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Vail
Resorts, Inc.
390
Interlocken Crescent,
Suite
1000
Broomfield,
CO 80021
April
4,
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 responses to the comments of the Securities and Exchange
Commission (the “Commission”) staff (the “Staff”) in the letter from the Staff
dated March 22, 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”). For your convenience, we have listed our responses in the same order as
the comments were presented and have repeated each comment prior to the
response.
Form
10-K: For the Fiscal Year Ended July 31, 2006
Item
8. Financial Statements and Supplementary Data
Consolidated
Statements of Operations
Comment
1: We note that you have reported the aggregate gains and losses associated
with
the sale of certain resort properties as non-operating gains and losses in
your
consolidated statements of operations for the periods ended July 31, 2006 and
July 31, 2005. However, it would appear that the gains or losses attributed
to
the property disposals should be treated analogous to gains or losses incurred
upon the disposal of an asset group. As such, please tell us why you believe
it
is appropriate to include the gains and losses recognized upon the disposal
of
your resort properties in the non-operating income/expense section of your
statement of operations, rather than in “Income from operations.” Alternatively,
please reflect the gains and losses from the sale of your resort properties
in
“Income from operations.” Refer to paragraph 45 of SFAS No. 144 for further
guidance.
Response
1: In arriving at our conclusions regarding the classification of gains and
losses associated with the sale of certain resort properties, which conclusions
were formed concurrent with each of the respective transactions, the Company
considered the guidance within SFAS 144, including paragraph 45, and believes
the classification of gains and losses associated with its sale of certain
resort properties as non-operating is appropriate. The gains and losses
associated with the sale of certain resort properties related to the sale of
the
Vail Marriott Mountain Resort & Spa (“Marriott”) and The Lodge at Rancho
Mirage (“Rancho Mirage”), as well as the Company’s sale of its minority equity
interest in Bachelor Gulch Resort, LLC (“BG Resort”), the entity that owns The
Ritz-Carlton Bachelor Gulch, in the year ended July 31, 2005, and the sale
of
the Snake River Lodge & Spa (“SRL&S”) in the year ended July 31, 2006.
The Company believes paragraph 45 of SFAS No. 144 dictates presentation
requirements if a disposal group is not considered a component of an entity
and
therefore does not address the presentation requirements of a disposal group
if
the disposal group is considered a component of an entity, unless the component
of an entity qualifies for discontinued operations. The disposition of the
Marriott, Rancho Mirage and SRL&S were considered components of an entity
due to their clearly distinguishable operations and cash flows both from an
operational and financial reporting perspective (discrete financial information
was available for each entity); additionally, these resort properties did not
qualify for discontinued operations treatment due to the Company’s continuing
involvement associated with ongoing management contracts, which were
contemplated in conjunction with the sale of businesses and commenced with
the
closing of each sale. With regards to the BG Resort ownership interest, it
was
accounted for under the equity method, and therefore did not qualify for
discontinued operations treatment. Consequently, paragraph 45 of SFAS 144 does
not address the presentation requirements for any of the above mentioned
transactions.
Additionally,
in evaluating the appropriate classification within the Consolidated Statement
of Operations for the sale of these businesses, the Company believes there
is a
distinction between a sale of a business and the disposal of assets. The Company
considers the sale of a business to be a non-operating activity as the Company
is not in the business of buying and selling businesses, as opposed to asset
disposals which are of a recurring nature and as such are recorded as a
component of “Income from Operations.” Consequently, the Company believes that
its classification of “gain (loss) on sale of businesses, net” as non-operating
and its disclosure within its Consolidated Statements of Operations and in
its
notes to consolidated financial statements in its Form 10-K is in conformance
with Rule S-X 5-03.6.
Absent
clear authoritative guidance on the issue of presentation, as well as the
Company’s belief that there is a clear distinction between asset disposals and
the sale of these businesses, and given that the Company has separately
disclosed these transactions in the Consolidated Statements of Operations in
its
Form 10-K under the caption “gain (loss) on sale of businesses, net,” the
Company believes that the presentation and disclosures in its Form 10-K are
appropriate and fully transparent to a user (or reader) of its consolidated
financial statements. Additionally, the footnotes to the consolidated financial
statements included in the Form 10-K clearly state the amount of each gain
or loss and that such gain or loss was included as a component of “gain
(loss) on sale of businesses, net” in the Consolidated Statements of
Operations.
Consolidated
Statements of Cash Flows
Comment
2: We note that you report cash used for “Investments in real estate” as an
investing activity in your statement of cash flows. However, the basis for
your
classification of the cash used for real estate development is not clear. In
this regard, we note that your company actively participates in real estate
development as a part of its operations, as evidenced by your real estate
segment. Furthermore, it appears that you may report certain cash inflows
associated with your real estate development activities, such as cash payments
received and accounted for under the “deposit method” (i.e., deferred real
estate credits) and “non-cash cost of real estate sales,” in the operating
activities section of your cash flow statement. Given the aforementioned
factors, please tell us why you believe it is appropriate to classify cash
outflows related to investments in real estate as investing activities. As
a
part of your response, tell us what consideration you have given to the guidance
outlined in paragraph 25 of SFAS No. 102.
Response
2: In the preparation of the Company’s consolidated financial statements
management did consider paragraph 25 of SFAS 102 and the nature of its
“Investments in real estate” and whether to disclose the investments as
inventory (an operating activity) versus a productive asset (an investing
activity). For “Investments in real estate” reflected in the Company’s
Consolidated Statements of Cash Flows disclosed in its Form 10-K, management
concluded that the more predominant source of future cash flows from these
investments will be derived from its mountain and lodging operations (combined
referred to as “resort”). This conclusion is supported by (1) the Company’s real
estate investments are all proximate to its resort operations, (2) all real
estate investment decisions are made with significant consideration given to
the
long-term benefits to be realized by its resort operations including the
construction of significant resort depreciable assets (i.e. hotels, private
clubs, commercial space and skier services facilities), (3) all real estate
investment decisions are made to create growth in our destination guest
visitation and the creation of significant cash flows through additional
visitation to our resorts resulting in higher lift revenues, ski school
revenues, lodging revenues, private club initiation fees and recurring revenues,
golf green fees and other ancillary revenues such as retail/rental and food
and
beverage. Therefore, the Company’s investments in real estate are not solely for
the purpose of acquiring, subdividing, improving and actively marketing for
sale
its investments similar to the primary activities of a traditional real estate
developer. This is evidenced by the fact that the vast majority of the Company’s
real estate land acquisitions currently held were acquired ten or more years
ago
and all are within or proximate to its resorts (therefore the Company is not
in
the business of acquiring, developing and selling real estate over a relatively
short time period which is the typical real estate development model).
Additionally, as stated in the “Business” section of the Company’s Form 10-K,
these holdings and development activities benefit the Company’s resort
operations through (1) the creation of additional resort lodging which is
available to guests, (2) the ability to control the architectural themes of
the
Company’s resorts, (3) the creation of unique facilities and venues (primarily
restaurant, retail and private club operations) which provide the Company with
the opportunity to create new sources of recurring revenue, and (4) the
expansion of the Company’s property management and commercial leasing
operations.
Consequently,
the Company’s investment decisions with regards to the acquisition and
development of its real estate holdings are driven by the long-term benefits
to
be realized by its resort operations and, as such, are considered primarily
an
investment in productive assets. For example, the Company’s largest development
project currently under construction is the Arrabelle at Vail Square and it
is
estimated that the cash flow to be generated from this project to its resort
operations will exceed the cash flow from its real estate sales. The decision
to
treat real estate investments primarily as productive assets and thus
classifying its investments within its Consolidated Balance Sheets as a
long-term asset is consistent with the presentation within its Consolidated
Statements of Cash Flows in its Form 10-K as an investing activity, as well
as,
its treatment of “non-cash cost of real estate sales” as a component of
operating activities as this represents cash expenditures that primarily
occurred in previous years similar to other investing activities that impact
net
cash provided by operating activities such as depreciation.
The
Company believes that its treatment of cash outflows related to its investments
in real estate within its Consolidated Statements of Cash Flows as an investing
activity is consistent with paragraph 25 of SFAS No. 102 as (1) the Company’s
real estate investments are all within or proximate to its resort operations
and
those investment decisions are primarily driven by the potential benefits to
be
realized by its resort operations, (2) real estate is not acquired solely for
resale and as such has not been classified as inventory but conversely
classified as a long-term asset, (3) although the Company’s real estate
development activity includes a component that is sold in the form of
condominiums or town homes, a significant component of its development activity
includes the development of productive assets including hotels, private clubs,
commercial space (that the Company will lease or use internally), and amenities
(i.e. parking, skier services facilities, ice rinks, etc.) that will be
capitalized as a resort depreciable asset upon completion of the project, (4)
since all of the Company’s real estate activity is proximate to its resorts, the
cash flow generated by its resort operations as a result of its real estate
investments is expected to exceed the cash flow generated from its real estate
sales, and (5) as noted in paragraph 25 of SFAS 102, SFAS 95 does provide
flexibility for the appropriate classification of cash outflows for assets
that
generally are productive assets but in certain cases may be inventory, thus
significant judgment may be used in determining the classification.
Additionally, SFAS 95 acknowledges that the three classifications of cash flows
are not mutually exclusive and there will be items at the margin and that the
nature of the activity that is likely to produce the predominant source of
cash
flow should be considered in determining classification.
Notes
to Consolidated Financial Statements
2.
Summary of Significant Accounting Policies
General
Comment
3: You state in the “Business” section of your Form 10-K that you offer
innovative frequent guest programs. Please tell us and revise your significant
accounting policies to disclose your accounting policy for volume-based sales
incentive programs.
Response
3: As part of our recurring evaluation of significant accounting policies,
the
Company considered the accounting for volume-based sales incentive programs
and
determined that our policy was not a significant accounting policy as it was
deemed not to be material. Under Accounting Principles Board Opinion No. 22,
“Disclosure of Accounting Policies,” disclosure of accounting policies should
identify and describe the accounting principles followed by the reporting entity
and the methods of applying those principles that materially effect the
determination of financial position, cash flows, or results of operations.
The
expense recorded for volume-based sales incentive programs was approximately
0.5% or less of income (loss) before income taxes for each of the three years
ended July 31, 2006. As such, we believe these programs do not have a material
effect on the financial position, cash flows, or results of operations and
therefore did not require disclosure in significant accounting policies in
the
notes to the consolidated financial statements.
The
Company follows the guidance in EITF 00-22, “Accounting for ‘Points’ and Certain
Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to Be Delivered in the Future,” in accounting for its
volume-based incentive programs. Specifically, the Company accrues the estimated
cost, net of forfeitures, of providing future services as incentives are earned
by its guests as the value of the incentive is insignificant in relation to
the
value of the transaction necessary to earn the incentive.
10.
Put and Call Options
Comment
4: We note that beginning August 1, 2007, and each year thereafter, GSSI will
have the right to put 100% of its remaining interest in SSV to your company
during certain periods of each year. We also note that the dollar amount for
which GSSI’s put option may be settled appears to be variable, given that the
option price is based upon the trailing twelve month EBITDA of SSV for the
fiscal period ended prior to the commencement of the put period. As such, in
future filings, please disclose the estimated price at which the put option
could be expected to be settled on the balance sheet date.
Response
4: In future filings, the Company will disclose the estimated price at which
the
put option could be expected to be settled as of the balance sheet date.
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