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ITEM 7.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and notes related thereto included in this Form 10-K. To the extent that the following MD&A contains statements which are not of a historical nature, such statements are forward-looking statements which involve risks and uncertainties. These risks include, but are not limited to, those discussed in Item 1A. “Risk Factors” in this Form 10-K. The following discussion and analysis should be read in conjunction with the Forward-Looking Statements section and Item 1A. “Risk Factors” each included in this Form 10-K.
The MD&A includes discussion of financial performance within each of our three segments. We have chosen to specifically include segment Reported EBITDA (defined as segment net revenue less segment operating expense, plus or minus segment equity investment income or loss and for the Real Estate segment, plus gain or loss on sale of real property) and Net Debt (defined as long-term debt, net plus long-term debt due within one year less cash and cash equivalents), in the following discussion because we consider these measurements to be significant indications of our financial performance and available capital resources. Resort Reported EBITDA, Total Reported EBITDA and Net Debt are not measures of financial performance or liquidity defined under accounting principles generally accepted in the United States (“GAAP”). We utilize segment Reported EBITDA in evaluating our performance and in allocating resources to our segments. We also believe that Net Debt is an important measurement as it is an indicator of our ability to obtain additional capital resources for our future cash needs. Refer to the end of the Results of Operations section for a reconciliation of net income attributable to Vail Resorts, Inc. to Total Reported EBITDA and long-term debt, net to Net Debt.
Items excluded from Reported EBITDA and Net Debt are significant components in understanding and assessing financial performance or liquidity. Reported EBITDA and Net Debt should not be considered in isolation or as an alternative to, or substitute for, net income, net change in cash and cash equivalents or other financial statement data presented in the Consolidated Financial Statements as indicators of financial performance or liquidity. Because Resort Reported EBITDA, Total Reported EBITDA and Net Debt are not measurements determined in accordance with GAAP and are thus susceptible to varying calculations, Resort Reported EBITDA, Total Reported EBITDA and Net Debt, as presented herein, may not be comparable to other similarly titled measures of other companies. In addition, our segment Reported EBITDA (i.e. Mountain, Lodging and Real Estate), the measure of segment profit or loss required to be disclosed in accordance with GAAP, may not be comparable to other similarly titled measures of other companies.
Overview
Our operations are grouped into three integrated and interdependent segments: Mountain, Lodging and Real Estate. We refer to “Resort” as the combination of the Mountain and Lodging segments. The Mountain, Lodging and Real Estate segments represented approximately 87%, 13% and 0%, respectively, of our net revenue for Fiscal 2020.
On March 14, 2020, we announced a temporary closure of our North American Resorts and retail/rental operations as a result of the COVID-19 pandemic and as a precautionary measure for the safety of our guests and employees beginning on March 15, 2020. Subsequently on March 17, 2020, we announced the early closure of the 2019/2020 North American ski season for our North American Resorts, lodging properties and retail stores. Additionally, the ongoing impacts of the COVID-19 pandemic resulted in restrictions, limitations or closures of our 2020 Australian ski area operations and 2020 North American summer operations. Two of our Australian ski areas, Mount Hotham and Falls Creek, opened for their 2020 winter season on July 6, 2020 and were closed four days later due to a “stay at home” order put in place by the Victorian government as a result of a reemergence of COVID-19 in the region. These actions (the “Resort Closures”), and the COVID-19 pandemic in general, had a significant adverse impact to our results of operations for Fiscal 2020 as further described below in the discussion for each of our segments.
Mountain Segment
In the Mountain segment, the Company operates the following 37 destination mountain resorts and regional ski areas:
*Denotes a destination mountain resort, which generally receives a meaningful portion of skier visits from long-distance travelers, as opposed to our regional ski areas, which tend to generate skier visits predominantly from their respective local markets.
Additionally, we operate ancillary services, including ski school, dining and retail/rental operations, and for our Australian ski areas, including lodging and transportation operations. Mountain segment revenue is seasonal, with the majority of revenue earned from our North American destination mountain resorts and regional ski areas (collectively, our “Resorts”) occurring in our second and third fiscal quarters and the majority of revenue earned from our Australian ski areas occurring in our first and fourth fiscal quarters. Our North American Resorts are typically open for business from mid-November through mid-April, which is the peak operating season for the Mountain segment, and our Australian ski areas are typically open for business from June to early October. Our single largest source of Mountain segment revenue is the sale of lift tickets (including pass products), which represented approximately 53%, 53% and 51% of Mountain segment net revenue for Fiscal 2020, the fiscal year ended July 31, 2019 (“Fiscal 2019”) and the fiscal year ended July 31, 2018 (“Fiscal 2018”), respectively.
During Fiscal 2020 and as a result of the impacts of the COVID-19 pandemic, including the Resort Closures, we announced that we would offer credits to customers who had purchased 2019/2020 North American pass products towards the purchase of a 2020/2021 North American pass product if such purchase was made by September 17, 2020 (the “Credit Offer”). The Credit Offer discounts range from a minimum of 20% to a maximum of 80% for season pass holders, depending on the number of days the pass holder used their pass product during the 2019/2020 season and a credit, with no minimum, but up to 80% for multi-day pass products, such as the Epic Day Pass, based on total unused days. As a result of the Credit Offer to 2019/2020 pass product holders, we delayed the recognition of approximately $120.9 million of deferred season pass revenue, as well as approximately $2.9 million of related deferred costs, that would have been recognized in Fiscal 2020 and are now expected to be recognized primarily in the second and third quarters of the fiscal year ending July 31, 2021 (“Fiscal 2021”). While we expect most of this revenue and deferred cost will be recognized during Fiscal 2021, in the event that a pass holder obtains a refund under Epic Coverage (as discussed below) for the 2020/2021 North American ski season and is eligible to utilize their credit toward the purchase of a pass product purchase for the 2021/2022 North American ski season, a portion of this deferred revenue and related deferred cost will be recognized in Fiscal 2022.
Lift revenue is driven by volume and pricing. Pricing is impacted by both absolute pricing, as well as the demographic mix of guests, which impacts the price points at which various products are purchased. The demographic mix of guests that visit our North American mountain resorts is divided into two primary categories: (1) out-of-state and international (“Destination”) guests and (2) in-state and local (“Local”) guests. For the 2019/2020 North American ski season, Destination guests comprised approximately 58% of our North American destination mountain resort skier visits (excluding complimentary access), while Local guests comprised approximately 42% of our North American destination mountain resort skier visits (excluding complimentary access), which compares to approximately 57% and 43%, respectively, for the 2018/2019 North American ski season and approximately 59% and 41%, respectively, for the 2017/2018 North American ski season. Skier visitation at our regional ski areas is largely comprised of Local guests. Destination guests generally purchase our higher-priced lift tickets (including pass products) and utilize more ancillary services such as ski school, dining and retail/rental, as well as lodging at or around our mountain resorts. Destination guest visitation is less likely to be impacted by changes in the weather during the current ski season, but may be more impacted by restrictions or preferences for travel due to the COVID-19 pandemic, adverse economic conditions, the global geopolitical climate or weather conditions in the immediately preceding ski season. Local guests tend to be more value-oriented and weather sensitive.
We offer a variety of pass products for all of our Resorts marketed towards both Destination and Local guests. Our pass product offerings range from providing access to one or a combination of our Resorts to our Epic Pass, which allows pass holders unlimited and unrestricted access to all of our Resorts. The Epic Day Pass, which we began offering for the 2019/2020 North American ski season, is a customizable one to seven day pass product valid at each of our resorts, purchased in advance of the season, for those skiers and riders who expect to ski a certain number of days during the season. For the upcoming 2020/2021 North American ski season, we introduced Epic Mountain Rewards, a program which gives pass product holders a discount of 20% off on-mountain food and beverage, lodging, group ski and ride school lessons, equipment rentals and more at the Company’s North American owned and operated Resorts. Epic Mountain Rewards is available for everyone who purchases an Epic Pass, Epic Local Pass, Epic Day Pass, Epic Military Pass and most of our other pass products, regardless of whether guests plan to ski one day or every day of the season. Additionally, we introduced Epic Coverage for the 2020/2021 North American ski season, which is free for all pass holders, completely replacing the need for pass insurance, and providing expanded coverage over our historical pass insurance program. Epic Coverage provides refunds in the event of certain resort closures (e.g. for COVID-19), giving pass product holders a refund for any portion of the season that is lost due to qualifying circumstances. Additionally, Epic Coverage provides a refund for personal circumstances that were historically covered by our pass insurance program, such as eligible injuries, job losses and many other personal events, as well as in the event that the pass holder cannot reserve their preferred days. Refunds for resort closure events could vary based on the duration of the closure, certain elections made by the pass product holder and the number of days skied by the pass product holder. We will estimate the amount of expected refunds under the Epic Coverage program and will reduce the amount of pass product revenue recognized by that expected amount. The expected refunds will be calculated utilizing estimates and assumptions, including historical data and current information. If we believe it is probable that upon resolution of the contingencies for which we would provide refunds that a significant amount of revenue may be reversed, we will not recognize those amounts as revenue until such time as the contingencies have been resolved.
Our pass program provides a compelling value proposition to our guests, which in turn assists us in developing a loyal base of customers who commit to ski at our Resorts generally in advance of the ski season and typically ski more days each season at our Resorts than those guests who do not buy pass products. Additionally, we have entered into strategic long-term season pass alliance agreements with third-party mountain resorts including Telluride Ski Resort in Colorado, Sun Valley Resort in Idaho, Snowbasin Resort in Utah, Hakuba Valley and Rusutsu Resort in Japan, Resorts of the Canadian Rockies in Canada, Les 3 Vallées in France, 4 Vallées in Switzerland, Skirama Dolomiti in Italy and Ski Arlberg in Austria, which further increases the value proposition of our pass products. As such, our pass program drives strong customer loyalty, mitigates exposure to more weather sensitive guests, generates additional ancillary spending and provides cash flow in advance of winter season operations. In addition, our pass program attracts new guests to our Resorts. All of our pass products, including the Epic Pass and Epic Day Pass, are predominately sold prior to the start of the ski season. Pass product revenue, although primarily collected prior to the ski season, is recognized in the Consolidated Statements of Operations throughout the ski season primarily based on historical visitation (see Notes to Consolidated Financial Statements).
Lift revenue consists of pass product lift revenue (“pass revenue”) and non-pass product lift revenue (“non-pass revenue”). Approximately 51%, 47% and 47% of total lift revenue was derived from pass revenue for Fiscal 2020 (including the impact of the deferral of pass revenue as a result of the Credit Offer), Fiscal 2019 and Fiscal 2018, respectively.
The cost structure of our mountain resort operations has a significant fixed component with variable expenses including, but not limited to, land use permit or lease fees, credit card fees, retail/rental cost of sales and labor, ski school labor and expenses associated with dining operations. As such, profit margins can fluctuate greatly based on the level of revenues associated with visitation.
Lodging Segment
Operations within the Lodging segment include (i) ownership/management of a group of luxury hotels through the RockResorts brand proximate to our Colorado and Utah mountain resorts; (ii) ownership/management of non-RockResorts branded hotels and condominiums proximate to our North American Resorts; (iii) National Park Service (“NPS”) concessionaire properties including Grand Teton Lodge Company (“GTLC”); (iv) a Colorado resort ground transportation company; and (v) mountain resort golf courses.
The performance of our lodging properties (including managed condominium units and our Colorado resort ground transportation company) proximate to our mountain resorts is closely aligned with the performance of the Mountain segment and generally experiences similar seasonal trends, particularly with respect to visitation by Destination guests. Revenues from such properties represented approximately 73%, 70% and 68% of Lodging segment net revenue (excluding Lodging segment revenue associated with reimbursement of payroll costs) for Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively. Management primarily focuses on Lodging net revenue excluding payroll cost reimbursements and Lodging operating expense excluding reimbursed payroll costs (which are not measures of financial performance under GAAP) as the reimbursements are made based upon the costs incurred with no added margin; as such, the revenue and corresponding expense have no effect on our Lodging Reported EBITDA, which we use to evaluate Lodging segment performance. Revenue of the Lodging segment during our first and fourth fiscal quarters is generated primarily by the operations of our NPS concessionaire properties (as their operating season generally occurs from June to the end of September); mountain resort golf operations and seasonally lower volume from our other owned and managed properties and businesses. As discussed above, our North American lodging properties closed early in March for the remainder of the 2019/2020 ski season as a result of the COVID-19 pandemic. Our summer operations for the 2020 season were also limited or adjusted, including at GTLC with the closures of Jackson Lake Lodge and Jenny Lake Lodge, as well as not offering guided activities, in-restaurant dining and the temporary closure of many facilities, among others.
Real Estate Segment
The principal activities of our Real Estate segment include the sale of land parcels to third-party developers and planning for future real estate development projects, including zoning and acquisition of applicable permits. We continue undertaking preliminary planning and design work on future projects and are pursuing opportunities with third-party developers rather than undertaking our own significant vertical development projects. Additionally, real estate development projects by third-party developers most often result in the creation of certain resort assets that provide additional benefit to the Mountain segment. We believe that, due to our low carrying cost of real estate land investments, we are well situated to promote future projects by third-party developers while limiting our financial risk. Our revenue from the Real Estate segment and associated expense can fluctuate significantly based upon the timing of closings and the type of real estate being sold, causing volatility in the Real Estate segment’s operating results from period to period.
Recent Trends, Risks and Uncertainties
We have identified the following significant factors (as well as uncertainties associated with such factors) that could impact our future financial performance:
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•
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Given the escalating concerns surrounding the spread of COVID-19 and the potential impact that continuing to operate our resorts would have had on our resort communities, we suspended the operations at all of our North American Resorts and retail stores beginning on March 15, 2020 for the remainder of the 2019/2020 North American ski season. As a result of the COVID-19 pandemic and in response to guidance from the Centers for Disease Control and Prevention and other local and national health authorities, operations for the 2020 North American summer season were limited, adjusted or restricted. Additionally, although our Mount Hotham and Falls Creek ski areas opened for their 2020 winter season on July 6, 2020, we closed these two ski areas four days later due to a “stay at home” order put in place by the Victorian government as a result of a reemergence of COVID-19 in the region. These various closures and limitations on our operations had a significant negative impact on our results for Fiscal 2020, and we cannot predict the ultimate impact that the Resort Closures and other business disruptions as a result of the COVID-19 pandemic will continue to have on our results for the upcoming 2020/2021 North American ski season or our overall results for Fiscal 2021.
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•
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The global outbreak of COVID-19 has led to travel restrictions and other adverse economic impacts including reduced consumer confidence, an increase in unemployment rates and volatility in global and local economies. Although we are uncertain as to the ultimate severity and duration of the COVID-19 pandemic, the related global travel restrictions and other adverse impacts, we have seen a significant negative change in performance and expect our future performance will also be negatively impacted. In addition, the North American economy may be impacted by economic challenges in North America or declining or slowing growth in economies outside of North America, accompanied by devaluation of currencies, rising inflation, trade tariffs and lower commodity prices. We cannot predict the ultimate impact that the global economic
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uncertainty as a result of the COVID-19 pandemic will have on overall travel and leisure spending or more specifically, on our guest visitation, guest spending or other related trends for the upcoming 2020/2021 North American ski season.
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The timing and amount of snowfall can have an impact on Mountain and Lodging revenue, particularly with regard to skier visits and the duration and frequency of guest visitation. To help mitigate this impact, we sell a variety of pass products prior to the beginning of the ski season which results in a more stabilized stream of lift revenue. In early March 2020, we began our pass product sales program for the 2020/2021 North American ski season. In April 2020 and in connection with our announcement of the Credit Offer, we announced significant extensions to our traditional deadlines for pass product sales that normally would have occurred throughout the North American summer selling season. These extensions in our traditional deadlines and broader impacts from COVID-19 has had a significant negative impact on pass product sales through July 31, 2020 in comparison to the prior year comparable pass product sales. As previously discussed, as a result of the Resort Closures, we provided a Credit Offer to 2019/2020 pass product holders to apply toward the purchase of a 2020/2021 pass product. Additionally, looking ahead to the 2020/2021 North American ski season, we are optimistic that we will be operational for the ski season, but we also understand that many pass holders are nervous about the future given the current uncertainty, as our ability to open our Resorts may depend on local and/or state restrictions outside of our control. As a result, we introduced Epic Coverage for the 2020/2021 North American ski season, which is free for all pass holders and completely replaces the need to purchase pass insurance. Epic Coverage provides refunds in the event of certain resort closures (e.g., for COVID-19), giving pass product holders a refund for any portion of the season that is lost due to qualifying circumstances. Additionally, Epic Coverage provides a refund for qualifying personal circumstances that were historically covered by our pass insurance for eligible injuries, job losses and many other personal events, as well as in the event that the pass holder cannot reserve their preferred days. In addition to these changes, in order to give our pass product holders the time they need to make decisions regarding next season, we extended the deadline for pass holders to use their Credit Offer and receive spring benefits (including Buddy Tickets) until September 17, 2020, and we extended the period for pass holders to lock in their purchase with only $49 down. We also announced that we would be implementing a reservation system for our 34 North American Resorts for the 2020/2021 North American ski season, which will only be available for pass holders during the early season (paid lift tickets will not be sold until December 8, 2020).
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Season pass sales through September 18, 2020 for the upcoming 2020/2021 North American ski season increased approximately 18% in units and decreased approximately 4% in sales dollars as compared to the period in the prior year through September 20, 2019, with sales dollars for this year reduced by the value of the redeemed credits provided to 2019/2020 North American pass holders. Without deducting for the value of the redeemed credits, sales dollars increased approximately 24% compared to the prior year. Pass sales results are adjusted to eliminate the impact of foreign currency by applying an exchange rate of $0.76 between the Canadian dollar and U.S. dollar in both periods for Whistler Blackcomb pass sales.We cannot predict if this trend will continue for the entire duration of the fall 2020 North American pass sales campaign, nor can we predict the overall impact that the Credit Offer, Epic Coverage, extended spring benefits and the extended $49 down deadline will have on pass product sales or lift revenue for the upcoming 2020/2021 North American ski season.
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•
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On March 27, 2020, in response to the outbreak of the COVID-19 pandemic, the U.S. government enacted legislation commonly referred to as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act includes various amendments to the U.S. tax code that impacted the Company’s accounting and reporting for income taxes during Fiscal 2020 and is expected to continue to impact the Company’s accounting and reporting for income taxes in the future, including the following: (i) allowing a carryback of the entire amount of eligible Federal net operating losses (“NOLs”) generated in calendar years 2018, 2019 and 2020 for up to five years prior to when such losses were incurred, representing a change from previous rules under the Tax Cuts & Jobs Act of 2017 (the “TCJA”), in which NOLs could not be carried back to prior years and utilization was limited to 80% of taxable income in future years; (ii) treatment of certain qualified improvement property (“QIP”) as 15-year property and allowing such QIP placed in service after December 31, 2017 to be eligible for bonus depreciation, which the Company expects will incrementally add to its pre-existing NOLs; and (iii) increases in the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income for calendar years 2019 and 2020. The CARES Act also provides for refundable employee retention tax credits and defers the requirement to remit the employer-paid portion of social security payroll taxes. As a result, we recorded a benefit of approximately $9.6 million during Fiscal 2020, which primarily offset Mountain and Lodging operating expense, as a result of wages paid to employees who were not providing services. We are still in the process of fully evaluating the potential benefits that the amendments discussed above will have on our financial statements. We also recognized a credit of approximately $8.5 million during Fiscal 2020 as a result of the recent Canada Emergency Wage Subsidy and Australian JobKeeper legislation for our Canadian and Australian employees, which primarily offset Mountain and Lodging operating expense.
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•
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As of July 31, 2020, we had $391.0 million of cash and cash equivalents as well as $418.8 million available under the revolver component of our Eighth Amended and Restated Credit Agreement, dated as of August 15, 2018 and as amended most recently on April 28, 2020 (the “Vail Holdings Credit Agreement”), which represents the total commitment of $500.0 million less certain letters of credit outstanding of $81.2 million. Additionally, we have a credit facility which supports the liquidity needs of Whistler Blackcomb (the “Whistler Credit Agreement”). As of July 31, 2020, we had C$221.1 million ($165.1 million) available under the revolver component of the Whistler Credit Agreement (which represents the total commitment of C$300.0 million ($224.0 million) less outstanding borrowings of C$78.0 million ($58.2 million) and a letter of credit outstanding of C$0.9 million ($0.7 million)).
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On April 28, 2020, we entered into the Third Amendment to our Vail Holdings Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, the Company is exempt from complying with the Vail Holdings Credit Agreement’s maximum leverage ratio and minimum interest coverage ratio financial maintenance covenants for each of the fiscal quarters ended July 31, 2020 through January 31, 2022 (unless we make a one-time irrevocable election to terminate such exemption prior to such date) (such period, the “Financial Covenants Temporary Waiver Period”), after which we will be required to comply with such covenants starting with the fiscal quarter ending April 30, 2022 (or such earlier fiscal quarter as elected by us). During the Financial Covenants Temporary Waiver Period, we are subject to other restrictions which will limit our ability to make future acquisitions, investments, distributions to stockholders, share repurchases or incur additional debt. See Liquidity and Capital Resources for additional information. Additionally, on May 4, 2020, we completed an offering of $600.0 million in aggregate principal amount of 6.25% Senior Notes due 2025 (the “Notes”) in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, a portion of which was utilized to pay down the outstanding balance of the revolver component of our Vail Holdings Credit Agreement in its entirety (which will continue to be available to the Company to borrow including throughout the Financial Covenants Temporary Waiver Period). The Notes are guaranteed on a senior subordinated basis by certain of the Company’s domestic subsidiaries.
We believe that our existing cash and cash equivalents, availability under our credit agreements and the expected positive cash flow from operating activities of our Mountain and Lodging segments less resort capital expenditures will continue to provide us with sufficient liquidity to fund our operations through at least the 2021/2022 ski season, even in the event of extended resort shutdowns.
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On September 24, 2019, through a wholly-owned subsidiary, we acquired 100% of the outstanding stock of Peak Resorts, Inc. (“Peak Resorts”) at a purchase price of $11.00 per share or approximately $264.5 million. In addition, contemporaneous with the closing the transaction, Peak Resorts was required to pay approximately $70.2 million of certain outstanding debt instruments and lease obligations in order to complete the transaction. Accordingly, the total purchase price, including the repayment of certain outstanding debt instruments and lease obligations, was approximately $334.7 million, for which we borrowed approximately $335.6 million under the Vail Holdings Credit Agreement to fund the acquisition. The newly acquired resorts include: Mount Snow in Vermont; Hunter Mountain in New York; Attitash Mountain Resort, Wildcat Mountain and Crotched Mountain in New Hampshire; Liberty Mountain Resort, Roundtop Mountain Resort, Whitetail Resort, Jack Frost and Big Boulder in Pennsylvania; Alpine Valley, Boston Mills, Brandywine and Mad River Mountain in Ohio; Hidden Valley and Snow Creek in Missouri; and Paoli Peaks in Indiana. The acquisition included the mountain operations of the resorts, including base area skier services (food and beverage, retail and rental, lift ticket offices and ski and snowboard school facilities), as well as lodging operations at certain resorts. We expect that the acquisition of Peak Resorts will positively contribute to our annual results of operations; however we cannot predict the ultimate impact the new resorts will have on our future results of operations.
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Results of Operations
Summary
Shown below is a summary of operating results for Fiscal 2020, Fiscal 2019 and Fiscal 2018 (in thousands):
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Year Ended July 31,
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2020
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2019
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2018
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Net income attributable to Vail Resorts, Inc.
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$
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98,833
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$
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301,163
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$
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379,898
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Income before (provision) benefit from income taxes
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$
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116,433
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$
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398,965
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$
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340,092
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Mountain Reported EBITDA
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$
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500,080
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$
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678,594
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$
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591,605
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Lodging Reported EBITDA
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3,269
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28,100
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25,006
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Resort Reported EBITDA
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$
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503,349
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$
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706,694
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$
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616,611
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Real Estate Reported EBITDA
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$
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(4,128
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)
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$
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(4,317
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)
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$
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957
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A discussion of segment results, including reconciliations of net income attributable to Vail Resorts, Inc. to Total Reported EBITDA, and other items can be found below. The consolidated results of operations, including any consolidated financial metrics pertaining thereto, include the operations of Peak Resorts (acquired September 24, 2019), Falls Creek and Hotham (acquired April 4, 2019), Triple Peaks (acquired September 27, 2018) and Stevens Pass (acquired August 15, 2018), prospectively from their respective dates of acquisition.
The COVID-19 pandemic and the Resort Closures both had a significant adverse impact to our results of operations for Fiscal 2020, as further described below in our segment results of operations.
The sections titled “Fiscal 2020 compared to Fiscal 2019” and “Fiscal 2019 compared to Fiscal 2018” in each of the Mountain and Lodging segment discussions below provide comparisons of financial and operating performance for Fiscal 2020 to Fiscal 2019 and Fiscal 2019 to Fiscal 2018, respectively, unless otherwise noted.
Mountain Segment
Mountain segment operating results for Fiscal 2020, Fiscal 2019 and Fiscal 2018 are presented by category as follows (in thousands, except ETP):
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Percentage
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Year Ended July 31,
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Increase/(Decrease)
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2020
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2019
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2018
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2020/2019
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2019/2018
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Mountain net revenue:
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Lift
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$
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913,091
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$
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1,033,234
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$
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880,293
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(11.6
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)%
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17.4
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%
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Ski school
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189,131
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215,060
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189,910
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(12.1
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)%
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13.2
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%
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Dining
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160,763
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181,837
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161,402
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(11.6
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)%
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12.7
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%
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Retail/rental
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270,299
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320,267
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296,466
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(15.6
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)%
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8.0
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%
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Other
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177,159
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205,803
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194,851
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(13.9
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)%
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5.6
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%
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Total Mountain net revenue
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1,710,443
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1,956,201
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1,722,922
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(12.6
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)%
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13.5
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%
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Mountain operating expense:
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Labor and labor-related benefits
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473,365
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507,811
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443,891
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(6.8
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)%
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14.4
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%
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Retail cost of sales
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96,497
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121,442
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111,198
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(20.5
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)%
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9.2
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%
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Resort related fees
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75,044
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96,240
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87,111
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(22.0
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)%
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10.5
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%
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General and administrative
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239,412
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233,159
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214,090
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2.7
|
%
|
|
8.9
|
%
|
|
Other
|
327,735
|
|
|
320,915
|
|
|
276,550
|
|
|
2.1
|
%
|
|
16.0
|
%
|
|
Total Mountain operating expense
|
1,212,053
|
|
|
1,279,567
|
|
|
1,132,840
|
|
|
(5.3
|
)%
|
|
13.0
|
%
|
|
Mountain equity investment income, net
|
1,690
|
|
|
1,960
|
|
|
1,523
|
|
|
(13.8
|
)%
|
|
28.7
|
%
|
|
Mountain Reported EBITDA
|
$
|
500,080
|
|
|
$
|
678,594
|
|
|
$
|
591,605
|
|
|
(26.3
|
)%
|
|
14.7
|
%
|
|
Total skier visits
|
13,483
|
|
|
14,998
|
|
|
12,345
|
|
|
(10.1
|
)%
|
|
21.5
|
%
|
|
ETP
|
$
|
67.72
|
|
|
$
|
68.89
|
|
|
$
|
71.31
|
|
|
(1.7
|
)%
|
|
(3.4
|
)%
|
Mountain Reported EBITDA includes $17.4 million, $16.5 million and $15.7 million of stock-based compensation expense for Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively.
Fiscal 2020 compared to Fiscal 2019
Mountain Reported EBITDA decreased $178.5 million, or 26.3%, primarily due to the impact of the delayed recognition of $120.9 million of pass product revenue during Fiscal 2020 as a result of the Credit Offer to 2019/2020 North American pass product holders from the Resort Closures and the overall impacts of the COVID-19 pandemic, which resulted in significantly reduced visitation and operations at our Resorts and retail stores for the 2019/2020 North American ski season, the 2020 Australian ski season and our 2020 North American summer operations. These decreases were partially offset by the incremental operations of Peak Resorts, Falls Creek and Hotham. Mountain segment results include $13.6 million and $16.4 million of acquisition and integration related expenses for Fiscal 2020 and Fiscal 2019, respectively, which are recorded within Mountain other operating expense.
Lift revenue decreased $120.1 million, or 11.6%, primarily due to a 3.4% decrease in pass product revenue and an 18.8% decrease in non-pass revenue. Pass product revenue decreased primarily as a result of the deferral of approximately $120.9 million of pass product revenue associated with the Credit Offer to 2019/2020 North American pass product holders, which would have been recognized during Fiscal 2020 and which is now expected to be recognized primarily in the second and third quarters of Fiscal 2021, partially offset by a combination of an increase in pricing and units sold and increased pass sales to Destination guests, as well as the introduction of the Epic Day Pass. Non-pass revenue decreased primarily due to significantly reduced skier visitation as a result of the Resort Closures, partially offset by an increase in non-pass ETP (excluding Peak Resorts, Falls Creek and Hotham) of 6.2% and incremental revenue from Peak Resorts, Falls Creek and Hotham of approximately $61.4 million. Total non-pass ETP, including the impact of Peak Resorts, Falls Creek and Hotham decreased 7.3%.
Ski school revenue, dining revenue and retail/rental revenue in Fiscal 2020 all decreased compared to Fiscal 2019 due to the Resort Closures. These decreases were partially offset by incremental revenue from our acquisitions of Peak Resorts, Falls Creek and Hotham of $18.0 million of ski school revenue, $23.8 million of dining revenue and $26.8 million of retail/rental revenue.
Other revenue mainly consists of summer visitation and mountain activities revenue, employee housing revenue, guest services revenue, commercial leasing revenue, marketing and internet advertising revenue, private club revenue (which includes both club dues and amortization of initiation fees), municipal services revenue and other recreation activity revenue. Other revenue is also comprised of Australian ski area lodging and transportation revenue. For Fiscal 2020, other revenue decreased as a result of the Resort Closures, partially offset by incremental revenue from Peak Resorts of approximately $12.6 million.
Resort Closures and the associated actions taken by the Company to reduce costs resulted in a decrease in our operating expense of $67.5 million, or 5.3%, which includes incremental operating expenses from Peak Resorts, Falls Creek and Hotham of approximately $121.4 million, as well as $13.6 million and $16.4 million of acquisition and integration related expenses for Fiscal 2020 and Fiscal 2019, respectively.
Labor and labor-related benefits decreased 6.8%, which primarily resulted from cost actions associated with the Resort Closures, including decreased staffing, employee furloughs, salary reductions and reduced variable compensation accruals, as well as tax credits of approximately $12.0 million associated with recent COVID-19 related legislation passed in the U.S., Canada and Australia, partially offset by incremental expenses from Peak Resorts, Falls Creek and Hotham of approximately $50.7 million. Retail cost of sales decreased 20.5% compared to a decrease in retail sales of 20.1%. Resort related fees decreased 22.0% primarily due to decreases in revenue on which those fees are based, partially offset by incremental expenses from Peak Resorts of approximately $4.3 million. General and administrative expense increased 2.7% primarily due to incremental expenses from Peak Resorts, Falls Creek and Hotham of approximately $18.9 million, partially offset by a decrease in allocated corporate overhead costs, a decrease in variable compensation accruals primarily as a result of the Resort Closures and tax credits of approximately $3.3 million associated with recent COVID-19 related legislation passed in the U.S., Canada and Australia. Other expense increased 2.1% primarily due to incremental operating expenses from Peak Resorts, Falls Creek and Hotham of approximately $42.2 million, partially offset by decreases in variable operating expenses associated with the Resort Closures, as well as a decrease in acquisition and integration related expenses.
Mountain equity investment income, net primarily includes our share of income from the operations of a real estate brokerage joint venture.
Fiscal 2019 compared to Fiscal 2018
The results reflect an increase in Mountain Reported EBITDA of $87.0 million, or 14.7%, primarily as a result of strong North American pass sales growth for the 2018/2019 North American ski season, strong growth in visitation and spending at our western U.S. resorts and the incremental operations of Stevens Pass, Triple Peaks and Falls Creek/Hotham (acquired in August 2018, September 2018 and April 2019, respectively). Although our Destination guest visitation was less than expected in the pre-holiday period, results from the key holiday weeks through the spring were largely in line with our original expectations, which, when combined with incremental skier visits from Stevens Pass, Triple Peaks and Falls Creek/Hotham, resulted in an increase in total skier visitation of 21.5%. Operating results from Whistler Blackcomb and Perisher, which are translated from Canadian dollars and Australian dollars, respectively, to U.S. dollars, were adversely affected by a decrease in the Canadian and Australian dollar exchange rates relative to the U.S. dollar as compared to prior year, resulting in a decline in Mountain Reported EBITDA of approximately $8 million, which the Company calculated on a constant currency basis by applying current period foreign exchange rates to the prior period results. Additionally, Fiscal 2019 and Fiscal 2018 results include $16.4 million and $10.2 million of acquisition and integration related expenses, respectively.
Lift revenue increased $152.9 million, or 17.4%, due to increases in both pass revenue and non-pass revenue, as well as incremental revenue from Triple Peaks, Stevens Pass, Falls Creek and Hotham. Pass revenue increased 16.8%, which was driven by a combination of an increase in pricing and units sold and was also favorably impacted by increased pass sales to Destination guests as well as military guests through the introduction of the Military Epic Pass. Non-pass revenue increased 17.9% primarily due to incremental non-pass skier visitation at Triple Peaks, Stevens Pass, Falls Creek and Hotham, and increased non-pass visitation at our western U.S. resorts, which benefited from improved conditions as compared to the prior year and an increase in total non-pass ETP of 4.9%. Total ETP decreased $2.42, or 3.4%, primarily due to higher skier visitation by season pass holders, lower ETP from the acquired Triple Peaks, Stevens Pass, Falls Creek and Hotham resorts and the new Military Epic Pass, partially offset by price increases in both our lift ticket and pass products.
Ski school revenue increased $25.2 million, or 13.2%, and dining revenue increased $20.4 million, or 12.7%, primarily as a result of incremental revenue at Triple Peaks, Stevens Pass, Falls Creek and Hotham, which represented approximately $13.4 million and $12.9 million of the total increase for ski school revenue and dining revenue, respectively. The remaining increases were primarily due to higher skier visitation.
Retail/rental revenue increased $23.8 million, or 8.0%, of which retail revenue increased $13.6 million, or 6.7%, and rental revenue increased $10.2 million, or 11.0%. The increase in both retail revenue and rental revenue was primarily attributable to higher sales volumes at stores proximate to our western U.S. resorts and other stores in Colorado, as well as incremental revenue from Triple Peaks, Stevens Pass, Falls Creek and Hotham of approximately $13.1 million. These increases were partially offset by removing the low-margin golf product line from our Colorado city stores, store closures and a decrease in sales at Whistler Blackcomb.
Other revenue mainly consists of summer visitation and mountain activities revenue, employee housing revenue, guest services revenue, commercial leasing revenue, marketing and internet advertising revenue, private club revenue (which includes both club dues and amortization of initiation fees), municipal services revenue and other recreation activity revenue. Other revenue is also comprised of Australian ski area lodging and transportation revenue. For Fiscal 2019, other revenue increased $11.0 million, or 5.6%, primarily attributable to incremental revenue from Triple Peaks, Stevens Pass, Falls Creek and Hotham of $6.0 million, as well as increases in marketing revenue and mountain activities and services revenue.
Operating expense increased $146.7 million, or 13.0%, which was primarily attributable to the inclusion of Triple Peaks, Stevens Pass, Falls Creek and Hotham, whose operating expenses were recorded prospectively from their respective dates of acquisition. Additionally, operating expense includes $16.4 million and $10.2 million of acquisition and integration related expenses for Fiscal 2019 and Fiscal 2018, respectively.
Labor and labor-related benefits increased 14.4% primarily due to incremental labor expenses from Triple Peaks, Stevens Pass, Falls Creek and Hotham of $41.0 million and increased staffing levels at our western U.S. resorts as compared to the prior year due to historic low snowfall during the prior year period, as well as wage increases associated with our minimum wage initiatives, which were in excess of our historical minimum wage increases, and higher variable compensation accruals. Retail cost of sales increased 9.2% compared to an increase in retail sales of 6.7%. Resort related fees increased 10.5% primarily due to incremental expenses from Triple Peaks and Stevens Pass of $5.3 million as well as increases in revenue on which those fees are based. General and administrative expense increased 8.9% primarily due to incremental expenses from Triple Peaks, Stevens Pass, Falls Creek and Hotham of $12.4 million, an increase in variable compensation accruals and an increase in allocated corporate overhead costs primarily associated with marketing and information technology. Other expense increased 16.0% primarily due to incremental expenses from Triple Peaks, Stevens Pass, Falls Creek and Hotham of $26.6 million, as well as increases in season pass alliance expense, acquisition and integration related expenses, employee housing expense, fuel expense and rent expense.
Mountain equity investment income, net primarily includes our share of income from the operations of a real estate brokerage joint venture.
Lodging Segment
Lodging segment operating results for Fiscal 2020, Fiscal 2019 and Fiscal 2018 are presented by category as follows (in thousands, except ADR and RevPAR):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
Year Ended July 31,
|
|
Increase/(Decrease)
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020/2019
|
|
2019/2018
|
|
Lodging net revenue:
|
|
|
|
|
|
|
|
|
|
|
Owned hotel rooms
|
$
|
44,992
|
|
|
$
|
64,826
|
|
|
$
|
65,252
|
|
|
(30.6
|
)%
|
|
(0.7
|
)%
|
|
Managed condominium rooms
|
76,480
|
|
|
86,236
|
|
|
70,198
|
|
|
(11.3
|
)%
|
|
22.8
|
%
|
|
Dining
|
38,252
|
|
|
53,730
|
|
|
48,554
|
|
|
(28.8
|
)%
|
|
10.7
|
%
|
|
Transportation
|
15,796
|
|
|
21,275
|
|
|
21,111
|
|
|
(25.8
|
)%
|
|
0.8
|
%
|
|
Golf
|
17,412
|
|
|
19,648
|
|
|
18,110
|
|
|
(11.4
|
)%
|
|
8.5
|
%
|
|
Other
|
44,933
|
|
|
54,617
|
|
|
47,577
|
|
|
(17.7
|
)%
|
|
14.8
|
%
|
|
|
237,865
|
|
|
300,332
|
|
|
270,802
|
|
|
(20.8
|
)%
|
|
10.9
|
%
|
|
Payroll cost reimbursements
|
10,549
|
|
|
14,330
|
|
|
13,841
|
|
|
(26.4
|
)%
|
|
3.5
|
%
|
|
Total Lodging net revenue
|
248,414
|
|
|
314,662
|
|
|
284,643
|
|
|
(21.1
|
)%
|
|
10.5
|
%
|
|
Lodging operating expense:
|
|
|
|
|
|
|
|
|
|
|
Labor and labor-related benefits
|
114,279
|
|
|
135,940
|
|
|
121,733
|
|
|
(15.9
|
)%
|
|
11.7
|
%
|
|
General and administrative
|
39,283
|
|
|
41,256
|
|
|
37,716
|
|
|
(4.8
|
)%
|
|
9.4
|
%
|
|
Other
|
81,034
|
|
|
95,036
|
|
|
86,347
|
|
|
(14.7
|
)%
|
|
10.1
|
%
|
|
|
234,596
|
|
|
272,232
|
|
|
245,796
|
|
|
(13.8
|
)%
|
|
10.8
|
%
|
|
Reimbursed payroll costs
|
10,549
|
|
|
14,330
|
|
|
13,841
|
|
|
(26.4
|
)%
|
|
3.5
|
%
|
|
Total Lodging operating expense
|
245,145
|
|
|
286,562
|
|
|
259,637
|
|
|
(14.5
|
)%
|
|
10.4
|
%
|
|
Lodging Reported EBITDA
|
$
|
3,269
|
|
|
$
|
28,100
|
|
|
$
|
25,006
|
|
|
(88.4
|
)%
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned hotel statistics (1)
|
|
|
|
|
|
|
|
|
|
|
ADR
|
$
|
266.43
|
|
|
$
|
256.50
|
|
|
$
|
250.50
|
|
|
3.9
|
%
|
|
2.4
|
%
|
|
RevPar
|
$
|
122.34
|
|
|
$
|
175.45
|
|
|
$
|
173.34
|
|
|
(30.3
|
)%
|
|
1.2
|
%
|
|
Managed condominium statistics (1)
|
|
|
|
|
|
|
|
|
|
|
ADR
|
$
|
328.98
|
|
|
$
|
324.34
|
|
|
$
|
336.29
|
|
|
1.4
|
%
|
|
(3.6
|
)%
|
|
RevPar
|
$
|
83.10
|
|
|
$
|
107.67
|
|
|
$
|
116.26
|
|
|
(22.8
|
)%
|
|
(7.4
|
)%
|
|
Owned hotel and managed condominium statistics (combined) (1)
|
|
|
|
|
|
|
|
|
|
|
ADR
|
$
|
310.76
|
|
|
$
|
300.47
|
|
|
$
|
300.90
|
|
|
3.4
|
%
|
|
(0.1
|
)%
|
|
RevPar
|
$
|
90.37
|
|
|
$
|
121.81
|
|
|
$
|
131.08
|
|
|
(25.8
|
)%
|
|
(7.1
|
)%
|
(1) RevPAR for Fiscal 2020 declined from the prior comparative period primarily due to the Resort Closures. Owned hotel and managed condominium statistics (combined) for Fiscal 2019 declined from the prior comparative period primarily due to the inclusion of properties acquired through the Triple Peaks acquisition, prospectively from the date of acquisition, as well as a new property management contract for units proximate to our Tahoe resorts.
Lodging Reported EBITDA includes $3.4 million, $3.2 million and $3.2 million of stock-based compensation expense for Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively.
Fiscal 2020 compared to Fiscal 2019
Lodging Reported EBITDA for Fiscal 2020 decreased $24.8 million, or 88.4%, primarily due to the impacts of the COVID-19 pandemic and the associated Resort Closures.
Primarily as a result of the Resort Closures, revenue from owned hotel rooms, managed condominium rooms, dining, transportation, golf and other revenue each decreased. The decreases resulting from the Resort Closures were partially offset by $13.7 million of incremental revenue from Peak Resorts and Triple Peaks.
Operating expense (excluding reimbursed payroll costs) decreased 13.8%. Labor and labor related benefits decreased 15.9% primarily due to cost actions associated with the Resort Closures, including decreased staffing, employee furloughs, salary reductions and reduced variable compensation accruals, as well as tax credits of approximately $2.2 million associated with recent COVID-19 related legislation passed in the U.S., Canada and Australia, partially offset by $6.4 million of incremental expenses from Peak Resorts and Triple Peaks. General and administrative expense decreased 4.8% due to lower allocated corporate overhead costs primarily associated with a reduction in variable compensation accruals, as well as tax credits of approximately $0.5 million associated with recent COVID-19 related legislation passed in the U.S., Canada and Australia. Other expenses decreased 14.7% primarily related to lower variable expenses associated with the impact of the Resort Closures, partially offset by $4.7 million of incremental expenses from Peak Resorts and Triple Peaks.
Revenue from payroll cost reimbursement and the corresponding reimbursed payroll costs relate to payroll costs at managed hotel properties where we are the employer and all payroll costs are reimbursed by the owners of the properties under contractual arrangements. Since the reimbursements are made based upon the costs incurred with no added margin, the revenue and corresponding expense have no effect on our Lodging Reported EBITDA.
Fiscal 2019 compared to Fiscal 2018
Lodging Reported EBITDA for Fiscal 2019 increased $3.1 million, or 12.4%, primarily due to the incremental operations of Triple Peaks.
Revenue from managed condominium rooms increased $16.1 million, or 22.8%, primarily due to incremental revenue from Okemo and Crested Butte of $11.7 million, as well as revenue from incremental managed Tahoe lodging properties that we did not manage in the prior year. Dining revenue increased $5.2 million, or 10.7%, primarily due to incremental revenue from our Okemo and Crested Butte lodging properties of $4.3 million and an increase in dining revenue at our Park City lodging properties. Golf revenue increased $1.5 million, or 8.5%, primarily due to incremental revenue from our golf courses at Okemo of $0.8 million, as well as higher revenue at our golf courses in Beaver Creek and at GTLC. Other revenue increased $7.0 million, or 14.8%, primarily due to an increase in allocated corporate revenue, incremental revenue from our lodging properties at Okemo and Crested Butte of $2.4 million, a business interruption insurance recovery related to a closed event facility in Breckenridge and increases in ancillary revenue.
Operating expense (excluding reimbursed payroll costs) increased 10.8%. Labor and labor-related benefits increased 11.7%, primarily due to incremental labor expenses from Okemo, Crested Butte and the incremental managed Tahoe lodging properties that we did not manage in the prior year of $11.3 million, as well as wage increases associated with our minimum wage initiatives, which were in excess of our historical minimum wage increases. General and administrative expense increased 9.4% due to higher corporate overhead costs. Other expense increased 10.1% primarily due to incremental expenses from Okemo and Crested Butte of $6.0 million, as well as an increase in variable operating expenses associated with increases in revenue.
Revenue from payroll cost reimbursement and the corresponding reimbursed payroll costs relate to payroll costs at managed hotel properties where we are the employer and all payroll costs are reimbursed by the owners of the properties under contractual arrangements. Since the reimbursements are made based upon the costs incurred with no added margin, the revenue and corresponding expense have no effect on our Lodging Reported EBITDA.
Real Estate Segment
Our Real Estate net revenue is primarily determined by the timing of closings and the mix of real estate sold in any given period. Different types of projects have different revenue and profit margins; therefore, as the real estate inventory mix changes, it can greatly impact Real Estate segment net revenue, operating expense, gain on sale of real property and Real Estate Reported EBITDA.
Real Estate segment operating results for Fiscal 2020, Fiscal 2019 and Fiscal 2018 are presented by category as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
Year Ended July 31,
|
|
Increase/(Decrease)
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020/2019
|
|
2019/2018
|
|
Total Real Estate net revenue
|
$
|
4,847
|
|
|
$
|
712
|
|
|
$
|
3,988
|
|
|
580.8
|
%
|
|
(82.1
|
)%
|
|
Real Estate operating expense:
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (including sales commissions)
|
3,932
|
|
|
13
|
|
|
3,927
|
|
|
30,146.2
|
%
|
|
(99.7
|
)%
|
|
Other, net
|
5,250
|
|
|
5,596
|
|
|
(381
|
)
|
|
(6.2
|
)%
|
|
1,568.8
|
%
|
|
Total Real Estate operating expense
|
9,182
|
|
|
5,609
|
|
|
3,546
|
|
|
63.7
|
%
|
|
58.2
|
%
|
|
Gain on sale of real property
|
207
|
|
|
580
|
|
|
515
|
|
|
(64.3
|
)%
|
|
12.6
|
%
|
|
Real Estate Reported EBITDA
|
$
|
(4,128
|
)
|
|
$
|
(4,317
|
)
|
|
$
|
957
|
|
|
4.4
|
%
|
|
(551.1
|
)%
|
Fiscal 2020
During Fiscal 2020, we closed on the sale of a development land parcel for $4.1 million which was recorded within Real Estate net revenue, with a corresponding cost of sale (including sales commission) of $3.9 million.
Other, net operating expense of $5.3 million was primarily comprised of general and administrative costs, such as labor and labor-related benefits, professional services and allocated corporate overhead costs.
Fiscal 2019
We closed on two land sales during the third quarter of Fiscal 2019 with third party developers at Keystone (One River Run site) and Breckenridge (East Peak 8 site) for proceeds of approximately $16.0 million, including $4.8 million associated with the sale of density for the Breckenridge property. The land parcel sales were accounted for as financing arrangements as a result of the Company’s continuing involvement with the underlying assets that were sold, including but not limited to, the obligation to repurchase finished commercial space from the development projects upon completion. As a result, the estimated gain of $3.6 million associated with the East Peak 8 site and the estimated loss of $3.2 million associated with the One River Run site will be deferred until the Company no longer maintains continuing involvement. Additionally, the Company’s future obligation to repurchase finished commercial space in the two completed projects, as well as other related capital spending, will result in total estimated capital expenditures of up to approximately $9.5 million in future fiscal years.
Other, net operating expense of $5.6 million was primarily comprised of general and administrative costs, such as labor and labor-related benefits, professional services and allocated corporate overhead costs. Real Estate Reported EBITDA also included a gain on sale of real property of $0.6 million for the sale of land parcels.
Fiscal 2018
During Fiscal 2018, we closed on the sales of development land parcels for $3.5 million which were recorded within Real Estate net revenue, with a corresponding cost of sale (including sales commissions) of $3.9 million.
Other, net operating expense included the recognition of a $5.5 million benefit (non-cash in the period) related to a legal settlement in Fiscal 2015 for which cash proceeds were received and established as a liability for estimated future remediation costs of a construction development. All known items were remediated in Fiscal 2018 and, based on continued monitoring, the Company concluded that the need for further remediation is remote. Additionally, other, net operating expense included general and administrative costs, such as labor and labor-related benefits, professional services and allocated corporate overhead costs. Real Estate Reported EBITDA also included a gain on sale of real property of $0.5 million for the sale of a land parcel.
Other Items
In addition to segment operating results, the following items contributed to our overall financial position and results of operations (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
Percentage Increase/(Decrease)
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020/2019
|
|
2019/2018
|
|
Depreciation and amortization
|
$
|
(249,572
|
)
|
|
$
|
(218,117
|
)
|
|
$
|
(204,462
|
)
|
|
14.4
|
%
|
|
6.7
|
%
|
|
Asset impairments
|
$
|
(28,372
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
nm
|
|
|
nm
|
|
|
Change in fair value of contingent consideration
|
$
|
2,964
|
|
|
$
|
(5,367
|
)
|
|
$
|
1,854
|
|
|
155.2
|
%
|
|
(389.5
|
)%
|
|
Interest expense, net
|
$
|
(106,721
|
)
|
|
$
|
(79,496
|
)
|
|
$
|
(63,226
|
)
|
|
34.2
|
%
|
|
25.7
|
%
|
|
Foreign currency loss on intercompany loans
|
$
|
(3,230
|
)
|
|
$
|
(2,854
|
)
|
|
$
|
(8,966
|
)
|
|
13.2
|
%
|
|
(68.2
|
)%
|
|
(Provision) benefit from income taxes
|
$
|
(7,378
|
)
|
|
$
|
(75,472
|
)
|
|
$
|
61,138
|
|
|
(90.2
|
)%
|
|
223.4
|
%
|
|
Effective tax rate (provision) benefit
|
(6.3
|
)%
|
|
(18.9
|
)%
|
|
18.0
|
%
|
|
(12.6 pts)
|
|
|
36.9 pts
|
|
Depreciation and amortization. Depreciation and amortization expense for Fiscal 2020 and Fiscal 2019 increased over the applicable prior fiscal year primarily due to assets acquired in the Peak Resorts acquisition (acquired in Fiscal 2020), as well as due to assets acquired in the Falls Creek, Hotham, Triple Peaks and Stevens Pass acquisitions (each acquired in Fiscal 2019) and discretionary capital projects completed at our resorts in each fiscal year.
Asset impairments. We recorded an asset impairment of approximately $28.4 million during Fiscal 2020 as a result of the effects of the COVID-19 pandemic on our Colorado resort ground transportation company, with corresponding reductions to goodwill, net of $25.7 million and intangible assets, net and property, plant and equipment, net of $2.7 million. See Notes to the Consolidated Financial Statements for additional information.
Change in fair value of contingent consideration. We recorded a gain of $3.0 million during Fiscal 2020 primarily related to the estimated Contingent Consideration payments for Fiscal 2020 and Fiscal 2021. We recorded a loss of $5.4 million during Fiscal 2019 primarily related to the estimated Contingent Consideration payment for Fiscal 2019. We recorded a gain of $1.9 million during Fiscal 2018 primarily related to a decrease in the estimated Contingent Consideration payment for Fiscal 2018. The estimated fair value of contingent consideration is based on assumptions for EBITDA of Park City in future periods, as calculated under the lease on which participating payments are determined, and was $17.8 million and $27.2 million as of July 31, 2020 and 2019, respectively.
Interest expense, net. Interest expense, net for Fiscal 2020 increased compared to Fiscal 2019 primarily due to debt obligations assumed in the Peak Resorts acquisition; borrowings under our 6.25% unsecured bond offering which was completed on May 4, 2020; incremental term loan borrowings under the Vail Holdings Credit Agreement of $335.6 million, which were used to fund the Peak Resorts acquisition in September 2019; and incremental borrowings under the revolver components of our Vail Holdings Credit Agreement and Whistler Credit Agreement, which were almost entirely drawn on during Fiscal 2020 as a precautionary measure in order to increase our cash position and financial flexibility in light of the financial market conditions resulting from the COVID-19 pandemic and were subsequently paid down, partially offset by a decrease in variable interest rates. Interest expense, net for Fiscal 2019 increased compared to Fiscal 2018 primarily due to interest expense associated with incremental term loan borrowings under the Vail Holdings Credit Agreement of $265.6 million during Fiscal 2019, which were used to fund the Stevens Pass and Triple Peaks acquisitions in August 2018 and September 2018, respectively, as well as an increase in variable interest rates.
Foreign currency loss on intercompany loans. Foreign currency loss on intercompany loans for Fiscal 2020 increased compared to Fiscal 2019 and decreased for Fiscal 2019 as compared to Fiscal 2018 as a result of the Canadian dollar fluctuating relative to the U.S. dollar, and was associated with an intercompany loan from Vail Holdings, Inc. to Whistler Blackcomb in the original amount of $210.0 million that was funded, effective as of November 1, 2016, in connection with the acquisition of Whistler Blackcomb. This intercompany loan, which had an outstanding balance of approximately $137.1 million as of July 31, 2020, requires foreign currency remeasurement to Canadian dollars, the functional currency for Whistler Blackcomb. As a result, foreign currency fluctuations associated with the loan are recorded within our results of operations.
(Provision) benefit from income taxes. Our effective tax rate was a (provision) benefit of (6.3%), (18.9%) and 18.0% in Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively. Our tax (provision) benefit and effective tax rate are driven primarily by (i) anticipated pre-tax book income for the full fiscal year, adjusted for items that are deductible/non-deductible for tax purposes only
(i.e., permanent items); (ii) excess tax benefits from employee share awards and enacted tax legislation, which are both recorded as discrete items; (iii) taxable income generated by state and foreign jurisdictions that varies from the consolidated pre-tax book income, (iv) the amount of net income attributable to noncontrolling interests and (v) discrete items. The decrease in the effective tax rate provision during Fiscal 2020 compared to Fiscal 2019 was primarily due to lower full year pre-tax net income, as well as a one-time, provisional $3.8 million benefit related to NOL carryback provision of the CARES Act, partially offset by a decrease in excess tax benefits from employee share awards that were exercised (stock appreciation rights) and that vested (restricted stock awards), which are recorded within (provision) benefit from income taxes on the Company’s Consolidated Statements of Operations. The increase in the effective tax rate provision during Fiscal 2019 compared to Fiscal 2018 was primarily due to a one-time, net tax benefit of $61.0 million recorded during Fiscal 2018 as a result of U.S. federal tax reform, which became effective on January 1, 2018, as well as a reduction in excess tax benefits from employee share awards that were exercised (stock appreciation awards) and that vested (restricted stock awards), which are recorded within (provision) benefit from income taxes on the Company’s Consolidated Statements of Operations. Excess tax benefits totaled $7.9 million, $12.9 million and $71.1 million for Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act. The Tax Act transitioned the U.S. tax system to a new territorial system and lowered the statutory federal corporate income tax rate from 35% to 21%. The reduction of the statutory federal corporate tax rate to 21% became effective on January 1, 2018. As a result of the Tax Act, we recorded a one-time, net tax benefit of $61.0 million on our Consolidated Statement of Operations during Fiscal 2018. Due to the reduction in the federal corporate tax rate, we remeasured our U.S. net deferred tax liabilities as of the effective date of the Tax Act using the reduced statutory federal corporate income tax rate. The U.S. net deferred tax liabilities remeasurement resulted in a one-time tax benefit of $67.0 million, which was recognized as a discrete item and was recorded within (provision) benefit from income taxes on our Consolidated Statement of Operations during Fiscal 2018. Also, in transitioning to the new territorial tax system, the Tax Act requires us to include certain foreign earnings of non-U.S. subsidiaries in our taxable income. Such foreign earnings were subject to a one-time transition tax at the time of enactment of the Tax Act, which was $6.0 million and was recorded during Fiscal 2018.
Reconciliation of Segment Earnings
The following table reconciles net income attributable to Vail Resorts, Inc. to Total Reported EBITDA for Fiscal 2020, Fiscal 2019 and Fiscal 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Net income attributable to Vail Resorts, Inc.
|
$
|
98,833
|
|
|
$
|
301,163
|
|
|
$
|
379,898
|
|
|
Net income attributable to noncontrolling interests
|
10,222
|
|
|
22,330
|
|
|
21,332
|
|
|
Net income
|
109,055
|
|
|
323,493
|
|
|
401,230
|
|
|
Provision (benefit) from income taxes
|
7,378
|
|
|
75,472
|
|
|
(61,138
|
)
|
|
Income before provision (benefit) from income taxes
|
116,433
|
|
|
398,965
|
|
|
340,092
|
|
|
Depreciation and amortization
|
249,572
|
|
|
218,117
|
|
|
204,462
|
|
|
Asset impairments
|
28,372
|
|
|
—
|
|
|
—
|
|
|
(Gain) loss on disposal of fixed assets and other, net
|
(838
|
)
|
|
664
|
|
|
4,620
|
|
|
Change in fair value of contingent consideration
|
(2,964
|
)
|
|
5,367
|
|
|
(1,854
|
)
|
|
Investment income and other, net
|
(1,305
|
)
|
|
(3,086
|
)
|
|
(1,944
|
)
|
|
Foreign currency loss on intercompany loans
|
3,230
|
|
|
2,854
|
|
|
8,966
|
|
|
Interest expense, net
|
106,721
|
|
|
79,496
|
|
|
63,226
|
|
|
Total Reported EBITDA
|
$
|
499,221
|
|
|
$
|
702,377
|
|
|
$
|
617,568
|
|
|
|
|
|
|
|
|
|
|
|
|
Mountain Reported EBITDA
|
$
|
500,080
|
|
|
$
|
678,594
|
|
|
$
|
591,605
|
|
|
Lodging Reported EBITDA
|
3,269
|
|
|
28,100
|
|
|
25,006
|
|
|
Resort Reported EBITDA
|
503,349
|
|
|
706,694
|
|
|
616,611
|
|
|
Real Estate Reported EBITDA
|
(4,128
|
)
|
|
(4,317
|
)
|
|
957
|
|
|
Total Reported EBITDA
|
$
|
499,221
|
|
|
$
|
702,377
|
|
|
$
|
617,568
|
|
The following table reconciles long-term debt, net to Net Debt (defined as long-term debt, net plus long-term debt due within one year less cash and cash equivalents) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
2020
|
|
2019
|
|
Long-term debt, net
|
$
|
2,387,122
|
|
|
$
|
1,527,744
|
|
|
Long-term debt due within one year
|
63,677
|
|
|
48,516
|
|
|
Total debt
|
2,450,799
|
|
|
1,576,260
|
|
|
Less: cash and cash equivalents
|
390,980
|
|
|
108,850
|
|
|
Net Debt
|
$
|
2,059,819
|
|
|
$
|
1,467,410
|
|
Liquidity and Capital Resources
Changes in significant sources and uses of cash for Fiscal 2020, Fiscal 2019 and Fiscal 2018 are presented by categories as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
2019
|
2018
|
|
Net cash provided by operating activities
|
$
|
394,950
|
|
$
|
634,231
|
|
$
|
548,486
|
|
|
Net cash used in investing activities
|
$
|
(492,739
|
)
|
$
|
(596,034
|
)
|
$
|
(134,579
|
)
|
|
Net cash provided by (used in) financing activities
|
$
|
376,233
|
|
$
|
(99,558
|
)
|
$
|
(350,715
|
)
|
Historically, we have lower cash available at the end of each first and fourth fiscal quarter-end as compared to our second and third fiscal quarter-ends, primarily due to the seasonality of our Mountain segment operations, although our available cash balance as of July 31, 2020 is higher than our historical July 31 balance as a result of proceeds reflected in the net cash provided by financing activities for fiscal 2020 from the Notes offering, as discussed further below.
Fiscal 2020 compared to Fiscal 2019
We generated $395.0 million of cash from operating activities during Fiscal 2020, a decrease of $239.3 million when compared to $634.2 million of cash generated during Fiscal 2019. The decrease in operating cash flows was primarily a result of decreased Mountain and Lodging segment operating results in Fiscal 2020, primarily due to the Resort Closures; a decrease in accounts payable and accrued liabilities due to declines associated with the Resort Closures (excluding accounts payable and accrued liabilities assumed through acquisitions) and an increase in cash interest payments of approximately $17.5 million primarily associated with debt assumed in the Peak Resorts acquisition and incremental term loan and revolver borrowings under our Vail Holdings Credit Agreement. These decreases were partially offset by increased North American pass product sales and receivable collections for the 2019/2020 North American ski season as compared to the prior year and a decrease in estimated tax payments of $23.1 million. Additionally we generated approximately $4.4 million of proceeds from real estate development land parcel sales in Fiscal 2020 compared to $0.1 million in proceeds from real estate development project closings that occurred in the prior year.
Cash used in investing activities for Fiscal 2020 decreased by $103.3 million, primarily due to cash payments of $327.6 million, net of cash acquired, related to the acquisition of Peak Resorts during Fiscal 2020, as compared to cash payments of $419.0 million, net of cash acquired, related to the acquisitions of Triple Peaks, Stevens Pass, Falls Creek and Hotham during Fiscal 2019. Additionally, capital expenditures decreased by $19.7 million primarily as a result of actions associated with the deferral of discretionary capital projects related to the Company’s decision to prioritize near-term liquidity.
Cash provided by financing activities increased by $475.8 million during Fiscal 2020 compared to Fiscal 2019, primarily due to (i) the $600.0 million issuance of the Notes in Fiscal 2020; (ii) an increase in proceeds from incremental borrowings under the term loan portion of our Vail Holdings Credit Agreement from $265.5 million during Fiscal 2019, which were used to fund the Triple Peaks and Stevens Pass acquisitions, to $335.6 million during Fiscal 2020, which were used to fund the Peak Resorts acquisition; (iii) an increase in net borrowings under the revolver component of our Whistler Credit Agreement of $24.1 million, primarily relating to funds which were drawn as a precautionary measure in order to increase our cash position and financial flexibility in light of the financial market conditions resulting from the COVID-19 pandemic; (iv) a decrease in repurchases of common stock of $38.6 million; and (v) a decrease in dividend payments of $47.8 million associated with the Company’s decision to prioritize near-term liquidity. These increases in cash provided by financing activities were partially offset by (i) an increase in net payments on borrowings under the revolver component of our Vail Holdings Credit Agreement of $286.0 million; (ii) an
increase in financing cost payments of $8.8 million, primarily associated with the issuance of the Notes; and (iii) a payment for contingent consideration with regard to our lease for Park City.
Fiscal 2019 compared to Fiscal 2018
We generated $634.2 million of cash from operating activities during Fiscal 2019, an increase of $85.7 million when compared to $548.5 million of cash generated during Fiscal 2018. The increase in operating cash flows was primarily a result of improved Mountain segment operating results in Fiscal 2019, including operating benefits from the acquisitions of Triple Peaks, Stevens Pass, Falls Creek and Hotham, as compared to Fiscal 2018. Additionally, the increase in operating cash flows was a result of an increase in accounts payable. These increases were partially offset by an increase in cash interest payments during Fiscal 2019 primarily associated with incremental term loan borrowings under our Vail Holdings Credit Agreement and an increase in estimated foreign tax payments.
Cash used in investing activities for Fiscal 2019 increased by $461.5 million, primarily due to cash payments of $419.0 million, net of cash acquired, related to the acquisitions of Triple Peaks, Stevens Pass, Falls Creek and Hotham during Fiscal 2019 as well as an increase in capital expenditures of $51.4 million during Fiscal 2019 compared to Fiscal 2018.
Cash used in financing activities decreased $251.2 million during Fiscal 2019 compared to Fiscal 2018, primarily due to proceeds from incremental borrowings under the term loan portion of our Vail Holdings Credit Agreement of $265.6 million during Fiscal 2019, which was used to fund the Triple Peaks and Stevens Pass acquisitions. In addition, cash used in financing activities benefited from (i) a reduction of $76.8 million for employee taxes related to exercises of share awards, (ii) a reduction of $26.9 million in net payments on borrowings under our Whistler Credit Agreement and (iii) $11.2 million of proceeds related to real estate sales transactions completed during Fiscal 2019, that are reflected as financing arrangements. These decreases in cash used in financing activities were partially offset by an increase in repurchases of common stock of $59.2 million, an increase in dividends paid of $56.4 million and payments for commitments in conjunction with the Canyons transaction of $9.5 million.
Significant Sources of Cash
We had $391.0 million of cash and cash equivalents as of July 31, 2020, compared to $108.9 million as of July 31, 2019. We generated $395.0 million of cash from operating activities during Fiscal 2020 compared to $634.2 million and $548.5 million generated during Fiscal 2019 and Fiscal 2018, respectively, with the decrease in Fiscal 2020 primarily resulting from operational impacts of the COVID-19 pandemic, including the Resort Closures. Although we cannot predict the future impact associated with the COVID-19 pandemic on our business, we currently anticipate that our Mountain and Lodging segment operating results will continue to provide a significant source of future operating cash flows (primarily generated in our second and third fiscal quarters).
In addition to our $391.0 million of cash and cash equivalents at July 31, 2020, we had $418.8 million available under the revolver component of our Vail Holdings Credit Agreement as of July 31, 2020 (which represents the total commitment of $500.0 million less certain letters of credit outstanding of $81.2 million). Also, to further support the liquidity needs of Whistler Blackcomb, we had C$221.1 million ($165.1 million) available under the revolver component of our Whistler Credit Agreement (which represents the total commitment of C$300.0 million ($224.0 million) less outstanding borrowings of C$78.0 million ($58.2 million) and a letter of credit outstanding of C$0.9 million ($0.7 million)). We believe that our liquidity needs in the near term will be met by our existing cash and cash equivalents, availability under our credit agreements and the expected positive cash flow from operating activities of our Mountain and Lodging segments less resort capital expenditures, which we expect will provide us with sufficient liquidity to fund our operations through at least the 2021/2022 ski season, even in the event of extended resort shutdowns. The Vail Holdings Credit Agreement and the Whistler Credit Agreement provide adequate flexibility and are priced favorably with any new borrowings currently priced at LIBOR plus 2.5% and Bankers Acceptance Rate plus 1.75%, respectively.
Significant Uses of Cash
Capital Expenditures
We have historically invested significant amounts of cash in capital expenditures for our resort operations, and we expect to continue to do so, subject to operating performance particularly as it relates to discretionary projects. On April 1, 2020, we announced that we would be reducing our capital plan for calendar 2020 as compared to our previously issued guidance by approximately $80 million to $85 million, with the vast majority of these savings coming from the deferral of many of our discretionary capital projects. We are planning to defer all new chair lifts, terrain expansions and other mountain base area improvements, while continuing the vast majority of our maintenance capital spending. Accordingly we now anticipate that we will spend approximately $125 million to $130 million on resort capital expenditures during calendar year 2020. In addition, we may incur capital expenditures for retained ownership interests associated with third-party real estate development projects. Normal discretionary capital expenditures primarily include investments that will allow us to maintain our high-quality standards, as well
as certain incremental discretionary improvements at our Resorts, throughout our owned hotels, and in technology that can impact the full network. We evaluate additional discretionary capital improvements based on an expected level of return on investment.
Approximately $51 million was spent for capital expenditures in calendar year 2020 as of July 31, 2020, leaving approximately $74 million to $79 million to spend in the remainder of calendar year 2020. We currently plan to utilize cash on hand, borrowings available under our credit agreements and/or cash flow generated from future operations to provide the cash necessary to complete our capital plans.
Pursuant to the Third Amendment and discussed further below, we are prohibited, during the Financial Covenants Temporary Waiver Period, from making capital expenditures in excess of $200.0 million per twelve-month period ending January 31, other than non-recurring extraordinary capital expenditures incurred in connection with emergency repairs, life safety repairs, or ordinary course maintenance repairs.
Acquisition of Peak Resorts
On September 23, 2019, we entered into an amendment to our Vail Holdings Credit Agreement in which we incurred additional term loans of approximately $335.6 million, and we utilized the proceeds to fund the acquisition of 100% of the outstanding stock of Peak Resorts on September 24, 2019 at a purchase price of $11.00 per share or approximately $264.5 million, and to prepay certain portions of Peak Resorts’ outstanding debt and lease obligations that were required to be repaid in order to complete the transaction.
Debt
As of July 31, 2020, principal payments on the majority of our long-term debt ($2.1 billion of the total $2.4 billion debt outstanding as of July 31, 2020) are not due until fiscal year 2025 and beyond. As of July 31, 2020 and 2019, total long-term debt, net (including long-term debt due within one year) was $2,450.8 million and $1,576.3 million, respectively. Net Debt (defined as long-term debt, net plus long-term debt due within one year less cash and cash equivalents) increased from $1,467.4 million as of July 31, 2019 to $2,059.8 million as of July 31, 2020, primarily as a result of $335.6 million in incremental term loans, as discussed above, resulting from the September 23, 2019 amendment of our Vail Holdings Credit Agreement and the assumption of certain debt obligations of Peak Resorts, which have maturities ranging from 2021 through 2036 and were recorded at their estimated fair values of approximately $184.7 million. See Notes to the Consolidated Financial Statements for additional information.
On April 28, 2020, through a wholly-owned subsidiary, we entered into the Third Amendment. Pursuant to the Third Amendment, among other terms, we are exempt from complying with the Vail Holdings Credit Agreement’s maximum leverage ratio and minimum interest coverage ratio financial maintenance covenants for the Financial Covenants Temporary Waiver Period, after which we will again be required to comply with such covenants starting with the fiscal quarter ending April 30, 2022 (or such earlier fiscal quarter as elected by us). After the Financial Covenants Temporary Waiver Period:
|
|
|
|
•
|
the maximum leverage ratio permitted under the maximum leverage ratio financial maintenance covenant reduces each quarter after the expiration of the Financial Covenants Temporary Waiver Period as follows:
|
(A) first full fiscal quarter: 6.25 to 1.00;
(B) second full fiscal quarter: 5.75 to 1.00;
(C) third full fiscal quarter: 5.25 to 1.00; and
(D) fourth full fiscal quarter and for each fiscal quarter thereafter: 5.00 to 1.00.
|
|
|
|
•
|
the minimum interest coverage ratio permitted under the minimum interest coverage ratio financial maintenance covenant will be 2.00 to 1.00.
|
In addition, we are required to comply with a monthly minimum liquidity test (liquidity is defined as unrestricted cash and temporary cash investments of VRI and its restricted subsidiaries and available commitments under our Vail Holdings Credit Agreement revolver) of not less than $150.0 million, during the period that began on July 31, 2020 and ending on the date we deliver a compliance certificate for the Company and its subsidiaries’ first fiscal quarter following the end of the Financial Covenants Temporary Waiver Period.
We are also prohibited from the following activities during the Financial Covenants Temporary Waiver Period (unless approval is obtained by a majority of the lenders under the Vail Holdings Credit Agreement):
|
|
|
|
•
|
paying any dividends or making share repurchases, unless (x) no default or potential default exists under the Vail Holdings Credit Agreement and (y) the Company has liquidity (as defined above) of at least $400.0 million, and the aggregate amount
|
of dividends paid and share repurchases made by the Company during the Financial Covenants Temporary Waiver Period may not exceed $38.2 million in any fiscal quarter;
|
|
|
|
•
|
making capital expenditures in excess of $200.0 million per 12-month period ending January 31, other than non-recurring extraordinary capital expenditures incurred in connection with emergency repairs, life safety repairs or ordinary course maintenance repairs;
|
|
|
|
|
•
|
incurring any indebtedness secured by the collateral under the Vail Holdings Credit Agreement other than pursuant to the existing revolving commitments under the Credit Agreement;
|
|
|
|
|
•
|
making non-ordinary course investments in unrestricted subsidiaries unless the Company has liquidity (as defined above) of at least $300.0 million;
|
|
|
|
|
•
|
making investments in non-subsidiaries in excess of $50.0 million in the aggregate; and
|
|
|
|
|
•
|
acquiring all or a majority of the capital stock or all or any substantial portion of the assets of any entity or merging or consolidating with another entity.
|
During the Financial Covenants Temporary Waiver Period, borrowings under the Vail Holdings Credit Agreement, including the term loan facility, bears interest annually at LIBOR plus 2.50% and, for amounts in excess of $400.0 million, LIBOR is subject to a floor of 0.75%. In addition, pursuant to the Third Amendment, the amount by which we are able to increase availability (under the revolver or in the form of term loans) was increased to an aggregate principal amount not to exceed the greater of (i) $2.25 billion and (ii) the product of 3.25 and the trailing four-quarter Adjusted EBITDA (as defined in the Vail Holdings Credit Agreement).
On May 4, 2020, we completed our offering of $600 million aggregate principal amount of 6.25% senior notes due 2025 at par (the “Notes”). The Notes are unsecured senior obligations of the Company and are guaranteed by certain of our domestic subsidiaries. A portion of the net proceeds was utilized to pay down the outstanding balance of the revolver component of our Vail Holdings Credit Agreement in its entirety (which will continue to be available to the Company to borrow including throughout the Financial Covenants Temporary Waiver Period) and to pay the fees and expenses associated with the offering, with the remaining proceeds intended to be used for general corporate purposes. We will pay interest on the Notes on May 15 and November 15 of each year commencing on November 15, 2020. The Notes will mature on May 15, 2025. The Notes are redeemable, in whole or in part, at any time on or after May 15, 2022 at the redemption prices specified in an Indenture dated as of May 4, 2020 (the “Indenture”) plus accrued and unpaid interest. Prior to May 15, 2022, we may redeem some or all of the Notes at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, plus a “make-whole” premium as specified in the Indenture. In addition, prior to May 15, 2022, we may redeem up to 35% of the aggregate principal amount of the Notes with an amount not to exceed the net cash proceeds from certain equity offerings at the redemption price of 106.25% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. The Notes rank equally in right of payment with existing and future senior indebtedness of the Company and the guarantors (as defined in the Indenture).
The Indenture contains covenants that, among other things, restrict the ability of the Company and the guarantors of the Notes to incur liens on assets; merge or consolidate with another company or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company’s assets or engage in Sale and Leaseback Transactions (as defined in the Indenture). The Indenture does not contain any financial maintenance covenants. Certain of the covenants will not apply to the Notes so long as the Notes have investment grade ratings from two specified rating agencies and no event of default has occurred and is continuing under the Indenture. The Indenture includes customary events of default, including failure to make payment, failure to comply with the obligations set forth in the Indenture, certain defaults on certain other indebtedness, certain events of bankruptcy, insolvency or reorganization, and invalidity of the guarantees of the Notes issued pursuant to the Indenture.
The Indenture requires that, upon the occurrence of a Change of Control (as defined in the Indenture), the Company shall offer to purchase all of the outstanding Notes at a purchase price in cash equal to 101% of the outstanding principal amount of the Notes, plus accrued and unpaid interest. If the Company or certain of its subsidiaries dispose of assets, under certain circumstances, the Company will be required to either invest the net cash proceeds from such assets sales in its business within a specified period of time, repay certain senior secured debt or debt of its non-guarantor subsidiaries, or make an offer to purchase a principal amount of the Notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount, plus accrued and unpaid interest.
The Vail Holdings Credit Agreement provides for (i) a revolving loan facility in an aggregate principal amount of $500.0 million and (ii) a term loan facility of $1.25 billion. We expect that our liquidity needs in the near term will be met by continued use of operating cash flows and borrowings under the Notes, the Vail Holdings Credit Agreement and the Whistler Credit Agreement.
Our debt service requirements can be impacted by changing interest rates as we had approximately $0.9 billion of net variable-rate debt outstanding as of July 31, 2020, after consideration of $400.0 million in interest rate swaps which convert variable-rate debt to fixed-rate debt. A 100-basis point change in LIBOR would cause our annual interest payments on our net variable-rate debt to change by approximately $9.1 million. Additionally, the annual payments associated with the financing of the Canyons transaction increase by the greater of CPI less 1%, or 2%. The fluctuation in our debt service requirements, in addition to interest rate and inflation changes, may be impacted by future borrowings under our credit agreements or other alternative financing arrangements we may enter into. Our long term liquidity needs depend upon operating results that impact the borrowing capacity under our credit agreements, which can be mitigated by adjustments to capital expenditures, the flexibility of investment activities and the ability to obtain favorable future financing. We can respond to liquidity impacts of changes in the business and economic environment, including the COVID-19 pandemic, by managing our capital expenditures, variable operating expenses, the timing of new real estate development activity and the payment of cash dividends on our common stock.
Share Repurchase Program
Our share repurchase program is conducted under authorizations made from time to time by our Board of Directors. On March 6, 2006, our Board of Directors initially authorized the repurchase of up to 3,000,000 shares of Vail Resorts common stock (“Vail Shares”) and later authorized additional repurchases of up to 3,000,000 additional Vail Shares (July 16, 2008) and 1,500,000 Vail Shares (December 4, 2015), for a total authorization to repurchase shares of up to 7,500,000 Vail Shares. During Fiscal 2020, we repurchased 256,418 Vail shares at a cost of $46.4 million. Since the inception of this stock repurchase program through July 31, 2020, we have repurchased 6,161,141 Vail Shares at a cost of approximately $404.4 million. As of July 31, 2020, 1,338,859 Vail Shares remained available to repurchase under the existing repurchase authorization. Pursuant to the Third Amendment and as discussed above, we are prohibited from repurchasing shares of common stock during the Financial Covenants Temporary Waiver Period unless (x) no default or potential default exists under the Vail Holdings Credit Agreement and (y) the Company has liquidity (as defined above) of at least $400.0 million, and the aggregate amount of dividends paid and share repurchases made by the Company during the Financial Covenants Temporary Waiver Period may not exceed $38.2 million in any fiscal quarter. Vail Shares purchased pursuant to the repurchase program will be held as treasury shares and may be used for the issuance of shares under the Company’s share award plan. Repurchases under the program may be made from time to time at prevailing prices as permitted by applicable laws, and subject to market conditions and other factors. The timing, as well as the number of Vail Shares that may be repurchased under the program, will depend on several factors, including our future financial performance, our available cash resources and competing uses for cash that may arise in the future, the restrictions in our Vail Holdings Credit Agreement, prevailing prices of Vail Shares and the number of Vail Shares that become available for sale at prices that we believe are attractive. The share repurchase program has no expiration date.
Dividend Payments
We announced on April 1, 2020 that we would be suspending the declaration of our quarterly dividend for at least the next two quarters in response to the impacts of the COVID-19 pandemic. Subsequently, pursuant to the Third Amendment and as discussed above, we are prohibited from paying any dividends during the Financial Covenants Temporary Waiver Period unless (x) no default or potential default exists under the Vail Holdings Credit Agreement and (y) the Company has liquidity (as defined above) of at least $400.0 million, and the aggregate amount of dividends paid and share repurchases made by the Company during the Financial Covenants Temporary Waiver Period may not exceed $38.2 million in any fiscal quarter. For the year ended July 31, 2020, we paid cash dividends of $5.28 per share ($212.7 million in the aggregate). These dividends were funded through available cash on hand and borrowings under the revolving portion of our Vail Holdings Credit Agreement. The amount, if any, of the dividends to be paid in the future will depend on our available cash on hand, anticipated cash needs, overall financial condition, restrictions contained in our Vail Holdings Credit Agreement, future prospects for earnings and cash flows, as well as other factors considered relevant by our Board of Directors.
Covenants and Limitations
We must abide by certain restrictive financial covenants under our credit agreements. The most restrictive of those covenants include the following covenants: for the Vail Holdings Credit Agreement, Net Funded Debt to Adjusted EBITDA ratio and the Interest Coverage ratio (each as defined in the Vail Holdings Credit Agreement); for the Whistler Credit Agreement, Consolidated Total Leverage Ratio and Consolidated Interest Coverage Ratio (each as defined in the Whistler Credit Agreement); and for the EPR Secured Notes, Maximum Leverage Ratio and Consolidated Fixed Charge Ratio (each as defined in the EPR Agreements). In addition, our financing arrangements limit our ability to make certain restricted payments, pay dividends on or redeem or repurchase stock, make certain investments, make certain affiliate transfers and may limit our ability to enter into certain mergers, consolidations or sales of assets and incur certain indebtedness. Our borrowing availability under the Vail Holdings Credit Agreement is primarily determined by the Net Funded Debt to Adjusted EBITDA ratio, which is based on our segment operating performance, as defined in the Vail Holdings Credit Agreement. Our borrowing availability under the Whistler Credit Agreement is primarily determined based on the commitment size of the credit facility and our compliance with the terms of the Whistler Credit Agreement.
Pursuant to the Third Amendment and as discussed above in further detail, we are exempt from complying with the restrictive covenants of the Vail Holdings Credit Agreement during the Financial Covenants Temporary Waiver Period, but are required to comply with a monthly minimum liquidity test during such period.
We were in compliance with all restrictive financial covenants in our debt instruments as of July 31, 2020. We expect that we will continue to meet all applicable financial maintenance covenants in effect in our credit agreements throughout the year ending July 31, 2021. However, there can be no assurance that we will continue to meet such financial covenants. If such covenants are not met, we would be required to seek a waiver or amendment from the banks participating in our credit agreements. There can be no assurance that such waiver or amendment would be granted, which could have a material adverse impact on our liquidity.
Contractual Obligations
As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such as debt agreements, lease agreements and construction agreements in conjunction with our resort capital expenditures. Debt obligations, which totaled $2.4 billion as of July 31, 2020, are recognized as liabilities in our Consolidated Balance Sheet. Obligations under construction contracts are not recognized as liabilities in our Consolidated Balance Sheet until services and/or goods are received which is in accordance with GAAP. A summary of our contractual obligations as of July 31, 2020 is presented below (in thousands):
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Payments Due by Period
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Fiscal
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2-3
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4-5
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More than
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Contractual Obligations
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Total
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2021
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years
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years
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5 years
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Long-Term Debt (Outstanding Principal) (1)
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$
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2,444,248
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$
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69,827
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$
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178,935
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$
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1,675,916
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$
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519,570
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Fixed Rate Interest (1)
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414,370
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56,517
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112,736
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|
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108,268
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|
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136,849
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Canyons Obligation (2)
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1,577,790
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28,827
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59,395
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61,795
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1,427,773
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Operating Leases and Service Contracts (3)
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363,283
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68,419
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90,527
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66,836
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137,501
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Purchase Obligations and Other (4)
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440,387
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336,666
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87,069
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|
|
432
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16,220
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Total Contractual Cash Obligations
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$
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5,240,078
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$
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560,256
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$
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528,662
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|
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$
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1,913,247
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$
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2,237,913
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(1) The fixed-rate interest payments (including payments that are required under interest rate swaps that we have entered into) as well as long-term debt payments, included in the table above, assume that all debt outstanding as of July 31, 2020 will be held to maturity. Interest payments associated with variable-rate debt have not been included in the table. Assuming that our approximately $0.9 billion of variable-rate long-term debt as of July 31, 2020 is held to maturity and utilizing interest rates in effect at July 31, 2020, our annual interest payments (including commitment fees and letter of credit fees) on variable rate long-term debt as of July 31, 2020 is anticipated to be approximately $24.4 million for Fiscal 2021, approximately $22.7 million for Fiscal 2022 and approximately $14.9 million for at least each of the next three years subsequent to Fiscal 2022. The future annual interest obligations noted herein are estimated only in relation to debt outstanding as of July 31, 2020 and do not reflect interest obligations on potential future debt.
Included in Long-Term Debt (Outstanding Principal) are $11.2 million of proceeds resulting from real estate transactions accounted for as a financing arrangements. Fiscal 2021 payments shown above include approximately $6.2 million of proceeds, which are expected to be recognized on the Company’s Statement of Operations during the year ending July 31, 2021 as a
result of the anticipated resolution of continuing involvement, with no associated cash outflow (see Notes to Consolidated Financial Statements for additional information).
(2) Reflects principal and interest expense payments associated with the remaining lease term of the Canyons obligation, initially 50 years, assuming a 2% per annum (floor) increase in payments. Any potential increases to the annual fixed payment above the 2% floor due to inflation linked index of CPI less 1% have been excluded.
(3) The payments under noncancelable operating leases included in the table above reflect the applicable minimum lease payments and exclude any potential contingent rent payments.
(4) Purchase obligations and other primarily include amounts which are classified as trade payables ($59.7 million), accrued payroll and benefits ($69.3 million), accrued fees and assessments ($26.1 million), contingent consideration liability ($17.8 million), and accrued taxes (including taxes for uncertain tax positions) ($117.2 million) on our Consolidated Balance Sheet as of July 31, 2020; and, other commitments for goods and services not yet received, including construction contracts and minimum commitments under season pass alliance agreements, not included on our Consolidated Balance Sheet as of July 31, 2020 in accordance with GAAP.
Off Balance Sheet Arrangements
We do not have off balance sheet transactions that are expected to have a material effect on our financial condition, revenue, expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The preparation of Consolidated Financial Statements in conformity with GAAP requires us to select appropriate accounting policies and to make judgments and estimates affecting the application of those accounting policies. In applying our accounting policies, different business conditions or the use of different assumptions may result in materially different amounts reported in the Consolidated Financial Statements.
We have identified the most critical accounting policies which were determined by considering accounting policies that involve the most complex or subjective decisions or assessments. We also have other policies considered key accounting policies; however, these policies do not meet the definition of critical accounting policies because they do not generally require us to make estimates or judgments that are complex or subjective. We have reviewed these critical accounting policies and related disclosures with our Audit Committee of the Board of Directors.
Goodwill and Intangible Assets
Description
The carrying value of goodwill and indefinite-lived intangible assets are evaluated for possible impairment on an annual basis or between annual tests if an event occurs or circumstances change that would more likely than not reduce the estimated fair value of a reporting unit or indefinite-lived intangible asset below its carrying value. Other intangible assets are evaluated for impairment only when there is evidence that events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.
Judgments and Uncertainties
Application of the goodwill and indefinite-lived intangible asset impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and determination of the estimated fair value of reporting units and indefinite-lived intangible assets. We perform a qualitative analysis to determine whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset exceeds the carrying amount. If it is determined, based on qualitative factors, that the fair value of the reporting unit or indefinite-lived intangible asset may be more likely than not less than carrying amount, or if significant changes to macro-economic factors related to the reporting unit or intangible asset have occurred that could materially impact fair value, a quantitative impairment test would be required, in which we would determine the estimated fair value of our reporting units using a discounted cash flow analysis and determine the estimated fair value of indefinite-lived intangible assets primarily using the income approach based upon estimated future revenue streams. These analyses require significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, available industry/market data (to the extent available), estimation of the long-term rate of growth for our business including expectations and assumptions regarding the impact of general economic conditions on our business, estimation of the useful life over which cash flows will occur (including terminal multiples), determination of the respective weighted average cost of capital and market participant assumptions. Changes in these estimates and assumptions could materially affect the determination of estimated fair value and impairment for each reporting unit or indefinite-lived intangible asset. We evaluate our reporting units on an annual basis and allocate goodwill to our reporting units based on the reporting units expected to benefit from the acquisition generating the goodwill.
Effect if Actual Results Differ From Assumptions
Goodwill and indefinite-lived intangible assets are tested for impairment at least annually as of May 1. As a result of the coronavirus (COVID-19) pandemic and the impact it has had on our operations during Fiscal 2020, and the expected continuing impact of the pandemic on future operations, we determined that it was appropriate to test certain assets within our Colorado resort ground transportation company for impairment. Our testing for goodwill and indefinite-lived intangible asset impairment consists of a comparison of the estimated fair value of those assets with their net carrying values. If the net carrying value of the assets exceed their estimated fair value, an impairment will be recognized for indefinite-lived intangibles, including goodwill, in an amount equal to that excess; otherwise, no impairment loss is recognized. We recorded an impairment of approximately $28.4 million related to our Colorado resort ground transportation company during Fiscal 2020, which was recorded within asset impairments on our Consolidated Statement of Operations, with corresponding reductions to goodwill, net of $25.7 million and to intangible assets, net and property, plant and equipment, net of $2.7 million. See Notes to Consolidated Financial Statements for additional information. As of July 31, 2020, we determined that no other impairment of goodwill or indefinite-lived intangible assets existed.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be an accurate prediction of the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units may include such items as: (1) prolonged adverse weather conditions resulting in a sustained decline in guest visitation; (2) a prolonged weakness in the general economic conditions in which guest visitation and spending is adversely impacted (particularly with regard to the ongoing COVID-19 pandemic); and (3) volatility in the equity and debt markets which could result in a higher discount rate.
While historical performance and current expectations have resulted in estimated fair values of our reporting units in excess of carrying values (with the exception of our Colorado resort ground transportation company, as discussed above), if our assumptions are not realized, it is possible that an additional impairment charge may need to be recorded in the future. However, it is not possible at this time to determine if an impairment charge would result or if such a charge would be material. As of July 31, 2020, we had $1,709.0 million of goodwill and $247.0 million of indefinite-lived intangible assets recorded on our Consolidated Balance Sheet. There can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment tests for goodwill will prove to be an accurate prediction of the future.
Tax Contingencies
Description
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, including those enacted under the Tax Act. 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 largest tax benefit that is cumulatively greater 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, interpretation of 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.
Judgments and Uncertainties
The estimates of our tax contingencies reserve contain uncertainty because management must use judgment to estimate the potential exposure associated with our various filing positions.
Effect if Actual Results Differ From Assumptions
We believe the estimates and judgments discussed herein are reasonable and we have adequate reserves for our tax contingencies for uncertain tax positions. Our reserves for uncertain tax positions, including any income tax related interest and penalties ($76.5 million as of July 31, 2020), relate to the treatment of the Canyons obligation lease payments as payments of debt obligations and that the tax basis in Canyons goodwill is deductible. 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 increased tax expense and effective tax rate and/or adjustments to our deferred tax assets and deferred tax liabilities 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 and deferred tax liabilities in the year of settlement or in future years.
Depreciable Lives of Assets
Description
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 the remaining book value would be written-off or we could incur costs to remove or dispose of assets no longer in use.
Judgments and Uncertainties
The estimates of our useful lives of the assets contain uncertainty because management must use judgment to estimate the useful life of the asset.
Effect if Actual Results Differ From Assumptions
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. A 10% decrease in the estimated useful lives of depreciable assets would have increased depreciation expense by approximately $24.9 million for Fiscal 2020.
Business Combinations
Description
A component of our growth strategy has been to acquire and integrate businesses that complement our existing operations. We account for business combinations in accordance with the guidance for business combinations and related literature. Accordingly, we allocate the purchase price of acquired businesses to the identifiable tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The difference between the purchase price and the estimated fair value of the net assets acquired or the excess of the aggregate estimated fair values of assets acquired and liabilities assumed is recorded as goodwill. In determining the estimated fair values of assets acquired and liabilities assumed in a business combination, we use various recognized valuation methods including present value modeling and referenced market values (where available). Valuations are performed by management or independent valuation specialists under management’s supervision, where appropriate.
Judgments and Uncertainties
Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date, including our estimates for intangible assets, contractual obligations assumed and contingent consideration, where applicable. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are not limited to determination of weighted average cost of capital, market participant assumptions, royalty rates, terminal multiples and estimates of future cash flows to be generated by the acquired assets. In addition to the estimates and assumptions applied to valuing intangible assets acquired, the determination of the estimated fair value of contingent consideration, including estimating the likelihood and timing of achieving the relevant thresholds for contingent consideration payments, requires the use of subjective judgments. We estimate the fair value of the Park City contingent consideration payments using an option pricing valuation model which incorporates, among other factors, projected achievement of specified financial performance measures, discounts rates and volatility for the respective business.
Effect if Actual Results Differ From Assumptions
We believe that the estimated fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions that a marketplace participant would use. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the estimated fair values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments would be recorded in our Consolidated Statements of Operations.
We recognize the fair value of contingent consideration at the date of acquisition as part of the consideration transferred to acquire a business. The liability associated with contingent consideration is remeasured to fair value at each reporting period subsequent to the date of acquisition taking into consideration changes in financial projections and long-term growth rates, among other factors, that may impact the timing and amount of contingent consideration payments until the term of the agreement has expired or the contingency is resolved. Increases in the fair value of contingent consideration are recorded as losses in our Consolidated Statements of Operations, while decreases in fair value are recorded as gains.
New Accounting Standards
Refer to the Summary of Significant Accounting Policies within the Notes to Consolidated Financial Statements for a discussion of new accounting standards.
Inflation
Although we cannot accurately determine the precise effect of inflation on our operations, management does not believe inflation has had a material effect on the results of operations in the last three fiscal years. When the costs of operating resorts increase, we generally have been able to pass the increase on to our customers. However, there can be no assurance that increases in labor and other operating costs due to inflation will not have an impact on our future profitability.
In May 2013, we entered into a long-term lease pursuant to which we assumed the operations of Canyons which includes the ski terrain and related amenities. The lease has an initial term of 50 years with six 50-year renewal options. The lease provides for $25.0 million in annual payments, which increase each year by an inflation linked index of CPI less 1%, with a floor of 2% per
annum. As lease payments increase annually, there can be no assurance that these increases will be offset by increased cash flow generated from operations at Park City.
Seasonality and Quarterly Results
Our mountain and lodging operations are seasonal in nature. In particular, revenue and profits for our North America mountain and most of our lodging operations are substantially lower and historically result in losses from late spring to late fall. Conversely, peak operating seasons for our NPS concessionaire properties, our mountain resort golf courses and our Australian resorts’ ski season generally occur during the North American summer months while the North American winter months result in operating losses. Revenue and profits generated by NPS concessionaire properties summer operations, golf operations and Australian resorts’ ski operations are not sufficient to fully offset our off-season losses from our North American mountain and other lodging operations. During Fiscal 2020, there were several interruptions to our normal North American and Australian ski seasons as a result of the COVID-19 pandemic, which resulted in early resort closures. During Fiscal 2020, approximately 83% of total combined Mountain and Lodging segment net revenue (excluding Lodging segment revenue associated with reimbursement of payroll costs) was earned during the second and third fiscal quarters. Therefore, the operating results for any three-month period are not necessarily indicative of the results that may be achieved for any subsequent quarter or for a full year (see Notes to Consolidated Financial Statements).
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ITEM 8.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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Vail Resorts, Inc.
Consolidated Financial Statements for the Years Ended July 31, 2020, 2019 and 2018
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Consolidated Financial Statements
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Management’s Report on Internal Control over Financial Reporting
Management of Vail Resorts, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of July 31, 2020. In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this assessment, management concluded that, as of July 31, 2020, the Company’s internal control over financial reporting was effective. Management’s evaluation and conclusion on the effectiveness of internal control over financial reporting as of July 31, 2020 excluded certain elements of internal controls of Peak Resorts (acquired in September 2019) due to the timing of this acquisition. Those elements of the acquired resorts’ internal controls over financial reporting that have been excluded represent less than 1% of total consolidated assets and approximately 8% of total consolidated net revenues of the Company as of and for the year ended July 31, 2020.
The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of July 31, 2020, as stated in the Report of Independent Registered Public Accounting Firm on the following page.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of Vail Resorts, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Vail Resorts, Inc. and its subsidiaries (the “Company”) as of July 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended July 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of July 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of August 1, 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting 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 the 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded certain elements of the internal control over financial reporting of Peak Resorts from its assessment of internal control over financial reporting as of July 31, 2020 because it was acquired by the Company in a purchase business combination during September 2019. Subsequent to the acquisition, certain elements of Peak Resorts’ internal control over financial reporting and related processes were integrated into the Company’s existing systems and internal control over financial reporting. Those controls that were not integrated have been excluded from management’s assessment of the effectiveness of internal control over financial reporting as of July 31, 2020. We have also excluded these elements of internal control over financial reporting of Peak Resorts from our audit of the Company’s internal control over financial reporting. The excluded elements represent controls of less than 1% of consolidated assets and approximately 8% of consolidated net revenues.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Fair Value Measurement of the Contingent Consideration
As described in Note 10 to the consolidated financial statements, the Company has established a liability of $17.8 million as of July 31, 2020 for additional amounts that management believes are likely to be paid to the previous owner of Park City (the “Contingent Consideration”). The Company remeasures the Contingent Consideration to fair value at each reporting date until the contingency is resolved. The estimated fair value of Contingent Consideration includes the future period resort operations of Park City in the calculation of EBITDA on which participating contingent payments are made, which is determined on the basis of estimated performance for the years ending July 31, 2021 and July 31, 2022, escalated by an assumed long-term growth factor and discounted to net present value. Fair value is estimated using an option pricing valuation model. As described by management, key assumptions in determining the fair value under this model included Park City EBITDA for the year ending July 31, 2022, an assumed long- term growth rate, discount rate and volatility.
The principal considerations for our determination that performing procedures relating to the fair value measurement of the Contingent Consideration is a critical audit matter are (i) the significant judgment by management when developing the fair value measurement, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s significant assumptions for the Park City EBITDA for the year ending July 31, 2022, assumed long-term growth rate, discount rate, and volatility; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s fair value measurement of the Contingent Consideration including controls over the Company’s significant assumptions. The procedures also included, among others, testing management’s process for developing the fair value measurement and evaluating the significant assumptions used by management, related to the Park City EBITDA for the year ending July 31, 2022, assumed long-term growth rate, discount rate, and volatility. Evaluating management’s assumptions related to the Park City EBITDA for the year ending July 31, 2022, assumed long-term growth rate, discount rate, and volatility involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past EBITDA performance of Park City; (ii) the impact of the COVID-19 pandemic on the future EBITDA performance of Park City; (iii) the consistency with external market data; and (iv) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discount rate and volatility assumptions.
Acquisition of Peak Resorts - Valuation of Acquired Depreciable Property, Plant, and Equipment
As described in Note 7 to the consolidated financial statements, the Company completed the acquisition of Peak Resorts, Inc. during the year ended July 31, 2020 resulting in the recognition of an aggregate amount of approximately $427.8 million related to property, plant, and equipment. A substantial portion of the property, plant, and equipment acquired related to depreciable property, plant, and equipment (“Acquired Depreciable PPE”). The process of estimating the fair value of the Acquired Depreciable PPE includes the use of certain estimates and assumptions related to the determination of replacement cost.
The principal considerations for our determination that performing procedures relating to the valuation of the Acquired Depreciable PPE from the Peak Resorts acquisition is a critical audit matter are (i) the high degree of auditor subjectivity and effort in performing procedures over management’s valuation of the Acquired Depreciable PPE including the significant assumptions related to the replacement cost; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s significant assumptions and data used in the valuation of the Acquired Depreciable PPE. These procedures also included, among others, (i) testing management’s process for estimating the fair value of Acquired Depreciable PPE; (ii) testing the completeness and accuracy of the underlying data used to estimate the fair value of the Acquired Depreciable PPE; and (iii) evaluating management’s replacement cost assumptions used to estimate the fair value of the Acquired Depreciable PPE. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s valuation method and the Company’s replacement cost assumptions, including evaluating whether the assumptions used by management were reasonable considering consistency with external market and industry data.
/s/ PricewaterhouseCoopers LLP
Denver, Colorado
September 24, 2020
We have served as the Company’s auditor since 2002.
Vail Resorts, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
2020
|
2019
|
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
390,980
|
|
$
|
108,850
|
|
|
Restricted cash
|
11,106
|
|
9,539
|
|
|
Accounts receivable, net of allowances of $2,484 and $724, respectively
|
106,664
|
|
270,896
|
|
|
Inventories, net of reserves of $4,447 and $2,031, respectively
|
101,856
|
|
96,539
|
|
|
Other current assets
|
54,482
|
|
42,116
|
|
|
Total current assets
|
665,088
|
|
527,940
|
|
|
Property, plant and equipment, net (Note 8)
|
2,192,679
|
|
1,842,500
|
|
|
Real estate held for sale and investment
|
96,844
|
|
101,021
|
|
|
Goodwill, net (Note 8)
|
1,709,020
|
|
1,608,206
|
|
|
Intangible assets, net (Note 8)
|
314,776
|
|
306,173
|
|
|
Operating right-of-use assets (Note 4)
|
225,744
|
|
—
|
|
|
Deferred charges and other assets
|
40,081
|
|
40,237
|
|
|
Total assets
|
$
|
5,244,232
|
|
$
|
4,426,077
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued liabilities (Note 8)
|
$
|
499,108
|
|
$
|
607,857
|
|
|
Income taxes payable
|
40,680
|
|
62,760
|
|
|
Long-term debt due within one year (Note 6)
|
63,677
|
|
48,516
|
|
|
Total current liabilities
|
603,465
|
|
719,133
|
|
|
Long-term debt, net (Note 6)
|
2,387,122
|
|
1,527,744
|
|
|
Operating lease liabilities (Note 4)
|
217,542
|
|
—
|
|
|
Other long-term liabilities (Note 8)
|
270,245
|
|
283,601
|
|
|
Deferred income taxes, net (Note 11)
|
234,191
|
|
168,759
|
|
|
Total liabilities
|
3,712,565
|
|
2,699,237
|
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
Preferred stock, $0.01 par value, 25,000 shares authorized, no shares issued and outstanding
|
—
|
|
—
|
|
|
Common stock, $0.01 par value, 100,000 shares authorized and 46,350 and 46,190 shares issued, respectively
|
464
|
|
461
|
|
|
Exchangeable shares, $0.01 par value, 36 and 56 shares issued and outstanding, respectively (Note 5)
|
—
|
|
1
|
|
|
Additional paid-in capital
|
1,131,624
|
|
1,130,083
|
|
|
Accumulated other comprehensive loss
|
(56,837
|
)
|
(31,730
|
)
|
|
Retained earnings
|
645,902
|
|
759,801
|
|
|
Treasury stock, at cost; 6,161 and 5,905 shares, respectively (Note 16)
|
(404,411
|
)
|
(357,989
|
)
|
|
Total Vail Resorts, Inc. stockholders’ equity
|
1,316,742
|
|
1,500,627
|
|
|
Noncontrolling interests
|
214,925
|
|
226,213
|
|
|
Total stockholders’ equity
|
1,531,667
|
|
1,726,840
|
|
|
Total liabilities and stockholders’ equity
|
$
|
5,244,232
|
|
$
|
4,426,077
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
Vail Resorts, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
2019
|
2018
|
|
Net revenue:
|
|
|
|
|
Mountain and Lodging services and other
|
$
|
1,578,463
|
|
$
|
1,807,930
|
|
$
|
1,584,310
|
|
|
Mountain and Lodging retail and dining
|
380,394
|
|
462,933
|
|
423,255
|
|
|
Resort net revenue
|
1,958,857
|
|
2,270,863
|
|
2,007,565
|
|
|
Real Estate
|
4,847
|
|
712
|
|
3,988
|
|
|
Total net revenue
|
1,963,704
|
|
2,271,575
|
|
2,011,553
|
|
|
Operating expense (exclusive of depreciation and amortization shown separately below):
|
|
|
|
|
Mountain and Lodging operating expense
|
1,019,437
|
|
1,101,670
|
|
966,566
|
|
|
Mountain and Lodging retail and dining cost of products sold
|
159,066
|
|
190,044
|
|
174,105
|
|
|
General and administrative
|
278,695
|
|
274,415
|
|
251,806
|
|
|
Resort operating expense
|
1,457,198
|
|
1,566,129
|
|
1,392,477
|
|
|
Real Estate, net
|
9,182
|
|
5,609
|
|
3,546
|
|
|
Total segment operating expense
|
1,466,380
|
|
1,571,738
|
|
1,396,023
|
|
|
Other operating (expense) income:
|
|
|
|
|
Depreciation and amortization
|
(249,572
|
)
|
(218,117
|
)
|
(204,462
|
)
|
|
Gain on sale of real property
|
207
|
|
580
|
|
515
|
|
|
Asset impairments (Notes 2 & 8)
|
(28,372
|
)
|
—
|
|
—
|
|
|
Change in fair value of contingent consideration (Note 10)
|
2,964
|
|
(5,367
|
)
|
1,854
|
|
|
Gain (loss) on disposal of fixed assets and other, net
|
838
|
|
(664
|
)
|
(4,620
|
)
|
|
Income from operations
|
223,389
|
|
476,269
|
|
408,817
|
|
|
Interest expense, net
|
(106,721
|
)
|
(79,496
|
)
|
(63,226
|
)
|
|
Mountain equity investment income, net
|
1,690
|
|
1,960
|
|
1,523
|
|
|
Investment income and other, net
|
1,305
|
|
3,086
|
|
1,944
|
|
|
Foreign currency loss on intercompany loans (Note 6)
|
(3,230
|
)
|
(2,854
|
)
|
(8,966
|
)
|
|
Income before (provision) benefit from income taxes
|
116,433
|
|
398,965
|
|
340,092
|
|
|
(Provision) benefit from income taxes (Note 11)
|
(7,378
|
)
|
(75,472
|
)
|
61,138
|
|
|
Net income
|
109,055
|
|
323,493
|
|
401,230
|
|
|
Net income attributable to noncontrolling interests
|
(10,222
|
)
|
(22,330
|
)
|
(21,332
|
)
|
|
Net income attributable to Vail Resorts, Inc.
|
$
|
98,833
|
|
$
|
301,163
|
|
$
|
379,898
|
|
|
Per share amounts (Note 5):
|
|
|
|
|
Basic net income per share attributable to Vail Resorts, Inc.
|
$
|
2.45
|
|
$
|
7.46
|
|
$
|
9.40
|
|
|
Diluted net income per share attributable to Vail Resorts, Inc.
|
$
|
2.42
|
|
$
|
7.32
|
|
$
|
9.13
|
|
|
Cash dividends declared per share
|
$
|
5.28
|
|
$
|
6.46
|
|
$
|
5.046
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
Vail Resorts, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
2019
|
2018
|
|
Net income
|
$
|
109,055
|
|
$
|
323,493
|
|
$
|
401,230
|
|
|
Foreign currency translation adjustments (net of tax of $0, $0 and $1,981, respectively)
|
(9,075
|
)
|
(34,287
|
)
|
(61,957
|
)
|
|
Change in estimated fair value of hedging instruments
|
(22,510
|
)
|
—
|
|
—
|
|
|
Comprehensive income
|
77,470
|
|
289,206
|
|
339,273
|
|
|
Comprehensive income attributable to noncontrolling interests
|
(3,744
|
)
|
(17,546
|
)
|
(5,997
|
)
|
|
Comprehensive income attributable to Vail Resorts, Inc.
|
$
|
73,726
|
|
$
|
271,660
|
|
$
|
333,276
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
Vail Resorts, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
Additional
Paid in
Capital
|
Accumulated Other Comprehensive Income (Loss)
|
Retained
Earnings
|
Treasury
Stock
|
Total Vail Resorts, Inc. Stockholders’ Equity
|
Noncontrolling
Interests
|
Total
Stockholders’
Equity
|
|
|
Vail Resorts
|
Exchangeable
|
|
|
|
|
|
|
|
|
Balance, July 31, 2017
|
$
|
454
|
|
$
|
1
|
|
$
|
1,222,510
|
|
$
|
44,395
|
|
$
|
550,985
|
|
$
|
(247,189
|
)
|
$
|
1,571,156
|
|
$
|
227,803
|
|
$
|
1,798,959
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
379,898
|
|
—
|
|
379,898
|
|
21,332
|
|
401,230
|
|
|
Foreign currency translation adjustments, net of tax
|
—
|
|
—
|
|
—
|
|
(46,622
|
)
|
—
|
|
—
|
|
(46,622
|
)
|
(15,335
|
)
|
(61,957
|
)
|
|
Total comprehensive income
|
|
|
|
|
|
|
333,276
|
|
5,997
|
|
339,273
|
|
|
Stock-based compensation (Note 17)
|
—
|
|
—
|
|
19,040
|
|
—
|
|
—
|
|
—
|
|
19,040
|
|
—
|
|
19,040
|
|
|
Measurement period adjustment
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1,776
|
)
|
(1,776
|
)
|
|
Issuance of shares under share award plan, net of shares withheld for employee taxes (Note 17)
|
6
|
|
—
|
|
(104,083
|
)
|
—
|
|
—
|
|
—
|
|
(104,077
|
)
|
—
|
|
(104,077
|
)
|
|
Repurchases of common stock (Note 16)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(25,800
|
)
|
(25,800
|
)
|
—
|
|
(25,800
|
)
|
|
Dividends (Note 5)
|
—
|
|
—
|
|
—
|
|
—
|
|
(204,161
|
)
|
—
|
|
(204,161
|
)
|
—
|
|
(204,161
|
)
|
|
Distributions to noncontrolling interests, net
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(9,795
|
)
|
(9,795
|
)
|
|
Balance, July 31, 2018
|
460
|
|
1
|
|
1,137,467
|
|
(2,227
|
)
|
726,722
|
|
(272,989
|
)
|
1,589,434
|
|
222,229
|
|
1,811,663
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
301,163
|
|
—
|
|
301,163
|
|
22,330
|
|
323,493
|
|
|
Foreign currency translation adjustments, net of tax
|
—
|
|
—
|
|
—
|
|
(29,503
|
)
|
—
|
|
—
|
|
(29,503
|
)
|
(4,784
|
)
|
(34,287
|
)
|
|
Total comprehensive income
|
|
|
|
|
|
|
271,660
|
|
17,546
|
|
289,206
|
|
|
Stock-based compensation (Note 17)
|
—
|
|
—
|
|
19,856
|
|
—
|
|
—
|
|
—
|
|
19,856
|
|
—
|
|
19,856
|
|
|
Cumulative effect for adoption of revenue standard
|
—
|
|
—
|
|
—
|
|
—
|
|
(7,517
|
)
|
—
|
|
(7,517
|
)
|
—
|
|
(7,517
|
)
|
|
Issuance of shares under share award plan, net of shares withheld for employee taxes (Note 17)
|
1
|
|
—
|
|
(27,240
|
)
|
—
|
|
—
|
|
—
|
|
(27,239
|
)
|
—
|
|
(27,239
|
)
|
|
Repurchases of common stock (Note 16)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(85,000
|
)
|
(85,000
|
)
|
—
|
|
(85,000
|
)
|
|
Dividends (Note 5)
|
—
|
|
—
|
|
—
|
|
—
|
|
(260,567
|
)
|
—
|
|
(260,567
|
)
|
—
|
|
(260,567
|
)
|
|
Distributions to noncontrolling interests, net
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(13,562
|
)
|
(13,562
|
)
|
|
Balance, July 31, 2019
|
461
|
|
1
|
|
1,130,083
|
|
(31,730
|
)
|
759,801
|
|
(357,989
|
)
|
1,500,627
|
|
226,213
|
|
1,726,840
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
98,833
|
|
—
|
|
98,833
|
|
10,222
|
|
109,055
|
|
|
Foreign currency translation adjustments, net of tax
|
—
|
|
—
|
|
—
|
|
(2,597
|
)
|
—
|
|
—
|
|
(2,597
|
)
|
(6,478
|
)
|
(9,075
|
)
|
|
Change in estimated fair value of hedging instruments
|
—
|
|
—
|
|
—
|
|
(22,510
|
)
|
—
|
|
—
|
|
(22,510
|
)
|
—
|
|
(22,510
|
)
|
|
Total comprehensive income
|
|
|
|
|
|
|
73,726
|
|
3,744
|
|
77,470
|
|
|
Stock-based compensation (Note 17)
|
—
|
|
—
|
|
21,021
|
|
—
|
|
—
|
|
—
|
|
21,021
|
|
—
|
|
21,021
|
|
|
Issuance of shares under share award plan, net of shares withheld for employee taxes (Note 17)
|
2
|
|
—
|
|
(19,480
|
)
|
—
|
|
—
|
|
—
|
|
(19,478
|
)
|
—
|
|
(19,478
|
)
|
|
Exchangeable share transfers
|
1
|
|
(1
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Repurchases of common stock (Note 16)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(46,422
|
)
|
(46,422
|
)
|
—
|
|
(46,422
|
)
|
|
Dividends (Note 5)
|
—
|
|
—
|
|
—
|
|
—
|
|
(212,732
|
)
|
—
|
|
(212,732
|
)
|
—
|
|
(212,732
|
)
|
|
Distributions to noncontrolling interests, net
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(15,032
|
)
|
(15,032
|
)
|
|
Balance, July 31, 2020
|
$
|
464
|
|
$
|
—
|
|
$
|
1,131,624
|
|
$
|
(56,837
|
)
|
$
|
645,902
|
|
$
|
(404,411
|
)
|
$
|
1,316,742
|
|
$
|
214,925
|
|
$
|
1,531,667
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
Vail Resorts, Inc.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
2019
|
2018
|
|
Cash flows from operating activities:
|
|
|
|
|
Net income
|
$
|
109,055
|
|
$
|
323,493
|
|
$
|
401,230
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
249,572
|
|
218,117
|
|
204,462
|
|
|
Asset impairments
|
28,372
|
|
—
|
|
—
|
|
|
Cost of real estate sales
|
3,684
|
|
—
|
|
3,701
|
|
|
Stock-based compensation expense
|
21,021
|
|
19,856
|
|
19,040
|
|
|
Deferred income taxes, net
|
17,435
|
|
22,419
|
|
(45,770
|
)
|
|
Canyons obligation accreted interest expense
|
5,773
|
|
5,752
|
|
5,723
|
|
|
Change in fair value of contingent consideration
|
(2,964
|
)
|
5,367
|
|
(1,854
|
)
|
|
Foreign currency loss on intercompany loans
|
3,230
|
|
2,854
|
|
8,966
|
|
|
Gain on sale of real property
|
(207
|
)
|
(580
|
)
|
(515
|
)
|
|
Other non-cash income, net
|
(16,674
|
)
|
(13,875
|
)
|
(13,784
|
)
|
|
Changes in assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
Accounts receivable, net
|
167,347
|
|
(35,406
|
)
|
(44,261
|
)
|
|
Inventories, net
|
(1,924
|
)
|
(7,274
|
)
|
(963
|
)
|
|
Accounts payable and accrued liabilities
|
(82,394
|
)
|
23,296
|
|
1,879
|
|
|
Deferred revenue
|
(98,003
|
)
|
35,628
|
|
42,007
|
|
|
Income taxes payable - excess tax benefit from share award plans
|
(8,236
|
)
|
(12,932
|
)
|
(71,077
|
)
|
|
Income taxes payable - other
|
(4,951
|
)
|
38,773
|
|
38,453
|
|
|
Other assets and liabilities, net
|
4,814
|
|
8,743
|
|
1,249
|
|
|
Net cash provided by operating activities
|
394,950
|
|
634,231
|
|
548,486
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Capital expenditures
|
(172,334
|
)
|
(192,035
|
)
|
(140,611
|
)
|
|
Acquisition of businesses, net of cash acquired
|
(327,555
|
)
|
(419,044
|
)
|
(1,356
|
)
|
|
Other investing activities, net
|
7,150
|
|
15,045
|
|
7,388
|
|
|
Net cash used in investing activities
|
(492,739
|
)
|
(596,034
|
)
|
(134,579
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
Proceeds from borrowings under Vail Holdings Credit Agreement
|
892,625
|
|
543,625
|
|
225,000
|
|
|
Proceeds from borrowings under Whistler Credit Agreement
|
209,634
|
|
26,518
|
|
46,513
|
|
|
Proceeds from borrowings under 6.25% Notes
|
600,000
|
|
—
|
|
—
|
|
|
Repayments of borrowings under Vail Holdings Credit Agreement
|
(811,875
|
)
|
(235,625
|
)
|
(182,500
|
)
|
|
Repayments of borrowings under Whistler Credit Agreement
|
(204,032
|
)
|
(45,060
|
)
|
(91,941
|
)
|
|
Employee taxes paid for share award exercises
|
(19,478
|
)
|
(27,239
|
)
|
(104,077
|
)
|
|
Repurchases of common stock
|
(46,422
|
)
|
(85,000
|
)
|
(25,800
|
)
|
|
Dividends paid
|
(212,732
|
)
|
(260,567
|
)
|
(204,161
|
)
|
|
Other financing activities, net
|
(31,487
|
)
|
(16,210
|
)
|
(13,749
|
)
|
|
Net cash provided by (used in) financing activities
|
376,233
|
|
(99,558
|
)
|
(350,715
|
)
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
5,253
|
|
(5,290
|
)
|
(5,814
|
)
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
283,697
|
|
(66,651
|
)
|
57,378
|
|
|
Cash, cash equivalents and restricted cash:
|
|
|
|
|
Beginning of period
|
$
|
118,389
|
|
$
|
185,040
|
|
$
|
127,662
|
|
|
End of period
|
$
|
402,086
|
|
$
|
118,389
|
|
$
|
185,040
|
|
|
Cash paid for interest
|
$
|
88,398
|
|
$
|
70,888
|
|
$
|
53,842
|
|
|
Taxes paid, net
|
$
|
4,134
|
|
$
|
27,212
|
|
$
|
16,945
|
|
|
Non-cash investing activities:
|
|
|
|
|
Accrued capital expenditures
|
$
|
15,046
|
|
$
|
18,420
|
|
$
|
15,638
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
Notes to Consolidated Financial Statements
1.Organization and Business
Vail Resorts, Inc. (“Vail Resorts”) is organized as a holding company and operates through various subsidiaries. Vail Resorts and its subsidiaries (collectively, the “Company”) operate in three business segments: Mountain, Lodging and Real Estate. The Company refers to “Resort” as the combination of the Mountain and Lodging segments.
In the Mountain segment, the Company operates the following 37 destination mountain resorts and regional ski areas:
*Denotes a destination mountain resort, which generally receives a meaningful portion of skier visits from long-distance travelers, as opposed to the Company’s regional ski areas, which tend to generate skier visits predominantly from their respective local markets.
Additionally, the Mountain segment includes ancillary services, primarily including ski school, dining and retail/rental operations, and for the Company’s Australian ski areas, including lodging and transportation operations. Several of the resorts located in the United States (“U.S.”) operate primarily on federal land under the terms of Special Use Permits granted by the U.S. Department of Agriculture Forest Service. The operations of Whistler Blackcomb are conducted on land owned by the government of the Province of British Columbia, Canada within the traditional territory of the Squamish and Lil’wat Nations. The operations of the Company’s Australian ski areas are conducted pursuant to long-term leases and licenses on land owned by the governments of New South Wales and Victoria, Australia. Okemo, Mount Sunapee and Stowe operate on land leased from the respective states in which the resorts are located and on land owned by the Company.
In the Lodging segment, the Company owns and/or manages a collection of luxury hotels and condominiums under its RockResorts brand; other strategic lodging properties and a large number of condominiums located in proximity to the Company’s North American mountain resorts; National Park Service (“NPS”) concessionaire properties including the Grand Teton Lodge Company (“GTLC”), which operates destination resorts in Grand Teton National Park; a Colorado resort ground transportation company and mountain resort golf courses.
Vail Resorts Development Company (“VRDC”), a wholly-owned subsidiary, conducts the operations of the Company’s Real Estate segment, which owns, develops and sells real estate in and around the Company’s resort communities.
The Company’s mountain business and its lodging properties at or around the Company’s mountain resorts are seasonal in nature with peak operating seasons primarily from mid-November through mid-April in North America. The peak operating season at the Company’s Australian resorts, NPS concessionaire properties and golf courses generally occurs from June to early October.
|
|
|
|
2.
|
Summary of Significant Accounting Policies
|
Principles of Consolidation — The accompanying Consolidated Financial Statements include the accounts of the Company and its consolidated subsidiaries for which the Company has a controlling financial interest. Investments in which the Company does not have a controlling financial interest, but has significant influence, are accounted for under the equity method. All significant intercompany transactions have been eliminated in consolidation.
Cash and Cash Equivalents — The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents.
Restricted Cash — The Company considers cash to be restricted when withdrawal or general use is legally restricted. During peak operations of the North American ski season, the Company’s restricted cash balance is primarily associated with customer reservations deposits that are required to be held in a trust pursuant to statutory requirements until such reservations are fulfilled.
Accounts receivable — The Company records trade accounts receivable in the normal course of business related to the sale of products or services. The allowance for doubtful accounts is based on a specific reserve analysis and on a percentage of accounts receivable and takes into consideration such factors as historical write-offs, the economic climate and other factors that could affect collectability. Write-offs are evaluated on a case by case basis.
Inventories — The Company’s inventories consist primarily of purchased retail goods, food and beverage items and spare parts. Inventories are stated at the lower of cost or net realizable value, determined using primarily an average weighted cost method. The Company records a reserve for estimated shrinkage and obsolete or unusable inventory.
Property, Plant and Equipment — Property, plant and equipment is carried at cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Expenditures that improve the functionality of the related asset or extend the useful life are capitalized. When property, plant and equipment is retired or otherwise disposed of, the related gain or loss is included in income from operations. Leasehold improvements are amortized on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset. Depreciation is calculated on the straight-line method, including property, plant and equipment under capital leases, generally based on the following useful lives:
|
|
|
|
|
|
|
Estimated Life
in Years
|
|
Land improvements
|
10-35
|
|
Buildings and building improvements
|
7-30
|
|
Machinery and equipment
|
2-30
|
|
Furniture and fixtures
|
3-10
|
|
Software
|
3
|
|
Vehicles
|
3-10
|
Real Estate Held for Sale and Investment — The Company capitalizes as real estate held for sale and investment the original land acquisition cost, direct construction and development costs, property taxes, interest recorded on costs related to real estate under development and other related costs. Sales and marketing expenses are charged against income in the period incurred. Additionally, sales commission expenses are charged against income in the period that the related revenue from real estate sales is recorded.
Deferred Financing Costs — Certain costs incurred with the issuance of debt and debt securities are capitalized and included as a reduction in the net carrying value of long-term debt, net of accumulated amortization, with the exception of costs incurred related to line-of-credit arrangements, which are included in deferred charges and other assets, net of accumulated amortization. Amortization of such deferred financing costs are recorded to interest expense, net on the Company’s Consolidated Statements of Operations over the respective term of the applicable debt instruments. When debt is extinguished prior to its maturity date, the amortization of the remaining unamortized deferred financing costs, or pro-rata portion thereof, is charged to loss on extinguishment of debt.
Goodwill and Intangible Assets — The Company has classified as goodwill the cost in excess of estimated fair value of the net assets of businesses acquired in purchase transactions. The Company’s major intangible asset classes are trademarks, water rights, customer lists, property management contracts and Forest Service permits. Goodwill and various indefinite-lived intangible assets, including certain trademarks, water rights and certain property management contracts, are not amortized but are subject to at least annual impairment testing. The Company tests these non-amortizing assets annually (or more often, if necessary) for impairment as of May 1. Amortizable intangible assets are amortized over the shorter of their contractual terms or estimated useful lives.
The testing for impairment consists of a comparison of the estimated fair value of the assets with their net carrying values. If the net carrying amount of the assets exceed its estimated fair value, an impairment will be recognized for indefinite-lived intangibles, including goodwill, in an amount equal to that excess. If the net carrying amount of the assets does not exceed the estimated fair value, no impairment loss is recognized. For the testing of goodwill and other indefinite-lived intangible assets for impairment, the Company performs a qualitative analysis to determine whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset exceeds the carrying amount, which includes an evaluation as to whether there have been significant changes to macro-economic factors related to the reporting unit or intangible asset that could materially impact fair value. If it is determined, based on qualitative factors, that the fair value of the reporting unit or indefinite-lived intangible asset is more likely than not less than carrying amount, a quantitative impairment test would be required, in which the Company would determine the estimated fair value of its reporting units using discounted cash flow analyses and determine the estimated fair value of its indefinite-lived intangible assets using an income approach.
As a result of the coronavirus (COVID-19) pandemic and the impact it has had on the Company’s operations during the year ended July 31, 2020, and the expected continuing impact of the pandemic on future operations, the Company determined that the estimated fair value of its Colorado resort ground transportation company reporting unit within its Lodging segment no longer exceeded its carrying value. As further discussed in Note 8, the Company recognized an impairment of approximately $28.4 million related to its Colorado resort ground transportation company during the year ended July 31, 2020, which was recorded within asset impairments on the Company’s Consolidated Statement of Operations, with a corresponding reduction to goodwill, net of $25.7 million and to intangible assets, net and property, plant and equipment, net of $2.7 million. See Note 8, Supplementary Balance Sheet Information, for additional information. The Company determined that there were no other impairments of goodwill, definite and indefinite-lived assets for the years ended July 31, 2020, and that there was no impairment to goodwill and no material impairment to definite or indefinite-lived intangible assets for the years ended July 31, 2019 and 2018.
Long-lived Assets — The Company evaluates potential impairment of long-lived assets and long-lived assets to be disposed of whenever events or changes in circumstances indicate that the net carrying amount of an asset may not be fully recoverable. If the sum of the expected cash flows, on an undiscounted basis, is less than the net carrying amount of the asset, an impairment loss is recognized in the amount by which the net carrying amount of the asset exceeds its estimated fair value. As discussed above, the Company recorded an impairment to long-lived assets related to its Colorado resort ground transportation company during the year ended July 31, 2020. The Company determined that there were no other impairments of long-lived assets for the year ended July 31, 2020, and determined there was no impairment of the net carrying amount of a long-lived asset occurred during the years ended July 31, 2019 and 2018.
Revenue Recognition — The Company’s significant accounting policies with regard to revenue recognition are discussed in Note 3, Revenues.
Real Estate Cost of Sales — Costs of real estate transactions include direct project costs, common cost allocations (primarily determined on relative sales value) and sales commission expense. The Company utilizes the relative sales value method to determine cost of sales for condominium units sold within a project when specific identification of costs cannot be reasonably determined.
Foreign Currency Translation — The functional currency of the Company’s entities operating outside of the United States is the principal currency of the economic environment in which the entity primarily generates and expends cash, which is generally the local currency. The assets and liabilities of these foreign operations are translated at the exchange rate in effect as of the balance sheet dates. Income and expense items are translated using the weighted average exchange rate for the period. Translation adjustments from currency exchange, including intercompany transactions of a long-term nature, are recorded in accumulated other comprehensive loss as a separate component of stockholders’ equity. Intercompany transactions that are not of a long-term nature are reported as gains and losses within “segment operating expense” and for intercompany loans within foreign currency loss on intercompany loans on the Company’s Consolidated Statements of Operations.
Reserve Estimates — The Company uses estimates to record reserves for certain liabilities, including medical claims, workers’ compensation claims, third-party loss contingencies and property taxes, among other items. The Company estimates the probable costs related to these liabilities that will be incurred and records that amount as a liability in its Consolidated Financial Statements.
Additionally, the Company records, as applicable, receivables related to insurance recoveries for loss contingencies if deemed probable of recovery. These estimates are reviewed and adjusted as the facts and circumstances change. The Company records legal costs related to defending claims as incurred.
Advertising Costs — Advertising costs are expensed at the time such advertising commences. Advertising expense for the years ended July 31, 2020, 2019 and 2018 was $41.6 million, $44.6 million and $39.8 million, respectively, and was recorded within Mountain and Lodging operating expenses on the Company’s Consolidated Statement of Operations.
Income Taxes — Income tax expense includes U.S. tax (federal and state) and foreign income taxes. The Company’s provision for income taxes is based on pre-tax income, changes in deferred tax assets and liabilities and changes in estimates with regard to uncertain tax positions. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying Consolidated Balance Sheets and for operating loss and tax credit carrybacks or carryforwards. The change in deferred tax assets and liabilities for the period measures the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to the tax provision or benefit in the period of enactment. The Company’s deferred tax assets have been reduced by a valuation allowance to the extent it is deemed to be more likely than not that some or all of the deferred tax assets will not be realized. The Company recognizes 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” to be sustained, on audit, including resolution of related appeals or litigation processes, if any. The second step requires the Company to estimate and measure the largest tax benefit that is cumulatively greater than 50% likely of being realized upon ultimate settlement. Interest and penalties accrued in connection with uncertain tax positions are recognized as a component of income tax expense. See Note 11 “Income Taxes” for more information.
Fair Value of Financial Instruments — The recorded amounts for cash and cash equivalents, restricted cash, receivables, other current assets and accounts payable and accrued liabilities approximate fair value due to their short-term nature. The fair value of amounts outstanding under the Company’s credit agreements and the Employee Housing Bonds (as defined in Note 6, Long-Term Debt) approximate book value due to the variable nature of the interest rate, which is a market rate, associated with the debt. The estimated fair value of the 6.25% Notes (as defined in Note 6, Long-Term Debt) is based on quoted market prices (a Level 2 input). The estimated fair value of the EPR Secured Notes and EB-5 Development Notes (each as defined in Note 6, Long-Term Debt), have been estimated using analyses based on current borrowing rates for debt with similar remaining maturities and ratings (a Level 2 input). The carrying values, including any unamortized premium or discount, and estimated fair values of the 6.25% Notes, EPR Secured Notes and EB-5 Development Notes as of July 31, 2020 are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020
|
|
|
Carrying Value
|
Estimated Fair Value
|
|
6.25% Notes
|
$
|
600,000
|
|
$
|
643,500
|
|
|
EPR Secured Notes
|
$
|
137,314
|
|
$
|
150,628
|
|
|
EB-5 Development Notes
|
$
|
47,833
|
|
$
|
47,212
|
|
Stock-Based Compensation — Stock-based compensation expense is measured at the grant date based upon the estimated fair value of the award and is recognized as expense over the applicable vesting period of the award generally using the straight-line method (see Note 17 “Stock Compensation Plan” for more information), less the amount of forfeited awards which are recorded as they occur. The following table shows total net stock-based compensation expense for the years ended July 31, 2020, 2019 and 2018 included in the Consolidated Statements of Operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
2019
|
2018
|
|
Mountain stock-based compensation expense
|
$
|
17,410
|
|
$
|
16,474
|
|
$
|
15,716
|
|
|
Lodging stock-based compensation expense
|
3,399
|
|
3,219
|
|
3,215
|
|
|
Real Estate stock-based compensation expense
|
212
|
|
163
|
|
109
|
|
|
Pre-tax stock-based compensation expense
|
21,021
|
|
19,856
|
|
19,040
|
|
|
Less: benefit from income taxes
|
5,027
|
|
4,589
|
|
5,406
|
|
|
Net stock-based compensation expense
|
$
|
15,994
|
|
$
|
15,267
|
|
$
|
13,634
|
|
Concentration of Credit Risk — The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and restricted cash. The Company places its cash and temporary cash investments in high-
quality credit institutions. The Company does not enter into financial instruments for trading or speculative purposes. Concentration of credit risk with respect to accounts and notes receivables is limited due to the wide variety of customers and markets in which the Company transacts business, as well as their dispersion across many geographical areas. The Company performs ongoing credit evaluations of its customers and generally does not require collateral, but does require advance deposits on certain transactions.
Accounting for Hedging Instruments — From time to time, the Company enters into interest rate swaps (the “Interest Rate Swaps”) to hedge the variability in cash flows associated with variable-rate borrowings by converting the floating interest rate to a fixed interest rate. As of July 31, 2020, the Company hedged the future cash flows associated with $400.0 million of the principal amount outstanding of its Vail Holdings Credit Agreement (as defined in Note 6 “Long-Term Debt”), which were designated as cash flow hedges. The accounting for changes in fair value of hedging instruments depends on the effectiveness of the hedge. In order to qualify for hedge accounting, the underlying hedged item must expose the Company to risks associated with market fluctuations and the financial instrument used must reduce the Company’s exposure to market fluctuation throughout the hedge period. Changes in estimated fair value of the Interest Rate Swaps are recorded within change in estimated fair value of hedging instruments on the Company’s Consolidated Statements of Comprehensive Income, and such change was recorded as a loss of $22.5 million during the year ended July 31, 2020. Such amounts are reclassified into interest expense, net from other comprehensive income during the period in which the hedged item affects earnings. As of July 31, 2020, the estimated fair value of the Interest Rate Swaps was a liability of approximately $22.5 million and was recorded within other long-term liabilities on the Company’s Consolidated Balance Sheet, and the impact of the underlying cash flows associated with the Interest Rate Swaps are recorded within interest expense, net on the Company’s Consolidated Statements of Operations. See Note 10 “Fair Value Measurements” for more information.
Leases — The Company determines if an arrangement is or contains a lease at inception or modification of the arrangement. An arrangement is or contains a lease if there is one or more assets identified and the right to control the use of any identified asset is conveyed to the Company for a period of time in exchange for consideration. Control over the use of an identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. Generally, the Company classifies a lease as a finance lease if the terms of the agreement effectively transfer control of the underlying asset; otherwise, it is classified as an operating lease. For contracts that contain lease and non-lease components, the Company accounts for these components separately. For leases with terms greater than twelve months, the associated lease right-of-use (“ROU”) assets and lease liabilities are recognized at the estimated present value of future lease payments over the lease term at commencement date. The Company’s leases do not provide a readily determinable implicit rate; therefore, the Company uses an estimated incremental borrowing rate to discount the future minimum lease payments. For leases containing fixed rental escalation clauses, the escalators are factored into the determination of future minimum lease payments. The Company includes options to extend a lease when it is reasonably certain that such options will be exercised. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. See Note 4 “Leases” for more information.
Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards
Adopted Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842),” which supersedes “Leases (Topic 840).” The standard requires lessees to recognize the assets and liabilities arising from all leases on the balance sheet, including those classified as operating leases under previous accounting guidance, and to disclose key information about leasing arrangements. The standard also allows for an accounting policy election not to recognize on the balance sheet lease assets and liabilities for leases with a term of twelve months or less. Under the new guidance, lessees are required to recognize a lease liability and an ROU asset on their balance sheets, while lessor accounting is largely unchanged. In July 2018, the FASB released ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” which, among other items, provided an additional and optional transition method. Under this method, an entity initially applies the standard at the adoption date, including the election of certain transition reliefs, and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption.
The Company adopted ASU No. 2016-02 on August 1, 2019 using the modified retrospective transition method as provided by the standard. In accordance with this transition method, results for reporting periods beginning on August 1, 2019 are presented under the new standard, while prior periods were not adjusted and continue to be reported in accordance with the previously
applicable accounting guidance. The Company has elected the package of practical expedients permitted under the transition guidance which allowed the Company to not reassess: (i) whether any existing or expired contracts are or contain leases; (ii) lease classification of any expired or existing leases; or (iii) initial direct costs for any existing leases. The Company has made an accounting policy election to not record leases on the balance sheet with an initial term of twelve months or less. The Company will recognize those lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term. Additionally, the Company has elected the practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases. At adoption, the Company was not able to determine the interest rate implicit in its leases; therefore, for existing operating leases, the lease liability was measured using the Company’s estimated incremental borrowing rate. For existing leases, the incremental borrowing rate used was based on the remaining lease term at the adoption date. For leases with minimum lease payments adjusted periodically for inflation, the lease liability was measured using the minimum lease payments adjusted by the inflation index at the adoption date.
On August 1, 2019, as a result of adopting the standard, the Company recorded $221.8 million of operating ROU assets and $254.2 million of related total operating lease liabilities in the Consolidated Balance Sheet (of which $219.3 million was included in operating lease liabilities and $34.9 million was included in accounts payable and accrued liabilities). As a result of the adoption, the Company reclassified $32.4 million of unfavorable lease obligations, deferred rent credits and other related amounts to the operating ROU assets balance, primarily from other long-term liabilities, which reduced the amount recognized as operating ROU assets to $221.8 million. The adoption of the new lease standard did not result in a cumulative effect adjustment to beginning retained earnings, and did not materially affect the Company’s Consolidated Statement of Operations or Consolidated Statement of Cash Flows for the year ended July 31, 2020. The Company’s Canyons finance lease was not affected by the implementation of this standard as the arrangement is classified and recorded as a finance lease arrangement under both the previous and new accounting guidance.
In April 2020, the FASB issued clarifying guidance on accounting for certain lease concessions related to the effects of the COVID-19 pandemic under ASC Topic 842, allowing companies to make an election to either account for such lease concessions (i) in the period that they occur as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract) or (ii) ratably over the remainder of the lease term as modifications to the contract. The Company made a policy election to account for such lease concessions as though enforceable rights and obligations to make those concessions existed in the contracts and as a result, will account for concessions in the period in which they occur. This election did not have a material impact on the Company’s Consolidated Financial Statements for the year ended July 31, 2020.
Standards Being Evaluated
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides optional transition guidance, for a limited time, to companies that have contracts, hedging relationships or other transactions that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate which is expected to be discontinued because of reference rate reform. The amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions if certain criteria are met. The amendments in this update are effective as of March 12, 2020 through December 31, 2022. The amendments in this update may be applied as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. All other amendments should be applied on a prospective basis. The Company is in the process of evaluating the effect that the adoption of this standard will have on its Consolidated Financial Statements.
3. Revenues
Revenue Recognition
The following provides information about the Company’s composition of revenue recognized from contracts with customers and other revenues, the performance obligations under those contracts, and the significant judgments made in accounting for those contracts:
|
|
|
|
•
|
Mountain revenue is derived from a wide variety of sources, including, among other things: lift revenue, which includes sales of lift tickets and pass products; ski school revenue, which includes the revenue derived from ski school operations; dining revenue, which includes both casual and fine dining on-mountain operations; retail sales and equipment rentals; and other on-mountain revenue, which includes private ski club revenue (which includes both club dues and amortization of initiation fees), marketing and internet advertising revenue, municipal services and lodging and transportation operations at the Company’s Australian ski areas. Revenue is recognized over time as performance obligations are satisfied
|
as control of the good or service (e.g. access to ski areas, provision of ski school services, etc.) is transferred to the customer, except for the Company’s retail sales and dining operations revenues which are recognized at a point in time when performance obligations are satisfied by transferring control of the underlying goods to the customer. The Company records deferred revenue primarily related to the sale of pass products. Deferred revenue is generally recognized throughout the ski season as the Company’s performance obligations are satisfied as control of the service (e.g. access to ski areas throughout the ski season) is transferred to the customer. Transfer of control is based on an estimated number of pass product holder visits relative to total expected visits. Total expected visits are estimated based on historical data, and the Company believes this estimate provides a faithful depiction of its customers’ pass product usage. When sufficient historical data to determine usage patterns is not available, such as in the case of new product offerings, deferred revenue is recognized on a straight-line basis throughout the ski season until sufficient historical usage patterns are available. The Company also includes other sources of revenue, primarily related to commercial leasing and employee housing leasing arrangements, within other mountain revenue.
|
|
|
|
•
|
Lodging revenue is derived from a wide variety of sources, including, among other things: revenue from owned hotel rooms and managed hotel rooms; revenue from hotel dining operations; transportation revenue which relates to the Company’s Colorado resort ground transportation operations; and other lodging revenue which includes property management services, managed properties other costs reimbursements, private golf club revenue (which includes both club dues and amortization of initiation fees), and golf course fees. Lodging revenue also includes managed hotel property payroll cost reimbursements related to payroll costs at managed properties where the Company is the employer, which are reimbursed by the owner with no added margin. Therefore, these revenues and corresponding expenses have no net effect on the Company’s operating income or net income. Other than revenue from dining operations, lodging revenue is mostly recognized over time as performance obligations are satisfied as control of the service (e.g. nightly hotel room access) is transferred to the customer.
|
|
|
|
|
•
|
Real estate revenue primarily relates to the sale of development land parcels. Real estate revenue is generally recognized at a point in time when performance obligations have been satisfied, which is usually upon closing of the sales transaction and in an amount that reflects the consideration to which the Company expects to be entitled.
|
For certain contracts that have an original term length of one year or less, the Company uses the practical expedient applicable to such contracts and does not consider the time value of money. For contracts with an expected term in excess of one year, the Company has considered the provisions of Topic 606 in determining whether contracts contain a financing component.
The Company presents revenues in the accompanying Consolidated Statements of Operations, net of taxes, when collected from its customers that are remitted or payable to government taxing authorities, except when products are inclusive of taxes where applicable.
As a result of the COVID-19 pandemic, the Company closed its North American destination mountain resorts, regional ski areas and retail stores beginning on March 15, 2020. To encourage the Company’s pass product holders to renew their pass purchases for next season following the closures this past spring, the Company announced a credit offer on April 27, 2020 for existing 2019/2020 North American ski season pass product holders to purchase 2020/2021 North American ski season pass products at a discount (the “Credit Offer”). The Credit Offer discounts range from a minimum of 20% to a maximum of 80% for 2019/2020 season pass holders, depending on the number of days the pass holder used their pass product during the 2019/2020 North American ski season and a credit, with no minimum, but up to 80% for multi-day pass products, such as the Epic Day Pass, based on total unused days. For accounting purposes, the Credit Offer constituted a material right to existing 2019/2020 pass product holders to which the Company allocated a transaction price of approximately $120.9 million. As a result, the Company deferred $120.9 million of pass product revenue, which would have been recognized as lift revenue during the year ended July 31, 2020. The Company expects to recognize the revenue associated with the Credit Offer in the second and third fiscal quarters of the fiscal year ending July 31, 2021 or the second and third fiscal quarters of the fiscal year ending July 31, 2022. While the Company expects most of this revenue to be recognized during Fiscal 2021, in the event that a pass holder obtains a refund under Epic Coverage for the 2020/2021 ski season and is eligible to utilize their credit toward the purchase of a pass product for the 2021/2022 ski season, a portion of this deferred revenue and related deferred cost will be recognized in Fiscal 2022. In addition, as a result of the pass product revenue deferral, the Company also deferred approximately $2.9 million of the associated costs of obtaining a contract (primarily credit card processing fees), which will be recognized commensurate with the associated deferred revenue.
The Company estimated the standalone selling price of the Credit Offer by utilizing historical pass holder renewal data to estimate the total amount of credits that are expected to be redeemed. Estimates and assumptions made regarding expected renewal rates impacted the estimate of the transaction price allocated to the Credit Offer and could vary materially from the amount of revenue deferred depending upon actual customer redemptions.
Disaggregation of Revenues
The following table presents net revenues disaggregated by segment and major revenue type for the years ended July 31, 2020, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Mountain net revenue:
|
|
|
|
|
|
|
|
Lift
|
|
$
|
913,091
|
|
|
$
|
1,033,234
|
|
|
$
|
880,293
|
|
|
Ski School
|
|
189,131
|
|
|
215,060
|
|
|
189,910
|
|
|
Dining
|
|
160,763
|
|
|
181,837
|
|
|
161,402
|
|
|
Retail/Rental
|
|
270,299
|
|
|
320,267
|
|
|
296,466
|
|
|
Other
|
|
177,159
|
|
|
205,803
|
|
|
194,851
|
|
|
Total Mountain net revenue
|
|
$
|
1,710,443
|
|
|
$
|
1,956,201
|
|
|
$
|
1,722,922
|
|
|
Lodging net revenue:
|
|
|
|
|
|
|
|
Owned hotel rooms
|
|
$
|
44,992
|
|
|
$
|
64,826
|
|
|
$
|
65,252
|
|
|
Managed condominium rooms
|
|
76,480
|
|
|
86,236
|
|
|
70,198
|
|
|
Dining
|
|
38,252
|
|
|
53,730
|
|
|
48,554
|
|
|
Transportation
|
|
15,796
|
|
|
21,275
|
|
|
21,111
|
|
|
Golf
|
|
17,412
|
|
|
19,648
|
|
|
18,110
|
|
|
Other
|
|
44,933
|
|
|
54,617
|
|
|
47,577
|
|
|
|
|
237,865
|
|
|
300,332
|
|
|
270,802
|
|
|
Payroll cost reimbursements
|
|
10,549
|
|
|
14,330
|
|
|
13,841
|
|
|
Total Lodging net revenue
|
|
$
|
248,414
|
|
|
$
|
314,662
|
|
|
$
|
284,643
|
|
|
Total Resort net revenue
|
|
$
|
1,958,857
|
|
|
$
|
2,270,863
|
|
|
$
|
2,007,565
|
|
|
Total Real Estate net revenue
|
|
4,847
|
|
|
712
|
|
|
3,988
|
|
|
Total net revenue
|
|
$
|
1,963,704
|
|
|
$
|
2,271,575
|
|
|
$
|
2,011,553
|
|
Arrangements with Multiple Performance Obligations
Several of the Company’s contracts with customers include multiple performance obligations, primarily related to bundled services such as ski school packages, lodging packages and events (e.g. weddings and conferences). For such contracts, revenue is allocated to each distinct and separate performance obligation based on its relative standalone selling price. The standalone selling prices are generally based on observable prices charged to customers or estimated based on historical experience and information.
Contract Balances
Contract liabilities are recorded primarily as deferred revenues when payments are received or due in advance of the Company’s performance, including amounts which may be refundable. The deferred revenue balance is primarily related to accounts receivable or cash payments recorded in advance of satisfying the Company’s performance obligations related to sales of pass products prior to the start of the ski season, private club initiation fees and other related advance purchase products, including advance purchase lift tickets, multiple-day lift tickets, ski school lessons, equipment rentals and lodging advance deposits. Due to the seasonality of the Company’s operations, its largest deferred revenue balances occur during the North American pass product selling window, which generally begins in the fourth quarter of its fiscal year. Deferred revenue balances of a short-term nature were $256.4 million and $335.7 million as of July 31, 2020 and 2019, respectively. Deferred revenue balances of a long-term nature, comprised primarily of long-term private club initiation fee revenue, were $121.9 million and $124.3 million as of July 31, 2020 and 2019, respectively. For the year ended July 31, 2020, the Company recognized approximately $266.5 million of revenue that was included in the deferred revenue balance as of July 31, 2019. As of July 31, 2020, the weighted average remaining period over which revenue for unsatisfied performance obligations on long-term private club contracts will be recognized was approximately 16 years.
Contract assets are recorded as trade receivables when the right to consideration is unconditional. Trade receivable balances were $106.7 million and $270.9 million as of July 31, 2020 and 2019, respectively. Payments from customers are based on billing terms established in the contracts with customers, which vary by the type of customer, the location and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, contracts require payment before the products are delivered or services are provided to the customer. Impairment losses related
to contract assets are recognized through the Company’s allowance for doubtful accounts analysis. Contract asset write-offs are evaluated on an individual basis.
Costs to Obtain Contracts with Customers
The Company expects that credit card fees and sales commissions paid in order to obtain season ski pass products contracts are recoverable. Accordingly, the Company records these amounts as assets when they are paid prior to the start of the ski season. As of July 31, 2020, $3.5 million of costs to obtain contracts with customers were recorded within other current assets on the Company’s Consolidated Balance Sheet. Deferred credit card fees and sales commissions are amortized commensurate with the recognition of season ski pass revenue. The Company recorded amortization of $11.0 million, $10.6 million and $8.3 million for these costs during the years ended July 31, 2020, 2019 and 2018, respectively, which were recorded within Mountain and Lodging operating expenses on the Company’s Consolidated Statement of Operations.
Utilizing the practical expedient provided for under Topic 606, the Company has elected to expense credit card fees and sales commissions related to non-season ski pass products and services as incurred, as the amortization period is generally one year or less for the time between customer purchase and utilization. These fees are recorded within Mountain and Lodging operating expenses on the Company’s Consolidated Statements of Operations.
4. Leases
The Company’s operating leases consist primarily of commercial and retail space, office space, employee residential units, vehicles and other equipment. The Company determines if an arrangement is or contains a lease at contract inception or modification. The Company’s lease contracts generally range from 1 year to 60 years, with some lease contracts containing one or more lease extension options, exercisable at the Company’s discretion. The Company generally does not include these lease extension options in the initial lease term as it is not reasonably certain that it will exercise such options at contract inception. In addition, certain lease arrangements contain fixed and variable lease payments. The variable lease payments are primarily contingent rental payments based on: (i) a percentage of revenue related to the leased property; (ii) payments based on a percentage of sales over contractual levels; or (iii) lease payments adjusted for changes in an index or market value. These variable lease payments are typically recognized when the underlying event occurs and are included in operating expenses in the Company’s Consolidated Statements of Operations in the same line item as the expense arising from fixed lease payments. The Company’s lease agreements may also include non-lease components, such as common area maintenance and insurance, which are accounted for separately. Future lease payments that are contingent and non-lease components are not included in the measurement of the operating lease liability. The Company’s lease agreements do not contain any material residual value guarantees or restrictive covenants. Lease expense related to lease payments is recognized on a straight-line basis over the term of the lease.
The Company’s leases do not provide a readily determinable implicit rate. As a result, the Company measures the lease liability using an estimated incremental borrowing rate which is intended to reflect the rate of interest the Company would pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The Company applies the estimated incremental borrowing rates at a portfolio level based on the economic environment associated with the lease.
The Company uses the long-lived assets impairment guidance to determine recognition and measurement of an ROU asset impairment, if any. The Company monitors for events or changes in circumstances that require a reassessment.
The components of lease expense for the year ended July 31, 2020, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
July 31, 2020
|
|
Finance leases:
|
|
|
|
Amortization of the finance ROU assets
|
|
$
|
9,753
|
|
|
Interest on lease liabilities
|
|
$
|
34,035
|
|
|
Operating leases:
|
|
|
|
Operating lease expense
|
|
$
|
43,303
|
|
|
Short-term lease expense (1)
|
|
$
|
13,943
|
|
|
Variable lease expense
|
|
$
|
1,583
|
|
(1) Short-term lease expense is attributable to leases with terms of 12 months or less which are not included within the Company’s Consolidated Balance Sheet.
The following table presents the supplemental cash flow information associated with the Company’s leasing activities for the year ended July 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
July 31, 2020
|
|
Cash flow supplemental information:
|
|
|
|
Operating cash outflows for operating leases
|
|
$
|
55,344
|
|
|
Operating cash outflows for finance leases
|
|
$
|
29,311
|
|
|
Financing cash outflows for finance leases
|
|
$
|
5,387
|
|
|
Non-cash supplemental information:
|
|
|
|
Operating ROU assets obtained in exchange for operating lease obligations
|
|
$
|
18,013
|
|
Weighted-average remaining lease terms and discount rates are as follows:
|
|
|
|
|
|
|
|
|
|
As of July 31, 2020
|
|
Weighted-average remaining lease term (in years)
|
|
|
|
Operating leases
|
|
10.6
|
|
|
Finance leases
|
|
42.9
|
|
|
Weighted-average discount rate
|
|
|
|
Operating leases
|
|
4.5
|
%
|
|
Finance leases
|
|
10.0
|
%
|
Future lease payments for operating and finance leases as of July 31, 2020 reflected by fiscal year (August 1 through July 31) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
2021
|
$
|
47,013
|
|
|
$
|
28,818
|
|
|
2022
|
43,699
|
|
|
29,394
|
|
|
2023
|
38,353
|
|
|
29,982
|
|
|
2024
|
34,431
|
|
|
30,582
|
|
|
2025
|
32,405
|
|
|
31,193
|
|
|
Thereafter
|
137,501
|
|
|
1,773,855
|
|
|
Total future minimum lease payments
|
333,402
|
|
|
1,923,824
|
|
|
Less amount representing interest
|
(79,256
|
)
|
|
(1,577,790
|
)
|
|
Total lease liabilities
|
$
|
254,146
|
|
|
$
|
346,034
|
|
The current portion of operating lease liabilities of approximately $36.6 million as of July 31, 2020 is recorded within accounts payables and accrued liabilities in the Consolidated Balance Sheet. Finance lease liabilities are recorded within long-term debt, net in the Consolidated Balance Sheets.
Future minimum lease payments in accordance with Topic 840 as of July 31, 2019, reflected by fiscal year (August 1 through July 31), were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Capital Leases
|
|
2020
|
$
|
44,984
|
|
|
$
|
28,253
|
|
|
2021
|
42,512
|
|
|
28,818
|
|
|
2022
|
39,440
|
|
|
29,394
|
|
|
2023
|
34,840
|
|
|
29,982
|
|
|
2024
|
30,836
|
|
|
30,582
|
|
|
Thereafter
|
142,526
|
|
|
1,805,048
|
|
|
Total future minimum lease payments
|
335,138
|
|
|
1,952,077
|
|
|
Less amount representing interest
|
—
|
|
|
(1,611,816
|
)
|
|
Net future minimum lease payments
|
$
|
335,138
|
|
|
$
|
340,261
|
|
The Canyons finance lease obligation represents the only material finance lease entered into by the Company and was $346.0 million as of July 31, 2020, which represents the estimated annual lease payments for the remaining initial 50 year term of the lease assuming annual increases at the floor of 2% and discounted using an interest rate of 10%. As of July 31, 2020, the Company has recorded $117.8 million of finance lease ROU assets in connection with the Canyons lease, net of $65.8 million of accumulated amortization, which is included within property, plant and equipment, net in the Company’s Consolidated Balance Sheet.
5. Net Income Per Common Share
Earnings per Share
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income attributable to Vail Resorts stockholders by the weighted-average shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of shares of common stock that would then share in the earnings of Vail Resorts.
In connection with the Company’s acquisition of Whistler Blackcomb in October 2016 (see Note 7, Acquisitions), the Company issued consideration in the form of shares of Vail Resorts common stock (the “Vail Shares”) and shares of the Company’s wholly-owned Canadian subsidiary (“Exchangeco”). Whistler Blackcomb shareholders elected to receive 3,327,719 Vail Shares and 418,095 shares of Exchangeco (the “Exchangeco Shares”). Both Vail Shares and Exchangeco Shares have a par value of $0.01 per share, and Exchangeco Shares, while outstanding, are substantially the economic equivalent of the Vail Shares and are exchangeable, at any time prior to the seventh anniversary of the closing of the acquisition, into Vail Shares. The Company’s calculation of weighted-average shares outstanding includes the Exchangeco Shares.
Presented below is basic and diluted EPS for the years ended July 31, 2020, 2019 and 2018 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
2019
|
2018
|
|
|
Basic
|
Diluted
|
Basic
|
Diluted
|
Basic
|
Diluted
|
|
Net income per share:
|
|
|
|
|
|
|
|
Net income attributable to Vail Resorts
|
$
|
98,833
|
|
$
|
98,833
|
|
$
|
301,163
|
|
$
|
301,163
|
|
$
|
379,898
|
|
$
|
379,898
|
|
|
Weighted-average shares outstanding
|
40,227
|
|
40,227
|
|
40,292
|
|
40,292
|
|
40,337
|
|
40,337
|
|
|
Weighted-average Exchangeco shares outstanding
|
46
|
|
46
|
|
57
|
|
57
|
|
60
|
|
60
|
|
|
Total Weighted-average shares outstanding
|
40,273
|
|
40,273
|
|
40,349
|
|
40,349
|
|
40,397
|
|
40,397
|
|
|
Effect of dilutive securities
|
—
|
|
565
|
|
—
|
|
809
|
|
—
|
|
1,221
|
|
|
Total shares
|
40,273
|
|
40,838
|
|
40,349
|
|
41,158
|
|
40,397
|
|
41,618
|
|
|
Net income per share attributable to Vail Resorts, Inc.
|
$
|
2.45
|
|
$
|
2.42
|
|
$
|
7.46
|
|
$
|
7.32
|
|
$
|
9.40
|
|
$
|
9.13
|
|
The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the period. The number of shares issuable on the exercise of share based awards that were excluded from the calculation of diluted net income per share because the effect of their inclusion would have been anti-dilutive totaled approximately 2,000, 4,000 and 2,000 for the years ended July 31, 2020, 2019 and 2018, respectively.
Dividends
For the year ended July 31, 2020, the Company paid cash dividends of $5.28 per share ($212.7 million in the aggregate). The Company announced on April 1, 2020 that it would be suspending its quarterly dividend for at least the next two quarters, and will be subject to a dividend limitation under the Financial Covenants Temporary Waiver Period of the Vail Holdings Credit Agreement (as defined in Note 6, Long-Term Debt).
6. Long-Term Debt
Long-term debt as of July 31, 2020 and 2019 is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
July 31,
2020
|
July 31,
2019
|
|
Vail Holdings Credit Agreement revolver (a)
|
2024
|
$
|
—
|
|
$
|
208,000
|
|
|
Vail Holdings Credit Agreement term loan (a)
|
2024
|
1,203,125
|
|
914,375
|
|
|
6.25% Notes (b)
|
2025
|
600,000
|
|
—
|
|
|
Whistler Credit Agreement revolver (c)
|
2024
|
58,236
|
|
45,454
|
|
|
EPR Secured Notes (d)
|
2034-2036
|
114,162
|
|
—
|
|
|
EB-5 Development Notes (e)
|
2021
|
51,500
|
|
—
|
|
|
Employee housing bonds (f)
|
2027-2039
|
52,575
|
|
52,575
|
|
|
Canyons obligation (g)
|
2063
|
346,034
|
|
340,261
|
|
|
Other (h)
|
2020-2033
|
18,616
|
|
19,465
|
|
|
Total debt
|
|
2,444,248
|
|
1,580,130
|
|
|
Less: Unamortized premiums, discounts and debt issuance costs (i)
|
|
(6,551
|
)
|
3,870
|
|
|
Less: Current maturities (j)
|
|
63,677
|
|
48,516
|
|
|
Long-term debt, net
|
|
$
|
2,387,122
|
|
$
|
1,527,744
|
|
(a)On September 23, 2019, in order to fund the acquisition of Peak Resorts, Inc. (“Peak Resorts”), which included the prepayment of certain portions of the outstanding debt and lease obligations of Peak Resorts contemporaneous with the closing of the transaction (see Note 7, Acquisitions), the Company’s wholly-owned subsidiary, Vail Holdings, Inc. (“VHI”), entered into the Second Amendment to the Eighth Amended and Restated Credit Agreement (the “Vail Holdings Credit Agreement”), with Bank of America, N.A., as administrative agent, and other lenders named therein, through which those lenders agreed to provide an additional $335.6 million in incremental term loans and agreed, on behalf of all lenders, to extend the maturity date for the outstanding term loans and revolver facility under the Vail Holdings Credit Agreement to September 23, 2024. No other material terms of the Vail Holdings Credit Agreement were altered under the amendment.
On April 28, 2020, VHI, certain subsidiaries of the Company, as guarantors, Bank of America, N.A., as administrative agent, and certain Lenders entered into a Third Amendment to the Vail Holdings Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, among other terms, VHI is exempt from complying with the Vail Holdings Credit Agreement’s maximum leverage ratio and minimum interest coverage ratio financial maintenance covenants for each of the fiscal quarters ending July 31, 2020 through January 31, 2022 (unless VHI makes a one-time irrevocable election to terminate such exemption period prior to such date) (such period, the “Financial Covenants Temporary Waiver Period”), after which VHI will again be required to comply with such covenants starting with the fiscal quarter ending April 30, 2022 (or such earlier fiscal quarter as elected by VHI). After the expiration of the Financial Covenants Temporary Waiver Period:
|
|
|
|
•
|
the maximum leverage ratio permitted under the maximum leverage ratio financial maintenance covenant reduces each quarter as follows:
|
(A) first full fiscal quarter: 6.25 to 1.00;
(B) second full fiscal quarter: 5.75 to 1.00;
(C) third full fiscal quarter: 5.25 to 1.00; and
(D) fourth full fiscal quarter and for each fiscal quarter thereafter: 5.00 to 1.00.
|
|
|
|
•
|
the minimum interest coverage ratio permitted under the minimum interest coverage ratio financial maintenance covenant will be 2.00 to 1.00.
|
In addition, VHI is required to comply with a monthly minimum liquidity test (liquidity is defined as unrestricted cash and temporary cash investments of VRI and its restricted subsidiaries and available commitments under the Vail Holdings Credit Agreement revolver) of not less than $150.0 million, during the period that began on July 31, 2020 and ending on the date VHI delivers a compliance certificate for the Company and its subsidiaries’ first fiscal quarter following the end of the Financial Covenants Temporary Waiver Period.
The Company is prohibited from the following activities during the Financial Covenants Temporary Waiver Period (unless approval is obtained by a majority of the Lenders):
|
|
|
|
•
|
paying any dividends or making share repurchases, unless (x) no default or potential default exists under the Vail Holdings Credit Agreement and (y) the Company has liquidity (as defined above) of at least $400.0 million, and the aggregate amount of dividends paid and share repurchases made by the Company during the Financial Covenants Temporary Waiver Period may not exceed $38.2 million in any fiscal quarter;
|
|
|
|
|
•
|
making capital expenditures in excess of $200.0 million per 12-month period ending January 31, other than non-recurring extraordinary capital expenditures incurred in connection with emergency repairs, life safety repairs or ordinary course maintenance repairs;
|
|
|
|
|
•
|
incurring any indebtedness secured by the collateral under the Vail Holdings Credit Agreement other than pursuant to the existing revolving commitments under the Credit Agreement;
|
|
|
|
|
•
|
making non-ordinary course investments in unrestricted subsidiaries unless the Company has liquidity (as defined above) of at least $300.0 million;
|
|
|
|
|
•
|
making investments in non-subsidiaries in excess of $50.0 million in the aggregate; and
|
|
|
|
|
•
|
acquiring all or a majority of the capital stock or all or any substantial portion of the assets of any entity or merging or consolidating with another entity.
|
During the Financial Covenants Temporary Waiver Period, borrowings under the Vail Holdings Credit Agreement, including the term loan facility, bear interest annually at LIBOR plus 2.50% and, for amounts in excess of $400.0 million, LIBOR is subject to a floor of 0.75%. In addition, pursuant to the Third Amendment, the amount by which we are able to increase availability (under the revolver or in the form of term loans) was increased to an aggregate principal amount not to exceed the greater of (i) $2.25 billion and (ii) the product of 3.25 and the trailing four-quarter Adjusted EBITDA (as defined in the Credit Agreement).
As of July 31, 2020, the Vail Holdings Credit Agreement consists of a $500.0 million revolving credit facility and a $1.2 billion outstanding term loan facility. The term loan facility is subject to quarterly amortization of principal of approximately $15.6 million (which began in January 2020), in equal installments, for a total of 5% of principal payable in each year and the final payment of all amounts outstanding, plus accrued and unpaid interest due in September 2024. The proceeds of the loans made under the Vail Holdings Credit Agreement may be used to fund the Company’s working capital needs, capital expenditures, acquisitions, investments and other general corporate purposes, including the issuance of letters of credit, subject to the Financial Covenants Temporary Waiver Period limitations, as discussed above. Borrowings under the Vail Holdings Credit Agreement, including the term loan facility, bear interest annually at LIBOR plus 2.50% as of July 31, 2020 (2.66% as of July 31, 2020 for $400.0 million of borrowings, and for amounts in excess of $400.0 million in which LIBOR is subject to a floor of 0.75% during the Financial Covenants Temporary Waiver Period, 3.25% as of July 31, 2020). Other than as impacted by the provisions in place during the Financial Covenants Temporary Waiver Period, interest rate margins may fluctuate based upon the ratio of the Company’s Net Funded Debt to Adjusted EBITDA on a trailing four-quarter basis. The Vail Holdings Credit Agreement also includes a quarterly unused commitment fee, which is equal to a percentage determined by the Net Funded Debt to Adjusted EBITDA ratio, as each such term is defined in the Vail Holdings Credit Agreement, multiplied by the daily amount by which the Vail Holdings Credit Agreement commitment exceeds the total of outstanding loans and outstanding letters of credit (0.4% as of July 31, 2020). During the year ended July 31, 2020, the Company entered into various interest rate swap agreements to hedge the LIBOR-based variable interest rate component of underlying cash flows of $400.0 million in principal amount of its Vail Holdings Credit Agreement for the remaining term of the agreement at an effective rate of 1.46%.
(b)On May 4, 2020, the Company completed its offering of $600 million aggregate principal amount of 6.25% senior notes due 2025 at par (the “Notes”), and a portion of the net proceeds were utilized to pay down the outstanding balance of the revolver component of its Vail Holdings Credit Agreement in its entirety (which will continue to be available to the Company to borrow including throughout the Financial Covenants Temporary Waiver Period) and to pay the fees and expenses associated with the offering, with the remaining net proceeds intended to be used for general corporate purposes.
The Company will pay interest on the Notes on May 15 and November 15 of each year commencing on November 15, 2020. The Notes will mature on May 15, 2025. The Notes are redeemable, in whole or in part, at any time on or after May 15, 2022
at the redemption prices specified in an Indenture dated as of May 4, 2020 (the “Indenture”) plus accrued and unpaid interest. Prior to May 15, 2022, the Company may redeem some or all of the Notes at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, plus a “make-whole” premium as specified in the Indenture. In addition, prior to May 15, 2022, the Company may redeem up to 35% of the aggregate principal amount of the Notes with an amount not to exceed the net cash proceeds from certain equity offerings at the redemption price of 106.25% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Notes are senior unsecured obligations of the Company, are guaranteed by certain of the Company’s domestic subsidiaries, and rank equally in right of payment with existing and future senior indebtedness of the Company and the guarantors (as defined in the Indenture).
The Indenture requires that, upon the occurrence of a Change of Control (as defined in the Indenture), the Company shall offer to purchase all of the outstanding Notes at a purchase price in cash equal to 101% of the outstanding principal amount of the Notes, plus accrued and unpaid interest. If the Company or certain of its subsidiaries dispose of assets, under certain circumstances, the Company will be required to either invest the net cash proceeds from such assets sales in its business within a specified period of time, repay certain senior secured debt or debt of its non-guarantor subsidiaries, or make an offer to purchase a principal amount of the Notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount, plus accrued and unpaid interest.
The Indenture contains covenants that, among other things, restrict the ability of the Company and the guarantors to incur liens on assets; merge or consolidate with another company or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company’s assets or engage in Sale and Leaseback Transactions (as defined in the Indenture). The Indenture does not contain any financial maintenance covenants. Certain of the covenants will not apply to the Notes so long as the Notes have investment grade ratings from two specified rating agencies and no event of default has occurred and is continuing under the Indenture. The Indenture includes customary events of default, including failure to make payment, failure to comply with the obligations set forth in the Indenture, certain defaults on certain other indebtedness, certain events of bankruptcy, insolvency or reorganization, and invalidity of the guarantees of the Notes issued pursuant to the Indenture.
(c)Whistler Mountain Resort Limited Partnership (“Whistler LP”) and Blackcomb Skiing Enterprises Limited Partnership (“Blackcomb LP”), together “The WB Partnerships,” are party to a credit agreement, dated as of November 12, 2013 (as amended, the “Whistler Credit Agreement”), by and among Whistler LP, Blackcomb LP, certain subsidiaries of Whistler LP and Blackcomb LP party thereto as guarantors (the “Whistler Subsidiary Guarantors”), the financial institutions party thereto as lenders and The Toronto-Dominion Bank, as administrative agent. The Whistler Credit Agreement consists of a C$300.0 million revolving credit facility, and during the year ended July 31, 2020, the Company entered into an amendment of the Whistler Credit Agreement which extended the maturity date of the revolving credit facility to December 15, 2024. No other material terms of the Whistler Credit Agreement were altered. The WB Partnerships’ obligations under the Whistler Credit Agreement are guaranteed by the Whistler Subsidiary Guarantors and are collateralized by a pledge of the capital stock of the Whistler Subsidiary Guarantors and a pledge of substantially all of the assets of Whistler LP, Blackcomb LP and the Whistler Subsidiary Guarantors. In addition, pursuant to the terms of the Whistler Credit Agreement, the WB Partnerships have the ability to increase the commitment amount by up to C$75.0 million, subject to lender approval. Borrowings under the Whistler Credit Agreement are available in Canadian or U.S. dollars and bear interest annually, subject to an applicable margin based on the WB Partnerships’ Consolidated Total Leverage Ratio (as defined in the Whistler Credit Agreement), with pricing as of July 31, 2020, in the case of borrowings (i) in Canadian dollars, at the WB Partnerships’ option, either (a) at the Canadian Prime Rate plus 1.25% per annum or (b) by way of the issuance of bankers’ acceptances plus 2.25% per annum; and (ii) in U.S. dollars, at the WB Partnerships option, either at (a) the U.S. Base Rate plus 1.25% per annum or (b) Bankers Acceptance Rate plus 2.25% per annum. As of July 31, 2020, all borrowings under the Whistler Credit Agreement were made in Canadian dollars and by way of the issuance of bankers’ acceptances plus 2.25% (approximately 2.79% as of July 31, 2020). The Whistler Credit Agreement also includes a quarterly unused commitment fee based on the Consolidated Total Leverage Ratio, which as of July 31, 2020 is equal to 0.5063% per annum. The Whistler Credit Agreement provides for affirmative and negative covenants that restrict, among other things, the WB Partnerships’ ability to incur indebtedness and liens, dispose of assets, make capital expenditures, make distributions and make investments. In addition, the Whistler Credit Agreement includes the restrictive financial covenants (leverage ratios and interest coverage ratios) customary for facilities of this type.
(d)On September 24, 2019, in conjunction with the acquisition of Peak Resorts (see Note 7, Acquisitions), the Company assumed various secured borrowings (the “EPR Secured Notes”) under the master credit and security agreements and other related agreements, as amended, (collectively, the “EPR Agreements”) with EPT Ski Properties, Inc. and its affiliates (“EPR”). The EPR Secured Notes include the following:
|
|
|
|
i.
|
The Alpine Valley Secured Note. The $4.6 million Alpine Valley Secured Note provides for interest payments through its maturity on December 1, 2034. As of July 31, 2020, interest on this note accrued at a rate of 11.21%.
|
|
|
|
|
ii.
|
The Boston Mills/Brandywine Secured Note. The $23.3 million Boston Mills/Brandywine Secured Note provides for interest payments through its maturity on December 1, 2034. As of July 31, 2020, interest on this note accrued at a rate of 10.75%.
|
|
|
|
|
iii.
|
The Jack Frost/Big Boulder Secured Note. The $14.3 million Jack Frost/Big Boulder Secured Note provides for interest payments through its maturity on December 1, 2034. As of July 31, 2020, interest on this note accrued at a rate of 10.75%.
|
|
|
|
|
iv.
|
The Mount Snow Secured Note. The $51.1 million Mount Snow Secured Note provides for interest payments through its maturity on December 1, 2034. As of July 31, 2020, interest on this note accrued at a rate of 11.78%.
|
|
|
|
|
v.
|
The Hunter Mountain Secured Note. The $21.0 million Hunter Mountain Secured Note provides for interest payments through its maturity on January 5, 2036. As of July 31, 2020, interest on this note accrued at a rate of 8.57%.
|
The EPR Secured Notes are secured by all or substantially all of the assets of Peak Resorts and its subsidiaries, including mortgages on the Alpine Valley, Boston Mills, Brandywine, Jack Frost, Big Boulder, Mount Snow and Hunter Mountain ski resorts. The EPR Secured Notes bear interest at specified interest rates, as discussed above, which are subject to increase each year by the lesser of (i) three times the percentage increase in the Consumer Price Index 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 EPR Agreements provide for affirmative and negative covenants that restrict, among other things, the ability of Peak Resorts and its subsidiaries to incur indebtedness, dispose of assets, make distributions and make investments. In addition, the EPR Agreements include restrictive covenants, including maximum leverage ratio and consolidated fixed charge ratio. An additional contingent interest payment would be due to EPR if, on a calendar year basis, the gross receipts from the properties securing any of the individual 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 specified 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 Jack Frost, Big Boulder, Boston Mills, Brandywine and Alpine Valley ski resorts, where the Additional Interest Rate is 10.0%; on a standalone basis for the note secured by the Company’s Mount Snow ski resort, where the Additional Interest Rate is 12.0%; and on a standalone basis for the note secured by the Company’s Hunter Mountain ski resort, where the Additional Interest Rate is 8.0%. Peak Resorts does not have the right to prepay the EPR Secured Notes. The EPR Secured Notes were recorded at their estimated fair value in conjunction with the acquisition of Peak Resorts on September 24, 2019. The EPR Agreements grant EPR certain other rights including (i) the option to purchase the Boston Mills, Brandywine, Jack Frost, Big Boulder or Alpine Valley resorts, which is exercisable no sooner than two years and no later than one year prior to the maturity dates of the applicable EPR Secured Note for such properties, with any closings to be held on the applicable maturity dates; and, if EPR exercises the 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; (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 Peak Resorts 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 such purchase options.
In addition, Peak Resorts is required to maintain a debt service reserve account which amounts are applied to fund interest payments and other amounts due and payable to EPR. As of July 31, 2020 the Company had funded the EPR debt service reserve account in an amount equal to approximately $5.7 million, which was included in other current assets in the Company’s Consolidated Balance Sheet.
(e)Peak Resorts serves as the general partner for two limited partnerships, Carinthia Group 1, LP and Carinthia Group 2, LP (together, the “Carinthia 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, Peak Resorts borrowed $52.0 million from the Carinthia Partnerships to fund two capital projects at Mount Snow. The amounts were borrowed through two loan agreements, which provided $30.0 million and $22.0 million (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 an extension of up to two additional 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. While the EB-5 Development Notes are outstanding, Peak Resorts 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 loan proceeds. In addition, Peak Resorts 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.
(f)The Company has recorded the outstanding debt of four Employee Housing Entities (each an “Employee Housing Entity” and collectively the “Employee Housing Entities”): Breckenridge Terrace, Tarnes, BC Housing and Tenderfoot. The proceeds of the Employee Housing Bonds were used to develop apartment complexes designated primarily for use by the Company’s seasonal employees at its Colorado mountain resorts. The Employee Housing Bonds are variable rate, interest-only instruments with interest rates tied to LIBOR plus 0% to 0.1% (0.17% to 0.27% as of July 31, 2020).
Interest on the Employee Housing Bonds is paid monthly in arrears and the interest rate is adjusted weekly. No principal payments are due on the Employee Housing Bonds until maturity. Each Employee Housing Entity’s bonds were issued in two series. The bonds for each Employee Housing Entity are backed by letters of credit issued under the Vail Holdings Credit Agreement. The table below presents the principal amounts outstanding for the Employee Housing Bonds as of July 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity (a)
|
Tranche A
|
Tranche B
|
Total
|
|
Breckenridge Terrace
|
2039
|
$
|
14,980
|
|
$
|
5,000
|
|
$
|
19,980
|
|
|
Tarnes
|
2039
|
8,000
|
|
2,410
|
|
10,410
|
|
|
BC Housing
|
2027
|
9,100
|
|
1,500
|
|
10,600
|
|
|
Tenderfoot
|
2035
|
5,700
|
|
5,885
|
|
11,585
|
|
|
Total
|
|
$
|
37,780
|
|
$
|
14,795
|
|
$
|
52,575
|
|
(g)On May 24, 2013, VR CPC Holdings, Inc. (“VR CPC”), a wholly-owned subsidiary of the Company, entered into a transaction agreement with affiliate companies of Talisker Corporation (“Talisker”) pursuant to which the parties entered into a master lease agreement (the “Lease”) and certain ancillary transaction documents on May 29, 2013 related to the former stand-alone Canyons Resort (“Canyons”), pursuant to which the Company assumed the resort operations of the Canyons. The Lease between VR CPC and Talisker has an initial term of 50 years with six 50-year renewal options. The Lease provides for $25 million in annual payments, which increase each year by an inflation-linked index of CPI less 1% per annum, with a floor of 2%. Vail Resorts has guaranteed the payments under the Lease. The obligation at July 31, 2020 represents future lease payments for the remaining initial lease term of 50 years (including annual increases at the floor of 2%) discounted using an interest rate of 10%, and includes accumulated accreted interest expense of approximately $40.7 million.
(h)During the year ended July 31, 2019, the Company completed two real estate sales transactions that were accounted for as financing arrangements as a result of the Company’s continuing involvement with the underlying assets that were sold, including but not limited to, the obligation to repurchase finished commercial space from the development projects upon completion. The Company received approximately $11.2 million of proceeds for these sales transactions during the year ended July 31, 2019, which are reflected within long-term debt, net. Other obligations also consist of a $3.6 million note outstanding to the Colorado Water Conservation Board, which matures on September 16, 2028, and other financing arrangements. Other obligations, including the Colorado Water Conservation Board note, bear interest at rates ranging from 5.1% to 5.5%.
(i)In connection with the acquisition of Peak Resorts, the Company estimated the acquisition date fair values of the debt instruments assumed, including the EPR Secured Notes and the EB-5 Development Notes, and recorded any difference between such estimated fair values and the par value of debt instruments as unamortized premiums and discounts, which is amortized and recorded to interest expense, net on the Company’s Consolidated Statements of Operations over the respective term of the applicable debt instruments. Additionally, certain costs incurred with regard to the issuance of debt instruments are capitalized and included as a reduction in the net carrying value of long-term debt, net of accumulated amortization, with the exception of costs incurred related to line-of-credit arrangements, which are included in deferred charges and other assets, net of accumulated amortization. Amortization of such deferred financing costs are recorded to interest expense, net on the Company’s Consolidated Statements of Operations over the respective term of the applicable debt instruments
(j)Current maturities represent principal payments due in the next 12 months, and exclude approximately $6.2 million of proceeds resulting from a real estate transaction accounted for as a financing arrangement, as discussed above, which are expected to be recognized on the Company’s Statement of Operations during the year ending July 31, 2021 as a result of the anticipated resolution of continuing involvement, with no associated cash outflow.
Aggregate maturities for debt outstanding, including capital lease obligations, as of July 31, 2020 reflected by fiscal year are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Total
|
|
2021 (1)
|
$
|
69,827
|
|
|
2022
|
115,195
|
|
|
2023
|
63,740
|
|
|
2024
|
63,796
|
|
|
2025
|
1,612,120
|
|
|
Thereafter
|
519,570
|
|
|
Total debt
|
$
|
2,444,248
|
|
(1) Includes approximately $6.2 million of proceeds resulting from a real estate transaction accounted for as a financing arrangement, as discussed above, which are expected to be recognized on the Company’s Statement of Operations during the year ending July 31, 2021 as a result of the anticipated resolution of continuing involvement, with no associated cash outflow.
The Company recorded interest expense of $106.7 million, $79.5 million and $63.2 million for the years ended July 31, 2020, 2019 and 2018, respectively, of which $1.9 million, $1.3 million and $1.3 million, respectively, was amortization of deferred financing costs. The Company was in compliance with all of its financial and operating covenants required to be maintained under its debt instruments for all periods presented.
In connection with the acquisition of Whistler Blackcomb, VHI funded a portion of the purchase price through an intercompany loan to Whistler Blackcomb of $210.0 million, which was effective as of November 1, 2016 and requires foreign currency remeasurement to Canadian dollars, the functional currency for Whistler Blackcomb. As a result, foreign currency fluctuations associated with the loan are recorded within the Company’s results of operations. The Company recognized approximately $3.2 million, $2.9 million and $9.0 million of non-cash foreign currency loss on the intercompany loan to Whistler Blackcomb during the years ended July 31, 2020, 2019 and 2018, respectively, on the Company’s Consolidated Statements of Operations.
7. Acquisitions
Peak Resorts
On September 24, 2019, the Company, through a wholly-owned subsidiary, acquired 100% of the outstanding stock of Peak Resorts, Inc. (“Peak Resorts”) at a purchase price of $11.00 per share or approximately $264.5 million. In addition, contemporaneous with the closing of the transaction, Peak Resorts was required to pay approximately $70.2 million of certain outstanding debt instruments and lease obligations in order to complete the transaction. Accordingly, the total purchase price, including the repayment of certain outstanding debt instruments and lease obligations, was approximately $334.7 million, for which the Company borrowed approximately $335.6 million under the Vail Holdings Credit Agreement (see Note 6, Long-Term Debt) to fund the acquisition, repayment of debt instruments and lease obligations, and associated acquisition related expenses. The newly acquired resorts include: Mount Snow in Vermont; Hunter Mountain in New York; Attitash Mountain Resort, Wildcat Mountain and Crotched Mountain in New Hampshire; Liberty Mountain Resort, Roundtop Mountain Resort, Whitetail Resort, Jack Frost and Big Boulder in Pennsylvania; Alpine Valley, Boston Mills, Brandywine and Mad River Mountain in Ohio; Hidden Valley and Snow Creek in Missouri; and Paoli Peaks in Indiana. The Company assumed the Special Use Permits from the U.S. Forest Service for Attitash, Mount Snow and Wildcat Mountain, and assumed the land leases for Mad River and Paoli Peaks. The acquisition included the mountain operations of the resorts, including base area skier services (food and beverage, retail and rental, lift ticket offices and ski and snowboard school facilities), as well as lodging operations at certain resorts.
The following summarizes the purchase consideration and the preliminary purchase price allocation to estimated fair values of the identifiable assets acquired and liabilities assumed at the date the transaction was effective (in thousands):
|
|
|
|
|
|
|
|
|
Acquisition Date Estimated Fair Value
|
|
Current assets
|
$
|
19,578
|
|
|
Property, plant and equipment
|
427,793
|
|
|
Goodwill
|
135,879
|
|
|
Identifiable intangible assets
|
19,221
|
|
|
Other assets
|
16,203
|
|
|
Assumed long-term debt
|
(184,668
|
)
|
|
Other liabilities
|
(99,275
|
)
|
|
Net assets acquired
|
$
|
334,731
|
|
During the three months ended July 31, 2020, the Company recorded measurement period adjustments of approximately $8.6 million primarily related to the finalization of pre-acquisition period tax returns for Peak Resorts, which decreased deferred income taxes, net (included in other liabilities in the table above) with a corresponding decrease to goodwill, net.
Identifiable intangible assets acquired in the transaction were primarily related to trade names and property management contracts, which had acquisition date estimated fair values of approximately $15.8 million and $3.1 million, respectively. The process of estimating the fair value of the depreciable property, plant, and equipment includes the use of certain estimates and assumptions related to replacement cost. The excess of the purchase price over the aggregate estimated fair values of the assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of the resorts and other factors, and is not expected to be deductible for income tax purposes. The Company assumed various debt obligations of Peak Resorts, which were recorded at their respective estimated fair values as of the acquisition date (see Note 6, Long-Term Debt). The Company incurred $3.1 million of acquisition related expenses associated with the transaction which were recorded within Mountain and Lodging operating expense in its Consolidated Statement of Operations for the year ended July 31, 2020. The operating results of Peak Resorts are reported within the Mountain and Lodging segments prospectively from the date of acquisition.
The estimated fair values of assets acquired and liabilities assumed in the acquisition of Peak Resorts are preliminary and are based on the information that was available as of the acquisition date. The Company believes that this information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed; however, the Company is obtaining additional information necessary to finalize those estimated fair values. Therefore, the preliminary measurements of estimated fair values reflected are subject to change. The Company expects to finalize the valuation and complete the purchase consideration allocation no later than one year from the acquisition date.
Falls Creek and Hotham Resorts
On April 4, 2019, the Company, through a wholly-owned subsidiary, acquired ski field leases and related infrastructure used to operate two resorts in Victoria, Australia. The Company acquired Australian Alpine Enterprises Holdings Pty. Ltd and all related corporate entities that operate the Falls Creek and Hotham resorts from Living and Leisure Australia Group, a subsidiary of Merlin Entertainments, for a cash purchase price of approximately AU$178.9 million ($127.4 million), after adjustments for certain agreed-upon terms, including an increase in the purchase price for operating losses incurred for the period from December 29, 2018 through closing. The acquisition included the mountain operations of both resorts, including base area skier services (ski and snowboard school facilities, retail and rental, reservation and property management operations).
The following summarizes the purchase consideration and the purchase price allocation to estimated fair values of the identifiable assets acquired and liabilities assumed at the date the transaction was effective (in thousands):
|
|
|
|
|
|
|
|
|
Acquisition Date Estimated Fair Value
|
|
Current assets
|
$
|
6,986
|
|
|
Property, plant and equipment
|
54,889
|
|
|
Goodwill
|
71,538
|
|
|
Identifiable intangible assets and other assets
|
5,833
|
|
|
Liabilities
|
(11,894
|
)
|
|
Net assets acquired
|
$
|
127,352
|
|
Identifiable intangible assets acquired in the transaction were primarily related to trade names. The process of estimating the fair value of the property, plant, and equipment includes the use of certain estimates and assumptions related to replacement cost and physical condition at the time of acquisition. The excess of the purchase price over the aggregate estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of Falls Creek and Hotham and other factors. None of the goodwill is expected to be deductible for income tax purposes under Australian tax law. The Company recognized $4.6 million of acquisition related expenses associated with the transaction, including stamp duty expense of $2.9 million, within Mountain and Lodging operating expense in its Consolidated Statement of Operations for the year ended July 31, 2019. The operating results of Falls Creek and Hotham are reported within the Mountain segment prospectively from the date of acquisition.
Stevens Pass Resort
On August 15, 2018, the Company, through a wholly-owned subsidiary, acquired Stevens Pass Resort in the State of Washington from Ski Resort Holdings, LLC, an affiliate of Oz Real Estate (“Ski Resort Holdings”), for total cash consideration of $64.0 million, after adjustments for certain agreed-upon terms. The Company borrowed $70.0 million on August 15, 2018 under its Vail Holdings Credit Agreement term loan (see Note 6, Long-Term Debt) to fund the transaction and associated acquisition related expenses. The acquisition included the mountain operations of the resort, including base area skier services (food and beverage, retail and rental, lift ticket offices and ski and snowboard school facilities).
The following summarizes the purchase consideration and the purchase price allocation to estimated fair values of the identifiable assets acquired and liabilities assumed at the date the transaction was effective (in thousands):
|
|
|
|
|
|
|
|
|
Acquisition Date Estimated Fair Value
|
|
Current assets
|
$
|
752
|
|
|
Property, plant and equipment
|
34,865
|
|
|
Goodwill
|
28,878
|
|
|
Identifiable intangible assets
|
2,680
|
|
|
Deferred income taxes, net
|
886
|
|
|
Liabilities
|
(4,029
|
)
|
|
Net assets acquired
|
$
|
64,032
|
|
The process of estimating the fair value of the property, plant, and equipment includes the use of certain estimates and assumptions related to replacement cost and physical condition at the time of acquisition. The excess of the purchase price over the aggregate estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of Stevens Pass and other factors, and is expected to be deductible for income tax purposes. The Company recognized $1.2 million of acquisition related expenses associated with the transaction within Mountain and Lodging operating expense in its Consolidated Statement of Operations for the year ended July 31, 2019. The operating results of Stevens Pass are reported within the Mountain segment prospectively from the date of acquisition.
Triple Peaks
On September 27, 2018, the Company, through a wholly-owned subsidiary, acquired Triple Peaks, LLC (“Triple Peaks”), the parent company of Okemo Mountain Resort in Vermont, Crested Butte Mountain Resort in Colorado, and Mount Sunapee Resort in New Hampshire, for a cash purchase price of approximately $74.1 million, after adjustments for certain agreed-upon terms. In addition, contemporaneous with the closing of the transaction, Triple Peaks paid $155.0 million to pay the remaining obligations of the leases that all three resorts had with Ski Resort Holdings, with funds provided by the Company. Accordingly, the total purchase price, including the repayment of lease obligations, was $229.1 million, for which the Company utilized cash on hand and borrowed $195.6 million under the Vail Holdings Credit Agreement term loan (see Note 6, Long-Term Debt) to fund the transaction and associated acquisition related expenses. The Company obtained a new Special Use Permit from the U.S. Forest Service for Crested Butte, and assumed the state land leases for Okemo and Mount Sunapee. The acquisition included the mountain operations of the resorts, including base area skier services (food and beverage, retail and rental, lift ticket offices and ski and snowboard school facilities).
The following summarizes the purchase consideration and the purchase price allocation to estimated fair values of the identifiable assets acquired and liabilities assumed at the date the transaction was effective (in thousands):
|
|
|
|
|
|
|
|
|
Acquisition Date Estimated Fair Value
|
|
Current assets
|
$
|
5,197
|
|
|
Property, plant and equipment
|
159,799
|
|
|
Goodwill
|
51,742
|
|
|
Identifiable intangible assets
|
27,360
|
|
|
Deferred income taxes, net
|
3,093
|
|
|
Liabilities
|
(18,098
|
)
|
|
Net assets acquired
|
$
|
229,093
|
|
Identifiable intangible assets acquired in the transaction were primarily related to property management contracts and trade names. The process of estimating the fair value of the property, plant, and equipment includes the use of certain estimates and assumptions related to replacement cost and physical condition at the time of acquisition. The excess of the purchase price over the aggregate estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of the resorts and other factors, and is expected to be deductible for income tax purposes. The Company recognized $2.8 million of acquisition related expenses associated with the transaction within Mountain and Lodging operating expense in its Consolidated Statement of Operations for the year ended July 31, 2019. The operating results of Triple Peaks are reported within the Mountain and Lodging segments prospectively from the date of acquisition.
Pro Forma Financial Information
The following presents the unaudited pro forma consolidated financial information of the Company as if the acquisitions of Peak Resorts, Falls Creek and Hotham, Stevens Pass and Triple Peaks were completed at the beginning of the fiscal year preceding the respective fiscal year in which each acquisition occurred. The following unaudited pro forma financial information includes adjustments for (i) depreciation on acquired property, plant and equipment; (ii) amortization of intangible assets recorded at the date of the transactions; (iii) lease expenses incurred by the prior owners which the Company will not be subject to; (iv) transaction and business integration related costs; and (v) interest expense associated with financing the transactions. This unaudited pro forma financial information is presented for informational purposes only and does not purport to be indicative of the results of future operations or the results that would have occurred had the transaction taken place at the beginning of the fiscal year preceding the fiscal year in which each acquisition occurred (in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
2019
|
|
Pro forma net revenue
|
$
|
1,970,363
|
|
$
|
2,490,809
|
|
|
Pro forma net income attributable to Vail Resorts, Inc.
|
$
|
100,205
|
|
$
|
301,234
|
|
|
Pro forma basic net income per share attributable to Vail Resorts, Inc.
|
$
|
2.49
|
|
$
|
7.47
|
|
|
Pro forma diluted net income per share attributable to Vail Resorts, Inc.
|
$
|
2.45
|
|
$
|
7.32
|
|
8. Supplementary Balance Sheet Information
The composition of property, plant and equipment, including capital lease assets, follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
2020
|
2019
|
|
Land and land improvements
|
$
|
750,714
|
|
$
|
619,561
|
|
|
Buildings and building improvements
|
1,475,661
|
|
1,284,438
|
|
|
Machinery and equipment
|
1,361,178
|
|
1,160,817
|
|
|
Furniture and fixtures
|
308,267
|
|
309,271
|
|
|
Software
|
104,223
|
|
118,815
|
|
|
Vehicles
|
80,510
|
|
65,556
|
|
|
Construction in progress
|
81,967
|
|
79,282
|
|
|
Gross property, plant and equipment
|
4,162,520
|
|
3,637,740
|
|
|
Accumulated depreciation
|
(1,969,841
|
)
|
(1,795,240
|
)
|
|
Property, plant and equipment, net
|
$
|
2,192,679
|
|
$
|
1,842,500
|
|
Depreciation expense, which included depreciation of assets recorded under capital leases, for the years ended July 31, 2020, 2019 and 2018 totaled $243.1 million, $210.7 million and $199.2 million, respectively.
The following table summarizes the composition of property, plant and equipment recorded under finance leases as of July 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
2020
|
2019
|
|
Land
|
$
|
31,818
|
|
$
|
31,818
|
|
|
Land improvements
|
49,228
|
|
49,228
|
|
|
Buildings and building improvements
|
42,160
|
|
42,160
|
|
|
Machinery and equipment
|
60,384
|
|
60,384
|
|
|
Gross property, plant and equipment
|
183,590
|
|
183,590
|
|
|
Accumulated depreciation
|
(65,792
|
)
|
(56,040
|
)
|
|
Property, plant and equipment, net
|
$
|
117,798
|
|
$
|
127,550
|
|
The composition of goodwill and intangible assets follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
2020
|
2019
|
|
Goodwill
|
|
|
|
Goodwill
|
$
|
1,752,062
|
|
$
|
1,625,560
|
|
|
Accumulated impairments
|
(25,688
|
)
|
—
|
|
|
Accumulated amortization
|
(17,354
|
)
|
(17,354
|
)
|
|
Goodwill, net
|
$
|
1,709,020
|
|
$
|
1,608,206
|
|
|
|
|
|
|
Indefinite-lived intangible assets
|
|
|
|
Trademarks
|
$
|
230,000
|
|
$
|
215,905
|
|
|
Other
|
41,667
|
|
42,166
|
|
|
Total gross indefinite-lived intangible assets
|
271,667
|
|
258,071
|
|
|
Accumulated amortization
|
(24,713
|
)
|
(24,713
|
)
|
|
Indefinite-lived intangible assets, net
|
$
|
246,954
|
|
$
|
233,358
|
|
|
Amortizable intangible assets
|
|
|
|
Trademarks
|
$
|
38,208
|
|
$
|
42,108
|
|
|
Other
|
70,772
|
|
67,538
|
|
|
Total gross amortizable intangible assets
|
108,980
|
|
109,646
|
|
|
Accumulated amortization
|
(41,158
|
)
|
(36,831
|
)
|
|
Amortizable intangible assets, net
|
67,822
|
|
72,815
|
|
|
Total gross intangible assets
|
380,647
|
|
367,717
|
|
|
Total accumulated amortization
|
(65,871
|
)
|
(61,544
|
)
|
|
Total intangible assets, net
|
$
|
314,776
|
|
$
|
306,173
|
|
Amortization expense for intangible assets subject to amortization for the years ended July 31, 2020, 2019 and 2018 totaled $6.5 million, $7.4 million and $5.3 million, respectively, and is estimated to be approximately $4.3 million annually, on average, for the next five fiscal years.
The changes in the net carrying amount of goodwill allocated between the Company’s segments for the years ended July 31, 2020 and 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mountain
|
Lodging
|
Goodwill, net
|
|
Balance at July 31, 2018
|
$
|
1,407,787
|
|
$
|
67,899
|
|
$
|
1,475,686
|
|
|
Acquisitions (including measurement period adjustments)
|
152,049
|
|
—
|
|
152,049
|
|
|
Effects of changes in foreign currency exchange rates
|
(19,529
|
)
|
—
|
|
(19,529
|
)
|
|
Balance at July 31, 2019
|
1,540,307
|
|
67,899
|
|
1,608,206
|
|
|
Acquisitions (including measurement period adjustments)
|
135,987
|
|
—
|
|
135,987
|
|
|
Asset impairments
|
—
|
|
(25,688
|
)
|
(25,688
|
)
|
|
Effects of changes in foreign currency exchange rates
|
(9,485
|
)
|
—
|
|
(9,485
|
)
|
|
Balance at July 31, 2020
|
$
|
1,666,809
|
|
$
|
42,211
|
|
$
|
1,709,020
|
|
Asset Impairments
The Company recorded asset impairments during the year ended July 31, 2020 of $28.4 million, with corresponding reductions to goodwill, net of $25.7 million and intangible assets, net and property, plant and equipment, net of $2.7 million. These asset impairments encompass various estimates and assumptions about fair value, which are based predominately on significant unobservable inputs.
As a result of the COVID-19 pandemic and the impact it has had on the Company’s operations during the year ended July 31, 2020, and the expected continuing impact of the pandemic on future operations, the Company determined that the estimated fair value of its Colorado resort ground transportation company reporting unit within its Lodging segment no longer exceeded its carrying value. Additionally, the Company determined that certain long-lived assets of its Colorado resort ground transportation company were not recoverable. As a result, the Company recognized impairments of goodwill of approximately $25.7 million and intangible assets and long-lived assets of $2.7 million, which were recorded within asset impairments on the Company’s Consolidated Statement of Operations during the year ended July 31, 2020.
The Company estimated the fair value of its Colorado resort ground transportation company reporting unit based on an analysis of the present value of future cash flows (an income approach). The significant estimates used in the discounted cash flow model included the Company’s weighted average cost of capital for the reporting unit, projected cash flows and the long-term rate of growth, all of which are significant unobservable (Level 3) inputs. The Company’s assumptions were based on the actual historical performance of the reporting unit, taking into account the recent weakening of operating results and the expected continuation of operating results for transportation services. As a result of this impairment, the Company’s Colorado ground transportation company had no remaining goodwill recorded as of July 31, 2020.
The composition of accounts payable and accrued liabilities follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
2020
|
2019
|
|
Trade payables
|
$
|
59,692
|
|
$
|
96,377
|
|
|
Deferred revenue
|
256,402
|
|
335,669
|
|
|
Accrued salaries, wages and deferred compensation
|
25,588
|
|
50,318
|
|
|
Accrued benefits
|
43,704
|
|
37,797
|
|
|
Deposits
|
20,070
|
|
32,108
|
|
|
Operating lease liabilities
|
36,604
|
|
—
|
|
|
Other accruals
|
57,048
|
|
55,588
|
|
|
Total accounts payable and accrued liabilities
|
$
|
499,108
|
|
$
|
607,857
|
|
The composition of other long-term liabilities follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
2020
|
2019
|
|
Private club deferred initiation fee revenue
|
$
|
105,108
|
|
$
|
109,749
|
|
|
Unfavorable lease obligation, net
|
1,651
|
|
19,017
|
|
|
Other long-term liabilities
|
163,486
|
|
154,835
|
|
|
Total other long-term liabilities
|
$
|
270,245
|
|
$
|
283,601
|
|
9. Investments in Affiliates
The Company held the following investments in equity method affiliates as of July 31, 2020:
|
|
|
|
|
|
Equity Method Affiliates
|
Ownership
Interest
|
|
Slifer, Smith, and Frampton/Vail Associates Real Estate, LLC (“SSF/VARE”)
|
50%
|
|
KRED
|
50%
|
|
Clinton Ditch and Reservoir Company
|
43%
|
The Company had total net investments in equity method affiliates of $10.2 million and $8.8 million as of July 31, 2020 and 2019, respectively, included within deferred charges and other assets in the accompanying Consolidated Balance Sheets. The amount of retained earnings that represent undistributed earnings of 50% or less owned entities accounted for by the equity method was $6.5 million and $5.4 million as of July 31, 2020 and 2019, respectively. During the years ended July 31, 2020, 2019 and 2018, distributions in the amounts of $0.7 million, $1.0 million and $1.5 million, respectively, were received from equity method affiliates.
10. Fair Value Measurements
The Company utilizes FASB issued fair value guidance that establishes how reporting entities should measure fair value for measurement and disclosure purposes. The guidance establishes a common definition of fair value applicable to all assets and liabilities measured at fair value and prioritizes the inputs into valuation techniques used to measure fair value. Accordingly, the Company uses valuation techniques which maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value. The three levels of the hierarchy are as follows:
Level 1: Inputs that reflect unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities;
Level 2: Inputs include quoted prices for similar assets and liabilities in active and inactive markets or that are observable for the asset or liability either directly or indirectly; and
Level 3: Unobservable inputs which are supported by little or no market activity.
The table below summarizes the Company’s cash equivalents, other current assets, Interest Rate Swaps and Contingent Consideration measured at their estimated fair values (all other assets and liabilities measured at fair value are immaterial) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value Measurement as of July 31, 2020
|
|
Description
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|
Assets:
|
|
|
|
|
|
Money Market
|
$
|
203,158
|
|
$
|
203,158
|
|
$
|
—
|
|
$
|
—
|
|
|
Commercial Paper
|
$
|
2,401
|
|
$
|
—
|
|
$
|
2,401
|
|
$
|
—
|
|
|
Certificates of Deposit
|
$
|
8,208
|
|
$
|
—
|
|
$
|
8,208
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
Interest Rate Swaps
|
$
|
22,510
|
|
$
|
—
|
|
$
|
22,510
|
|
$
|
—
|
|
|
Contingent Consideration
|
$
|
17,800
|
|
$
|
—
|
|
$
|
—
|
|
$
|
17,800
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value Measurement as of July 31, 2019
|
|
Description
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|
Assets:
|
|
|
|
|
|
Money Market
|
$
|
3,043
|
|
$
|
3,043
|
|
$
|
—
|
|
$
|
—
|
|
|
Commercial Paper
|
$
|
2,401
|
|
$
|
—
|
|
$
|
2,401
|
|
$
|
—
|
|
|
Certificates of Deposit
|
$
|
7,871
|
|
$
|
—
|
|
$
|
7,871
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
Contingent Consideration
|
$
|
27,200
|
|
$
|
—
|
|
$
|
—
|
|
$
|
27,200
|
|
The Company’s cash equivalents, other current assets and Interest Rate Swaps are measured utilizing quoted market prices or pricing models whereby all significant inputs are either observable or corroborated by observable market data. During the year ended July 31, 2020, the Company entered into the Interest Rate Swaps to hedge the LIBOR-based variable interest rate component of $400.0 million in principal amount of its Vail Holdings Credit Agreement. Changes in the estimated fair value are recognized in change in estimated fair value of hedging instruments on the Company’s Consolidated Statements of Comprehensive Income. Such amounts are reclassified into interest expense, net from other comprehensive income during the period in which the hedged item affects earnings. The estimated fair value of the Interest Rate Swaps are included within other long-term liabilities on the Company’s Consolidated Balance Sheet as of July 31, 2020.
The changes in Contingent Consideration during the years ended July 31, 2020 and 2019 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
Contingent Consideration
|
|
Balance at July 31, 2018
|
$
|
21,900
|
|
|
Payment
|
(67
|
)
|
|
Change in estimated fair value
|
5,367
|
|
|
Balance at July 31, 2019
|
27,200
|
|
|
Payment
|
(6,436
|
)
|
|
Change in estimated fair value
|
(2,964
|
)
|
|
Balance at July 31, 2020
|
$
|
17,800
|
|
The Lease for Park City, as discussed in Note 6, Long-term Debt, provides for participating contingent payments (the “Contingent Consideration”) to the landlord of 42% of the amount by which EBITDA for the Park City resort operations, as calculated under the Lease, exceeds approximately $35 million, as established at the transaction date, with such threshold amount subsequently increased annually by an inflation linked index and a 10% adjustment for any capital improvements or investments made under the Lease by the Company. The estimated fair value of Contingent Consideration includes the future period resort operations of Park City in the calculation of EBITDA on which participating contingent payments are made, which is determined on the basis of estimated performance for the years ending July 31, 2021 and July 31, 2022, escalated by an assumed long-term growth factor and discounted to net present value. The Company estimated the fair value of the Contingent Consideration payments using an option pricing valuation model. Key assumptions included Park City EBITDA for the year ending July 31, 2022, an assumed long-term growth rate, a discount rate of 10.49% and volatility of 17.0%, which are unobservable inputs and thus are considered Level 3 inputs. The Company prepared a sensitivity analysis to evaluate the effect that changes on certain key assumptions would have on the estimated fair value of the Contingent Consideration. A change in the discount rate of 100 basis points or a 5% change in estimated future performance would result in a change in the estimated fair value within the range of approximately $2.9 million to $4.1 million.
Contingent Consideration is classified as a liability in our Consolidated Balance Sheets and is remeasured to an estimated fair value at each reporting date until the contingency is resolved. During the year ended July 31, 2020, the Company made a payment to the landlord for Contingent Consideration of approximately $6.4 million and recorded a decrease in the estimated fair value of approximately $3.0 million primarily related to changes in the expected Contingent Consideration payments for the year ended July 31, 2020 and the year ending July 31, 2021, and other key assumptions noted above, resulting in an estimated fair value of the Contingent Consideration of $17.8 million as of July 31, 2020, which is reflected in accounts payable and accrued liabilities and other long-term liabilities in the Consolidated Balance Sheet.
11. Income Taxes
The Company is subject to taxation in U.S. federal, state, and local jurisdictions and various non-U.S. jurisdictions, including Australia and Canada. The Company’s effective tax rate is impacted by the tax laws, regulations, practices and interpretations in the jurisdictions in which it operates and may fluctuate significantly from period to period depending on, among other things, the geographic mix of the Company’s profits and losses, changes in tax laws and regulations or their application and interpretation, the outcome of tax audits and changes in valuation allowances associated with the Company’s deferred tax assets.
On March 27, 2020, in response to the COVID-19 pandemic, the U.S. government enacted legislation commonly referred to as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act includes various amendments to the U.S. tax code that impacted the Company’s accounting and reporting for income taxes during the year ended July 31, 2020, and the Company expects these amendments will continue to impact its accounting and reporting for income taxes in the future. The primary provisions of the CARES Act that the Company has been impacted by include:
|
|
|
|
•
|
allowing a carryback of the entire amount of eligible Federal net operating losses (“NOLs”) generated in calendar years 2018, 2019 and 2020 for up to five years prior to when such losses were incurred, representing a change from previous rules under the Tax Cuts & Jobs Act of 2017 (the “TCJA”), in which NOLs could not be carried back to prior years and utilization was limited to 80% of taxable income in future years. Under the CARES Act, the Company was permitted to carry back its pre-existing NOLs to tax years prior to the enactment of the TCJA and obtain an incremental benefit of $3.8 million related to the differential in federal tax rates between years that NOLs were generated and years that the NOLs will be carried back to;
|
|
|
|
|
•
|
treatment of certain qualified improvement property (“QIP”) as 15-year property and allowing such QIP placed in service after December 31, 2017 to be eligible for bonus depreciation, which could incrementally add to its pre-existing NOLs; and
|
|
|
|
|
•
|
increases in the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income for calendar years 2019 and 2020.
|
The CARES Act also provides refundable employee retention credits and defers the requirement to remit the employer-paid portion of social security payroll taxes. As a result, during the year ended July 31, 2020, the Company recorded a benefit of approximately $9.6 million, which primarily offset Mountain and Lodging operating expense as a result of wages paid to employees who were not providing services. Additionally, the Company deferred payment of the employer-paid portion of social security payroll taxes through the end of calendar year 2020 and will remit such amounts in equal installments during calendar years 2021 and 2022.
The Company also recognized a benefit of approximately $8.5 million during the year ended July 31, 2020 as a result of the recent Canada Emergency Wage Subsidy and Australian JobKeeper legislation for its Canadian and Australian employees, which primarily offset Mountain and Lodging operating expense.
U.S. and foreign components of income before (provision) benefit from income taxes is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
2019
|
2018
|
|
U.S.
|
$
|
89,838
|
|
$
|
306,323
|
|
$
|
264,379
|
|
|
Foreign
|
26,595
|
|
92,642
|
|
75,713
|
|
|
Income before income taxes
|
$
|
116,433
|
|
$
|
398,965
|
|
$
|
340,092
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company’s deferred tax liabilities and assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
2020
|
2019
|
|
Deferred income tax liabilities:
|
|
|
|
Fixed assets
|
$
|
216,016
|
|
$
|
153,182
|
|
|
Intangible assets
|
86,509
|
|
73,146
|
|
|
Operating lease right of use assets
|
53,727
|
|
—
|
|
|
Other
|
13,709
|
|
13,425
|
|
|
Total
|
369,961
|
|
239,753
|
|
|
Deferred income tax assets:
|
|
|
|
Canyons obligation
|
14,997
|
|
13,922
|
|
|
Stock-based compensation
|
10,313
|
|
9,620
|
|
|
Investment in Partnerships
|
12,400
|
|
13,281
|
|
|
Deferred compensation and other accrued benefits
|
9,918
|
|
10,674
|
|
|
Contingent Consideration
|
4,468
|
|
6,771
|
|
|
Unfavorable lease obligation, net
|
285
|
|
4,896
|
|
|
Net operating loss carryforwards and other tax credits
|
13,205
|
|
5,631
|
|
|
Operating lease liabilities
|
60,838
|
|
—
|
|
|
Other, net
|
21,427
|
|
18,850
|
|
|
Total
|
147,851
|
|
83,645
|
|
|
Valuation allowance for deferred income taxes
|
(5,330
|
)
|
(5,365
|
)
|
|
Deferred income tax assets, net of valuation allowance
|
142,521
|
|
78,280
|
|
|
Net deferred income tax liability
|
$
|
227,440
|
|
$
|
161,473
|
|
The components of deferred income taxes recognized in the Consolidated Balance Sheets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
2020
|
2019
|
|
Deferred income tax asset
|
$
|
6,751
|
|
$
|
7,286
|
|
|
Deferred income tax liability
|
234,191
|
|
168,759
|
|
|
Net deferred income tax liability
|
$
|
227,440
|
|
$
|
161,473
|
|
Significant components of the provision (benefit) from income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
2019
|
2018
|
|
Current:
|
|
|
|
|
Federal
|
$
|
(13,467
|
)
|
$
|
24,309
|
|
$
|
(43,366
|
)
|
|
State
|
(731
|
)
|
8,539
|
|
9,562
|
|
|
Foreign
|
4,141
|
|
20,205
|
|
18,436
|
|
|
Total current
|
(10,057
|
)
|
53,053
|
|
(15,368
|
)
|
|
Deferred:
|
|
|
|
|
Federal
|
12,597
|
|
16,983
|
|
(45,922
|
)
|
|
State
|
4,266
|
|
5,282
|
|
2,941
|
|
|
Foreign
|
572
|
|
154
|
|
(2,789
|
)
|
|
Total deferred
|
17,435
|
|
22,419
|
|
(45,770
|
)
|
|
Provision (benefit) from income taxes
|
$
|
7,378
|
|
$
|
75,472
|
|
$
|
(61,138
|
)
|
A reconciliation of the income tax provision (benefit) from continuing operations and the amount computed by applying the United States federal statutory income tax rate to income before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
2019
|
2018
|
|
At U.S. federal income tax rate
|
21.0
|
%
|
21.0
|
%
|
26.8
|
%
|
|
State income tax, net of federal benefit
|
3.5
|
%
|
2.8
|
%
|
3.0
|
%
|
|
Change in uncertain tax positions
|
(3.8
|
)%
|
(1.6
|
)%
|
—
|
%
|
|
Change in valuation allowance
|
—
|
%
|
—
|
%
|
0.3
|
%
|
|
Excess tax benefits related to stock-based compensation
|
(7.1
|
)%
|
(3.0
|
)%
|
(20.9
|
)%
|
|
Impacts of the Tax Act and other legislative changes
|
(3.2
|
)%
|
—
|
%
|
(24.7
|
)%
|
|
Noncontrolling interests
|
(2.4
|
)%
|
(1.5
|
)%
|
(1.7
|
)%
|
|
Foreign rate differential
|
(2.4
|
)%
|
0.4
|
%
|
(1.5
|
)%
|
|
Other
|
0.7
|
%
|
0.8
|
%
|
0.7
|
%
|
|
Effective tax rate
|
6.3
|
%
|
18.9
|
%
|
(18.0
|
)%
|
A reconciliation of the beginning and ending amount of unrecognized tax benefits associated with uncertain tax positions, excluding associated deferred tax benefits and accrued interest and penalties, if applicable, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
2019
|
2018
|
|
Balance, beginning of year
|
$
|
72,222
|
|
$
|
78,242
|
|
$
|
76,111
|
|
|
Additions for tax positions of prior years
|
16,654
|
|
11,520
|
|
12,394
|
|
|
Lapse of statute of limitations
|
(18,577
|
)
|
(17,540
|
)
|
(10,263
|
)
|
|
Balance, end of year
|
$
|
70,299
|
|
$
|
72,222
|
|
$
|
78,242
|
|
As of July 31, 2020, the Company’s unrecognized tax benefits associated with uncertain tax positions relate to the treatment of the Talisker lease payments as payments of debt obligations and that the tax basis in Canyons goodwill is deductible, and are included within “other long-term liabilities” in the accompanying Consolidated Balance Sheets.
During the year ended July 31, 2020, the Company experienced a reduction in the uncertain tax positions due to the lapse of the statute of limitations of $18.6 million, which was partially offset with an increase to the uncertain tax position of $16.7 million. Interest and penalties associated with the statute of limitations lapse were approximately $3.1 million. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months. Additionally, the Company expects a reduction to its uncertain tax positions for the fiscal year ending July 31, 2021, due to the lapse of the statute of limitations. As of July 31, 2020 and 2019, accrued interest and penalties, net of tax, was $6.2 million and $6.3 million, respectively. For the years ended July 31, 2020, 2019 and 2018, the Company recognized income tax (benefit) expense of ($0.1 million), $1.1 million and $1.6 million of interest (benefit) expense and penalties, net of tax, respectively.
The Company’s major tax jurisdictions in which it files income tax returns are the U.S. federal jurisdiction, various state jurisdictions, Australia, and Canada. The Company is no longer subject to U.S. federal examinations for tax years prior to 2015. With few exceptions, the Company is no longer subject to examination by various U.S. state jurisdictions for tax years prior to 2014. Additionally, the Company is no longer subject to audits for the tax years prior to 2015 for Australia and Canada.
The Company has NOL carryforwards totaling $58.6 million, primarily comprised of $49.8 million of federal and state NOLs as a result of the acquisition of Peak Resorts in September 2019 that will expire beginning July 31, 2032, $4.9 million of historical state NOLs that will expire by July 31, 2032 and non-U.S. NOLs of $3.9 million that will carry forward indefinitely. In connection with Peak Resorts’ initial public offering in November 2014, as well as the Company’s acquisition of Peak Resorts in September 2019, Peak Resorts had two ownership changes pursuant to the provisions of the Tax Reform Act of 1986. As a result, the Company’s usage of its eligible Federal NOL carryforwards will be limited each year by these ownership changes; however, management believes the full benefit of those carryforwards will be realized prior to their respective expiration dates. As of July 31, 2020, the Company has recorded a valuation allowance on $3.9 million of the historical non-U.S. NOL carryforwards, as the Company has determined that it is more likely than not that the associated NOL carryforwards will not be realized. Additionally, the Company has foreign tax credit carryforwards of $4.2 million, which expire by the year ending July 31, 2028. As of July 31, 2020, the Company has recorded a valuation allowance of $4.2 million on foreign tax credit carryforwards, as the Company has determined that it is more likely than not that these foreign tax credit carryforwards will not be realized.
The Company may be required to record additional valuation allowances if, among other things, adverse economic conditions, including those caused by the COVID-19 pandemic, negatively impact the Company’s ability to realize its deferred tax assets. Evaluating and estimating the Company’s tax provision, current and deferred tax assets and liabilities and other tax accruals requires significant management judgment. The Company intends to indefinitely reinvest undistributed earnings, if any, in its Canadian foreign subsidiaries. It is not practical at this time to determine the income tax liability related to any remaining undistributed earnings.
12. Related Party Transactions
The Company has the right to appoint four of nine directors of the Beaver Creek Resort Company of Colorado (“BCRC”), a non-profit entity formed for the benefit of property owners and certain others in Beaver Creek. The Company has a management agreement with the BCRC, renewable for one-year periods, to provide management services on a fixed fee basis. Management fees and reimbursement of operating expenses paid to the Company under its agreement with the BCRC during the years ended July 31, 2020, 2019 and 2018 were $8.3 million, $9.6 million and $9.2 million, respectively.
13. Commitments and Contingencies
Metropolitan Districts
The Company credit-enhances $6.3 million of bonds issued by Holland Creek Metropolitan District (“HCMD”) through a $6.4 million letter of credit issued under the Vail Holdings Credit Agreement. HCMD’s bonds were issued and used to build infrastructure associated with the Company’s Red Sky Ranch residential development. The Company has agreed to pay capital improvement fees to Red Sky Ranch Metropolitan District (“RSRMD”) until RSRMD’s revenue streams from property taxes are sufficient to meet debt service requirements under HCMD’s bonds. The Company recorded a liability of $2.1 million and $2.0 million, primarily within other long-term liabilities in the accompanying Consolidated Balance Sheets, as of July 31, 2020 and 2019, respectively, with respect to the estimated present value of future RSRMD capital improvement fees. The Company estimates that it will make capital improvement fee payments under this arrangement through the year ending July 31, 2031.
Guarantees/Indemnifications
As of July 31, 2020, the Company had various other letters of credit outstanding totaling $75.5 million, consisting of $53.4 million to support the Employee Housing Bonds and $22.1 million primarily for workers’ compensation, a wind energy purchase agreement and insurance-related deductibles. The Company also had surety bonds of $9.6 million as of July 31, 2020, primarily to provide collateral for its U.S. workers compensation self-insurance programs.
In addition to the guarantees noted above, the Company has entered into contracts in the normal course of business that include certain indemnifications under which it could be required to make payments to third parties upon the occurrence or non-occurrence of certain future events. These indemnities include indemnities related to licensees in connection with third-parties’ use of the Company’s trademarks and logos, liabilities associated with the infringement of other parties’ technology and software products, liabilities associated with the use of easements, liabilities associated with employment of contract workers and the Company’s use of trustees, and liabilities associated with the Company’s use of public lands and environmental matters. The duration of these indemnities generally is indefinite and generally do not limit the future payments the Company could be obligated to make.
As permitted under applicable law, the Company and certain of its subsidiaries have agreed to indemnify their directors and officers over their lifetimes for certain events or occurrences while the officer or director is, or was, serving the Company or its subsidiaries in such a capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that should enable the Company to recover a portion of any amounts paid.
Unless otherwise noted, the Company has not recorded any significant liabilities for the letters of credit, indemnities and other guarantees noted above in the accompanying Consolidated Financial Statements, either because the Company has recorded on its Consolidated Balance Sheets the underlying liability associated with the guarantee, the guarantee is with respect to the Company’s own performance and is therefore not subject to the measurement requirements as prescribed by GAAP, or because the Company has calculated the estimated fair value of the indemnification or guarantee to be immaterial based on the current facts and circumstances that would trigger a payment under the indemnification clause. In addition, with respect to certain indemnifications it is not possible to determine the maximum potential amount of liability under these potential obligations due to the unique set of facts and circumstances likely to be involved in each particular claim and indemnification provision. Historically, payments made by the Company under these obligations have not been material.
As noted above, the Company makes certain indemnifications to licensees for their use of the Company’s trademarks and logos. The Company does not record any liabilities with respect to these indemnifications.
Commitments
The operations of Northstar are conducted on land and with operating assets owned by affiliates of EPR Properties, a real-estate investment trust, primarily under operating leases which were assumed in the acquisition of Northstar by the Company. The leases provide for the payment of a minimum annual base rent over the lease term which is recognized on a straight-line basis over the remaining lease term from the date of assumption. In addition, the leases provide for the payment of percentage rent of certain gross revenues generated at the property over a revenue threshold which is incrementally adjusted annually. The initial term of the leases expires in fiscal 2027 and allows for three 10-year extensions at the Company’s option. The operations of Perisher are conducted on land under a license and lease granted by the Office of Environment and Heritage, an agency of the New South Wales government, which initially commenced in 2008, and which the Company assumed in its acquisition of Perisher. The lease and license has a term that expires in fiscal 2048 and allows for an option to renew for an additional 20 years. The lease and license provide for the payment of an initial minimum annual base rent, with annual CPI increases, and percentage rent of certain gross revenue generated at the property. The operations of Falls Creek and Hotham are conducted on land under leases granted by the Governor of the State of Victoria, Australia and its dependencies, which initially commenced in 1991 and 1992, respectively, which the Company assumed in its acquisition of Falls Creek and Hotham in April 2019. The leases have terms that expire in fiscal 2041 for Falls Creek and fiscal 2058 for Hotham, and provide for the payment of rent with both a fixed and variable component. The operations of Mad River Mountain is conducted on land under a lease granted by EPT Mad River, Inc., which initially commenced in 2005, which the Company assumed in its acquisition of Peak Resorts in September 2019. The lease has a term that expires in the year ending July 31, 2035, and provides for the payment of an initial minimum annual base rent, with annual CPI increases, and percentage rent of certain gross revenue generated at the property. Additionally, the Company has entered into strategic long-term season pass alliance agreements with third-party mountain resorts in which the Company has committed to pay minimum revenue guarantees over the remaining terms of these agreements.
The Company has executed or assumed as lessee other operating leases for the rental of office and commercial space, employee residential units and land primarily through fiscal 2079. Certain of these leases have renewal terms at the Company’s option, escalation clauses, rent holidays and leasehold improvement incentives. Rent holidays and rent escalation clauses are recognized on a straight-line basis over the lease term. Leasehold improvement incentives are recorded as leasehold improvements and amortized over the shorter of their economic lives or the term of the lease. For the years ended July 31, 2020, 2019 and 2018, the Company recorded lease expense (including Northstar, Perisher, Falls Creek & Hotham and Mad River Mountain), excluding executory costs, related to these agreements of $58.8 million, $57.8 million and $52.8 million, respectively, which is included in the accompanying Consolidated Statements of Operations. See Note 4 “Leases” for additional information regarding the Company’s leasing arrangements.
Self Insurance
The Company is self-insured for claims under its U.S. health benefit plans and for the majority of workers’ compensation claims in the U.S. Workers compensation claims in the U.S. are subject to stop loss policies. The self-insurance liability related to workers’ compensation is determined actuarially based on claims filed. The self-insurance liability related to claims under the Company’s U.S. health benefit plans is determined based on analysis of actual claims. The amounts related to these claims are included as a component of accrued benefits in accounts payable and accrued liabilities (see Note 8, Supplementary Balance Sheet Information).
Legal
The Company is a party to various lawsuits arising in the ordinary course of business. Management believes the Company has adequate insurance coverage and/or has accrued for all loss contingencies for asserted and unasserted matters deemed to be probable losses and estimable. As of July 31, 2020 and 2019, the accruals for the above loss contingencies were not material individually or in the aggregate.
14. Segment and Geographic Area Information
Segment Information
The Company has three reportable segments: Mountain, Lodging and Real Estate. The Company refers to “Resort” as the combination of the Mountain and Lodging segments. The Mountain segment includes the operations of the Company’s mountain resorts/ski areas and related ancillary activities. The Lodging segment includes the operations of the Company’s owned hotels, RockResorts, NPS concessionaire properties, condominium management, Colorado resort ground transportation operations and mountain resort golf operations. The Real Estate segment owns, develops and sells real estate in and around the Company’s resort communities. The Company’s reportable segments, although integral to the success of the others, offer distinctly different products and services and require different types of management focus. As such, these segments are managed separately.
The Company reports its segment results using Reported EBITDA (defined as segment net revenue less segment operating expenses, plus or minus segment equity investment income or loss, and for the Real Estate segment, plus gain or loss on sale of real property). The Company reports segment results in a manner consistent with management’s internal reporting of operating results to the chief operating decision maker (Chief Executive Officer) for purposes of evaluating segment performance.
Items excluded from Reported EBITDA are significant components in understanding and assessing financial performance. Reported EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, net change in cash and cash equivalents or other financial statement data presented in the Consolidated Financial Statements as indicators of financial performance or liquidity.
The Company utilizes Reported EBITDA in evaluating the performance of the Company and in allocating resources to its segments. Mountain Reported EBITDA consists of Mountain net revenue less Mountain operating expense plus or minus Mountain equity investment income or loss. Lodging Reported EBITDA consists of Lodging net revenue less Lodging operating expense. Real Estate Reported EBITDA consists of Real Estate net revenue less Real Estate operating expense plus gain or loss on sale of real property. All segment expenses include an allocation of corporate administrative expense. Assets are not used to evaluate performance, except as shown in the table below. The accounting policies specific to each segment are the same as those described in Note 2 “Summary of Significant Accounting Policies.”
Following is key financial information by reportable segment which is used by management in evaluating performance and allocating resources (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
2019
|
2018
|
|
Net revenue:
|
|
|
|
|
Lift
|
$
|
913,091
|
|
$
|
1,033,234
|
|
$
|
880,293
|
|
|
Ski school
|
189,131
|
|
215,060
|
|
189,910
|
|
|
Dining
|
160,763
|
|
181,837
|
|
161,402
|
|
|
Retail/rental
|
270,299
|
|
320,267
|
|
296,466
|
|
|
Other
|
177,159
|
|
205,803
|
|
194,851
|
|
|
Total Mountain net revenue
|
1,710,443
|
|
1,956,201
|
|
1,722,922
|
|
|
Lodging
|
248,414
|
|
314,662
|
|
284,643
|
|
|
Total Resort net revenue
|
1,958,857
|
|
2,270,863
|
|
2,007,565
|
|
|
Real Estate
|
4,847
|
|
712
|
|
3,988
|
|
|
Total net revenue
|
$
|
1,963,704
|
|
$
|
2,271,575
|
|
$
|
2,011,553
|
|
|
Segment operating expense:
|
|
|
|
|
Mountain
|
$
|
1,212,053
|
|
$
|
1,279,567
|
|
$
|
1,132,840
|
|
|
Lodging
|
245,145
|
|
286,562
|
|
259,637
|
|
|
Total Resort operating expense
|
1,457,198
|
|
1,566,129
|
|
1,392,477
|
|
|
Real Estate, net
|
9,182
|
|
5,609
|
|
3,546
|
|
|
Total segment operating expense
|
$
|
1,466,380
|
|
$
|
1,571,738
|
|
$
|
1,396,023
|
|
|
Gain on sale of real property
|
$
|
207
|
|
$
|
580
|
|
$
|
515
|
|
|
Mountain equity investment income, net
|
$
|
1,690
|
|
$
|
1,960
|
|
$
|
1,523
|
|
|
Reported EBITDA:
|
|
|
|
|
Mountain
|
$
|
500,080
|
|
$
|
678,594
|
|
$
|
591,605
|
|
|
Lodging
|
3,269
|
|
28,100
|
|
25,006
|
|
|
Resort
|
503,349
|
|
706,694
|
|
616,611
|
|
|
Real Estate
|
(4,128
|
)
|
(4,317
|
)
|
957
|
|
|
Total Reported EBITDA
|
$
|
499,221
|
|
$
|
702,377
|
|
$
|
617,568
|
|
|
Real estate held for sale and investment
|
$
|
96,844
|
|
$
|
101,021
|
|
$
|
99,385
|
|
|
Reconciliation of net income attributable to Vail Resorts, Inc. to Total Reported EBITDA:
|
|
|
|
|
Net income attributable to Vail Resorts, Inc.
|
$
|
98,833
|
|
$
|
301,163
|
|
$
|
379,898
|
|
|
Net income attributable to noncontrolling interests
|
10,222
|
|
22,330
|
|
21,332
|
|
|
Net income
|
109,055
|
|
323,493
|
|
401,230
|
|
|
Provision (benefit) from income taxes
|
7,378
|
|
75,472
|
|
(61,138
|
)
|
|
Income before provision (benefit) from income taxes
|
116,433
|
|
398,965
|
|
340,092
|
|
|
Depreciation and amortization
|
249,572
|
|
218,117
|
|
204,462
|
|
|
Asset impairments
|
28,372
|
|
—
|
|
—
|
|
|
(Gain) loss on disposal of fixed assets and other, net
|
(838
|
)
|
664
|
|
4,620
|
|
|
Change in fair value of contingent consideration
|
(2,964
|
)
|
5,367
|
|
(1,854
|
)
|
|
Investment income and other, net
|
(1,305
|
)
|
(3,086
|
)
|
(1,944
|
)
|
|
Foreign currency loss on intercompany loans
|
3,230
|
|
2,854
|
|
8,966
|
|
|
Interest expense, net
|
106,721
|
|
79,496
|
|
63,226
|
|
|
Total Reported EBITDA
|
$
|
499,221
|
|
$
|
702,377
|
|
$
|
617,568
|
|
Geographic Information
Net revenue and property, plant and equipment, net by geographic region are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
Net revenue
|
2020
|
2019
|
2018
|
|
U.S.
|
$
|
1,655,961
|
|
$
|
1,865,062
|
|
$
|
1,610,323
|
|
|
International (1)
|
307,743
|
|
406,513
|
|
401,230
|
|
|
Total net revenue
|
$
|
1,963,704
|
|
$
|
2,271,575
|
|
$
|
2,011,553
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
Property, plant and equipment, net
|
|
2020
|
2019
|
|
U.S.
|
|
$
|
1,759,692
|
|
$
|
1,381,378
|
|
|
International (1)
|
|
432,987
|
|
461,122
|
|
|
Total property, plant and equipment, net
|
|
$
|
2,192,679
|
|
$
|
1,842,500
|
|
(1) The only individual international country (i.e. except the U.S.) to account for more than 10% of the Company’s revenue and property plant and equipment, net was Canada. Canada accounted for $223.3 million, $308.1 million, and $321.0 million of revenue for the years ended July 31, 2020, 2019 and 2018, respectively, and for $291.7 million and $319.4 million of property, plant and equipment, net as of July 31, 2020 and 2019, respectively.
15. Selected Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31, 2020
|
|
(in thousands, except per share amounts)
|
Full Year
|
Fourth
Quarter
|
Third
Quarter
|
Second
Quarter
|
First
Quarter
|
|
Total net revenue
|
$
|
1,963,704
|
|
$
|
77,209
|
|
$
|
694,087
|
|
$
|
924,638
|
|
$
|
267,770
|
|
|
Income (loss) from operations
|
$
|
223,389
|
|
$
|
(170,046
|
)
|
$
|
218,232
|
|
$
|
310,733
|
|
$
|
(135,530
|
)
|
|
Net income (loss)
|
$
|
109,055
|
|
$
|
(157,965
|
)
|
$
|
159,831
|
|
$
|
217,018
|
|
$
|
(109,829
|
)
|
|
Net income (loss) attributable to Vail Resorts, Inc.
|
$
|
98,833
|
|
$
|
(153,608
|
)
|
$
|
152,546
|
|
$
|
206,370
|
|
$
|
(106,475
|
)
|
|
Basic net income (loss) per share attributable to Vail Resorts, Inc.
|
$
|
2.45
|
|
$
|
(3.82
|
)
|
$
|
3.79
|
|
$
|
5.12
|
|
$
|
(2.64
|
)
|
|
Diluted net income (loss) per share attributable to Vail Resorts, Inc.
|
$
|
2.42
|
|
$
|
(3.82
|
)
|
$
|
3.74
|
|
$
|
5.04
|
|
$
|
(2.64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31, 2019
|
|
(in thousands, except per share amounts)
|
Full Year
|
Fourth
Quarter
|
Third
Quarter
|
Second
Quarter
|
First
Quarter
|
|
Total net revenue
|
$
|
2,271,575
|
|
$
|
244,006
|
|
$
|
957,987
|
|
$
|
849,578
|
|
$
|
220,004
|
|
|
Income (loss) from operations
|
$
|
476,269
|
|
$
|
(120,582
|
)
|
$
|
422,598
|
|
$
|
301,848
|
|
$
|
(127,595
|
)
|
|
Net income (loss)
|
$
|
323,493
|
|
$
|
(92,301
|
)
|
$
|
308,530
|
|
$
|
217,990
|
|
$
|
(110,726
|
)
|
|
Net income (loss) attributable to Vail Resorts, Inc.
|
$
|
301,163
|
|
$
|
(89,525
|
)
|
$
|
292,134
|
|
$
|
206,349
|
|
$
|
(107,795
|
)
|
|
Basic net income (loss) per share attributable to Vail Resorts, Inc.
|
$
|
7.46
|
|
$
|
(2.22
|
)
|
$
|
7.26
|
|
$
|
5.12
|
|
$
|
(2.66
|
)
|
|
Diluted net income (loss) per share attributable to Vail Resorts, Inc.
|
$
|
7.32
|
|
$
|
(2.22
|
)
|
$
|
7.12
|
|
$
|
5.02
|
|
$
|
(2.66
|
)
|
16. Share Repurchase Program
On March 9, 2006, the Company’s Board of Directors approved a share repurchase program, authorizing the Company to repurchase up to 3,000,000 Vail Shares. On July 16, 2008, the Company’s Board of Directors increased the authorization by an additional 3,000,000 Vail Shares, and on December 4, 2015, the Company’s Board of Directors increased the authorization by an additional 1,500,000 Vail Shares for a total authorization to repurchase shares of up to 7,500,000 Vail Shares. During the year ended July 31, 2020, the Company repurchased 256,418 Vail Shares (at a total cost of $46.4 million). During the year ended July 31, 2019, the Company repurchased 353,007 Vail Shares (at a total cost of $85.0 million). During the year ended July 31, 2018, the Company repurchased 115,422 Vail Shares (at a total cost of $25.8 million). Since inception of this stock repurchase program through July 31, 2020, the Company has repurchased 6,161,141 shares at a cost of approximately $404.4 million. As of July 31, 2020, 1,338,859 Vail Shares remained available to repurchase under the existing share repurchase program, which has no expiration date. Vail Shares purchased pursuant to the repurchase program will be held as treasury shares and may be used for issuance under the Company’s employee share award plan.
17. Stock Compensation Plan
The Company has a share award plan (the “Plan”) which has been approved by the Company’s stockholders. Under the Plan, up to 4.4 million shares of common stock could be issued in the form of options, stock appreciation rights, restricted shares, restricted share units, performance shares, performance share units, dividend equivalents or other share-based awards to employees, directors or consultants of the Company or its subsidiaries or affiliates. The terms of awards granted under the Plan, including exercise price, vesting period and life, are set by the Compensation Committee of the Board of Directors. All share-based awards (except for restricted shares and restricted share units) granted under the Plan have a life of ten years. Most awards vest ratably over three years; however, some have been granted with different vesting schedules. Of the awards outstanding, none have been granted to non-employees (except those granted to non-employee members of the Board of Directors of the Company) under the Plan. At July 31, 2020, approximately 3.2 million share based awards were available to be granted under the Plan.
The fair value of stock-settled stock appreciation rights (“SARs”) granted in the years ended July 31, 2020, 2019 and 2018 were estimated on the date of grant using a lattice-based option valuation model that applies the assumptions noted in the table below. A lattice-based model considers factors such as exercise behavior, and assumes employees will exercise equity awards at different times over the contractual life of the equity awards. As a lattice-based model considers these factors, and is more flexible, the Company considers it to be a better method of valuing equity awards than a closed-form Black-Scholes model. Because lattice-based option valuation models incorporate ranges of assumptions for inputs, those ranges are disclosed. Expected volatility is based on historical volatility of the Company’s stock. The Company uses historical data to estimate equity award exercises and employee terminations within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of equity awards granted is derived from the output of the option valuation model and represents the period of time that equity awards granted are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behavior. The risk-free rate for periods within the contractual life of the equity award is based on the United States Treasury yield curve in effect at the time of grant.
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2020
|
2019
|
2018
|
|
Expected volatility
|
29.7%
|
38.6%
|
40.0%
|
|
Expected dividends
|
2.8%
|
2.1%
|
2.0%
|
|
Expected term (average in years)
|
6.5-7.1
|
6.0-6.6
|
5.8-6.4
|
|
Risk-free rate
|
1.8-2.0%
|
2.4-2.9%
|
1.2-2.3%
|
The Company records actual forfeitures related to unvested awards upon employee terminations.
A summary of aggregate SARs award activity under the Plan as of July 31, 2020, 2019 and 2018, and changes during the years then ended is presented below (in thousands, except exercise price and contractual term):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
Weighted-Average
Exercise Price
|
Weighted-Average
Remaining
Contractual Term
|
Aggregate
Intrinsic
Value
|
|
Outstanding at August 1, 2017
|
2,290
|
|
$
|
59.12
|
|
|
|
|
Granted
|
86
|
|
$
|
237.86
|
|
|
|
|
Exercised
|
(1,049
|
)
|
$
|
33.25
|
|
|
|
|
Forfeited or expired
|
(3
|
)
|
$
|
172.03
|
|
|
|
|
Outstanding at July 31, 2018
|
1,324
|
|
$
|
91.01
|
|
|
|
|
Granted
|
80
|
|
$
|
293.82
|
|
|
|
|
Exercised
|
(219
|
)
|
$
|
49.09
|
|
|
|
|
Forfeited or expired
|
(14
|
)
|
$
|
217.58
|
|
|
|
|
Outstanding at July 31, 2019
|
1,171
|
|
$
|
111.12
|
|
|
|
|
Granted
|
146
|
|
$
|
245.26
|
|
|
|
|
Exercised
|
(247
|
)
|
$
|
67.19
|
|
|
|
|
Forfeited or expired
|
(9
|
)
|
$
|
252.75
|
|
|
|
|
Outstanding at July 31, 2020
|
1,061
|
|
$
|
138.59
|
|
5.0 years
|
$
|
75,736
|
|
|
Vested and expected to vest at July 31, 2020
|
1,042
|
|
$
|
136.66
|
|
4.9 years
|
$
|
75,736
|
|
|
Exercisable at July 31, 2020
|
846
|
|
$
|
108.73
|
|
4.1 years
|
$
|
75,736
|
|
The weighted-average grant-date estimated fair value of SARs granted during the years ended July 31, 2020, 2019 and 2018 was $58.25, $98.19 and $78.07, respectively. The total intrinsic value of SARs exercised during the years ended July 31, 2020, 2019 and 2018 was $35.0 million, $41.2 million and $213.8 million, respectively. The Company had 91,000, 131,000 and 169,000 SARs that vested during the years ended July 31, 2020, 2019 and 2018, respectively. These awards had a total estimated fair value of $2.6 million, $15.2 million and $18.5 million at the date of vesting for the years ended July 31, 2020, 2019 and 2018, respectively.
A summary of the status of the Company’s nonvested SARs as of July 31, 2020 and changes during the year then ended is presented below (in thousands, except fair value amounts):
|
|
|
|
|
|
|
|
|
|
Awards
|
Weighted-Average
Grant-Date
Fair Value
|
|
Outstanding at July 31, 2019
|
168
|
$
|
80.75
|
|
|
Granted
|
146
|
$
|
58.25
|
|
|
Vested
|
(91)
|
$
|
71.57
|
|
|
Forfeited
|
(8)
|
$
|
79.23
|
|
|
Nonvested at July 31, 2020
|
215
|
$
|
69.45
|
|
A summary of the status of the Company’s nonvested restricted share units as of July 31, 2020 and changes during the year then ended is presented below (in thousands, except fair value amounts):
|
|
|
|
|
|
|
|
|
|
Awards
|
Weighted-Average
Grant-Date
Fair Value
|
|
Nonvested at July 31, 2019
|
126
|
$
|
230.10
|
|
|
Granted
|
83
|
$
|
217.46
|
|
|
Vested
|
(63)
|
$
|
216.07
|
|
|
Forfeited
|
(16)
|
$
|
229.97
|
|
|
Nonvested at July 31, 2020
|
130
|
$
|
228.77
|
|
The Company granted 83,000 restricted share units during the year ended July 31, 2020 with a weighted-average grant-date estimated fair value of $217.46. The Company granted 68,000 restricted share units during the year ended July 31, 2019 with a weighted-average grant-date estimated fair value of $264.44. The Company granted 77,000 restricted share units during the year ended July 31, 2018 with a weighted-average grant-date estimated fair value of $215.14. The Company had 63,000, 102,000 and 101,000 restricted share units that vested during the years ended July 31, 2020, 2019 and 2018, respectively. These units had a total estimated fair value of $14.8 million, $28.8 million and $23.5 million at the date of vesting for the years ended July 31, 2020, 2019 and 2018, respectively.
As of July 31, 2020, there was $25.9 million of total unrecognized compensation expense related to nonvested share-based compensation arrangements granted under the Plan, of which $15.7 million, $9.0 million and $1.2 million of expense is expected to be recognized in the years ending July 31, 2021, 2022 and 2023, respectively, assuming no share-based awards are granted in the future or forfeited. The tax benefit realized or expected to be realized from SARs exercised and restricted stock units vested was $12.3 million, $16.3 million and $79.7 million for the years ended July 31, 2020, 2019 and 2018, respectively.
The Company has a policy of using either authorized and unissued shares or treasury shares, including shares acquired by purchase in the open market, to satisfy equity award exercises.
18. Retirement and Profit Sharing Plans
The Company maintains a defined contribution retirement plan (the “Retirement Plan”), qualified under Section 401(k) of the Internal Revenue Code, for its U.S. employees. Under this Retirement Plan, U.S. employees are eligible to make before-tax contributions on the first day of the calendar month following the later of: (i) their employment commencement date or (ii) the date they turn 21. Participants may contribute up to 100% of their qualifying annual compensation up to the annual maximum specified by the Internal Revenue Code. When the Company participates in 401(k) contribution matching, it matches an amount equal to 50% of each participant’s contribution up to 6% of a participant’s bi-weekly qualifying compensation starting the pay period containing the first day of the month after obtaining the later of: (i) 12 months of employment with at least 1,000 service hours from the commencement date or (ii) if 1,000 hours within the first 12 months was not completed, then after the employee completed a cumulative 1,500 service hours. On April 1, 2020, the Company announced a temporary six month suspension of its 401(k) contribution matching as a result of the impacts of the COVID-19 pandemic and resulting resort closures. Additionally, the Company’s matching contribution is entirely discretionary and may be reduced or eliminated at any time.
Total Retirement Plan expense recognized by the Company for the years ended July 31, 2020, 2019 and 2018 was $5.8 million, $7.9 million and $6.9 million, respectively.