Vail Resorts Inc (MTN) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Vail Resorts fiscal 2008 second quarter results conference call.

During today's presentation, all parties will be on listen-only mode. Following the presentation the conference will be open for questions. (OPERATOR INSTRUCTIONS) This call is being recorded Monday March 10th, 2008.

I would now like to turn the conference over to Rob Katz, Chief Executive Officer of Vail Resorts. Please go ahead, sir.

Thank you, operator. Good morning, everyone. Welcome to the Vail Resorts fiscal 2008 second quarter earnings conference call and simultaneous webcast, both open to the public and press at large. I am Rob Katz, Chief Executive Officer of Vail Resorts. Joining me on the call this morning is Jeff Jones, our Chief Financial Officer.

Before I get into the discussion of our results, let me 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 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.

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 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-K for the fiscal year ended July 31, 2007, and Form 10-Q for the second quarter fiscal 2008.

In addition, the Safe Harbor language in today's press release also applies to our comments on this call. All guidance and forward-looking statements made on this call are made as of the date hereof, and we do not undertake any obligation to update any forecast or forward-looking statement, except as may be required by law. With that said, let's turn to our results.

As highlighted in our earnings release, I am pleased with our fiscal 2008 second quarter results. With both very difficult early season weather and a challenging economy, our mountain reported EBITDA still represented a new all-time record for our second quarter and overall resort-reported EBITDA, which includes mountain and lodging segments, was essentially flat with last year's all-time record second quarter, even though we also absorbed approximately $2.2 million in Arrabelle startup and preopening expenses in this year's quarter.

The second quarter basically contains the first half of our 2007-2008 ski season, with mountain segment revenue up 2.8% over the prior year's record quarter, with approximately 50% of our revenue growth flowing through to mountain reported EBITDA. Lift ticket revenue increased 4.2% over the prior year's quarter, driven in part by an 11.2% increase in season pass revenue, of which we recognized 54% of total season pass revenue in the second quarter, with the remainder to be recognized in the third quarter. As well as overall ETP, or Effective Ticket Price, which had growth of 8.4%, and increased ETP, excluding season pass products, of 7%. The latter driven by higher absolute pricing by our destination ticket products.

Partially offsetting the season pass and ETP increases was a decline in skier visits, excluding season pass holders, of 5.3% at the Company's five ski resorts, which entirely occurred in the early season, which were from the start of the ski season through December 22nd, prior to the Christmas holiday, when weather conditions were challenging. The early conditions impacted our results, evidenced by our lift revenue, which was down approximately 13.6% for the early season, compared to the same period in the prior year.

However, for the remainder of the quarter compared to the prior year, starting with the Christmas holiday period through January 31, lift revenue was 11.1% higher, resulting in the overall revenue increase for the quarter. Our ancillary mountain businesses, specifically ski school, dining and retail rental, all followed the same trends as lift tickets that we just described, with overall revenue for these three areas up 4.1% in the quarter.

If you break it down to the early season period, revenue for these three areas was down by approximately 10% compared to the prior year. Moving past the early season, there is a market turnaround in the remainder of the quarter, with revenue for these three areas up by approximately 13.5% over the prior year. Our revenue per skier visit relative to these ancillary businesses were all improved, with our guests spending more on ski school, dining, and retail rental per visit in the current year, a good indication given the current economic environment. We are pleased to report that we currently have terrific snow conditions across all five resorts, led by Vail, with over 350 inches accumulated season-to-date.

In our lodging segment, RevPAR, or revenue per available room was up 6.9% on a same-store basis over last year, led by an ADR, or Average Daily Rate increase of 9.6% for our owned hotels and managed condominiums. Jeff will provide details on our lodging results in a few minutes.

Before I turn the call over to Jeff, I wanted to comment on the overall economic climate. We are keenly aware of the current challenges in the broader economy, and our Company cannot be immune to impacts to the broader travel industry. However, our business model remains very solid, as indicated by our results, since the weather-challenged early season. Additionally, our Company is capitalized on the attractive exchange rates for international visitors, with international guest visitation for the quarter estimated to be up approximately 23%, compared to the same period in the prior year.

Furthermore, as international visitors typically stay longer and account for more revenue on a per-trip basis, we have experienced an even greater increase in revenue for international guests. Any impact from the economy on our U.S. destination business, has been partially mitigated by the growth in our international visitation.

With that said, Jeff will provide you with an overview of our results for the fiscal 2008 second quarter and outlook for fiscal 2008. 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 now turn to Jeff for our fiscal 2008 second quarter results.

Thanks, Rob, and good morning, everyone. Earlier this morning we released our earnings for our second fiscal quarter ending January 31, 2008, and filed our Form 10-Q for the second quarter.

I would now like to take you through some of the highlights of our results and our guidance for fiscal 2008. Since many of the same trends we saw in the second quarter are comparable for the year-to-date period as well, I will focus my comments mainly on the second quarter. We were pleased to deliver another record-setting second quarter, with resort revenue of $314.5 million, a 3.2% increase over the prior year's record second quarter. We set a record for the second quarter mountain reported EBITDA of $117.5 million, a 3.4% increase over the prior year's then record second quarter.

Our mountain results were certainly positively impacted by our season pass program. We were able to continue to grow our season pass sales over our strong performance last year, with season pass sales up approximately 8% in sales dollars over the same period last year, although units were down approximately 2%, due to an approximate 10% increase in effective pass price. For our Colorado resorts alone, season pass sales were up approximately 11% in sales dollars, and up approximately 1% in units.

Season pass revenue represents approximately 25% of our total lift revenue, and therefore represents an important component of our total mountain segment business. Again total lift revenue increased 4.2% in the quarter, as Rob detailed for you earlier.

Turning to our ancillary mountain businesses in the quarter, which were impacted by the lower visitation in the early season, ski school revenue increased 2.8%, due primarily to increased pricing. The 1.9% growth in dining revenue was aided by the acquisition of two licensed Starbuck's stores in June 2007, and the retail rental revenue growth of 5.5% was due in part to revenues associated with the operations of 18 Breeze Ski Rentals locations acquired in June 2007.

Other revenue declined for the three months ending January 31, 2008 compared to the same period in the prior year, due to the disposition in April 2007 of the Company's investment in RTP. Excluding the impact of the divestiture, other mountain revenue would have increased 2.2%.

Taking a look at our mountain segment expenses, the increased 2.1% in the quarter, which reflected good cost control measures, especially considering they included certain variable expenses, such as U.S Forest Service fees and credit card fees associated with the higher revenue.

Our lodging segment results were impacted by approximately $2.2 million of preopening and startup expenses at the Arrabelle , while startup and preopening expenses were approximately $3.0 million for the full six months. Additionally, lodging results were impacted by front door construction impact on The Lodge at Vail. Lodging at the base of our resorts was also impacted by the lower visitation in the early season. However, as Rob noted, our RevPAR and ADR growth on a same-store basis was very favorable.

Turning now to our real estate segment, as many of you know, our real estate segment results are primarily determined by the timing of closings, and the mix of our real estate sold in any given period. Additionally, besides project-specific profit, which can vary significantly by quarter based on the timing of closings, real estate-reported EBITDA each quarter, includes administrative and overhead costs, allocated corporate G&A, and marketing expenses. During the second quarter of fiscal 2008, real estate revenue was driven primarily by the closings of 12 of the 67 Arrabelle condominium units, and by the remaining Jackson Hole Golf and Tennis Club cabin closings.

In the prior year second quarter revenues included the closings of 8 Gore Creek Place townhomes in Lionshead, and 18 Mountain Thunder condominiums in Breckenridge. From a timing perspective on our real estate closings, we are on target to close the remaining 55 Arrabelle condominium units, all currently under contract, during the remainder of fiscal year 2008, and 6 of the 13 Lodge at Vail Chalets in July of 2008, with the remaining chalet units, again all under contract, anticipated to close in the first half of fiscal 2009.

Net income for the second quarter of fiscal 2008 was $51.3 million, or $1.31 per diluted share, and was impacted in addition to the business segment results, by accelerated depreciation expense, on assets which will be taken out of service due to new capital projects. Including the Keystone Gondola, which we announced during the quarter will be replaced before the next ski season. Net income is also impacted by originally than lower than originally expected investment income, due to the lowered interest rate environment.

Now briefly to the six months ended January 31, 2008. Resort revenue increased 2.3%, excluding the prior year impact of the 2.4 million of revenue associated with the termination of the management agreement at The Lodge at Rancho Mirage received in the first quarter of the prior fiscal year, resort revenue would have increased 2.9%.

Diluted earnings per share for the first six months of fiscal 2008 was $0.68, an increase of 55%. Included in the first half fiscal 2008 results, within mountain reported EBITDA was $2.0 million of Canyons-related litigation expense, as well as receiving a receipt of the final cash settlement from Cheeca, was 11.9 million net of final attorney fees and on a pretax basis, was actually included in contract dispute credit charges net on the income statement.

Turning our attention to our strengthening balance sheet in the quarter's capitalization events, at the end of the second quarter fiscal 2008, we had approximately $275 million of cash and cash equivalents on hand, excluding restricted cash, no revolver borrowings on our senior credit facility, and a ratio of net debt defined as long-term debt, plus long-term debt due within one year less cash and cash equivalents to total reported EBITDA, calculated on a trailing 12-month basis of 1.75 times.

Taking a look at our credit facility, we have received approval from our applicable lenders in our credit facility, and are in the process of finalizing an agreement that will provide additional flexibility, including for future real estate project financing needs. We plan to utilize an accordion feature in our existing senior credit facility, to expand commitments under the existing credit facility by $100 million, taking the total facility up to $400 million. At the same terms as the existing facility, with current pricing at LIBOR plus 50 basis points.

Now let's discuss our outlook for the rest of fiscal 2008. While our earnings release had a significant amount of detail regarding our guidance, I wanted to add some additional color. It is a strong indicator that we are reaffirming our net income guidance, including our lodging and real estate-reported EBITDA guidance that we first issued in September 2007, the slow start to the season impacted our mountain segment was the primary driver behind this lowering our mountain-reported EBITDA guidance by roughly the amount of the lift ticket and the ancillary revenue area declines described earlier, which occurred during the early season.

We currently expect full year resort-reported EBITDA, the combination of our mountain and lodging segments, to range from 230 to $240 million, and resort-reported EBITDA excluding stock-based compensation expense to range from 235 to $245 million. This mountain segment guidance now also includes 2 million of Canyons-related litigation expenses that was not included in our original guidance. The resort guidance includes a range for our mountain-reported EBITDA of 218 to $228 million, and mountain reported EBITDA excluding stock-based compensation expense of 222 to $232 million, while unchanged, we expect lodging reported EBITDA to range from 8 million to $14 million, and lodging-reported EBITDA excluding stock-based compensation expense to range from 9 to $15 million.

We are reaffirming our real estate-reported guidance in the range from 54 million to $60 million, and real estate-reported EBITDA excluding stock-based compensation expense is expected to range from 57 to $63 million. This guidance assumes the remaining Arrabelle condominium units, and 6 of the 13 Lodge at Vail Chalets will close by July 31, 2008.

Our net income guidance remains unchanged, with net income still expected to range from 112 to $122 million, and net income excluding stock-based compensation expense to range from 117 million to $127 million, representing an expected significant increase over our record fiscal 2007 net income of $61 million, or $66 million excluding stock-based compensation.

In addition during the second quarter, as we mentioned in the release, we continued our previously announced share repurchase program, resulting in the repurchase of 279,079 shares at an average price of $50.78 for a total amount of $14.2 million. Since the inception of this program in fiscal 2006, the company has repurchased 1,185,083 shares, at an average price of $43.64, for a total amount of approximately $51.7 million, with 1,814,917 shares remaining available under the existing repurchase authorization. Our purchases under this program are reviewed with our Board quarterly, and are based on a number of factors, as we evaluate the appropriate uses of our excess cash, including but not limited to the share repurchase program.

At this time, I would like to turn the call back to Rob.

Thanks, Jeff.

Turning to our real estate activity, we had a successful launch of the first of a multi-building project at One Ski Hill Place in Breckenridge, including 888 ski-in/ski-out residences, ranging from studio to 4-bedroom homes, with approximately 102,000 salable residential square feet. To date, we have released 66 units in five phases, with an average price per square foot of $1244, 29% in excess of our Crystal Peak project released just a year ago, which has already sold out with construction while under way. Currently we have 38 units under contract, representing gross sales proceeds of $54.5 million.

On the Vail Mountain Club, I am very excited about the progress of sales. To date, we have sold 332 memberships, including 161 full memberships, which include parking privileges, and an additional 171 social memberships, which exclude parking privileges, representing total sales commitments of $58.6 million of total proceeds when paid in full. This includes the sale of 41 full memberships, and 41 social memberships since our December 10th, 2007 earnings release.

With the pace of the membership sales, we have recently increased the membership initiation fee deposit on the full memberships to $275,000, from $260,000, and on the social memberships to $150,000 from $105,000, with eight full memberships and seven social memberships sold at the new price points. The strength of the Vail Mountain Club sales in this economic climate is certainly a testament to the unique experience that the Club will offer members, steps from the Vista Mountain chairlift beginning next ski season.

On January 5th, we opened the newest Rock Resort Hotel, The Arrabelle at Vail Square, the crown jewel of our hotel portfolio. Since opening we have had rave reviews of this new luxury signature property of the RockResorts brand, and for the surrounding village we have created, which has fundamentally changed the landscape of one of the main portals to Vail Mountain. This project, including its hotel, commercial and real estate components, has redefined the look and feel of one of the key base areas at Vail Mountain, as guests experience a quintessential European village in the heart of Vail.

I would also like to comment on our Ritz Carlton residence Vail project. We have not signed any further contracts on the Ritz units since late summer. However, with the project not scheduled to close until 2010, we have sufficient time to complete our sales goals for the project, and are confident in its success. While the overall real estate environment is having it's own impact on the Ritz project, we also believe our lack of sales activity is due to buyer's interest in immediate occupancy, which could now be had through purchases of the Arrabelle condominium units just coming on the resale market this year, after original buyers closed on their units.

In addition, we believe as details about the EverVail project are more fully flushed out, it will further enhance the attractiveness of the adjacent Ritz residence project. While it is clear the real estate market, even in the mountains, is not as frothy as it was a few years back, we remain encouraged by the activity, and believe our real estate projects which represent a select number of luxury and ultra-luxury units, should not only be successful and profitable on their own, but will continue to enhance the base areas of our extraordinary resorts, which puts us in a unique position of driving further organic growth in our resort business through our real estate activity.

And finally, as outlined in the release, we announced our calendar 2008 resort capital expenditures plans, exclusive of resort-depreciable assets associated with our various real estate projects. We estimate spending approximately 100 to $110 million of resort capital expenditures in calendar 2008, which includes 40 to $42 million for capital expenditures, which we believe are necessary to maintain the high quality appearance and level of service, at the Company's five ski resorts and throughout it's hotels.

Our maintenance capital expenditures include snow cat replacements, uniforms for all five mountains, lift maintenance, snow-making equipment, lodging, furniture, fixture and equipment, and rental equipment fleet capital. Resort discretionary capital is expected to be in the range of 60 million to $68 million, with the largest project representing a new state-of-the-art, 8-passenger Keystone River Run Gondola, including moving the bottom terminal into River Run Village. The new gondola will dramatically enhance the skiing and boarding experience at Keystone.

Additionally, while the base of the new gondola will now be much closer to the parking and River Run Village amenities, it will also be approximate to key real estate parcels we own in the Village. In addition to the gondola, other capital projects will include the completion of the second phase of the Beaver Creek children's ski school improvements, including an on-mountain ski school building, following the new Buckaroo Express Gondola installed in 2007. Full renovation of The Inn at Beaver Creek, including substantial upgrades, to create a unique ultra-luxury RockResorts branded hotel, new snowmaking equipment at Peak 7 in Breckenridge, regrading and snowmaking for the main trail connecting California and Nevada at Heavenly, Jackson Lake Lodge room remodel in Grand Teton National Park, and upgrades to the Company's central reservations, marketing database, and eCommerce booking systems, among other projects.

Our calendar 2008 resort capital plan is focused on continuing to improve the quality of our assets across the mountain and lodging segments. With these capital investment projects we have planned, we continue to differentiate ourselves from the competition, as we lead the way in offering our guests exceptional experiences at all of our extraordinary resorts.

Before I turn the call over for questions, I would like to thank all of our dedicated employees for their tireless efforts, they are our key asset and critical to our success. At this time, Jeff and I will be happy to answer your questions. Operator, we are now ready for questions.

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

Hi, guys, it is actually [Anthony Powell] calling on behalf of Felicia. Question on February and March, what is your visibility for visitation in February and March, and how does it break down between international and domestic visitors?

I guess two things, one is our visibility, obviously we have pretty good visibility onto February because that has just completed, in terms of the skier visit numbers. And we do have visibility, good visibility into certainly parts of March.

One of the things we have seen this year is that the booking curve is really shortened, so people are booking their vacations much closer in. So what I would say is that we don't have, as you go out a number of weeks, we don't have perfect visibility, but obviously we feel very comfortable with the guidance we just put out.

In terms of international visitation, the main holiday week in February, which is President's week, is not an international holiday, so we certainly didn't see the same dynamics, but we have seen those same dynamics in probably every other week since the end of January, other than President's week, which is that international visitation is up significantly.

Great, and also, on lodging, do you expect any more preopening expense in the third quarter?

No, we should be done with it generally, we might have a little bit, Anthony, as we opened up I think The Spa in February, and a couple of other things. There might be a little bit more expense relative to some of the things we opened up in February, but for the most part, it should be complete.

Great, and also, in the second quarter, was there any sort of variability between how the different mountains performed? Was there any mountain stronger than any other, and how is that looking going into the third quarter?

I think for the majority of the second quarter kind of post the early season. I think all of the resorts were all up and doing very well. I think that Heavenly in particular, I think really had some strong results, as you went into, January, because they had unbelievable snow. It was actually an all-time record for January for them.

But I think that when you looked at the early season period, I think Heavenly was probably down a little bit more than the others, because their snow, where in Colorado I think the snowfall really came in kind of mid-December, in Heavenly it really didn't come until after Christmas week.

All right, that is it. Great job, guys. Thanks.

Thanks, Anthony.

Our next question comes from [Jeff Randall] with Black Creek Capital. Please go ahead.

Good morning, thanks. Just as a follow-up on the last question, can you all give us what January '08 secured visit growth looks like?

We don't actually release skier visits by month. So I won't be able to help you out on that one. And also January is obviously an odd month in particular, because it really crosses over the Christmas holiday period. So January on its own, is not all that helpful, but I think if you look at the early season versus the other period, which is a lot of the numbers that we just gave on you this call and in the release, I think that actually should provide you some good guidance about kind of the preholiday versus holiday and post-holiday period for January.

Great, and then Jeff, you commented, I think you said units, season pass unit sales were up in Colorado. Were they down at Heavenly, is that right?

That is true, yes.

And I guess what would you attribute that to, given, I guess you said Heavenly had sort of a weak snowfall in the early part of the season.

I think that Heavenly pass sales were not down much, and they came back very strongly near the end of the pass sale period. I think what impacted Heavenly's sales overall were coming off of two pretty rough weather years, and the fact that it didn't snow in the early season in Heavenly, I think people were kind of in that wait and see approach before they committed to their pass sales. Once they saw the Heavenly snow really coming, and we hold the Heavenly pass sales open later than we do in Colorado, we got a big surge of buying, which got them pretty close to the last year, but down a little bit more, obviously Colorado was up overall.

Okay, and then lastly, I just wondered if you would articulate the RockResorts strategy as it stands today, I guess how it has evolved, and the direction given the new leadership under Stan?

Yes, sure. One of the things we talked about I think over the last couple of years is that our RockResorts strategy is really to, or lodging strategy overall, is to have significant lodging presence at the base of all of our mountain resorts, and then outside of our mountain resorts, it is really to have a management opportunities in select locations, where we believe there is good overlap in the customer demographics, where we are really being brought in to kind of recreate a lot of the unique experience that we provide at Beaver Creek and Vail, and all of our ski resorts.

And so we are really looking for that good connection with both the property, the type of customer, and the type of owner, and what they are looking for. And I think, that is something we are going to be continuing to pursue as we go forward.

Okay, great. Thanks, guys.

Thanks.

Thank you.

Our next question comes from Hayley Wolff with Rochdale Securities. Please go ahead.

Hi, guys.

Hi.

Just a couple of questions, trying to sort of further get at what Anthony was trying. You said bookings curve has come in, but we are moving into I think two pretty strong vacation weeks in March.

So can you comment on what your bookings might look like in those two key vacation weeks, and then what your thoughts are on the implications for the shift in Easter from March to April, contrasting that against the fact that your snowfall, your snow at the end of last year's season was pretty weak?

Sure. I think I guess instead of, we elected not to release the booking numbers per se for these couple of weeks, but obviously have incorporated all of that data in coming out with the guidance that we are providing. What I would say is that there is no question that the third week of March is the strong peak week, with Easter falling at the end of that week, and I think we have seen a lot of vacation business kind of piling into that week.

I think that the week that we are in right now is certainly a bit softer, and then I think there is no question that April is going to be a little bit softer, because of the change of the Easter holiday from last year. We have incorporated all of these factors in coming up with the guidance that we are providing. I think that we are seeing some business and some bookings certainly in April, but it is very hard when you move Easter out of April into March, to kind of recreate that. Next year, Easter is I think April 12th, and I think that probably provides a more balanced vacation schedule, which is more traditional.

Is there anything about the international vacation schedule that maybe provides an offset?

Well, there is. I think there are some vacations, particularly South America, that do still book into April, but again, it is just not as strong as when Easter is in April. Again, I would say we have kind of look the at all these dynamics, and factored that into actually providing the guidance that we did.

Okay. Then on the decision to increase the credit line, is that just taking advantage of the fact that it is available, or are you having difficulty securing financing on some projects?

I think it is more the former. We had built in, when we refinanced our facility and extended it out to 2012 last year, an accordion feature that could allow us to increase by another $100 million. Because our pricing is so favorable in the credit facility, again currently we are at LIBOR plus just 50 basis points, and we all know where LIBOR is at right now.

It really gives us an ability to take additional credit availability while it is there, and I think that gives us flexibility as we said, in comparing what is available for our real estate financing needs, to what could be used on our own credit line, which currently is unused at the current time. So I think it gives us maximum flexibility. If we want to wait out certain real estate financing markets until they get better, we have tremendous pricing in our credit facility to do that.

Okay, and then last question on The Canyons, you said there was $2 million of expense that you are going to take this year that originally, for legal expenses that you hadn't anticipated. And then second, is there any sort of timing or schedule that you could give us without getting into the details of the legal battle that we should look for?

What I would say on the expenses, I think that is something that we disclosed back in the fall.

Okay.

And so there's nothing new per se from what we disclosed back in the fall, on the actual litigation expenses. One on the timing, no, there is no real, I don't think there is anything that we can't share, or quite frankly that we know about the timing of that legal proceeding.

Okay, thank you.

Thanks.

Our next question comes from Will Marks with JMP Securities. Please go ahead.

Great, thank you. Hello, Jeff, hello, Rob. I had a first question on CapEx in '07. What was the final number, and what were the major projects?

CapEx last year came very close, approximately $100 million in total that we had originally guided. The major projects included the Buckaroo Gondola that Rob explained in Beaver Creek, which really has dramatically changed the children's and beginner ski school experience at Beaver Creek.

It is pretty dramatic when you go over and take a look at it. You have Chair 10 and Chair 14 in Vail, which has really opened up new pods of skiing to more people, because of the high speed nature of the chairlift and the ability to now, as we realigned Chair 14, get more beginner and intermediate skiers over there, and get better access over to Two Elk and too over into the Back Bowls and into Blue Sky.

We also put a new lift in Heavenly, the North Bowl lift, which has really, really helped the skiing again, in another area that was very lightly utilized before, just due to the nature of the fixed grip chair that this high speed replaced. So I think those were the more dynamic changes we made in the current year in our capital.

Great, okay. And then looking ahead into this calendar year, the Keystone project, does that mean, maybe you have said this, but that you will launch some real estate sales this year in Keystone?

I think what it means is it is positioned the real estate for launch, and we are spending dollars, capital dollars on the planning for that. Obviously the ultimate decision on whether to release or not will be based upon market conditions at that time.

Okay, and then kind of beating a dead horse, but on just what happened versus looking ahead and guidance, is 90% of the lower guidance due to November/December? I just want to get a sense of, and maybe discuss how your average customer making $200,000, has that shielded you from this economy? I mean why aren't you seeing that much of an impact?

Well, I think what is happening, I think the way I have talked about the season is that there are four factors that are impacting the season. I think that you on the one hand have weather, which I think was certainly a negative at the beginning of the season. I think that has been obviously a positive. We have amazing conditions right now at all of our resorts, but I think that has been a negative at the beginning of the season. I think that is a positive today.

I think have you our season pass business, which I think was a very big positive going into the season, obviously up 11%. I think you then have the international business that was up, as we say here, 23%. And because those people that are coming typically stay longer and spend more on their vacation, it is up even more than that in terms of revenue.

But ultimately you then have a U.S. domestic business that is I think softer than it certainly was last year, and so I think what you are seeing is kind of all those factors kind of coming together, but I think because of the quality of our resorts, and the experience and the investments that we have made, we are still able in our core mountain business for this quarter, if you look for the whole year, to still be able to talk about increasing over the record year we had last year, which for us I think we are very pleased with.

Okay, that is a great overview. One final question, leading into next year, and I know this is early, but based on the current U.S. economy, this is where the softness is, would you consider increasing your season pass pricing?

Yes, I don't think at this point we are prepared to talk about it. What I would say though, is that we typically announce pricing for the Colorado and Heavenly passes in early April, and so I think those are obviously public. Once we do that, and obviously I am sure if you have any questions, I am sure Jeff will be happy to walk you through that.

Great, thanks, guys.

Thanks, Will.

Our next question comes from Mimi Noel with Sidoti and Company. Please go ahead.

Hi, Rob, hi, Jeff.

Hi, Mimi.

Can you tell me what kind of pricing you have observed at the Arrabelle aftermarket units?

I think they are up probably in the range of 50% or so, I think from where people bought in, so some fairly healthy increases. I think we have seen some of the less premium units at 1600, 1700, $1800 a foot. Obviously the more premium units are even higher than that. I think certainly it has been a good environment and I think as we mentioned on the Ritz, I think with a lot of those first coming online now, people were not allowed to transfer their contracts, but obviously once they close, they can sell their units. I think you are seeing a lot of activity on the Arrabelle right now in the Vail real estate market.

Okay, and then those after-market prices, are they comparable to the Ritz, a little bit higher, a little bit lower?

I think that they are comparable, in that the pricing overlaps, but you really have to compare quality of unit to quality of unit.

Okay.

And so I think that there is no question that the best Arrabelle units will be above the best Ritz units.

I see, okay. Also, in thinking about the Ritz, you had mentioned EverVail, and some enhancements you would be making in that immediate area. Can you give me any detail on that?

Well, I think what we are saying is that the land that is adjacent to the west of the Ritz residence project is where we are going to be putting EverVail. And I think there is no question that as we really clarify better exactly what is going to be there, and work through that approval process with the town, which is right now under way, we do feel, certainly when next season comes around and those plans are fully set in stone, that we will be able to show people exactly what is going to be there, and certainly let's say for the units that face that area, that is going to be a huge improvement to what is there today.

Okay. Is it going to be mostly aesthetic, or aesthetic and functional?

Well, aesthetic and functional, because you are going to have the gondola that is going to land basically just to the west of that project. And while we have approval from the Forest Service to do that, until we show a firm date for when that is going to go in, obviously that is a nice-to-have but will become a key part, I think, of the Ritz project as we go forward.

Okay. Do you have an idea of the timing of that then, or does it have to do with the construction of the timing of the Ritz?

No. I think it has to do, the EverVail project is really on its own timing. I think that we would, as we go through the approval process, I think that will be something that over the next few months, that we will probably have some more clarity on, and then ultimately of course, we will start taking EverVail products to market, and that of course, will be based upon the marketing conditions at that time.

Okay. Just one or two more questions, and then I will hop off. You gave a lot of comparisons early quarter versus late quarter. Did you give that for visitation? And I don't mean an absolute number, but just a percentage increase, a percentage decline, first half versus second half of the quarter?

Yes, I'm not sure it was, I don't think it was in our discussion. I can tell you though, that basically the way we said it was that the decrease in skier visits was entirely occurred during that early season, so basically I can tell you that visitation was slightly up during the post-early season, during the holiday period, and slightly up actually in, call it the 3 to 4% range.

Okay, okay. And that is for the entire quarter?

No, in that midseason. Overall visits were down for the quarter. They were significantly down during the year.

Okay.

-- then they were up in the mid season. Ne/-net, they were still down.

Okay, okay.

You have got to remember those visits would include visits by season passholders, where we have the revenue locked in from those passholders in there, and they would fluctuate based on really more than anything weather conditions, and again, as a reminder, that early season had significantly a lot of snowfall, where the front range skiers in Colorado for example, can have a lot more flexibility to go out and ski in November and early December than a lot of the destination visitors do.

Okay. Then one last easy question, the arbitration award from earlier in the year, that is included in guidance, correct?

That is correct.

All right. That is everything. Thank you for your help.

Thanks, Mimi.

Our next question comes from Yasuna Murakami, MC2 Capital Management.

Hi, guys. Got a couple of questions here. I guess the main first question involves kind of the big picture, I guess, with Vail and Beaver Creek. I mean you guys have done a great job with Arrabelle . It looks great, but now with the Ritz, you have mentioned EverVail, The Four Seasons all moving into that area. Are you worried about cannibalizing stuff over from Beaver Creek, and how does that work into your guidance if the economy does weaken, and start affecting the larger market, I guess, out there?

I guess what I would say is I don't think we are really worried about cannibalizing for Beaver Creek. Beaver Creek has its own identity and its own brand. There is no question that there is some cross-over skiing.

I think quite frankly in Vail, I think that a lot of the projects that you just mentioned, like The Four Seasons and the Ritz and EverVail, are all about bringing kind of the quality of the experience that people have in the town, up to the quality of experience that they are having on the mountain. We think this is kind of an important progression for Vail on its own, and not necessarily for Beaver Creek.

In terms of economic impacts, what I would say is I think that we are both on the resort side and on the real estate side, in one of the best parts of the travel and real estate markets. It doesn't mean that you can be immune to things that are going on in the broader economy, but we obviously feel like, given that the resorts we have are very unique and have the brand presence and the popularity that they do, and obviously our real estate as we mentioned, is again, a relatively small number of luxury and ultra-luxury units, that helps insulate us. Does it insulate us completely? No. I mean that is not possible.

Understood. But I guess, you now have high end housing in Vail Village itself. Lionshead now is transforming itself to something that Vail Village has, and then up I-70 now, obviously you have Beaver Creek, with a multitude of properties up there. Has it been a concern, what are you guys taking into account? Is it that they are two totally separate brands, or I mean I guess that is my concern.

We think they are totally, obviously it is probably a good conversation maybe for our Investor conference in early April.

A couple of weeks, yes.

Probably not for this call. But I think they are very separate brands with different identities, and I think what we are seeing is what the improvements to Vail allows, is the customer that wants to come to Vail, that likes the Vail ski experience, but really may only come once, doesn't come for the second time, comes every other year, because we haven't had the very upper end lodging, and I think that is something that we are really correcting with all of the investment, and all of the improvements in the base area.

Okay. Next question is what, we have heard there was a 25% increase in non-U.S. visitors to the resort. What percentage would that be of total visitations coming to the resort?

Just a shade over 10% of total visitation.

Do you see this number as being a driver for growth in the future, or what are your feelings? Is it completely affected by macro issues?

No. I guess what I would say is there is no question that the international business this year is certainly being impacted by exchange rates. At the same time, our Company made a conscious decision at the beginning of the season to really make a larger investment in all of our sales efforts, and in all of our marketing efforts toward the international business. We have a separate standalone international sales desk, and I think what I would say is that we are actually currently looking at how to take that up a whole other level next year.

So I think what we have done as a Company is a great job at maximizing the impact from what is already a good trend. I think that the good news for us is that as people come out, especially from Europe, I think that that they are getting, a lot of them are getting their first opportunities to experience our resorts, and I think that we really believe that that, even if exchange rates shift, we are going to continue to capture and retain a lot of those customers. So we are looking to really take this international shift, and make some of this permanent for the long haul, even with the fluctuations in exchange rates. Obviously if the exchange rates stay where they are, or get even more attractive, no question that that is going to be a real benefit going forward.

Okay, and now looking at the infrastructure upgrades, you mentioned Keystone getting a new gondola. What about the other resorts? Is there anything else on the horizon? Is it pretty much limited to a chairlift here or there, or is there anything we should be aware of?

I think what we have talked about is completing the Buckaroo Express experience at Beaver Creek, which is definitely taking that whole children's ski school experience up a whole other notch, and I think the upper, the new facility at the top is really going to complete that. We are doing a full blown renovation of The Inn at Beaver Creek, which will actually the hotel closest to a ski lift in North America. It is only about a few steps away. Then in Vail, there is nothing major, because we just put in Chairs 10 and 14. Keystone obviously is getting a new gondola, Breckenridge obviously just got a new gondola, and so there will be some snowmaking there, there will be some new snowmaking and trail gradation work at Heavenly, and some new snowmaking at Beaver Creek. We have highlighted the major projects, we probably can go over it again in even more detail at our Investor Conference in early April.

Absolutely. That is fine. I guess last question at the moment is involving competitors like Intrawest. At this point with all of these upgrades, do you see yourselves well-positioned, to say the Whistlers of the world, that kind of thing? How do you feel like you compare at this point?

I think we feel like the resorts that we have today are very, very strong. They are 5 of the 10 most visited resorts in North America. I think that we are going to continue, and I think our balance sheet and our flexibility allows us to continue to invest in the resorts, and invest in the experience, so that we are constantly taking kind of what we offer our guest up a whole other notch every year.

We think that allows us obviously to drive pricing, because it continues to keep our value prospect with the customer, and value package I think in-line, which is we can charge more because we are continually taking up the experience. We think Intrawest and lots of the other resorts out there are very, very fine competitors. It is not that we don't pay any attention to them, but we are really focused on our own path.

Okay. Thanks, guys.

Thank you.

(OPERATOR INSTRUCTIONS) Our next question comes from Chris Woronka with Deutsche Bank. Please go ahead.

Good morning, guys. Couple of questions. One, you obviously had a pretty nice quality of customer in the second quarter. I know some of that was helped by international, and the higher ticket prices. What are you seeing so far in the third quarter? Is it a similar, in terms of what you would call the customer quality? Is it similar to second quarter?

Yes, I think it is. Again, I think other than than President's week, which is just not an international holiday, so the international visitation on a relative basis doesn't have the same impact. I think we are definitely seeing in the other weeks international business is up, and I certainly think that that is what we are expecting for the latter part of March.

And I think, the yields that we talked about, Chris, are continuing and I think that is a good sign, we get asked that question a lot. People that are coming, are they still spending money, and we are still obviously continued strength within the ancillary businesses that we mentioned earlier, and even advanced bookings into ski school for the weeks, including that very busy week that is coming up here, it remains strong.

Great, and then with the Arrabelle open, have you already seen an impact in terms of the ancillary revenues around that? Have you already kind of seen impact? I mean who is really staying there, and maybe do you have an idea where they stayed before?

I don't know that we have exact data on that. What I would say is we are definitely seeing people staying in the Lionshead area much more, spending more time there, visiting the shops, the stores, the restaurants, to a much greater degree than they did before. Now how that impacts our Company is just in a lot of different ways. Obviously there's people actually staying at the Arrabelle itself. There are people who are shopping or dining at restaurants that we don't own, but are getting commercial leasing income from. And then we have our own retail stores through SSV that we are making money on.

So the answer is yes, and I think a lot of these are folks, I think certainly the people staying in the Arrabelle itself, probably some of them are new to Vail, some of them have stayed in other hotels. I think the people who are staying in Lionshead are all the same people that would get off the mountain before, but would probably disperse pretty quickly, and wouldn't spend the extra hour to an apres ski, that is what we're starting to see, and quite frankly I think we are really going to expect that to tick up even more next season, when we have had the entire area open for a full season.

And Chris, really, to that point, just as a reminder, not only does the Arrabelle have 36 hotel rooms, but it has 67 condo units, of which 50 of those condo units have lock-offs, with separate keys into the hallways, so in the positioning there is to rent those lock-offs for those that put those in the rental pools, very similar to a hotel room. So I think given that we just started closing on the Arrabelle units right near the end of the quarter, I think we will start seeing more visibility into that, and obviously more and higher occupancies into the Arrabelle at that same kind of clientele that Rob just described, later into this season, and certainly as real upside going into next season.

Right, and my final one is looking out to the air lift schedule for next season, I believe Eagle is expanding the runway this summer. Do you guys have any knowledge of whether there will be any new air lifts in there, or any equipment upgrades, or anything like that?

Yes, I think at this point, I don't think we could give any clarity on that. I think, probably can better talk about as we get into the summer. There are certainly a lot of discussions going on and I know Frontier is certainly considering adding Eagle for the winter, but that is something that we will have to discuss when we get closer.

Okay, very good. Thanks.

Thanks, Chris.

(OPERATOR INSTRUCTIONS) At this time, I am showing no additional questions in the queue. I would like to turn the call back over to management for any concluding remarks they may have.

Thank you, Operator. That wraps up our second quarter call. Thanks for everyone who joined us on the conference call today. Please feel free to contact Jeff or I directly should you have any further questions. Thank you for your time this morning. Good bye.

Ladies and gentlemen, this does conclude the Vail Resorts fiscal 2008 second quarter results conference call. You may now disconnect, and we thank you for using ACT Teleconferencing.