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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
https://cdn.kscope.io/21545f6b13f5f0f61f4a22557cb311e7-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).
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.




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:
https://cdn.kscope.io/21545f6b13f5f0f61f4a22557cb311e7-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
%


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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 re