The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and notes related thereto included in this Form 10-K. 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. These risks include, but are not limited to, those discussed in Item 1A,1A. “Risk Factors” in this Form 10-K. The following discussion and analysis should be read in conjunction with the Forward-Looking Statements section and Item 1A,1A. “Risk Factors” each included in this Form 10-K.
The MD&A includes discussion of financial performance within each of our three segments. We have chosen to specifically include segment 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) in the following discussion because we consider this measurement to be a significant indication of our financial performance. We utilize segment Reported EBITDA in evaluating our performance and in allocating resources to our segments. Net Debt (defined as long-term debt, net plus long-term debt due within one year less cash and cash equivalents), is included in the following discussion because we consider these measurementsthis measurement to be a significant indicationsindication 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 defined under generally accepted accounting principles (“GAAP”). We utilize 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. Resort Reported EBITDA (defined as the combination of segment Reported EBITDA of our Mountain and Lodging segments), Total Reported EBITDA (which is Resort Reported EBITDA plus segment Reported EBITDA from our Real Estate segment) and Net Debt are not measures of financial performance or liquidity defined under accounting principles generally accepted in the United States (“GAAP”). Refer to the end of the Results of Operations section for a reconciliation of Reported EBITDA to net income attributable to Vail Resorts, Inc. to Total Reported EBITDA and Net Debt to long-term debt, net.net to Net Debt.
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, net change in cash and cash equivalents or other financial statement data presented in the Consolidated 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 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.
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. The Mountain, Lodging and Real Estate segments represented approximately 85.6%89%, 14.2%11% and 0.2%0%, respectively, of our net revenue for Fiscal 2018.2021.
Mountain Segment
TheIn the Mountain segment, as of July 31, 2018, was comprised of the operations of elevenCompany operates the following 37 destination mountain resorts and regional ski areas:
*Denotes a destination mountain resort, properties and three urbanwhich generally receives a meaningful portion of skier visits from long-distance travelers, as opposed to our regional ski areas, including:which tend to generate skier visits predominantly from their respective local markets.
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| | | |
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. | Park City Resort (“Park City”) | | Utah |
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. | Perisher Ski Resort (“Perisher”) | | New South Wales, Australia |
10. | Whistler Blackcomb Resort (“Whistler Blackcomb”) | | British Columbia, Canada |
11. | Stowe Mountain Resort (“Stowe”) | | Vermont |
Urban Ski Areas (“Urban”): | | Location: |
1. | Wilmot Mountain (“Wilmot”) | | Wisconsin |
2. | Afton Alps Ski Area (“Afton Alps”) | | Minnesota |
3. | Mount Brighton Ski Area (“Mt. Brighton”) | | Michigan |
Additionally, we operate ancillary services, primarily including ski school, dining and retail/rental operations, and for Perisher,our Australian ski areas, including lodging and transportation operations. Mountain segment revenue is seasonal, with the majority of revenue earned from our North American destination mountain resorts and Urbanregional ski areas (collectively, our “Resorts”) occurring in our second and third fiscal quarters and the majority of revenue earned from Perisherour Australian ski areas occurring in our first and fourth fiscal quarters. Our North American mountain resorts wereResorts are typically open for business for the 2017/2018 ski season primarily from mid-November through mid-April, which is the peak operating season for the Mountain segment.segment, and our Australian ski areas are typically open for business from June to early October. Our single largest source of Mountain segment revenue is the sale of lift tickets (including season passes)pass products), which represented approximately 51%64%, 51%53% and 50%53% of Mountain segment net revenue for Fiscal 2018,2021, the fiscal year ended July 31, 20172020 (“Fiscal 2017”2020”) and the fiscal year ended July 31, 20162019 (“Fiscal 2016”2019”), respectively.
Lift revenue is driven by volume and pricing. Pricing is impacted by both absolute pricing, as well as the demographic mix of guests, which impacts the price points at which various products are purchased. The demographic mix of guests that visit our U.S.North American mountain resorts is divided into two primary categories: (1) out-of-state and international (“Destination”) guests and (2) in-state and local (“Local”) guests. For both the 2017/2018 and 2016/2017 U.S.2020/2021 North American ski seasons,season, Destination guests comprised approximately 61%52% of our U.S.North American destination mountain resort skier visits (excluding complimentary access), while Local guests comprised approximately 39% of our U.S. mountain resort skier visits,48%, which compares to approximately 58% and 42%, respectively, for the 2015/2016 U.S.2019/2020 North American ski season and approximately 57% and 43%, respectively, for the 2018/2019 North American ski season. Skier visitation at our regional ski areas is largely comprised of Local guests. Destination guests generally purchase our higher-priced lift ticket productstickets (including pass products) and utilize more ancillary services such as ski school, dining and retail/rental, as well as lodging at or around our mountain resorts. The impacts of COVID-19, including travel restrictions, had a disproportionately adverse impact on Destination visitation, particularly international guests, as demand for long-distance travel was lower than normal throughout the 2020/2021 North American ski season. Additionally, Destination guest visitation is less likely to be impacted by changes in the weather during the current ski season, but may be more impacted by adverse economic conditions, or the global geopolitical climate.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”),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 for a certain number of days to our Epic Pass, which allows pass holders unlimited and unrestricted access to all of our ResortsResorts. The Epic Day Pass is a customizable one to seven day pass product purchased in advance of the season, for those skiers and riders who expect to ski areas.a certain number of days during the season, and which is available in two tiers of resort access offerings. For the 2021/2022 North American ski season, we reduced prices of our entire portfolio of pass products by 20%. 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.pass products. Additionally, we have entered into strategic long-term season pass alliance agreements with third-party mountain resorts including Telluride Ski Resort and Arapahoe Basin in Colorado, Sun Valley Resort in Idaho, Snowbasin Resort in Utah, Hakuba Valley and Rusutsu Resort in Japan, and Resorts of the Canadian Rockies in Canada, Les 3 Vallées in France, 4 Vallées in Switzerland, Skirama Dolomiti in Italy and Ski Arlberg in Austria, which further increases the value proposition of our season pass products. As such, our season pass program drives strong customer loyalty;loyalty, mitigates exposure to more weather sensitive guests;guests, generates additional ancillary spending;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 and Epic Day Pass, are predominately sold prior to the start of the ski season. Season passPass product revenue, although primarily collected prior to the ski season, is recognized in the Consolidated Statements of Operations throughout the ski season (see Notesprimarily based on historical visitation (excluding visitation data for Fiscal 2020, which we do not believe is indicative of future visitation due to Consolidated Financial Statements)the early resort closures associated with COVID-19 in March 2020).
Lift revenue consists of season pass product lift revenue (“pass revenue”) and non-season passnon-pass product lift revenue (“non-pass revenue”). Approximately 47%61%, 43%51% and 40%47% of total lift revenue was derived from pass revenue for Fiscal 2018,2021, Fiscal 20172020 and Fiscal 2016, respectively.2019, respectively (including the impact of the deferral of pass product revenue from Fiscal 2020 to Fiscal 2021 as a result of the Credit Offer, as defined below). Additionally, lift revenue for Fiscal 2021 was impacted by the Company only allowing pass product holders to access the Resorts during the early portion of the 2020/2021 North American ski season, as well as the Company utilizing a reservation system, which limited capacity for both pass product holders and non-pass lift tickets.
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 expenses associated with dining operations. As such, profit margins can fluctuate greatly based on the level of revenues associated with visitation.
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;Resorts; (iii) National Park Service (“NPS”) concessionaire properties including Grand Teton LodgingLodge 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 68%64%, 68%73% and 69%70% of Lodging segment net revenue (excluding Lodging segment revenue associated with reimbursement of payroll costs) for Fiscal 2018,2021, Fiscal 20172020 and Fiscal 2016,2019, respectively. 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.
Recent Trends, Risks and Uncertainties
We have identified the following significant factors (as well as uncertainties associated with such factors) that could impact our future financial performance:
•COVID-19 has led to travel restrictions and other adverse economic impacts including reduced consumer confidence, an increase in unemployment rates and volatility in global and local economies. Our operations continue to be negatively impacted by COVID-19 and associated government mandated restrictions, including capacity limitations, travel restrictions, and mask and social distancing requirements. Additionally, we may impose our own COVID-19 related restrictions in addition to what is required by state and local governments in the interest of safety for our guests, employees and resort communities. Although we are uncertain as to the ultimate severity and duration of the COVID-19 pandemic as well as the related global or other travel restrictions and other adverse impacts, we have seen a significant negative change in performance and our future performance could also be negatively impacted. In addition, 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. We cannot predict the ultimate impact that the global economic uncertainty as a result of COVID-19 will have on overall travel and leisure spending or more specifically, on our guest visitation, guest spending or other related trends for the upcoming 2021/2022 North American ski season.
•In the prior year, we announced the early closure of the 2019/2020 North American ski season for our Resorts, lodging properties and retail stores beginning on March 15, 2020. These actions (the “Resort Closures”) had a significant adverse impact on our results of operations for the year ended July 31, 2020. Additionally, on April 27, 2020, we announced that we would offer credits to customers who had purchased 2019/2020 North American pass products and who purchased 2020/2021 North American pass products on or before September 17, 2020 (the “Credit Offer”). The Credit Offer discounts ranged from a minimum of 20% to a maximum of 80% for season pass holders, depending on the number of days the pass holder used their pass product during the 2019/2020 season and a credit, with no minimum, but up to 80% for multi-day pass products, such as the Epic Day Pass, based on total unused days. As a result of the Credit Offer to 2019/2020 pass product holders, we delayed the recognition of approximately $120.9 million of season pass deferred revenue, as well as approximately $2.9 million of related deferred costs, that would have been recognized in Fiscal 2020 and which was instead primarily recognized in the second and third quarters of Fiscal 2021.
•The ongoing impacts of the COVID-19 pandemic resulted in reduced visitation and decreased spending for the 2020/2021 North American ski season compared to the prior year through March 14, 2021, the equivalent date that we closed our Resorts early for the 2019/2020 North American ski season due to the outbreak of COVID-19. These declines were primarily driven by reduced demand for Destination visitation at our western resorts and COVID-19 related capacity limitations, which were further impacted by snowfall levels that were well below average at our Colorado, Utah and Tahoe resorts from the early season throughout the holiday season. Visitation and spending was also particularly
impacted in regions where heightened COVID-19 restrictions were in place, including Whistler Blackcomb, Tahoe and Vermont. However, results continued to improve as the season progressed, primarily as a result of stronger Destination visitation at our Colorado and Utah resorts, including improved lift ticket purchases. Whistler Blackcomb’s results were disproportionately impacted as compared to our broader Mountain segment as a result of the Canadian travel restrictions and border closures, and were further impacted by the early closure of Whistler Blackcomb on March 30, 2021 following a provincial health order issued by the government of British Columbia due to an increase in COVID-19 cases in the region. Our Fiscal 2021 first quarter results were negatively impacted by Mount Hotham and Falls Creek, which opened for the 2020 Australian ski season on July 6, 2020, but we decided to close them four days later due to a “stay at home” order put in place by the Victorian government and specifically for the Melbourne metropolitan area, which represents the majority of visitors for Mount Hotham and Falls Creek, as a result of a reemergence of COVID-19 in the region. Additionally, our Australian ski areas were also impacted by “stay at home” orders and periodic resort closures during the 2021 ski season, which had a negative impact on our Fiscal 2021 fourth quarter results. The ongoing impacts of COVID-19 also resulted in reduced occupancy at our lodging properties during the 2019/2020 North American ski season following our early closure in March 2020, as well as during the 2020/2021 North American ski season. We closed our GTLC facilities including Jackson Lake Lodge and Jenny Lake Lodge during the summer of 2020, implemented restrictions on guided activities and in-restaurant dining, and temporarily closed many other facilities, which negatively impacted results for the first quarter of Fiscal 2021. These actions, trends, and the COVID-19 pandemic in general, had a significant adverse impact on our results of operations for the Fiscal 2020 and Fiscal 2021, and may continue to have a material, negative impact on our resorts and lodging properties for the fiscal year ending July 31, 2022 (“Fiscal 2022”).
•The timing and amount of snowfall can have an impact on Mountain and Lodging revenue, particularly with regard 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 resultingwhich results in a more stabilized stream of lift revenue. In March 2018,2021, we began our pre-season pass product sales program for the 2018/2019 North American ski season. Through September 23, 2018,2021/2022 North American ski season, which included a 20% reduction in price for all pass products. Pass product sales through September 17, 2021 for the upcoming 2021/2022 North American ski season increased approximately 25%42% in units and 15%approximately 17% in sales dollars as compared to the period in the prior year through September 24, 2017, including all military18, 2020, without deducting for the value of any redeemed credits provided to certain North American pass product holders in the prior period. To provide a comparison to the season pass results released on June 7, 2021, pass product sales through September 17, 2021 increased approximately 67% in units and approximately 45% in sales dollars as compared to the period through September 20, 2019, with pass product sales adjusted to include Peak Resorts pass sales in both periods and excluding passperiods. Pass product sales from Stevens Pass and Triple Peaks in both periods andare adjusted to eliminate the impact of foreign currency by applying current periodan exchange rates torate of $0.79 between the prior periodCanadian dollar and U.S. dollar in all periods for Whistler Blackcomb pass sales. Growth in our total season pass sales dollars was lower than our unit growth, given the inclusion of the new Military Epic Pass, which is available at a substantial discount to our Epic Pass. The average price increase on all non-military passes was approximately 4.5%. Excluding sales of military passes to new purchasers who were not pass holders last year, season pass sales increased approximately 9% in units and 12% in sales dollars over the comparable period in 2017.Blackcomb. We cannot predict if this favorable trend will continue for the entire duration ofthrough the fall 20182021 North American pass sales campaign
nor can we predict or the overall impact that season pass sales will have on lift revenue for the 2018/20192021/2022 North American ski season.
In Fiscal 2018, our lift revenue was favorably impacted by non-pass price increases at our mountain resorts that were implemented for•Prior to the 2017/2018 North American ski season. Non-pass prices for the 2018/20192020/2021 North American ski season, have not yet been finalized;we introduced Epic Coverage, which is included with the purchase of all pass products for no additional charge. Epic Coverage provides refunds in the event of certain resort closures and as such, there can be no assurances as tocertain qualifying travel restrictions (e.g. for COVID-19), giving pass product holders a refund for any portion of the level of price increases, if any, which will occur and the impactseason that pricing may have on visitation or revenue.
Our Fiscal 2018 results for our Mountain segment showed improvement over Fiscal 2017 largelyis lost due to strongqualifying circumstances. Additionally, Epic Coverage provides a refund for qualifying personal circumstances that were historically covered by our pass sales growthinsurance program, including for eligible injuries, job losses and many other personal events. The estimated amount of refunds reduces the amount of pass product revenue recognized. We believe our estimate of refund amounts are reasonable; however, actual results could vary materially from such estimates, and we could be required to refund significantly higher amounts than estimated.
Additionally, for the 2017/20182020/2021 North American ski season, the incremental operationswe introduced Epic Mountain Rewards, a program which provides pass product holders a discount of Stowe (acquired in June 2017)20% off on-mountain food and excellent conditionsbeverage, lodging, group ski school lessons, equipment rentals and more at Whistler Blackcomb throughout most of the season. However, we experienced historically low snowfall levels across our western U.S. resorts for the first half of the 2017/2018 North American ski season, including the key Christmas holiday period, which hadowned and operated Resorts. Epic Mountain Rewards constitutes an adverse impact on skier visitationoption to our guests to purchase additional products and our results of operations. We cannot predict whether our resorts will experience normal snowfall conditions for the upcoming 2018/2019 North American ski season nor can we estimate the impact there may be to advance bookings, guest travel, season pass sales, lift revenue (excluding season passes), retail/rental sales or other ancillary services revenue next ski seasonfrom us at a discount and as a result, of past snowfall conditions.
Key North American economic indicators have remained steady into 2018, 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 will be on overall travel and leisure spending or more specifically, on our guest visitation, guest spending or other related trends for the upcoming 2018/2019 North American ski season.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act transitions the U.S. tax system toallocate a new territorial system and lowers the statutory federal corporate income tax rate from 35% to 21%. The reductionportion of the statutory federal corporate tax ratepass product transaction price to 21% became effective on January 1, 2018. In Fiscal 2018, our U.S. blended federal statutory income tax rate was approximately 27% (August 2017 through December 2017 at 35% and January 2018 through July 2018 at 21%), which will be reduced to 21% in the year ending July 31, 2019 and thereafter. As a resultthese other lines of the Tax Act, we recorded a one-time, provisional net tax benefit of approximately $61.0 million on our Consolidated Statement of Operations during Fiscal 2018. Due to the reduction in the federal corporate tax rate, we remeasured our U.S. net deferred tax liabilities as of the effective date of the Tax Act. The U.S. net deferred tax liabilities remeasurement resulted in a one-time tax benefit estimated to be approximately $67.0 million, which was recorded during Fiscal 2018. Also, in transitioning to the new territorial tax system, the Tax Act requires us to include certain foreign earnings of non-U.S. subsidiaries in our Fiscal 2018 taxable income. Such foreign earnings are subject to a one-time tax referred to as the “Transition Tax,” which was estimated to be $6.0 million, and was recorded during Fiscal 2018. The above-mentioned accounting impacts of the deferred tax remeasurement and Transition Tax are provisional, based on currently available information and technical guidance on the interpretation of the new law. The provisional accounting impacts may change in future reporting periods until the accounting analysis is finalized, which will occur no later than December 22, 2018, as permitted by the SEC. For further discussion related to the Tax Act see “Other Items” within MD&A and Notes to Consolidated Financial Statements.business.
•As of July 31, 2018,2021, we had $178.1$1,244.0 million inof cash and cash equivalents as well as $185.1$417.7 million available under the revolver component of the Vailour Eighth Amended and Restated Credit Agreement, dated as of August 15, 2018 and as amended most recently on December 18, 2020 (the “Vail Holdings Credit Agreement (whichAgreement”), which represents the total commitment of $400.0$500.0 million less outstanding borrowings of $130.0 million and certain letters of credit outstanding of $84.9 million).$82.3 million. Additionally, we have a credit facility which supports the liquidity needs of Whistler Blackcomb (the “Whistler Credit Agreement”). As of July 31, 20182021, we had C$214.1243.1 million ($164.6194.9 million) available under the revolver component of the Whistler Credit
Agreement (which represents the total commitment of C$300.0 million ($230.7240.5 million) less outstanding borrowings of C$85.056.0 million ($65.444.9 million) and a letter of credit outstanding of C$0.9 million ($0.7 million)).
On August 15, 2018,December 18, 2020, we further amendedentered into the Fourth Amendment to our Vail Holdings Credit Agreement dated May 1, 2015, in(the “Fourth Amendment”). Pursuant to the form of an Eighth Amended and Restated Credit Agreement (the “AmendedFourth Amendment, among other terms, we are exempt from complying with the Vail Holdings Credit Agreement”) to provideAgreement’s leverage ratio, senior secured leverage ratio, and interest coverage ratio financial maintenance covenants for an incremental term loan of $265.6 million, increasing the capacityeach of the term loanfiscal quarters ending through January 31, 2022 (unless we make a one-time irrevocable election to $950.0 million,terminate such exemption prior to fundsuch date) (such period, the acquisitions of Stevens Pass and Triple Peaks,“Financial Covenants Temporary Waiver Period”), after which we will again be required to comply with such covenants starting with the fiscal quarter ending April 30, 2022 (or such earlier fiscal quarter as discussed and defined below.
We believe thatelected by us). During the terms of our Amended Vail Holdings Credit Agreement and Whistler Credit Agreement allow for sufficient flexibility inFinancial Covenants Temporary Waiver Period, we are subject to other restrictions which will limit our ability to make future acquisitions, investments, distributions to stockholders, andshare repurchases or incur additional debt. This, combined withAdditionally, on December 18, 2020, we completed an offering of $575.0 million in aggregate principal amount of 0.0% convertible senior notes due 2026 (the “0.0% Convertible Notes”) in a private placement conducted pursuant to Rule 144A under the continuedSecurities Act of 1933, as amended (the “Securities Act”). The 0.0% Convertible Notes are senior, unsecured obligations that do not bear regular interest, and the principal amount of the 0.00% Convertible Notes does not accrete. The notes will mature on January 1, 2026, unless earlier repurchased, redeemed or converted. See Liquidity and Capital Resources for additional information.
We believe that our existing cash and cash equivalents, availability under our credit agreements and the expected positive cash flow from operating activities of our Mountain and
Lodging segments less resort capital expenditures has and is anticipated towill continue to provide us with significant liquidity. We believe oursufficient 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 August 15, 2018, through a wholly-owned subsidiary, we acquired Stevens Pass Resort in the State of Washington (“Stevens Pass”) from Ski Resort Holdings, LLC for a total purchase price of $64.0 million. We borrowed $70.0 million on August 15, 2018 under the term loan of our Amended Vail Holdings Credit Agreement, as discussed above, 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 (“Okemo”), Crested Butte Mountain Resort in Colorado (“Crested Butte”), and Mount Sunapee Resort in New Hampshire (“Mount Sunapee”), for a cash purchase price of approximately $74.0 million, after adjustments for certain agreed-upon terms. In addition, at closing, Triple Peaks paid $155.0 million to pay off the leases that all three resorts had with Ski Resort Holdings, LLC, an affiliate of Oz Real Estate, with funds provided by the Company. We borrowed the remainder of the term loan increase, as discussed above, to fund the acquisition. Additionally, we 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. 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
Shown below is a summary of operating results for Fiscal 2018,2021, Fiscal 20172020 and Fiscal 20162019 (in thousands):
| | | | | | | | | | | | | | | | | |
| Year ended July 31, |
| 2021 | | 2020 | | 2019 |
Net income attributable to Vail Resorts, Inc. | $ | 127,850 | | | $ | 98,833 | | | $ | 301,163 | |
Income before provision for income taxes | $ | 125,183 | | | $ | 116,433 | | | $ | 398,965 | |
Mountain Reported EBITDA | $ | 550,389 | | | $ | 500,080 | | | $ | 678,594 | |
Lodging Reported EBITDA | (5,733) | | | 3,269 | | | 28,100 | |
Resort Reported EBITDA | $ | 544,656 | | | $ | 503,349 | | | $ | 706,694 | |
Real Estate Reported EBITDA | $ | (4,582) | | | $ | (4,128) | | | $ | (4,317) | |
|
| | | | | | | | | | | |
| Year Ended July 31, |
| 2018 | | 2017 | | 2016 |
Mountain Reported EBITDA | $ | 591,605 |
| | $ | 566,338 |
| | $ | 424,415 |
|
Lodging Reported EBITDA | 25,006 |
| | 27,087 |
| | 28,169 |
|
Resort Reported EBITDA | $ | 616,611 |
| | $ | 593,425 |
| | $ | 452,584 |
|
Real Estate Reported EBITDA | $ | 957 |
| | $ | (399 | ) | | $ | 2,784 |
|
Income before benefit (provision) for income taxes | $ | 340,092 |
| | $ | 348,449 |
| | $ | 242,619 |
|
Net income attributable to Vail Resorts, Inc. | $ | 379,898 |
| | $ | 210,553 |
| | $ | 149,754 |
|
A discussion of segment results, including reconciliations of segment Reported EBITDA to net income attributable to Vail Resorts, Inc., to Total Reported EBITDA, and other items can be found below. The consolidated results of operations, including any consolidated financial metrics pertaining thereto, include the operations of Peak Resorts (acquired September 24, 2019), Falls Creek and Hotham (acquired April 4, 2019), Triple Peaks (acquired September 27, 2018) and Stevens Pass (acquired August 15, 2018), prospectively from their respective dates of acquisition.
The Resort Closures had a significant adverse impact on our results of operations for Fiscal 2020. Additionally, COVID-19 continued to have an adverse impact on our results of operations for Fiscal 2021, as further described below in our segment results of operations.
The sections titled “Fiscal 20182021 compared to Fiscal 2017”2020” and “Fiscal 20172020 compared to Fiscal 2016”2019” in each of the Mountain and Lodging segment discussions below provide comparisons of financial and operating performance for Fiscal 20182021 to Fiscal 20172020 and Fiscal 20172020 to Fiscal 2016,2019, respectively, unless otherwise noted.
Mountain Segment
Mountain segment operating results for Fiscal 2018,2021, Fiscal 20172020 and Fiscal 20162019 are presented by category as follows (in thousands, except ETP):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Percentage |
| Year ended July 31, | | Increase/(Decrease) |
| 2021 | | 2020 | | 2019 | | 2021/2020 | | 2020/2019 |
Mountain net revenue: | | | | | | | | | |
Lift | $ | 1,076,578 | | | $ | 913,091 | | | $ | 1,033,234 | | | 17.9 | % | | (11.6) | % |
Ski school | 144,227 | | | 189,131 | | | 215,060 | | | (23.7) | % | | (12.1) | % |
Dining | 90,329 | | | 160,763 | | | 181,837 | | | (43.8) | % | | (11.6) | % |
Retail/rental | 227,993 | | | 270,299 | | | 320,267 | | | (15.7) | % | | (15.6) | % |
Other | 150,751 | | | 177,159 | | | 205,803 | | | (14.9) | % | | (13.9) | % |
Total Mountain net revenue | 1,689,878 | | | 1,710,443 | | | 1,956,201 | | | (1.2) | % | | (12.6) | % |
| | | | | | | | | |
Mountain operating expense: | | | | | | | | | |
Labor and labor-related benefits | 452,352 | | | 473,365 | | | 507,811 | | | (4.4) | % | | (6.8) | % |
Retail cost of sales | 76,565 | | | 96,497 | | | 121,442 | | | (20.7) | % | | (20.5) | % |
Resort related fees | 69,768 | | | 75,044 | | | 96,240 | | | (7.0) | % | | (22.0) | % |
General and administrative | 253,279 | | | 239,412 | | | 233,159 | | | 5.8 | % | | 2.7 | % |
Other | 294,223 | | | 327,735 | | | 320,915 | | | (10.2) | % | | 2.1 | % |
Total Mountain operating expense | 1,146,187 | | | 1,212,053 | | | 1,279,567 | | | (5.4) | % | | (5.3) | % |
Mountain equity investment income, net | 6,698 | | | 1,690 | | | 1,960 | | | 296.3 | % | | (13.8) | % |
Mountain Reported EBITDA | $ | 550,389 | | | $ | 500,080 | | | $ | 678,594 | | | 10.1 | % | | (26.3) | % |
Total skier visits | 14,852 | | | 13,483 | | | 14,998 | | | 10.2 | % | | (10.1) | % |
ETP | $ | 72.49 | | | $ | 67.72 | | | $ | 68.89 | | | 7.0 | % | | (1.7) | % |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | Percentage |
| Year Ended July 31, | | Increase/(Decrease) |
| 2018 | | 2017 | | 2016 | | 2018/2017 | | 2017/2016 |
Mountain net revenue: | | | | | | | | | |
Lift | $ | 880,293 |
| | $ | 818,341 |
| | $ | 658,047 |
| | 7.6 | % | | 24.4 | % |
Ski school | 189,910 |
| | 177,748 |
| | 143,249 |
| | 6.8 | % | | 24.1 | % |
Dining | 161,402 |
| | 150,587 |
| | 121,008 |
| | 7.2 | % | | 24.4 | % |
Retail/rental | 296,466 |
| | 293,428 |
| | 241,134 |
| | 1.0 | % | | 21.7 | % |
Other | 194,851 |
| | 171,682 |
| | 141,166 |
| | 13.5 | % | | 21.6 | % |
Total Mountain net revenue | 1,722,922 |
| | 1,611,786 |
| | 1,304,604 |
| | 6.9 | % | | 23.5 | % |
| | | | | | | | | |
Mountain operating expense: | | | | | | | | | |
Labor and labor-related benefits | 443,891 |
| | 403,020 |
| | 338,250 |
| | 10.1 | % | | 19.1 | % |
Retail cost of sales | 111,198 |
| | 112,902 |
| | 93,946 |
| | (1.5 | )% | | 20.2 | % |
Resort related fees | 87,111 |
| | 83,503 |
| | 68,890 |
| | 4.3 | % | | 21.2 | % |
General and administrative | 214,090 |
| | 199,582 |
| | 173,640 |
| | 7.3 | % | | 14.9 | % |
Other | 276,550 |
| | 248,324 |
| | 206,746 |
| | 11.4 | % | | 20.1 | % |
Total Mountain operating expense | 1,132,840 |
| | 1,047,331 |
| | 881,472 |
| | 8.2 | % | | 18.8 | % |
Mountain equity investment income, net | 1,523 |
| | 1,883 |
| | 1,283 |
| | (19.1 | )% | | 46.8 | % |
Mountain Reported EBITDA | $ | 591,605 |
| | $ | 566,338 |
| | $ | 424,415 |
| | 4.5 | % | | 33.4 | % |
Total skier visits | 12,345 |
| | 12,047 |
| | 10,032 |
| | 2.5 | % | | 20.1 | % |
ETP | $ | 71.31 |
| | $ | 67.93 |
| | $ | 65.59 |
| | 5.0 | % | | 3.6 | % |
Mountain Reported EBITDA includes $15.7$20.3 million, $15.0$17.4 million and $13.4$16.5 million of stock-based compensation expense for Fiscal 2018,2021, Fiscal 20172020 and Fiscal 2016,2019, respectively.
Fiscal 20182021 compared to Fiscal 20172020
TheMountain Reported EBITDA increased $50.3 million, or 10.1%, primarily due to the impact of the prior year Resort Closures, including the deferral of $120.9 million of pass product revenue from Fiscal 2020 to Fiscal 2021 as a result of the Credit Offer to 2019/2020 North American pass product holders, as well as cost discipline efforts in the current year associated with lower levels of operations. These increases were partially offset by limitations and restrictions on our North American winter operations and closures, limitations and restrictions at Perisher, Falls Creek and Hotham during both the 2020 and 2021 Australian ski seasons. Additionally, Whistler Blackcomb’s performance was negatively impacted in the current year due to the continued closure of the Canadian border to international guests and was further impacted by the resort closing earlier than expected on March 30, 2021 following a provincial health order issued by the government of British Columbia. Mountain segment results reflectalso include $1.0 million and $13.6 million of acquisition and integration related expenses for Fiscal 2021 and Fiscal 2020, respectively, which are recorded within Mountain other operating expense. Additionally, operating results from Whistler Blackcomb, which are translated from Canadian dollars to U.S. dollars, were favorably affected by increases in the Canadian dollar exchange rate relative to the U.S. dollar as compared to the prior year, resulting in an increase in Mountain Reported EBITDA of $25.3approximately $2 million, which the Company calculated by applying current period foreign exchange rates to the prior period results.
Lift revenue increased $163.5 million, or 4.5%17.9%, primarily due to the Company operating for the full U.S. ski season in the current year as compared to the shortened operating season in the prior year as a result of the Resort Closures, including the deferral impact of the Credit Offer from Fiscal 2020 to Fiscal 2021, partially offset by limitations and restrictions on our North American winter operations in the current year due to the ongoing impacts of COVID-19, which resulted in a decrease in non-pass visitation. Pass product revenue increased 40.6%, primarily as a result of strong North American pass sales growth for the 2017/20182020/2021 ski season, including the deferral impact of the Credit Offer which was recognized primarily during Fiscal 2021. Non-pass revenue decreased 5.7% due to reduced non-pass visitation to our Resorts, which were adversely impacted by COVID-19 related capacity limitations and snowfall levels that were well below average at our Colorado, Utah and Tahoe
resorts through the holiday season, partially offset by an increase in non-pass ETP of 10.1% in the current year. Visitation was particularly impacted in regions where heightened COVID-19 related restrictions were in place, including Whistler Blackcomb, Tahoe and Vermont. Additionally, Whistler Blackcomb’s results were disproportionately impacted as compared to our broader Mountain segment performance in the current year due to the continued closure of the Canadian border to international guests, and was further impacted by the resort closing earlier than expected on March 30, 2021 following a provincial health order issued by the government of British Columbia.
Ski school revenue, dining revenue and retail/rental revenue each decreased in Fiscal 2021 compared to Fiscal 2020 primarily due to the limitations and restrictions on our North American ski season and the incremental operations of Stowe (acquired in June 2017). Our results across all lines of business at our western U.S. resorts during Fiscal 2018 were impacted by challenging ski conditions2021 as a result of historically low snowfall for the first halfimpacts of the 2017/2018 ski season, although conditions progressively improved during the third quarter of Fiscal 2018. Total skier visitation increased 2.5%, which was primarily the result of incremental skier visitation at Stowe and an increase in skier visitation at Whistler Blackcomb and Perisher, partially offset by lower skier visitation toCOVID-19 on our western U.S. resorts. The Fiscal 2018 and Fiscal 2017 results include $10.2 million and $10.8 million of acquisition and integration related expenses, respectively.business.
Lift revenue increased $62.0 million, or 7.6%, primarily due to an increase in pass revenue and incremental revenue from Stowe. Pass revenue increased 17.7%, which was driven by a combination of an increase in both pricing and units sold, which was favorably impacted by increased pass sales to Destination guests. Non-pass revenue was flat, which was primarily the result of incremental non-pass revenue from Stowe and an increase in non-pass revenue from Whistler Blackcomb, as well as an increase in ETP excluding season pass holders of 2.4%, offset by a decrease in non-pass skier visitation at our western U.S. resorts. Total ETP increased $3.38, or 5.0%, primarily due to price increases in both our lift ticket products and season pass products and slightly lower average visitation by season pass holders during the 2017/2018 North American ski season as compared with the 2016/2017 North American ski season.
Ski school revenue increased $12.2 million, or 6.8%, primarily as a result of increased revenue at Whistler Blackcomb and Park City, as well as incremental revenue from Stowe. Dining revenue increased $10.8 million, or 7.2%, primarily as a result of incremental revenue from Stowe and increased revenue from Whistler Blackcomb, reflecting a full year of operations as compared to Fiscal 2017, which included operations from the date of acquisition, October 17, 2016, through July 31, 2017. However, these increases were partially offset by lower revenue at our western U.S. resorts, which experienced delays in the opening of certain
on-mountain dining venues as a result of challenging weather conditions for the first half of the 2017/2018 North American ski season.
Retail/rental revenue increased $3.0 million, or 1.0%, of which rental revenue increased $2.9 million, or 3.2%, and retail revenue was relatively flat. Both rental and retail revenue were positively impacted by an increase in revenue at Whistler Blackcomb and incremental revenue from Stowe, partially offset by decreased revenue at stores proximate to our western U.S. resorts and other city stores.
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 PerisherAustralian ski area lodging and transportation revenue. For Fiscal 2018,2021, other revenue increased $23.2decreased $26.4 million, or 13.5%14.9%, primarily attributabledue to incremental summerdecreased mountain activities and eventsmountain services revenue at Whistler Blackcombas a result of limitations and restrictions on our business in Fiscal 2021 due to COVID-19, as well as a reduction in ski pass insurance revenue as a result of the inclusionreplacement of Stowe operations.our previous ski pass insurance program with Epic Coverage for the 2020/2021 North American ski season, which is free to all pass product holders.
Operating expense for Fiscal 2018 increased $85.5decreased $65.9 million, or 8.2%5.4%, which was primarily attributable to cost discipline efforts in the inclusioncurrent year associated with lower levels of Stowe operations and incrementallimitations, restrictions and closures of Resort operations resulting from COVID-19. Additionally, operating expenses from Whistler Blackcomb as a result of reflecting a full year of operations as compared to Fiscal 2017, which included operations from the dateexpense includes $1.0 million and $13.6 million of acquisition October 17, 2016, through July 31, 2017.and integration related expenses for Fiscal 2021 and Fiscal 2020, respectively.
Labor and labor-related benefits increased 10.1%decreased 4.4%, primarily due to incremental expense from Whistler Blackcombcost discipline efforts in the current year associated with limitations, restrictions and Stowe,closures of our Resort operations as a result of COVID-19, as well as normal wage adjustments,incremental tax credits of approximately $10.3 million primarily associated with COVID-19 related legislation passed in Canada, partially offset by lower performance-basedan increase in variable compensation. Retail cost of sales decreased 20.7% compared to a decrease in retail sales of 23.5%, reflecting a higher mix of aged retail products sold at reduced margins. Resort related fees increased 4.3%decreased 7.0% primarily due to higherdecreases in revenue on which those fees are based. General and administrative expense increased 5.8%, primarily due to a $13.2 million charge recorded during the fourth quarter of Fiscal 2021 for a contingent obligation with respect to employment-related litigation, as well as an increase in variable compensation accruals, partially offset by incremental tax credits of approximately $2.7 million primarily associated with COVID-19 related legislation passed in Canada and Australia. Other expense decreased 10.2% primarily due to decreases in variable operating expenses associated with reduced revenues, as well as a decrease in acquisition and integration related expenses of $12.6 million.
Mountain equity investment income, net primarily includes our share of income from the operations of a real estate brokerage joint venture. Mountain equity investment income from the real estate brokerage company increased $5.0 million (296.3%) for Fiscal 2021 compared to Fiscal 2020 due to a significant increase in both the number of real estate sales and the average price of those sales.
Fiscal 2020 compared to Fiscal 2019
Mountain Reported EBITDA decreased $178.5 million, or 26.3%, primarily due to the impact of the deferral of $120.9 million of pass product revenue during Fiscal 2020 as a result of the Credit Offer to 2019/2020 North American pass product holders from the Resort Closures and the overall impacts of the COVID-19 pandemic, which resulted in significantly reduced visitation and operations at our Resorts and retail stores for the 2019/2020 North American ski season, the 2020 Australian ski season and our 2020 North American summer operations. These decreases were partially offset by the incremental operations of Peak Resorts, Falls Creek and Hotham. Mountain segment results include $13.6 million and $16.4 million of acquisition and integration related expenses for Fiscal 2020 and Fiscal 2019, respectively, which are recorded within Mountain other operating expense.
Lift revenue decreased $120.1 million, or 11.6%, primarily due to a 3.4% decrease in pass product revenue and an 18.8% decrease in non-pass revenue. Pass product revenue decreased primarily as a result of the deferral of approximately $120.9 million of pass product revenue associated with the Credit Offer to 2019/2020 North American pass product holders, which would have been recognized during Fiscal 2020 and which was instead recognized primarily in the second and third quarters of Fiscal 2021, partially offset by a combination of an increase in pricing and units sold and increased pass sales to Destination guests, as well as the introduction of the Epic Day Pass. Non-pass revenue decreased primarily due to significantly
reduced skier visitation as a result of the Resort Closures, partially offset by an increase in non-pass ETP (excluding Peak Resorts, Falls Creek and Hotham) of 6.2% and incremental revenue from Peak Resorts, Falls Creek and Hotham of approximately $61.4 million. Total non-pass ETP, including the impact of Peak Resorts, Falls Creek and Hotham decreased 7.3%.
Ski school revenue, dining revenue and retail/rental revenue in Fiscal 2020 all decreased compared to Fiscal 2019 due to the Resort Closures. These decreases were partially offset by incremental revenue from our acquisitions of Peak Resorts, Falls Creek and Hotham of $18.0 million of ski school revenue, $23.8 million of dining revenue and $26.8 million of retail/rental revenue.
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 Australian ski area lodging and transportation revenue. For Fiscal 2020, other revenue decreased as a result of the Resort Closures, partially offset by incremental revenue from Peak Resorts of approximately $12.6 million.
Resort Closures and the associated actions taken by the Company to reduce costs resulted in a decrease in our operating expense of $67.5 million, or 5.3%, which includes incremental operating expenses from Peak Resorts, Falls Creek and Hotham of approximately $121.4 million, as well as $13.6 million and $16.4 million of acquisition and integration related expenses for Fiscal 2020 and Fiscal 2019, respectively.
Labor and labor-related benefits decreased 6.8%, which primarily resulted from cost actions associated with the Resort Closures, including decreased staffing, employee furloughs, salary reductions and reduced variable compensation accruals, as well as tax credits of approximately $12.0 million associated with COVID-19 related legislation passed in the U.S., Canada and Australia, partially offset by incremental expenses from Peak Resorts, Falls Creek and Hotham of approximately $50.7 million. Retail cost of sales decreased 20.5% compared to a decrease in retail sales of 20.1%. Resort related fees decreased 22.0% primarily due to decreases in revenue on which those fees are based, andpartially offset by incremental expenses from Stowe.Peak Resorts of approximately $4.3 million. General and administrative expense increased 7.3% due to higher corporate overhead costs, including incremental expenses from Stowe, partially offset by lower estimated performance-based variable compensation. Other expense increased 11.4%2.7% primarily due to incremental expenses from Whistler BlackcombPeak Resorts, Falls Creek and Stowe, as well as increases in repairs and maintenance expense, utilities expense (primarily related to increased snowmaking operations), food and beverage costHotham of sales commensurate with increases in dining revenue and property taxes,approximately $18.9 million, partially offset by a decrease in rent expense.allocated corporate overhead costs, a decrease in variable compensation accruals primarily as a result of the Resort Closures and tax credits of approximately $3.3 million associated with COVID-19 related legislation passed in the U.S., Canada and Australia. Other expense increased 2.1% primarily due to incremental operating expenses from Peak Resorts, Falls Creek and Hotham of approximately $42.2 million, partially offset by decreases in variable operating expenses associated with the Resort Closures, as well as a decrease in acquisition and integration related expenses.
Mountain equity investment income, net primarily includes our share of income from the operations of a real estate brokerage joint venture.
Fiscal 2017 compared to Fiscal 2016
The results reflected an increase in Mountain Reported EBITDA of $141.9 million, or 33.4%, primarily due to the operations of Whistler Blackcomb, which was included in our consolidated results prospectively from the acquisition date (acquired in October 2016), partially offset by $10.8 million of acquisition and integration related expenses. Additionally, Stowe was acquired in June 2017 and its off-season operations were included in our consolidated results prospectively from the acquisition date. Excluding acquisition and integration related expenses and the operations of Whistler Blackcomb and Stowe, Mountain Reported EBITDA increased 9.1%. Our results reflected strong U.S. season pass sales growth for the 2016/2017 North American ski season. However, our Fiscal 2017 results were tempered by poor early ski season conditions prior to the holiday period at our U.S. resorts which drove lower skier visitation during the early ski season.
Lift revenue increased $160.3 million, or 24.4%, primarily due to incremental lift revenue from Whistler Blackcomb. Excluding Whistler Blackcomb, total lift revenue increased 6.4% of which non-pass revenue decreased 1.5% and pass revenue increased 18.3%. The decrease in non-pass revenue, excluding Whistler Blackcomb, was primarily the result of a decrease in non-pass skier visitation to our U.S. resorts, primarily due to continued shifting of Destination guests to season passes and poor early season conditions in Colorado, partially offset by an increase in ETP excluding season pass holders of 6.5%. The increase in pass revenue, excluding Whistler Blackcomb, was due to a combination of both an increase in pricing and units sold and was favorably impacted by increased pass sales to Destination guests. The change in total ETP was negatively impacted by the inclusion of Whistler Blackcomb’s ETP in our Fiscal 2017 results, which was lower on a U.S. dollar basis than the Company average. Total ETP, excluding Whistler Blackcomb, increased $7.49, or 11.4%, due primarily to price increases in both our lift ticket products at our U.S. mountain resorts and season pass products, and lower average visitation by U.S. season pass holders during the 2016/2017 U.S. ski season as compared with the 2015/2016 U.S. ski season.
Ski school revenue increased $34.5 million, or 24.1%, primarily due to incremental ski school revenue from Whistler Blackcomb. Excluding Whistler Blackcomb, ski school revenue increased 2.7%, primarily due to increases in pricing. Dining revenue increased $29.6 million, or 24.4%, due to incremental revenue from Whistler Blackcomb. Excluding Whistler Blackcomb, dining revenue increased 0.6%.
Retail/rental revenue increased $52.3 million, or 21.7%, primarily due to incremental retail/rental revenue from Whistler Blackcomb. Excluding Whistler Blackcomb, retail revenue increased 2.1% and rental revenue increased 0.8%. The increase in retail revenue was primarily attributable to strong sales at pre-ski season sales events at our stores in Colorado and higher sales volumes at stores proximate to our Tahoe and Park City resorts.
For Fiscal 2017, other revenue increased $30.5 million, or 21.6%, primarily attributable to incremental revenue from Whistler Blackcomb. Excluding Whistler Blackcomb and Stowe, other revenue increased 2.2% primarily due to an increase in summer activities revenue from our U.S. mountain resorts, including the expansion of our on-mountain Epic Discovery summer activities offerings.
Operating expense for Fiscal 2017 increased $165.9 million, or 18.8%, which was primarily attributable to incremental operating expenses from Whistler Blackcomb, as well as $10.8 million of acquisition and integration related expenses. Excluding incremental operating expenses of Whistler Blackcomb and Stowe and acquisition and integration related activities, operating expense increased 1.7%.
The following discussion provides information about the changes in operating expenses for Fiscal 2017, excluding acquisition and integration related expenses and the operations of Whistler Blackcomb and Stowe. Labor and labor-related benefits increased 2.8% primarily due to normal wage adjustments and increased staffing levels at our U.S. resorts to support the expansion of our on-mountain Epic Discovery summer activities offerings, partially offset by lower performance-based variable compensation. Retail cost of sales increased 1.3%, compared to an increase in retail sales of 2.0%. Resort related fees increased 3.5% due to overall increases in revenue upon which those fees are based. General and administrative expense increased 1.3% due to increased corporate overhead costs. Other expense decreased 0.2% primarily due to decreased professional services expense and repairs and maintenance expense, partially offset by increased rent expense and utilities expense.
Mountain equity investment income, net primarily includes our share of income from the operations of a real estate brokerage joint venture.
Lodging Segment
Lodging segment operating results for Fiscal 2018,2021, Fiscal 20172020 and Fiscal 20162019 are presented by category as follows (in thousands, except ADR and RevPAR):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Percentage |
| Year ended July 31, | | Increase/(Decrease) |
| 2021 | | 2020 | | 2019 | | 2021/2020 | | 2020/2019 |
Lodging net revenue: | | | | | | | | | |
Owned hotel rooms | $ | 47,509 | | | $ | 44,992 | | | $ | 64,826 | | | 5.6 | % | | (30.6) | % |
Managed condominium rooms | 72,217 | | | 76,480 | | | 86,236 | | | (5.6) | % | | (11.3) | % |
Dining | 19,068 | | | 38,252 | | | 53,730 | | | (50.2) | % | | (28.8) | % |
Transportation | 9,271 | | | 15,796 | | | 21,275 | | | (41.3) | % | | (25.8) | % |
Golf | 20,437 | | | 17,412 | | | 19,648 | | | 17.4 | % | | (11.4) | % |
Other | 43,007 | | | 44,933 | | | 54,617 | | | (4.3) | % | | (17.7) | % |
Lodging net revenue (excluding payroll cost reimbursements) | 211,509 | | | 237,865 | | | 300,332 | | | (11.1) | % | | (20.8) | % |
Payroll cost reimbursements | 6,553 | | | 10,549 | | | 14,330 | | | (37.9) | % | | (26.4) | % |
Total Lodging net revenue | 218,062 | | | 248,414 | | | 314,662 | | | (12.2) | % | | (21.1) | % |
Lodging operating expense: | | | | | | | | | |
Labor and labor-related benefits | 101,582 | | | 114,279 | | | 135,940 | | | (11.1) | % | | (15.9) | % |
General and administrative | 43,714 | | | 39,283 | | | 41,256 | | | 11.3 | % | | (4.8) | % |
Other | 71,946 | | | 81,034 | | | 95,036 | | | (11.2) | % | | (14.7) | % |
Lodging operating expense (excluding reimbursed payroll costs) | 217,242 | | | 234,596 | | | 272,232 | | | (7.4) | % | | (13.8) | % |
Reimbursed payroll costs | 6,553 | | | 10,549 | | | 14,330 | | | (37.9) | % | | (26.4) | % |
Total Lodging operating expense | 223,795 | | | 245,145 | | | 286,562 | | | (8.7) | % | | (14.5) | % |
Lodging Reported EBITDA | $ | (5,733) | | | $ | 3,269 | | | $ | 28,100 | | | (275.4) | % | | (88.4) | % |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | Percentage |
| Year Ended July 31, | | Increase/(Decrease) |
| 2018 | | 2017 | | 2016 | | 2018/2017 | | 2017/2016 |
Lodging net revenue: | | | | | | | | | |
Owned hotel rooms | $ | 65,252 |
| | $ | 63,939 |
| | $ | 63,520 |
| | 2.1 | % | | 0.7 | % |
Managed condominium rooms | 70,198 |
| | 65,694 |
| | 61,934 |
| | 6.9 | % | | 6.1 | % |
Dining | 48,554 |
| | 48,449 |
| | 49,225 |
| | 0.2 | % | | (1.6 | )% |
Transportation | 21,111 |
| | 22,173 |
| | 22,205 |
| | (4.8 | )% | | (0.1 | )% |
Golf | 18,110 |
| | 17,837 |
| | 17,519 |
| | 1.5 | % | | 1.8 | % |
Other | 47,577 |
| | 46,238 |
| | 47,833 |
| | 2.9 | % | | (3.3 | )% |
| 270,802 |
| | 264,330 |
| | 262,236 |
| | 2.4 | % | | 0.8 | % |
Payroll cost reimbursements | 13,841 |
| | 14,184 |
| | 12,318 |
| | (2.4 | )% | | 15.1 | % |
Total Lodging net revenue | 284,643 |
| | 278,514 |
| | 274,554 |
| | 2.2 | % | | 1.4 | % |
Lodging operating expense: | | | | | | | | | |
Labor and labor-related benefits | 121,733 |
| | 117,183 |
| | 114,404 |
| | 3.9 | % | | 2.4 | % |
General and administrative | 37,716 |
| | 37,217 |
| | 35,351 |
| | 1.3 | % | | 5.3 | % |
Other | 86,347 |
| | 82,843 |
| | 84,312 |
| | 4.2 | % | | (1.7 | )% |
| 245,796 |
| | 237,243 |
| | 234,067 |
| | 3.6 | % | | 1.4 | % |
Reimbursed payroll costs | 13,841 |
| | 14,184 |
| | 12,318 |
| | (2.4 | )% | | 15.1 | % |
Total Lodging operating expense | 259,637 |
| | 251,427 |
| | 246,385 |
| | 3.3 | % | | 2.0 | % |
Lodging Reported EBITDA | $ | 25,006 |
| | $ | 27,087 |
| | $ | 28,169 |
| | (7.7 | )% | | (3.8 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owned hotel statistics (1) | | | | | | | | | |
ADR | $ | 264.83 | | | $ | 266.43 | | | $ | 256.50 | | | (0.6) | % | | 3.9 | % |
RevPar | $ | 122.45 | | | $ | 122.34 | | | $ | 175.45 | | | 0.1 | % | | (30.3) | % |
Managed condominium statistics (1) | | | | | | | | | |
ADR | $ | 349.08 | | | $ | 328.98 | | | $ | 324.34 | | | 6.1 | % | | 1.4 | % |
RevPar | $ | 77.74 | | | $ | 83.10 | | | $ | 107.67 | | | (6.5) | % | | (22.8) | % |
Owned hotel and managed condominium statistics (combined) (1) | | | | | | | | | |
ADR | $ | 322.15 | | | $ | 310.76 | | | $ | 300.47 | | | 3.7 | % | | 3.4 | % |
RevPar | $ | 85.99 | | | $ | 90.37 | | | $ | 121.81 | | | (4.8) | % | | (25.8) | % |
|
| | | | | | | | | | | | | | | | | |
Owned hotel statistics: | | | | | | | | | |
ADR | $ | 250.50 |
| | $ | 245.31 |
| | $ | 227.27 |
| | 2.1 | % | | 7.9 | % |
RevPar | $ | 173.34 |
| | $ | 168.14 |
| | $ | 153.13 |
| | 3.1 | % | | 9.8 | % |
Managed condominium statistics: | | | | | | | | | |
ADR | $ | 336.29 |
| | $ | 347.64 |
| | $ | 325.38 |
| | (3.3 | )% | | 6.8 | % |
RevPar | $ | 116.26 |
| | $ | 113.08 |
| | $ | 109.68 |
| | 2.8 | % | | 3.1 | % |
Owned hotel and managed condominium statistics (combined): | | | | | | | | | |
ADR | $ | 300.90 |
| | $ | 302.80 |
| | $ | 280.38 |
| | (0.6 | )% | | 8.0 | % |
RevPar | $ | 131.08 |
| | $ | 127.95 |
| | $ | 122.61 |
| | 2.4 | % | | 4.4 | % |
(1) RevPAR for Fiscal 2021 and Fiscal 2020 declined from Fiscal 2019 primarily due to limitations and restrictions on our North American operations resulting from COVID-19, as well as the impact of the Resort Closures.
Lodging Reported EBITDA includes $3.2$3.8 million, $3.2$3.4 million and $3.1$3.2 million of stock-based compensation expense for Fiscal 2018,2021, Fiscal 20172020 and Fiscal 2016,2019, respectively.
Fiscal 20182021 compared to Fiscal 20172020
Lodging Reported EBITDA for Fiscal 20182021 decreased $2.1$9.0 million, or 7.7% primarily due to general cost increases and a one-time benefit recorded in Fiscal 2017 for association fees with respect to a lodging property at Park City.
Revenue from owned hotel rooms increased $1.3 million, or 2.1%275.4%, primarily due to an increase in occupancy at Flagg Ranch, which incurred an early closure in Fiscal 2017 as a result of limitations and restrictions on our North American operations in the current year as a forest fireresult of the impacts of COVID-19, which resulted in Grand Teton National Park,reduced occupancy and capacity-related restrictions at our lodging properties compared to the prior year.
Revenue from managed condominium rooms, dining, transportation, and other revenue each decreased primarily as well as an increase in revenue at GTLC,a result of the impacts of COVID-19. These decreases were partially offset by decreasedincreases in revenue from golf, primarily due to strong
summer demand in Fiscal 2021, and owned hotel rooms, primarily as a result of increased revenue from GTLC and partially offset by decreases at our owned Coloradoother lodging properties as a result of lower winter visitation. Revenue from managed condominium rooms increased $4.5 million, or 6.9%, primarily due to increased revenue at our Colorado managed properties as a resultthe impacts of increased demand, partially offset by a decrease in ADR, as well as incremental revenue from a Park City lodging property which was temporally closed for renovations in the prior year. Additionally, managed condominium rooms revenue was positively impacted by incremental revenue at Whistler Blackcomb.COVID-19.
Transportation revenue decreased $1.1 million, or 4.8%, primarily due to decreased passenger volume. Other revenue increased $1.3 million, or 2.9%, primarily due to increases in conference services revenue and ancillary revenue, partially offset by a business interruption insurance recovery recorded in Fiscal 2017 related to the early closure of our Flagg Ranch property in September 2016, as discussed above.
Operating expense (excluding reimbursed payroll costs) increased $8.6 million, or 3.6%decreased 7.4%. Labor and labor-relatedlabor related benefits decreased 11.1% primarily due to decreased staffing associated with COVID-19. General and administrative expense increased $4.6 million, or 3.9%,11.3% due to an increase in allocated corporate overhead costs across all functions, including variable compensation accruals, primarily resulting from higher labor expense for Park City and Flagg Ranch, which were both closed foras a portionresult of lower costs in the prior year period, incremental expenses from Whistler Blackcomb and normal wage increases, partially offset by lower performance-based variable compensation.associated with the Resort Closures. Other expense increased $3.5 million, or 4.2%, primarily duedecreased 11.2% related to lower variable expenses associated with reduced revenue as a one-time benefit for association fees with respect to a lodging property at Park City that was recorded in Fiscal 2017, as well as increases in variable operating expenses and an increase in property taxes.result of COVID-19.
Revenue from payroll cost reimbursementsreimbursement and the corresponding reimbursed payroll costs relatesrelate 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.
Fiscal 20172020 compared to Fiscal 20162019
Lodging Reported EBITDA for Fiscal 20172020 decreased $1.1$24.8 million, or 3.8%. Lodging Reported EBITDA for Fiscal 2017 included the operations of Whistler Blackcomb prospectively since the date of acquisition and was impacted by a reduction of revenue and EBITDA from the sale of a hotel property in Keystone in November 2016, which we continue to manage under a property management agreement. Included in Lodging Reported EBITDA for Fiscal 2016 was the recognition of a $3.5 million termination fee (included in other revenue) associated with the termination of the management agreement at Half Moon in Montego Bay, Jamaica (“Half Moon Termination Fee”). Excluding Whistler Blackcomb operations from Fiscal 2017, operations from the hotel property in Keystone from both periods and the Half Moon Termination Fee from Fiscal 2016, Lodging Reported EBITDA increased 9.2%, which was primarily attributable to an increase in revenue at GTLC and increased ADR at our Colorado managed condominium rooms.
Revenue from owned hotel rooms increased $0.4 million, or 0.7%, primarily due to an increase in revenue at GTLC and at our owned Colorado lodging properties during Fiscal 2017. These increases were partially offset by a decrease in revenue associated with the sale of a hotel property in Keystone, as discussed above, as well as lower revenue due to the early closure of our Flagg Ranch property as a result of a forest fire near Grand Teton National Park in September 2016. Revenue from managed condominium rooms increased $3.8 million, or 6.1%, primarily due to revenue from Whistler Blackcomb and increased ADR at our Colorado managed properties, partially offset by the temporary closure of a lodging property at Park City for renovations.
Dining revenue for Fiscal 2017 decreased $0.8 million, or 1.6%88.4%, primarily due to the temporary closureimpacts of the COVID-19 pandemic and the associated Resort Closures.
Primarily as a lodging property at Park City for renovations,result of the Resort Closures, revenue from owned hotel rooms, managed condominium rooms, dining, transportation, golf and other revenue each decreased. The decreases resulting from the Resort Closures were partially offset by increased dining revenue at our Colorado lodging properties. Excluding the Half Moon Termination Fee from Fiscal 2016, other revenue increased $1.9$13.7 million or 4.2%, primarily due to a business interruption insurance recovery related to the early closure of our Flagg Ranch property in September 2016, as discussed above, as well as an increase inincremental revenue from our central reservations booking service.Peak Resorts and Triple Peaks.
Operating expense (excluding reimbursed payroll costs) increased $3.2 million, or 1.4%decreased 13.8%. Labor and labor-relatedlabor related benefits increased $2.8decreased 15.9% primarily due to cost actions associated with the Resort Closures, including decreased staffing, employee furloughs, salary reductions and reduced variable compensation accruals, as well as tax credits of approximately $2.2 million or 2.4%associated with recent COVID-19 related legislation passed in the U.S., primarily resultingCanada and Australia, partially offset by $6.4 million of incremental expenses from Whistler Blackcomb labor expensePeak Resorts and normal wage increases.Triple Peaks. General and administrative expense increased $1.9 million, or 5.3%decreased 4.8% due to higherlower allocated corporate overhead costs.costs primarily associated with a reduction in variable compensation accruals, as well as tax credits of approximately $0.5 million associated with recent COVID-19 related legislation passed in the U.S., Canada and Australia. Other expenseexpenses decreased $1.514.7% primarily related to lower variable expenses associated with the impact of the Resort Closures, partially offset by $4.7 million or 1.7%, primarily due to a one-time benefit for association fees with respect to a lodging property at Park City.of incremental expenses from Peak Resorts and Triple Peaks.
Revenue from payroll cost reimbursementsreimbursement and the corresponding reimbursed payroll costs relatesrelate 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
Real Estate segment operating results for Fiscal 2018, Fiscal 2017 and Fiscal 2016 are presented by category as follows (in thousands):
|
| | | | | | | | | | | | | | | | | |
| | | | | | | Percentage |
| Year Ended July 31, | | Increase/(Decrease) |
| 2018 | | 2017 | | 2016 | | 2018/2017 | | 2017/2016 |
Total Real Estate net revenue | $ | 3,988 |
| | $ | 16,918 |
| | $ | 22,128 |
| | (76.4 | )% | | (23.5 | )% |
Real Estate operating expense: | | | | | | | | | |
Cost of sales (including sales commissions) | 3,927 |
| | 14,534 |
| | 17,682 |
| | (73.0 | )% | | (17.8 | )% |
Other, net | (381 | ) | | 9,549 |
| | 6,957 |
| | (104.0 | )% | | 37.3 | % |
Total Real Estate operating expense | 3,546 |
| | 24,083 |
| | 24,639 |
| | (85.3 | )% | | (2.3 | )% |
Gain on sale of real property | 515 |
| | 6,766 |
| | 5,295 |
| | (92.4 | )% | | 27.8 | % |
Real Estate Reported EBITDA | $ | 957 |
| | $ | (399 | ) | | $ | 2,784 |
| | 339.8 | % | | (114.3 | )% |
Real Estate Reported EBITDA includes $0.1 million, $0.1 million and $0.5 million of stock-based compensation expense for Fiscal 2018, Fiscal 2017 and Fiscal 2016, respectively.
Our Real Estate operatingnet 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. During
Real Estate segment operating results for Fiscal 2018, we2021, Fiscal 2020 and Fiscal 2019 are presented by category as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Percentage |
| Year ended July 31, | | Increase/(Decrease) |
| 2021 | | 2020 | | 2019 | | 2021/2020 | | 2020/2019 |
Total Real Estate net revenue | $ | 1,770 | | | $ | 4,847 | | | $ | 712 | | | (63.5) | % | | 580.8 | % |
Real Estate operating expense: | | | | | | | | | |
Cost of sales (including sales commissions) | 1,294 | | | 3,932 | | | 13 | | | (67.1) | % | | 30,146.2 | % |
Other | 5,382 | | | 5,250 | | | 5,596 | | | 2.5 | % | | (6.2) | % |
Total Real Estate operating expense | 6,676 | | | 9,182 | | | 5,609 | | | (27.3) | % | | 63.7 | % |
Gain on sale of real property | 324 | | | 207 | | | 580 | | | 56.5 | % | | (64.3) | % |
Real Estate Reported EBITDA | $ | (4,582) | | | $ | (4,128) | | | $ | (4,317) | | | (11.0) | % | | 4.4 | % |
Fiscal 2021
We did not haveclose on any condominium units available for sale as all remaining units were sold insignificant real estate transactions during Fiscal 2017.
Fiscal 2018
During the fiscal year, we closed on the sales of development land parcels for $3.5 million which were recorded within Real Estate net revenue.
2021. Other net operating expense included the recognition of a $5.5$5.4 million benefit (non-cash in the current period) related to a legal
settlement in Fiscal 2015 for which cash proceeds were received and established as a liability for estimated future remediation costswas primarily comprised of a construction development. All known items have been remediated and, based on continued monitoring, the Company has concluded that the need for further remediation is remote. Additionally, other, net operating expense included general and administrative costs, such as labor and labor-related benefits, professional services and allocated corporate overhead costs.
Fiscal 2020
During Fiscal 2020, we closed on the sale of a development land parcel for $4.1 million which was recorded within Real Estate net revenue, with a corresponding cost of sale (including sales commission) of $3.9 million.
Other operating expense of $5.3 million was primarily comprised of general and administrative costs, such as labor and labor-related benefits, professional services and allocated corporate overhead costs.
Fiscal 2019
We closed on two land sales during the third quarter of Fiscal 2019 with third party developers at Keystone (One River Run site) and Breckenridge (East Peak 8 site) for proceeds of approximately $16.0 million, including $4.8 million associated with the sale of density for the Breckenridge property. The land parcel sales were accounted for as financing arrangements as a result of the Company’s continuing involvement with the underlying assets that were sold, including but not limited to, the obligation to repurchase finished commercial space from the development projects upon completion. As a result, the estimated gain of $3.6 million associated with the East Peak 8 site and the estimated loss of $3.2 million associated with the One River Run site will be deferred until the Company no longer maintains continuing involvement. Additionally, the Company’s future obligation to repurchase finished commercial space in the two completed projects, as well as other related capital spending, will result in total estimated capital expenditures of up to approximately $9.5 million in future fiscal years.
Other operating expense of $5.6 million was primarily comprised of general and administrative costs, such as labor and labor-related benefits, professional services and allocated corporate overhead costs. Real Estate Reported EBITDA also included a gain on sale of real property of $0.5$0.6 million for the sale of a land parcel.
Fiscal 2017
Real Estate segment net revenue was primarily driven by the closing of four condominium units at The Ritz-Carlton Residences, Vail ($13.6 million of revenue with an average selling price of $3.4 million and an average price per square foot of $1,345) and two condominium units at One Ski Hill Place in Breckenridge ($2.3 million of revenue with an average sales price of $1.1 million and an average price per square foot of $983). The average price per square foot of both of these projects is driven by their premier locations and the comprehensive and exclusive amenities related to these projects.
Operating expense included cost of sales of $13.4 million resulting from the closing of four condominium units at The Ritz-Carlton Residences, Vail (average cost per square foot of $1,131) and two condominium units at One Ski Hill Place (average cost per square foot of $838). Additionally, sales commissions of approximately $1.0 million were incurred commensurate with revenue recognized. Other operating expense of $9.5 million was primarily comprised of a $4.3 million one-time charge related to the resolution of a financial contingency to the Town of Vail for incremental parking capacity, as well as general and administrative costs, which includes marketing expense for the real estate available for sale, carrying costs for units available for sale and overhead costs, such as labor and labor-related benefits and allocated corporate costs.
In addition, we recorded a gain on sale of real property of $6.5 million for a land parcel in Breckenridge which sold for $9.3 million during Fiscal 2017.
parcels.
Fiscal 2016
Real Estate segment net revenue was driven primarily by the closing of five condominium units at The Ritz-Carlton Residences, Vail ($15.6 million of revenue with an average selling price per unit of $3.1 million and an average price per square foot of $1,421); two condominium units at One Ski Hill Place in Breckenridge ($2.5 million of revenue with an average selling price per unit of $1.2 million and an average price per square foot of $1,129); and the three remaining condominium units at Crystal Peak Lodge, in Breckenridge ($2.4 million of revenue with an average selling price of $0.8 million and an average price per square foot of $707). The average price per square foot for all three projects is primarily due to their premier locations and the comprehensive and exclusive amenities related to these projects.
Operating expense included cost of sales of $15.6 million primarily resulting from the closing of five condominium units at The Ritz-Carlton Residences, Vail (average cost per square foot of $1,075); two condominium units at One Ski Hill Place (average cost per square foot of $931); and three condominium units at Crystal Peak Lodge (average cost per square foot of $513). The cost per square foot for the One Ski Hill Place and The Ritz-Carlton Residences, Vail projects is reflective of the high-end features and amenities and high construction costs associated with mountain resort development. Additionally, sales commissions of approximately $1.4 million were incurred commensurate with revenue recognized. Other operating expense of $7.0 million was primarily comprised of general and administrative costs which includes marketing expense for the real estate available for sale (including those units that have not yet closed), carrying costs for units available for sale and overhead costs, such as labor and labor-related benefits and allocated corporate costs.
In addition, we recorded a gain on sale of real property of $5.3 million (net of $2.1 million in related land basis and cost) for various land parcels which sold for $7.4 million.
Other Items
In addition to segment operating results, the following material items contributecontributed to our overall financial position and results of operations (in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended July 31, | | Percentage Increase/(Decrease) |
| 2021 | | 2020 | | 2019 | | 2021/2020 | | 2020/2019 |
Depreciation and amortization | $ | (252,585) | | | $ | (249,572) | | | $ | (218,117) | | | 1.2 | % | | 14.4 | % |
Asset impairments | $ | — | | | $ | (28,372) | | | $ | — | | | (100.0) | % | | nm |
Change in fair value of contingent consideration | $ | (14,402) | | | $ | 2,964 | | | $ | (5,367) | | | (585.9) | % | | 155.2 | % |
| | | | | | | | | |
Interest expense, net | $ | (151,399) | | | $ | (106,721) | | | $ | (79,496) | | | 41.9 | % | | 34.2 | % |
Foreign currency gain (loss) on intercompany loans | $ | 8,282 | | | $ | (3,230) | | | $ | (2,854) | | | 356.4 | % | | (13.2) | % |
| | | | | | | | | |
Provision for income taxes | $ | (726) | | | $ | (7,378) | | | $ | (75,472) | | | (90.2) | % | | (90.2) | % |
Effective tax rate | (0.6) | % | | (6.3) | % | | (18.9) | % | | (5.7 pts) | | (12.6 pts) |
|
| | | | | | | | | | | | | | | | | |
| Year Ended July 31, | | Percentage Increase/(Decrease) |
| 2018 | | 2017 | | 2016 | | 2018/2017 | | 2017/2016 |
Depreciation and amortization | $ | (204,462 | ) | | $ | (189,157 | ) | | $ | (161,488 | ) | | 8.1 | % | | 17.1 | % |
Change in fair value of contingent consideration | $ | 1,854 |
| | $ | (16,300 | ) | | $ | (4,200 | ) | | 111.4 | % | | (288.1 | )% |
Investment income and other, net | $ | 1,944 |
| | $ | 6,114 |
| | $ | 723 |
| | (68.2 | )% | | 745.6 | % |
Interest expense, net | $ | (63,226 | ) | | $ | (54,089 | ) | | $ | (42,366 | ) | | 16.9 | % | | 27.7 | % |
Foreign currency (loss) gain on intercompany loans | $ | (8,966 | ) | | $ | 15,285 |
| | $ | — |
| | (158.7 | )% | | nm |
|
Benefit (provision) for income taxes | $ | 61,138 |
| | $ | (116,731 | ) | | $ | (93,165 | ) | | 152.4 | % | | 25.3 | % |
Depreciation and amortization. Depreciation and amortization expense for both Fiscal 20182021 and Fiscal 20172020 increased over the applicable prior fiscal yearFiscal 2019 primarily due to an increase in the fixed asset base due to incremental capital expenditures, including assets acquired in the Whistler Blackcomb (acquired October 2016)Peak Resorts acquisition (incremental impact of $24.3 million in Fiscal 2020 relative to Fiscal 2019), as well as discretionary capital projects completed at our resorts in each fiscal year.
Asset impairments. We recorded an asset impairment of approximately $28.4 million during Fiscal 2020 as a result of the effects of COVID-19 on our Colorado resort ground transportation company, with corresponding reductions to goodwill, net of $25.7 million and Stowe (acquired June 2017) acquisitions.intangible assets, net and property, plant and equipment, net of $2.7 million. See Notes to the Consolidated Financial Statements for additional information.
Change in fair value of contingent consideration.consideration. We recorded a loss of $14.4 million during Fiscal 2021 primarily related to improved performance compared to estimated results for Park City in Fiscal 2021, resulting in an increase in the expected payment for the year, as well as accretion resulting from the passage of time. We recorded a gain of $1.9$3.0 million during Fiscal 20182020 primarily related to a decrease in the estimated Contingent Consideration payments for Fiscal 2020 and Fiscal 2021 as a result of a decrease in expected results due to the anticipated impacts of COVID-19. We recorded a loss of $5.4 million during Fiscal 2019 primarily related to the estimated Contingent Consideration payment for Fiscal 2018. Additionally, losses of $16.3 million and $4.2 million were recorded during Fiscal 2017 and Fiscal 2016, respectively, related to increases in the2019. The estimated fair value of the future participating contingent payments under the lease for Park City. The fair value of contingent consideration is based on assumptions for EBITDA of Park City in future periods, as calculated under the lease on which participating payments are determined. The estimated fair value of the contingent considerationdetermined, and was $21.9$29.6 million and $27.4$17.8 million as of July 31, 20182021 and 2017,2020, respectively.
Investment income and other,Interest expense, net. Investment income and other, Interest expense, net increased for Fiscal 20172021 increased compared to Fiscal 2016,2020 primarily due to a $3.4borrowings under our 6.25% unsecured bond offering, which was completed on May 4, 2020 (the “6.25% Notes”) and generated approximately $28.3 million gain recognized on short-term foreign currency forward contracts that were entered intoof incremental interest expense in conjunctionFiscal 2021, and $12.5 million of non-cash interest expense associated with fundingamortization of the cash consideration requireddebt discount for the Whistler Blackcomb acquisition, a $0.9 million gain recorded for the sale of a lodging property and a $0.8 million non-cash gain recognized on an investment0.0% Convertible Notes, which were issued in Whistler Blackcomb shares that were held prior to the acquisition.
Interest expense, net.December 2020. Interest expense, net increased for Fiscal 2018 and2020 increased compared to Fiscal 20172019 primarily due to interest expense associated withdebt obligations assumed in the Peak Resorts acquisition; borrowings under our 6.25% unsecured bond offering which was completed on May 4, 2020; incremental term loan borrowings under the Vail Holdings Credit Agreement of $509.4$335.6 million, which waswere used to fund the cash consideration portion of the Whistler BlackcombPeak Resorts acquisition in October 2016, as well asSeptember 2019; and incremental borrowings under the revolver components of our Vail Holdings Credit Agreement and Whistler Credit Agreement, which was assumedwere almost entirely drawn on during Fiscal 2020 as parta precautionary measure in order to increase our cash position and financial flexibility in light of the Whistler Blackcomb acquisition.financial market conditions resulting from the COVID-19 pandemic and were subsequently paid down, partially offset by a decrease in variable interest rates.
Foreign currency gain (loss) gain on intercompany loans. Foreign currency gain (loss) gain on intercompany loans for Fiscal 20182021 increased as compared to Fiscal 2020 and decreased for Fiscal 20172020 as compared to Fiscal 2019 as a result of the Canadian dollar fluctuating relative to the U.S. dollar, and was associated with an intercompany loan from Vail Holdings, Inc. to Whistler Blackcomb in the original 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, which had an outstanding balance of approximately $97.2 million as of July 31, 2021, 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.
Provision for income taxes. OurThe effective tax rate benefit (provision) was 18.0%(0.6)%, (33.5%)(6.3)% and (38.4%)(18.9)% in Fiscal 2018,2021, Fiscal 20172020 and Fiscal 2016,2019, respectively. Our tax benefit (provision) and effective tax rate are driven primarily by the amount of pre-tax income, which is adjusted for items that are deductible/non-deductible for tax purposes only (i.e. permanent items), excess tax benefits from employee share awards, enacted tax legislation and taxable income generated by state and foreign jurisdictions that varies from the consolidated pre-tax income and the amount of net income attributable to noncontrolling interests. The change in the effective tax rate during Fiscal 2018 compared to Fiscal 2017 was primarily driven by the Tax Act and excess tax benefits from employee share awards that were exercised, as further discussed below. The decrease in the effective tax rate provision during Fiscal 20172021 compared to Fiscal 20162020 was primarily associated with the Whistler Blackcomb acquisition, where the Canadian statutory tax rate was lower than the U.S. statutory tax rate during Fiscal 2017 (prior to enactment of the Tax Act).
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act. The Tax Act transitions the U.S. tax system to a new territorial system and lowers the statutory federal corporate income tax rate from 35% to 21%. The reduction of the statutory federal corporate tax rate to 21% became effective on January 1, 2018. As a result of the Tax Act, we recorded a one-time, provisional net tax benefit of approximately $61.0 million on our Consolidated Statement of Operations for Fiscal 2018. Due to the reductiondriven by an increase in the federal corporate tax rate, we remeasured our U.S. net deferred tax liabilities as of the effective date of the Tax Act using the reduced statutory federal corporate income tax rate. The U.S. net deferred tax liabilities remeasurement resulted in a one-time tax benefit estimated to be approximately $67.0 million, which was recognized as a discrete item and was recorded within benefit (provision) for income taxes on our Consolidated Statement of Operations during Fiscal 2018. Also, in transitioning to the new territorial tax system, the Tax Act requires us to include certain foreign earnings of non-U.S. subsidiaries in our Fiscal 2018 taxable income. Such foreign earnings are subject to a one-time tax. The Transition Tax was estimated to be approximately $6.0 million and was recorded during Fiscal 2018. The above-mentioned accounting impacts of the deferred tax remeasurement and Transition Tax are provisional, based on currently available information and technical guidance on the interpretation of the new law. The provisional accounting impacts may change in future reporting periods until the accounting analysis is finalized, which will occur not later than the second quarter of fiscal 2019, as permitted by the SEC.
Additionally, the change in the effective tax rate during Fiscal 2018 compared to Fiscal 2017 was also due to excess tax benefits from employee share awards that were exercised (stock appreciation awards)rights) and that vested (restricted stock awards), which were recorded within benefit (provision) for income taxes. The decrease in the effective tax rate during Fiscal 20182020 compared to Fiscal 2019 was primarily due to lower full year pre-tax net income, as well as a resultone-time, provisional $3.8 million benefit related to the net operating loss carryback provision of new accounting guidance that was adopted prospectively as of August 1, 2017. The new guidance requiresthe Coronavirus Aid, Relief, and Economic Security Act, partially offset by a decrease in excess tax benefits to be recorded in the period realized as a discrete item within earnings rather than within equity. As a result of adopting this guidance, we recorded $71.1 million of excess tax benefits within benefit (provision) for income taxes on our Consolidated Statement of Operations for Fiscal 2018.from employee share awards that were exercised (stock appreciation rights) and that vested (restricted stock awards).
Reconciliation of Segment Earnings
The following table reconciles from segment Reported EBITDA to net income attributable to Vail Resorts, Inc. to Total Reported EBITDA for Fiscal 2018,2021, Fiscal 20172020 and Fiscal 20162019 (in thousands):
| | | | | | | | | | Year ended July 31, |
| Year Ended July 31, | | 2021 | | 2020 | | 2019 |
Net income attributable to Vail Resorts, Inc. | | Net income attributable to Vail Resorts, Inc. | $ | 127,850 | | | $ | 98,833 | | | $ | 301,163 | |
Net (loss) income attributable to noncontrolling interests | | Net (loss) income attributable to noncontrolling interests | (3,393) | | | 10,222 | | | 22,330 | |
Net income | | Net income | 124,457 | | | 109,055 | | | 323,493 | |
Provision for income taxes | | Provision for income taxes | 726 | | | 7,378 | | | 75,472 | |
Income before provision for income taxes | | Income before provision for income taxes | 125,183 | | | 116,433 | | | 398,965 | |
Depreciation and amortization | | Depreciation and amortization | 252,585 | | | 249,572 | | | 218,117 | |
Asset impairments | | Asset impairments | — | | | 28,372 | | | — | |
Loss (gain) on disposal of fixed assets and other, net | | Loss (gain) on disposal of fixed assets and other, net | 5,373 | | | (838) | | | 664 | |
Change in fair value of contingent consideration | | Change in fair value of contingent consideration | 14,402 | | | (2,964) | | | 5,367 | |
Investment income and other, net | | Investment income and other, net | (586) | | | (1,305) | | | (3,086) | |
Foreign currency (gain) loss on intercompany loans | | Foreign currency (gain) loss on intercompany loans | (8,282) | | | 3,230 | | | 2,854 | |
Interest expense, net | | Interest expense, net | 151,399 | | | 106,721 | | | 79,496 | |
Total Reported EBITDA | | Total Reported EBITDA | $ | 540,074 | | | $ | 499,221 | | | $ | 702,377 | |
| 2018 | | 2017 | | 2016 | |
Mountain Reported EBITDA | $ | 591,605 |
| | $ | 566,338 |
| | $ | 424,415 |
| Mountain Reported EBITDA | $ | 550,389 | | | $ | 500,080 | | | $ | 678,594 | |
Lodging Reported EBITDA | 25,006 |
| | 27,087 |
| | 28,169 |
| Lodging Reported EBITDA | (5,733) | | | 3,269 | | | 28,100 | |
Resort Reported EBITDA | 616,611 |
| | 593,425 |
| | 452,584 |
| Resort Reported EBITDA | 544,656 | | | 503,349 | | | 706,694 | |
Real Estate Reported EBITDA | 957 |
| | (399 | ) | | 2,784 |
| Real Estate Reported EBITDA | (4,582) | | | (4,128) | | | (4,317) | |
Total Reported EBITDA | 617,568 |
| | 593,026 |
| | 455,368 |
| Total Reported EBITDA | $ | 540,074 | | | $ | 499,221 | | | $ | 702,377 | |
Depreciation and amortization | (204,462 | ) | | (189,157 | ) | | (161,488 | ) | |
Loss on disposal of fixed assets and other, net | (4,620 | ) | | (6,430 | ) | | (5,418 | ) | |
Change in fair value of contingent consideration | 1,854 |
| | (16,300 | ) | | (4,200 | ) | |
Investment income and other, net | 1,944 |
| | 6,114 |
| | 723 |
| |
Foreign currency (loss) gain on intercompany loans | (8,966 | ) | | 15,285 |
| | — |
| |
Interest expense, net | (63,226 | ) | | (54,089 | ) | | (42,366 | ) | |
Income before benefit (provision) for income taxes | 340,092 |
| | 348,449 |
| | 242,619 |
| |
Benefit (provision) for income taxes | 61,138 |
| | (116,731 | ) | | (93,165 | ) | |
Net income | 401,230 |
| | 231,718 |
| | 149,454 |
| |
Net (income) loss attributable to noncontrolling interests | (21,332 | ) | | (21,165 | ) | | 300 |
| |
Net income attributable to Vail Resorts, Inc. | $ | 379,898 |
| | $ | 210,553 |
| | $ | 149,754 |
| |
The following table reconciles long-term debt, net to Net Debt (defined as long-term debt, net plus long-term debt due within one year less cash and cash equivalents) to long-term debt, net (in thousands):
| | | | | | | | | | | |
| Year ended July 31, |
| 2021 | | 2020 |
Long-term debt, net | $ | 2,736,175 | | | $ | 2,387,122 | |
Long-term debt due within one year | 114,117 | | | 63,677 | |
Total debt | 2,850,292 | | | 2,450,799 | |
Less: cash and cash equivalents | 1,243,962 | | | 390,980 | |
Net Debt | $ | 1,606,330 | | | $ | 2,059,819 | |
| | | |
|
|
| | | | | | | |
| July 31, |
| 2018 | | 2017 |
Long-term debt, net | $ | 1,234,277 |
| | $ | 1,234,024 |
|
Long-term debt due within one year | 38,455 |
| | 38,397 |
|
Total debt | 1,272,732 |
| | 1,272,421 |
|
Less: cash and cash equivalents | 178,145 |
| | 117,389 |
|
Net Debt | $ | 1,094,587 |
| | $ | 1,155,032 |
|
Liquidity and Capital Resources
Changes in significant sources and uses of cash for Fiscal 2018,2021, Fiscal 20172020 and Fiscal 20162019 are presented by categories as follows (in thousands):
| | | Year Ended July 31, | | Year ended July 31, | |
| 2018 | 2017 | 2016 | | 2021 | 2020 | 2019 | |
Net cash provided by operating activities | $ | 551,625 |
| $ | 473,189 |
| $ | 436,977 |
| Net cash provided by operating activities | $ | 525,250 | | $ | 394,950 | | $ | 634,231 | | |
Net cash used in investing activities | $ | (134,579 | ) | $ | (682,836 | ) | $ | (124,016 | ) | Net cash used in investing activities | $ | (103,329) | | $ | (492,739) | | $ | (596,034) | | |
Net cash (used in) provided by financing activities | $ | (350,715 | ) | $ | 255,617 |
| $ | (281,432 | ) | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | $ | 434,662 | | $ | 376,233 | | $ | (99,558) | | |
Historically, we have lower cash available at our fiscal year-end (as well as at the end of oureach first and fourth fiscal quarter of each year)quarter-end as compared to our second and third fiscal quarter-ends, primarily due to the seasonality of our Mountain segment operations.
operations, although our available cash balances as of July 31, 2021 and 2020 were higher than our historical July 31 balance as a result of the various debt offerings we completed in Fiscal 2021 and Fiscal 2020, and our suspension of dividend payments.
Fiscal 20182021 compared to Fiscal 20172020
We generated $551.6$525.3 million of cash from operating activities during Fiscal 2018,2021, an increase of $78.4$130.3 million when compared to $473.2$395.0 million of cash generated during Fiscal 2017.2020. The increase in operating cash flows was primarily a result of improved
Mountain segment operating results in Fiscal 2018, including operating benefits from the recent acquisitions of Stowe and Whistler Blackcomb, as compared to Fiscal 2017. Additionally, the increase in operating cash flows was a result of(i) an increase in accounts payable and accrued liabilities (excluding accounts payable and accrued liabilities assumed through acquisitions) primarily due to an increase in accrued trade payables, salaries and wages in the current year due to a decreasereturn to more normal operations, as compared to significantly lower accruals in estimated tax paymentsthe prior year due to the Resort Closures; (ii) an increase in pass product sales and collections as compared to the prior year, primarily as a result of the impacts of COVID-19, including the extended pass product sales deadline in the prior year and the impact of the Credit Offer; and (iii) a decrease in inventories (excluding inventories assumed through acquisitions) as of July 31, 2021 as compared to the beginning of the fiscal year relative to an increase in excess tax benefits from employee share awards that vested (restricted stock awards) or were exercised (stock appreciation awards), as applicable, during Fiscal 2018 and the enactment of the Tax Act.prior year period. These increases were partially offset by an increase in cash interest payments of $37.3 million in Fiscal 2021 as compared to the prior year, primarily due to incremental cash interest payments on the 6.25% Notes issued in May 2020, for which the first interest payments were made during Fiscal 20182021.
Cash used in investing activities for Fiscal 2021 decreased by $389.4 million, primarily due to cash payments of $327.6 million, net of cash acquired, related to the acquisition of Peak Resorts during Fiscal 2020. Additionally, capital expenditures decreased by $57.2 million primarily as a result of the deferral of a significant amount of discretionary capital projects related to the Company’s decision during the outbreak of COVID-19 to prioritize near-term liquidity.
Cash provided by financing activities increased by $58.4 million during Fiscal 2021 compared to Fiscal 2020, primarily due to (i) proceeds of $575.0 million from the issuance of our 0.0% Convertible Notes during the Fiscal 2021; (ii) a decrease in dividends paid of $212.7 million; (iii) a decrease in net payments of $208.0 million under the revolver component of our Vail Holdings Credit Agreement; and (iv) a decrease in repurchases of common stock of $46.4 million. These increases were partially offset by (i) proceeds of $600.0 million related to the issuance of our 6.25% Notes during Fiscal 2020; (ii) proceeds of $335.6 million from incremental borrowings under the term loan portion of our Vail Holdings Credit Agreement during Fiscal 2020, which were used to fund the Peak Resorts acquisition; (iii) an increase in net payments under the revolver component of our Whistler Credit Agreement of $23.5 million; and (iv) an increase in employee taxes paid for equity award exercises of $19.6 million.
Fiscal 2020 compared to Fiscal 2019
We generated $395.0 million of cash from operating activities during Fiscal 2020, a decrease of $239.3 million when compared to $634.2 million of cash generated during Fiscal 2019. The decrease in operating cash flows was primarily a result of decreased Mountain and Lodging segment operating results in Fiscal 2020, primarily due to the Resort Closures; a decrease in accounts payable and accrued liabilities due to declines associated with the Resort Closures (excluding accounts payable and accrued liabilities assumed through acquisitions) and an increase in cash interest payments of approximately $17.5 million primarily associated with debt assumed in the Peak Resorts acquisition and incremental term loan and revolver borrowings under our Vail Holdings Credit AgreementAgreement. These decreases were partially offset by increased North American pass product sales and borrowings underreceivable collections for the Whistler Credit Agreement.2019/2020 North American ski season as compared to the prior year and a decrease in estimated tax payments of $23.1 million. Additionally we generated $3.3approximately $4.4 million of proceeds from real estate development land parcel sales duringin Fiscal 20182020 compared to $14.9 million in proceeds (net of sales commissions and deposits previously received) from real estate development project closings that occurred in Fiscal 2017.
Cash used in investing activities for Fiscal 2018 decreased by $548.3 million, primarily due to cash payments during Fiscal 2017 related to the acquisitions of Whistler Blackcomb for $512.3 million, net of cash acquired (cash portion of consideration), and Stowe for $40.7 million, as well as a decrease in capital expenditures of $3.8 million during Fiscal 2018 compared to Fiscal 2017, partially offset by a reduction in cash received from the sale of real property.
Cash used in financing activities increased $606.3 million during Fiscal 2018, compared to Fiscal 2017, primarily due to the reduction of net proceeds from borrowings under our Vail Holdings Credit Agreement during Fiscal 2017, which was used to fund a portion of the cash consideration for the Whistler Blackcomb acquisition. Cash payments made on behalf of employees for taxes related to exercises of share awards increased $87.8 million and dividends paid increased $57.9 million during Fiscal 2018, compared to Fiscal 2017. Additionally, cash outflows related to repurchases of common stock in Fiscal 2018 increased by $25.6 million as compared to Fiscal 2017.
Fiscal 2017 compared to Fiscal 2016
We generated $473.2 million of cash from operating activities during Fiscal 2017, an increase of $36.2 million when compared to $437.0 million of cash generated during Fiscal 2016. The increase in operating cash flows was primarily a result of improved Mountain segment operating results in Fiscal 2017 (including Whistler Blackcomb operations, partially offset by transaction, transition and integration costs) compared to Fiscal 2016. These increases in operating cash inflows were partially offset by an increase in estimated domestic and foreign income tax payments of $27.4 million made during Fiscal 2017 compared Fiscal 2016, a decrease in accounts payable, an increase in cash interest payments due to incremental term loan borrowings under our Vail Holdings Credit Agreement and assumed borrowings under the Whistler Credit Agreement during Fiscal 2017, and receipt of a $4.5 million key money deposit related to the termination of the Half Moon management agreement in Fiscal 2016. Additionally, we generated $14.9 million of proceeds from real estate development project closings during Fiscal 2017 compared to $19.7$0.1 million in proceeds from real estate development project closings that occurred in Fiscal 2016 (each year net of sales commissions and deposits previously received).the prior year.
Cash used in investing activities increasedfor Fiscal 2020 decreased by $558.8$103.3 million, during Fiscal 2017, primarily due to cash payments of $553.2$327.6 million, net of cash acquired, related to the acquisition of Peak Resorts during Fiscal 2020, as compared to cash payments of $419.0 million, net of cash acquired, related to the acquisitions of Whistler Blackcomb for $512.3 millionTriple Peaks, Stevens Pass, Falls Creek and Stowe for $40.7 million, and an increase inHotham during Fiscal 2019. Additionally, capital expenditures decreased by $19.7 million primarily as a result of $35.2 million during Fiscal 2017. These increases were partially offset byactions associated with the acquisitiondeferral of Wilmot for $20.2 million during Fiscal 2016.
discretionary capital projects related to the Company’s decision to prioritize near-term liquidity.
Cash provided by financing activities increased $537.0by $475.8 million during Fiscal 2017,2020 compared to Fiscal 2019, primarily due to (i) the $600.0 million issuance of the 6.25% Notes in Fiscal 2020; (ii) an increase in proceeds from incremental borrowings under the term loan borrowings under our Vail Holdings Credit Agreement of $509.4 million used to fund a portion of the cash consideration for the Whistler Blackcomb acquisition, partially offset by an increase of $18.8 million in term loan payments during Fiscal 2017, and a decrease in net payments under the revolver portion of our Vail Holdings Credit Agreement of $85.0from $265.5 million during Fiscal 2017. Additionally,2019, which were used to fund the Triple Peaks and Stevens Pass acquisitions, to $335.6 million during Fiscal 2020, which were used to fund the Peak Resorts acquisition; (iii) an increase in Fiscal 2017, we realizednet borrowings under the revolver component of our Whistler Credit Agreement of $24.1 million, primarily relating to funds which were drawn as a $53.6 million reductionprecautionary measure in order to increase our cash position and financial flexibility in light of cash outflows related tothe financial market conditions resulting from the COVID-19 pandemic; (iv) a decrease in repurchases of common stock during Fiscal 2016.of $38.6 million; and (v) a decrease in dividend payments of $47.8 million associated with the Company’s decision to prioritize near-term liquidity. These net increases in cash inflows fromprovided by financing activities were partially offset by (i) an increase in net payments on borrowings under the revolver portioncomponent of the Whistlerour Vail Holdings Credit Agreement of $37.0 million,$286.0 million; (ii) an increase in dividends paidfinancing cost payments of $42.4$8.8 million, during Fiscal 2017 and an increase in cash payments for employee taxes related to exercises of share awards of $6.1 million.
Effect of Adoption of Revised Accounting Guidance and U.S. Tax Reform
As a resultprimarily associated with the issuance of the adoption of revised accounting guidance related6.25% Notes; and (iii) a payment for contingent consideration with regard to employee stock based compensation, we prospectively presented, beginning on August 1, 2017, excess tax benefits from the vesting or exercise of employee awards, as applicable, as operating activities on our Consolidated Statement of Cash Flows. Additionally, as of August 1, 2017, we retrospectively presented cash paid to taxing authorities on an employee’s behalf as financing activities on our Consolidated Statements of Cash Flows, which resulted in decreases of approximately $16.3 million and $10.2 million, respectively, to cash provided by financing activities with a corresponding increase to cash provided by operating activitieslease for Fiscal 2017 and Fiscal 2016, as shown below (in thousands).
|
| | | | | | | | | | | |
| Fiscal 2017 |
| Previously Reported (Previous Guidance) | | Tax Payments Change | | Revised Reported (New Guidance) |
Cash flows provided by operating activities | $ | 456,914 |
| | $ | 16,275 |
| | $ | 473,189 |
|
Cash flows used in investing activities (no change) | (682,836 | ) | | — |
| | (682,836 | ) |
Cash flows provided by financing activities | 271,892 |
| | (16,275 | ) | | 255,617 |
|
Effect of exchange rate changes (no change) | 3,522 |
| | — |
| | 3,522 |
|
Net increase in cash and cash equivalents (no change) | $ | 49,492 |
| | $ | — |
| | $ | 49,492 |
|
|
| | | | | | | | | | | |
| Fiscal 2016 |
| Previously Reported (Previous Guidance) | | Tax Payments Change | | Revised Reported (New Guidance) |
Cash flows provided by operating activities | $ | 426,762 |
| | $ | 10,215 |
| | $ | 436,977 |
|
Cash flows used in investing activities (no change) | (124,016 | ) | | — |
| | (124,016 | ) |
Cash flows used in financing activities | (271,217 | ) | | (10,215 | ) | | (281,432 | ) |
Effect of exchange rate changes (no change) | 909 |
| | — |
| | 909 |
|
Net increase in cash and cash equivalents (no change) | $ | 32,438 |
| | $ | — |
| | $ | 32,438 |
|
The adoption of this revised accounting guidance did not have an impact on our total cash flows for Fiscal 2017 or Fiscal 2016.
U.S. Tax Reform
Beginning with our taxable year ending December 31, 2018, we expect to realize an increase in our operating cash flows as a result of the Tax Act, which will reduce our statutory federal corporate income tax rate from 35% to 21%. We expect that incremental cash flows generated from the reduction of the statutory federal corporate income tax rate and the accelerated deductibility of capital expenditures will be approximately $40.0 million in calendar 2018. We plan to use those incremental cash flows to reinvest in wages for our employees, in capital for our resorts and by increasing our return of capital to shareholders.
Park City.
Significant Sources of Cash
We had $178.1$1,244.0 million of cash and cash equivalents as of July 31, 2018,2021, compared to $117.4$391.0 million as of July 31, 2017. We generated $551.6 million of cash from operating activities during Fiscal 2018 compared to $473.2 million and $437.0 million generated during Fiscal 2017 and Fiscal 2016, respectively. We2020. Although we cannot predict the future impact associated with the COVID-19 pandemic on our business, 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 $178.1$1,244.0 million of cash and cash equivalents at July 31, 2018,2021, we had $185.1$417.7 million available under the revolver component of our Vail Holdings Credit Agreement as of July 31, 20182021 (which represents the total commitment of $400.0$500.0 million less outstanding borrowings of $130.0 million and certain letters of credit outstanding of $84.9$82.3 million). Also, to further support the liquidity needs of Whistler Blackcomb, we had C$214.1243.1 million ($164.6194.9 million) available under the revolver component of our Whistler Credit Agreement (which represents the total commitment of C$300.0 million ($230.7240.5 million) less outstanding borrowings of C$85.056.0 million ($65.444.9 million) and a letter of credit outstanding of C$0.9 million ($0.7 million)). On August 15, 2018, we amended and restated in its entirety our Vail Holdings Credit Agreement. The Amended Vail Holdings Credit Agreement 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, increased from the existing term loan facility of $684.4 million as of July 31, 2018. Additionally, key modifications to the Amended Vail Holdings Credit Agreement included, among other things, the extension of the maturity date on the revolving credit facility to August 2023. We expect that our liquidity needs in the near term will be met by continued use of our existing cash and cash equivalents, operating cash flows and borrowings under both the Amended Vail Holdings Credit Agreement and Whistler Credit Agreement.Agreement, if needed. The Amended 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%2.5% and Bankers Acceptance Rate plus 1.75%2.0%, respectively.
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.hotels and in technology that can impact the full network. We evaluate additional discretionary capital improvements based on an expected level of return on investment.
We currently anticipate we will spend approximately $150.0$115 million to $120 million on resort capital expenditures during calendar year 2018,2021, excluding anticipatedone-time items associated with integrations of $5 million and $12 million of reimbursable investments, for U.S. summeras well as real estate related activities andcapital. Including these one-time acquisition and integration relateditems, we expect that our total capital expenditures. This estimated spending includes normal inflation on our capital investments at our resorts.plan will be approximately $135 million to $140 million. Included in these estimated capital expenditures are approximately $80.0$75 million to $80 million of maintenance capital expenditures, which are necessary to maintain appearance and level of service appropriate to our resort operations. Discretionary expenditures expected for calendar year 20182021 include, among other projects, an investmentseveral investments which were previously deferred from calendar year 2020 as a result of approximately $40.0 million (C$52.0 million) at Whistler Blackcomb which will includeCOVID-19, including the 250-acre lift-served terrain expansion in the McCoy Park area of Beaver Creek; a new gondolafour-person high speed lift to serve Peak 7 at Whistler Blackcomb running from the base to the top of Blackcomb Mountain,Breckenridge; replacing the Wizard and Solar four person chairsPeru lift at Keystone with a single state-of-the-art gondola,six-person high speed chairlift; replacing the Peachtree lift at Crested Butte with a new 6 person Emerald chairliftthree-person fixed-grip lift; and an upgraded 4 person Catskinnerupgrade of the four-person Quantum lift at Okemo with a six-person high speed chairlift, relocating the existing four-person Quantum lift to replace the Green Ridge three-person fixed-grip chairlift. We will also be investing in upgrading the fixed grip High Meadow chair at Park City to a four person high speed lift; expanding Cloud Dine restaurant at Park City by adding 200 additional seats and upgrading the Park City Mid-Mountain Lodge; replacing the Galaxy two-person chairlift at Heavenly with a three-person chairlift; and upgrading the Leichhardt T-bar at Perisher to a four-person chairlift. We also expectcontinue to invest approximately $21.0 million in capital expenditures forcompany-wide technology enhancements to support our data driven approach, guest experience
and corporate infrastructure which improve our scalability and efficiency as we work to optimize our processes, business analytics and cost discipline across the integration of Stevens Pass, Okemo, Mount Sunapee, Crested Butte, Stowe and the completion of Whistler Blackcomb integration,network, as well as approximately $3.0 million in calendar year 2018 for summer investments. Additionally, we planupgrades to invest $35.0 million over the next two years in projects related to Stevens Pass, Okemo, Mount Sunapee and Crested Butte, in addition to an increase in annual ongoing capital expendituresinfrastructure of $7.0 million to support the addition of these four resorts.
Approximately $53.0 million was spent for capital expenditures in calendar year 2018 as of July 31, 2018, leaving approximately $97.0 million to spend in the remainder of calendar year 2018, excluding anticipated investments for U.S. summer related activities and one-time acquisition and integration related capital expenditures.our guest contact centers. 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.
AcquisitionsApproximately $48 million was spent for capital expenditures in calendar year 2021 as of Stevens Pass, Okemo, Mount Sunapee and Crested Butte
On August 15, 2018, through a wholly-owned subsidiary, we acquired Stevens PassJuly 31, 2021, leaving approximately $87 million to $92 million to spend in the State of Washington from Ski Resort Holdings, LLC for a total purchase price of $64.0 million. We borrowed $70.0 million on August 15, 2018 under the term loan of our Amended Vail Holdings Credit Agreement, as discussed above, primarily to fund the acquisition of Stevens Pass, and borrowed the remainder of the increase to fund the acquisition of Triple Peaks on September 27, 2018, which was acquired for a cash purchase price of approximately $74.0 million, after adjustments for certain agreed-upon terms. In addition, at closing, Triple Peaks paid $155.0 million to pay off the leases that all three resorts had with Ski Resort Holdings, LLC, an affiliate of Oz Real Estate, with funds provided by us. We 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.
calendar year 2021.
Debt
As of July 31, 2018,2021, principal payments on the majority of our long-term debt ($1,160.5 million2.7 billion of the total $1,276.1 million$2.9 billion debt outstanding as of July 31, 2018)2021) are not due until fiscal year 20222025 and beyond (the maturity date of the Amended Vail Holdings Credit Agreement was extended on August 15, 2018, as discussed above).beyond. As of July 31, 20182021 and 2017,2020, total long-term debt, net (including long-term debt due within one year) was $1,272.7$2,850.3 million and $1,272.4$2,450.8 million, respectively. Net Debt (defined as long-term debt, net plus long-term debt due within one year less cash and cash equivalents) decreased from $1,155.0$2,059.8 million as of July 31, 20172020 to $1,094.6$1,606.3 million as of July 31, 2018,2021, primarily as a result of cash provided by operating activities, as discussed above. See Notes to the Consolidated Financial Statements for additional information.
On December 18, 2020, we entered into the Fourth Amendment to the Vail Holdings Credit Agreement. Pursuant to the Fourth Amendment, among other terms, we are exempt from complying with the Vail Holdings Credit Agreement’s maximum leverage ratio, maximum senior secured leverage ratio and minimum interest coverage ratio financial maintenance covenants for each of the fiscal quarters ending through January 31, 2022 (unless we make a one-time irrevocable election to terminate such exemption period prior to such date), after which we will again be required to comply with such covenants starting with the fiscal quarter ending April 30, 2022 (or such earlier fiscal quarter as elected by us). After the expiration of the Financial Covenants Temporary Waiver Period:
•the maximum ratio permitted under the maximum leverage ratio financial maintenance covenant shall be 6.25 to 1.00;
•the maximum ratio permitted under the senior secured leverage ratio financial maintenance covenant shall be 4.00 to 1.00; and
•the minimum ratio permitted under the minimum interest coverage ratio financial maintenance covenant will be 2.00 to 1.00.
We are also prohibited from the following activities during the Financial Covenants Temporary Waiver Period (unless approval is obtained by a majority of the lenders under the Vail Holdings Credit Agreement):
•paying any dividends or making share repurchases, unless (x) no default or potential default exists under the Vail Holdings Credit Agreement and (y) we have liquidity (as defined below) of at least $300.0 million, and the aggregate amount of dividends paid and share repurchases made by the Company during the Financial Covenants Temporary Waiver Period may not exceed $38.2 million in any fiscal quarter;
•incurring indebtedness secured by the collateral under the Vail Holdings Credit Agreement in an amount in excess of $1.75 billion; and
•making certain non-ordinary course investments in similar businesses, joint ventures and unrestricted subsidiaries unless the Company has liquidity (as defined below) of at least $300.0 million.
The Fourth Amendment also removed certain restrictions under the Financial Covenants Temporary Waiver Period, including (i) removing the restriction on acquisitions so long as we have liquidity (as defined below) of at least $300.0 million and (ii) removing the $200.0 million annual limit on capital expenditures.
We are required to comply with a monthly minimum liquidity test (liquidity is defined as unrestricted cash and temporary cash investments of VRI and its restricted subsidiaries and available commitments under the Vail Holdings Credit Agreement revolver) of not less than $150.0 million, during the period that began July 31, 2020 and ending on the date we deliver a compliance certificate for the Company and its subsidiaries’ first fiscal quarter following the end of the Financial Covenants Temporary Waiver Period.
During the Financial Covenants Temporary Waiver Period, borrowings under the Vail Holdings Credit Agreement, including the term loan facility, bear interest annually at LIBOR plus 2.50% and, for amounts in excess of $400.0 million, LIBOR is subject to a floor of 0.25% (which has decreased from the floor of 0.75% that was in effect prior to the Fourth Amendment).
On December 18, 2020, we completed our offering of $575.0 million in aggregate principal amount of 0.0% Convertible Notes due 2026 in a private placement conducted pursuant to Rule 144A of the Securities Act. The 0.0% Convertible Notes were issued under an increaseIndenture dated December 18, 2020 (the “Indenture”) between us and U.S. Bank National Association, as Trustee. The 0.0% Convertible Notes do not bear regular interest and the principal amount does not accrete. The 0.0% Convertible Notes mature on January 1, 2026, unless earlier repurchased, redeemed or converted.
The 0.0% Convertible Notes are our general senior unsecured obligations. The 0.0% Convertible Notes rank senior in right of payment to any future debt that is expressly subordinated, equal in right of payment with our existing and future liabilities that are not so subordinated, and are subordinated to all of our existing and future secured debt to the extent of the value of the assets securing such debt. The 0.0% Convertible Notes will also be structurally subordinated to all of the existing and future liabilities and obligations of our subsidiaries, including such subsidiaries’ guarantees of the 6.25% Notes.
The initial conversion rate was 2.4560 shares per $1,000 principal amount of notes (the “Conversion Rate”), which represents an initial conversion price of approximately $407.17 per share (the “Conversion Price”), and is subject to adjustment upon the occurrence of certain specified events as described in the Indenture. The principal amount of the 0.0% Convertible Notes is required to be settled in cash. We will settle conversions by paying cash, delivering shares of our common stock, or a combination of the two, at our option.
Holders may convert their notes, at their option, only under the following circumstances:
•during any calendar quarter commencing after the calendar quarter ending on March 31, 2021 if the last reported sale price per share of our common stock exceeds 130% of the Conversion Price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
•during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “Measurement Period”) in which the trading price per $1,000 principal amount of notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the Conversion Rate on such trading day;
•upon the occurrence of certain corporate events or distributions on our common stock, as described in the Indenture;
•if we call the 0.0% Convertible Notes for redemption; or
•at any time from, and including, July 1, 2025 until the close of business on the scheduled trading day immediately before the maturity date.
The 0.0% Convertible Notes will be redeemable, in whole or in part, at our option at any time, and from time to time, on or after January 1, 2024 and on or before the 25th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the notes to be redeemed, plus accrued and unpaid special and additional interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of our common stock exceeds 130% of the Conversion Price for a specified period of time. If we elect to redeem less than all of the 0.0% Convertible Notes, at least $50.0 million aggregate principal amount of notes must be outstanding and not subject to redemption as of the relevant redemption notice date. Calling any 0.0% Convertible Notes for redemption will constitute a make-whole fundamental change with respect to such notes, in which case the Conversion Rate applicable to the conversion of such notes will be increased in certain circumstances if such notes are converted after they are called for redemption.
In addition, upon the occurrence of a fundamental change (as defined in the Indenture), holders of the 0.0% Convertible Notes may require us to repurchase all or a portion of their notes at a cash repurchase price equal to the principal amount of the notes to be repurchased, plus any accrued and unpaid special and additional interest, if any, to, but excluding, the applicable repurchase date. If certain fundamental changes referred to as make-whole fundamental changes (as defined in the Indenture) occur, the Conversion Rate for the 0.0% Convertible Notes may be increased for a specified period of time.
The Indenture includes customary events of default, including failure to make payment, failure to comply with the obligations set forth in the Indenture, certain defaults on certain other indebtedness, and certain events of bankruptcy, insolvency or reorganization. We may elect, at our option, that the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture will consist exclusively of the right of the holders of the 0.0% Convertible Notes to receive additional interest on the notes for up to 360 days following such failure.
As of July 31, 2021, the Vail Holdings Credit Agreement provides for (i) a revolving loan facility in an aggregate principal amount of $500.0 million and (ii) a term loan facility of $1.1 billion. We expect that our liquidity needs in the near term will be
met by continued use of our existing cash and cash equivalents. In addition, we exercised our rightequivalents, operating cash flows and borrowings under the Vail Holdings Credit Agreement and the Whistler Credit Agreement, with the consent of the lender parties thereto, to extend the maturity date of our Whistler Credit Agreement to November 2022 during Fiscal 2018. There were no other changes to the terms of the Whistler Credit Agreement.
if needed.
Our debt service requirements can be impacted by changing interest rates as we had $932.3 millionapproximately $0.8 billion of net variable-rate debt outstanding as of July 31, 2018.2021, after consideration of $400.0 million in interest rate swaps which convert variable-rate debt to fixed-rate debt. A 100-basis point change in LIBOR would cause our annual interest payments on our net variable-rate debt to change by approximately $9.3$8.4 million. Additionally, the annual payments associated with the financing of the Canyons 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, the 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, including the COVID-19 pandemic, by managing our capital expenditures, variable operating expenses, the timing of new real estate development activity and the payment of our regular quarterly cash dividend ofdividends on our common stock.
Share Repurchase Program
Our share repurchase program is conducted under authorizations made from time to time by our Board of Directors. On March 6, 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 additional Vail Shares (July 16, 2008) and 1,500,000 Vail Shares (December 4, 2015), for a total authorization to repurchase shares of up to 7,500,000 Vail Shares. During Fiscal 2018,2021, we repurchased 115,422 shares of common stock at a cost of $25.8 million.did not repurchase any Vail Shares. Since the inception of this stock repurchase program through July 31, 2018,2021, we have repurchased 5,551,7166,161,141 Vail Shares at a cost of approximately $273.0$404.4 million. As of July 31, 2018, 1,948,2842021, 1,338,859 Vail Shares remained available to repurchase under the existing repurchase authorization. Pursuant to the Third Amendment and as discussed above, we are prohibited from repurchasing shares of common stock during the Financial Covenants Temporary Waiver Period unless (x) no default or potential default exists under the Vail Holdings Credit Agreement and (y) the Company has liquidity (as defined above) of at least $300.0 million, and the aggregate amount of dividends paid and share repurchases made by the Company during the Financial Covenants Temporary Waiver Period may not exceed $38.2 million in any fiscal quarter. Vail Shares purchased pursuant to the repurchase program will be held as treasury shares and may be used for the issuance of shares under the Company’s 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.
Dividend Payments
InWe announced on April 1, 2020 that we would be suspending the declaration of our quarterly dividend in response to the COVID-19 pandemic. Additionally, pursuant to the Fourth Amendment, we are prohibited from paying any dividends during the Financial Covenants Temporary Waiver Period unless (x) no default or potential default exists under the Vail Holdings Credit Agreement and (y) the Company has liquidity (as defined above) of at least $300.0 million, and the aggregate amount of dividends paid and share repurchases made by the Company during the Financial Covenants Temporary Waiver Period may not exceed $38.2 million in any fiscal year 2011, our Board of Directors approved the commencement of a regular quarterlyquarter. During Fiscal 2021, we did not pay 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, 2018,dividends. On September 22, 2021, our Board of Directors approved a 40% increase in our quarterly cash dividend to $1.47of $0.88 per share (or approximately $59.6 million per quarter based upon shares outstandingpayable on October 22, 2021 to stockholders of record as of July 31, 2018). ForOctober 5, 2021. Additionally, a Canadian dollar equivalent dividend on the year ended July 31, 2018, we paid cash dividendsExchangeco Shares will be payable on October 22, 2021 to the shareholders of $5.046 per share ($204.2 million inrecord as of October 5, 2021. We expect to fund the aggregate.) These dividends were funded throughdividend with available cash on hand and borrowingwill do so pursuant to the restrictions 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.Financial Covenants Temporary Waiver Period. 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 Amended Vail Holdings Credit Agreement, future prospects for earnings and cash flows, as well as other factors considered relevant by our Board of Directors.
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:following: for the Amended Vail Holdings Credit Agreement, Net Funded Debt to Adjusted EBITDA ratio, Secured 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); and for the EPR Secured Notes, Maximum Leverage Ratio and Consolidated Fixed Charge Ratio (each as defined in the EPR Agreements). 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 Amended 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 Amended 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.
Pursuant to the Fourth Amendment and as discussed above in further detail, we are exempt from complying with the restrictive financial covenants of the Vail Holdings Credit Agreement during the Financial Covenants Temporary Waiver Period, but are required to comply with a monthly minimum liquidity test during such period (as discussed above).
We were in compliance with all restrictive financial covenants in our debt instruments as of July 31, 2018.2021. We expect that we will continue to meet all applicable financial maintenance covenants in effect in our credit agreements throughout the year ending July 31, 2019. However,2022; however, there can be no assurance that we will continue to 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 our credit agreements. There can be no assurance that such waiver or amendment would be granted, which could have a material adverse impact on our liquidity.
Contractual Obligations
As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such as debt agreements, lease agreements and construction agreements in conjunction with our resort capital expenditures. Debt obligations, which totaled $1,276.1 million$2.9 billion as of July 31, 2018,2021, are recognized as liabilities in our Consolidated Balance Sheet. Obligations under construction contracts and other purchase commitments are not recognized as liabilities in our Consolidated Balance Sheet until services and/or goods are received which is in accordance with GAAP. Additionally, operating lease and service contract obligations, which totaled $359.1 million as of July 31, 2018, are not recognized as liabilities in our Consolidated Balance Sheet, which is in accordance with GAAP. A summary of our contractual obligations as of July 31, 20182021 is presented below (in thousands):
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| | | Payments Due by Period |
| | | Fiscal | | 2-3 | | 4-5 | | More than |
Contractual Obligations | Total | | 2022 | | years | | years | | 5 years |
Long-Term Debt (Outstanding Principal) (1) | $ | 2,948,514 | | | $ | 121,345 | | | $ | 127,538 | | | $ | 2,174,189 | | | $ | 525,442 | |
Fixed Rate Interest (1) | 350,352 | | | 56,388 | | | 112,873 | | | 57,790 | | | 123,301 | |
Canyons Obligation (2) | 1,543,186 | | | 30,093 | | | 62,003 | | | 64,508 | | | 1,386,582 | |
Operating Leases and Service Contracts (3) | 321,653 | | | 68,273 | | | 79,521 | | | 64,796 | | | 109,063 | |
Purchase Obligations and Other (4) | 538,284 | | | 434,269 | | | 80,903 | | | 12 | | | 23,100 | |
Total Contractual Cash Obligations | $ | 5,701,989 | | | $ | 710,368 | | | $ | 462,838 | | | $ | 2,361,295 | | | $ | 2,167,488 | |
(1) The fixed-rate interest payments (including payments that are required under interest rate swaps that we have entered into) as well as long-term debt payments, included in the table above, assume that all debt outstanding as of July 31, 2020 will be held to maturity. Interest payments associated with variable-rate debt have not been included in the table. Assuming that our approximately $0.8 billion of variable-rate long-term debt as of July 31, 2021 is held to maturity and utilizing interest rates in effect at July 31, 2021, our annual interest payments (including commitment fees and letter of credit fees) on variable rate long-term debt as of July 31, 2021 is anticipated to be approximately $23.6 million for Fiscal 2022, approximately $21.9 million for fiscal year 2023 and approximately $10.4 million for at least each of the next three years subsequent to fiscal year 2023. The future annual interest obligations noted herein are estimated only in relation to debt outstanding as of July 31, 2021 and do not reflect interest obligations on potential future debt.
Included in Long-Term Debt (Outstanding Principal) are $11.7 million of proceeds resulting from real estate transactions accounted for as a financing arrangements. Fiscal 2022 payments shown above include approximately $6.2 million of proceeds, which are expected to be recognized on the Company’s Statement of Operations during Fiscal 2022 as a result of
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| | | Payments Due by Period |
| | | Fiscal | | 2-3 | | 4-5 | | More than |
Contractual Obligations | Total | | 2019 | | years | | years | | 5 years |
Long-Term Debt (Outstanding Principal) (1) | $ | 1,276,082 |
| | $ | 38,455 |
| | $ | 77,096 |
| | $ | 769,595 |
| | $ | 390,936 |
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Fixed Rate Interest (1) | 1,480 |
| | 227 |
| | 406 |
| | 336 |
| | 511 |
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Canyons Obligation (2) | 1,645,267 |
| | 27,708 |
| | 57,089 |
| | 59,395 |
| | 1,501,075 |
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Operating Leases and Service Contracts (3) | 359,116 |
| | 57,320 |
| | 80,198 |
| | 66,188 |
| | 155,410 |
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Purchase Obligations and Other (4) | 455,396 |
| | 348,652 |
| | 83,137 |
| | 420 |
| | 23,187 |
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Total Contractual Cash Obligations | $ | 3,737,341 |
| | $ | 472,362 |
| | $ | 297,926 |
| | $ | 895,934 |
| | $ | 2,071,119 |
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(1) | The fixed-rate interest payments, as well as long-term debt payments, included in the table above, assume that all debt outstanding as of July 31, 2018 will be held to maturity. Interest payments associated with variable-rate debt have not been included in the table. Assuming that our $932.3 million of variable-rate long-term debt as of July 31, 2018 is held to maturity and utilizing interest rates in effect at July 31, 2018, our annual interest payments (including commitment fees and letter of credit fees) on variable rate long-term debt as of July 31, 2018 is anticipated to be approximately $29.8 million for Fiscal 2019, approximately $28.6 million for Fiscal 2020 and approximately $27.4 million for at least each of the next three years subsequent to Fiscal 2020. The future annual interest obligations noted herein are estimated only in relation to debt outstanding as of July 31, 2018 and do not reflect interest obligations on potential future debt. |
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(2) | Reflects interest expense payments associated with the remaining lease term of the Canyons obligation, initially 50 years, assuming a 2% per annum (floor) increase in payments. Any potential increases to the annual fixed payment above the 2% floor due to inflation linked index of CPI less 1% have been excluded. |
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(3) | The payments under noncancelable operating leases included in the table above reflect the applicable minimum lease payments and exclude any potential contingent rent payments. |
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(4) | Purchase obligations and other primarily include amounts which are classified as trade payables, accrued payroll and benefits, accrued fees and assessments, contingent consideration liability, accrued taxes (including taxes for uncertain tax positions) on our Consolidated Balance Sheet as of July 31, 2018; and, other commitments for goods and services not yet received, including construction contracts and minimum commitments under season pass alliance agreements, not included on our Consolidated Balance Sheet as of July 31, 2018 in accordance with GAAP. |
the anticipated resolution of continuing involvement, with no associated cash outflow (see Notes to Consolidated Financial Statements for additional information).
(2) Reflects interest expense payments associated with the remaining lease term of the Canyons obligation, initially 50 years, assuming a 2% per annum (floor) increase in payments. Any potential increases to the annual fixed payment above the 2% floor due to inflation linked index of CPI less 1% have been excluded. (3) The payments under noncancelable operating leases included in the table above reflect the applicable minimum lease payments and exclude any potential contingent rent payments.
(4) Purchase obligations and other primarily include amounts which are classified as trade payables ($98.3 million), accrued payroll and benefits ($101.7 million), accrued fees and assessments ($21.2 million), contingent consideration liability ($29.6 million), and accrued taxes (including taxes for uncertain tax positions) ($123.6 million) on our Consolidated Balance Sheet as of July 31, 2021; and, other commitments for goods and services not yet received, including construction contracts and minimum commitments under season pass alliance agreements, not included on our Consolidated Balance Sheet as of July 31, 2021 in accordance with GAAP.
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.
Critical Accounting Policies
The preparation of Consolidated Financial Statements in conformity with GAAP requires us to select appropriate accounting policies and to make judgments and estimates affecting the application of those accounting policies. In applying our accounting policies, different business conditions or the use of different assumptions may result in materially different amounts reported in the Consolidated Financial Statements.
We have identified the most critical accounting policies which were determined by considering accounting policies that involve the most complex or subjective decisions or assessments. We also have other policies considered key accounting policies; however, these policies do not meet the definition of critical accounting policies because they do not generally require us to make estimates
or judgments that are complex or subjective. We have reviewed these critical accounting policies and related disclosures with our Audit Committee of the Board of Directors.
Goodwill and Intangible Assets
Description
The carrying value of goodwill and indefinite-lived intangible assets are evaluated for possible impairment on an annual basis or between annual tests if an event occurs or circumstances change that would more likely than not reduce the estimated fair value of a reporting unit or indefinite-lived intangible asset below its carrying value. Other intangible assets are evaluated for impairment only when there is evidence that events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.
Judgments and Uncertainties
Application of the goodwill and indefinite-lived intangible asset impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and determination of the estimated fair value of reporting units and indefinite-lived intangible assets. We perform a qualitative analysis to determine whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset exceeds the carrying amount. If it is determined, based on qualitative factors, that the fair value of the reporting unit or indefinite-lived intangible asset may be more likely than not less than carrying amount, or if significant changes to macro-economic factors related to the reporting unit or intangible asset have occurred that could materially impact fair value since the previous quantitative analysis was performed, a quantitative impairment test would be required, in which we would determine the estimated fair value of our reporting units using a discounted cash flow analysis. Theanalysis and determine the estimated fair value of indefinite-lived intangible assets is primarily determined using the income approach based upon estimated future revenue streams. These analyses require significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, available industry/market data (to the extent available), estimation of the long-term rate of growth for our business including expectations and assumptions regarding the impact of general economic conditions on our business, estimation of the useful life over which cash flows will occur (including terminal multiples), determination of the respective weighted average cost of
capital and market participant assumptions. Changes in these estimates and assumptions could materially affect the determination of estimated fair value and impairment for each reporting unit or indefinite-lived intangible asset. We evaluate our reporting units on an annual basis and allocate goodwill to our reporting units based on the reporting units expected to benefit from the acquisition generating the goodwill.
Effect if Actual Results Differ From Assumptions
Goodwill and indefinite-lived intangible assets are tested for impairment at least annually as of May 1. Based upon our annualOur testing for goodwill and indefinite-lived intangible asset impairment test performed during the fourth fiscal quarterconsists of Fiscal 2018,a comparison of the estimated fair value of those assets with their net carrying values. If the net carrying value of the assets exceed their estimated fair value, an impairment will be recognized for indefinite-lived intangible assets, including goodwill, in an amount equal to that excess; otherwise, no impairment loss is recognized. During Fiscal 2021, we performed quantitative analyses of our reporting units and indefinite-lived intangible assets were in excessand determined that the estimated fair value of all material reporting units and indefinite-lived intangible assets significantly exceeded their respective carrying values, and as such no impairment of goodwill or indefinite-lived intangible assets existed.values.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be an accurate prediction of the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units may include such items as: (1) prolonged adverse weather conditions resulting in a sustained decline in guest visitation; (2) a prolonged weakness in the general economic conditions in which guest visitation and spending is adversely impacted;impacted (particularly with regard to the ongoing COVID-19 pandemic); and (3) volatility in the equity and debt markets which could result in a higher discount rate.
While historical performance and current expectations have generally resulted in estimated fair values of our reporting units in excess of carrying values, if our assumptions are not realized, it is possible that an impairment charge may need to be recorded in the future. However, it is not possible at this time to determine if an impairment charge would result or if such a charge would be material. As of July 31, 2018,2021, we had $1,475.7$1,781.0 million of goodwill and $221.5$256.6 million of indefinite-lived intangible assets recorded on our Consolidated Balance Sheet. There can be no assurance that the estimates and assumptions made for purposes of the annual goodwill and indefinite-lived intangible asset impairment tests for goodwill will prove to be an accurate prediction of the future.
Tax Contingencies
Description
We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits and deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties relating to uncertain tax positions. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations, including those enacted under the Tax Act.regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the largest tax benefit that is cumulatively greater than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, interpretation of tax law, effectively settled issues under audit and new audit activity. A significant amount of time may pass before a particular matter, for which we may have established a reserve, is audited and fully resolved.
Judgments and Uncertainties
The estimates of our tax contingencies reserve contain uncertainty because management must use judgment to estimate the potential exposure associated with our various filing positions.
Effect if Actual Results Differ From Assumptions
We believe the estimates and judgments discussed herein are reasonable and we have adequate reserves for our tax contingencies for uncertain tax positions. Our reserves for uncertain tax positions, including any income tax related interest and penalties ($83.474.8 million as of July 31, 2018)2021), relate to the treatment of the TaliskerCanyons lease payments obligation as payments of debt obligations and that the tax basis in Canyons goodwill is deductible. Actual results could differ and we may be exposed to increases or decreases in those reserves and tax provisions that could be material.
An unfavorable tax settlement could require the use of cash and could possibly result in increased tax expense and effective tax rate and/or adjustments to our deferred tax assets and deferred tax liabilities in the year of resolution. A favorable tax settlement could possibly result in a reduction in our tax expense, effective tax rate, income taxes payable, other long-term liabilities and/or adjustments to our deferred tax assets and deferred tax liabilities in the year of settlement or in future years.
Depreciable Lives of Assets
Description
Mountain and lodging operational assets, furniture and fixtures, computer equipment, software, vehicles and leasehold improvements are primarily depreciated using the straight-line method over the estimated useful life of the asset. Assets may become obsolete or require replacement before the end of their useful life in which the remaining book value would be written-off or we could incur costs to remove or dispose of assets no longer in use.
Judgments and Uncertainties
The estimates of our useful lives of the assets contain uncertainty because management must use judgment to estimate the useful life of the asset.
Effect if Actual Results Differ From Assumptions
Although we believe the estimates and judgments discussed herein are reasonable, actual results could differ, and we may be exposed to increased expense related to depreciable assets disposed of, removed or taken out of service prior to its originally estimated useful life, which may be material. A 10% decrease in the estimated useful lives of depreciable assets would have increased depreciation expense by approximately $15.9$24.0 million for Fiscal 2018.
2021.
Business Combinations
Description
A component of our growth strategy has been to acquire and integrate businesses that complement our existing operations. We account for business combinations in accordance with the guidance for business combinations and related literature. Accordingly, we allocate the purchase price of acquired businesses to the identifiable tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The difference between the purchase price and the estimated fair value of the net assets acquired or the excess of the aggregate estimated fair values of assets acquired and liabilities assumed is recorded as goodwill. In determining the estimated fair values of assets acquired and liabilities assumed in a business combination, we use various recognized valuation methods including present value modeling and referenced market values (where available). Valuations are performed by management or independent valuation specialists under management’s supervision, where appropriate.
Judgments and Uncertainties
Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date, including our estimates for intangible assets, contractual obligations assumed and contingent consideration, where applicable. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are not limited to determination of weighted average cost of capital, market participant assumptions, royalty rates, terminal multiples and estimates of future cash flows to be generated by the acquired assets. In addition to the estimates and assumptions applied to valuing intangible assets acquired, the determination of the estimated fair value of contingent consideration, including estimating the likelihood and timing of achieving the relevant thresholds for contingent consideration payments, requires the use of subjective judgments. We estimate the fair value of the Park City contingent consideration payments using an option pricing valuation model which incorporates, among other factors, projected achievement of specified financial performance measures, discounts rates volatility, credit risk and estimation of the long-term rate of growthvolatility for the respective business.
Effect if Actual Results Differ From Assumptions
We believe that the estimated fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions that a marketplace participant would use. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the estimated fair values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments would be recorded in our Consolidated Statements of Operations.
We recognize the fair value of contingent consideration at the date of acquisition as part of the consideration transferred to acquire a business. The liability associated with contingent consideration is remeasured to fair value at each reporting period subsequent to the date of acquisition taking into consideration changes in financial projections and long-term growth rates, among other factors, that may impact the timing and amount of contingent consideration payments until the term of the agreement has expired or the contingency is resolved. Increases in the fair value of contingent consideration are recorded as losses in our Consolidated Statements of Operations, while decreases in fair value are recorded as gains.
New Accounting Standards
Refer to the Summary of Significant Accounting Policies within the Notes to Consolidated Financial Statements for a discussion of new accounting standards.
Inflation
Although we cannot accurately determine the precise effect of inflation on our operations, management does not believe inflation has had a material effect on the results of operations in the last three fiscal years. When the costs of operating resorts increase, we generally have been able to pass the increase on to our customers. However, there can be no assurance that increases in labor and other operating costs due to inflation will not have an impact on our future profitability.
In May 2013, we entered into a long-term lease pursuant to which we assumed the operations of Canyons which includes the ski terrain and related amenities. The lease has an initial term of 50 years with six 50-year renewal options. The lease provides for $25.0 million in annual payments, which increase each year by an inflation linked index of CPI less 1%, with a floor of 2% per annum. As lease payments increase annually, there can be no assurance that these increases will be offset by increased cash flow generated from operations at Park City.
Seasonality and Quarterly Results
Our mountain and lodging operations are seasonal in nature. In particular, revenue and profits for our North America mountain and most of our lodging operations are substantially lower and historically result in losses from late spring to late fall. Conversely, peak operating seasons for our NPS concessionaire properties, our mountain resort golf courses and Perisher’sour Australian resorts’ ski season generally occur during the North American summer months while the North American winter months result in operating losses. Revenue and profits generated by NPS concessionaire properties summer operations, golf operations and Perisher’sAustralian resorts’ ski operations are not sufficient to fully offset our off-season losses from our North American mountain and other lodging operations. During Fiscal 2018, 78%2021, approximately 82% of total combined Mountain and Lodging segment net revenue (excluding Lodging segment revenue associated with reimbursement of payroll costs) was earned during the second and third fiscal quarters. Therefore, the operating results for any three-month period are not necessarily indicative of the results that may be achieved for any subsequent quarter or for a full year (see Notes to Consolidated Financial Statements).
ITEM 7A. 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. At July 31, 2018,2021, we had $932.3 millionapproximately $0.8 billion of net variable rate indebtedness (after taking into consideration $400.0 million in interest rate swaps which converts variable-rate debt to fixed-rate debt), representing approximately 73%28% of our total debt outstanding, at an average interest rate during Fiscal 20182021 of approximately 2.8%. Based on variable-rate borrowings outstanding as of July 31, 2018,2021, a 100-basis point (or 1.0%) change in LIBOR would result in our annual interest payments on our net variable-rate debt changing by $9.3$8.4 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 financial statements.Consolidated 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 have foreign currency transaction exposure from an intercompany loan to Whistler Blackcomb that is not deemed to be permanently invested, which has and could materially change due to fluctuations in the Canadian dollar exchange rate. The results of Whistler Blackcomb and Perisherour Australian ski areas are reported in Canadian dollars and Australian dollars respectively, which we then translate to U.S. dollars for inclusion in our consolidated financial statements.Consolidated 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 gains (losses), and foreign currency gain (loss) gain on intercompany loans recognized in comprehensive income (in thousands):
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| Year ended July 31, |
| 2021 | | 2020 | | 2019 |
Foreign currency translation adjustments | $ | 100,019 | | | $ | (9,075) | | | $ | (34,287) | |
Foreign currency gain (loss) on intercompany loans | $ | 8,282 | | | $ | (3,230) | | | $ | (2,854) | |
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| Year Ended July 31, |
| 2018 | | 2017 |
Foreign currency translation adjustments, net of tax | $ | (61,957 | ) | | $ | 64,152 |
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Foreign currency (loss) gain on intercompany loans | $ | (8,966 | ) | | $ | 15,285 |
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Vail Resorts, Inc.
Consolidated Financial Statements for the Years Ended July 31, 2018, 20172021, 2020 and 20162019
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Management’s Report on Internal Control over Financial Reporting
Management of Vail Resorts, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed 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 in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of July 31, 2018.2021. In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this assessment, management concluded that, as of July 31, 2018,2021, the Company’s internal control over financial reporting was effective.
The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of July 31, 2018,2021, as stated in the Report of Independent Registered Public Accounting Firm on the following page.
Report of Independent Registered Public Accounting Firm
TotheBoard of Directors and Stockholders
of Vail Resorts, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Vail Resorts, Inc.and its subsidiaries(the “Company”) as of July 31, 2018 2021and July 31, 2017,2020,and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended July 31, 2018,2021, including the related notes (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of July 31, 2018,2021, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 31, 2018 2021and July 31, 20172020, and the results of their itsoperations and their itscash flows for each of the three years in the period ended July 31, 2018 2021in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2018,2021, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of August 1, 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
61The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair Value Measurement of the Contingent Consideration
As described in Note10to the consolidatedfinancial statements, the Company has established a liability of $29.6 million as of July 31, 2021 for additional amounts that management believes are likely to be paid to the previous owner of Park City (the “Contingent Consideration”). The Company remeasures the Contingent Consideration to fair value at each reporting date until the contingency is resolved. 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 long-term growth factor and discounted to net present value. Fair value is estimated using an option pricing valuation model. As described by management, key assumptions in determining the fair value under this model included future period Park City EBITDA, discount rate and volatility.
The principal considerations for our determination that performing procedures relating to the fair value measurement of the Contingent Consideration is a critical audit matter are (i) the significant judgment by management when developing the fair value measurement, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s significant assumptions for the future period Park City EBITDA, discount rate, and volatility; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s fair value measurement of the Contingent Consideration including controls over the Company’s significant assumptions. The procedures also included, among others, testing management’s process for developing the fair value measurement and evaluating the significant assumptions used by management, related to the future period Park City EBITDA, discount rate, and volatility. Evaluating management’s assumptions related to the future period Park City EBITDA, discount rate, and volatility involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past period EBITDA performance of Park City; (ii) the consistency with external market data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discount rate and volatility assumptions.
/s/ PricewaterhouseCoopers LLP
Denver, Colorado
September 27, 201823, 2021
We have served as the Company’s auditor since 2002.
Vail Resorts, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
| | | July 31, | | July 31, |
| 2018 | 2017 | | 2021 | 2020 |
Assets | | Assets | |
Current assets: | | Current assets: | |
Cash and cash equivalents | $ | 178,145 |
| $ | 117,389 |
| Cash and cash equivalents | $ | 1,243,962 | | $ | 390,980 | |
Restricted cash | 6,895 |
| 10,273 |
| Restricted cash | 14,612 | | 11,106 | |
Accounts receivable, net of allowances of $1,278 and $750, respectively | 230,829 |
| 186,913 |
| |
Inventories, net of reserves of $1,534 and $1,518, respectively | 85,588 |
| 84,814 |
| |
Accounts receivable, net of allowances of $7,621 and $2,484, respectively | | Accounts receivable, net of allowances of $7,621 and $2,484, respectively | 345,408 | | 106,664 | |
Inventories, net of reserves of $2,601 and $4,447, respectively | | Inventories, net of reserves of $2,601 and $4,447, respectively | 80,316 | | 101,856 | |
Other current assets | 37,279 |
| 33,681 |
| Other current assets | 61,288 | | 54,482 | |
Total current assets | 538,736 |
| 433,070 |
| Total current assets | 1,745,586 | | 665,088 | |
Property, plant and equipment, net (Note 6) | 1,627,219 |
| 1,714,154 |
| |
Real estate held for sale and investment | 99,385 |
| 103,405 |
| |
Property, plant and equipment, net (Note 8) | | Property, plant and equipment, net (Note 8) | 2,067,876 | | 2,192,679 | |
Real estate held for sale or investment | | Real estate held for sale or investment | 95,615 | | 96,844 | |
Goodwill, net (Note 8) | | Goodwill, net (Note 8) | 1,781,047 | | 1,709,020 | |
Intangible assets, net (Note 8) | | Intangible assets, net (Note 8) | 319,110 | | 314,776 | |
Operating right-of-use assets (Note 4) | | Operating right-of-use assets (Note 4) | 204,716 | | 225,744 | |
Deferred charges and other assets | 43,386 |
| 45,414 |
| Deferred charges and other assets | 37,106 | | 40,081 | |
Goodwill, net (Note 6) | 1,475,686 |
| 1,519,743 |
| |
Intangible assets, net (Note 6) | 280,572 |
| 294,932 |
| |
Total assets | $ | 4,064,984 |
| $ | 4,110,718 |
| Total assets | $ | 6,251,056 | | $ | 5,244,232 | |
Liabilities and Stockholders’ Equity | | Liabilities and Stockholders’ Equity | |
Current liabilities: | | Current liabilities: | |
Accounts payable and accrued liabilities (Note 6) | $ | 504,533 |
| $ | 467,669 |
| |
Accounts payable and accrued liabilities (Note 8) | | Accounts payable and accrued liabilities (Note 8) | $ | 815,472 | | $ | 499,108 | |
Income taxes payable | 50,632 |
| 98,491 |
| Income taxes payable | 48,812 | | 40,680 | |
Long-term debt due within one year (Note 4) | 38,455 |
| 38,397 |
| |
Long-term debt due within one year (Note 6) | | Long-term debt due within one year (Note 6) | 114,117 | | 63,677 | |
Total current liabilities | 593,620 |
| 604,557 |
| Total current liabilities | 978,401 | | 603,465 | |
Long-term debt, net (Note 4) | 1,234,277 |
| 1,234,024 |
| |
Other long-term liabilities (Note 6) | 291,506 |
| 301,736 |
| |
Deferred income taxes (Note 9) | 133,918 |
| 171,442 |
| |
Long-term debt, net (Note 6) | | Long-term debt, net (Note 6) | 2,736,175 | | 2,387,122 | |
Operating lease liabilities (Note 4) | | Operating lease liabilities (Note 4) | 190,561 | | 217,542 | |
Other long-term liabilities | | Other long-term liabilities | 264,034 | | 270,245 | |
Deferred income taxes, net (Note 11) | | Deferred income taxes, net (Note 11) | 252,817 | | 234,191 | |
Total liabilities | 2,253,321 |
| 2,311,759 |
| Total liabilities | 4,421,988 | | 3,712,565 | |
Commitments and contingencies (Note 11) |
|
|
|
| |
Commitments and contingencies (Note 13) | | Commitments and contingencies (Note 13) | 0 |
Stockholders’ equity: | | Stockholders’ equity: | |
Preferred stock, $0.01 par value, 25,000 shares authorized, no shares issued and outstanding | — |
| — |
| 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 and 46,021 and 45,448 shares issued, respectively | 460 |
| 454 |
| |
Exchangeable shares, $0.01 par value, 58 and 69 shares issued and outstanding, respectively (Note 5) | 1 |
| 1 |
| |
Common stock, $0.01 par value, 100,000 shares authorized and 46,552 and 46,350 shares issued, respectively | | Common stock, $0.01 par value, 100,000 shares authorized and 46,552 and 46,350 shares issued, respectively | 466 | | 464 | |
Exchangeable shares, $0.01 par value, 34 and 36 shares issued and outstanding, respectively (Note 5) | | Exchangeable shares, $0.01 par value, 34 and 36 shares issued and outstanding, respectively (Note 5) | — | | — | |
Additional paid-in capital | 1,137,467 |
| 1,222,510 |
| Additional paid-in capital | 1,196,993 | | 1,131,624 | |
Accumulated other comprehensive (loss) income | (2,227 | ) | 44,395 |
| |
Accumulated other comprehensive income (loss) | | Accumulated other comprehensive income (loss) | 27,799 | | (56,837) | |
Retained earnings | 726,722 |
| 550,985 |
| Retained earnings | 773,752 | | 645,902 | |
Treasury stock, at cost; 5,552 and 5,436 shares, respectively (Note 14) | (272,989 | ) | (247,189 | ) | |
Treasury stock, at cost; 6,161 and 6,161 shares, respectively (Note 16) | | Treasury stock, at cost; 6,161 and 6,161 shares, respectively (Note 16) | (404,411) | | (404,411) | |
Total Vail Resorts, Inc. stockholders’ equity | 1,589,434 |
| 1,571,156 |
| Total Vail Resorts, Inc. stockholders’ equity | 1,594,599 | | 1,316,742 | |
Noncontrolling interests | 222,229 |
| 227,803 |
| Noncontrolling interests | 234,469 | | 214,925 | |
Total stockholders’ equity | 1,811,663 |
| 1,798,959 |
| Total stockholders’ equity | 1,829,068 | | 1,531,667 | |
Total liabilities and stockholders’ equity | $ | 4,064,984 |
| $ | 4,110,718 |
| Total liabilities and stockholders’ equity | $ | 6,251,056 | | $ | 5,244,232 | |
The accompanying Notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements.
Vail Resorts, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
| | | Year Ended July 31, | | Year Ended July 31, |
| 2018 | 2017 | 2016 | | 2021 | 2020 | 2019 |
Net revenue: | | Net revenue: | |
Mountain and Lodging services and other | $ | 1,584,310 |
| $ | 1,477,654 |
| $ | 1,228,716 |
| Mountain and Lodging services and other | $ | 1,650,055 | | $ | 1,578,463 | | $ | 1,807,930 | |
Mountain and Lodging retail and dining | 423,255 |
| 412,646 |
| 350,442 |
| Mountain and Lodging retail and dining | 257,885 | | 380,394 | | 462,933 | |
Resort net revenue | 2,007,565 |
| 1,890,300 |
| 1,579,158 |
| Resort net revenue | 1,907,940 | | 1,958,857 | | 2,270,863 | |
Real Estate | 3,988 |
| 16,918 |
| 22,128 |
| Real Estate | 1,770 | | 4,847 | | 712 | |
Total net revenue | 2,011,553 |
| 1,907,218 |
| 1,601,286 |
| Total net revenue | 1,909,710 | | 1,963,704 | | 2,271,575 | |
Operating expense (exclusive of depreciation and amortization shown separately below): | | Operating expense (exclusive of depreciation and amortization shown separately below): | |
Mountain and Lodging operating expense | 966,566 |
| 891,135 |
| 775,590 |
| Mountain and Lodging operating expense | 960,453 | | 1,019,437 | | 1,101,670 | |
Mountain and Lodging retail and dining cost of products sold | 174,105 |
| 170,824 |
| 143,276 |
| Mountain and Lodging retail and dining cost of products sold | 112,536 | | 159,066 | | 190,044 | |
General and administrative | 251,806 |
| 236,799 |
| 208,991 |
| General and administrative | 296,993 | | 278,695 | | 274,415 | |
Resort operating expense | 1,392,477 |
| 1,298,758 |
| 1,127,857 |
| Resort operating expense | 1,369,982 | | 1,457,198 | | 1,566,129 | |
Real Estate, net | 3,546 |
| 24,083 |
| 24,639 |
| |
Real Estate | | Real Estate | 6,676 | | 9,182 | | 5,609 | |
Total segment operating expense | 1,396,023 |
| 1,322,841 |
| 1,152,496 |
| Total segment operating expense | 1,376,658 | | 1,466,380 | | 1,571,738 | |
Other operating (expense) income: | | Other operating (expense) income: | |
Depreciation and amortization | (204,462 | ) | (189,157 | ) | (161,488 | ) | Depreciation and amortization | (252,585) | | (249,572) | | (218,117) | |
Gain on sale of real property | 515 |
| 6,766 |
| 5,295 |
| Gain on sale of real property | 324 | | 207 | | 580 | |
Change in fair value of contingent consideration (Note 8) | 1,854 |
| (16,300 | ) | (4,200 | ) | |
Loss on disposal of fixed assets and other, net | (4,620 | ) | (6,430 | ) | (5,418 | ) | |
Asset impairments (Notes 2 & 8) | | Asset impairments (Notes 2 & 8) | — | | (28,372) | | — | |
Change in fair value of contingent consideration (Note 10) | | Change in fair value of contingent consideration (Note 10) | (14,402) | | 2,964 | | (5,367) | |
(Loss) gain on disposal of fixed assets and other, net | | (Loss) gain on disposal of fixed assets and other, net | (5,373) | | 838 | | (664) | |
Income from operations | 408,817 |
| 379,256 |
| 282,979 |
| Income from operations | 261,016 | | 223,389 | | 476,269 | |
Interest expense, net | | Interest expense, net | (151,399) | | (106,721) | | (79,496) | |
Mountain equity investment income, net | 1,523 |
| 1,883 |
| 1,283 |
| Mountain equity investment income, net | 6,698 | | 1,690 | | 1,960 | |
Investment income and other, net | 1,944 |
| 6,114 |
| 723 |
| Investment income and other, net | 586 | | 1,305 | | 3,086 | |
Foreign currency (loss) gain on intercompany loans (Note 4) | (8,966 | ) | 15,285 |
| — |
| |
Interest expense, net | (63,226 | ) | (54,089 | ) | (42,366 | ) | |
Income before benefit (provision) for income taxes | 340,092 |
| 348,449 |
| 242,619 |
| |
Benefit (provision) for income taxes (Note 9) | 61,138 |
| (116,731 | ) | (93,165 | ) | |
Foreign currency gain (loss) on intercompany loans (Note 6) | | Foreign currency gain (loss) on intercompany loans (Note 6) | 8,282 | | (3,230) | | (2,854) | |
Income before provision for income taxes | | Income before provision for income taxes | 125,183 | | 116,433 | | 398,965 | |
Provision for income taxes (Note 11) | | Provision for income taxes (Note 11) | (726) | | (7,378) | | (75,472) | |
Net income | 401,230 |
| 231,718 |
| 149,454 |
| Net income | 124,457 | | 109,055 | | 323,493 | |
Net (income) loss attributable to noncontrolling interests | (21,332 | ) | (21,165 | ) | 300 |
| |
Net loss (income) attributable to noncontrolling interests | | Net loss (income) attributable to noncontrolling interests | 3,393 | | (10,222) | | (22,330) | |
Net income attributable to Vail Resorts, Inc. | $ | 379,898 |
| $ | 210,553 |
| $ | 149,754 |
| Net income attributable to Vail Resorts, Inc. | $ | 127,850 | | $ | 98,833 | | $ | 301,163 | |
Per share amounts (Note 3): | | |
Per share amounts (Note 5): | | Per share amounts (Note 5): | |
Basic net income per share attributable to Vail Resorts, Inc. | $ | 9.40 |
| $ | 5.36 |
| $ | 4.13 |
| Basic net income per share attributable to Vail Resorts, Inc. | $ | 3.17 | | $ | 2.45 | | $ | 7.46 | |
Diluted net income per share attributable to Vail Resorts, Inc. | $ | 9.13 |
| $ | 5.22 |
| $ | 4.01 |
| Diluted net income per share attributable to Vail Resorts, Inc. | $ | 3.13 | | $ | 2.42 | | $ | 7.32 | |
Cash dividends declared per share | $ | 5.046 |
| $ | 3.726 |
| $ | 2.865 |
| Cash dividends declared per share | $ | — | | $ | 5.28 | | $ | 6.46 | |
The accompanying Notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements.