MTN 2015.04.30 Q3


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

ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2015
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-09614

Vail Resorts, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
51-0291762
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
390 Interlocken Crescent
Broomfield, Colorado
 
80021
(Address of Principal Executive Offices)
 
(Zip Code)
(303) 404-1800
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    ý  No
As of June 3, 2015, 36,361,683 shares of the registrant’s common stock were outstanding.




Table of Contents
 
 
 
 
PART I
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Item 2.
Item 3.
Item 4.
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.




PART I FINANCIAL INFORMATION
Item 1. Financial Statements — Unaudited


F-1





Vail Resorts, Inc.
Consolidated Condensed Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
 
 
 
April 30, 2015
 
July 31, 2014
 
April 30, 2014
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
125,214

 
$
44,406

 
$
307,431

Restricted cash
 
13,139

 
13,181

 
13,057

Trade receivables, net
 
105,617

 
95,977

 
79,815

Inventories, net
 
62,167

 
67,183

 
60,409

Other current assets
 
64,054

 
54,299

 
58,696

Total current assets
 
370,191

 
275,046

 
519,408

Property, plant and equipment, net (Note 6)
 
1,259,093

 
1,147,990

 
1,164,387

Real estate held for sale and investment
 
137,740

 
157,858

 
170,818

Goodwill, net
 
470,286

 
378,148

 
378,220

Intangible assets, net
 
141,127

 
117,523

 
118,507

Other assets
 
41,068

 
97,284

 
97,104

Total assets
 
$
2,419,505

 
$
2,173,849

 
$
2,448,444

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable and accrued liabilities (Note 6)
 
$
293,056

 
$
289,218

 
$
264,777

Income taxes payable
 
36,161

 
33,966

 
39,043

Long-term debt due within one year (Note 4)
 
256,953

 
1,022

 
879

Total current liabilities
 
586,170

 
324,206

 
304,699

Long-term debt (Note 4)
 
379,796

 
625,600

 
799,223

Other long-term liabilities (Note 6)
 
235,932

 
260,681

 
239,934

Deferred income taxes
 
240,133

 
128,562

 
183,473

Commitments and contingencies (Note 9)
 

 

 

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

 

 

Common stock, $0.01 par value, 100,000,000 shares authorized, 41,309,969, 41,152,800 and 41,129,041 shares issued, respectively
 
413

 
412

 
411

Additional paid-in capital
 
623,274

 
612,322

 
608,153

Accumulated other comprehensive loss
 
(623
)
 
(199
)
 
(101
)
Retained earnings
 
533,618

 
401,500

 
491,878

Treasury stock, at cost, 4,949,111 shares (Note 11)
 
(193,192
)
 
(193,192
)
 
(193,192
)
Total Vail Resorts, Inc. stockholders’ equity
 
963,490

 
820,843

 
907,149

Noncontrolling interests
 
13,984

 
13,957

 
13,966

Total stockholders’ equity (Note 2)
 
977,474

 
834,800

 
921,115

Total liabilities and stockholders’ equity
 
$
2,419,505

 
$
2,173,849

 
$
2,448,444

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


F-2



Vail Resorts, Inc.
Consolidated Condensed Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended April 30,
 
Nine Months Ended April 30,
 
2015
 
2014
 
2015
 
2014
Net revenue:
 
 
 
 
 
 
 
Mountain
$
499,551

 
$
460,587

 
$
1,022,968

 
$
909,574

Lodging
67,323

 
66,293

 
185,180

 
179,694

Real estate
12,469

 
16,167

 
29,694

 
29,890

Total net revenue
579,343

 
543,047

 
1,237,842

 
1,119,158

Segment operating expense (exclusive of depreciation and amortization shown separately below):
 
 
 
 
 
 
 
Mountain
244,675

 
233,301

 
645,593

 
601,587

Lodging
54,726

 
53,182

 
166,407

 
163,346

Real estate
14,028

 
18,445

 
35,513

 
35,682

Total segment operating expense
313,429

 
304,928

 
847,513

 
800,615

Other operating (expense) income:
 
 
 
 
 
 
 
Depreciation and amortization
(38,242
)
 
(35,588
)
 
(111,587
)
 
(105,948
)
Gain on sale of real property
151

 

 
151

 

Gain on litigation settlement (Note 5)

 

 
16,400

 

Change in fair value of contingent consideration (Note 8)

 

 
4,550

 

(Loss) gain on disposal of fixed assets and other, net
(71
)
 
634

 
(852
)
 
(839
)
Income from operations
227,752

 
203,165

 
298,991

 
211,756

Mountain equity investment (loss) income, net
(129
)
 
665

 
396

 
1,282

Investment income, net
119

 
124

 
155

 
289

Interest expense
(13,735
)
 
(16,408
)
 
(41,110
)
 
(48,745
)
Income before provision for income taxes
214,007

 
187,546

 
258,432

 
164,582

Provision for income taxes (Note 12)
(80,605
)
 
(69,680
)
 
(73,654
)
 
(60,953
)
Net income
133,402

 
117,866

 
184,778

 
103,629

Net loss attributable to noncontrolling interests
8

 
80

 
118

 
204

Net income attributable to Vail Resorts, Inc.
$
133,410

 
$
117,946

 
$
184,896

 
$
103,833

Per share amounts (Note 3):
 
 
 
 
 
 
 
Basic net income per share attributable to Vail Resorts, Inc.
$
3.67

 
$
3.26

 
$
5.09

 
$
2.88

Diluted net income per share attributable to Vail Resorts, Inc.
$
3.56

 
$
3.18

 
$
4.95

 
$
2.80

Cash dividends declared per share
$
0.6225

 
$
0.4150

 
$
1.4525

 
$
0.8300

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



F-3




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

 
 
Three Months Ended April 30,
 
Nine Months Ended April 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
133,402

 
$
117,866

 
$
184,778

 
$
103,629

Foreign currency translation adjustments, net of tax
 
23

 
85

 
(424
)
 
(34
)
Comprehensive income
 
133,425

 
117,951

 
184,354

 
103,595

Comprehensive loss attributable to noncontrolling interests
 
8

 
80

 
118

 
204

Comprehensive income attributable to Vail Resorts, Inc.
 
$
133,433

 
$
118,031

 
$
184,472

 
$
103,799

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


F-4



Vail Resorts, Inc.
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
 
Nine Months Ended April 30,
 
 
2015
 
2014
Cash flows from operating activities:
 
 
 
 
Net income
 
$
184,778

 
$
103,629

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
111,587

 
105,948

Cost of real estate sales
 
23,058

 
22,635

Stock-based compensation expense
 
11,718

 
10,539

Deferred income taxes, net
 
114,795

 
60,953

Change in fair value of contingent consideration
 
(4,550
)
 

Gain on litigation settlement
 
(16,400
)
 

Park City litigation settlement payment
 
(10,000
)
 

Other non-cash income, net
 
(3,009
)
 
(2,423
)
Changes in assets and liabilities:
 
 
 
 
Trade receivables, net
 
(7,761
)
 
(822
)
Inventories, net
 
5,380

 
8,089

Accounts payable and accrued liabilities
 
(203
)
 
326

Other assets and liabilities, net
 
(14,917
)
 
(2,677
)
Net cash provided by operating activities
 
394,476

 
306,197

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(85,583
)
 
(108,100
)
Acquisition of business
 
(182,500
)
 

Other investing activities, net
 
3,274

 
920

Net cash used in investing activities
 
(264,809
)
 
(107,180
)
Cash flows from financing activities:
 
 
 
 
Proceeds from borrowings under long-term debt
 
253,000

 

Payments of long-term debt
 
(254,013
)
 
(977
)
Dividends paid
 
(52,778
)
 
(29,998
)
Other financing activities, net
 
5,041

 
732

Net cash used in financing activities
 
(48,750
)
 
(30,243
)
Effect of exchange rate changes on cash and cash equivalents
 
(109
)
 
53

Net increase in cash and cash equivalents
 
80,808

 
168,827

Cash and cash equivalents:
 
 
 
 
Beginning of period
 
44,406

 
138,604

End of period
 
$
125,214

 
$
307,431

 
 
 
 
 
Non-cash investing and financing activities:
 
 
 
 
Accrued capital expenditures
 
$
4,257

 
$
3,130

Capital expenditures under long-term financing
 
$
7,037

 
$

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


F-5



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

1.
Organization and Business
Vail Resorts, Inc. (“Vail Resorts” or the “Parent Company”) is organized as a holding company and operates through various subsidiaries. Vail Resorts and its subsidiaries (collectively, the “Company”) operate in three business segments: Mountain, Lodging and Real Estate.

In the Mountain segment, the Company operates nine world-class mountain resort properties at the Vail, Breckenridge, Keystone and Beaver Creek mountain resorts in Colorado; Canyons and Park City Mountain Resort ("Park City" acquired on September 11, 2014) in Utah; the Heavenly, Northstar, and Kirkwood mountain resorts in the Lake Tahoe area of California and Nevada; and the ski areas of Afton Alps in Minnesota and Mount Brighton in Michigan ("Urban" ski areas); as well as ancillary services, primarily including ski school, dining and retail/rental operations. These resorts (except for Northstar, Canyons, Park City and the Urban ski areas) operate primarily on federal land under the terms of Special Use Permits granted by the USDA Forest Service (the “Forest Service”).

In the Lodging segment, the Company owns and/or manages a collection of luxury hotels and condominiums under its RockResorts brand, as well as other strategic lodging properties and a large number of condominiums located in proximity to the Company’s mountain resorts, National Park Service (“NPS”) concessionaire properties including the Grand Teton Lodge Company (“GTLC”), which operates destination resorts in the Grand Teton National Park, Colorado Mountain Express (“CME”), a Colorado resort ground transportation company, and mountain resort golf courses.

Vail Resorts Development Company (“VRDC”), a wholly-owned subsidiary, conducts the operations of the Company’s Real Estate segment, which owns and develops real estate in and around the Company’s resort communities.

The Company’s mountain business and its lodging properties at or around the Company’s mountain resorts are seasonal in nature with peak operating seasons primarily from mid-November through mid-April. The Company’s operations at its NPS concessionaire properties and its golf courses generally operate from mid-May through mid-October. The Company also has non-majority owned investments in various other entities, some of which are consolidated (see Note 7, Variable Interest Entities).


2.
Summary of Significant Accounting Policies
Basis of Presentation
Consolidated Condensed Financial Statements— In the opinion of the Company, the accompanying Consolidated Condensed Financial Statements reflect all adjustments necessary to state fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. Results for interim periods are not indicative of the results for the entire fiscal year. The accompanying Consolidated Condensed Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2014. Certain information and footnote disclosures, including significant accounting policies, normally included in fiscal year financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. The Consolidated Condensed Balance Sheet as of July 31, 2014 was derived from audited financial statements.

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

Noncontrolling Interests in Consolidated Condensed Financial Statements— Net loss attributable to noncontrolling interests along with net income attributable to the stockholders of the Company are reported separately in the Consolidated Condensed Statement of Operations. Additionally, noncontrolling interests in the consolidated subsidiaries of the Company are reported as a separate component of equity in the Consolidated Condensed Balance Sheet, apart from the Company’s equity. The following table summarizes the changes in total stockholders’ equity (in thousands):

F-6




 
 
For the Nine Months Ended April 30,
 
 
2015
 
2014
 
 
Vail Resorts
Stockholders’
Equity
 
Noncontrolling
Interests
 
Total
Stockholders' Equity
 
Vail Resorts
Stockholders’
Equity
 
Noncontrolling
Interests
 
Total
Stockholders' Equity
Balance, beginning of period
 
$
820,843

 
$
13,957

 
$
834,800

 
$
823,868

 
$
14,001

 
$
837,869

Net income (loss)
 
184,896

 
(118
)
 
184,778

 
103,833

 
(204
)
 
103,629

Stock-based compensation expense
 
11,718

 

 
11,718

 
10,539

 

 
10,539

Issuance of shares under share award plans, net of shares withheld for taxes
 
(4,629
)
 

 
(4,629
)
 
(4,797
)
 

 
(4,797
)
Tax benefit from share award plans
 
3,864

 

 
3,864

 
3,738

 

 
3,738

Cash dividends paid on common stock
 
(52,778
)
 

 
(52,778
)
 
(29,998
)
 

 
(29,998
)
Contributions from noncontrolling interests, net
 

 
145

 
145

 

 
169

 
169

Foreign currency translation adjustments, net of tax
 
(424
)
 

 
(424
)
 
(34
)
 

 
(34
)
Balance, end of period
 
$
963,490

 
$
13,984

 
$
977,474

 
$
907,149

 
$
13,966

 
$
921,115


Fair Value Instruments— The recorded amounts for cash and cash equivalents, trade receivables, other current assets, and accounts payable and accrued liabilities approximate fair value due to their short-term nature. The fair value of amounts outstanding under the Employee Housing Bonds (Note 4, Long-Term Debt) approximate book value due to the variable nature of the interest rate associated with that debt. The fair values of the 6.50% Senior Subordinated Notes due 2019 (“6.50% Notes”) and the Company’s Industrial Development Bonds are based on their redemption prices as of April 30, 2015; determined by their outstanding aggregate principal amounts as of April 30, 2015, plus redemption premiums to be paid on the redemption date of May 1, 2015 (refer to Note 4, Long-Term Debt for further discussion). The fair value of other long-term debt has been estimated using discounted cash flow analyses based on current borrowing rates for debt with similar remaining maturities and ratings (a Level 3 input). The estimated fair values of the 6.50% Notes, Industrial Development Bonds and other long-term debt as of April 30, 2015 are presented below (in thousands):
 
 
 
April 30, 2015
 
 
Carrying
Value
 
Fair
Value
6.50% Notes
 
$
215,000

 
$
221,988

Industrial Development Bonds
 
$
41,200

 
$
42,848

Other long-term debt
 
$
11,875

 
$
12,521


New Accounting Standards— In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, “Revenue Recognition”. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This standard will be effective for the first interim period within fiscal years beginning after December 15, 2016 (the Company's 2018 first fiscal quarter), using one of two retrospective application methods. On April 1, 2015, the FASB voted to defer the effective date of the new revenue standard by one year, which is subject to a period for public comments, and would allow entities the option to early adopt the new revenue standard as of the original effective date. The Company is evaluating the impacts, if any, the adoption of this accounting standard will have on the Company's financial position or results of operations.


F-7



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

In April 2015, the FASB issued ASU No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs." The new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance in the new standard is limited to the presentation of debt issuance costs and does not affect the recognition and measurement of debt issuance costs. The standard will be effective for the first interim period within fiscal years beginning after December 15, 2015 (the Company’s 2017 first fiscal quarter) and early adoption is permitted for financial statements that have not been previously issued. The standard should be applied on a retrospective basis. The adoption of this new accounting standard will amend presentation and disclosure requirements concerning debt issuance costs, and as such the adoption will not affect the Company’s financial position or results of operations.

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


 
3.
Net Income Per Common Share
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income attributable to Vail Resorts stockholders by the weighted-average shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of shares of common stock that would then participate in the earnings of Vail Resorts. Presented below is basic and diluted EPS for the three months ended April 30, 2015 and 2014 (in thousands, except per share amounts):

 
 
Three Months Ended April 30,
 
 
2015
 
2014
 
 
Basic
 
Diluted
 
Basic
 
Diluted
Net income per share:
 
 
 
 
 
 
 
 
Net income attributable to Vail Resorts
 
$
133,410

 
$
133,410

 
$
117,946

 
$
117,946

Weighted-average shares outstanding
 
36,354

 
36,354

 
36,159

 
36,159

Effect of dilutive securities
 

 
1,099

 

 
895

Total shares
 
36,354

 
37,453

 
36,159

 
37,054

Net income per share attributable to Vail Resorts
 
$
3.67

 
$
3.56

 
$
3.26

 
$
3.18


The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the period. The number of shares issuable on the exercise of share based awards excluded from the calculation of diluted net income per share because the effect of their inclusion would have been anti-dilutive totaled 15,000 and 4,000 for the three months ended April 30, 2015 and 2014, respectively.


F-8



Presented below is basic and diluted EPS for the nine months ended April 30, 2015 and 2014 (in thousands, except per share amounts):

 
 
Nine Months Ended April 30,
 
 
2015
 
2014
 
 
Basic
 
Diluted
 
Basic
 
Diluted
Net income per share:
 
 
 
 
 
 
 
 
Net income attributable to Vail Resorts
 
$
184,896

 
$
184,896

 
$
103,833

 
$
103,833

Weighted-average shares outstanding
 
36,310

 
36,310

 
36,105

 
36,105

Effect of dilutive securities
 

 
1,052

 

 
920

Total shares
 
36,310

 
37,362

 
36,105

 
37,025

Net income per share attributable to Vail Resorts
 
$
5.09

 
$
4.95

 
$
2.88

 
$
2.80


The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the period. The number of shares issuable on the exercise of share based awards excluded from the calculation of diluted net income per share because the effect of their inclusion would have been anti-dilutive totaled 5,000 and 11,000 for the nine months ended April 30, 2015 and 2014, respectively.

During the three and nine months ended April 30, 2015, the Company paid dividends of $0.6225 and $1.4525 per share, respectively ($22.6 million and $52.8 million, respectively, in the aggregate). During the three and nine months ended April 30, 2014, the Company paid dividends of $0.4150 and $0.8300 per share, respectively ($15.0 million and $30.0 million, respectively, in the aggregate). On June 5, 2015 the Company’s Board of Directors declared a quarterly cash dividend of $0.6225 per share payable on July 10, 2015 to stockholders of record as of June 25, 2015.

4.
Long-Term Debt
Long-term debt as of April 30, 2015July 31, 2014 and April 30, 2014 is summarized as follows (in thousands):

 
 
Maturity (a)
 
April 30, 2015
 
July 31, 2014
 
April 30, 2014
Credit Facility Revolver (b)
 
2019
 
$

 
$

 
$

Industrial Development Bonds (c)
 
2020
 
41,200

 
41,200

 
41,200

Employee Housing Bonds
 
2027-2039
 
52,575

 
52,575

 
52,575

6.50% Notes (c)
 
2019
 
215,000

 
215,000

 
390,000

Canyons obligation
 
2063
 
316,056

 
311,858

 
310,472

Other
 
2015-2029
 
11,918

 
5,989

 
5,855

Total debt
 
 
 
636,749

 
626,622

 
800,102

Less: Current maturities (d)
 
 
 
256,953

 
1,022

 
879

Long-term debt
 
 
 
$
379,796

 
$
625,600

 
$
799,223


(a)
Maturities are based on the Company’s July 31 fiscal year end.
(b)
On May 1, 2015, Vail Holdings, Inc. (“VHI”), a wholly-owned subsidiary of the Company, amended and restated its senior credit facility, the Sixth Amended and Restated Credit Agreement (the “Prior Credit Agreement”). The amended credit facility is now referred to as the Seventh Amended and Restated Credit Agreement (the “Credit Agreement”) with VHI, as borrower, the Company and certain subsidiaries of the Company, as guarantors, Bank of America, N.A., as administrative agent, and the other Lenders party thereto. The Credit Agreement provides for a term loan facility in an aggregate principal amount of $250.0 million. The term loan facility is subject to quarterly amortization of principal, commencing on January 31, 2016, in equal installments, with five percent payable in each year and the final payment of all amounts outstanding, plus accrued and unpaid interest due on May 1, 2020.
Pursuant to the terms of the Credit Agreement, VHI has the ability to increase availability (under the revolver or in the form of term loans) to an aggregate principal amount not to exceed the greater of (i) $950.0 million and (ii) the product of 2.75 and the trailing twelve-month Adjusted EBITDA, as defined in the Credit Agreement. The material terms of the Credit Agreement are substantially similar to those of the Prior Credit Agreement described in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2014. Key modifications to the Prior Credit Agreement included, among other things, the extension of the maturity on the revolving credit facility from March 2019 to May 2020 and increases in certain baskets for and improved flexibility to incur debt and make distributions. VHI’s obligations under the Credit Agreement are guaranteed by the Company and certain of its subsidiaries and are collateralized by a pledge of all the capital stock of VHI and substantially all of its subsidiaries (with certain additional

F-9



exceptions for the pledge of the capital stock of foreign subsidiaries). The proceeds of the loans made under the Credit Agreement may be used, in addition to the redemption of the 6.50% Notes and Industrial Development Bonds, to fund the Company’s working capital needs, capital expenditures, acquisitions, investments and other general corporate purposes, including the issuance of letters of credit. Borrowings under the Credit Agreement, including the term loan facility, bear interest annually at a rate of (i) LIBOR plus a margin or (ii) the Agent’s prime lending rate plus a margin. Interest rate margins may fluctuate based upon the ratio of the Company’s Net Funded Debt to Adjusted EBITDA on a trailing four-quarter basis.
(c)
On March 13, 2015, the Company submitted redemption notices to the trustees to redeem the outstanding $215.0 million aggregate principal amount of the 6.50% Notes and the $41.2 million aggregate principal amount of Industrial Development Bonds. As a result, the Company classified the aggregate principal amounts outstanding as long-term debt due within one year. On May 1, 2015, the Company redeemed the outstanding aggregate principal amounts of its 6.50% Notes and Industrial Development Bonds which was funded by the $250.0 million term loan facility and cash on hand. The redemption premium for the 6.50% Notes was 103.250%, plus accrued and unpaid interest to the redemption date of May 1, 2015. The redemption premium for the Industrial Development Bonds was 104.000%, plus accrued and unpaid interest to the redemption date of May 1, 2015. As a result, the Company incurred an early redemption premium of $8.6 million, which will be recorded, along with a write-off of $2.4 million of unamortized debt issuance costs, as a loss on extinguishment of debt in the fourth quarter of the fiscal year ending July 31, 2015. Upon completion of the redemptions, no amounts of the 6.50% Notes or Industrial Development Bonds remained outstanding.
(d)
Current maturities represent principal payments due in the next 12 months.

Aggregate maturities for debt outstanding as of April 30, 2015 reflected by fiscal year are as follows (in thousands):

 
Total
2015
$
256,319

2016
779

2017
854

2018
897

2019
955

Thereafter
376,945

Total debt
$
636,749


The Company incurred gross interest expense of $13.7 million and $16.4 million for the three months ended April 30, 2015 and 2014, respectively, of which $0.4 million and $0.5 million, respectively, were amortization of deferred financing costs. The Company incurred gross interest expense of $41.1 million and $48.7 million for the nine months ended April 30, 2015 and 2014, respectively, of which $1.1 million and $1.5 million, respectively, were amortization of deferred financing costs.

5.
Acquisitions
Park City Mountain Resort
On September 11, 2014, VR CPC Holdings, Inc. ("VR CPC"), a wholly-owned subsidiary of the Company, and Greater Park City Company, Powdr Corp., Greater Properties, Inc., Park Properties, Inc., and Powdr Development Company (collectively, “Park City Sellers”) entered into a Purchase and Sale Agreement (the “Purchase Agreement”) providing for the acquisition of substantially all of the assets related to Park City in Park City, Utah. The cash purchase price was $182.5 million, subject to certain post-closing adjustments. The Company funded the cash purchase price through borrowings under the revolver portion of its existing credit facility.

As provided under the Purchase Agreement, the Company acquired the property, assets and operations of Park City, which includes the ski area and related amenities, from Park City Sellers and assumed leases of certain realty, acquired certain assets, and assumed certain liabilities of Park City Sellers relating to Park City. In addition to the Purchase Agreement, the parties settled the litigation related to the validity of a lease of certain land owned by Talisker Land Holdings, LLC under the ski terrain of Park City (the "Park City Litigation"). In connection with settling the Park City Litigation, the Company recorded a non-cash gain of $16.4 million in the Mountain segment for the nine months ended April 30, 2015. The gain on litigation settlement represents the estimated fair value of the rents (including damages and interest) due the Company from the Park City Sellers for their use of land and improvements from the Canyons transaction date of May 29, 2013 to the Park City acquisition date. Additionally, the Company assigned a fair value of $10.1 million to the settlement of the Park City Litigation that applied to the period prior to the Canyons transaction. The combined fair value of the Park City Litigation settlement of $26.5 million

F-10



was determined by applying market capitalization rates to the estimated fair market value of the land and improvements, plus an estimate of statutory damages and interest. The estimated fair value of the Park City Litigation settlement was not received in cash, but was instead reflected as part of the cash price negotiated for the Park City acquisition. Accordingly, the estimated fair value of the Park City Litigation settlement was included in the total consideration for the acquisition of Park City. Under an agreement entered into in conjunction with the Canyons transaction, the Company made a $10.0 million payment to Talisker in the nine months ended April 30, 2015, resulting from the settlement of the Park City Litigation.

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

 
Estimates of Fair Value at Effective Date of Transaction
Accounts receivable
$
1,024

Other assets
3,075

Property, plant and equipment
76,605

Deferred income tax assets, net
7,444

Real estate held for sale and investment
7,000

Intangible assets
27,650

Goodwill
92,431

Total identifiable assets acquired
$
215,229

Accounts payable and accrued liabilities
$
1,960

Deferred revenue
4,319

Total liabilities assumed
$
6,279

Total purchase price
$
208,950


The estimated fair values of assets acquired and liabilities assumed in the acquisition of Park City are preliminary and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. The Company believes that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is obtaining additional information necessary to finalize those fair values. Therefore, the preliminary measurements of fair value reflected are subject to change. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date. During the three months ended January 31, 2015, the Company recorded an adjustment to its preliminary purchase price allocation of $13.0 million, which reduced real estate held for sale and investment with a corresponding increase to goodwill and will reflect this as a retrospective adjustment as of October 31, 2014.

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

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

F-11




The following presents the unaudited pro forma consolidated financial information of the Company as if the acquisition of Park City was completed on August 1, 2013. The following unaudited pro forma financial information includes adjustments for (i) depreciation on acquired property, plant and equipment; (ii) amortization of intangible assets recorded at the date of the transaction; (iii) related-party land leases; and (iv) transaction and business integration related costs. This unaudited pro forma financial information is presented for informational purposes only and does not purport to be indicative of the results of future operations or the results that would have occurred had the transaction taken place on August 1, 2013 (in thousands, except per share amounts).

 
 
Three Months Ended April 30,
 
 
2014
Pro forma net revenue
 
$
575,637

Pro forma net income attributable to Vail Resorts, Inc.
 
$
127,625

Pro forma basic net income per share attributable to Vail Resorts, Inc.
 
$
3.53

Pro forma diluted net income per share attributable to Vail Resorts, Inc.
 
$
3.44


 
 
Nine Months Ended
April 30,
 
 
2015
2014
Pro forma net revenue
 
$
1,239,878

$
1,175,694

Pro forma net income attributable to Vail Resorts, Inc.
 
$
185,565

$
113,179

Pro forma basic net income per share attributable to Vail Resorts, Inc.
 
$
5.11

$
3.13

Pro forma diluted net income per share attributable to Vail Resorts, Inc.
 
$
4.97

$
3.06


Perisher Ski Resort

On March 30, 2015, VR Australia Holdings Pty Limited, a wholly-owned subsidiary of the Company, and Murray Publishers Pty Ltd, Consolidated Press Holdings Pty Limited, Transfield Corporate Pty Limited and Transfield Pty Limited (collectively, “Perisher Sellers”) entered into a Purchase and Sale Agreement (the “Perisher Purchase Agreement”) providing for the acquisition of 100% of the stock in the entities that operate Perisher Ski Resort ("Perisher") in New South Wales, Australia for cash consideration of approximately AU$176 million. Perisher holds a long-term lease and license with the New South Wales Government under the National Parks and Wildlife Act, which expires in 2048 with a 20-year renewal option. As provided under the Perisher Purchase Agreement, the Company will acquire the entities that hold the assets and operations that include the long-term lease and license with the New South Wales government for the ski area and related amenities of Perisher, including assumed liabilities, from Perisher Sellers. The acquisition is expected to close following the approval by the New South Wales government under the long-term lease and license. The Company expects the transaction to be recorded as a business combination in its consolidated financial statements.



F-12



6.
Supplementary Balance Sheet Information
The composition of property, plant and equipment follows (in thousands):
 
 
April 30, 2015
 
July 31, 2014
 
April 30, 2014
Land and land improvements
 
$
413,775

 
$
348,328

 
$
350,674

Buildings and building improvements
 
957,594

 
907,280

 
908,829

Machinery and equipment
 
777,011

 
700,745

 
701,825

Furniture and fixtures
 
284,403

 
269,209

 
273,202

Software
 
105,482

 
98,653

 
99,958

Vehicles
 
59,708

 
55,724

 
55,324

Construction in progress
 
20,245

 
31,487

 
19,453

Gross property, plant and equipment
 
2,618,218

 
2,411,426

 
2,409,265

Accumulated depreciation
 
(1,359,125
)
 
(1,263,436
)
 
(1,244,878
)
Property, plant and equipment, net
 
$
1,259,093

 
$
1,147,990

 
$
1,164,387


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

 
 
April 30, 2015
 
July 31, 2014
 
April 30, 2014
Trade payables
 
$
52,371

 
$
71,823

 
$
48,406

Deferred revenue
 
115,300

 
110,566

 
93,135

Accrued salaries, wages and deferred compensation
 
38,594

 
29,833

 
35,221

Accrued benefits
 
26,459

 
21,351

 
25,468

Deposits
 
18,199

 
15,272

 
17,772

Accrued interest
 
7,865

 
5,429

 
13,549

Other accruals
 
34,268

 
34,944

 
31,226

Total accounts payable and accrued liabilities
 
$
293,056

 
$
289,218

 
$
264,777


The composition of other long-term liabilities follows (in thousands):
 
 
April 30, 2015
 
July 31, 2014
 
April 30, 2014
Private club deferred initiation fee revenue
 
$
128,295

 
$
128,824

 
$
130,543

Unfavorable lease obligation, net
 
29,325

 
31,338

 
32,034

Other long-term liabilities
 
78,312

 
100,519

 
77,357

Total other long-term liabilities
 
$
235,932

 
$
260,681

 
$
239,934


The changes in the net carrying amount of goodwill allocated between the Company's segments for the nine months ended April 30, 2015 are as follows (in thousands):

 
Mountain
Lodging
Goodwill, net
Balance at July 31, 2014
$
310,249

$
67,899

$
378,148

Acquisition
92,431


92,431

Effects of changes in foreign currency exchange rates
(293
)

(293
)
Balance at April 30, 2015
$
402,387

$
67,899

$
470,286


7.    Variable Interest Entities

F-13



The Company is the primary beneficiary of four employee housing entities (collectively, the “Employee Housing Entities”), Breckenridge Terrace, LLC, The Tarnes at BC, LLC, BC Housing, LLC and Tenderfoot Seasonal Housing, LLC, which are variable interest entities (“VIEs”), and the Company has consolidated them in its Consolidated Condensed Financial Statements. As a group, as of April 30, 2015, the Employee Housing Entities had total assets of $26.8 million (primarily recorded in property, plant and equipment, net) and total liabilities of $63.8 million (primarily recorded in long-term debt as “Employee Housing Bonds”). The Company’s lenders have issued letters of credit totaling $53.4 million under the Company's Credit Agreement related to Employee Housing Bonds. Payments under the letters of credit would be triggered in the event that one of the entities defaults on required payments. The letters of credit have no default provisions.

The Company is the primary beneficiary of Avon Partners II, LLC (“APII”), which is a VIE. APII owns commercial space and the Company leases substantially all of that space. APII had total assets of $4.3 million (primarily recorded in property, plant and equipment, net) and no debt as of April 30, 2015.
 
8.    Fair Value Measurements
The Financial Accounting Standards Board issued fair value guidance that establishes how reporting entities should measure fair value for measurement and disclosure purposes. The guidance establishes a common definition of fair value applicable to all assets and liabilities measured at fair value and prioritizes the inputs into valuation techniques used to measure fair value. Accordingly, the Company uses valuation techniques which maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value. The three levels of the hierarchy are as follows:

Level 1: Inputs that reflect unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities;

Level 2: Inputs include quoted prices for similar assets and liabilities in active and inactive markets or that are observable for the asset or liability either directly or indirectly; and

Level 3: Unobservable inputs which are supported by little or no market activity.

The table below summarizes the Company’s cash equivalents and Contingent Consideration measured at fair value (all other assets and liabilities measured at fair value are immaterial) (in thousands):
 

F-14



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

 
$
7,578

 
$

 
$

 
Commercial Paper
 
$
2,401

 
$

 
$
2,401

 
$

 
Certificates of Deposit
 
$
2,651

 
$

 
$
2,651

 
$

 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
6,000

 
$

 
$

 
$
6,000

 
 
 
 
 
 
 
Fair Value Measurement as of July 31, 2014
 
Description
 
Balance at July 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
 
 
Money Market
 
$
9,022

 
$
9,022

 
$

 
$

 
Commercial Paper
 
$
630

 
$

 
$
630

 
$

 
Certificates of Deposit
 
$
880

 
$

 
$
880

 
$

 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
10,500

 
$

 
$

 
$
10,500

 
 
 
 
 
 
 
Fair Value Measurement as of April 30, 2014
 
Description
 
Balance at April 30, 2014
 
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
 
 
Money Market
 
$
78,851

 
$
78,851

 
$

 
$

 
Commercial Paper
 
$
630

 
$

 
$
630

 
$

 
Certificates of Deposit
 
$
630

 
$

 
$
630

 
$

 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
9,100

 
$

 
$

 
$
9,100


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

The changes in Contingent Consideration during the nine months ended April 30, 2015 and 2014 were as follows:

Balance as of July 31, 2014 and 2013, respectively
$
10,500

$
9,100

Change in fair value
(4,500
)

Balance as of April 30, 2015 and 2014, respectively
$
6,000

$
9,100


The lease for Canyons provides for participating contingent payments to Talisker of 42% of the amount by which EBITDA for the resort operations, as calculated under the lease, exceed approximately $35 million, as established at the transaction date, with such threshold amount subsequently increased annually by an inflation linked index and a 10% adjustment for any capital improvements or investments made under the lease by the Company (the "Contingent Consideration"). The fair value of Contingent Consideration includes the resort operations of Park City in the calculation of EBITDA on which participating contingent payments are made, and increases the EBITDA threshold before which participating contingent payments are made equal to 10% of the purchase price paid by the Company, plus future capital expenditures. The Company estimated the fair value of the Contingent Consideration payments using an option pricing valuation model. Key assumptions included a discount rate of 11.5%, volatility of 20.0%, and credit risk of 3.0%. The model also incorporates assumptions for EBITDA and capital expenditures, which are unobservable inputs and thus are considered Level 3 inputs. As Contingent Consideration is classified as a liability, the liability is remeasured to fair value at each reporting date until the contingency is resolved. During the nine months ended April 30, 2015, the Company recorded a decrease of $4.5 million in the estimated fair value of the participating

F-15



contingent payments, and recorded the related gain in income from operations. The estimated fair value of the contingent consideration is $6.0 million as of April 30, 2015 and this liability is recorded in other long-term liabilities in the Consolidated Condensed Balance Sheets.


9.    Commitments and Contingencies
Metropolitan Districts
The Company credit-enhances $8.0 million of bonds issued by Holland Creek Metropolitan District (“HCMD”) through an $8.1 million letter of credit issued under the Credit Agreement. HCMD’s bonds were issued and used to build infrastructure associated with the Company’s Red Sky Ranch residential development. The Company has agreed to pay capital improvement fees to Red Sky Ranch Metropolitan District (“RSRMD”) until RSRMD’s revenue streams from property taxes are sufficient to meet debt service requirements under HCMD’s bonds, and the Company has recorded a liability of $1.8 million primarily within “other long-term liabilities” in the accompanying Consolidated Condensed Balance Sheets, as of April 30, 2015July 31, 2014 and April 30, 2014, respectively, with respect to the estimated present value of future RSRMD capital improvement fees. The Company estimates it will make capital improvement fee payments under this arrangement through the year ending July 31, 2029.

Guarantees/Indemnifications
As of April 30, 2015, the Company had various other letters of credit for $64.3 million, consisting primarily of $53.4 million to support the Employee Housing Bonds and $10.9 million for workers’ compensation, general liability construction related deductibles and other activities.

In addition to the guarantees noted above, the Company has entered into contracts in the normal course of business that include certain indemnifications under which it could be required to make payments to third parties upon the occurrence or non-occurrence of certain future events. These indemnities include indemnities 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 have agreed to indemnify their directors and officers over their lifetimes for certain events or occurrences while the officer or director is, or was, serving the Company or its subsidiaries in such a capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that should enable the Company to recover a portion of any future amounts paid.

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

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

Self Insurance
The Company is self-insured for claims under its health benefit plans and for the majority of workers’ compensation claims, subject to stop loss policies. The self-insurance liability related to workers’ compensation is determined actuarially based on claims filed. The self-insurance liability related to claims under the Company’s health benefit plans is determined based on analysis of actual claims. The amounts related to these claims are included as a component of accrued benefits in accounts payable and accrued liabilities (see Note 6, Supplementary Balance Sheet Information).


F-16



Legal
The Company is a party to various lawsuits arising in the ordinary course of business. Management believes the Company has adequate insurance coverage and/or has accrued for loss contingencies for all known matters deemed to be probable losses and estimable. As of April 30, 2015July 31, 2014 and April 30, 2014, the accrual for the above loss contingencies was not material individually and in the aggregate.

10.    Segment Information
The Company has three reportable segments: Mountain, Lodging and Real Estate. The Mountain segment includes the operations of the Company’s mountain resorts and Urban ski areas and related ancillary services. The Lodging segment includes the operations of all of the Company’s owned hotels, RockResorts, NPS concessionaire properties, condominium management, CME and mountain resort golf operations. The Real Estate segment owns and develops real estate in and around the Company’s resort communities. The Company’s reportable segments, although integral to the success of each other, offer distinctly different products and services and require different types of management focus. As such, these segments are managed separately.

The Company reports its segment results using Reported EBITDA (defined as segment net revenue less segment operating expenses, plus or minus segment equity investment income or loss, plus gain on litigation settlement and for the Real Estate segment, plus gain on sale of real property), which is a non-GAAP financial measure. The Company reports segment results in a manner consistent with management’s internal reporting of operating results to the chief operating decision maker (the Chief Executive Officer) for purposes of evaluating segment performance.

Reported EBITDA is not a measure of financial performance under GAAP. Items excluded from Reported EBITDA are significant components in understanding and assessing financial performance. Reported EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, net change in cash and cash equivalents or other financial statement data presented in the Consolidated Condensed Financial Statements as indicators of financial performance or liquidity. Because Reported EBITDA is not a measurement determined in accordance with GAAP and thus is susceptible to varying calculations, Reported EBITDA as presented may not be comparable to other similarly titled measures of other companies.

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

F-17



The following table presents financial information by reportable segment, which is used by management in evaluating performance and allocating resources (in thousands):

 
Three Months Ended April 30,
 
Nine Months Ended April 30,
 
2015
 
2014
 
2015
 
2014
Net revenue:
 
 
 
 
 
 
 
Lift
$
285,249

 
$
251,914

 
$
524,537

 
$
447,271

Ski school
66,216

 
62,512

 
123,511

 
109,442

Dining
44,003

 
42,303

 
90,661

 
82,369

Retail/rental
71,078

 
73,785

 
195,563

 
188,401

Other
33,005

 
30,073

 
88,696

 
82,091

Total Mountain net revenue
499,551

 
460,587

 
1,022,968

 
909,574

Lodging
67,323

 
66,293

 
185,180

 
179,694

Total Resort net revenue
566,874

 
526,880

 
1,208,148

 
1,089,268

Real estate
12,469

 
16,167

 
29,694

 
29,890

Total net revenue
$
579,343

 
$
543,047

 
$
1,237,842

 
$
1,119,158

Operating expense:
 
 
 
 
 
 
 
Mountain
$
244,675

 
$
233,301

 
$
645,593

 
$
601,587

Lodging
54,726

 
53,182

 
166,407

 
163,346

Total Resort operating expense
299,401

 
286,483

 
812,000

 
764,933

Real estate
14,028

 
18,445

 
35,513

 
35,682

Total segment operating expense
$
313,429

 
$
304,928

 
$
847,513

 
$
800,615

Gain on litigation settlement
$

 
$

 
$
16,400

 
$

Gain on sale of real property
$
151

 
$

 
$
151

 
$

Mountain equity investment (loss) income, net
$
(129
)
 
$
665

 
$
396

 
$
1,282

Reported EBITDA:
 
 
 
 
 
 
 
Mountain
$
254,747

 
$
227,951

 
$
394,171

 
$
309,269

Lodging
12,597

 
13,111

 
18,773

 
16,348

Resort
267,344

 
241,062

 
412,944

 
325,617

Real estate
(1,408
)
 
(2,278
)
 
(5,668
)
 
(5,792
)
Total Reported EBITDA
$
265,936

 
$
238,784

 
$
407,276

 
$
319,825

 
 
 
 
 
 
 
 
Real estate held for sale and investment
$
137,740

 
$
170,818

 
$
137,740

 
$
170,818

 
 
 
 
 
 
 
 
Reconciliation to net income attributable to Vail Resorts, Inc.:
 
 
 
 
 
 
 
Total Reported EBITDA
$
265,936

 
$
238,784

 
$
407,276

 
$
319,825

Depreciation and amortization
(38,242
)
 
(35,588
)
 
(111,587
)
 
(105,948
)
Change in fair value of contingent consideration

 

 
4,550

 

(Loss) gain on disposal of fixed assets and other, net
(71
)
 
634

 
(852
)
 
(839
)
Investment income, net
119

 
124

 
155

 
289

Interest expense
(13,735
)
 
(16,408
)
 
(41,110
)
 
(48,745
)
Income before provision for income taxes
214,007

 
187,546

 
258,432

 
164,582

Provision for income taxes
(80,605
)
 
(69,680
)
 
(73,654
)
 
(60,953
)
Net income
$
133,402

 
$
117,866

 
$
184,778

 
$
103,629

Net loss attributable to noncontrolling interests
8

 
80

 
118

 
204

Net income attributable to Vail Resorts, Inc.
$
133,410

 
$
117,946

 
$
184,896

 
$
103,833




F-18



11.     Stock Repurchase Plan
On March 9, 2006, the Company’s Board of Directors approved the repurchase of up to 3,000,000 shares of common stock and on July 16, 2008 approved an increase of the Company’s common stock repurchase authorization by an additional 3,000,000 shares. During the three and nine months ended April 30, 2015 and 2014, the Company did not repurchase any shares of common stock. Since inception of its stock repurchase program through April 30, 2015, the Company has repurchased 4,949,111 shares at a cost of approximately $193.2 million. As of April 30, 2015, 1,050,889 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 plan.

12.     Income Taxes
The Company had Federal net operating loss (“NOL”) carryforwards that expired in the year ended July 31, 2008 and were limited in deductibility each year under Section 382 of the Internal Revenue Code. The Company had only been able to use these NOL carryforwards to the extent of approximately $8.0 million per year through December 31, 2007 (the “Section 382 Amount”). However, during the year ended July 31, 2005, the Company amended previously filed tax returns (for tax years 1997-2002) in an effort to remove the restrictions under Section 382 of the Internal Revenue Code on approximately $73.8 million of NOL carryforwards to reduce future taxable income. As a result, the Company requested a refund related to the amended returns in the amount of $6.2 million and reduced its federal tax liability in the amount of $19.6 million in subsequent returns. These NOL carryforwards relate to fresh start accounting from the Company’s reorganization in 1992. During the year ended July 31, 2006, the Internal Revenue Service (“IRS”) completed its examination of the Company’s filing position in these amended returns and disallowed the Company’s request for refund and its position to remove the restrictions under Section 382 of the Internal Revenue Code. The Company appealed the examiner’s disallowance of these NOL carryforwards to the Office of Appeals. In December 2008, the Office of Appeals denied the Company’s appeal, as well as a request for mediation. The Company disagreed with the IRS interpretation disallowing the utilization of the NOL’s and in August 2009, the Company filed a complaint in the United States District Court for the District of Colorado against the United States of America seeking a refund of approximately $6.2 million in Federal income taxes paid, plus interest. On July 1, 2011, the District Court granted the Company summary judgment, concluding that the IRS’s decision disallowing the utilization of the NOLs was inappropriate. The computations themselves, however, remained in dispute, and the District Court's ruling was subject to appeal by the IRS. Subsequently, the District Court proceedings were continued pending settlement discussions between the parties.
The Company also filed two related tax proceedings in the United States Tax Court regarding calculation of NOL carryover deductions for tax years 2006, 2007, and 2008. The two proceedings involved substantially the same issues as the litigation in the District Court for tax years 2000 and 2001 in which the Company disagreed with the IRS as to the utilization of NOLs. Like the District Court proceedings, the Tax Court proceedings were continued pending settlement discussions between the parties.
On January 29, 2015, the parties completed the execution of a comprehensive settlement agreement resolving all issues and computations in the above mentioned pending proceedings, which allowed the Company to utilize a significant portion of the NOLs. As a result, the Company reversed $27.7 million of other long-term liabilities related to uncertain tax benefits, and recorded income tax benefits of $23.8 million for the utilization of the NOLs, including the reversal of accrued interest and penalties, within its Consolidated Condensed Statements of Operations for the nine months ended April 30, 2015.



F-19



13.    Guarantor Subsidiaries and Non-Guarantor Subsidiaries
The Company’s payment obligations under the 6.50% Notes (see Note 4, Long-Term Debt) are fully and unconditionally guaranteed on a joint and several, senior subordinated basis by substantially all of the Company’s consolidated subsidiaries (collectively, and excluding Non-Guarantor Subsidiaries (as defined below), the “Guarantor Subsidiaries”), except for Eagle Park Reservoir Company, Larkspur Restaurant & Bar, LLC, Black Diamond Insurance, Inc., Skiinfo AS and certain other insignificant entities (together, the “Non-Guarantor Subsidiaries”). APII and the Employee Housing Entities are included with the Non-Guarantor Subsidiaries for purposes of the consolidated financial information, but are not considered subsidiaries under the indenture governing the 6.50% Notes. On May 1, 2015, the Company redeemed the outstanding aggregate principal amount of its 6.50% Notes (see Note 4, Long-Term Debt) which upon redemption released the Company's consolidated subsidiary guarantees.

Presented below is the consolidated financial information of the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. Financial information for the Non-Guarantor Subsidiaries is presented in the column titled “Other Subsidiaries.” Balance sheets are presented as of April 30, 2015July 31, 2014, and April 30, 2014. Statements of operations and statements of comprehensive income are presented for the three and nine months ended April 30, 2015 and 2014. Statements of cash flows are presented for the nine months ended April 30, 2015 and 2014. As of April 30, 2014, the Company revised its classification of advances to Parent in the amount of $520.1 million to properly present it as contra equity in the Supplemental Consolidating Condensed Balance Sheet from advances to Parent within total assets. The Company has determined that this revision is not material to the Supplemental Consolidating Condensed Balance Sheet.

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

F-20



Supplemental Consolidating Condensed Balance Sheet
As of April 30, 2015
(in thousands)
(Unaudited)
 
 
 
Parent
Company
 
100%
Owned
Guarantor
Subsidiaries
 
Other
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
117,569

 
$
7,645

 
$

 
$
125,214

Restricted cash
 

 
10,672

 
2,467

 

 
13,139

Trade receivables, net
 

 
102,290

 
3,327

 

 
105,617

Inventories, net
 

 
62,007

 
160

 

 
62,167

Other current assets
 
33,732

 
30,016

 
306

 

 
64,054

Total current assets
 
33,732

 
322,554

 
13,905

 

 
370,191

Property, plant and equipment, net
 

 
1,219,273

 
39,820

 

 
1,259,093

Real estate held for sale and investment
 

 
137,740

 

 

 
137,740

Goodwill, net
 

 
468,922

 
1,364

 

 
470,286

Intangible assets, net
 

 
122,064

 
19,063

 

 
141,127

Other assets
 
2,374

 
43,639

 
5,036

 
(9,981
)
 
41,068

Investments in subsidiaries
 
2,112,937

 
(8,625
)
 

 
(2,104,312
)
 

Advances to affiliates
 

 

 
4,027

 
(4,027
)
 

Total assets
 
$
2,149,043

 
$
2,305,567

 
$
83,215

 
$
(2,118,320
)
 
$
2,419,505

Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
7,262

 
$
275,979

 
$
9,815

 
$

 
$
293,056

Income taxes payable
 
36,161

 

 

 

 
36,161

Long-term debt due within one year
 
215,000

 
41,709

 
244

 

 
256,953

Total current liabilities
 
258,423

 
317,688

 
10,059

 

 
586,170

Advances from affiliates
 
665,400

 
4,027

 

 
(669,427
)
 

Long-term debt
 

 
322,533

 
57,263

 

 
379,796

Other long-term liabilities
 
21,211

 
213,782

 
10,920

 
(9,981
)
 
235,932

Deferred income taxes
 
240,519

 

 
(386
)
 

 
240,133

Total Vail Resorts, Inc. stockholders’ equity (deficit)
 
963,490

 
2,112,937

 
(8,625
)
 
(2,104,312
)
 
963,490

Advances to Parent
 

 
(665,400
)
 

 
665,400

 

Noncontrolling interests
 

 

 
13,984

 

 
13,984

Total stockholders’ equity
 
963,490

 
1,447,537

 
5,359

 
(1,438,912
)
 
977,474

Total liabilities and stockholders’ equity
 
$
2,149,043

 
$
2,305,567

 
$
83,215

 
$
(2,118,320
)
 
$
2,419,505



F-21



Supplemental Consolidating Condensed Balance Sheet
As of July 31, 2014
(in thousands)
(Unaudited)
 
 
 
Parent
Company
 
100%
Owned
Guarantor
Subsidiaries
 
Other
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
35,070

 
$
9,336

 
$

 
$
44,406

Restricted cash
 

 
11,321

 
1,860

 

 
13,181

Trade receivables, net
 

 
94,390

 
1,587

 

 
95,977

Inventories, net
 

 
66,988

 
195

 

 
67,183

Other current assets
 
29,249

 
24,736

 
314

 

 
54,299

Total current assets
 
29,249

 
232,505

 
13,292

 

 
275,046

Property, plant and equipment, net
 

 
1,105,830

 
42,160

 

 
1,147,990

Real estate held for sale and investment
 

 
157,858

 

 

 
157,858

Goodwill, net
 

 
376,491

 
1,657

 

 
378,148

Intangible assets, net
 

 
98,227

 
19,296

 

 
117,523

Other assets
 
2,762

 
100,365

 
4,137

 
(9,980
)
 
97,284

Investments in subsidiaries
 
1,945,001

 
(7,188
)
 

 
(1,937,813
)
 

Advances to affiliates
 

 

 
2,621

 
(2,621
)
 

Total assets
 
$
1,977,012

 
$
2,064,088

 
$
83,163

 
$
(1,950,414
)
 
$
2,173,849

Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
3,803

 
$
277,738

 
$
7,677

 
$

 
$
289,218

Income taxes payable
 
33,966

 

 

 

 
33,966

Long-term debt due within one year
 

 
791

 
231

 

 
1,022

Total current liabilities
 
37,769

 
278,529

 
7,908

 

 
324,206

Advances from affiliates
 
725,839

 
2,621

 

 
(728,460
)
 

Long-term debt
 
215,000

 
353,093

 
57,507

 

 
625,600

Other long-term liabilities
 
48,875