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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2011

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-09614

 

 

Vail Resorts, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   51-0291762

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

390 Interlocken Crescent

Broomfield, Colorado

  80021
(Address of Principal Executive Offices)   (Zip Code)

(303) 404-1800

(Registrant’s Telephone Number, Including Area Code)

 

 

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   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 Exchange Act).    ¨  Yes    x  No

As of June 2, 2011, 36,069,843 shares of the registrant’s common stock were outstanding.

 

 

 


Table of Contents

Table of Contents

 

PART I

 

FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements.

     F-1   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     1   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk.

     18   

Item 4.

 

Controls and Procedures.

     18   

PART II

 

OTHER INFORMATION

  

Item 1.

 

Legal Proceedings.

     19   

Item 1A.

 

Risk Factors.

     19   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

     19   

Item 3.

 

Defaults Upon Senior Securities.

     19   

Item 4.

 

Removed and Reserved.

     19   

Item 5.

 

Other Information.

     19   

Item 6.

 

Exhibits.

     20   


Table of Contents

PART I FINANCIAL INFORMATION

 

Item 1.       Financial Statements — Unaudited

Consolidated Condensed Balance Sheets as of April 30, 2011, July  31, 2010 and April 30, 2010

   F-2

Consolidated Condensed Statements of Operations for the Three Months Ended April  30, 2011 and 2010

   F-3

Consolidated Condensed Statements of Operations for the Nine Months Ended April  30, 2011 and 2010

   F-4

Consolidated Condensed Statements of Cash Flows for the Nine Months Ended April  30, 2011 and 2010

   F-5

Notes to Consolidated Condensed Financial Statements

   F-6

 

F-1


Table of Contents

Vail Resorts, Inc.

Consolidated Condensed Balance Sheets

(In thousands, except share and per share amounts)

 

     April 30,
2011
(Unaudited)
    July 31,
2010
    April 30,
2010
(Unaudited)
 

Assets

      

Current assets:

      

Cash and cash equivalents

   $ 168,596      $ 14,745      $ 51,147   

Restricted cash

     13,002        11,834        11,826   

Trade receivables, net

     46,417        53,622        35,039   

Inventories, net

     45,237        48,295        42,669   

Other current assets

     49,989        42,249        46,037   
                        

Total current assets

     323,241        170,745        186,718   

Property, plant and equipment, net (Note 6)

     1,027,304        1,027,390        1,024,977   

Real estate held for sale and investment

     282,162        422,164        445,885   

Goodwill, net

     267,569        181,085        168,197   

Intangible assets, net

     91,285        89,273        86,581   

Other assets

     47,377        32,152        32,481   
                        

Total assets

   $ 2,038,938      $ 1,922,809      $ 1,944,839   
                        

Liabilities and Stockholders’ Equity

      

Current liabilities:

      

Accounts payable and accrued liabilities (Note 6)

   $ 180,068      $ 255,326      $ 237,583   

Income taxes payable

     1,296        32,729        10,022   

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

     45,357        1,869        1,851   
                        

Total current liabilities

     226,721        289,924        249,456   

Long-term debt (Note 4)

     490,479        524,842        489,822   

Other long-term liabilities (Note 6)

     237,504        197,160        196,693   

Deferred income taxes

     184,373        108,496        152,089   

Commitments and contingencies (Note 9)

      

Stockholders’ equity:

      

Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued and outstanding

     —          —          —     

Common stock, $0.01 par value, 100,000,000 shares authorized, 40,332,251 (unaudited), 40,173,891 and 40,170,403 (unaudited) shares issued, respectively

     403        401        402   

Additional paid-in capital

     572,558        563,816        561,089   

Retained earnings

     475,775        387,380        429,301   

Treasury stock, at cost; 4,264,804 (unaudited), 4,264,804 and 3,878,535 (unaudited) shares, respectively (Note 11)

     (162,827     (162,827     (147,828
                        

Total Vail Resorts, Inc. stockholders’ equity

     885,909        788,770        842,964   

Noncontrolling interests

     13,952        13,617        13,815   
                        

Total stockholders’ equity

     899,861        802,387        856,779   
                        

Total liabilities and stockholders’ equity

   $ 2,038,938      $ 1,922,809      $ 1,944,839   
                        

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

 

F-2


Table of Contents

Vail Resorts, Inc.

Consolidated Condensed Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

     Three months ended
April 30,
 
     2011     2010  

Net revenue:

    

Mountain

   $ 351,418      $ 302,213   

Lodging

     49,835        44,877   

Real estate

     13,221        3,164   
                

Total net revenue

     414,474        350,254   

Segment operating expense (exclusive of depreciation and amortization shown separately below):

    

Mountain

     182,136        156,454   

Lodging

     41,001        39,292   

Real estate

     18,309        8,391   
                

Total segment operating expense

     241,446        204,137   

Other operating (expense) income:

    

Depreciation and amortization

     (30,937     (27,812

(Loss) gain on disposal of fixed assets, net

     (35     18   

Asset impairment charge (Note 7)

     (2,561     —     
                

Income from operations

     139,495        118,323   

Mountain equity investment income, net

     406        838   

Investment income

     114        141   

Interest expense, net

     (8,515     (3,673

Loss on extinguishment of debt (Note 4)

     (6,615     —     
                

Income before provision for income taxes

     124,885        115,629   

Provision for income taxes

     (48,045     (39,238
                

Net income

     76,840        76,391   

Net loss (income) attributable to noncontrolling interests

     27        (3,602
                

Net income attributable to Vail Resorts, Inc.

   $ 76,867      $ 72,789   
                

Per share amounts (Note 3):

    

Basic net income per share attributable to Vail Resorts, Inc.

   $ 2.13      $ 2.01   
                

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

   $ 2.08      $ 1.98   
                

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

 

F-3


Table of Contents

Vail Resorts, Inc.

Consolidated Condensed Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

     Nine months ended
April 30,
 
     2011     2010  

Net revenue:

    

Mountain

   $ 710,474      $ 602,395   

Lodging

     138,933        124,908   

Real estate

     187,629        4,239   
                

Total net revenue

     1,037,036        731,542   

Segment operating expense (exclusive of depreciation and amortization shown separately below):

    

Mountain

     456,496        386,940   

Lodging

     127,675        119,703   

Real estate

     188,716        20,985   
                

Total segment operating expense

     772,887        527,628   

Other operating (expense) income:

    

Depreciation and amortization

     (88,945     (82,768

Gain on sale of real property

     —          6,087   

Loss on disposal of fixed assets, net

     (343     (83

Asset impairment charge (Note 7)

     (2,561     —     
                

Income from operations

     172,300        127,150   

Mountain equity investment income, net

     1,324        1,299   

Investment income

     578        563   

Interest expense, net

     (25,110     (12,656

Loss on extinguishment of debt (Note 4)

     (6,615     —     
                

Income before provision for income taxes

     142,477        116,356   

Provision for income taxes

     (54,140     (38,397
                

Net income

     88,337        77,959   

Net loss (income) attributable to noncontrolling interests

     58        (5,653
                

Net income attributable to Vail Resorts, Inc.

   $ 88,395      $ 72,306   
                

Per share amounts (Note 3):

    

Basic net income per share attributable to Vail Resorts, Inc.

   $ 2.46      $ 2.00   
                

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

   $ 2.41      $ 1.97   
                

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

 

F-4


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Vail Resorts, Inc.

Consolidated Condensed Statements of Cash Flows

(In thousands)

(Unaudited)

 

     Nine Months Ended  
     April 30,  
     2011     2010  

Cash flows from operating activities:

    

Net income

   $ 88,337      $ 77,959   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     88,945        82,768   

Cost of real estate sales

     159,993        2,477   

Stock-based compensation expense

     9,338        8,979   

Deferred income taxes, net

     54,140        38,397   

Gain on sale of real property

     —          (6,087

Asset impairment charge

     2,561        —     

Loss on extinguishment of debt

     6,615        —     

Other non-cash income, net

     (6,156     (5,707

Changes in assets and liabilities:

    

Restricted cash

     (988     (761

Trade receivables, net

     10,228        23,030   

Inventories, net

     4,876        6,278   

Investments in real estate

     (24,191     (145,829

Accounts payable and accrued liabilities

     (63,496     (35,932

Deferred real estate deposits

     (30,510     1,243   

Private club deferred initiation fees and deposits

     4,242        1,616   

Other assets and liabilities, net

     (12,589     8,280   
                

Net cash provided by operating activities

     291,345        56,711   

Cash flows from investing activities:

    

Capital expenditures

     (73,569     (48,801

Acquisition of business

     (60,528     —     

Cash received from sale of real property

     —          8,920   

Other investing activities, net

     (365     (7,915
                

Net cash used in investing activities

     (134,462     (47,796

Cash flows from financing activities:

    

Proceeds from borrowings under the 6.50% Notes

     390,000        —     

Payments of tender of 6.75% Notes

     (346,063     —     

Payment of financing costs

     (8,123     —     

Proceeds from borrowings under other long-term debt

     189,000        85,962   

Payments of other long-term debt

     (226,705     (86,246

Acquisition of noncontrolling interest

     —          (31,000

Other financing activities, net

     (1,141     4,218   
                

Net cash used in financing activities

     (3,032     (27,066
                

Net increase (decrease) in cash and cash equivalents

     153,851        (18,151

Cash and cash equivalents:

    

Beginning of period

     14,745        69,298   
                

End of period

   $ 168,596      $ 51,147   
                

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

 

F-5


Table of Contents

Vail Resorts, Inc.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

 

1. Organization and Business

Vail Resorts, Inc. (“Vail Resorts” or the “Parent Company”) is organized as a holding company and operates through various subsidiaries. Vail Resorts and its subsidiaries (collectively, the “Company”) currently operate in three business segments: Mountain, Lodging and Real Estate. In the Mountain segment, the Company operates the six world-class ski resort properties of Vail, Breckenridge, Keystone and Beaver Creek mountain resorts in Colorado and Heavenly and Northstar-at-Tahoe mountain resorts in the Lake Tahoe area of California and Nevada, as well as ancillary services, primarily including ski school, dining and retail/rental operations. These resorts (with the exception of Northstar-at-Tahoe) operate primarily on Federal land under the terms of Special Use Permits granted by the USDA Forest Service (the “Forest Service”). In the Lodging segment, the Company owns and/or manages a collection of luxury hotels 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 (under a National Park Service concessionaire contract), Colorado Mountain Express (“CME”), a resort ground transportation company, and golf courses. Vail Resorts Development Company (“VRDC”), a wholly-owned subsidiary, conducts the operations of the Company’s Real Estate segment, which owns and develops real estate in and around the Company’s resort communities. The Company’s mountain business and its lodging properties at or around the Company’s ski resorts are seasonal in nature with peak operating seasons from mid-November through mid-April. The Company’s operations at GTLC and its golf courses generally operate from mid-May through mid-October. The Company also has non-majority owned investments in various other entities, some of which are consolidated (see Note 7, Variable Interest Entities).

 

2. Summary of Significant Accounting Policies

Basis of Presentation

Consolidated Condensed Financial Statements— In the opinion of the Company, the accompanying Consolidated Condensed Financial Statements reflect all adjustments necessary to state fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. Results for interim periods are not indicative of the results for the entire fiscal year. The accompanying Consolidated Condensed Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2010. Certain information and footnote disclosures, including significant accounting policies, normally included in fiscal year financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), have been condensed or omitted. The July 31, 2010 Consolidated Condensed Balance Sheet was derived from audited financial statements.

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

Noncontrolling Interests in Consolidated Financial Statements—Net income (loss) attributable to noncontrolling interests along with net income (loss) attributable to the stockholders of the Company are reported separately in the Consolidated Condensed Statement of Operations. Additionally, noncontrolling interests in the consolidated subsidiaries of the Company are reported as a separate component of equity in the Consolidated Condensed Balance Sheet, apart from the Company’s equity. However, prior to April 30, 2010, GSSI LLC (“GSSI”) held a noncontrolling interest in SSI Venture, LLC (“SSV”) (the Company’s retail/rental operations) along with a redemption feature as a result of a put option, and as such the Company recorded the redeemable noncontrolling interest in SSV in the mezzanine section of the Consolidated Condensed Balance Sheet, outside of stockholders’ equity. The Company had recorded the redeemable noncontrolling interest at the redemption value as prescribed in the operating agreement between GSSI and the Company at the end of each reporting period. At the end of each reporting period, if the redemption value was below the carrying value of the noncontrolling interest, the difference

 

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was recorded in noncontrolling interests as a component of stockholders’ equity; however, if the redemption value exceeded the carrying value of the noncontrolling interest the difference was recorded to retained earnings. On April 23, 2010, the Company entered into a transfer agreement with GSSI to acquire all of GSSI’s remaining 30.7% ownership interest in SSV for a negotiated price of $31.0 million. The purchase of GSSI’s interest in SSV was completed on April 30, 2010, resulting in the Company holding a 100% interest in SSV. As a result of this purchase, equity-noncontrolling interest and redeemable noncontrolling interest related to SSV were eliminated. The following table summarizes the changes in total stockholders’ equity (in thousands):

 

     For the Nine months ended April 30,  
     2011     2010  
     Vail Resorts
Stockholders’
Equity
    Noncontrolling
Interests
    Total
Equity
    Vail Resorts
Stockholders’
Equity
    Noncontrolling
Interests
    Total
Equity
 

Balance, beginning of period

   $ 788,770      $ 13,617      $ 802,387      $ 765,295      $ 15,411      $ 780,706   

Net income (loss)

     88,395        (58     88,337        72,306        5,653        77,959   

Stock-based compensation expense

     9,338        —          9,338        8,979        —          8,979   

Issuance of shares under share award plans

     (656     —          (656     (1,180     —          (1,180

Tax benefit from share award plans

     62        —          62        140        —          140   

Adjustment to redemption value of redeemable noncontrolling interest

     —          —          —          —          (10,338     (10,338

Contributions from noncontrolling interests, net

     —          393        393        —          3,203        3,203   

Acquisition of noncontrolling interest, net of deferred taxes

     —          —          —          (2,576     (114     (2,690
                                                

Balance, end of period

   $ 885,909      $ 13,952      $ 899,861      $ 842,964      $ 13,815      $ 856,779   
                                                

Fair Value Instruments— The recorded amounts for cash and cash equivalents, receivables, other current assets, and accounts payable and accrued liabilities approximate fair value due to their short-term nature. The fair value of amounts outstanding under the Employee Housing Bonds (Note 4, Long-Term Debt) approximate book value due to the variable nature of the interest rate associated with that debt. The fair value of the 6.50% Senior Subordinated Notes due 2019 (“6.50% Notes”) and the 6.75% Senior Subordinated Notes due 2014 (“6.75% Notes”) (Note 4, Long-Term Debt) are based on quoted market prices. The fair value of the Company’s Industrial Development Bonds (Note 4, Long-Term Debt) and other long-term debt have been estimated using discounted cash flow analyses based on current borrowing rates for debt with similar remaining maturities and ratings. The estimated fair value of the 6.50% Notes, 6.75% Notes, Industrial Development Bonds and other long-term debt as of April 30, 2011 is presented below (in thousands):

 

     April 30, 2011  
     Carrying
Value
     Fair
Value
 

6.50% Notes

   $ 390,000       $ 397,800   

6.75% Notes

   $ 43,937       $ 44,431   

Industrial Development Bonds

   $ 41,200       $ 46,070   

Other long-term debt

   $ 8,124       $ 8,211   

New Accounting Standards

Amendments to FASB Interpretation, Consolidation of Variable Interest Entities— In June 2009, the Financial Accounting Standards Board (the “FASB”) issued guidance which is included in Accounting Standards Codification (“ASC”) 810, “Consolidation” which amends the consolidation guidance for variable interest entities. Under this new standard, entities must perform a qualitative assessment in determining the primary beneficiary of a variable interest entity which 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. This standard was effective for the Company beginning August 1, 2010 (the Company’s fiscal year ending July 31, 2011). The adoption of this accounting standard did not have a material impact on the Company’s financial position or results of operations.

 

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Revenue Recognition Guidance for Arrangements with Multiple Deliverables— In September 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, “Multiple-Deliverables Revenue Arrangements” (amendments to ASC Topic 605, “Revenue Recognition,” and the Emerging Issues Task Force Issue No. 08-01 “Revenue Arrangements with Multiple Deliverables”) which amends the revenue recognition guidance for arrangements with multiple deliverables. This new standard requires entities to allocate revenue in arrangements with multiple deliverables using estimated selling prices and eliminates the use of the residual method. The provisions of this new standard was effective for the Company beginning August 1, 2010 (the Company’s fiscal year ending July 31, 2011). The adoption of this accounting standard did not have a material impact on the Company’s financial position or results of operations.

 

3. Net Income Per Common Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income attributable to Vail Resorts stockholders by the weighted-average shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of shares of common stock that would then share in the earnings of Vail Resorts. Presented below is basic and diluted EPS for the three months ended April 30, 2011 and 2010 (in thousands, except per share amounts):

 

     Three Months Ended April 30,  
     2011      2010  
     Basic      Diluted      Basic      Diluted  

Net income per share:

           

Net income attributable to Vail Resorts

   $ 76,867       $ 76,867       $ 72,789       $ 72,789   

Weighted-average shares outstanding

     36,038         36,038         36,271         36,271   

Effect of dilutive securities

     —           831         —           563   
                                   

Total shares

     36,038         36,869         36,271         36,834   
                                   

Net income per share attributable to Vail Resorts

   $ 2.13       $ 2.08       $ 2.01       $ 1.98   
                                   

The number of shares issuable on the exercise of share based awards that were excluded from the calculation of diluted net income per share because the effect of their inclusion would have been anti-dilutive totaled approximately 1,000 and approximately 35,000 for the three months ended April 30, 2011 and 2010, respectively.

Presented below is basic and diluted EPS for the nine months ended April 30, 2011 and 2010 (in thousands, except per share amounts):

 

     Nine months ended April 30,  
     2011      2010  
     Basic      Diluted      Basic      Diluted  

Net income per share:

           

Net income attributable to Vail Resorts

   $ 88,395       $ 88,395       $ 72,306       $ 72,306   

Weighted-average shares outstanding

     35,988         35,988         36,239         36,239   

Effect of dilutive securities

     —           730         —           499   
                                   

Total shares

     35,988         36,718         36,239         36,738   
                                   

Net income per share attributable to Vail Resorts

   $ 2.46       $ 2.41       $ 2.00       $ 1.97   
                                   

 

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The number of shares issuable on the exercise of share based awards that were excluded from the calculation of diluted net income per share because the effect of their inclusion would have been anti-dilutive totaled approximately 54,000 and approximately 12,000 for the nine months ended April 30, 2011 and 2010, respectively.

 

4. Long-Term Debt

Long-term debt as of April 30, 2011, July 31, 2010 and April 30, 2010 is summarized as follows (in thousands):

 

     Maturity (a)      April 30,
2011
     July 31,
2010
     April 30,
2010
 

Credit Facility Revolver (b)

     2016       $ —         $ 35,000       $ —     

Industrial Development Bonds

     2020         41,200         42,700         42,700   

Employee Housing Bonds

     2027-2039         52,575         52,575         52,575   

6.50% Notes (c)

     2019         390,000         —           —     

6.75% Notes (c)

     2014         43,937         390,000         390,000   

Other

     2011-2029         8,124         6,436         6,398   
                             

Total debt

        535,836         526,711         491,673   

Less: Current maturities (d)

        45,357         1,869         1,851   
                             

Long-term debt

      $ 490,479       $ 524,842       $ 489,822   
                             

 

(a) Maturities are based on the Company’s July 31 fiscal year end.
(b) On January 25, 2011, The Vail Corporation (the “Vail Corp”), a wholly-owned subsidiary of the Company, amended and restated its senior credit facility (the “Credit Facility”). Key modifications to the Credit Facility included, among other things, the extension of the maturity on the revolving credit facility from February 2012 to January 2016; increased grid pricing for interest rate margins (as of April 30, 2011, under the Credit Facility, at LIBOR plus 1.75%) and commitment fees (as of April 30, 2011, under the Credit Facility, at 0.35%); the expansion of baskets related to the Company’s ability to incur debt and make acquisitions, investments and distributions; and the elimination of certain financial covenants.

The Credit Facility is governed by the Fifth Amended and Restated Credit Agreement (“Credit Agreement”) between Vail Corp, Bank of America, N.A., as administrative agent, U.S. Bank National Association and Wells Fargo Bank, National Association as co-syndication agents, JPMorgan Chase Bank, N.A. and Deutsche Bank Securities Inc. as Co-Documentation Agents and the Lenders party thereto, and consists of a $400 million revolving credit facility. The Company’s obligations under the Credit Agreement are guaranteed by the Company and certain of its subsidiaries and are collateralized by a pledge of all of the capital stock of the Company and substantially all of its subsidiaries (with certain additional exceptions for the pledge of the capital stock of foreign subsidiaries). The proceeds of loans made under the Credit Agreement may be used to fund the Company’s working capital needs, capital expenditures, acquisitions, investments and other general corporate purposes, including the issuance of letters of credit. The Credit Agreement matures January 25, 2016. Borrowings under the Credit Agreement bear interest annually at a rate of (i) LIBOR plus a margin or (ii) the Agent’s prime lending rate. Interest rate margins may fluctuate based upon the ratio of the Company’s Net Funded Debt to Adjusted EBITDA (as such terms are defined in the Credit Agreement) on a trailing four-quarter basis. The Credit Agreement also includes a quarterly unused commitment fee, which is equal to a percentage determined by the Net Funded Debt to Adjusted EBITDA ratio, times the daily amount by which the Credit Agreement commitment exceeds the total of outstanding loans and outstanding letters of credit. The unused amounts are accessible to the extent that the Net Funded Debt to Adjusted EBITDA ratio does not exceed the maximum ratio allowed at quarter-ends and the Adjusted EBITDA to interest on Funded Debt (as defined in the Credit Agreement) ratio does not fall below the minimum ratio allowed at quarter-ends. The Credit Agreement provides for affirmative and negative covenants that restrict, among other things, the Company’s ability to incur indebtedness, dispose of assets, make capital expenditures, make distributions and make investments. In addition, the Credit Agreement includes the following restrictive financial covenants: Net Funded Debt to Adjusted EBITDA ratio and Adjusted EBITDA to interest on Funded Debt ratio.

 

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On April 13, 2011, Vail Corp entered into the First Amendment (the “First Amendment”) to its Credit Agreement. The First Amendment amended certain of the negative covenants in the Credit Agreement, including providing for increased capacity for investments in similar businesses, increased capacity for debt incurrence, and permitting distributions of the proceeds of sales of certain real estate developments. The First Amendment became effective upon the closing of the 6.50% Notes on April 25, 2011.

 

(c) On April 25, 2011, the Company completed an offering for $390 million of 6.50% Notes the proceeds of which, along with available cash resources, were used or will be used to purchase the outstanding $390 million principal amount of the 6.75% Notes and pay related premiums, fees and expenses. The 6.50% Notes have a fixed annual interest rate of 6.50% and will mature May 1, 2019 with no principal payments due until maturity. The Company has certain early redemption options under the terms of the 6.50% Notes. The premium for early redemption of the 6.50% Notes ranges from 4.875% to 0%, depending on the date of redemption. The 6.50% Notes are subordinated to certain of the Company’s debts, including the Credit Agreement, and will be subordinated to certain of the Company’s future debts. The Company’s payment obligations under the 6.50% Notes are jointly and severally guaranteed by substantially all of the Company’s current and future domestic subsidiaries. The indenture governing the 6.50% Notes contains restrictive covenants, which, among other things, limit the ability of Vail Resorts and its Restricted Subsidiaries (as defined in the Indenture) to (i) borrow money or sell preferred stock, (ii) create liens, (iii) pay dividends on or redeem or repurchase stock, (iv) make certain types of investments, (v) sell stock in the Restricted Subsidiaries, (vi) create restrictions on the ability of the Restricted Subsidiaries to pay dividends or make other payments to the Company, (vii) enter into transactions with affiliates, (viii) issue guarantees of debt and (ix) sell assets or merge with other companies. Pursuant to the registration rights agreement executed as part of the offering of the 6.50% Notes, the Company agreed to file an exchange offer registered under the Securities Act on or prior to 210 days after the closing of the offering, with such registration statement being declared effective on or prior to 270 days after the closing of the offering, and to exchange the notes for a new issue of substantially identical debt securities and guarantees. If the Company fails to satisfy its obligations under the registration rights agreement, it will be required to pay additional interest to the holders of the notes.

In April 2011, the Company offered to purchase the 6.75% Notes for total consideration of $1,013.75 per $1,000 principal amount. Of the $390 million outstanding 6.75% Notes, $346.1 million, or approximately 89%, were tendered. A loss on extinguishment of debt in the amount of $6.6 million was recorded during the three and nine months ended April 30, 2011 in connection with the 6.75% Notes that were tendered. On April 25, 2011, the Company called all of the remaining outstanding 6.75% Notes of $43.9 million for a call price of 101.125% of the principal balance; as a result, the 6.75% Notes were completely defeased on May 25, 2011.

 

(d) Current maturities represent principal payments due in the next 12 months.

Aggregate maturities for debt outstanding as of April 30, 2011 reflected by fiscal year are as follows (in thousands):

 

2011

   $ 44,034   

2012

     1,378   

2013

     938   

2014

     509   

2015

     269   

Thereafter

     488,708   
        

Total debt

   $ 535,836   
        

The Company incurred gross interest expense of $8.5 million and $8.4 million for the three months ended April 30, 2011 and 2010, respectively, of which $0.4 million in each period was amortization of deferred financing costs. The

 

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Company had no capitalized interest during the three months ended April 30, 2011. The Company capitalized $4.7 million of interest (of which $4.3 million was related to real estate under development) during the three months ended April 30, 2010. The Company incurred gross interest expense of $25.6 million and $25.3 million for the nine months ended April 30, 2011 and 2010, respectively, of which $1.2 million in each period was amortization of deferred financing costs. The Company capitalized $0.5 million of interest (related to real estate development) and $12.6 million of interest (of which $11.5 million was related to real estate development) during the nine months ended April 30, 2011 and 2010, respectively.

 

5. Acquisition

On October 25, 2010, the Company acquired for cash 100% of the capital stock of BCRP Inc. and the membership interest of Northstar Group Commercial Properties LLC (together, with their subsidiaries “Northstar-at-Tahoe”) that operate the Northstar-at-Tahoe mountain resort in North Lake Tahoe, California from Booth Creek Resort Properties LLC and other sellers for a total consideration of $60.5 million, net of cash acquired. Northstar-at-Tahoe is a year round mountain resort providing a comprehensive offering of recreational activities, including both snow sports and summer activities. Additionally, Northstar-at-Tahoe operates a base area village at the resort, including the subleasing of commercial retail space and condominium property management.

The following summarizes the preliminary estimated fair values of the identifiable assets acquired and liabilities assumed at the acquisition date (in thousands). The preliminary estimate of fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in adjustments to the preliminary values presented below.

 

     Preliminary
Estimates of
Acquisition Date
Fair Value
 

Accounts receivable, net

   $ 2,336   

Inventory, net

     1,799   

Other assets

     1,488   

Property, plant and equipment

     9,469   

Deferred income tax assets, net

     14,603   

Intangible assets

     2,470   

Goodwill

     86,484   
        

Total identifiable assets acquired

   $ 118,649   

Accounts payable and accrued liabilities

   $ 6,548   

Deferred revenue

     5,281   

Capital lease obligations

     2,892   

Unfavorable lease obligations, net

     43,400   
        

Total liabilities assumed

   $ 58,121   

Total purchase price

   $ 60,528   
        

The operations of Northstar-at-Tahoe are conducted on land and with operating assets owned by CNL Lifestyle Properties, Inc. under long-term lease agreements which were assumed by the Company. Under the terms of the leases, the Company estimates that it will be required to pay above market rates in the aggregate through the remainder of the initial lease term expiring in fiscal 2027. The Company has recorded a net unfavorable lease obligation for these leases that will be amortized as an adjustment to lease expense over the remaining initial lease term. Future minimum lease payments (excluding contingent rents and executory costs) under the remaining initial term of these leases reflected by fiscal year as of April 30, 2011 are as follows (in thousands):

 

2011

   $ —     

2012

     11,358   

2013

     11,703   

2014

     12,365   

2015

     12,683   

Thereafter

     152,145   
        

Total

   $ 200,254   
        

 

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The excess of the purchase price over the aggregate fair values of assumed assets and liabilities was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of Northstar-at-Tahoe and other factors. None of the goodwill is expected to be deductible for income tax purposes. The operating results of Northstar-at-Tahoe have contributed $32.4 million and $63.8 million of net revenue for the three and nine months ended April 30, 2011, respectively. Additionally, the Company has recognized $4.0 million of acquisition related expenses in the Consolidated Condensed Statement of Operations during the nine months ended April 30, 2011.

The following presents the unaudited pro forma consolidated financial information of the Company as if the acquisition of Northstar-at-Tahoe was completed on August 1, 2009. The following pro forma financial information includes adjustments for (i) depreciation and interest expense for capital leases on acquired property, plant and equipment recorded at the date of acquisition; (ii) straight-line expense recognition of minimum future lease payments from the date of acquisition, including the amortization of the net unfavorable lease obligations; and (iii) acquisition related costs. This pro forma financial information is presented for informational purposes only and does not purport to be indicative of the results of future operations or the results that would have occurred had the acquisition taken place on August 1, 2009 (in thousands, except per share amounts).

 

     Three Months Ended
April 30,
 
     2010  

Pro forma net revenue

   $ 381,264   

Pro forma net income attributable to Vail Resorts, Inc.

   $ 79,904   

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

   $ 2.20   

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

   $  2.17   

 

     Nine Months Ended
April 30,
 
     2011      2010  

Pro forma net revenue

   $ 1,041,449       $ 791,648   

Pro forma net income attributable to Vail Resorts, Inc.

   $ 87,112       $ 79,871   

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

   $ 2.42       $ 2.20   

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

   $ 2.37       $ 2.17   

 

6. Supplementary Balance Sheet Information

The composition of property, plant and equipment follows (in thousands):

 

     April 30,     July 31,     April 30,  
     2011     2010     2010  

Land and land improvements

   $ 270,965      $ 270,382      $ 269,176   

Buildings and building improvements

     801,268        769,382        738,228   

Machinery and equipment

     542,582        512,144        514,009   

Furniture and fixtures

     211,839        198,566        191,054   

Software

     63,925        56,498        53,687   

Vehicles

     41,968        35,447        35,296   

Construction in progress

     22,314        31,197        46,947   
                        

Gross property, plant and equipment

     1,954,861        1,873,616        1,848,397   

Accumulated depreciation

     (927,557     (846,226     (823,420
                        

Property, plant and equipment, net

   $ 1,027,304      $ 1,027,390      $ 1,024,977   
                        

 

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The net carrying amount of goodwill allocated between the Company’s segments as of July 31, 2010 and April 30, 2011, with related changes are as follows (in thousands):

 

     Mountain      Lodging      Goodwill, net  

Balance at July 31, 2010

   $ 120,615       $ 60,470       $ 181,085   

Northstar-at-Tahoe acquisition

     86,484         —           86,484   
                          

Balance at April 30, 2011

   $ 207,099       $ 60,470       $ 267,569   
                          

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

 

     April 30,      July 31,      April 30,  
     2011      2010      2010  

Trade payables

   $ 42,619       $ 47,554       $ 37,717   

Real estate development payables

     4,731         31,203         35,920   

Deferred revenue

     38,589         53,298         31,363   

Deferred real estate and other deposits

     13,252         42,891         56,940   

Accrued salaries, wages and deferred compensation

     28,736         21,425         24,000   

Accrued benefits

     27,752         23,547         28,716   

Accrued interest

     1,962         13,939         6,506   

Other accruals

     22,427         21,469         16,421   
                          

Total accounts payable and accrued liabilities

   $ 180,068       $ 255,326       $ 237,583   
                          

The composition of other long-term liabilities follows (in thousands):

 

     April 30,      July 31,      April 30,  
     2011      2010      2010  

Private club deferred initiation fee revenue and deposits

   $ 146,768       $ 148,184       $ 149,889   

Unfavorable lease obligation, net

     39,397         —           —     

Other long-term liabilities

     51,339         48,976         46,804   
                          

Total other long-term liabilities

   $ 237,504       $ 197,160       $ 196,693   
                          

 

7. Variable Interest Entities

The Company is the primary beneficiary of four employee housing entities (collectively, the “Employee Housing Entities”), Breckenridge Terrace, LLC, The Tarnes at BC, LLC, BC Housing, LLC and Tenderfoot Seasonal Housing, LLC, which are Variable Interest Entities (“VIEs”), and has consolidated them in its Consolidated Condensed Financial Statements. As a group, as of April 30, 2011, the Employee Housing Entities had total assets of $34.3 million (primarily recorded in property, plant and equipment, net) and total liabilities of $62.3 million (primarily recorded in long-term debt as “Employee Housing Bonds”). The Company’s lenders have issued letters of credit totaling $53.4 million under the Credit Agreement related to Employee Housing Bonds. Payments under the letters of credit would be triggered in the event that one of the entities defaults on required payments. The letters of credit have no default provisions. The Company is the primary beneficiary of Avon Partners II, LLC (“APII”), which is a VIE. APII owns commercial space and the Company currently leases substantially all of that space. APII had total assets of $4.4 million (primarily recorded in property, plant and equipment, net) and no debt as of April 30, 2011.

 

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The Company, through various lodging subsidiaries, manages hotels in which the Company has no ownership interest in the entities that own such hotels. The Company previously extended a $2.0 million note receivable to one of these entities at the time the entity acquired the hotel property that the Company managed. This entity was formed by unrelated third parties to acquire, own, operate and realize the value in a resort hotel property. The Company continues to manage the day-to-day operations of this hotel property as of April 30, 2011. The Company has determined that this entity is a VIE, and the management contract along with the note receivable are significant variable interests in this VIE. The Company has also determined that it is not the primary beneficiary of this entity and, accordingly, is not required to consolidate this entity. Based upon the latest information provided by this third party entity, this VIE had estimated total assets of approximately $62.7 million and total liabilities of approximately $71.9 million. This entity has been in default on certain debt held by the entity and the third party owners of the entity have been unable to reach an agreement to restructure the debt with their creditor, as the creditor initiated foreclosure proceedings in May 2011. If foreclosure were to occur, the Company believes it is probable that its note receivable, including accrued interest, would be impaired. As such, the Company has recorded an asset impairment charge of $2.6 million in its Consolidated Condensed Statements of Operations for the three and nine months ended April 30, 2011. Additionally, the Company has an intangible asset associated with the management of the hotel, with a net carrying amount as of April 30, 2011 of $0.5 million. The Company believes it will continue to manage the hotel if foreclosure were to take place.

 

8. Fair Value Measurements

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

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

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

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

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

 

     Fair Value Measurement as of April 30, 2011  

Description

   Balance at
April 30,
2011
     Level 1      Level 2      Level 3  

US Treasury

   $ 8,378       $ 8,378       $ —         $ —     

Certification of Deposit

   $ 1,290       $ —         $ 1,290       $ —     

 

     Fair Value Measurement as of July 31, 2010  

Description

   Balance at
July 31,
2010
     Level 1      Level 2      Level 3  

Money Market

   $ 399       $ 399       $ —         $ —     

US Treasury

   $ 8,297       $ 8,297       $ —         $ —     

Certification of Deposit

   $ 300       $ —         $ 300       $ —     

 

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     Fair Value Measurement as of April 30, 2010  

Description

   Balance at April
30, 2010
     Level 1      Level 2      Level 3  

Money Market

   $ 8,695       $ 8,695       $ —         $ —     

Certification of Deposit

   $ 300       $ —         $ 300       $ —     

The Company’s cash equivalents include money market funds (Level 1) and time deposits (Level 2) which are measured utilizing quoted market prices or pricing models whereby all significant inputs are either observable or corroborated by observable market data.

 

9. Commitments and Contingencies

Metropolitan Districts

The Company credit-enhances $8.0 million of bonds issued by Holland Creek Metropolitan District (“HCMD”) through an $8.1 million letter of credit issued under the Credit Agreement. HCMD’s bonds were issued and used to build infrastructure associated with the Company’s Red Sky Ranch residential development. The Company has agreed to pay capital improvement fees to Red Sky Ranch Metropolitan District (“RSRMD”) until RSRMD’s revenue streams from property taxes are sufficient to meet debt service requirements under HCMD’s bonds, and the Company has recorded a liability of $1.8 million, $1.9 million and $1.8 million, primarily within “other long-term liabilities” in the accompanying Consolidated Condensed Balance Sheets, as of April 30, 2011, July 31, 2010 and April 30, 2010, respectively, with respect to the estimated present value of future RSRMD capital improvement fees. The Company estimates that it will make capital improvement fee payments under this arrangement through the year ending July 31, 2028.

Guarantees/ Indemnifications

As of April 30, 2011, the Company had various other letters of credit in the amount of $61.0 million, consisting primarily of $53.4 million in support of the Employee Housing Bonds, $1.1 million of construction and development related guarantees and $5.4 million for workers’ compensation and general liability deductibles related to construction and development activities.

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

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

 

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

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

Self Insurance

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

Legal

The Company is a party to various lawsuits arising in the ordinary course of business. Management believes the Company has adequate insurance coverage or has accrued for loss contingencies for all known matters that are deemed to be probable losses and estimable. As of April 30, 2011, July 31, 2010 and April 30, 2010 the accrual for the above loss contingencies was not material individually and in the aggregate.

 

10. Segment Information

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

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

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

 

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

Following is key financial information by reportable segment which is used by management in evaluating performance and allocating resources (in thousands):

 

     Three Months Ended
April 30,
    Nine Months Ended
April 30,
 
     2011     2010     2011     2010  

Net revenue:

        

Lift tickets

   $ 187,341      $ 159,772      $ 342,514      $ 289,289   

Ski school

     46,522        40,625        83,818        70,694   

Dining

     31,733        25,837        62,244        49,094   

Retail/rental

     59,364        55,107        155,737        137,671   

Other

     26,458        20,872        66,161        55,647   
                                

Total Mountain net revenue

     351,418        302,213        710,474        602,395   

Lodging

     49,835        44,877        138,933        124,908   
                                

Total Resort net revenue

     401,253        347,090        849,407        727,303   

Real Estate

     13,221        3,164        187,629        4,239   
                                

Total net revenue

   $ 414,474      $ 350,254      $ 1,037,036      $ 731,542   
                                

Operating expense:

        

Mountain

   $ 182,136      $ 156,454      $ 456,496      $ 386,940   

Lodging

     41,001        39,292        127,675        119,703   
                                

Total Resort operating expense

     223,137        195,746        584,171        506,643   

Real estate

     18,309        8,391        188,716        20,985   
                                

Total segment operating expense

   $ 241,446      $ 204,137      $ 772,887      $ 527,628   
                                

Gain on sale of real property

   $ —        $ —        $ —        $ 6,087   

Mountain equity investment income, net

   $ 406      $ 838      $ 1,324      $ 1,299   

Reported EBITDA:

        

Mountain

   $ 169,688      $ 146,597      $ 255,302      $ 216,754   

Lodging

     8,834        5,585        11,258        5,205   
                                

Resort

     178,522        152,182        266,560        221,959   

Real Estate

     (5,088     (5,227     (1,087     (10,659
                                

Total Reported EBITDA

   $ 173,434      $ 146,955      $ 265,473      $ 211,300   
                                

Real estate held for sale and investment

   $ 282,162      $ 445,885      $ 282,162      $ 445,885   

Reconciliation to net income attributable to Vail Resorts, Inc:

        

Total Reported EBITDA

   $ 173,434      $ 146,955      $ 265,473      $ 211,300   

Depreciation and amortization

     (30,937     (27,812     (88,945     (82,768

(Loss) gain on disposal of fixed assets, net

     (35     18        (343     (83

Asset impairment charge

     (2,561     —          (2,561     —     

Investment income

     114        141        578        563   

Interest expense, net

     (8,515     (3,673     (25,110     (12,656

Loss on extinguishment of debt

     (6,615     —          (6,615     —     
                                

Income before provision for income taxes

     124,885        115,629        142,477        116,356   

Provision for income taxes

     (48,045     (39,238     (54,140     (38,397
                                

Net income

   $ 76,840      $ 76,391      $ 88,337      $ 77,959   

Net loss (income) attributable to noncontrolling interests

     27        (3,602     58        (5,653
                                

Net income attributable to Vail Resorts, Inc.

   $ 76,867      $ 72,789      $ 88,395      $ 72,306   
                                

 

F-17


Table of Contents
11. Stock Repurchase Plan

On March 9, 2006, the Company’s Board of Directors approved the repurchase of up to 3,000,000 shares of common stock and on July 16, 2008 approved an increase of the Company’s common stock repurchase authorization by an additional 3,000,000 shares. The Company did not repurchase any shares of common stock during the three and nine months ended April 30, 2011. Since inception of its stock repurchase plan through April 30, 2011, the Company has repurchased 4,264,804 shares at a cost of approximately $162.8 million. As of April 30, 2011, 1,735,196 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.

 

12. Guarantor Subsidiaries and Non-Guarantor Subsidiaries

The Company’s payment obligations under the 6.75% Notes (see Note 4, Long-Term Debt) are fully and unconditionally guaranteed on a joint and several, senior subordinated basis by substantially all of the Company’s consolidated subsidiaries (collectively, and excluding Non-Guarantor Subsidiaries (as defined below), the “Guarantor Subsidiaries”), except for VR Acquisition, Inc., BCRP, Inc., Booth Creek Ski Holdings, Inc., Trimont Land Company, Northstar Commercial Properties LLC, and Northstar Group Restaurant Properties LLC (collectively, “Northstar-at-Tahoe”), Eagle Park Reservoir Company, Gros Ventre Utility Company, Mountain Thunder, Inc., Larkspur Restaurant & Bar, LLC, Gore Creek Place, LLC and certain other insignificant entities (together, the “Non-Guarantor Subsidiaries”). APII and the Employee Housing Entities are included with the Non-Guarantor Subsidiaries for purposes of the consolidated financial information, but are not considered subsidiaries under the indenture governing the 6.75% Notes.

The Company’s payment obligations under the 6.50% Notes (see Note 4, Long-Term Debt), issued on April 25, 2011, are jointly and severally guaranteed by substantially all of the Company’s current and future domestic subsidiaries. Certain Non-Guarantor Subsidiaries under the 6.75% Notes, primarily relating to the entities that comprise the operations of Northstar-at-Tahoe and acquired by the Company on October 25, 2010, are guarantors with respect to the 6.50% Notes. As a result, the financial information with respect to “Guarantor Subsidiaries” and “Non-Guarantor Subsidiaries” presented below should not be relied upon as presenting financial information with respect to the guarantors of the 6.50% Notes.

Presented below is the consolidated financial information of the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries under the 6.75% Notes. Financial information for the Non-Guarantor Subsidiaries is presented in the column titled “Other Subsidiaries.” On April 30, 2010, the Company acquired GSSI’s remaining noncontrolling interest in SSV (see Note 2, Summary of Significant Accounting Policies). Subsequent to this transaction, SSV became a Guarantor Subsidiary under the 6.75% Notes. As such, the Company has included SSV under Guarantor Subsidiaries in the accompanying supplemental condensed financial statements. Reclassifications for SSV have been made to the financial information as of and for the three and nine months ended April 30, 2010 to conform to the current year presentation. Balance sheets are presented as of April 30, 2011, July 31, 2010 and April 30, 2010. Statements of operations are presented for the three and nine months ended April 30, 2011 and 2010. Statement of cash flows are presented for the nine months ended April 30, 2011 and 2010.

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

 

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Table of Contents

Supplemental Condensed Consolidating Balance Sheet

As of April 30, 2011

(in thousands)

(Unaudited)

 

     Parent
Company
    100%
Owned
Guarantor
Subsidiaries
     Other
Subsidiaries
     Eliminating
Entries
    Consolidated  

Current assets:

            

Cash and cash equivalents

   $ —        $ 162,576       $ 6,020       $ —        $ 168,596   

Restricted cash

     —          12,423         579         —          13,002   

Trade receivables, net

     450        43,758         2,209         —          46,417   

Inventories, net

     —          44,055         1,182         —          45,237   

Other current assets

     27,767        14,629         7,593         —          49,989   
                                          

Total current assets

     28,217        277,441         17,583         —          323,241   
                                          

Property, plant and equipment, net

     —          969,005         58,299         —          1,027,304   

Real estate held for sale and investment

     —          282,162         —           —          282,162   

Goodwill, net

     —          181,085         86,484         —          267,569   

Intangible assets, net

     —          71,021         20,264         —          91,285   

Other assets

     8,590        31,365         7,422         —          47,377   

Investments in subsidiaries

     1,800,382        71,908         —           (1,872,290     —     

Advances

     (300,046     290,849         9,197         —          —     
                                          

Total assets

   $ 1,537,143      $ 2,174,836       $ 199,249       $ (1,872,290   $ 2,038,938   
                                          

Current liabilities:

            

Accounts payable and accrued liabilities

   $ 2,425      $ 166,765       $ 10,878       $ —        $ 180,068   

Income taxes payable

     1,296        —           —           —          1,296   

Long-term debt due within one year

     43,937        118         1,302         —          45,357   
                                          

Total current liabilities

     47,658        166,883         12,180         —          226,721   

Long-term debt

     390,000        41,344         59,135         —          490,479   

Other long-term liabilities

     29,203        166,227         42,074         —          237,504   

Deferred income taxes

     184,373        —           —           —          184,373   

Total Vail Resorts, Inc. stockholders’ equity

     885,909        1,800,382         71,908         (1,872,290     885,909   

Noncontrolling interests

     —          —           13,952         —          13,952   
                                          

Total stockholders’ equity

     885,909        1,800,382         85,860         (1,872,290     899,861   
                                          

Total liabilities and stockholders’ equity

   $ 1,537,143      $ 2,174,836       $ 199,249       $ (1,872,290   $ 2,038,938   
                                          

 

F-19


Table of Contents

Supplemental Condensed Consolidating Balance Sheet

As of July 31, 2010

(in thousands)

 

     Parent
Company
    100% Owned
Guarantor
Subsidiaries
    Other
Subsidiaries
    Eliminating
Entries
    Consolidated  

Current assets:

          

Cash and cash equivalents

   $ —        $ 11,315      $ 3,430      $ —        $ 14,745   

Restricted cash

     —          11,443        391        —          11,834   

Trade receivables, net

     —          53,013        609        —          53,622   

Inventories, net

     —          48,081        214        —          48,295   

Other current assets

     21,448        20,570        231        —          42,249   
                                        

Total current assets

     21,448        144,422        4,875        —          170,745   

Property, plant and equipment, net

     —          990,904        36,486        —          1,027,390   

Real estate held for sale and investment

     —          422,164        —          —          422,164   

Goodwill, net

     —          181,085        —          —          181,085   

Intangible assets, net

     —          71,118        18,155        —          89,273   

Other assets

     2,515        24,776        4,861        —          32,152   

Investments in subsidiaries

     1,631,824        (16,258     —          (1,615,566     —     

Advances

     (294,189     298,798        (4,609     —          —     
                                        

Total assets

   $ 1,361,598      $ 2,117,009      $ 59,768      $ (1,615,566   $ 1,922,809   
                                        

Current liabilities:

          

Accounts payable and accrued liabilities

   $ 12,400      $ 240,823      $ 2,103      $ —        $ 255,326   

Income taxes payable

     32,729        —          —          —          32,729   

Long-term debt due within one year

     —          1,682        187        —          1,869   
                                        

Total current liabilities

     45,129        242,505        2,290        —          289,924   

Long-term debt

     390,000        76,479        58,363        —          524,842   

Other long-term liabilities

     29,203        166,201        1,756        —          197,160   

Deferred income taxes

     108,496        —          —          —          108,496   

Total Vail Resorts, Inc. stockholders’ equity

     788,770        1,631,824        (16,258     (1,615,566     788,770   

Noncontrolling interests

     —          —          13,617        —          13,617   
                                        

Total stockholders’ equity

     788,770        1,631,824        (2,641     (1,615,566     802,387   
                                        

Total liabilities and stockholders’ equity

   $ 1,361,598      $ 2,117,009      $ 59,768      $ (1,615,566   $ 1,922,809   
                                        

 

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Table of Contents

Supplemental Condensed Consolidating Balance Sheet

As of April 30, 2010

(in thousands)

(Unaudited)

 

     Parent
Company
    100% Owned
Guarantor
Subsidiaries
    Other
Subsidiaries
    Eliminating
Entries
    Consolidated  

Current assets:

          

Cash and cash equivalents

   $ —        $ 47,432      $ 3,715      $ —        $ 51,147   

Restricted cash

     —          11,447        379        —          11,826   

Trade receivables, net

     —          34,458        581        —          35,039   

Inventories, net

     —          42,489        180        —          42,669   

Other current assets

     24,819        20,973        245        —          46,037   
                                        

Total current assets

     24,819        156,799        5,100        —          186,718   

Property, plant and equipment, net

     —          988,666        36,311        —          1,024,977   

Real estate held for sale and investment

     —          445,885        —          —          445,885   

Goodwill, net

     —          168,197        —          —          168,197   

Intangible assets, net

     —          68,426        18,155        —          86,581   

Other assets

     2,693        24,910        4,878        —          32,481   

Investments in subsidiaries

     1,685,014        (15,125     —          (1,669,889     —     

Advances

     (281,864     287,253        (5,389     —          —     
                                        

Total assets

   $ 1,430,662      $ 2,125,011      $ 59,055      $ (1,669,889   $ 1,944,839   
                                        

Current liabilities:

          

Accounts payable and accrued liabilities

   $ 5,897      $ 230,087      $ 1,599      $ —        $ 237,583   

Income taxes payable

     10,022        —          —          —          10,022   

Long-term debt due within one year

     —          1,664        187        —          1,851   
                                        

Total current liabilities

     15,919        231,751        1,786        —          249,456   

Long-term debt

     390,000        41,459        58,363        —          489,822   

Other long-term liabilities

     29,690        166,787        216        —          196,693   

Deferred income taxes

     152,089        —          —          —          152,089   

Total Vail Resorts, Inc. stockholders’ equity

     842,964        1,685,014        (15,125     (1,669,889     842,964   

Noncontrolling interests

     —          —          13,815        —          13,815   
                                        

Total stockholders’ equity

     842,964        1,685,014        (1,310     (1,669,889     856,799   
                                        

Total liabilities and stockholders’ equity

   $ 1,430,662      $ 2,125,011      $ 59,055      $ (1,669,889   $ 1,944,839   
                                        

 

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Table of Contents

Supplemental Condensed Consolidating Statement of Operations

For the three months ended April 30, 2011

(in thousands)

(Unaudited)

 

     Parent
Company
    100% Owned
Guarantor
Subsidiaries
    Other
Subsidiaries
    Eliminating
Entries
    Consolidated  

Total net revenue

   $ —        $ 380,803      $ 36,564      $ (2,893   $ 414,474   

Total operating expense

     5        252,562        25,267        (2,855     274,979   
                                        

(Loss) income from operations

     (5     128,241        11,297        (38     139,495   

Other expense, net

     (13,374     (1,455     (225     38        (15,016

Equity investment income, net

     —          406        —          —          406   
                                        

(Loss) income before benefit (provision) for income taxes

     (13,379     127,192        11,072        —          124,885   

Benefit (provision) for income taxes

     5,151        (48,903     (4,293     —          (48,045
                                        

Net (loss) income before equity in income (loss) of consolidated subsidiaries

     (8,228     78,289        6,779        —          76,840   

Equity in income of consolidated subsidiaries

     85,095        6,806        —          (91,901     —     
                                        

Net income

     76,867        85,095        6,779        (91,901     76,840   

Net loss attributable to noncontrolling interests

     —          —          27        —          27   
                                        

Net income attributable to Vail Resorts, Inc.

   $ 76,867      $ 85,095      $ 6,806      $ (91,901   $ 76,867   
                                        

 

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Table of Contents

Supplemental Condensed Consolidating Statement of Operations

For the three months ended April 30, 2010

(in thousands)

(Unaudited)

 

     Parent
Company
    100% Owned
Guarantor
Subsidiaries
    Other
Subsidiaries
    Eliminating
Entries
    Consolidated  

Total net revenue

   $ —        $ 349,752      $ 3,459      $ (2,957   $ 350,254   

Total operating expense

     172        231,229        3,449        (2,919     231,931   
                                        

(Loss) income from operations

     (172     118,523        10        (38     118,323   

Other (expense) income, net

     (6,758     3,491        (303     38        (3,532

Equity investment income, net

     —          838        —          —          838   
                                        

(Loss) income before benefit (provision) for income taxes

     (6,930     122,852        (293     —          115,629   

Benefit (provision) for income taxes

     1,699        (40,937     —          —          (39,238
                                        

Net (loss) income before equity in income (loss) of consolidated subsidiaries

     (5,231     81,915        (293     —          76,391   

Equity in income (loss) of consolidated subsidiaries, net

     78,020        (256     —          (77,764     —     
                                        

Net income (loss)

     72,789        81,659        (293     (77,764     76,391   

Net (income) loss attributable to noncontrolling interests

     —          (3,639     37        —          (3,602
                                        

Net income (loss) attributable to Vail Resorts, Inc.

   $ 72,789      $ 78,020      $ (256   $ (77,764   $ 72,789   
                                        

 

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Table of Contents

Supplemental Condensed Consolidating Statement of Operations

For the nine months ended April 30, 2011

(in thousands)

(Unaudited)

 

     Parent
Company
    100% Owned
Guarantor
Subsidiaries
    Other
Subsidiaries
    Eliminating
Entries
    Consolidated  

Total net revenue

   $ —        $ 972,375      $ 73,480      $ (8,819   $ 1,037,036   

Total operating expense

     330        819,848        53,263        (8,705     864,736   
                                        

(Loss) income from operations

     (330     152,527        20,217        (114     172,300   

Other expense, net

     (26,892     (3,335     (1,034     114        (31,147

Equity investment income, net

     —          1,324        —          —          1,324   
                                        

(Loss) income before benefit (provision) for income taxes

     (27,222     150,516        19,183        —          142,477   

Benefit (provision) for income taxes

     11,157        (57,379     (7,918     —          (54,140
                                        

Net (loss) income before equity in income (loss) of consolidated subsidiaries

     (16,065     93,137        11,265        —          88,337   

Equity in income of consolidated subsidiaries, net

     104,460        11,323        —          (115,783     —     
                                        

Net income

     88,395        104,460        11,265        (115,783     88,337   

Net loss attributable to noncontrolling interests

     —          —          58        —          58   
                                        

Net income attributable to Vail Resorts, Inc.

   $ 88,395      $ 104,460      $ 11,323      $ (115,783   $ 88,395   
                                        

 

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Table of Contents

Supplemental Condensed Consolidating Statement of Operations

For the nine months ended April 30, 2010

(in thousands)

(Unaudited)

 

     Parent
Company
    100% Owned
Guarantor
Subsidiaries
    Other
Subsidiaries
    Eliminating
Entries
    Consolidated  

Total net revenue

   $ —        $ 730,893      $ 8,197      $ (7,548   $ 731,542   

Total operating expense

     492        602,120        9,214        (7,434     604,392   
                                        

(Loss) income from operations

     (492     128,773        (1,017     (114     127,150   

Other (expense) income, net

     (20,276     8,840        (771     114        (12,093

Equity investment income, net

     —          1,299        —          —          1,299   
                                        

(Loss) income before benefit (provision) for income taxes

     (20,768     138,912        (1,788     —          116,356   

Benefit (provision) for income taxes

     7,293        (45,690     —          —          (38,397
                                        

Net (loss) income before equity in income (loss) of consolidated subsidiaries

     (13,475     93,222        (1,788     —          77,959   

Equity in income (loss) of consolidated subsidiaries, net

     85,781        (1,720     —          (84,061     —     
                                        

Net income (loss)

     72,306        91,502        (1,788     (84,061     77,959   

Net (income) loss attributable to noncontrolling interests

     —          (5,721     68        —          (5,653
                                        

Net income (loss) attributable to Vail Resorts, Inc.

   $ 72,306      $ 85,781      $ (1,720   $ (84,061   $ 72,306   
                                        

 

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Supplemental Condensed Consolidating Statement of Cash Flows

For the nine months ended April 30, 2011

(in thousands)

(Unaudited)

 

     Parent
Company
    100% Owned
Guarantor
Subsidiaries
    Other
Subsidiaries
    Consolidated  

Net cash provided by operating activities

   $ 27,933      $ 259,071      $ 4,341      $ 291,345   

Cash flows from investing activities:

        

Capital expenditures

     —          (71,668     (1,901     (73,569

Acquisition of business

     —          (60,528     —          (60,528

Other investing activities, net

     —          (303     (62     (365
                                

Net cash used in investing activities

     —          (132,499     (1,963     (134,462

Cash flows from financing activities:

        

Proceeds from borrowings under other long-term debt

     —          189,000        —          189,000   

Payments of other long-term debt

     —          (225,700     (1,005     (226,705

Proceeds from borrowings under the 6.50% notes

     390,000        —          —          390,000   

Payment of tender of 6.75% notes

     (346,063     —          —          (346,063

Payment of financing costs

     (8,123     —          —          (8,123

Advances

     (65,060     63,910        1,150        —     

Other financing activities, net

     1,313        (2,521     67        (1,141
                                

Net cash (used in) provided by financing activities

     (27,933     24,689        212        (3,032
                                

Net increase in cash and cash equivalents

     —          151,261        2,590        153,851   

Cash and cash equivalents:

        

Beginning of period

     —          11,315        3,430        14,745   
                                

End of period

   $ —        $ 162,576      $ 6,020      $ 168,596   
                                

 

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Supplemental Condensed Consolidating Statement of Cash Flows

For the nine months ended April 30, 2010

(in thousands)

(Unaudited)

 

     Parent
Company
    100% Owned
Guarantor
Subsidiaries
    Other
Subsidiaries
    Consolidated  

Net cash provided by (used in) operating activities

   $ 23,053      $ 33,974      $ (316   $ 56,711   

Cash flows from investing activities:

        

Capital expenditures

     —          (48,573     (228     (48,801

Cash received from sale of real property

     —          8,920        —          8,920   

Other investing activities, net

     —          (415     (7,500     (7,915
                                

Net cash used in investing activities

     —          (40,068     (7,728     (47,796

Cash flows from financing activities:

        

Acquisition of noncontrolling interest

     —          (31,000     —          (31,000

Proceeds from borrowings under other long-term debt

     —          85,962        —          85,962   

Payments of other long-term debt

     —          (86,069     (177     (86,246

Advances

     (24,073     24,073        —          —     

Other financing activities, net

     1,020        (6,124     9,322        4,218   
                                

Net cash (used in) provided by financing activities

     (23,053     (13,158     9,145        (27,066
                                

Net (decrease) increase in cash and cash equivalents

     —          (19,252     1,101        (18,151

Cash and cash equivalents:

        

Beginning of period

     —          66,684        2,614        69,298   
                                

End of period

   $ —        $ 47,432      $ 3,715      $ 51,147   
                                

 

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13. SUBSEQUENT EVENTS

On June 7, 2011, the Company’s Board of Directors approved the commencement of a regular quarterly dividend program and on that date authorized an annual cash dividend at a rate projected to be $0.60 per share, subject to quarterly declaration, with the first quarterly dividend of $0.15 per share declared and payable on July 18, 2011 to stockholders of record as of July 1, 2011.

 

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ITEM 2. 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 should be read in conjunction with our Annual Report on Form 10-K for the year ended July 31, 2010 (“Form 10-K”) and the Consolidated Condensed Financial Statements as of April 30, 2011 and 2010 and for the three and nine months then ended, included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which provide additional information regarding our financial position, results of operations and cash flows. 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 this Form 10-Q and in our other filings with the Securities and Exchange Commission (“SEC”), including the risks described in Item 1A “Risk Factors” of Part I of the Form 10-K. See also “Forward-Looking Statements” below for more information on these risks and other important factors that could cause actual results to differ materially from our forward looking statements.

Management’s Discussion and Analysis includes discussion of financial performance within each of our segments. We have chosen to specifically include Reported EBITDA (defined as segment net revenue less segment operating expense, plus or minus segment equity investment income or loss and for the Real Estate segment plus gain on sale of real property) and Net Debt (defined as long-term debt plus long-term debt due within one year less cash and cash equivalents), in the following discussion because we consider these measurements to be significant indications of our financial performance and available capital resources. Reported EBITDA and Net Debt are not measures of financial performance or liquidity under accounting principles generally accepted in the United States of America (“GAAP”). We utilize Reported EBITDA in evaluating our performance and in allocating resources to our segments. Refer to the end of the Results of Operations section below for a reconciliation of Reported EBITDA to net income attributable to Vail Resorts, Inc. We also believe that Net Debt is an important measurement as it is an indicator of our ability to obtain additional capital resources for our future cash needs. Refer to the end of the Results of Operations section 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 Condensed Financial Statements as indicators of financial performance or liquidity. Because Reported EBITDA and Net Debt are not measurements determined in accordance with GAAP and are 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

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

Mountain Segment

The Mountain segment is comprised of the operations of six ski resort properties as well as ancillary services, primarily including ski school, dining and retail/rental operations. Our six ski resorts are typically open for business from mid-November through mid-April, which is the peak operating season for the Mountain segment. Our single largest source of Mountain segment revenue is the sale of lift tickets (including season passes), which represented approximately 53% of Mountain segment net revenue for each of the three months ended April 30, 2011 and 2010 and approximately 48% of Mountain segment net revenue for each of the nine months ended April 30, 2011 and 2010.

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 2010/2011 ski season, Destination guests comprised approximately 57% of our skier visits, while In-State guests comprised approximately 43% of our skier visits, which compares to approximately 58% and 42%, respectively, for the 2009/2010 ski season (excluding Northstar-at-Tahoe for both the current and prior ski seasons).

 

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Destination guests generally purchase our higher-priced lift ticket products and utilize more ancillary services such as ski school, dining and retail/rental, as well as the lodging at or around our resorts. Destination guest visitation is less likely to be impacted by changes in the weather, but can be more impacted by adverse economic conditions or the global geopolitical climate. In-State guests tend to be more value-oriented and weather sensitive. We market season passes to both Destination and 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 guests to ski at our resorts. This in turn has developed a loyal customer base that generally skis multiple days each season at our resorts and provides a more stabilized stream of lift revenue to us. 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 each of the 2010/2011 and 2009/2010 ski seasons, approximately 35% of the total lift ticket revenue recognized was comprised of season pass revenue.

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

Lodging Segment

Operations within the Lodging segment include (i) ownership/management of a group of luxury hotels through the RockResorts brand, including several proximate to our ski resorts; (ii) ownership/management of non-RockResorts branded hotels and condominiums proximate to our ski resorts; (iii) Grand Teton Lodge Company (“GTLC”) which operates three destination resorts at Grand Teton National Park; (iv) Colorado Mountain Express (“CME”), a resort ground transportation company; and (v) golf courses.

Lodging properties (including managed condominium rooms) at or around our ski resorts, and CME, are closely aligned with the performance of the Mountain segment and generally experience similar seasonal trends as the Mountain segment, particularly with respect to visitation by Destination guests. Lodging revenue from properties (including managed condominium rooms) at or around our ski resorts, and CME, represented approximately 90% and 92% of Lodging segment revenue for the three months ended April 30, 2011 and 2010, respectively, and 75% of Lodging segment revenue for both of the nine months ended April 30, 2011 and 2010. Lodging segment revenue during our 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 our other owned and managed properties and businesses.

Real Estate Segment

The Real Estate segment owns and develops real estate in and around our resort communities and primarily engages in the vertical development of projects, as well as, occasionally the sale of land to third-party developers. Revenue from vertical development projects is not recognized until the 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. We attempt 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. Our real estate development projects also may result in the creation of certain resort assets that provide additional benefit to the Mountain and Lodging segments. Our revenue from the Real Estate segment, and associated expense, can fluctuate significantly based upon the timing of closings and the type of real estate being sold, causing volatility in the Real Estate segment’s operating results from period to period.

Recent Trends, Risks and Uncertainties

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

 

   

Our season pass products provide a value option to our guests which in turn creates a guest commitment predominantly prior to the start of the ski season, resulting in a more stabilized stream of lift revenue. In March 2011, we began our pre-season pass sales program for the 2011/2012 ski season. Through June 5, 2011, our spring pre-season pass sales for the upcoming 2011/2012 ski season (including Northstar-at-Tahoe for both the current and prior year, which prior year includes spring pass sales that occurred before

 

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our acquisition of Northstar-at-Tahoe in October 2010) have increased approximately 19% in units and increased approximately 27% in sales dollars, over the same period in the prior year, which spring sales period has historically represented roughly one third of our total season pass sales in any given year. However, we cannot predict if this favorable trend will continue through the Fall 2011 pass sales campaign, the level of pre-season pass pricing or the overall impact that season pass sales will have on lift ticket revenue for the 2011/2012 ski season.

 

   

In response to the economic downturn in 2008 and 2009, we implemented cost reduction initiatives in fiscal 2009, including a company-wide wage reduction and suspension of our 401(k) plan matching contributions. We reinstated some of the prior year’s wage and benefit reduction with a 2% interim wage increase for year round employees effective April 1, 2010 and seasonal employees for the 2010/2011 ski season along with a partial reinstatement of our matching component of the 401(k) plan. We currently plan to fully reinstate the previous level of 401(k) matching ratably over a three year period. We also have returned to a more normal level of wage increases for fiscal 2011; however, we cannot predict whether any increases in labor costs and other employee benefit costs coupled with other increases in operating costs will continue to be more than offset by increased revenues.

 

   

On October 25, 2010, we acquired Northstar-at-Tahoe, a destination mountain resort in North Lake Tahoe, California for total consideration of $63.0 million, less cash assumed. We cannot predict whether we will realize all of the synergies expected to arise subsequent to the acquisition of Northstar-at-Tahoe, nor can we predict the amount of management’s time and effort, including the cost necessary to integrate its operations and the ultimate impact it will have on our future results of operations.

 

   

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. During the first quarter of fiscal 2011, we received a certificate of occupancy for The Ritz-Carlton Residences, Vail and we have closed on 67 units through April 30, 2011 (with an additional unit having closed subsequent to April 30, 2011). Additionally, we have closed on four units at One Ski Hill Place (which was completed in the fourth quarter of fiscal 2010) in fiscal 2011 through April 30, 2011 (40 units in total including 36 units closed in fiscal 2010). We currently have on a combined basis 99 units available for sale at The Ritz-Carlton Residences, Vail, One Ski Hill Place in Breckenridge and Crystal Peak Lodge at Breckenridge. We have increased risk associated with selling and closing units in these projects as a result of the continued instability in the credit markets and a slowdown in the overall real estate market. Buyers have been or may be unable to close on units in part due to a reduction in funds available to buyers and/or decreases in mortgage availability. We cannot predict the ultimate number of units that we will sell, the ultimate price we will receive, or when the units will sell, although we currently believe the selling process will take multiple years. Additionally, if a prolonged weakness in the real estate market or general economic conditions were to occur we may have to adjust our selling prices more than currently anticipated in an effort to sell and close on units available for sale. Furthermore, if the current weakness in the real estate market were to persist for multiple years thus requiring us to sell remaining units below recent pricing levels (including any sales concessions and discounts) combined with an increase in estimated carrying costs and/or a decline in estimated rental income to be earned during the holding period for the remaining inventory of units at The Ritz-Carlton Residences, Vail or One Ski Hill Place in Breckenridge, it may result in an impairment charge on one or both projects.

 

   

In addition to our $168.6 million of cash and cash equivalents at April 30, 2011, we have $331.7 million available under our senior credit facility (“Credit Agreement”) (which represents the total commitment of $400.0 million less certain letters of credit outstanding of $68.3 million), which was amended and restated on January 25, 2011. Key modifications to the Credit Agreement included, among other things, the extension of the maturity on the revolving credit facility from February 2012 to January 2016; increased grid pricing for interest rate margins (as of April 30, 2011, under the Credit Agreement, at LIBOR plus 1.75%) and commitment fees (as of April 30, 2011, under the Credit Agreement at 0.35%); the expansion of baskets for improved flexibility in our ability to incur debt and make acquisitions, investments and distributions; and the elimination of certain financial covenants. In addition, on April 25, 2011, we completed an offering for $390 million of 6.50% Senior Subordinated Notes due 2019 (the “6.50% Notes”), the proceeds of which, along with available cash resources, were used or will be used to purchase the outstanding $390 million principal amount of 6.75% Senior Subordinated Notes due 2014 (the “6.75% Notes”) and pay related premiums, fees and expenses ($346.1 million principal balance of the 6.75% Notes

 

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were tendered as of April 30, 2011 and all of the remaining outstanding principal balance of $43.9 million was called on April 25, 2011 and defeased on May 25, 2011 and as such we will record an additional loss on extinguishment of debt of $0.8 million in the fourth quarter of fiscal 2011). The 6.50% Notes have a fixed annual interest rate of 6.50% and will mature May 1, 2019 with no principal payments due until maturity. Additionally, we believe the 6.50% Notes will allow for substantially increased flexibility in our ability to incur debt and make acquisitions, investments and distributions. The above, combined with the completion of our real estate projects where the proceeds from future real estate closings on The Ritz-Carlton Residences, Vail, One Ski Hill Place in Breckenridge and Crystal Peak Lodge at Breckenridge are expected to significantly exceed remaining carrying costs, has and is anticipated to provide us with significant liquidity which will allow us to consider strategic investments, including future acquisitions and other forms of providing return to our shareholders.

 

   

On June 7, 2011, the Company’s Board of Directors approved the commencement of a regular quarterly dividend program and on that date authorized an annual cash dividend at a rate projected to be $0.60 per share, subject to quarterly declaration, with the first quarterly dividend of $0.15 per share declared and payable on July 18, 2011 to stockholders of record as of July 1, 2011. This dividend is anticipated to be funded through cash flow from operations and available cash on hand. We, at the discretion of the Board of Directors and subject to applicable law, anticipate paying regular quarterly dividends on our common stock for the foreseeable future. The amount, if any, of the dividends to be paid in the future will depend upon our then available cash, anticipated cash needs, overall financial condition, Credit Agreement restrictions, future prospects for earnings and cash flows, as well as other relevant factors.

 

   

Under GAAP, we test goodwill for impairment annually during the fourth quarter of each fiscal year, and evaluate long-lived assets for potential impairment whenever events or change in circumstances indicate that the carrying amount of an asset may not be recoverable. We evaluate the recoverability of our goodwill by estimating the future discounted cash flows of our reporting units and terminal values of the businesses using projected future levels of income as well as business trends, prospects and market and economic conditions. We evaluate the recoverability of indefinite-lived intangible assets using the income approach based upon estimated future revenue streams. We evaluate the recoverability of long-lived assets by estimating the future undiscounted cash flows using projected future levels of income. Our fiscal 2010 annual impairment test did not result in a goodwill or indefinite-lived intangible asset impairment nor have we had a change in circumstances that indicated a potential impairment of long-lived assets in fiscal 2011. However, if a more severe prolonged weakness in general economic conditions were to occur it could cause less than expected growth and/or reduction in terminal values of our reporting units which may result in a goodwill, indefinite-lived intangible asset and/or long-lived asset impairment charge attributable to certain goodwill, indefinite-lived intangible assets and/or long-lived assets, particularly related to certain of our lodging operations.

RESULTS OF OPERATIONS

Summary

Shown below is a summary of operating results for both the three and nine months ended April 30, 2011, compared to the three and nine months ended April 30, 2010 (in thousands):

 

     Three Months Ended     Nine Months Ended  
   April 30,     April 30,  
         2011                 2010                 2011                 2010        

Mountain Reported EBITDA

   $ 169,688      $ 146,597      $ 255,302      $ 216,754   

Lodging Reported EBITDA

     8,834        5,585        11,258        5,205   
                                

Resort Reported EBITDA

     178,522        152,182        266,560        221,959   

Real Estate Reported EBITDA

     (5,088     (5,227     (1,087     (10,659

Income before provision for income taxes

     124,885        115,629        142,477        116,356   

Net income attributable to Vail Resorts, Inc.

   $ 76,867      $ 72,789      $ 88,395      $ 72,306   

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

 

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Mountain Segment

Three months ended April 30, 2011 compared to the three months ended April 30, 2010

Mountain segment operating results for the three months ended April 30, 2011 and 2010 are presented by category as follows (in thousands, except effective ticket price (“ETP”)):

 

     Three Months Ended      Percentage  
     April 30,      Increase  
     2011      2010      (Decrease)  

Net Mountain revenue:

        

Lift tickets

   $ 187,341       $ 159,772         17.3

Ski school

     46,522         40,625         14.5

Dining

     31,733         25,837         22.8

Retail/rental

     59,364         55,107         7.7

Other

     26,458         20,872         26.8
                          

Total Mountain net revenue

   $ 351,418       $ 302,213         16.3
                          

Mountain operating expense:

        

Labor and labor-related benefits

   $ 74,332       $ 63,443         17.2

Retail cost of sales

     20,001         19,369         3.3

Resort related fees

     20,802         19,460         6.9

General and administrative

     26,972         24,032         12.2

Other

     40,029         30,150         32.8
                          

Total Mountain operating expense

   $ 182,136       $ 156,454         16.4
                          

Mountain equity investment income, net

     406         838         (51.6 )% 
                          

Total Mountain Reported EBITDA

   $ 169,688       $ 146,597         15.8
                          

Total skier visits

     3,596         3,228         11.4

ETP

   $ 52.10       $ 49.50         5.3

Total Mountain Reported EBITDA includes $1.6 million and $1.2 million of stock-based compensation expense for the three months ended April 30, 2011 and 2010, respectively.

Total Mountain net revenue increased $49.2 million, or 16.3%, for the three months ended April 30, 2011 compared to the three months ended April 30, 2010, which increase includes $31.1 million of revenue from Northstar-at-Tahoe, which was acquired in October 2010. Excluding the impact of the acquisition of Northstar-at-Tahoe, total Mountain net revenue would have increased $18.1 million or 6.0%. Lift revenue increased $27.6 million, or 17.3%, for the three months ended April 30, 2011 compared to the same period in the prior year, due to a $17.3 million, or 15.5%, increase in paid lift revenue and a $10.3 million, or 21.2%, increase in season pass revenue. Excluding Northstar-at-Tahoe, lift revenue increased $11.7 million, or 7.3%, compared to the same period in the prior year, due to a $6.3 million, or 5.7%, increase in paid lift revenue and a $5.4 million, or 11.2 %, increase in season pass revenue. Total skier visitation was up 11.4% and excluding Northstar-at-Tahoe, skier visitation was relatively flat as both the Colorado resorts and the Heavenly resort were unfavorably impacted by the timing of the Easter holiday which was in late April in the current fiscal year, versus, early April in the prior fiscal year. Our Heavenly resort was also impacted by higher than average resort closures due to severe weather in the current fiscal year. ETP, excluding season pass holders and Northstar-at-Tahoe, increased $5.93, or 9.2%, due primarily to price increases implemented during the current fiscal year. Total ETP, excluding Northstar-at-Tahoe, increased $3.60, or 7.3%, also due primarily to price increases implemented during the current year fiscal year, partially offset by a higher usage by our season pass holders in the current fiscal year.

Ski school revenue increased $5.9 million, or 14.5%, for the three months ended April 30, 2011 compared to the same period in the prior year with the current year benefiting from the acquisition of Northstar-at-Tahoe. Excluding Northstar-at-Tahoe, ski school revenue increased $2.0 million, or 4.9%, which benefited from an increase in yield per skier visit due to higher guest spend as overall skier visitation was relatively flat. Dining revenue increased $5.9 million, or 22.8%, which also benefited from the acquisition of Northstar-at-Tahoe in the current fiscal year. Excluding Northstar-at-Tahoe, dining revenues increased $1.8 million, or 6.9%, driven by a 6.0% increase in yield per skier visit for on-mountain dining, as well as the addition of two new on-mountain dining venues. The increases in both ski school and dining revenue were achieved despite the negative impact of the late Easter holiday in the current fiscal year.

 

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Retail/rental revenue increased $4.3 million, or 7.7%, for the three months ended April 30, 2011 compared to the same period in the prior year, which includes $4.0 million of incremental revenue from Northstar-at-Tahoe in the current fiscal year. Excluding Northstar-at-Tahoe, retail/rental increased $0.3 million, or 0.5%, which was driven primarily by increased retail revenue at our Vail and Beaver Creek mountain resort stores and Any Mountain stores (in the San Francisco bay area). Overall, mountain resort stores were negatively impacted by the late Easter holiday in the current fiscal year.

Other revenue mainly consists of private club revenue (which includes both club dues and amortization of initiation fees), other mountain activities revenue, marketing and internet advertising revenue, commercial leasing revenue, employee housing revenue, municipal services revenue and other recreation activity revenue. For the three months ended April 30, 2011, other revenue increased $5.6 million, or 26.8%, compared to the three months ended April 30, 2010, which includes $3.2 million of incremental revenue from Northstar-at-Tahoe. Excluding Northstar-at-Tahoe, other revenue increased $2.4 million, or 11.2%, primarily due to an increase in internet advertising due to the acquisition of Mountain News Corporation in May 2010 and higher strategic alliance marketing revenues.

Operating expense increased $25.7 million, or 16.4%, for the three months ended April 30, 2011 compared to the three months ended April 30, 2010, which includes $19.4 million of expenses associated with Northstar-at-Tahoe. Excluding Northstar-at-Tahoe, operating expense increased $6.3 million, or 4.0%, for the three months ended April 30, 2011 compared to the three months ended April 30, 2010, due in part to higher labor and labor-related benefits which increased $3.7 million, or 5.9%. Overall, operating expenses including labor were impacted by a 6.2% increase in the number of operating days as compared to the prior fiscal year as our Vail, Breckenridge and Heavenly resorts remained open through the late Easter holiday. Labor and labor-related benefits in the current year were also impacted by the partial reinstatement of the prior year’s wage reduction and our matching component of the 401(k) plan and a more normal level of wage increases. These increases were partially offset by a decrease in workers compensation claims of $2.2 million, due primarily to a substantial reduction in the number of claims. Retail cost of sales decreased $1.6 million, or 8.3%, excluding Northstar-at-Tahoe, due to the mix of retail sales and improved gross margins. Additionally, resort related fees (including Forest Service fees, other resort-related fees, credit card fees and commissions) increased $0.9 million, or 4.7%, excluding Northstar-at-Tahoe, compared to the three months ended April 30, 2010, due to overall increases in revenue upon which those fees are based and general and administrative expenses increased $1.0 million, or 4.4%, excluding Northstar-at-Tahoe, primarily due to expenses associated with the operations of Mountain News Corporation acquired in May 2010. Other expense increased $2.2 million, or 7.5%, excluding Northstar-at-Tahoe, primarily due to higher fuel expense, as well as increased food and beverage cost of sales primarily due to an increase in dining revenue.

Nine months ended April 30, 2011 compared to the nine months ended April 30, 2010

Mountain segment operating results for the nine months ended April 30, 2011 and 2010 are presented by category as follows (in thousands, except ETP):

 

     Nine Months Ended         
     April 30,      Percentage  
     2011      2010      Increase  

Net Mountain revenue:

        

Lift tickets

   $ 342,514       $ 289,289         18.4

Ski school

     83,818         70,694         18.6

Dining

     62,244         49,094         26.8

Retail/rental

     155,737         137,671         13.1

Other

     66,161         55,647         18.9
                          

Total Mountain net revenue

   $ 710,474       $ 602,395         17.9
                          

Mountain operating expense:

        

Labor and labor-related benefits

   $ 171,452       $ 144,686         18.5

Retail cost of sales

     61,641         55,663         10.7

Resort related fees

     38,439         34,565         11.2

General and administrative

     82,818         70,603         17.3

Other

     102,146         81,423         25.5
                          

Total Mountain operating expense

   $ 456,496       $ 386,940         18.0
                          

Mountain equity investment income, net

     1,324         1,299         1.9
                          

Total Mountain Reported EBITDA

   $ 255,302       $ 216,754         17.8
                          

Total skier visits

     6,991         6,010         16.3

ETP

   $ 48.99       $ 48.13         1.8

 

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Total Mountain Reported EBITDA includes $5.4 million and $4.0 million of stock-based compensation expense for the nine months ended April 30, 2011 and 2010, respectively.

Total Mountain net revenue increased $108.1 million, or 17.9%, for the nine months ended April 30, 2011 compared to the nine months ended April 30, 2010, which increase includes $61.3 million of revenue from Northstar-at-Tahoe, which was acquired in October 2010. Excluding the impact of the acquisition of Northstar-at-Tahoe, total mountain net revenue would have increased $46.8 million or 7.8%. Lift revenue increased $53.2 million, or 18.4%, for the nine months ended April 30, 2011 compared to the same period in the prior year, due to a $34.2 million, or 18.1%, increase in paid lift revenue and a $19.0 million, or 18.9%, increase in season pass revenue. A large portion of this increase is attributable to the acquisition of Northstar-at-Tahoe since comparable results for Northstar-at-Tahoe are not included in the same period for the prior year. Excluding Northstar-at-Tahoe, lift revenue increased $22.4 million, or 7.7%, compared to the same period in the prior year, due to a $13.2 million, or 7.0%, increase in paid lift revenue and a $9.2 million, or 9.2%, increase in season pass revenue. Total skier visitation was up 16.3% and excluding Northstar-at-Tahoe, skier visitation was up 4.1% as both the Colorado resorts and the Heavenly resort benefited from significantly above average snowfall during the current season, but were unfavorably impacted by the timing of the Easter holiday which was in late April in the current fiscal year, versus, early April in the prior fiscal year. In addition, our Heavenly resort was also impacted by higher than average resort closures due to severe weather. ETP, excluding season pass holders and Northstar-at-Tahoe, increased $5.31, or 8.3%, due primarily to price increases implemented during the current fiscal year. Total ETP, excluding Northstar-at-Tahoe, increased $1.70, or 3.5%, also due primarily to price increases implemented during the current fiscal year, partially offset by higher usage including higher average usage per season pass holder in the current fiscal year.

Ski school revenue increased $13.1 million, or 18.6%, for the nine months ended April 30, 2011 compared to the same period in the prior year with the current year benefiting from the acquisition of Northstar-at-Tahoe. Excluding Northstar-at-Tahoe, ski school revenue increased $5.5 million, or 7.8%, which benefited from the 4.1% increase in skier visitation and a 3.6% increase in yield per skier visit due to higher guest spend. Dining revenue increased $13.2 million, or 26.8%, which also benefited from the acquisition of Northstar-at-Tahoe in the current fiscal year. Excluding Northstar-at-Tahoe, dining revenues increased $5.3 million, or 10.7%, driven by increased skier visitation and a 5.8% increase in yield per skier visit for on-mountain dining, as well as the addition of two new on-mountain dining venues. The increases in both ski school and dining revenue were achieved despite the negative impact of the late Easter holiday in the current fiscal year.

Retail/rental revenue increased $18.1 million, or 13.1%, for the nine months ended April 30, 2011 compared to the same period in the prior year, which includes $8.5 million of incremental revenue from Northstar-at-Tahoe in the current fiscal year. Excluding Northstar-at-Tahoe, retail/rental increased $9.6 million, or 7.0%, which was driven primarily by higher revenues at our Colorado front range stores and Any Mountain stores (in the San Francisco bay area) which combined increased by approximately 11% as compared to the prior year. Additionally, our mountain resort stores experienced an increase in revenue primarily driven by retail sales due to higher skier visitation although these increases were tapered by the late Easter holiday in the current fiscal year.

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, marketing and internet advertising revenue, commercial leasing revenue, employee housing revenue, municipal services revenue and other recreation activity revenue. For the nine months ended April 30, 2011, other revenue increased $10.5 million, or 18.9%, compared to the nine months ended April 30, 2010, which includes $6.5 million of incremental revenue from Northstar-at-Tahoe. Excluding Northstar-at-Tahoe, other revenue increased $4.0 million, or 7.2%, primarily due to an increase in internet advertising due to the acquisition of Mountain News Corporation in May 2010 and higher strategic alliance marketing revenues, partially offset by a decrease in municipal services revenue (primarily transportation services provided on behalf of certain municipalities).

Operating expense increased $69.6 million, or 18.0%, for the nine months ended April 30, 2011 compared to the nine months ended April 30, 2010, which includes $42.9 million of expenses (including $4.0 million of acquisition related costs included in general and administrative expense) in the current fiscal year associated with Northstar-at-Tahoe and $0.9 million (included in other expense) in assessments for extensive renovations to a commercial property in Breckenridge in which we are a tenant. Excluding these expenses, operating expense increased $25.8 million, or 6.7%, for the nine months ended April 30, 2011 compared to the nine months ended April 30, 2010, due

 

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in part to higher labor and labor-related benefits which increased $13.0 million, or 9.0%, during the nine months ended April 30, 2011 compared to the nine months ended April 30, 2010. Overall, operating expenses including labor were impacted by a 3.6% increase in the number of operating days primarily due to the late Easter holiday as discussed above, combined with opening ski terrain earlier due to above average early season snowfall. Labor and labor-related benefits in the current year were also impacted by the partial reinstatement of the prior year’s wage reduction and our matching component of the 401(k) plan and a more normal level of wage increases, partially offset by a decrease in workers compensation claims of $2.2 million. Additionally, labor costs were impacted by an increase in staffing levels due to an increase in demand for ancillary services primarily in ski school, dining and retail/rental operations. Retail cost of sales increased $1.1 million, or 2.0%, excluding Northstar-at-Tahoe, primarily due to an increase in sales volume largely offset by improved gross margins. Additionally, resort related fees (including Forest Service fees, other resort-related fees, credit card fees and commissions) increased $2.8 million, or 8.2%, excluding Northstar-at-Tahoe, compared to the nine months ended April 30, 2010, due to overall increases in revenue upon which those fees are based and general and administrative expenses increased $4.1 million, or 5.8%, excluding Northstar-at-Tahoe, primarily due to expenses associated with the operations of Mountain News Corporation acquired in May 2010. Other expense increased $4.7 million, or 5.8%, excluding the above mentioned expenses, primarily due to increased food and beverage cost of sales due to an increase in dining revenue and higher fuel and supplies expenses.

Lodging Segment

Three months ended April 30, 2011 compared to the three months ended April 30, 2010

Lodging segment operating results for the three months ended April 30, 2011 and 2010 are presented by category as follows (in thousands, except average daily rates (“ADR”) and revenue per available room (“RevPAR”)):

 

     Three months ended      Percentage  
     April 30,      Increase  
     2011      2010      (Decrease)  

Lodging net revenue:

        

Owned hotel rooms

   $ 10,291       $ 9,899         4.0

Managed condominium rooms

     14,773         12,239         20.7

Dining

     5,636         5,157         9.3

Transportation

     8,687         8,374         3.7

Other

     10,448         9,208         13.5
                          

Total Lodging net revenue

   $ 49,835       $ 44,877         11.0
                          

Lodging operating expense:

        

Labor and labor-related benefits

   $ 20,473       $ 18,815         8.8

General and administrative

     7,376         8,511         (13.3 )% 

Other

     13,152         11,966         9.9
                          

Total Lodging operating expense

   $ 41,001       $ 39,292         4.3
                          

Total Lodging Reported EBITDA

   $ 8,834       $ 5,585         58.2
                          

Owned hotel statistics:

        

ADR

   $ 215.21       $ 205.61         4.7

RevPar

   $ 139.66       $ 132.37         5.5

Managed condominium statistics:

        

ADR

   $ 355.44       $ 334.73         6.2

RevPar

   $ 145.43       $ 140.07         3.8

Owned hotel and managed condominium statistics (combined):

        

ADR

   $ 296.36       $ 278.74         6.3

RevPar

   $ 143.62       $ 137.51         4.4

 

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Total Lodging Reported EBITDA includes $0.5 million of stock-based compensation expense for both the three months ended April 30, 2011 and 2010.

Revenue from owned hotel rooms increased $0.4 million, or 4.0%, for the three months ended April 30, 2011 compared to the three months ended April 30, 2010, which was driven by an increase in ADR of 4.7%. Revenue from managed condominium rooms increased $2.5 million, or 20.7%, for the three months ended April 30, 2011 compared to the three months ended April 30, 2010, primarily due to the addition of managed condominium rooms in the Lake Tahoe region, which generated $1.5 million in revenue and the addition of managed condominium rooms at One Ski Hill Place in Breckenridge which generated $0.7 million in revenue for the three months ended April 30, 2011. Excluding the additional managed condominium rooms in the Lake Tahoe region and One Ski Hill Place in Breckenridge, revenue from managed condominium rooms increased by $0.3 million, or 2.6%, primarily due to an increase in ADR. Overall occupancy for both owned hotel rooms and managed condominium rooms was relatively flat for the three months ended April 30, 2011 compared to the same period in the prior fiscal year, which is primarily attributable to the negative impact of the late Easter holiday on our mountain resorts which resulted in flat skier visitation at our Colorado resorts as discussed in the Mountain segment of management’s discussion and analysis of the results of operations.

Dining revenue for the three months ended April 30, 2011 increased $0.5 million, or 9.3%, as compared to the three months ended April 30, 2010, primarily due to a renovated restaurant in Vail and a new restaurant located at One Ski Hill Place in Breckenridge. Transportation revenue for the three months ended April 30, 2011 increased $0.3 million, or 3.7%, compared to the three months ended April 30, 2010, primarily due to an increase in passengers of 3.9%. Other revenue increased $1.2 million, or 13.5%, during the three months ended April 30, 2011 compared to the same period in the prior year primarily due to an increase in revenue from managed hotel properties, including new managed properties in the Caribbean, and higher commissions earned from reservations booked through our central reservation system.

Operating expense increased $1.7 million, or 4.3%, for the three months ended April 30, 2011 compared to the three months ended April 30, 2010, primarily due to an increase in labor and labor-related benefits of $1.7 million, or 8.8%. Labor and labor-related benefits increased primarily due to higher staffing levels associated with new managed condominium rooms in the Lake Tahoe region and One Ski Hill Place in Breckenridge, and the partial reinstatement of the prior year’s wage reduction and our matching component of the 401(k) plan, as well as a more normal level of wage increases for fiscal 2011. General and administrative expenses decreased $1.1 million, or 13.3%, primarily due to a decrease in corporate general and administrative expense and recovery of previously estimated uncollectible accounts receivable. Other expense increased $1.2 million, or 9.9%, primarily due to increased fuel costs, as well as other variable operating costs associated with increased revenue, including credit card fees and advertising expenses.

Nine months ended April 30, 2011 compared to the nine months ended April 30, 2010

Lodging segment operating results for the nine months ended April 30, 2011 and 2010 are presented by category as follows (in thousands, except ADR and RevPAR):

 

     Nine months ended      Percentage  
     April 30,      Increase  
     2011      2010      (Decrease)  

Lodging net revenue:

        

Owned hotel rooms

   $ 31,232       $ 29,182         7.0

Managed condominium rooms

     32,950         27,468         20.0

Dining

     21,152         18,625         13.6

Transportation

     18,011         17,410         3.5

Golf

     7,168         6,888         4.1

Other

     28,420         25,335         12.2
                          

Total Lodging net revenue

   $ 138,933       $ 124,908         11.2
                          

Lodging operating expense:

        

Labor and labor-related benefits

   $ 64,084       $ 57,639         11.2

General and administrative

     22,606         23,142         (2.3 )% 

Other

     40,985         38,922         5.3
                          

Total Lodging operating expense

   $ 127,675       $ 119,703         6.7
                          

Total Lodging Reported EBITDA

   $ 11,258       $ 5,205         116.3
                          

Owned hotel statistics:

        

ADR

   $ 196.86       $ 193.69         1.6

RevPar

   $ 120.36       $ 105.30         14.3

Managed condominium statistics:

        

ADR

   $ 314.35       $ 308.28         2.0

RevPar

   $ 104.37       $ 92.37         13.0

Owned hotel and managed condominium statistics (combined):

        

ADR

   $