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Article by DailyStocks_admin    (03-24-08 08:38 AM)

Vail Resorts Inc. CEO ROBERT A. KATZ bought 23,600 shares on 3-20-2008 at 43.27

BUSINESS OVERVIEW

General

Vail Resorts, Inc. was organized as a public holding company in 1997 and operates through various subsidiaries (collectively, the "Company"). The Company's operations are grouped into three segments: Mountain, Lodging and Real Estate, which represented approximately 71%, 17% and 12%, respectively, of the Company's revenue for the year ended July 31, 2007. The Company's Mountain segment owns and operates five premier ski resort properties as well as ancillary businesses, primarily including ski school, dining and retail/rental operations, which provide a comprehensive resort experience to a diverse clientele with an attractive demographic profile. The Company's Lodging segment owns and/or manages a collection of luxury hotels under its RockResorts International, LLC (“RockResorts”) brand, strategic lodging properties and a large number of condominiums located in proximity to the Company's ski resorts, the Grand Teton Lodge Company (“GTLC”), which operates three destination resorts at Grand Teton National Park (the “Park”), and golf courses. Collectively, the Mountain and Lodging segments are considered the Resort segment. The Company's Real Estate segment holds and develops real estate in and around the Company's resort communities. Financial information by segment is presented in Note 15, Segment Information, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

Mountain Segment

The Company's portfolio of ski resorts currently includes:

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Breckenridge Mountain (“Breckenridge”) -- the single most visited resort in the United States for the 2006/2007 ski season, currently ranked seventh best resort in North America by SKI Magazine and well known for its historic town, vibrant nightlife and progressive terrain parks;

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Vail Mountain (“Vail”) -- the largest single ski mountain in the United States, second most visited in the United States for the 2006/2007 ski season and currently ranked second best resort in North America by SKI Magazine, receiving the top honor in 14 of the past 20 years;

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Keystone Resort (“Keystone”) -- the third most visited ski resort in the United States for the 2006/2007 ski season, currently ranked eleventh best resort in North America by SKI Magazine and placed in three of Transworld SNO Wboarding Magazine’s Top 10 of 2007 categories for best overall resort, best park and best half-pipe;

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Heavenly Mountain Resort (“Heavenly”) -- the second largest resort in the United States, market leader at Lake Tahoe and eighth most visited resort in the United States for the 2006/2007 ski season, and currently ranked seventeenth best resort in North America by SKI Magazine; and

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Beaver Creek Resort (“Beaver Creek”) -- known for delivering luxury and impeccable guest service, currently ranked eighth best resort in North America by SKI Magazine and the ninth most visited resort in the United States for the 2006/2007 ski season.

Vail, Beaver Creek, Breckenridge and Keystone, all located in the Colorado Rocky Mountains, and Heavenly, located in the Lake Tahoe area of California/Nevada, are year-round mountain resorts. Each offers a full complement of recreational activities, including skiing, snowboarding, snowshoeing, sight-seeing, mountain biking, guided hiking, children’s activities and other recreational activities.

The Company's Mountain segment derives revenue primarily through the sale of lift tickets and season passes as well as a comprehensive offering of amenities available to guests, including ski and snowboard lessons, retail merchandise and equipment rentals, a variety of dining venues, private club operations and other recreational activities. In addition to providing extensive guest amenities, the Company also engages, among other activities, in real estate brokerage services and the leasing out of owned commercial space around its base resorts for restaurants and retail stores.

There are approximately 770 ski areas in North America and approximately 485 in the United States, ranging from small ski area operations that service day skiers to large resorts that attract both day skiers and destination resort guests looking for a comprehensive vacation experience. One of the primary ski industry statistics for measuring performance is "skier visit", which represents a person utilizing a ticket or pass to access a mountain resort for any part of one day, and includes both paid and complimentary access. During the 2006/2007 ski season, combined skier visits for all North American ski areas were approximately 73.0 million and United States skier visits approximated 55.1 million. The Company's ski resorts had approximately 6.2 million skier visits during the 2006/2007 ski season, or approximately 11.3% of United States skier visits, and an approximate 8.5% share of the North American market's skier visits.

The Company's Colorado ski resorts appeal to both day skiers and destination guests due to the resorts' proximity to Colorado's Front Range (Denver/Colorado Springs/Boulder metropolitan areas), accessibility from several airports, including Denver International Airport and Eagle County Regional Airport, and the wide range of amenities available at each resort. Colorado has approximately 26 ski areas, six of which are classified as "Front Range Destination Resorts", including all of the Company's Colorado resorts, catering to both the Front Range and destination-skier markets. All Colorado ski resorts combined recorded approximately 12.6 million skier visits for the 2006/2007 ski season with skier visits at the Company's Colorado ski resorts totaling approximately 5.3 million, or approximately 42.3% of all Colorado skier visits for the 2006/2007 ski season.

Lake Tahoe, which straddles the border of California and Nevada, is a major skiing destination less than 100 miles from Sacramento and Reno and approximately 200 miles from San Francisco, making it a convenient destination for both day skiers and destination guests. South Lake Tahoe, where Heavenly is located, is also a popular year-round vacation destination, featuring extensive summer attractions and casinos in addition to its winter sports offerings. Heavenly is proximate to both the Reno/Tahoe International Airport and the Sacramento International Airport. California and Nevada have approximately 21 ski resorts. Heavenly had approximately 900,000 skier visits for the 2006/2007 ski season, capturing approximately 14.0% of California's and Nevada's 6.4 million total skier visits for the ski season.

There are significant barriers to entry for new ski areas due to the limited private lands on which ski areas could be built, the difficulty in getting the appropriate governmental approvals to build on public lands and the significant capital needed to construct the necessary infrastructure. While most North American ski areas are individually owned and operated, the Company competes with other major ski resorts, including Whistler Blackcomb, Copper Mountain, Park City Mountain Resort, Deer Valley, Aspen/Snowmass, Mammoth Mountain, Winter Park, Steamboat, Northstar-at-Tahoe and Squaw Valley USA.

The ski industry is highly competitive. While the ski industry has performed well in recent years, with the six best seasons in history, in terms of United States visitation, occurring in the past seven years, a particular ski area's growth is also largely dependent on either attracting skiers away from other resorts or generating more revenue per skier visit. This has spawned a trend of increased spending on resort improvements to ensure the newest and best technology and to create new attractions such as terrain parks and half-pipes. Larger ski resort owners, including the Company, generally have a competitive advantage over the individual operator, as the larger owners typically have better access to the capital markets and are also able to create synergies within their operations that enhance profitability. Additionally, given the fixed cost nature of the ski resort business, the most visited resorts can generally produce a significantly higher net cash flow from operations less capital expenditures enabling a higher level of investment in capital improvements to further distance the experience from other resorts. All five of the Company’s resorts typically rank in the top ten most visited ski resorts in the United States, and the Company believes it invests more in capital improvements than the vast majority of its competitors. The Company's primary competitors include the ski areas noted above, other ski areas in Colorado and Lake Tahoe and other destination ski areas worldwide, as well as non-ski related vacation destinations.

There are a variety of factors that contribute to a skier's choice of a ski resort, including terrain, challenge, grooming, service, lifts, accessibility, weather, snowfall, lodging and on- and off-mountain amenities. All of the Company's resorts consistently rank in the top 20 ski resorts in North America according to industry surveys which the Company attributes to its resorts' ability to provide a high-quality experience in each of the above mentioned categories. The ski industry statistics stated in this section have been derived from data published by Colorado Ski Country USA, Canadian Ski Council, Kottke National End of Season Survey 2006/2007 (the “Kottke Survey”) and other industry publications.

All of the Company's ski resorts maintain the unique distinction of competing effectively as both market share leaders and quality leaders. The following inherent and strategic factors contribute directly to each resort’s success:

Superior mountain experience --

•

Size


The Company’s resorts boast some of North America’s most expansive and varied terrain – Vail alone offers approximately 5,300 skiable acres, making it the largest single ski mountain in the United States and second largest resort in North America. At approximately 4,800 skiable acres, Heavenly is the second largest ski resort in the United States and third largest in North America. The Company's five ski resorts offer over 17,000 skiable acres in total, with substantial terrain options for beginner, intermediate and advanced skiers and snowboarders.

•

Snow Conditions


The Company's resort locations receive significantly higher than average snowfall compared to most other ski resorts in the United States. The Company’s resorts in the Colorado Rocky Mountains receive average yearly snowfall between 20 and 30 feet and Heavenly, located in the Sierra Nevada Mountains, receives average yearly snowfall of approximately 23 feet. Even in these abundant snowfall areas, the Company invests in hi-tech snowmaking systems. Additionally, the Company meticulously maintains its slopes with extensive fleets of snow grooming equipment.

•

Terrain Parks


The Company's resorts are committed to leading the industry in terrain park design, education and events for the growing segment of freestyle skiers and snowboarders. Each resort has multiple terrain parks and half-pipes that include progressively-challenging features. This park structure, coupled with new freestyle ski school programs, promotes systematic learning from basic to professional skills. Keystone’s A51 Terrain Park is one of the largest parks offering night riding in the country. Breckenridge’s Freeway Terrain Park & Pipe is ranked by Transworld SNO Wboarding Magazine to be among the top rated terrain park and half-pipes in North America.

•

Lift Service


The Company systematically upgrades its lifts to streamline skier traffic and maximize guest experience. In the past three fiscal years, the Company has installed six high-speed chairlifts or gondolas across its resorts: one four-passenger chairlift and one eight-passenger gondola at Breckenridge, three four-passenger chairlifts at Beaver Creek and one six-passenger chairlift at Heavenly. New for the 2007/2008 ski season, the Company is installing two four-passenger high-speed chairlifts at Vail, one eight-passenger gondola at Beaver Creek and one four-passenger high-speed chairlift at Heavenly.

Extraordinary service and amenities --

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Commitment to Guest Service


The Company’s mission is to provide quality service at every level of the guest experience. Prior to arrival, guests receive personal assistance through the Company’s full-service, in-house travel center in booking desired lodging accommodations, lift tickets, ski school classes, equipment rentals and air and ground travel. On-mountain hosts engage guests and answer questions and all personnel, from lift operators to ski patrol, convey the guest-oriented culture. The Company solicits guest feedback through a variety of surveys and results are utilized to ensure high levels of customer satisfaction to understand trends and develop future resort programs and amenities.

•

Exceptional Ski Schools


The Company’s resorts are home to some of the world’s finest ski and snowboard schools. New programs, such as beginner terrain park instruction and family group lessons, effectively differentiate the Company’s ski school offerings from those of its competitors.

•

Dining


The Company’s resorts provide a variety of quality dining venues, ranging from top-rated fine dining restaurants, to trailside express food service outlets. The dining offerings range from on-mountain lunch and dinner options to base village dining experiences.

•

Village Experiences


The Company is an industry leader in providing comprehensive destination vacation experiences, including non-ski activities designed to appeal to a broad range of interests. Each of the Company’s resorts feature an alpine village setting with extensive retail, restaurants, spas, youth activities, cultural events, live music and entertainment. Each resort features village-level gondola access to on-mountain activities.

Integrated businesses --

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Lodging


Lodging options are an integral part of providing a complete resort experience. The Company’s twelve owned and managed hotels (including four RockResorts branded hotels at the Company’s mountain resorts) and inventory of approximately 1,600 managed condominiums rooms at the Company’s mountain resorts provide numerous accommodation options for its guests. The Company can further leverage these lodging operations by packaging lodging with its ski product offerings to further enhance the guest experience.

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Retail/rental


The Company, through SSI Venture, LLC ("SSV"), has over 145 retail/rental locations specializing in sporting goods including ski, snowboard, golf and cycling equipment. In addition to providing a major retail/rental presence at each of the Company's ski resorts, the Company also has retail/rental locations throughout the Colorado Front Range and at other Colorado, California and Utah ski resorts, as well as the San Francisco Bay Area and Salt Lake City. Many of the locations in the Front Range and in the San Francisco Bay Area also offer a prime venue for selling the Company’s season pass products.

•

Vail Resorts Development Company (“VRDC”)
The Company continually upgrades and expands available services and amenities through capital improvements and real estate development activities. The Company’s real estate development efforts provide the Company with the ability to add profitability to the Company while expanding the destination bed base and upgrading its resorts through the development of amenities such as luxury hotels, private clubs, spas, parking and commercial space for upscale restaurants and retail shops. Current projects under development include the major revitalization of the primary portals to Vail Mountain at Vail Village and LionsHead, including The Arrabelle at Vail Square and The Lodge at Vail Chalets, and new villages at the base of Breckenridge's Peaks 7 and 8.

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Environmental stewardship
As part of a long-standing commitment to responsible stewardship of its natural mountain settings, the Company has several initiatives in environmental sustainability which transcend throughout all of the Company’s operations. For example, it has chosen to offset 100% of its energy use by purchasing 145,000 megawatt-hours of wind energy credits annually for its five mountain resorts, its lodging properties including RockResorts, GLTC, all of its retail/rental locations and its corporate headquarters in Broomfield, Colorado. The Company’s headquarters is LEED-certified and the Company also plans on developing the largest LEED-certified project for resort use in North America announced to date. Additionally, the Company is partnering with the National Forest Foundation to raise funds for various conservation projects in the White River National Forest in Colorado and the National Forest of Tahoe Basin in California/Nevada where the Company operates its five mountain resorts.

A ccessibility from major metropolitan areas --

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Destination Visitation
The Company's Colorado resorts are proximate to both Denver International Airport and Eagle County Regional Airport. Heavenly is proximate to both Reno/Tahoe International Airport and Sacramento International Airport.

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In-State Visitation


The Colorado Front Range market, with a population of approximately 3.8 million, is within approximately 100 miles from each of the Company's Colorado resorts, with access via a major interstate highway. Additionally, Heavenly is proximate to two large California population centers, the Sacramento/Central Valley and the San Francisco Bay Area. These markets provide the Company with excellent opportunities to market its season pass products which provided approximately 25% of the Company’s total lift revenues for the 2006/2007 ski season.

The Company promotes its resorts through an extensive marketing and sales program, which includes print media advertising in lifestyle and industry publications, direct marketing to a targeted audience, promotional programs, loyalty programs that reward frequent guests and sales and marketing directed at attracting groups, corporate meetings and convention business. Additionally, the Company markets directly to many of its guests through its websites and internet presence, which provide visitors with information regarding each of the Company's resorts, including services and amenities, reservations information and virtual tours (nothing contained on the websites shall be deemed incorporated herein). The Company also enters into strategic partnerships with selected "name brand" companies to increase its market exposure and create opportunities for cross-marketing.

Ski resort operations are highly seasonal in nature, with a typical ski season beginning in mid-November and running through mid-April. In an effort to partially counterbalance the concentration of revenue in the winter months, the Company offers non-ski season attractions such as sight-seeing, mountain biking, guided hiking, children’s activities and other recreational activities such as golf (included in the operations of the Lodging segment). These activities also help attract destination conference and group business to the Company's resorts.

Lodging Segment

The Company's Lodging segment includes the following operations:

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RockResorts-- a luxury hotel management company with a portfolio of three Company-owned and four managed, third-party owned resort hotels with locations in Colorado, Wyoming and New Mexico. Sites currently under development as RockResorts owned or managed properties include; The Arrabelle at Vail Square, The Chateau at Heavenly Village, The Landings St. Lucia, West Indies, Rum Cay Resort Marina, Bahamas and the Eleven Biscayne Hotel & Spa, Miami, Florida;

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Six additional independently flagged Company-owned hotels, management of the Vail Marriott Mountain Resort & Spa ("Vail Marriott"), Mountain Thunder Lodge and Austria Haus Hotel and condominium management operations in and around the Company's Colorado ski resorts;

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GTLC-- a summer destination resort with three resort properties in the Park and the Jackson Hole Golf & Tennis Club (“JHG&TC”) near Jackson, Wyoming; and

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Six Company owned resort golf courses (including JHG&TC).

The Lodging segment currently includes approximately 3,900 owned and managed hotel and condominium rooms. The Company's resort hotels collectively offer a wide range of services to guests.

CEO BACKGROUND

Roland A. Hernandez , 50, was appointed a director of the Company in December 2002. Mr. Hernandez is the founding principal and Chief Executive Officer of Hernandez Media Ventures, a privately held company engaged in the acquisition and management of media assets. Prior to forming that company, Mr. Hernandez was President, Chief Executive Officer and Chairman of the Board of Telemundo Group, Inc., a Spanish-language television and entertainment company. From 1995 to 1998, Mr. Hernandez was President and Chief Executive Officer of Telemundo Group, Inc. From 1986 to 1994, Mr. Hernandez was President of the corporate general partner of Interspan Communications. Mr. Hernandez is a director of Wal-Mart Stores, Inc., Ryland Group, Inc., MGM Mirage and Lehman Brothers Holdings, Inc. He serves on the audit committee of Ryland Group, Inc. and as Chairman of the audit committees of Wal-Mart Stores, Inc. and MGM Mirage.

Thomas D. Hyde , 58, was appointed a director of the Company in June 2006. Mr. Hyde is Executive Vice President and Corporate Secretary of Wal-Mart Stores, Inc. (“Wal-Mart”). From June 2003 to June 2005, Mr. Hyde served as Executive Vice President, Legal and Corporate Affairs and Corporate Secretary of Wal-Mart and from July 2001 to June 2003, he served as Executive Vice President, Senior General Counsel of Wal-Mart. Prior to July 2001, he served as Senior Vice President and General Counsel of Raytheon Company since 1992.

Robert A. Katz , 40, was appointed a director of the Company in June 1996, serving as Lead Director from June 2003 until his appointment as Chief Executive Officer of the Company in February 2006. Prior to his appointment as the Company’s Chief Executive Officer, Mr. Katz had been associated with Apollo Management L.P., a private securities and investment management firm, since 1990.

Richard D. Kincaid , 45, was appointed a director of the Company in June 2006. Mr. Kincaid is a principal and founder of Lakeshore Holdings, LLC, a real estate opportunity fund. Until March 2007, Mr. Kincaid was President, Chief Executive Officer and a trustee of Chicago-based Equity Office Properties Trust (“Equity Office”). Mr. Kincaid was President of Equity Office since 2002 and was named Chief Executive Officer in April 2003. From 1997 to 2002, Mr. Kincaid was Executive Vice President of Equity Office and was Chief Operating Officer from September 2001 until November 2002. He served as Chief Financial Officer of Equity Office from March 1997 until August 2002. Mr. Kincaid also is a director of Rayonier Inc., a global supplier of timber, performance fibers and wood products.

Joe R. Micheletto , 71, was appointed a director of the Company in February 1997 and has been Chairman of the Board of the Company since February 2006. Since September 2003, Mr. Micheletto has served as Vice Chairman of Ralcorp Holdings, Inc. (“Ralcorp”). From September 1996 to September 2003, Mr. Micheletto served as Chief Executive Officer and President of Ralcorp and was Co-Chief Executive Officer and Chief Financial Officer of Ralcorp from January 1994 to September 1996. From 1985 to 1994, he served as Vice President and Controller of Ralston Purina Company. From 1991 to 1997, Mr. Micheletto served as Chief Executive Officer of Ralston Resorts, Inc. Mr. Micheletto also serves as a director of Energizer Holdings, Inc.

John F. Sorte , 60, was appointed a director of the Company in January 1993. Mr. Sorte has been President and Chief Executive Officer of Morgan Joseph & Co. Inc., an investment banking firm, since June 2001. From March 1994 to June 2001, he served as President of New Street Advisors L.P. and from 1992 until 1994 as Chief Executive Officer of New Street Capital Corporation. Prior to that position, Mr. Sorte joined Drexel Burnham Lambert Inc. as Managing Director in 1980 and served as Chief Executive Officer from 1990 through 1992. Mr. Sorte is also a director of WestPoint Stevens, Inc.

William P. Stiritz , 73, was appointed a director of the Company in February 1997. Mr. Stiritz has been a private equity investor since May 2001. From April 1998 to May 2001, he was Chairman of the Board, Chief Executive Officer and President of Agribrands International, Inc. Mr. Stiritz was Chairman of the Board of Ralston Purina Company from January 1982 to December 2001. Mr. Stiritz serves as Chairman of the Board of both Ralcorp Holdings, Inc. and Energizer Holdings, Inc.

SHARE OWNERSHIP

(1) Includes options to purchase 25,000 shares of common stock which are currently exercisable.
(2) Includes 3,246 shares of restricted stock that vest upon Mr. Micheletto ceasing to be a member of the Board of Directors.
(3) Messrs. Micheletto and Stiritz disclaim beneficial ownership of all shares of common stock of the Company held by Ralcorp.
(4) Includes options to purchase 15,000 shares of common stock which are currently exercisable.
(5) Includes options to purchase 22,500 shares of common stock which are currently exercisable.
(6) Includes options to purchase 25,000 shares of common stock which are currently exercisable. Includes 12,500 restricted shares of common stock outstanding and held by Mr. Katz that remain subject to vesting restrictions as of December 3, 2007 (60 days from October 4, 2007) which lapse in equal monthly installments from December 28, 2007 to February 28, 2009. Also includes 174,993 SARs which would be exercisable for 90,458 shares of common stock (assuming a fair market value of $65.60, the closing price of our common stock on October 4, 2007).
(7) Includes options to purchase 70,000 shares of common stock which are or will become exercisable on or before December 3, 2007. Includes 8,007 SARs which would be exercisable for 3,159 shares of common stock (assuming a fair market value of $65.60, the closing price of our common stock on October 4, 2007).
(8) Includes 5,542 SARs which would be exercisable for 2,532 shares of common stock (assuming a fair market value of $65.60, the closing price of our common stock on October 4, 2007).
(9) Includes options to purchase 20,000 shares of common stock which are or will become exercisable on or before December 3, 2007. Includes 6,673 SARs which would be exercisable for 2,633 shares of common stock (assuming a fair market value of $65.60, the closing price of our common stock on October 4, 2007).
(10) Such information is based on Mr. McCarthy’s last Form 4 filings filed with the SEC on February 15, 2007.
(11) Such information is based on Ms. Rehm’s last Form 4 filings filed with the SEC on January 12, 2007.
(12) Includes options to purchase 225,000 shares of common stock and 195,215 SARs which would be exercisable for a total of 98,782 shares of common stock as described in the above footnotes.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

The Company's operations are grouped into three integrated and interdependent segments: Mountain, Lodging and Real Estate, which represented 71%, 17% and 12%, respectively, of the Company's revenue for the year ended July 31, 2007. The Mountain segment is comprised of the operations of five ski resort properties as well as ancillary businesses, primarily including ski school, dining and retail/rental operations. Mountain segment revenue is seasonal in nature, the majority of which is earned in the Company’s second and third fiscal quarters. Operations within the Lodging segment include (i) ownership/management of a group of seven luxury hotels through the RockResorts brand, including four proximate to the Company's ski resorts, (ii) the ownership/management of non-RockResorts branded hotels and condominiums proximate to the Company's ski resorts, (iii) GTLC and (iv) golf courses. The Real Estate segment is involved with the development of property in and around the Company's resort properties.

The Company's single largest source of Mountain segment revenue is the sale of lift tickets (including season passes), which represented approximately 43%, 42% and 43% of Mountain segment net revenue for the years ended July 31, 2007, 2006 and 2005, respectively. Lift ticket revenue is driven by volume and pricing. Pricing is impacted by both absolute pricing as well as the demographic mix of guests, which impacts the price points at which various products are purchased. The demographic mix of guests is divided into two primary categories: (i) out-of-state and international guests ("Destination") and (ii) In-State. For the 2006/2007 ski season, Destination guests comprised approximately 64% of the Company's skier visits, while the In-State market comprised approximately 36% of the Company's skier visits. Destination guests generally purchase the Company's higher-priced lift ticket products and utilize more ancillary services such as ski school, lodging and retail/rental. Destination guests are less likely to be impacted by changes in the weather, due to the advance planning required for their trip, but can be impacted by the economy and the global geopolitical climate. In-State guests tend to be more weather-sensitive and value-oriented; to address this, the Company markets season passes to In-State guests, generally prior to the start of the ski season. For the 2006/2007 ski season, approximately 25% of the total lift revenue was generated from the sale of season passes. The cost structure of ski resort operations is largely fixed (with the exception of certain variable expenses including Forest Service fees, credit card fees, retail/rental operations, ski school labor and dining operations); as such, incremental revenue generally has high associated profit margin.

Lodging properties at or around the Company's ski resorts, which represented approximately 61%, 62% and 56% of the Lodging segment revenue for the years ended July 31, 2007, 2006 and 2005, respectively, are closely aligned with the performance of the Mountain segment, particularly with respect to visitation by Destination guests. Revenue from hotel management operations under the RockResorts brand is generated through management fees based upon the revenue of the individual hotel properties within the RockResorts portfolio, and to the extent that these managed properties are not proximate to the Company’s ski resorts, they are more subject to the seasonality of those individual hotels and trends within the overall travel industry. Revenue of the Lodging segment during the Company's first and fourth fiscal quarters is generated primarily by the operations of GTLC (as GTLC's peak operating season occurs during the summer months), as well as golf operations and seasonally low operations from the Company's other owned and managed properties.

The Company's Real Estate segment primarily engages in both the vertical development of projects and the sale of land to third-party developers, which generally includes the retention of some involvement and control in the infrastructure, development, oversight and design of the projects and a contingent revenue structure based on the ultimate sale of the developed units. The Company attempts to mitigate the risk of vertical development by utilizing guaranteed maximum price construction contracts (although certain construction costs may not be covered by contractual limitations), pre-selling all or a portion of the project, requiring significant non-refundable deposits and obtaining non-recourse financing for certain projects. The Company's real estate development projects also may result in the creation of certain resort assets that provide additional benefit to the Resort (Mountain and Lodging) segment. The Company’s Real Estate revenue and associated expense fluctuate based upon the timing of closings and the type of real estate being sold, thus increasing the volatility of Real Estate operating results from period to period. In the near-term, the majority of Real Estate revenue is expected to be generated from vertical development projects that are currently under construction, in which revenue and related cost of sales will be recorded at the time of real estate closings.

Recent Trends, Risks and Uncertainties

The data provided in this section should be read in conjunction with the risk factors identified in Item 1A and elsewhere in this Form 10-K. The Company's management has identified the following important factors (as well as uncertainties associated with such factors) that could impact the Company's future financial performance:

•

The timing and amount of snowfall has an impact on skier visits. To mitigate this impact, the Company focuses efforts on sales of season passes prior to the beginning of the season to In-State skiers, who are the most weather sensitive visitors to the Company’s ski resorts. Additionally, the Company has invested in snowmaking upgrades in an effort to address the inconsistency of early season snowfall where possible. Season pass revenue, although primarily collected prior to the ski season, is recognized in the Consolidated Statements of Operations throughout the ski season. Total season pass sales for the 2006/2007 ski season increased by 17.7% over sales for the 2005/2006 ski season. Season pass sales to date for the 2007/2008 season indicate further favorable trends in unit sales, price increases and revenue. However, there can be no certainty that such favorable trends will continue in the future.
•

Consistent with prior years, the Company plans to raise prices on the majority of its lift ticket products, including season pass products, for the 2007/2008 ski season and continues to charge some of the highest prices in the industry. While pricing increases historically have not reduced demand, there can be no assurances that demand will remain price inelastic.
•

The Company operates its ski areas under various Forest Service permits, and many of the Company's operations require permits and approval from governmental authorities; therefore many of the Company’s on-mountain capital improvements must go through an approval process. Changes or impacts to the applicable regulatory environment may have detrimental effects on the Company.
•

Ownership changes of hotels under RockResorts management, or the inability of RockResorts to meet certain performance requirements for hotels under its management, may result in loss of management agreements and the related recurring management fees. Such terminations, however, may result in the payment of termination fees to RockResorts. For the years ended July 31, 2007, 2006 and 2005, the Company recognized $5.4 million, zero and $417,000, respectively, in revenue from termination fees. The Company continues to pursue and secure new management contracts, which may include, in addition to management fees, marketing license fees and technical service fees in conjunction with a project’s development and sales. For example, the Company recently announced that it began managing the Hotel Jerome in Aspen, Colorado during the Company’s fourth quarter of the year ended July 31, 2007 and will begin managing the Landings St. Lucia, located on Rodney Bay, St. Lucia, in the West Indies, which is anticipated to open during the Company’s second quarter of the year ending July 31, 2008. Additionally, RockResorts will operate The Chateau at Heavenly Village at the base of Heavenly ski resort, and manage the new Rum Cay Resort Marina on Rum Cay, Bahamas and the new Eleven Biscayne Hotel & Spa in Miami, Florida, all of which are currently under construction and are anticipated to open during the years ending July 31, 2009 or beyond. These agreements are generally long-term in nature (generally 10 years with renewal options). However, these agreements generally contain certain performance criteria that cover multiple years and are multi-faceted. In addition to these agreements, RockResorts will earn marketing license fees on the sales of ownership units within the Rum Cay Resort Marina and The Chateau at Heavenly Village.
•

On February 28, 2007, an arbitrator rendered a decision, awarding $8.5 million in damages in favor of RockResorts and against Cheeca Holdings, LLC, the ownership entity of Cheeca Lodge & Spa, the former RockResorts managed property located in Islamorada, Florida. Additionally, in accordance with the arbitrator’s ruling, RockResorts is seeking recovery of costs and attorneys’ fees in the last stage of the proceedings. Upon conclusion of that stage, the total award, which will incorporate the $8.5 million damage award and any additional cost recovery award, is final, binding and not subject to appeal. Upon completion of the cost recovery stage, RockResorts will proceed with the collection of the award and will record the actual amount received, upon receipt, in “contract dispute credit (charges), net” in its Consolidated Statement of Operations. The Company has incurred legal related costs of $4.6 million and $3.3 million in the years ended July 31, 2007 and 2006, respectively, in connection with this matter which are included in “contract dispute charges” in its Consolidated Statements of Operations in the respective periods.
•

Real Estate Reported EBITDA is highly dependent on, among other things, the timing of closings on real estate under contract. Changes to the anticipated timing of closing on one or more real estate projects could materially impact Real Estate Reported EBITDA for a particular quarter or fiscal year. Additionally, the magnitude of real estate projects currently under development or contemplated could result in a significant increase in Real Estate Reported EBITDA as these projects close, expected in the year ending July 31, 2008 and beyond. The profitability and/or viability of current or proposed real estate development projects have been and could continue to be adversely affected by escalation in construction costs associated with project difficulties, delays, design or construction issues and scope modifications that may arise in the course of construction. Additionally, real estate development projects are also susceptible to a slow-down in market demand. For the years ended July 31, 2007 and 2006, the Company recorded charges of $7.6 million and $1.8 million, respectively, for estimated costs to complete the construction of the JHG&TC cabins that have design and construction issues. The Company is currently in the process of completing construction and attempting to resolve the apportionment of the financial responsibilities for the remediation and construction costs with the contractors, structural engineers and architects involved in the design and construction of the JHG&TC cabins, and as such the Company’s final costs are subject to change which could impact future operating results.
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In recent years, the Company has shifted its real estate focus to vertical development (versus land development), which requires significant capital investment prior to project completion (including the construction of resort-related depreciable assets). The Company expects to incur costs of $435 million to $465 million subsequent to July 31, 2007 on significant projects under construction that include Arrabelle, Vail’s Front Door, Crystal Peak Lodge and The Ritz-Carlton Residences, Vail projects. The Company has entered into non-recourse financing agreements to borrow up to $298 million for Arrabelle and Vail’s Front Door and expects to enter into a non-recourse financing agreement for The Ritz-Carlton Residences, Vail project with similar terms as its other non-recourse financing agreements.
•

The Company had $230.8 million in cash and cash equivalents as of July 31, 2007 (which balance increased by $39.0 million since July 31, 2006) with no borrowings under the revolver component of its credit facilities and expects to generate additional cash from operations, including future closures on real estate. The Company is currently evaluating how to utilize its excess cash, including any combination of the following strategic options: increase real estate investment for further development; increase resort capital expenditures; pursue strategic acquisitions; repurchase additional stock of the Company (see Note 17, Capitalization, of the Notes to Consolidated Financial Statements for more information regarding the Company’s stock repurchase plan); pay cash dividends; or payoff outstanding debt. The Company believes its debt generally has favorable fixed interest rates and is long-term in nature. Additionally, the Company’s Credit Facility and Indenture limit the Company’s ability to pay dividends, repurchase stock and pay off certain of its debt, including its 6.75% Notes.
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In June 2007, the Company acquired (through its SSV subsidiary) 18 Breeze Ski Rental locations. The Company also acquired two Starbucks licensed stores. Both of these acquisitions will be integrated into the Company’s operations during the 2007/2008 ski season.
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On July 27, 2007 the Company made an offer of $110 million to acquire The Canyons ski resort (“The Canyons”) from American Skiing Company (“ASC”). This offer was in excess of a previously undisclosed offer by the Company to acquire The Canyons and in excess of the $100 million offer by Talisker Corporation and Talisker Canyons Finance Company LLC (together “Talisker”) to ASC, in which ASC announced on July 15, 2007 that it had entered into a purchase agreement with Talisker for the sale of The Canyons. The Company has also filed a lawsuit against Talisker and Peninsula Advisors for alleged breaches and interference with the Company’s efforts to acquire The Canyons. Subsequently, on September 10, 2007, the Company supplemented its previous offer to acquire The Canyons by agreeing to grant a 30% interest in the future net cash flow (as defined) to the Company arising from the ownership and development of the real estate development rights included in the acquisition. If the Company is successful in its acquisition of The Canyons it could significantly impact the future results of operations of the Company.
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The Company uses many methods, estimates and judgments in applying its accounting policies (see Critical Accounting Policies in this section of this Form 10-K). Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead the Company to change its methods, estimates and judgments. Changes in those methods, estimates and judgments could significantly affect the Company’s results of operations.

Results of Operations

Summary

et income for the year ended July 31, 2007 increased by $15.6 million compared to the year ended July 31, 2006, which is primarily attributable to an increase in Resort Reported EBITDA of $31.6 million, a $4.4 million increase in investment income, a $3.9 million decrease in interest expense, net and a $3.7 million decrease in relocation and separation charges, which were partially offset by a $10.0 million increase in provision for income taxes, a decrease in Real Estate Reported EBITDA of $9.2 million, a $5.3 million decrease in the net gain on sale of businesses, a $1.6 million increase in depreciation and amortization, a $1.4 million increase in contract dispute charges, a $1.4 million prior year mold remediation credit and a $1.1 million increase in minority interest in income of consolidated subsidiaries, net.

Net income for the year ended July 31, 2006 increased by $22.6 million, compared to the year ended July 31, 2005, which is primarily attributable to an increase in Resort Reported EBITDA of $26.8 million, a $12.0 million increase in the net gain on sale of businesses, a $5.9 million increase in investment income, a $3.9 million decrease in depreciation and amortization and a $3.8 million decrease in interest expense, net, which were partially offset by a $14.8 million increase in provision for income taxes, a $7.7 million decrease in Real Estate Reported EBITDA, $5.1 million in relocation and separation charges and $3.3 million in contract dispute charges.

Mountain Segment

Total Mountain Reported EBITDA included $3.8 million, $3.7 million and $254,000 of stock-based compensation expense for the years ended July 31, 2007, 2006 and 2005, respectively.

For the year ended July 31, 2007, lift revenue increased from the year ended July 31, 2006 due to the significant increase in ETP and higher season pass sales, partially offset by a decrease in visitation. For the year ended July 31, 2006, lift revenue increased from the year ended July 31, 2005 due to an increase in ETP, higher season pass sales and an increase in visitation. Overall, ETP for both the years ended July 31, 2007 and 2006 were positively impacted by an increase in absolute pricing of the Company’s individual lift ticket and pass products as well as an increase in Destination guest visitation (who generally purchase higher priced tickets). Destination guest visitation for the year ended July 31, 2007 increased on an absolute basis, (including a 7.0% increase for the Company’s Colorado resorts), as well as on a percentage of total visitation increasing to 64% from 60% for the prior two years. Season pass revenue was up 17.7% and 12.3% for the years ended July 31, 2007 and 2006, respectively, due to a combination of more passes sold and higher pass prices.

The Kottke Survey, a study undertaken annually to track key metrics within the ski industry, classifies the Company’s Colorado resorts in its Rocky Mountain Region, and the Company’s Heavenly resort in its Pacific West Region. Visitation for the 2006/2007 ski season increased 1.0% at the Company’s Colorado resorts as compared to 0.6% for the Rocky Mountain Region as a whole due to the strong increase in Destination visitation at the Company’s Colorado resorts in spite of a 23% reduction in snowfall for the region and a decline in the average visitation per season pass holder due to adverse weather conditions in the Denver metropolitan area. Visitation decreased 12.0% at the Company’s Heavenly resort versus a 14.3% decrease in the Pacific West region as a whole due in large part to significantly unfavorable weather conditions throughout the ski season, including a 40% reduction in snowfall for the region for the 2006/2007 season as compared to the 2005/2006 season. Visitation at the Company's Colorado resorts was up 8.0% for the year ended July 31, 2006 as compared to the year ended July 31, 2005 due in part to the strong early season snowfall (which especially impacted visitation by season pass holders), while visitation at Heavenly was down 3.9% for the year ended July 31, 2006 due to unfavorable weather conditions, including during the Christmas holiday period.

Revenue from ski school improved in both the years ended July 31, 2007 and 2006 due to an increase in absolute pricing and higher participation as a result of the increased Destination guest visitation, as ski school participation is impacted more by Destination guest visitation than overall visitation. Dining revenue for the year ended July 31, 2007 grew commensurate with price increases, partially offset by a slight decrease in total visitation. For the year ended July 31, 2006, dining experienced a lower percentage growth than the other ancillary businesses due to the reduction in revenue resulting from the conversion of certain formerly owned restaurants to leased operations and the closing of certain owned restaurants (during the year ended July 31, 2006) due to the redevelopment in LionsHead for the construction of Arrabelle. Retail/rental experienced a 7.5% increase in revenue for the year ended July 31, 2007, despite being negatively impacted by adverse weather conditions, especially at the Company’s Heavenly resort. Additionally, retail/rental revenue growth was positively impacted for the year ended July 31, 2006 as a result of SSV’s acquisition of six San Francisco Bay Area retail locations in the first quarter of the year ended July 31, 2006.

Other revenue mainly consists of private club revenue (which includes both club dues and amortization of initiation fees), summer visitation and other mountain activities revenue, allocated strategic alliance revenue, commercial leasing revenue, employee housing revenue, technology services revenue (until the disposition of the Company’s investment in RTP in April 2007), municipal services revenue and other recreation activity revenue. For the year ended July 31, 2007, other revenue was flat primarily due to the lost recurring revenue as a result of the disposition of the Company’s investment in RTP offsetting increased revenues from commercial leasing and other ancillary mountain activities. For the year ended July 31, 2006, other revenue increased due to higher strategic alliance incentives, increased technology service revenue and additional municipal services revenue.

Mountain operating expense increased 4.4% during the year ended July 31, 2007 compared to the year ended July 31, 2006. Excluding retail/rental expense, which has a high variable cost component and therefore increased in relation to the retail/rental revenue increases, expense increased 3.4% during the year ended July 31, 2007, which was primarily attributable to higher variable costs related to higher revenue, including Forest Service fees and credit card fees, and certain labor related costs, including higher ski school labor expense to support the higher ski school revenue. Expense increases were partially offset by the elimination of recurring expenses related to the Company’s disposal of its investment in RTP as well as lower workers compensation expense. Mountain operating expense increased 13.1% for the year ended July 31, 2006 as compared to the previous year mainly due to higher retail/rental operations resulting from increased sales volume and the SSV acquisition mentioned above as well as increased costs for stock-based compensation due to the adoption of SFAS 123R in the year ended July 31, 2006. Excluding retail/rental and stock-based compensation attributable to the Mountain segment, expenses increased 7.6%, or $21.9 million, for the year ended July 31, 2006, which was primarily attributable to higher variable costs related to the higher revenue, including, Forest Service fees, credit card fees, and certain labor related costs, including higher ski school labor expense to support the higher ski school revenue, as well as higher absolute energy costs, all of which was partially offset by lower corporate allocated costs including legal costs and Sarbanes-Oxley compliance costs.

Mountain equity investment income primarily includes the Company's share of income from the operations of a real estate brokerage joint venture; the increase in equity investment income is due primarily to increased commissions earned by the brokerage associated with increased real estate activity surrounding the Company’s Colorado resorts.

The Company currently anticipates that the Mountain segment in the year ending July 31, 2008 and beyond should continue to realize increasing revenue as a result of the Company’s continuing ability to raise prices as well as attract Destination guests and season pass holders, absent any unforeseen material declines in the economy, elevated geopolitical uncertainties and/or significant changes in historical snowfall patterns. The expected higher visitation is due to recent industry trends and the Company’s high quality offerings complemented by continued capital investment including real estate development, which will expand the Destination guest bed base and provide incremental resort assets. Ancillary revenue should grow commensurate with expected lift revenue growth.

Lodging Segment

Total Lodging Reported EBITDA included $1.1 million, $1.3 million and $88,000 of stock-based compensation expense for the years ended July 31, 2007, 2006 and 2005, respectively.

In January 2006, the Company sold the assets constituting SRL&S. For the year ended July 31, 2006, Lodging Reported EBITDA includes revenue of $5.2 million and operating expenses of $4.5 million related to SRL&S prior to the sale of SRL&S. In the year ended July 31, 2005, the Company sold its minority interest in BG Resort and the assets constituting the Vail Marriott and Rancho Mirage. For the year ended July 31, 2005, Lodging Reported EBITDA includes revenue of $51.6 million, operating expense of $44.8 million and equity investment loss of $2.7 million related to these entities. Commencing with the sale of the Vail Marriott, SRL&S and Rancho Mirage (until the termination of the Rancho Mirage management agreement during the year ended July 31, 2007 upon the closing of the hotel by its owners for redevelopment), the Company is earning base management fees of approximately 3% of each hotel’s revenue. Accordingly, Lodging Reported EBITDA includes incremental management fee revenue of $1.3 million, $1.6 million and $60,000 for the Vail Marriott, SRL&S and Rancho Mirage (in 2006 and 2005) for the years ended July 31, 2007, 2006 and 2005, respectively.

Excluding the impact of the above sold properties, Lodging revenue increased $11.9 million, or 7.9%, and $5.9 million, or 4.1%, for the years ended July 31, 2007 and July 31, 2006, respectively, compared to the prior years. The revenue increase for the year ended July 31, 2007 was partially due to the recognition of $5.4 million in termination fees primarily associated with the termination of the management agreements at The Equinox and Rancho Mirage (pursuant to the terms of the management agreements). ADR and RevPAR, which do not include the impact of the termination fees, and excluding the impact of the SRL&S sale, increased 8.5% and 9.5% for the year ended July 31, 2007, respectively, compared to the year ended July 31, 2006. ADR and RevPAR, excluding the impact of the SRL&S, Vail Marriott and Rancho Mirage sales, increased 3.9% and 10.4% for the year ended July 31, 2006, respectively, compared to the year ended July 31, 2005. The increase in ADR and RevPAR for the years ended July 31, 2007 and 2006 was driven by the lodging properties proximate to the Company’s ski resorts and was due to increased pricing as well as the higher Destination guest visitation as described in the Mountain segment discussion and increased revenue at GTLC. The overall Lodging revenue increase during the year ended July 31, 2007 was partially impacted by fewer available rooms, primarily as a result of construction at The Lodge at Vail and a reduction in managed condominium units.

Excluding the impact of the sale of SRL&S, expense increased $6.0 million, or 4.3%, for the year ended July 31, 2007 compared to the year ended July 31, 2006. These increases are commensurate with normal increases in variable operating costs, start-up expenses associated with the Arrabelle hotel (expected to open during the 2007/2008 ski season), higher RockResorts corporate expenses and increased NPS fees paid by GTLC, partially offset by fewer available rooms as discussed above. Excluding the impact of the sales of Vail Marriott, Rancho Mirage, SRL&S and stock-based compensation expense, expenses increased $3.4 million, or 2.5%, for the year ended July 31, 2006 compared to the year ended July 31, 2005, and are commensurate with normal increases in operating costs.

Lodging equity loss primarily consisted of the Company's share of losses from BG Resort. The Company sold its investment in BG Resort in December 2004, and as a result, the equity loss in the year ended July 31, 2005 reflects only five months of operations.

Real Estate Segment

Total Real Estate Reported EBITDA included $2.1 million, $1.5 million and $95,000 of stock-based compensation expense for the years ended July 31, 2007, 2006 and 2005, respectively.

The Company's Real Estate operating revenue is primarily determined by the timing of closings and the mix of real estate sold in any given period. Different types of projects have different revenue and expense volumes and margins; therefore, as the real estate inventory mix changes it can greatly impact Real Estate segment operating revenue and operating expense, and, to a lesser degree, Real Estate Reported EBITDA. During the past three fiscal years Real Estate revenue primarily reflects the Company’s vertical development projects.

The Company is currently in the development stage for several major real estate projects, including Arrabelle, The Lodge at Vail Chalets, Ritz-Carlton Residences, Vail and The Crystal Peak Lodge, among other projects. Real Estate segment operating revenue for the year ended July 31, 2007 was driven primarily by the closings of the Mountain Thunder and Gore Creek Place developments, certain JHG&TC cabins, the sale of land together with certain related infrastructure improvements in Red Sky Ranch and Breckenridge to third-party developers, the sale of the sole asset in the FFT Investment Partners real estate joint venture and contingent gains on development parcel sales that closed in previous periods. Operating expense for the year ended July 31, 2007 included cost of sales commensurate with revenue recognized, marketing costs for the major real estate projects under development, as well as overhead costs such as labor and benefits as the Company has increased its infrastructure relative to the increased vertical development activity, and professional services fees. In addition, the Company recorded $7.6 million of charges during the year ended July 31, 2007 for construction costs (including estimates to complete) on the JHG&TC cabins that have design and construction issues. The Company is currently in the process of completing construction and resolving the apportionment of the financial responsibilities for the remediation and construction costs with the contractors, structural engineers and architects involved in the design and construction of the JHG&TC cabins. The Company expects to complete this construction and remediation work by the third quarter of the year ending July 31, 2008.

Real Estate segment operating revenue for the year ended July 31, 2006 was primarily generated from the closing of certain townhomes at Gore Creek, developer parcel sales in the Beaver Creek area, a land exchange with the Forest Service and contingent gains on development parcel sales that closed in prior periods. Operating expense included cost of sales commensurate with revenue recognized, as well as marketing costs, overhead costs such as labor and benefits and professional services fees. The Company recorded $1.8 million in incremental cost of sales during the year ended July 31, 2006 related to the JHG&TC development.

Real Estate segment operating revenue for the year ended July 31, 2005 included the sale of cabins and land parcels at JHG&TC, Vail, Bachelor Gulch and Red Sky Ranch, developer parcel sales in the Beaver Creek area, the sale of parking spaces in Vail's Founders' Garage, the sale of a warehouse facility near Beaver Creek, recognition of a previously deferred land gain associated with the sale of BG Resort in December 2004 and recognition of contingent gains associated with a development parcel sold in prior periods. Operating expense included cost of sales commensurate with revenue recognized, as well as marketing costs, overhead costs such as labor and benefits and professional services fees.

Real Estate equity investment income (loss) primarily included the Company's share of income or loss from the operations of Keystone/Intrawest, LLC (“KRED”), a joint venture with Intrawest Resorts, Inc. formed to develop land at the base of Keystone, as well as the Company's share of profit associated with the sale of condominiums at BG Resort through the Company's prior investment in BG Resort. In the year ended July 31, 2006, the Company received a distribution from KRED in excess of its carrying basis in the amount of $715,000, which the Company recorded as income. The distribution reflected the final proceeds from the sale of developed real estate. As a result, KRED will be dissolved and the Company does not anticipate any further distributions.

The Company expects to close on Arrabelle during the year ending July 31, 2008 and expects to close on The Lodge at Vail Chalets during the years ending July 31, 2008 and 2009, and will recognize the revenue and related cost of sales for these projects at closing. The Company has entered into definitive sales contracts with a value of approximately $390 million related to these projects. In addition, the Company will place in service significant resort-related depreciable assets in conjunction with these developments including a new RockResorts hotel, two private mountain clubs, spas and commercial space. The Company also has significant ongoing development activities at Peak 7 and 8 in Breckenridge and in Vail, including The Ritz-Carlton Residences, Vail.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

RESULTS OF OPERATIONS

Summary

Presented below is detailed comparative data and discussion regarding the Company's results of operations for the three and six months ended January 31, 2008 compared to the three and six months ended January 31, 2007.

Mountain Segment

Total Mountain Reported EBITDA includes $0.8 million and $1.1 million of stock-based compensation expense for the three months ended January 31, 2008 and 2007, respectively.

Total Mountain Reported EBITDA includes $1.9 million and $2.1 million of stock-based compensation expense for the six months ended January 31, 2008 and 2007, respectively.

As the Company's five ski resorts generally open during the Company’s second fiscal quarter, the results of the six months ended January 31, 2008 and 2007 are driven by substantially the same factors and trends as the three months ended January 31, 2008 and 2007.

Lift revenues increased $5.4 million for the three months ended January 31, 2008 compared to the same period in the prior year, of which $4.2 million of the increase was driven by higher season pass revenue (an increase of 11.2% over the prior year). Almost all of the increase in season pass revenue was due to increases in pricing. ETP growth of 8.4% was driven by the higher season pass pricing as well as increased ETP excluding season pass products of 7.0% due primarily to increases in absolute pricing. 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 occurred from the start of the ski season to the pre-Christmas holiday period in December (the “Early Season”). Lift revenue excluding season pass revenue was down approximately $4.2 million, or 19.9%, for the Early Season, compared to the same period in the prior year, but was higher for the remainder of the quarter compared to the same period in the prior year by approximately $5.4 million or 7.6%. Snowfall for the Early Season in the current year was significantly below the same period in the prior year. Lift revenues were also favorably impacted by higher international guest visitation compared to the same period in the prior year.

Revenues for the Company's ski school, dining and retail/rental businesses followed the same trends as lift tickets described above, with overall revenues up $4.9 million, or 4.1%, for these three areas in the quarter despite revenues being down by approximately $4.8 million, or 10.0%, in the Early Season due to revenue for these three areas being up by approximately $9.7 million, or 13.5%, in the remainder of the quarter. Revenue from ski school increased 2.8% due primarily to increased pricing, partially offset by the decrease in visitation described above. Growth in dining revenue was primarily attributable to the acquisition of two licensed Starbucks stores in June 2007 partially offset by a decrease in visitation. Retail/rental revenue improved primarily due to $2.6 million of revenues associated with the operations of 18 Breeze Ski Rental locations acquired in June 2007. Other revenue declined for the three months ended 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, LLC (“RTP”).

Segment expenses increased 2.1% during the three months ended January 31, 2008 compared to the same period in the prior year. Retail/rental operating expenses were higher due to the acquisition of the Breeze Ski Rental locations (commensurate with revenue increases); however, these increases were almost entirely offset by the disposition of RTP.

Lodging Segment

Total Lodging Reported EBITDA includes $0.6 million of stock-based compensation expense for both the six months ended January 31, 2008 and 2007.

Total Lodging net revenue increased for the three months ended January 31, 2008 compared to the three months ended January 31, 2007 due to a 7.6% increase in RevPAR primarily as a result of increases in ADR. This increase was partially offset by a slight decrease in paid occupancy at lodging properties proximate to the Company’s ski resorts due to a decline in visitation as discussed in the Company’s Mountain segment. Additionally, lodging revenue was impacted by fewer available rooms, primarily as a result of a reduction in managed condominium units. Total Lodging segment net revenue for the six months ended January 31, 2007 included the recognition of $2.4 million of revenue associated with the termination of the management agreement at The Lodge at Rancho Mirage (pursuant to the terms of the management agreement) with the closing of the hotel as part of a redevelopment plan by the current hotel owner. Excluding this termination fee, Lodging segment net revenue would have increased 10.4% for the six months ended January 31, 2008 compared to the six months ended January 31, 2007. RevPAR increased 10.2% for the six months ended January 31, 2008 compared to the six months ended January 31, 2007, which, in addition to increases in ADR, was driven by a 7.3% increase in conference and group room nights, primarily at GTLC, Breckenridge and Keystone lodging properties.

Operating expense increased for the three months ended January 31, 2008 compared to the three months ended January 31, 2007 due to start-up and pre-opening expenses of approximately $2.2 million associated with the opening of The Arrabelle at Vail Square hotel in January 2008, higher labor and benefits and increased corporate costs which are fully allocated to the business segments. Operating expense increased for the six months ended January 31, 2008 compared to the six months ended January 31, 2007 due to start-up and pre-opening expenses of approximately $3.0 million associated with the opening of The Arrabelle at Vail Square hotel, higher food and beverage cost of sales associated with the strong conference and group business, additional National Park Service fees of $1.1 million incurred by GTLC resulting from a new concession contract, which became effective January 2007, and other variable operating costs associated with incremental revenue.

Real Estate Segment

Real Estate Reported EBITDA includes $1.4 million and $1.1 million of stock-based compensation expense for the six months ended January 31, 2008 and 2007, respectively.

The Company's Real Estate operating revenue is primarily determined by the timing of closings and the mix of real estate sold in any given period. Different types of projects have different revenue and expense volumes and margins; therefore, as the real estate inventory mix changes it can greatly impact Real Estate segment net revenue and operating expense, and, to a lesser degree, Real Estate Reported EBITDA.

The Company is currently in the development stage for several major real estate projects, including Arrabelle, The Lodge at Vail Chalets, Crystal Peak Lodge and The Ritz-Carlton Residences, Vail, among other projects. Real Estate segment net revenue for the three months ended January 31, 2008 was driven primarily by the closing on 12 of the 67 condominium units at Arrabelle and the closing on the remaining Jackson Hole Golf & Tennis Club (“JHG&TC”) cabins. In addition, the six months ended January 31, 2008 included contingent gains on development parcels sales that closed in previous periods. Operating expense included cost of sales commensurate with revenue recognized, as well as marketing expenses for the major real estate projects under development, overhead costs such as labor and benefits and allocated corporate costs.

Real Estate segment operating revenue for the three and six months ended January 31, 2007 was driven primarily by the closing of Mountain Thunder ($12.8 million and $24.1 million of revenue for the three and six months ended January 31, 2007, respectively) and Gore Creek Place ($34.0 million and $42.9 million of revenue for the three and six months ended January 31, 2007, respectively) developments and the sale of land together with certain related infrastructure improvements to third-party developers. Operating expense for the three and six months ended January 31, 2007 included cost of sales commensurate with revenue recognized, as well as overhead costs such as labor and benefits and professional services fees. In addition, the Company recorded $2.5 million and $3.9 million of incremental charges during the three and six months ended January 31, 2007, respectively, for construction costs (including estimates to complete) on the JHG&TC cabins that had design and construction issues.

The Company expects to close on the remaining Arrabelle condominium units in its fiscal year 2008 and The Lodge at Vail Chalets in its fourth fiscal quarter of 2008 and its first half of fiscal 2009.

Other Items

In addition to segment operating results, the following material items contributed to the Company's overall financial position.

Depreciation and amortization . Depreciation and amortization expense for the three and six months ended January 31, 2008 increased primarily as a result of placing in service The Arrabelle at Vail Square hotel (including related assets) and an increase in the fixed asset base due to normal capital expenditures. The average annualized depreciation rate for the three and six months ended January 31, 2008 was 7.7% and 7.4%, respectively, as compared to an average annualized depreciation rate for the three and six months ended January 31, 2007 of 7.6% and 7.5%, respectively.

Relocation and separation charges. In February 2006, the Company announced a plan to relocate its corporate headquarters, and the plan was approved by the Company’s Board of Directors in April 2006. The relocation process (which also includes the consolidation of certain other operations of the Company) was completed as of July 31, 2007. The Company recorded $0.5 million and $1.2 million of relocation charges in the three and six months ended January 31, 2007.

Investment income. The Company invests excess cash in highly liquid investments, as permitted under the Company’s Credit Agreement and Indenture. The decrease in investment income for the three months ended January 31, 2008 compared to the three months ended January 31, 2007 is due to a reduction in the average interest rate earned over the period. The increase in investment income for the six months ended January 31, 2008 compared to the six months ended January 31, 2007 is due to increases in average invested cash balances, partially offset by a decline in the average interest rate earned.

Interest expense, net. The Company’s primary sources of interest expense are the 6.75% Notes, the Credit Facility, incorporating unused commitment fees and letter of credit fees related to the $300 million revolving credit facility thereunder, the outstanding $57.7 million of industrial development bonds and the series of bonds issued to finance the construction of employee housing facilities. Interest expense decreased $0.4 million and $1.7 million for the three and six months ended January 31, 2008 compared to the three and six months ended January 31, 2007 due primarily to an increase in capitalized interest associated with significant ongoing real estate and related resort development. The Company has incurred additional interest expense for borrowings under real estate project specific financing, of which all has been capitalized to the projects.

Contract dispute credit (charges), net. In March 2006, RockResorts was notified by the ownership of Cheeca Lodge & Spa, formerly a RockResorts managed property, that its management agreement was being terminated effective immediately. RockResorts believed that the termination was in violation of the management agreement and sought monetary damages, and recovery of attorney’s fees and costs. Pursuant to the dispute resolution provisions of the management agreement, the disputed matter went before a single judge arbitrator at the JAMS Arbitration Tribunal in Chicago, Illinois. On February 28, 2007, the arbitrator rendered a decision, awarding $8.5 million in damages in favor of RockResorts and against Cheeca Holdings and recovery of costs and attorney’s fees to be determined in the last stage of the proceedings. Prior to the ruling by the arbitrator in the last stage of the proceeding, the Company reached a comprehensive settlement with Cheeca Holdings which included damages, attorney’s fees and expenses. On October 19, 2007, RockResorts received payment of the final settlement from Cheeca Holdings in the amount of $13.5 million, of which $11.9 million (net of final attorney fees) is recorded in “contract dispute credit (charges), net” in the Consolidated Condensed Statement of Operations for the six months ended January 31, 2008.

Income taxes. The effective tax rate for the three and six months ended January 31, 2008 was 38.2% and 37.0%, respectively, as compared to the effective tax rate for the three and six months ended January 31, 2007 of 39.0%. The interim period effective tax rate is primarily driven by the amount of anticipated pre-tax book income for the full fiscal year and an estimate of the amount of non-deductible items for tax purposes. Additionally, the income tax provision recorded in the three and six months ended January 31, 2008 reflects the impact of favorable settlements with state tax authorities of $0.3 million and $1.0 million, respectively.

The Internal Revenue Service (“IRS”) has completed its examination of the Company’s tax returns for tax years 2001 through 2003 and has issued a report of its findings. The examiner’s primary finding is the disallowance of the Company’s position to remove the restrictions under Section 382 of the Internal Revenue Code of approximately $73.8 million of net operating losses (“NOLs”). These restricted NOLs relate to fresh start accounting from the Company’s reorganization in 1992. The Company has appealed the examiner’s disallowance of these NOLs to the Office of Appeals. However, if the Company is unsuccessful in its appeals process, it will not negatively impact the Company’s financial position or results of operations.

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