Vail Resorts Inc (MTN) 2006 Q2 法說會逐字稿

At this time I would like to welcome everyone to the fiscal 2006 second quarter earnings conference call. [OPERATOR INSTRUCTIONS] Mr. Katz, you may begin the conference.

Thank you, operator. Good morning, everyone. Welcome to the Vail Resorts fiscal 2006 second quarter earnings conference call and simultaneous webcast both open to the public and press at large. I'm Rob Katz, the new CEO of Vail Resorts. Joining me on the call this morning is Jeff Jones, our Senior Executive Vice President and Chief Financial Officer.

Let me start by saying that I am very excited by the opportunity to take this position. As many of you are aware, I spent many years with the Company as a shareholder and Board member and have been a part of most of the major initiatives the Company has undertaken over the past 14 years. However, I am really looking forward to taking a more active role in guiding the Company's strategic direction and overseeing an outstanding executive team. I have had the opportunity to talk with a number of you over the past years and I look forward to building those relationships. To those I have not yet met I hope to see many of you at our investor conference scheduled for March 29, through the 31, in Vail.

I would like to take a brief opportunity to thank Adam Aron for all of his contributions to this company over the past ten years. I believe that he brought a whole new level of sophistication to the mountain resort industry and I know I speak for everyone here in wishing him the best in the next chapter of his life. Let's now move on to a discussion of our record second quarter results.

Earlier this morning, we released our earnings for the second fiscal quarter ending January 31, 2006. Before we review these results I want to remind you that we are using the term reported EBITDA to report earnings for each of our operating segments, namely mountain lodging, resort, which you know as the combination of mountain and lodging segments, and real estate. Complete reconciliations of reported EBITDA and other non-GAAP financial measures can be found in this morning's earnings release and on the VailResorts.com website in the Investor Relations section under the Regulation G compliance tab. With that said let's turn to our results which were strong in a number of key areas.

Skier visits were up at all four Colorado resorts more than offsetting a decline at Heavenly due to some challenging weather over the Christmas holiday period. Skier visits were up due to increases in both paid ticket sales and season pass usage and I am pleased that we were able to report an increase in overall yield despite the increased visitation from our season pass holders. Revenue from ski school, dining, and retail rental were also sharply up as we continued our strategy of bringing guests into more of our service offerings. Finally I was glad to see our continued focus on holding down expenses as we saw good reported EBITDA flow-through with resort reported EBITDA excluding stock-based compensation growing by 16.9% as compared to our resort revenue growth of 8.4%.

I would like now to turn the call over to Jeff Jones who will give you a more detailed overview of our results for the quarter and our review of guidance for the remainder of the fiscal year. I will then review the status of some of our real estate projects, give some details on our capital plan for 2006 and briefly discuss the relocation of our corporate headquarters. Jeff and I will then both be available to answer questions, let's now turn to Jeff for our second quarter results.

Thanks Rob and good morning everyone. As Rob previously mentioned earlier this morning we released our earnings for the second fiscal quarter ended January 31, 2006 and for the fourth consecutive year we had record second quarter, resort reported EBITDA results. We also filed this morning our Form 10-Q for the second quarter. I'd now like to take you through some of the highlights of our second quarter and year-to-date results. As we review our financial results it's important you keep in mind that as of August 1, 2005, Vail Resorts adopted the fair value recognition provisions of SFAS 123R share based payments using the modified perspective method. As a result the Company recorded total stock-based compensation expense of $1.8 million included in the segment operating expense in the second quarter of fiscal 2006. This compares to just 0.2 million of stock-based compensation expense recorded in the second quarter last year. For the first six months of fiscal 2006 the Company recorded total pretax stock-based compensation expense of 3.6 million as compared to 0.3 million for the first six months of fiscal 2005.

Looking to the second quarter's performance Vail Resorts realized improved resort reported EBITDA of 12.9 million or 15.4% in the second quarter compared to the previous record last year. The record results started with an increase in mountain segment revenue of 15.0% for the second quarter due to a double-digit lift revenue increase of 10.3% combined with commensurate strong increases in ancillary businesses including ski school, dining, and rental retail. The lift revenue increase was driven by a healthy 7.9% increase in skier visitation combined with realized higher pricing. Visitation at the Company's Colorado resorts, that would be Heavenly -- I'm sorry, that would be Vail, Beaver Creek, Breckenridge, and Keystone, was up 11.4% while visitation at the Company's Heavenly Resort was down 8.1% due to unfavorable weather conditions including during the Christmas holiday period.

Effective ticket price known in short as ETP, excluding season pass revenue, increased 6.5% due primarily to absolute price increases across all ticket products. Overall, ETP increased by 2.2%. The overall ETP was impacted by early season visitation by season pass holders due to favorable snow conditions in Colorado. Additionally, season pass sales for the '05, '06 ski season increased by 10.8% year over year. We recognize this revenue over the course of the ski season and therefore recognize approximately 52% or $3 million of the increase in the second fiscal quarter.

In addition to achieving ski lift ticket price increases and increased visitation during the quarter relative to last year we were gratified to see ski school revenue up over 13%, dining revenue up more than 9% and other mountain revenues up 25% during the quarter. In addition our retail rental operation experienced revenue growth of 24% or 11.1 million partially as a result of the acquisition of six new retail locations in the San Francisco Bay area. Complementing our revenue growth was our continued careful expense management. Total mountain expenses grew in the second quarter by 17.8 million while corresponding mountain revenues grew 32.1 million in the quarter. Excluding retail rental which has higher variable costs and had an acquisition, and stock based compensation expense mountain segment expenses during the second quarter increased 6.5% as a result of revenue increases and continued cost controls reported EBITDA for the mountain segment rose 18.2% year-over-year in the second quarter to a record of 97.0 million. Reported EBITDA for mountain excluding stock based compensation increased by 19.3% and mountain margins increased a full point from 38.3% to 39.4%.

Turning to our lodging segment. In fiscal 2005 the Company sold its minority interest in the Ritz-Carlton Bachelor Gulch and sold the assets of two additional hotels, The Lodge at Rancho Mirage and the Vail Marriott. We retained management contracts for both The Lodge at Rancho Mirage and the Vail Marriott, while the Bachelor Gulch hotel continues to be managed by Ritz-Carlton. Therefore, while lodging revenue for the quarter fell by 24.7% excluding the impact of Vail Marriott and Rancho Mirage, both of which were again sold in 2005 lodging revenue actually increased 1.4 million or 4.6% with 366,000 of that increase coming from new management fees on Rancho and the Marriott. This increase was primarily driven by the properties at or around the Company's ski resorts and increases in group business particularly in the Keystone markets. Lodging expenses for the quarter decreased 18.9%, but again excluding the impact of the sales of Vail Marriott and Rancho Mirage and stock-based compensation expense, expenses increased 1.5 million or 5% due to increased variable costs associated with higher occupancy and increased labor and benefits costs.

As has been our quarterly routine let me provide you with some operating statistics for our owned hotels for the current quarter as compared to the same period last year. On a same store basis excluding those hotels that were sold RockResorts owned hotels had a 12.2% growth in REVPAR, that's revenue per available room. Occupancy increased 1 point in the second quarter to 62.2% and we experienced an ADR, or average daily rate, increase of 10.5%, or $22.31, to $234.49. Same store results for the non-RockResorts branded hotels, those non-Rock properties primarily located at the base of our ski resorts were also strong with REVPAR up 13.9%, occupancy totaling 66.1%, up more than 3 points from 62.7% the year before and with an average daily rate increasing nearly $10 or 7.9% to $129.12.

Adding to all this good news in the second quarter was the January 2006 sale of the assets constituting a Snake River Lodge and Spa in Jackson Hole, Wyoming. We received a very favorable valuation and maintained a long term management contract. Additionally in selling our interest in the hotel we recorded a 4.7 million gain on the sale of assets constituting the Snake River Lodge and Spa.

Turning to total resort reported EBITDA, the combination of our mountain and lodging segments total resort reported EBITDA was another all-time record in the second quarter for Vail Resorts with 96.2 million this year, a 15.4% increase over last year's record second quarter resort reported EBITDA. Excluding stock-based compensation expense, resort reported EBITDA increased by 16.9% in the second quarter. This again marks the fourth consecutive year of record resort reported EBITDA.

I would like to turn now to our real estate segment where revenue increased some 1.8 million and reported EBITDA rose some 2.2 million in the second quarter. The Company's currently in a development stage for several major real estate product including the Arrabelle at Vail Square, Gore Creek Townhomes, the Jackson Hole Golf and Tennis residential development and the second phase of the Mountain Thunder condominiums in Breckenridge among other projects. Rob will speak in more detail about these later in the call.

Accordingly there were minimal closings on real estate during the quarter and revenues were primarily generated by contingent gains on development parcel sales that closed in prior periods. As a result of all that I have mentioned the Company reported second quarter net income of 43.0 million or $1.12 per diluted share compared to 32.2 million or $0.89 per diluted share for the same period last year. If we exclude stock based compensation expense the Company's second quarter net income would have been 44.1 million or $1.15 per diluted share for fiscal 2006 as compared to net income of 32.4 million or $0.90 per diluted share in fiscal 2005 a 36.5% improvement in net income.

Now, briefly to the six months ended January 31, 2006, since the ski resorts opened during the second quarter many of the trends that occurred in the second quarter were also true for the year to date period. Resort reported EBITDA was up 13.7 million, or almost 25% compared to the prior year. Again, another record performance for Vail Resorts. Excluding stock based compensation expense resort reported EBITDA for the six months was up 16.2 million or 29.1%. Net income for the six months was 8.7 million in fiscal 2006 or $0.23 per diluted share compared to net income of 0.8 million in fiscal 2005 or $0.02 per diluted share. If we exclude stock-based compensation expense net income for the six months would have been 10.9 million, or $0.29 per diluted share in fiscal 2006 as compared to net income of 1.0 million or $0.03 per diluted share in fiscal 2005.

Now given the success of our first six months of fiscal 2006 and the positive trends we have seen in the third quarter so far, and despite a very strong March of last year, we believe at this time that we will end fiscal 2006 at the upper end of our previously stated full-year guidance range for resort report EBITDA which was, as a reminder 170 million to 180 million and likewise the upper end of the range for resort reported EBITDA excluding stock based compensation of 175 million to 185 million. Our expected real estate guidance remains unchanged with fiscal 2006 full year range of 4 million to 9 million or 5 million to 10 million when excluding stock-based compensation expense. Similar to resort report EBITDA, we expect fiscal 2006 net income to be at the upper end of our previously stated range of 30 to 39 million and net income excluding stock based compensation to be at the upper end of the range of 34 to 43 million.

Now, let us turn our attention to our balance sheet and the quarter's capitalization events. Historically the second and third fiscal quarters are strong for generating cash from operating activities as the Company's ski resorts are generally open for ski operations from mid November to mid April. If second quarter fiscal 2006 is no exception and as a result we have now generated 100.4 million of cash from operating activities during the first half of this year. Additionally, the Company has generated significant cash from its recent hotel sales including most recently the Snake River Lodge and Spa. As a result, at the end of our second quarter we had approximately 176 million of cash on hand excluding restricted cash, no revolver borrowings on our senior credit facility and net debt as defined as total debt less cash and cash equivalents of 347.8 million as compared to 529.5 million one year ago. A reduction in net debt of over $180 million in one year. This calculates to a significant improvement in the ratio of net debt to total reported EBITDA from 3.04 at the end of second quarter fiscal 2005 to under 2 times to be exact 1.85 times at the end of our fiscal 2006 second quarter.

Also of note is that we completed non recourse financing for the Arrabelle at Vail Square real estate project on very favorable terms, i.e. LIBOR plus 1.45% for non recourse financing. And plan to utilize this structure for other future major vertical developments as well. By combining deposits collected from pre sales with non recourse financing we continue to minimize our real estate vertical development projects cash needs 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'd say we should be very proud of our capitalization state at this juncture. Now I will turn it back to Rob.

Thanks, Jeff. As you saw in our earnings release this morning, the Company announced today that its Board of Directors has approved the repurchase of up of to 3 million shares of common stock. Please refer to this morning's earnings release for the appropriate qualifications and restrictions on this program. Our Board took this action based upon our company's continued strong financial condition and it reflects the Boards confidence in Vail Resort's growth potential, financial outlook, and excess cash flow generation.

Now I would like to comment on the capital expenditure announcement also included in this morning's earnings release. Our Board of Directors approved approximately 75 to $80 million of new resort related capital expenditures for calendar 2006. Of the approved capital 36 million is considered maintenance capital with the remainder considered discretionary, where we are making investments where we believe we will see additional revenue and profit. Our maintenance capital plan for this year allows the Company to ensure the high quality standards for which we have become renowned.

Highlights of some of the discretionary expenditures include a proposed new gondola at Breckenridge to connect the town to peak 7 and 8, a new high-speed chair lift at Heavenly resort, snow making upgrades a at Vail, Beaver Creek, Keystone, and Breckenridge, on-mountain restaurant upgrades at Vail and Beaver Creek, a greatly expanded spa for the Keystone lodge, and upgrades to the central reservations marketing database and e-commerce booking system. The new proposed Breckenridge gondola will emanate from one of our parking lots right off Main Street and terminate at both peak 7 and peak 8 where we are planning new base villages for the resort. It represents an incredible opportunity to upgrade the skier experience at the resort and improve the overall experience in the town by reducing the number of people that need to be bused to the mountain.

In fact, we are working in close partnership with the town to build the gondola and are hopeful to have it in operation by Christmas of 2006. Although it does not show up in our mountains per se the upgrades to our reservations and e-commerce systems will allow us to take a further step at making the reservation process easier for the guest, more efficient for the Company, and more comprehensive, allowing us to significantly improve our cross-selling opportunities. In addition to the resort capital, our Board also approved 185 to $195 million of real-estate related capital expenditures for calendar 2006. Included in the approved real estate capital are new projects such as the Arrabelle Vail's front door, as well as ongoing projects such as the Arrabelle at Vail Square and Gore Creek Place all of which are related to the multiyear redevelopment of Vail. Also included in the real estate capital expenditures is a continued development of a golf course community in Jackson Hole and phase two of the Mountain Thunder condominiums in Breckenridge. I would like to point out that we anticipate that a significant amount of the real estate expenditures will be funded by borrowings under non recourse financings, deposits from buyers, and additional land sales.

I would like to spend a few minutes discussing the many exciting real estate development projects currently underway. We continue to be enormously excited by our ongoing real estate projects and prospects. While these projects will be highly profitable on their own they are key to our core strategy by providing significant upgrades to our resorts and offering guests new services and amenities. We are very pleased with the progress we are making on bringing Arrabelle and Gore Creek Place to completion and anticipate closing a number of the Gore Creek townhomes this summer. Our construction teams have done a good job this winter of protecting the lines at construction site itself to minimize the impact on our skiers.

As noted in the earnings release and based on current construction estimates, we are revising our guidance on the two projects to a range of 63 million to 73 million for real estate income before provision for income taxes and before allocated corporate or Vail Resorts development company overhead. We have also updated our guidance on our anticipated investment and resort depreciable assets for these projects to a range of 90 million to 95 million which will be partially offset by forecasted receipts from sales of Club memberships in the range of 20 million to 25 million. While I am disappointed that our original profit target for the projects have turned out to be too optimistic due to rising construction costs I still view these projects as critical successes for both our real estate group, but more importantly to our guest at Vail mountain.

We recently reported that an appeal was filed relating to our proposed front door project. The appeal was in relation to the decision by the Forest Service approving the land exchange related to this project at the base of Vail Mountain. We are confident that we will be able to resolve this matter and move forward with this exciting project. However, given the appeal I will not be able to comment further on our expected timing. I am very enthusiastic about our plans for west Lions Head. This area just west of the Vail Marriott includes the site we are developing with Ritz-Carlton, the Holy Cross site and a number of other sites we recently purchased. These sites are being planned as the next major base village for Vail Mountain with potentially as much as 600,000 to 800,000 developable square feet. We are working closely with the town of Vail in crafting our vision for these sites. We are also working closely with the town of Vail and the U.S. Forest Service related to the addition of a new lift to be located in this area. The site being developed with Ritz-Carlton is clearly the furtherest along and we are reviewing bringing that project to market during Christmas of 2006.

The progress is not just in Vail on the real estate front as our Breckenridge and Jackson Hole projects both sold out in the first fiscal quarter of 2006. We are also excited about the prospects of real estate development projects in peak 7 and peak 8 of Breckenridge which will be connected to the base village by our new proposed gondola. Hopefully we will have exciting news to announce on that front shortly. We are also eyeing new projects at each of our mountain resorts.

We continue to expect as we've said before that real estate will produce a much larger contribution to Vail Resorts earnings starting in fiscal years 2007, 2008 and beyond with the magnitude of development opportunities ahead of us we are very confident in the fundamentals inherent and underlying value of our real estate holdings. We recently announced that Vail Resorts will relocate its Avon, Colorado corporate and administrative operations to new offices in the Denver metropolitan area. Moving our headquarters operations to the Denver area will facilitate lower occupancy costs, provide greater administrative efficiencies, enhance recruiting opportunities, and allow more centralized access to all of the Company's properties. In addition the move better positions the Company for future strategic growth.

As we see it, we have simply outgrown our ability to manage an expanding public company from Avon, Colorado. That's not due to any issues with Avon. Quite the contrary, with their recent approval of the Westin Riverfront Resort and Spa a new gondola will be built from Avon to Beaver Creek Mountain and Avon will become the newest gateway to Beaver Creek. In fact, that gondola will emanate within 100 yards of our existing corporate office, vacating that space allows the Company to redevelop that location to better serve the residents and guests who will be accessing the mountain from Avon. That concludes our prepared remarks.

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 call other than statements of historical information are forward-looking statements that are made pursuant to the Safe Harbor provisions and the Private Securities Litigation Reform Act of 1995. Such risks and uncertainties include but are not limited to economic downturns, terrorist acts, threats of or actual war, our ability to finance our capital expenditures and growth strategy, competition, failure to achieve the financial benefits from the planned real estate development projects, implications arising from new Financial Accounting Standards Board, government legislation, rulings or interpretations, termination of existing hotel management contracts, our reliance on government permits or approval for our use of federal land, our ability to integrate future acquisitions, adverse consequences of legal claims, shortages or rising costs in construction materials, adverse changes in the real estate market, unfavorable weather conditions, and our ability to efficiently complete the relocation of the Company's corporate and administrative operations. Investors are also directed to other risks and documents filed by the Company with the Securities and Exchange Commission. Operator, we are now ready for questions.

[OPERATOR INSTRUCTIONS] Your first question comes from Felicia Hendrix with Lehman Brothers.

Hi, Rob, this is actually Bill Ramos. Great quarter, congratulations on your new role. Obviously Vail Resorts is in a time of transition with the recent management changes. That said we were wondering if could you share some thoughts about Intrawest's recent announcement regarding a strategic review? And if you thought Vail Resorts would be able to play a role at all in terms of looking at some of their assets?

Thanks for those comments. Future strategic growth external growth, is certainly something that we're going to be looking very carefully at and is clearly part of our core strategy. And we obviously have noticed Intrawest announcement and are reviewing it but I can't really comment on that specific opportunity.

Thanks a lots, Rob.

Your next question comes from the line of Mimi Sokolowski with Sidoti & Company.

Hi, Mimi.

Maybe one or two questions. Rob, would you mind commenting on how you're positioning year-end guidance now relative to the fairly dramatic upside to the January quarter and also relative to the fact that the April quarter is often -- or has been about twice as big as the January quarter?

Sure. I think -- let me just state that as we highlighted in both the press release and what Jeff commented on today we obviously feel very good about the year, we're really pleased with our results for the second quarter and that's why we're guiding people to the upper end of those ranges. At the same time there is a lot of ski season left and there are some properties in our lodging business that we operated last year that we will not be operating again this yearn in terms of the Vail Marriott and the Ritz. And therefore I think we've just decided that we're going to guide people to the upper end and that's what we're comfortable with.

But have you seen any slowdown in any of the mountain operations areas from the January quarter to, I guess, the first month, month and a half of April quarter?

No, we have not seen any slowdown, but I would remind you that last year's March was very strong.

Okay. I'll keep that in mind. And I do have an easy one, too. Jeff, I might have missed it, but I've been hopping on and off. What was the official share count, shares out, fully diluted, for the quarter?

Fully diluted shares for the quarter, Mimi, were 38.3 million shares for this second quarter.

All right. That's all I have. Thank you very much.

Thanks.

Thanks.

Your next question comes from Will Marks with JMP Securities.

Thank you. Good morning, Rob and Jeff.

Hi, Will.

A few questions here. I may have missed it, but did you comment on the Cheeca Lodge and can you just explain what went on there or is going on there?

Sure. We didn't mention it in the script. We did put out a release about it. Given that we're going to be pursuing our legal rights relating to Cheeca it wouldn't be appropriate for me to comment on that at this point.

Is this something that is, you're currently -- have you been reporting a management fee from that in the past six months?

We have, Will, and I think what we said in the 10-Q which we filed this morning is that the management fees from Cheeca last year in fiscal '05 were about $700,000.

Great. Okay. I know that's a nominal issue but I just wanted to ask about it. On your real estate, in the past you've given us some sense breaking it up a little bit and it seems like the land portion is 100 million and basically what you're building, most of which is Arrabelle and Gore Creek, would be the rest. Can you just update those figures?

Yes, Will, I think that's basically still the case, because we haven't bought any new land holdings in the second quarter, and, therefore, the increase in the real estate held for sale line item on our balance sheet is basically due to the construction and the significant amount of construction that's ongoing, especially in Vail with the Gore Creek Place and the Arrabelle project as well as in some of the other areas, like we said in Mount Thunder phase 2 in Brecken and the Jackson Hole development up in Wyoming.

Okay. Then in the CapEx announcement you mentioned included in the approved real estate capital are both new and you mentioned Vail's front door and ongoing Arrabelle and Core Creek. What's new at Front Door that you plan to do this year?

I think what we're seeing is that it's, I think our hope and the Board has approved the capital relating to Front Door. Having said that because of the appeal, the exact timing of when that project can start is unknown right now. In other words, Will, it's not a new project per se since we previously announced our intentions to develop that area of Vail, but we have not yet broken ground on that project so I think our words were more to speak to a new capital expenditure for that project in this year.

Is that where the chalets would be?

That's correct.

On the three -- on what I thought was 600,000 square feet, where the Ritz-Carlton is you're now saying 600 to 800. That may not be new but can you just update us on that? You mentioned the Ritz would be potentially this Christmas. Anything else?

I think what I'm willing to say on that is that the Ritz itself was going to be between 200 and 250,000 square feet, and that the rest of the square footage that I discussed would be allocated along the other parcels that we own in west Lions Head and the process -- but what we're really doing there is, our view is the Ritz is a terrific project and at the same time that whole area really offers Vail Mountain a whole other base village and tremendous opportunity and we are working with the town and the U.S. forest service on basically planning and concepting that entire opportunity.

And for the Ritz, is the final approval on the chairlift the only thing standing in the way right now?

I think what I would say is that's one of the things. It's making sure that the Ritz fits into the plan for the overall area, and that would include, yes, probably one of the biggest things, is where does the lift terminate.

Great. I'm all set. Thank you.

Sure. Thank you, Will.

Your next question comes from the line of Eric Brown with Banc of America Securities.

Hi. We saw in your 10-K this morning that you're going to incur a $2.7 million expense in Q3 related to Adam's departure. Can you explain why you're incurring this expense since his departure appears voluntary and is this included in guidance?

I'll let Jeff discuss the guidance issue. I think the Company sat down and looked at Adam's tenure here, his service, his contributions, also the fact that he offered to stay for a fairly extended transition period, and then the Company decided to move forward with curtailing that because they decided to I think get the Company back on new footing with my appointment as CEO and our conclusion was that was a very appropriate package for Adam on his exit.

And I guess, Eric, on the guidance, we did contemplate that 2.7 million when we updated our guidance by saying we would be at the upper end of our net income range. So in that upper end of the net income guidance that we updated this morning we contemplated that spending or incurring the 2.7 million of expense on that relationship, or that arrangement.

Great. Can you also give us an update on when you expect Gore Creek and Arrabelle to close now?

We will be -- I think we identified today that we are going to be looking to close a number of the Gore Creek townhomes this summer, exactly when that timing will be, we're not positive. We are obviously hopeful that some of those will occur in this fiscal year and the Arrabelle timing has remained unchanged.

I think, Eric, the fiscal year cut-off, obviously as things are getting done in the summer, but, again, what we're saying is all the townhomes will be done, it just depends -- this summer -- it depends on how many will get in by July 31, how many will be after that.

Right. Okay, and Arrabelle, I think in your 10-K you said a third was going to be in '07 and two-thirds in '08 is that still what you're expecting?

That doesn't seem exactly right, but we'll look up exactly what we said before terms of the fiscal year cut-off and get back to you with that exact detail.

Great. On peak 7 at Breckenridge can you give us a little color on the scope of this project and the next steps in the approval process?

I think what I'm going to do is hold off on giving additional details now. As I said in my remarks we're really hopeful to have some -- an announcement on that project in the near term and so I'll hold off today and maybe be able to address it shortly down the road here.

Just one more question on that. Is any Breckenridge peak 7 or peak 8 development in your '06 guidance right now?

No.

Thanks.

Your next question comes from the line of Beth Lilly with Standard & Poor's.

Hi this is Beth Lilly with Woodland Partners. I wanted to, Rob, if you just could talk about you taking over as CEO from Adam and you were on the Board for a long time and you were a significant shareholder for a long time. Just what your attitude is about how the Company has been run and what you might do differently than what Adam has done in the past. Also, if you could address the capital structure of the Company, because going forward as the real estate projects get developed you're going to be generating a lot of cash. You are generating a lot of cash already. You are going to have significant excess cash and I'm curious about what your priorities are in terms of using it. You've talked about it, I mean, in the press release today there was a 3 million share repurchase program announced but just overall your view of the capital structure. Thanks.

Sure. Thanks a lot. I have been involved with the Company for quite sometime and I think as I said I think Adam who was the CEO of the Company for the past ten years, made a number of really terrific contributions to this company, and I think we really brought a whole new level of sophistication to the industry and obviously that benefited Vail Resorts as well. I think in terms of what I plan to do I'm really committed to continuing our progress toward our strategic initiatives which includes growth of our Mountain Resorts, realizing the potential of our real-estate holdings, maximizing the profitability and selected growth of our lodging operations and pursuing future strategic acquisitions. And I'm -- I think here to make sure that we focus on our core value which is providing guests with unforgettable vacation experiences because that's what allows us to drive pricing, visitation, real estate it's what makes the Company successful. So that's where I would be in terms of our strategy.

In terms of the capital structure, I think we are aware and our plea is that our company is generating significant excess cash flow and I think you've seen our Board address that issue or opportunity today by announcing a stock repurchase plan and obviously that is an indication both of their confidence in the business, of our growth, of our opportunities, and an indication that they're committed to also returning value to shareholders in one way which is sending cash back to shareholders. I think as we go forward we're going to be looking at all the different avenues that we have available to us both in terms of using our cash for future strategic opportunities, investing in our current business and returning it to shareholders.

Great. If I can just follow-up on Adam's resignation and the call -- the question earlier in the call about the severance payment, did you -- the timing of Adam's resignation and then the announcement that you were going to take over as CEO, was there a search undertaken, or was it already in the process that you were going to take over? I'm just trying to understand how the decision tree was made.

Adam announced at the end of January that he was going to be resigning from the Company around his ten-year anniversary. When that happened, the Board obviously undertakes a process to decide on who the next CEO of the Company should be. Typically a process like that will take place where the Board looks at internal candidates and then to the extent there are no internal candidates may look outside the Company as well. In this case, the Board chose I think what they felt was an internal candidate, somebody in myself who's been around the Company for 14 years and actively involved in all the strategic opportunities that we've pursued, and they asked me to take the position and I accepted, and I think they feel very good about the decision, and so do I. So that would be the timing, and then once the Board and I agreed on that we announced that.

That's helpful. Thank you very much, Rob.

Your next question comes from the line of Pamela Brown with Gabelli & Company.

The follow-up question that I had was, just most of my questions have been answered, but do you have any perspective on the amount of skiers that are coming from international? I know that was a big component or somewhat of a component of your growth last year, particularly in Europe and I was wondering if you could comment on that.

Sure. I think what we have been saying is we get about 10% of our skier visitation from the international market and this year's trend is certainly supporting that kind of range. It's been going up a little bit every year on an absolute basis but so has our visitation so I think it's approximately in the 10% range.

Great. Thanks. That's it.

Your next question comes from the line of Mimi Sokolowski with Sidoti & Company.

Yes, just two more follow-ups. Jeff this one might be for you. You mentioned construction costs. It's in the press release, implications for guidance, but I guess I need to do a little bit more research. Can you tell me what you're seeing, at least qualitatively, how things are trending? I guess the components that are most affected and what you might expect in the next 6 to 12 months, if anything?

It's Rob. We're seeing construction cost increases across the board in the Vail Valley. I think that's because there are a number of projects that are being pursued. I think the good news about that is that there's a lot of folks who are very bullish about the prospect of Vail real estate and our company owns most of the key and most strategic sites in the Vail Mountain base area. Having said that, of course, the corollary to that is when there's a lot of demand that pushes up costs as well and we're seeing that across subs, we're seeing that in steel, we're seeing that in concrete as well. So I think we're seeing it on a number of both the raw materials and on the subs themselves that are providing it, and I think the key thing for us is obviously making sure that we lock in our costs and monitor it very closely and bring these projects to conclusion.

Do you have a lot of room for that, locking in your costs, I mean?

I wouldn't say a lot of room.

What sort of agreements might you reach? What sort of measures might be in place to minimize the backlash of rising costs?

Well, there's a process that you can go through with your contractors where you can lock in costs for the project, but I just want to be clear that that's locking in a portion of the costs and there's still many variables that it can impact how profitable a project will be at the end so that's one strategy but it's certainly not a fool-proof strategy.

Sure, I understand. Okay. Thank you. And then just one more. Intrawest came up but I just want to get your sense, without naming names of the landscape is there much to choose from? Are there opportunities out there? How evaluations is Intrawest skewing that? Can you talk to me a little bit about that?

Sure. I think in the mountain resort industry, I think there are a handful of opportunities that would be of high interest to us and I think they would be those that we felt using our marketing and management expertise we could bring to be true franchise assets in the industry. And I think there are a number of companies, including Intrawest, that certainly have those types of assets. In terms of valuation, again, I think that's very asset-specific, so it's hard to comment on anything in particular.

I got you. I'm all set. Thank you very much.

Great. Thanks.

Your next question comes from the line of Will Marks with JMP Securities.

Great. Just one quick follow-up. On the a maintenance, can you just run through what your maintenance CapEx is these days? I know you gave a dollar amount, I mean what you're spending it on?

Again, we say 36 million, which is right in line with what we've been saying in the past, our maintenance capital is every year, and really that includes replenishment of our rental ski program under our SSV venture, that's always a big piece of that. It's also an ongoing replenishment or replacement of our snow cats for groomers, our snowmobiles, things like that on the mountain. We do rotate, for instance, our snow cats on a four-year cycle so that we can just really do great grooming out there. It's renovations from time to time at certain of our lodging assets when they're cycling through. And I think really if you ask our operations folks this is one of the real distinguishing marks for our company, vis-a-vis the industry. That is we do spend quite a bit of money on maintenance capital to maintain the quality of our resort experience. And you hear Rob talking a lot about that guest experience. We think that's why we can quarter after quarter tell you that we've been able to support price increases and still get visitation increases and all that just because the quality is there and I think that ties back to our maintenance capital. So that level, as we've been kind of saying, anywhere in that 33 to 40 million of maintenance capital this year is budget of 36 million falls right into that range. Could it be lower if we really wanted to crank down on it? Sure, but I think that again, isn't what this company is all about. So it's really making sure that all the current assets are in great shape from a standpoint of replacement when their time is up.

Okay. Thanks, Jeff. That's very helpful.

Your next question comes from the line of William Mac with Standard & Poor's.

Hi. Thanks for taking my question. With the sale of the Snake River Lodge investment, is there anything remaining in the lodging equity investment line item?

Yes, I think what we said about 18 months ago is that we planned on selling one to four of our lodging properties over a two to three-year period, and I think what we've done is obviously sold four, so we're at the upper end of that range again. Those were really the assets that we had earmarked. I think we obviously do have some others that potentially could fall in that realm but nothing I think of the magnitude right now of what we're contemplating. The other thing that we always could do with some of our smaller lodging properties is convert those over to more of a real-estate presence, and that's something we've mentioned in the past, too. So I think between outright sales where, we retain the management or potentially some condo conversions on some of the properties, I think we still have activities that we could do on the lodging front to continue to bring value to the shareholders.

Okay. Is my assumption correct that the management contract that goes along with Snake River that's going to run for like 15 years, that's in the consolidated results, correct?

Yes, we just closed on that asset right at the end of January so the management fee now starts picking up going forward into the third quarter and that would be in our lodging segment results which rolls up into our consolidated results.

Shifting over to the skier visits and the, well, the Mountain segment, what was the -- did you give the actual effective ticket price in the quarter?

We did. And we also have that in our 10-Q that we filed this morning. But our actual effective ticket price for the six months, which is about the same as the second quarter, because we didn't have any skier visits in our first quarter, was $39.47.

$39.47. Okay. And do you tell us in the Q the breakout between the season pass visits and the actual purchases on the mountain for the lifts?

We don't. What we do say is that season pass sales obviously complemented our skier visitation for the second quarter, especially in the early season, but what I would tell you is our Colorado resorts even excluding season passes were still up strong helping to more than offset kind of the bad weather impact we had at Heavenly, especially through some of the holidays periods. Again, just to remind everyone, the way we account for our season pass is if we, even though we get all the sales and all the cash early in our season, we actually recognize that throughout the ski season, so what I said in my remarks is that we had recorded about half of the season pass sales, or recognized about half of that revenue through the second quarter and given that we were up 10.8%, that meant that we had recorded or recognized about a $3 million of the total increase in the second quarter with the rest still to come in the third quarter.

Okay. Well, I do recall you giving in your earlier presentation the percentage increases in the ticket price and when you exclude the season passes, which is the overall. It would suggest that the season pass ticket price might actually be down from the prior year.

No, actually, the ticket price was up, but because that's a fixed price, so we raised prices on our season pass products this year just similar to the way we did it on all of our past products, but because they then paid that one price and were able to ski more especially early in the year, when we had some very strong early season snowfall, the effective price on that sale obviously went town because they were skiing with it more.

Thanks for clarifying that.

[OPERATOR INSTRUCTIONS] Your next question comes from Jeff Kauffman with George Weiss.

Thank you very much. Congratulations on a terrific quarter and a solid ski season.

Thank you.

Real quick question for Jeff. I just kind of want to go through the shares outstanding that was implied in the quarter here.

Okay.

I think you mentioned 38.3 fully diluted.

Correct.

That's an increase of roughly 2 million from a year ago?

That's correct, Jeff.

Is that mainly stock price depreciation driving out what's in the money or what's driving the majority of that increase?

It definitely is.

And of the 3 million share buyback that has been announced, where I'm going with this is the guidance because you're giving net income guidance but not earnings per share guidance. Is there any implicit buyback kind of focused in on the guidance for this year's shares outstanding? Because I'm using the number that's about 1.5 million shares below where you're ending the quarter here.

No, there isn't.

So it's wide open timing, there's no 12 month target on the buyback, anything like that?

That's correct, Jeff.

Okay. That's all I need to know. Thanks, guys.

Sure, take care.

[OPERATOR INSTRUCTIONS] At this time there are no further questions.

Great. Thank you. Thank you, operator. Thank you all for participating on our conference call today. We have obviously had a very strong first half of the current fiscal year and we are upbeat about the remainder of the fiscal year. Should you have any further questions please feel free to contact Jeff or me directly. Thank you one and all for your time this morning, and good-bye.

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