Vail Resorts Inc (MTN) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Vail Resorts third quarter earnings release conference call.

At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation.

I would now like to hand the floor over to your host, Adam the floor is yours.

Thank you, operator. Good morning, everybody. Welcome to the fiscal 2002 third quarter Vail Resorts earnings conference call and simultaneous Webcast, both open to the public at large.

As you know, I'm Adam Aron, Chairman and CEO of Vail Resorts. I'm in New York City this morning for a bout of hospitality industry functions relating to our recent Rock Resorts acquisition. Joining me on this call from our Colorado headquarters are Jim Donohue, our Senior Vice President and CFO, and Leslie Roubos, our Director of Corporate Financial Planning and Investor Relations.

Earlier this morning, we released earnings for our third fiscal quarter ending April 30. If any of you do not have a copy of this release and would like one, please call at 970-845-2951 for a copy that she will fax or e-mail to you immediately.

I'd like to begin the call by stating how excited we are all at Vail Resorts to be reported not only a record third quarter, but the best ever quarter financially in the history of our company. This is something we just never dreamed could be possible heading into this year's ski season just a few short weeks after the tragic September 11 attacks and in the face of a weakened national economy.

You know, CEOs are supposed to tone it down just a bit and I don't want to be seen as bragging about our success while others in the travel industry are still suffering, but it is true that while airlines are still losing money hand over fist and while the U.S. hotel industry broadly is still seeing revenue declines of as much as 10 percent, Vail Resorts was able to shrug off the very real consumer fears about traveling. And as our results announced this morning demonstrate, Vail Resorts was able to post a banner quarter and a banner ski season.

No matter how or where you look, Vail Resorts performance in the quarter just completed has been simply great. Lift ticket revenue was up 6.4 percent year-over-year for the quarter thanks to a whopping 10.1 percent increase in the ETP or average lift ticket price collected. Non-lift ticket revenue also grew at an impressive 13.1 percent pace.

All our lines of business except dining operations enjoyed revenue increases and record performance in the quarter. While resort operating revenues grew some $22 million in the quarter year-over-year, resort operating expenses grew only $13 million.

Our marketing database of customers grew with hundreds of thousands of newly identified Vail Resorts guests, and our marketing efforts using the Internet, e-mail, and our own proprietary Web sites made professionally significant advances.

Our employees delivered their traditionally fine service, and our guest satisfaction scores measured weekly throughout the season at our resorts showed both excellence in an absolute sense as well as improvement year-over-year.

Our hospitality group delivered, too, in two ways. One, our newly acquired hotels, the Vail Marriott, the Lodge at Rancho Mirage, and Rock Resorts as a - as a corporate entity, performed. Indeed, our acquired hotel properties provided about 60 percent of the increased resort EBITDA year-over-year in the quarter. And two, we smartly and creatively discounted room rates at lodging properties at the base of our mountains to drive whatever occupancy we could generate to increase vacationing at our resorts at a time when fewer Americans were vacationing anywhere.

Our real estate division, also, is still right on track to a record year. Nine-month real estate net operating income is still about double last year's levels, and all this happened despite nine-eleven and a tough economy.

I'm in New York today. There's a famous old Ethel Merman Broadway song, the main lyric is honey, everything's coming up roses. And that describes Vail Resorts' fiscal third quarter.

Let me focus on a few of the advances we made in the quarter more specifically. Resort revenues for the quarter grew 10.3 percent, mostly because of the hotel acquisitions we made in November and December. But same store revenues still grew 3.3 percent, fueled by the increase in ski lift ticket prices, and strong ski rental and retail operations. Few U.S. travel industry companies could report same store revenue growth this winter, that's for sure.

While our revenues performed nicely this season, given the externalities, our concern that revenues might have fared otherwise caused us to manage our costs tightly all season long. While still offering a guest experience second to none, we diligently continued holding costs in check, especially those back of house and overhead costs that do not directly affect our guests.

Although skier visits for the season dropped 4.3 percent, and destination skier visits ended the season down 5.8 percent, mostly nine-eleven related, a little bit economy related, most of that decrease actually was the result of not really opening our resorts until after Thanksgiving. Days were down, but the lost dollars associated with these lost November days were not all that consequential, given what is typically cheaper than cheap early season pricing.

As I already said, we were able to increase our average ticket price over 10 percent in the third quarter, over 6 percent for the ski season as a whole. This kind of pricing power is phenomenal really, in a post nine-eleven world. As we reported in earlier conference calls, we had strong season pass sales within Colorado, which ended the year over 11 percent ahead of last year. As a result, lift ticket revenue of $162 million was our company's best ever. Resort revenue per skier visit also reached record levels.

We also continued to outperform our competition. The nation's ski areas saw a 5.5 percent decrease in year over year skier visits countrywide, skier visits in New England were impacted by snowfall, the Rocky Mountain region dropped some 5.9 percent in total, both because of a slow November start just about everywhere to the season, and because of skier's avoidance of Utah during the February Olympics. So this year, our national and regional market shares increased yet again.

And contrary to a popular myth, I'd also like to point out that we did all this with just average snow and skiing conditions for our Colorado resorts. Admittedly snowfall was good at three of our four resorts up through March, however it still ended the season at about, only at about 75 percent of the 20-year average, and Keystone's snowfall was about 50 percent below normal almost all season long. My point is, that as we've said for years, Vail Resorts does not need stellar snowfall to succeed, we just need to cross some minimum threshold of acceptable snowfall, so we can then let our marketing programs, and the consumer appeal of our ski resorts work their own magic.

Switching to our hospitality operations, revenues grew 41.6 percent year over year in the third quarter. Of course, that increase was generated primarily from the addition of hotels to our portfolio. Same store revenues were actually down just a bit, down 2.9 percent year-over-year. But that actually is very strong revenue performance, compared to the rest of the U.S. hotel industry, which has still been trying to recover, post-nine-eleven. Our modest same store owner declines were driven primarily by 1) the recession, 2) the hotel industry's general lack of rebounding from September 11, and 3) our very conscious decision to discount rates to drive incremental occupancy.

As promised in previous quarters, I would like to provide you with some specific statistics on our hotel properties' performance during the quarter. Rockresorts hotel occupancies averaged 61.3 percent for the quarter, while the Vail Resorts lodging properties that are not branded as Rockresorts had hotel occupancies of some 73.9 percent. Rockresorts properties' average daily rate, or ADR as its known, was a healthy $213, and the resulting multiplication of occupancy times rate revenue per available room, or rev-par, was an impressive $141. Vail Resorts lodging properties had an ADR of $180, and rev-par was $133. While this is solid performance, for sure, these nine-eleven-impacted Rev-PARs were actually down in total in high single digit percentages, compared to the same period in the prior year. So as we look ahead to next year, there is real opportunity for growth next year in a climate that is hopefully absent of the impacts of recent global terrorism.

As I have been suggesting, good things happened at Vail Resorts in the quarter. Here are four. First, we contracted in the quarter to buy Heavenly, as you know. We bought it at a great price with a six handle multiple of trailing cash flow. The closing happened on schedule and on the contracted terms. The integration so far is now underway, seamlessly, at least so far. The new Marriott-branded bed base opens in November with more than 1,000 beds. And we believe there is just enormous opportunity to grow cash flows at Heavenly in the next few years.

Second, our real estate division, our Breckenridge ski area, and the Town of Breckenridge signed a groundbreaking landmark agreement some five years in the making, and after an impressive and unanimous seven-nothing vote by the Breckenridge Town Council in support. This clears the way for development of two new high speed lifts at Breckenridge, a 33 percent increase, and new ski terrain on Peaks Seven and Eight, increasing Breckenridge's intermediate ski terrain by about 30 percent. Both this new terrain and these new lifts will be constructed during this summer, and will open for skiing and snowboarding this coming winter ski season. The agreement with the Town of Breckenridge also will allow us in future years to have the rights to build a new gondola from the town center to the mountain, increased parking, and our opportunity now with entitlements in hand to build an entirely new mountain village at the base of Peak Eight on Breckenridge Mountain, including some 500 residential units, retail space, and a new skier base facility on Peak Eight.

Third, the excitement in Eagle County is mounting, as a result of high quality construction activity, including the Ritz-Carlton Bachelor Gulch, which opens in November of this year. We are just a few months away. The Ritz Carlton is big. It is beautiful, and we own just under half. It surely will help to put Beaver Creek even more squarely on the map as skier resorts of choice.

Similarly, Beaver Creek's nearby golf community, Red Sky Ranch, sees its Tom Fazio golf course poised for a grand opening on June 29, just three weeks from now, and grand that opening will be. Former President Gerald Ford, and Tim Finchem, the commissioner of the PGA, both of whom could play golf anywhere they want, will be Red Sky club members, and will be present to open the course just three weeks from now.

While Red Sky will offer a great golf experience to its private club members and to the resort guests staying at Vail Resorts owned and managed lodging properties, make no mistake, this is a great business deal, too, for us. One-hundred percent, all of the Fazio course single-family home site lots at Red Sky Ranch have closed or are under contract to close by month end, at an average price of $640,000. The 20 home site lots on the Greg Norman-designed second course at Red Sky Ranch will be offered this summer with an expected closing date of December 2002.

And believe it or not, in less than 12 months of selling, we have already sold some $31 million worth of Red Sky Ranch golf club memberships. We do have a few left, and you too can join if you act soon. The membership fee to join is now a modest $175,000. Fourth, the long-planned redevelopment of Vail Village and Lion's head is now at hand. The 344-room Vail Marriott, which we own and manage as a Marriott franchisee, is already undergoing it's $45 million total transformation inside and out, which will be completed by Christmas of this year, in time for our coming ski season at Vail.

We are so pleased that the town of Vail and the local community have broadly embraced our redevelopment proposals. As a result, I anticipate we will break ground on something exciting by next year, and be underway in a more meaningful sense, still in less than 24 months. To sum it up succinctly, it has turned out to be a surprisingly good year, and a good quarter, for Vail Resorts, given nine-eleven and the economy.

I would now like to turn to a different announcement, made in our earnings release this morning. As we announced in early May, Vail Resorts is one of the hundreds of companies who in recent weeks have been forced by the events surrounding Arthur Andersen to select and hire a new public auditing firm. In early May, we selected PricewaterhouseCoopers to replace Andersen, whose Denver office had been our auditor for a decade.

As part of its comprehensive review, PWC looked at one small part of our business, membership initiation fees of our private membership clubs, and recommended that the company institute a change in accounting principle. We have a handful of private clubs, mainly at our Beaver Creek resort, in which we sell memberships. These club fees have historically represented between 1 and 2 percent of Vail Resorts' resort revenues. We charge a cash initiation fee, collected 100 percent up front, and then receive annual dues that fully cover the cost of providing annual services to members. The cash initiation fee indeed represents a final sale, as the club member cannot take any action to get his or her membership initiation fee back, although the membership can be transferred or resold under clearly defined club policies.

It's been our historic practice that club initiation fees in total be recorded as revenue in the first year cash for the sold membership came in or to be conservative, in the year the club actually opened, whichever occurred latest. The ongoing annual dues received and the ongoing annual cost of club operations are and have been charged each year thereafter. Our external auditor affirmed that accounting treatment repeatedly quarter after quarter and year after year.

As we approached fiscal 2002, club sales looked to be an expanding part of our business going forward with a June 2002 opening of the Red Sky Ranch Golf Club. In light of this increase in club sales and in light of new accounting interpretations issued to be effective during our fiscal 2001, we decided a long time ago to amortize Red Sky Ranch Club initiation fee revenue over a multiple of years. However, it was our view and also that of our external auditor that it was not necessary to take any action retroactively on prior year club revenues.

PWC brings fresh eyes to this arena, and admittedly does so in the current heightened and charged climate. PWC thought it would be appropriate that we go back and restate prior years, such that all our membership club initiation fees, not only those from Red Sky Ranch, would be amortized over time. But PWC has yet to provide a final view on the company's thinking regarding the most appropriate lengths for the amortization of club initiation fees.

Complicating this whole issue further, Arthur Andersen has not yet indicated that it agrees with the current advice PWC is now giving the company. So, in today's press release, we have shown no historic change to club revenues and associated EBITDA and resulting net income. However, since such a change is being recommended to us by PWC, we have also shown in this morning's release a potential range of impacts if we were in fact to change the historic club fee amortization. Naturally, we're working hard to get this matter resolved expeditiously.

In summary I want to emphasize that while this matter is still a work in progress with PWC and in these hypersensitive times that this is a small part of our business, that all the memberships that we have previously said were sold were in fact sold, and that all the cash we said was received was in fact received. The only issue under discussion with PWC today is the potential of this change - a change in the years in which that revenue is recognized which, I might add, would have the ironic effect of actually increasing reported revenue, EBITDA, and net income in fiscal 2003 and in future years beyond.

Obviously, since all these membership fees have actually been received by Vail Resorts in cash, if any revenue is taken from prior periods, it will have to be added to future periods in corresponding amounts.

Now, let's turn back to the news of what we believe is Vail Resorts' excellent third quarter just a short few months after nine-eleven and in a relatively weak economy. Jim will now take you through the quarter in more detail, and I will then return to give you more color on the remainder of fiscal 2002 and fiscal 2003. Jim?

Thanks, Adam.

As a housekeeping item, I want to point out that commencing with this third quarter, our Technology segment is being folded back into Resort Operations. Our third-party technology activity has moved from a joint venture to more of a business customer relationship, and therefore no longer warrants separate segment reporting.

In this morning's press release, we announced resort revenue for the quarter grew 10.3 percent to $242 million, mainly driven by increases in lift ticket revenue, hospitality, retail, and rental and ski school revenues. Lift ticket revenue increased 6.4 percent as a result of a 10.2 percent increase in effective, or our average, ticket price. Hospitality was our best performer in the quarter, with revenue growth of 41.6 percent. However, on a same store basis, hospitality revenue was down 2.9 percent.

Total revenue, including resort and real estate increased 9.2 percent to $246.9 million. Resort EBITDA grew 9.5 percent from $96.7 million last year, to 105.9 million this year. In addition to the revenue growth, as Adam mentioned, we also grew EBITDA in the third quarter by aggressively managing our operating expenses. Resort expenses were up year over year $13 million, or 10.9 percent, however, on a same store basis, resort revenues were up only 4 percent, primarily as a reflection of the merit increase we announced in February.

Real estate performance in the quarter was as expected, with revenue of $4.5 million and an operating loss of close to $1 million. Real estate revenue for the quarter was generated primarily from the sale of parcels of land in Arrowhead and Red Sky Ranch. Moving to net income, we earned $46.9 million, up from $40.8 million last year, an increase of 15 percent. Diluted earnings per share increased 14.7 percent, from $1.16 last year to $1.33 this year.

Now let's look at our financial results for the nine months ending April 30. Resort revenues for the nine months were $482.1 million, up 4.6 percent over last year. Looking at revenues by major business lines, lift ticket revenues were up 1.5 percent, retail and rental revenues up 4.6 percent, and hospitality revenues up 20.8 percent. However, same store hospitality revenues fell 8 percent. With regards to expense, resort operating expenses rose just 4.2 percent, and same store expenses actually fell one percent.

As Adam highlighted, skier days fell 4.3 percent but lift ticket revenues were our best ever. Resort EBITDA for the nine month ending April 30 was $137.7 million versus 130.2 in the comparable period last year, up 5.7 percent. As expected, real estate operating income for the nine months ending April 30 rose almost 100 percent due to more than the doubling of revenues from the main contributors, the Arrowhead and Red Sky Ranch single-family lot sales.

Despite this year's economic slowdown, we anticipate that year-end real estate operating income will be in line with our original guidance. Overall, net income for the nine months was $45.4 million, or $1.29 per diluted share versus last year's net income of $35.7 million, or $.102 per share. Our balance sheet continues to be strong, with net debt of 4401.4 million, and a net to total capitalization ratio of only 42 percent. This gives us ample committed credit facilities available to implement our development and acquisition strategies.

A hell of a quarter! Back to you, Adam.

Thank you, Jim. I'd now like to briefly look ahead to the fourth fiscal quarter and the completion of the current fiscal year. Let's knock the simple one off first, as Jim just said, our real estate company is still right on track for $15 million in real estate net operating income for the full year, which would be its best year ever, and exactly as has been discussed in our prior quarterly call. As for our resort and hospitality groups, while we were certainly pleased with the third quarter, I for one do not expect that all of the year-to-date improvement over last year will carry through to year-end. First of all, we expect that the hotel acquisitions we made earlier this year will have a collective $1 million EBITDA loss in the fourth quarter, as a result of their standard and forecasted seasonality.

Second, we have an array of smaller and individually irrelevant odds and ends -- $100,000 here, $200,000 there -- which collectively look to be modestly unfavorable this year in the fourth quarter, when compared with the fourth quarter last year. And third, we are not wholly confident that the summer tourist season in the United States will be bountifully robust this year, as the rest of the U.S. travel industry is still trailing last year's levels. Even despite these three factors, we do nonetheless expect that much of the financial improvement already posted through the first three quarters, will in fact translate into increased resort EBITDA for year-end fiscal 2002, as a whole.

On our last quarterly call, I did my best to suggest we were comfortable with analysts' estimates at that time, which would have put year-end resort EBITDA to be about equal to last year's $117 million, or so. With the strength of the third quarter just completed, I now believe that we could post year-end resort EBITDA of $120 million or more, up about three million. I need to stress I said $120 million or more, not $122 million or more, not $124 million or more. We would need a stronger fourth quarter than now is certain to post earnings much greater that $120 million on the nose for resort EBITDA for full year fiscal 2002. And of course, these numbers are all before the impact of the May closing of the Heavenly acquisition.

You may recall, we did receive a cash adjustment in the purchase price of some $3 million to cover anticipated fourth quarter EBITDA losses at Heavenly, but under purchase accounting, that adjustment lowers our basis in Heavenly, so we do continue to expect that Heavenly will contribute a loss of approximately $3 million to resort EBITDA in the fourth quarter. Similarly, Heavenly will have a $3 and-a-half million impact below the line in depreciation and interest charges in the fourth quarter. That number was three and-a-half million.

Put all of this together, year-end EPS is likely to be between 55 and 59 cents pre-Heavenly for the full year, and 44 to 48 cents post-Heavenly. And of course, all of these numbers assume no impact from a change in the amortization period for club initiation fees, which as we indicated already might either increase or reduce this year's numbers, depending upon which amortization period ultimately results.

Contrary to any of our fears back in October, we expect fiscal year 2002 will be another record year for Vail Resorts. And ask for fiscal 2003, we are extremely bullish, barring a second major act of terrorism on US soil. At this time, we'd prefer to complete our budget process, which is now well underway for the upcoming fiscal year before giving you all more concrete guidance as to our thoughts specifically about fiscal 2003 earnings.

But at this juncture, we see no reason why we shouldn't strive to deliver about a 10 percent EBITDA growth on our actual 2002 results, plus a pro-forma inclusion of Heavenly. That concludes our prepared remarks. As you prepare for any questions that you may want us to take, I need to point out that the comments made during this conference call, under than statements of historical information, are forward looking statements that are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. That's forward looking statements are subject to certain risks and uncertainties that can cause actual results to differ materially from those projected. Participants are cautioned not to place undue reliance on these forward looking statements that speak only as of the date hereof.

Such risks and uncertainties include, but are not limited to, general business and economic conditions, competitive factors in the ski and resort industries, failure to successfully integrate acquisitions, failure to achieve the expected improvement and to sustain the improved performance for fiscal year end results. The impact of the September 11 terrorist attacks on the travel industry and the company, and/or misinterpretation of same. The possibility of additional terrorist attacks, all the uncertainties related to potential change in accounting principle, of the revenue recognition of club membership fees, if any, and of any magnitude, whether positive or negative, within or without the range as publicly detailed elsewhere, and any issues arising therefrom, and the weather.

You're also directed to other risks discussed in documents filed by the company with the Securities and Exchange Commission. At this juncture, Jim and I would be happy to take any of your questions. Operator?

Thank you. The floor is now open for questions. If you have a question or a comment, you may press the number one, followed by four, on your touch tone phone at this time. If at any point your question is answered, you may remove yourself from the queue by pressing the pound key. Once again, it's one, followed by four, on your touch tone phone at this time. Our first question is coming from Felicia Kantor of Lehman Brothers. Your line is live.

Hi there, great quarter.

Thank you, Felicia, good morning.

Good morning. It's almost good afternoon, but good morning. I have a couple questions for you. First is the development at Breckenridge sounds very exciting, and I was wondering if you could actually -- I know you guys have been talking about it for a long time, but give us some more color about the village at the base of Peak Eight. You mentioned a little bit about it, maybe elaborate a little bit more on the plans, and are you going to be developing that on your own or will you have any partners there?

Secondly, on Heavenly, you did mention that some upside will come from the new bed base, the Marriott bed base, but from what I understand, you are also thinking of adding some amenities at the top of the mountain. I was wondering if you could walk us through that. Also, if you foresee any kind of -- you know, the top of cross marketing you're thinking about with Heavenly, and then just more housekeeping oriented.

At the beginning of the call when you were going through hospitality, you had mentioned the ADRs and RevPAR for Rockresorts and then for the non-branded Vail resorts without giving us some comps, so I was wondering if you could just give us that compared to, maybe, year-over-year.

Sure.

And that's it.

OK. Breck first.

We have the opportunity to build a new base village at the bottom of Peak Eight. For those of you who are not that familiar with Breckenridge, there are historically three major peaks - mountain peaks on which skiing takes place at Breckenridge, labeled by, I guess it was the Corps of Engineers, Peaks Ten, Nine, and Eight about 50 years ago, and those names have stuck.

This winter we will head west and take the next mountain peak - Peak Seven - and introduce skiing on Peak Seven. It's intermediate and beginner terrain. It's a total expansion of Breckenridge Mountain by about 10 to 15 percent and expansion of skiing at - of much needed intermediate terrain at Breckenridge by 30 percent.

Breckenridge has been a very successful resort for us, and we have, you know, something like 5 to 10 percent fewer skiers at Breckenridge than at Vail skiing on about a third the ski terrain that we have at Vail. So this terrain is very helpful.

The fact that the town has approved that we can build a beautiful new base village just at the base essentially of Peak Eight and Peak Seven, although it will be off - it'll feel off weight and towards Peak Eight, is advantageous because we'll create a beautiful little mountain village with Victorian architecture that will feel very much like mainstream Breckenridge the charm of this 150-year-old mountain town has been one of the great consumer attractions of visitors to the Breckenridge Resort, will complement that architecture.

The village will be mostly residential. There will be a few stores and restaurants, but very few. We're focusing the action still down in the main core town of Breckenridge. However, to make it easy for people to get from this residential village at the base of the mountain to the town, the town has approved and will help finance the building of a gondola that will link the base of Peak Eight and Seven with the main part of the town of Breckenridge down below.

Five hundred or so condominiums and/or time-share units and/or hotel rooms - that is still being thought through, but we have preliminary zoning entitlements for 500 units-plus. It's going to be a great addition to Breckenridge - a growing base for what has been a growing resort.

In terms of whether we will do that ourselves or take on a partner, we certainly believe that we have the capability from a human resource standpoint to do it ourselves. At the same time, we do have a tremendous amount of real estate opportunity at each of our five resorts, and so we might choose to take on a partner. That is a decision for a future day. We will do all of the planning, however, at this junction on our own.

Moving to Heavenly, we've previously announced that we think that Heavenly needs new restaurants - it needs new lifts. Realistically, buying the resort in May does not lend itself to getting those kinds of amenities either designed, approved, or contracted economically in time for this coming ski season. So instead, we're going to focus on three things - service, the - cleaning up the facilities that are there, and marketing Heavenly with some of the skills and concepts that have been so successful for us in Colorado, as well as the access to the marketing programs and consumer, customer lists that we have the benefit of controlling. Heavenly could be a lot better with new restaurants and new lifts, but it also could be a lot better if it was, just had a lot of paint and a lot of attention to normal operating equipment, signage, cleanliness of bathrooms, the whole host of things. As you all know, we have quite an established reputation of high quality service at our resorts, and we, of the standards that we will set at Heavenly will be no less.

As for hospitality and the Rock Resort properties, they were modestly down year over year in the third quarter, as has been the case across the hotel industry, down two or three points of occupancy, down let's call it maybe $15 in rate, that performance is similar to what has gone on around the country. As for Vail Resorts' lodging properties, occupancy was actually up year over year, we're happy to say, rate was down, oh 7 percent or so. So, you know, our hotel properties performed reasonably well compared to the rest of the U.S. hotel industry. They didn't perform as they would have without nine-eleven. That gives us some opportunity for next year.

Great. Thanks.

Our next question comes from Brian Maher of Credit Lyonnais.

Morning, Adam.

Morning, Brian.

Can you give us a little bit of an update, at the investor meeting back in March I guess it was, you had talked about your acquisition outlook and specifically referenced, I believe, two mountain resorts and two other resorts, and you did successfully acquire Heavenly. But can you give us kind of a status of what the rest looks like, you know, the other three that you were kind of talking about? Are they still live transactions?

We did, we did spend $100 million of our shareholder's money to buy Heavenly, so we certainly were successful in the acquisition front, and did so at a very inexpensive price as most of you have concluded. The other ski resort that we looked at turned out not to be for sale. And that's not a bad thing in my view. Heavenly is a big acquisition for us, and we want to make sure we bring it into our company well. There may be other ski resort opportunities out there, we really have to decide whether we need to go after them at this point, given the magnitude of the Heavenly acquisition at this time.

As for the hotel properties, we were extraordinarily close on one, the deal unraveled as so many often do. As for the other property, we took a pass, we didn't think it would fit the Rock Resorts portfolio. There are at least 15 hotel properties now in a acquisition pipeline, we did hire, two weeks ago, a gentleman by the name of Michael Shindler, a very experienced and well-known development executive within the hospitality industry. He was Senior Vice President of Hyatt Development for many years, about ten, and was in charge of Mandarin's hotel development in North America for the last few years. He's a great addition to our company. He is known by one and all. So I don't think there will be a deal done away from us in the hospitality industry with Ed Mace, the former president and CEO of Fairmont, and Michael Shindler on board. Having said that, just because we have 15 hotels in an acquisition pipeline, doesn't mean we'll buy any of them. I think we've always had 15 hotels in a development pipeline over the last several years, so you know, whether that translates to no acquisitions, or one acquisition, or two acquisitions, that's sort of the yield that you would get from a pipeline of that size. So I would say nothing is imminent, other than Heavenly, but we're very active and talking to people every day. So you never know.

Just as a quick follow-up, we're starting to see a lot more advertisements out there in various travel magazines and what have you on Rockresorts. Can you tell me how much you're going to push that? And secondarily, what would you anticipate critical mass really being as far as the number of properties go for the Rockresorts brand?

Well, it is nice that we're starting to see Rockresorts coming back into life. You know, we're very candid in saying Rockresort was the greatest hospitality brand in the United States a long, long time ago. It's been relatively dormant in recent times, and our strategy obviously is to give it some of its former luster. We just completed, two weeks ago, a beautiful new logo -- very elegant -- for Rockresorts. We now move into new consumer advertising, new Web site design, new looks for collateral. I think, over the next six months, let's say there is a lead time on some of this stuff, so let's say in September or October you will start to aggressively see Rockresorts' promotional communications. At the same time, we can do that and not spend a lot of money. If we are very targeted -- and fortunately we have very good customer lists of excellent travelers -- if we stick to major consumer magazines like "Conde-Nast Traveler" and "Travel and Leisure," we can spend a number that is kind of one to $2 million impact.

As for -- oh, you had what? You had a second half beyond the ...

Yes, critical mass, briefly.

Oh, critical mass. You know, we're not really very far away from it. I do understand that 50 or 60, and Hyatt has 150, but when you strip out their pure resort portfolio, even the best known brands came to 20 resorts in North America. And we're starting with 11. Now, we'd like a few more, but I don't believe that we're below -- you know, well below -- critical mass, even now. Especially given that the collection of our properties is so good -- seven of the eleven are members of Leading Hotels of the World are Preferred Hotels and Resorts -- and they are geographically dispersed around the country. They're not concentrated in just one little region. So we're -- you know, it's -- look, if I were Barry Sternlicht or Bill Marriott I would hardly be quaking in my boots at the prospect of Rockresorts. But we have a very nice little profitable luxury resort hotel company that we think can hold its own.

Thanks, Adam.

Once again, if you do have a question or a comment, you may press one followed by four on your touch-tone phone at this time. Our next question is coming from of .

Good morning, Adam and Jim.

Good morning, .

I wanted to know about -- in terms of looking at the clubs, what -- can you maybe just give us quick detail on which clubs we're talking about in this whole accounting issue? Is it lunch clubs as well as golf clubs?

Well, yes I can. The Red Sky Ranch golf club, remember I said that we'd never booked initiation fees until the club actually opened?

Right.

So none of this relates to Red Sky Ranch golf club because that doesn't open for another month.

Right.

So as we look back over the past four years, we're looking at the Beaver Creek Club, the Bachelor Gulch Club, and the Arrowhead Club -- the Arrowhead Alpine Club -- it's a very small club at our Keystone resort. Those are primarily luncheon clubs as opposed to golfing clubs.

OK. And -- I mean, going forward you haven't made any announcements about any additional clubs, is that right? Is the Beaver Creek club the -- well, there's the new club you were going to build on the Beaver Creek hill, right? Or is that the Beaver Creek club?

We're building, but that's part of the Beaver Creek club, and no, there are no clubs that you don't know about. And even if they were, they would fall into whatever new accounting policy is resolved with PWC.

OK. And just one other question. Can you reiterate your expectation for Heavenly in terms of contribution. In '03 I think you said it would be slightly accretive, or am I misspeaking?

No, we believe it will be accretive. This year, I think we're out public with a range of 14 and a half to 16 million for resort EBITDA this year at Heavenly, and I think we've set a range of 15 and a half to 17 million for resort EBITDA next year at Heavenly. We think we'll get the real big pops in EBITDA once we start putting in the much-needed restaurant and -- restaurant facilities and new lifts. The depreciation number on Heavenly is about $10 million, and the interest payments on Heavenly at the moment are running about $4 million on an annual basis.

OK. Great, thank you very much.

No problem.

We have run out of time for questions. I would now like to turn the floor back over to the management for any closing comments they may have at this time.

Operator, we've had a circumstance before where we ended the call just this way because people had trouble connecting to you in time, so can we just give them one more opportunity to ask questions?

Sure, that's no problem, sir. As a reminder, if you do have a question or a comment, you may press one, followed by four, on your touch tone phone at this time. Please hold while we poll for questions. We do show no further questions, sir.

OK. Ladies and gentlemen, thank you one and all. We think we had a great quarter. We're very pleased with our performance this year. We would not have thought this could be possible, to be in this position today back on September 12, or October 12, or for that matter, November 12. But by December 12, things were starting to look up. We would like to thank you for joining us on today's call. May I remind one and all that Colorado and Wyoming's golf courses are now open, they await your play. And drives go 30 yards further at 8000 feet. If that doesn't tempt you, we have beautiful resorts, luxury resort hotels in every corner of this nation, literally every quarter of this nation. Come visit us.

And naturally Jim, Leslie, and I are available to take any of your calls on any of the matters we've discussed today on a one-on-one basis. Leslie's direct phone number if 970-845-2958. Her e-mail is lroubos@vailresorts.com - that's (L), (R), (O), (U), (B), (O), (S) at Vail Resorts dot com.

Thank you, and good-bye.

Thank you.

This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.