Business context and reporting period
Vail Resorts, Inc. filed this Form 10-K for the fiscal year ended July 31, 2014. The company operates Mountain, Lodging and Real Estate businesses, which contributed approximately 77%, 19% and 4% of fiscal 2014 revenue, respectively. Its resorts and lodging operations are highly seasonal, with most Mountain and resort Lodging revenue generated in the winter operating quarters.
On September 11, 2014, after fiscal year-end, the company acquired substantially all assets related to Park City Mountain Resort (PCMR) for $182.5 million, subject to adjustments. The purchase was funded with revolver borrowings and settled the related litigation.
Financial performance and liquidity
| Metric | Fiscal 2014 | Fiscal 2013 |
|---|---|---|
| Total revenue | $1,254.6 million | $1,120.8 million |
| Operating income | $117.3 million | $97.0 million |
| Net income attributable to Vail Resorts | $28.5 million | $37.7 million |
| Diluted earnings per share | $0.77 | $1.03 |
| Operating cash flow | $245.9 million | $222.4 million |
| Capital expenditures | $118.3 million | $94.9 million |
| Cash and cash equivalents at year-end | $44.4 million | $138.6 million |
| Total debt at year-end | $626.6 million | $796.9 million |
| Net debt | $582.2 million | $658.3 million |
Revenue rose 11.9%, while operating income improved. Net income fell 24.5%, mainly reflecting higher net interest expense and a $10.8 million loss on early redemption of debt. Reported EBITDA, a non-GAAP measure, was $261.7 million versus $231.8 million; the company’s reported EBITDA margin was approximately 20.9% versus 20.7%.
Mountain revenue increased 11.1% to $963.6 million and Mountain Reported EBITDA rose 10.2% to $252.1 million. Skier visits increased 10.2% to 7.688 million and effective ticket price rose 3.9% to $58.18. Lodging Reported EBITDA increased 37.5% to $16.7 million. Real Estate Reported EBITDA remained negative at $7.0 million, improving from a $9.1 million loss.
Fiscal fourth-quarter results reflect seasonality: revenue was $135.5 million and net loss attributable to Vail Resorts was $75.4 million, compared with revenue of $112.3 million and a $59.9 million net loss in the prior-year quarter.
Operating cash flow increased by $23.5 million. Cash declined primarily following the $175.0 million redemption of 6.50% Notes. The company reported $333.2 million of revolver availability at July 31, before the subsequent PCMR acquisition borrowing. Its $400 million credit facility matures in March 2019; the company said it was compliant with debt covenants at year-end.
Material changes versus the prior comparable period
- Mountain results benefited from pass sales growth, stronger Colorado visitation and ancillary guest spending, and the addition of Canyons. Tahoe resorts were adversely affected by poor snowfall; visits there fell 16.2% year over year, while Colorado visits rose 8.4%.
- Lodging revenue before payroll reimbursements increased 15.9%, including $16.3 million of incremental Canyons revenue. Combined owned-hotel and managed-condominium RevPAR rose 12.7% to $108.39.
- Debt declined after the company redeemed $175.0 million of notes, but interest expense increased to $64.0 million from $39.0 million, including higher expense associated with the Canyons obligation.
- Cash dividends declared rose to $1.245 per share from $0.79. No shares were repurchased during fiscal 2014.
Outlook, commentary, risks and unusual items
- Through September 21, 2014, advance pass sales for the 2014/2015 season were up approximately 14% in units and 18% in sales dollars year over year. Management cautioned that the trend might not continue and did not provide a full-year earnings forecast.
- Management estimated calendar 2014 resort capital expenditures of $85 million to $95 million, including approximately $5 million for summer activities. The filing notes that future spending and development plans depend on operating cash flow, financing and regulatory approvals.
- PCMR’s $182.5 million purchase was funded with revolver borrowings. The amount of any gain from the litigation settlement and the final purchase-price allocation had not been determined in the filing. PCMR’s contribution may also affect the fair value of contingent payments under the Canyons lease.
- The Canyons lease entails $25 million of annual fixed payments, increasing at least 2% annually, plus contingent payments tied to resort EBITDA. The recorded Canyons obligation was $311.9 million at July 31, 2014; this is included in reported debt.
- Key risks include weather and snowfall variability, seasonality and high fixed operating costs, economic and travel conditions, labor availability and costs, competition, real-estate sales and impairment risk, reliance on permits and water supplies, and debt and lease obligations. Regulatory review may delay or alter planned resort and summer improvements.
- The company recorded a $10.8 million debt-extinguishment loss and a $1.4 million charge from an increase in the estimated fair value of Canyons contingent consideration. It reported no fiscal 2014 goodwill or indefinite-lived intangible impairment, but identified Colorado Lodging goodwill as potentially vulnerable to adverse assumptions.
- Federal tax litigation over historic net operating losses remained unresolved. The company had not recorded the potential benefit; the filing states that possible reversals of related liabilities and accrued interest and penalties ranged from zero to $27.6 million.
Important facts for investors to verify
- Review PCMR’s final purchase-price allocation, post-closing adjustments, settlement accounting and revolver balance after the acquisition.
- Track pass sales through the season, snowfall and visitation by region, and whether Colorado strength offsets Tahoe volatility.
- Assess the Canyons lease’s escalating fixed payments and contingent-payment exposure, including the effect of PCMR operations.
- Monitor cash generation against capital expenditures, dividends, debt covenants and the company’s substantial lease and other contractual commitments.
- Follow remaining condominium sales and impairment sensitivity, the Colorado Lodging goodwill outlook, and outcomes of the tax proceedings.