This Form 10-K constitutes the Annual Report on Form 10-K for the following subsidiaries:

This Form 10-K also constitutes an Interim Report for the following subsidiary:

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

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, economic downturns; terrorist acts upon the United States; 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 land; our ability to integrate and successfully operate future acquisitions; 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.

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%, 24%, and 10%, respectively, of the Company's revenues for the 2002 fiscal year. As a result of a change in the Company's business operations, the Company stopped reporting Technology as a separate segment as of April 30, 2002. Effective with this filing, the Company has established two new segments, Mountain and Lodging in place of its former Resort segment. 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 properties locat ed in proximity to the Company's mountain operations. 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 10, Segment Information, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report.

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 by SKI magazine and the most visited ski resort in the United States for the 2001/02 ski season;
• Beaver Creek Resort ("Beaver Creek")--one of the world's premier family-oriented mountain resorts, currently ranked as the number five ski resort in North America by SKI magazine;
• Breckenridge Mountain ("Breckenridge")--an attractive destination resort with numerous après-ski activities and an extensive bed base, currently ranked as the number ten ski resort in North America by SKI magazine and the second most visited resort in the United States for the 2001/02 ski season;
• Heavenly Valley Ski Resort ("Heavenly")--the third largest ski resort in North America, currently ranked as the number fifteen ski resort in North America by SKI magazine; and
• Keystone Resort ("Keystone")--a year-round family vacation destination, currently ranked as the number nineteen ski resort in North America by SKI magazine.

The Company's mountain segment derives revenue primarily through the sale of lift tickets and passes. This revenue source is supported and augmented by a comprehensive package of amenities available to guests, including ski and snowboard lesson packages, 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, golf, and other recreational activities.

The following paragraphs discuss certain ski industry related statistics. Colorado ski statistics are derived from information from Colorado Ski Country USA. Canadian ski statistics are from the Canadian Ski Council. U.S. and California ski statistics are derived from the Kottke National End of Season Survey 2001/02.

There are approximately 800 ski areas in North America and approximately 490 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 using a ski area for all or any part of a day or night, and includes both paid and complimentary access. During the 2001/02 ski season, combined skier visits for all North American ski areas were approximately 73.4 million, and U.S. skier visits approximated 54.4 million, a decline of approximately 3.4% and 5.1% from the record-breaking 2000/01 ski season, respectively. Including the approximate 831,000 skier visits reported by Heavenly for the 2001/02 season, the Company's ski resorts had 5.6 million skier visits during the 2001/02 ski season, or slightly over 10% of U.S. skier visits, and an approximate 7.6% share of the North American market's ski 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 Denver International Airport, Vail/Eagle County Airport and Colorado Springs Airport, and the wide range of amenities available at each resort. Colorado has approximately 25 ski areas, eight 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 11.1 million skier visits for the 2001/02 ski season, down approximately 4.6% from the 2000/01 ski season. Skier visits at the Company's Colorado ski resorts totaled more than 4.7 million, and accounted for approximately 68% of total Colorado skier visits in the Front Range Destination Resort market and 42.3% of all Colorado skier visits for the 2001/02 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 City and approximately 200 miles from San Francisco, making it a convenient destination for driving and for destination guests using one of two major area airports. 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 13 ski resorts with 182 ski trails on more than 8,000 total resort acres. Heavenly recorded 831,000 skier visits for the 2001/02 ski season, capturing 11.3% of California's 7.3 million total skier visits for the ski season.

The ski resort industry has undergone a period of consolidation in recent years, as the cost of capital improvements and infrastructure required to remain competitive has increased. As a result, the 2001/02 season marked the lowest number of operating resorts in the U.S. in at least 20 seasons. Despite this consolidation, the industry remains highly fragmented, as no other single resort operator accounted for more than 10% of the United States' 54.4 million skier visits during the 2001/02 season. The Company believes that the consolidation trend will continue, and as such the Company will continue to selectively review and pursue those acquisition opportunities which the Company believes will advance its strategy and provide attractive investment returns.

The ski resort industry is highly competitive. The Company competes with other ski areas throughout the United States, and worldwide, as well as with other non-ski vacation destinations for guests. The Company's major U.S. competitors include ski resorts in Utah, New England and other major Colorado and Lake Tahoe ski areas including the Aspen area resorts, Copper Mountain, Crested Butte, Steamboat Springs, Telluride, Winter Park, Squaw Valley and Northstar at Tahoe. Ski resorts compete for skiers in a variety of categories, 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. In recent years, the ski industry has also seen increased competition from beach resorts, golf resorts and amusement parks.

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 15,600 skiable acres, with substantial offerings for beginner, intermediate and advanced skiers.
• The Company has added Heavenly to its ski portfolio for the 2002/03 ski season and has 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.
• The Company's locations in the Colorado Rocky Mountains and the Sierra Nevada Mountains provide average yearly snowfall of between 20 and 30 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.
• 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 several years the Company has installed 13 high-speed four-passenger chairlifts across its resorts, a state-of-the-art gondola in Vail, a high-speed six-passenger lift at Keystone, and a double-loading high-speed six-passenger chairlift at Breckenridge.
• 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's ten hotels and inventory of over 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, our 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 resort 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 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 projects include the revitalization of the primary portal to Vail Mountain known as Vail's "Front Door", planning 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 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 these projects before the Company can proceed with its plans.

The Company promotes its resorts through an extensive marketing and sales program, which includes print media advertising in 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, 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.

Ski resort operations are highly seasonal in nature, with a typical ski season beginning in early November and running through April. In an effort to counter-balance the concentration of revenues in the winter months, the Company offers many non-ski season attractions, such as golf, tennis, guided fishing, float trips, and mountain biking.

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 Jackson Hole Golf & Tennis Club near Jackson, WY,
• the operations of eight independently flagged Company-owned hotels and condominium management operations in and around the Company's Colorado ski resorts, and
• the operations of six resort golf courses.

The lodging segment includes over 4,700 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 acquired the RockResorts brand in November 2001 as a basis for uniting our unique luxury resorts in North America that complement the Company's world-class ski resort properties and to serve as a platform for our future growth. In connection with the acquisition of the RockResorts brand the Company received the management contracts for five leading resort hotels with a total of 725 rooms across the United States: the Cheeca Lodge in the Florida Keys, The Equinox in Manchester Village, Vermont, La Posada de Santa Fe Resort & Spa in Santa Fe, New Mexico, Rosario Resort in the San Juan Islands, Washington and Casa Madrona in Sausalito, California. The Company also re-flagged five of our existing luxury hotels with a total of 790 rooms as RockResorts: The Lodge at Vail, The Keystone Lodge, The Pines Lodge at Beaver Creek, Snake River Lodge & Spa in Teton Village, Wyoming and the Lodge at Rancho Mirage in the Palm Springs area of California. The Company's ten hotel properties c urrently under the RockResorts brand provide the Company with a presence throughout the United States, with 1,515 rooms in the aggregate.

Hotels are categorized by Smith Travel Research, a leading lodging industry research firm, as upper-upscale, upscale, midscale and economy. The service quality and level of accommodations of the Company's resort hotels place them in the upper-upscale 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-upscale segment consists of over 605,000 rooms at over 1,670 properties worldwide as of July 2002, according to Smith Travel Research. During fiscal 2002, our owned hotels had an overall average ADR of $161.37 and paid occupancy rate of 59.3%, while the upper-upscale industry segment's average for the same period was ADR of $140.15 and occupancy of 64.0% (according to Smith Travel Research).

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 with other hotels and resorts, including facilities owned by local interests and facilities owned by national and international chains, in their geographic markets, including such brands as Ritz-Carlton, Four Seasons, Westin, Hyatt and Marriott hotels. The Company's lodging strategy, through RockResorts, is focused on the resort hotel niche within the upper-upscale 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 RockResorts brand is an established 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 resort surroundings, enhancing the guest's vacation experience.
• Each of the Company's hotels provides a wide array of amenities available to the guest including 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.
• The Company actively upgrades the quality of the accommodations and amenities available at its hotels through capital improvement. Capital for non-owned properties is provided by the owners of the properties. Recent and planned projects include the renovation of the lobby and guestrooms of the Vail Marriott, renovation of the public spaces, guestrooms and lobby of the Lodge at Rancho Mirage in order to better reflect the California desert setting of the hotel, the planned construction of a new spa at the Lodge at Vail in connection with the "Front Door" project in Vail, construction of a new spa and ballroom at The Equinox, the expansion of Casa Madrona, which nearly doubled the number of rooms available and included a new spa and restaurant, the renovation of nine beach-front rooms at Cheeca Lodge, and the ongoing renovation of the mansion at Rosario Resort (subject to receipt of final approvals).

The Company promotes its luxury and resort hotels by using its marketing network initially established at the Company's mountain 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"), which was the Company's first resort with a predominantly summer operating season. GTLC is based in the Jackson Hole Valley in Wyoming and operates within Grand Teton National Park under a concessionaire contract with the National Park Service, which will be subject to competitive renewal next year. GTLC also owns and operates the Jackson Hole Golf & Tennis Club ("JHG&TC"), which is located outside of Grand Teton National Park. GTLC's operations within the Park and JHG&TC have operating seasons that generally run from mid-May to mid-October.

There are over 375 areas within the National Park System covering more than 83 million acres across the United States and its territories. Of the over 375 areas, approximately 55 are classified as National Parks. There are more than 630 National Park Service concessionaires, ranging from small privately held businesses to large corporate conglomerates. The National Park Service uses "recreation visits" to measure visitations within the National Park System. In calendar 2001, areas designated as National Parks received over 87 million recreation visits. Grand Teton National Park, which spans approximately 310,000 acres, had 4.0 million recreation visits during calendar 2001, or approximately 5% 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 650 people; the Jenny Lake Lodge, a 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 is constructing the Ritz-Carlton, Bachelor Gulch in Beaver Creek, which is expected to be completed at the beginning of the 2002-03 ski season. The 237-room hotel will feature a 20,000 square foot spa and fitness center, ski rental, retail space, restaurants, meeting space and an exclusive members' lounge for the Bachelor Gulch Club. Twenty-one privately owned luxury penthouse residences, all of which are closed or currently under contract, are also being built 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 as noted above).

The Company has extensive holdings of real property at its resorts throughout Summit and Eagle Counties in Colorado and in the Jackson Hole Valley in Wyoming. The Company's real estate operations 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 and retail 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 brokerage operations, which are the preferred providers of these services for all developments on our land.

The Company facilitates 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 ski lifts, snowmaking equipment and trail construction. 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 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 s ecure 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 develops the Company's real estate holdings itself and may adopt this model more in the future for some planned projects at the base of the Company's ski resorts.

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, 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, which we believe can augment our existing land holdings or resort operations.

Our current development activities are focused on (1) continued work on the Vail "Front Door" redevelopment, (2) preparing for the redevelopment of the Lionshead base area and other land holdings located within the Town of Vail, (3) the infrastructure for the Breckenridge Timber Trail single-family homesite development, (4) the Jackson Hole area residential and golf development, and (5) additional planning and development projects in and around each of the Company's resorts.

The Company currently employs approximately 4,700 year-round and 10,100 seasonal employees. The Company's managed RockResorts properties currently employ 890 year-round and 220 seasonal employees. Approximately 1% of the seasonal employees are unionized. We consider our employee relations to be good.

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 permits with the United States 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 Bachelor Gulch and Arrowhead Mountain areas, is located on Company-owned land.

The U.S. Army Corps of Engineers alleged in 1999 that certain road construction which the Company undertook as part of the Blue Sky Basin expansion involved discharges of fill material into wetlands in violation of the Clean Water Act. A subsequent review confirmed that the wetland impact involved approximately seven-tenths of one acre, although subsequent judicial decisions under the Clean Water Act may reduce the extent of the jurisdictional impact. Subsequently, the Environmental Protection Agency, the lead enforcement agency in this matter, ordered the Company to stabilize the road temporarily and restore the wetland in the summer of 2000. (EPA--Region VIII, Docket No. CWA-8-2000-01). The Company has completed the restoration work on the wetland impact (subject to future monitoring requirements), pursuant to the restoration plan approved by the EPA. The EPA is considering enforcement action, and settlement discussions between the EPA and the Company are continuing. Although the Company cannot guarante e a particular result, based on the facts and circumstances of the matter, the Company does not anticipate that the ultimate outcome will have a material adverse impact on its financial condition or results of operations.

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. As part of that 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, although the trails will not be directly served by new chairlift access until the 2002/03 ski season. In May 2002, the Company signed a Preliminary Agreement with the Town of Breckenridge, which allows us to proceed with the review of the Master Plan with specified density. In September 2002, the town approved a Development Agreement which allows the Planing Commission to review our Master Pl an amendment with certain components that would otherwise have varied from the town's Development Code. The amended Master Plan has been submitted to the town and is in the review process.

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, and work continues in this effort. Other agencies will conduct related reviews. 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 Engineers approved our 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 well within water quality standards.

In the spring of 2000, the Company submitted a proposal to the Forest Service concerning additional snowmaking at Vail Mountain and race facility expansion at 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 base of Vail Mountain at the Vista Bahn chairlift in connection with one of the Company's development projects. In addition, the Company submitted a separate proposal to the U.S. Forest Service concerning a proposed Beaver Creek gondola, a portion of which would cross public lands on Beaver Creek Mountain within our existing permit boundaries. Analysis is ongoing, the draft environmental assessment has been completed, bu t no decision has been made.

The White River National Forest Plan was issued by the Forest Service in the summer of 2002, which affects all federal lands within the White River National Forest. The Company, and several other interested parties, including environmental groups with positions opposed to many positions supported by the Company, have filed administrative appeals of the Plan to the Chief of the Forest Service. It is impossible to predict the final outcome or time it will take to resolve the appeals. However, resolution of one or more matters under appeal by the Company and others in ways opposed to the Company's positions could have a material adverse impact on the Company.

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 above. 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-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 o perations in ways satisfactory to it, no assurance can be given that any particular permits and approvals will be obtained or upheld on judicial review.

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. Vail Mountain operates under a unified permit for the use of 12,590 acres that expires October 31, 2031. Breckenridge operates under a Term Special Use Permit for the use of 3,156 acres that expires on December 31, 2029. Keystone operates under a Term Special Use Permit for the use of 5,571 acres that expires on December 31, 2032. Beaver Creek Mountain Resort operates under a Term Special Use Permit for the use of 2,695 acres that expires on December 31, 2038. The White R iver Forest Plan has or will affect the permit boundaries and areas under the permits at all of the Company's Colorado resorts, although these changes are not material to the Company's plans. Heavenly Ski Resort operates under a Ski Area Term Special Use Permit from the Forest Service, which covers 7,050 acres and is administered by the Lake Tahoe Basin Management Unit. The permit runs through 2042. In addition, Heavenly operates four separate base areas, all of which are located on private 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.

The Forest Service can terminate most of the Company's permits if it determines that termination is required in the public interest. However, to our 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.

Prior to the Company's acquisition of Heavenly, the State of California Regional Water Quality Control Board, Lahontan Region, 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. The required remediation is ongoing and will be substantially completed at the end of this year.

For use of our permits, we pay a fee to the Forest Service ranging from 1.5% to 4.25% 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.

GTLC operates three resort properties within Grand Teton National Park under a concession contract with the National Park Service. The Park Service has notified us of its intent to extend the expiration date of the concession contract until December 31, 2003. The contract renewal is subject to a competitive bidding process under the final rules promulgated earlier this year to implement the concession provisions of the National Park Omnibus Management Act of 1998. The renewal process is expected to occur during calendar 2003. The renewal provision of the new regulation is less favorable to the existing concessionaire than the comparable provision under the old regulation. The Company cannot predict or guarantee its prospects for renewal, although the Company believes it will be well positioned to obtain the renewal of the contract on satisfactory terms. Should the Company not receive the renewal of the concession contract, it would be compensated for the value of our "possessory interest" in the assets of the three resort properties operated under the concession contract, which is generally defined as the reconstruction cost of such assets less depreciation.

The following table sets forth the principal properties owned or leased by the Company:

The Vail Mountain and Beaver Creek Mountain Forest Service Permits are encumbered as security under the Eagle County Industrial Development Bonds, and the Forest Service Permits for the Colorado resorts similarly are encumbered as collateral for the Bank Credit Agreement. Many of the Company's properties are used across all segments in complimentary and interdependent ways.

The Company is a party to various lawsuits arising in the ordinary course of business. Management believes the Company has adequate insurance coverage and accrued loss contingencies for all 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.

The U.S. Army Corps of Engineers alleged in 1999 that certain road construction which the Company undertook as part of the Blue Sky Basin expansion involved discharges of fill material into wetlands in violation of the Clean Water Act. A subsequent review confirmed that the wetland impact involved approximately seven-tenths of one acre, although subsequent judicial decisions under the Clean Water Act may reduce the extent of the jurisdictional impact. Subsequently, the Environmental Protection Agency, the lead enforcement agency in this matter, ordered the Company to stabilize the road temporarily and restore the wetland in the summer of 2000. (EPA--Region VIII, Docket No. CWA-8-2000-01). The Company has completed the restoration work on the wetland impact (subject to future monitoring requirements), pursuant to the restoration plan approved by the EPA. The EPA is considering enforcement action, and settlement discussions between the EPA and the Company are continuing. Although the Company cannot guarante e a particular result, based on the facts and circumstances of the matter, the Company does not anticipate that the ultimate outcome will have a material adverse impact on its financial condition or results of operations.

In September 2002, the Company's subsidiary that is the 50% member of the Intrawest/Keystone LLC filed suit in Delaware Chancery Court against the Intrawest member and related Intrawest entities. The suit alleges, among other things, breach of contract against the Intrawest member and seeks injunctive and other relief. The Company believes that the announcement by Intrawest Corporation of its plans to enter into a long term lease with the City and County of Denver to operate the Winter Park ski area and develop real estate in and around the base of Winter Park violates the covenant not to compete in real estate development projects in certain locations in Colorado, unless certain conditions are met. No answer has yet been filed. It is too early and impossible to predict the outcome of the lawsuit, or the effect of the suit on the ongoing business of the Intrawest/Keystone LLC.

None.

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 October 14, 2002, 35,182,541 shares of common stock were issued and outstanding, of which 7,439,834 shares were Class A Common Stock held by approximately three holders and 27,742,707 shares were Common Stock held by approximately 5,200 holders.

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 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, 2002 and 2001, 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.

The Company's stock-based compensation plans are described in Note 11, Stock Compensation Plans, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report.

The following table presents selected historical consolidated financial data of the Company for the periods indicated. The financial data for the fiscal years ended July 31, 2002, 2001, 2000 and 1999 and the ten-month fiscal period ended July 31, 1998 are derived from the Consolidated Financial Statements of the Company. The financial data for the fiscal years ended July 31, 2002, 2001, and 2000 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 data presented below are in thousands, except per share amounts and percentages.

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, the weather and other factors discussed elsewhere herein and in the Company's filings with the Securities and Exchange Commission.

The following discussion of the Company's financial performance makes reference to Mountain EBITDA and Lodging EBITDA. Mountain EBITDA is defined as revenues from mountain operations plus mountain equity investment income less mountain operating expenses. Lodging EBITDA is defined as revenues from lodging operations plus lodging equity investment income less lodging operating expenses. Mountain EBITDA and Lodging EBITDA are not terms that have an established meaning under generally accepted accounting principles ("GAAP"), and they might not be comparable to similarly titled measures reported by other companies. Information concerning Mountain EBITDA and Lodging EBITDA has been included because management believes it is an indicative measure of a resort company's operating performance and is generally used by investors to evaluate companies in the resort industry. Mountain EBITDA and Lodging EBITDA do not purport to represent cash provided by operating activities, and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. For information regarding the Company's historical cash flows from operating, investing and financing activities see the Company's Consolidated Financial Statements included elsewhere in this Form 10-K.

As a result of a change in the Company's business operations, the Company stopped reporting Technology as a separate segment on April 30, 2002. In addition, as of July 31, 2002, the Company has broken down its former Resort segment into two new reporting segments: Mountain, which includes the operations of the Company's ski resorts and related ancillary activities, and Lodging, which includes the operations of all of the Company's owned hotels, RockResorts, GTLC, condominium management, and golf operations.

Fiscal 2002 was highlighted by: 1) stronger than expected season pass sales, 2) increased ticket prices, 3) strong retail/rental sales, 4) lodging acquisitions, 5) conscious discounting of room rates at the Company's lodging properties near the Company's ski resorts to attract incremental vacationers, 6) soft visitation for group and corporate business stemming from the slow national economy and the events of September 11, 2001, 7) close management of costs while continuing to provide a high-quality guest experience, and 8) a greater than expected decline in international guests.

Despite below average ski season snowfall, the weak economy and nation-wide declines in leisure travel, fiscal 2002 mountain revenue was strong. Mountain revenue (including equity investment income) increased 2.4% for fiscal 2002 as compared to fiscal 2001, primarily driven by lift ticket revenue and "other" mountain revenue. Increased ticket prices and strong season pass sales led to record lift ticket revenues for the 2001/02 ski season. Although skier visits for the year were down 4.9% on a year-over-year basis, the decline is consistent with the declines in the Colorado and national markets, which had overall 2001/02 skier visit declines of 4.6% and 5.1%, respectively, compared to 2000/01.

Fiscal 2002 lodging revenue (including equity investment income) growth was generated primarily by the $29.4 million of revenue gained through the November and December acquisitions of RockResorts, Rancho Mirage and the Vail Marriott. On a "same-store" basis, lodging revenues declined 4.6% year-over-year due to the recession, slow rebound in the general U.S. travel industry following September 11, and the above-mentioned room rate discounting during the ski season.

The Company's real estate segment had an 89% increase in revenue (including equity investment income) for fiscal 2002 as compared to fiscal 2001 generated by the success of the Company's Red Sky Ranch and Arrowhead Mountain developments.

The Company believes that growth in revenue and EBITDA can be achieved in both the mountain and lodging segments in fiscal 2003, from the acquisitions made in fiscal 2002 as well as from same-store-growth. The Company also anticipates another strong year in real estate operations in fiscal 2003, as the high-end real estate sales market continues to hold its own. While the Company is optimistic regarding its growth prospects for 2003, there can be no assurance that such growth will be achieved. Adverse consequences to the Company's anticipated results could occur if the economic recessions continues or deepens and if the lodging and travel industries do not rebound and given the uncertainties of terrorism and war, whether real or just threatened.

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

• fiscal year ended July 31, 2002 versus fiscal year ended July 31, 2001, and
• fiscal year ended July 31, 2001 versus fiscal year ended July 31, 2000.

Mountain revenue. The following discussion of mountain revenue covers revenue from operations as well as equity investment income. Mountain revenue for the fiscal years ended July 31, 2002 and 2001 is presented by category as follows:

Fiscal 2002 mountain revenue increased $9.6 million, or 2.4%, as compared to fiscal 2001. This increase in mountain revenue is due primarily to an $8.5 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 (effective ticket price, "ETP", is defined as total lift ticket revenue divided by total skier visits) 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.

Mountain operating expense. Mountain operating expense for fiscal 2002 was $309.2 million, an increase of $11.2 million, or 3.8%, 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 this off-season period from May through July. In addition, administrative expenses increased 17.3%, as compared to prior year. Some of the increase was attributable to certain one time, non-recurring rise in costs due to 1) legal, accounting, and tax work associated with the restatement and re-audit of fiscal 1999 through 2001, 2) recognition of compensation expense related to the May 2001 employment agreement of the Company's chief executive officer and 3) increased bad debt expense relating to the aftermath of the September 11 terrorist attacks and the faltering economy. Other administrativ e expense increases were due to the rising cost of medical care which impacted both the Company's self-insured medical plan and its worker's compensation 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, strategic snowmaking and restricted discretionary expenditures.

Lodging revenue. The following discussion of lodging revenue covers revenue from operations as well as equity investment losses. 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. 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. The $28.0 million increase in fiscal 2002 lodging revenue as compared to fiscal 2001 is the result of the Company's successful implementation of its 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. These three acquisitions are the primary drivers of the year-over-year increase in lodging revenue with $29.4 million revenue in the aggregate. 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 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 ADR increased significantly over fiscal 2001 due primarily to the completion of the remodeling and renovation of the hotel and the hotel's new inventory of condominiums, which have rates typically two to three times higher than SRL&S's regular hotel rooms. The ADR increases resulting from the acquisitions and SRL&S's renovations and condominiums are offset by t he 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 $137.2 million, an increase of $27.9 million, or 25.5%, compared to fiscal 2001. The increase in lodging operating expense 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 in a smaller amount.

Real estate revenue. The following discussion of real estate revenue includes both revenue from operations and real estate equity income. Real estate equity investment income includes both the Company's equity investment in Keystone/Intrawest LLC (the "Keystone JV"), the joint venture developing the River Run development at Keystone, and the Company's equity investment in the joint venture developing the Bachelor Gulch Ritz-Carlton. Revenue from real estate operations for fiscal 2002 was $66.6 million, an increase of $31.4 million, or 89.0%, compared to fiscal 2001. The increase in real estate revenue as compared to fiscal 2001 was due primarily to single-family home-site sales at the new Arrowhead Mountain and Red Sky Ranch developments, offset by a decrease in equity income from the Keystone JV, as the River Run development is nearing total sell out and there are lower levels of real estate inventory available for sale.

Real estate operating expense. Real estate operating expense for fiscal 2002 was $51.4 million, an increase of $28.4 million, or 123.6%, compared to fiscal 2001. Real estate operating expense consists 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 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.

Depreciation and amortization. Depreciation and amortization expense was $67.0 million, an increase of $1.5 million, or 2.4%, 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 $39.3 million and $32.1 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, also comprise a portion of total fiscal 2002 interest expense, and represent the primary reason for the increase in interest expense over fiscal 2001. The increase in interest expense related to the 2001 Notes is partially offset by 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.

Mountain revenue. The following discussion of mountain revenue covers revenue from operations as well as equity investment income. Mountain revenue for the fiscal years ended July 31, 2001 and 2000 is presented by category as follows:

Fiscal 2001 mountain revenue increased $16.4 million, or 4.4%, as compared to fiscal 2000. This increase in mountain revenue is due primarily to an 8.3% increase in skier visits and a 2.4% increase in ETP compared to fiscal 2000. Front Range skiers, who tend to generate less revenue per skier visit in all mountain revenue categories as compared to destination skiers, constituted a significant portion of the overall increase in skier visits. The 2.4% increase in ETP is due primarily to increased pricing. All categories of mountain revenue except "other" had increased revenue as compared to fiscal 2000. In addition to the increase in skier visits, mountain revenue was also enhanced by innovative ski school product offerings, increased conference and banquet business in the first fiscal quarter of 2001, an increase in the number of retail/rental outlets operated by SSV, and internet-based rental sales.

The $18.1 million decrease in other mountain revenue for fiscal 2001 as compared to fiscal 2000 is due primarily to the absence of $15.9 million of skier day insurance revenue and $5.6 million of business interruption insurance that was recorded in fiscal 2000. Other resort revenue also consists of ancillary recreation operations such as Adventure Ridge and Adventure Point, private club operations, municipal support services for the resort villages, brokerage operations and commercial leasing.

Mountain operating expense. Mountain operating expense for fiscal 2001 was $298.0 million, an increase of $13.9 million, or 4.9%, compared to fiscal 2000. The increase in mountain operating expense is primarily attributable to the increase in revenue over fiscal 2000, particularly with respect to non-lift ticket businesses, which have a higher percentage of associated variable expenses. The increased variable expenses are partially offset by a successful cost management program that was implemented at all levels of the Company's operations throughout fiscal 2001.

Lodging revenue. The following discussion of lodging revenue covers revenue from operations as well as lodging equity investment income. The $6.4 million increase in lodging revenue and equity investment income for fiscal 2001 as compared to fiscal 2000 is due primarily to an increase in the Company's inventory of managed condominiums, aggressive lodging marketing strategies during the late summer and fall seasons, and the Company's acquisition of SRL&S in December 2000.

Lodging operating expense. Lodging operating expense for fiscal 2000 was $109.3 million, an increase of $5.7 million compared to fiscal 2000. The increase in lodging operating expense is commensurate with the increase in revenue as compared to fiscal 2000.

Real estate revenue. The following discussion of real estate revenue includes both operating revenue and equity investment income. Revenue from real estate operations for fiscal 2001 was $35.2 million, a decrease of $16.4 million, or 31.8%, compared to fiscal 2000. The decrease in real estate revenue as compared to fiscal 2000 was expected, as the Company's inventory of available "for sale" real estate had declined, offset by the Keystone JV's completion and sale of an increased number of condominiums and single-family lots compared to fiscal 2000.

Real estate operating expense. Real estate operating expense for fiscal 2001 was $23.0 million, a decrease of $19.1 million, or 45.4%, compared to fiscal 2000. Real estate operating expense consists 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 the Company's real estate operations. The decrease in real estate operating expense for fiscal 2001 as compared to fiscal 2000 is commensurate with the decrease in real estate sales noted above.

Depreciation and amortization. Depreciation and amortization expense was $65.5 million, an increase of $3.7 million, or 6.0%, for fiscal 2001 as compared to fiscal 2000. The increase was primarily attributable to an increased fixed asset base due to the acquisitions of SRL&S and the Company's 51% interest in RTP as well as fiscal 2001 capital improvements.

Interest expense. During fiscal 2001 and 2000 the Company recorded interest expense of $32.1 million and $35.2 million, respectively, relating primarily to the Credit Facility, the Industrial Development Bonds and 1999 Notes. The decrease in interest expense for fiscal 2001 compared to fiscal 2000 is attributable to a decrease in the average balance outstanding under the Credit Facility combined with reduced interest rates during fiscal 2001.

On October 29, 2002, the Company announced that, as a counterbalance to the possibility of slower performance in the nationwide leisure travel and lodging market in the coming year, it has implemented a cost reduction plan of approximately $10 million in actual year-over-year cost reductions. The Company is also tightly managing all its planned expenses, attempting to contain the impact of inflation and rigorously managing other discretionary expenditures.

These actual year-over-year cost reductions include the elimination of approximately 100 positions, or less than 1% of the total employee force, across all locations, through a combination of approximately 50 layoffs and the elimination of approximately 50 vacant positions. The cost reduction plan also includes changes designed to improve operational effectiveness, such as optimizing snowmaking expenditures, modifying lift operating times during off-peak periods, converting certain year round positions to seasonal, managing employee housing levels more effectively, reducing back-of-the-house administrative expenses, as well as other measures. The Company estimates that related severance expenses from the workforce reduction will result in a fiscal 2003 pre-tax charge of approximately $2.5 million. The Company also announced a management reorganization, which will streamline operations and contribute further to the cost reduction plan.

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 flows from the Company's operating activities were $131.7 million for the period ending July 31, 2002. Operating cash flows were comprised primarily of $7.6 million of net income, non-cash costs related to real estate sold of $30.3 million, depreciation and amortization expense of $67.0 million, deferred revenues related to Red Sky Ranch initiation fees of $23.0 million, and deferred revenues related to other clubs of $2.5 million, net of $4.7 million of non-cash equity-method investment income and a deferred tax decrease of $2.7 million.

The Company estimates that it will make capital expenditures of approximately $50 million to $70 million during fiscal 2003. The primary projects are anticipated to include (i) snowmaking, on-mountain dining, and lift improvements at Heavenly, (ii) continued planning and development of Peak 7 in Breckenridge which includes slopes and trails, power and telecommunications, construction of a patrol hut and the purchase of snowmaking equipment, (iii) expansion and enhancement of grooming and snowmaking equipment at the Company's Colorado ski resorts, (iv) renovation of the public spaces, guestrooms and lobby of the Lodge at Rancho Mirage, and (v) completion of the renovation of the lobby and guestrooms of the Vail Marriott. Investments in real estate during fiscal 2003 are expected to total approximately $50 to $65 million. The primary projects are anticipated to include (i) continued development of Red Sky Ranch, (ii) continued work on the Vail "Front Door" redevelopment, (iii) preparing for the redevelopmen t of the Lionshead base area and other land holdings located within the Town of Vail, (iv) the infrastructure for the Breckenridge Timber Trail single-family homesite development, (v) the Jackson Hole area residential and golf development, and (vi) additional planning and development projects in and around each of the Company's resorts.

The Company's cash flows used in investing activities also included $164.8 million in cash paid in the acquisitions of Heavenly, the Lodge at Rancho Mirage, the Vail Marriott and RockResorts, $2.0 million of advances to affiliates, $6.5 million in net distributions received from equity-method investments, and $0.3 million cash received from the sale of fixed assets.

During fiscal 2002, the Company's financing activities provided $177.6 million cash , 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. As of July 31, 2002, the Company had $93.9 million in outstanding letters of credit issued against the Credit Facility, primarily related to construction and development activity. See Note 9, Commitments and Contingencies, of the Consolidated Financial Statements, for more information regarding these letters of credit. 24,977 employee stock options were exercised at exercise prices ranging from $6.850 to $19.125. Additionally, 8,270 shares of restricted stock were issued to management.

For the year ended July 31, 2001, cash flows from operating activities were $108.6 million. Capital expenditures for fiscal 2001 were $57.8 million and investments in real estate for that period were $39.2 million. The Company's cash flows used in investing activities also included $19.5 million in cash paid for two hotels and other acquisitions, a $7.4 million loan to a joint venture, $15.9 million in net distributions from equity-method investments, and $0.5 million cash received from the sale of fixed assets. During 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 used in other financing activities.

For the year ended July 31, 2000, cash flows from operations were $110.7 million. Capital expenditures were $76.7 million and investments in real estate for that period were $40.4 million. During the year ended July 31, 2000, the Company used $6.3 million in cash in its financing activities, consisting of net payments on long-term debt of $5.1 million and $1.2 million used in other financing activities.

The Company's Credit Facility provides for affirmative and negative covenants that restrict, among other things, the Company's ability to incur indebtedness, dispose of assets, make capital expenditures and make investments. In addition, the agreement includes certain restrictive financial covenants, the most restrictive of which are the funded debt to adjusted EBITDA ratio (as defined), senior debt to adjusted EBITDA ratio, minimum fixed charge coverage ratio, minimum net worth and the interest coverage ratio.

The Company was in compliance with all relevant covenants in its debt instruments as of July 31, 2002. The Credit Facility was amended on October 28, 2002, to increase the funded debt to adjusted EBITDA ratio to be measured for the covenant compliance period ending October 31, 2002. The Company's anticipated ability to comply with the formerly applicable ratio had been adversely impacted by poorer than expected performance for first quarter of fiscal 2003 and by the Company's change in revenue recognition for initiation fee revenue, as disclosed in the recently filed Amendment to Form 10-K for the year ended July 31, 2001. The Company expects it will meet all applicable quarterly financial tests in its debt instruments, including the funded debt ratio contained in the Credit Facility, in fiscal 2003. 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 from the banks participating i n 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 would be granted, which could have a material adverse impact on the liquidity of the Company.

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 $602.8 million, are currently recognized as liabilities in the Company's Consolidated Balance Sheet. Operating lease obligations, which total $47.6 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 2002 is as follows:

In addition to the above contractual obligations, as part of its ongoing operations, the Company enters into certain arrangements that obligate the Company to make future payment only upon the occurrence of a future event that will result in the Company making a cash payment (e.g. guarantee debt of a third party should the third party be unable to perform). The following commercial obligations 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 other commercial commitments, including commitments associated with equity method investments at the end of fiscal 2002, is as follows:

Based on current levels of operations and cash availability, 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.

The preparation of the Consolidated Financial Statements in conformity with generally accepted accounting principles requires the Company to select appropriate accounting policies, and to make judgments and estimates affecting the application of those accounting policies. In applying the Company's accounting policies, different business conditions or the use of different assumptions may result in materially different amounts reported in the Consolidated Financial Statements.

In response to the Securities and Exchange Commission's ("SEC") Release No. 33-8040, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies", the Company has identified the most critical accounting policies upon which the Company's financial status depends. The critical principles were determined by considering accounting policies that involve the most complex or subjective decisions or assessments. The most critical accounting policies identified relate to (i) revenue recognition; (ii) reserve estimates; (iii) intangible assets, (iv) income taxes and (v) real estate held for sale.

Revenue Recognition. Mountain and lodging revenues are derived from a wide variety of sources, including sales of lift tickets, ski/snowboard school tuition, dining, retail stores, equipment rental, hotel operations, property management services, travel reservation services, private club dues and fees, real estate brokerage, conventions, golf course greens fees, licensing and sponsoring activities and other recreational activities, and are recognized as products are delivered or services are performed. Revenues from real estate sales are not recognized until title has been transferred, and revenue is deferred if the related receivable is subject to subordination until such time that all costs have been recovered. Until the initial down payment and subsequent collection of principal and interest are by contract substantial, cash received from the buyer is reported as a deposit on the contract. Revenues from club initiation fees are initially deferred and recognized over the expected life of the club facilities.

Deferred Revenue. In addition to deferring certain revenues related to the Real Estate segment, the Company records deferred revenue related to the sale of season ski passes, certain daily lift ticket products and private club initiation fees. Season pass revenue is recognized each time a season pass is used to access a ski resort based on a rate established using the total estimated visits of a season pass holder for the ski season. During the ski season the estimated visits are compared to the actual visits and adjustments are made if necessary. Initiation fees are recognized over the expected life of the club facilities.

Reserve Estimates. The Company uses estimates to record reserves for certain liabilities, including medical claims and workers' compensation (for which the Company is self-insured), legal liabilities and liabilities for the completion of real estate sold by the Company, among other items. The Company estimates the total potential costs related to these liabilities that will be incurred, and records that amount as a liability in its financial statements. These estimates are reviewed and appropriately adjusted as the facts and circumstances related to the liabilities change.

Intangible Assets. The Company frequently obtains intangible assets, primarily through business combinations. The assignment of value to individual intangible assets generally requires the use of specialist, such as an appraiser. The assumptions used in the appraisal process are forward-looking, and thus are subject to significant interpretation. Because individual intangible assets (i) may be expensed immediately upon acquisition; (ii) amortized over their estimated useful life; or (iii) not amortized, the assigned values could have a material effect on current and future period results of operations. Further, intangibles are subject to certain judgments when evaluating impairment pursuant to Statement of Financial Accounting Standards No. 142, "Goodwill and Intangible Assets", discussed more below.

Income Taxes. The Company is required to estimate its income taxes in each jurisdiction in which it operates. This process requires the Company to estimate the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities on the Company's Consolidated Balance Sheets. The Company must then assess the likelihood that the deferred tax assets will be recovered from future taxable income, and to the extent recovery is not likely, must establish a valuation allowance. As of July 31, 2002, the Company had a net current deferred tax asset of $10.4 million, which represented approximately 0.7% of total assets. The net deferred tax asset contains a valuation allowance representing the portion that management does not believe will be recovered from future taxable income. Management believes that sufficient taxable income will be gene rated in the future to realize the benefit of the Company's net deferred tax assets. The Company's assumptions of future profitable operations are supported by the Company's strong operating performance over the last several years and the absence of factors that would indicate this trend would be unlikely to continue.

Real Estate Held for Sale. The Company capitalizes as land held for sale the original acquisition cost, direct construction and development costs, property taxes, interest incurred on costs related to land under development, and other related costs (engineering, surveying, landscaping, etc.) until the property reaches its intended use. The cost of sales for individual parcels of real estate or condominium units within a project is determined using the relative sales value method. Selling expenses are charged against income in the period incurred. Estimates to complete for units that have been sold are accrued at the date of sale based on management's best estimate of the remaining costs to be incurred.

The first step of the "two-step" impairment approach to testing goodwill involves a screen for potential impairment and the second step measures the amount of impairment. Under the transitional provisions of SFAS No. 142, the Company completed the first step of its goodwill impairment testing by the end of its second fiscal quarter and the transitional impairment testing of its other intangible assets by the end of its first fiscal quarter of 2002. The Company utilized discounted cash flow techniques to estimate the fair value of its reporting units. As allowed under the transitional provisions of SFAS No. 142, the Company completed the second step in the fourth quarter of fiscal 2002. As a result, the Company recorded a goodwill impairment loss associated with the Village at Breckenridge reporting unit of $1.7 million, net of income taxes, in the first quarter of fiscal 2002, which has been recorded as a cumulative effect of change in accounting principle in the Consolidated Statements of Operations. The impairment is the result of the failure of the related reporting unit to meet the earnings expectations set by the Company at the time the reporting unit was acquired. The following table reconciles fiscal 2002, 2001 and 2000 net income to adjusted income as if SFAS No. 142 was effective in those years (in thousands, except per share amounts):

The changes in the carrying amount of goodwill for the years ended July 31, 2002, 2001 and 2000 are as follows (in thousands):

The goodwill acquired in fiscal year 2002 is related to the mountain and lodging segments in the amounts of $1.0 million and $7.8 million, respectively.

The carrying value of intangibles assets, other than goodwill, not currently subject to amortization (as of August 1, 2001) totaled $53.6 million and $47.0 million as of July 31, 2002 and 2001, respectively, and include primarily trademarks and trade names.

The carrying value of other intangible assets (net of accumulated amortization) subject to amortization for the fiscal years ended July 31, 2002 and 2001 is as follows (in thousands):

Amortization expense for intangible assets for the fiscal years ended July 31, 2002, 2001 and 2000 totaled $3.4 million, $9.9 million and $9.6 million, respectively, and is estimated to be approximately $4.6 million annually for the next five fiscal years.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company will adopt the provisions of SFAS No. 143 on August 1, 2002. The Company does not currently have any obligations falling under the scope of SFAS No. 143, and therefore does not believe its adoption will have a material impact on its financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", but retains the requirements of SFAS No.121 to (a) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. SFAS No. 144 removes goodwill from its scope as the impairment of goodwill is addressed pursuant to SFAS No. 142. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those years. The Company will adopt the provisions of SFAS No. 144 on August 1, 2002. The Company does not expect the adoption of SFAS No. 144 to have a material impact on its financial position or results of oper ations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This Statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt", SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers" and SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This statement amends SFAS No. 13, "Accounting for Leases", to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 is generally effective for the Company for fiscal year 2003. The Company does not expect the adoption of SFAS No. 145 to have a significant effect on its results of operations or financial position.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement requires that a liability for a cost that is associated with an exit or disposal activity be recognized when the liability is incurred. This statement nullifies the guidance of the Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in Restructuring)". Under EITF No. 94-3, an entity recognized a liability for an exit cost on the date that the entity committed itself to an exit plan. SFAS No. 146 acknowledges that an entity's commitment to a plan does not, by itself, create a present obligation to other parties that meets the definition of a liability. SFAS No. 146 also establishes that fair value is the objective for the initial measurement of the liability. SFAS No. 146 will be effective for exit or disposal activities that are initiated after Dec ember 31, 2002. The Company is currently evaluating the impact that the implementation will have on its financial statements.

In May 2002, the EITF reached consensus on EITF Issue No. 01-14, "Income Statement Characterization of Reimbursements Received for "Out-of-Pocket" Expenses Incurred". This issue requires that reimbursements received for out-of-pocket expenses incurred should be characterized as revenue in the income statement. EITF Issue No. 01-14 should be applied in financial reporting periods beginning after December 15, 2001. The Company will adopt the provisions of EITF Issue 01-14 on August 1, 2002. The Company is currently evaluating the impact that the implementation of EITF Issue 01-14 will have on its financial statements.

Although the Company cannot accurately determine the precise effect of inflation on its operations, management does not believe inflation has had a material effect on the results of operations in the last three fiscal years. When the cost of operating resorts increases, the Company generally has been able to pass the increase on to its customers. However, there can be no assurance that increases in labor and other operating costs due to inflation will not have an impact on the Company's future profitability.

Seasonality and Quarterly Results

The Company's mountain and lodging operations are seasonal in nature. In particular, revenues and profits for the Company's mountain and most of its lodging operations are substantially lower and historically result in losses in the summer months. Conversely, GTLC's and certain managed properties' peak operating seasons occur during the summer months while the winter season generally results in operating losses due to closure of all revenue generating operations. However, revenues and profits generated by GTLC's summer operations and management fees from those managed properties are not sufficient to fully offset the Company's off-season losses from its mountain and lodging operations. During the 2002 fiscal year, 76.3% of total combined mountain and lodging revenues were earned during the second and third fiscal quarters. Quarterly results may be materially affected by the timing of snowfall and the integration of acquisitions. Therefore, the operating results for any three-month period are not necessari ly indicative of the results that may be achieved for any subsequent fiscal quarter or for a full fiscal year. The Company is taking steps to smooth its earnings cycle by investing in additional summer activities, such as golf course development, and also through lodging acquisitions. (See Note 13 of the Notes to Consolidated Financial Statements for Selected Quarterly Financial Data).

Skiing and tourism are discretionary recreational activities that can be impacted by a significant economic slowdown, which, in turn, could impact the Company's operating results. Although historically economic downturns have not had an adverse impact on the Company's operating results, there can be no assurance that a decrease in the amount of discretionary spending by the public in the future would not have an adverse effect on the Company.

The ski industry's ability to attract visitors to its resorts is influenced by weather conditions and the amount and timing of snowfall during the ski season. Unfavorable weather conditions can adversely affect skier visits. In the past 20 years the Company's ski resorts have averaged between 20 and 30 feet of annual snowfall, significantly in excess of the average for U.S. ski resorts. However, there is no assurance that the Company's resorts will receive seasonal snowfalls near the historical average in the upcoming or future seasons. Also, the early season snow conditions and skier perceptions of early season snow conditions influence the momentum and success of the overall season. The Company believes that poor snow conditions early in the ski season during the 1998/99 and 1999/2000 ski seasons had an adverse effect on operating results for those periods. A severe and prolonged drought could affect the Company's otherwise adequate snowmaking water supplies. There is no way for the Company to predi ct future weather patterns or the impact that weather patterns may have on results of operations or visitation.

The Company 's resort and lodging operations are largely dependent on a seasonal workforce. The Company recruits worldwide to fill staffing needs each season, and utilizes H2B visas to enable the use of foreign workers. In addition, the Company manages seasonal wages and timing of the hiring process to ensure the appropriate workforce is in place. While the Company does not currently foresee the need to increase seasonal wages to attract employees, it cannot guarantee that such an increase would not be necessary in the future. In addition, the Company cannot guarantee that it will be able to obtain the visas necessary to hire foreign workers, who are an important source for the seasonal workforce. Increased seasonal wages or an inadequate workforce could have an adverse impact on the Company's results of operations; however, the Company is unable to predict with any certainty whether such situations will arise or the potential impact to results of operations.

The terrorist acts carried out against the United States on September 11, 2001 have had an adverse effect on the global travel and leisure industry. The Company cannot guarantee if or when normal travel and vacation patterns will resume. In addition, additional terrorist acts against the United States and the declaration of war by the United States could result in further degradation of discretionary travel upon which the Company's operations are highly dependent. Such degradation could have a material adverse impact on the Company's results of operations.

Interest Rate Risk. The Company's exposure to market risk is limited primarily to the fluctuating interest rates associated with variable rate indebtedness. At July 31, 2002, the Company had $155.8 million of variable rate indebtedness, representing 26% of the Company's total debt outstanding, at an average interest rate during fiscal 2002 of 7.0% (see Note 4 of the Notes to Consolidated Financial Statements). Based on average floating-rate borrowings outstanding during the year ended July 31, 2002, a 100-basis point change in LIBOR would have caused the Company's annual interest expense to change by $938,000. Management does not consider these amounts material to the Company's results of operations.

To the Shareholders and Board of Directors of

Vail Resorts, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Vail Resorts, Inc. and its subsidiaries (the "Company") at July 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2002, in conformity with accounting principles generally accepted in the United States of America. These consolidated financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the accompanying consolidated financial statements, the Company has adopted SFAS No. 142, "Goodwill and Intangible Assets," on August 1, 2001.

Denver, Colorado

October 28, 2002