Vail Resorts Inc (MTN) 2005 Q4 法說會逐字稿

Good morning and welcome to the Vail Resorts fiscal 2005 year ending earnings conference call. My name is Marcia (ph) and I will be facilitating the audio portion of today's interactive broadcast. All lines have been placed on mute to prevent any background noise. For those of you on the Web, please notice the toolbar on the right of the screen. The features on this toolbar allow you to interact with the other show participants and choose show viewing options. (OPERATOR INSTRUCTIONS).

At this time I would like to turn the show over to Adam Aron, Chairman and CEO of Vail Resorts. Sir, you may begin.

Thank you very much, operator.

You know, I've done this almost 40 times, I've never heard this referred to as a show before. But good morning, everyone, and welcome to the Vail Resorts fiscal 2005 fourth-quarter and year-end earnings conference call and simultaneous webcast, both open to the public and the press at-large. As you know, I'm Adam Aron, Chairman and CEO of Vail Resorts. Joining me here in our Vail Valley corporate headquarters on the call this morning are Jeff Jones, our Senior Vice President and Chief Financial Officer, and Leslie Roubos, our Director of Investor Relations.

Earlier this morning, we released our earnings for the fourth quarter and fiscal year ended July 31, 2005 and are today filing our 10-K for 2005.

It is nothing but smiles at Vail Resorts this morning. Needless to say, we had resort-reported EBITDA up from $144.6 million last year to $167.5 million this year with net income of over $23 million. With everything else that happened in fiscal 2005 that should be so beneficial for Vail Resorts in future years, we are immensely pleased to announce earnings for what turned out to be another spectacular year for Vail Resorts.

As we discussed in our third-quarter earnings call in June, we were then well on pace to have record resort-reported EBITDA for the full year and as such, we increased guidance for the year. We are pleased to announce today that we did indeed have that fine year we hoped we would. We not only beat our original guidance issued at the commencement of fiscal 2005; we also exceeded the upper end of the increased guidance range issued in June for resort-reported EBITDA.

For the full year, Mountain segment reported EBITDA improved by 13.3% and Lodging segment reported EBITDA increased by 45.9%. Total resort reported EBITDA grew 15.8%. Real Estate-reported EBITDA fell, as expected, to $14.4 million from $30.9 million last year. I'd like to remind you that, in fiscal 2004, we recorded a $15.1 million credit to Real Estate expense, due to the payoff of the Smith Creek Metropolitan District bonds. Considering that prior-year expense credit, we reported respectable earnings in our Real Estate division for 2005.

As you all know, the real story of what happened in 2005 for Real Estate for Vail Resorts was the phenomenal January 2005 success of the sold-out-in-a-day Arrabelle, and the sold out Gore Creek Place, the profits for which do not show up in 2005; rather, they will be reflected approximately two years from now.

On the bottom line, net income grew from a loss of $6.0 million last year to positive income of $23.1 million this year.

The short-version summary is this -- Vail Resorts has just completed another tremendously successful year in fiscal 2005, and we believe we are very well positioned for another successful year in fiscal 2006 and beyond.

On today's call, I'd like to give you a short overview of the fourth quarter, followed by a summary of the year-end earnings and the record results Vail Resorts achieved in the entire fiscal year. Jeff Jones will then discuss the improved capitalization of the Company. I will also briefly comment on the results of the SOX 404 internal controls review and other regulatory matters. As I do every year, I will give you guidance related to our expectations for Vail Resorts' operating segments for fiscal 2006. I will then conclude with a review of what we expect from our Real Estate division over the foreseeable future, given the magnitude of the important real estate projects which are currently underway and which look to be quite lucrative for us. At the conclusion of our 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 SEC rules regarding the use of non-GAAP financial measures, we are using the term "reported EBITDA" to report earnings for each of our operating segments, namely Mountain, Lodging, Resort, which is the sum of Mountain and Lodging, and Real Estate. Complete definitions for reported EBITDA can be found in this morning's press release and on the VailResorts.com Web site in the Investor Relations section under the tab "Regulation G Compliance".

Now, let's focus our attention on the excellent earnings news at hand, starting with the fourth quarter, a seasonally slow period in which Vail Resorts typically operates at a loss. As you can imagine, there are not a lot of skiers on our slopes over the summer, so there's not a ton of activity to discuss in our Mountain segment for the fourth quarter. What's more, as we predicted earlier this year, we did, however, have increased costs to the fourth quarter compared to last year as we experienced higher accounting and legal costs associated with SOX 404 first-year compliance and other regulatory matters. Accordingly, Mountain-reported EBITDA was down for the quarter, as expected, although handsomely up for the full year.

Moving to our Lodging segment, fourth-quarter Lodging segment results improved over last year. We reported Lodging-reported EBITDA of 1.0 million in the fourth quarter of fiscal 2005 compared to the 0.1 million of reported EBITDA for the Lodging segment in the same period of fiscal 2004. Revenue for the Lodging segment grew almost 10%, even with our owning Vail Marriott for about half of the fourth quarter this year. We got credit for all of the quarters Vail Marriott revenues in last year's fourth quarter. Our hotels were particularly strong; we enjoyed a 15.3% revenue per available room, or RevPAR growth, at our owned RockResorts hotels, a 9.3% increase in occupancy from 59.0 points of occupancy to 64.5 occupancy points this year and an $8.26 increase in the average daily rate, or ADR, from $149.49 last year to $157.75 this year. Our non-RockResorts-owned hotels also did extremely well in the quarter with a 10.9% RevPAR growth resulting from a 7.5% increase in occupancy from 58.4 occupancy points last year to 62.2 occupancy points this year and a $4.32 increase in ADR from 138.30 last year to 142.62 this year. These increases were driven by both increases in trangent (ph) and group business.

Our Real Estate segment reported better financial results in the quarter, due to the timing and mix of real estate sales, but more importantly, we continued to make great strides in the fourth quarter with our continued progress in the development of sales New Dawn -- more about that later.

Moving to fiscal 2005 as a whole, for the full year, resort-reported EBITDA of $167.5 million is an all-time record high for Vail Resorts, representing a $22.9 million or 15.8% increase over fiscal 2004. Remember, fiscal 2004 was no easy comp. 2004 was then the best-reported EBITDA year that Vail Resorts had ever reported. Indeed, Vail Resorts resort-reported EBITDA has grown from $103.6 million in fiscal 2003 to $167.5 million in fiscal 2005, just two years later -- quite a jump.

Our Mountain segment reported EBITDA for the full year rose $17.8 million from 133.5 million last year to $151.3 million in fiscal 2005, a 13.3% year-over-year increase. We enjoyed a healthy growth in Mountain revenue of some $40 million this year, up 8.0%, driven by a 5.4% increase in total Companywide skier visits, coupled with a 4.3% increase in the average price we realized, known as ETP, effective ticket price. Our ancillary businesses, including ski school, retail, rental, dining, all contributed to our success. The increase in skier visits was due to a 4% increase in destination visitors, including a 14% increase in international visitors, as well as a double-digit growth in local in-states skiers. All five of our ski resorts saw increased skier visits and increased average prices for the year, and as such, all five experienced year-over-year increases in revenue and reported EBITDA.

Vail, our flagship, had its most profitable year ever. Vail improved to 1.568 million skier visits, and showing there appears simply to be no top to what we can successfully charge for resorts of Vail's caliber and quality. Vail enjoyed a 6.4% increase in ETP, average realized price.

With a 6% skier visit growth, Beaver Creek once again completed the year with record skier visits, record revenue and record reported EBITDA. Beaver Creek crossed the 800,000 skier-day mark for the first time ever, and ETP was also up 3.9%.

Skier visits at Heavenly were up over 10% in fiscal 2005. With over 1 million skier visits for the first time ever, Heavenly is now the sixth-most visited ski resort in the United States, and skier visits are up almost 28% on our three-year watch as owner and manager. Heavenly posted the third consecutive record year under our ownership for skier visits, for revenue and for reported EBITDA. Since acquiring Heavenly only three ski seasons back, we have boosted its profitability by about two-thirds.

Breckenridge also saw record skier visits with 1.471 million lift tickets sold. It enjoyed record revenue and record reported EBITDA. Keystone skier visits grew over 8%, indicating that it is rebounding nicely. The Keystone is back in the elite club of the few North American ski resorts with over 1 million skier visits. As a matter of fact, Keystone saw reported EBITDA some 18% higher than last year.

Across the five ski resorts, non lift ticket non-revenues also grew a healthy 6.5% year-over-year, benefiting from price increases as well as an increase in the higher spending destination skiers. This ladder metric includes ski school revenue up 9.2%, dining revenue up 4.2%, retail revenue up 4.4%, and miscellaneous ancillary Mountain revenue up 9.5%.

Mountain expenses grew with rising revenues, of course, but through careful management of those expenses, we were able to flow through an impressive 45% of incremental Mountain revenues to the reported EBITDA line for the Mountain segment. The resulting reported EBITDA margin in our Mountain segment grew from 26.6% last year to 28.0% in fiscal 2005, and reported EBITDA for the Mountain segment grew to a record $151.3 million.

Our Lodging segment was very hot too, improving its reported EBITDA by 46% from 11.1 million last year to $16.2 million this year. Lodging revenue for the year increased 15.9 million or 8.8% over last year, due to a combination of both increased occupancies and increased average daily rates. The flow through at our Lodging business (indiscernible) revenue to the Lodging-reported EBITDA line was 32.2%. Lodging equity income improved $753,000 year-over-year, due to improved performance at and ultimately the December 2004 sale of our 49% interest in the entity that owns the Ritz-Carlton Bachelor Gulch in Beaver Creek.

As always, let me provide you with some operating statistics for our owned hotels for the full year. RockResorts-owned hotels experienced a 12% growth in RevPAR. This was the result of a 2 point occupancy -- that's a 2 point increase in occupancy from 60% to 62%, coupled with an 8% increase in ADR from $175 last year to $190 this year.

Results for our non RockResorts-branded owned hotels, those properties primarily located at the base of our ski resorts, saw an 8% increase in RevPAR with occupancy totaling 63% for the year, up 3 points from 60% the year before, and with an average daily rate increasing $3 year-over-year from $134 to $137.

We also made some extremely important announcements throughout the year regarding the makeup of our Lodging assets, moving more from owned to managed assets. The market among hotel buyers has been quite frothy of late. As such, we sold our 49% interest in the entity owning the Ritz-Carlton Bachelor Gulch and sold our 100% interest in two additional hotels this past year, the Lodge at Rancho Mirage and the Vail Marriott. We received very favorable valuations and still retain management of both The Lodge at Rancho Mirage and the Vail Marriott.

In total, we received some $108 million in fiscal 2005 for the selling of our interest in these three hotels, while forfeiting less than $3 million of Lodging EBITDA; and that's prior to considering the management fees we will pick up at the two properties we still will manage.

In addition, we closed on the purchase of the remaining 49% minority interest we did not already own in the Snake River (ph) Lodge & Spa in Jackson Hole, Wyoming, and now own 100% of that hotel. We did so so that in July we could announce that we hired a broker to explore the sale of that hotel. I'm pleased to report that the current bidding for such a sale is robust, to say the least. We also picked up a RockResorts management contract in 2005, the Lodge & Spa at Portiera (ph) and gave one up at Casa Madrona in Sausalito.

To summarize our Resort segment for the full year, looking at both our Mountain and Lodging segments combined, total Resort-reported EBITDA in fiscal 2005 was an all-time record for Vail Resorts totaling $167.5 million.

Turning to Real Estate, Real Estate revenue increased $27.7 million to $72.8 million for the year, reflecting an expected change of in the mix of what was sold this year versus last. Real estate expense, however, increased even more by some $41.5 million, but as I've already mentioned, you'll recall that, in the third quarter of fiscal 2004, we took a $15.1 million credit (indiscernible) expense due to the relief of the liability in the Company's balance sheet from the early payoff of the outstanding Smith Creek Metropolitan District bonds. I think our Real Estate results for 2005 should not be judged, frankly, by end-year earnings. Rather, the momentum we established in 2005 with our real estate company, with the Arrabelle success among others, should set us up for years to come and that is our real estate story for 2005 as we look ahead.

As for the remainder of the income statement, Vail Resorts posted net income for the year of $23.1 million, or $0.64 per diluted share, compared to a loss of $6.0 million, or $0.17 per diluted share, in fiscal 2004. How can we be anything other than highly excited by this improvement?

For clarity, I guess I would add that there has been a lot of other stuff going on in the past two years at Vail Resorts. For a better understanding of our bottom-line performance, you might wish to exclude from both 2005 and 2004 full-year results, first, the gains and losses from the sale of the three sold hotels in fiscal 2005; second, the costs associated with the Company completed a highly successful refinancing with the Senior bank credit facility in 2005 and a similar refinancing of its Senior Subordinated Notes in 2004, the latter of which lowered coupon interest rates by 200 basis points and extended maturities of our long-term debt until 2014; third, you might wish to exclude the non-recurring mold remediation charge in 2004 to repair the mold and water-intrusion damaged at one of the Company's employee housing joint ventures.

Excluding these previously announced charges in both fiscal years, which are separate line items on our income statement, respectively the loss from sale of businesses, the loss on the extinguishment of debt, and the mold remediation charge, the Company's net income for the fiscal year 2005 would have been $27.4 million, or $0.75 per diluted share, using a normalized tax rate of 40%, compared to a net income of only $20.4 million or $0.58 per diluted share in the prior fiscal year. This represents over a 34% increase in dollars and a 29% increase in earnings per diluted share, year-over-year.

Let's now turn to our year-end balance sheet. I'm going to as Jeff Jones, our Chief Financial Officer, to brief you here. Jeff?

Thanks, Adam. Good morning, everyone.

On top of all the operations and real estate successes that Adam has just mentioned, we also made significant strides in fiscal 2005 in improving the capitalization of the Company. In January of this year, we completed the successful refinancing of our senior credit facility. In addition to reducing the pricing of the senior credit facility, we were able to delever by paying off the $100 million Term B loan and still ended the year with over 130 million of cash on hand and no revolver borrowings.

The refinancing, coupled with the successful bond refinancing we completed midway through 2004, translated into significant year-over-year interest savings. As you can see from our results this year, interest expense for fiscal 2005 was down $7.2 million compared to last year. That didn't even include a full year of interest savings associated with this year's credit facility refinancing, which was done half-way through the year.

With the reported EBITDA improvement and these capitalization improvements, our credit statistics for fiscal 2005 improved dramatically over fiscal 2004 and prior fiscal years. As a prime example, if you look at our fiscal 2005 balance sheet, which was filed with our 10-K this morning, and compare the ratio of our long-term debt both before and after reducing it for cash and cash equivalents to our reported EBITDA and compare those ratios with similar ratios for fiscal 2004 and prior fiscal periods, you will clearly see what I mean.

Also of note is that we entered into nonrecourse financing for the Gore Creek Place real estate project on very favorable terms to the Company in the fourth quarter of this year. We are finalizing completion of similar financing for the Arrabelle at Vail Square and plan to utilize this structure for other future major vertical developments as well. By combining deposits collected from presales with nonrecourse financing, we can keep real estate vertical development projects cash-neutral during the construction stage and then collect significant net proceeds when the projects are completed.

A delevered balance sheet, no revolver borrowings on our senior credit facility, building excess cash from our resort operations and future real estate cash flow to come -- I would say we should be out of our capitalization state as we enter fiscal 2006. Adam?

Thank you, Jeff.

I'd like to briefly comment on our compliance with Sarbanes-Oxley provision 404 related to internal controls. As you know, SOX 404 requires each public company to document its key internal controls and test them to make sure they are being followed as documented. Vail Resorts documented more than 2,000 controls in total and tested more than 1,000 key controls. We are proud to announce that we're able to issue a clean report from management on internal controls for fiscal 2005. Similarly, we received a clean (indiscernible) report from our auditors, which means that we passed SOX 404 with flying colors. We have dramatically increased and upgraded our accounting resources and expertise in the past two years, as many of you know, and our performance in complying with SOX 404 is but one reflection of our emphasis in this area.

At this juncture, I think it's also relevant to point out our September 19 press release announcing that the central regional office of the U.S. Securities and Exchange Commission informed the Company that its investigation with respect to Vail Resorts has been terminated and that, in regard to the matters that have been under investigation, no enforcement action has been recommended regarding the Company or any President or former director, officer or employee of the Company.

Now, let me turn to fiscal 2006, which began on August 1. Believe it or not, for those of you who do not live in the lush snowbelt of the Colorado Rockies, it's only October 5 and it snowed last night at all four of our Colorado ski resorts. Catch these current temperatures! Just a few minutes before our conference call began, the temperature in Vail was 32 degrees; the temperature in Beaver Creek was 33 degrees; it was 25 degrees in South Lake Tahoe; it was 27 degrees at Keystone; and in Breckenridge, it was a balmy 23 degrees. Ski season starts in earnest next month. Wax your skis, everybody!

Here are some interesting metrics as we look ahead. Some of us have been interested in knowing what rising gas prices might mean for our drive-in business. Well, gasoline prices were high all summer and it is interesting and important to note -- reassuring to note -- that our summer revenues were up in the neighborhood of 10% year-over-year, even with higher gas prices. So far, so good.

Advanced sales of season passes for the 2005-2006 ski season also appear to be robust. In dollars, they're currently running up about 22% year-over-year. Airline passenger bookings into Vail's Eagle County airport are also up by some 5% year-over-year. In dollars, bookings at our Colorado hotels and condominiums are up about 2% year-over-year.

While we are well down the road of our season pass sales, I would remind you that, at this stage of the season, we would only be about one-fifth booked or so, so while these early reservation metrics are encouraging, it may be too soon to draw any firm conclusions. As for looking at lift ticket prices, I really simply cannot comment, as many of our prices have not yet been released publicly. All I can say on this score is we are very proud of the quality of the product that we offer our guests and historically we've not exactly been shy in charging our guests for that quality.

Speaking of our product and its consumer appeal, we continue to make improvements to the product offering at each of our ski resorts and at our hotels. For example, we are installing new high-speed lifts at both Beaver Creek and Breckenridge, and we continue to spend significant amounts of capital on upgrading grooming equipment as well as improving our snow-making systems in order to provide a world-class experience across our resorts for our guests. In addition, we are upgrading guestrooms at both The Lodge at Vail and the Keystone Lodge, which are our flagship hotels for each of these resorts.

We have every reason to be quite bullish about the upcoming year. As such, I'd like to give the some guidance estimates for fiscal 2006. We currently expect Mountain-reported EBITDA for fiscal 2006 to range from 163 to $173 million, up from $151 million this year, and for Lodging-reported EBITDA to range from 8 to $16 million, up from 16 -- contrasted with $16 million this year. We now expect total Resort-reported EBITDA to range between 175 and $185 million in fiscal 2006, contrasted with 167.5 in fiscal 2005. Importantly, please remember that the Lodging and Resort guidance for 2006 both take into account the loss of reported EBITDA, net of new management fee revenues, from the sale of two owned hotels near the end of fiscal 2005 and the anticipated sale of at least one additional hotel midway through fiscal 2006.

As for Real Estate, again, just like this past fiscal year, fiscal 2006 will be a period of major construction for Vail Resorts Development Company, as we build both the Arrabelle and Gore Creek Place, two very important and lucrative of the Vail's New Dawn projects. Despite the one-day Arrabelle sellout and the huge hole in the ground where the Arrabelle is now being built, the construction cycle is about two years. So closings will substantially occur in fiscal 2007 and fiscal 2008. As such, Real Estate earnings for fiscal 2006 are expected to be lower. At this time, we are comfortable giving Real Estate-reported EBITDA guidance of 5 to $10 million for fiscal 2006. We are currently projected net income in fiscal 2006 to rise from the $23 million in fiscal 2005 to somewhere between $34 million to $43 million in the current fiscal year.

It's important to mention, in this regard, FAS 123R, as you know, the new requirement for all publicly-traded companies to expense stock-based compensation. Based on our fiscal year ending July 31, we will report results, including the impact of FAS 123R, commencing with the first fiscal quarter of fiscal 2006. All the guidance ranges I just mentioned do not include -- repeat, do not include -- the impact of adopting FAS 123R. At some time between today and potentially as far off as when we announce Q1 earnings, we will disclose that impact to you specifically and adjust guidance accordingly.

Before taking your questions, I'd now like to turn the conversation to our real estate holdings. As you know, we have quite a few projects on our plate and we expect them to be highly profitable. I know that many of you value our company at some multiple of resort-reported EBITDA plus some value for our real estate held-for-sale, plus cash, less debt. Many of you have expressed difficulty in valuing our future projects, and you've asked for more information to help you understand the future cash flows of these assets. As such, I'd like to give the some additional data, which should allow you to better value our real estate holdings. You will recall that we have binding contracts and 15% deposits in hand on all 67 Arrabelle condominiums and all 16 Gore Creek Place townhomes, representing some $290 million in total real estate revenues. The Arrabelle condominium prices, as contracted, range from 1 million and to $14 million, averaging about $1,150 per square foot and the Gore Creek Place townhomes sold for between 3 million and $5 million, averaging $1,005 per square foot. We previously disclosed -- we previously disclosed that we expected to earn between 80 and $92 million of real estate hushed (ph) income on these two projects combined. Given that construction costs have been increasing due in part to Hurricanes Katrina and Rita, we expect project income to be closer to the lower end of that range.

Remember, by product income, I mean real estate revenue less real estate expense in their entirety for the two projects but prior to any allocation of real estate headquarters overhead, corporate overhead or any tax provisions.

I don't think anyone knows precisely what Katrina and Rita will do to construction costs in the United States over the next several years, but nonetheless, it is hard to imagine that these two projects, the Arrabelle and Gore Creek Place, will be anything but immensely profitable projects for Vail Resorts.

In addition to the Arrabelle and Gore Creek Place, there is much more associated with Vail's New Dawn. As we announced in June, we entered into a contractual agreement with the Ritz-Carlton Hotel Company for Vail Resorts to develop more than 200,000 square feet of luxury condominiums to be located at the base of Vail Mountain, immediately adjacent to the Vail Marriott and Lionshead. Assuming Town of Vail approval for the complex and U.S. Forest Service approval of a new high-speed base lift we intend to build immediately adjacent, Vail Resorts expects to commence preselling and building these 108 or so condominiums as Ritz-Carlton residences within the next 6 to 19 months. We have not yet determined what the exact sales price will be, but you should take into consideration the fact that the Arrabelle sold out in one day at an average of $1,150 per square foot with nine people standing in line for every available unit and that this project I am now describing will carry the Ritz-Carlton brand-name. You can make your own estimates and do your own guesses but I don't need to tell you that we think this is going to be an extremely profitable project for Vail Resorts.

Also this summer, we announced the acquisition of two parcels of land near the Ritz-Carlton residences for over $10 million. I think it's exactly $10 million, now that I think of it. When combined with the land under our current Vail maintenance facility, which can be relocated, this gives us some 6 acres for additional Vail development immediately across from the new Ritz-Carlton residences and the new base Village lift. By the way, we're going to need that lift for all the new skiers sleeping in this currently undeveloped part of Vail. We now expect development on this landsite could approach under 300,000 salable feet of residential space. I'm not finished. There's some 13 Lodge at Vail chalets with full Lodge at Vail hotel services that we plan to develop known collectively as the Vail Front Door project. The chalets are right at the base of the Vista Bahn chairlift in Vail Village. Each has Gore Range views, the big money view in Vail, and each exceeds 4,000 square feet in size.

Not only do we think each chalet could sell for over $2,000 per square -- it is not definite but also it is not inconceivable that they could sell for $2,500 per square foot. Do the math, guys! Construction costs for all our Vail projects are not inexpensive, we know that, and we do have significant expenses related to providing public benefits in conjunction with these projects. We have sales, marketing and branding costs, financing charges and project management, and overhead allocation to consider. Even so, any way you look at it, these Vail projects are likely to be hugely profitable.

More good news -- the timing to commence these projects is in the near-term, and the real estate market for product in Vail is hot. At book value, almost half of our real estate holdings are in Vail, which we know to be a lucrative market at the moment. Slightly more than half of our holdings are outside Vail, but there, too, the news is also exciting. We have now presold all 34 condominium units that were taken to market starting in February of 2005 as Phase II of Breckenridge's Mountain Thunder condominium project. Construction began in May; closings are expected to occur between July and November of 2006. Presales average $505 per square foot with approximately 1,400 square feet per unit, but real estate costs, excluding land, are projected to the only between $300 and $400 per square foot.

The development of our new community around Wyoming's second-best golf course, which we already own, the Jackson Hole Golf and Tennis Club, is also proving to be a profitable endeavor. Last month, we presold 11 of the final 12 of some 35 in total, two-bedroom luxury cabins, which were contracted at an average of almost $500 per square foot. Construction costs in the Jackson project are ranging from $300 to $350 per square foot.

Clearly, Vail Resorts' real estate holdings have enormous potential value and I wanted to underscore what I am about to say -- we believe they are willfully undervalued in today's public market valuations. This is especially true, given that we have every reason to expect we should be able to monetize much of this value within the next 24 to 48 months.

In conclusion, we continue to be focused on the exciting future of Vail Resorts. Speaking personality for a second, I am very fortunate that Vail Resorts has collected an extraordinarily talented and committed group of senior executives and staffers whose collaborative effort resulted in the posting of what must be considered by all to be superb operating results for the two most recent fiscal years. Assuming a normal external operating environment, my senior team and I are generally optimistic about the near-term prospects for and long-term value of Vail Resorts.

At this juncture, Jeff and I will be happy to answer your questions. As you prepare for your questions, I remind you that comments made during this conference call and any statements of historical information are forward-looking statements and are made pursuant to Safe Harbor provisions in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only to the dates hereof. Such risks and uncertainties include but are not limited to economic downturns, terrorist acts upon the United States, threat of or acts of war, our ability to obtain financing in terms acceptable to us to finance our capital expenditure and growth strategy, our ability to develop our resort and (indiscernible) operations, competition in our Mountain and Lodging businesses, the failure to commence or complete the planned real estate development projects, failure to achieve the (indiscernible) short and long-term financial benefits from the planned real estate development projects, implications arising from new financial accounting standards, board, governmental legislation rulings or interpretations, termination of existing hotel management contracts, our reliance on governments permits or approval for use of federal land or to make additional improvements, our ability to integrate and successfully operate future acquisitions, expenses or adverse consequences of (indiscernible) future legal claims, shortages and rising costs construction in construction materials, adverse change in the real estate market, and unfavorable weather conditions. Investors are also directed to other risks discussed in documents filed by the Company with the U.S. Securities and Exchange Commission.

Operator, we are ready for questions.

Thank you, sir. (OPERATOR INSTRUCTIONS). Felicia Hendrix with Lehman Brothers.

I'm glad to hear it's snowing. Very good quarter; congratulations. You are obviously very excited. I have a question that's not about your quarter, if I may?

Fire away.

You know, there is obviously some news in the industry this morning with Mammoth Mountain. The company I believe said they had about ten bidders. I wondering if you guys were a part of that and if you had any comments on it at all.

I know what we've done. The question is what can we say publicly?

I guess it is appropriate to say that we do not comment on merger and acquisition activity. I can say that, many months ago, I said that it would be foolish to think that something as important as Mammoth would be on the block and we would not take a look at it. I also said that I thought it was extraordinarily unlikely that we would be a successful bidder for Mammoth, given InterWest's right of first refusal. I think all those comments are still operative.

The only thing that I will add is what many of you have heard, which I'm only getting as third-hand rumor, as you are. We are hearing that Mammoth may trade, if it trades, at a significant price. If that is the case, that should be very good news for Vail Resorts, as I think one will have to take a look at the multiples that the market currently ascribes to our own five ski resorts, given speculation there as to where Mammoth might trade.

Well, Adam, you know me well, because that kind of is a good segue to my follow-up question, which -- it looks like it traded for about 11 or 12 times. I'm wondering, from your experience, do you think that that's something that is a one-off, or now those who are interested in selling or buying assets in the industry are going to be looking at those multiples? In other words, has the bar been raised? If it is at that level, you've certainly taken advantage of the -- as you call it frothy lodging market. I'm wondering if you would take advantage of any kind of asset sales in the future in terms of the resorts.

The last major ski resort to trade hands traded in 2002. It was Heavenly; it was acquired by us at 6.5 times trailing EBITDA. That is the last comp in our business. Since then, our Company with -- by any definition, trophy assets in the ski business -- has been trading at between 7 and 8 times trailing EBITDA. I have been saying loud and long that I thought that multiple was low and that I thought, as we posted strong back-to-back earnings years in 2004 and 2005, after the 9/11 and Iraqi war impacted years of 2002 and 2003, that we had every reason to believe that the multiples -- of which Vail Resorts' ski resorts are valued -- might in fact rise.

When and if Mammoth trades, we're going to see a multiple that, by rumor, is going to be much higher than 7 or 8 or 9 or 10 times. I don't exactly know what will happen there at this time. But I've got to assume that wherever Mammoth trades, that's got to be good news; that's got to be good news for us.

I was just handed a report that the rumors have been confirmed and the rumors that Starwood Capital has acquired Mammoth have been announced by InterWest at a big number, at a big, big number. I don't want to talk about their EBITDA, but I don't see how you can look at the multiple of Mammoth and think that an 8 multiple of Vail and Beaver Creek and Heavenly and Keystone and Breckenridge is the same. I think that's got to be good news for us, and over time, I would expect our multiples would rise as a result of the most recent comp. I don't think it's a one-off, for what it's worth.

As to whether we would capitalize on the current frothy ski market the way we capitalize on the frothy logic market, I don't think so, Felicia. I mean, my view has been always never say never about anything. We, I think, are smart and opportunistic people, but the ski report business is our absolute, central and core business. In the hotel business, which was less core, we were able to devise strategy where we could sell the hotels and still maintain management, so it really wasn't a strategic change. I don't think we're going to put any of our ski resorts up on the block. But I would like to think that the public markets will give us proper valuation for those resorts, given the recent comparable.

I guess, in terms of acquiring assets at opportunistic rates, that window might be closed in the short-term.

Maybe, maybe not. But I would remind you this -- we didn't buy any ski resorts in 2004, and we didn't buy any ski resorts in 2005. EBITDA from Mountain and Lodging operations went from $104 million to $168 million. I believe our Company is fully capable of driving significant and internal growth and organic growth, and I don't believe we need to acquire to impress you all with the earnings capability of our current asset base.

Okay, thanks a lot, Adam.

Will Marks with JMP Securities.

Good morning. I had a few questions. On this 80 to $92 million range, what -- can you tell me -- I know your explanation was good why the low end of the range. What would that be? How should look at that on book value and what would that be after tax? I guess that's my question.

I will let Jeff take it, Will.

Will, obviously that would be the EBITDA that we are estimating there, which would be profit after taking into consideration any land basis and any obviously costs that we incur to develop the property. So, you know, that would be -- if you think about it, that would be the profit after all of those. If you think about it from a future cash-flow standpoint since we've already had the investment in the land and some of the other costs -- planning and such, then the cash flow from that would actually be higher.

Okay, but then after tax?

Yes, from a tax standpoint, I think one thing that the good news about our earnings this year is that we had much stronger net income than we've had previously. The bad news is that we will now anticipate that we will start to become a taxpayer starting in next year, in calendar 2006, we are a calendar taxpayer. Now, we did disclose in the 10-K this year that we've recently amended some historical tax trends to try to free up a significant amount of NOLs, and if we are successful in that, which we think we're not saying it's probable that we will be at the current time, but if we are successful, that would obviously push some of that tax paying out into the future. But right now, you should consider that we would be paying taxes on the real estate profit, just as much as we're going to be paying taxes on the rest of our operations, starting about halfway into 2006.

Okay, great. Another question on the -- let's see -- to clarify, you mentioned the 6 acres for new development, 300,000 square feet. That does not include -- Ritz is a separate 200,000, right?

Yes, those are ballpark numbers. I think Ritz will be more than 200,000 and the 6 acres -- what we call the Holy Cross site -- no religious connotation, there's a mountain called Holy Cross -- it will be under 300,000 feet. Together, there's going to be in the neighborhood of 500,000 feet.

Okay. Then, on Sarbanes-Oxley, I assume, in the past, you've said sort of potential growth for '06 would be in a little bit of Sarbanes-Oxley savings. Is that still the case?

How about a lot of Sarbanes-Oxley savings?

Well --.

Not any expensive law passed by the United States Congress. But interestingly, everybody moans about the costs, but I will tell you, as a company that had to document over 2,000 controls and test over 1,000 controls, our accounting function is light-years stronger than it was just a few years ago. I think Vail Resorts will benefit from having better, stronger and tighter controls.

I should point out that Sarbanes-Oxley is most expensive in the first year of compliance, but Sarbanes-Oxley does not go away after year one and we will have significant, added cost to comply with Sarbanes-Oxley 404 going forward. It should be millions less than what it cost in year one, however.

Okay. Then two other quick questions -- sorry, I lost my train of thought here. On any other lodging sales -- you know, you mentioned the one that's in the works, but would you consider selling anything else?

Snake River Lodge and Spa is officially on the market. I've confirmed that the bidding interest is high and the valuation is exciting for us. You know, we would look at other hotels in our own stable. It's interesting; in September of 2004, just 13 months ago, I first articulated publicly the strategy to start converting some of our owned to managed hotels. We said we would sell one to four hotels within 18 months. We sold our first hotel within 90 days; we sold three within ten months, and a fourth one is on the block in the near term. I don't know if we will go beyond four; it's not inconceivable, but the four that we had identified a year back are the four that either have been sold or are now up for sale.

Okay. Just before -- I don't want to hog the floor any longer but I want to ask you one final question. You mentioned maybe -- (technical difficulty) -- a fifth of your season pass sales are -- (technical difficulty) -- by this point but I would think you would have a good indication of Christmas traffic at this point. Any thoughts there?

What I said is a fifth of our total hotel bookings for the full season would be booked by now.

Okay, right; I got that.

For season passes, we're well north of 50%; somewhere between 50 and 75% of our season passes would be sold by now. Christmas looks good. You know, it all kind of looks good. It's been a good-news morning. What can I tell you?

Jeff Kaufman (ph) with George Weiss.

Jeff, good morning. I'm glad you were able to make the call.

You as well. Jeff, I want to follow up on some comments you made on the NOL, because I think Adam was hitting very clearly a number of assets that you might not be getting credit for but I think the NOLs are potentially one of them. Can you talk a little bit about what you are trying to do, and if successful, how much of the NOL that would free up?

I guess second, to the extent you succeed with some of these real estate projects and those come on line, say, in '07 or '08, is there any chance you might get more than the $8 million limitation on the federal to offset against that and talk a little bit about the 25 million California statement of it as well?

Sure. I will try to keep it brief for everyone on the call now, on the tax side, and then obviously we can continue to talk about it if others have questions. The NOL -- we currently have over 130 million of federal NOLs, but as you have mentioned, they are limited to a utilization of about $8 million a year. That utilization will expire in 2007 as we currently sit today.

Now, as we explained in our tax footnote in this 10-K that we filed today, we have gone through the effort of amending some past returns in an attempt to try to free up about $74 million of NOLs that we would be able to utilize in excess of this $8 million limitation. Again, I won't get into -- it's very complex and we're not sure that the service will accept these amended returns. Therefore, we have not, at this point, booked a deferred tax asset related to that. But, we're making the attempt; it's definitely worth the attempt, and if that happens, obviously we would be able to apply 74 million of NOLs towards this -- you know, towards our pretax income, from a tax standpoint, in the future, which is a big number and obviously would help offset and defer a lot of the income that we will be making on this real estate project as it comes to fruition here in the next few years.

We also have some state NOLs in the State of California, and obviously we operate Heavenly in that state and can use some of those and would plan on using those quarterly. All of those will factor into our estimates.

So, I guess to summarize, before taking into consideration any utilization of the 74 million of NOLs, we believe we will start to become a taxpayer in the next fiscal year. You will see a current income tax payable for the first time on our balance sheet of about $12 million. That signifies that we expect to start paying in taxes towards our calendar 2006 return throughout the year. We will see what happens with the NOLs. Hopefully those push -- if we are successful, we can push a lot of that back out.

Okay, that's what I was looking for, guys. Thanks and good luck on the new year.

(OPERATOR INSTRUCTIONS). Michael Niederman (ph) with Ridgecrest Partners.

Just a couple of questions -- maybe you answered this and I was just not paying attention. What is your CapEx budget that you've laid out I guess for this calendar year?

We did not actually mention it, so you were paying close attention.

Would you like to know the temperature here in New York?

(LAUGHTER). You were paying attention! When you're in the ski business, you care about things like this. It's really efficient to make snow at 28 degrees and under!

You know, ball-park ranges, we're spending about $65 million a year in CapEx in our Resort business, of which 35 to 40 million of that is maintenance CapEx. The rest is in investment projects, on which we think we will get incremental ROI returns.

Is that including what you have possibly planned for, I guess, the rebuilding or whatever you plan to do with Vail?

No, because the numbers I just gave you are only for our Mountain and Lodging segments. The Real Estate CapEx is almost a self-concentrating loop because, as we invest money through capital expenditures in our real estate, those -- dollar for dollar, those dollars are added to the value of the real estate holdings held-for-sale, which then in turn -- you know, you look forward and maybe a 24-month construction cycle -- that the book value plus the profit comes back very quickly.

So that's a separate issue?

Real Estate is a separate and closed loop -- closed and loop.

The second question is and maybe you don't give this out, but last year, what were your seasonal passes up in price?

We do actually mention it. We went up -- depending upon -- you know, we had different price increases all year long, but they went up to 6% or so, kind of 20 to $40 increases year-over-year. This year, again, depending upon when you bought your pass last year and what you are going to pay -- when you buy your pass this year -- because there have been a series of price increases throughout the season past sale period -- again, you could be looking at a 20 to $40 increase, year-over-year.

From the standpoint of us as resort operator, these are healthy price increases. From the standpoint of the consumer, it's still a bargain. Our season pass prices are still half of what they were a decade ago. So it is a classic definition of win-win. You know, we're keeping prices low for the consumer and yet we are getting attractive increases year-over-year.

Somewhere between a fifth and a quarter of total lift-ticket revenue for the year is now coming in through season past sales, which is a nice hedge against weather, because those season pass sales are coming at the beginning of the year and the money is in the bank. In volumes, they are not small. We sold more than 110,000 season passes last year in the front range of Colorado. Fortunately for us, they didn't all show up on a single day.

Lastly, I'm not sure if you do look at this way -- do you list or have resale values of real estate, or is that something that is part of your real estate program?

Explain what you mean by resale -- (multiple speakers).

Basically, once you sell a property, do you also go through the aspect of being a real estate broker and doing resales?

Yes, no. By definition, if it's a resale, we don't have any inventory so we don't get the profit. But with respect to the brokerage business, we own 50% of the largest real estate brokerage company in Eagle County, Colorado, which does more than two-thirds of the real estate activity in Eagle County. Last year, this brokerage company moved approximately $1 billion of real estate, both new and resale listings.

Okay, so you do participate in that?

In a big way; we are a 50% owner of that real estate brokerage company.

There are no further questions at this time.

Operator, just ask everybody one more time before we sign off, if you would?

Okay, thank you, sir. (OPERATOR INSTRUCTIONS). There are no questions at this time, sir.

Thank you, Operator.

Let me very briefly summarize the call, what I've said this morning, and what Jeff has said this morning. Resort EBITDA went from 144.6 to $167.5 million in fiscal 2005. It was a great year. We have the strongest balance sheet ever; it appears from (indiscernible) that Mammoth is trading at a multiple that is very good news for current holders of Vail Resorts stock. It snowed last night; it's cold. The ski season starts next month. Vail New Dawn is underway. Real estate construction and real estate development is a very, very exciting opportunity for Vail Resorts. Needless to say, put it all together, we believe Vail Resorts is extremely well-positioned to continue our momentum in the fiscal 2006.

Thank you, everyone, for participating. Good-bye.

This concludes today's conference call. You may now disconnect.