Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Report.
Overview
We own or lease and operate 17 ski resorts throughout the Northeast, Mid-Atlantic and Midwest, United States. Our ski resorts, which include both day ski resorts and overnight drive ski resorts, offer snow skiing, snowboarding and other snow sports. During the last two ski seasons, we had an average of 1.9 million skier visits each year.
We operate in a single reportable business segment—resort operations. The consolidated financial data presented in this Report is comprised of the data of our 17 ski resorts, including data of Liberty Mountain, Roundtop Mountain and Whitetail resorts since the date of the Snow Time acquisition.
The opening and closing dates of our ski resorts are dependent upon weather conditions, but our peak ski season generally runs from early December through mid-April. See Item 1, “Business—Seasonality” for information about the historical opening and closing dates for our resorts.
Like other day ski resort and overnight drive ski resort operators, we earn our revenues in six principal categories. In order of their contribution, they are: lift and tubing tickets, food and beverage sales, equipment rentals, hotel/lodging, ski instruction, and retail.
Our largest source of revenue is the sale of lift tickets (including season passes) which represented approximately 50.5%, 46.8% and 47.1% of net revenue for the years ending April 30, 2019, 2018 and 2017, respectively. Lift ticket revenue is driven by the volume of lift tickets and season passes sold and the pricing of these items. Most of our season pass products are sold before the start of the ski season. For the 2018/2019, 2017/2018 and 2016/2017 ski seasons, approximately 34.2%, 36.3% and 34.5%, respectively, of total lift revenue recognized was comprised of season pass revenue. Season pass revenue, although collected prior to the ski season, is recognized ratably over the ski season based upon the number of days our resorts are open.
The cost structure of our operations has significant fixed and variable components. Our significant variable expenses include retail and food and beverage cost of sales, labor costs and power and utilities. As such, operating margins can fluctuate based on the level of revenues.
Recent Developments - The Snow Time Acquisition and Related Financing
The Snow Time Acquisition
On November 21, 2018, we completed our acquisition of all of the issued and outstanding shares of common stock of Snow Time for total consideration of $71.6 million, which consisted of $66.6 million in cash, net of cash acquired of $1.0 million, and 1,183,432 shares of common stock with a value of $6.0 million based on the Company’s closing stock price on the day the transaction closed. The sellers had the right to receive $6.0 million of common stock as determined using the average closing price of the common stock for the 20 trading days immediately preceding the closing, which was $5.07. We acquired Snow Time in order to expand our portfolio of resorts.
Snow Time’s resort properties include Liberty Mountain Resort, Roundtop Mountain Resort and Whitetail Resort, which are day and overnight drive ski resorts located in southern Pennsylvania serving the Baltimore and Washington, D.C. metropolitan areas. The acquired resorts also include two 18-hole golf courses, a 115-room hotel and conference center and more than 20 food and beverage locations across the three resorts, among other amenities.
Term Loan Financing and Issuance of Preferred Stock and Warrants
We financed $50.0 million of the Snow Time consideration with the $50.0 million Term Loan from Cap 1 pursuant to the terms of the Credit Agreement entered into with Cap 1 on November 21, 2018 (the “Credit Agreement”).
As consideration for the Term Loan and in lieu of fees, we issued Cap 1 the Financing Warrant to purchase 1,750,000 shares of common stock at $10.00 per share
.
As a condition to the funding of the Term Loan, and for aggregate consideration of $20.0 million, we exercised our existing option (the “Cap 1 Option”) to issue to Cap 1 an additional 20,000 shares of Series A Preferred Stock, along with the 2018 Option Warrants to purchase shares of common stock that expire 12 years from the date of issuance, as follows: i) 1,538,462 shares of common stock at $6.50 per share; ii) 625,000 shares of common stock at $8.00 per share; and iii) 555,556 shares of common stock at $9.00 per share. The Cap 1 Option was provided for in the terms of the Securities Purchase Agreement between the Company and Cap 1, dated as of August 22, 2016, entered into in connection with the 2016 Private Placement. The Company used the Cap 1 Option proceeds to fund the remainder of the cash portion of the Snow Time Acquisition purchase price. See “—Liquidity and Capital Resources” and Notes 5 and 6 to the accompanying consolidated financial statements.
The exercise prices of the 2018 Option Warrants must be paid in cash. At our option, the exercise price of the Financing Warrant may be paid in whole or in part in cash
or settled through a cashless exercise.
Stockholders’ Agreement
On November 21, 2018, in connection with the closing of the Term Loan and the Snow Time acquisition, the Company, Cap 1 and the Management Stockholders entered into the Amended and Restated Stockholders’ Agreement which added the new shares of Series A Preferred Stock, 2018 Option Warrants, Financing Warrant and Extension Warrant, and the shares of common stock underlying such securities, to the scope of Stockholders’ Agreement entered into by the parties in 2016. The Stockholders’ Agreement otherwise remains unchanged and i) provides Cap 1 a right to nominate a director to sit on the Company’s board of directors so long as Cap 1 beneficially owns, on a fully diluted, as-converted basis, at least 20% of the outstanding equity securities of the Company, ii) restricts transfers of the Company’s securities by Cap 1 and the Management Stockholders, iii) provides Cap 1 with a right of first offer to purchase shares of the Company’s common stock from the Management Stockholders, iv) grants Cap 1 preemptive rights with respect to future issuances of securities, and v) requires Cap 1’s approval, so long as it meets certain ownership requirements (as defined), in order for the Company to a) materially change the nature of its business or b) acquire or dispose of any resorts, assets or properties for aggregate consideration equal to or greater than 30% of the enterprise value (as defined) of the Company and its subsidiaries.
Seasonality
Our revenues are highly seasonal in nature. The vast majority of revenue is generated during the ski season, which occurs during the winter months in our third and fourth fiscal quarters. Some of our properties offer off season attractions, such as golf, roller coasters, swimming, summer concerts and zip rides; however, these activities do not comprise a substantial portion of our annual revenues. As a result, our resorts typically experience operating losses and negative operating cash flows during the first and second quarters of each fiscal year.
The seasonality of our revenues amplifies the effect of events outside our control, especially weather. While our geographically diverse operating locations help mitigate the effect of weather conditions, adverse weather could lower attendance due to suboptimal skiing conditions or limited access to our resorts, render snowmaking wholly or partially ineffective in maintaining ski conditions, and increase operating costs related to snowmaking efforts and inefficient labor utilization. During years ended April 30, 2019, 2018 and 2017, the percentage of revenue we recognized in our third and fourth fiscal quarters, combined, was 91.9%, 87.6% and 87.3%, respectively. As a result, the operating results for any quarterly period are not necessarily indicative of the results that may be achieved for any subsequent quarter or for a full year.
Weather Impact
The timing and duration of favorable weather conditions significantly influences the timing and volume of skier visits and the associated revenue. While natural snowfall early in the ski season influences skier visits, all of our ski resorts have snowmaking capabilities in the event that the natural snowfall is insufficient. Cold weather, however, is essential to a successful ski season and there is no way to predict future weather conditions. We sell season passes prior to the start of the ski season to help mitigate any negative effects unfavorable weather may have on our revenues.
During the 2018/2019 ski season we experienced favorable weather conditions in the Northeast that allowed two of our resorts to open in October, which was a first for these resorts while under our ownership. We did, however, experience some weather challenges which delayed the opening of some of our Midwest and Mid-Atlantic resorts until after the Christmas holiday. During the 2017/2018 ski season we encountered significant weather-driven challenges, including bitterly cold weather which depressed skier visits at times and rainy weather during a holiday weekend which depressed skier visits during one of our historically busiest weekends. Favorable weather conditions in the Northeast towards the end of the ski season helped to mitigate the impact of unfavorable weather conditions in the middle of the season. Similarly, we faced significant weather challenges during the 2016/2017 ski season due to unseasonably warm weather in the Midwest midway through the ski season.
In addition to our continued investment in snow making technologies and infrastructure, we rely on our season pass products to help mitigate the impact on our revenues from adverse weather.
Season Pass Products
For the 2016/2017 ski season we introduced the Peak Pass which currently allows skiers to utilize any of our resorts in the Northeast and Mid-Atlantic United States, in addition to certain of our resorts in the Midwest United States. The introduction of the Peak Pass contributed to the increased revenue we experienced in our 2019 and 2018 fiscal years as compared to our 2017 fiscal year, despite significant weather challenges during those fiscal years. Our pre-season season pass sales for the upcoming 2019/2020 increased 19.8% in dollars and 20.8% in units as compared to the 2018/2019 season, inclusive of sales from the resorts acquired in the Snow Time acquisition in both periods. Our 2018/2019 season pre-season pass sales had increased 8.6% in both dollars and units as compared to the same period for the 2017/2018 ski season.
Skier Visits
Our ski resorts operate in the Northeast, Mid-Atlantic and Midwest United States. Our skier visits of 2.1 million in fiscal 2019, which includes visit to the resorts acquired from Snow Time, were up 27.8% from fiscal 2018. Our skier visits increased 7.1% at legacy Peak Resorts properties. This compares to a 4.3% increase in total skier visits across the entire industry to Northeast, Mid-Atlantic and Midwest resorts as reported by the Kottke Report. Our total resort visits, which include tubing visits, were up 32.0% from fiscal 2018. Total visits to our Northeast and Mid-Atlantic resorts, in particular, increased to 1.81 million in fiscal 2019 from 1.25 million in fiscal 2018. Total visits to our Midwest resorts increased to 0.61 million in fiscal 2019 from 0.59 million in fiscal 2018.
Capital Projects
As part of our mission to build value by investing in our current properties through expansions, new products and amenities that will elevate our customers’ skiing and off-season experiences, during
fiscal 2019 we completed two major projects and continued to move forward with capital improvement projects at our other resorts
.
|
·
|
|
At Hunter Mountain, we completed the Hunter North expansion project which increased the resort’s skiable acreage by approximately 25% and added automated snowmaking, a six-passenger detachable high-speed chair lift and parking area.
|
|
·
|
|
At Mount Snow, we completed the Carinthia Ski Lodge project. The Carinthia Ski Lodge project included the construction of a new ski lodge at the resort’s Carinthia base, comprised of a three-story, 36,000-square foot skier service building which includes i) a restaurant, cafeteria and bars with seating for over 600 people, ii) retail facilities, and iii) a sales center for lift tickets and equipment rentals.
|
|
·
|
|
At Hidden Valley, we completed the permitting process and substantially completed the construction of a zip line tour which we anticipate will generate additional sales and diversify that resort’s revenue base. The zip line tour opened in May 2019.
|
Results of Operations
The following table presents our consolidated statements of operations for the years ended
April 30, 2019, 2018 and 2017
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
increase
|
|
|
increase
|
|
|
|
Year ended April 30,
|
|
|
(decrease)
|
|
|
(decrease)
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
2019/2018
|
|
|
2018/2017
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lift and tubing tickets
|
|
$
|
93,168
|
|
$
|
61,683
|
|
$
|
58,100
|
|
|
51.0
|
%
|
|
6.2
|
%
|
Food and beverage
|
|
|
32,210
|
|
|
24,749
|
|
|
23,078
|
|
|
30.1
|
%
|
|
7.2
|
%
|
Equipment rental
|
|
|
15,065
|
|
|
9,991
|
|
|
8,582
|
|
|
50.8
|
%
|
|
16.4
|
%
|
Ski instruction
|
|
|
15,256
|
|
|
9,128
|
|
|
8,562
|
|
|
67.1
|
%
|
|
6.6
|
%
|
Hotel/lodging
|
|
|
8,909
|
|
|
9,874
|
|
|
9,731
|
|
|
(9.8)
|
%
|
|
1.5
|
%
|
Retail
|
|
|
9,277
|
|
|
6,748
|
|
|
6,395
|
|
|
37.5
|
%
|
|
5.5
|
%
|
Summer activities
|
|
|
4,727
|
|
|
4,459
|
|
|
4,549
|
|
|
6.0
|
%
|
|
(2.0)
|
%
|
Other
|
|
|
5,814
|
|
|
5,030
|
|
|
4,252
|
|
|
15.6
|
%
|
|
18.3
|
%
|
|
|
|
184,426
|
|
|
131,662
|
|
|
123,249
|
|
|
40.1
|
%
|
|
6.8
|
%
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and labor related expenses
|
|
|
61,440
|
|
|
53,026
|
|
|
48,253
|
|
|
15.9
|
%
|
|
9.9
|
%
|
Retail and food and beverage cost of sales
|
|
|
14,903
|
|
|
11,855
|
|
|
10,820
|
|
|
25.7
|
%
|
|
9.6
|
%
|
Power and utilities
|
|
|
11,417
|
|
|
8,331
|
|
|
7,843
|
|
|
37.0
|
%
|
|
6.2
|
%
|
Other
|
|
|
31,977
|
|
|
23,381
|
|
|
20,403
|
|
|
36.8
|
%
|
|
14.6
|
%
|
|
|
|
119,737
|
|
|
96,593
|
|
|
87,319
|
|
|
24.0
|
%
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
19,618
|
|
|
13,231
|
|
|
12,713
|
|
|
48.3
|
%
|
|
4.1
|
%
|
General and administrative expenses
|
|
|
11,221
|
|
|
5,797
|
|
|
5,431
|
|
|
93.6
|
%
|
|
6.7
|
%
|
Real estate and other non-income taxes
|
|
|
3,351
|
|
|
2,286
|
|
|
2,322
|
|
|
46.6
|
%
|
|
(1.6)
|
%
|
Land and building rent
|
|
|
1,393
|
|
|
1,401
|
|
|
1,395
|
|
|
(0.6)
|
%
|
|
0.4
|
%
|
Restructuring and impairment charges
|
|
|
190
|
|
|
2,135
|
|
|
—
|
|
|
(91.1)
|
%
|
|
100.0
|
%
|
|
|
|
155,510
|
|
|
121,443
|
|
|
109,180
|
|
|
28.1
|
%
|
|
11.2
|
%
|
Income from operations
|
|
|
28,916
|
|
|
10,219
|
|
|
14,069
|
|
|
183.0
|
%
|
|
(27.4)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized of $783, $1,256, $1,545, respectively
|
|
|
(15,788)
|
|
|
(13,322)
|
|
|
(12,473)
|
|
|
18.5
|
%
|
|
6.8
|
%
|
Gain on sale/leaseback
|
|
|
333
|
|
|
333
|
|
|
333
|
|
|
—
|
%
|
|
—
|
%
|
Other income
|
|
|
159
|
|
|
160
|
|
|
61
|
|
|
(0.6)
|
%
|
|
162.3
|
%
|
|
|
|
(15,296)
|
|
|
(12,829)
|
|
|
(12,079)
|
|
|
19.2
|
%
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
13,620
|
|
|
(2,610)
|
|
|
1,990
|
|
|
(621.8)
|
%
|
|
(231.2)
|
%
|
Income tax (benefit) expense
|
|
|
4,704
|
|
|
(3,962)
|
|
|
749
|
|
|
(218.7)
|
%
|
|
(629.0)
|
%
|
Net income
|
|
$
|
8,916
|
|
$
|
1,352
|
|
$
|
1,241
|
|
|
559.5
|
%
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported EBITDA
|
|
$
|
49,769
|
|
$
|
25,585
|
|
$
|
26,782
|
|
|
94.5
|
%
|
|
(4.5)
|
%
|
Year Ended
April 30, 2019
, Compared with the Year Ended April 30
, 2018
Net Revenue.
Net revenue increased by $52.8 million, or 40.1%, for the year ended April 30, 2019, compared with the year ended April 30, 2018. The increase is primarily attributable to i) $42.3 million of revenue associated with the resort properties acquired in the Snow Time acquisition and ii) a $10.5 million increase in revenues at legacy Peak Resorts properties. The increased revenues at legacy Peak Resorts properties are primarily attributable to an earlier opening of our 2018/2019 ski season at the majority of our resorts and favorable weather conditions which increased skier visits,
partially offset by reduced lodging and food and beverage sales at our Attitash resort as a result of our decision to cease operations of a hotel/restaurant facility as of the beginning of fiscal year 2019 (the “Attitash Hotel Closure”).
Resort Operating Costs.
Resort operating costs increased $23.1 million, or 24.0%, for the year ended April 30, 2019, compared with the prior year. The increase is primarily attributable to i) $21.9 million of resort operating costs associated with the resort properties acquired in the Snow Time acquisition and ii) a $1.2 million increase in resort operating costs at legacy Peak Resorts properties. The increased operating costs at legacy Peak Resorts properties are primarily attributable to i) increased power and utility costs a result of a greater number of operating days as well as increased electric transmission charges associated with two of our Pennsylvania resorts and ii) increased costs of goods sold associated with higher retail and food and beverage sales, partially offset by a decrease in labor costs associated with i) the Attitash Hotel Closure and ii) our ongoing efforts to manage staffing levels at our resorts.
Depreciation and Amortization
. Depreciation and amortization expense increased by approximately $6.4 million, or 48.3%, to $19.6 million for the year ended April 30, 2019, primarily as a result of i) additional depreciable assets added during the third quarter of fiscal 2019, including property and equipment acquired in the Snow Time Acquisition, the Hunter Mountain expansion project and the Carinthia Ski Lodge project and ii) additional amortizing intangible assets added during the third quarter of fiscal 2019 as a result of the Snow Time acquisition.
General and Administrative Costs
. General and administrative expenses of approximately $11.2 million for the year ended April 30, 2019, increased by approximately $5.4 million, or 93.6%, primarily as a result of i) a $3.8 million increase in performance-based incentive compensation, ii) $1.0 million of professional fees and other transaction costs associated with the Snow Time acquisition and iii) increased professional fees and other costs associated with the integration of Snow Time’s operations.
Restructuring and Impairment.
During the year ended April 30, 2019, we incurred restructuring charges of $0.2 million which related to the Attitash Hotel Closure. In December 2017, we determined we would not be able to renew a management services agreement related to residential condominium units in a hotel property adjacent to our Attitash resort where we owned the commercial corridor. As a result, we decided to cease our operation of the hotel property as of April 30, 2018 (the “Attitash Hotel Closure”) and sold our interest in the hotel property. Total charges related to the Attitash Hotel Closure include $1.6 million of asset impairment charges and $0.3 million of severance and other costs. As of April 30, 2019, no amounts were accrued for costs associated with the Attitash Hotel Closure, and the Company expects it will not incur future additional charges related to the Attitash Hotel Closure.
Real Estate and Other Non-Income Taxes.
Real estate and other non-income taxes of $3.4 million for the year ended April 30, 2019, increased by approximately $1.1 million, or 46.6%, as compared to the $2.3 million of real estate and other non-income taxes for the prior year. The increase is a result of i) approximately $0.4 million real estate taxes associated with the resort properties acquired in the Snow Time acquisition, ii) rate increases and higher assessed values at certain legacy Peak Resorts properties and iii) property tax refunds received in fiscal 2018 which did not recur in fiscal 2019.
Interest, Net.
Net interest expense of $15.8 million for the year ended April 30, 2019, increased by $2.5 million, or 18.5%, as compared to the $13.3 million of net interest expense for the prior year. The increase in net interest expense relates primarily to i) approximately $1.5 million of interest on the new Term Loan which began accruing during the third quarter of fiscal 2019, ii) a $0.5 million decrease in the amount of capitalized interest during fiscal 2019, as compared with fiscal 2018, and iii) an increase in interest rates on variable rate debt.
Income Taxes.
Income tax expense of $4.7 million for the year ended April 30, 2019 compares with an income tax benefit of $4.0 million for the year ended April 30, 2018, as a result of an increase in our effective tax rate applied to an increased earnings before income taxes. Our effective income tax rates were 34.5% and 151.8% for the year ended April 30, 2019 and 2018, respectively. The November 2018 acquisition of the Snow Time resort properties resulted in the inclusion of their operating results only for the ski season, the profitable period of their annual operations. The 2018 tax rate reflects the enactment of the 2017 Tax Act, which permanently reduced the U.S. corporate statutory rate from 35.0% to 21.0% as of January 1, 2018.
Reported EBITDA.
Reported EBITDA is not a measure of financial performance under U.S. GAAP. We have chosen to include “Reported EBITDA” (which we define as net income before interest, income taxes, depreciation, amortization, gain on sale/leaseback, other income and expense and other non-recurring items) as a measurement of our
results of operations because we consider this measurement to be a significant indication of our financial performance and available capital resources. Because of large depreciation and other charges relating to our ski resorts operations, it is difficult for management to fully and accurately evaluate our financial results and available capital resources using net income alone. In addition, the use of this non-U.S. GAAP measure provides an indication of our ability to service debt, and we consider it an appropriate measure to use because of our highly leveraged position.
We believe that by providing investors with Reported EBITDA, they will have a clearer understanding of our financial performance and cash flows because Reported EBITDA i) is widely used in the ski industry to measure a company’s operating performance without regard to items excluded from the calculation of such measure; ii) helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating results; and iii) is used by our board of directors, management and our lenders for various purposes, including as a measure of our operating performance and as a basis for planning.
The items we exclude from net income to arrive at Reported EBITDA are significant components for understanding and assessing our financial performance and liquidity. 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 our consolidated financial statements as indicators of financial performance or liquidity. Because Reported EBITDA is not a measurement determined in accordance with U.S. GAAP and is susceptible to varying calculations, Reported EBITDA, as presented, may not be comparable to other similarly titled measures of other companies, limiting its usefulness as a comparative measure.
Reconciliations of net income to Reported EBITDA for the years ended April 30, 2019 and 2018 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
Year ended April 30,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,916
|
|
$
|
1,352
|
Income tax expense (benefit)
|
|
|
4,704
|
|
|
(3,962)
|
Interest expense, net
|
|
|
15,788
|
|
|
13,322
|
Depreciation and amortization
|
|
|
19,618
|
|
|
13,231
|
Acquisition related costs
|
|
|
1,045
|
|
|
—
|
Restructuring and impairment charges
|
|
|
190
|
|
|
2,135
|
Other income
|
|
|
(159)
|
|
|
(160)
|
Gain on sale/leaseback
|
|
|
(333)
|
|
|
(333)
|
Reported EBITDA
|
|
$
|
49,769
|
|
$
|
25,585
|
Reported EBITDA increased by $24.2 million, or 94.5%, for the year ended April 30, 2019, as compared with the year ended April 30, 2018, primarily as a result of i) approximately $20.0 million of Reported EBITDA associated with the resort properties acquired in the Snow Time acquisition, and ii) increased revenue offset by lower relative operating expenses at legacy Peak Resorts properties.
Year Ended
April 30, 2018
, Compared with the Year Ended April 30
, 2017
Net Revenue.
Net revenue increased $8.4 million, or 6.8%, for the year ended
April 30, 2018
, compared with the year ended
April 30, 2017
. The increase is primarily attributable to increased resort attendance driven, in part, by earlier ski season opening dates which led to higher ticket, rentals, retail and food and beverage sales.
Resort Operating Costs.
Resort operating costs increased $9.3 million, or 10.6%, for the year ended
April 30, 2018
, compared with the previous year. Labor costs increased by $4.8 million, or 9.9%, due to i) lower pre-season staffing levels in fiscal 2017 as compared to fiscal 2018, ii) increased staffing needs due to earlier ski season opening dates and higher attendance in fiscal 2018, and iii) increases in the minimum wage which impacted certain of our resorts. Other resort operating expenses increased by $3.0 million, or 14.6%, primarily as a result of increased maintenance and supplies costs. During fiscal 2017, we experienced low liquidity levels and, as a result, implemented employee furloughs and strict spending controls on discretionary costs. By the end of fiscal 2017, our liquidity levels had normalized. As a result, our staffing levels returned to a more normal level, and our resorts incurred increased costs as they prepared for the 2017/2018 ski season. Cost of goods sold related to food and beverage and retail sales increased $1.0 million, or 9.6%, due to increased food and beverage and retail sales stemming from higher resort attendance.
Depreciation and Amortization
. Depreciation and amortization increased by $0.5 million, or 4.1%, on a higher depreciable base which included, among other new assets, the West Lake Water project which was placed in service during the year.
General and Administrative Costs
. General and administrative expenses increased $0.4 million, or 6.7%, for the year ended
April 30, 2018
compared with the year ended
April 30, 2017
, primarily due to higher incentive compensation expense and lower professional fee expense.
Restructuring and Impairment.
During the year ended April 30, 2018 we incurred restructuring and impairment charges totaling $2.1 million which included i) $1.7 million related to the Attitash Hotel Closure, and ii) $0.4 million related to the impairment of goodwill associated with our Alpine Valley ski resort. Charges related to the Attitash Hotel Closure included $1.6 million of asset impairment charges and $0.1 million of severance and other costs.
Interest.
Excluding amounts capitalized, interest expense increased by $0.8 million, or 6.8%, primarily as a result of increases in the interest rates on adjustable rate debt, partially offset by the effect of a $1.7 million net repayment of interest bearing debt over the course of the year.
Income Taxes.
The income tax benefit for the year ended April 30, 2018, was $4.0 million, which compares with income tax expense of $0.7 million for the year ended
April 30, 2017
. The benefit for fiscal 2018 is primarily as result of positive impacts from the enactment of the 2017 Tax Act which, among other effects, i) reduced our deferred tax liabilities and ii) reduced our effective income tax rate for the four months ending April 30, 2018.
Reported EBITDA.
Reconciliations of net income to Reported EBITDA for the years ended April 30, 2018 and 2017 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
Year ended April 30,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,352
|
|
$
|
1,241
|
Income tax (benefit) expense
|
|
|
(3,962)
|
|
|
749
|
Interest expense, net
|
|
|
13,322
|
|
|
12,473
|
Depreciation and amortization
|
|
|
13,231
|
|
|
12,713
|
Restructuring and impairment charges
|
|
|
2,135
|
|
|
—
|
Other income
|
|
|
(160)
|
|
|
(61)
|
Gain on sale/leaseback
|
|
|
(333)
|
|
|
(333)
|
Reported EBITDA
|
|
$
|
25,585
|
|
$
|
26,782
|
Reported EBITDA decreased by $1.2 million, or 4.5%, for the year ended April 30, 2018, as compared with the year ended April 30, 2017, primarily as a result of higher resort operating costs relative to revenue which was driven by increased labor costs and deferred maintenance expenditures.
Liquidity and Capital Resources
Cash Flow
Net cash provided by operating activities was $34.5 million for the year ended April 30, 2019, as compared with net cash used by operating activities of $0.2 million and net cash provided by operating activities of $12.7 million for the years ended April 30, 2018 and 2017, respectively. The increase in net cash provided by operating activities in fiscal 2019 as compared with fiscal 2018, is primarily due to i) higher net income and ii) positive changes in working capital related to prepaid rentals and interest. Under the terms of the various borrowing agreements we have with EPR, we are required to, at EPR’s discretion, either prepay a certain amount of interest and rental payments to EPR or deposit the equivalent amount of cash in a restricted account to fund interest payments to EPR. As of April 30, 2019 and 2018, we had prepaid interest and rentals to EPR of $8.2 million and $8.9 million, respectively, which are included in the caption prepaid expenses and other current liabilities in our consolidated balance sheets. As of April 30, 2017, there was no amount of interest or rent prepaid to EPR, however we had funded $8.8 into a restricted cash account to fund interest payments to EPR, which was included in the caption restricted cash in our consolidated balance sheet as of April 30, 2017.
Net cash of $96.2 million was used by investing activities during the year ended April 30, 2019, an increase of $65.1 million when compared with the $31.1 million during the year ended April 30, 2018. Investing cash flows in fiscal 2019 related primarily to i) $65.7 million of net cash paid to acquire Snow Time, and ii) $30.5 million in additions to property and equipment, primarily associated with the construction of the Carinthia Ski Lodge, Hunter North expansion and Hidden Valley Zip Tour projects. Additions to property and equipment during fiscal 2018 related primarily to the construction of the West Lake Water and Carinthia Ski Lodge projects.
Net cash of $60.7 million was provided by financing activities in year ended April 30, 2019, an increase of $71.5 million when compared with the $10.8 million used in the year ended April 30, 2018. Financing cash flows in fiscal 2019 included i) approximately $70 million of proceeds from the Term Loan and the issuance of Series A Preferred Stock along with the 2018 Option Warrants and Financing Warrants to finance the Snow Time acquisition, ii) approximately $0.1 million of other borrowings and capital leases, partially offset by, iii) $2.9 million of debt repayments, iv) $0.9 million of financing fees related to the Term Loan, and v) $5.6 million of distributions to stockholders. Financing cash flows in fiscal 2018 included i) the net repayment of approximately $5.9 million of credit facility and long-term debt, ii) $4.7 million of distributions to stockholders and iii) $0.1 of financing fees.
Liquidity and Significant Uses of Cash
Our available cash is consistently highest in our fourth quarter primarily due to the seasonality of our resort business. We had $30.2 million of cash and cash equivalents as of
April 30, 2019
, compared with $23.1 million at April 30, 2018. In addition, we had $5.2 million of restricted cash balances on hand as of April 30, 2019, for interest payments on the Term Loan and our revolving credit facilities. We generate the majority of our cash from operations during the ski season, which occurs during our third and fourth fiscal quarters. We currently anticipate cash flow from operations will continue to provide a significant source of our future cash flows, and believe that cash flow from operations, availability on credit facilities and available cash on hand will be sufficient to fund our recurring capital expenditure requirements and other currently anticipated cash needs for the next 12 months.
Our principal liquidity requirements over the next 12 months will be for i) debt service requirements in connection with our credit facilities and other debt, ii) capital expenditures to complete planned major projects, iii) capital expenditure needs for of our continuing operations, and iv) working capital needs including the payment of operating leases. We have historically invested significant cash in capital expenditures for our resort operations and expect to continue to invest in the future.
We currently anticipate we will spend between approximately $12.0 million to $14.5 million on capital expenditures during fiscal 2020, which includes approximately $3.0 million to $3.5 million to complete snow making infrastructure improvements at the newly acquired Snow Time resorts; approximately $0.5 million to $1.0 million to finish construction of the zip tour at Hidden Valley; and approximately $8.5 million to $10.0 million on resort maintenance capital expenditures, which is consistent with our historical maintenance capital expenditures that are needed to maintain and improve the level of service and overall experiences we strive to provide our visitors. We currently plan to use cash on hand and/or cash flow generated from future operations to provide the cash necessary to execute our other capital projects and believe that these sources of cash will be adequate to meet our needs.
We continually evaluate opportunities to acquire new ski resorts. We expect that we would finance the acquisition of any new ski resorts through a combination of cash on hand, existing credit facilities, new financing arrangements or the issuance of debt or equity.
The outstanding shares of the Company’s Series A Preferred Stock accrue cumulative dividends on a daily basis in arrears at the rate of 8% per annum on the liquidation value of $1,000 per share. All accrued and accumulated dividends on the Series A Preferred Stock are required to be paid prior and in preference to any cash dividend on our common stock. In addition, until the earlier of i) such date as no Series A Preferred Stock remains outstanding and ii) January 1, 2027, we are prohibited from paying any dividend on capital stock when there are accrued or unpaid dividends with respect to the Series A Preferred Stock. In accordance with the terms of the issuance of 20,000 shares of Series A Preferred Stock in November 2018, quarterly dividends on that share issuance begin to accrue in August 2019. We intend to pay Series A Preferred Stock dividends of approximately $0.4 million during each of the first and second quarters of fiscal 2020, and, thereafter, pay Series A Preferred Stock dividends of approximately $0.8 million per quarter ($3.2 million per year) once dividends on the shares issued in November 2018 begin to accrue.
Financing Arrangements
Long-term debt at April 30, 2019 and 2018, consisted primarily of borrowings pursuant to the loans and other credit facilities with EPR Properties, our primary lender, Cap 1, and EB‑5 limited partnerships.
We have presented in the table below the composition of our long-term debt as of April 30, 2019 and April 30, 2018 (dollars in thousands):
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
EPR Secured Notes due 2034
|
|
$
|
93,162
|
|
$
|
93,162
|
EPR Secured Notes due 2036
|
|
|
21,000
|
|
|
21,000
|
EB-5 Development Notes due 2021
|
|
|
52,000
|
|
|
52,000
|
Term Loan due 2020
|
|
|
50,058
|
|
|
—
|
Wildcat Mountain Note due 2020
|
|
|
3,030
|
|
|
3,231
|
Capital Leases
|
|
|
1,746
|
|
|
2,426
|
Other borrowings
|
|
|
514
|
|
|
1,184
|
Less: Unamortized debt issuance costs
|
|
|
(4,128)
|
|
|
(4,552)
|
|
|
|
217,382
|
|
|
168,451
|
Less: Current maturities
|
|
|
(1,513)
|
|
|
(2,614)
|
|
|
$
|
215,869
|
|
$
|
165,837
|
EPR Secured Notes
The Company has various secured borrowings (the “EPR Secured Notes”) under a master credit and security agreement and other related agreements, as amended, (together, the “EPR Agreements”) with EPR Properties and its affiliates (“EPR”). Each of the EPR Secured Notes is secured by one or more of the Company’s resort properties and is guaranteed by the Company. The EPR Secured Notes bear interest at specified interest rates which are subject to increase each year by the lesser of i) three times the percentage increase in the Consumer Price Index (as defined) or ii) a capped index (the “Capped CPI Index”) which is 1.75% for the Hunter Mountain Secured Note and 1.50% for all other notes.
Financial covenants set forth in the EPR Agreements consist of i) a maximum leverage ratio (as defined) of 65%, above which the Company and certain of its subsidiaries are prohibited from incurring additional indebtedness, ii) a consolidated fixed charge coverage ratio (as defined) of 1.50:1.00 on a rolling four quarter basis, and iii) a prohibition of the Company paying dividends if the Company is in default (as defined) or if the fixed charge coverage ratio (as defined) is below 1.25:1.00.
Non-financial covenants set forth in the EPR Agreements include i) restrictions on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence of certain additional debt and liens and ii) a requirement that the Company obtain the consent of EPR prior to redeeming any preferred or common stock.
The EPR Agreements also provide that none of the EPR Secured Notes may be prepaid without the consent of EPR and that any default under any of the EPR Secured Notes, lease agreements between the Company and EPR, or credit facilities with other lenders would constitute a default under all EPR Secured Notes and lease agreements. A change of control (as defined) would also constitute an event of default.
An additional contingent interest payment would be due to EPR if, on a calendar year basis, the gross receipts (as defined) from the properties securing the EPR Secured Notes (the “Gross Receipts”) are more than the result (the “Interest Quotient”) of dividing the total interest charges for the EPR Secured Notes by a certain percentage rate (the “Additional Interest Rate”). In such a case, the additional interest payment would equal the difference between the Gross Receipts and the Interest Quotient multiplied by the Additional Interest Rate. This calculation is made on an aggregated basis for the notes secured by the Company’s Jack Frost, Big Boulder, Boston Mills, Brandywine, Alpine Valley and Hunter Mountain ski resorts, where the Additional Interest Rate is 10%, and is made on a standalone basis for the note secured by the Company’s Mount Snow ski resort, where the Additional Interest Rate is 12%. The Company has not made any additional interest payments on the EPR Secured Notes based on these provisions.
The EPR Agreements grant EPR certain other rights including i) an option to purchase the Company’s Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley resorts that is exercisable no sooner than two years and no later than one year prior to the maturity dates of the applicable promissory notes for such properties, with any closings to be held on the applicable maturity dates, ii) a right of first refusal through 2021, subject to certain conditions, to provide all or a portion of the financing associated with any purchase, ground lease, sale/leaseback, management or financing transaction contemplated by the Company with respect to any new or existing ski resort properties, and iii) a right of first refusal through 2021 to purchase the Company’s Attitash ski resort in the event the Company were to desire to sell the Attitash ski resort. In the event EPR were to exercise one or more of its purchase options, the Company would be subject to capital gain taxes to the extent the purchase price exceeded the Company’s tax basis in the properties. As the Company has deducted tax depreciation for these properties on its federal income tax returns, the amount of capital gains and related taxes might be significant. To date, EPR has not exercised any purchase options. If EPR exercises a purchase option, EPR will enter into an agreement with us for the lease of each acquired property for an initial term of 20 years, plus options to extend the lease for two additional periods of ten years each.
The EPR Secured Notes include the following:
The Alpine Valley Secured Note.
The $4.6 million Alpine Valley Secured Note provides for interest only payments through its maturity on December 1, 2034. As of April 30, 2019, interest on this note accrued at a rate of 11.04%. This note is secured by a mortgage and other interests in the Company’s Alpine Valley ski resort.
The Boston Mills/Brandywine Secured Note.
The $23.3 million Boston Mills/Brandywine Secured Note provides for interest only payments through its maturity on December 1, 2034. As of April 30, 2019, interest on this note accrued at a rate of 10.59%. This note is secured by a mortgage and other interests in the Company’s Boston Mills and Brandywine ski resorts.
The Jack Frost/Big Boulder Secured Note.
The $14.3 million Jack Frost/Big Boulder Secured Note provides for interest only payments through its maturity on December 1, 2034. As of April 30, 2019, interest on this note accrued at a rate of 10.59%. This note is secured by a mortgage and other interests in the Company’s Jack Frost and Big Boulder ski resorts.
The Mount Snow Secured Note.
The $51.1 million Mount Snow Secured Note provides for interest only payments through its maturity on December 1, 2034. As of April 30, 2019, interest on this note accrued at a rate of 11.61%. This note is secured by a mortgage and other interests in the Company’s Mount Snow ski resort.
The Hunter Mountain Secured Note.
The $21.0 million Hunter Mountain Secured Note provides for interest only payments through its maturity on January 5, 2036. As of April 30, 2019, interest on this note accrued at a rate of 8.43%. This note is secured by a mortgage and other interests in the Company’s Hunter Mountain ski resort.
EB‑5 Development Notes
The Company serves as the general partner for two limited partnerships, Carinthia Group 1, LP and Carinthia Group 2, LP (together, the “Limited Partnerships”), which were formed to raise $52.0 million through the Immigrant Investor Program administered by the U.S. Citizenship and Immigration Services (“USCIS”) pursuant to the Immigration and
Nationality Act (the “EB‑5 Program”). The EB‑5 Program was created to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors. The program allocates immigrant visas to qualified individuals (“EB‑5 Investors”) seeking lawful permanent resident status based on their investment in a U.S. commercial enterprise.
On December 27, 2016, the Company borrowed $52.0 million from the Limited Partnerships to fund two capital projects at its Mount Snow ski resort.
The development projects include i) the West Lake Water Project, which was completed during fiscal 2018 and included the construction of a new water storage reservoir for snowmaking, and ii) the Carinthia Ski Lodge Project, which was completed during fiscal 2019 and included the construction of a new skier service building. The amounts were borrowed through two loan agreements, which provided $30.0 million for the West Lake Water Project and $22.0 million for the Carinthia Ski Lodge project (together, the “EB‑5 Development Notes”).
Amounts outstanding under the EB‑5 Development Notes accrue simple interest at a fixed rate of 1.0% per annum until the maturity date, which is December 27, 2021, subject to extension of up to an additional two years at the option of the borrowers with lender consent. If the maturity date is extended, amounts outstanding under the EB‑5 Development Notes will accrue simple interest at a fixed rate of 7.0% per annum during the first year of extension and a fixed rate of 10.0% per annum during the second year of extension.
Upon an event of default (as defined), amounts outstanding under the EB‑5 Development Notes shall bear interest at the rate of 5.0% per annum, subject to the extension increases. For so long as amounts under the EB‑5 Development Notes are outstanding, the Company is restricted from taking certain actions without the consent of the lenders, including, but not limited to transferring or disposing of the properties or assets financed with the loan proceeds. In addition, the Company is prohibited from prepaying outstanding amounts owed if such prepayment would jeopardize any of the EB‑5 Investors from being admitted to the U.S. via the EB‑5 Program.
The Company has evaluated the facts and circumstances surrounding the Limited Partnerships and determined the Limited Partnerships do not require consolidation in the Company’s financial statements as the Company does not have a variable interest in the Limited Partnerships under either the variable interest model or the voting interest model, as substantive participation rights give the limited partners the ability to effectively participate in significant decisions that would be expected to be made in the ordinary course of the Limited Partnerships’ business and thereby preclude the Company as general partner from exercising unilateral control over the partnerships.
Term Loan due 2020
The Company financed part of the cash consideration paid in the Snow Time acquisition with the $50.0 million Term Loan from Cap 1 pursuant to the terms of the Credit Agreement entered into with Cap 1 on November 21, 2018.
The Term Loan has an initial term of two years and bears interest at 6.95%, payable quarterly, subject to a 2.0% increase upon an event of default. The Term Loan is secured by all real property on which the Snow Time resorts are located and improvements thereon. Amounts due under the Term Loan may be prepaid without penalty.
The Term Loan matures on November 30, 2020 and may be extended for an additional one-year period at the Company’s option, so long as no event of default has occurred. If extended, the Company has agreed to issue Cap 1 the Extension Warrant to purchase 666,667 shares of common stock, exercisable immediately from the issuance date and for up to ten years from the date of issuance, at $7.50 per share. The Extension Warrant was not issued upon closing the Term Loan and will only be issued if the Company exercises the one-year Term Loan extension right.
As consideration for the Term Loan and in lieu of fees, the Company also issued Cap 1 the Financing Warrant to purchase 1,750,000 shares of common stock at $10.00 per share, which is exercisable immediately and expires ten years from the date of issuance.
As a condition to the funding of the Term Loan, and for aggregate consideration of $20.0 million, we exercised the Cap 1 Option to issue to Cap 1 an additional 20,000 shares of
Series A Preferred Stock
along with the 2018 Option Warrants to purchase up to 2,719,018 shares of common stock at
prices ranging from $6.50 per share to $9.00 per share
. The Company used the Cap 1 Option proceeds to fund the remainder of the cash portion of the Snow Time acquisition purchase price.
Wildcat Mountain Note
The Wildcat Mountain Note due December 22, 2020 bears interest at a fixed rate of 4.00% and is secured by a security interest in the improvements at the Company’s Wildcat Mountain ski resort. The loan is payable in monthly principal and interest payments with a balloon payment of $2.7 million due upon maturity.
Royal Banks of Missouri Credit Facilities
In December 2018, the Company renewed its existing credit facility with Royal Banks of Missouri (the “Royal Banks Credit Facility”). The Royal Banks Credit Facility provides for a $10.0 million working capital line of credit to be used for general business purposes and a $15.0 million acquisition line of credit to be used for the acquisition of additional ski resort properties. As of
April 30, 2019
, $12.4 million was outstanding under the 2017 Royal Banks Credit Facility and $12.6 million was unused and available.
The Royal Banks Credit Facility was renewed for one year, with loans payable in monthly interest only installments charged at the bank’s prime rate plus 1.00% per annum, with any outstanding principal amounts due in December 2019. The Company is required to fund a debt service account by depositing in three equal monthly installments an amount equal to the estimated annual interest due in connection with outstanding loans under the Royal Banks Credit Facility. As of April 30, 2019, $0.5 million was included in restricted cash on our consolidated balance sheet for these payments. The Company is required to maintain a minimum debt service coverage ratio (as defined in the credit agreement) of 1.25:1.00. In addition, were the Company’s fixed charge coverage ratio (as defined in the credit agreement) to fall below 1.50:1.00, the Company would be required to prefund certain other debt service payments, and should the ratio fall below 1.25:1.00, the Company would be prohibited from paying dividends. The Royal Banks Credit Facility is secured by the assets of the Company’s subsidiaries which operate its Hidden Valley, Paoli Peaks, Snow Creek, Crotched Mountain and Attitash resorts.
As of April 30, 2019, the Company was in compliance with all debt covenants under its various credit facility and debt agreements.
Series A Preferred Stock
As more fully described in Notes 5 and 6 to our consolidated financial statements filed with this Report, on November 21, 2018, we issued an additional $20 million of Series A Preferred Stock and the 2018 Option Warrants to Cap 1, the proceeds of which were used to finance the remaining cash consideration for the Snow Time acquisition. As of April 30, 2019, a total of 40,000 shares of Series A Preferred Stock were outstanding.
The rights and preferences of the Series A Preferred Stock include, among other things, the following:
Seniority
. The Series A Preferred Stock generally rank, with respect to liquidation, dividends and redemption, i) senior to common stock and to any other junior capital stock; ii) on parity with any parity capital stock; iii) junior to any senior capital stock; and iv) junior to all of our existing and future indebtedness (as defined). Until the earlier of the date that no Series A Stock remains outstanding and January 1, 2027, we are prohibited from paying cash dividends on common stock if there are accrued and unpaid dividends with respect to the Series A Preferred Stock.
Dividend Rights
. From and after the date that is nine months from the date of issuance, or August 21, 2019 for the shares issued on November 21, 2018, cumulative dividends accrue on the Series A Preferred Stock on a daily basis in arrears at the rate of 8% per annum on the liquidation value of $1,000 per share. All accrued and accumulated dividends on the Series A Preferred Stock shall be paid prior and in preference to any dividend or distribution on or redemption of any junior securities, provided that the Company may, prior to the payment of all accrued and accumulated dividends on the Series A Preferred Stock, i) declare or pay any dividend or distribution payable on the common stock in shares of common stock; or ii) repurchase common stock held by our employees or consultants upon termination of their employment or services pursuant to agreements providing for such repurchase. We may also redeem or repurchase junior securities at any time when there are no accrued or accumulated unpaid dividends on the Series A Preferred Stock.
Liquidation
. In the event of any liquidation (as defined), dissolution or winding up of our company, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of our company available for distribution to its stockholders, before any payment shall be made to the holders of junior securities, and subject to the rights of any parity or senior securities, an amount in cash equal to $1,000 per share plus all unpaid accrued and accumulated dividends.
Redemption
. The Series A Preferred Stock is subject to redemption i) at our option at a price of $1,250 per share, plus all unpaid accrued and accumulated dividends, at any time on or after the third anniversary of the issuance of the Series A Preferred Stock that the average closing price of our common stock on the 30 trading days preceding notice of the exercise of the redemption right is greater than $8.18; or ii) at the holder’s option upon a change in control.
Conversion
. Upon the earlier of a change of control or the nine-month anniversary of the date of issuance, the holders of the Series A Preferred Stock have the right to convert the Series A Preferred Stock into shares of common stock equal to the number of shares to be converted, times the liquidation value, divided by the conversion price and receive in cash all accrued and unpaid dividends. The initial conversion price per share is $6.29, subject to adjustment pursuant to the terms of the Certificate of Designation. Holders of the Series A Preferred Stock also have basic anti-dilution rights.
Voting Rights
. Each holder of Series A Preferred Stock shall be entitled to vote, on an as-converted basis, with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to the stockholders of our company.
We entered into a Registration Rights Agreement with Cap 1, dated November 21, 2018, granting certain registration rights with respect to the shares of common stock underlying the Series A Preferred Stock, 2018 Option Warrants and Financing Warrant. The terms and registration rights applicable to the Extension Warrant, if issued, are expected to be substantially the same as those applicable to the Financing Warrant.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements as defined under SEC rules.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires that management make certain estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates and assumptions and the differences may be material. Significant accounting policies, estimates and judgments that management believes are the most critical to aid in fully understanding and evaluating the reported financial results are discussed below.
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, which provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards. As an emerging growth company, we may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. As a result, our financial statements may not be comparable to those of other public companies.
Goodwill
At April 30, 2019, our goodwill balance relates to our Hunter Mountain ski resort and resorts we acquired in the Snow Time Acquisition. We conduct an assessment of the carrying value of goodwill annually, as of the last day of March, or more frequently if circumstance arise which would indicate the fair value of a reporting unit is below its carrying amount. A quantitative test of goodwill requires us to make certain assumptions and estimates in determining fair value of our reporting units. When performing such a test, we use multiple methods to estimate the fair value of our reporting units, including discounted cash flow analyses and an EBITDA-multiple approach, which derives an implied fair value of a business unit based on the market value of comparable companies expressed as a multiple of those companies’ earnings before interest, taxes, depreciation and amortization (“EBITDA”). Discounted cash flow analyses require us to make significant assumptions about discount rates, sales growth, profitability and other factors. The EBITDA-multiple approach requires us to judgmentally select comparable companies based on factors such as their nature, scope and size. Significant judgment is required in making assumptions and estimates to perform a quantitative impairment test, and
should our assumptions change in the future, our fair value models could result in lower fair values, which could materially affect the value of goodwill and our operating results.
In any given year we may elect to perform a qualitative impairment test for impairment. A qualitative assessment requires us to consider a number of relevant factors and conclude whether it is more likely than not that the fair value of a reporting unit is more than its carrying amount. In performing a qualitative assessment to screen for potential impairment of goodwill, we considered a number of factors, including i) macroeconomic conditions, ii) factors impacting our industry, iii) factors impacting our costs to operate our business, iv) the financial performance of reporting units compared with projections and prior periods, v) reporting unit specific events which could impact future operating results, vi) the market value of our debt and equity securities, and vii) other relevant events and circumstances identified at the time of the assessment.
We did not record any impairment of goodwill for the years ended April 30, 2019 or 2017. As a result of the annual assessment as of March 31, 2018, we recorded an impairment loss of $0.4 million of goodwill associated with our Alpine Valley ski resort.
Income Taxes
We are subject to income taxes in the United States and numerous state jurisdictions. Significant judgments and estimates are required in determining our consolidated income tax expense or benefit. Our income tax provision and deferred tax balances reflect our best assessment of estimated current and future taxes to be paid.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results and incorporate assumptions about the amount of our future pretax operating income and take into account the similar information with respect to business combinations occurring during the period, if any. While our assumptions about future taxable income are consistent with the plans and estimates we use to manage our business, they require significant judgment and are subject to factors beyond our control, such as impact of weather on our operations.
Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate. Changes in tax laws are accounted for in the period of enactment. On December 22, 2017, the U.S. government enacted the 2017 Tax Act which made broad and complex changes to the U.S. tax code that had an impact on our results and financial position as of and for our fiscal years ended April 30, 2019 and 2018. These impacts included, but were not limited to, i) a new bonus depreciation rule that allows for full expensing of qualified property, ii) a reduction of the U.S. federal corporate tax rate, iii) elimination of the corporate alternative minimum tax, iv) a new limitation on deductible interest expense, and v) limitations on NOLs generated after December 31, 2018, which caps their benefit at 80 percent of taxable income. We recorded income tax expense of $4.7 million for the year ended April 30, 2019. We recorded an income tax benefit of $4.0 million for the year ended April 30, 2018, which included a $0.1 million discrete benefit at the 2017 Tax Act enactment date and an additional benefit of $3.5 million which was directly attributable to the impact of the 2017 Tax Act’s reduced corporate tax rate that became effective January 1, 2018. The additional benefit arose because we are a calendar year taxpayer and the seasonality of our business resulted in significant losses during the first eight months of fiscal 2018, which produced a tax benefit at the prior corporate tax rate of 34%, and significant income during the period January to April 2018, which was subject to the lower 21% corporate tax rate implemented by the 2017 Tax Act.
As of April 30, 2019, we have federal income tax NOL carryforwards of $4.9 million, substantially all of which will expire in 2035. We believe it is more likely than not that the full benefit from a certain state’s NOL carryforwards will not be realized. In recognition of this risk, during the year ended April 30, 2018 we provided a valuation allowance of $0.4 million against the deferred tax assets relating to that state’s NOL carryforwards. We reevaluated the adequacy of that allowance as of April 30, 2019, and believe it remains adequate. If our assumptions change and we determine we will be able to realize these NOLs, the tax benefits relating to any reversal of the valuation allowance would be recognized as a reduction of income tax expense. We expect the limitation on deductible interest contained in the 2017 Tax Act will make it more likely we will be able to utilize our existing federal NOL carryovers; however, this provision will give rise to interest carryforwards for the foreseeable future and, accordingly, will likely require the recognition of
valuation allowances. As of April 30, 2019, a valuation allowance of $0.4 million was established to reduce to zero the deferred tax asset related to interest carryforwards.
We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits and deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties relating to uncertain tax positions. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity.
A significant amount of time may pass before a particular matter, for which we may have established a reserve, is audited and fully resolved. The estimates of our tax contingencies reserve, if any, contain uncertainty because management must use judgment to estimate the potential exposure associated with our various filing positions. Although we believe the estimates and judgments discussed herein are reasonable and we have adequate reserves for our tax contingencies, actual results could differ, and we may be exposed to increases or decreases in those reserves and tax provisions that could be material.
An unfavorable tax settlement could require the use of cash and could possibly result in an increased tax expense and effective tax rate in the year of resolution. A favorable tax settlement could possibly result in a reduction in our tax expense, effective tax rate, income taxes payable, other long-term liabilities and/or adjustments to our deferred tax assets, deferred tax liabilities or intangible assets in the year of settlement or in future years.
Management has made the assumption that the deferred tax assets will generally be recovered through the reversal of the deferred tax liabilities. Changes in the timing of the reversal pattern of these deferred tax liabilities, such as due to changes in asset lives, could necessitate a further evaluation of whether a valuation allowance is required. While management does not expect a need will arise to evaluate the valuation allowance, this would require management to estimate future taxable income, which would be subjective.
Long-Lived Assets, Excluding Goodwill
Impairment
We review the carrying amounts of property and equipment, definite-lived intangible assets and other long-lived assets for potential impairment if an event occurs or circumstances change that indicates the carrying amount may not be recoverable. In evaluating the recoverability of a long-lived asset, we compare the carrying values of the assets with corresponding estimated undiscounted future operating cash flows. For impairment testing purposes, long-lived assets are grouped at the lowest level for which there are identifiable cash flows; however, where identifiable cash flows are not independent of the cash flows of other assets, those long-lived assets are evaluated for impairment on a higher level. In the event the carrying values of long-lived assets are not recoverable by future undiscounted operating cash flows, impairments may exist. In the event of impairment, an impairment charge would be measured as the amount by which the carrying value of the relevant long-lived assets exceeds their fair value. There was no impairment recognized during fiscal 2019. During fiscal 2018 we recognized an impairment loss to property and equipment of $1.6 million as a result of the Attitash Hotel Closure.
Depreciable Lives of Assets
Mountain and lodging operational assets, furniture and fixtures, computer equipment, software, vehicles and leasehold improvements are primarily depreciated using the straight-line method over the estimated useful life of the asset. Assets may become obsolete or require replacement before the end of their useful life in which case the remaining book value would be written-off or we could incur costs to remove or dispose of such assets no longer in use. The estimate of our useful lives of the assets contain uncertainty because management must use judgment to estimate the useful life of the
asset. Although we believe the estimates and judgments discussed herein are reasonable, actual results could differ, and we may be exposed to increased expense related to depreciable assets disposed of, removed or taken out of service prior to its originally estimated useful life, which may be material.
Accounting for Acquisitions
The acquisition method of accounting requires an acquirer to recognize the assets acquired and the liabilities assumed at the acquisition date measured at their estimated fair value as of that date. Extensive use of estimates and judgments are required to allocate the consideration paid in a business combination to the assets acquired and liabilities assumed. If necessary, these estimates can be revised during an allocation period when information becomes available to further define and quantify the value of assets acquired and liabilities assumed. The allocation period does not exceed a period of one year from the date of acquisition. To the extent additional information to refine the original allocation becomes available during the allocation period, the purchase price allocation would be adjusted accordingly. Should information become available after the allocation period, the effects would be reflected in operating results.
Recently Adopted Accounting Standards
In March 2016, the FASB issued ASU 2016‑09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which provides new guidance related to accounting for share-based payments. This ASU requires entities to record the income tax effect of share-based payments when the awards vest or are settled, and clarifies the cash flow statement presentation of excess tax benefits and withholding tax payments. In addition, the ASU allows for a policy election to account for forfeitures either upon occurrence or by estimating forfeitures. The Company adopted this ASU as of April 30, 2019, and there was no impact on the Company’s consolidated financial statements upon adoption. The Company has elected to maintain its policy of accounting for the forfeiture of restricted stock units by estimating forfeitures.
Recently Issued Accounting Standards
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, which provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards. As an emerging growth company, we may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
In February 2016, the FASB issued ASU 2016‑02, “Leases (Topic 842),” which requires lessees to recognize most leases on the balance sheet. This ASU requires modified retrospective adoption and will be applicable for the Company as of April 30, 2020, with early adoption permitted. We are currently evaluating the impact the adoption of this ASU will have on our consolidated financial statements, including the effect the standard will have on our deferred gain on sale/leaseback (see Note 10 to the accompanying consolidated financial statements). While we expect the pattern of expense for leases we currently classify as operating will be similar between the old and new guidance, we expect adoption of the new standard will result in a significant increase in assets and liabilities for right of use assets and lease obligations, respectively, for leases we currently classify as operating. As of April 30, 2019, our future minimum lease payments under operating leases was approximately $14.7 million.
In May 2014, the FASB issued ASU 2014‑09, “Revenue from Contracts with Customers (Topic 606),” which was subsequently modified by other ASUs from 2015 through 2017. This ASU, as amended, provides new guidance for the recognition of revenue and provides for a five-step analysis of transactions to determine when and how revenue is recognized. This ASU establishes a core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This ASU may be adopted using either a full or modified retrospective approach and will be applicable for the Company as of April 30, 2020, with early adoption permitted. We expect to adopt this ASU using the full retrospective approach and do not expect the adoption of this ASU will have a material impact on our consolidated financial statements.
Item 8. Financial Statement and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Peak Resorts, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Peak Resorts, Inc. and its subsidiaries (the Company) as of April 30, 2019 and 2018, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended April 30, 2019, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2019 and 2018, and the results of its operations and its cash flows for the three years in the period ended April 30, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We have served as the Company’s auditor since 2011.
St. Louis, Missouri
June 28, 2019
Peak Resorts, Inc. and Subsidiaries
Consolidated Statements of Operations
(dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended April 30,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
184,426
|
|
$
|
131,662
|
|
$
|
123,249
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Resort operating costs
|
|
|
119,737
|
|
|
96,593
|
|
|
87,319
|
Depreciation and amortization
|
|
|
19,618
|
|
|
13,231
|
|
|
12,713
|
General and administrative
|
|
|
11,221
|
|
|
5,797
|
|
|
5,431
|
Land and building rent
|
|
|
1,393
|
|
|
1,401
|
|
|
1,395
|
Real estate and other taxes
|
|
|
3,351
|
|
|
2,286
|
|
|
2,322
|
Restructuring and impairment charges
|
|
|
190
|
|
|
2,135
|
|
|
—
|
Income from operations
|
|
|
28,916
|
|
|
10,219
|
|
|
14,069
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized of $783, $1,256 and $1,545, respectively
|
|
|
(15,788)
|
|
|
(13,322)
|
|
|
(12,473)
|
Gain on sale/leaseback
|
|
|
333
|
|
|
333
|
|
|
333
|
Other income
|
|
|
159
|
|
|
160
|
|
|
61
|
|
|
|
(15,296)
|
|
|
(12,829)
|
|
|
(12,079)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
13,620
|
|
|
(2,610)
|
|
|
1,990
|
Income tax expense (benefit)
|
|
|
4,704
|
|
|
(3,962)
|
|
|
749
|
Net income (loss)
|
|
$
|
8,916
|
|
$
|
1,352
|
|
$
|
1,241
|
|
|
|
|
|
|
|
|
|
|
Less declaration and accretion of Series A preferred stock dividends
|
|
|
(2,320)
|
|
|
(1,600)
|
|
|
(800)
|
Net income (loss) attributable to common shareholders
|
|
$
|
6,596
|
|
$
|
(248)
|
|
$
|
441
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
0.45
|
|
$
|
(0.02)
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
0.45
|
|
$
|
(0.02)
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
0.28
|
|
$
|
0.28
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per preferred share
|
|
$
|
80.00
|
|
$
|
60.00
|
|
$
|
—
|
See accompanying notes to consolidated financial statements.
Peak Resorts Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
April 30,
|
|
April 30,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
30,194
|
|
$
|
23,091
|
Restricted cash
|
|
|
5,240
|
|
|
1,163
|
Accounts receivable
|
|
|
9,514
|
|
|
8,560
|
Inventory
|
|
|
2,544
|
|
|
1,971
|
Prepaid expenses and other current assets
|
|
|
14,984
|
|
|
12,731
|
Total current assets
|
|
|
62,476
|
|
|
47,516
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
287,121
|
|
|
204,095
|
Land held for development
|
|
|
38,657
|
|
|
37,634
|
Restricted cash, construction
|
|
|
—
|
|
|
12,175
|
Goodwill
|
|
|
18,173
|
|
|
4,382
|
Intangible assets, net
|
|
|
3,106
|
|
|
731
|
Other assets
|
|
|
1,115
|
|
|
1,797
|
Total assets
|
|
$
|
410,648
|
|
$
|
308,330
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Revolving lines of credit
|
|
$
|
12,415
|
|
$
|
12,415
|
Current maturities of long-term debt
|
|
|
1,513
|
|
|
2,614
|
Accounts payable and accrued expenses
|
|
|
14,207
|
|
|
12,079
|
Accrued salaries, wages and related taxes and benefits
|
|
|
6,281
|
|
|
922
|
Unearned revenue
|
|
|
22,153
|
|
|
16,084
|
Current portion of deferred gain on sale/leaseback
|
|
|
333
|
|
|
333
|
Total current liabilities
|
|
|
56,902
|
|
|
44,447
|
|
|
|
|
|
|
|
Long-term debt, including related party debt of $50,058 and $0, less current maturities, respectively
|
|
|
215,869
|
|
|
165,837
|
Deferred gain on sale/leaseback
|
|
|
2,180
|
|
|
2,512
|
Deferred income taxes
|
|
|
18,384
|
|
|
7,809
|
Other liabilities
|
|
|
770
|
|
|
504
|
Total liabilities
|
|
|
294,105
|
|
|
221,109
|
|
|
|
|
|
|
|
Series A preferred stock, $0.01 par value per share, $1,000 liquidation preference per share, 40,000 shares authorized, 40,000 and 20,000 shares issued and outstanding, respectively
|
|
|
34,318
|
|
|
17,401
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
Common stock, $0.01 par value per share, 40,000,000 shares authorized, 15,165,832 and 13,982,400 shares issued and outstanding, respectively
|
|
|
152
|
|
|
140
|
Additional paid-in capital
|
|
|
96,557
|
|
|
86,631
|
Accumulated deficit
|
|
|
(14,484)
|
|
|
(16,951)
|
Total stockholders' equity
|
|
|
82,225
|
|
|
69,820
|
Total liabilities and stockholders' equity
|
|
$
|
410,648
|
|
$
|
308,330
|
See accompanying notes to consolidated financial statements.
Peak Resorts Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Dollars
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, April 30, 2016
|
|
13,982,400
|
|
$
|
140
|
|
$
|
82,728
|
|
$
|
(11,234)
|
|
$
|
71,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock warrants
|
|
—
|
|
|
—
|
|
|
3,446
|
|
|
—
|
|
|
3,446
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,241
|
|
|
1,241
|
Dividends declared - common stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,958)
|
|
|
(1,958)
|
Accretive dividend - preferred stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(800)
|
|
|
(800)
|
Stock based compensation
|
|
—
|
|
|
—
|
|
|
198
|
|
|
—
|
|
|
198
|
Balances, April 30, 2017
|
|
13,982,400
|
|
$
|
140
|
|
$
|
86,372
|
|
$
|
(12,751)
|
|
$
|
73,761
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,352
|
|
|
1,352
|
Dividends declared - common stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,916)
|
|
|
(3,916)
|
Dividends declared - preferred, including $400 of accretive dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,600)
|
|
|
(1,600)
|
Dividends paid as restricted stock units
|
|
—
|
|
|
—
|
|
|
36
|
|
|
(36)
|
|
|
—
|
Stock based compensation
|
|
—
|
|
|
—
|
|
|
223
|
|
|
—
|
|
|
223
|
Balances, April 30, 2018
|
|
13,982,400
|
|
$
|
140
|
|
$
|
86,631
|
|
$
|
(16,951)
|
|
$
|
69,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,916
|
|
|
8,916
|
Issuance of common stock
|
|
1,183,432
|
|
|
12
|
|
|
5,964
|
|
|
—
|
|
|
5,976
|
Issuance of common stock warrants
|
|
—
|
|
|
—
|
|
|
3,730
|
|
|
—
|
|
|
3,730
|
Dividends declared - common stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,082)
|
|
|
(4,082)
|
Dividends declared - preferred, including $720 of accretive dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,320)
|
|
|
(2,320)
|
Dividends paid as restricted stock units
|
|
—
|
|
|
—
|
|
|
47
|
|
|
(47)
|
|
|
—
|
Stock based compensation
|
|
—
|
|
|
—
|
|
|
185
|
|
|
—
|
|
|
185
|
Balances, April 30, 2019
|
|
15,165,832
|
|
$
|
152
|
|
$
|
96,557
|
|
$
|
(14,484)
|
|
$
|
82,225
|
See accompanying notes to consolidated financial statements.
Peak Resorts, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Year ended April 30,
|
|
|
2019
|
|
2018
|
|
2017
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,916
|
|
$
|
1,352
|
|
$
|
1,241
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment and intangibles
|
|
|
19,618
|
|
|
13,231
|
|
|
12,713
|
Deferred income tax
|
|
|
2,868
|
|
|
(4,074)
|
|
|
303
|
Amortization of deferred financing costs
|
|
|
1,276
|
|
|
1,084
|
|
|
1,133
|
Loss on disposal of fixed assets
|
|
|
424
|
|
|
—
|
|
|
|
Stock based compensation
|
|
|
185
|
|
|
223
|
|
|
198
|
Non-cash impairment loss
|
|
|
—
|
|
|
2,029
|
|
|
—
|
Amortization of original issue premium
|
|
|
(10)
|
|
|
—
|
|
|
|
Amortization of other liabilities
|
|
|
(36)
|
|
|
(36)
|
|
|
(36)
|
Gain on sale/leaseback
|
|
|
(333)
|
|
|
(333)
|
|
|
(333)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(746)
|
|
|
(3,477)
|
|
|
(311)
|
Inventory
|
|
|
396
|
|
|
244
|
|
|
515
|
Prepaid expenses and other current liabilities
|
|
|
(1,150)
|
|
|
(10,798)
|
|
|
497
|
Other assets
|
|
|
682
|
|
|
(1,149)
|
|
|
155
|
Accounts payable and accrued expenses
|
|
|
(2,794)
|
|
|
(385)
|
|
|
(4,387)
|
Accrued salaries, wages and related taxes and benefits
|
|
|
4,645
|
|
|
(113)
|
|
|
116
|
Unearned revenue
|
|
|
570
|
|
|
1,992
|
|
|
859
|
Net cash provided by (used in) operating activities
|
|
|
34,511
|
|
|
(210)
|
|
|
12,663
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(30,515)
|
|
|
(31,019)
|
|
|
(11,454)
|
Additions to land held for development
|
|
|
(23)
|
|
|
(51)
|
|
|
(41)
|
Business combination, net of cash acquired of $1,026, $0 and $0, respectively
|
|
|
(65,667)
|
|
|
—
|
|
|
—
|
Net cash used in investing activities
|
|
|
(96,205)
|
|
|
(31,070)
|
|
|
(11,495)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Borrowings on lines of credit
|
|
|
—
|
|
|
12,415
|
|
|
10,000
|
Payments on lines of credit
|
|
|
—
|
|
|
(4,500)
|
|
|
—
|
Borrowings on long-term debt
|
|
|
50,168
|
|
|
102
|
|
|
51,533
|
Payments on long-term debt and capital lease obligations
|
|
|
(2,945)
|
|
|
(13,932)
|
|
|
(2,412)
|
Proceeds from issuance of preferred stock
|
|
|
16,197
|
|
|
—
|
|
|
16,201
|
Proceeds from issuance of common stock warrants
|
|
|
3,730
|
|
|
—
|
|
|
3,446
|
Distributions to stockholders
|
|
|
(5,599)
|
|
|
(4,716)
|
|
|
(979)
|
Payment of deferred financing costs
|
|
|
(852)
|
|
|
(138)
|
|
|
(4,470)
|
Payment on line of credit and bridge loans
|
|
|
—
|
|
|
—
|
|
|
(11,000)
|
Release from EB-5 investor funds held in escrow
|
|
|
—
|
|
|
—
|
|
|
(51,504)
|
Net cash provided by (used in) financing activities
|
|
|
60,699
|
|
|
(10,769)
|
|
|
10,815
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash, cash equivalents and restricted cash
|
|
|
(995)
|
|
|
(42,049)
|
|
|
11,983
|
Cash, cash equivalents, and restricted cash, beginning of period
|
|
|
36,429
|
|
|
78,478
|
|
|
66,495
|
Cash, cash equivalents, and restricted cash, end of period
|
|
$
|
35,434
|
|
$
|
36,429
|
|
$
|
78,478
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid income taxes
|
|
$
|
209
|
|
$
|
59
|
|
$
|
40
|
Cash paid interest, including amounts prepaid of $8,229, $8,905 and $0, respectively
|
|
$
|
14,906
|
|
$
|
22,399
|
|
$
|
13,273
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Business combination consideration paid in common stock
|
|
$
|
5,976
|
|
$
|
—
|
|
$
|
—
|
Capital lease agreements to acquire equipment
|
|
$
|
1,294
|
|
$
|
—
|
|
$
|
83
|
Assets under construction included in accounts payable
|
|
$
|
913
|
|
$
|
235
|
|
$
|
542
|
Reclassification of EB-5 funds from escrow to long term debt
|
|
$
|
—
|
|
$
|
500
|
|
$
|
—
|
Accretive dividends - Series A preferred stock
|
|
$
|
720
|
|
$
|
400
|
|
$
|
800
|
Accrued dividends, common and preferred
|
|
$
|
1,462
|
|
$
|
1,379
|
|
$
|
979
|
See accompanying notes to consolidated financial statements.
PEAK RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Peak Resorts, Inc., a Missouri corporation, was formed on September 24, 1997, and together with its subsidiaries, is a leading owner and operator of high-quality, individually branded ski resorts in the United States and operates 17 ski resorts located in the Northeast, Mid-Atlantic and Midwest United States, 16 of which are owned. The majority of the resorts are located within 100 miles of major metropolitan markets, including New York City, Boston, Philadelphia, Washington D.C., Baltimore, Cleveland, Kansas City and St. Louis, enabling day and overnight drive accessibility. The Company’s resorts are comprised of more than 2,300 acres of skiable terrain appropriate to a wide range of ages and abilities. The activities, services and amenities available at the Company’s resorts include skiing, snowboarding, terrain parks, tubing, dining, lodging, equipment rentals and sales, ski and snowboard instruction, golf, zip lines, mountain coasters, mountain biking, hiking, paint ball and other summer activities. Peak Resorts, Inc., together with its subsidiaries, is herein referred to as “the Company.”
The Company’s revenues are highly seasonal in nature. The vast majority of revenue is generated during the ski season, which occurs during the winter months in the Company’s third and fourth fiscal quarters. Some of the Company’s properties offer non-winter attractions, such as golf, roller coasters, swimming, summer concerts and zip rides; however, these activities comprise less than 5% of the Company’s annual revenues. As a result, the Company’s resorts typically experience operating losses and negative operating cash flows during the first and second quarters of each fiscal year.
The seasonality of the Company’s revenues amplifies the effect of events outside its control, especially weather. While the Company’s geographically diverse operating locations help mitigate the effect of weather conditions, adverse weather could lower attendance due to suboptimal skiing conditions or limited access to our resorts, render snowmaking wholly or partially ineffective in maintaining ski conditions, and increase operating costs related to snowmaking efforts and inefficient labor utilization.
The Company aggregates its operating segments into a single reportable segment – Ski Resort Operations. Management has determined a single reportable segment is appropriate based on the uniformity of services and similar operating characteristics.
Principles of consolidation
The consolidated financial statements include the accounts of Peak Resorts, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States requires management to make estimates and assumptions that affect i) the reported amounts of assets and liabilities, ii) the disclosure of contingent assets and liabilities at the date of the financial statements and iii) the reported amounts of revenues and expenses during the reporting period.
Estimates and assumptions are used in accounting for the following significant matters, among others:
|
·
|
|
fair value of assets acquired and liabilities assumed in acquisitions;
|
|
·
|
|
useful lives of property, equipment and intangible assets;
|
|
·
|
|
long-lived and intangible asset impairments, including goodwill;
|
Cash and Cash Equivalents and Restricted Cash
The Company considers i) all credit card and debit card transactions that process in less than seven days and ii) short-term highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The amounts due from banks for credit card and debit card transactions classified as cash and cash equivalents was $1,446 and $1,669 at April 30, 2019 and 2018, respectively.
The provisions of certain of the Company’s debt instruments require that the Company maintain a deposit with the respective lender in an amount equal to the estimated minimum interest payment through December 31 of a given year, and the proceeds from certain borrowing for capital projects are restricted as to use. Restricted cash related to interest payments and capital projects are included on the consolidated balance sheets under the captions restricted cash and restricted cash, construction, respectively.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported with the consolidated balance sheets to the total of the same such amounts shown in the consolidated statements of cash flow:
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
2019
|
|
2018
|
Cash and cash equivalents
|
|
$
|
30,194
|
|
$
|
23,091
|
Restricted cash
|
|
|
5,240
|
|
|
1,163
|
Restricted cash, construction
|
|
|
—
|
|
|
12,175
|
Total cash, cash equivalents, and restricted cash, end of period
|
|
$
|
35,434
|
|
$
|
36,429
|
Accounts Receivable
The Company’s accounts receivable balance consists primarily of amounts due under advance season pass installment plans sold during the fourth quarter of its fiscal year. The Company performs ongoing reviews of the collectability of accounts receivable and, when necessary, establishes reserves for estimated credit losses. In assessing the need for and in determining the amount of any reserve for credit losses, the Company considers the level of historical bad debts, the credit worthiness of significant debtors based on periodic credit evaluations and significant economic developments that could adversely impact upon a customer’s ability to pay amounts owed the Company. As of April 30, 2019 and 2018, the Company determined that no allowance for credit loss was required on its receivable balance as of those dates.
Inventories
The Company’s inventories consist of retail goods and food and beverage products. Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out (FIFO) and average cost methods.
Property and Equipment
Property and equipment is carried at cost net of accumulated depreciation, amortization and impairment charges, if any. Costs to construct significant assets include capitalized interest during the construction and development period. Expenditures for replacements and major betterments or improvements are capitalized; maintenance and repair expenditures are charged to expense as incurred. Depreciation and amortization are determined using both straight-line and accelerated methods over estimated useful lives ranging from 3 to 25 years for land improvements, 5 to 40 years for buildings and improvements and 3 to 25 years for equipment, furniture and fixtures.
Land Held for Development
Land held for development relates to projects in and around its Mount Snow and Liberty Mountain resorts, and is carried at acquisition cost plus costs attributable to its ongoing development, including capitalized interest.
Impairment of Long-Lived Assets
The Company reviews intangible assets with a finite life and other long-lived assets for impairment if facts and circumstances exist that indicate the asset’s useful life is shorter than previously estimated or the carrying amount may
not be recoverable from future operations based on undiscounted expected future cash flows. For impairment testing purposes, long-lived assets are grouped at the lowest level for which there are identifiable cash flows; however, where identifiable cash flows are not independent of the cash flows of other assets, those long-lived assets are evaluated for impairment on a higher level. Impairment losses are recognized in operating results for the amount by which the carrying value of the asset exceeds its fair value. In addition, the remaining useful life of an impaired asset group would be reassessed and revised, if necessary.
Goodwill
Goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of identifiable net tangible and intangible assets acquired. Goodwill and other indefinite-lived intangible assets are not amortized but are reviewed for impairment annually or more frequently if a triggering event were to occur in an interim period. The Company tests for goodwill impairment at the reporting unit level and has concluded that each of its resorts constitutes a reporting unit. As of April 30, 2019, the Company’s goodwill balance is associated with the Hunter Mountain, Liberty Mountain, Whitetail and Roundtop Mountain resorts.
Development Costs
Costs related to major development projects at the Company’s ski resorts, including planning, engineering and permitting are capitalized. When acquiring, developing and constructing real estate assets, the Company capitalizes costs. Capitalization begins when the activities related to development have begun and ceases when activities are substantially complete and the asset is available for use. Costs capitalized include permits, licenses, fees, legal costs, interest, development, and construction costs.
Deferred Financing Costs
Deferred financing costs, consisting of fees and other expenses associated with debt financing, are recorded as a reduction in the carrying amount of the related debt and are amortized to interest expense over the term of the related debt using the straight-line method, which approximates the effective interest method.
Classification of Preferred Stock
The Company considers whether substantive redemption features exist in preferred stock instruments in which case it may be classified outside of equity, such as temporary equity or as a liability. Additionally, the Company evaluates whether preferred stock instruments contains any embedded or stand-alone instruments, which require separate recognition. The Company presents mandatorily redeemable preferred stock as a liability and contingently redeemable preferred stock and preferred stock that is redeemable outside the control of the Company as temporary equity on the consolidated balance sheets.
Stock Warrants
The Company accounts for stock warrants as either equity or liability awards based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded at fair value as of the date of issuance with no further adjustments to their valuation made. Warrants classified as a liability are recorded at fair value at each reporting period, and the corresponding non-cash gain or loss is recorded in current period earnings. When warrants are issued in conjunction with preferred stock and long-term debt, the warrants are recorded based on the proceeds received allocated to the elements’ relative fair values.
Earnings or Loss Per Share
Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average common shares issued and outstanding for the period. Net income (loss) available to common shareholders represents net income adjusted for preferred stock dividends including dividends declared, accretions of discounts on preferred stock issuances and cumulative dividends related to the current dividend period that have not been declared as of year-end. In addition, for diluted earnings (loss) per common share, net income (loss) available to common shareholders can be affected by the conversion of the registrant’s convertible preferred stock. Where the effect of this conversion would be dilutive, net income (loss) available to common shareholders is adjusted by the associated
preferred dividends. This adjusted net income (loss) is divided by the weighted average number of common shares issued and outstanding for each period plus amounts representing the dilutive effect of stock options outstanding, restricted stock, restricted stock units, outstanding warrants, and the dilution resulting from the conversion of the registrant’s convertible preferred stock, if applicable. The effects of convertible preferred stock and outstanding warrants and stock options are excluded from the computation of diluted earnings (loss) per common share in periods in which the effect would be antidilutive. Dilutive potential common shares are calculated using the treasury stock and if-converted methods.
Revenue Recognition
Revenues from operations are generated from a wide variety of sources including snow pass sales, snow sports lessons, equipment rentals, retail product sales, food and beverage operations, and golf course operations. Revenues are recognized as services are provided or products are sold. Sales of season passes and other seasonal products are initially deferred in unearned revenue and recognized ratably over the number of days the Company expects they may be used.
Advertising Costs
Advertising costs are expensed at the time such advertising commences. Advertising expense for the years ended April 30, 2019, 2018 and 2017 was $3,735, $2,890 and $2,700, respectively.
Taxes Collected from Customers
Taxes collected from customers and remitted to tax authorities include local and state sales taxes on snow pass sales as well as food service and retail transactions at the Company’s resorts. Sales taxes collected from customers are recognized as a liability, with such liability being reduced when collected amounts are remitted to the taxing authority.
Income Taxes
Under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”), income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are provided for differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be resolved or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
Deferred tax assets are recognized to the extent the Company determines these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If it is determined that the future realization of deferred tax assets would be in an amount less than their net recorded amount, a valuation allowance would be provided, thereby increasing the provision for income taxes. Conversely, if it is determined that the benefit from realization of such deferred tax assets would exceed their net recorded amount, an adjustment would be made to reduce the valuation allowance thereby reducing the provision for income taxes.
ASC 740 also provides guidance with respect to the accounting for uncertainty in income taxes recognized in a Company’s consolidated financial statements, and it prescribes a recognition threshold and measurement attribute criteria for the consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company does not have any material uncertain tax positions.
With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2014 due to the statute of limitations.
The Company’s policy is to accrue income tax related interest and penalties, if applicable, within income tax expense.
Reclassifications
The accompanying consolidated financial statements for prior years contain certain reclassifications to conform to the presentation used in the current period. Reclassifications had no effect on the reported amounts of net income or stockholders’ equity.
Recently Adopted Accounting Standards
In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016‑09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which provides new guidance related to accounting for share-based payments. This ASU requires entities to record the income tax effect of share-based payments when the awards vest or are settled, and clarifies the cash flow statement presentation of excess tax benefits and withholding tax payments. In addition, the ASU allows for a policy election to account for forfeitures either upon occurrence or by estimating forfeitures. The Company adopted this ASU as of April 30, 2019, and there was no material impact on the Company’s consolidated financial statements upon adoption. The Company has elected to maintain its policy of accounting for the forfeiture of restricted stock units (“RSUs”) by estimating forfeitures.
Recently Issued Accounting Standards
The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, which provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards. As an emerging growth company, the Company may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
In February 2016, the FASB issued ASU 2016‑02, “Leases (Topic 842),” which requires lessees to recognize most leases on the balance sheet. This ASU requires modified retrospective adoption and will be applicable for the Company as of April 30, 2020, with early adoption permitted. The Company is currently evaluating the impact the adoption of this ASU will have on the Company’s consolidated financial statements, including an evaluation of the effect the standard will have on the Company’s deferred gain on sale/leaseback (see Note 10). While the Company expects the pattern of expense for leases it currently classified as operating will be similar between the old and new guidance, it expects adoption of the new standard will result in a significant increase in assets and liabilities for right of use assets and lease obligations, respectively, for leases it currently classifies as operating. As of April 30, 2019, future minimum lease payments under operating leases was $14,699.
In May 2014, the FASB issued ASU 2014‑09, “Revenue from Contracts with Customers (Topic 606),” which was subsequently modified by other ASUs from 2015 through 2017. This ASU, as amended, provides new guidance for the recognition of revenue and provides for a five-step analysis of transactions to determine when and how revenue is recognized. This ASU establishes a core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This ASU may be adopted using either a full or modified retrospective approach and will be applicable for the Company as of April 30, 2020, with early adoption permitted. The Company expects to adopt this ASU using the modified retrospective approach and does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.
Note 2. The Snow Time Acquisition
On November 21, 2018, the Company completed its acquisition of all of the issued and outstanding shares of common stock of Snow Time, Inc. (“Snow Time”) pursuant to the Stock Purchase Agreement (the “Purchase Agreement”) entered into with the stockholders of Snow Time (the “Sellers”), dated as of September 24, 2018 (the “Snow Time Acquisition”). Consideration for the Snow Time Acquisition totaled $71,643, which consisted of $65,667 in cash, net of cash acquired of $1,026, and 1,183,432 shares of common stock with a value of $5,976 based on the Company’s closing stock price on the day the transaction closed. The number of shares issued to the Sellers was determined pursuant to the Purchase Agreement, which provided that the Sellers had the right to receive $6,000 of common stock as determined using the average closing price of the common stock for the 20 trading days immediately preceding the closing, which was $5.07. The Company acquired Snow Time in order to expand its portfolio of resorts.
Snow Time’s resort properties include Liberty Mountain Resort, Roundtop Mountain Resort and Whitetail Resort, which are day and overnight drive ski resorts located in southern Pennsylvania serving the Baltimore and Washington, D.C. metropolitan areas. The acquired resorts also include two 18-hole golf courses, a 115-room hotel and conference center and more than 20 food and beverage locations across the three resorts, among other amenities.
Net revenue and earnings before income tax from the resorts acquired in the Snow Time Acquisition of $42,335 and $13,283, respectively, was included in the consolidated statements of operations for the year ended April 30, 2019.
Purchase price allocation
The following table summarizes the Company’s preliminary estimate of the fair value of the assets acquired and liabilities assumed in the Snow Time Acquisition as of November 21, 2018. The Company is in the process of completing various valuation studies which, when completed, may impact the estimated fair value of property and equipment and deferred taxes.
|
|
|
|
Tangible assets and liabilities:
|
|
|
|
Accounts receivable
|
|
$
|
208
|
Inventories
|
|
|
969
|
Property and equipment
|
|
|
70,433
|
Land held for development
|
|
|
1,000
|
Other current assets
|
|
|
1,103
|
Accounts payable and accrued expenses
|
|
|
(4,166)
|
Accrued salaries, wages and related taxes and benefits
|
|
|
(714)
|
Unearned revenue
|
|
|
(5,499)
|
Deferred income taxes
|
|
|
(7,707)
|
Other long-term liabilities
|
|
|
(300)
|
Intangible assets:
|
|
|
|
Identifiable intangible asset
|
|
|
2,525
|
Goodwill
|
|
|
13,791
|
Total preliminary purchase price allocation
|
|
$
|
71,643
|
Goodwill and Identifiable Intangible Assets
Identifiable intangible assets acquired include Snow Time’s customer relationships, trade names, liquor licenses, and water and land use agreements. Values established for these items were $944, $689, $490 and $402, respectively. The liquor licenses and certain of the water rights agreements are considered indefinite lived intangible assets, and the estimated useful lives of the customer lists, trade names and the remaining favorable agreements are 5 years, 15 years and 11 years, respectively.
Goodwill is calculated as the excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired. Based upon the preliminary estimated fair value of the net tangible assets acquired and the values of the identifiable intangible assets acquired, the goodwill recognized in the Snow Time Acquisition was $13,791 and represents the value of the assembled workforce, the additional value to the Company expected from growth as the Company expands its market position in the Mid-Atlantic United States and other intangible benefits. Approximately $646 of the goodwill is expected to be deductible for income tax purposes.
Pro Forma Information
The following unaudited pro forma information presents the combined results of operations of Peak Resorts, Inc. and Snow Time for the years ended April 30, 2019 and 2018, as if the Snow Time Acquisition had been completed on May 1, 2017, with adjustments to give effect to pro forma events that are directly attributable to the Snow Time Acquisition. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings which may result from the consolidation of the operations of the companies. Accordingly, these unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined company that would have been achieved had the acquisition occurred at the beginning of each period presented, nor are they intended to represent or be indicative of future results of operations.
The following table summarizes the unaudited pro forma revenues and earnings of the combined companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended April 30,
|
|
2019
|
|
2018
|
Net revenue
|
$
|
192,527
|
|
$
|
180,297
|
Net loss
|
$
|
(2,676)
|
|
$
|
(5,887)
|
The pro forma net income was adjusted to give effect to pro forma events which are directly attributable to the Snow Time Acquisition. Adjustments to the pro forma net income for the year ended April 30, 2019 included: i) the exclusion of $1,045 of acquisition-related costs incurred by Peak Resorts, Inc., ii) the addition of interest and financing cost amortization of $2,507 and iii) the increase of $2,942 of net expense related to fair value adjustments to acquisition-date net assets acquired. Adjustments to the pro forma net income for the year ended April 30, 2018 included the addition of interest and financing cost amortization of $3,892 and the increase of $5,538 of net expense related to fair value adjustments to acquisition-date net assets acquired.
Transaction Costs
During the year ended April 30, 2019, the Company incurred $1,045 of acquisition related costs which have been included in general and administrative costs in the consolidated statements of operations.
Note 3. Property and Equipment
The composition of property and equipment is as follows:
|
|
|
|
|
|
|
|
|
April 30,
|
|
April 30,
|
|
|
2019
|
|
2018
|
Land and improvements
|
|
$
|
73,486
|
|
$
|
54,785
|
Buildings and improvements
|
|
|
141,439
|
|
|
75,321
|
Equipment, furniture and fixtures
|
|
|
201,773
|
|
|
175,532
|
Construction in progress
|
|
|
8,198
|
|
|
16,787
|
|
|
|
424,896
|
|
|
322,425
|
Less: accumulated depreciation and amortization
|
|
|
137,775
|
|
|
118,330
|
|
|
$
|
287,121
|
|
$
|
204,095
|
Depreciation expense for the years ended April 30, 2019, 2018 and 2017, was $19,468, $13,174 and $12,655, respectively. As of April 30, 2019 and 2018, equipment under capital leases with a cost of $9,935 and $7,753, respectively, and accumulated depreciation of $2,109 and $1,368, respectively, was included in property and equipment.
Note 4. Goodwill and Intangible Assets
Goodwill
As of April 30, 2019, the Company had goodwill of $18,173 related to acquisitions. The Company conducts an assessment of the carrying value of goodwill annually, as of last day of March, or more frequently if circumstances arise which would indicate the fair value of a reporting unit with goodwill is below its carrying amount. The Company did not record any impairment of goodwill for the years ended April 30, 2019 or 2017. As a result of the annual assessment as of March 31, 2018, the Company recorded an impairment loss of $443 of goodwill associated with its Alpine Valley ski resort. The Company used a discounted cash flow approach with Level 2 and Level 3 inputs. As of April 30, 2019, the balance of goodwill relates to the Company’s Hunter Mountain, Liberty Mountain, Whitetail and Roundtop Mountain ski resorts.
Changes to the carrying value of goodwill over the three years ended April 30, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
Impairment
|
|
April 30,
|
|
|
|
April 30,
|
|
2017
|
|
Losses
|
|
2018
|
|
Additions
|
|
2019
|
Goodwill
|
$
|
4,825
|
|
$
|
—
|
|
$
|
4,825
|
|
$
|
13,791
|
|
$
|
18,616
|
Accumulated impairment losses
|
|
—
|
|
|
(443)
|
|
|
(443)
|
|
|
—
|
|
|
(443)
|
|
$
|
4,825
|
|
$
|
(443)
|
|
$
|
4,382
|
|
$
|
13,791
|
|
$
|
18,173
|
Intangible Assets
The components of intangible assets subject to amortization are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2019
|
|
April 30, 2018
|
|
|
Gross
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
carrying
|
|
Accumulated
|
|
Net book
|
|
carrying
|
|
Accumulated
|
|
Net book
|
|
|
amount
|
|
amortization
|
|
value
|
|
amount
|
|
amortization
|
|
value
|
Trade names
|
|
$
|
1,457
|
|
$
|
191
|
|
$
|
1,266
|
|
$
|
768
|
|
$
|
120
|
|
$
|
648
|
Customer relationships
|
|
|
1,041
|
|
|
92
|
|
|
949
|
|
|
97
|
|
|
14
|
|
|
83
|
Water rights agreements
|
|
|
25
|
|
|
1
|
|
|
24
|
|
|
—
|
|
|
—
|
|
|
—
|
Total definite
|
|
|
2,523
|
|
|
284
|
|
|
2,239
|
|
|
865
|
|
|
134
|
|
|
731
|
Liquor licenses
|
|
|
490
|
|
|
—
|
|
|
490
|
|
|
—
|
|
|
—
|
|
|
—
|
Water and land use agreements
|
|
|
377
|
|
|
—
|
|
|
377
|
|
|
—
|
|
|
—
|
|
|
—
|
Total indefinite
|
|
|
867
|
|
|
—
|
|
|
867
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
3,390
|
|
$
|
284
|
|
$
|
3,106
|
|
$
|
865
|
|
$
|
134
|
|
$
|
731
|
Intangible amortization expense for the years ended April 30, 2019, 2018 and 2017, was $150, $57 and $58, respectively. Trade names, customer relationships and certain water rights agreements are being amortized over 5 to 15 years, 15 years and 11 years, respectively. The expected future annual amortization expense for definite-lived intangible assets is $268 each year for the next five fiscal years and $899 thereafter.
5. Long‑term Debt and Revolving Credit Facilities
The composition of long-term debt at April 30, is as follows:
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
EPR Secured Notes due 2034
|
|
$
|
93,162
|
|
$
|
93,162
|
EPR Secured Notes due 2036
|
|
|
21,000
|
|
|
21,000
|
EB-5 Development Notes due 2021
|
|
|
52,000
|
|
|
52,000
|
Term Loan due 2020, related party debt
|
|
|
50,058
|
|
|
—
|
Wildcat Mountain Note due 2020
|
|
|
3,030
|
|
|
3,231
|
Capital Leases
|
|
|
1,746
|
|
|
2,426
|
Other borrowings
|
|
|
514
|
|
|
1,184
|
Less: Unamortized debt issuance costs
|
|
|
(4,128)
|
|
|
(4,552)
|
|
|
|
217,382
|
|
|
168,451
|
Less: Current maturities
|
|
|
(1,513)
|
|
|
(2,614)
|
|
|
$
|
215,869
|
|
$
|
165,837
|
EPR Secured Notes
The Company has various secured borrowings (the “EPR Secured Notes”) under a master credit and security agreement and other related agreements, as amended, (together, the “EPR Agreements”) with EPR Properties and its affiliates (“EPR”). Each of the EPR Secured Notes is secured by one or more of the Company’s resort properties and is guaranteed by the Company. The EPR Secured Notes bear interest at specified interest rates which are subject to increase each year by the lesser of i) three times the percentage increase in the Consumer Price Index (as defined) or ii) a capped index (the “Capped CPI Index”) which is 1.75% for the Hunter Mountain Secured Note and 1.50% for all other notes. The Company has determined the Capped CPI Index features represent an embedded derivative; however, this
derivative does not require bifurcation and separate presentation at fair value because the Capped CPI Index feature is closely related to the debt instrument.
The following table illustrates the potential future interest rates applicable to the EPR Secured Notes for each of the next five years, assuming rates increase by the Capped CPI Index:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boston Mills/Brandywine
|
|
|
|
|
|
Hunter Mountain Secured
|
|
Alpine Valley Secured
|
|
and Jack Frost/Big
|
|
Rates as of April 30,
|
|
Mount Snow Secured Note
|
|
Note
|
|
Note
|
|
Boulder Secured Notes
|
|
2019
|
|
11.61
|
%
|
8.43
|
%
|
11.04
|
%
|
10.59
|
%
|
2020
|
|
11.78
|
%
|
8.58
|
%
|
11.21
|
%
|
10.75
|
%
|
2021
|
|
11.96
|
%
|
8.73
|
%
|
11.38
|
%
|
10.91
|
%
|
2022
|
|
12.14
|
%
|
8.88
|
%
|
11.55
|
%
|
11.07
|
%
|
2023
|
|
12.32
|
%
|
9.04
|
%
|
11.72
|
%
|
11.24
|
%
|
2024
|
|
12.50
|
%
|
9.20
|
%
|
11.90
|
%
|
11.41
|
%
|
Financial covenants set forth in the EPR Agreements consist of i) a maximum leverage ratio (as defined) of 65%, above which the Company and certain of its subsidiaries are prohibited from incurring additional indebtedness, ii) a consolidated fixed charge coverage ratio (as defined) of 1.50:1.00 on a rolling four quarter basis, and iii) a prohibition of the Company paying dividends if the Company is in default (as defined) or if the fixed charge coverage ratio (as defined) is below 1.25:1.00. During the first two quarters of fiscal year 2017, the Company’s fixed charge coverage ratio fell below 1.25:1.00 and, as a result, the Company was prohibited from paying dividends. As of April 30, 2019, the Company was in compliance with all debt covenants.
Non-financial covenants set forth in the EPR Agreements include i) restrictions on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence of certain additional debt and liens and ii) a requirement that the Company obtain the consent of EPR prior to redeeming any preferred or common stock.
The EPR Agreements also provide that none of the EPR Secured Notes may be prepaid without the consent of EPR and that any default under any of the EPR Secured Notes, lease agreements between the Company and EPR, or credit facilities with other lenders would constitute a default under all EPR Secured Notes and lease agreements. A change in control (as defined) would also constitute an event of default.
An additional contingent interest payment would be due to EPR if, on a calendar year basis, the gross receipts (as defined) from the properties securing the EPR Secured Notes (the “Gross Receipts”) are more than the result (the “Interest Quotient”) of dividing the total interest charges for the EPR Secured Notes by a certain percentage rate (the “Additional Interest Rate”). In such a case, the additional interest payment would equal the difference between the Gross Receipts and the Interest Quotient multiplied by the Additional Interest Rate. This calculation is made on an aggregated basis for the notes secured by the Company’s Jack Frost, Big Boulder, Boston Mills, Brandywine, Alpine Valley and Hunter Mountain ski resorts, where the Additional Interest Rate is 10%, and is made on a standalone basis for the note secured by the Company’s Mount Snow ski resort, where the Additional Interest Rate is 12%. The Company has not made any additional interest payments on the EPR Secured Notes based on these provisions.
The EPR Agreements grant EPR certain other rights including i) an option to purchase the Company’s Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley resorts that is exercisable no sooner than two years and no later than one year prior to the maturity dates of the applicable promissory notes for such properties, with any closings to be held on the maturity dates, ii) a right of first refusal through 2021, subject to certain conditions, to provide all or a portion of the financing associated with any purchase, ground lease, sale/leaseback, management or financing transaction contemplated by the Company with respect to any new or existing ski resort properties, and iii) a right of first refusal through 2021 to purchase the Company’s Attitash ski resort in the event the Company were to desire to sell the Attitash ski resort. To date, EPR has not exercised any purchase options. If EPR exercises a purchase option, EPR will enter into an agreement with the Company for the lease of each acquired property for an initial term of 20 years, plus options to extend the lease for two additional periods of ten years each.
Under the terms of the various borrowing agreements the Company has with EPR, it is required to, at EPR’s discretion, either prepay a certain amount of interest payments to EPR or deposit the equivalent amount of cash in a restricted
account to fund interest payments to EPR. As of April 30, 2019 and 2018, the Company had prepaid interest to EPR of $8,229 and $8,905, respectively, which is included in the caption prepaid expenses and deposits.
The EPR Secured Notes include the following:
The Alpine Valley Secured Note.
The $4,550 Alpine Valley Secured Note provides for interest only payments through its maturity on December 1, 2034. As of April 30, 2019, interest on this note accrued at a rate of 11.04%. This note is secured by a mortgage and other interests in the Company’s Alpine Valley ski resort.
The Boston Mills/Brandywine Secured Note.
The $23,294 Boston Mills/Brandywine Secured Note provides for interest only payments through its maturity on December 1, 2034. As of April 30, 2019, interest on this note accrued at a rate of 10.59%. This note is secured by a mortgage and other interests in the Company’s Boston Mills and Brandywine ski resorts.
The Jack Frost/Big Boulder Secured Note.
The $14,268 Jack Frost/Big Boulder Secured Note provides for interest only payments through its maturity on December 1, 2034. As of April 30, 2019, interest on this note accrued at a rate of 10.59%. This note is secured by a mortgage and other interests in the Company’s Jack Frost and Big Boulder ski resorts.
The Mount Snow Secured Note.
The $51,050 Mount Snow Secured Note provides for interest only payments through its maturity on December 1, 2034. As of April 30, 2019, interest on this note accrued at a rate of 11.61%. This note is secured by a mortgage and other interests in the Company’s Mount Snow ski resort.
The Hunter Mountain Secured Note.
The $21,000 Hunter Mountain Secured Note provides for interest only payments through its maturity on January 5, 2036. As of April 30, 2019, interest on this note accrued at a rate of 8.43%. This note is secured by a mortgage and other interests in the Company’s Hunter Mountain ski resort.
EB‑5 Development Notes
The Company serves as the general partner for two limited partnerships, Carinthia Group 1, LP and Carinthia Group 2, LP (together, the “Limited Partnerships”), which were formed to raise $52,000 through the Immigrant Investor Program administered by the U.S. Citizenship and Immigration Services (“USCIS”) pursuant to the Immigration and Nationality Act (the “EB‑5 Program”). The EB‑5 Program was created to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors. The program allocates immigrant visas to qualified individuals (“EB‑5 Investors”) seeking lawful permanent resident status based on their investment in a U.S. commercial enterprise.
On December 27, 2016, the Company borrowed $52,000 from the Limited Partnerships to fund two capital projects at its Mount Snow ski resort.
The development projects include i) the West Lake Water Project, which was completed during fiscal 2018 and included the construction of a new water storage reservoir for snowmaking, and ii) the Carinthia Ski Lodge Project, which was completed during fiscal 2019 and included the construction of a new skier service building. The amounts were borrowed through two loan agreements, which provided $30,000 for the West Lake Water Project and $22,000 for the Carinthia Ski Lodge project (together, the “EB‑5 Development Notes”).
Amounts outstanding under the EB‑5 Development Notes accrue simple interest at a fixed rate of 1.0% per annum until the maturity date, which is December 27, 2021, subject to extension of up to an additional two years at the option of the borrowers with lender consent. If the maturity date is extended, amounts outstanding under the EB‑5 Development Notes will accrue simple interest at a fixed rate of 7.0% per annum during the first year of extension and a fixed rate of 10.0% per annum during the second year of extension.
Upon an event of default (as defined), amounts outstanding under the EB‑5 Development Notes shall bear interest at the rate of 5.0% per annum, subject to the extension increases. For so long as amounts under the EB‑5 Development Notes are outstanding, the Company is restricted from taking certain actions without the consent of the lenders, including, but not limited to transferring or disposing of the properties or assets financed with the loan proceeds. In addition, the Company is prohibited from prepaying outstanding amounts owed if such prepayment would jeopardize any of the EB‑5 Investors from being admitted to the U.S. via the EB‑5 Program.
The Company has evaluated the facts and circumstances surrounding the Limited Partnerships and determined the Limited Partnerships do not require consolidation in the Company’s financial statements as the Company does not have a variable interest in the Limited Partnerships under either the variable interest model or the voting interest model, as substantive participation rights give the limited partners the ability to effectively participate in significant decisions that would be expected to be made in the ordinary course of the Limited Partnerships’ business and thereby preclude the Company as general partner from exercising unilateral control over the partnerships.
Term Loan due 2020 – Related Party Debt
The Company financed part of the cash consideration paid in the Snow Time Acquisition with a $50,000 senior secured term loan (the “Term Loan”) from Cap 1 LLC (“Cap 1”) pursuant to the terms of the Credit Agreement entered into with Cap 1 on November 21, 2018.
Cap 1 is considered a related party because of the level of its ownership interest, as described below, in the Company.
The Term Loan was issued at a premium of $68, which is being amortized over the loans term. As of April 30, 2019, the carrying value of the Term Loan reflects $58 of unamortized original issue premium.
The Term Loan has an initial term of two years and bears interest at 6.95%, payable quarterly, subject to a 2.0% increase upon an event of default. The Term Loan is secured by all real property on which the Snow Time resorts are located and improvements thereon. Amounts due under the Term Loan may be prepaid without penalty.
The Term Loan matures on November 30, 2020 and may be extended for an additional one-year period at the Company’s option, so long as no event of default has occurred. If extended, the Company has agreed to issue Cap 1 a warrant to purchase 666,667 shares of common stock, exercisable immediately from the issuance date and for up to ten years from the date of issuance, at $7.50 per share (the “Extension Warrant”). The Extension Warrant was not issued upon closing the Term Loan and will only be issued if the Company exercises the one-year Term Loan extension right.
As consideration for the Term Loan and in lieu of fees, the Company also issued Cap 1 a warrant to purchase 1,750,000 shares of common stock at $10.00 per share, which is exercisable immediately and expires ten years from the date of issuance (the “Financing Warrant”).
As a condition to the funding of the Term Loan, and for aggregate consideration of $20.0 million, the Company exercised the existing Cap 1 Option to issue to Cap 1 an additional 20,000 shares of
Series A Cumulative Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”),
along with additional warrants to purchase shares of common stock. See Note 6. The Company used the Cap 1 Option proceeds to fund the remainder of the cash portion of the Acquisition purchase price.
Related Party Nature of Cap 1
Cap 1 and its affiliates currently own 1,797,705 shares of the Company’s common stock, 40,000 shares of Series A Preferred Stock and warrants to purchase up to an aggregate of 7,188,036 shares of the Company’s common stock at prices ranging from $6.50 to $10.00 per share. See Note 6 for information regarding the Company’s transactions with Cap 1 and a summary of the Series A Preferred Stock and warrant terms and conditions.
Because Cap 1 is entitled to vote its Series A Preferred Stock on an as-converted basis, Cap 1 and its affiliates currently own approximately 37.9% of the Company’s outstanding voting power. Assuming the conversion of the Series A Preferred Stock and exercise of all warrants held by Cap 1, Cap 1 would own approximately 53.4% of the outstanding shares of our common stock and voting power. Pursuant to the terms of the Amended and Restated Voting Agreement entered into between the Company, Cap 1 and the Management Stockholders in connection with the closing of the Term Loan in November 2018, Cap 1 has agreed that for up to three years after the issuance date or until a change of control, it will vote any shares of common stock issued upon exercise of any warrants held by Cap 1 in favor of the board of directors’ recommendations as to the election, removal or replacement of directors and all other proposals submitted to the vote of stockholders, except in the case of non-routine matters such as tender offers, mergers, acquisitions and similar transactions.
Cap 1 also has the right to nominate a director to the Company’s board of directors so long as it beneficially owns, on an as-converted basis, at least 20% of the outstanding equity securities of the Company, subject to satisfaction of reasonable qualification standards and Nominating and Corporate Governance Committee approval of the nominee. See Note 6.
During the year ended April 30, 2019, the Company paid Cap 1 $1,265 of interest related to the Term Loan, and
as of April 30, 2019, the Company had $1,738 in restricted cash to fund a debt service account for the estimated interest payments due through the end of calendar 2019.
Wildcat Mountain Note
The Wildcat Mountain Note due December 22, 2020 bears interest at a fixed rate of 4.00% and is secured by a security interest in the improvements at the Company’s Wildcat Mountain ski resort. The loan is payable in monthly principal and interest payments of $27 with a balloon payment of $2,675 due upon maturity.
Future Debt Payments
The schedule of principal payments for long-term debt at April 30, 2019, is as follows:
|
|
|
|
Year Ended April 30,
|
|
|
|
2020
|
|
$
|
1,513
|
2021
|
|
|
53,233
|
2022
|
|
|
52,519
|
2023
|
|
|
31
|
2024
|
|
|
5
|
Thereafter
|
|
|
114,209
|
|
|
$
|
221,510
|
Amortization of deferred financing costs for the years ended April 30, 2019, 2018 and 2017 was $1,276, $1,084 and $1,133, respectively. Amortization of deferred financing costs are estimated to be $1,392, $1,191, $664, $70, $70 and $741 for the years ended April 30, 2020, 2021, 2022, 2023, 2024 and thereafter, respectively.
Royal Banks of Missouri Credit Facilities
In addition to the credit facilities listed above, the Company maintains a $10,000 working capital line of credit and a $15,000 acquisition line of credit with Royal Banks of Missouri pursuant to a credit agreement that was renewed by the Company and Royal Banks of Missouri on December 27, 2018 (the “Royal Banks Credit Facility”). The Royal Banks Credit Facility expires on December 27, 2019. As of April 30, 2019, nothing was outstanding under the working capital line of credit and $12,415 was outstanding under the acquisition line of credit, and $10,000 and $2,585 was unused and available under the lines of credit, respectively.
The Royal Banks Credit Facility was renewed for one year, and requires monthly interest only installments charged at the bank’s prime rate plus 1.00% per annum, with any outstanding principal amounts due in December 2019. As of April 30, 2019, the Company had $548 in restricted cash to fund a debt service account for the estimated interest payments due through the end of calendar 2019 in connection with outstanding loans under the Royal Banks Credit Facility. The Company is required to maintain a minimum debt service coverage ratio (as defined in the credit agreement) of 1.25:1.00. In addition, were the Company’s fixed charge coverage ratio (as defined in the credit agreement) to fall below 1.50:1.00, the Company would be required to prefund certain other debt service payments, and should the ratio fall below 1.25:1.00, the Company would be prohibited from paying dividends. The Royal Banks Credit Facility is secured by the assets of the Company’s subsidiaries which operate its Hidden Valley, Paoli Peaks, Snow Creek, Crotched Mountain and Attitash resorts.
6. Series A Preferred Stock and Stock Warrants
Series A Preferred Stock
On August 22, 2016, the Company entered into a private placement (the “Private Placement”) securities purchase agreement (the “Securities Purchase Agreement”) with CAP 1 and affiliates in connection with the sale and issuance of
$20,000 in Series A Preferred Stock and three warrants (the “2016 Warrants”) to purchase shares of the Company’s common stock, as follows: (i) 1,538,462 shares of Common Stock at $6.50 per share; (ii) 625,000 shares of Common Stock at $8.00 per share; and (iii) 555,556 shares of Common Stock at $9.00 per share. The Company completed the Private Placement on November 2, 2016.
As a condition to the funding of the Term Loan, and for aggregate consideration of $20,000, on November 21, 2018, the Company exercised its existing option (the “Cap 1 Option”) under the Securities Purchase Agreement to issue to Cap 1 an additional 20,000 shares of
Series A Preferred Stock
, along with additional warrants (the “2018 Option Warrants”) to purchase shares of common stock that expire 12 years from the date of issuance, as follows: i) 1,538,462 shares of common stock at $6.50 per share; ii) 625,000 shares of common stock at $8.00 per share; and iii) 555,556 shares of common stock at $9.00 per share.
The rights and preferences of the Series A Preferred Stock include, among other things, the following:
Seniority
.
The Series A Preferred Stock generally rank, with respect to liquidation, dividends and redemption, i) senior to common stock and to any other junior capital stock; ii) on parity with any parity capital stock; iii) junior to any senior capital stock; and iv) junior to all of the Company’s existing and future indebtedness (as defined). Until the earlier of the date that no Series A Stock remains outstanding and January 1, 2027, the Company is prohibited from paying cash dividends on common stock if there are accrued and unpaid dividends with respect to the Series A Preferred Stock.
Dividend Rights
. From and after the date that is nine months from the date of issuance, cumulative dividends accrue on the Series A Preferred Stock on a daily basis in arrears at the rate of 8% per annum on the liquidation value of $1,000 per share. All accrued and accumulated dividends on the Series A Preferred Stock shall be paid prior and in preference to any dividend or distribution on or redemption of any junior securities, provided that the Company may, prior to the payment of all accrued and accumulated dividends on the Series A Preferred Stock, i) declare or pay any dividend or distribution payable on the common stock in shares of common stock; or ii) repurchase common stock held by employees or consultants of the Company upon termination of their employment or services pursuant to agreements providing for such repurchase. The Company may also redeem or repurchase junior securities at any time when there are no accrued or accumulated unpaid dividends on the Series A Preferred Stock.
Liquidation
.
In the event of any liquidation (as defined), dissolution or winding up of the Company, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment shall be made to the holders of junior securities, and subject to the rights of any parity or senior securities, an amount in cash equal to $1,000 per share plus all unpaid accrued and accumulated dividends.
Redemption
.
The Series A Preferred Stock is subject to redemption (i) at the option of the Company at a price of $1,250 per share, plus all unpaid accrued and accumulated dividends, at any time on or after the third anniversary of the issuance of the Series A Preferred Stock that the average closing price of the Company’s common stock on the 30 trading days preceding notice of the exercise of the redemption right is greater than $8.18; or (ii) at the option of the holder, upon a change of control. The Company is not accreting the Series A Preferred Stock to its redemption amount because it believes that it is not probable that the Series A Preferred Stock is redeemable. With respect to (i), even upon satisfaction of the time and price contingencies, the Company must exercise its option to redeem. The holder of the Series A Preferred Stock does not have representation on the Company’s board of directors sufficient to control such actions of the Company. With respect to (ii), the Company does not deem a change of control, as defined in the Certificate of Designation, probable as of and for the year ended April 30, 2019.
Conversion
.
Upon the earlier of a change of control or the nine-month anniversary of the date of issuance, the holders of the Series A Preferred Stock have the right to convert the Series A Preferred Stock into shares of common stock equal to the number of shares to be converted, times the liquidation value, divided by the conversion price and receive in cash all accrued and unpaid dividends. The initial conversion price per share is $6.29, subject to adjustment pursuant to the terms of the Certificate of Designation. Holders of the Series A Preferred Stock also have basic anti-dilution rights.
Voting Rights
. Each holder of Series A Preferred Stock shall be entitled to vote, on an as-converted basis, with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company.
Stock Warrants
Each of the 2016 Warrants and 2018 Option Warrants may be exercised in whole or in part at any time for a period of 12 years from the date of issuance. The Financing Warrant may be exercised in whole or in part at any time for a period of 10 years from the date of issuance. Warrants issued during the year ended April 30, 2019, had a weighted average exercise period of 11.2 years.
The following table shows warrant activity for the years ending April 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Warrants
|
|
Exercise Price
|
Outstanding - April 30, 2017
|
|
2,719,018
|
|
$
|
7.36
|
Warrants granted
|
|
—
|
|
|
—
|
Outstanding - April 30, 2018
|
|
2,719,018
|
|
|
7.36
|
Warrants granted
|
|
4,469,018
|
|
|
8.39
|
Outstanding - April 30, 2019
|
|
7,188,036
|
|
$
|
8.00
|
Registration Rights.
The Company entered into a Registration Rights Agreement with Cap 1, dated November 21, 2018, granting certain registration rights with respect to the shares of common stock underlying the Series A Preferred Stock, 2018 Option Warrants and Financing Warrant. The terms and registration rights applicable to the Extension Warrant, if issued, are expected to be substantially the same as those applicable to the Financing Warrant. Identical registration rights were granted to Cap 1 with respect to the Series A Preferred Stock and 2016 Warrants issued to Cap 1 in November 2016 in connection with the Private Placement.
Stockholders’ Agreement
On November 21, 2018, in connection with the closing of the Term Loan and the Snow Time acquisition, the Company, Cap 1 and certain members of the Company’s management (the “Management Stockholders”) entered into the Amended and Restated Stockholders’ Agreement (the “Stockholders’ Agreement”) which added the new shares of Series A Preferred Stock, 2018 Option Warrants, Financing Warrant and Extension Warrant, and the shares of Common Stock underlying such securities, to the scope of Stockholders’ Agreement entered into by the parties in 2016. The Stockholders’ Agreement otherwise remains unchanged and i) provides Cap 1 a right to nominate a director to sit on the Company’s board of directors so long as Cap 1 beneficially owns, on a fully diluted, as-converted basis, at least 20% of the outstanding equity securities of the Company, ii) restricts transfers of the Company’s securities by Cap 1 and the Management Stockholders, iii) provides Cap 1 with a right of first offer to purchase shares of the Company’s common stock from the Management Stockholders, iv) grants Cap 1 preemptive rights with respect to future issuances of securities, and v) requires Cap 1’s approval, so long as it meets certain ownership requirements (as defined), in order for the Company to a) materially change the nature of its business or b) acquire or dispose of any resorts, assets or properties for aggregate consideration equal to or greater than 30% of the enterprise value (as defined) of the Company and its subsidiaries.
7. Restructuring and Impairment
During the years ended April 30, 2019 and 2018, the Company incurred restructuring and impairment charges of $190 and $1,692 respectively, in connection with its decision to cease operation of a restaurant and certain hotel-like amenities at a condominium building adjacent to its Attitash ski resort (the “Attitash Hotel Closure”). In connection with the Company’s 2007 acquisition of its Attitash ski resort, the Company acquired property and equipment constituting the commercial core of a condominium building located adjacent to the resort. Since this acquisition, the Company i) provided management services to the condominium’s owners association under a management services agreement (the “Management Services Agreement”), ii) sponsored a rental management program whereby unoccupied condominium units were rented as hotel rooms, and iii) operated restaurant and other hotel-type amenities. In December 2017, the Company determined it would not be able to renew the Management Services Agreement upon its expiration on April 30, 2018 and, as a result, decided to terminate the rental management program and cease operation of the hotel of that date. Total charges related to the Attitash Hotel Closure include $1,586 of asset impairment charges, $36 severance expense and $260 of other costs. As of April 30, 2019, no amounts were accrued for costs associated with the Attitash Hotel Closure, and the Company expects it will not incur future additional charges related to the Attitash Hotel Closure.
8. Equity Incentive Plan
The Company’s 2014 Equity incentive Plan, (the “2014 Plan”) was adopted in November 2014, and provides for grants of RSUs, stock options, restricted stock awards, performance share units and other stock-based awards to the Company’s employees and directors. Subject to additions and adjustments, 559,296 shares were authorized for issuance under the 2014 Plan. As of April 30, 2019, 357,001 shares were available for future grants, and in May 2019 the Company granted an additional 140,000 RSUs.
The 2014 Plan provides the compensation committee of the Company’s board of directors the discretion to grant awards in any form and with any terms permitted by the 2014 Plan. All awards granted since the inception of the 2014 Plan through April 30, 2019 were in the form of RSUs with vesting on the first anniversary of the grant date.
Stock Compensation Expense
The Company recognizes expense associated with stock-based awards ratably over the requisite service period based on the grant date fair value of the award. For RSUs, the grant date fair value is the closing price of the Company’s common stock on the date the grant is made. Stock compensation expense of $185, $223 and $198 was recorded in general and administrative expenses in the consolidated statements of operations for the years ended April 30, 2019, 2018 and 2017, respectively associated with this plan. As of April 30, 2019, unrecognized compensation expense related to grants of RSUs was $80 and will be recognized over a period of approximately six months.
Restricted Stock Units
RSUs are generally convertible to shares of the Company’s common stock upon vesting; however, for all of the RSUs granted since the inception of the 2014 Plan through April 30, 2019, the RSUs are not convertible until six months after the grantee leaves employment with the Company or ceases to be a member of the Company’s board of directors. Outstanding RSUs accrue dividends in the form of additional RSUs based on the market price of the Company’s common stock on the date cash dividends are paid to the Company’s common stockholders.
The following table summarizes RSU activity for the years ended April 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
|
Grant Date
|
|
|
|
|
Grant Date
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Per Share
|
|
|
|
|
Per Share
|
|
|
|
|
Per Share
|
|
|
|
|
|
Fair Value
|
|
|
|
|
Fair Value
|
|
|
|
|
Fair Value
|
Outstanding, beginning of year
|
|
146,780
|
|
$
|
5.00
|
|
96,587
|
|
$
|
5.31
|
|
63,741
|
|
$
|
5.90
|
RSU awards granted
|
|
36,195
|
|
|
5.18
|
|
43,600
|
|
|
4.30
|
|
46,770
|
|
|
4.74
|
Dividends paid in RSUs
|
|
9,596
|
|
|
5.02
|
|
6,593
|
|
|
5.13
|
|
1,133
|
|
|
5.31
|
Forfeited
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
(5,334)
|
|
|
6.01
|
Released
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
(9,723)
|
|
|
6.01
|
Outstanding, end of year
|
|
192,571
|
|
$
|
5.04
|
|
146,780
|
|
|
5.00
|
|
96,587
|
|
|
5.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested, beginning of year
|
|
101,981
|
|
|
5.31
|
|
49,262
|
|
|
5.87
|
|
29,169
|
|
|
6.01
|
Vested
|
|
53,336
|
|
|
|
|
52,719
|
|
|
|
|
20,093
|
|
|
|
Vested, end of year
|
|
155,317
|
|
$
|
5.00
|
|
101,981
|
|
|
5.31
|
|
49,262
|
|
|
5.87
|
RSUs outstanding as of April 30, 2019, had an aggregate intrinsic value of $845. As of April 30, 2019, there was $80 of unamortized compensation expense related to plan awards that will be recognized over the next six months.
9. Income Taxes
The Company’s income tax provision for the years ended April 30, 2019, 2018 and 2017, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
$
|
52
|
|
$
|
59
|
State taxes
|
|
|
1,836
|
|
|
60
|
|
|
27
|
|
|
|
1,836
|
|
|
112
|
|
|
86
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,873
|
|
|
(4,565)
|
|
|
589
|
State
|
|
|
(372)
|
|
|
141
|
|
|
(22)
|
Valuation allowance
|
|
|
367
|
|
|
350
|
|
|
—
|
|
|
|
2,868
|
|
|
(4,074)
|
|
|
567
|
|
|
|
4,704
|
|
|
(3,962)
|
|
|
653
|
Income tax related purchase accounting adjustments
|
|
|
—
|
|
|
—
|
|
|
96
|
|
|
$
|
4,704
|
|
$
|
(3,962)
|
|
$
|
749
|
The tax effects of significant temporary differences representing deferred tax assets and liabilities at April 30, 2019 and 2018, are as follows:
|
|
|
|
|
|
|
|
|
April 30,
|
|
April 30,
|
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
|
|
|
Deferred gain on sale/leaseback
|
|
$
|
528
|
|
$
|
598
|
Accrued compensation
|
|
|
394
|
|
|
226
|
Unearned revenue
|
|
|
1,082
|
|
|
637
|
Interest carryforwards
|
|
|
367
|
|
|
—
|
Net operating loss carryforwards
|
|
|
2,112
|
|
|
7,028
|
|
|
|
4,483
|
|
|
8,489
|
Valuation allowance
|
|
|
(717)
|
|
|
(350)
|
|
|
|
3,766
|
|
|
8,139
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Property and equipment
|
|
|
(21,264)
|
|
|
(15,758)
|
Intangible and other assets
|
|
|
(886)
|
|
|
(190)
|
|
|
|
(22,150)
|
|
|
(15,948)
|
|
|
$
|
(18,384)
|
|
$
|
(7,809)
|
The Company assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. As of April 30, 2019, the Company evaluated the likelihood of its ability to deduct in future years interest carryforwards arising by virtue of the provisions of the 2017 Tax Act. Under the 2017 Tax Act, limitations are imposed on the deductibility of interest incurred. The Company’s interest expense has exceeded the amount that is deductible under the 2017 Tax Act and management expects that condition to exist for the foreseeable future. While the limitations on deductible interest have the effect of accelerating the utilization of the existing net operating loss carryovers, they also give rise to a deferred tax asset, and management believes it is more likely than not that the benefit of the interest carryforwards will not be realized. Accordingly, in the year ended April 30, 2019, the Company recognized a valuation allowance of $367 to reduce to zero the carrying value of the deferred tax asset related to interest carryforwards.
In evaluating the realization of net operating loss carryovers, significant pieces of objective negative evidence evaluated included i) the shorter net operating loss carryforward periods associated with certain states in which the Company operates and ii) the amounts of taxable income apportioned to those taxing jurisdictions over the three-year period ended April 30, 2019. Such objective evidence limits the Company’s ability to consider other subjective evidence, such as projections for future growth.
Based on its evaluation, as of April 30, 2019, the Company concluded it is more likely than not that the benefit of net operating loss carryforwards associated with one such state will not be fully realized. In recognition of that risk the
Company established a valuation allowance of $350 as of April 30, 2018, to reduce the carrying value of deferred tax assets related to those state net operating loss carryforwards. As of April 30, 2019 the Company reassessed the adequacy of the valuation allowance taking into account current, relevant positive and negative evidence of the type and nature discussed above and concluded the $350 valuation allowance remained adequate. The amount of the deferred tax assets considered realizable, however, could be adjusted in the future if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence is no longer present, thus allowing additional weight to be given to subjective evidence such as the Company’s projections for growth.
In connection with the Company’s initial public offering in November 2014, a change of ownership in the Company occurred pursuant to the provisions of the Tax Reform Act of 1986. As a result, the Company’s usage of its net operating loss carryforwards will be limited each year; however, management believes the full benefit of those carryforwards will be realized prior to their respective expiration dates. The Company monitors the activity in its stock and should an ownership change occur under the Tax Reform Act of 1986, management would reassess the ability to realize net operating loss carryovers and provide additional valuation allowances, if necessary.
Federal loss carryforwards for tax purposes as of April 30, 2019, have the following expiration dates:
|
|
|
|
Expiration date
|
|
Amount
|
2031
|
|
$
|
12
|
2032
|
|
|
—
|
2033
|
|
|
—
|
2034
|
|
|
—
|
2035
|
|
|
4,256
|
|
|
$
|
4,268
|
A reconciliation between the income tax provision computed at the federal statutory income tax rate and the effective tax rate, for the years ended April 30, 2019, 2018 and 2017, is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Computed tax at statutory rates
|
|
$
|
2,860
|
|
$
|
(774)
|
|
$
|
677
|
Permanent items
|
|
|
249
|
|
|
162
|
|
|
35
|
State taxes, net of federal benefit
|
|
|
1,128
|
|
|
(51)
|
|
|
2
|
Change in federal statutory rate
|
|
|
—
|
|
|
(3,611)
|
|
|
—
|
Valuation allowance for deferred tax assets
|
|
|
367
|
|
|
350
|
|
|
—
|
Other
|
|
|
100
|
|
|
(38)
|
|
|
35
|
Income tax expense (benefit)
|
|
$
|
4,704
|
|
$
|
(3,962)
|
|
$
|
749
|
On December 22, 2017, the United States government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”). The 2017 Tax Act made broad changes to the federal tax code which impacts the Company. The 2017 Tax Act included provisions that, among other things, provides for i) the reduction of the federal corporate tax rate, ii) the elimination of the corporate alternative minimum tax, iii) a new limitation on the deductibility of interest expense, iv) changes in the treatment of net operating losses after December 31, 2017, and v) bonus depreciation that allows for full expensing of qualified property.
The 2018 change in federal statutory rate as appearing in the table above, consists of two components related to the 2017 Tax Act. First, the Company recognized a discrete benefit at the enactment date of the 2017 Tax Act of $124 based on re-measurement of net deferred tax liabilities at that date utilizing the reduced corporate tax rate of 21% implemented by the 2017 Tax Act. In addition, the reconciliation from the federal tax rate above applies a blended rate based on a 34% corporate tax rate for the first eight months of fiscal 2018 and a 21% corporate tax rate for the last four months of fiscal 2018. However, as the Company is a calendar year taxpayer and its business is seasonal, cumulative losses result during the first eight months of the fiscal year that are partially offset by income in the four month period ending April 30, 2018. Consequently, the actual tax rates applicable to the Company’s full year pretax loss are substantially different than the blended rate, resulting in an additional beneficial impact of approximately $3,487.
The Company accounts for unrecognized tax benefits also in accordance with ASC 740, which prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum
threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution to any related appeals or litigation, based solely on the technical merits of the position.
10. Sale/Leaseback
In November 2005, the Company sold its Mad River Mountain ski resort and simultaneously leased the property back for a period of 21 years. The resulting gain on the sale was deferred and is being ratably recognized in income over the term of the lease.
11. Employee Benefit Plan
The Company maintains a tax-deferred savings plan for all eligible employees. Employees become eligible to participate after attaining the age of 21 and completing one year of service. Employee contributions to the plan are tax-deferred under Section 401(k) of the Internal Revenue Code of 1986, as amended. Company matching contributions are made at the discretion of the board of directors. As of April 30, 2019, the Company has accrued $598 for a matching contribution to plan. No contributions were made for fiscal years 2018 and 2017.
12. Concentrations of Credit Risk and Fair Value Measures
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company’s cash, cash equivalents and restricted cash are on deposit with financial institutions where such balances will, at times, be in excess of federally insured limits. The Company has not experienced any losses associated with such deposits.
Fair Value of Measurements
The Company measures the fair value of assets and liabilities using a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1 - observable inputs such as quoted prices in active markets; Level 2 - inputs, other than quoted market prices in active markets, which are observable, either directly or indirectly; and Level 3 - valuations derived from valuation techniques in which one or more significant inputs are unobservable. In addition, the Company may use various valuation techniques, including the market approach, using comparable market prices; the income approach, using present value of future income or cash flow; and the cost approach, using the replacement cost of assets.
The Company’s financial instruments consist of cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, long-term debt and preferred stock. For cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate fair market value due to their short-term nature. The estimated fair values of the Company’s debt instruments and preferred stock as of April 30, 2019 and 2018, are as follows:
|
|
|
|
|
|
|
|
|
April 30, 2019
|
|
|
|
|
|
Carrying
|
|
|
|
|
Fair Value
|
|
Amount
|
|
Balance Sheet Classification
|
EPR Secured Notes due 2034
|
|
$
|
101,033
|
|
$
|
93,162
|
|
Long-term debt, less current maturities
|
EPR Secured Notes due 2036
|
|
|
17,451
|
|
|
21,000
|
|
Long-term debt, less current maturities
|
EB-5 Development Notes due 2021
|
|
|
43,998
|
|
|
52,000
|
|
Long-term debt, less current maturities
|
Term Loan due 2020, related party debt
|
|
|
50,000
|
|
|
50,058
|
|
Long-term debt, less current maturities
|
Wildcat Mountain Note due 2020
|
|
|
2,897
|
|
|
3,030
|
|
Long-term debt, including current maturities
|
Capital leases and other borrowings
|
|
|
2,260
|
|
|
2,260
|
|
Long-term debt, less current maturities
|
Series A Preferred Stock
|
|
|
31,777
|
|
|
34,318
|
|
Series A preferred stock
|
|
|
|
|
|
|
|
|
|
April 30, 2018
|
|
|
|
|
|
Carrying
|
|
|
|
|
Fair Value
|
|
Amount
|
|
Balance Sheet Classification
|
EPR Secured Notes due 2034
|
|
$
|
90,771
|
|
$
|
93,162
|
|
Long-term debt, less current maturities
|
EPR Secured Notes due 2036
|
|
|
15,866
|
|
|
21,000
|
|
Long-term debt, less current maturities
|
EB-5 Development Notes due 2021
|
|
|
45,752
|
|
|
52,000
|
|
Long-term debt, less current maturities
|
Wildcat Mountain Note due 2020
|
|
|
3,242
|
|
|
3,231
|
|
Long-term debt, including current maturities
|
Capital leases and other borrowings
|
|
|
3,610
|
|
|
3,610
|
|
Long-term debt, less current maturities
|
Series A Preferred Stock
|
|
|
19,522
|
|
|
17,401
|
|
Series A preferred stock
|
The Company estimated the fair value of the EPR Secured Notes, EB‑5 Development Notes and Wildcat Mountain Note using a discounted cash flow approach and Level 2 inputs, including market borrowing yields for instruments of similar maturities. The Company estimated the fair value of the Series A Preferred Stock and related warrants and other features using Level 2 inputs, including market yields for similar instruments. The Company estimated the fair value of capital leases and other borrowings to approximate their carrying value.
Valuation of Term Loan, Preferred Stock and Stock Warrants
The Company accounts for stock warrants as either equity or liability awards based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded at fair value as of the date of issuance with no further adjustments to their valuations made. When multiple financial instruments are issued in conjunction with other financial instruments, the amounts recognized for each instrument is recorded based on the proceeds received allocated to each instrument based on its relative fair value. The aggregate $70,000 received as consideration for the Term Loan, and the issuance of the 20,000 shares of Series A Preferred Stock, 2018 Option Warrants and Financing Warrant have been allocated in the amount of $50,073, $16,197, and $3,730, respectively. The difference between the face amount of the Term Loan due 2020 and its fair value has been recorded as an original issue premium and will be amortized to interest expense over its term. No value has been assigned to the Extension Warrant as it was not issued upon the closing of the Term Loan and will only be issued if the Company exercises its right to extend the Term Loan. The 2018 Option Warrants and Financing Warrant were valued using the Black Scholes model with the following assumptions: expected life of warrants 10 to 12 years, risk-free interest rate of 3.1%, expected volatility of common stock 39.9%, and expected dividend yield of 5.5%.
13. Commitments and Contingencies
Loss contingencies
The Company is periodically involved in various claims and legal proceedings, many of which occur in the normal course of business. Management routinely assesses the likelihood of adverse judgments or outcomes, including consideration of its insurance coverage and, in the opinion of the Company’s management, the ultimate liabilities resulting from such claims and proceedings will not have a material adverse effect on its business, financial condition, results of operations or cash flows.
Leases
The Company leases certain land, land improvements, buildings and equipment under noncancelable operating leases. Certain of the leases contain escalation provisions based generally on changes in the consumer price index with maximum annual percentage increases capped at rates between 1.5% to 4.5%. Additionally, certain leases contain contingent rental provisions which are based on revenue. The Company paid no significant contingent rentals in the periods presented. Rent expense under operating leases for the years ended April 30, 2019, 2018 and 2017, was $2,560, $2,548 and $1,669, respectively.
Future minimum lease payments under capital leases and operating leases that have initial or remaining non-cancelable lease terms in excess of one year at April 30, 2019, are as follows:
|
|
|
|
|
|
|
|
|
Capital
|
|
Operating
|
|
|
Leases
|
|
Leases
|
2020
|
|
$
|
1,171
|
|
$
|
2,340
|
2021
|
|
|
439
|
|
|
2,145
|
2022
|
|
|
304
|
|
|
1,530
|
2023
|
|
|
—
|
|
|
1,510
|
2024
|
|
|
—
|
|
|
1,461
|
Thereafter
|
|
|
—
|
|
|
5,713
|
|
|
|
1,914
|
|
$
|
14,699
|
Less: amount representing interest
|
|
|
168
|
|
|
|
|
|
|
1,746
|
|
|
|
Less: current portion
|
|
|
1,119
|
|
|
|
Long-term portion
|
|
$
|
627
|
|
|
|
14. Earnings (Loss) Per Share
The computation of basic and diluted earnings (loss) per share for the years ended April 30, 2019, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders (numerator)
|
|
$
|
6,596
|
|
$
|
(248)
|
|
$
|
441
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
14,504,407
|
|
|
13,982,400
|
|
|
13,982,400
|
Vested restricted stock units
|
|
|
133,139
|
|
|
78,339
|
|
|
35,238
|
Basic average shares outstanding (denominator)
|
|
|
14,637,546
|
|
|
14,060,739
|
|
|
14,017,638
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
0.45
|
|
$
|
(0.02)
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of unvested restricted stock units
|
|
|
38,785
|
|
|
—
|
|
|
23,654
|
Diluted average shares outstanding (denominator)
|
|
|
14,676,331
|
|
|
14,060,739
|
|
|
14,041,292
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
0.45
|
|
$
|
(0.02)
|
|
$
|
0.03
|
The Company accounts for its Series A Preferred Stock as temporary equity. As a result, the weighted average number of shares associated with the conversion of the Series A Preferred Stock are included in the calculation of diluted earnings (loss) per share if the effect is not antidilutive, regardless of whether the Company’s stock price as of the measurement date is lower than the conversion prices associated with Series A Preferred Stock. The effect of i) 37,254, 44,187 and 19,515 unvested RSUs as of April 30, 2019, 2018 and 2017, respectively, and ii) the conversion of Series A Preferred Stock have been excluded for the calculation of diluted loss per share for the years ended April 30, 2019, 2018 and 2017, because the impact of those items would be antidilutive.
15. Related Party Transactions
One of the members of the Company’s board of directors is a partner of a law firm that provides services to the Company. For the years ended April 30, 2019, 2018 and 2017 the Company paid legal fees to this firm of $565, $144 and $393, respectively.
In December 2017, the Company paid $471 for land and improvements located adjacent to one of its resorts to a trust in which the Company’s Chief Executive Officer was a trustee.
16.
Subsequent Events
On June 26, 2019, the compensation committee of the Company’s board of directors approved i) approximately $2,250 of cash payments and ii) grants of 185,190 RSUs to eligible employees in accordance with the terms of the Company’s Annual Incentive Plan.