VAIL RESORTS INC annual report, FY2013

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Vail Resorts, Inc. — FY2013 Form 10-K

Reporting period: Fiscal year ended July 31, 2013. The filing is an annual report, not a report limited to the fourth quarter; quarterly results are highly seasonal.

Business context

Vail Resorts operates Mountain, Lodging and Real Estate businesses, which accounted for approximately 77%, 19% and 4% of FY2013 revenue, respectively. The company reported 6.98 million skier visits. Fiscal 2013 included the December 2012 acquisitions of Afton Alps and Mount Brighton and the May 2013 assumption of operations under a long-term lease for Canyons Resort.

Financial performance and liquidity

  • Revenue: $1.121 billion, up 9.4% from $1.024 billion. Mountain revenue rose 13.2% to $867.5 million; Lodging revenue was essentially flat at $211.0 million; Real Estate revenue declined 10.3% to $42.3 million.
  • Profit: Operating income was $97.0 million, compared with $59.3 million. Net income attributable to Vail Resorts was $37.7 million, or $1.03 diluted EPS, versus $16.5 million, or $0.45, in FY2012. Net margin was approximately 3.4%.
  • Segment EBITDA: Resort Reported EBITDA, a company-defined non-GAAP measure, increased 17.3% to $240.9 million. Total Reported EBITDA was $231.8 million, including a $9.1 million Real Estate segment loss.
  • Cash flow: Operating cash flow was $222.4 million, up from $185.4 million. Capital expenditures were $94.9 million; investing activities used $108.2 million. Cash and cash equivalents rose to $138.6 million from $46.1 million.
  • Debt and liquidity: Total debt was $796.9 million versus $490.8 million, largely reflecting the $306.3 million Canyons lease obligation. Net Debt rose to $658.3 million from $444.7 million. The company reported $333.8 million available on its $400 million revolving facility, after letters of credit. Current assets were $343.5 million and current liabilities $313.3 million.
  • Margins and lodging indicators: Mountain Reported EBITDA was $228.7 million, up 15.0%; Lodging Reported EBITDA was $12.2 million, up 91.4%. Owned hotel and managed condominium combined RevPAR increased 6.4% to $96.14.
  • Capital returns: Dividends declared were $0.79 per share for the year; the annualized rate was raised to $0.83. No shares were repurchased in FY2013.

Changes versus prior period

Improved snowfall and weather compared with the exceptionally low-snow FY2012 season helped lift visitation 13.6% and supported Mountain revenue growth, alongside pricing and ancillary spending. FY2013 conditions were still uneven: early-season warmth and poor snowfall affected Colorado, while dry, warm conditions slowed Tahoe late in the season. Lodging EBITDA improved with higher visitation and contributions from Canyons and Flagg Ranch. Real Estate results remained volatile with unit closing timing; revenue fell from FY2012 and was far below FY2011, when a large bulk sale of Ritz-Carlton Residences units occurred.

Outlook, risks and unusual items

  • Management reported 2013/2014 preseason pass sales through September 22, 2013 up approximately 19% in units and 23% in sales dollars year over year, but cautioned that the trend might not continue and did not provide full-year earnings guidance.
  • Calendar 2013 resort capital expenditures were estimated at $130–$140 million. Plans include resort upgrades, Peak 6 at Breckenridge, summer activities and improvements at the two urban ski areas.
  • The Canyons lease requires $25 million in annual fixed payments, increasing at a minimum 2% per year, plus contingent payments equal to 42% of resort EBITDA above a specified, inflation-adjusted threshold. The company recognized $4.4 million of Canyons transaction costs and $5.4 million of related interest expense in FY2013.
  • Ongoing Park City Mountain Resort terrain-lease litigation could affect the Canyons transaction’s value; an unfavorable outcome could prompt impairment charges. Canyons purchase accounting remained preliminary.
  • Other key risks include weather and seasonality, discretionary travel demand, high fixed operating costs, government permits and environmental approvals, water availability, seasonal labor, real estate unit sales and financing constraints.
  • The company recorded a $6.7 million gain on sale of a Breckenridge land parcel and a $2.5 million charge related to a legal dispute on a previously completed real estate project. No goodwill or significant indefinite-lived intangible impairment was recorded; Colorado Lodging goodwill was identified as more exposed to future impairment.
  • A federal tax dispute over historic NOLs remained unresolved. The company had not recognized the potential tax benefit; possible reversals of related liabilities and accrued interest and penalties ranged from zero to $27.6 million.

Investor facts to verify

  • Whether preseason pass sales converted into realized visitation and revenue, and how weather affected the 2013/2014 season.
  • The final Canyons purchase-price allocation, ongoing lease burden and outcome of the Park City Mountain Resort litigation.
  • Cash generation and covenant headroom after planned capital spending, dividends and increased debt.
  • Sales pace, pricing and impairment sensitivity for remaining Ritz-Carlton Residences and One Ski Hill Place inventory.
  • Resolution and potential financial effect of the IRS NOL dispute and the real estate legal contingency.