Vail Resorts Inc (MTN) 2003 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to Vail Resorts' first-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Adam Aron, Chairman and Chief Executive Officer of Vail Resorts. Mr. Aron, you may begin.

Thank you very much, operator. Good morning. Good morning, everyone. Welcome to the Vail Resorts fiscal 2003 first-quarter earnings conference call, and simultaneous web-cast, both open to the public and press at large. As you know, I'm Adam Aron, Chairman and CEO of Vail Resorts. I’m in New York City in today, somewhat shamelessly telling the world about our 10 feet of early season snow on various cable television networks. Joining me on the call from our headquarters near our Beaver Creek resort in Colorado this morning are Jim Donahue, our Senior Vice President and Chief Financial Officer, and Leslie Roubous, our Director of Corporate Financial Planning and Investor Relations.

Earlier today, we released earnings for our first fiscal quarter ending October 31, 2002. Needless to say, given our healthy first-quarter performance and the robust start to the 2002/2003 ski season in Colorado so far, we are about as close to being euphoric as we could possibly be at this moment.

In the next few minutes, I'd like to give you a quick overview of our better than expected first-quarter performance. Then I'll discuss the quarter's performance compared to last year, and I'll conclude with some comments to give you more color about the '02/'03 ski season. At the conclusion of my prepared remarks, Jim and I will certainly be happy to take any questions you may have.

In short, Vail Resorts had a much better financial performance in the quarter than we had expected, even as recently as our last earnings call in late October. Remember, we told you that we were -- and still are -- hoping for the best, but planning for the worst. Given the uncertainty surrounding the U.S. travel industry, we felt it prudent back then to be conservative with our near-term guidance, especially as at the time we had not closed the books on the months of either September or October. As a result of this better than expected Q1 performance, coupled with admittedly conservative guidance, we beat our own guidance handily for the first quarter of fiscal '03.

Thanks to early cost-cutting efforts, our mountain EBITDA loss of $30m was at the most favorable end of our guidance range, thanks to improved occupancies, lodging EBITDA broke even in this off-peak quarter and I must admit that I've never ever seen this before but the lodging EBITDA for the first quarter was a loss of less than $500. That's less than $500. Not less than $500,000, less than $500. Rounding to an EBITDA performance in thousands of zero dollars exactly. Anyway, the lodging EBITDA performance was $2m to $5m better than the guidance range we had given you, with both mountain and lodging segments faring quite well. The total resort EBITDA loss of $30m was $4m to $8. That's $4m to $8m better than our guidance range. Thanks to a simply fabulous start to the new face Cal year, as well as some accelerating closings, our real estate EBITDA was $14.9m, also some 2 to $4m ahead of our guidance. Put all this together, our EPS loss of 71 cents for the first quarter beat consensus Street EPS estimates by a whopping 17 cents.

As I just mentioned, our mountain division started out well because our aggressive cost containment plans were implemented right away, at the beginning of the fiscal year. Our lodging segment performed much better in October than we had anticipated, with our Keystone resort hospitality operations leading the way. We also had a stronger month at our properties in Beaver Creek, in Vail, in addition to early implementation of the cost savings plan at our hotels as well, and at the RockResorts corporate offices in Denver. While some might say we performed noblely in the first quarter and I, indeed, think we did perform quite well, I should point out that about $2m of our improved Q1 performance is merely the result of delayed timing of expenses that were anticipated for Q1 that will be incurred in Q2 and Q3.

Our real estate EBITDA of $14.9m in Q1, well ahead of our original estimate, was due to our ability to close early on Vassar Gulch and Arrowhead lodge sales at the Beaver Creek resort but again I should caution this is purely a timing issue between the first and second quarters. While the quarter was a great one for our real estate group, our first-half and full-year estimates remain unchanged.

Switching gears and comparing the first quarter this year to the first quarter last year, mountain EBITDA was $5.8m unfavorable to the quarter last year, 65% of which was attributable to the expected seasonal loss inherent in the Heavenly acquisition and 22% of which was attributable to severance charges of $1.3m associated with our previously announced management restructuring and cost-cutting efforts. Excluding both the severance charge and expected seasonal losses at Heavenly, mountain EBITDA was just 3% unfavorable to last year for the quarter.

As I mentioned, lodging EBITDA broke even for the quarter, compared to a loss of approximately $500,000 last year at this time. Excluding $1.3m of pre-opening expenses for the Ritz Carlton Vassar Gulch at Beaver Creek incurred in the month of October, and excluding the acquisitions made in November and December of last year, our lodging EBITDA on a same-store basis was actually $2.5m -- that's $2.5m -- better than the first quarter last year. Again, the acquired properties had an expected seasonal loss in their off-peak seasons. The improvement in same-store lodging EBITDA was driven by increases both in occupancy and ADR at our existing properties.

Keystone's total occupancy was almost 8 percentage points better than last year, and the turnaround at the newly -- and I might add beautifully -- renovated Snake River lodge in Jackson Hole is evidenced by an extraordinary year-over-year 41 percentage point increase in occupancy in the August to October quarter.

Keep in mind that the first quarter is seasonally weak for many of our hotel properties, as most have a winter peak season. Nonetheless, our overall first-quarter hotel performance was very encouraging, as the following occupancy and average daily rate statistics show.

RockResorts own hotels saw an occupancy for the first quarter of 61%, which was up 15 points from the 46% occupancy the year before. The average daily rate of $152 was up $17, up from $135 for the comparable period last year. Clearly, this is demonstrating the early success of our RockResorts strategies and initiatives.

Vail Resorts owned and managed hotels that do not carry the RockResort brand saw year-over-year revenue performance essentially even with last year, performing reasonably well given the general state of the U.S. lodging business. Occupancies of the non-Rock Vail Resorts lodging properties was 56%, down 2 points from 58% the year before, but with average daily rate increasing a dollar year-over-year from $130 to $131. Given the sluggish performance of the entire U.S. hotel industry, we're simply very pleased by this solid performance of our lodging business, especially of our owned and branded RockResorts luxury resorts.

Total resort EBITDA for the quarter was $5.3m unfavorable for last year, but again, excluding the FY 2002 acquisitions, the October October 2002 pre-opening expenses of the new Ritz Carlton which opened November 21, and excluding the $1.3m of severance charges, resort EBITDA was actually up 7.1% in the first quarter of '03, compared to the first quarter of '02.

In summary, the first quarter is much better than we had expected or feared. It starts us off quite well, as we begin the new year.

Now, let me move on to the upcoming ski season. We're a month into it, as we speak. A lot of good things have already happened for us this ski season. As a result, we're lagoon with great optimism towards the near-term future, barring some hard collapse due to war or airline crisis issues.

Stated simply, we have momentum. Boy, do we have momentum. In the off-season, we invested in and enhanced the guest experience at all of our five ski resorts. Vail's biggest hotel, the Vail Marriott, got fully renovated, and it's best on mountain restaurant, Two Elk, got a several hundred increase in luncheon seating. Beaver Creek got the new Vassar Gulch. Breckenridge got a 30% increase in intermediate ski terrain with the opening of the new peak 7, and the installation of two new high-speed lifts taking us from 6 to 8 high-speed lifts at our Breckenridge resort. Keystone got a new children's center to accommodate increasing family demand. Heavenly received some $6m in cosmetic facelifts to our base lodge and on-mountain facilities. In addition, the new 1,400 bedroom Marriott branded village adjacent to our new $25m gondola at Heavenly opened for business in November and has a strong reservation flow for the coming ski season.

Moving from facilities to ski conditions, it snowed and it snowed and it snowed at our Colorado resorts. More than 8 feet of snowfall by Vail's opening day, for example. More than 10 feet of snow as we speak this morning. As a result, as many of you know, Vail is actually able to open early by a week to record skier visits with a record amount of open ski terrain. The best-ever opening day Saturday in Vail's 40-year history saw a selling about 4,100 lift tickets. This year's opening day, we had in excess of 10,900 lift tickets, obviously a 150% bump is a nice way to start the season. Beaver Creek also opened to record skier numbers, again with record open terrain. Keystone, which had less than stellar snow fall last year all season long also had a record opening weekend. The conditions have been fabulous, allowing us to open all three of the mountain peaks at Keystone that make up the Keystone resort earlier than ever before. And Breckenridge too had a record Thanksgiving period, demonstrating the value of its new interconnect lift, the high-speed lift which transports skiers from peak to peak.

As we sit here on December 11, we've had more than -- and I hope you're all sitting down -- 110,000 more recorded skier days so far this ski season compared to last. And thanks to having fabulous ski conditions and full mountains of open terrain, we have been bold in taking our early season pricing more to mid-season levels earlier in the year, such that our early season realized lift ticket pricing is up a whopping 33% year over year as well.

Our good visitation is not only due to snow and not only due to the improvements to the various resorts that we made in the off-season, but also because we had another record year selling season passes, and other preseason lift ticket products, in advance of the season.

Preseason pass sales of Colorado season passes showed an increase in volume of 1%, which means we sold, once again, far more than a hundred thousand season passes at Vail Resorts in Colorado this year, but notably, while our volume was up 1%, our pass pricing, on average, was up 11%. In addition, this year we were aggressive in selling 4-day and 5-day, multi-day lift ticket packs preseason. We sold them in prior years. Our sales this year were up 60%. Six O percent of this preseason sold product. All totaled, Colorado preseason sales have resulted in revenue up more than 15 -- one five – 15% over last year. It's a very encouraging sign that we continue to capture more of the instate Colorado front-range market, demonstrating that the techniques honed and refined in Colorado can work and have worked at Heavenly as well. We were thrilled to see a blowout season pass success at Heavenly this fall, as we instituted in the Tahoe area well-tested strategies at our newest ski resort. Specifically, we increased consumer promotion. We increased the number of season pass sales locations. And we reduced the average price of sold passes at Heavenly by 25%. The result? We more than tripled the number of passes that we sold, and almost exactly tripled the number of dollars that we collected. Therefore, at the five ski resorts put together, preseason pass sales were up some 22%, and more than one-fifth of our full-year lift ticket budget was already banked by opening day. The biggest collection of lift ticket revenue before opening day in our company's history.

On the lodging side, I'm really proud of the Snake River lodge and spa. The renovation that was completed in the -- late in the winter last year is done. The hotel is beautiful. And I believe the hotel stands poised for quite a successful year. EBITDA at the snake river lodge and spa saw an improvement of about $1m year over year just in the first quarter alone. Similarly, the Vail Marriott renovation, $26m or so this year, on top of $19m last year, is nearing completion. The full renovation will be done before Christmas. We think we will be done, the renovation, between the 7th -- around the 17th of December or so. The entire hotel will be open. The entire hotel will be new and beautiful for the Christmas holiday. Again, leading to high expectations for the fiscal 2003 performance of the Vail Marriott. Even with the significant expense in renovating the hotel, our investment in the Vail Marriott is still only $200,000 a key, and we believe that that's a very reasonable basis for what is the largest hotel in the Vail valley.

More on sort of the new and beautiful lodging front, not only has Snake River lodge and Vail Marriott been renovated but the much anticipated ribbon cutting ceremony of the new Ritz Carlton Vassar Gulch took place on November 21. The hotel is now open for business. It has had several sold out nights already. I simply cannot put into words what a grand and elegant hotel this is. It's opening to raves. I believe it will be the talk of the -- not only the mountain resort industry, but the resort hotel business almost overnight.

The metrics we track in order to monitor how we're doing compared to prior years also continue to be encouraging. The volume of year-to-date bookings, which were made in our fiscal year '03 from August 1 through December 7 for the entire ski season through April, in our central reservations business, are up 13% compared to this time last year, including a 122% increase in on-line bookings. Revenue from these bookings, because that's unit volume of bookings -- revenue from these bookings is up 25% compared to last year, representing longer bookings and higher lodging prices.

As encouraging, the central reservations bookings are not only way up above last year -- this which is not all that surprising. Last year should be an easy comp. But they're also now even with the reservations bookings as of the same date two years ago, which was our best-ever year financially, and our best-ever year for skier visits. This reservations activity is certainly an encouraging sign. And since we continue to see later, closer in to departure booking patterns, consumers have been shortening up on the lead time with which they book their travel vacations. For years now.

The good news may only been beginning here with respect to these year-over-year and year over two years ago reservations numbers, because we're expecting people to book closer in. Just to give you one example of the degree to which people are booking closer in, two years ago at this time 70% of our total season reservations would have been in hand by November 30. Last year, only 59% of our reservations for the ski season were in hand by November 30. Two years ago, about 80% of the total ski season bookings would have been in hand by December 31. Last year, that number was only 73% in hand by December 31. People clearly are booking later and booking closer in. That's a trend that's being seen throughout the entire travel industry. I don't particularly care when they book, as long as they book, and at least so far this year they are booking.

Starting to get tired of relaying all this un-abashed good news to you. I'd like to be a little more balanced. But let me give you a few more positive odds and ends because the news is quite good at the moment.

Christmas bookings at our five resorts are all strong . We expect our Eagle County ski schools, for example, with about 6% or 100 more ski instructors than last year coupled with a healthy price increase year-over-year for our ski school services, will sell out at Christmas nonetheless. Bookings are quite robust for our ski school.

Airline capacity at Vail's eagle airport is holding up nicely, as are bookings. More seat capacity is being retained at Eagle than is being retained nationally by the nation's air carriers. You all know the nation's airlines are cutting back seats a little bit, but our capacity cut appears to be less than what's going on around the nation. Despite the United bankruptcy, United appears to be flying normally. I flew United twice on Monday this week, after the bankruptcy filing. Service was normal. And there are no immediate signs of consumer disruption from the recent United court filing.

Net reservations made during the first quarter into the RockResorts central reservations center were more than double what was made in the RockResorts central reservations system under other ownership last year. We continue to make strides in our efforts to rejuvenate this legendary up market hotel brand through the commencement of new national websites and, I might add, the first national magazine advertising to run in some 20 years for RockResorts luxury resort hotels is now running, breaking in the November and December issues of Travel and Leisure and Condé Nast traveler magazines. Overall, we now brief on a full-year basis, our lodging EBITDA will be slightly better than when compared to last year.

On the cost side, our staffs have been hard at work to make sure we deliver the cost cuts we have previously announced, and the cost-cutting effort is going quite well, and even after having lowered our costs, we're nonetheless getting increases being realized in our guest satisfaction survey scores, demonstrating that we were serious that when we said we would cut costs, it would primarily been back-of-house expense that our guests would never see.

If all that is not enough, we appreciate President Bush unleashing a nonstop subliminal advertising message for us in the evening news day after day with the appointment of his new treasury secretary to be, John Snow. Our website address is www.snow.com. I do apologize for the pun. I couldn't resist and I'm glad you're all on mute so I don't hear any groaning.

All that good news being said, I need to caution my own optimism and bullishness. I have to reiterate as strongly as I possibly can that it is simply too early in the fiscal year and in the ski season to claim any kind of victory. We have completed less than 10% of the ski season. We've completed only about 8% of the ski season. And typically, we will have only booked about three-fifths of our season-long reservations activity by November 30. That means there are a lot of bookings left to come in, and even if we have an impressive ski season, now that we have built up our summer business, just 87% of our annual resort revenues are realized in the nine-month period August to April. The remaining 13% is nothing to sneeze at, recorded in the growing fourth-quarter summer months which, of course, are not really impacted by our success in the ski season.

Further causing some degree of caution, it should be apparent that the U.S. is still experiencing tough times in the travel and lodging industries, given the continued lethargic economy, United Airlines' bankruptcy announcement and the ever-present possibility of war with Iraq. We feel that it is prudent to continue to hope for the best, while planning for the worst. As such, as I just mentioned, the cost-savings plan we undertook in August and announced in October is well underway to being implemented. Regardless of how well we do on the revenue side, we now have religion, as able and smart cost-cutters, and will continue to strive to operate as efficiently and cost-effectively as possible while remaining committed to enhancing our guest experiences. In all, even though we're understandably concerned by the potential prospects of war and recession and the possible negative effects on the U.S. travel industry from United's bankruptcy, at this point in time, the momentum is in our favor.

We continue to project mountain EBITDA for fiscal 2003 to range from $117m to $127m, and for lodging EBITDA to range from $13m to $17m, with total resort EBITDA, mountain and lodging combined, ranging from $132m to $142m, a very healthy increase over the $107m of resort EBITDA recorded in fiscal '02. This is all before severance payouts estimated at $2.5m. $1.3m of which was booked in the first fiscal quarter. We also continue to expect real estate EBITDA to range from $15m to $17m. As for earnings per share, we continue to remain with our estimate of a range of 40 to 55 cents per share, again, pre-severance.

Let me give you some quick guidance, as well, for the second quarter, which ends on January 31. We're comfortable saying that mountain EBITDA will be between $60m and $70m, and lodging EBITDA should be a loss between 0 and $5m. Remember, we will now be recording in our lodging segment EBITDA results our share of the Ritz

Carlton joint venture net income after considerable tax, depreciation, and interest charges which we expect in total to be a loss in our fiscal second quarter. Total resort EBITDA should range between $60m and $66m for the quarter. Again, all pre-severance. Second-quarter severance charges could be more than a million dollars. Real estate EBITDA for the second quarter should range between 0 and $3m. And EPS should be between 40 and 57 cents per share. Again, pre-severance.

To summarize where we are, Q1 was much better than we expected. The ski season is off to a great start. And advanced sales show double digit growth and advanced bookings look strong, despite the uncertainty surrounding United Airlines. Guest satisfaction is high. Our costs are in check. Our lodging business is improving. Our real estate group is off to a fabulous start to the year. The one great unknown? I wish I knew if and when our country is going to war, and if such a war will be a quick and morale-boosting route or a prolonged and troubling quagmire. Still, putting the good and the bad together, understandably we all have big smiles on our faces right about now.

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 Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties, that cause actual risks and results to differ materially from those projected. You're cautioned to not place undue reliance on these forward-looking statements which speak only as of the date here of. Such risks and uncertainties are included but are not limited to general business and economic conditions, fail to achieve the anticipated cost savings and anticipated operational efficiency or conversely adverse consequences from the cost reductions and or position eliminations, competitive factors in the ski and resort industries, failure to successfully integrate acquisitions, uncertainties in issues arising, positive or negative, remitted to the restatement of prior-year earnings, including the change in accounting for the revenue recognition of club membership fees, the impact of the September 11th, 2001 terrorist attacks on the travel industry and the company and or misinterpretation of same, the possibility of war or continued worsening economic slowdown or additional terrorist attacks and the weather. How is that for a list of risk factors? Investors are also directed to other risks discussed in documents filed by the company with the Securities and Exchange Commission, including airline trauma. Having said all that, operator, we're now ready to take questions.

Thank you. If you have a question at this time, please press the 1 key on your touch-tone telephone. If your question has been answered, or you wish to remove yourself from the queue, please press the pound key. Again, if you have a question, press the 1 key. And our first question is from Margaret Blaydus of Salomon Smith Barney.

Hi. Good morning, Adam. I was curious if you could -- if you could quantify the amount of real estate that shifted from the first quarter -- I'm sorry, into the first quarter from the later quarters. And also, just based on the good friends and good bookings, if you could comment on, you know, some of the mountain programs that you scaled back over the last 12 months, if you see those being reintroduced to counsel what sounds like bigger attendance numbers.

Sure. In terms of real estate closings that moved ahead early, it's just a few million dollars, but remember that we have $12m or $13m of real estate overhead to sustain during the year, so even though we booked $15m of real estate EBITDA in the first quarter, we're expecting just kind of to break even on the real estate business or have a mild improvement year -- in the remaining nine months of fiscal '03, so our -- our -- you know, we produced almost $15m mllion of real estate EBITDA in Q1 and we're saying we're going to do 15 to 17 for the full year, and that's not a sandbag. We really do think that we could just break even for the rest of the year, which doesn't mean we're not profitable. It just means that we -- the projects that in -- that are in the works will be sufficient to cover the overhead of the company. On a full-year basis, our real estate business looks good.

In terms of mountain programs that may have been cut back, I think the real answer is, we have not cut back any mountain programs in this cost-cutting plan that we did not think were wise to do, whether we had 3m skier visits or 10m skier visits, and so I don't think that the positive visitation and the positive lift ticket pricing will cause us to reinstate any. Mostly because they either weren't cut in the first place or, if cuts were made, we thought what we were cutting was not noticeable to our guests and therefore superfluous spending. So I think that our product is in, you know, fabulous shape and that's what our guests are telling us too. Our guest satisfaction scores with ski conditions, service, the general product, are through the roof.

Okay. Thanks.

Thank you. And our next question is from Ray Cheeseman of Jeffries & Company.

Congratulations on a great opening, and I've been up to the Ritz. Adam, it's wonderful.

Thank you, Ray. I mean we're just -- words don't describe. You know, this thing is just really beautiful. We're all thrilled.

I'm wondering if you could bring us up-to-date on the latest vis-à-vis your actions with Winter Park. Is the deal closed with Inter-west? Are they running it now?

You know, I don't know what they're doing at Winter Park, to tell you the truth. There was an awful lot of hubbub in the press months ago, and we have seen no indication that they've signed any documents with the city yet, nor have we seen any press releases from either the city or Inter-west that they've signed any documents, but we've been so focused on our own issues that whether they've actually taken control or not has not been my highest concern. It's my understanding they have not yet taken control. There were certainly no joint marketing activities between Winter Park and copper mountain in this preseason and our season pass sales and multi-daypack sales were quite robust year over year, so there's no -- no action yet, I think, is the right response.

If I remember properly, you had indicated on a prior conference call that it was a relatively straightforward matter and you were in the Delaware courts and you had hoped to have something reasonably quickly. I don't know how quickly the Delaware courts work. Is reasonably quickly six or nine months?

Well, let's see. The Supreme Court said that we should integrate schools with all due deliberate speed in 1954 and it took 25 years, so --

Yeah, right. Okay.

I don't know how quickly the courts are going to act. We are willing to sit down and talk with Inter-west, if some kind of amicable settlement to the suit can be reached. Where all this ends up, I do not know.

Specifically, you haven't been at Vail before during wars, but about 11 years ago, there was one. What do the records indicate occurs? Do we get a lot of front-range business and maybe lose a few fliers, such that it's not that big an imprint that we shouldn't be that worried?

The record from 11 years ago, when we had both war and recession, which seems remarkably similar to today, was that Vail and Beaver Creek prospered and thrived during that period, and saw growth. And, you know, I can't imagine a year that was much more troubling to the national psyche than the year immediately after 9/11, and our resort EBITDA, you know, was within single digits of the year prior, which was the best-ever year in the company's history. So I'm optimistic that we blow through this. There's no way of knowing for sure. We're all going to find out together. But that is why we put the cost-cutting effort underway, to give ourselves some insurance policy for year-over-year improvement, in case of revenue weakness. Obviously, season to date, not only have we not had revenue weakness, we've had double digit revenue strength.

The snow up at Lake Tahoe has not been as prodigious or one of your words, robust as we have received here in Colorado. I'm wondering how is that season opening up and what kind of lift ticket attendance have we received season to date up there?

I'll give you a third word. The snowfall has not been as abundant at Heavenly as it has been in Colorado. But when it snows, it really snows. Winter rises in one day in Lake Tahoe and the weather forecasters are telling us that we should be seeing big storms even this week. We're not concerned at Heavenly, and we're pleased that we've already tripled the number of season pass sales at Heavenly, even prior to the season beginning.

And lastly, if I may, Glenn Tilton was in Denver yesterday at the airport and indicated that we're going to be a smaller airline. With your experience in the business, it would seem that he's probably got profitable business coming into -- to service your customers so we shouldn't be that nervous when he makes those kind of comments that a year or two out we're going to have 25% fewer seats into Denver and nobody is really going to fill up the hole because everybody is in the same economic mess and we're just going to have fewer skiers coming out here or what kind of vision do you see based upon your experience?

Well, as you know, I used to be senior vice president of marketing for United Airlines.

Obviously made a good choice on changing jobs.

But I do have some specific knowledge of that company and some quick comments. First of all, all airlines are saying they're going to reduce capacity nationwide and worldwide. All U.S. airlines, that is. It's also true that in the height, of, you know, the toughest time for the industry business travel. The national economy is down, you know, it always looks dark and gloomy so everybody says they're going to cut capacity, but I don't know what you think of the economy two or three years from now, but I think the economy will be healthy and strong two and three years from now and I think some of these same carriers who are saying they're going to reduce capacity will be scrambling to increase capacity then.

As for Denver itself, Denver as a Mid-Continent hub -- meaning in the middle of the continent -- is a much more successful and profitable operation than some of the other -- some other of United's operations. I think there are other parts of the United route system that will get whacked before Denver will get whacked. And interestingly, as you may remember, just as we're a seasonal company with a very strong winter, most U.S. airlines peak in the summer and are scrambling hard to find business in the winter. There is a lot of business coming to Colorado in the winter because of the ski season, and I think that we provide the air carriers the profitable demand that they need in the winter to fill up capacity, plus the size of the Denver hub today is so enormous that the ski traffic that comes in is a small fraction of what flies into or through Denver International Airport Airport, in which case even if there is a capacity cut, there should be more than enough seats for our customers.

So I'm not concerned about that. In fact, to the contrary, you know, it's pretty widely known that United's operating costs are the highest in the U.S. airline industry, and as a result of the high costs that they have, they need to charge high fairs, and since United provides two-thirds of the service to Denver, we have seen very high fares in the Denver airport for a long time. If United is successfully able to lower their costs through this chapter 11 process, that might mean they will be able to lower fares. If they lower fares in the long term, that's actually very good for Vail Resorts and our Colorado destinations. So, you know, we -- we would certainly rather not have had to deal with the consumer disruption in the ski season, but airlines seem to be flying normally and there are arguments to be made that this is better for our company in the long term.

Thank you very much for your comments.

Thank you.

Thank you. And our next question is from Bryan Maher of Credit Lyonnais

Good morning, Adam.

Good morning, Brian.

Good quarter.

Thank you. It was a good quarter.

Can you give me a little more color on your plan for RockResorts over the next couple of years and, you know, kind of more specifically, with the protracted weakness in U.S. lodging, are you starting to see more deals in those type of resorts you might want to put under that flag?

Sure, and yes is the answer. You know, I -- when we -- when we embarked on Rock, we said we had essentially three goals. Make money. That's what we like to do at our company. Second, use our marketing expertise. And I do think our company has a very solid marketing prowess. To bring back what was a legendary brand but was the best name in luxury resort travel. And which we admitted was -- you know, hasn't been much of a brand for two decades. It was never tarnished. It just kind of went -- kind of went away. And I believe that marketing effort has already started. If you open up the travel magazines, you'll see full-page advertisements for RockResorts. Our websites look good and are highly functional. You know, early signs are increased occupancies at the owned RockResorts hotels, as well as, you know, a doubling of the reservations activity coming into the RockResorts central reservations phone number, which, by the way, we changed, being savvy marketers, from some obscure seven-digit phone number that no one could remember to 1-888-for-rock, so I think we know what we're doing and we're already seeing early signs.

As for growth, one of the joys of owning a hotel company that only has 10 hotels is if you just add one hotel a year, that's 10% growth. We -- if you look at the number of luxury resort hotels by other major brands, in the four-star segment, Weston has 20 North American reports, Hyatt resorts has 18. If you look at Ritz Carlton's North American resorts, I believe they have 11. Four Seasons has eight. Rosewood has five or six. The Windham luxury resort collection has five or six. So as we start with 10 resorts, when we started this company, from a competitive critical mass scenario, we looked pretty good.

You are correct that other hotels are hurting and we have seen a number of hotels for sale, and our acquisition criteria continue to be as tough and disciplined as they ever were. We have no intention of overpaying for properties. So if some properties sell at what we think is nosebleed territory, like the Orchid at Mauna Lani which changed hands in the last 60 days, we'll pass, or, for that matter, Palmia, which is a wonderful hotel in Cabo San Lucas that we looked at hard, but again we passed on the price issue. But there are at least two hotels that we're very close to right now, whether we get either, I don't know. It feels like you've got to be chasing ten for every one that you ever wind up with. We're also looking to develop a rock resort in Lion's Head at the base of our gondola in Vail. The cost of which should be funded out of condominium profits connected to the hotel. So the economics of that property should be quite good.

But we hired, over the course of the summer, in addition to hiring Ed Mace, who was the president and CEO of Fairmont hotels a year ago, we hired Michael Schindler, who was the number two executive in development, mergers and acquisitions in the hotel business being labeled development -- second at Hyatt development only to a matter of the Pritzker family to join us as the head of development for RockResorts and he's got a big pipeline of potential hotels that we're looking at, and as I said, I'll be happy if we can distill that down to one to two hotels added to the RockResorts portfolio per year. It would be a modest growth path, one that we could sustain where we knew we could assimilate the hotels into our company successfully without going wild on capital spending. So that's the plans for Rock.

Is it safe to say, though, that kind of big picture, your attention will be more on Rock Resort acquisitions than ski resort acquisitions?

No, I don't think you can say that. If you looked at fiscal '02, we spent almost exactly a hundred million dollars to buy the Vail Marriott and the lodge at Rancho Mirage. We spent almost exactly a $100m to buy Heavenly. I still believe -- we have three businesses, a real estate business, a lodging business, a ski resort business. We want to grow and improve the profitability of each. They tend to be highly interdependent with each other, so that as one business grows, it helps to strengthen the other. And we have long been -- and I think you share this view of us, Brian. We've long been disciplined, smart, and opportunistic buyers. If a wonderful ski resort were to come on the market immediately at a very attractive price, where we could add upside, we would chase it in a second. The same is -- the same is true on the hotel side.

Thanks. And congratulations.

Thank you, Bryan.

Thank you. And our next question is from Will Marks of JMP Securities.

Great. Thank you. Just one quick question. On the comment you made typically by November 30th, three -- was it three-fifths of your bookings for the year are usually --

In hand, right.

Based on that, are -- is the guidance you've given pretty conservative?

No. Because remember, the bookings that I'm talking about are for the whole of the bed basis of the five ski resorts. Whether we own those hotels or not, that is the bookings that's coming into our base villages, which is a pretty good proxy for how we will fare on the mountain. Having said that, you know, the fact that they -- the fact that they come to our resorts does not necessarily mean that we sell them lift tickets to go skiing in ski season. It's possible that they could come out for six nights instead of five and still give us the same four number of days skied and they'll spend an extra day shopping or sitting in a spa somewhere.

You know, if you asked me two months ago did I think we would be at the bottom end of that big range that I gave you, or the top, you know, the 132 to 142 of resort EBITDA pre-severance, I would have told you, well, I don't know, I hope it's at the top, but it might be at the bottom. If you ask me today, I might, just because I'm in a good mood, might tell you we would be closer to the top of that range than the bottom of the range. But the reality is, we don't know. We -- we have only completed 8% of the ski season. We still have -- you know, if we've booked 60% of our season bookings, that means we have to sell two-thirds more bookings than we actually have in hand between now and February 15, and it's possible by some political analyses that we could be doing that right in the middle of a war in the Middle East. That would not been a good sign.

The -- and it's also true that no matter what's going on in our mountain division, at the ski resorts, we have hotels in Jackson Hole, Wyoming, we have hotels in the Florida Keys, or a hotel in the Florida Keys, we've got a hotel in Palm Springs, and the whole U.S. lodging sector has been quite weak.

We are the beneficiary of corporate meetings at these various hotels around the country. The corporations have not been spending in a big way on entertaining and travel, so the whole U.S. lodging industry is still quite anemic, and even if we have good performance in the ski division, you know, it's possible we don't have sensational performance in the lodging division, but a further reminder when you look at that range that we put out there, resort EBITDA, combining mountain and lodging, last year in fiscal '02 was $107m.

If you pro forma in Heavenly because we did not own Heavenly for 12 months last year and the 9 or 10 months we didn't own it happened to be ski season at Heavenly, that pro formas us up so about 122, 123 last year if we had owned Heavenly for the full year of resort EBITDA, and so we are saying that even in our existing range, we're going to have resort EBITDA up $9m to $19m on a base of 123 in a year when there is war risk, terrorism risk, recession risk, and United Airlines filed for bankruptcy this week.

So I think where we've set the range is a pretty aggressive and bold target, and I hope that we will get there, but I -- I would, at this juncture, I think it's way too early for us or any of you to start speculating and going outside the range. When we complete Christmas and can give you some -- and have another month or six weeks of bookings under our belt, I think we'll have a much better sense of how the -- the whole of the ski season is going to look.

Okay. Great. Thank you for your comments.

Thanks, Will.

Thank you. And our next question is from Buzz Zano of Ross and Associates.

Hi. Given that this is going to be a very good year, what is cash flow -- how is cash flow going to be on indicated? Will you take the opportunity to make -- have a more conservative balance sheet and pay down some debt? What would you like to do?

Buzz, that's a very good question, because if you look at the way Jim Donahue and I have run this company over the past six-and-a-half years, we have always maintained a very conservative posture to our balance sheet. We think it's been one of the great strengths of Vail Resorts. And in fiscal 2002, because we are this opportunistic but disciplined buyer, we had $200m worth of acquisition opportunity to us at wonderfully bargain prices. You know, we bought Heavenly as it turns out at year end -- we look at their final year ending cash flow. We bought Heavenly for 6.2 times trailing cash flow and we got this $25m gondola for free and we got this brand-new Marriott branded village was scheduled to open up, you know, November of this year, so we did -- we did spend some money last year.

You think about a 15% cash on cash returns?

We're hoping to get 20% cash on cash returns is our internal hurdle rate.

Uh-huh.

Un-levered. And we did -- but we did lever up somewhat because we had $200m worth of acquisitions last year, all in debt. I think it's incumbent on the company to keep a very conservative balance sheet, and how we get there by -- you know, is it possible that we take some of the cash flow we generate this year and use it to pay down debt, that's possible. There are other -- there are other ways to de-lever. And of course all this depends on what opportunities are available to us this year, as well, both acquisition opportunities as well as investment opportunities at our own resorts. No matter how we deal with the opportunities that are available to us, we will keep our financial house in order, and make sure that our capital structure is right, and in my humble opinion, that means sort of imply -- the implication of your question is correct, that we should de-lever from our current position somewhat, which is reflective of the way we've run the company for all of the years we've been here except for '02.

Good. Thank you.

Thank you. And ladies and gentlemen, once again, if you do have a question, please press the 1 key. And our next question is from Stacy Forbes of Janco Partners.

Hi. Good morning.

Good morning, Stacy.

I'm just wondering if you can give us a little more color on what real estate projects you're expecting to continue to close to make up the rest of the fiscal year, and also, you know, if you could give us a little more color on the revenue side of things versus profitability in terms of, you know, obviously the -- the number is going to be 15m to 17m this year, which is higher than last year on operating cash flow. Should we expect the revenue to be slightly lower than last year, or in the same range as last year, based on the fact that you already did 40-some million in the first quarter?

As for the specific numbers, I'll let Jim provide them from Colorado, but let me just talk to your question about projects. We still have a few lots to close in -- at red sky ranch. We are going to market with a small home-site lot project called Timber Trail at Breckinridge which we expect like a dozen home-site lots or something. We expect them to sell pretty quickly. We have just -- as part of the Marriott renovation, we took an unused rooftop restaurant that was built like 20 years ago, rooftop restaurants went out like 18 years ago, so the rooftop restaurant was literally lying fallow, was never used under the prior ownership. They occasionally had a corporate meeting sit in this space, and it has good views but it looked crazy. You know, it had little twinkle lights because this it was a restaurant. We basically gutted this space and built it out some more and turned it into three 2500 square feet or larger condominiums, and I am just so happy to tell you that in the last month, we have gone under contract, three for three, on these three condominium products at a price in excess of $900 a square foot. These are price points that have never been seen in the Lion's Head area of Vail ever before. Stuff that has sold in Lion's Head has sold more for like $400 to $600 a square foot. We have hundreds of millions of dollars of opportunity for us in the redevelopment of Lion's Head, and in fact our -- before the town of Vail in the approval process which takes about a year, but we're highly confident there will be some kind of approval of some project by the end of that process, and the fact that we've sold condominiums at $900 a square foot is certainly a good omen for the success of our real estate redevelopment of the Lion's Head area of Vail as we go forward. So those are just some of the real estate projects that we have on the docket.

There are others, and, you know, it's still early in the year, and which of these projects actually close and move forward by July 31 will remain to be seen. You know, it also depends whether we do all this development ourselves or we take on partners as we historically have. When we take on partners, that accelerates the take-downs, meaning the change in title, from us to the -- the developer partner.

But there -- there are plenty of projects still to come in fiscal '02, and certainly beyond. We have all of Vail to do. We've got some land that -- in Beaver Creek and Vassar Gulch still. The [Krad] joint venture still has several hundred units left to go at Keystone, and of course the town of Breckenridge has given us approval for approximately 535 units at the base of the new peak 7 and peak 8, so there's plenty of real estate opportunity ahead. Having said all that, I still remind everybody we are a resort operating company 7 to 8 times the extent to which we are a real estate company. Jim, Leslie, do you have the specific anticipated revenue numbers for real estate for the year?

Yes, Adam. Year over year, we will be higher than in fiscal '02, but most of those increases were realized in the strong first quarter. What we have become is, for instance -- and you're familiar with these -- is the Marriott condos on top of the Marriott. There aren't a lot of them but they're high revenue numbers. We've got Red Sky ranch lots still to come, Breck. peak 8 sales still to come, and the Keystone, LLC should be profitable in the remaining three quarters. So in summary, revenues will be higher year over year, but as you indicated, the big increase and the most profitable projects were realized in the first quarter.

Thanks, Jim.

Okay. And then Copper has been offering their four-pass again this year. I think they started offering it a couple of weeks ago, for this time of year. Are you going to do any competing products there? I mean, I know you've already been pretty successful in the pass wars, but --

Well, we actually did take a four-pack and five-pack product to market last year to respond to their four-pack/five-pack product last year. I guess -- I take it back. They had a four-pack. A four-pack meaning four lift tickets that could be used during the season. Sold in Colorado. And last year we countered it with a four-pack option and a five-pack option. This year, they came out with a four-pack again. Interestingly from our standpoint, they came up in price year over year by a healthy amount. Certainly double-digit price increase, which was encouraging for us to see. We, again, came out with a four-pack and five-pack product to compete with their four-pack product. We also raised our prices considerably year over year. Our four-pack product went from $69 to $79, $10 on $69 is more than a 10% increase, needless to say, and our 5-pack product went from $99 to 119. That's almost a -- that's more than a 20% increase year over year in that price product. And the result, Stacy, was that our revenue from our four-pack/five-pack product was up 60% year over year. Having said that, I think the way the Colorado skier is acting, or behaving, is they're buying the Vail resort season pass for between 269 and 319, and they're buying a Copper Mountain four-pack to top off their Vail resort season pass, and that's the biggest experience that we're seeing, and that's why our season pass sales business, are still so robust, but, yes, we're competing with the four-pack/five-pack product and we're doing fine.

Okay. Thank you.

Thank you.

Thank you. And our next question is from Todd [Greyspock] of [Wenger] Asset Management.

Yeah, just to continue kind of continue on the real estate theme, what would you expect your net cash and investment we'll see on the cash flow statement for the year to be in real estate?

Jim, you want to take that?

Yeah, but I need to understand the question. Can you indicate -- we expect 15m. Of course. 15 to 17. And what we show as EBITDA. And then we also show a non-cash cost of sales which, in essence, represents investment in earlier years, non-cash cost of sales, but we include cost of sales. It will be probably lower than non-cash cost of sales this year than previous years. It all depends on the mix of what we're selling. But it -- we can't commit to that at this time. But I'm not sure if that answers your question.

Yeah. I think you can add to that that we also will have real estate-related capex in this year for various of our projects that are moving forward. You know, as a cash business, I think you can assume that if you combine the EBITDA and the non-cash cost of sales against capex, that our real estate business this year is probably kind of cash neutral.

Right. I guess where I'm kind of going with that question is that you've talked in the past about trying to use other people's money to invest in real estate around your resorts versus kind of using your own capital to invest --

We always use other people's money. It's the best way to live.

Right. But will we continue to kind of see that -- I guess in the past it's been, you know, between $50m and $60m a year in net cash outflows that you see on the cash flow statement every year. That's additional capital that you're putting in the real estate business. Is that kind of going to continue going forward?

Well, I mean, we have been through a cycle where the real estate development has been high, and we did build Red Sky Ranch to the tune of $110m. We did build our share of the Ritz Carlton Vassar Gulch. So there -- you know, I'd say Red Sky Ranch is probably the single largest real estate investment that our company has made. You know, as a hundred-percent investor in the project. Having said that, fortunately between lot sales and memberships sold, we already have something like $80m of that $110m back already, and we haven't even opened up the second golf course. So that, you know, it looks like Red Sky Ranch will be a blowout success project.

Going forward, we actually have some choices to make. In -- we can continue to take on third-party partners, and in some some of our projects we will. We can obtain nonrecourse construction financing on some of our projects, in which case we are using third-party capital. We're using debt -- you know, non-recourse, non-guaranteed by Vail Resorts debt capital. That's how the Ritz Carlton Vassar Gulch was built, for example. With non-recourse construction financing. We have the third option of going to market with some projects we do entirely ourselves, but pre-selling the units prior to breaking ground, and using the customer deposits in the pre-sales process as capital, so that we don't -- we wouldn't escrow those funds, necessarily. We would use those funds as equity capital. And of course the last option is just -- is actually to do it ourselves on our own balance sheet, and I think the answer to your question is, project by project, we will do it differently based on our assessment of risk and return. When you look at condominium product in Lion's Head, costing $400 a square foot to build and selling in the marketplace for $900 a square for foot, the profit margins are potentially so huge that one is encouraged to, you know, go -- you know, take on -- take some risk and do those projects. But if we are going to do it, there -- there have to be ways to lessen risk, and the obvious way to lessen risk is to pre-sell those units in advance of construction, to lessen the sales risk and to get a guaranteed maximum price contract from a reputable contractor to lessen or eliminate a cost overrun risk.

I mean, what are you seeing in general in the overall health of the Colorado real estate market? I know one of your closest peers has said that they've got some excess inventory in Keystone and are a little bit less aggressive in trying to bring on new units in Colorado. Is that what you're seeing as well?

No, because there are two Colorado markets. There is the Colorado mid-market, which is the Winter Park, Copper Mountain, Keystone, Breckenridge markets. And there's the affluent market, which is the Vail and Beaver Creek markets. And it is true that real estate in the mid-market segments has slowed somewhat. That's not where we get most of our money. Most of our money has come out of the affluent market in Vail and Beaver Creek. And we're talking nosebleed territory in Vail and Beaver Creek, and it doesn't seem to stop. Prices -- you know, I -- we -- Jim and I both mentioned these $7.5m of condominiums that sold out in 90 days. You know, Red Sky Ranch is just -- it's just been through the roof. Lots in Vassar Gulch are reselling for two-and-a-half to four -- Vassar Gulch and Strawberry Park in Beaver Creek are reselling for between 2 and $4m a home-site lot. You know, the affluent market seems to -- seems to be unaffected by this recent economic issue our nation is facing.

Great. Thank you.

Thank you.

Thank you. And our next question is from Michael Canner of Shenkman Capital.

Hi. Good morning. Two questions. One is, did I hear you right, you said you've already collected 20% of the lift ticket revenue that you foresee for the upcoming year? And then I guess the second question would be more for Jim. I guess just an approximation of the liquidity position. Obviously fully cognizant that you've now been generating cash for better than a month and will be doing so for the next several months as well. Thank you.

All right. I'll do the first one and Jim will do the second one.

Great.

What I said was we had generated 20% of our lift ticket budget by opening day, and we've probably collect -- we've collected more than 5% of our lift ticket revenues since opening day, so we're probably sitting today more like 25% of our season-long lift ticket revenues are in hand. That's -- that's an encouraging visibility for the remainder of the season. Jim, you want to take the second question?

Yeah. We came in quite comfortably under the covenants. We're actually almost on the covenant if we hadn't amended it, but as Adam pointed out, we wanted to be prudent in the first quarter was much better than we anticipated.

Uh-huh.

Going forward, we're generating a lot of cash, and we will monitor, in essence, our capital expenditure program, because most of it is in the kind of non-winter season. So that we remain comfortable under our bank covenants going forward.

Okay. Great. Thank you.

Thank you. And we do have a follow-up question from Ray Cheeseman of Jeffries & Company.

You mentioned great success earlier in the call on the -- on your pricing of your lift product into the marketplace. You also mentioned that your ski school pricing for the holiday period upcoming was successfully increased.

Right.

Are there other products where you're seeing some leverage into the marketplace where you'll benefit?

Sure. Well, you know, a lift ticket -- early season lift ticket pricing is -- you know, is through the roof because, you know, we generally open at $39 or $49, and over the first 8 weeks pre-Christmas, we slide up into our normal season prices. This year, we got to $49 and $59 very quickly preseason, when we might have been charging half of that in prior years.

As I said, our preseason lift ticket revenues are up 33%, on average, across the five ski resorts on the whole. For the entire -- for the season to date. As you look going forward, we have raised lift ticket prices by 6% at Vail and Beaver Creek, and I think the number was 3% at Keystone and Breckenridge. Don't hold me to the exact dollar, but the last I checked, we had taken a private ski instructor lesson up to $535 a day, and that does not include the lift ticket, so you add a lift ticket and you're over $600 a day to ski with a private instructor.

You know, we have taken price -- modest price increases throughout the rest of the company as well. Our food and beverage operation has gone up a little bit. You go into our retail stores, prices have gone up a little bit. If you look at our lodging business, remember I told you that the average room rate at the five owned RockResorts was up $17 year over year from 135 to 152, I think. So, yeah, there's price -- there appears to be pricing power in this company because of its affluent clientele and because of the high quality of our product and the services that we offer.

And my last question was: I believe on the last conference call, you indicated that your capital cycle is different from your earnings cycle, and I don't think you gave us at that time your expected mountain and real estate capital expenditure estimates.

Our capital cycle -- we -- we report -- our capital cycle is January to December, but we report our capital both ways, both for our fiscal year and our -- and calendar year. The reason that our capital cycle spans our fiscal year July 31 is so much of the construction that goes on in our ski resorts starts in April, when the snows start to -- you know, when we shut down the ski resorts, and don't finish until somewhere between -- from Labor Day to a few days before Christmas. Having said that, Jim, you want to tell him where we are for capex for '03?

Yeah. We've spent 37m, combined, for the first quarter. That's real estate and resort. And our estimate is 35/45 for the remainder of this fiscal year. So that would be second through fourth quarter for both real estate and resort, about equal. But we're going to re-review that in February, after, you know – we’ve only done 8% of the year so far, and it's possible that would be on the low end, 35/45 each, depending, (a), on what -- you know, do we finish the year like we expect or better, and (b), what are the opportunities, and (c), what's the appropriate mix as Adam went through of other people's money, do it on our balance sheet. So there are a lot of open items, but our estimate today is 35/45 for both real estate and resort, which would bring the total in the fiscal year to between 107 and 127. But I want to emphasize those are estimates.

Thank you very much, Jim.

Thank you. And Mr. Aron, I am showing no further questions.

Okay. Operator, on a few other calls, sometimes people have had questions that haven't gotten through. Let's just ask one more time.

Okay. If you do have a question, please press the 1 key. One moment for questions. I am showing no further questions, Mr. Aron.

Thank you, operator. I think the way to end this call properly is to tell you to do me a favor, please, and tell every single person you know that we have 10 feet of snow in Colorado, and that the skiing conditions are fabulous, and they better hurry if they want to make a reservation because we're selling out. How does that sound?

In any event, thank you all for your participation this morning. Should you have any further questions, please feel free to contact me, Jim or Leslie directly -- Jim or Leslie directly. Leslie's telephone number is 970-845-2958. Leslie's e-mail is Lroubos@vailresorts.com. Thank you all for participating this morning. Good-bye.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and you may disconnect at this time. Have a nice day.--- 0