Document


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

ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2016
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-09614

Vail Resorts, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
51-0291762
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
390 Interlocken Crescent
Broomfield, Colorado
 
80021
(Address of Principal Executive Offices)
 
(Zip Code)
(303) 404-1800
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    ý  No
As of June 6, 2016, 36,163,420 shares of the registrant’s common stock were outstanding.




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





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

 
$
35,459

 
$
125,214

Restricted cash
 
5,934

 
13,012

 
13,139

Trade receivables, net
 
145,483

 
113,990

 
105,617

Inventories, net
 
68,882

 
73,485

 
62,167

Other current assets
 
57,455

 
52,197

 
64,054

Total current assets
 
346,319

 
288,143

 
370,191

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

 
1,386,275

 
1,259,093

Real estate held for sale and investment
 
116,874

 
129,825

 
137,740

Goodwill, net
 
509,083

 
500,433

 
470,286

Intangible assets, net
 
141,222

 
144,149

 
141,127

Other assets
 
37,428

 
40,796

 
41,068

Total assets
 
$
2,521,300

 
$
2,489,621

 
$
2,419,505

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

 
$
331,299

 
$
293,056

Income taxes payable
 
20,059

 
57,194

 
36,161

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

 
10,154

 
256,953

Total current liabilities
 
371,497

 
398,647

 
586,170

Long-term debt (Note 4)
 
615,829

 
806,676

 
379,796

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

 
255,916

 
235,932

Deferred income taxes
 
305,134

 
147,796

 
240,133

Total liabilities
 
1,541,758

 
1,609,035

 
1,442,031

Commitments and contingencies (Note 9)
 

 

 

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

 

 

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

 
415

 
413

Additional paid-in capital
 
632,148

 
623,510

 
623,274

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

 
440,748

 
533,618

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

 
866,568

 
963,490

Noncontrolling interests
 
13,879

 
14,018

 
13,984

Total stockholders’ equity
 
979,542

 
880,586

 
977,474

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

 
$
2,489,621

 
$
2,419,505

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


2



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

 
$
499,551

 
$
1,206,610

 
$
1,022,968

Lodging
72,933

 
67,323

 
200,026

 
185,180

Real estate
1,734

 
12,469

 
14,766

 
29,694

Total net revenue
647,472

 
579,343

 
1,421,402

 
1,237,842

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

 
244,675

 
729,382

 
645,593

Lodging
57,422

 
54,726

 
176,170

 
166,407

Real estate
3,085

 
14,028

 
17,043

 
35,513

Total segment operating expense
342,475

 
313,429

 
922,595

 
847,513

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

 
151

 
1,810

 
151

Gain on litigation settlement (Note 5)

 

 

 
16,400

Change in fair value of Contingent Consideration (Note 8)

 

 

 
4,550

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

 
227,752

 
376,755

 
298,991

Mountain equity investment income (loss), net
211

 
(129
)
 
992

 
396

Investment income, net
150

 
119

 
509

 
155

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

 
214,007

 
346,351

 
258,432

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

 
133,402

 
214,738

 
184,778

Net loss attributable to noncontrolling interests
95

 
8

 
289

 
118

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

 
$
133,410

 
$
215,027

 
$
184,896

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

 
$
3.67

 
$
5.92

 
$
5.09

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

 
$
3.56

 
$
5.76

 
$
4.95

Cash dividends declared per share
$
0.8100

 
$
0.6225

 
$
2.0550

 
$
1.4525

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



3




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

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

 
$
133,402

 
$
214,738

 
$
184,778

Foreign currency translation adjustments, net of tax
 
6,540

 
23

 
3,746

 
(424
)
Comprehensive income
 
164,077

 
133,425

 
218,484

 
184,354

Comprehensive loss attributable to noncontrolling interests
 
95

 
8

 
289

 
118

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

 
$
133,433

 
$
218,773

 
$
184,472

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


4



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

$
412

$
612,322

$
401,500

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

$
13,957

$
834,800

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Net income (loss)



184,896



184,896

(118
)
184,778

Foreign currency translation adjustments, net of tax





(424
)
(424
)

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

(118
)
184,354

Stock-based compensation expense


11,718




11,718


11,718

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

1

(4,630
)



(4,629
)

(4,629
)
Tax benefit from share award plans


3,864




3,864


3,864

Dividends



(52,778
)


(52,778
)

(52,778
)
Contributions from noncontrolling interests, net







145

145

Balance, April 30, 2015
41,309,969

$
413

$
623,274

$
533,618

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

$
13,984

$
977,474

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, July 31, 2015
41,462,941

$
415

$
623,510

$
440,748

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

$
14,018

$
880,586

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Net income (loss)



215,027



215,027

(289
)
214,738

Foreign currency translation adjustments, net of tax





3,746

3,746


3,746

Total comprehensive income (loss)
 
 
 
 
 
 
218,773

(289
)
218,484

Stock-based compensation expense


12,665




12,665


12,665

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

1

(8,521
)



(8,520
)

(8,520
)
Tax benefit from share award plans


4,494




4,494


4,494

Repurchases of common stock (Note 11)




(53,787
)

(53,787
)

(53,787
)
Dividends



(74,530
)


(74,530
)

(74,530
)
Contributions from noncontrolling interests, net







150

150

Balance, April 30, 2016
41,595,420

$
416

$
632,148

$
581,245

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

$
13,879

$
979,542

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


5



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

 
$
184,778

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

 
111,587

Cost of real estate sales
 
10,508

 
23,058

Stock-based compensation expense
 
12,665

 
11,718

Deferred income taxes, net
 
131,741

 
114,795

Change in fair value of Contingent Consideration
 

 
(4,550
)
Gain on litigation settlement
 

 
(16,400
)
Park City litigation settlement payment
 

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

 
36

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

 
5,380

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

 
394,476

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

 
3,274

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

 
253,000

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

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

Other financing activities, net
 
4,760

 
5,041

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

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

 
80,808

Cash and cash equivalents:
 
 
 
 
Beginning of period
 
35,459

 
44,406

End of period
 
$
68,565

 
$
125,214

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

 
$
4,257

Capital expenditures under long-term financing
 
$

 
$
7,037

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


6



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

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

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

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

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

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

2.
Summary of Significant Accounting Policies
Basis of Presentation
Consolidated Condensed Financial Statements— In the opinion of the Company, the accompanying Consolidated Condensed Financial Statements reflect all adjustments necessary to state fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. Results for interim periods are not indicative of the results for the entire fiscal year. The accompanying Consolidated Condensed Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2015. Certain information and footnote disclosures, including significant accounting policies, normally included in fiscal year financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been condensed or omitted. The Consolidated Condensed Balance Sheet as of July 31, 2015 was derived from audited financial statements.

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

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

7



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

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

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

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

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

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

8



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

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

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

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

3.
Net Income Per Common Share
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income attributable to Vail Resorts stockholders by the weighted-average shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of shares of common stock that would then participate in the earnings of Vail Resorts. Presented below is basic and diluted EPS for the three months ended April 30, 2016 and 2015 (in thousands, except per share amounts):

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

 
$
157,632

 
$
133,410

 
$
133,410

Weighted-average shares outstanding
 
36,217

 
36,217

 
36,354

 
36,354

Effect of dilutive securities
 

 
1,051

 

 
1,099

Total shares
 
36,217

 
37,268

 
36,354

 
37,453

Net income per share attributable to Vail Resorts
 
$
4.35

 
$
4.23

 
$
3.67

 
$
3.56


The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the period. The number of shares issuable on the exercise of share based awards excluded from the calculation of diluted net income

9



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

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

 
$
215,027

 
$
184,896

 
$
184,896

Weighted-average shares outstanding
 
36,312

 
36,312

 
36,310

 
36,310

Effect of dilutive securities
 

 
1,016

 

 
1,052

Total shares
 
36,312

 
37,328

 
36,310

 
37,362

Net income per share attributable to Vail Resorts
 
$
5.92

 
$
5.76

 
$
5.09

 
$
4.95


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

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

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

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

 
$
185,000

 
$

Credit Facility Term Loan
 
2020
 
243,750

 
250,000

 

Industrial Development Bonds
 
2020
 

 

 
41,200

Employee Housing Bonds
 
2027-2039
 
52,575

 
52,575

 
52,575

6.50% Notes
 
2019
 

 

 
215,000

Canyons obligation
 
2063
 
321,688

 
317,455

 
316,056

Other
 
2016-2029
 
11,165

 
11,800

 
11,918

Total debt
 
 
 
629,178

 
816,830

 
636,749

Less: Current maturities (b)
 
 
 
13,349

 
10,154

 
256,953

Long-term debt
 
 
 
$
615,829

 
$
806,676

 
$
379,796


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


10



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

 
Total
2016
$
3,269

2017
13,354

2018
13,397

2019
13,455

2020
204,141

Thereafter
381,562

Total debt
$
629,178


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

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

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


11



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

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

Inventory
4,859

Property, plant and equipment
126,287

Intangible assets
5,458

Other assets
525

Goodwill
31,657

Total identifiable assets acquired
$
170,280

Accounts payable and accrued liabilities
$
11,394

Deferred revenue
15,906

Deferred income tax liability, net
18,429

Total liabilities assumed
$
45,729

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


The estimated fair value of assets acquired and liabilities assumed in the acquisition of Perisher are preliminary and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. The Company believes this information provides a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, but the Company is obtaining additional information necessary to finalize those fair value. Therefore, the preliminary measurements of fair value reflected are subject to change. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.
The excess of the purchase price over the aggregate fair value of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of Perisher and other factors. None of the goodwill is expected to be deductible for income tax purposes under Australian tax law. The intangible assets primarily consist of trademarks and customer lists. The definite-lived intangible assets have a weighted-average amortization period of approximately 4 years.

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

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

12



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

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

 
Acquisition Date Fair Value
Accounts receivable
$
930

Other assets
3,075

Property, plant and equipment
76,605

Deferred income tax assets, net
7,428

Real estate held for sale and investment
7,000

Intangible assets
27,650

Goodwill
92,516

Total identifiable assets acquired
$
215,204

Accounts payable and accrued liabilities
$
1,935

Deferred revenue
4,319

Total liabilities assumed
$
6,254

Total purchase price
$
208,950


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

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


13



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

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

$
1,282,926

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

$
186,810

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

$
5.14

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

$
5.00


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

 
$
431,854

 
$
413,775

Buildings and building improvements
 
1,028,408

 
1,006,821

 
957,594

Machinery and equipment
 
878,730

 
815,946

 
777,011

Furniture and fixtures
 
305,159

 
286,863

 
284,403

Software
 
112,551

 
106,433

 
105,482

Vehicles
 
62,166

 
61,036

 
59,708

Construction in progress
 
28,019

 
53,158

 
20,245

Gross property, plant and equipment
 
2,854,848

 
2,762,111

 
2,618,218

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

 
$
1,386,275

 
$
1,259,093


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

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

 
$
62,099

 
$
52,371

Deferred revenue
 
164,927

 
145,949

 
115,300

Accrued salaries, wages and deferred compensation
 
34,403

 
33,461

 
38,594

Accrued benefits
 
29,625

 
24,436

 
26,459

Deposits
 
21,641

 
19,336

 
18,199

Other accruals
 
40,349

 
46,018

 
42,133

Total accounts payable and accrued liabilities
 
$
338,089

 
$
331,299

 
$
293,056



14



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

 
$
126,104

 
$
128,295

Unfavorable lease obligation, net
 
28,005

 
29,997

 
29,325

Other long-term liabilities
 
97,952

 
99,815

 
78,312

Total other long-term liabilities
 
$
249,298

 
$
255,916

 
$
235,932


7.    Variable Interest Entities
The Company is the primary beneficiary of four employee housing entities (collectively, the “Employee Housing Entities”), Breckenridge Terrace, LLC, The Tarnes at BC, LLC, BC Housing, LLC and Tenderfoot Seasonal Housing, LLC, which are VIEs, and the Company has consolidated these VIEs in its Consolidated Condensed Financial Statements. As a group, as of April 30, 2016, the Employee Housing Entities had total assets of $25.7 million (primarily recorded in property, plant and equipment, net) and total liabilities of $64.3 million (primarily recorded in long-term debt as “Employee Housing Bonds”). The Company’s lenders have issued letters of credit totaling $53.4 million under the Company’s Credit Agreement related to Employee Housing Bonds. Payments under the letters of credit would be triggered in the event that one of the entities defaults on required payments. The letters of credit have no default provisions.

The Company is the primary beneficiary of Avon Partners II, LLC (“APII”), which is a VIE. APII owns commercial space and the Company leases substantially all of that space. APII had total assets of $4.1 million (primarily recorded in property, plant and equipment, net) and no debt as of April 30, 2016.

8.    Fair Value Measurements
The FASB issued fair value guidance that establishes how reporting entities should measure fair value for measurement and disclosure purposes. The guidance establishes a common definition of fair value applicable to all assets and liabilities measured at fair value and prioritizes the inputs into valuation techniques used to measure fair value. Accordingly, the Company uses valuation techniques which maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value. The three levels of the hierarchy are as follows:

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

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

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


15



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

 
$

 
$
2,401

 
$

 
Certificates of Deposit
 
$
2,402

 
$

 
$
2,402

 
$

 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
6,900

 
$

 
$

 
$
6,900

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

 
$
7,577

 
$

 
$

 
Commercial Paper
 
$
2,401

 
$

 
$
2,401

 
$

 
Certificates of Deposit
 
$
2,651

 
$

 
$
2,651

 
$

 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
6,900

 
$

 
$

 
$
6,900

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

 
$
7,578

 
$

 
$

 
Commercial Paper
 
$
2,401

 
$

 
$
2,401

 
$

 
Certificates of Deposit
 
$
2,651

 
$

 
$
2,651

 
$

 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
6,000

 
$

 
$

 
$
6,000


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

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

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

$
10,500

Change in fair value

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

$
6,000


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

16



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

9.    Commitments and Contingencies
Metropolitan Districts
The Company credit-enhances $8.0 million of bonds issued by Holland Creek Metropolitan District (“HCMD”) through an $8.1 million letter of credit issued under the Credit Agreement. HCMD’s bonds were issued and used to build infrastructure associated with the Company’s Red Sky Ranch residential development. The Company has agreed to pay capital improvement fees to the Red Sky Ranch Metropolitan District (“RSRMD”) until RSRMD’s revenue streams from property taxes are sufficient to meet debt service requirements under HCMD’s bonds, and the Company has recorded a liability of $1.8 million primarily within “other long-term liabilities” in the accompanying Consolidated Condensed Balance Sheets, as of April 30, 2016July 31, 2015 and April 30, 2015, respectively, with respect to the estimated present value of future RSRMD capital improvement fees. The Company estimates it will make capital improvement fee payments under this arrangement through the fiscal year ending July 31, 2029.

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

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

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

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

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

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


17



Legal
The Company is a party to various lawsuits arising in the ordinary course of business. Management believes the Company has adequate insurance coverage and/or has accrued for loss contingencies for all known matters deemed to be probable losses and estimable. As of April 30, 2016July 31, 2015 and April 30, 2015, the accrual for the above loss contingencies was not material individually and in the aggregate.

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

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

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

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

18



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

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

 
$
285,249

 
$
642,627

 
$
524,537

Ski school
74,279

 
66,216

 
139,703

 
123,511

Dining
51,000

 
44,003

 
108,093

 
90,661

Retail/rental
79,384

 
71,078

 
214,748

 
195,563

Other
33,353

 
33,005

 
101,439

 
88,696

Total Mountain net revenue
572,805

 
499,551

 
1,206,610

 
1,022,968

Lodging
72,933

 
67,323

 
200,026

 
185,180

Total Resort net revenue
645,738

 
566,874

 
1,406,636

 
1,208,148

Real estate
1,734

 
12,469

 
14,766

 
29,694

Total net revenue
$
647,472

 
$
579,343

 
$
1,421,402

 
$
1,237,842

Operating expense:
 
 
 
 
 
 
 
Mountain
$
281,968

 
$
244,675

 
$
729,382

 
$
645,593

Lodging
57,422

 
54,726

 
176,170

 
166,407

Total Resort operating expense
339,390

 
299,401

 
905,552

 
812,000

Real estate
3,085

 
14,028

 
17,043

 
35,513

Total segment operating expense
$
342,475

 
$
313,429

 
$
922,595

 
$
847,513

Gain on litigation settlement
$

 
$

 
$

 
$
16,400

Gain on sale of real property
19

 
151

 
1,810

 
151

Mountain equity investment income (loss), net
211

 
(129
)
 
992

 
396

Reported EBITDA:
 
 
 
 
 
 
 
Mountain
$
291,048

 
$
254,747

 
$
478,220

 
$
394,171

Lodging
15,511

 
12,597

 
23,856

 
18,773

Resort
306,559

 
267,344

 
502,076

 
412,944

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

 
$
265,936

 
$
501,609

 
$
407,276

 
 
 
 
 
 
 
 
Real estate held for sale and investment
$
116,874

 
$
137,740

 
$
116,874

 
$
137,740

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

 
$
265,936

 
$
501,609

 
$
407,276

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

 

 

 
4,550

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

 
119

 
509

 
155

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

 
214,007

 
346,351

 
258,432

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

 
$
133,402

 
$
214,738

 
$
184,778

Net loss attributable to noncontrolling interests
95

 
8

 
289

 
118

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

 
$
133,410

 
$
215,027

 
$
184,896



19



11.     Share Repurchase Program
On March 9, 2006, the Company’s Board of Directors approved a share repurchase program, authorizing the Company to repurchase up to 3,000,000 shares of common stock. On July 16, 2008, the Company’s Board of Directors increased the authorization by an additional 3,000,000 shares, and on December 4, 2015, the Company’s Board of Directors increased the authorization by an additional 1,500,000 shares for a total authorization to repurchase shares of up to 7,500,000 shares. During the three months ended April 30, 2016 and 2015, the Company repurchased 108,036 shares (at a total cost of $13.8 million) and zero shares of common stock, respectively. During the nine months ended April 30, 2016 and 2015, the Company repurchased 485,866 shares (at a total cost of $53.8 million) and zero shares of common stock, respectively. Since inception of its share repurchase program through April 30, 2016, the Company has repurchased 5,434,977 shares at a cost of approximately $247.0 million. As of April 30, 2016, 2,065,023 shares remained available to repurchase under the existing share repurchase program which has no expiration date. 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 (the “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 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.


20



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Vail Resorts, Inc., together with its subsidiaries, is referred to throughout this Quarterly Report on Form 10-Q for the period ended April 30, 2016 (“Form 10-Q”) as “we,” “us,” “our” or the “Company.”

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended July 31, 2015 (“Form 10-K”) and the Consolidated Condensed Financial Statements as of April 30, 2016 and 2015 and for the three and nine months then ended, included in Part I, Item 1 of this Form 10-Q, which provide additional information regarding our financial position, results of operations and cash flows. To the extent that the following MD&A contains statements which are not of a historical nature, such statements are forward-looking statements, which involve risks and uncertainties. See “Forward-Looking Statements” below. These risks include, but are not limited to, those discussed in this Form 10-Q and in our other filings with the Securities and Exchange Commission (“SEC”), including the risks described in Item 1A “Risk Factors” of Part I of the Form 10-K.

The following MD&A includes discussion of financial performance within each of our segments. We have chosen to specifically include Reported EBITDA (defined as segment net revenue less segment operating expense, 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) and Net Debt (defined as long-term debt plus long-term debt due within one year less cash and cash equivalents), in the following discussion because we consider these measurements to be significant indications of our financial performance and available capital resources. Reported EBITDA and Net Debt are not measures of financial performance or liquidity under accounting principles generally accepted in the United States (“GAAP”). We utilize Reported EBITDA in evaluating our performance and in allocating resources to our segments. Refer to the end of the “Results of Operations” section below for a reconciliation of Reported EBITDA to net income attributable to Vail Resorts, Inc. We also believe that Net Debt is an important measurement as it is an indicator of our ability to obtain additional capital resources for our future cash needs. Refer to the end of the “Results of Operations” section below for a reconciliation of Net Debt to long-term debt.

Items excluded from Reported EBITDA and Net Debt are significant components in understanding and assessing financial performance or liquidity. Reported EBITDA and Net Debt 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 and Net Debt are not measurements determined in accordance with GAAP and are susceptible to varying calculations, Reported EBITDA and Net Debt, as presented, may not be comparable to other similarly titled measures of other companies.

Overview
Our operations are grouped into three integrated and interdependent segments: Mountain, Lodging and Real Estate. Resort is the combination of the Mountain and Lodging segments.

Mountain Segment
The Mountain segment is comprised of the operations of mountain resort properties at Vail, Breckenridge, Keystone and Beaver Creek mountain resorts in Colorado (“Colorado” resorts); Park City mountain resort in Utah (“Park City” comprised of the former standalone Park City Mountain Resort acquired in September 2014 and the former Canyons Resort (“Canyons”) in Park City, Utah); Heavenly, Northstar and Kirkwood mountain resorts in the Lake Tahoe area of California and Nevada (“Tahoe” resorts); Perisher Ski Resort (“Perisher,” acquired in June 2015) in New South Wales, Australia; and, the ski areas of Wilmot Mountain in Wisconsin (“Wilmot,” acquired in January 2016), Afton Alps in Minnesota and Mount Brighton in Michigan (“Urban” ski areas); as well as ancillary services, primarily including ski school, dining and retail/rental operations, and for Perisher including lodging and transportation operations. Mountain segment revenue is seasonal, with the majority of revenue earned from our United States (“U.S.”) mountain resorts and ski areas occurring in our second and third fiscal quarters and the majority of revenue earned from Perisher occurring in our first and fourth fiscal quarters. Our U.S. mountain resorts are typically open for business from mid-November through mid-April, which is the peak operating season for the Mountain segment, and Perisher is typically open for business from June to early October. Our single largest source of Mountain segment revenue is the sale of lift tickets (including season passes), which represented approximately 58% and 57% of Mountain net revenue for the three months ended April 30, 2016 and 2015, respectively, and approximately 53% and 51% of Mountain net revenue for the nine months ended April 30, 2016 and 2015, respectively.


21



Lift revenue is driven by volume and pricing. Pricing is impacted by both absolute pricing as well as the demographic mix of guests, which impacts the price points at which various products are purchased. The demographic mix of guests to our U.S. mountain resorts is divided into two primary categories: (i) out-of-state and international (“Destination”) guests and (ii) in-state and local (“Local”) guests. For the 2015/2016 U.S. ski season, Destination guests comprised approximately 58% of our skier visits, while Local guests comprised approximately 42% of our skier visits. For the 2014/2015 ski season, Destination guests comprised approximately 59% of our skier visits, while Local guests comprised approximately 41% of our skier visits.

Destination guests generally purchase our higher-priced lift ticket products and utilize more ancillary services such as ski school, dining and retail/rental, as well as the lodging at or around our mountain resorts. Destination guest visitation is less likely to be impacted by changes in the weather, but can be more impacted by adverse economic conditions or the global geopolitical climate. Local guests tend to be more value-oriented and weather sensitive. We offer a variety of season pass products for all of our mountain resorts and Urban ski areas, marketed towards both Destination and Local guests. Our season pass product offerings range from providing access to one or a combination of our mountain resorts and Urban ski areas to our Epic Season Pass that allows pass holders unlimited and unrestricted access to all of our mountain resorts and Urban ski areas. Our season pass products provide a compelling value proposition to our guests, which in turn assists us in developing a loyal base of customers who commit to ski at our mountain resorts and Urban ski areas generally in advance of the ski season and typically ski more days each season at our mountain resorts and Urban ski areas than those guests who do not buy season passes. As such, our season pass program drives strong customer loyalty; mitigates exposure to many weather sensitive guests; and generates additional ancillary spending. In addition, our season pass products attract new guests to our mountain resorts and Urban ski areas. Our season pass products, including the Epic Season Pass, are predominately sold prior to the start of the ski season. Season pass revenue, although primarily collected prior to the ski season, is recognized in the Consolidated Condensed Statement of Operations ratably over the ski season. For both the 2015/2016 and 2014/2015 U.S. ski seasons, approximately 41% of total lift revenue was comprised of season pass revenue.

The cost structure of our mountain resort operations has a significant fixed component with variable expenses including, but not limited to, United States Department of Agriculture Forest Service (“Forest Service”) fees, credit card fees, retail/rental cost of sales and labor, ski school labor and dining operations; as such, profit margins can fluctuate greatly based on the level of revenues.

Lodging Segment
Operations within the Lodging segment include (i) ownership/management of a group of luxury hotels and condominiums through the RockResorts brand proximate to our U.S. mountain resorts; (ii) ownership/management of non-RockResorts branded hotels and condominiums proximate to our U.S. mountain resorts; (iii) National Park Service (“NPS”) concessionaire properties, including the Grand Teton Lodge Company (“GTLC”); (iv) Colorado Mountain Express (“CME”), a Colorado resort ground transportation company; and (v) mountain resort golf courses.

The performance of lodging properties (including managed condominium rooms) proximate to our mountain resorts, and CME, is closely aligned with the performance of our Mountain segment and generally experiences similar seasonal trends, particularly with respect to visitation by Destination guests, and represented approximately 90% and 93% of Lodging segment revenue (excluding Lodging segment revenue associated with reimbursement of payroll costs) for the three months ended April 30, 2016 and 2015, respectively, and 77% and 79% of Lodging segment revenue (excluding Lodging segment revenue associated with reimbursement of payroll costs) for the nine months ended April 30, 2016 and 2015, respectively. Management primarily focuses on Lodging net revenue excluding payroll cost reimbursement and Lodging operating expense excluding reimbursed payroll costs (which are not measures of financial performance under GAAP) as the reimbursements are made based upon the costs incurred with no added margin. As such, the revenue and corresponding expense associated with reimbursement of payroll costs have no effect on our Lodging Reported EBITDA, which we use to evaluate Lodging segment performance. Revenue of the Lodging segment during our first and fourth fiscal quarters is generated primarily by the operations of our NPS concessionaire properties (as their operating season generally occurs from mid-May to mid-October), mountain resort golf operations and seasonally low operations from our other owned and managed properties and businesses.


22



Real Estate Segment
The principal activities of our Real Estate segment include the marketing and selling of remaining condominium units available for sale, which primarily relate to The Ritz-Carlton Residences, Vail, and One Ski Hill Place in Breckenridge; the sale of land parcels to third-party developers; planning for future real estate development projects, including zoning and acquisition of applicable permits; and, the occasional purchase of selected strategic land parcels for future development. Revenue from vertical development projects is not recognized until closing of individual units within a project, which occurs after substantial completion of the project. Additionally, our real estate development projects most often result in the creation of certain resort assets that provide additional benefit to the Mountain and Lodging segments. We continue undertaking preliminary planning and design work on future projects and are pursuing opportunities with third-party developers rather than undertaking our own significant vertical development projects. We believe that, due to our low carrying cost of real estate land investments, we are well situated to promote future projects with third-party developers while limiting our financial risk. Our revenue from the Real Estate segment, and associated expense, can fluctuate significantly based upon the timing of closings and the type of real estate being sold, causing volatility in the Real Estate segment’s operating results from period to period.

Recent Trends, Risks and Uncertainties
Together with those risk factors we have identified in our Form 10-K, we have identified the following important factors (as well as risks and uncertainties associated with such factors) that could impact our future financial performance or condition:

The timing and amount of snowfall can have an impact on Mountain and Lodging revenue particularly in regards to skier visits and the duration and frequency of guest visitation. To help mitigate this impact, we sell a variety of season pass products prior to the beginning of the ski season resulting in a more stabilized stream of lift revenue. Additionally, our season pass products provide a compelling value proposition to our guests, which in turn creates a guest commitment predominately prior to the start of the ski season. In March 2016, we began our early season pass sales program for the 2016/2017 ski season. Through May 31, 2016, our early U.S. season pass sales for the upcoming 2016/2017 U.S. ski season have increased approximately 29% in units and increased approximately 34% in sales dollars, compared to the prior year period ended June 2, 2015. However, we cannot predict if this favorable trend will continue through the Fall 2016 U.S. season pass sales campaign or the overall impact that season pass sales will have on lift revenue for the 2016/2017 U.S. ski season.

Although many key economic indicators in the U.S. have held steady through the first third of calendar year 2016, including consumer confidence and the unemployment rate, the growth in the U.S. economy may be challenged by declining or slowing growth in economies outside of the U.S., or other factors, which may include devaluation of currencies against the U.S. dollar and fluctuating commodity prices. Given these economic trends and uncertainties, we cannot predict what the impact will be on overall travel and leisure spending or more specifically, on our guest visitation, guest spending or other related trends for the upcoming 2016/2017 U.S. ski season.

On June 30, 2015, we acquired the entities that operate Perisher Ski Resort (“Perisher”) in New South Wales, Australia for total cash consideration of AU$176.2 million (approximately US$134.8 million), excluding cash acquired and assumed working capital. The cash purchase price was funded through borrowings from the revolving portion of our senior credit facility (“Credit Agreement”). We expect that Perisher will positively contribute to our results of operations with its operating season occurring during our first and fourth fiscal quarters. However, we cannot predict whether we will realize all of the synergies expected from the operations of Perisher and the ultimate impact Perisher will have on our future results of operations.

The estimated fair values of assets acquired and liabilities assumed in the Perisher acquisition 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. We believe that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but we are obtaining additional information necessary to finalize those fair values. Therefore, the preliminary measurements of fair value reflected within the Consolidated Condensed Balance Sheets as of April 30, 2016 are subject to change.

As of April 30, 2016, we had $68.6 million in cash and cash equivalents, as well as $327.4 million available under the revolver component of our Credit Agreement (which represents the total commitment of $400.0 million less certain letters of credit outstanding of $72.6 million). During the three and nine months ended April 30, 2016 we repurchased 108,036 and 485,866 shares of our common stock, respectively, at a total cost of approximately $13.8 million and $53.8 million, respectively. Additionally, in January 2016 we completed the acquisition of a ski area, Wilmot Mountain in Wisconsin, for cash consideration of approximately $20.2 million. We believe that the terms of our Credit Agreement allow for sufficient flexibility in our ability to make future acquisitions, investments, distributions to stockholders and incur

23



additional debt. This, combined with the continued positive cash flow from operating activities of our Mountain and Lodging segments, primarily occurring during our second and third fiscal quarters, less resort capital expenditures has and is anticipated to continue to provide us with substantial liquidity. We believe our liquidity will allow us to consider strategic investments and other forms of returning value to our stockholders including additional share repurchases and the continued payment of a quarterly cash dividend.

Real Estate Reported EBITDA is highly dependent on, among other things, the timing of closings on condominium units available for sale, which determines when revenue and associated cost of sales are recognized. Changes to the anticipated timing or mix of closing on one or more real estate projects, or unit closings within a real estate project, could materially impact Real Estate Reported EBITDA for a particular quarter or fiscal year. As of April 30, 2016, we had six units at The Ritz-Carlton Residences, Vail and two units at One Ski Hill Place in Breckenridge available for sale with a remaining book value of approximately $18.5 million for both projects. We cannot predict the ultimate number of units we will sell, the ultimate price we will receive, or when the units will sell, although we currently anticipate the selling process will take less than two years to complete assuming continued stability in resort real estate markets.

In accordance with GAAP, we test goodwill and indefinite-lived intangible assets for impairment annually as well as on an interim basis to the extent factors or indicators become apparent that could reduce the fair value of our reporting units or indefinite-lived intangible assets below book value. We also evaluate long-lived assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We evaluate the recoverability of our goodwill by estimating the future discounted cash flows of our reporting units and terminal values of the businesses using projected future levels of income, as well as business trends, prospects and market and economic conditions. We evaluate the recoverability of indefinite-lived intangible assets using the income approach based upon estimated future revenue streams, and we evaluate long-lived assets based upon estimated undiscounted future cash flows. Our fiscal 2015 annual impairment test did not result in a goodwill or indefinite-lived intangible asset impairment. However, if lower than projected levels of cash flows were to occur due to prolonged abnormal weather conditions or a prolonged weakness in general economic conditions, among other risks, this could cause less than expected growth and/or a reduction in terminal values and cash flows and could result in an impairment charge attributable to certain goodwill, indefinite-lived intangible assets and/or long-lived assets, negatively affecting our results of operations and stockholders’ equity.

RESULTS OF OPERATIONS

Summary
Below is a summary of operating results for the three and nine months ended April 30, 2016, compared to the three and nine months ended April 30, 2015 (in thousands):

 
 
 
Three Months Ended April 30,
 
Nine Months Ended April 30,
 
 
2016
 
2015
 
2016
 
2015
Mountain Reported EBITDA
 
$
291,048

 
$
254,747

 
$
478,220

 
$
394,171

Lodging Reported EBITDA
 
15,511

 
12,597

 
23,856

 
18,773

Resort Reported EBITDA
 
306,559

 
267,344

 
502,076

 
412,944

Real Estate Reported EBITDA
 
(1,332
)
 
(1,408
)
 
(467
)
 
(5,668
)
Income before provision for income taxes
 
253,341

 
214,007

 
346,351

 
258,432

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

 
$
133,410

 
$
215,027

 
$
184,896

A discussion of the segment results and other items can be found below.

24




Mountain Segment

Three months ended April 30, 2016 compared to the three months ended April 30, 2015
Mountain segment operating results for the three months ended April 30, 2016 and 2015 are presented by category as follows (in thousands, except effective ticket price (“ETP”)):

 
 
Three Months Ended April 30,
 
Percentage
Increase
(Decrease)
 
 
2016
 
2015
 
Net Mountain revenue:
 
 
 
 
 
 
Lift
 
$
334,789

 
$
285,249

 
17.4
%
Ski school
 
74,279

 
66,216

 
12.2
%
Dining
 
51,000

 
44,003

 
15.9
%
Retail/rental
 
79,384

 
71,078

 
11.7
%
Other
 
33,353

 
33,005

 
1.1
%
Total Mountain net revenue
 
$
572,805

 
$
499,551

 
14.7
%
Mountain operating expense:
 
 
 
 
 
 
Labor and labor-related benefits
 
$
115,932

 
$
99,926

 
16.0
%
Retail cost of sales
 
26,123

 
23,520

 
11.1
%
Resort related fees
 
36,129

 
31,624

 
14.2
%
General and administrative
 
45,753

 
37,047

 
23.5
%
Other
 
58,031

 
52,558

 
10.4
%
Total Mountain operating expense
 
$
281,968

 
$
244,675

 
15.2
%
Mountain equity investment income (loss), net
 
211

 
(129
)
 
263.6
%
Mountain Reported EBITDA
 
$
291,048

 
$
254,747

 
14.2
%
 
 
 
 
 
 
 
Total skier visits
 
4,689

 
4,118

 
13.9
%
ETP
 
$
71.40

 
$
69.27

 
3.1
%

Mountain Reported EBITDA includes $3.3 million and $2.6 million of stock-based compensation expense for the three months ended April 30, 2016 and 2015, respectively.

Mountain Reported EBITDA for the three months ended April 30, 2016 increased $36.3 million, or 14.2%, compared to the three months ended April 30, 2015. Our results for the three months ended April 30, 2016 compared to the same period in the prior year reflect strong U.S. pass sales growth for the 2015/2016 ski season; a strong rebound at our Tahoe resorts; improved results at our Colorado resorts and at Park City; and strong ancillary guest spending for ski school, dining and retail/rental operations. Our Tahoe resorts saw a significant increase in skier visitation during the three months ended April 30, 2016 compared to the same period in the prior year as a result of improved weather and snow conditions compared to the same period in the prior year. Additionally, our Colorado resorts and Park City realized strong increases in skier visitation during the three months ended April 30, 2016 compared to the same period in the prior year. We believe the increase at Park City is in part due to the significant capital improvements we have made at the resort. However, the improvement in our year over year results for the quarter were negatively impacted by a modest decline in international visitation to our U.S. resorts, which we believe is due to the strong U.S. dollar, and off-season fixed operating expenses for Perisher (acquired June 30, 2015) which has its operating season from June through early October.

Lift revenue increased $49.5 million, or 17.4%, for the three months ended April 30, 2016, compared to the same period in the prior year, consisting of $33.2 million, or 18.5%, increase in lift revenue excluding season pass revenue, and $16.3 million, or 15.4%, increase in season pass revenue. The increase in lift revenue excluding season pass revenue was primarily due to an increase in ETP excluding season pass holders of 8.2%, along with higher visitation at our Tahoe resorts and at Park City. The increase in season pass revenue was due to a combination of both an increase in pricing and units sold, and was favorably impacted by increased pass sales to Destination guests. Total ETP increased $2.13, or 3.1%, due to price increases in both our lift ticket products at our U.S. mountain resorts and season pass products, partially offset by higher average visitation by season pass holders during the three months ended April 30, 2016 compared to the same period in the prior year.

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Ski school revenue increased $8.1 million, or 12.2%, for the three months ended April 30, 2016, compared to the same period in the prior year, due to increases in ski school revenue at our Colorado, Tahoe and Park City resorts, primarily as a result of overall increases in skier visitation and pricing.

Dining revenue increased $7.0 million, or 15.9%, for the three months ended April 30, 2016, compared to the three months ended April 30, 2015, which benefited from overall increases in skier visitation at our Colorado, Tahoe and Park City resorts. In addition, the increase in dining revenue was further attributable to the opening of a new on-mountain dining venue and upgrades of existing on-mountain dining venues at Park City.

Retail/rental revenue increased $8.3 million, or 11.7%, for the three months ended April 30, 2016, compared to the same period in the prior year, resulting from both an increase in retail sales and rental revenue of $4.6 million, or 10.4%, and $3.7 million, or 13.6%, respectively. The increase in retail sales was primarily due to increase in sales volume at stores proximate to our Tahoe resorts and in the San Francisco Bay Area due to improved weather conditions and snowfall in the Tahoe region. The increase in rental revenue was primarily due to stores proximate to our Tahoe and Colorado resorts which experienced higher volumes due to overall increased skier visitation.

Other revenue mainly consists of mountain activities revenue, employee housing revenue, guest services revenue, commercial leasing revenue, marketing and internet advertising revenue, private club revenue (which includes both club dues and amortization of initiation fees), municipal services revenue and other recreation activity revenue. For the three months ended April 30, 2016, other revenue increased $0.3 million, or 1.1%, compared to the three months ended April 30, 2015, primarily due to increased base area services, including parking revenue.

Operating expense increased $37.3 million, or 15.2%, for the three months ended April 30, 2016 compared to the three months ended April 30, 2015, including incremental operating expenses of $5.7 million from Perisher. Excluding Perisher, operating expenses increased $31.6 million, or 12.9%. Labor and labor-related benefits (excluding Perisher) increased $13.9 million, or 13.9%, due to wage adjustments, increased staffing levels to support higher volumes primarily in ski school, mountain operations and on-mountain dining and increased variable compensation. Retail cost of sales increased $2.6 million, or 11.1%, due to an increase in retail sales of $4.6 million, or 10.4%. Resort related fees increased $4.5 million, or 14.2%, due to overall increases in revenue upon which those fees are based. General and administrative expense (excluding Perisher) increased $7.8 million, or 21.1%, primarily due to higher Mountain segment component of allocated corporate costs, including increased sales and marketing expense and variable compensation. Other expense (excluding Perisher) increased $2.7 million, or 5.2%, primarily due to higher operating expenses including rent expense, food and beverage cost of sales commensurate with increased dining revenue, repairs and maintenance expense and supplies expense, partially offset by lower fuel expense.

Mountain equity investment income (loss), net, primarily includes our share of income or loss from the operations of a real estate brokerage joint venture.



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Nine months ended April 30, 2016 compared to the nine months ended April 30, 2015
Mountain segment operating results for the nine months ended April 30, 2016 and 2015 are presented by category as follows (in thousands, except ETP):

 
 
Nine Months Ended April 30,
 
Percentage
Increase
(Decrease)
 
 
2016
 
2015
 
Net Mountain revenue:
 
 
 
 
 
 
Lift
 
$
642,627

 
$
524,537

 
22.5
 %
Ski school
 
139,703

 
123,511

 
13.1
 %
Dining
 
108,093

 
90,661

 
19.2
 %
Retail/rental
 
214,748

 
195,563

 
9.8
 %
Other
 
101,439

 
88,696

 
14.4
 %
Total Mountain net revenue
 
$
1,206,610

 
$
1,022,968

 
18.0
 %
Mountain operating expense:
 
 
 
 
 
 
Labor and labor-related benefits
 
$
283,353

 
$
245,401

 
15.5
 %
Retail cost of sales
 
80,864

 
75,856