NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1.
Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Peak Resorts, Inc., a Missouri corporation, was formed on September 24, 1997, and together with its subsidiaries, is a leading owner and operator of high-quality, individually branded ski resorts in the United States and operates 14 ski resorts primarily located in the Northeast and Midwest, 13 of which are owned. The majority of the resorts are located within 100 miles of major metropolitan markets, including New York City, Boston, Philadelphia, Cleveland and St. Louis, enabling day and overnight drive accessibility. The Company’s resorts are comprised of nearly 1,859 acres of skiable terrain appropriate to a wide range of ages and abilities. The activities, services and amenities available at the Company’s resorts include skiing, snowboarding, terrain parks, tubing, dining, lodging, equipment rentals and sales, ski and snowboard instruction, zip lines, mountain coasters, mountain biking, hiking and other summer activities. Peak Resorts, Inc., together with its subsidiaries, is herein referred to as “the Company.”
The Company’s revenues are highly seasonal in nature. The vast majority of revenue is generated during the ski season, which occurs during the winter months in the Company’s third and fourth fiscal quarters. Some of the Company’s properties offer non-winter attractions, such as golf, roller coasters, swimming, summer concerts and zip rides; however, these activities comprise less than 5% of the Company’s annual revenues. As a result, the Company’s resorts typically experience operating losses and negative operating cash flows during the first and second quarters of each fiscal year.
The seasonality of the Company’s revenues amplifies the effect of events outside its control, especially weather. While the Company’s geographically diverse operating locations help mitigate the effect of weather conditions, adverse weather could lower attendance due to suboptimal skiing conditions or limited access to our resorts, render snowmaking wholly or partially ineffective in maintaining ski conditions, and increase operating costs related to snowmaking efforts and inefficient labor utilization.
The Company aggregates its operating segments into a single reportable segment – Ski Resort Operations. Management has determined a single reportable segment is appropriate based on the uniformity of services and similar operating characteristics.
Principles of consolidation
The consolidated financial statements include the accounts of Peak Resorts, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States requires management to make estimates and assumptions that affect i) the reported amounts of assets and liabilities, ii) the disclosure of contingent assets and liabilities at the date of the financial statements and iii) the reported amounts of revenues and expenses during the reporting period.
Estimates and assumptions are used in accounting for the following significant matters, among others:
•
fair value of assets acquired and liabilities assumed in acquisitions;
•
useful lives of property, equipment and intangible assets;
•
long-lived and intangible asset impairments, including goodwill;
•
tax related items; and
•
contingencies.
Cash and Cash Equivalents and Restricted Cash
The Company considers i) all credit card and debit card transactions that process in less than seven days and ii) short-term highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The amounts due from banks for credit card and debit card transactions classified as cash and cash equivalents was
$1,669
and
$2,379
at April 30, 2018 and 2017, respectively.
The provisions of certain of the Company's debt instruments require that the Company maintain a deposit with the respective lender in an amount equal to the estimated minimum interest payment through December 31 of a given year, and the proceeds from certain borrowing for capital projects are restricted as to use. Restricted cash related to interest payments and capital projects are included on the consolidated balance sheets under the captions restricted cash and restricted cash, construction, respectively.
Accounts Receivable
The Company’s accounts receivable balance consists primarily of amounts due under advance season pass installment plans sold during the fourth quarter of its fiscal year. The Company performs ongoing reviews of the collectability of accounts receivable and, when necessary, establishes reserves for estimated credit losses. In assessing the need for and in determining the amount of any reserve for credit losses, the Company considers the level of historical bad debts, the credit worthiness of significant debtors based on periodic credit evaluations and significant economic developments that could adversely impact upon a customer's ability to pay amounts owed the Company. As of April 30, 2018 and 2017, the Company determined that no allowance for credit loss was required on it receivable balance as of those dates.
Inventories
The Company’s inventories consist of retail goods and food and beverage products.
Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out (FIFO) and average cost methods.
Property and Equipment
Property and equipment is carried at cost net of accumulated depreciation, amortization and impairment charges, if any. Costs to construct significant assets include capitalized interest during the construction and development period. Expenditures for replacements and major betterments or improvements are capitalized; maintenance and repair expenditures are charged to expense as incurred. Depreciation and amortization are determined using both straight-line and accelerated methods over estimated useful lives ranging from
3
to
25
years for land improvements,
5
to
40
years for buildings and improvements and
3
to
25
years for equipment, furniture and fixtures.
Land Held for Development
Land held for development relates to projects in and around its Mount Snow resort, and is carried at acquisition cost plus costs attributable to its ongoing development, including capitalized interest.
Impairment of Long-Lived Assets
The Company reviews intangible assets with a finite life and other long-lived assets for impairment if facts and circumstances exist that indicate the asset’s useful life is shorter than previously estimated or the carrying amount may not be recoverable from future operations based on undiscounted expected future cash flows. For impairment testing purposes, long-lived assets are grouped at the lowest level for which there are identifiable cash flows;
however, where identifiable cash flows are not independent of the cash flows of other assets, those long-lived assets are evaluated for impairment on a higher level.
Impairment losses are recognized in operating results for the amount by which the carrying value of the asset exceeds its fair value. In addition, the remaining useful life of an impaired asset group would be reassessed and revised, if necessary.
Goodwill
Goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of identifiable net tangible and intangible assets acquired. Goodwill and other indefinite-lived intangible assets are not amortized but are reviewed for impairment annually or more frequently if a triggering event were to occur in an interim period. The Company tests for goodwill
impairment at the reporting unit level and has concluded that each of its resorts constitutes a reporting unit. As of April 30, 2018, the Company’s goodwill balance is associated with one resort, Hunter Mountain.
Development Costs
Costs related to major development projects at the Company's ski resorts, including planning, engineering and permitting, are capitalized. When acquiring, developing and constructing real estate assets, the Company capitalizes costs. Capitalization begins when the activities related to development have begun and ceases when activities are substantially complete and the asset is available for use. Costs capitalized include permits, licenses, fees, legal costs, interest, development, and construction costs.
Deferred Financing Costs
Deferred financing costs, consisting of fees and other expenses associated with debt financing, are recorded as a reduction in the carrying amount of the related debt and are amortized to interest expense over the term of the related debt using the straight-line method, which approximates the effective interest method.
Classification of
Preferred Stock
The Company considers whether substantive redemption features exist in the instrument in which case it may be classified outside of equity, such as temporary equity or as a liability. Additionally, the Company evaluates whether the instrument contains any embedded or stand-alone instruments, which require separate recognition. The Company presents mandatorily redeemable preferred stock as a liability and contingently redeemable preferred stock and preferred stock that is redeemable outside the control of the Company as temporary equity on the consolidated balance sheets.
Stock Warrants
The Company accounts for its warrants as either equity or liability awards based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded at fair value as of the date of
issuance
w
i
th no further adjustments to their valuation made. Warrants classified as a liability are recorded at fair value at each reporting period, and the corresponding non-cash gain or loss is recorded in current period earnings. When warrants are issued in conjunction with preferred stock, the warrants are recorded based on the proceeds received allocated to the two elements’ relative fair values.
The Company has recorded the
$3,446
fair value of the warrants issued in November 2016, as component of additional paid-in capital in the consolidated statement of stockholders’ equity (see Note 5).
Earnings or Loss Per Share
Basic
earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average common shares issued and outstanding for the period. Net income (loss) available to common shareholders represents net income adjusted for preferred stock dividends including dividends declared, accretions of discounts on preferred stock issuances and cumulative dividends related to the current dividend period that have not been declared as of year-end. In addition, for diluted earnings (loss) per common share, net income (loss) available to common shareholders can be affected by the conversion of the registrant’s convertible preferred stock. Where the effect of this conversion would be dilutive, net income (loss) available to common shareholders is adjusted by the associated preferred dividends. This adjusted net income (loss) is divided by the weighted average number of common shares issued and outstanding for each period plus amounts representing the dilutive effect of stock options outstanding, restricted stock, restricted stock units, outstanding warrants, and the dilution resulting from the conversion of the registrant’s convertible preferred stock, if applicable. The effects of convertible preferred stock and outstanding warrants and stock options are excluded from the computation of diluted earnings (loss) per common share in periods in which the effect would be antidilutive. Dilutive potential common shares are calculated using the treasury stock and if-converted methods.
Revenue Recognition
Revenues from operations are generated from a wide variety of sources including snow pass sales, snow sports lessons, equipment rentals, retail product sales, food and beverage operations, and golf course operations. Revenues are recognized as services are provided or products are sold. Sales of season passes are initially deferred in unearned revenue and recognized ratably over the number of days the Company expects they may be used.
Advertising Costs
Advertising costs are expensed at the time such advertising commences. Advertising expense for the years ended April 30, 2018, 2017 and 2016 was
$2,890
,
$2,700
and
$2,784
, respectively.
Taxes Collected from Customers
Taxes collected from customers and remitted to tax authorities are local and state sales taxes on snow pass sales as well as food service and retail transactions at the Company's resorts. Sales taxes collected from customers are recognized as a liability, with such liability being reduced when collected amounts are remitted to the taxing authority.
Income Taxes
Under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”)
,
income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are provided for differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to b
e
resolved or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date
.
Deferred tax assets are recognized to the extent the Company determines these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If it is determined that the future realization of deferred tax assets would be in an amount less than their net recorded amount a valuation allowance would be provided, thereby increasing the provision for income taxes. Conversely, if it is determined that the benefit from realization of such deferred tax assets would exceed their net recorded amount, an adjustment would be made to reduce the valuation allowance thereby reducing the provision for income taxes.
ASC 740 also provides guidance with respect to the accounting for uncertainty in income taxes recognized in a Company’s consolidated financial statements, and it prescribes a recognition threshold and measurement attribute criteria for the consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company does not have any material uncertain tax positions.
With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2013 due to the statute of limitations.
The Company’s policy is to accrue income tax related interest and penalties, if applicable, within income tax expense.
Reclassifications
The accompanying consolidated financial statements for prior years contain certain reclassifications to conform to the presentation used in the current period. Reclassifications had no effect on the reported amounts of net income or stockholders’ equity.
Recently Adopted Accounting Standards
In July 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-11, “Simplifying the Measurement of Inventory,” which requires entities to measure inventory at "the lower of cost and net realizable value," simplifying the current guidance under which entities must measure inventory at the lower of cost or market. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of disposal. The Company adopted this ASU prospectively as of April 30, 2018, and there were no adjustment
s
to the carrying value of the Company’s inventories upon adoption.
In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which requires deferred tax assets and liabilities be classified as noncurrent on a classified balance sheet. The Company adopted this ASU retrospectively as of April 30, 2018. As a result of the adoption of ASU 2015-17, we reclassified
$591
of current deferred tax assets to long-term deferred tax liabilities in our consolidated balance sheet as of April 30, 2017.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a Consensus of the FASB Emerging Issues Task Force),” which clarifies the requirements for the presentation of changes in restricted cash balances on the statement of cash flows. The Company adopted this ASU retrospectively as of April 30, 2018.
Prior to the adoption of ASU 2016-18, the Company presented a reconciliation of cash flows from operating, investing and financing activities to the net change in cash and cash equivalents during each year presented in the consolidated statement of cash flows. As a result of adoption of ASU 2016-18, the Company began to present a reconciliation of cash flows from operating, investing and financing activities to the net change in cash, cash equivalents and restricted cash during each year presented in the consolidated statement of cash flows. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported with the consolidated balance sheets to the total of the same such amounts shown in the consolidated statements of cash flow:
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
2018
|
|
2017
|
|
2016
|
Cash and cash equivalents
|
|
$
|
23,091
|
|
$
|
33,665
|
|
$
|
5,396
|
Restricted cash
|
|
|
1,163
|
|
|
11,113
|
|
|
61,099
|
Restricted cash, construction
|
|
|
12,175
|
|
|
33,700
|
|
|
-
|
Total cash, cash equivalents, and restricted
|
|
|
|
|
|
|
|
|
|
cash, beginning of period
|
|
$
|
36,429
|
|
$
|
78,478
|
|
$
|
66,495
|
In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350),” which simplifies the existing guidance for testing goodwill for impairment. The new standard eliminates the current two-step approach used to test goodwill for impairment and requires an entity to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill. The Company adopted this ASU on a prospective basis as of March 31, 2018, the date of its annual goodwill impairment test for its fiscal year 2018.
Recently Issued Accounting Standards
The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, which provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards. As an emerging growth company, the Company may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize most leases on the balance sheet. This ASU requires modified retrospective adoption and will be applicable for the Company as of April 30, 2020, with early adoption permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements. While the Company expects the pattern of expense for leases it currently classified as operating will be similar between the old and new guidance, it expects adoption of the new standard will result in a significant increase in assets and liabilities for right of use assets and lease obligations, respectively, for leases it currently classifies as operating. As of April 30, 2018, future minimum lease payments under operating leases was approximately
$14,712
.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which was subsequently modified by other ASUs from 2015 through 2017. This ASU, as amended, provides new guidance for the recognition of revenue and provides for a five-step analysis of transactions to determine when and how revenue is recognized. This ASU establishes a core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This ASU may be adopted using either a full or modified retrospective approach and will be applicable for the Company as of April 30, 2020, with early adoption permitted. The Company expects to adopt this ASU using the full retrospective approach and does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which provides new guidance related to accounting for share-based payments.
This ASU requires entities to record the income tax effect of share-based payments when the awards vest or are settled, and clarifies the cash flow statement presentation of excess tax benefits and withholding tax payments. In addition, the ASU allows for a policy election to account for forfeitures either upon occurrence or by estimating forfeitures. This ASU requires prospective adoption and will be applicable for the Company as of April 30, 2019, with early adoption permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
Note 2. Property and Equipment
The composition of property and equipment is as follows:
|
|
|
|
|
|
|
|
|
April 30,
2018
|
|
April 30,
2017
|
Land and improvements
|
|
$
|
54,785
|
|
$
|
35,609
|
Buildings and improvements
|
|
|
75,321
|
|
|
72,622
|
Equipment, furniture and fixtures
|
|
|
175,532
|
|
|
163,191
|
Construction in progress
|
|
|
16,787
|
|
|
22,806
|
|
|
|
322,425
|
|
|
294,228
|
Less: accumulated depreciation and amortization
|
|
|
118,330
|
|
|
106,085
|
|
|
$
|
204,095
|
|
$
|
188,143
|
Depreciation expense for the years ended April 30, 2018, 2017 and 2016, was
$13,174
,
$12,655
and
$10,690
, respectively. As of April 30, 2018 and 2017, equipment under capital leases with a cost of
$7,753
and
$7,668
, respectively
,
and accumulated depreciation of
$1,368
and
$1,084
, respectively, was included in property and equipment.
Note 3. Goodwill and Intangible Assets
Goodwill
As of April 30, 2018, the Company had goodwill of $4,382 related to prior acquisitions.
The Company conducts an assessment of the carrying value of goodwill annually, as of last day of March, or more frequently if circumstances arise which would indicate the fair value of a reporting unit with goodwill is below its carrying amount. As a result of the annual assessment as of March 31, 2018, the Company recorded an impairment loss of $443 of goodwill associated with its Alpine Valley ski resort. The Company used a discounted cash flow approach with Level 2 and Level 3 inputs. As of April 30, 2018, the balance of goodwill relates entirely to the Company’s Hunter Mountain ski resort.
The Company did not record any impairment of goodwill for the years ended April 30, 2017 or 2016.
Changes to the carrying value of goodwill over the three years ended April 30, 2018 are as follows:
|
|
|
|
Balance
|
Balance as of April 30, 2017
|
|
|
Goodwill
|
$
|
5,009
|
Accumulated non-impairment adjustments
|
|
(184)
|
|
|
4,825
|
|
|
|
Goodwill impairment losses
|
|
(443)
|
|
|
|
Balance as of April 30, 2018
|
|
|
Goodwill
|
|
5,009
|
Accumulated non-impairment adjustments
|
|
(184)
|
Accumulated impairment losses
|
|
(443)
|
|
$
|
4,382
|
|
|
|
Intangible Assets
The components of intangible assets subject to amortization are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2018
|
|
|
April 30, 2017
|
|
|
Gross carrying amount
|
|
|
Accumulated amortization
|
|
|
Net book value
|
|
|
Gross carrying amount
|
|
|
Accumulated amortization
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
$
|
768
|
|
$
|
120
|
|
$
|
648
|
|
$
|
768
|
|
$
|
69
|
|
$
|
699
|
Customer relationships
|
|
97
|
|
|
14
|
|
|
83
|
|
|
97
|
|
|
8
|
|
|
89
|
|
$
|
865
|
|
$
|
134
|
|
$
|
731
|
|
$
|
865
|
|
$
|
77
|
|
$
|
788
|
Intangible amortization expense
for the years ended April 30, 2018, 2017 and 2016, was
$57
,
$58
and
$19
, respectively. T
he trade name and customer relationships relate to the Company’s Hunter Mountain resort and are being amortized over a fifteen-year term.
The expected future annual amortization expense for definite-lived intangible assets is
$58
each
year
for
the
next five fiscal years
and
$441
thereafter
.
4.
Long
‑term Debt and Revolving Credit Facilities
The composition of long-term debt at April 30, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
EPR Secured Notes due 2034
|
$
|
93,162
|
|
$
|
93,162
|
EPR Secured Notes due 2036
|
|
21,000
|
|
|
21,000
|
EB-5 Development Notes due 2021
|
|
52,000
|
|
|
51,500
|
Royal Banks of Missouri Note
|
|
-
|
|
|
9,875
|
Wildcat Mountain Note due 2020
|
|
3,231
|
|
|
3,425
|
Capital Leases
|
|
2,426
|
|
|
4,493
|
Other borrowings
|
|
1,184
|
|
|
2,870
|
Less: Unamortized debt issuance costs
|
|
(4,552)
|
|
|
(5,240)
|
|
|
168,451
|
|
|
181,085
|
Less: Current maturities
|
|
(2,614)
|
|
|
(3,592)
|
|
$
|
165,837
|
|
$
|
177,493
|
EPR Secured Notes
The Company has various secured borrowings (the “EPR Secured Notes”) under a master credit and security agreement and other related agreements, as amended, (together, the “EPR Agreement”) with EPR Properties and its affiliates (“EPR”).
Each of the EPR Secured Notes is secured by one or more of the Company’s resort properties and is guaranteed by the Company. The EPR Secured Notes bear interest at specified interest rates which are subject to increase each year by the lesser of i) three times the percentage increase in the Consumer Price Index (as defined) or ii) a capped index (the “Capped CPI Index”) which is
1.75%
for the Hunter Mountain Secured Note and
1.50%
for all other notes.
The Company has determined the Capped CPI Index features represent an embedded derivative; however, this derivative does not require bifurcation and separate presentation at fair value because the Capped CPI Index feature is closely related to the debt instrument.
The following table illustrates the potential future interest rates applicable to the EPR Secured Notes for each of the next five years, assuming rates increase by the Capped CPI Index:
|
|
|
|
|
|
|
|
|
Rates as of April 30,
|
|
Mount Snow Secured Note
|
|
Hunter Mountain Secured Note
|
|
Alpine Valley Secured Note
|
|
Boston Mills/Brandywine and Jack Frost/Big Boulder Secured Notes
|
2018
|
|
11.43%
|
|
8.28%
|
|
10.88%
|
|
10.43%
|
2019
|
|
11.60%
|
|
8.42%
|
|
11.04%
|
|
10.59%
|
2020
|
|
11.78%
|
|
8.57%
|
|
11.21%
|
|
10.75%
|
2021
|
|
11.95%
|
|
8.72%
|
|
11.38%
|
|
10.91%
|
2022
|
|
12.13%
|
|
8.87%
|
|
11.55%
|
|
11.07%
|
2023
|
|
12.31%
|
|
9.03%
|
|
11.72%
|
|
11.24%
|
Financial covenants set forth in the EPR Agreement consist of i) a maximum leverage ratio (as defined) of
65%
, above which the Company and certain of its subsidiaries are prohibited from incurring additional indebtedness, ii) a consolidated fixed charge coverage ratio (as defined) of
1.50
:1.00 on a rolling four quarter basis, and iii) a prohibition of the Company paying dividends if the Company is in default (as defined) or if the fixed charge coverage ratio (as defined) is below
1.25
:1.00. During the first two quarters of fiscal year 2017, the Company’s fixed charge coverage ratio fell below 1.25:1.00 and, as a result, the Company was prohibited from paying dividends. As of April 30, 2018, the Company was in compliance with all debt covenants.
Non-financial covenants set forth in the EPR Agreement include i) restrictions on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence of certain additional debt and liens and ii) a requirement that the Company obtain the consent of EPR prior to redeeming any preferred or common stock.
The EPR Agreement also provides that none of the EPR Secured Notes may be prepaid without the consent of EPR and that any default under any of the EPR Secured Notes, lease agreements between the Company and EPR, or credit facilities with other lenders would constitute a default under all EPR Secured Notes and lease agreements. A change in control (as defined) would also constitute an event of default.
An additional contingent interest payment would be due to EPR if, on a calendar year basis, the gross receipts (as defined) from the properties securing the EPR Secured Notes (the “Gross Receipts”) are more than the result (the “Interest Quotient”) of divid
i
ng the total interest charges for the EPR Secured Notes by a certain percentage rate (the “Additional Interest Rate”). In such a case, the additional interest payment would equal the difference between the Gross Receipts and the Interest Quotient multiplied by the Additional Interest Rate. This calculation is made on an aggregated basis for the notes secured by the Company’s Jack Frost, Big Boulder, Boston Mills, Brandywine, Alpine Valley and Hunter Mountain ski resorts, where the Additional Interest Rate is
10%
, and is made on a standalone basis for the note secured by the Company’s Mount Snow ski resort, where the Additional Interest Rate is
12%
. The Company has not made any additional interest payments on the EPR Secured Notes based on these provisions.
The EPR Agreement grants EPR certain other rights including i) an option to purchase the Company’s
Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley resorts exercisable on the maturity dates of the applicable promissory notes for such properties,, ii) a right of first refusal through 2021, subject to certain conditions, to provide all or a portion of the financing associated with any purchase, ground lease, sale/leaseback, management or financing transaction contemplated by the Company with respect to any new or existing ski resort properties, and iii) a right of first refusal through 2021 to purchase the Company’s Attitash ski resort in the event the Company were to desire to sell the Attitash ski resort
.
To date, EPR has not exercised any purchase options. If EPR exercises a purchase option, EPR will enter into an agreement with the Company for the lease of each acquired property for an initial term of
20
years, plus options to extend the lease for
two
additional periods of
ten
years each.
Under the terms of the various borrowing agreements the Company has with EPR, it is required to, at EPR’s discretion, either prepay a certain amount of interest payments to EPR or deposit the equivalent amount of cash in a restricted account to fund interest payments to EPR. As of April 30, 2018, the Company had prepaid interest to EPR of
$8,905
which is included in the caption prepaid expenses and deposits. As of April 30, 2017, the Company had no prepaid interest to EPR, although it had
$8,775
of restricted cash to fund interest payments to EPR.
The EPR Secured Notes include the following:
The Alpine Valley Secured Note
The
$4,550
Alpine Valley Secured Note provides for interest only payments through its maturity on
December 1, 2034
. As of April 30, 2018, interest on this note accrued at a rate of
10.88%
. This note is secured by a mortgage and other interests in the Company’s Alpine Valley ski resort.
The Boston Mills/Brandywine Secured Note
The
$23,294
Boston Mills/Brandywine Secured Note provides for interest only payments through its maturity on
December 1, 2034
. As of April 30, 2018, interest on this note accrued at a rate of
10.43%
. This note is secured by a mortgage and other interests in the Company’s Boston Mills and Brandywine ski resorts.
The Jack Frost/Big Boulder Secured Note
The
$14,268
Jack Frost/Big Boulder Secured Note provides for interest only payments through its maturity on
December 1, 2034
. As of April 30, 2018, interest on this note accrued at a rate of
10.43%
. This note is secured by a mortgage and other interests in the Company’s Jack Frost and Big Boulder ski resorts.
The Mount Snow Secured Note
The
$51,050
Mount Snow Secured Note provides for interest only payments through its maturity on
December 1, 2034
. As of April 30, 2018, interest on this note accrued at a rate of
11.43%
. This note is secured by a mortgage and other interests in the Company’s Mount Snow ski resort.
The Hunter Mountain Secured Note
The
$21,000
Hunter Mountain Secured Note provides for interest only payments through its maturity on
January 5, 2036
. As of April 30, 2018, interest on this note accrued at a rate of
8.28%
. This note is secured by a mortgage and other interests in the Company’s Hunter Mountain ski resort.
EB-5 Development Notes
The Company serves as the general partner for two limited partnerships,
Carinthia Group 1, LP and Carinthia Group 2, LP (together, the “Limited Partnerships”), which were formed to raise
$52,000
through the Immigrant Investor Program administered by the U.S. Citizenship and Immigration Services (“USCIS”) pursuant to the Immigration and Nationality Act (the “EB-5 Program”). The EB-5 Program was created to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors. The program allocates immigrant visas to qualified individuals (“EB-5 Investors”) seeking lawful permanent resident status based on their investment in a U.S. commercial enterprise.
On December 27, 2016, the Company borrowed
$52,000
from the Limited Partnerships to fund two capital projects at its Mount Snow ski resort.
The development projects include i) the West Lake Water Project, which was completed during fiscal 2018 and included the construction of a new water storage reservoir for snowmaking, and ii) the Carinthia Ski Lodge Project, which, as of April 30, 2018, is in progress and includes the construction of a new skier service building. The amounts were borrowed through two loan agreements, which provided
$30,000
for the West Lake Water Project and
$22,000
for the Carinthia Ski Lodge project (together, the “EB-5 Development Notes”).
Amounts outstanding under the EB-5 Development Notes accrue simple interest at a fixed rate of
1.0%
per annum until the maturity date, which is
December 27, 2021
, subject to extension of up to an additional two years at the option of the borrowers with lender consent. If the maturity date is extended, amounts outstanding under the EB-5 Development Notes will accrue simple interest at a fixed rate of
7.0%
per annum during the first year of extension and a fixed rate of
10.0%
per annum during the second year of extension.
Upon an event of default (as defined), amounts outstanding under the EB-5 Development Notes shall bear interest at the rate of
5.0%
per annum, subject to the extension increases. For so long as amounts under the EB-5 Development Notes are outstanding, the Company is restricted from taking certain actions without the consent of the lenders, including, but not limited to transferring or disposing of the properties or assets financed with the loan proceeds. In addition, the Company is prohibited from prepaying outstanding amounts owed if such prepayment would jeopardize any of the EB-5 Investors from being admitted to the U.S. via the EB-5 Program.
The Company
has evaluated the
facts and circumstances surrounding the Limited
Partnership
s
a
nd determined the
Limited
Partnership do not require consolidation in the Company’s financial statements as the Company does not have a variable interest in the Limited Partnerships
under either the variable interest model or the voting interest model,
as substantive participation rights give the limited partners the ability to effectively participate in significant decisions that would be expected to be made in the ordinary course of the
L
imited
P
artnerships
’
business and thereby preclude the Company as general partner from exercising unilateral control over the partnerships.
Wildcat Mountain Note
The Wildcat Mountain Note due
December 22, 2020
bears interest at a fixed rate of
4.00%
and is secured by a security interest in the improvements at the Company’s Wildcat Mountain ski resort. The loan is payable in monthly principal and interest payments of
$27
with a balloon payment of
$2,675
due upon maturity.
The schedule of principal payments for long-term debt at April 30, 2018, is as follows:
|
|
|
|
Year Ended April 30,
|
|
|
|
2019
|
|
$
|
2,614
|
2020
|
|
|
1,104
|
2021
|
|
|
2,887
|
2022
|
|
|
52,214
|
2023
|
|
|
13
|
Thereafter
|
|
|
114,171
|
|
|
$
|
173,003
|
Amortization of deferred financing costs for the years ended April 30, 2018, 2017 and 2016 was
$1,0
84
,
$1,133
and
$291
, respectively. Amortization of deferred financing costs a
r
e estimated to be
$1,063
,
$982
,
$982
,
$618
,
$73
and
$82
for the years ended April 30, 2019, 2020, 2021, 2022, 2023 and thereafter, respectively.
Royal Banks of Missouri Credit Facilities
On October 27, 2017, the Company renewed and increased its existing credit facility with Royal Banks of Missouri (the “2017 Royal Banks Credit Facility”). The 2017 Royal Banks Credit Facility provides for a
$10,000
working capital line of credit to be used for general business purposes and a
$15,000
acquisition line of credit to be used i) to pay off
$12,415
of principal and accrued interest outstanding under the previous credit agreement with Royal Banks of Missouri (the “Original Credit Facility”) and ii) for the acquisition of additional ski resort properties. On October 27, 2017, the Company used the borrowing capacity available under the acquisition line of credit to pay off the amount outstanding under the Original Credit Facility, including amounts outstanding under term loan described in the table above as Royal Banks of Missouri Debt.
As of
April 30, 2018
,
$12,415
was outstanding under the acquisition line of credit and nothing was outstanding under the working capital line of credit.
$10,000
and
$2,585
was unused and available under the working capital line of credit and acquisition line of credit, respectively.
The term of the 2017 Royal Banks Credit Facility is
14
months with loans payable in monthly interest only installments charged at the bank’s prime rate plus
1.00%
per annum, with any outstanding principal amounts due in
December 2018
. As of April 30, 2018, the Company had
$508
in restricted cash to fund a debt service account for the estimated interest payments due through the end of calendar 2018 in connection with outstanding loans under the 2017 Royal Banks Credit Facility. The Company is required to maintain a minimum debt service coverage ratio (as defined in the credit agreement) of
1.25
:1.00. In addition, were the Company’s fixed charge coverage ratio (as defined in the credit agreement) to fall below
1.50
:1.00, the Company would be required to prefund certain other debt service payments, and should the ratio fall below
1.25
:1.00, the Company would be prohibited from paying dividends. The 2017 Royal Banks Credit Facility is secured by the assets of the Company’s subsidiaries which operate its Hidden Valley, Paoli Peaks, Snow Creek, Crotched Mountain and Attitash resorts.
5.
Series A Preferred Stock
On August 22, 2016, the Company entered into a private placement (the “Private Placement”) securities purchase agreement (the “Securities Purchase Agreement”) with CAP 1 LLC and affiliates (the “Investor”) in connection with the sale and issuance of
$20,000
in Series A Cumulative Convertible Preferred Stock, par value
$0.01
per share (the “Series A Preferred Stock”), and
three
warrants (the “Warrants”) to purchase shares of the Company’s common stock, as follows: (i)
1,538,462
shares of Common Stock at
$6.50
per share; (ii)
625,000
shares of Common Stock at
$8.00
per share; and (iii)
555,556
shares of Common Stock at
$9.00
per share.
The Company completed the Private Placement on November 2, 2016.
The Securities Purchase Agreement also grants to the Company the right to require the Investor to purchase an additional
20,000
shares of Series A Preferred Stock for
$1,000
per share, along with additional warrants, all on the same terms and conditions as the Private Placement under certain conditions, including that the average closing price of the Company’s common stock for the ten trading days prior to the transaction is not less than the average closing price of the Company’s common stock for the ten trading days prior to the execution of the Securities Purchase Agreement (
$4.79
). The Company’s right to require the additional purchase expires on August 22, 2018.
The rights and preferences of the Series A Preferred Stock include, among other things, the following:
Seniority
.
The Series A Preferred Stock shall generally rank, with respect to liquidation, dividends and redemption, i) senior to common stock and to any other junior capital stock; ii) on parity with any parity capital stock; iii) junior to any senior capital stock; and iv) junior to all of the Company’s existing and future indebtedness (as defined).
Until the earlier of the date that no Series A Stock remains outstanding and January 1, 2027, the Company is prohibited from paying cash dividends on common stock if there are accrued and unpaid dividends with respect to the Series A Preferred Stock.
Dividend Rights
.
From and after the date that is nine months from the date of issuance, cumulative dividends accrue on the Series A Preferred Stock on a daily basis in arrears at the rate of
8%
per annum on the liquidation value of
$1,000
per share. All accrued and accumulated dividends on the Series A Preferred Stock shall be paid prior and in preference to any dividend or distribution on or redemption of any junior securities, provided that the Company may, prior to the payment of all accrued and accumulated dividends on the Series A Preferred Stock, (i) declare or pay any dividend or distribution payable on the common stock in shares of common stock; or (ii) repurchase common stock held by employees or consultants of the Company upon termination of their employment or services pursuant to agreements providing for such repurchase. The Company may also redeem or repurchase junior securities at any time when there are no accrued or accumulated unpaid dividends on the Series A Preferred Stock.
Liquidation
.
In the event of any liquidation (as defined), dissolution or winding up of the Company, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment shall be made to the holders of junior securities, and subject to the rights of any parity or senior securities, an amount in cash equal to
$1,000
per share plus all unpaid accrued and accumulated dividends.
Redemption
.
The Series A Preferred Stock is subject to redemption at the option of the Company at a price of
$1,250
per share, plus all unpaid accrued and accumulated dividends, at any time on or after the third anniversary of the issuance of the Series A Preferred Stock that the average closing price of the Company’s common stock on the 30 trading days preceding notice of the exercise of the redemption right is greater than
$8.18
.
Voting Rights
.
Each holder of Series A Preferred Stock shall be entitled to vote, on an as-converted basis, with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company.
Warrants
.
Each of the Warrants may be exercised in whole or in part at any time for a period of
12
years from the date of issuance. The following table shows
W
arrant activity for the years ending April 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
Warrants
|
|
Weighted Average Exercise Price
|
|
Warrants
|
|
Weighted Average Exercise Price
|
Outstanding - beginning of the year
|
|
2,719,018
|
|
$
|
7.36
|
|
-
|
|
$
|
-
|
Warrants granted
|
|
-
|
|
|
-
|
|
2,719,018
|
|
$
|
7.36
|
Outstanding - end of period
|
|
2,719,018
|
|
$
|
7.36
|
|
2,719,018
|
|
$
|
7.36
|
Registration Rights
.
In connection with the closing of the Private Placement, on November 2, 2016, the Company entered into a Registration Rights Agreement with the Investor that grants certain registration rights with respect to the exercise of the Warrants.
Stockholders’ Agreement
.
On November 2, 2016, in connection with the closing of the Private Placement, the Company entered into the Stockholders’ Agreement (the “Stockholders’ Agreement”) which, among other provisions, i) provides the Investor a right to nominate a director to sit on the Company’s board of directors so long as the Investor beneficially owns, on a fully diluted, as-converted basis, at least
20%
of the outstanding equity securities of the Company, ii) restricts transfers of the Company’s securities by the Investor and certain management shareholders (the “Management Stockholders”), iii) provides the Investor with a right of first offer to purchase shares of the Company’s common stock from the
M
anagement Stockholders, iv) grants the Investor preemptive rights with respect to future issuances of securities,
and
v) requires the Investor
’
s approval, so long as it meets certain ownership requirements (as defined), in order for the Company to a) materially change the nature of its business or b) acquire or dispose of any resorts, assets or properties for aggregate consideration equal to or greater than
30%
of the enterprise value (as defined) of the Company and its subsidiaries.
6.
Restructuring and Impairment
During the year ended April 30, 2018, the Company incurred restructuring and impairment charges of
$1,691
in connection with its decision to cease operation of a restaurant and certain hotel-like amenities at a condominium building adjacent to its Attitash ski resort (the “Attitash Hotel Closure”). In connection with the Company’s 2007 acquisition of its Attitash ski resort, the Company acquired property and equipment constituting the commercial core of a condominium building located adjacent to the resort. Since this acquisition, the Company i) provided management services to the condominium’s owners association under a management services agreement (the “Management Services Agreement”), ii) sponsored a rental management program whereby unoccupied condominium units were rented as hotel rooms, and iii) operated restaurant and other hotel-type amenities. In December 2017, the Company determined it would not be able to renew the Management Services Agreement upon its expiration on April 30, 2018 and, as a result, decided to terminate the rental management program and cease operation of the hotel-type amenities as of that date. The charges included
$1,586
of asset impairment charges,
$36
of severance expense and
$70
of other costs. As of April 30, 2018, no amounts were accrued for costs associated with the Attitash Hotel Closure, and the Company expects it may incur future additional charges in the range of
$100
to
$400
related to the maintenance of the condominium building’s commercial core until such time as it can be disposed of.
7.
Equity Incentive Plan
The Company’s 2014 Equity incentive Plan, (the “2014 Plan”) was adopted in November 2014, and provides for grants of restricted stock units (“RSUs”), stock options, restricted stock awards, performance share units and other stock-based awards to the Company’s employees and directors. Subject to additions and adjustments,
559,296
shares are authorized for granting under the 2014 Plan. At April 30, 2018,
403,630
shares were available for future grants.
The 2014 Plan provides the Company’s board of directors the discretion to grant awards in any form and with any terms permitted by the 2014 Plan. All awards granted since the inception of the 2014 Plan were in the form of RSUs with vesting on the first anniversary of the grant date.
Stock Compensation Expense
The Company recognizes expense associated with stock-based awards ratably over the requisite service period based on the grant date fair value of the award. For RSUs, the grant date fair value is the closing price of the Company’s common stock on the date the grant is made. Stock compensation expense of
$223
,
$198
and
$190
was recorded in general and administrative expenses in the consolidated statements of operations for the years ended April 30, 2018, 2017 and 2016, respectively associated with this plan. As of April 30, 2018, unrecognized compensation expense related to grants of
RSUs
was
$
8
4
and will be recognized over a period of approximately six months.
Restricted Stock Units
RSUs are generally convertible to shares of the Company’s common stock upon vesting; however, for all of the RSUs granted since the inception of the 2014 Plan, the RSUs are not convertible until six months after the grantee leaves employment with the Company or ceases to be a member of the Company’s board of directors. Outstanding RSUs accrue dividends in the form of additional RSUs based on the market price of the Company’s common stock on the date cash dividends are paid to the Company’s common stockholders.
The following table summarizes RSU activity for the years ended April 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
Weighted Average Grant Date Per Share Fair Value
|
|
|
|
Weighted Average Grant Date Per Share Fair Value
|
|
|
|
Weighted Average Grant Date Per Share Fair Value
|
Nonvested, beginning of year
|
47,800
|
|
$
|
4.76
|
|
63,741
|
|
$
|
5.90
|
|
-
|
|
$
|
-
|
Granted
|
49,459
|
|
|
4.40
|
|
47,800
|
|
|
4.76
|
|
63,741
|
|
|
5.90
|
Vested
|
(47,800)
|
|
|
4.76
|
|
(58,407)
|
|
|
5.89
|
|
-
|
|
|
-
|
Forfeited
|
-
|
|
|
-
|
|
(5,334)
|
|
|
6.01
|
|
-
|
|
|
-
|
Nonvested, end of year
|
49,459
|
|
$
|
4.40
|
|
47,800
|
|
$
|
4.76
|
|
63,741
|
|
$
|
5.90
|
Vested and outstanding, end of year
|
106,207
|
|
$
|
4.58
|
|
58,407
|
|
$
|
5.89
|
|
-
|
|
$
|
-
|
RSUs outstanding as of April 30, 2018, had an aggregate intrinsic value of
$
724
. As of the vesting date, the total fair value of RSUs which vested during fiscal 2018 was
$239
.
8.
Income Taxes
The Company’s income tax provision for the years ended April 30, 2018, 2017 and 2016, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
52
|
|
$
|
59
|
|
$
|
-
|
State taxes based on income
|
|
|
60
|
|
|
27
|
|
|
-
|
|
|
|
112
|
|
|
86
|
|
|
-
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(4,565)
|
|
|
589
|
|
|
(1,753)
|
State
|
|
|
141
|
|
|
(22)
|
|
|
(325)
|
Valuation allowance
|
|
|
350
|
|
|
-
|
|
|
-
|
|
|
|
(4,074)
|
|
|
567
|
|
|
(2,078)
|
|
|
|
(3,962)
|
|
|
653
|
|
|
(2,078)
|
Income tax related purchase accounting adjustments
|
|
|
-
|
|
|
96
|
|
|
-
|
|
|
$
|
(3,962)
|
|
$
|
749
|
|
$
|
(2,078)
|
The tax effects of significant temporary differences representing deferred tax assets and liabilities at April 30, 2018 and 2017, are as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
Deferred tax assets:
|
|
|
|
|
|
|
Deferred gain on sale/leaseback
|
|
$
|
598
|
|
$
|
1,081
|
Accrued compensation
|
|
|
226
|
|
|
341
|
Unearned revenue
|
|
|
637
|
|
|
916
|
Net operating loss carryforwards
|
|
|
7,028
|
|
|
10,425
|
|
|
|
8,489
|
|
|
12,763
|
Valuation allowance
|
|
|
(350)
|
|
|
-
|
|
|
|
8,139
|
|
|
12,763
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Property and equipment
|
|
|
(15,948)
|
|
|
(24,646)
|
|
|
|
(15,948)
|
|
|
(24,646)
|
|
|
$
|
(7,809)
|
|
$
|
(11,883)
|
The Company assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Significant pieces of objective negative evidence evaluated included i) the shorter net operating loss carryforward period associated with a certain state in which the Company operates and ii) the amounts of taxable income apportioned to that taxing jurisdiction over the three-year period ended April 30, 2018. Such objective evidence limits the Company’s ability to consider other subjective evidence, such as projections for future growth.
Based on its evaluation, the Company concluded it is more likely than not that the benefit of net operating loss carryforwards associated with that state will not be fully realized. In recognition of that risk the Company established a valuation allowance of $350 as of April 30, 2018, to reduce the carrying value of deferred tax assets related to those state net operating loss carryforwards. The amount of the deferred tax assets considered realizable, however, could be adjusted in the future if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence is no longer present, thus allowing additional weight to be given to subjective evidence such as the Company’s projections for growth.
In connection with the Company’s initial public offering in November 2014, a change of ownership in the Company occurred pursuant to the provisions of the Tax Reform Act of 1986. As a result, the Company’s usage of its net operating loss
carryforwards will be limited each year; however, management believes the full benefit of those carryforwards will be realized prior to their respective expiration dates.
Federal l
oss carryforwards for tax purposes as of April 30, 2018, have the following expiration dates:
|
|
|
|
|
|
|
Expiration date
|
|
|
|
|
|
Amount
|
2031
|
|
|
|
|
$
|
6,883
|
2032
|
|
|
|
|
|
3,811
|
2033
|
|
|
|
|
|
2,492
|
2034
|
|
|
|
|
|
7,541
|
2035
|
|
|
|
|
|
5,863
|
|
|
|
|
|
$
|
26,590
|
A reconciliation between the income tax provision computed at the federal statutory income tax rate and the effective tax rate, for the years ended April 30, 2018, 2017 and 2016, is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
Computed tax at statutory rates
|
|
$
|
(774)
|
|
$
|
677
|
|
$
|
(1,804)
|
Permanent items
|
|
|
162
|
|
|
35
|
|
|
38
|
State taxes, net of federal benefit
|
|
|
(51)
|
|
|
2
|
|
|
(325)
|
Change in federal statutory rate
|
|
|
(3,611)
|
|
|
-
|
|
|
-
|
Valuation allowance for deferred tax assets
|
|
|
350
|
|
|
-
|
|
|
-
|
Other
|
|
|
(38)
|
|
|
35
|
|
|
13
|
Income tax expense (benefit)
|
|
$
|
(3,962)
|
|
$
|
749
|
|
$
|
(2,078)
|
On December 22, 2017, the United States government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”). The 2017 Tax Act made broad changes to the federal tax code which impacts the Company. The 2017 Tax Act included provisions that, among other things, provides for i) the reduction of the federal corporate tax rate, ii) the elimination of the corporate alternative minimum tax, iii) a new limitation on the deductibility of interest expense, iv) changes in the treatment of net operating losses after December 31, 2017, and v) bonus depreciation that allows for full expensing of qualified property.
The 2018 change in federal statutory rate as appearing in the table above, consists of two components related to the 2017 Tax Act. First, the Company recognized a discrete benefit at the enactment date of the 2017 Tax Act of
$124
based on remeasurement of net deferred tax liabilities at that date utilizing the reduced corporate
tax
rate of
21%
implemented by t
he 2017 Tax Act.
In addition, the reconciliation from the federal tax rate above applies a blended rate based on a
34%
corporate tax
rate for the first eight months of
fiscal 2018
and a
21%
corporate tax
rate for the last four months of
fiscal 2018
. However, as the Company is a calendar year taxpayer and its business is seasonal, cumulative losses result during the first eight months of the fiscal year that are partially offset by income in the four month period ending April 30, 2018. Consequently, the actual tax rates applicable to the Company’s full year pretax loss are substantially
different t
han the blended rate, resulting in an additional beneficial impact of approximately
$3,487
.
The Company accounts for unrecognized tax benefits also in accordance with ASC 740, which prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution to any related appeals or litigation, based solely on the technical merits of the position.
9.
The Hunter Mountain Acquisition
On January 6, 2016, the Company acquired Hunter Mountain ski resort in an all cash purchase transaction pursuant to which Hunter Mountain ski resort became a wholly owned subsidiary of the Company
.
Pro Forma Information (unaudited)
The accompanying consolidated financial statements include Hunter Mountain’s results of operations from the date of acquisition. The following unaudited pro forma information presents the combined results of operations of the Company for the year ended April 30, 2016, as if the Hunter Mountain
a
cquisition had been completed on May 1, 201
5
, the beginning of the Company's 2016 fiscal year.
The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings which may result from the consolidation of the operations of the companies. Accordingly, these unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined company that would have been achieved had the acquisition occurred at the beginning of the period presented, nor are they intended to represent or be indicative of future results of operations.
The following table summarizes the unaudited pro forma results of operations:
|
|
|
|
|
Year ended
April 30, 2016
|
Net revenues
|
$
|
102,860
|
Net loss
|
$
|
(9,776)
|
N
10.
Sale/Leaseback
In November 2005,
the Company sold its Mad River Mountain ski resort and simultaneously leased the property back for a period of 21 years
. The resulting gain on the sale was deferred and is being ratably recognized in income over the term of the lease.
11.
Employee Benefit Plan
The Company maintains a tax-deferred savings plan for all eligible employees. Employees become eligible to participate after attaining the age of
21
and completing
one
year of service. Employee contributions to the plan are tax-deferred under Section 401(k) of the Internal Revenue Code of 1986, as amended. Company matching contributions are made at the discretion of the board of directors.
No
contributions were made in fiscal years 2018, 2017, and 2016.
12.
Concentrations of Credit Risk and Fair Value Measures
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company’s cash, cash equivalents and restricted cash are on deposit with financial institutions where such balances will, at times, be in excess of federally insured limits. The Company has not experienced any losses associated with such deposits.
Fair Value of Measurements
The Company measures the fair value of assets and liabilities using a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1 - observable inputs such as quoted prices in active markets; Level 2 - inputs, other than quoted market prices in active markets, which are observable, either directly or indirectly; and Level 3 - valuations derived from valuation techniques in which one or more significant inputs are unobservable. In addition, the Company may use various valuation techniques, including the market approach, using comparable market prices; the income approach, using present value of future income or cash flow; and the cost approach, using the replacement cost of assets.
The Company’s financial instruments consist of cash equivalents, restricted cash,
accounts receivable
, accounts payable, accrued liabilities,
long-term debt and preferred stock. For cash equivalents, restricted cash
,
accounts receivable,
accounts payable and accrued liabilities,
the carrying amounts approximate fair market value
due to their short-term nature
. The estimated fair values of the Company’s debt instruments and preferred stock as of April 30, 2018, is as follows:
|
|
|
|
|
|
|
|
April 30, 2018
|
|
Fair Value
|
|
Carrying Amount
|
|
Balance Sheet Classification
|
EPR Secured Notes due 2034
|
$
|
90,771
|
|
$
|
93,162
|
|
Long-term debt, less current maturities
|
EPR Secured Notes due 2036
|
|
15,866
|
|
|
21,000
|
|
Long-term debt, less current maturities
|
EB-5 Development Notes due 2021
|
|
45,752
|
|
|
52,000
|
|
Long-term debt, less current maturities
|
Wildcat Mountain Note due 2020
|
|
3,242
|
|
|
3,231
|
|
Long-term debt, including current maturities
|
Capital leases and other borrowings
|
|
3,610
|
|
|
3,610
|
|
Long-term debt, less current maturities
|
Series A Preferred Stock
|
|
19,522
|
|
|
17,401
|
|
Series A preferred stock
|
The Company
estimated
the fair value of the EPR Secured Notes, EB-5 Development
N
o
tes
and Wildcat Mountain Note using
a discounted cash flow approach and
Level 2 inputs
, including
market borrowing yields for instruments of similar maturities. The Company estimated the fair value of the Series A Preferred Stock
and related warrants and other features
using Level 2 inputs
, including market yields for similar instruments
. The Company estimated the fair value of capital leases and other borrowings to approximate their carrying value.
13.
Commitments and Contingencies
Loss contingencies
The Company is periodically involved in various claims and legal proceedings, many of which occur in the normal course of business. Management routinely assesses the likelihood of adverse judgments or outcomes, including consideration of its insurance coverage and, i
n the opinion of the Company’s management, the ultimate liabilities resulting from such claims and proceedings will not have a material adverse effect on its business, financial condition, results of operations or cash flows.
Leases
The Company leases certain land, land improvements, buildings and equipment under noncancelable operating leases. Certain of the leases contain escalation provisions based generally on changes in the consumer price index with maximum annual percentage increases capped at rates between
1.5%
to
4.5%
. Additionally, certain leases contain contingent rental provisions which are based on revenue. The Company paid no significant contingent rentals in the periods presented.
Rent expense under operating leases for the years ended April 30, 2018, 2017 and 2016, was
$
2,
548
,
$1,669
and
$1,732
, respectively.
Restricted cash
The provisions of certain of the Company’s debt instruments require that the Company make and maintain deposits
with third party financial instit
ut
ions
, to be held in escrow for the benefit of the lender, in an amount equal to the estimated minimum interest payment for the upcoming fiscal year. When funded, these amounts are included in restricted cash on the consolidated balance sheets.
Future minimum lease payments under capital leases and operating leases that have initial or remaining non-cancelable lease terms in excess of one year at April 30, 2018, are as follows:
|
|
|
|
|
|
|
|
|
Capital
|
|
Operating
|
|
|
Leases
|
|
Leases
|
2019
|
|
$
|
1,797
|
|
$
|
2,451
|
2020
|
|
|
924
|
|
|
2,283
|
2021
|
|
|
4
|
|
|
2,112
|
2022
|
|
|
-
|
|
|
1,547
|
2023
|
|
|
-
|
|
|
1,543
|
Thereafter
|
|
|
-
|
|
|
5,606
|
|
|
|
2,725
|
|
$
|
15,542
|
Less: amount representing interest
|
|
|
299
|
|
|
|
|
|
|
2,426
|
|
|
|
Less: current portion
|
|
|
1,660
|
|
|
|
Long-term portion
|
|
$
|
766
|
|
|
|
14.
Earnings (Loss) Per Share
The computation of basic and diluted earnings (loss) per share for the years ended April 30, 2018, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Net (loss) income available to common shareholders
|
$
|
(248)
|
|
$
|
441
|
|
$
|
(3,226)
|
Weighted number of shares:
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
13,982,400
|
|
|
13,982,400
|
|
|
13,982,400
|
Weighted average vested restricted stock units
|
|
78,339
|
|
|
35,238
|
|
|
12,893
|
|
|
14,060,739
|
|
|
14,017,638
|
|
|
13,995,293
|
Basic (loss) earnings per share
|
$
|
(0.02)
|
|
$
|
0.03
|
|
$
|
(0.23)
|
|
|
|
|
|
|
|
|
|
Dilutive effect of unvested restricted stock units
|
|
-
|
|
|
23,654
|
|
|
-
|
|
|
14,060,739
|
|
|
14,041,292
|
|
|
13,995,293
|
Diluted (loss) earnings per share
|
$
|
(0.02)
|
|
$
|
0.03
|
|
$
|
(0.23)
|
The Company accounts for its Series A Preferred Stock as temporary equity. As a result, the weighted average number of shares associated with the conversion of the Series A Preferred Stock are included in the calculation of diluted earnings (loss) per share if the effect is not antidilutive, regardless of whether the Company's stock price as of the measurement date is lower than the conversion prices associated with Series A Preferred Stock. The effect of i)
44,187
,
19,515
and
0
unvested
RSUs
as of April 30, 2018, 2017 and 2016, respectively, and ii) the conversion of Series A Preferred Stock have been excluded for the calculation of diluted loss per share for the years ended April 30, 2018 and 2016, because the impact of those items would be antidilutive.
15.
Selected Quarterly Financial Data (unaudited)
Selected quarterly financial data for the years ended April 30, 2018, 2017 and 2016 is as follows (in thousands, except for per share data):
2018
|
|
Quarter
|
|
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
Year
|
Net revenue
|
$
|
7,520
|
|
$
|
8,838
|
|
$
|
59,272
|
|
$
|
56,032
|
|
$
|
131,662
|
Resort operating expenses
|
|
13,539
|
|
|
15,121
|
|
|
35,982
|
|
|
31,951
|
|
|
96,593
|
Depreciation and amortization
|
|
3,145
|
|
|
3,154
|
|
|
3,379
|
|
|
3,553
|
|
|
13,231
|
General and administrative expenses
|
|
1,248
|
|
|
1,529
|
|
|
1,353
|
|
|
1,667
|
|
|
5,797
|
Restructuring and impairment charges
|
|
-
|
|
|
-
|
|
|
1,586
|
|
|
549
|
|
|
2,135
|
Other operating expenses
|
|
1,037
|
|
|
810
|
|
|
941
|
|
|
899
|
|
|
3,687
|
(Loss) income from operations
|
$
|
(11,449)
|
|
$
|
(11,776)
|
|
$
|
16,031
|
|
$
|
17,413
|
|
$
|
10,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(8,595)
|
|
$
|
(8,914)
|
|
$
|
9,181
|
|
$
|
9,680
|
|
$
|
1,352
|
Declaration and accretion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Stock dividends
|
|
(400)
|
|
|
(400)
|
|
|
(400)
|
|
|
(400)
|
|
|
(1,600)
|
Net income (loss) attributable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to common shareholders
|
$
|
(8,995)
|
|
$
|
(9,314)
|
|
$
|
8,781
|
|
$
|
9,280
|
|
$
|
(248)
|
Basic (loss) earnings per share
|
$
|
(0.64)
|
|
$
|
(0.66)
|
|
$
|
0.62
|
|
$
|
0.66
|
|
$
|
(0.02)
|
Diluted (loss) earnings per share
|
$
|
(0.64)
|
|
$
|
(0.66)
|
|
$
|
0.53
|
|
$
|
0.56
|
|
$
|
(0.02)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
Quarter
|
|
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
Year
|
Net revenue
|
$
|
7,126
|
|
$
|
8,475
|
|
$
|
56,385
|
|
$
|
51,263
|
|
$
|
123,249
|
Resort operating expenses
|
|
11,764
|
|
|
13,015
|
|
|
33,669
|
|
|
28,871
|
|
|
87,319
|
Depreciation and amortization
|
|
3,217
|
|
|
3,216
|
|
|
3,209
|
|
|
3,071
|
|
|
12,713
|
General and administrative expenses
|
|
1,372
|
|
|
1,517
|
|
|
1,793
|
|
|
749
|
|
|
5,431
|
Other operating expenses
|
|
890
|
|
|
863
|
|
|
999
|
|
|
965
|
|
|
3,717
|
(Loss) income from operations
|
$
|
(10,117)
|
|
$
|
(10,136)
|
|
$
|
16,715
|
|
$
|
17,607
|
|
$
|
14,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(7,904)
|
|
$
|
(7,982)
|
|
$
|
8,165
|
|
$
|
8,962
|
|
$
|
1,241
|
Declaration and accretion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Stock dividends
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(800)
|
|
|
(800)
|
Net income (loss) attributable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to common shareholders
|
$
|
(7,904)
|
|
$
|
(7,982)
|
|
$
|
8,165
|
|
$
|
8,162
|
|
$
|
441
|
Basic (loss) earnings per share
|
$
|
(0.56)
|
|
$
|
(0.57)
|
|
$
|
0.58
|
|
$
|
0.58
|
|
$
|
0.03
|
Diluted (loss) earnings per share
|
$
|
(0.56)
|
|
$
|
(0.57)
|
|
$
|
0.47
|
|
$
|
0.52
|
|
$
|
0.03
|
|
|
|
|
2016
|
|
Quarter
|
|
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
Year
|
Net revenue
|
$
|
5,432
|
|
$
|
6,155
|
|
$
|
38,667
|
|
$
|
45,475
|
|
$
|
95,729
|
Resort operating expenses
|
|
10,207
|
|
|
10,783
|
|
|
25,346
|
|
|
25,879
|
|
|
72,215
|
Depreciation and amortization
|
|
2,448
|
|
|
2,465
|
|
|
2,558
|
|
|
3,238
|
|
|
10,709
|
General and administrative expenses
|
|
936
|
|
|
1,029
|
|
|
1,104
|
|
|
1,444
|
|
|
4,513
|
Other operating expenses
|
|
804
|
|
|
753
|
|
|
826
|
|
|
740
|
|
|
3,123
|
(Loss) income from operations
|
$
|
(8,963)
|
|
$
|
(8,875)
|
|
$
|
8,833
|
|
$
|
14,174
|
|
$
|
5,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(7,079)
|
|
$
|
(6,888)
|
|
$
|
3,700
|
|
$
|
7,041
|
|
$
|
(3,226)
|
Basic and diluted (loss) earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per share
|
$
|
(0.51)
|
|
$
|
(0.49)
|
|
$
|
0.26
|
|
$
|
0.50
|
|
$
|
(0.23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
Related Party Transactions
One of the members of the Company’s board of directors is a partner of a law firm
that provides services to t
he Company. For the years ended April 30, 2018, 2
0
17 and 2
0
16 the Company paid legal fees to this firm of
$144
,
$393
and
$196
, respectively.
In December 2017, the Company paid
$471
for land and improvements located adjacent to one of its resorts to a trust in which the Company’s Chief Executive Officer was a trustee.
17.
Subsequent Events
On July 10, 2018, the Company’s board of directors approved i) a cash dividend payment of
$979
(
$0.07
per share of common stock) payable on
August 10, 2018
to common shareholders of record on
July 26, 2018
, and ii) a cash dividend payment of
$400
payable on
August 10, 2018
to the holder of the Company’s Series A Preferred Stock.