Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2012, ended April 30, 2012. Amounts below are in millions of dollars unless noted. The company operates Mountain, Lodging and Real Estate businesses; mountain and resort lodging operations are seasonal, with peak ski operations generally from mid-November through mid-April.
Financial performance
| Metric | Three months ended Apr. 30, 2012 | Prior-year period | Nine months ended Apr. 30, 2012 | Prior-year period |
|---|---|---|---|---|
| Revenue | $421.1 | $422.1 | $910.9 | $1,058.4 |
| Income from operations | $140.4 | $139.5 | $140.3 | $172.3 |
| Net income attributable to Vail Resorts | $79.6 | $76.9 | $70.3 | $88.4 |
| Diluted EPS | $2.17 | $2.08 | $1.92 | $2.41 |
| Operating cash flow | Not presented for the quarter | Not presented for the quarter | $234.0 | $291.3 |
Quarterly attributable net margin was approximately 18.9%, versus 18.2% a year earlier; nine-month margin was approximately 7.7%, versus 8.4%. These margins are calculated from reported revenue and attributable net income.
- Segment Reported EBITDA (non-GAAP): For the quarter, Mountain was $170.7 million (up 0.6%), Lodging $6.9 million (down 22.2%), and Real Estate negative $3.5 million (improved from negative $5.1 million). For nine months, Mountain was $242.9 million (down 4.9%), Lodging $6.4 million (down 43.4%), and Real Estate negative $11.7 million (versus negative $1.1 million). Total Reported EBITDA was $174.1 million for the quarter and $237.6 million for nine months; management cautions it is not a GAAP measure.
- Cash and liquidity: Cash and cash equivalents were $147.1 million at April 30, 2012. Current assets were $337.8 million and current liabilities $244.2 million. The company reported $332.7 million available under its $400 million revolving credit facility, net of letters of credit.
- Debt: Total debt was $490.9 million, including $1.1 million due within one year; net debt was $343.8 million. Debt was predominantly long-dated, including $390 million of 6.50% notes due 2019. Variable-rate debt was $52.6 million; a 100-basis-point LIBOR change would alter annual interest expense by about $0.5 million.
- Cash uses and distributions: Nine-month capital expenditures were $108.0 million. Cash dividends paid were $17.6 million and common-stock repurchases were $7.9 million. The board raised the annualized dividend rate 25% to $0.75 per share, subject to quarterly declaration.
Material changes and drivers
- Quarterly revenue was nearly flat and attributable net income increased, while nine-month revenue and earnings declined. The nine-month revenue comparison was heavily affected by prior-year real-estate closings: 67 Ritz-Carlton Residences, Vail units closed in the prior-year period, compared with nine such units and six One Ski Hill Place units in the current period. Real Estate revenue fell to $34.8 million from $187.6 million.
- Historically low snowfall and unusually mild weather reduced skier visits 9.8% for the quarter and 12.1% for nine months. Higher pricing, pass sales and guest spending helped offset lower visitation. Nine-month Mountain revenue rose 1.4%, but operating expenses grew 4.8%, reducing Mountain EBITDA.
- Lodging revenue declined 6.1% for the quarter and 2.7% for nine months. Higher average room rates were offset by lower occupancy and weaker visitation; nine-month combined hotel and managed-condominium RevPAR declined 4.9%.
- Operating cash flow fell $57.3 million year over year, principally because real-estate closing proceeds were $28.9 million versus $156.6 million. Investing cash flow included $108.0 million of capital expenditures and $23.5 million of net acquisition spending. Cash increased $77.0 million over the nine months.
- Prior-year Lodging revenue and expense were revised to present reimbursed managed-hotel payroll gross rather than net. The corresponding revenue and expense have no net effect on operating income; the revision affects reported revenue comparisons.
Outlook, risks and unusual items
- Management reported spring 2012/2013 season-pass sales through May 29 up approximately 17% in units and 22% in dollars year over year, but cautioned that the trend may not continue through the fall sales campaign or determine full-season lift revenue.
- Management expected calendar-year 2012 resort capital expenditures of approximately $85–$95 million, including $43–$47 million for maintenance. The filing states approximately $16 million had been spent through April 30.
- Management said cash, revolver capacity, operating cash flow and expected proceeds from remaining real-estate inventory should support near-term liquidity and planned investment. It anticipated regular quarterly dividends, subject to board discretion and financing restrictions.
- Key risks include snowfall and weather variability, economic and travel conditions, real-estate market weakness and the timing and prices of unit closings, access to financing, seasonal labor, competition, and required government permits for resort operations on federal land. Continued weak real-estate markets could require price reductions or lead to impairment; management also noted possible impairment risk if weak cash flows persist, particularly in Lodging.
- The company acquired Kirkwood for approximately $18.2 million and Skiinfo for $5.7 million during the period. Purchase-price allocations were preliminary. The company also reported $67.3 million of letters of credit outstanding under the credit facility, including $53.4 million supporting employee-housing bonds.
- A tax dispute concerns approximately $6.2 million of claimed federal refunds and the use of net operating losses. A district court ruled for the company on a key issue, but the refund amount and potential IRS appeal remained unresolved; the company had not recognized the NOL benefits. The filing states potential tax-liability and interest reversals could range from zero to $27.6 million.
- The company reported compliance with debt covenants at April 30, 2012. It cautioned that failure to meet future covenants could require a waiver or amendment and adversely affect liquidity. Ordinary-course legal matters were not considered material individually or in aggregate based on recorded contingencies.
Investor verification priorities
- Assess whether the substantial year-over-year nine-month revenue and earnings decline is primarily a real-estate timing comparison or signals underlying resort weakness; review segment EBITDA and cash conversion.
- Track snowfall, skier visits, pass-sale conversion and pricing, particularly whether favorable spring pass trends persist into fall.
- Verify the pace, realized prices, remaining inventory and cash proceeds from the Ritz-Carlton Residences and One Ski Hill Place, and any impairment indicators.
- Monitor liquidity after planned capital spending, dividend payments and acquisitions, and confirm continued covenant compliance and revolver availability.
- Follow the IRS appeal/refund process and related Tax Court proceedings, and assess any eventual financial-statement impact.