VIAD CORP, 10-Q filed on 11/10/2014
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2014
Oct. 31, 2014
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
VIAD CORP 
 
Entity Central Index Key
0000884219 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2014 
 
Amendment Flag
false 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
20,069,990 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Current assets
 
 
Cash and cash equivalents
$ 56,918 
$ 45,821 
Accounts receivable, net of allowance for doubtful accounts of $1,018 and $877, respectively
90,675 
61,197 
Inventories
36,852 
27,993 
Deferred income taxes
19,737 
20,577 
Other current assets
17,051 
17,142 
Total current assets
221,233 
172,730 
Property and equipment, net
198,583 
190,330 
Other investments and assets
34,743 
35,026 
Deferred income taxes
33,202 
29,823 
Goodwill
140,661 
129,543 
Other intangible assets, net
13,547 
4,480 
Total Assets
641,969 
561,932 
Current liabilities
 
 
Accounts payable
68,746 
40,941 
Customer deposits
48,075 
29,207 
Accrued compensation
20,921 
15,113 
Other current liabilities
37,752 
29,169 
Current portion of debt and capital lease obligations
23,375 
10,903 
Total current liabilities
198,869 
125,333 
Long-term capital lease obligations
623 
765 
Pension and postretirement benefits
30,435 
30,672 
Other deferred items and liabilities
46,341 
48,619 
Total liabilities
276,268 
205,389 
Commitments and contingencies
   
   
Viad stockholders’ equity:
 
 
Common stock, $1.50 par value, 200,000,000 shares authorized, 24,934,981 shares issued
37,402 
37,402 
Additional capital
583,437 
590,862 
Retained deficit
(28,525)
(50,393)
Unearned employee benefits and other
18 
(21)
Accumulated other comprehensive income (loss):
 
 
Unrealized gain on investments
412 
429 
Cumulative foreign currency translation adjustments
20,897 
30,847 
Unrecognized net actuarial loss and prior service credit, net
(11,291)
(11,259)
Common stock in treasury, at cost, 4,869,691 and 4,618,433 shares, respectively
(249,106)
(250,426)
Total Viad stockholders’ equity
353,244 
347,441 
Noncontrolling interest
12,457 
9,102 
Total stockholders’ equity
365,701 
356,543 
Total Liabilities and Stockholders’ Equity
$ 641,969 
$ 561,932 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Statement of Financial Position [Abstract]
 
 
Allowance for doubtful accounts
$ 1,018 
$ 877 
Common stock, par value
$ 1.50 
$ 1.50 
Common stock, shares authorized
200,000,000 
200,000,000 
Common stock, shares issued
24,934,981 
24,934,981 
Treasury stock, shares
4,869,691 
4,618,433 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Revenue:
 
 
 
 
Exhibition and event services
$ 188,005 
$ 126,744 
$ 605,274 
$ 538,489 
Exhibits and environments
38,657 
29,742 
125,797 
114,571 
Travel and recreation services
73,140 
63,681 
110,763 
98,446 
Total revenue
299,802 
220,167 
841,834 
751,506 
Costs and expenses:
 
 
 
 
Costs of services
228,285 
174,230 
658,502 
598,501 
Costs of products sold
38,503 
31,989 
122,821 
114,007 
Gain on sale of facility and related land
4,775 
4,775 
Corporate activities
3,468 
2,034 
7,498 
4,007 
Interest income
(81)
(122)
(200)
(397)
Interest expense
462 
286 
1,069 
905 
Restructuring charges
238 
639 
1,814 
2,132 
Goodwill impairment charge
2,097 
2,097 
Impairment charges
952 
884 
952 
Total costs and expenses
270,875 
207,330 
792,388 
717,429 
Income from continuing operations before income taxes
28,927 
12,837 
49,446 
34,077 
Income tax expense (benefit)
(2,623)
3,567 
870 
10,143 
Income from continuing operations
31,550 
9,270 
48,576 
23,934 
Income (loss) from discontinued operations
(979)
3,478 
13,023 
2,664 
Net income
30,571 
12,748 
61,599 
26,598 
Net income attributable to noncontrolling interest
(951)
(893)
(3,355)
(425)
Net income attributable to Viad
29,620 
11,855 
58,244 
26,173 
Diluted income (loss) per common share:
 
 
 
 
Income from continuing operations attributable to Viad common stockholders (per share)
$ 1.53 
$ 0.44 
$ 2.38 
$ 1.17 
Income from discontinued operations attributable to Viad common stockholders (per share)
$ (0.05)
$ 0.14 
$ 0.50 
$ 0.12 
Net income attributable to Viad common stockholders (per share)
$ 1.48 1
$ 0.58 1
$ 2.88 1
$ 1.29 1
Weighted-average outstanding and potentially dilutive common shares
19,954 
20,191 
20,174 
20,188 
Basic income (loss) per common share:
 
 
 
 
Income from continuing operations attributable to Viad common stockholders (per share)
$ 1.53 
$ 0.44 
$ 2.38 
$ 1.17 
Income from discontinued operations attributable to Viad common stockholders (per share)
$ (0.05)
$ 0.14 
$ 0.50 
$ 0.12 
Net income attributable to Viad common stockholders (per share)
$ 1.48 
$ 0.58 
$ 2.88 
$ 1.29 
Weighted-average outstanding common shares
19,679 
19,868 
19,832 
19,839 
Dividends declared per common share
$ 0.1 
$ 0.10 
$ 1.80 
$ 0.3 
Amounts attributable to Viad common stockholders
 
 
 
 
Income from continuing operations
30,756 
8,871 
48,046 
23,840 
Income (loss) from discontinued operations
(1,136)
2,984 
10,198 
2,333 
Net income
$ 29,620 
$ 11,855 
$ 58,244 
$ 26,173 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net income
$ 30,571 
$ 12,748 
$ 61,599 
$ 26,598 
Other comprehensive income (loss):
 
 
 
 
Unrealized gains (losses) on investments, net of tax(1)
(67)1
62 1
(17)1
117 1
Unrealized foreign currency translation adjustments, net of tax(1)
(9,799)1
5,331 1
(9,950)1
(6,092)1
Amortization of net actuarial gain, net of tax(1)
183 1
150 1
438 1
511 1
Amortization of prior service credit, net of tax(1)
(252)1
(140)1
(470)1
(420)1
Comprehensive income
20,636 
18,151 
51,600 
20,714 
Comprehensive income attributable to noncontrolling interest
(951)
(893)
(3,355)
(425)
Comprehensive income attributable to Viad
$ 19,685 
$ 17,258 
$ 48,245 
$ 20,289 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Cash flows from operating activities
 
 
Net income
$ 61,599 
$ 26,598 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
21,853 
21,303 
Deferred income taxes
(1,291)
2,669 
Income from discontinued operations
(13,023)
(2,664)
Restructuring charges
1,814 
2,132 
Impairment charges
884 
3,049 
Gain on sale of facility and related land
(4,775)
Gains on dispositions of property and other assets
(392)
(223)
Share-based compensation expense
1,562 
3,569 
Excess tax benefit from share-based compensation arrangements
(41)
(389)
Other non-cash items, net
7,689 
3,603 
Change in operating assets and liabilities (excluding the impact of acquisitions):
 
 
Receivables
(29,933)
(12,173)
Inventories
(7,052)
(2,161)
Accounts payable
27,301 
4,704 
Restructuring liabilities
(4,268)
(3,771)
Accrued compensation
4,053 
(8,768)
Customer deposits
18,267 
(5,806)
Income taxes payable
4,273 
2,115 
Other assets and liabilities, net
(11,283)
(1,679)
Net cash provided by operating activities
82,012 
27,333 
Cash flows from investing activities
 
 
Proceeds from possessory interest and personal property—discontinued operations
28,000 
Proceeds from dispositions of property and other assets
502 
1,645 
Capital expenditures
(21,898)
(26,927)
Acquisition of businesses, net of cash acquired
(40,775)
(647)
Proceeds from sale of facility and related land
12,696 
Proceeds from sale of land - discontinued operations
422 
Net cash used in investing activities
(34,171)
(12,811)
Cash flows from financing activities
 
 
Dividends paid on common stock
(36,374)
(6,095)
Payments on debt and capital lease obligations
(56,196)
(1,027)
Proceeds from borrowings
68,000 
Common stock purchased for treasury
(11,631)
(1,294)
Excess tax benefit from share-based compensation arrangements
41 
389 
Proceeds from exercise of stock options
1,155 
540 
Net cash used in financing activities
(35,005)
(7,487)
Effect of exchange rate changes on cash and cash equivalents
(1,739)
(1,084)
Net change in cash and cash equivalents
11,097 
5,951 
Cash and cash equivalents, beginning of year
45,821 
114,171 
Cash and cash equivalents, end of year
56,918 
120,122 
Supplemental disclosure of cash flow information
 
 
Cash paid for income taxes
6,409 
4,299 
Cash paid for interest
880 
510 
Property and equipment acquired under capital leases
541 
462 
Property and equipment purchases in accounts payable and accrued liabilities
$ 230 
$ 4,441 
Basis of Presentation and Principles of Consolidation
Basis of Presentation and Principles of Consolidation
Basis of Presentation and Principles of Consolidation
The accompanying unaudited, condensed consolidated financial statements of Viad Corp (“Viad” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. The condensed consolidated financial statements of Viad include the accounts of Viad and all of its subsidiaries. All significant intercompany account balances and transactions between Viad and its subsidiaries have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014.
For further information, refer to the consolidated financial statements and related footnotes for the year ended December 31, 2013 included in the Company’s Form 10-K, filed with the Securities and Exchange Commission on March 7, 2014.
Nature of Business
Viad’s reportable segments consist of Marketing & Events U.S., Marketing & Events International (collectively, “Marketing & Events Group”) and the Travel & Recreation Group.
Marketing & Events Group
The Marketing & Events Group, comprised of Global Experience Specialists, Inc. and affiliates (“GES”), specializes in all aspects of the design, planning and production of face-to-face events, immersive environments and brand-based experiences for clients, including show organizers, corporate brand marketers and retail shopping centers. In addition, the Marketing & Events Group provides a variety of immersive, entertaining attractions and brand-based experiences, sponsored events, mobile marketing and other branded entertainment and face-to-face marketing solutions for leading consumer brands, movie studios, shopping malls and other clients, as well as for museums and other venues.
On September 16, 2014, the Company acquired Blitz Communications Group Limited and its affiliates (collectively, “Blitz”) for £15 million (approximately $24.4 million) in cash, subject to certain adjustments. Blitz, located in the United Kingdom, is a leading audio-visual staging and creative services provider for the live events industry in the United Kingdom and continental Europe. For additional information, refer to Note 3, Acquisition of Businesses.
On October 7, 2014, the Company acquired onPeak LLC and Travel Planners, Inc. for a purchase price of $43.1 million and $33.9 million, respectively, in cash, subject to certain adjustments. For additional information, refer to Note 21, Subsequent Events.
Travel & Recreation Group
The Travel & Recreation Group consists of Brewster Inc. (“Brewster”), Glacier Park, Inc. (“Glacier Park”) and Alaskan Park Properties, Inc. (“Alaska Denali Travel”). Brewster provides tourism products and experiential services in the Canadian Rockies in Alberta and in other parts of Western Canada. Brewster’s operations include the Banff Gondola, Columbia Icefield Glacier Adventure, Glacier Skywalk (opened May 2014), Banff Lake Cruise, motorcoach services, charter and sightseeing services, inbound package tour operations and hotel operations.
During 2013, Glacier Park, an 80 percent owned subsidiary of Viad, operated five lodges, three motor inns and one four-season resort hotel and provided food and beverage operations, retail operations and tour and transportation services in and around Glacier National Park in Montana and Waterton Lakes National Park in Alberta, Canada. Glacier Park’s concession contract with the U.S. National Park Service (the “Park Service”) for Glacier National Park expired on December 31, 2013. The ongoing operations of Glacier Park as of January 1, 2014 include: Glacier Park Lodge in East Glacier, Montana; Grouse Mountain Lodge in Whitefish, Montana; St. Mary Lodge in St. Mary, Montana; Motel Lake McDonald, an in-holding within Glacier National Park; and the Prince of Wales Hotel in Waterton Lakes National Park. Glacier Park also continues to operate the food and beverage operations and package tour and transportation services with respect to these properties and the retail shops located near Glacier National Park. With regard to Glacier Park’s concession operations within Glacier National Park, refer to Note 20, Discontinued Operations.
On July 1, 2014, the Company acquired the West Glacier Motel & Cabins, the Apgar Village Lodge and related land, food and beverage services and retail operations (collectively, “West Glacier”). The West Glacier Motel & Cabins is a 32-room property situated on approximately 200 acres at the west entrance of Glacier National Park, and its full-service amenities include a restaurant, grocery store, gift shops, a gas station and employee housing. The Apgar Village Lodge is a 48-room property situated on a 3.8 acre private in-holding inside Glacier National Park with overnight accommodations, a gift shop and employee housing. The purchase price was $16.5 million in cash with a working capital adjustment of $0.3 million, subject to certain adjustments. For additional information, refer to Note 3, Acquisition of Businesses.
Alaska Denali Travel operates the Denali Backcountry Lodge and Denali Cabins. In addition to lodging, Alaska Denali Travel also provides food and beverage operations and package tour and transportation services in and around Denali National Park and Preserve.
Impact of Recent Accounting Pronouncements
In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The new guidance changes the criteria for reporting discontinued operations while enhancing disclosures. Under the standard, only disposals representing a strategic shift in operations, such as a disposal of a major geographic area, a major line of business or a major equity method investment, may be presented as discontinued operations. This guidance is effective for interim and annual periods beginning after December 15, 2014. The Company has not yet determined if the adoption of this new guidance will have a material impact on Viad’s financial condition or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard establishes a new recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The guidance is effective for fiscal years beginning after December 15, 2016, and early adoption is not permitted. The Company has not yet determined if the adoption of this new guidance will have a material impact on its financial position or results of operations.

In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period. The new guidance requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update is effective for our fiscal year beginning January 1, 2016 and early adoption is permitted. The Company has not yet determined if the adoption of this new guidance will have a material impact on its financial position or results of operations.
Share-Based Compensation
Share-Based Compensation
Share-Based Compensation
The following table summarizes share-based compensation expense:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Restricted stock
$
653

 
$
802

 
$
2,066

 
$
2,522

Performance unit incentive plan (“PUP”)
(600
)
 
347

 
(505
)
 
871

Restricted stock units
6

 
3

 
1

 
104

Stock options

 
50

 

 
72

Share-based compensation before income tax benefit
59

 
1,202

 
1,562

 
3,569

Income tax benefit
(17
)
 
(445
)
 
(587
)
 
(1,326
)
Share-based compensation, net of income tax benefit
$
42

 
$
757

 
$
975

 
$
2,243


For the three months ended September 30, 2014, Viad recorded share-based compensation expense of $0.2 million through restructuring expense. For the nine months ended September 30, 2014, Viad recorded a reversal of share-based compensation expense of $0.1 million through restructuring expense.
On January 24, 2014, Viad announced that its Board of Directors declared a special cash dividend of $1.50 per share, or $30.5 million in the aggregate, which was paid on February 14, 2014. In accordance with the mandatory provisions of the 2007 Viad Corp Omnibus Incentive Plan (the “2007 Plan”) and the 1997 Viad Corp Omnibus Incentive Plan, the Human Resources Committee of Viad’s Board of Directors approved equitable adjustments to the outstanding long-term incentive awards of stock options and PUP awards issued pursuant to those plans in order to prevent the special dividend from diluting the rights of participants under those plans. The equitable adjustment to the outstanding stock options reduced the exercise price and increased the number of shares of common stock underlying such options. The equitable adjustment to the PUP awards reflects the effect of the special dividend, but will be paid only if certain performance goals are met at the end of the 3-year performance period.
The following table summarizes the activity of the outstanding share-based compensation awards:
 
Restricted Stock
 
PUP Awards
 
Restricted Stock Units
 
Shares
 
Weighted-Average
Grant Date
Fair Value
 
Units
 
Weighted-Average
Grant Date
Fair Value
 
Units
 
Weighted-Average
Grant Date
Fair Value
Balance, December 31, 2013
430,899

 
$
22.78

 
299,768

 
$
23.46

 
28,560

 
$
22.91

Granted
89,800

 
23.81

 
123,300

 
23.71

 
6,700

 
24.95

Vested
(137,187
)
 
22.59

 
(94,600
)
 
23.01

 
(9,890
)
 
23.45

Forfeited
(17,840
)
 
22.13

 
(7,800
)
 
24.93

 
(500
)
 
27.32

Balance, September 30, 2014
365,672

 
23.14

 
320,668

 
23.66

 
24,870

 
23.16


As of September 30, 2014, the unamortized cost of all outstanding restricted stock awards was $3.0 million, which Viad expects to recognize in the consolidated financial statements over a weighted-average period of approximately 2.0 years. During the nine months ended September 30, 2014 and 2013, the Company repurchased 45,711 shares for $1.1 million and 48,937 shares for $1.3 million, respectively, related to tax withholding requirements on vested share-based awards. As of September 30, 2014, there were 912,668 total shares available for future grant in accordance with the provisions of the 2007 Plan.
As of September 30, 2014 and December 31, 2013, Viad had liabilities recorded of $2.3 million and $5.9 million, respectively, related to PUP awards. In March 2014, the PUP units granted in 2011 vested and cash payouts totaling $2.9 million were distributed. There were no PUP awards that vested during the nine months ended September 30, 2013.
As of September 30, 2014 and December 31, 2013, Viad had aggregate liabilities recorded of $0.4 million and $0.7 million, respectively, related to restricted stock unit liability awards. In February 2014, portions of the 2009, 2010 and 2011 restricted stock unit awards vested and cash payouts totaling $0.2 million were distributed. Similarly, in February 2013 portions of the 2009 and 2010 restricted stock unit awards vested and cash payouts of $0.3 million were distributed.
The following table summarizes stock option activity:
 
Shares
 
Weighted-
Average
Exercise Price
 
Options
Exercisable
Options outstanding at December 31, 2013
314,323

 
$
19.79

 
314,323

Exercised
(66,076
)
 
18.53

 
 
Forfeited or expired
(18,522
)
 
35.28

 
 
Award modification
17,865

 
N/A

 
 
Options outstanding at September 30, 2014
247,590

 
$
17.82

 
247,590


As of September 30, 2014, there were no unrecognized costs related to non-vested stock option awards. As previously discussed, the equitable adjustment to the outstanding stock options resulting from the February 14, 2014 special cash dividend reduced the exercise price and increased the number of shares of common stock underlying such options as reflected on the “Award modification” line above.
Acquisition of Business
Acquisition of Businesses
Acquisition of Businesses
Blitz
On September 16, 2014, the Company acquired Blitz, which has offices in the United Kingdom and is a leading audio-visual staging and creative services provider for the live events industry in the United Kingdom and continental Europe. The purchase price was £15 million (approximately $24.4 million) in cash, subject to certain adjustments.

The following table summarizes the preliminary recording of the fair values of the assets acquired and liabilities assumed as of the acquisition date. Due to the recent timing of the acquisition, we have not yet finalized our purchase price allocation.
(in thousands)
 
 
 
 
Purchase price
 
 
 
$
24,415

Cash acquired
 
 
 
(190
)
Purchase price, net of cash acquired
 
 
 
$
24,225

 
 
 
 

Fair value of net assets acquired:
 
 
 
 
Accounts receivable, net
 
$
264

 
 
Inventory
 
433

 
 
Prepaid expenses
 
410

 
 
Property and equipment, net
 
5,892

 
 
Intangible assets
 
9,636

 
 
Total assets acquired
 
16,635

 
 
Accounts payable
 
1,232

 
 
Accrued liabilities
 
2,246

 
 
Customer deposits
 
199

 
 
Deferred tax liability
 
767

 
 
Revolving credit facility
 
488

 
 
Accrued dilapidations
 
589

 
 
Total liabilities acquired
 
5,521

 
 
Total fair value of net assets acquired
 
 
 
11,114

Excess purchase price over fair value of net assets acquired (“goodwill”)
 
 
 
$
13,111


Under the acquisition method of accounting, the preliminary purchase price as shown in the table above is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over fair value of net assets acquired was recorded as goodwill. The goodwill is included in the Marketing & Events International segment and the primary factor that contributed to a purchase price resulting in the recognition of goodwill relates to future growth opportunities when combined with our other businesses. The goodwill is deductible for tax purposes over a period of 15 years. The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature. Transaction costs associated with the acquisition of Blitz were $0.7 million and are included in corporate activities in Viad’s Condensed Consolidated Statements of Operations.
Identified intangible assets acquired in the Blitz acquisition totaled $9.6 million and consist of customer relationships, non-compete agreements and trade name. The weighted-average amortization period related to the intangible assets is approximately 7 years.
The results of operations of Blitz have been included in Viad’s condensed consolidated financial statements from the date of acquisition. During 2014, revenues of $1.9 million and operating income of $0.4 million related to Blitz have been included in Viad’s Condensed Consolidated Statements of Operations.
West Glacier
On July 1, 2014, the Company acquired West Glacier. The West Glacier Motel & Cabins is a 32-room property situated on approximately 200 acres at the west entrance of Glacier National Park, and its full-service amenities include a restaurant, grocery store, gift shops, a gas station and employee housing. The Apgar Village Lodge is a 48-room property situated on a 3.8 acre private in-holding inside Glacier National Park with overnight accommodations, a gift shop and employee housing. The purchase price was $16.5 million in cash with a working capital adjustment of $0.3 million, subject to certain adjustments. The working capital adjustment relates to the true up of certain current assets and liabilities.
 

The following table summarizes the recording of the fair values of the assets acquired and liabilities assumed as of the acquisition date. Due to the recent timing of the acquisition, these amounts are subject to change within the measurement period as our fair value assessments are finalized.
(in thousands)
 
 
 
 
Purchase price paid as:
 
 
 
 
Cash
 
 
 
$
16,544

Working capital adjustment payable
 
 
 
320

Total purchase price
 
 
 
16,864

 
 
 
 
 
Fair value of net assets acquired:
 
 
 
 
Prepaid expenses
 
$
24

 

Inventory
 
1,374

 
 
Property and equipment, net
 
14,510

 
 
Intangible assets
 
189

 
 
Total assets acquired
 
16,097

 
 
Accrued liabilities
 
35

 

Customer deposits
 
402

 
 
Other liabilities
 
64

 
 
Total liabilities acquired
 
501

 
 
Total fair value of net assets acquired
 
 
 
15,596

Excess purchase price over fair value of net assets acquired (“goodwill”)
 
 
 
$
1,268


Under the acquisition method of accounting, the purchase price as shown in the table above is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over fair value of net assets acquired was recorded as goodwill. The goodwill is included in the Travel & Recreation Group and the primary factor that contributed to the purchase price resulting in the recognition of goodwill relates to future growth opportunities when combined with our other businesses. The goodwill is deductible for tax purposes over a period of 15 years. The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature. Transaction costs associated with the acquisition of West Glacier were $0.2 million and are included in corporate activities in Viad’s Condensed Consolidated Statements of Operations.
Identified intangible assets acquired in the West Glacier acquisition totaled $0.2 million and consist primarily of favorable lease contracts. The weighted-average amortization period related to the definite lived intangible assets is 3.6 years.
The results of operations of West Glacier have been included in Viad’s condensed consolidated financial statements from the date of acquisition. During 2014, revenues of $4.5 million and operating income of $2.0 million related to West Glacier have been included in Viad’s Condensed Consolidated Statements of Operations.

Supplementary pro forma financial information

The following table summarizes the unaudited pro forma results of operations attributable to Viad, assuming that the acquisitions above had each been completed on January 1, 2013:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands, except per share data)
 
2014
 
2013
 
2014
 
2013
Revenue
 
$
302,362

 
$
228,080

 
$
856,462

 
$
771,241

Depreciation and amortization
 
8,794

 
8,328

 
24,969

 
24,468

Income from continuing operations
 
31,003

 
8,787

 
47,427

 
22,562

Net income attributable to Viad
 
29,075

 
11,294

 
57,119

 
24,743

Diluted net income per share
 
1.45

 
0.56

 
2.82

 
1.22

Basic net income per share
 
1.45

 
0.56

 
2.82

 
1.22


Pro forma net income for the three and nine months ended September 30, 2014 was adjusted to exclude transaction costs associated with the acquisition of Blitz and West, which were $0.7 million and $0.2 million, respectively. These costs were included in the pro forma net income for the nine months ended September 30, 2013.
In February 2013, Viad acquired the assets of Resource Creative Limited (“RCL”) for $0.6 million in cash. RCL is a United Kingdom-based company specializing in providing creative graphic services to the exhibition, events and retail markets throughout the United Kingdom and continental Europe. The purchase price is subject to certain adjustments, plus a deferred payment of up to approximately £0.2 million, which is contingent upon RCL’s achievement of certain net revenue targets between the acquisition date and December 31, 2014. RCL exceeded the first net revenue target for the period ended December 31, 2013 and, consequently, a deferred payment installment in the amount of $0.2 million (£0.1 million) was paid in March 2014.
Inventories
Inventories
Inventories
The components of inventories consisted of the following as of the respective periods:
(in thousands)
September 30,
2014
 
December 31,
2013
Raw materials
$
17,610

 
$
14,825

Work in process
19,242

 
13,168

Inventories
$
36,852

 
$
27,993

Other Current Assets
Other Current Assets
Other Current Assets
Other current assets consisted of the following as of the respective periods:
(in thousands)
September 30,
2014
 
December 31,
2013
Income tax receivable
$
1,952

 
$
2,035

Prepaid insurance
2,703

 
2,260

Prepaid software maintenance
2,434

 
1,946

Prepaid vendor payments
2,382

 
2,008

Prepaid rent
1,561

 
284

Prepaid other
3,623

 
5,031

Other
2,396

 
3,578

Other current assets
$
17,051

 
$
17,142

Property and Equipment
Property and Equipment, Net
Property and Equipment, Net
Property and equipment consisted of the following as of the respective periods:
(in thousands)
September 30,
2014
 
December 31,
2013
Land and land interests
$
30,707

 
$
23,646

Buildings and leasehold improvements
139,083

 
139,889

Equipment and other
322,719

 
294,409

Gross property and equipment
492,509

 
457,944

Less: accumulated depreciation
(293,926
)
 
(267,614
)
Property and equipment, net
$
198,583

 
$
190,330


Depreciation expense for the three months ended September 30, 2014 and 2013 was $7.7 million and $7.0 million, respectively. Depreciation expense for the nine months ended September 30, 2014 and 2013 was $21.1 million and $20.4 million, respectively.
For the nine months ended September 30, 2014, Viad recorded impairment charges of $0.9 million at the Marketing & Events Group related to the write-off of certain internally developed software.
Other Investments and Assets
Other Investments and Assets
Other Investments and Assets
Other investments and assets consisted of the following as of the respective periods:
(in thousands)
September 30,
2014
 
December 31,
2013
Cash surrender value of life insurance
$
19,924

 
$
19,690

Workers’ compensation insurance security deposits
3,350

 
3,350

Other
11,469

 
11,986

Other investments and assets
$
34,743

 
$
35,026

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the nine months ended September 30, 2014 were as follows:
(in thousands)
Marketing &
Events U.S.
 
Marketing &
Events
International
 
Travel &
Recreation
Group
 
Total
Balance at December 31, 2013
$
62,686

 
$
22,611

 
$
44,246

 
$
129,543

Acquisition of Blitz

 
13,111

 

 
13,111

Acquisition of West Glacier

 

 
1,268

 
1,268

Foreign currency translation adjustments

 
(783
)
 
(2,478
)
 
(3,261
)
Balance at September 30, 2014
$
62,686

 
$
34,939

 
$
43,036

 
$
140,661


The following table summarizes goodwill by reporting unit and segment as of the respective periods:
(in thousands)
September 30,
2014
 
December 31,
2013
Marketing & Events Group:
 
 
 
Marketing & Events U.S.
$
62,686

 
$
62,686

Marketing & Events International:
 
 
 
GES United Kingdom
26,816

 
14,049

GES Canada
8,123

 
8,562

Total Marketing & Events Group
97,625

 
85,297

Travel & Recreation Group:
 
 
 
Brewster
38,584

 
41,062

Glacier Park
1,268

 

Alaska Denali Travel
3,184

 
3,184

Total Travel & Recreation Group
43,036

 
44,246

Goodwill
$
140,661

 
$
129,543


A summary of other intangible assets as of September 30, 2014 is presented below:
(in thousands)
Gross Carrying
Value
 
Accumulated
Amortization
 
Net Carrying
Value
Amortized intangible assets:
 
 
 
 
 
Customer contracts and relationships
$
13,138

 
$
(3,000
)
 
$
10,138

Other
3,287

 
(338
)
 
2,949

Total amortized intangible assets
16,425

 
(3,338
)
 
13,087

Unamortized intangible assets:
 
 
 
 
 
Business licenses
460

 

 
460

Other intangible assets
$
16,885

 
$
(3,338
)
 
$
13,547


A summary of other intangible assets as of December 31, 2013 is presented below:
(in thousands)
Gross Carrying
Value
 
Accumulated
Amortization
 
Net Carrying
Value
Amortized intangible assets:
 
 
 
 
 
Customer contracts and relationships
$
5,537

 
$
(2,521
)
 
$
3,016

Other
1,280

 
(276
)
 
1,004

Total amortized intangible assets
6,817

 
(2,797
)
 
4,020

Unamortized intangible assets:
 
 
 
 
 
Business licenses
460

 

 
460

Other intangible assets
$
7,277

 
$
(2,797
)
 
$
4,480


Intangible asset amortization expense for the three months ended September 30, 2014 and 2013 was $0.2 million and $0.3 million, respectively, and for the nine months ended September 30, 2014 and 2013 was $0.8 million and $0.9 million, respectively. Estimated amortization expense related to amortized intangible assets for future years is expected to be as follows:
(in thousands)
 
2014
$
944

2015
$
2,741

2016
$
2,462

2017
$
1,983

2018
$
1,398

Thereafter
$
3,559

Other Current Liabilities
Other Current Liabilities
Other Current Liabilities
Other current liabilities consisted of the following as of the respective periods:
(in thousands)
September 30,
2014
 
December 31,
2013
Continuing operations:
 
 
 
Self-insured liability accrual
$
8,459

 
$
7,603

Accrued employee benefit costs
3,979

 
2,751

Accrued sales and use taxes
3,594

 
1,609

Accrued dividends
2,115

 
2,192

Accrued restructuring
1,919

 
3,877

Pension and postretirement benefits liability
1,651

 
1,208

Accrued rebates
1,277

 
831

Accrued professional fees
1,005

 
1,832

Deferred rent
946

 
1,558

Other
11,639

 
4,709

Total continuing operations
36,584

 
28,170

Discontinued operations:
 
 
 
Self-insured liability accrual
403

 
469

Environmental remediation liabilities
356

 
353

Other
409

 
177

Total discontinued operations
1,168

 
999

Other current liabilities
$
37,752

 
$
29,169

Other Deferred Liabilities
Other Deferred Items and Liabilities
Other Deferred Items and Liabilities
Other deferred items and liabilities consisted of the following as of the respective periods:
(in thousands)
September 30,
2014
 
December 31,
2013
Continuing operations:
 
 
 
Self-insured liability accrual
$
16,789

 
$
17,316

Accrued compensation
6,090

 
8,349

Deferred rent income
2,949

 
3,022

Foreign deferred tax liability
2,076

 
1,989

Accrued restructuring
1,508

 
1,919

Other
5,586

 
4,530

Total continuing operations
34,998

 
37,125

Discontinued operations:
 
 
 
Environmental remediation liabilities
4,399

 
4,666

Self-insured liability accrual
4,442

 
4,489

Accrued income taxes
1,115

 
1,085

Other
1,387

 
1,254

Total discontinued operations
11,343

 
11,494

Other deferred items and liabilities
$
46,341

 
$
48,619

Debt
Debt and Capital Lease Obligations
Debt and Capital Lease Obligations
Viad’s total debt as of September 30, 2014 and December 31, 2013 was $24.0 million and $11.7 million, respectively. The debt-to-capital ratio was 0.062 to 1 and 0.032 to 1 as of September 30, 2014 and December 31, 2013, respectively. Capital is defined as total debt and capital lease obligations plus total stockholders’ equity.
In May 2011, Viad entered into an amended and restated $130 million revolving credit agreement (the “Credit Facility”). The term of the Credit Facility is five years (expiring on May 18, 2016) and borrowings are to be used for general corporate purposes (including permitted acquisitions) and to support up to $50 million of letters of credit. The lenders have a first perfected security interest in all of the personal property of Viad and GES, including 65 percent of the capital stock of top-tier foreign subsidiaries. As of September 30, 2014, Viad’s total debt of $24.0 million consisted of a $22.5 million revolver borrowing under the Credit Facility and $1.5 million of capital lease obligations. As of September 30, 2014, Viad had $106.2 million of capacity remaining under its Credit Facility reflecting outstanding letters of credit of $1.3 million and the outstanding balance under the Credit Facility of $22.5 million.
Effective October 10, 2014, Viad entered into an amendment (the “Amendment”) to the Company’s $130 million Credit Facility. The Company was able to exercise the accordion feature of the Credit Facility after the lenders committed an additional $50 million of credit on a pro rata basis. Accordingly, the Amendment increased the Company’s borrowing capacity under the Credit Facility from $130 million to $180 million. Refer to Note 21, Subsequent Events.
Borrowings under the Credit Facility (under which GES is a guarantor) are indexed to the prime rate or the London Interbank Offered Rate, plus appropriate spreads tied to Viad’s leverage ratio. Commitment fees and letters of credit fees are also tied to Viad’s leverage ratio. The fees on the unused portion of the Credit Facility are currently 0.35 percent annually.
The Credit Facility contains various affirmative and negative covenants that are customary for facilities of this type, including a fixed-charge coverage ratio, leverage ratio and dividend and share repurchase limits. Significant other covenants include limitations on: investments, additional indebtedness, sales/leases of assets, acquisitions, consolidations or mergers and liens on property. As of September 30, 2014, Viad was in compliance with all covenants.
As of September 30, 2014, Viad had certain obligations under guarantees to third parties on behalf of its subsidiaries. These guarantees are not subject to liability recognition in the condensed consolidated financial statements and relate to leased facilities entered into by the Company’s subsidiary operations. The Company would generally be required to make payments to the respective third parties under these guarantees in the event that the related subsidiary could not meet its own payment obligations. The maximum potential amount of future payments that Viad would be required to make under all guarantees existing as of September 30, 2014 would be $7.9 million. These guarantees relate to leased facilities and expire through October 2017. There are no recourse provisions that would enable Viad to recover from third parties any payments made under the guarantees. Furthermore, there are no collateral or similar arrangements whereby Viad could recover payments.
The estimated fair value of total debt was $23.7 million and $11.5 million as of September 30, 2014 and December 31, 2013, respectively. The fair value of debt was estimated by discounting the future cash flows using rates currently available for debt of similar terms and maturity.
Fair Value Measurements
Fair Value Measurements
Fair Value Measurements
The fair value of an asset or liability is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value guidance requires an entity to maximize the use of quoted prices and other observable inputs and minimize the use of unobservable inputs when measuring fair value, and also establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value.
Viad measures its money market mutual funds and certain other mutual fund investments at fair value on a recurring basis using Level 1 inputs. The fair value information related to these assets is summarized in the following tables:
 
 
 
Fair Value Measurements at Reporting Date Using
(in thousands)
September 30,
2014
 
Quoted Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobserved
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market funds
$
6,618

 
$
6,618

 
$

 
$

Other mutual funds
2,488

 
2,488

 

 

Total assets at fair value
$
9,106

 
$
9,106

 
$

 
$

 
 
 
Fair Value Measurements at Reporting Date Using
(in thousands)
December 31,
2013
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobserved
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market funds
$
118

 
$
118

 
$

 
$

Other mutual funds
2,023

 
2,023

 

 

Total assets at fair value
$
2,141

 
$
2,141

 
$

 
$


As of September 30, 2014 and December 31, 2013, Viad had investments in money market mutual funds of $6.6 million and $0.1 million, respectively, which are included in the consolidated balance sheets under the caption “Cash and cash equivalents.” These investments are classified as available-for-sale and were recorded at fair value. There have been no realized or unrealized gains or losses related to these investments and the Company has not experienced any redemption restrictions with respect to any of the money market mutual funds.
As of September 30, 2014 and December 31, 2013, Viad had investments in other mutual funds of $2.5 million and $2.0 million, respectively, which are classified in the consolidated balance sheets under the caption “Other investments and assets.” These investments were classified as available-for-sale and were recorded at fair value. As of September 30, 2014 and December 31, 2013, there were unrealized gains of $0.7 million ($0.4 million after-tax) and $0.7 million ($0.4 million after-tax), respectively, which were included in the consolidated balance sheets under the caption “Accumulated other comprehensive income (loss).”
The carrying values of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-term maturities of these instruments. The estimated fair value of debt obligations is disclosed in Note 11, Debt and Capital Lease Obligations.
Stockholders' Equity
Stockholders' Equity
Stockholders' Equity

The following represents a reconciliation of the carrying amounts of stockholders’ equity attributable to Viad and the noncontrolling interest for the nine months ended September 30, 2014 and 2013:
(in thousands)
 
Total Viad Stockholders’ Equity
 
Noncontrolling Interest
 
Total Stockholders’ Equity
Balance at December 31, 2013
 
$
347,441

 
$
9,102

 
$
356,543

Net income
 
58,244

 
3,355

 
61,599

Dividends on common stock
 
(36,374
)
 

 
(36,374
)
Common stock purchased for treasury
 
(11,631
)
 

 
(11,631
)
Employee benefit plans
 
5,519

 

 
5,519

Unrealized foreign currency translation adjustment
 
(9,950
)
 

 
(9,950
)
Unrealized gain on investments
 
(17
)
 

 
(17
)
ESOP allocation adjustment
 
44

 

 
44

Other
 
(32
)
 

 
(32
)
Balance at September 30, 2014
 
$
353,244

 
$
12,457

 
$
365,701

(in thousands)
 
Total Viad Stockholders’ Equity
 
Noncontrolling Interest
 
Total Stockholders’ Equity
Balance at December 31, 2012
 
$
388,061

 
$
8,971

 
$
397,032

Net income (loss)
 
26,173

 
425

 
$
26,598

Dividends on common stock
 
(6,095
)
 

 
$
(6,095
)
Common stock purchased for treasury
 
(1,294
)
 

 
$
(1,294
)
Employee benefit plans
 
3,485

 

 
$
3,485

Unrealized foreign currency translation adjustment
 
(6,092
)
 

 
$
(6,092
)
Unrealized gain on investments
 
117

 

 
$
117

Prior service credit and net actuarial loss
 
91

 

 
$
91

ESOP allocation adjustment
 
850

 

 
$
850

Balance at September 30, 2013
 
$
405,296

 
$
9,396

 
$
414,692


Changes in accumulated other comprehensive income (“AOCI”) by component were as follows:
(in thousands)
 
Unrealized Gains on Investments
 
Cumulative Foreign Currency Translation Adjustments
 
Unrecognized Net Actuarial Loss and Service Credit
 
Accumulated Other Comprehensive Income
Balance at December 31, 2013
 
$
429

 
$
30,847

 
$
(11,259
)
 
$
20,017

Other comprehensive income before reclassifications
 
15

 
(9,950
)
 

 
(9,935
)
Amounts reclassified from AOCI, net of tax
 
(32
)
 

 
(32
)
 
(64
)
Net other comprehensive income (loss)
 
(17
)
 
(9,950
)
 
(32
)
 
(9,999
)
Balance at September 30, 2014
 
$
412

 
$
20,897

 
$
(11,291
)
 
$
10,018


The following table presents information about reclassification adjustments out of AOCI for the nine months ended September 30:
 
 
 
 
Affected Line Item in the Statement Where Net Income is Presented
(in thousands)
 
2014
 
2013
 
Unrealized gains on investments
 
$
52

 
$
72

 
Interest income
Tax effect
 
(20
)
 
(27
)
 
Income taxes
 
 
$
32

 
$
45

 
 
 
 
 
 
 
 
 
Recognized net actuarial loss(1)
 
$
(705
)
 
$
(827
)
 
 
Amortization of prior service credit(1)
 
757

 
680

 
 
Tax effect
 
(20
)
 
56

 
Income taxes
 
 
$
32

 
$
(91
)
 
 
(1) Amount included in pension expense. Refer to Note 16, Pension and Postretirement Benefits.
Income Per Share
Income Per Share
Income Per Share
The following are the components of basic and diluted income per share:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands, except per share data)
2014
 
2013
 
2014
 
2013
Net income attributable to Viad (diluted)
$
29,620

 
$
11,855

 
$
58,244

 
$
26,173

Less: Allocation to non-vested shares
(538
)
 
(264
)
 
(1,098
)
 
(605
)
Net income allocated to Viad common stockholders (basic)
$
29,082

 
$
11,591

 
$
57,146

 
$
25,568

Basic weighted-average outstanding common shares
19,679

 
19,868

 
19,832

 
19,839

Additional dilutive shares related to share-based compensation
275

 
323

 
342

 
349

Diluted weighted-average outstanding shares
19,954

 
20,191

 
20,174

 
20,188

Income per share:
 
 
 
 
 
 
 
Basic income attributable to Viad common stockholders
$
1.48

 
$
0.58

 
$
2.88

 
$
1.29

Diluted income attributable to Viad common stockholders(1)
$
1.48

 
$
0.58

 
$
2.88

 
$
1.29

(1) Diluted income per share amount cannot exceed basic income per share.
There were 275,000 and 323,000 share-based compensation awards considered dilutive and included in the computation of diluted income per share for the three months ended September 30, 2014 and 2013, respectively. Additionally, there were 342,000 and 349,000 share-based compensation awards considered dilutive and included in the computation of diluted income per share for the nine months ended September 30, 2014 and 2013, respectively. Options to purchase 27,000 and 47,000 shares of common stock were outstanding during the nine months ended September 30, 2014 and 2013, respectively, but were not included in the computation of dilutive shares outstanding because the effect would be anti-dilutive.
Income Taxes
Income Taxes
Income Taxes
The effective tax rates for the nine months ended September 30, 2014 and 2013 were 1.8 percent and 29.8 percent, respectively.
The income tax provisions were computed based on the Company’s estimated effective tax rate and forecasted income by jurisdiction expected to be applicable for the full fiscal year, including the impact of any unusual or infrequent items. The relatively low effective tax rates compared to the federal statutory rate of 35 percent were primarily due to foreign income which is taxed at lower rates. Additionally, 2014 was favorably impacted by the projected utilization of foreign tax credit carryforwards and the release of the related valuation allowance.
Viad is required to estimate and record provisions for income taxes in each of the jurisdictions in which the Company operates. Accordingly, the Company must estimate its actual current income tax liability, and assess temporary differences arising from the treatment of items for tax purposes, as compared to the treatment for accounting purposes. These differences result in deferred tax assets and liabilities which are included in Viad’s consolidated balance sheets. The Company must assess the likelihood that deferred tax assets will be recovered from future taxable income and to the extent that recovery is not likely, a valuation allowance must be established. The Company uses significant judgment in forming a conclusion regarding the recoverability of its deferred tax assets and evaluates the available positive and negative evidence to determine whether it is more likely than not that its deferred tax assets will be realized in the future. These deferred tax assets reflect the expected future tax benefits to be realized upon reversal of deductible temporary differences and the utilization of net operating loss and tax credit carryforwards.
The Company considered all available positive and negative evidence regarding the future recoverability of its deferred tax assets, including the Company’s recent operating history, taxpaying history and future reversals of deferred tax liabilities. The Company also evaluated its ability to utilize its foreign tax credits, given its recent utilization history and projected future domestic income. The foreign tax credits are subject to a 10-year carryforward period and begin to expire in 2019. As of December 31, 2013, $10.9 million of the $12.4 million was related to foreign tax credits. Based on the Company’s evaluation of all positive and negative evidence, it was determined to be more likely than not that the foreign tax credit carryforwards would be utilized before their expiration. Accordingly, the related valuation allowance was released during the third quarter of 2014. The positive evidence relied upon in making this assessment included the Company’s positive cumulative income position, the projected 2014 utilization of $5.4 million of foreign tax credit carryforwards, the history of utilizing all deferred tax assets including net operating losses, and future forecasts of domestic income.

As noted above, Viad uses considerable judgment in forming a conclusion regarding the recoverability of its deferred tax assets. As a result, there are inherent uncertainties regarding the ultimate realization of these assets, which is primarily dependent upon Viad’s ability to generate sufficient taxable income in future periods. In future periods, it is reasonably possible that the relative weight of positive and negative evidence regarding the recoverability of Viad’s deferred tax assets may change, which could result in a material increase or decrease in the Company’s valuation allowance. If such a change in the valuation allowance were to occur, it would result in a change to income tax expense in the period the assessment was made.
Viad had liabilities, including interest and penalties, associated with uncertain tax positions for continuing operations of $1.3 million and $0.7 million as of September 30, 2014 and December 31, 2013, respectively. In addition, as of September 30, 2014 and December 31, 2013, Viad had liabilities, including interest and penalties, for uncertain tax positions relating to discontinued operations of $1.1 million. Future tax resolutions or settlements that may occur related to these uncertain tax positions would be recorded through either continuing or discontinued operations (net of applicable federal tax benefit). The total liability associated with uncertain tax positions as of September 30, 2014 and December 31, 2013 was $2.4 million and $1.8 million, respectively, which was classified as both current and non-current liabilities. The Company expects the majority of the unrecognized tax benefits to be recognized by March 31, 2015.
Pension and Postretirement Benefits
Pension and Postretirement Benefits
Pension and Postretirement Benefits
The net periodic benefit cost of Viad’s pension and postretirement plans for the three months ended September 30 included the following components:
 
 
Domestic Plans
 
 
 
 
 
 
Pension Plans
 
Postretirement Benefit Plans
 
Foreign Pension Plans
(in thousands)
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Service cost
 
$
20

 
$

 
$
11

 
$
25

 
$
104

 
$
134

Interest cost
 
263

 
251

 
140

 
152

 
158

 
175

Expected return on plan assets
 
(107
)
 
(100
)
 

 

 
(161
)
 
(175
)
Amortization of prior service credit
 

 

 
(149
)
 
(227
)
 

 

Recognized net actuarial loss
 
101

 
129

 
16

 
106

 
3

 
10

Net periodic benefit cost
 
$
277

 
$
280

 
$
18

 
$
56

 
$
104

 
$
144


The net periodic benefit cost of Viad’s pension and postretirement plans for the nine months ended September 30 included the following components:
 
 
Domestic Plans
 
 
 
 
 
 
Pension Plans
 
Postretirement Benefit Plans
 
Foreign Pension Plans
(in thousands)
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Service cost
 
$
65

 
$
60

 
$
105

 
$
117

 
$
313

 
$
405

Interest cost
 
809

 
773

 
517

 
498

 
478

 
531

Expected return on plan assets
 
(327
)
 
(300
)
 

 

 
(484
)
 
(530
)
Amortization of prior service credit
 

 

 
(445
)
 
(677
)
 

 

Recognized net actuarial loss
 
305

 
427

 
225

 
388

 
8

 
30

Net periodic benefit cost
 
$
852

 
$
960

 
$
402

 
$
326

 
$
315

 
$
436


Viad expects to contribute $1.4 million to its funded pension plans, $0.9 million to its unfunded pension plans and $1.0 million to its postretirement benefit plans in 2014. During the nine months ended September 30, 2014, Viad contributed $1.0 million to its funded pension plans, $0.6 million to its unfunded pension plans and $0.4 million to its postretirement benefit plans.
Restructuring Charges
Restructuring Charges
Restructuring Charges
Marketing & Events Group Consolidation
Viad executed certain restructuring actions designed to reduce the Company’s cost structure primarily within the Marketing & Events U.S. segment, and to a lesser extent in the Marketing & Events International segment. The Company implemented a strategic reorganization plan in order to consolidate the separate business units within the Marketing & Events U.S. segment. The Company also consolidated facilities and streamlined its operations in the United Kingdom and Germany.
Other Restructurings
The Company has recorded restructuring charges primarily related to certain reorganization activities within the Travel & Recreation Group. These charges consist of severance and related benefits due to headcount reductions.
The table below represents a reconciliation of beginning and ending liability balances by major restructuring activity:
 
Marketing & Events
Group Consolidation
 
Other Restructurings
 
 
(in thousands)
Severance &
Employee
Benefits
 
Facilities
 
Severance &
Employee
Benefits
 
Total
Balance at December 31, 2013
$
1,240

 
$
3,565

 
$
991

 
$
5,796

Restructuring charges (recoveries)
2,030

 
10

 
(226
)
 
1,814

Cash payments
(2,497
)
 
(926
)
 
(845
)
 
(4,268
)
Adjustment to liability

 

 
85

 
85

Balance at September 30, 2014
$
773

 
$
2,649

 
$
5

 
$
3,427


As of September 30, 2014, the liabilities related to severance and employee benefits are expected to be paid by the end of 2014. Additionally, the liability of $2.6 million related to future lease payments will be paid over the remaining lease terms at the Marketing & Events Group. Refer to Note 19, Segment Information, for information regarding restructuring charges by segment.
Litigation, Claims, Contingencies and Other
Litigation, Claims, Contingencies and Other
Litigation, Claims, Contingencies and Other
Viad and certain of its subsidiaries are plaintiffs or defendants to various actions, proceedings and pending claims, some of which involve, or may involve, compensatory, punitive or other damages. Litigation is subject to many uncertainties and it is possible that some of the legal actions, proceedings or claims could be decided against Viad. Although the amount of liability as of September 30, 2014 with respect to these matters is not ascertainable, Viad believes that any resulting liability, after taking into consideration amounts already provided for and insurance coverage, will not have a material effect on Viad’s business, financial position or results of operations.
Viad is subject to various U.S. federal, state and foreign laws and regulations governing the prevention of pollution and the protection of the environment in the jurisdictions in which Viad has or had operations. If the Company has failed to comply with these environmental laws and regulations, civil and criminal penalties could be imposed and Viad could become subject to regulatory enforcement actions in the form of injunctions and cease and desist orders. As is the case with many companies, Viad also faces exposure to actual or potential claims and lawsuits involving environmental matters relating to its past operations. Although it is a party to certain environmental disputes, Viad believes that any resulting liabilities, after taking into consideration amounts already provided for and insurance coverage, will not have a material effect on the Company’s financial position or results of operations. As of September 30, 2014, Viad had recorded environmental remediation liabilities of $4.9 million related to previously sold operations.
As of September 30, 2014, Viad had certain obligations under guarantees to third parties on behalf of its subsidiaries. These guarantees are not subject to liability recognition in the condensed consolidated financial statements and relate to leased facilities entered into by Viad’s subsidiary operations. The Company would generally be required to make payments to the respective third parties under these guarantees in the event that the related subsidiary could not meet its own payment obligations. The maximum potential amount of future payments that Viad would be required to make under all guarantees existing as of September 30, 2014 would be $7.9 million. These guarantees relate to leased facilities expiring through October 2017. There are no recourse provisions that would enable Viad to recover from third parties any payments made under the guarantees. Furthermore, there are no collateral or similar arrangements whereby Viad could recover payments.
A significant portion of Viad’s employees are unionized and the Company is a party to approximately 100 collective-bargaining agreements, with approximately one-third requiring renegotiation each year. If the Company was unable to reach an agreement with a union during the collective-bargaining process, the union may call for a strike or work stoppage, which may, under certain circumstances, adversely impact the Company’s businesses and results of operations. Viad believes that relations with its employees are satisfactory and that collective-bargaining agreements expiring in 2014 will be renegotiated in the ordinary course of business without having a material adverse effect on Viad’s operations. The Company entered into new showsite and warehouse agreements with the Chicago Teamsters Local 727, effective January 1, 2014, and those agreements contain provisions that allow the parties to re-open negotiation of the agreements on pension-related issues. The Company is in informal discussions regarding those issues with all relevant parties and is working diligently to resolve those issues in a manner that will be reasonable and equitable to employees, customers and shareholders. Although the Company’s labor relations are currently stable, disruptions pending the outcome of the Chicago Teamsters Local 727 negotiations could occur, as they could with any collective-bargaining agreement negotiation, with the possibility of an adverse impact on the operating results of the Marketing & Events Group.
Viad’s businesses contribute to various multi-employer pension plans based on obligations arising under collective-bargaining agreements covering its union-represented employees. Based upon the information available to Viad from plan administrators, management believes that several of these multi-employer plans are underfunded. The Pension Protection Act of 2006 requires pension plans underfunded at certain levels to reduce, over defined time periods, the underfunded status. In addition, under current laws, the termination of a plan, or a voluntary withdrawal from a plan by Viad, or a shrinking contribution base to a plan as a result of the insolvency or withdrawal of other contributing employers to such plan, would require Viad to make payments to such plan for its proportionate share of the plan’s unfunded vested liabilities. As of September 30, 2014, the amount of additional funding, if any, that Viad would be required to make related to multi-employer pension plans is not ascertainable.
Viad is self-insured up to certain limits for workers’ compensation, employee health benefits, automobile, product and general liability and property loss claims. The aggregate amount of insurance liabilities (up to the Company’s retention limit) related to Viad’s continuing operations was $21.4 million as of September 30, 2014. Of this total, $12.8 million related to workers’ compensation liabilities, $1.2 million related to employee health benefits and the remaining $7.4 million related to general/auto liability claims. Viad has also retained and provided for certain insurance liabilities in conjunction with previously sold businesses totaling $4.8 million as of September 30, 2014, related to workers’ compensation liabilities. Provisions for losses for claims incurred, including estimated claims incurred but not yet reported, are made based on Viad’s historical experience, claims frequency and other factors. A change in the assumptions used could result in an adjustment to recorded liabilities. Viad has purchased insurance for amounts in excess of the self-insured levels, which generally range from $0.2 million to $0.4 million on a per claim basis. Viad does not maintain a self-insured retention pool fund as claims are paid from current cash resources at the time of settlement. Viad’s net cash payments in connection with these insurance liabilities were $3.5 million for the nine months ended September 30, 2014.
In addition, as of September 30, 2014 Viad had recorded insurance liabilities of $5.0 million related to continuing operations in excess of the self-insured levels for which Viad remains the primary obligor. Of this total, $1.7 million related to workers’ compensation liabilities and the remaining $3.3 million related to general/auto liability claims. The Company has recorded these amounts in other deferred items and liabilities in Viad’s Condensed Consolidated Balance Sheets with a corresponding receivable in other investments and assets.
On December 31, 2013, Glacier Park’s concession contract to operate lodging, tour and transportation and other hospitality services for Glacier National Park expired. Glacier Park generated approximately 47 percent of its 2013 revenue through its concession contract for services provided within Glacier National Park. Upon completion of the contract term, in January 2014, the Company received cash payments totaling $25.0 million for the Company’s “possessory interest,” which generally means the value of the structures acquired or constructed, fixtures installed and improvements made to the concession property at Glacier National Park during the term of the concession contract. In September 2014, the Company received $3.0 million in cash for the personal property Glacier Park used at the facilities covered by the concession contract.
Segment Information
Segment Information
Segment Information
Viad’s reportable segments consist of Marketing & Events U.S., Marketing & Events International (together the “Marketing & Events Group”) and the Travel & Recreation Group.
Viad measures profit and performance of its operations on the basis of segment operating income which excludes restructuring charges and recoveries and impairment charges and recoveries. Intersegment sales are eliminated in consolidation and intersegment transfers are not significant. Corporate activities include expenses not allocated to operations. Depreciation and amortization and share-based compensation expense are the only significant non-cash items for the reportable segments. Disclosures regarding Viad’s reportable segments with reconciliations to consolidated totals are as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Revenue:
 
 
 
 
 
 
 
Marketing & Events Group:
 
 
 
 
 
 
 
U.S.
$
168,058

 
$
120,503

 
$
558,292

 
$
494,355

International
64,199

 
40,335

 
186,296

 
168,974

Intersegment eliminations
(5,595
)
 
(4,352
)
 
(13,517
)
 
(10,269
)
Total Marketing & Events Group
226,662

 
156,486

 
731,071

 
653,060

Travel & Recreation Group
73,140

 
63,681

 
110,763

 
98,446

Total revenue
$
299,802

 
$
220,167

 
$
841,834

 
$
751,506

Segment operating income (loss):

 
 
 
 
 
 
Marketing & Events Group:
 
 
 
 
 
 
 
U.S.
$
1,069

 
$
(3,745
)
 
$
22,044

 
$
12,971

International
1,297

 
(4,159
)
 
7,512

 
5,821

Total Marketing & Events Group
2,366

 
(7,904
)
 
29,556

 
18,792

Travel & Recreation Group
30,648

 
26,627

 
30,955

 
24,981

Segment operating income
33,014

 
18,723

 
60,511

 
43,773

Corporate activities
(3,468
)
 
(2,034
)
 
(7,498
)
 
(4,007
)
Operating income
29,546


16,689

 
53,013

 
39,766

Interest income
81

 
122

 
200

 
397

Interest expense
(462
)
 
(286
)
 
(1,069
)
 
(905
)
Restructuring (charges) recoveries:
 
 
 
 
 
 
 
Marketing & Events U.S.
(186
)
 
(185
)
 
(392
)
 
(309
)
Marketing & Events International
(128
)
 
(434
)
 
(1,648
)
 
(1,761
)
Travel & Recreation Group
(30
)
 
(2
)
 
41

 
(15
)
Corporate
106

 
(18
)
 
185

 
(47
)
Impairment charges:
 
 
 
 
 
 
 
Marketing & Events International

 
(952
)
 
(884
)
 
(952
)
Travel & Recreation Group

 
(2,097
)
 

 
(2,097
)
Income from continuing operations before income taxes
$
28,927

 
$
12,837

 
$
49,446

 
$
34,077

Discontinued Operations
Discontinued Operations
Discontinued Operations
On December 31, 2013, Glacier Park’s concession contract with the Park Service to operate lodging, tour and transportation and other hospitality services within Glacier National Park expired. Upon completion of the contract, the Company received cash payments in January 2014 totaling $25.0 million resulting in a pre-tax gain of $21.5 million for the Company’s possessory interest. The gain after-tax on the possessory interest was $12.6 million with $2.7 million attributable to the noncontrolling interest. These amounts are included in income (loss) from discontinued operations and net income attributable to noncontrolling interest in Viad’s Condensed Consolidated Statements of Operations, respectively. In September 2014, the Company received $3 million in cash for the sale of the remaining personal property assets held for sale at Glacier Park. This resulted in a gain of approximately $0.7 million, net of tax, which was more than offset by the allocation of taxes to the possessory interest gain in the quarter.
The following summarizes Glacier Park’s expired concession contract operating results, which are presented in income (loss) from discontinued operations, net of tax, in Viad’s Condensed Consolidated Statements of Operations:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands)
 
2014
 
2013
 
2014
 
2013
Total revenue
 
$

 
$
16,306

 
$

 
$
19,444

Costs and expenses
 
(7
)
 
(10,402
)
 
(93
)
 
(14,882
)
Impairment charges
 

 
(2,364
)
 

 
(2,364
)
Restructuring charges
 

 
(75
)
 

 
(75
)
Income (loss) from discontinued operations, before income taxes
 
(7
)
 
3,465

 
(93
)
 
2,123

Income tax (expense) benefit
 
7

 
(990
)
 
45

 
(462
)
Income (loss) from discontinued operations, net of tax
 

 
2,475

 
(48
)
 
1,661

Gain (loss) on sale of discontinued operations, net of tax
 
(979
)
 

 
13,343

 

Income (loss) from discontinued operations
 
(979