Vail Resorts’ Income Jumps 18%, Cuts Wages, Appoints New Chairman of the Board

mike lewis

• March 11 2009
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It’s been a busy day for news from Vail Resorts. The company released results from the second quarter of fiscal year 2009, ended January 31, 2009, in which it posted an increase in revenues from the same period in 2008 of 18 percent. It also announced initial sales of ‘09/10 season passes at ‘08/09 pricing, reducing employee wages combined with a stock plan, and that CEO Rob Katz has been appointed chairman of the board.

Here are the highlights from the statement (For the full financials and to check out today’s earnings conference call, go HERE):

Net Debt leverage ratio of 1.2 times trailing twelve months. Total Reported EBITDA, $139.2 million of cash and cash equivalents on hand as of Jan. 31, 2009, and no revolver borrowings under the Company’s $400
million senior credit facility.

Commenting on its second quarter fiscal 2009 results, Rob Katz, CEO said, “Our second quarter Resort segment results, which encompass the first part of the ski season, reflect the impact of the severe downturn
in the economy. The company’s Mountain segment results were negatively impacted by lower destination visitation, which drove lower lift revenue and to a greater degree a decline in our ancillary business
revenue, including ski school, dining and retail/rental. This was partially offset by strong season pass revenue and pass skier visitation including from our new Epic Season Pass holders. The strong season pass sales enabled us to lock-in sales from a large portion of our Colorado in-state guests as well as a portion of our destination guests before the commencement of the major part of our ski season.

Total season pass sales (including the Epic Season Pass) increased by $17.1 million, or 22.1%, as of Jan. 31, 2009, for the 2008/2009 ski season over total season pass sales for the entire 2007/2008 ski season. Our lodging bookings as of Jan. 31, 2009, were down 14.9% tothe prior year, and reflect a much closer booking window experienced throughout this winter ski season. In addition, our guests are spending less on average during their stay, especially in the areas of private ski school lessons, fine dining and retail.

Lodging segment results benefited from the acquisition of Colorado Mountain Express (”CME”) at the beginning of the current year second quarter, the full period operations of the Arrabelle compared to start-up and pre-opening expenses incurred in the prior year and the renovation of the Lodge at
Vail as part of the Vail Front Door real estate project. Our Real Estate segment improved results reflect the timing of closings and mix of units sold, including the current year second quarter closings of six Lodge at Vail Chalets, one Arrabelle unit and three Crystal Peak Lodge units compared to the number and type of closings in the prior year. Overall, relative to the unprecedented environment we are in, our results for the quarter reflect the strength of our assets, brands, season pass programs and the passion of our employees in delivering the highest quality experience to our guests. Very importantly in these times, our balance sheet remains strong with net leverage of only 1.2 times trailing twelve months Total Reported EBITDA, no borrowings under our revolver and virtually no principal maturities due on any of our debt through 2013.”

Lift ticket revenue in the current year second fiscal quarter decreased $6.8 million, or 5.1%, from the prior year second fiscal quarter due primarily to a 19.3% decrease in visits excluding season pass holders, partially offset by a 4.6% increase in effective ticket price excluding season passes and an 18.2% increase in season pass revenue, which included an 8.4% increase in effective pass price.

Lodging segment revenue was $41.2 million in the second quarter of fiscal 2009 compared to $34.8 million in the second quarter of fiscal 2008, an increase of 18.2%, primarily due to the opening of the Arrabelle in January 2008 and the acquisition of CME on Nov. 1, 2008. Excluding the impact of the Arrabelle and CME, Lodging segment revenue would have decreased 13.2%.

Real estate revenue was $89.2 million in the second quarter of fiscal 2009 compared to $45.5 million in the second quarter of fiscal 2008.

Stock Repurchase Program

During the second quarter of fiscal 2009, the company repurchased 317,727 shares of common stock at an average price of $23.48 for a total amount of approximately $7.5 million in the quarter. Since the inception of this program in fiscal 2006, the company has repurchased 3,600,235 shares at an average price of $38.98 for a total amount of approximately $140.3 million, with 2,399,765 shares remaining available
under the existing repurchase authorization.

New Chairman

Robert A. Katz, chief executive officer of Vail Resorts, has been named to the additional position of chairman of the board of directors of the company, replacing Joe Micheletto, who retired from his positions as chairman of the board and as a director on Feb. 2, 2009. Katz has been a director of Vail Resorts since June 1996, and served as lead director from June 2003 through February 2006. Concurrently, Roland A. Hernandez has been named lead director of the board. Hernandez has been a director of Vail Resorts since December 2002.

Wage Reduction Plan

The companywide wage reduction plan is designed to reduce labor costs while preserving as many jobs as possible in this uncertain economic environment. Under the plan, all affected employees of the company will have their salaries reduced on a sliding scale from 2.5% for seasonal employees to 10% for executives. In addition, each full-time, year-round employee will receive a grant of stock-based incentive compensation with a value on a sliding scale from 1.5%of salary to 7.5%of salary for executives. This will increase the number of employees owning stock from approximately 260 to over 2,500, allowing many more employees to participate in ownership of the company.

Rob Katz, the company’s chief executive officer, has decided to not take any salary for a 12-month period and then receive a 15-percent salary reduction. He will not participate in the stock issuance. Each outside member of the company’s board of directors has also decided to reduce their annual cash retainer by 20 percent. Wage reductions for seasonal employees will be effective after the
current winter season. The wage reduction for all other employees will be effective on April 2, 2009. This wage reduction plan, combined with certain other adjustments, is expected to result in expense savings of over $10 million on an annualized basis.

“I am very proud of the effort of our employees and our company’s performance in this unprecedented environment,” said Katz. “However, it’s also clear that with the uncertainty that lies ahead, reducing cost is an imperative. We have chosen to address this situation by making the preservation of jobs and protecting the guest experience our highest priorities. By asking everyone to
take less, starting at the top, we can continue to focus on our mission of extraordinary resorts, exceptional experiences.”

Calendar 2009 Resort Capital Expenditure Announcement

In recognition of the current economic climate, and given the significant investments that the company has made in resort assets over the past several years, the company expects to spend approximately $50
million to $60 million of resort capital expenditures in calendar 2009, including $32 million to $37 million for “maintenance” capital expenditures that the Company believes are necessary to maintain the
high quality appearance and level of service at the company’s five ski resorts and throughout its hotels.

Outlook

Commenting on the company’s outlook for the remainder of fiscal 2009, Katz said, “2009 has been a challenging time for the entire travel industry and our company has certainly been impacted with
negative trends in our resort business. However, the company remains in a strong position from a capital structure and balance sheet perspective which we believe will enable us to navigate through the
current environment, even if prolonged, while still delivering on our mission of extraordinary resorts, exceptional experiences. We do expect that for the remainder of the fiscal year the trend of our results to
the prior year will worsen from the results realized in the second quarter. This is due primarily to the third quarter being a historically larger revenue quarter than the second quarter with the continuing negative trends having a greater impact. In addition, our real estate brokerage joint venture, included in Mountain segment results as mountain equity investment income, net, was positively impacted in the first half of the current fiscal year by project related closings with the remainder of the fiscal year anticipated to
experience a significant decline in brokerage fees due to virtually no project closings and much lower residential activity. In the fourth quarter of the prior fiscal year, there were also some one-time
favorable expense credits in the areas of workers’ compensation, property tax and health insurance costs, which are not expected to reoccur in the fourth quarter of fiscal 2009. In our Real Estate segment, minimal second half closings are anticipated as the vast majority of the units are already closed through the first half of the current year on projects now completed.”

Commenting on the fiscal 2009 guidance, Katz continued, “Since we provided our initial fiscal 2009 guidance in late September 2008, the overall macro economic environment has continued to deteriorate,
causing us to disclose at the time of our first quarter fiscal 2009 release that results could fall below the lower end of our original guidance range given the advance bookings we were seeing at that time.
Based on results to date and our current visibility into March and April, we believe our earlier concerns were well founded and now estimate that fiscal 2009 results will fall below the lower end of our initial guidance range issued before the start of the season. Incorporated in our new guidance range is an increase to our Real Estate Reported EBITDA guidance of $6 million at the low end of the range and $4 million at the high end of the range, which was favorably impacted by an improved contribution from our Crystal Peak Lodge
development and other reduced costs.”