Acquisitions

Canyons

In May 2013, VR CPC and Talisker entered into the Transaction Agreement, the Lease and ancillary transaction documents, pursuant to which the Company assumed the resort operations of Canyons mountain resort in Park City, Utah, which includes the ski area, property management and related amenities. Canyons is a year round mountain resort providing a comprehensive offering of recreational activities, including both snow sports and summer activities. The Lease between VR CPC and Talisker has an initial term of 50 years with six 50-year renewal options. The Lease provides for $25 million in annual fixed payments, which increase each year by an inflation linked index of CPI less 1%, with a floor of 2% per annum. In addition, the Lease includes participating contingent payments (described more fully below). The Parent Company has guaranteed the payments under the Lease.

Additionally, the transaction documents set forth the rights and obligations of the parties with respect to the acquisition of certain real estate and personal property, future resort development, access, water rights, intellectual property, transition services, and rights with respect to litigation between the then current operator of the Park City Mountain Resort ("PCMR") and Talisker related to the validity of a lease of the Talisker owned land under the ski terrain of PCMR (excluding the base area).

The following summarizes the fair values of the identifiable assets acquired and liabilities assumed at the date the transaction was effective (in thousands).



	Acquisition Date Fair Value
Accounts receivable	$	2,211
Other current assets	1,698
Property, plant and equipment	5,475
Property, plant and equipment (under capital lease)	127,885
Deferred income tax assets, net	11,869
Intangible assets	30,700
PCMR deposit	57,800
Goodwill	106,414
Total identifiable assets acquired	$	344,052
Accounts payable and accrued liabilities	$	6,723
Deferred revenue	1,134
Other liabilities	21,766
Canyons obligation	305,329
Contingent consideration	9,100
Total liabilities assumed	$	344,052

Land and certain improvements under the PCMR ski area was subject to litigation at the transaction date. As such, the Company recorded a deposit ("PCMR deposit") for the potential future interests in the land and associated improvements at its estimated fair value at the transaction date. The excess of the aggregate fair values of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized was attributable primarily to expected synergies, including the potential inclusion of a portion of the ski terrain of PCMR in the Lease, the assembled workforce of Canyons and other factors. The Company believes that for income tax purposes the lease payments should primarily be treated as payments of a debt obligation and that the tax basis of the goodwill is deductible. As a result, the Company recorded an adjustment to its preliminary purchase price allocation of $32.9 million, which reduced deferred income tax assets, net with a corresponding increase to goodwill and has reflected this as a retrospective adjustment as of July 31, 2013 (including the Supplemental Consolidating Condensed Balance Sheet - see Note 12, Guarantor Subsidiaries and Non-Guarantor Subsidiaries). The intangible assets have a weighted-average amortization period of approximately 50 years. Additionally, the Company recorded $20.3 million at the transaction date in additional consideration associated with certain Talisker obligations, primarily related to resort development.

The following table shows the composition of Canyons property, plant and equipment recorded under capital leases as of July 31, 2014 and 2013:



	July 31,
	2014			2013
Land	$	18,500		$	18,500
Land improvements	29,980			29,980
Buildings and building improvements	32,800			32,800
Machinery and equipment	46,605			44,774
Gross property, plant and equipment	127,885			126,054
Accumulated depreciation	(7,596		)	(1,065		)
Property, plant and equipment, net	$	120,289		$	124,989

As of July 31, 2014, the Canyons obligation was $311.9 million, which represents the estimated annual fixed lease payments for the remaining 50 year term of the lease assuming annual increases at the floor of 2% and discounted using an interest rate of 10%. Future minimum lease payments under the Lease as of July 31, 2014 reflected by fiscal year are as follows (in thousands):



2015	$	25,589
2016	26,101
2017	26,623
2018	27,156
2019	27,699
Thereafter	1,952,077
Total future minimum lease payments	2,085,245
Less amount representing interest	(1,773,387		)
Net future minimum lease payments	$	311,858

The Lease also provides for participating contingent payments to Talisker of 42% of the amount by which EBITDA for the resort operations, as calculated under the Lease, exceeds approximately $35 million, with such threshold amount increased by an inflation linked index and a 10% adjustment for any capital improvements or investments made under the Lease by the Company (the "Contingent Consideration"). The Company estimated the likelihood and timing of achieving the relevant thresholds for the Contingent Consideration payments using discounted cash flow projection valuation models. The Company considered two probability weighed models to calculate projected EBITDA performance; (1) Canyons on a standalone basis, and (2) Canyons plus the inclusion of the ski terrain of PCMR (excluding the base area) in the Lease. The models considered the following factors: (i) an estimation of the long-term rate of EBITDA growth at 5.5% after the initial five years of operations; (ii) estimated annual capital expenditures between $10.0 million to $15.0 million in the initial five years of operations, subsequently growing at inflation of 3%; (iii) threshold amount increased by an inflation linked index of 2%; and (iv) a discount rate of 15%. During the year ended July 31, 2014, the Company recorded an increase of $1.4 million in the estimated fair value of the participating contingent payments, and recorded a related charge to income from operations. The estimated fair value of the contingent consideration is $10.5 million as of July 31, 2014 and this liability is recorded in other long-term liabilities in the Consolidated Balance Sheets.

The operating results of Canyons which are recorded in the Mountain and Lodging segments contributed $67.2 million of net revenue, including an allocated portion of season pass revenue based on skier visits, for the year ended July 31, 2014 and $3.9 million of net revenue for the year ended July 31, 2013.

The following presents the unaudited pro forma consolidated financial information of the Company as if the Canyons transaction was completed on August 1, 2011. The following unaudited pro forma financial information includes adjustments for (i) depreciation on acquired property, plant and equipment; (ii) amortization of intangible assets recorded at the date of the transaction; (iii) interest expense relating to the Canyons obligation; and (iv) transaction and business integration related costs. This unaudited pro forma financial information is presented for informational purposes only and does not purport to be indicative of the results of future operations or the results that would have occurred had the transaction taken place on August 1, 2011 (in thousands, except per share amounts).



	Year Ended July 31,
	2013		2012
Pro forma net revenue	$	1,172,159	$	1,074,859
Pro forma net income (loss) attributable to Vail Resorts, Inc.	$	20,714	$	(6,525	)
Pro forma basic net income (loss) per share attributable to Vail Resorts, Inc.	$	0.58	$	(0.18	)
Pro forma diluted net income (loss) per share attributable to Vail Resorts, Inc.	$	0.56	$	(0.18	)

Urban Ski Areas

In December 2012, the Company acquired all of the assets of two ski areas in the Midwest, Afton Alps in Minnesota and Mount Brighton in Michigan, for total cash consideration of $20.0 million, net of cash assumed. The purchase price was allocated to identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The Company completed its purchase price allocation and recorded $17.8 million in property, plant and equipment, $1.0 million in other assets, $2.0 million in goodwill, $1.0 million in other intangible assets (with a weighted-average amortization period of 10 years), and $1.8 million of assumed liabilities on the date of acquisition. The operating results of Afton Alps and Mount Brighton are reported within the Mountain segment.

Kirkwood Mountain Resort

On April 12, 2012, the Company acquired substantially all of the assets of Kirkwood Mountain Resort (“Kirkwood”), a mountain resort located in Lake Tahoe, California, for total cash consideration of approximately $18.2 million, net of cash assumed, subject to certain working capital adjustments as provided for in the purchase agreement. The purchase price was allocated to identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The Company completed its purchase price allocation and recorded $16.8 million in property, plant and equipment, $2.5 million in other assets, $0.8 million in indefinite-lived intangible assets, $1.2 million in other intangible assets (with a weighted-average amortization period of 21.5 years), and $3.1 million of assumed liabilities on the date of acquisition. The operating results of Kirkwood are primarily reported within the Mountain segment.

Skiinfo

On February 1, 2012, the Company acquired the capital stock of Skiinfo, AS, a Norwegian company which owns and operates several European websites focused on the ski and snowboarding industry, for total cash consideration of $5.7 million, net of cash assumed. The purchase price was allocated to identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The Company completed its purchase price allocation and recorded $2.4 million in property plant and equipment, $2.7 million in other assets, $1.8 million in goodwill, $0.7 million in indefinite-lived intangible assets, $0.5 million in other intangible assets (with a weighted-average amortization period of 6.7 years), and $2.6 million of assumed liabilities on the date of acquisition. The operating results of Skiinfo are reported within the Mountain segment.