Intrawest Corporation reported net income for the second quarter, including discontinued operations, of $69.3 million or $1.41 per diluted share compared to a net loss of $7.1 million or 15 cents per diluted share last year. During the second quarter the company closed on the sale of a majority of its interest in Mammoth Mountain Ski Area for a net gain of $60.0 million after income taxes of $47.3 million. The gain and Mammoth Mountain's results to the sale date are classified as discontinued operations.
Income from continuing operations was $11.3 million compared to a loss of $10.5 million during the same period last year, resulting in earnings of $0.23 per diluted share versus a loss of 22 cents per diluted share. Income from continuing operations in the second quarter of last year included call premium and other redemption costs of $28.1 million as the company refinanced senior notes to take advantage of lower interest rates. Total company EBITDA (earnings before interest, income taxes, non-controlling interest, depreciation and amortization and any non-recurring items) for the quarter decreased to $38.4 million from $52.0 million during the same period last year due mainly to a strike by unionized employees at Tremblant and reduced destination visitors in the early winter season at resort operations in British Columbia.
“Completing the sale of Mammoth Mountain Ski Area has strengthened our balance sheet considerably and we remain focused on our strategy of maximizing return on capital,” said Joe Houssian, chairman, president and chief executive officer of Intrawest Corporation. “Although our second quarter operating results were impacted by the strike at Tremblant and reduced destination visitors at our resort operations in British Columbia, other parts of our business such as Abercrombie & Kent performed extremely well.”
Quarter Highlights
- The sale of a majority interest in Mammoth Mountain Ski Area
resulted in an after-tax gain of $60 million. Intrawest has retained
a 15 per cent interest in the world-class resort;
- Abercrombie & Kent reported a 42 per cent increase in adventure-travel
tour EBITDA;
- A strike at Tremblant and reduced destination visitors in the early
winter season at resort operations in British Columbia led to a
reduction in resort and travel operations EBITDA;
- December 2005 was a record month for real estate launches achieving
pre-sale revenues of $534 million.
“Our real estate division had an impressive quarter, achieving record pre-sale revenue of $534 million in December,” added Houssian. “With our recent pre-sale success at Honua Kai on Maui and The Village of Imagine in Orlando, we will continue to seek out opportunities to add warm-weather locations to our real estate portfolio.”
Net income was $69.3 million ($1.41 per diluted share) in the 2005 quarter compared with a net loss of $7.1 million (15 cents per diluted share) in the 2004 quarter. We sold the majority of our interest in Mammoth Mountain Ski Area in the 2005 quarter and recognized a gain of $60.0 million on the transaction. This gain, as well as Mammoth's results to the sale date (including the 2004 quarter comparatives), have been classified as discontinued operations. Income from continuing operations was $11.3 million ($0.23 per diluted share) in the 2005 quarter compared with a loss from continuing operations of $10.5 million ($0.22 per diluted share) in the 2004 quarter. The loss in the 2004 quarter included $28.1 million of call premium and other costs to redeem $359.9 million of senior notes. Total Company EBITDA decreased from $52.0 million to $38.4 million due mainly to reduced early winter season EBITDA at our mountain resorts.
Income from discontinued operations was $57.9 million in the 2005 quarter compared with $3.4 million in the 2004 quarter. The amount in the 2005 quarter comprised the gain on the Mammoth sale of $60.0 million, net of income taxes of $47.3 million, and a net loss from operations from October 1 to October 31, 2005 (the effective date of the sale) of $2.1 million. The amount in the 2004 quarter reflects net income from Mammoth for the full three months, which benefited from seasonal profitability, particularly in December.
REVIEW OF RESORT AND TRAVEL OPERATIONS
Resort and travel operations revenue increased from $178.2 million in the 2004 quarter to $193.4 million in the 2005 quarter. In December 2004 we increased our ownership in Alpine Helicopters from 45% to 100% and the incremental revenue in the 2005 quarter from our increased ownership interest was $4.3 million. In addition, in August 2005 we entered into a lease to operate Parque de Nieve, an indoor snowdome in Spain, and revenue in the 2005 quarter included $2.5 million from this new business. The rise in the value of the Canadian dollar from an average rate of US$0.80 in the 2004 quarter to US$0.85 in the 2005 quarter increased reported resort and travel operations revenue by $2.8 million. On a same-business (i.e., excluding 55% of Alpine Helicopters and Parque de Nieve), constant exchange rate basis, resort and travel operations revenue increased by 3% to $183.8 million. Revenue from the mountain segment decreased slightly from $99.8 million to $99.3 million while revenue from the non-mountain segment increased from $78.4 million to $84.5 million.
Skier visits increased from 1,387,000 in the 2004 quarter to 1,430,000 in the 2005 quarter with increases of 3% at both our eastern and western resorts. Generally good early season snow conditions enabled most of our eastern resorts to open earlier than planned, however this positive momentum was disrupted by a strike by 1,500 workers at Tremblant that began on December 17 and was settled on January 3. Although the resort was able to remain open during the important holiday season using 200 management personnel, it operated at significantly reduced capacity and as a result, skier visits that were running 23% ahead of last year before the strike, ended the 2005 quarter 17% behind the 2004 quarter. Mixed conditions at Whistler Blackcomb, with the earliest season opening in 12 years followed by challenging weather in December, led to a 3% decline in skier visits in the 2005 quarter. We are seeing some spill-over effect at all our operations in British Columbia (Whistler Blackcomb, Panorama and Alpine Helicopters) from the sub-standard ski season last year. Furthermore, all our Canadian businesses (particularly Whistler Blackcomb) are experiencing a decline in destination visits due to the high Canadian dollar. Abundant early season snowfall in Colorado enabled Copper and Winter Park to increase their aggregate skier visits by 9% in the 2005 quarter.
Revenue per skier visit, adjusted for a constant Canadian dollar exchange rate, decreased 5% in the 2005 quarter. After the strike began at Tremblant, we discounted many of our prices to compensate for the limited operations, resulting in a 34% decline in revenue per visit compared with the 2004 quarter. We estimate that the workers' strike at Tremblant reduced resort and travel operations revenue in the 2005 quarter by $3.8 million. Excluding Tremblant, our eastern resorts saw a 3% decline in revenue per skier visit due mainly to early season pricing strategies and pass promotion programs at Stratton and Snowshoe designed to stimulate visits. At our western resorts, revenue per skier visit decreased 4% due mainly to a higher mix of lower-yielding season pass visits at our Colorado resorts as pass holders took advantage of the excellent early season conditions.
The increase in revenue from the non-mountain segment in the 2005 quarter was primarily due to a 9% increase in adventure-travel tour revenue at Abercrombie & Kent (“A&K”) from $66.3 million to $72.2 million. A&K saw good growth in tour revenues from most of its major destinations, particularly East Africa, India and the Orient. In addition to its adventure-travel tour revenue, A&K earned $1.2 million of licensing fees in the 2004 quarter (versus nil in the 2005 quarter) on a contract with an operator of destination clubs that was terminated in August 2005. Resort and travel operations revenue at Sandestin increased by $1.2 million or 15% due mainly to strong growth in food and beverage from group and conference visitors.
The breakdown of resort and travel operations revenue by major business
component was as follows:
2005 2004
(MILLIONS) QUARTER QUARTER INCREASE CHANGE(%)
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Mountain operations $52.5 $44.7 $7.8 17
Retail and rental shops 27.3 25.6 1.7 7
Food and beverage 18.2 15.8 2.4 15
Ski school 10.3 10.2 0.1 1
Golf 4.6 4.6 - -
Adventure-travel tours 72.2 66.3 5.9 9
Other 8.3 11.0 (2.7) (25)
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$193.4 $178.2 $15.2 9
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The growth in mountain operations revenue includes $6.8 million from our increased ownership interest in Alpine Helicopters and our lease of Parque de Nieve. The decline in other revenue was due in part to the decrease in licensing fees earned by A&K.
Resort and travel operations expenses increased from $154.0 million in the 2004 quarter to $178.0 million in the 2005 quarter, of which $5.3 million and $2.2 million, respectively, were due to the acquisition of the remaining 55% of Alpine Helicopters and the lease of Parque de Nieve and $2.4 million came from the impact on reported expenses of the higher Canadian dollar. On a same-business, constant exchange rate basis expenses in the mountain segment increased by $7.8 million to $85.3 million. The earlier opening of several of our eastern resorts and higher business levels at our Colorado resorts increased expenses by $3.0 million. In addition, we spent $1.1 million on a new operational excellence initiative designed to change our work processes in order to derive cost savings in the future, we increased our reserves for self-insured workers' compensation and general liability claims by $1.9 million and we incurred $0.5 million of new rental lease costs as a result of selling our commercial properties last fiscal year. These cost increases were partially offset by $1.7 million of expense savings at Tremblant due to the workers' strike. Expenses at the non-mountain segment increased by $6.3 million to $82.8 million. The higher business volumes at A&K increased expenses by $4.3 million and expenses at Sandestin increased by $1.8 million, mainly labor, rent and utilities and repairs and maintenance. In addition our decision last year to exit the non-resort golf business resulted in the payment of $0.7 million of severance and other termination costs in the 2005 quarter.
Resort and travel operations EBITDA decreased from $24.2 million in the 2004 quarter to $15.4 million in the 2005 quarter. On a combined basis, the acquisition of 55% of Alpine Helicopters and the lease of Parque de Nieve reduced EBITDA in the 2005 quarter by $0.7 million due to seasonal losses. Fewer destination visitors in the early winter season at our British Columbia operations (due in part to the spillover effect from the substandard conditions last year and the high Canadian dollar) reduced EBITDA in the 2005 quarter by $3.6 million and the workers' strike at Tremblant reduced it by a further $2.1 million. In the non-mountain segment, EBITDA decreased by $0.6 million in the 2005 quarter as higher EBITDA from A&K's adventure-travel business was offset by lower fees from the termination of its licensing agreement, costs incurred to exit the non-resort golf business and reduced EBITDA at Sandestin.
FIRST HALF REVIEW
Income from continuing operations was $18.6 million ($0.38 per diluted share) in the 2005 first half compared with a loss from continuing operations of $18.7 million ($0.39 per diluted share) in the 2004 first half-year. The loss in the 2004 period included $28.1 million of call premium and other costs to redeem $359.9 million of senior notes. Total Company EBITDA increased from $68.3 million to $95.7 million as increased EBITDA from real estate development was partly offset by reduced EBITDA from resort and travel operations and management services. Results from discontinued operations, comprising the gain on sale of the majority of our interest in Mammoth and Mammoth's operating results, was $59.9 million in the 2005 period compared with $4.5 million in the 2004 period. This resulted in net income of $78.5 million ($1.60 per diluted share) in the 2005 period compared with a net loss of $14.2 million ($0.30 per diluted share) in the 2004 period.
REVIEW OF RESORT AND TRAVEL OPERATIONS
Resort and travel operations revenue increased from $304.5 million in the 2004 period to $356.0 million in the 2005 period. The acquisition of the remaining 55% of Alpine Helicopters in December 2004 and the lease of Parque de Nieve in August 2005 added $13.5 million and $3.5 million, respectively, of incremental revenue and the impact of the higher Canadian dollar increased reported revenue by a further $6.0 million. On a same-business, constant exchange rate basis, revenue from our mountain segment increased by $4.4 million due mainly to improved summer revenues at Whistler Blackcomb, Intrawest Retail Group and Alpine Helicopters. Revenue from our non-mountain segment increased by $24.0 million in the 2005 period due mainly to 19% growth in A&K's adventure-travel tours business.
EBITDA from resort and travel operations decreased from $31.9 million in the 2004 period to $22.5 million in the 2005 period. An increase in EBITDA of $6.6 million from A&K's adventure-travel tour business was offset by a $3.6 million decline in its licensing fees (due to the termination of its licensing agreement), lower EBITDA from our other businesses primarily due to reduced destination visitors in the early winter season at our British Columbia resorts, the workers' strike at Tremblant and the hurricanes in Sandestin, and increases in general and administrative expenses of the Leisure and Travel Group.
INTRAWEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(in thousands of United States dollars except per share amounts)
(unaudited)
THREE MONTHS SIX MONTHS
ENDED DECEMBER 31 ENDED DECEMBER 31
2005 2004 2005 2004
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(RESTATED) (RESTATED)
(note 1) (note 1)
RESORT AND TRAVEL OPERATIONS:
Revenue $ 193,405 $ 178,204 $ 355,980 $ 304,522
Expenses 177,971 153,982 333,520 272,578
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Resort and travel operations
contribution 15,434 24,222 22,460 31,944
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MANAGEMENT SERVICES:
Revenue 36,390 36,505 72,254 71,497
Expenses 30,574 29,319 62,569 58,627
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Management services
contribution 5,816 7,186 9,685 12,870
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REAL ESTATE DEVELOPMENT:
Revenue 84,173 201,718 182,867 240,510
Expenses 65,264 188,632 113,850 222,743
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18,909 13,086 69,017 17,767
Income from equity accounted
investments 553 2,128 1,142 2,588
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Real estate development
contribution 19,462 15,214 70,159 20,355
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Income before undernoted items 40,712 46,622 102,304 65,169
Interest and other income 3,706 1,228 4,230 3,313
Interest expense (12,438) (11,659) (22,861) (22,585)
Corporate general and
administrative expenses (6,596) (5,488) (11,971) (9,941)
Depreciation and amortization (13,765) (13,155) (26,423) (24,249)
Call premium and unamortized
costs of senior notes redeemed - (28,069) - (28,069)
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Income (loss) from continuing
operations before income taxes
and non-controlling interest 11,619 (10,521) 45,279 (16,362)
Provision for income taxes 764 2,167 (4,228) 695
Non-controlling interest (1,048) (2,172) (22,480) (3,051)
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Income (loss) from continuing
operations 11,335 (10,526) 18,571 (18,718)
Results of discontinued
operations (note 3) 57,948 3,401 59,879 4,525
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Net income (loss) for the
period 69,283 (7,125) 78,450 (14,193)
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Retained earnings, beginning of
period, as previously stated 351,180 312,205 345,348 318,883
Prior period adjustment
(note 1) - (3,926) (3,335) (3,536)
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Retained earnings, beginning
of period, as restated 351,180 308,279 342,013 315,347
Dividends (3,295) (3,037) (3,295) (3,037)
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Retained earnings, end of
period $ 417,168 $ 298,117 $ 417,168 $ 298,117
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Income (loss) from continuing
operations per common share:
Basic $ 0.23 $ (0.22) $ 0.38 $ (0.39)
Diluted $ 0.23 $ (0.22) $ 0.38 $ (0.39)
Net income (loss) per common
share
Basic $ 1.43 $ (0.15) $ 1.62 $ (0.30)
Diluted $ 1.41 $ (0.15) $ 1.60 $ (0.30)
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Weighted average number of
common shares outstanding
(in thousands)
Basic 48,523 47,645 48,379 47,634
Diluted 49,123 47,645 48,979 47,634
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