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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2019
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-09614
https://cdn.kscope.io/0b8ef675573e396fe15730334e91cb68-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) 
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.    ý  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).    ý  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
 
ý
  
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    ý  No
As of March 4, 2019, 40,196,699 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, 2019
 
July 31, 2018
 
January 31, 2018
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
158,561

 
$
178,145

 
$
235,460

Restricted cash
 
20,762

 
6,895

 
23,566

Trade receivables, net
 
87,721

 
230,829

 
85,428

Inventories, net
 
103,010

 
85,588

 
97,480

Other current assets
 
45,212

 
37,279

 
39,075

Total current assets
 
415,266

 
538,736

 
481,009

Property, plant and equipment, net (Note 7)
 
1,831,087

 
1,627,219

 
1,702,213

Real estate held for sale and investment
 
101,730

 
99,385

 
103,212

Goodwill, net (Note 7)
 
1,547,084

 
1,475,686

 
1,533,980

Intangible assets, net
 
305,885

 
280,572

 
293,149

Other assets
 
43,870

 
43,386

 
43,243

Total assets
 
$
4,244,922

 
$
4,064,984

 
$
4,156,806

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable and accrued liabilities (Note 7)
 
$
685,736

 
$
504,533

 
$
588,563

Income taxes payable
 
27,544

 
50,632

 
32,497

Long-term debt due within one year (Note 5)
 
48,493

 
38,455

 
38,433

Total current liabilities
 
761,773

 
593,620

 
659,493

Long-term debt, net (Note 5)
 
1,345,262

 
1,234,277

 
1,182,349

Other long-term liabilities (Note 7)
 
274,998

 
291,506

 
289,793

Deferred income taxes, net
 
179,794

 
133,918

 
144,393

Total liabilities
 
2,561,827

 
2,253,321

 
2,276,028

Commitments and contingencies (Note 9)
 


 


 


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, 46,101, 46,021 and 45,857 shares issued, respectively
 
461

 
460

 
458

Exchangeable shares, $0.01 par value, 57, 58 and 60 shares issued and outstanding, respectively (Note 4)
 
1

 
1

 
1

Additional paid-in capital
 
1,135,709

 
1,137,467

 
1,160,243

Accumulated other comprehensive (loss) income
 
(13,949
)
 
(2,227
)
 
58,750

Retained earnings
 
699,045

 
726,722

 
673,065

Treasury stock, at cost, 5,905, 5,552, and 5,436 shares, respectively (Note 11)
 
(357,989
)
 
(272,989
)
 
(247,189
)
Total Vail Resorts, Inc. stockholders’ equity
 
1,463,278

 
1,589,434

 
1,645,328

Noncontrolling interests
 
219,817

 
222,229

 
235,450

Total stockholders’ equity
 
1,683,095

 
1,811,663

 
1,880,778

Total liabilities and stockholders’ equity
 
$
4,244,922

 
$
4,064,984

 
$
4,156,806

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,
 
2019
 
2018
 
2019
 
2018
Net revenue:
 
 
 
 
 
 
 
Mountain and Lodging services and other
$
687,119

 
$
594,372

 
$
831,141

 
$
737,720

Mountain and Lodging retail and dining
162,203

 
140,069

 
238,087

 
216,935

Resort net revenue
849,322

 
734,441

 
1,069,228

 
954,655

Real Estate
256

 
134

 
354

 
770

Total net revenue
849,578

 
734,575

 
1,069,582


955,425

Operating expense (exclusive of depreciation and amortization shown separately below):
 
 
 
 
 
 
 
Mountain and Lodging operating expense
350,633

 
297,503

 
544,745

 
478,779

Mountain and Lodging retail and dining cost of products sold
63,505

 
57,237

 
98,381

 
92,916

General and administrative
77,362

 
70,736

 
141,741

 
128,599

Resort operating expense
491,500

 
425,476

 
784,867

 
700,294

Real Estate operating expense
1,389

 
1,207

 
2,759

 
2,898

Total segment operating expense
492,889

 
426,683

 
787,626

 
703,192

Other operating (expense) income:
 
 
 
 
 
 
 
Depreciation and amortization
(55,238
)
 
(51,404
)
 
(106,281
)
 
(100,028
)
Gain on sale of real property
—

 
515

 
—

 
515

Change in estimated fair value of contingent consideration (Note 8)
(700
)
 
—

 
(1,900
)
 
—

Gain on disposal of fixed assets and other, net
1,097

 
538

 
478

 
1,105

Income from operations
301,848

 
257,541

 
174,253

 
153,825

Mountain equity investment income (loss), net
160

 
(35
)
 
1,110

 
487

Investment income and other, net
507

 
397

 
970

 
780

Foreign currency gain (loss) on intercompany loans (Note 5)
450

 
10,337

 
(1,861
)
 
2,991

Interest expense, net
(21,002
)
 
(15,973
)
 
(39,640
)
 
(31,147
)
Income before (provision) benefit from income taxes
281,963

 
252,267

 
134,832

 
126,936

(Provision) benefit from income taxes
(63,973
)
 
(3,594
)
 
(27,568
)
 
89,810

Net income
217,990

 
248,673

 
107,264

 
216,746

Net income attributable to noncontrolling interests
(11,641
)
 
(12,982
)
 
(8,710
)
 
(9,440
)
Net income attributable to Vail Resorts, Inc.
$
206,349

 
$
235,691

 
$
98,554

 
$
207,306

Per share amounts (Note 4):
 
 
 
 
 
 
 
Basic net income per share attributable to Vail Resorts, Inc.
$
5.12

 
$
5.82

 
$
2.44

 
$
5.14

Diluted net income per share attributable to Vail Resorts, Inc.
$
5.02

 
$
5.67

 
$
2.39

 
$
4.97

Cash dividends declared per share
$
1.47

 
$
1.053

 
$
2.94

 
$
2.106

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,
 
 
2019
 
2018
 
2019
 
2018
Net income
 
$
217,990

 
$
248,673

 
$
107,264

 
$
216,746

Foreign currency translation adjustments, net of tax
 
7,863

 
65,008

 
(14,773
)
 
19,603

Comprehensive income
 
225,853

 
313,681

 
92,491

 
236,349

Comprehensive income attributable to noncontrolling interests
 
(12,857
)
 
(29,831
)
 
(5,659
)
 
(14,688
)
Comprehensive income attributable to Vail Resorts, Inc.
 
$
212,996

 
$
283,850

 
$
86,832

 
$
221,661

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 Income (Loss)
Retained Earnings
Treasury Stock
Total Vail Resorts, Inc. Stockholders’ Equity
Noncontrolling Interests
Total Stockholders’ Equity
 
Vail Resorts
Exchangeable
 
 
 
 
 
 
 
Balance, July 31, 2017
$
454

$
1

$
1,222,510

$
44,395

$
550,985

$
(247,189
)
$
1,571,156

$
227,803

$
1,798,959

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
—

—

—

—

207,306

—

207,306

9,440

216,746

Foreign currency translation adjustments, net of tax
—

—

—

14,355

—

—

14,355

5,248

19,603

Total comprehensive income
 
 
 
 
 
 
221,661

14,688

236,349

Stock-based compensation expense
—

—

9,412

—

—

—

9,412

—

9,412

Measurement period adjustment
—

—

—

—

—

—

—

(1,776
)
(1,776
)
Issuance of shares under share award plans, net of shares withheld for employee taxes
4

—

(71,679
)
—

—

—

(71,675
)
—

(71,675
)
Dividends (Note 4)
—

—

—

—

(85,226
)
—

(85,226
)
—

(85,226
)
Distributions to noncontrolling interests, net
—

—

—

—

—

—

—

(5,265
)
(5,265
)
Balance, January 31, 2018
$
458

$
1

$
1,160,243

$
58,750

$
673,065

$
(247,189
)
$
1,645,328

$
235,450

$
1,880,778

 
 
 
 
 
 
 
 
 
 
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 (Notes 2 & 3)
—

—

—

—

(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 11)
—

—

—

—

—

(85,000
)
(85,000
)
—

(85,000
)
Dividends (Note 4)
—

—

—

—

(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

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

5


Vail Resorts, Inc.
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
Six Months Ended January 31,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net income
 
$
107,264

 
$
216,746

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
106,281

 
100,028

Stock-based compensation expense
 
9,900

 
9,412

Deferred income taxes, net
 
32,279

 
(36,728
)
Other non-cash income, net
 
(345
)
 
(6,994
)
Changes in assets and liabilities:
 
 
 
 
Trade receivables, net
 
145,305

 
103,691

Inventories, net
 
(14,398
)
 
(11,541
)
Accounts payable and accrued liabilities
 
97,083

 
73,148

Deferred revenue
 
48,061

 
52,240

Income taxes payable - excess tax benefit from share award exercises
 
(4,711
)
 
(53,081
)
Income taxes payable - other
 
(18,000
)
 
(12,623
)
Other assets and liabilities, net
 
(2,538
)
 
(550
)
Net cash provided by operating activities
 
506,181

 
433,748

Cash flows from investing activities:
 

 
 
Capital expenditures
 
(113,531
)
 
(87,367
)
Acquisition of businesses, net of cash acquired
 
(292,610
)
 
(1,356
)
Cash received from the sale of real property
 
—

 
515

Other investing activities, net
 
1,817

 
6,443

Net cash used in investing activities
 
(404,324
)
 
(81,765
)
Cash flows from financing activities:
 

 
 
Proceeds from borrowings under Vail Holdings Credit Agreement
 
335,625

 
95,000

Proceeds from borrowings under Whistler Credit Agreement
 
7,667

 
11,920

Repayments of borrowings under Vail Holdings Credit Agreement
 
(211,875
)
 
(133,750
)
Repayments of borrowings under Whistler Credit Agreement
 
(11,193
)
 
(29,140
)
Employee taxes paid for share award exercises
 
(11,657
)
 
(71,675
)
Dividends paid
 
(118,714
)
 
(85,226
)
Repurchases of common stock
 
(85,000
)
 
—

Other financing activities, net
 
(9,864
)
 
(9,277
)
Net cash used in financing activities
 
(105,011
)
 
(222,148
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
(2,563
)
 
1,529

Net (decrease) increase in cash, cash equivalents and restricted cash
 
(5,717
)
 
131,364

Cash, cash equivalents and restricted cash:
 
 
 
 
Beginning of period
 
185,040

 
127,662

End of period
 
$
179,323

 
$
259,026

Non-cash investing activities:
 
 
 
 
Accrued capital expenditures
 
$
22,731

 
$
12,097

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

6


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

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

In the Mountain segment, the Company operates the following fifteen world-class mountain resort properties and three urban ski areas:
Mountain Resorts:
 
Location:
1.
Vail Mountain Resort (“Vail Mountain”)
 
Colorado
2.
Breckenridge Ski Resort (“Breckenridge”)
 
Colorado
3.
Keystone Resort (“Keystone”)
 
Colorado
4.
Beaver Creek Resort (“Beaver Creek”)
 
Colorado
5.
Crested Butte Mountain Resort (“Crested Butte”)
 
Colorado
6.
Heavenly Mountain Resort (“Heavenly”)
 
Lake Tahoe area of Nevada and California
7.
Northstar Resort (“Northstar”)
 
Lake Tahoe area of California
8.
Kirkwood Mountain Resort (“Kirkwood”)
 
Lake Tahoe area of California
9.
Mount Sunapee Mountain Resort (“Mount Sunapee”)
 
New Hampshire
10.
Park City Resort (“Park City”)
 
Utah
11.
Stowe Mountain Resort (“Stowe”)
 
Vermont
12.
Okemo Mountain Resort (“Okemo”)
 
Vermont
13.
Stevens Pass Mountain Resort (“Stevens Pass”)
 
Washington
14.
Whistler Blackcomb Resort (“Whistler Blackcomb”)
 
British Columbia, Canada
15.
Perisher Ski Resort (“Perisher”)
 
New South Wales, Australia
Urban Ski Areas:
 
Location:
1.
Afton Alps Ski Area (“Afton Alps”)
 
Minnesota
2.
Mount Brighton Ski Area (“Mt. Brighton”)
 
Michigan
3.
Wilmot Mountain (“Wilmot”)
 
Wisconsin

Additionally, the Mountain segment includes ancillary services, primarily including ski school, dining and retail/rental operations, and for Perisher, 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 Perisher are conducted pursuant to a long-term lease and license on land owned by the government of New South Wales, Australia. Okemo, Mount Sunapee and Stowe operate on land leased from the respective states in which the resorts are located and on land owned by the Company.

In the Lodging segment, the Company owns and/or manages a collection of luxury hotels and condominiums under its RockResorts brand, as well as other strategic lodging properties and a large number of condominiums located in proximity to the Company’s North American mountain resorts, National Park Service (“NPS”) concessionaire properties including the Grand Teton Lodge Company (“GTLC”), which operates destination resorts in Grand Teton National Park, a Colorado resort ground transportation company and mountain resort golf courses.

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

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


7


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, 2018. 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, 2018 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.

Revenue Recognition— The Company recognizes revenues from contracts with customers when or as control of goods or services promised in the contracts is transferred in an amount that reflects consideration to which it expects to be entitled to in exchange for those goods or services. The Company determines the appropriate revenue recognition for contracts with customers by analyzing the type, terms and conditions of contracts or arrangements with customers. Certain contracts with customers contain multiple performance obligations in which case revenue is allocated to each distinct and separate performance obligation based on its relative standalone selling price. See Note 3, Revenues, for more information.

Recently Issued Accounting Standards
Adopted Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in Topic 605. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Subsequent to the issuance of ASU 2014-09, the FASB issued several amendments, which did not change the core principle of the guidance and were intended to clarify and improve understanding of certain topics included within the revenue standard. On August 1, 2018, the Company adopted this standard using the modified retrospective transition method for contracts which were not completed as of August 1, 2018. In accordance with this transition method, results for reporting periods beginning after August 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historical accounting methodology under Topic 605. On August 1, 2018, as a result of adopting this standard, the Company recorded an approximate $7.5 million reduction of retained earnings with a corresponding increase in accounts payable and accrued liabilities, which was primarily associated with the measurement of the loyalty reward programs under the new standard at an estimated fair value of underlying products or services expected to be delivered to satisfy the Company’s obligations associated with such loyalty programs. The application of this standard had an immaterial impact on total net revenue and net income attributable to Vail Resorts, Inc. for the three and six months ended January 31, 2019.

8


In accordance with the new revenue recognition standard disclosure requirements, the impact of adoption of Topic 606 on the Consolidated Condensed Balance Sheet as of January 31, 2019 was as follows (in thousands):
 
As of January 31, 2019
Balance Sheet
Balances Without Adoption of Topic 606
Adjustments
As Reported
(Under Topic 606)
Liabilities
 
 
 
Accounts payable and accrued liabilities
$
677,683

$
8,053

$
685,736

Stockholders’ equity
 
 
 
Retained earnings
$
707,098

$
(8,053
)
$
699,045

 
 
 
 
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This standard provides guidance for eight targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The Company adopted this accounting standard on August 1, 2018, which did not have an impact on its consolidated condensed financial statements.

In November 2016, the FASB issued ASU No. 2016-18, “Restricted Cash,” which requires that a statement of cash flows present the change during a period for the total of cash, cash equivalents and restricted cash. Historically, under previous guidance, changes in restricted cash have been included within operating, investing or financing activities, which were eliminated under the new standard. The Company adopted this standard as of August 1, 2018, which required retrospective application to all periods presented. As a result, cash provided by operating activities during the six months ended January 31, 2018 increased by $12.8 million under the new guidance as compared to what was reported under the previously required guidance. Additionally, due to the inclusion of restricted cash in the beginning and end of period balances, cash, cash equivalents and restricted cash as of January 31, 2018 and July 31, 2017 increased $23.6 million and $10.3 million, respectively, as compared to what was reported under the previously required guidance. As of January 31, 2019, the Company’s restricted cash balance is primarily associated with customer reservations deposits that are required to be held in a trust pursuant to statutory requirements until such reservations are fulfilled.

Standards Being Evaluated
The authoritative guidance listed below is currently being evaluated for its impact to Company policies upon adoption as well as any significant implementation matters yet to be addressed.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which supersedes “Leases (Topic 840).” The standard requires lessees to recognize the assets and liabilities arising from all leases, including those classified as operating leases under previous accounting guidance, on the balance sheet and disclose key information about leasing arrangements. The standard also allows for an accounting policy election not to recognize on the balance sheet lease assets and liabilities for leases with a term of 12 months or less. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset on their balance sheets, while lessor accounting will be largely unchanged. The standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those years (the Company’s first quarter of fiscal 2020), and must be applied using a modified retrospective transition approach to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with early adoption permitted. The Company is currently evaluating the impacts the adoption of this accounting standard will have on the Company’s financial position or results of operations and cash flows and related disclosures. Additionally, the Company is evaluating the impacts of the standard beyond accounting, including system, data and process changes required to comply with the standard and has selected an information system application that will centralize the Company’s lease information and be utilized for accounting under the new standard.

3.     Revenues
Revenue Recognition
The following provides information about the Company’s composition of revenue recognized from contracts with customers and other revenues, the performance obligations under those contracts, and the significant judgments made in accounting for those contracts:
•
Mountain revenue is derived from a wide variety of sources, including, among other things: lift revenue, which includes sales of lift tickets and season passes; ski school revenue, which includes the revenue derived from ski school operations; dining revenue, which includes both casual and fine dining on-mountain operations; retail sales and equipment rentals; and other on-mountain revenue, which includes private ski club revenue (which includes both club dues and amortization

9


of initiation fees), marketing and internet advertising revenue, municipal services and lodging and transportation operations at Perisher. Revenue is recognized over time as performance obligations are satisfied as control of the good or service (e.g. access to ski areas, provision of ski school services, etc.) is transferred to the customer, except for the Company’s retail sales and dining operations revenues which are recognized at a point in time when performance obligations are satisfied by transferring control of the underlying goods to the customer. The Company records deferred revenue primarily related to the sale of season passes. Deferred revenue is recognized throughout the ski season as the Company’s performance obligations are satisfied as control of the service (e.g. access to ski areas throughout the ski season) is transferred to the customer. Transfer of control is based on an estimated number of season pass holder visits relative to total expected visits. Total expected visits are estimated based on historical data, and the Company believes this estimate provides a faithful depiction of its customers’ season pass usage. When sufficient historical data to determine usage patterns is not available, deferred revenue is recognized on a straight-line basis throughout the ski season. The Company also includes other sources of revenue, mostly related to commercial leasing, and employee housing leasing arrangements within other mountain revenue.

•
Lodging revenue is derived from a wide variety of sources, including, among other things: revenue from owned hotel rooms and managed hotel rooms; revenue from hotel dining operations; transportation revenue which relates to the Company’s Colorado resort ground transportation operations; and other lodging revenue which includes property management services, managed properties other costs reimbursements, private golf club revenue (which includes both club dues and amortization of initiation fees), and golf course fees. Lodging revenue also includes managed hotel property payroll cost reimbursements related to payroll costs at managed properties where the Company is the employer, which are reimbursed by the owner with no added margin. Therefore, these revenues and corresponding expenses have no net effect on the Company’s operating income or net income. Other than revenue from dining operations, lodging revenue is mostly recognized over time as performance obligations are satisfied as control of the service (e.g. nightly hotel room access) is transferred to the customer.

•
Real estate revenue primarily relates to the sale of development land parcels. Real estate revenue is generally recognized at a point in time when performance obligations have been satisfied, which is usually upon closing of the sales transaction and in an amount that reflects the consideration to which the Company expects to be entitled.

For certain contracts that have an original term length of one year or less, the Company uses the practical expedient applicable to such contracts and does not consider the time value of money. For contracts with an expected term in excess of one year, the Company has considered the provisions of Topic 606 in determining whether contracts contain a financing component.
The Company presents revenues in the accompanying consolidated condensed statements of operations, net of taxes, when collected from its customers that are remitted or payable to government taxing authorities, except when products are inclusive of taxes where applicable.


10


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, 2019 (in thousands):
 
 
Three Months Ended January 31,
 
Six Months Ended January 31,
 
 
2019
 
2018
 
2019
 
2018
Mountain net revenue:
 
 
 
 
 
 
 
 
Lift
 
$
447,558

 
$
381,912

 
$
472,243

 
$
407,380

Ski School
 
92,244

 
80,116

 
96,516

 
84,554

Dining
 
65,409

 
53,910

 
83,701

 
72,212

Retail/Rental
 
128,436

 
115,446

 
171,778

 
160,853

Other
 
42,426

 
39,518

 
96,841

 
94,028

Total Mountain net revenue
 
$
776,073

 
$
670,902

 
$
921,079

 
$
819,027

Lodging net revenue:
 
 
 
 
 
 
 
 
     Owned hotel rooms
 
$
11,548

 
$
11,353

 
$
31,147

 
$
30,988

Managed condominium rooms
 
28,046

 
23,358

 
39,164

 
33,529

Dining
 
10,189

 
7,869

 
26,318

 
23,749

Transportation
 
7,722

 
7,460

 
10,196

 
10,013

Golf
 
—

 
—

 
9,459

 
8,767

Other
 
12,120

 
9,914

 
24,588

 
21,688

 
 
69,625

 
59,954

 
140,872

 
128,734

Payroll cost reimbursements
 
3,624

 
3,585

 
7,277

 
6,894

Total Lodging net revenue
 
$
73,249

 
$
63,539

 
$
148,149

 
$
135,628

Total Resort net revenue
 
$
849,322

 
$
734,441

 
$
1,069,228

 
$
954,655

Total Real Estate net revenue
 
256

 
134

 
354

 
770

Total net revenue
 
$
849,578

 
$
734,575

 
$
1,069,582

 
$
955,425

 
 
 
Arrangements with Multiple Performance Obligations
Several of the Company’s contracts with customers include multiple performance obligations, primarily related to bundled services such as ski school packages, lodging packages and events (e.g. weddings and conferences). For such contracts, revenue is allocated to each distinct and separate performance obligation based on its relative standalone selling price. The standalone selling prices are generally based on observable prices charged to customers or estimated based on historical experience and information.

Contract Balances
Contract liabilities are recorded as deferred revenues when payments are received or due in advance of the Company’s performance, including amounts which may be refundable. The deferred revenue balance is primarily related to accounts receivable or cash payments received in advance of satisfying our performance obligations related to sales of season passes prior to the start of the ski season, private club initiation fees and other related advance purchase products, including advance purchase lift tickets, multiple-day lift tickets, ski school lessons, equipment rentals and lodging advance deposits. Due to the seasonality of the Company’s operations, its largest deferred revenue balances occur during the North American season pass selling window, which generally begins in the fourth quarter of its fiscal year. Deferred revenue balances of a short-term nature were $346.4 million and $282.1 million as of January 31, 2019 and July 31, 2018, respectively. Deferred revenue balances of a long-term nature, comprised primarily of long-term private club initiation fee revenue, were $125.4 million and $126.5 million as of January 31, 2019 and July 31, 2018, respectively. For the three and six months ended January 31, 2019, the Company recognized approximately $128.7 million and $155.2 million, respectively, of revenue that was included in the deferred revenue balance as of July 31, 2018. As of January 31, 2019, the weighted average remaining period over which revenue for unsatisfied performance obligations on long-term private club contracts will be recognized was approximately 17 years.
Contract assets are recorded as trade receivables when the right to consideration is unconditional. Trade receivable balances were $87.7 million and $230.8 million as of January 31, 2019 and July 31, 2018, respectively. Payments from customers are based on

11


billing terms established in the contracts with customers, which vary by the type of customer, the location and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, contracts require payment before the products are delivered or services are provided to the customer. Impairment losses related to contract assets are recognized through the Company’s allowance for doubtful accounts analysis. Contract asset write-offs are evaluated on an individual basis.

Costs to Obtain Contracts with Customers
The Company expects that credit card fees and sales commissions paid in order to obtain season ski pass products contracts are recoverable. Accordingly, the Company recognizes these amounts as assets when they are paid prior to the start of the ski season. As of January 31, 2019, $5.2 million of costs to obtain contracts with customers were recorded within other current assets on the Company’s Consolidated Condensed Balance Sheet. Deferred credit card fees and sales commissions are amortized commensurate with the recognition of season ski pass revenue. The Company recorded amortization of $5.4 million for these costs during the three months ended January 31, 2019, which were recorded within Mountain and Lodging operating expenses on the Company’s Consolidated Condensed Statement of Operations.
Utilizing the practical expedient provided for under Topic 606, the Company has elected to expense credit card fees and sales commissions related to non-season ski pass products and services as incurred, as the amortization period is generally one year or less for the time between customer purchase and utilization. These fees are recorded within Mountain and Lodging operating expenses on the Company’s Consolidated Condensed Statements of Operations.

4.
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.

Presented below is basic and diluted EPS for the three months ended January 31, 2019 and 2018 (in thousands, except per share amounts):
 
 
Three Months Ended January 31,
 
 
2019
 
2018
 
 
Basic
 
Diluted
 
Basic
 
Diluted
Net income per share:
 
 
 
 
 
 
 
 
Net income attributable to Vail Resorts
 
$
206,349

 
$
206,349

 
$
235,691

 
$
235,691

Weighted-average Vail Shares outstanding
 
40,271

 
40,271

 
40,414

 
40,414

Weighted-average Exchangeco Shares outstanding
 
57

 
57

 
61

 
61

Total Weighted-average shares outstanding
 
40,328

 
40,328

 
40,475

 
40,475

Effect of dilutive securities
 
—

 
798

 
—

 
1,119

Total shares
 
40,328

 
41,126

 
40,475

 
41,594

Net income per share attributable to Vail Resorts
 
$
5.12

 
$
5.02

 
$
5.82

 
$
5.67


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 56,000 and 5,000 for the three months ended January 31, 2019 and 2018, respectively.


12


Presented below is basic and diluted EPS for the six months ended January 31, 2019 and 2018 (in thousands, except per share amounts):
 
 
Six Months Ended January 31,
 
 
2019
 
2018
 
 
Basic
 
Diluted
 
Basic
 
Diluted
Net income per share:
 
 
 
 
 
 
 
 
Net income attributable to Vail Resorts
 
$
98,554

 
$
98,554

 
$
207,306

 
$
207,306

Weighted-average Vail Shares outstanding
 
40,359

 
40,359

 
40,281

 
40,281

Weighted-average Exchangeco Shares outstanding
 
57

 
57

 
62

 
62

Total Weighted-average shares outstanding
 
40,416

 
40,416

 
40,343

 
40,343

Effect of dilutive securities
 
—

 
870

 
—

 
1,346

Total shares
 
40,416

 
41,286

 
40,343

 
41,689

Net income per share attributable to Vail Resorts
 
$
2.44

 
$
2.39

 
$
5.14

 
$
4.97


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 40,000 and 5,000 for the six months ended January 31, 2019 and 2018, respectively.

Net income attributable to Vail Resorts decreased by approximately $108.8 million for the six months ended January 31, 2019 compared to the prior year primarily due to a decrease in excess tax benefits of $48.4 million, which resulted primarily from employee exercises of in-the-money stock appreciation rights, and a one-time, provisional net tax benefit of approximately $64.6 million recorded during the three and six months ended January 31, 2018, which was the result of comprehensive U.S. tax legislation, commonly referred to as the “Tax Act,” which was enacted by the U.S. government on December 22, 2017. Both of these items were recorded within (provision) benefit from income taxes on the Company’s Consolidated Condensed Statement of Operations.

Dividends
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). During the three and six months ended January 31, 2018, the Company paid cash dividends of $1.053 and $2.106 per share, respectively ($42.6 million and $85.2 million, respectively, in the aggregate). On March 7, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $1.76 per share for Vail Shares, payable on April 11, 2019 to stockholders of record as of March 27, 2019. Additionally, a Canadian dollar equivalent dividend on the Exchangeco Shares will be payable on April 11, 2019 to the shareholders of record on March 27, 2019.

5.    Long-Term Debt
Long-term debt, net as of January 31, 2019, July 31, 2018 and January 31, 2018 is summarized as follows (in thousands):
 
 
Maturity
 
January 31, 2019
 
July 31, 2018
 
January 31, 2018
Vail Holdings Credit Agreement term loan (a)
 
2023
 
$
938,125

 
$
684,375

 
$
703,125

Vail Holdings Credit Agreement revolver (a)
 
2023
 
—

 
130,000

 
30,000

Whistler Credit Agreement revolver (b)
 
2023
 
60,904

 
65,353

 
97,571

Employee housing bonds
 
2027-2039
 
52,575

 
52,575

 
52,575

Canyons obligation
 
2063
 
337,385

 
334,509

 
331,647

Other
 
2024-2028
 
8,656

 
9,270

 
9,590

Total debt
 
 
 
1,397,645

 
1,276,082

 
1,224,508

Less: Unamortized debt issuance costs
 
 
 
3,890

 
3,350

 
3,726

Less: Current maturities (c)
 
 
 
48,493

 
38,455

 
38,433

Long-term debt, net
 
 
 
$
1,345,262

 
$
1,234,277


$
1,182,349


(a)
On August 15, 2018, in order to fund the Stevens Pass and Triple Peaks acquisitions (see Note 6, Acquisitions), the Company’s wholly owned subsidiary, Vail Holdings, Inc. (“VHI”), entered into the Eighth Amended and Restated Credit Agreement (the “Vail Holdings Credit Agreement”), with Bank of America, N.A., as administrative agent, and other lenders named therein, through which these lenders agreed to provide an additional $265.6 million in incremental term loans and

13


agreed, on behalf of all lenders, to extend the maturity date for the outstanding term loans and revolver facility under the Vail Holdings Credit Agreement to August 15, 2023. The Vail Holdings Credit Agreement consists of a $400.0 million revolving credit facility and a $950.0 million term loan facility. VHI’s obligations under the Vail Holdings Credit Agreement are guaranteed by the Company and certain of its subsidiaries and are collateralized by a pledge of all the capital stock of VHI and substantially all of its subsidiaries (with certain additional exceptions for the pledge of the capital stock of foreign subsidiaries). In addition, pursuant to the terms of the Vail Holdings Credit Agreement, VHI has the ability to increase availability (under the revolver or in the form of term loans) to an aggregate principal amount not to exceed the greater of (i) $1.2 billion and (ii) the product of 2.75 and the trailing twelve-month Adjusted EBITDA, as defined in the Vail Holdings Credit Agreement. The term loan facility is subject to quarterly amortization of principal of approximately $11.9 million, which began on January 31, 2019, in equal installments, for a total of five percent of principal payable in each year and the final payment of all amounts outstanding, plus accrued and unpaid interest due in August 2023. 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, 2019 (4.00% as of January 31, 2019). Interest rate margins may fluctuate based upon the ratio of the Company’s Net Funded Debt to Adjusted EBITDA on a trailing four-quarter basis. The Vail Holdings Credit Agreement also includes a quarterly unused commitment fee, which is equal to a percentage determined by the Net Funded Debt to Adjusted EBITDA ratio, as each such term is defined in the Vail Holdings Credit Agreement, multiplied by the daily amount by which the Vail Holdings Credit Agreement commitment exceeds the total of outstanding loans and outstanding letters of credit (0.3% as of January 31, 2019). The unused amounts are accessible to the extent that the Net Funded Debt to Adjusted EBITDA ratio does not exceed the maximum ratio allowed at quarter-ends and the ratio of Adjusted EBITDA to interest on Funded Debt (as defined in the Vail Holdings Credit Agreement) does not fall below the minimum ratio allowed at quarter-ends. The Vail Holdings Credit Agreement provides for affirmative and negative covenants that restrict, among other things, the Company’s ability to incur indebtedness, dispose of assets, make capital expenditures, make distributions and make investments. In addition, the Vail Holdings Credit Agreement includes the following restrictive financial covenants: Net Funded Debt to Adjusted EBITDA ratio and Adjusted EBITDA to interest on Funded Debt ratio.
(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, 2019, the Company entered into an amendment of the Whistler Credit Agreement which extended the maturity date of the revolving credit facility to December 15, 2023. No other material terms of the Whistler Credit Agreement were altered. The WB Partnerships’ obligations under the Whistler Credit Agreement are guaranteed by the Whistler Subsidiary Guarantors and are collateralized by a pledge of the capital stock of the Whistler Subsidiary Guarantors and a pledge of substantially all of the assets of Whistler LP, Blackcomb LP and the Whistler Subsidiary Guarantors. In addition, pursuant to the terms of the Whistler Credit Agreement, the WB Partnerships have the ability to increase the commitment amount by up to C$75.0 million subject to lender approval. Borrowings under the Whistler Credit Agreement are available in Canadian or U.S. dollars and bear interest annually, subject to an applicable margin based on the WB Partnerships’ Consolidated Total Leverage Ratio (as defined in the Whistler Credit Agreement), with pricing as of January 31, 2019, in the case of borrowings (i) in Canadian dollars, at the WB Partnerships’ option, either (a) at the Canadian Prime Rate plus 0.75% per annum or (b) by way of the issuance of bankers’ acceptances plus 1.75% per annum; and (ii) in U.S. dollars, at the WB Partnerships option, either at (a) the U.S. Base Rate plus 0.75% per annum or (b) Bankers Acceptance Rate plus 1.75% per annum. As of January 31, 2019, all borrowings under the Whistler Credit Agreement were made in Canadian dollars and by way of the issuance of bankers’ acceptances plus 1.75% (approximately 3.92%). The Whistler Credit Agreement also includes a quarterly unused commitment fee based on the Consolidated Total Leverage Ratio, which as of January 31, 2019 is equal to 0.3937% per annum. The Whistler Credit Agreement provides for affirmative and negative covenants that restrict, among other things, the WB Partnerships’ ability to incur indebtedness and liens, dispose of assets, make capital expenditures, make distributions and make investments. In addition, the Whistler Credit Agreement includes the restrictive financial covenants (leverage ratios and interest coverage ratios) customary for facilities of this type.
(c)
Current maturities represent principal payments due in the next 12 months.


14


Aggregate maturities of debt outstanding as of January 31, 2019 reflected by fiscal year (August 1 through July 31) are as follows (in thousands):
 
Total
2019 (February 2019 through July 2019)
$
24,091

2020
48,516

2021
48,580

2022
48,648

2023
48,719

Thereafter
1,179,091

Total debt
$
1,397,645


The Company recorded gross interest expense of $21.0 million and $16.0 million for the three months ended January 31, 2019 and 2018, respectively, of which $0.4 million and $0.3 million, respectively were amortization of deferred financing costs. The Company recorded gross interest expense of $39.6 million and $31.1 million for the six months ended January 31, 2019 and 2018, respectively, of which $0.7 million and $0.6 million, respectively, were amortization of deferred financing costs. The Company was in compliance with all of its financial and operating covenants required to be maintained under its debt instruments for all periods presented.

In connection with the acquisition of Whistler Blackcomb 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 $0.5 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. The Company recognized approximately $10.3 million and $3.0 million, respectively, of non-cash foreign currency gains on the intercompany loan to Whistler Blackcomb for the three and six months ended January 31, 2018 on the Company’s Consolidated Condensed Statements of Operations. 

6.    Acquisitions
Stevens Pass Resort
On August 15, 2018, the Company, through a wholly-owned subsidiary, acquired Stevens Pass Resort in the State of Washington from Ski Resort Holdings, LLC, an affiliate of Oz Real Estate (“Ski Resort Holdings”), for total cash consideration of $64.0 million, after adjustments for certain agreed-upon terms. The Company borrowed $70.0 million on August 15, 2018 under its Vail Holdings Credit Agreement term loan (see Note 5, Long-Term Debt) to fund the transaction and associated acquisition related expenses. The acquisition included the mountain operations of the resort, including base area skier services (food and beverage, retail and rental, lift ticket offices and ski and snowboard school facilities).

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

Property, plant and equipment
34,865

Goodwill
28,878

Identifiable intangible assets
2,680

Deferred income taxes, net
886

Liabilities
(4,026
)
Net assets acquired
$
64,035


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

15


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.

Okemo Mountain Resort, Crested Butte Resort and Mount Sunapee Resort
On September 27, 2018, the Company, through a wholly-owned subsidiary, acquired Triple Peaks, LLC (“Triple Peaks”), the parent company of Okemo Mountain Resort in Vermont, Crested Butte Mountain Resort in Colorado, and Mount Sunapee Resort in New Hampshire, for a cash purchase price of approximately $74.1 million, after adjustments for certain agreed-upon terms. In addition, contemporaneous with the closing of the transaction, Triple Peaks paid $155.0 million to pay the remaining obligations of the leases that all three resorts had with Ski Resort Holdings, with funds provided by the Company. Accordingly, the total purchase price, including the repayment of lease obligations, was $229.1 million, for which the Company utilized cash on hand and borrowed $195.6 million under the Vail Holdings Credit Agreement term loan (see Note 5, Long-Term Debt) to fund the transaction and associated acquisition related expenses. The Company obtained a new Special Use Permit from the U.S. Forest Service for Crested Butte, and assumed the state land leases for Okemo and Mount Sunapee. The acquisition included the mountain operations of the resorts, including base area skier services (food and beverage, retail and rental, lift ticket offices and ski and snowboard school facilities).

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

Property, plant and equipment
159,799

Goodwill
52,706

Identifiable intangible assets
27,661

Deferred income taxes, net
3,522

Liabilities
(19,792
)
Net assets acquired
$
229,093


Identifiable intangible assets acquired in the transaction were primarily related to property management contracts and trade names. 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 Stevens Pass and Triple Peaks are preliminary and are based on the information that was available as of the respective acquisition dates. The Company believes that this information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed; however, the Company is obtaining additional information necessary to finalize those estimated fair values. Therefore, the preliminary measurements of estimated fair values reflected are subject to change. The Company expects to finalize the valuation and complete the purchase consideration allocation no later than one year from the acquisition date.

Pro Forma Financial Information
The following presents the unaudited pro forma consolidated financial information of the Company as if the acquisitions of Stevens Pass and Triple Peaks were completed on August 1, 2017, the beginning of the fiscal year preceding the fiscal year in which the acquisitions occurred. The following unaudited pro forma financial information includes adjustments for (i) depreciation on acquired property, plant and equipment; (ii) amortization of intangible assets recorded at the date of the transactions; (iii) lease expenses incurred by the prior owners which the Company will not be subject to; (iv) transaction and business integration related costs; and (v) interest expense associated with financing the transactions. This unaudited pro forma financial information is presented for informational purposes only and does not purport to be indicative of the results of future operations or the results that would have occurred had the transaction taken place on August 1, 2017 (in thousands, except per share amounts).

16


 
Three Months Ended January 31,
 
2018
Pro forma net revenue
$
788,466

Pro forma net income attributable to Vail Resorts, Inc.
$
242,039

Pro forma basic net income per share attributable to Vail Resorts, Inc.
$
5.98

Pro forma diluted net income per share attributable to Vail Resorts, Inc.
$
5.82


 
Six Months Ended January 31,
 
2019
2018
Pro forma net revenue
$
1,077,107

$
1,023,704

Pro forma net income attributable to Vail Resorts, Inc.
$
99,576

$
206,318

Pro forma basic net income per share attributable to Vail Resorts, Inc.
$
2.46

$
5.11

Pro forma diluted net income per share attributable to Vail Resorts, Inc.
$
2.41

$
4.95


7.    Supplementary Balance Sheet Information
The composition of property, plant and equipment follows (in thousands):
 
 
January 31, 2019
 
July 31, 2018
 
January 31, 2018
Land and land improvements
 
$
617,492

 
$
552,271

 
$
559,135

Buildings and building improvements
 
1,280,972

 
1,193,528

 
1,206,465

Machinery and equipment
 
1,139,443

 
1,007,250

 
1,046,134

Furniture and fixtures
 
323,406

 
283,694

 
298,932

Software
 
122,038

 
113,699

 
116,210

Vehicles
 
65,642

 
60,697

 
62,172

Construction in progress
 
23,342

 
59,579

 
25,556

Gross property, plant and equipment
 
3,572,335

 
3,270,718

 
3,314,604

Accumulated depreciation
 
(1,741,248
)
 
(1,643,499
)
 
(1,612,391
)
Property, plant and equipment, net
 
$
1,831,087

 
$
1,627,219

 
$
1,702,213


The composition of accounts payable and accrued liabilities follows (in thousands): 
 
 
January 31, 2019
 
July 31, 2018
 
January 31, 2018
Trade payables
 
$
106,183

 
$
80,793

 
$
94,680

Deferred revenue
 
346,356

 
282,103

 
292,336

Accrued salaries, wages and deferred compensation
 
66,090

 
40,034

 
52,329

Accrued benefits
 
37,991

 
33,963

 
35,109

Deposits
 
52,867

 
26,646

 
43,457

Other liabilities
 
76,249

 
40,994

 
70,652

Total accounts payable and accrued liabilities
 
$
685,736

 
$
504,533

 
$
588,563


The composition of other long-term liabilities follows (in thousands):
 
 
January 31, 2019
 
July 31, 2018
 
January 31, 2018
Private club deferred initiation fee revenue
 
$
112,065

 
$
114,319

 
$
116,726

Unfavorable lease obligation, net
 
20,450

 
21,839

 
23,309

Other long-term liabilities
 
142,483

 
155,348

 
149,758

Total other long-term liabilities
 
$
274,998

 
$
291,506

 
$
289,793



17


The changes in the net carrying amount of goodwill allocated between the Company’s segments for the six months ended January 31, 2019 are as follows (in thousands):
 
Mountain
Lodging
Goodwill, net
Balance at July 31, 2018
$
1,407,787

$
67,899

$
1,475,686

Acquisitions
81,584

—

81,584

Effects of changes in foreign currency exchange rates
(10,186
)
—

(10,186
)
Balance at January 31, 2019
$
1,479,185

$
67,899

$
1,547,084


8.    Fair Value Measurements
The FASB issued fair value guidance that establishes how reporting entities should measure fair value for measurement and disclosure purposes. The guidance establishes a common definition of fair value applicable to all assets and liabilities measured at fair value and prioritizes the inputs into valuation techniques used to measure fair value. Accordingly, the Company uses valuation techniques which maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value. The three levels of the hierarchy are as follows:

Level 1: Inputs that reflect unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities;

Level 2: Inputs include quoted prices for similar assets and liabilities in active and inactive markets or that are observable for the asset or liability either directly or indirectly; and

Level 3: Unobservable inputs which are supported by little or no market activity.


18


The table below summarizes the Company’s cash equivalents and Contingent Consideration measured at estimated fair value (all other assets and liabilities measured at fair value are immaterial) (in thousands). 
 
 
 
 
 
 
 
 
 
 
 
Estimated Fair Value Measurement as of January 31, 2019
Description
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Money Market
 
$
3,031

 
$
3,031

 
$
—

 
$
—

Commercial Paper
 
$
2,401

 
$
—

 
$
2,401

 
$
—

Certificates of Deposit
 
$
6,774

 
$
—

 
$
6,774

 
$
—

Liabilities:
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
23,733

 
$
—

 
$
—

 
$
23,733

 
 
 
 
 
 
 
 
 
 
 
Estimated Fair Value Measurement as of July 31, 2018
Description
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Money Market
 
$
3,021

 
$
3,021

 
$
—

 
$
—

Commercial Paper
 
$
2,401

 
$
—

 
$
2,401

 
$
—

Certificates of Deposit
 
$
11,249

 
$
—

 
$
11,249

 
$
—

Liabilities:
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
21,900

 
$
—

 
$
—

 
$
21,900

 
 
 
 
 
Estimated Fair Value Measurement as of January 31, 2018
Description
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Money Market
 
$
3,013

 
$
3,013

 
$
—

 
$
—

Commercial Paper
 
$
2,401

 
$
—

 
$
2,401

 
$
—

Certificates of Deposit
 
$
7,162

 
$
—

 
$
7,162

 
$
—

Liabilities:
 
 
 
 
 
 
 
 
Contingent Consideration
 
$
23,754

 
$
—

 
$
—

 
$
23,754


The Company’s cash equivalents are measured utilizing quoted market prices or pricing models whereby all significant inputs are either observable or corroborated by observable market data. 

The changes in Contingent Consideration during the six months ended January 31, 2019 and 2018 were as follows (in thousands):
 
 
 
 
 
Balance as of July 31, 2018 and 2017, respectively
 
$
21,900

 
$
27,400

Payments
 
(67
)
 
(3,646
)
Change in estimated fair value
 
1,900

 
—

Balance as of January 31, 2019 and 2018, respectively
 
$
23,733

 
$
23,754


The lease for Park City provides for participating contingent payments (the “Contingent Consideration”) to the landlord of 42% of the amount by which EBITDA for the Park City resort operations, as calculated under the lease, exceeds approximately $35 million, as established at the transaction date, with such threshold amount subsequently increased annually by an inflation linked index and a 10% adjustment for any capital improvements or investments made under the lease by the Company. The estimated fair value of Contingent Consideration includes the future period resort operations of Park City in the calculation of EBITDA on which participating contingent payments are made, which is determined on the basis of estimated subsequent year performance, escalated by an assumed growth factor. The Company estimated the fair value of the Contingent Consideration payments using an option pricing valuation model. Key assumptions included a discount rate of 11.3%, volatility of 17.5% and future period Park City EBITDA and capital expenditures, which are unobservable inputs and thus are considered Level 3 inputs. The Company prepared a sensitivity analysis to evaluate the effect that changes on certain key assumptions would have on the estimated fair value of the Contingent Consideration. A change in the discount rate of 100 basis points or a 5% change in estimated subsequent

19


year performance would result in a change in the estimated fair value within the range of approximately $3.9 million to $6.0 million.

Contingent Consideration is classified as a liability, which is remeasured to fair value at each reporting date until the contingency is resolved. During the six months ended January 31, 2019, the Company made a payment to the landlord for Contingent Consideration of approximately $0.1 million and recorded an increase of $1.9 million primarily related to the estimated Contingent Consideration payment for the fiscal year ending July 31, 2019. These changes resulted in an estimated fair value of the Contingent Consideration of approximately $23.7 million, which is reflected in other long-term liabilities in the Consolidated Condensed Balance Sheet.

9.    Commitments and Contingencies
Metropolitan Districts
The Company credit-enhances $6.3 million of bonds issued by Holland Creek Metropolitan District (“HCMD”) through a $6.4 million letter of credit issued under the Vail Holdings Credit Agreement. HCMD’s bonds were issued and used to build infrastructure associated with the Company’s Red Sky Ranch residential development. The Company has agreed to pay capital improvement fees to the Red Sky Ranch Metropolitan District (“RSRMD”) until RSRMD’s revenue streams from property taxes are sufficient to meet debt service requirements under HCMD’s bonds. The Company has recorded a liability of $2.0 million primarily within other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets, as of January 31, 2019, July 31, 2018 and January 31, 2018, respectively, with respect to the estimated present value of future RSRMD capital improvement fees. The Company estimates it will make capital improvement fee payments under this arrangement through the fiscal year ending July 31, 2031.

Guarantees/Indemnifications
As of January 31, 2019, the Company had various letters of credit outstanding totaling $76.5 million, consisting of $53.4 million to support the Employee Housing Bonds, $18.1 million primarily for workers’ compensation, a wind energy purchase agreement and insurance-related deductibles, and $5.0 million related to the Stevens Pass acquisition. The Company also had surety bonds of $10.4 million as of January 31, 2019, primarily to provide collateral for its U.S. workers compensation self-insurance programs.

In addition to the guarantees noted above, the Company has entered into contracts in the normal course of business that include certain indemnifications under which it could be required to make payments to third parties upon the occurrence or non-occurrence of certain future events. These indemnities include indemnities related to licensees in connection with third-parties’ use of the Company’s trademarks and logos, liabilities associated with the infringement of other parties’ technology and software products, liabilities associated with the use of easements, liabilities associated with employment of contract workers and the Company’s use of trustees, and liabilities associated with the Company’s use of public lands and environmental matters. The duration of these indemnities generally is indefinite and generally do not limit the future payments the Company could be obligated to make.

As permitted under applicable law, the Company and certain of its subsidiaries have agreed to indemnify their directors and officers over their lifetimes for certain events or occurrences while the officer or director is, or was, serving the Company or its subsidiaries in such a capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that should enable the Company to recover a portion of any amounts paid.

Unless otherwise noted, the Company has not recorded any significant liabilities for the letters of credit, indemnities and other guarantees noted above in the accompanying Consolidated Condensed Financial Statements, either because the Company has recorded on its Consolidated Condensed Balance Sheets the underlying liability associated with the guarantee, the guarantee is with respect to the Company’s own performance and is therefore not subject to the measurement requirements as prescribed by GAAP, or because the Company has calculated the estimated fair value of the indemnification or guarantee to be immaterial based on the current facts and circumstances that would trigger a payment under the indemnification clause. In addition, with respect to certain indemnifications, it is not possible to determine the maximum potential amount of liability under these potential obligations due to the unique set of facts and circumstances likely to be involved in each particular claim and indemnification provision. Historically, payments made by the Company under these obligations have not been material.

As noted above, the Company makes certain indemnifications to licensees for their use of the Company’s trademarks and logos. The Company does not record any liabilities with respect to these indemnifications.

Additionally, the Company has entered into strategic long-term season pass alliance agreements with third-party mountain resorts in which the Company has committed to pay minimum revenue guarantees over the remaining terms of these agreements.

20



Self-Insurance
The Company is self-insured for claims under its U.S. health benefit plans and for the majority of workers’ compensation claims in the U.S. Workers compensation claims in the U.S. are subject to stop loss policies. The self-insurance liability related to workers’ compensation is determined actuarially based on claims filed. The self-insurance liability related to claims under the Company’s U.S. health benefit plans is determined based on analysis of actual claims. The amounts related to these claims are included as a component of accrued benefits in accounts payable and accrued liabilities (see Note 7, Supplementary Balance Sheet Information).

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

10.    Segment Information
The Company has three reportable segments: Mountain, Lodging and Real Estate. The Company refers to “Resort” as the combination of the Mountain and Lodging segments. The Mountain segment includes the operations of the Company’s mountain resorts/ski areas and related ancillary activities. The Lodging segment includes the operations of the Company’s owned hotels, RockResorts, NPS concessionaire properties, condominium management, Colorado resort ground transportation operations and mountain resort golf operations. The Real Estate segment owns, develops and sells real estate in and around the Company’s resort communities. The Company’s reportable segments, although integral to the success of the others, offer distinctly different products and services and require different types of management focus. As such, these segments are managed separately.

The Company reports its segment results using Reported EBITDA (defined as segment net revenue less segment operating expenses, plus or minus segment equity investment income or loss, and for the Real Estate segment, plus gain or loss on sale of real property). The Company reports segment results in a manner consistent with management’s internal reporting of operating results to the chief operating decision maker (Chief Executive Officer) for purposes of evaluating segment performance.

Items excluded from Reported EBITDA are significant components in understanding and assessing financial performance. Reported EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, net change in cash and cash equivalents or other financial statement data presented in the consolidated condensed financial statements as indicators of financial performance or liquidity.

The Company utilizes Reported EBITDA in evaluating the performance of the Company and in allocating resources to its segments. Mountain Reported EBITDA consists of Mountain net revenue less Mountain operating expense plus or minus Mountain equity investment income or loss. Lodging Reported EBITDA consists of Lodging net revenue less Lodging operating expense. Real Estate Reported EBITDA consists of Real Estate net revenue less Real Estate operating expense plus gain or loss on sale of real property. All segment expenses include an allocation of corporate administrative expense. Assets are not allocated between segments, or used to evaluate performance, except as shown in the table below.


21


The following table presents financial information by reportable segment, which is used by management in evaluating performance and allocating resources (in thousands):
 
Three Months Ended January 31,
 
Six Months Ended January 31,
 
2019
 
2018
 
2019
 
2018
Net revenue:
 
 
 
 
 
 
 
Lift
$
447,558

 
$
381,912

 
$
472,243

 
$
407,380

Ski school
92,244

 
80,116

 
96,516

 
84,554

Dining
65,409

 
53,910

 
83,701

 
72,212

Retail/rental
128,436

 
115,446

 
171,778

 
160,853

Other
42,426

 
39,518

 
96,841

 
94,028

Total Mountain net revenue
776,073

 
670,902

 
921,079

 
819,027

Lodging
73,249

 
63,539

 
148,149

 
135,628

Total Resort net revenue
849,322

 
734,441

 
1,069,228

 
954,655

Real Estate
256

 
134

 
354

 
770

Total net revenue
$
849,578

 
$
734,575

 
$
1,069,582

 
$
955,425

Segment operating expense:
 
 
 
 
 
 
 
Mountain
$
424,008

 
$
365,605

 
$
646,371

 
$
572,689

Lodging
67,492

 
59,871

 
138,496

 
127,605

Resort
491,500

 
425,476

 
784,867

 
700,294

Real Estate
1,389

 
1,207

 
2,759

 
2,898

Total segment operating expense
$
492,889

 
$
426,683

 
$
787,626

 
$
703,192

Gain on sale of real property
$
—

 
$
515

 
$
—

 
$
515

Mountain equity investment income (loss), net
$
160

 
$
(35
)
 
$
1,110

 
$
487

Reported EBITDA:
 
 
 
 
 
 
 
Mountain
$
352,225

 
$
305,262

 
$
275,818

 
$
246,825

Lodging
5,757

 
3,668

 
9,653

 
8,023

Resort
357,982


308,930


285,471

 
254,848

Real Estate
(1,133
)
 
(558
)
 
(2,405
)
 
(1,613
)
Total Reported EBITDA
$
356,849

 
$
308,372

 
$
283,066

 
$
253,235

Real estate held for sale and investment
$
101,730

 
$
103,212

 
$
101,730

 
$
103,212

Reconciliation to net income attributable to Vail Resorts, Inc.:
 
 
 
 
 
 
 
Total Reported EBITDA
$
356,849

 
$
308,372

 
$
283,066

 
$
253,235

Depreciation and amortization
(55,238
)
 
(51,404
)
 
(106,281
)
 
(100,028
)
Change in estimated fair value of contingent consideration
(700
)
 
—

 
(1,900
)
 
—

Gain on disposal of fixed assets and other, net
1,097

 
538

 
478

 
1,105

Investment income and other, net
507

 
397

 
970

 
780

Foreign currency gain (loss) on intercompany loans
450

 
10,337

 
(1,861
)
 
2,991

Interest expense, net
(21,002
)
 
(15,973
)
 
(39,640
)
 
(31,147
)
Income before (provision) benefit from income taxes
281,963

 
252,267

 
134,832

 
126,936

(Provision) benefit from income taxes
(63,973
)
 
(3,594
)
 
(27,568
)
 
89,810

Net income
217,990

 
248,673

 
107,264

 
216,746

Net income attributable to noncontrolling interests
(11,641
)
 
(12,982
)
 
(8,710
)
 
(9,440
)
Net income attributable to Vail Resorts, Inc.
$
206,349

 
$
235,691

 
$
98,554

 
$
207,306


22


11.     Share Repurchase Program
On March 9, 2006, the Company’s Board of Directors approved a share repurchase program, authorizing the Company to repurchase up to 3,000,000 Vail Shares. On July 16, 2008, the Company’s Board of Directors increased the authorization by an additional 3,000,000 Vail Shares, and on December 4, 2015, the Company’s Board of Directors increased the authorization by an additional 1,500,000 Vail Shares for a total authorization to repurchase up to 7,500,000 Vail Shares. The Company repurchased 155,111 and 353,007 Vail Shares, respectively (at a total cost of approximately $35.0 million and $85.0 million, respectively), during the three and six months ended January 31, 2019. The Company did not repurchase any Vail Shares during the three or six months ended January 31, 2018. Since inception of its share repurchase program through January 31, 2019, the Company has repurchased 5,904,723 Vail Shares for approximately $358.0 million. As of January 31, 2019, 1,595,277 Vail Shares remained available to repurchase under the existing share repurchase program, which has no expiration date. Vail Shares purchased pursuant to the repurchase program will be held as treasury shares and may be used for the issuance of Vail Shares under the Company’s employee share award plan.

12.    Subsequent Event
On February 21, 2019, the Company, through a wholly-owned subsidiary, announced it had entered into an agreement to purchase the ski resorts at Falls Creek Alpine Resort ("Falls Creek") and Hotham Alpine Resort ("Hotham") in Victoria, Australia. The Company will purchase 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 purchase price of approximately AU$174 million, subject to certain adjustments at closing, including an increase (or reduction) in the purchase price for operating losses (or gains) incurred for the period from December 29, 2018 through closing. The acquisition includes the ski school, retail/rental, reservation and property management operations at both resort areas. The Company expects to record the transaction as a business combination which is expected to close prior to the commencement of the Australian ski season in June 2019, subject to certain closing conditions, including regulatory approvals. The Company expects to fund the cash purchase price through cash on-hand and/or incremental borrowings.

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended July 31, 2018 (“Form 10-K”) and the Consolidated Condensed Financial Statements as of January 31, 2019 and 2018 and for the three and six months then ended, included in Part I, Item 1 of this Form 10-Q, which provide additional information regarding our financial position, results of operations and cash flows. To the extent that the following MD&A contains statements which are not of a historical nature, such statements are forward-looking statements, which involve risks and uncertainties. See “Forward-Looking Statements” below. These risks include, but are not limited to, those discussed in our filings with the Securities and Exchange Commission (“SEC”), including the risks described in Item 1A “Risk Factors” of Part I of our Form 10-K, which was filed on September 28, 2018.

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

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

23


Estate), the measure of segment profit or loss required to be disclosed in accordance with GAAP, may not be comparable to other similarly titled measures of other companies.

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

Mountain Segment
The Mountain segment is comprised of the operations of the following fifteen mountain resort properties and three urban ski areas:
Mountain Resorts:
 
Location:
1.
Vail Mountain Resort (“Vail Mountain”)
 
Colorado
2.
Breckenridge Ski Resort (“Breckenridge”)
 
Colorado
3.
Keystone Resort (“Keystone”)
 
Colorado
4.
Beaver Creek Resort (“Beaver Creek”)
 
Colorado
5.
Crested Butte Mountain Resort (“Crested Butte”)
 
Colorado
6.
Heavenly Mountain Resort (“Heavenly”)
 
Lake Tahoe area of Nevada and California
7.
Northstar Resort (“Northstar”)
 
Lake Tahoe area of California
8.
Kirkwood Mountain Resort (“Kirkwood”)
 
Lake Tahoe area of California
9.
Mount Sunapee Mountain Resort (“Mount Sunapee”)
 
New Hampshire
10.
Park City Resort (“Park City”)
 
Utah
11.
Stowe Mountain Resort (“Stowe”)
 
Vermont
12.
Okemo Mountain Resort (“Okemo”)
 
Vermont
13.
Stevens Pass Mountain Resort (“Stevens Pass”)
 
Washington
14.
Whistler Blackcomb Resort (“Whistler Blackcomb”)
 
British Columbia, Canada
15.
Perisher Ski Resort (“Perisher”)
 
New South Wales, Australia
Urban Ski Areas:
 
Location:
1.
Afton Alps Ski Area (“Afton Alps”)
 
Minnesota
2.
Mount Brighton Ski Area (“Mt. Brighton”)
 
Michigan
3.
Wilmot Mountain (“Wilmot”)
 
Wisconsin

Additionally, we operate ancillary services, primarily including ski school, dining and retail/rental operations, and for Perisher, including lodging and transportation operations. Mountain segment revenue is seasonal, with the majority of revenue earned from our North American mountain resorts and ski areas occurring in our second and third fiscal quarters and the majority of revenue earned from Perisher occurring in our first and fourth fiscal quarters. Our North American mountain resorts are typically open for business from mid-November through mid-April, which is the peak operating season for the Mountain segment, and Perisher is typically open for business from June to early October. Consequently, our first fiscal quarter is a seasonally low period as our North American ski operations are generally not open for business until our second fiscal quarter, while the activity of Perisher’s peak season and our North American summer operating results are not sufficient to offset the losses incurred during the seasonally low periods at our North American mountain resorts and ski areas. Revenue of the Mountain segment during the first and fourth fiscal quarters are primarily generated from summer and group related visitation at our North American mountain resorts, retail/rental operations and peak season Perisher operations. Our largest source of Mountain segment revenue is the sale of lift tickets (including season passes), which represented approximately 58% and 57% of Mountain net revenue for the three months ended January 31, 2019 and 2018, respectively.

Lift revenue is driven by volume and pricing. Pricing is impacted by both absolute pricing, as well as the mix of resort visitation of guests, which impacts the price points at which various products are purchased. The demographic mix of guests that visit our North American mountain resorts is divided into two primary categories: (i) out-of-state and international (“Destination”) guests and (ii) in-state and local (“Local”) guests. For the three months ended January 31, 2019, Destination guests comprised approximately 53% of our North American mountain resort skier visits (excluding complimentary access), while Local guests comprised approximately 47% of our North American mountain resort skier visits (excluding complimentary access), which compares to 56% and 44%, respectively, for the three months ended January 31, 2018. Destination guests generally purchase our higher-priced lift ticket products and utilize more ancillary services such as ski school, dining and retail/rental, as well as lodging at or around our mountain resorts. Destination guest visitation is less likely to be impacted by changes in the weather during the

24


current season, but may be more impacted by adverse economic conditions, the global geopolitical climate or weather conditions in the immediately preceding ski season. Local guests tend to be more value-oriented and weather sensitive.

We offer a variety of season pass products for all of our mountain resorts and ski areas (collectively, “Resorts”), marketed towards both Destination and Local guests. Our season pass product offerings range from providing access to one or a combination of our Resorts to our Epic Season Pass, which allows pass holders unlimited and unrestricted access to all of our Resorts. Our season pass program provides a compelling value proposition to our guests, which in turn assists us in developing a loyal base of customers who commit to ski at our Resorts generally in advance of the ski season and typically ski more days each season at our Resorts than those guests who do not buy season passes. As such, our season pass program drives strong customer loyalty; mitigates exposure to more weather sensitive guests; generates additional ancillary spending; and provides cash flow in advance of winter season operations. In addition, our season pass program attracts new guests to our Resorts. All of our season pass products, including the Epic Pass, are predominately sold prior to the start of the ski season. Season pass revenue, although primarily collected prior to the ski season, is recognized in the Consolidated Condensed Statements of Operations throughout the ski season primarily based on historical visitation.

Lift revenue consists of season pass lift revenue (“pass revenue”) and non-season pass lift revenue (“non-pass revenue”). For the three months ended January 31, 2019 and 2018, approximately 53% and 56%, respectively, of our total lift revenue recognized was comprised of pass revenue. Pass revenue recognized in our second fiscal quarter represents approximately 51% and 53% of our total North American pass sales for the 2018/2019 and 2017/2018 North American ski seasons, respectively, with the remaining North American pass revenue almost entirely recognized as lift revenue in our third fiscal quarter ending April 30.

The cost structure of our mountain resort operations has a significant fixed component with variable expenses including, but not limited to, land use permit or lease fees, credit card fees, retail/rental cost of sales and labor, ski school labor and dining operations; as such, profit margins can fluctuate greatly based on the level of revenues.

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

The performance of our lodging properties (including managed condominium units and our Colorado resort ground transportation company) proximate to our mountain resorts is closely aligned with the performance of the Mountain segment and generally experiences similar seasonal trends, particularly with respect to visitation by Destination guests. Revenues from such properties represented approximately 93% of Lodging segment net revenue (excluding Lodging segment revenue associated with reimbursement of payroll costs) for both the three months ended January 31, 2019 and 2018. Management primarily focuses on Lodging net revenue excluding payroll cost reimbursements and Lodging operating expense excluding reimbursed payroll costs (which are not measures of financial performance under GAAP) as the reimbursements are made based upon the costs incurred with no added margin; as such, the revenue and corresponding expense have no effect on our Lodging Reported EBITDA, which we use to evaluate Lodging segment performance. Revenue of the Lodging segment during our first and fourth fiscal quarters is generated primarily by the operations of our NPS concessionaire properties (as their operating season generally occurs from June to the end of September); mountain resort golf operations and seasonally lower volume from our other owned and managed properties and businesses.

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


25


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

•
The timing and amount of snowfall can have an impact on Mountain and Lodging revenue, particularly with regards to skier visits and the duration and frequency of guest visitation. To help mitigate this impact, we sell a variety of pass products prior to the beginning of the ski season which results in a more stabilized stream of lift revenue. Additionally, our pass products provide a compelling value proposition to our guests, which in turn create a guest commitment predominately prior to the start of the ski season. During fiscal year 2018, pass revenue represented approximately 47% of total lift revenue. Due to increased pass sales for the 2018/2019 North American ski season compared to the 2017/2018 North American ski season, pass revenue increased approximately $25.8 million, or 12.1%, for the three months ended January 31, 2019 compared to the same period in the prior year. Additionally, deferred revenue related to North American pass sales was approximately $234.0 million as of January 31, 2019 (compared to approximately $192.0 million as of January 31, 2018), which will be almost entirely recognized as lift revenue during our third fiscal quarter ending April 30, 2019, subject to final adjustments required under U.S. GAAP.

•
Destination guest visitation at our North American resorts was less than expected in the pre-holiday period. However, our Destination guest visitation was largely in line with expectations during the key holiday weeks and through the remainder of January. Throughout the quarter, with the favorable conditions at our U.S. resorts, we saw strong growth among our Local guests, who are primarily pass purchasers. Our Tahoe resorts and Whistler Blackcomb saw periods of strong visitation in the holiday and post-holiday periods, but were also impacted by increased weather variability at those resorts over the holidays and lower than expected Destination visitation. While weather conditions have generally remained positive or have improved at our U.S. resorts and at Whistler Blackcomb through January 31, 2019, we cannot predict the impact that the pre-holiday period results or future weather conditions will have on our skier visitation and results of operations for the remainder of the 2018/2019 North American ski season.

•
Key North American economic indicators have remained steady into calendar year 2019, including strong consumer confidence and declines in the unemployment rate. However, the growth in the North American economy may be impacted by economic challenges in North America or declining or slowing growth in economies outside of North America, accompanied by devaluation of currencies, rising inflation, trade tariffs and lower commodity prices. Given these economic uncertainties, we cannot predict what the impact of the overall North American or global economy will be on overall travel and leisure spending or more specifically, on our guest visitation, guest spending or other related trends for the remainder of the 2018/2019 North American ski season.

•
As of January 31, 2019, we had $317.9 million available under the revolver component of our Eighth Amended and Restated Credit Agreement, dated as of August 15, 2018 (the “Vail Holdings Credit Agreement”), which represents the total commitment of $400.0 million less certain letters of credit outstanding of $82.1 million. Additionally, we have a credit facility which supports the liquidity needs of Whistler Blackcomb (the “Whistler Credit Agreement”). As of January 31, 2019, we had C$219.1 million ($166.8 million) available under the revolver component of the Whistler Credit Agreement (which represents the total commitment of C$300.0 million ($228.4 million) less outstanding borrowings of C$80.0 million ($60.9 million) and a letter of credit outstanding of C$0.9 million ($0.7 million)).

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

•
On February 21, 2019, through a wholly-owned subsidiary, we announced we had entered into an agreement to purchase the ski resorts at Falls Creek Alpine Resort ("Falls Creek") and Hotham Alpine Resort ("Hotham") in Victoria, Australia. We will purchase 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 purchase price of approximately AU$174 million, subject to certain adjustments at closing, including an increase (or reduction) in the purchase price for operating losses (or gains) incurred for the period from December 29, 2018 through closing. The acquisition includes the ski school, retail/rental, reservation and property management operations at both resort areas. We expect to record the transaction as a business combination which is expected to close

26


prior to the commencement of the Australian ski season in June 2019, subject to certain closing conditions, including regulatory approvals. We expect to fund the cash purchase price through cash on-hand and/or incremental borrowings.

•
On August 15, 2018, through a wholly-owned subsidiary, we acquired Stevens Pass Resort in the State of Washington from Ski Resort Holdings, LLC, an affiliate of Oz Real Estate (“Ski Resort Holdings”), for a total purchase price of $64.0 million. We borrowed $70.0 million on August 15, 2018 under the term loan of our Vail Holdings Credit Agreement primarily to fund the acquisition of Stevens Pass. Additionally, on September 27, 2018, we 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 satisfy the remaining obligations for 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 we utilized cash on hand and borrowed $195.6 million under the term loan of our Vail Holdings Credit Agreement to fund the transaction and associated acquisition related expenses. We expect that the acquisitions of Stevens Pass and Triple Peaks will positively contribute to our results of operations; however, we cannot predict whether we will realize all of the synergies expected from the operations of Stevens Pass and Triple Peaks and the ultimate impact the new resorts will have on our future results of operations.

RESULTS OF OPERATIONS

Summary
Below is a summary of operating results for the three and six months ended January 31, 2019, compared to the three and six months ended January 31, 2018 (in thousands):
 
 
 
Three Months Ended January 31,
 
Six Months Ended January 31,
 
 
2019
 
2018
 
2019
 
2018
Mountain Reported EBITDA
 
$
352,225

 
$
305,262

 
$
275,818

 
$
246,825

Lodging Reported EBITDA
 
5,757

 
3,668

 
9,653

 
8,023

Resort Reported EBITDA
 
$
357,982

 
$
308,930

 
$
285,471

 
$
254,848

Real Estate Reported EBITDA
 
$
(1,133
)
 
$
(558
)
 
$
(2,405
)
 
$
(1,613
)
Income before (provision) benefit from income taxes
 
$
281,963

 
$
252,267

 
$
134,832

 
$
126,936

Net income attributable to Vail Resorts, Inc.
 
$
206,349

 
$
235,691

 
$
98,554

 
$
207,306


Net income attributable to Vail Resorts, Inc. decreased by approximately $108.8 million for the six months ended January 31, 2019 compared to the prior year primarily due to a decrease in excess tax benefits of $48.4 million, which resulted primarily from employee exercises of in-the-money stock appreciation rights, and a one-time, provisional net tax benefit of approximately $64.6 million recorded during the three and six months ended January 31, 2018, which was the result of comprehensive U.S. tax legislation, commonly referred to as the “Tax Act,” which was enacted by the U.S. government on December 22, 2017. The consolidated condensed results of operations, including any consolidated financial metrics pertaining thereto, include the operations of Stevens Pass and Triple Peaks prospectively from the dates of acquisition of August 15, 2018 and September 27, 2018, respectively.


27


Mountain Segment
Three months ended January 31, 2019 compared to the three months ended January 31, 2018
Mountain segment operating results for the three months ended January 31, 2019 and 2018 are presented by category as follows (in thousands, except effective ticket price (“ETP”)). ETP is calculated as lift revenue divided by total skier visits for each applicable period presented.
 
 
Three Months Ended January 31,
 
Percentage
Increase
(Decrease)
 
 
2019
 
2018
 
Net Mountain revenue:
 
 
 
 
 
 
Lift
 
$
447,558

 
$
381,912

 
17.2
 %
Ski school
 
92,244

 
80,116

 
15.1
 %
Dining
 
65,409

 
53,910

 
21.3
 %
Retail/rental
 
128,436

 
115,446

 
11.3
 %
Other
 
42,426

 
39,518

 
7.4
 %
Total Mountain net revenue
 
776,073

 
670,902

 
15.7
 %
Mountain operating expense:
 
 
 
 
 
 
Labor and labor-related benefits
 
172,818

 
144,240

 
19.8
 %
Retail cost of sales
 
43,721

 
40,540

 
7.8
 %
Resort related fees
 
39,830

 
34,257

 
16.3
 %
General and administrative
 
65,847

 
59,609

 
10.5
 %
Other
 
101,792

 
86,959

 
17.1
 %
Total Mountain operating expense
 
424,008

 
365,605

 
16.0
 %
Mountain equity investment income (loss), net
 
160

 
(35
)
 
557.1
 %
Mountain Reported EBITDA
 
$
352,225

 
$
305,262

 
15.4
 %
 
 
 
 
 
 
 
Total skier visits
 
6,521

 
5,133

 
27.0
 %
ETP
 
$
68.63

 
$
74.40

 
(7.8
)%

Mountain Reported EBITDA includes $4.3 million and $4.0 million of stock-based compensation expense for the three months ended January 31, 2019 and 2018, respectively.

Mountain Reported EBITDA increased $47.0 million, or 15.4%. This increase was primarily the result of strong North American pass sales growth for the 2018/2019 North American ski season, the incremental operations of Triple Peaks and Stevens Pass (acquired in September 2018 and August 2018, respectively) and improved conditions across our western U.S. resorts, which helped drive a strong rebound in visitation and spending, particularly during the key holiday weeks. Although our Destination guest visitation was less than expected in the pre-holiday period, results over the holidays were generally in line with our expectations, which, when combined with incremental skier visits from Triple Peaks and Stevens Pass, resulted in an increase in total skier visitation of 27.0% for the three months ended January 31, 2019 compared to the three months ended January 31, 2018. Mountain segment results include $2.9 million and $1.4 million of acquisition and integration related expenses for the three months ended January 31, 2019 and 2018, respectively. Additionally, operating results from Whistler Blackcomb, which are translated from Canadian dollars to U.S. dollars, were adversely affected by a decrease in the Canadian dollar exchange rate as compared to the prior year.

Lift revenue increased $65.6 million, or 17.2%, due to increases in both pass revenue and non-pass revenue, and incremental revenue from Triple Peaks and Stevens Pass. Pass revenue increased 12.1%, which was driven by a combination of an increase in pricing and units sold and was also favorably impacted by increased pass sales to Destination guests as well as military guests through the introduction of the Military Epic Pass. Non-pass revenue increased 24.1% primarily due to increased non-pass visitation at our western U.S. resorts, which benefited from improved conditions as compared to the prior year and an increase in total non-pass ETP of 8.3%, as well as incremental non-pass skier visitation at Triple Peaks and Stevens Pass. Total ETP decreased $5.77, or 7.8%, primarily due to higher visitation by season pass holders during the three months ended January 31, 2019 as compared to the three months ended January 31, 2018, as well as the impact of the introduction of the new Military Epic Pass, partially offset by price increases in both our lift ticket and season pass products.


28


Ski school revenue increased $12.1 million, or 15.1%, and dining revenue increased $11.5 million, or 21.3%, primarily as a result of incremental revenue from Triple Peaks and Stevens Pass and increased revenue at our other U.S. resorts as a result of higher skier visitation.

Retail/rental revenue increased $13.0 million, or 11.3%, for which retail sales increased $8.2 million, or 10.5%, and rental revenue increased $4.8 million, or 12.8%. The increase in both retail revenue and rental revenue was primarily attributable to higher sales volumes at stores proximate to our western U.S. resorts and other stores in Colorado, as well as incremental revenue from Triple Peaks and Stevens Pass. However, these increases were partially offset by a decrease in sales at Whistler Blackcomb.

Other revenue mainly consists of other mountain activities revenue, employee housing revenue, guest services revenue, commercial leasing revenue, marketing and internet advertising revenue, private club revenue (which includes both club dues and amortization of initiation fees), municipal services revenue and other recreation activity revenue. Other revenue increased $2.9 million, or 7.4%, primarily attributable to increases in marketing revenue, mountain activities and services revenue and incremental revenue from Triple Peaks and Stevens Pass.

Operating expense increased $58.4 million, or 16.0%, which includes incremental operating expenses from Triple Peaks and Stevens Pass.

Labor and labor-related benefits increased 19.8% primarily due to incremental labor expenses from Triple Peaks and Stevens Pass and increased staffing levels at our western U.S. resorts as compared to the prior year due to historic low snowfall during the three months ended January 31, 2018, as well as wage increases associated with our minimum wage initiatives, which were in excess of our historical minimum wage increases, and higher variable compensation accruals. Retail cost of sales increased 7.8%, compared to an increase in retail sales of 10.5%. Resort related fees increased 16.3% primarily due to increases in revenue on which those fees are based and incremental expenses from Triple Peaks and Stevens Pass. General and administrative expense increased 10.5% due to incremental expenses from Triple Peaks and Stevens Pass, higher variable compensation accruals and an increase in allocated corporate overhead costs primarily associated with marketing. Other expense increased 17.1% primarily due to incremental expenses from Triple Peaks and Stevens Pass and an increase in pass partnership alliance expense, as well as increases in variable expenses associated with increases in revenue, partially offset by a decrease in professional services expense. Additionally, other expense includes $2.9 million and $1.4 million of acquisition and integration related expenses for the three months ended January 31, 2019 and 2018, respectively.

Mountain equity investment income (loss), net primarily includes our share of income from the operations of a real estate brokerage joint venture.


29


Six months ended January 31, 2019 compared to the six months ended January 31, 2018
Mountain segment operating results for the six months ended January 31, 2019 and 2018 are presented by category as follows (in thousands, except ETP):
 
 
Six Months Ended January 31,
 
Percentage
Increase
(Decrease)
 
 
2019
 
2018
 
Net Mountain revenue:
 
 
 
 
 
 
Lift
 
$
472,243

 
$
407,380

 
15.9
 %
Ski school
 
96,516

 
84,554

 
14.1
 %
Dining
 
83,701

 
72,212

 
15.9
 %
Retail/rental
 
171,778

 
160,853

 
6.8
 %
Other
 
96,841

 
94,028

 
3.0
 %
Total Mountain net revenue
 
921,079

 
819,027

 
12.5
 %
Mountain operating expense:
 
 
 
 
 
 
Labor and labor-related benefits
 
249,068

 
217,896

 
14.3
 %
Retail cost of sales
 
66,137

 
63,481

 
4.2
 %
Resort related fees
 
43,194

 
37,383

 
15.5
 %
General and administrative
 
120,550

 
108,933

 
10.7
 %
Other
 
167,422

 
144,996

 
15.5
 %
Total Mountain operating expense
 
646,371

 
572,689

 
12.9
 %
Mountain equity investment income, net
 
1,110

 
487

 
127.9
 %
Mountain Reported EBITDA
 
$
275,818

 
$
246,825

 
11.7
 %
 
 
 
 
 
 
 
Total skier visits
 
7,028

 
5,631

 
24.8
 %
ETP
 
$
67.19

 
$
72.35

 
(7.1
)%

Mountain Reported EBITDA includes $8.2 million and $7.8 million of stock-based compensation expense for the six months ended January 31, 2019 and 2018, respectively.

Mountain Reported EBITDA increased $29.0 million, or 11.7%. This increase was primarily the result of strong North American pass sales growth for the 2018/2019 North American ski season, the incremental operations of Triple Peaks and Stevens Pass (acquired in September 2018 and August 2018, respectively) and improved conditions across our western U.S. resorts, which helped drive a strong rebound in visitation and spending, particularly during the key holiday weeks, as discussed above. Total skier visitation increased 24.8% for the six months ended January 31, 2019 compared to the six months ended January 31, 2018. Mountain segment results include $9.5 million and $2.2 million of acquisition and integration related expenses for the six months ended January 31, 2019 and 2018, respectively. Additionally, operating results from Whistler Blackcomb, which are translated from Canadian dollars to U.S. dollars, were adversely affected by a decrease in the Canadian dollar exchange rate as compared to the prior year.

As our North American resorts opened for ski season operations during our second fiscal quarter, certain components of Mountain segment net revenue, such as North American lift and ski school revenues for the six months ended January 31, 2019 and 2018 are unchanged as compared to those same components for the three months ended January 31, 2019 and 2018. Accordingly, the primary basis for the changes to these components of our North American resorts for the six months ended January 31, 2019 as compared to the prior period are discussed under the section heading “Three months ended January 31, 2019 compared to the three months ended January 31, 2018.” Additionally, Perisher lift revenue decreased $0.8 million, or 3.1%, and ski school revenue decreased $0.2 million, or 3.7%, as a result of a decrease in the Australian dollar exchange rate as compared to the prior year, which negatively impacted the translation of Perisher’s results on a U.S. dollar basis. On an Australian dollar basis, Perisher generated increases of AU$1.8 million, or 5.5%, in lift revenue and AU$0.2 million, or 3.8%, in ski school revenue, primarily due to a 1.8% increase in skier visitation.

Dining revenue increased $11.5 million, or 15.9%, primarily as a result of incremental revenue at Triple Peaks and Stevens Pass and increased revenue at our other U.S. resorts as a result of higher skier visitation.


30


Retail/rental revenue increased $10.9 million, or 6.8%, for which retail revenue increased $7.0 million, or 6.0%, and rental revenue increased $3.9 million, or 8.9%. The increase in both retail revenue and rental revenue was primarily attributable to higher sales volumes at stores proximate to our western U.S. resorts and other stores in Colorado, as well as incremental revenue from Triple Peaks and Stevens Pass. However, these increases were partially offset by removing the low-margin golf product line, store closures and a decrease in sales at Whistler Blackcomb.

Other revenue mainly consists of summer visitation and mountain activities revenue, employee housing revenue, guest services revenue, commercial leasing revenue, marketing and internet advertising revenue, private club revenue (which includes both club dues and amortization of initiation fees), municipal services revenue and other recreation activity revenue. Other revenue is also comprised of Perisher lodging and transportation revenue. Other revenue increased $2.8 million, or 3.0%, primarily attributable to increases in marketing revenue, mountain activities and services revenue and incremental revenue from Triple Peaks and Stevens Pass.

Operating expense increased $73.7 million, or 12.9%, which includes incremental operating expenses from Stevens Pass and Triple Peaks, which were recorded prospectively from their dates of acquisition of August 15, 2018 and September 27, 2018, respectively. Additionally, operating expense includes $9.5 million and $2.2 million of acquisition and integration related expenses for the six months ended January 31, 2019 and 2018, respectively.

Labor and labor-related benefits increased 14.3% primarily due to incremental labor expenses from Triple Peaks and Stevens Pass and increased staffing levels at our western U.S. resorts as compared to the prior year due to historic low snowfall during the six months ended January 31, 2018, as well as wage increases associated with our minimum wage initiatives, which were in excess of our historical minimum wage increases, and higher variable compensation accruals. Retail cost of sales increased 4.2%, compared to an increase in retail sales of 6.0%. Resort related fees increased 15.5% primarily due to increases in revenue on which those fees are based and incremental expenses from Triple Peaks and Stevens Pass. General and administrative expense increased 10.7% primarily due to incremental expenses from Triple Peaks and Stevens Pass, an increase in variable compensation accruals and an increase in allocated corporate overhead costs primarily associated with marketing and information technology. Other expense increased 15.5% primarily due to incremental expenses from Triple Peaks and Stevens Pass, an increase in acquisition and integration related expenses and an increase in pass partnership alliance expense, as well as increases in variable expenses associated with increases in revenue, partially offset by a decrease in professional services expense.

Mountain equity investment income, net primarily includes our share of income from the operations of a real estate brokerage joint venture.


31


Lodging Segment

Three months ended January 31, 2019 compared to the three months ended January 31, 2018                    
Lodging segment operating results for the three months ended January 31, 2019 and 2018 are presented by category as follows (in thousands, except average daily rates (“ADR”) and revenue per available room (“RevPAR”)):
 
 
 
 
 
 
 
 
 
Three Months Ended January 31,
 
Percentage
Increase
(Decrease)
 
 
2019
 
2018
 
Lodging net revenue:
 
 
 
 
 
 
Owned hotel rooms
 
$
11,548

 
$
11,353

 
1.7
 %
Managed condominium rooms
 
28,046

 
23,358

 
20.1
 %
Dining
 
10,189

 
7,869

 
29.5
 %
Transportation
 
7,722

 
7,460

 
3.5
 %
Other
 
12,120

 
9,914

 
22.3
 %
 
 
69,625

 
59,954

 
16.1
 %
Payroll cost reimbursements
 
3,624

 
3,585

 
1.1
 %
Total Lodging net revenue
 
73,249

 
63,539

 
15.3
 %
Lodging operating expense:
 
 
 
 
 
 
Labor and labor-related benefits
 
32,173

 
27,556

 
16.8
 %
General and administrative
 
11,515

 
11,127

 
3.5
 %
Other
 
20,180

 
17,603

 
14.6
 %
 
 
63,868

 
56,286

 
13.5
 %
Reimbursed payroll costs
 
3,624

 
3,585

 
1.1
 %
Total Lodging operating expense
 
67,492

 
59,871

 
12.7
 %
Lodging Reported EBITDA
 
$
5,757

 
$
3,668

 
57.0
 %
 
 
 
 
 
 
 
Owned hotel statistics:
 
 
 
 
 
 
ADR
 
$
269.45

 
$
278.82

 
(3.4
)%
RevPAR
 
$
177.04

 
$
175.04

 
1.1
 %
Managed condominium statistics:
 
 
 
 
 
 
ADR
 
$
407.11

 
$
435.15

 
(6.4
)%
RevPAR
 
$
145.76

 
$
166.77

 
(12.6
)%
Owned hotel and managed condominium statistics (combined) (1):
 
 
 
 
 
 
ADR
 
$
372.43

 
$
389.35

 
(4.3
)%
RevPAR
 
$
150.61

 
$
168.43

 
(10.6
)%
(1) Owned hotel and managed condominium statistics (combined) for the three months ended January 31, 2019 declined from the prior comparative period primarily due to the inclusion of properties acquired through the Triple Peaks acquisition, prospectively from the date of acquisition, as well as a new property management contract for units proximate to our Tahoe resorts.

Lodging Reported EBITDA includes $0.8 million of stock-based compensation expense for both the three months ended January 31, 2019 and 2018. Lodging Reported EBITDA increased $2.1 million, or 57.0%, primarily due to the incremental operations of Triple Peaks.

Revenue from managed condominium rooms increased $4.7 million, or 20.1%, primarily due to incremental revenue from our managed lodging properties at Okemo and Crested Butte, as well as revenue from incremental managed Tahoe lodging properties that we did not manage in the prior year.

Dining revenue increased $2.3 million, or 29.5%, primarily due to incremental revenue from our Okemo and Crested Butte lodging properties, as well as increased dining revenue at our other Colorado lodging properties. Transportation revenue increased $0.3 million, or 3.5%, primarily due to increased passenger volume. Other revenue increased $2.2 million, or 22.3%, primarily due to incremental revenue from our lodging properties at Okemo and Crested Butte and an increase in revenue from our central reservations booking service.

32



Operating expense (excluding reimbursed payroll costs) increased 13.5%. Labor and labor related benefits increased 16.8% primarily due to incremental labor expenses from Okemo, Crested Butte and the incremental managed Tahoe lodging properties that we did not manage in the prior year, as well as wage increases associated with our minimum wage initiatives, which were in excess of our historical minimum wage increases. General and administrative expense increased 3.5% due to higher corporate overhead costs. Other expenses increased 14.6% primarily due to incremental costs from Okemo and Crested Butte.

Revenue from payroll cost reimbursement and the corresponding reimbursed payroll costs relate to payroll costs at managed hotel properties where we are the employer and all payroll costs are reimbursed by the owners of the properties under contractual arrangements. Since the reimbursements are made based upon the costs incurred with no added margin, the revenue and corresponding expense have no effect on our Lodging Reported EBITDA.

Six months ended January 31, 2019 compared to the six months ended January 31, 2018                    
Lodging segment operating results for the six months ended January 31, 2019 and 2018 are presented by category as follows (in thousands, except ADR and RevPAR):
 
 
Six Months Ended January 31,
 
Percentage
Increase
(Decrease)
 
 
2019
 
2018
 
Lodging net revenue:
 
 
 
 
 
 
Owned hotel rooms
 
$
31,147

 
$
30,988

 
0.5
 %
Managed condominium rooms
 
39,164

 
33,529

 
16.8
 %
Dining
 
26,318

 
23,749

 
10.8
 %
Transportation
 
10,196

 
10,013

 
1.8
 %
Golf
 
9,459

 
8,767

 
7.9
 %
Other
 
24,588

 
21,688

 
13.4
 %
 
 
140,872

 
128,734

 
9.4
 %
Payroll cost reimbursements
 
7,277

 
6,894

 
5.6
 %
Total Lodging net revenue
 
148,149

 
135,628

 
9.2
 %
Lodging operating expense:
 
 
 
 
 
 
Labor and labor-related benefits
 
65,624

 
59,648

 
10.0
 %
General and administrative
 
21,191

 
19,666

 
7.8
 %
Other
 
44,404

 
41,397

 
7.3
 %
 
 
131,219

 
120,711

 
8.7
 %
Reimbursed payroll costs
 
7,277

 
6,894

 
5.6
 %
Total Lodging operating expense
 
138,496

 
127,605

 
8.5
 %
Lodging Reported EBITDA
 
$
9,653

 
$
8,023

 
20.3
 %
 
 
 
 
 
 
 
Owned hotel statistics:
 
 
 
 
 
 
ADR
 
$
245.76

 
$
245.08

 
0.3
 %
RevPAR
 
$
167.47

 
$
167.54

 
—
 %
Managed condominium statistics:
 
 
 
 
 
 
ADR
 
$
323.44

 
$
331.95

 
(2.6
)%
RevPAR
 
$
103.33

 
$
110.45

 
(6.4
)%
Owned hotel and managed condominium statistics (combined) (1):
 
 
 
 
 
 
ADR
 
$
294.63

 
$
295.74

 
(0.4
)%
RevPAR
 
$
117.21

 
$
125.18

 
(6.4
)%
(1) Owned hotel and managed condominium statistics (combined) for the six months ended January 31, 2019 declined from the prior comparative period primarily due to the inclusion of properties acquired through the Triple Peaks acquisition, prospectively from the date of acquisition, as well as a new property management contract for units proximate to our Tahoe resorts.

Lodging Reported EBITDA includes $1.6 million of stock-based compensation expense for both the six months ended January 31, 2019 and 2018. Lodging Reported EBITDA increased $1.6 million, or 20.3%, primarily due to the incremental operations of Triple Peaks.

33



Revenue from managed condominium rooms increased $5.6 million, or 16.8%, primarily due to incremental revenue from Crested Butte and Okemo, as well as revenue from incremental managed Tahoe lodging properties that we did not manage in the prior year.

Dining revenue increased $2.6 million, or 10.8%, primarily due to incremental revenue from our Okemo and Crested Butte lodging properties, as well as increased dinning revenue at our other Colorado lodging properties. Golf revenue increased $0.7 million, or 7.9%, due to higher revenue at our golf courses in Beaver Creek and at GTLC, as well as incremental revenue from our golf course at Okemo. Other revenue increased $2.9 million, or 13.4%, primarily due to incremental revenue from our lodging properties at Okemo and Crested Butte and an increase in revenue from our central reservations booking service.

Operating expense (excluding reimbursed payroll costs) increased 8.7%. Labor and labor-related benefits increased 10.0%, primarily due to incremental labor expenses from Okemo, Crested Butte and the incremental managed Tahoe lodging properties that we did not manage in the prior year, as well as wage increases associated with our minimum wage initiatives, which were in excess of our historical minimum wage increases. General and administrative expense increased 7.8% due to higher corporate overhead costs. Other expense increased 7.3% primarily due to incremental expenses from Okemo and Crested Butte, as well as an increase in variable operating expenses.

Revenue from payroll cost reimbursement and the corresponding reimbursed payroll costs relate to payroll costs at managed hotel properties where we are the employer and all payroll costs are reimbursed by the owners of the properties under contractual arrangements. Since the reimbursements are made based upon the costs incurred with no added margin, the revenue and corresponding expense have no effect on our Lodging Reported EBITDA.

Real Estate Segment
Three months ended January 31, 2019 compared to the three months ended January 31, 2018
Real Estate segment operating results for the three months ended January 31, 2019 and 2018 are presented by category as follows (in thousands):
 
 
Three Months Ended January 31,
 
Percentage
Increase
(Decrease)
 
 
2019
 
2018
 
Total Real Estate net revenue
 
$
256

 
$
134

 
91.0
 %
Real Estate operating expense:
 
 
 
 
 
 
Other
 
1,389

 
1,207

 
15.1
 %
Total Real Estate operating expense
 
1,389

 
1,207

 
15.1
 %
Gain on sale of real property
 
—

 
515

 
(100.0
)%
Real Estate Reported EBITDA
 
$
(1,133
)
 
$
(558
)
 
(103.0
)%

Our Real Estate net revenue is primarily determined by the timing of closings and the mix of real estate sold in any given period. Different types of projects have different revenue and profit margins; therefore, as the real estate inventory mix changes it can greatly impact Real Estate segment net revenue, operating expense, gain on sale of real property and Real Estate Reported EBITDA.

Three months ended January 31, 2019
Other operating expense of $1.4 million was primarily comprised of general and administrative costs, such as labor and labor-related benefits, professional services and allocated corporate overhead costs.

Three months ended January 31, 2018
Real Estate Reported EBITDA included a gain on sale of real property of $0.5 million for the sale of a land parcel.

Other operating expense of $1.2 million was primarily comprised of general and administrative costs, such as labor and labor-related benefits, professional services and allocated corporate overhead costs.


34


Six months ended January 31, 2019 compared to the six months ended January 31, 2018
Real Estate segment operating results for the six months ended January 31, 2019 and 2018 are presented by category as follows (in thousands):
 
 
Six Months Ended January 31,
 
Percentage
Increase
(Decrease)
 
 
2019
 
2018
 
Total Real Estate net revenue
 
$
354

 
$
770

 
(54.0
)%
Real Estate operating expense:
 
 
 
 
 
 
Cost of sales (including sales commission)
 
—

 
511

 
(100.0
)%
Other
 
2,759

 
2,387

 
15.6
 %
Total Real Estate operating expense
 
2,759

 
2,898

 
(4.8
)%
Gain on sale of real property
 
—

 
515

 
(100.0
)%
Real Estate Reported EBITDA
 
$
(2,405
)
 
$
(1,613
)
 
(49.1
)%

Six months ended January 31, 2019
Other operating expense of $2.8 million was primarily comprised of general and administrative costs, such as labor and labor-related benefits, professional services and allocated corporate costs.

Six months ended January 31, 2018
During the six months ended January 31, 2018, we closed on the sale of a development land parcel for $0.5 million which was recorded within Real Estate net revenue. Additionally, Real Estate Reported EBITDA included a gain on sale of real property of $0.5 million for the sale of a land parcel.

Other operating expense of $2.4 million was primarily comprised of general and administrative costs, such as labor and labor-related benefits, professional services and allocated corporate costs.

Other Items
In addition to segment operating results, the following material items contributed to our overall financial results for the three and six months ended January 31, 2019 and 2018 (in thousands).
 
Three Months Ended
January 31,
 
 
Increase
(Decrease)
 
Six Months Ended
January 31,
 
Increase
(Decrease)
 
2019
 
2018
 
 
2019
 
2018
 
Depreciation and amortization
$
(55,238
)
 
$
(51,404
)
 
7.5
 %
 
$
(106,281
)
 
$
(100,028
)
 
6.3
 %
Foreign currency gain (loss) on intercompany loans
$
450

 
$
10,337

 
(95.6
)%
 
$
(1,861
)
 
$
2,991

 
(162.2
)%
Interest expense, net
$
(21,002
)
 
$
(15,973
)
 
31.5
 %
 
$
(39,640
)
 
$
(31,147
)
 
27.3
 %
(Provision) benefit from income taxes
$
(63,973
)
 
$
(3,594
)
 
1,680.0
 %
 
$
(27,568
)
 
$
89,810

 
130.7
 %
Effective tax rate (expense) benefit
(22.7
)%
 
(1.4
)%
 
21.3 pts

 
(20.4
)%
 
70.8
%
 
91.2 pts


Depreciation and amortization. Depreciation and amortization expense for the three and six months ended January 31, 2019 increased $3.8 million and $6.3 million, respectively, compared to the same period in the prior year, primarily due to assets acquired in the Stevens Pass and Triple Peaks acquisitions.

Foreign currency gain (loss) on intercompany loans.  Foreign currency gain (loss) on intercompany loans for the three and six months ended January 31, 2019 decreased $9.9 million and $4.9 million, respectively, and was associated with an intercompany loan from Vail Holdings, Inc. to Whistler Blackcomb in the amount of $210.0 million that was funded, effective as of November 1, 2016, in connection with the acquisition of Whistler Blackcomb. This intercompany loan 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 our results of operations.

Interest expense, net. Interest expense, net for the three and six months ended January 31, 2019 increased $5.0 million and $8.5 million, respectively, compared to the same period in the prior year, primarily due to interest expense associated with incremental term loan borrowings under the Vail Holdings Credit Agreement of $265.6 million, which were used to fund the Stevens Pass and Triple Peaks acquisitions, as well as an increase in interest rates.

35



(Provision) benefit from income taxes. The effective tax rate (provision) benefit for the three and six months ended January 31, 2019 was (22.7%) and (20.4%), respectively, compared to (1.4%) and 70.8%, respectively, for the three and six months ended January 31, 2018. The interim period effective tax rate is primarily driven by (i) anticipated pre-tax book income for the full fiscal year, adjusted for items that are deductible/non-deductible for tax purposes only (i.e., permanent items), (ii) excess tax benefits from employee share awards and enacted tax legislation, which are both recorded as discrete items, (iii) taxable income generated by state and foreign jurisdictions that varies from anticipated consolidated pre-tax book income and (iv) the amount of net income attributable to noncontrolling interests.

The increase in the effective tax rate provision during the three and six months ended January 31, 2019 compared to the three and six months ended January 31, 2018 was primarily due to a one-time, provisional net tax benefit of approximately $64.6 million recorded during the three and six months ended January 31, 2018 as a result of the Tax Act, as well as a reduction in excess tax benefits from employee share awards that were exercised (stock appreciation awards) and that vested (restricted stock awards), which are recorded within (provision) benefit from income taxes on the Company’s Consolidated Condensed Statements of Operations. Excess tax benefits totaled $4.7 million and $53.1 million, respectively, for the six months ended January 31, 2019 and 2018.

Reconciliation of Segment Earnings and Net Debt
The following table reconciles from segment Reported EBITDA to net income attributable to Vail Resorts, Inc. (in thousands):
 
 
Three Months Ended January 31,
 
Six Months Ended January 31,
 
2019
 
2018
 
2019
 
2018
Mountain Reported EBITDA
$
352,225

 
$
305,262

 
$
275,818

 
$
246,825

Lodging Reported EBITDA
5,757

 
3,668

 
9,653

 
8,023

Resort Reported EBITDA
357,982

 
308,930

 
285,471

 
254,848

Real Estate Reported EBITDA
(1,133
)
 
(558
)
 
(2,405
)
 
(1,613
)
Total Reported EBITDA
356,849

 
308,372

 
283,066

 
253,235

Depreciation and amortization
(55,238
)
 
(51,404
)
 
(106,281
)
 
(100,028
)
Gain on disposal of fixed assets and other, net
1,097

 
538

 
478

 
1,105

Change in estimated fair value of contingent consideration
(700
)
 
—

 
(1,900
)
 
—

Investment income and other, net
507

 
397

 
970

 
780

Foreign currency gain (loss) on intercompany loans
450

 
10,337

 
(1,861
)
 
2,991

Interest expense, net
(21,002
)
 
(15,973
)
 
(39,640
)
 
(31,147
)
Income before (provision) benefit from income taxes
281,963

 
252,267

 
134,832

 
126,936

(Provision) benefit from income taxes
(63,973
)
 
(3,594
)
 
(27,568
)
 
89,810

Net income
217,990

 
248,673

 
107,264

 
216,746

Net income attributable to noncontrolling interests
(11,641
)
 
(12,982
)
 
(8,710
)
 
(9,440
)
Net income attributable to Vail Resorts, Inc.
$
206,349

 
$
235,691

 
$
98,554

 
$
207,306

The following table reconciles Net Debt to long-term debt, net (in thousands):
 
 
 
January 31,
 
 
2019
 
2018
Long-term debt, net
 
$
1,345,262

 
$
1,182,349

Long-term debt due within one year
 
48,493

 
38,433

Total debt
 
1,393,755

 
1,220,782

Less: cash and cash equivalents
 
158,561

 
235,460

Net Debt
 
$
1,235,194

 
$
985,322



36


LIQUIDITY AND CAPITAL RESOURCES

Changes in significant sources of cash for the six months ended January 31, 2019 and 2018 are presented by categories as follows (in thousands).
 
Six Months Ended January 31,
 
2019
 
2018
Net cash provided by operating activities
$
506,181

 
$
433,748

Net cash used in investing activities
$
(404,324
)
 
$
(81,765
)
Net cash used in financing activities
$
(105,011
)
 
$
(222,148
)

Six months ended January 31, 2019 compared to the six months ended January 31, 2018
We generated $506.2 million of cash from operating activities during the six months ended January 31, 2019, an increase of $72.5 million compared to $433.7 million of cash generated during the six months ended January 31, 2018. The increase in operating cash flows was primarily a result of increased North American pass sales for the 2018/2019 North American ski season compared to the 2017/2018 North American ski season, of which only a portion has been reflected as lift revenue in operating results, as well as improved Mountain and Lodging segment operating results for the six months ended January 31, 2019 compared to the six months ended January 31, 2018 and an increase in accounts payable. These increases were partially offset by an increase in estimated foreign tax payments, as well as an increase in cash interest payments primarily associated with incremental term loan borrowings under our Vail Holdings Credit Agreement.

Cash used in investing activities for the six months ended January 31, 2018 increased by $322.6 million primarily due to cash payments related to the acquisitions of Triple Peaks and Stevens Pass during the six months ended January 31, 2019 of $292.6 million, net of cash acquired, as well as an increase in capital expenditures of $26.2 million during the six months ended January 31, 2019 compared to the six months ended January 31, 2018.

Cash used in financing activities decreased by $117.1 million during the six months ended January 31, 2019, compared to the six months ended January 31, 2018, primarily due to proceeds from incremental borrowings under the term loan portion of our Vail Holdings Credit Agreement of $265.6 million, which was used to fund the Triple Peaks and Stevens Pass acquisitions. Additionally, cash payments for employee taxes related to exercises of share awards decreased by $60.0 million and net proceeds from borrowings under our Whistler Credit Agreement increased by $13.7 million. These increases were partially offset by an increase in net payments under the revolver portion of our Vail Holdings Credit Agreement, repurchases of common stock of approximately $85.0 million and an increase in dividends paid of $33.5 million during the six months ended January 31, 2019 compared to the six months ended January 31, 2018.

Significant Sources of Cash
Our second and third fiscal quarters historically result in seasonally high cash on hand as our North American mountain resorts and urban ski areas are generally open for ski operations from mid-November to mid-April, from which we have historically generated a significant portion of our operating cash flows for the fiscal year.

We had $158.6 million of cash and cash equivalents as of January 31, 2019, compared to $235.5 million as of January 31, 2018. We currently anticipate that our Mountain and Lodging segment operating results will continue to provide a significant source of future operating cash flows (primarily those generated in our second and third fiscal quarters).

In addition to our $158.6 million of cash and cash equivalents at January 31, 2019, we had $317.9 million available under the revolver component of our Vail Holdings Credit Agreement as of January 31, 2019 (which represents the total commitment of $400.0 million less certain letters of credit outstanding of $82.1 million). Additionally, we had C$219.1 million ($166.8 million) available under the revolver component of our Whistler Credit Agreement (which represents the total commitment of C$300.0 million ($228.4 million) less outstanding borrowings of C$80.0 million ($60.9 million) and a letter of credit outstanding of C$0.9 million ($0.7 million)). We expect that our liquidity needs in the near term will be met by continued use of operating cash flows and borrowings under both the Vail Holdings Credit Agreement and Whistler Credit Agreement, if needed. The Vail Holdings Credit Agreement and the Whistler Credit Agreement provide adequate flexibility and are priced favorably with any new borrowings currently priced at LIBOR plus 1.25% and Bankers Acceptance Rate plus 1.75%, respectively.


37


Significant Uses of Cash
Capital Expenditures
We have historically invested significant amounts of cash in capital expenditures for our resort operations, and we expect to continue to do so, subject to operating performance particularly as it relates to discretionary projects. In addition, we may incur capital expenditures for retained ownership interests associated with third-party real estate development projects. Currently planned capital expenditures primarily include investments that will allow us to maintain our high-quality standards, as well as certain incremental discretionary improvements at our Resorts and throughout our owned hotels. We evaluate additional discretionary capital improvements based on an expected level of return on investment. We currently anticipate we will spend approximately $139 million to $143 million on resort capital expenditures during calendar year 2019, excluding one-time items associated with integrations, the one-time Triple Peaks and Stevens Pass transformation plan, summer capital, real estate related capital and reimbursable investments. We expect that our total capital plan will be approximately $180 million to $185 million, including items noted above for integration and acquisitions, summer capital, real estate related projects and approximately $13 million of reimbursable investments associated with insurance recoveries and tenant improvements. Included in these estimated capital expenditures are approximately $85 million to $90 million of maintenance capital expenditures, which are necessary to maintain appearance and level of service appropriate to our resort operations. Discretionary expenditures for calendar year 2019 include, among other projects, significant investments in our snowmaking systems in Colorado that will transform the early-season terrain experience at Vail, Keystone and Beaver Creek; technology investments to increase lift ticket express fulfillment capacity through new mobile technology across our 17 North American Resorts to allow skiers and snowboarders who purchased tickets in advance to bypass the ticket window entirely; and a new permanent Tombstone BBQ restaurant at Park City. We also plan to make significant one-time investments across the recently acquired resorts of Crested Butte, Okemo, Mount Sunapee and Stevens Pass, which will include replacing and upgrading the Daisy and Brooks lifts at Stevens Pass and the Teocalli Lift at Crested Butte and on-mountain restaurant upgrades at Okemo. We plan to spend approximately $14 million in the first phase of a two-year, $35 million investment program for these newly acquired resorts. Additionally, we plan to spend approximately $7 million in capital for the integration of Triple Peaks and Stevens Pass. Investments in additional summer activities will be approximately $4 million in calendar year 2019 as we complete work on a major zip line at Breckenridge. The calendar year 2019 capital plan also includes $3 million of investment related to our sustainability commitment focused on energy efficiency opportunities in snowmaking as well as other electrical and lighting applications. We currently plan to utilize cash on hand, borrowings available under our credit agreements and/or cash flow generated from future operations to provide the cash necessary to complete our capital plans.

Acquisitions of Stevens Pass, Okemo, Mount Sunapee and Crested Butte
On August 15, 2018, we borrowed $70.0 million under the term loan of our Vail Holdings Credit Agreement, primarily to fund the acquisition of Stevens Pass, which was acquired for a cash purchase price of $64.0 million. On September 27, 2018, we acquired Triple Peaks 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 for the leases that all three resorts had with Ski Resort Holdings, with funds provided by the Company. Accordingly, the total purchase price, including repayment of lease obligations, was $229.1 million, for which we utilized cash on hand and borrowed $195.6 million under the term loan of our Vail Holdings Credit Agreement to fund the transaction and associated acquisition related expenses.

Debt
As of January 31, 2019, principal payments on the majority of our long-term debt ($1,179.1 million of the total $1,397.6 million debt outstanding as of January 31, 2019) are not due until fiscal 2024 and beyond. As of January 31, 2019 and 2018, total long-term debt, net (including long-term debt due within one year) was $1,393.8 million and $1,220.8 million, respectively. Net Debt (defined as long-term debt, net plus long-term debt due within one year less cash and cash equivalents) increased from $985.3 million as of January 31, 2018 to $1,235.2 million as of January 31, 2019, primarily due to incremental borrowings outstanding under the term loan of our Vail Holdings Credit Agreement, as discussed above. On August 15, 2018, we amended and restated in its entirety our Vail Holdings Credit Agreement, which provides for (i) a revolving loan facility in an aggregate principal amount of $400.0 million and (ii) a term loan facility in an aggregate principal amount of up to $950.0 million. Additionally, key modifications to the Vail Holdings Credit Agreement included, among other things, the extension of the maturity date on the revolving credit facility to August 2023. During the three months ended January 31, 2019, we entered into an amendment of the Whistler Credit Agreement which extended the maturity date of the revolving credit facility to December 2023. No other material terms of the Whistler Credit Agreement were altered. We expect that our liquidity needs in the near term will be met by continued use of operating cash flows and borrowings under both the Vail Holdings Credit Agreement and Whistler Credit Agreement.

Our debt service requirements can be impacted by changing interest rates as we had approximately $1.1 billion of variable-rate debt outstanding as of January 31, 2019. A 100-basis point change in our borrowing rates would cause our annual interest payments

38


to change by approximately $10.5 million. Additionally, the annual payments associated with the financing of the Canyons Resort transaction increase by the greater of CPI less 1%, or 2%. The fluctuation in our debt service requirements, in addition to interest rate and inflation changes, may be impacted by future borrowings under our credit agreements or other alternative financing arrangements we may enter into. Our long term liquidity needs depend upon operating results that impact the borrowing capacity under our credit agreements, which can be mitigated by adjustments to capital expenditures, flexibility of investment activities and the ability to obtain favorable future financing. We can respond to liquidity impacts of changes in the business and economic environment by managing our capital expenditures, the timing of new real estate development activity and the payment of our regular quarterly cash dividend on our common stock.

Dividend Payments
In fiscal 2011, our Board of Directors approved the commencement of a regular quarterly cash dividend on our common stock at an annual rate of $0.60 per share, subject to quarterly declaration. Since the initial commencement of a regular quarterly cash dividend, our Board of Directors has annually approved an increase to our cash dividend on our common stock and on March 7, 2019, our Board of Directors approved a 20% increase to our quarterly cash dividend to $1.76 per share (or approximately $70.8 million per quarter based upon shares outstanding as of January 31, 2019). For the six months ended January 31, 2019, we paid cash dividends of $2.94 per share ($118.7 million in the aggregate). These dividends were funded through available cash on hand and borrowings under the revolving portion of our Vail Holdings Credit Agreement. Subject to the discretion of our Board of Directors, applicable law and contractual restrictions, we anticipate paying regular quarterly cash dividends on our common stock for the foreseeable future. The amount, if any, of the dividends to be paid in the future will depend on our available cash on hand, anticipated cash needs, overall financial condition, restrictions contained in our Vail Holdings Credit Agreement, future prospects for earnings and cash flows, as well as other factors considered relevant by our Board of Directors.
Share Repurchase Program
Our share repurchase program is conducted under authorizations made from time to time by our Board of Directors. On March 9, 2006, our Board of Directors initially authorized the repurchase of up to 3,000,000 shares of Vail Resorts common stock (“Vail Shares”) and later authorized additional repurchases of up to 3,000,000 Vail Shares (July 16, 2008) and 1,500,000 Vail Shares (December 4, 2015), for a total authorization to repurchase up to 7,500,000 Vail Shares. During the six months ended January 31, 2019, we repurchased 353,007 Vail Shares (at a total cost of approximately $85.0 million). We did not repurchase any Vail Shares during the six months ended January 31, 2018. Since inception of this stock repurchase program through January 31, 2019, we have repurchased 5,904,723 Vail Shares at a cost of approximately $358.0 million. As of January 31, 2019, 1,595,277 Vail Shares remained available to repurchase under the existing repurchase authorization. Vail Shares purchased pursuant to the repurchase program will be held as treasury shares and may be used for the issuance of shares under our share award plan. Repurchases under the program may be made from time to time at prevailing prices as permitted by applicable laws, and subject to market conditions and other factors. The timing as well as the number of Vail Shares that may be repurchased under the program will depend on several factors, including our future financial performance, our available cash resources and competing uses for cash that may arise in the future, the restrictions in our Vail Holdings Credit Agreement, prevailing prices of Vail Shares and the number of Vail Shares that become available for sale at prices that we believe are attractive. The share repurchase program has no expiration date.
Covenants and Limitations
We must abide by certain restrictive financial covenants under our credit agreements. The most restrictive of those covenants include the following covenants: for the Vail Holdings Credit Agreement, Net Funded Debt to Adjusted EBITDA ratio and the Interest Coverage ratio (each as defined in the Vail Holdings Credit Agreement); and for the Whistler Credit Agreement, Consolidated Total Leverage Ratio and Consolidated Interest Coverage Ratio (each as defined in the Whistler Credit Agreement). In addition, our financing arrangements limit our ability to make certain restricted payments, pay dividends on or redeem or repurchase stock, make certain investments, make certain affiliate transfers and may limit our ability to enter into certain mergers, consolidations or sales of assets and incur certain indebtedness. Our borrowing availability under the Vail Holdings Credit Agreement is primarily determined by the Net Funded Debt to Adjusted EBITDA ratio, which is based on our segment operating performance, as defined in the Vail Holdings Credit Agreement. Our borrowing availability under the Whistler Credit Agreement is primarily determined based on the commitment size of the credit facility and our compliance with the terms of the Whistler Credit Agreement.

We were in compliance with all restrictive financial covenants in our debt instruments as of January 31, 2019. We expect that we will meet all applicable financial maintenance covenants in our credit agreements throughout the fiscal year ending July 31, 2019. However, there can be no assurance we will meet such financial covenants. If such covenants are not met, we would be required to seek a waiver or amendment from the banks participating in the credit agreements. There can be no assurance that such waivers or amendments would be granted, which could have a material adverse impact on our liquidity.


39


OFF BALANCE SHEET ARRANGEMENTS

We do not have off balance sheet transactions that are expected to have a material effect on our financial condition, revenue, expenses, results of operations, liquidity, capital expenditures or capital resources.

FORWARD-LOOKING STATEMENTS

Except for any historical information contained herein, the matters discussed or incorporated by reference in this Form 10-Q contain certain forward-looking statements within the meaning of the federal securities laws. These statements relate to analyses and other information available as of the date hereof, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our contemplated future prospects, developments and business strategies.

These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” and similar terms and phrases, including references to assumptions. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that such plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from our forward-looking statements include, but are not limited to:

•
prolonged weakness in general economic conditions, including adverse effects on the overall travel and leisure related industries;
•
unfavorable weather conditions or the impact of natural disasters;
•
risks related to our reliance on information technology, including our failure to maintain the integrity of our customer or employee data;
•
risks related to cyber-attacks;
•
willingness of our guests to travel due to terrorism, the uncertainty of military conflicts or outbreaks of contagious diseases, and the cost and availability of travel options and changing consumer preferences;
•
the seasonality of our business combined with adverse events that occur during our peak operating periods;
•
competition in our mountain and lodging businesses;
•
the high fixed cost structure of our business;
•
our ability to fund resort capital expenditures;
•
risks related to a disruption in our water supply that would impact our snowmaking capabilities and operations;
•
our reliance on government permits or approvals for our use of public land or to make operational and capital improvements;
•
risks associated with obtaining governmental or third party approvals and the timing of closing for the pending acquisition of the Falls Creek and Hotham resorts;
•
risks related to federal, state, local and foreign government laws, rules and regulations;
•
risks related to changes in security and privacy laws and regulations which could increase our operating costs and adversely affect our ability to market our products and services effectively;
•
our ability to hire and retain a sufficient seasonal workforce;
•
risks related to our workforce, including increased labor costs;
•
loss of key personnel;
•
adverse consequences of current or future legal claims;
•
a deterioration in the quality or reputation of our brands, including our ability to protect our intellectual property and the risk of accidents at our mountain resorts;
•
our ability to successfully integrate acquired businesses, or that acquired businesses may fail to perform in accordance with expectations, including Okemo, Crested Butte, Stevens Pass, Mount Sunapee or future acquisitions;
•
our ability to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, with respect to acquired businesses;
•
risks associated with international operations;
•
fluctuations in foreign currency exchange rates where the Company has foreign currency exposure, primarily the Canadian and Australian dollars;
•
changes in accounting judgments and estimates, accounting principles, policies or guidelines or adverse determinations by taxing authorities;
•
risks associated with uncertainty of the impact of recently enacted tax reform legislation in the United States; and
•
a materially adverse change in our financial condition.

All forward-looking statements attributable to us or any persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.


40


If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. Given these uncertainties, users of the information included in this Form 10-Q, including investors and prospective investors, are cautioned not to place undue reliance on such forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements that we make for a number of reasons, including those described in Part I, Item 1A “Risk Factors” of our Form 10-K. All forward-looking statements are made only as of the date hereof. Except as may be required by law, we do not intend to update these forward-looking statements, even if new information, future events or other circumstances have made them incorrect or misleading.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our exposure to market risk is limited primarily to the fluctuating interest rates associated with variable rate indebtedness. As of January 31, 2019, we had approximately $1.1 billion of variable rate indebtedness, representing approximately 75.2% of our total debt outstanding, at an average interest rate during the three and six months ended January 31, 2019 of 3.9% and 3.6%, respectively. Based on variable-rate borrowings outstanding as of January 31, 2019, a 100-basis point (or 1.0%) change in our borrowing rates would result in our annual interest payments changing by approximately $10.5 million. Our market risk exposure fluctuates based on changes in underlying interest rates.

Foreign Currency Exchange Rate Risk. We are exposed to currency translation risk because the results of our international entities are reported in local currency, which we then translate to U.S. dollars for inclusion in our consolidated condensed financial statements. As a result, changes between the foreign exchange rates, in particular the Canadian dollar and Australian dollar compared to the U.S. dollar, affect the amounts we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results. Additionally, we also have foreign currency transaction exposure from an intercompany loan to Whistler Blackcomb that is not deemed to be permanently invested, which have and could materially change due to fluctuations in the Canadian dollar exchange rate. The results of Whistler Blackcomb and Perisher are reported in Canadian dollars and Australian dollars, respectively, which we then translate to U.S. dollars for inclusion in our consolidated condensed financial statements. We do not currently enter into hedging arrangements to minimize the impact of foreign currency fluctuations on our operations.

The following table summarizes the amounts of foreign currency translation adjustments, net of tax, representing losses, and foreign currency (loss) gain on intercompany loans recognized, in comprehensive income (in thousands).
 
Six Months Ended January 31,
 
2019
 
2018
Foreign currency translation adjustments, net of tax
$
(14,773
)
 
$
19,603

Foreign currency (loss) gain on intercompany loans
$
(1,861
)
 
$
2,991


ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Management of the Company, under the supervision and with participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Act”) as of the end of the period covered by this report on Form 10-Q.
Based upon their evaluation of the Company’s disclosure controls and procedures, the CEO and the CFO concluded that the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
The Company, including its CEO and CFO, does not expect that the Company’s controls and procedures will prevent or detect all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

PART II OTHER INFORMATION

41


ITEM 1. LEGAL PROCEEDINGS
In May 2016, Kirkwood received a Notice of Violation (“NOV”) from the State of California Central Valley Regional Water Quality Control Board (the “Regional Water Board”) regarding the disposition of asphalt grindings used in parking lot surfacing in and around Kirkwood Creek.  We have cooperated with the Regional Water Board staff and the California Department of Fish and Wildlife (“CDFW”) to satisfactorily resolve the matters identified in the NOV.

On December 13, 2017, Kirkwood entered into a Settlement Agreement and Stipulation for Entry of Administrative Liability Order (“Stipulated Order”) with the Regional Water Board and CDFW.   Under the Stipulated Order, Kirkwood agreed to be responsible for monetary penalties and agency costs totaling approximately $0.8 million, of which approximately half will be fulfilled by a supplemental environmental project run by the National Fish and Wildlife Foundation.  All of these amounts have been paid by third-party insurance.  The remaining remediation work required by the Stipulated Order and requested by the agencies should be completed in calendar year 2019, depending on permits and weather conditions.

We do not expect the resolution of the above item to have a material impact on our results of operations or cash flows.

We are a party to various lawsuits arising in the ordinary course of business. We believe that we have adequate insurance coverage and/or have accrued for all loss contingencies for asserted and unasserted matters and that, although the ultimate outcome of such claims cannot be ascertained, current pending and threatened claims are not expected, individually or in the aggregate, to have a material adverse impact on our financial position, results of operations and cash flows.

ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K, filed with the SEC on September 28, 2018, as of and for the year ended July 31, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Exchangeable Shares
As described elsewhere in this report, on October 17, 2016, the Company acquired all of the outstanding common shares of Whistler Blackcomb. Part of the consideration paid to Whistler Blackcomb shareholders consisted of 3,327,719 Vail Shares and 418,095 shares of the Company’s wholly-owned Canadian subsidiary (the “Exchangeco Shares”). Each Exchangeco Share is exchangeable by the holder thereof for one Vail Share (subject to customary adjustments for stock splits or other reorganizations). In addition, the Company may require all outstanding Exchangeco Shares to be exchanged into an equal number of Vail Shares upon the occurrence of certain events and at any time following the seventh anniversary of the closing of the transaction. Exchangeco Shares, while outstanding, are substantially the economic equivalent of the corresponding Vail Shares. As of January 31, 2019, 56,895 Exchangeco Shares had not yet been exchanged into Vail Shares.

The shares issued at closing of the Whistler Blackcomb acquisition were issued in reliance upon Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), which exempts from the registration requirements under the Securities Act any securities that are issued in exchange for one or more bona fide outstanding securities where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court expressly authorized by law to grant such approval. Although exempt from the registration requirements under the Securities Act, such shares are listed and freely tradeable on the New York Stock Exchange.

42


Repurchase of Equity Securities
The following table sets forth our purchases of shares of our common stock during the second quarter of fiscal 2019:
Period
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
November 1, 2018 - November 30, 2018
—

 
$
—

 
—

 
1,750,388

December 1, 2018 - December 31, 2018
155,111

 
$
225.64

 
155,111

 
1,595,277

January 1, 2019 - January 31, 2019
—

 
$
—

 
—

 
1,595,277

Total
155,111

 
$
225.64

 
155,111

 
1,595,277

(1)
The share repurchase program is conducted under authorizations made from time to time by our Board of Directors. The Board of Directors initially authorized the repurchase of up to 3,000,000 Vail Shares (March 9, 2006), and later authorized additional repurchases of up to 3,000,000 Vail Shares (July 16, 2008) and 1,500,000 Vail Shares (December 4, 2015), for a total authorization to repurchase up to 7,500,000 Vail Shares. As of January 31, 2019, 1,595,277 Vail Shares remained available to repurchase under the existing repurchase authorization. Repurchases under these authorizations may be made from time to time at prevailing prices as permitted by applicable laws, and subject to market conditions and other factors. These authorizations have no expiration date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5. OTHER INFORMATION
None.

ITEM 6. EXHIBITS
The following exhibits are either filed or furnished herewith or, if so indicated, incorporated by reference to the documents indicated in parentheses, which have previously been filed or furnished with the Securities and Exchange Commission.
Exhibit
Number
Description
 
 
10.1
 
 
31.1
 
 
31.2
 
 
32
 
 
101
The following information from the Company’s Quarterly Report on Form 10-Q for the three and six months ended January 31, 2019 formatted in eXtensible Business Reporting Language: (i) Unaudited Consolidated Condensed Balance Sheets as of January 31, 2019, July 31, 2018 and January 31, 2018; (ii) Unaudited Consolidated Condensed Statements of Operations for the three and six months ended January 31, 2019 and 2018; (iii) Unaudited Consolidated Condensed Statements of Comprehensive Income for the three and six months ended January 31, 2019 and 2018; (iv) Unaudited Consolidated Condensed Statements of Stockholders’ Equity for the six months ended January 31, 2019 and 2018; (v) Unaudited Consolidated Condensed Statements of Cash Flows for the six months ended January 31, 2019 and 2018; and (vi) Notes to the Consolidated Condensed Financial Statements.




43


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
 
Vail Resorts, Inc.
 
 
 
Date: March 8, 2019
By:
/s/ Michael Z. Barkin
 
 
Michael Z. Barkin
 
 
Executive Vice President and Chief Financial Officer
 
 
(Principal Financial Officer)
 
 
 
Date: March 8, 2019
By:
/s/ Ryan H. Siurek
 
 
Ryan H. Siurek
 
 
Senior Vice President, Controller and
Chief Accounting Officer
 
 
(Principal Accounting Officer)



44
Exhibit


Exhibit 10.1

FOURTH AMENDING AGREEMENT
THIS FOURTH AMENDING AGREEMENT (the “Amendment”) is dated as of November 30, 2018 and is entered into between Whistler Mountain Resort Limited Partnership (“Whistler LP”), by its general partner, Whistler Blackcomb Holdings Inc. (the “Parent GP”), and Blackcomb Skiing Enterprises Limited Partnership (“Blackcomb LP” and together with Whistler LP, the “Borrowers”), by its general partner, Parent GP, the guarantors party hereto, the Continuing Lenders (as defined below) and The Toronto-Dominion Bank, as administrative agent (the “Administrative Agent”);
WHEREAS the Borrowers, the lenders from time to time party thereto (the “Lenders”), the guarantors from time to time party thereto (the “Guarantors”) and the Administrative Agent are parties to an Amended and Restated Credit Agreement dated as of November 12, 2013, as amended by a First Amending Agreement dated as of October 30, 2014, a Second Amending Agreement and Waiver dated as of October 14, 2016 and a Third Amending Agreement dated as of February 13, 2017 (as amended, restated, amended and restated, supplemented, extended or otherwise modified to but excluding the date hereof, the “Credit Agreement”);
AND WHEREAS the Borrowers have submitted an extension request (the “Extension Request”) to extend the Maturity Date under the Credit Agreement to December 15, 2023 (the “New Maturity Date”);
AND WHEREAS pursuant to Section 18.01 of the Credit Agreement, the Extension Request requires the approval of all of the affected Lenders;
AND WHEREAS one of the Lenders, Raymond James Finance Company of Canada Ltd. (the “Exiting Lender”), has agreed to assign in full its $20,000,000 Commitment under the Credit Agreement, and two of the Lenders, HSBC Bank Canada and Fédération des caisses Desjardins du Québec, have each agreed to acquire and assume $10,000,000 of the Exiting Lender’s Commitment, a corresponding portion of the Accommodations Outstanding and the Exiting Lender's rights and obligations under the Credit Agreement, in each case pursuant to Assignment and Assumptions in the form contemplated by the Credit Agreement (the “Exiting Lender Assignments and Assumptions”);
AND WHEREAS the parties hereto wish to amend the Credit Agreement to reflect the New Maturity Date and the revised allocation of the Commitments among the Lenders that will be party to the Credit Agreement after giving effect to the Exiting Lender Assignments and Assumptions (the “Continuing Lenders”), as of the date on which all conditions to the effectiveness of this Amendment have been satisfied;
NOW THEREFORE for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto hereby agree as follows:
ARTICLE 1
INTERPRETATION
Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.



- 2 -


ARTICLE 2
AMENDMENTS TO CREDIT AGREEMENT
Subject to the satisfaction of each of the conditions set forth in this Amendment, and in reliance on the representations, warranties and agreements contained in this Amendment, the Credit Agreement is hereby amended as follows:
2.1
Definition of Maturity Date
Section 1.01 of the Credit Agreement is hereby amended by deleting the definition of “Maturity Date” in its entirety and replacing it with the following:
““Maturity Date” means December 15, 2023, or any subsequent date to which the Maturity Date is extended in accordance with Section 2.11.”
2.2
Schedule 10
Schedule 10 of the Credit Agreement is hereby deleted in its entirety and replaced with the new form of Schedule 10 attached as Exhibit A hereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1
Representations and Warranties
Each of the Parent GP and the Loan Parties represents and warrants that the representations and warranties contained in Section 7.01 of the Credit Agreement continue to be true and correct as if made on and as of the date hereof except for those changes to the representations and warranties which have been disclosed to and accepted by the Administrative Agent and the Lenders pursuant to section 18.01 of the Credit Agreement and any representation and warranty which is stated to be made only as of a certain date (and then as of such date). Each of the Parent GP and the Loan Parties further represents and warrants that:
(a)
no Default or Event of Default has occurred and is continuing or would exist after giving effect to the amendments contemplated hereto;
(b)
it has all requisite corporate, partnership or other power and authority to enter into and perform its obligations under this Amendment;
(c)
the execution, delivery and performance of this Amendment has been duly authorized by all corporate, partnership or other analogous actions required and this Amendment has been duly executed and delivered by it, and constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms, subject only to any limitations under Laws relating to (i) bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights generally; and (ii) general equitable principles including the discretion that a court may exercise in granting of equitable remedies; and
(d)
the execution and delivery of this Amendment and the performance of its obligations hereunder and compliance with the terms, conditions and provisions hereof, will not


- 3 -


(i) conflict with or result in a breach of any of the material terms, conditions or provisions of (a) its partnership agreement or other constating documents, as applicable, or by‑laws, (b) any Law, (c) any Material Agreement or Material Permit, or (d) any judgment, injunction, determination or award which is binding on it; or (ii) result in, require or permit (x) the imposition of any Encumbrance in, on or with respect to the Assets now owned or hereafter acquired by it (other than pursuant to the Security Documents or which is a Permitted Encumbrance), (y) the acceleration of the maturity of any material Debt binding on or affecting it, or (z) any third party to terminate or acquire any rights materially adverse to Parent GP or the applicable Loan Party under any Material Agreement.

ARTICLE 4
CONFIRMATION OF SECURITY
4.1
Confirmation of Security Documents
Each of the Parent GP, the Borrowers and the other Loan Parties hereby acknowledges and confirms that each Security Document to which it is a party:
(a)
is and shall remain in full force and effect in all respects, notwithstanding the amendments and supplements to the Credit Agreement made pursuant to this Amendment, and has not been amended, terminated, discharged or released;
(b)
constitutes a legal, valid and binding obligation of the undersigned, enforceable against the undersigned in accordance with its terms; and
(c)
shall, together with that portion of the Security constituted thereby, continue to exist and apply to all of the Guaranteed Obligations and other obligations of the undersigned including, without limitation, any and all obligations, liabilities and indebtedness of the undersigned pursuant to Accommodations or otherwise outstanding under the Credit Agreement and the other Credit Documents to which it is a party.
4.2
Nature of Acknowledgements
The foregoing acknowledgements and confirmations (i) are in addition to and shall not limit, derogate from or otherwise affect any provisions of the Credit Agreement or the other Credit Documents, and (ii) do not serve as an acknowledgment by any of the Lenders or the Administrative Agent that, in the event of a future change to the constitution of any Loan Party, any material change to the terms of the Credit Agreement or the other Credit Documents or any other change of circumstances, a similar acknowledgment and confirmation need be entered into.
4.3
Further Assurances
The parties hereto shall from time to time do all such further acts and things and execute and deliver all such documents as are required in order to effect the full intent of and fully perform and carry out the terms of this Agreement.


- 4 -



ARTICLE 5
CONDITIONS
The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent:
(a)
the Administrative Agent shall have received a copy of this Amendment duly executed by all parties hereto;
(b)
the Administrative Agent shall have received a copy of each of the Exiting Lender Assignments and Assumptions duly executed by all parties thereto;
(c)
the Administrative Agent shall have received, on behalf of the Continuing Lenders, payment in full from the Borrowers of all fees relating to the Amendment;
(d)
the Administrative Agent shall have received an officer’s certificate of Parent GP (i) attaching the written resolutions of the directors of Parent GP, dated on or about November 12, 2013, approving, among other things, the execution and delivery of the Credit Agreement and related documents and agreements by Parent GP and the Borrowers, and the performance by them of their respective obligations thereunder (the “Resolutions”), and (ii) confirming that the Resolutions remain in full force and effect, unamended to the date hereof;
(e)
no Default or Event of Default shall have occurred and be continuing; and
(f)
all representations and warranties set out in the Credit Documents and this Amendment shall be true and correct as if made on and as of the date hereof except for those changes to the representations and warranties which have been disclosed to and accepted by the Administrative Agent and the Lenders pursuant to section 18.01 of the Credit Agreement and any representation and warranty which is stated to be made only as of a certain date (and then as of such date).
ARTICLE 6
MISCELLANEOUS
6.1
Benefits
This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective permitted successors and assigns.
6.2
References to the Credit Agreement
As of and from the effective date of this Amendment, each reference to the “Credit Agreement” in any of the Credit Documents (including the Credit Agreement) shall be deemed to be a reference to the Credit Agreement, as amended by this Amendment.


- 5 -


6.3
Governing Law
This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the laws of the Province of British Columbia and the federal laws of Canada applicable therein.
6.4
Credit Document
This Amendment shall be a Credit Document.
6.5
Limited Effect
Except as expressly provided herein, all of the terms and provisions of the Credit Agreement are and shall remain in full force and effect and are hereby ratified and confirmed by the Borrowers.
6.6
Counterparts
This Amendment may be executed in any number of counterparts, including by facsimile or portable document format, each of which shall be deemed to be an original.
[Remainder of this page intentionally left blank]



IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 
 
WHISTLER MOUNTAIN RESORT LIMITED PARTNERSHIP, by its general partner, WHISTLER BLACKCOMB HOLDINGS INC., as Borrower
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 
 
 
 
 
BLACKCOMB SKIING ENTERPRISES LIMITED PARTNERSHIP, by its general partner, WHISTLER BLACKCOMB HOLDINGS INC., as Borrower
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 
 
 






 
 
THE TORONTO-DOMINION BANK, as Administrative Agent
By:
/s/ Feroz Haq
 
Feroz Haq
 
Director, Loan Syndications - Agency





 
 
THE TORONTO-DOMINION BANK, as Lender
By:
/s/ Rahim Kabani
 
Rahim Kabani
 
Managing Director
By:
/s/ Ben Montgomery
 
Ben Montgomery
 
 
 
Director
 
 
 
 
 
 
BANK OF AMERICA, N.A., CANADA BRANCH, as Lender
By:
/s/ David Rafferty
 
David Rafferty
 
Vice President
 
 
 
 
 
 
BANK OF MONTREAL, as Lender
By:
/s/ Tony Chong
 
Tony Chong
 
Director - Corporate Finance Division
By:
/s/ Doug Mills


Doug Mills
 
 
 
Managing Director - Corporate Finance Division
 
 
 
 
 
 
WELLS FARGO BANK, N.A., CANADIAN BRANCH, as Lender
By:
/s/ Chris Sheppard
 
Chris Sheppard
 
Senior Vice President
By:
/s/ John Davis
 
John Davis
 
 
 
Senior Vice-President
Regional Manager
 
 
 
 
 


ROYAL BANK OF CANADA, as Lender
By:
/s/ Andra Bosneaga
 
Andra Bosneaga
 
Vice-President




 
 
CANADIAN IMPERIAL BANK OF COMMERCE, as Lender
By:
/s/ Zee Noorani
 
Zee Noorani
By:
/s/ Thomas MacGregor
 
Thomas MacGregor
 
 
 
 
 
 
FÉDÉRATION DES CAISSES DESJARDINS DU QUÉBEC, as Lender
By:
/s/ Oliver Sumugod
 
Oliver Sumugod
 
Director
By:
/s/ Matt van Remmen
 
Matt van Remmen
 
 
 
Managing Director
 
 
 
 
 
 
HSBC BANK CANADA, as Lender
By:
/s/ Todd Patchell
 
Todd Patchell
 
Vice President
By:
/s/ Reid Hamilton
 
Reid Hamilton
 
 
 
Assistant Vice President - Corporate Banking





 
WHISTLER MOUNTAIN RESORT LIMITED PARTNERSHIP, by its general partner, WHISTLER BLACKCOMB HOLDINGS INC., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
BLACKCOMB SKIING ENTERPRISES LIMITED PARTNERSHIP, by its general partner, WHISTLER BLACKCOMB HOLDINGS INC., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
WHISTLER BLACKCOMB HOLDINGS INC., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
WHISTLER & BLACKCOMB MOUNTAIN RESORTS LIMITED, as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
PEAK TO CREEK LODGING COMPANY LTD., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 
 
 






 
BLACKCOMB MOUNTAIN DEVELOPMENT LTD., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
GARIBALDI LIFTS LTD., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
WHISTLER BLACKCOMB EMPLOYMENT CORP., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
WHISTLER/BLACKCOMB MOUNTAIN EMPLOYEE HOUSING LTD., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 







 
WHISTLER SKI SCHOOL LTD., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
CRANKWORX EVENTS INC., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
WHISTLER HELI-SKIING LTD., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 
 
 







 
PEAK TO CREEK HOLDINGS CORP., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
WB LAND INC., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
WHISTLER BLACKCOMB GENERAL PARTNER LTD., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 






 
WB/T DEVELOPMENT LTD., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
BLACKCOMB SKIING ENTERPRISES LTD., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
AFFINITY SNOWSPORTS INC., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 
 
 






 
WHISTLER ALPINE CLUB INC., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 


 
WB LAND (CREEKSIDE SNOW SCHOOL) INC., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer
 
 
 
 


 
1016563 B.C. LTD., as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer


 
SUMMIT SKI LIMITED, as Guarantor
By:
/s/ Michael Z. Barkin
 
Name: Michael Z. Barkin
Title: Executive Vice President and Chief Financial Officer




Exhibit A
SCHEDULE 10
LENDERS AND COMMITMENTS
Lender
Address
Commitment ($)
The Toronto-Dominion Bank
700 West Georgia Street
Suite 1700
Vancouver, BC V7Y 1B6
50,000,000 1
Bank of America, N.A., Canada Branch
181 Bay Street, Suite 400, Toronto, ON M5J 2V8
40,000,000
Bank of Montreal
885 West Georgia Street, Suite 1700, Vancouver, BC V6C 3E8
40,000,000
Wells Fargo Bank, N.A., Canadian Branch
330 - 200 Burrard Street, Vancouver, BC V6C 3L6
40,000,000
Royal Bank of Canada
Suite 2100, 666 Burrard Street, Vancouver, BC V6C 3B1
40,000,000
Canadian Imperial Bank of Commerce
161 Bay Street, 8th Floor, Toronto, ON M5J 2S8
30,000,000 2
Fédération des caisses Desjardins du Québec
110 - 9th Avenue SW, Suite 410, Calgary, AB T2P 0T1
30,000,000
HSBC Bank Canada
Suite 200 - 885 West Georgia Street, Vancouver, BC V6C 3G1
30,000,000
TOTAL
 
300,000,000

                                                                


1A portion of the Commitment of The Toronto-Dominion Bank consisting of $20,000,000 (less the amount of all Existing Documentary Credits outstanding from time to time) will be represented by the Swing Line Commitment.
2A portion of the Commitment of Canadian Imperial Bank of Commerce will consist of the amount of all Existing Documentary Credits outstanding from time to time.


Exhibit


Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Robert A. Katz, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Vail Resorts, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 8, 2019
 
 
/s/ ROBERT A. KATZ
 
Robert A. Katz
 
Chief Executive Officer



Exhibit


 Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Michael Z. Barkin, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Vail Resorts, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 8, 2019
 
 
/s/ MICHAEL Z. BARKIN
 
Michael Z. Barkin
 
Executive Vice President and Chief Financial Officer




Exhibit


Exhibit 32

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
AND THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby certifies in his capacity as an officer of Vail Resorts, Inc. (the “Company”) that the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Report fairly presents, in all material respects, the financial condition and the results of operations of the Company at the end of and for the periods covered by such Report.
 
Date: March 8, 2019
 
 
/s/ ROBERT A. KATZ
 
Robert A. Katz
 
Chief Executive Officer
 
Date: March 8, 2019
 
 
/s/ MICHAEL Z. BARKIN
 
Michael Z. Barkin
 
Executive Vice President and Chief Financial Officer

This certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is not a part of the Form 10-Q to which it refers, and is, to the extent permitted by law, provided by each of the above signatories to the extent of his respective knowledge. This certification is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Vail Resorts, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing. A signed original of this written statement required by Section 906 has been provided to Vail Resorts, Inc. and will be furnished to the Securities and Exchange Commission or its staff upon request.