form10k.htm



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

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2009

 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)
 
     
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
 
Name of each exchange on which registered:
Common Stock, $0.01 par value
 
New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:
       None.       
(Title of Class)


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  x Yes  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes x No

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
¨ Yes ¨ No

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

Indicate by check mark whether the registrant is 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 x                                                                                           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 Act).
 Yes x No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of $23.32 per share as reported on the New York Stock Exchange Composite Tape on January 30, 2009 (the last business day of the Registrant's most recently completed second quarter) was $700,131,580.

As of September 18, 2009, 36,174,979 shares of Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
 
The Proxy Statement for the Annual Meeting of Shareholders is incorporated by reference herein into Part III, Items 10 through 14.
 
 
 
Table of Contents
 
PART I
   
Item 1.
3
Item 1A.
17
Item 1B.
25
Item 2.
25
Item 3.
27
Item 4.
27
   
PART II
 
   
Item 5.
 
 
28
Item 6.
29
Item 7.
32
Item 7A.
51
Item 8.
F-1
Item 9.
52
Item 9A.
52
Item 9B.
52
   
 
   
Item 10.
53
Item 11.
53
Item 12.
 
 
53
Item 13.
53
Item 14.
53
   
 
   
Item 15.  
53

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

These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” and similar terms and phrases, including references to assumptions.  Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that such plans, intentions or expectations will be achieved.  Important factors that could cause actual results to differ materially from our forward-looking statements include, but are not limited to:

·  
prolonged downturn in general economic conditions, including continued adverse affects on the overall travel and leisure related industries;
·  
unfavorable weather conditions or natural disasters;
·  
competition in our mountain and lodging businesses;
·  
our ability to grow our resort and real estate operations;
·  
our ability to successfully complete real estate development projects and achieve the anticipated financial benefits from such projects;
·  
further adverse changes in real estate markets;
·  
continued volatility in credit markets;
·  
our ability to obtain financing on terms acceptable to us to finance our real estate development, capital expenditures and growth strategy;
·  
our reliance on government permits or approvals for our use of Federal land or to make operational improvements;
·  
adverse consequences of current or future legal claims;
·  
our ability to hire and retain a sufficient seasonal workforce;
·  
willingness of our guests to travel due to terrorism, the uncertainty of military conflicts or outbreaks of contagious diseases, and the cost and availability of travel options;
·  
negative publicity or unauthorized use of our trademarks which diminishes the value of our brands;
·  
our ability to integrate and successfully operate future acquisitions; and
·  
implications arising from new Financial Accounting Standards Board (“FASB”)/governmental legislation, rulings or interpretations.

All forward-looking statements attributable to us or any persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected.  Given these uncertainties, users of the information included in this Form 10-K, including investors and prospective investors, are cautioned not to place undue reliance on such forward-looking statements.  Actual results may differ materially from those suggested by the forward-looking statements that the Company makes for a number of reasons including those described in Part I, Item 1A, “Risk Factors” of this Form 10-K.  All forward-looking statements are made only as of the date hereof. Except as may be required by law, the Company does not intend to update these forward-looking statements, even if new information, future events or other circumstances have made them incorrect or misleading.
 
 
 
PART I

ITEM 1.                      BUSINESS.

General

Vail Resorts, Inc. was organized as a public holding company in 1997 and operates through various subsidiaries (collectively, the “Company”).  The Company's operations are grouped into three business segments: Mountain, Lodging and Real Estate, which represented approximately 63%, 18% and 19%, respectively, of the Company's net revenue for the year ended July 31, 2009 (“Fiscal 2009”).  The Company's Mountain segment owns and operates five world-class ski resort properties as well as ancillary businesses, primarily including ski school, dining and retail/rental operations, which provide a comprehensive resort experience to a diverse clientele with an attractive demographic profile.  The Company's Lodging segment owns and/or manages a collection of luxury hotels under its RockResorts brand, as well as other strategic lodging properties and a large number of condominiums located in proximity to the Company's ski resorts, the Grand Teton Lodge Company (“GTLC”), which operates three destination resorts at Grand Teton National Park (the “Park”), Colorado Mountain Express (“CME”), a resort ground transportation company, and golf courses.  Collectively, the Mountain and Lodging segments are considered the Resort segment.  The Company's Real Estate segment owns and develops real estate in and around the Company's resort communities.  Financial information by segment is presented in Note 15, Segment Information, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

Mountain Segment

The Company's portfolio of world-class ski resorts currently includes:

·  
Vail Mountain (“Vail Mountain”) – the single most visited ski resort in the United States for the 2008/2009 ski season and the single largest ski mountain in the United States.  Vail offers some of the most expansive and varied terrain with approximately 5,300 skiable acres including seven world renowned back bowls and the rustic Blue Sky Basin area of the resort.

·  
Breckenridge Ski Resort (“Breckenridge”) – the second most visited ski resort in the United States for the 2008/2009 ski season and host of the highest chairlift in North America, the Imperial Express Super Chair, reaching 12,840 feet and offering above tree line expert terrain.  Breckenridge is well known for its historic town, vibrant night-life and progressive and award-winning pipes and parks.

·  
Keystone Resort (“Keystone”) – the fourth most visited ski resort in the United States for the 2008/2009 ski season and home to the highly renowned A51 Terrain Park as well as the largest area of night skiing in Colorado.  Keystone also offers guests a unique skiing opportunity through guided snow cat ski tours accessing five bowls.

 
·  
Beaver Creek Resort (“Beaver Creek”) – the seventh most visited ski resort in the United States for the 2008/2009 ski season.  Beaver Creek is a European –style resort with multiple villages and also includes a world renowned children’s ski school program focused on providing a first-class experience with unique amenities such as a dedicated children’s gondola.

·  
Heavenly Mountain Resort (“Heavenly”) – the ninth most visited ski resort in the United States for the 2008/2009 ski season and the second largest ski resort in the United States with over 4,800 skiable acres.  Heavenly straddles the border of California and Nevada and offers unique and spectacular views of Lake Tahoe.  Heavenly boasts the largest snowmaking capacity in the Lake Tahoe region and offers great night life including its proximity to several casinos.

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

The Company's Mountain segment derives revenue through the sale of lift tickets and season passes as well as a comprehensive offering of amenities available to guests, including ski and snowboard lessons, equipment rentals and retail merchandise sales, a variety of dining venues, private club operations and other recreational activities.  In addition to providing extensive guest amenities, the Company also engages in, among other activities, the leasing out of the Company’s owned commercial space around its base resorts for restaurants and retail stores.

Ski Industry/Market

There are approximately 760 ski areas in North America and approximately 470 in the United States, ranging from small ski area operations that service day skiers to large resorts that attract both day skiers and destination resort guests looking for a comprehensive vacation experience.  One of the primary ski industry statistics for measuring performance is “skier visit,” which represents a person utilizing a ticket or pass to access a mountain resort for any part of one day, and includes both paid and complimentary access.  During the 2008/2009 ski season, combined skier visits for all the United States ski areas were approximately 57.4 million and all North American skier visits were approximately 76.1 million.  The Company's ski resorts had 5.9 million skier visits during the 2008/2009 ski season, or approximately 10.3% of United States skier visits, and an approximate 7.8% share of the North American market's skier visits.

The Company's Colorado ski resorts appeal to both day skiers and destination guests due to the resorts' proximity to Colorado's Front Range (Denver/Colorado Springs/Boulder metropolitan areas), accessibility from several airports, including Denver International Airport and Eagle County Airport, and the wide range of amenities available at each resort.  Colorado has 29 ski areas, six of which are considered “Front Range Destination Resorts,” including all of the Company's Colorado resorts, catering to both the Colorado Front Range and destination-skier markets.  All Colorado ski resorts combined recorded approximately 11.9 million skier visits for the 2008/2009 ski season with skier visits at the Company's Colorado ski resorts totaling 5.1 million, or approximately 42.9% of all Colorado skier visits for the 2008/2009 ski season.

Lake Tahoe, which straddles the border of California and Nevada, is a major skiing destination less than 100 miles from Sacramento and Reno and approximately 200 miles from San Francisco, making it a convenient destination for both day skiers and destination guests.  South Lake Tahoe, where Heavenly is located, is also a popular year-round vacation destination, featuring extensive summer attractions and casinos in addition to its winter sports offerings.  Heavenly is proximate to both the Reno/Tahoe International Airport and the Sacramento International Airport.  California and Nevada have 33 ski areas.  Heavenly had 802,000 skier visits for the 2008/2009 ski season, capturing approximately 11.8% of California's and Nevada's 6.8 million total skier visits for the 2008/2009 ski season.

Competition

There are significant barriers to entry for new ski areas due to the limited private lands on which ski areas could be built, the difficulty in getting the appropriate governmental approvals to build on public lands and the significant capital needed to construct the necessary infrastructure.  As such, there has been virtually no new supply of major resorts in North America for the past 25 years which has and should continue to allow the best positioned resorts, including all of the Company’s resorts, to capture a majority of future industry growth.  The Company’s resorts compete with other major ski resorts, including Aspen/Snowmass, Copper Mountain, Deer Valley, Mammoth Mountain, Northstar-at-Tahoe, Park City Mountain Resort, Squaw Valley USA, Steamboat, Whistler Blackcomb and Winter Park, as well as other ski areas in Colorado and the Lake Tahoe area, other destination ski areas worldwide and non-ski related vacation destinations.

While the ski industry has performed well in recent years in terms of number of skier visits, with the eight best seasons occurring in the past nine years for United States visitation, a particular ski area's growth is also largely dependent on either attracting skiers away from other resorts, generating more revenue per skier visit and/or generating more visits from each skier.  Better capitalized ski resorts, including all five mountain resorts operated by the Company, are expanding their offerings, as well as enhancing the quality and experience by adding new high speed chairlifts, gondolas, terrain parks, state of the art grooming machines, expanded terrain and amenities at the base areas of the resorts, all of which are aimed at increasing guest visitation and revenue per skier visit.  The Company believes it invests more in capital improvements than the vast majority of its competitors and can also create synergies by operating multiple resorts thus enhancing the Company’s profitability.  Additionally, the Company through its sales of season passes (including the new Epic Season Pass introduced in the 2008/2009 ski season, which offers unrestricted and unlimited access to all five of its resorts) provides its guests with a strong value option, in return for the guest committing to ski at its resorts prior to, or very early into the ski season, which the Company believes attracts more guests to its resorts.  All five of the Company’s resorts typically rank in the top ten most visited ski resorts in the United States.  Additionally, all of the Company's resorts consistently rank in the top 25 ranked ski resorts in North America according to industry surveys, which the Company attributes to its resorts' ability to provide a high-quality experience.


The ski industry statistics stated in this section have been derived from data published by Colorado Ski Country USA, Canadian Ski Council, Kottke National End of Season Survey 2008/2009 (the “Kottke Survey”) and other industry publications.

All of the Company's ski resorts maintain the unique distinction of competing effectively as both market share leaders and quality leaders.  The following inherent and strategic factors contribute directly to each resort’s success:

Exceptional mountain experience --

·  
World-Class Mountain Resorts and Integrated Base Resort Areas

All five of the Company’s mountain resorts offer a multitude of skiing and snowboarding experiences for the beginner, intermediate, advanced and expert levels.  Each resort is also fully integrated into expansive resort areas offering a broad array of lodging, dining, retail, spas, nightlife and other amenities to the resort’s guests, some of which are owned or managed by the Company.

·  
Snow Conditions

The Company's resorts are located in areas that receive significantly higher than average snowfall compared to most other ski resort locations in the United States.  The Company’s resorts in the Colorado Rocky Mountains and Heavenly in the Sierra Nevada Mountains all receive average yearly snowfall between 20 and 30 feet.  Even in these abundant snowfall areas, the Company has significant snowmaking systems that can help provide a more consistent experience, especially in the early season.  Additionally, the Company provides many acres of groomed terrain at its resorts with extensive fleets of snow grooming equipment.

·  
Lift Service

The Company systematically upgrades its lifts to streamline skier traffic and maximize guest experience.  For the 2008/2009 ski season, the Company replaced its existing gondola at Keystone with an eight-passenger gondola including a mid-station feature.  In the past three fiscal years, the Company has installed several high-speed chairlifts and gondolas across its resorts, including an eight-passenger gondola at Breckenridge with two mid-station features; an eight-passenger gondola at Beaver Creek; two four-passenger high-speed chairlifts at Vail Mountain; and a four-passenger high-speed chairlift at Heavenly.

·  
Terrain Parks

The Company's resorts are committed to leading the industry in terrain park design, education and events for the growing segment of freestyle skiers and snowboarders.  Each resort has multiple terrain parks that include progressively-challenging features.  This park structure, coupled with new freestyle ski school programs, promotes systematic learning from basic to professional skills.

Extraordinary service and amenities --

·  
Commitment to Guest Service

The Company’s mission is to provide quality service at every level of the guest experience.  Prior to arrival, guests can receive personal assistance through the Company’s full-service, in-house travel center to book desired lodging accommodations, lift tickets, ski school lessons, equipment rentals and air and ground travel.  On-mountain ambassadors engage guests and answer questions and all personnel, from lift operators to ski patrol, convey a guest-oriented culture.  The Company solicits guest feedback through a variety of surveys and results are utilized to ensure high levels of customer satisfaction to understand trends and develop future resort programs and amenities.

·  
Season Pass Products

The Company offers a variety of season pass products for all of its ski resorts, marketed towards both out-of-state and international guests (“Destination”) and in-state and local guests (“In-State”).  The Company’s season pass products are available for purchase predominately during the period prior to the start of the ski season.  The Company’s season pass products provide a value option to its guests and in turn develops a loyal customer base that commit to ski at the Company’s resorts, ski multiple days each season at the Company’s resorts and return to purchase season pass products year after year.  In addition, the Company’s season pass products attract new guests to its resorts.  Growth in sales of season pass products is a key strategic factor for the Company and also creates strong synergies between its resorts.  In the 2008/2009 ski season the Company introduced a new pass product, (the “Epic Season Pass”) primarily marketed to its Destination guests (and also available to In-State guests) allowing pass holders unlimited and unrestricted access to all five ski resorts.  Season pass products provided approximately 34% of the Company’s total lift ticket revenue for the 2008/2009 ski season.

·  
Premier Ski Schools

The Company’s resorts are home to some of the finest and most recognized ski and snowboard schools in the industry.  Through a combination of outstanding training and abundant work opportunities, the schools have become home to many of the most experienced and credentialed professionals in the business.  The Company complements its instructor staff with state-of-the-art facilities and extensive learning terrain, all with a keen attention to guest needs, including offering a wide variety of adult and child group and private lesson options with a goal of creating lifelong skiers and riders.

·  
On-Mountain Activities

The Company is a ski industry leader in providing comprehensive destination vacation experiences, including on-mountain activities designed to appeal to a broad range of interests.  In addition to the Company’s exceptional ski experiences, guests can choose from a variety of non-ski related activities including snow tubing, snow shoeing, guided snowmobile and scenic cat tours, horse-drawn sleigh rides and a year-round zip line in addition to high altitude dining.  During the summer, on-mountain recreational activities provide guests with a wide array of options including scenic chairlift and gondola rides, mountain biking, alpine slide and zip-line rides, horseback riding and hiking.

·  
Dining

The Company’s resorts provide a variety of quality on-mountain and base village dining venues, ranging from top-rated fine dining restaurants to trailside express food service outlets.  The Company operates over 90 of such dining options at its five mountain resorts.  Furthermore, the Company is committed to serving healthy food options to its guests at these dining venues through the Company’s “Appetite for Life” program.

·  
Retail/rental

The Company, through SSI Venture, LLC (“SSV”), has over 150 retail/rental locations specializing in sporting goods including ski, snowboard, golf and cycling equipment.  In addition to providing a major retail/rental presence at each of the Company's ski resorts, the Company also has retail/rental locations throughout the Colorado Front Range and at other Colorado, California and Utah ski resorts, as well as the San Francisco Bay Area and Salt Lake City.  Many of the locations in the Colorado Front Range and in the San Francisco Bay Area also offer a prime venue for selling the Company’s season pass products.

·  
Lodging and Real Estate Development

Quality lodging options are an integral part of providing a complete resort experience.  The Company’s 14 owned and managed hotels proximate to its five mountain resorts, including four RockResorts branded hotels, and a significant inventory of managed condominium rooms provide numerous accommodation options for the Company’s mountain resort guests.  The Company’s real estate development efforts provide the Company with the ability to add profitability to the Company while expanding the destination bed base and upgrading its resorts through the development of amenities such as luxury hotels, private clubs, spas, parking and commercial space for restaurants and retail shops.  The Company’s Lodging and Real Estate segments have and continue to invest in resort related assets as part of their initiatives which enhance the overall resort experience.  Examples include: the Arrabelle at Vail Square hotel (the “Arrabelle”), a RockResort property which opened in the 2007/2008 ski season; the major renovation of The Osprey at Beaver Creek (formerly the Inn at Beaver Creek), a RockResort property that opened in the 2008/2009 ski season; a new spa, guest rooms and renovated ballroom and meeting spaces at The Lodge at Vail for the 2008/2009 ski season;  the Crystal Peak Lodge in Breckenridge which opened for the 2008/2009 ski season; and the Vail Mountain and Arrabelle Clubs, private mountain clubs which opened for the 2008/2009 ski season.

·  
Environmental Stewardship

As part of the Company’s long-standing commitment to responsible stewardship of its natural mountain settings, the Company has several initiatives in environmental sustainability which transcend throughout all of the Company’s operations.  During Fiscal 2009, the Company announced an “energy layoff” initiative aimed at reducing overall energy consumption by 10%, with a goal of a 5% reduction in the first year and a 5% reduction in the second year.  The Company reduced its energy consumption by 6.1% in Fiscal 2009, exceeding its first year goal.  In addition, the Company recently introduced a “paperless” initiative with plans to substantially eliminate the internal use of paper by the end of calendar year 2011.  In Fiscal 2009, the Company has also offset approximately 100% of its electrical usage by purchasing megawatt-hours of wind energy credits for its five mountain resorts, its lodging properties including RockResorts, its retail/rental locations and its corporate headquarters in Broomfield, Colorado.  The Company’s headquarters is LEED-certified and the Company’s planned Ever Vail project is expected to be the largest LEED-certified project for resort use in North America.  Additionally, the Company has partnered with the National Forest Foundation to raise funds for various conservation projects in the White River National Forest in Colorado and the National Forest of Tahoe Basin in California/Nevada where the Company operates its five mountain resorts.  As a result of these efforts, the Company was honored by Conde Nast Traveler as a leader in social responsibility in the travel industry as a winner of the magazine’s 2008 World Savers Awards in the category of environmental protection.

Accessibility from major metropolitan  areas --

The Company’s ski resorts are well located and easily accessible by both Destination and In-State guests.

·  
Colorado resorts

The Colorado Front Range market, with a population of approximately 4.3 million, and growing faster than the national average, is within approximately 100 miles from each of the Company's Colorado resorts, with access via a major interstate highway.  Additionally, the Company's Colorado resorts are proximate to both Denver International Airport and Eagle County Airport.

 
·  
Heavenly

Heavenly is proximate to two large California population centers, the Sacramento/Central Valley and the San Francisco Bay Area.  Heavenly is within 100 miles of Sacramento/Central Valley and approximately 200 miles from the San Francisco Bay area via major interstate highways.  Heavenly is serviced by the Reno/Tahoe International Airport, Sacramento International Airport and the San Francisco International Airport.


Marketing and Sales

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

Seasonality

Ski resort operations are highly seasonal in nature, with a typical ski season beginning in mid-November and running through mid-April.  In an effort to partially counterbalance the concentration of revenue in the winter months, the Company offers non-ski season attractions such as sight-seeing, mountain biking, guided hiking, alpine slides and zip-line rides, children’s activities and other recreational activities such as golf (included in the operations of the Lodging segment).  These activities also help attract destination conference and group business to the Company's resorts.

Lodging Segment

The Company's Lodging segment includes the following operations:
 
·  
RockResorts -- a luxury hotel management company with a current portfolio of eight properties, including four Company-owned and four managed third-party owned resort hotels with locations in Colorado, Wyoming, New Mexico and St. Lucia, West Indies as well as six properties currently under development that the Company will manage;
 
·  
Six additional independently flagged Company-owned hotels, management of the Vail Marriott Mountain Resort & Spa (“Vail Marriott”), Mountain Thunder Lodge, Crystal Peak Lodge and Austria Haus Hotel and condominium management operations, all of which are in and around the Company's Colorado ski resorts;
 
·  
GTLC -- a summer destination resort with three resort properties in the Grand Teton National Park and the Jackson Hole Golf & Tennis Club (“JHG&TC”) near Jackson, Wyoming;
 
·  
CME -- a resort ground transportation company; and
 
·  
Five Company-owned resort golf courses in Colorado and one in Wyoming.

The Lodging segment currently includes approximately 3,900 owned and managed hotel and condominium rooms.   The Company's resort hotels collectively offer a wide range of services to guests.

The Company's portfolio of owned or managed luxury resort hotels and other hotels and resorts currently includes:

       
Name
Location
Own/Manage
Rooms
       
RockResorts:
     
The Lodge at Vail
Vail, CO
Own
169*
The Arrabelle at Vail Square
Vail, CO
Own
88*
The Pines Lodge
Beaver Creek, CO
Own
68*
The Osprey at Beaver Creek
Beaver Creek, CO
Own
47*
La Posada de Santa Fe
Santa Fe, NM
Manage
157
Snake River Lodge & Spa
Teton Village, WY
Manage
153
Hotel Jerome
Aspen, CO
Manage
94
The Landings St. Lucia
St. Lucia, West Indies
Manage
71
       
Other Hotels and Resorts:
     
The Great Divide Lodge
Breckenridge, CO
Own
208
The Keystone Lodge
Keystone, CO
Own
152
Inn at Keystone
Keystone, CO
Own
103
Breckenridge Mountain Lodge
Breckenridge, CO
Own
71
Village Hotel
Breckenridge, CO
Own
60
Ski Tip Lodge
Keystone, CO
Own
10
Jackson Lake Lodge
Grand Teton Nat'l Pk., WY
Concessionaire Contract
385
Colter Bay Village
Grand Teton Nat'l Pk., WY
Concessionaire Contract
166
Jenny Lake Lodge
Grand Teton Nat'l Pk., WY
Concessionaire Contract
37
Vail Marriott Mountain Resort  & Spa
Vail, CO
Manage
344
Mountain Thunder Lodge
Breckenridge, CO
Manage
100
Crystal Peak Lodge
Breckenridge, CO
Manage
26
Austria Haus Hotel
Vail, CO
Manage
25
 
*Includes individual owner units that are in a rental program managed by the Company.

Created by Laurance S. Rockefeller in 1956, the portfolio of RockResorts properties was purchased by the Company in December 2001.  The RockResorts collection includes luxury hotels influenced by a strong connection to the natural surrounding environment and feature award-winning dining, and state-of-the-art RockResorts spas and fitness centers.  The properties incorporate the indigenous environment into the guest experience and feature access to a variety of year-round outdoor activities ranging from skiing to golf.

The Company's lodging strategy seeks to complement and enhance its mountain resort operations through the ownership or management of lodging properties and condominiums in proximity to its mountain resorts and management of luxury resorts in premier destination locations.  Additionally, the Company continues to pursue new management contracts, which may include, in addition to management fees, marketing license fees and technical service fees in conjunction with a project’s design, development and sales.

The Company’s lodging strategy, through RockResorts, is focused on the resort hotel niche within the luxury segment and competes for boutique full-service hotel management contracts with other hotel management companies, including Rosewood Hotels & Resorts, the KOR group and Auberge Resorts.

 
During Fiscal 2009, RockResorts announced the addition of two luxury properties, which are currently under development, to its managed hotel portfolio; Balcones Del Atlantico, a beachfront resort in the village of Las Terrenas on the Samana Peninsula of the Dominican Republic, and the Mansfield Inn at Stowe, a mountain resort property located in the mountain resort community of Stowe, Vermont.  Additionally, current properties under development as RockResorts managed resorts include: Tempo Miami, Miami, Florida; One Ski Hill Place, Breckenridge; Rum Cay Resort Marina, Bahamas and the Third Turtle Club & Spa, Turks & Caicos.
 
In November 2008, the Company acquired CME, which represents the first point of contact with many of the Company’s guests when they arrive by air to Colorado.  CME offers year-round ground transportation from Denver International Airport and Eagle County Airport to the Vail Valley (locations in and around Vail, Beaver Creek, Avon and Edwards), Aspen (locations in and around Aspen and Snowmass) and Summit County (includes Keystone, Breckenridge, Copper Mountain, Frisco and Silverthorne) for ski and snowboard and other mountain resort experiences.  CME offers four primary types of services; including door-to-door shuttle business, point-to-point shuttle business with centralized drop-off at transportation hubs, private chartered vans and premier luxury charter vehicles.  The vehicle fleet consists of approximately 250 vans and luxury SUV’s, and transported approximately 300,000 resort guests over the past year.

Lodging Industry/Market

Hotels are categorized by Smith Travel Research, a leading lodging industry research firm, as luxury, upper upscale, upscale, mid-price and economy.  The service quality and level of accommodations of the RockResorts’ hotels place them in the luxury category, which represents hotels achieving the highest average daily rates (“ADR”) in the industry, and includes such brands as the Four Seasons, Ritz-Carlton and Starwood's Luxury Collection hotels.  The Company’s other hotels are categorized in the upper upscale and upscale segments of the hotel market.  The luxury and upper upscale segments consist of approximately 695,000 rooms at approximately 1,950 properties in the United States as of July 2009.  For Fiscal 2009, the Company's owned hotels, which includes a combination of certain RockResorts, as well as other hotels in proximity to the Company’s ski resorts, had an overall ADR of $183.59, a paid occupancy rate of 58.3% and revenue per available room (“RevPAR”) of $107.06, as compared to the upper upscale segment’s ADR of $149.49, a paid occupancy rate of 64.5% and RevPAR of $96.40. The Company believes that this comparison to the upper upscale category is appropriate as its mix of owned hotels include those in the luxury and upper upscale categories, as well as certain of its hotels that fall in the upscale category.  The highly seasonal nature of the Company's lodging properties generally results in lower average occupancy as compared to the upper upscale segment of the lodging industry.

Competition

Competition in the hotel industry is generally based on quality and consistency of rooms, restaurant and meeting facilities and services, attractiveness of locations, availability of a global distribution system, price and other factors.  The Company's properties compete within their geographic markets with hotels and resorts that include locally owned independent hotels, as well as facilities owned or managed by national and international chains, including such brands as Four Seasons, Hilton, Hyatt, Marriott, Ritz-Carlton, Starwood's Luxury Collection and Westin.  The Company's properties also compete for convention and conference business across the national market.  The Company believes it is highly competitive in the resort hotel niche for the following reasons:
 
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All of the Company's hotels are located in unique highly desirable resort destinations.
 
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The Company's hotel portfolio has achieved some of the most prestigious hotel designations in the world, including seven properties and five hotel restaurants in its portfolio that are currently rated as AAA 4-Diamond.
 
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The RockResorts brand is a historic brand name with a rich tradition associated with high quality luxury resort hotels.
 
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Many of the Company's hotels (both owned and managed) are designed to provide a look that feels indigenous to their surroundings, enhancing the guest's vacation experience.
 
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Each RockResorts hotel provides the same high level of quality and services, while still providing unique characteristics which distinguish the resorts from one another.  This appeals to travelers looking for consistency in quality and service offerings together with an experience more unique than typically offered by larger luxury hotel chains.
 
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Many of the hotels in the Company's portfolio provide a wide array of amenities available to the guest such as access to world-class ski and golf resorts, spa and fitness facilities, water sports and a number of other outdoor activities as well as highly acclaimed dining options.
 
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Conference space with the latest technology is available at most of the Company's hotels.  In addition, guests at Keystone can use the Company-owned Keystone Conference Center, the largest conference facility in the Colorado Rocky Mountain region with more than 100,000 square feet of meeting, exhibit and function space.
 
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The Company has a central reservations system that leverages off of its ski resort reservations system and has a brand new online planning and booking platform, offering guests a much more seamless and useful way to make reservations at the Company’s resorts.
 
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The Company actively upgrades the quality of the accommodations and amenities available at its hotels through capital improvements.  Capital funding for third-party owned properties is provided by the owners of those properties to maintain standards required by our management contracts.  Recently completed projects include a full renovation of The Osprey at Beaver Creek (formerly known as the Inn at Beaver Creek), extensive upgrades to The Lodge at Vail including a fully renovated ballroom and meeting spaces, room upgrades and the addition of a 7,500 square foot spa and extensive room upgrades at GTLC’s historic Jackson Lake Lodge.

National Park Concession

The Company owns GTLC, which is based in the Jackson Hole area in Wyoming and operates within the Grand Teton National Park under a 15 year concessionaire agreement (that expires December 31, 2021) with the National Park Service (“NPS”).  GTLC also owns JHG&TC, which is located outside of the Grand Teton National Park near Jackson, Wyoming.  GTLC's operations within the Grand Teton National Park and JHG&TC have operating seasons that generally run from mid-May to mid-October.

There are 391 areas within the National Park System covering approximately 85 million acres across the United States and its territories.  Of the 391 areas, 58 are classified as National Parks.  While there are more than 500 NPS concessionaires, ranging from small privately-held businesses to large corporate conglomerates, the Company primarily competes with such companies as Aramark Parks & Resorts, Delaware North Companies Parks & Resorts, Forever Resorts and Xanterra Parks & Resorts in retaining and obtaining National Park Concessionaire agreements.  The NPS uses “recreation visits” to measure visitation within the National Park System.  In calendar 2008, areas designated as National Parks received approximately 61.2 million recreation visits.  The Grand Teton National Park, which spans approximately 310,000 acres, had 2.5 million recreation visits during calendar 2008, or approximately 4% of total National Park recreation visits.  Four concessionaires provide accommodations within the Grand Teton National Park, including GTLC.  GTLC offers three lodging options within the Grand Teton National Park: Jackson Lake Lodge, a full-service, 385-room resort with 17,000 square feet of conference facilities which can accommodate up to 600 people; the Jenny Lake Lodge, a small, rustically elegant retreat with 37 cabins; and Colter Bay Village, a facility with 166 log cabins, 66 tent cabins, 361 campsites and a 112-space RV park.  GTLC offers dining options as extensive as its lodging options, with cafeterias, casual eateries and fine dining establishments.  GTLC's resorts provide a wide range of activities for guests to enjoy, including cruises on Jackson Lake, boat rentals, horseback riding, guided fishing, float trips, golf and guided Grand Teton National Park tours.  As a result of the extensive amenities offered as well as the tremendous popularity of the National Park System, GTLC's accommodations within the Grand Teton National Park operate near full capacity during their operating season.
 
Marketing and Sales

The Company promotes its luxury and resort hotels and seeks to maximize lodging revenue by using its marketing network established at the Company's ski resorts.  This network includes local, national and international travel relationships which provide the Company's central reservation systems with a significant volume of transient guests.  The Company also promotes a comprehensive vacation experience through various package offerings and promotions (combining lodging, lift tickets, transportation and dining).  Additionally, the individual hotels and the Company have active sales forces to generate conference and group business.

Seasonality

The Company's lodging business is highly seasonal in nature, with peak seasons primarily in the winter months (with the exception of GTLC, certain managed properties and golf operations).  In recent years, the Company has grown its business by promoting its extensive conference facilities and offering more off-season activities to help offset the seasonality of the Company's lodging business.  The Company owns and operates six golf courses: The Beaver Creek Golf Club, The Keystone Ranch Golf Course, The River Course at Keystone, JHG&TC and the Tom Fazio and Greg Norman courses at Red Sky Ranch near the Beaver Creek Resort.  JHG&TC was ranked the fourth best course in Wyoming for 2009 by Golf Digest, the Tom Fazio course was ranked the fourth best course in Colorado in the State by State ranking for 2009 by Golfweek and ranked the fourteenth best course in Colorado for 2009 by Golf Digest, and the Greg Norman course was ranked the eighth best course in Colorado in the State by State ranking for 2009 by Golfweek and ranked the tenth best course in Colorado for 2009 by Golf Digest.  Red Sky Ranch was ranked one of America’s Top 100 Golf Communities in 2009 by Travel & Leisure Golf.

Real Estate Segment

The Company has extensive holdings of real property at its resorts throughout Summit and Eagle Counties in Colorado.  The Company's real estate operations, through Vail Resorts Development Company (“VRDC”), a wholly owned subsidiary of the Company, include the planning, oversight, infrastructure improvement, development, marketing and sale of the Company's real property holdings.  In addition to the cash flow generated from real estate development sales, these development activities benefit the Company's Mountain and Lodging segments through (i) the creation of additional resort lodging and other resort related facilities and venues (primarily restaurants, spas, commercial space, private mountain clubs, skier services facilities and parking structures) which provide the Company with the opportunity to create new sources of recurring revenue, enhance the guest experience at the resort and expand the destination bed base; (ii) the ability to control the architectural themes of the Company's resorts; and (iii) the expansion of the Company's property management and commercial leasing operations.  Additionally, in order to facilitate the sale of real estate development projects, these projects have included the construction of resort assets benefiting the development, such as chairlifts, gondolas, ski trails or golf courses.  While these improvements enhance the value of the real estate held for sale (for example, by providing ski-in/ski-out accessibility), they also benefit the Mountain and Lodging segments’ operations.

In recent years the Company has primarily focused on projects that involve significant vertical development.  In addition to recently completed projects including the Arrabelle, Vail’s Front Door and Crystal Peak Lodge at Breckenridge, the Company has two vertical development projects currently under construction: One Ski Hill Place at Breckenridge and The Ritz-Carlton Residences, Vail.  The Company attempts to mitigate the risk of vertical development by often utilizing guaranteed maximum price construction contracts (although certain construction costs may not be covered by contractual limitations), pre-selling all or a portion of the project, requiring significant non-refundable deposits, and potentially obtaining non-recourse financing for certain projects.  In some instances as warranted by the Company’s business model, VRDC occasionally attempts to minimize the Company's exposure to development risks and maximize the long-term value of the Company's real property holdings by selling improved and entitled land to third-party developers while often retaining the right to approve the development plans, as well as an interest in the developer's profit.  The Company also typically retains the option to purchase, at cost, any retail/commercial space created in a development.

VRDC's principal activities include (i) the vertical development of certain residential mixed-use projects that consist of both the sales of real estate units to third parties and the construction of resort depreciable assets such as hotels, restaurants, spas, private clubs, commercial space, skier service facilities, parking structures and other amenities that the Company will own and operate and that will benefit the Company’s Mountain and Lodging segments; (ii) the sale of single-family homesites to individual purchasers; (iii) the sale of certain land parcels to third-party developers for condominium, townhome, cluster home, single family home, lodge and mixed use developments; (iv) the zoning, planning and marketing of resort communities; (v) arranging for the construction of the necessary roads, utilities and resort infrastructure for new resort communities; and (vi) the purchase of selected strategic land parcels for future development.

VRDC’s current construction activities include the following major projects:

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One Ski Hill Place at Breckenridge -- This development consists of 88 ski-in/ski-out residences and certain amenities which include a slopeside skiers' plaza, a skier restaurant, après-ski bar, owner's ski lounge, parking garage, conference space and retail space, all of which are located at the base of Peak 8 and will connect to the Town of Breckenridge via the BreckConnect gondola.  This development will be branded a RockResorts property upon completion.

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The Ritz-Carlton Residences, Vail -- Located in the western part of Vail, this project consists of 71 whole ownership luxury residences and 45 Ritz-Carlton Club fractional ownership units.  This development will offer exclusive amenities, including a great room with bar, fitness facility and a heated parking garage with valet service.

Additionally, VRDC continues to plan for numerous projects at all five of its mountain resorts, including the Ever Vail project in Vail.

Employees

The Company, through certain operating subsidiaries, currently employs approximately 3,500 year-round employees and during the height of its operating season employs approximately 10,600 seasonal employees.  In addition, the Company manages approximately 700 year-round and 160 seasonal employees on behalf of the owners of the managed hotel properties.   None of the Company's employees are unionized.  The Company considers employee relations to be good.

Regulation and Legislation

Federal Regulation

The 1986 Ski Area Permit Act (the “1986 Act”) allows the USDA Forest Service (the “Forest Service”) to grant Term Special Use Permits (each, an “SUP”) for the operation of ski areas and construction of related facilities on National Forest lands.  In addition, the 1986 Act requires a Master Development Plan for each ski area that is granted an SUP.   Each of the Company’s five ski resorts operates under an SUP.

Each distinct area of National Forest lands is required by the National Forest Management Plan to develop and maintain a Land and Resource Management Plan (a “Forest Plan”), which establishes standards and guidelines for the Forest Service to follow and consider in reviewing and approving proposed actions by the Company.

Under the 1986 Act, the Forest Service has the right to review and approve the location, design and construction of improvements in the permit area and many operational matters.  Virtually all of the skiable terrain on Vail Mountain, Breckenridge, Heavenly and Keystone is located on Forest Service land.  While Beaver Creek also operates on Forest Service land, a significant portion of the skiable terrain, primarily in the lower main mountain, Western Hillside, Bachelor Gulch and Arrowhead Mountain areas, is located on Company-owned land.

Special Use Permits

Vail Mountain operates under an SUP for the use of 12,226 acres that expires October 31, 2031.  Breckenridge operates under an SUP for the use of 5,702 acres that expires December 31, 2029.  Keystone operates under an SUP for the use of 8,376 acres that expires December 31, 2032.  Beaver Creek operates under an SUP for the use of 3,849 acres that expires December 31, 2038.  Heavenly operates under an SUP for the use of 7,050 acres that expires May 1, 2042.

Each SUP contains a number of requirements, including that the Company indemnify the Forest Service from third-party claims arising out of its operation under the SUP and that it comply with applicable laws, such as those relating to water quality and endangered or threatened species.

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

The SUPs may be amended by the Company or by the Forest Service to change the permit area or permitted uses.  The Forest Service may amend an SUP if it determines that such amendment is in the public interest to do so.  While the Forest Service is required to seek the permit-holders consent to any amendment, an amendment can be finalized over permit-holder objections.  Permit amendments must be consistent with the Forest Plan and are subject to the provisions of the National Environmental Policy Act (“NEPA”), both of which are discussed below.

The Forest Service can also terminate a SUP if it determines that termination is required in the public interest.  However, to the Company's knowledge, no SUP has ever been terminated by the Forest Service over the opposition of the permitee.

Master Development Plans

All improvements that the Company proposes to make on National Forest lands under any of its SUPs must be included in a Master Development Plan.  Master Development Plans describe the existing and proposed facilities, developments and area of activity within the permit area.  Master Development Plans are prepared by the Company and set forth a conceptual overview of all potential projects at each resort.  The Master Development Plans are reviewed by the Forest Service for compliance with the Forest Plan and other applicable law and, if found to be compliant, are accepted by the Forest Service.  Notwithstanding acceptance by the Forest Service of the conceptual Master Development Plans, individual projects still require separate applications to be submitted evidencing compliance with NEPA and other applicable laws before the Forest Service will approve such projects.  The Company updates or amends its Master Development Plans for Vail Mountain, Beaver Creek, Keystone, Breckenridge and Heavenly from time to time.

White River National Forest Plan

Operational and development activities on National Forest System lands at the Company's four Colorado ski resorts are subject to the additional regulatory and planning requirements set forth in the April 2002 Record of Decision (“ROD”) for the White River National Forest Land and Resources Management Plan (the “White River Forest Plan”).

When approving Company applications for development, area expansion and other activities on National Forest lands in Colorado, the Forest Service must adhere to the White River Forest Plan and ROD.  Any such decision may be subject to judicial review in Federal court if a party, with standing, challenges a Forest Service decision that applies the ROD at one of the Company’s four Colorado ski resorts.

National Environmental Policy Act; California Environmental Quality Act

 
NEPA requires an assessment of the environmental impacts of “major” proposed actions of the Company on National Forest land, such as expansion of a ski area, installation of new lifts or snowmaking facilities, or construction of new trails or buildings.  The Company must comply with NEPA when seeking Forest Service approval of such improvements. The Forest Service is responsible for preparing and compiling the required environmental studies, usually through third-party consultants.  NEPA allows for different types of environmental studies, depending on the scope and size of the expected impact of the proposed project.  An Environmental Assessment (“EA”) is typically used for projects where the environmental impact is expected to be limited.  For projects with more significant expected impacts, an Environmental Impact Statement (“EIS”) is more commonly required.  An EIS is more detailed and broader in scope than an EA.  The Forest Service usually takes more time to compile, review and issue an EIS.  Consequently, projects that require an EIS typically take longer to approve.
 
 
During the requisite environmental study, the Forest Service is required to analyze alternatives to the proposed action (including not taking the proposed action) as well as impacts that may be unavoidable.  Following completion of the requisite environmental study, the Forest Service may decide not to approve the proposed action or may decide to approve an alternative.  In either case the Company may be forced to abandon or alter its development or expansion plans.
 
 
In limited cases, projects can be subject to a Categorical Exclusion, which allows approval by the Forest Service without preparation of an environmental study required by NEPA.  The Forest Service has a list of available Categorical Exclusions, which typically are only available for projects that are not expected to have an environmental impact, such as certain utilities installed in an existing, previously disturbed corridor.
 
Proposed actions at Heavenly may also be subject to the California Environmental Quality Act (“CEQA”), which is similar to NEPA in that it requires that the California governmental entity approving any proposed action on the California portion of Heavenly study potential environmental impacts.  Projects with significant expected impacts require an Environmental Impact Report while more limited projects may be approved based on a Mitigated Negative Declaration.

Breckenridge Regulatory Matters

The Company submitted an updated Master Development Plan for Breckenridge, which was accepted by the Forest Service in January 2008.  The Master Development Plan was updated to include, among other things, additional skiable area, snowmaking and lift improvements.

In January 2008, the Forest Service commenced public scoping of the Company’s proposal to develop a portion of Peak 6, which adjoins the Breckenridge Ski Area to the north.  Approval of the Peak 6 development requires the preparation of an EIS, in compliance with NEPA.  The initial round of public scoping has been completed and the Forest Service is preparing the EIS.  It is not possible at this time to determine whether the expansion will be approved as proposed.

Keystone Regulatory Matters

In November 2007, the Forest Service approved the extension and replacement of the River Run Gondola, as contemplated by the Keystone Ski Area Master Development Plan.  This approval did not require extensive review under NEPA as it qualified for a Categorical Exclusion.  The new gondola was installed during summer 2008 and was operational for the 2008/2009 ski season.

The Company has submitted an updated Keystone Ski Area Master Development Plan which includes, among other things, ski area expansion, construction of new lifts, trails and snowmaking systems, and construction or redevelopment of skier buildings and other facilities.  The Company anticipates acceptance of the updated Master Development Plan by the Forest Service prior to the beginning of the 2009/2010 ski season.

Vail Regulatory Matters

In September 2007, the updated Vail Master Development Plan was accepted by the Forest Service.  The Vail Master Development Plan includes, among other things, additional snowmaking on Vail Mountain, additional lifts, and a race facility expansion at Vail's Golden Peak.  In October 2007, the Company submitted to the Forest Service its first proposal under the updated Master Development Plan to install a new chair lift in Vail's Sundown Bowl and to upgrade the existing chair 5 to a high-speed, detachable quad chair lift.  NEPA requires that an EIS be prepared in connection with the approval of this proposal.  Due to proposed project changes, the Forest Service is preparing a supplement to the EIS, which the Company anticipates will be issued in September 2009, with the final EIS and approval of the projects anticipated by November 2009.

In March 2006, the Forest Service approved a proposal to construct a chairlift to service existing and potential future residential and commercial development in the proposed Ever Vail area.  However, since receiving approval, the Company has modified the plans for the chairlift and has requested approval from the Forest Service of the modified plans.  The Company anticipates approval by May 2010.

Beaver Creek Regulatory Matters

The Company is in the final stages of updating the Beaver Creek Master Development Plan to include, among other things, certain chairlift and snowmaking upgrades and adjustments to visitor capacity parameters in light of prior lift and trail upgrades contemplated in the Master Development Plan.  The Company intends to submit the updated Master Development Plan to the Forest Service in December 2009.

Heavenly Regulatory Matters

During summer 2007, an amendment to the Heavenly Master Plan (the “Master Plan Amendment”) to include new and upgraded trails, lifts, snowmaking, lodges and other facilities was accepted by the Forest Service and approved by the Tahoe Regional Planning Agency (“TRPA”) and the underlying units of local government with jurisdiction.  Portions of the Master Plan Amendment applying to the California side of the resort were subject to the approval of TRPA and El Dorado County, which required compliance with CEQA.  The Master Plan Amendment was approved by TRPA and El Dorado County after completion of a joint TRPA/Forest Service EIS/Environmental Impact Report to comply with both CEQA and NEPA.  Approval of the Master Plan Amendment included approval by the Forest Service and TRPA of the Phase I projects contemplated in the Master Plan Amendment.  The Company has begun planning for the implementation of the next phase of projects contemplated in the Master Plan Amendment, which will require compliance with NEPA, CEQA and TRPA regulations and other local laws.

The Company has been conducting ongoing monitoring of groundwater contamination levels using three existing monitoring wells and a seasonal, downstream seep as required by the State of California Regional Water Quality Control Board, Lahontan Region (“Lahontan”), and the El Dorado County Department of Environmental Management.  This requirement was imposed in response to an accidental release of waste oil at a vehicle maintenance shop in 1998 by the prior owner/operator of Heavenly.  All cleanup work has been completed in accordance with the approved work plan. The Company has filed its final monitoring report and closure request and is waiting for a decision from Lahontan.

In July 2003, Heavenly received updated waste discharge requirements ("WDRs") relating to storm runoff on the California portions of the resort.  WDRs are normally valid for ten years.  The approved WDRs will permit Heavenly to continue year round operations and to continue with implementation of the approved Master Plan Amendment.  The WDRs required the retrofit of certain existing facilities within California.  All of the required work has been completed.

GTLC Concession Contract

GTLC operates three lodging properties, food and beverage services, retail, camping and other services within the Grand Teton National Park under a concession contract with the NPS.  The Company’s concession contract with the NPS for GTLC expires on December 31, 2021.  Upon expiration of the concession contract, the Company will have to bid against other prospective concessionaires for award of a new contract.

The NPS may suspend operation under the concession contract at any time if the NPS determines it is necessary to protect visitors or resources within the National Park.  NPS also has the right to terminate the contract for breach, following notice and a 15 day cure period or if it believes termination is necessary to protect visitors or resources within the National Park.

The Company pays a fee to the NPS of 8.01% on the majority of sales occurring in the Grand Teton National Park.

Water

The Company relies on a supply of water for operation of its ski areas for domestic and snowmaking purposes and for real estate development.  Availability of water depends on existence of adequate water rights as well as physical delivery of the water when and where it is needed.

Snowmaking

To provide a level of predictability in dates of operation of its ski areas, the Company relies on snowmaking.  Snowmaking requires a significant volume of water, which is viewed as a non-consumptive use – approximately 80% of the water is returned to the watershed at spring runoff.

In Colorado, the Company owns or has ownership interest in water rights in reservoir companies, reservoirs, groundwater wells, and other sources.  The primary source of water for Keystone and Breckenridge is the Clinton Reservoir, in which the Company owns a non-controlling interest.  For Vail Mountain and Beaver Creek, the primary water source is Eagle Park Reservoir, in which the Company owns a controlling interest.  The Company believes that it has rights to sufficient quantities of water for the operation of the Company’s four Colorado resorts for the foreseeable future.

Delivery of the water to each resort is typically by stream, from which the water is diverted by the Company to on-site storage facilities or directly into the snowmaking system.  The streams that deliver the water are subject to minimum stream flows, freezing and other limitations that may prevent or reduce the amount of water physically available to the resort.

Unlike the Company’s other Colorado resorts, Keystone does not have on-site storage for snowmaking water and so is more vulnerable to interruptions in delivery of a physical supply of water.

Heavenly’s primary sources of water are the South Tahoe Public Utility District and Kingsbury General Improvement District, which are California and Nevada public utilities, respectively.  Heavenly has short term contracts with both utility companies and pays prevailing rates.  While the Company believes that both sources of water will be available long term, the Company has no contractual guaranty of service, delivery or future pricing.  Further, the delivery systems of each utility are limited and may not be able to provide the immediate physical supply of water needed for optimal snowmaking.

Available Information

The Company reports to the Securities and Exchange Commission (“SEC”) information, including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Act”) that are available free of charge on the Company's corporate website (www.vailresorts.com) as soon as reasonably practicable after the information is electronically filed with or furnished to the SEC.  In addition, the Company's Code of Ethics and Business Conduct is available on its website.  None of the content of the Company's corporate website is incorporated by reference herein.  Copies of any materials the Company files with the SEC can be obtained at www.sec.gov or at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  Information on the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330.

ITEM 1A.  RISK FACTORS.

The risks described below should carefully be considered together with the other information contained in this report.  The risks described below are not the only risks facing us.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially affect our business, financial condition and results of operations.

Risks Related to Our Business
 
We are subject to the risk of a prolonged economic downturn including continued adverse affects on the overall travel and leisure related industries.  The economic recession that has affected the U.S. and global economies, the tightened credit markets and eroded consumer confidence had a negative impact on overall trends in the travel and leisure industries and on our results of operations for Fiscal 2009.  As a result of the economic downturn we experienced, among other items: a decrease in overall visitation at our resorts, primarily as a result of decreased visitation from Destination guests; a significant decrease in overall guest spending on ancillary services including ski school, dining and retail/rental; and a change in booking trends such that guest reservations were made much closer to the actual date of stay.  We cannot predict at what level these negative trends will continue, worsen or improve and the ultimate impact it will have on our future results of operations. The actual or perceived fear of the extent of the recession could also lead to continued decreased spending by our guests.  Skiing, travel and tourism are discretionary recreational activities that can entail a relatively high cost of participation and is adversely affected by economic slowdown or recession. This could further be exacerbated by the fact that we charge some of the highest prices for our lift tickets and ancillary services in the ski industry.  In the event of a further decrease in visitation and overall guest spending we may be required to offer a higher amount of discounts and incentives than we have historically.

Leisure and business travel are particularly susceptible to various factors outside of our control, including terrorism, the uncertainty of military conflicts, outbreaks of contagious diseases and the cost and availability of travel options.  Our business is sensitive to the willingness of our guests to travel.  Acts of terrorism, the spread of contagious diseases, regional political events and developments in military conflicts in areas of the world from which we draw our guests could depress the public’s propensity to travel and cause severe disruptions in both domestic and international air travel and consumer discretionary spending, which could reduce the number of visitors to our resorts and have an adverse affect on our results of operations.  Many of our guests travel by air and the impact of higher prices for commercial airline services and availability of air services could cause a decrease in visitation by Destination guests to our resorts.  Also, many of our guests travel by vehicle and higher gasoline prices could adversely impact our guests’ willingness to travel to our resorts.  Higher cost of travel may also affect the amount that guests are willing to spend at our resorts and could negatively impact our revenue particularly for lodging, ski school, dining and retail/rental.

Our business is highly seasonal.  Our mountain and lodging operations are highly seasonal in nature.  In particular, revenue and profits from our mountain and most of our lodging operations are substantially lower and historically result in losses from late spring to late fall.  Conversely, peak operating seasons for GTLC, certain managed hotel properties and our golf courses occur during the summer months while the winter season generally results in operating losses.  Revenue and profits generated by GTLC's summer operations, management fees from certain managed properties, certain other lodging properties and golf operations are not nearly sufficient to fully offset our off-season losses from our mountain and other lodging operations.  For Fiscal 2009, 79% of total combined Mountain and Lodging segment net revenue was earned during our fiscal second and third quarters.  In addition, the timing of major holidays can impact vacation patterns and therefore visitation at our ski resorts. If we were to experience an adverse event or realized a significant deterioration in our operating results during our peak periods (our fiscal second and third quarters) we would be unable to fully recover any significant declines due to the seasonality of our business.   Operating results for any three-month period are not necessarily indicative of the results that may be achieved for any subsequent quarter or for a full fiscal year (see Note 16, Selected Quarterly Financial Data, of the Notes to Consolidated Financial Statements).

We are vulnerable to the risk of unfavorable weather conditions and the impact of natural disasters.  The ability to attract visitors to our resorts is influenced by weather conditions and by the amount and timing of snowfall during the ski season.  Unfavorable weather conditions can adversely affect skier visits and our revenue and profits.  Unseasonably warm weather may result in inadequate natural snowfall and reduce skiable terrain which increases the cost of snowmaking and could render snowmaking wholly or partially ineffective in maintaining quality skiing conditions, including in areas which are not accessible by snowmaking equipment.  In addition, a severe and prolonged drought could affect our otherwise adequate snowmaking water supplies or increase the cost of snowmaking.  Excessive natural snowfall may materially increase the costs incurred for grooming trails and may also make it difficult for visitors to obtain access to our mountain resorts.  In the past 20 years, our ski resorts have averaged between 20 and 30 feet of annual snowfall which is significantly in excess of the average for United States ski resorts.  However, there is no assurance that our resorts will receive seasonal snowfalls near the historical average in the future.  Also, the early season snow conditions and skier perceptions of early season snow conditions influence the momentum and success of the overall season.  Unfavorable weather conditions can adversely affect our resorts and lodging properties as vacationers tend to delay or postpone vacations if conditions differ from those that typically prevail at such resorts for a given season.  There is no way for us to predict future weather patterns or the impact that weather patterns may have on our results of operations or visitation.

A severe natural disaster, such as a forest fire, may interrupt our operations, damage our properties and reduce the number of guests who visit our resorts in affected areas.  Damage to our properties could take a long time to repair and there is no guarantee that we would have adequate insurance to cover the costs of repair.  Furthermore, such a disaster may interrupt or impede access to our affected properties or require evacuations and may cause visits to our affected properties to decrease for an indefinite period.  The ability to attract visitors to our resorts is also influenced by the aesthetics and natural beauty of the outdoor environment where our resorts are located.  A severe forest fire or other severe impacts from naturally occurring events could negatively impact the natural beauty of our resorts and have a long-term negative impact on our overall guest visitation as it would take several years for the environment to recover.

We face significant competition.  The ski resort and lodging industries are highly competitive.  The number of people who ski in the United States (as measured in skier visits) has generally ranged between 52 million and 61 million annually over the last decade, with approximately 57.4 million visits for the 2008/2009 ski season.  The factors that we believe are important to customers include:

·  
proximity to population centers;
 
·  
availability and cost of transportation to ski areas;
 
·  
ease of travel to ski areas (including direct flights by major airlines);
 
·  
pricing of lift tickets and/or season passes and the number, quality and price of related ancillary services (ski school, dining and retail/rental), amenities and lodging;
 
·  
snowmaking facilities;
 
·  
type and quality of skiing and snowboarding offered;
 
·  
duration of the ski season;
 
·  
weather conditions; and
 
·  
reputation.
 
We have many competitors for our ski vacationers, including other major resorts in Colorado, the Lake Tahoe area and other major destination ski areas worldwide.  Our guests can choose from any of these alternatives, as well as non-skiing vacation destinations around the world.  In addition, other forms of leisure such as sporting events and participation in other competing indoor and outdoor recreational activities are available to potential guests.

RockResorts hotels and our other hotels compete with numerous other hotel companies that may have greater financial resources than we do and they may be able to adapt more quickly to changes in customer requirements or devote greater resources to promotion of their offerings than us.  We believe that developing and maintaining a competitive advantage will require us to make continued capital investment in our resorts.  We cannot assure that we will have sufficient resources to make the necessary capital investments to do so, and we cannot assure that we will be able to compete successfully in this market or against such competitors.

The high fixed cost structure of ski resort operations can result in significantly lower margins if revenues decline. The cost structure of ski resort operations is primarily fixed, with variable expenses including, but not limited to, Forest Service fees, other resort related fees, credit card fees, retail/rental operations, ski school labor and dining operations.  Any material declines in the economy, elevated geopolitical uncertainties and/or significant changes in historical snowfall patterns, as well as other risk factors discussed herein could adversely affect revenue.  As such, our margins, profits and cash flows may be materially reduced due to declines in revenue given our high fixed cost structure.  In addition, increases in wages and other labor costs, energy, healthcare, insurance, transportation and fuel, and other expenses included in our fixed cost structure may also reduce our margin, profits and cash flows.

Our future real estate development projects might not be successful.  We have significant development plans for our properties and/or operations.  We could experience significant difficulties in initiating or completing these projects, due to among other things:

·  
sustained deterioration in real estate markets;
 
·  
escalation in construction costs due to price increases in commodities, unforeseen conditions, inadequate design or drawings, or other causes;
 
·  
difficulty in selling units or the ability of buyers to obtain necessary funds to close on units;
 
·  
work stoppages;
 
·  
weather interferences;
 
·  
shortages in obtaining materials;
 
·  
difficulty in financing real estate development projects;
 
·  
difficulty in receiving the necessary regulatory approvals;
 
·  
difficulty in obtaining qualified contractors or subcontractors; and
 
·  
unanticipated incremental remediation costs related to design and construction issues.
 
Our real estate development projects are designed to make our resorts attractive to our guests and to maintain competitiveness.  If these projects are not successful, in addition to not realizing intended profits from the real estate developments, our guests may choose to go to other resorts that they perceive have better amenities and our results of operations could be materially adversely affected.

There are significant risks associated with our current real estate projects under development, which could adversely affect our financial condition, results of operations or anticipated cash flows from these projects.  We currently have two real estate projects under development, One Ski Hill Place in Breckenridge and The Ritz-Carlton Residences, Vail.  We have increased risk associated with selling and closing units for these projects as a result of the instability in the capital and credit markets and a slowdown in the overall real estate market.  For instance, we may have difficulty selling units due to a reduction in demand or oversupply and, as a result we may not be able to sell such properties for a profit or at the prices or selling pace we anticipate.  Furthermore, given the current economic climate, certain buyers may be unable to close on their units due to a reduction in funds available to buyers and/or decreases in mortgage availability, or certain buyers who have entered into purchase and sales contracts with us may attempt to challenge the legality of the contracts in an effort to invalidate their purchase commitment and obtain a refund of their deposit.  We are currently self funding the development for these two projects and estimate to incur between $190 million and $210 million in cash expenditures subsequent to July 31, 2009 to complete these projects which will cause a decline in future cash being generated from operating activities, potentially requiring us to borrow under the revolver component of our senior credit facility (the “Credit Facility”) from time to time, which  would increase our leverage until we close and receive proceeds from the sale of units from these projects.  As such, due to the overall macro-economic environment, the ensuing deterioration in real estate markets and the tightening of credit markets, among other factors, there is no assurance that units will be sold and/or closed upon completion of these projects which could increase our leverage, including related interest costs, for a prolonged period of time which could have an adverse effect on our results of operations.

We may not be able to fund resort capital expenditures and investment in real estate.   In addition to the self funding of real estate under development, we currently anticipate resort capital expenditures (primarily related to the Mountain and Lodging segments) will be approximately $50 million to $60 million for calendar year 2009.  Our ability to fund these investments will depend on our ability to generate sufficient cash flow from operations, obtain pre-sale deposits and/or to borrow from third parties.  We cannot provide assurances that our operations will be able to generate sufficient cash flow to fund such development costs, or that we will be able to obtain sufficient financing on adequate terms, or at all.  Our ability to generate cash flow and to obtain third-party financing will depend upon many factors, including:

·  
our future operating performance;
 
·  
general economic conditions and economic conditions affecting the resort industry, the ski industry and the general capital markets;
 
·  
our ability to meet our pre-sell targets on our vertical real estate development projects;
 
·  
competition; and
 
·  
legislative and regulatory matters affecting our operations and business.
 
We could finance future expenditures from any combination of the following sources:

·  
cash flow from operations;
 
·  
construction financing, including non-recourse or other financing;
 
·  
bank borrowings;
 
·  
public offerings of debt or equity; and
 
·  
private placements of debt or equity.
 
Any inability to generate sufficient cash flows from operations or to obtain adequate third-party financing could cause us to delay or abandon certain development projects and/or plans.

We rely on government permits.  Our resort operations require permits and approvals from certain Federal, state, and local authorities, including the Forest Service and U.S. Army Corps of Engineers.  Virtually all of our ski trails and related activities at Vail Mountain, Breckenridge, Keystone and Heavenly and a majority of Beaver Creek are located on Federal land.  The Forest Service has granted us permits to use these lands, but maintains the right to review and approve many operational matters, as well as the location, design and construction of improvements in these areas.  Currently, our permits expire December 31, 2029 for Breckenridge, October 31, 2031 for Vail Mountain, December 31, 2032 for Keystone, December 31, 2038 for Beaver Creek and May 1, 2042 for Heavenly. The Forest Service can terminate or amend these permits if, in its opinion, such termination is required in the public interest.  A termination or amendment of any of our permits could have a materially adverse affect on our business and operations.

In order to undertake improvements and new development, we must apply for permits and other approvals.  These efforts, if unsuccessful, could impact our expansion efforts.  Furthermore, Congress may materially increase the fees we pay to the Forest Service for use of these Federal lands.

We are subject to extensive environmental laws and regulations in the ordinary course of business.  Our operations are subject to a variety of Federal, state and local environmental laws and regulations including those relating to emissions to the air, discharges to water, storage, treatment and disposal of wastes, land use, remediation of contaminated sites and protection of natural resources such as wetlands. For example, future expansions of certain of our ski facilities must comply with applicable forest plans approved under the National Forest Management Act or local zoning requirements.  In addition, most projects to improve, upgrade or expand our ski areas are subject to environmental review under the NEPA and, for California projects at Heavenly, the CEQA. Both acts require that the Forest Service study any proposal for potential environmental impacts and include in its analysis various alternatives.  Our ski area improvement proposals may not be approved or may be approved with modifications that substantially increase the cost or decrease the desirability of implementing the project.  Our facilities are subject to risks associated with mold and other indoor building contaminants.  From time to time our operations are subject to inspections by environmental regulators or other regulatory agencies. We are also subject to worker health and safety requirements.  We believe our operations are in substantial compliance with applicable material environmental, health and safety requirements. However, our efforts to comply do not eliminate the risk that we may be held liable, incur fines or be subject to claims for damages, and that the amount of any liability, fines, damages or remediation costs may be material for, among other things, the presence or release of regulated materials at, on or emanating from properties we now or formerly owned or operated, newly discovered environmental impacts or contamination at or from any of our properties, or changes in environmental laws and regulations or their enforcement.

Failure to maintain the integrity of guest data could result in damages of reputation and/or subject us to costs, fines or lawsuits.  We collect personally identifiable information relating to our guests for various business purposes, including marketing and promotional purposes.  The integrity and privacy of our guest’s information is important to us and our guests have a high expectation that we will adequately protect their personal information.  The regulatory environment governing privacy laws is increasingly demanding and privacy laws continue to evolve and on occasion may be inconsistent from one jurisdiction to another.  Maintaining compliance with applicable privacy regulations may increase our operating costs and/or adversely impact our ability to market our products, properties and services to our guests.  Furthermore, non-compliance with applicable privacy regulations by us (or in some circumstances non-compliance by third parties engaged by us), breach of security on systems storing our guest data, a loss of guest data or fraudulent use of guest data could adversely impact our reputation or result in fines or other damages and litigation.

We are subject to litigation in the ordinary course of business.  We are, from time to time, subject to various asserted or unasserted legal proceedings and claims.  Any such claims, regardless of merit, could be time-consuming and expensive to defend and could divert management’s attention and resources.  While we believe we have adequate insurance coverage and/or accrue for loss contingencies for all known matters that are probable and can be reasonably estimated, we cannot assure that the outcome of all current or future litigation will not have a material adverse effect on us and our results of operations.  For a more detailed discussion of our legal proceedings see Legal Proceedings under Item 3 and Note 14, Commitments and Contingencies, of the Notes to Consolidated Financial Statements.

Any failure to protect our trademarks could have a negative impact on the value of our brand names and adversely affect our business.  Our trademarks are an important component of our business and the continued success of our business depends in part upon our continued ability to use our trademarks to increase brand awareness and further develop our brand in both domestic and international markets. The unauthorized use of our trademarks could diminish the value of our brand and its market acceptance, competitive advantages or goodwill, which could adversely affect our business.  Litigation has been and may continue to be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others.  Additionally, negative public image or other adverse events which become associated with one of our brands could adversely affect our revenue and profitability.

We depend on a seasonal workforce.  Our mountain and lodging operations are highly dependent on a large seasonal workforce.  We recruit year-round to fill thousands of seasonal staffing needs each season and work to manage seasonal wages and the timing of the hiring process to ensure the appropriate workforce is in place.  We cannot guarantee that material increases in the cost of securing our seasonal workforce will not be necessary in the future.  Furthermore, we cannot guarantee that we will be able to recruit and hire adequate seasonal personnel as the business requires.  Increased seasonal wages or an inadequate workforce could have an adverse impact on our results of operations.

If we do not retain our key personnel, our business may suffer.  The success of our business is heavily dependent on the leadership of key management personnel, including our Chief Executive Officer, Chief Financial Officer, Co- Presidents of our Mountain Division, President of VRDC, General Counsel and each of our Senior Vice Presidents.  If any of these persons were to leave, it could be difficult to replace them, and our business could be harmed.  We do not maintain “key-man” life insurance on any of our employees.

Our future acquisitions might not be successful.  Historically, we have acquired certain ski resorts, other destination resorts, hotel properties and businesses complementary to our own, as well as developable land in proximity to our resorts.  We cannot make assurances that we will be able to successfully integrate and manage acquired properties and businesses and increase our profits from these operations.  We continually evaluate potential acquisitions and intend to actively pursue acquisition opportunities, some of which could be significant.  We could face various risks from additional acquisitions, including:

·  
inability to integrate acquired businesses into our operations;
 
·  
diversion of our management’s attention;
 
·  
potential increased debt leverage;
 
·  
litigation arising from acquisition activity; and
 
·  
unanticipated problems or liabilities.
 
In addition, we run the risk that any new acquisitions may fail to perform in accordance with expectations, and that estimates of the costs of improvements for such properties may prove inaccurate.

We may be required to write-off a portion of our goodwill and/or indefinite lived intangible asset balances as a result of a more prolonged and severe economic recession.  Under accounting principles generally accepted in the United States of America (“GAAP”), we are required to test goodwill 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 goodwill or indefinite lived intangible assets below book value.  We evaluate the recoverability of 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 (see Critical Accounting Policies in Item 7 of this Form 10-K).  If a more severe prolonged economic downturn were to occur it could cause less than expected growth and/or reduction in terminal values of our reporting units and could result in a goodwill and/or indefinite lived intangible asset impairment charge attributable to certain goodwill and/or indefinite lived intangible assets, negatively impacting our results of operations and stockholders’ equity.

We are subject to accounting regulations and use certain accounting estimates and judgments that may differ significantly from actual results.  Implementation of existing and future legislation, rulings, standards and interpretations from the FASB or other regulatory bodies could affect the presentation of our financial statements and related disclosures.  Future regulatory requirements could significantly change our current accounting practices and disclosures.  Such changes in the presentation of our financial statements and related disclosures could change an investor’s interpretation or perception of our financial position and results of operations.

We use many methods, estimates and judgments in applying our accounting policies (see Critical Accounting Policies in Item 7 of this Form 10-K).  Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead us to change our methods, estimates and judgments. Changes in those methods, estimates and judgments could significantly affect our results of operations.

Risks Relating to Our Capital Structure
 
Our stock price is highly volatile.  The market price of our stock is highly volatile and subject to wide fluctuations in response to factors such as the following, some of which are beyond our control:

·  
quarterly variations in our operating results;
 
·  
operating results that vary from the expectations of securities analysts and investors;
 
·  
change in valuations, including our future real estate developments;
 
·  
changes in the overall travel, gaming, hospitality and leisure industries;
 
·  
changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors or such guidance provided by us;
 
·  
announcements by us or companies in the travel, gaming, hospitality and leisure industries of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures, capital commitments, plans, prospects, service offerings or operating results;
 
·  
additions or departures of key personnel;
 
·  
future sales of our securities;
 
·  
trading and volume fluctuations;
 
·  
other risk factors as discussed above; and
 
·  
other unforeseen events.
 
Stock markets in the United States have and often experience extreme price and volume fluctuations.  Market fluctuations, as well as general political and economic conditions such as acts of terrorism, a recession or interest rate or currency rate fluctuations, could adversely affect the market price of our stock.

We have not historically paid cash dividends to our common stockholders.  We have not declared or paid any cash dividends on our common shares since becoming publicly traded in 1997.  Payment of any future dividends on our common stock will depend upon our earnings and capital requirements, the terms of our debt instruments and other factors the Board of Directors considers appropriate.

Anti-takeover provisions affecting us could prevent or delay a change of control that is beneficial to our shareholders.  Provisions of our certificate of incorporation and bylaws, provisions of our debt instruments and other agreements and provisions of applicable Delaware law and applicable Federal and state regulations may discourage, delay or prevent a merger or other change of control that holders of our securities may consider favorable.  These provisions could:

·  
delay, defer or prevent a change in control of the Company;
 
·  
discourage bids for our securities at a premium over the market price;
 
·  
adversely affect the market price of, and the voting and other rights of the holders of our securities; or
 
·  
impede the ability of the holders of our securities to change our management.
 
Our indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations.  Our level of indebtedness could have important consequences even though principal payments on the vast majority of our long-term debt are not due until fiscal 2014 and beyond.  For example, it could:

·  
make it more difficult for us to satisfy our obligations;
 
·  
increase our vulnerability to general adverse economic and industry conditions;
 
·  
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, real estate developments, marketing efforts and other general corporate purposes;
 
·  
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
 
·  
place us at a competitive disadvantage compared to our competitors that have less debt; and
 
·  
limit our ability to borrow additional funds.
 
We may be able to incur substantial additional indebtedness in the future.  The terms of our Indenture
(as defined below) do not fully prohibit us from doing so.  Our Credit Facility permits additional borrowings of up to $304.7 million as of July 31, 2009.  If new debt is added to our current debt levels, the related risks that we face could intensify.

There are restrictions imposed by the terms of our indebtedness.  The operating and financial restrictions and covenants in our Credit Facility and the Indenture, dated as of January 29, 2004 among us, the guarantors therein and the Bank of New York Mellon Trust Company, N.A., as Trustee (“Indenture”), governing the 6.75% Senior Subordinated Notes due 2014 (“6.75% Notes”) may adversely affect our ability to finance future operations or capital needs or to engage in other business activities that may be in our long-term best interests.  For example, the Indenture and the Credit Facility contain a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

·  
incur additional debt;
 
·  
pay dividends, repurchase our stock and make other restricted payments;
 
·  
create liens;
 
·  
make investments;
 
·  
engage in sales of assets and subsidiary stock;
 
·  
enter into sale-leaseback transactions;
 
·  
enter into transactions with affiliates;
 
·  
transfer all or substantially all of our assets or enter into merger or consolidation transactions; and
 
·  
make capital expenditures.
 
In addition, there can be no assurance that we will meet the financial covenants contained in our Credit Facility.  If we breach any of these restrictions or covenants, or suffer a material adverse change which restricts our borrowing ability under our Credit Facility, we would not be able to borrow funds thereunder without a waiver, which inability could have an adverse effect on our business, financial condition and results of operations.  In addition, a breach, if uncured, could cause a default under the 6.75% Notes and our other debt.  Our indebtedness may then become immediately due and payable.  We may not have or be able to obtain sufficient funds to make these accelerated payments, including payments on the 6.75% Notes.

Our Credit Facility is scheduled to mature in 2012 and our 6.75% Notes are due in 2014.  Recent events in the financial markets have had an adverse impact on the credit markets and, as a result, credit has become significantly more expensive and difficult to obtain, if available at all.  We currently have no borrowings under our Credit Facility, which is scheduled to mature in 2012; however, a sustained economic recession and its potential impact on our cash flows from operating activities, combined with our plan to self-fund our current real estate under development could require us to borrow significant funds under the revolver component of our Credit Facility. In addition to our Credit Facility, we have outstanding $390.0 million of 6.75% Notes due in 2014.  The credit markets are volatile and may pose challenges and have an adverse effect on our ability to re-finance or obtain new financing on terms that are acceptable to us.  There is no assurance that we will be able to obtain new financing or financing on acceptable terms.


ITEM 1B.  UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.  PROPERTIES.

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

Location
 
Ownership
 
Use
Arrowhead Mountain, CO 
 
Owned
 
Ski resort operations, including ski lifts, ski trails, buildings and other improvements, commercial space and real estate held for sale or development
BC Housing Riveredge, CO
 
26% Owned
 
Employee housing facilities
Bachelor Gulch Village, CO  
 
Owned
 
Ski resort operations, including ski lifts, ski trails, buildings and other improvements and commercial space
Beaver Creek Resort, CO 
 
Owned
 
Ski resort operations, including ski lifts, ski trails, buildings and other improvements, commercial space and real estate held for sale or development
Beaver Creek Mountain, CO (3,849 acres)
 
Special Use Permit
 
Ski trails, ski lifts, buildings and other improvements
Beaver Creek Mountain Resort, CO 
 
Owned
 
Golf course, clubhouse, commercial space  and residential spaces
Breckenridge Ski Resort, CO
 
Owned
 
Ski resort operations, including ski lifts, ski trails, buildings and other improvements, commercial space and real estate held for sale or development
Breckenridge Mountain, CO (5,702 acres)
 
Special Use Permit
 
Ski trails, ski lifts, buildings and other improvements
Breckenridge Mountain Lodge
 
Owned
 
Lodging
Breckenridge Terrace, CO
 
50% Owned
 
Employee housing facilities
Broomfield, CO
 
Leased
 
Corporate offices
Colter Bay Village, WY
 
Concessionaire contract
 
Lodging and dining facilities
Eagle-Vail, CO
 
Owned
 
Warehouse facility
Edwards, CO
 
Leased
 
Administrative offices
Great Divide Lodge, CO
 
Owned
 
Lodging, dining and conference facilities
Heavenly Mountain Resort, CA & NV
 
Owned
 
Ski resort operations, including ski lifts, ski trails, buildings and other improvements and commercial space
Heavenly Mountain Resort, CA & NV (7,050 acres)
 
Special Use Permit
 
Ski trails, ski lifts, buildings and other improvements
Inn at Keystone, CO
 
Owned
 
Lodging, dining and conference facilities
Jackson Hole Golf & Tennis Club, WY
 
Owned
 
Golf course, clubhouse, tennis facilities, dining and real estate held for sale or development
Jackson Lake Lodge, WY
 
Concessionaire contract
 
Lodging, dining and conference facilities
Jenny Lake Lodge, WY
 
Concessionaire contract
 
Lodging and dining facilities
Keystone Conference Center, CO
 
Owned
 
Conference facility
Keystone Lodge, CO
 
Owned
 
Lodging, spa, dining and conference facilities
Keystone Resort, CO
 
Owned
 
Ski resort operations, including ski lifts, ski trails, buildings and other improvements, commercial space, dining and real estate held for sale or development
Keystone Mountain, CO (8,376 acres)
 
Special Use Permit
 
Ski trails, ski lifts, buildings and other improvements
Keystone Ranch, CO
 
Owned
 
Golf course, clubhouse and dining facilities
Red Sky Ranch, CO
 
Owned
 
Golf courses, clubhouses, dining facilities and real estate held for sale or development
River Course at Keystone, CO
 
Owned
 
Golf course and clubhouse
Seasons at Avon, CO
 
Leased/50% Owned
 
Administrative offices
Ski Tip Lodge, CO
 
Owned
 
Lodging and dining facilities
The Arrabelle at Vail Square, CO
 
Owned
 
Lodging, spa, dining and conference facilities
The Lodge at Vail, CO
 
Owned
 
Lodging, spa, dining and conference facilities
The Osprey at Beaver Creek, CO
 
Owned
 
Lodging, dining and conference facilities
The Tarnes at Beaver Creek, CO
 
31% Owned
 
Employee housing facilities
Tenderfoot Housing, CO
 
50% Owned
 
Employee housing facilities
The Pines Lodge at Beaver Creek, CO
 
Owned
 
Lodging, dining and conference facilities
Vail Mountain, CO 
 
Owned
 
Ski resort operations, including ski lifts, ski trails, buildings and other improvements, commercial space and real estate held for sale or development
Vail Mountain, CO (12,226 acres)
 
 Special Use Permit
 
Ski trails, ski lifts, buildings and other improvements
Village at Breckenridge, CO
 
Owned
 
Lodging, dining, conference facilities and commercial space
SSV Properties
 
69.3% Owned
 
Over 150 retail stores (of which 71 stores are currently held under lease) for recreational products including rental

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

ITEM 3.  LEGAL PROCEEDINGS.

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

The Canyons Ski Resort Litigation

During the fourth quarter of the year ended July 31, 2007 (“Fiscal 2007”), the Company entered into an agreement with Peninsula Advisors, LLC (“Peninsula”) for the negotiation and mutual acquisition of The Canyons and the land underlying The Canyons.  On July 15, 2007, American Skiing Company (“ASC”) entered into an agreement to sell The Canyons to Talisker Corporation and Talisker Canyons Finance Company, LLC (together “Talisker”).  On July 27, 2007, the Company filed a complaint in the District Court in Colorado against Peninsula and Talisker claiming, among other things, breach of contract by Peninsula and intentional interference with contractual relations and prospective business relations by Talisker and seeking damages, specific performance and injunctive relief.  On October 19, 2007, the Company’s request for a preliminary injunction to prevent the closing of the acquisition by Talisker of The Canyons from ASC was denied.  On November 8, 2007, Talisker filed an answer to the Company’s complaint along with three counterclaims.  On November 12, 2007, Peninsula filed a motion to dismiss and for partial summary judgment, which was heard on March 21, 2009 and denied.  The matter has been set for trial commencing July 19, 2010.  The Company is unable to predict the ultimate outcome of the above described actions.


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

None.
PART II

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

The Company's common stock is traded on the New York Stock Exchange under the symbol “MTN”.  As of September 18, 2009, 36,174,979 shares of common stock were outstanding, held by approximately 392 holders of record.

The declaration of cash dividends in the future will depend on the Company's earnings, financial condition, capital needs, restrictions under debt instruments and on other factors deemed relevant by the Board of Directors at that time.  It is the current policy of the Company's Board of Directors to retain earnings to finance the operations and expansion of the Company's business.

The following table sets forth, for Fiscal 2009 and the year ended July 31, 2008 (“Fiscal 2008”), and quarters indicated (ended October 31, January 31, April 30, and July 31) the range of high and low per share sales prices of the Company’s common stock as reported on the New York Stock Exchange Composite Tape.

   
Vail Resorts
   
Common Stock
   
High
 
Low
Year Ended July 31, 2009
           
1st Quarter
 
$
52.00
 
$
21.67
2nd Quarter
   
33.43
   
14.79
3rd Quarter
   
30.42
   
14.76
4th Quarter
   
31.10
   
23.71
             
Year Ended July 31, 2008
           
1st Quarter
 
$
66.25
 
$
48.41
2nd Quarter
   
60.15
   
40.94
3rd Quarter
   
51.65
   
39.32
4th Quarter
   
51.38
   
30.03

Repurchase of Equity Securities

The following table summarizes the purchase of the Company’s equity securities during the fourth quarter of Fiscal 2009:

 
Period
 
 
Total Number of Shares Purchased
   
 
Average Price Paid per Share
   
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
   
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
 
May 1, 2009 – May 31, 2009
 
--
 
 $
--
   
--
   
2,399,765
 
June 1, 2009 – June 30, 2009
 
278,300
   
26.93
   
278,300
   
2,121,465
 
July 1, 2009 – July 31, 2009
 
--
   
--
   
--
   
2,121,465
 
Total
 
278,300
 
 $
26.93
   
278,300
       

(1)  
On March 9, 2006, the Company’s Board of Directors approved the repurchase of up to 3,000,000 shares of common stock and on July 16, 2008 approved an increase of the Company’s common stock repurchase authorization by an additional 3,000,000 shares.  Acquisitions under the share repurchase program may be made from time to time at prevailing prices as permitted by applicable laws, and subject to market conditions and other factors.  The stock repurchase program may be discontinued at any time.

Performance Graph



The total return graph is presented for the period from the end of the Company’s 2004 fiscal year through the end of Fiscal 2009.  The comparison assumes that $100 was invested at the beginning of the period in the common stock of the Company (“MTN”), The Russell 2000, The Standard & Poor’s 500 Stock Index and the Dow Jones U.S. Travel and Leisure Stock Index.  The Company included the Dow Jones U.S. Travel and Leisure Index as the Company believes it competes in the travel and leisure industry.

The performance graph is not deemed filed with the SEC and is not to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933 or the Exchange Act of 1934, unless it specifically incorporates the performance graph by reference therein.

ITEM 6.  SELECTED FINANCIAL DATA.

The following table presents selected historical consolidated financial data of the Company derived from the Company's Consolidated Financial Statements for the periods indicated.  The financial data for Fiscal 2009, Fiscal 2008 and Fiscal 2007 and as of July 31, 2009 and 2008 should be read in conjunction with the Consolidated Financial Statements, related notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere in this Form 10-K.  The table presented below is unaudited.  The data presented below are in thousands, except for diluted net income per share, effective ticket price (“ETP”), ADR and RevPAR amounts.

   
Year Ended July 31,
   
2009(1)
 
2008(1)
 
2007(1)
2006(1)
 
2005 (1)
Statement of Operations Data:
                                     
Revenue:
                                     
Mountain
 
$
614,597
   
$
685,533
   
$
665,377
 
$
620,441
   
$
540,855
 
Lodging
   
176,241
     
170,057
     
162,451
   
155,807
     
196,351
 
Real estate
   
186,150
     
296,566
     
112,708
   
62,604
     
72,781
 
Total net revenue
   
976,988
     
1,152,156
     
940,536
   
838,852
     
809,987
 
Segment operating expense:
                                     
Mountain
   
451,025
     
470,362
     
462,708
   
443,116
     
391,889
 
Lodging
   
169,482
     
159,832
     
144,252
   
142,693
     
177,469
 
Real estate
   
142,070
     
251,338
     
115,190
   
56,676
     
58,254
 
Total segment operating expense
   
762,577
     
881,532
     
722,150
   
642,485
     
627,612
 
Depreciation and amortization
   
(107,213
)
   
(93,794
)
   
(87,664
)
 
(86,098
)
   
(89,968
)
Gain on sale of real property
   
--
     
709
     
--
   
--
     
--
 
Mountain equity investment income, net
   
817
     
5,390
     
5,059
   
3,876
     
2,303
 
Lodging equity investment loss, net
   
--
     
--
     
--
   
--
     
(2,679
)
Real estate equity investment income, net
   
--
     
--
     
--
   
791
     
(102
)
Investment income, net
   
1,793
     
8,285
     
12,403
   
7,995
     
2,066
 
Interest expense, net
   
(27,548
)
   
(30,667
)
   
(32,625
)
 
(36,478
)
   
(40,298
)
Contract dispute credit (charges), net
   
--
     
11,920
     
(4,642
)
 
(3,282
)
   
--
 
Income before provision for income taxes
   
79,594
     
166,013
     
100,651
   
75,010
     
37,623
 
Net income
 
$
48,950
   
$
102,927
   
$
61,397
 
$
45,756
   
$
23,138
 
Diluted net income per share
 
$
1.33
   
$
2.64
   
$
1.56
 
$
1.19
   
$
0.64
 
                                       
Other Data:
                                     
Mountain
                                     
Skier visits(2)
   
5,864
     
6,195
     
6,219
   
6,288
     
5,940
 
ETP (3)
 
$
47.16
   
$
48.74
   
$
46.15
 
$
41.83
   
$
39.30
 
Lodging
                                     
ADR(4)
 
$
225.12
   
$
230.17
   
$
216.83
 
$
202.27
   
$
196.26
 
RevPAR(5)
 
$
93.10
   
$
106.43
   
$
99.58
 
$
92.41
   
$
90.98
 
Real Estate
                                     
Real estate held for sale and investment(6)
 
$
311,485
   
$
249,305
   
$
357,586
 
$
259,384
   
$
154,874
 
Other Balance Sheet Data
                                     
Cash and cash equivalents(7)
 
$
69,298
   
$
162,345
   
$
230,819
 
$
191,794
   
$
136,580
 
Total assets
 
$
1,884,480
   
$
1,925,954
   
$
1,909,123
 
$
1,687,643
   
$
1,525,921
 
Long-term debt (including long-term debt due within one year)
 
$
491,960
   
$
556,705
   
$
594,110
 
$
531,228
   
$
521,710
 
Net debt(8)
 
$
422,662
   
$
394,360
   
$
363,291
 
$
339,434
   
$
385,130
 
Stockholders' equity
 
$
765,295
   
$
728,756
   
$
714,039
 
$
642,777
   
$
540,529
 
 
(footnotes to selected financial data appear on following page)
 
Footnotes to Selected Financial Data:
 
(1)
The Company has made several acquisitions and dispositions which impact comparability between years during the past five years.  The more significant of those include the acquisitions of: Colorado Mountain Express (“CME”) (acquired in November 2008), 18 retail/rental locations (acquired by SSV in June 2007), two licensed Starbucks stores (acquired in June 2007) and six retail locations (acquired by SSV in August 2006).  Additionally, the Company sold its majority interest in RTP, LLC (“RTP”) (sold in April 2007), Snake River Lodge & Spa (“SRL&S”) (sold in January 2006), The Lodge at Rancho Mirage (“Rancho Mirage”) (sold in July 2005), Vail Marriott (sold in June 2005) and its minority interest in Ritz-Carlton, Bachelor Gulch (“BG Resort”) (sold in December 2004). Effective August 1, 2005, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS 123R”).  See Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for the impact to the Consolidated Statements of Operations as a result of the adoption of SFAS 123R.
(2)
A skier visit represents a person utilizing a ticket or pass to access a mountain resort for any part of one day, and includes both paid and complimentary access.
(3)
ETP is calculated by dividing lift ticket revenue by total skier visits during the respective periods.
(4)
ADR is calculated by dividing total room revenue (includes both owned and managed condominium room revenue) by the number of occupied rooms during the respective periods.
(5)
RevPAR is calculated by dividing total room revenue (includes both owned and managed condominium room revenue) by the number of rooms that are available to guests during the respective periods.
(6)
Real estate held for sale and investment includes all land, development costs and other improvements associated with real estate held for sale and investment, as well as investments in real estate joint ventures.
(7)
Cash and cash equivalents excludes restricted cash.
(8)
Net debt is defined as long-term debt plus long-term debt due within one year less cash and cash equivalents.

 
 
 

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company should be read in conjunction with the Consolidated Financial Statements and notes related thereto included in this Form 10-K.  To the extent that the following Management's Discussion and Analysis contains statements which are not of a historical nature, such statements are forward-looking statements which involve risks and uncertainties.  These risks include, but are not limited to, those discussed in Item 1A, “Risk Factors” in this Form 10-K.  The following discussion and analysis should be read in conjunction with the Forward-Looking Statements and Item 1A, “Risk Factors” each included in this Form 10-K.

Management’s Discussion and Analysis includes discussion of financial performance within each of the Company’s segments.  The Company has chosen to specifically include Reported EBITDA (defined as segment net revenue less segment operating expense, plus or minus segment equity investment income or loss 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 management considers these measurements to be significant indications of the Company’s financial performance and available capital resources.  Reported EBITDA and Net Debt are not measures of financial performance or liquidity under GAAP.  The Company utilizes Reported EBITDA in evaluating performance of the Company and in allocating resources to its segments.   Refer to the end of the Results of Operations section for a reconciliation of Reported EBITDA to net income.  Management also believes that Net Debt is an important measurement as it is an indicator of the Company’s ability to obtain additional capital resources for its future cash needs.  Refer to the end of the Results of Operations section for a reconciliation of Net 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 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 thus susceptible to varying calculations, Reported EBITDA and Net Debt as presented may not be comparable to other similarly titled measures of other companies.

Overview

The Company's operations are grouped into three integrated and interdependent segments: Mountain, Lodging and Real Estate.  Resort is the combination of the Mountain and Lodging segments.  Revenue from the Mountain, Lodging and Real Estate segments represented 63%, 18% and 19%, respectively, of the Company’s net revenue for Fiscal 2009.

Mountain Segment

The Mountain segment is comprised of the operations of five ski resort properties as well as ancillary businesses, primarily including ski school, dining and retail/rental operations.  The Company's five ski resorts were open for business for the 2008/2009 ski season from mid-November through mid-April, which is the peak operating season for the Mountain segment.  The Company’s single largest source of Mountain segment revenue is the sale of lift tickets (including season passes), which represented approximately 45%, 44% and 43% of Mountain segment net revenue for Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively.

Lift ticket 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 is divided into two primary categories:  (i) Destination guests and (ii) In-State guests.  For the 2008/2009 ski season, Destination guests comprised approximately 57% of the Company's skier visits, while In-State guests comprised approximately 43% of the Company's skier visits, which compares to approximately 63% and 37%, respectively, for the 2007/2008 ski season and 64% and 36%, respectively, for the 2006/2007 ski season.

Destination guests generally purchase the Company's 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 the Company’s resorts.  Destination guest visitation is less likely to be impacted by changes in the weather due to the advance planning generally required for vacation trips, but can be more impacted by adverse economic conditions or the global geopolitical climate.  In-State guests tend to be more value-oriented and weather sensitive.  Prior to the 2008/2009 ski season, the Company primarily marketed season passes to In-State guests in an effort to offer a value option in turn for a commitment predominately prior to the beginning of the ski season by In-State guests to ski at the Company’s resorts.  This in turn has developed a loyal customer base that generally skis multiple days each season at the Company’s resorts and provides a more stabilized stream of lift revenue to the Company.  Given the success of In-State pass products, the Company introduced a new season pass product (the “Epic Season Pass”) for the 2008/2009 ski season, marketed to its Destination guests (and also marketed to In-State guests) allowing pass holders unlimited and unrestricted access to all five of its ski resorts during the entire ski season.  All of the Company’s season pass products, including the Epic Season Pass, are sold predominately 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 the 2008/2009, 2007/2008 and 2006/2007 ski season approximately 34%, 26% and 25%, respectively, of total lift revenue recognized was comprised of season pass revenue.

The cost structure of ski resort operations is primarily fixed, with variable expenses including, but not limited to, USDA Forest Service (“Forest Service”) fees, credit card fees, retail/rental cost of goods sold 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 through the RockResorts brand, including several proximate to the Company's ski resorts; (ii) ownership/management of non-RockResorts branded hotels and condominiums proximate to the Company's ski resorts; (iii) Grand Teton Lodge Company (“GTLC”); (iv) Colorado Mountain Express (“CME”), a resort ground transportation company acquired in November 2008; and (v) golf courses.

Lodging properties (including managed condominium rooms) at or around the Company’s ski resorts, and CME, are closely aligned with the performance of the Mountain segment, particularly with respect to visitation by Destination guests and represented approximately 68%, 63% and 61% of Lodging segment revenue for Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively.  Revenue of the Lodging segment during the Company's first and fourth fiscal quarters is generated primarily by the operations of GTLC (as GTLC's operating season generally occurs from mid-May to mid-October), golf operations and seasonally low operations from the Company's other owned and managed properties as well as CME.

Real Estate Segment

The Real Estate segment owns and develops real estate in and around the Company's resort communities and primarily engages in the vertical development of projects, as well as, occasionally the sale of land to third-party developers which often includes a contingent revenue structure based on the ultimate sale of the developed units.  Revenue from vertical development projects is not recognized until closing of individual units within a project which occurs after substantial completion of the project.  Contingent future profits from land sales, if any, are recognized only when received.  The Company attempts to mitigate the risk of vertical development by often utilizing guaranteed maximum price construction contracts (although certain construction costs may not be covered by contractual limitations), pre-selling a portion of the project, requiring significant non-refundable deposits, and potentially obtaining non-recourse financing for certain projects.  The Company's real estate development projects also may result in the creation of certain resort assets that provide additional benefit to the Mountain and Lodging segments.  The Company’s revenue from the Real Estate segment, and associated expense, fluctuate 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

The data provided in this section should be read in conjunction with the risk factors identified in Item 1A and elsewhere in this Form 10-K.  The Company's management has identified the following important factors (as well as uncertainties associated with such factors) that could impact the Company's future financial performance:

·  
The economic recession that has affected the U.S. and global economies, the tightened credit markets and eroded consumer confidence had a negative impact on overall trends in the travel and leisure industries and on the Company’s results of operations for Fiscal 2009.  In this environment, the Company experienced a 5.3% decrease in overall skier visitation for the 2008/2009 ski season and a 4.5 percentage point decrease in occupancy at the Company’s owned hotels and managed condominium properties (all proximate to the Company’s ski resorts) for Fiscal 2009.  Additionally, the Company experienced, a decrease in overall guest spending on ancillary services, including ski school, dining and retail/rental.  Furthermore, the Company experienced a change in booking trends such that guest reservations were made much closer to the actual date of stay.  The Company cannot predict the extent to which these negative trends will continue, worsen or improve or the timing and nature of any changes to the macroeconomic environment, including the impact it may have on the Company’s future results of operations, in particular on the 2009/2010 ski season.
·  
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 mitigate this impact, the Company focuses efforts on the sale of season passes prior to the beginning of the season to In-State guests and Destination guests.  Additionally, the Company has invested in snowmaking upgrades in an effort to address the inconsistency of early season snowfall where possible.  During the past two ski seasons, early season snowfall has been significantly lower than average, which the Company believes had a negative impact on early season visitation.
·  
The Company’s season pass products provide a value option to its guests which in turn provides a guest commitment predominately prior to the start of the ski season resulting in a more stabilized stream of lift revenue for the Company.  The Company introduced the Epic Season Pass for the 2008/2009 ski season, which largely contributed to season pass revenue as a percentage of total lift revenue increasing from 26% for the 2007/2008 ski season to 34% for the 2008/2009 ski season.  In March 2009, the Company began its pass sales campaign for the 2009/2010 ski season, including the Epic Season Pass, and as of July 31, 2009 season pass sales have increased $10.0 million, or 32.2%, compared to season pass sales as of July 31, 2008 for the 2008/2009 ski season.  The Company cannot predict if this trend will continue through the fall 2009 pass sales campaign or the impact that season pass sales may have on total lift revenue or ETP for the 2009/2010 ski season.
·  
The Company has historically implemented annual price increases.  However, the Company held prices flat for most multi-day lift ticket and certain other products and services for the 2008/2009 ski season.  Prices for the 2009/2010 ski season have not yet been finalized; and as such there are no assurances as to the level of price increases, if any, which will occur or the impact that pricing may have on visitation or revenue.
·  
The Company operates its ski areas under various Forest Service permits, and many of the Company's operations require permits and approval from governmental authorities; therefore many of the Company’s on-mountain capital improvements must go through an approval process.  Changes or impacts to the applicable regulatory environment may have detrimental effects on the Company.
·  
Real Estate Reported EBITDA is highly dependent on, among other things, the timing of closings on real estate under contract, which determines when revenue and associated cost of sales is 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. The Company has two real estate projects currently under development which are scheduled to be completed in the spring/summer of 2010 (One Ski Hill Place in Breckenridge) and the fall of 2010 (The Ritz-Carlton Residences, Vail) and has entered into definitive sales contracts with a value of approximately $324.3 million, which represents approximately 68% of the total current estimated sales value for these two projects.  The Company has increased risk associated with selling and closing real estate as a result of the continued instability in the capital and credit markets and slowdown in the overall real estate market.  In April 2009, in response to current market conditions, the Company announced a reduction of approximately 20% to the listed selling prices of its Ritz-Carlton Residences, Vail, as well as price reductions of approximately 15% for purchasers currently under contract.  The Company cannot predict the ultimate number of units that it will sell, the ultimate price it will receive, or when the units will sell.  Additionally, if a more severe prolonged economic downturn were to occur the Company may have to further adjust its selling prices in an effort to sell and close on units currently under development, although it currently has no plans to do so.
·  
The Company had $69.3 million in cash and cash equivalents as of July 31, 2009 as well as $304.7 million available under the revolver component of its Credit Facility. The Company’s plan to continue to self-fund its current real estate projects under construction (the Company estimates to incur between $190 million and $210 million in cash expenditures subsequent to July 31, 2009) combined with historically low operating cash flows during the Company’s first fiscal quarter will likely require the Company to borrow under the revolver component of its Credit Facility from time to time beginning in the first quarter of fiscal 2010.  The Company currently believes it has adequate capacity under its revolver to address potential borrowing needs, even in the event of a more sustained negative economic environment.
·  
Under GAAP, the Company is required to test goodwill for impairment annually, which the Company does so during the fourth quarter of each fiscal year.  The Company evaluates the recoverability of its goodwill by estimating the future discounted cash flows of its 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.  The Company evaluates the recoverability of indefinite-lived intangible assets using the income approach based upon estimated future revenue streams.  The Company’s 2009 annual impairment test did not result in a goodwill or indefinite-lived intangible asset impairment (see Critical Accounting Policies in this section of this Form 10-K).  However, if a more severe prolonged economic downturn were to occur it could cause less than expected growth and/or reduction in terminal values of the Company’s reporting units which may result in a goodwill and/or indefinite-lived intangible asset impairment charge attributable to certain goodwill and/or indefinite lived-intangible assets, particularly related to its lodging and retail/rental operations.

Results of Operations

Summary

Shown below is a summary of operating results for Fiscal 2009, Fiscal 2008 and Fiscal 2007 (in thousands):

   
Year Ended July 31,
   
2009
 
2008
 
2007
Mountain Reported EBITDA
 
$
164,389
   
$
220,561
   
$
207,728
 
Lodging Reported EBITDA
   
6,759
     
10,225
     
18,199
 
Resort Reported EBITDA
   
171,148
     
230,786
     
225,927
 
Real Estate Reported EBITDA
   
44,080
     
45,937
     
(2,482
)
                         
Income before provision for income taxes
   
79,594
     
166,013
     
100,651
 
Net income
 
$
48,950
   
$
102,927
   
$
61,397
 


Mountain Segment

Mountain segment operating results for Fiscal 2009, Fiscal 2008 and Fiscal 2007 are presented by category as follows (in thousands, except ETP):

                     
Percentage
   
Year Ended July 31,
 
Increase/(Decrease)
   
2009
 
2008
 
2007
 
2009/2008
 
2008/2007
Net Mountain revenue:
                             
     Lift tickets
 
$
276,542
 
$
301,914
 
$
286,997
 
(8.4
) %
 
5.2
 %
     Ski school
   
65,336
   
81,384
   
78,848
 
(19.7
) %
 
3.2
 %
     Dining
   
52,259
   
62,506
   
59,653
 
(16.4
) %
 
4.8
 %
     Retail/rental
   
147,415
   
168,765
   
160,542
 
(12.7
) %
 
5.1
 %
     Other
   
73,045
   
70,964
   
79,337
 
2.9
  %
 
(10.6
)%
Total Mountain net revenue
 
$
614,597
 
$
685,533
 
$
665,377
 
(10.3
) %
 
3.0
 %
Mountain operating expense:
                             
     Labor and labor-related benefits
 
$
165,550
 
$
175,674
 
$
167,442
 
(5.8
) %
 
4.9
 %
     Retail cost of sales
   
66,022
   
72,559
   
69,218
 
(9.0
) %
 
4.8
 %
     Resort related fees
   
33,102
   
36,335
   
34,943
 
(8.9
) %
 
4.0
 %
     General and administrative
   
83,117
   
81,220
   
81,983
 
2.3
  %
 
(0.9
)%
     Other
   
103,234
   
104,574
   
109,122
 
(1.3
) %
 
(4.2
)%
Total Mountain operating expense
 
$
451,025
 
$
470,362
 
$
462,708
 
(4.1
) %
 
1.7
 %
Mountain equity investment income, net
   
817
   
5,390
   
5,059
 
(84.8
) %
 
6.5
 %
Total Mountain Reported EBITDA
 
$
164,389
 
$
220,561
 
$
207,728
 
(25.5
) %
 
6.2
 %
                               
Total skier visits
   
5,864
   
6,195
   
6,219
 
(5.3
) %
 
(0.4
)%
ETP
 
$
47.16
 
$
48.74
 
$
46.15
 
(3.2
) %
 
5.6
 %

Total Mountain Reported EBITDA includes $4.8 million, $3.8 million and $3.8 million of stock-based compensation expense for Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively.

Fiscal 2009 compared to Fiscal 2008

Lift revenue decreased $25.4 million, or 8.4%, for Fiscal 2009 compared to Fiscal 2008, primarily as a result of a $42.2 million, or 18.8%, decline in lift revenue excluding season pass revenue, partially offset by an increase in season pass revenue of $16.8 million, or 21.7%.  The increase in season pass revenue was driven by higher season pass sales resulting primarily from the introduction of the Epic Season Pass in the 2008/2009 ski season.  Additionally, a portion of the decline in lift revenue excluding season pass revenue was caused by a shift in Destination guests purchasing the Epic Season Pass instead of other lift ticket products.

Total skier visitation was down 5.3% in the 2008/2009 ski season compared to the 2007/2008 ski season, with overall visitation for the four Colorado resorts (excluding Heavenly) being down 3.5%.  The overall visitation decline was primarily as a result of an estimated 15% decrease in visitation from Destination guests, partially offset by strong visitation from season pass holders, especially from the new Epic Season Pass holders, who on average skied more in the current year per pass than holders of our other pass products.  ETP decreased 3.2%, driven by an increase in average season pass holder visitation per pass sold, partially offset by a 2.9% increase in ETP excluding season pass products, driven by price increases on certain lift ticket products.

Revenues for the Company's ski school, dining and retail/rental operations, were all negatively impacted by the severe downturn in the economic environment which resulted from the decrease in Destination guest visitation as well as overall spending per guest.  Ski school revenue decreased $16.0 million, or 19.7%, in Fiscal 2009 compared to Fiscal 2008, as ski school revenue is primarily driven by Destination guests.  Dining revenue decreased $10.2 million, or 16.4%, in Fiscal 2009 compared to Fiscal 2008, due to an approximate 11% decrease in the number of total on-mountain food and beverage transactions, coupled with an even greater decline in fine dining.  Revenue from retail/rental operations decreased $21.4 million, or 12.7%, in Fiscal 2009 compared to Fiscal 2008 primarily due to lower sales and rental volumes at the Company’s mountain resort stores.

Other revenue mainly consists of private club revenue (which includes both club dues and amortization of initiation fees), summer visitation and other mountain activities revenue, allocated strategic alliance revenue, commercial leasing revenue, employee housing revenue, municipal services revenue and other recreation activity revenue.   For Fiscal 2009 other revenues increased $2.1 million, or 2.9%, compared to Fiscal 2008, primarily due to private club operations (which revenue increased $4.1 million) resulting from the opening of the Vail Mountain Club in November 2008.

Operating expense decreased $19.3 million, or 4.1%, during Fiscal 2009 compared to Fiscal 2008.  This decrease primarily resulted from a decrease in labor and labor-related benefits expense of $10.1 million, or 5.8%, due to decreased staffing levels driven by lower volume in ski school, dining and retail/rental operations as well as the impacts of cost reduction initiatives including the suspension of the Company’s matching contribution to its 401(k) program effective January 2009 and a company-wide wage reduction plan implemented in April 2009 and a $6.5 million, or 9.0%, decrease in retail cost of sales (commensurate with the decrease in retail revenue). Additionally, resort related fees (including Forest Service fees, other resort-related fees, credit card fees and commissions) decreased $3.2 million, or 8.9%, compared to Fiscal 2008 due to overall declines in revenue that those fees are calculated on and other expenses decreased $1.3 million, or 1.3%, due primarily to lower food and beverage cost of sales, supplies and fuel expense, partially offset by higher property taxes, utilities and repairs and maintenance expense.  All of the above decreases were slightly offset by a $1.9 million, or 2.3%, increase in general and administrative expenses primarily due to higher allocated corporate expenses.

Mountain equity investment income primarily includes the Company's share of income from the operations of a real estate brokerage joint venture.  The decrease in equity investment income for Fiscal 2009 compared to Fiscal 2008 is primarily due to decreased commissions earned by the brokerage due to a lower level of real estate closures compared to Fiscal 2008.

Fiscal 2008 compared to Fiscal 2007

Lift ticket revenue increased $14.9 million, or 5.2%, for Fiscal 2008 compared to Fiscal 2007, primarily as a result of a 7.6% increase in ETP excluding season pass products, which was driven by an increase in absolute pricing.  Season pass revenue increased $5.5 million, or 7.7%, for Fiscal 2008 compared to Fiscal 2007.  This increase in season pass revenue was due to an increase in pricing, with season pass holders’ average visitation per pass increasing for the 2007/2008 ski season compared to the 2006/2007 ski season which offset the increase in ETP resulting from price increases.  Skier visits excluding season pass holders decreased 3.0% for the 2007/2008 ski season compared to the 2006/2007 ski season as a result of lower skier visitation excluding season pass holders in non-peak periods, including the early season (prior to December 24) due to below average snow conditions, and early March and April due in part to the timing of Easter which was in March for Fiscal 2008 versus April for Fiscal 2007.  The decrease in skier visits excluding season pass holders was offset by significant increases in international visitation which was higher by an estimated 26% for Fiscal 2008.

Revenue for the Company’s ski school and dining increased $2.5 million, or 3.2%, and $2.9 million, or 4.8%, respectively, for Fiscal 2008 compared to Fiscal 2007, primarily as a result of absolute price increases.  The increase in ski school revenue was impacted by a decline in skier visitation excluding season pass holders (as discussed above) as these guests have a higher participation rate in ski school.  The increase in dining revenue was favorably impacted by the acquisition of two licensed Starbucks stores in June 2007.  Retail/rental revenue increased $8.2 million, or 5.1%, for Fiscal 2008 compared to Fiscal 2007, primarily due to increased operations related to the 18 Breeze Ski Rental locations that were acquired in June 2007.

Other revenues decreased $8.4 million, or 10.6%, in Fiscal 2008 compared to Fiscal 2007, due to the disposition of the Company’s investment in RTP in April 2007.  Excluding RTP, other revenue would have increased $0.6 million, or 0.8%, for Fiscal 2008 compared to Fiscal 2007.

Operating expense increased $7.7 million, or 1.7%, during Fiscal 2008 compared to Fiscal 2007.  This increase primarily resulted from an increase in labor and labor-related benefits expense of $8.2 million, or 4.9%, due to wage increases, increased staffing in retail/rental due to the acquisition of 18 Breeze stores and higher workers’ compensation costs and a $3.3 million, or 4.8%, increase in retail cost of sales (which was commensurate with the increase in retail revenue).  Additionally, resort related fees (including Forest Service fees, other resort-related fees, credit card fees and commissions) increased $1.4 million, or 4.0%, in Fiscal 2008 compared to Fiscal 2007 and was due to overall increases in revenue that those fees are calculated on.  These increases were partially offset by a decrease in other expenses of $4.5 million, or 4.2%, due to the sale of RTP (April 2007), which incurred $8.8 million in expenses (included in other operating expenses) for Fiscal 2007.  Excluding the impact of RTP, other operating expenses increased $4.3 million, or 4.3%, due primarily to higher food and beverage cost of sales, property taxes, utilities and fuel expense, partially offset by lower repairs and maintenance expense.

Mountain equity investment income primarily includes the Company’s share of income from operations of a real estate brokerage joint venture.  The increase in equity investment income in Fiscal 2008 compared to Fiscal 2007 is due primarily to increased commissions earned by the brokerage associated with increased real estate closures surrounding the Company’s Colorado resorts, both from residential and multi-unit projects.

Lodging Segment

Lodging segment operating results for Fiscal 2009, Fiscal 2008 and Fiscal 2007 are presented by category as follows (in thousands, except ADR and RevPAR):
 
               
Percentage
 
Year Ended July 31,
 
Increase/(Decrease)
 
2009
2008
2007
 
2009/2008
2008/2007
Lodging net revenue:
                         
     Owned hotel rooms
$
43,153
$
46,806
$
42,179
 
(7.8
)
%
11.0
 
%
     Managed condominium rooms
 
34,571
 
37,132
 
36,657
 
(6.9
)
%
1.3
 
%
     Dining
 
30,195
 
31,763
 
28,191
 
(4.9
)
%
12.7
 
%
     Transportation
 
17,975
 
--
 
--
 
--
 
%
--
 
%
     Golf
 
15,000
 
16,224
 
15,185
 
(7.5
)
%
6.8
 
%
     Other
 
35,347
 
38,132
 
40,239
 
(7.3
)
%
(5.2
)
%
Total Lodging net revenue
$
176,241
$
170,057
$
162,451
 
3.6
 
%
4.7
 
%
Lodging operating expense
                         
     Labor and labor-related benefits
$
81,290
$
75,746
$
67,224
 
7.3
 
%
12.7
 
%
     General and administrative
 
27,823
 
26,877
 
26,408
 
3.5
 
%
1.8
 
%
     Other
 
60,369
 
57,209
 
50,620
 
5.5
 
%
13.0
 
%
Total Lodging operating expense
$
169,482
$
159,832
$
144,252
 
6.0
 
%
10.8
 
%
Total Lodging Reported EBITDA
$
6,759
$
10,225
$
18,199
 
(33.9
)
%
(43.8
)
%
                           
Owned hotel statistics:
                         
     ADR
$
183.59
$
184.42
$
167.15
 
(0.5
)
%
10.3
 
%
     RevPar
$
107.06
$
118.97
$
108.10
 
(10.0
)
%
10.1
 
%
                           
Managed condominium statistics:
                         
     ADR
$
273.38
$
280.37
$
268.83
 
(2.5
)
%
4.3
 
%
     RevPar
$
84.50
$
98.68
$
94.50
 
(14.4
)
%
4.4
 
%
                           
Owned hotel and managed condominium statistics (combined):
                         
     ADR
$
225.12
$
230.17
$
216.83
 
(2.2
)
%
6.2
 
%
     RevPar
$
93.10
$
106.43
$
99.58
 
(12.5
)
%
6.9
 
%
                           
 
Total Lodging Reported EBITDA includes $1.8 million, $1.3 million and $1.1 million of stock-based compensation expense for Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively.

Fiscal 2009 compared to Fiscal 2008

Total Lodging net revenue for Fiscal 2009 increased $6.2 million, or 3.6%, compared to Fiscal 2008, primarily due to the acquisition of CME on November 1, 2008 and a full year of operations at The Arrabelle at Vail Square hotel (the “Arrabelle”) which opened in January 2008.  CME operations contributed $18.0 million in net revenue for Fiscal 2009 and the full year operations of the Arrabelle contributed $11.3 million in revenue for Fiscal 2009 compared to net revenue of $5.2 million for the partial year of operations of the Arrabelle in Fiscal 2008.

Revenue from owned hotel rooms, including the Arrabelle, decreased $3.7 million, or 7.8%, for Fiscal 2009 compared to Fiscal 2008, which was driven by a decrease in occupancy of 6.2 percentage points which primarily occurred at the lodging properties proximate to the Company’s ski resorts.  This was due to a decline in Destination visitation as discussed in the Company’s Mountain segment and declines in group business (including a decrease in GTLC’s room revenue of $0.8 million in the fourth quarter of Fiscal 2009 compared to the fourth quarter of Fiscal 2008 primarily due to a decline in group business) as well as decreases in ADR of 0.5%, partially offset by the full year of operations at the Arrabelle (the Arrabelle generated $0.8 million of incremental owned hotel room revenue for Fiscal 2009 compared to Fiscal 2008).  Revenue from managed condominium rooms decreased $2.6 million, or 6.9%, for Fiscal 2009, due to decreases in visitation as noted above, declines in group business primarily at Keystone and decreases in ADR of 2.5%, partially offset by the full year of operations at the Arrabelle which includes condominium property management (the Arrabelle generated $2.1 million of incremental revenue from managed properties for Fiscal 2009 compared to Fiscal 2008).

Dining revenue for Fiscal 2009 decreased $1.6 million, or 4.9%, as compared to Fiscal 2008 mainly due to decreased overall guest and group visitation as well as decreases in guest spending per visit (GTLC’s dining revenue decreased $1.0 million in the fourth quarter of Fiscal 2009 compared to the fourth quarter of Fiscal 2008 primarily due to a decline in group business).  The decline in dining revenue was partially offset by a full year of dining operations at the Arrabelle (the Arrabelle generated $1.2 million of incremental dining revenue for Fiscal 2009 compared to Fiscal 2008).

Golf revenues decreased $1.2 million, or 7.5%, for Fiscal 2009 compared to Fiscal 2008, primarily resulting from a 6.0% decrease in the number of golf rounds played.  Other revenue decreased $2.8 million, or 7.3%, in Fiscal 2009 compared to Fiscal 2008 primarily due to a reduction in commissions earned from reservations booked through the Company’s central reservation system, which were partially offset by a full year of spa operations at the Arrabelle (the Arrabelle generated $0.9 million of incremental spa revenue for Fiscal 2009 compared to Fiscal 2008).

 
Operating expense increased $9.7 million, or 6.0%, for Fiscal 2009 compared to Fiscal 2008.  Operating expenses for Fiscal 2009 included $12.8 million of CME operating expenses as well as an increase in operating expenses at the Arrabelle of $6.8 million as a result of a full year of operations in Fiscal 2009, which was partially offset by $3.1 million of start-up and pre-opening expenses associated with the Arrabelle recorded in Fiscal 2008. Excluding the impact of CME operating expenses and operating expenses for the Arrabelle due to a full year of operations (net of start-up and pre-opening expenses recorded in Fiscal 2008), total operating expenses decreased $6.9 million, or 4.6%, in Fiscal 2009 compared to Fiscal 2008, primarily due to (i) a decrease in labor and labor-related benefits of $4.9 million, or 6.9%, due primarily to lower staffing levels associated with decreased occupancy and wage decreases as a result of a company-wide wage reduction plan and (ii) a decrease in other expenses of $3.0 million, or 5.6%, primarily due to decreased variable operating costs associated with lower revenue resulting in lower food and beverage cost of sales and credit card fees, offset by an increase in general and administrative expenses of $1.0 million due to higher allocated corporate expenses.
 
Fiscal 2008 compared to Fiscal 2007

Total Lodging net revenue for Fiscal 2008 increased $7.6 million, or 4.7%, as compared to Fiscal 2007.  Included in net revenue for Fiscal 2007 was the recognition of $5.4 million in termination fees (included in other revenue) primarily associated with the termination of the management agreements at The Equinox and The Lodge at Rancho Mirage (pursuant to the terms of the management agreements).  Excluding these termination fees, Lodging net revenue would have increased $13.0 million, or 8.3% for Fiscal 2008, compared to Fiscal 2007.

Lodging net revenue was positively impacted by revenue from owned hotel rooms which increased $4.6 million, or 11.0%, for Fiscal 2008 compared to Fiscal 2007.  ADR for owned hotel rooms increased 10.3% for the same period due to high demand during peak periods in the year (partially offset by lower visitation during non-peak periods, including the early season and the timing of Easter as described in the Mountain segment discussion) and as a result of the addition of the Arrabelle (which generated $2.0 million in room revenue from its opening in January 2008 through July 31, 2008).  Owned hotel room RevPAR increased 10.1% for Fiscal 2008 compared to Fiscal 2007, which, in addition to increases in ADR, was driven by an increase in conference and group room nights, occurring primarily at GTLC during the Company’s fourth quarter of Fiscal 2008.  Revenue from managed condominium rooms remained relatively flat for Fiscal 2008 compared to Fiscal 2007 mainly due to a RevPAR increase of 4.4% which was driven by an increase in ADR of 4.3% due to high demand during peak periods as noted above and an increase in group room nights occurring primarily at Keystone, all of which was offset by a 3.4% reduction in managed condominium available room nights primarily at Keystone.

Dining revenue for Fiscal 2008 increased $3.6 million, or 12.7%, as compared to Fiscal 2007 mainly due to the addition of the Arrabelle (which generated $2.2 million in dining revenue from its opening in January 2008 through July 31, 2008) and group visitation at GTLC.  Golf revenues increased $1.0 million, or 6.8%, for Fiscal 2008 compared to Fiscal 2007, primarily resulting from an increase in the number of golf rounds due to improvements made at the Company’s Jackson Hole Golf & Tennis Club (“JHG&TC”) and Beaver Creek Golf Club, which caused the golf courses to be shut down for a portion of the season in Fiscal 2007.  Excluding the $5.4 million in termination fees, other revenues increased $3.3 million, or 9.3% for Fiscal 2008 compared to Fiscal 2007, due to higher resort amenity fees charged to guests and increases in spa and retail revenue.

Operating expense increased $15.6 million, or 10.8%, for Fiscal 2008 compared to Fiscal 2007.  Operating expenses for Fiscal 2008 included approximately $3.1 million of start-up and pre-opening expenses for the Arrabelle (recorded in labor and labor-related benefits and other expenses) and incremental fees paid to the National Park Service by GTLC of $1.0 million (recorded in other expenses) resulting from a new concession contract which became effective January 2007.  Excluding the Fiscal 2008 start-up and pre-opening expenses of the Arrabelle, and the increase in fees paid to the National Park Service, total operating expenses increased by approximately $11.4 million, or 8.0%, for Fiscal 2008 compared to Fiscal 2007, which primarily includes (i) an increase in labor and labor-related benefits of $6.5 million, or 9.7%, due primarily to wage increases, increases in labor hours to support the higher Lodging segment revenues, as well as increased staffing levels due to the opening of the Arrabelle in January 2008, and (ii) an increase in other expenses of $4.4 million, or 9.1%, due to variable operating costs associated with incremental revenue resulting in higher food and beverage cost of sales and credit card fees, and higher operating costs associated with the Arrabelle after its opening, primarily in property taxes and utilities.

Real Estate Segment

Real Estate segment operating results for Fiscal 2009, Fiscal 2008 and Fiscal 2007 are presented by category as follows (in thousands):

                       
Percentage
   
Year Ended July 31,
 
Increase/(Decrease)
   
2009
 
2008
 
2007
 
2009/2008
 
2008/2007
Total Real Estate net revenue
 
$
186,150
 
$
296,566
   
$
112,708
 
(37.2
)
%
 
163.1
 
%
Total Real Estate operating expense
   
142,070
   
251,338
     
115,190
 
(43.5
)
%
 
118.2
 
%
Gain on sale of real property
   
--
   
709
     
--
 
(100.0
)
%
 
--
 
%
Total Real Estate Reported EBITDA
 
$
44,080
 
$
45,937
   
$
(2,482
)
(4.0
)
%
 
1,950.8
 
%

Total Real Estate Reported EBITDA includes $4.1 million, $3.1 million and $2.1 million of stock-based compensation expense for Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively.

The Company’s Real Estate operating revenue is primarily determined by the timing of closings and the mix of real estate sold in any given period.  Different types of projects have different revenue and expense volumes and margins; therefore, as the real estate inventory mix changes it can greatly impact Real Estate segment net revenue, operating expense and Real Estate Reported EBITDA.

Fiscal 2009

Real Estate net revenue for Fiscal 2009 was driven primarily by the closings of eight Chalets units ($111.5 million of revenue with an average selling price per unit of $13.9 million and an average price per square foot of $2,860), 42 residences at Crystal Peak Lodge ($54.9 million of revenue with an average selling price per unit of $1.3 million and an average price per square foot of $1,038) and two condominium units at the Arrabelle ($16.7 million of revenue with an average selling price per unit of $8.4 million and an average price per square foot of $1,623).  The higher average price per square foot for the Chalet units was driven by their premier location at the base of Vail mountain in Vail Village and the fact that this development consisted of only 13 exclusive chalets.  The Arrabelle average price per square foot is driven by its ski-in/ski-out location in Vail, and the comprehensive offering of amenities resulting from this project.  The Crystal Peak Lodge average price per square foot though significantly lower than the Vail project real estate sales, is significantly higher than historical Breckenridge project real estate sales and is primarily driven by its ski-in/ski-out location at the base of Peak 7 in Breckenridge and close proximity to the BreckConnect Gondola.
 
    Operating expense for Fiscal 2009 included cost of sales of $101.1 million commensurate with revenue recognized, primarily driven by the closing on eight Chalets units ($54.1 million in cost of sales with an average cost per square foot of $1,387), 42 residences at Crystal Peak Lodge ($34.2 million in cost of sales with an average cost per square foot of $654) and two units at the Arrabelle ($12.4 million in cost of sales with an average cost per square foot of $1,204).  The cost per square foot for the Arrabelle and Chalets are reflective of the high-end features and amenities associated with these projects and the relatively high construction costs associated with mountain resort development.  The cost per square foot for Crystal Peak Lodge is reflective of its less complicated design features and fewer amenities associated with this project relative to the Arrabelle and Chalets.  Operating expenses also included sales commissions of approximately $10.6 million commensurate with revenue recognized and general and administrative costs of approximately $27.6 million (including $4.1 million of stock-based compensation expense).  General and administrative costs were primarily comprised of marketing expenses for the major real estate projects under development (including those that have not yet closed), overhead costs such as labor and labor-related benefits and allocated corporate costs.  In addition, included in segment operating expense for Fiscal 2009, the Company recorded $2.8 million of estimated costs in excess of anticipated sales proceeds for an affordable housing commitment resulting from the cancellation of a contract by a third party developer related to its JHG&TC development. 
 
 
Fiscal 2008

Real Estate net revenue for Fiscal 2008 was driven primarily by the closings of  64 condominium units at the Arrabelle ($213.6 million of revenue with an average selling price per unit of $3.3 million and an average price per square foot of $1,220), the closings of five Chalet units ($58.8 million of revenue with an average selling price per unit of $11.8 million and an average price per square foot of $2,336), the closings of the remaining JHG&TC cabins ($9.0 million of revenue with an average selling price per unit of $0.8 million and an average price per square foot of $360) and contingent gains of $13.0 million on development parcel sales that closed in previous periods.  The higher average price per square foot for the Chalet units was driven by the premier location at the base of Vail mountain in Vail Village and the fact that this development consisted of only 13 exclusive chalets.  The Arrabelle average price per square foot is driven by its ski-in/ski-out location in Vail, and the comprehensive offering of amenities resulting from this project.  The JHG&TC cabins yielded a lower price per square foot as its location is proximate to golf and tennis facilities which does not have as strong of a demand compared to real estate featuring ski-in/ski-out locations proximate to our ski resorts.

Operating expense for Fiscal 2008 included cost of sales of $208.8 million commensurate with revenue recognized, primarily driven by the closing on 64 units at the Arrabelle ($171.2 million in cost of sales with an average cost per square foot of $978), the closing on five Chalet units ($27.7 million in cost of sales with an average cost per square foot of $1,100) and the closing of the remaining JHG&TC cabins ($8.9 million in cost of sales with an average cost per square foot of $355). The cost per square foot for the Arrabelle and Chalets are reflective of the high-end features and amenities associated with these projects and the relatively high construction costs associated with mountain resort development.  The average cost per square foot for the JHG&TC was significantly lower than for other projects closed during the period due to the fact that this project did not include the typical high-end features of our projects that are in close proximity to our mountain resorts; however, the cost of sales for the JHG&TC cabins were relatively high compared to the revenue earned due to unanticipated incremental design and construction related costs.  Operating expenses also included sales commissions of approximately $17.1 million commensurate with revenue recognized and general and administrative costs of approximately $25.4 million (including $3.1 million of stock-based compensation expense).  General and administrative costs were primarily comprised of marketing expenses for the major real estate projects under development (including those that have not yet closed), overhead costs such as labor and labor-related benefits and allocated corporate costs.

Fiscal 2007

Real Estate net revenue for Fiscal 2007 was driven primarily by the closings of ten residences at Gore Creek Place ($42.9 million of revenue with an average selling price per unit of $4.3 million and an average price per square foot of $1,081), 34 residences at Mountain Thunder ($24.1 million of revenue with an average selling price per unit of $0.7 million and an average price per square foot of $515) and 12 cabins at JHG&TC ($14.2 million of revenue with an average selling price per unit of $1.2 million and an average price per square foot of $502).  The higher average price per square foot for the Gore Creek Place units was driven by its location in Vail’s Lionshead Village and the fact that this development consisted of only 16 exclusive townhomes.  The Mountain Thunder average price per square foot is reflective of its location (not at the base area of the ski mountain) in Breckenridge.  The JHG&TC cabins yielded a lower price per square foot as its location is proximate to golf and tennis facilities which does not have as strong of a demand compared to real estate featuring ski-in/ski-out locations proximate to our ski resorts.  In addition, Real Estate net revenue included the sale of land together with certain related infrastructure improvements in Red Sky Ranch and Breckenridge to third-party developers of $12.1 million, the sale of the sole asset in the FFT Investment Partners real estate joint venture of $6.7 million and contingent gains on development parcel sales that closed in previous periods of $7.2 million.  
 
Operating expense for Fiscal 2007 included cost of sales of $77.9 million commensurate with revenue recognized,  primarily driven by the closing on ten residences at Gore Creek Place ($29.1 million in cost of sales with an average cost per square foot of $733), 34 residences at Mountain Thunder ($19.2 million in cost of sales with an average cost per square foot of $409), and 12 cabins at JHG&TC ($13.8 million in cost of sales with an average cost per square foot of $486).  The cost per square foot for the Gore Creek Place is reflective of the high-end features associated with the projects and the relatively high construction costs associated with mountain resort development.   The average cost per square foot for the Mountain Thunder and JHG&TC was significantly lower than for other projects closed during the period due to the fact that the projects did not include the typical high-end features of our projects that are at the base of our mountain resorts.  In addition, the cost of sales for the JHG&TC cabins were relatively high compared to the revenue earned due to unanticipated incremental design and construction related costs, which resulted in a $7.6 million charge for estimated total project costs in excess of anticipated sales proceeds which was recorded during Fiscal 2007.  Operating expenses also included sales commissions of approximately $5.6 million commensurate with revenue recognized and general and administrative costs of approximately $24.0 million (including $2.1 million of stock-based compensation expense).  General and administrative costs were primarily comprised of marketing expenses for the major real estate projects under development (including those that have not yet closed), overhead costs such as labor and labor-related benefits and allocated corporate costs.

Other Items

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

Depreciation and amortization.  Depreciation and amortization expense for Fiscal 2009 and Fiscal 2008 increased primarily due to a higher level of capital expenditures and the timing of placing in service significant resort assets, which included, among other assets, the Arrabelle (including amenities such as a private club, spa, commercial leasing space, and other skier services facilities), a new skier services building, a private club (the Vail Mountain Club) in Vail Village and multiple gondolas and lifts within the last two years.

Investment income.  The decrease in investment income for Fiscal 2009 compared to Fiscal 2008 is primarily due to a reduction in the average interest earned on investments (the average annualized interest rate earned decreased by approximately 2.5 percentage points in Fiscal 2009 versus Fiscal 2008), as well as a decrease in average invested cash during Fiscal 2009 compared to Fiscal 2008. The decrease in investment income for Fiscal 2008 compared to Fiscal 2007 is primarily due to a reduction in the average interest earned on investments, a decrease in average invested cash during the period and a $1.0 million impairment on a short-term investment resulting from a commercial paper write-down.

Interest expense, net.  The reduction in interest expense, net for Fiscal 2009 compared to Fiscal 2008, is attributable to the payoff of a scheduled debt maturity in the current year and capitalized interest on self-funded real estate projects.  The decrease in interest expense for Fiscal 2008 compared to Fiscal 2007 is primarily due to a reduction in the average variable borrowing rate of the employee housing bonds and an increase in capitalized interest associated with real estate and related resort development.

Contract dispute credit, net.  On October 19, 2007, RockResorts received payment of the final settlement from Cheeca Holdings, LLC (the “Cheeca settlement”), related to the disputed contract termination of the formerly managed RockResorts Cheeca Lodge & Spa property, in the amount of $13.5 million, of which $11.9 million (net of final attorney’s fees) is recorded in “Contract dispute credit, net” in the Consolidated Condensed Statement of Operations for Fiscal 2008.

Income taxes.   The Company's tax provision and effective tax rate are driven primarily by the amount of pre-tax income, which is adjusted for items that are deductible/non-deductible for tax purposes only (i.e. permanent items), and taxable income generated by state jurisdictions that varies from the consolidated pre-tax income.  The effective tax rate was 38.5%, 38.0% and 39.0% in Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively.  The income tax provision recorded for Fiscal 2008 reflects the impact of a favorable tax settlement with state tax authorities of $1.0 million.

In 2005, the Company amended previously filed tax returns (for the tax years from 1997 through 2002) in an effort to remove restrictions under Section 382 of the Internal Revenue Code on approximately $73.8 million of net operating losses (“NOLs”) relating to fresh start accounting from the Company’s reorganization in 1992.  As a result, the Company requested a refund related to the amended returns in the amount of $6.2 million and has reduced its Federal tax liability in the amount of $19.6 million in subsequent tax returns.  In 2006, the Internal Revenue Service (“IRS”) completed its examination of the Company’s filing position in its amended returns and disallowed the Company’s request for refund and its position to remove the restriction on the NOLs.  The Company appealed the examiner’s disallowance of the NOLs 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 disagrees with the IRS interpretation disallowing the utilization of the NOLs and in August 2009, filed a complaint in the United States District Court for the District of Colorado seeking recovery of $6.2 million in over payments that were previously denied by the IRS, plus interest.  Due to the uncertainty surrounding the utilization of the NOLs, the Company has not reflected any of the benefits of the utilization of the NOLs within its financial statements; thus if the Company is unsuccessful in its action regarding this matter it will not negatively impact the Company’s results of operations.

Reconciliation of Non-GAAP Measures

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

   
Year Ended July 31,
   
2009
 
2008
 
2007
Mountain Reported EBITDA
 
$
164,389
   
$
220,561
   
$
207,728
 
Lodging Reported EBITDA
   
6,759
     
10,225
     
18,199
 
Resort Reported EBITDA
   
171,148
     
230,786
     
225,927
 
Real Estate Reported EBITDA
   
44,080
     
45,937
     
(2,482
)
Total Reported EBITDA
   
215,228
     
276,723
     
223,445
 
Depreciation and amortization
   
(107,213
)
   
(93,794
)
   
(87,664
)
Relocation and separation charges
   
--
     
--
     
(1,433
)
Loss on disposal of fixed assets, net
   
(1,064
)
   
(1,534
)
   
(1,083
)
Investment income, net
   
1,793
     
8,285
     
12,403
 
Interest expense, net
   
(27,548
)
   
(30,667
)
   
(32,625
)
Loss on sale of business, net
   
--
     
--
     
(639
)
Contract dispute credit (charges), net
   
--
     
11,920
     
(4,642
)
Gain on put option, net
           
--
     
690
 
Minority interest in income of consolidated subsidiaries, net
   
(1,602
)
   
(4,920
)
   
(7,801
)
Income before provision for income taxes
   
79,594
     
166,013
     
100,651
 
Provision for income taxes
   
(30,644
)
   
(63,086
)
   
(39,254
)
Net income
 
$
48,950
   
$
102,927
   
$
61,397
 

The following table reconciles Net Debt (defined as long-term debt plus long-term debt due within one year less cash and cash equivalents) (in thousands):

   
July 31,
   
2009
 
2008
Long-term debt
 
$
491,608
 
$
541,350
Long-term debt due within one year
   
352
   
15,355
Total debt
   
491,960
   
556,705
Less: cash and cash equivalents
   
69,298
   
162,345
Net Debt
 
$
422,662
 
$
394,360

Liquidity and Capital Resources

Significant Sources of Cash

Historically, the Company has lower cash available as of its fiscal year end (as well as at the end of its first fiscal quarter of each year) as compared to its second and third fiscal quarters end primarily due to the seasonality of its Mountain segment operations.  Additionally, cash provided by operating activities can be significantly impacted by the timing or mix of closings on and investment in real estate development projects.  The Company had $69.3 million of cash and cash equivalents as of July 31, 2009, compared to $162.3 million as of July 31, 2008.  The Company generated $134.3 million of cash from operating activities during Fiscal 2009 compared to $217.0 million and $118.4 million generated during Fiscal 2008 and Fiscal 2007, respectively.  The Company currently anticipates that Resort Reported EBITDA will continue to provide a significant source of future operating cash flows.  Additionally, anticipated closings of real estate projects currently under development will provide a source of future cash flows from operations in fiscal year 2010 and beyond, partially offset by further investments in real estate to complete these projects (as further discussed below within Significant Uses of Cash).

In addition to the Company’s $69.3 million of cash and cash equivalents at July 31, 2009, the Company has available $304.7 million under its Credit Facility (which represents the total commitment of $400.0 million less certain letters of credit outstanding of $95.3 million). The Company’s plan to self-fund its current real estate under development (the Company estimates to incur between $190 million and $210 million in cash expenditures subsequent to July 31, 2009 for projects under development) combined with historically lower operating cash flows during the Company’s first fiscal quarter will likely require the Company to borrow under the revolver component of its Credit Facility from time to time beginning in the first quarter of fiscal 2010.  The Company expects that its liquidity needs in the near term will be met by continued utilization of operating cash flows (primarily those generated in its second and third fiscal year quarters) and borrowings under the Credit Facility.  The Company believes the Credit Facility, which matures in 2012, provides adequate flexibility and is priced favorably with any new borrowings currently being priced at LIBOR plus 0.75%.

Fiscal 2009 compared to Fiscal 2008

Net cash provided by operating activities decreased $82.7 million for Fiscal 2009 compared to Fiscal 2008 and was primarily impacted by the timing and mix of real estate closings as proceeds from Real Estate sales decreased $105.7 million and deposits received on projects under development decreased $43.7 million, partially offset by a reduction in investments in real estate of $55.9 million.  Further contributing to the decrease in cash provided by operating activities was a decrease in cash generated by resort operations including a decrease in Resort Reported EBITDA of $59.6 million for Fiscal 2009 compared to Fiscal 2008 and a decline in accounts payable and other accrued liabilities of $25.5 million primarily as a result of a decline in real estate investment activity and lower trade payables associated with lower operating volume, as well as the receipt of $11.9 million in cash (net of legal costs) for the Cheeca settlement in Fiscal 2008.  Offsetting the above items was the receipt of $40.8 million in proceeds for the final installment related to private club initiation fees to the Vail Mountain Club that opened in November 2008 and a reduction in restricted cash of $51.1 million which became available for general purpose use due to the payoff of the Company’s non-recourse real estate financings.

Cash used in investing activities decreased by $3.5 million for Fiscal 2009 due to a decrease in resort capital expenditures of $44.4 million offset by the acquisition of CME for $38.2 million.

Cash used in financing activities decreased $54.6 million primarily due to a decrease in repurchased common stock of $77.3 million in Fiscal 2009 compared to Fiscal 2008, which was partially offset by an increase in net payments of debt related to non-recourse real estate financings of $11.9 million and the payment of $15.0 million for a scheduled debt maturity during Fiscal 2009.

Fiscal 2008 compared to Fiscal 2007

Net cash provided by operating activities increased $98.6 million for Fiscal 2008 compared to Fiscal 2007 and was impacted by the timing and mix of real estate closings as proceeds from Real Estate sales increased $144.1 million which was partially offset by a decrease in deposits received on projects under development of $27.6 million and an increase in investments in real estate of $38.3 million.  Additionally, the Company received $11.9 million in cash (net of legal costs) for the Cheeca settlement in Fiscal 2008.  Further contributing to the increase in cash provided by operating activities was an increase in cash generated by resort operations including an increase in Resort Reported EBITDA of $4.9 million for Fiscal 2008 compared to Fiscal 2007.

Cash used in investing activities increased by $16.0 million for Fiscal 2008 due to an increase in resort capital expenditures of $31.7 million partially offset by the purchase of an additional interest in the Company’s retail/rental operations, SSI Venture LLC, during Fiscal 2007 for $8.4 million.

Net cash provided by financing activities for Fiscal 2008 decreased by $190.1 million compared to Fiscal 2007 due to the decrease in net non-recourse borrowings of $111.0 million as well as an $84.6 million increase in repurchases of the Company’s common stock during Fiscal 2008.  Additionally, cash proceeds from the exercise of stock options decreased by $14.6 million (including tax benefits) for Fiscal 2008 compared to Fiscal 2007. 

Significant Uses of Cash

The Company’s cash needs currently include providing for operating expenditures as well as capital expenditures for both assets to be used in operations and real estate projects under construction.

The Company expects to spend approximately $160 million to $180 million in calendar year 2009 for real estate under development, including the construction of associated resort-related depreciable assets, of which approximately $90 million was spent as of July 31, 2009, leaving approximately $70 million to $90 million to spend in the remainder of the calendar year 2009.  The Company has entered into contracts with third parties to provide services to the Company throughout the course of project development; commitments for future services to be performed under such current contracts total approximately $164 million and are expected to be performed primarily over the next two years.

The Company has historically invested significant cash in capital expenditures for its resort operations, and expects to continue to invest in the future; however, plans for such investment in the near term have been reduced given the significant level of capital expenditures made in the past few years including individually significant projects that do not annually re-occur including gondolas and major hotel renovations coupled with the current economic recession.  Current capital expenditure levels will primarily include investments that allow the Company to maintain its high quality standards, as well as certain incremental discretionary improvements at the Company’s five ski resorts and throughout its owned hotels.  The Company evaluates additional capital improvements based on expected strategic impacts and/or expected return on investment.  The Company currently anticipates it will spend approximately $50 million to $60 million of resort capital expenditures for calendar year 2009, excluding resort depreciable assets arising from real estate activities noted above, of which approximately $20 million was spent as of July 31, 2009, leaving approximately $30 million to $40 million to spend in the remainder of the calendar year 2009.  Included in these capital expenditures are approximately $32 million to $37 million which are necessary to maintain appearance and level of service appropriate to the Company’s resort operations, including routine replacement of snow grooming equipment and rental fleet equipment.  The Company currently plans to utilize cash on hand, borrowing available under its Credit Facility and/or cash flow from future operations to provide the cash necessary to execute its capital plans.

Principal payments on the vast majority of the Company’s long-term debt ($489.2 million of the total $492.0 million debt outstanding as of July 31, 2009) are not due until fiscal 2014 and beyond.  As of July 31, 2009 and 2008, total long-term debt (including long-term debt due within one year) was $492.0 million and $556.7 million, respectively, with the decrease at July 31, 2009 being primarily due to the pay-off of the non-recourse real estate financings related to the Company’s vertical development projects and the payment of a scheduled debt maturity.  Net Debt (defined as long-term debt plus long-term debt due within one year less cash and cash equivalents) increased from $394.4 million as of July 31, 2008 to $422.7 million as of July 31, 2009 due primarily to the decrease in cash and cash equivalents partially offset by the pay-off of the Company’s non-recourse real estate financings.

The Company’s debt service requirements can be impacted by changing interest rates as the Company had $52.6 million of variable-rate debt outstanding as of July 31, 2009.  A 100-basis point change in LIBOR would cause the Company’s annual interest payments to change by approximately $0.5 million.  The fluctuation in the Company’s debt service requirements, in addition to interest rate changes, may be impacted by future borrowings under its Credit Facility or other alternative financing arrangements, including non-recourse real estate financings, it may enter into.  The Company’s long term liquidity needs are dependent upon operating results that impact the borrowing capacity under the Credit Facility, which can be mitigated by adjustments to capital expenditures, flexibility of investment activities and the ability to obtain favorable future financing.  The Company can respond to liquidity impacts of changes in the business and economic environment by managing its capital expenditures and the timing of new real estate development activity.

On March 9, 2006, the Company’s Board of Directors approved the repurchase of up to 3,000,000 shares of common stock and on July 16, 2008 approved an increase of the Company’s common stock repurchase authorization by an additional 3,000,000 shares.  During Fiscal 2009 the Company repurchased 874,427 shares of common stock at a cost of $22.4 million.  Since inception of this stock repurchase plan through July 31, 2009, the Company has repurchased 3,878,535 shares at a cost of approximately $147.8 million.  As of July 31, 2009, 2,121,465 shares remained available to repurchase under the existing repurchase authorization.  Shares of common stock purchased pursuant to the repurchase program will be held as treasury shares and may be used for the issuance of shares under the Company’s employee share award plans.  Acquisitions under the stock repurchase program may be made from time to time at prevailing prices as permitted by applicable laws, and subject to market conditions and other factors.  The timing as well as the number of shares that may be repurchased under the program will depend on a number of factors, including the Company’s future financial performance, the Company’s available cash resources and competing uses for cash that may arise in the future, the restrictions in the Company’s Fourth Amended and Restated Credit Agreement, dated as of January 28, 2005, as amended, between The Vail Corporation (a wholly-owned subsidiary of the Company), Bank of America, N.A. as administrative agent and the Lenders party thereto (the “Credit Agreement”) governing the Company’s Credit Facility and the Indenture, governing the 6.75% Notes, prevailing prices of the Company’s common stock and the number of shares that become available for sale at prices that the Company believes are attractive.  The stock repurchase program may be discontinued at any time.

Covenants and Limitations

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

The Company was in compliance with all restrictive financial covenants in its debt instruments as of July 31, 2009.  The Company expects it will meet all applicable financial maintenance covenants in its Credit Agreement, including the Net Funded Debt to Adjusted EBITDA ratio throughout the year ending July 31, 2010.  However, there can be no assurance that the Company will meet such financial covenants.  If such covenants are not met, the Company would be required to seek a waiver or amendment from the banks participating in the Credit Facility.  While the Company anticipates that it would obtain such waiver or amendment, if any were necessary, there can be no assurance that such waiver or amendment would be granted, which could have a material adverse impact on the liquidity of the Company.

Contractual Obligations

As part of its ongoing operations, the Company enters into arrangements that obligate the Company to make future payments under contracts such as debt agreements, construction agreements in conjunction with the Company’s development activities and lease agreements.  Debt obligations, which total $492.0 million as of July 31, 2009, are recognized as liabilities in the Company's Consolidated Balance Sheet as of July 31, 2009. Obligations under construction contracts are not recognized as liabilities in the Company’s Consolidated Balance Sheet until services and/or goods are received which is in accordance with GAAP.  Additionally, operating lease and service contract obligations, which total $81.6 million as of July 31, 2009, are not recognized as liabilities in the Company's Consolidated Balance Sheet, which is in accordance with GAAP.  A summary of the Company's contractual obligations as of July 31, 2009 is as follows (in thousands):


       
Payments Due by Period
       
Fiscal
 
2-3
 
4-5
   
More than
Contractual Obligations
 
Total
 
2010
 
years
 
years
   
5 years
Long-Term Debt (1)
 
$
491,960
 
$
352
 
$
2,132
 
$
390,538
 
$
98,938
Fixed Rate Interest (1)
   
165,958
   
29,634
   
59,073
   
58,975
   
18,276
Operating Leases and Service Contracts
   
81,608
   
17,350
   
23,710
   
16,847
   
23,701
Purchase Obligations (2)
   
380,884
   
309,812
   
71,072
   
--
   
--
Other Long-Term Obligations (3)
   
1,882
   
340
   
132
   
106
   
1,304
Total Contractual Cash Obligations
 
$
1,122,292
 
$
357,488
 
$
156,119
 
$
466,466
 
$
142,219

(1)           The fixed-rate interest payments, as well as long-term debt payments, included in the table above assume that all fixed-rate debt outstanding as of July 31, 2009 will be held to maturity.  Interest payments associated with variable-rate debt have not been included in the table.  Assuming that the amounts outstanding under variable-rate long-term debt as of July 31, 2009 are held to maturity, and utilizing interest rates in effect at July 31, 2009, the Company’s annual interest payments (including commitment fees and letter of credit fees) on variable rate long-term debt as of July 31, 2009 is anticipated to be approximately $1.0 million for at least each of the next five years.  The future annual interest obligations noted herein are estimated only in relation to debt outstanding as of July 31, 2009, and do not reflect interest obligations on potential future debt.
(2)           Purchase obligations include amounts which are classified as trade payables, real estate development payables, accrued payroll and benefits, accrued fees and assessments, accrued taxes (including taxes for uncertain tax positions), liabilities to complete real estate projects on the Company's Consolidated Balance Sheet as of July 31, 2009 and other commitments for goods and services not yet received, including construction contracts not included on the Company’s balance sheet as of July 31, 2009 in accordance with GAAP.
(3)           Other long-term obligations include amounts which become due based on deficits in underlying cash flows of the metropolitan district as described in Note 14, Commitments and Contingencies, of the Notes to Consolidated Financial Statements.

Off Balance Sheet Arrangements

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

Critical Accounting Policies

The preparation of Consolidated Financial Statements in conformity with GAAP requires the Company to select appropriate accounting policies and to make judgments and estimates affecting the application of those accounting policies.  In applying the Company's accounting policies, different business conditions or the use of different assumptions may result in materially different amounts reported in the Consolidated Financial Statements.
 
The Company has identified the most critical accounting policies which were determined by considering accounting policies that involve the most complex or subjective decisions or assessments.  The Company also has other policies considered key accounting policies; however, these policies do not meet the definition of critical accounting policies because they do not generally require the Company to make estimates or judgments that are complex or subjective.  The Company has reviewed these critical accounting policies and related disclosures with the Company’s Audit Committee of the Board of Directors.

 
Real Estate Revenue and Cost of Sales.

Description

The Company utilizes the relative sales value method to determine cost of sales for individual parcels of real estate and/or condominium units sold within a project, when specific identification of costs cannot be reasonably determined.  The determination of cost of sales may utilize estimates for the fair value of resort depreciable assets that may be part of a mixed-use real estate development project and total costs to be incurred on a real estate development project.

Judgments and Uncertainties

Changes to either the relative sales values of the components of a project, which may include resort depreciable assets, or the total projected costs to be incurred to determine cost of sales may cause significant variances in the profit margins recognized on individual parcels of real estate and/or condominium units within a project.

Effect if Actual Results Differ From Assumptions

A 10% change in the estimates of either the relative sales values of the components of a project or remaining costs to be incurred for projects utilizing the relative sales value method would have changed the profit margin recognized by approximately $7.7 million for Fiscal  2009.

Goodwill and Intangible Assets.

Description
 
The carrying value of goodwill and indefinite-lived intangible assets are evaluated for possible impairment on an annual basis or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or indefinite-lived intangible asset below its carrying value.  Other intangible assets are evaluated for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.  The Company is required to determine goodwill impairment using a two-step process.  The first step is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount.  If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any.  If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.  The impairment test for indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value.  If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Judgments and Uncertainties
 
Application of the goodwill and indefinite-lived intangible asset impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and determination of the fair value of reporting units and indefinite-lived intangible assets.  The Company determines the estimated fair value of its reporting units using a discounted cash flow analysis.  The estimated fair value of indefinite-lived intangible assets is primarily determined using the income approach based upon estimated future revenue streams.  These analyses require significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, available industry/market data, estimation of the long-term rate of growth for the Company’s business, estimation of the useful life over which cash flows will occur (including terminal multiples), and determination of the respective weighted average cost of capital.  Changes in these estimates and assumptions could materially affect the determination of fair value and impairment for each reporting unit and indefinite-lived intangible asset.  The Company evaluates its reporting units on an annual basis and allocates goodwill to its reporting units based on the reporting units expected to benefit from the acquisition generating the goodwill. 

Effect if Actual Results Differ From Assumptions

Goodwill and indefinite-lived intangible assets are at least tested for impairment annually as of May 1st of each year.  Based upon the Company’s annual impairment test during the fourth fiscal quarter of 2009 the estimated fair value of the Company’s reporting units and indefinite-lived intangible assets were in excess of their respective carrying values.  As such, no impairment of goodwill or indefinite-lived intangible assets was recorded.

In order to evaluate the sensitivity of the estimated fair value calculations of the Company’s reporting units and indefinite-lived intangible assets, the Company applied a hypothetical 10% decrease to the estimated fair values of the Company's reporting units and indefinite-lived intangible assets.  This hypothetical decrease of 10% would not have had an impact on the conclusion that the estimated fair value of the Company’s reporting units and significant indefinite-lived intangible assets were in excess of their respective carrying values.  

Tax Contingencies.

Description

The Company must make certain estimates and judgments in determining income tax expense for financial statement purposes.  These estimates and judgments occur in the calculation of tax credits and deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties relating to uncertain tax positions.  The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations.  The Company recognizes liabilities for uncertain tax positions based on a two-step process.  The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.  The second step requires the Company to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.  It is inherently difficult and subjective to estimate such amounts, as this requires the Company to determine the probability of various possible outcomes.  This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity.  A significant amount of time may pass before a particular matter, for which the Company may have established a reserve, is audited and fully resolved.  

Judgments and Uncertainties

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

Effect if Actual Results Differ From Assumptions

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

An unfavorable tax settlement could require the use of cash and could possibly result in an increased tax expense and effective tax rate in the year of resolution.  A favorable tax settlement could possibly result in a reduction in the Company's tax expense, effective tax rate, income taxes payable, other long-term liabilities and/or adjustments to its deferred tax assets, deferred tax liabilities or intangible assets in the year of settlement or in future years.

Depreciable Lives of Assets.

Description

Mountain and lodging operational assets, furniture and fixtures, computer equipment, software, vehicles and leasehold improvements are primarily depreciated using the straight-line method over the estimated useful life of the asset.  Assets may become obsolete or require replacement before the end of their useful life in which the remaining book value would be written-off or the Company could incur costs to remove or dispose of assets no longer in use.

Judgments and Uncertainties

The estimates of the Company’s useful life of the assets contain uncertainty because management must use judgment to estimate the useful life of the asset.

Effect if Actual Results Differ From Assumptions

Although management believes that the estimates and judgments discussed herein are reasonable, actual results could differ, and the Company may be exposed to increased expense related to depreciable assets disposed of, removed or taken out of service prior to its originally estimated useful life, which may be material.  A 10% decrease in the estimated useful lives of depreciable assets would have increased depreciation expense by approximately $11.3 million for Fiscal 2009.

New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value.  In February 2008, the FASB issued Staff Position (“FSP”) 157-2, “Effective Date of FASB Statement No. 157.”  This FSP delayed the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008 (the Company's fiscal year ending July 31, 2010) and interim periods within the fiscal year of adoption.  The adoption of SFAS 157 for financial assets and liabilities was effective for the Company on August 1, 2008 and did not have a material impact on the Company’s financial position or results of operations.  The Company does not anticipate that the adoption of the provisions of SFAS 157 for nonfinancial assets and liabilities will have a material impact on the Company’s financial position or results of operations.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination.  SFAS 141R also requires acquisition-related transaction expenses and restructuring costs be expensed as incurred rather than capitalized as a component of the business combination.  SFAS 141R will be applicable prospectively to business combinations consummated after July 31, 2009 (the Company’s fiscal year ending July 31, 2010).

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the balance sheet.  Currently, noncontrolling interests (minority interests) are reported as a liability in the Company’s consolidated balance sheet and the related income (loss) attributable to minority interests is reflected as an expense (credit) in arriving at net income.  Upon adoption of SFAS 160, the Company will be required to report its minority interests as a separate component of stockholders’ equity and present net income allocable to the minority interests along with net income attributable to the stockholders of the Company separately in its consolidated statement of operations.  SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests.  All other requirements of SFAS 160 shall be applied prospectively.  The requirements of SFAS 160 are effective for the Company beginning August 1, 2009 (the Company’s fiscal year ending July 31, 2010).

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP 115-2”) which establishes a new model for measuring other-than-temporary impairments for debt securities, including establishing criteria for when to recognize a write-down through earnings versus other comprehensive income.  The FSP also requires additional interim and annual disclosures for impaired securities.  The requirements of the FSP were effective for the Company as of July 31, 2009 and did not have a material impact on the Company’s financial position or results of operations.

In May 2009, the FASB issued SFAS 165, “Subsequent Events” (“SFAS 165”) which establishes the general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  SFAS 165 requires entities to recognize in their financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.  Entities shall not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date.  In addition, entities are required to disclose the period through which subsequent events have been evaluated.  The provisions of SFAS 165 were effective for the Company as of July 31, 2009.

In June 2009, the FASB issued SFAS 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”) which amends the consolidation guidance under FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (“FIN 46R”).  SFAS 167 requires entities to perform a qualitative assessment in determining the primary beneficiary of a variable interest entity.  The qualitative assessment includes, among other things, consideration as to whether a variable interest holder has the power to direct the activities that most significantly impact the economic performance of the variable interest entity and the obligation to absorb losses or the right to receive benefits of the variable interest entity that could potentially be significant to the variable interest entity.  Pursuant to SFAS 167, the requirement to assess whether an entity should be deemed the primary beneficiary is an on-going reconsideration.  The provisions of SFAS 167 are effective for the Company beginning August 1, 2011 (the Company’s fiscal year ending July 31, 2012).  The Company is currently evaluating the impacts, if any, the adoption of the provisions of  SFAS 167 will have on the Company’s financial position or results of operations.

Inflation

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

Seasonality and Quarterly Results

The Company's mountain and lodging operations are seasonal in nature.  In particular, revenue and profits for the Company's mountain and most of its lodging operations are substantially lower and historically result in losses from late spring to late fall.  Conversely, peak operating seasons for GTLC, certain managed hotel properties and the Company's owned golf courses occur during the summer months while the winter season results in operating losses.  Revenue and profits generated by GTLC's summer operations, management fees from certain managed properties, certain other lodging properties and golf operations are not nearly sufficient to fully offset the Company's off-season losses from its mountain and other lodging operations.  During Fiscal 2009, 79% of total combined Mountain and Lodging segment net revenue was earned during the second and third fiscal quarters.  Therefore, the operating results for any three-month period are not necessarily indicative of the results that may be achieved for any subsequent quarter or for a full year (see Note 16, Selected Quarterly Financial Data, of the Notes to Consolidated Financial Statements).

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

Interest Rate Risk.  The Company's exposure to market risk is limited primarily to the fluctuating interest rates associated with variable rate indebtedness.  At July 31, 2009, the Company had $52.6 million of variable rate indebtedness, representing 10.7% of the Company's total debt outstanding, at an average interest rate during Fiscal 2009 of 2.8%.  Based on variable-rate borrowings outstanding as of July 31, 2009, a 100-basis point (or 1.0%) change in LIBOR would result in the Company's annual interest payments to change by $0.5 million.  The Company's market risk exposure fluctuates based on changes in underlying interest rates.

ITEM 8.                      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Vail Resorts, Inc.

Consolidated Financial Statements for the Years Ended July 31, 2009, 2008 and 2007

F-2
   
F-3
   
Consolidated Financial Statements
 
F-4
F-5