Vail Resorts Inc (MTN) 2005 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Vail Resorts second quarter 2005 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 at any time during the conference, please press *0. As a reminder, this conference is being recorded today, Thursday, March 10, 2005. I would now like to turn the conference over to Mr. Adam Aron, Chairman and CEO of Vail Resorts. Please go ahead, sir.

Thank you and good morning, everybody. Welcome to the Vail Resorts fiscal 2005 second quarter earnings conference call and simultaneous Web cast, both open to the public and press at-large. As you know, I’m Adam Aron, Chairman and CEO of Vail Resorts. Joining me here in Vail on the call this morning are Jeff Jones, our SVP and CFO, and Leslie Roubos, our Director of Corporate Financial Planning and Investor Relations.

It is nothing but smiles in the Vail Valley today. Earlier this morning we released earnings for our second fiscal quarter ended January 31, 2005, which I’m understandably pleased and excited to announce our record second quarter results. The record second quarter results, I might add, for the third consecutive year in a row.

On today’s call I’d like to begin by giving you an overview of our just completed second quarter, followed by some comments about unlocking shareholder value from our Lodging and Real Estate Development businesses as well as provide you with some color on the remainder of the 2004-2005 ski season and the remainder of our 2005 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 has been the case for some time now, we’re currently using the term “reported EBITDA” where we use the term EBITDA in past years to report earnings for each of our operating segments, namely Mountain Lodging and Resort which, as you know, is the combination of the Mountain and Lodging segments as well as Real Estate. Reported EBITDA for the Mountain Lodging and Resort segments is defined as net revenue, less segment operating expense plus segment equity investment income.

Real Estate reported EBITDA as defined as Real Estate less net revenue, less Real Estate operating expense, plus gains 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 this morning’s press release and on the VailResorts.com Web site in the Investor Relations section under the Regulation G Compliance tab.

So, with good news to share, let me turn to the fiscal second quarter covering the three months, November, December and January. Simply stated, we just could not be more elated with our financial performance for the quarter, especially when this is combined with real strategic advances that were made in the quarter and which should put us well in the march to generating significant shareholder value in the next few years.

Looking to the quarter’s performance, we achieved record second quarter Resort revenues and records, second quarter Resort EBITDA. Our success continues to stem from our long-standing industry leadership position from the world-class quality vacation experiences we offer our guests and from a skilled marketing and sales effort. This success was manifested in a healthy increase in our effective ticket prices, known in short as “ETP”, at all five of our ski resorts, as well as a modest growth in skier visits and robust Ski School patronage. The increase in ETP was triggered by both absolute price increases at the window as well as an improved mix of destination, including international visitors who tend to pay higher prices for lift tickets in addition to spending more an ancillary businesses, including Ski School and food and beverage.

Revenue growth in our Lodging business was also strong, modestly outpacing the revenue growth of that on our mountains. Our ski resorts continue to benefit from their own world-class reputations, of course, but they also benefit as well by the competitive advantage garnered for Vail Resorts by our lodging expertise to the extent we can better fill our ski resort base area owned and managed hotels and condos, the better job we correspondingly will be doing in attracting more and more skier and snow boarder guests.

In addition to filling more of our hotel rooms, achieving reasonable ski lift ticket price increases and seeing our Ski School business rise, we’re gratified that four out of our five ski resorts saw increased visitation during the quarter relative to last year. If we can exclude just a few days around the Thanksgiving holiday around Vail, actually all five of our resorts would have seen skier day growth in the quarter. The snow has been great at Vail for quite a while now, but back on Thanksgiving Thursday in mid-November it was marginal at best.

Taking the five ski resorts together, skier days were up almost two percent year-over-year for the second quarter and we enjoyed a very healthy five percent increase in the average realized lift ticket price, or ETP. In addition, non-lift ticket Mountain Division revenue per skier was up seven percent. This latter metric includes our Ski School revenues being up eight percent, dining revenue up six revenue, retail rental revenue up two percentages, and other on-mountain revenues up 26 percent during the quarter, all of which is very encouraging news for fiscal 2005.

A big reason for our growth, as you might expect, stems from rises in our international success. International visitors to our five ski resorts were up about 13 percent in the quarter, but just as important, international visitor growth at the five ski resorts just in the month of January was up about 21 percent. January is a better indicator for the remainder of the ski season than would be either December or, especially, November performance.

Turning to our ski resorts one by one, we won’t know, of course, until April who it all will come out, but as we said at the end of the January quarter, it would appear to us that Heavenly and Beaver Creek are both currently on a pace where they could hit a record year in visitation for the season, which would be the third record year in a row for each of Heavenly and Beaver Creek. Breckenridge also is having a great year and has a fighting shot of having its best ever season in terms of visitation as well.

Speaking of Heavenly, as I’ve said often before, what a buy Heavenly was for us. Heavenly continues to outperform our initial expectations. Heavenly’s revenues this quarter increased about seven percent. The resort continues to respond well to our product and guest service initiatives. The approximate $25 million of facility and cosmetic upgrades made by Vail Resorts during the past three summers have been handsomely rewarded by expected EBITDA this season at Heavenly of an amount almost 50 percent higher than that which was achieved by prior ownership in its last season just three years back.

At Beaver Creek, now ranked by “Ski Magazine” as the fourth best ski resort in North America, ahead of both Whistler and Aspen, I’m proud to say. Beaver Creek continues to benefit from the two-year old Ritz Carlton in Bachelor Gulch. The Ritz attracts - - how can I put it diplomatically - - a free-spending affluent clientele that has helped to drive destination visitors up at Beaver Creek in the second quarter. There has been one statistic driving home this point of the pampering our Beaver Creek guests are, in fact, willing to pay for. In the second quarter we enjoyed about $21 of Ski School revenue for every lift ticket we sold at Beaver Creek. That is 50 percent higher than the comparable number at Vail and about triple what we would take in per skier day in our Ski School businesses at either Breckenridge, Keystone or Heavenly.

Increased visitation at Keystone is also encouraging for us as our plan to revitalize the Keystone Resort clearly appears to be paying off for us this year.

Breckenridge II continues to show its appeal as the nations second most visited ski resort.

Vail days are down, again, the Thanksgiving effect I mentioned earlier, but skier days are only one component of the equation. Realized lift ticket pricing is higher at Vail than at any of our other four resorts. Vail continues to be our most visited and most profitable ski resorts.

Importantly, since one takes dollars, not skier days, to the bank. Revenue was up in the quarter at each and all of our five ski resorts. Taken together, Vail Resorts realized a year-over-year increase in the Mountain Division with revenues of seven percent for the second quarter.

Every bit as important as revenue growth is our continued careful expense management. This year, while containing costs, we’re prudent to do so, we also consciously chose to implement visible guest service initiatives to drive revenue growth. Even with the increased costs associated with this conscious choice, we increased grooming by 33 percent in a single year at both Vail and Beaver Creek, to significantly increase snow- making at Keystone and Beaver Creek, as well as to pay for the operation of three new high-speed lifts at Heavenly and Beaver Creek this year, Mountain expenses for the quarter grew only six percent. Total Mountain expenses grew in the second quarter by only $7.5 million, while corresponding Mountain revenues grew $14.1 million in the quarter, therefore, Mountain reported EBITDA was up. Our flow through in the quarter of incremental revenues to the bottom line was an eye-catching 47 percent. This is, as we all know, a high-fixed cost, low variable cost business.

As a result of revenue increases and continued cost controls, reported EBITDA for the Mountain segment rose nine percent year-over-year in the second quarter to a record ever of $82.1 million and Mountain reported EBITDA margins increased almost a full percentage point.

We were similarly gratified by the continued improvements realized in our Lodging segment, which also performed extremely well during the quarter. Lodging revenue for the second quarter increased almost nine percent over last year. The revenue growth was driven by strong occupancies, as well as increased average daily rate, or ADR, and our owned hotels. In addition, increased occupancies drove growth in the ancillary revenues such as dining and spa activities.

Further evidence that we continue to manage costs smartly is that Lodging expense grew just 2.6 percent, resulting in a flow through of incremental lodging revenue to the Lodging bottom line of an impressive 70 percent.

As has been my quarterly routine, let me provide you with some operating statistics for our owned hotels, RockResorts of per available room occupancy times rate. Occupancy increased two points in the second quarter to 60 percent and we experienced an ADR increased of 1.4 percent, or $3.00, to approximately $199.50 this year. Results for the non-RockResorts branded hotels, those properties primarily located at the base of our ski resorts, were also strong with revenue growth of 6.4 percent, occupancy up three points from 58 percent the year before, to 61 percent in the second quarter this year and with an average daily rate increasing $2.00 year-over-year to $163.

Also, great news is our December 2004 sale of our 49 percent share of the Bachelor Gulch Resort, LLC, the entity which owns the Ritz Carlton Bachelor Gulch. While we no longer own a portion of the hotel, rest assured it continues to attract the very profitable guests I described earlier to our Beaver Creek Resort. In selling our interest in the hotel, we recorded a $5.7 million gain on the sale of the equity investment. We also realized $2.5 million in gain of land sale revenue which had been previously deferred.

Aside from that immediate profit, there are two other meaningful benefits of the Ritz Carlton sale which, of course, was both contracted and closed in the second quarter. First, because we used the equity method of accounting for this joint venture, we report our share of this JV’s depreciation and interest on our reported EBITDA line. While the hotel, itself, has had positive EBITDA after adding in interest and depreciation, we recorded, as part of Vail Resorts Lodging and Resort reported EBITDA lines, a loss of $1.2 million in the second quarter, a negative $2.8 million for the first six months of fiscal 2005 and negative $3.3 million for the full year of fiscal 2004. Needless to say, with the hotel having been sold, our EBITDA line will no longer be reduced by these equity losses.

The second benefit of the Ritz sale is the precedent that it has created and the fact that that precedent affirms what we have been saying publicly since September. We believe we can continue to sell some of our owned hotels, in most cases, keeping management, if we wish, at an EBITDA multiple far, far higher than that at which Vail Resorts stock currently trades. Such an arbitrage opportunity, we continue to monetize and unleash serious shareholder value.

More evidence of our success in the hotel sale arena is La Posada, the RockResort in Santa Fe, New Mexico, that we manage, but do not own. We brokered its sale during the second quarter in December to a new ownership group that gave us a new decade-long management contract. The price in that transaction affirms my comment that the hotels that we own have been, in fact, and have the potential to sell at multiples that would, indeed, create arbitrage success for Vail Resorts shareholders if and as repeated.

The combination of increased Lodging revenue, continued expense management and the sale of the Ritz Carlton Bachelor Gulch resulted in the second quarter of Lodging Resort EBITDA growth of $2.8 million year-over-year in the quarter from a loss last year of $1.5 million in the quarter to a gain of $1.3 million in the quarter this year.

Turning to total Resort reported EBITDA, the combination of our Mountain Lodging segments, total Resort reported EBITDA was another all-time record quarter for Vail Resorts in the second fiscal quarter with $83.3 million this year, a 13 percent increase over last year’s record second quarter Resort reported EBITDA result.

In our view, this really is an exceptional performance for our company, especially when considering that the last two years have also gotten off to strong starts with all-time record second quarter Resort reported EBITDA in fiscal 2004 and again in fiscal 2003.

As the Chicago Bull’s fans from the 90’s, of which I am one, would recall, Vail Resorts has put together in the second quarter a three-peat. Some of our competitors cannot make that same claim. Let’s now turn to our Real Estate business. All I can say is “what a year, what a year, what a year”. The in-quarter financial performance was just as expected, revenue raised some $375,000, including the $2.5 million in previously deferred land sale revenue associated with the Ritz sale. Reported EBITDA fell about $0.5 million, again, as expected, compared to last year due, primarily, to the sale of higher margin properties during the second quarter of last year. The in-quarter Real Estate financials are hardly important in looking at our Real Estate activity in the quarter. As most of you know by now, these are truly extraordinary times for our Real Estate Division. Vail’s New Dawn, the redevelopment of Lion’s Head in Vail’s front door, is at hand. In January we had a simply staggering success in selling out Gore Creek Place and generating huge demand for the Arrabelle in Vail’s Lion’s Head. More about that in a moment.

As a result of all that I’ve mentioned, the Company reported second quarter net income of $32.2 million, or 89 cents per diluted share, compared with net loss of $6.7 million, or a loss of 19 cents per diluted share, for the same period last year. If we exclude the 2005 gain on the sale of equity investment for the Ritz Carlton Bachelor Gulch, excluding the charges for the early extinguishment of debt in both fiscal years, - - remember, we refinanced our Senior Bank Facility in January of 2005 and refinanced our Senior Subordinated Notes in January of 2004 - - also, if we exclude the fiscal 2004 modal (ph) remediation charge and using a normalized tax rate to get a better picture of how the Company is actually doing, the Company’s second quarter net income still would have been $28.4 million this year, or 79 cents per diluted share, for fiscal 2005 as compared to what would have been net income of $20.5 million, or 58 cents per diluted share, in fiscal 2004, representing a 38.5 percent improvement in net income in EPS, not too shabby.

Now, briefly, as of the six months ended January 31, 2005, we are quite pleased with our first half performance. Resort reported EBITDA was up $9.1 million, or almost 20 percent, compared to the prior year, again, another record performance for Vail Resorts. The numbers related to our six-month performance are clearly spelled out in this morning’s press release.

Let me focus your attention back to our opportunity in Real Estate. Our Real Estate business is well underway on the largest, most lucrative and, undoubtedly, the most important and most exciting projects in our company’s history. Specifically, plans for Vail’s New Dawn, the sweeping and potentially lucrative redevelopment of Vail Village and Vail’s Lion’s Head are in full force. Pre-sales of condominiums, town homes and $100,000’s of parking spaces materialized in far greater numbers than we ever could have expected.

One example is the eight-fold over subscription on the first day we took reservations for the Arrabelle at Vail Square. On January 10th we had 573 $100,000 deposit checks or wires in hand for the available 67 condos. Vail Resorts had demand in Vail for approximately $1.3 billion of condo product on the very first day that contracts were being accepted, indeed, between Gore Creek Place, which is sold out in the Arrabelle, which is fully reserved out, we have sold or reserved about $290 million of new Vail residences. Prices average $1005. per square foot at Gore Creek Place and $1152. per square foot at the Arrabelle. Depending, of course, on all of its construction costs, we could earn as much as almost $3 per share pre-tax just from these two buildings. Ground-breaking begins on both in a few weeks time. Construction is approximately two years. Needless to say, we are very well aware that we own more developable land just hundreds of yards away from Gore Creek Place and the Arrabelle. Once more, cheerfully, there appears to be ample, inexpensive, non-recourse construction debt available to the Company to finance these larger and profitable projects.

The enormity of the demand for the Arrabelle has made us rethink our development strategy in Vail. We now intend to do more ourselves and as soon as we can. The market is hot and we intend to capitalize on the market’s appetite for real estate here in the mountains. We are ready and rearing to go in developing these additional land parcels. If all goes well, I personally believe that their profitability has the potential to easily outshine that of the Arrabelle itself. Needless to say, to the extent we are able, we will be moving immediately to capitalize on this opportunity.

We’re also seeing real estate success elsewhere, I might add. At Breckenridge we are poised to begin Phase II of the Mountain Thunder condominium project this summer of which 17 residences have already been sold in Breckenridge. At the new golf community that we’re building in Jackson Hole, we’ve already sold about 70 percent of the single-family lodges and cabins there at attractive prices. At Red Sky Ridge, here in Colorado, we just announced that we’ve attracted one of the world’s most respected teaching pros, David Ledbetter, to run our golf academy at Red Sky Ranch. That, in turn, could lead to an acceleration of cabin and home site sales at Red Sky, which was held by “Golf Magazine” a few months back as having Colorado’s number one and number four best golf courses in the state.

I have long articulated that Vail Resorts is a resort operator first and only a real estate developer second. That is still, in fact, true. Given the Arrabelle, Gore Creek Place and what’s coming additionally in Vail and elsewhere, our shareholders should expect to see impressive and meaningful gains over the next two to five years as we believe our real estate, which has been so often valued at book or just slightly above book value, is on the verge of being monetized at a huge - - I repeat - - huge premium to previous third-party valuations of our land holdings. We’ve been predicting this publicly for at least a year now and I would still point out that, even with the Arrabelle success notwithstanding, we are just scratching the surface of our potential to create shareholder value from our real estate expertise, especially in Vail, North America’s best and the United States most visited ski resort.

Another positive advance for Vail Resorts in the quarter was our continued effort to strengthen our balance sheet, increase our flexibility and enhance our credit profile. I’d like to briefly turn the floor over to Jeff Jones, our CFO, to discuss the successful debt refinancing we completed this past quarter. Jeff?

Thank you, Adam, and hello, everyone. Over the last year we’ve made great strides in significantly improving the capital structure of the company. In the second quarter of last year, as you may remember, we refinanced our 8.75 percent Senior Subordinated Notes due in 2009 with 6.75 percent notes due in 2014, saving in excess of $5 million in annual cash interest costs. During the second quarter of fiscal 2005 the Company completed a highly successful refinancing of its Senior Bank Credit Facility. Included in the refinancing was the complete payoff of the Company’s $100 million term B loan, as well as the expansion the Company’s Revolving Credit Facility from $325 million to $400 million. The valuable nuance here is that the Company will no longer have to pay interest on $100 million of borrowings under the old term loan just in order to preserve borrowing capacity.

In addition, and importantly, the maturity of the Revolver was extended from June 2007 to January 2010. Other changes were also made, all favorable to the Company, including a reduction in pricing on interest margins and commitment fees and expanded flexibility in the Company’s ability to make certain investments and distributions. We believe interest savings from the new facility will be immediate and sizable.

At the end of the second quarter, as a result of this transaction, we were able to de-lever by approximately $75 million without losing material borrowing capacity. Additionally, we now have the complete flexibility to finance these exciting real estate projects that Adam was describing on a non-recourse basis taking advantage of incredibly strong real estate financing markets.

As a result of this transaction, the Company did record a $612,000 pre-tax charge in the second quarter, comprised of the non-cash write-off of the unamortized balance of deferred financing costs associated with the term B loan, which we think is a very small price to pay - - to put it mildly - - for the interest savings, increased flexibility and lengthened tenure of the new Revolving facility.

Adam?

Thank you, Jeff. Now, let me turn to the remainder of fiscal 2005, which runs, of course, through July 31. As you know, our year-end guidance, which we reiterated in this morning’s press release, called for a range of $7.4 million to $15.4 million year-over-year increase in Resort reported EBITDA. Our Resort reported EBITDA for the first six months of fiscal 2005 ending January 31st was $9.1 million favorable to last year. This means we need to perform just at about last year’s level over the next six months of the fiscal year to make our guidance range. We feel that we are in pretty good shape to do so, as you might expect. Air bookings into Vail's EU county airport are up nine percent year-over-year for the month of March. Bookings made for lodging through our own separate reservations business are up about 18 percent at our four Colorado ski resorts, although other distribution channels for these same lodging properties are not necessarily performing as well as our own internal reservations engine. At Heavenly, with some 18 feet of snow between Christmas Day and mid-January, the snow has been so robust, we announced that we were going to keep the Heavenly ski resort open a few extra weeks in the ski season. Heavenly will be open to the public for skiing into the month of May.

Even though bookings appear strong for the balance of the ski season and the remainder of the year, I would respectfully suggest that you not be too optimistic as you yourselves look ahead. We don’t know for certain what March and April would hold, of course, and just like every other public company, we are facing some fairly hefty Sarbanes-Oxley 404 compliance costs still to come this year. Sarbanes-Oxley 404 auditing and legal costs are likely to eat up a healthy chunk of the positive operating results we would otherwise expect to generate through July.

What it all boils down to is this, we’re just going to have to wait and see how March and April perform for our ski resorts, but, nonetheless, we have every reason to be extraordinarily optimistic as we do so.

In summary, here’s the deal as it relates to Vail Resorts. Resort reported EBITDA in Q2 is up 13 percent. Resort reported EBITDA for the first six months of fiscal 2005 was up 20 percent, all on a same-store basis. Hotel sales look to be possible and advantageous, if they are to occur. Real Estate sales are through the roof. This, indeed, is a good news day for Vail Resorts.

At this time, we are reiterating, without change, the EBITDA guidance we provided you all in September. We’re also reiterating our previously announced net income range to which, of course, one would have to add the tax effective second quarter gain on sale of equity investment from the Ritz Carlton sale and the loss on the extinguishment of debt. Our press releases dated March 10, 2005 and September 30, 2004 have more detail.

Before concluding, I’d like to just comment on the capital expenditure announcement also included in this morning’s press release. Last month our Board of Directors approved approximately $65 million of new resort related capital expenditures for maintenance capital and discretionary resort improvements at our ski resorts and hotel properties for calendar 2005, plus about $3 million of roll-over capital which was budgeted, but not completed, in calendar 2004.

Of the $65 million, we would consider $34 million of that to be maintenance capital with the remainder being our making investments where we believe we will see, in turn, additional revenue and additional profits. These investments will allow Vail Resorts to maintain its high quality standards for which we have become world renown. Highlights of these expenditures include three new high-speed chair lifts at the Beaver Creek, Breckenridge and Heavenly ski resorts, snow-making upgrades at the Vail, Beaver Creek, Heavenly and Keystone resorts, ski trail enhancements at Vail, Heavenly, Keystone and Breckenridge, restaurant and/or hotel renovations at Vail, Beaver Creek and Keystone and upgrades to central reservations, marketing database and e-commerce booking systems among other projects.

In addition to the Resort capital expenditures, our Board also approved some $138 million of real estate related capital expenditures for calendar 2005, much of which is related to Vail’s New Dawn, the redevelopment of Vail Village and the Lion’s Head base area, as well as other projects across Colorado and Wyoming.

Please note, though, that net cash outlays for our Real Estate business are expected to be significantly less for the calendar year, maybe a fifth to a third of that $138 million number. We should have net cash in-flows thereafter given the Company’s belief that it will be able to secure attractive non-recourse financing for the major Vail projects, in addition to being able to put to use real estate deposits and other land sale proceeds.

So you now have the scoop. At this juncture, we’d be 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 statements of historical information, are forward-looking statements that are made pursuant to Safe Harbor provisions and the Private Security 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, competitive factors in the ski resort industries that successfully integrate and operate future acquisitions, adverse consequences resulting from the existing SEC formal investigation, failure to commence or complete the planned development projects and/or achieve the anticipated short or long-term financial benefits from the development and/or an inability to obtain financing in favorable terms, adverse change in the real estate market or an inability to sell owned hotels on attractive terms, terrorists acts upon the United States, a threat of or actual war, economic downturns, expenses or adverse consequences rising from the current potential litigation against the Company, implications arising from any new FASB government or legislation rulings or interpretations, reliance on government premise for use of Federal land and no other. 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 *1 on your push button phone. If you would like to decline your question, please press *2 on your phone. Your questions will be polled 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 your first question. Your first question comes from Bryan Maher with Calyon Securities. Please go ahead.

Good morning, Adam and Jeff. Good quarter. Can you elaborate a little bit on the additional real estate that you have to build on at Vail and whether or not that land is currently owned, optioned or kind of available for sale that you would execute on? Can you tell me if the strong trends that you’re seeing at Vail can be carried over to future real estate projects at Keystone, Breck and Beaver Creek?

Can I elaborate? How much time do we have, Bryan?

We’ll be hearing more on Monday, I’m sure.

Yes, you will. It’s our investor trip for those of you who are not yet coming and you’re all invited. There are a handful of parcels, all big, all important. We’re already quite public on a project called “Vail’s Front Door”, the building of a whole new linkage between Vail Mountain and the town of Vail and Vail Village. We believe that we have a fighting shot of generating more than $100 million of real estate revenue through the sale of town homes right by the Vista chairlift going up Vail Mountain. Back in Lion’s Head, you may recall, for those of you who know Vail well, that immediately to the west of where the Arrabelle is located, is the Vail Marriott. Immediately to the west of that is a big piece of land where we could build a condominium complex, time-share complex or condo hotel complex, about the same size as the Vail Marriott itself. I would not be surprised if we could get somewhere between 175,000 in 200,000 sellable square feet on that site.

Remember, the construction costs here are less than half of what the current market prices seem to be in real estate. Just across the street from the west day lot is our current maintenance yard. It is a big parcel of land, several acres in size. If we were to spend the $10 million it would cost to move the maintenance facility to some other location, that would allow us to, probably, build another 200,000 plus sellable feet of residential and sellable real estate, again, all quite proximate to the lifts going up the Lion’s Head area in Vail. Again, construction costs are a fraction of what the market is paying. With 573 contracts in hand on just the first day we’re taking contracts for 67 condos, it would lead you to believe, that at $1152 a square foot for the Arrabelle, it would lead you to believe two things. One, that our company has real expertise in zoning and designing attractive buildings that meet with favorable consumer response and, second, that demand is deep - - I mean deep - - for new residential product in Vail near the lifts.

As for whether it’s extendable to our other resorts, I think we’re already seeing some signs that it is extendable to our other resorts. At Jackson Hole, we’re 70 percent sold out on our golf community. At Breckenridge, we’re about 50 percent sold out for Phase II of the Breckenridge Mountain Thunder Lodge. That has only been underway for a month now. Prices at these other places are not Vail prices, but they are above construction costs and, as you know, we have considerable land holdings at Keystone and Breckenridge especially. We are zoned and entitled to proceed at Keystone and Breckenridge with more product. I’m actually quite bullish about all of our mountain resort holdings with Vail being the most obvious, most lucrative low-hanging fruit.

There’s a reason for all of this. It’s not just that Vail is the number one ski resort in North America. It’s also the fact that, if you look at just plain old fashion population changes, baby boomers are getting older, much to my chagrin - - personally, not professionally. The population in the United States of the age bracket 50 to 64 will grow from, I believe, its 35 million people to 55 million people between the years 2000 and 2010. It’s in that period of time, one’s 50’s and early 60’s, when one is most apt to buy vacation real estate both for one’s own leisure time and as a family gathering point for retirement years. I think that’s a powerful demographic trend that has been fueling all of this strong interest in mountain real estate the last several years as well as what we’ve seen in the last couple of weeks.

Thanks.

Your next question is from Will Marks with JMP Securities. Please go ahead.

Hello, Adam and Jeff. A few questions here, one, Adam, you closed with your Sarbanes-Oxley comment, any further discussion on that? That’s a pretty powerful statement that that could offset the positive revenues. Do you want to detail that a little bit more, if you can?

I didn’t say it would offset the positive revenues. I said what it would offset was some of the increased positive year-over-year growth in revenues. Remember the flow through in the Mountain Division in the second quarter was 47 percent and the flow through in the Lodging business was 70 percent, so we would need about $3 of revenue to cover $2 of cost. The cost for Sarbanes-Oxley 404 compliance auditing and associated legal fees is going to be a couple of million bucks. That might eat up some of what otherwise would be very healthy revenue and profit gains in the third quarter especially. We’re still expecting to have a good second half and to have a very good year.

Okay. Great. A couple of other questions - -

I guess I would add that we’re also on track for compliance. There’s no hidden message in that comment other than every CFO and every CEO in the country is shaking their heads on how much it’s costing them to comply with the initial Sarbanes-Oxley 404 documentation in the initial year.

Okay. That’s helpful. Thanks. A couple of questions on the Ritz, I’m just asking you to repeat something, but you ran quickly through it. I know you said before that the Ritz was negatively impacting Lodging EBITDA by $3.3 million, I believe, in fiscal 2004 and what was the impact to date in 2005? I think you said this but I didn’t quite catch it.

We did and I think its $1.2 and $2.8. Is that the numbers from memory? The quarter is .8 and 2.7 in the first six months says Leslie Roubos, who is giving me hand signals here.

Okay. Great. Obviously, that will be the full impact because it’s gone, right?

Right.

Then, if we take Lodging out of the Resort side and just look at the Mountains, my numbers are showing that in order to hit the top end of the guidance for the Mountains, you need to do about eight percent EBITDA growth and you did about nine percent in the January quarter and you have a very easy comp, I think, in the April quarter. Do you still feel like the April quarter is a very easy comp at your five ski resorts?

Yes, I do. I think March is a real easy comp at our ski resorts. I think March is a real easy comp for our ski resorts in the third quarter of this year. Some of that easy comp is going to steal from April business because last year Easter was in April and so March is going to serge and April will go down, is my guess. There’s no reason to think we’re not going to have a big end to the ski season.

You noted a little bit of warming and I know in the Lake Tahoe area it has warmed up, is this similar to last year?

No. No. We have a normal March. March is usually our busiest month of the ski season. It is sunnier and brighter and bluer sky than it is in January, but the snow conditions usually hold up just great in March. It’s already March 10 and that’s what it looks like outside. I’m staring out my window at Vail Mountain and the weather forecasters are telling us we’re supposed to get a ton of new snow in the next week. Its cold enough and the mountains are holding up nicely at all five of our resorts. I, personally, see no reason to think we’re not going to have great ski conditions for the remainder of the month of March. By contrast, last year, which was highly unusual, the snow was really starting to melt away by March 15th and by March 20th I was seeing more brown spots than I was seeing white spots in the lower third of the mountain. That’s just simply not the case this year. It has not really been the case any other of the nine years I’ve been here and it feels very normal and bookings are strong, conditions are such that when the people come they should be very happy.

Okay. Great. One final question just on the hotel strategy, you said that you’re still looking at some other asset sales. Is this something we can expect in calendar 2005 or any further light on that?

Let me go back to the beginning when I started. In September of 2004 is when I first uttered publicly the notion that we thought we should change our mix of owned and managed hotels so as to capitalize on the high market multiples that people are paying to own hotels these days, which far transcends the EBITDA multiples that our own stock trades out of the market. Within 75 days of that first initial public utterance, actually, I think, within 60, if I’m not mistaken, we sold our interest in the Ritz Carlton. 30 days after that, even though we didn’t own La Posada, we only managed it, we certainly brokered it’s sale, we found a buyer and traded at a very attractive multiple which affirms the value of some of these RockResort properties if they were to be sold.

We are, in fact, sitting right now on offers on at least one or two of our other hotels, offers that we are currently evaluating. I would be personally shocked if, in calendar 2005, we did not sell at least one more hotel, possibly more than one more hotel. To frame this, though, I did say that I thought in the first 18 months after I announced in September of 2004, I thought we’d sell between one and four of our hotels, not more, and I think we’re kind of on track to that initial thought process.

I think it’s important to stress that the fact that we’re changing the mixture of our owned and managed properties, and picking up a ton of shareholder value in the process, this arbitrage spread between, essentially, what the market is valuing our hotel cash flows at today and what third-party hotel owners would pay to buy them from us. We’re not changing our hospitality strategy. We think it is extremely important to the Company that we operate hotels and condominium product at the foot of our ski areas whether we own them or manage them is not as important as whether we have influence in our bed basis. We have been able to use our skillful marketing of our hotel rooms to our advantage in getting skiers here at our ski resorts during good times and bad. Similarly, we think it’s very helpful to have the RockResorts brand. As one case in point, we promised Arrabelle buyers that they would have full hotel services from a luxury hotel operator at the Arrabelle being provided by RockResorts. If we did not have what I might call a “proprietary house brand”, so to speak, and we had to go out and contract with another major flag and pay them to provide the credibility and hotel services that we can provide ourselves through Rock, I’m sure we would have given up $10 million or more in immediate revenues to the hotel operator for the provision of those services.

The strategy continues to be that we’re going have a sizable Lodging portfolio, but it’s very clear that we should be owning much less of that portfolio and managing much more of that portfolio.

Great. Thank you, Adam.

Ladies and gentlemen, if there are any additional questions, please press *1 at this time. As a reminder, if you are using speaker equipment, you will need to lift the handset before pressing the numbers. One moment, please, for your next question. Your next question is a follow-up from Will Marks. Please go ahead.

I was giving up the floor to let other people ask questions, but since there are no others, just a quick question - - you may have to get back to me on this, Leslie - - in trying to figure out the second half with the Lodging EBITDA, it would be last year, can you give me the numbers without the Ritz Carlton for the second half, or even by the April 2004 or the four quarters? Maybe that’s something you want to get back to me if you don’t have it there?

For the quarter, the half and the year, I don’t think we necessarily have it at our fingertips for both years. For anybody that would like that information, it’s been disclosed in our various earnings press releases and if you call Leslie Roubos, our Director of Investor Relations, she’ll be happy to walk you through it on a short cut basis.

If it’s disclosed in each quarter, then I can get it myself. I will check on that. Then, just one final question, Adam, I’ve just heard some rumblings on the west side of Vail, I guess, is there - - do you have any comments on development in that area?

If you’re talking about the far western side of Vail over by where the Cascade Hotel is, the sort of called West Vail lift, I haven’t heard a lot of rumbling about real estate development over there. The real focus has been in Vail Village and Lion’s Head, which we are now calling Vail Square, I’m happy to say. For all the projects that I mentioned, there are other projects going on in Vail Village and Lion’s Head. Some of the condo associations in Lion’s Head have indicated to us that they intend to re-skin their buildings to give them a much prettier appearance. The town voters elected a couple of years ago to build a new conference center in Lion’s Head. Hotel taxes have been collected, I think, for two years now to fund that effort. The Tivoli Lodge was torn down and a brand new Tivoli Lodge opens up in a couple of months time in Vail Village. It’s very pretty. The old Vail Village Inn, the second oldest hotel in Vail, which has seen better days, has been torn down. It’s currently in redevelopment efforts at the moment.

I misspoke. I said west and I meant east, large per Chair 6 area.

I’ll go there in a second. The Tivoli is near Chair 6. The Vail Village Inn has come down. It’s being redeveloped. An equity group that wants to build a Four Seasons hotel in Vail acquired land in February where the current Chateau is. They say it’s going to come down and be replaced by a luxury hotel there.

Going specifically to the Chair 6 area, which is East Vail, the largest complex near there today is Manor Vail. Manor Vail has indicated to the town that it intends to re-skin its exterior façade and add additional density units as part of its redevelopment. I guess what I should say is that all over Vail, given the enormity of this demand that we saw at the Arrabelle - - I forgot to mention the Swiss House, one-third of the (inaudible) Alp, has been torn down. It’s going to be replaced by a new complex. Where I was going was the enormity of demand that we saw at the Arrabelle, just about everybody in town knows the iron is hot, its time to strike. We think this is great news for us. We have the best ski mountain in the United States. We have a very fine town and base village community. Some of its older and more tired buildings are coming down rapidly. They’ll all be replaced over the next two to five years. The town of Vail, including Lion’s Head, East Vail, Vail Village, is really going to be transformed over this time period. Put aside the considerable real estate profits we expect to generate - - if you add up all the statements we’ve made, we’ve suggested there are hundreds of millions of dollars in real estate EBITDA for Vail Resorts just with the projects we’re going to do, but that aside - - it’s hard to put that aside because it’s a lot of money - - but put that aside, if the Vail ski mountain is great and the town of Vail is much improved, what does that do and what does that suggest for visitation to the Vail Ski Resort three or four years out? What does that suggest for the pricing of lift tickets at Vail three or four years out? It is real easy to be very bullish, not only about the Vail real estate opportunity, but the Vail Resort operating opportunity as a result of the real estate transformation in the base.

Great. That’s all for me. Thanks, Adam.

Your next question is from Grant Jordan with Wachovia Securities. Please go ahead.

Thanks for taking the call. I got on a little late, so I apologize if some of these are repeats. Could you give us cash flow from operating activities in the quarter, then, Capex and investment real estate?

It’s all going to be in the queue and, I think, rather than confuse people on the call, we’re going to file the queue momentarily, and that’s probably the best place for you to go. I think the queue will be filed tomorrow and it’s all spelled out in sharp and clear detail.

There’s a huge decrease in debt in the quarter, was that due to selling some of your hotel properties and real estate?

No. The huge reduction in debt in the quarter is a combination of the strong operating results and the fact that in refinancing our Revolver we were able to payoff our $100 million term B loan without really giving up a significant amount of borrowing capacity.

When I look at your balance sheet, you’re certainly near, I would think, a historic low in terms of leverage and you’re still paying a very low cost of debt. Do you have an appetite for higher leverage at this point if there were attractive acquisition opportunities, investment opportunities?

You’re right on all counts. We think we’ve done a great job in managing our balance sheet stronger by managing our debt down over the past year. The fact that we’ve been able to refinance our long-term debt and lock in those rates through 2014, it kind of feels like Dwight Eisenhower is still President of the United States when you look at our interest rates. When you look at the new Bank Revolver with its attractive pricing being locked in through 2010, that all suggests we put our balance sheet in the strongest shape it’s been in in a long time, especially given our current earnings picture. We’re not afraid of higher leverage. If the right acquisition came along, we are certainly willing to look at it.

There are other alternatives. Depending on how the year ends up, depending on how acquisitions end up, we could look at stock buy-backs, we could look at dividends. There are a whole host of options available to us. This company expects to be free-cash positive, even with all this real estate development that we’re looking at in fiscal 2005 and fiscal 2006. As you said, we’ve worked our debt levels down to very attractive levels and we’re going to be free-cash flow positive on top. That’s all pre-acquisition, of course, and you never know what may be out there.

I will say this, this company has not been shy in making acquisitions. On the other hand, we have demonstrated under this management team, which is nine years together in the making, we are very disciplined buyers. We do not and have not overpaid for assets based on their trailing cash flows. We’ve gotten more than one bargain over the last nine years. Just because we’re free-cash flow positive does not mean anybody around here feels any compulsion to spend that money on some reckless acquisition. We are just as disciplined in our acquisition philosophy today as ever and usually that means a couple of things. One, we like to stick to our knitting. Our knitting is Blue Chip world class trophy assets. Two, we like to buy them at attractive prices, the best asset being the worst investment if you overpaid for it up front. Third, we like to buy things where we think that our expertise and prowess puts us in a position to improve those acquired assets performance and in a relative short time period.

Great. Thank you very much for the information.

Your next question is a follow-up question from Bryan Maher. Please go ahead.

Adam, you brought it up on the acquisition point, so I’ll throw this out. Can you give us some comment with respect to your thoughts on Mammoth, which has been sitting on my Reuter screen as you being interested in buying?

Bryan, I am shocked that the “M” word has not been raised until now in the call. Here’s the story at Mammoth. We have a long-standing tradition of not commenting on mergers, acquisitions, rumors, speculation, so with other than what I’m about to say, all which is public, I’m probably not going to make much comment about Mammoth beyond what I say in this call, but here’s what I’ll say on this call. You almost have to be an idiot not to think that the company that owns the first, second, fifth, sixth and ninth most visited ski resorts in the United States would not look at the third most visited ski resort in the United States if it came on the market in a market where there is no anti-trust problem from its acquisition. Without confirming whether we’re going to take a look, one would think how could we not take a look. However, it is not clear to me that Mammoth is actually for sale to a third party. Intrawest owns 60 percent of Mammoth today, not of its voting stock, but of its economics. Intrawest, to my understanding, has a last look provision. It has a right to match whatever offer may be made. There are certain insiders at Mammoth who also have the right, under certain circumstances, to buy the controlling stock at Mammoth. I don’t actually know if its really for sale or if what’s going on publicly is just a valuation exercise for these current parties. Having said that, we’ve received no materials about Mammoth, they have not been distributed. Mammoth has announced publicly that it intends to sell itself. I guess we’ll all find out together what will happen. Beyond what I just said, we probably will not elaborate going forward.

Suffice it to say that by virtue of the fact that you’re saying you would take a look, can one construe that you would be willing be an Intrawest partner again, after what has happened to Colorado over the last couple of years, or would it only be in a case where you could own the whole thing?

I did not say we would take a look. All I said, and all you can construe, is that I thought someone in my position would have to be an idiot not to take a look. I would like to think that you guys don’t think I’m an idiot.

We don’t think you’d be an idiot, so - -

Beyond that, I really don’t think it is either appropriate or timed to comment on the particulars of that transaction. As I said, I’m not sure there is going to be a Mammoth transaction that is available to bona fide third parties. We also don’t know what the price is. All those comments I made about paying a reasonable price, they apply to Mammoth just as they apply to anything else.

So, you would suspect, then, that certain people are trying to get a price at which they could put it to Intrawest would be your best guess?

I’m not guessing a thing, nor am I speculating a thing, all I’m stating is the facts are the facts. I think the only thing that is clear is that it is all uncertain. We’ll find out more as whatever process they intend to lead unfolds.

Okay. Thanks.

Once again, if there are any additional questions, please press *1 at this time. As a reminder, if you are using speaker equipment, you will need to lift the handset before pressing the numbers. One moment, please, for our next question. Mr. Aron, there are no further questions at this time. Please continue.

Thank you, operator. Thanks, everybody, for participating today. Before we hop off, I would just like to remind all of you, we have circulated that we are having an investor trip starting on Monday. That is open to anybody who wants to attend. If you’ve suddenly decided you have an interest to come out and check out what’s going on here, please get in contact with Leslie Roubos right away. I’m happy to report that the hotel availability is tight in Vail Village next week, but you’re more than welcome.

Summarizing the call and the quarter and the first half, we’ve, obviously, had a very strong first half of fiscal 2005. We’re upbeat about what we put on the books and we’re equally upbeat about the remainder of the year. Should you have any further questions, feel free to contact me, contact Jeff or Leslie, directly. Leslie’s phone number is 970-845-2958 and her e-mail is LRoubos@vailresorts.com. Thank you, one and all, for your time this morning. It’s a picture postcard day in the Vail Valley of Colorado. Come out and spend some money here before the season is over. Thank you and goodbye.

Thank you, sir. Ladies and gentlemen, this concludes the Vail Resorts second quarter conference call. If you would like to listen to a replay of today’s conference call, you may dial 303-590-3000 or 800-405-2236 with access code 11025574. Once again, if you would like to listen to a replay of today’s conference call, you may dial 303-590-3000 or 800-405-2236 with access code 11025574. You may now disconnect and thank you for using ACT teleconferencing.