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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 January 31, 2020
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 March 5, 2020, 40,266,037 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
 
7
 
8
Item 2.
27
Item 3.
44
Item 4.
44
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
Item 1.
45
Item 1A.
45
Item 2.
45
Item 3.
45
Item 4.
45
Item 5.
45
Item 6.
46




Vail Resorts, Inc.
Consolidated Condensed Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
 
 
January 31, 2020
 
July 31, 2019
 
January 31, 2019
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
126,793

 
$
108,850

 
$
158,561

Restricted cash
 
13,655

 
9,539

 
20,762

Trade receivables, net
 
105,325

 
270,896

 
87,721

Inventories, net
 
113,907

 
96,539

 
103,010

Other current assets
 
54,122

 
42,116

 
45,212

Total current assets
 
413,802

 
527,940

 
415,266

Property, plant and equipment, net (Note 8)
 
2,263,781

 
1,842,500

 
1,831,087

Real estate held for sale and investment
 
96,944

 
101,021

 
101,730

Goodwill, net (Note 8)
 
1,750,011

 
1,608,206

 
1,547,084

Intangible assets, net
 
321,391

 
306,173

 
305,885

Operating right-of-use assets (Note 4)
 
227,394

 

 

Other assets
 
40,356

 
40,237

 
43,870

Total assets
 
$
5,113,679

 
$
4,426,077

 
$
4,244,922

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable and accrued liabilities (Note 8)
 
$
811,497

 
$
607,857

 
$
685,736

Income taxes payable
 
43,325

 
62,760

 
27,544

Long-term debt due within one year (Note 6)
 
63,556

 
48,516

 
48,493

Total current liabilities
 
918,378

 
719,133

 
761,773

Long-term debt, net (Note 6)
 
1,817,058

 
1,527,744

 
1,345,262

Operating lease liabilities (Note 4)
 
228,474

 

 

Other long-term liabilities (Note 8)
 
245,375

 
283,601

 
274,998

Deferred income taxes, net
 
254,196

 
168,759

 
179,794

Total liabilities
 
3,463,481

 
2,699,237

 
2,561,827

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, 46,264, 46,190 and 46,101 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
 
1,130,906

 
1,130,083

 
1,135,709

Accumulated other comprehensive loss
 
(44,100
)
 
(31,730
)
 
(13,949
)
Retained earnings
 
717,646

 
759,801

 
699,045

Treasury stock, at cost, 6,000, 5,905, and 5,905 shares, respectively (Note 12)
 
(379,433
)
 
(357,989
)
 
(357,989
)
Total Vail Resorts, Inc. stockholders’ equity
 
1,425,482

 
1,500,627

 
1,463,278

Noncontrolling interests
 
224,716

 
226,213

 
219,817

Total stockholders’ equity
 
1,650,198

 
1,726,840

 
1,683,095

Total liabilities and stockholders’ equity
 
$
5,113,679

 
$
4,426,077

 
$
4,244,922

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 January 31,
 
Six Months Ended January 31,
 
2020
 
2019
 
2020
 
2019
Net revenue:
 
 
 
 
 
 
 
Mountain and Lodging services and other
$
753,758

 
$
687,119

 
$
933,789

 
$
831,141

Mountain and Lodging retail and dining
170,674

 
162,203

 
254,233

 
238,087

Resort net revenue
924,432

 
849,322

 
1,188,022

 
1,069,228

Real Estate
206

 
256

 
4,386

 
354

Total net revenue
924,638

 
849,578

 
1,192,408


1,069,582

Operating expense (exclusive of depreciation and amortization shown separately below):
 
 
 
 
 
 
 
Mountain and Lodging operating expense
387,842

 
350,633

 
616,552

 
544,745

Mountain and Lodging retail and dining cost of products sold
67,135

 
63,505

 
104,870

 
98,381

General and administrative
91,302

 
77,362

 
166,357

 
141,741

Resort operating expense
546,279

 
491,500

 
887,779

 
784,867

Real Estate operating expense
1,505

 
1,389

 
6,798

 
2,759

Total segment operating expense
547,784

 
492,889

 
894,577

 
787,626

Other operating (expense) income:
 
 
 
 
 
 
 
Depreciation and amortization
(63,812
)
 
(55,238
)
 
(121,657
)
 
(106,281
)
Gain on sale of real property

 

 
207

 

Change in estimated fair value of contingent consideration (Note 9)
(1,600
)
 
(700
)
 
(2,736
)
 
(1,900
)
(Loss) gain on disposal of fixed assets and other, net
(709
)
 
1,097

 
1,558

 
478

Income from operations
310,733

 
301,848

 
175,203

 
174,253

Mountain equity investment income, net
169

 
160

 
1,360

 
1,110

Investment income and other, net
361

 
507

 
638

 
970

Foreign currency (loss) gain on intercompany loans (Note 6)
(798
)
 
450

 
(438
)
 
(1,861
)
Interest expense, net
(26,134
)
 
(21,002
)
 
(48,824
)
 
(39,640
)
Income before provision for income taxes
284,331

 
281,963

 
127,939

 
134,832

Provision for income taxes
(67,313
)
 
(63,973
)
 
(20,750
)
 
(27,568
)
Net income
217,018

 
217,990

 
107,189

 
107,264

Net income attributable to noncontrolling interests
(10,648
)
 
(11,641
)
 
(7,294
)
 
(8,710
)
Net income attributable to Vail Resorts, Inc.
$
206,370

 
$
206,349

 
$
99,895

 
$
98,554

Per share amounts (Note 5):
 
 
 
 
 
 
 
Basic net income per share attributable to Vail Resorts, Inc.
$
5.12

 
$
5.12

 
$
2.48

 
$
2.44

Diluted net income per share attributable to Vail Resorts, Inc.
$
5.04

 
$
5.02

 
$
2.44

 
$
2.39

Cash dividends declared per share
$
1.76

 
$
1.47

 
$
3.52

 
$
2.94

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

3




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

 
 
Three Months Ended
January 31,
 
Six Months Ended
January 31,
 
 
2020
 
2019
 
2020
 
2019
Net income
 
$
217,018

 
$
217,990

 
$
107,189

 
$
107,264

Foreign currency translation adjustments, net of tax
 
(14,045
)
 
7,863

 
(9,025
)
 
(14,773
)
Change in estimated fair value of hedging instruments
 
(4,866
)
 

 
(4,563
)
 

Comprehensive income
 
198,107


225,853

 
93,601

 
92,491

Comprehensive income attributable to noncontrolling interests
 
(8,568
)
 
(12,857
)
 
(6,076
)
 
(5,659
)
Comprehensive income attributable to Vail Resorts, Inc.
 
$
189,539

 
$
212,996

 
$
87,525

 
$
86,832

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, October 31, 2018
$
461

$
1

$
1,130,855

$
(20,596
)
$
551,863

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

$
210,206

$
1,549,801

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income




206,349


206,349

11,641

217,990

Foreign currency translation adjustments, net of tax



6,647



6,647

1,216

7,863

Total comprehensive income
 
 
 
 
 
 
212,996

12,857

225,853

Stock-based compensation expense


5,147




5,147


5,147

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


(293
)



(293
)

(293
)
Repurchase of common stock (Note 12)





(35,000
)
(35,000
)

(35,000
)
Dividends (Note 5)




(59,167
)

(59,167
)

(59,167
)
Distributions to noncontrolling interests, net







(3,246
)
(3,246
)
Balance, January 31, 2019
$
461

$
1

$
1,135,709

$
(13,949
)
$
699,045

$
(357,989
)
$
1,463,278

$
219,817

$
1,683,095

 
 
 
 
 
 
 
 
 
 
Balance, October 31, 2019
$
462

$
1

$
1,126,492

$
(27,269
)
$
582,235

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

$
219,948

$
1,522,436

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income




206,370


206,370

10,648

217,018

Foreign currency translation adjustments, net of tax



(11,965
)


(11,965
)
(2,080
)
(14,045
)
Change in estimated fair value of hedging instruments



(4,866
)


(4,866
)

(4,866
)
Total comprehensive income
 
 
 
 
 
 
189,539

8,568

198,107

Stock-based compensation expense


5,538




5,538


5,538

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


(1,124
)



(1,124
)

(1,124
)
Dividends (Note 5)




(70,959
)

(70,959
)

(70,959
)
Distributions to noncontrolling interests, net







(3,800
)
(3,800
)
Balance, January 31, 2020
$
462

$
1

$
1,130,906

$
(44,100
)
$
717,646

$
(379,433
)
$
1,425,482

$
224,716

$
1,650,198


5



 
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 income:
 
 
 
 
 
 
 
 
 
Net income




98,554


98,554

8,710

107,264

Foreign currency translation adjustments, net of tax



(11,722
)


(11,722
)
(3,051
)
(14,773
)
Total comprehensive income
 
 
 
 
 
 
86,832

5,659

92,491

Stock-based compensation expense


9,900




9,900


9,900

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


(11,658
)



(11,657
)

(11,657
)
Repurchase of common stock (Note 12)





(85,000
)
(85,000
)

(85,000
)
Dividends (Note 5)




(118,714
)

(118,714
)

(118,714
)
Distributions to noncontrolling interests, net







(8,071
)
(8,071
)
Balance, January 31, 2019
$
461

$
1

$
1,135,709

$
(13,949
)
$
699,045

$
(357,989
)
$
1,463,278

$
219,817

$
1,683,095

 
 
 
 
 
 
 
 
 
 
Balance, July 31, 2019
$
461

$
1

$
1,130,083

$
(31,730
)
$
759,801

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

$
226,213

$
1,726,840

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income




99,895


99,895

7,294

107,189

Foreign currency translation adjustments, net of tax



(7,807
)


(7,807
)
(1,218
)
(9,025
)
Change in estimated fair value of hedging instruments



(4,563
)


(4,563
)

(4,563
)
Total comprehensive income
 
 
 
 
 
 
87,525

6,076

93,601

Stock-based compensation expense


10,789




10,789


10,789

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


(9,966
)



(9,965
)

(9,965
)
Repurchase of common stock (Note 12)





(21,444
)
(21,444
)

(21,444
)
Dividends (Note 5)




(142,050
)

(142,050
)

(142,050
)
Distributions to noncontrolling interests, net







(7,573
)
(7,573
)
Balance, January 31, 2020
$
462

$
1

$
1,130,906

$
(44,100
)
$
717,646

$
(379,433
)
$
1,425,482

$
224,716

$
1,650,198

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

6



Vail Resorts, Inc.
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
Six Months Ended January 31,
 
 
2020
 
2019
Cash flows from operating activities:
 
 
 
 
Net income
 
$
107,189

 
$
107,264

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
121,657

 
106,281

Stock-based compensation expense
 
10,789

 
9,900

Deferred income taxes, net
 
23,568

 
32,279

Other non-cash income, net
 
(977
)
 
(345
)
Changes in assets and liabilities:
 
 
 
 
Trade receivables, net
 
167,417

 
145,305

Inventories, net
 
(14,237
)
 
(14,398
)
Accounts payable and accrued liabilities
 
70,873

 
97,083

Deferred revenue
 
72,831

 
48,061

Income taxes payable - excess tax benefit from share award exercises
 
(2,818
)
 
(4,711
)
Income taxes payable - other
 
(17,647
)
 
(18,000
)
Other assets and liabilities, net
 
(956
)
 
(2,538
)
Net cash provided by operating activities
 
537,689

 
506,181

Cash flows from investing activities:
 

 
 
Capital expenditures
 
(121,788
)
 
(113,531
)
Acquisition of businesses, net of cash acquired
 
(327,555
)
 
(292,610
)
Other investing activities, net
 
3,597

 
1,817

Net cash used in investing activities
 
(445,746
)
 
(404,324
)
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
 
(355,625
)
 
(211,875
)
Repayments of borrowings under Whistler Credit Agreement
 
(18,863
)
 
(11,193
)
Employee taxes paid for share award exercises
 
(9,966
)
 
(11,657
)
Dividends paid
 
(142,050
)
 
(118,714
)
Repurchases of common stock
 
(21,444
)
 
(85,000
)
Other financing activities, net
 
(14,513
)
 
(9,864
)
Net cash used in financing activities
 
(69,836
)
 
(105,011
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
(48
)
 
(2,563
)
Net increase (decrease) in cash, cash equivalents and restricted cash
 
22,059

 
(5,717
)
Cash, cash equivalents and restricted cash:
 
 
 
 
Beginning of period
 
118,389

 
185,040

End of period
 
$
140,448

 
$
179,323

Non-cash investing activities:
 
 
 
 
Accrued capital expenditures
 
$
11,982

 
$
22,731

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

7



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:
VAILRESORTMAPFEB2020FINAL2.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.

8




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, restricted cash, receivables, other current assets and accounts payable and accrued liabilities approximate fair value due to their short-term nature. The fair value of amounts outstanding under the Company’s credit agreements and the Employee Housing Bonds (as defined in Note 6, Long-Term Debt) approximate book value due to the variable nature of the interest rate, which is a market rate, associated with the debt. The 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 six months ended January 31, 2020, 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).

Accounting for Hedging Instruments— From time to time, the Company enters into interest rate swaps (the “Interest Rate Swaps”) to hedge the variability in cash flows associated with variable-rate borrowings by converting the floating interest rate to a fixed interest rate. As of January 31, 2020, the Company hedged the future cash flows associated with $400.0 million of the principal amount outstanding of its Vail Holdings Credit Agreement (as defined in Note 6, Long-Term Debt). The accounting for changes in fair value of hedging instruments depends on the effectiveness of the hedge. In order to qualify for hedge accounting, the underlying hedged item must expose the Company to risks associated with market fluctuations and the financial instrument used must reduce the Company's exposure to market fluctuation throughout the hedge period. Changes in estimated fair value of the Interest Rate Swaps are recorded within change in estimated fair value of hedging instruments on the Company’s Consolidated Condensed Statements of Comprehensive Income, and such changes were recorded as losses of $4.9 million and $4.6 million, respectively, for the three and six months ended January 31, 2020. As of January 31, 2020, the estimated fair value of the Interest Rate Swaps was a liability of approximately $4.6 million and was recorded within other long-term liabilities on the Company’s Consolidated Condensed Balance Sheet (see Note 9, Fair Value Measurements).
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

9



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 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 Statements of Operations for the three and six months ended January 31, 2019 or Consolidated Condensed Statement of Cash Flows for the six months ended January 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.


10



3.     Revenues
Disaggregation of Revenues
The following table presents net revenues disaggregated by segment and major revenue type for the three and six months ended January 31, 2020 and 2019 (in thousands):
 
 
Three Months Ended January 31,
 
Six Months Ended January 31,
 
 
2020
 
2019
 
2020
 
2019
Mountain net revenue:
 
 
 
 
 
 
 
 
Lift
 
$
484,348

 
$
447,558

 
$
526,177

 
$
472,243

Ski School
 
102,743

 
92,244

 
111,277

 
96,516

Dining
 
75,719

 
65,409

 
97,348

 
83,701

Retail/Rental
 
133,713

 
128,436

 
181,628

 
171,778

Other
 
49,022

 
42,426

 
109,947

 
96,841

Total Mountain net revenue
 
$
845,545

 
$
776,073

 
$
1,026,377

 
$
921,079

Lodging net revenue:
 
 
 
 
 
 
 
 
     Owned hotel rooms
 
$
11,251

 
$
11,548

 
$
31,197

 
$
31,147

Managed condominium rooms
 
31,500

 
28,046

 
46,240

 
39,164

Dining
 
11,111

 
10,189

 
29,254

 
26,318

Transportation
 
7,725

 
7,722

 
10,076

 
10,196

Golf
 

 

 
10,543

 
9,459

Other
 
13,855

 
12,120

 
27,699

 
24,588

 
 
75,442

 
69,625

 
155,009

 
140,872

Payroll cost reimbursements
 
3,445

 
3,624

 
6,636

 
7,277

Total Lodging net revenue
 
$
78,887

 
$
73,249

 
$
161,645

 
$
148,149

Total Resort net revenue
 
$
924,432

 
$
849,322

 
$
1,188,022

 
$
1,069,228

Total Real Estate net revenue
 
206

 
256

 
4,386

 
354

Total net revenue
 
$
924,638

 
$
849,578

 
$
1,192,408

 
$
1,069,582

Contract Balances
Deferred revenue balances of a short-term nature were $426.7 million and $335.7 million as of January 31, 2020 and July 31, 2019, respectively. Deferred revenue balances of a long-term nature, comprised primarily of long-term private club initiation fee revenue, were $125.5 million and $124.3 million as of January 31, 2020 and July 31, 2019, respectively. For the three and six months ended January 31, 2020, the Company recognized approximately $145.3 million and $179.9 million, respectively, of revenue that was included in the deferred revenue balance as of July 31, 2019. As of January 31, 2020, the weighted average remaining period over which revenue for unsatisfied performance obligations on long-term private club contracts will be recognized was approximately 16 years. Trade receivable balances were $105.3 million and $270.9 million as of January 31, 2020 and July 31, 2019, respectively.

Costs to Obtain Contracts with Customers
As of January 31, 2020, $7.0 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 are subject to amortization commensurate with the revenue recognized for skier visits. The Company recorded amortization of $7.0 million for these costs during the three and six months ended January 31, 2020, which was 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

11



in the initial lease term as it is not reasonably certain that it will exercise such options at contract inception. In addition, certain lease arrangements contain fixed and variable lease payments. The variable lease payments are primarily contingent rental payments based on: (i) a percentage of revenue related to the leased property; (ii) payments based on a percentage of sales over contractual levels; or (iii) lease payments adjusted for changes in an index or market value. These variable lease payments are typically recognized when the underlying event occurs and are included in operating expenses in the Company's Consolidated 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 and six months ended January 31, 2020, were as follows (in thousands):
 
 
Three Months Ended
January 31, 2020
 
Six Months Ended
January 31, 2020
Finance leases:
 
 
 
 
Amortization of the finance ROU assets
 
$
2,438

 
$
4,876

Interest on lease liabilities
 
$
8,509

 
$
17,017

Operating leases:
 
 
 
 
Operating lease expense

$
10,411

 
$
20,448

Short-term lease expense1
 
$
2,459

 
$
4,812

Variable lease expense

$
1,339

 
$
2,181

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 six months ended January 31, 2020 (in thousands):
 
 
Six Months Ended
January 31, 2020
Cash flow supplemental information:
 
 
Operating cash outflows for operating leases
 
$
25,435

Operating cash outflows for finance leases
 
$
15,180

Financing cash outflows for finance leases
 
$
5,387


Weighted-average remaining lease terms and discount rates are as follows:
 
 
As of January 31, 2020
Weighted-average remaining lease term (in years)
 
 
Operating leases
 
10.7

Finance leases
 
43.4

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


12



Future minimum lease payments for operating and finance leases as of January 31, 2020 reflected by fiscal year (August 1 through July 31) are as follows (in thousands):
 
Operating Leases
 
Finance Leases
2020 (February 2020 through July 2020)
$
30,141

 
$
14,126

2021
45,805

 
28,818

2022
42,606

 
29,394

2023
37,666

 
29,982

2024
33,889

 
30,582

Thereafter
166,166

 
1,805,048

Total future minimum lease payments
356,273

 
1,937,950

Less amount representing interest
(92,149
)
 
(1,594,803
)
Total lease liabilities
$
264,124

 
$
343,147

Future minimum lease payments in accordance with Topic 840 as of July 31, 2019, reflected by fiscal year, were as follows (in thousands):
 
Operating Leases
 
Capital Leases
2020
$
44,984

 
$
28,253

2021
42,512

 
28,818

2022
39,440

 
29,394

2023
34,840

 
29,982

2024
30,836

 
30,582

Thereafter
142,526

 
1,805,048

Total future minimum lease payments
$
335,138

 
$
1,952,077

Less amount representing interest
 
 
(1,611,816
)
Net future minimum lease payments
 
 
$
340,261



The current portion of operating lease liabilities of approximately $35.7 million as of January 31, 2020 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 January 31, 2020. As of January 31, 2020, the Company has recorded $122.7 million of finance lease ROU assets in connection with the Canyons lease, net of $60.9 million of accumulated amortization, which is included within property, plant and equipment in the Company’s Consolidated Condensed Balance Sheet.

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

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


13



Presented below is basic and diluted EPS for the three months ended January 31, 2020 and 2019 (in thousands, except per share amounts):
 
 
Three Months Ended January 31,
 
 
2020
 
2019
 
 
Basic
 
Diluted
 
Basic
 
Diluted
Net income per share:
 
 
 
 
 
 
 
 
Net income attributable to Vail Resorts
 
$
206,370

 
$
206,370

 
$
206,349

 
$
206,349

Weighted-average Vail Shares outstanding
 
40,261

 
40,261

 
40,271

 
40,271

Weighted-average Exchangeco Shares outstanding
 
55

 
55

 
57

 
57

Total Weighted-average shares outstanding
 
40,316

 
40,316

 
40,328

 
40,328

Effect of dilutive securities
 

 
625

 

 
798

Total shares
 
40,316

 
40,941

 
40,328

 
41,126

Net income per share attributable to Vail Resorts
 
$
5.12

 
$
5.04

 
$
5.12

 
$
5.02


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 28,000 and 56,000 for the three months ended January 31, 2020 and 2019, respectively.

Presented below is basic and diluted EPS for the six months ended January 31, 2020 and 2019 (in thousands, except per share amounts):
 
 
Six Months Ended January 31,
 
 
2020
 
2019
 
 
Basic
 
Diluted
 
Basic
 
Diluted
Net income per share:
 
 
 
 
 
 
 
 
Net income attributable to Vail Resorts
 
$
99,895

 
$
99,895

 
$
98,554

 
$
98,554

Weighted-average Vail Shares outstanding
 
40,274

 
40,274

 
40,359

 
40,359

Weighted-average Exchangeco Shares outstanding
 
55

 
55

 
57

 
57

Total Weighted-average shares outstanding
 
40,329

 
40,329

 
40,416

 
40,416

Effect of dilutive securities
 

 
644

 

 
870

Total shares
 
40,329

 
40,973

 
40,416

 
41,286

Net income per share attributable to Vail Resorts
 
$
2.48

 
$
2.44

 
$
2.44

 
$
2.39



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 23,000 and 40,000 for the six months ended January 31, 2020 and 2019, respectively.

Dividends
During the three and six months ended January 31, 2020, the Company paid cash dividends of $1.76 and $3.52 per share, respectively ($71.0 million and $142.1 million, respectively, in the aggregate). During the three and six months ended January 31, 2019, the Company paid cash dividends of $1.47 and $2.94 per share, respectively ($59.2 million and $118.7 million, respectively, in the aggregate). On March 5, 2020, the Company’s Board of Directors declared a quarterly cash dividend of $1.76 per share, for Vail Shares, payable on April 9, 2020 to stockholders of record as of March 26, 2020. Additionally, a Canadian dollar equivalent dividend on the Exchangeco Shares will be payable on April 9, 2020 to the shareholders of record on March 26, 2020.


14



6.    Long-Term Debt
Long-term debt, net as of January 31, 2020July 31, 2019 and January 31, 2019 is summarized as follows (in thousands):
 
 
Maturity
 
January 31, 2020
 
July 31, 2019
 
January 31, 2019
Vail Holdings Credit Agreement term loan (a)
 
2024
 
$
1,234,375

 
$
914,375

 
$
938,125

Vail Holdings Credit Agreement revolver (a)
 
2024
 
25,000

 
208,000

 

Whistler Credit Agreement revolver (b)
 
2024
 
26,447

 
45,454

 
60,904

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

 

 

EB-5 Development Notes (d)
 
2021
 
51,500

 

 

Employee housing bonds
 
2027-2039
 
52,575

 
52,575

 
52,575

Canyons obligation
 
2063
 
343,147

 
340,261

 
337,385

Other
 
2020-2032
 
19,360

 
19,465

 
8,656

Total debt
 
 
 
1,866,566

 
1,580,130

 
1,397,645

Less: Unamortized premiums, discounts and debt issuance costs
 
 
 
(14,048
)
 
3,870

 
3,890

Less: Current maturities (e)
 
 
 
63,556

 
48,516

 
48,493

Long-term debt, net
 
 
 
$
1,817,058

 
$
1,527,744


$
1,345,262



(a)
On September 23, 2019, in order to fund the acquisition of Peak Resorts, Inc. (“Peak Resorts”), which included the prepayment of certain portions of the outstanding debt and lease obligations of Peak Resorts contemporaneous with the closing of the transaction (see Note 7, Acquisitions), the Company’s wholly-owned subsidiary, Vail Holdings, Inc. (“VHI”), entered into the Second Amendment to the Eighth Amended and Restated Credit Agreement (the “Vail Holdings Credit Agreement”), with Bank of America, N.A., as administrative agent, and other lenders named therein, through which those lenders agreed to provide an additional $335.6 million in incremental term loans and agreed, on behalf of all lenders, to extend the maturity date for the outstanding term loans and revolver facility under the Vail Holdings Credit Agreement to September 23, 2024. No other material terms of the Vail Holdings Credit Agreement were altered under the amendment. As of January 31, 2020, 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 began in January 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 1.50% as of January 31, 2020 (3.15% as of January 31, 2020). 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 (0.3% as of January 31, 2020). During the six months ended January 31, 2020, the Company entered into various interest rate swap agreements to hedge the LIBOR-based variable interest rate component of underlying cash flows of $400.0 million in principal amount of its Vail Holdings Credit Agreement for the remaining term of the agreement at an effective rate of 1.46%.
(b)
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. During the three months ended January 31, 2020, the Company entered into an amendment of the Whistler Credit Agreement which extended the maturity date of the revolving credit facility to December 15, 2024. No other material terms of the Whistler Credit Agreement were altered. As of January 31, 2020, 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 3.78% as of January 31, 2020). The Whistler Credit Agreement also includes a quarterly unused commitment fee based on the Consolidated Total Leverage Ratio, which as of January 31, 2020 is equal to 0.3937% per annum. 

15



(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 January 31, 2020, interest on this note accrued at a rate of 11.21%.
ii.
The Boston Mills/Brandywine Secured Note. The $23.3 million Boston Mills/Brandywine Secured Note provides for interest payments through its maturity on December 1, 2034. As of January 31, 2020, interest on this note accrued at a rate of 10.75%.
iii.
The Jack Frost/Big Boulder Secured Note. The $14.3 million Jack Frost/Big Boulder Secured Note provides for interest payments through its maturity on December 1, 2034. As of January 31, 2020, interest on this note accrued at a rate of 10.75%.
iv.
The Mount Snow Secured Note. The $51.1 million Mount Snow Secured Note provides for interest payments through its maturity on December 1, 2034. As of January 31, 2020, 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 January 31, 2020, 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 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 January 31, 2020. 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 January 31, 2020 the Company had funded the EPR debt service reserve account in an amount equal to approximately $3.4 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.

16



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 January 31, 2020 reflected by fiscal year (August 1 through July 31) are as follows (in thousands):
 
Total
2020 (February 2020 through July 2020)
$
37,998

2021
63,640

2022
115,383

2023
63,736

2024
63,794

Thereafter
1,522,015

Total debt
$
1,866,566


The Company recorded gross interest expense of $26.1 million and $21.0 million for the three months ended January 31, 2020 and 2019, respectively, of which $0.3 million and $0.4 million, respectively, were amortization of deferred financing costs. The Company recorded gross interest expense of $48.8 million and $39.6 million for the six months ended January 31, 2020 and 2019, respectively, of which $0.7 million were amortization of deferred financing costs in both periods. The Company was in compliance with all of its financial and operating covenants required to be maintained under its debt instruments for all periods presented.

In connection with the 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 $0.8 million and $0.4 million, respectively, of non-cash foreign currency loss on the intercompany loan to Whistler Blackcomb for the three and six months ended January 31, 2020 on the Company’s Consolidated Condensed Statements of Operations. The Company recognized approximately $0.5 million and $(1.9) million, respectively, of non-cash foreign currency gain (loss) on the intercompany loan to Whistler Blackcomb for the three and six months ended January 31, 2019 on the Company’s Consolidated Condensed Statements of Operations.


17



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
$
19,578

Property, plant and equipment
427,793

Goodwill
146,259

Identifiable intangible assets
19,221

Other assets
16,203

Assumed long-term debt
(184,668
)
Other liabilities
(109,656
)
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 $2.4 million of acquisition related expenses associated with the transaction within Mountain and Lodging operating expense in its Consolidated Condensed Statement of Operations for the six months ended January 31, 2020. The operating results of Peak Resorts are reported within the Mountain and Lodging segments prospectively from the date of acquisition.

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).

18



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 Mountain and Lodging operating expense in its Consolidated Condensed Statement of Operations for the six months ended January 31, 2019. The operating results of Stevens Pass are reported within the Mountain segment prospectively from the date of acquisition.

Triple Peaks
On September 27, 2018, the Company, through a wholly-owned subsidiary, acquired Triple Peaks, LLC (“Triple Peaks”), the parent company of Okemo Mountain Resort in Vermont, Crested Butte Mountain Resort in Colorado, and Mount Sunapee Resort in New Hampshire, for a cash purchase price of approximately $74.1 million, after adjustments for certain agreed-upon terms. In addition, contemporaneous with the closing of the transaction, Triple Peaks paid $155.0 million to pay the remaining obligations

19



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 six months ended January 31, 2019. The operating results of Triple Peaks are reported within the Mountain and Lodging segments prospectively from the date of acquisition.

The estimated fair values of assets acquired and liabilities assumed in the acquisitions of 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 operations or the results that would have occurred had the transaction taken place on August 1, 2018 (in thousands, except per share amounts).


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Three Months Ended January 31,
 
2019
Pro forma net revenue
$
935,410

Pro forma net income attributable to Vail Resorts, Inc.
$
220,499

Pro forma basic net income per share attributable to Vail Resorts, Inc.
$
5.57

Pro forma diluted net income per share attributable to Vail Resorts, Inc.
$
5.36


 
Six Months Ended January 31,
 
2020
2019
Pro forma net revenue
$
1,199,067

$
1,195,296

Pro forma net income attributable to Vail Resorts, Inc.
$
95,850

$
99,569

Pro forma basic net income per share attributable to Vail Resorts, Inc.
$
2.38

$
2.46

Pro forma diluted net income per share attributable to Vail Resorts, Inc.
$
2.34

$
2.41



8.    Supplementary Balance Sheet Information
The composition of property, plant and equipment follows (in thousands):
 
 
January 31, 2020
 
July 31, 2019
 
January 31, 2019
Land and land improvements
 
$
749,669

 
$
619,561

 
$
617,492

Buildings and building improvements
 
1,475,415

 
1,284,438

 
1,280,972

Machinery and equipment
 
1,253,476

 
1,160,817

 
1,139,443

Furniture and fixtures
 
450,903

 
309,271

 
323,406

Software
 
121,390

 
118,815

 
122,038

Vehicles
 
70,820

 
65,556

 
65,642

Construction in progress
 
53,325

 
79,282

 
23,342

Gross property, plant and equipment
 
4,174,998

 
3,637,740

 
3,572,335

Accumulated depreciation
 
(1,911,217
)
 
(1,795,240
)
 
(1,741,248
)
Property, plant and equipment, net
 
$
2,263,781

 
$
1,842,500

 
$
1,831,087



The composition of accounts payable and accrued liabilities follows (in thousands): 
 
 
January 31, 2020
 
July 31, 2019
 
January 31, 2019
Trade payables
 
$
126,836

 
$
96,377

 
$
106,183

Deferred revenue
 
426,672

 
335,669

 
346,356

Accrued salaries, wages and deferred compensation
 
48,591

 
50,318

 
66,090

Accrued benefits
 
46,622

 
37,797

 
37,991

Deposits
 
63,432

 
32,108

 
52,867

Other liabilities
 
99,344

 
55,588

 
76,249

Total accounts payable and accrued liabilities
 
$
811,497

 
$
607,857

 
$
685,736



The composition of other long-term liabilities follows (in thousands):
 
 
January 31, 2020
 
July 31, 2019
 
January 31, 2019
Private club deferred initiation fee revenue