form10q.htm



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

FORM 10-Q


x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2007

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:  001-09614

Vail Resorts, Inc.
(Exact Name of Registrant as Specified in Its Charter)


Delaware
 
51-0291762
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
     
390 Interlocken Crescent, Suite 1000
Broomfield, Colorado
 
80021
(Address of Principal Executive Offices)
 
(Zip Code)

(303) 404-1800
(Registrant’s Telephone Number, Including Area Code)


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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x                                           Accelerated filer ¨                                         Non-accelerated filer ¨

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

As of December 4, 2007, 38,685,542 shares of the registrant’s common stock were outstanding.


     
PART I
FINANCIAL INFORMATION
 
     
Item 1.
F-1
Item 2.
1
Item 3.
11
Item 4.
12
     
     
PART II
OTHER INFORMATION
 
     
Item 1.
12
Item 1A.
12
Item 2.
13
Item 3.
13
Item 4.
13
Item 5.
13
Item 6.
13



PART I
FINANCIAL INFORMATION
 
     
Item 1.
 
     
F-2
F-3
F-4
F-5


 
Consolidated Condensed Balance Sheets
 
(In thousands, except share and per share amounts)
 
                       
       
October 31,
   
July 31,
   
October 31,
 
       
2007
   
2007
   
2006
 
       
(unaudited)
         
(unaudited)
 
Assets
                 
Current assets:
                 
 
Cash and cash equivalents
$
166,044
 
$
230,819
 
$
117,311
 
 
Restricted cash
 
42,876
   
54,749
   
20,354
 
 
Trade receivables, net
 
24,954
   
43,557
   
27,532
 
 
Inventories, net
 
63,701
   
48,064
   
56,623
 
 
Other current assets
 
46,615
   
34,448
   
39,082
 
 
Total current assets
 
344,190
   
411,637
   
260,902
 
Property, plant and equipment, net (Note 5)
 
917,344
   
885,926
   
856,502
 
Real estate held for sale and investment
 
415,411
   
357,586
   
301,781
 
Goodwill, net
 
141,699
   
141,699
   
135,811
 
Intangible assets, net
 
73,243
   
73,507
   
74,252
 
Other assets
 
43,034
   
38,768
   
45,737
 
 
Total assets
$
1,934,921
 
$
1,909,123
 
$
1,674,985
 
                       
Liabilities and Stockholders' Equity
                 
Current liabilities:
                 
 
Accounts payable and accrued expenses (Note 5)
$
360,352
 
$
281,779
 
$
268,490
 
 
Income taxes payable
 
34,708
   
37,441
   
14,986
 
 
Long-term debt due within one year (Note 4)
 
76,944
   
377
   
430
 
 
Total current liabilities
 
472,004
   
319,597
   
283,906
 
Long-term debt (Note 4)
 
534,527
   
593,733
   
542,990
 
Other long-term liabilities
 
168,131
   
181,830
   
165,746
 
Deferred income taxes
 
54,354
   
72,213
   
46,959
 
Commitments and contingencies (Note 9)
                 
Put option liabilities (Note 8)
 
--
   
--
   
1,245
 
Minority interest in net assets of consolidated subsidiaries
 
24,533
   
27,711
   
29,835
 
Stockholders' equity:
                 
 
Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued and outstanding
 
--
   
--
   
--
 
 
Common stock, $0.01 par value, 100,000,000 shares authorized, 39,864,167 (unaudited), 39,747,976 and 39,210,917 (unaudited) shares issued as of October 31, 2007, July 31, 2007 and October 31, 2006, respectively
 
399
   
397
   
392
 
 
Additional paid-in capital
 
538,009
   
534,370
   
514,345
 
 
Retained earnings
 
180,508
   
205,118
   
107,906
 
 
Treasury stock (Note 11)
 
(37,544
)
 
(25,846)
   
(18,339
)
   
Total stockholders' equity
 
681,372
   
714,039
   
604,304
 
     
Total liabilities and stockholders' equity
$
1,934,921
 
$
1,909,123
 
$
1,674,985
 

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



   
 
Consolidated Condensed Statements of Operations
 
(In thousands, except per share amounts)
 
(Unaudited)
 
                   
         
Three Months Ended
 
         
October 31,
 
         
2007
   
2006
 
Net revenue:
           
 
Mountain
$
42,536
 
$
46,164
 
 
Lodging
 
43,317
   
40,408
 
 
Real estate
 
12,034
   
26,922
 
   
Total net revenue
 
97,887
   
113,494
 
Segment operating expense:
           
 
Mountain
 
80,947
   
79,487
 
 
Lodging
 
41,236
   
36,349
 
 
Real estate
 
6,913
   
26,118
 
   
Total segment operating expense
 
129,096
   
141,954
 
Other operating expense:
           
 
Depreciation and amortization
 
(20,761
)
 
(21,585
)
 
Relocation and separation charges (Note 7)
 
--
   
(735
)
 
Loss on disposal of fixed assets, net
 
(234
)
 
(81
)
Loss from operations
 
(52,204
)
 
(50,861
)
 
Mountain equity investment income, net
 
1,969
   
835
 
 
Investment income
 
3,218
   
2,063
 
 
Interest expense, net
 
(7,644
)
 
(8,936
)
 
Contract dispute credit (charges), net  (Note 9)
 
11,920
   
(3,605
)
 
Minority interest in loss of consolidated subsidiaries, net
 
2,063
   
1,790
 
Loss before benefit from income taxes
 
(40,678
)
 
(58,714
)
 
Benefit from income taxes
 
16,068
   
22,899
 
Net loss
$
(24,610
)
$
(35,815
)
             
Per share amounts (Note 3):
           
 
Basic net loss per share
$
(0.63
)
$
(0.93
)
 
Diluted net loss per share
$
(0.63
)
$
(0.93
)

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



Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
                   
         
Three Months Ended
 
         
October 31,
 
         
2007
   
2006
 
Cash flows from operating activities:
           
Net loss
$
(24,610
)
$
(35,815
)
Adjustments to reconcile net loss to net cash used in operating activities:
           
 
Depreciation and amortization
 
20,761
   
21,585
 
 
Non-cash cost of real estate sales
 
698
   
20,040
 
 
Non-cash stock-based compensation expense
 
2,246
   
1,960
 
 
Deferred income taxes, net
 
(18,654
)
 
(26,841
)
 
Minority interest in loss of consolidated subsidiaries, net
 
(2,063
)
 
(1,790
)
 
Other non-cash income, net
 
(2,146
)
 
(792
)
Changes in assets and liabilities:
           
 
Restricted cash
 
11,874
   
(32
)
 
Accounts receivable, net
 
15,170
   
8,572
 
 
Inventories, net
 
(15,637
)
 
(14,344
)
 
Investments in real estate
 
(64,330
)
 
(54,999
)
 
Accounts payable and accrued expenses
 
49,740
   
39,932
 
 
Deferred real estate deposits
 
18,738
   
(2,145
)
 
Other assets and liabilities, net
 
(9,052
)
 
(8,091
)
 
Net cash used in operating activities
 
(17,265
)
 
(52,760
)
Cash flows from investing activities:
           
 
Capital expenditures
 
(52,290
)
 
(28,558
)
 
Other investing activities, net
 
523
   
89
 
 
Net cash used in investing activities
 
(51,767
)
 
(28,469
)
Cash flows from financing activities:
           
 
Repurchases of common stock
 
(11,698
)
 
(7,500
)
 
Proceeds from borrowings under Non-Recourse Real Estate Financings
 
17,586
   
24,106
 
 
Payments of Non-Recourse Real Estate Financings
 
--
   
(1,493
)
 
Proceeds from borrowings under other long-term debt
 
26,614
   
17,933
 
 
Payments of other long-term debt
 
(26,840
)
 
(28,354
)
 
Proceeds from exercise of stock options
 
863
   
2,324
 
 
Other financing activities, net
 
(2,268
)
 
(270
)
 
Net cash provided by financing activities
 
4,257
   
6,746
 
 
Net decrease in cash and cash equivalents
 
(64,775
)
 
(74,483
)
Cash and cash equivalents:
           
 
Beginning of period
 
230,819
   
191,794
 
 
End of period
$
166,044
 
$
117,311
 
               
Cash paid for interest, net of amounts capitalized
$
11,960
 
$
15,211
 
Taxes paid, net
 
2,123
   
5,507
 

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



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

1.           Organization and Business
 
Vail Resorts, Inc. ("Vail Resorts" or the “Parent Company”) is organized as a holding company and operates through various subsidiaries.  Vail Resorts and its subsidiaries (collectively, the "Company") currently operate in three business segments: Mountain, Lodging and Real Estate.  In the Mountain segment, the Company owns and operates five world-class ski resort properties 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, as well as ancillary businesses, primarily including ski school, dining and retail/rental operations.  These resorts operate primarily on Federal land under the terms of Special Use Permits granted by the USDA Forest Service (the “Forest Service”).  The Company holds a 69.3% interest in SSI Venture, LLC (“SSV”), a retail/rental company.  In the Lodging segment, the Company owns and/or manages a collection of luxury hotels under its RockResorts International, LLC (“RockResorts”) brand, as well as other strategic lodging properties and a large number of condominiums located in proximity to the Company’s ski resorts, the Grand Teton Lodge Company (“GTLC”), which operates three destination resorts at Grand Teton National Park (under a National Park Service concessionaire contract), and golf courses.  Vail Resorts Development Company ("VRDC"), a wholly-owned subsidiary, conducts the operations of the Company's Real Estate segment, which holds and develops real estate in and around the Company’s resort communities.  The Company's mountain business and its lodging properties at or around the Company’s ski resorts are seasonal in nature with peak operating seasons from mid-November through mid-April.  The Company's operations at GTLC and its golf courses generally operate from mid-May through mid-October.  The Company also has non-majority owned investments in various other entities, some of which are consolidated (see Note 6, Variable Interest Entities).

In the opinion of the Company, the accompanying Consolidated Condensed Financial Statements reflect all adjustments necessary to state fairly the Company's financial position, results of operations and cash flows for the interim periods presented.  All such adjustments are of a normal recurring nature.  Results for interim periods are not indicative of the results for the entire year.  The accompanying Consolidated Condensed Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended July 31, 2007.  Certain information and footnote disclosures, including significant accounting policies, normally included in fiscal year financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  The July 31, 2007 Consolidated Condensed Balance Sheet was derived from audited financial statements.

2.           Summary of Significant Accounting Policies

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

Income Taxes--Effective August 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).  Although the implementation of FIN 48 did not impact the amount of the Company’s liabilities for unrecognized tax benefits, the adoption did result in a reclassification of $2.8 million of liabilities for unrecognized tax benefits from deferred income tax liabilities to other long-term liabilities to conform with the balance sheet presentation requirements of FIN 48. As of August 1, 2007, the amount of unrecognized tax benefits was $13.0 million, of which $2.8 million would, if recognized, decrease the Company’s effective tax rate.  As allowed under FIN 48, the Company is continuing its policy of accruing income tax related interest and penalties, if applicable, within income tax expense.  As of August 1, 2007, accrued interest, net of tax, was $0.8 million and for the three months ended October 31, 2007 and 2006, the Company recognized $0.3 million and $0.1 million of interest expense, net of tax, respectively.

During the three months ended October 31, 2007, the Company entered into an agreement with the Colorado Department of Revenue covering calendar year tax returns from 2001 through 2005.  In conjunction with this agreement, the Company reduced its liabilities for unrecognized tax benefits by $0.7 million, which benefit has been reflected in the Company’s effective tax rate for the three months ended October 31, 2007.

During the year ended July 31, 2005, the Company amended previously filed tax returns (for tax years 1997-2002) in an effort to remove restrictions under Section 382 of the Internal Revenue Code on approximately $73.8 million of Federal net operating loss (“NOL”) carryforwards relating to fresh start accounting from the Company’s reorganization in 1992.  During the year ended July 31, 2006, the Internal Revenue Service completed its examination of the Company’s filing position in these amended returns and disallowed the Company’s position to remove the restrictions.  The Company has appealed the examiner’s disallowance of these NOLs to the Office of  Appeals. Upon ultimate resolution, the unrecognized tax benefit related to this matter will be resolved as it will result in either payment by the Company, recognition of tax benefits through the utilization of the NOLs, or a combination of both; however, the resolution of this matter is not anticipated to materially impact the Company’s effective tax rate. The Company anticipates that this matter will be resolved in the next twelve months.

New Accounting Pronouncements-- In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination.  The requirements of SFAS 141R are effective for the Company beginning August 1, 2009 (its fiscal year ending July 31, 2010).  The Company is in the process of evaluating this guidance and therefore has not yet determined the impact that SFAS 141R will have on the Company’s financial position or results of operations upon adoption.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the consolidated balance sheets. The requirements of SFAS 160 are effective for the Company beginning August 1, 2009 (its fiscal year ending July 31, 2010).  The Company is in the process of evaluating this guidance and therefore has not yet determined the impact that SFAS 160 will have on the Company’s financial position or results of operations upon adoption.

3.           Net Loss Per Common Share

Statement of Financial Accounting Standards (“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 consolidated condensed statements of operations 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 holders of common stock by the weighted-average shares outstanding.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of shares of common stock that would then share in the earnings of the Company.  Presented below is basic and diluted EPS for the three months ended October 31, 2007 and 2006 (in thousands, except per share amounts):

   
Three Months Ended October 31,
 
2007
 
2006
 
Basic
 
Diluted
 
Basic
 
Diluted
Net loss per common share:
                             
Net loss
$
(24,610
)
 
$
(24,610
)
 
$
(35,815
)
 
$
(35,815
)
                               
Weighted-average shares outstanding
 
38,892
     
38,892
     
38,715
     
38,715
 
Effect of dilutive securities
 
--
     
--
     
--
     
--
 
Total shares
 
38,892
     
38,892
     
38,715
     
38,715
 
                               
Net loss per common share
$
(0.63
)
 
$
(0.63
)
 
$
 
(0.93
)
 
$
(0.93
)

The number of shares issuable on the exercise of share based awards that were excluded from the calculation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive totaled 1.0 million and 1.6 million (maximum number of vested and unvested share based awards) for the three months ended October 31, 2007 and 2006, respectively.  

4.           Long-Term Debt

Long-term debt as of October 31, 2007, July 31, 2007 and October 31, 2006 is summarized as follows (in thousands):

   
October 31,
July 31,
October 31,
 
Maturity (a)
2007
2007
2006
Credit Facility Revolver
2012
$
--
$
--
$
--
SSV Facility
2011
 
--
 
--
 
--
Industrial Development Bonds
2009-2020
 
57,700
 
57,700
 
57,700
Employee Housing Bonds
2027-2039
 
52,575
 
52,575
 
52,575
Non-Recourse Real Estate Financings (b)
2009-2010
 
104,468
 
86,882
 
35,970
6.75% Senior Subordinated Notes ("6.75% Notes")
2014
 
390,000
 
390,000
 
390,000
Other
2008-2029
 
6,728
 
6,953
 
7,175
Total debt
   
611,471
 
594,110
 
543,420
Less:  Current maturities (c)
   
76,944
 
377
 
430
Long-term debt
 
$
534,527
$
593,733
$
542,990

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

(b)  
As of October 31, 2007 Non-Recourse Real Estate Financings consist of borrowings under the $175 million construction agreement for Arrabelle at Vail Square, LLC (“Arrabelle”) of $61.6 million and under the $123 million construction agreement for The Chalets at The Lodge at Vail, LLC (“Chalets”) of $42.9 million.  As of July 31, 2007 Non-Recourse Real Estate Financings included borrowings of $60.5 million under the construction agreement for Arrabelle and $26.4 million under the construction agreement for the Chalets.  As of October 31, 2006 Non-Recourse Real Estate Financings consisted of borrowings under the construction agreement for Arrabelle.

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

Aggregate maturities for debt outstanding as of October 31, 2007 reflected by fiscal year are as follows (in thousands):

 
Non-Recourse
Real Estate
Financings
 
 
All Other
 
Total
2008
$
--
$
152
$
152
2009
 
61,604
 
15,280
 
76,884
2010
 
42,864
 
262
 
43,126
2011
 
--
 
1,738
 
1,738
2012
 
--
 
205
 
205
Thereafter
 
--
 
489,366
 
489,366
Total debt
$
104,468
$
507,003
$
611,471

The Company incurred gross interest expense of $11.1 million and $10.2 million for the three months ended October 31, 2007 and 2006, respectively, of which $0.6 million and $0.7 million was amortization of deferred financing costs.  The Company capitalized $3.5 million and $1.3 million of interest during the three months ended October 31, 2007 and 2006, respectively.

5.           Supplementary Balance Sheet Information

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

 
October 31,
July 31,
October 31,
 
2007
2007
2006
Land and land improvements
$
249,834
 
$
249,291
 
$
244,786
 
Buildings and building improvements
 
555,784
   
553,958
   
531,829
 
Machinery and equipment
 
428,976
   
420,514
   
398,399
 
Furniture and fixtures
 
111,239
   
114,615
   
113,821
 
Software
 
33,706
   
27,756
   
32,240
 
Vehicles
 
26,950
   
27,179
   
25,502
 
Construction in progress
 
106,736
   
71,666
   
57,678
 
    Gross property, plant and equipment  
1,513,225
   
1,464,979
   
1,404,255
 
Accumulated depreciation
 
(595,881
)
 
(579,053
)
 
(547,753
)
    Property, plant and equipment, net
$
917,344
 
$
885,926
 
$
856,502
 

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

   
October 31,
 
July 31,
 
October 31,
   
2007
 
2007
 
2006
Trade payables
$
96,896
 
$
67,517
 
$
80,468
 
Real estate development payables
 
35,322
   
30,582
   
23,507
 
Deferred revenue
 
69,568
   
36,179
   
68,277
 
Deferred real estate and other deposits
 
83,576
   
51,351
   
24,318
 
Accrued salaries, wages and deferred compensation
 
18,405
   
30,721
   
17,370
 
Accrued benefits
 
22,997
   
23,810
   
23,428
 
Accrued interest
 
6,919
   
14,710
   
7,434
 
Liabilities to complete real estate projects, short term
 
4,817
   
8,500
   
4,363
 
Other accruals
 
21,852
   
18,409
   
19,325
 
 
Total accounts payable and accrued expenses
$
360,352
 
$
281,779
 
$
268,490
 

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

   
October 31,
 
July 31,
 
October 31,
   
2007
 
2007
 
2006
Private club deferred initiation fee revenue
$
93,234
 
$
94,205
 
$
93,062
 
Deferred real estate deposits
 
42,657
   
54,363
   
54,743
 
Private club initiation deposits
 
18,745
   
17,767
   
1,341
 
Liabilities to complete real estate projects
 
300
   
6,301
   
6,301
 
Other long-term liabilities
 
13,195
   
9,194
   
10,299
 
 
Total other long-term liabilities
$
168,131
 
$
181,830
 
$
165,746
 

6.           Variable Interest Entities

The Company is the primary beneficiary of four employee housing entities (collectively, the "Employee Housing Entities"), Breckenridge Terrace, LLC, The Tarnes at BC, LLC ("Tarnes"), BC Housing LLC and Tenderfoot Seasonal Housing, LLC, which are Variable Interest Entities ("VIEs"), and has consolidated them in its Consolidated Condensed Financial Statements.  As a group, as of October 31, 2007, the Employee Housing Entities had total assets of $39.5 million (primarily recorded in property, plant and equipment, net) and total liabilities of $67.5 million (primarily recorded in long-term debt as “Employee Housing Bonds”).  All of the assets ($8.1 million as of October 31, 2007) of Tarnes serve as collateral for Tarnes' Tranche B Employee Housing Bonds.  The Company has issued under its senior credit facility (the “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 is the primary beneficiary of Avon Partners II, LLC (“APII”), which is a VIE.  APII owns commercial space and the Company currently leases substantially all of that space.  APII had total assets of $5.6 million (primarily recorded in property, plant and equipment, net) and no debt as of October 31, 2007.

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 $2.0 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 managed the day-to-day operations of six hotel properties as of October 31, 2007.  The Company has determined that the entities that own the hotel properties are VIEs, and the management contracts are significant variable interests in these VIEs.  The Company has also determined that it is not the primary beneficiary of these entities and, accordingly, is not required to consolidate any of these entities.  Based on information provided to the Company by owners of the entities, these VIEs had total assets of approximately $187.9 million and total liabilities of approximately $11.4 million as of October 31, 2007.  The Company's maximum exposure to loss as a result of its involvement with these VIEs is limited to the note receivable and accrued interest of approximately $2.0 million and the net book value of the intangible asset associated with a management agreement in the amount of $0.7 million as of October 31, 2007.

7.           Relocation and Separation Charges

In February 2006, the Company announced a plan to relocate its corporate headquarters; the plan was formally approved by the Company’s Board of Directors in April 2006.  The relocation process (which also included the consolidation of certain other operations of the Company) was completed by July 31, 2007.  The total charges associated with the relocation was $3.8 million of which zero and $0.7 million was recorded in the three months ended October 31, 2007 and 2006, respectively.  The above amounts do not reflect any of the anticipated benefits expected to be realized from the relocation and consolidation of offices.

8.           Put and Call Options

The Company holds an approximate 69.3% ownership interest in SSV.  The Company and GSSI LLC ("GSSI"), the minority shareholder in SSV, have remaining put and call rights with respect to SSV: (i) beginning August 1, 2010 and each year thereafter, each of the Company and GSSI have the right to call or put, respectively, 100% of GSSI's ownership interest in SSV to the Company during certain periods each year and (ii) GSSI has the right to put to the Company 100% of its ownership interest in SSV at any time after GSSI has been removed as manager of SSV or after an involuntary transfer of the Company's ownership interest in SSV has occurred.  As of October 31, 2007, the estimated price at which the put/call option for the remaining interest could be expected to be settled was $36.9 million.

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 could put up to an aggregate one-third of its original 49% interest in RTP to the Company during the period from August 1 through October 31 annually.  The Company had determined that this put option should be marked to fair value through earnings.  In connection with the Company’s April 2007 sale of its 54.5% interest in RTP the put agreement with RTP’s minority shareholder was terminated.

9.           Commitments and Contingencies

Metropolitan Districts

The Company credit-enhances $8.5 million of bonds issued by Holland Creek Metropolitan District ("HCMD") through an $8.6 million letter of credit issued against the Company's Credit Facility.  HCMD's bonds were issued and used to build infrastructure associated with the Company's Red Sky Ranch residential development.  The Company has agreed to pay capital improvement fees to Red Sky Ranch Metropolitan District ("RSRMD") until RSRMD's revenue streams from property taxes are sufficient to meet debt service requirements under HCMD's bonds, and the Company has recorded a liability of $1.0 million, $1.1 million and $1.3 million, primarily within "other long-term liabilities" in the accompanying Consolidated Condensed Balance Sheets, as of October 31, 2007, July 31, 2007 and October 31, 2006, respectively, with respect to the estimated present value of future RSRMD capital improvement fees.  The Company estimates that it will make capital improvement fee payments under this arrangement through the year ending July 31, 2014.

Guarantees

As of October 31, 2007, the Company had various other letters of credit outstanding in the amount of $66.6 million, consisting primarily of $51.0 million in support of the Employee Housing Bonds, $7.4 million for workers' compensation and general liability deductibles related to construction activities and $6.8 million of construction performance guarantees.

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 Financial Interpretations No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (“FIN 45”) under which it could be required to make payments to third parties upon the occurrence or non-occurrence of certain future events.  These indemnities include indemnities to licensees in connection with the licensees' use of the Company's trademarks and logos, indemnities for liabilities associated with the infringement of other parties' technology and software products, indemnities related to liabilities associated with the use of easements, indemnities related to employment of contract workers, the Company's use of trustees, indemnities related to the Company's use of public lands and environmental indemnifications.  The duration of these indemnities generally is indefinite and generally do not limit the future payments the Company could be obligated to make.

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

The Company guarantees the revenue streams associated with selected routes flown by certain airlines into Eagle County, Colorado, Regional Airport; these guarantees are capped at certain levels.  As of October 31, 2007, the Company has recorded a liability related to the airline guarantees of $0.3 million, which represents the estimated amount the Company will be required to pay.  As of October 31, 2007, the maximum potential amount the Company could be required to pay was $0.9 million.  Payments under these guarantees are expected to be made in the year ending July 31, 2008.

Unless otherwise noted, the Company has not recorded any significant liabilities for the letters of credit, indemnities and other guarantees noted above in the accompanying Consolidated Condensed Financial Statements, either because the Company has recorded on its Consolidated Condensed Balance Sheets the underlying liability associated with the guarantee, the guarantee or indemnification existed prior to January 1, 2003, the guarantee is with respect to the Company’s own performance 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 immaterial based upon the current facts and circumstances that would trigger a payment under the indemnification clause.  In addition, with respect to certain indemnifications it is not possible to determine the maximum potential amount of liability under these guarantees due to the unique set of facts and circumstances that are likely to be involved in each particular claim and indemnification provision.  Historically, payments made by the Company under these obligations have not been material.

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

Commitments

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 whether to complete 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 Condensed Balance Sheet, to complete or fund certain improvements with respect to real estate developments; the Company has estimated such costs to be approximately $5.1 million as of October 31, 2007, and anticipates completion of the majority of these commitments within the next two years.

Self Insurance

The Company is self-insured for claims under its health benefit plans and for workers’ compensation claims, subject to a stop loss policy.  The self-insurance liability related to workers' compensation is determined actuarially based on claims filed.  The self-insurance liability related to claims under the Company’s health benefit plans is determined based on 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 (Mountain and Lodging) related cases and contractual and commercial litigation that arises from time to time in connection with the Company's real estate operations.  Management believes the Company has adequate insurance coverage or has accrued for loss contingencies for all known matters that are deemed to be probable losses and estimable.

Cheeca Lodge & Spa Contract Dispute

In March 2006, RockResorts was notified by the ownership of Cheeca Lodge & Spa, formerly a RockResorts managed property, that its management agreement was being terminated effective immediately.  RockResorts believed that the termination was in violation of the management agreement and sought monetary damages, and recovery of attorney’s fees and costs.  Pursuant to the dispute resolution provisions of the management agreement, the disputed matter went before a single judge arbitrator at the JAMS Arbitration Tribunal in Chicago, Illinois.  On February 28, 2007, the arbitrator rendered a decision, awarding $8.5 million in damages in favor of RockResorts and against Cheeca Holdings, LLC (“Cheeca Holdings”) and recovery of costs and attorney’s fees to be determined in the last stage of the proceedings.  Prior to the ruling by the arbitrator in the last stage of the proceeding, the Company reached a comprehensive settlement with Cheeca Holdings which included the damages, attorney’s fees and expenses.  On October 19, 2007, RockResorts received payment of the final settlement from Cheeca Holdings in the amount of $13.5 million, of which $11.9 million (net of final attorney fees) is recorded in “contract dispute credit (charges), net” in the Consolidated Condensed Statement of Operations.

The Canyons Ski Resort Litigation

During the fourth quarter of the fiscal year ended July 31, 2007, the Company entered into an agreement with Peninsula Advisors, LLC (“Peninsula”) for the negotiation and mutual acquisition of The Canyons ski resort (“The Canyons”) and the land underlying The Canyons.  On July 15, 2007, American Skiing Company (“ASC”) entered into an agreement to sell The Canyons to Talisker Corporation and Talisker Canyons Finance Company, LLC (together “Talisker”).  On July 27, 2007, the Company filed a complaint in the District Court in Colorado against Peninsula and Talisker claiming, among other things, breach of contract by Peninsula and intentional interference with contractual relations and prospective business relations by Talisker and seeking damages, specific performance and injunctive relief.  On October 19, 2007, the Company’s request for a preliminary injunction to prevent the closing of the acquisition by Talisker of The Canyons from ASC was denied.  On November 8, 2007, Talisker filed an answer to the Company's complaint along with three counterclaims.  On November 12, 2007, Peninsula filed a motion to dismiss and for partial summary judgment.  The Company believes that these claims and motions are without merit.  The Company is unable to predict the ultimate outcome of the above described actions.

10.           Segment Information

The Company has three reportable segments: Mountain, Lodging and Real Estate.  The Mountain segment includes the operations of the Company's ski resorts 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 holds and develops real estate in and around the Company's resort communities.  The Company's reportable segments, although integral to the success of the others, offer distinctly different products and services and require different types of management focus.  As such, these segments are managed separately.
 
The Company reports its segment results using Reported EBITDA (defined as segment net revenue less segment operating expenses plus or minus segment equity investment income or loss) which is a non-GAAP financial measure.  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 (Chief Executive Officer) 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 GAAP.  Items excluded from Reported EBITDA are significant components in understanding and assessing financial performance.  Reported EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, 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 GAAP and thus is susceptible to varying calculations, Reported EBITDA as presented may not be comparable to other similarly titled measures of other companies.

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

Following is key financial information by reportable segment which is used by management in evaluating performance and allocating resources (in thousands):
 
   
Three Months Ended October 31,
 
   
2007
 
2006
 
Net revenue:
               
Lift tickets
 
$
--
   
$
--
 
Ski school
   
--
     
--
 
Dining
   
4,762
     
3,887
 
Retail/rental
   
23,540
     
24,518
 
Other
   
14,234
     
17,759
 
Total Mountain net revenue
   
42,536
     
46,164
 
Lodging
   
43,317
     
40,408
 
Resort
   
85,853
     
86,572
 
Real estate
   
12,034
     
26,922
 
Total net revenue
 
$
97,887
   
$
113,494
 
Operating expense:
               
Mountain
 
$
80,947
   
$
79,487
 
Lodging
   
41,236
     
36,349
 
Resort
   
122,183
     
115,836
 
Real estate
   
6,913
     
26,118
 
Total segment operating expense
 
$
129,096
   
$
141,954
 
Mountain equity investment income, net
 
$
1,969
   
$
835
 
                 
Reported EBITDA:
               
Mountain
 
$
(36,442
)
 
$
(32,488
)
Lodging
   
2,081
     
4,059
 
Resort
   
(34,361
)
   
(28,429
)
Real estate
   
5,121
     
804
 
Total Reported EBITDA
 
$
(29,240
)
 
$
(27,625
)
                 
Real estate held for sale and investment
 
$
415,411
   
$
301,781
 
                 
Reconciliation to net loss:  
               
Total Reported EBITDA
   
(29,240
)
   
(27,625
)
Depreciation and amortization
   
(20,761
)
   
(21,585
)
Relocation and separation charges
   
--
     
(735
)
Loss on disposal of fixed assets, net
   
(234
)
   
(81
)
Investment income
   
3,218
     
2,063
 
Interest expense, net
   
(7,644
)
   
(8,936
)
Contract dispute credit (charges), net
   
11,920
     
(3,605
)
Minority interest in loss of consolidated subsidiaries, net
   
2,063
     
1,790
 
Loss before benefit from income taxes
   
(40,678
)
   
(58,714
)
Benefit from income taxes
   
16,068
     
22,899
 
Net loss
 
$
(24,610
)
 
$
(35,815
)
 
11.           Stock Repurchase Plan

On March 9, 2006, the Company's Board of Directors approved the repurchase of up to 3,000,000 shares of common stock.  During the three months ended October 31, 2007, the Company repurchased 232,504 shares of common stock at a cost of $11.7 million.  Since inception of this stock repurchase plan, the Company has repurchased 906,004 shares at a cost of approximately $37.5 million, as of October 31, 2007.  As of October 31, 2007, 2,093,996 shares remained available to repurchase under the existing repurchase authorization.  Shares of common stock purchased pursuant to the repurchase program will be held as treasury shares and may be used for the issuance of shares under the Company's employee share award plans.

12.           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 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., SSV, Larkspur Restaurant & Bar, LLC, Vail Associates Investments, Inc., Arrabelle, Gore Creek Place, LLC, Chalets, RCR Vail, LLC, Crystal Peak Lodge of Breckenridge, Inc., Timber Trail, Inc. and VR Holdings, Inc. (together, the "Non-Guarantor Subsidiaries").  APII and the Employee Housing Entities are included with the Non-Guarantor Subsidiaries for purposes of the consolidated financial information, but are not considered subsidiaries under the indentures governing the 6.75% Notes.

Presented below is the consolidated financial information of the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries.  Financial information for the Non-Guarantor subsidiaries is presented in the column titled "Other Subsidiaries."  Balance sheet data is presented as of October 31, 2007, July 31, 2007 and October 31, 2006.  Statement of operations and condensed statement of cash flows data are presented for the three months ended October 31, 2007 and 2006.

Investments in subsidiaries are accounted for by the Parent Company and Guarantor Subsidiaries using the equity method of accounting.  Net income (loss) of Guarantor and Non-Guarantor Subsidiaries is, therefore, reflected in the Parent Company's and Guarantor Subsidiaries' investments in and advances to (from) subsidiaries.  Net income (loss) of the Guarantor and Non-Guarantor Subsidiaries is reflected in Guarantor Subsidiaries and Parent Company as equity in consolidated subsidiaries.  The elimination entries eliminate investments in Other Subsidiaries and intercompany balances and transactions for consolidated reporting purposes.




Supplemental Condensed Consolidating Balance Sheet
 
As of October 31, 2007
 
(in thousands)
 
                                       
           
100% Owned
                         
   
Parent
 
Guarantor
 
Other
 
Eliminating
       
   
Company
 
Subsidiaries
 
Subsidiaries
 
Entries
 
Consolidated
Current assets:
                                       
Cash and cash equivalents
 
$
--
   
$
160,983
   
$
5,061
   
$
--
   
$
166,044
 
Restricted cash
   
--
     
14,008
     
28,868
     
--
     
42,876
 
Trade receivables, net
   
--
     
23,705
     
1,249
     
--
     
24,954
 
Inventories, net
   
--
     
9,604
     
54,097
     
--
     
63,701
 
Other current assets
   
15,851
     
20,278
     
10,486
     
--
     
46,615
 
Total current assets
   
15,851
     
228,578
     
99,761
     
--
     
344,190
 
Property, plant and equipment, net
   
--
     
795,610
     
121,734
     
--
     
917,344
 
Real estate held for sale and investment
   
--
     
91,358
     
324,053
     
--
     
415,411
 
Goodwill, net
   
--
     
123,033
     
18,666
     
--
     
141,699
 
Intangible assets, net
   
--
     
56,845
     
16,398
     
--
     
73,243
 
Other assets
   
4,469
     
26,672
     
11,893
     
--
     
43,034
 
Investments in subsidiaries and advances to (from) parent
   
1,147,857
     
368,633
     
(123,167
)
   
(1,393,323
)
   
--
 
Total assets
 
$
1,168,177
   
$
1,690,729
   
$
469,338
   
$
(1,393,323
)
 
$
1,934,921
 
                                         
Current liabilities:
                                       
Accounts payable and accrued expenses
 
$
5,655
   
$
200,895
   
$
153,802
   
$
--
   
$
360,352
 
Income taxes payable
   
34,708
     
-
     
-
     
--
     
34,708
 
Long-term debt due within one year
   
--
     
15,050
     
61,894
     
--
     
76,944
 
Total current liabilities
   
40,363
     
215,945
     
215,696
     
--
     
472,004
 
Long-term debt
   
390,000
     
42,712
     
101,815
     
--
     
534,527
 
Other long-term liabilities
   
2,088
     
102,485
     
63,558
     
--
     
168,131
 
Deferred income taxes
   
54,354
     
--
     
--
     
--
     
54,354
 
Minority interest in net assets of consolidated subsidiaries
   
--
     
--
     
--
     
24,533
     
24,533
 
Total stockholders’ equity
   
681,372
     
1,329,587
     
88,269
     
(1,417,856
)
   
681,372
 
Total liabilities and stockholders’ equity
 
$
1,168,177
   
$
1,690,729
   
$
469,338
   
$
(1,393,323
)
 
$
1,934,921
 
 


 
 Supplemental Condensed Consolidating Balance Sheet
 
As of July 31, 2007
 
(in thousands)
           
100% Owned
                       
   
Parent
 
Guarantor
 
Other
 
Eliminating
         
   
Company
 
Subsidiaries
 
Subsidiaries
 
Entries
 
Consolidated
 
Current assets:
                                         
Cash and cash equivalents
 
$
--
   
$
225,952
   
$
4,867
   
$
--
   
$
230,819
   
Restricted cash
   
--
     
11,437
     
43,312
     
--
     
54,749
   
Trade receivables, net
   
--
     
41,804
     
1,753
     
--
     
43,557
   
Inventories, net
   
--
     
9,805
     
38,259
     
--
     
48,064
   
Other current assets
   
15,056
     
13,545
     
5,847
     
--
     
34,448
   
Total current assets
   
15,056
     
302,543
     
94,038
     
--
     
411,637
   
Property, plant and equipment, net
   
--
     
784,458
     
101,468
     
--
     
885,926
   
Real estate held for sale and investment
   
--
     
86,837
     
270,749
     
--
     
357,586
   
Goodwill, net
   
--
     
123,033
     
18,666
     
--
     
141,699
   
Intangible assets, net
   
--
     
57,087
     
16,420
     
--
     
73,507
   
Other assets
   
4,646
     
24,225
     
9,897
     
--
     
38,768
   
Investments in subsidiaries and advances to (from) parent
   
1,206,709
     
337,716
     
(82,219
)
   
(1,462,206
)
   
--
   
Total assets
 
$
1,226,411
   
$
1,715,899
   
$
429,019
   
$
(1,462,206
)
 
$
1,909,123
   
                                           
Current liabilities:
                                         
Accounts payable and accrued expenses
 
$
12,718
   
$
161,456
   
$
107,605
   
$
--
   
$
281,779
   
Income taxes payable
   
37,441
     
--
     
--
     
--
     
37,441
   
Long-term debt due within one year
   
--
     
49
     
328
     
--
     
377
   
Total current liabilities
   
50,159
     
161,505
     
107,933
     
--
     
319,597
   
Long-term debt
   
390,000
     
57,724
     
146,009
     
--
     
593,733
   
Other long-term liabilities
   
--
     
108,582
     
73,248
     
--
     
181,830
   
Deferred income taxes
   
72,213
     
--
     
--
     
--
     
72,213
   
Minority interest in net assets of consolidated subsidiaries
   
--
     
--
     
--
     
27,711
     
27,711
   
Total stockholders’ equity
   
714,039
     
1,388,088
     
101,829
     
(1,489,917
)
   
714,039
   
Total liabilities and stockholders’ equity
 
$
1,226,411
   
$
1,715,899
   
$
429,019
   
$
(1,462,206
)
 
$
1,909,123
   

 
Supplemental Condensed Consolidating Balance Sheet
As of October 31, 2006
(in thousands)
                                       
               
100% Owned
                   
       
Parent
   
Guarantor
Other
 
 Eliminating
       
       
Company
   
Subsidiaries
Subsidiaries
 
Entries
 
Consolidated
 
Current assets:
                                 
 
Cash and cash equivalents
$
--
   
$
108,569
 
$
8,742
 
$
--
 
$
117,311
 
 
Restricted cash
 
--
     
16,341
   
4,013
   
--
   
20,354
 
 
Trade receivables, net
 
--
     
23,150
   
4,382
   
--
   
27,532
 
 
Inventories, net
 
--
     
8,587
   
48,036
   
--
   
56,623
 
 
Other current assets
 
12,676
     
23,590
   
2,816
   
--
   
39,082
 
   
Total current assets
 
12,676
     
180,237
   
67,989
   
--
   
260,902
 
Property, plant and equipment, net
 
--
     
788,984
   
67,518
   
--
   
856,502
 
Real estate held for sale and investment
 
--
     
165,788
   
135,993
   
--
   
301,781
 
Goodwill, net
   
--
     
118,475
   
17,336
   
--
   
135,811
 
Intangible assets, net
 
--
     
57,518
   
16,734
   
--
   
74,252
 
Other assets
 
5,179
     
26,536
   
14,022
   
--
   
45,737
 
Investments in subsidiaries and advances to
                             
(from) parent
1,002,008
     
(483,368
)
 
(58,742
)
 
(459,898
)
 
--
 
 
Total assets
 
$
1,019,863
   
$
854,170
 
$
260,850
 
$
(459,898
)
$
1,674,985
 
                                 
Current liabilities:
                               
 
Accounts payable and accrued expenses
$
10,630
   
$
192,742
 
$
65,118
 
$
--
 
$
268,490
 
 
Income taxes payable
 
14,913
     
73
   
--
   
--
   
14,986
 
 
Long-term debt due within one year
 
--
     
44
   
386
   
--
   
430
 
   
Total current liabilities
 
25,543
     
192,859
   
65,504
   
--
   
283,906
 
Long-term debt
   
390,000
     
57,726
   
95,264
   
--
   
542,990
 
Other long-term liabilities
 
16
     
126,507
   
39,223
   
--
   
165,746
 
Deferred income taxes
 
--
     
46,877
   
82
   
--
   
46,959
 
Put option liabilities
 
--
     
1,245
   
--
   
--
   
1,245
 
Minority interest in net assets of consolidated
                             
subsidiaries
--
     
--
   
29,835
   
--
   
29,835
 
Total stockholders' equity
 
604,304
     
428,956
   
30,942
   
(459,898
)
 
604,304
 
 
Total liabilities and stockholders' equity
$
1,019,863
   
$
854,170
 
$
260,850
 
$
(459,898
)
$
1,674,985
 


 

Supplemental Condensed Consolidating Statement of Operations
For the three months ended October 31, 2007
(in thousands)
                                           
             
100% Owned
                       
     
Parent
 
Guarantor
 
Other
 
Eliminating
       
     
Company
 
Subsidiaries
 
Subsidiaries
 
Entries
 
Consolidated
Total net revenue
 
$
--
   
$
74,771
   
$
25,936
   
$
(2,820
)
$
97,887
 
Total operating expense
   
(193
)
   
118,267
     
34,799
     
(2,782
)
 
150,091
 
 
Income (loss) from operations
   
193
     
(43,496
)
 
(8,863
)
 
(38
)
   
(52,204
)
Equity investment income, net
   
--
     
1,969
     
--
     
--
     
1,969
 
Other (expense) income, net
   
(6,760
)
   
15,508
   
(1,292
)
 
38
     
7,494
 
Minority interest in loss of consolidated subsidiaries, net
   
--
     
--
     
--
     
2,063
     
2,063
 
 
Loss before income taxes
   
(6,567
)
   
(26,019
)
 
(10,155
)
 
2,063
     
(40,678
)
Benefit from income taxes
   
2,594
     
13,474
     
--
     
--
     
16,068
 
 
Net loss before equity in (loss) income of consolidated subsidiaries
   
(3,973)
     
(12,545
)
   
(10,155
)
   
2,063
     
(24,610
)
Equity in (loss) income of consolidated subsidiaries
   
(20,637
)
   
--
     
--
     
20,637
     
--
 
 
Net (loss) income
 
$
(24,610
)
 
$
(12,545
)
$
(10,155
)
$
22,700
   
$
(24,610
)



 

Supplemental Condensed Consolidating Statement of Operations
For the three months ended October 31, 2006
(in thousands)
                                           
             
100% Owned
                       
     
Parent
 
Guarantor
 
Other
 
Eliminating
       
     
Company
 
Subsidiaries
 
Subsidiaries
 
Entries
 
Consolidated
Total net revenue
 
$
--
   
$
75,962
   
$
39,295
   
$
(1,763
)
$
113,494
 
Total operating expense
   
2,995
     
121,376
     
41,747
     
(1,763
)
 
164,355
 
 
Loss from operations
   
(2,995
)
   
(45,414
)
 
(2,452
)
 
--
     
(50,861
)
Equity investment income, net
   
--
     
835
     
--
     
--
     
835
 
Other expense, net
   
(6,757
)
   
(2,675
)
 
(1,046
)
 
--
     
(10,478
)
Minority interest in loss of consolidated subsidiaries, net
   
--
     
--
     
1,790
     
--
     
1,790
 
 
Loss before income taxes
   
(9,752
)
   
(47,254
)
 
(1,708
)
 
--
     
(58,714
)
Benefit from income taxes
   
3,803
     
19,051
     
45
     
--
     
22,899
 
 
Net loss before equity in (loss) income of consolidated subsidiaries
   
(5,949
)
   
(28,203
)
   
(1,663
)
   
--
     
(35,815
)
Equity in (loss) income of consolidated subsidiaries
   
(29,866
)
   
--
     
--
     
29,866
     
--
 
 
Net (loss) income
 
$
(35,815
)
 
$
(28,203
)
$
(1,663
)
$
29,866
   
$
(35,815
)




Supplemental Condensed Consolidating Statement of Cash Flows
For the three months ended October 31, 2007
(in thousands)
                                       
                 
 100% Owned
               
         
Parent
 
Guarantor
 
Other
       
         
Company
 
Subsidiaries
 
Subsidiaries
 
Consolidated
Net cash (used in) provided by operating activities
 
$
(30,154
)
 
$
21,315
   
$
(8,426
)
 
$
(17,265
)
Cash flows from investing activities:
                               
 
Capital expenditures
   
--
     
(29,499
)