Peak Resorts Earnings 2019-07-31

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2019.

OR

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                  .

Commission file number 001‑35363

Peak Resorts, Inc.

(Exact name of registrant as specified in its charter)

 

(636) 938‑7474

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐   No ☒

As of September 9, 2019, 15,227,562 shares of the registrant’s common stock were outstanding.

 

 

 

Introductory Note

On July 20, 2019, Peak Resorts, Inc. (“we,” “us,” “Peak Resorts,” or the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Vail Holdings, Inc., a Colorado corporation (“Parent”), VRAD Holdings, Inc., a Missouri corporation and direct, wholly-owned subsidiary of Parent (“Merger Sub”), and, solely for the purposes stated in Section 9.14 of the Merger Agreement, Vail Resorts, Inc., a Delaware corporation (“Vail Resorts”), relating to the proposed acquisition of the Company by Parent. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will be merged with and into the Company (the “Merger”) with the Company continuing as the surviving corporation in the Merger as a direct, wholly-owned subsidiary of Parent and an indirect, wholly-owned subsidiary of Vail Resorts. Upon completion of the Merger, the Company will cease to be a publicly traded company and: (i) each share of the Company’s common stock issued and outstanding immediately prior to the Merger (other than Excluded Shares, as the term is defined in the Merger Agreement) will cease to be outstanding and will be converted into the right to receive $11.00 in cash, without interest and less any applicable withholding taxes; and (ii) each share of Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”) that is outstanding immediately prior to the Merger, other than Excluded Shares, will be converted into the right to receive an amount equal to the sum of: (A) $1,748.81, the product of  $11.00 multiplied by the amount equal to the quotient of $1,000 divided by $6.29; plus (B) the aggregate amount of all accrued and unpaid dividends on the applicable issuance of Series A Preferred Stock as of the Merger, in cash without interest.

The closing of the Merger is subject to various closing conditions, each of which is more fully described in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 22, 2019 and the Proxy Statement (as defined below). See Note 2, “Merger Agreement and Proposed Merger” for additional information.

On August 6, 2019, the Company received a letter from the United States Forest Service (the “USFS”) confirming that renewal, issuance or reissuance of the Company’s USFS permits is not required as a consequence of consummation of the Merger. On August 28, 2019, the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired with respect to the proposed acquisition of the Company by Parent. These events satisfied two of the applicable conditions to closing of the acquisition set forth in the Merger Agreement.

The closing of the Merger is also subject to adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby by the affirmative vote of the holders of at least two-thirds of the outstanding shares of common stock and Series A Preferred Stock entitled to vote at a special meeting of shareholders (the “Special Meeting”) as of the August 19, 2019 record date for the Special Meeting, voting together as a single class on an as-converted basis. On August 20, 2019, the Company filed a definitive proxy statement on Schedule 14A relating to the Merger (the “Proxy Statement”), which the Company intends to hold on September 20, 2019.

The acquisition is expected to be completed in fall 2019, however, consummation of the Merger is subject to the satisfaction or (to the extent permitted by applicable law) waiver of the conditions to the completion of the Merger more fully described in the Proxy Statement.

Unless stated otherwise, any forward-looking information contained in this report does not take into account or give any effect to the impact of the proposed Merger.

 

 

 

TABLE OF CONTENTS

PART I FINANICAL INFORMATION 

 

 

 

 

 

PART I:  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Peak Resorts Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(dollars in thousands, except per share amounts)

 

See accompanying notes to unaudited condensed consolidated financial statements.

Peak Resorts, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(dollars in thousands, except per share amounts)

(Unaudited)

 

See accompanying notes to unaudited condensed consolidated financial statements.

Peak Resorts, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(dollars in thousands)

(Unaudited)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

Peak Resorts, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

PEAK RESORTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

(Unaudited)

Note 1. Basis of Presentation

Unaudited Interim Condensed Consolidated Financial Statements

The unaudited interim condensed consolidated financial statements of Peak Resorts, Inc. and its subsidiaries (the “Company”) reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of its financial position, results of operations and cash flows. The results for the three months ended July 31, 2019 are not necessarily indicative of the results expected for a full fiscal year. Due to the seasonality of the ski industry, the Company typically incurs significant operating losses during its first and second fiscal quarters. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10‑K for the fiscal year ended April 30, 2019, filed with the Securities and Exchange Commission.

Nature of Business

The Company is a leading owner and operator of high-quality, individually branded ski resorts in the U.S. and, as of July 31, 2019, operated 17 ski resorts primarily located in the Northeast, Mid-Atlantic and Midwest United States, 16 of which are owned. The majority of the resorts are located within 100 miles of major metropolitan markets, including New York City, Boston, Philadelphia, Baltimore, Washington D.C., Cleveland, Kansas City and St. Louis, enabling day and overnight drive accessibility. The Company’s resorts are comprised of nearly 2,200 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 tours, golf, mountain coasters, mountain biking, hiking and other summer activities. The Company operates in a single business segment—ski resort operations.

Principles of Consolidation

The accompanying condensed 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. On November 21, 2018, the Company completed its acquisition of all of the issued and outstanding shares of common stock of Snow Time, Inc. (“Snow Time”) (see Note 3). These financial statements reflect the activity of Snow Time for the period since its acquisition.

Dividends

Generally, the declaration and payment of future dividends to holders of the Company’s common stock will be at the sole discretion of the Company’s board of directors, and will depend on many factors, including the Company’s actual results of operations, financial condition, capital requirements, contractual restrictions, restrictions in the Company’s outstanding debt agreements, preference of the Company’s Series A Cumulative Convertible Preferred Stock, par value $0.01 per share (“Series A Preferred Stock”), economic conditions and other factors that could differ materially from the Company’s current expectations. 

From the date that is nine months following the date of issuance, cumulative dividends accrue on the outstanding shares of 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 any junior securities, including the Company’s common stock, provided that the Company may declare or pay any dividend or distribution payable on the common stock in shares of common stock.  The Certificate of Designation of the Series A Preferred Stock provides that, until the earlier of (i) such date as no Series A Preferred Stock

remains outstanding and (ii) January 1, 2027, the Company is prohibited from paying any dividend on capital stock when there are accrued or unpaid dividends with respect to the Series A Preferred Stock.

As discussed in Note 2, “Merger Agreement and Proposed Merger,” on July 20, 2019, the Company, entered into an Agreement and Plan of Merger with Vail Holdings, Inc., a Colorado corporation (“Parent”), VRAD Holdings, Inc., a Missouri corporation and direct, wholly-owned subsidiary of Parent (“Merger Sub”), and, solely for the purposes stated in Section 9.14 of the Merger Agreement (as defined in Note 2), Vail Resorts, Inc., a Delaware corporation (“Vail Resorts”), relating to the proposed acquisition of the Company by Parent. The Company agreed in the Merger Agreement to suspend the payment of any future dividends, other than the quarterly cash dividend declared on July 2, 2019 of  $0.07 per outstanding share of its common stock, which was paid on August 9, 2019 to common shareholders of record as of July 25, 2019, and the Series A Preferred Stock dividend of $400 in the aggregate, which was paid on August 9, 2019 to the holder of the Company’s Series A Preferred Stock. Dividends on the Series A Preferred Stock will continue to accrue.

 

Cash and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the condensed consolidated balance sheet to the total of the same such amounts shown in the condensed consolidated statements of cash flow:

 

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 Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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 the Company’s consolidated financial statements, including an evaluation of  the effect the standard will have on the Company’s deferred gain on sale/leaseback. While the Company expects the pattern of expense for leases it currently classifies 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 July 31, 2019, future minimum lease payments under operating leases was approximately $14,000.

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 modified retrospective approach and does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.

Note 2. Merger Agreement and Proposed Merger

Merger Agreement

 

On July 20, 2019 (the “Signing Date”), the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Parent, Merger Sub, and, solely for the purposes stated in Section 9.14 of the Merger Agreement, Vail Resorts, relating to the proposed acquisition of the Company by Parent.

 

The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will be merged with and into the Company (the “Merger”) with the Company continuing as the surviving corporation in the Merger, and, at the effective time of the Merger (the “Effective Time”): (i) each share of common stock of the Company, par value $0.01 per share issued and outstanding immediately prior to the Effective Time, other than Excluded Shares (as defined in the Merger Agreement), will cease to be outstanding and will be converted into the right to receive $11.00 in cash, without interest (the “Common Merger Consideration”); (ii) each share of Series A Preferred Stock, that is outstanding immediately prior to the Effective Time, other than Excluded Shares, will be converted into the right to receive an amount equal to the sum of: (a) $1,748.81; plus (b) the aggregate amount of all accrued and unpaid dividends on the applicable issuance of Series A Preferred Stock as of the Effective Time, in cash without interest.

 

Pursuant to the Merger Agreement, at the Effective Time: (i) each restricted stock unit (“RSU”) that was granted pursuant to the Company’s 2014 Equity Incentive Plan, as amended from time to time (the “Equity Incentive Plan”), that remains outstanding immediately prior to the Effective Time will become fully vested immediately prior to the Effective Time and will be cancelled and extinguished in exchange for the right to receive an amount, in cash, without interest, equal to the (a) Common Merger Consideration, multiplied by (b) number of RSUs held by such holder, less withholdings for any applicable taxes; and (ii) each warrant to purchase shares of common stock that is issued and outstanding immediately prior to the Effective Time (collectively, the “Warrants”), will be cancelled in exchange for the right to receive an amount in cash, without interest, equal to the product of: (a) the aggregate number of shares of common stock in respect of such Warrant; multiplied by (b) the excess of the Common Merger Consideration over the per share exercise price under such Warrant.

 

The board of directors of the Company (i) determined that the terms of the Merger Agreement, the Merger and the other transactions contemplated thereby are fair to, advisable and in the best interests of, the Company and its shareholders; (ii) adopted and approved the Merger Agreement and declared advisable the Merger Agreement and the completion by the Company of the Merger and the other transactions contemplated thereby; (iii) directed that the Merger Agreement be submitted to the shareholders of the Company for adoption; and (iv) resolved to recommend that the Company’s shareholders vote in favor of the adoption of the Merger Agreement and approve the Merger and the other transactions contemplated thereby. The closing of the Merger is subject to, among other conditions, adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby by the affirmative vote of the holders of at least two-thirds of the outstanding shares of common stock and Series A Preferred Stock entitled to vote at a special meeting of shareholders (the “Special Meeting”) as of the August 19, 2019 record date for the Special Meeting, voting together as a single class on an as-converted basis (“Company Shareholder Approval”). On August 20, 2019, the Company filed a definitive proxy statement on Schedule 14A relating to the Merger (the “Proxy Statement”), which the Company intends to hold on September 20, 2019.

 

In addition to the Company Shareholder Approval condition, consummation of the Merger is also subject to various customary conditions, including, but not limited to, the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and that the Company or its subsidiaries shall have, if necessary, obtained any consent, transfer, renewal, issuance or reissuance with respect to the Company’s United States Forest Service (the “USFS”) permits. On August 6, 2019, the Company received a letter from the USFS confirming that renewal, issuance or reissuance of the Company’s USFS permits is not required as a consequence of consummation of the Merger. On August 28, 2019, the applicable waiting period under the HSR Act expired with respect to the proposed acquisition of the Company by Parent. These events satisfied two of the applicable conditions to closing of the acquisition set forth in the Merger Agreement.

 

The Company is subject to customary restrictions on its ability to solicit, initiate, facilitate or encourage Alternative Proposals (as defined in the Merger Agreement) from third parties and to provide non-public information to, and participate in discussions and engage in negotiations with, third parties regarding Alternative Proposals, with customary exceptions regarding the board’s fiduciary duties under applicable law. The board has agreed to recommend that the Company’s shareholders vote to adopt and approve the Merger Agreement, the Merger and the other transactions contemplated thereby, subject to certain customary exceptions regarding the board’s fiduciary duties under applicable law.

 

The Merger Agreement contains certain termination rights, including the right of the Company to terminate the Merger Agreement to accept a Superior Proposal (as defined in the Merger Agreement), and provides that, upon termination of the Merger Agreement by the Company or Parent upon specified conditions, the Company will be required to pay Parent a termination fee of $9,220 (the “Termination Fee”). If the Merger Agreement is terminated by Parent or the Company following the failure to obtain the Company Shareholder Approval at the Special Meeting absent a pending Alternative Proposal, then the Company must reimburse Parent all of its fees and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby, up to $3,000 in the aggregate. In addition, subject to certain exceptions and limitations set forth in the Merger Agreement, either party may terminate the Merger Agreement if the Merger is not consummated by January 21, 2020 (the “End Date”), subject to the ability of either party to twice extend the End Date for an additional 90 days each time, in certain circumstances. Subject to certain conditions and limitations set forth in the Merger Agreement, upon the termination of the Merger Agreement by the Parent or Company, the Merger Agreement also provides for the payment by the Company to Parent of the Termination Fee if the Company consummates a transaction with respect to an Alternative Proposal within 12 months after such termination, or signs a definitive agreement with respect to such Alternative Proposal within 12 months after such termination and such transaction is subsequently consummated.

 

The Company has made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants (1) to conduct its business in the ordinary course during the period between the Signing Date and the Effective Time, (2) not to engage in certain types of transactions during this period unless agreed to in writing by Parent, (3) to convene and hold the Special Meeting for the purpose of obtaining the Company Shareholder Approval, (4) subject to certain conditions, not to withhold, withdraw, amend or modify in a manner adverse to Parent or Merger Sub, the recommendation of the board that the Company’s shareholders approve the adoption of the Merger Agreement, and (5) to take any and all action needed to obtain any required antitrust approval for the Merger.

 

The Merger is expected to be completed in fall 2019, however, consummation of the Merger is subject to the satisfaction or (to the extent permitted by applicable law) waiver of the conditions to the completion of the Merger more fully described in the Proxy Statement.

 

The foregoing summary of the Merger Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, which was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on July 22, 2019.  

 

Voting and Support Agreements

 

On the Signing Date, concurrently with the execution of the Merger Agreement, Cap 1 LLC, an affiliate of a member of the board (“Cap 1”), Richard S. Sackler, M.D. (“RS”), the Richard and Beth Sackler Foundation, Inc. (the “Foundation”), David Sackler (“DS”), Timothy D. Boyd, the Company’s Chief Executive Officer, President, Chairman of the Board (“TB”), the Timothy D. Boyd Revocable Trust U/A 8/27/1996, for which Mr. Boyd is the trustee (the “TB Trust”), the Timothy D. Boyd 2011 Family Trust U/A 1/28/2011, for which Melissa K. Boyd, Mr. Boyd’s spouse, is the trustee (the “TB Family Trust”), the Melissa K. Boyd Revocable Trust U/A 8/27/1996, for which Ms. Boyd is the trustee (the “MB Trust”), and Jesse Boyd and Jessica Boyd JTWROS, Mr. Boyd’s son and daughter in law (“JB” and, together with Cap 1, RS, the Foundation, DS, TB, the TB Trust, the TB Family Trust and the MB Trust, the “Supporting Shareholders” and, each, a “Supporting Shareholder”), collectively, the Company’s largest shareholders, entered into Voting and Support Agreements (each, a “Support Agreement” and, collectively, the “Support Agreements”) with Parent.

 

Pursuant to the Support Agreements, each Supporting Shareholder agreed to, prior to the Expiration Date (as defined below) (i) vote (a) all shares of capital stock of the Company owned, beneficially or of record, by such Supporting

Shareholder as of the Signing Date, and (b) all additional shares of capital stock of the Company acquired by the Supporting Shareholder, beneficially or of record, including by way of converting any convertible securities, during the period commencing with the execution and delivery of such Support Agreement and expiring on the Expiration Date, among other things, (1) in favor of the adoption of the Merger Agreement and the approval of the other transactions contemplated thereby (collectively, the “Proposed Transaction”), (2) against the approval or adoption of any Alternative Proposal or any other proposal made in opposition to, or in competition with, the Proposed Transaction, and (3) against any Alternative Proposal or any other action that would reasonably be expected to impede, interfere with, delay, postpone, discourage or adversely affect the consummation of the Proposed Transaction, and (ii) not approve any Alternative Transaction (as defined in the Support Agreements) by written consent. Notwithstanding the foregoing, the Supporting Shareholders entered into the Support Agreements solely in their capacities as beneficial or record owners, and nothing therein limits or affects the actions taken by any director or officer of the Company affiliated with the Supporting Shareholder solely in his capacity as a director or officer of the Company in the exercise of his fiduciary duties as a director or officer of the Company.

 

The shares covered by the Support Agreements constitute approximately 45.0% of the issued and outstanding shares of common stock entitled to notice of, and to vote at, the Special Meeting, as of the date of the Merger Agreement assuming the conversion of the Series A Preferred Stock, as of the date of the Merger Agreement.

 

The Support Agreements will terminate upon the earliest of (the “Expiration Date”): (i) such date and time as the Merger Agreement shall have been validly terminated pursuant to the terms of Article VIII thereof; (ii) the Effective Time; (iii) the date of any amendment, modification or supplement to the Merger Agreement that decreases the amount, or changes the form, of Merger Consideration (as defined in the Merger Agreement) payable to such Supporting Shareholder; (iv) the date upon which Parent and the Supporting Shareholder agree to terminate such Support Agreement in writing; and (v) the date upon which the board or any committee thereof makes a Company Adverse Recommendation Change (as defined in the Merger Agreement).

 

The Company, Snow Time Acquisition, Inc., a direct, wholly-owned subsidiary of the Company, and certain of its subsidiaries listed on the signature pages to the Cap 1 Support Agreement as “Subsidiary Guarantors” are also party to the Cap 1 Support Agreement. In addition to the provisions set forth in the other Support Agreements, the Cap 1 Support Agreement provides for, among other things, the consent of Cap 1, in its capacity as lender with respect to certain of the Company’s indebtedness, to the Merger. 

 

Transaction Costs

 

During the three months ended July 31, 2019, the Company incurred merger-related costs of $2,308, which are included in general and administrative expenses in the condensed consolidated statements of operations.

 

Note 3. The Snow Time Acquisition

On November 21, 2018, the Company completed its acquisition of Snow Time in a transaction pursuant to which Snow Time became a wholly owned subsidiary of the Company (the  “Snow Time Acquisition”).

Purchase Price Allocation

During the three months ended July 31, 2019, the Company completed various valuation studies and finalized its estimates of the fair value of the assets acquired and liabilities assumed in the Snow Time Acquisition.

The following table summarizes the fair value of the net assets acquired in the Snow Time Acquisition on November 21, 2018.

 

 

Pro Forma Information

The following unaudited pro forma information presents the combined results of operations of Peak Resorts, Inc. and Snow Time for the three months ended July 31, 2018, as if the Snow Time Acquisition had been completed on May 1, 2018, with adjustments to give effect to pro forma events that are directly attributable to the Snow Time Acquisition. 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 each period presented, nor are they intended to represent or be indicative of future results of operations.

The following table summarizes the unaudited pro forma revenues and earnings of the combined companies for the three months ended July 31, 2018:

 

The pro forma net loss was adjusted to give effect to pro forma events which are directly attributable to the Snow Time Acquisition. Adjustments to the pro forma net income for the three months ended July 31, 2018 included: i) the addition of interest and financing cost amortization of $973 and ii) the increase of $1,387 of net expense related to fair value adjustments to acquisition-date net assets acquired.

 

Note 4. Income Taxes

The Company’s effective income tax rates were 24.8% and 28.0% for the three months ended July 31, 2019 and 2018, respectively.

The effective tax rate for the three months ended July 31, 2019, was based on the expected full-year effective tax rate for the year ending April 30, 2020 and gives effect to the discrete tax effects of non-deductible costs incurred in connection with the Merger Agreement.

Income tax receivable of $6,454 as of July 31, 2019, is a result of applying the expected tax rate for the Company’s fiscal year ending April 30, 2020, to its loss before income tax for the three months ended July 31, 2019. Due to the seasonality of the Company’s business, the Company typically incurs significant operating losses during its first and second fiscal quarters.

Deferred income tax assets and liabilities are measured at enacted tax rates in the respective jurisdictions where the Company operates. In assessing the ability to realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all deferred tax assets will not be realized. Any necessary valuation allowance based on that assessment would be provided if necessary.

Deferred income tax assets include those related to existing net operating loss carryforwards.  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. The Company monitors the activity in its stock and should an ownership change occur under the Tax Reform Act of 1986, management would reassess the ability to realize net operating loss carryovers and provide additional valuation allowances, if necessary.

The Company does not have any material uncertain tax positions.

Note 5. Property and Equipment

The composition of property and equipment is as follows:

 

 

Note 6. Credit Facilities and Long‑term Debt

The composition of long-term debt is as follows:

 

In addition to the credit facilities listed above, the Company maintains a $10,000 working capital line of credit and a $15,000 acquisition line of credit with Royal Banks of Missouri. As of July 31, 2019, nothing was outstanding under the working capital line of credit and $12,415 was outstanding under the acquisition line of credit, and $10,000 and $2,585 was unused and available under the lines of credit, respectively.

As of July 31, 2019, the Company was in compliance will all debt covenants under its various credit facility and debt agreements.

Note 7. Concentrations of Credit Risk and Fair Value Measurements

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 July 31, 2019 and April 30, 2019, is as follows:

 

The Company estimated the fair value of the EPR Secured Notes, Term Loan due 2020, EB‑5 Development Notes and Wildcat Mountain Note using a discounted cash flow approach and Level 2 inputs, including market borrowing yields for instruments of similar maturities and Level 3 inputs, including the Company’s credit rating. The Company estimated the fair value of the Series A Preferred Stock 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.

Note 8. 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, in 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 contingent rentals in the periods presented.

Note 9. Stock-Based Compensation

Stock-based compensation expense was recognized in general and administrative expense in the accompanying consolidated condensed statements of operations for the three months ended July 31, 2019 and 2018 in the amounts of $382 and $56, respectively. As of July 31, 2019, unrecognized compensation expense related to grants of RSUs was $1,010 and will be recognized over a weighted average period of approximately 1.8 years.

Restricted Stock Units

Under the Equity Incentive Plan and applicable award agreements, RSUs give the holder the right to receive (i) the number of shares of common stock underlying the RSUs or (ii) as may be elected by the compensation committee of the board of directors, cash equal to the closing sale price per share of common stock on the trading day immediately prior to the distribution date times the number of shares underlying the RSUs. 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.

RSUs granted to non-employee members of the board of directors as part of their annual retainers generally vest one year from the date of grant and will be distributed to the holder on a date that is six months after the date the holder ceases to be a member of the Company’s board.

On May 8, 2019, the Company granted 140,000 RSUs to certain key employees. One-half of each RSU award will vest on the first anniversary of the grant date, and one-half of the RSU award will vest on the second anniversary of the grant date provided that the holder is employed by the Company at that time. Vested RSUs will be distributed to the holder immediately upon vesting.

On June 26, 2019, the Company granted 185,190 RSUs to employee participants in the Company’s Annual Incentive Plan. One-third of each RSU award vested immediately on the grant date, and one-third will vest on each of the first and second anniversaries of the grant date, provided that the holder is employed by the registrant at that time. Vested RSUs will be distributed to the reporting person immediately upon vesting.

The following table summarizes RSU activity for the three months ended July 31, 2019:

 

RSUs outstanding as of July 31, 2019 had an aggregate intrinsic value of $4,990; and RSUs released during the three months ended July 31, 2019, had an aggregate intrinsic value of $244.

Note 10. Earnings (Loss) Per Share

The computation of basic and diluted loss per share for the three months ended January 31, 2019 and 2018 is as follows:

 

The Company’s outstanding unvested RSUs as of July 31, 2019 and 2018, have been excluded from the calculations of diluted earnings per share for the three-month periods then ended because their impact would be anti-dilutive. In addition, warrants to purchase 7,188,036 shares of common stock and the effect of the Company’s Series A Preferred Stock have been excluded from the calculation of diluted earnings per share for the three months ended July 31, 2019 and 2018, because the impact would be antidilutive.

Note 11. Subsequent Events

Litigation Related to the Merger

On August 28, 2019, an alleged shareholder of the Company, Earl M. Wheby Jr., filed a putative class action and derivative complaint in St. Louis County Circuit Court, 21st Judicial Circuit of Missouri, against each of the members of the Company’s board of directors, Vail Resorts, Parent and Merger Sub, purportedly in relation to the Company’s entry into the Merger Agreement. The complaint asserts a claim for breach of fiduciary duty against the defendants. The complaint alleges, among other things, that the directors breached their fiduciary duties in connection with the Merger due to certain deal protection provisions in the Merger Agreement and disseminated a materially misleading proxy statement.  The complaint seeks, among other things, an order enjoining the defendants from proceeding with, consummating or closing

the proposed Merger; in the event the proposed Merger is consummated, an order rescinding it and setting it aside or awarding rescissory damages; and unspecified attorneys’ and experts’ fees.

On August 29, 2019, an alleged shareholder of the Company filed a complaint in the United States District Court for the Eastern District of Missouri, Eastern Division, against the Company and each of the members of the Company’s board of directors, purportedly in relation to the Company’s entry into the Merger Agreement. The complaint asserts claims under Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and rules promulgated thereunder, based on allegations that the Proxy Statement omitted to disclose certain material facts allegedly necessary to make statements made in the Proxy Statement not misleading and/or misrepresented certain allegedly material information. The complaint seeks, among other things, an order enjoining the defendants from proceeding with, consummating or closing the proposed Merger and any vote on the proposed Merger, unless and until the defendants disclose and disseminate to the Company’s shareholders the allegedly material information identified in the complaint; in the event the proposed Merger is consummated, an order rescinding it and setting it aside or awarding rescissory damages; and unspecified attorneys’ and experts’ fees.

On September 6, 2019, an alleged shareholder of the Company, Eammon Carleton, filed a complaint in the United States District Court for the Southern District of New York, against the Company and each of the members of the Company’s board of directors, purportedly in relation to the Company’s entry into the Merger Agreement. The complaint asserts claims under Section 14(a) and Section 20(a) of the Exchange Act and rules promulgated thereunder, based on allegations that the Proxy Statement omitted to disclose certain material facts allegedly necessary to make statements made in the Proxy Statement not misleading and/or misrepresented certain allegedly material information. The complaint seeks, among other things, an order enjoining the defendants from proceeding with, consummating or closing the proposed Merger; in the event the proposed Merger is consummated, an order rescinding it and setting it aside or awarding rescissory damages; an order directing the defendants to disseminate a proxy statement that does not contain purportedly misleading statements or material omissions; and unspecified attorneys’ and experts’ fees.

The Company believes that the allegations against it in each of the foregoing lawsuits lack merit, however, there can be no assurance that any of the defendants will prevail in any one or more of the lawsuits. The Company is not able to estimate any possible loss from this litigation at this time. It is possible that additional lawsuits may be filed in connection with the proposed Merger.

 

Merger Developments

On August 6, 2019, the Company received a letter from the USFS confirming that renewal, issuance or reissuance of the Company’s USFS permits is not required as a consequence of consummation of the Merger. On August 28, 2019, the applicable waiting period under the HSR Act expired with respect to the proposed acquisition of the Company by Parent. These events satisfied two of the applicable conditions to closing of the acquisition set forth in the Merger Agreement.

The closing of the Merger is subject to certain other closing conditions, including adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby by the affirmative vote of the holders of at least two-thirds of the outstanding shares of common stock and Series A Preferred Stock entitled to vote at the Special Meeting of shareholders  as of the August 19, 2019 record date for the Special Meeting, voting together as a single class on an as-converted basis. On August 20, 2019, the Company filed a definitive proxy statement on Schedule 14A relating to the Merger, which the Company intends to hold on September 20, 2019.

 

 

 

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q (the “Report”) and with the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019 filed with the Securities and Exchange Commission. In addition to historical financial information, the following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Unless the context suggests otherwise, references in this Report to the “Company”, “Peak”, “our”, “us”, or “we” refer to Peak Resorts, Inc. and its consolidated subsidiaries.

 

Forward-Looking Statements

Except for any historical information contained herein, the matters discussed in this Report contain certain “forward-looking statements'' within the meaning of the federal securities laws. This includes statements regarding our future financial position, economic performance, results of operations, business strategy, budgets, projected costs, plans and objectives of management for future operations, and the information referred to under “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

 

These forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,'' “will,'' “expect,'' “intend,'' “estimate,'' “anticipate,'' “believe,'' “continue'' or similar terminology, although not all forward-looking statements contain these words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this Report. Important factors that could cause actual results to differ materially from our expectations include, among others: