Vail Resorts Inc (MTN) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Vail Resorts second quarter earnings 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 during the conference press star zero. As a reminder this conference is being recorded today, Wednesday, March 10, 2004. I would now like to turn the conference over to Mr. Adam Aron, Chairman and CEO. Please, go ahead sir.

Thank you very much, operator. Good morning everybody. Welcome to the Vail Resorts fiscal 2004 second quarter earnings conference call and simultaneous webcast, 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 this morning, doing a round of press interviews about our very encouraging second quarter results. Joining me here, and on the call this morning, are Jeff Jones, our Senior Vice President and Chief Financial Officer; and Leslie Roubos, our Director of Corporate Financial Planning and Investor Relations. Earlier this morning, we released our earnings and, what earnings they were, for our second fiscal quarter ending January 31, 2004. On today's call I would like to begin by giving you an overview of what turned out to be just a fabulous second quarter for Vail Resorts, followed by comments about the remainder of the 2003-2004 season, as well as the remainder of our 2004 fiscal year. At the conclusion of my prepared remarks, Jeff and I will be happy to take any questions you may have.

Before we do so, I want to remind you that in conjunction with the new SEC rules regarding the use of non-GAAP financial measures, we are currently using the term reported EBITDA where we used to use the term EBITDA in past years to report earnings for each of our operating segments; namely mountain, lodging, resort which, as you know, is the combination of mountain and lodging segments, as well as real estate. Reported EBITDA for the mountain, lodging and resort segments is defined as segment net revenue less segment operating expense plus segment equity investment income. Real estate reported EBITDA is defined as real estate net revenue less real estate operating expense plus gain on transfer of property plus real estate equity investment income. A full reconciliation of all these non-GAAP measures to GAAP can be found in our press release and on the www.vailresorts.com website in the Investor Relations section under the regulation G compliance tab.

I would like to begin our comments this morning with the fiscal second quarter covering the three months ending January 31. All in all, we could not be more pleased with our financial performance for the quarter. We experienced record second quarter resort revenue and record second quarter resort reported EBITDA. Thanks to an improving national economy and, more importantly, to the fact that no new military conflict has loomed in the wings this year, as contrasted with the Iraqi war looming in the wings in the second -- as we went through the second quarter looking at the third quarter last year it appears that the U.S. travel and leisure industry has begun to make comeback and that Vail Resorts is definitely reaping the results as well. Equally as exciting, is the fact that we are able to post the report numbers despite a some what unspectacular start to the ski season, in terms of visitation relative to last year. You will recall that last season we had abundant early season snow and were actually able to open some of our resorts earlier than originally planned.

This year with one exception we had more or less normal early season snowfall; less than last year in all cases, but we still opened all of our resorts on schedule and as planned. However, counting all five of our resorts together we had ten fewer operating days during the second quarter of this year compared to the same quarter last year; that due to the early openings last year. As for the one exception, snowfall at our Keystone resort was well below average and pre-Christmas visitation was soft. Fortunately, though, a sizeable number of our Keystone skiers do so on season passes, and our season pass sales were a record, up 9% year-over-year. So whether or not they actually skied in the early season at Keystone, for both the skiers and nonskiers alike their money was in our bank account. Perhaps it was also present that in the summer of 2003 we invested almost $5 million to upgrade and enhance Keystone's snow making system, just for potential occurrences as we experienced this this year's early season. As a result, once skiers started skiing at Keystone they experienced the upgrades in snow making and grooming; and since Christmas the skier numbers have been up quite nicely year-over-year at Keystone.

Taking the five ski resorts together, skier days were up less than 1% year-over-year for the second quarter, but we enjoyed a quite healthy 6.2% average increase in realized lift ticket pricing year-over-year; and non-lift ticket mountain division revenue for skier was also up a healthy 6.9%. This latter metric includes ski school revenue which was up 4.7%, dining revenue up 0.9%, retail rental revenue up 9.1%, and miscellaneous mountain revenues up 13.2%. Turning to some of our resorts individually, Heavenly and Beaver Creek are both on a pace to record years in visitation. Each produced double-digit quarter-over-quarter skier visit increases of some 22% at Heavenly and 11% at Beaver Creek, and remember this is with price increases on top. The average realized lift ticket price known as ETP, effective ticket price, at Beaver Creek, for example, was up over 9% quarter over quarter. These two resorts certainly had huge momentum. Beaver Creek's strength comes from the long standing service reputation, great air access at Vail's Eagle airport, an improved high speed lift network with a new and important high speed quad chair lift in installed on Beaver Creek this summer, and the new Ritz Carlton hotel, of course, on Bachelor Gulch which had an average daily rate over the past 75 days approaching $600 per night.

Heavenly, too, continues to outperform our expectations. While inexpensively, Heavenly EBITDA will be up by an impressive one third this year as compared with performance under the previous ownership prior to our purchasing Heavenly less than two years ago. The resort continues to respond well to new management, higher attention to the quality of our products and our individual guest service, and some $15 million in facility and cosmetic upgrades made during the past two summers. Additionally, our marketing efforts, along with the new Heavenly Village at the base of the new gondola, have proven to be successful drivers of additional skier visits as evidenced by the 22% increase in year-over-year skier visits at Heavenly this season; and, of course, that comes in addition to our skier visit growth last year, our first season controlling Heavenly, and that year last year was Heavenly's best ever in terms of lift tickets sold. Simply said, the Heavenly purchase has been nothing less than a triumph for Vail Resorts. All told, Vail Resorts realized a year-over-year increase in mountain division revenue of some 7% for the second quarter.

Every bit as important, our cost savings efforts are well underway. Mountain expenses for the quarter grew less than 3% despite variable expense increases associated with increased volume, increased wages, and general inflation. Demonstrating that the company is currently on track to produce the $25 million of previously identified year-over-year expense savings by fiscal year end, total mountain expenses grew in the second quarter by only $3 million while corresponding revenues grew $13 million in the quarter. Therefore, our flow-through in the quarter of incremental revenue to the bottom line was a stunning 75%. As a result of revenue increases and tight cost controls, reported EBITDA for the mountain segment rose 15% year-over-year in the second quarter, to a record ever $75.1 million; and reported EBITDA margins increased almost 4 percentage points.

In summary, our mountain segment was booming in the second quarter and there were, needless to say, grins all around at our company's five premier North American ski resorts. While we're gratified by the strong ski area performance, we were similarly gratified by the improvements realized in our lodging segment which also performed quite well during the quarter. Lodging revenue for the second quarter increased almost 8% over last year. A large part of the revenue growth was due to the successful renovation of the Vail Marriott, realizing both strong occupancies and a much improved year-over-year average daily rate. Our Beaver Creek also experienced significant occupancy and ADR growth in line with the increase in skier visits we're seeing at the Beaver Creek ski area, as well. Further evidence that our cost savings plans are well underway, lodging expense grew just 1% and lodging flow-through of incremental revenue to the bottom line, quarter-to-quarter, was a mind boggling 86%. Also good news was that lodging equity loss improved some $700,000 year-over-year due to the improving second year operations at the new Ritz Carlton Bachelor Gulch. The hotel had revenue increases and continues to attract additional destination skier visits for the Beaver Creek resort. Since we're using an equity income accounting treatment for our minority interest joint ventures, some $1.2 million in interest and depreciation expense at the Ritz Carlton is recorded on the Vail Resorts equity income line, which is included in lodging reported EBITDA.

The combination of increased lodging revenue, cost savings, the improved operations of the Ritz Carlton in Bachelor Gulch resulted in lodging reported EBITDA growth of $3.1 million year-over-year in the quarter. Excluding the Ritz, which we partially own, of course, but do not manage; our lodging division broke even this year in the second quarter versus a loss last year. Indeed, our Vail Resorts lodging management group is now a seasoned team of hospitality executives which has worked together well, solidified it's strategy and has delivered improved results so far in fiscal 2004. Demonstrating this let me provide you now with some operating is a statistics for our owned hotels. RockResorts owned hotels, again this quarter, responded well in a tough but improving national marketplace. In the second quarter, our RockResorts hotels enjoyed a 4% growth in RevPAR, that's revenue per available room. This came from a 3 point decrease in occupancy for owned RockResorts properties in the second quarter to 58%; down 3 points from the 61% occupancy for the same period last year, but we experienced a healthy average daily rate, or ADR, increase for the owned RockResorts hotels which grew almost 8% or $15 to $114 this year, up from $99 last year.

Results for the non-RockResorts owned hotels, those properties primarily located the at the base of our ski resorts, which include the Vail Marriott, were even more encouraging with occupancy totaling the same 58%, up two points from 56% the year before; but with average daily rate increasing $18 year-over-year from $143 to $161. The result was a whopping 16% increase in RevPAR for the quarter for the non-branded owned properties. These are lodging results with which we are very, very pleased. Now, looking at both our mountain and lodging segments combined, total resort reported EBITDA, again, an all-time record quarter for Vail Resorts in the second fiscal quarter. It was $73.9 million, a $12.9 million, or 21%, increase over last year's resort reported EBITDA. And looking to the first six months of fiscal 2004, reported resort EBITDA is up some $15.4 million year-over-year, up an impressive 49.5%, from $31 million last year to $46 million this year, I remind you these are all same store numbers. There were no acquisitions in the period.

In our view, this is really an exceptional performance. Given that last year also got off to a strong start with second quarter resort reported EBITDA last year also being an all-time record for the company. This was not an easy comp, folks. Remember it was only the war impacted third and fourth quarters that were painful for Vail Resorts last year. So, summing it all up, we are exceedingly proud of our achievement financially in the first half of fiscal 2004.

Turning to real estate. As expected, real estate revenue and real estate EBITDA were both down somewhat year-over-year due to the expected timing and type of sales closed during the quarter. But, while real estate revenue was down close to $17 million in the quarter, reported real estate EBITDA was down only $1 million for the quarter, this is because this year we saw the high margin land development parcel and three high priced high margin condominiums this year, compared to the sale of lower margin and less expensive condominiums and home sites during the same period last year. I will point out that we're still having a great real estate run this year. Indeed, six months year-to-date real estate reported EBITDA not only exceeds the real estate report EBITDA for the same six month period in fiscal 2003, it actually exceeds the entire full year real estate reported EBITDA for the entirety of the 12 months of fiscal 2003. The results for our lodging and real estate reported EBITDA for the quarter were within analyst consensus ranges and our mountain and resort reported EBITDA were both higher than the analyst consensus for the quarter. Indeed, resort reported EBITDA for the quarter was some $6.5 million better than consensus analyst estimates.

Turning to the remainder of the income statement. There are two items that were noted in this morning's press release that I would like to discuss. First, you will recall that we sent out quite a few press releases during the quarter announcing the various milestones in the refinancing of our $360 million, 8 3/4% senior subordinated notes that were formerly outstanding. Again, we could not be more pleased with the outcome on our refinancing. I'm sure you all agree that it was somewhat of a coo for the company. As you know, we successfully tendered for the vast majority of the 8 3/4% notes in January, replacing those notes which matured in 2009 with a new $390 million issue of 6 3/4% notes which mature in 2014. For those of you that missed those lovely little numbers let me repeat, 6 3/4% until 2014. This resulted in a 200 basis point improvement in our interest rate and the extension of the maturity of our senior subordinated notes for five additional years. We also were able to reprice our $100 million term B bank notes, saving 50 basis points on price and extend the maturity of that loan by two years from 2008 to 2010. The favorable terms of these two new financings will result in an annual decrease in cash interest expense of about $5.7 million while providing significant flexibility in the ability of our company to manage our capitalization structure in the years to come.

Of course, to effect these transactions in the second quarter of fiscal 2004, the company recorded a charge of $36.2 million which was comprised of the tender premium, transaction fees and the noncash write off of the unadvertised balance of deferred financing and original issue costs associated with the 8 3/4% notes. It is worth mentioning that at this time we do intend to call the remaining non-tendered 8 3/4% notes in May, which will result in a small additional refinancing charge of approximately $900,000 in the fourth quarter of fiscal 2004. The second item I wanted to add some color to is a write-off associated with a previously disclosed water intrusion and mold damage at the Breckenridge Terrace LLC unit, one of the company's employee housing joint ventures. During the quarter the company recorded a $5.5 million mold remediation charge and an additional $1.5 million capital expenditure accrual for a total liability of $7 million based on preliminary estimates from third-party contractors and forensic experts to fully repair the mold and water intrusion damage. I assure you the company will attempt to mitigate the cost of this remediation from the insurers and other responsible parties. In plain English, we are going to have some pretty stirring conversations with just about everyone connected with the design and construction of this only 4-year-old employee housing building. Should there be any changes in the $5.5 million estimate including the receipt of any recoveries from responsible parties, as deemed probable, we will reflect that in future periods.

As a result of these two charges, Vail Resorts posted a net loss for the quarter of $6.7 million or 19 cents per diluted share. But excluding the mold remediation write-off and the charges arising from the extinguishment of our earlier higher priced debt, the company's net income for the second quarter would have been $20.5 million or 58 cents per diluted share using a normalized tax rate. This is a significant increase over the 47 cents we earned in last year's second quarter and well ahead of the 52 cents analyst consensus EPS estimate for the quarter. In addition to the financials, there were several key highlights in the second quarter in which Vail Resorts made real progress.

In the mountain division, as I said, Heavenly and Beaver Creek are having record visitation; but Vail and Breckenridge are also having record revenue years, at least through Q2, thanks to the aforementioned increases in realized lift ticket pricing. I've already bragged about Heavenly, so let me comment for a moment about Beaver Creek. Last year was a record for Beaver Creek, crossing the 700,000 lift ticket mark and becoming the 10th most visited ski resort in the United States. Thanks in no small part to the new spectacular Ritz Carlton Bachelor Gulch which continues to get rave consumer reviews, as I mentioned. Skier days at Beaver Creek through January were up almost 11% year-over-year. Not only should Beaver Creek cross the 700,000 skier day mark for the full season this year, for only the second time in Beaver Creek's 22 year history, the final number at Beaver Creek will likely be closer to 800,000 lift tickets sold rather than 700,000. Vail, our flagship report, is up nicely despite a decline in skier visits in the month of November. December and January visits were strong and, excluding skier visits associated with season passes which as you know is money already in the bank, Vail's season to date skier visits at the end of January were actually 3% ahead of last year. Again, excluding season pass skiers for the calculation and average ticket price, ETP, for the Vail Resorts rose almost 12% year-over-year. Breckenridge also performed well. Visits for the quarter were flat of course, but ETP increased almost 10% in the quarter. As for our lodging segment we have seen real economic progress at our properties, as I have already described.

RockResorts properties are doing well and RockResorts have been getting much attention. Do I have to mention that if you have heard of Trista and Ryan, then you will probably know that Trista and Ryan's wedding was promoted in a People Magazine cover story and broadcast to some 26 million viewers for two hours on ABC in prime time from, drum roll, please, the Lodge at Rancho Mirage. As you might guess, we have seen a real bump in increased individual traveler room night bookings at the Lodge at Rancho Mirage ever since what might be called a two hour infomercial for the Lodge at Rancho Mirage was nicely broadcast in prime time on ABC. It was a real publicity coo for RockResorts.

Turning to real estate, as I mentioned our real estate business is on track for another wonderful year. Important to note, plans for Vail's New Dawn, the potentially highly lucrative redevelopment of Vail Village and Vail's Lionshead are in full force and we're well on our way to beginning a portion of the project as early as this coming spring assuming the presales materialize as we expect. We continue to make great strides in a noncontroversial and orderly zoning approval process with the town of Vail for these important redevelopment projects. So far, four single family lots associated with the project are currently already under contract for $10.5 million. We expect to close on them late in fiscal 2004 or early in fiscal 2005. We are also in the final throws of preparing to break ground on some 16 to 18 $2 to $4 million townhomes just near the Vail Marriott. We're also planning to break ground on a parking garage near the base of the Vistabahn chair lift in Vail Village, where individual parking spaces are currently being reserved and contracted at a modest little $100,000 each per parking space. We cannot stress enough that after years of planning for Vail's New Dawn, Vail's new dawn is truly at hand.

At Breckenridge, our Mountain Thunder condo project is 100% sold out; we are now turning to work on Phase 2 of the Mountain Thunder project. At at Jackson Hole, we have already sold 17 single family lots that are under contract, which should close early this summer for a new golf community that we are building in Jackson Hole to rival our Red Sky Ranch project in Colorado. Speaking of Red Sky Ranch, Golf Magazine, just a month ago featured the new Greg Norman course at Red Sky as being one of, if not the, best new government course to open in the United States this year; just as it did for the Red Sky Ranch's Tom Fazio golf course last year. Green fees are a modest $200 per round, and some of you on the phone may think about playing Red Sky Ranch this summer; remember that drives can go 30-yards further in the thin mountain air.

Other highlights of the quarter. One, Beaver Creek's home owners, who truly appreciate the finer things in life, voted to provide our company with some $9 million in cash if we would install three new high speed quad chair lifts at Beaver Creek in the next two summers. Needless to say, we accepted their offer. Two, speaking of voting, here is something you rarely hear about happening. The Breckenridge ski patrol, at it's own instigation, asked for a national labor relations board sanctioned election to voluntarily decertify it's union. While small an impact to the company, it nonetheless speaks volumes for the way in which our company interacts with our employees. In an era that's lasted more than two years of cost cutting and belt tightening, since 9/11 of course, very few employee groups have, of their own making in other companies, cast their union membership aside. Vail Resorts is now an all union operation at both our ski resorts and in our hotels. I'm told I said that it is an all union operation. To clarify. Vail Resorts now is an all non-union operation at both our ski resorts and in our hotels.

Three, Keystone had a significant trade expansion approved by the forest service for snow capped served bowl skiing. This takes Keystone from less than 2,000 skiable acres to more than 2,500 skiable acres; and takes the vertical foot drop at Keystone to a number exceeding the magical 3,000 feet. Bet your bottom dollar that we will be heavily marketing this terrain expansion at Keystone for the next few seasons. Finally, fourth, in December, thanks to skilled and tireless work by our in-house and out of house council a jury vindicated our position in the Williams case in Wyoming. There was an award for the plaintiff, which we always expected, but fortunately for us the jury award was but a minimal fraction of the plaintiff's trial demand. No punitive damages were awarded and the final claim is fully insured. With that having been said let me now turn to the the remainder of fiscal 2004 which runs through July 31.

As you know, our year end guidance which we reiterated in this mornings press release calls for a $26 to $36 million year-over-year increase in resort reported EBITDA. Our resort reported EBITDA for the 6 months ended January 31, 2004 was some $15.4 million favorable to last year. This means we have approximately $10 to $20 million more of the year-over-year reported EBITDA to pick up over the last six months of the fiscal year to make our guidance range. So we still have a way to go, but we are off to a flying start. To achieve our targets we will need, as we've said as long as a year ago, to have a strong third quarter for the mountain division and solid fourth quarter for our lodging division. In addition, we will continue to tightly manage our costs in the seasonally slow fourth quarter just as we have been doing all year long so far. So far in the third quarter, so good. As a result, we remain cautiously optimistic; but are not cocky. The month of February was strong, I'm pleased to report, with a slight increase in visitation across our five resorts; but stronger ETP, or price growth, and a healthy increase in mountain revenues as a result.

It is too early to tell about March and April, though. The past few days in March were somewhat softer than we might have hoped for but advanced booking data that we've seen from the next several weeks shows a healthy return to the more normal March April performance we usually enjoy; as contrasted with the negative war impacts on us that we saw last year. As examples, bookings into the Eagle County airport are up 7% over last year for the remainder of the season, and revenue booked in the hotels by our separate reservations system is up by about 5%. Vail lodging in particular is reporting a 33% increase in reservations year-over-year for April. Giving us a little late season boost in the past ten days, Heavenly just got five feet of fresh snow, Vail and Beaver Creek got almost 3 feet of fresh snow. On the other hand, Breckenridge bookings have been a tad soft of late. Add it all up, the answer is we're just going to have to wait and see how March and April perform for our ski resorts; but we are, nonetheless, in good spirits as we do so.

Looking to the fourth quarter our summer bookings into our lodging properties are also way up compared to last year. At this time we are certainly encouraged by what we see for the remainder of fiscal 2004. As for the cost sides, our staff has been hard at work to make sure we deliver the expense reductions and cost cuts that we previously announced, all the while keeping our service levels at world class levels consistent with our reputation as a premier resort operator. We are tracking the savings, we are tracking the guest satisfaction, and the company is performing as expected in both expense management and customer satisfaction which we expect to continue throughout the end of the fiscal year.

In summary, it looks as though some semblance of peace in the world and the improving national economy in the United States have helped start a rebound of the U. S. travel and tourism industry; with a 21% increase in resort reported EBITDA in Q2 and a 49.5% increase in year-over-year resort reported EBITDA for the first six months of 2004, Vail Resorts is certainly seeing a rebound as well. This momentum has only been strengthened for us by our focus on tighter cost management, all the while preserving the excellence of our guest service. We continue to project, without change, that mountain resort EBITDA for fiscal 2004 will range between $120 and $130 million. Additionally we continue to project fiscal 2004 estimates of lodging reported EBITDA to range from $6 to $12 million. The range for total resort reported EBITDA, the mountain and lodging segments combined, remains unchanged at $130 million to $140 million. Our original real estate reported EBITDA guidance range of $13 million to $9 million also remains intact unchanged, although I think it is expected that we will more likely perform in the top half of that range. With regard to net income, our previously announced range was $2 million to $10 million, that's after tax, of course. Excluding the charges for extinguishing debt and mold remediation, that range also remains intact without change. Including the debt extinguishment and mold remediation charges, and using an estimated effective tax rate of 37%, we expect the range to be a net loss of $15 million to $23 million for all of fiscal 2004.

In summary Vail Resorts had a gangbuster second quarter. We expect the company to continue to perform well throughout the remainder of the fiscal year. Our product is excellent, guest satisfaction is high and our costs are in check. In addition, our real estate division is poised for yet another great year. Before we conclude, I would like to comment on the capital expenditure announcement included in this morning's press release. Yesterday our Board of Directors approved approximately $62 million of capital expenditures for maintenance capital and discretionary resort improvements at our ski resorts and hotel properties for calendar 2004. That number is broken out as about $38 million of maintenance capital and $24 million of sustaining strategic or, what we call, ROI capital; where we are making investments because we believe it will bring us additional revenue dollars. This $62 million budget is down somewhat from prior years. It was $66 million in calendar 2003. It was $97 million in calendar 2002.

Nonetheless, we believe it is still more than ample to make certain that Vail Resorts maintains its market leadership position. The 2004 plan includes many exciting initiatives which should be very appealing to consumers, such as three new high speed quad lifts, or six packs, at Beaver Creek and Heavenly; much welcome restaurant upgrades at Heavenly; significant increases in grooming at both Vail and Beaver Creek; as well as the commencement of a renovation of the Lodge at Rancho Mirage in Palm Springs. In addition to the resort capital, I should also point out that some $72 million of real estate related capital expenditures have also been earmarked and approved for calendar 2004, much of which is related to Vail's New Dawn, the redevelopment of Vail Village and the Lionshead base area. After years and years of planning the transformation of Vail is literally at hand. I cannot begin to tell you what we think this will do for visitation and revenues at Vail over time. In addition, it is important to note that we intend to fully recover real estate cap ex in a 2-4 year period with profits on top and that the Vail projects, in particular, could be extraordinarily profitable and lucrative. For more information on what we are planning in Vail I encourage you to visit the website, www.vailsnewdawn.com. At this juncture, I've never been more happy to answer any of your questions.

As you prepare for your questions to Jeff or to me, I need to point out that the comments made during this conference call, other than the statements of historical information, are forward-looking statements 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 to the dates 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 those cost reductions; competitive factors in the ski and resort industries; failure to successfully integrate acquisitions; adverse consequences resulting from the current 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 of economic slowdown; the impacts of SARS or similar unforseen global events on the travel industry and the company; expenses or adverse consequences arising from current or potential litigation against the company; implications arising from the implementation of FIN 46R, FAS150, and any other such new FASB governmental legislation, rulings or interpretations; and the weather. Investors are also directed to other risks discussed in documents filed by the company with the Securities and Exchange Commission. We are now 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 one on your push button phone. If you would like to decline from the polling process press the star followed by the two. You will hear a three-tone prompt acknowledging your selection. If you are using speaker phone equipment you will need to lift the handset before pressing the numbers. One moment, please, for our first question. Our first question is from Ray Cheeseman with Jefferies & Company. Please go ahead with your question.

Congratulations, Adam, those were excellent results.

Thank you, Ray.

Winter Park and Copper under one management team do not seem to have had very much of an impact on you this year. Is that a fair statement?

That is a very fair statement and we had a Board of Directors of meeting just yesterday, and I was pointing out the highlights of the quarter; and I said that one of the highlights of the quarter is I think that our resorts withstood the competitive challenge of a jointly marketed Copper Mountain Winter Park quite well and one of the best tangible pieces of evidence of that is our season pass sales success; sold more than 120,000 season passes. Season pass revenues were up 9% year-over-year. Those are primarily marketed in the state of Colorado where our competition with Copper mountain and Winter Park is particularly fierce.

Next question happens to be at the base of Arrowhead. I know you have a very large piece of real estate right next to the lift. I'm wondering what is the status of being able to monetize that into your profit-and-loss statements? Sold and included in the real estate gains in the first quarter of this year which is-- second quarter this year which is one of the many reasons why our real estate reported EBITDA in the first half of this year exceeds the real estate reported EBITDA in the full year last year. That piece of land that you are talking about will be -- that we will break -- we sold the land, the developer will be breaking ground this spring and building a -- a small high-end condominium project that will just put more skiers on the Beaver Creek mountain, another good thing for Beaver Creek. Lastly, Adam, wanted to mention that I know that there is additional airlift coming into our market this summer. Will that help your Vail Valley and mountain hotels do better this year than last year?

It should, Ray. We have been -- for years we have been very fortunate with Vail's Eagle County Airport. That was true during this winter as well. We added a 6th major carrier in addition to having 757 service on American, Continental, Delta, Northwest, and jet service in from Denver on United; we added 757 service from Philadelphia and Charlotte on U.S. Airways. Last summer for the first time in, gosh, a decade, American Airlines put in a daily 757 from Dallas to Vail in the summer. It was a very successful flight. I'm told 80% load factors all summer long. We're going to have good summer lift into Vail's Eagle County Airport this summer. We are optimistic that will help our hotels in the fourth and first quarters.

One last question. A matter close to your heart, I'm certain, with United appearing to be getting ready to reemerge as a more viable carrier with more options to offer customers to fly to Denver, will that hopefully bring more destination skiers to your resorts?

Well, we have got very close relations with United these days. Our former senior vice president of marketing is now the senior vice president of marketing of United Airlines. He brought back Rhapsody in Blue, my jingle, in their new ad campaign; which I like. He's put in new airplane livery replacing my gray and blue United airplane livery; which I don't like. But all of that's kind of irrelevant because what's really relevant is that if you look at the carriers that are serving Eagle Airport this year; the carrier with the biggest growth in sold seats this year is the combination of United and U.S. Airways. As you may know, U.S. Airways is a co-chair partner of United. And United is really doing well year-over-year, and I suspect that is because last career their bookings were some what affected by their plunge into bankruptcy. United has put some distance between the bankruptcy a year ago and this year. They have also been quite aggressive in promoting Colorado this year. I know that is a major objective of their new senior vice president of marketing who has seen the appeal and the demand that is possible for Denver and Colorado in the winter. So, yeah, I think United is going to do very well and we'll happily ride that coattail with them. At the same time we have very close relations with American and Delta and Continental and Northwest; so we are working closely with all the carriers to our mutual benefits.

Thank you for your comments and great results.

Thank you.

Thank you. Our next question is from Will Marks with JMP Securities. Please, go ahead with your question.

Thank you. Hello, Adam.

Good morning, Will.

I've got a few little questions here. One is there -- can you repeat those--you call them ETPs for each resort, as well as the whole company? Did you give those on every resort?

We gave them on several of the resorts and we gave them for the whole company, and I will have somebody--since they are buried in a 12-page script I will have somebody pull out the numbers that we did announce publicly--let me answer your second question then I'll give you the specific numbers resort by resort.

Sure, on the real estate--so the $72 million of real estate cap ex, and you said that that would be realized or you would get that back over what did you say, 2 to 4 years?

That's what I think.

And so should we look at the real estate guidance that you gave for this year--now you're saying that the upper half of the $13- $19--can we look at that as sort of a run rate of what you'd expect every year?

No. If we -- if we succeed with this Vail's New Dawn project, I think there is enormous hidden value in our real estate that the street is not currently capturing. We could literally be seeing north of $100 million in real estate profit from a lot of the projects in which we will be breaking ground in the next 36 months. And while it might take us a little while to realize that because we can't report those contracts as revenue until we close on the contract, and the construction cycle is 18-24 months on these projects. If you fast forward about two years, I think you could see us doubling our real estate profit compared to where it's historically been. You know, it has been $10 million to $15 million for the past five years. This past year was $17.7, if I'm not mistaken. And I think that, not necessarily in fiscal 2005, but in fiscal 2006 we will have in bridge terms it is called a jump shift. I think we're going to take our real estate profitability to a whole new level. Probably double where we have been and that is because of the incredibly lucrative real estate projects that are at hand in Vail.

And this --

So the no was a good no. It is to say that the upper half of our current range is almost a radical understatement of what our real estate profitability might be looking forward two, three, four years. Going back to your first question, Will. Here is what we announced. We announced, obviously, the ETP for the company was up 6.2% year-over-year. We announced the ETPs for three of our five reports. Beaver Creek up 9%, Breckenridge up 10%, Vail up 12%.

Okay. All right, and I'm sorry those are for the quarter?

Those are for the quarter and the year because the quarter was November 1 and none of our ski resorts were open in October, September or August.

Great. Okay. And just last thing on the real estate question. So your balance sheet shows $112 million of real estate and so that real estate itself should -- is what could realize that profits that you talked about, right, or do you have some options on land, too, or --

What I'm saying to you is that for the last seven years, we-- in sitting down with people like you, Will, have said yeah, go ahead, value our real estate at book, maybe 10% over book, maybe 20% over book. That is because the Vail real estate approvals were way out in the distance. Now, the Vail real estate approvals are in hand. In addition to that, the Jackson Hole golf community breaks ground this summer. We've already sold 17 lots. In addition, we have enormous opportunity in both Breckenridge and Keystone. We are currently negotiating with two potential partners for a massive land sale at Keystone. Remember, we only got control over our destiny at Keystone just a few months ago when we dissolved the long standing joint venture with Intrawest at Keystone. We could see land sales at Keystone alone of between $10 and $20 million. Put that all together, I think that our real estate being valued at book is now way off the mark, and I don't know if it should be 50% over book or double book, or 150% over book; but that is something that we will be working very hard to analyze over the next 90 days, and I'm sure that as we talk to the investment community in general we will try to give you some hard facts about -- about what we think the value of our land may have become.

Great. And then just one final question. On the revenue side, second quarter resort revenue I believe was up 6.9%.

Right.

I realize you're not giving guidance on the third quarter. But it is safe to say--or I'm asking you is it safe to say that the comp for the third quarter is much easier than it was for the second quarter, is that correct?

Yes, that's correct.

That's it. Thank you, Adam.

Thank you. Ladies and gentlemen, if there are any additional questions at this time, please press the star followed by the one. As a reminder, if you are using speaker phone equipment you have to lift the handset before pressing the numbers. One moment please for our next question. Our next question is a follow-up from Ray Cheeseman. Please, go ahead.

I want to make sure my memory is not faulty. If I remember the third quarter last year, we had about a 15% degradation in mountain EBITDA during the quarter because of the war, so we would expect to go back to flat plus something. Would that be a reasonable set of expectations, do you think?

You know, that would be a reasonable set of expectations. Where we're going to hit in the third quarter-- we've completed February. February was just fine. I don't think it was up 15%, but it was up double-digits. First 8 days in March were slow. But bookings for the second two weeks of March, which is spring break, and the first week of April are through the roof. I think, you know, I have been nothing but glowing in this call. So I would like to tell you that I'm glowing all the way through, and I am, but I think I should caution you not to raise estimates outside of the current guidance ranges.

Through February -- sorry, through January, resort EBITDA is up $15.4 million. For us to hit the guidance range, we need to beat last year by another $25 million to $35 million -- sorry, $25 million to $35 million in total; so another $10 million to $20 million in the fourth quarter. So our optimism about the third quarter I think is already baked into the guidance that we have previously issued and we are off to a very good start. Plus $15 in the first 6 months, but to make the middle of the guidance range we got to do another $15 in the second six months. So, you know, everybody's -- I think your comments, Will's comments, share managements expectations that we ought to have a very good third quarter; but we needed a very good third quarter to make the guidance range that's already there. So I wouldn't be -- I wouldn't be taking estimates up quite yet. We will see how we do. But we are quite bullish about the year.

The only last question I had was with the glacier that seems to be building itself Lake Tahoe with 10-20 feet of snow monthly, might you extend the ski season there or are you going to close and get on with your construction plans this summer.

We are not actually doing that much construction at Heavenly. We are just putting in a high speed quad lift and fixing one restaurant. That is relatively easy--and a lot of little stuff; a lot of little stuff I'm pleased to report from environmental mitigation effort, that the community will be especially receptive to Lake Tahoe as one of the greenest communities I have ever seen; because of their very legitimate passion about preserving that beautiful blue color in Lake Tahoe. But given the projects that we are undertaking, whether we start them April 15 or June 15 doesn't really matter; we can get them all done by next ski season. We have had internal conversations about extending the ski season at Heavenly. There is a ton of snow. I think they got four foot in a single day sometime in the last week or two. But we haven't made any decisions yet. We'll take a look at bookings, talk to the hotel operators in town and decide what we want to do later in March.

Thank you.

Thank you. Our next question is a follow-up from Will Marks. Please, go ahead.

Yes. There has been a lot of talk about-- and you commented a little bit on this, I think, but weakness in day visitors from Denver. I just wondered if you can just qualitatively or quantitatively touch on that a little bit.

Yeah, I sure can Will. There was weakness before Christmas by day skiers from Denver, and doesn't matter, because we sold them all season passes; so whether they ski or don't ski or how many times in the season they ski is kind of up to them. The snow was not earth shattering in the first few months or first six weeks of the ski season this year, and the Denver skier that has so much great skiing just a short drive away is understandably picky. They can pick and choose and have the great days and they know when they are. So, day skiers were way off in the first six weeks. They're way up post Christmas but, as I said, other than the selling them a hot dog, what we sell them are season passes. And our season pass revenues as of October 31 --or I guess as of November 15, is when we cut off sales; were up 9% year-over-year, so those dollars were banked.

Interestingly if you look at our various lines of business, you know, just sort of proving that this actually all does sort of tie together intellectually. If you look at the weakest of our various market-- lines of business, as we call them in the mountain division, while our retail rental revenues were up almost 10% year-over-year; our on mountain dining revenues were up less than 1%. That is an indication that we sold fewer hamburgers, but we didn't sell fewer lift tickets. The way we think of it, we sold fewer individual lift ticket scans, but in terms of dollars collected; as I said, the dollars collected from the season pass, or day skier, market was up 9% year-over-year. And I think that is yet another great vindication of our strategy to convert the day skier market from individually purchased tickets to season passes.

Okay, that's great. Just one final question. Can you repeat-- you gave three parameters for the rest of the year. Bookings-- I think you said bookings into Eagle are up 7%. Is that for the rest of the year?

That is for kind of March and early, the first few days of April.

And then the lodging --

Cenrest bookings into all of the various lodging properties, not just our own, were up 5%; and I mentioned that just in the month of April, just for the Vail resort, lodging bookings as reported to us by the lodging community from all booking sources were up 33% year-over-year.

Perfect. Okay. Thanks, Adam.

Thank you. Once again, ladies and gentlemen, if there are any additional questions at this time, please press the star followed by the one. As a reminder, if you are using speaker phone equipment you will need to lift the handset before pressing the numbers. Mr. Aron, we have no additional questions at this time. Please, continue with any closing comments.

Thank you, operator. Thank you, everybody, for participating. I think the best way to close the call is to reiterate that Vail Resorts is quite a resilient company. We have weathered and taken in stride, for the past two years, the post 9/11 and Iraqi war climate. We've obviously had a very strong first half of the current fiscal year. Signs are looking good for the remainder of the ski season. Barring some unforeseen event, we are very upbeat about the remainder of the fiscal year. Thank you, one and all, for participating. Should you have any further questions, please feel free to contact me, Jeff or Leslie directly. Leslie's phone is 970-845-2958, her e-mail is lroubos@vailresorts.com, that is lroubos@vailresorts.com. We will, of course, be checking for voice and e-mail messages while traveling back to Colorado. Thank you one and all and goodbye.

Ladies and gentlemen, this concludes the Vail Resorts second quarter earnings conference call. If you would like to listen to a replay of the conference, please dial 303-590-3000 or 800-405-2236; followed by access number 571246. Once again, If you would like to listen to a replay of today's conference please dial 303-590-3000 or 800-405-2236; followed by access number 571246. Once again, this concludes today's conference. We thank you for your participation and at this time you may disconnect.