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Vail Resorts Inc. Reports 3rd Qtr Net Income
of $62.5 million; Best Ever Third Quarter
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VAIL, Colo., June 14, 2004 - Vail Resorts, Inc. (NYSE: MTN) announced today financial results for the third quarter of fiscal 2004 ended April 30, 2004.
  • Record third quarter Resort revenue, up 10.4% over same period last year
  • Effective Ticket Price (ETP) for the quarter up 11.9% compared to same period last year
  • Record third quarter Resort Reported EBITDA, 15.7% higher than last year
  • Net income for the quarter up 86.3% to $62.5 million
  • Resort Reported EBITDA guidance range for fiscal 2004 increased by $5.0 million
The Company uses the term "Reported EBITDA" when reporting financial results, in accordance with SEC rules regarding the use of non-GAAP financial measures. The Company defines Reported EBITDA for the mountain, lodging and resort (the combination of mountain and lodging) segments as segment net revenue less segment operating expense plus segment equity investment income. The Company defines Reported EBITDA for the real estate segment as segment net revenue less segment operating expense plus gain on transfer of property plus segment equity investment income.

THIRD QUARTER PERFORMANCE

Mountain revenue for the third quarter of fiscal 2004 was $234.2 million, a $23.4 million, or 11.1%, increase from $210.8 million for the comparable period last year. Mountain expense increased $8.0 million, or 6.7%, to $126.7 million.

Lodging revenue for the quarter grew $3.5 million, or 7.5%, to $49.6 million. Lodging expense increased $4.2 million, or 12.3%, to $38.3 million.

Resort revenue, the combination of mountain and lodging revenues, rose $26.8 million, or 10.4%, to $283.8 million. Resort expense increased 8.0% to $164.9 million, up $12.2 million.

Real estate revenue for the quarter fell $7.7 million, as expected, due to the timing and mix of real estate projects, to $4.2 million. Real estate expense decreased $20.2 million to a credit of $8.6 million for the quarter, due primarily to the relief of a $15.1 million capital improvement fee liability on the Company's balance sheet. The elimination of the liability and corresponding reduction in real estate operating expense resulted from the third quarter payoff of the outstanding Smith Creek Metro District ("SCMD") bonds by the Bachelor Gulch Metro District ("BGMD"), allowing the Company to cancel its letters of credit supporting the SCMD bonds.

Total revenue increased $19.1 million, or 7.1%, to $287.9 million, and total operating expense decreased $8.7 million, or 4.7%, to $178.8 million.

Income from operations for the quarter improved $27.8 million, or 34.2%, to $109.2 million compared to $81.4 million for the same period last year.

Reported EBITDA for the mountain segment grew $16.1 million, or 17.5%, to $108.2 million compared to $92.1 million for the comparable period last year.

Reported EBITDA for the lodging segment improved from $11.7 million in the third quarter of last year to $11.9 million in the current year third quarter. The third quarter of fiscal 2004 includes $0.6 million of equity income attributed to the Ritz-Carlton, Bachelor Gulch, which represents a $0.9 million improvement over the same period last year. As the Company uses the equity method of accounting for the Ritz-Carlton, Bachelor Gulch, included in the fiscal 2004 third quarter Lodging Reported EBITDA is $0.6 million of depreciation and $0.6 million of interest expense.

Third quarter Resort Reported EBITDA grew $16.3 million to $120.1 million, a 15.7% improvement over the comparable period last year.

Real Estate Reported EBITDA for the quarter increased $12.1 million to $13.2 million in the current year third quarter from $1.2 million, due primarily to the reduction in expense associated with the payoff of the SCMD bonds.

The Company reported third quarter net income of $62.5 million, or $1.77 per diluted share, compared to net income of $33.5 million, or $0.95 per diluted share, for the same period last year.

NINE MONTH PERFORMANCE

Mountain revenue for the nine months ended April 30, 2004 was $469.6 million, an 8.5% increase from $432.9 million for the comparable period last year. Mountain expense increased $8.6 million, or 2.8%, to $315.4 million.

Lodging revenue for the nine months grew $8.3 million, or 6.8%, to $130.6 million. Lodging expense increased $5.8 million, or 5.2%, to $117.2 million.

Resort revenue rose $45.0 million, or 8.1%, to $600.2 million, and resort expense increased 3.4% to $432.6 million, up $14.4 million.

Real estate revenue for the nine-month period fell $36.9 million to $38.6 million, as expected due to the timing and mix of real estate projects, and real estate expense decreased $51.8 million to $9.6 million in part due to the $15.1 million operating expense reduction associated with the SCMD bond payoff.

Income from operations for the nine months improved $37.3 million, or 42.4%, to $125.4 million compared to $88.1 million for the same period last year.

Reported EBITDA for the mountain segment improved $27.9 million, or 21.9%, to $155.4 million compared to $127.5 million for the comparable period last year.

Reported EBITDA for the lodging segment improved from $7.3 million for the nine-month period last year to $11.1 million, up 51%, in the current year. The first nine months of fiscal 2004 includes $2.2 million of equity loss attributed to the Ritz-Carlton, Bachelor Gulch, which represents a $1.3 million improvement over the same period last year. As the Company uses the equity method of accounting for the Ritz-Carlton, Bachelor Gulch, included in the fiscal 2004 year-to-date Lodging Reported EBITDA is $1.7 million of depreciation and $1.8 million of interest expense.

Resort Reported EBITDA rose $31.7 million to $166.5 million, a 23.5% improvement over the nine-month period last year.

Real Estate Reported EBITDA for the nine months increased $13.1 million to $31.8 million from $18.7 million for the same period a year ago. The payoff of the SCMD bonds by the BGMD accounted for $15.1 million of the increase in Reported EBITDA. The current year's nine-month Real Estate Reported EBITDA includes a $2.1 million net gain from the transfer of property.

Net income for the nine months was $30.3 million, or $0.86 per diluted share, compared to net income of $25.1 million, or $0.71 per diluted share, for the same period last year. Excluding the previously announced second quarter charges for early extinguishment of debt and mold remediation, the Company's net income for the nine months would have been $52.1 million, or $1.48 per diluted share, using a normalized tax rate compared to $0.71 per diluted share in the prior year. The charges associated with the early extinguishment of debt resulted from the successful refinancing in January 2004 of the Company's 10-year senior subordinated notes and other debt, which will save the Company approximately $5.7 million in annual cash interest costs for at least the next five years.

Adam Aron, Chairman and Chief Executive Officer, commented, "This is proving to be a fabulous year for Vail Resorts, and we couldn't be more thrilled to announce our best ever third quarter. Our mountain segment had an exceptionally strong performance this year, growing revenue and Reported EBITDA across all lines of business. And the 10.2% growth in our average realized price for the ski season is reflective of increases at each and all of our five ski resorts. Beaver Creek and Heavenly both had record skier visits for the second year in a row. Four of our five mountain resorts (Vail, Beaver Creek, Breckenridge and Heavenly) also achieved record revenues. Overall, our ski areas performed exceptionally well during the 2003/2004 ski season. Careful management of expenses coupled with strong revenues caused profit margins to increase in our mountain segment from 29.4% to 33.0%."

"We are equally pleased with our Lodging segment results this year. Our lodging properties have benefited from the rebound in the national economy, the improving fortune of the U.S. travel industry, our careful management of expenses, improved occupancy in our RockResorts luxury hotels, positive consumer response to the renovated Vail Marriott, and improved financial results at the Ritz-Carlton, Bachelor Gulch in its second year of operations. This was evidenced by a 6.8% year-to-date increase in lodging revenues as well as our hefty 51% increase in Lodging Reported EBITDA. The increase was primarily driven by growth in the average daily rates at a majority of our owned hotels thanks to our sophisticated yield management efforts, coupled with a company-wide focus on containing costs while improving the guest experience," continued Aron.

Aron further added, "Resort Reported EBITDA is already $31.7 million favorable to last year through the third quarter, with three months remaining in fiscal 2004. The mid-range of our previously announced full-year guidance contemplated a $31.4 million year-over-year increase in Resort Reported EBITDA for the entire twelve months. Therefore, we believe we can prudently increase our guidance ranges at this time. While the fourth quarter is typically a slower season for our company, we do expect stronger year-over-year fourth quarter performance in our lodging segment. We also expect that through tight expense management we will continue to see improvement in normal operating expense growth across the Company. As such, we currently expect Mountain Reported EBITDA for fiscal 2004 to range from $124 million to $134 million and Lodging Reported EBITDA to range from $8 to $14 million, with total Resort Reported EBITDA between $135 and $145 million. We now expect Real Estate Reported EBITDA to be in the range of $28 to $34 million. The Company now expects to report a net loss for the year ranging from approximately $4 to $14 million. Excluding the impact of the previously announced charges associated with the early extinguishment of debt and Breckenridge Terrace mold remediation, and using a normalized tax rate, we expect net income to range between approximately $12 and $22 million for the fiscal year. This represents a dramatic recovery from the loss recorded by the Company in fiscal 2003, that we attributed primarily to the one-time impact of the outbreak of the Iraqi War."

Aron further added, "Looking to the balance of fiscal 2004, the entirety of fiscal 2005 and well into the future, there are a number of other key developments that bode well for Vail Resorts. First, the highly encouraging results achieved so far in fiscal 2004 were achieved despite abnormally low snowfall and unusually warm weather in our peak ski month of March. This caused actual March results to be well below management's expectations. Accordingly, assuming normal weather next year, one would certainly expect to see upside in our mountain revenues in fiscal 2005. Second, advance sales of season passes for the 2004/2005 ski season are currently running up 8.3% year-over-year. Based on this strength, we are announcing today that the price of our most popular season pass product, the Colorado Pass (of which we have sold approximately 100,000 passes per year), will rise to $349 effective August 15, 2004. Third, we are improving the product offering at several of our resorts. This summer we are installing new high-speed lifts at Beaver Creek and Heavenly and commencing the renovation of the Lodge at Rancho Mirage. Similarly, we are initiating a major grooming initiative, increasing grooming at both Vail and Beaver Creek by a whopping 33%. We believe these improvements in our product will generate both increased visitation and allow us to charge higher prices over time. And fourth, as previously announced, construction associated with our lucrative redevelopment of Vail, known as Vail's Front Door, has begun. We have similarly broken ground on a new golf community surrounding our Jackson Hole Golf and Tennis Club in Wyoming. We are also in detailed negotiations with a number of third parties to sell them other parcels of our real estate holdings throughout all of our resort locations. Given such discussions and with some of these projects now underway or near launch, we are optimistic that the profitability and cash flows of our real estate segment will rise significantly in the next several years, commencing in fiscal 2006. We believe that many investors value our real estate holdings near to its book value. Actually, we believe such estimates may be low by $100 million or more. As compelling as this potential real estate profitability is, the development of such projects has the added benefit of enhancing our various resorts and increasing their consumer appeal as well."
 

Vail Resorts, Inc.
Consolidated Financial Statements
(in thousands except per share amounts)
(unaudited)

                                   Three Months Ended    Nine Months Ended
                                        April 30,             April 30,
                                    2004       2003       2004       2003
                                           (as restated)       (as restated)
    Net revenue:
      Mountain                    $234,167   $210,841   $469,614   $432,855
      Lodging                       49,594     46,143    130,618    122,356
    Real estate                      4,165     11,888     38,553     75,434
    Total net revenue              287,926    268,872    638,785    630,645
    Operating expense:
      Mountain                     126,654    118,687    315,430    306,848
      Lodging                       38,267     34,070    117,151    111,345
      Real Estate                   (8,578)    11,592      9,610     61,431
      Gain on transfer of property      --         --     (2,147)        --
      Depreciation & amortization   22,406     22,878     65,340     62,642
      Asset impairment charge           --         --        933         --
      Mold remediation charge           --         --      5,500         --
      Loss on disposal
       of fixed assets, net             11        270      1,567        289
    Total operating expense        178,760    187,497    513,384    542,555
      Income from operations       109,166     81,375    125,401     88,090
    Other income (expense)
      Mountain equity
       investment income (loss), net   654        (74)     1,222      1,467
      Lodging equity investment
       income (loss), net              570       (390)    (2,384)    (3,671)
      Real estate equity
       investment income, net          486        881        692      4,721
      Investment income                445        474      1,338      1,084
      Interest expense             (10,664)   (12,767)   (36,930)   (37,481)
      Loss on extinguishment of debt    --         --    (36,195)        --
      Gain (loss) on put option, net  (433)        --     (1,739)     1,371
      Other income (expense), net        1         --         (9)        20
      Minority interest in
       income of consolidated
       subsidiaries                 (4,178)    (2,577)    (6,181)    (2,896)
    Income before provision
     for income taxes               96,047     66,922     45,215     52,705
      Provision for income taxes   (33,562)   (33,386)   (14,871)   (27,559)
    Net income                     $62,485    $33,536    $30,344    $25,146

    Basic weighted average shares   35,294     35,188     35,287     35,180
    Diluted weighted average shares 35,371     35,193     35,345     35,206

    Per share amounts:
      Basic net income per share    $ 1.77     $ 0.95     $ 0.86     $ 0.71
      Diluted net income per share  $ 1.77     $ 0.95     $ 0.86     $ 0.71
    Other Data:
    Mountain Reported EBITDA      $108,167    $92,080   $155,406   $127,474
    Lodging Reported EBITDA         11,897     11,683     11,083      7,340
    Resort Reported EBITDA         120,064    103,763    166,489    134,814
    Real Estate Reported EBITDA    $13,229     $1,177    $31,782    $18,724
 

    Note:     Certain reclassifications have been made to the Consolidated
               Financial Statements as of and for the three and nine months
               ended April 30, 2003 and the year ended July 31, 2003 to
               conform to the current period presentation.
 

                              Vail Resorts, Inc.
               Resort Revenue by Business Line and Skier Visits
                                (in thousands)

                           Three Months Ended         Nine Months Ended
                                April 30,                  April 30,

                        2004      2003  % Change   2004      2003  % Change
                              (as restated)              (as restated)
    Business Line
    Lift tickets     $115,515  $105,174   9.8%  $212,688  $196,089    8.5%
    Ski school         33,126    31,401   5.5%    58,171    55,367    5.1%
    Dining             25,093    22,889   9.6%    47,418    44,955    5.5%
    Retail/rental      39,917    36,817   8.4%   101,991    94,443    8.0%
    Other              20,516    14,560  40.9%    49,346    42,001   17.5%
    Total Mountain
     Operating
     Revenue          234,167   210,841  11.1%   469,614   432,855    8.5%

    Total Lodging
     Operating Revenue 49,594    46,143   7.5%   130,618   122,356    6.8%

    Total
     Resort Revenue  $283,761  $256,984  10.4%  $600,232  $555,211    8.1%
 

                             Three Months Ended         Nine Months Ended
                                 April 30,                 April 30,

                         2004      2003 % Change     2004     2003  % Change
    Skier Visits
    Vail                  857       873 (1.8)%     1,556    1,612  (3.5)%
    Breckenridge          746       766 (2.6)%     1,402    1,425  (1.6)%
    Heavenly              498       509 (2.2)%       965      934   3.3 %
    Keystone              492       519 (5.2)%       944    1,039  (9.1)%
    Beaver Creek          420       404  4.0 %       769      718   7.1 %
    Total Skier Visits  3,013     3,071 (1.9)%     5,636    5,728  (1.6)%

    ETP                $38.34    $34.25  12.0%    $37.74    34.24   10.2%
 

                                                        As of April 30,
                                                      2004           2003
                                                                (as restated)
    Key Balance Sheet Data:
    Real estate held for sale and investment        $119,570       $136,821
    Total stockholders' equity                       527,063        530,317

    Total debt                                       634,683        520,288
    Less: cash and cash equivalents                   94,869         20,374
        Net debt                                    $539,814        499,914
 

    Note:     Certain reclassifications have been made to the Consolidated
               Financial Statements as of and for the three and nine months
               ended April 30, 2003 and the year ended July 31, 2003 to
               conform to the current period presentation.
 

                Reconciliation of Non-GAAP Financial Measures
 

Resort, mountain, lodging and real estate Reported EBITDA have been presented herein as measures of the Company's financial operating performance. Reported EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States ("GAAP"), and it might not be comparable to similarly titled measures. Reported EBITDA does not purport to represent cash provided by operating activities and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The Company believes that Reported EBITDA is an indicative measure of the Company's operating performance, and it is generally used by investors to evaluate companies in the resort and lodging industries. In addition, because of the significance of long-lived assets to the operations of the Company and the level of the Company's indebtedness, the Company also believes that Reported EBITDA is useful in measuring the Company's ability to fund capital expenditures and service debt. The Company uses Reported EBITDA targets in determining management bonuses.

Presented below is a reconciliation of Reported EBITDA to net income for the Company calculated in accordance with GAAP for the three and nine months ended April 30, for the fiscal years 2004 and 2003.

                                    Three Months Ended    Nine Months Ended
                                        April 30,             April 30,

                                    2004       2003       2004       2003
                                           (as restated)      (as restated)

    Reconciliation to consolidated net income:

    Mountain Reported EBITDA      $108,167    $92,080   $155,406   $127,474
    Lodging Reported EBITDA         11,897     11,683     11,083      7,340
      Resort Reported EBITDA       120,064    103,763    166,489    134,814
    Real Estate EBITDA              13,229      1,177     31,782     18,724
      Total Reported EBITDA        133,293    104,940    198,271    153,538

    Depreciation and amortization  (22,406)   (22,878)   (65,340)   (62,642)
    Asset impairment charge             --         --       (933)        --
    Mold remediation charge             --         --     (5,500)        --
    Loss on disposal
     of fixed assets, net              (11)      (270)    (1,567)      (289)
    Other income (expense):
      Investment income                445        474      1,338      1,084
      Interest expense             (10,664)   (12,767)   (36,930)   (37,481)
      Loss on extinguishment of debt    --         --    (36,195)        --
      Gain (loss) on put option, net  (433)        --     (1,739)     1,371
      Other income (expense), net        1         --         (9)        20
      Minority interest in
       income of consolidated
       subsidiaries, net            (4,178)    (2,577)    (6,181)    (2,896)
    Income before
     provision for income taxes     96,047     66,922     45,215     52,705
      Provision for income taxes   (33,562)   (33,386)   (14,871)   (27,559)
    Net income                     $62,485    $33,536    $30,344    $25,146
 

    * Resort represents the sum of Mountain and Lodging.
 

Presented below is a reconciliation of net income excluding the mold remediation charge and loss on extinguishment of debt and including an adjustment to adjust the effective tax rate to a normalized rate of 40% to net loss of the Company calculated in accordance with GAAP for the nine months ended April 30, 2004. Also presented is a reconciliation of net income per diluted share excluding the mold remediation charge and loss on extinguishment of debt and including an adjustment to adjust the effective tax rate to a normalized rate of 40% to net income per diluted share of the Company calculated in accordance with GAAP for the nine months ended April 30, 2004. The Company has presented these non-GAAP measures as it believes that this presentation is more indicative of the Company's results from continuing operations.

                                                                     Nine
                                                                    Months
                                                                     Ended
                                                               April 30, 2004

    Net income                                                      $30,344
      Add back provision for income taxes                            14,871
    Income before provision for income taxes                         45,215
      Mold remediation charge, before provision for income taxes      5,500
      Loss on extinguishment of debt,
       before provision for income taxes                             36,195
      Less income tax provision provided for at 40%                 (34,764)
    Adjusted Net Income                                             $52,146

    Diluted net income per common share                              $0.86
      Add back provision for income taxes per diluted common share    0.42
    Income before provision for income taxes per diluted common share 1.28
      Mold remediation charge per diluted common share,
       before provision for income taxes                              0.16
      Loss on extinguishment of debt per diluted
       common share, before provision for income taxes                1.02
      Less income tax provision provided
       for at 40% per diluted common share                          (0.98)
    Adjusted diluted net income per share                            $1.48
 
 

A reconciliation of the low and high ends of the forecasted guidance range given for Reported EBITDA for the Company's fiscal year ending July 31, 2004 is presented below.

                                                      For the Year Ending
                                                         July 31, 2004

                                                    Low End       High End
                                                     Range          Range

    Reconciliation to consolidated loss before provision for income taxes:
 

    Mountain Reported EBITDA                       $124,000       $134,000
    Lodging Reported EBITDA                           8,000         14,000
      *Resort Reported EBITDA                       135,000        145,000
    Real Estate EBITDA                               28,000         34,000
      Total Reported EBITDA                         163,000        179,000

    Depreciation and amortization                   (88,100)       (88,100)
    Asset impairment charge                            (933)          (933)
    Mold remediation charge                          (5,500)        (5,500)
    Loss on disposal of fixed assets, net            (1,800)        (1,800)
    Other income (expense):
      Investment income                               1,650          1,800
      Interest expense                              (48,000)       (47,000)
      Loss on extinguishment of debt                (37,081)       (37,081)
      Gain (loss) on put option, net                 (1,739)        (1,739)
      Other income (expense), net                      (100)            --
    Minority interest in income
     of consolidated subsidiaries, net               (3,000)        (4,000)
    Loss before benefit for income taxes            (21,603)        (5,353)
    Benefit for income taxes                          7,129          1,767
    Net loss                                       $(14,474)       $(3,586)
 
 

# Resort represents the sum of Mountain and Lodging. The Company provides Reported EBITDA ranges for the mountain and lodging segments, as well as for the two combined. Readers are cautioned to recognize that the low end of the expected ranges provided for the lodging and mountain segments, while possible, do not sum to the low end of the Resort Reported EBITDA range provided because we do not necessarily expect or assume that we will actually hit the low end of both ranges, as the actual Resort Reported EBITDA will depend on the actual mix of the lodging and mountain components. Similarly,
 

the high end of the ranges for the lodging and mountain segments do not sum to
the high end of the resort range.

Presented below is a reconciliation of the forecasted net income calculated in accordance with GAAP to forecasted net income excluding the mold remediation charge and loss on extinguishment of debt and including an adjustment to adjust the effective tax rate to a normalized rate of 40% for the Company for the year ending July 31, 2004.

                                                    Low End        High End
                                                     Range          Range

    Forecasted net loss                            $(14,474)       $(3,586)
      Add back forecasted benefit for income taxes   (7,129)        (1,767)
    Forecasted loss before benefit of income taxes  (21,603)        (5,353)
      Forecasted mold remediation charge              5,500          5,500
      Forecasted loss on extinguishment of debt      37,081         37,081
    Less forecasted income
     tax provision provided for at 40%               (8,391)       (14,890)
    Adjusted Forecasted Net Income                  $12,587        $22,338

Vail Resorts, Inc. is the premier mountain resort operator in North America. The Company's subsidiaries operate the mountain resorts of Vail, Beaver Creek, Breckenridge and Keystone in Colorado, Heavenly Resort in California and Nevada and the Grand Teton Lodge Company in Jackson Hole, Wyoming. In addition, the Company's RockResorts luxury resort hotel company operates 10 resort hotels throughout the United States. 

Statements in this press release, other than statements of historical information, are forward looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 

###

Contact:
Vail Resorts, Inc.
www.vailresorts.com
www.snow.com

 
Also See: Vail Resorts Offers Stock Options to Top 100 Executives, Despite Annual Loss / December 2003
Vail Resorts' Statement on Jury Verdict in Snake River Lodge & Spa Litigation / December 2003

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