Intrawest Corporation third quarter revenue was $504.8 million compared with $437.9 million for the same period last year. The year-over-year increase was mainly the result of the inclusion of revenue from Abercrombie & Kent (A&K), which Intrawest acquired in July 2004, partially offset by lower revenue from the real estate division, which was expected.
Total Company EBITDA was $126.1 million compared with $128.1 million in the same period last year. EBITDA from resort and travel operations decreased as adverse weather patterns impacted operations at Whistler Blackcomb, Panorama Mountain Village and Canadian Mountain Holidays. Net income was $68.8 million or $1.44 per share compared with $56.2 million or $1.17 per share in the same period last year.
“The strong performance across our network of resorts and from A&K has allowed us to deliver solid results despite the adverse weather conditions that impacted our resorts in British Columbia,” said Joe Houssian, chairman, president and chief executive officer. “Demand for our resort properties continues to be very high, as evidenced by an average of 91 per cent sell-out at our recent real estate launches.”
For the quarter, total revenue increased from $437.9 million in the 2004 quarter to $504.8 million in the 2005 quarter mainly due to the acquisition of Abercrombie & Kent (“A&K”), partially offset by reduced real estate closings. Despite the increase in revenue, total Company EBITDA decreased from $128.1 million to $126.1 million as low margins in A&K, lower resort and travel operations EBITDA from our British Columbian resorts and reduced real estate EBITDA offset growth in management services EBITDA.
Net income was $68.8 million or $1.44 per diluted share in the 2005 quarter compared with $56.2 million or $1.17 per diluted share in 2004 quarter. Net income in the 2005 quarter was increased due to a significantly reduced income tax provision.
Resort and travel operations revenue increased from $299.5 million in the 2004 quarter to $391.4 million in the 2005 quarter. On July 2, 2004, we acquired a 67% interest in A&K, a worldwide luxury adventure-travel company, and we consolidated A&K's results from the acquisition date. A&K generated $67.9 million of revenue in the 2005 quarter, principally from sales of travel tours. On December 15, 2004, we also acquired the remaining 55% of Alpine Helicopters that we did not already own and the incremental revenue in the 2005 quarter from our new ownership interest was $15.1 million.
On a same- business basis (i.e., excluding A&K and 55% of Alpine Helicopters), resort and travel operations revenue increased 3% to $308.4 million, with the mountain resorts increasing from $289.3 million to $295.5 million and the warm-weather resorts increasing from $10.2 million to $12.9 million.
The rise in the value of the Canadian dollar from an average rate of US$0.76 in the 2004 quarter to US$0.80 in the 2005 quarter increased reported mountain resort revenue by $7.4 million. On a same-business, constant exchange rate basis, mountain resort revenue decreased by $1.2 million in the 2005 quarter due to a 16% decrease in revenue at our British Columbia resorts partially offset by a 7% increase in revenue at our eastern resorts and a 9% increase in revenue at our western U.S. resorts.
Our resorts in British Columbia experienced the most challenging weather in 40 years, with heavy rainfall in mid-January followed by warm, dry conditions through mid-March. As a result, skier visits declined 16% at Whistler Blackcomb and 10% at Panorama. To compensate for sub-standard conditions, we discounted the prices of many of our products, which led to flat revenue per visit at Whistler Blackcomb and a 14% decline at Panorama. Business volumes at Alpine Helicopters were also affected by the difficult weather, resulting in a $1.8 million decrease in revenue based on our 45% interest.
Our eastern resorts generally experienced good conditions during the 2005 quarter which, combined with the positive impact of an early Easter, increased skier visits by 8%. Revenue per skier visit at our eastern resorts (on a constant exchange rate basis) decreased 1%.
Similarly, our western U.S. resorts benefited from generally good conditions and realized a 3% increase in skier visits and a 5% increase in revenue per visit. The increase in visits would have been greater, however torrential rains in California in January closed roads and impacted visitation to Mammoth.
The $2.7 million or 26% increase in revenue from the warm-weather resorts in the 2005 quarter was primarily due to a 24% increase in occupied room nights at Sandestin, which drove higher retail, food and beverage, and activities revenue.
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 $175.9 $162.8 $13.1 8
Retail and rental shops 59.7 55.5 4.2 8
Food and beverage 43.3 40.4 2.9 7
Ski school 28.3 26.2 2.1 8
Golf 3.8 4.0 (0.2) (5)
Travel tours 67.9 - 67.9 n/a
Other 12.5 10.6 1.9 18
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$391.4 $299.5 $91.9 31
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The increase in mountain operations revenue was due to the acquisition of 55% of Alpine Helicopters. Excluding this factor, mountain operations revenue decreased 1% due to the reduction in skier visits in British Columbia. The decline in golf revenue was mainly due to cool, wet weather throughout January and February at our course in Arizona.
Resort and travel operations expenses increased from $198.5 million in the 2004 quarter to $294.4 million in the 2005 quarter, of which $65.0 million and $11.7 million, respectively, were due to the inclusion of A&K and 55% of Alpine Helicopters in our results. On a same-business basis, resort and travel operations expenses were $217.7 million in the 2005 quarter.
Mountain resort expenses increased by $17.5 million to $202.8 million due mainly to the increased skier visits at our U.S. western and eastern resorts, increased general and administrative costs of the recently formed Leisure and Travel Group and the impact on reported expenses of the higher Canadian dollar.
Our ability to reduce expenses at our British Columbia resorts in response to the shortfall in visits was limited given the high proportion of fixed costs at a ski resort and the incremental costs incurred on snow management and guest services. Expenses at the warm-weather resorts increased by $1.6 million to $14.9 million due mainly to higher business volumes at Sandestin.
Resort and travel operations EBITDA decreased from $100.9 million in the 2004 quarter to $97.0 million in the 2005 quarter. The acquisitions of A&K and 55% of Alpine Helicopters added $2.9 million and $3.4 million, respectively, to EBITDA while the impact of significantly reduced skier visits in British Columbia, net of other factors decreased it by $10.2 million. The decline in EBITDA reduced the margin on resort and travel operations from 33.7% in the 2004 quarter to 24.8% in the 2005 quarter. Excluding A&K, which has lower margins than our other resort operations businesses due to the economics of the tour and travel industry, the margin would have been 29.1% in the 2005 quarter.
Management services revenue increased from $46.4 million in the 2004 quarter to $59.2 million in the 2005 quarter, broken down as follows:
2005 QUARTER 2004 QUARTER
(MILLIONS) REVENUE EBITDA REVENUE EBITDA
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Lodging and property management $37.3 $17.3 $29.1 $12.1
Other resort and travel fees 10.5 2.9 8.1 1.0
Development services fees 2.0 (0.2) 3.9 0.6
Playground sales fees 9.4 3.6 5.3 2.0
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$59.2 $23.6 $46.4 $15.7
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The increase in fees from lodging and property management was due mainly to a 9% increase in occupied room nights and a 4% increase in average daily rate across our resorts. In addition, we charged $1.1 million of reservation fees (these fees were not charged in fiscal 2004) and generated higher revenue from housekeeping and miscellaneous lodging services.
Since we do not have a portfolio of managed lodging units at Whistler Blackcomb, the decline in visitors to that resort did not have a significant impact on the management services segment. The increase in other resort and travel fees, which comprise reservation fees earned by RezRez, our central call center, golf course management fees and club management fees earned by the Resort Club, was mainly due to growth in club management.
The reduction in development services fees was mainly due to the timing of incurrence of construction costs by Leisura and the completion of several Leisura projects, which weighted fees towards the first six months of fiscal 2005. Strong resale markets at Sandestin and Stratton and higher sales fees from third-party developers enabled Playground (our real estate sales business) to increase its sales fees by $4.1 million.
Management services expenses increased from $30.6 million in the 2004 quarter to $35.6 million in the 2005 quarter due to the higher volume of activity. EBITDA from management services increased 50% from $15.7 million in the 2004 quarter to $23.6 million in the 2005 quarter. The margin on management services improved from 34.0% to 39.8%.
Interest and other income (expense) increased from an expense of $0.3 million in the 2004 quarter to income of $2.4 million in the 2005 quarter due mainly to higher interest income, including interest on the $45 million vendor take-back loan on the sale of commercial properties in the second quarter.
Interest expense was $9.1 million in the 2005 quarter, down from $12.6 million in the 2004 quarter due to lower average debt levels and lower interest rates, primarily from the redemption of higher interest-bearing senior notes. In the second quarter of fiscal 2005 we redeemed $359.9 million of 10.5% senior notes and issued $329.9 million of 7.5% and 6.875% senior notes. The remaining $34.5 million of 10.5% senior notes were redeemed in February 2005. We expensed $2.1 million of call premium and other costs in the 2005 quarter in connection with this redemption.
Depreciation and amortization expense was $35.2 million in the 2005 quarter, up from $33.2 million in the 2004 quarter due mainly to the inclusion of $1.1 million of depreciation and amortization at A&K and $0.9 million more depreciation from the acquisition of the remaining 55% of Alpine Helicopters.
Corporate general and administrative (“G&A”) expenses increased from $4.2 million in the 2004 quarter to $5.4 million in the 2005 quarter due mainly to higher compensation costs (including the cost of expensing stock options), increased corporate governance expenses, the cost of complying with privacy legislation and the impact on reported G&A of the stronger Canadian dollar.
The provision for income taxes decreased from $11.0 million in the 2004 quarter to $1.9 million in the 2005 quarter, being the amount required to bring the income tax provision for fiscal 2005 year-to-date to zero. We had expected that our income tax rate in fiscal 2005 would be in the range of 10% – 15%, however, the decline in EBITDA, mainly from resort and travel operations in British Columbia, reduced the amount of income taxed at higher marginal rates, lowering our overall tax rate. Our income tax provision was further reduced by the utilization of income tax losses that we had previously expected to expire unutilized. As a result of these two factors we expect our income tax provision in fiscal 2005 to be zero.
Non-controlling interest was $7.3 million in the 2005 quarter, down from $8.8 million in the 2004 quarter as lower non-controlling interest at Whistler Blackcomb, arising from reduced resort and travel operations EBITDA, offset the inclusion of non-controlling interest in A&K.
Year to date total revenue increased from $1,064.5 million in the 2004 period to $1,147.5 million in the 2005 period mainly due to the acquisition of A&K, partially offset by reduced real estate closings. Total Company EBITDA decreased from $205.6 million to $199.6 million as increased EBITDA from resort and travel operations and management services was offset by reduced EBITDA due to the timing of real estate closings.
Net income before the after- tax cost of expensing the call premium and unamortized costs on senior notes redeemed was $84.3 million or $1.75 per diluted share in the 2005 period compared with $67.6 million or $1.41 per diluted share in the 2004 period. We redeemed senior notes in both periods and expensed $30.2 million and $12.1 million of call premium and other costs, respectively, in the 2005 and 2004 periods.
After expensing the call premium and unamortized costs on senior notes redeemed, we generated net income of $54.1 million or $1.13 per diluted share in the 2005 period compared with $57.3 million or $1.20 per diluted share in the 2004 period. Net income in the 2005 period was increased due to recording zero income taxes.
Resort and travel operations revenue increased from $465.1 million in the 2004 period to $716.0 million in the 2005 period. The acquisitions of A&K in July 2004 and the remaining 55% of Alpine Helicopters in December 2004 increased resort and travel operations revenue by $206.1 million and $15.1 million, respectively, and the impact of the higher Canadian dollar increased reported revenue by a further $12.2 million. On a same-business, constant exchange rate basis, mountain resort revenue increased by $12.1 million as a 9% increase in revenue in the first two quarters, due mainly to the 7% increase in skier visits from the season start to the end of December and strong growth in summer revenue at many resorts, offset the $1.2 million decline in mountain resort revenue in the third quarter described above. Revenue from the warm-weather resorts increased by $5.4 million to $38.9 million in the 2005 period due mainly to a 21% increase in occupied room nights at Sandestin, which drove higher retail, food and beverage, and activities revenue.
EBITDA from resort and travel operations increased from $125.8 million in the 2004 period to $134.6 million in the 2005 period. The acquisitions of A&K and 55% of Alpine Helicopters increased EBITDA by $16.2 million and $3.4 million, respectively, and other factors, particularly the significant decline in EBITDA at our operations in British Columbia in the third quarter, reduced it by $10.8 million. The margin on ski and resort operations decreased from 27.1% in the 2004 period to 18.8% (23.2% excluding A&K) in the 2005 period.
Management services revenue increased 38% from $95.2 million in the 2004 period to $130.9 million in the 2005 period, broken down as follows:
2005 PERIOD 2004 PERIOD
(MILLIONS) REVENUE EBITDA REVENUE EBITDA
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Lodging and property management $70.5 $17.7 $57.6 $12.8
Other resort and travel fees 16.5 1.4 15.0 1.2
Development services fees 13.7 5.5 8.4 1.9
Playground sales fees 30.2 11.9 14.2 5.9
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$130.9 $36.5 $95.2 $21.8
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Fees from lodging and property management increased by $12.9 million due mainly to a 10% increase in occupied room nights and a 3% increase in average daily rates across our resorts, and higher revenue from housekeeping and miscellaneous lodging services. Other resort and travel fees mainly comprise call center reservation fees and golf course and miscellaneous club management services. The increase in development services fees was due to managing more projects for Leisura during the first six months of the year. The growth in Playground sales fees from third-party developers reflects the accelerated timing of real estate closings on newly constructed projects and strong resales activity.
The growth in revenues increased EBITDA from management services from $21.8 million in the 2004 period to $36.5 million in the 2005 period. The margin on management services improved from 22.9% to 27.9%.
Interest and other income was $5.6 million in the 2005 period, up from $4.8 million in the 2004 period mainly due to the inclusion of $1.3 million of interest and miscellaneous gains earned by A&K and increased interest earned on receivables and cash balances (including a $45 million vendor take-back loan on the sale of commercial properties), partially offset by the collection in the 2004 period of $2.4 million of fuel spill remediation costs at Mammoth.
Interest expense decreased from $34.7 million in the 2004 period to $32.3 million in the 2005 period. Interest incurred was $11.3 million, or 16%, lower in the 2005 period (due to lower average debt levels and lower interest rates primarily from the refinancing of senior notes), however $8.9 million, or 24%, less interest was capitalized to real estate (partly due to the sale of projects to Leisura). The positive impact of these interest savings was partly offset by the consolidation of $1.1 million of interest expense of A&K.
Depreciation and amortization expense increased from $54.7 million in the 2004 period to $61.2 million in the 2005 period due mainly to the inclusion of $4.0 million of depreciation and amortization at A&K and $0.9 million more depreciation from the acquisition of the remaining 55% of Alpine Helicopters. In addition, the higher Canadian dollar increased reported depreciation of Canadian assets by $1.4 million in the 2005 period.
Corporate general and administrative expenses increased from $13.7 million in the 2004 period to $15.3 million in the 2005 period. Higher compensation costs (including $0.7 million to expense the cost of stock options in accordance with our change in accounting policy), increased corporate governance and privacy compliance expenses and the impact on reported G&A of the stronger Canadian dollar offset a decline in corporate G&A expenses resulting from the transfer of personnel to the recently formed Leisure and Travel Group and the inclusion of their G&A expenses in resort and travel operations expenses.
The provision for income taxes was zero in the 2005 period compared with $11.5 million in the 2004 period. As discussed above, we expect our income tax provision to be zero in fiscal 2005.
Non-controlling interest was $10.4 million in the 2005 period, down from $10.9 million in the 2004 period as lower non-controlling interest at Whistler Blackcomb, related to reduced resort and travel operations EBITDA in the third quarter, offset the inclusion of $4.4 million of non-controlling interest in A&K.
ADDITIONAL INFORMATION
----------------------
TOTAL COMPANY EBITDA
--------------------
2005 2004 2005 2004
(MILLIONS) Quarter Quarter Period Period
-------------------------------------------------------------------------
Cash flow provided by
operating activities $27.1 $74.3 $62.2 $181.5
Add (deduct):
Changes in non-cash operating
assets and liabilities 86.4 24.7 70.0 (52.4)
Current income tax expense 1.9 11.0 - 11.5
Interest expense 9.1 12.6 32.3 34.7
Interest in real estate costs 3.9 6.1 17.0 29.2
Call premium and unamortized
costs on senior notes
redeemed 2.1 - 30.2 12.1
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130.5 128.7 211.7 216.6
Interest and other income,
net of non-cash items (4.4) (0.6) (12.1) (11.0)
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Total Company EBITDA $126.1 $128.1 $199.6 $205.6
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RESORT AND TRAVEL OPERATIONS EBITDA
-----------------------------------
2005 2004 2005 2004
(MILLIONS) Quarter Quarter Period Period
-------------------------------------------------------------------------
Resort and travel operations
revenue $391.4 $299.4 $716.0 $465.1
Resort and travel operations
expenses 294.4 198.5 581.4 339.3
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Resort and travel operations
EBITDA $97.0 $100.9 $134.6 $125.8
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MANAGEMENT SERVICES EBITDA
--------------------------
2005 2004 2005 2004
(MILLIONS) Quarter Quarter Period Period
-------------------------------------------------------------------------
Management services revenue $59.2 $46.3 $130.9 $95.2
Management services expenses 35.6 30.6 94.4 73.4
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Management services EBITDA $23.6 $15.7 $36.5 $21.8
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NET INCOME BEFORE EXPENSES TO REDEEM SENIOR NOTES
-------------------------------------------------
2005 2004 2005 2004
(MILLIONS) Quarter Quarter Period Period
-------------------------------------------------------------------------
Net income $68.8 $56.2 $54.1 $57.3
Call premium and unamortized
costs of senior notes
redeemed, net of income tax 2.1 - 30.2 10.3
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Net income before expenses
to redeem senior notes $70.9 $56.2 $84.3 $67.6
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QUARTERLY FINANCIAL SUMMARY
(in millions, except per share amounts)
Q3-05 Q2-05 Q1-05 Q4-04
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Total revenue $504.8 $436.2 $206.5 $487.2
Net income (loss) 68.8 (8.0) (6.7) 2.6
PER COMMON SHARE:
Net income (loss)
Basic 1.44 (0.17) (0.14) 0.05
Diluted 1.44 (0.17) (0.14) 0.05
Q3-04 Q2-04 Q1-04 Q4-03
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Total revenue $437.9 $350.0 $276.6 $371.4
Net income (loss) 56.2 0.2 0.9 (14.4)
PER COMMON SHARE:
Net income (loss)
Basic 1.18 0.01 0.02 (0.31)
Diluted 1.17 0.01 0.02 (0.30)
