Vail Resorts Inc (MTN) 2002 Q4 法說會逐字稿

Good morning. At this time, all participants have been placed on a listen only mode and the floor will be open for your questions following the presentation. It is my pleasure to hand the floor over to your host, Mr. Adam Aron, Chairman and C.E.O. of Vail Resorts. Sir, the floor is yours.

Thank you, operator. Welcome to 2002 year end Vail Resorts conference call and simultaneous web cast, both open to the public at large. As you know, I'm Adam Aron, Chairman and C.E.O. I'm at our headquarters here in Avon, Colorado. Looking out of mirror window at a snow-covered Beaver Creek Mountain. Last night we drove home in a blazing blizzard. We got 5 inches of snow at Vail. Judging from what I scraped off my car this morning, we got something similar at Beaver Creek. Speaking of we all, joining me is Jim Donahue, our CFO and Leslie Roubos Director of Financial Planning and Investor Relations. On Friday morning of last week we issued a press release about our fiscal earnings 1999, 2000, and 2001. Today we released earnings for fourth quarter and fiscal year ending July 31, 2002. We do have a lot to talk about this morning. And given our position with Vail Resorts management being eager to have a complete and thorough dialogue with you, I will do my utmost to clarify our announcements.

I would like to begin by addressing the press release we issued this past Friday regarding the earnings restatement of fiscal year 1999, 2000, and 2001. As you will recall in our third quarter earnings conference call this past June, we discussed our new auditor's recommendation that the company change the accounting for membership and initiation fees of our private membership clubs. These clubs historically represented 1 and 2% of Vail Resorts revenues. It had been our practice that club initiation fees in total be recorded as revenue that first year in which the revenue was sold and the cash was received, or to be conservative in the year that the club opened, whichever occurred latest. And you will recall our external auditor at the time, Arthur Andersen affirmed that accounting treatment repeatedly quarter after quarter and year after year. Our new auditor, Price Waterhouse Coopers, apprised us of what our amortization fees should be over a period of time. At the end of the third quarter earnings release though, Arthur Andersen did not agree with the advice by PWC. Zero we did, however, show the potential impacts, ranging from 8 to 30 years, if we were to change the historic club amortization rates. Subsequently, we issued a press release in late June announcing that we had resolved the amortization period and determined with the concurrence and affirmation of PWC that the club initiation revenue should be amortized over the life of the membership estimated at 12 years.

Nevertheless, the more we thought about the matter over the summer, and given that we wanted to ensure that we handled the restatement absolutely correctly in these hypersensitive times, we decided on our own and completely voluntarily to consult the accounting staff for the Securities and Exchange Commission on this issue. Last Thursday, October 17th to be exact, we heard back from the staff that they recommended the amortization period be over the life of the club rather than the life of the club member, estimated to be 30 years, and we have restated our earnings accordingly. I remind you now, as I did in June, that all of these membership initiation fees have been received by Vail Resorts, all of the cash is in hand and any revenue taken from prior periods will be added to future periods in precisely the corresponding amounts.

Separately, we also announced last Friday that we engaged PWC to re-audit the prior three fiscal years. We felt a re-audit was prudent and in the best interest of the company, share holders and stake holders that Price Waterhouse Coopers perform a re-audit in the accurate and completeness of the company's historical financial statements. We have now had two audit firms review our historical financials and we believe this should provide a great deal of comfort for you and our shareholders.

Putting aside the club's issue in its entirety, which represented 86% of the restatement, I am pleased to report to you that in our opinion, no items of consequence arose from the re-audit. There are a handful of changes, but these changes are small enough individually and collectively that we think they're just noise. The re-audit resulted primarily in the adjustment of historical workers' compensation, medical and legal liabilities as well as the recording of equity losses on our employee housing joint ventures. These adjustments totaled just 2.1 million in-reduced EBITDA and 2.1 million reduced net income over the three-year period combined. You will notice our financial statements are very different as we report the equity income from our non-consolidated joint ventures from our reporting segments although it's important to note this does not reflect EBITDA or net earnings per share. Again, to sum up Friday's release, the club initiation fee matter is finally resolved for certain, and we are pleased that the re-audit came out so favorably.

Now switching gears. Let me talk about this morning's press release. For your information, while our earnings announcement came simultaneously with the filing of our 2002 10K, some of you noted we did not send any world speed records in the releasing our 2002 earnings. This is simply and solely because we had to resolve the amortization period for recognizing club membership initiation fees before we could determine 2002 results and as I said earlier that was not accomplished until Thursday, October 17th.

So let's look at 2002. First you will notice that, as promised, we have split our resort segment into two separate segments, mountain and lodging. This is designed to let you better see how our mountain resorts, driven by skiing and other activities, perform independently from our hotel operation. It also provides you with more information about our lodging business, predominantly driven by room nights and other revenue opportunities in at our hotels, managed condos and golf operations. And the Grand Teton Lodge Company is included in the lodging segment. As for our fiscal 2002 financial performance, let's start with the fourth quarter results. For the first time in 23 quarters, we are announcing today an earnings miss, except of course when we pre-released in which case the prerelease range was in fact achieved. The reason, of course, that we did not prerelease this quarter, as I just mentioned is because we could not do so before the amortization issue was resolved which only occurred on October 17. The fourth quarter was holding up nicely in May and June but July was a difficult month for us. It's no secret that the travel and lodging industry experienced nationwide softness during the summer especially in the western United States because of fire and drought. Our lodging segment fell short in July, with golf rounds and visitation of the Grand Teton Lodge Company being hit the hardest. But our overall hotel performance that owned properties was actually quite encouraging. Remember that the fourth quarter is seasonably weak for rock resorts as most properties have a winter peak season. Still, occupancy for the fourth quarter of 52% was up from 50% the year before and the average daily rate of $150 was up from $138 for the comparable period last year. Vail resorts owned and managed hotels that do not carry the Rock Resort brand also performed well in the hole of the quarter. Occupants of 6% were down one point from 66% the year before but average daily rate increased from $130 to $135. Given the lackluster performance of the entire U.S. hotel industry, we're pleased by this solid performance given the external crime at. What is more, we see no reason why the Grand Teton Lodge Company shouldn't rebound this coming summer. Again, looking at the quarter, our mountain segment also fell short, among other factors, we saw a one-time nonrecurring seven-figure rise in cost to pay for the legal accounting and tax work associated with the restatement and re-audit. In addition, we experienced weak performance in our retail, brokerage and commercial leasing operations in particular. We also received late billing for 2001, 2002 ski season airline guarantees, which were higher than expected among other factors that affected the quarter.

Comparing Q42002 with Q42001, we should point out fully 40% of the decline in the resort EBITDA was the result of expected seasonal losses from our acquisitions made during fiscal 2002. The balance is due to the aforementioned summer softness and other factors. Turning now to the full fiscal year results, how can any of us forget that September 11 fell on the 42nd day of Vail Resorts fiscal 2002? I don't need to tell any of you how extraordinary was the impact of that tragic fateful day for our country and the traveling country in the world. During fiscal 2002, Vail Resorts and everyone else for that matter, with terrorism, war, recession, and a real concern among many potential air travelers caused some to stay at home. With that as a backdrop, we see it as nothing less than a moral victory that, one, Vail Resorts posted record revenues even without the acquisitions made early on in the year. And our real estate division produced another record year, despite the economic slow down experienced throughout the country.

Two, that same store mountain revenues rose 2% year over year, as we experienced lift ticket prices and our retail joint experience increased in yearly sales. Three, that mountain EBITDA was down 1.7% and excluded the fourth quarter heavenly loss was actually up .4 of 1% for the year. Four, that our resort EBITDA in total, mountain and lodging EBITDA combined, was only 1.4% unfavorable to last year, and, five, that even excluding acquisitions, resort EBITDA was still down only 3.9% year over year. While our same store mountain division results were up .4 of 1% as I just said, by contrast, it was our lodging group that accounted for the company-wide decline. But I should point out much of this imbalance between the two divisions was deliberate. Fortunately, we now control a big chunk of our ski resort bed base, and we were able to both lower lodging prices and to creatively package during the ski season to attract more skiers to come to our resorts bolstering the mountain division performance. Indeed, lodging revenues were up 21.5%, but excluding acquisitions, they fell about 5%. Lodging EBITDA rose .7 of 1% but, again, excluding acquisitions, lodging EBITDA fell 39%, reflecting the just-mentioned effects of September 11. Our intentional lodging discounting to attract more skier visits and the sluggish national economies effect on consumer and business travel. But given that the rest of the lodging industry experienced larger decreases in revenues, we're somewhat pleased that our same-store lodging revenues were down by only 5%. There is one more important point to make about lodging margins and lodging EBITDA, especially for those of you who are used to looking at our lodging companies. Our lodging division is carrying a fairly whopping marketing, accounting, HR, MIS, and other corporate over allocation from Vail Resorts of about $15 million. Given the lodging now represents 27% of Vail Resorts' resort revenue, this is only appropriate. However, lodging representing only 18% of resort revenues since four years ago, contrasted with 27% today. And we certainly have not been adding incremental overhead at the same pace as we have been acquiring additional hotels. Additionally, I doubt we would decrease the ski area marketing expenditures very much if we were to shed our base-area lodging operation. But lodging is nonetheless, and properly, carrying the significant partial allocation of our overall sales and marketing expense. So from a cost-accounting perspective, there may be some unintentional transferring of overhead here from the mountain division to the lodging division, although that is absolutely the appropriate way to allocate overhead.

Let's change our focus from year over year and look at the full year actual results versus earlier guidance. In June, we believed and indicated in our June conference call and in our June press releases that resort EBITDA for the fiscal year would be about $112 million. $120 million less an estimated $3 million expected seasonal loss at heavenly, a $1 million expected seasonal loss at our newly acquired hotels and 4% EBITDA decline for the income statement club and initiation fees for life, bringing the expected total number for EBITDA for the year to $112 million. In fact, today we reported $107 million. So the quarterly miss versus guidance was about $5 million. That was caused by the slow summer and the many other factors as discussed in our 10K filing. While resort EBITDA for fiscal 2002 was only modestly behind that of fiscal 2001, which itself was a record year in the history of our company, we did get a loft work done on a non-financial basis at Vail Resorts in the year. Strategic advances were achieved and actions have been taken to position Vail Resorts well for the future. We made several strategic acquisitions including Rock Resorts, The Ranch and Mirage, Vail Ranch and Heavenly. We have new initiatives to generate growth for us in future years, including new ski train for Breckinridge on peek 7, reservation of the spa in Jacksonville Hole and Marriott, the opening of Beaver Creek Sky Ranch, new real estate developments in Jackson and Brackenridge. What's more, we are less than 30 days away from the rib on-cutting ceremony of the new Ritz-Carlton Gulch which will be open for Thanksgiving.

So if you had asked me on September 12, 2001 or if I had asked you on that same day whether we could have produced solid results for the year, both of us, I suspect, would have feared an outcome far worse. Regrettably for others in the U.S. travel industry, a poor 2002 was their result. Again, given all that has transpired and the pain seen elsewhere in the U.S. travel industry, we think, relatively speaking, Vail Resorts had a pretty impressive year.

Now then we're finished for the moment with 2002. On to fiscal 2003, the current fiscal year, August to July. From a macro perspective, we're optimistic when looking at fiscal 2003. Our company's well positioned. There are numerous competitive advantages and we made strategic process on which we will now build. In another sense, one would think we would have to see a better year unfold ahead than what we have all encountered in the year immediately after September 11.

That being said, it should nonetheless be apparent to one and all that we're still experiencing tough times in the travel and lodging industries. Given a continued sluggish economy and the very possibility of war with Iraq, we feel that, while it's prudent to happy for the best, it's also important to plan for the worst. As such, we under took an extensive review of the entire cost structure of our company, analyzing every operation and every position in detail over the past 75 days. At the first signs of a slow down in the national economy, we began implementing cost savings in earnest more than a year and a half ago. We had a dramatic cost savings effort after September 9-11 which resulted in savings for our ski resorts as we changed how we ramped up early ski season operations. Now we have announced today that we're continuing those cost-cutting efforts, having identified eight pages of cost savings ideas, some big and some small, some as large as $1.5 million, others as low as $1500, which in total eliminate from fiscal 2003 some $10 million in actual expenses incurred last year, and which, without management action, would have occurred in fiscal 2003 as well. The cost-reduction plan includes exchanges designed to improve operational effectiveness such as optimizing snow-making expenditures, modifying lift operating times during off-peak periods, converting certain year around positions to seasonal, managing employee housing more smartly, reducing back-of-the-house administrative expenses as well as other measures. What's more, the company is tightly managing all of its planned expenses, attempting to contain the impact of inflation and to rigorously manage other discretionary expenditures. Examples of cost containment that do not result in year over year reductions but nonetheless which will help to lower the company's ongoing structure include holding sales and marketing efforts flat despite an expected growth in those resorts' revenues, branding a 2% salary increase in 2001 which still recognizes the importance of our employees but was necessarily lower than that of prior years and eliminating a number of budgeted increased positions throughout the company. With the cost-reduction plan, the company continues to find ways to operate its businesses more efficiently while continuing to provide guests with world class vacation experiences as the cost reductions are targeted at areas that are not expected to affect the level of guest service and top quality reputation of company's resorts.

At the risk of repeating myself, I really do want to emphasize we have in fact targeted the back of house and overhead areas that are not expected to affect the level of guest service, allowing us to continue to maintain the top-quality reputation we have earned at our lodging and resort properties. In addition, as part of our cost savings plan, it's my sad duty to announce we will be laying off 50 officers, managers and employees and eliminating 50 vacant positions as well. You all know we live in small towns and many of our neighbors will be listening to this call today. They should know that we will all sincerely feel the trauma of the human disruptions these cuts will cause. As painful as these cuts may be however, it's important to know note we are retaining over 99% of our workforce, that sacrifice is reaching the highest levels of our company and that the stronger company that will result will benefit those remaining employees and our surrounding communities. We also announced in our press release this morning that we have under taken a management restructuring in conjunction with the cost-reduction efforts. Last week, we announced that Andy Daily, President of Vail Resorts will be leaving the company and the position of president will be eliminated. Additionally, we announced today that we are eliminating the position of our senior vice president of public affairs.

We also announced that John Rutter, Chief Operating Officer of Keystone Resort will move to Jackson Hole, Wyoming to take over the day to day operations of the Teton Lodge Company. These changes result from six to four the number of senior operating executives we have running our mountain resorts. And we will be running the company minus three Colorado-based officers reflecting a more streamlined management structure. All of the aforementioned measures bode well for fiscal 2003. Consider them to be a counterbalance or off set against the possibility of a slow down in revenue generation, and if revenues turn out to be robust, then the cost reductions will only serve to enhance profitability. While others in the travel and lodging industry approach the upcoming year with apprehension, at this point we are still upbeat. We expect to see growth in our resort EBITDA and real estate EBITDA. The metrics we track in order to monitor how we're doing compared to prior years are encouraging. Year to date bookings, from August 1 to October 26 in central reservations are up 23% compared to this time last year, including a 115% increase in online bookings. September bookings for the ski season were up 77%. In October, bookings are up 29% so far. Of course last year, bookings in September and October were anemic, and our bookings for this year, while we are way ahead of bookings for last year are still behind bookings at this time for two years ago. Nonetheless, we're still glad to see the increases. Room night bookings into our own properties are also looking strong when compared to last year, as opposed to the prior year, with Christmas up 11% year over year and the high seen up 3% compared to this time last year. Anecdotal evidence from wholesalers tells us that the booking curve continues to be late and close in, just as it was last year. Actually, promising news, because we should therefore expect more late-booking activity closer in to the ski season. We're seeing evidence of increased daily rate at our hotels to as Christmas ADRs in our properties are up 2% and mid season ADR's are up 14%. With the renovations at Snake River Lodge and Spa and the Vail Marriott, we will be able to command higher prices there too. We should see increased lodging EBITDA at the Marriott and the Ranch at La Mirage for a year. The Ritz-Carlton at the gulch opens this year and we will have to -- its start up costs on opening day. As we sit here today, we continue to be very excited about our Rock Resort acquisition. The properties for the most part are in excellent condition, with seven of 10 rock resorts being included among the prestigious collections of leading hotels of the world and preferred hotels and resorts. Zagots just named the ranch at la mirage the best in the area. And the new rock resort is in full swing, with a new logo and marketing slogan, MARX resorts, it's legend dairy. With the first ever advertising in magazines appearing in both "travel" and leisure and "Condi NESTE's traveler magazine." They're up 36% year over year. We're on track for bringing back this legendary up market hotel brand.

Overall, we believe our lodging EBITDA will be flat. And we may even have a chance of seeing a growth in lodging EBITDA compared to last year, not bad really given the gloom and doom that is still coming from the rest of the U.S. lodging industry. In our mountain segment, we expect a small increase in skier visits, primarily in so-called out of state destination business, and we believe we will begin see price increases that stick. Vail is the number one ski resort in the country and it should be the price leader. We have not seen any evidence that we cannot raise window lift ticket prices; therefore single day lift ticket prices have been raised 6% year over year at Vail and Beaver Creek and represent the highest ticket prices of any resort in the nation. 7% increase at Breckinridge and 3% keystone as well.

At the same time, we continue to be aggressive in putting forward attractive season pass pricing to consumers, below $300, both in Colorado and at Heavenly. Even so, the average season price ticket in Colorado achieved so far this year is up almost 12% year over year. Passes sold at Heavenly were triple what was sold there last year. We also expect to see growth in our mountain segment because there's so much positive activity at each of our resorts. Here are a few highlights. Vail celebrates its 40th anniversary, it's number one ranking in North America by "ski" magazine for the 11th time in 15 years but who is counting and the $26 million Vail Marriott renovation which will be completed by Christmas in time for the upcoming ski season at Vail. Beaver Creek can celebrate the opening of the glorious Ritz-Carlton at the Gulch for Thanksgiving. I cannot tell you in words how beautiful this hotel is. I am already on written record that immediately upon opening, it will be perceived as the single finest ski resort hotel in the western helps fear. Brackenridge opened on the all new peak 7, increasing lift access at Brackenridge by 37%. Keystone should have a more normal snow year, which will cause a dramatic recapture of skiers lost to other resorts last season. We will have the benefit of owning Heavenly for another year after an infusion of $6 million in cosmetic enhancements for this season. Heavenly should add 14 to 16 million of EBITDA for the year, year over year, remembering that in fiscal 2002 we recognized two- to $3 million from operating loss from the May 2002 Heavenly acquisition which occurred after the ski season had ended. In addition to new activity at our resorts, the inherent strength and appeal of the resorts is the reflection of the quality as evidenced by the world-class reputation of our mountain reports. Not only did Vail rank number one but Beaver Creek was ahead of Aspen. We have two of the top five, three of the top 10 and five of the top 20 ski resorts in North America in our portfolio. We'll expect another banner year in the real estate division with a majority of the sales already at hand. The affluent real estate market is still hot, believe it or not. We just sold a penthouse condo on top of the Vail Marriott for $2.5 million, or $903 per square foot, setting a new standard for real estate values in lion's lady. We see -- in Jackson Hole. There's a great interest in our Jackson golf course taken in August. Home site lots are about $550,000 each and we have had 36 reservations for the first phase of 20 lots in just of the first month which reservations were being accepted. The second golf course designed by Gregg Norman at Sky Ranch will be completed and opened this summer. 14 of the 17 home site lots we put on the market ginning in July have been sold by the norm an course with expecting closings from October to December at an average price per lot of $837,000. In all, even though we're understandably concerned by the prospects of war and recession, at this point in time, the good news seems to outweigh the bad. So that said, with our cost-reduction plan in hand, we expect growth next year, from both acquisitions as well as from existing operations.

We project mountain EBITDA for fiscal 2003 to range from 117 to $127 million and lodging EBITDA to range from 13 to $17 million with total resort EBITDA, mountain and lodging combined ranging from $132 to $142 million, all before severance payouts estimated at $2.5 million, split about evenly between the first and second fiscal quarters. We also expect real estate EBITDA to range from 15 to $17 million. As for earnings per share, we estimate a range of 30 to .47 cent per share. The first quarter ends on Thursday. We are comfortable in saying mountain EBITDA will be a loss between 29 and $34 million and lodging EBITDA will be a loss between 2 and $5 million, with total resort EBITDA ranging between 33 and $37 million for the quarter, again all pre-severance. As you look at those guidance numbers for the first quarter year over year, I would remind you that a significant portion of the decreased loss year over year is made up from our acquisitions, which were not reflected in the company's finances in the fiscal first quarter last year. Real estate EBITDA for the first quarter should range between 11 and $13 million and EPS should be between a loss of .85 and .95 a share again pre-severance. Seasonal losses are expected in our fiscal first quarter. Well, there you have it. Short and sweet and only 34 minutes. At this juncture, Jim and I would be happy to answer any of your questions.

As you prepare for your questions, I need to point out that the comments made during this conference call, other than statements of historical information, are forward-looking statements that are made pursuant to the safe harbor provisions of the private securities reform act of 1985. They're subject to risk and uncertainties to cause actual risks and results to differ materially from those projected. Readers are cautioned -- such risks and uncertainties include but are not limited to general business and economic conditions, failure to achieve of the anticipated cost savings and anticipated operational efficiencies or conversely, adverse consequences, failure to keep key management personnel, competitive factors in the ski resort industries, failure to successfully integrate acquisitions, uncertainties and issues arising, positive or negative, related to the radio statement earnings, including the change of accounting for club fees, the impact of the terrorist attack and the or misinterpretation of same, the possibility of war and economic slow down or additional terrorist attacks and the weather. If there could possibly be any other risk factors, investors re directed to whatever other risks may be discussed in documents filed by the company with the Securities and Exchange Commission. The operator will now take questions.

Thank you. The floor is now open for questions. If you have a question or a comment, you may press 1, followed by 4 on your touchtone telephone at this time. If at any point your question has been answered, you may remove yourself from the cue by pressing the pound key. We do ask all participants to please pick up their hand sets while posting their question. Our first question is coming from Brian Maher of Credit Lyonnais

Good morning.

Good morning.

Looks like you covered all of the possible risk factors out there. Could you give us an idea of how you're thinking about future acquisitions here in light of all of your cost-cutting and should we be thinking more along the lines of summer or winter type of acquisitions and what kind of multiples you would be looking to pay? And, finally, how much do you per receive E. receive you have available to make such acquisitions?

Thank you, Brian. Good morning. We made more than $200 million of acquisitions in fiscal 2002. We have long believed, as a company, that we should be conservative and prudent with respect to acquisitions. And that it is really important -- probably more important -- to assimilate acquisitions well than just go out and acquire. So while never say never, but I'm not expecting any significant acquisitions in fiscal 2003. If the right thing came along, we might, at the right price, we might be tempted. But our focus, as we sit here today; to focus on our current operations, achieve the desired increases in revenues and achieve the desired cost reductions that we've announced this morning, run our operations well, assimilate last year's acquisitions. We do have some powder. It is considerable, especially as we perform during fiscal 2003 with increased earnings year over year, but it is not the highest priority for us at the moment. Having said that, if I were looking at the end of the year, looking at fiscal 2004, which for us would begin next July, I see no reason why we wouldn't get right back on the acquisition trail. We do believe the company can continue to grow through acquisition well and that remains a key part of our long-term strategy.

Thank you.

Thank you. Our next question is coming from Will Marx of JMP. State your question

Good morning. A few questions. First of all, did you mention that the 10K is -- the 10K is out?

The 10K will be out sometime today. I think we're going right at the close of the market.

Around 2 or three o'clock our time.

Will you be restating income lines by new divisions?

Yes. The comparisons will have our three segments looking back historically, so you can exert year over year.

How about by quarter?

There's a section for the quarters in the 10K.

Great.

It's been a little busy.

I'm sure it has. Can you give us any kind of update on the lawsuit at Winter Park?

I can give you a partial update. There are some things that still remain confidential inside the company. It is our view that the Interwest by going toward with Winter Park on the structure, that it is now -- that it is now in place with the city and county of Denver, has in fact breached the joint venture contract we have with interest at Keystone, a contract that has been in place since 1994, as I recall. We thought we had no choice but to file suit. Our counsel believes that we have a very good case. And a better chance of being sustained than of not being sustained. We're prepared to go all the way to the end if we have to, although our preference would be to find some kind of settlement with Interwest. And beyond that, I shouldn't say much more other than to say you should find it interesting that we filed the suit in Delaware court. We really do believe this is a simple matter of contract law and contract interpretation and we have tried to remove it from any kind of competitive jockeying between Vail Resorts and Interwest or the politics of Colorado and people's interest here in what these two companies are doing at six of Colorado's most important ski resorts.

Okay. Thanks. One other unrelated question, just on water supply, given water lack thereof, any impact on snowmaking or operations in general?

No. We're in great shape for water. Our company has spent a lot of money over the years acquiring water rights, just in case of bad times. Indeed, there was a drought in the summer in Colorado. But precipitation since Labor Day has been about double normal levels of September/October precipitation. And early-season snowfall has been plentiful. We have all of the water we need, in our opinion.

Great. Thank you.

Thank you. For any further questions or comments, you may press 1 followed by 4 on your touchtone telephone at this time. Our next question is coming from Ray Cheevman of Jeffries and Company. Please state your question

I'm wondering if you can give us any update considering the retrenchment of your structure that you've just announced, what do you see for timing and spending on the possible line's head redevelopment or front door redevelopment that you showed us on our September trip.

Lion's head -- spending there, because we are moving full speed ahead with lion's head and the Vail front door. We think we have -- we think we have a beautiful plan. We believe there's enormous local support for that plan. We still do have to go through the formal town approval process. We have submitted our plans formally, but the approval process, even if there's not much local opposition, could take 16 to 18 months. So can we break some ground this summer on something? It's possible. Will we break ground a year from this summer on a lot? I think that is highly likely. But, of course, government approval is required, and one should never be so presumptuous as to assume government approval will be realized before it's at hand. Having said that, Line's Head has sort of -- the redevelopment of Lion's Head has sort of begun. And, remember, while we think the Lion's Head redevelopment will be a profitable project, our interest in it is more to create more hot beds in Lion's Head and Vail village and to improve the aesthetics of the town of Vail, because we think we have done a lot of improvements to Vail mountain, and the best way to drive more skier visits, more recreational visits to the Vail valley is with a better town. And so if the goal is make the town of Vail better rather than drive real estate profits, especially in Lion's Head, that process has begun. Our next-door neighbor at the Vail Marriott, the antler's building has rebuilt, it's very attractive and we in our 26 million renovation of the Marriott have, in fact, have, in fact, allocated about a million of that 26 million through a complete reskinning of the exterior of the Vail Marriott. What was pretty ugly brown, wood board siding from the 1970's is a white Bavarian stucco with copper turrents so the beginning of the makeover of Vail has begun.

You mentioned the spending was full speed. Is there any guidance for Capex? You're off on a different cycle with these calls but --

This is Jim. We haven't put the CAPEX plan together again. Give large ranges because we want to see how we move forward. It's 40/60 for the resorts and 50 to 60 in calendar 2003 for real estate. But we can adjust those up or down, depending on the performance levels.

When Jim says we haven't put the plan together, that doesn't mean we haven't paid any attention to this issue. What it means is two things. One, we have not yet gone to our bored of directors for formal approval of CAPEX for calendar 2003, which means that management has not yet made a formal recommendation to the board. Secondly, we think that our level of CAPEX spending in fiscal 2003 should be the result of our operating performance. The tight her the operating performance, the less capital we believe should be expended, and the better our performance, the more bullish we will continue to feel about investment projects going forward. Remember this very important key number.

Maintenance capital -- my mouth is a little dry. Maintenance capital for Vail Resorts is still only about $30 million. At the outside, maybe one could get it up to $35. So to the extent we're spending what you all and we all would call Capex beyond maintenance capital levels we would be making discretionary capital expenditures designed to produce incremental returns.

I'm guessing the spread between the 30 and 40 to 60 spread is heavenly?

We have six in for heavenly in this 2003 fiscal year, and we may or may not add to that when we move through the plan. But we've already got six in process.

I want to ask you about Heavenly. Congratulations on tripling the test sales. Have you instituted programs like we have here in Colorado, where --

Let me back you up for a second. Jim said 6 million for 2003. He meant 2002. When you look at the 40 to 60 in 2003, if we do in fact spend that high, and there's no assurance that we will, yes, that would probably call for capital to be spent in two specific places. One would be Heavenly, and the second would be the renovation of the Lodge at Rancho. We have renovated the Snake Spa and spent a significant amount of capital at Rancho so Rancho and Heavenly would be the two targets in 2003 but we have not yet made any decisions for either although we have plans for both. As Jim said, we go into the 2002, 2003 ski season with $6 million of aesthetics in place.

Unknown Speaker*: I was going to ask you about the Heavenly programs. Are you doing things like -- like you do in Colorado, adjusting the price versus number of used days from past data, or are you just enhancing the product that was already there?

Both.

Using your name recognition?

Both. All three. We are telling people in the bay area and California that Vail Resorts has arrived, which is our name and reputation. Two, as Jim mentioned, we have invested $6 million already to upgrade the cosmetics at heavenly. Base lodges, bathrooms, signage, uniforms, you name it, we're trying to show people that the Vail Resorts standard of running a are resort is coming to heavenly. Three, we have taken our aggressive marketing practices to heavenly, to be included in our E-mail programs and database marketing program. We have participated with management team at Heavenly on the positioning of the resort, and, yes, we lowered season pass prices to $299. And, surprise, surprise, we have tripled season pass sales at Heavenly. And interestingly, if you look at historic patterns, people ski less on average in Lake Tahoe than they do in Colorado, probably because it's a longer drive from the bay area to Tahoe than it is from Denver to the mountain resorts. And so the average day skied by the typical Californian skier is only about five. Now, it should ski a little bit higher for someone whose self-selected to buy a season pass. But we might be looking at the same experience as in Colorado where the average days skied by season pass hold service only six to eight, a 300-dollar season pass price. It's a very good deal fort consumer, because they have the fantasy of unlimited skiing. In reality, the average lift ticket price collected is just fine.

And if you will think about the answer to this, but in going to Delaware court and taking the contractual matter to Interwest, is the idea to get them to back out of Winter Park or back out of keystone? What would be --

There's an appropriate answer to that question. Our intent is solely for them to adhere to their contract and their obligations that they made in good faith to our company in 1994. Now, to be fair to Interwest, they are our competitors, and we have been tough but friendly competitors over the years. I believe I have a good faith interpretation of the contract, they're not violating the contract. We see it differently and so do our answers.

And congratulations on your Ritz-Carlton. It is fabulous.

Thank you. You will all -- I know everybody is going to want to have the next investor trip.

Thank you. Our next question is coming from Michael Canner of Sherman Capital. Please state your question

Good afternoon. I have two questions. One, I'm noticing on the -- what was provided, there's a -- between the cash balance decline and the increase in debt is sort of at about it's a $190 million difference. I notice with the EBITDA and the large acquisition from heavenly, that gets me to $140 million of that. I'm assuming that the other -- the 50-dollar difference, therefore, is between Capex and working capital, which would be a use of cash for the quarter. Am I right on that? Also giving the fact that you're providing the 10K, can you give an availability on the revolver.

Most is Capex-, Red Sky and Mountain Thunder. We have to finish the projects in order to get the actual deposits. And we're peaking this summer, and I would say most of it is real estate plus the Marriott construction, which is going on. And those will be completed as we get into the winter. As it relates to credit availability at the fiscal year end, we were very comfortable with excess of $30 to $50 million which could access and we're using that as we spend for Capex

We don't have a lot of powder at the end of the October 31 quarter.

Right.

There are two reasons for that. Remember, we have a covenant that requires debt to be at a certain multiple of cash flow. Cash flow is declined at trailing 12 months. The Heavenly cash flow is not included in our trailing 12 months cash flow. But the debt to acquire Heavenly is.

Right. I noticed that. You're about 30 to 50 million available at this point at the end of the quarter

At the end of the July quarter?

Right.

The second issue is, it just so happens that October 31 is our absolute lowest cash point in the year. We have spent the most possible amount of CAFEX in preparation for the coming ski season, and we have not yet seen a dollar coming in from the coming ski season.

Okay.

For those two reasons, availability October 31 is tighter than July 31, but that situation turns very quickly as we look forward to the quarters that follow.

Correct.

As we include the Heavenly cash flow in the 2003 trailing-12-month

One more follow up. Even on a same-lodging or same-store sale basis, the lodging at mountain, based on the press release, it looks like the expenses ramped up fairly dramatically. Can you sort of discuss what was actually in those increased expenses, excluding anything that was involved in the acquisitions?

First, when revenue falls, EBITDA fall's lot quicker. Because you -- because obviously, it all flows to the bottom line, almost dollar for dollar. Second, I mentioned this -- this allocation of overhead, this 15 million of overhead. We had a lot of overhead to the lodging sector, as it's become a bigger part of our company. And, third, we have consciously had some startup expenses at Rock Resorts in the period of time when -- you know, May, June, July, especially when we're at low point in the year for Rock Resorts. Rock Resorts peeks in the winter ski season yet we cracked open the rock resorts office last September with its first employee as president and now we have a real, full-fledged company based in Denver with about a dozen professionals leading the bring back of the Rock Resorts efforts and those expenses had to be off spent during the third quarter and yet the revenues that come in from that activity are going to come in during the winter peak season, whether that's true in Colorado or Florida at the CHICA lodge or Palm Springs California which also peeks in the winter.

Thank you. Our next question is a follow upcoming from Brian Maher. Please state your question.

Ray Got my question Thanks

Four next question is from Will Marx of JNP. Please state your question

Just quickly, on the lodging EBITDA, can you give -- I assume that it assumes no acquisitions and does it assume any kind of REVPAR growth?

REVPAR is up. Believe it or not. Because, as you know, the U.S. lodging industry has been crying the blues. But I've got to tell you, we will not judge rock report's success by the performance in the fourth quarter, when occupants are in the 50s and A.D.R.'s are in the 150's. Rock resorts will be judged with occupants are in the 70's and 80s during the peak of ski season and A.D.R. is well over $200. If you actually look at, you know, where we have been, you know, we have -- we have a couple of dollar's change in REVPAR. But as I said, you know, I think the real issue is what happens this winter during peak season, not what happened in the fourth quarter.

I guess, taking that a step further, on the guidance for next year, 2003, the 13 to 17 million range, that does not assume any acquisitions and does it assume -- I guess I'm asking that -- and does it assume a little bit of REVPAR growth? Or is -- it's a pretty wide range. If you can answer that! the answer is, it's almost same store.

. We have to pick up the Ritz-Carlton in bachelor gulch in lodging in fiscal 2003. And we are going to have to expense startup costs. You know, they have been running two years on a capitalized basis. And when the hotel opens, you have to write it down. That should be offset somewhat by what will hopefully be an operating profit at the Ritz-Carlton during its first year of operation. But putting the Ritz aside, if we're looking at the lodging properties aside as opposed to the ones where we manage and have an ownership stake, yes, it is same store. There are no acquisitions planned in this guidance, and we are certainly optimistic that we can see a positive REVPAR growth in fiscal 2003 for the branded and non-branded lodging properties.

What have you given the particular on that start up cost for Bachelor Gulch?

No, we haven't. This is Jim. We're meeting with the Ritz, as we're speaking, and going over their budgets again and again. To open a Ritz is, you know, kind of three to $4 million potentially in startup costs. We would like it to be lower but, of course, we want it's to be a risk.

Thanks Jim and Adam.

The next question is also a follow upcoming from Ray Cheevman of Jeffries and Company

Adam, you specifically mentioned that the high-end real estate market was holding very well for you. I'm wondering, is the more middle market, like the village over at Keystone, holding together for you?

Softer at Keystone but Breckinridge has been doing fine. We took this new 80-unit condominium project, mountain thunder, to market. I haven't even looked recently, but we were north of 70 sales out of 80 contracted and closed, the last I looked. But my suspicion is, even though that project has done well at Breckinridge, that -- excuse me -- that the mid market is in fact softer than the affluent upscale market.

You also have a master project that you have announced over in Breckinridge. You gave us an estimate of a six-month, 18 months to do something in Vail. Is it the same kind of time line over in the Breckinridge redevelopment?

It is. I'm pleased to announce that we hired a new executive, Jack Wolf, who will be head of our real estate activity in summit county. He lives in Breckinridge. We did this a couple of months ago. He replaces the position that used to be held by a gentleman named Roger Beck, who left the company for a probable real estate project in another state. Jack is very talented. He was the executive who drove the main street station development in Breckinridge as well as the Hyatt, the successful Hyatt time-share development in Brackenridge. We're lucky to have him he will lead the effort. We wouldn't have hired an executive to lead us if we were not bullish about our expectations for the Brackenridge development. So, yeah, I would say the time frame is similar.

And one last -- it's in your area of specialty, Adam, the airlines right now seem to be a total disaster. Are you still getting promised the number of southeasts you want at the kind of values to your custom seats that's going to allow you to meet all you your expectations?

Yes, it's sad about the rarely industry.

Lucky you left it early.

Unknown Speaker*: You bet. Needless to say, my comments about our performance in fiscal 02 are very much looking at the lodging and airline industries and seeing how other people in the travel industry perform. And none of us took a bonus in fiscal 2002 and none of rustically happy that it's down, it sure looks good in comparison to the numbers that have been coming out of mainstream airlines these days. The lift is pretty good. We may be down a couple of percentage points in seats, but, you know, it's a couple of points and we don't run 100% load factors so I don't think that will hurt us. In addition, we have added some service. We were successful reinstating nonstop 757 jet service between Los Angeles and Vail this year so we're encouraged by that. I think the county airport will be just fine. Everybody knows United is in precarious position. They're our biggest airline partner. At Denver airport, the only comment I guess I should make is, well, obvious is United is in some disarray; it looks like they're attacking lowering their cost structure. If united lowers their cost structure they will be able to lower the prices they charge consumers. In the long-term, that is good for Vail resorts.

Thanks, again.

Thank you. For any further questions, you may press one, followed by 4 on your touchtone phone at this time. Please hold while we poll for further questions. Again, as a final reminder, that's 1 followed by 4 for any further questions at this time. Gentlemen, we are showing no further questions in cue

Operator, once before, that was our report from the conference service and we found some people didn't get to ask the questions that they wanted to. I'm certainly not fishing for more questions, but I want to make sure everyone on the call has one last opportunity to ask anything on their mind.

Again, as a final reminder, that's 1 followed by 4 on your touch continue to telephone at this time for further questions or comments. We're still showing no further questions sir

Thank you, operator. So everybody from cold, wet, and happily to say snowy Colorado, the most beautiful weather we could possibly imagine, we thank you all for your participation on this conference call this morning. Should you have any further questions, please feel free to contact me, Jim, or Leslie directly. Leslie's number is 970-845-2958. Thank you one and all and goodbye.

Thank you for your participation, ladies and gentlemen. This concludes today's teleconference. You may disconnect your lines at this time and we hope you have a wonderful day.