Quarterly Report (10-q)

Date : 12/09/2019 @ 9:06PM
Source : Edgar (US Regulatory)
Stock : Vail Resorts Inc (MTN)
Quote : 236.64  -1.85 (-0.78%) @ 9:30PM
Vail Resorts share price Chart
After Hours
Last Trade
Last $ 236.64 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-09614
VAILA07.JPG
Vail Resorts, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
51-0291762
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
390 Interlocken Crescent
 
 
Broomfield,
Colorado
 
80021
(Address of Principal Executive Offices)
 
(Zip Code)
(303)
404-1800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.01 par value
MTN
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes      No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes      No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
  
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes     No
As of December 5, 2019, 40,257,530 shares of the registrant’s common stock were outstanding.




Table of Contents
 
 
 
 
PART I
FINANCIAL INFORMATION
Page
 
 
 
Item 1.
Financial Statements (unaudited).
 
 
2
 
3
 
4
 
5
 
6
 
7
Item 2.
25
Item 3.
39
Item 4.
39
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
Item 1.
40
Item 1A.
40
Item 2.
40
Item 3.
41
Item 4.
41
Item 5.
41
Item 6.
42




Vail Resorts, Inc.
Consolidated Condensed Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
 
 
October 31, 2019
 
July 31, 2019
 
October 31, 2018
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
136,326

 
$
108,850

 
$
141,031

Restricted cash
 
14,027

 
9,539

 
12,005

Trade receivables, net
 
87,301

 
270,896

 
74,240

Inventories, net
 
127,859

 
96,539

 
114,984

Other current assets
 
62,821

 
42,116

 
50,752

Total current assets
 
428,334

 
527,940

 
393,012

Property, plant and equipment, net (Note 8)
 
2,280,089

 
1,842,500

 
1,825,982

Real estate held for sale and investment
 
96,938

 
101,021

 
101,743

Goodwill, net (Note 8)
 
1,757,463

 
1,608,206

 
1,543,941

Intangible assets, net
 
324,178

 
306,173

 
307,268

Operating right-of-use assets (Note 4)
 
229,709

 

 

Other assets
 
41,036

 
40,237

 
43,976

Total assets
 
$
5,157,747

 
$
4,426,077

 
$
4,215,922

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable and accrued liabilities (Note 8)
 
$
856,934

 
$
607,857

 
$
703,633

Income taxes payable
 
50,759

 
62,760

 
38,303

Long-term debt due within one year (Note 6)
 
63,807

 
48,516

 
48,482

Total current liabilities
 
971,500

 
719,133

 
790,418

Long-term debt, net (Note 6)
 
2,005,057

 
1,527,744

 
1,486,968

Operating lease liabilities (Note 4)
 
231,182

 

 

Other long-term liabilities (Note 8)
 
238,964

 
283,601

 
273,566

Deferred income taxes, net
 
188,608

 
168,759

 
115,169

Total liabilities
 
3,635,311

 
2,699,237

 
2,666,121

Commitments and contingencies (Note 10)
 


 


 


Stockholders’ equity:
 
 
 
 
 
 
Preferred stock, $0.01 par value, 25,000 shares authorized, no shares issued and outstanding
 

 

 

Common stock, $0.01 par value, 100,000 shares authorized, 46,257, 46,190 and 46,097 shares issued, respectively
 
462

 
461

 
461

Exchangeable shares, $0.01 par value, 55, 56 and 57 shares issued and outstanding, respectively (Note 5)
 
1

 
1

 
1

Additional paid-in capital
 
1,126,492

 
1,130,083

 
1,130,855

Accumulated other comprehensive loss
 
(27,269
)
 
(31,730
)
 
(20,596
)
Retained earnings
 
582,235

 
759,801

 
551,863

Treasury stock, at cost, 6,000, 5,905, and 5,750 shares, respectively (Note 12)
 
(379,433
)
 
(357,989
)
 
(322,989
)
Total Vail Resorts, Inc. stockholders’ equity
 
1,302,488

 
1,500,627

 
1,339,595

Noncontrolling interests
 
219,948

 
226,213

 
210,206

Total stockholders’ equity
 
1,522,436

 
1,726,840

 
1,549,801

Total liabilities and stockholders’ equity
 
$
5,157,747

 
$
4,426,077

 
$
4,215,922

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

2



Vail Resorts, Inc.
Consolidated Condensed Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended October 31,
 
2019
 
2018
Net revenue:
 
 
 
Mountain and Lodging services and other
$
180,031

 
$
144,022

Mountain and Lodging retail and dining
83,559

 
75,884

Resort net revenue
263,590

 
219,906

Real Estate
4,180

 
98

Total net revenue
267,770

 
220,004

Operating expense (exclusive of depreciation and amortization shown separately below):
 
 
 
Mountain and Lodging operating expense
228,710

 
194,112

Mountain and Lodging retail and dining cost of products sold
37,735

 
34,876

General and administrative
75,055

 
64,379

Resort operating expense
341,500

 
293,367

Real Estate operating expense
5,293

 
1,370

Total segment operating expense
346,793

 
294,737

Other operating (expense) income:
 
 
 
Depreciation and amortization
(57,845
)
 
(51,043
)
Gain on sale of real property
207

 

Change in estimated fair value of contingent consideration (Note 9)
(1,136
)
 
(1,200
)
Gain (loss) on disposal of fixed assets and other, net
2,267

 
(619
)
Loss from operations
(135,530
)
 
(127,595
)
Mountain equity investment income, net
1,191

 
950

Investment income and other, net
277

 
463

Foreign currency gain (loss) on intercompany loans (Note 6)
360

 
(2,311
)
Interest expense, net
(22,690
)
 
(18,638
)
Loss before benefit from income taxes
(156,392
)
 
(147,131
)
Benefit from income taxes
46,563

 
36,405

Net loss
(109,829
)
 
(110,726
)
Net loss attributable to noncontrolling interests
3,354

 
2,931

Net loss attributable to Vail Resorts, Inc.
$
(106,475
)
 
$
(107,795
)
Per share amounts (Note 5):
 
 
 
Basic net loss per share attributable to Vail Resorts, Inc.
$
(2.64
)
 
$
(2.66
)
Diluted net loss per share attributable to Vail Resorts, Inc.
$
(2.64
)
 
$
(2.66
)
Cash dividends declared per share
$
1.76

 
$
1.47

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

3




Vail Resorts, Inc.
Consolidated Condensed Statements of Comprehensive Loss
(In thousands)
(Unaudited)

 
 
Three Months Ended
October 31,
 
 
2019
 
2018
Net loss
 
$
(109,829
)
 
$
(110,726
)
Foreign currency translation adjustments and other, net of tax
 
5,323

 
(22,636
)
Comprehensive loss
 
(104,506
)

(133,362
)
Comprehensive loss attributable to noncontrolling interests
 
2,492

 
7,198

Comprehensive loss attributable to Vail Resorts, Inc.
 
$
(102,014
)
 
$
(126,164
)
The accompanying Notes are an integral part of these unaudited consolidated condensed financial statements.


4



Vail Resorts, Inc.
Consolidated Condensed Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
 
Common Stock
Additional Paid in Capital
Accumulated Other Comprehensive Loss
Retained Earnings
Treasury Stock
Total Vail Resorts, Inc. Stockholders’ Equity
Noncontrolling Interests
Total Stockholders’ Equity
 
Vail Resorts
Exchangeable
 
 
 
 
 
 
 
Balance, July 31, 2018
$
460

$
1

$
1,137,467

$
(2,227
)
$
726,722

$
(272,989
)
$
1,589,434

$
222,229

$
1,811,663

Comprehensive loss:
 
 
 
 
 
 
 
 
 
Net loss




(107,795
)

(107,795
)
(2,931
)
(110,726
)
Foreign currency translation adjustments, net of tax



(18,369
)


(18,369
)
(4,267
)
(22,636
)
Total comprehensive loss
 
 
 
 
 
 
(126,164
)
(7,198
)
(133,362
)
Stock-based compensation expense


4,753




4,753


4,753

Cumulative effect for adoption of revenue standard




(7,517
)

(7,517
)

(7,517
)
Issuance of shares under share award plans, net of shares withheld for employee taxes
1


(11,365
)



(11,364
)

(11,364
)
Repurchase of common stock (Note 12)





(50,000
)
(50,000
)

(50,000
)
Dividends (Note 5)




(59,547
)

(59,547
)

(59,547
)
Distributions to noncontrolling interests, net







(4,825
)
(4,825
)
Balance, October 31, 2018
$
461

$
1

$
1,130,855

$
(20,596
)
$
551,863

$
(322,989
)
$
1,339,595

$
210,206

$
1,549,801

 
 
 
 
 
 
 
 
 
 
Balance, July 31, 2019
$
461

$
1

$
1,130,083

$
(31,730
)
$
759,801

$
(357,989
)
$
1,500,627

$
226,213

$
1,726,840

Comprehensive loss:
 
 
 
 
 
 
 
 
 
Net loss




(106,475
)

(106,475
)
(3,354
)
(109,829
)
Foreign currency translation adjustments and other, net of tax


 
4,461



4,461

862

5,323

Total comprehensive loss
 
 
 
 
 
 
(102,014
)
(2,492
)
(104,506
)
Stock-based compensation expense


5,251




5,251


5,251

Issuance of shares under share award plans, net of shares withheld for employee taxes
1


(8,842
)



(8,841
)

(8,841
)
Repurchase of common stock (Note 12)





(21,444
)
(21,444
)

(21,444
)
Dividends (Note 5)




(71,091
)

(71,091
)

(71,091
)
Distributions to noncontrolling interests, net







(3,773
)
(3,773
)
Balance, October 31, 2019
$
462

$
1

$
1,126,492

$
(27,269
)
$
582,235

$
(379,433
)
$
1,302,488

$
219,948

$
1,522,436

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

5



Vail Resorts, Inc.
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
Three Months Ended October 31,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(109,829
)
 
$
(110,726
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
57,845

 
51,043

Stock-based compensation expense
 
5,251

 
4,753

Deferred income taxes, net
 
(43,979
)
 
(31,823
)
Other non-cash (income) expense, net
 
(797
)
 
1,280

Changes in assets and liabilities:
 
 
 
 
Trade receivables, net
 
184,821

 
157,759

Inventories, net
 
(27,967
)
 
(26,011
)
Accounts payable and accrued liabilities
 
(26,505
)
 
(14,599
)
Deferred revenue
 
194,597

 
167,727

Income taxes payable - excess tax benefit from share award exercises
 
(2,535
)
 
(4,582
)
Income taxes payable - other
 
(9,405
)
 
(7,421
)
Other assets and liabilities, net
 
(12,158
)
 
(10,319
)
Net cash provided by operating activities
 
209,339

 
177,081

Cash flows from investing activities:
 

 
 
Capital expenditures
 
(52,621
)
 
(47,881
)
Acquisition of businesses, net of cash acquired
 
(327,581
)
 
(292,878
)
Other investing activities, net
 
3,448

 
96

Net cash used in investing activities
 
(376,754
)
 
(340,663
)
Cash flows from financing activities:
 

 
 
Proceeds from borrowings under Vail Holdings Credit Agreement
 
492,625

 
335,625

Proceeds from borrowings under Whistler Credit Agreement
 

 
7,667

Repayments of borrowings under Vail Holdings Credit Agreement
 
(175,000
)
 
(80,000
)
Repayments of borrowings under Whistler Credit Agreement
 
(7,529
)
 

Employee taxes paid for share award exercises
 
(8,842
)
 
(11,364
)
Dividends paid
 
(71,091
)
 
(59,547
)
Repurchases of common stock
 
(21,444
)
 
(50,000
)
Other financing activities, net
 
(10,279
)
 
(6,486
)
Net cash provided by financing activities
 
198,440

 
135,895

Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
939

 
(4,317
)
Net increase (decrease) in cash, cash equivalents and restricted cash
 
31,964

 
(32,004
)
Cash, cash equivalents and restricted cash:
 
 
 
 
Beginning of period
 
118,389

 
185,040

End of period
 
$
150,353

 
$
153,036

Non-cash investing activities:
 
 
 
 
Accrued capital expenditures
 
$
32,038

 
$
33,051

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

6



Vail Resorts, Inc.
Notes to Consolidated Condensed Financial Statements
(Unaudited)

1.
Organization and Business
Vail Resorts, Inc. (“Vail Resorts”) is organized as a holding company and operates through various subsidiaries. Vail Resorts and its subsidiaries (collectively, the “Company”) operate in three business segments: Mountain, Lodging and Real Estate.

The Company refers to “Resort” as the combination of the Mountain and Lodging segments. In the Mountain segment, the Company operates the following thirty-seven destination mountain resorts and regional ski areas:
VAILRESORTMAPDEC2019FINAL.JPG
*Denotes a destination mountain resort which generally receives a meaningful portion of skier visits from long-distance travelers, as opposed to the Company’s regional ski areas which tend to generate skier visits from their respective local markets.

Additionally, the Mountain segment includes ancillary services, primarily including ski school, dining and retail/rental operations, and for the Company’s Australian 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; 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.

7




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
Basis of Presentation
Consolidated Condensed Financial Statements— In the opinion of the Company, the accompanying Consolidated Condensed Financial Statements reflect all adjustments necessary to state fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. Results for interim periods are not indicative of the results for the entire fiscal year, particularly given the significant seasonality to the Company’s operating cycle. The accompanying Consolidated Condensed Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2019. Certain information and footnote disclosures, including significant accounting policies, normally included in fiscal year financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been condensed or omitted. The Consolidated Condensed Balance Sheet as of July 31, 2019 was derived from audited financial statements.

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

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 6, Long-Term Debt) approximate book value due to the variable nature of the interest rate, which is a market rate, associated with the debt. The recorded amounts outstanding under the Company’s EPR Secured Notes and EB-5 Development Notes (each as defined in Note 6, Long-Term Debt), which were assumed by the Company during the three months ended October 31, 2019, approximate fair value as the debt obligations were recorded at fair value in conjunction with the preliminary purchase accounting for the Peak Resorts acquisition (see Note 7, Acquisitions).

Leases— The Company determines if an arrangement is or contains a lease at inception or modification of the arrangement. An arrangement is or contains a lease if there is one or more assets identified and the right to control the use of any identified asset is conveyed to the Company for a period of time in exchange for consideration. Control over the use of an identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. Generally, the Company classifies a lease as a finance lease if the terms of the agreement effectively transfer control of the underlying asset; otherwise, it is classified as an operating lease. For contracts that contain lease and non-lease components, the Company accounts for these components separately. For leases with terms greater than twelve months, the associated lease right-of-use (“ROU”) assets and lease liabilities are recognized at the estimated present value of the future minimum lease payments over the lease term at commencement date. The Company’s leases do not provide a readily determinable implicit rate; therefore, the Company uses an estimated incremental borrowing rate to discount the future minimum lease payments. For leases containing fixed rental escalation clauses, the escalators are factored into the determination of future minimum lease payments. The Company includes options to extend a lease when it is reasonably certain that such options will be exercised. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. See Note 4, Leases for more information.

Recently Issued Accounting Standards
Adopted Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU’) No. 2016-02, “Leases (Topic 842),” which supersedes “Leases (Topic 840).” The standard requires lessees to recognize the assets and liabilities arising from all leases on the balance sheet, including those classified as operating leases under previous accounting guidance, and to disclose key information about leasing arrangements. The standard also allows for an accounting policy election not to recognize on the balance sheet lease assets and liabilities for leases with a term of 12 months or less. Under the new guidance, lessees are required to recognize a lease liability and an ROU asset on their balance sheets, while lessor accounting is largely unchanged. In July 2018, the FASB released ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” which, among other items, provided an additional and optional transition method. Under this method, an entity initially applies the standard at

8



the adoption date, including the election of certain transition reliefs, and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company adopted ASU No. 2016-02 on August 1, 2019 using the modified retrospective transition method as provided by the standard. In accordance with this transition method, results for reporting periods beginning on August 1, 2019 are presented under the new standard, while prior periods were not adjusted and continue to be reported in accordance with the previously applicable accounting guidance. The Company has elected the package of practical expedients permitted under the transition guidance which allowed the Company to not reassess: (i) whether any existing or expired contracts are or contain leases; (ii) lease classification of any expired or existing leases; or (iii) initial direct costs for any existing leases. The Company has made an accounting policy election to not record leases on the balance sheet with an initial term of 12 months or less. The Company will recognize those lease payments in the Consolidated Condensed Statements of Operations on a straight-line basis over the lease term. Additionally, the Company has elected the practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases. At adoption, the Company was not able to determine the interest rate implicit in its leases; therefore, for existing operating leases, the lease liability was measured using the Company’s estimated incremental borrowing rate. For existing leases, the incremental borrowing rate used was based on the remaining lease term at the adoption date. For leases with minimum lease payments adjusted periodically for inflation, the lease liability was measured using the minimum lease payments adjusted by the inflation index at the adoption date.

On August 1, 2019, as a result of adopting the standard, the Company recorded $225.6 million of operating ROU assets and $258.0 million of related total operating lease liabilities in the Consolidated Condensed Balance Sheet (of which $223.1 million was recorded to operating lease liabilities and $34.9 million was recorded to accounts payable and accrued liabilities). As a result of the adoption, the Company reclassified $32.4 million of unfavorable lease obligations, deferred rent credits and other similar amounts to the operating ROU assets balance, primarily from other long-term liabilities, which reduced the amount recognized as operating ROU assets to $225.6 million. The adoption of the new lease standard did not result in a cumulative effect adjustment to beginning retained earnings, and did not materially affect the Company’s Consolidated Condensed Statement of Operations or Consolidated Condensed Statement of Cash Flows for the three months ended October 31, 2019. The Company’s Canyons finance lease was not affected by the implementation of this standard as the arrangement is classified and recorded as a finance lease arrangement under both the previous and new accounting guidance.


9



3.     Revenues
Disaggregation of Revenues
The following table presents net revenues disaggregated by segment and major revenue type for the three months ended October 31, 2019 and 2018 (in thousands):
 
 
Three Months Ended October 31,
 
 
2019
 
2018
Mountain net revenue:
 
 
 
 
Lift
 
$
41,829

 
$
24,685

Ski School
 
8,534

 
4,272

Dining
 
21,629

 
18,292

Retail/Rental
 
47,915

 
43,342

Other
 
60,925

 
54,415

Total Mountain net revenue
 
$
180,832

 
$
145,006

Lodging net revenue:
 
 
 
 
     Owned hotel rooms
 
$
19,946

 
$
19,599

Managed condominium rooms
 
14,740

 
11,118

Dining
 
18,143

 
16,129

Transportation
 
2,351

 
2,474

Golf
 
10,221

 
9,150

Other
 
14,166

 
12,777

 
 
79,567

 
71,247

Payroll cost reimbursements
 
3,191

 
3,653

Total Lodging net revenue
 
$
82,758

 
$
74,900

Total Resort net revenue
 
$
263,590

 
$
219,906

Total Real Estate net revenue
 
4,180

 
98

Total net revenue
 
$
267,770

 
$
220,004

Contract Balances
Deferred revenue balances of a short-term nature were $549.1 million and $335.7 million as of October 31, 2019 and July 31, 2019, respectively. Deferred revenue balances of a long-term nature, comprised primarily of long-term private club initiation fee revenue, were $125.3 million and $124.3 million as of October 31, 2019 and July 31, 2019, respectively. For the three months ended October 31, 2019, the Company recognized approximately $34.6 million of revenue that was included in the deferred revenue balance as of July 31, 2019. As of October 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 16 years. Trade receivable balances were $87.3 million and $270.9 million as of October 31, 2019 and July 31, 2019, respectively.

Costs to Obtain Contracts with Customers
As of October 31, 2019, $11.1 million of costs to obtain contracts with customers were recorded within other current assets on the Company’s Consolidated Condensed Balance Sheet. The amounts capitalized will be subject to amortization generally beginning in the second quarter of fiscal 2020, commensurate with the revenue recognized for skier visits, and will be recorded within Mountain and Lodging operating expenses on the Company’s Consolidated Condensed Statement of Operations.

4.     Leases
The Company’s operating leases consist primarily of commercial and retail space, office space, employee residential units, vehicles and other equipment. The Company determines if an arrangement is or contains a lease at contract inception or modification. The Company’s lease contracts generally range from 1 year to 60 years, with some lease contracts containing one or more lease extension options, exercisable at the Company’s discretion. The Company generally does not include these lease extension options in the initial lease term as it is not reasonably certain that it will exercise such options at contract inception. In addition, certain lease arrangements contain fixed and variable lease payments. The variable lease payments are primarily contingent rental payments

10



based on: (i) a percentage of revenue related to the leased property; (ii) payments based on a percentage of sales over contractual levels; or (iii) lease payments adjusted for changes in an index or market value. These variable lease payments are typically recognized when the underlying event occurs and are included in operating expenses in the Company's Consolidated Condensed Statements of Operations in the same line item as the expense arising from fixed lease payments. The Company’s lease agreements may also include non-lease components, such as common area maintenance and insurance, which are accounted for separately as non-lease components. Future lease payments that are contingent and non-lease components are not included in the measurement of the operating lease liability. The Company’s lease agreements do not contain any material residual value guarantees or restrictive covenants.  Lease expense related to lease payments is recognized on a straight-line basis over the term of the lease.

The Company’s leases do not provide a readily determinable implicit rate. As a result, the Company measures the lease liability using an estimated incremental borrowing rate which is intended to reflect the rate of interest the Company would pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The Company applies the estimated incremental borrowing rates at a portfolio level based on the economic environment associated with the lease.

The Company uses the long-lived assets impairment guidance to determine recognition and measurement of an ROU asset impairment, if any. The Company monitors for events or changes in circumstances that require a reassessment.

The components of lease expense for the three months ended October 31, 2019, were as follows (in thousands):
 
 
Three Months Ended
October 31, 2019
Finance leases:
 
 
Amortization of the finance ROU assets
 
$
2,438

Interest on lease liabilities
 
$
8,509

Operating leases:
 
 
Operating lease expense

$
10,037

Short-term lease expense1
 
$
2,353

Variable lease expense

$
843

1 Short-term lease expense is attributable to leases with terms of 12 months or less which are not included within the Company’s Consolidated Condensed Balance Sheet.
The following table presents the supplemental cash flow information associated with the Company’s leasing activities for the three months ended October 31, 2019 (in thousands):
 
 
Three Months Ended
October 31, 2019
Cash flow supplemental information:
 
 
Operating cash outflows for operating leases
 
$
11,218

Operating cash outflows for finance leases
 
$
1,049

Financing cash outflows for finance leases
 
$
5,387


Weighted-average remaining lease terms and discount rates are as follows:
 
 
As of October 31, 2019
Weighted-average remaining lease term (in years)
 
 
Operating leases
 
10.9

Finance leases
 
43.6

Weighted-average discount rate
 
 
Operating leases
 
4.5
%
Finance leases
 
10.0
%


11



Future minimum lease payments for operating and finance leases as of October 31, 2019 reflected by fiscal year (August 1 through July 31) are as follows (in thousands):
 
Operating Leases
 
Finance Leases
2020 (November 2019 through July 2020)
$
38,383

 
$
21,190

2021
44,188

 
28,818

2022
41,256

 
29,394

2023
36,656

 
29,982

2024
32,899

 
30,582

Thereafter
165,267

 
1,805,047

Total future minimum lease payments
358,649

 
1,945,013

Less amount representing interest
(92,331
)
 
(1,603,309
)
Total lease liabilities
$
266,318

 
$
341,704

Future minimum lease payments in accordance with Topic 840 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



The current portion of operating lease liabilities of approximately $35.1 million as of October 31, 2019 is recorded within accounts payables and accrued liabilities in the Consolidated Condensed Balance Sheet. Finance lease liabilities are recorded within long-term debt, net in the Consolidated Condensed Balance Sheets.

The Canyons finance lease obligation represents the only material finance lease entered into by the Company as of October 31, 2019. As of October 31, 2019, the Company has recorded $125.1 million of finance lease ROU assets in connection with the Canyons lease, net of $58.5 million of accumulated amortization, which is included within property, plant and equipment in the Company’s Consolidated Condensed Balance Sheet.

5.
Net Loss per Share
Earnings per Share
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net loss attributable to Vail Resorts stockholders by the weighted-average shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of shares of common stock that would then share in the earnings of Vail Resorts.

In connection with the Company’s acquisition of Whistler Blackcomb in October 2016, 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 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.


12



Presented below is basic and diluted EPS for the three months ended October 31, 2019 and 2018 (in thousands, except per share amounts):
 
 
Three Months Ended October 31,
 
 
2019
 
2018
 
 
Basic
 
Diluted
 
Basic
 
Diluted
Net loss per share:
 
 
 
 
 
 
 
 
Net loss attributable to Vail Resorts
 
$
(106,475
)
 
$
(106,475
)
 
$
(107,795
)
 
$
(107,795
)
Weighted-average Vail Shares outstanding
 
40,286

 
40,286

 
40,447

 
40,447

Weighted-average Exchangeco Shares outstanding
 
56

 
56

 
58

 
58

Total Weighted-average shares outstanding
 
40,342

 
40,342

 
40,505

 
40,505

Effect of dilutive securities
 

 

 

 

Total shares
 
40,342

 
40,342

 
40,505

 
40,505

Net loss per share attributable to Vail Resorts
 
$
(2.64
)
 
$
(2.64
)
 
$
(2.66
)
 
$
(2.66
)


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 upon the exercise of share based awards excluded from the calculation of diluted EPS because the effect of their inclusion would have been anti-dilutive totaled approximately 0.7 million and 1.0 million for the three months ended October 31, 2019 and 2018, respectively.

Dividends
The Company paid cash dividends of $1.76 and $1.47 per share ($71.1 million and $59.5 million in the aggregate) during the three months ended October 31, 2019 and 2018, respectively. On December 5, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $1.76 per share, for Vail Shares, payable on January 9, 2020 to stockholders of record as of December 26, 2019. Additionally, a Canadian dollar equivalent dividend on the Exchangeco Shares will be payable on January 9, 2020 to the shareholders of record on December 26, 2019.

6.    Long-Term Debt
Long-term debt, net as of October 31, 2019July 31, 2019 and October 31, 2018 is summarized as follows (in thousands):
 
 
Maturity
 
October 31, 2019
 
July 31, 2019
 
October 31, 2018
Vail Holdings Credit Agreement term loan (a)
 
2024
 
$
1,250,000

 
$
914,375

 
$
950,000

Vail Holdings Credit Agreement revolver (a)
 
2024
 
190,000

 
208,000

 
120,000

Whistler Credit Agreement revolver (b)
 
2023
 
37,962

 
45,454

 
72,170

EPR Secured Notes (c)
 
2034-2036
 
114,162

 

 

EB-5 Development Notes (d)
 
2021
 
52,000

 

 

Employee housing bonds
 
2027-2039
 
52,575

 
52,575

 
52,575

Canyons obligation
 
2063
 
341,704

 
340,261

 
335,947

Other
 
2020-2032
 
19,583

 
19,465

 
8,821

Total debt
 
 
 
2,057,986

 
1,580,130

 
1,539,513

Less: Unamortized premiums, discounts and debt issuance costs
 
 
 
(10,878
)
 
3,870

 
4,063

Less: Current maturities (e)
 
 
 
63,807

 
48,516

 
48,482

Long-term debt, net
 
 
 
$
2,005,057

 
$
1,527,744


$
1,486,968



(a)
On September 23, 2019, in order to fund the acquisition of Peak Resorts, Inc. (“Peak Resorts”), which included the prepayment of certain portions of the outstanding debt and lease obligations of Peak Resorts contemporaneous with the closing of the transaction (see Note 7, Acquisitions), the Company’s wholly-owned subsidiary, Vail Holdings, Inc. (“VHI”), entered into the Second Amendment to the Eighth Amended and Restated Credit Agreement (the “Vail Holdings Credit Agreement”), with Bank of America, N.A., as administrative agent, and other lenders named therein, through which those lenders agreed to provide an additional $335.6 million in incremental term loans and agreed, on behalf of all lenders, to extend the maturity date for the outstanding term loans and revolver facility under the Vail Holdings Credit Agreement to

13



September 23, 2024. No other material terms of the Vail Holdings Credit Agreement were altered under the amendment. As of October 31, 2019, the Vail Holdings Credit Agreement consists of a $500.0 million revolving credit facility and a $1.25 billion term loan facility. The term loan facility is subject to quarterly amortization of principal of approximately $15.6 million, which will begin on January 31, 2020, in equal installments, for a total of five percent of principal payable in each year and the final payment of all amounts outstanding, plus accrued and unpaid interest due in September 2024. The proceeds of the loans made under the Vail Holdings Credit Agreement may be used to fund the Company’s working capital needs, capital expenditures, acquisitions, investments and other general corporate purposes, including the issuance of letters of credit. Borrowings under the Vail Holdings Credit Agreement, including the term loan facility, bear interest annually at LIBOR plus 1.25% as of October 31, 2019 (3.04% as of October 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, multiplied by the daily amount by which the Vail Holdings Credit Agreement commitment exceeds the total of outstanding loans and outstanding letters of credit (0.25% as of October 31, 2019). During the three months ended October 31, 2019, the Company entered into an interest rate swap agreement to hedge the cash flows of $100.0 million in principal amount of its Vail Holdings Credit Agreement.
(b)
Whistler Mountain Resort Limited Partnership (“Whistler LP”) and Blackcomb Skiing Enterprises Limited Partnership (“Blackcomb LP”), together “The WB Partnerships,” are party to a credit agreement, dated as of November 12, 2013 (as amended, the “Whistler Credit Agreement”), by and among Whistler LP, Blackcomb LP, certain subsidiaries of Whistler LP and Blackcomb LP party thereto as guarantors (the “Whistler Subsidiary Guarantors”), the financial institutions party thereto as lenders and The Toronto-Dominion Bank, as administrative agent. The Whistler Credit Agreement consists of a C$300.0 million revolving credit facility. As of October 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% (approximately 3.76% as of October 31, 2019). The Whistler Credit Agreement also includes a quarterly unused commitment fee based on the Consolidated Total Leverage Ratio, which as of October 31, 2019 is equal to 0.3937% per annum. 
(c)
On September 24, 2019, in conjunction with the acquisition of Peak Resorts (see Note 7, Acquisitions), the Company assumed various secured borrowings (the “EPR Secured Notes”) under the master credit and security agreements and other related agreements, as amended, (collectively, the “EPR Agreements”) with EPT Ski Properties, Inc. and its affiliates (“EPR”). The EPR Secured Notes include the following:
i.
The Alpine Valley Secured Note. The $4.6 million Alpine Valley Secured Note provides for interest payments through its maturity on December 1, 2034. As of October 31, 2019, interest on this note accrued at a rate of 11.04%.
ii.
The Boston Mills/Brandywine Secured Note. The $23.3 million Boston Mills/Brandywine Secured Note provides for interest payments through its maturity on December 1, 2034. As of October 31, 2019, interest on this note accrued at a rate of 10.75%.
iii.
The Jack Frost/Big Boulder Secured Note. The $14.3 million Jack Frost/Big Boulder Secured Note provides for interest payments through its maturity on December 1, 2034. As of October 31, 2019, interest on this note accrued at a rate of 10.75%.
iv.
The Mount Snow Secured Note. The $51.1 million Mount Snow Secured Note provides for interest payments through its maturity on December 1, 2034. As of October 31, 2019, interest on this note accrued at a rate of 11.61%.
v.
The Hunter Mountain Secured Note. The $21.0 million Hunter Mountain Secured Note provides for interest payments through its maturity on January 5, 2036. As of October 31, 2019, interest on this note accrued at a rate of 8.43%.
The EPR Secured Notes are secured by all or substantially all of the assets of Peak Resorts and its subsidiaries, including mortgages on the Alpine Valley, Boston Mills, Brandywine, Jack Frost, Big Boulder, Mount Snow and Hunter Mountain ski resorts. The EPR Secured Notes bear interest at specified interest rates, as discussed above, which are subject to increase each year by the lesser of (i) three times the percentage increase in the Consumer Price Index or (ii) a capped index (the “Capped CPI Index”), which is 1.75% for the Hunter Mountain Secured Note and 1.50% for all other notes. The EPR Agreements provide for affirmative and negative covenants that restrict, among other things, the ability of Peak Resorts and its subsidiaries to incur indebtedness, dispose of assets, make distributions and make investments. In addition, the EPR Agreements include restrictive covenants, including maximum leverage ratio and consolidated fixed charge ratio. An additional contingent interest payment would be due to EPR if, on a calendar year basis, the gross receipts from the properties securing any of the individual EPR Secured Notes (the “Gross Receipts”) are more than the result (the “Interest Quotient”) of dividing the total interest charges for the EPR Secured Notes by a specified percentage rate (the “Additional Interest Rate”). In such a case, the additional interest payment would equal the difference between the Gross Receipts and the

14



Interest Quotient multiplied by the Additional Interest Rate. This calculation is made on an aggregated basis for the notes secured by the Jack Frost, Big Boulder, Boston Mills, Brandywine and Alpine Valley ski resorts, where the Additional Interest Rate is 10.0%; on a standalone basis for the note secured by the Company’s Mount Snow ski resort, where the Additional Interest Rate is 12.0%; and on a standalone basis for the note secured by the Company’s Hunter Mountain ski resort, where the Additional Interest Rate is 8.0%. Peak Resorts does not have the right to prepay the EPR Secured Notes. The EPR Secured Notes were recorded at their estimated fair value in conjunction with the acquisition of Peak Resorts on September 24, 2019, and as such their respective carrying values approximate fair value as of October 31, 2019. The EPR Agreements grant EPR certain other rights including (i) the option to purchase the Boston Mills, Brandywine, Jack Frost, Big Boulder or Alpine Valley resorts, which is exercisable no sooner than two years and no later than one year prior to the maturity dates of the applicable EPR Secured Note for such properties, with any closings to be held on the applicable maturity dates; and, if EPR exercises the purchase option, EPR will enter into an agreement with the Company for the lease of each acquired property for an initial term of 20 years, plus options to extend the lease for two additional periods of ten years each; (ii) a right of first refusal through 2021, subject to certain conditions, to provide all or a portion of the financing associated with any purchase, ground lease, sale/leaseback, management or financing transaction contemplated by Peak Resorts with respect to any new or existing ski resort properties; and (iii) a right of first refusal through 2021 to purchase the Company’s Attitash ski resort in the event the Company were to desire to sell the Attitash ski resort. To date, EPR has not exercised any such purchase options.
In addition, Peak Resorts is required to, maintain a debt service reserve account which amounts are applied to fund interest payments and other amounts due and payable to EPR. As of October 31, 2019 the Company had funded the debt service reserve account in an amount equal to approximately $2.5 million, which was included in other current assets in the Company’s Consolidated Condensed Balance Sheet.
(d)
Peak Resorts serves as the general partner for two limited partnerships, Carinthia Group 1, LP and Carinthia Group 2, LP (together, the “Carinthia Partnerships”), which were formed to raise $52.0 million through the Immigrant Investor Program administered by the U.S. Citizenship and Immigration Services (“USCIS”), pursuant to the Immigration and Nationality Act (the “EB-5 Program”). The EB-5 Program was created to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors. The program allocates immigrant visas to qualified individuals (“EB-5 Investors”) seeking lawful permanent resident status based on their investment in a U.S commercial enterprise. On December 27, 2016, Peak Resorts borrowed $52.0 million from the Carinthia Partnerships to fund two capital projects at Mount Snow. The amounts were borrowed through two loan agreements, which provided $30.0 million and $22.0 million (together, the “EB-5 Development Notes”). Amounts outstanding under the EB-5 Development Notes accrue simple interest at a fixed rate of 1.0% per annum until the maturity date, which is December 27, 2021, subject to an extension of up to two additional years at the option of the borrowers, with lender consent. If the maturity date is extended, amounts outstanding under the EB-5 Development Notes will accrue simple interest at a fixed rate of 7.0% per annum during the first year of extension and a fixed rate of 10.0% per annum during the second year of extension. Upon an event of default (as defined), amounts outstanding under the EB-5 Development Notes shall bear interest at the rate of 5.0% per annum, subject to the extension increases. While the EB-5 Development Notes are outstanding, Peak Resorts is restricted from taking certain actions without the consent of the lenders, including, but not limited to, transferring or disposing of the properties or assets financed with loan proceeds. In addition, Peak Resorts is prohibited from prepaying outstanding amounts owed if such prepayment would jeopardize any of the EB-5 Investors from being admitted to the U.S. via the EB-5 Program.
(e)
Current maturities represent principal payments due in the next 12 months.

Aggregate maturities of debt outstanding as of October 31, 2019 reflected by fiscal year (August 1 through July 31) are as follows (in thousands):
 
Total
2020 (November 2019 through July 2020)
$
53,829

2021
63,640

2022
115,919

2023
63,719

2024
101,756

Thereafter
1,659,123

Total debt
$
2,057,986


The Company recorded gross interest expense of $22.7 million and $18.6 million for the three months ended October 31, 2019 and 2018, respectively, of which $0.4 million and $0.3 million, respectively, were amortization of deferred financing costs. The

15



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 Company’s acquisition of Whistler Blackcomb in October 2016, 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 $0.4 million and ($2.3 million), respectively, of non-cash foreign currency gain (loss) on the intercompany loan to Whistler Blackcomb for the three months ended October 31, 2019 and 2018 on the Company’s Consolidated Condensed Statements of Operations. 

7.    Acquisitions
Peak Resorts
On September 24, 2019, the Company, through a wholly-owned subsidiary, acquired 100 percent of the outstanding stock of Peak Resorts, Inc. (“Peak Resorts”) at a purchase price of $11.00 per share or approximately $264.5 million. In addition, contemporaneous with the closing of the transaction, Peak Resorts was required to pay approximately $70.2 million of certain outstanding debt instruments and lease obligations in order to complete the transaction. Accordingly, the total purchase price, including the repayment of certain outstanding debt instruments and lease obligations, was approximately $334.7 million, for which the Company borrowed approximately $335.6 million under the Vail Holdings Credit Agreement (see Note 6, Long-Term Debt) to fund the acquisition, repayment of debt instruments and lease obligations, and associated acquisition related expenses. The newly acquired resorts include: Mount Snow in Vermont; Hunter Mountain in New York; Attitash Mountain Resort, Wildcat Mountain and Crotched Mountain in New Hampshire; Liberty Mountain Resort, Roundtop Mountain Resort, Whitetail Resort, Jack Frost and Big Boulder in Pennsylvania; Alpine Valley, Boston Mills, Brandywine and Mad River Mountain in Ohio; Hidden Valley and Snow Creek in Missouri; and Paoli Peaks in Indiana. The Company assumed the Special Use Permits from the U.S. Forest Service for Attitash, Mount Snow and Wildcat Mountain, and assumed the land leases for Mad River and Paoli Peaks. The acquisition included the mountain operations of the resorts, including base area skier services (food and beverage, retail and rental, lift ticket offices and ski and snowboard school facilities), as well as lodging operations at certain resorts.
The following summarizes the purchase consideration and the preliminary purchase price allocation to estimated fair values of the identifiable assets acquired and liabilities assumed at the date the transaction was effective (in thousands):
 
Acquisition Date Estimated Fair Value
Current assets
$
18,976

Property, plant and equipment
425,604

Goodwill
146,361

Identifiable intangible assets
19,219

Other assets
16,809

Assumed long-term debt
(181,714
)
Other liabilities
(110,525
)
Net assets acquired
$
334,730

Identifiable intangible assets acquired in the transaction were primarily related to trade names and property management contracts. 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 the assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of the resorts and other factors, and is not expected to be deductible for income tax purposes. The Company assumed various debt obligations of Peak Resorts, which were recorded at their respective estimated fair values as of the acquisition date (see Note 6, Long-Term Debt). The Company recognized $3.2 million of acquisition related expenses associated with the transaction within Mountain and Lodging operating expense in its Consolidated Condensed Statement of Operations for the three months ended October 31, 2019. The operating results of Peak Resorts are reported within the Mountain and Lodging segments prospectively from the date of acquisition.


16



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 operating results of Falls Creek and Hotham are reported within the Mountain segment prospectively from the date of acquisition.

Stevens Pass Resort
On August 15, 2018, the Company, through a wholly-owned subsidiary, acquired Stevens Pass Resort in the State of Washington from Ski Resort Holdings, LLC, an affiliate of Oz Real Estate (“Ski Resort Holdings”), for total cash consideration of $64.0 million, after adjustments for certain agreed-upon terms. The Company borrowed $70.0 million on August 15, 2018 under its Vail Holdings Credit Agreement term loan (see Note 6, Long-Term Debt) to fund the transaction and associated acquisition related expenses. The acquisition included the mountain operations of the resort, including base area skier services (food and beverage, retail and rental, lift ticket offices and ski and snowboard school facilities).

The following summarizes the purchase consideration and the purchase price allocation to estimated fair values of the identifiable assets acquired and liabilities assumed at the date the transaction was effective (in thousands):
 
Acquisition Date Estimated Fair Value
Current assets
$
752

Property, plant and equipment
34,865

Goodwill
28,878

Identifiable intangible assets
2,680

Deferred income taxes, net
886

Liabilities
(4,029
)
Net assets acquired
$
64,032


The process of estimating the fair value of the property, plant, and equipment includes the use of certain estimates and assumptions related to replacement cost and physical condition at the time of acquisition. The excess of the purchase price over the aggregate estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of Stevens Pass and other factors, and is expected to be deductible for income tax purposes. The Company recognized $1.2 million of acquisition related expenses associated with the transaction within

17



Mountain and Lodging operating expense in its Consolidated Condensed Statement of Operations for the three months ended October 31, 2018. The operating results of Stevens Pass are reported within the Mountain segment prospectively from the date of acquisition.

Triple Peaks
On September 27, 2018, the Company, through a wholly-owned subsidiary, acquired Triple Peaks, LLC (“Triple Peaks”), the parent company of Okemo Mountain Resort in Vermont, Crested Butte Mountain Resort in Colorado, and Mount Sunapee Resort in New Hampshire, for a cash purchase price of approximately $74.1 million, after adjustments for certain agreed-upon terms. In addition, contemporaneous with the closing of the transaction, Triple Peaks paid $155.0 million to pay the remaining obligations of the leases that all three resorts had with Ski Resort Holdings, with funds provided by the Company. Accordingly, the total purchase price, including the repayment of lease obligations, was $229.1 million, for which the Company utilized cash on hand and borrowed $195.6 million under the Vail Holdings Credit Agreement term loan (see Note 6, Long-Term Debt) to fund the transaction and associated acquisition related expenses. The Company obtained a new Special Use Permit from the U.S. Forest Service for Crested Butte, and assumed the state land leases for Okemo and Mount Sunapee. The acquisition included the mountain operations of the resorts, including base area skier services (food and beverage, retail and rental, lift ticket offices and ski and snowboard school facilities).

The following summarizes the purchase consideration and the purchase price allocation to estimated fair values of the identifiable assets acquired and liabilities assumed at the date the transaction was effective (in thousands):
 
Acquisition Date Estimated Fair Value
Current assets
$
5,197

Property, plant and equipment
159,799

Goodwill
51,742

Identifiable intangible assets
27,360

Deferred income taxes, net
3,093

Liabilities
(18,098
)
Net assets acquired
$
229,093


Identifiable intangible assets acquired in the transaction were primarily related to property management contracts and trade names. The process of estimating the fair value of the property, plant, and equipment includes the use of certain estimates and assumptions related to replacement cost and physical condition at the time of acquisition. The excess of the purchase price over the aggregate estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies, the assembled workforce of the resorts and other factors, and is expected to be deductible for income tax purposes. The Company recognized $2.8 million of acquisition related expenses associated with the transaction within Mountain and Lodging operating expense in its Consolidated Condensed Statement of Operations for the three months ended October 31, 2018. 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 Peak Resorts, Falls Creek and Hotham 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
The following presents the unaudited pro forma consolidated financial information of the Company as if the acquisitions of Peak Resorts, Falls Creek & Hotham, Triple Peaks and Stevens Pass were completed at the beginning of the fiscal year preceding the fiscal year in which each respective acquisition occurred. The following unaudited pro forma financial information includes adjustments for (i) depreciation on acquired property, plant and equipment; (ii) amortization of intangible assets recorded at the date of the transactions; (iii) lease expenses incurred by the prior owners which the Company will not be subject to; (iv) transaction and business integration related costs; and (v) interest expense associated with financing the transactions. This unaudited pro forma financial information is presented for informational purposes only and does not purport to be indicative of the results of future

18



operations or the results that would have occurred had the transaction taken place on August 1, 2018 (in thousands, except per share amounts).
 
Three Months Ended October 31,
 
2019
2018
Pro forma net revenue
$
274,429

$
259,887

Pro forma net loss attributable to Vail Resorts, Inc.
$
(111,843
)
$
(118,396
)
Pro forma basic net loss per share attributable to Vail Resorts, Inc.
$
(2.77
)
$
(2.92
)
Pro forma diluted net loss per share attributable to Vail Resorts, Inc.
$
(2.77
)
$
(2.92
)


8.    Supplementary Balance Sheet Information
The composition of property, plant and equipment follows (in thousands):
 
 
October 31, 2019
 
July 31, 2019
 
October 31, 2018
Land and land improvements
 
$
745,846

 
$
619,561

 
$
611,155

Buildings and building improvements
 
1,458,465

 
1,284,438

 
1,271,375

Machinery and equipment
 
1,189,951

 
1,160,817

 
1,054,610

Furniture and fixtures
 
435,663

 
309,271

 
295,128

Software
 
118,961

 
118,815

 
113,901

Vehicles
 
68,662

 
65,556

 
63,346

Construction in progress
 
113,570

 
79,282

 
106,378

Gross property, plant and equipment
 
4,131,118

 
3,637,740

 
3,515,893

Accumulated depreciation
 
(1,851,029
)
 
(1,795,240
)
 
(1,689,911
)
Property, plant and equipment, net
 
$
2,280,089

 
$
1,842,500

 
$
1,825,982



The composition of accounts payable and accrued liabilities follows (in thousands): 
 
 
October 31, 2019
 
July 31, 2019
 
October 31, 2018
Trade payables
 
$
141,714

 
$
96,377

 
$
118,648

Deferred revenue
 
549,144

 
335,669

 
450,300

Accrued salaries, wages and deferred compensation
 
22,798

 
50,318

 
20,961

Accrued benefits
 
38,695

 
37,797

 
30,712

Deposits
 
34,202

 
32,108

 
34,479

Other liabilities
 
70,381

 
55,588

 
48,533

Total accounts payable and accrued liabilities
 
$
856,934

 
$
607,857

 
$
703,633



The composition of other long-term liabilities follows (in thousands):
 
 
October 31, 2019
 
July 31, 2019
 
October 31, 2018
Private club deferred initiation fee revenue
 
$
109,011

 
$
109,749

 
$
112,669

Unfavorable lease obligation, net
 
1,651

 
19,017

 
21,100

Other long-term liabilities
 
128,302

 
154,835

 
139,797

Total other long-term liabilities
 
$
238,964

 
$
283,601

 
$
273,566




19



The changes in the net carrying amount of goodwill allocated between the Company’s segments for the three months ended October 31, 2019 are as follows (in thousands):
 
Mountain
Lodging
Goodwill, net
Balance at July 31, 2019
$
1,540,307

$
67,899

$
1,608,206

Acquisitions (including measurement period adjustments)
146,470


146,470

Effects of changes in foreign currency exchange rates
2,787


2,787

Balance at October 31, 2019
$
1,689,564

$
67,899

$
1,757,463



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 October 31, 2019
Description
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Money Market
 
$
3,047

 
$
3,047

 
$

 
$

Commercial Paper
 
$
2,401

 
$

 
$
2,401

 
$

Certificates of Deposit
 
$
7,932

 
$

 
$
7,932

 
$

Liabilities:
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
21,900

 
$

 
$

 
$
21,900

 
 
 
 
 
 
 
 
 
 
 
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 October 31, 2018
Description
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Money Market
 
$
3,026

 
$
3,026

 
$

 
$

Commercial Paper
 
$
2,401

 
$

 
$
2,401

 
$

Certificates of Deposit
 
$
10,836

 
$

 
$
10,836

 
$

Liabilities:
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
23,033

 
$

 
$

 
$
23,033



20




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 changes in Contingent Consideration during the three months ended October 31, 2019 and 2018 were as follows (in thousands):
 
 
 
 
 
Balance as of July 31, 2019 and 2018, respectively
 
$
27,200

 
$
21,900

Payments
 
(6,436
)
 
(67
)
Change in estimated fair value
 
1,136

 
1,200

Balance as of October 31, 2019 and 2018, respectively
 
$
21,900

 
$
23,033



The lease for Park City 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 $3.9 million to $5.6 million.

Contingent Consideration is classified as a liability, which is remeasured to fair value at each reporting date until the contingency is resolved. During the three months ended October 31, 2019, the Company made a payment to the landlord for Contingent Consideration of approximately $6.4 million and recorded an increase of approximately $1.1 million primarily related to the estimated Contingent Consideration payment for the fiscal year ending July 31, 2019. These changes resulted in an estimated fair value of the Contingent Consideration of approximately $21.9 million, which is reflected in other long-term liabilities in the Company’s Consolidated Condensed Balance Sheet.

10.    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 the 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 has recorded a liability of $2.0 million primarily within other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets, as of October 31, 2019July 31, 2019 and October 31, 2018, respectively, with respect to the estimated present value of future RSRMD capital improvement fees. The Company estimates it will make capital improvement fee payments under this arrangement through the fiscal year ending July 31, 2031.

Guarantees/Indemnifications
As of October 31, 2019, the Company had various letters of credit outstanding totaling $73.0 million, consisting of $53.4 million to support the Employee Housing Bonds and $19.6 million primarily for workers’ compensation, a wind energy purchase agreement and insurance-related deductibles. The Company also had surety bonds of $10.6 million as of October 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

21



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 Condensed Financial Statements, either because the Company has recorded on its Consolidated Condensed Balance Sheets the underlying liability associated with the guarantee, the guarantee is with respect to the Company’s own performance and is therefore not subject to the measurement requirements as prescribed by GAAP, or because the Company has calculated the 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.

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.

Self-Insurance
The Company is self-insured for claims under its U.S. health benefit plans and for the majority of workers’ compensation claims in the U.S. Workers compensation claims in the U.S. are subject to stop loss policies. The self-insurance liability related to workers’ compensation is determined actuarially based on claims filed. The self-insurance liability related to claims under the Company’s U.S. health benefit plans is determined based on analysis of actual claims. The amounts related to these claims are included as a component of accrued benefits in accounts payable and accrued liabilities (see Note 8, Supplementary Balance Sheet Information).

Legal
The Company is a party to various lawsuits arising in the ordinary course of business. Management believes the Company has adequate insurance coverage and/or has accrued for all loss contingencies for asserted and unasserted matters deemed to be probable losses and estimable. As of October 31, 2019July 31, 2019 and October 31, 2018, the accruals for the above loss contingencies were not material individually or in the aggregate.

11.    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 loss, net change in cash and cash equivalents or other financial statement data presented in the Consolidated Condensed Financial Statements as indicators of financial performance or liquidity.


22



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.


23



The following table presents financial information by reportable segment, which is used by management in evaluating performance and allocating resources (in thousands):
 
Three Months Ended October 31,
 
2019
 
2018
Net revenue:
 
 
 
Lift
$
41,829

 
$
24,685

Ski school
8,534

 
4,272

Dining
21,629

 
18,292

Retail/rental
47,915

 
43,342

Other
60,925

 
54,415

Total Mountain net revenue
180,832

 
145,006

Lodging
82,758

 
74,900

Total Resort net revenue
263,590

 
219,906

Real Estate
4,180

 
98

Total net revenue
$
267,770

 
$
220,004

Segment operating expense:
 
 
 
Mountain
$
262,008

 
$
222,363

Lodging
79,492

 
71,004

Resort
341,500

 
293,367

Real Estate, net
5,293

 
1,370

Total segment operating expense
$
346,793

 
$
294,737

Gain on sale of real property
$
207

 
$

Mountain equity investment income, net
$
1,191

 
$
950

Reported EBITDA:
 
 
 
Mountain
$
(79,985
)
 
$
(76,407
)
Lodging
3,266

 
3,896

Resort
(76,719
)

(72,511
)
Real Estate
(906
)
 
(1,272
)
Total Reported EBITDA
$
(77,625
)
 
$
(73,783
)
Real estate held for sale and investment
$
96,938

 
$
101,743

Reconciliation to net loss attributable to Vail Resorts, Inc.:
 
 
 
Total Reported EBITDA
$
(77,625
)
 
$
(73,783
)
Depreciation and amortization
(57,845
)
 
(51,043
)
Change in estimated fair value of contingent consideration
(1,136
)
 
(1,200
)
Gain (loss) on disposal of fixed assets and other, net
2,267

 
(619
)
Investment income and other, net
277

 
463

Foreign currency gain (loss) on intercompany loans
360

 
(2,311
)
Interest expense, net
(22,690
)
 
(18,638
)
Loss before benefit from income taxes
(156,392
)
 
(147,131
)
Benefit from income taxes
46,563

 
36,405

Net loss
(109,829
)
 
(110,726
)
Net loss attributable to noncontrolling interests
3,354

 
2,931

Net loss attributable to Vail Resorts, Inc.
$
(106,475
)
 
$
(107,795
)


24



12.     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 up to 7,500,000 Vail Shares. The Company repurchased 95,618 Vail Shares (at a total cost of approximately $21.4 million) during the three months ended October 31, 2019. The Company repurchased 197,896 Vail Shares (at a total cost of $50.0 million) during the three months ended October 31, 2018. Since inception of its share repurchase program through October 31, 2019, the Company has repurchased 6,000,341 Vail Shares for approximately $379.4 million. As of October 31, 2019, 1,499,659 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 the issuance of Vail Shares under the Company’s employee share award plan.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Vail Resorts, Inc., together with its subsidiaries, is referred to throughout this Quarterly Report on Form 10-Q for the period ended October 31, 2019 (“Form 10-Q”) as “we,” “us,” “our” or the “Company.”

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended July 31, 2019 (“Form 10-K”) and the Consolidated Condensed Financial Statements as of October 31, 2019 and 2018 and for the three months then ended, included in Part I, Item 1 of this Form 10-Q, which provide additional information regarding our financial position, results of operations and cash flows. To the extent that the following MD&A contains statements which are not of a historical nature, such statements are forward-looking statements, which involve risks and uncertainties. See “Forward-Looking Statements” below. These risks include, but are not limited to, those discussed in our filings with the Securities and Exchange Commission (“SEC”), including the risks described in Item 1A “Risk Factors” of Part I of our Form 10-K, which was filed on September 26, 2019.

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

Items excluded from Reported EBITDA and Net Debt are significant components in understanding and assessing financial performance or liquidity. Reported EBITDA and Net Debt should not be considered in isolation or as an alternative to, or substitute for, net income (loss), net change in cash and cash equivalents or other financial statement data presented in the Consolidated Condensed Financial Statements as indicators of financial performance or liquidity. Because Resort Reported EBITDA, Total Reported EBITDA and Net Debt are not measurements determined in accordance with GAAP and are thus susceptible to varying calculations, Resort Reported EBITDA, Total Reported EBITDA and Net Debt, as presented herein, may not be comparable to other similarly titled measures of other companies. In addition, our segment Reported EBITDA (i.e. Mountain, Lodging and Real Estate), the measure of segment profit or loss required to be disclosed in accordance with GAAP, may not be comparable to other similarly titled measures of other companies.

Overview
Our operations are grouped into three integrated and interdependent segments: Mountain, Lodging and Real Estate. We refer to “Resort” as the combination of the Mountain and Lodging segments.


25



Mountain Segment
The Company refers to “Resort” as the combination of the Mountain and Lodging segments. In the Mountain segment, the Company operates the following thirty-seven destination mountain resorts and regional ski areas:
VAILRESORTMAPDEC2019FINAL.JPG
*Denotes a destination mountain resort which generally receives a meaningful portion of skier visits from long-distance travelers, as opposed to our regional ski areas which tend to generate skier visits from their respective local markets.

Additionally, we operate ancillary services, primarily including ski school, dining and retail/rental operations, and for our Australian resorts, including lodging and transportation operations. Mountain segment revenue is seasonal, with the majority of revenue earned from our North American mountain resorts and ski areas occurring in our second and third fiscal quarters and the majority of revenue earned from our Australian resorts occurring in our first and fourth fiscal quarters. Our North American mountain resorts are generally open for business from mid-November through mid-April, which is the peak operating season for the Mountain segment, and our Australian resorts are typically open for business from June to early October. Consequently, our first fiscal quarter is a seasonally low period as our North American ski operations are generally not open for business until our second fiscal quarter, while the activity of our Australian resorts’ peak season and our North American summer operating results are not sufficient to offset the losses incurred during the seasonally low periods at our North American mountain resorts and ski areas. Revenue of the Mountain segment during the first and fourth fiscal quarters is primarily generated from summer and group related visitation at our North American mountain resorts, retail/rental operations and peak season Australian resort operations.

Lodging Segment
Operations within the Lodging segment include: (i) ownership/management of a group of luxury hotels through the RockResorts brand proximate to our Colorado and Utah mountain resorts; (ii) ownership/management of non-RockResorts branded hotels and condominiums proximate to our North American mountain resorts; (iii) National Park Service (“NPS”) concessionaire properties including the Grand Teton Lodge Company (“GTLC”); (iv) a Colorado resort ground transportation company; and (v) mountain resort golf courses.

Revenue of the lodging segment during our first fiscal quarter is generated primarily by the operations of our NPS concessionaire properties (as their peak operating season generally occurs during the months of June to October), as well as golf operations and seasonally low operations from our other owned and managed properties and businesses. Lodging properties (including managed condominium rooms) at or around our mountain resorts, and our Colorado resort ground transportation company, are closely

26



aligned with the performance of the Mountain segment and generally experience similar seasonal trends. Management primarily focuses on Lodging net revenue excluding payroll cost reimbursements and Lodging operating expense excluding reimbursed payroll costs (which are not measures of financial performance under GAAP) as the reimbursements are made based upon the costs incurred with no added margin, as such the revenue and corresponding expense do not affect our Lodging Reported EBITDA, which we use to evaluate Lodging segment performance.

Real Estate Segment
The principal activities of our Real Estate segment include the sale of land parcels to third-party developers and planning for future real estate development projects, including zoning and acquisition of applicable permits. We continue undertaking preliminary planning and design work on future projects and are pursuing opportunities with third-party developers rather than undertaking our own significant vertical development projects. Additionally, real estate development projects by third-party developers most often result in the creation of certain resort assets that provide additional benefit to the Mountain segment. We believe that, due to our low carrying cost of real estate land investments, we are well situated to promote future projects by third-party developers while limiting our financial risk. Our revenue from the Real Estate segment and associated expense can fluctuate significantly based upon the timing of closings and the type of real estate being sold, causing volatility in the Real Estate segment’s operating results from period to period.

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

The timing and amount of snowfall can have an impact on Mountain and Lodging revenue, particularly with regards to skier visits and the duration and frequency of guest visitation. To help mitigate this impact, we sell a variety of pass products prior to the beginning of the ski season which results in a more stabilized stream of lift revenue. Additionally, our pass products provide a compelling value proposition to our guests, which in turn create a guest commitment predominately prior to the start of the ski season. Through December 2, 2019, sales of North American ski season pass products increased approximately 22% in units and 17% in sales dollars as compared to the prior year period ended December 3, 2018, including Military Pass sales and Peak Resorts pass sales in both periods and adjusted to eliminate the impact of foreign currency by applying an exchange rate of $0.75 between the Canadian dollar and U.S. dollar in both periods for Whistler Blackcomb pass sales. Excluding sales of Military Passes, sales of pass products increased approximately 22% in units and 16% in sales dollars over the comparable prior year period. We cannot predict the ultimate impact that sales of our pass products will have on total lift revenue or effective ticket price for the 2019/2020 North American ski season.

Key North American economic indicators have remained steady through calendar year 2019, including strong consumer confidence and declines in the unemployment rate. However, the growth in the North American economy may be impacted by economic challenges in North America or declining or slowing growth in economies outside of North America, accompanied by devaluation of currencies, rising inflation, trade tariffs and lower commodity prices. Given these economic uncertainties, we cannot predict what the impact of the overall North American or global economy will be on overall travel and leisure spending or more specifically, on our guest visitation, guest spending or other related trends for the upcoming 2019/2020 North American ski season.

As of October 31, 2019, we had $231.4 million available under the revolver component of our Eighth Amended and Restated Credit Agreement, dated as of August 15, 2018 and as amended most recently on September 23, 2019 (the “Vail Holdings Credit Agreement”), which represents the total commitment of $500.0 million less outstanding borrowings of $190.0 million and certain letters of credit outstanding of $78.6 million. Additionally, we have a credit facility which supports the liquidity needs of Whistler Blackcomb (the “Whistler Credit Agreement”). As of October 31, 2019, we had C$249.1 million ($189.1 million) available under the revolver component of the Whistler Credit Agreement (which represents the total commitment of C$300.0 million ($227.8 million) less outstanding borrowings of C$50.0 million ($38.0 million) and a letter of credit outstanding of C$0.9 million ($0.7 million)).

We believe that the terms of our credit agreements allow for sufficient flexibility in our ability to make future acquisitions, investments, distributions to stockholders and incur additional debt. This, combined with the continued positive cash flow from operating activities of our Mountain and Lodging segments less resort capital expenditures, has and is anticipated to continue to provide us with significant liquidity. We believe our liquidity will allow us to consider strategic investments and other forms of returning value to our stockholders including additional share repurchases and the continued payment of a quarterly cash dividend.


27



On September 24, 2019, through a wholly-owned subsidiary, we acquired 100 percent of the outstanding stock of Peak Resorts, Inc. (“Peak Resorts”) at a purchase price of $11.00 per share or approximately $264.5 million. In addition, contemporaneous with the closing the transaction, Peak Resorts was required to pay approximately $70.2 million of certain outstanding debt instruments and lease obligations in order to complete the transaction. Accordingly, the total purchase price, including the repayment of certain outstanding debt instruments and lease obligations, was approximately $334.7 million, for which we borrowed approximately $335.6 million under the Vail Holdings Credit Agreement to fund the acquisition, repayment of debt instruments and lease obligations, and associated acquisition related expenses. The newly acquired resorts include: Mount Snow in Vermont; Hunter Mountain in New York; Attitash Mountain Resort, Wildcat Mountain and Crotched Mountain in New Hampshire; Liberty Mountain Resort, Roundtop Mountain Resort, Whitetail Resort, Jack Frost and Big Boulder in Pennsylvania; Alpine Valley, Boston Mills, Brandywine and Mad River Mountain in Ohio; Hidden Valley and Snow Creek in Missouri; and Paoli Peaks in Indiana. The acquisition included the mountain operations of the resorts, including base area skier services (food and beverage, retail and rental, lift ticket offices and ski and snowboard school facilities), as well as lodging operations at certain resorts. We expect that the acquisition of Peak Resorts will positively contribute to our annual results of operations; however we cannot predict the ultimate impact the new resorts will have on our future results of operations.

RESULTS OF OPERATIONS

Summary
Below is a summary of operating results for the three months ended October 31, 2019, compared to the three months ended October 31, 2018 (in thousands):
 
 
 
Three Months Ended October 31,
 
 
2019
 
2018
Mountain Reported EBITDA
 
$
(79,985
)
 
$
(76,407
)
Lodging Reported EBITDA
 
3,266

 
3,896

Resort Reported EBITDA
 
$
(76,719
)
 
$
(72,511
)
Real Estate Reported EBITDA
 
$
(906
)
 
$
(1,272
)
Loss before benefit from income taxes
 
$
(156,392
)
 
$
(147,131
)
Net loss attributable to Vail Resorts, Inc.
 
$
(106,475
)
 
$
(107,795
)

The consolidated condensed results of operations, including any consolidated financial metrics pertaining thereto, include the operations of Peak Resorts (acquired September 24, 2019), Falls Creek and Hotham (acquired April 4, 2019), Triple Peaks (acquired September 27, 2018) and Stevens Pass (acquired August 15, 2018), prospectively from their respective dates of acquisition.


28



Mountain Segment
Three months ended October 31, 2019 compared to the three months ended October 31, 2018
Mountain segment operating results for the three months ended October 31, 2019 and 2018 are presented by category as follows (in thousands, except effective ticket price (“ETP”)). ETP is calculated as lift revenue divided by total skier visits for each applicable period presented.
 
 
Three Months Ended October 31,
 
Percentage
Increase
(Decrease)
 
 
2019
 
2018
 
Net Mountain revenue:
 
 
 
 
 
 
Lift
 
$
41,829

 
$
24,685

 
69.5
 %
Ski school
 
8,534

 
4,272

 
99.8
 %
Dining
 
21,629