Vail Resorts, Inc. — Q1 FY2011 Form 10-Q
Reporting period: Three months ended October 31, 2010. The company operates Mountain, Lodging and Real Estate businesses. Its mountain and resort lodging operations are highly seasonal; ski operations generally begin in mid-November, so the first fiscal quarter typically produces a loss. Unless noted otherwise, amounts below are in U.S. dollars and millions.
Financial results and liquidity
| Metric | Q1 FY2011 | Q1 FY2010 |
|---|---|---|
| Total revenue | $234.4 | $80.8 |
| Operating loss | $(64.3) | $(64.7) |
| Net loss attributable to Vail Resorts | $(43.0) | $(41.2) |
| Diluted loss per share | $(1.20) | $(1.14) |
| Reported EBITDA, non-GAAP | $(35.8) | $(37.2) |
| Operating cash flow | $118.2 | $(45.0) |
- Revenue growth was driven overwhelmingly by Real Estate: segment revenue was $149.3 million, versus $0.2 million a year earlier. Resort revenue (Mountain and Lodging combined) increased to $85.2 million from $80.6 million.
- Mountain revenue rose 4.0% to $40.8 million, but Mountain Reported EBITDA declined to $(41.6) million from $(37.0) million. Lodging revenue grew 7.3% to $44.4 million and Lodging Reported EBITDA improved to $1.5 million from $(1.3) million. Real Estate Reported EBITDA was $4.2 million, compared with $1.1 million.
- Gross profit and consolidated operating margin are not separately presented. Reported EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP results.
- Operating cash flow turned positive primarily because 57 Ritz-Carlton Residences, Vail units closed, producing $128.8 million in proceeds net of commissions and previously received deposits. Cash used in investing was $97.4 million, including $60.5 million for the Northstar-at-Tahoe acquisition and $36.9 million of capital expenditures. Financing activities used $16.0 million.
- At October 31, cash and cash equivalents were $19.6 million; total debt was $515.0 million and net debt was $495.4 million, up from $478.8 million a year earlier. The company reported $299.4 million available under its $400 million revolving credit facility. Current liabilities were $338.2 million versus current assets of $177.6 million.
- Debt included $390.0 million of 6.75% senior subordinated notes due in fiscal 2014 and $20.0 million outstanding on the revolver, which matures in fiscal 2012. The company was in compliance with its debt covenants at quarter-end. Variable-rate debt was $72.6 million; management estimated that a 100-basis-point LIBOR change would alter annual interest expense by about $0.7 million.
Material changes and unusual items
- On October 25, 2010, Vail Resorts acquired Northstar-at-Tahoe for $60.5 million net of cash acquired. Preliminary purchase accounting included $90.6 million of goodwill and a $43.3 million net unfavorable lease obligation. The resort’s results were included from the acquisition date; $3.1 million of acquisition-related expenses were recorded in Mountain operating expense.
- Northstar operates under long-term leases. Minimum payments over the remaining initial lease terms were reported at $207.9 million, extending through fiscal 2027.
- The Real Estate result reflected 57 Ritz-Carlton Residences, Vail closings, generating $149.0 million of revenue. By contrast, the prior-year quarter included an $8.5 million land sale and a $6.1 million gain, but no comparable unit closings.
- Interest expense, net, rose to $7.9 million from $4.8 million, mainly because interest capitalization on substantially completed real estate projects ceased.
- Lodging operating expense included a $2.9 million net credit from settlement of alleged damages related to the Colorado Mountain Express acquisition. Mountain expense included Northstar acquisition costs and a short period of Northstar operating costs.
Outlook, management commentary and risks
- The filing gives no specific earnings or revenue guidance. Management expected near-term liquidity to come from operating cash flow, revolver borrowings if needed, and future real estate closings. It said proceeds from anticipated closings could exceed remaining completion and carrying costs, but noted that the amount and timing were uncertain.
- Management reported season-pass deferred revenue of $80.4 million at October 31, up 10.0% from $73.1 million a year earlier; this revenue would be recognized over the 2010/2011 ski season. Early-season snowfall had significantly exceeded the historical average to date, but management cautioned that conditions and the resulting impact were uncertain.
- For calendar 2010, the company estimated real estate and associated resort-asset spending of $110 million to $115 million, with $98 million spent by October 31. It estimated resort capital expenditures of $75 million to $85 million, excluding resort assets arising from real estate activity, with $57 million spent by October 31. Management did not plan significant new real estate development until market conditions improved.
- Principal payments on most debt were not due until fiscal 2014 or later. The company said it might consider refinancing the revolving facility and/or notes during fiscal 2011, depending on credit-market conditions and available terms.
- Key risks include economic weakness affecting travel and leisure demand, snowfall and weather, real estate market and financing conditions, delays or buyer defaults on unit closings, labor and operating-cost increases, integration of Northstar, and dependence on permits and approvals for operations on federal land. Management also warned that prolonged economic weakness could lead to impairment of goodwill or indefinite-lived intangible assets.
- Outstanding matters include litigation relating to Ritz-Carlton unit purchase contracts, a federal tax dispute over approximately $6.2 million of claimed refunds and net operating losses, and the Canyons-related litigation. Management said the ultimate outcomes could not be predicted; recorded accruals for known legal loss contingencies were not material.
Important facts for investors to verify
- Whether the season-pass sales increase, snowfall and subsequent ski-season visitation translate into improved resort revenue and profitability.
- The timing, cancellations, pricing and cash proceeds of remaining real estate closings, including the disclosed 36 Ritz-Carlton units under contract that had defaulted, were expected to default, or might be rescinded.
- Northstar’s final purchase accounting, lease costs, integration progress and contribution to Mountain results.
- Liquidity and covenant headroom after seasonal cash needs, planned capital spending, acquisition costs and any further revolver use; also the 2012 facility maturity and 2014 notes maturity.
- Developments in the Ritz-Carlton, IRS and Canyons matters, and any effect on cash, reported results or contingent liabilities.