Vail Resorts, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended July 31, 2011. The filing also reports the fiscal fourth quarter ended July 31, 2011; this is not a calendar-year 2011 report. Financial amounts below are in U.S. dollars; millions unless stated otherwise.
Business context
Vail Resorts operates six mountain resorts, lodging and related businesses, and resort-area real estate development. FY2011 revenue mix was approximately 65% Mountain, 18% Lodging and 17% Real Estate. Northstar-at-Tahoe was acquired in October 2010, so FY2011 includes only part of its results. The Mountain and most Lodging operations are highly seasonal.
Key financial metrics
| Metric | FY2011 | FY2010 |
|---|---|---|
| Total revenue | $1,167.0 | $894.8 |
| Operating income | $94.5 | $69.3 |
| Net income | $34.4 | $35.8 |
| Net income attributable to Vail Resorts | $34.5; diluted EPS $0.94 | $30.4; diluted EPS $0.83 |
| Operating cash flow | $267.3 | $36.0 |
| Cash and cash equivalents at year-end | $70.1 | $14.7 |
| Total debt at year-end | $491.7 | $526.7 |
| Net debt (company-defined) | $421.6 | $512.0 |
FY2011 operating margin was approximately 8.1% and net margin attributable to Vail Resorts approximately 3.0%. Company-defined total Reported EBITDA, a non-GAAP measure, was $216.9 million, versus $182.1 million. Mountain Reported EBITDA was $213.2 million; Lodging $8.8 million; Real Estate negative $5.0 million. Approximate segment Reported EBITDA margins were 28.3%, 4.1% and negative 2.5%, respectively; these measures are not GAAP operating margins.
Fiscal Q4: Revenue was $108.7 million, operating loss $77.8 million, net loss $53.9 million and diluted loss per share $1.49. The comparable FY2010 quarter had revenue of $144.2 million and attributable net loss of $41.9 million. The fourth-quarter loss reflects the company’s seasonal pattern; real estate closings also made quarterly revenue particularly variable.
Material changes versus the prior comparable period
- Revenue rose 30.4% year over year, but the increase reflects both Northstar-at-Tahoe and higher real estate closings. Mountain revenue increased 17.8% (7.7% excluding Northstar), with skier visits up 16.3% (4.1% excluding Northstar) and effective ticket price up 1.8% overall.
- Lodging revenue increased 9.9%; Lodging Reported EBITDA improved to $8.8 million from $2.4 million. Real Estate revenue rose to $200.2 million from $61.0 million, but the segment remained loss-making as development costs accompanied closings.
- Net income attributable to Vail Resorts increased 13.5%, while consolidated net income declined from $35.8 million to $34.4 million. FY2011 included a $7.4 million loss on extinguishment of debt and a $2.6 million asset impairment charge; interest expense also rose substantially.
- Operating cash flow increased sharply, supported by $166.0 million of net proceeds from real estate closings and lower real estate investment spending as projects reached completion. The cash-flow increase should not be assumed to represent recurring operating improvement.
Outlook, management commentary, risks and unusual items
- Management gave no specific FY2012 earnings or revenue guidance in the supplied filing text. It reported that, through September 20, 2011, 2011/12 season-pass sales dollars were up approximately 9% and units up 1% versus the comparable prior-year sales period; continuation and ultimate effect were uncertain.
- Management expected calendar-2011 resort capital expenditures of approximately $116–$130 million, including $28–$32 million for Northstar-at-Tahoe. It did not plan significant new real estate development until market conditions improved, while continuing to market remaining units and plan future projects.
- Liquidity included $70.1 million cash and $332.9 million available under the $400 million revolving facility, net of letters of credit. The facility maturity was extended to January 2016. The company issued $390 million of 6.50% notes due 2019 to retire $390 million of 6.75% notes due 2014; nearly all principal debt was not due until FY2019 or later. The company reported covenant compliance at year-end.
- The company initiated a quarterly dividend, paying $0.15 per share in July 2011 and indicating an expected annual rate of $0.60, subject to board approval, cash needs and debt restrictions. No shares were repurchased in FY2011.
- Key risks include economic weakness affecting discretionary travel and lodging, weather and snowfall, seasonal operating leverage, real estate sales and potential impairment, access to financing, seasonal labor, and permits and environmental approvals. The company identified $59.8 million of Lodging goodwill as at risk of failing the first impairment test if assumptions worsen; no goodwill or indefinite-lived intangible impairment was recorded in FY2011. A 5% decline in estimated net proceeds from remaining units at The Ritz-Carlton Residences, Vail and One Ski Hill Place could trigger an impairment charge on one or both projects.
- A federal court granted summary judgment in the company’s favor in its dispute with the IRS over NOL utilization, but the refund amount remained unresolved and an IRS appeal was possible. The filing states that potential tax-liability and accrued-interest reversals could range from zero to $27.6 million; no benefit from the disputed NOLs was reflected in the financial statements.
Most important facts for investors to verify
- How much FY2011 operating cash flow came from property closings and working-capital changes, and how sustainable resort cash generation is apart from real estate proceeds.
- Remaining units, carrying values, sale pace and realized net prices for the Vail and Breckenridge developments, including impairment sensitivity.
- Northstar-at-Tahoe’s ongoing contribution after acquisition, including lease costs, capital needs and operating performance excluding acquisition effects.
- Whether 2011/12 pass-sales trends continued and how snowfall, visitation, pricing and guest spending affected results.
- Current revolver availability, covenant headroom, debt-service costs and capacity to fund planned capital spending and dividends.
- Final resolution and cash impact of the IRS NOL litigation and related tax proceedings.