Vail Resorts Inc (MTN) 2006 Q1 法說會逐字稿

My name is Toni and I will be your conference facilitator today. I would welcome everyone to the Vail Resorts, Inc., first quarter 2006 earnings release broadcast. After the speakers' remarks there will be a question-and-answer session. [OPERATOR INSTRUCTIONS]. Mr. Adam Aron, Chairman and Chief Executive officer of Vail Resort Inc., you may begin.

Thank you operator. Good Morning everyone, welcome to the Vail Resorts fiscal 2006, first quarters earnings conference call and simultaneous webcast, both open to the public and the press at large. I'm Adam Aron, the Chairman and CEO of Vail Resorts. Joining me in the call this morning from quite a snowed-filled Vail, Colorado, is Jeff Jones, our Senior Vice President and Chief Financial Officer.

At the completion of my prepared remarks, both Jeff and I will both be happy to take any questions you may have. I can't help but start this call by talking about the press release we issued Monday afternoon of this week; in which we announced that we've had enormous snowfall at our resorts already this ski season. How much snow, you ask? Well, at the time, Monday, it was over 11 feet of snow having fallen at Vail. Today, Wednesday, we're at almost 12.5 feet of snow having cumulatively fallen at Vail, making this the single best season snowfall as of December 5 or December 7 that we've had in Vail's 43-year history.

Vail's not the only one of our resorts to be blessed with a tremendous amount of snow. Beaver Creek also has more than 11 feet of snow, has a record in its history for season snowfall to date. Beaver Creek, Keystone and Breckenridge all have received over 10 feet of snow already this year. Heavenly received as much as five feet of fresh powder on a single day alone, last week at various points, on Heavenly Mountain.

As a result, ski conditions, as you might suspect, are simply fabulous. Especially at our Colorado resorts. We've been able to open more terrain and do so faster than we've been able to do in years past. Similarly, these terrain openings have come earlier than we had originally planned for this year. For example, Vail's back bowls are already open. It's only December 7. That's well ahead of schedule. And Blue Sky Basin will open two days from now, this Friday, December 9, a full week ahead of schedule. This is the second earliest opening ever in our history for Vail's back bowls and Blue Sky Basin. Because of snowfall, some 80% above the historic average at Breckenridge, we opened our new Imperial Express chairlift two days ago on Monday, December 5, more than five weeks ahead of schedule. The significance of this new lift is more than just that this is the highest lift in North America, dropping skiers off at 12,840 feet.

It also provides lift service at Breckenridge for the first time ever to 400 acres of pristine bowl skiing that we think will add an extraordinary new dimension for Breckenridge guests. This heady snow saga for us continues at our Keystone Resort where we already have about 2,500 acres of ski terrain open for skiers and snowboarders. The most open terrain at this time of year in Keystone's 35-year history. That's more than 40% more terrain than Keystone had open last year at this time. And to put in perspective just how much terrain this really is, 2,500 acres of skiable terrain at Keystone is more than 3.5 times the entire size of what Aspen Mountain would offer and more than double what Crested Butte would offer at the peak of their ski seasons let alone now and early December.

I also will point out that the recent near whiteout blizzards at Beaver Creek were televised across the world as we just completed up four days of very successful World Cup ski races, the only World Cup event to occur in the United States this year. The fact that two stars of US skiing, Boddie Miller and Darrell Rawls, respectively won their races over and over again gave us significant extra newspaper coverage, especially in sports pages of the US media in this Olympic year.

Like Vail, Beaver Creek snowfall is its best ever, too, for this time of year. Needless to say, this is also good news for Vail Resorts because the combined quantity of snow and terrain allows us to raise our ticket prices earlier in the year than budgeted, and our guests couldn't be happier with the best conditions we've seen in years and years and years. So what does all this mean for Vail Resorts? Well, we benefit in two significant, quite meaningful ways. First, although we have more reliable annual snowfall year in and year out at our resorts than most other areas of the country, and even though we have mitigated snowfall risk through significant investments in snow making as well as the considerable season pass sales that we've enjoyed over the past several years, it is nonetheless true that the vagary of the weather is a risk factor for Vail resorts. While given Vail's more than 12 feet of snowfall so far this season as an indicator, snow is one risk factor that we do not have to worry about right now.

Second, in the past, we've always talked about how helpful can be to pick up early season momentum. If we pick up what might be called an early season buzz, there should be a revenue benefit throughout the balance of the ski season. It sure feels to us that this is precisely what is happening right now for Vail Resorts. I'm going come back to give you more color about the 2005-2006 ski season, but before I do, I want to turn to the press release issued this morning announcing our earning for the first quarter of fiscal 2006 which ended October 31, 2005.

Before we do so, I need to remind you that in conjunction with the SEC rules, regarding the use of non-GAAP financial measures. Were using the terms, reported EBITDA and reported EBITDA excluding stock-based compensation to discuss earnings for each of our operating segments, namely, mountain, lodging, resort, which is the sum of mountain and lodging, and real estate. Complete definitions reported EBITDA and other measures can be found in this morning's press release or on the Vail Resorts.com website, in the Investors relations section under tab, regulation-G compliance.

If looking at the first quarter of fiscal 2006, we're pleased that we did better than our own internal expectations, creating in fact a cushion for us as we focus on the balance of the year. Having said that, it's pretty hard to get all that worked up about first-quarter financials for Vail Resort, at any case, whether they be bad or good. First-quarter financials are just not that determinative for this company, because as you know there's not a lot of skiing in August, September, or October in Colorado and the great American west. The importance of the quarter as it much more relates to how well we set ourselves up for the fiscal second and third quarters, November through April, when we generate the vast majority of our annual income for the year.

It's also important to point out that as of August 1, 2005, the first day of fiscal 2006, Vail Resorts was one of the first public companies required to adopt a fair value recognition provisions of SFAS123-R, share based payments using the modified perspective method. Although, more complex than time constraints this call would allow us to explain in exhaustive detail, this new pronouncement included, as you all know, the new requirement for companies to value and expense stock options together with the previous requirements of value and expense restricted share awards.

As a result, the Company recorded total stock-based compensation expense of $1.7 million, included in segment operating expense in the first quarter of fiscal 2006. This is $1.6 million more expense than the $100,000 of restricted share expense reported in Q1 of last year. With that said, as preface, the financial results of the first fiscal quarter of 2006 were solid compared to last year, and better as I said than our internal projections. We were very encouraged by the increased group business, our lodging properties experienced over the summer. Equally encouraged by a 10% increase in total summer visitation despite high gas prices.

Our Heavenly, Keystone, and Breckenridge Resorts did especially well during summer. Golf operations were also much improved especially at Red Sky Ranch. We continued to manage expenses well. The result is that mountain segment revenues grew 16.8% in the first quarter, and the margins associated with reported EBITDA excluding stock-based compensation expense improved in our mountain segment by eight full points. Now I know that with the expected seasonal loss of the first quarter, interpreting these negative numbers always feels a little counterintuitive as the negatives keep on going forward and backwards and forward again, triple negatives are hard to understand. But excluding the new SFAS123-R impact of stock-base compensation expense, our first-quarter mountain segment margins improved from negative 83% last year to negative 75% this year. Needless phos we can maintain margin improvement in the mountain segment all yearlong, that would be good news indeed. Turning to logic, reported EBITDA excluding stock-based comp was $4.5 million, up some $3.7 million year over year.

Now for sure, $2.8 million of that spread came from the sale of our interests, that is the sale of a very favorable valuations I might add, in the Vail Marriott, Lodge at Ranch Mirage, and Ritz Carlton, Carlton-Bachelor Gulch. This is because we eliminated from this year's first-quarter results the probability of having to include an amount similar to the seasonably negative first-quarter reported EBITDA these three properties incurred last year. To the contrary as opposed to having negative first-quarter contribution from the sold properties this year, we got positive management fee income from our managing the Vail and Palm Springs properties instead.

But even reversing out the negative $2.8 million from last year's results, lodging reported EBITDA excluding stock-based compensation was still up $900 thousand this year, up an impressive 25% on the $3.6 million baseline, had we excluded the Marriott, Rancho, and Ritz from last year's first-quarter results. This growth in lodging reported EBITDA comes from continued advances in rev par or revenue per available room and most of our owned and managed properties. Indeed most of these properties experienced both increases in occupancy and increases in average daily rate during the first-quarter of 2006.

As I do each quarter, I'd like to provide you with some statistics for our own hotels, overall rev par, occupancy times rate, at Rock Resorts' own hotels was up $23.00, a very healthy 28% rise year over year. Rock Resorts own hotels increased to a 66% occupancy for the quarter, up nine points or 16% from the 57% occupancy for the same period last year. Not only were occupancies up, but so, too, were rates. The average daily rates of the Rock Resorts own properties increased from $145.00 last year to $159.00 this year. An increase of $14.00 or 10%. These figures on a same-store basis, therefore, do not include the Sole, Lodge at Rancho Mirage. Results for the Vail Resorts own hotels that do not carry the Rock Resort brand, hotels that primarily concentrate the base of our Colorado ski resorts and in Wyoming, also saw revenue growth, although that growth was much more modest, occupancy increased two points this year from 59% to 61%. An average daily rate increased $2.00 year over year from $144.00 to $146.00. Resulting in a 4% increase in rev par. This rev par increase was driven primarily by growth at the Grand Teton Company, the Great Divide Lodge in Breckenridge and at the Inn at Keystone, again this figures are on the same-store basis and therefore,do not include the now sold Del Marriott.

Speaking of the Grand Teton Lodge Company during the quarter, we turned in our bid for a 15-year renewal of our national parks service concession in Grand Teton National Park in Jackson Hole. To our knowledge, we have only one other credible seeker of that concession contract. And given our performance in Wyoming, in both meeting and exceeding park service needs and objectives, we strongly believe we're deserving of contract renewal. We expect to hear an outcome of that bid process in the February to May time frame, but have received confirmation from the National Park Service, that in any event regardless of what happens in the bid process, we will continue to operate the concession through the entirety of the 2006 summer season, which extends into the first quarter of our fiscal 2007.

In total, combining mountain and lodging reported EBITDA excluding stock-based compensation for our resort segment improved by $2.1 million or 7.6% year over year for the quarter. Turning to real estate.

Reported EBITDA for our real estate division decreased $9.6 million, as expected, due primarily to lower inventory for sale in Vail at Bachelor Gulch, during the first quarter this year compared last. As most of you know, fiscal 2006 is the year most affected by our decision to emphasize what we expect to be much more profitable and quite lucrative, namely vertical development as contrasted with primarily but not exclusively having sold land in prior years. Since we do not book any revenue or income until we finally deliver a finished condominium unit to its buyer and given an approximate two-year construction cycle for our larger residential projects, it will be in 2007, 2008 and beyond, that we'll see the real fruits that success.

Loss from operations in the fiscal first quarter increased $8.3 million to a loss of $49.9 million. As a result of the expected drop in real estate reported EBITDA as well as the adoption of SFAS123-R and the resulting increase in stock-based compensation expense this fiscal year. This all reverberated throughout the income statement as we reported a net loss of $34.3 million or $0.93 per diluted share for the quarter compared to a loss of $31.5 million or $0.89 per diluted share last year. However, excluding the stock-based compensation expense, the net loss for the first quarter of fiscal 2006 would have been $33.3 million or $0.90 per diluted share. This latter figure is $0.03 per share better than consensus estimates that called for a loss in the quarter of $0.93. But as best we can determine, that was for the most part without a provision for stock-based compensation expense.

So much for the quarter. As I've said, what's far more important is where we stand at this point for the entirety of the 2005-2006 ski season. All of fiscal 2006 and beyond. We're less than a month into the 2005- 2006 ski season as we speak. For several reasons we could not be more excited with the momentum we have built and the buzz we intend to continue to create going into the heart of the season.

First as I said, we have now had excellent snowfall at all five of our resorts. Incidentally, you'll see a full-page ad this morning in the national edition of the "Wall Street Journal", page A-5. That will be repeated in the national edition of the "USA Today" later this week,totting our record snowfall. The ad includes a photo taken on our mountains, just two days ago.

Second, we're on pace to generate another record season pass sales effort.

Third, bookings for the ski season are solid. Our phones continue to ring, and our web site continue to get traffic. Especially as we get more and more media coverage of all this snow.

Fourth, we continue to invest in our resorts, which allows us to charge premium prices for the first-class product we offer at the industry's best mountain resorts.

And fifth, helping our lodging business we've picked up yet another hotel management contract. I've already talked about snow, so second let's talk about season pass sales. Thanks to achieving yet another sales record for season pass sales, we have already generated and put in the bank over $50 million in lift ticket dollars, up 7% over last years record amount at this time.

As in prior years, these sales will be recorded as revenue throughout our second and third fiscal quarters, when and as, pass holders actual our scanned at our ski lifts. Third, as for advanced bookings. We have a variety of metrics which seem to us encouraging. Vacation revenue and dollars booked through our central reservation system at almost all of the lodging properties in our base villages,regardless of whether or not we own or manage these properties is approximately 2% ahead of last year at this time, but those same bookings are up over 6% in the past four weeks, since the snows started to fly. And this is one channel to book into these properties. Anecdotally, we're hearing reports of very strong double-digits booking growth at several of the more prominent third-party properties in our bed-basins.

As for our owned and managed hotel in condominium properties in Colorado, individual room night revenue booked is up 5%. Airline bookings in the Eagle county airport, serving both, Vail and Beaver Creek are up 5% compared this time last season. They're up 12% compared to this time two seasons ago. Ski school advance reservations are also quite strong. For example, Vail Mountain's advanced bookings for private ski instruction is up approximately 10%.

And we can confirm that as of this writing, Christmas and New Year's bookings across the board are robust. We can also report that the ski season has gotten off to a very good start in November. Both in terms of visitation and spending. Traffic to our web sites has also gone up as the snow has come down. In November, we had the benefit of some 2.9 million unique visits to the primary consumer web sites of our ski resorts, up 9% year over year. Fourth factor.

Moving onto the quality of the product that we offer and what that allows us to do with respect to lift ticket pricing, we announced in the press release this morning our -- for the first time our single-day lift ticket pricing that will go into effect at our ticket windows later this month. Vail and Beaver Creek's will increase $4.00 or 5.2% year over year to $81.00, and Breckenridge and Keystone will increase $4.00 or 5.6 % year over year to $75.00. Heavenly will rise by $5.00 or 7.4% to $73.00. We're confident that the consumer will continue to perceive great value from the significant product and enhancements we've made at our resorts even with these not insignificant pricing changes. And fifth, finally, we announced the morning we gained another hotel management contract which will provide us with added management income.

The Austria House in Vail, Colorado, is a small but very high-end property that we started managing on December 1. That will give us more luxury inventory for our lodge at Vail, a Rock Resort. Our hotel group has been quite active of late, and we are now in serious and advanced discussions about securing more hotel management contracts both at the base upon our ski resorts and around the country. Similarly, the sales process of the Snake River Lodge, our resort in Jackson Hole, is going well. We would anticipate good news to report on this front soon enough. Both with respect to the sales price and the likelihood that we will continue to manage the hotel. Clearly there are smiles on our faces this morning. But I should caution everybody on the call that in terms of visitation to our ski resorts so far this year, we have complete less than 10% of the ski season so far, and here are central reservation business we traditionally as of this date, take less than half of the ski season bookings that we ultimately will book, as booking activity will continue in earnest in December through early March.

So we're still a long way from knowing for sure the outcome of the 2005-2006 ski season. What we do know now today, however, looks good. And finally, let's talk real estate. We continue to be enormously excited by our ongoing real estate projects and prospects. We make progress every single day on our Arrabelle and Gore Creek Place construction sites. For those of you who will ski this winter, you going to see a really big hole by the lines at gondola, site of the Arrabelle. I'm pleased to report we've done a fine job of protecting the line at ski yard from the construction site itself. So we did not think skiers are going to feel inconvenienced by the construction. To the contrary, we think we've created a new tourist attraction. We think they're going to be fascinated to visualize how pretty this part of Vail is going to be just two winters from now, when the Arrabelle and Vail Square are complete. The process is not just in Vail on the real estate front.

Our Breckenridge and Jackson Hole projects both sold out in the first fiscal quarter of 2006. And our real estate group has its eyes on projects at each of our mountain resorts including for the first time ever at Heavenly. We continue to expect as we've said before that real estate will produce a much larger contribution to Vail Resorts starting in fiscal years 2007, 2008, and beyond. So far this year, not only is the construction of the sought-out Arrabelle and Gore Creek Place projects well underway but we continue to make good progress in securing the necessary governmental approvals for our proposed Vail Front Door and Ritz-Carlton Residences Vail projects.

As we consistently have been saying, we believe that all of these projects will be lucrative for us in the foreseeable future. Although difficult to precisely forecast, our construction costs have been rising of late. We believe they may continue to do so, which appears to be similarly true for construction costs in the United States generally. As such, these cost escalation may cause us to fall somewhat below our previously announced anticipated income range estimates for the Arrabelle and Gore Creek Place projects taken together.

Even so with the magnitude of development opportunities ahead of us, especially in the strong Vail market which would appear to benefit from considerable pin-up demand, we are highly confident in the fundamental, inherent and underlying value of our real estate holdings. From a real estate cash flow perspective we're finalizing documentation on nonrecourse financing for the Arrabelle project right now. This nonrecourse financing will be similar in pricing and structure to the favorable terms of the work free place nonrecourse financing complete this summer. And the Arrabelle financing effort is overwhelmingly oversubscribed, showing the confidence that lenders have in these Vail vertical real estate projects, as well.

As I conclude, as promised in our fiscal 2005 year-end conference call, I'd like to update guidance for the projected impact for the adoption of SFAS123-R the expensing of stock-based compensation. Based on our current estimates, we believe the stock-based compensation expense for fiscal 2006 will be approximately $6.9 million, this expense will be allocated between our three operating segments as follows -- $3.8 million in mountain expense. $1.6 million in lodging expense. And $1.5 million in real estate expense.

Given these estimates, we now expect mountain reported EBITDA for fiscal 2006, to range from $161 million to $171 million, and lodging reported EBITDA to range between $6 million and $13 million, we expect total resort reported EBITDA to range between $170 million and $180 million. Real estate reported EBITDA should range from $4 million to $9 million. We remind you that this is a construction year for our real estate division with highly lucrative projects being under construction. Much larger numbers are immediately ahead in 2007, 2008, and beyond. We expect net income to range from $30 million to $39 million for the entirety of fiscal 2006.

However, it is further clarify that guidance, the only change we are making with this just aforementioned guidance range is the inclusion of SFAS123-R impacts. Without the effect of stock-based compensation expense, our 2006 guidance issued October 5, is hereby reiterated without change. Those numbers were nonreported EBITDA expected to range between $165 million and $175 million. Lodging reported EBITDA expected to range between $8 million and $15 million. Resort reported EBITDA expected to range between $175 million and $185 million. Real estate reported EBITDA expected between $5 million and $10 million. And net income expected to range for full fiscal 2006 between $34 million and $43 million.

At this juncture, Jeff and I will be happy to answer any of your questions. As you prepare for your questions, you know that I need to mention that the comments made during this conference caller than the statements of historical information are forward-looking statements that are made pursuant to safe harbor provisions and the Private Securities and Litigation Reform Act of 1995. Such risks and uncertainties include but are not limited to -- economic downturn; terrorist acts upon the United States; threat of or actual war; our ability to obtain financing and terms acceptable to us to finance our capital expenditure and growth strategy; our ability too develop our resort and real estate operations; competition in our nonlodging businesses; failure to commence or complete the planned real estate development projects; failure achieve the anticipated short or long-term financial benefits from the planned real estate development projects; implications arising from new Financial Accounting Standards Board "FASB" or other governmental legislation, rulings or interpretations; termination of existing hotel management contracts; our reliance on government permits or approval for use of federal lands or to make additional improvements; our ability to integrate or essentially operate future acquisitions; expenses or adverse consequences of current or future legal claims; shortages or rising costs in construction materials; adverse changes in the real estate market and unfavorable weather conditions. Emerging D&E investors are also directed to other risk and documents followed by the Company with the Securities and Exchange Commission. . Operator we are now ready for question.

[OPERATOR INSTRUCTIONS]

We'll pause for just a moment to compile the Q & A roster. Your first question comes from Grant Jordan of Wachovia Securities.

Good morning. A couple of just basic questions I guess. You gave your outlook for EBITDA and net income. If you could give us some sort of outlook for CAPEX and investment real estate.

Absolutely. I'll let Jeff, our CFO take that one. Good morning to you.

Grant, we budget our capital expenditures on a calendar year basis. And as such, we have not complete our budgeting efforts for the calendar '06 basis. What I would tell you, though, is we anticipate from the resort standpoint to continue to spend at approximately the same levels as we have in the past, excluding any unusual projects that, -- we might -- may identify. And that has been $60 million to $65 million in the resort business in the past. Which would include about $35 million to $38 million of maintenance capital. So I would anticipate when we go through our budgeting efforts we will approximate those numbers. But again we have not finalized that at this time.

On the real estate side it really is -- becomes a subject to the progress we're making and the timing of the capital that we're spending on the real estate development projects, the vertical projects that Adam mentioned earlier. So I think we're not in the position to -- to talk about that in specific detail for next year. But what I would tell you as I have mentioned in the past is that between the 15% deposits that we get on these real estate projects up front when we presell them that in the state of Colorado you can use toward your construction costs and with the nonrecourse financing that we've talked about just a little bit ago, but any capital that we're spending on the vertical projects will be self-funded through the two sources.

Okay, that kind of leads to my next question. I know I've asked this before, but it looks like you guys are set up for another solid year of free cash flow. You know, how do you see yourself deploying your capital as you move forward?

We think that the question you posed is actually one of the most important questions that we will be discussing with our Board of Directors in fiscal 2006. Obviously, we ended fiscal 2005 with a quite healthy cash position, about $135 million. We would expect to be free cash flow positive in fiscal 2006, as well. There are any number of options that we could consider on how to most smartly use that cash. We have smart people on the management team and smart people on our board. We do not want to make any mistakes. Things are going well now right now. I can tell you that every member of my board and the senior management team, our company, are shareholders of Vail Resorts. We act and think like shareholders. And we will try to put that cash to the use to improve the wealth of our shareholders generally.

Great. Thanks.

Your next question comes from Will Marks of JMP Securities.

Thank you, good morning, Jeff and Adam. A few questions. On your real estate help for sale and investment, roughly $195 million, can you divide that up between I guess maybe assets held for sale, construction in progress, and then land?

It's shifted now because we've continued the construction into the first quarter on the Gore Creek and Arabel Projects which are building that portion, the construction in progress portion that real estate held for sale. So at the end of the year when we had $155 million of real estate held for sale, two-thirds was land basis and one-third was construction in progress and planning costs. That's now shifted to about 50/50 at the end of the first quarter. So obviously the land basis hasn't changed. We haven't added to our land basis, but we've grown the size that represent the construction in progress. And that really is specifically almost entirely in the Vail projects that we talked about.

Yes, about $80 billion to $85 billion of that real estate held for sale number is at resorts other than Vail. So the entirety of the business is sitting in Vail, Colorado.

So it's $80 million to $85 million other than Vail, and --

The balance, which is what, one -- 10ish?

Yes?

Is in Vail property. Will, just not to confuse you. Right now about 50% that number is land basis at all of our resorts. The other 50% is construction in progress and planning. Adam's point is saying, another way to slice that same pie of the $195 million is $185 million of that total $195 million is basis not at our Vail or Lion's Head projects, which would include land in any construction and progress today which would be minimal at the other projects. So you can slice it a couple different ways to evaluate it.

Okay. So I guess -- real estate held for sale would not include the -- the Jackson Hole Hotel?

Mr. Aron: No.

Okay. That threw me for a loop as you discussed. I realized that wasn't part of it. What --

That's a resort asset. Not real estate --

It's actually and specifically if you look at the queue today and it was consistent with the 10-Q that we had out there at the end of the year, too. It's actually a separate line item on the balance sheet now called Assets Held for Sale. The $26 million 857,000 that's on the line item is the entire -- the entirety of our basis in the Snake River Lodge and Spa.

Got it. What is the update or did you give that? I apologize.

You were too busy reading our ad in the "Wall Street Journal" this morning. Yeah, I said on the call that we're very close to being in a position to report good news both if w respect to sale price and the likelihood that we will continue to manage the property.

Okay. A couple other questions. You mentioned construction costs being high. We know what Arrabelle and Gore Creek are generating in revenue. What are construction costs? As I recall you were talking before , 500 to 600 or -- do you want to comment on that?

Per square foot?

Yes.

Oh, you know, it -- I mean, every project is so different. I mean, I could give you projects that are $300 a square foot and projects are that are $1,000 a square foot production price. I just think for good order we wanted to -- we believe in full disclosure, and we want to let you know that if you didn't already that in the United States over the past year, we've been seeing escalation in construction costs. This has been going on for at least a year. Our crystal balls are no better than yours. But it makes sense to us that the construction costs will continue to rise going forward. And we just wanted to remind everybody that's the case. Having said that, I think we made a pretty strong statement in my script and in the press release this morning that I think we said we are highly confident in the fundamental inherent and underlying value of our real estate holdings thatch continues to be the case.

Okay. One final question. On your cash position dropped significantly from the fourth quarter. And it looks like from '04 to the first quarter, the previous year it didn't drop as much. What am I missing?

Yes, the big reasons -- first off in this year it was completely as expected, Will. When we say we anticipate having another positive free cash flow, you have the resort business, that's incorporating the -- you know, the reduction in the first quarter into that projection. We're right on pace cash flow with our internal projections. The difference between last year and this year is; last year we had a lot more real estate sales in the quarter. And when you add back to that the noncash real estate cost of sales, meaning what had been charged into those real estate EBITDA numbers but had been incurred in previous quarters, the real estate cash flow in the first quarter of last year was significantly better than the first quarter this year when we were a cash user because at the end of the year, I think we had about $136 million of cash on the balance sheet. But about $32 million of that were deposits in the real estate projects. And as the real estate projects were going through construction in the first quarter, you were using up that cash toward the initial pieces of the construction.

So you really had cash in flow coming in in the first quarter last year on real estate versus a cash outflow this year. Again, that all now gets picked up once we've used our deposits, that gets picked up with the nonrecourse financing going forward. So there won't be any more of a cash-use. The second piece is we did collect on a receivable, last year first quarter that, we -- was a one-time event that we had out there, fairly large receivable. Other than that, what I would tell you is the cash flow going down in this quarter was a combination of the real estate deposits being now used out that cash balance toward the construction projects and secondly, the first quarter general is just a big resort capital expenditure spending quarter because it's the summer up in -- right up until -- the ski resorts open. So a lot of our resort projects that we can specked out are actually being completed and paid for in that first quarter of the fiscal year.

Great. That's very helpful. Thanks, guys.

Your next question comes from Mimi Sokolowski of Sidoti & Co..

Hi, I have just two questions. Jeff, probably the first one is for you. D&A fluctuates quarter to quarter. Why does that happen and how should I think of it for the full year?

Well, the depreciation is down year over year in this quarter because of the hotel sales that we did during the year last year. If you take into consideration the Marriott sale, the Rancho sale, and on top of that ,the pending Snake sale, the accounting for that is we have classified that now, as I mentioned earlier, into an asset held for sale on the balance sheet which now makes it a nondeappreciable asset as we're going through the sale process. So when you combine those three properties, the depreciation that was attributable to those three properties in the first quarter last year, we would have been right on pace with -- with last year's depreciation. What I would tell you is given the current asset structure, the current year first quarter asset base is much more attributable to what you should look at going forward.

Okay, that's helpful. And then maybe the second one is for you, Adam, although maybe for Jeff, as well. In putting together the guidance for mountain and lodging EBITDA, if you were to assume the high end for the range for both of those, you would surpass the total resort EBITDA guidance.

And you wonder why that is and how that can be responsible.

Yes. Just what you're thinking.

Well, if you take the lower end of the range of both numbers, that would be less than the lower end of the total range. The reason is for both phenomena is because we are giving guidance estimates for each of those measures individually and we obviously have concluded if the resort range is narrower than the extremes of the mountain lodging ranges, then it is unlikely that we'll hit the exact max of both ranges to total to the -- the potential theoretical max of the resort range, plus we already have a $10 million wide range in resort EBITDA. And we thought if we gave you a $27 million range, you might not have much of a guidance. I think we're trying to hone in on where we -- last year we did have to increase the resort guidance range once. And then we actually outperformed that guidance range. So we -- we -- who knows where we'll really come. But that's the -- the mathematic reasons for the -- the narrower guidance range and resort.

Okay. I was wondering if perhaps you were hedging against something, if there was reason you were being conservative, but I understand.

No. If you go back to the last several years, we did the exact same thing.

Okay. Okay.

We tried to kind of pick the center, the logical center.

Okay.

Of the two.

All right. Then Jeff, just one final one for clarification. The $40 million increase in the real estate held for sale in the balance sheet, that's from construction in progress, the additional investment?

Yes, that's correct.

Just to clarify. I'm all done, thank you very much.

Thank you, Mimi. Good morning to you.

Thank you.

[OPERATOR INSTRUCTIONS]. Your next question comes from Eric Brown of Bank of America.

Hi. Have a couple of questions. First question is, what's the I guess status of the lift approval process for the Lift by the Ritz-Carlton, and is that the key determining factor in terms of the marketing of that project?

Status is great, Eric. And yes. That -- I think that is the most significant issue that will affect timing of taking the Ritz-Carlton Residences Vail to market. As best we can tell, there is great enthusiasm for the lift -- the new lift, you know, there -- that will be adjacent to the new Ritz-Carlton Residences, Vail. We have heard absolutely no opposition, literally not a soul has come forward yet to be -- to be concerned about our proposal. It's been, as you might imagine, front-page headlines in our local papers out here. We have already walked the site with town of Vail officials. We've walked the site with the head of the White River National Forest, with the regional director of the US Forest Service for the Rocky Mountain West. You know, there is a legal process that one has to go through. But we are hearing nothing but thumbs up, which makes us very encouraged about the ultimate outcome.

In terms of the timeframe of when we'll get approval, I'm expecting to be -- it to be the first half of 2006, calendar 2006. I can't quite exactly tell you what month exactly. As for the building because there are two projects here, right. There's the building and the lift next door, the building has unanimously been approved by the design review board of Vail. They're quite excited about its design. It's been unanimously proved by the planning commission in Vail, which is quite excited by its design. I went down to Dallas to see the interior design presentation. The same interior designers who did the Ritz-Carlton at Vasser Gulch and the building is going to be gorgeous inside and out. So we're all, you know, pretty bullish about the prospects for the Ritz-Carlton project, and we think approvals will be coming down the pike in the near term.

Great. One more question for -- I believe there's a proposed gondola in Avon. What the timing of that approval is, and if it is approved, can you maybe give a little bit of color on what type of I guess real estate opportunities you potentially could have there.

Sure. Again, we're in the same -- in similar position which is there are -- we're talking about the gondola in Avon and the real estate development at the foot of that gondola. There are legal processes that have to be followed in Colorado to seek formal town approvals. However, I know for a fact having spoken with the Mayor of Avon and the town manager of Avon, they're very enthusiastic about this project. We -- we actually garnered the entire community including the Mayor, the town manager and myself about -- with about 20 other speakers to a meeting of the public utilities commission of Colorado, to plead for changes in the railroad crossings in that area, and to support the project. The timing will probably be sometime in 2006. But again there's literally no opposition that I've heard of. In terms of our role in that project, the land at the base that gondola is already under contract for sale to a third party, for approximately $9 million. We would -- if that sale is not closed and it's contingent on the zoning for the new projects being approved, if the projected were approved we would be reported real estate profit in that land sale transaction. The reason that we decided to sell this off to a third-party developer rather than do it ourselves is because I mean we have a lot on our plate, as you know already. And we have chosen to focus our -- our vertical development efforts in Vail which we think, as you know, is going to be a quite lucrative market for us.

Also we have had great dealings with this third-party developer in the past. It's east-west partners. They have half of Vasser Gulch and Beaver Creek the past two decades. They have announced their plans for the site. It's quite dramatic. It's to build a Westin hotel, a Westin time share project, Westin-branded condominiums and town homes. It should be more than 1,000 new units at the base of the gondola which will connect to chairlifts taking you all the way to the mountaintop. Assuming it's approved, assuming it's built, assuming it's occupied, one could easily envision another 100 thousand skier days at the Beaver Creek Ski Resort, sleeping in that big thousand plus unit Westin project in base of the gondola.

As a rule of thumb ,we assume that an incremental skier day is worth about $50 in EBITDA to us. In addition to real estate profits, in today's dollars you could be looking at $5 million a year of extra EBITDA at our Beaver Creek Resort if and when this project becomes successful. It is a few years out, though. It's probably six to 18 months to start construction assuming it's approved, two years to built. So this is a few years out for Beaver Creek's future. But it's obviously an exciting prospects for us, for our Beaver Creek Resort.

Okay. Last question. Jeff, what was the share count in Q1? What led -- it looks like it went up a little bit from Q4.

Yes, it was I think on -- there was no delusion in the quarter because -- because of the loss. It was $36.7 million I believe. I'll confirm that but I think it was right in that.

Okay. Thanks.

And that's obviously due to stock option exercises that were happening in the quarter. 36,790.

Eric, thank you very much. Anything else?

Your next question comes from Will Marks of JMP Securities.

Thanks, just very quick follow up. On the option expense, what would it have been for '05, can you give that figure?

We anticipate it would have been about $1.1 billion versus the $1.7 million this year. And really the difference, the vast majority of the difference is due to the -- you know, much higher stock price that we have that is -- has caused the prior year [Black Shull] value was almost half of what our current value is under the binomial method that we've chosen.

What about full year?

Well, full year I believe would have been about $4.5 million compared to the $6.9 million that we are projecting this year.

Will, it's Adam. In light of the rising share price, in light of the requirements for option expensing, in our annual stock option grants which were made this September, we did actually reduce dramatically the number of options and restricted shares that were granted the year compared prior years.

Okay. Yes, that's helpful. Thank you.

And -- and I should be clear that when I say that amount, I'm talking amounts that are generally offered to each officer individually. There may be a special exception or two in longer term deals affecting the total.

But the bottom line is, Will, when you're comparing year over year, obviously this year even under the exact same number of grants would be more expensive because that value that we have to apply is higher. And it's really because of where our stock price is now versus where it was a year ago. And I think our choice of the binomial method is the way to best estimate what the expense should be. And obviously we're going to just continue because we're in a year of transition and we're one of the first public companies to have to do this we're going to continue to disclose the numbers -- both with and without. So I think it allows you guys to handle the stock options expensing appropriately the way you look at it. Clearly, though, to the market, there's no difference in the cash implications of -- of issuing stock options and restricted shares as compared prior years. It's just in the accounting for the expense.

[OPERATOR INSTRUCTIONS]. We'll pause for just a moment to compile the Q&A roster. At this time, there are no further questions. Mr. Aron, there any closing remarks?

Operator, just to make sure everybody had a crack, if they want us, can you just poll for questions one more time.

Yes, sir. [OPERATOR INSTRUCTIONS] We'll pause for a moment to compile the Q&A roster. And there are still no questions in queue, sir.

Thank you, operator. I may have neglected to mention one thing that I'd like to add. I don't know that if I necessarily stressed, we have 12 feet of snow, everybody. 12 feet. The record set for snow conditions much you're ever thinking about skiing, this would be a good winter to come to Colorado. You'd probably have fun. Anyway, everybody, thank you for participating. We appreciate your time. We look forward to seeing you throughout the year. We're off.

Thank you for participating in today's Vail Resort first quarter fiscal 2006, earnings release broadcast. This will be available for replay beginning at 1:00 today through 11:59 p.m. eastern time on Wednesday, December 14, 2005. The ID number for the replay is 289-7026. Again the ID number for the replay is 289-7026. The number to dial is 1-800-642-1867 or 706-645-9291. Thank you.