Vail Resorts, Inc. (MTN) Q3 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Vail Resorts' Fiscal 2012 Third Quarter Results Conference Call. [Operator Instructions] Today's conference is being recorded, June 6, 2012. I would now like to turn the conference over to Rob Katz, Chief Executive Officer of Vail Resorts. Please go ahead.

Thank you. Good morning, ladies and gentlemen. Welcome to the Vail Resorts' Fiscal 2012 Third Quarter Earnings Conference Call and simultaneous webcast, both open to the public and press at large. I'm Rob Katz, Chief Executive Officer of Vail Resorts. Joining me on the call this morning is Jeff Jones, our Co-President and Chief Financial Officer. Before I turn to a discussion of our results, let me remind you that we are using the term reported EBITDA to report earnings for each of our operating segments, namely Mountain, Lodging and Resort, which is the combination of the Mountain and Lodging Resort segments and Real Estate. The company defines reported EBITDA as segment net revenue less segment operating expense, plus or minus segment equity investment income or loss. The company also uses the term net debt, which is defined as long-term debt plus long-term debt due within 1 year less cash and cash equivalents. Complete reconciliations of reported EBITDA and other non-GAAP financial measures can be found in this morning's earnings release and on the vailresorts.com website in the Investor Relations section. I also need to mention that comments made during this conference call, other than statements of historical fact, are forward-looking statements that are made pursuant to the Safe Harbor provisions in the Private Securities Litigation Reform Act of 1995. Certain risks and uncertainties could cause actual results to differ materially from those contained in the forward-looking statements. Investors are directed to the risks and uncertainties described in the documents filed by the company with the Securities and Exchange Commission, including the company's Form 10-K for the fiscal year ended July 31, 2011, and Form 10-Q for the third quarter of fiscal 2012 released this morning. In addition, the Safe Harbor language in today's press release also applies to our comments on this call. All guidance and forward-looking statements made on this call are made as of the date hereof, and we do not undertake any obligation to update any forecasts or forward-looking statements, except as may be required by law. So with that said, let's move on to our third quarter results. We are very pleased with our third quarter results as they showed our ability to successfully navigate the most challenging winter in the history of the United States ski industry. Overall, the U.S. ski industry reported a 16% decline in visitation, the worst on record since the 1980/1981 ski season and the first time the industry has reported declines across all geographies. At our resorts, cumulative snowfall levels for the 2011/2012 ski season were down more than 50% compared with the prior year, and snowfall at our Colorado resorts was down more than 70% in March. The lack of snow, combined with unseasonably -- unseasonable temperatures, affected visitation levels during the key spring break and Easter vacation periods. Yet, despite these unprecedented conditions, we actually delivered an almost 1% increase in both Mountain net revenue and Mountain Reported EBITDA during the quarter of fiscal 2012, despite total visits being down 9.8% in the quarter. This performance demonstrates the stability and resiliency of our business model, including our growing season pass business, as well as the quality and breadth of the experience we offer at all of our resorts. There were several positive indicators in the third quarter and for the 2011/2012 ski season that contributed to our performance and bode well as we look toward the 2012/2013 ski season. First, through a combination of strong season pass sales and a meaningful increase in our Effective Ticket Price or ETP, we were able to more than offset the decline in skier visits during the third quarter and actually report a 0.7% increase in lift ticket revenue. Season pass revenue during the third quarter increased 12.8%, and ETP, excluding season pass holders, was up 9.4%, reflecting higher pricing and a mix shift towards higher-priced ticket products. Second, our ancillary business saw revenue performance that far outpaced the visitation decline, with ski school and retail/rental revenue both up in the third quarter and dining slightly down. Importantly, on a per-visit basis, our ski school revenue per visit increased 12.1%; dining revenue per visit was higher by 9.7%; and retail/rental revenue per visit was up 12.3%, reflecting the high income demographic of our resort guests, enabling us to benefit from enhanced consumer spending. In fact, well over the course of the 2011/2012 ski season, visitation at our Tahoe resorts defined 22.4% to the prior year and our Colorado resorts were down 8.9%. Our Beaver Creek resort was essentially flat in visitation, reflecting its higher mix of luxury and destination guests who had a higher propensity to spend in the current year. Third, visitation from the international markets actually increased 2% over the course of the 2011/2012 ski season despite an overall visitation decline of 12.1%, as well as the continued economic challenges in Europe, reflecting the global appeal of our resorts and our enhanced marketing efforts. Mexico continues to be a significant market for us, and we saw strong growth from Brazil and other Latin American countries, as well as Australia. And despite the economic issues in Europe, business from European countries were relatively flat for the 2011/2012 ski season. Fourth, our season pass business continued to provide a strong and stable foundation to our business and a tremendous value to our most loyal guests. Total season pass revenue for the season increased approximately 13% and grew to represent 40% of total lift ticket revenue. Furthermore, despite the unprecedented condition, our season pass holders, who represent arguably our most weather-sensitive guests, skied only about 1 day less on average in the current ski season as compared to the prior year. Fifth, during the third quarter, we closed on our acquisition of a third Tahoe resort, Kirkwood, once again opportunistically leveraging our strong balance sheet. While we closed on that resort on April 12, it already is providing -- proving to be a great addition to our lift ticket and season pass network. Kirkwood's challenging terrain, geographic proximity to San Jose, high elevation and average snowfall that is best in Tahoe, is a perfect complement to our other Tahoe resorts, Northstar and Heavenly. We look forward to the enhanced growth opportunities that Kirkwood will offer us in the attractive San Francisco, San Jose and Sacramento markets. Finally, providing perhaps the strongest indicator for the upcoming 2012/2013 ski season, we are extremely pleased that our total spring season pass sales through May 29, 2012, for the upcoming 2012/2013 ski season, adjusted as if Kirkwood were owned in both periods, increased approximately 17% in units and approximately 22% in sales dollars as compared to the prior year period through May 31, 2011. This strong sales performance was achieved despite record performance in the prior year's spring sales period and on the heels of the weather challenges of the past winter. Our past results are a testament to the strong connection our guests have to our resorts and their confidence in our ability to deliver the best possible guest experience in a wide range of conditions. The strength in spring season pass sales spanned across the entire spectrum of products and geographies, including an approximate 30% increase in pass sales to the international market. We are particularly pleased to see a very strong response to our enhanced Tahoe offering. As a reminder, historically our spring pass sale period represents roughly 1/3 of our total season passes sold over the entire program period. It is also important to note that we believe that a portion of the increase this spring is due to the success of our continued efforts to entice guests to purchase their passes even earlier in the year, and we do not believe these results are indicative of the results we expect to see in our season pass sales in the fall of 2012. Now I'll turn it over to Jeff, who will go into greater detail in our financial performance and outlook. I will then discuss other news.

Thanks, Rob. Good morning, everyone. Earlier this morning, we released our earnings for our third quarter of fiscal 2012 ended April 30, 2012, and also filed our Form 10-Q for the quarter, which you can find available now at our vailresorts.com website. Now turning to our results. As Rob mentioned, our third quarter fiscal 2012 financial results were affected by the unprecedented weather conditions that persisted through the entire season. For the third quarter, Resort Reported EBITDA of $177.6 million was down less than 1%, and Resort revenue was relatively flat at $408.6 million. Mountain segment operating expense increased $2.1 million or 1.1% in the third quarter on transaction and transition costs related to the acquisitions of Kirkwood and Skiinfo and higher spending associated with new initiatives such as EpicMix Photo and Skiinfo. Retail cost of sales increased due to higher level overall retail sales, as well as reduced retail gross margins brought about by higher level of discounting required by the current environment. This was largely offset by lower labor expense, as well as reductions in other expenses including supplies and repairs and maintenance. Lodging results, while down compared with the prior year, held up relatively well, reflecting an improved mix of luxury room nights and the benefits of the higher consumer spending, which fueled 8.2% increase in average daily rate, partially offsetting the decline in occupancy resulting from lower visitation. Lodging results also were impacted by costs associated with the previously announced RockResorts reorganization, though the Lodging business should benefit going forward by over $2 million annually in lower net costs resulting from these structural changes. Turning to our Real Estate business, Real Estate net revenue totaled $12.6 million due to 4 closings at The Ritz-Carlton Residences. Since quarter end, we closed on 2 additional units at The Ritz-Carlton Residences and 1 additional One Ski Hill Place unit. For the year, we have sold 11 Ritz-Carlton whole ownership units for a total of 37 sold units out of 71 and have 1 additional unit under contract. At One Ski Hill Place, we have sold 7 units this year, for a total of 47 units sold out of 88. While Real Estate Reported EBITDA totaled loss of $3.5 million in the quarter, net proceeds from sales begin -- since the beginning of fiscal 2012 equaled $34.6 million, including the closings that occurred subsequent to quarter end. Accordingly, with 1 additional Ritz-Carlton unit under contract, we are currently tracking the fall within our targeted full year net cash proceeds goal set in September 2011 of $35 million to $45 million. Net income attributable to Vail Resorts, Inc. increased 3.5%, to $79.6 million in the third quarter. The prior year quarter included a loss on extinguishment of debt charge related to our subordinated debt refinancing. Now moving on to our quick review of the year-to-date period. For the 9-month period ended April 30, 2012, which captures our entire ski season, Mountain net revenue was up 1.4%; while total lift revenue was flat despite the 12.1% drop in visitation; and season pass revenue increased 13.2% on a 3% increase in units; and ETP, excluding season passes, increased 9.3%. Similar to the lift revenue trends, our ancillary business has performed relatively well against the backdrop of downed visitation, with ski school and retail/rental up 0.6% and 3.4%, respectively, while dining was off less than 1%. Mountain Reported EBITDA for the 9-month period was down 4.9%, partly due to seasonal first quarter losses at Northstar not included in the prior year period, as well as higher snowmaking expenses in our current year second fiscal quarter. Resort Reported EBITDA for the same period declined 6.5% with the prior year Resort Reported EBITDA including a favorable litigation settlement in the Lodging segment. Our balance sheet remains strong. We generated $234 million of operating cash flow in the 9-month period ended April 30, 2012, ending the third quarter of fiscal 2012 with cash on hand of $147.1 million, net debt at 1.8x trailing 12 months total reported EBITDA and no borrowings under the revolver component of our senior credit facility. Turning to our outlook for the remainder of fiscal 2012, as we noted in our May 1, 2012, metrics release, we currently believe that our Resort Reported EBITDA results for fiscal 2012 will fall slightly below the low end of the guidance range issued on March 6, 2012, but would represent only a mid-single-digit percentage decline over the prior year after adjusting for onetime acquisition and litigation settlement-related items in both years. These adjustments include $7.2 million in seasonal losses in 2012 for Northstar, since we did not own the resort in the first fiscal quarter of 2011; a $2.9 million favorable legal settlement in fiscal 2011; and approximately $3.3 million of transition and transaction costs, as well as seasonal losses in fiscal 2012 associated with the acquisitions of Kirkwood, Skiinfo.com, partially offset by $4.1 million of prior year acquisition-related expenses for Northstar. Now back to Rob.

Thanks, Jeff. We are busy implementing our capital plan now that the lifts have closed for the season and are excited about the new initiatives that are being constructed over the summer, including the centerpiece of our 2012 capital plan, a new 10-person, state-of-the-art gondola replacing the Vista Bahn chair, which serves as the gateway to Vail Mountain through their Vail Village, where almost 1/2 of our Vail guests start their ski day. With heating cabins and other amenities, the gondola will set a standard for how guests are transported up the mountain while dramatically reducing wait times by increasing uphill capacity by 40%. We are also increasing our planned capital spending for calendar 2012 by $10 million to a range of $85 million to $95 million, including maintenance capital of $43 million to $47 million. We now anticipate making initial capital investments in 2012 towards a first phase of summer activity at Vail Mountain, as we are diligently working on plans for a large comprehensive summer experience at certain of our resorts that will be rolled out in phases over the next few years, with the initial opening of Vail Mountain's first phase currently expected in calendar 2013. We hope to be able to reveal more specifics of these plans over the next several months. In addition, the revised capital plan incorporates an estimated $5 million in capital spending for the newly acquired Kirkwood resort, including normal maintenance capital of around $1 million, as well as capital to install our own lift ticket scanning and other systems, as well as implementing EpicMix. These initiatives will enable us to combine the unique ski experience at Kirkwood with some of our industry-leading best practices and elevate the overall guest experience. I am incredibly proud of how our employees and our company performed during the season that was filled with many trials and tribulations. I want to take this time to thank all of our employees for their tremendous efforts over the 2011/2012 ski season and for their relentless focus on delivering the best possible guest experience. While I mention this each year, it absolutely carries extra resonance given what we have just gone through. The passion and commitment of all of our folks was the integral part of our performance this past season. At this time, Jeff and I will be happy to answer your questions. Operator, we are ready for questions.

[Operator Instructions] And our first question comes from the line of Felicia Hendrix with Barclays Capital.

Rob, regarding the season pass sales, I clearly understand the comment that you made that the current pace, we should expect that to flow. Just wondering though, and it's kind of early in this environment that we're in, but are you seeing anything economically driven at all to maybe affect that view?

No. I mean, I don't think we've seen anything in our season pass sales this spring that would indicate that an economic -- a negative economic impact to our sales performance. I mean, obviously, it's out there, and we're certainly selling in a period right now that's a little bit maybe less robust than 6 months ago, 9 months ago. But, yes, we just certainly did not see that or if it was there, we've overcome it quite easily.

Okay. And then also, the detail that this season's pass holders only ski 1 day less was really interesting, especially given the poor snowfall. I was just wondering what that data point is telling you.

Well, I think it tells you 2 things. One is I think that people -- and I think it was reflected right in the season pass sales performance this spring. So one, I think it shows that people did use their season pass. And despite the challenging weather year, they still got up to the mountain and were able to get an experience even if their -- the experience this year wasn't as good as it was last year because of conditions. I think maybe to our business model, what it says is, that our most weather-sensitive guests, because they purchased the season pass, skis more. Right? And they're apt to take more trips up to the mountain. And even for folks in the Denver or Bay Area, we get extra spending from them. So they will still contribute to results for us on dining and retail and other -- and even ski school or kids' ski school. And so I think the season pass really helps on so many different levels, and one is that we absolutely believe our folks ski more because they have the pass even during challenging weather conditions.

And Jeff, on the Lodging side, obviously, your revenues were kind of flat year-over-year. The flow-through was worse than expected. I'm assuming that's mostly due to the RockResorts charge, just wondering can you adjust that for us maybe what your -- what was that charge so that we could -- so we could make that adjustment?

I think that we're not going to disclose that individually as far as the Lodging results, but I'd say a big part of what the expense hit was, was given that, both in all of that reorganization effectiveness from this quarter that we instituted and initialized. I think the big thing for you to look forward to is the net increase in Lodging results that we'll see annually from this and a return to a more normal flow-through that we typically see in our Lodging results.

Okay. But as we can see, there's nothing else in that business that you saw this quarter. If this wasn't there, we would see more normalized flow-through?

Yes, definitely.

Okay. And then just also on your balance sheet, you're net debt is at 1.8x the last 12 months EBITDA, you obviously have kept powder dry to do certain acquisitions which have been very strategic. But can you just discuss that level first, how you would think about -- would you lever up to perhaps buy back more stock? And how are you thinking about your really low debt levels right now?

I think that we are absolutely committed to returning capital to shareholders. I think we have had a pretty long track record of buying back stock, instituted a dividend recently. I think we've -- obviously are focused there. We also increased that dividend substantially this year. The question that I think we will be looking very closely at buying back more stock, I think as we go forward in current quarters, and I think we're going to be looking at both dividends and buybacks continuously. Obviously, we're going to constantly be on the lookout for opportunities to both invest in our business and make acquisitions. But certainly, in the absence of that, we're not just going to hold onto cash, and I would say that we intend to continue to be aggressive on actually all 3 fronts: internal investments, acquisitions and returning capital to shareholders.

Our next question comes from the line of Steve Wieczynski with Stifel, Nicolaus.

On the international side, I mean, it's pretty impressive in terms of the demand for your products later in the ski season this year, but can you kind of talk about what you're expecting for the '12/'13 ski season, I guess, from the international side? And I guess also with the dollar strengthening, do you think that's going to have any material impact on visitation?

I think we absolutely feel like we're going to see continued strength from our international business next year. But you're right, there are exogenous factors that do weigh in here, and certainly the dollar is one of them. But the other piece, though, is relative economic strength. So how is the economies in Brazil and Mexico and Australia, Canada and then the U.K.? Probably -- the U.K. probably, if they -- we can see some strengthening there. There's probably more upside there than anywhere else. So -- but what I would say, though, is we now have really established a good flow, right, and good inbound traffic from a number of different countries, where maybe 10 years ago, we were more focused on the U.K. almost alone. And now, we're really seeing it across numerous countries in Europe and then around the world. So we actually feel like our international business is much more balanced today than it was before, and we have continued opportunities to drive more visitation. So I mean, I think we are absolutely expecting more strength. Of course, yes, certainly some of these exogenous factors will weigh on that.

Okay, got you. And then in terms of the summer programs, I guess, when you look at what you guys are expecting to eventually spend on your assets in Colorado, I mean, is it going to be fairly kind of across the board in terms of the assets there, in terms of where you spend most of your capital?

What I would say is I think there's -- of the 7 resorts that we have, I think certain of the resorts have a tremendous amount of kind of secular tourism flow that just comes through the resorts regardless. And obviously, for the most part, it's the resorts that have more significant towns that are big like Breckenridge and Vail and Heavenly. And so I think there's no question that when we look at our plans for summer, we're going to try and leverage that existing visitation. And so you'll probably see a more intense focus or more expansive plan for the ones that we feel like people are kind of at already in much greater numbers. With that said, we do think there's an opportunity at each of our resorts to actually put new summer amenities and that each of them will be terrific ROI projects with very, very high flow-through. But I think Breck, Vail and Heavenly would be, just because of their existing demand, I think, that goes through there already, those will be getting more focus and attention.

Our next question comes from the line of Shaun Kelley with Bank of America Merrill Lynch.

I just wanted to ask a little bit about -- starting off on the pricing. Obviously, Effective Ticket Price in the quarter was fantastic. It was a big offset to what you saw on the visitation side. Could you give us a sense, I mean, we can see a little bit of spread between your dollars and units on the season pass side, but I guess what I was more interested on was you clearly had a big jump in your kind of your window or I guess your window ticket pricing as well. So could you talk about how you think about that next year, and was there some positive mix that you saw in kind of less season passes that you'd expect to kind of maybe work against you in a more normalized season, just so we can kind of think about the price increase or price potential next year?

Yes, I would say I think that there is -- so 2 pieces. One is, I think in -- on season passes, I think actually, one of the things that hurt the effective pass price this spring was that we had real growth in Tahoe, which had lower-priced products than some of the Colorado products or the Epic Pack [ph]. And so, I mean, that obviously is a good thing on an overall basis, but it does pull down the mix a little bit. But I would say embedded in those numbers are nice increases across most of our passes, pulled down a little bit by the strength that we're seeing in some of our lower-cost products. But we did see growth across the entire portfolio. So to me, I think that actually bodes quite well for next year. But you're right, we did see growth this year in some of our higher-priced daily lift ticket products and kind of less momentum in some of the lower-priced products. We would assume for next year that we'd have more balance. And so there would be a mixed shift the other way, and so we would expect ETP, excluding season passes, to maybe modulate a little bit, but that should be far outweighed, of course, by a return to more normal visitation. So what I would say is, going into next year, we don't see any difference in terms of our pricing opportunity than what we saw going into fiscal 2012.

Okay, that's very helpful. And then I guess the second question on that in terms of some of your -- kind of your season pass comments, last year, we saw a pretty big deceleration in pass growth kind of in the, I guess, the period ended kind of in your fourth quarter, and then things picked up, kind of in the balance of the year. Yesterday, you kind of called out the growth that you're seeing in international pass sales, as well as what you're seeing in Tahoe. I mean, maybe we're reading a little too closely into it, but just trying to kind of get a sense of are you a little bit more optimistic given those 2 categories and kind of where you think you can end this year, just given how good -- because both of those seem like they should be somewhat incremental on the existing base versus just kind of more renewal activity on the front range.

Yes, and we agree with that. And I think we are more optimistic, and that is why we called out both of those pieces. There's no question that I think the momentum around some of our marketing programs and maybe even the acquisition of Kirkwood, I think, probably really helped the spring this year. But of course, we were also fighting against the challenging weather that was in everybody's short-term memory. So when we look out to the fall, I think we feel like we should be heading in with some real strength, and the 2 categories that you mentioned should not decelerate, really, when we get to the fall. With that said, we have a much larger pass program, right, that 2/3 of our program that goes into the fall. A huge percentage of that is traditional Colorado passes. We're not going to see these kind of growth rates on that base program because just the numbers don't allow that in terms of our penetration within Colorado. But internationally, out-of-state and Tahoe, all offer real upside opportunity for us.

Got it. Last question was just on, you mentioned it in the prepared remarks and I think you kind of said that you probably didn't want to talk about it too much, but is there any color you can give us on maybe some of the incremental CapEx dollars that are going to go into summer at this point? Any just kind of buckets of where some of those dollars might kind of -- might start being allocated in terms of what the programs might look like or things that we could start to get a little bit more color on would be helpful.

Sure. Yes, about maybe just under half the increase is really attributed towards summer and its part -- a little bit related to planning for all of our resorts. But the big chunk of it is really related to activities that we can put into Vail Mountain. And I'd say it's a first phase of the program for Vail Mountain, and it's really focused around Adventure Ridge and the existing area that we've got activities going on right now. The things that we're looking at are zip lines and summer tubing, a pretty advanced kind of unique climbing wall experience and some other pieces for kids, for families. And we think these will be projects that are very, very high ROI, high flow-through projects that should really be dropping a good incremental EBITDA right away, and we do see these as being operational next summer. Exactly how much of that flows into fiscal '13 versus fiscal '14 because of our fiscal year ends July 31, so right in smack in the middle of the summer. So we're not ready to start plotting that out in this quarter. Obviously, we'll include that in our guidance when we release it in September. But this should be a great first start, really, for our entire summer program. And I think we'll give people both guests a taste of it, and I think we'll give investors a taste of it. But it really is only the small beginning of what should be a much more significant opportunity.

[Operator Instructions] And our next question comes from the line of Fred Lowrance with Avondale Partners.

Just want to dig in a little bit deeper on summer act, some other questions have already been answered. But it feels like in talking to people that maybe the actual legislation itself of the summer act is still going through some fine-tuning. And I'm wondering if that has impacted what's, maybe earlier in the year, what you felt the timing of all of this would look like at this point? I mean, I feel like earlier this year, you were prepared to talk about what you might do and maybe what some of those financial impacts might have been a bit in your Investor Day. And now it sounds like potentially we get some fiscal '13 financial impact, but maybe it's '14. So can you sort of comment on where you think you are in the process at this point, and how that compares to where you thought you would've been at this point?

Sure. Yes, first of all, what I'd say is in terms of the legislation, there is no fine-tuning per se. The legislation is passed. The Forest Service does is -- so that piece of it that involves Congress, the White House, the hard part is over. There is -- the Forest Service has to develop policies as it relates to summer, and that's certainly an act -- stuff that they're taking on their own and we're being as supportive as possible to their process. But regardless of that, even when things are permitted, even when things are allowed by either legislation or the Forest Service, you still have to go through an approval process on each and everything that you do. So each of the list that we put in, when we expand terrain, when we put in a new restaurant, we still go through a process with the Forest Service to look at any environmental impacts or other things that they want to do a review of. And so there's no question that, that's a process that's going to go on for everything that we do here. Now because most of the activities that we're looking to put in are already in, right, areas of our mountain that are highly trafficked, have plenty of infrastructure, the environmental issues are much less because we're not really going into new terrain or new areas that are somehow pristine. So that makes it simpler. And what I'd say is that the reason why we are moving quicker with this program at Eagle's Nest is because Eagle's Nest and Adventure Ridge at Vail have already a number of activities, and we're kind of just swapping old ones out for new ones or expanding some of the things that we have. And that's a relatively simple process because there's clearly no new impact. We -- I would say that at the moment, we are absolutely proceeding as we would've expected and -- or have not seen any issues whatsoever. But it's still -- for some of the larger plans, you still -- it will still take a year or so to get the approval. And that's not something that we want to rush and that's not something we think should be rushed. And what I would say is its key for us also to, I think, make sure that -- these are going to be the largest expansion for us on our resort, and we want to make sure we get it right and we get community input, we get everybody's input. And then the great news, though, is these activities, just like our existing ski opportunity, is there for decades in terms of creating a terrific business opportunity and a terrific opportunity for our guests.

Sounds good. And just there's one more question, if I could. It's just I looked at your season pass numbers that you put out there, the 22% sales dollars increase, when we -- obviously, you’re trying to get more people earlier in the season, maybe there are more people doing the $49 deposit for the auto renewal. When people renew, including that sales dollar year-over-year comparison, do you have the full price of the pass that they're technically signed on for? Or how do you account for that in your year-over-year comps?

Yes, we do. So when we -- yes, the fact that some of these are only $49 down, they do -- they give us their credit card and so we don't -- we just run their credit card when we get to September. And so we do include that as part of the reporting we're doing now. Obviously, when we get to reporting these season passes as part of revenue, the only season passes that are included are the ones that are fully paid for.

And what I'd say is that's the comparison to the same exact thing of the prior year, so the same -- last year, same $49 down. So we're comparing year-over-year the same way. And historically, the amount of basically cancellations between the $49 and the full charge to their credit card is very minimal each year.

Our next question comes from the line of Will Marks with JMP Securities.

I wanted to just start with the pass, and I don't want to drag it on, but I just -- I couldn't help but look back at the third quarter '11 press release in the outlook section, and it said it's important to note we believe a large portion of the increase in this spring is due to our efforts to entice guests to purchase their passes even earlier in the year, almost the same sentence as this year. So, I mean, how should we really think about that?

Well, I think, Will, I guess what I'd say is, we have to make an assessment, right, on 2 different factors or 3 maybe. One is, how many -- what percentage of our pass sales are truly incremental; what percent have been pulled in from the fall; and then 3, even if we do very well in the spring, just because the base is so much larger in the fall, comping the exact same percentage increase in the fall means the numbers have to be much bigger. And I think what our experience tells us, and I think we've also guided the other way, as you probably remember a few years back when pass sales were down in the spring and we said, "Wait a minute, hey, guess what, this is a timing issue," and I think we were on target about that. So what I'd say here as I've said in earlier answers, a portion of this is absolutely people being pulled forward from the fall. A portion of this is we don't think we're going to comp the same percentage on a larger base in the fall. But the good news, though, is that we've got, I'd say the kind of out-of-state segment, but certainly international and Tahoe, which we think are up truly as we mentioned earlier. Incremental sales, we're clearly seeing real growth is that the numbers are too big for us to attribute that just to pulling people forward. That's not what -- that's not the dynamic that we attribute that to. So I -- when we go into the fall, the good news for us is, when we see people buy earlier, we think that's a great indicator, right, for next year regardless. Because what it means is that there's momentum for booking vacation, for thinking about -- for booking their vacation, for thinking about skiing. And so I guess we look at all of these numbers as nothing but an unmitigated positive, big positive, right? A bit 6 months out more than 9 months out from peak season. But we don't want people to think that we're going to report a 17% increase in units in December. And then we guide people down to realize that this is great news, but remember that the overall program is 2/3 bigger than the spring. And as everything flushes through, good news, but let's not just take this number and apply it to the whole program.

Okay, that makes sense. Sorry to beat the dead horse. I guess I was trying to be clever looking at last year's press release. Okay. On -- one more question on passes, just related to Kirkwood. How were Kirkwood passes sold last year? Was it all just stand-alone? Was it with any other resorts? And what was the pricing, if you care to comment?

So Kirkwood did have some passes that were available last year that did have other resorts attached. One that actually -- I'm pretty sure that was Alpine Meadows [ph], and then they had some other resorts that were attached to common ownership. Purgatory was one of them as well. And so, obviously, we're not renewing those programs. They also had a 5 or 6 different season passes that they offered everything. They had it named, the 7 woods, 6 woods, 5 wood, which was how many days during the week they were available for, then there were some premium options to some of them. And so what we did was we really -- when we announced Kirkwood, we said that we would keep, initially, a Kirkwood pass available at comparable pricing or relative pricing to where they were last year. And so we have kind of kept our product available, and we just kind of took the 6 or 7 different products that they had and try to narrow it down to one to just be more simple for our guests. But what I would say is, we think that a big majority of Kirkwood pass holders are going into the Tahoe value and Tahoe local. And so we think we're converting them to our existing products, but that Kirkwood-only pass is still certainly available for folks.

Okay, all right. That's helpful. I think for Jeff, as we all try to get our arms around fiscal year '13 with obviously not much information, can you help us out on fiscal year '12? I think you pretty much said this, but just simplistically if we take the anomalies, so I want to make sure I'm looking at this correctly, $2 million for hotels and some amount for Kirkwood. Is there anything else?

From this year, you mean?

Yes.

I think unusual snowmaking expense in the second quarter that we would, of course, not expect to reoccur.

Which is about how much?

A couple of million, $2 million. And then -- so we had that. We had, again, the lodging re-org costs term around with. So not only we had the hit, but you have a net savings kind of going forward of a couple of million and then over $3 million in unusual expense this year from the acquisitions based on the timing of when we acquired them going into the seasonal low periods and then the associated transaction and transition costs.

Okay. All right, perfect. And then just lastly on -- actually, 2 more things. One, the guidance for this year, I know it's -- the implied guidance under that range, what does that say about cash flow, what the guidance for cash flow would be? I guess I'd get back into it, but I'm curious.

Yes, I think, I mean I think we don't -- we give guidance on capital on a calendar year basis because, again, a lot of that capital gets done in the summer, and we didn't want to have to cut off capital depending on what the status of the timing of the construction between July and August, so some of that can just swing between the fourth quarter and first quarter. But bottom line is, I think, from a free cash flow standpoint on the Resort business, it's going to continue to be fairly positive and in the zone of what we have been seeing in past years, despite what we had reported on. And then Real Estate continues to be a net positive, obviously, because we're not spending any more money on real estate. So every unit that we sell and all the units that we sold this year, so 18 in total between the Ritz and One Ski Hill Place is all just positive net cash proceeds to us.

Okay. And just truly my final question on Real Estate, can you just confirm, you have not lowered prices in Vail since, what was it, 2 years ago, and have not lowered in the period in Breckenridge, I guess. And I guess there's 75 units or so left, and do you plan to change pricing?

The list prices have remained the same since they were 2 years ago at Ritz when we made that one change. In One Ski Hill, we've not changed the list prices since we initially offered the units.

Did you feel there's enough demand to keep those? I mean, your balance sheet shouldn't -- certainly isn't forcing you to make any changes.

Well, I think -- I actually think we're very pleased with the Real Estate sales this year. I think the dynamics, if you think about it, of -- in a highly unusual year where you just had less people visiting, we still were able to sell to people that were in town, the same number of units that we thought we'd sell when we set out that target in September of last year before the season even started. And I think we're seeing really good momentum. And as more and more units sell, I think it makes a project easier to sell through to the end because you've obviously got prospective buyers looking around and seeing a lot more people that have been confident in the near term in buying in this environment those units. So I think that really says a lot for the projects and the momentum that they have. At the same time, you mentioned it, it's just very true, we're thrilled with when people come in and rent the unsold units at One Ski Hill Place. It's the most successful lodging ADRs by far than we've seen in the Breck market. And it brings in a different type of customer, some who may end up buying units, others who are obviously contributing strongly to the mountain from a luxury standpoint because that's what that project is. And seeing things that we haven't seen before at Breckenridge, like more private ski school usage and obviously fine dining and retail purchases. So I think all of that is a big help and why given our balance sheet, there's no need to do any kind of fire sale approach to this Real Estate. I think it's selling through nice ratably, clearly outperforming the marketplace, and we're very comfortable with that pace.

Our next question comes from the line of Tim Hamby with Janco Partners.

I just wanted to see, your international visits were up 2% in a difficult year, and it looks like you guys are obviously seeing some strong demand from international markets. But what I wanted to see if you can drill down to the Brazilian and Mexican markets in future doing as far as your marketing programs there? And then also you said you see some upside in the U.K. markets. I wanted to see if you could be increasing your efforts there or maintaining more of just the same balance that you have now.

Sure. In the U.K., I guess what I shared was that there's upside because the U.K. economy has been so bad, but you would tend to believe that as that economy stables and eventually comes back, there's upside. I can't say that we're seeing upside at the moment. We are seeing relatively flat performance, though it's relatively flat on after being hit pretty hard over the last 2 years. So I think we feel like we're probably at the bottom, and so at this point, I think that provides -- and the U.K. was such a big market for us and it was down so much over the last few years that it really does provide upside when the economy comes back. Mexico, a very, very strong market for us. We have a huge penetration there, very active marketing both on almost any front that you look at, whether it's group sales, tour operators, Internet marketing, having events down there and marketing to folks in Mexico for numerous different products, club, real estate sales, season passes, host lodging, I mean everything. I mean we have a very robust program there. Brazil, I think, is one of our -- or was one of our top growth markets for this past season, and we are looking to replicate a lot of the activities and programs that we have in Mexico into Brazil as well. A little bit different clientele, different air considerations, different things that the Brazilians are looking for versus Mexicans, so we actually feel like that's one of our top targets as we think about next year, what's for this year. And again, we expect to see even greater growth from that market going forward.

Okay. And then also kind of follow up on that is, what do you see here as far as the appetite for season passes from international guests? You said they were up 30% this season. I want to know if you're seeing a lot of demand there, and if you're specifically marketing the Epic and the season passes for them?

We have absolutely -- I think the 30% increase, we tend to indicate that we are seeing some real growth there. We tend to see that continue through the fall, and I think we are being even more aggressive with reaching out to international clients directly and through tour operators to try and drive that business. Relative to Colorado and Tahoe and New York and Chicago, I mean, it's not as -- any particular country, it's not as big as those markets, obviously. And there's a pretty high barrier for international folks, obviously, to buy a season pass because they typically can't take multiple trips. But I think these folks that come, many of them sometimes consider going to multiple resorts when they're here. And I think what we're convincing them of is that the best deal possible for them is to buy our pass. And if they come in for 10 days or 14 days to just spend that entire time within our family of resorts. And we're seeing real traction along that front. I think, again, real opportunity for us going forward, but it won't move the needle like Colorado does obviously.

[Operator Instructions] And I'm showing no further questions in the queue at this time. I'd like to turn the conference back to Mr. Katz for any final remarks.

Thank you, operator. This concludes our fiscal 2012 third quarter earnings call. Thanks to everyone who joined us on the conference call today. Please feel free to contact Jeff or me directly should you have any further questions. Thank you for your time this morning, and goodbye.

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