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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 April 30, 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/205dc64c5938da297fec7d4d6ad6378b-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 June 1, 2020, 40,122,243 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)
 
 
April 30, 2020
 
July 31, 2019
 
April 30, 2019
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
482,656

 
$
108,850

 
$
59,636

Restricted cash
 
10,459

 
9,539

 
8,876

Trade receivables, net
 
100,225

 
270,896

 
273,108

Inventories, net
 
101,748

 
96,539

 
84,059

Other current assets
 
55,790

 
42,116

 
41,177

Total current assets
 
750,878

 
527,940

 
466,856

Property, plant and equipment, net (Note 8)
 
2,201,803

 
1,842,500

 
1,847,434

Real estate held for sale and investment
 
96,565

 
101,021

 
101,251

Goodwill, net (Note 8)
 
1,673,258

 
1,608,206

 
1,596,867

Intangible assets, net
 
310,033

 
306,173

 
306,489

Operating right-of-use assets (Note 4)
 
217,318

 

 

Other assets
 
39,797

 
40,237

 
42,837

Total assets
 
$
5,289,652

 
$
4,426,077

 
$
4,361,734

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable and accrued liabilities (Note 8)
 
$
449,274

 
$
607,857

 
$
543,060

Income taxes payable
 
42,554

 
62,760

 
23,290

Long-term debt due within one year (Note 6)
 
63,566

 
48,516

 
48,504

Total current liabilities
 
555,394

 
719,133

 
614,854

Long-term debt, net (Note 6)
 
2,365,372

 
1,527,744

 
1,310,870

Operating lease liabilities (Note 4)
 
209,321

 

 

Other long-term liabilities (Note 8)
 
251,464

 
283,601

 
268,350

Deferred income taxes, net
 
277,841

 
168,759

 
274,306

Total liabilities
 
3,659,392

 
2,699,237

 
2,468,380

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, 46,266, 46,190 and 46,105 shares issued, respectively
 
462

 
461

 
461

Exchangeable shares, $0.01 par value, 54, 56 and 56 shares issued and outstanding, respectively (Note 5)
 
1

 
1

 
1

Additional paid-in capital
 
1,136,139

 
1,130,083

 
1,140,099

Accumulated other comprehensive loss
 
(109,576
)
 
(31,730
)
 
(36,540
)
Retained earnings
 
799,508

 
759,801

 
920,327

Treasury stock, at cost, 6,161, 5,905, and 5,905 shares, respectively (Note 12)
 
(404,411
)
 
(357,989
)
 
(357,989
)
Total Vail Resorts, Inc. stockholders’ equity
 
1,422,123

 
1,500,627

 
1,666,359

Noncontrolling interests
 
208,137

 
226,213

 
226,995

Total stockholders’ equity
 
1,630,260

 
1,726,840

 
1,893,354

Total liabilities and stockholders’ equity
 
$
5,289,652

 
$
4,426,077

 
$
4,361,734

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 April 30,
 
Nine Months Ended April 30,
 
2020
 
2019
 
2020
 
2019
Net revenue:
 
 
 
 
 
 
 
Mountain and Lodging services and other
$
582,890

 
$
800,816

 
$
1,516,679

 
$
1,631,957

Mountain and Lodging retail and dining
110,799

 
156,930

 
365,032

 
395,017

Resort net revenue
693,689

 
957,746

 
1,881,711

 
2,026,974

Real Estate
398

 
241

 
4,784

 
595

Total net revenue
694,087

 
957,987

 
1,886,495


2,027,569

Operating expense (exclusive of depreciation and amortization shown separately below):
 
 
 
 
 
 
 
Mountain and Lodging operating expense
285,764

 
349,647

 
902,316

 
894,392

Mountain and Lodging retail and dining cost of products sold
42,663

 
59,615

 
147,533

 
157,996

General and administrative
60,818

 
68,213

 
227,175

 
209,954

Resort operating expense
389,245

 
477,475

 
1,277,024

 
1,262,342

Real Estate operating expense
1,128

 
1,382

 
7,926

 
4,141

Total segment operating expense
390,373

 
478,857

 
1,284,950

 
1,266,483

Other operating (expense) income:
 
 
 
 
 
 
 
Depreciation and amortization
(64,730
)
 
(55,260
)
 
(186,387
)
 
(161,541
)
Gain on sale of real property

 
268

 
207

 
268

Asset impairments (Notes 2 & 8)
(28,372
)
 

 
(28,372
)
 

Change in estimated fair value of contingent consideration (Note 9)
8,000

 
(1,567
)
 
5,264

 
(3,467
)
(Loss) gain on disposal of fixed assets and other, net
(380
)
 
27

 
1,178

 
505

Income from operations
218,232

 
422,598

 
393,435

 
596,851

Mountain equity investment (loss) income, net
(90
)
 
445

 
1,270

 
1,555

Investment income and other, net
361

 
1,727

 
999

 
2,697

Foreign currency loss on intercompany loans (Note 6)
(7,753
)
 
(3,319
)
 
(8,191
)
 
(5,180
)
Interest expense, net
(24,479
)
 
(19,575
)
 
(73,303
)
 
(59,215
)
Income before provision for income taxes
186,271

 
401,876

 
314,210

 
536,708

Provision for income taxes
(26,440
)
 
(93,346
)
 
(47,190
)
 
(120,914
)
Net income
159,831

 
308,530

 
267,020

 
415,794

Net income attributable to noncontrolling interests
(7,285
)
 
(16,396
)
 
(14,579
)
 
(25,106
)
Net income attributable to Vail Resorts, Inc.
$
152,546

 
$
292,134

 
$
252,441

 
$
390,688

Per share amounts (Note 5):
 
 
 
 
 
 
 
Basic net income per share attributable to Vail Resorts, Inc.
$
3.79

 
$
7.26

 
$
6.26

 
$
9.68

Diluted net income per share attributable to Vail Resorts, Inc.
$
3.74

 
$
7.12

 
$
6.17

 
$
9.48

Cash dividends declared per share
$
1.76

 
$
1.76

 
$
5.28

 
$
4.70

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
April 30,
 
Nine Months Ended
April 30,
 
 
2020
 
2019
 
2020
 
2019
Net income
 
$
159,831

 
$
308,530

 
$
267,020

 
$
415,794

Foreign currency translation adjustments, net of tax
 
(69,235
)
 
(30,089
)
 
(78,260
)
 
(44,862
)
Change in estimated fair value of hedging instruments
 
(16,450
)
 

 
(21,013
)
 

Comprehensive income
 
74,146


278,441

 
167,747

 
370,932

Comprehensive loss (income) attributable to noncontrolling interests
 
12,924

 
(8,898
)
 
6,848

 
(14,557
)
Comprehensive income attributable to Vail Resorts, Inc.
 
$
87,070

 
$
269,543

 
$
174,595

 
$
356,375

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, January 31, 2019
$
461

$
1

$
1,135,709

$
(13,949
)
$
699,045

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

$
219,817

$
1,683,095

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income




292,134


292,134

16,396

308,530

Foreign currency translation adjustments, net of tax



(22,591
)


(22,591
)
(7,498
)
(30,089
)
Total comprehensive income
 
 
 
 
 
 
269,543

8,898

278,441

Stock-based compensation expense


4,886




4,886


4,886

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


(496
)



(496
)

(496
)
Dividends (Note 5)




(70,852
)

(70,852
)

(70,852
)
Distributions to noncontrolling interests, net







(1,720
)
(1,720
)
Balance, April 30, 2019
$
461

$
1

$
1,140,099

$
(36,540
)
$
920,327

$
(357,989
)
$
1,666,359

$
226,995

$
1,893,354

 
 
 
 
 
 
 
 
 
 
Balance, January 31, 2020
$
462

$
1

$
1,130,906

$
(44,100
)
$
717,646

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

$
224,716

$
1,650,198

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Net income




152,546


152,546

7,285

159,831

Foreign currency translation adjustments, net of tax



(49,026
)


(49,026
)
(20,209
)
(69,235
)
Change in estimated fair value of hedging instruments



(16,450
)


(16,450
)

(16,450
)
Total comprehensive income (loss)
 
 
 
 
 
 
87,070

(12,924
)
74,146

Stock-based compensation expense


5,338




5,338


5,338

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


(105
)



(105
)

(105
)
Repurchase of common stock (Note 12)





(24,978
)
(24,978
)

(24,978
)
Dividends (Note 5)




(70,684
)

(70,684
)

(70,684
)
Distributions to noncontrolling interests, net







(3,655
)
(3,655
)
Balance, April 30, 2020
$
462

$
1

$
1,136,139

$
(109,576
)
$
799,508

$
(404,411
)
$
1,422,123

$
208,137

$
1,630,260


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




390,688


390,688

25,106

415,794

Foreign currency translation adjustments, net of tax



(34,313
)


(34,313
)
(10,549
)
(44,862
)
Total comprehensive income
 
 
 
 
 
 
356,375

14,557

370,932

Stock-based compensation expense


14,786




14,786


14,786

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


(12,154
)



(12,153
)

(12,153
)
Repurchase of common stock (Note 12)





(85,000
)
(85,000
)

(85,000
)
Dividends (Note 5)




(189,566
)

(189,566
)

(189,566
)
Distributions to noncontrolling interests, net







(9,791
)
(9,791
)
Balance, April 30, 2019
$
461

$
1

$
1,140,099

$
(36,540
)
$
920,327

$
(357,989
)
$
1,666,359

$
226,995

$
1,893,354

 
 
 
 
 
 
 
 
 
 
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 (loss):
 
 
 
 
 
 
 
 
 
Net income




252,441


252,441

14,579

267,020

Foreign currency translation adjustments, net of tax



(56,833
)


(56,833
)
(21,427
)
(78,260
)
Change in estimated fair value of hedging instruments



(21,013
)


(21,013
)

(21,013
)
Total comprehensive income (loss)
 
 
 
 
 
 
174,595

(6,848
)
167,747

Stock-based compensation expense


16,127




16,127


16,127

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


(10,071
)



(10,070
)

(10,070
)
Repurchase of common stock (Note 12)





(46,422
)
(46,422
)

(46,422
)
Dividends (Note 5)




(212,734
)

(212,734
)

(212,734
)
Distributions to noncontrolling interests, net







(11,228
)
(11,228
)
Balance, April 30, 2020
$
462

$
1

$
1,136,139

$
(109,576
)
$
799,508

$
(404,411
)
$
1,422,123

$
208,137

$
1,630,260

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)
 
 
Nine Months Ended April 30,
 
 
2020
 
2019
Cash flows from operating activities:
 
 
 
 
Net income
 
$
267,020

 
$
415,794

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
186,387

 
161,541

Asset impairments
 
28,372

 

Stock-based compensation expense
 
16,127

 
14,786

Deferred income taxes, net
 
50,027

 
125,803

Change in estimated fair value of contingent consideration
 
(5,264
)
 
3,467

Foreign exchange loss on intercompany loans
 
8,191

 
5,180

Other non-cash income, net
 
(11,532
)
 
(6,485
)
Changes in assets and liabilities:
 
 
 
 
Trade receivables, net
 
172,735

 
(37,146
)
Inventories, net
 
(3,160
)
 
5,170

Accounts payable and accrued liabilities
 
(85,346
)
 
1,013

Deferred revenue
 
(132,366
)
 
(2,746
)
Income taxes payable - excess tax benefit from share award exercises
 
(2,837
)
 
(4,890
)
Income taxes payable - other
 
(18,580
)
 
(22,403
)
Other assets and liabilities, net
 
(2,795
)
 
6,512

Net cash provided by operating activities
 
466,979

 
665,596

Cash flows from investing activities:
 

 
 
Capital expenditures
 
(145,772
)
 
(146,896
)
Acquisition of businesses, net of cash acquired
 
(327,555
)
 
(419,044
)
Other investing activities, net
 
6,849

 
13,286

Net cash used in investing activities
 
(466,478
)
 
(552,654
)
Cash flows from financing activities:
 

 
 
Proceeds from borrowings under Vail Holdings Credit Agreement
 
892,625

 
335,625

Proceeds from borrowings under Whistler Credit Agreement
 
202,304

 
7,667

Repayments of borrowings under Vail Holdings Credit Agreement
 
(396,250
)
 
(223,750
)
Repayments of borrowings under Whistler Credit Agreement
 
(39,044
)
 
(45,060
)
Employee taxes paid for share award exercises
 
(10,071
)
 
(12,153
)
Dividends paid
 
(212,734
)
 
(189,566
)
Repurchases of common stock
 
(46,422
)
 
(85,000
)
Other financing activities, net
 
(19,034
)
 
(12,408
)
Net cash provided by (used in) financing activities
 
371,374

 
(224,645
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
2,851

 
(4,825
)
Net increase (decrease) in cash, cash equivalents and restricted cash
 
374,726

 
(116,528
)
Cash, cash equivalents and restricted cash:
 
 
 
 
Beginning of period
 
118,389

 
185,040

End of period
 
$
493,115

 
$
68,512

Non-cash investing activities:
 
 
 
 
Accrued capital expenditures
 
$
11,727

 
$
13,508

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/205dc64c5938da297fec7d4d6ad6378b-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 predominantly from their respective local markets.

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


8



Vail Resorts Development Company (“VRDC”), a wholly-owned subsidiary, conducts the operations of the Company’s Real Estate segment, which owns, develops and sells real estate in and around the Company’s resort communities.

The Company’s mountain business and its lodging properties at or around the Company’s mountain resorts are seasonal in nature with peak operating seasons primarily from mid-November through mid-April in North America. The operating season at the Company’s Australian resorts, NPS concessionaire properties and golf courses generally occurs from June to early October.

2.     Summary of Significant Accounting Policies
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.

Goodwill and Intangible Assets The Company tests goodwill and indefinite-lived intangible assets for impairment annually (or more often, if necessary) as of May 1 and tests definite-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. As a result of the coronavirus (COVID-19) pandemic and the impact it has had on the Company’s operations during the three and nine months ended April 30, 2020, and the expected continuing impact of the pandemic on future operations, the Company determined that it was appropriate to test certain assets within its Colorado resort ground transportation company for impairment as of April 30, 2020. The Company’s testing for goodwill and indefinite-lived intangible asset impairment consists of a comparison of the estimated fair value of those assets with their net carrying values. If the net carrying value of the assets exceed their estimated fair value, an impairment will be recognized for indefinite-lived intangibles, including goodwill, in an amount equal to that excess; otherwise, no impairment loss is recognized. As further discussed in Note 8, the Company recorded an impairment of approximately $28.4 million related to its Colorado resort ground transportation company during the three and nine months ended April 30, 2020, which was recorded within asset impairments on the Company’s Consolidated Condensed Statements of Operations, with corresponding reductions to goodwill, net of $25.7 million and to intangible assets, net and property, plant and equipment, net of $2.7 million. See Note 8, Supplementary Balance Sheet Information, for additional information.

Fair Value of Financial Instruments— The recorded amounts for cash and cash equivalents, restricted cash, receivables, other current assets and accounts payable and accrued liabilities approximate fair value due to their short-term nature. The fair value of amounts outstanding under the Company’s credit agreements and the Employee Housing Bonds (as defined in Note 6, Long-Term Debt) approximate book value due to the variable nature of the interest rate, which is a market rate, associated with the debt. The estimated fair value of the 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 nine months ended April 30, 2020, have been estimated using analyses based on current borrowing rates for debt with similar remaining maturities and ratings (a Level 3 input). The carrying values, including any unamortized premium or discount, and estimated fair values of the EPR Secured Notes and EB-5 Development Notes as of April 30, 2020 are presented below (in thousands):
 
April 30, 2020
 
Carrying Value
Estimated Fair Value
EPR Secured Notes
$
137,739

$
131,086

EB-5 Development Notes
$
47,139

$
45,756



9




Income Taxes and Other Taxes— On March 27, 2020, in response to the COVID-19 pandemic, the U.S. government enacted legislation commonly referred to as the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The CARES Act includes various amendments to the U.S. tax code that impacted the Company’s accounting and reporting for income taxes during the three and nine months ended April 30, 2020 and the Company expects these amendments will continue to impact its accounting and reporting for income taxes in the future. The primary provisions of the CARES Act that the Company is continuing to evaluate include:
Allowing a carryback of the entire amount of eligible Federal net operating losses (“NOLs”) generated in calendar years 2018, 2019 and 2020 for up to five years prior to when such losses were incurred, representing a change from previous rules under the Tax Cuts & Jobs Act of 2017 (the “TCJA”), in which NOLs could not be carried back to prior years and utilization was limited to 80% of taxable income in future years. Under the CARES Act, the Company expects that it will be able to carry back its pre-existing NOLs to tax years prior to the enactment of the TCJA and obtain an incremental benefit related to the differential in federal tax rates between years that NOLs were generated and years that the NOLs will be carried back to.
Treatment of certain qualified improvement property (“QIP”) as 15-year property and allowing such QIP placed in service after December 31, 2017 to be eligible for bonus depreciation, which could incrementally add to its pre-existing NOLs; and
Increases in the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income for calendar years 2019 and 2020.
The CARES Act also provides refundable employee retention credits and defers the requirement to remit the employer-paid portion of social security payroll taxes. As a result, during the three and nine months ended April 30, 2020, the Company recorded a credit of approximately $6.5 million, which primarily offset Mountain and Lodging operating expense as a result of wages paid to employees who were not providing services. Additionally, the Company expects to defer payment of the employer-paid portion of social security payroll taxes through the end of calendar year 2020, and will remit such amounts in equal installments during calendar years 2021 and 2022.

The Company also recognized a credit of approximately $2.6 million during the three and nine months ended April 30, 2020 as a result of the recent Canada Emergency Wage Subsidy and Australian JobKeeper legislation for its Canadian and Australian employees, which primarily offset Mountain and Lodging operating expense.

The Company is still in the process of evaluating additional potential benefits that the CARES Act and other COVID-19 related legislation in Canada and Australia will have on the Company’s Consolidated Condensed Financial Statements.

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 April 30, 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 $16.5 million and $21.0 million, respectively, for the three and nine months ended April 30, 2020. As of April 30, 2020, the estimated fair value of the Interest Rate Swaps was a liability of approximately $21.0 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

10



payments. The Company includes options to extend a lease when it is reasonably certain that such options will be exercised. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. See Note 4, Leases for more information.

Recently Issued Accounting Standards
Adopted Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842),” which supersedes “Leases (Topic 840).” The standard requires lessees to recognize the assets and liabilities arising from all leases on the balance sheet, including those classified as operating leases under previous accounting guidance, and to disclose key information about leasing arrangements. The standard also allows for an accounting policy election not to recognize on the balance sheet lease assets and liabilities for leases with a term of 12 months or less. Under the new guidance, lessees are required to recognize a lease liability and an ROU asset on their balance sheets, while lessor accounting is largely unchanged. In July 2018, the FASB released ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” which, among other items, provided an additional and optional transition method. Under this method, an entity initially applies the standard at 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 nine months ended April 30, 2019 or Consolidated Condensed Statement of Cash Flows for the nine months ended April 30, 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.

In April 2020, the FASB issued clarifying guidance on accounting for certain lease concessions related to the effects of the COVID-19 pandemic under ASC Topic 842, allowing companies to make an election to either account for such lease concessions (i) in the period that they occur as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract) or (ii) ratably over the remainder of the lease term as modifications to the contract. The Company made a policy election to account for such lease concessions as though enforceable rights and obligations to make those concessions existed in the contracts and as a result, will account for concessions in the period in which they occur. This election did not have a material impact on the Company’s Consolidated Condensed Financial Statements for the three and nine months ended April 30, 2020.

Standards Being Evaluated
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," The ASU provides optional transition guidance, for a limited time, to companies that have contracts, hedging relationships or other transactions that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate which is expected to be discontinued because of reference rate reform. The amendments provide optional expedients

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and exceptions for applying GAAP to contracts, hedging relationships, and other transactions if certain criteria are met. The amendments in this update are effective as of March 12, 2020 through December 31, 2022. The amendments in this update may be applied as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. All other amendments should be applied on a prospective basis. The Company is in the process of evaluating the effect that the adoption of this standard will have on its Consolidated Condensed Financial Statements.

3.     Revenues
Revenue Recognition
As a result of the COVID-19 pandemic, the Company closed its North American destination mountain resorts, regional ski areas and retail stores beginning on March 15. 2020. To encourage the Company’s pass product holders to renew their pass purchases for next season following the early closures this spring, the Company announced a credit offer on April 27, 2020 for all existing 2019/2020 North American ski season pass product holders to purchase 2020/2021 North American ski season pass products at a discount (the “Credit Offer”). The Credit Offer discounts range from a minimum of 20% to a maximum of 80% for season pass holders, depending on the number of days the pass holder used their pass product during the 2019/2020 season and a credit, with no minimum, but up to 80% for multi-day pass products, such as the Epic Day Pass, based on total unused days. The Credit Offer was considered a contract modification and constitutes a material right to existing guests and, as such, represent a separate performance obligation to which the Company allocated a transaction price of approximately $120.9 million. As a result, the Company deferred $120.9 million of pass product revenue, which would have been recognized as lift revenue during the year ending July 31, 2020, primarily during the quarter ended April 30, 2020. The revenue will be recognized once the performance obligation associated with the Credit Offer is satisfied, which the Company expects will be primarily in the second and third fiscal quarters of the fiscal year ending July 31, 2021, or earlier if the Credit Offer expires unredeemed. In addition, as a result of the pass product revenue deferral, the Company also deferred approximately $2.9 million of the associated costs of obtaining a contract (primarily credit card processing fees), which will be recognized commensurate with the associated deferred revenue.
The Company estimated the standalone selling price of the Credit Offer by utilizing historical pass holder renewal data to estimate the total amount of credits that are expected to be redeemed. Estimates and assumptions made regarding expected renewal rates impact the estimate of the transaction price allocated to the Credit Offer and could vary materially from the amount of revenue deferred depending upon actual customer redemptions.


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Disaggregation of Revenues
The following table presents net revenues disaggregated by segment and major revenue type for the three and nine months ended April 30, 2020 and 2019 (in thousands):
 
 
Three Months Ended April 30,
 
Nine Months Ended April 30,
 
 
2020
 
2019
 
2020
 
2019
Mountain net revenue:
 
 
 
 
 
 
 
 
Lift
 
$
374,818

 
$
526,881

 
$
900,995

 
$
999,124

Ski School
 
76,563

 
110,755

 
187,840

 
207,271

Dining
 
61,632

 
78,928

 
158,980

 
162,629

Retail/Rental
 
78,133

 
114,082

 
259,761

 
285,860

Other
 
44,158

 
47,252

 
154,105

 
144,093

Total Mountain net revenue
 
$
635,304

 
$
877,898

 
$
1,661,681

 
$
1,798,977

Lodging net revenue:
 
 
 
 
 
 
 
 
     Owned hotel rooms
 
$
8,126

 
$
12,352

 
$
39,323

 
$
43,499

Managed condominium rooms
 
23,744

 
30,671

 
69,984

 
69,835

Dining
 
8,099

 
11,067

 
37,353

 
37,385

Transportation
 
5,672

 
8,578

 
15,748

 
18,774

Golf
 

 

 
10,606

 
9,628

Other
 
9,775

 
13,278

 
37,411

 
37,697

 
 
55,416

 
75,946

 
210,425

 
216,818

Payroll cost reimbursements
 
2,969

 
3,902

 
9,605

 
11,179

Total Lodging net revenue
 
$
58,385

 
$
79,848

 
$
220,030

 
$
227,997

Total Resort net revenue
 
$
693,689

 
$
957,746

 
$
1,881,711

 
$
2,026,974

Total Real Estate net revenue
 
398

 
241

 
4,784

 
595

Total net revenue
 
$
694,087

 
$
957,987

 
$
1,886,495

 
$
2,027,569

Contract Balances
Deferred revenue balances of a short-term nature were $219.4 million and $335.7 million as of April 30, 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 $124.5 million and $124.3 million as of April 30, 2020 and July 31, 2019, respectively. For the three and nine months ended April 30, 2020, the Company recognized approximately $83.5 million and $263.4 million, respectively, of revenue that was included in the deferred revenue balance as of July 31, 2019. As of April 30, 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 $100.2 million and $270.9 million as of April 30, 2020 and July 31, 2019, respectively.

Costs to Obtain Contracts with Customers
As of April 30, 2020, $3.1 million of costs to obtain contracts with customers were recorded within other current assets on the Company’s Consolidated Condensed Balance Sheet. The amounts capitalized are subject to amortization commensurate with the revenue recognized for skier visits. The Company recorded amortization of $4.0 million and $11.0 million for these costs during the three and nine months ended April 30, 2020, which was recorded within Mountain and Lodging operating expenses on the Company’s Consolidated Condensed Statements of Operations.


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4.     Leases
The Company’s operating leases consist primarily of commercial and retail space, office space, employee residential units, vehicles and other equipment. The Company determines if an arrangement is or contains a lease at contract inception or modification. The Company’s lease contracts generally range from 1 year to 60 years, with some lease contracts containing one or more lease extension options, exercisable at the Company’s discretion. The Company generally does not include these lease extension options in the initial lease term as it is not reasonably certain that it will exercise such options at contract inception. In addition, certain lease arrangements contain fixed and variable lease payments. The variable lease payments are primarily contingent rental payments based on: (i) a percentage of revenue related to the leased property; (ii) payments based on a percentage of sales over contractual levels; or (iii) lease payments adjusted for changes in an index or market value. These variable lease payments are typically recognized when the underlying event occurs and are included in operating expenses in the Company's Consolidated 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 nine months ended April 30, 2020, were as follows (in thousands):
 
 
Three Months Ended
April 30, 2020
 
Nine Months Ended
April 30, 2020
Finance leases:
 
 
 
 
Amortization of the finance ROU assets
 
$
2,438

 
$
7,314

Interest on lease liabilities
 
$
8,509

 
$
25,526

Operating leases:
 
 
 
 
Operating lease expense

$
10,815

 
$
32,496

Short-term lease expense1
 
$
3,235

 
$
11,116

Variable lease (credit) expense

$
(911
)
 
$
1,270

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 nine months ended April 30, 2020 (in thousands):
 
 
Nine Months Ended
April 30, 2020
Cash flow supplemental information:
 
 
Operating cash outflows for operating leases
 
$
48,252

Operating cash outflows for finance leases
 
$
22,245

Financing cash outflows for finance leases
 
$
5,387



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Weighted-average remaining lease terms and discount rates are as follows:
 
 
As of April 30, 2020
Weighted-average remaining lease term (in years)
 
 
Operating leases
 
10.7

Finance leases
 
43.1

Weighted-average discount rate
 
 
Operating leases