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. "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. "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 this measurement to be a significant indication of our available capital resources. 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 inthe United States ("GAAP"). Refer to the end of the Results of Operations section for a reconciliation of net income attributable toVail Resorts, Inc. to Total Reported EBITDA and long-term debt, 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. Overview Our operations are grouped into three integrated and interdependent segments: Mountain, Lodging and Real Estate. We refer to "Resort" as the combination of the Mountain and Lodging segments. The Mountain, Lodging and Real Estate segments represented approximately 89%, 11% and 0%, respectively, of our net revenue for Fiscal 2021. 41
-------------------------------------------------------------------------------- Mountain Segment In the Mountain segment, the Company operates the following 37 destination mountain resorts and regional ski areas: [[Image Removed: mtn-20210731_g2.jpg]] *Denotes a destination mountain resort, which generally receives a meaningful portion of skier visits from long-distance travelers, as opposed to our regional ski areas, which tend to generate skier visits predominantly from their respective local markets. Additionally, we operate ancillary services, including ski school, dining and retail/rental operations, and for 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 regional ski areas (collectively, our "Resorts") occurring in our second and third fiscal quarters and the majority of revenue earned from our Australian ski areas occurring in our first and fourth fiscal quarters. OurNorth American Resorts are typically open for business from mid-November through mid-April, which is the peak operating season for the Mountain 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 pass products), which represented approximately 64%, 53% and 53% of Mountain segment net revenue for Fiscal 2021, the fiscal year endedJuly 31, 2020 ("Fiscal 2020") and the fiscal year endedJuly 31, 2019 ("Fiscal 2019"), respectively. 42 -------------------------------------------------------------------------------- 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 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 the 2020/2021 North American ski season, Destination guests comprised approximately 52% of our North American destination mountain resort skier visits (excluding complimentary access), while Local guests comprised approximately 48%, which compares to approximately 58% and 42%, respectively, for the 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 tickets (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, the global geopolitical climate or weather conditions in the immediately preceding ski season. Local guests tend to be more value-oriented and weather sensitive. We offer a variety of pass products for all of our Resorts marketed towards both Destination and Local guests. Our pass product offerings range from providing access to one or a combination of our Resorts for a certain number of days to ourEpic Pass , which allows pass holders unlimited and unrestricted access to all of our Resorts.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 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 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 pass products. Additionally, we have entered into strategic long-term season pass alliance agreements with third-party mountain resorts includingTelluride Ski Resort inColorado ,Sun Valley Resort inIdaho ,Snowbasin Resort inUtah ,Hakuba Valley andRusutsu Resort inJapan , Resorts of the Canadian Rockies inCanada , Les 3 Vallées inFrance , 4 Vallées inSwitzerland , Skirama Dolomiti inItaly and SkiArlberg inAustria , which further increases the value proposition of our pass products. As such, our pass program drives strong customer loyalty, mitigates exposure to more weather sensitive guests, generates additional ancillary spending and provides cash flow in advance of winter season operations. In addition, our pass program attracts new guests to our Resorts. All of our pass products, including theEpic Pass andEpic Day Pass , are predominately sold prior to the start of the ski season. Pass product revenue, although primarily collected prior to the ski season, is recognized in the Consolidated Statements of Operations throughout the ski season primarily based on historical visitation (excluding visitation data for Fiscal 2020, which we do not believe is indicative of future visitation due to the early resort closures associated with COVID-19 inMarch 2020 ). Lift revenue consists of pass product lift revenue ("pass revenue") and non-pass product lift revenue ("non-pass revenue"). Approximately 61%, 51% and 47% of total lift revenue was derived from pass revenue for Fiscal 2021, Fiscal 2020 and Fiscal 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 ourColorado andUtah mountain resorts; (ii) ownership/management of non-RockResorts branded hotels and condominiums proximate to ourNorth American Resorts ; (iii)National Park Service ("NPS") concessionaire properties includingGrand Teton Lodge Company ("GTLC"); (iv) aColorado resort ground transportation company; and (v) mountain resort golf courses. The performance of our lodging properties (including managed condominium units and ourColorado 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 43 -------------------------------------------------------------------------------- such properties represented approximately 64%, 73% and 70% of Lodging segment net revenue (excluding Lodging segment revenue associated with reimbursement of payroll costs) for Fiscal 2021, Fiscal 2020 and Fiscal 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 inNorth America or declining or slowing growth in economies outside ofNorth 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 onMarch 15, 2020 . These actions (the "Resort Closures") had a significant adverse impact on our results of operations for the year endedJuly 31, 2020 . Additionally, onApril 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 beforeSeptember 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 theEpic 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 throughMarch 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 ourColorado ,Utah and Tahoe resorts from the early season throughout the holiday season. Visitation and spending was also particularly 44 -------------------------------------------------------------------------------- impacted in regions where heightened COVID-19 restrictions were in place, includingWhistler Blackcomb , Tahoe andVermont . However, results continued to improve as the season progressed, primarily as a result of stronger Destination visitation at ourColorado andUtah 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 ofWhistler Blackcomb onMarch 30, 2021 following a provincial health order issued by the government ofBritish Columbia due to an increase in COVID-19 cases in the region. Our Fiscal 2021 first quarter results were negatively impacted byMount Hotham andFalls Creek , which opened for the 2020 Australian ski season onJuly 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 theMelbourne metropolitan area, which represents the majority of visitors forMount Hotham andFalls 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 inMarch 2020 , as well as during the 2020/2021 North American ski season. We closed our GTLC facilities includingJackson Lake Lodge andJenny 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 endingJuly 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 which results in a more stabilized stream of lift revenue. InMarch 2021 , we began our pass product sales program for the 2021/2022 North American ski season, which included a 20% reduction in price for all pass products. Pass product sales throughSeptember 17, 2021 for the upcoming 2021/2022 North American ski season increased approximately 42% in units and approximately 17% in sales dollars as compared to the period in the prior year throughSeptember 18, 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 onJune 7, 2021 , pass product sales throughSeptember 17, 2021 increased approximately 67% in units and approximately 45% in sales dollars as compared to the period throughSeptember 20, 2019 , with pass product sales adjusted to includePeak Resorts pass sales in both periods. Pass product sales are adjusted to eliminate the impact of foreign currency by applying an exchange rate of$0.79 between the Canadian dollar andU.S. dollar in all periods forWhistler Blackcomb . We cannot predict if this favorable trend will continue through the fall 2021 North American pass sales campaign or the overall impact that pass sales will have on lift revenue for the 2021/2022 North American ski season. •Prior to the 2020/2021 North American ski season, 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 certain qualifying travel restrictions (e.g. for COVID-19), giving pass product holders a refund for any portion of the season that is lost due to qualifying circumstances. Additionally, Epic Coverage provides a refund for qualifying personal circumstances that were historically covered by our pass insurance 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 2020/2021 North American ski season, we introduced Epic Mountain Rewards, a program which provides pass product holders a discount of 20% off on-mountain food and beverage, lodging, group ski school lessons, equipment rentals and more at our North American owned and operated Resorts. Epic Mountain Rewards constitutes an option to our guests to purchase additional products and services from us at a discount and as a result, we allocate a portion of the pass product transaction price to these other lines of business. •As ofJuly 31, 2021 , we had$1,244.0 million of cash and cash equivalents as well as$417.7 million available under the revolver component of our Eighth Amended and Restated Credit Agreement, dated as ofAugust 15, 2018 and as amended most recently onDecember 18, 2020 (the "Vail Holdings Credit Agreement"), which represents the total commitment of$500.0 million less certain letters of credit outstanding of$82.3 million . Additionally, we have a credit facility which supports the liquidity needs ofWhistler Blackcomb (the "Whistler Credit Agreement"). As ofJuly 31, 2021 , we hadC$243.1 million ($194.9 million ) available under the revolver component of the Whistler Credit 45 -------------------------------------------------------------------------------- Agreement (which represents the total commitment ofC$300.0 million ($240.5 million ) less outstanding borrowings ofC$56.0 million ($44.9 million ) and a letter of credit outstanding ofC$0.9 million ($0.7 million)). OnDecember 18, 2020 , we entered into the Fourth Amendment to ourVail Holdings Credit Agreement (the "Fourth Amendment"). Pursuant to the Fourth Amendment, among other terms, we are exempt from complying with the Vail Holdings Credit Agreement's leverage ratio, senior secured leverage ratio, and interest coverage ratio financial maintenance covenants for each of the fiscal quarters ending throughJanuary 31, 2022 (unless we make a one-time irrevocable election to terminate such exemption prior to such date) (such period, the "Financial Covenants Temporary Waiver Period"), after which we will again be required to comply with such covenants starting with the fiscal quarter endingApril 30, 2022 (or such earlier fiscal quarter as elected by us). During the Financial Covenants Temporary Waiver Period, we are subject to other restrictions which will limit our ability to make future acquisitions, investments, distributions to stockholders, share repurchases or incur additional debt. Additionally, onDecember 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 Securities 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 onJanuary 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 will continue to provide us with sufficient liquidity to fund our operations. Results of Operations Summary Shown below is a summary of operating results for Fiscal 2021, Fiscal 2020 and Fiscal 2019 (in thousands): Year ended July 31, 2021 2020 2019
Net income attributable to
$ 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) A discussion of segment results, including reconciliations of net income attributable toVail 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 ofPeak Resorts (acquiredSeptember 24, 2019 ),Falls Creek and Hotham (acquiredApril 4, 2019 ), Triple Peaks (acquiredSeptember 27, 2018 ) andStevens Pass (acquiredAugust 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 2021 compared to Fiscal 2020" and "Fiscal 2020 compared to Fiscal 2019" in each of the Mountain and Lodging segment discussions below provide comparisons of financial and operating performance for Fiscal 2021 to Fiscal 2020 and Fiscal 2020 to Fiscal 2019, respectively, unless otherwise noted. 46 -------------------------------------------------------------------------------- Mountain Segment Mountain segment operating results for Fiscal 2021, Fiscal 2020 and Fiscal 2019 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) %
Mountain Reported EBITDA includes
Fiscal 2021 compared to Fiscal 2020 Mountain 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 onMarch 30, 2021 following a provincial health order issued by the government ofBritish Columbia . Mountain segment results also 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 fromWhistler Blackcomb , which are translated from Canadian dollars toU.S. dollars, were favorably affected by increases in the Canadian dollar exchange rate relative to theU.S. dollar as compared to the prior year, resulting in an increase in Mountain Reported EBITDA of approximately$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 17.9%, primarily due to the Company operating for the fullU.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 2020/2021 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 ourColorado ,Utah and Tahoe 47 -------------------------------------------------------------------------------- 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, includingWhistler Blackcomb , Tahoe andVermont . 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 onMarch 30, 2021 following a provincial health order issued by the government ofBritish 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 operations during Fiscal 2021 as a result of the impacts of COVID-19 on our business. 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 2021, other revenue decreased$26.4 million , or 14.9%, primarily due to decreased mountain activities and mountain services revenue as 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 replacement of 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 decreased$65.9 million , or 5.4%, which was primarily attributable to cost discipline efforts in the current year associated with lower levels of operations and limitations, restrictions and closures of Resort operations resulting from COVID-19. Additionally, operating expense includes$1.0 million and$13.6 million of acquisition and integration related expenses for Fiscal 2021 and Fiscal 2020, respectively. Labor and labor-related benefits decreased 4.4%, primarily due to cost discipline efforts in the current year associated with limitations, restrictions and closures of our Resort operations as a result of COVID-19, as well as incremental tax credits of approximately$10.3 million primarily associated with COVID-19 related legislation passed inCanada , partially offset by an 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 decreased 7.0% primarily due to decreases 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 inCanada andAustralia . 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 ofPeak 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 theEpic Day Pass . Non-pass revenue decreased primarily due to significantly 48 -------------------------------------------------------------------------------- reduced skier visitation as a result of the Resort Closures, partially offset by an increase in non-pass ETP (excludingPeak Resorts ,Falls Creek and Hotham) of 6.2% and incremental revenue fromPeak Resorts ,Falls Creek and Hotham of approximately$61.4 million . Total non-pass ETP, including the impact ofPeak 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 ofPeak 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 fromPeak 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 fromPeak 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 theU.S. ,Canada andAustralia , partially offset by incremental expenses fromPeak 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, partially offset by incremental expenses fromPeak Resorts of approximately$4.3 million . General and administrative expense increased 2.7% primarily due to incremental expenses fromPeak Resorts ,Falls Creek and Hotham of approximately$18.9 million , partially offset by a decrease in 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 theU.S. ,Canada andAustralia . Other expense increased 2.1% primarily due to incremental operating expenses fromPeak Resorts ,Falls Creek and Hotham of approximately$42.2 million , partially offset by decreases in variable operating expenses associated with the Resort Closures, as well as a decrease in acquisition and integration related expenses.
Mountain equity investment income, net primarily includes our share of income from the operations of a real estate brokerage joint venture.
49 -------------------------------------------------------------------------------- Lodging Segment Lodging segment operating results for Fiscal 2021, Fiscal 2020 and Fiscal 2019 are presented by category as follows (in thousands, except ADR and RevPAR):
Percentage
Year ended July 31, Increase/(Decrease) 2021 2020 2019 2021/2020 2020/2019 Lodging net revenue: Owned hotel rooms$ 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) % 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) % (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$3.8 million ,$3.4 million and$3.2 million of stock-based compensation expense for Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively. Fiscal 2021 compared to Fiscal 2020 Lodging Reported EBITDA for Fiscal 2021 decreased$9.0 million , or 275.4%, primarily as a result of limitations and restrictions on our North American operations in the current year as a result of the impacts of COVID-19, which resulted in 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 a result of the impacts of COVID-19. These decreases were partially offset by increases in revenue from golf, primarily due to strong 50 --------------------------------------------------------------------------------
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 other lodging properties as a result of the impacts of COVID-19.
Operating expense (excluding reimbursed payroll costs) decreased 7.4%. Labor and labor related benefits decreased 11.1% primarily due to decreased staffing associated with COVID-19. General and administrative expense increased 11.3% due to an increase in allocated corporate overhead costs across all functions, including variable compensation accruals, primarily as a result of lower costs in the prior year associated with the Resort Closures. Other expense decreased 11.2% related to lower variable expenses associated with reduced revenue as a result of COVID-19. Revenue from payroll cost reimbursement and the corresponding reimbursed payroll costs relate to payroll costs at managed hotel properties where we are the employer and all payroll costs are reimbursed by the owners of the properties under contractual arrangements. Since the reimbursements are made based upon the costs incurred with no added margin, the revenue and corresponding expense have no effect on our Lodging Reported EBITDA. Fiscal 2020 compared to Fiscal 2019 Lodging Reported EBITDA for Fiscal 2020 decreased$24.8 million , or 88.4%, primarily due to the impacts of the COVID-19 pandemic and the associated Resort Closures. Primarily as a 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$13.7 million of incremental revenue fromPeak Resorts and Triple Peaks. Operating expense (excluding reimbursed payroll costs) decreased 13.8%. Labor and labor related benefits decreased 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 associated with recent COVID-19 related legislation passed in theU.S. ,Canada andAustralia , partially offset by$6.4 million of incremental expenses fromPeak Resorts and Triple Peaks. General and administrative expense decreased 4.8% due to lower allocated corporate overhead 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 theU.S. ,Canada andAustralia . Other expenses decreased 14.7% primarily related to lower variable expenses associated with the impact of the Resort Closures, partially offset by$4.7 million of incremental expenses fromPeak Resorts and Triple Peaks. Revenue from payroll cost reimbursement and the corresponding reimbursed payroll costs relate to payroll costs at managed hotel properties where we are the employer and all payroll costs are reimbursed by the owners of the properties under contractual arrangements. Since the reimbursements are made based upon the costs incurred with no added margin, the revenue and corresponding expense have no effect on our Lodging Reported EBITDA. Real Estate Segment Our Real Estate net revenue is primarily determined by the timing of closings and the mix of real estate sold in any given period. Different types of projects have different revenue and profit margins; therefore, as the real estate inventory mix changes, it can greatly impact Real Estate segment net revenue, operating expense, gain on sale of real property and Real Estate Reported EBITDA. 51 --------------------------------------------------------------------------------
Real Estate segment operating results for Fiscal 2021, Fiscal 2020 and Fiscal 2019 are presented by category as follows (in thousands):
Percentage Year ended July 31, Increase/(Decrease) 2021 2020 2019 2021/2020 2020/2019
(63.5) % 580.8 % Real Estate operating expense: Cost of sales (including sales commissions) 1,294 3,932 13 (67.1) % 30,146.2 % Other 5,382 5,250 5,596 2.5 % (6.2) %Total Real Estate operating expense 6,676 9,182 5,609 (27.3) % 63.7 % Gain on sale of real property 324 207 580 56.5 % (64.3) % Real Estate Reported EBITDA$ (4,582) $ (4,128) $ (4,317) (11.0) % 4.4 % Fiscal 2021 We did not close on any significant real estate transactions during Fiscal 2021. Other operating expense of$5.4 million was primarily comprised of 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 (OneRiver Run site) andBreckenridge (East Peak 8 site) for proceeds of approximately$16.0 million , including$4.8 million associated with the sale of density for theBreckenridge 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 OneRiver 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$0.6 million for the sale of land parcels. 52 -------------------------------------------------------------------------------- Other Items In addition to segment operating results, the following items contributed 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
$ (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) Depreciation and amortization. Depreciation and amortization expense for Fiscal 2021 and Fiscal 2020 increased over Fiscal 2019 primarily due to assets acquired in thePeak 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 ourColorado resort ground transportation company, with corresponding reductions to goodwill, net of$25.7 million and 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. We recorded a loss of$14.4 million during Fiscal 2021 primarily related to improved performance compared to estimated results forPark 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$3.0 million during Fiscal 2020 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 2019. The estimated fair value of contingent consideration is based on assumptions for EBITDA ofPark City in future periods, as calculated under the lease on which participating payments are determined, and was$29.6 million and$17.8 million as ofJuly 31, 2021 and 2020, respectively. Interest expense, net. Interest expense, net for Fiscal 2021 increased compared to Fiscal 2020 primarily due to borrowings under our 6.25% unsecured bond offering, which was completed onMay 4, 2020 (the "6.25% Notes") and generated approximately$28.3 million of incremental interest expense in Fiscal 2021, and$12.5 million of non-cash interest expense associated with amortization of the debt discount for the 0.0% Convertible Notes, which were issued inDecember 2020 . Interest expense, net for Fiscal 2020 increased compared to Fiscal 2019 primarily due to debt obligations assumed in thePeak Resorts acquisition; borrowings under our 6.25% unsecured bond offering which was completed onMay 4, 2020 ; incremental term loan borrowings under the Vail Holdings Credit Agreement of$335.6 million , which were used to fund thePeak Resorts acquisition inSeptember 2019 ; and incremental borrowings under the revolver components of our Vail Holdings Credit Agreement and Whistler Credit Agreement, which were almost entirely drawn on during Fiscal 2020 as a precautionary measure in order to increase our cash position and financial flexibility in light of the 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) on intercompany loans. Foreign currency gain (loss) on intercompany loans for Fiscal 2021 increased as compared to Fiscal 2020 and decreased for Fiscal 2020 as compared to Fiscal 2019 as a result of the Canadian dollar fluctuating relative to theU.S. dollar, and was associated with an intercompany loan fromVail Holdings, Inc. toWhistler Blackcomb in the original amount of$210.0 million that was funded, effective as ofNovember 1, 2016 , in connection with the acquisition ofWhistler Blackcomb . This intercompany loan, which had an outstanding balance of approximately$97.2 million as ofJuly 31, 2021 , requires foreign currency remeasurement to Canadian dollars, the functional currency forWhistler Blackcomb . As a result, foreign currency fluctuations associated with the loan are recorded within our results of operations. 53 -------------------------------------------------------------------------------- Provision for income taxes. The effective tax rate was (0.6)%, (6.3)% and (18.9)% in Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively. The decrease in the effective tax rate provision during Fiscal 2021 compared to Fiscal 2020 was primarily driven by an increase in excess tax benefits from employee share awards that were exercised (stock appreciation rights) and that vested (restricted stock awards). The decrease in the effective tax rate during Fiscal 2020 compared to Fiscal 2019 was primarily due to lower full year pre-tax net income, as well as a one-time, provisional$3.8 million benefit related to the net operating loss carryback provision of the Coronavirus Aid, Relief, and Economic Security Act, partially offset by a decrease in excess tax benefits from employee share awards that were exercised (stock appreciation rights) and that vested (restricted stock awards). Reconciliation of Segment Earnings The following table reconciles net income attributable toVail Resorts, Inc. to Total Reported EBITDA for Fiscal 2021, Fiscal 2020 and Fiscal 2019 (in thousands): Year ended July 31, 2021 2020 2019 Net income attributable to Vail Resorts, Inc.$ 127,850 $ 98,833 $ 301,163 Net (loss) income attributable to noncontrolling interests (3,393) 10,222 22,330 Net income 124,457 109,055 323,493 Provision for income taxes 726 7,378 75,472 Income before provision for income taxes 125,183 116,433 398,965 Depreciation and amortization 252,585 249,572 218,117 Asset impairments - 28,372 -
Loss (gain) on disposal of fixed assets and other, net 5,373
(838) 664 Change in fair value of contingent consideration 14,402 (2,964) 5,367 Investment income and other, net (586) (1,305) (3,086) Foreign currency (gain) loss on intercompany loans (8,282) 3,230 2,854 Interest expense, net 151,399 106,721 79,496 Total Reported EBITDA$ 540,074
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) Total Reported EBITDA$ 540,074 $ 499,221 $ 702,377
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) (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 54
-------------------------------------------------------------------------------- Liquidity and Capital Resources Changes in significant sources and uses of cash for Fiscal 2021, Fiscal 2020 and Fiscal 2019 are presented by categories as follows (in thousands): Year ended
2021 2020 2019
Net cash provided by operating activities
$ (103,329) $ (492,739) $ (596,034) Net cash provided by (used in) financing activities$ 434,662 $
376,233
Historically, we have lower cash available at the end of each first and fourth fiscal quarter-end as compared to our second and third fiscal quarter-ends, primarily due to the seasonality of our Mountain segment operations, although our available cash balances as ofJuly 31, 2021 and 2020 were higher than our historicalJuly 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 2021 compared to Fiscal 2020 We generated$525.3 million of cash from operating activities during Fiscal 2021, an increase of$130.3 million when compared to$395.0 million of cash generated during Fiscal 2020. The increase in operating cash flows was primarily 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 return to more normal operations, as compared to significantly lower accruals in the 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 ofJuly 31, 2021 as compared to the beginning of the fiscal year relative to an increase in the 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 inMay 2020 , for which the first interest payments were made during Fiscal 2021. 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 ofPeak 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 thePeak 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 thePeak Resorts acquisition and incremental term loan and revolver borrowings under our Vail Holdings Credit Agreement. These decreases were partially offset by increased North American pass product sales and receivable collections for the 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 approximately$4.4 million of proceeds from real estate development land parcel sales in Fiscal 2020 compared to$0.1 million in proceeds from real estate development project closings that occurred in the prior year. 55 -------------------------------------------------------------------------------- Cash used in investing activities for Fiscal 2020 decreased by$103.3 million , primarily due to cash payments of$327.6 million , net of cash acquired, related to the acquisition ofPeak Resorts during Fiscal 2020, as compared to cash payments of$419.0 million , net of cash acquired, related to the acquisitions of Triple Peaks,Stevens Pass ,Falls Creek and Hotham during Fiscal 2019. Additionally, capital expenditures decreased by$19.7 million primarily as a result of actions associated with the deferral of discretionary capital projects related to the Company's decision to prioritize near-term liquidity. Cash provided by financing activities increased by$475.8 million during Fiscal 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 portion of our Vail Holdings Credit Agreement from$265.5 million during Fiscal 2019, which were used to fund the Triple Peaks andStevens Pass acquisitions, to$335.6 million during Fiscal 2020, which were used to fund thePeak Resorts acquisition; (iii) an increase in net borrowings under the revolver component of our Whistler Credit Agreement of$24.1 million , primarily relating to funds which were drawn as a precautionary measure in order to increase our cash position and financial flexibility in light of the financial market conditions resulting from the COVID-19 pandemic; (iv) a decrease in repurchases of common stock 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 increases in cash provided by financing activities were partially offset by (i) an increase in net payments on borrowings under the revolver component of our Vail Holdings Credit Agreement of$286.0 million ; (ii) an increase in financing cost payments of$8.8 million , primarily associated with the issuance of the 6.25% Notes; and (iii) a payment for contingent consideration with regard to our lease forPark City . Significant Sources of Cash We had$1,244.0 million of cash and cash equivalents as ofJuly 31, 2021 , compared to$391.0 million as ofJuly 31, 2020 . 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 generated in our second and third fiscal quarters). In addition to our$1,244.0 million of cash and cash equivalents atJuly 31, 2021 , we had$417.7 million available under the revolver component of our Vail Holdings Credit Agreement as ofJuly 31, 2021 (which represents the total commitment of$500.0 million less certain letters of credit outstanding of$82.3 million ). Also, to further support the liquidity needs ofWhistler Blackcomb , we hadC$243.1 million ($194.9 million ) available under the revolver component of our Whistler Credit Agreement (which represents the total commitment ofC$300.0 million ($240.5 million ) less outstanding borrowings ofC$56.0 million ($44.9 million ) and a letter of credit outstanding ofC$0.9 million ($0.7 million)). 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 Vail Holdings Credit Agreement and Whistler Credit Agreement, if needed. The Vail Holdings Credit Agreement and the Whistler Credit Agreement provide adequate flexibility and are priced favorably with any new borrowings currently priced at LIBOR plus 2.5% and Bankers Acceptance Rate plus 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, throughout our owned 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$115 million to$120 million on resort capital expenditures during calendar year 2021, excluding one-time items associated with integrations of$5 million and$12 million of reimbursable investments, as well as real estate related capital. Including these one-time items, we expect that our total capital plan will be approximately$135 million to$140 million . Included in these estimated capital expenditures are approximately$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 2021 include, among other projects, several investments which were previously deferred from calendar year 2020 as a result of COVID-19, including the 250-acre lift-served terrain expansion in theMcCoy Park area ofBeaver Creek ; a new four-person high speed lift to serve Peak 7 atBreckenridge ; replacing thePeru lift at Keystone with a six-person high speed chairlift; replacing the Peachtree lift atCrested Butte with a new three-person fixed-grip lift; and an upgrade of the four-person Quantum lift at Okemo with a six-person high speed chairlift, relocating the existing four-person Quantum lift to replace theGreen Ridge three-person fixed-grip chairlift. We will also continue to invest in company-wide technology enhancements to support our data driven approach, guest experience 56 -------------------------------------------------------------------------------- and corporate infrastructure which improve our scalability and efficiency as we work to optimize our processes, business analytics and cost discipline across the network, as well as upgrades to the infrastructure of 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. Approximately$48 million was spent for capital expenditures in calendar year 2021 as ofJuly 31, 2021 , leaving approximately$87 million to$92 million to spend in the remainder of calendar year 2021. Debt As ofJuly 31, 2021 , principal payments on the majority of our long-term debt ($2.7 billion of the total$2.9 billion debt outstanding as ofJuly 31, 2021 ) are not due until fiscal year 2025 and beyond. As ofJuly 31, 2021 and 2020, total long-term debt, net (including long-term debt due within one year) was$2,850.3 million and$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$2,059.8 million as ofJuly 31, 2020 to$1,606.3 million as ofJuly 31, 2021 , primarily as a result of cash provided by operating activities, as discussed above. See Notes to the Consolidated Financial Statements for additional information. OnDecember 18, 2020 , we entered into the Fourth Amendment to theVail 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 throughJanuary 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 endingApril 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 beganJuly 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). 57 -------------------------------------------------------------------------------- OnDecember 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 Indenture datedDecember 18, 2020 (the "Indenture") between us andU.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 onJanuary 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 onMarch 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 afterJanuary 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 ofJuly 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 58 -------------------------------------------------------------------------------- met by continued use of our existing cash and cash equivalents, operating cash flows and borrowings under the Vail Holdings Credit Agreement and the Whistler Credit Agreement, if needed. Our debt service requirements can be impacted by changing interest rates as we had approximately$0.8 billion of net variable-rate debt outstanding as ofJuly 31, 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$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 cash dividends 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. OnMarch 6, 2006 , our Board of Directors initially authorized the repurchase of up to 3,000,000 shares ofVail Resorts common stock ("Vail Shares") and later authorized additional repurchases of up to 3,000,000 additionalVail Shares (July 16, 2008 ) and 1,500,000Vail Shares (December 4, 2015 ), for a total authorization to repurchase shares of up to 7,500,000Vail Shares . During Fiscal 2021, we did not repurchase anyVail Shares . Since the inception of this stock repurchase program throughJuly 31, 2021 , we have repurchased 6,161,141Vail Shares at a cost of approximately$404.4 million . As ofJuly 31, 2021 , 1,338,859Vail 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 ofVail 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 ofVail Shares and the number ofVail Shares that become available for sale at prices that we believe are attractive. The share repurchase program has no expiration date. Dividend Payments We announced onApril 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 quarter. During Fiscal 2021, we did not pay cash dividends. OnSeptember 22, 2021 , our Board of Directors approved a cash dividend of$0.88 per share payable onOctober 22, 2021 to stockholders of record as ofOctober 5, 2021 . Additionally, a Canadian dollar equivalent dividend on the Exchangeco Shares will be payable onOctober 22, 2021 to the shareholders of record as ofOctober 5, 2021 . We expect to fund the dividend with available cash on hand and will do so pursuant to the restrictions under the Financial Covenants Temporary Waiver Period. The amount, if any, of dividends to be paid in the future will depend on our available cash on hand, anticipated cash needs, overall financial condition, restrictions contained in our Vail Holdings Credit Agreement, future prospects for earnings and cash flows, as well as other factors considered relevant by our Board of Directors. 59 -------------------------------------------------------------------------------- Covenants and Limitations We must abide by certain restrictive financial covenants under our credit agreements. The most restrictive of those covenants include the following: for the 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); 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 Vail Holdings Credit Agreement is primarily determined by the Net Funded Debt to Adjusted EBITDA ratio, which is based on our segment operating performance, as defined in the Vail Holdings Credit Agreement. Our borrowing availability under the Whistler Credit Agreement is primarily determined based on the commitment size of the credit facility and our compliance with the terms of the Whistler Credit Agreement. 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 ofJuly 31, 2021 . We expect that we will continue to meet all applicable financial maintenance covenants in effect in our credit agreements throughout the year endingJuly 31, 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$2.9 billion as ofJuly 31, 2021 , are recognized as liabilities in our Consolidated Balance Sheet. Obligations under construction contracts and other purchase commitments are not recognized as liabilities in our Consolidated Balance Sheet until services and/or goods are received which is in accordance with GAAP. A summary of our contractual obligations as ofJuly 31, 2021 is presented below (in thousands):
Payments Due by Period
Fiscal 2-3 4-5 More than Contractual Obligations Total 2022 years years 5 years Long-Term Debt (Outstanding Principal) (1)$ 2,948,514 $ 121,345
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
(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 ofJuly 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 ofJuly 31, 2021 is held to maturity and utilizing interest rates in effect atJuly 31, 2021 , our annual interest payments (including commitment fees and letter of credit fees) on variable rate long-term debt as ofJuly 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 ofJuly 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 60 -------------------------------------------------------------------------------- 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 ofJuly 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 ofJuly 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 and determine the estimated fair value of indefinite-lived intangible assets primarily 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 61 -------------------------------------------------------------------------------- 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. Effect if Actual Results Differ From AssumptionsGoodwill and indefinite-lived intangible assets are tested for impairment at least annually as ofMay 1 . Our testing for goodwill and indefinite-lived intangible asset impairment consists of a comparison of the estimated fair value of those assets with their net carrying values. If the net carrying value of the assets exceed their estimated fair value, an impairment will be recognized for indefinite-lived 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 and determined that the estimated fair value of all material reporting units and indefinite-lived intangible assets significantly exceeded their respective carrying 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 (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 ofJuly 31, 2021 , we had$1,781.0 million of goodwill and$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 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. 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 ($74.8 million as ofJuly 31, 2021 ), relate to the treatment of the Canyons 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. 62 -------------------------------------------------------------------------------- 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$24.0 million for Fiscal 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 thePark City contingent consideration payments using an option pricing valuation model which incorporates, among other factors, projected achievement of specified financial performance measures, discounts rates and volatility for the respective business. 63
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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. Seasonality and Quarterly Results Our mountain and lodging operations are seasonal in nature. In particular, revenue and profits for ourNorth 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 our 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 Australian resorts' ski operations are not sufficient to fully offset our off-season losses from our North American mountain and other lodging operations. During Fiscal 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).
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