Vail Resorts Inc (MTN) 2003 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Vail Resort's Fiscal Year End Results Conference Call. At this time all participants are in a listen-only mode. Following today's Presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the Conference, please press the star followed by the '0'. As a reminder, this Conference is being recorded today, Thursday, November 13 2003.

I would now like to turn the Conference over to Mr. Adam Aron, Chairman of the Board and Chief Executive Officer. Please go ahead sir.

Thank you very much operator. Good morning everybody from, I am extremely happy to say, the cold and quite snowy Vail Valley of Colorado. Welcome to the Vail Resort's Fiscal 2003 Year-End Earnings Conference Call and simultaneous web cast both open to the public and the press at large.

As you know, I am Adam Aron, Chairman and CEO of Vail Resorts. Joining me this morning on the call here are corporate officers in the, and let me cheerfully reiterate the cold and quite snowy Vail Valley of Colorado, are Jim Donohue our Senior Vice President and CFO and Leslie Roubos our Director of Investor Relations and Corporate Financial Planning.

Earlier this morning, we issued two press releases. The first outlining a $3.3m net income reduction to prior year earnings, modest but nonetheless material. The second discussed earnings for our Q4 and Fiscal Year ending July 31, 2003 as well as provided our best outlook as of this point for, what we are quite optimistic will be a bright Fiscal 2004.

This morning I would like to begin by reviewing the restatement, followed by an overview of the Fiscal 2003 actual financial performance for Vail Resorts. I will conclude with the Company's outlook for Fiscal 2004, which began on August 1, 2003 and runs through July 31, 2004.

At the completion of my prepared remarks, Jim and I will be happy to take any questions you may have.

First of all, before I even begin, I want to thank each of you for your extraordinary patience with us over the past 15 days. When we filed for the automatic extension for our 10-K filing, we issued a press release at that time, saying that the reason was that the audited Fiscal 2003 was not yet complete. That, in fact, was the case. There was no other information we felt comfortable issuing in a press release at that time, until today. Not surprisingly, many of you called seeking more information, but, as you know we are strictly prohibited from telling anyone, anything individually beyond what has been released publicly. Consequently we consciously for the past 15 days, went on what might be called "complete radio silence" with respect to any comment beyond what was disclosed in our October 27 press release.

We simply had no choice under the circumstances, other than to remain tight lipped, but as soon as we finalized the audit, we immediately issued our earnings and will later today file the 10-K, both within the statutory requirement.

As many of you know, our normal policy is to be as communicative and forthcoming as possible, if not downright loquacious with our investors. While we always try to provide as much information to you as we legitimately can on a timely basis, I hope you can all respect the delicacy of our position. It would not have been appropriate for us to speculate either publicly or individually about the timing of our earnings release or the amount of those earnings that are the ultimate end product of the year-end audit, until each was certain, which of course we are doing right now.

Even with that explanation, I am sure in the past two weeks we have frustrated some of you, who have been very supportive of our Company in the past. Please know that you have our Company's apology and my personal apology, as well as our commitment that we will do our best to prevent this from recurring in the future.

Let me now turn to the restatement press release. As you can see, there are five matters at hand. Taken together with some of the individual exchanges increasing net income in certain years, and others decreasing net income in certain years, they constitute in total a reduction in net income over the past 5-years combined of $3.3m. For your reference, for that same combined 5-year period, from fiscal 1998 to fiscal 2002, the Company's total revenue was approximately $2.6b in aggregate and it's net income for the same combined period was approximately $78m in aggregate.

Taken by year, in total we announced today we are reducing net income by $516,000 in fiscal 2002, by $2.2m in fiscal 2001 and by a total of $570,000 for the combined 3-year period of fiscal 1998 through fiscal 2000. This morning's press release covers these issues in detail, and I encourage you also to read our Annual Report on Form 10-K to be filed today, for further detailed information.

Let's turn to specifics. Employee housing, we have partial ownership interest ranging from a low of 26% to a high of 50% in four joint ventures, which own and operate seasonal employee housing facilities. Affordable employee housing is an important part of our strategy to recruit a talented workforce at competitive but reasonable wages. With inexpensive rents to our employees, it is intent employee housing approximately breaks even on a cash basis, but with depreciation expense then driving book-operating losses.

Historically, we have recorded on our financial statements our pro rata ownership share of the profits, if any. Or, as is the norm, recording our pro rata ownership share of their losses.

After an exhaustive review of the appropriate accounting literature, we have determined that we indeed should book profits, if any, through our pro rata ownership share, but we should record 100% of their losses on our financial statements, this we have now done.

Second, with regard to executive deferred compensation, and more than 90% of this item relates to yours truly, primarily due to various components of my own employment agreement signed in Q4 fiscal 2001. The balance of the adjustment accurately vests the compensation for one other of our senior executives.

Given the sensitivity around CEO compensation, I want to emphasize that my employment agreement was fully disclosed publicly in 2001, and was reported primarily in Colorado's leading newspapers at that time and since. It wouldn't seem that it would be all that difficult to account for the various pieces of my publicly disclosed compensation package, but in connection with the fiscal 2003 year-end review, the Company has determined the following three changes should be made in the recording of this compensation.

A) Approximately 3-months of vesting of various but not all components of the compensation package that were recorded in fiscal 2002, have now correctly been recorded in fiscal 2001.

B) This is the largest single component of this adjustment. The Company has changed the methodology for evaluing and timing the compensation expense related to a lot, a home site lot I could have purchased in Bachelor Gulch at our Beaver Creek Resort, or received free, if I stayed employed with the Company through August 3 of 2003. Included in the restatement, the Company has reversed expense accruals actually made in fiscal 2002 attributable to the August 2003 vesting date. Instead has mark to market the value of the lot as of the date of the 2001 purchase contract, less what I then would have paid to purchase the property.

C) As has often been disclosed, I have lived for almost 7-years in a Beaver Creek house owned by the Company. As agreed in my 2001 employment agreement that ownership of that house, along with certain Eagle County Club memberships, was to be transferred to me, again if I remained in the employ of the Company through the current time. The Company has now re-estimated the market value of the house, as of May 2001 the new estimate of the value of the house actually being lower than the former estimate. The Company also correctly valued the Club Memberships, the value, which increased by a more or less similar amount as the house value decreased. We have expensed the quarterly pro ration thereafter as compensation expense.

The third area to be restated relates to depreciation and other items. The dominant item here is that during the normal course of reviewing the fiscal 2003 year-end results, we determined that certain capital projects had not been properly transferred from construction in progress to property, plant and equipment on the balance sheet in a timely manner. As a result, prior year depreciation expense was understated, primarily in fiscal 2002.

Finally, there are two items relating to the relatively new joint venture, which owns the new Ritz-Carlton, Bachelor Gulch, namely $200,000 of interest income that should not have been taken as income, and a similar amount of interest expense that should not have been expensed. They are clearly explained in the press release of this morning and essentially offset each other.

Before leaving the matter of the restatement, I want to say one more thing. The amounts may be considered by some to be relatively small, but they are material. Some may involve complex and some might say as [indiscernible] accounting interpretations. But at the Company we understand that our Company is supposed to get these issues right and to do so the first time around. I assure you that we are taking this matter very seriously and will do all that is reasonable to assure that we do so as we move forward.

Let's now turn to our audited financial results for Q4 and year-end of fiscal 2003. Before we can do so I need to point out one definitional change. In conjunction with the new SEC rules regarding the use of non-GAAP financial measures, we will now be using the term "reported EBITDA" wherever before we used the term EBITDA, which we used in the past to report earnings for each of our operating segments, namely Mountain Lodging Resort, which as you know is a combination of Mountain and Lodging as well as real estate. Reported EBITDA is defined in the exact same manner in which we historically defined EBITDA, a full reconciliation of these non-GAAP measures to GAAP can be found in our press release and on our www.vailresorts.com website in the investor relations section, on the regulation G compliance tab.

Now for the earnings, overall the fiscal 2003 financial results were a great disappointment for Vail Resorts. As we see it, the year started off well with the first half, but as I said publicly mid-way through the year, I expected then fiscal 2003 to be like a two-half football game. Management led the Company to a solid performance at half time, but the prospects of an Iraqi War loomed large and menacing over us in the second-half of fiscal 2003.

Indeed, and unfortunately, our fears were confirmed. As War talk escalated bookings and visitations softened. As the first bombs exploded on March 19, at the height of the ski season, visitation dramatically slowed and profits suffered badly.

At our ski resorts for example, there was about a 30% swing in the trend line. What we had been up year-over-year in January/February versus what we were down year-over-year in March.

As a result of these War impacts on consumer demand as you know, on April 29, we issued guidance reducing Resort reported EBITDA to a range of $108m to $118m for fiscal 2003, such guidance, which we reiterated in June.

Disappointingly for us, our actual Resort reported EBITDA for the year, came in at $103.4m a miss of about $4m+ from the low end of the range, primarily due to unanticipated charges in Q4. The guidance miss for the fiscal 2003 year-end Resort reported EBITDA was the result of four main factors.

1) Adjustments to the historics', workers compensation reserves, driven by escalating health care costs across the nation and close to our home.

2) A sudden rise in Q4 health care costs from our employee medical plan, driven by season end visits by our employees to their medical care providers.

3) $500,000 in additional severance expense associated with our streamlining and decentralizing our marketing and sales groups. Bringing the year-end severance total to $3m.

4) Our Lodging segment continued to struggle early this summer, especially in May and June from the immediate aftermath of the Iraqi War.

One bright note, our Real Estate Group kept on chugging along with yet another record year. With Real Estate reported EBITDA up $17.7m, our Real Estate performance beat the guidance range of $15m to $17m.

There was one other big negative surprise, which affected our financial results for fiscal 2003, generating a $4.8m asset impairment charge.

Over a decade ago under previous management and previous ownership, our predecessor Company obtained an option on a 50% interest in a joint venture owning thousands of acres of undeveloped land in Gilming(ph), Colorado, just a few miles south of Vail Mountain. Over the years our Company had invested about $4.8m fulfilling various obligations required by our partnership agreement. We believed Vail Resorts would ultimately make a profit, albeit potentially a small one, on this investment. Disagreements arose with our partners and litigation ensued.

A trial was held in the spring of - get this, 2001 in which our attorneys were highly confident we would prevail. Surprisingly after taking more than 2-years to issue his ruling, in September 2003, the judge in the case ruled against us and stripped us from our option on the land. While our attorneys are again highly confident this ruling will be overturned on appeal, to be conservative we have nonetheless taken an asset impairment charge on the full $4.8m expended to date, and per GAAP, as we had yet to issue these financials, this charge has been taken in fiscal 2003.

Along with the miss in Resort reported EBITDA and an increase in appreciation expense associated with the restatement, this is what contributed to the income from operations guidance miss of about $12m.

I don't think we will ever forget here what a frustrating year fiscal 2003 turned out to be. As I reiterated on the June earnings call, given that we were on pace for a great and potentially a record year, after the first six-months of our fiscal year, only to produce a year in the end with the first loss at the net income line that Vail Resorts has reported in more than a decade. A net loss after tax of $8.5m or minus $0.24 per fully diluted share.

In looking at the fiscal Q4 performance, the same factors that I have already described, really are behind the story that result in our Q4 results. So at this point, I think it would be more enlightening if I focus instead on analyzing our full-year performance.

Unfortunately all the growth we experienced in our Mountain segment early on, was more than reversed in Q3 as talk of War escalated and War with Iraq only broke out during our busiest and most profitable months.

As I have already mentioned, lift ticket revenues had been growing year-over-year by approximately 30% on a season to date basis through February, conversely lift ticket revenue in our five ski resorts was 1% lower this year in the month of March than last year. Meaning that even with Heavenly included this March, our five resorts produced less lift ticket revenue this year, than just our four Colorado resorts did last year.

All told, revenue from our Mountain segment grew 17% and now on a reported EBITDA for the year increased 8% over the last year. However, excluding the successful Heavenly acquisition "same-store" or what might be called Colorado Mountain revenue, grew a meager 3% and Colorado Mountain reported EBITDA actually fell 13%. The primary driver of the decrease in "same-store" Mountain reported EBITDA from our Colorado resorts was an increase in costs. As I have said before, associated with severance workers compensation, medical and insurance costs.

In addition, we opened new terrain at Breckenridge as well as beefed up the grooming(ph) and trail maintenance primarily at Vail and Keystone, all of which had increased cost implications. Remember, these decisions were all panning off for us well through January and even to some extent into February, but then came the War.

While the ski resorts were hard hit in February, March and April, the Lodging industry continued to be adversely affected, both by the War and weak national economy, well into the summer. The Q4 capped(ph) what amounted to be a tough fiscal year for our Lodging segment.

While Lodging revenue increased almost $9m or 6% in fiscal 2003, compared to fiscal 2002, on a "same-store" basis, excluding acquisitions in both years, Lodging revenue actually declined 2% for the year. Lodging reported EBITDA for the year fell $10m, but keep in mind though that $5.8m of a decrease in fiscal 2003, was due to the equity loss associated with the start-up expenses and first year operations of the new Ritz-Carlton, Bachelor Gulch.

For those of you really keeping score, since we use the equity method of accounting, for minority interest joint ventures, depreciation and interest expense represented $3.3m or 57% of the Ritz-Carlton equity loss.

Excluding the Ritz, as well as excluding the acquisitions made in early fiscal 2002, namely the [Lodge It] Ranch in Mirage, RockResorts and the Vail Marriott(ph), same-store reported EBITDA for the Lodging segment, fell from $9.6m to $8.1m or 16%. The decrease was driven by the general softness of the Lodging sector nationally, but we were hit particularly hard by our properties primarily in Breckenridge.

Interestingly the Grand Teton Lodge Company and Jackson Hole(ph) by contrast and our largest summer Lodging operation, actually had a very good summer season and was nicely up year-over-year.

As I do on each earnings conference call, I would like to provide you with some operating statistics for our own hotels.

Given the sad state of the US Lodging industry through to July, we are particularly encouraged by our performance at RockResorts. RockResorts owned hotels, saw an increase in occupancy for the fiscal year, with an occupancy rate this year of 61%, up 6 points or 11% from the 55% occupancy for the same period last year. The average daily rate, however, of $176 was down $16 or 9% from $192 last year. But, again, as we have reiterated in the past, this reflects our conscious effort to reduce price as needed as smart marketers, to drive occupancies into our hotels during difficult times. As a result of these strategies rev(ph) par for the owned RockResorts hotels actually increased 3% for the year, in a very tough year for August to July for the US Lodging industry.

Results for the non-RockResorts branded lodging properties, which are primarily concentrated at the base of our Colorado ski resorts, performed like our ski resorts, and were hard hit, both by the War and the overall nationwide lodging slump, especially in group convention and corporate business. They saw declines in occupancy 58% this year, down 3 points from the 61% occupancy the year before. While ADR(ph) actually increased $0.57 year-over-year from $142.87 to $143.33 rev par was down 5%, obviously in this case the months of February, March and April were particularly difficult.

In summary, without trying to sound like a broken record, the Iraqi War and the weak national economy badly hurt the performance of both our ski resorts and our Lodging properties. Unexpected Q4 charges and the long delayed, but nonetheless adverse court ruling, causing the asset impairment charge, only made things worse. As Vail Resorts reported our first net loss in 10 years and accordingly the first net loss since going public in 1997.

At this juncture it seems so long ago how proud the management of our Company was of itself, to undertake the difficult and unpleasant chore of cutting some $10m of fiscal 2003 expenses in October 2002. After the fact(ph) internal review concluded we did indeed achieve almost 95% of these anticipated savings. I simply shudder to think where the loss would have been had management not taken these cost reduction moves early in fiscal 2003.

Even with this report, fiscal 2003 was a year in which the Company made a broad array of advances that should help our earnings rebound in fiscal 2004.

Beaver Creek had its best year ever, with 718,000 skier visits up from 658,000 the year before, and the opening of the spectacular Ritz-Carlton, Bachelor Gulch had everything to do with Beaver Creek's success. Our cash losses at the Ritz in its first year were substantially, but not totally, recouped by Beaver Creek Mountain as a result of its record year.

Vail surpassed the 1.6m skier visit mark, once again the most of any US ski resort. Vail retained the number one spot as North America's best ski resort in SKI Magazine's October 2003 industry rankings. Thanks to the new peak 7, Breckenridge rose to its best ever position in the ski rankings to number six. Beaver Creek ranked ahead of Aspen and all five of our resorts ranked in the top 15 best of North America, a quality of which we are quite proud.

Heavenly performed much better than expected, up a whopping 125,000 skier visits year-over-year. We believe this was in response to the way in which Vail Resorts is adding a quality dimension to Heavenly, in addition to the beautiful new Heavenly village, with its two Marriott lodging properties, which opened in November 2002.

There were successes in the Lodging segment as well, the Ritz-Carlton, Bachelor Gulch opened to rave reviews, we are optimistic its initial losses will turn to healthy profits down the road. On a stand-alone basis, not counting the added profitability we get on Beaver Creek Mountain from added lift ticket, ski-school and retail sales.

The renovation of the Vail Marriott is complete with new attractive and modern guest rooms. The Snake River Lodge and Spa has also seen a dramatic double digit increase in revenue in rev par, not to mention just receiving the highly coveted triple "A" four-diamond award, in response to the completion of its sweeping renovation.

Three of our [indiscernible] RockResorts' hotels earned top honors as being amongst the best hotels in the world in Conde Nast Traveler's Prestigious 2003 Gold List and Gold List Reserve as did our Jenny Lake Lodge at the Grand Teton Lodge Company.

Looking at our Real Estate group, Red Sky Ranch opened to raves. In March Gold Magazine picked the [indiscernible] course at Red Sky Ranch to be one of the 10 best new golf courses to open in the United States this past year. The Greg Norman Course opened in June and is just as impressive. We have already sold 250 private club memberships at Red Sky Ranch, with the initial price of $150,000 per membership. We are now at $175,000 each and while all the cash from these sales is in hand, only a small fraction has, as of yet, been reported as income, increasing the visibility and success of Club revenues in future years.

Speaking of looking ahead, our plans to renovate Vail Village and Lionshead are moving well through the regulatory process, without much opposition, indeed our Vail Front Door program has just been approved by Vail's Planning Commission by a unanimous 7-0 vote.

Similarly in Breckenridge in fiscal 2003, the Town Council unanimously approved zoning for our new base village planned at the base of Breckenridge's Peak 7 and Peak 8.

As for progress in Corporate Governance, we are cognizant of [indiscernible] requirements for our Company. As one important example, since I hold the title of Chairman and Chief Executive Officer, with my wholehearted support, we have appointed a lead(ph) director on our Board, Robert A Catts(ph). Rob has been on the Vail Resort's Board of Directors since the early 1990s and I simply could not have a smarter, more knowledgeable or a more pleasant individual with whom to interact. Similarly, as it is with many companies these days I suspect, our audit committee has been very active and extensively involved over the past year.

So, what does all this mean for the future of Vail Resorts, especially in fiscal 2004?

First of all, we are encouraged by the recent reports that the economy is improving. Whilst there is no way of knowing for sure at this juncture, everyone of us here, joins each of you, with hopes that new military conflicts abroad or new terrorist attacks here in the United States will not present themselves as a fiscal 2004 challenge.

As for what we can control, as promised in June our management team worked exhaustively throughout the spring to identify year-over-year cost reduction initiatives totaling some $25m. Real reductions in costs that we expensed in fiscal 2003, this represented an enormous team effort and we are almost certain to benefit as a result.

While I want to reiterate that we really have put into effect, and implemented strategies to reduce our cost structure by about $25m, I want to be crystal clear what this means. Costs will be lower in fiscal 2004 by the amount of these cuts, but we will still have to face the cost of Company wide 2% salary increases, general inflation, increased insurance and audit cost, increased accounting costs associated with Sarvey(ph) and Voxley(ph) compliance requirements and health care costs, which are increasing at a double digit pace countrywide.

We estimate that these increased cost burdens will more or less offset the $25m in savings. What that does mean though, is that less variable cost related increased volumes, the increased revenues that Vail Resorts enjoys year-over-year in fiscal 2004, will substantially fall to the bottom line.

Many of you have asked us about the cuts more specifically. They include among many, many examples, we have reduced sales and marketing expense associated with the airline guarantees, by negotiating caps on those guarantees with three of the six carriers serving Vail Valley's Eagle Airport. Yet we have increased the number of flights, seats and major airlines serving Eagle Airport at the same time.

We have tightened up eligibility requirements for persons working only part-time that participate in our employee health plans, which cost our Company some $4,000 per employee per year in subsidy. In a loose labor market, where we seem to be having absolutely no trouble staffing our resorts with highly qualified and hopefully enthusiastic employees, we have also modestly decreased the number of employee housing beds, which cost us $1,500 per employee per bed per year in subsidy.

We have instituted a mandatory time-off program for management, which will save us one week's pay, about 2% of annual salary costs, per management employee, all the way from the most junior manager to me and everyone in between as participants. But the employee too, as he or she gets more time off to get away in the very slow so-called mud seasons in which our seasonal resorts are often actually closed.

Machinery maintenance costs are coming down, and Keystone is another example of cost cutting. Thanks to our recent investment in new state of the art technical systems, replacing antiquated equipment that was expensive to keep up.

We have switched the cell phone provider for all of our employees with Company cell phones, to save money.

I could go on and on with more examples. I do want to emphasize though, that we also are absolutely committed to maintaining the excellence of our product. Indeed, as examples, snow making and grooming are increasing this year across our resorts. Our product will continue to out pace the rest of the US ski industry.

There is equally exciting news on the revenue front for fiscal 2004. Fiscal 2004 is not only a story about how we have successfully been reducing our costs. As we sit here today, we are excited by all of the metrics we see in looking to fiscal 2004 revenues.

First, you may have noticed that I have already mentioned with glee, that it is cold and quite snowy here in the Vail Valley of Colorado. Temperatures have dropped allowing us to make snow. More importantly, natural snow has been falling like crazy at our resorts since November 1. In the last two weeks, we have almost 3 feet of snow at Heavenly, between 2.5 feet and 3 feet of new snow at Vail and Beaver Creek and a foot of new snow at both Keystone and Breckenridge.

As you might suspect, we do dialogue with several sophisticated Government and Private Meteorological experts, and the prognosis for this season is ample snowfall. Hallelujah.

Indeed, Keystone and Breck will both open for the ski season tomorrow. The US ski team is training on Beaver Creek Mountain right now as we speak. All five of our resorts will be open on schedule by next weekend, 21/22 November.

Not only do we have snow, we have exciting advanced pass sales results and we have solid advance bookings. Colorado Front Range advanced season pass sales are better than expected, increasing 5% compared to last years record with some $37m of advanced season pass sales already in hand.

We had actually assumed Front Range pass sales might drop somewhat from last year's levels, due to the combined marketing forces of Copper(ph) Mountain and Winter(ph) Park, but this is very positive news at this stage.

The so-called destination or out of state visitor marketing in our estimate looks like it will rebound nicely too, especially in March and April, which were artificially depressed last year by War in the Middle East.

In addition, as crazy as it may sound, we actually gain a high visitation day on February 29, and lose a low visitation day in April, due to leap year occurring in 2004. Sounds kind of nuts, but this should be worth at least $1m to us in EBITDA in fiscal 2004.

Current bookings into our central reservation system are also encouraging, positively affecting our five ski areas. Bookings into our central reservation system are up 3% in unit volume, 5% in price and in total are up over 8% year-to-date, compared to last year. On-line bookings with very little in servicing costs, as they come through the web, are up 35% year-over-year across our resorts and currently represent an astonishing more than 1 out of every 4 vacation bookings that we take.

What is particularly important to remember is that we started off well last year, bookings were robust at this time last year and we are running ahead of those levels so far this year. The real test will come in January and beyond when last year, due to War talk, our new bookings slowed, and hopefully this year we will not similarly tail off.

Air bookings in the Vail and Beaver Creek's Eagle County Airport are up 3%. This year capacity at the Eagle Airport is up too as US Airways starts service to the Vail Valley for the first time every, starting non-stop 757 jet service from Philadelphia and again from Charlotte on peak Saturday travel days all season long. Continental is adding more non-stops from Newark during peak holiday periods, including Christmas, New Year and the month of March.

Christmas holiday bookings coming back to what we learned from our central reservations operation, in the Vail and Beaver Creek reservations are up a wapping 24%. Although to be fair, our other resorts do not have such breathtaking double-digit growth.

The list making one an optimist for fiscal 2004 keeps on going. Lift ticket prices will rise a couple of dollars at each of our resorts this year. Ski school prices are also being raised, and speaking of Ski School, advance reservations are up about 7% in Eagle County in volume and more than 10% in dollars so far this year for private Ski School lessons, compared to last.

We also invested about $20m this summer upgrading the Heavenly and Keystone Guest Experience on and off the Mountains. We are optimistic the consumer will notice at each and at this in turn will also drive revenue growth even further for fiscal 2004 and beyond.

In revenue metric after revenue metric at our Ski Mountains one sign after another looks incredibly bright. Similarly, we continue to approach our Lodging business with cautious optimism. We have reduced costs in many of our Lodging properties. At least two have completed their major renovations. We are starting to win real and meaningful industry awards, especially for our RockResorts properties, and let us all hope we will not be affected by the War in fiscal '04, as we were in '03.

There is much in the Real Estate hopper and our Real Estate Group should have another impressive year too.

Accordingly, based on what we know today, we expect growth in both our Mountain and Lodging operations in fiscal 2004. At this time we are projecting Mountain reported EBITDA for fiscal 2004 to range from between $120m to $130m up from $100m in fiscal 2003.

We are projecting Lodging reported EBITDA in the range from $6m to $12m up from $3m in '03, with total Resort reported EBITDA to be between $130m and $140m, up from $103m in fiscal '03.

We are also comfortable giving guidance of $13m and $19m for Real Estate reported EBITDA in fiscal 2004, in addition, we are currently projecting positive net income in fiscal 2004, ranging from $2m to $10m after tax.

With all this chipper news, there is one unknown on the immediate horizon. It has been disclosed in our past 10-Q(ph) filings that as our credibility with you is so important to us, I specifically want to direct your attention to litigation that may go to trial in Wyoming, as early as next week.

In August 2, 2001 a tragic carbon monoxide accident in a hotel room in the Snake River Lodge and Spa occurred just 8-months after we acquired our 51% interest in the hotel and just a few months before the whole hotel underwent a massive renovation.

Sadly and regretfully, the accident resulted in the death of a doctor from North Carolina and a carbon monoxide related injury to his wife. Naturally, several of our subsidiaries, including the hotel joint venture are being sued. Whilst we have significant insurance coverage, we are not insured for punitive damages. Along with our attorneys, we believe a finding of punitive damages under Wyoming Law is not warranted, as there was no intent to do harm. However, we have no way of knowing what the jury may decide.

My fiscal 2004 guidance given earlier, assumes no such judgment of punitive damages, and whilst we are not counting on such an unhappy outcome, it is certainly possible that it could happen and, if so, that it could affect us dramatically in fiscal 2004.

This litigation is quite thoroughly described in our 10-K, which I would urge you to read in detail, especially as it relates to the risks inherent in the Wyoming cases.

Before I conclude, for you bond holders on the call, I want to mention that to be conservative, we did request an amendment to our credit facility to increase the allowed funded debt to adjusted EBITDA ratio, as defined in the credit facility, for the compliance periods ending July 31, 2003 and October 31, 2003. Because, as I have said over and over again on this call, fiscal 2003 earnings were artificially depressed by the War that we thought we might be close to our covenant requirements. Therefore, we felt it prudent to get an amendment for both [indiscernible] just in case. As it turns out, in hindsight, we did not actually need the amendment for July 31, nor for that matter does it now seem likely we will need it for October 31 either. Although, as we have yet to close October books, the need for such an amendment as of October 31 is still uncertain.

In summary, with respect to '04, we have snow, we have passes sold, we have bookings in hand and we have costs under tight scrutiny. At this juncture Jim and I will be happy to answer any of your questions. As you prepare for your questions we need to point out that the comments made during this Conference Call other than the statements of historical information are forward-looking statements that are made pursuant to safe harbor provisions in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only of the date hereof. Such risks and uncertainties include, but are not limited to, general business and economic conditions; failure to achieve anticipated cost savings and anticipated operational efficiency, or conversely adverse consequences from cost reductions; competitive factors in the ski and resort industries; failure to successfully integrate acquisitions; uncertainties and issues related to the restatements of earnings; adverse consequences resulting from the SEC investigation; the impact of the September 11 2001 terrorist attacks on the travel industry and the Company or additional terrorist attacks; uncertainties and impacts of the threat of war or actual war; continued or worsening economic slowdown; the impacts of SARS or similar unforeseen global events on the travel industry and the Company; expenses or adverse consequences arising from current or potential litigation against the Company, including the litigation in Wyoming; implications arising from the implementation of FIN No. 46, SFAS No. 150 and other such new FASB/governmental legislation, rulings or interpretations; and the weather. Investors are also directed to other risks and documents filed by the Company with the Securities and Exchange Commission.

We are now, finally ready to take your questions. Operator?

Thank you sir. Ladies and gentlemen at this time we will begin the Question and Answer session. If you have a question please press the star followed by the '1' on your pushbutton phone, if you would like to decline from the calling process, please press the star followed by the '2'. You will hear a three-tone prompt acknowledging your selection. Your questions will be [indiscernible] in the order they are received. If you are using speaker equipment you will need to lift the handset before pressing the numbers. One moment please for our first question.

Our first question comes from Will Marks with JMP Securities. Please go ahead with your question.

Thank you, good morning Adam and Jim. I have a few questions here, I may have just missed this. Have you taken any kind of reserve for the potential lawsuit in Wyoming?

Will we haven't and for I think an understandable reason. For us to take a reserve, and by the way in the 10-K you will get shortly, it specifically calls out that we have not taken a reserve. Three conditions need to be clear, an expense needs to be probable, in this case punitive damages is not probable, possible not probable. Secondly, we need to be able to estimate it - it needs to be estimable, and juries being juries, there is just no way of knowing how to estimate this charge. The concern about a financial reserve is it could have understated prior year results for unnecessarily or incorrectly, there is just no way to know what the right number is, if any at all. So we thought the right way to do it was to make sure this was very well disclosed, but no, we are not reserved.

Okay, thank you. I have a couple of other questions. For Heavenly you gave the skier numbers, can you give us any indication, was "same-store" revenue up in Heavenly for the year?

[indiscernible] went up like 20% - everything about Heavenly is a wonderful story. First of all, Heavenly did not have terrific snow this past year. Second of all, Heavenly was susceptible to all of the same world events [indiscernible] that the rest of the travel industry had to deal with, that we had to deal with in Colorado, that our Lodging industry had to deal with. Skier visits were up 125,000, revenues at Heavenly are up, in the neighborhood of 20%, and EBITDA was up in the neighborhood of 20%. We bought this thing inexpensively at 6.2 times trailing earnings on the old EBITDA and we are just warming up in Heavenly. We have put in a whole new management team, we have put in a whole new way of operating and we have really, we think, captured the hearts and minds of the employees, because they are part of a winner now.

We did invest $6m to upgrade the product before the last ski season, remember we bought it in May, we didn't have a lot of time. This summer, we are investing about $10m in Heavenly to upgrade the product. We could not be more enthusiastic about what cash flow growth could be at Heavenly.

What is the $10m investment this summer?

The $10m investment goes to a lot of areas. The two most dramatic, and you're from San Francisco, so you may actually relate to this. On Heavenly Mountain there is a so-called California side and a Nevada side. Lines were terribly long on the California side, with excellent terrain but people can't get to it, because they're standing on it [indiscernible] and traditionally stood in line instead. We are ripping out two very old under utilized slow lifts, which cost a lot of money to operate and maintain. We are replacing them with a beautiful new high speed quad(ph), the Ridge Express, which essentially gives us second high speed quad from the Sky Deck Restaurant on Heavenly Mountain. This should cut greatly, or possibly even eliminate any kind of lift lines on the upper Mountain on the California side and open up a whole lot of new really good ski terrain that no-one could get to because they didn't want to wait in line or ride the old crummy lifts.

Second, we are spending several million dollars to upgrade three more of the restaurants at Heavenly. The single largest complaint at Heavenly, other than its antiquated lift network, at the time we acquired it, was that the restaurant facilities were sorely in need of upgrade and we are doing that again this year, as we did some last year.

Okay, great. Just one final question, something about which I think everyone is curious. On your three major shareholders, Barron(ph), [indiscernible], can you give us with each one any light on their intentions or what they have done lately. Barron has certainly sold at least a little bit.

Well you've got to talk to them, not to me. I can only tell you what I know as of the moment. Rockwerp(ph) and Apollo are holders and have not sold a share for years and years and years. If and when that changes I guess we'll all know together.

Barron has in fact changed its investment strategy, this is publicly announced information at the recent annual Barron investor conference. They had had a highly concentrated portfolio of holdings. They have broadened that strategy by diversifying somewhat and they have sold a couple of million of our shares. But they are still an enormous holder, they are the largest holder. Ron Barron still is - I know from personal contact - is greatly intrigued by the Company and interested in our performance, especially at Vail Mountain, he is very excited by the plans for Vail's Front Door and the whole redevelopment of Lionshead. Which, by the way, we are going to be all over Vail Mountain this year, with promotional literature talking about Vail's New Dawn. We are getting to the point actually where we will have regulatory approval and will be moving into real estate sales for the redevelopment of Vail Village over this year and next.

So I don't know his intentions beyond what he has done. You would be better served to ask Barron directly. But their funds in total still are the largest shareholder of Vail Resorts.

Great, thank you very much Adam.

Thank you. Ladies and gentlemen if there are any additional questions at this time please press the star followed by the '1'. As a reminder, if you are using speakerphone equipment, you will need to lift the handset before pressing the numbers.

We have a follow-up question from Mr. Will Marks. Please go ahead with your question.

I was giving up the floor for more questions, but I'll just ask my final question since there isn't anyone else, if that's okay?

You're done with the first quarter actually already now, so can you give us any thoughts on when would be the hotel performance through October and any guidance on the first quarter? You're giving the full-year, but any particular guidance on October?

Will you know I have to be careful because I don't want to like announce the October quarterly results on this call.

Right, and when will you be announcing them actually, it would be helpful too.

Let me say this unequivocally on time, and the quarter ends October 31, so I guess that says mid December some time. About mid to late December I guess. If we push it we could go into the first week of January if we don't either want to harass you during the Christmas holidays or ourselves, but I would say December.

Again, I have to be careful how I say the words, we obviously know how we're doing. In giving you the guidance that we have given for the full-year. We have some sense of our performance in Q1 and as you know, our guidance for the full-year is to be quite encouraging.

Can we use last year as a benchmark for seasonality?

For seasonality yes you can use it as the same benchmark, but I am not in the position to tell you whether Q1 economic performance is down, flat or up for the obvious reasons.

Okay. Have you seen any general recovery in the hotel business in the last few months?

Yes - yes but you're reading tealeaves a little bit. We're very encouraged that we had such a good summer in Wyoming. All of our - I can't say all of our hotels, but - our sense of the hotel division is that they had a much stronger July/August relative to prior years than they had a May and June relative to prior years. That makes you think if things are going to get a little better, we all - you know, we all read the same headline about 7.2% GDP growth in the last quarter nationally. It is true, as I said in my prepared remarks, that the Lodging division was badly hurt as well, because most of it is at the foot of our own ski resorts, which obviously was hurt by the War.

We are optimistic that there will be no War in - or not new War let may say - simultaneous with the democratic presidential primaries, January and through April.

So, yes I think we can be optimistic based on results to date, but the results aren't so radically different than prior years. It could be the beginning of a new trend or it could be just a false positive.

Let me just say one more thing Will, it is sort of related to this question as well as your last. You know the first and fourth quarters aren't our quarters, it is the second and third quarters where all the good stuff happens. So even though I am optimistic about the first quarter, and we have not closed the books for October, whether it is our Mountain division or our Lodging division, the story for fiscal 2004 will be written by our performance in the second quarter and even more so by our performance in the third.

Has the Covey(ph) trial helped your hotel business at all?

Believe it or not, the Covey trial has in fact helped our business and we have more people staying particularly at the Ritz-Carlton, Bachelor Gulch and the new Vail Marriott, which is one gorgeous little Marriott hotel. There are not too many Marriott's in the country that look as good as this one these days. So yes we've got a little [indiscernible].

Okay, let me just add two final quick questions. Can you quantify what you lost because of the last two weeks in March last year? Like any EBITDA number?

Can we? Yes. Will I tell you what they are? No. But it is a really big number. I want you to think what I said before. I said that the five ski resorts this year had less revenue in March than the four ski resorts last year. Heavenly, just based on its size should by itself generate in the neighborhood of a 17% growth in revenues for Vail Resorts. Use that as a proxy and you can see how much revenue did not show up this March. It wasn't just March where we felt it.

When we came back from New Year's Day, and we had a good Christmas/New Year last year, it started to slow in January and really started to slow in February. An emotional manager would say it ground to a halt in March, obviously that's not true, we weren't down that much in March, and most people showed up. But as you know, we're in a high fixed cost, low variable cost business, so it is that last just 10% of your guests that is all the gravy.

Now in February and March last year a lot of these people didn't come. This year we're optimistic a lot of people will come. For the same reason that in a high fixed cost business, low variable cost business the last several points drain a significant chunk of profitability. Conversely it is true that those last several points of visitation will add significant profitability this time around if the traffic does in fact materialize, which we are expecting.

Okay, great. I'll call you back with any other questions, except I have got to ask you, how can we be comfortable that there are no accounting issues in the future?

That is a damn good question. As you can imagine with restatement items that are in the hundreds of thousands of dollars for a Company of our size, we have been through just an exhaustive review in connection with the fiscal 2003 year-end audit. Having said that, I personally am not satisfied that we had to restate earnings at all. This Company will be doing all in its power that is reasonable, to make sure that you and I do not have to go through this situation again.

Unfortunately I am expecting that we will spend $1m or more on increased salaries to buttress our accounting group from the middle, bringing in more expertise and adding resource. Even though, as I said in my prepared remarks, the numbers in this restatement are not all that large, for a Company of our size. They were material to our financial statements and we do not like that we are in this position. So this Company has as it's highest priority, I think I can say that - I'll say that guest and employee safety is our highest priority. Our second highest priority is these financial statements need to be accurate. I need to be able to rely on them, you need to be able to rely on them. They have been through exhaustive review in recent months, but we are going to put a lot more resource into accounting as needed to make sure that we maintain the kind of professionalism as a Company, that I think you and others have always expected of us in the past.

We take great pride, as you know. We are the best at this and we are the best at that. We have got the best ski resorts in the industry, our hotels are winning all these awards. Our Real Estate developments are winning all these awards, we need our accounting to be just as strong. Having said that, we have been through exhaustive review in the last several months.

Okay, great, thank you Adam.

Thank you. Our next question comes from Stephen Shin with Jeffries & Company. Please go ahead with your question.

Hi, thanks. Two years ago you acquired RockResorts, I believe it was at this time in 2001. Since then you have re-flagged some of your hotels under that name and you have received, I think it was five management contracts. But since then there has not been any additional management contracts signed. Can you comment on why that is and [indiscernible] the strategy is going forward?

I sure can Stephen, that's a very fair question. Number 1 on Rock. As you know we didn't put up a whole lot of money to buy the Rock franchise, so this was not a particularly risky strategy on the part of the Company. Second, the strategy we seem to have has been working, because if you think about my comments about RockResorts rev par at the own RockResorts properties, which is after all where we make a lot more money than in the management contracts. We have been seeing rev par increases [indiscernible] to what has been going on in the rest of the hotel industry. While the rest of the hotel industry might have also seen a modest recent blip, if you look back through July, the period prior to July, which is what we have just reported today, the hotel industry was not reporting rev par increases. So we think the Rocks are actually starting to perform.

The third answer to your question though is yes, of course we'd like some more management contracts. From my view we actually got one, because you may recall from our announcement in spring, that the Chicco(ph) Lodge was sold. The Chicco Lodge to a new partnership group - with which we have no connection. The Chicco Lodge is the best single performing RockResorts hotel of the ten from a revenue standpoint and it has the largest management fee of the five RockResorts management contracts.

We were well advised at the time we entered into the Rock transaction two years ago, that the owner of Chicco intended to sell Chicco as soon as possible and certainly within an 18-month time frame. We understood that we had the risk of being blown out of Chicco at that time and we actually made a strong pitch to the new owner that Vail Resorts and RockResorts, a relatively new business under our control, should be designated the manager of the property and without any capital infusion whatsoever, which is pretty rare, we won a 20-year management contract on the Chicco Lodge, which by most accounts is the best hotel in the Florida Keys. We are thrilled that the new ownership group is investing about $12m to upgrade the Chicco Lodge even further, about $60,000 per room of renovation.

So I think actually we did get one, and we got a big one and an important one. Having said that, there are a couple of irons in the hopper right now so maybe we will get some more as we look ahead in to fiscal 2004. You have got to be chasing about 10 or 15 for every one you're going to land, and we will keep doing the chasing. I hope that answers your question.

It does, thank you.

Thank you. Our next question comes from Alen Reid with Bear Stearns. Please go ahead with your question.

Hi Adam. Can you remind us what percent of your visit, across your five resorts come from outside the US?

10.

10%. So is it fair to say that we might see at the margins some benefit from a weaker dollar?

Not only do I think we'll some benefit in our international business from the weaker dollar, I think we'll see some benefit in our international business from peace or some semblance of peace in the world. Actually our international business really rebounded nicely last year, until we got closer to February/March, when people did not want to get on trans Atlantic airplanes. Our South American and Latin American market still traveled without much change, but our European business dried up as the War talk escalated.

Do you have any sense maybe for - during periods of a strong dollar, what kind of leakage you might have had up into Canada?

A lot. We know precisely and I don't mind sharing this with you. Back in 1998/99, which was I think I have been known to say the worst early season snow fall of the century of weather record keeping since Colorado became a state in 1876. Vail Mountain lost approximately 200,000 or more skier days straight up into British Colombia. We don't see that we got any of that back - that was a real transfer to the Canadian market - partially due to the dollar and partially because of the snow. But once they realized how inexpensive skiing was north of the border, that business did not return. Fortunately we have replaced that business with other business and Vail Mountain is back up over 1.6 million skier visits again. So I think our marketing people have done a very good job in building demand back up for Vail, at the same time Beaver Creek has been growing handsomely. But I think that's the amount that we here lost to Canada because of the cheap dollar.

Okay. One other thing on Heavenly, last year you reduced the season pass and saw I guess a big pick-up in volumes. Any sense for going into this season whether or not you might see maybe a little bit more favorable mix of not just Bay Area guests, but destination guests to Heavenly?

Actually, more specifically the two questions implicit in your remarks. We did drop price, but we more than made up for it. It is really fascinating - we dropped the price by 50% - these are round numbers not exact numbers. We cut the price in half, but the average price of the average pass sold last year only fell by a quarter, because there was such a mix change, and then we more tripled the number of passes that we sold. This year in Heavenly - I'm talking only about Heavenly, we held the pass prices flat without a dollar of increase, and yet the average pass that was selling is way up in price this year. The reason being, again the mix is changing and people are gravitating from the less expensive passes to the more expensive of - or what might be called the larger universe of lower priced passes. So that strategy seems to be working, and as I said, we achieved visitation surges, big revenue gains and big profitability gains.

As for the out of state market to Heavenly, you just have to look at what is going on in South Lake, Tahoe, with the new [indiscernible] lift from the top of the Mountain to Main Street, with a brand new Heavenly village, with something in the order of 1500 beds or more. This is all geared to overnight visitors.

We've established - in just our first season, we have established the closest cooperation with the whole casino community in South Lake, Tahoe, that anyone up there can remember for years and years and years and years, that's all geared to getting more people to come to South Lake, Tahoe to both ski and game - I think they call it, at the same time.

So yes we are looking hard at the destination market and with the new Heavenly village and the significant improved quality of the bed base and the easier access from the bed base, both Heavenly village and the South Lake, Tahoe casino is less than a block away. We think that is part of the reason for our success, even in the first season.

You didn't ask the question, but since you're asking the question implicitly about pricing of season passes? It is really interesting that the pass price in the Colorado market has been rising this year and it is the increase in pass prices, which accounts for 100% of our revenue growth year-over-year in the record level of Colorado passes that we are selling down here as well.

Okay, thank you.

Thank you. Mr. Aron at this time there are no additional questions. Please continue.

Thank you operator. I do know that my initial remarks went about 45 minutes, we felt we had a lot to cover. However, at least on three other of these calls, we have been told that people had questions and for some reason they didn't get a chance to ask them. Operator I would ask if you would just poll the group on the phone one more time, is there anything else they would like to ask us, because, of course, we would be happy to answer anything that we can.

Thank you. Once again ladies and gentlemen, if there are any additional questions at this time please press the star followed by the '1'. If you are using speakerphone equipment you will need to lift the handset before pressing the numbers.

Mr. Aron there are still no questions at this time.

Thank you operator. Well everybody here's how I am going to end this call - Yo dude, ski season starts tomorrow and we have lots of snow. Thank you for participating on this call. We appreciate your interest in our Company very, very much. We hope to see you in one of our hotels or one of our ski resorts in the not too distant future. Good day.

Ladies and gentlemen, this concludes the Vail Resorts Fiscal Year-End Results Conference Call. If you would like to listen to a replay of today's conference please dial 1-800-405-2236 or 303-590-3000 followed by access number 560136. We thank you for your participation in today's conference and at this time you may disconnect.