Vail Resorts(US:MTN)2020-09-24 20:10Part I Item 1. Business Vail Resorts operates through Mountain, Lodging, and Real Estate segments, with the Mountain segment being the primary revenue driver significantly impacted by the COVID-19 pandemic in Fiscal 2020 | Segment | Percentage of Net Revenue | | :--- | :--- | | Mountain | ~87% | | Lodging | ~13% | | Real Estate | ~0% | - The COVID-19 pandemic caused the temporary closure of North American resorts and retail operations starting March 15, 2020, leading to an early end to the 2019/2020 ski season, which had a significant adverse impact on Fiscal 2020 results and is expected to continue to negatively affect Fiscal 202123 - As of July 31, 2020, the Mountain segment operates 37 destination mountain resorts and regional ski areas, including Whistler Blackcomb, the most visited resort in North America2125 Mountain Segment The Mountain segment, operating 37 resorts, generates revenue from various on-mountain activities, with pass products contributing significantly to lift revenue and customer loyalty - The company's North American resorts accounted for approximately 12.4 million skier visits during the 2019/2020 season, representing about 18.2% of the total North American market share39 - Pass products are a key component of the Mountain segment, generating approximately 51% of total lift revenue in Fiscal 2020, including the impact of a $121 million deferral of pass product revenue into Fiscal 2021 due to credits offered to 2019/2020 pass holders48 - In response to COVID-19, the company introduced Epic Coverage for the 2020/2021 season, providing refunds for resort closures and certain personal circumstances, and Epic Mountain Rewards, offering pass holders a 20% discount on various on-mountain services52 Lodging Segment The Lodging segment manages approximately 6,000 hotel and condominium units, including National Park Service concessionaire properties, competing in luxury and upper upscale markets Fiscal 2020 Owned Hotel Performance vs. Industry | Metric | Vail Resorts Owned Hotels | Upper Upscale Segment | | :--- | :--- | :--- | | ADR | $266.43 | $182.00 | | Occupancy | 45.9% | 53.5% | | RevPAR | $122.34 | $97.30 | - The company operates Grand Teton Lodge Company (GTLC) and Flagg Ranch under concessionaire agreements with the National Park Service, with agreements expiring in December 2021 and October 2026, respectively59 Real Estate Segment The Real Estate segment focuses on planning and selling land parcels to third-party developers, aiming to expand resort amenities with limited financial risk - The segment's principal activities include selling land parcels to third-party developers and planning for future projects, a strategy that aims to expand the resort bed base and enhance amenities with limited financial risk to the company6162 Contracts with Governmental Authorities for Resort Operations A substantial portion of resort operations occur on public lands under government permits and leases, requiring fee payments and adherence to environmental regulations - Eleven U.S. resorts, including Vail, Breckenridge, and Heavenly, operate on U.S. Forest Service land under Special Use Permits (SUPs) with expiration dates ranging from 2029 to 20587779 - Whistler Blackcomb's operations are governed by 60-year Master Development Agreements with the Province of British Columbia, expiring in 207784 - Australian resorts (Perisher, Falls Creek, Hotham) operate within national parks under long-term leases and licenses with government agencies, with expiration dates extending to 2048 and beyond8990919293 Item 1A. Risk Factors The company faces significant risks from the COVID-19 pandemic, economic conditions, weather, competition, and substantial indebtedness, impacting its financial stability and operations - The COVID-19 outbreak is identified as a primary risk, having already caused significant negative impacts and expected to continue disrupting business through travel restrictions, reduced consumer confidence, and potential future resort closures100101102 - The business is vulnerable to unfavorable weather, natural disasters, and the long-term effects of climate change, which can impact snowfall, increase operational costs, and reduce skier visits111113 - The company has a substantial amount of debt ($2.4 billion as of July 31, 2020), which could affect its financial condition, limit operational flexibility, and divert cash flow from operations to debt service payments159 - As a response to COVID-19's financial impact, the company amended its Vail Holdings Credit Agreement to obtain a temporary waiver from certain financial covenants through January 2022, but is subject to restrictions on dividends, share repurchases, and capital expenditures during this period164166 Item 2. Properties This section details the company's diverse principal properties across the U.S., Canada, and Australia, specifying their location, ownership status, and primary use - The company's properties include a mix of owned real estate and assets operated under long-term leases, Special Use Permits (SUPs) with the U.S. Forest Service, and concessionaire contracts with the National Park Service173 - Key ski resort operations like Vail Mountain, Breckenridge, and Heavenly are conducted on land under SUPs, while international resorts like Whistler Blackcomb and Perisher operate under Master Development Agreements (MDAs) or long-term leases with foreign governments173176 Item 3. Legal Proceedings The company is involved in various ordinary course lawsuits, but management anticipates no material adverse financial impact due to adequate insurance and accruals - The company is party to various lawsuits arising from normal business operations but does not anticipate these proceedings will have a material adverse financial impact180 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE, with quarterly cash dividends suspended and share repurchases limited due to the COVID-19 pandemic and credit agreement amendments - The quarterly dividend was suspended in April 2020 in response to the COVID-19 pandemic, with the last declared dividend being $1.76 per share for the quarter ended April 30, 2020185 - As of July 31, 2020, 1,338,859 shares remained available for repurchase under the company's existing authorization, with no shares repurchased in the fourth quarter of Fiscal 2020186169 Item 6. Selected Financial Data This section provides a five-year summary of key financial data, highlighting the significant decline in Fiscal 2020 performance due to the COVID-19 pandemic and the impact of acquisitions Selected Financial Data (Fiscal Years 2018-2020) | (In thousands, except per share data) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total net revenue | $1,963,704 | $2,271,575 | $2,011,553 | | Net income attributable to Vail Resorts, Inc. | $98,833 | $301,163 | $379,898 | | Diluted net income per share | $2.42 | $7.32 | $9.13 | | Total assets | $5,244,232 | $4,426,077 | $4,064,984 | | Long-term debt, net | $2,450,799 | $1,576,260 | $1,272,732 | - Fiscal 2020 financial results were significantly impacted by one-time adjustments, including the deferral of $120.9 million in season pass revenue due to pass holder credits and a $28.4 million asset impairment related to the company's transportation business, both stemming from the effects of the COVID-19 pandemic192 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant Fiscal 2020 performance decline to the COVID-19 pandemic, impacting EBITDA across segments and prompting liquidity measures including capital expenditure reductions and credit agreement amendments Reported EBITDA Summary (Fiscal Years 2018-2020) | (In thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Mountain Reported EBITDA | $500,080 | $678,594 | $591,605 | | Lodging Reported EBITDA | $3,269 | $28,100 | $25,006 | | Resort Reported EBITDA | $503,349 | $706,694 | $616,611 | - The early closure of North American resorts due to COVID-19 was the primary driver of poor Fiscal 2020 results, also leading to the deferral of $120.9 million in pass revenue to Fiscal 2021 as a result of credits offered to 2019/2020 pass holders205208 - To maintain liquidity, the company reduced its calendar 2020 capital plan by approximately $80-$85 million, deferring all new chair lifts and terrain expansions283 - On May 4, 2020, the company issued $600.0 million in 6.25% Senior Notes due 2025 to bolster its cash position and pay down its revolving credit facility219293 Results of Operations Fiscal 2020 results were severely impacted by COVID-19, leading to significant declines in Mountain and Lodging segment EBITDA and revenues, partially offset by new acquisitions Mountain Segment Net Revenue (FY2020 vs FY2019) | (In thousands) | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Lift | $913,091 | $1,033,234 | (11.6)% | | Ski school | $189,131 | $215,060 | (12.1)% | | Dining | $160,763 | $181,837 | (11.6)% | | Retail/rental | $270,299 | $320,267 | (15.6)% | | Total Mountain net revenue | $1,710,443 | $1,956,201 | (12.6)% | - Mountain Reported EBITDA decreased by $178.5 million (26.3%) in FY2020 compared to FY2019, primarily due to the impacts of COVID-19 and the deferral of pass revenue226 - Lodging Reported EBITDA decreased by $24.8 million (88.4%) in FY2020, with significant revenue declines across all categories including owned hotels, managed condominiums, and transportation245 - An asset impairment charge of $28.4 million was recorded in Fiscal 2020 related to the company's Colorado resort ground transportation company due to the effects of the COVID-19 pandemic263264 Liquidity and Capital Resources The company enhanced liquidity by issuing senior notes, drawing on credit facilities, and amending its credit agreement, while reducing capital expenditures and suspending dividends due to decreased operating cash flow Cash Flow Summary (Fiscal Years 2019-2020) | (In thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $394,950 | $634,231 | | Net cash used in investing activities | ($492,739) | ($596,034) | | Net cash provided by (used in) financing activities | $376,233 | ($99,558) | - As of July 31, 2020, the company had $391.0 million in cash and cash equivalents, plus $418.8 million available under its Vail Holdings revolver and C$221.1 million ($165.1 million) under its Whistler revolver219282 - The company amended its Vail Holdings Credit Agreement, providing a waiver from key financial covenants through January 2022 in exchange for restrictions on capital expenditures, dividends, and share repurchases289291 Critical Accounting Policies Critical accounting policies involve significant judgment in goodwill impairment testing, tax contingencies, asset depreciable lives, and business combination valuations, notably the $28.4 million impairment in FY2020 - Goodwill and Intangible Assets: Annual impairment testing requires significant judgment, and due to COVID-19 impacts, the company recorded a $28.4 million impairment charge related to its Colorado resort ground transportation company in Fiscal 2020312315 - Tax Contingencies: The company maintains a reserve of $76.5 million for uncertain tax positions, primarily related to the tax treatment of the Canyons lease obligation and goodwill319321 - Business Combinations: Accounting for acquisitions requires significant estimates for valuing acquired assets and liabilities, and the valuation for the recent Peak Resorts acquisition is still preliminary326327 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate fluctuations on its $0.9 billion variable-rate debt and foreign currency exchange rate risk from Canadian and Australian operations - A 100-basis point change in LIBOR would impact annual interest payments by approximately $9.1 million on the company's $0.9 billion of net variable-rate debt335 - The company is exposed to foreign currency risk from its operations in Canada and Australia, where fluctuations in the Canadian and Australian dollars relative to the U.S. dollar impact the consolidated financial statements337 Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for Fiscal Years 2018-2020, including the independent auditor's report and notes to financial statements - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of July 31, 2020347348 - The auditor's report identifies two critical audit matters: the fair value measurement of the Park City contingent consideration and the valuation of acquired property, plant, and equipment from the Peak Resorts acquisition356357360 - As of August 1, 2019, the company adopted the new lease accounting standard (ASC 842), resulting in the recognition of $221.8 million of operating right-of-use assets and $254.2 million of related operating lease liabilities on the balance sheet198413 Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of July 31, 2020, excluding certain controls of the recently acquired Peak Resorts - Management concluded that the company's disclosure controls and procedures were effective as of July 31, 2020540541 - The assessment of internal control over financial reporting excluded certain elements of Peak Resorts, which was acquired in September 2019343 Part III Items 10-14 Information for Items 10 through 14, covering corporate governance, executive compensation, and security ownership, is incorporated by reference from the forthcoming 2020 Proxy Statement - Information regarding directors, executive compensation, security ownership, and related party transactions is incorporated by reference from the forthcoming 2020 Proxy Statement548549550 Part IV Item 15. Exhibits, Financial Statement Schedules This section provides an index to financial statements and lists all exhibits filed with the Form 10-K, including key corporate documents, material contracts, and certifications - This item lists all exhibits filed with the Form 10-K, including material contracts like credit agreements, government permits for resort operations, and executive compensation plans551552