Vail
Resorts, Inc.
390
Interlocken Crescent,
Suite
1000
Broomfield,
CO 80021
June
7,
2007
Mr.
Michael Fay
Securities
and Exchange Commission
Division
of Corporation Finance
Mail
Stop
3561
Washington,
DC 20549
Re:
Vail
Resorts, Inc.
File
No. 001-09614
Form
10-K: For the Fiscal Year Ended July 31, 2006
Dear
Mr.
Fay:
We
have
set forth below our response to the comment of the Securities and Exchange
Commission (the “Commission”) staff (the “Staff”) in the letter from the Staff
dated May 11, 2007, regarding the Annual Report on Form 10-K filed by Vail
Resorts, Inc. (the “Company”) for the fiscal year ended July 31, 2006 (the “Form
10-K”).
Form
10-K: For the Fiscal Year Ended July 31, 2006
Item
8. Financial Statements and Supplementary Data
Consolidated
Statements of Cash Flows
Comment
1: We have reviewed your response to our prior comment number 2. However, we
believe that cash outflows related to i) investments in real estate and ii)
the
development of acquired real estate properties should be classified in the
operating activities section of your statement of cash flows, to the extent
that
such properties are going to be sold to third parties. In this regard, we note
from the “Item 1. Business” section of your 10-K that your company- through Vail
Resorts Development Company - actively participates in the planning, oversight,
marketing, infrastructure improvement and development of real property that
is
to be sold to third parties. In addition, we note that you i) regard your real
estate development activities as a separate operating
segment of your company, ii) recognize proceeds from the sale of real property
as revenues (and therefore, cash inflows from operating activities), and iii)
recognize cash received from real property sales accounted for under the
“deposit method” (i.e., deferred real estate credits) in the operating
activities section of your statement of cash flows. Given the aforementioned
factors, we do not believe it is appropriate to report the cash outflows
associated with the acquisition and/or development of real property that will
be
sold to third parties in the investing activities section of your statement
of
cash flows, as such treatment does not appear consistent with the classification
of the cash inflows generated from the sale of these properties.
Furthermore,
we note from your response that you believe it is appropriate to report cash
used for “Investments in real estate” as an investing activity in your statement
of cash flows because you believe that the more predominant source of future
cash flows attributable to your real estate investments will be derived from
your mountain lodging operations. As such, you believe that the cash outflows
are reflective of investments in productive assets. However, it appears that
your conclusion is based upon the assumption that cash inflows realized by
your
mountain and lodging operations will increase due to the proximity of your
real
estate development projects to your resort operations. In this regard, it
appears that your analysis of the predominant source of future cash flows
associated with real estate projects that will be developed and then sold is
based upon the indirect
cash
flow benefits that you expect
your
mountain and lodging operations to experience as a result of the locations
of
these real estate development projects. However, we do not believe that the
indirect cash flow benefits that you expect to receive after the sale of
developed real property should outweigh the direct
cash
flows that will be received from the sale of the developed real property, when
A) analyzing the underlying substance of your real estate development activities
and B) determining the appropriate cash flow classification of such activities.
Furthermore, we note that the indirect cash flow benefits realized by your
mountain and lodging operations as a result of your real estate development
activities are not realized until after the real property is no longer your
asset, and such benefits may not be directly measurable or
supportable.
For
each of the aforementioned reasons, we believe that you are required to classify
your cash outflows in the operating activities section of your statement of
cash
flows to the extent they relate to “Investments in real estate” which is
purchased or is developed to be sold to third parties. As such, please revise
the presentation in your consolidated statements of cash flows. In addition,
please tell us in detail a) the amount of cash used for investments in real
estate that will be reclassified, b) how such amount was determined, c) and
the
nature and amount(s) of any significant cash outflows related to your
investments in real estate that you plan to continue to report in the investing
activities section of your cash flow statement.
Response
1: Pursuant to the telephone conversations conducted during the weeks of May
21,
2007 and May 28, 2007, between the Staff, the Company, and the Company’s
independent registered public accounting firm, PricewaterhouseCoopers LLP
(including a representative of their national office), the Company sets forth
its response and alternative presentation as requested by the Staff.
The
Company has three principal business segments: Mountain, Lodging, and Real
Estate. The Company’s Mountain segment owns and operates five premier ski resort
properties which provide a comprehensive resort experience throughout the year
to a diverse clientele with an attractive demographic profile. The Company’s
Lodging segment owns/or manages a collection of luxury hotels, a series of
strategic lodging properties located in proximity to the Company’s ski resorts,
a destination resort at Grand Teton National Park, the Jackson Hole Golf &
Tennis Club, as well as other golf clubs proximate to its resort operations.
Collectively, the Mountain and Lodging segments are considered the Resort
segment that represents the primary operations of the Company. The Company’s
Real Estate segment holds, develops, buys and in certain situations sells real
estate in and around the Company’s resort communities.
All
of
the Company’s holdings of real property are located at its resorts throughout
Summit and Eagle Counties in Colorado and in Teton County, Wyoming. The
Company’s real estate operations include the planning, oversight, marketing,
infrastructure improvement and development of the Company’s real property
holdings. The real estate operations principal activities both historically
and
currently include (1) the development of property that in addition to generating
real estate sales to third parties usually includes the creation of substantial
Company retained facilities that the resort operations use to generate new
sources of direct revenue, (2) the sale of land parcels, including improvements
to the land made by the Company, to third party developers for condominium,
townhome, cluster home, single family home, lodge and mixed-use developments,
(3) the zoning, planning, development and marketing of resort communities
including the arrangement for the construction of necessary roads, utilities
and
mountain infrastructure for the resort communities, including amenities for
the
use by the Company’s resort operations, (4) the purchase of selected strategic
land parcels, and (5) the sale of single-family homesites, including
improvements made by the Company, to individual purchasers.
The
Company’s investments in real estate have been made with significant emphasis on
the benefits to be realized by its resort operations. While the Company develops
real property that is sold to third parties, the fact that the Company has
potential alternative uses for its investments in real estate for the benefit
of
its resort operations differentiates it from a traditional real estate
development company. Additionally, of the Company’s current real estate
landholdings only two purchases were made in the last several years thus
supporting the fact that the Company does not actively acquire real estate
for
development and sales to third parties but rather looks for strategic
opportunities that can benefit the Company’s resort operations. The Company
contemplates both the sale of real estate and/or the development of resort
depreciable assets when it acquires real property since all of its real estate
holdings are proximate to its resorts. In fact, the predominant activity of
the
Company’s current development efforts include mixed-use development projects
that includes condominiums to be sold to third parties, as well as hotels,
private clubs, spas, commercial lease space and skier services facilities all
to
be owned and operated by the Company. Therefore, it is difficult (as further
explained below) to separate the majority of the Company’s investments made (at
the time of making these investments) that is expected to be sold to third
parties. Additionally, because of the mixed-use nature of the Company’s
development projects it is required at the close of a project to determine
the
project costs that will be recorded as real estate cost of sales and resort
depreciable assets using the relative sales value method as prescribed by SFAS
67. Due to the complexities of this calculation the Company uses the assistance
of outside appraisal experts to determine each of these components, so to
attempt to allocate project costs as they are incurred would be subjective
and
arbitrary. Thus applying the principles of paragraph 25 of SFAS 102 becomes
extremely difficult in concluding whether an investment is an “investing cash
outflow” or an “operating cash outflow”. For example, The Arrabelle at Vail
Square development project, currently under construction, consists of one
building that contains condominiums that will be sold to third parties, a luxury
hotel, private club, spa, commercial space, parking garage and skier services
facilities. Thus it is difficult to determine whether the components of the
project such as HVAC systems, walls, roof, land and many other common costs
should be assigned to real estate for development and sale versus resort assets
to be owned and operated as specific identification of cost is not feasible
with
substantially all costs being of common nature. Additionally, due to the
disparate nature of the components of this project the Company is prohibited
under SFAS 67 from using a simple allocation methodology such as square footage,
as the resultant answer would be substantially different from the relative
sales
value method of allocation. Furthermore, The Arrabelle at Vail Square was a
project that evolved over several years that entailed a significant amount
of
planning, zoning, design and other similar costs being incurred before the
final
decision was made as to how the land would be used which included several
reiterations of resort and real estate usage, thus further complicating the
ability to make an accurate allocation of costs between the real estate and
resort components at the time the costs are incurred. Consequently, the Company
has relied, in large part, on paragraph 24 of SFAS 95 to determine the
appropriate classification of its investments within its statements of cash
flows, of which determination only considered the direct cash flows from real
estate sales compared to the direct cash flows from those assets (as stated
above) that would be owned and operated upon the completion of the project,
and
did not include cash flows that could not be measurable or supportable.
Furthermore, it is not the intent of the Company to hold its real estate for
a
short period of time and then sell it (which paragraph 24 of SFAS 95 states
should be an operating activity) as evidenced by the fact that the vast majority
of the Company’s real estate land holdings currently held were acquired ten or
more years ago.
Additionally,
the Company believes that it has been transparent in its disclosures within
its
statements of cash flows by including in a separate line item within its
operating activity, “non-cash real estate cost of sales”, which represents
actual outflows from real estate investments made inclusive of prior periods
within the period that the cost of sales is recorded. The Company has also
reflected within its operating activities the ongoing operations of its
wholly-owned subsidiary, Vail Resorts Development Company, which has a
substantial infrastructure (including work force) to support its real estate
operations, including the marketing of real estate investments once the decision
is made to market such investments and to oversee its vertical development.
Consequently, since the Company has: 1) held its real estate holdings for many
years; 2) at the time of its initial investment it does not know the ultimate
use of its land acquisitions; 3) its development efforts include a significant
amount of mixed-use vertical development projects; 4) has been transparent
in
its disclosures within its statements of cash flow; and 5) has recorded its
Real
Estate Held for Sale and Investments as a long-term asset on its balance sheet,
it has historically concluded that it was appropriate to reflect its investments
in real estate as an investing cash outflow which has been disclosed as a
separate line item apart from its other capital expenditures. Additionally,
due
to the extended cycle between the initial cash outflow for investments in real
estate and the inflow from revenues generated from real estate sales (several
years in many cases), the Company has classified its real estate investments
as
a long-term asset and its related outflows as an investing activity as the
majority of the Company’s cash outflows and inflows from operating activities
occur in a one-year or less operating cycle which are primarily driven by its
more significant resort operations.
The
above
conclusion is also supported by the principles as set forth in paragraph 54
of
Concept Statement No. 5 and as further noted by a member of the Financial
Accounting Standards Board in SFAS 95 in that the statements of cash flows
should present few recognition problems because all cash receipts and payments
are recognized when they occur and involves no issues of recognition,
measurement, or estimation, which otherwise would arise if the Company were
to
attempt to allocate costs at the inception of a project or acquisition of
landholdings. This also would result in true-up adjustments during and at the
completion of projects which would not be reflected within the statements of
cash flows as these adjustments would be non-cash items. Additionally, the
Company is of the belief that paragraph 25 of SFAS 102 does not address the
unique nature of the Company’s dual benefit and alternative uses of its real
estate investments as it only presents an “either/or” conclusion. Virtually all
of the Company’s real estate sales include a component of an investment decision
and an operating activity and if the Company were to attempt to bifurcate the
cash outflows, the result would be a misrepresentative presentation to the
reader of its financial statements as it would infer that the cash outflows
from
operating and investing activities are distinguishable, distinct and exact.
Finally, to introduce this level of preciseness creates a significant amount
of
subjectivity caused by the attempt to classify real estate investment as either
operating or investing at the time of incurring such outflow, which is typically
not known, which in the end weakens rather than enhances the statements of
cash
flows. Therefore, the Company maintains its belief that its historical
presentation is accurate and supported by the applicable technical accounting
literature.
With
that
said, the Company also appreciates the differing view of the Staff that there
appears to be a disconnect between the Company’s cash outflows for real estate
investments reflected as an investing activity and its cash inflows in the
form
of revenues from real estate sales as an operating activity. In an effort to
be
responsive to the Staff’s comments and to address the unique activities of the
Company’s real estate operations and the guidance provided by paragraph 25 of
SFAS 102, the Company would be willing to consider an alternative presentation
to be reflected in its future periodic filings in its statements of cash flows
as previously presented in its Form 10-K for the fiscal year ended July 31,
2006
and its prospective filings with the SEC. The Company’s suggested alternative
presentation is to reflect the cash inflows from real estate sales that
represent the actual amount of recovery of its investments in real estate (i.e.
“non-cash real estate cost of sales”) as an investing activity. This alternative
presentation is supported by the fact that the statements of cash flows will
reflect, in operating activities, precisely the same number for real estate
cost
of sales that is reflected in the Company’s statement of operations, and in
investing activities, the exact cash inflow for the recovery of the Company’s
cash outflow of its real estate investment, resulting in the gross profit margin
being reflected within operating activities, which presentation would be
consistent with the classification of the Company’s profit margin, inclusive of
the ongoing operating expenses of its Real Estate segment, which are also
reflected as an operating activity. This alternative presentation also addresses
the Company’s difficulty of not being able to estimate at the time that real
estate investments are made what eventually will be sold to third parties or
used in its resort operations due to either not knowing at the time of
acquisition of land its ultimate use or the fact that a significant portion
of
its vertical development efforts include mixed-use development projects as
virtually all of the Company’s real estate sales are generated from an
investment decision and operating activities. Additionally, as the Company
has
previously stated, it does not know the exact amount of real estate cost of
sales for its mixed-use projects until the project is completed and in virtually
all cases will engage the use of outside appraisal experts to determine the
real
estate cost of a sales and the resort depreciable assets comprising a project
based upon the relative sales value method. Additionally, this alternative
presentation embraces the principles as set forth in paragraph 54 of Concept
Statement 5 as this alternative presentation provides no issues with regards
to
recognition, measurement or estimation and provides strong consistency between
the Company’s Statements of Cash Flows and its Statements of
Operations.
Please
find enclosed as Attachment I, the “As Presented” and “Alternative Presentation”
Statements of Cash Flows of the Company for the fiscal years ended July 31,
2006, 2005 and 2004, including additional disclosure within the Company’s
Summary of Significant Accounting Policies reflecting the alternative
presentation. This alternative presentation has also been reviewed with
PricewaterhouseCoopers LLP including their national office and they are in
agreement with this presentation as an acceptable alternative to the Company’s
current treatment and presentation.
Additionally,
it is our understanding that the Staff desires to understand how the Company’s
statements of cash flows would be presented if it were to attempt to allocate
its cash inflows and outflows related to its investments in real estate. The
Company reviewed each of its projects for which investment activity occurred
during the fiscal years ended 2006, 2005 and 2004, as well as, reviewed those
projects that generated revenue during the same periods and determined which
projects, with substantial hindsight, would be judged to be primarily investing
or operating using the following decision process. First, if cash outflows
were
deemed to be primarily for the purpose of resale to third parties it was
classified as an operating activity and alternatively, if cash outflows were
deemed to be primarily for investing purposes it was classified as an investing
activity. Secondly, if cash outflows were for substantially a mixed-use (i.e.
the resort component is significant compared to the real estate component)
project for which it could not be reasonably determined the allocation between
a
real estate activity and a resort activity, it was classified as an investing
activity. This conclusion was based upon the difficulties in estimating at
the
time of investment the components that will eventually be recorded as real
estate cost of sales and resort depreciable assets as previously discussed
in
this letter. Additionally, revenues generated by projects determined to be
operating cash inflows primarily as a result of the improvements that were
made
prior to the sale that increased the value of the real estate sold were
reflected in operating activities in their totality. Revenues generated by
projects determined to be investing cash inflows primarily because there were
little or no improvements made to the initial investment were reflected in
investing activities. And, for mixed-use projects, the proceeds representing
the
recovery of the investment were reflected as investing activity and the profit
margin was reflected as an operating activity. Additionally, all ongoing
expenses of the Company’s wholly-owned subsidiary, Vail Resorts Development
Company, remained in operating activities. Please find enclosed as Attachment
II
the proforma statements of cash flows of the Company for the fiscal years ended
2006, 2005, and 2004 using the above methodology.
The
conclusions reached by the Company as to the presentation of its statements
of
cash flows as a result of this process are:
1).
A
number of projects that were deemed to be operating due to the fact that the
Company made substantial improvements to the landholdings prior to sale resulted
in cash outflows in investing activities (primarily land) and cash outflows
in
operating activities (primarily improvements) while all the revenues were
reflected as operating cash inflows. Conversely, for a number of projects,
had
the landholdings been reflected as an operating cash outflow initially, there
would be a similar issue due to the land subsequently being used solely for
resort thus the land would have been recorded as an operating cash outflow
and
the improvements would have been recorded as an investing outflow.
2).
This
presentation of the statements of cash flows presents a disconnected view of
cash flows in comparison to the statements of operations and changes in the
balance sheet which we believe would be confusing and misrepresentative of
the
facts to the reader. The Company believes that this presentation implies that
all cash inflows from operating activities are solely related to cash outflows
from operating activities which is not the case. The same would be true if
the
Company had recorded all activity as operating outflows as the Company has
used
or will use a portion of its investment solely, or in part, for resort
operations.
The
following examples illustrate the above points:
Example
1
(Real estate land sale, including certain improvements): It was decided that
this land acquisition was to be used solely for resort purposes after its
acquisition. Initially, tennis courts were built on the land and used for
several years. Subsequently, it was determined to maximize the parcel’s
substantial value by marketing it as a ski-in/ski-out residential development.
Thus, the Company decided to remove the tennis courts, relocate and extend
utilities and agreed to build a new skier bridge (as required by the third
party
developer) before selling it to the third party developer. Consequently, this
project has both resort and real estate components.
Example
2
(Real estate investment activity): The Company acquired land adjacent to a
gondola at one of its resorts. The land is primarily vacant but does contain
some resort assets on a portion of the parcel (i.e. a lift ticket sales office).
The Company has been working on obtaining approvals including the moving of
density from other real estate landholdings to allow for a significant
development to be constructed by a third party developer including the marketing
of several fractional ownership units. As part of the contemplated transaction,
the developer is requiring the Company to relocate the base of its gondola
to
the parcel to be sold, thus further increasing the value of the development.
Due
to the move of the gondola, the Company is requiring the developer to build
retail space to be owned and operated by the Company for a ticket office, rental
shop and ski school facility. Consequently, this project has both operating
and
investing cash outflows and potentially cash inflows from operations from the
sale of improved land and incremental direct revenues from its new retail
space.
Example
3
(Conversion of a hotel to condominiums): The Company acquired a hotel proximate
to one of its resorts. After operating the hotel for several years, the Real
Estate segment spent substantial planning, redesign and improvement dollars
in
an effort to convert the hotel to condominiums. In addition, there are a few
condominiums, including one owned by the Company, within the hotel.
Subsequently, the decision was made that the renovation of the hotel should
be
for the continued operation of the hotel as a resort asset. Thus, this project
as well as many other Company owned hotels have both an investing and operating
component to cash outflows when the Company invests into renovations that could
lead to either a real estate activity from the sales in the form of condominiums
or the continued operation of the hotel as a resort depreciable asset or a
combination of both as the Company has mixed-use hotel and condominium
properties.
3).
Because of the Company’s current and planned substantial mixed-use development,
if it were to attempt to allocate cash outflows between operating (for real
estate sales) and investing (for resort depreciable assets), the Company
believes that due to the difficulties in estimating these costs, there would
continue to be a disconnect between the statements of cash flows and the
statements of operations. This is due to the fact that plans change during
the
course of planning, designing and constructing a mixed-use project as the
Company has historically experienced. Additionally, the relative sales value
of
the components of a mixed-use project will inevitably change during the extended
construction period of these projects. As stated previously, the appropriate
allocation that is required to be made under SFAS 67 is a complex process that
includes many variables that cannot be determined with accuracy until the
project is completed, and requires the use of experts to determine the
appropriate valuations for allocation purposes. Finally, SFAS 95 does not
contemplate the use of prior period true-ups for changes in estimates as these
are non-cash events, and as such, there will likely be material disconnects
between what is reflected in the statements of operations and the statements
of
cash flows if allocations were attempted.
4).The
classifications of cash outflows in this presentation requires substantial
judgment as to the estimated type and cost of improvements of a project at
the
onset that would dictate such classification. Additionally, this presentation
requires the use of estimates that will change over the life of a project
without the use of hindsight and also requires the use of several line items
within both the operating and investment activities’ section of the statements
of cash flows for real estate activity that will be confusing to the users
of
the financial statements who are mostly interested in the total investment
in
real estate and proceeds from real estate sales, which is much more transparent
in the Company’s current or alternative presentation.
Additionally,
please find below the nature of the transactions generating real estate sales
and the expenses comprising the Real Estate segment for the fiscal years ended
July 31, 2006, 2005 and 2004:
|
(in
thousands)
|
|||||||
|
Year
Ended 7/31/06
|
Year
Ended 7/31/05
|
Year
Ended 7/31/04
|
|||||
|
Revenues:
|
|||||||
|
Land
Sales, Including Improvements
|
$
|
25,983
|
$
|
39,525
|
$
|
37,076
|
|
|
Land
Sales, Without Improvements
|
897
|
7,847
|
2,950
|
||||
|
Contingent
Gains on Prior Period Land Sales
|
10,135
|
3,967
|
-
|
||||
|
Real
Estate Involving Vertical Development:
|
|||||||
|
-Townhomes/Condos
|
24,478
|
-
|
4,026
|
||||
|
-Cabins
|
-
|
9,135
|
-
|
||||
|
-Parking
Garage
|
-
|
11,684
|
-
|
||||
|
Marketing
& Management Fees
|
830
|
623
|
1,039
|
||||
|
Other
|
281
|
-
|
32
|
||||
|
Total
Revenues
|
$
|
62,604
|
$
|
72,781
|
$
|
45,123
|
|
|
Expenses:
|
|||||||
|
Cost
of Sales
|
35,121
|
38,425
|
(1,654)
|
(1)
|
|||
|
Commission
Expense
|
2,217
|
1,289
|
1,034
|
||||
|
Labor
& Benefits
|
5,287
|
4,741
|
5,686
|
||||
|
Marketing
and S,G&A
|
14,051
|
13,799
|
11,725
|
||||
|
Equity
(income) loss
|
(791)
|
102
|
(460)
|
||||
|
Gain
on transfer of property, net
|
-
|
-
|
(2,147)
|
||||
|
Real
Estate Reported EBITDA
|
$
|
6,719
|
$
|
14,425
|
$
|
30,939
|
|
|
(1)
Includes a $15.1 million true-up for the reversal of a commitment
liability, which was relieved, that was recorded as cost of sales
in prior
periods.
|
|||||||
A
further
description of the above sales transactions is provided below:
Land
sales, including improvements: These sales were derived from ten different
projects in which substantial improvements were made. All sales included land
parcels that the Company had held for several years and the improvements
included the construction or relocation of utilities and the extension of roads.
Additionally, three of the projects included the demolition or relocation of
resort assets that were situated on a portion of the parcel. Also, sales from
two projects included the construction (or planned construction) of significant
resort assets.
Land
sales, without improvements: These sales primarily included one land sale,
including a warehouse, for which the company made no improvements, deferred
land
gains from land contributed to a real estate joint venture, and the sale of
three condominiums that the Company had purchased in a prior
period.
Contingent
land gains: This consists of revenues earned from third party developers for
land, including certain improvements, sold in a prior period. The proceeds
received by the Company are triggered by sales of condominiums, townhomes,
and
single family homes by the developer when the sales proceeds to the developer
exceed a certain level.
Real
estate involving vertical improvements: These sales include the sale of
townhomes, cabins and a parking garage of which development efforts were managed
by Vail Resorts Development Company. The townhomes sales were part of the
Company’s redevelopment efforts in the Town of Vail’s Lionhead area which is a
major portal to the Company’s Vail Ski Mountain of which the entire development
includes a significant resort development component. The cabins sales were
adjacent to the Company’s Jackson Hole Golf & Tennis Club of which
development includes a new clubhouse and substantial improvements to its golf
course and tennis courts. The parking garage is part of the Company’s
redevelopment efforts in Vail Village, another major portal to the Company’s
Vail Ski Mountain of which development includes a significant resort development
component and the construction of thirteen townhomes to be sold to third
parties.
PricewaterhouseCoopers
LLP, including members of their national office, has reviewed this letter and
agrees with management’s conclusions as stated in this letter with regards to
the appropriateness of the Company’s historical classification of its Real
Estate cash inflows and outflows within its Statements of Cash Flows and that
the alternative presentation as set forth by management and as depicted in
Attachment I of this letter is an acceptable alternative presentation to be
reflected in future periodic filings.
As
requested by the Staff, we are providing the following
acknowledgements:
| · |
the
Company is responsible for the adequacy and accuracy of the disclosure
in
its filings;
|
| · |
Staff
comments or changes to disclosure in response to Staff comments do
not
foreclose the Commission from taking any action with respect to the
filing; and
|
| · |
the
Company may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
|
If
you
have any further questions or require additional information, please do not
hesitate to contact me at 303-404-1802.
Sincerely,
/s/
Jeffrey W. Jones
Jeffrey
W. Jones
Senior
Executive Vice President and
Chief
Financial Officer
Attachment
I
Vail
Resorts, Inc.
(In
thousands)
|
Year
Ended July 31,
|
|||||||||||||||||||
|
2006
|
2005
|
2004
|
|||||||||||||||||
|
As
Presented
|
Alternative
Presentation
|
As
Presented
|
Alternative
Presentation
|
As
Presented
|
Alternative
Presentation
|
||||||||||||||
|
Cash
flows from operating activities:
|
|||||||||||||||||||
|
Net
income (loss)
|
$
|
45,756
|
$
|
45,756
|
$
|
23,138
|
$
|
23,138
|
$
|
(5,959
|
)
|
$
|
(5,959
|
)
|
|||||
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|||||||||||||||||||
|
Depreciation
and amortization
|
86,098
|
86,098
|
89,968
|
89,968
|
86,377
|
86,377
|
|||||||||||||
|
Non-cash
cost of real estate sales
|
35,121
|
--
|
38,425
|
--
|
(1,654
|
)
|
--
|
||||||||||||
|
Non-cash
gain on transfer of property, net
|
--
|
--
|
--
|
--
|
(2,147
|
)
|
(2,147
|
)
|
|||||||||||
|
Non-cash
stock-based compensation expense
|
6,523
|
6,523
|
437
|
437
|
248
|
248
|
|||||||||||||
|
Asset
impairment charges
|
210
|
210
|
2,550
|
2,550
|
1,108
|
1,108
|
|||||||||||||
|
Non-cash
mold remediation (credit) charge
|
(559
|
)
|
(559
|
)
|
--
|
--
|
5,500
|
5,500
|
|||||||||||
|
(Gain)
loss on sale of businesses, net
|
(4,625
|
)
|
(4,625
|
)
|
7,353
|
7,353
|
--
|
--
|
|||||||||||
|
Loss
on extinguishment of debt
|
--
|
--
|
612
|
612
|
37,084
|
37,084
|
|||||||||||||
|
Deferred
income taxes, net
|
1,322
|
1,322
|
(7,514
|
)
|
(7,514
|
)
|
(1,018
|
)
|
(1,018
|
)
|
|||||||||
|
Minority
interest in net income of consolidated subsidiaries
|
6,694
|
6,694
|
5,239
|
5,239
|
4,000
|
4,000
|
|||||||||||||
|
Other
non-cash (income) expense, net
|
(6,291
|
)
|
(6,291
|
)
|
(3,433
|
)
|
(3,433
|
)
|
5,708
|
5,708
|
|||||||||
|
Changes
in assets and liabilities:
|
|||||||||||||||||||
|
Restricted
cash
|
(2,069
|
)
|
(2,069
|
)
|
(2,222
|
)
|
(2,222
|
)
|
(4,965
|
)
|
(4,965
|
)
|
|||||||
|
Accounts
receivable, net
|
(2,644
|
)
|
(2,644
|
)
|
(3,665
|
)
|
(3,665
|
)
|
7,254
|
7,254
|
|||||||||
|
Notes
receivable
|
(1,925
|
)
|
(1,925
|
)
|
4,052
|
4,052
|
1,685
|
1,685
|
|||||||||||
|
Inventories,
net
|
(4,811
|
)
|
(4,811
|
)
|
(5,074
|
)
|
(5,074
|
)
|
605
|
605
|
|||||||||
|
Accounts
payable and accrued expenses
|
26,213
|
26,213
|
26,443
|
26,443
|
20,512
|
20,512
|
|||||||||||||
|
Income
taxes receivable/payable
|
4,538
|
4,538
|
21,960
|
21,960
|
6,940
|
6,940
|
|||||||||||||
|
Deferred
real estate credits
|
14,539
|
14,539
|
29,755
|
29,755
|
11,453
|
11,453
|
|||||||||||||
|
Private
club deferred initiation fees
|
7,126
|
7,126
|
8,324
|
8,324
|
8,358
|
8,358
|
|||||||||||||
|
Other
assets and liabilities, net
|
(17,812
|
)
|
(17,812
|
)
|
(16,007
|
)
|
(16,007
|
)
|
(152
|
)
|
(152
|
)
|
|||||||
|
Net
cash provided by operating activities
|
$
|
193,404
|
|
$
|
158,283
|
|
$
|
220,341
|
|
$
|
181,916
|
|
$
|
180,937
|
|
$
|
182,591
|
||
|
Cash
flows from investing activities:
|
|||||||||||||||||||
|
Capital
expenditures
|
$
|
(88,901
|
)
|
$
|
(88,901
|
)
|
$
|
(79,975
|
)
|
$
|
(79,975
|
)
|
$
|
(62,960
|
)
|
$
|
(62,960
|
)
|
|
|
Investments
in real estate
|
(129,728
|
)
|
(129,728
|
)
|
(72,164
|
)
|
(72,164
|
)
|
(27,802
|
)
|
(27,802
|
)
|
|||||||
|
Cash
received for cost of real estate sales
|
--
|
35,121
|
--
|
38,425
|
--
|
(1,654
|
)
|
||||||||||||
|
Distributions
from joint ventures
|
522
|
522
|
6,588
|
6,588
|
4,849
|
4,849
|
|||||||||||||
|
Cash
received from disposal of fixed assets
|
823
|
823
|
2,019
|
2,019
|
2,658
|
2,658
|
|||||||||||||
|
Cash
received from sale of businesses
|
30,712
|
30,712
|
108,399
|
108,399
|
--
|
--
|
|||||||||||||
|
Purchase
of minority interests
|
--
|
--
|
(9,748
|
)
|
(9,748
|
)
|
--
|
--
|
|||||||||||
|
Other
investing
|
(5,149
|
)
|
(5,149
|
)
|
--
|
--
|
(110
|
)
|
(110
|
)
|
|||||||||
|
Net
cash used in investing activities
|
$
|
(191,721
|
)
|
$
|
(156,600
|
)
|
$
|
(44,881
|
)
|
$
|
(6,456
|
)
|
$
|
(83,365
|
)
|
$
|
(85,019
|
)
|
|
|
Cash
flows from financing activities:
|
|||||||||||||||||||
|
Proceeds
from borrowings under 6.75% Notes
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
390,000
|
$
|
390,000
|
|||||||
|
Payment
of tender and call of 8.75% Notes
|
--
|
--
|
--
|
--
|
(360,000
|
)
|
(360,000
|
)
|
|||||||||||
|
Payment
of tender premium
|
--
|
--
|
--
|
--
|
(23,825
|
)
|
(23,825
|
)
|
|||||||||||
|
Repurchases
of common stock
|
(10,839
|
)
|
(10,839
|
)
|
--
|
--
|
--
|
--
|
|||||||||||
|
Payment
of financing costs
|
(1,584
|
)
|
(1,584
|
)
|
(1,774
|
)
|
(1,774
|
)
|
(6,828
|
)
|
(6,828
|
)
|
|||||||
|
Payment
of Credit Facility Term Loan
|
--
|
--
|
(98,750
|
)
|
(98,750
|
)
|
(1,000
|
)
|
(1,000
|
)
|
|||||||||
|
Proceeds
from borrowings under other long-term debt
|
63,660
|
63,660
|
176,423
|
176,423
|
173,253
|
173,253
|
|||||||||||||
|
Payments
of other long-term debt
|
(54,439
|
)
|
(54,439
|
)
|
(181,239
|
)
|
(181,239
|
)
|
(234,234
|
)
|
(234,234
|
)
|
|||||||
|
Distributions
from joint ventures to minority shareholders
|
(4,239
|
)
|
(4,239
|
)
|
(1,807
|
)
|
(1,807
|
)
|
(1,474
|
)
|
(1,474
|
)
|
|||||||
|
Proceeds
from exercise of stock options
|
46,649
|
46,649
|
21,939
|
21,939
|
562
|
562
|
|||||||||||||
|
Tax
benefit from exercise of stock options
|
14,323
|
14,323
|
--
|
--
|
--
|
--
|
|||||||||||||
|
Net
cash provided by (used in) financing activities
|
$
|
53,531
|
$
|
53,531
|
$
|
(85,208
|
)
|
$
|
(85,208
|
)
|
$
|
(63,546
|
)
|
$
|
(63,546
|
)
|
|||
|
Net
increase in cash and cash equivalents
|
55,214
|
55,214
|
90,252
|
90,252
|
34,026
|
34,026
|
|||||||||||||
|
Net
increase in cash due to adoption of FIN 46R
|
--
|
--
|
--
|
--
|
4,428
|
4,428
|
|||||||||||||
|
Cash
and cash equivalents:
|
|||||||||||||||||||
|
Beginning
of period
|
136,580
|
136,580
|
46,328
|
46,328
|
7,874
|
7,874
|
|||||||||||||
|
End
of period
|
$
|
191,794
|
$
|
191,794
|
$
|
136,580
|
$
|
136,580
|
$
|
46,328
|
$
|
46,328
|
|||||||
|
Cash
paid for interest, net of amounts capitalized
|
$
|
33,550
|
$
|
33,550
|
$
|
38,158
|
$
|
38,158
|
$
|
38,578
|
$
|
38,578
|
|||||||
|
Taxes
paid (refunds received), net
|
8,617
|
8,617
|
--
|
--
|
(8,827
|
)
|
(8,827
|
)
|
|||||||||||
The
accompanying Notes to Consolidated Financial Statements are an integral part
of
these financial statements.
2. Summary
of Significant Accounting Policies
Additional
Disclosure
The
Company records its cash expenditures for real estate held for sale and
investment and the portion of the cash received on real estate sales that
relates to cost of sales in cash flows from investing activities in the
Company’s Consolidated Statements of Cash Flows. Any gross profit margin
resulting from the sale of real estate, as well as, the associated selling,
marketing and general and administrative expenses are reflected in cash flows
from operating activities in the Company’s Consolidated Statements of Cash
Flows.
Attachment
II
Vail
Resorts, Inc.
Consolidated
Statements of Cash Flows
(In
thousands)
|
Year
Ended July 31,
|
|||||||||||||||||||
|
2006
|
2005
|
2004
|
|||||||||||||||||
|
As
Presented
|
Proforma
|
As
Presented
|
Proforma
|
As
Presented
|
Proforma
|
||||||||||||||
|
Cash
flows from operating activities:
|
|||||||||||||||||||
|
Net
income (loss)
|
$
|
45,756
|
$
|
45,756
|
$
|
23,138
|
$
|
23,138
|
$
|
(5,959
|
)
|
$
|
(5,959
|
)
|
|||||
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|||||||||||||||||||
|
Depreciation
and amortization
|
86,098
|
86,098
|
89,968
|
89,968
|
86,377
|
86,377
|
|||||||||||||
|
Non-cash
cost of real estate sales
|
35,121
|
31,551
|
38,425
|
36,341
|
(1,654
|
)
|
(3,460
|
)
|
|||||||||||
|
Cash
proceeds from sale of real estate
|
--
|
(897
|
)
|
--
|
(7,847
|
)
|
--
|
(2,950
|
)
|
||||||||||
|
Non-cash
gain on transfer of property, net
|
--
|
--
|
--
|
--
|
(2,147
|
)
|
(2,147
|
)
|
|||||||||||
|
Non-cash
stock-based compensation expense
|
6,523
|
6,523
|
437
|
437
|
248
|
248
|
|||||||||||||
|
Asset
impairment charges
|
210
|
210
|
2,550
|
2,550
|
1,108
|
1,108
|
|||||||||||||
|
Non-cash
mold remediation (credit) charge
|
(559
|
)
|
(559
|
)
|
--
|
--
|
5,500
|
5,500
|
|||||||||||
|
(Gain)
loss on sale of businesses, net
|
(4,625
|
)
|
(4,625
|
)
|
7,353
|
7,353
|
--
|
--
|
|||||||||||
|
Loss
on extinguishment of debt
|
--
|
--
|
612
|
612
|
37,084
|
37,084
|
|||||||||||||
|
Deferred
income taxes, net
|
1,322
|
1,322
|
(7,514
|
)
|
(7,514
|
)
|
(1,018
|
)
|
(1,018
|
)
|
|||||||||
|
Minority
interest in net income of consolidated subsidiaries
|
6,694
|
6,694
|
5,239
|
5,239
|
4,000
|
4,000
|
|||||||||||||
|
Other
non-cash (income) expense, net
|
(6,291
|
)
|
(6,291
|
)
|
(3,433
|
)
|
(3,433
|
)
|
5,708
|
5,708
|
|||||||||
|
Changes
in assets and liabilities:
|
|||||||||||||||||||
|
Restricted
cash
|
(2,069
|
)
|
(2,069
|
)
|
(2,222
|
)
|
(2,222
|
)
|
(4,965
|
)
|
(4,965
|
)
|
|||||||
|
Accounts
receivable, net
|
(2,644
|
)
|
(2,644
|
)
|
(3,665
|
)
|
(3,665
|
)
|
7,254
|
7,254
|
|||||||||
|
Notes
receivable
|
(1,925
|
)
|
(1,925
|
)
|
4,052
|
4,052
|
1,685
|
1,685
|
|||||||||||
|
Inventories,
net
|
(4,811
|
)
|
(4,811
|
)
|
(5,074
|
)
|
(5,074
|
)
|
605
|
605
|
|||||||||
|
Investments
in real estate
|
--
|
(57,526
|
)
|
--
|
(34,772
|
)
|
--
|
(6,941
|
)
|
||||||||||
|
Accounts
payable and accrued expenses
|
26,213
|
26,213
|
26,443
|
26,443
|
20,512
|
20,512
|
|||||||||||||
|
Income
taxes receivable/payable
|
4,538
|
4,538
|
21,960
|
21,960
|
6,940
|
6,940
|
|||||||||||||
|
Deferred
real estate credits
|
14,539
|
14,539
|
29,755
|
29,755
|
11,453
|
11,453
|
|||||||||||||
|
Private
club deferred initiation fees
|
7,126
|
7,126
|
8,324
|
8,324
|
8,358
|
8,358
|
|||||||||||||
|
Other
assets and liabilities, net
|
(17,812
|
)
|
(17,812
|
)
|
(16,007
|
)
|
(16,007
|
)
|
(152
|
)
|
(152
|
)
|
|||||||
|
Net
cash provided by operating activities
|
$
|
193,404
|
$
|
131,411
|
$
|
220,341
|
$
|
175,638
|
$
|
180,937
|
$
|
169,240
|
|||||||
|
Cash
flows from investing activities:
|
|||||||||||||||||||
|
Capital
expenditures
|
$
|
(88,901
|
)
|
$
|
(88,901
|
)
|
$
|
(79,975
|
)
|
$
|
(79,975
|
)
|
$
|
(62,960
|
)
|
$
|
(62,960
|
)
|
|
|
Investments
in real estate
|
(129,728
|
)
|
(72,202
|
)
|
(72,164
|
)
|
(37,392
|
)
|
(27,802
|
)
|
(20,861
|
)
|
|||||||
|
Cash
received for cost of real estate sales
|
--
|
3,570
|
--
|
2,084
|
--
|
1,806
|
|||||||||||||
|
Distributions
from joint ventures
|
522
|
522
|
6,588
|
6,588
|
4,849
|
4,849
|
|||||||||||||
|
Cash
proceeds from sale of real estate
|
--
|
897
|
--
|
7,847
|
--
|
2,950
|
|||||||||||||
|
Cash
received from disposal of fixed assets
|
823
|
823
|
2,019
|
2,019
|
2,658
|
2,658
|
|||||||||||||
|
Cash
received from sale of businesses
|
30,712
|
30,712
|
108,399
|
108,399
|
--
|
--
|
|||||||||||||
|
Purchase
of minority interests
|
--
|
--
|
(9,748
|
)
|
(9,748
|
)
|
--
|
--
|
|||||||||||
|
Other
investing
|
(5,149
|
)
|
(5,149
|
)
|
--
|
--
|
(110
|
)
|
(110
|
)
|
|||||||||
|
Net
cash used in investing activities
|
$
|
(191,721
|
)
|
$
|
(129,728
|
)
|
$
|
(44,881
|
)
|
$
|
(178
|
)
|
$
|
(83,365
|
)
|
$
|
(71,668
|
)
|
|
|
Cash
flows from financing activities:
|
|||||||||||||||||||
|
Proceeds
from borrowings under 6.75% Notes
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
390,000
|
$
|
390,000
|
|||||||
|
Payment
of tender and call of 8.75% Notes
|
--
|
--
|
--
|
--
|
(360,000
|
)
|
(360,000
|
)
|
|||||||||||
|
Payment
of tender premium
|
--
|
--
|
--
|
--
|
(23,825
|
)
|
(23,825
|
)
|
|||||||||||
|
Repurchases
of common stock
|
(10,839
|
)
|
(10,839
|
)
|
--
|
--
|
--
|
--
|
|||||||||||
|
Payment
of financing costs
|
(1,584
|
)
|
(1,584
|
)
|
(1,774
|
)
|
(1,774
|
)
|
(6,828
|
)
|
(6,828
|
)
|
|||||||
|
Payment
of Credit Facility Term Loan
|
--
|
--
|
(98,750
|
)
|
(98,750
|
)
|
(1,000
|
)
|
(1,000
|
)
|
|||||||||
|
Proceeds
from borrowings under other long-term debt
|
63,660
|
63,660
|
176,423
|
176,423
|
173,253
|
173,253
|
|||||||||||||
|
Payments
of other long-term debt
|
(54,439
|
)
|
(54,439
|
)
|
(181,239
|
)
|
(181,239
|
)
|
(234,234
|
)
|
(234,234
|
)
|
|||||||
|
Distributions
from joint ventures to minority shareholders
|
(4,239
|
)
|
(4,239
|
)
|
(1,807
|
)
|
(1,807
|
)
|
(1,474
|
)
|
(1,474
|
)
|
|||||||
|
Proceeds
from exercise of stock options
|
46,649
|
46,649
|
21,939
|
21,939
|
562
|
562
|
|||||||||||||
|
Tax
benefit from exercise of stock options
|
14,323
|
14,323
|
--
|
--
|
--
|
--
|
|||||||||||||
|
Net
cash provided by (used in) financing activities
|
$
|
53,531
|
$
|
53,531
|
$
|
(85,208
|
)
|
$
|
(85,208
|
)
|
$
|
(63,546
|
)
|
$
|
(63,546
|
)
|
|||
|
Net
increase in cash and cash equivalents
|
55,214
|
55,214
|
90,252
|
90,252
|
34,026
|
34,026
|
|||||||||||||
|
Net
increase in cash due to adoption of FIN 46R
|
--
|
--
|
--
|
--
|
4,428
|
4,428
|
|||||||||||||
|
Cash
and cash equivalents:
|
|||||||||||||||||||
|
Beginning
of period
|
136,580
|
136,580
|
46,328
|
46,328
|
7,874
|
7,874
|
|||||||||||||
|
End
of period
|
$
|
191,794
|
$
|
191,794
|
$
|
136,580
|
$
|
136,580
|
$
|
46,328
|
$
|
46,328
|
|||||||
|
Cash
paid for interest, net of amounts capitalized
|
$
|
33,550
|
$
|
33,550
|
$
|
38,158
|
$
|
38,158
|
$
|
38,578
|
$
|
38,578
|
|||||||
|
Taxes
paid (refunds received), net
|
8,617
|
8,617
|
--
|
--
|
(8,827
|
)
|
(8,827
|
)
|
|||||||||||
The
accompanying Notes to Consolidated Financial Statements are an integral part
of
these financial statements.