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, as of July 31, 2019, the Company operated seventeen mountain resort properties and three urban ski areas including:
|
|
|
|
|
Mountain Resorts:
|
|
Location:
|
1.
|
Vail Mountain Resort (“Vail Mountain”)
|
|
Colorado
|
2.
|
Breckenridge Ski Resort (“Breckenridge”)
|
|
Colorado
|
3.
|
Keystone Resort (“Keystone”)
|
|
Colorado
|
4.
|
Beaver Creek Resort (“Beaver Creek”)
|
|
Colorado
|
5.
|
Crested Butte Mountain Resort (“Crested Butte”)
|
|
Colorado
|
6.
|
Heavenly Mountain Resort (“Heavenly”)
|
|
Lake Tahoe area of Nevada and California
|
7.
|
Northstar Resort (“Northstar”)
|
|
Lake Tahoe area of California
|
8.
|
Kirkwood Mountain Resort (“Kirkwood”)
|
|
Lake Tahoe area of California
|
9.
|
Mount Sunapee Resort (“Mount Sunapee”)
|
|
New Hampshire
|
10.
|
Park City Resort (“Park City”)
|
|
Utah
|
11.
|
Stowe Mountain Resort (“Stowe”)
|
|
Vermont
|
12.
|
Okemo Mountain Resort (“Okemo”)
|
|
Vermont
|
13.
|
Stevens Pass Mountain Resort (“Stevens Pass”)
|
|
Washington
|
14.
|
Whistler Blackcomb Resort (“Whistler Blackcomb”)
|
|
British Columbia, Canada
|
15.
|
Perisher Ski Resort (“Perisher”)
|
|
New South Wales, Australia
|
16.
|
Falls Creek Alpine Resort (“Falls Creek”)
|
|
Victoria, Australia
|
17.
|
Hotham Alpine Resort (“Hotham”)
|
|
Victoria, Australia
|
Urban Ski Areas:
|
|
Location:
|
1.
|
Afton Alps Ski Area (“Afton Alps”)
|
|
Minnesota
|
2.
|
Mount Brighton Ski Area (“Mt. Brighton”)
|
|
Michigan
|
3.
|
Wilmot Mountain (“Wilmot”)
|
|
Wisconsin
|
Additionally, the Mountain segment includes ancillary services, primarily including ski school, dining and retail/rental operations, and for the Company’s Australian resorts, 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 resorts 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, as well as 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 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 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.
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 is charged to interest expense over the respective term of the applicable debt issues. 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, Forest Service permits and excess reorganization value. Goodwill and various indefinite-lived intangible assets, including excess reorganization value, certain trademarks, water rights and certain property management contracts, are not amortized but are subject to at least annual impairment testing. The Company tests 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. 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 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. The Company determined 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, 2018 and 2017.
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. The Company does not believe any events or changes in circumstances indicating an impairment of the net carrying amount of a long-lived asset occurred during the years ended July 31, 2019, 2018 and 2017.
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) income 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) gain 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, 2019, 2018 and 2017 was $44.6 million, $39.8 million and $40.0 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 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 10, Income Taxes, for more information).
Fair Value of Financial Instruments-- The recorded amounts for cash and cash equivalents, receivables, other current assets and accounts payable and accrued liabilities approximate fair value due to their short-term nature. The fair value of amounts outstanding under the Company’s credit agreements and the Employee Housing Bonds (as defined in Note 5, Long-Term Debt) approximate book value due to the variable nature of the interest rate, which is a market rate, associated with the debt.
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 16, 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, 2019, 2018 and 2017 included in the Consolidated Statements of Operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
2019
|
2018
|
2017
|
Mountain stock-based compensation expense
|
$
|
16,474
|
|
$
|
15,716
|
|
$
|
14,969
|
|
Lodging stock-based compensation expense
|
3,219
|
|
3,215
|
|
3,215
|
|
Real Estate stock-based compensation expense
|
163
|
|
109
|
|
131
|
|
Pre-tax stock-based compensation expense
|
19,856
|
|
19,040
|
|
18,315
|
|
Less: benefit from income taxes
|
4,589
|
|
5,406
|
|
6,290
|
|
Net stock-based compensation expense
|
$
|
15,267
|
|
$
|
13,634
|
|
$
|
12,025
|
|
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 hedging, 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.
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 May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in Topic 605. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Subsequent to the issuance of ASU 2014-09, the FASB issued several amendments, which did not change the core principle of the guidance and were intended to clarify and improve understanding of certain topics included within the revenue standard. On August 1, 2018, the Company adopted this standard using the modified retrospective transition method for contracts which were not completed as of August 1, 2018. In accordance with this transition method, results for reporting periods beginning after August 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historical accounting methodology under Topic 605. On August 1, 2018, as a result of adopting this standard, the Company recorded an approximate $7.5 million reduction of retained earnings with a corresponding increase in accounts payable and accrued liabilities, which was primarily associated with the measurement of the loyalty reward programs under the new standard at an estimated fair value of underlying products or services expected to be delivered to satisfy the Company’s obligations associated with such loyalty programs. The application of this standard had an immaterial impact on total net revenue and net income attributable to Vail Resorts, Inc. for the year ended July 31, 2019.
In accordance with the new revenue recognition standard disclosure requirements, the impact of adoption of Topic 606 on the Consolidated Balance Sheet as of July 31, 2019 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2019
|
Balance Sheet
|
Balances Without Adoption of Topic 606
|
Adjustments
|
As Reported
(Under Topic 606)
|
Liabilities
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
601,507
|
|
$
|
6,350
|
|
$
|
607,857
|
|
Stockholders’ equity
|
|
|
|
Retained earnings
|
$
|
766,151
|
|
$
|
(6,350
|
)
|
$
|
759,801
|
|
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This standard provides guidance for eight targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The Company adopted this accounting standard on August 1, 2018, which did not have an impact on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, “Restricted Cash,” which requires that a statement of cash flows present the change during a period for the total of cash, cash equivalents and restricted cash. Historically, under previous guidance, changes in restricted cash have been included within operating, investing or financing activities, which were eliminated under the new standard. The Company adopted this standard as of August 1, 2018, which required retrospective application to all periods presented. As a result, cash provided by operating activities during the years ended July 31, 2018 and 2017 decreased by $3.1 million and $2.2 million, respectively, under the new guidance as compared to what was reported under the previously required guidance, and cash used in investing activities during the year ended July 31, 2017 decreased by $6.2 million with regard to restricted cash acquired in the Whistler Blackcomb acquisition. Additionally, due to the inclusion of restricted cash in the beginning and end of period balances, cash, cash equivalents and restricted cash as of July 31, 2018 and 2017 increased $6.9 million and $10.3 million, respectively, as compared to what was reported under the previously required guidance. 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.
Standards Being Evaluated
The authoritative guidance listed below is currently being evaluated for its impact to Company policies upon adoption as well as any significant implementation matters yet to be addressed.
In February 2016, the FASB issued 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 12 months or less. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset on their balance sheets, while lessor accounting will remain largely unchanged. The standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those years (the Company’s first quarter of fiscal 2020), and as originally written must be applied using a modified retrospective transition approach to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with early adoption permitted. In July 2018, the FASB released ASU No. 2018-11, Leases (Topic 842): Targeted Improvements which included providing 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 will adopt ASU 2016-02 on August 1, 2019 using the modified retrospective method provided by ASU No. 2018-11. By applying ASU 2016-02 as of the adoption date, as opposed to the beginning of the earliest period presented, the presentation and disclosure of financial information for periods before August 1, 2019 will remain unchanged. 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 12 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.
While the Company is still finalizing its quantification of the impact that ASU 2016-02 will have on its financial statements and disclosures, it anticipates recognizing right-of-use lease assets in the range of $212.0 million to $232.0 million and related lease liabilities in the range of $245.0 million to $265.0 million for operating leases. The Company does not expect any changes related to its current capital leases, which will be considered finance leases under ASU 2016-02. As a result of adoption, the Company will reclassify net favorable and unfavorable lease balances, deferred rent credits and other amounts from assets and liabilities of approximately $33.0 million, which will have the impact of reducing the amount it recognizes as right-of-use lease assets and which has been factored into the range above. The Company does not expect the standard to materially affect its consolidated statements of operations, consolidated statements of cash flows or debt covenant compliance agreements as of July 31, 2019.
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 resorts. 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 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, mostly 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.
Disaggregation of Revenues
The following table presents net revenues disaggregated by segment and major revenue type for the years ended July 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Mountain net revenue:
|
|
|
|
|
|
|
Lift
|
|
$
|
1,033,234
|
|
|
$
|
880,293
|
|
|
$
|
818,341
|
|
Ski School
|
|
215,060
|
|
|
189,910
|
|
|
177,748
|
|
Dining
|
|
181,837
|
|
|
161,402
|
|
|
150,587
|
|
Retail/Rental
|
|
320,267
|
|
|
296,466
|
|
|
293,428
|
|
Other
|
|
205,803
|
|
|
194,851
|
|
|
171,682
|
|
Total Mountain net revenue
|
|
$
|
1,956,201
|
|
|
$
|
1,722,922
|
|
|
$
|
1,611,786
|
|
Lodging net revenue:
|
|
|
|
|
|
|
Owned hotel rooms
|
|
$
|
64,826
|
|
|
$
|
65,252
|
|
|
$
|
63,939
|
|
Managed condominium rooms
|
|
86,236
|
|
|
70,198
|
|
|
65,694
|
|
Dining
|
|
53,730
|
|
|
48,554
|
|
|
48,449
|
|
Transportation
|
|
21,275
|
|
|
21,111
|
|
|
22,173
|
|
Golf
|
|
19,648
|
|
|
18,110
|
|
|
17,837
|
|
Other
|
|
54,617
|
|
|
47,577
|
|
|
46,238
|
|
|
|
300,332
|
|
|
270,802
|
|
|
264,330
|
|
Payroll cost reimbursements
|
|
14,330
|
|
|
13,841
|
|
|
14,184
|
|
Total Lodging net revenue
|
|
$
|
314,662
|
|
|
$
|
284,643
|
|
|
$
|
278,514
|
|
Total Resort net revenue
|
|
$
|
2,270,863
|
|
|
$
|
2,007,565
|
|
|
$
|
1,890,300
|
|
Total Real Estate net revenue
|
|
712
|
|
|
3,988
|
|
|
16,918
|
|
Total net revenue
|
|
$
|
2,271,575
|
|
|
$
|
2,011,553
|
|
|
$
|
1,907,218
|
|
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 $335.7 million and $282.1 million as of July 31, 2019 and 2018, respectively. Deferred revenue balances of a long-term nature, comprised primarily of long-term private club initiation fee revenue, were $124.3 million and $126.5 million as of July 31, 2019 and 2018, respectively. For the year ended July 31, 2019, the Company recognized approximately $274.6 million of revenue that was included in the deferred revenue balance as of July 31, 2018. As of July 31, 2019, the weighted average remaining period over which revenue for unsatisfied performance obligations on long-term private club contracts will be recognized was approximately 17 years.
Contract assets are recorded as trade receivables when the right to consideration is unconditional. Trade receivable balances were $270.9 million and $230.8 million as of July 31, 2019 and 2018, 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 recognizes these amounts as assets when they are paid prior to the start of the ski season. As of July 31, 2019, $1.9 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 $10.6 million, $8.3 million and $6.8 million for these costs during the years ended July 31, 2019, 2018 and 2017, 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. 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 6, 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, 2019, 2018 and 2017 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
2019
|
2018
|
2017
|
|
Basic
|
Diluted
|
Basic
|
Diluted
|
Basic
|
Diluted
|
Net income per share:
|
|
|
|
|
|
|
Net income attributable to Vail Resorts
|
$
|
301,163
|
|
$
|
301,163
|
|
$
|
379,898
|
|
$
|
379,898
|
|
$
|
210,553
|
|
$
|
210,553
|
|
Weighted-average shares outstanding
|
40,292
|
|
40,292
|
|
40,337
|
|
40,337
|
|
39,158
|
|
39,158
|
|
Weighted-average Exchangeco shares outstanding
|
57
|
|
57
|
|
60
|
|
60
|
|
93
|
|
93
|
|
Total Weighted-average shares outstanding
|
40,349
|
|
40,349
|
|
40,397
|
|
40,397
|
|
39,251
|
|
39,251
|
|
Effect of dilutive securities
|
—
|
|
809
|
|
—
|
|
1,221
|
|
—
|
|
1,115
|
|
Total shares
|
40,349
|
|
41,158
|
|
40,397
|
|
41,618
|
|
39,251
|
|
40,366
|
|
Net income per share attributable to Vail Resorts, Inc.
|
$
|
7.46
|
|
$
|
7.32
|
|
$
|
9.40
|
|
$
|
9.13
|
|
$
|
5.36
|
|
$
|
5.22
|
|
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 4,000, 2,000 and 9,000 for the years ended July 31, 2019, 2018 and 2017, respectively.
Dividends
On March 7, 2019, the Company’s Board of Directors approved an increase of approximately 20% in the annual cash dividend to an annual rate of $7.04 per share, subject to quarterly declaration. For the year ended July 31, 2019, the Company paid cash dividends of $6.46 per share ($260.6 million in the aggregate). On September 25, 2019 the Company’s Board of Directors approved
a quarterly cash dividend of $1.76 per share payable on October 25, 2019 to stockholders of record as of October 8, 2019. Additionally, a Canadian dollar equivalent dividend on the Exchangeco Shares will be payable on October 25, 2019 to the shareholders of record on October 8, 2019.
5. Long-Term Debt
Long-term debt as of July 31, 2019 and 2018 is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Maturity
|
July 31,
2019
|
July 31,
2018
|
Vail Holdings Credit Agreement revolver (a)
|
2024
|
$
|
208,000
|
|
$
|
130,000
|
|
Vail Holdings Credit Agreement term loan (a)
|
2024
|
914,375
|
|
684,375
|
|
Whistler Credit Agreement revolver (b)
|
2023
|
45,454
|
|
65,353
|
|
Employee housing bonds (c)
|
2027-2039
|
52,575
|
|
52,575
|
|
Canyons obligation (d)
|
2063
|
340,261
|
|
334,509
|
|
Other (e)
|
2020-2032
|
19,465
|
|
9,270
|
|
Total debt
|
|
1,580,130
|
|
1,276,082
|
|
Less: Unamortized debt issuance costs
|
|
3,870
|
|
3,350
|
|
Less: Current maturities (f)
|
|
48,516
|
|
38,455
|
|
Long-term debt, net
|
|
$
|
1,527,744
|
|
$
|
1,234,277
|
|
|
|
(a)
|
On August 15, 2018, in order to fund the Stevens Pass and Triple Peaks acquisitions (see Note 6, Acquisitions), the Company’s wholly-owned subsidiary, Vail Holdings, Inc. (“VHI”) entered into 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 $265.6 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 August 15, 2023. Subsequently, on April 15, 2019, the Company entered into an amendment to the Vail Holdings Credit Agreement which primarily extended the maturity date for the outstanding term loans and revolver facility to April 15, 2024, increased the amount of dividends the Company is permitted to pay in each fiscal quarter under the agreement and increased the amount of the revolver facility by $100.0 million. The Vail Holdings Credit Agreement consists of a $500.0 million revolving credit facility and a $950.0 million term loan facility. VHI’s obligations under the Vail Holdings Credit Agreement are guaranteed by the Company and certain of its subsidiaries and are collateralized by a pledge of all the capital stock of VHI and substantially all of its subsidiaries (with certain additional exceptions for the pledge of the capital stock of foreign subsidiaries). In addition, pursuant to the terms of the Vail Holdings Credit Agreement, VHI has the ability to increase availability (under the revolver or in the form of term loans) to an aggregate principal amount not to exceed the greater of (i) $1.2 billion and (ii) the product of 2.75 and the trailing twelve-month Adjusted EBITDA, as defined in the Vail Holdings Credit Agreement. The term loan facility is subject to quarterly amortization of principal of approximately $11.9 million, which began on January 31, 2019, in equal installments, for a total of five percent payable in each year and the final payment of all amounts outstanding, plus accrued and unpaid interest due in April 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. Borrowings under the Vail Holdings Credit Agreement, including the term loan facility, bear interest annually at LIBOR plus 1.25% as of July 31, 2019 (3.48% as of July 31, 2019). 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, times the daily amount by which the Vail Holdings Credit Agreement commitment exceeds the total of outstanding loans and outstanding letters of credit (0.25% as of July 31, 2019). The unused amounts are accessible to the extent that the Net Funded Debt to Adjusted EBITDA ratio does not exceed the maximum ratio allowed at quarter-ends and the Adjusted EBITDA to interest on Funded Debt (as defined in the Vail Holdings Credit Agreement) ratio does not fall below the minimum ratio allowed at quarter-ends. The Vail Holdings Credit Agreement provides for affirmative and negative covenants that restrict, among other things, the Company’s ability to incur indebtedness, dispose of assets, make capital expenditures, make distributions and make investments. In addition, the Vail Holdings Credit Agreement includes the following restrictive financial covenants: Net Funded Debt to Adjusted EBITDA ratio and Adjusted EBITDA to interest on Funded Debt ratio.
|
On September 23, 2019, VHI entered into a further amendment to its Vail Holdings Credit Agreement, dated August 15, 2018, which increased the term loan facility by approximately $335.6 million and extended the maturity date to September 23, 2024. Refer to Note 18, Subsequent Events, for additional information.
|
|
(b)
|
The WB Partnerships (as defined in Note 6, Acquisitions) are party to a credit agreement, dated as of November 12, 2013 (as amended, the “Whistler Credit Agreement”), by and among Whistler Mountain Resort Limited Partnership (“Whistler LP”), Blackcomb Skiing Enterprises Limited Partnership (“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, 2019, the Company entered into an amendment of the Whistler Credit Agreement which extended the maturity date of the revolving credit facility to December 15, 2023. 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, 2019, in the case of borrowings (i) in Canadian dollars, at the WB Partnerships’ option, either (a) at the Canadian Prime Rate plus 0.75% per annum or (b) by way of the issuance of bankers’ acceptances plus 1.75% per annum; and (ii) in U.S. dollars, at the WB Partnerships option, either at (a) the U.S. Base Rate plus 0.75% per annum or (b) Bankers Acceptance Rate plus 1.75% per annum. As of July 31, 2019 all borrowings under the Whistler Credit Agreement were made in Canadian dollars and by way of the issuance of bankers’ acceptances plus 1.75% (3.76% as of July 31, 2019). The Whistler Credit Agreement also includes a quarterly unused commitment fee based on the Consolidated Total Leverage Ratio, which as of July 31, 2019 is equal to 0.3937% 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.
|
|
|
(c)
|
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 0.09% (2.23% to 2.32% as of July 31, 2019).
|
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, 2019 (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
|
|
|
|
(d)
|
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, 2019 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 $34.9 million.
|
|
|
(e)
|
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 $3.9 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%.
|
|
|
(f)
|
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, 2020 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, 2019 reflected by fiscal year are as follows (in thousands):
|
|
|
|
|
|
Total
|
2020 (1)
|
$
|
54,666
|
|
2021
|
48,580
|
|
2022
|
48,648
|
|
2023
|
48,719
|
|
2024
|
979,124
|
|
Thereafter
|
400,393
|
|
Total debt
|
$
|
1,580,130
|
|
(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, 2020 as a result of the anticipated resolution of continuing involvement, with no associated cash outflow.
The Company recorded interest expense of $79.5 million, $63.2 million and $54.1 million for the years ended July 31, 2019, 2018 and 2017, respectively, of which $1.3 million, $1.3 million and $1.1 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 $(2.9) million, $(9.0) million and $15.3 million of non-cash foreign currency (loss) gain on the intercompany loan to Whistler Blackcomb during the years ended July 31, 2019, 2018 and 2017, respectively, on the Company’s Consolidated Statements of Operations.
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 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
|
$
|
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 5, 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 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
|
$
|
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 5, 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 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
|
$
|
5,197
|
|
Property, plant and equipment
|
159,799
|
|
Goodwill
|
51,633
|
|
Identifiable intangible assets
|
27,360
|
|
Deferred income taxes, net
|
3,093
|
|
Liabilities
|
(17,989
|
)
|
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.
The estimated fair values of assets acquired and liabilities assumed in the acquisitions of Falls Creek, Hotham, Stevens Pass and Triple Peaks are preliminary and are based on the information that was available as of the respective acquisition dates. 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 respective acquisition dates.
Pro Forma Financial Information for Falls Creek, Hotham, Stevens Pass and Triple Peaks
The following presents the unaudited pro forma consolidated financial information of the Company as if the acquisitions of Falls Creek, Hotham, Stevens Pass and Triple Peaks were completed on August 1, 2017, the beginning of the fiscal year preceding the fiscal year in which the acquisitions 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 on August 1, 2017 (in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
2019
|
2018
|
Pro forma net revenue
|
$
|
2,303,728
|
|
$
|
2,197,659
|
|
Pro forma net income attributable to Vail Resorts, Inc.
|
$
|
307,060
|
|
$
|
389,086
|
|
Pro forma basic net income per share attributable to Vail Resorts, Inc.
|
$
|
7.61
|
|
$
|
9.63
|
|
Pro forma diluted net income per share attributable to Vail Resorts, Inc.
|
$
|
7.46
|
|
$
|
9.35
|
|
Stowe
On June 7, 2017, the Company, through a wholly-owned subsidiary, acquired Stowe Mountain Resort in Stowe, Vermont, from Mt. Mansfield Company, Inc., a wholly-owned subsidiary of American International Group, Inc., for total cash consideration of $40.7 million. The Company acquired all of the assets related to 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 purchase price was allocated to identifiable tangible and intangible assets acquired based on their estimated fair values at the acquisition date. The Company has completed its purchase price allocation and has recorded $39.2 million in property, plant and equipment; $3.0 million in intangible assets; $2.3 million in other assets; and $3.8 million of assumed liabilities on the date of acquisition. The Company recognized $2.0 million of transaction related expenses associated with the transaction in Mountain and Lodging operating expense in the Consolidated Statements of Operations for the year ended July 31, 2017. The operating results of Stowe are reported within the Mountain segment.
Whistler Blackcomb
On October 17, 2016, the Company, through Exchangeco, acquired all of the outstanding common shares of Whistler Blackcomb, for aggregate purchase consideration paid to Whistler Blackcomb shareholders of $1.09 billion. The consideration paid consisted of (i) approximately C$673.8 million ($512.6 million) in cash (or C$17.50 per Whistler Blackcomb share), (ii) 3,327,719 Vail Shares and (iii) 418,095 Exchangeco Shares. Each Exchangeco Share is exchangeable by the holder thereof for one Vail Share (subject to customary adjustments for stock splits or other reorganizations). In addition, the Company may require all outstanding Exchangeco Shares to be exchanged into an equal number of Vail Shares upon the occurrence of certain events and at any time following the seventh anniversary of the closing of the acquisition. While outstanding, holders of Exchangeco Shares are entitled to cast votes on matters for which holders of Vail Shares are entitled to vote and are entitled to receive dividends economically equivalent to the dividends declared by the Company with respect to the Vail Shares.
Whistler Blackcomb owns a 75% interest in each of Whistler LP and Blackcomb LP (the “WB Partnerships”), which together operate Whistler Blackcomb resort, a year round mountain resort in British Columbia, Canada with a comprehensive offering of recreational activities, including both snow sports and summer activities. The remaining 25% limited partnership interest in each of the WB Partnerships is owned by Nippon Cable Co. Ltd. (“Nippon Cable”), an unrelated party to the Company. The WB Partnerships hold land leases and rights-of-way under long-term agreements with the government of the province of British Columbia, Canada within the traditional territory of the Squamish and Lil’wat Nations, which provide for the use of land at Whistler Mountain and Blackcomb Mountain.
The Company executed forward contracts for the underlying Canadian dollar cash consideration to economically hedge the risk associated with the U.S. dollar to Canadian dollar exchange rates. The Company’s total cost was $509.2 million to accumulate C$673.8 million which was required for the cash component of the purchase consideration. The estimated fair value of the Canadian dollars was approximately $512.6 million upon settlement. Accordingly, the Company realized a gain of $3.4 million on foreign currency exchange rate changes. The gain on foreign currency is a separate transaction as it primarily benefited the Company and therefore the Company recorded this gain within Investment income and other, net in its Consolidated Statement of Operations for the year ended July 31, 2017. The estimated fair value of $512.6 million is considered the cash component of the purchase consideration.
The Company held shares of Whistler Blackcomb common stock prior to the acquisition and, as such, the acquisition-date estimated fair value of this previously held investment was a component of the purchase consideration. Based on the acquisition-date estimated fair value of this investment of $4.3 million, the Company recorded a gain of $0.8 million within Investment income and other, net in its Consolidated Statement of Operations for the year ended July 31, 2017.
Nippon Cable’s 25% limited partnership interest is a noncontrolling economic interest containing certain protective rights and no ability to participate in the day to day operations of the WB Partnerships. The WB Partnership agreements provide that distributions made out of the partnerships be made on the basis of 75% to Whistler Blackcomb and 25% to Nippon Cable. In addition, based upon the terms of the WB Partnership agreements, the annual distribution rights are non-transferable and transfer of the limited partnership interest is limited to Nippon Cable’s entire interest. Accordingly, the estimate of fair value associated with the noncontrolling interest at the date of acquisition has been determined based on expected underlying cash flows of the WB Partnerships discounted at a rate commensurate with a market participant’s expected rate of return for an equity instrument with these associated restrictions.
The following summarizes the purchase consideration and the estimated fair values of the identifiable assets acquired and liabilities assumed at the date the transaction was effective (in thousands, except exchange ratio and share price):
|
|
|
|
|
|
(in thousands, except exchange ratio and share price amounts)
|
|
Acquisition Date Estimated Fair Value
|
Total Whistler Blackcomb shares acquired
|
|
38,500
|
|
Exchange ratio as of October 14, 2016
|
|
0.097294
|
|
Total Vail Resorts shares issued to Whistler Blackcomb shareholders
|
|
3,746
|
|
Vail Resorts closing share price on October 14, 2016
|
|
$
|
153.41
|
|
Total value of Vail Resorts shares issued
|
|
$
|
574,645
|
|
Total cash consideration paid at C$17.50 ($13.31 on October 17, 2016) per Whistler Blackcomb share
|
|
512,558
|
|
Total purchase consideration to Whistler Blackcomb shareholders
|
|
1,087,203
|
|
Estimated fair value of previously held investment in Whistler Blackcomb
|
|
4,308
|
|
Estimated fair value of Nippon Cable’s 25% interest in Whistler Blackcomb
|
|
180,803
|
|
Total estimated purchase consideration
|
|
$
|
1,272,314
|
|
|
|
|
Allocation of total estimated purchase consideration:
|
|
|
Estimated fair values of assets acquired:
|
|
|
Current assets
|
|
$
|
36,820
|
|
Property, plant and equipment
|
|
332,609
|
|
Real estate held for sale and investment
|
|
8,216
|
|
Goodwill
|
|
956,459
|
|
Identifiable intangibles
|
|
150,681
|
|
Deferred income taxes, net
|
|
7,992
|
|
Other assets
|
|
1,973
|
|
Current liabilities
|
|
(74,358
|
)
|
Assumed long-term debt
|
|
(144,922
|
)
|
Other long-term liabilities
|
|
(3,156
|
)
|
Net assets acquired
|
|
$
|
1,272,314
|
|
During the year ended July 31, 2018, the Company recorded adjustments in the measurement period to its purchase price allocation which decreased the estimated fair value of noncontrolling interest and season pass holder relationships intangible asset with a corresponding net decrease to goodwill.
The estimated fair values of definite-lived and indefinite-lived identifiable intangible assets were determined using significant estimates and assumptions. The estimated fair value and estimated useful lives of identifiable intangible assets, where applicable, are as follows.
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
Weighted Average Amortization Period
|
|
($ in thousands)
|
|
(in years) (1)
|
Trademarks
|
$
|
139,977
|
|
|
n/a
|
Season pass holder relationships
|
6,596
|
|
|
5
|
Property management contracts
|
4,108
|
|
|
n/a
|
Total acquired identifiable intangible assets
|
$
|
150,681
|
|
|
|
(1) Trademarks and property management contracts are indefinite-lived intangible assets.
The excess of the purchase consideration over the aggregate estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized is attributable primarily to expected cost efficiencies from the elimination of certain public company costs as well as other select areas of general and administrative functions, synergies, including utilization of the Company’s yield management strategies at Whistler Blackcomb and increased pass product sales and visitation across the Company’s resort portfolio, the assembled workforce of Whistler Blackcomb and other factors. The goodwill is not deductible for income tax purposes. The operating results of Whistler Blackcomb, which are primarily recorded in the Mountain segment, contributed $257.8 million of net revenue and $65.6 million of earnings for the year ended July 31, 2017, prospectively from the acquisition date of October 17, 2016. The Company recognized $3.2 million of Whistler Blackcomb transaction related expenses in Mountain operating expense in the Consolidated Statement of Operations for the year ended July 31, 2017.
On February 23, 2017, Whistler LP, by its general partner Whistler Blackcomb Holdings Inc. (“WBHI”), a wholly-owned subsidiary of the Company, entered into a master development agreement (the “Whistler MDA”) with Her Majesty, the Queen in Right of British Columbia (the “Province”) with respect to the operation and development of Whistler Mountain. Additionally, on February 23, 2017, Blackcomb LP, by its general partner WBHI, entered into a master development agreement (the “Blackcomb MDA” and together with the Whistler MDA, the “MDAs”) with the Province with respect to the operation and development of Blackcomb Mountain. Each of Whistler LP and Blackcomb LP were operating under existing master development agreements that terminated upon execution of the new MDAs. The MDAs grant a general license to the WB Partnerships to use the Whistler Mountain lands and the Blackcomb Mountain lands for the operation and development of the Whistler Blackcomb Resort. Each WB Partnership is permitted to develop new improvements to Whistler Mountain or Blackcomb Mountain, as the case may be, within standard municipal type development control conditions. The MDAs each have a term of 60 years and are replaceable for an additional 60 years by option exercisable by the WB Partnerships after the first 30 years of the initial term. In accordance with the MDAs, each WB Partnership is obligated to pay annual fees to the Province at a percentage certain gross revenues related to the Whistler Blackcomb Resort.
|
|
7.
|
Supplementary Balance Sheet Information
|
The composition of property, plant and equipment, including capital lease assets, follows (in thousands):
|
|
|
|
|
|
|
|
|
July 31,
|
|
2019
|
2018
|
Land and land improvements
|
$
|
619,561
|
|
$
|
552,271
|
|
Buildings and building improvements
|
1,284,438
|
|
1,193,528
|
|
Machinery and equipment
|
1,160,817
|
|
1,007,250
|
|
Furniture and fixtures
|
309,271
|
|
283,694
|
|
Software
|
118,815
|
|
113,699
|
|
Vehicles
|
65,556
|
|
60,697
|
|
Construction in progress
|
79,282
|
|
59,579
|
|
Gross property, plant and equipment
|
3,637,740
|
|
3,270,718
|
|
Accumulated depreciation
|
(1,795,240
|
)
|
(1,643,499
|
)
|
Property, plant and equipment, net
|
$
|
1,842,500
|
|
$
|
1,627,219
|
|
Depreciation expense, which included depreciation of assets recorded under capital leases, for the years ended July 31, 2019, 2018 and 2017 totaled $210.7 million, $199.2 million and $180.8 million, respectively.
The following table shows the composition of property, plant and equipment recorded under capital leases as of July 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
July 31,
|
|
2019
|
2018
|
Land
|
$
|
31,818
|
|
$
|
31,818
|
|
Land improvements
|
49,228
|
|
49,228
|
|
Buildings and building improvements
|
42,160
|
|
42,660
|
|
Machinery and equipment
|
60,384
|
|
60,384
|
|
Gross property, plant and equipment
|
183,590
|
|
184,090
|
|
Accumulated depreciation
|
(56,040
|
)
|
(46,502
|
)
|
Property, plant and equipment, net
|
$
|
127,550
|
|
$
|
137,588
|
|
The composition of goodwill and intangible assets follows (in thousands):
|
|
|
|
|
|
|
|
|
July 31,
|
|
2019
|
2018
|
Goodwill
|
|
|
Goodwill
|
$
|
1,625,560
|
|
$
|
1,493,040
|
|
Accumulated amortization
|
(17,354
|
)
|
(17,354
|
)
|
Goodwill, net
|
$
|
1,608,206
|
|
$
|
1,475,686
|
|
|
|
|
Indefinite-lived intangible assets
|
|
|
Trademarks
|
$
|
215,905
|
|
$
|
205,083
|
|
Other
|
42,166
|
|
41,160
|
|
Total gross indefinite-lived intangible assets
|
258,071
|
|
246,243
|
|
Accumulated amortization
|
(24,713
|
)
|
(24,713
|
)
|
Indefinite-lived intangible assets, net
|
$
|
233,358
|
|
$
|
221,530
|
|
Amortizable intangible assets
|
|
|
Trademarks
|
$
|
42,108
|
|
$
|
42,971
|
|
Other
|
67,538
|
|
47,604
|
|
Total gross amortizable intangible assets
|
109,646
|
|
90,575
|
|
Accumulated amortization
|
(36,831
|
)
|
(31,533
|
)
|
Amortizable intangible assets, net
|
72,815
|
|
59,042
|
|
Total gross intangible assets
|
367,717
|
|
336,818
|
|
Total accumulated amortization
|
(61,544
|
)
|
(56,246
|
)
|
Total intangible assets, net
|
$
|
306,173
|
|
$
|
280,572
|
|
Amortization expense for intangible assets subject to amortization for the years ended July 31, 2019, 2018 and 2017 totaled $7.4 million, $5.3 million and $8.3 million, respectively, and is estimated to be approximately $4.7 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, 2019 and 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Mountain
|
Lodging
|
Goodwill, net
|
Balance at July 31, 2017
|
$
|
1,451,844
|
|
$
|
67,899
|
|
$
|
1,519,743
|
|
Acquisitions (including measurement period adjustments)
|
344
|
|
—
|
|
344
|
|
Effects of changes in foreign currency exchange rates
|
(44,401
|
)
|
—
|
|
(44,401
|
)
|
Balance at July 31, 2018
|
1,407,787
|
|
67,899
|
|
1,475,686
|
|
Acquisitions
|
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
|
|
The composition of accounts payable and accrued liabilities follows (in thousands):
|
|
|
|
|
|
|
|
|
July 31,
|
|
2019
|
2018
|
Trade payables
|
$
|
96,377
|
|
$
|
80,793
|
|
Deferred revenue
|
335,669
|
|
282,103
|
|
Accrued salaries, wages and deferred compensation
|
50,318
|
|
40,034
|
|
Accrued benefits
|
37,797
|
|
33,963
|
|
Deposits
|
32,108
|
|
26,646
|
|
Other accruals
|
55,588
|
|
40,994
|
|
Total accounts payable and accrued liabilities
|
$
|
607,857
|
|
$
|
504,533
|
|
The composition of other long-term liabilities follows (in thousands):
|
|
|
|
|
|
|
|
|
July 31,
|
|
2019
|
2018
|
Private club deferred initiation fee revenue
|
$
|
109,749
|
|
$
|
114,319
|
|
Unfavorable lease obligation, net
|
19,017
|
|
21,839
|
|
Other long-term liabilities
|
154,835
|
|
155,348
|
|
Total other long-term liabilities
|
$
|
283,601
|
|
$
|
291,506
|
|
|
|
8.
|
Investments in Affiliates
|
The Company held the following investments in equity method affiliates as of July 31, 2019:
|
|
|
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 $8.8 million and $7.7 million as of July 31, 2019 and 2018, respectively, classified as deferred charges and other assets in the accompanying Consolidated Balance Sheets. The amount of retained earnings that represent undistributed earnings of 50-percent-or-less-owned entities accounted for by the equity method was $5.4 million and $4.4 million as of July 31, 2019 and 2018, respectively. During the years ended July 31, 2019, 2018 and 2017, distributions in the amounts of $1.0 million, $1.5 million and $1.9 million, respectively, were received from equity method affiliates.
SSF/VARE is a real estate brokerage with multiple locations in Eagle and Summit Counties, Colorado in which the Company has a 50% ownership interest. SSF/VARE leases space for real estate offices from the Company. The Company recognized approximately $0.4 million in revenue related to these leases for each of the years ended July 31, 2019, 2018 and 2017.
|
|
9.
|
Fair Value Measurements
|
The FASB issued fair value guidance that establishes how reporting entities should measure fair value for measurement and disclosure purposes. The guidance establishes a common definition of fair value applicable to all assets and liabilities measured at fair value and prioritizes the inputs into valuation techniques used to measure fair value. Accordingly, the Company uses valuation techniques which maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value. The three levels of the hierarchy are as follows:
Level 1: Inputs that reflect unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities;
Level 2: Inputs include quoted prices for similar assets and liabilities in active and inactive markets or that are observable for the asset or liability either directly or indirectly; and
Level 3: Unobservable inputs which are supported by little or no market activity.
The table below summarizes the Company’s cash equivalents, other current assets and Contingent Consideration measured at estimated fair value (all other assets and liabilities measured at fair value are immaterial) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
Estimated Fair Value Measurement as of July 31, 2018
|
Description
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Assets:
|
|
|
|
|
Money Market
|
$
|
3,021
|
|
$
|
3,021
|
|
$
|
—
|
|
$
|
—
|
|
Commercial Paper
|
$
|
2,401
|
|
$
|
—
|
|
$
|
2,401
|
|
$
|
—
|
|
Certificates of Deposit
|
$
|
11,249
|
|
$
|
—
|
|
$
|
11,249
|
|
$
|
—
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Contingent Consideration
|
$
|
21,900
|
|
$
|
—
|
|
$
|
—
|
|
$
|
21,900
|
|
The Company’s cash equivalents and other current assets are measured utilizing quoted market prices or pricing models whereby all significant inputs are either observable or corroborated by observable market data.
The following change in Contingent Consideration during the years ended July 31, 2019 and 2018 were as follows (in thousands):
|
|
|
|
|
Balance at July 31, 2017
|
$
|
27,400
|
|
Payment
|
(3,646
|
)
|
Change in estimated fair value
|
(1,854
|
)
|
Balance at July 31, 2018
|
21,900
|
|
Payment
|
(67
|
)
|
Change in estimated fair value
|
5,367
|
|
Balance at July 31, 2019
|
$
|
27,200
|
|
The Lease for Park City, as discussed in Note 5, 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 subsequent year performance, escalated by an assumed growth factor. The Company estimated the fair value of the Contingent Consideration payments using an option pricing valuation model. Key assumptions included a discount rate of 11.15%, volatility of 17.0% and future period Park City EBITDA, 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 subsequent year performance would result in a change in the estimated fair value within the range of approximately $3.8 million to $5.3 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, 2019, the Company made a payment to the landlord for Contingent Consideration of approximately $0.1 million and recorded an increase in the estimated fair value of approximately $5.4 million primarily related to the Contingent Consideration payment for the year ended July 31, 2019 and other key assumptions noted above, resulting in an estimated fair value of the Contingent Consideration of $27.2 million as of July 31, 2019, which is reflected in accounts payable and accrued liabilities and other long-term liabilities in the Consolidated Balance Sheet.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes broad and complex changes to the U.S. tax code that impacted the Company’s accounting and reporting for income taxes during the year ended July 31, 2018. These changes primarily consist of a reduction in the U.S. federal corporate income tax rate from 35% to 21%, the remeasurement of U.S. net deferred tax liabilities as of the effective date utilizing the new U.S. federal corporate income tax rate of 21%, the elimination of the domestic production activities deduction, as well as revised limitations on certain business expenses and executive compensation deductions under “Section 162(m)” of the Internal Revenue Code and provides for a tax on global intangible low-taxed income (“GILTI”), a base erosion anti-abuse tax (“BEAT”) and a deduction for foreign derived intangible income (“FDII”).
On December 22, 2017, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance related to accounting for the income tax effects of the Tax Act. SAB 118 provides that companies (i) should record the effects of the changes from the Tax Act for which the accounting is complete. In addition, SAB 118 established a one-year measurement period (through December 22, 2018) where a provisional amount could be subject to adjustment, and requires certain qualitative and quantitative disclosures related to provisional amounts and accounting during the measurement period.
As a result of the Tax Act, the Company recorded a one-time, net tax benefit of $61.0 million on its Consolidated Statement of Operations for the year ended July 31, 2018, as described below. The Company has determined there is no GILTI inclusion for the year, BEAT would not apply and there is no FDII deduction for the year. The Company has not made a policy decision regarding whether to record deferred taxes on GILTI or use the period cost method as the Company has yet to be subject to a GILTI inclusion.
Due to the reduction in the U.S. corporate tax rate, the Company remeasured its U.S. net deferred tax liabilities as of the effective date and recognized a one-time benefit of $67.0 million as a discrete item in the benefit from income taxes for the year ended July 31, 2018, which was a reduction in net deferred tax liabilities in the accompanying Consolidated Balance Sheet as of July 31, 2018. The Company also recorded a charge for the Transition Tax of $6.0 million as a discrete item in the benefit from income taxes for the year ended July 31, 2018.
The Tax Act does not provide for additional income taxes for any remaining undistributed foreign earnings not subject to the Transition Tax, or for any additional outside basis differences inherent in foreign entities, as these amounts continue to be indefinitely reinvested in those foreign operations. Substantially all of the Company’s unremitted foreign earnings that have not been previously taxed have now been subjected to U.S. taxation under the Transition Tax. The Company has made no additional provision for U.S. income taxes or additional non-U.S. taxes on the remaining unremitted accumulated earnings of non-U.S. subsidiaries. It is not practical at this time to determine the income tax liability related to any remaining undistributed earnings or additional basis difference not subject to the Transition Tax.
U.S. and foreign components of income before (provision) benefit from income taxes is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
2019
|
2018
|
2017
|
U.S.
|
$
|
306,323
|
|
$
|
264,379
|
|
$
|
251,478
|
|
Foreign
|
92,642
|
|
75,713
|
|
96,971
|
|
Income before income taxes
|
$
|
398,965
|
|
$
|
340,092
|
|
$
|
348,449
|
|
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,
|
|
2019
|
2018
|
Deferred income tax liabilities:
|
|
|
Fixed assets
|
$
|
153,182
|
|
$
|
126,697
|
|
Intangible assets
|
73,146
|
|
54,708
|
|
Other
|
13,425
|
|
12,865
|
|
Total
|
239,753
|
|
194,270
|
|
Deferred income tax assets:
|
|
|
Canyons obligation
|
13,922
|
|
13,145
|
|
Stock-based compensation
|
9,620
|
|
9,824
|
|
Investment in Partnerships
|
13,281
|
|
15,113
|
|
Deferred compensation and other accrued benefits
|
10,674
|
|
9,220
|
|
Contingent Consideration
|
6,771
|
|
5,476
|
|
Unfavorable lease obligation, net
|
4,896
|
|
5,580
|
|
Net operating loss carryforwards and other tax credits
|
5,631
|
|
5,716
|
|
Other, net
|
18,850
|
|
11,501
|
|
Total
|
83,645
|
|
75,575
|
|
Valuation allowance for deferred income taxes
|
(5,365
|
)
|
(5,450
|
)
|
Deferred income tax assets, net of valuation allowance
|
78,280
|
|
70,125
|
|
Net deferred income tax liability
|
$
|
161,473
|
|
$
|
124,145
|
|
The components of deferred income taxes recognized in the Consolidated Balance Sheets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
July 31,
|
|
2019
|
2018
|
Non-current deferred income tax asset
|
$
|
7,286
|
|
$
|
9,773
|
|
Net non-current deferred income tax liability
|
168,759
|
|
133,918
|
|
Net deferred income tax liability
|
$
|
161,473
|
|
$
|
124,145
|
|
Significant components of the provision (benefit) from income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
2019
|
2018
|
2017
|
Current:
|
|
|
|
Federal
|
$
|
24,309
|
|
$
|
(43,366
|
)
|
$
|
55,887
|
|
State
|
8,539
|
|
9,562
|
|
8,096
|
|
Foreign
|
20,205
|
|
18,436
|
|
16,311
|
|
Total current
|
53,053
|
|
(15,368
|
)
|
80,294
|
|
Deferred:
|
|
|
|
Federal
|
16,983
|
|
(45,922
|
)
|
29,065
|
|
State
|
5,282
|
|
2,941
|
|
3,601
|
|
Foreign
|
154
|
|
(2,789
|
)
|
3,771
|
|
Total deferred
|
22,419
|
|
(45,770
|
)
|
36,437
|
|
Provision (benefit) from income taxes
|
$
|
75,472
|
|
$
|
(61,138
|
)
|
$
|
116,731
|
|
A reconciliation of the income tax (benefit) provision 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,
|
|
2019
|
2018
|
2017
|
At U.S. federal income tax rate
|
21.0
|
%
|
26.8
|
%
|
35.0
|
%
|
State income tax, net of federal benefit
|
2.8
|
%
|
3.0
|
%
|
2.2
|
%
|
Change in uncertain tax positions
|
(1.6
|
)%
|
—
|
%
|
—
|
%
|
Change in valuation allowance
|
—
|
%
|
0.3
|
%
|
0.9
|
%
|
Excess tax benefits related to stock-based compensation
|
(3.0
|
)%
|
(20.9
|
)%
|
—
|
%
|
Impacts of the Tax Act
|
—
|
%
|
(24.7
|
)%
|
—
|
%
|
Noncontrolling interests
|
(1.5
|
)%
|
(1.7
|
)%
|
(2.1
|
)%
|
Foreign rate differential
|
0.4
|
%
|
(1.5
|
)%
|
(3.4
|
)%
|
Other
|
0.8
|
%
|
0.7
|
%
|
0.9
|
%
|
Effective tax rate
|
18.9
|
%
|
(18.0
|
)%
|
33.5
|
%
|
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,
|
|
2019
|
2018
|
2017
|
Balance, beginning of year
|
$
|
78,242
|
|
$
|
76,111
|
|
$
|
57,032
|
|
Additions based on tax positions related to the current year
|
—
|
|
—
|
|
—
|
|
Additions for tax positions of prior years
|
11,520
|
|
12,394
|
|
19,079
|
|
Reductions for tax positions of prior years
|
—
|
|
—
|
|
—
|
|
Lapse of statute of limitations
|
(17,540
|
)
|
(10,263
|
)
|
—
|
|
Settlements
|
—
|
|
—
|
|
—
|
|
Balance, end of year
|
$
|
72,222
|
|
$
|
78,242
|
|
$
|
76,111
|
|
As of July 31, 2019, 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, 2019, the Company experienced a reduction in the uncertain tax positions due to the lapse of the statute of limitations of $17.5 million, which was offset with an increase to the uncertain tax position of $11.5 million. Interest and penalties associated with the statute of limitations lapse were approximately $2.3 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, 2020, due to the lapse of the statute of limitations. As of July 31, 2019 and 2018, accrued interest and penalties, net of tax, was $6.3 million and $5.2 million, respectively. For the years ended July 31, 2019, 2018 and 2017, the Company recognized as income tax expense $1.1 million, $1.6 million and $2.0 million of interest expense and penalties, net of tax, respectively.
The Company’s major tax jurisdictions in which it files income tax returns is 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 2013. Additionally, the Company is no longer subject to audits for the tax years prior to 2014 for Australia and Canada.
The Company has NOL carryforwards totaling $8.9 million which are primarily comprised of state net operating loss (“NOL”) carryforwards that expire by the year ending July 31, 2031. As of July 31, 2019, the Company has recorded a valuation allowance on $4.0 million of these NOL carryforwards as the Company has determined that it is more likely than not that these 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, 2027. As of July 31, 2019, 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.
11.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, 2019, 2018 and 2017 were $9.6 million, $9.2 million and $8.9 million, respectively.
|
|
12.
|
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 $2.0 million, primarily within other long-term liabilities in the accompanying Consolidated Balance Sheets, as of both July 31, 2019 and 2018 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, 2019, the Company had various other letters of credit outstanding totaling $71.9 million, consisting of $53.4 million to support the Employee Housing Bonds and $18.5 million primarily for workers’ compensation, a wind energy purchase agreement and insurance-related deductibles. The Company also had surety bonds of $10.4 million as of July 31, 2019, 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, 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. 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, 2019, 2018 and 2017, the Company recorded lease expense (including Northstar, Perisher, Falls Creek & Hotham), excluding executory costs, related to these agreements of $57.8 million, $52.8 million and $51.9 million, respectively, which is included in the accompanying Consolidated Statements of Operations.
As of July 31, 2019, the Canyons obligation was $340.3 million, 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%.
Future minimum operating lease payments under the above leases and future minimum capital lease payments under the Canyons obligation as of July 31, 2019 reflected by fiscal year are 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
|
|
|
$
|
340,261
|
|
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 7, 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, 2019 and 2018, the accruals for the above loss contingencies were not material individually or in the aggregate.
|
|
13.
|
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 allocated between
segments, or 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,
|
|
2019
|
2018
|
2017
|
Net revenue:
|
|
|
|
Lift tickets
|
$
|
1,033,234
|
|
$
|
880,293
|
|
$
|
818,341
|
|
Ski school
|
215,060
|
|
189,910
|
|
177,748
|
|
Dining
|
181,837
|
|
161,402
|
|
150,587
|
|
Retail/rental
|
320,267
|
|
296,466
|
|
293,428
|
|
Other
|
205,803
|
|
194,851
|
|
171,682
|
|
Total Mountain net revenue
|
1,956,201
|
|
1,722,922
|
|
1,611,786
|
|
Lodging
|
314,662
|
|
284,643
|
|
278,514
|
|
Resort
|
2,270,863
|
|
2,007,565
|
|
1,890,300
|
|
Real Estate
|
712
|
|
3,988
|
|
16,918
|
|
Total net revenue
|
$
|
2,271,575
|
|
$
|
2,011,553
|
|
$
|
1,907,218
|
|
Segment operating expense:
|
|
|
|
Mountain
|
$
|
1,279,567
|
|
$
|
1,132,840
|
|
$
|
1,047,331
|
|
Lodging
|
286,562
|
|
259,637
|
|
251,427
|
|
Resort
|
1,566,129
|
|
1,392,477
|
|
1,298,758
|
|
Real Estate, net
|
5,609
|
|
3,546
|
|
24,083
|
|
Total segment operating expense
|
$
|
1,571,738
|
|
$
|
1,396,023
|
|
$
|
1,322,841
|
|
Gain on sale of real property
|
$
|
580
|
|
$
|
515
|
|
$
|
6,766
|
|
Mountain equity investment income, net
|
$
|
1,960
|
|
$
|
1,523
|
|
$
|
1,883
|
|
Reported EBITDA:
|
|
|
|
Mountain
|
$
|
678,594
|
|
$
|
591,605
|
|
$
|
566,338
|
|
Lodging
|
28,100
|
|
25,006
|
|
27,087
|
|
Resort
|
706,694
|
|
616,611
|
|
593,425
|
|
Real Estate
|
(4,317
|
)
|
957
|
|
(399
|
)
|
Total Reported EBITDA
|
$
|
702,377
|
|
$
|
617,568
|
|
$
|
593,026
|
|
Real estate held for sale and investment
|
$
|
101,021
|
|
$
|
99,385
|
|
$
|
103,405
|
|
Reconciliation to net income attributable to Vail Resorts, Inc.:
|
|
|
|
Total Reported EBITDA
|
$
|
702,377
|
|
$
|
617,568
|
|
$
|
593,026
|
|
Depreciation and amortization
|
(218,117
|
)
|
(204,462
|
)
|
(189,157
|
)
|
Change in fair value of contingent consideration
|
(5,367
|
)
|
1,854
|
|
(16,300
|
)
|
Loss on disposal of fixed assets and other, net
|
(664
|
)
|
(4,620
|
)
|
(6,430
|
)
|
Investment income and other, net
|
3,086
|
|
1,944
|
|
6,114
|
|
Foreign currency (loss) gain on intercompany loans
|
(2,854
|
)
|
(8,966
|
)
|
15,285
|
|
Interest expense, net
|
(79,496
|
)
|
(63,226
|
)
|
(54,089
|
)
|
Income before (provision) benefit from income taxes
|
398,965
|
|
340,092
|
|
348,449
|
|
(Provision) benefit from income taxes
|
(75,472
|
)
|
61,138
|
|
(116,731
|
)
|
Net income
|
323,493
|
|
401,230
|
|
231,718
|
|
Net income attributable to noncontrolling interests
|
(22,330
|
)
|
(21,332
|
)
|
(21,165
|
)
|
Net income attributable to Vail Resorts, Inc.
|
$
|
301,163
|
|
$
|
379,898
|
|
$
|
210,553
|
|
Geographic Information
Net revenue and property, plant and equipment, net by geographic region are as follows (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
Net revenue
|
2019
|
2018
|
2017
|
U.S.
|
$
|
1,865,062
|
|
$
|
1,610,323
|
|
$
|
1,578,276
|
|
International (a)
|
406,513
|
|
401,230
|
|
328,942
|
|
Total net revenue
|
$
|
2,271,575
|
|
$
|
2,011,553
|
|
$
|
1,907,218
|
|
|
|
|
|
|
|
As of July 31,
|
Property, plant and equipment, net
|
|
2019
|
2018
|
U.S.
|
|
$
|
1,381,378
|
|
$
|
1,210,169
|
|
International (a)
|
|
461,122
|
|
417,050
|
|
Total property, plant and equipment, net
|
|
$
|
1,842,500
|
|
$
|
1,627,219
|
|
(a) 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 $308.1 million, $321.0 million and $257.8 million of revenue for the years ended July 31, 2019, 2018 and 2017, respectively, and for $319.4 million and $316.8 million of property, plant and equipment, net as of July 31, 2019 and 2018, respectively.
14.Selected Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31, 2018
|
(in thousands, except per share amounts)
|
Full Year
|
Fourth
Quarter
|
Third
Quarter
|
Second
Quarter
|
First
Quarter
|
Total net revenue
|
$
|
2,011,553
|
|
$
|
211,637
|
|
$
|
844,491
|
|
$
|
734,575
|
|
$
|
220,850
|
|
Income (loss) from operations
|
$
|
408,817
|
|
$
|
(112,986
|
)
|
$
|
367,978
|
|
$
|
257,541
|
|
$
|
(103,716
|
)
|
Net income (loss)
|
$
|
401,230
|
|
$
|
(87,791
|
)
|
$
|
272,275
|
|
$
|
248,673
|
|
$
|
(31,927
|
)
|
Net income (loss) attributable to Vail Resorts, Inc.
|
$
|
379,898
|
|
$
|
(83,660
|
)
|
$
|
256,252
|
|
$
|
235,691
|
|
$
|
(28,385
|
)
|
Basic net income (loss) per share attributable to Vail Resorts, Inc.
|
$
|
9.40
|
|
$
|
(2.07
|
)
|
$
|
6.34
|
|
$
|
5.82
|
|
$
|
(0.71
|
)
|
Diluted net income (loss) per share attributable to Vail Resorts, Inc.
|
$
|
9.13
|
|
$
|
(2.07
|
)
|
$
|
6.17
|
|
$
|
5.67
|
|
$
|
(0.71
|
)
|
|
|
15.
|
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, 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). During the year ended July 31, 2017, the Company repurchased 1,317 Vail Shares (at a total cost of $0.2 million). Since inception of this stock repurchase program through July 31, 2019, the Company has repurchased 5,904,723 shares at a cost of approximately $358.0 million. As of July 31, 2019, 1,595,277 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.
|
|
16.
|
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, 2019, approximately 3.6 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, 2019, 2018 and 2017 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,
|
|
2019
|
2018
|
2017
|
Expected volatility
|
38.6%
|
40.0%
|
40.3%
|
Expected dividends
|
2.1%
|
2.0%
|
2.2%
|
Expected term (average in years)
|
6.0-6.6
|
5.8-6.4
|
5.5-6.2
|
Risk-free rate
|
2.4-2.9%
|
1.2-2.3%
|
0.5-1.5%
|
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, 2019, 2018 and 2017, 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, 2016
|
2,381
|
|
$
|
52.98
|
|
|
|
Granted
|
143
|
|
$
|
174.42
|
|
|
|
Exercised
|
(215
|
)
|
$
|
60.05
|
|
|
|
Forfeited or expired
|
(19
|
)
|
$
|
108.06
|
|
|
|
Outstanding at July 31, 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
|
|
4.9 years
|
$
|
162,835
|
|
Vested and expected to vest at July 31, 2019
|
1,160
|
|
$
|
109.93
|
|
4.9 years
|
$
|
162,604
|
|
Exercisable at July 31, 2019
|
1,003
|
|
$
|
87.92
|
|
4.4 years
|
$
|
159,244
|
|
The weighted-average grant-date estimated fair value of SARs granted during the years ended July 31, 2019, 2018 and 2017 was $98.19, $78.07 and $50.78, respectively. The total intrinsic value of SARs exercised during the years ended July 31, 2019, 2018 and 2017 was $41.2 million, $213.8 million and $22.6 million, respectively. The Company had 131,000, 169,000 and 247,000 SARs that vested during the years ended July 31, 2019, 2018 and 2017, respectively. These awards had a total estimated fair value of $15.2 million, $18.5 million and $19.6 million at the date of vesting for the years ended July 31, 2019, 2018 and 2017, respectively.
A summary of the status of the Company’s nonvested SARs as of July 31, 2019 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, 2018
|
232
|
$
|
56.72
|
|
Granted
|
80
|
$
|
98.19
|
|
Vested
|
(130)
|
$
|
51.76
|
|
Forfeited
|
(14)
|
$
|
75.85
|
|
Nonvested at July 31, 2019
|
168
|
$
|
80.75
|
|
A summary of the status of the Company’s nonvested restricted share units as of July 31, 2019 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, 2018
|
176
|
$
|
163.83
|
|
Granted
|
68
|
$
|
264.44
|
|
Vested
|
(102)
|
$
|
142.69
|
|
Forfeited
|
(16)
|
$
|
200.50
|
|
Nonvested at July 31, 2019
|
126
|
$
|
230.10
|
|
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 granted 91,000 restricted share units during the year ended July 31, 2017 with a weighted-average grant-date estimated fair value of $154.19. The Company had 102,000, 101,000 and 121,000 restricted share units that vested during the years ended July 31, 2019, 2018 and 2017, respectively. These units had a total estimated fair value of $28.8 million, $23.5 million and $19.3 million at the date of vesting for the years ended July 31, 2019, 2018 and 2017, respectively.
As of July 31, 2019, there was $24.9 million of total unrecognized compensation expense related to nonvested share-based compensation arrangements granted under the Plan, of which $14.8 million, $8.7 million and $1.4 million of expense is expected to be recognized in the years ending July 31, 2020, 2021 and 2022, 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 $16.3 million, $79.7 million and $15.5 million for the years ended July 31, 2019, 2018 and 2017, 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.
|
|
17.
|
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. The Company 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. 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, 2019, 2018 and 2017 was $7.9 million, $6.9 million and $5.4 million, respectively.
Amendment of Vail Holdings Credit Facility
On September 23, 2019, VHI, a wholly-owned subsidiary of the Company, entered into an amendment to the Vail Holdings Credit Agreement, which increased the amount of the outstanding term loan by approximately $335.6 million and extended the maturity date of the Vail Holdings Credit Agreement to September 23, 2024. The proceeds from the term loan increase were utilized to fund the acquisition of Peak Resorts, Inc. (“Peak Resorts’), as discussed below, and to prepay certain portions of the debt assumed in connection with the acquisition.
Acquisition of Peak Resorts, Inc.
On September 24, 2019, VHI, a wholly-owned subsidiary of the Company, completed its previously announced acquisition of Peak Resorts, a Missouri corporation, through the merger of VRAD Holdings, Inc., formerly a Missouri corporation and a wholly-owned subsidiary of VHI (“Merger Sub”), with and into Peak Resorts, with Peak Resorts surviving as a wholly-owned subsidiary of VHI (the “Merger”). The Merger was consummated pursuant to the Agreement and Plan of Merger, dated as of July 20, 2019 (the “Merger Agreement”), by and among VHI, Merger Sub, Peak Resorts and, solely for the purposes stated in Section 9.14 of the Merger Agreement, the Company. At the effective time of the Merger (the “Effective Time”) and pursuant to the terms and conditions of the Merger Agreement, (i) each share of outstanding common stock of Peak Resorts (other than shares owned (A) by VHI or Merger Sub and (B) by Peak Resorts in treasury) ceased to be outstanding and was converted into the right to receive $11.00 in cash, without interest; (ii) each outstanding share of Series A Cumulative Convertible Preferred Stock of Peak Resorts (the “Series A Preferred Stock”) was converted into the right to receive an amount equal to the sum of: (a) $1,748.81; plus (b) the aggregate amount of all accrued and unpaid dividends on the applicable issuance of Series A Preferred Stock as of the Effective Time, in cash without interest; (iii) each outstanding restricted stock unit that was granted pursuant to Peak Resorts’ 2014 Equity Incentive Plan became fully vested and was cancelled and extinguished in exchange for the right to receive $11.00 in cash, without interest; and (iv) each warrant issued by Peak Resorts to purchase shares of common stock of Peak Resorts that was issued and outstanding immediately prior to the Effective Time (collectively, the “Warrants”), was cancelled in exchange for the right to receive an amount in cash, without interest, equal to the product of: (a) the aggregate number of shares of common stock of Peak Resorts in respect of such Warrant; multiplied by (b) the excess of $11.00 over the per share exercise price under such Warrant.
The aggregate consideration paid by the Company to the former Peak Resorts stockholders in the Merger was approximately $265 million, excluding related transaction fees and expenses. The Company funded the payment of the aggregate consideration with the proceeds from the September 23, 2019 amendment of the Vail Holdings Credit Agreement, as discussed above.