Vail Resorts Inc (MTN) 2007 Q2 法說會逐字稿

Welcome to the Vail Resorts fiscal 2007 2nd Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded Monday, March 12, 2007. I would now like to turn the conference over to Robert Katz, Chief Executive Officer of Vail Resorts. Please go ahead, sir.

Good morning everyone. Welcome to the Vail Resorts fiscal 2007 second quarter earnings conference call and simultaneous webcast both open to the public and press at large. I am Robert Katz, Chief Executive Officer of Vail Resorts. Joining me on the call this morning is Jeff Jones, our Chief Financial Officer. Earlier this morning we released our earnings for the second quarter ended January 31st, 2007. Before we review those results I want to remind you that we are using the terms reported EBITDA and reported EBITDA excluding stock based compensation to report earnings for each of our operating segments, namely mountain, lodging and resort, which is the combination of the mountain and lodging segments and real estate.

Complete reconciliations of reported EBITDA, reported EBITDA excluding stock based compensation and other non-GAAP financial measures can be found in this morning's earnings release and on the Vail Resorts.com website in the Investor Relations section under the "Regulation G Compliance" tab. I also need to mention that comments made during this conference call other than statements of historical fact are forward-looking statements that are made pursuant to the Safe Harbor provisions in the Private Securities Litigation Reform Act of 1995. Certain risks and uncertainties could cause actual results to differ materially from those contained in the forward-looking statements. Investors are directed to the risks and uncertainties described in the documents filed by the Company with the Securities and Exchange Commission including the Company's Form 10-Q for the second quarter of fiscal 2007.

We are very proud of the strong second quarter results where we realized an increase in resort revenues of 9.5%, which floated a very high rate to resort reported EBITDA, up 20.3%, which in turn contributed to net income, up 23.3%. Given that all of this growth came without the benefit of acquisitions, it is clearly evident that our organic growth engine continues to drive outstanding performance in our resort operations. Our second quarter, which essentially contains the first half of the 2006-2007 ski season, reflected a total mountain segment revenue increase of 10.5% compared to the prior year with lift revenue up 13.4% and the ancillary businesses up commensurately.

The lift revenue increase was helped by strong season pass sales, up 20% over the prior year. We recognized 52.4% of the total season pass sales in the second quarter, representing a $6.4 million increase in season pass revenue in the second quarter over the prior year. Our season pass sales, which generally represent approximately 25% of our lift revenues, gives an underlying stability to our business model as we have essentially locked in the revenue from a large portion of those guests who often make a last minute decision on whether to visit our resorts. In the second quarter our season pass holders actually visited our resorts less than in the prior year second quarter due in large part to difficult weather conditions in the Denver metro area as well as at our Heavenly Resort. But our overall revenue from the season pass holders was up significantly due to the advanced pass sales. If you exclude our season pass visits from the mix our skier visitation increased in our Colorado resorts was 4.8% reflecting strong destination guess visitation.

Our effective ticket price or ETP grew by 7% excluding the season pass sales reflecting our continuing ability to increase absolute prices combined with the favorable mix impact resulting from the increase in destination guess visitation. The increased number of destination visitors at our mountain resorts favorably impacted our lodging operations as well with revenue per available room or rev PAR up 16.7% for the quarter on a same store basis at our own lodging properties and condominiums we manage around our mountain resorts. The overall resort revenue and resort reported EBITDA growth was achieved despite essentially flat contribution from our Heavenly Resort, which suffered from adverse weather conditions throughout the second quarter. However, the epoch snow storm that the Tahoe basis is famous for hit Heavenly at the end of February and pounded the resort with 8 feet of snow in just four days. With a base depth of at least 90 inches, the conditions are now phenomenal out at Heavenly.

Our Colorado resorts have also had a couple of storms, which improved the quality of the conditions even further. You can follow our snow conditions at snow.com, which now includes constantly updated videos from each of our resorts. Speaking of video, we recently launched mysnowtv.com, a website dedicated an online community of snow sports enthusiasts through user posted footage of skiing, snowboarding, big powder, terrain parks and winter mountain vacations, a snow based YouTube if you will. Building on the success of using video on our own resort websites, we wanted to give people who have genuine passion for skiing and snowboarding a unique avenue for sharing their experiences and we hope that their enthusiasm is infectious.

I would now like to turn the call over to Jeff Jones, who will provide you a detailed overview of our results for the second quarter and a review of guidance for the remainder of the fiscal year. I will then review the status of some of our real estate projects, give you some details on our capital plan for calendar 2007 as well as update you on other news at Vail Resorts. Jeff and I will then be both available for questions. Let's now turn to Jeff for our second quarter fiscal 2007 results.

Good morning everyone. As Robert previously mentioned, earlier this morning we released our earnings for our second fiscal quarter ending January 31st, 2007. We also filed this morning our Form 10-Q for the second quarter. I would now like to take you through some of the highlights of our second quarter and six month results.

Looking at this quarter's performance, as Robert stated, Vail Resorts realized improved resort reported EBITDA, 115.7 million, a 19.5 million increase or 20.3% in the second quarter compared to the previous record last year. Our mountain segment revenue grew 10.5% in the second quarter driven by increased season pass revenue, a 7% increase in ETP excluding season pass revenue, and strong visitation growth at our Colorado resorts, up 4.8% excluding season pass visitation reflecting strong destination guess visitation. This destination growth helped drive increases in our other ancillary business lines, especially ski school and retail rental. Our dining revenue more closely reflected our overall visitation growth, which included a decrease in season pass visitation, and our other mountain revenue was down due to the conversion of our Ritz Carlton Bachelor Gulch spa from an owned to a leased operation. Excluding this conversion, other revenue would have increased by 2.4%.

In addition to the increase that we experienced in lift revenues of 13.4%, we generated an 11.2% increase in ski school revenues, a 5.7% increase in dining revenues and an 11.2% increase in retail rental revenues compared to the prior year's quarter. We were able to continue to manage our expenses with the mountain segment having a 6.1% increase in expenses, which did include certain variable expenses including U.S. Forest service fees as well as cost of sales in dining and retail rental and ski school labor, all of which increased due to the higher revenues. We are seeing a greater amount of EBITDA flow through from every dollar increase in revenue. As such, our mountain reported EBITDA margins experienced a 2.4 percentage point increase from 39.4% to 41.8% in the second quarter of fiscal 2007.

Looking at our lodging segment, revenue increased 2.2% to 32.8 million from 32.1 million in the prior year's second quarter. In January 2006 the Company sold our Snake River Lodge and Spa Resort simultaneously acquiring a long-term management agreement for the property. Excluding the impact of the Snake River Lodge and Spa sale, lodging revenue increased 2.6 million or 8.5% and reported EBITDA would have increased 2.9 million for the quarter ended January 31st, 2007.

In addition, the second quarter year-over-year operating statistics for our own hotels continue to show significant improvement. On a same store basis our own hotels and managed condominiums around our mountain resorts had a 16.7% growth in rev PAR to $127.41 incorporating a 9.6% increase in average daily rate, or ADR, to $263.14 and a 2.9 percentage point increase in occupancy to 48.4%. This clearly reflects the growth in destination visitation at our mountain resorts in the second quarter.

Now to our resort reported EBITDA, the combination of our mountain and lodging segments, resort reported EBITDA was 115.7 million, a 20.3% increase over the prior year's second quarter, and resort reported EBITDA excluding stock based compensation expense for the second quarter of fiscal 2007 increased 19.4 million, a 19.8% increase, to 117 million from the prior fiscal year's second quarter.

Turning now to our real estate segment, real estate revenue increased 46.5 million or 479% to 56.2 million compared the prior fiscal year's second quarter. Reported EBITDA rose 2.5 million or 73.5% in the second quarter to 5.8 million for our real estate segment. During the second quarter revenues included 8 Gore Creek Place townhomes in Lionshead along with 18 Mountain Thunder Condominiums in Breckenridge, partially offsetting this revenue we recorded an additional 2.5 million in the second quarter 2007 in estimated unanticipated incremental cost of sales related to our Jackson Hole Golf and Tennis Club development. 2007 remains a construction year for Vail Resorts Development Company with several major real estate projects under development, including Vail's Front Door and the Arrabelle at Vail Square. Robert will speak in greater detail about these and other development projects later in the call.

In addition to the segment operating results just mentioned, I'd like to briefly discuss a few other items that contributed to the Company's overall financial results. The Company's investment income increased to 2.4 million for the second quarter from 1.0 million in the prior year's second quarter due to a significant increase in average invested cash balances and higher investment yields. Interest expense decreased 1.6 million to 7.9 million due to higher capitalized interest associated with the significant ongoing real estate and related resort development.

The Company recorded 0.5 million of relocation charges in the second quarter of fiscal 2007 and we expect to incur approximately 200,000 in additional relocation charges in the remainder of fiscal year 2007. Additionally the Company incurred 0.7 million in legal related costs for the second quarter of fiscal 2007 related to the Cheeca Lodge & Spa contract dispute.

Finally, the Company recorded a total pretax stock based compensation expense of 1.8 million included in the total reported EBITDA in the three months ended January 31st, 2007, which was flat compared to the three months ended January 31st, 2006. The Company reported second quarter net income of 53.0 million, or $1.35 per diluted share, compared to 43.0 million or $1.12 per diluted share for the same period last year. Excluding stock based compensation expense the Company's second quarter net income would have been 54.1 million or $1.38 per diluted share for the second quarter of fiscal 2007 compared to 44.1 million or $1.15 per diluted share in the second quarter of fiscal 2006.

Now briefly to the six months ended January 31st, 2007, since our ski resorts opened in the second quarter many of the trends that occurred in the second quarter were comparable for the year-to-date period as well. Resort reported EBITDA was up 18.1 million or 26.2% compared to the prior year. Excluding stock based compensation expense, resort reported EBITDA for the six months was up 18 million or 25.0%. Net income for the six months was 17.2 million in the fiscal 2007 or $0.44 per diluted share compared to net income of 8.7 million in fiscal 2006 or $0.23 per diluted share. Excluding stock based compensation expense, net income for the six months would have been 19.5 million, or $0.50 per diluted share, in fiscal 2007 as compared to net income of 10.9 million or $0.29 per diluted share in fiscal 2006.

With the performance that we have achieved so far this fiscal year we would like to take this opportunity to update the fiscal 2007 guidance that we previously provided in our fiscal 2006 year-end earnings release and reiterated during our first quarter earnings call. Based on our current estimates we expect full year resort reported EBITDA, the combination of our mountain and lodging segments, to range from 211 million to 219 million and resort reported EBITDA excluding stock based compensation expense to range from 216 million to 224 million. The resort guidance includes a range for mountain reported EBITDA of 193 million to 201 million and mountain reported EBITDA excluding stock based compensation expense of 197 million to 205 million, while we expect lodging reported EBITDA to range from 16 million to 21 million and lodging reported EBITDA excluding stock based compensation expense to range from 17 million to 22 million.

I would like to note that the lodging estimates include the Rancho termination fee recorded in the first quarter and the anticipated termination fee expected before year-end on the Equinox termination, which Robert will discuss later. We are reducing our guide for real estate reported EBITDA given the additional unanticipated costs we incurred for our Jackson Hole Golf and Tennis Development and timing of closings on certain transactions among other things. As a result, we now expect real estate reported EBITDA to range from zero to a negative 5 million and real estate reported EBITDA excluding stock based compensation expense to range from 2 million to a negative 3 million.

Finally, based on our current estimates we expect net income to range from 55 million to 63 million and that income excluding stock based compensation expense to range from 60 million to 68 million. The net income estimates assume we will receive the 8.5 million pretax Cheeca award prior to the fiscal year-end but conservatively assumes that no reimbursement for attorney's fees or expenses are received on or before July 31st, 2007.

Now turning our attention to our balance sheet and the second quarter's capitalization events, the second quarter is historically a stronger quarter for generating cash from operations than our first quarter since our ski resorts are open for business for the majority of the quarter. As a result of our winter operations and real estate closings, we now have generated 196.9 million of cash from operating activities during the first half of the year. At the end of our second quarter we had 254.9 million of cash on hand excluding restricted cash, no revolver borrowings under our senior credit facility and net debt, as defined as total debt less cash and cash equivalents, of 297.4 million as compared to 347.8 million at the end of the second quarter fiscal 2006. This calculates to a significant improvement in the ratio of net debt to total reported EBITDA calculated on a trailing twelve month basis from 1.85 times at the end of the second quarter of fiscal 2006 to 1.32 times at the end of our fiscal 2007 second quarter.

With a continued improvement in our cash position we have negotiated a refinancing of our senior credit facility, which we anticipate will close in the next few days. Key components of the refinancing will include 100 million reduction in the facility to 300 million, an extension in the maturity by two years to 2012 along with improved pricing, including on unused commitment fees and letters of credit fees, and improved flexibility in Vail's ability to make investments. Additionally, the amendment will include the elimination of certain covenant ratios and change for pricing and covenant purposes the gross debt leverage ratio to a net debt leverage ratio. We also anticipate closing in March on a non recourse financing for the Vail Front Door project 123 million financing with similar terms to our other non recourse financings albeit with even lower pricing at LIBOR plus 135 basis points.

Finally, during the second quarter of fiscal 2007 the Company repurchased 167,700 shares of the Company's stock under the previously announced share repurchase program at an average share price of $44.76 for a total amount of 7.5 million. Since the inception of this program in fiscal 2006 the Company has repurchased a total of 673,500 shares at an average share price of $38.38 totaling 25.8 million. The Company currently has authorization to repurchase an additional 2,326,500 shares under the program, which is limited by among other things restrictions in our indenture and senior credit facility. The Company continues to evaluate appropriate uses of its excess cash including but not limited to the share repurchase program.

At this time I'd like to turn the call back to Robert.

Turning to our real estate business, we have numerous exciting initiatives underway on the real estate side as well, which should also contribute to further improve resort operating performance down the road. As part of the Vail's Front Door project, I am pleased to report that we have now executed purchase and sale agreements for all 13 of the Lodge at Vail chalets at an average price per square foot of $2,488.

Additionally, marketing of the Vail Mountain Club, an exclusive slope side private club steps from the Vista Bahn express lift, has continued. We have sold 88 full memberships, which include parking privileges, and an additional 77 social memberships, which exclude parking. The full memberships we have received to date carry a membership initiation fee deposit of $250,000 and the social memberships that we have received to date carry a membership initiation fee deposit of $100,000. We currently have total sales commitments representing 29.6 million of total proceeds when paid in full. Given the current status of the Front Door project, we are increasing our estimate on expected income before provision for income taxes and before allocated corporate or Vail Resorts Development Company overhead from the sale of the Lodge at Vail chalets to a range of 65 million to 75 million. Similarly, we are reducing our estimate for investment in resort depreciable assets of the Front Door project net of estimated cash proceeds from the Club initiation fee deposits to 25 million to 40 million.

At Breckenridge we opened the New Breck connect gondola on December 31st, 2006 truly connecting the town and the mountain and setting the stage for the development of Peak 7 and Peak 8. Hopefully many of you will see the gondola in action at our upcoming investor conference. This exciting capital addition comes on the heels of our hugely successful Imperial Lift at Breckenridge that we installed last year. We began selling the Crystal Peak Lodge Condominiums at Peak 7 in December, 2006 and currently have 41 of the 46 units already under contract at an average sales price per square foot of $958, almost double what the average sales price per square foot sold for on the similarly finished Mountain Thunder Townhomes in Breckenridge just two years ago. In addition, we closed on a land sale in the second quarter for a parcel of land at Peak 7 to a third party developer to build a fractional ownership property. We currently expect that real estate income before provision for income taxes and before allocated corporate or Vail Resorts Development Company overhead for the Peak 7 projects will range from 8 million to 13 million including the land sale.

I am pleased to announce that we have launched the Ritz Carlton Residences Vail project with 71 two to six bedroom condominiums currently priced at an average of approximately $1,775 per square foot. We began marketing this project in February 2007 and have already executed reservation agreements on 54 units representing 185.4 million in gross sales proceeds. We expect to convert those reservations to contracts in April 2007. In addition, in December of 2006 the Company renegotiated its April 2005 license agreement relating to this project with the Ritz Carlton Hotel Company LLC. In exchange for a reduction in the license fees to be paid to the Ritz Hotel Company we concurrently entered into a purchase agreement which provided for the Ritz Carlton Development Company's acquisition of an incremental 45 units in the project for a total purchase price of 110.7 million. The Ritz Development Company will in turn market and sell these 45 units as Ritz Carlton Club fractional ownership units creating additional hotbeds for Vail Mountain. We are very excited about bringing one of the premier fractional programs to Vail. We currently anticipate that income before provision for income taxes and before allocated corporate of Vail Resorts Development Company overhead for the Ritz Carlton project will range from $80 million to $90 million.

Also in the second quarter we closed on the remaining Gore Creek Place units in Lionshead. Additionally, construction continues on the Arrabelle at Vail Square in Lionshead. Construction cost estimates have increased on the project caused by among other things a potential scheduling delay in the closing on at least the condominium portion of the Arrabelle project. At this time we are reducing our estimate on expected income before provision for income taxes and before allocated corporate or Vail Resorts Development Company overhead for the Arrabelle and Gore Creek projects to 50 million to 60 million of which approximately 20 million has been recognized through the second quarter of fiscal 2007 on the Gore Creek Project, which was as expected.

Additionally, given the current programming for the Arrabelle Mountain Club, we believe proceeds from the sale of Club memberships will be higher than originally anticipated and, therefore, are reducing our estimate of investment in resort depreciable assets net of Club proceeds to a current estimated range of 50 million to 70 million, which includes an estimate of 95 million to 105 million for the resort depreciable assets and an estimate of 35 million to 45 million of cash proceeds from the Club initiation fee deposits. All of the aforementioned estimates related to our real estate projects are based upon our most recent cost estimates based upon current plans and how the cost relates to both the real estate and resort projects.

We have also seen increased construction costs on our development project in Jackson Wyoming, some of which were accrued in the most recent quarter. It is disappointing that we have not been able to fully overcome the challenges presented by the coordination and implementation of the design at the beginning of both the Arrabelle and Jackson developments. At the same time I am confident that the processes we have in place for our most recent projects, including Front Door, Crystal Peak and the Ritz Carlton Residences will allow us to better complete these efforts within budget and on schedule. In addition, the Arrabelle project when completed will represent a dramatic new addition to one of the key portals to Vail Mountain.

On March 5th, 2007 we announced our plans for a new project to be called Ever Vail. The $1 billion project, which remains subject to required approvals, will transform the 9.5 acre site currently known as West Lionshead into one of the largest LEED certified projects for resort use in North America and one of the first projects for consideration in LEED's new neighborhood development certification program. The Company anticipates the project to include a total of 600,000 to 700,000 salable square feet and beginning real estate sales on the project in 2009. The new resort village plans call for 150 to 250 whole ownership condominium units, 75 to 125 fractional condominium units, a 100,000 square foot hotel, a 100,000 to 150,000 square feet of commercial, retail, office and restaurant space, and 100,000 square foot mountain operations facility. The project will also include a gondola to serve as the fifth base portal to Vail Mountain, a public park and a new public parking structure.

The name Ever Vail was thoughtfully chosen to reflect the project's guiding principle of sustainability. That is pairing Vial Mountain's enduring preeminent position in the resort industry with an ongoing commitment to minimize the Company's footprint on the land. It follows in the footsteps of our recent announcements related to the purchase of 100% of our energy use through wind credits and a new program with the National Forest Foundation to improve the forest environment where we operate.

Turning to our lodging segment, we have expanded our list of managed properties under the Rock Resorts brand with the additions of the new Eleven Biscayne Hotel and Spa in Miami and the Rum Kay resort in the Bahamas. We recently announced the new 56 room and suite hotel Eleven Biscayne Hotel and Spa opening in early 2009 as part of the RockResorts branded properties. RockResorts will manage the hotel while providing technical consulting services during the development and pre-opening phases of the project. In addition, RockResorts will manage the new Rum Kay resort and will assist in the marketing of whole and fractional ownership units within the resort and provide technical advisory services in the design and construction of the resort.

There are a number of RockResorts lodging transactions in the pipeline including some at the letter of intent stage, which we will announce when they become more definitive. We have been notified by the owners of the Equinox Resort and Spa in Vermont, which we manage under the RockResorts Brand, that the owner of this property has decided to sell the Equinox Hotel as part of a divestiture plan at which time the management agreement with RockResorts will be terminated, which result in Vail Resorts receiving a termination fee but loss of future management fees.

We were recently awarded $8.5 million in damages against Cheeca Holdings LLC. The owner of the former RockResorts property at Cheeca Lodge and Spa in Esmeralda, Florida, which will not be reflected in our financial results until it is received. The arbiter's decision found that the owner of the Cheeca Lodge and Spa had wrongfully terminated the hotel management contract and that RockResorts did not breach the contract. We will also seek recovery of our attorney's fees and costs in the last stage of the proceedings scheduled to occur within the next 90 days. The total arbitration award is binding and non-appealable. We are extremely pleased with the arbiter's decision in the case. It vindicates our belief all along that RockResorts performed its management obligations to Cheeca in good faith and in accordance with the management contract. RockResorts takes its contractual responsibilities seriously and is committed to delivering quality management services and financial performance to our ownership groups and exceptional vacation experiences to our lodging guests.

The Company also announced its calendar 2007 resort capital expenditure plans exclusive of resort depreciable assets associated with the Company's various real estate projects. The Company expects to spend approximately 90 to 95 million of resort capital expenditures in calendar 2007, including 38 to 40 million for capital expenditures necessary to maintain the appearance and level of service at the Company's five ski resorts and throughout its hotels. Highlights of these maintenance capital expenditures include Snow Cat replacements, snow making equipment, uniforms for all five mountains, lodging furniture fixture and equipment and rental equipment fleet capital.

Resort discretionary capital is expected to be in the range of 52 million and 55 million with expected projects including a new Beaver Creek Children's Ski School gondola and a related ski school building in the top of the gondola, replacement and realignment of chair 10 and chair 14 in Vail Mountain with high speed chairlifts and new high speed chairlift at Heavenly, an expanded spa at the Keystone Lodge and upgrades to the central reservations marketing database and e-commerce booking systems among other projects. The Beaver Creek ski school gondola will greatly enhance the experience for both children and parents at one of the best ski schools in the world. For those of you who have skied Vail you will appreciate the significance of the improvement to the guest experience represented by the replacement and realignment of chairs 10 and 14. It will energize terrific ski terrain and significantly improve assets in Two Elk, China Bowl and Blue Sky Basin. Our core mission is to provide guests exception experiences at our extraordinary resorts. With our strong financial performance to date, our capital program for this year is designed to further enhance and differentiate the experience at our Company's resorts and solidify our position as the premier mountain resort operator in North America.

On another front, Vail Resorts has entered into a definitive agreement with RTP as a minority shareholder under which RTP as a minority shareholder will acquire Vail's 54.5% in RTP, a full service enterprise software Web design and development business for approximately 3.5 million. As part of this agreement the Company will retain source code writing to its internal use software and internet solutions. This transaction is expected to close on or around April 30th, 2007. In addition, Vail and GSSI, a minority shareholder in SSV, our specialty sports venture, entered into an amended operating agreement whereby Vail will acquire 20% of GSSI's ownership interest of SSV for 8.4 million, which is expected to close March 31st, 2007. As a result of this transaction, we will hold an approximately 69.3% ownership interest in SSV. In addition, the put and call rights for GSSI's remaining interest in SSV were extended by 3 years to begin August 1st, 2010 and the existing management agreement was extended to coincide with the exercise of the remaining put and call rights.

Wrapping up, I would like to thank all of our employees for their passion and dedication in providing our guests an exceptional experience and for making this Company a truly unique and world class Company in the travel and leisure sector. We look forward to welcoming you at our resorts so you can experience for yourself what continues to make this Company such a success. This concludes our prepared remarks. At this time Jeff and I will be happy to answer any of your questions. Operator, we are ready for questions.

[Operator Instructions] Our first question is from [Lisa Hendricks] with Lehman Brothers.

Just a few questions. First, can you just elaborate a little bit more what's driving those cost overruns at Arrabelle and Gore Creek just so that we can feel confident that we maybe are seeing the end of that or stabilization rather? And then incorporated in that question with Ever Vail, what are you putting into place to ensure that we're not going to see cost overruns there? And then I have a question about RockResorts after.

First of all, let me differentiate between Arrabelle and Gore Creek. Gore Creek, that project was completed on schedule.

I'm sorry, not Gore Creek. There was another on that you having--

That'd be Arrabelle-- no, it's Jackson.

Jackson. Sorry, Jackson, that's what I meant.

I would say is I think the Company I think there's a lot that goes into when you start a project in what I'll call what we put in the Press Release and I'll call design coordination and implementation. It means that you design a building absolutely to the best, which is what we do, but then you've got to really implement that design in an effective and efficient process and I don't think the Company had the right processes in place at the beginning of both of those projects to kind of effectively implement the design and what's happened is, is that has caused the possibility of scheduling delays and some overruns as you realize that there are different pieces of the design that conflict and you're making changes as you go along.

Those processes have completely been revamped and obviously Keith Fernandez, who is the current President of our real estate group, was brought in and we're very confident that on all of these other projects, certainly the ones that are under construction, like Front Door and the ones that are going to be under construction Crystal Peak and Ritz and certainly Ever Vail, which is down the road. You know we have a much more extensive process, which includes a lot of third party review, and so we're very confident that that's not going to happen again. I guess that's the best way for me to answer the question.

Okay, thanks. And then with RockResorts just wondering if you see any kind of flags with any other current properties leaving the portfolio, but more importantly I was just wondering with RockResorts, how do you envision it looking in five years? I mean do ever think that it'll be more of a significant contributor to the bottom line and potentially ever offset some of this seasonality?

You know I think that's certainly a goal. What I would say is that my philosophy when coming onboard was really to make sure that instead of having this be some kind of huge expansion play that it would be something where we took each hotel one at a time and we would focus on operating all of our hotels to the absolute best and then use selected opportunities outside of our mountain resorts to really expand and I think that's what you're seeing now. Which is there's somewhat of a turnover of the kind of the original properties that we bought in 2002 that had Olympus as an owner and I think you're seeing some of those fall out, which is I think a natural progression because that's essentially what Olympus is going through. New properties that are coming onboard where people are coming to us and saying, we see what a fabulous job that you guys do at your resorts and we would like to bring you in as the manager. And so, I think you're going to see some of that transition happen. And so, what I'd say is certainly in the next year or two I don't see RockResorts contribution dramatically increasing, but certainly over five years that would be our goal.

Okay, great. And then do you have any other Miami type projects in the pipeline?

We do. Obviously, we're not prepared to disclose them otherwise we would have put them in the Release and our focus is really we disclose these when we're really at a definitive documentation stage. We think that's just the most conservative approach to take.

Okay, great. Thank and good quarter.

Will Marks, JMP Securities.

Let me ask you first, the new guidance on the Mountain side indicates that the range that in the second half of the fiscal year you'll grow from between negative 2 and positive 5% EBITDA growth and I realize you want to be conservative, but last year fourth quarter growth was a little bit lower than third quarter, how should we think about this, what are the main risks to it, cost overruns or just higher expenses? Any thoughts would be appreciated.

Sure, Will. I think when you look at the third quarter it obviously-- the third quarter EBITDA generally is around 50% higher than the second quarter, so it's a big quarter. Last year had significant-- we had a great March last year. We're obviously looking at that as we enter into March with this call and I think we're just really guiding that we expect to basically be on budget, our own internal budget, for the third quarter, which would have been in line with our original guidance that we put out and we'll see how this quarter rolls out. Obviously, I think our risks are things like expenses like workers comp and medical, all these-- we have a much better handle on those by the end of the ski season, so that's still out there and other than that I think really nothing else specifically we would want to talk about other than right now that's what we're prepared to show as our guidance based on how the third quarter started out.

Okay, great, some other questions. On the CapEx for calendar '07, how should we look-- I know you don't want to jump too far ahead, but will you continue with this kind of size budget looking ahead doing another 50 million outside of maintenance next year potentially?

I don't want to prejudge what we're going to do next year. I think certainly the strong results we've had this year I think lead us to want to be more aggressive on the CapEx. I think certainly we feel like the Company has a strongly differentiated position in the industry and I think that's primarily driven by the experience we provide our guests, but it's also our financial position. And I think we're going to certainly look to use our financial position to further differentiate our resorts from everybody else in the industry and we think that that's a cycle that will keep feeding on itself, so the more money that we can put back into our resorts, the bigger our margin differential will be and of course the bigger margin differential the more cash flow we'll be generating and the better our financial position and we think that's really a cycle that leading companies need to execute well on and that's certainly what we're going to do.

Okay, thank you for that. And then on the Arrabelle Mountain Club, is that part of-- are the revenues and the profits from that, 35 to 45 million of cash proceeds, is that part of the 50 to 60 million in profits that you expect?

No, it's not. It would be an to the resort depreciable asset portion of the project and so the deposits, we would receive the deposits, and then the income from those deposits would then be amortized over a 30 year type time frame much like we take in the membership income from our other clubs.

When would you expect to generate that cash?

The cash itself would be generated when we actually close on the memberships, which would start most likely next year and then depending on how quickly the absorption was in the memberships probably come in over a few years.

Okay, great. And then lastly, on your real estate held for sale, can you just mention how much of this is land and how much is construction in progress?

Well, I think the significant-- the vast, vast majority of the increase in this quarter would have been the construction. It is ongoing net of the sales that come back out of there specifically for the Gore Creek and Mountain Thunder in this quarter, so the land basis really hasn't changed from our previous disclosures.

[Eduardo Bush], [William NAM Partners].

Congratulations on a great quarter. I had a question related to Heavenly. There seems-- Crescent Real Estate has recently announced that they're going to sell-- they're tying to sell all of their development land over there and I was just wondering if this is something that interests you and what do you think of that in terms of pricing or where that could go?

You know I'm not going to comment on that specifically, but what I would say is we're certainly going to be looking to get more active on the real estate development side in Heavenly over the next couple of years. Again, it was one of the reasons why we brought in our new President of Vail Resorts Development Company. We think there are definitely some opportunities at Heavenly. They're not the same type of opportunities as you would see at some of the Colorado resorts, but they're something that we'll probably be talking more about in the next few years.

Okay. And just lastly, could you just in terms of your guidance does that include the Cheeca lodge or it didn't? I didn't understand?

Yes. The Cheeca contract dispute has been carried as a separate line item. The fees and expenses to date have been carried as contract dispute charges, which are not included as part of our reported EBITDA, but would obviously be included in net income. The guidance for the end of the year assumes that we-- the judgment of 8.5 million is received by the end of the year, so would be part of that income. Again, it does not impact reported EBITDA either way. We have conservatively assumed though that we will not get any additional attorney's fees and expenses just for the purposes of guidance. We're certainly feeling like we should get those and we're going after them as we've talked about in our earnings release today and in Rob's comments earlier.

Mimi Noel, Sidoti & Company.

Most of my questions have been answered, but I was hoping you could help me organize my model. What revenue from what projects do you expect title to transfer in '07 and '08?

In '07 you would have the Arrabelle and-- oh, in '07, sorry, fiscal obviously.

Fiscal, yes.

Yes. Fiscal '07 there's really nothing of major significance that's going to close for the rest of the year other than what's already closed. There'll be some additional closings in Jackson's Hole. In fiscal '08 you will see closings on the Arrabelle and then potentially some Front Door closings that'll close towards the end of fiscal '08 and then into fiscal '09. And then fiscal '09 will be Crystal Peak between fiscal '09 and fiscal '10 and the Ritz somewhere between FY'09 and FY'10.

Okay. All right, that helps. My only other question was about guidance, but Will tackled that question already, so thank you and nice job on the quarter.

Eric Brown, Banc of America Securities.

On the 600 to 700,000 square feet at Ever Vail, it sounds like about half of that is real estate related?

No. The 600 to 700,000 is actually the total salable square feet, so those would all be i.e. something we could sell and we've talked about that the project is actually 1 million square feet and the difference there would be operational space and public space and things that we wouldn't selling. Does that make sense?

Yes. At Keystone it seems like skier visits are up quite a bit on a pretty tough comp. What exactly is going on there and do you expect that to lead to any real estate potential development?

First of all, I think Keystone really had just an outstanding quarter I think both in terms of its total skier visitation, which included pass visitations and also its paid visitations excluding season pass sales, so I mean it just was a terrific quarter. I think it's a real testament to everything that the Company's been putting into Keystone. I think obviously we brought in a new Chief Operating Officer this year, which I think has really had a good impact on ensuring the guest experience and last year there were a number of internal programs that we implemented at Keystone that really tried to bring new enthusiasm to all the amenities and the experience that we were providing, so I think all of that's played well and I also think the investments we made in snow making were terrific. I think Keystone is really providing one of the best early season experiences throughout the whole year in the state of Colorado. What I would say is, yes, we are looking at a number of opportunities on the real estate side and, again, I think certainly as time moves on we'll be kind of chatting about that with everyone.

Okay and then lastly, on the sales of these Ritz Carlton residences directly to Ritz Carlton, will be these be accounted for any differently than your typical real estate sales?

No. They'll be accounted for the same. We will book them when we close on the sale to Ritz Carlton, which will be when the building opens and so, yes, they are no different.

Okay and you received the cash from them already then?

We've not received cash on them already. The Ritz Carlton, as part of the agreement, will be putting down a deposit and their contractual obligations are really Marriot obligations, so I think we feel very good about the partnership that we have with them on this project, but we will not receive the cash until the building opens, just like we won't receive it from any of the other buyers.

Will Marks, JMP Securities.

On the Ritz Carlton the 110.7 million, when will you receive that? Is that on closing?

Yes.

Okay and then it's kind of another way of asking a question that I asked before, your long-term debt of 552 million, how much of that is construction debt?

If you go to our 10-Q that we filed this morning the non-recourse financing is broken out in the debt footnote, Will.

Okay. I hadn't seen the Q yet, sorry, so don't worry about it.

If you go to the Q just go the table and we breakout non-recourse financing. We're also I think broken separately in the cash flow statement too, so you can see how much of the non-recourse financing we we're paying off on the quarter versus borrowing up as we pay off certain projects that go off and then re-borrow on the new ones and we broke that out separately in our cash flow in our Q, so that you can see that activity as well.

Okay and then just my last question, on deposits that you've received that will be on the balance sheet, so obviously nothing from the Ritz. On the chalets would cash deposits from all 13 now be requested on your income statement or on the balance sheet?

On the balance sheet.

Yes. Okay.

But not every-- some of those contracts were executed in February, so those deposits--

And then on the Breckenridge, are most of those in the January quarter?

No. I would not say most are. Most of those units were sold between-- most of them actually were sold in February, so I'd say we had some in January and some in February.

What is your practice there? Is it 10% at some point and then another 5? I think that was the Arrabelle situation?

On the Vail Front Door chalets there was a 15% upfront deposit and then another 10% on a framing deposit. Jeff, do you remember the exactly what-- ?

15% in Crystal Peak.

15% on Crystal Peak also.

And in the state of Colorado you can use a 15% towards construction costs so that additional 10% on the Vail chalets you wouldn't be able to use towards construction costs. And the other thing, Will, there was 44.9 million of non-recourse financing at the end of January.

[Operator Instructions] At this time, I am showing no further questions in the queue. I would like to turn the call back to Mr. Katz for his closing remarks.

Thank you, operator. Thank you all for participating on our conference call today. We're excited about our fiscal year to date and the prospects for the remainder of the fiscal year and the overall long-term success for the Company. Please feel free to contact me or Jeff directly, should you have any further questions. Thank you for your time this morning and goodbye.

Ladies and gentlemen, this does conclude the Vail Resort's fiscal 2007 second quarter earnings conference call. You may now disconnect and we thank you for using AT&T Teleconferencing.