Vail Resorts Inc (MTN) 2007 Q3 法說會逐字稿

Welcome to the Vail Resorts fiscal 2007 third quarter earnings conference call. (OPERATOR INSTRUCTIONS) This conference call is being recorded today, Friday, June 8, of 2007.

I would now like to turn the conference over to Robert Katz, CEO of Vail Resorts. Please go ahead, sir.

Thank you, Operator. Good morning, everyone. Welcome to the Vail Resorts fiscal 2007 third quarter earnings conference call and simultaneous webcast both open to the public and press at large. I'm Rob Katz, CEO 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 third quarter ended April 30, 2007. Before we review those results I'd like to remind you that we're 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 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 mornings earnings release and on the VailResorts.Com website in the Investor Relations section under the Regulation G compliance tab.

I also need to mention the 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 and 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 third quarter of fiscal 2007. So with that said let's turn to our results.

We are very pleased with our results in the third quarter and for the entire 2006, 2007 ski season. With the nine months ended April 30, 2007, incorporating our entire ski season, our mountain segment revenue increased 7.8% with a lift ticket revenue increase of 9.1% compared to the prior year and nine months. The lift revenue increase is attributable to a 10.3% increase in our effective ticket price as well as a 17.7% increase in season pass revenue, partially offset by a decrease in visitation for the nine months. The season pass revenue growth was due to the combination of more passes sold and higher pass prices. Our effective ticket price was positively impacted by an increase in absolute pricing of our individual lift ticket and pass products as well as an increase in the mix of our destination guest visitation, who generally purchase higher price tickets.

We are pleased to report that our destination visitation increased on an absolute basis and constituted 64% of total visitation compared to 60% in the prior year. This also benefited our ancillary businesses including ski school where revenues grew 8.6% over the prior year ski season. In addition, the capacity for destination visitation growth will be further amplified when projects such as the Arrabelle and Vail open their doors starting in the 2007, 2008 ski season.

The 2006, 2007 ski season presented some challenging weather. Our Colorado snowfall total was 10% below the historical average and heavy snowfall in Denver impacted our guests ability to get up to our resorts. In addition, heavenly snowfall was 27% below the historical average with 46% of their full year snowfall occurring within one week in February. Despite these challenges we were able to continue to drive significantly improved year-over-year resort performance. This certainly is a testament to the success of our capital investments in improving the quality of our resorts, our committment to expanding our destination visitation base, the benefit of our season pass programs, and the passion of our employees and the outstanding experience we provide our guests.

Looking at visitation first, total visitation at all five of our resorts for the 2006, 2007 ski season decreased to 1.1% compared to the prior season. While the Colorado resorts visitation for the 2006, 2007 ski season increased 1%, Heavenly's Visitation experienced a 12% decline related to the unfavorable weather conditions throughout the ski season. Heavenly's results were disappointing on an absolute basis, however based on preliminary information, we believe that the rest of California was down close to 20% for the season, which again is a testament to the Vail Resorts quality and emphasis on the guest experience.

Additionally, the increase in Colorado visitation was driven by a 7% increase in destination guests offset by an 8.6% decline from in State visitation. In State Colorado visitation, including visitation by season passholders, was negatively impacted by the adverse weather conditions in the Denver metropolitan area discussed before. We are very excited with the performance of keystone which had had an outstanding season. Keystone had very strong destination visitation and modest growth in in state visitation, resulting in a 7% increase in skier visits over the 2006, 2007 ski season. In addition, Breckenridge and Beaver Creek realized new skier visitation records this season for their respective resorts.

A positive impact of the destination visitation at our resorts also carried over to the lodging segment. The average daily rate and revenue per available room excluding the Equinox and the Lodge at Rancho Mirage termination fee revenue and the impact of the Snake River Lodge and Spa sale increased 8.3% and 10.7% respectively for the nine months at our owned lodging properties and condominiums that we manage around our mountain resorts.

Looking ahead toward the next winter season, the Company's marketing activities are already showing positive results in our Spring sales of season passes for the 2007, 2008 season. Pass sales to date increased 39% in units and 54% in sales dollars over the same period last year. The increase in season pass sales is largely due to a higher number of renewals at this point in our selling process, combined with an 11% increase in effective pass price for our Spring sales. However, it clearly establishes early momentum going into the 2007, 2008 ski season. As a reminder we will recognize these sales into revenue over the course of the 2007, 2008 ski season.

Turning to Heavenly's master plan approval we are excited about the recent unanimous approval of Heavenly mountain resorts 2006 master plan amendment by the Tahoe Regional Planning Agency's Governing Board. Effectively charting the course for Heavenly over the next ten years as a premier mountain destination and putting Heavenly at the forefront of environmental stewardship within the snow sports industry. Phase 1 projects approved under the plan include the replacement of the existing olympic fixed script chair lift with a high speed detachable lift. A 1,000 seat on mountain restaurant, 152 acres of new ski trails and a zip line adventure ride. This plan creates a new opportunity for us to further enhance the guest experience at Heavenly.

I would now like to turn the call over to Jeff Jones who will provide you with a detailed overview of our results for the third quarter and review guidance for the remainder of the fiscal year. I will then provide an update on the status of some of our Real Estate projects as well as other exciting news at Vail Resorts. Jeff and I will then both be available for questions. Let's turn to Jeff for our third quarter fiscal 2007 results.

Thanks, Rob, and good morning, everyone. As Rob mentioned, earlier this morning we released our earnings for our third fiscal quarter ended April 30, 2007. Also this morning we filed our Form 10-Q for the third quarter. I'd now like to take you through some of the highlights for our third quarter and year-to-date results.

Looking at the third quarter performance, Vail Resorts realized a resort recorded EBITDA $169.9 million, a 14.8 million increase or 9.5% in the third quarter compared to a very strong third quarter last year. Our mountain segment revenue grew 4.7% in the third quarter driven by a 5.9% increase in lift revenue, reflecting a 15% increase in season pass revenue recognized during the quarter and a 9.3% increase in effective ticket price. Partially offset by decreased visitation of 3.1%. Included in the overall visitation decline was an increase in destination visitation of 5.1% for the 2006, 2007 ski season. In addition to the increase that we experienced in lift revenue, we generated a 6.7% increase in ski school revenues , a 2.3% increase in dining revenues and a 0.6% increase in retail rental revenues compared to the prior year's third quarter. The destination growth helped drive the increases in our other ancillary business lines, especially ski school which experienced an increase in lesson prices and higher participation lessons as a percentage of total visitation compared to the prior year's quarter. Our dining revenue grew primarily commensurate with price increases.

Retail rental experienced strong performance from the Colorado locations which is mostly offset by reduced sales at the California, Any Mountain, and Heavenly locations due to the adverse weather conditions. We were able to continue to manage our expenses with the mountain segment having a 2.4% increase in expenses which included 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 have again experienced a greater amount of EBITDA flow through from every dollar increase in revenue. As such, our mountain reported EBITDA margins, which include fully loaded general and administrative expenses, increased 1.4 percentage points from 49.6% last year to 51.0% in the third quarter of fiscal 2007.

Looking at our lodging segment, revenue increased 10.5% to 43.6 million in the current year third quarter from 39.5 million in the prior year's third quarter. The third quarter year-over-year operating statistics for our owned hotels also reflect significant improvement. In the third quarter our owned hotels and managed condominiums around our mountain resorts had a 10.6% growth in RevPar to $165.56, incorporating a 9.8% increase in average daily rate to $271.58, and a 0. percentage point increase in occupancy to 61.0%. All of which reflected the growth in destination visitation at our Colorado mountain resorts. For the third quarter of fiscal 2007, the lodging segment revenue included 2.6 million of revenue associated with the termination of a management agreement at the Equinox pursuant to the terms of the management agreement with the sale of the hotel by the hotel owner.

Now, to our resort reported EBITDA. The combination of our mountain and lodging segments. Resort reported EBITDA for the third quarter was 169.9 million, a 9.5% increase over the prior year's. Resort reported EBITDA excluding stock based compensation expense for the third quarter fiscal 2007 increased 15.2 million, a 9.8% increase to 171.2 million from the prior year's third quarter.

Turning now to our Real Estate segment, Real Estate revenue increased 10.0 million or 140.5% to 17.1 million compared to the prior fiscal years third quarter. Reported Real Estate EBITDA decreased 3.9 million or 90.5% in the third quarter to a loss of 8.1 million. Our Real Estate segment operating metrics are primarily determined by the timing of closings and the mix of our Real Estate sold in any given period. During the third quarter revenues were driven by the closings of eight Jackson Hole Golf and Tennis Club cabins, the sale of a sole asset in a Real Estate joint venture, contingent gains on developer parcel sales that closed in prior periods, and two fractional ownership condominiums in Beaver Creek.

In addition the cost of sales associated with these revenues we recorded an additional 2.4 million net of estimated recoveries from contractors. An estimated unanticipated incremental cost of sales related to our Jackson Hole Golf and Tennis Club development and incurred normal marketing and general administrative expenses in the quarter. As we have previously indicated fiscal 2007 will continue to be a construction year for the Company, our significant projects that are currently in the development phase including in vail, the Arrabelle, the Front Door, The Ritz Carlton residences and Crystal Peak and Breckenridge will factor strongly into our fiscal year 2008 and beyond results. Rob will speak in greater detail about these and other development projects.

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 4.3 million for the third quarter from 3.2 million in the prior year third quarter due to significant increase in average invested cash balances and higher investment yields. Interest expense decreased 0.8 million to 8.0 million due to higher capitalized interest associated with the significant ongoing Real Estate and related resort development. Depreciation and amortization increased 0.6 million due to accelerated depreciation for certain capital projects and the Equinox management agreement and tangible asset acceleration offset by Cheeca's management agreement and tangible asset acceleration in the prior year.

Finally, the Company recorded total pretax stock based compensation expense of 1.7 million included in the total reported EBITDA and the three months ended April 30, 2007 compared to 1.1 million for the three months ended April 30, 2006. The Company reported third quarter net income of $78.5 million or $1.99 per diluted share compared to $68.3 million or $1.75 per diluted share for the same period last year. Excluding stock based compensation, the Company's third quarter net income would have been $79.6 million or $2.02 per diluted share for the third quarter fiscal 2007 compared to $69.1 million or $1.77 per diluted share in the third quarter of fiscal 2006.

Now, very briefly to the nine months ended April 30, 2007. Most of the trends that occurred in the third quarter were comparable for the year-to-date period as well. Driven by the strong mountain and lodging staff that Rob mentioned earlier. Resort reported EBITDA was up $32.9 million or 14.7% compared to the prior year, and excluding stock based compensation expense, resort reported EBITDA for the nine months was up $33.2 million or 14.6%. Net income for the nine months was $95.7 million in fiscal 2007 or $2.44 per diluted share compared to net income of of $77.0 million in fiscal 2006 or $2.01 per diluted share. Excluding stock based compensation expense, net income for the nine months would have been $99.1 million or $2.52 per diluted share in fiscal 2007 compared to income of $80 million or $2.08 per diluted share in fiscal 2006.

Based on the performance that we have delivered this fiscal year, we would like to take this opportunity to increase the guidance previously announced in our second quarter earnings release and call. Based on our current estimates we expect full year resort reported EBITDA, the combination of our mountain and lodging segments to range from 220 to 225 million and resort reported EBITDA excluding stock based compensation expense to range from 225 million to 230 million. The resort guidance includes a range from mountain reported EBITDA of 201 million to 206 million, and mountain reported EBITDA excluding stock based compensation expense of 205 to 210 million. While we expect lodging reported EBITDA to range from 18to 22 million and lodging reported EBITDA excluding stock based compensation expense to range from 19 million to 23 million.

Real Estate reported EBITDA is expected to range from negative 2 million to positive 1 million and Real Estate reported EBITDA excluding stock based compensation expense is expected to range from 0 to 3 million. Based on our current estimates we expect net income to range from 63 to 68 million and net income excluding stock based compensation expense to range from 67 to 72 million. This includes an assumption that we will receive payment of the arbitration award related to the termination of Rock Resorts Cheeca Lodge & Spa Management agreement in the fourth quarter. We will disclose receipt of this judgment when it occurs. Additionally our guidance anticipates increased expenses in the fourth quarter of fiscal 2007 compared to the prior year due to timing of expenses in both the current and prior year, construction related impacts including the loss of Summer group and Wedding business at the Lodge at Vail and the summer closure of the Vista Bahn share all related to the front door construction. Certain one time savings that we recognize in the prior year fourth quarter which we do not anticipate will reoccur in the fourth quarter of 2007. Including in our medical claims and benefits area and the impact of the divestiture of RTP in April 2007 which will no longer be included in our results starting in the fourth quarter of 2007. The quarter where most of RTPs revenues, including last year, were historically realized. Certain one-time savings we recognized in the prior year Fourth Quarter which we do not anticipate will reoccur in the Fourth Quarter 2007 including our medical claims and benefits area and the impact of the divestiture of RTP in April 2007 which will no longer be included in our results starting in the Fourth Quarter of 2007, the quarter where most of RTP's revenues including last year were historically realized.

Now, turning tour attention to our Balance Sheet and the third quarters capitalization events. The third quarter is historically a stronger quarter for generating free cash flow since our ski resorts are open for business for the vast majority of the quarter. At the end of the third quarter we had 316.4 million of cash on hand excluding restricted cash, no revolver borrowings under our senior credit facility, and net debt defined as total debt less cash and cash equivalents of 259.1 million compared to 281.2 million at the end of the third quarter of fiscal 2006. This equates to an improvement in the ratio of net debt to total reported EBITDA calculated on a trailing 12 months basis from 1.4 times at the end of the third quarter in fiscal 2006 to 1.1 times at the end of our fiscal 2007 third quarter. Finally in the third quarter the Company did not repurchase any shares of Common Stock under our previously announced share repurchase program in fiscal 2006, the Company has repurchased 673,500 shares at an average price of $38.38 for a total amount of approximately 25.8 million, with 2,326,500 million, shares remaining available under the existing repurchase authorization, 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 Rob.

Thanks, Jeff. We continue to expand our Real Estate development opportunities providing our guests the best possible resort experience in maintaining our leadership position within the mountain resort industry. Our Real Estate activity not only advances in Vail with the Arrabelle, the Front Door, the Ritz Carlton residences and EverVail projects but also with significant opportunities in Breckenridge and Keystone. We are in the process of designing Peak 8 in Breckenridge with initial plans calling for a new peak 8 base building including a seven building multi-use development anticipating 325,000 to 350,000 salable residential square feet or approximately 280 units, 48,000 square feet of skier services and 14,000 square feet of commercial space. The first phase of this project, building 801 is expected to include 89 studio to four bedroom ski in-ski out residences with approximately 100,000 to 110,000 salable residential square feet. At our Crystal Peak development on Peak 7, we have 45 of the 46 units under contract at an average sales price per square foot of $962, representing gross sales proceeds of 54.4 million. We are pleased with the progress on the Arrabelle at Vail Square project in Lionshead where we're currently anticipate the hotel and commercial components to open before the end of our second fiscal quarter in 2008 and the condominiums to close, to all close within fiscal 2008.

In addition the marketing of the Ritz Carlton Residences Vail project continues with 71 whole ownership 2 to 6 bedroom condominium units and 45 fractional ownership units. Of the 54 reservations announced in the second quarter earnings release, we have converted 74% of these reservations into executed contracts. We currently have a total of 40 whole ownership units and all 45 fractional units under contract, representing 62% of total expected revenue. The marketing of the Vail Mountain Club, an exclusive Private Club, steps from the Vista Bahn express lift, is ongoing with 107 full memberships which include parking privileges, and an additional 105 social memberships, which exclude parking, sold to date. We have been able to increase our pricing of the full memberships to a membership initiation fee deposit of $260,000 and the social memberships to a membership initiation fee deposit of $105,000. We currently have total sales commitments representing 37.3 million of total proceeds when paid in full.

On our lodging business, we are extremely excited about our recent announcement of adding the hotel Jerome, a celebrated historic luxury property at Aspen to our portfolio of Rock Resorts properties. Rock Resorts also confirmed it plans to operate the Chateau at Heavenly Village at the base of Heavenly. The Chateau at Heavenly Village will stand out as the jewel of South Lake Tahoe, connecting Heavenly's world class slopes to the treasured shore of lake Tahoe. The construction of the proposed lead certified redevelopment project has commenced and the $420 million, 11.53 acre redevelopment will include two luxury condo hotels, a 16,000 square foot Rock Resort Spa, convention center and a collection of shops and restaurants and is expected to be completed in early Winter 2009.

On the retail rental business, Specialty Sports Ventures, a joint venture majority owned by Vail Resorts has closed its acquisition of 18 Breeze ski rental shops at locations throughout Colorado, California, and Utah. With this acquisition, specialty sports ventures becomes one of the leading ski rental and retailers in the United States with a total of more than 145 shops in Colorado, California, and Utah. The acquisition also included an agreement whereby Vail Resorts directly purchased two Starbucks retail stores adjacent to the Breeze locations at the base of aspen Mountain and along the I-70 corridor. The acquisition of the 18 strategically located Breeze ski and snowboard rental shops and the Starbucks locations further enhances our Company's ability to provide the highest level of service to our skiing and snowboarding guests. The addition of stores along the I-70 corridor in Colorado, the gateway to the states most visited mountain resorts is particularly attractive because of both the day and destination skier traffic heading to the mountains.

And finally, as part of Vail Resorts longstanding committment to responsible stewardship of the environment, we have recently announced the first round of conservation projects to receive funds as a result of our fund raising partnership with the National Forest Foundation that began in September 2006. Seven non-profit organizations will receive a share of $225,815 to begin conservation projects on Colorado's White River National Forest where Vail Resorts operates Vail, Beaver Creek, Breckenridge and Keystone mountain resorts. Vail Resorts continues to offer guests at its five mountain resorts the opportunity to participate in the special fund raising effort by contributing $1 on season passes, $1 on online lift ticket transactions and $1 per room night at its Colorado base lodging properties. Each dollar raised results in $1.50 in on the ground conservation funding through the National Forest Foundation. We view the success of our program as an indication of the level of committment our guests have to protecting the spectacular National Forest in which we operate our resorts. Vail Resorts expects to raise up to $600,000 including the matching funds, three to four times more than the National Forest Foundations next largest fund raising program of this kind.

I would like to conclude the prepared remarks of this call by thanking all of our employees for making 2006, 2007 a truly remarkable ski season, and for providing our guests a great experience at each of our mountain resorts and lodging properties. As we now turn to our summer operations, we would look forward to welcoming you to one of our premier properties to experience how our winter playgrounds transform into terrific summer destinations. While we will be busy with our summer business we will also be focusing on a significant number of capital expenditure and Real Estate construction projects. As our guests return for the 2007, 2008 ski season will see the benefits of many of these projects. For example, families visiting Beaver Creek will be met by a new Beaver Creek children's ski school gondola which will dramatically improve the experience at what the is already arguably the top children's ski school in the world. At Vail, our guests will arrive at a new, high speed, highline chair 10, reducing the travel time by over 50%. At Heavenly a new high speed chair lift will completely change the experience in Heavenly's North bole area and guests coming to Vail will be able to check into the luxury Arrabelle Hotel, enjoy Butler service and a premium spa and eat at one of the fabulous new restaurants in this new European style village. We look forward to seeing you there. At this time Jeff and I will be happy to answer your questions. Operator? We are ready for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Felicia Hendrix with Lehman Brothers. Please go ahead.

Good morning, guys and congratulations on another great ski season. I have a few questions for you. First I wanted to talk about Heavenly and the upgrades there. Wondering if you could just walk us through a timeline of the improvements and then I was wondering typically how long does it take for a resort to fully enjoy upgrades of that sort? And then finally on Heavenly, I was wondering what you were doing to offset any fall off you might see this year or this upcoming ski season as a result of the bad weather the past ski season, and then separately in Colorado, I was hoping you could talk about the competitive environment you're seeing there vis-a-vis season pass sales or anything else you might be seeing?

So let's start I guess the first question was about the upgrades at Heavenly and the timing. So I think what we certainly can say that we're putting in the new Olympic chair lift this Summer and then we are also going to be putting in the new zip line. I don't know if it will open at what point during the Summer because it will obviously be both a summer and a Winter attraction, but again, that construction has started and we probably will have it open by the Fall and certainly for the next ski season. I think some of the terrain expansions and the restaurant will come in the following years. I think the biggest improvement that we're really looking at is this new restaurant.

The Powderville lodge and I think given the size of it that will take a couple of years to complete. I guess that was the first question. In terms of what we're doing, in terms of I guess the second question you asked was how long it takes resorts to "Enjoy" these new upgrades. I think we see the benefit, obviously we count these new upgrades right away and we'll certainly be doing that with the new Olympic chair lift at Heavenly. But it typically takes two years. One year you get a set of benefits as people kind of hear about it and come but then obviously the word of mouth is very very strong and I think you see that as another pop in the following year and I think for instance, I think the imperial chair at Breckenridge, I think we saw a pop obviously in the first year and I think we've also continued to see the benefit of that coming through.

We are going to be doing a number of, I'd say gatherings and special benefits for all of our season passholders at both Colorado and at Heavenly and I think certainly particularly In Heavenly, we're certainly going to be getting the word out that we're certainly obviously expecting net season to be better in terms of weather and I think even when you look at last year and the fact that really Heavenly improved its market share based on the preliminary numbers we've seen in California, I think all of the marketing and the snow making investments and all of the other capital things we've done there have really helped to take the resort to the next level even when overall weather conditions are down. Lastly, I think all of the investments that we put at the resorts obviously picks up the value that and the experience that we're providing our guests, when the value piece of the equation goes up, obviously we can raise prices as well and still maintain the same price value relationship for our customers.

In terms of Colorado, I really can't comment on the market share dynamics per se for season passes. I think -- we don't have data on other people. I think we're obviously very pleased with our results. I think it's a combination of people just becoming more and more confident with the experience that they can expect when they come to the resorts and I think they are clearly willing to make a committment to our company earlier and earlier, and while I think we won't know until the end of the season exactly how that turns out in terms of the number of absolute number of pass sales that will go up this year, I think we're certainly, it certainly helps us to get more of these passes sold early on.

I guess what I was rather asking was what does the competitive environment look like? Is anyone underpricing you or is the pricing in the market across-the-board similar?

The pricing is obviously public and it's out there and I think that it's, we focus I think much more on our experience and our price and making sure we're delivering the right relationship there, price value relationship to our customers and kind of we pay a little less attention to what everybody else is doing and so far that strategy mass been pretty successful.

Okay, thanks a lot.

Thanks.

Thank you. Your next question comes from Will Marks with JMP Securities. Please go ahead.

Great. Thanks, good morning, Jeff, Rob.

Hi, Will.

Sorry about the speaker phone. I've got a couple other people here. Can you just comment first on share repurchase, why you didn't in the quarter and do you plan to, your share count did go up and I imagine it will continue to go up so just any thoughts?

We spend before every quarter and certainly even during the quarter we spend time talking to our Board of Directors and the management team and the Board really works out a plan for each quarter. It's not something that we're going to share publicly, and I think in this quarter, based on some of the discussions we had, we didn't wind up buying any.

Okay. Unrelated question. Construction in progress, can you give us that figure, we obviously you have the balance sheet of the Real Estate of over 300 million and how much of that will you say is construction in progress?

Well, I'd say again, I think consistent, we virtually made no land acquisition in the last several years. I think our land acquisitions to date in the last ten years have been basically under 20 million of pure land acquisitions, so the land component of that Real Estate held for sale in investment has remained consistent with prior quarters and what we've talked about, so I think the increase in the quarter is basically all capital construction in progress, net of any sales that we record during the quarter that where the cost of sales would come out of that balance sheet line item.

Okay, and then continuing along those lines, the efforts to understand the value of your Real Estate, at your analyst day and in your presentations, you've shown a lot of different projects in Breckenridge and Keystone and Vail. Wondering what outside of those projects which you detailed, all of the long term projects, how much value is there? I assume there's still some left in Jackson Hole, some at Sky Ranch. Can you detail some of that?

There's nothing significantly, there's nothing material that's really left in Jackson Hole other than the three phases of the cabin projects that will be closing over the next year. There is additional Real Estate at Red Sky Ranch that is being sold. I guess that addresses those two but I'd say the vast majority of the future value is going to be at the base of our five resorts.

Okay. And then just one last question related to Felicia's and maybe I misunderstood how you answered it, but what would you say in the past or maybe can you quantify at all the size of your season, of the season pass market and what your market share has been historically or anything along those lines?

We don't really, we haven't really talked about our market share within the season pass program. I think we certainly believe that we have the biggest share in Colorado but it isn't, unless we have everybody else's data, it's not something that we really have access to and like I said, I think our goal really is to just focus on the experience we're providing and making sure we've actually launched a number of events and other things even in the off season both in Colorado and in Tahoe for our season pass members and really trying to kind of throughout the year constantly have them feel a greater connection to the Company and I think some of those efforts have really paid off with some of the renewal rates that you're seeing, again, at this early stage. Okay. Thank you.

Thanks.

Thank you. (OPERATOR INSTRUCTIONS) And your next question comes from [Haley Wolf] with [Rockdale] Securities. Please go ahead.

Hi, there.

Hi.

A couple questions, just first on margins in the quarter I was pretty surprised by the 51% EBITDA margin. Given that skier visits declined in the quarter, what does this suggest for going forward on a more normalized year where you have skier visit growth and pricing remains as good as it did this year? Can you get your margins higher than that type of number?

Yes. Let's talk about two things. One is I think it's important to break down particularly in Colorado our results for the year, so I think what we saw is a 7% increase in destination visits offset by an 8.6% decline in in state visits. The majority of in state visits are on our season pass program and the season pass sale program was up quite a bit. I think there were some weather challenges as to why the in state business was down but I think when you look at the overall drivers of the business, we don't, it's true that our total absolute skier days were down but I think when we think about our ability to sell our product to our guests, that was dramatically up and I think that's how the year actually was very successful. I think within Heavenly obviously a lot of weather challenges but we're very pleased with the fact that, even in Heavenly by the way, the destination business was down much less than the local business, even in Heavenly, so I think that overall, I think we're very pleased with the progress that we made this season and I think, Jeff, you can maybe chat about the margin.

Yes, I think the fact that our expenses were up 2.4% just and a big portion of that as I mentioned on the call was due to variable expenses that are directly tied into the revenue increases, not visitation increases but revenue increases which we did have again, a pretty substantial revenue increase. So when you think about the fact that only expenses that are really going up meaningfully are ones that would only be going up based on higher revenue. It really equates and the rest of the fixed expenses are kept in check, it really equates to continued improvement in our EBITDA margins and our operating model will certainly look that that would continue to happen because obviously we look at revenue increases not only in our lift ticket area both from price and destination visits and everything else and overall visits but also all the other ancillary businesses that go along with that so I think, we're obviously quite pleased but I think as I've mentioned on previous calls, we would anticipate the EBITDA margins to continue to go up as we're able to continue to drive revenue forward.

What about international visitation from the weak dollar vis-a-vis the euro? Did that help you at all?

Hard to know how the dollar impacted it but what I would say is our destination, our international business was up but not significantly, so I mean, it stayed pretty much in line with the rest of our kind of customer base. I think the biggest, when you look at that 8%, 7% increase in destination business, the vast majority of that was North American business, not American business, actually , U.S. Business, not international.

Okay, and switching over to the season pass sales, can you talk about the percent of the total season passes that you typically sell sort of either renewals or by this time?

Yes, I think so far to date, we are at about a quarter, I think that's right, Jeff, of our sales in these types of pass programs, and then we're probably at about a fifth of our overall season pass programs because we have a lot of season pass programs that were not really even on sale during the Spring.

And in terms of Heavenly season pass program renewals, can you just help us understand what might flow to the next season given how bad of a winter? I mean, are you seeing any drop off in season pass sales, any pick up in season pass sales as a result of market share gains?

Yes. What I would say is, again, the vast majority of the increases that we reported are all coming from Colorado. I think we have seen some sluggishness in the Heavenly sales. Nothing that's I think concerning at this point at all, but not surprising given the tough year. I think and like I said earlier, I think one of the things that really have been shifting is making our season pass program much more of a year around connection between us and the customers and we're going to be doing a lot of that at Heavenly over the summer where Tahoe is a very big destination. So we've got a lot of efforts and programs to really continue to drive Heavenly season pass program as well.

Okay, thanks a lot.

Thanks, Haley.

Thank you. Your next question comes from Mimi Noel with Sidoti & Company. Please go ahead.

Hi. I was hoping you guys would indulge me with a different kind of perspective on the season pass sales. The 34% increase, I'm certain that part of it does reflect greater comfort with buying a season pass so much further in advance but some of it also has to be an urgency on the part of your day tripper to get more attractive pricing. At what point do you worry that you begin to alienate certain of your visitors with higher and higher prices?

I think that's something that we look at constantly, and I think we're in the kind of business where it's very much a discretionary expenditure by the consumer so to the extent that we have priced our product too high, we will find out right away. I think that what our guests now know is our committment to upgrading the experience at our resorts and I think a lot of the visitors -- a lot of our guests and customers who were at Breckenridge last year and saw the Imperial Express Lift and experienced riding up on the Gondola, they realized that and now they hear next year there's going to be a new ski Gondola at Beaver Creek and we're going to replace chair 10 at Vail and chair 14, and the Arrabelle is going to be open, our front door is going to be -- that message gets out and I think people have a perspective that they know what they're getting when they buy our season pass and essentially become more committed to the Company.

Okay.

I think the one thing that's very clear is that while I certainly would agree that I think there are a lot of people who are committing to our pass program earlier because they know that it is the most attractive priced, in the end they are only going to do that if they are very confident that this is the right decision and I actually think quite frankly the season pass results reinforces the fact that the Company is at a very attractive price value relationship to our guests.

Okay, and when you said that you would know right away if you are pushing too hard, pushing pricing too hard against the consumers, can you elaborate on that?

Sure. I think we would see renewal rates and sales go down. We would see people wouldn't be showing up at our resorts. People wouldn't be booking their vacations at our resorts. Very much like other places in the travel sector.

Okay so you would get an indication by Summer that you would be too aggressive and you would adjust your plan for the height of the season later?

Sure. I think this is a constant process that we go through always looking at a lot of different indicators to make sure that we're, our pricing is situated in exactly the right place.

Okay and the same can be extended for your destination skiers, Right?

Sure.

All right that's all I had. Thank you.

Great, thanks.

Thank you your next question is a follow-up from Will Marks with JMP Securities. Please go ahead.

Thanks. Two parts here. One on Arrabelle and one Ritz. Just on the Arrabelle, is this delayed from previous announcements? It just seems a little bit late when you're talking about potentially not until the end of fiscal '08 with full completion, and then on the Ritz, it looks like some people have not gone forward on their commitments to purchase condos so can you comment on both those issues?

Sure. On the Arrabelle, the answer is yes. I think that the original schedule or anticipated opening for the Arrabelle would have been everything would have been open in this Winter, and I think we're now saying that the kind of everything that's going to touch the guest will be open I'd say right around Christmas, New Years, or a little bit thereafter, and so most of the ski season, but we are saying that it will take us a number of months after that to close all the condos. So it's a delay but given that this is a three year project it's not a dramatic delay in terms of bringing the entire effort to completion.

On the Ritz project, the answer is yes. There's some people that did not go forward. I think one of the things that we've shared with people is that as we continue in our Real Estate efforts, we are really looking to price our Real Estate products at a point where we're not going to have a five to one, six to one over subscription like we did on the Arrabelle but much more at a price point that would lend out to a traditional absorption schedule and then quite frankly having looked at and talked to some other folks a 75% conversion ratio for reservations to contracts is very much in line I think with industry expectations.

Can you describe the environment right now in the condo, the luxury home market in Vail?

I think it is still strong. I don't, I think what we've shared before is that I don't know that it is, I guess to use a phrase that was coined by someone else, it's not irrationally exuberant, but I think that it's, so there's been a bit of a calming down, but I certainly think that we're still seeing stability in the market. I think if you look back over this past year, we sold out Crystal Peak, we sold out 40 of the condos and 45, all 45 of the factual units at the Ritz, we finished and sold out all the Front Door Chalet units and we sold out 45 of 46 Crystal Peak units, we sold over 200 luxury memberships in the Vail Mountain Club, so I think when you look at all that, I think our take-away is that we're still seeing strength and I think it's again the reason why we feel like these two businesses are key for us is because as we put more money in the mountain, it gives Real Estate buyers and Club buyers more confidence to buy Real Estate and of course that allows us to take more money out of the Real Estate and of course then reinvest it again in the mountain.

And Will, one other indicator for that is if you look in our income statement, our Mountain equity investment income line item is the vast majority of that is our equity investment in Slifer Smith & Frampton brokerage and so therefore, the revenue that comes out of that has been up significantly. It was over double in the third quarter and up pretty significantly in the year-to-date period as well and I think that all comes from revenue from brokerage, revenue from Real Estate sales whether they are private residences or condominiums. So I think that again is just another public indicator that you can see that shows the continued I think strength of the market that Rob described.

Okay, and, that's very helpful. On the35 fractional, is that the total fractional and how are they broken up and any comments on pricing there? I know that you, I guess sold those to Ritz.

We did. The pricing on those units is less than the pricing on the whole ownership condos and that was part of a discussion that we had with Ritz about changing the old agreement which had certain fees in it to Ritz and turning it into an agreement whereby we would basically be including them in the project and for us it led to a much better Real Estate project for us and quite frankly, also a great addition for Vail to have a Ritz vacation Club, a Ritz Fractional Club in Vail and obviously all of the guests and activity and occupancy that comes along with that.

Okay that's enough for me. Thank you very much, Rob and Jeff.

Thank you. (OPERATOR INSTRUCTIONS) And your next question comes from Michael Savner with Banc of America Securities.

Thanks very much. Just one kind of general broad question. If you could maybe give us an update on the M&A environment and specifically how it might tie to the tougher snowfall conditions this past season where you obviously outperformed in aggregate relative to the market, what kind of leverage does that give you if any? And then secondly still related a weakening housing market, does that impact the M&A market? Is that going to potentially cause some people to kind of revisit their expectations about growth or at least again at a high level what's your thought on that? Thanks.

Sure. I think those are dynamics that generally would speak to a more favorable M&A environment for us. At the same time, I'd say that the Mountain resort industry is fairly unique in terms of a lot of entrepreneurial and family owners of many of the resorts. Other financial investors that have only recently gotten into the assets and so I don't know that those dynamics which traditionally would be true in a lot of other industries would necessarily play out in this sector. What I would say is it's certainly something that we very aggressively monitor and follow and are looking at. We think that there are certainly potential opportunities out there that could be terrific for us, at the same time we're going to remain very disciplined or very patient looking for the right thing to really add to our current asset collection.

Okay, thanks very much.

Thanks.

Thank you. Your next question is a follow-up from Haley Wolf, Rockdale Securities.

Hi. Can you talk about how many units you expect to buildout at the condo hotels at Heavenly?

Just, well just to clarify, the Heavenly project is one that we are not developing, so we are going to be the operator of the spa, of the hotel, and essentially it's going to be essentially a condo hotel that we will manage but we are not the Real Estate developer on that.

Yes, exactly.

But I mean more from just a bed base perspective.

There's going to be just a tad under 500 total condo hotel keys, included in that project. And then again, a conference center as well.

All right, thanks. And on Breeze, do those 18 units you bought need a substantial amount of an investment and can you help me understand how it helps you with ticket sales, pass sales in the front range?

Sure. The answer is no. I think we probably will spend some money but it's not like that that's material to the overall transaction. The way it helps is two things. One is they have a number of locations in downtown Denver that we can then use as a platforms to sell our front range passes and so that would be one piece. I think certainly the other one is that I think to give us a location that the Dumont Exit on I-70 is I think Jeff, you might remind me but one of the highest sales for any Starbucks in the country. It's a very profitable operation for them, it gets a lot of traffic there and you really are capturing, it's another opportunity for us to really, I mean the Starbucks is going to be run as a Starbucks but the adjacent retail store really gives us a chance to make an impression on these guests as they are coming up and again kind of make contact with them even earlier in their vacation process. As they're driving up I-70.

Or and make it a very easy rental venue for them where we're packaging the whole experience, they can stop off, grab skis, it's just--.

Get information.

Right. Sell products, sell packages, it's just a tremendous easy on, easy off halfway point to all of our Mountain resorts along I-70.

Okay, thanks.

Thank you. (OPERATOR INSTRUCTIONS) Gentlemen I'm showing there are no further questions. Mr. Katz, I'll turn it to you for closing comments.

Thank you, Operator. And thank you all for participating on our conference call today. We have had a particularly strong first nine months of the fiscal year and are optimistic about the Company's continued growth potential. Please feel free to contact me or Jeff directly should you have any further questions. Thank you for your time this morning and goodbye.

Thank you. Ladies and gentlemen, that will conclude today's teleconference. If you would like to listen to a replay of today's conference please dial in to 303-590-3000 or 1-800-405-2236 and enter the access code of 11090869 followed by the pound sign. Once again, those numbers are 303-590-3000 or 1-800-405-2236 with access code 11090869 followed by the pound. We thank you again and at this time you may disconnect.