UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended January 31, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to
Commission File Number: 001-09614
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||
(Address of Principal Executive Offices) | (Zip Code) | ||
(Registrant’s telephone number, including area code) | |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ||||
Emerging growth company | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of March 5, 2020, 40,266,037 shares of the registrant’s common stock were outstanding.
Table of Contents
PART I | FINANCIAL INFORMATION | Page |
Item 1. | Financial Statements (unaudited). | |
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II | OTHER INFORMATION | |
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
Vail Resorts, Inc.
Consolidated Condensed Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
January 31, 2020 | July 31, 2019 | January 31, 2019 | ||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | $ | $ | |||||||||
Restricted cash | ||||||||||||
Trade receivables, net | ||||||||||||
Inventories, net | ||||||||||||
Other current assets | ||||||||||||
Total current assets | ||||||||||||
Property, plant and equipment, net (Note 8) | ||||||||||||
Real estate held for sale and investment | ||||||||||||
Goodwill, net (Note 8) | ||||||||||||
Intangible assets, net | ||||||||||||
Operating right-of-use assets (Note 4) | ||||||||||||
Other assets | ||||||||||||
Total assets | $ | $ | $ | |||||||||
Liabilities and Stockholders’ Equity | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable and accrued liabilities (Note 8) | $ | $ | $ | |||||||||
Income taxes payable | ||||||||||||
Long-term debt due within one year (Note 6) | ||||||||||||
Total current liabilities | ||||||||||||
Long-term debt, net (Note 6) | ||||||||||||
Operating lease liabilities (Note 4) | ||||||||||||
Other long-term liabilities (Note 8) | ||||||||||||
Deferred income taxes, net | ||||||||||||
Total liabilities | ||||||||||||
Commitments and contingencies (Note 10) | ||||||||||||
Stockholders’ equity: | ||||||||||||
Preferred stock, $0.01 par value, 25,000 shares authorized, no shares issued and outstanding | ||||||||||||
Common stock, $0.01 par value, 100,000 shares authorized, 46,264, 46,190 and 46,101 shares issued, respectively | ||||||||||||
Exchangeable shares, $0.01 par value, 55, 56 and 57 shares issued and outstanding, respectively (Note 5) | ||||||||||||
Additional paid-in capital | ||||||||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
Retained earnings | ||||||||||||
Treasury stock, at cost, 6,000, 5,905, and 5,905 shares, respectively (Note 12) | ( | ) | ( | ) | ( | ) | ||||||
Total Vail Resorts, Inc. stockholders’ equity | ||||||||||||
Noncontrolling interests | ||||||||||||
Total stockholders’ equity | ||||||||||||
Total liabilities and stockholders’ equity | $ | $ | $ | |||||||||
The accompanying Notes are an integral part of these unaudited consolidated condensed financial statements.
2
Vail Resorts, Inc.
Consolidated Condensed Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended January 31, | Six Months Ended January 31, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net revenue: | |||||||||||||||
Mountain and Lodging services and other | $ | $ | $ | $ | |||||||||||
Mountain and Lodging retail and dining | |||||||||||||||
Resort net revenue | |||||||||||||||
Real Estate | |||||||||||||||
Total net revenue | |||||||||||||||
Operating expense (exclusive of depreciation and amortization shown separately below): | |||||||||||||||
Mountain and Lodging operating expense | |||||||||||||||
Mountain and Lodging retail and dining cost of products sold | |||||||||||||||
General and administrative | |||||||||||||||
Resort operating expense | |||||||||||||||
Real Estate operating expense | |||||||||||||||
Total segment operating expense | |||||||||||||||
Other operating (expense) income: | |||||||||||||||
Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Gain on sale of real property | |||||||||||||||
Change in estimated fair value of contingent consideration (Note 9) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
(Loss) gain on disposal of fixed assets and other, net | ( | ) | |||||||||||||
Income from operations | |||||||||||||||
Mountain equity investment income, net | |||||||||||||||
Investment income and other, net | |||||||||||||||
Foreign currency (loss) gain on intercompany loans (Note 6) | ( | ) | ( | ) | ( | ) | |||||||||
Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Income before provision for income taxes | |||||||||||||||
Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Net income | |||||||||||||||
Net income attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Net income attributable to Vail Resorts, Inc. | $ | $ | $ | $ | |||||||||||
Per share amounts (Note 5): | |||||||||||||||
Basic net income per share attributable to Vail Resorts, Inc. | $ | $ | $ | $ | |||||||||||
Diluted net income per share attributable to Vail Resorts, Inc. | $ | $ | $ | $ | |||||||||||
Cash dividends declared per share | $ | $ | $ | $ | |||||||||||
The accompanying Notes are an integral part of these unaudited consolidated condensed financial statements.
3
Vail Resorts, Inc.
Consolidated Condensed Statements of Comprehensive Income
(In thousands)
(Unaudited)
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income | $ | $ | $ | $ | ||||||||||||
Foreign currency translation adjustments, net of tax | ( | ) | ( | ) | ( | ) | ||||||||||
Change in estimated fair value of hedging instruments | ( | ) | ( | ) | ||||||||||||
Comprehensive income | ||||||||||||||||
Comprehensive income attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Comprehensive income attributable to Vail Resorts, Inc. | $ | $ | $ | $ | ||||||||||||
The accompanying Notes are an integral part of these unaudited consolidated condensed financial statements.
4
Vail Resorts, Inc.
Consolidated Condensed Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
Common Stock | Additional Paid in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Total Vail Resorts, Inc. Stockholders’ Equity | Noncontrolling Interests | Total Stockholders’ Equity | ||||||||||||||||||||
Vail Resorts | Exchangeable | ||||||||||||||||||||||||||
Balance, October 31, 2018 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||
Net income | — | — | — | — | — | ||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | — | — | — | — | — | ||||||||||||||||||||||
Total comprehensive income | |||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||
Issuance of shares under share award plans, net of shares withheld for employee taxes | — | ( | ) | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Repurchase of common stock (Note 12) | — | — | — | — | — | ( | ) | ( | ) | — | ( | ) | |||||||||||||||
Dividends (Note 5) | — | — | — | — | ( | ) | — | ( | ) | — | ( | ) | |||||||||||||||
Distributions to noncontrolling interests, net | — | — | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Balance, January 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||
Balance, October 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||
Net income | — | — | — | — | — | ||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | — | — | — | ( | ) | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||
Change in estimated fair value of hedging instruments | — | — | — | ( | ) | — | — | ( | ) | — | ( | ) | |||||||||||||||
Total comprehensive income | |||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||
Issuance of shares under share award plans, net of shares withheld for employee taxes | — | ( | ) | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Dividends (Note 5) | — | — | — | — | ( | ) | — | ( | ) | — | ( | ) | |||||||||||||||
Distributions to noncontrolling interests, net | — | — | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Balance, January 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||
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Common Stock | Additional Paid in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Total Vail Resorts, Inc. Stockholders’ Equity | Noncontrolling Interests | Total Stockholders’ Equity | ||||||||||||||||||||
Vail Resorts | Exchangeable | ||||||||||||||||||||||||||
Balance, July 31, 2018 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||
Net income | — | — | — | — | — | ||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | — | — | — | ( | ) | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||
Total comprehensive income | |||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||
Cumulative effect for adoption of revenue standard | — | — | — | — | ( | ) | — | ( | ) | — | ( | ) | |||||||||||||||
Issuance of shares under share award plans, net of shares withheld for employee taxes | — | ( | ) | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Repurchase of common stock (Note 12) | — | — | — | — | — | ( | ) | ( | ) | — | ( | ) | |||||||||||||||
Dividends (Note 5) | — | — | — | — | ( | ) | — | ( | ) | — | ( | ) | |||||||||||||||
Distributions to noncontrolling interests, net | — | — | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Balance, January 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||
Balance, July 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||
Net income | — | — | — | — | — | ||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | — | — | — | ( | ) | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||
Change in estimated fair value of hedging instruments | — | — | — | ( | ) | — | — | ( | ) | — | ( | ) | |||||||||||||||
Total comprehensive income | |||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||
Issuance of shares under share award plans, net of shares withheld for employee taxes | — | ( | ) | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Repurchase of common stock (Note 12) | — | — | — | — | — | ( | ) | ( | ) | — | ( | ) | |||||||||||||||
Dividends (Note 5) | — | — | — | — | ( | ) | — | ( | ) | — | ( | ) | |||||||||||||||
Distributions to noncontrolling interests, net | — | — | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Balance, January 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||
The accompanying Notes are an integral part of these unaudited consolidated condensed financial statements.
6
Vail Resorts, Inc.
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended January 31, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | $ | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | ||||||||
Stock-based compensation expense | ||||||||
Deferred income taxes, net | ||||||||
Other non-cash income, net | ( | ) | ( | ) | ||||
Changes in assets and liabilities: | ||||||||
Trade receivables, net | ||||||||
Inventories, net | ( | ) | ( | ) | ||||
Accounts payable and accrued liabilities | ||||||||
Deferred revenue | ||||||||
Income taxes payable - excess tax benefit from share award exercises | ( | ) | ( | ) | ||||
Income taxes payable - other | ( | ) | ( | ) | ||||
Other assets and liabilities, net | ( | ) | ( | ) | ||||
Net cash provided by operating activities | ||||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | ( | ) | ( | ) | ||||
Acquisition of businesses, net of cash acquired | ( | ) | ( | ) | ||||
Other investing activities, net | ||||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from borrowings under Vail Holdings Credit Agreement | ||||||||
Proceeds from borrowings under Whistler Credit Agreement | ||||||||
Repayments of borrowings under Vail Holdings Credit Agreement | ( | ) | ( | ) | ||||
Repayments of borrowings under Whistler Credit Agreement | ( | ) | ( | ) | ||||
Employee taxes paid for share award exercises | ( | ) | ( | ) | ||||
Dividends paid | ( | ) | ( | ) | ||||
Repurchases of common stock | ( | ) | ( | ) | ||||
Other financing activities, net | ( | ) | ( | ) | ||||
Net cash used in financing activities | ( | ) | ( | ) | ||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||
Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ) | ||||||
Cash, cash equivalents and restricted cash: | ||||||||
Beginning of period | ||||||||
End of period | $ | $ | ||||||
Non-cash investing activities: | ||||||||
Accrued capital expenditures | $ | $ | ||||||
The accompanying Notes are an integral part of these unaudited consolidated condensed financial statements.
7
Vail Resorts, Inc.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1. | Organization and Business |
Vail Resorts, Inc. (“Vail Resorts”) is organized as a holding company and operates through various subsidiaries. Vail Resorts and its subsidiaries (collectively, the “Company”) operate in three business segments: Mountain, Lodging and Real Estate.
The Company refers to “Resort” as the combination of the Mountain and Lodging segments. In the Mountain segment, the Company operates the following thirty-seven destination mountain resorts and regional ski areas:
*Denotes a destination mountain resort which generally receives a meaningful portion of skier visits from long-distance travelers, as opposed to the Company’s regional ski areas which tend to generate skier visits from their respective local markets.
Additionally, the Mountain segment includes ancillary services, primarily including ski school, dining and retail/rental operations, and for the Company’s Australian resorts, including lodging and transportation operations. Several of the resorts located in the United States (“U.S.”) operate primarily on federal land under the terms of Special Use Permits granted by the U.S. Department of Agriculture Forest Service. The operations of Whistler Blackcomb are conducted on land owned by the government of the Province of British Columbia, Canada within the traditional territory of the Squamish and Lil’wat Nations. The operations of the Company’s Australian resorts are conducted pursuant to long-term leases and licenses on land owned by the governments of New South Wales and Victoria, Australia. Okemo, Mount Sunapee and Stowe operate on land leased from the respective states in which the resorts are located and on land owned by the Company.
In the Lodging segment, the Company owns and/or manages a collection of luxury hotels and condominiums under its RockResorts brand; other strategic lodging properties and a large number of condominiums located in proximity to the Company’s North American mountain resorts; National Park Service (“NPS”) concessionaire properties including the Grand Teton Lodge Company (“GTLC”), which operates destination resorts in Grand Teton National Park; a Colorado resort ground transportation company and mountain resort golf courses.
Vail Resorts Development Company (“VRDC”), a wholly-owned subsidiary, conducts the operations of the Company’s Real Estate segment, which owns, develops and sells real estate in and around the Company’s resort communities.
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The Company’s mountain business and its lodging properties at or around the Company’s mountain resorts are seasonal in nature with peak operating seasons primarily from mid-November through mid-April in North America. The operating season at the Company’s Australian resorts, NPS concessionaire properties and golf courses generally occurs from June to early October.
2. Summary of Significant Accounting Policies
Basis of Presentation
Consolidated Condensed Financial Statements— In the opinion of the Company, the accompanying Consolidated Condensed Financial Statements reflect all adjustments necessary to state fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. Results for interim periods are not indicative of the results for the entire fiscal year, particularly given the significant seasonality to the Company’s operating cycle. The accompanying Consolidated Condensed Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2019. Certain information and footnote disclosures, including significant accounting policies, normally included in fiscal year financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been condensed or omitted. The Consolidated Condensed Balance Sheet as of July 31, 2019 was derived from audited financial statements.
Use of Estimates— The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Fair Value of Financial Instruments— The recorded amounts for cash and cash equivalents, restricted cash, receivables, other current assets and accounts payable and accrued liabilities approximate fair value due to their short-term nature. The fair value of amounts outstanding under the Company’s credit agreements and the Employee Housing Bonds (as defined in Note 6, Long-Term Debt) approximate book value due to the variable nature of the interest rate, which is a market rate, associated with the debt. The recorded amounts outstanding under the Company’s EPR Secured Notes and EB-5 Development Notes (each as defined in Note 6, Long-Term Debt), which were assumed by the Company during the six months ended January 31, 2020, approximate fair value as the debt obligations were recorded at fair value in conjunction with the preliminary purchase accounting for the Peak Resorts acquisition (see Note 7, Acquisitions).
Accounting for Hedging Instruments— From time to time, the Company enters into interest rate swaps (the “Interest Rate Swaps”) to hedge the variability in cash flows associated with variable-rate borrowings by converting the floating interest rate to a fixed interest rate. As of January 31, 2020, the Company hedged the future cash flows associated with $400.0 million of the principal amount outstanding of its Vail Holdings Credit Agreement (as defined in Note 6, Long-Term Debt). The accounting for changes in fair value of hedging instruments depends on the effectiveness of the hedge. In order to qualify for hedge accounting, the underlying hedged item must expose the Company to risks associated with market fluctuations and the financial instrument used must reduce the Company's exposure to market fluctuation throughout the hedge period. Changes in estimated fair value of the Interest Rate Swaps are recorded within change in estimated fair value of hedging instruments on the Company’s Consolidated Condensed Statements of Comprehensive Income, and such changes were recorded as losses of $4.9 million and $4.6 million, respectively, for the three and six months ended January 31, 2020. As of January 31, 2020, the estimated fair value of the Interest Rate Swaps was a liability of approximately $4.6 million and was recorded within other long-term liabilities on the Company’s Consolidated Condensed Balance Sheet (see Note 9, Fair Value Measurements).
Leases— The Company determines if an arrangement is or contains a lease at inception or modification of the arrangement. An arrangement is or contains a lease if there is one or more assets identified and the right to control the use of any identified asset is conveyed to the Company for a period of time in exchange for consideration. Control over the use of an identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. Generally, the Company classifies a lease as a finance lease if the terms of the agreement effectively transfer control of the underlying asset; otherwise, it is classified as an operating lease. For contracts that contain lease and non-lease components, the Company accounts for these components separately. For leases with terms greater than twelve months, the associated lease right-of-use (“ROU”) assets and lease liabilities are recognized at the estimated present value of the future minimum lease payments over the lease term at commencement date. The Company’s leases do not provide a readily determinable implicit rate; therefore, the Company uses an estimated incremental borrowing rate to discount the future minimum lease payments. For leases containing fixed rental escalation clauses, the escalators are factored into the determination of future minimum lease payments. The Company includes options to extend a lease when it is reasonably certain that such options will be exercised. Lease
9
expense for minimum lease payments is recognized on a straight-line basis over the lease term. See Note 4, Leases for more information.
Recently Issued Accounting Standards
Adopted Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842),” which supersedes “Leases (Topic 840).” The standard requires lessees to recognize the assets and liabilities arising from all leases on the balance sheet, including those classified as operating leases under previous accounting guidance, and to disclose key information about leasing arrangements. The standard also allows for an accounting policy election not to recognize on the balance sheet lease assets and liabilities for leases with a term of 12 months or less. Under the new guidance, lessees are required to recognize a lease liability and an ROU asset on their balance sheets, while lessor accounting is largely unchanged. In July 2018, the FASB released ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” which, among other items, provided an additional and optional transition method. Under this method, an entity initially applies the standard at the adoption date, including the election of certain transition reliefs, and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption.
The Company adopted ASU No. 2016-02 on August 1, 2019 using the modified retrospective transition method as provided by the standard. In accordance with this transition method, results for reporting periods beginning on August 1, 2019 are presented under the new standard, while prior periods were not adjusted and continue to be reported in accordance with the previously applicable accounting guidance. The Company has elected the package of practical expedients permitted under the transition guidance which allowed the Company to not reassess: (i) whether any existing or expired contracts are or contain leases; (ii) lease classification of any expired or existing leases; or (iii) initial direct costs for any existing leases. The Company has made an accounting policy election to not record leases on the balance sheet with an initial term of 12 months or less. The Company will recognize those lease payments in the Consolidated Condensed Statements of Operations on a straight-line basis over the lease term. Additionally, the Company has elected the practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases. At adoption, the Company was not able to determine the interest rate implicit in its leases; therefore, for existing operating leases, the lease liability was measured using the Company’s estimated incremental borrowing rate. For existing leases, the incremental borrowing rate used was based on the remaining lease term at the adoption date. For leases with minimum lease payments adjusted periodically for inflation, the lease liability was measured using the minimum lease payments adjusted by the inflation index at the adoption date.
On August 1, 2019, as a result of adopting the standard, the Company recorded $225.6 million of operating ROU assets and $258.0 million of related total operating lease liabilities in the Consolidated Condensed Balance Sheet (of which $223.1 million was recorded to operating lease liabilities and $34.9 million was recorded to accounts payable and accrued liabilities). As a result of the adoption, the Company reclassified $32.4 million of unfavorable lease obligations, deferred rent credits and other similar amounts to the operating ROU assets balance, primarily from other long-term liabilities, which reduced the amount recognized as operating ROU assets to $225.6 million. The adoption of the new lease standard did not result in a cumulative effect adjustment to beginning retained earnings, and did not materially affect the Company’s Consolidated Condensed Statements of Operations for the three and six months ended January 31, 2019 or Consolidated Condensed Statement of Cash Flows for the six months ended January 31, 2019. The Company’s Canyons finance lease was not affected by the implementation of this standard as the arrangement is classified and recorded as a finance lease arrangement under both the previous and new accounting guidance.
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3. Revenues
Disaggregation of Revenues
The following table presents net revenues disaggregated by segment and major revenue type for the three and six months ended January 31, 2020 and 2019 (in thousands):
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Mountain net revenue: | ||||||||||||||||
Lift | $ | $ | $ | $ | ||||||||||||
Ski School | ||||||||||||||||
Dining | ||||||||||||||||
Retail/Rental | ||||||||||||||||
Other | ||||||||||||||||
Total Mountain net revenue | $ | $ | $ | $ | ||||||||||||
Lodging net revenue: | ||||||||||||||||
Owned hotel rooms | $ | $ | $ | $ | ||||||||||||
Managed condominium rooms | ||||||||||||||||
Dining | ||||||||||||||||
Transportation | ||||||||||||||||
Golf | ||||||||||||||||
Other | ||||||||||||||||
Payroll cost reimbursements | ||||||||||||||||
Total Lodging net revenue | $ | $ | $ | $ | ||||||||||||
Total Resort net revenue | $ | $ | $ | $ | ||||||||||||
Total Real Estate net revenue | ||||||||||||||||
Total net revenue | $ | $ | $ | $ | ||||||||||||
Deferred revenue balances of a short-term nature were $426.7 million and $335.7 million as of January 31, 2020 and July 31, 2019, respectively. Deferred revenue balances of a long-term nature, comprised primarily of long-term private club initiation fee revenue, were $125.5 million and $124.3 million as of January 31, 2020 and July 31, 2019, respectively. For the three and six months ended January 31, 2020, the Company recognized approximately $145.3 million and $179.9 million, respectively, of revenue that was included in the deferred revenue balance as of July 31, 2019. As of January 31, 2020, the weighted average remaining period over which revenue for unsatisfied performance obligations on long-term private club contracts will be recognized was approximately 16 years. Trade receivable balances were $105.3 million and $270.9 million as of January 31, 2020 and July 31, 2019, respectively.
Costs to Obtain Contracts with Customers
As of January 31, 2020, $7.0 million of costs to obtain contracts with customers were recorded within other current assets on the Company’s Consolidated Condensed Balance Sheet. The amounts capitalized are subject to amortization commensurate with the revenue recognized for skier visits. The Company recorded amortization of $7.0 million for these costs during the three and six months ended January 31, 2020, which was recorded within Mountain and Lodging operating expenses on the Company’s Consolidated Condensed Statement of Operations.
4. Leases
The Company’s operating leases consist primarily of commercial and retail space, office space, employee residential units, vehicles and other equipment. The Company determines if an arrangement is or contains a lease at contract inception or modification. The Company’s lease contracts generally range from 1 year to 60 years, with some lease contracts containing one or more lease extension options, exercisable at the Company’s discretion. The Company generally does not include these lease extension options
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in the initial lease term as it is not reasonably certain that it will exercise such options at contract inception. In addition, certain lease arrangements contain fixed and variable lease payments. The variable lease payments are primarily contingent rental payments based on: (i) a percentage of revenue related to the leased property; (ii) payments based on a percentage of sales over contractual levels; or (iii) lease payments adjusted for changes in an index or market value. These variable lease payments are typically recognized when the underlying event occurs and are included in operating expenses in the Company's Consolidated Condensed Statements of Operations in the same line item as the expense arising from fixed lease payments. The Company’s lease agreements may also include non-lease components, such as common area maintenance and insurance, which are accounted for separately as non-lease components. Future lease payments that are contingent and non-lease components are not included in the measurement of the operating lease liability. The Company’s lease agreements do not contain any material residual value guarantees or restrictive covenants. Lease expense related to lease payments is recognized on a straight-line basis over the term of the lease.
The Company’s leases do not provide a readily determinable implicit rate. As a result, the Company measures the lease liability using an estimated incremental borrowing rate which is intended to reflect the rate of interest the Company would pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The Company applies the estimated incremental borrowing rates at a portfolio level based on the economic environment associated with the lease.
The Company uses the long-lived assets impairment guidance to determine recognition and measurement of an ROU asset impairment, if any. The Company monitors for events or changes in circumstances that require a reassessment.
The components of lease expense for the three and six months ended January 31, 2020, were as follows (in thousands):
Three Months Ended January 31, 2020 | Six Months Ended January 31, 2020 | |||||||
Finance leases: | ||||||||
Amortization of the finance ROU assets | $ | $ | ||||||
Interest on lease liabilities | $ | $ | ||||||
Operating leases: | ||||||||
Operating lease expense | $ | $ | ||||||
Short-term lease expense1 | $ | $ | ||||||
Variable lease expense | $ | $ | ||||||
1 Short-term lease expense is attributable to leases with terms of 12 months or less which are not included within the Company’s Consolidated Condensed Balance Sheet.
The following table presents the supplemental cash flow information associated with the Company’s leasing activities for the six months ended January 31, 2020 (in thousands):
Six Months Ended January 31, 2020 | ||||
Cash flow supplemental information: | ||||
Operating cash outflows for operating leases | $ | |||
Operating cash outflows for finance leases | $ | |||
Financing cash outflows for finance leases | $ | |||
Weighted-average remaining lease terms and discount rates are as follows:
As of January 31, 2020 | |||
Weighted-average remaining lease term (in years) | |||
Operating leases | |||
Finance leases | |||
Weighted-average discount rate | |||
Operating leases | % | ||
Finance leases | % | ||
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Future minimum lease payments for operating and finance leases as of January 31, 2020 reflected by fiscal year (August 1 through July 31) are as follows (in thousands):
Operating Leases | Finance Leases | ||||||
2020 (February 2020 through July 2020) | $ | $ | |||||
2021 | |||||||
2022 | |||||||
2023 | |||||||
2024 | |||||||
Thereafter | |||||||
Total future minimum lease payments | |||||||
Less amount representing interest | ( | ) | ( | ) | |||
Total lease liabilities | $ | $ | |||||
Future minimum lease payments in accordance with Topic 840 as of July 31, 2019, reflected by fiscal year, were as follows (in thousands):
Operating Leases | Capital Leases | ||||||
2020 | $ | $ | |||||
2021 | |||||||
2022 | |||||||
2023 | |||||||
2024 | |||||||
Thereafter | |||||||
Total future minimum lease payments | $ | $ | |||||