Vail Resorts stock plummets on news of SEC investigation

VAIL -- The price of stock in Vail Resorts dipped sharply last week, reaching its lowest level on news the Securities and Exchange Commission is formally investigating the ski company's accounting.

The SEC inquiry follows Vail Resort's October restatement of profits from 1999 to 2001. Vail initially reported a net income of $46.8 million but corrected that figure to $32.9 million.

Vail Resorts is the parent company of Heavenly Ski Resort.

At issue is the accounting of club memberships. Vail counted club membership payments as revenue in those years, boosting the ski company's bottom line. In 1999, however, the SEC issued a guideline indicating that such income should be spread out over the period of the membership.

Vail Resorts collects tens of thousands of dollars from members at such clubs as the Game Creek Club and Passport Club, among others.

The stock was trading at $11.81 at one point Thursday, well beneath the $12.23 price it hit immediately after the terrorist attacks. The market rallied later in the day and the stock closed at $12.28. The price rebounded Friday to $13.13. Three years ago it was selling for $32; at initial public offering in 1997, the price was $22.

The SEC investigation appears to have had an effect. Vail competitor Intrawest, which operates Copper Mountain in Summit County and Winter Park in Grand County, actually experienced a tiny increase in its stock price -- to 10.78, up 0.8 percent -- while Vail Resorts stock declined 4 percent.

But the depressed stock price reflects a number of other factors, too, said Jamie Krueger, a financial advisor with Morgan Stanley in Denver.

"This all started with 9-11," Krueger said. "We're in a similar state. You've got heightened fear and people stay home. It's a culmination of the fear factor and the SEC and performance of the travel industry as a whole. You're not going to get anyone to commit money until there's some clarity."

Last summer, Vail Resorts dropped its Enron scandal-plagued auditor, Arthur Andersen, for PricewaterhouseCoopers. At that time, it also contacted the SEC regarding how it accounts for club fees.

Vail Resorts issued a press release stating it is cooperating fully with the SEC, that it expects no changes will be made as a result of the inquiry, and that no impropriety occurred because the company already has collected the fees. The company's restated it earnings in October, and they declined 2 percent.

Vail Resorts operates Vail, Beaver Creek, Keystone, Breckenridge and Heavenly ski resorts, as well as RockResorts, 10 luxury hotels scattered across the country, and the Grand Teton Lodge in Jackson Hole.

The company cut $20 million out of its budget for 2003 after falling $12 million short on its earnings last year. It generated $107 million in earnings on $615.3 million in revenue.

In October, the company reduced its work force by 100 -- including four top management positions -- and restructured its management.

Its forecasted earnings for 2003-04 are $117 million to $122 million.

In its first quarter report, released in December, the company beat earnings by losing less than expected, causing CEO Adam Aron to say he was close to "euphoric."

At the time, Vail Resorts had been greeted by exceptional early season snow that allowed it to open Vail Mountain a week early with the most terrain ever for an opening day.

The company trades on the New York Stock Exchange under MTN.


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