Edgar Filing: VAIL RESORTS INC

form10q.htm

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 January 31, 2010

¨ 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).

¨ 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 March 5, 2010, 36,248,333 shares of the registrant’s common stock were outstanding.

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.	16
Item 4.	Controls and Procedures.	16


PART II	OTHER INFORMATION

Item 1.	Legal Proceedings.	17
Item 1A.	Risk Factors.	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	18
Item 3.	Defaults Upon Senior Securities.	18
Item 4.	Reserved.	18
Item 5.	Other Information.	18
Item 6.	Exhibits.	18

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements -- Unaudited

Consolidated Condensed Balance Sheets as of January 31, 2010, July 31, 2009 and January 31, 2009		F-2
Consolidated Condensed Statements of Operations for the Three Months Ended January 31, 2010 and 2009		F-3
Consolidated Condensed Statements of Operations for the Six Months Ended January 31, 2010 and 2009		F-4
Consolidated Condensed Statements of Cash Flows for the Six Months Ended January 31, 2010 and 2009		F-5
Notes to Consolidated Condensed Financial Statements		F-6

Vail Resorts, Inc.

Consolidated Condensed Balance Sheets

(In thousands, except share and per share amounts)

		January 31,			July 31,			January 31,
		2010			2009			2009
		(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	58,008		$	69,298		$	139,172
Restricted cash		15,532			11,065			14,603
Trade receivables, net		45,366			58,063			50,495
Inventories, net		51,641			48,947			52,189
Other current assets		51,684			41,615			39,112
Total current assets		222,231			228,988			295,571
Property, plant and equipment, net (Note 5)		1,039,555			1,057,658			1,084,031
Real estate held for sale and investment		414,501			311,485			247,329
Goodwill, net		167,950			167,950			167,950
Intangible assets, net		79,167			79,429			79,785
Other assets		32,661			38,970			42,931
Total assets	$	1,956,065		$	1,884,480		$	1,917,597

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities (Note 5)	$	339,256		$	245,536		$	302,118
Income taxes payable		10,482			5,460			33,315
Long-term debt due within one year (Note 4)		1,870			352			304
Total current liabilities		351,608			251,348			335,737
Long-term debt (Note 4)		489,865			491,608			491,777
Other long-term liabilities (Note 5)		197,759			233,169			221,814
Deferred income taxes		113,808			112,234			93,469
Commitments and contingencies (Note 9)
Redeemable noncontrolling interest (Note 8)		21,318			15,415			25,455
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, 40,125,318 (unaudited), 40,049,988 and 40,007,068 (unaudited) shares issued, respectively		401			400			400
Additional paid-in capital		561,103			555,728			549,729
Retained earnings		356,512			356,995			330,701
Treasury stock, at cost, 3,878,535 (unaudited), 3,878,535 and 3,600,235 (unaudited) shares, respectively (Note 11)		(147,828	)		(147,828	)		(140,333	)
Total Vail Resorts, Inc. stockholders’ equity		770,188			765,295			740,497
Noncontrolling interests		11,519			15,411			8,848
Total stockholders’ equity		781,707			780,706			749,345
Total liabilities and stockholders’ equity	$	1,956,065		$	1,884,480		$	1,917,597

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

Vail Resorts, Inc.

Consolidated Condensed Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

		Three months ended
		January 31,
		2010			2009
Net revenue:
Mountain	$	260,978		$	258,489
Lodging		38,676			41,150
Real estate		870			89,157
Total net revenue		300,524			388,796
Segment operating expense (exclusive of depreciation and amortization shown separately below):
Mountain		154,018			156,188
Lodging		37,788			38,697
Real estate		7,417			59,508
Total segment operating expense		199,223			254,393
Other operating (expense) income:
Depreciation and amortization		(27,772	)		(27,438	)
Gain (loss) on disposal of fixed assets, net		12			(422	)
Income from operations		73,541			106,543
Mountain equity investment income, net		207			1,161
Investment income		192			336
Interest expense, net		(4,148	)		(7,295	)
Income before provision for income taxes		69,792			100,745
Provision for income taxes		(24,713	)		(36,412	)
Net income		45,079			64,333
Net income attributable to noncontrolling interests		(4,389	)		(3,788	)
Net income attributable to Vail Resorts, Inc.	$	40,690		$	60,545

Per share amounts (Note 3):
Basic net income per share attributable to Vail Resorts, Inc.	$	1.12		$	1.66
Diluted net income per share attributable to Vail Resorts, Inc.	$	1.11		$	1.65

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

Vail Resorts, Inc.

Consolidated Condensed Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

		Six months ended
		January 31,
		2010			2009
Net revenue:
Mountain	$	300,182		$	299,267
Lodging		80,031			86,403
Real estate		1,075			155,907
Total net revenue		381,288			541,577
Segment operating expense (exclusive of depreciation and amortization shown separately below):
Mountain		230,486			237,411
Lodging		80,411			83,595
Real estate		12,594			110,885
Total segment operating expense		323,491			431,891
Other operating (expense) income:
Depreciation and amortization		(54,956	)		(52,516	)
Gain on sale of real property		6,087			--
Loss on disposal of fixed assets, net		(101	)		(602	)
Income from operations		8,827			56,568
Mountain equity investment income, net		461			2,176
Investment income		422			979
Interest expense, net		(8,983	)		(15,242	)
Income before benefit (provision) for income taxes		727			44,481
Benefit (provision) for income taxes		841			(17,003	)
Net income		1,568			27,478
Net income attributable to noncontrolling interests		(2,051	)		(1,437	)
Net (loss) income attributable to Vail Resorts, Inc.	$	(483	)	$	26,041

Per share amounts (Note 3):
Basic net (loss) income per share attributable to Vail Resorts, Inc.	$	(0.01	)	$	0.71
Diluted net (loss) income per share attributable to Vail Resorts, Inc.	$	(0.01	)	$	0.71

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

Vail Resorts, Inc.

Consolidated Condensed Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended
	January 31,
	2010			2009
Cash flows from operating activities:
Net income	$	1,568		$	27,478
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		54,956			52,516
Cost of real estate sales		--			87,631
Stock-based compensation expense		6,368			5,242
Deferred income taxes, net		(841	)		16,204
Gain on sale of real property		(6,087	)		--
Other non-cash income, net		(3,009	)		(3,998	)
Changes in assets and liabilities:
Restricted cash		(4,467	)		43,834
Trade receivables, net		12,697			358
Inventories, net		(2,694	)		(2,481	)
Investments in real estate		(109,186	)		(80,567	)
Accounts payable and accrued liabilities		61,238			36,725
Deferred real estate deposits		139			(36,117	)
Private club deferred initiation fees and deposits		1,271			39,667
Other assets and liabilities, net		2,178			(19,828	)
Net cash provided by operating activities		14,131			166,664
Cash flows from investing activities:
Capital expenditures		(36,245	)		(77,560	)
Acquisition of business		--			(38,170	)
Cash received from sale of real property		8,920			--
Other investing activities, net		(234	)		(417	)
Net cash used in investing activities		(27,559	)		(116,147	)
Cash flows from financing activities:
Repurchases of common stock		--			(14,872	)
Proceeds from borrowings under non-recourse real estate financings		--			9,013
Payments of non-recourse real estate financings		--			(58,407	)
Proceeds from borrowings under other long-term debt		85,962			55,782
Payments of other long-term debt		(86,188	)		(71,013	)
Other financing activities, net		2,364			5,807
Net cash provided by (used in) financing activities		2,138			(73,690	)
Net decrease in cash and cash equivalents		(11,290	)		(23,173	)
Cash and cash equivalents:
Beginning of period		69,298			162,345
End of period	$	58,008		$	139,172

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

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 owns and operates five world-class ski resort properties at the Vail, Breckenridge, Keystone and Beaver Creek mountain resorts in Colorado and the Heavenly Mountain Resort 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 operate primarily on Federal land under the terms of Special Use Permits granted by the USDA Forest Service (the “Forest Service”). The Company holds a 69.3% interest in SSI Venture, LLC (“SSV”), a retail/rental company. 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 6, Variable Interest Entities).

2. Summary of Significant Accounting Policies

The Financial Accounting Standards Board (“FASB”) has established the FASB Accounting Standards Codification (“ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the United States of America for financial statements of interim and annual periods ending after September 15, 2009. This standard does not alter current accounting principles generally accepted in the United States of America (“GAAP”), but rather integrates existing accounting standards with other authoritative guidance.

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, 2009. Certain information and footnote disclosures, including significant accounting policies, normally included in fiscal year financial statements prepared in accordance with GAAP have been condensed or omitted. The July 31, 2009 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-- Effective August 1, 2009, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interest in Consolidated Financial Statements – an Amendment of Accounting Research Bulletin No. 51” (“SFAS 160”). The guidance of this statement is now included in ASC Topic 810 “Consolidation.” This statement requires the presentation of net income or loss attributable to noncontrolling interests (previously referred to as minority interest) along with net income or loss attributable to the stockholders of the Company separately in its consolidated statement of operations. Additionally, noncontrolling interests in the consolidated subsidiaries of the Company are reported as a separate component of equity in the consolidated balance sheet, apart from the Company’s equity. However, redeemable noncontrolling interests in which the Company is subject to a put option under which it may be required to repurchase an interest in a consolidated subsidiary from a noncontrolling interest holder, must be classified outside of stockholders’ equity. Since the Company is subject to a put option with respect to SSV beginning August 1, 2010 and each year thereafter (see Note 8, Redeemable Noncontrolling Interest, of the Notes to Consolidated Condensed Financial Statements), the redeemable noncontrolling interest in SSV has been classified in the mezzanine section of the accompanying consolidated condensed balance sheets at the redemption value as prescribed in the SSV operating agreement at the end of each reporting period.

Upon adoption, the provisions of this statement have been applied to all noncontrolling interests prospectively, except for the presentation and disclosure requirements, which have been applied retrospectively for all periods presented. The retrospective impact of applying this guidance was a reclassification of $15.4 million and $25.5 million as of July 31, 2009 and January 31, 2009, respectively, of minority interest to redeemable noncontrolling interest, representing noncontrolling interest subject to the SSV put option, and a reduction in retained earnings of $3.4 million as of January 31, 2009, representing the difference in the redemption value as of January 31, 2009 and the carrying value of the SSV noncontrolling interest. In addition, as of July 31, 2009 and January 31, 2010, the portion of noncontrolling interest, which is not subject to the SSV put option, has been reclassified as part of equity-noncontrolling interests. The following table summarizes the changes in total stockholders’ equity (in thousands):

	For the Six Months Ended January 31,
	2010									2009
		Vail Resorts Stockholders’ Equity			Noncontrolling Interests			Total Equity			Vail Resorts Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance, beginning of period	$	765,295		$	15,411		$	780,706		$	716,633		$	8,848		$	725,481
Net (loss) income		(483	)		2,051			1,568			26,041			1,437			27,478
Stock-based compensation expense		6,368			--			6,368			5,242			--			5,242
Issuance of shares under share award plans		(672	)		--			(672	)		(1,052	)		--			(1,052	)
Tax expense from share award plans		(320	)		--			(320	)		(232	)		--			(232	)
Repurchases of common stock		--			--			--			(14,872	)		--			(14,872	)
Adjustment to redemption value of redeemable noncontrolling interest		--			(5,903	)		(5,903	)		8,737			(1,003	)		7,734
Distributions to noncontrolling interests, net		--			(40	)		(40	)		--			(434	)		(434	)
Balance, end of period	$	770,188		$	11,519		$	781,707		$	740,497		$	8,848		$	749,345

Additionally, upon adoption of this statement, even though the Company’s total provision (benefit) for income taxes did not change, the Company’s effective tax rate calculation has changed because net income or loss attributable to noncontrolling interests is no longer included in the determination of pre-tax income or loss in calculating its effective tax rate.

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 6.75% Senior Subordinated Notes (“6.75%Notes”) (Note 4, Long-Term Debt) is based on quoted market price. 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 6.75% Notes, Industrial Development Bonds and other long-term debt as of January 31, 2010 is presented below (in thousands):

	January 31, 2010
	Carrying		Fair
	Value		Value
6.75% Notes	$	390,000	$	387,075
Industrial Development Bonds	$	42,700	$	46,368
Other long-term debt	$	6,460	$	6,273

New Accounting Standards

Fair Value Measurements and Disclosures-- In September 2006, the FASB issued guidance which is included in ASC Topic 820, “Fair Value Measurements and Disclosures” (SFAS No. 157 “Fair Value Measurements”) on fair value measurements and disclosures. This standard defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value guidance in this standard for financial assets and liabilities was effective for the Company on August 1, 2008. The Company adopted the guidance for nonfinancial assets and liabilities on August 1, 2009 and the provisions did not have a material impact on the Company’s financial position or results of operations.

Business Combinations-- In December 2007, the FASB issued guidance which is included in ASC Topic 805, “Business Combinations” (SFAS No. 141R, “Business Combinations”) which establishes principles and requirements on how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. This standard also requires acquisition-related transaction expenses and restructuring costs be expensed as incurred rather than capitalized as a component of the business combination. The guidance was effective for the Company on August 1, 2009 and will be applied prospectively to business combinations.

Amendments to FASB Interpretation, Consolidation of Variable Interest Entities-- In June 2009, the FASB issued guidance which is included in ASC 810, “Consolidation” (SFAS 167 “Amendments to FASB No. 46(R)”) 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 is effective for the Company beginning August 1, 2010 (the Company’s fiscal year ending July 31, 2011). The Company is currently evaluating the impacts, if any, the adoption of this new standard will have on the Company’s financial position or results of operations.

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 are effective for the Company beginning August 1, 2010 (the Company’s fiscal year ending July 31, 2011); however, early adoption is permitted. The Company is currently evaluating the impacts, if any, the adoption of this new standard will have on the Company’s financial position or results of operations.

3. Net Income (Loss) Per Common Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income (loss) 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 January 31, 2010 and 2009 (in thousands, except per share amounts):

	Three Months Ended January 31,
	2010				2009
	Basic		Diluted		Basic		Diluted
Net income per share:
Net income attributable to Vail Resorts	$	40,690	$	40,690	$	60,545	$	60,545

Weighted-average shares outstanding		36,245		36,245		36,570		36,570
Effect of dilutive securities		--		509		--		93
Total shares		36,245		36,754		36,570		36,663

Net income per share attributable to Vail Resorts	$	1.12	$	1.11	$	1.66	$	1.65

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 31,000 and 438,000 for the three months ended January 31, 2010 and 2009, respectively.

Presented below is basic and diluted EPS for the six months ended January 31, 2010 and 2009 (in thousands, except per share amounts):

	Six Months Ended January 31,
	2010						2009
	Basic			Diluted			Basic		Diluted
Net (loss) income per share:
Net (loss) income attributable to Vail Resorts	$	(483	)	$	(483	)	$	26,041	$	26,041

Weighted-average shares outstanding		36,223			36,223			36,728		36,728
Effect of dilutive securities		--			--			--		184
Total shares		36,223			36,223			36,728		36,912

Net (loss) income per share attributable to Vail Resorts	$	(0.01	)	$	(0.01	)	$	0.71	$	0.71

The number of shares issuable on the exercise of share based awards that were excluded from the calculation of diluted net (loss) income per share because the effect of their inclusion would have been anti-dilutive totaled 1.2 million and 207,000 for the six months ended January 31, 2010 and 2009, respectively.

4. Long-Term Debt

Long-term debt as of January 31, 2010, July 31, 2009 and January 31, 2009 is summarized as follows (in thousands):

		January 31,		July 31,		January 31,
	Maturity (a)	2010		2009		2009
Credit Facility Revolver	2012	$	--	$	--	$	--
SSV Facility	2011		--		--		--
Industrial Development Bonds	2011-2020		42,700		42,700		42,700
Employee Housing Bonds	2027-2039		52,575		52,575		52,575
6.75% Senior Subordinated Notes	2014		390,000		390,000		390,000
Other	2010-2029		6,460		6,685		6,806
Total debt			491,735		491,960		492,081
Less: Current maturities (b)			1,870		352		304
Long-term debt		$	489,865	$	491,608	$	491,777

(a)	Maturities are based on the Company's July 31 fiscal year end.

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

Aggregate maturities for debt outstanding as of January 31, 2010 reflected by fiscal year are as follows (in thousands):

2010	$	122
2011		1,831
2012		305
2013		319
2014		390,219
Thereafter		98,939
Total debt	$	491,735

The Company incurred gross interest expense of $8.5 million and $8.7 million for the three months ended January 31, 2010 and 2009, respectively, of which $0.4 million in each period was amortization of deferred financing costs. The Company capitalized $4.4 million and $1.4 million of interest during the three months ended January 31, 2010 and 2009, respectively. The Company incurred gross interest expense of $16.9 million and $18.4 million for the six months ended January 31, 2010 and 2009, respectively, of which $0.8 million and $1.2 million, respectively, was amortization of deferred financing costs. The Company capitalized $7.9 million and $3.1 million of interest during the six months ended January 31, 2010 and 2009, respectively.

5. Supplementary Balance Sheet Information

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

		January 31,			July 31,			January 31,
		2010			2009			2009
Land and land improvements		$	269,248		$	262,255		$	263,922
Buildings and building improvements			738,165			734,576			736,730
Machinery and equipment			513,874			498,912			499,744
Furniture and fixtures			189,742			187,316			175,291
Software			52,942			44,584			43,753
Vehicles			35,208			33,991			34,573
Construction in progress			36,970			40,724			27,243
	Gross property, plant and equipment		1,836,149			1,802,358			1,781,256
Accumulated depreciation			(796,594	)		(744,700	)		(697,225	)
	Property, plant and equipment, net	$	1,039,555		$	1,057,658		$	1,084,031

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

		January 31,		July 31,		January 31,
		2010		2009		2009
Trade payables		$	55,677	$	42,530	$	56,758
Real estate development payables			42,635		45,681		38,098
Deferred revenue			83,363		57,171		80,762
Deferred real estate and other deposits			64,279		21,637		30,104
Accrued salaries, wages and deferred compensation			21,404		15,202		18,578
Accrued benefits			24,974		23,496		25,118
Accrued interest			13,788		14,002		13,910
Liabilities to complete real estate projects, short term			1,970		3,972		6,950
Other accruals			31,166		21,845		31,840
	Total accounts payable and accrued liabilities	$	339,256	$	245,536	$	302,118

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

		January 31,		July 31,		January 31,
		2010		2009		2009
Private club deferred initiation fee revenue and deposits		$	150,980	$	153,265	$	155,195
Deferred real estate deposits			--		32,792		46,240
Other long-term liabilities			46,779		47,112		20,379
	Total other long-term liabilities	$	197,759	$	233,169	$	221,814

6. 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 January 31, 2010, the Employee Housing Entities had total assets of $34.8 million (primarily recorded in property, plant and equipment, net) and total liabilities of $62.4 million (primarily recorded in long-term debt as “Employee Housing Bonds”). The Company’s lenders have issued letters of credit totaling $53.4 million under the Company’s senior credit facility (the “Credit Facility”) 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 $5.5 million (primarily recorded in property, plant and equipment, net) and no debt as of January 31, 2010.

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 has extended a $2.0 million note receivable to one of these entities. These entities were formed by unrelated third parties to acquire, own, operate and realize the value in resort hotel properties. The Company managed the day-to-day operations of seven hotel properties as of January 31, 2010. The Company has determined that the entities that own the hotel properties are VIEs, and the management contracts are significant variable interests in these VIEs. The Company has also determined that it is not the primary beneficiary of these entities and, accordingly, is not required to consolidate any of these entities. Based upon the latest information provided by these third party entities, these VIEs had estimated total assets of approximately $229 million and total liabilities of approximately $151 million. The Company's maximum exposure to loss as a result of its involvement with these VIEs is limited to a $2.4 million note receivable including accrued interest from one of the third parties and the net book value of the intangible asset associated with a management agreement in the amount of $0.6 million as of January 31, 2010.

7. 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 Measurements at	January 31,		July 31,		January 31,
Reporting Date Using	2010		2009		2009
Level 1	$	8,698	$	47,915	$	93,036
Level 2		300		13,300		18,500
Level 3		--		--		--
Total	$	8,998	$	61,215	$	111,536

The Company’s cash equivalents include money market funds, U.S. government debt securities and time deposits.

8. Redeemable Noncontrolling Interest

The Company holds an approximate 69.3% ownership interest in SSV. Additionally, the Company holds call rights and GSSI LLC (“GSSI”), the noncontrolling interest holder in SSV, holds put rights for the remaining interest in SSV beginning August 1, 2010, as further discussed below, and GSSI has a management agreement which extends to coincide with the exercise of the put and call rights.

The Company’s and GSSI’s put and call rights are as follows: (i) beginning August 1, 2010 and each year thereafter, each of the Company and GSSI has the right to call or put, respectively, 100% of GSSI's ownership interest in SSV to the Company during certain periods each year and (ii) GSSI has the right to put to the Company 100% of its ownership interest in SSV at any time after GSSI has been removed as manager of SSV or after an involuntary transfer of the Company's ownership interest in SSV has occurred. The put and call pricing is generally based on a multiple of the trailing twelve month EBITDA (as defined in the operating agreement) of SSV for the fiscal period ended prior to the commencement of the put or call period, as applicable.

Since GSSI's remaining interest in SSV has a redemption feature, as a result of the put option, the Company has classified the redeemable noncontrolling interest in SSV in the mezzanine section in the Consolidated Condensed Balance Sheets, outside of stockholders' equity. The Company has recorded the redeemable noncontrolling interest at the redemption value as prescribed in the operating agreement at the end of each reporting period. At the end of each reporting period if the redemption value is below the carrying value of the noncontrolling interest, the difference is recorded in noncontrolling interests as a component of stockholders’ equity; however, if the redemption value exceeds the carrying value of the noncontrolling interest the difference is recorded in retained earnings. As of January 31, 2010, July 31, 2009 and January 31, 2009, the redemption value of the put/call option for the remaining noncontrolling interest was $21.3 million, $15.4 million and $ 25.5 million, respectively.

9. Commitments and Contingencies

Metropolitan Districts

The Company credit-enhances $8.5 million of bonds issued by Holland Creek Metropolitan District (“HCMD”) through an $8.6 million letter of credit issued under the Company's Credit Facility. 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 $1.5 million, primarily within “other long-term liabilities” in the accompanying Consolidated Condensed Balance Sheets, as of January 31, 2010, July 31, 2009 and January 31, 2009, 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

As of January 31, 2010, the Company had various other letters of credit in the amount of $85.3 million, consisting primarily of $53.4 million in support of the Employee Housing Bonds, $25.8 million of construction and development related guarantees and $5.3 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.

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 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 5, 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 January 31, 2010, July 31, 2009 and January 31, 2009 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 (loss), net change in cash and cash equivalents or other financial statement data presented in the Consolidated Condensed Financial Statements as indicators of financial performance or liquidity. Because Reported EBITDA is not a measurement determined in accordance with GAAP and thus is susceptible to varying calculations, Reported EBITDA as presented may not be comparable to other similarly titled measures of other companies.

The Company utilizes Reported EBITDA in evaluating performance of the Company and in allocating resources to its segments. Mountain Reported EBITDA consists of Mountain net revenue less Mountain operating expense plus or minus Mountain equity investment income or loss. 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						Six Months Ended
	January 31,						January 31,
	2010			2009			2010			2009
Net revenue:
Lift tickets	$	129,517		$	127,158		$	129,517		$	127,158
Ski school		30,069			28,962			30,069			28,962
Dining		19,789			20,281			23,257			24,210
Retail/rental		61,026			59,238			82,564			81,664
Other		20,577			22,850			34,775			37,273
Total Mountain net revenue		260,978			258,489			300,182			299,267
Lodging		38,676			41,150			80,031			86,403
Total Resort net revenue		299,654			299,639			380,213			385,670
Real Estate		870			89,157			1,075			155,907
Total net revenue	$	300,524		$	388,796		$	381,288		$	541,577
Operating expense:
Mountain	$	154,018		$	156,188		$	230,486		$	237,411
Lodging		37,788			38,697			80,411			83,595
Total Resort operating expense		191,806			194,885			310,897			321,006
Real estate		7,417			59,508			12,594			110,885
Total segment operating expense	$	199,223		$	254,393		$	323,491		$	431,891
Gain on sale of real property	$	--		$	--		$	6,087		$	--
Mountain equity investment income, net	$	207		$	1,161		$	461		$	2,176

Reported EBITDA:
Mountain	$	107,167		$	103,462		$	70,157		$	64,032
Lodging		888			2,453			(380	)		2,808
Resort		108,055			105,915			69,777			66,840
Real Estate		(6,547	)		29,649			(5,432	)		45,022
Total Reported EBITDA	$	101,508		$	135,564		$	64,345		$	111,862

Real estate held for sale and investment	$	414,501		$	247,329		$	414,501		$	247,329

Reconciliation to net income (loss) attributable to Vail Resorts, Inc:
Total Reported EBITDA	$	101,508		$	135,564		$	64,345		$	111,862
Depreciation and amortization		(27,772	)		(27,438	)		(54,956	)		(52,516	)
Gain (loss) on disposal of fixed assets, net		12			(422	)		(101	)		(602	)
Investment income		192			336			422			979
Interest expense, net		(4,148	)		(7,295	)		(8,983	)		(15,242	)
Income before (provision) benefit for income taxes		69,792			100,745			727			44,481
(Provision) benefit for income taxes		(24,713	)		(36,412	)		841			(17,003	)
Net income	$	45,079		$	64,333		$	1,568		$	27,478
Net income attributable to noncontrolling interests		(4,389	)		(3,788	)		(2,051	)		(1,437	)
Net income (loss) attributable to Vail Resorts, Inc.	$	40,690		$	60,545		$	(483	)	$	26,041

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 six months ended January 31, 2010. Since inception of its stock repurchase plan through January 31, 2010, the Company has repurchased 3,878,535 shares at a cost of approximately $147.8 million. As of January 31, 2010, 2,121,465 shares remained available to repurchase under the existing repurchase authorization. Shares of common stock purchased pursuant to the repurchase program will be held as treasury shares and may be used for the issuance of shares under the Company's employee share award plans.

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 Eagle Park Reservoir Company, Gros Ventre Utility Company, Mountain Thunder, Inc., SSV, 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.

Presented below is the consolidated financial information of the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. Financial information for the Non-Guarantor Subsidiaries is presented in the column titled “Other Subsidiaries.” Balance sheets are presented as of January 31, 2010, July 31, 2009 and January 31, 2009. Statements of operations are presented for the three and six months ended January 31, 2010 and 2009. Statements of cash flows are presented for the six months ended January 31, 2010 and 2009.

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.

Supplemental Condensed Consolidating Balance Sheet
As of January 31, 2010
(in thousands)
(Unaudited)

						100% Owned
				Parent		Guarantor		Other			Eliminating
				Company		Subsidiaries		Subsidiaries			Entries			Consolidated
Current assets:
	Cash and cash equivalents		$	--	$	51,783	$	6,225		$	--		$	58,008
	Restricted cash			--		14,916		616			--			15,532
	Trade receivables, net			--		41,054		4,312			--			45,366
	Inventories, net			--		10,467		41,174			--			51,641
	Other current assets			23,754		25,752		2,178			--			51,684
		Total current assets		23,754		143,972		54,505			--			222,231
Property, plant and equipment, net				--		978,079		61,476			--			1,039,555
Real estate held for sale and investment				--		414,501		--			--			414,501
Goodwill, net				--		148,702		19,248			--			167,950
Intangible assets, net				--		63,321		15,846			--			79,167
Other assets				2,871		24,793		4,997			--			32,661
Investments in subsidiaries and advances to (from) parent				1,299,947		310,835		(3,990	)		(1,606,792	)		--
	Total assets		$	1,326,572	$	2,084,203	$	152,082		$	(1,606,792	)	$	1,956,065

Current liabilities:
	Accounts payable and accrued liabilities		$	12,404	$	304,522	$	22,330		$	--		$	339,256
	Income taxes payable			10,482		--		--			--			10,482
	Long-term debt due within one year			--		1,510		360			--			1,870
		Total current liabilities		22,886		306,032		22,690			--			351,608
Long-term debt				390,000		41,214		58,651			--			489,865
Other long-term liabilities				29,690		165,601		2,468			--			197,759
Deferred income taxes				113,808		--		--			--			113,808
Redeemable noncontrolling interest				--		--		21,318			--			21,318
	Total Vail Resorts, Inc. stockholders’ equity			770,188		1,571,356		35,436			(1,606,792	)		770,188
	Noncontrolling interests			--		--		11,519			--			11,519
	Total stockholders’ equity			770,188		1,571,356		46,955			(1,606,792	)		781,707
	Total liabilities and stockholders' equity		$	1,326,572	$	2,084,203	$	152,082		$	(1,606,792	)	$	1,956,065

Supplemental Condensed Consolidating Balance Sheet

As of July 31, 2009

(in thousands)

			100% Owned
	Parent		Guarantor		Other			Eliminating
	Company		Subsidiaries		Subsidiaries			Entries			Consolidated
Current assets:
Cash and cash equivalents	$	--	$	66,364	$	2,934		$	--		$	69,298
Restricted cash		--		11,065		--			--			11,065
Trade receivables, net		--		56,834		1,229			--			58,063
Inventories, net		--		11,895		37,052			--			48,947
Other current assets		21,333		18,407		1,875			--			41,615
Total current assets		21,333		164,565		43,090			--			228,988
Property, plant and equipment, net		--		991,027		66,631			--			1,057,658
Real estate held for sale and investment		--		311,485		--			--			311,485
Goodwill, net		--		148,702		19,248			--			167,950
Intangible assets, net		--		63,580		15,849			--			79,429
Other assets		3,226		30,710		5,034			--			38,970
Investments in subsidiaries and advances to (from) parent		1,290,532		307,124		(15,179	)		(1,582,477	)		--
Total assets	$	1,315,091	$	2,017,193	$	134,673		$	(1,582,477	)	$	1,884,480

Current liabilities:
Accounts payable and accrued liabilities	$	12,412	$	214,021	$	19,103		$	--		$	245,536
Income taxes payable		5,460		--		--			--			5,460
Long-term debt due within one year		--		9		343			--			352
Total current liabilities		17,872		214,030		19,446			--			251,348
Long-term debt		390,000		42,716		58,892			--			491,608
Other long-term liabilities		29,690		200,974		2,505			--			233,169
Deferred income taxes		112,234		--		--			--			112,234
Redeemable noncontrolling interest		--		--		15,415			--			15,415
Total Vail Resorts, Inc. stockholders’ equity		765,295		1,559,473		23,004			(1,582,477	)		765,295
Noncontrolling interests		--		--		15,411			--			15,411
Total stockholders’ equity		765,295		1,559,473		38,415			(1,582,477	)		780,706
Total liabilities and stockholders’ equity	$	1,315,091	$	2,017,193	$	134,673		$	(1,582,477	)	$	1,884,480

Supplemental Condensed Consolidating Balance Sheet

As of January 31, 2009

(in thousands)

(Unaudited)

			100% Owned
	Parent		Guarantor		Other		Eliminating
	Company		Subsidiaries		Subsidiaries		Entries		Consolidated
Current assets:
Cash and cash equivalents	$	--	$	135,264	$	3,908	$	--	$	139,172
Restricted cash		--		14,268		335		--		14,603
Trade receivables, net		--		46,253		4,242		--		50,495
Inventories, net		--		11,079		41,110		--		52,189
Other current assets		17,129		19,655		2,328		--		39,112
Total current assets		17,129		226,519		51,923		--		295,571
Property, plant and equipment, net		--		1,014,366		69,665		--		1,084,031
Real estate held for sale and investment		--		247,329		--		--		247,329
Goodwill, net		--