or

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, uncertainties related to the restatements of earnings; the SEC investigation; economic downturns; terrorist acts upon the United States; threat of or actual war; unfavorable weather conditions; our ability to obtain financing on terms acceptable to us to finance our capital expenditure and growth strategy; our ability to develop our resort and real estate operations; competition in our mountain and lodging businesses; our reliance on government permits for our use of federal and National Park Service land; our ability to integrate and successfully operate future acquisitions; adverse consequences of current or future legal claims; 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%, 23%, and 11%, respectively, of the Company's revenues for the 2003 fiscal year. The Company's Mountain segment owns and operates five premier ski resort properties which provide a comprehensive resort experience throughout the year to a diverse clientele with an attractive demographic profile. The Company's Lodging segment owns and/or manages a collection of luxury hotels, a destination resort at Grand Teton National Park, and a series of strategic lodging properties located in proximity to the Company's 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 14, Segment Information, of the Notes t o 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 2002/03 ski season;
• Beaver Creek Resort ("Beaver Creek")--one of the world's premier family-oriented mountain resorts, currently ranked as the number eight 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 six ski resort in North America by SKI magazine and the second most visited resort in the United States for the 2002/03 ski season;
• Heavenly Valley Ski Resort ("Heavenly")--the third largest ski resort in North America, currently ranked as the number thirteen ski resort in North America by SKI magazine; and
• Keystone Resort ("Keystone")--a year-round family vacation destination, currently ranked as the number fifteen ski resort in North America by SKI magazine and the third most visited resort in the United States for the 2002/03 ski season.

The Company's Mountain segment derives revenue primarily through the sale of lift tickets and ski passes. This revenue source is supported and augmented by a comprehensive package of amenities available to guests, including ski and snowboard lesson packages, 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 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 2002/03.

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 obtaining a ticket or pass and using a ski area for all or any part of a day or night, and includes both paid and complimentary access. During the 2002/03 ski season, combined skier visits for all North American ski areas were approximately 76.5 million. U.S. skier visits approximated 57.6 million, an increase of less than 1% as compared to the 2001/02 season. The Company's ski resorts had 5.7 million skier visits during the 2002/03 ski season, or approximately 10% of U.S. skier visits, and an approximate 7.5% share of the North American market's skier visits.

The Company's Colorado ski resorts appeal to both day skiers and destination guests due to the resorts' proximity to Colorado's Front Range (Denver/Colorado Springs 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 11.6 million skier visits for the 2002/03 ski season, up less than 1% from the 2001/02 ski season. Skier visits at the Company's Colorado ski resorts totaled more than 4.8 million, and accounted for approximately 66% of Colorado's total Front Range Destination Resort skier visits and 41.4% of all Colorado skier visits for the 2002/03 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 753 ski trails on more than 22,000 total resort acres. Heavenly recorded 937,000 skier visits for the 2002/03 ski season, capturing 12.8% of California's 7.3 million total skier visits for the ski season.

The ski resort industry is highly competitive. There are significant barriers to entry for new ski areas, due to the limited private lands on which ski areas could be built, the difficulty in getting the appropriate governmental approvals to build on public lands and the significant capital needed to construct the appropriate infrastructure. While most North American ski areas are individually owned and operated, recent years have seen the emergence of several major corporations, including the Company, which own the top ski areas. These other major corporations include the operators of Whistler Blackcomb, Copper Mountain, Mammoth Mountain, Winter Park, Killington, Steamboat and Northstar-at-Tahoe.

These larger owners generally have a competitive advantage over the individual operator, as they typically have better access to the capital markets and are able to generate synergies within their resort operations which enhance profitability. While the industry has seen recent years with record skier visits, it is an industry belief that these skier visit increases are generated primarily by the same population of skiers skiing more, rather than growth in the overall skier population. While the industry and the Company's efforts are focused on growing the overall skier population, a particular ski area's growth is primarily dependent on either attracting skiers away from other resorts, or generating more revenue per skier visit. This has created a trend of increased spending on capital improvements to ensure the newest and best technology and also to create new attractions, as well as intense competition in pricing. In addition, "destination" ski resorts must also compete with other non-ski related vacat ion destinations for guests. In recent years, the ski industry has seen increased competition from beach resorts, cruise lines, golf resorts and amusement parks. Because the Company's ski resorts are primarily destination-skier driven, and are also, to a lesser extent, day-skier driven, the Company's primary competitors include the companies noted above, other ski areas in Colorado, and other major destination ski areas, including those in Utah, the Lake Tahoe area of California, Canada and Europe.

There are a variety of factors which contribute to a skier's choice of ski resort, including terrain, challenge, grooming, service, lifts, accessibility, value, weather/snow and on- and off-mountain amenities. The Company's resorts consistently rank in the top 20 ski resorts in North America according to industry surveys, which the Company attributes to its resorts' ability to provide a high-quality experience in each of the above mentioned categories.

The Company's ski resorts compete effectively in all categories with respect to attracting day skiers and destination guests for the following reasons:

• The Company has some of the most expansive and varied terrain of any resort in North America--Vail alone offers 5,289 skiable acres. The Company's five ski resorts offer over 15,780 skiable acres, with substantial offerings for beginner, intermediate and advanced skiers.
• The Company added Heavenly to its ski portfolio for the 2002/03 ski season and 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 is involved in initiatives that support the National Ski Area Association's programs to grow participation in snowsports. Each of the Company's resorts run specific programs designed to attract and retain newcomers to snowsports.
• The Company's locations in the Colorado Rocky Mountains provide average yearly snowfall of between 20 and 30 feet and the Sierra Nevada Mountains receive average yearly snowfall of between 25 and 35 feet, which is significantly higher than the average for all U.S. ski resorts.
• The Company's Colorado resorts are proximate to both Denver International Airport and Vail/Eagle County Airport, and Heavenly is proximate to both Reno/Tahoe International Airport and Sacramento International Airport. This provides ease of access to the Company's resorts for destination visitors.
• The Colorado Front Range market, with a population of approximately 3.6 million, is within a two-hour drive from each of the Company's Colorado resorts, with access via a major interstate highway.
• Heavenly is proximate to two large California population centers, the Sacramento/Central Valley and the San Francisco Bay area, with a combined population of 8.7 million.
• 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, two high-speed six-passenger lifts at Breckenridge, and a high-speed four-passenger interconnect chairlift at Breckenridge. The Company installed a new high-speed four-passenger chairlift at Beaver Creek for the 2003/04 ski season.
• The Company provides a wide variety of quality dining venues both on- and off-mountain, ranging from top-rated fine dining establishments to trailside express food service outlets.
• The Company's eleven 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, the Adventure Ridge and Adventure Point mountain-top activities centers, and resort-wide charging, which enables guests to use a lift ticket product to make purchases at many Company facilities.
• The Company's innovative frequent guest programs and extensive array of lift ticket products at varied price points provide value to guests.
• The Company is strongly committed to providing quality guest service, from best-of-class ski and snowboarding schools, to teams of on-mountain hosts and new technology centers, where guests can try the latest technical innovations in equipment. The Company solicits guest feedback through extensive use of surveys, which the Company utilizes to ensure high levels of customer satisfaction.
• The Company continually upgrades and expands available services and amenities through capital improvements and real estate development activities. Current proposed projects include the revitalization of the primary portal to Vail Mountain known as Vail's "Front Door", developing new villages at the base of Breckenridge's Peaks 7 and 8, preparing for the redevelopment of the Lionshead base area and other land holdings within the Town of Vail, upgrading dining, snowmaking and lift services at Heavenly, launching "The Evolution Has Begun" changes at Keystone for the 2003/04 season by expansion of cat skiing, terrain parks and snowmaking, 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. The Company also enters into strategic alliance agreements with selecte d "name brand" companies to increase its market exposure and create opportunities for cross-marketing.

Ski resort operations are highly seasonal in nature, with a typical ski season beginning in mid-November and running through mid-April. In an effort to counterbalance the concentration of revenues in the winter months, the Company offers many non-ski season attractions, such as golf, tennis, guided fishing, float trips and mountain biking. These year-round activities also help attract destination convention business to the Company's resorts.

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

Hotels are categorized by Smith Travel Research, a leading lodging industry research firm, as upper-upscale, 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 620,000 rooms at over 1,710 properties worldwide as of July 2003, according to Smith Travel Research. During fiscal 2003, the Company's owned hotels had an overall average ADR of $155.62 and paid occupancy rate of 59.4%, while the upper-upscale industry segment's average for the same period was an ADR of $137.55 and paid occupancy rate of 65.8% (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 within their geographic markets with hotels and resorts that include locally owned independent hotels as well as facilities owned or managed by national and international chains, including such brands as Ritz-Carlton, Four Seasons, Westin, Hyatt and Marriott. The Company's lodging strategy, through RockResorts, is focused on the resort hotel niche within the upper-upscale market. The Company's properties also compete for convention and conference business across the national market. The Company believes it is highly competitive in this niche for the following reasons:

• All of the Company's hotels are located in highly desirable resort destinations.
• The Company's hotel portfolio has achieved some of the most prestigious hotel designations in the world, including three hotels designated as Leading Hotels of the World, four designated as Preferred Hotels & Resorts, two designated Historic Hotels of America and one designated as a Small Luxury Hotel. The Company has five properties in its portfolio that are currently recognized as either Mobil 4-Star or AAA 4-Diamond resorts.
• The RockResorts brand is an historic brand name with a rich tradition associated with high quality luxury resort hotels.
• The Company's hotels are designed to provide a look that feels indigenous to their surroundings, enhancing the guest's vacation experience.
• Each of the Company's hotels provide a wide array of amenities available to the guest such as access to world-class ski and golf resorts, spa facilities, water sports and a number of other outdoor activities as well as highly acclaimed dining options.
• Conference space with the latest technology is available at most of the Company's hotels. In addition, guests at Keystone Resort can use the Company-owned Keystone Conference Center, the largest conference facility in the Colorado Rocky Mountain region with more than 100,000 square feet of meeting, exhibit and function space.
• The Company has a central reservations system in Colorado which leverages off of its ski resort reservations system and has implemented the first phase of a web-based central reservation system that provides guests with the ability to plan their entire vacation online. Non-Colorado properties are served by a central reservations system and global distribution system provided by a third party, Pegasus Solutions.
• The Company actively upgrades the quality of the accommodations and amenities available at its hotels through capital improvements. Capital funding for non-owned properties is provided by the owners of the properties. Recent projects included the renovation of the lobby and guestrooms of the Vail Marriott, construction of a new spa and ballroom at The Equinox and the expansion of Casa Madrona, which nearly doubled the number of rooms available and included a new spa. Planned projects include completion of the renovation of the public spaces, guestrooms and lobby of The Lodge at Rancho Mirage, construction of a new spa at the Lodge at Vail in connection with the "Front Door" project in Vail, construction at Casa Madrona including a new restaurant and meeting space and the renovation at Cheeca Lodge.

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

The Company also owns and operates Grand Teton Lodge Company ("GTLC"), which was the Company's first resort with a predominantly summer operating season. GTLC is based in Jackson Hole, Wyoming and operates within Grand Teton National Park under a concessionaire contract with the National Park Service, which will be up for bid in the upcoming renewal process, expected some time in 2004. For more information regarding this concessionaire contract, refer to the Regulation and Legislation section below. GTLC also owns and operates the Jackson Hole Golf & Tennis Club ("JHG&TC"), which is located outside of Grand Teton National Park. 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 84 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 visitation within the National Park System. In calendar 2002, areas designated as National Parks received over 88 million recreation visits. Grand Teton National Park, which spans approximately 310,000 acres, had 2.6 million recreation visits during calendar 2002, or approximately 2.9% of total National Park recreation visits. Four concessionaires provide accommodations within the Park, including GTLC. GTLC offers three lodging options within the Park: Jackson Lake Lodge, a full-service 385-room resort with conference facilities which can accommodate up to 700 people; the Jenny Lake Lodge, a smal l, rustically elegant retreat with 37 cabins; and Colter Bay Village, a family-oriented facility with 166 log cabins, 66 tent cabins, and a 112-space RV park. GTLC offers dining options as extensive as its lodging options, with cafeterias, casual eateries, and fine-dining establishments. GTLC's resorts provide a wide range of activities for guests to enjoy, including cruises on Jackson Lake, boat rentals, horseback riding, guided fishing, float trips, golf and guided park tours. Because of the extensive amenities offered as well as the tremendous popularity of the National Park System, GTLC's resorts within the Park operate near full capacity during their operating season.

The Company is a minority partner in a joint venture that owns the Ritz-Carlton, Bachelor Gulch in Beaver Creek, which opened in November 2002. The 237-room hotel features a 21,800 square foot spa and fitness center (owned by the Company), ski rental, retail space, restaurants, meeting space and an exclusive members' lounge for the Bachelor Gulch Club. Twenty-three privately-owned luxury penthouse residences, twenty-two of which have been sold, were 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).

The Company has extensive holdings of real property at its resorts throughout Summit and Eagle Counties in Colorado and in Teton County, Wyoming. The Company's real estate operations 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 typically seeks to minimize the Company's exposure to development risks and maximize the long-term value of the Company's real property holdings by selling developed and entitled land to third party developers for cash payments prior to the commencement of construction, while retaining approval of the development plans as well as an interest in the developer's profit. The Company also typically retains the option to purchase at cost any retail/commercial space created in a development. The Company is able to secure these benefits from third-party developers because of the high property values and strong demand associated with property in close proximity to the Company's mountain resort facilities. In some cases, VRDC develops the Company's real estate holdings itself and may adopt this model more frequently in the future for certain planned projects.

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

VRDC's current development activities are focused on (1) continued work on the Vail "Front Door" redevelopment, (2) preparing for the redevelopment of the Lionshead base area and other land holdings located within the Town of Vail, (3) the development around the proposed base area of Breckenridge Peaks 7 and 8, (4) 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 3,750 year-round and 10,750 seasonal employees. In addition, the Company employs approximately 910 year-round and 220 seasonal employees on behalf of the managed RockResorts properties. Approximately 1% of the seasonal employees are unionized. The Company considers 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 Special Use Permits granted by the United States Forest Service (the "Forest Service"). The Forest Service has the right to review and approve the location, design and construction of improvements in the permit area and many operational matters. While virtually all of the skiable terrain on Vail Mountain, Breckenridge, Heavenly and Keystone is located on Forest Service land, a significant portion of the skiable terrain on Beaver Creek Mountain, primarily in the lower main mountain, Western Hillside, Bachelor Gulch and Arrowhead Mountain areas, is located on Company-owned land.

The permits originally granted by the Forest Service were (1) Term Special Use Permits granted for 30-year terms, but which may be terminated upon 30 days written notice by the Forest Service if it determines that the public interest requires such termination and (2) Special Use Permits that are terminable at will by the Forest Service. In November 1986, a new law was enacted providing that Term Special Use Permits and Special Use Permits may be combined into a unified single Term Special Use Permit that can be issued for up to 40 years. These unified Special Use Permits were amended in 2003 to reflect the permit boundary maps and acreage amounts set forth in the new White River Nation Forest Plan. Changes to the permit boundaries are not material to the Company's plans. Vail Mountain operates under a unified permit for the use of 12,226 acres that expires October 31, 2031. Breckenridge operates under a Term Special Use Permit for the use of 5,553 acres that expires on December 31, 2029. Keystone operates under a Term Special Use Permit for the use of 8,376 acres that expires on December 31, 2032. Beaver Creek Mountain Resort operates under a Term Special Use Permit for the use of 3,801 acres that expires on December 31, 2038. Heavenly Ski Resort operates under a Ski Area Term Special Use Permit from the Forest Service, which covers 7,050 acres, is administered by the Lake Tahoe Basin Management Unit, and expires May 1, 2042. In addition, Heavenly operates four separate base areas, all of which are located on 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.

For use of the Special Use Permits, the Company pays 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.

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

Certain of the Company's resort and lodging operations require permits and approvals from certain federal, state, and local authorities, in addition to the Forest Service and U.S. Army Corps of Engineers approvals discussed below. 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 operations in ways satisfactory to it, no assurance can be given that any particular permits and approvals will be obtained or upheld on judicial review.

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 and direct lift service for the trails was provided in the 2002/03 ski season. In May 2002, the Company signed a Preliminary Agreement with the Town of Breckenridge, which allows us to proceed with the review of the Master Plan with specified density. In September 2002, the town approved a Development Agreement which allowed the Planning Commission to review the Company's Master Plan amendment with certain components that would otherwise have varied from the town's Development Code. The amended Master Plan was approved by the Town of Breckenridge in June 2003.

In 1997, the Company sought approval from the Forest Service and other agencies to develop chairlifts, associated skiing terrain and snowmaking in Jones Gulch, which is located within the current Keystone permit area. In April 2002, the Company modified the area of its requested development known as the Ski Tip Portal. This development will be the subject of an environmental review. The initial issues include the potential effect of the expansion on wildlife and water quality, and it is possible that the future resolution of these issues could affect whether, in what form, and under what conditions the project is approved. In December 1998, the U.S. Army Corps of Engineers notified Keystone that it had preliminarily determined that the wetlands permit for Keystone's snowmaking diversion limits such diversions to 550 acre-feet annually. The Company requested that the permit be modified to allow Keystone to withdraw up to 1,350 acre-feet annually for snowmaking and, in April 2000, the U.S. Army Corps of Eng ineers approved the Company's request, subject to certain conditions which the Company believes can be satisfied. In March 2000, the Company announced that Keystone and the Forest Service would conduct a joint water quality study of snowmaking at Keystone. The study was completed and indicated that levels of tested metals were within water quality standards.

In the spring of 2000, the Company submitted a proposal to the Forest Service concerning additional snowmaking on Vail Mountain and a race facility expansion at Vail's Golden Peak. The Company withdrew this proposal in lieu of plans to make a new proposal. The Company intends to submit, after resolution of the White River National Forest Plan appeals process, a proposal to combine additional snowmaking and race facilities at Golden Peak, with a new master plan for the "front side" of Vail Mountain. Also, the Company is in the process of a land exchange with the Forest Service involving land at the Vail Village base area in connection with one of the Company's development projects. The Company has also submitted a proposal to the U.S. Forest Service to install a new chair lift in the Vail's Sundown Bowl and to upgrade the existing Chair 5 to a high-speed, detachable quad chair lift. In addition, the Company submitted a separate proposal to the Forest Service concerning a proposed Beaver Creek gondola, a po rtion of which would cross public lands on Beaver Creek Mountain within the Company's existing permit boundaries. This gondola proposal was approved by the Forest Service through an Environmental Assessment, although the Company is considering an alternative to the gondola proposal. No final decision has been made.

The new 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, including Vail and Beaver Creek mountains. 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.

In October 2003, the Company and the United States of America, on behalf of the U.S. Environmental Protection Agency ("EPA"), entered into a Consent Decree to settle the alleged violation of the Clean Water Act in 1999 by the Company in connection with the road construction undertaken by the Company as part of the Blue Sky Basin expansion at the Vail ski area. As previously disclosed in earlier filings, in 1999 the EPA alleged that the road construction involved discharges of fill material into less than one acre of wetlands without a permit in violation of the Clean Water Act. The Company has completed the restoration work on the wetland impact (subject to continuing monitoring and restoration work over the next several years) pursuant to the restoration plan approved by the EPA.

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

The Company cannot guarantee whether or when the Court will enter the proposed Consent Decree. However, based on the 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 operation.

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. All cleanup work has been completed in accordance with the approved work plan and a new underground vault, piping and overflow protection system was installed to prevent any further releases. A final report was prepared by the Company's remediation consultant, URS Corporation, and was submitted on March 31, 2003 to the above two agencies. While no response has been received, the Company believes that these agencies are satisfied with the cleanup and reporting efforts but may require installation of a new monitoring well in summer 2004 to monitor any future spills that might occur outside the new containment system.

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

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

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

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

The Company's corporate internet address is www.vailresorts.com. The Company's SEC information, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available free of charge on the Company's corporate website as soon as reasonably practicable after the information is electronically filed with or furnished to the SEC. No content of the Company's corporate website is incorporated by reference herein. Copies of any materials the Company files with the SEC can be obtained at www.sec.gov or at the SEC's Public Reference Room at 450 Fifth St., N.W., Washington, D.C. 20549. Information on the operation of the public reference room is available by calling the SEC at 1-800-SEC-0330.

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

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

The Company is a party to various lawsuits arising in the ordinary course of business. Except for the uncertainty surrounding the Wyoming cases described below, 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.

In October 2002, after voluntary consultation with the SEC staff on the appropriate accounting, the Company restated and reissued its historical financial statements for fiscal 1999-2001, reflecting a revision in the accounting treatment for recognizing revenue on initiation fees related to the sale of memberships in private clubs. As previously announced, the Company engaged its new auditors to do a complete re-audit of the years 1999-2001 and filed an amended 10-K for fiscal year 2001 reflecting all adjustments made as a result of the re-audit, in addition to the revision in accounting for the club fees. In February 2003, the SEC informed the Company that it had issued a formal order of investigation with respect to the Company. At that time, the inquiry related to the Company's previous accounting treatment for the private club initiation fees.

In October 2003, the SEC issued a subpoena to the Company to produce documents related to several matters, including the sale of memberships in private clubs. The Company is fully cooperating with the SEC in its investigation.

EPA Wetland Case

In October 2003, the Company and the United States of America, on behalf of the Environmental Protection Agency Region VIII ("EPA"), entered into a Consent Decree to settle the alleged violation of the Clean Water Act in 1999 by the Company in connection with the road construction undertaken by the Company as part of the Blue Sky Basin expansion at the Vail ski area. As previously disclosed in earlier filings, in 1999 the EPA alleged that the road construction involved discharges of fill material into less than one acre of wetlands without a permit in violation of the Clean Water Act. The Company has completed the restoration work on the wetland impact (subject to continuing monitoring and restoration work over the next several years) pursuant to the restoration plan approved by the EPA.

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

The Company cannot guarantee whether or when the Court will enter the proposed Consent Decree. However, based on the 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 operation.

In September 2002, the Company's subsidiary that is the 50% member of the Keystone/Intrawest LLC filed suit in Delaware Chancery court against the Intrawest member in the joint venture and related Intrawest entities. The suit alleges, among other things, breach of contract by Intrawest and seeks monetary damages and injunctive relief. The Company believes that Intrawest's plans to operate the Winter Park ski area under a long term lease with the City and County of Denver and to develop real estate in and around Winter Park violates the covenant not to compete in real estate projects in certain locations in Colorado, unless certain conditions are met. The Company has agreed to several requests by Intrawest for extensions of time for the defendants to answer in the suit, as the parties continue to pursue settlement discussions. The Company cannot guarantee that the parties will reach a satisfactory settlement. The Company cannot predict either the outcome of the case or the effect of the case on the ong oing or future business of the Keystone/Intrawest LLC.

As previously disclosed, four subsidiaries of the Company (JHL&S, LLC d/b/a/ Snake River Lodge & Spa, Teton Hospitality Services, Inc., Grand Teton Lodge Company and Vail Resorts Development Company) were named as defendants in two related lawsuits filed in the United States District Court for the District of Wyoming (Case No. 02-CV-17J, 02-CV-16J) in July 2002. The Snake River Lodge & Spa is 51% owned by Teton Hospitality Services, Inc., a wholly-owned subsidiary of the Company, such ownership interest having been acquired in December 2000.

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

The complaints allege negligence on the part of each defendant and seek damages, including punitive damages, in amounts to be proven at trial. In June 2003, the Company-related defendants filed a motion seeking partial summary judgment to dismiss both plaintiffs' claims against them for punitive damages. On November 6, 2003, District Court denied that motion, and stated that the Court would reconsider the motion at the close of the plaintiffs' case. Discovery is continuing. Mediation efforts to date have failed to settle the case.

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

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

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

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

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

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

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

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

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 November 5, 2003, 35,274,876 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 27,835,042 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, 2003 and 2002, 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 19, Stock Compensation Plans, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

The following table presents selected historical consolidated financial data of the Company, derived from the Company's financial statements for the periods indicated. The financial data for the fiscal years ended July 31, 2003, 2002, and 2001 should be read in conjunction with the Consolidated Financial Statements, related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this Form 10-K. The Company has restated fiscal years 2002 and prior. For more information regarding this restatement refer to Note 2, Restatements, of the Notes to Consolidated Financial Statements. The table presented below is unaudited. The data presented below are in thousands, except per share and resort revenue per skier visit amounts.

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

The Company has restated its Consolidated Financial Statements as of and for the years ended July 31, 2002 and 2001 for the adjustments discussed below. The total of these adjustments, net of income taxes, is $3.3 million, resulting in reductions to net income of $516,000 in fiscal 2002, $2.2 million in fiscal 2001 and $570,000 related to the three fiscal years prior to fiscal 2001.

Employee housing joint venture accounting: The Company has ownership interests in four entities which own and operate seasonal employee housing facilities (see Note 13, Commitments and Contingencies, of the Notes to Consolidated Financial Statements, for more detailed information regarding these entities). The Company has historically accounted for these entities under the equity method of accounting, recording its pro rata share of their profits or losses based on the Company's ownership percentage, which ranges from 26% to 50%. Three of the entities have accumulated deficits in excess of the respective partners' investments in and advances to the entities that arose primarily from depreciation expense recorded, as the entities are generally designed to operate on a cash flow neutral basis. The Company had historically recorded its proportionate equity ownership share of the entities' losses, reducing the carrying amount of its investments in the entities below zero. This had been done due to the letters of credit issued against the Company's Credit Facility that support a portion of the entities' debt. After further review this fiscal year of the structure of the entities and each of the partners' obligations, the Company determined that it should have recorded 100% of the losses in excess of the other shareholders' investments in and advances to the entities, as those other shareholders have no legal obligation to absorb or fund the losses and it is unlikely that the other shareholders would fund their share of such losses. In addition, the Company also determined that the financial statements prepared by the entities which it had historically used to record its equity-method profit or loss were prepared on a tax basis; therefore, the restatement includes the adjustments necessary to convert the entities' financial statements from a tax basis to generally accepted accounting principles. The adjustments related to employee housing joint venture accounting decrease net income by $178,000 in fiscal 20 02 and by $334,000 in fiscal 2001, and decrease beginning retained earnings by $641,000 in fiscal 2001 for adjustments related to prior periods.

Executive deferred compensation: The Company compensates its Chief Executive Officer ("CEO") with a package that included cash, restricted stock and stock options, membership interests in several of the Company's lunch and golf clubs, and awards of property (see Note 18, Non-Cash Deferred Compensation, of the Notes to Consolidated Financial Statements). With respect to one of the property awards, at the time of grant, the Company estimated the fair value for the purpose of determining the amount of compensation cost to be recognized. In 2003, a transaction entered into by the CEO caused the Company to reconsider whether its estimates made at the date of grant were proper. The Company determined that its estimate was incorrect and required retroactive adjustment. The compensation expense recorded in 2002 and 2001 has been adjusted primarily to reflect the appropriate estimate of fair market value of the homesite itself. The deferred compensation adjustments include a $399,000 increase to fiscal 2002 net income and a $1.8 million decrease to fiscal 2001 net income.

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

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

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

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

In October 2002, the Company proactively implemented a $10 million year-over-year cost reduction plan to counteract the expected softness in the nationwide leisure travel and lodging market. The plan included the elimination of approximately 100 positions (See Note 15, Workforce Reduction, of the Notes to Consolidated Financial Statements) and other changes to improve operational efficiency. The Company began its fiscal year with a promising early ski season, with good snowfall, strong skier numbers, the successful opening of the Ritz-Carlton, Bachelor Gulch and better than expected performance from Heavenly. However, despite the strong start, world events took a toll on the financial performance of the Company during fiscal 2003. The economy has not completely recovered since the September 11, 2001 terrorist attacks and travel patterns, including group and corporate travel, have not returned to normal. The uncertainty over war and the ultimate start of war with Iraq just prior to the Company's peak opera ting season had an even more dramatic impact on visitation at the Company's properties, which was then exacerbated by the outbreak of a previously unheard of and deadly virus throughout the world called SARS. These factors and certain other non-cash charges resulted in year-over-year declines in profitability for the Company's Mountain and Lodging segments (see Note 14, Segment Information, of the Notes to Consolidated Financial Statements), as well as an overall net loss of $8.5 million for the year.

The Company's financial statements for fiscal 2003 reflect certain non-cash charges that significantly impact the Company's net loss position for the year. These charges include:

• non-cash compensation expense (see Note 18, Non-Cash Deferred Compensation, of the Notes to Consolidated Financial Statements) of $3.5 million related to the issuance of restricted stock and real property transferred to the Company's CEO and VRDC's president pursuant to their employment agreements (the Company also reflected $3.0 million and $1.9 million of related non-cash compensation expense in fiscal 2002 and 2001, respectively),
• a non-cash charge of $4.8 million related to the impairment of an option to acquire certain development land near Vail Mountain (see Note 10, Impairment Charge, of the Notes to Consolidated Financial Statements),
• the Company's proportionate equity share of losses from BG Resort related to start-up costs and initial operating losses incurred from the Company's 49% interest in the Ritz-Carlton, Bachelor Gulch, which opened in November 2002 ($5.8 million),
• increases in actuarial reserves related to workers' compensation and medical benefits ($3.9 million), and
• incremental depreciation expense associated with the major acquisitions the Company made in fiscal 2002 ($8.6 million).

The Company expects earnings to improve in fiscal 2004, given a normal snow year and barring any unforeseen events. The Company does not expect that the non-cash charges noted above will have as significant an impact in fiscal 2004.

The Company plans to cut costs further in fiscal 2004 through the implementation of a previously announced $25 million year-over-year cost savings/improved profits plan. Key components of this plan include implementing a mandatory time off policy for all full-time year-round employees, restructuring of the Company's health plan and other employee benefits plans, implementing process improvements in the Company's operations to achieve operational efficiencies and obtain cost savings, and decentralizing the Marketing and Sales organization to allow each of the Company's properties to provide more focused and targeted messages to guests. As a result of the Marketing and Sales decentralization, the Company terminated the employment of three employees and, consequently, accrued approximately $500,000 of severance expense as of July 31, 2003 (see Note 15, Workforce Reduction, of the Notes to Consolidated Financial Statements).

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

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

The following analysis includes discussion of financial performance within each of the Company's segments. The Company has chosen not to specifically address reported EBITDA (defined as segment net revenues less segment specific operating expenses plus segment equity income) in the following discussion, although management considers this measurement to be a significant indication of the Company's financial performance. Instead, the Company has discussed each of the significant components of reported EBITDA. Refer to Note 14, Segment Information, of the Notes to Consolidated Financial Statements for a reconciliation of segment measurements to consolidated performance.

Mountain revenue. Mountain revenue for the fiscal years ended July 31, 2003 and 2002 is presented by category as follows (dollars in thousands, except effective ticket price ("ETP") amounts):

Mountain revenue for fiscal 2003 was $470.1 million, an increase of $69.7 million, or 17.4%, as compared to fiscal 2002 primarily due to the inclusion of Heavenly's operations for a full fiscal year (the resort was acquired May 2002), which generated $59.1 million of the increased revenue. A portion of the growth in mountain revenue is also driven by the opening of the new ski school and retail/rental outlets at the Ritz-Carlton, Bachelor Gulch and the opening of the Red Sky Ranch golf club. A strong early season resulted in revenue growth at all resorts, however, as previously noted, the war in Iraq, the outbreak of SARS and the general economic slowdown had a dramatic impact on visitation during the Company's peak season, which more than offset early season growth.

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

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

Lodging revenue. Lodging revenue is derived from a variety of sources, including operations of the Company's owned hotels (including ancillary operations such as food and beverage), all operations of GTLC, golf operations, condominium management and revenue generated by RockResorts through its management of luxury hotel properties. Lodging revenue for fiscal 2003 was $159.8 million, an increase of $8.9 million, or 5.9%, compared to fiscal 2002. ADR for the Company's owned hotels and condominiums was $184.33 for fiscal 2003, a decrease of $1.64 compared to fiscal 2002. The increase in revenue is primarily due to the inclusion of all the rooms at the Vail Marriott (acquired December 2001) and The Lodge at Rancho Mirage (acquired November 2001) as well as the inclusion of RockResorts (acquired November 2001), which added an incremental $11.2 million for the full year ended July 31, 2003. Revenue improved at SRL&S due to recently completed renovations. While the fiscal 2002 hotel acquisitions contr ibuted to the increased revenue, they also drove a decrease in ADR as the incremental months included are the late summer/early fall off-season months. In addition, the ADR decrease reflects the Company's fiscal 2003 strategy to use price to mitigate the drop in occupancy.

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

Lodging equity investment loss. The equity investment loss for fiscal 2003 was $6.0 million and primarily represents start-up costs and first year (non-mature) hotel operations at the Ritz-Carlton, Bachelor Gulch, in which the Company has a 49% ownership through BG Resort. The Company's investment share of profits associated with the sale of condominiums developed as part of the joint venture operations is recorded in real estate equity income. The lodging equity loss includes the Company's proportionate share of the joint venture's depreciation expense of $1.5 million and interest expense of $1.8 million as of July 31, 2003.

Real estate revenue. The real estate segment's revenues vary from year to year depending on the mix of available inventory, based upon the completion of development projects. The Company generally pre-sells inventory prior to the completion of a development, but revenue is not recorded until closing. Revenue from real estate operations for the year ended July 31, 2003 was $80.4 million, an increase of $16.5 million, or 25.9%, compared to the year ended July 31, 2002. During fiscal 2003, the Company closed sales related to several major projects, including single-family lots at Red Sky Ranch, Arrowhead, Bachelor Gulch and Breckenridge's Timber Trail, luxury penthouse condominiums at the Vail Marriott, a large volume of condominiums at Breckenridge's Mountain Thunder and the sale of a development parcel for the construction of townhomes in Bachelor Gulch. Real estate closings in fiscal 2002 included single-family lots at Red Sky Ranch and Arrowhead, cluster homesites at Arrowhead, a large development parcel in Bachelor Gulch and one condominium at the Lodge at Vail.

Real estate operating expense. Real estate operating expense for fiscal 2003 was $66.6 million, an increase of $15.3 million, or 29.8% compared to fiscal 2002. Real estate operating expense 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 all the Company's real estate operations and allocated corporate SG&A. The increase for fiscal 2003 as compared to fiscal 2002 is commensurate with the increase in real estate sales noted above as well as the change in the mix of real estate products sold.

Real estate equity investment income. Real estate equity investment income includes both the Company's equity investment in Keystone/Intrawest LLC ("KRED"), the joint venture developing the River Run development at Keystone and the Company's equity investment in the joint venture developing and constructing the Ritz-Carlton, Bachelor Gulch. Real estate equity investment income for fiscal 2003 was $4.0 million. The $1.2 million increase over fiscal 2002 is primarily due to the Company's share of profits related to the closing on 22 of 23 luxury condominiums at the Ritz-Carlton, Bachelor Gulch though its investment in BG Resort. The $5.1 million profits associated with BG Resort are partially offset by declining sales volumes of KRED as well as an $850,000 impairment charge related to a development parcel held by KRED.

Depreciation and amortization. Depreciation and amortization expense was $82.2 million, an increase of $13.8 million, or 20.1%, for fiscal 2003 as compared to fiscal 2002. $8.6 million of the increase was related to the acquisitions of Heavenly, Rancho Mirage, RockResorts and the Vail Marriott. A significant portion of the increase was also attributable to an increased fixed asset base due to normal capital expenditures and the adjustment of depreciable lives of buildings from 40 to 30 years (see Note 3, Significant Accounting Policies, of the Notes to Consolidated Financial Statements).

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

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

Interest expense. During the years ended July 31, 2003 and 2002 the Company recorded interest expense of $50.0 million and $38.8 million, respectively, relating primarily to the Credit Facility, the Industrial Development Bonds and the Senior Subordinated Notes. The $11.2 million increase is attributable to a full twelve months interest on the $160 million 2001 Notes issued in November 2001 and an increase in Credit Facility borrowings due to the fiscal 2002 acquisitions. Average borrowings under the Credit Facility in 2003 were $137.8 million, versus $78.1 million in fiscal 2002.

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

Mountain operating revenue. Mountain revenue for the fiscal years ended July 31, 2002 and 2001 is presented by category as follows (dollars in thousands, except ETP amounts):

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

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

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

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

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

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

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

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

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

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

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

In October 2002, after voluntary consultation with the SEC staff on the appropriate accounting, the Company restated and reissued its historical financial statements for fiscal 1999-2001, reflecting a revision in the accounting treatment for recognizing revenue on initiation fees related to the sale of memberships in private clubs. As previously announced, the Company engaged its new auditors to do a complete re-audit of the years 1999-2001 and filed an amended 10-K for fiscal year 2001 reflecting all adjustments made as a result of the re-audit, in addition to the revision in accounting for the club fees. In February 2003, the SEC informed the Company that it had issued a formal order of investigation with respect to the Company. At that time, the inquiry related to the Company's previous accounting treatment for the private club initiation fees.

In October 2003, the SEC issued a subpoena to the Company to produce documents related to several matters, including the sale of memberships in private clubs. The Company is fully cooperating with the SEC in its investigation.

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 $154.6 million for the period ending July 31, 2003. Non-cash charges reflected in the $8.5 million net loss for the period included non-cash costs related to real estate sold of $45.5 million, depreciation and amortization expense of $82.2 million, deferred revenues related to private club initiation fees of $19.7 million, an increase in deferred taxes of $4.3 million, a $4.8 million asset impairment charge, debt discount amortization of $2.8 million, deferred financing cost amortization of $3.0 million and total non-cash compensation of $4.8 million. In addition, working capital changes included a $17.3 million increase in net income taxes receivable related to refunds due from estimated tax payments made in fiscal 2003 and amended returns, a $3.9 million decrease in notes receivable resulting primarily from payments received and a $4.6 million increase in accounts payable and accrued expenses due primarily to increased medical and workers' compensa tion reserves, severance accruals and bonus accruals.

Cash flows used in investing activities have historically consisted of payments for acquisitions, capital expenditures, and investments in real estate. Capital expenditures for fiscal 2003 were $106.3 million and investments in real estate for that period were $22.6 million. The primary projects included in capital expenditures were (i) completion of club and spa, (ii) completion of Red Sky golf course and clubhouse, (iii) expansion of Peak 7 at Breckenridge including a six-passenger chairlift and (iv) completion of the renovation of the Vail Marriott. The primary projects included in investments in real estate were (i) continued construction of the Red Sky Ranch golf courses and the related residential lot developments, (ii) construction of the Mountain Thunder Lodge condominium project at Breckenridge, (iii) planning activities related to the Vail "Front Door" redevelopment and (iv) investments in developable land and the planning and development of projects in and around each of the Company's resorts.< /P>

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

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

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

For the year ended July 31, 2002, cash flows from operating activities were $131.7 million. The Company's cash flows used in investing activities consisted of capital expenditures of $76.2 million, investments in real estate of $68.7 million, $164.8 million in cash paid in the acquisitions of Heavenly, The Lodge at Rancho Mirage, the Vail Marriott and RockResorts, $2.0 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. The Company's financing activities provided $177.6 million in cash, primarily consisting of $186.5 million in net long-term debt borrowings and $0.2 million in proceeds from the exercise of stock options, net of $7.8 million in payments of financing costs.

For the year ended July 31, 2001, cash flows from operating activities were $108.9 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, $15.5 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 generated by other financing activities.

In June 2003, the Company amended and restated its existing Credit Facility to provide debt financing up to an aggregate principal amount of $425 million. The Credit Facility, as amended, consists of (i) a $325 million revolving credit facility and (ii) a $100 million term loan. The Vail Corporation is the borrower under the Credit Facility, with Bank of America, N.A. and Fleet Bank as co-agents and certain other financial institutions as lenders. The Vail Corporation's obligations under the Credit Facility are guaranteed by Vail Resorts and certain of its subsidiaries and are collateralized by a pledge of all of the capital stock of The Vail Corporation, substantially all of its subsidiaries and the Company's interest in SSV. The proceeds of the loans made under the Credit Facility may be used to fund the Company's working capital needs, capital expenditures, acquisitions and other general corporate purposes, including the issuance of letters of credit. The revolving Credit Facility matures June 2007. Bo rrowings under the revolving Credit Facility bear interest annually at the Company's option at the rate of (i) LIBOR plus a margin or (ii) the agent's prime lending rate plus a margin. The revolving Credit Facility also includes a quarterly unused commitment fee. Interest rates on the revolving Credit Facility fluctuate based upon the ratio of the Company's Funded Debt to Adjusted EBITDA, as defined in the Credit Facility, on a trailing twelve-month basis. Adjusted EBITDA for purposes of the Credit Facility is calculated on a basis specifically defined in the Credit Facility, and should not be presumed to be analogous to other measures of Adjusted EBITDA discussed elsewhere in this filing. The term loan matures December 2008 and bears interest at a rate of LIBOR plus a margin. The term loan is subject to annual amortization based upon 1% per annum of the original principal amount of the term loan facility. The Company has the option to prepay the term loan at any time; however, such repayments cannot subsequ ently be re-borrowed under the term loan facility. The Credit Facility provides for affirmative and negative covenants that restrict, among other things, the Company's ability to incur indebtedness, dispose of assets, 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, Senior Debt to Adjusted EBITDA ratio, Minimum Fixed Charge Coverage ratio, Minimum Net Worth and the Interest Coverage ratio (as each ratio is defined in the Credit Facility). The terms of the Credit Facility address issues associated with the implementation of FIN No. 46, previously identified in the Company's Form 10-Q filing for the second fiscal quarter of 2003.

The Credit Facility was amended on October 2, 2003, with a July 31, 2003 effective date, to increase the Funded Debt to Adjusted EBITDA ratio, as defined in the Credit Facility, to be measured for the covenant compliance periods ending July 31, 2003 and October 31, 2003. The Company's anticipated ability to comply with the formerly applicable ratio had been adversely impacted by poorer than expected performance for fiscal 2003 due to the impacts of the war in Iraq, the general economic downturn and the slower than expected rebound in the overall lodging industry. The Company was in compliance with all relevant covenants in its debt instruments as of July 31, 2003. The Company expects it will meet all applicable quarterly financial tests in its debt instruments, including the Funded Debt to Adjusted EBITDA ratio, in fiscal 2004. However, there can be no assurance that the Company will meet its financial covenants. If such covenants are not met, the Company would be required to seek a waiver or amendment fr om the banks participating in the Credit Facility. While the Company anticipates that it would obtain such waiver or amendment, if any were necessary, there can be no assurance that such waiver or amendment would be granted, which could have a material adverse impact on the liquidity of the Company.

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

Based on current levels of operations and cash availability, management believes the Company is in a position to satisfy its current working capital, debt service and capital expenditure requirements for at least the next twelve months.

As part of its ongoing operations, the Company enters into arrangements that obligate the Company to make future payments under contracts such as lease agreements and debt agreements. Debt obligations, which total $584.2 million, are currently recognized as liabilities in the Company's Consolidated Balance Sheet. Operating lease obligations, which total $53.7 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 2003 is as follows:

The Company has also issued letters of credit in support of the debt of the metropolitan districts (as more fully discussed in Note 13, Commitments and Contingencies, of the Notes to Consolidated Financial Statements). These entities constructed, own and operate municipal facilities supporting real estate developments created by the Company. The initial construction of the facilities was financed by the issuance of tax-exempt variable rate revenue bonds. The Company issued the letters of credit in support of these bonds as credit enhancement. Had the metropolitan districts not been formed, it is reasonable possible that the Company would have been required to construct these facilities itself. The Company does not believe that it is reasonably likely that the letters of credit backing the metropolitan districts debt will be called upon, and they historically have not been drawn upon, and therefore are not expected to have an effect on the Company's financial condition, revenues, expenses, results of opera tions, liquidity, capital expenditures or capital resources. Also see Note 8, Variable Interest Entities, of the Notes to Consolidated Financial Statements for information regarding the Company's interests in variable interest entities.

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.

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) deferred revenue; (iii) reserve estimates; (iv) intangible assets; (v) related party transactions; (vi) income taxes and (vii) 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 other than retail land sales are recognized when collectibility of the sales price is reasonably assured and the earnings process is virtually complete, generally upon transfer of title to the buyer. Contingent future profits are recognized only when realized. The Company applies the full accrual method of revenue recognition for retail land sales, and thereby recognizes revenue on retail land sales upon transfer of title to the buyer. If the Company has an obligation to complete improvements of lots sold or to construct amenities or other facilities applicable to lots sold after transfer of title with respect to retail land sales, then the Company utilizes the percentage of completion method of revenue recognition.

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. Season pass revenue is ultimately fully recognized within the course of the ski season in which it is collected. Revenues from club initiation fees are initially deferred and 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 in Colorado), legal liabilities and liabilities for the completion of real estate sold by the Company, allowance for accounts receivable and metropolitan district interest subsidies, 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 a 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 further in Note 6, Supplementary Balance Sheet Information, of the Notes to Consolidated Financial Statements.

Related Party Transactions. The Company from time to time enters into related party transactions (see Note 12, Related Party Transactions, of the Notes to Consolidated Financial Statements).

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, 2003, the Company had a net current deferred tax asset of $10.1 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 remaining 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 (except in fiscal 2003) 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 of the remaining costs to be incurred for units that have been sold are accrued at the date of sale, based on management's best estimate.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123". SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation", by providing alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that statement to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Finally, this Statement amends APB Opinion No. 28, "Interim Financial Reporting", to require disclosure about those effects in interim financial information. SFAS No. 148 is effective for fiscal years ending after December 15, 2002 for transition guidance and annual disclosure provisions; interim disclosure provisions are effective for interim periods beginning after December 15, 2002 . Initial adoption of SFAS No. 148 did not have a significant impact on the Company's financial position or results of operations.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities, an interpretation of ARB 51". This interpretation addresses consolidation by business enterprises of variable interest entities ("VIEs"). This new model for consolidation applies to an entity which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. The interpretation applies immediately to VIEs created after February 1, 2003, and to VIEs in which the Company obtains an interest after that date. The interpretation applies in the first fiscal year or interim period beginning after June 15, 2003. In October 2003, the FASB decided to defer the implementation date for FIN No. 46, to financial statements issued for the first period ending after December 15, 2003. This deferral only applies to VIEs that existed prior to Fe bruary 1, 2003. The Company is currently evaluating the impact that the implementation of this interpretation will have on its financial statements (see Note 8, Variable Interest Entities, of the Notes to Consolidated Financial Statements.)

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity, and requires that financial instruments within its scope, many of which currently are classified as equity, be classified as liabilities (or, in some circumstances, assets). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the first interim period beginning after June 15, 2003. The FASB issued FASB Staff Position ("FSP") 150-3 on November 7, 2003 to defer the effective date for applying the provisions of SFAS No. 150 for certain mandatorily redeemable non-controlling interests. The Company does not expect the implementation of SFAS No. 150 will have a significant impact on its financial position or results of operations.

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 costs 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 2003 fiscal year, 76.4% 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 16, Selected Quarterly Financial Data, of the Notes to Consolidated Financial Statements).

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. While the recent extended economic downturn has negatively impacted the Company's operating results, the Company had not historically been adversely impacted by economic downturns. There can be no assurance that a continued or future decrease in the amount of discretionary spending by the public 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 Colorado ski resorts have averaged between 20 and 30 feet of annual snowfall and the Company's California ski resort receives average yearly snowfall of between 25 and 35 feet, 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 future. 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 predict 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 war with Iraq and its aftermath also had an adverse effect on the Company. The Company cannot guarantee if or when normal travel and vacation patterns will resume. 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, 2003, the Company had $133.9 million of variable rate indebtedness, representing 22.9% of the Company's total debt outstanding, at an average interest rate during fiscal 2003 of 5.6%. The Company's average interest rate is based on its various credit facilities and any associated letter of credit fees, unused fees and deferred financing charges (see Note 5, Long-Term Debt, of the Notes to Consolidated Financial Statements). Based on average floating-rate borrowings outstanding during the years ended July 31, 2003, 2002 and 2001, a 100-basis point change in LIBOR would have caused the Company's annual interest expense to change by $1.5 million, $938,000 and $89,000, respectively. The Company's market risk exposure fluctuates based on changes in underlying interest rates.

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, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance wit h 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 restated its financial statements for the years ended July 31, 2002 and 2001.

Denver, Colorado

November 11, 2003

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.