation.

14.  Segment Information

The Company has three reportable segments: Mountain, Lodging and Real Estate operations. The Mountain segment includes the operations of the Company's ski resorts and related ancillary activities. The Lodging segment includes the operations of all of the Company's owned hotels, RockResorts, GTLC, condominium management and golf operations. The Resort segment is the combination of the Mountain and Lodging segments. The Real Estate segment develops, buys and sells real estate in and around the Company's mountain resort communities. The Company's reportable segments, although integral to the success of the others, offer distinctly different products and services and require different types of management focus. As such, these segments are managed separately.

The Company reports its segment results using Reported EBITDA which is a non-GAAP financial measure, defined as segment net revenues less segment specific operating expenses plus segment specific gains on transfer of property plus segment equity income. SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" requires the Company to report segment results in a manner consistent with management's internal reporting of operating results to the chief operating decision maker (as defined in SFAS No. 131) for purposes of evaluating segment performance. Therefore, since the Company uses Reported EBITDA to measure performance of segments for internal reporting purposes, the Company will continue to use Reported EBITDA to report segment results.

Reported EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of America. 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, cash flows generated by operations, investing or financing activities or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Reported EBITDA is not a measurement determined in accordance with accounting principles generally accepted in the United States of America and is thus susceptible to varying calculations, Reported EBITDA as presented may not be comparable to other similarly titled measures of other companies.

The Company evaluates performance and allocates resources to its segments based on Reported EBITDA, as previously defined. Mountain Reported EBITDA consists of net mountain revenue plus mountain equity investment income less mountain operating expense. Lodging Reported EBITDA consists of net lodging revenue plus lodging equity investment income less lodging operating expense. Real Estate Reported EBITDA consists of net real estate revenue plus real estate equity investment income (loss) plus gains on transfers of property less real estate operating expense. All segment expenses include an allocation of corporate administrative expense. Assets are not allocated between segments, or used to evaluate performance, except as shown in the table below. The accounting policies specific to each segment are the same as those described in Note 2, Summary of Significant Accounting Policies.

Following is key financial information by reportable segment which is used by management in evaluating performance and allocating resources (in thousands):

 

Fiscal Year Ended

 

July 31,

 

     2005   

 

     2004   

 

    2003    

           

Net revenue:

         
 

Mountain

$   540,855

 

$   500,995

 

$   460,568

 

Lodging

   196,351

 

     180,525

 

    172,003

 

Resort

737,206

 

681,520

 

632,571

 

Real estate

     72,781

 

      45,123

 

      80,401

 

$   809,987

 

$   726,643

 

$   712,972

Equity investment income (loss):

         
 

Mountain

$       2,303

 

$      1,376

 

$       1,009

 

Lodging

     (2,679)

 

     (3,432)

 

      (5,995)

 

Resort

(376)

 

(2,056)

 

(4,986)

 

Real estate

         (102)

 

          460

 

       3,962

 

$        (478)

 

$    (1,596)

 

$    (1,024)

Reported EBITDA:

         
 

Mountain

$  151, 269

 

$   133,496

 

$     99,446

 

Lodging

       16,203

 

     11,110

 

        4,162

 

Resort

167,472 

 

144,606

 

103,608

 

Real estate

       14,425

 

     30,939

 

      17,721

 

$   181,897

 

$  175,545

 

$   121,329

           

Investments in real estate

$     72,164

 

$     27,802

 

$    22,572

             

Real estate held for sale and investment

$   154,874

 

$   134,548

 

$    123,223

           

Long-term real estate deposits

$     37,829

 

$            --

 

$            --

           

Reconciliation to consolidated income (loss) before provision for income taxes:  

         

Mountain Reported EBITDA

$   151,269

 

$   133,496

 

$    99,446

Lodging Reported EBITDA

       16,203

 

     11,110

 

       4,162

Resort Reported EBITDA

167,472

 

144,606

 

103,608

Real Estate Reported EBITDA

       14,425

 

     30,939

 

     17,721

 

Total Reported EBITDA

181,897

 

   175,545

 

121,329

Depreciation and amortization

(89,968)

 

(86,377)

 

(82,242)

Asset impairment charges

(2,550)

 

(1,108)

 

(4,830)

Mold remediation charge

--

 

(5,500)

 

--

Loss on disposal of fixed assets, net

(1,528)

 

(2,345)

 

(794)

Investment income, net

2,066

 

1,886

 

2,011

Interest expense

(40,298)

 

(47,479)

 

(50,001)

Loss on extinguishment of debt

(612)

 

(37,084)

 

--

Loss from sale of businesses, net

(7,353)

 

--

 

--

Gain (loss) on put options, net

1,158

 

(1,875)

 

1,569

Other income (expense), net

50

 

(179)

 

17

Minority interest in income of consolidated subsidiaries, net

       (5,239)

 

    (4,000)

 

    (1,064)

Income (loss) before (provision) benefit for income taxes

$      37,623

 

$   (8,516)

 

$ (14,005)

           


In fiscal 2005, the Company changed the way certain club dues revenues were assigned between segments. Conforming reclassification were made to fiscal years 2004 and 2003.

15.  Selected Quarterly Financial Data (Unaudited--in thousands, except per share amounts)

 

                                        Fiscal 2005                                         

 

Year

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

Ended

 

Ended

 

Ended

 

Ended

 

Ended

 

July 31,

 

July 31,

 

April 30,

 

January 31,

 

October 31,

 

   2005  

 

    2005   

 

   2005   

 

      2005      

 

      2004      

                   
                   

Mountain revenue

$ 540,855

 

$   35,371

 

$ 256,825

 

$   214,166

 

$      34,493

Lodging revenue

196,351

 

51,202

 

56,285

 

42,589

 

46,275

Real estate revenue

     72,781

 

    33,452

 

    14,341

 

      7,873

 

     17,115

 

Total net revenue

809,987

 

120,025

 

327,451

 

264,628

 

97,883

Income (loss) from operations

88,329

 

(39,722)

 

109,073

 

60,599

 

(41,621)

(Loss) gain from sale of businesses, net

(7,353)

 

(13,043)

 

(3)

 

5,693

 

--

Net income (loss)

23,138

 

(36,435)

 

58,788

 

32,241

 

(31,456)

Basic net income (loss) per common share

0.65

 

(1.00)

 

1.64

 

0.91

 

(0.89)

Diluted net income (loss) per common share

$       0.64

 

$     (1.00)

 

$      1.61

 

$        0.89

 

$      (0.89)

                   
 

                                        Fiscal 2004                                        

 

Year

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

Ended

 

Ended

 

Ended

 

Ended

 

Ended

 

July 31,

 

July 31,

 

April 30,

 

January 31,

 

October 31,

 

   2004   

 

   2004   

 

   2004   

 

   2004   

 

      2003      

                   
                   

Mountain revenue

$ 500,995

 

$  33,980

 

$ 233,400

 

$    200,149

 

$      33,466

Lodging revenue

180,525

 

46,582

 

50,910

 

39,243

 

43,790

Real estate revenue

   45,123

 

    6,570

 

    4,165

 

      7,496

 

     26,892

 

Total net revenue

726,643

 

87,132

 

288,475

 

246,888

 

104,148

Income (loss) from operations

81,811

 

(43,590)

 

109,166

 

46,631

 

(30,396)

Net income (loss)

(5,959)

 

(36,304)

 

62,485

 

(6,737)

 

(25,403)

Basic net income (loss) per common share

(0.17)

 

(1.03)

 

1.77

 

(0.19)

 

(0.72)

Diluted net income (loss) per common share

$     (0.17)

 

$   (1.03)

 

$     1.77

 

$      (0.19)

 

$      (0.72)



16.   Class A Common Stock Conversion

In September 2004, the Company and Apollo entered into a Conversion and Registration Rights Agreement (the "Agreement"). Pursuant to the Agreement, Apollo converted all of its Class A common stock into shares of the Company's Common Stock. Apollo distributed the shares to its partners in proportion to each partner's interest in the partnership. Apollo did not dissolve after this distribution and continues to exist as a partnership. The Company, pursuant to the Agreement, filed a shelf registration statement in November 2004, covering certain of the shares owned by the limited partners of Apollo. Before the conversion, Apollo owned 6.1 million Class A Common shares or 99.9% of the Company's Class A Common Stock.

As a result of the above Agreement, the Company no longer has any Class A Common Stock outstanding and therefore has only one class of directors. Previously, the Class A Common Stock elected the Class 1 directors and the Common Stock elected the Class 2 directors. Additionally, as a result of the above Agreement, as of the date of the agreement, the Company's consolidated balance sheet no longer presents any Class A Common Stock and the full balance of the Company's common shares outstanding is presented under "common stock".

17.  Non-Cash Deferred Compensation

Pursuant to the employment agreement of Adam Aron, Chairman of the Board of Directors and Chief Executive Officer of the Company, entered into May 2001 and the amendment thereto entered into July 2003, Mr. Aron became fully vested in the following components of non-cash compensation as of August 3, 2003:

  • a one-time bonus of $600,000 which Mr. Aron used to purchase a Red Sky Ranch homesite and related Red Sky Golf Club membership from the Company for a purchase price of $600,000,
  • a one-time bonus of $1.5 million which Mr. Aron used to purchase the Beaver Creek property in which Mr. Aron currently resides and related Beaver Creek Club membership from the Company for a purchase price of $1.5 million, and
  • a one-time bonus of $659,750 which Mr. Aron used to purchase a Bachelor Gulch homesite and related Bachelor Gulch Club and Red Sky Golf Club memberships.

The Bachelor Gulch homesite transaction was originally structured as the forgiveness of a loan in the amount of $645,750. The July 2003 amendment to Mr. Aron's employment agreement changed the structure of the agreement from loan forgiveness to a one-time bonus to comply with the provisions of the Sarbanes-Oxley Act of 2002. In addition, Mr. Aron's purchase contract and purchase price for the Bachelor Gulch homesite were not contingent upon any future service or performance; therefore, Mr. Aron was fully vested in this benefit in May 2001.

In fiscal years 2003 the Company recorded $1.8 million in compensation expense related to the previously non-vested portion of the non-cash compensation. The amount of compensation expense recorded was based on the estimated fair market values of the underlying real property and related memberships and was marked to market as necessary. In July 2003, the Company obtained various third-party valuations upon which to base the fair market value of the Red Sky Ranch and Beaver Creek transactions. The Company based the value of the Bachelor Gulch transaction on the assessed property tax value and comparable sales at the vesting date.

In addition, pursuant to the terms of the employment agreement, Mr. Aron vested in 165,000 shares of restricted stock in July 2003, which had a grant-date fair market value of $13.80 per share. The Company recorded compensation expense of $1.2 million in the fiscal 2003 related to this grant. Separately, Mr. Aron also vested in 7,500 shares of restricted stock in July 2003 pursuant to a grant made in September 2000. These shares had a grant-date fair value of $19.13 per share. The Company recorded compensation expense of $143,000 in fiscal 2003 related to these shares.

In March 2001, the Compensation Committee of the Company's Board of Directors granted James P. Thompson, former President of VRDC, a one-time bonus in the amount of $600,000 which Mr. Thompson was required to use to purchase a Red Sky Ranch homesite and related Red Sky Golf Club membership from the Company for a purchase price of $600,000; Mr. Thompson vested in this bonus as of July 1, 2003 and took title of the property and related membership in fiscal 2004. The Company recorded compensation expense of $388,000 during fiscal 2003 related to this transaction. The amount of compensation expense recorded was based on the appraised fair market value of the underlying real property and membership.

In fiscal 2004, Messrs. Aron and Thompson took title to the real property and related club memberships. The Company recognized a net gain of $2.1 million related to the transfer of the properties as "gain on transfer of property, net" in the accompanying consolidated statement of operations for fiscal 2004.

18.  Stock Compensation Plans

The Company has four fixed option plans: the 1993 Stock Option Plan ("1993 Plan"), the 1996 Long Term Incentive and Share Award Plan ("1996 Plan"), the 1999 Long Term Incentive and Share Award Plan ("1999 Plan") and the 2002 Long Term Incentive and Share Award Plan ("2002 Plan"). Under the 1993 Plan, incentive stock options (as defined under Section 422 of the Internal Revenue Code of 1986) or non-incentive stock options covering an aggregate of 2,045,510 shares of Common Stock may be issued to key employees, directors, consultants, and advisors of the Company or its subsidiaries. Exercise prices and vesting dates for options granted under the 1993 Plan are set by the Compensation Committee of the Company's Board of Directors ("Compensation Committee"), except that the vesting period must be at least six months and exercise prices for incentive stock options may not be less than the stock's market price on the date of grant. The terms of the options granted under the 1993 Plan are determined by the Compensation Committee, provided that all incentive stock options granted have a maximum life of ten years. 1,500,000, 2,500,000, and 2,500,000 shares of Common Stock may be issued in the form of options, stock appreciation rights ("SARs"), restricted shares, restricted share units, performance shares, performance share units, dividend equivalents or other share-based awards under the 1996 Plan, the 1999 Plan and the 2002 Plan, respectively. Under the 1996 Plan, the 1999 Plan and the 2002 Plan, awards may be granted to employees, directors or consultants of the Company or its subsidiaries or affiliates. The terms of awards granted under the 1996 Plan, the 1999 Plan and the 2002 Plan, including exercise price, vesting period and life, are set by the Compensation Committee. To date, no options have been granted to non-employees (except those granted to non-employee members of the board of directors of the Company and of a consolidated subsidiary) under any of the three plans. At July 31, 2005, approximately 98,000, 255,000, 549,000 and 449,000 options were available under the 1993 Plan, 1996 Plan, 1999 Plan and 2002 Plan, respectively.

A summary of the status of the Company's four fixed option plans as of July 31, 2005, 2004 and 2003 and changes during the years ended July 31, 2005, 2004 and 2003 is presented below (in thousands, except per share amounts):

 

Shares Subject to

 

Weighted Average Exercise Price

Fixed Options

Option

 

Per Share

Balance at July 31, 2002

3,810

 

$  19.67

 

Granted

878

 

16.80

 

Exercised

(33)

 

7.73

 

Forfeited

  (715)

 

  19.18

Balance at July 31, 2003

3,940

 

$  19.07

 

Granted

864

 

13.93

 

Exercised

(54)

 

12.96

 

Forfeited

  (297)

 

  18.75

Balance at July 31, 2004

4,453

 

$  18.32

 

Granted

790

 

18.76

 

Exercised

(1,244)

 

17.70

 

Forfeited

  (119)

 

  17.21

Balance at July 31, 2005

  3,880

 

$  18.64



The following table summarizes information about fixed options outstanding at July 31, 2005, 2004 and 2003 (in thousands, except per share and life amounts):

   

                  Options Outstanding                

 

    Options Exercisable    

Exercise Price Range Per

 

Shares

 

Weighted-Average Remaining Contractual Life Per

 

Weighted-Average Exercise Price Per

 

Shares

 

Weighted-Average Exercise Price Per

    Share     

 

Outstanding

 

      Share      

 

      Share     

 

Exercisable

 

      Share     

July 31, 2005:

               

$    11-15

 

959

 

7.7

 

$  14.33

 

471

 

$   14.08

>15-20

 

2,192

 

6.4

 

18.53

 

1,208

 

18.67

>20-25

 

619

 

2.7

 

24.16

 

619

 

24.16

    >25-29

 

    110

 

   2.8

 

   27.23

 

     110

 

    27.23

$     12-29

 

3,880

 

6.1

 

$  18.64

 

2,408

 

$  19.58

July 31, 2004:

               

$      9-13

 

76

 

6.2

 

$   11.43

 

38

 

$   11.09

>13-19

 

2,305

 

8.2

 

15.59

 

813

 

15.90

>19-25

 

1,955

 

4.3

 

21.28

 

1,955

 

21.28

    >25-29

 

    117

 

    3.8

 

    27.31

 

    117

 

    27.31

$      9-29

 

4,453

 

6.3

 

$   18.32

 

2,923

 

$   19.89

July 31, 2003:

               

$      9-13

 

117

 

6.7

 

$   11.53

 

47

 

$   10.75

>13-19

 

1,585

 

8.6

 

16.03

 

371

 

15.67

>19-25

 

2,122

 

5.3

 

21.31

 

1,960

 

21.49

    >25-29

 

    117

 

    4.8

 

    27.31

 

    117

 

    27.31

$      9-29

 

3,941

 

6.7

 

$   19.07

 

2,495

 

$   20.70



During fiscal 2004 and 2003, the Company granted restricted stock awards to certain executives under the 1993 Plan, the 1999 Plan and the 2002 Plan. The Company granted 49,500 shares of restricted stock awards with a weighted-average grant-date fair value of $14.73 per share in fiscal 2004 and 15,000 shares of restricted stock awards with a weighted-average grant-date fair value of $16.95 per share in fiscal 2003. The Company did not grant restricted stock awards in fiscal 2005. The awards vest and are issued in equal increments over periods ranging from 32 months to three years. Compensation expense related to these restricted stock awards is charged ratably over the respective vesting periods and was $348,000, $250,000 and $1.3 million for the years ended July 31, 2005, 2004 and 2003, respectively. During fiscal 2005, 2004 and 2003, the Company issued 14,813, 8,619 and 90,095 shares of common stock under vested restricted stock awards, respectively. Stock options are issued at the stock closing price on the day prior to the date of grant.

19.  Retirement and Profit Sharing Plans

The Company maintains a defined contribution retirement plan (the "plan"), qualified under Section 401(k) of the Internal Revenue Code, for its employees. Under this plan, employees are eligible to make before-tax contributions on the first day of the calendar month following the later of: (1) their employment commencement date or (2) the date they turn 21. Participants may contribute up to 100% of their qualifying annual compensation up to the annual maximum specified by the Internal Revenue Code. The Company matches an amount equal to 50% of each participant's contribution up to 6% of a participant's bi-weekly qualifying compensation upon obtaining the later of: (1) 12 consecutive months of employment and 1,000 service hours or (2) 1,500 service hours since the employment commencement date. The Company's matching contribution is entirely discretionary and may be reduced or eliminated at any time.

Total retirement plan expense recognized by the Company for the fiscal years ended July 31, 2005, 2004 and 2003 was $2.6 million, $2.7 million and $2.0 million, respectively.

20.  Workforce Reduction

In October 2002, the Company's president, Andy Daly, ceased to be an employee of the Company. The Company recorded $1.3 million of compensation expense in fiscal 2003 in relation to Mr. Daly's severance agreement, which was recorded as operating expense in the consolidated statement of operations. The final cash portion of Mr. Daly's severance benefits was paid in fiscal 2004.

In July 2003, the Company announced the restructuring of its sales and marketing focus and organization. The workforce reduction included the termination of three employees effective July 31, 2003 resulting in severance expense of approximately $505,000 including an incremental amount of associated benefits. The Company paid the full amount of the severance during fiscal 2004.

21.  Guarantor Subsidiaries and Non-Guarantor Subsidiaries

The Company's payment obligations under the 6.75% Notes (see Note 4, Long-Term Debt) are fully and unconditionally guaranteed on a joint and several, senior subordinated basis by substantially all of the Company's consolidated subsidiaries (collectively, and excluding Non-Guarantor Subsidiaries (as defined below), the "Guarantor Subsidiaries") except for Boulder/Beaver LLC, Colter Bay Corporation, Eagle Park Reservoir Company, Forest Ridge Holdings, Inc., Gros Ventre Utility Company, Jackson Lake Lodge Corporation, Jenny Lake Lodge, Inc., Mountain Thunder, Inc., RT Partners, Inc and RTP LLC ("RTP"), SSV, Larkspur Restaurant & Bar, LLC, Vail Associates Investments, Inc., Arrabelle at Vail Square, LLC, Gore Creek, Timber Trail, Inc. and VR Holdings, Inc. (together, the "Non-Guarantor Subsidiaries"). APII, FFT 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 indentures governing the 6.75% Notes.

Presented below is the consolidated financial information of Vail Resorts, Inc. (the "Parent Company"), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. Financial information for Larkspur Restaurant & Bar, LLC ("Larkspur") is presented separately as the Company owns less than 100% of this Guarantor Subsidiary. Financial information for RockResorts and JHL&S, LLC is no longer presented separately as the Company acquired the remaining minority interest in these Guarantor Subsidiaries during fiscal 2005, and reclassifications have been made to the financial information as of and for the years ended July 31, 2004 and 2003 to conform to the current period presentation. Financial information for the Non-Guarantor subsidiaries is presented in the column titled "Other Subsidiaries". Balance sheet data is presented as of July 31, 2005 and 2004. Statement of operations and statement of cash flows data are presented for the years ended July 31, 2005, 2004 and 2003.

Investments in subsidiaries are accounted for by the Parent Company and Guarantor Subsidiaries using the equity method of accounting. Net income 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 of the Guarantor and Non-Guarantor Subsidiaries is reflected in Guarantor Subsidiaries and Parent Company as equity in consolidated subsidiaries. The elimination entries eliminate investments in Other Subsidiaries and intercompany balances and transactions for consolidated reporting purposes.

 

Supplemental Condensed Consolidating Balance Sheet

As of July 31, 2005

(in thousands)

100% Owned

Parent

Guarantor

Other

    Eliminating

Company

Subsidiaries

Larkspur

Subsidiaries

Entries

Consolidated

Current assets:

Cash and cash equivalents

$             --

$        92,879

$       105

$        43,596

$                    --

$      136,580

Restricted cash

--

7,390

--

10,863

--

18,253

Trade receivables, net

--

27,867

103

5,166

--

33,136

Income taxes receivable

--

--

--

--

--

--

Inventories, net

--

8,491

157

27,430

--

36,078

Other current assets

11,418

15,109

40

5,535

--

32,102

Assets held for sale

               --

         26,735

          --

               --

                    --

             26,735

Total current assets

11,418

178,471

405

92,590

--

282,884

Property, plant and equipment, net

--

776,425

530

66,092

--

843,047

Real estate held for sale and investment

--

106,777

--

48,097

--

154,874

Deferred charges and other assets

6,067

16,320

--

10,248

--

32,635

Goodwill, net

--

118,475

--

17,032

--

135,507

Other intangibles, net

--

60,482

--

16,492

--

76,974

Investments in subsidiaries and advances to (from) parent

        942,888

      (424,752)

      (202)

       (58,036)

       (459,898)

                    --

Total assets

$      960,373

$       832,198

$      733

$       192,515

$     (459,898)

$     1,525,921

Current liabilities:

Accounts payable and accrued expenses

$        16,600

$       161,452

$      273

$        31,044

$                   --

$        209,369

Income taxes payable

12,979

--

--

--

--

12,979

Long-term debt due within one year

               --

             467

          --

           1,537

                    --

              2,004

Total current liabilities

29,579

161,919

273

32,581

--

224,352

Long-term debt

390,000

61,789

--

67,917

--

519,706

Other long-term liabilities

267

102,226

--

37,928

--

140,421

Deferred income taxes

--

70,819

--

390

--

71,209

Put option liabilities

--

34

--

--

--

34

Minority interest in net assets of consolidated subsidiaries

--

--

100

29,570

--

29,670

Total stockholders' equity

        540,527

         435,411

        360

         24,129

        (459,898)

          540,529

Total liabilities and stockholders' equity

$      960,373

$       832,198

$       733

$       192,515

$      (459,898)

$     1,525,921



 

Supplemental Condensed Consolidating Balance Sheet

As of July 31, 2004

(in thousands)

Parent Company

100% Owned Guarantor Subsidiaries

Larkspur

Other Subsidiaries

Eliminating Entries

Consolidated

Current assets:

Cash and cash equivalents

$              --

$         41,075

$              171

$            5,082

$                 --

$            46,328

Restricted cash

16,031

--

16,031

Receivables, net

--

25,486

167

6,262

--

31,915

Income taxes receivable

5,042

--

--

--

--

5,042

Inventories, net

--

8,494

155

22,502

--

31,151

Other current assets

       12,082

          11,765

                  35

              1,388

                   --

               25,270

Total current assets

17,124

102,851

528

35,234

--

155,737

Property, plant and equipment, net

--

901,822

583

66,367

--

968,772

Real estate held for sale and investment

--

129,030

--

5,518

--

134,548

Deferred charges and other assets

6,773

27,194

--

10,640

--

44,607

Goodwill, net

--

128,342

--

16,748

--

145,090

Other intangibles, net

--

67,671

--

17,532

--

85,203

Investments in subsidiaries and advances to (from) parent

     875,877

       (414,455)

             (359)

            (1,165)

        (459,898)

                       --

Total assets

$    899,774

$        942,455

$              752

$         150,874

$       (459,898)

$       1,533,957

Current liabilities:

Accounts payable and accrued expenses

$      18,298

$       154,083

$             322

$          26,165

$                   --

$          198,868

Long-term debt due within one year

            --

           1,548

                  --

            1,611

                    --

               3,159

Total current liabilities

18,298

155,631

322

27,776

--

202,027

Long-term debt

390,000

160,180

--

72,464

--

622,644

Other long-term liabilities

313

96,982

--

321

--

97,616

Deferred income taxes

--

79,156

--

589

--

79,745

Put option liabilities

--

3,657

--

--

--

3,657

Minority interest in net assets of consolidated subsidiaries

--

7,882

100

29,123

--

37,105

Total stockholders' equity

     491,163

        438,967

               330

            20,601

       (459,898)

           491,163

Total liabilities and stockholders' equity

$    899,774

$       942,455

$             752

$         150,874

$      (459,898)

$      1,533,957



 

Supplemental Condensed Consolidating Statement of Operations

For the year ended July 31, 2005

(in thousands)

                         
       

100% Owned

               
   

Parent

 

Guarantor

     

Other

 

Eliminating

   
   

Company

 

Subsidiaries

 

Larkspur

 

Subsidiaries

 

Entries

 

Consolidated

                         

Total revenue

$               48

 

$        675,176

 

$       3,291

 

$     140,288

 

$         (8,816)

 

$          809,987

Total operating expense

       15,515

 

        581,632

 

         3,415

 

        129,912

 

          (8,816)

 

             721,658

 

(Loss) income from operations

(15,467)

 

93,544

 

(124)

 

10,376

 

--

 

88,329

Other income (expense)

(27,706)

 

(15,274)

 

(21)

 

(3,146)

 

--

 

(46,147)

Equity investment income (loss), net

--

 

(478)

 

--

 

--

 

--

 

(478)

Gain on put options, net

--

 

1,158

 

--

 

--

 

--

 

1,158

Minority interest in income of consolidated subsidiaries, net

                  --

 

                   476

 

               --

 

          (5,715)

 

                  --

 

              (5,239)

 

Income (loss) before income taxes

(43,173)

 

79,426

 

(145)

 

1,515

 

--

 

37,623

Benefit (provision) for income taxes

          16,622

 

           (31,291)

 

               --

 

                184

 

                  --

 

            (14,485)

 

Net income (loss) before equity in income of consolidated subsidiaries

(26,551)

 

48,135

 

(145)

 

1,699

 

--

 

23,138

Equity in income (loss) of consolidated subsidiaries

           49,689

 

                      --

 

               --

 

                   --

 

         (49,689)

 

                       --

 

Net income (loss)

$         23,138

 

$            48,135

 

$       (145)

 

$           1,699

 

$       (49,689)

 

$             23,138



 

 

Supplemental Condensed Consolidating Statement of Operations

For the year ended July 31, 2004

(in thousands)

                       
     

100% Owned

               
 

Parent

 

Guarantor

     

Other

 

Eliminating

   
 

Company

 

Subsidiaries

 

Larkspur

 

Subsidiaries

 

Entries

 

Consolidated

                       

Total net revenue

$           50

 

$        551,759

 

$      2,859

 

$       159,935

 

$         12,040

 

$          726,643

Total operating expense

      11,158

 

         484,784

 

        3,107

 

         133,743

 

           12,040

 

            644,832

(Loss) income from operations

(11,108)

 

66,975

 

(248)

 

26,192

 

--

 

81,811

Other income (expense)

(67,759)

 

(12,780)

 

(19)

 

(2,298)

 

--

 

(82,856)

Equity investment income (loss), net

--

 

(1,596)

 

--

 

--

 

--

 

(1,596)

Loss on put options, net

--

 

(1,875)

 

--

 

--

 

--

 

(1,875)

Minority interest in income of    consolidated subsidiaries, net

              --

 

                 939

 

              --

 

          (4,939)

 

                  --

 

             (4,000)

Income (loss) before income taxes

(78,867)

 

51,663

 

(267)

 

18,955

 

--

 

(8,516)

Benefit (provision) for income taxes

      23,660

 

        (15,937)

 

              --

 

          (5,166)

 

                  --

 

                2,557

Net income (loss) before equity in

                     

income of consolidated subsidiaries

(55,207)

 

35,726

 

(267)

 

13,789

 

--

 

(5,959)

Equity in income (loss) of consolidated    subsidiaries

      49,248

 

            10,085

 

              --

 

                   --

 

        (59,333)

 

                      --

Net income (loss)

$    (5,959)

 

$          45,811

 

$      (267)

 

$         13,789

 

$      (59,333)

 

$           (5,959)



 

Supplemental Condensed Consolidating Statement of Operations

For the year ended July 31, 2003

(in thousands)

                       
     

100% Owned

               
 

Parent

 

Guarantor

     

Other

 

Eliminating

   
 

Company

 

Subsidiaries

 

Larkspur

 

Subsidiaries

 

Entries

 

Consolidated

                       

Total net revenue

$             --

 

$       510,967

 

$       2,576

 

$       173,984

 

$         25,445

 

$         712,972

Total operating expense

       17,178

 

         479,433

 

         3,049

 

         153,380

 

           25,445

 

            678,485

Income (loss) from operations

(17,178)

 

31,534

 

(473)

 

20,604

 

--

 

34,487

Other income (expense)

(33,795)

 

(13,446)

 

(26)

 

(706)

 

--

 

(47,973)

Equity investment income (loss), net

--

 

(1,024)

 

--

 

--

 

--

 

(1,024)

Gain on put options, net

--

 

1,569

 

--

 

--

 

--

 

1,569

Minority interest in income of    consolidated subsidiaries, net

               --

 

             1,660

 

               --

 

           (2,724)

 

                   --

 

             (1,064)

Income (loss) before income taxes

(50,973)

 

20,293

 

(499)

 

17,174

 

--

 

(14,005)

Benefit (provision) for income taxes

       19,370

 

          (9,200)

 

               --

 

           (4,692)

 

                   --

 

                5,478

Net income (loss) before equity in

                     

income of consolidated subsidiaries

(31,603)

 

11,093

 

(499)

 

12,482

 

--

 

(8,527)

Equity in income of consolidated subsidiaries

       23,076

 

             8,706

 

               --

 

                    --

 

        (31,782)

 

                      --

Net (loss) income

$    (8,527)

 

$         19,799

 

$       (499)

 

$         12,482

 

$      (31,782)

 

$           (8,527)



 

 

Supplemental Condensed Consolidating Statement of Cash Flows

For the year ended July 31, 2005

(in thousands of dollars)

                   
     

100% Owned

           
 

Parent

 

Guarantor

     

Other

   
 

Company

 

Subsidiaries

 

Larkspur

 

Subsidiaries

 

Consolidated

                   

Cash flows from operating activities

$          (4,690)

 

$            177,513

 

$               (53)

 

$                 47,571

 

$              220,341

                   

Cash flows from investing activities

                 

Capital expenditures

--

 

(71,532)

 

(30)

 

(8,413)

 

(79,975)

Investments in real estate

--

 

(29,585)

 

--

 

(42,579)

 

(72,164)

Cash received from sale of businesses

--

 

108,399

 

--

 

--

 

108,399

Other investing activities, net

                     --

 

                (1,511)

 

                     --

 

                        370

 

                  (1,141)

Net cash provided by (used in) investing activities

--

 

5,771

 

(30)

 

(50,622)

 

(44,881)

                   

Cash flows from financing activities:

                 

Proceeds from exercise of stock options

21,939

 

--

 

--

 

--

 

21,939

Payments on long-term debt

--

 

(98,945)

 

--

 

(4,621)

 

(103,566)

Advances to (from) affiliates

(17,249)

 

(30,562)

 

18

 

47,793

 

--

Other financing activities, net

                     --

 

                (1,973)

 

                     --

 

                 (1,608)

 

                  (3,581)

Net cash provided by financing activities

4,690

 

(131,480)

 

18

 

41,564

 

(85,208)

                   

Net increase (decrease) in cash and cash equivalents

--

 

51,804

 

(65)

 

38,513

 

90,252

                   

Cash and cash equivalents:

                 

Beginning of period

                     --

 

                 41,075

 

                  171

 

                     5,082

 

                  46,328

End of period

$                   --

 

$               92,879

 

$                106

 

$                43,595

 

$              136,580



 

 

Supplemental Condensed Consolidating Statement of Cash Flows

For the year ended July 31, 2004

(in thousands)

100% Owned

Parent

Guarantor

Company

Subsidiaries

Larkspur

Subsidiaries

Consolidated

Cash flows from operating activities

$           27,665

$        118,377

$              (140)

$              35,035

$              180,937

Cash flows from investing activities:

Capital expenditures

--

(55,316)

(28)

(7,616)

(62,960)

Investments in real estate

--

(33,778)

--

5,976

(27,802)

Other investing activities

                  --

              7,397

                      --

                       --

                  7,397

Net cash used in investing activities

--

(81,697)

(28)

(1,640)

(83,365)

Cash flows from financing activities:

Net proceeds (payments) on long-term debt

30,000

(54,268)

--

(7,713)

(31,981)

Payment of tender premium

(23,825)

--

--

--

(23,825)

Advances to (from) affiliates

(27,574)

53,147

222

(25,795)

--

Other financing activities

           (6,266)

                 997

                     --

              (2,471)

                (7,740)

Net cash (used in) provided by financing activities

(27,665)

(124)

222

(35,979)

(63,546)

Net increase (decrease) in cash and cash equivalents

--

36,556

54

(2,584)

34,026

Net increase in cash due to adoption of FIN 46R

--

--

--

4,428

4,428

Cash and cash equivalents:

Beginning of period

                   --

              5,898

                  117

                 1,859

                   7,874

End of period

$                  --

$          42,454

$                171

$                3,703

$               46,328



 

 

Supplemental Condensed Consolidating Statement of Cash Flows

For the year ended July 31, 2003

(in thousands)

100% Owned

Parent

Guarantor

Other

Company

Subsidiaries

Larkspur

Subsidiaries

Consolidated

Cash flows from operating activities

$   (16,152)

$     154,669

$         70

$     15,983

$     154,570

Cash flows from investing activities:

Capital expenditures

--

(95,080)

(20)

(11,238)

(106,338)

Investments in real estate

--

(43,659)

--

21,087

(22,572)

Other investing activities

           --

      10,606

           --

     (12,419)

        (1,813)

Net cash used in investing activities

--

(128,133)

(20)

(2,570)

(130,723)

Cash flows from financing activities:

Net proceeds (payments) on long-term debt

--

(33,011)

--

8,210

(24,801)

Advances to (from) affiliates

17,222

3,598

16

(20,836)

--

Other financing activities

     (1,070)

      (1,605)

           --

         (1,607)

       (4,282)

Net cash provided by (used in) financing activities

16,152

(31,018)

16

(14,233)

(29,083)

Net (decrease) increase in cash and cash equivalents

--

(4,482)

66

(820)

(5,236)

Cash and cash equivalents:

Beginning of period

           --

      10,380

          51

        2,679

        13,110

End of period

$        --

$       5,898

$        117

$       1,859

$        7,874



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.  CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Management of the Company, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), have evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report on Form 10-K. The term "disclosure controls and procedures" means controls and other procedures established by the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company's management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Based upon their evaluation of the Company's disclosure controls and procedures, the CEO and the CFO concluded that the disclosure controls are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms.

The Company, including its CEO and CFO, does not expect that the Company's internal controls and procedures will prevent or detect all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Management's Annual Report on Internal Control Over Financial Reporting

The report of management required under this ITEM 9A is contained in ITEM 8 of this Form 10-K under the caption "Management's Report on Internal Control over Financial Reporting".

Attestation Report of Registered Public Accounting Firm

The attestation report required under this ITEM 9A is contained in ITEM 8 of this Form 10-K under the caption "Report of Independent Registered Public Accounting Firm".

Changes in Internal Control Over Financial Reporting

There were no changes in the Company's internal control over financial reporting during the quarter ended July 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 9B.  OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Code of Ethics. The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The code of ethics is posted in the corporate governance section of the Company's website at www.vailresorts.com. The Company will post any waiver to the code of ethics granted to any of its officers on its website.

The additional information required by this item is incorporated herein by reference from the Company's proxy statement for the fiscal 2005 annual meeting of shareholders.

ITEM 11.  EXECUTIVE COMPENSATION.

The information required by this item is incorporated herein by reference from the Company's proxy statement for the fiscal 2005 annual meeting of shareholders.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by this item is incorporated herein by reference from the Company's proxy statement for the fiscal 2005 annual meeting of shareholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this item is incorporated herein by reference from the Company's proxy statement for the fiscal 2005 annual meeting of shareholders.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this item is incorporated herein by reference from the Company's proxy statement for the fiscal 2005 annual meeting of shareholders.

PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENTS SCHEDULES.

a)

Index to Financial Statements and Financial Statement Schedules.

 

(1)

See "Item 8. Financial Statements and Supplementary Data" for the index to the Financial Statements.

 

(2)

All other schedules have been omitted because the required information is not applicable or because the information required has been included in the financial statements or notes thereto.

 

(3)

Index to Exhibits



The following exhibits are either filed herewith or, if so indicated, incorporated by reference to the documents indicated in parentheses, which have previously been filed with the Securities and Exchange Commission.

Exhibit Number

Description

Sequentially Numbered Page

3.1

Amended and Restated Certificate of Incorporation of Vail Resorts, Inc. dated January 5, 2005. (Incorporated by reference to Exhibit 3.1 on Form 10-Q of Vail Resorts, Inc. dated as of January 31, 2005.)

 

3.2

Amended and Restated By-Laws. (Incorporated by reference to Exhibit 3.1 on Form 8-K of Vail Resorts, Inc. filed September 30, 2004.)

 

4.1(a)

Purchase Agreement, dated as of January 15, 2004 among Vail Resorts, Inc., the guarantors named on Schedule I thereto, Banc of America Securities LLC, Deutsche Banc Securities, Inc., Bear, Stearns & Co. Inc., Lehman Brothers Inc., Piper Jaffray & Co. and Wells Fargo Securities LLC. (Incorporated by reference to Exhibit 4.2(c) on Form 10-Q of Vail Resorts, Inc. dated as of January 31, 2004.)

 

4.1(b)

Supplemental Purchase Agreement, dated as of January 22, 2004 among Vail Resorts, Inc., the guarantors named thereto, Banc of America Securities LLC, Deutsche Banc Securities, Inc., Bear, Stearns & Co. Inc., Lehman Brothers Inc., Piper Jaffray & Co. and Wells Fargo Securities LLC. (Incorporated by reference to Exhibit 4.2(d) on Form 10-Q of Vail Resorts, Inc. dated as of January 31, 2004.)

 

4.2(a)

Indenture, dated as of January 29, 2004, among Vail Resorts, Inc., the guarantors therein and the Bank of New York as Trustee. (Incorporated by reference to Exhibit 4.1 on Form 8-K of Vail Resorts, Inc. dated as of February 2, 2004.)

 

4.3(b)

Form of Global Note (Included in Exhibit 4.2(c) by reference to Exhibit 4.1 on Form 8-K of Vail Resorts, Inc. dated as of February 2, 2004.)

 

4.4

Registration Rights Agreement dated as of January 29, 2004 among Vail Resorts, Inc., the guarantors signatory thereto, Banc of America Securities LLC, Deutsche Banc Securities, Inc., Bear, Stearns & Co. Inc., Lehman Brothers Inc., Piper Jaffray & Co. and Wells Fargo Securities LLC. (Incorporated by reference to Exhibit 4.5(c) on Form 10-Q of Vail Resorts, Inc. dated as of January 31, 2004.)

 

10.1

Management Agreement by and between Beaver Creek Resort Company of Colorado and Vail Associates, Inc. (Incorporated by reference to Exhibit 10.1 of the Registration Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including all amendments thereto.)

 

10.2

Forest Service Unified Permit for Heavenly ski area. (Incorporated by reference to Exhibit 99.13 of the report on Form 10-Q of Vail Resorts, Inc. for the quarter ended April 30, 2002.)

 

10.3(a)

Forest Service Unified Permit for Keystone ski area. (Incorporated by reference to Exhibit 99.2(a) on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2002.)

 

10.3(b)

Amendment No. 2 to Forest Service Unified Permit for Keystone ski area. (Incorporated by reference to Exhibit 99.2(b) on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2002.)

 

10.3(c)

Amendment No. 3 to Forest Service Unified Permit for Keystone ski area.

49

10.3(d)

Amendment No. 4 to Forest Service Unified Permit for Keystone ski area.

50

10.3(e)

Amendment No. 5 to Forest Service Unified Permit for Keystone ski area.

53

10.4(a)

Forest Service Unified Permit for Breckenridge ski area. (Incorporated by reference to Exhibit 99.3(a) on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2002.)

 

10.4(b)

Amendment No. 1 to Forest Service Unified Permit for Breckenridge ski area. (Incorporated by reference to Exhibit 99.3(b) on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2002.)

 

10.4(c)

Amendment No. 2 to Forest Service Unified Permit for Breckenridge ski area.

54

10.4(d)

Amendment No. 3 to Forest Service Unified Permit for Breckenridge ski area.

55

10.4(e)

Amendment No. 4 to Forest Service Unified Permit for Breckenridge ski area.

58

10.5(a)

Forest Service Unified Permit for Beaver Creek ski area. (Incorporated by reference to Exhibit 99.4(a) on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2002.)

 

10.5(b)

Exhibits to Forest Service Unified Permit for Beaver Creek ski area. (Incorporated by reference to Exhibit 99.4(b) on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2002.)

 

10.5(c)

Amendment No. 1 to Forest Service Unified Permit for Beaver Creek ski area.

59

10.5(d)

Amendment No. 2 to Forest Service Unified Permit for Beaver Creek ski area.

60

10.5(e)

Amendment to Forest Service Unified Permit for Beaver Creek ski area.

63

10.6(a)

Forest Service Unified Permit for Vail ski area. (Incorporated by reference to Exhibit 99.5(a) on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2002.)

 

10.6(b)

Exhibits to Forest Service Unified Permit for Vail ski area. (Incorporated by reference to Exhibit 99.5(b) on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2002.)

 

10.6(c)

Amendment No. 2 to Forest Service Unified Permit for Vail ski area. (Incorporated by reference to Exhibit 99.5(c) on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2002.)

 

10.6(d)

Amendment No. 3 to Forest Service Unified Permit for Vail ski area.

64

10.6(e)

Amendment No. 4 to Forest Service Unified Permit for Vail ski area.

65

10.7

1993 Stock Option Plan of Gillett Holdings, Inc. (Incorporated by reference to Exhibit 10.20 of the report on Form 10-K of Gillett Holdings, Inc. for the period from October 9, 1992 through September 30, 1993.)

 

10.8(a)*

Employment Agreement dated October 30, 2001 by and between RockResorts International, LLC and Edward Mace. (Incorporated by reference to Exhibit 10.21 of the report on Form 10-K of Vail Resorts, Inc. for the year ended July 31, 2002.)

 

10.8(b)*

Addendum to the Employment Agreement dated October 30, 2001 by and between RockResorts International, LLC and Edward Mace. (Incorporated by reference to Exhibit 10.21 of the report on Form 10-K of Vail Resorts, Inc. for the year ended July 31, 2002.)

 

10.9(a)*

Employment Agreement dated July 29, 1996 between Vail Resorts, Inc. and Adam M. Aron. (Incorporated by reference to Exhibit 10.21 of the report on Form S-2/A of Vail Resorts, Inc. (Registration # 333-5341) including all amendments thereto.)

 

10.9(b)*

Amendment to the Employment Agreement dated May 1, 2001 between Vail Resorts, Inc. and Adam M. Aron. (Incorporated by reference to Exhibit 10.14(b) of the report on Form 10-K of Vail Resorts, Inc. for the year ended July 31, 2001.)

 

10.9(c)*

Second Amendment to Employment Agreement of Adam M. Aron, as Chairman of the Board and Chief Executive Officer of Vail Resorts, Inc. dated July 29, 2003. (Incorporated by reference to Exhibit 10.14(c) on Form 10-K of Vail Resorts, Inc. for the year ended July 31, 2003.)

 

10.10*

Amended and Restated Employment Agreement of Jeffrey W. Jones, as Chief Financial Officer of Vail Resorts, Inc. dated September 29, 2004. (Incorporated by reference to Exhibit 10.9 of Form 10-K of Vail Resorts, Inc. for the year ended July 31, 2004.)

 

10.11(a)*

Employment Agreement of William A. Jensen as Senior Vice President and Chief Operating Officer - Breckenridge Ski Resort dated May 1, 1997. (Incorporated by reference to Exhibit 10.9(a) on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2004.)

 

10.11(b)*

First Amendment to the Employment Agreement of William A. Jensen as Senior Vice President and Chief Operating Officer - Vail Ski Resort dated August 1, 1999. (Incorporated by reference to Exhibit 10.9(b) on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2004.)

 

10.11(c)*

Second Amendment to the Employment Agreement of William A. Jensen as Senior Vice President and Chief Operating Officer - Vail Ski Resort dated July 22, 1999. (Incorporated by reference to Exhibit 10.9(c) on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2004.)

 

10.12*

Employment Agreement and Addendum of Roger McCarthy as Senior Vice President and Chief Operating Officer - Breckenridge Ski Resort dated July 17, 2000. (Incorporated by reference to Exhibit 10.10 on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2004.)

 

10.13*

1996 Stock Option Plan (Incorporated by reference from the Company's Registration Statement on Form S-3, File No. 333-5341).

 

10.14*

2002 Long Term Incentive and Share Award Plan. (Incorporated by reference to Exhibit 10.17 on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2002.)

 

10.15(a)

Sports and Housing Facilities Financing Agreement between the Vail Corporation (d/b/a "Vail Associates, Inc.") and Eagle County, Colorado, dated April 1, 1998. (Incorporated by reference to Exhibit 10 of the report on Form 10-Q of Vail Resorts, Inc. for the quarter ended April 30, 1998.)

 

10.15(b)

Trust Indenture dated as of April 1, 1998 securing Sports and Housing Facilities Revenue Refunding Bonds by and between Eagle County, Colorado and U.S. Bank, N.A., as Trustee. (Incorporated by reference to Exhibit 10.1 of the report on Form 10-Q of Vail Resorts, Inc. for the quarter ended April 30, 1998.)

 

10.16(a)

Fourth Amended and Restated Credit Agreement dated as of January 28, 2005 among The Vail Corporation (d/b/a Vail Associates, Inc.), as borrower, Bank of America, N.A., as Administrative Agent, U.S. Bank National Association and Wells Fargo Bank, National Association as Co-Syndication Agents, Deutsche Bank Trust Company Americas and LaSalle Bank National Association as Co-Documentation Agents and the Lenders party thereto. (Incorporated by reference to Exhibit 10.1 on Form 8-K of Vail Resorts, Inc. dated January 28, 2004.)

 

10.16(b)

First Amendment to Fourth Amended and Restated Credit Agreement dated as of June 29, 2005 among The Vail Corporation (d/b/a Vail Associates, Inc.), as borrower and Bank of America, N.A., as Administrative Agent.

68

10.17*

Vail Resorts, Inc. 1999 Long Term Incentive and Share Award Plan. (Incorporated by reference to the Company's registration statement on Form S-8, File No. 333-32320.)

 

10.18*

Vail Resorts Deferred Compensation Plan effective as of October 1, 2000. (Incorporated by reference to Exhibit 10.23 of the report on Form 10-K of Vail Resorts, Inc. for the fiscal year ended July 31, 2000).

 

10.19

Conversion and Registration Rights Agreement between Vail Resorts, Inc. and Apollo Ski Partners, L.P. dated as of September 30, 2004. (Incorporated by reference to Exhibit 10.1 on Form 8-K of Vail Resorts, Inc. dated as of September 30, 2004.)

 

10.20(a)

Purchase and Sale Agreement by and between VAHMC, Inc. and DiamondRock Hospitality Limited Partnership, dated May 3, 2005. (Incorporated by reference to Exhibit 10.18(a) of the Company's Quarterly Report on Form 10-Q for the period ending April 30, 2005.)

 

10.20(b)

First Amendment to Purchase and Sale Agreement by and between VAHMC, Inc. and DiamondRock Hospitality Limited Partnership, dated May 10, 2005. (Incorporated by reference to Exhibit 10.18(b) of the Company's Quarterly Report on Form 10-Q for the period ending April 30, 2005.)

 

10.21

Purchase and Sale Agreement by and between VA Rancho Mirage Resort L.P., Rancho Mirage Concessions, Inc. and GENLB-Rancho, LLC, dated July 1, 2005.

78

10.22(a)

Construction Loan Agreement by and between Gore Creek Place, LLC and U.S. Bank National Association dated July 19, 2005.

124

10.22(b)

Completion Guaranty Agreement by and between The Vail Corporation and U.S. Bank National Association dated July 19, 2005.

264

10.23

Amended and Restated Revolving Credit and Security Agreement between SSI Venture, LLC and U.S. Bank National Association dated September 23, 2005 (Incorporated by reference to Exhibit 10.1 on Form 8-K of Vail Resorts, Inc. dated September 29, 2005.)

 

10.24(a)*

Employment Agreement of Martha D. Rehm as Senior Vice President and General Counsel of Vail Resorts, Inc. dated May 10, 1999.

273

10.24(b)*

First Amendment to Employment Agreement of Martha D. Rehm as Senior Vice President and General Counsel of Vail Resorts, Inc. dated April 8, 2004.

285

21

Subsidiaries of Vail Resorts, Inc.

286

22

Consent of Independent Registered Public Accounting Firm.

289

23

Power of Attorney. Included on signature pages hereto.

 

31

Certifications of Adam M. Aron and Jeffrey W. Jones Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

290

32

Certifications of Adam M. Aron and Jeffrey W. Jones Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

292

99.1

Termination Agreement, dated as of October 5, 2004, by and among Vail Resorts, Inc., Ralcorp Holdings, Inc. and Apollo Ski Partners, L.P. (Incorporated by reference to Exhibit 99.6 on Form 10-Q of Vail Resorts, Inc. for the quarter ended October 31, 2004.)

 

99.2

Purchase and Sale Agreement between VR Holdings, Inc. as Seller and GHR, LLC as Purchaser dated December 8, 2004. (Incorporated by reference to Exhibit 99.2 on Form 8-K of Vail Resorts, Inc. dated December 8, 2004).

 
     

*Management contracts and compensatory plans and arrangements.

 
     


b)

Exhibits

The exhibits filed herewith as indicated in the exhibit listed above following the Signatures section of this report.



c)

Financial Statement Schedules

Consolidated Financial Statement Schedule

Schedule II - Valuation and Qualifying Accounts and Reserves

(in thousands)

For the Fiscal Years Ended July 31

Balance at beginning of period

Charged to costs and expenses

Deductions

Balance at end of period

Fiscal 2003

Inventory Reserves

$1,242

$1,662

$ (1,627)

$1,277

Valuation Allowance on Income Taxes

464

29

--

493

Trade Receivable Allowances

367

2,709

(1,985)

1,091

Fiscal 2004

Inventory Reserves

1,277

1,510

(2,049)

738

Valuation Allowance on Income Taxes

493

193

--

686

Trade Receivable Allowances

1,091

729

(555)

1,265

Fiscal 2005

Inventory Reserves

738

1,754

(1,773)

719

Valuation Allowance on Income Taxes

686

919

--

1,605

Trade Receivable Allowances

$1,265

$  766

$   (696)

$1,335



 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Vail Resorts, Inc.

   

By:

        /s/ Jeffrey w. Jones        

 

Jeffrey W. Jones

 

Senior Vice President,

 

Chief Financial Officer and
Chief Accounting Officer

   

Dated:

October 5, 2005



 

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints Jeffrey W. Jones or Martha D. Rehm his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Form 10-K and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Form 10-K and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on October 5, 2005.

Signature

Title

     /s/ Adam M. Aron     

Chairman of the Board and Chief Executive Officer

Adam M. Aron

(Principal Executive Officer)

     /s/ Jeffrey W. Jones     

Senior Vice President and Chief Financial Officer

Jeffrey W. Jones

(Principal Financial and Accounting Officer)

     /s/ John S. Hannan     

John S. Hannan

Director

     /s/ Roland A. Hernandez     

 

Roland A. Hernandez

Director

     /s/ Robert A. Katz     

 

Robert A. Katz

Director

     /s/ Joe R. Micheletto     

 

Joe R. Micheletto

Director

     /S/ John F. Sorte     

 

John F. Sorte

Director

     /s/ William P. Stiritz     

 

William P. Stiritz

Director



 

Authorization ID: HOL405601

Exhibit 10.3(c)

Authorization ID: DIL528901 Page 1 of 1

Contact ID: KEYSTONE FS-2700-23 (4/97)

Use Code: 161 OMB No. 0596-0082

 

 

U.S. DEPARTMENT OF AGRICULTURE

Forest Service

AMENDMENT

FOR

SPECIAL USE AUTHORIZATION

 

AMENDMENT NUMBER: 3

 

 

This amendment is attached to and made a part of the special use authorization (indicated above) issued to RALSTON RESORTS, INC. on 12/31/1996 which is hereby amended as follows:

This amendment removes the old map dated October 1, 1991, and replaces it with a new map covering 8,376 acres, prepared by Erik J. Martin on June 11, 2002.

 

 

 

 

 

 

This Amendment is accepted subject to the conditions set forth herein, and to conditions ____N/A___ to ____N/A___ attached hereto and made a part of this Amendment.

------------------------------------------------------------------------------------------------------------

Holder: Keystone Ski Area Authorized Officer _________//s//________

Roger McCarthy

Holder: _____N/A_______________ Title: Senior Vice President /COO

Date: _______May 9, 2003________ Date: ________May 9, 2003____________

Authorized Officer: _______//s//_______ Title: _____For: Forest Supervisor_______

Authorization ID: HOL405601

Exhibit 10.3(d)

Authorization ID: DIL528901 Page 1 of 3

Contact ID: KEYSTONE FS-2700-23 (4/97)

Use Code: 161 OMB No. 0596-0082

 

 

U.S. DEPARTMENT OF AGRICULTURE

Forest Service

AMENDMENT

FOR

SPECIAL USE AUTHORIZATION

AMENDMENT NUMBER: 4

 

 

This amendment is attached to and made a part of the special use authorization (identified above) issued to RALSTON RESORTS, INC. on 12/31/1996 which is hereby amended as follows:

Remove the following clauses:

111.F. Temporary Suspension

VIII.A. Termination for Higher Public Purpose

VIII.B. Termination, Revocation and Suspension

XI.F. Water Rights.

Revise the heading of Section VII.TERMINATION to read REVOCATION AND SUSPENSION. In Section VIII, add clauses A. Revocation and Suspension, B. Opportunity Take Corrective Action, C. Revocation or Reasons in the Public Interest, and D. Suspension below:

  1. Revocation and Suspension. The Forest Service may suspend or revoke this permit in whole or part:
  1. For noncompliance with Federal, State, or local laws and regulations;
  2. For noncompliance with the terms of this permit;
  3. For failure of the holder to exercise the privileges granted by this permit;
  4. With the consent of the holder; or
  5. At the discretion of the authorized officer for specific and compelling reasons in the public interest.
  1. Opportunity to Take Corrective Action Prior to revocation or suspension under clause VIII.A, the authorized officer shall give the holder written notice of the grounds for each action and a reasonable time, not to exceed 90 days, to complete the corrective action prescribed by the authorized officer.
  2. Revocation for Reasons in the Public Interest. If, during the term of this permit or any extension thereof, the Secretary of Agriculture or any official of the Forest Service with delegated authority determines in planning for the uses of the National Forest System that the public interest requires revocation of this permit, this permit shall be revoked after one hundred-eighty (180) day's written notice to the holder. The United States shall then have the right to purchase the holder's improvements, to remove them, or to require the holder to remove them, and the United States shall be obligated to pay an equitable consideration for the improvements or for removal of the improvements and damages resulting from their removal. If the amount of consideration is fixed by mutual agreement between the United States and the holder, that amount shall be accepted by the holder in full satisfaction of all claims against the United States under this clause. If mutual agreement is not reached, the Forest Service shall determine the amount of consideration. If the holder is dissatisfied with the amount determined by the Forest Service, the holder may appeal the determination under the agency's administrative appeal regulations.
  3. Suspension. The Authorized offer may immediately suspend this permit, in whole or in part, when necessary to protect public health, safety, or the environment. The suspension decision must be in writing. Within 48 hours of the request of the holder, the superior of the authorized officer shall arrange for an on-the-ground review of the adverse conditions with the holder. Following this review the superior shall take prompt action to affirm, modify, or cancel the suspension.

Under section XI MISCELLANEOUS PROVISIONS, revise the heading for clause F Water Rights to read Water Use Facilities. Replace the existing clause with the clause below:

  1. Water Use Facilities
  1. Water Use Facilities. The National Forest System (NFS) land which is the subject of this permit is hereinafter referred to as the permitted NFS land. The authorization of facilities to divert, store, or convey water on the permitted National Forest System (NFS) land (water facilities) in conjunction with water rights acquired by the holder is for the purpose of operating a winter or year-round resort and related facilities under this permit. If use of the water or the water facilities ceases, the authorization to use the permitted NFS land for such water facilities will also cease. The United States reserves the right to place conditions on the installation, operation, maintenance and removal of these water facilities necessary to protect public property, public safety, and natural resources on the permitted NFS land in compliance with applicable laws, provided, however, such conditions shall not permit the imposition of bypass flows on water transported to the permitted NFS land from points of diversion or storage that arise off of the permitted NFS land.
  2. Water Rights. This permit does not confer any water rights on the holder. Water rights must be acquired by the holder under state law.
  3. Future Applications and Revocation. After June 2004, any right to divert water from the permitted NFS land where the use of such water is on the same permitted NFS land shall be applied for and held in the name of the United States and the holder (hereinafter called the joint water rights). This provision shall not apply to water rights that are acquired by the permit holder from a source off of the permitted NFS land and transferred to a point of diversion or storage on the permitted NFS land. During the term of the permit and any reissuance thereafter, the permit holder shall be responsible for maintaining such joint water rights, an shall have the right to make any applications or other filings as may be necessary to maintain and protect such joint water rights. In the event of revocation of this permit, the United States shall succeed to the sole ownership of such joint water rights. All joint water rights subject to this clause are listed below.

State ID# Owner Type or Basis Purpose of Use

(decree, license, certificate)

 

This Amendment is accepted subject to the conditions set forth herein, and to conditions N/A to N/A attached hereto and made part of this Amendment.

 

___//s// Martha D. Rehm__________ __________//s//_________________________

(Holder Signature) (Authorized Officer Signature)

 

_______________________________ ______________________________________

(Holder Signature) DON G. CARROLL, Acting Forest Supervisor

 

Date:_______9/13/04______________ Date:___9/20/04________________________

 

 

 

 

 

 

 

 

 

Authorization ID: #AUTH_ID#

Exhibit 10.3(e)

Authorization ID: DIL528901 FS-2700-23 (4/97)

Contact ID: KEYSTONE OMB 0596-0082

Use Code: 161

U.S. DEPARTMENT OF AGRICULTURE

Forest Service

AMENDMENT

FOR

SPECIAL USE AUTHORIZATION

AMENDMENT NUMBER: 5

This amendment is attached to and made a part of the special use authorization (identified above) issued to RALSTON RESORTS, INC on 12/31/1996 which is hereby amended as follows:

 

Change the holder name to "Vail Summit Resorts, Inc. dba Keystone Resort, Inc."

 

 

 

 

 

 

 

 

 

 

 

 

This Amendment is accepted subject to the conditions set forth herein, and to conditions __N/A__ to __N/A__ attached hereto and made a part of this Amendment.

(Holder Signature) (Authorized Officer Signature)

MARIBETH GUSTAFSON, Forest Supervisor

(Holder Signature) (Name and Title)

 

Date: Date:

 

According to the Paperwork Reduction Act of 1995, no persons are required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0596-0082.

This information is needed by the Forest Service to evaluate requests to use National Forest System lands and manage those lands to protect natural resources, administer the use, and ensure public health and safety. This information is required to obtain or retain a benefit. The authority for that requirement is provided by the Organic Act of 1897 and the Federal Land Policy and Management Act of 1976, which authorize the Secretary of Agriculture to promulgate rules and regulations for authorizing and managing National Forest System lands. These statutes, along with the Term Permit Act, National Forest Ski Area Permit Act, Granger-Thye Act, Mineral Leasing Act, Alaska Term Permit Act, Act of September 3, 1954, Wilderness Act, National Forest Roads and Trails Act, Act of November 16, 1973, Archaeological Resources Protection Act, and Alaska National Interest Lands Conservation Act, authorize the Secretary of Agriculture to issue authorizations for the use and occupancy of National Forest System lands. The Secretary of Agriculture's regulations at 36 CFR Part 251, Subpart B, establish procedures for issuing those authorizations.

The Privacy Act of 1974 (5 U.S.C. 552a) and the Freedom of Information Act (5 U.S.C. 552) govern the confidentiality to be provided for information received by the Forest Service Public reporting burden for collection of information, if requested, is estimated to average 1 hour per response for annual financial information; average 1 hour per response to prepare or update operation and/or maintenance plan; average 1 hour per response for inspection reports; and an average of 1 hour for each request that may include such things as reports, logs, facility and user information, sublease information, and other similar miscellaneous information requests. This includes the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.

Authorization ID: HOL405601

Exhibit 10.4(c)

Authorization ID: DIL528904 Page 1 of 1

Contact ID: BRECKENRIDGE FS-2700-23 (4/97)

Use Code: 161 OMB No. 0596-0082

 

 

U.S. DEPARTMENT OF AGRICULTURE

Forest Service

AMENDMENT

FOR

SPECIAL USE AUTHORIZATION

 

AMENDMENT NUMBER: 2

 

 

This amendment is attached to and made a part of the special use authorization (indicated above) issued to VAIL RESORTS, INC. which is hereby amended as follows:

This amendment removes the old map dated October 5, 1995, and replaces it with a new map covering 5,553 acres, prepared by Erik J. Martin on June 11, 2002.

 

 

 

 

 

 

This Amendment is accepted subject to the conditions set forth herein, and to conditions ____N/A___ to ____N/A___ attached hereto and made a part of this Amendment.

------------------------------------------------------------------------------------------------------------

Holder:__//s//___________________ Authorized Officer __//s//_Martha J. Ketelle

Holder: __VP Mtn Ops___________ Title: Forest Supervisor

Date: _______10/3/02____ ________ Date: ________6/2/03_____ ____________

Authorized Officer: _______//s//_______ Title: _____For: Forest Supervisor_______

Authorization ID: HOL405601

Exhibit 10.4(d)

Authorization ID: DIL528904 Page 1 of 3

Contact ID: BRECKENRIDGE FS-2700-23 (4/97)

Use Code: 161 OMB No. 0596-0082

 

 

U.S. DEPARTMENT OF AGRICULTURE

Forest Service

AMENDMENT

FOR

SPECIAL USE AUTHORIZATION

AMENDMENT NUMBER: 3

 

 

This amendment is attached to and made a part of the special use authorization (identified above) issued to RALSTON RESORTS, INC. on 12/31/1996 which is hereby amended as follows:

Remove the following clauses:

111.F. Temporary Suspension

VIII.A. Termination for Higher Public Purpose

VIII.B. Termination, Revocation and Suspension

XI.F. Water Rights.

Revise the heading of Section VII.TERMINATION to read REVOCATION AND SUSPENSION. In Section VIII, add clauses A. Revocation and Suspension, B. Opportunity Take Corrective Action, C. Revocation or Reasons in the Public Interest, and D. Suspension below:

  1. Revocation and Suspension. The Forest Service may suspend or revoke this permit in whole or part:
  1. For noncompliance with Federal, State, or local laws and regulations;
  2. For noncompliance with the terms of this permit;
  3. For failure of the holder to exercise the privileges granted by this permit;
  4. With the consent of the holder; or
  5. At the discretion of the authorized officer for specific and compelling reasons in the public interest.
  1. Opportunity to Take Corrective Action Prior to revocation or suspension under clause VIII.A, the authorized officer shall give the holder written notice of the grounds for each action and a reasonable time, not to exceed 90 days, to complete the corrective action prescribed by the authorized officer.
  2. Revocation for Reasons in the Public Interest. If, during the term of this permit or any extension thereof, the Secretary of Agriculture or any official of the Forest Service with delegated authority determines in planning for the uses of the National Forest System that the public interest requires revocation of this permit, this permit shall be revoked after one hundred-eighty (180) day's written notice to the holder. The United States shall then have the right to purchase the holder's improvements, to remove them, or to require the holder to remove them, and the United States shall be obligated to pay an equitable consideration for the improvements or for removal of the improvements and damages resulting from their removal. If the amount of consideration is fixed by mutual agreement between the United States and the holder, that amount shall be accepted by the holder in full satisfaction of all claims against the United States under this clause. If mutual agreement is not reached, the Forest Service shall determine the amount of consideration. If the holder is dissatisfied with the amount determined by the Forest Service, the holder may appeal the determination under the agency's administrative appeal regulations.
  3. Suspension. The Authorized offer may immediately suspend this permit, in whole or in part, when necessary to protect public health, safety, or the environment. The suspension decision must be in writing. Within 48 hours of the request of the holder, the superior of the authorized officer shall arrange for an on-the-ground review of the adverse conditions with the holder. Following this review the superior shall take prompt action to affirm, modify, or cancel the suspension.

Under section XI MISCELLANEOUS PROVISIONS, revise the heading for clause F Water Rights to read Water Use Facilities. Replace the existing clause with the clause below:

  1. Water Use Facilities
  1. Water Use Facilities. The National Forest System (NFS) land which is the subject of this permit is hereinafter referred to as the permitted NFS land. The authorization of facilities to divert, store, or convey water on the permitted National Forest System (NFS) land (water facilities) in conjunction with water rights acquired by the holder is for the purpose of operating a winter or year-round resort and related facilities under this permit. If use of the water or the water facilities ceases, the authorization to use the permitted NFS land for such water facilities will also cease. The United States reserves the right to place conditions on the installation, operation, maintenance and removal of these water facilities necessary to protect public property, public safety, and natural resources on the permitted NFS land in compliance with applicable laws, provided, however, such conditions shall not permit the imposition of bypass flows on water transported to the permitted NFS land from points of diversion or storage that arise off of the permitted NFS land.
  2. Water Rights. This permit does not confer any water rights on the holder. Water rights must be acquired by the holder under state law.
  3. Future Applications and Revocation. After June 2004, any right to divert water from the permitted NFS land where the use of such water is on the same permitted NFS land shall be applied for and held in the name of the United States and the holder (hereinafter called the joint water rights). This provision shall not apply to water rights that are acquired by the permit holder from a source off of the permitted NFS land and transferred to a point of diversion or storage on the permitted NFS land. During the term of the permit and any reissuance thereafter, the permit holder shall be responsible for maintaining such joint water rights, an shall have the right to make any applications or other filings as may be necessary to maintain and protect such joint water rights. In the event of revocation of this permit, the United States shall succeed to the sole ownership of such joint water rights. All joint water rights subject to this clause are listed below.

State ID# Owner Type or Basis Purpose of Use

(decree, license, certificate)

 

This Amendment is accepted subject to the conditions set forth herein, and to conditions N/A to N/A attached hereto and made part of this Amendment.

 

___//s// Martha D. Rehm__________ __________//s//_________________________

(Holder Signature) (Authorized Officer Signature)

 

_______________________________ ______________________________________

(Holder Signature) DON G. CARROLL, Acting Forest Supervisor

 

Date:_______9/13/04______________ Date:___9/20/04________________________

 

 

 

 

 

 

 

 

Authorization ID: #AUTH_ID#

Exhibit 10.4(e)

Authorization ID: DIL528904 FS-2700-23 (4/97)

Contact ID: BRECKENRIDGE OMB 0596-0082

Use Code: 161

U.S. DEPARTMENT OF AGRICULTURE

Forest Service

AMENDMENT

FOR

SPECIAL USE AUTHORIZATION

AMENDMENT NUMBER: 4

This amendment is attached to and made a part of the special use authorization (identified above) issued to RALSTON RESORTS, INC on 12/31/1996 which is hereby amended as follows:

 

Change the holder name to "Vail Summit Resorts, Inc. dba Breckenridge Ski Resort, Inc."

 

 

 

 

 

 

 

 

 

 

This Amendment is accepted subject to the conditions set forth herein, and to conditions __N/A__ to __N/A__ attached hereto and made a part of this Amendment.

(Holder Signature) (Authorized Officer Signature)

MARIBETH GUSTAFSON, Forest Supervisor

(Holder Signature) (Name and Title)

 

Date: Date:

 

According to the Paperwork Reduction Act of 1995, no persons are required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0596-0082.

This information is needed by the Forest Service to evaluate requests to use National Forest System lands and manage those lands to protect natural resources, administer the use, and ensure public health and safety. This information is required to obtain or retain a benefit. The authority for that requirement is provided by the Organic Act of 1897 and the Federal Land Policy and Management Act of 1976, which authorize the Secretary of Agriculture to promulgate rules and regulations for authorizing and managing National Forest System lands. These statutes, along with the Term Permit Act, National Forest Ski Area Permit Act, Granger-Thye Act, Mineral Leasing Act, Alaska Term Permit Act, Act of September 3, 1954, Wilderness Act, National Forest Roads and Trails Act, Act of November 16, 1973, Archaeological Resources Protection Act, and Alaska National Interest Lands Conservation Act, authorize the Secretary of Agriculture to issue authorizations for the use and occupancy of National Forest System lands. The Secretary of Agriculture's regulations at 36 CFR Part 251, Subpart B, establish procedures for issuing those authorizations.

The Privacy Act of 1974 (5 U.S.C. 552a) and the Freedom of Information Act (5 U.S.C. 552) govern the confidentiality to be provided for information received by the Forest Service Public reporting burden for collection of information, if requested, is estimated to average 1 hour per response for annual financial information; average 1 hour per response to prepare or update operation and/or maintenance plan; average 1 hour per response for inspection reports; and an average of 1 hour for each request that may include such things as reports, logs, facility and user information, sublease information, and other similar miscellaneous information requests. This includes the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.

Authorization ID: HOL405601

Exhibit 10.5(c)

Authorization ID: HOL419101 Page 1 of 1

Contact ID: BEAVER_CREEK FS-2700-23 (4/97)

Use Code: 161 OMB No. 0596-0082

 

 

U.S. DEPARTMENT OF AGRICULTURE

Forest Service

AMENDMENT

FOR

SPECIAL USE AUTHORIZATION

 

AMENDMENT NUMBER: 1

 

 

This amendment is attached to and made a part of the special use authorization (indicated above) issued to BEAVER CREEK ASSOCIATES, INC. on 11/17/1999 which is hereby amended as follows:

This amendment removes the old map dated April 17, 1997, and replaces it with a new map covering 3,801 acres, prepared by Erik J. Martin on June 11, 2002.

 

 

 

 

 

 

This Amendment is accepted subject to the conditions set forth herein, and to conditions ____N/A___ to ____N/A___ attached hereto and made a part of this Amendment.

------------------------------------------------------------------------------------------------------------

Holder: __//s// William A. Jensen___ Authorized Officer _//s// Martha J. Ketelle_

Holder: _________________________ Title: Forest Supervisor

Date: _______5/21/03_____________ Date: ________5/23/03________________

Authorization ID: HOL405601

Exhibit 10.5(d)

Authorization ID: HOL419101 Page 1 of 3

Contact ID: BEAVER_CREEK FS-2700-23 (4/97)

Use Code: 161 OMB No. 0596-0082

 

 

U.S. DEPARTMENT OF AGRICULTURE

Forest Service

AMENDMENT

FOR

SPECIAL USE AUTHORIZATION

AMENDMENT NUMBER: 3

 

 

This amendment is attached to and made a part of the special use authorization (identified above) issued to BEAVER CREEK ASSOCIATES, INC. on 11/17/1999 which is hereby amended as follows:

Remove the following clauses:

111.F. Temporary Suspension

VIII.A. Termination for Higher Public Purpose

VIII.B. Termination, Revocation and Suspension

XI.F. Water Rights.

Revise the heading of Section VII.TERMINATION to read REVOCATION AND SUSPENSION. In Section VIII, add clauses A. Revocation and Suspension, B. Opportunity Take Corrective Action, C. Revocation or Reasons in the Public Interest, and D. Suspension below:

  1. Revocation and Suspension. The Forest Service may suspend or revoke this permit in whole or part:
  1. For noncompliance with Federal, State, or local laws and regulations;
  2. For noncompliance with the terms of this permit;
  3. For failure of the holder to exercise the privileges granted by this permit;
  4. With the consent of the holder; or
  5. At the discretion of the authorized officer for specific and compelling reasons in the public interest.
  1. Opportunity to Take Corrective Action Prior to revocation or suspension under clause VIII.A, the authorized officer shall give the holder written notice of the grounds for each action and a reasonable time, not to exceed 90 days, to complete the corrective action prescribed by the authorized officer.
  2. Revocation for Reasons in the Public Interest. If, during the term of this permit or any extension thereof, the Secretary of Agriculture or any official of the Forest Service with delegated authority determines in planning for the uses of the National Forest System that the public interest requires revocation of this permit, this permit shall be revoked after one hundred-eighty (180) day's written notice to the holder. The United States shall then have the right to purchase the holder's improvements, to remove them, or to require the holder to remove them, and the United States shall be obligated to pay an equitable consideration for the improvements or for removal of the improvements and damages resulting from their removal. If the amount of consideration is fixed by mutual agreement between the United States and the holder, that amount shall be accepted by the holder in full satisfaction of all claims against the United States under this clause. If mutual agreement is not reached, the Forest Service shall determine the amount of consideration. If the holder is dissatisfied with the amount determined by the Forest Service, the holder may appeal the determination under the agency's administrative appeal regulations.
  3. Suspension. The Authorized offer may immediately suspend this permit, in whole or in part, when necessary to protect public health, safety, or the environment. The suspension decision must be in writing. Within 48 hours of the request of the holder, the superior of the authorized officer shall arrange for an on-the-ground review of the adverse conditions with the holder. Following this review the superior shall take prompt action to affirm, modify, or cancel the suspension.

Under section XI MISCELLANEOUS PROVISIONS, revise the heading for clause F Water Rights to read Water Use Facilities. Replace the existing clause with the clause below:

  1. Water Use Facilities
  1. Water Use Facilities. The National Forest System (NFS) land which is the subject of this permit is hereinafter referred to as the permitted NFS land. The authorization of facilities to divert, store, or convey water on the permitted National Forest System (NFS) land (water facilities) in conjunction with water rights acquired by the holder is for the purpose of operating a winter or year-round resort and related facilities under this permit. If use of the water or the water facilities ceases, the authorization to use the permitted NFS land for such water facilities will also cease. The United States reserves the right to place conditions on the installation, operation, maintenance and removal of these water facilities necessary to protect public property, public safety, and natural resources on the permitted NFS land in compliance with applicable laws, provided, however, such conditions shall not permit the imposition of bypass flows on water transported to the permitted NFS land from points of diversion or storage that arise off of the permitted NFS land.
  2. Water Rights. This permit does not confer any water rights on the holder. Water rights must be acquired by the holder under state law.
  3. Future Applications and Revocation. After June 2004, any right to divert water from the permitted NFS land where the use of such water is on the same permitted NFS land shall be applied for and held in the name of the United States and the holder (hereinafter called the joint water rights). This provision shall not apply to water rights that are acquired by the permit holder from a source off of the permitted NFS land and transferred to a point of diversion or storage on the permitted NFS land. During the term of the permit and any reissuance thereafter, the permit holder shall be responsible for maintaining such joint water rights, an shall have the right to make any applications or other filings as may be necessary to maintain and protect such joint water rights. In the event of revocation of this permit, the United States shall succeed to the sole ownership of such joint water rights. All joint water rights subject to this clause are listed below.

State ID# Owner Type or Basis Purpose of Use

(decree, license, certificate)

 

This Amendment is accepted subject to the conditions set forth herein, and to conditions N/A to N/A attached hereto and made part of this Amendment.

___//s// Martha D. Rehm__________ __________//s//_________________________

(Holder Signature) (Authorized Officer Signature)

 

_______________________________ ______________________________________

(Holder Signature) DON G. CARROLL, Acting Forest Supervisor

 

Date:_______9/13/04______________ Date:___9/20/04________________________

 

 

 

 

 

 

 

 

 

 

Exhibit 10

Exhibit 10.5(e)

United States Department of Agriculture

Forest Service

AMENDMENT

FOR

SPECIAL USE PERMIT

Ref: FSM 2714

THIS AMENDMENT IS ATTACHED TO AND MADE A

PART OF THE

___/X/ TERM________/ / ANNUAL PERMIT

a. Record no.

____

b. Region

02

c. Forest

15

d. District

07

e. User No.

f. Kind of Use

153

g. State

08

h. County

037

k. Card no.

1

Vail Associates, Inc. dba Vail & Beaver Creek Ski School of PO Box 7, Vail, CO 81658

(hereinafter called the Holder) is hereby authorized to use or occupy National Forest System lands, to use subject to the conditions set out below, on the White River National Forest, Holy Cross Ranger District.

This permit amendment authorizes use of the McCoy Park area on the Holy Cross Ranger District, as shown on the location map attached to and made a part of this permit and is issued for the purpose of: Operating a Nordic Ski Area, which includes approximately 30 km of set-track nordic trails, snowshoe trails, warming facility at McCoy Patrol, warming tent and public biathlon course.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PERMITTEE

Name of Permittee

CHRIS RYMAN

Signature of Authorized Officer

Title: Exec. Vice President

Date

ISSUING

OFFICER

Name and Signature

WILLIAM A. WOOP

 

Title: District Ranger

 
Authorization ID: HOL405601

Exhibit 10.6(d)

Authorization ID: HOL405601 Page 1 of 1

Contact ID: VAIL_ASSOCIATES FS-2700-23 (4/97)

Use Code: 161 OMB No. 0596-0082

 

 

U.S. DEPARTMENT OF AGRICULTURE

Forest Service

AMENDMENT

FOR

SPECIAL USE AUTHORIZATION

 

AMENDMENT NUMBER: 3

 

 

This amendment is attached to and made a part of the special use authorization (indicated above) issued to VAIL CORPORATION on 11/23/1993 which is hereby amended as follows:

This amendment removes the old map dated October 1, 1991, and replaces it with a new map covering 12,226 acres, prepared by Erik J. Martin on June 11, 2002.

 

 

 

 

 

 

 

 

 

 

This Amendment is accepted subject to the conditions set forth herein, and to conditions ____N/A___ to ____N/A___ attached hereto and made a part of this Amendment.

------------------------------------------------------------------------------------------------------------

Authorized Officer: _/s/ Martha Ketelle______ Holder: __/s/ William A. Jensen_______

Title: Forest Supervisor Title: SVP & COO - Vail

Date: 5-23-03 Date: 5-21-03

Authorization ID: HOL405601

Exhibit 10.6(e)

Authorization ID: HOL405601 Page 1 of 3

Contact ID: VAIL_ASSOCIATES FS-2700-23 (4/97)

Use Code: 161 OMB No. 0596-0082

 

 

U.S. DEPARTMENT OF AGRICULTURE

Forest Service

AMENDMENT

FOR

SPECIAL USE AUTHORIZATION

AMENDMENT NUMBER: 4

 

 

This amendment is attached to and made a part of the special use authorization (identified above) issued to THE VAIL CORPORATION on 11/23/1993 which is hereby amended as follows:

Remove the following clauses:

111.F. Temporary Suspension

VIII.A. Termination for Higher Public Purpose

VIII.B. Termination, Revocation and Suspension

XI.F. Water Rights.

Revise the heading of Section VII.TERMINATION to read REVOCATION AND SUSPENSION. In Section VIII, add clauses A. Revocation and Suspension, B. Opportunity Take Corrective Action, C. Revocation or Reasons in the Public Interest, and D. Suspension below:

  1. Revocation and Suspension. The Forest Service may suspend or revoke this permit in whole or part:
  1. For noncompliance with Federal, State, or local laws and regulations;
  2. For noncompliance with the terms of this permit;
  3. For failure of the holder to exercise the privileges granted by this permit;
  4. With the consent of the holder; or
  5. At the discretion of the authorized officer for specific and compelling reasons in the public interest.
  1. Opportunity to Take Corrective Action Prior to revocation or suspension under clause VIII.A, the authorized officer shall give the holder written notice of the grounds for each action and a reasonable time, not to exceed 90 days, to complete the corrective action prescribed by the authorized officer.
  2. Revocation for Reasons in the Public Interest. If, during the term of this permit or any extension thereof, the Secretary of Agriculture or any official of the Forest Service with delegated authority determines in planning for the uses of the National Forest System that the public interest requires revocation of this permit, this permit shall be revoked after one hundred-eighty (180) day's written notice to the holder. The United States shall then have the right to purchase the holder's improvements, to remove them, or to require the holder to remove them, and the United States shall be obligated to pay an equitable consideration for the improvements or for removal of the improvements and damages resulting from their removal. If the amount of consideration is fixed by mutual agreement between the United States and the holder, that amount shall be accepted by the holder in full satisfaction of all claims against the United States under this clause. If mutual agreement is not reached, the Forest Service shall determine the amount of consideration. If the holder is dissatisfied with the amount determined by the Forest Service, the holder may appeal the determination under the agency's administrative appeal regulations.
  3. Suspension. The Authorized offer may immediately suspend this permit, in whole or in part, when necessary to protect public health, safety, or the environment. The suspension decision must be in writing. Within 48 hours of the request of the holder, the superior of the authorized officer shall arrange for an on-the-ground review of the adverse conditions with the holder. Following this review the superior shall take prompt action to affirm, modify, or cancel the suspension.

Under section XI MISCELLANEOUS PROVISIONS, revise the heading for clause F Water Rights to read Water Use Facilities. Replace the existing clause with the clause below:

  1. Water Use Facilities
  1. Water Use Facilities. The National Forest System (NFS) land which is the subject of this permit is hereinafter referred to as the permitted NFS land. The authorization of facilities to divert, store, or convey water on the permitted National Forest System (NFS) land (water facilities) in conjunction with water rights acquired by the holder is for the purpose of operating a winter or year-round resort and related facilities under this permit. If use of the water or the water facilities ceases, the authorization to use the permitted NFS land for such water facilities will also cease. The United States reserves the right to place conditions on the installation, operation, maintenance and removal of these water facilities necessary to protect public property, public safety, and natural resources on the permitted NFS land in compliance with applicable laws, provided, however, such conditions shall not permit the imposition of bypass flows on water transported to the permitted NFS land from points of diversion or storage that arise off of the permitted NFS land.
  2. Water Rights. This permit does not confer any water rights on the holder. Water rights must be acquired by the holder under state law.
  3. Future Applications and Revocation. After June 2004, any right to divert water from the permitted NFS land where the use of such water is on the same permitted NFS land shall be applied for and held in the name of the United States and the holder (hereinafter called the joint water rights). This provision shall not apply to water rights that are acquired by the permit holder from a source off of the permitted NFS land and transferred to a point of diversion or storage on the permitted NFS land. During the term of the permit and any reissuance thereafter, the permit holder shall be responsible for maintaining such joint water rights, an shall have the right to make any applications or other filings as may be necessary to maintain and protect such joint water rights. In the event of revocation of this permit, the United States shall succeed to the sole ownership of such joint water rights. All joint water rights subject to this clause are listed below.

State ID# Owner Type or Basis Purpose of Use

(decree, license, certificate)

 

This Amendment is accepted subject to the conditions set forth herein, and to conditions N/A to N/A attached hereto and made part of this Amendment.

 

___//s// Martha D. Rehm__________ __________//s//_________________________

(Holder Signature) (Authorized Officer Signature)

 

_______________________________ ______________________________________

(Holder Signature) DON G. CARROLL, Acting Forest Supervisor

 

Date:_______9/13/04______________ Date:___9/20/04________________________

 

 

 

 

 

 

 

 

 

THIRD AMENDMENT TO CREDIT AGREEMENT

Exhibit 10.16(b)

FIRST AMENDMENT TO FOURTH AMENDED AND

RESTATED CREDIT AGREEMENT

THIS FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") is dated as of June 29, 2005, among THE VAIL CORPORATION, a Colorado corporation doing business as "Vail Associates, Inc." (the "Company"), the Required Lenders (as defined in the Credit Agreement referenced below) party hereto, and BANK OF AMERICA, N.A., as Administrative Agent (hereinafter defined).

R E C I T A L S

A. The Company has entered into that certain Fourth Amended and Restated Credit Agreement dated as of January 28, 2005 (as amended, the "Credit Agreement"), with Bank of America, N.A., as Administrative Agent (in such capacity, the "Administrative Agent"), and certain other agents and lenders party thereto, providing for revolving credit loans, letters of credit, and swing line loans in the aggregate principal amount of up to $400,000,000. Unless otherwise indicated herein, all capitalized terms used herein shall have the meanings set forth in the Credit Agreement, and all Section references herein shall be references to sections in the Credit Agreement.

B. The Company has requested certain clarifications with respect to the non-recourse Debt which may be incurred by the Unrestricted Subsidiaries and the limited recourse to the Restricted Subsidiaries permitted with respect to such non-recourse Debt of the Unrestricted Subsidiaries.

C. The Required Lenders have agreed to amend the Credit Agreement to provide for such clarifications as set forth herein.

In consideration of the foregoing and the mutual covenants contained herein, the Company, the Required Lenders, the Guarantors (by execution of the attached Guarantors' Consent and Agreement), and the Administrative Agent agree as follows:

1. Amendments.

(a) New Definitions. Section 1.1 is hereby amended by inserting the following new definitions, as follows:

(i) The definition of "Completion Guaranty" is added alphabetically to read as follows:

"Completion Guaranty means, with respect to any Real Estate Project of an Unrestricted Subsidiary, a completion guaranty or similar agreement entered into by a Restricted Company pursuant to which such Restricted Company (a) guarantees the timely completion of construction of such construction project in accordance with applicable plans and specifications, the payment of all costs incurred in connection with the construction of such construction project, the payment of the premiums of all insurance required to be maintained in connection with the Real Estate Project, or such other matters customarily included by institutional lenders in a completion guaranty, or (b) otherwise indemnifies a construction lender or other party from loss resulting from a failure to timely complete and pay all costs incurred in connection with construction of any project financed by such lender or other party in accordance with the applicable plans and specifications."

 

(ii) The definition of "Customary Recourse Exceptions" is added alphabetically to read as follows:

"Customary Recourse Exceptions means, with respect to any Non-Recourse Debt of an Unrestricted Subsidiary, exclusions from the exculpation provisions with respect to such Non-Recourse Debt for the bankruptcy of such Unrestricted Subsidiary, fraud, misapplication of cash, environmental claims, waste, willful destruction, and other circumstances customarily excluded by institutional lenders from exculpation provisions and/or included in separate indemnification agreements in non-recourse financings of real estate."

(iii) The definition of "Non-Recourse Debt" is added alphabetically to read as follows :

"Non-Recourse Debt means, for any Unrestricted Subsidiary, any Debt of such Unrestricted Subsidiary with respect to which the holder of such Debt (a) may not look to such Unrestricted Subsidiary directly for repayment, other than to the extent of any security therefor, or (b) may look to such Unrestricted Subsidiary directly for repayment (but not to any direct or indirect constituent equity holder of such Unrestricted Subsidiary, other than with respect to Permitted Recourse Obligations entered into by such direct or indirect constituent equity holder)."

(iv) The definition of "Permitted Recourse Obligations" is added alphabetically to read as follows:

"Permitted Recourse Obligations means, collectively, for any Restricted Company, obligations or liabilities arising with respect to Customary Recourse Exceptions, Completion Guaranties, and letters of credit or similar arrangements entered into in support of obligations of an Unrestricted Subsidiary with respect to its Real Estate Project."

(v) The definition of "Real Estate Project" is added alphabetically to read as follows:

"Real Estate Project means the acquisition, development, and operation or resale of any real estate asset or group of related real estate assets (and directly related activities) by any Unrestricted Subsidiary."

(b) Modifications of Existing Definitions. Section 1.1 is further amended by modifying the following existing definitions as indicated:

(i) The definition of "Debt" is amended to address Permitted Recourse Obligations, by replacing the period at the end of clause (d) therein with a semi-colon (;) and adding the following proviso thereafter:

"provided, that repayment or reimbursement obligations of any Restricted Company with respect to Permitted Recourse Obligations shall not be considered Debt unless and until an event or circumstance occurs that triggers such Restricted Company's direct payment liability or reimbursement obligation (as opposed to contingent or performance obligations) to the lender or other party to whom such Permitted Recourse Obligation is actually owed, in which case the amount of such direct payment liability to such lender or other party shall constitute Debt; provided, that the satisfaction of performance obligations on behalf of the Unrestricted Subsidiary under a Completion Guaranty shall not constitute Debt."

 

(ii) The definition of "Funded Debt" is amended to address Permitted Recourse Obligations as follows:

(A) the following is added after "instrument," in the parenthetical set forth in clause (a):

"as a direct (as opposed to contingent) payment obligation arising under a guaranty,";

(B) existing clause (d) is changed to clause (e); and

(C) the following is added as clause (d) before the phrase "but expressly excluding":

"(d) payment obligations with respect to Permitted Recourse Obligations which constitutes Debt hereunder,".

(iii) The definition of "Permitted Debt" is amended to conform with the new definitions added by this Amendment, as follows:

(A) Clause (e)(i) is deleted in its entirety and the following is substituted therefor:

"(i) (A) Non-Recourse Debt of Unrestricted Subsidiaries, and (B) other Debt of Unrestricted Subsidiaries which is recourse to the Restricted Companies (1) to the extent permitted by clause (iii) hereof or clauses (f) or (g) of the definition of "Permitted Debt," or (2) with respect to reimbursement obligations under the L/C described on Schedule 2.3 issued in support of certain SSI obligations;"; and

(B) Clause (g) is amended by adding the following parenthetical after the word "Debt":

"(including, without limitation, payment obligations with respect to Permitted Recourse Obligations which constitutes Debt hereunder)".

(iv) Clause (d) of the definition of "Permitted Liens" is amended to conform with the new definition of "Non-Recourse Debt" by modifying clause (d) to read as follows:

"(d) Liens on assets of Unrestricted Subsidiaries securing Debt of Unrestricted Subsidiaries permitted by clause (e)(i) of the definition of "Permitted Debt";".

(v) The definition of "Unrestricted Subsidiary" is amended to conform with the new definition of "Permitted Recourse Obligations" by modifying the second parenthetical provision in clause (b) of the definition to read as follow:

"(other than (i) pursuant to Permitted Recourse Obligations and (ii) as otherwise permitted in clause (e)(i) of the definition of "Permitted Debt"),".

(c) Modifications to Covenants.

(i) Affiliate Transactions. Section 10.6 is amended to address the Permitted Recourse Obligations between the Restricted Companies and the Unrestricted Companies by replacing the period at the end of clause (d) thereof with a semi-colon, and adding the following thereafter:

"provided, that any Restricted Company may enter into Permitted Recourse Obligations in support of obligations of Unrestricted Subsidiaries, so long as no Default or Potential Default then exists or arises."

(ii) Loan, Advances, and Investments. Section 10.8(m) is amended by adding the following parenthetical after the phrase "investments in Unrestricted Subsidiaries" in the first and second lines thereof:

"(including, without limitation, the amount of any Permitted Recourse Obligations which constitutes Debt hereunder)".

2. Representations and Warranties. As a material inducement to the Required Lenders and the Administrative Agent to execute and deliver this Amendment, the Company represents and warrants to the Required Lenders and the Administrative Agent (with the knowledge and intent that Required Lenders are relying upon the same in entering into this Amendment) that (a) the Company and the Guarantors have all requisite authority and power to execute, deliver, and perform their respective obligations under this Amendment and the Guarantor Consent and Agreement, as the case may be, which execution, delivery, and performance have been duly authorized by all necessary action, require no Governmental Approvals, and do not violate the respective certificates of incorporation or its bylaws, or other documents of such Companies; (b) upon execution and delivery by the Company, the Guarantors, the Administrative Agent, and the Required Lenders, this Amendment will constitute the legal and binding obligation of the Company and each Guarantor, enforceable against such entities in accordance with this Amendment's terms, except as that enforceability may be limited by general principles of equity or by bankruptcy or insolvency laws or similar laws affecting creditors' rights generally, (c) all representations and warranties in the Loan Papers are true and correct in all material respects as though made on the date hereof, except to the extent that any of them speak to a specific date or the facts on which any of them are based have been changed by transactions contemplated or permitted by the Credit Agreement, and (d) no Default or Potential Default has occurred and is continuing.

3. Conditions Precedent to Effectiveness. This Amendment shall be effective on the date (the "Effective Date") upon which Administrative Agent receives (i) counterparts of this Amendment executed by the Company, Administrative Agent, and Required Lenders, and (ii) the Guarantors' Consent and Agreement executed by each Guarantor

4. Expenses. The Company shall pay all reasonable costs, fees, and expenses paid or incurred by the Administrative Agent incident to this Amendment, including, without limitation, the reasonable fees and expenses of the Administrative Agent's counsel in connection with the negotiation, preparation, delivery, and execution of this Amendment and any related documents.

5. Miscellaneous. Unless stated otherwise herein, (a) the singular number includes the plural, and vice versa, and words of any gender include each other gender, in each case, as appropriate, (b) headings and captions shall not be construed in interpreting provisions of this Amendment, (c) this Amendment shall be governed by and construed in accordance with the laws of the State of New York, (d) if any part of this Amendment is for any reason found to be unenforceable, all other portions of it shall nevertheless remain enforceable, (e) this Amendment may be executed in any number of counterparts with the same effect as if all signatories had signed the same document, and all of those counterparts shall be construed together to constitute the same document, (f) this Amendment is a "Loan Paper" referred to in the Credit Agreement, and the provisions relating to Loan Papers in Section 14 of the Credit Agreement are incorporated herein by reference, (g) this Amendment, the Credit Agreement, as amended by this Amendment, and the other Loan Papers constitute the entire agreement and understanding among the parties hereto and supercede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof, and (h) except as provided in this Amendment, the Credit Agreement, the Notes, and the other Loan Papers are unchanged and are ratified and confirmed.

6. Parties. This Amendment binds and inures to the benefit of the Company, the Guarantors, the Administrative Agent, the Lenders, and their respective successors and assigns.

The parties hereto have executed this Amendment in multiple counterparts as of the date first above written.

Remainder of Page Intentionally Blank.

Signature Pages to Follow.

Signature Page to that certain First Amendment to Fourth Amended and Restated Credit Agreement dated as of June 29, 2005, among The Vail Corporation (d/b/a "Vail Associates, Inc."), the other agents and Lenders party thereto, and Bank of America, N.A., as Administrative Agent for the Lenders.

 

THE VAIL CORPORATION (D/B/A "VAIL ASSOCIATES, INC."), as the Company

 

By:

Name:

Title:

 

   

 

 

 

BANK OF AMERICA, N.A., as Administrative Agent

 

By:

Name:

Title:

BANK OF AMERICA, N.A.,

as an L/C Issuer, a Swing Line Lender, and a Lender

 

By:

Name:

Title:

U.S. BANK NATIONAL ASSOCIATION,

as Co-Syndication Agent, a Swing Line Lender, and a Lender

 

By:

Name:

Title:

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Co-Syndication Agent, an L/C Issuer, and a Lender

 

By:

Name:

Title:

DEUTSCHE BANK TRUST COMPANY AMERICAS, as Co-Documentation Agent and a Lender

 

By:

Name:

Title:

 

By:

Name:

Title:

 

LASALLE BANK NATIONAL ASSOCIATION,
as Co-Documentation Agent and a Lender

 

By:

Name:

Title:

 

CALYON NEW YORK BRANCH,
as a Lender

 

By:

Name:

Title:

 

JPMORGAN CHASE BANK, NA,
as a Lender

 

By:

Name:

Title:

 

COMPASS BANK,
as a Lender

 

By:

Name:

Title:

 

 

GUARANTY BANK,
as a Lender

 

By:

Name:

Title:

 

 

 

 

 

COMERICA WEST INCORPORATED,
as a Lender

 

By:

Name:

Title:

 

 

 

 

 

 

GUARANTORS' CONSENT AND AGREEMENT

As an inducement to Administrative Agent and Required Lenders to execute, and in consideration of Administrative Agent's and Required Lenders' execution of the foregoing First Amendment to Fourth Amended and Restated Credit Agreement, the undersigned hereby consent thereto and agree that the same shall in no way release, diminish, impair, reduce or otherwise adversely affect the respective obligations and liabilities of each of the undersigned under each Guaranty described in the Credit Agreement, or any agreements, documents or instruments executed by any of the undersigned to create liens, security interests or charges to secure any of the indebtedness under the Loan Papers, all of which obligations and liabilities are, and shall continue to be, in full force and effect. This consent and agreement shall be binding upon the undersigned, and the respective successors and assigns of each, and shall inure to the benefit of Administrative Agent and Lenders, and the respective successors and assigns of each.

Vail Resorts, Inc.

Vail Holdings, Inc.

Beaver Creek Associates, Inc.

Beaver Creek Consultants, Inc.

Beaver Creek Food Services, Inc.

Breckenridge Resort Properties, Inc.

Complete Telecommunications, Inc.

Gillett Broadcasting, Inc.

Grand Teton Lodge Company

Heavenly Valley, Limited Partnership

Jackson Hole Golf and Tennis Club, Inc.

JHL&S LLC

Keystone Conference Services, Inc.

Keystone Development Sales, Inc.

Keystone Food & Beverage Company

Keystone Resort Property Management Company

Larkspur Restaurant & Bar, LLC

Lodge Properties, Inc.

Lodge Realty, Inc.

Mountain Thunder, Inc.

Property Management Acquisition Corp., Inc.

Rockresorts International, LLC

Rockresorts LLC

Rockresorts Cheeca, LLC

Rockresorts Equinox, Inc.

Rockresorts LaPosada, LLC

Rockresorts Wyoming, LLC

Rockresorts Casa Madrona, LLC

Rockresorts Rosario, LLC

Teton Hospitality Services, Inc.

The Village at Breckenridge Acquisition Corp., Inc.

Timber Trail, Inc.

VA Rancho Mirage I, Inc.

VA Rancho Mirage II, Inc.

VA Rancho Mirage Resort, L.P.

Vail/Arrowhead, Inc.

Vail Associates Holdings, Ltd.

Vail Associates Investments, Inc.

Vail Associates Real Estate, Inc.

Vail/Beaver Creek Resort Properties, Inc.

Vail Food Services, Inc.

Vail Resorts Development Company

Vail RR, Inc.

Vail Summit Resorts, Inc.

Vail Trademarks, Inc.

VAMHC, Inc.

VR Heavenly I, Inc.

VR Heavenly II, Inc.

VR Holdings, Inc.

By:

Name:________________________________________

Title:_________________________________________

 

 

 

SALE-PURCHASE AGREEMENT

Exhibit 10.21

TABLE OF CONTENTS

1.

Sale of Premises, Liquor License and Liquor Inventory

2

2.

Purchase Price

4

3.

Adjustments And Prorations

4

4.

Closing

8

5.

Title, Survey, Permitted Encumbrances

8

6.

Buyer's Due Diligence

9

7.

Representations and Warranties

10

8.

Dispute Resolution

19

9.

Conditions Precedent to Closing

20

10.

Documents to be Delivered by Seller at Closing

21

11.

Documents to be Delivered by Buyer at Closing

22

12.

Costs and Adjustments

22

13.

Operation of the Premises prior to the Closing Date

23

14.

As Is

24

15.

No Brokerage Commission

25

16.

Casualty; Condemnation

25

17.

Remedies

26

18.

Liquor License

28

19.

Indemnity

30

20.

Escrow

34

21.

Assignment

36

22.

Access to Records

36

23.

Notices

37

24.

Property Information and Confidentiality

38

25.

Antitrust Notification

39

26.

Tennis Court Land Development

39

27.

Miscellaneous

40

SALE-PURCHASE AGREEMENT

between

VA RANCHO MIRAGE RESORT, L.P., a Delaware limited partnership

Seller,

RANCHO MIRAGE CONCESSIONS, INC., a Delaware corporation

Liquor License Seller,

and

GENLB-RANCHO LLC, a Delaware limited liability company

Buyer

This SALE-PURCHASE AGREEMENT (this "Agreement"), is made as of July 1, 2005 (the "Execution Date"), by and among VA RANCHO MIRAGE RESORT, L.P., a Delaware limited partnership ("Seller"), and OLYMPUS RANCHO MIRAGE CONCESSIONS, INC., a Delaware corporation ("Liquor License Seller"), all of whom having an office address of 137 Benchmark Road, Avon, Colorado 81620, and GENLB-RANCHO LLC, a Delaware limited liability company having an office address at 1221 Brickell Avenue, Suite 900, Miami, Florida 33131 ("Buyer").

W I T N E S S E T H

WHEREAS, Seller owns the real property and improvements commonly known as the "The Lodge at Rancho Mirage" and located at 68-900 Frank Sinatra Drive, Rancho Mirage, California 92270 (which also includes the Tennis Court Land (as defined in Section 26 hereinafter) (collectively, the "Hotel Property") and operates a hotel business thereon (the "Hotel"). The Seller also owns or leases the Personal Property and the Other Property (both as hereinafter defined). The Seller's right, title and interest in the Hotel Property, Personal Property and Other Property is herein collectively referred to as the "Premises." The real property included within the Hotel Property is more particularly described on Schedule 1 hereto, and is sometimes referred to herein as the "Real Property." Seller is the owner of the Premises.

WHEREAS, Seller and Buyer desire to enter into this Agreement whereby, subject to the terms and conditions contained herein, Seller shall sell the Premises to Buyer, and Buyer shall purchase the Premises from Seller.

WHEREAS, Liquor License Seller is the holder of the licenses listed on Schedule A and issued by the State of California for the sale of alcoholic beverages at or from the Premises (collectively referred to hereinafter as the "Liquor License").

WHEREAS, Liquor License Seller and Buyer desire to enter into this Agreement whereby, subject to the terms and conditions contained herein, and provided that Buyer completes the purchase of the Premises as described herein, Liquor License Seller shall sell the Liquor License to an assignee of Buyer, and such assignee shall purchase the Liquor License from Liquor License Seller.

WHEREAS, Buyer may develop that certain portion of the Real Property described on Schedule 26(a) for resale or lease as a commercial or residential development. In the event of such development, the parties intend that Seller receive additional consideration as a part of the transaction set forth herein.

NOW THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, (i) Seller agrees to sell to Buyer and Buyer agrees to purchase from Seller, the Premises subject to and in accordance with the terms and conditions set forth in this Agreement, and (ii) Liquor License Seller agrees to sell to Buyer's assignee and Buyer agrees to cause its assignee to purchase from Liquor License Seller, the Liquor License subject to and in accordance with the terms and conditions set forth in this Agreement. The foregoing recitals shall be deemed to be a part of this Agreement for all purposes.

  1. Sale of Premises, Liquor License and Liquor Inventory.
    1. Seller agrees to sell and convey to Buyer, and Buyer agrees to purchase from Seller, at the price and upon the terms and conditions set forth in this Agreement, all of Seller's right, title and interest in the Premises.
    2. As used herein, the "Personal Property" means all tangible personal property located on, at or about the Real Property or stored offsite for use upon the Real Property, including, but not limited to, the following: the fixtures, attachments, computers and computer equipment, computer software (whether owned or licensed), furnishings, art work, machinery, laundry facilities, and other articles attached to or located upon the Real Property, all goods, machinery, tools, equipment (including fire sprinklers and alarm systems, air conditioning, heating, boilers, refrigerating, electronic monitoring, water, lighting, power, sanitation, waste removal, entertainment, recreational, fitness and maintenance equipment, window or structural cleaning rigs and all other equipment of every kind), motor vehicles, machinery, lawn mowers, swimming pool equipment, all indoor or outdoor furniture (including tables, chairs, beds, planters, desks, sofas, shelves, lockers and cabinets), furnishings, appliances, televisions, radios, refrigerators, mini-bars, inventory, rugs, carpets and other floor coverings, paintings, pictures, artwork, decorations, sculptures, draperies, drapery rods and brackets, awnings, venetian blinds, partitions, chandeliers and all other indoor and outdoor lighting fixtures, including, without limitation, the items set forth on Schedule 1(b) attached hereto. Notwithstanding the foregoing, the Premises and the Personal Property specifically exclude the personal property of guests, customers and other invitees.
    3. As used herein, the "Other Property" shall mean the collective reference to the following:
      1. The Seller's rights as landlord or owner under any and all leases, subleases, concessions or licenses of any portion of the Real Property to any third parties entered into by Seller or its predecessors-in-interest prior to the Execution Date or, subject to Section 13(e) below, after the Execution Date (the "Occupancy Agreements").
      2. Subject to Sections 6(f) and 13(e) below, all contract rights related to the Premises, including without limitation, that certain Amenities Agreement dated May 2, 1995 by and between MCO Properties Inc. and Seller, and the Development Agreement (as defined in Section 7(q)) contracts for the use or occupancy of guest rooms or meeting, banquet or other facilities of the Real Property, and all service, vendor, maintenance contracts, rental agreements, reservations, agreements for use, service agreements, equipment leases, leasing agreements, marketing agreements, utility contracts, construction contracts, guarantees, warranties and commitments relating to the Real Property or Personal Property (collectively, the "Contracts").
      3. Any security deposits, escrow deposits and utility deposits related to the Premises (together with any interest which has accrued thereon as required by the terms of such Occupancy Agreements, but only to the extent such interest has accrued for the account of the respective tenants under the Occupancy Agreements or as required by law).
      4. All engineering, maintenance and housekeeping supplies, food and beverage department supplies, including soap, cleaning materials and matches; stationery and printing; and other supplies of all kinds, whether used, unused, or held in reserve storage for future use in connection with the maintenance and operation of the Premises which are on hand as of the Closing Date ("Consumables").
      5. All food and non-alcoholic beverage which is on hand as of the Closing Date, including mini-bar contents, whether issued to the food and beverage department or held in reserve storage ("Food and Beverage").
      6. All china, glassware, bar equipment and furnishings, linens, silverware and uniforms, whether in use or held in reserve storage for future use, in connection with the operations of the Premises which are on hand on the Closing Date ("Operating Equipment").
      7. Seller's interest in the licenses, franchises and permits used in or relating to the ownership, occupancy or operation of any part of the Real Property, including, without limitation, those identified on Schedule 1(c)(vii) hereto (collectively, "Permits").
      8. All books, records, correspondence and other files (other than appraisals and other materials prepared for the Seller's internal use in connection with the valuation or sale of the Premises) owned by the Seller and maintained or generated in the course of the operation of the Premises and which relate to the operation of the Premises.
      9. All of the Intellectual Property (as defined in Section 7(a)(i)(k)).
    4. Liquor License Seller agrees to sell and convey to Buyer's assignee, and Buyer agrees to cause its assignee to purchase from Liquor License Seller, the Liquor License, along with all Liquor Inventory (as defined in Section 2(a)) located on the Premises as of the Closing Date, all subject to the terms and conditions set forth herein. The portion of the Purchase Price attributable to the Liquor License, the Liquor FF&E and the Liquor Inventory shall be the amount described as the "Liquor License Purchase Price" in Section 2(a) hereof.
  2. Purchase Price.
    1. The purchase price to be paid by Buyer to Seller for the Premises (the "Property Purchase Price") shall be Thirty-Two Million Nine Hundred Fifty-Five Thousand and No/100 Dollars ($32,955,000.00) and the purchase price to be paid by Buyer to Liquor License Seller for the Liquor License, the liquor furniture, fixtures and equipment ("Liquor FF&E") and the liquor inventory (the "Liquor Inventory") shall be One Hundred Forty-Five Thousand and No/100 Dollars ($145,000.00) (the "Liquor License Purchase Price") and together with the Property Purchase Price, the "Purchase Price"). The Property Purchase Price is allocated as follows: land and improvements – Twenty-Nine Million Nine Hundred Fifty-Five and No/100 Dollars ($29,955,000.00); personalty – Three Million and No/100 Dollars ($3,000,000.00).
    2. Upon the Trigger Date (as hereinafter defined in Section 26) Buyer shall pay to Seller as additional consideration the Additional Consideration (as hereinafter defined in Section 26).
    3. The Purchase Price, subject to the adjustments and prorations set forth in Section 3, shall be payable as follows:
      1. One Million, Five Hundred Thousand and No/100 Dollars ($1,500,000.00) (the "Deposit"), contemporaneously with the execution hereof, by a bank wire transfer of immediately available funds to an interest bearing account designated by Chicago Title Company, 560 East Hospitality Lane, San Bernardino, CA 94208 (the "Escrow Company").
    4. The Deposit and all earnings thereon shall be non-refundable, unless Buyer terminates this Agreement due to a default by Seller under Section 17(b) or a condition precedent to Buyer's performance hereunder shall not be satisfied or waived or as a result of a casualty or condemnation as more particularly set forth in Section 16 below. The Deposit shall be held and disbursed together with all interest thereon by the Escrow Company in accordance with the terms of Section 20. If the Closing shall occur, Seller shall receive the Deposit, and the Deposit shall be credited against the Purchase Price.
  3. Adjustments And Prorations .
    1. Adjustments and Prorations. The following matters and items pertaining to the Property shall be apportioned between the parties hereto or, where applicable, credited in total to a particular party, as of 12:01 a.m. on the Closing Date (the "Apportionment Time"). Net credits in favor of Buyer shall be deducted from the balance of the Purchase Price at the Closing and net credits in favor of Seller shall be paid by Buyer to Seller in cash at the Closing. Notwithstanding the provisions of this Section 3, Seller may, in its sole discretion, choose to retain certain assets and liabilities on its own books in lieu of the adjustment by proration as set forth in this Section 3. If Seller elects to maintain any such assets or liabilities, Seller shall notify Buyer of such election and the assets and liabilities to be retained no later than three (3) business days prior to Closing. With respect to such assets and liabilities to be retained, no proration shall be made hereunder.
    2. Subject to the foregoing, and unless otherwise indicated below, Buyer shall receive a credit against the Purchase Price for any of the following items to the extent they are accrued but unpaid as of the Apportionment Time (whether or not due, owing or delinquent as of the Apportionment Time) and to the extent Buyer has assumed the obligations for them, and Seller shall receive a credit (and thereby be entitled to a payment from Buyer) with respect to any of the following items which shall have been paid prior to the Closing Date to the extent the payment thereof relates to any period of time after the Apportionment Time:

    3. Cash Accounts. All funds held in any accounts maintained by or for the benefit of Seller at the Apportionment Time will be removed by Seller as of the Apportionment Time for the benefit of Seller.
    4. House Banks. Seller shall receive a credit for the cash held in the Hotel house banks and any petty cash at the Hotel.
    5. Guest Ledger. Guest ledger receivables (i.e., amounts, including, without limitation, room charges and charges for food and beverages, accrued to the accounts of guests and other customers of the Hotel as of the Apportionment Time) ("Guest Ledger Receivables") shall be prorated between Buyer and Seller. Seller shall receive a credit for all guest ledger receivables for all room nights and other charges up to but not including the room night during which the Apportionment Time occurs, and Buyer shall be entitled to the amounts of guest ledger receivables for the room nights and other charges after the Apportionment Time. The final night's room revenue (revenue from rooms occupied on the evening preceding the Closing Date), any taxes thereon, and any in-room telephone, movie and similar charges for such room night, shall be allocated 50% to Seller and 50% to Buyer. All revenues from restaurants, bars and lounge facilities for the room night during which the Apportionment Time occurs shall belong to Seller, and Seller shall bear all expenses related to such revenues, including but not limited to, payroll and food and beverage costs.
    6. Other Accounts Receivable. Except as set forth in Section 3(d), all accounts receivable, including city ledger receivables, for all periods prior to the Apportionment Time shall remain the property of Seller. After the Closing Date, Buyer shall use commercially reasonable efforts to collect, without litigation, in the ordinary course of business all such accounts receivable (other than accounts receivable from credit card companies that shall be collected directly by Seller). Periodically (but no less frequently than monthly), Buyer shall submit to Seller all amounts received in respect of such accounts receivable, together with an itemization of such accounts receivable. If Buyer receives any amounts in respect of such accounts receivable after such date, Buyer shall promptly remit the same to Seller. Seller may utilize such procedures that it deems necessary in its sole discretion to collect accounts receivable, but Seller will not commence litigation against any obligors except with respect to collection of receivables due from Worldwide Kosher and from Tec 119.
    7. Prepaid Expenses; Deposits. Seller shall receive a credit for prepaid expenses directly or indirectly related to the Premises and allocable to any period from and after the Closing Date, including, without limitation, prepaid rents under any equipment lease, Permit and inspection fees, fees for licenses, trade association dues and trade subscriptions, all security or other deposits paid by or on behalf of Seller to third parties to the extent the same are transferable and remain on deposit for the benefit of Buyer, and prepaid advertising which has not been published, mailed or aired, and marketing and advertising inventory items such as brochures and other materials if reported on the balance sheet of Seller in accordance with GAAP and related to marketing of the Hotel as a RockResort.
    8. Food and Beverage. Seller shall receive a credit for the cost of any inventories of all food and non-alcoholic beverage, including mini-bar contents, whether issued to the food and beverage department or held in reserve storage and contained in unopened containers ("Food and Beverage") .
    9. Insurance. Insurance premiums will not be prorated and Buyer shall not assume, and Seller shall not assign, any insurance policies, Buyer hereby acknowledging its obligation to obtain its own insurance related to or for the Property.
    10. Taxes and Assessments. Seller shall be solely responsible for any taxes due in respect of its income, net worth or capital, if any, and any privilege, sales, transient occupancy tax, due or owing to any governmental entity in connection with the operation of the Property for any period of time prior to the Apportionment Time, and Buyer shall be solely responsible for all such taxes for any period from and after the Apportionment Time, and provided further that any income tax arising as a result of the sale and transfer of the Property by Seller to Buyer shall be the sole responsibility of Seller. All ad valorem taxes, special or general assessments, real property taxes, water and sewer rents, rates and charges, vault charges, and any municipal permit fees shall be prorated as of the Apportionment Time between Buyer and Seller. Seller shall also provide Buyer with a credit at Closing for real estate taxes attributable to the period from January 1, 2005 to the Closing Date, payable in 2006, such credit to be calculated based upon the most recent valuation and real property tax assessments applicable to the Real Property.
    11. Utilities; Telephone. Telephone and telex charges and charges for the supply of heat, steam, electric power, gas, lighting, cable television and any other utility service shall be prorated as of the Apportionment Time between Buyer and Seller. Seller shall receive a credit for all deposits, if any, made by Seller as security under any such public service contracts if the same are transferable and provided such deposits remain on deposit for the benefit of Buyer. Where possible, cutoff readings will be secured for all utilities as of the Apportionment Time. To the extent cutoff readings are not available, the cost of such utilities shall be apportioned between the parties on the basis of the latest actual (not estimated) bill for such service.
    12. Hotel Contracts, Association Documents and the Occupancy Agreements; Trade Payables and Receivables. Any amounts prepaid or payable under any Contracts or the Occupancy Agreements and any other trade payables and receivables shall be prorated as of the Apportionment Time between Buyer and Seller. All amounts known to be due under Contracts and the Occupancy Agreements with reference to periods prior to the Closing Date shall be paid by Seller or credited to Buyer if assumed by Buyer.
    13. Bookings. Buyer shall receive a credit for advance payments and deposits, if any, under bookings for future guests.
    14. Gift Certificates. Buyer shall receive a credit for the face value of all unredeemed gift certificates issued by Seller as of the Apportionment Time.
    15. Vending Machines. Vending machine monies will be removed by Seller as of the Apportionment Time for the benefit of Seller.
    16. Security Deposits. Buyer shall be entitled to a credit for all unapplied security and other deposits, if any, held by Seller as of the Apportionment Time with respect to the Occupancy Agreements.
    17. Employee Costs. Buyer shall receive a credit for all employee costs accrued but unpaid as of the Apportionment Time, including salaries and wages, vacation and holiday pay, workers compensation, payroll taxes and bonuses.
    18. Other Items. Such other items as are provided for in this Agreement or as are normally prorated and adjusted in the sale of real property or of a Hotel shall be prorated as of the Apportionment Time in accordance with local custom in the jurisdiction in which the Hotel is located.
    19. Closing Statement; True Up. Seller and Buyer shall jointly prepare a proposed closing statement containing the parties' reasonable estimate of the items requiring prorations and adjustments in this Agreement. Subsequent final adjustments and payments (the "True-Up") shall be made in cash or other immediately available funds as soon as practicable, but no more than one-hundred twenty (120) days after the Closing Date (except with respect to ad valorem property taxes which shall be adjusted within thirty (30) days after receipt of the final tax bill), based upon an accounting performed by Seller and acceptable to Buyer. If the parties have not agreed with respect to the adjustments required to be made pursuant to this Section 3, upon application by either party, a certified public accountant reasonably acceptable to the parties shall determine any such adjustments which have not theretofore been agreed to between the parties. (If the parties cannot agree on a certified public accountant within thirty (30) days after the request by either party, the Judicial Arbitration and Mediation Services ("JAMS") located in Denver, Colorado shall appoint a certified public accountant.) The charges of such accountant (and JAMS, if applicable) shall be borne equally by the parties. All adjustments to be made as a result of the final results of the True-Up shall be paid to the party entitled to such adjustment within thirty (30) days after the final determination thereof.
    20. Access. Buyer and Seller shall have the right to have their representatives present (i) before the Closing Date for the purpose of observing the taking of any inventories by Seller's designee (including the counting of house funds), the review of receivables, or any other matters to be performed pursuant to this Section 3, and (ii) after the Closing Date for the purpose of review of receivables or any other post-closing adjustments provided for in this Agreement, and such representatives shall be given reasonable access to the books and records which are relevant to the preparation of the proposed closing statement and the settlement statement.
    21. Calculations. Where charges are not set forth for specific days, prorations shall be made on the basis of the actual number of days of the year, or month, as applicable, which shall have elapsed as of the Closing Date.
    22. Survival. The provisions of this Section 3 shall survive the Closing and delivery of the deed.
  4. Closing.
  5. The consummation of the purchase and sale of the Premises contemplated by this Agreement (the "Closing") shall take place on or before July 27, 2005 (the "Closing Date"). The Closing shall occur at 10:00 a.m. on the Closing Date at the offices of the Escrow Company or such other location as is mutually acceptable to the parties.

    The consummation of the purchase and sale of the Liquor License contemplated by this Agreement (the "Liquor License Closing") shall take place concurrently with or as soon as possible after the Closing for the purchase and sale of the Premises as described above.

    If, solely as a result of Buyer not having deposited the Purchase Price as and when required hereunder, the Escrow Company has not transmitted the Purchase Price to Seller sufficiently early on the Closing Date to allow Seller to invest such funds for interest credit on the day of receipt, or to pay off any existing encumbrances such that interest thereon ceases on the Closing Date, then any and all adjustments to be made as of the day of Closing shall be made as of the next business day. In all other events, all adjustments shall be made on the day of Closing.

  6. Title, Survey, Permitted Encumbrances.
  7. On the Closing Date, the Seller's title to the Premises shall be free and clear of all liens, claims and encumbrances except (i) non-delinquent real property taxes and assessments, (ii) the special assessment (improvement lien) related to the construction of Frank Sinatra Drive adjacent to the Real Property, (iii) matters that are disclosed by the Title Policy (as hereinafter defined) and that are approved or deemed approved by Buyer as set forth herein, and (iv) matters that are disclosed by that ALTA Survey prepared by The Keith Companies dated September 14, 2001, as updated and revised (the "Survey") and are approved or deemed approved by Buyer, or that would be disclosed by a current survey or physical inspection of the Real Property (collectively, the "Permitted Encumbrances"). Seller shall order the updated and revised Survey. Seller has delivered to Buyer: (i) a current preliminary title report (for an ALTA Owner's Policy of Title Insurance (Form B, Rev. 10/17/70)) ("Title Report"); (ii) copies of all recorded documents referred to on Schedule B of the Title Report as exceptions to coverage (collectively, the "Title Documents"), and (iii) the Survey. Buyer has approved the Title Report, Title Documents and Survey.

    If additional title documents, updates to the Title Report and/or updates to the Survey received after the Execution Date disclose any new defect, exception, or other matter affecting the Real Property (a "Title Defect") following the Execution Date, Buyer shall have five (5) business days following its receipt of written disclosure in which to object to any such additional Title Defect. If no objection is made during such period, the Title Defect shall be deemed a Permitted Encumbrance. Seller may, at its sole option, elect to cure or remove the objections made by Buyer; provided, however, Seller shall have no obligation to cure such Title Defect other than removing or causing to be released the following (collectively, the "Mandatory Removal Items"): (1) all mechanics' liens; (2) monetary liens encumbering the Property created by Seller's acts; and (3) liens of any financing obtained by Seller which are secured by the Premises. If Seller fails to remove any Mandatory Removal Items, such amounts as are necessary to remove them shall be held back from Seller's proceeds at Closing and not disbursed to Seller until they are removed and at Seller's election, the amounts held back shall be utilized either to "bond over" them through the Title Company or pay them at Closing. Should Seller elect to attempt to cure or remove the objections, Seller shall have thirty (30) days from the date of Buyer's written notice of objections (the "Cure Period") in which to accomplish the cure (other than for Mandatory Removal Items for which there shall be no Cure Period). In the event Seller either elects not to cure or remove the objections or is unable to accomplish the cure prior to the expiration of the Cure Period, then Seller shall so notify Buyer in writing specifying which objections Seller does not intend to cure, and then Buyer shall be entitled, as Buyer's sole and exclusive remedies, either to (i) terminate this Agreement and obtain a refund of the Deposit by providing written notice of termination to Seller within five (5) business days from the date on which Buyer receives Seller's notice that it does not intend to cure or (ii) waive the objections and close this transaction as otherwise contemplated herein, and the Closing Date shall be extended by the portion of the Cure Period that extends beyond the original Closing Date.

  8. Buyer's Due Diligence.
    1. Buyer acknowledges that various materials relating to the Premises (the "Due Diligence Materials") have been delivered by Seller to Buyer for its review, which materials are identified on Schedule 6(a) hereto. Buyer and Buyer's Representatives (hereinafter defined) have been given the opportunity to inspect, test, study and survey the Premises (and conduct environmental studies and assessments of the Premises). Buyer has performed its review of the Due Diligence Materials during the period of time prior to the Execution Date. The Deposit shall not be refundable to Buyer if Buyer should terminate this Agreement, except in the event of Seller's default under Section 17(b) hereof or a condition precedent to Buyer's performance hereunder shall not be satisfied or waived or as a result of a casualty or condemnation as more particularly set forth in Section 16 below.
    2. Notwithstanding anything to the contrary contained herein, in the event this Agreement is terminated for any reason, then Buyer shall promptly and at its sole expense return to Seller all Due Diligence Materials which have been delivered by Seller to Buyer in connection with Buyer's inspection of the Premises, along with copies of all reports, drawings, plans, studies, summaries, surveys, maps and other data prepared by or for Buyer in its investigation and inspection of the Real Property (collectively, "Buyer's Reports"), subject, however to any limitations on Buyer's right to make any such materials available to Seller that are imposed in any agreement with a third party consultant preparing any such reports or materials, and subject to Buyer's disclaimer that Buyer's Reports are provided without representation or warranty made by Buyer as to their accuracy or completeness. Buyer shall cooperate with Seller at no expense to Buyer in order to obtain a waiver of any such limitation.

      Except to the extent of any representation or warranty made by Seller hereunder, Buyer acknowledges that Seller is not representing or warranting that any of the Due Diligence Materials are accurate or complete, and that Seller has advised Buyer to independently verify the facts and conclusions set forth therein.

    3. During the term of this Agreement, Seller shall provide Buyer's Representatives access to the Premises and to (i) the accounting books and records related solely to operation of the Premises (and not to Seller's internal matters), and (ii) all Contracts which are in the Seller's possession or control, other than contracts with appraisers, appraisals and other materials prepared for the Seller's internal use in connection with valuing or selling the Premises.
    4. Buyer will give Seller one (1) business day advance notice of its schedule for inspections, examinations and other visits at the Premises, and Buyer and Seller will cooperate with each other in facilitating such activities with a minimum of interference with operations at the Premises. Buyer shall obtain Seller's prior approval of the scope and method of any environmental studies or assessments of the Premises (other than a Phase I environmental site assessment) and of any inspection which would materially affect the physical condition of the Premises, which may be withheld in Seller's sole discretion and subject to such further agreements regarding access and indemnity which Seller requires. Buyer shall provide to Seller a certificate of insurance evidencing at least Two Million and No/100 Dollars ($2,000,000.00) of general liability coverage naming Seller as an additional insured thereof. After such inspections, Buyer shall restore the Premises to its condition immediately before such inspections. Buyer shall have reasonable opportunity during the term of this Agreement to meet with and discuss all aspects of