or

Financial statements have been included for the following equity method investee:

FORWARD-LOOKING STATEMENTS

Except for any historical information contained herein, the matters discussed in this Annual Report on Form 10-K contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable.  These statements also relate to our future prospects, developments and business strategies.

These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases, including references to assumptions.

Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that such plans, intentions or expectations will be achieved.  Important factors that could cause actual results to differ materially from our forward-looking statements include, among others, uncertainties related to the restatementsexisting SEC investigation of earnings; the SEC investigation;Company; economic downturns; terrorist acts upon the United States; threat of or actual war; unfavorable weather conditions; our ability to obtain financing on terms acceptable to us to finance our capital expenditure and growth strategy; our ability to develop our resort and real estate operations; competition in our mountain and lodging businesses; our reliance on government permits for our use of federal and National Park Service land; our ability to integrate and successfully operate future acquisitions; adverse consequences of current or future legal claims; the termination of existing hotel management contracts and adverse changes in the real estate market.  All forward-looking statements attributable to us or any persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected.  Given these uncertainties, users of the information included in this Annual Report on Form 10-K, including investors and prospective investors, are cautioned not to place undue reliance on such forward-looking statements.  We will not update these forward-looking statements, even if new information, future events or other circumstances have made them incorrect or misleading.

PART I

ITEM 1.   BUSINESS.

General

Vail Resorts, Inc. was organized as a 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 66%69%, 23%25%, and 11%6%, respectively, of the Company's revenues for the 20032004 fiscal year. The Company's Mountain segment owns and operates five premier ski resort properties which provide a comprehensive resort experience throughout the year to a diverse clientele with an attractive demographic profile.  The Company's Lodging segment owns and/or manages a collection of luxury hotels, a destination resort at Grand Teton National Park, and a series of strategic lodging properties located in proximity to the Company's ski resorts.  Collectively, the mountain operations.and lodging segments are considered the Resort segment.  The Company's Real Estate segment holds, develops, buys and sells real estate in and around the Company's resort communities.  Financial information by segment is presented in Note 14, Segment Information, of the Notes t oto Consolidated Financial Statements included in Part II, Item 8 of this report.

Mountain Segment

The Company's portfolio of ski resorts currently includes:

• Vail Mountain ("Vail")--the largest single ski mountain complex in North America, currently ranked as the  number one ski resort in North America bySKI magazine and the most visited ski resort in the United States for the 2002/032003/04 ski season;

• Beaver Creek Resort ("Beaver Creek")--one of the world's premier family-orientedluxury mountain resorts, currently ranked as the number eightfour ski resort in North America bySKI magazine;

• Breckenridge Mountain ("Breckenridge")--an attractive destination resort with numerous après-ski activities and an extensive bed base, currently ranked as the number six ski resort in North America bySKI magazine and the second most visited resort in the United States for the 2002/032003/04 ski season;

• Keystone Resort ("Keystone")--a year-round family-oriented vacation destination, currently ranked as the number fifteen ski resort in North America by SKI magazine; and

  Heavenly Valley SkiMountain Resort ("Heavenly")--the third largest ski resort in North America, currently ranked as the number thirteensixteen ski resort in North America bySKI magazine; and

• Keystone Resort ("Keystone")--a year-round family vacation destination, currently ranked as the number fifteen ski resort in North America bySKI magazine and the third most visited resort in the United States for the 2002/03 ski season.

The Company's Mountain segment derives revenue primarily through the sale of lift tickets and ski passes. This revenue source is supported and augmented by a comprehensive package of amenities available to guests, including ski and snowboard lesson packages,lessons, retail and equipment rental outlets, a variety of dining venues, meeting and event planning services, private club operations and other year-round recreational activities.  In addition to providing extensive guest amenities, the Company also engages in commercial leasing of restaurant, retail and other commercial space and real estate brokerage services.

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, tubing, mountain biking, sight-seeing and other recreational activities.

The following paragraphs discuss certain ski industry related statistics.  Colorado ski statistics are derived from information fromdata published by Colorado Ski Country USA.  Canadian ski statistics are from data published by the Canadian Ski Council.  U.S. and California ski statistics are derived from the Kottke National End of Season Survey 2002/03.2003/04.

There are approximately 800 ski areas in North America and approximately 490494 in the United States, ranging from small ski area operations which service day skiers to large resorts which attract both day skiers and destination resort guests looking for a comprehensive vacation experience.  The primary ski industry statistic for measuring performance is "skier visit", defined as one person obtaining a ticket or pass and using a ski area for all or any part of a day or night, and includes both paid and complimentary access.  During the 2002/032003/04 ski season, combined skier visits for all North American ski areas were approximately 76.5 million.72.8 million and  U.S. skier visits approximated 57.6 million, an increase of less than 1% as compared to the 2001/02 season.57.1 million.  The Company's ski resorts had 5.75.6 million skier visits during the 2002/032003/04 ski season, or approximately 10%9.8% of U.S. skier visits, and an approximate 7.5%7.7% 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 metropolitan areas), accessibility from several airports, including Denver International Airport and Vail/Eagle County Airport and Colorado Springs Airport, and the wide range of amenities available at each resort.  Colorado has approximately 25 ski areas, eightsix of which are classified as "Front Range Destination Resorts", catering to both the Front Range and destination-skier markets.  All Colorado ski resorts combined recorded approximately 11.611.2 million skier visits for the 2002/032003/04 ski season, up less than 1%down 3.4% from the 2001/022002/03 ski season.  Skier visits at the Company's Colorado ski resorts totaled more than 4.8approximately 4.7 million, and accounted for approximately 66%71% of Colorado's total Front Range Destination Resort skier visits and 41.4%42% of all Colorado skier visits for the 2002/032003/04 ski season.

Lake Tahoe, which straddles the border of California and Nevada, is a major skiing destination less than 100 miles from Sacramento Reno and Tahoe CityReno and approximately 200 miles from San Francisco, making it a convenient destination for both driving and for destination guests using one of two major area airports.guests.  Lake Tahoe 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.  Lake Tahoe has approximately 1315 ski resorts with 753805 ski trails on more than 22,00023,000 total resort acres.  Heavenly recorded 937,000had approximately 965,000 skier visits for the 2002/032003/04 ski season, capturing 12.8%approximately 13% of California's 7.37.4 million total skier visits for the ski season.

The ski resort industry is highly competitive.

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 appropriate infrastructure.  While most North American ski areas are individually owned and operated, recent years have seen the emergence of several major corporations, including the Company, which own the topleading ski areas.  These other major corporations include the operators of Whistler Blackcomb, Copper Mountain, Mammoth Mountain, Winter Park, Killington, Steamboat and Northstar-at-Tahoe.

These larger

The ski resort industry is highly competitive.  Larger owners generally have a competitive advantage over the individual operator, as they typically have better access to the capital markets and are able to generate synergies within their resort operations which enhance profitability.  WhileThe ski industry has performed well in recent years, with the three best seasons, in terms of visitation, in history occurring during the past four years.  The industry believes that this may be an indicator of a new higher performance range as it has reached record skier visits in times with poor economic conditions, relatively poor snow conditions across the United States and global geopolitical unrest.  Additionally, the industry has seen recent years with record skier visits, it is an industry beliefincrease in children's ski school lessons, suggesting that these skier visit increasesmore children are generated primarily byjoining the same population of skiers skiing more, rather than growth in the overall skier population.sport.  While the industry and the Company's efforts are focused on growing the overall skier population, a particular ski area's growth is primarily dependent on either attracting skiers away from other resorts, or generating more revenue per skier visit.  This has created a trend of increased spending on capital improvements to ensure the newest and best technology and also to create new attractions, as well as intense competition in pricing.  In addition, "destination" ski resorts must also compete with other non-ski related vacat ionvacation destinations for guests.  In recent years, the ski industry has seen increased competition from beach resorts, cruise lines, golf resorts and amusement parks.  Because the Company's ski resorts are primarily destination-skier driven, and are also, to a lesser extent, day-skier driven, the Company's primary competitors include the companiesski areas noted above, other ski areas in Colorado and Lake Tahoe, and other major destination ski areas including those in Utah, the Lake Tahoe area of California, Canada and Europe.worldwide.

There are a variety of factors which contribute to a skier's choice of ski resort, including terrain, challenge, grooming, service, lifts, accessibility, value, weather/snow and on- and off-mountain amenities.  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 Company's ski resorts compete effectively in all categories with respect to attracting day skiers and destination guests for the following reasons:

• The Company has some of the most expansive and varied terrain of any resort in North America--Vail alone offers 5,289 skiable acres.  The Company's five ski resorts offer over 15,78016,792 skiable acres in aggregate, with substantial offerings for beginner, intermediate and advanced skiers.

• The Company added Heavenlycontinually seeks opportunities to expand its ski portfolio for the 2002/03 ski season andterrain.  It expanded primarily intermediate skier terrain at Breckenridge for the 2002/03 season to include 165 acres of new trails on Peak 7 accessed by a new high speed lift.

•   During the 2003/04 ski season the Company added 311 acres of intermediate and advanced snowcat-served bowl skiing and the new Area 51 terrain park at Keystone.

  The Company is involved in initiatives that support the National Ski Area Association's programs to grow participation in snowsports.  Each of the Company's resorts run specific programs designed to attract and retain newcomers to snowsports.

• The Company's locations in the Colorado Rocky Mountains provide average yearly snowfall of between 20 and 30 feet and the Sierra Nevada Mountains receive average yearly snowfall of between 25 and 35 feet, which is significantly higher than the average for all U.S. ski resorts.

• The Company's Colorado resorts are proximate to both Denver International Airport and Vail/Eagle County Airport, and Heavenly is proximate to both Reno/Tahoe International Airport and Sacramento International Airport.  This provides ease of access to the Company's resorts for destination visitors.

• The Colorado Front Range market, with a population of approximately 3.6 million, is within a two-hour drive from each of the Company's Colorado resorts, with access via a major interstate highway.

• Heavenly is proximate to two large California population centers, the Sacramento/Central Valley and the San Francisco Bay area, with a combined population of 8.7 million.

• area.

  The Company continues to invest in the latest technology in ticketing and snowmaking systems, and the Company has one of the most extensive fleets of grooming equipment in the world.

• The Company systematically replaces lifts, and in the past severalthree fiscal years the Company has installed 134 high-speed four-passenger chairlifts across its resorts,resorts: one six-passenger chairlift and one four-passenger chairlift at Breckenridge, a four-passenger chairlift at Beaver Creek and a four-passenger chairlift at Heavenly.  The Company currently is installing two additional high-speed four-passenger lifts at Beaver Creek and one high-speed six-passenger lifts at Breckenridge, and a high-speed four-passenger interconnect chairlift at Breckenridge.Heavenly for the 2004/05 ski season.  The Company installed a newplans to install an additional high-speed four-passenger chairlift at Beaver Creek for the 2003/042005/06 ski season.

• The Company provides a wide variety of quality dining venues both on- and off-mountain, ranging from top-rated fine dining establishments to trailside express food service outlets.

• The Company, through SSI Venture LLC ("SSV"), has over 100 retail/rental outlets specializing in sporting goods including ski, golf and bicycle 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 Front Range as well as at other Colorado ski resorts.

  The Company's eleven owned hotels (including the Ritz-Carlton, Bachelor Gulch in which the Company has a 49% ownership interest through a joint venture) and inventory of overapproximately 2,000 managed condominiums (included in the operations of the Lodging segment) located in proximity to the Company's Colorado ski resorts provide accommodation options for all guests, with a variety of prices ranging from high upscale to more affordable, to appeal to the varied needs of guests and families.

• The Company is an industry leader in providing on- and off-mountain amenities, including substantial full-service retail and equipment rental facilities, the Adventure Ridge and Adventure Point mountain-top activities centers, and resort-wide charging, which enables guests to use a lift ticket product to make purchases at many Company facilities.

• The Company's innovative frequent guest programs and extensive array of lift ticket products at varied price points provide value to guests.

• The Company is strongly committed to providing quality guest service, from best-of-class ski and snowboarding schools, to teams of on-mountain hosts and new technology centers, where guests can try the latest technical innovations in snowsports equipment.  The Company solicits guest feedback through extensive use of surveys, which the Company utilizes to ensure high levels of customer satisfaction.

• The Company continually upgrades and expands available services and amenities through capital improvements and real estate development activities.  Current proposed projects include the revitalization of the primary portalportals to Vail Mountain at Vail Village and Lionshead, collectively known as Vail's "Front Door""Vail's New Dawn", developing new villages at the base of Breckenridge's Peaks 7 and 8, preparing for the redevelopment of the Lionshead base area and other land holdings within the Town of Vail, upgrading dining snowmaking and lift services at Heavenly, launching "The Evolution Has Begun" changesnew high speed chairlifts at Keystone for the 2003/04 season by expansion of cat skiing, terrain parksHeavenly and snowmaking,Beaver Creek and additional planning and development projects in and around each of the Company's resorts.  The Company must obtain a variety of necessary approvals for certain of these projects before the Company can proceed with its overall plans.

The Company promotes its resorts through an extensive marketing and sales program, which includes print media advertising in lifestyle and ski industry and lifestyle publications, direct marketing to a targeted audience, promotional programs, loyalty programs which 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 continues to enhance its website and Internet capabilities, which will provide the opportunity to improve the overall guest experience and more successfully market the Company's resorts as use of the Internet grows as a vacation-planning tool. The Company also enters into strategic alliance agreementspartnerships with selecte dselected "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 counterbalance the concentration of revenues in the winter months, the Company offers many non-ski season attractions, such as golf, tennis, guided fishing, float tripshiking, sight-seeing and mountain biking.  These year-round activities also help attract destination convention business to the Company's resorts.

Lodging Segment

The Company's Lodging segment includes the following operations:

• RockResorts International LLC ("RockResorts")--a luxury hotel management company with a portfolio of five Company-owned and five managed resort hotels with locations across the U.S.,

• Grand Teton Lodge Company ("GTLC")--a summer destination resort with three resort properties in Grand Teton National Park and the Jackson Hole Golf & Tennis Club near Jackson, WY,

• the operations of eight

  Eight independently flagged Company-owned hotels (besides GTLC) and condominium management operations in and around the Company's Colorado ski resorts, and

• the operations of six

  Six resort golf courses.

The lodging segment includes over 4,700approximately 5,000 owned and managed hotel and condominium rooms in seven states.  All of the Company's resort hotels are mid-size and offer a wide range of services to guests.

The Company's portfolio of luxury and resort hotels currently includes:

The Company's Lodging strategy is focused on building the RockResorts brand, primarily through providing additional management contracts with third party owned hotels, as a basis for creating an identity for its select unique luxury hotel properties across North America and at its world-class ski resort properties, whichproperties.  The Company believes this strategy will also serve as a platform for future growth and further diversification of the Company's revenue streams.  In addition, the Company's strategy seeks to complement and enhance the ski resort operations through the ownership and management of lodging properties in proximity to the ski resorts.

Hotels are categorized by Smith Travel Research, a leading lodging industry research firm, as upper-upscale,luxury, upscale, midscalemid-price and economy.  The service quality and level of accommodations of the Company's resort hotels place them in the upper-upscaleluxury segment of the hotel market, which represents hotels achieving the highest average daily rates ("ADR") in the industry, and includes such brands as the Ritz-Carlton, Four Seasons and Westin hotels.  The upper-upscaleluxury segment consists of over 620,000approximately 575,000 rooms at over 1,7101,500 properties worldwide as of July 2003,2004, according to Smith Travel Research.  During fiscal 2003,2004, the Company's owned hotels had an overall average ADR of $155.62$181.28 and paid occupancy rate of 59.4%43.3%, while the upper-upscaleluxury industry segment's average for the same period was an ADR of $137.55$149.29 and paid occupancy rate of 65.8%65.4% (according to Smith Travel Research).  The highly seasonal nature of the Company's hotel properties results in lower average occupancy as compared to general industry experience.

Competition in the hotel industry is generally based on quality and consistency of rooms, restaurant and meeting facilities and services, attractiveness of locations, availability of a global distribution system, price and other factors.  The Company's properties compete within their geographic markets with hotels and resorts that include locally owned independent hotels as well as facilities owned or managed by national and international chains, including such brands as Ritz-Carlton, Four Seasons, Westin, Hyatt, Hilton and Marriott.  The Company's lodging strategy, through RockResorts, is focused on the resort hotel niche within the upper-upscaleluxury market.  The Company's properties also compete for convention and conference business across the national market.  The Company believes it is highly competitive in this niche for the following reasons:

• All of the Company's hotels are located in highly desirable resort destinations.

• The Company's hotel portfolio has achieved some of the most prestigious hotel designations in the world, including three hotels designated as Leading Hotels of the World, four designated as Preferred Hotels & Resorts, two designated Historic Hotels of America and one designated as a Small Luxury Hotel.  The Company has fivefour properties and four hotel restaurants in its portfolio that are currently recognized as either Mobil 4-Star or AAA 4-Diamond resorts.

• The RockResorts brand is an historic brand name with a rich tradition associated with high quality luxury resort hotels.

• The Company's hotels are designed to provide a look that feels indigenous to their surroundings, enhancing the guest's vacation experience.

• Each of the Company's hotels provide a wide array of amenities available to the guest such as access to world-class ski and golf resorts, spa facilities, water sports and a number of other outdoor activities as well as highly acclaimed dining options.

• Conference space with the latest technology is available at most of the Company's hotels.  In addition, guests at Keystone Resort can use the Company-owned Keystone Conference Center, the largest conference facility in the Colorado Rocky Mountain region with more than 100,000 square feet of meeting, exhibit and function space.

• The Company has a central reservations system in Colorado which leverages off of its ski resort reservations system and has implemented the first phase of a web-based central reservation system that provides guests with the ability to plan their entire vacation online.  Non-Colorado properties are served by a central reservations system and global distribution system provided by a third party, Pegasus Solutions.

• party.

  The Company actively upgrades the quality of the accommodations and amenities available at its hotels through capital improvements.  Capital funding for non-owned properties is provided by the owners of the properties.  Recent projects included the renovation of the lobby and guestrooms of the Vail Marriott, construction of a new spa and ballroom at The Equinox, renovation of Cheeca Lodge and the new restaurant at and expansion of Casa Madrona, which nearly doubled the number of rooms available and included a new spa.Madrona.  Planned projects include completion of thecontinued renovation of the public spaces, guestrooms and lobby of The Lodge at Rancho Mirage and construction of a new spa at the Lodge at Vail in connection with the "Front Door""New Dawn" project in Vail, construction at Casa Madrona including a new restaurant and meeting space and the renovation at Cheeca Lodge.

The Company promotes its luxury and resort hotels and seeks to maximize lodging revenues by using its marketing network initially established at the Company's resorts.  The Company's marketing network includes local, national and international travel relationships which provide the Company's central reservation systems with a significant volume of transient customers.  The hotels and the Company have an active sales force which generates conference and group business. The Company is leveraging its marketing network and group and conference coordination skills to maximize lodging revenues.

The Company also owns and operates Grand Teton Lodge Company ("GTLC"),GTLC, which was the Company's first resort with a predominantly summer operating season.  GTLC is based in the Jackson Hole area in Wyoming and operates within Grand Teton National Park (the "Park") under a concessionaire contract with the National Park Service, which will beis currently up for bid in the upcoming renewal process, expected some time in 2004.process.  For more information regarding thisthe renewal process of the concessionaire contract, refer to the Regulation and Legislation section below.  GTLC also owns and operates the Jackson Hole Golf & Tennis Club ("JHG&TC"), which is located outside of Grand Teton National Park.the Park near Jackson, WY.  GTLC's operations within the Park and JHG&TC have operating seasons that generally run from mid-May to mid-October.

There are over 375385 areas within the National Park System covering more than 84 million acres across the United States and its territories.  Of the over 375385 areas, approximately 5557 are classified as National Parks.  There are more than 630500 National Park Service concessionaires, ranging from small privately-held businesses to large corporate conglomerates.  The National Park Service uses "recreation visits" to measure visitation within the National Park System.  In calendar 2002,2003, areas designated as National Parks received over 88 million recreation visits.  Grand Teton NationalThe Park, which spans approximately 310,000 acres, had 2.62.4 million recreation visits during calendar 2002,2003, or approximately 2.9%3% of total National Park recreation visits.  Four concessionaires provide accommodations within the Park, including GTLC.  GTLC offers three lodging options within the Park: Jackson Lake Lodge, a full-service, 385-room resort with conference facilities which can accommodate up to 700 people; the Jenny Lake Lodge, a smal l,small, rustically elegant retreat with 37 cabins; and Colter Bay Village, a family-oriented facility with 166 log cabins, 66 tent cabins, and a 112-space RV park.  GTLC offers dining options as extensive as its lodging options, with cafeterias, casual eateries, and fine-dining establishments.  GTLC's resorts provide a wide range of activities for guests to enjoy, including cruises on Jackson Lake, boat rentals, horseback riding, guided fishing, float trips, golf and guided park tours.  Because of the extensive amenities offered as well as the tremendous popularity of the National Park System, GTLC's resorts within the Park operate near full capacity during their operating season.

The Company is a minority partner in a joint venture that owns the Ritz-Carlton, Bachelor Gulch in Beaver Creek, which opened in November 2002.  The 237-room238-room hotel features a 21,80020,000 square foot spa and fitness center (owned by the Company), ski rental, retail space, restaurants, meeting space and an exclusive members' lounge for the Bachelor Gulch Club.  Twenty-three privately-owned luxury penthouse residences twenty-two of which have been sold, were builtare located above the hotel.

The Company's lodging business is highly seasonal in nature, with peak seasons primarily in the winter months (with the exception of GTLC, and certain managed properties)properties and golf operations).   In recent years, the Company has grown its golf business to help offset the seasonality by offering more off-season activities for the Company's lodging business, including group business.  The Company operates six golf courses: The Beaver Creek Golf Club, The Keystone Ranch Golf Course, The River Course at Keystone which was named one of the top 75 golf resorts by Golf Digest, The Jackson Hole Golf & Tennis Course which was ranked the top course in Wyoming and included in Golf Digest's 100 Greatest Public Courses, the Tom Fazio Course at Red Sky Ranch, which was ranked the fourth best course in Colorado and 90th in the U.S. in the 2004 Top 100 You Can Play by Golf Magazine and the Greg Norman Course at Red Sky Ranch was ranked the top course in Colorado and 25th in the U.S. in the 2004 Top 100 You Can Play by Golf Magazine and ranked one of the ten best new courses in 2004 by Golf Magazine.  Access to the highly ranked new Red Sky Ranch courses is limited to club members or guests of the Company's lodging properties, helping the Company drive summertime business to its golf courses.

Real Estate Segment

The Company has extensive holdings of real property at its resorts throughout Summit and Eagle Counties in Colorado and in Teton County, Wyoming.  The Company's real estate operations, through Vail Resorts Development Company ("VRDC"), a wholly owned subsidiary of the Company, include the planning, oversight, marketing, infrastructure improvement and development of the Company's real property holdings.  In addition to the substantial cash flow generated from real estate sales, these development activities benefit the Company's mountain resort and lodging operations through (1) the creation of additional resort lodging which is available to guests, (2) the ability to control the architectural theming of the Company's resorts, (3) the creation of unique facilities and venues (primarily restaurant, retail and retailprivate club operations) which provide the Company with the opportunity to create new sources of recurring revenue and (4) the expansion of the Company's property management and brokeragecommercial leasing operations, which are the preferred providers of these services for all developments on ourthe Company's land.

The Company facilitates

In order to facilitate the sale of real estate development projects, the projects often include the construction of amenities for the benefit of the development, and sale of its real estate holdings by using cash generated from the development activities of Vail Resorts Development Company ("VRDC"), a wholly-owned subsidiary of the Company, to make mountain improvements, such as chairlifts, ski lifts, snowmaking equipment and trail construction.trails or golf courses.  While these mountain improvements enhance the value of the real estate held for sale (for example, by providing ski-in/ski-out accessibility), they also benefit mountain and lodging operations.  VRDC typicallyoften seeks to minimize the Company's exposure to development risks and maximize the long-term value of the Company's real property holdings by selling developed and entitled land to third party developers for cash payments prior to the commencement of construction, while retaining approval of the development plans as well as an interest in the developer's profit.  The Company also typically retains the option to purchase at cost any retail/commercial space created in a development.  The Company is able to secure these benefits from third-party developers because of the high property values and strong demand associated with property in close proximity to the Company's mountain resort facilities.  In some cases, VRDC developsinstances where the Company's real estate holdingsCompany determines the business model warrants, the Company will undertake the risk of development itself, and may adopt this model more frequentlyas is expected in certain of the projects in the future for certain planned projects.Vail's New Dawn, Jackson Hole Golf and Breckenridge developments.

VRDC's principal activities include (1) the sale of single-family homesites to individual purchasers, (2) the sale of certain land parcels to third-party developers for condominium, townhome, cluster home, single family home, lodge and mixed use developments, (3) the zoning, planning and marketing of new resort communities (such as Beaver Creek, Bachelor Gulch Village, Red Sky Ranch and Arrowhead), (4) arranging for the construction of the necessary roads, utilities and mountain infrastructure for new resort communities, (5) the development of certain mixed-use condominium projects which are integral to the Company's mountain resort and lodging operations (such as properties located at a main base facility) and (6) the purchase of selected strategic land parcels.

VRDC's current development activities are focused on (1) continued work on the Vail "Front Door" redevelopment, (2) preparing forincluding the redevelopment of the Lionshead base area and other land holdings located within the Town of Vail, (3) the development around the proposed base area of Breckenridge Peaks 7 and 8, (4)(2) the Jackson Hole area residential and golf development, (3) expansion of the Red Sky residential development, (4) two proposed developments at the base areas of Breckenridge Peaks 7 and 8 and (5) additional planning and development projects in and around each of the Company's resorts.

Employees

Employees

The Company currently employs approximately 3,7503,870 year-round and 10,75010,600 seasonal employees.  In addition, the Company employs approximately 910900 year-round and 220270 seasonal employees on behalf of the managed RockResorts properties.  Approximately 1%As of the seasonalend of fiscal 2004, none of the Company's employees arewere unionized.  The Company considers employee relations to be good.

Regulation and Legislation

Special Use Permits

The Company has been granted the right to use federal land as the site for ski lifts and trails and related activities, under the terms of Special Use Permits granted by the United States Forest Service (the "Forest Service").  The Forest Service has the right to review and approve the location, design and construction of improvements in the permit area and many operational matters.  While virtually all of the skiable terrain on Vail Mountain, Breckenridge, Heavenly and Keystone is located on Forest Service land, a significant portion of the skiable terrain on Beaver Creek Mountain, primarily in the lower main mountain, Western Hillside, Bachelor Gulch and Arrowhead Mountain areas, is located on Company-owned land.

The permits originally granted by the Forest Service were (1) Term Special Use Permits granted for 30-year terms, but which may be terminated upon 30 days written notice by the Forest Service if it determines that the public interest requires such termination and (2) Special Use Permits that are terminable at will by the Forest Service.  In November 1986, a new law was enacted providing that Term Special Use Permits and Special Use Permits may be combined into a unified single Term Special Use Permit that can be issued for up to 40 years.  These unified Special Use Permits were amended in 2003 to reflect the permit boundary maps and acreage amounts set forth in the new White River NationNational Forest Plan.  Changes to the permit boundaries are not material to the Company's plans.  Vail Mountain operates under a unified permit for the use of 12,226 acres that expires October 31, 2031.  Breckenridge operates under a Term Special Use Permit for the use of 5,553 acres that expires on December 31, 2029.  Keystone operates under a Term Special Use Permit for the use of 8,376 acres that expires on December 31, 2032.  Beaver Creek Mountain Resort operates under a Term Special Use Permit for the use of 3,801 acres that expires on December 31, 2038.  Heavenly Ski Resort operates under a Ski Area Term Special Use Permit from the Forest Service, which covers 7,050 acres, is administered by the Lake Tahoe Basin Management Unit, and expires May 1, 2042.  In addition, Heavenly operates four separate base areas, all of which are located on privateCompany-owned lands. In 1996, the Heavenly Ski Area Master Plan was approved by the Forest Service, the Tahoe Regional Planning Agency and the underlying units of local government with jurisdiction. The Company is requesting revisions to the Master Plan to update certain components and address new and upgraded runs, lifts, lodges and other facilities. The Master Plan is required in order to expand or substantially modify the existing resort. The Amendment process is a multi-year process.

For use of the Special Use Permits, the Company pays a fee to the Forest Service ranging from 1.5% to 4.25%4.0% of sales occurring on Forest Service land.  Included in the calculation are sales from, among other things, lift tickets, ski school lessons, food and beverages, rental equipment and retail merchandise sales.

The Forest Service can terminate most of the Company's permits if it determines that termination is required in the public interest.  However, to the Company's knowledge, no recreational Special Use Permit or Term Special Use Permit for any major ski resort then in operation has ever been terminated by the Forest Service over the opposition of the permitee.

Federal Regulations, Company Proposals and Related Approvals

Certain of the Company's resort and lodging operations require permits and approvals from certain federal, state, and local authorities, in addition to the Forest Service and U.S. Army Corps of Engineers approvals, discussed below.herein.  In particular, the Company's operations are subject to environmental laws and regulations, and compliance with such laws and regulations may require expenditures or modifications of the Company's development plans and operations in a manner that could have a detrimental effect on it.  There can be no assurance that new applications of existing laws, regulations and policies, or changes in such laws, regulations and policies, will not occur in a manner that could have a detrimental effect to the Company, or that material permits, licenses, or approvals will not be terminated, non-renewednot be renewed or renewed on terms or interpreted in ways that are materially less favorable to the Company.  Although the Company believes that it will be successful in implementing its development plans and operations in ways satisfactory to it, no assurance can be given that any particular permits and approvals will be obtained or upheld on judicial review.

Breckenridge Regulatory Matters

In August 1998, the Company received the approval of the Forest Service to develop a chairlift, other skier facilities and associated skiing terrain on Peak 7 and a teaching chairlift, two new ski trails and additional snowmaking on Peak 9, all located at Breckenridge. Part of the trail and mountain improvements on Peak 7 have been completed and the new trails were open for skiing for the 2001/02 ski season and direct lift service for the trails was provided in the 2002/03 ski season.  The Company has also received approval from the Forest Service to relocate a restaurant to a location on Peak 7 as well as for additional Peak 7 snowmaking.  To date, the Company has completed a small portion of the snowmaking work.

As part of thatthe Peak 7 approval and development process, certain federal agencies expressed concern about the analysis of potential future development on private land that the Company owns at the base of Peak 7.  In response to an administrative appeal of the Forest Service approval decision by certain individuals and groups, the Regional Forester upheld the approval of the Peak 7 and 9 projects in November 1998.  The Forest Service subsequently reviewed the Company's proposed changes to develop gondola access to the Peak 7 base area and to move the lower terminal of the lift servicing the terrain and base area from public lands to private land owned by the Company.  Based on an interdisciplinary review of the proposed changes, the Forest Service determined in September 2000 that the new information and changes to the proposal did not require an update or revision of the 1998 Environmental Assessment or decision notice.

The U.S. Army Corps of Engineers considered the development of the base facilities on private land and the ski area improvements on public land as combined actions and issued one permit for the combined projects.  The permit contains strict conditions related to the permissible impact to wetlands connected with the real estate project.  Part of the trail and mountain improvements on Peak 7 have been completed and the new trails were open for skiing for the 2001/02 ski season and direct lift service for the trails was provided in the 2002/03 ski season. In May 2002, the Company signed a Preliminary Agreement with the Town of Breckenridge, which allows usthe Company to proceed with the review of the Master Plan with specified density.  In September 2002, the town approved a Development Agreement which allowed the Planning Commission to review the Company's Master Plan amendment with certain components that would otherwise have varied from the town's Development Code.  The amended Master Plan was approved by the Town of Breckenridge in June 2003.

Finally, the Company has submitted a proposal to the Forest Service for the construction of a chairlift to the summit of Peak 8.  This proposal is subject to review and approval by the Forest Service and would eventually involve environmental analyses.

Keystone Regulatory Matters

In 1997, the Company sought approval from the Forest Service and other agencies to develop chairlifts, associated skiing terrain and snowmaking in Jones Gulch, which is located within the current Keystone permit area.  In April 2002, the Company modified the area of its requested development known as the Ski Tip Portal.  This development will be the subject of an environmental review.  The initial issues include the potential effect of the expansion on wildlife and water quality, and it is possible that the future resolution of these issues could affect whether, in what form, and under what conditions the project is approved.  In December 1998, the U.S. Army Corps of Engineers notified Keystone that it had preliminarily determined that the wetlands permit for Keystone's snowmaking diversion limits such diversions to 550 acre-feet annually.  The Company requested that the permit be modified to allow Keystone to withdraw up to 1,350 acre-feet annually for snowmaking and, in April 2000, the U.S. Army Corps of Eng ineersEngineers approved the Company's request, subject to certain conditions which the Company believes can be satisfied.  In March 2000, the Company announced that Keystone and the Forest Service would conduct a joint water quality study of snowmaking at Keystone.  The study was completed and indicated that levels of tested metals were within applicable Colorado state water quality standards.  Since then, Keystone has agreed to conduct further water quality tests and a use attainability analysis for the Colorado Water Quality Control Commission (the "Commission").  Recently, the Commission adopted a regulation which rejected proposals to add four streams at Keystone mountain to the list of Colorado streams which do not achieve water quality standards.  The regulation is currently under review by the U.S. Environmental Protection Agency.  

Vail and Beaver Creek Regulatory Matters

In the spring of 2000, the Company submitted a proposal to the Forest Service concerning additional snowmaking on Vail Mountain and a race facility expansion at Vail's Golden Peak.  The Company withdrew this proposal in lieu of plans to make a new proposal.  The Company intends to submit, after resolution of the White River National Forest Plan appeals process, a proposal to combine additional snowmaking and race facilities at Golden Peak, with a new master plan for the "front side" of Vail Mountain.  Also, the Company is in the process of a land exchange with the Forest Service involving land at the Vail Village base area in connection with one of the Company's "New Dawn" development projects.  The Company has also submitted a proposal to the U.S. Forest Service to install a new chair lift in the Vail's Sundown Bowl and to upgrade the existing Chair 5 to a high-speed, detachable quad chair lift.  This proposal has been put on hold for the time being.  In addition, the Company submitted a separate proposal to the Forest Service concerning the construction of a proposed gondola from the Town of Avon to Beaver Creek gondola,Mountain (the "Gondola Proposal"), a po rtionportion of which would cross public lands on Beaver Creek Mountain within the Company's existing permit boundaries.  This gondola proposalThe Gondola Proposal was approved by the Forest Service through an Environmental Assessment, althoughAssessment.  In 2003, the Company is considering an alternative tomodified the Gondola Proposal, replacing the gondola proposal. No final decision has been made.with two separate chairlifts which will carry guests from the bottom of Bachelor Gulch to Beaver Creek Mountain.  This modification was approved by the Forest Service and the two chairlifts will be completed by the end of calendar 2004.

Revision of Forest Plan

The Record of Decision (the "ROD") approving the new White River National Forest Land Resource Management Plan (the "Forest Plan") was issued by the Forest Service in the summerApril of 2002, which affects all federal lands within the2002.  The Forest Plan regulates recreational, operational and development activities on White River National Forest including Vail and Beaver Creek mountains.lands, which include the Company's four Colorado ski resorts.  The ROD was appealed to the Chief of the Forest Service by the Company and several other interested parties, including environmental groups withholding positions opposedopposite to many positions supportedthose of the Company.  The Chief's decision on the appeals was issued on September 22, 2004, and is final unless modified by the Secretary of Agriculture.  The Company have filed administrative appealsis currently reviewing the decision and while such review is not complete, the Company prevailed on some important issues.

Any appellant may file an action for judicial review of the Plan tofinal decision in Federal Court.  A court would review the Chief offinal decision based on the Forest Service.administrative record and the agency’s conclusions would receive deference.  It is impossible at this time to predict the final outcome or time itwhether an action for judicial review will take to resolvebe filed, and if so, whether the appeals. However, resolution of one or more matters under appeal by the Company and others in ways opposed to the Company's positions couldit would have a material adverse impact on the Company.

Settlement of EPA Wetland Case

In

On June 3, 2004, the U.S. District Court for the District Court of Colorado approved the Consent Decree previously entered into, in October 2003, between the Company and the United States of America, Department of Justice, on behalf of the U.S. Environmental Protection Agency ("EPA"), entered into a Consent Decree to settle the alleged violation of the Clean Water Act in 1999 by the CompanyCompany.  The alleged violation involved the discharge, without a permit, of fill material into less than one acre of wetlands in connection with the road construction undertaken by the Company as part of the Blue Sky Basin expansion at the Vail ski area. As previously disclosed in earlier filings, in 1999 the EPA alleged that the road construction involved discharges of fill material into less than one acre of wetlands without a permit in violation of the Clean Water Act.

The Company has completed the restoration work on the wetland impact, (subjectsubject to continuing monitoring and monitoring/restoration work over the next several years)years, pursuant to the restoration plan approved by the EPA.

The Consent Decree (along with the Amended and Restated Restoration Plan which(which is part of the Consent Decree) was lodged on October 17, 2003, with.  Pursuant to the U.S. District Court for the District of Colorado in Denver. The Consent Decree constitutes a full and final settlement of the United States' claims under the Clean Water Act regarding the matter. After a 30-day public comment period, the EPA must either file a motion with the Court for the Court to approve the Consent Decree or file a motion to withdraw it. There is no statutory deadline for the Court to act in entering the Consent Decree. Under the terms of the proposed Consent Decree, upon entry by the Court of the Consent Decree, the Company would paypaid a civil fine of $80,100 in July 2004.  The Consent Decree also provides for the alleged wetland violation and would agree to certain stipulated monetary penalties for any future violations of the Clean Water Act at the Vail ski area or other future non-compliance with the Consent Decree.

The Company cannot guarantee whether or when the Court will enter the proposed Consent Decree. However, based on the factsDecree constitutes a full and circumstancesfinal settlement of the matter,United States' claims against the Company does not anticipate thatunder the ultimate outcome will have a material adverse impact on its financial condition or results of operation.Clean Water Act regarding the 1999 matter.

Heavenly Regulatory Matters

Prior to the Company's acquisition of Heavenly, the State of California Regional Water Quality Control Board, Lahontan Region ("Lahontan") and the El Dorado County Department of Environmental Management required Heavenly's prior owner to conduct an environmental compliance cleanup at a vehicle maintenance facility at Heavenly.  This requirement was imposed in response to an accidental release of waste oil at a vehicle maintenance shop in 1998.  All cleanup work has been completed in accordance with the approved work plan and a new underground vault, piping and overflow protection system was installed to prevent any further releases.  A final report was prepared by the Company's remediation consultant, URS Corporation, and was submitted on March 31, 2003 to the above two agencies.  While noThe Company has now received a response has been received,from Lahontan that requires additional groundwater sampling in April, May, and June 2005 from existing monitoring wells and submission of a report indicating the results therefrom.  The Company and URS fully expect the results from such sampling to be negative (no contamination) and to thereafter receive a closure letter from Lahontan.  Further, the Company believes that these agencies are satisfiedexpects to receive formal confirmation of El Dorado County's concurrence with the cleanup and reporting efforts but may require installation of a new monitoring well in summer 2004 to monitor any future spills that might occur outside the new containment system.Lahontan's directive on this matter by approximately April 2005. 

In March 2003, Heavenly received a two-year extension for the submittal of the final site development plan for the 120-unit Planned Development at Stagecoach Lodge in Douglas County, Nevada, which was originally approved in 2000.  The extension was granted by the Douglas County Board of County Commissioners and is valid until February 2005.

Also in March 2003, Heavenly received an allocation of 55 water units (approximately(each water unit equals approximately 500 gallons/day) for the same Stagecoach Lodge Planned Development project from the Kingsbury General Improvement District ("KGID").  KGID is the water and sewer district that services the Stagecoach Lodge.  Water allocation units for this service area are limited by the State of Nevada.  However, based on KGID's gallons/day consumptive use formula, the 55 water allocation units are sufficient to serve the 120 units approved by Douglas County.

In July 2003, Heavenly received updated waste discharge requirements ("WDRs") for all lands and facilities within the resort which are located within the State of California.  This includes National Forest lands as well as fee-owned lands.  The approval was given by the State of California Water Resources Control Board, Lahontan Region.  The approved WDRs will permit Heavenly to continue winter and summer operations and to continue with implementation of the approved Ski Area Master Plan.  WDR'sWDRs are normally valid for ten years.

In 1996, the Heavenly Ski Area Master Plan ("Master Plan") was approved by the Forest Service, the Tahoe Regional Planning Agency and the underlying units of local government with jurisdiction.  Heavenly is preparing an update to the Master Plan which requests revisions to permit new and upgraded trails, lifts, snowmaking, lodges and other facilities ("Master Plan Update").  In 2004, Heavenly will submit this Master Plan Update to the agencies that approved the original Master Plan in 1996.  The review and approval process is expected to commence and conclude in 2005.   

GTLC Concession Contract Process

GTLC operates three resort properties within Grand Teton Nationalthe Park under a concession contract with the National Park Service that expired on December 31, 2002.  This contract was extended for two years through December 31, 2004, or until such time a new contract is awarded, whichever comes first.  The new contract for this concession is subject to a competitive bidding process under the rules promulgated to implement the concession provisions of the National Park Omnibus Management Act of 1998.  The bidding and renewal process iswas expected to occur in early to mid-2004.mid-2004 but has been delayed and the Company anticipates receiving another extension of its existing contract for at least one year.  The Company cannot predict or guarantee the prospects for success in award of a new contract, although the Company believes GTLC is well positioned to obtain a new concession contract on satisfactory terms.  In the event GTLC is not the successful bidder for the new concession contract, under the existing contract GTLC is required to sell to the new concessionaire its "possessory interest" in improvements and its other property used in connection with the concession operations.  GTLC would then be entitled to be compensated byreceive compensation from the successful bidder for the value of its "possessory interest" in the assets, although the matter may be subject to arbitration if the value is disputed.assets.  Under an amendment to the contract, in the summer of 2003, GTLC and the National Park Service have agreed upon the possessory interest value to be contained in the prospectus soliciting bids for the contract.

Available Information

The Company's corporate internet address is www.vailresorts.com.

The Company's SEC information, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Act") are available free of charge on the Company's corporate website (www.vailresorts.com) as soon as reasonably practicable after the information is electronically filed with or furnished to the SEC.  In addition, the Company's Code of Ethics is available on its website.  No content of the Company's corporate website is incorporated by reference herein.  Copies of any materials the Company files with the SEC can be obtained at www.sec.gov or at the SEC's Public Reference Room at 450 Fifth St.,Street, N.W., Washington, D.C. 20549.  Information on the operation of the public reference room is available by calling the SEC at 1-800-SEC-0330.

ITEM 2.  PROPERTIES.

The following table sets forth the principal properties owned or leased by the Company for use in its operations:

The Forest Service Permits of the Company's five resorts serve as collateral under the Company's Credit Facility and the Vail and Beaver Creek Forest Service Permits are also encumbered under the Eagle County Industrial Development Bonds.  Many of the Company's properties are used across all segments in complementary and interdependent ways.

ITEM 3.  LEGAL PROCEEDINGS.

The Company is a party to various lawsuits arising in the ordinary course of business. Except for the uncertainty surrounding the Wyoming cases described below, managementManagement believes the Company has adequate insurance coverage and accrued loss contingencies for all known matters and that, although the ultimate outcome of such claims cannot be ascertained, current pending and threatened claims are not expected to have a material adverse impact on the financial position, results of operations and cash flows of the Company.

SEC Investigation

In October 2002, after voluntary consultation with the SEC staff on the appropriate accounting, the Company restated and reissued its historical financial statements for fiscal 1999-2001, reflecting a revision in the accounting treatment for recognizing revenue on initiation fees related to the sale of memberships in private clubs. As previously announced, the Company engaged its new auditors to do a complete re-audit of the years 1999-2001 and filed an amended 10-K for fiscal year 2001 reflecting all adjustments made as a result of the re-audit, in addition to the revision in accounting for the club fees.

In February 2003, the SEC informed the Company that it had issued a formal order of investigation with respect to the Company.  At that time, the inquiry related to the Company's previous accounting treatment for the private club initiation fees.

In October 2003, the SEC issued a subpoena to the Company to produce documents related to several matters, including the sale of memberships in private clubs.  In November 2003, the SEC issued an additional subpoena to the Company to produce documents related primarily to the restated items included in the Company's Form 10-K for the year ended July 31, 2003.  In April and June 2004, the SEC issued additional subpoenas to the Company and made, and continues to make, voluntary requests to the Company to provide documents and information primarily related to further information on prior requests, as well as other items.  Certain current and former officers and employees of the Company have appeared or are expected to appear for testimony before the SEC pursuant to subpoena.  The Company is fully cooperating with the SEC in its investigation.

Settlement of EPA Wetland Case

In

On June 3, 2004, the U.S. District Court for the District Court of Colorado approved the Consent Decree previously entered into, in October 2003, between the Company and the United States of America, Department of Justice, on behalf of the Environmental Protection Agency Region VIII ("EPA"), entered into a Consent DecreeEPA, to settle the alleged violation of the Clean Water Act in 1999 by the CompanyCompany.  The alleged violation involved the discharge, without a permit, of fill material into less than one acre of wetlands in connection with the road construction undertaken by the Company as part of the Blue Sky Basin expansion at the Vail ski area. As previously disclosed in earlier filings, in 1999 the EPA alleged that the road construction involved discharges of fill material into less than one acre of wetlands without a permit in violation of the Clean Water Act.

The Company has completed the restoration work on the wetland impact, (subjectsubject to continuing monitoring and monitoring/restoration work over the next several years)years, pursuant to the restoration plan approved by the EPA.

The Consent Decree (along with the Amended and Restated Restoration Plan which(which is part of the Consent Decree) was lodged on October 17, 2003, with.  Pursuant to the U.S. District Court for the District of Colorado in Denver. The Consent Decree constitutes a full and final settlement of the United States' claims under the Clean Water Act regarding the matter. After a 30-day public comment period, the EPA must either file a motion with the Court for the Court to approve the Consent Decree or file a motion to withdraw it. There is no statutory deadline for the Court to act in entering the Consent Decree. Under the terms of the proposed Consent Decree, upon entry by the Court of the Consent Decree, the Company would paypaid a civil fine of $80,100 in July 2004.  The Consent Decree also provides for the alleged wetland violation and would agree to certain stipulated monetary penalties for any future violations of the Clean Water Act at the Vail ski area or other future non-compliance with the Consent Decree.

The Company cannot guarantee whether or when the Court will enter the proposed Consent Decree. However, based on the factsDecree constitutes a full and circumstancesfinal settlement of the matter,United States' claims against the Company does not anticipate thatunder the ultimate outcome will have a material adverse impact on its financial condition or resultsClean Water Act regarding the 1999 matter.

Settlement of operation.

Keystone/Intrawest LLC-Delaware Court

In September 2002,December 2003, the Company's subsidiary that isparties jointly stipulated to dismiss with prejudice the 50% member of the Keystone/Intrawest LLC filedCompany's suit in Delaware Chancery court against the Intrawest member inof the Keystone/Intrawest LLC ("KRED") real estate joint venture.  In connection with the settlement, the joint venture and related Intrawest entities. The suit alleges, among other things, breachdistributed a majority of contract by Intrawest and seeks monetary damages and injunctive relief. The Company believes that Intrawest's plansits assets to operate the Winter Park ski area under a long term lease with the City and Countyits members.  For further information regarding this matter, see Note 2, Summary of Denver and to develop real estate in and around Winter Park violates the covenant not to compete in real estate projects in certain locations in Colorado, unless certain conditions are met. The Company has agreed to several requests by Intrawest for extensions of time for the defendants to answer in the suit, as the parties continue to pursue settlement discussions. The Company cannot guarantee that the parties will reach a satisfactory settlement. The Company cannot predict either the outcomeSignificant Accounting Policies, of the case or the effectNotes to Consolidated Financial Statements included in Part II, Item 8 of the case on the ong oing or future business of the Keystone/Intrawest LLC.this report.

Wyoming Cases

As previously disclosed, four subsidiaries of the CompanyCompany's subsidiaries (JHL&S, LLC d/b/a/ Snake River Lodge & Spa ("SRL&S"), Teton Hospitality Services, Inc., Grand Teton Lodge CompanyGTLC and Vail Resorts Development Company)VRDC) were named as defendants in two related lawsuits filed in the United States District Court for the District of Wyoming (Case No. 02-CV-17J, 02-CV-16J)02‑CV‑17J, 02‑CV‑16J) in July 2002. The Snake River Lodge & Spa is 51% owned by Teton Hospitality Services, Inc.,

At a wholly-owned subsidiarymediation held on September 29 and 30, 2004 before a magistrate judge in the federal district court for Wyoming, the parties agreed to a final settlement of the Company, such ownership interest having been acquired in December 2000.matter.  The settlement amount is fully insured.

The case arisesarose out of an August 2, 2001 carbon monoxide accident in a hotel room at the Snake River Lodge & SpaSRL&S in Teton Village, Wyoming, resulting in the death of a doctor from North Carolina and injuries to his wife.  One lawsuit iswas a wrongful death action on behalf of the estate of the deceased; the other iswas a personal injury action on the part of his wife, including alleged brain damage.

The complaints allegealleged negligence on the part of each defendant and seeksought damages, including punitive damages.  The two cases were consolidated and tried from mid-November to mid-December 2003.  On December 16, 2003, the jury rendered a total verdict of $17.5 million in compensatory damages in amountsboth cases.  No punitive damages were awarded in either case against any defendants.  SRL&S (formally known as JHL&S, LLC), a 51% subsidiary of the Company, was found by the jury to be proven at trial. In June 2003,47.5% responsible for the Company-relateddamages, for a total of approximately $8.3 million.  Two local Jackson Hole area contractors not party to the trial were found to be collectively 52.5% responsible.  The jury rendered a verdict in favor of all of the Company's other subsidiaries who were defendants in the case.  On March 9, 2004, the court ruled in favor of the Company's motion that JHL&S, LLC is not, as a matter of law, vicariously liable for the 52.5% of the verdicts for which the jury found the third party contractors to be responsible.  Subsequently, plaintiffs filed a motion seeking partial summary judgment to dismiss both plaintiffs' claims against them for punitive damages. On November 6, 2003, District Court deniedreconsideration of the ruling; that motion and stated that the Court would reconsider the motionwas pending at the closetime of the plaintiffs' case. Discovery is continuing. Mediation effortssettlement of the case on September 30, 2004.  Pursuant to date have failed to settle the case.

The two cases have been consolidated. They are set to begin in November 17, 2003 and last for four to six weeks. The Company-related defendants intend to defendterms of the settlement, the cases vigorously at trial. The Company anticipates that any damages arising out of the accident paid by the Company, excepting any amounts attributable to punitive damages, wouldwill be substantially or entirely covered by insurance carried by the Company. The Company's applicable insurance policies exclude coverage for punitive damages.dismissed with prejudice against SRL&S and all defendants.

The punitive damage claims involve allegations of willful and wanton misconduct on the part of the Company-related defendants. The Company believes that the acts or omissions of the Company-related defendants relevant to the matter do not involve the requisite intent or state of mind to support an award of punitive damages under Wyoming law. However, there can be no assurance that the Company-related defendants will ultimately prevail on their motion to dismiss the punitive damage claims and, if they do not prevail, there is no way to predict whether a jury would award punitive damages and, if so, in what amount.

The Company therefore is unable to predict the outcome of either of the cases at this time and consequently is unable to conclude whether the outcome may be material to the Company's financial position, results of operations or cash flows. Given this unpredictability, the Company has not taken any financial reserve for an unpredictable outcome. However, any award of punitive damages against one or more of the Company-related defendants could have a material adverse effect on the Company's financial position, results of operations or cash flows.

Gilman Litigation Appeal

The Company is appealing an unexpected adverse decision by the Eagle County District Court of Colorado, rendered on September 24, 2003, relating to the Company's interest in real property in Eagle County, Colorado commonly known as the "Gilman" property.  The litigation commenced in November 1999 involving a dispute between a Company subsidiary, as the holder of an option to acquire a 50% interest in the property, and Turkey Creek LLC, the owner of the property.  The property consists of approximately 6,000 acres of rugged, high altitude land in close proximity to Vail Mountain.  Turkey Creek assembled the property over many years from various parcels, old mining claims and other property.

Vail Associates originally acquired the option in 1992 under an option agreement between Vail Associates and Turkey Creek.  The option agreement was amended and extended several times over the years between 1992-1999.  During those years, Vail Associates funded all of the acquisition costs to buy the parcels comprising the property and holding costs related to the property, such as real estate taxes and litigation costs to perfect title to the property.  Between 1992-1999 Vail Associates invested approximately $4.8 million of such funds to maintain and preserve its 50% option interest.

In November 1999, a Company subsidiary (the successor to Vail Associates under the option) exercised the option to acquire the 50% interest in the property.  Turkey Creek, however, refused the exercise, claiming that the Company's proposal to pursue a strategy to find a buyer who would put most of the property into conservation was a breach of the option agreement, which contemplated a commitment to "prompt and diligent development" of the property upon exercise of the option.

The Court found that the Company's subsidiary repudiated the option agreement in advance of the exercise of the option by not committing to prompt and diligent development and that "development" did not include selling the land to a buyer for conservation.  The Court further found that Turkey Creek was entitled to terminate the contract and refuse the exercise and that the Company's subsidiary was not entitled to any interest in the property.

As a result of the Court's decision, the Company has taken a non-cash asset impairment charge of $4.8 million in the fourth quarter of fiscal 2003, the amount previously carried on the Company's balance sheet reflecting its investment.  The Company is appealing the decision, primarily on the basis that the Court applied the wrong legal standard in deciding the issue.  The Company believes, based on the advice of counsel, that it has strong legal grounds to challenge the decision although there can be no guarantee of any particular outcome.

Breckenridge Terrace Employee Housing Construction Defect/Water Intrusion Claims

The Company became aware of water intrusion and condensation problems causing mold damage in the 17 building, employee housing facility owned by Breckenridge Terrace, LLC ("Breckenridge Terrace"), an employee housing entity in which the Company is a member and the manager.  As a result, the facility was not available for occupancy for the 2003/04 ski season.  While each building was affected to a different extent, all buildings at the facility required mold remediation and reconstruction and this work began in the third quarter of fiscal 2004. 

Outside forensic construction experts retained by Breckenridge Terrace have determined that the water intrusion and condensation problems are the result of construction and design defects.   In accordance with Colorado law, Breckenridge Terrace served separate Notice of Claims letters outlining the defects with the general contractor, architect and developer.  These third parties denied these claims, and Breckenridge Terrace filed a demand for binding arbitration in June 2004.  No arbitration hearing date has been set.  Also, Breckenridge Terrace filed claims with the relevant insurance carriers but these claims have been initially denied.   Recoveries, if any, of any portion of the remediation and reconstruction liability from potentially responsible parties, including recovery from insurance claims, will be recognized as an asset if and when their receipt is deemed probable.  The Company member of the LLC has agreed to loan to Breckenridge Terrace (a consolidated entity) the necessary funds to complete the necessary remediation work. See Note 13, Mold Remediation, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report, for more information regarding mold remediation. 

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS.MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Company's Common Stock is traded on the New York Stock Exchange under the symbol "MTN".  The Company's Class A Common Stock is not listed on any exchange and is not publicly traded.  Class A Common Stock is convertible into Common Stock.   As of November 5, 2003, 35,274,876September 22, 2004, 35,337,662 shares of common stock were issued and outstanding, of which 7,439,8346,114,834 shares were Class A Common Stock held by approximately three holders and 27,835,04229,222,828 shares were Common Stock held by approximately 5,200 holders.540 holders of record.

Other than a rights distribution in October 1996 which gave each stockholder of record the right to receive $2.44 per share of Common Stock held, the Company has never paid nor declared a cash dividend on its Common Stock or Class A Common Stock.  The declaration of cash dividends in the future will depend on the Company's earnings, financial condition, and capital needs, restrictions under debt instruments and on other factors deemed relevant by the Board of Directors at that time.  It is the current policy of the Company's Board of Directors to retain earnings to finance the operations and expansion of the Company's business and the Company does not anticipate paying any cash dividends on its shares of Common Stock or Class A Common Stock in the foreseeable future.

The following table sets forth, for the fiscal years ended July 31, 20032004 and 2002,2003, and quarters indicated (ended October 31, January 31, April 30, and July 31) the range of high and low per share sales prices of Vail Resorts, Inc. Common Stock as reported on the New York Stock Exchange Composite Tape.

Securities authorized for issuance under equity compensation plans

The following table summarizes the Company's equity compensation plans as of July 31, 2003:2004:

The Company's stock-based compensation plans are described in Note 19, Stock Compensation Plans, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

ITEM 6.   SELECTED FINANCIAL DATA.

The following table presents selected historical consolidated financial data of the Company, derived from the Company's consolidated financial statements for the periods indicated.  The financial data for the fiscal years ended July 31, 2004, 2003 2002, and 20012002 should be read in conjunction with the Consolidated Financial Statements, related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this Form 10-K.  The Company has restated fiscal years 2002 and prior. For more information regarding this restatement refer to Note 2, Restatements, of the Notes to Consolidated Financial Statements. The table presented below is unaudited.  The data presented below are in thousands, except per share, effective ticket price and resort revenue per skier visit amounts.

(footnotes to selected financial data appear on following page)

Footnotes to Selected Financial Data:

ITEM 7.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following is an analysis of the Company's results of operations, liquidity and capital resources and should be read in conjunction with the Consolidated Financial Statements included in this Form 10-K.  To the extent that the following Management's Discussion and Analysis contains statements which are not of a historical nature, such statements are forward-looking statements, which involve risks and uncertainties.  These risks include, but are not limited to, changes in the competitive environment of the mountain and lodging industries, general business and economic conditions, and the weather and other factors discussed elsewhere herein and in the Company's other filings with the SEC.  The following discussion and analysis should be read in conjunction with the Cautionary Statement included at the end of this section.

Explanatory Note

The Company has restated its Consolidated Financial Statements as ofOverview

Segment operating results for mountain, lodging and for the years ended July 31, 2002 and 2001 for the adjustments discussed below. The total of these adjustments, net of income taxes, is $3.3 million, resulting in reductions to net income of $516,000real estate in fiscal 2004 significantly exceeded fiscal 2003 and fiscal 2002 $2.2 millionresults.  However, the Company recorded a net loss in fiscal 2001 and $570,0002004 of $6.0 million, which included a $37.1 million pre-tax charge related to the three fiscal years priorretirement of the 8.75% Notes and a $5.5 million pre-tax charge related to the mold remediation efforts at Breckenridge Terrace. 

Fiscal 2004 Resort segment revenue (Mountain and Lodging segments combined) increased 7.4% and Resort segment operating results increased 39.6% over the same period last year while operating in a more normalized macro-economic environment and with the travel industry gaining momentum.  The Company achieved higher effective ticket prices and increased revenues in ancillary businesses such as ski school, retail/rental and food and beverage, benefiting from increased "destination" (international and out of state) visitors as well as increased group and corporate business which bolstered both Mountain and Lodging revenues.  Season pass revenues improved 14.4% as compared to fiscal 2001.2003.  Despite below average snowfall in the peak revenue producing month of March, which negatively impacted third quarter skier visits, both Beaver Creek and Heavenly had record skier visits for the 2003/04 season, and all of the Company's ski resorts except Keystone had record revenues. In addition, the leap year provided an extra day of peak season operations.

Employee housing joint venture accounting:

The Company has ownership interestsReal estate segment's performance exceeded expectations for fiscal 2004, due largely to the relief of a $15.1 million liability related to Smith Creek Metropolitan District ("SCMD") capital improvement fees (the offset was recorded as a reduction of real estate operating expense) as a result of Bachelor Gulch Metropolitan District's ("BGMD") bond issuance in four entitiesthe third quarter of fiscal 2004, the proceeds of which own and operate seasonal employee housing facilities (seewere used to completely pay off all of SCMD's outstanding bonds.  For more information regarding the metropolitan districts, see Note 13,12, Commitments and Contingencies, of the Notes to Consolidated Financial Statements, forStatements. 

Included in each segment's operating results is the favorable impact of the Company's previously announced $25.0 million cost reduction plan.  The Company's cost cutting measures included segment specific cost reductions as well as corporate expense reductions which were included in the segments' operating results as all the overall corporate selling, general & administrative expenses ("SG&A") is allocated to the segments.  Among these measures, the Company mitigated increasing medical costs by modifying insurance eligibility requirements and by working with health care providers to negotiate more detailed information regarding these entities).favorable rates.  The Company has historically accountedalso implemented a mandatory time off program for these entities under the equity method of accounting, recording its pro rata share of their profits or losses based onfull time employees.  This reduction to the Company's ownership percentage, which ranges from 26% to 50%. Three of the entities have accumulated deficits in excess of the respective partners' investments incost structure partially offset cost increases associated with annual wage adjustments and advances to the entities that arose primarily from depreciation expense recorded, as the entities are generally designed to operate on a cash flow neutral basis. The Company had historically recorded its proportionate equity ownership share of the entities' losses, reducing the carrying amount of its investmentsinflation incurred in the entities below zero. This had been donenormal course of business.  The Company's cost savings also helped offset approximately $2.2 million of Sarbanes-Oxley compliance costs incurred in fiscal 2004 and increased accounting/finance departmental costs due to the lettersaddition of credit issued against the Company's Credit Facility that support a portion of the entities' debt. After further review thisresources.  In fiscal year of the structure of the entities and each of the partners' obligations, the Company determined that it should have recorded 100% of the losses in excess of the other shareholders' investments in and advances to the entities, as those other shareholders have no legal obligation to absorb or fund the losses and it is unlikely that the other shareholders would fund their share of such losses. In addition,2004, the Company also determined thatincurred increased incentive compensation expense for the financial statements preparedyear of $6.5 million, as a result of the strong segment operating performance for fiscal 2004, which was partially counter-balanced by the entitiesnon-recurrence of certain non-cash executive compensation expenses, totaling approximately $3.5 million, which it had historically used to record its equity-method profit or loss were prepared on a tax basis; therefore, the restatement includes the adjustments necessary to convert the entities' financial statements from a tax basis to generally accepted accounting principles. The adjustments related to employee housing joint venture accounting decrease net income by $178,000recorded in fiscal 20 02 and by $334,000 in fiscal 2001, and decrease beginning retained earnings by $641,000 in fiscal 2001 for adjustments related to prior periods.

Executive deferred compensation: The Company compensates its Chief Executive Officer ("CEO") with a package that included cash, restricted stock and stock options, membership interests in several of the Company's lunch and golf clubs, and awards of property2003 (see Note 18, Non-Cash Deferred Compensation, of the Notes to Consolidated Financial Statements). With respect

In addition to onethe items discussed above regarding segment operating results, the following items have impacted the Company's fiscal 2004 financial results:

charges of $37.1 million related to the extinguishment of the property awards, at the time of grant, the Company estimated the fair value for the purpose of determining the amount of compensation cost to be recognized. In 2003, a transaction entered intoCompany's 8.75% Notes; which were replaced by the CEO caused the Company to reconsider whether its estimates made at the date of grant were proper. The Company determined that its estimate was incorrect and required retroactive adjustment. The compensation expense recorded in 2002 and 2001 has been adjusted primarily to reflect the appropriate estimate of fair market value of the homesite itself. The deferred compensation adjustments include a $399,000 increase to fiscal 2002 net income and a $1.8 million decrease to fiscal 2001 net income.

Interest income from Bachelor Gulch Resort, LLC ("BG Resort"): The Company received interest payments from BG Resort (a 49%-owned joint venture accounted for under the equity method) in fiscal 2002 and 2001 on loans and advances made by the Company to BG Resort, which the Company recorded as interest income at the time. In fiscal 2003, the Company became aware that BG Resort had capitalized these interest payments as a component of the costs of the Ritz-Carlton, Bachelor Gulch construction, which would have required an elimination entry associated with Vail's ownership share of the entity to be recorded by the Company. As such, the Company is deferring the recognition of interest income related to its 49% ownership interest in BG Resort and is recognizing the effects of this deferral as a basis difference as BG Resort records the related cost of sales and depreciation expense. This adjustment decreases fiscal 2002 net income $217,000 and fiscal 2001 net income $170,000.

Capitalized interest on investment in BG Resort: The Company is required to capitalize the interest incurred with respect to its investments in and loans and advances to BG Resort during the pre-opening construction period from July 1999 through November 2002 of the Ritz-Carlton, Bachelor Gulch. The Company had expensed these interest costs as incurred, and is therefore restating the prior periods to reduce the interest expense recorded and increase the investment in BG Resort. This adjustment increases fiscal 2002 net income $182,000 and fiscal 2001 net income $211,000 and includes a $72,000 increase to fiscal 2001 beginning retained earnings for interest incurred in fiscal 2000.

Depreciation expense and other related items: During the fiscal 2003 year-end review process, the Company discovered that certain constructed fixed assets were not transferred from construction in process upon completion in a timely manner, resulting in an understatement of depreciation for the related periods. In addition, in relation to this adjustment, the Company also determined that it had eligible qualifying expenditures pursuant to FAS 34, "Capitalization of Interest", but did not record the associated capitalization of interest. The adjustments include corrections to the historical accounting for each of these items, and decrease fiscal 2002 net income by $702,000 and fiscal 2001 net income by $52,000.

Results of Operations

Fiscal 2003 was particularly challenging for the Company, as it experienced an overall net loss for the year, the first in the Company's history since becoming a public company in 1997.

In October 2002, the Company proactively implemented a $10 million year-over-year cost reduction plan to counteract the expected softness in the nationwide leisure travel and lodging market. The plan included the elimination of approximately 100 positions (See6.75% Notes (see Note 15, Workforce Reduction,4, Long-Term Debt, of the Notes to Consolidated Financial Statements) and other changes;

a mold remediation charge of $5.5 million related to improve operational efficiency. The Company began its fiscal year with a promising early ski season, with good snowfall, strong skier numbers,estimated costs for the successful openingcorrection of the Ritz-Carlton, Bachelor Gulchwater intrusion and better than expected performance from Heavenly. However, despite the strong start, world events took a toll on the financial performance of the Company during fiscal 2003. The economy has not completely recovered since the September 11, 2001 terrorist attacks and travel patterns, including group and corporate travel, have not returned to normal. The uncertainty over war and the ultimate start of war with Iraq just prior to the Company's peak opera ting season had an even more dramatic impact on visitationcondensation problems at the Company's properties, which was then exacerbated by the outbreak of a previously unheard of and deadly virus throughout the world called SARS. These factors and certain other non-cash charges resulted in year-over-year declines in profitability for the Company's Mountain and Lodging segmentsBreckenridge Terrace employee housing facility (see Note 14, Segment Information,13, Mold Remediation, of the Notes to Consolidated Financial Statements), as well as an overall;

a net loss of $8.5$2.3 million on disposal of fixed assets related primarily to winter employee uniforms which were replaced in the current fiscal year as the result of a new strategic alliance, the replacement of two lifts at Heavenly as part of the Company's previously announced capital improvement plans for the year.resort and vehicle disposals at Heavenly;

The Company's financial statementsasset impairment charges of $1.1 million related to the write-off of costs for fiscal 2003 reflect certain non-cash charges that significantly impacta previously proposed Beaver Creek gondola project which was replaced by a plan to install two new high-speed chairlifts, and the Company's net loss position forabandonment of a project to relocate Beaver Creek's maintenance facilities in lieu of choosing an alternative location and the year. These charges include:

• non-cash compensation expensewrite-down of a warehouse facility (see Note 18, Non-Cash Deferred Compensation,9, Impairment Charges, of the Notes to Consolidated Financial Statements); and

  a net increase in the fair value of $3.5 million related to the issuanceput options resulting in a fiscal 2004 loss of restricted stock and real property transferred to the Company's CEO and VRDC's president pursuant to their employment agreements (the Company also reflected $3.0 million and $1.9 million of related non-cash compensation expense in fiscal 2002 and 2001, respectively),

• a non-cash charge of $4.8 million related to the impairment of an option to acquire certain development land near Vail Mountain (see Note 10, Impairment Charge,8, Put and Call Options, of the Notes to Consolidated Financial Statements),
• Statements, for more information regarding the Company's proportionate equity shareput options) and a $4 million charge related to the minority interests in the net income of consolidated subsidiaries due primarily to improved net income at SSV.

  Trends, Risks and Uncertainties

  The Company's management has identified the following important factors (as well as risks and uncertainties associated with such factors) that could impact the Company's future financial performance:

  In connection with the issuance of the 6.75% Notes and the extinguishment of the 8.75% Notes (which resulted in a charge of $37.1 million in fiscal 2004), the Company has extended the maturity date on its senior subordinated debts from fiscal 2009 to fiscal 2014.  Additionally, the Company expects that the debt transactions should result in annual interest savings in excess of $5 million for at least each of the next five years.  As a result, the Company does not anticipate it will incur potential losses from BG Resort related to start-up costs and initial operating losses incurred from the Company's 49% interest inextinguishment of debt for the Ritz-Carlton, Bachelor Gulch, which opened in November 2002 ($5.8 million),

• increases in actuarial reserves related to workers' compensation and medical benefits ($3.9 million), and
• incremental depreciation expense associated with the major acquisitions the Company made in fiscal 2002 ($8.6 million).

The Company expects earningsbudgeted $61.9 million for calendar 2004 capital improvements primarily related to the Company's mountain and lodging properties, through which the Company plans to continue to improve the quality of its resort experience so that it can continue to charge a premium price.  Planned projects are discussed in more detail in "Liquidity and Capital Resources". As of July 31, 2004, the Company has spent approximately $16.8 million of the calendar 2004 budgeted capital.  The Company has not yet finalized a capital budget for calendar 2005; however, at this time it anticipates resort spending will be consistent with the level of calendar 2004 capital spending.

The Company has budgeted $72.4 million for calendar 2004 investments in real estate, and is proceeding as planned (subject to continuing necessary approvals) with its real estate development projects, including the "New Dawn" redevelopment at Vail and residential development at Jackson Hole Golf & Tennis Club, although such plans are subject to potential delays or revisions.  Based on current real estate development plans, the Company believes it could finance such projects within its existing Credit Facility or through other financing sources including project specific financing which the Company believes is readily available.  As of July 31, 2004, the Company has spent approximately $16.7 million of the calendar 2004 budgeted capital.  Based on the status of several specific projects, the Company anticipates it will continue to spend significant amounts over the next several years; however, the revenue the Company anticipates to derive from these activities should also significantly exceed historical levels.

Guests continue to book reservations closer in to the date of travel, which makes it more difficult to forecast occupancy trends.

The timing and amount of snowfall has a direct impact on skier visits, particularly with respect to in-state skiers.  To mitigate this impact, the Company focuses efforts on sales of season passes.  The Company raised prices on these products for the 2003/04 ski season, and season pass revenues increased 14.4% over sales for the 2002/03 ski season.  Similarly, the Company raised prices for the 2004/05 season and early signs indicate favorable trends in volume and dollars.

Remediation of the mold problem at Breckenridge Terrace continues, and while the Company's estimates are based on currently available data, actual costs could vary materially (favorably or unfavorably) from current estimates.   The Company anticipates the facility will be available for occupancy for the beginning of the 2004/05 ski season.

The Company may not be able to sustain the cost savings achieved in fiscal 2004 given a normal snow year and barring any unforeseen events. Thein future years, or these cost savings could be outweighed by cost increases in other areas.

Due to industry consolidation, the Company does not expect that the non-cash charges noted above will have as significant an impact in fiscal 2004.may continue to be subject to pricing pressure at certain of its ski resorts. 

The Company planscontinues to cut costs furtherevaluate strategic acquisitions and dispositions, although no definitive agreements currently exist.

The Company is actively pursuing additional hotel management contracts under the RockResorts brand, which is key to the Company's growth strategy for its lodging segment.  Management has not acquired new management contracts on additional properties, although the Company did obtain a new long term management contract at Cheeca Lodge & Spa at the time of an ownership change of the property in fiscal 2004 through2003.  Potential ownership changes of hotels currently under RockResorts management could result in the implementationtermination of existing RockResorts management contracts.  Under the RockResorts hotel management contracts (for the non-Company owned RockResorts hotels), the hotel owner may sell its interest at any time; however, the Company holds a right of first offer to purchase the hotel.  If the Company waives its right to purchase the hotel, and the buyer does not assume the management contract, the management contract will be terminated and the hotel owner shall pay RockResorts a termination fee equal to (a) the yearly management fees earned by RockResorts multiplied by (b) the lesser of (i) three and (ii) the number of years remaining until expiration of the management contract.

The Company operates its ski areas under various Forest Service permits, which are subject to periodic modification, which can impact how the Company operates and develops its ski areas.  There can be no assurances that future changes and modifications to the permits that the Company operates under will not have a material adverse impact to the Company.

The Company operates the GTLC resort properties under a concession contract with the National Park Service ("NPS") that expired on December 31, 2002 and which has been extended until such time that a new contract is awarded.  The Company believes it is well positioned to obtain a new concession contract on satisfactory terms; however, the Company cannot predict or guarantee its success.  If the Company were not successful in obtaining a new contract with the NPS, it would be entitled to be compensated by the successful bidder for the value of its "possessory interest" in the assets.  However, the loss of this contract, if it were to happen, could impact the future results of the Lodging segment.

The Company generally pre-sells residential units to ensure the economic viability of a previously announced $25 million year-over-year cost savings/improved profits plan. Key components of this plan include implementing a mandatory time off policy for all full-time year-round employees, restructuring ofdevelopment.  Pre-sales require the buyer to provide an earnest money deposit to the Company, which is refundable to the buyer should the Company fail to complete the related development.  Real estate deposits recorded as liabilities on the Company's health planbooks were $23.8 million and other employee benefits plans, implementing process improvements in the Company's operations to achieve operational efficiencies and obtain cost savings, and decentralizing the Marketing and Sales organization to allow each of the Company's properties to provide more focused and targeted messages to guests. As a result of the Marketing and Sales decentralization, the Company terminated the employment of three employees and, consequently, accrued approximately $500,000 of severance expense$3.2 million as of July 31, 2004 and 2003, respectively.  

The Company has numerous investments in entities over which the Company does not have direct management oversight.  As such, it is difficult for management to predict or influence the financial performance of these entities, and such results could materially impact the Company's consolidated results of operations.

Terrorist incidents and/or military hostilities can have and have had an adverse impact on the travel industry and, consequently, the Company.  There can be no certainty regarding future occurrence or non-occurrence of terrorist incidents or military hostilities and any resulting impact to the Company.

The timing of major holidays can impact vacation patterns, and as such can impact visitation at the Company's ski resorts.  In fiscal 2005, Christmas falls on a Saturday, which could result in softer visitation for this holiday period as compared to prior years.  However, Easter falls in March in 2005, which management anticipates will be favorable versus 2004's mid-April Easter holiday.  In addition, 2004 was a leap year, which provided an extra day of peak season operations.

The Company uses estimates to record certain reserves (including, but not limited to, self-insured medical and workers' compensation reserves, legal liability reserves and income tax reserves).  If actual results vary significantly from such estimates, or if future trends are not indicative of historical experience, the Company's results from operations could be materially impacted (see Note 15, Workforce Reduction,Critical Accounting Policies for more information regarding these reserve estimates).

The data provided in this section should be read in conjunction with the risk factors identified elsewhere in this document.

Results of the Notes to Consolidated Financial Statements).Operations

Presented below is a more detailed analysis and comparative data regarding the Company's results of operations for the following periods:

• fiscal yearyears ended July 31, 2004, 2003 versus fiscal year ended July 31, 2002, and
• fiscal year ended July 31, 2002 versus fiscal year ended July 31, 2001.

2002.  The following analysis includes discussion of financial performance within each of the Company's segments. The Company has chosen not to specifically address reporteda non-GAAP measure, Reported EBITDA (defined as segment net revenues less segment specific operating expenses plus gain on transfer of property, as applicable, plus segment equity income), in the following discussion althoughbecause management considers this measurement to be a significant indication of the Company's financial performance.  Instead,The Company evaluates performance and allocates resources to its segments based on Reported EBITDA.  Refer to the Company has discussed eachend of the significant componentsResults of reported EBITDA. Refer toOperations section or Note 14, Segment Information, of the Notes to Consolidated Financial Statements for a reconciliation of segment measurementsReported EBITDA to Income (loss) before benefit (provision) for income taxes.

Reported EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States.  Items excluded from Reported EBITDA are significant components in understanding and assessing financial performance.  Reported EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, cash flows generated by operations, investing or financing activities or other financial statement data presented in the consolidated performance.financial statements as indicators of financial performance or liquidity.  Because Reported EBITDA is not a measurement determined in accordance with accounting principles generally accepted in the United States and is thus susceptible to varying calculations, Reported EBITDA as presented may not be comparable to other similarly titled measures of other companies

MountainSegment

Fiscal Year Ended July 31, 2003 versus Fiscal Year Ended July 31, 2002

Mountain revenue. Mountain revenuesegment operating results for the fiscal years ended July 31, 2004, 2003 and 2002 are presented by category as follows (in thousands, except ETP amounts):

Mountain segment operating revenues and Reported EBITDA have increased significantly since fiscal 2002.  In fiscal 2004, Mountain Reported EBITDA increased 34.6% over fiscal 2003, as increased lift revenues, driven by a 10.4% improvement in ETP, and commensurate increases in all ancillary revenue categories were combined with only a 0.7% increase in operating expenses, driven by the cost cutting initiatives and the low variable cost nature of the mountain business.  From fiscal 2002 to fiscal 2003, Mountain Reported EBITDA increased by 6.1% driven primarily by the acquisition of Heavenly in June 2002. 

In fiscal 2004, ETP, which is calculated by dividing lift ticket revenue by total skier visits, grew over fiscal 2003 due to a combination of increased skier visitation in the "destination" guest demographic, price increases and a decline in average days skied by season pass holders.  During fiscal 2004, the U.S. travel industry began to recover from the effects of the terrorist attacks of September 11, 2001 and the Iraqi War in fiscal 2003.  As a result, the skier visit mix changed in fiscal 2004 compared to the two prior fiscal years as more out-of-state and international guests, who typically pay higher prices for lift ticket products, visited the Company's ski resorts.  In addition to the skier visit mix change, the Company is able to charge premium prices for its premier products, and as such, has been able to implement price increases across the board in its lift ticket products.  Lastly, while fiscal 2004 season pass revenues increased 14.4% over fiscal 2003, season pass holder visitation decreased 3.4%.  The combination of increased season pass revenues and decreased visitation drove season pass ETP up 18.4%.  The decline in year-over-year season pass visitation, attributed to the unusually warm temperatures in the month of March, is the primary reason for the decrease in overall skier visits from fiscal 2003 to fiscal 2004.  In fiscal 2003, ETP was flat compared to fiscal 2002 due to the significant downturn in the destination travel industry as a result of the September 11, 2001 terrorist attacks and the Iraqi War which began in March 2003, typically the Company's peak operating month.

The increase in destination guest visitation at the Company's ski resorts favorably impacted the entire Mountain segment in fiscal 2004 as, in addition to buying higher priced lift ticket products, destination guests generally spend more on ancillary services such as ski school, dining and retail/rental.  SSV's operations saw significant improvements in fiscal 2004, due to the improved destination mix discussed above as well as maturation of the market at the Ritz-Carlton, Bachelor Gulch and improved performance at Heavenly.

Fiscal 2003 revenues and skier visits were heavily influenced by the acquisition of Heavenly in June 2002.  The Company has been able to successfully integrate and improve upon the ski resort's operations since the acquisition.  In fiscal 2002, the Heavenly acquisition resulted in losses for the Mountain segment due to the timing of the acquisition during the resort's off season.  Fiscal 2003 benefited from a full year of operations, and fiscal 2004 saw further growth from Heavenly due to capital improvements completed by the Company and implementation of the Company's management strategy at the resort. 

A significant portion of the Mountain segment's operating expenses are fixed costs, with little variability as sales volumes increase or decrease.  In fiscal 2004, the Company changed its cost structure to decrease the amount of fixed costs in the Mountain segment through staffing changes, reduced marketing costs, changes in summer trail maintenance and more closely monitoring the hours of certain dining establishments.  The Mountain segment also benefited from cost reductions realized in corporate SG&A expenses.  These changes to the cost structure helped offset normal cost increases associated with inflation, payroll increases and energy prices as well as increased incentive compensation. In fiscal 2003, Mountain operating expenses rose primarily as a result of the Heavenly acquisition and an increase in corporate SG&A expenses due to increasing medical and workers' compensation costs.

In fiscal 2004, the Company began consolidating several entities under FIN 46R: four entities, Breckenridge Terrace, The Tarnes at BC, LLC ("Tarnes"), BC Housing, LLC ("BC Housing") and Tenderfoot Seasonal Housing, LLC ("Tenderfoot"), collectively known as the "Employee Housing Entities",  and Avon Partners II, LLC ("APII"), which had previously been accounted for under the equity method.  As a result, the consolidation of the allocated portion of the Employee Housing Entities as of November 1, 2003 and APII as of February 1, 2004 caused a $2.9 million and a $2.4 million increase in other Mountain operating revenue and Mountain operating expense, respectively, in fiscal 2004.

Lodging Segment

Lodging segment operating results for the fiscal years ended July 31, 2004, 2003 and 2002 are presented by category as follows (dollars in thousands except effective ticket price ("ETP") amounts)ADR):

Mountain revenue forLodging segment operating revenues and Reported EBITDA have increased significantly compared to fiscal 2003 was $470.1 million, an increase of $69.7 million, or 17.4%2003.  Before equity investment losses related almost entirely to Bachelor Gulch Resort, LLC ("BG Resort"), which opened in November 2002, fiscal 2004 Lodging Reported EBITDA improved 39.1% and 8.8% as compared to fiscal 2003 and 2002, primarilyrespectively.

The Lodging segment rebounded in fiscal 2004 as compared to fiscal 2003 due in part to the inclusion of Heavenly's operations forrecovery in the overall travel industry, as well as internal improvements related to the Company's lodging assets.  For instance, Vail Marriott's revenues increased approximately $4.8 million primarily as a full fiscal year (the resort was acquired May 2002), which generated $59.1 millionresult of the increased revenue. A portionrecent renovation.  Red Sky Ranch results improved with the opening of the Norman course in June 2003 and further maturation of operations.  Additionally, revenue growth in mountain revenue iswas also driven by the opening of the new ski school and retail/rental outlets at the Ritz-Carlton, Bachelor Gulch and the opening of the Red Sky Ranch golf club. A strong early season resulted in revenue growth at all resorts, however, as previously noted, the war in Iraq, the outbreak of SARS and the general economic slowdown had a dramatic impact on visitation during the Company's peak season, which more than offset early season growth.

Mountain operating expense.Mountain operating expense for fiscal 2003 was $370.8 million, an increase of $61.9 million, or 20.0%, compared to fiscal 2002. This is commensurate with the2% increase in mountain revenue for the same period, particularly as the areas in which the Mountain segment experienced growth, aside from Heavenly, were in the lower margin, high variable cost sectors. The expense increase also reflects an increase in allocated corporate sales, general and administrative expenses ("SG&A"),ADR, which is primarily driven by increasing medicala function of both increased pricing and workers compensation costs and related reserves.

Mountain equity income. Mountain equity income primarily consists of the Company's share of operations of the employee housing entities, a brokerage firm and a property management firm. Mountain equity income for fiscalslightly increased occupancy.  Fiscal 2003 was $1.0 million, a decrease of $0.7 million, or 42.3%, compared to fiscal 2002. The decrease primarily reflects losses from the employee housing entities.

Lodging revenue.Lodging revenue is derived from a variety of sources, including operations of the Company's owned hotels (including ancillary operations such as food and beverage), all operations of GTLC, golf operations, condominium management and revenue generated by RockResorts through its management of luxury hotel properties. Lodging revenue for fiscal 2003 was $159.8 million, an increase of $8.9 million, or 5.9%, compared to fiscal 2002. ADR for the Company's owned hotels and condominiums was $184.33 for fiscal 2003, a decrease of $1.64 compared to fiscal 2002. The increase in revenue is primarilysuffered largely due to the inclusion of all the roomsindustry slow-down and geopolitical unrest.  Fiscal 2003 revenue growth came primarily from additional revenues at the Vail Marriott (acquiredas newly renovated rooms came back on line since renovations began in December 2001)2001 and full year revenues derived from the acquisitions of The Lodge at Rancho Mirage (acquired November 2001)and RockResorts ($11.2 million).

The Company has taken a new approach to managing costs in the lodging segment that contributed to the overall increase in Lodging Reported EBITDA in fiscal 2004.  Typically, many of the Lodging segment costs will increase in proportion to revenues; however, the Company has employed several new measures such as closing seasonal properties during their respective off-seasons and furloughing employees during slower times to reduce the permanent lodging segment cost structure. The Lodging segment also benefited from cost reductions realized in corporate SG&A expenses.  These changes to the cost structure helped offset normal cost increases associated with increased revenues and inflation as well as the inclusion of RockResorts (acquired November 2001), which added an incremental $11.2 million for the full year ended July 31, 2003. Revenue improved at SRL&Sincreased incentive compensation. Fiscal 2003 operating expenses were up sharply from fiscal 2002 due to recently completed renovations. While the fiscal 2002 hotel acquisitions contr ibuted to the increased revenue, they also drove a decrease in ADR as the incremental months included are the late summer/early fall off-season months. In addition, the ADR decrease reflects the Company's fiscal 2003 strategy to use price to mitigate the drop in occupancy.

Lodging operating expense.Lodging operating expense for fiscal 2003 was $150.6 million, an increase of $13.4 million, or 9.7%, compared to fiscal 2002. This is due toin corporate SG&A expenses (resulting from increased variable expenses related to revenue growth,medical and workers' compensation costs), increased management staffing and administrative costs associated with the formation of the RockResorts brand golf membership costs at The Lodge at Rancho Mirage, certain administrative costs at SRL&S,and inclusion of RockResorts, Vail Marriott and The Lodge at Rancho Mirage for the full fiscal year and an increase in the allocated corporate SG&A as noted above under the "Mountain operating expense" caption.year.

Lodging equity investment loss.The equity investment loss, for fiscal 2003 was $6.0 millionnet, primarily includes the Company's 49% share of results from BG Resort, which owns and primarily represents start-up costs and first year (non-mature) hotel operations atoperates the Ritz-Carlton, Bachelor Gulch that opened in which the Company has a 49% ownership throughNovember 2002.  BG Resort. The Company's investment shareResort equity losses have significantly impacted Lodging segment operating results.  Fiscal 2003 equity losses for BG Resort included $1.3 million of profitsexpense associated with the sale of condominiums developed as part of the joint venture operations is recorded in real estatepre-opening costs.  The equity income. The lodging equity loss includes the Company'slosses associated with BG Resort include a proportionate share of the joint venture's depreciation expense of $1.5 million and interest expense of $1.8$4.5 million and $3.3 million in fiscal 2004 and 2003, respectively, as the company accounts for BG Resort under the equity method.

The consolidation of the Employee Housing Entities as of July 31, 2003.November 1, 2003 caused a $415,000 and a $473,000 increase in Lodging operating revenue and Lodging operating expense, respectively, in fiscal 2004.

Real Estate Segment

Real estate revenue. The real estate segment's revenues vary from year to year depending on the mix of available inventory, based upon the completion of development projects. The Company generally pre-sells inventory prior to the completion of a development, but revenue is not recorded until closing. Revenue from real estate operationsEstate segment operating results for the yearfiscal years ended July 31, 2004, 2003 was $80.4 million, an increase of $16.5 million, or 25.9%, compared to the year ended July 31, 2002. During fiscal 2003, the Company closed sales related to severaland 2002 are presented by major projects, including single-family lots at Red Sky Ranch, Arrowhead, Bachelor Gulch and Breckenridge's Timber Trail, luxury penthouse condominiums at the Vail Marriott, a large volume of condominiums at Breckenridge's Mountain Thunder and the sale of a development parcel for the construction of townhomesproject categories as follows (dollars in Bachelor Gulch.thousands):

The Company's Real estate closings in fiscal 2002 included single-family lots at Red Sky Ranch and Arrowhead, cluster homesites at Arrowhead, a large development parcel in Bachelor Gulch and one condominium at the Lodge at Vail.

Real estateEstate operating expense. Real estate operating expense for fiscal 2003 was $66.6 million, an increase of $15.3 million, or 29.8% compared to fiscal 2002. Real estate operating expense consistsrevenues are primarily of the cost of sales and related real estate commissions associated with sales of real estate. Real estate operating expense also includes the selling, general and administrative expenses associated with all the Company's real estate operations and allocated corporate SG&A. The increase for fiscal 2003 as compared to fiscal 2002 is commensurate with the increase in real estate sales noted above as well as the change indetermined by the mix of real estate products sold.

development sold in any given year.  Different types of projects have greatly different revenue and expense volumes; therefore, as the sales inventory mix changes it can greatly impact Real estate equity investment income.Real estate equity investment income includes both the Company's equity investment in Keystone/Intrawest LLC ("KRED"), the joint venture developing the River Run development at KeystoneEstate segment operating revenues and the Company's equity investment in the joint venture developingoperating expenses, and constructing the Ritz-Carlton, Bachelor Gulch.Real estate equity investment income forto a lesser degree, Real Estate Reported EBITDA.  Fiscal 2004 Real Estate operating revenues were down compared to fiscal 2003 due to fewer residential condominium sales due to a reduced number of units in inventory.

The Real Estate segment Reported EBITDA improved in fiscal 2004 due primarily to the $15.1 million SCMD capital improvement fee liability which was $4.0 million. The $1.2 million increase overrelieved in fiscal 2002 is2004 and was recorded as a reduction in Real Estate operating expense (see Note 12, Commitments and Contingencies, of the Notes to Consolidated Financial Statements for more information regarding the capital improvement fee liability).  Although the Company had fewer land/unit sales in fiscal 2004, the Company realized a higher profit margin on a land/unit basis as compared to fiscal 2003.  Real Estate equity income, net decreased in fiscal 2004 primarily due to the Company's sharedecrease in activities at KRED following the distribution of profitsmost of its assets to the partners in the second fiscal quarter of fiscal 2004 (see Note 2, Summary of Significant Accounting Policies, for more information regarding the distribution.  Fiscal 2004 Real Estate operating expense benefited from the reduced corporate SG&A expense.  In addition, the Company recorded a $2.1 million gain on the transfer of property related to executive non-cash deferred compensation (see Note 18, Non-Cash Deferred Compensation, of the closing on 22Notes to Consolidated Financial Statements for more information).   In fiscal 2003, Real Estate Reported EBITDA increased 16.0% due to the large volume of 23condominiums sold, primarily consisting of sales at the Mountain Thunder Lodge development and luxury condominiums at the Vail Marriott.  Fiscal 2003 Real Estate Reported EBITDA also included the sale of 22 of the 23 luxury condominiums developed at the Ritz-Carlton, Bachelor Gulch though its investmentGulch.  Real Estate operating expenses have generally varied in BG Resort. The $5.1 million profits associatedproportion with BG Resort are partially offset by declining sales volumes of KRED as well as an $850,000 impairment charge relatedthe inventory types primarily sold in each year.

Other Items

In addition to a development parcel held by KRED.segment operating results, the following material items contribute to the Company's overall financial position.

Depreciation and amortization.amortization.  Depreciation and amortization expense was $82.2 million,has increased over the last two fiscal years.  In general, the Company's depreciation and amortization expense increase is attributable to an increase of $13.8 million, or 20.1%, for fiscal 2003 as comparedincreased fixed asset base due to fiscal 2002. $8.6 millionnormal capital expenditures.  Additionally, a portion of the increase in fiscal 2004 was relateddue to the consolidation of the Employee Housing Entities under FIN 46R ($1.1 million) and a large portion of the fiscal 2003 increase was due to the acquisitions of Heavenly, Rancho Mirage, RockResorts and the Vail Marriott. A significant portionMarriott ($8.6 million).  The average depreciation rate was 7.7%, 8.1% and 7.9% for fiscal years 2004, 2003 and 2002, respectively.

Asset impairment charge. The Company recorded a $1.1 million impairment charge in fiscal 2004 after abandoning development of the increase was also attributablecertain projects related to an increased fixed asset base due to normal capital expendituresa proposed gondola and a maintenance facility and the adjustmentwrite-down of depreciable lives of buildings from 40 to 30 years (see Note 3, Significant Accounting Policies, of the Notes to Consolidated Financial Statements).

Asset impairment charge.Thea warehouse facility.  The Company also recorded a $4.8 million impairment charge in Julyfiscal 2003 related to an option held on certain development land near Vail Mountain due to an unexpected adverse decision by the Eagle County District Court of Colorado, rendered on September 24, 2003 in connection with litigation involving the option (see Note 10,9, Impairment Charge,Charges, of the Notes to Consolidated Financial Statements).

Gain

Mold remediation charge. In fiscal 2004, the Company expensed $5.5 million related to the estimated cost of remediation of water intrusion and condensation problems at its Breckenridge Terrace employee housing facility based on management's best estimate using a preliminary estimate from the mold remediation facilitators.  See Note 13, Mold Remediation, of the Notes to Consolidated Financial Statements, for more information regarding this charge.

Loss on disposal of fixed assets. In fiscal 2004, the Company recorded net loss on disposal of fixed assets primarily related to the disposal of a lift which was replaced at Heavenly, the disposal of mountain uniforms which were replaced before their originally estimated retirement date and normal disposal activities.  Fiscal 2003 net loss on disposal consists of normal disposal activities.

Interest expense.  The Company's primary sources of interest expense are the Credit Facility, the Industrial Development Bonds and the Senior Subordinated Notes.  Overall, interest expense decreased from fiscal 2003 to 2004 due to the replacement of the 8.75% Notes with the 6.75% Notes, reduced pricing of the term loan portion of the Credit Facility and lower average borrowings on the Credit Facility, partially offset by increased borrowing under the 6.75% Notes and the consolidation of the Employee Housing Entities under FIN 46R.  Interest expense increased from fiscal 2002 to 2003 due to a full year of interest expense related to the November 2001 issuance of an incremental $160 million principal amount of 8.75% Notes and an increase in Credit Facility borrowings due to the fiscal 2002 acquisitions.  Average borrowings under the Credit Facility were $122.2 million in fiscal 2004, $137.8 million in fiscal 2003 and $78.1 million in fiscal 2002.

Loss on extinguishment of debt.  The Company recorded a $37.1 million debt extinguishment charge in fiscal 2004 in connection with the tender for the 8.75% Notes.  The charge included a tender premium of $65.06 per $1,000 principal amount of 8.75% Notes, which accounts for $23.8 million of the total charge.  Other costs in the charge include transaction fees, the write-off of unamortized issuance costs and unamortized original issue discount on the 8.75% Notes, and other costs such as legal and printing fees.   In connection with the tender for the 8.75% Notes, in January 2004 the Company issued the 6.75% Notes.  The proceeds from the 6.75% Notes were used to repurchase the 8.75% Notes, along with associated premiums, fees and expenses.  See Note 4, Long-Term Debt, of the Notes to Consolidated Financial Statements.

Gain/loss on put option.  The value of put options fluctuates based on forecasted financial performance of certain RockResorts managed properties, SSV and RTP as of the put exercise period.  The put options' net loss in fiscal 2004 is primarily due to an increase in the estimated value of the put option that the minority shareholder in SSV has to the Company.  The put options' net gain recorded in fiscal 2003 is due primarily to a decrease in the estimated value of the put option that Olympus has to the Company with respect to RockResorts.    The value of the put option fluctuates based on forecasted financial performance of certain RockResorts managed properties as of the put exercise period. See Note 9,8, Put and Call Options, of the Notes to Consolidated Financial Statements, for more information regarding the Company's put options.

Interest expense. During

Minority interest in net income of consolidated subsidiaries. Minority interest in net income of consolidated subsidiaries is a function of the years ended July 31,performance of the Company's consolidated subsidiaries.  Improvement in SSV's net income is primarily responsible for the increase in minority interest in fiscal 2004.

Income taxes.  The changes in the Company's effective tax rate are driven primarily by the amount of pre-tax income (loss), non-deductible executive compensation and taxable income generated by state jurisdictions that varies from the consolidated pre-tax income (loss). The effective tax rate was 30.0%, 39.1% and 43.9% in fiscal 2004, 2003 and 2002, the Company recorded interest expense of $50.0 million and $38.8 million, respectively, relating primarily to the Credit Facility, the Industrial Development Bonds and the Senior Subordinated Notes. The $11.2 million increase is attributable to a full twelve months interest on the $160 million 2001 Notes issued in November 2001 and an increase in Credit Facility borrowings due to the fiscal 2002 acquisitions. Average borrowings under the Credit Facility in 2003 were $137.8 million, versus $78.1 million in fiscal 2002.

Income taxes. Due to the Company's net loss position in fiscal 2003, the Company has recorded a benefit from income taxes of $5.5 million on the related Statement of Operations at an effective rate of 39.1%. The change in effective rate is driven primarily by non-deductible executive compensation.respectively.  During fiscal year 2003, the Company entered into a closing agreement with the Internal Revenue Service, which successfully closed the 1995 - 1998 tax years.

Fiscal Year Ended July 31, 2002 versus Fiscal Year Ended July 31, 2001

Mountain operating revenue. Mountain revenue for the fiscal years ended July 31, 2002 and 2001 is presented by category as follows (dollars in thousands, except ETP amounts)The following table reconciles from segment Reported EBITDA to net income (loss):

Fiscal 2002 mountain revenue increased $9.1 million, or 2.3%, as compared to fiscal 2001. This increase in mountain revenue is due primarily to a $7.1 million increase in other revenue and increases in lift ticket and retail/rental revenue, offset by a decline in dining revenue. The increase in other revenue is attributable to $2.2 million from summer operations of the recently acquired Heavenly resort, a full year of operations from RTP, LLC ("RTP", a technology joint venture acquired by the Company in March 2001), and increased brokerage, commercial leasing and private club operations. The $2.8 million increase in lift ticket revenue for fiscal 2002 compared to fiscal 2001 is due to a 7.0% increase in ETP offset by a 4.9% decrease in skier visits. The 7.0% increase in ETP is due primarily to increased pricing, particularly within peak periods. The 4.9% decline in skier visits is a result of the early Thanksgiving holiday (the early season snow conditions impact visitation of this key holiday weekend), an overall decrease in travel as a result of the events of September 11, 2001, a weak national economy and the early Easter holiday. Retail/rental revenue increased due primarily to the acquisition of additional retail/rental outlets by SSI Venture LLC ("SSV", a 51.9%-owned, fully consolidated retail/rental joint venture) and the benefit of efficiencies gained in the second year of operation of SSV's Bicycle Village stores, which SSV acquired in fiscal 2001. The decrease in fiscal 2002 dining revenue compared to fiscal 2001 is attributable to the decline in skier visits and also the poor economy, which impacted group and corporate travel, a significant source of revenue for the Company's dining operations.SEC Investigation

Mountain operating expense.Mountain operating expense for fiscal 2002 was $308.9 million, an increase of $9.5 million, or 3.2%, compared to fiscal 2001. Much of this increase is commensurate with the increase in operating revenue for fiscal 2002. The acquisition of Heavenly in May 2002 contributed to the increase in mountain operating expense, as the resort generally tends to generate operating losses during the off-season period from May through July. In addition, allocated corporate SG&A expenses increased, as compared to the prior year. Some of the increase was attributable to certain unusual charges including legal, accounting and tax work associated with the restatement and re-audit of fiscal 1999 through 2001, increased bad debt expense relating to the aftermath of the September 11 terrorist attacks and the faltering economy. Other administrative expense increases were due to the rising cost of medical care which impacted both the Company's self-insured medical plan and its workers' comp ensation expense. In addition, the Company had an increase in airline subsidies. A significant portion of the administrative costs are allocated to the Mountain segment and thereby impacted operating expense. Some of the operating expense increase was offset by an aggressive cost savings program throughout the year which included a partial year wage and hiring freeze, delay of seasonal staffing by three to five weeks and restricted discretionary expenditures.

Mountain equity income. Mountain equity income for fiscal 2002 was $1.7 million, an increase of $0.7 million, or 61.3%, compared to fiscal 2001. The increase primarily reflects losses from the employee housing entities.

Lodging operating revenue. The $26.7 million increase in fiscal 2002 lodging revenue as compared to fiscal 2001 is primarily the result of the Company's strategy to expand the lodging business and consummation of the three lodging acquisitions in fiscal 2002: The Lodge at Rancho Mirage and RockResorts in November 2001 and the Vail Marriott in December 2001. The Company's fiscal 2002 ADR for its owned hotels and condominium management operations was $187.25, an increase of over $3 compared to fiscal 2001. The increase in ADR is attributable to the acquisitions of the Vail Marriott and The Lodge at Rancho Mirage, both of which achieve higher than average ADR's and are larger in size compared to the Company's other hotels. In addition, SRL&S's completion of the remodeling and renovation of the hotel and its new inventory of condominiums, which have rates typically two to three times higher than SRL&S's regular hotel rooms increased ADR. These ADR increases are offset by the Company's strategy to discount room rates at its hotels in proximity to the Company's ski resorts in an effort to drive skier visits. Lodging revenue was also negatively impacted by the overall downturn in the travel industry as a result of the September 11 terrorist attacks and the weak national economy.

Lodging operating expense.Lodging operating expense for fiscal 2002 was $137.3 million, an increase of $27.6 million, or 25.2%, compared to fiscal 2001. This increase is primarily attributable to the lodging acquisitions in fiscal 2002 and the expansion of infrastructure within the segment in order to better position it for growth. The increases relating to administrative expense discussed above in Mountain operating expense also pertain to Lodging operating expense, although to a smaller extent.

Lodging equity investment loss.Fiscal 2001 equity investment losses relate to the Company's investment in the reservations technology company, Lowther Ltd. In fiscal 2002, the Company sold its investment in Lowther, Ltd. and purchased a software license from it. Therefore, the Company no longer participates in the equity income/loss of that joint venture. Lodging equity losses incurred in fiscal 2002 are allocated losses from the Company's investments in employee housing ventures.

Real estate revenue. Revenue from real estate operations for fiscal 2002 was $63.9 million, an increase of $35.7 million, or 126.4%, compared to fiscal 2001. This increase as compared to fiscal 2001 was due primarily to single-family home-site sales at the new Arrowhead Mountain and Red Sky Ranch developments.

Real estate operating expense. Real estate operating expense for fiscal 2002 was $51.3 million, an increase of $28.2 million, or 122.1%, compared to fiscal 2001. This expense consists primarily of the cost of sales and related real estate commissions associated with sales of real estate, and also includes the selling, general and administrative expenses associated with the Company's real estate operations. The increase in real estate operating expense for fiscal 2002 as compared to fiscal 2001 is commensurate with the increase in real estate sales noted above.

Real estate equity investment income. Real estate equity investment income for fiscal 2002 was $2.7 million, a decrease of $4.3 million, or 61.0%, compared to fiscal 2001 due to a decrease in equity income from KRED, as the River Run development is nearing total sell out and there are lower levels of real estate inventory available for sale.

Depreciation and amortization. Depreciation and amortization expense was $68.5 million, an increase of $2.9 million, or 4.4%, for fiscal 2002 as compared to fiscal 2001. The increase was primarily attributable to an increased fixed asset base due to the acquisitions of The Lodge at Rancho Mirage, the Vail Marriott and Heavenly as well as fiscal 2002 capital improvements, offset by the reduced amortization expense from the adoption of FAS No. 142.

Interest expense. During fiscal 2002 and 2001 the Company recorded interest expense of $38.8 million and $31.7 million, respectively, relating primarily to the Credit Facility, the Industrial Development Bonds and the 1999 Notes. Interest on the 2001 Notes, which were issued in November 2001, represent the primary reason for the increase in interest expense over fiscal 2001, offsetting the lower interest rates on the Company's floating-rate debt in fiscal 2002 as well as a lower average outstanding balance on the Credit Facility for fiscal 2002 compared to fiscal 2001.

Sec Investigation

In October 2002, after voluntary consultation with the SEC staff on the appropriate accounting, the Company restated and reissued its historical financial statements for fiscal 1999-2001, reflecting a revision in the accounting treatment for recognizing revenue on initiation fees related to the sale of memberships in private clubs. As previously announced, the Company engaged its new auditors to do a complete re-audit of the years 1999-2001 and filed an amended 10-K for fiscal year 2001 reflecting all adjustments made as a result of the re-audit, in addition to the revision in accounting for the club fees.

In February 2003, the SEC informed the Company that it had issued a formal order of investigation with respect to the Company.  At that time, the inquiry related to the Company's previous accounting treatment for the private club initiation fees.

In October 2003, the SEC issued a subpoena to the Company to produce documents related to several matters, including the sale of memberships in private clubs.  In November 2003, the SEC issued an additional subpoena to the Company to produce documents related primarily to the restated items included in the Company's Form 10-K for the year ended July 31, 2003.  In April and June 2004, the SEC issued additional subpoenas to the Company and made, and continues to make, voluntary requests to the Company to provide documents and information primarily related to further information on prior requests, as well as other items.  Certain current and former officers and employees of the Company have appeared or are expected to appear for testimony before the SEC pursuant to subpoena.  The Company is fully cooperating with the SEC in its investigation.  We are unable to predict the outcome of the investigation or any action that the SEC might take, including the imposition of fines and penalties, or other available remedies.  Any adverse development in connection with the investigation, including any expansion of the scope of the investigation, could have a material adverse effect on us, including diverting the efforts and attention of our management team from our business operations.

Liquidity and Capital Resources

The Company's overall liquidity improved in 2004.  Factors that contributed to the liquidity improvement include:

A significant increase in operating cash flows, primarily driven by increased segment operating results;

The Company paid off its revolver balance under the Credit Facility as of July 31, 2004 as a result of the increase in operating cash flows;

The Company's Funded Debt/EBITDA ratio, as defined in the Credit Facility (which excludes the Employee Housing Bonds, in addition to other adjustments) improved by over one full turn as of July 31, 2004 versus July 31, 2003;

The Company paid off current maturities, including $25.0 million for the Olympus Note, certain capital leases and contractual term loan payments under the Credit Facility during fiscal 2004; and

Replacement of the 8.75% Notes with the 6.75% Notes which lowered the interest rate and extended their maturity.

Cash Flows

The Company has historically provided for operating expenditures, debt service, capital expenditures and acquisitions through a combination of cash flow from operations (including sales of real estate) and short-term and long-term borrowings.

Cash

Operating cash flows fromin fiscal 2004 increased $26.4 million over fiscal 2003 due primarily to the Company'ssignificant improvements in Resort segment operating activities were $154.6results of $41.0 million, for the period ending July 31, 2003. Non-cash charges reflected in the $8.5$20.6 million net lossof deposits received for the period included non-cash costs related to real estate soldsales, collection of $45.5$8.8 million depreciation and amortization expense of $82.2income tax refunds in fiscal 2004 versus estimated tax payments of $7.7 million deferred revenues related to private club initiation fees of $19.7 million, an increase in deferred taxes of $4.3 million,fiscal 2003, improved accounts receivable collections resulting in a $4.8 million asset impairment charge, debt discount amortization of $2.8 million, deferred financing cost amortization of $3.0 million and total non-cash compensation of $4.8 million. In addition, working capital changes included a $17.3$7.3 million increase in operating cash and $1.6 million of increased advance sales of season passes, partially offset by a $33.9 million decrease in Real Estate segment operating results net income taxes receivable relatedof non-cash costs of sales, an $11.3 million decrease in sales of new private club memberships due to refunds due from estimated tax payments madeRed Sky Ranch in fiscal 2003 and amended returns, a $3.9$5.0 million increase in restricted cash due to increases in statutorily required workers' compensation balances and increased reserves for capital improvements required under the Vail Marriott franchise agreement.  Fiscal 2003 operating cash flows improved $22.9 million as compared to fiscal 2002 due largely to a $17.6 million increase in Real Estate segment operating results net of non-cash costs of sales, a $16.2 million increase in accounts payable (due to the timing of payments, $2.6 million in increased season pass sales and $5.6 million in increased deferred compensation) and a $4.0 million decrease in notes receivable resulting primarily from payments received, partially offset by timing of estimated tax payments and a $4.6the decreased collection of $10.8 million increase in accounts payable and accrued expenses due primarily to increased medical and workers' compensa tion reserves, severance accruals and bonus accruals.of Red Sky Ranch initiation fees.

Cash flows

Net cash used in investing activities have historically consisted of payments for acquisitions,in fiscal 2004 decreased by $47.4 million primarily due to a $43.4 reduction in capital expenditures.  Fiscal 2004 capital expenditures and investments in real estate. Capital expenditures for fiscal 2003 were $106.3 million and investments in real estate for that period were $22.6 million. The primary projects included inare more normalized as capital expenditures wereapproximate the Company's calendar 2004 budgeted capital and what it anticipates to spend on an annual basis going forward.  In addition to normal capital expenditures made to sustain the Company's existing asset base, the Company's capital expenditures also included (i) completiona new high-speed chairlift at Beaver Creek, (ii) Keystone and Heavenly snowmaking upgrades, (iii) installation of clubtwo new high-speed chairlifts at Heavenly, (iv) an electrical distribution network at Keystone and spa, (ii) completion of Red Sky golf course and clubhouse, (iii) expansion of Peak 7(v) renovations at Breckenridge including a six-passenger chairlift and (iv) completion ofthe Lodge at Rancho Mirage.  Fiscal 2003 capital expenditures include the renovation of the Vail Marriott. The primary projects included in investments in real estate were (i) continued constructionMarriott, the acquisition of the spa at the Ritz-Carlton, Bachelor Gulch and completion of the Norman Course at Red Sky Ranch golf courses and the related residential lot developments, (ii) construction of the Mountain Thunder Lodge condominium project at Breckenridge, (iii) planning activities related to the Vail "Front Door" redevelopment and (iv) investments in developable land and the planning and development of projects in and around each of the Company's resorts.

The Company currently estimates it will make capital expenditures of $40 to $50 million during fiscal 2004. In addition to normal, annual capital expenditures appropriate to maintaining the Company's reputation for high quality, the primary projects are anticipated to include (i) continued dining and lift improvements at Heavenly, (ii) completion of various Keystone in-village improvements and on-mountain snowmaking improvements, (iii) commercial space purchase in Avon, (iv) a high-speed lift in Beaver Creek and (v) incremental improvements to on-mountain or lodging facilities. Investments in real estate during fiscal 2004 are expected to total $18 to $28 million. Primary projects are anticipated to include (i) continued work on Vail "Front Door" and Lionshead redevelopment projects, (ii) completion of Red Sky Ranch golf and real estate development, (iii) Jackson Hole area golf and real estate development, and (iv) other planning and development projects in and around each of the Company's resorts. While the Company's capital expenditure plan is substantial, the Company has scaled back the amount and volume of capital projects, as compared to prior years, in order to prioritize its available capital resources.

The Company'smember clubhouse.  Fiscal 2003 cash flows used in investing activities also included a $380,000 net decrease in cash related to transactions with affiliates and $1.4decreased $174.2 million used in other investing activities.

Duringfrom fiscal 2003, the Company used $29.1 million in cash in its financing activities, consisting primarily of $24.8 million in net long-term debt payments, $3.9 million in payments of financing costs, and $926,000 distributed to minority shareholders of SSV. As of July 31, 2003, the Company had $96.6 million in outstanding letters of credit issued against the Credit Facility, primarily related2002 due almost entirely to the metropolitan districts and employee housing entities discussed in Note 13, Commitments and Contingencies, of the Notes to Consolidated Financial Statements, and construction and development activity. 32,321 employee stock options were exercised at exercise prices ranging from $6.85 to $13.80. Additionally, 90,095 shares of restricted stock were issued to management.

For the year ended July 31,fiscal 2002 cash flows from operating activities were $131.7 million. The Company's cash flows used in investing activities consisted of capital expenditures of $76.2 million, investments in real estate of $68.7 million, $164.8 million in cash paid in the acquisitions of Heavenly, The Lodge at Rancho Mirage, the Vail Marriott and RockResorts, $2.0RockResorts.

The Company has not yet finalized a capital budget for calendar 2005; however, at this time it anticipates capital expenditures will be consistent with the approximately $61.9 million calendar 2004 capital budget.   The Company typically spends $35-40 million annually to sustain its existing resort assets.  Based on the status of several specific real estate projects, the Company will continue to invest significant amounts in real estate over the next several years.  The Company plans to fund these capital expenditures through operating cash flows as well as availability under its Credit Facility or project specific financing.  Completion of planned projects may be dependent upon necessary regulatory approval.

During fiscal 2004, financing activities consisted of the issuance of the 6.75% Notes, the proceeds of which were used to tender and call the 8.75% Notes and pay the related tender and call premiums and expenses.  In addition, the Company used excess cash from operating activities net of investing activities to pay off the revolver under the Credit Facility, pay off the $25.0 million Olympus Note, pay down $14.0 million of advancesliabilities assumed in the KRED distribution and had excess cash invested at the end of the fiscal year.  SSV was able to affiliates, $6.5significantly reduce the balance of the SSV Facility due to cash generated from its improved operating results.  During fiscal 2003, financing activities used $29.1 million in cash, primarily consisting of $24.8 million in net long-term debt repayments, $3.9 million in payments of financing costs and $0.9 million in distributions received from equity-method investments, and $0.3 million cash received from the sale of fixed assets. The Company'sto minority shareholders in joint ventures.  During fiscal 2002, financing activities provided $177.6$177.7 million in cash, primarily consisting of $186.5 million in net long-term debt borrowings and $0.2 million in proceeds from the exercise of stock options, net of $7.8 million in payments of financing costs.

For

Capital Structure

The Company's capital structure was primary impacted in fiscal 2004 by the following items/events: 1) the replacement of the 8.75% Notes with the 6.75% Notes which lowered interest expense by over $5 million per year endedfor at least the next five years and extended the term of the notes from fiscal 2009 to fiscal 2014, 2) the amendment of the Credit Facility which extended the term loan two years and lowered the term loan interest rate LIBOR margin by 0.5%, 3) the Olympus note was repaid in August 2003, 4) the revolver under the Credit Facility was fully paid off as of July, 31 2001, cash flows from operating activities were $108.9 million. Capital expenditures for fiscal 2001 were $57.82004, 5) the SSV Facility was reduced by approximately $9.0 million and investments in real estate for that period were $39.26) the consolidation of the Employee Housing Bonds under FIN 46R which increased the Company's debt balance by $52.6 million.  The consolidation of the Employee Housing Bonds should not noticeably impact the Company's debt service cash flows usedflow requirements since the Employee Housing Entities have been structured to essentially be cash self sufficient after the servicing of the related debt.  As a result of the Company's operating performance in investing activitiesfiscal 2004, it has also included $19.5 millionimproved its interest rate margins (which are adjusted based on performance under the Funded Debt Leverage covenant, as defined in cash paid for two hotels and other acquisitions, a $7.4 million loan to a joint venture, $15.5 million in net distributions from equity-method investments, and $0.5 million cash received from the sale of fixed assets. DuringCredit Facility) that may help buffer future LIBOR increases.  In fiscal 2001, the Company used $1.3 million in cash in its financing activities, consisting of $5.9 million in net long-term debt payments net of $4.3 million in proceeds from the exercise of stock options and $0.2 million generated by other financing activities.

In June 2003, the Company amended and restated its existing Credit Facility to provide debt financing up to an aggregate principal amount of $425 million. The Credit Facility, as amended, consists of (i)million through a $325 million revolving credit facility and (ii) a $100 million term loan. loan and SSV amended and restated the SSV Facility as a three-year revolving credit facility which provides for debt financing up to an aggregate principal amount of $32.0 million.  For additional information regarding the Company's debt arrangements, see Note 4, Long-Term Debt, of the Notes to Consolidated Financial Statements.

The Vail CorporationCompany replaced the 8.75% Notes with the 6.75% Notes in fiscal 2004.  In January 2004, $348.8 million, or approximately 96.9%, of the 8.75% Notes were tendered for total consideration of $1,065.06 per $1,000 principal amount of 8.75% Notes.  In May 2004, the Company called the remaining outstanding 8.75% Notes for a price of 104.375% of the principal balance.  The replacement 6.75% Notes were issued for $390 million in January 2004.  The proceeds from the issuance of the 6.75% Notes were used to tender and call the 8.75% Notes, with the excess used to pay the tender fees and other issuance expenses.

In February 2004, the Company filed a universal shelf registration statement with the SEC in connection with the potential offer and sale, from time to time, of up to $100 million of its common stock, preferred stock and debt securities.  The Company filed the registration statement so that it has the flexibility to raise capital if and when favorable economic or business conditions dictate.  The Company currently does not anticipate it will have any activity under this shelf registration.

In February 2004, Apollo Ski Partners, L.P. ("Apollo") sold approximately 1.3 million shares of the Company's Class A common stock.  Apollo owns substantially all of the Class A common stock (6,114,834 shares as of July 31, 2004) of the Company and, consequently, has the ability to elect all of the Company's Class 1 Board of Directors.  At the time of sale, the shares sold were converted to shares of common stock.  For additional information about Apollo's ownership in the Company, see Note 23, Subsequent Events, of the Notes to Consolidated Financial Statements.

Improvement of the Company's capital structure is dependent on continued improvement in its operating results.  That improvement could be negatively impacted by financing options for specific projects or by the borrowerinability to favorably refinance as maturities come due.

Liquidity Needs

Management believes the Company is in a position to satisfy its current working capital, debt service and capital expenditure requirements for at least the next twelve months with current cash flows from operations and availability under the Credit Facility, with BankFacility; however, the Company may look at alternative financing arrangements for specific projects.  The Company's debt service requirements can be impacted by changing interest rates as the Company, as of America, N.A. and Fleet Bank as co-agents and certain other financial institutions as lenders.July 31, 2004, had $164.7 million of variable interest rate debt.  A 100-basis point change in LIBOR would cause the Company's annual interest expense to change by approximately $1.4 million.  The Vail Corporation's obligationsfluctuation in the Company's debt service requirements, in addition to interest rate changes, may be impacted by future borrowings under theits Credit Facility or other alternative financing arrangements it may enter into. The Company's long term liquidity needs are guaranteeddependent upon operating results which impact its availability under its Credit Facility, which can be mitigated by Vail Resorts and certainadjustments to capital expenditures, flexibility of its subsidiaries and are collateralized by a pledge of all of the capital stock of The Vail Corporation, substantially all of its subsidiariesinvestment activities and the Company's interest in SSV.ability to obtain favorable future financing.  The proceeds of the loans made under the Credit Facility may be used to fund the Company's working capital needs, capital expenditures, acquisitions and other general corporate purposes, including the issuance of letters of credit. The revolving Credit Facility matures June 2007. Bo rrowings under the revolving Credit Facility bear interest annually at the Company's option at the rate of (i) LIBOR plus a margin or (ii) the agent's prime lending rate plus a margin. The revolving Credit Facility also includes a quarterly unused commitment fee. Interest rates on the revolving Credit Facility fluctuate based upon the ratio of the Company's Funded Debt to Adjusted EBITDA, as definedCompany manages changes in the Credit Facility, on a trailing twelve-month basis. Adjusted EBITDA for purposes of the Credit Facility is calculated on a basis specifically defined in the Credit Facility,business and should not be presumed to be analogous to other measures of Adjusted EBITDA discussed elsewhere in this filing. The term loan matures December 2008 and bears interest at a rate of LIBOR plus a margin. The term loan is subject to annual amortization based upon 1% per annum of the original principal amount of the term loan facility. The Company has the option to prepay the term loan at any time; however, such repayments cannot subsequ ently be re-borrowed under the term loan facility. The Credit Facility provides for affirmative and negative covenants that restrict, among other things, the Company's ability to incur indebtedness, dispose of assets, makeeconomic environment by managing its capital expenditures and make investments. In addition, the agreement includesreal estate development activities.

Covenants and Limitations

The Company must abide by certain restrictive financial covenants thein relation to its bank credit facilities and Senior Subordinated Notes.  The most restrictive of which arethose covenants include the Funded Debt to Adjusted EBITDA ratio, Senior Debt to Adjusted EBITDA ratio, Minimum Fixed Charge Coverage ratio, Minimum Net Worth and the Interest Coverage ratio (as each ratio is defined in the Credit Facility)underlying credit facilities).  In addition, the Company's financing arrangements limit its ability to incur certain indebtedness, make certain restricted payments, make certain investments, make certain affiliate transfers and may limit its ability to enter into certain mergers, consolidations or sales of assets.  The terms ofCompany's borrowing availability under the Credit Facility address issues associated with the implementation of FIN No. 46, previously identified in the Company's Form 10-Q filing for the second fiscal quarter of 2003.

The Credit Facility was amended on October 2, 2003, with a July 31, 2003 effective date, to increaseis primarily determined by the Funded Debt to Adjusted EBITDA ratio, as defined inwhich is based on the Credit Facility, to be measured for the covenant compliance periods ending July 31, 2003 and October 31, 2003. The Company's anticipated ability to comply with the formerly applicable ratio had been adversely impacted by poorer than expected performance for fiscal 2003 due to the impacts of the war in Iraq, the general economic downturn and the slower than expected rebound in the overall lodging industry. segment operating performance.

The Company was in compliance with all relevant covenants in its debt instruments as of July 31, 2003.2004.  The Company expects it will meet all applicable quarterly financial tests in its debt instruments, including the Funded Debt to Adjusted EBITDA ratio, in fiscal 2004.2005.  However, there can be no assurance that the Company will meet its financial covenants.  If such covenants are not met, the Company would be required to seek a waiver or amendment fr omfrom the banks participating in the Credit Facility.  While the Company anticipates that it would obtain such waiver or amendment, if any were necessary, there can be no assurance that such waiver or amendment would be granted, which could have a material adverse impact on the liquidity of the Company.

In Mayfiscal 2003, SSV amended and restated the SSV Facility as a three-year revolving credit facility which provides for debt financing up to an aggregate principal amount of $32.0 million. The SSV Facility, as amended, consists of (i) a $20.0 million revolving credit facility, (ii) an $8.0 million term loan A and (iii) a $4.0 million term loan B. Keybank N.A. is agent with certain other financial institutions as lenders. SSV's obligations under the SSV Facility are collateralized by substantially all of SSV's assets. The proceeds of the loans made under the SSV Facility may be used to fund SSV's working capital needs, capital expenditures, acquisitions and other general corporate purposes, including the issuance of letters of credit. Borrowings bear interest annually at SSV's option at the rate of (i) LIBOR plus a margin or (ii) the agent's prime lending rate plus a margin. Interest rates on the borrowings fluctuate based upon the Consolidated Leverage ratio (as defined in the underlying agreement). The revol ving credit facility matures May 2006. The revolving credit facility also includes a quarterly unused commitment fee. The term loan A matures May 2006. SSV must make quarterly principal payments on the term loan A in the amount of $285,715. SSV has the option to prepay the term loan A at any time; however, such repayments cannot subsequently be re-borrowed under the term loan A facility. The term loan B matures May 2006. SSV has the option to prepay the term loan B at any time; however, such repayments cannot subsequently be re-borrowed under the term loan B facility. The term loan B is backed by a $4.2 million letter of credit issued against the Company's Credit Facility. The SSV Facility provides for negative covenants that restrict, among other things, SSV's ability to incur indebtedness, dispose of assets, make capital expenditures and make investments. In addition, the SSV Facility includes certain restrictive financial covenants, including the Consolidated Leverage ratio, Minimum Fixed Charge Coverage ratio and Minimum Net Worth (as defined in the SSV Facility).

Based on current levels of operations and cash availability, management believes the Company is inobtained a positionwaiver. The Credit Facility was amended on October 2, 2003, with a July 31, 2003 effective date, to satisfy its current working capital, debt serviceincrease the Funded Debt to Adjusted EBITDA ratio, to be measured for the covenant compliance periods ending July 31, 2003 and capital expenditure requirements for at least the next twelve months.October 31, 2003.

Contractual Obligations

As part of its ongoing operations, the Company enters into arrangements that obligate the Company to make future payments under contracts such as lease agreements and debt agreements.  Debt obligations, which total $584.2$625.8 million, are currently recognized as liabilities in the Company's Consolidated Balance Sheet.  Operating lease obligations, which total $53.7$52.3 million, are not recognized as liabilities in the Company's Consolidated Balance Sheet, which is in accordance with generally accepted accounting principles.  A summary of the Company's contractual obligations at the end of fiscal 20032004 is as follows: