Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: Third quarter and nine months ended April 30, 2011; unaudited. The company operates Mountain, Lodging and Real Estate businesses. Its mountain and resort lodging operations are seasonal, with the principal ski season generally running mid-November to mid-April. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | Three months 2011 | Three months 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $414.5 | $350.3 | $1,037.0 | $731.5 |
| Operating income | $139.5 | $118.3 | $172.3 | $127.2 |
| Net income attributable to Vail Resorts | $76.9 | $72.8 | $88.4 | $72.3 |
| Diluted EPS | $2.08 | $1.98 | $2.41 | $1.97 |
| Reported EBITDA (non-GAAP) | $173.4 | $147.0 | $265.5 | $211.3 |
| Operating cash flow | Not presented separately | Not presented separately | $291.3 | $56.7 |
- Third-quarter revenue rose 18.3%; attributable net income rose 5.6%. Higher interest expense and a $6.6 million debt-extinguishment loss weighed on earnings growth.
- Nine-month revenue increased 41.7%, driven substantially by real estate closings and the Northstar-at-Tahoe acquisition. Net income attributable to the company increased 22.2%.
- Third-quarter Mountain revenue was $351.4 million, up 16.3%, and Mountain Reported EBITDA was $169.7 million, up 15.8%. Excluding Northstar-at-Tahoe, Mountain revenue increased 6.0%; skier visits excluding Northstar were relatively flat for the quarter.
- Third-quarter Lodging revenue rose 11.0% to $49.8 million and Reported EBITDA rose 58.2% to $8.8 million. Real Estate revenue was $13.2 million and Reported EBITDA was a loss of $5.1 million.
Cash, debt and liquidity
- At April 30, cash and cash equivalents were $168.6 million; total debt was $535.8 million and net debt (a non-GAAP measure) was $367.2 million, versus $440.5 million a year earlier. Current liabilities were $226.7 million and current assets were $323.2 million.
- Nine-month operating cash flow of $291.3 million reflected real estate closings and lower real estate investment as projects reached completion. Investing cash outflow was $134.5 million, including $73.6 million of capital expenditures and $60.5 million for Northstar-at-Tahoe. Financing cash outflow was $3.0 million.
- The company issued $390 million of 6.50% senior subordinated notes due 2019 to refinance its 6.75% notes due 2014. As of April 30, $43.9 million of the old notes remained outstanding and was classified as current debt; the company said they were defeased on May 25. It expected a further $0.8 million extinguishment loss in the fourth quarter.
- The $400 million revolving credit facility matures in January 2016. The company reported $331.7 million available after letters of credit, and compliance with debt covenants at April 30. It had $52.6 million of variable-rate debt; a 100-basis-point LIBOR change would change annual interest costs by about $0.5 million.
Material changes, outlook and risks
- Northstar-at-Tahoe was acquired in October 2010 for $60.5 million net of cash acquired. It contributed $63.8 million of nine-month revenue. The acquisition added $86.5 million of preliminary goodwill and an estimated $39.4 million net unfavorable lease obligation; management cautioned that integration and expected synergies are uncertain.
- Real estate results were highly dependent on closing timing. The company recognized $187.6 million of nine-month real estate revenue, including 67 closings at The Ritz-Carlton Residences, Vail and $6.2 million of revenue from buyer deposits forfeited after defaults. Management cited 99 units available for sale across three projects and warned that weak property and credit markets could require lower prices or lead to impairment charges.
- For calendar 2011, management anticipated resort capital expenditures of $88–$98 million excluding Northstar and a further $28–$32 million for Northstar. Approximately $16 million had been spent by April 30. Planned projects included lifts, dining and lodging improvements, and Northstar village and terrain upgrades.
- Spring pre-season pass sales through June 5 for the 2011/2012 season were up approximately 19% in units and 27% in sales dollars year over year, including Northstar on a comparable basis. Management cautioned that this early trend may not continue through the fall or predict full-season results.
- On June 7, the board approved a regular dividend program with a projected annual rate of $0.60 per share, subject to quarterly declaration; the first $0.15 quarterly dividend was declared payable July 18, 2011. Future dividends remain subject to cash needs, financial condition and debt restrictions.
- Key risks include weather and seasonal concentration, economic and travel conditions, real estate demand and financing availability, labor and fuel costs, resort permits and approvals on federal land, acquisition integration, and compliance with debt covenants. The company reported no material change to previously disclosed risk factors.
- A hotel entity whose property the company manages was in debt default and faced foreclosure proceedings initiated in May 2011. The company recorded a $2.6 million impairment on its note receivable, including accrued interest. Separately, litigation over approximately $6.2 million of federal tax refunds and disputed net operating loss usage remained unresolved; the company had not recognized the disputed tax benefits.
Important facts for investors to verify
- How much of reported revenue and EBITDA growth reflects Northstar and real estate closings versus comparable resort performance.
- Subsequent completion and accounting for the 6.75% note defeasance, including the expected additional extinguishment loss.
- Cash conversion and remaining costs, pricing and sale pace for the real estate units available for sale.
- Northstar integration, lease economics and planned capital spending against management’s estimates.
- Season-pass sales progression, covenant headroom and the sustainability of the announced dividend amid seasonal cash-flow needs.
- Developments in the hotel foreclosure and federal tax litigation, including any effect on recoveries or financial statements.