Vail Resorts Inc (MTN) 2010 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the fiscal 2010 third quarter results conference call. During today's presentation all parties will be in a listen only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Wednesday, June 9, 2010.

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 2010 third quarter earnings conference call and simultaneous webcast, both open to the public and press at large. I'm Rob Katz, Chief Executive Officer of Vail Resorts. Joining me on the call this morning is Jeff Jones, our Chief Financial Officer.

Before I turn to a discussion of our results, let me remind you that we are using the term reported EBITDA to report earnings for each of our operating segments, namely mountain, lodging, and resorts, which is the combination of the mountain and lodging segments, and real estate. The Company defines reported EBITDA as segment net revenue less segment operating expense plus or minus segment equity investment income, or loss, and for the real estate segment plus gain on sale of real property. The Company also uses the term net debt, which is defined as long-term debt plus long-term debt due within one year less cash and cash equivalents. Complete reconciliations of reported EBITDA 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 facts, are forward-looking statements that are made pursuant to the Safe Harbor provisions in the Private Securities Litigation Reform Act of 1995. Certain risks and uncertainties could cause actual results to differ materially from those contained in the forward-looking statements. Investors are directed to the risks and uncertainties described in the documents filed by the Company with the Securities and Exchange Commission, including the Company's Form 10-K for the fiscal year ended July 31, 2009, and Form 10-Q for the fiscal -- for the third quarter fiscal 2010. 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 statements except as may be required by law.

So with that said let's turn to our third quarter fiscal 2010 results and outlook. I am very pleased with the strong performance that we delivered in the third quarter across our mountain division, driven by strengthening destination visitation and guest spending patterns. Over the course of the 2009-2010 ski season, and as noted in our ski metrics release on April 21, 2010, we have seen consistently improving performance over the prior year in our key mountain segment metrics, culminating in particularly strong results during the spring break and Easter holiday periods.

Overall for the 2009-2010 ski season, total skier visits were up 2.5% with our dining revenue up the same percentage as our skier visit percentage increase. Total lift revenue grew at nearly double the growth in visits with increase of 4.6%, while our ski school and retail rental businesses showed the biggest improvement, up 8.2% and 8.1% respectively. Additionally during the important five week spring break and Easter periods in 2010, not only did we see double-digit increases across all of our key skier metrics over the prior year period, we also saw absolute levels of skier visitation, total lift revenue, ski school revenue, dining revenue and retail rental revenue that were comparable to the results we saw during the same periods in 2008 and 2007 giving us confidence in improving consumer trends as we start planning for the 2010-2011 ski season.

For the third quarter, our mountain reported EBITDA increased 9.6% in fiscal 2010 compared to the prior year third quarter, driven by an 8.3% mountain segment net revenue increase and improved contribution margin as we saw a very high flow-through of incremental revenue. Lift ticket revenue increased 7% with similar percentage increases in both lift revenue excluding season passes and season pass revenue. Total skier visitation increased 4.6% in the quarter, led by the Company's Heavenly Resort which experienced a 9.8% increase in visitation, while overall visitation for our four Colorado resorts excluding Heavenly increased by 3.7%. Our season pass holders skied approximately ten days on average during the 2009-2010 ski season with the number of days skied per season pass being lower by a half-day on average across our season pass products. This despite record low snowfall at our Colorado resorts during the early part of the season.

Overall destination visitation increased by an estimated 7.9% during the third quarter, which favorably impacted total lift revenue as well as ancillary business revenue including guest spend per visit. Our ski school and retail rental businesses experienced the largest ancillary revenue increases in the third quarter, up 11.7% and 14.3% respectively, while our dining revenue increased 6.6%, more in line with the overall lift revenue percentage increase.

Lodging reported EBITDA showed a slight decline compared to the prior year third quarter due to declines at Keystone resulting in large part from declines in Keystone group related business. Overall, we did see similar trends in our lodging transient occupancy over the course of the spring break and Easter periods as we saw in the skier metric trends, indicating that the transient part of our lodging business tracked nicely with our mountain business. Our real-estate business is driven by the number and size of projects under construction and ultimately the timing and mix of real estate closing. In the third quarter of both fiscal 2010 and 2009 there are minimal real estate closings as expected given there are virtually no units available to be closed in either of those periods.

Now let's take a look at our spring season pass sales for the next ski season. As mentioned in the earnings release, we have just concluded the spring season pass sale period for all of our major season pass categories except for the Heavenly season pass. Through June 6, 2010, which has historically represented roughly a third of our total season pass sales sold over the program period, our total season pass sales to date for the upcoming 2010-2011 ski season have decreased approximately 14% in units and decreased approximately 16% in sales dollars over the same period last year due in large part to a decline in epic season passes sold during the spring of 2010 over the spring of 2009. Our epic season pass sales in the spring of 2010 exceeded our epic season pass sales in the spring of 2008, and are consistent with the relative level of spring sales we see in our other season pass products but, they were below the sales we saw in spring 2009. We saw unusually high epic season pass sales in the spring of 2009, which were largely a timing shift attributable to the excitement of it being the first renewal period for the season pass and some consumer uncertainty of our future plans for the product. In fact, sales in the fall of 2009 actually declined from the fall of 2008.

As a reminder, we were up approximately 39% in season pass sales dollars last spring primarily due to epic season pass, and had identified at that time the timing could be a factor. Likewise we currently believe the decline we experienced in the spring 2010 to be largely due to a timing shift and that we will more than make up the current shortfall in the fall of 2010. We do plan to unveil some exciting new technology initiatives designed to better engage our guests while they are at our resorts that we believe will further underscore the value of being a season pass holder. The more to come on that towards Labor Day.

Let me now turn the call over to Jeff to further discuss our results and outlook. I will then discuss some exciting news and give an update on our real estate development projects.

Thanks, Rob. Good mornings everyone.

Earlier this morning, we released our earnings for our third quarter fiscal 2010 ended April 30, 2010 and also filed our Form 10-Q for the quarter, which you can find available now at our VailResorts.com website.

Now turning to the highlights of our results. Overall, as Rob mentioned, we are very pleased with our resort results for third quarter fiscal 2010. Our mountain segment results showed solid improvement with mountain segment net revenue up 8.3% and mountain reported EBITDA up 9.6% compared to the prior year third quarter, with mountain reported EBITDA margin for this quarter on absolute terms, improved to 48.5%. Our lift ticket revenue increase is driven by growth in both season pass revenue due to an overall 9% increase in season passes sold for the season, which is recorded as revenue over the course of the season, and increase lift ticket revenue excluding season passes. Midway during the ski season, we increased our lead ticket price by $1 per daily ticket product, driving a 1.3% increase in effective ticket price excluding season passes.

As Rob mentioned, our ski school revenue and retail rental revenue saw the strongest percentage increases year-over-year. Our ski school revenue increase of 11.7% was primarily due to a 6.8% increase in yield per skier visit, as both group and private lessons benefited from higher guest spend and were also favor an be impacted by new programs being offered in ski school this year. Retail rental revenue increased 14.3% due to higher retail sales and rental volumes across the majority of locations, and in particular at the Company's Vail, Beaver Creek and Breckenridge mountain resort stores and our San Francisco bay area stores. Additionally, we saw significant increase in retail gross margins this year at our retail locations.

The percentage increase in dining revenue is comparable to the lift ticket revenue percentage increase and we saw an approximate 5.1% increase in the number of total on-mountain food and beverage transactions, and a 2.8% increase in revenue per transaction. Our other mountain revenues impact by decrease in other municipal services revenue, primarily transportation services provided on behalf of certain municipalities, mostly offset by an increase in the strategic alliance and other marketing revenues.

Looking at our mountain segment operating expenses. Operating expense increased 7.9% in the third quarter primarily due to an increase in labor and labor related benefits expense due to increased employee incentive compensation, as well as workers comp expense, higher absolute levels -- expense levels associated with the higher mountain revenue including cost of sales and dining and retail, and an increase in general administrative expenses resulting from a shift in the timing of certain marketing spend from first and second fiscal quarters in the prior year to the third fiscal quarter in the current year, as well as the higher employee medical costs.

Turning to our lodging segment. Our lodging reported EBITDA in the third quarter experienced a slight decline. The overall drop in both owned and managed room revenues primarily a result of decreased ADR and occupancy at the Company's Keystone lodging properties, driven primarily by declines in group business, with group room nights down 24.6% combined with the decline in transient room nights of 8.3% at Keystone. Total REVPAR for the third quarter was up very slightly at 0.2%, though when excluding Keystone, REVPAR was up a strong 9.5%. Excluding Keystone properties, total room revenues would have increased by $0.5 million, driven by a five percentage point increase in occupancy. We were able to tightly manage our labor and other lodging expenses mitigating some of the impact of the flat lodging revenue partially offset by higher G&A expense associated with higher marketing and employee medical costs.

Now to our real estate segment. 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. In the third quarter of fiscal 2010, the Company closed on thirteen of Jackson Affordable Housing units for revenue of $2.5 million, while the prior year had one Arabelle unit close for revenue of $9 million. Therefore real estate results for the third year -- third quarter essentially represented marketing expense for the projects under construction, direct administrative costs as well as allocated corporate expense.

Taking a look at our bottom line. Net income attributable to Vail Resorts, Inc. was $72.8 million, or $1.98 per diluted share for the three months ended April 30, 2010, compared to net income attributable to Vail Resorts, Inc. of $61.6 million, or $1.68 per diluted share in the same period in the prior year. Our effective tax rate was reduced for the three months ended April 30, 2010 at 33.9% compared to the effective tax rate for the three months ended April 30, 2009 of 36.3%. The current year's effective tax rate was favorably impacted by the tax effect of the Company's purchase of the remaining non-controlling interest and specialty sports venture the Company's retail business on April 30, 2010.

Even with the Company's funding of our two real estate development projects, One Ski Hill Place in Breckenridge which was just completed, and Ritz-Carlton Residences Vail which expected to be completed fall 2010, the Company remains in a strong position from a capital structure and balance sheet perspective. As of April 30, 2010 the Company's net debt leverage was 2.5 times trailing twelve months total reported EBITDA. Our $400 million senior credit facility, which matures in 2012 and has $319 million available for borrowing after considering $81 million currently issued letters of credit, had no outstanding borrowings under our revolver at the end of the third quarter fiscal 2010. In addition, our six and three-quarters senior subordinated debt does not mature until 2014. During the current year third quarter fiscal 2010, we did not repurchase any stock and our remaining authorization is approximately 2.1 million shares.

Turning to guidance, as we mentioned in our release, while our third quarter fiscal 2010 resort performance was strong, and certainly is a positive indicator for the upcoming 2010-2011 ski season, we continue to believe that, given the slow start to the ski season, we will be challenged to reach the top end of the guidance issued in September 2009 and reiterated on December 8, 2009, for resort reported EBITDA and net income attributable to Vail Resorts, Inc.

Now back to Rob.

Thanks Jeff.

I wanted to highlight some exciting news at Vail Reports before turning to our real estate activities. Last week we were thrilled to learn that the International Ski Federation selected Vail and Beaver Creek to host the 2015 World Alpine Ski Championships. This will be the third FIS world championships for the resorts, which previously hosted the 1989 and 1999 championships. Our resorts and the Vail valley have demonstrated a meaningful commitment to the sport of ski racing producing the best competitions in the world. As part of this announcement, we are also committed to upgrading the Beaver Creek Birds of Prey venue, including the finish area for the men's event, building a new Red Tail camp restaurant, and building a new women's speed course which will rival the men's course. This run will also serve the combined events in the nation's team events during the 2015 championships. The women's technical events, including the giant slalom and slalom, will be held at Vail which will have a new dramatic stadium located in the heart of Vail Village. Opening and closing ceremonies will also take place in Vail. We are very excited to focus international attention on our iconic slopes and community during the winter of 2015.

In addition, I would like to welcome Hilary Schneider to the Company's Board of Directors. Hilary is Executive Vice President of Yahoo Americas and is responsible for their North, Central and South American businesses, including advertising sales, partnerships and programming, and reports directly to Yahoo's CEO, Carol Bartz. She brings incredible expertise in how to use digital media to inform, communicate and inspire, which is becoming a critical skill set to succeed in travel and leisure. We could not be more pleased to have someone with Hilary's experience and leadership join our Board.

We also recently announced the completion of two M&A transactions including the acquisition of the remaining interest in SSV, and the acquisition of Mountain News Corporation and their snow sports portal, onthesnow.com. On April 30, 2010 we purchased remaining approximately 30% interest in our majority owned retail joint venture, SSV, for total consideration of $31 million, which had been contemplated under the twelve-year joint venture agreement between Vail Resorts and the affiliated entities of Tom Gart and Ken Gart. As part of the transition, Kat Jobanputra, a twenty year veteran of SSV and the recent COO, has taken over -- over the overall leadership position as Executive Vice President and Chief Operating Officer. Kat and fifty-two other corporate retail employees will be relocating from their current headquarters in Denver to our headquarters here in Broomfield, Colorado in the fall of 2010. I want to thank Tom and Ken Gart for all they have done in building SSV to what it is today. We stand committed to continuing to offer our customers the same premier level of service as they did prior to the acquisition and to continue to develop and grow this great business.

We complete the acquisition of Mountain News Corporation at the end of May 2010. Mountain News Corporation operates the world's most visited on-line snow sports portal, onthesnow.com, and has a long and rich tradition in the snow sports media business, with a dominant share in snow sports web traffic through onthesnow.com. Onthesnow.com features snow reports from more than 2,000 ski and snowboard resorts around the world, along with live resort web cams, video resort information and news, vacation packages, and deals, user generated resort reviews, and a comprehensive ski and snowboard gear guide. Through their global platform, they reach skiers and snowboarders in five markets around the world including the US, Canada, Latin America, Europe and the South Pacific. Our acquisition of Mountain News Corporation is a reflection of our commitment to the importance of emerging digital mediums for the entire snow sports industry, and our desire for the industry to be a leader in that effort, which is especially timely given the continued challenges faced by the print media business. We intend to invest in development of new content and digital applications, building on the great strength and talent of everyone at MNC. Importantly, MNC will continue to be led by Chad Dyer, its current managing director, who will serve as Chief Operating Officer of On The Snow/MNC. Chad, who has been instrumental in growing MNC, together with Rob Brown, who is retiring from the business, and the rest of Chad's team will continue to operate out of their offices in Orinda, California.

Now as the summer gets underway, we are offering some exciting activities for guests visiting our mountain resorts. New this summer will be the addition of an Alpine coaster at Breckenridge scheduled to open in August 2010 and to operate in both the summer and winter. In addition this summer, we have begun work on new resort capital projects for the 2010-2011 ski season, which will continue to focus on Vail Resorts longstanding commitment to delivering unparalleled guest experience. We anticipate spending between $75 million and $85 million in calendar 2010 on high-profile amenities for our Mountain and Lodging business that cater to bringing the finest mountain resort experiences to our guests.

Projects underway and planned this summer for the 2010-2011 winter season include the replacement of Chair 5 at Vail, serving Sunup Bowl and Sundown Bowl, which will cut the ride time in half from twelve minutes to six minutes, and has an uphill capacity of 2400 people per hour, an increase of 70% over the old fixed grip lift. The new Chair 5 lift will significantly enhance the guest experience of Vail's legendary back bowls but giving skiers and riders a faster lift that provides easier access to lap terrain in the area, and also improves skier circulation across Vail Mountain.

At Heavenly, we are also planning to have a new 14,750 square foot restaurant for this winter, increasing on-mountain indoor seating at the resort, and the central location provides guests with easy access to services steps away from the gondola. Vail will also welcome a tubing hill expansion at Adventure Ridge with additional tubing hill lanes and a new enclosed lift. The Keystone Lodge guest room renovation will offer upgraded amenities in all guest rooms, targeted at helping meeting planners to book more group events into Keystone. We are also investing in new marketing campaign management tools, which will enable sophisticated targeting of our customers and more efficient marketing campaigns as well as providing analytical tools to evaluate campaign efficacy. And finally we will continue to invest in grooming and snow making equipment at all five of our mountain resorts. We're very excited about these capital projects as we continue to enhance a world-class experience for all of our guests, and also further distinguishes Vail Resorts as the leader in the mountain resort industry.

Now turning to our real estate development projects, One Ski Hill Place in Breckenridge, and Ritz-Carlton Residences, Vail. We recently received the certificate of occupancy on our One Ski Hill Place project and began closing on units under contract. The project was finished on schedule and within our cost budget. One Ski Hill Place is an outstanding location, and in addition to condominiums, includes amenities such as a 20,000 square foot ski restaurant, The Ski Hill Grill, and an apres ski venue, The Tea Bar, which will have very positive impacts on the skier experience at Breckenridge for many years to come. To date, we have closed on twenty-three units under contract and anticipate more scheduled closings to occur over the next several weeks. While we have not had any units formally default to date, we anticipate a portion of the units under contract may default primarily due to an inability of certain buyers to obtain appropriate third-party financing given the current state of the financial markets. We have full confidence in the ultimate success of this project and will be patient in our approach to ensure we maximize our proceeds from future sales.

In addition, construction is nearing completion on the Ritz project with closings expected to begin this fall. Importantly, we have reached an inflection point on these two projects whereas the fund outflow required to build the projects is nearing the end, while the fund inflow from closings has just begun. We look forward to the impact these two projects will have on the two most visited mountains in the country for many years to come.

I want to take this time to thank all of our employees and guest for making the 2009-2010 ski season such a success. The passion and commitment to service of our employees at all levels and in all areas never ceases to amaze me. Though the ski season has just completed, we are busy focusing on making the 2010-2011 season even more successful. At the same time, we are also focused on making the summer activities at our resorts -- making sure the summer activities at our resorts offer a tremendous experience for all involved.

At this time Jeff and I will would be very happy to answer your questions. Operator, we are ready for questions.

Thank you. We will now be gin the question-and-answer session. (Operator Instructions) Our first question comes from the line of Felicia Hendrix with Barclays Capital. Please go ahead.

Hi, good morning, guys.

Good morning.

Hello.

You guys did such a good job in terms of cutting costs, obviously it showed through in these results. Just wondering if there's anything further that you're working on, or that you can talk about as we think about your next fiscal year, your next ski season?

I think what I'd say, Felicia, is that -- I think we talked about this a little bit at the investor conference -- some of the costs that we were able to take out last year we really believe are permanent. A lot of our purchasing, bringing out efficiencies in numerous areas of our operations, really kind of coming up with creative solutions for stuff, obviously when times are tough, and I think a good portion of the cost cuts that we've been able to make are stuff that we'll continue for a number of years. Some of them, like the wage reduction, are not things that are sustainable and were more of a one-time decision given the state of the market.

So, I would say some of it will continue. And I think we kind of really take the approach here that, that cutting costs and getting more efficient needs to be one of our key strategies. But in terms of looking at something major, no, I mean I think you are going to see a little bit more of a day in, day out approach to cost cutting going forward.

Okay, thank you. And then I know your business, it's tough to have visibility, but since you do have some group business, particularly in Keystone, just wondering if you have any kind of visibility, if anybody has been committing to 2011 yet, what that looks like?

What I would say is it's obviously pretty early, but I do think that we did start to see, like we did with the transient business, we did start to see a pickup in kind of call activity and discussions and inquiries on the group side of the business as well. I think that obviously those -- that activity would be reflected in 2011 and beyond. Think it's too early to make any statement about how that will translate into next year, but there's no question that we saw a greater level of activity this year for next year than we did in 2009 for 2010.

Yes. Okay, great. And then just my final question is, I'm just wondering with the dollar strengthening versus the Euro, I'm wonder nothing you plan on introducing any kind of special marketing or promotion programs to retain your European customer base?

Yes, what I would say there is that I think we're definitely going to be, I think aggressive in those areas. I think that the dollar is going to be a factor. I think the European economy is going to be as much of a factor as the dollar. I think, in addition, I think we're also going to be looking at other markets, whether they're in the central and South America, whether they're in Asia Pacific. I think we're probably -- we're going to be aggressive and continuing to be so with Europe, but also trying to actually expand the number of markets that we're target so we have a more balanced customer profile from international markets.

Okay, and then just on lodging, can you just -- I mean on real estate, sorry -- can you just -- have you seen increased interest at Ritz?

I think again, what I would say is I think we definitely saw increased interest in Ritz this year over last year. I think we had a lot of kind of great dialog going on. There was a main message that came across, which is not that surprising, which is a lot of people would like to see the building finished before they make their purchase. So I think we're optimistic that some of those discussions that we had this year can be more fruitful next year, is really probably the way I would put it.

Great. Thank you.

Thanks.

Thank you. And our next question comes from the line of Hayley Wolff with Rochdale Securities. Please go ahead.

Hello, guys.

Hello.

Just a couple questions. I want to follow up on Felicia's question on the European visitation. Can you give us the breakout of international visits in the mix?

I don't think we break that out.

I think we'd say that it's around 10% of our overall mix of visitation, and I think --

In total international. Just total international, not just Europe.

Just total international. I think , we've never broken out Europe as part of. That we obviously get strengths in certain areas of our mountains from different areas internationally, and we continued to see that this year. But not -- all of our international travel, or even a good portion of it, comes from areas -- not just in

And I probably would say within Europe that really it's the UK and Germany within that market that drive the vast majority of the visits from Europe.

Definitely.

Is there any opportunity to capture visits that would have gone to Canada because of the Canadian dollar? Or is it just going to be a struggle trying to get Europeans over here?

You know, I think, again, I would -- I actually, my feeling right now is I think the currency issues definitely play a big factor. There's no question about that. But I think right now the economy in Europe is actually the biggest factor. And I think -- I would say that if the economy, by the time we get to next ski season, has started to come back, people, you know, there's a little bit more stability in the financial markets, I think that would help -- that would really outpace kind of some of the currency issues in terms of how it would translate into our ski season next year.

Okay. And then just a question on the closings at One Ski Hill Place. When did you actually get -- and when did that wheel process start? Can you give us a little color on the remaining thirty-six units that have a contract and you're hoping to close on, whether there's been dialogue with these people?

Yes, Haley, we started closings a few weeks back, and I think in May is really when we started the closings. And I think we've had dialogue with every single person that we could possibly have dialogue with that had a pre-sale contract of the fifty-nine that we really had in place, all along. During the ski season, including events for them and things like that to make sure they got good tours as their units were finishing up, and everything looked good.

I think obviously we have some -- several -- many left to close, but we've gotten twenty-three closed to date, many more are scheduled. Obviously -- all the rest are scheduled. The question really is of those and the dialogue we have, we do anticipate a portion to default, although you obviously never know until the final day comes when they really have to walk away from that 15% deposit that they've made. Certainly, the dialogue of people that don't believe they could close is centered around their ability to get third-party financing more than anything. But, again, until we get through the next several weeks and all the closing scheduled dates and time periods that go with that, we won't know for sure what the absolute number of closings versus defaults will be.

I was amazed you got twenty-three closed so quickly.

We're pleased. As we said earlier, the building looks great. I think everyone was very excited about how their units came out and how the building looks, and even going into next year, the comment that Rob made earlier about the amenities that go along with this building. Remember, a 20,000 square foot restaurant with an apres ski venue and other amenities will bring a lot of the skiers that are coming to Breckenridge into that building, even going into next year as we try to sell off the remaining units.

And then one last question. I just -- earlier, at the beginning of the call, did you say that the visitation and the spending levels over the spring holiday period were matched '08 and '07 levels?

Yes.

Oh, okay.

On an absolute.

On an absolute basis.

On an absolute basis. Which is obviously great news.

For that -- what we were talking about, just to clarify, was that was a sub period within the third quarter.

Right.

Right, I understood that. Okay, great. Thanks a lot, guys.

Thanks.

And our next question comes from the line of Will Marks with JMP Securities. Please go ahead.

Thank you. Good morning, Rob. Good morning, Jeff.

Hello, Will.

Starting with the real estate, when should we expect to know in terms of the fifty-nine that were under contract? Would it be -- do they have thirty days? Is it -- can you clarify that?

Generally someone has twenty days from scheduled closing date, if they don't close after a default notice has been issued. So that would be the time period people really have before you know for sure whether they formally defaulted or not.

When do you issue a default notice?

That comes down to an individual dialogue. What I would say is I think as we get toward the middle of the summer, we're going to have an answer.

Right.

So I think -- that would be -- when we get towards, let's call it the post July 4, 2010 period, my guess is by that point, a couple weeks after, whatever, the total picture of how closings went I think will be apparent.

And do you plan to put out any kind of release, or is that up in the air?

No, I don't think we would put out necessarily a release, but I think that information may wind up being publicly available --

Right.

-- within the resort.

Right.

Okay. And did you mention the -- what you have left to spend, I guess after April 30, 2010 on the two projects?

We didn't formally, Will, but what I would say, there's very little relatively speaking left to spend. It's really more on just cleanup items on One Ski Hill Place, and then on the Ritz, it's a -- there's probably -- well obviously, less than what we disclosed in the March 2010 investor conference since we've been continuing the on in the construction. In total, for both, it's a -- well under what the last disclosure was. So it's getting near the end. We obviously have some last bit of construction to do here on the Ritz, but we are planning on being, being essentially done with that project here in late summer.

Okay, great. Can you clarify a comment you made on -- well, it's in the press release as well, but you reiterated on past sales? I guess I'm a little confused on how you're comfortable saying that will you meet or surpass last year's levels. It has to do with the spending patterns, the buyers acted quickly last year right after the first year, and they didn't this year?

Yes, I'd say -- maybe let -- I'll break this into two pieces. I think we obviously support certain trends and results, but there are obviously many other things we look at to try and gauge where we are with our business. I think a good comparison would be in the December 2009 earnings call where we announced that our advanced lodging bookings were down pretty significantly -- double digits, but yet at the same time kind of reaffirmed guidance, talked about how we thought that was a timing issue, that would rectify. That was because we were looking at other metrics as well. So, one, I'd say this, the statement we're making now is very similar to that statement we made last year. Number one.

Number two, how do we get comfortable? What I would say is what we saw last year was a -- an anomaly in terms of how -- what percentage of the epic passes renewed in the spring of '09. And the reason for that was because there was a lot of uncertainty by many people as to whether this was a product that we were going to continue with. Was it a long-term product? Or was this kind of something we threw out there during the recession? Or one and two? There was a lot of uncertainty about would we -- we announced we were going to take the price up in April 2010. That was lot of uncertainty that made a price increase of $10, or a price increase of $250. I think what's happened, though, so I think a lot of people kind of piled into that early renewal to make sure they got the product.

When people saw both -- because of how we priced the increased through the rest of the season and the fact that we keep announcing that it's coming back, I think people are now comfortable that this product is a long-term product within our portfolio, which by the way it is. And I think at this point what has happened, is that instead of this mad dash at the beginning, beginning, the epic pass as a product has essentially settled back into the normal percentages we see for our other products. And obviously what we say in total, the program is about a third -- 30%, a third, whatever -- in the spring. So last year, the percentage of epic was much higher than that, significant higher than that.

I think when we had this earnings call a year ago, we announced that spring season pass sales were up almost 40%, and we also said, yes, but, oh, by the way that could be a timing thing. So I think this is almost just the corollary to what happened last year. And ultimately, as I think you guys know, we were up 40% in spring but wound up being up only 9% for the full year. What I would say is I think we're going to see a similar kind of norm here where, yes, we're down here, but I think our confidence is that we're going to go to a more normalized level.

What I would say is, we really appreciate the spring pass sales program. It's critical for us. We really love to be able to give people the best price and some additional benefits, get them into the program early. But ultimately we are managing this program as a whole through both fall and spring. And so that's why for us, you know, this isn't troubling.

Okay, great.

Is that helpful? Is that helpful?

Yes, that is very thorough, I appreciate it. A few other items. On the retail venture, it looks like it closed April 30, 2010, so that is reflected in your balance sheet, the $30 million or so.

Yes. That $31 million was spent as in -- within the third quarter.

Okay. And so looking forward, obviously we with adjust the revenues, the top line appropriately, and expenses. If we completely remove that non-controlling interest line, is that where it is in the -- ?

Yes. Well, just to clarify, going forward, we've always fully consolidated --

Oh, right, that's -- yes.

-- the operating results of SSV. So the revenues, expenses, reported EBITDA from our Mountain division would not change, given -- specifically given this transaction. Obviously we hope to grow that business, so it could change from that, but that's always fully consolidated within that. What the impact is on this will be on the one line item on the non-controlling interest on the income statement. That will essentially -- or the vast majority of that will go away.

We do have couple of very small subsidiaries, you know, joint ventures that fall in that, but I'd say very small dollars could -- would prevail in that line item going forward. The vast majority would go away, given the SSV transaction. And then also, on the balance sheet, with the non-controlling interest, it's in two places, as a liability, and it's really within the equity section. The non-controlling interest portions of that would also go away. And you can see the roll forward of that in the 10-Q in the non-controlling interest footnote. You can see how that rolls through.

Okay. Thanks. And one, one final question. Would you ever consider a -- doing any kind of club in Breckenridge? Maybe there is one already, but you've been successful with Arabelle in Vail.

I think, yes, that's is, that's something that we have discussed in the past. And I think that's something we certainly would consider doing in the future. I think that, that probably would go hand in hand with the overall real estate market continuing to improve, because I think that sales of some of those clubs are sometimes either tied to real estate, or real-estate like in terms of the willingness for people to make those kind of investments.

Great. Okay. That's all for me. Thanks.

Thanks.

Thanks, Will.

Thank you. (Operator Instructions) One moment, please. And our next question comes from the line of Chris Woronka with Deutsche Bank. Please go ahead.

Hello, good morning guys.

Good morning, Chris.

Can you give us maybe a little bit of color on where you are on hotel bookings for next season? And maybe just put that in context of kind of how you ended up this past season, in terms of what was booked early versus what was booked later, and booking windows, that kind of thing?

I guess what I would say is I think the -- even here, within our Company, we don't put a lot of stock in bookings now for next ski season. So I think the -- I think that was true probably even a few years ago, in terms of, I think that really starts to become more of a fact for as get to the later part of the summer. Again, historically that was true. Over the last year or two, where the booking window has shrunk so dramatically where, the joke is that people are booking for yesterday, at this point in time, we just don't think it's kind of a relevant indicator either way. I think that -- this is something that obviously when we get to the September earnings call, we start to discuss in more detail, and then even more important in December call. But for now, it's just -- we've never really put out advanced bookings at this point, and for our Company, we just don't see that it's a relevant statistics.

Right. Got you. And then on the -- just on the fiscal '10 guidance for the fourth quarter, I guess for the resort EBITDA you're -- if you were flat with last year that kind of $34 million, I think you would be at that time high end of your guidance. Is there something -- is it a cost -- is there something coming back in, or something we're not looking at the right way?

Chris, couple things. We had some -- probably more one-time or unusual benefits in the fourth quarter last year that we don't perceive reoccurring this year on some of the expense areas, as well as just overall -- certain line items that we're looking at in the fourth quarter this year compared to last year that we think will be up a bit. So, yes, we do think fourth quarter this year will be down to last year, which is -- which was considered when we made that statement on our guidance.

Okay. Great. Thanks.

Thanks.

Thank you. And our next question comes from the line of Shaun Kelley with Bank of America. Please go ahead.

Hello, guys, good morning. Just wanted to get a little bit more color on some of the timing around the Ritz closings. Just your thoughts on -- do you have any sense yet of when kind of will you actually get the certificate of occupancy for that project? As we start thinking about modeling early fiscal next year?

I think, Shaun, I think we're anticipating being able to start closings in the first quarter of next year. So we're thinking that this all should occur later, I'd call it, when I say late summer, early fall that should fall most likely within the first quarter of next year, for the most part. So that's what I would be thinking. Obviously, there's no guarantees until you get right down to it. But right now where we stand today, it looks like a late summer completion of the building. We would start the closing process, obviously, right after that. And obviously those get spread out over time, based on various factors. But on fairly compressed cycle. So I would say by the end of the first quarter next year we should be in pretty good shape on closings.

Got it. And then just as a -- kind of the second piece of that will you get -- when you look to close the fractional component that goes to Marriott, will that happen in kind of one lump sum right there at the beginning? So is that something we should think about in the fiscal first quarter? Or how should we think about that since it's just such a big number?

Yes, no, I think, yes, that's what's contemplated now. Yes, absolutely.

Okay, great. Thank you very much.

Thank you. Our next question comes from the line of Martin Pyykkonen with Janco Partners. Please go ahead.

Yes, thanks ,good morning. Question on One Ski Hill. Just -- it sounds like from your certificate of occupancy, that was probably something you got late April, early May, just by the number you've closed, if I'm right on the timing of that. Those were still available and not under contract, any of those that have gone under contract since that certificate was completed, or indications of interest as you see it at this point?

No, no further new closings -- new units going under contract since that occurred. I think we would anticipate, we're going to obviously do some big marketing events here in the summer when people really start coming back to the resort for summer activities at Breckenridge, and then obviously rolling that into the fall and ski season.

I think you've addressed this a few times. I just want to make sure one last time on the timing of the pre-season sales so far and epic pass. I get all that you're saying there, and the fact that international is 10% and Europe is a subset of that. The weakness in the Euro, the weakness in the European economy, doesn't sound like a material factor in what you're down so far through June 6, 2010 in preseason sales. Is that accurate?

Yes, I would not -- I don't think the European -- either the currency or the European economy is a factor at all in the past sale numbers that we reported.

Okay. And then a few weeks ago there was a report out, a third-party report, about the summer season looking good for you especial relative to the industry, and you were holding rates kind of flat. I know it's minor compared to the ski season, but do you agree with that? Is it still looking fairly healthy in the summer bookings? And are you, if that report was accurate, holding rates fairly flat, or any price increases during the summer period?

I'm not going to give any guidance or commentary on the summer in specific. Obviously that's something that's included in the overall color that we gave for the year. I would say that I think we, we certainly have seen, and anticipate continuing to see, some better pricing dynamics as we go forward. And so that is certainly something that we anticipate being a better trend for us in the upcoming quarters.

Okay. Last question, just on the Heavenly numbers in Q3, they were obviously very good, almost 10%. Roughly speaking, would you attribute that to Bay Area economy improvements? Good dose of spring storms? Any special promotions or anything? Just a very strong number.

I think it was probably a combination. I think that the weather and the snow conditions I think were a significant factor. I think some of our efforts around the resort also contributed. I think the California economy, I think is a smaller impact, and if anything, probably overall certainly for the year, I think was still weighing down some of the opportunity there. Obviously something that we hope will also turn around for next year.

And I would just add to that, I think that the prior year was unusually low in the third quarter for Heavenly. So I would say this felt more like a normalized level, what we would expect to see at Heavenly pre any additional growth.

Just like an easy comp. Okay. Okay, thanks.

Thanks.

Thanks.

Thank you. (Operator Instructions) And our next question comes from the line of Will Marks with JMP Securities. Please go ahead.

Thanks. Rob, on Keystone, is there any further thought into launching a project there? Or are we just nowhere near the economic conditions we need?

Yes, no, I think that we -- I think that that's -- I think the timing of when we would do something like that would be as we start to see a greater velocity in the sales of our two existing projects and also the sales of some other folks' projects in Colorado. So at this point, that, that's not on the immediate horizon.

Okay, and in Vail, think I've read that some of your competitors have, have been selling some units maybe upwards of $2,000 a foot, some units have closed. Is that accurate?

Yes that is accurate. There are a handful of units that were closed in the Solaris project in Vail at those levels.

Great. Thanks.

Great, thanks.

Thank you. And our next question comes from the line of Tim Somers with AMI Asset Management. Please go ahead.

Good morning. You spoke about a number of projects and mountain enhancements. And I was wondering if you could quantify the aggregate cost and the timing of those?

Sure. The total capital program that we announced was $75 million to $85 million. That would be for the calendar year 2010. And the timing of the spending of that, most of that would occur within the summer months, but there would be some spending outside of that as well.

And then within that I think we've disclosed that our maintenance capital portion of -- which is included in that $75 million to $85 million, roughly $37 million to $42 million.

Okay. Great. And in terms of leveraged target, do you have any internal targets where your comfort level is?

I think that's something that we look at all the time, and are always looking at our own business and external factors and what our growth objectives are and that's something that we study closely.

Okay. And have you had any discussions with the rating agencies recently at all?

I think we're always in contact with them, keeping them up to date on our business.

Okay. And then lastly, obviously you've got the, you know, your 2014 notes coming up in three-and-a-half years, and you're kind of in a free cash flow neutral to slight bleed. Any thought in terms of early debt reduction, open market purchases, or other possible transactions?

Yes, what I would say is I think that's something that we always look and we'll constantly monitor to see what we think makes sense for the business. The only thing I would correct slightly is I think we're in a cash flow positive situation other than the investments we've been making in real estate in terms of free cash flow. Obviously as we see those projects turn around we do anticipate being in a, as we go forward here, obviously, a positive cash flow, net cash flow position.

Okay. Thank you very much.

Great, thanks.

(Operator Instructions) One moment, please. And at this time there no further questions. I would like to turn the call back over to Rob Katz for any closing comments.

Thank you, operator. This concludes our fiscal 2010 third quarter earnings call. Thanks to everyone who joined us on the conference call today. Please feel free to contact myself, or Jeff directly should you have any further questions. Thank you for your time this morning and good-bye.

Ladies and gentlemen, this concludes the fiscal 2010 third quarter results conference call. If would you like to listen to a replay of today's conference, please dial 303-590-3030, or 1-800-406-7325, followed by pass code of 4304093. ACT would like to thank you for your participation. You may now disconnect.