VIAD CORP, 10-K filed on 3/11/2013
Annual Report
Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Jan. 31, 2013
Jun. 30, 2012
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
VIAD CORP 
 
 
Entity Central Index Key
0000884219 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2012 
 
 
Amendment Flag
false 
 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
FY 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Public Float
 
 
$ 391 
Entity Common Stock, Shares Outstanding
 
20,249,721 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Current assets:
 
 
Cash and cash equivalents
$ 114,171 
$ 100,376 
Accounts receivable, net of allowance for doubtful accounts of $1,150 and $1,072, respectively
62,756 
63,583 
Inventories
35,656 
35,825 
Deferred income taxes
26,301 
24,200 
Other current assets
15,534 
14,647 
Total current assets
254,418 
238,631 
Property and equipment, net
197,298 
173,813 
Other investments and assets
32,416 
31,051 
Deferred income taxes
26,104 
38,755 
Goodwill
137,820 
133,694 
Other intangible assets, net
2,521 
1,884 
Total Assets
650,577 
617,828 
Current liabilities:
 
 
Accounts payable
57,995 
51,448 
Other current liabilities
107,684 
97,331 
Current portion of long-term capital lease obligations
1,347 
2,018 
Total current liabilities
167,026 
150,797 
Long-term capital lease obligations
879 
1,221 
Pension and postretirement benefits
37,812 
35,419 
Other deferred items and liabilities
47,828 
44,212 
Total liabilities
253,545 
231,649 
Commitments and contingencies (Notes 17 and 18)
   
   
Viad Corp stockholders' equity:
 
 
Common stock, $1.50 par value, 200,000,000 shares authorized, 24,934,981 shares issued
37,402 
37,402 
Additional capital
593,862 
599,188 
Retained deficit
(13,034)
(13,256)
Unearned employee benefits and other
(1,301)
(2,951)
Accumulated other comprehensive income (loss):
 
 
Unrealized gain on investments, net
275 
222 
Cumulative foreign currency translation adjustments
42,158 
34,648 
Unrecognized net actuarial loss and prior service credit, net
(14,968)
(12,977)
Common stock in treasury, at cost, 4,694,468 and 4,790,920 shares, respectively
(256,333)
(264,382)
Total Viad Corp stockholders' equity
388,061 
377,894 
Noncontrolling interest
8,971 
8,285 
Total stockholders' equity
397,032 
386,179 
Total Liabilities and Stockholders' Equity
$ 650,577 
$ 617,828 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Consolidated Balance Sheets [Abstract]
 
 
Allowance for doubtful accounts
$ 1,150 
$ 1,072 
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
4,694,468 
4,790,920 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Revenues:
 
 
 
Exhibition and event services
$ 726,429 
$ 670,054 
$ 590,444 
Exhibits and environments
175,611 
170,496 
166,040 
Travel and recreation services
123,191 
101,814 
88,277 
Total revenues
1,025,231 
942,364 
844,761 
Costs and expenses:
 
 
 
Costs of services
818,837 
752,679 
656,315 
Costs of products sold
164,532 
164,309 
173,690 
Corporate activities
9,408 
7,682 
6,422 
Interest income
(593)
(779)
(584)
Interest expense
1,303 
1,511 
1,835 
Restructuring charges
4,942 
3,782 
4,222 
Intangible asset impairment losses
   
 
185 
Other impairment losses
   
 
117 
Total costs and expenses
998,429 
929,184 
842,202 
Income from continuing operations before income taxes
26,802 
13,180 
2,559 
Income tax expense
20,843 
3,888 
1,742 
Income from continuing operations
5,959 
9,292 
817 
Income from discontinued operations
624 
451 
262 
Net income
6,583 
9,743 
1,079 
Net income attributable to noncontrolling interest
(686)
(533)
(636)
Net income attributable to Viad
5,897 
9,210 
443 
Diluted income per common share
 
 
 
Income from continuing operations attributable to Viad common stockholders
$ 0.26 
$ 0.43 
$ 0.01 
Income from discontinued operations attributable to Viad common stockholders
$ 0.03 
$ 0.02 
$ 0.01 
Net income attributable to Viad common stockholders
$ 0.29 
$ 0.45 
$ 0.02 
Weighted-average outstanding and potentially dilutive common shares
20,005 
20,055 
20,277 
Basic income per common share
 
 
 
Income from continuing operations attributable to Viad common stockholders
$ 0.26 
$ 0.43 
$ 0.01 
Income from discontinued operations attributable to Viad common stockholders
$ 0.03 
$ 0.02 
$ 0.01 
Net income attributable to Viad common stockholders
$ 0.29 
$ 0.45 
$ 0.02 
Weighted-average outstanding common shares
19,701 
19,719 
19,955 
Dividends declared per common share
$ 0.28 
$ 0.16 
$ 0.16 
Amounts attributable to Viad common stockholders
 
 
 
Income from continuing operations
5,273 
8,759 
181 
Income from discontinued operations
624 
451 
262 
Net income
$ 5,897 
$ 9,210 
$ 443 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Consolidated Statements of Comprehensive Income [Abstract]
 
 
 
Net income
$ 6,583 
$ 9,743 
$ 1,079 
Other comprehensive income (loss):
 
 
 
Unrealized investment gains (losses) arising during the period, net of tax expense (benefit) of $33, $(36) and $82
53 
(60)
128 
Unrealized foreign currency translation adjustments, net of tax
7,510 
(4,331)
7,696 
Amortization of net actuarial loss, net of tax expense (benefit) of $(574), $(709) and $1,433
(1,311)
(1,777)
(2,109)
Amortization of prior service credit, net of tax expense (benefit) of $(433), $(487) and $17
(680)
(790)
84 
Total other comprehensive income (loss)
5,572 
(6,958)
5,799 
Comprehensive income
12,155 
2,785 
6,878 
Comprehensive income attributable to noncontrolling interest
(686)
(533)
(636)
Comprehensive income attributable to Viad
$ 11,469 
$ 2,252 
$ 6,242 
Consolidated Statements of Comprehensive Income (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Consolidated Statements of Comprehensive Income [Abstract]
 
 
 
Unrealized investment gains (losses) arising during the period, net of tax expense (benefit)
$ 33 
$ (36)
$ 82 
Amortization of net actuarial loss, net of tax expense (benefit)
(574)
(709)
1,433 
Amortization of prior service credit, net of tax
$ (433)
$ (487)
$ 17 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Cash flows from operating activities
 
 
 
Net income
$ 6,583 
$ 9,743 
$ 1,079 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
30,731 
29,126 
28,252 
Deferred income taxes
11,274 
(924)
744 
Income from discontinued operations
(624)
(451)
(262)
Restructuring charges
4,942 
3,782 
4,222 
Impairment charges
302 
Losses (gains) on dispositions of property and other assets
(206)
(42)
45 
Share-based compensation expense
7,232 
4,413 
3,518 
Excess tax benefit from share-based compensation arrangements
(293)
(54)
(27)
Other non-cash items, net
10,157 
4,659 
4,580 
Change in operating assets and liabilities (excluding the impact of acquisitions):
 
 
 
Receivables
142 
(18,092)
(3,042)
Inventories
195 
3,729 
6,148 
Accounts payable
4,310 
4,372 
4,637 
Restructuring liabilities
(4,694)
(3,888)
(6,718)
Accrued compensation
1,631 
4,563 
6,966 
Customer deposits
926 
4,950 
2,000 
Income taxes payable
467 
(2,694)
(1,264)
Other assets and liabilities, net
(3,587)
(8,456)
(7,897)
Net cash provided by operating activities
69,186 
34,736 
43,283 
Cash flows from investing activities
 
 
 
Capital expenditures
(27,675)
(21,538)
(17,040)
Acquisition of businesses, net of cash acquired
(23,546)
(41,105)
 
Proceeds from sale of land-discontinued operations
1,041 
 
 
Proceeds from dispositions of property and other assets
322 
440 
14,753 
Proceeds from sale of short-term investments
384 
 
 
Net cash used in investing activities
(49,474)
(62,203)
(2,287)
Cash flows from financing activities
 
 
 
Payments on debt and capital lease obligations
(2,685)
(7,375)
(4,900)
Dividends paid on common stock
(4,454)
(3,241)
(3,275)
Common stock purchased for treasury
(1,656)
(5,230)
(6,906)
Debt issuance costs
 
(1,001)
 
Excess tax benefit from share-based compensation arrangements
293 
54 
27 
Proceeds from exercise of stock options
248 
296 
593 
Net cash used in financing activities
(8,254)
(16,497)
(14,461)
Effect of exchange rate changes on cash and cash equivalents
2,337 
(1,501)
2,964 
Net change in cash and cash equivalents
13,795 
(45,465)
29,499 
Cash and cash equivalents, beginning of year
100,376 
145,841 
116,342 
Cash and cash equivalents, end of year
114,171 
100,376 
145,841 
Supplemental disclosure of cash flow information
 
 
 
Cash paid for income taxes
8,386 
10,213 
7,931 
Cash paid for interest
1,103 
1,088 
1,131 
Equipment acquired under capital leases
$ 1,011 
$ 1,327 
$ 963 
Consolidated Statements of Stockholders' Equity (USD $)
In Thousands
Total
Common Stock
Additional Capital
Retained Earnings (Deficit)
Unearned Employee Benefits and Other
Accumulated Other Comprehensive Income
Common Stock in Treasury
Total Viad Equity
Non-Controlling Interest
Beginning Balance at Dec. 31, 2009
$ 384,631 
$ 37,402 
$ 606,038 
$ (16,405)
$ (5,954)
$ 23,052 
$ (266,618)
$ 377,515 
$ 7,116 
Net income
1,079 
 
 
443 
 
 
 
443 
636 
Dividends on common stock
(3,275)
 
 
(3,275)
 
 
 
(3,275)
 
Common stock purchased for treasury
(6,906)
 
 
 
 
 
(6,905)
(6,905)
 
Employee benefit plans
592 
 
(2,397)
 
 
 
2,989 
592 
 
ESOP allocation adjustment
1,518 
 
 
 
1,518 
 
 
1,518 
 
Share-based compensation-equity awards
3,785 
 
3,785 
 
 
 
 
3,785 
 
Tax deficiencies from share-based compensation
(524)
 
(524)
 
 
 
 
(524)
 
Unrealized foreign currency translation adjustment
7,696 
 
 
 
 
7,696 
 
7,696 
 
Unrealized gain (loss) on investments
128 
 
 
 
 
128 
 
128 
 
Amortization of net actuarial loss
(2,109)
 
 
 
 
(2,109)
 
(2,109)
 
Amortization of prior service credit
84 
 
 
 
 
84 
 
84 
 
Other, net
11 
 
 
 
 
11 
 
Ending Balance at Dec. 31, 2010
386,711 
37,402 
606,902 
(19,229)
(4,433)
28,851 
(270,534)
378,959 
7,752 
Net income
9,743 
 
 
9,210 
 
 
 
9,210 
533 
Dividends on common stock
(3,241)
 
 
(3,241)
 
 
 
(3,241)
 
Common stock purchased for treasury
(5,230)
 
 
 
 
 
(5,230)
(5,230)
 
Employee benefit plans
295 
 
(11,086)
 
 
 
11,381 
295 
 
ESOP allocation adjustment
1,490 
 
 
 
1,490 
 
 
1,490 
 
Share-based compensation-equity awards
3,688 
 
3,688 
 
 
 
 
3,688 
 
Tax deficiencies from share-based compensation
(325)
 
(325)
 
 
 
 
(325)
 
Unrealized foreign currency translation adjustment
(4,331)
 
 
 
 
(4,331)
 
(4,331)
 
Unrealized gain (loss) on investments
(60)
 
 
 
 
(60)
 
(60)
 
Amortization of net actuarial loss
(1,777)
 
 
 
 
(1,777)
 
(1,777)
 
Amortization of prior service credit
(790)
 
 
 
 
(790)
 
(790)
 
Other, net
 
(8)
 
 
Ending Balance at Dec. 31, 2011
386,179 
37,402 
599,188 
(13,256)
(2,951)
21,893 
(264,382)
377,894 
8,285 
Net income
6,583 
 
 
5,897 
 
 
 
5,897 
686 
Dividends on common stock
(5,674)
 
 
(5,674)
 
 
 
(5,674)
 
Common stock purchased for treasury
(1,656)
 
 
 
 
 
(1,656)
(1,656)
 
Employee benefit plans
248 
 
(9,456)
 
 
 
9,704 
248 
 
ESOP allocation adjustment
1,647 
 
 
 
1,647 
 
 
1,647 
 
Share-based compensation-equity awards
4,036 
 
4,036 
 
 
 
 
4,036 
 
Tax benefits from share-based compensation
96 
 
96 
 
 
 
 
96 
 
Tax deficiencies from share-based compensation
96 
 
 
 
 
 
 
 
 
Unrealized foreign currency translation adjustment
7,510 
 
 
 
 
7,510 
 
7,510 
 
Unrealized gain (loss) on investments
53 
 
 
 
 
53 
 
53 
 
Amortization of net actuarial loss
(1,311)
 
 
 
 
(1,311)
 
(1,311)
 
Amortization of prior service credit
(680)
 
 
 
 
(680)
 
(680)
 
Other, net
 
(2)
(1)
 
 
Ending Balance at Dec. 31, 2012
$ 397,032 
$ 37,402 
$ 593,862 
$ (13,034)
$ (1,301)
$ 27,465 
$ (256,333)
$ 388,061 
$ 8,971 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

Note 1. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements of Viad Corp (“Viad” or the “Company”) are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of Viad and all of its subsidiaries. All intercompany account balances and transactions between Viad and its subsidiaries have been eliminated in consolidation.

Nature of Business

Viad’s reportable segments consist of Marketing & Events U.S., Marketing & Events International and 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 clients and venues, including shopping malls, movie studios, museums and leading consumer brands.

Travel & Recreation Group

Travel and recreation services are provided by Brewster Inc. (“Brewster”), Glacier Park, Inc. (“Glacier Park”) and Alaskan Park Properties, Inc. (“Alaska Denali Travel”).

Brewster provides tourism 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, motorcoach services, charter and sightseeing services, tour boat operations, inbound package tour operations and hotel operations, including the Banff International Hotel acquired on March 7, 2012. The Banff International Hotel is a 162-guest room hotel located in downtown Banff, Alberta, Canada.

Glacier Park operates five lodges, three motor inns and one four-season resort hotel and provides 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 is an 80 percent owned subsidiary of Viad.

Alaska Denali Travel operates Denali Backcountry Lodge and Denali Cabins. Denali Backcountry Lodge is a 42-guest room lodge located within Denali National Park and Preserve in Alaska and the Denali Cabins are 46 guest cabins located near the entrance to Denali National Park and Preserve. 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.

Significant Accounting Policies

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates and assumptions include, but are not limited to:

 

   

Estimated fair value of Viad’s reporting units used to perform annual impairment testing of recorded goodwill;

 

   

Estimated allowances for uncollectible accounts receivable;

 

   

Estimated provisions for income taxes, including uncertain tax positions;

 

   

Estimated valuation allowances related to deferred tax assets;

 

   

Estimated liabilities for losses related to self-insured liability claims;

 

   

Estimated liabilities for losses related to environmental remediation obligations;

 

   

Estimated sublease income associated with restructuring liabilities;

 

   

Assumptions used to measure pension and postretirement benefit costs and obligations;

 

   

Assumptions used to determine share-based compensation costs under the fair value method; and

 

   

Allocation of purchase price of acquired businesses.

Actual results could differ from these and other estimates.

 

Cash and Cash Equivalents. Viad considers all highly-liquid investments with remaining maturities when purchased of three months or less to be cash equivalents. Viad’s cash and cash equivalents consist of cash and bank demand deposits, bank time deposits and money market mutual funds. The Company’s investments in money market mutual funds are classified as available-for-sale and carried at fair value.

Inventories. Inventories, which consist primarily of exhibit design and construction materials and supplies used in providing convention show services, are stated at the lower of cost (first-in, first-out and specific identification methods) or market.

Property and Equipment. Property and equipment are stated at cost, net of accumulated depreciation. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets: buildings, 15 to 40 years; equipment, 3 to 12 years; and leasehold improvements, over the shorter of the lease term or useful life. Property and equipment are tested for potential impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset may not be recoverable through undiscounted cash flows.

Capitalized Software. Viad capitalizes certain internal and external costs incurred in developing or obtaining internal use software. Capitalized costs principally relate to costs incurred to purchase software from third parties, external direct costs of materials and services, and certain payroll-related costs for employees directly associated with software projects once application development begins. Costs associated with preliminary project activities, training and other post-implementation activities are expensed as incurred. Capitalized software costs are amortized using the straight-line method over the estimated useful lives of the software, ranging from three to ten years. These costs are included in the consolidated balance sheets under the caption “Property and equipment, net.”

Goodwill. Goodwill is tested for impairment at the reporting unit level on an annual basis on October 31 of each year. Goodwill is also tested for impairment between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. Viad uses a discounted expected future cash flow methodology (income approach) in order to estimate the fair value of its reporting units for purposes of goodwill impairment testing. The estimates and assumptions regarding expected future cash flows, discount rates and terminal values require considerable judgment and are based on market conditions, financial forecasts, industry trends and historical experience. These estimates, however, have inherent uncertainties and different assumptions could lead to materially different results.

Cash Surrender Value of Life Insurance. Viad has Company-owned life insurance contracts which are intended to fund the cost of certain employee compensation and benefit programs. These contracts are carried at cash surrender value, net of outstanding policy loans. The cash surrender value represents the amount of cash the Company could receive if the policies were discontinued before maturity. The changes in the cash surrender value of the policies, net of insurance premiums, are included as a component of “Costs of Services” in the consolidated statements of operations.

Self-Insurance Liabilities. Viad is self-insured up to certain limits for workers’ compensation, automobile, product and general liability, property loss and medical claims. Viad has also retained certain liabilities related to workers’ compensation and general liability insurance claims in conjunction with previously sold operations. Provisions for losses for claims incurred, including estimated claims incurred but not yet reported, are made based on Viad’s prior historical experience, claims frequency and other factors. Viad has purchased insurance for amounts in excess of the self-insured levels.

Environmental Remediation Liabilities. Viad has retained certain liabilities representing the estimated cost of environmental remediation obligations primarily associated with previously sold operations. The amounts accrued primarily consist of the estimated direct incremental costs, on an undiscounted basis, for contractor and other services related to remedial actions and post-remediation site monitoring. Environmental remediation liabilities are recorded when the specific obligation is considered probable and the costs are reasonably estimable. Subsequent recoveries from third parties, if any, are recorded through discontinued operations when realized.

Fair Value of Financial Instruments. 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 9.

Foreign Currency Translation. Viad conducts its foreign operations primarily in Canada, the United Kingdom, Germany and to a lesser extent in certain other countries. The functional currency of Viad’s foreign subsidiaries is their local currency. Accordingly, for purposes of consolidation, Viad translates the assets and liabilities of its foreign subsidiaries into U.S. dollars at the foreign exchange rates in effect at the balance sheet date. The unrealized gains or losses resulting from the translation of these foreign denominated assets and liabilities are included as a component of accumulated other comprehensive income in Viad’s consolidated balance sheets. In addition, for purposes of consolidation, the revenues, expenses and gains and losses related to Viad’s foreign operations are translated into U.S. dollars at the average foreign exchange rates for the period.

 

Revenue Recognition. Viad recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed or determinable and collectability is reasonably assured. GES derives revenues primarily by providing show services to exhibitors participating in exhibitions and events and from the design, construction and refurbishment of exhibit booths and holiday themed environments. Service revenue is recognized at the time services are performed. Exhibits and environments revenue is accounted for using the completed-contract method as contracts are typically completed within three months of contract signing. The Travel & Recreation Group generates revenues through its attractions, hotels and transportation and sightseeing services. Revenues are recognized at the time services are performed.

Share-Based Compensation. Viad recognizes and measures compensation costs related to all share-based payment awards using the fair value method of accounting. These awards generally include restricted stock, performance-based restricted stock (“PBRS”), stock options and liability-based awards (including performance units, restricted stock units and performance-based restricted stock units).

The fair value of restricted stock and PBRS awards are based on Viad’s stock price on the date of grant. Viad issues restricted stock and PBRS awards from shares held in treasury. Future vesting of restricted stock and PBRS is generally subject to continued employment with Viad or its subsidiaries. Holders of restricted stock and PBRS have the right to receive dividends and vote the shares, but may not sell, assign, transfer, pledge or otherwise encumber the stock, except to the extent restrictions have lapsed.

Restricted stock awards vest between three and five years from the date of grant. Share-based compensation expense related to restricted stock is recognized using the straight-line method over the requisite service period of approximately three years except for certain awards with a five-year vesting period whereby expense is recognized based on an accelerated multiple-award approach over a five-year period. For these awards, 40 percent of the shares vest on the third anniversary of the grant and the remaining shares vest in 30 percent increments over the subsequent two anniversary dates.

Share-based compensation expense related to PBRS awards is recognized based on an accelerated multiple-award approach over the requisite service period of approximately three years. PBRS vests when certain incentive performance targets established in the year of grant are achieved at target levels. PBRS is subject to a graded vesting schedule whereby one third of the earned shares vest after the first year and the remaining earned shares vest in one-third increments each year over the next two years on the first business day in January. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. Share-based compensation expense related to stock option awards is recognized using the straight-line method over the requisite service period of approximately five years. The exercise price of stock options is based on the market value of Viad’s common stock at the date of grant. Stock options granted also contain certain forfeiture and non-compete provisions.

Liability-based awards (including grants of restricted stock units and PBRS units awarded to key employees at certain of the Company’s Canadian operations) are recorded at estimated fair value, based on the number of units expected to vest and the level of achievement of predefined performance goals (where applicable) and are remeasured on each balance sheet date based on Viad’s stock price until the time of settlement. To the extent earned, liability-based awards are settled in cash based on Viad’s stock price. Compensation expense related to liability-based awards is recognized ratably over the requisite service period of approximately three years.

Common Stock in Treasury. Common stock purchased for treasury is recorded at historical cost. Subsequent share reissuances are primarily related to share-based compensation programs and recorded at weighted-average cost.

Income Per Common Share. Viad applies the two-class method in calculating income per common share as unvested share-based payment awards that contain nonforfeitable rights to dividends are considered participating securities. Accordingly, such securities are included in the earnings allocation in calculating income per share. Furthermore, Viad funds its matching contributions to employees’ 401(k) accounts through the Company’s leveraged Employee Stock Ownership Plan (“ESOP”) feature of the Company’s 401(k) defined contribution plan. ESOP shares are treated as outstanding for income per share calculations.

Impact of Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance related to goodwill impairment testing, which is codified in Accounting Standards Codification (“ASC”) Topic 350. The new guidance simplifies how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If, after performing the assessment, an entity determines that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this new guidance did not have a material impact on Viad’s financial condition or results of operations. The Company performs its annual goodwill impairment test as of October 31 of each year.

 

In February 2013, the FASB issued new guidance related to the reporting of amounts reclassified out of accumulated other comprehensive income, which is codified in ASC Topic 220. The new guidance requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present significant amounts reclassified out of other comprehensive income by the respective line items of net income in certain circumstances, or otherwise cross-reference amounts to other disclosures. The guidance is effective for reporting periods beginning after December 15, 2012, and will not have an impact on Viad’s financial condition or results of operations.

Share-Based Compensation
Share-Based Compensation

Note 2. Share-Based Compensation

Viad grants share-based compensation awards to officers, directors and certain key employees pursuant to the 2007 Viad Corp Omnibus Incentive Plan (the “2007 Plan”). The 2007 Plan has a 10-year life and provides for the following types of awards: (a) incentive and non-qualified stock options; (b) restricted stock and restricted stock units; (c) performance units or performance shares; (d) stock appreciation rights; (e) cash-based awards and (f) certain other stock-based awards. The number of shares of common stock available for grant under the 2007 Plan is limited to 1,700,000 shares plus shares awarded under the 1997 Viad Corp Omnibus Incentive Plan (which terminated in May 2007) that subsequently cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent the shares are exercised for, or settled in, vested and non-forfeited shares) up to an aggregate maximum of 1,500,000 shares. As of December 31, 2012, there were 1,071,632 total shares available for future grant.

The following table summarizes share-based compensation expense:

 

                         
    2012     2011     2010  
    (in thousands)  

Restricted stock/PBRS

  $ 3,267     $ 3,042     $ 2,821  

Performance unit incentive plan (“PUP”)

    2,922       714       (3

Stock options

    593       537       447  

Restricted stock units/PBRS units

    450       120       253  
   

 

 

   

 

 

   

 

 

 

Total share-based compensation before income tax benefit

    7,232       4,413       3,518  

Income tax benefit

    (2,574     (1,594     (1,225
   

 

 

   

 

 

   

 

 

 

Total share-based compensation, net of income tax benefit

  $ 4,658     $ 2,819     $ 2,293  
   

 

 

   

 

 

   

 

 

 

In addition, $253,000, $124,000 and $519,000 of costs associated with share-based compensation were included in restructuring expense in 2012, 2011 and 2010, respectively. Of the 2012 amount, $94,000 related to the PUP awards presented below. No share-based compensation costs were capitalized during 2012, 2011 or 2010.

Restricted Stock and PBRS. The following table summarizes restricted stock and PBRS activity:

 

                                 
    Restricted Stock     PBRS  
          Weighted-Average           Weighted-Average  
          Grant Date           Grant Date  
    Shares     Fair Value     Shares     Fair Value  

Balance at January 1, 2010

    390,810     $ 24.59       174,927     $ 20.77  

Granted

    157,900       19.30       —          —     

Vested

    (65,961     34.42       (29,547     35.31  

Cancelled

    —          —          (126,550     15.36  

Forfeited

    (4,250     22.55       —          —     
   

 

 

           

 

 

         

Balance at December 31, 2010

    478,499       21.51       18,830       33.02  

Granted

    191,850       22.70       —          —     

Vested

    (91,212     31.31       (18,414     33.42  

Forfeited

    (7,115     20.81       —          —     
   

 

 

           

 

 

         

Balance at December 31, 2011

    572,022       20.36       416       15.36  

Granted

    168,050       20.46       —          —     

Vested

    (219,571     18.26       (416     15.36  

Forfeited

    (4,150     24.80       —          —     
   

 

 

           

 

 

         

Balance at December 31, 2012

    516,351       21.25       —          —     
   

 

 

           

 

 

         

 

The grant date fair value of restricted stock which vested during 2012, 2011 and 2010 was $4.0 million, $2.9 million and $2.3 million, respectively. The grant date fair value of PBRS which vested during 2012, 2011 and 2010 was $6,000, $615,000 and $1.0 million, respectively. As of December 31, 2012, the unamortized cost of all outstanding stock awards was $4.0 million, which Viad expects to recognize in the consolidated financial statements over a weighted-average period of approximately 2.0 years. During 2012, 2011 and 2010, the Company repurchased 56,885 shares for $1.1 million, 28,627 shares for $679,000 and 28,407 shares for $573,000, respectively, related to tax withholding requirements on vested share-based awards.

Liability-Based Awards. The following table summarizes the liability-based award activity:

 

                                                 
    Restricted Stock Units     PBRS Units     PUP Awards  
          Weighted-Average           Weighted-Average           Weighted-Average  
          Grant Date           Grant Date           Grant Date  
    Units     Fair Value     Units     Fair Value     Units     Fair Value  

Balance at January 1, 2010

    13,700     $ 15.36       13,900     $ 15.36       102,960     $ 33.81  

Granted

    12,350       19.20       —         —          —         —     

Vested

    —         —          (1,958     15.36       —         —     

Cancelled

    —         —          (8,028     15.36       —         —     
   

 

 

           

 

 

           

 

 

         

Balance at December 31, 2010

    26,050       17.18       3,914       15.36       102,960       33.81  

Granted

    12,550       23.01       —         —          95,500       23.02  

Vested

    —         —         (1,958     15.36       —         —     

Cancelled

    —         —         —         —         (102,960     33.81  
   

 

 

           

 

 

           

 

 

         

Balance at December 31, 2011

    38,600       19.07       1,956       15.36       95,500       23.02  

Granted

    15,850       20.57       —         —          115,100       20.60  

Vested

    (13,100     15.36       (1,956     15.36       —         —     

Cancelled

    (850     20.89       —         —          —         —     
   

 

 

           

 

 

           

 

 

         

Balance at December 31, 2012

    40,500       20.82       —         —          210,600       21.70  
   

 

 

           

 

 

           

 

 

         

As of December 31, 2012 and 2011, Viad had aggregate liabilities recorded of $633,000 and $475,000, respectively, related to restricted stock unit and PBRS unit liability awards. A portion of the 2009 PBRS unit awards vested effective December 31, 2009 and cash payouts of $35,000 and $52,000 were distributed in January 2012 and January 2011, respectively. Similarly, a portion of the 2009 restricted stock unit awards vested in February 2012 and cash payouts of $257,000 were distributed in February 2012.

As of December 31, 2012 and 2011, Viad had liabilities recorded of $3.7 million and $714,000, respectively, related to PUP awards. There were no PUP awards which vested or cancelled during 2012 or 2011. Furthermore, there were no cash settlements of PUP awards during 2012 or 2011. No PUP awards were granted in 2010 and no other PUP awards vested during 2012, 2011 or 2010.

Stock Options. The following table summarizes stock option activity:

 

                         
          Weighted-        
          Average     Options  
    Shares     Exercise Price     Exercisable  

Options outstanding at January 1, 2010

    541,718     $ 25.74       462,683  

Granted

    280,900       19.20          

Exercised

    (22,311     23.21          

Forfeited or expired

    (36,513     26.34          
   

 

 

                 

Options outstanding at December 31, 2010

    763,794       23.38       451,194  

Exercised

    (14,616     20.14          

Forfeited or expired

    (164,977     23.88          
   

 

 

                 

Options outstanding at December 31, 2011

    584,201       23.32       396,688  

Exercised

    (12,099     19.41          

Forfeited or expired

    (208,206     25.81          
   

 

 

                 

Options outstanding at December 31, 2012

    363,896       22.03       276,009  
   

 

 

                 

As of December 31, 2012, the total unrecognized cost related to non-vested stock option awards was $104,000. Viad expects to recognize such costs in the consolidated financial statements over a weighted-average period of less than one year. No stock options were granted in 2012 or 2011.

 

The following table summarizes information concerning stock options outstanding and exercisable as of December 31, 2012:

 

                                         
    Options Outstanding     Options Exercisable  
          Weighted-Average     Weighted-           Weighted-  
          Remaining     Average           Average  

Range of Exercise Prices

  Shares     Contractual Life     Exercise Price     Shares     Exercise Price  

$19.20

    247,867       7.0 years     $ 19.20       166,740     $ 19.20  

$19.57

    43,796       0.3 years       19.57       43,796       19.57  

$23.28 to $31.92

    29,433       1.1 years       29.43       27,433       29.76  

$33.81 to $38.44

    42,800       1.7 years       35.86       38,040       36.12  
   

 

 

                   

 

 

         

$19.20 to $38.44

    363,896       5.1 years       22.03       276,009       22.64  
   

 

 

                   

 

 

         

In addition to the above, Viad had stock options outstanding which were granted to employees of MoneyGram International, Inc. prior to the spin-off of that company. As of December 31, 2012, there were 2,267 of such options outstanding and exercisable, both with an exercise price of $19.57. The weighted-average remaining contractual life of these options outstanding was less than one year. During 2012, 135 options were exercised by employees of MoneyGram International, Inc. at an exercise price of $19.57.

Stock options granted in 2010 were for a term of 10 years and became exercisable one third after one year, another third after two years and the balance after three years from the date of grant. Stock options granted between 2004 and 2008 were for contractual terms of seven years and become exercisable, based on a graded vesting schedule, in annual increments of 20 percent beginning one year after the grant date and become fully exercisable after five years from the date of grant. Stock options granted in 2003 were for a term of 10 years and became exercisable one third after one year, another third after two years and the balance after three years from the date of grant. Stock options granted in calendar years 2002 and prior were for a contractual term of 10 years and became exercisable 50 percent after one year from the date of grant with the balance exercisable after two years from the date of grant.

The fair value of the 2010 stock option grant was estimated on the date of grant using the Black-Scholes option pricing model assuming Viad’s expected stock price volatility of 33.2 percent, a five year expected period of time the stock options will remain outstanding, an expected dividend yield on Viad common stock of 0.8 percent and a risk-free interest rate estimate of 2.44 percent. The expected dividend yield was based on Viad’s expectation of future dividend payouts. The volatility assumption was based on Viad’s daily historical stock price volatility during the time period that corresponds to the expected weighted-average life of the option. The expected life (estimated period of time outstanding) of stock options granted was estimated based on historical exercise activity. The risk-free interest rate assumption was based on the interest rate of a U.S. Treasury strip for a five-year term from the date the option was granted.

Additional information pertaining to stock options is provided in the table below:

 

                         
    2012     2011     2010  
    (in thousands)  

Total intrinsic value of stock options outstanding

  $ 2,329     $ —       $ 2,341  

Total intrinsic value of stock options exercised

  $ 296     $ 325     $ 544  

Fair value of stock options vested

  $ 539     $ 682     $ 404  

Cash received from the exercise of stock options

  $ 248     $ 296     $ 593  

Tax benefits (deficiencies) realized for tax deductions related to stock option exercises and performance-based awards

  $ 96     $ (325   $ (524

The aggregate intrinsic value of stock options outstanding in the table above represents the difference between Viad’s closing stock price on December 31 of each year and the exercise price, multiplied by the number of in-the-money options. The intrinsic value of stock options outstanding therefore changes based on changes in the fair market value of Viad’s common stock.

 

Acquisition of Businesses
Acquisition of Businesses

Note 3. Acquisition of Businesses

On March 7, 2012, Viad acquired the Banff International Hotel and related assets for $23.6 million in cash. The Banff International Hotel is a 162-guest room hotel located in downtown Banff, Alberta, Canada and is operated by Brewster within the Travel & Recreation Group. The following information represents the final amounts assigned to the assets and liabilities of the Banff International Hotel as of the date of acquisition:

 

         
    (in thousands)  

Cash and cash equivalents

  $ 10  

Accounts receivable

    23  

Other current assets

    33  

Property and equipment

    20,408  

Goodwill

    1,890  

Other intangible assets

    1,323  
   

 

 

 

Total assets acquired

    23,687  
   

 

 

 

Customer deposits

    (64

Other current liabilities

    (67
   

 

 

 

Total liabilities acquired

    (131
   

 

 

 

Purchase price

  $ 23,556  
   

 

 

 

The Company recorded $1.9 million of goodwill in connection with the transaction, which is included in the Travel & Recreation Group. The primary factor that contributed to a purchase price resulting in the recognition of goodwill relates to future growth opportunities. The goodwill is partially deductible for tax purposes pursuant to regulations in Canada. The amount assigned to other intangible assets of $1.3 million relates to an operating contract and customer relationships. The weighted-average amortization period related to the other intangible assets was 7.7 years. Included in the “Property and equipment” caption above are certain leasehold interests of $7.9 million for which the Company is considered to have perpetual use rights of the land related to the Banff International Hotel. These land interests are not subject to amortization. The transaction costs related to the acquisition were insignificant. The results of operations of the Banff International Hotel have been included in Viad’s consolidated financial statements from the date of acquisition.

On September 16, 2011, Viad acquired the Denali Backcountry Lodge and Denali Cabins for $15.3 million in cash. Denali Backcountry Lodge is a 42-guest room lodge located within Denali National Park and Preserve in Alaska and Denali Cabins consist of 46 guest cabins near the entrance to Denali National Park and Preserve. These properties are operated by Alaska Denali Travel within the Travel & Recreation Group. The Company recorded $3.2 million of goodwill in connection with the transaction. The amount assigned to other intangible assets of $626,000 relates to customer relationships.

On June 29, 2011, Viad acquired St. Mary Lodge & Resort (“St. Mary”) for $15.3 million in cash. St. Mary is a 115-guest room hotel located outside of Glacier National Park’s east entrance and is operated by Glacier Park within the Travel & Recreation Group. The Company recorded $3.1 million of goodwill in connection with the transaction. The amount assigned to other intangible assets of $60,000 relates to a non-amortized business license.

On January 5, 2011, Viad acquired Grouse Mountain Lodge for $10.5 million in cash. Grouse Mountain Lodge is located in Whitefish, Montana and is operated by Glacier Park within the Travel & Recreation Group. The Company recorded $1.3 million of goodwill in connection with the transaction. The amount assigned to other intangible assets of $400,000 relates to a non-amortized business license.

 

The following information represents the aggregate amounts assigned to the assets and liabilities of the acquisitions that occurred during 2011:

 

         
    (in thousands)  

Cash and cash equivalents

  $ 30  

Other current assets

    870  

Property and equipment

    32,905  

Goodwill

    7,645  

Other intangible assets

    1,086  
   

 

 

 

Total assets acquired

    42,536  
   

 

 

 

Customer deposits

    (821

Other current liabilities

    (198

Other long-term liabilities

    (382
   

 

 

 

Total liabilities acquired

    (1,401
   

 

 

 

Purchase price

  $ 41,135  
   

 

 

 

The primary factor that contributed to the recognition of goodwill for the 2011 acquisitions relates to future growth opportunities. The acquired goodwill is included in the Travel & Recreation Group and is deductible for tax purposes over a period of 15 years. The transaction costs related to the acquisitions were insignificant. The results of operations of the acquisitions have been included in Viad’s consolidated financial statements from the date of each acquisition.

The following table summarizes the unaudited pro forma results of operations attributable to Viad, assuming that the acquisitions had each been completed at the beginning of each year:

 

                 
    2012     2011  
    (in thousands, except per share data)  

Revenue

  $ 1,025,681     $ 954,766  

Depreciation and amortization

    30,935       30,619  

Segment operating income

    41,831       28,186  

Income from continuing operations

    5,251       10,379  

Net income attributable to Viad

    5,875       10,830  

Diluted net income per share

    0.29       0.53  

Basic net income per share

    0.29       0.53  
Inventories
Inventories

Note 4. Inventories

The components of inventories as of December 31 were as follows:

 

                 
    2012     2011  
    (in thousands)  

Raw materials

  $ 16,422     $ 18,297  

Work in process

    19,234       17,528  
   

 

 

   

 

 

 

Inventories

  $ 35,656     $ 35,825  
   

 

 

   

 

 

 
Property and Equipment
Property and Equipment

Note 5. Property and Equipment

Property and equipment as of December 31 consisted of the following:

 

                 
    2012     2011  
    (in thousands)  

Land and land interests

  $ 26,124     $ 18,134  

Buildings and leasehold improvements

    137,293       109,077  

Equipment and other

    310,448       310,186  
   

 

 

   

 

 

 
      473,865       437,397  

Accumulated depreciation

    (276,567     (263,584
   

 

 

   

 

 

 

Property and equipment, net

  $ 197,298     $ 173,813  
   

 

 

   

 

 

 

Included in the “Equipment and other” caption above are capitalized costs incurred in developing or obtaining internal use software. The net carrying amount of capitalized software was $14.2 million and $14.9 million as of December 31, 2012 and 2011, respectively.

 

Included in the “Land and land interests” caption above are certain leasehold interests in land within the Travel & Recreation Group for which the Company is considered to have perpetual use rights. The carrying amount of these leasehold interests was $10.6 million and $2.6 million at December 31, 2012 and 2011, respectively. These land interests are not subject to amortization.

Depreciation expense was $30.0 million, $28.4 million and $27.3 million for 2012, 2011 and 2010, respectively. During 2010, Viad recorded impairment losses of $117,000 at the Travel & Recreation Group related to a tour boat at the Travel & Recreation Group. No impairment losses were recorded during 2012 or 2011.

Other Investments and Assets
Other Investments and Assets

Note 6. Other Investments and Assets

As of December 31 other investments and assets consisted of the following:

 

                 
    2012     2011  
    (in thousands)  

Cash surrender value of life insurance

  $ 19,142     $ 18,812  

Workers’ compensation insurance security deposits

    3,350       4,658  

Other

    9,924       7,581  
   

 

 

   

 

 

 

Total other investments and assets

  $ 32,416     $ 31,051  
   

 

 

   

 

 

 
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

Note 7. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill were as follows:

 

                                 
          Marketing &     Travel &        
    Marketing &     Events     Recreation        
    Events U.S.     International     Group     Total  
    (in thousands)  

Balance at January 1, 2011

  $ 62,686     $ 22,455     $ 42,300     $ 127,441  

Business acquisitions

    —          —         7,645       7,645  

Foreign currency translation adjustments

    —         (257     (1,135     (1,392
   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

    62,686       22,198       48,810       133,694  

Business acquisition

    —         —         1,890       1,890  

Foreign currency translation adjustments

    —         856       1,380       2,236  
   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2012

  $ 62,686     $ 23,054     $ 52,080     $ 137,820  
   

 

 

   

 

 

   

 

 

   

 

 

 

The following table summarizes goodwill by reporting unit and segment as of December 31:

 

                 
    2012     2011  
    (in thousands)  

Marketing & Events Group:

               

Marketing & Events U.S.

  $ 62,686     $ 62,686  

Marketing & Events International:

               

United Kingdom (Melville GES)

    13,894       13,291  

GES Canada

    9,160       8,907  
   

 

 

   

 

 

 

Total Marketing & Events Group

    85,740       84,884  
   

 

 

   

 

 

 

Travel & Recreation Group:

               

Brewster

    44,435       41,165  

Glacier Park

    4,461       4,461  

Alaska Denali Travel

    3,184       3,184  
   

 

 

   

 

 

 

Total Travel & Recreation Group

    52,080       48,810  
   

 

 

   

 

 

 

Total Goodwill

  $ 137,820     $ 133,694  
   

 

 

   

 

 

 

For impairment testing purposes, the goodwill related to the Marketing & Events U.S. segment is assigned to and tested at the operating segment level. Furthermore, the goodwill related to the Marketing & Events International segment is assigned to and tested based on the segment’s geographical operations. For the Marketing & Events International segment the reporting units are United Kingdom (Melville GES) and Canada. Brewster, Glacier Park and Alaska Denali Travel are considered reporting units for goodwill impairment testing purposes within the Travel & Recreation Group.

 

As a result of the Company’s most recent analysis performed in October 2012, the excess of the estimated fair values over the carrying values (expressed as a percentage of the carrying amounts) under step one of the impairment test was 126 percent, 67 percent and 34 percent for each of the Marketing & Events Group reporting units in the United States, the United Kingdom (Melville GES) and Canada, respectively. For the Brewster, Glacier Park and Alaska Denali Travel reporting units, the excess of the estimated fair value over the carrying value was 58 percent, 37 percent and 14 percent, respectively, as of the most recent impairment test. Significant reductions in the Company’s expected future revenues, operating income or cash flow forecasts and projections, or an increase in reporting unit cost of capital, could trigger additional impairment testing, which may result in impairment losses.

During 2010, Viad recorded impairment losses of $185,000 related to other intangible assets at the Travel & Recreation Group. As of December 31, 2012, Viad had cumulative goodwill impairment losses of $225.2 million since the adoption of the goodwill impairment testing provisions of ASC Topic 350.

A summary of other intangible assets as of December 31, 2012 is presented below:

 

                         
    Gross Carrying     Accumulated     Net Carrying  
    Value     Amortization     Value  
    (in thousands)  

Amortized intangible assets:

                       

Customer contracts and relationships

  $ 3,594     $ (2,384   $ 1,210  

Other

    959       (108     851  
   

 

 

   

 

 

   

 

 

 
      4,553       (2,492     2,061  

Unamortized intangible assets:

                       

Business licenses

    460       —         460  
   

 

 

   

 

 

   

 

 

 

Total

  $ 5,013     $ (2,492   $ 2,521  
   

 

 

   

 

 

   

 

 

 

A summary of other intangible assets as of December 31, 2011 is presented below:

 

                         
    Gross Carrying     Accumulated     Net Carrying  
    Value     Amortization     Value  
    (in thousands)  

Amortized intangible assets:

                       

Customer contracts and relationships

  $ 3,122     $ (1,736   $ 1,386  

Other

    68       (30     38  
   

 

 

   

 

 

   

 

 

 
      3,190       (1,766     1,424  

Unamortized intangible assets:

                       

Business licenses

    460       —         460  
   

 

 

   

 

 

   

 

 

 

Total

  $ 3,650     $ (1,766   $ 1,884  
   

 

 

   

 

 

   

 

 

 

Intangible asset amortization expense for 2012, 2011 and 2010 was $693,000, $772,000 and $954,000, respectively. The weighted-average amortization period of customer contracts and relationships and other amortizable intangible assets is approximately 3.7 years and 4.8 years, respectively. Estimated amortization expense related to amortized intangible assets for future years is expected to be as follows:

 

         
    (in thousands)  

2013

  $ 712  

2014

  $ 426  

2015

  $ 255  

2016

  $ 199  

2017

  $ 445  

Thereafter

  $ 24  

 

Accrued Liabilities and Other
Accrued Liabilities and Other

Note 8. Accrued Liabilities and Other

As of December 31 other current liabilities consisted of the following:

 

                 
    2012     2011  
    (in thousands)  

Continuing operations:

               

Customer deposits

  $ 50,172     $ 49,182  

Accrued compensation

    25,067       22,587  

Self-insured liability accrual

    8,501       6,697  

Accrued restructuring

    4,084       2,303  

Accrued employee benefit costs

    3,132       3,730  

Accrued dividends

    2,053       827  

Accrued sales and use taxes

    906       1,668  

Accrued foreign income taxes

    28       234  

Other

    12,271       8,185  
   

 

 

   

 

 

 
      106,214       95,413  
   

 

 

   

 

 

 

Discontinued operations:

               

Environmental remediation liabilities

    571       755  

Self-insured liability accrual

    527       639  

Other

    372       524  
   

 

 

   

 

 

 
      1,470       1,918  
   

 

 

   

 

 

 

Total other current liabilities

  $ 107,684     $ 97,331  
   

 

 

   

 

 

 

As of December 31 other deferred items and liabilities consisted of the following:

 

                 
    2012     2011  
    (in thousands)  

Continuing operations:

               

Self-insured liability accrual

  $ 15,579     $ 14,403  

Accrued compensation

    8,061       5,538  

Accrued restructuring

    3,140       4,647  

Foreign deferred tax liability

    2,024       1,219  

Other

    6,734       5,900  
   

 

 

   

 

 

 
      35,538       31,707  
   

 

 

   

 

 

 

Discontinued operations:

               

Self-insured liability accrual

    5,188       5,351  

Environmental remediation liabilities

    4,745       4,999  

Accrued income taxes

    1,053       1,022  

Other

    1,304       1,133  
   

 

 

   

 

 

 
      12,290       12,505  
   

 

 

   

 

 

 

Total other deferred items and liabilities

  $ 47,828     $ 44,212  
   

 

 

   

 

 

 
Debt
Debt

Note 9. Debt

Long-term capital lease obligations as of December 31 were as follows:

 

                 
    2012     2011  
    (in thousands)  

Capital lease obligations, 6.4% (2012) and 6.2% (2011) weighted-average interest rate at December 31, due to 2017

  $ 2,226     $ 3,239  

Current portion

    (1,347     (2,018
   

 

 

   

 

 

 

Long-term capital leases

  $ 879     $ 1,221  
   

 

 

   

 

 

 

Effective May 18, 2011, Viad entered into an amended and restated revolving credit agreement (the “Credit Facility”). The Credit Facility provides for a $130 million revolving line of credit, which may be increased up to an additional $50 million under certain circumstances. 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. In April 2011, Viad paid off its outstanding borrowing under the previous credit facility of $4.2 million and as of December 31, 2012, Viad’s total debt of $2.2 million consisted entirely of capital lease obligations. As of December 31, 2012, Viad had $128.2 million of capacity remaining under its Credit Facility reflecting outstanding letters of credit of $1.8 million.

 

Borrowings under the Credit Facility (of 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, minimum cash balance, and dividend limits. Significant other covenants include limitations on: investments, additional indebtedness, sales/leases of assets, acquisitions, consolidations or mergers and liens on property. As of December 31, 2012, Viad was in compliance with all covenants.

Effective December 12, 2012, the Credit Facility was amended to remove the limitation on share repurchases of $10 million in the aggregate per calendar year pursuant to certain conditions. The amendment allows share repurchases unless the Company’s leverage ratio, as defined in the Credit Facility, is greater than 1.50 to 1.00 or a default or an unmatured default, as defined in the Credit Facility, exists. The amendment also allows dividends to be declared and paid in excess of $10 million in the aggregate per calendar year, as well as distributions on its capital stock, as defined in the Credit Facility, unless the Company’s leverage ratio, as defined in the Credit Facility, is greater than 1.50 to 1.00 or a default or an unmatured default, as defined in the Credit Facility, exists.

As of December 31, 2012, Viad had certain obligations under guarantees to third parties on behalf of its subsidiaries. These guarantees are not subject to liability recognition in the 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 December 31, 2012 would be $21.2 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.

Aggregate annual maturities of capital lease obligations as of December 31, 2012 are as follows:

 

         
    (in thousands)  

2013

  $ 1,421  

2014

    594  

2015

    283  

2016

    34  

2017

    17  
   

 

 

 

Total

    2,349  

Less: Amount representing interest

    (123
   

 

 

 

Present value of minimum lease payments

  $ 2,226  
   

 

 

 

The gross amount of assets recorded under capital leases as of December 31, 2012 was $5.9 million and accumulated amortization was $2.9 million. As of December 31, 2011, the gross amount of assets recorded under capital leases and accumulated amortization was $6.6 million and $3.0 million, respectively. The amortization charges related to assets recorded under capital leases are included in depreciation expense. See Note 5.

The weighted-average interest rate on total debt was 8.5 percent, 7.8 percent and 12.0 percent, for 2012, 2011 and 2010, respectively. The weighted average interest rates include the effects of commitment fees and other costs of long-term bank credit.

The estimated fair value of total debt was $2.1 million and $3.0 million as of December 31, 2012 and 2011, 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

Note 10. 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 December 31, 2012 Using  

Description

  December 31,
2012
    Quoted Prices in
Active

Markets
(Level 1)
    Significant
Other

Observable
Inputs
(Level 2)
    Significant
Unobserved
Inputs

(Level 3)
 
    (in thousands)  

Money market funds

  $ 10,177     $ 10,177     $ —       $ —    

Other mutual funds

    1,239       1,239       —         —    
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 11,416     $ 11,416     $ —       $ —    
   

 

 

   

 

 

   

 

 

   

 

 

 
     
          Fair Value Measurements at December 31, 2011 Using  

Description

  December 31,
2011
    Quoted Prices
in Active
Markets
(Level 1)
    Significant
Other
Observable
Inputs

(Level 2)
    Significant
Unobserved
Inputs

(Level 3)
 
    (in thousands)  

Money market funds

  $ 20,862     $ 20,862     $ —       $ —    

Other mutual funds

    1,373       1,373       —         —    
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 22,235     $ 22,235     $ —       $ —    
   

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2012 and 2011, Viad had investments in money market mutual funds of $10.2 million and $20.9 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 December 31, 2012 and 2011, Viad had investments in other mutual funds of $1.2 million and $1.4 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 December 31, 2012 and 2011, there were unrealized gains of $450,000 ($275,000 after-tax) and $366,000 ($222,000 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 9.

 

Income Per Share
Income Per Share

Note 11. Income Per Share

The following is a reconciliation of the numerators and denominators of diluted and basic per share computations for net income attributable to Viad:

 

                         
    2012     2011     2010  
    (in thousands, except per share data)  

Basic net income per share

                       

Numerator:

                       

Net income attributable to Viad

  $ 5,897     $ 9,210     $ 443  

Less: Allocation to non-vested shares

    (157     (248     (11
   

 

 

   

 

 

   

 

 

 

Net income allocated to Viad common stockholders

  $ 5,740     $ 8,962     $ 432  
   

 

 

   

 

 

   

 

 

 

Denominator:

                       

Weighted-average outstanding common shares

    19,701       19,719       19,955  
   

 

 

   

 

 

   

 

 

 

Net income attributable to Viad common stockholders

  $ 0.29     $ 0.45     $ 0.02  
   

 

 

   

 

 

   

 

 

 

Diluted net income per share

                       

Numerator:

                       

Net income attributable to Viad

  $ 5,897     $ 9,210     $ 443  
   

 

 

   

 

 

   

 

 

 

Denominator:

                       

Weighted-average outstanding shares

    19,701       19,719       19,955  

Additional dilutive shares related to share-based compensation

    304       336       322  
   

 

 

   

 

 

   

 

 

 

Weighted-average outstanding and potentially dilutive shares

    20,005       20,055       20,277  
   

 

 

   

 

 

   

 

 

 

Net income attributable to Viad common stockholders(1)

  $ 0.29     $ 0.45     $ 0.02  
   

 

 

   

 

 

   

 

 

 

 

(1) 

Diluted income per share amount cannot exceed basic income per share.

Options to purchase 110,000, 304,000 and 474,000 shares of common stock were outstanding during 2012, 2011 and 2010, respectively, but were not included in the computation of dilutive shares outstanding because the effect would be anti-dilutive. Additionally, 304,000, 336,000 and 322,000 share-based compensation awards were considered dilutive and included in the computation of diluted income per share in 2012, 2011 and 2010, respectively.

Employee Stock Ownership Feature of 401 (k) Plan
Employee Stock Ownership Feature of 401(k) Plan

Note 12. Employee Stock Ownership Feature of 401(k) Plan

Viad funds its matching contributions to employees’ 401(k) accounts through the Company’s ESOP portion of the Viad Corp Capital Accumulation Plan (the “401(k) Plan”). All eligible employees of Viad and its participating affiliates, other than certain employees covered by collective-bargaining agreements that do not expressly provide for participation of such employees in an employee stock ownership plan, may participate in the employee stock ownership feature within the 401(k) Plan.

In 1989, the ESOP borrowed $40.0 million (guaranteed by Viad) to purchase treasury shares from the Company. In 2004, Viad borrowed $12.4 million under its revolving credit agreement to pay in full the outstanding ESOP loan and obtain release of Viad from its guarantee of the loan. In connection with the loan payoff, the ESOP entered into a $12.4 million loan with Viad maturing in June 2009 calling for minimum quarterly principal payments of $250,000 plus interest. The same amount, representing unearned employee benefits, was recorded as a reduction of stockholders’ equity. In 2007, the loan agreement between the ESOP and Viad was extended to December 31, 2016. As of December 31, 2012, the balance of the ESOP loan was $1.3 million and is included in the consolidated balance sheets under the caption “Unearned employee benefits and other.” The liability is reduced as the ESOP makes principal payments on the borrowing, and the amount offsetting stockholders’ equity is reduced as stock is allocated to employees and benefits are charged to expense. The 401(k) Plan repays the loan using Viad contributions and dividends received on the unallocated Viad shares held by the 401(k) Plan.

Information regarding ESOP transactions is as follows:

 

                         
    2012     2011     2010  
    (in thousands)  

Amounts paid by ESOP for:

                       

Debt repayment

  $ 1,647     $ 1,490     $ 1,518  

Interest

    5       8       12  

Amounts received from Viad as:

                       

Contributions

    1,604       1,435       1,444  

Dividends

    48       63       86  

 

Shares were released for allocation to participants based upon the ratio of the current year’s principal and interest payments to the sum of the total principal and interest payments expected over the remaining life of the loan. Viad recorded expense of $1.7 million, $1.6 million and $1.5 million in 2012, 2011 and 2010, respectively.

Unallocated shares held by the 401(k) Plan totaled 130,577 and 293,280 as of December 31, 2012 and 2011, respectively. Shares allocated during 2012 and 2011 totaled 162,703 and 147,089, respectively.

Preferred Stock Purchase Rights
Preferred Stock Purchase Rights

Note 13. Preferred Stock Purchase Rights

Viad had one Preferred Stock Purchase Right (“Right”) outstanding on each outstanding share of common stock pursuant to a shareholder rights plan (the “Rights Agreement”) adopted by the Board of Directors on February 28, 2002, as adjusted in connection with Viad’s one-for-four reverse stock split on July 1, 2004, and as amended on February 28, 2012. The Rights expired and the Rights Agreement terminated on February 28, 2013 on its own terms.

Viad has authorized five million and two million shares of Preferred Stock and Junior Participating Preferred Stock, respectively, none of which is outstanding.

Income Taxes
Income Taxes

Note 14. Income Taxes

The following represents a reconciliation of income tax expense and the amount that would be computed using the statutory federal income tax rates:

 

                                                 
    2012     2011     2010  
    (in thousands)  

Computed income tax expense at statutory federal income tax rate of 35%

  $ 9,381       35.0   $ 4,613       35.0   $ 896       35.0

State income taxes, net of federal provision

    470       1.8     (100     (0.8 %)      (172     (6.7 %) 

Foreign tax rate differentials

    (2,031     (7.6 %)      (1,679     (12.7 %)      (1,560     (61.0 %) 

U.S. tax on foreign earnings (net of foreign tax credits)

    (595     (2.2 %)      1,105       8.4     629       24.6

Tax resolutions, net

    —         0.0     (103     (0.8 %)      (514     (20.1 %) 

Change in enacted tax law

    —         0.0     —         0.0     1,279       50.0

Change in valuation allowance

    14,220       53.1     (55     (0.4 %)      249       9.7

Proceeds from life insurance

    (472     (1.8 %)      —         0.0     (460     (18.0 %) 

Other, net

    (130     (0.5 %)      107       0.8     1,395       54.6
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

  $ 20,843       77.8   $ 3,888       29.5   $ 1,742       68.1
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In March 2010, the Patient Protection and Affordable Care Act and a related measure, the Health Care and Education Reconciliation Act of 2010, were both enacted into law. As a result of this legislation, the tax deductions for the portion of the prescription drug costs for which Viad receives a Medicare Part D subsidy have been eliminated for tax years beginning after December 31, 2012. Accordingly, during 2010, Viad reduced its deferred tax asset related to its postretirement benefit plan liability to reflect the change in the tax law. The reduction in the deferred tax asset resulted in an increase to income tax expense of $1.3 million in 2010.

Viad is subject to regular and recurring audits by the taxing authorities in the jurisdictions in which the Company conducts or had previously conducted operations. These include U.S. federal and most state jurisdictions, and certain foreign jurisdictions including Canada, the United Kingdom and Germany.

Viad exercises judgment in determining its income tax provision due to transactions, credits and calculations where the ultimate tax determination is uncertain. As of December 31, 2012 and 2011, Viad did not have any accrued gross liabilities associated with uncertain tax positions for continuing operations. As of December 31, 2010, Viad had accrued interest and penalties related to uncertain tax positions for continuing operations of $146,000. Viad classifies interest and penalties related to income tax liabilities as a component of income tax expense. During 2011, Viad recorded tax-related interest expense credits of $146,000.

During 2011 and 2010, Viad recorded tax benefits related to the favorable resolution of tax matters in continuing operations of $103,000 and $514,000, respectively. These tax resolutions primarily represent the reversal of amounts accrued for tax and related interest and penalties in connection with uncertain tax positions which were effectively settled or for which there was a lapse of the applicable statute of limitations.

In addition to the above, Viad had accrued gross liabilities associated with uncertain tax positions for discontinued operations of $636,000 as of both December 31, 2012 and 2011. In addition, as of December 31, 2012 and 2011, Viad had accrued interest and penalties related to uncertain tax positions for discontinued operations of $418,000 and $386,000, respectively. Future tax resolutions or settlements that may occur related to these uncertain tax positions would be recorded through discontinued operations (net of federal tax effects, if applicable). Viad does not expect any of the unrecognized tax benefits to be recognized during the next 12 months.

 

The following represents a reconciliation of the total amounts of liabilities associated with uncertain tax positions (excluding interest and penalties):

 

                         
    Continuing     Discontinued        
    Operations     Operations     Total  
    (in thousands)  

Balance at January 1, 2010

  $ —       $ 636     $ 636  

Reductions for tax positions taken in prior years

    —          —          —     

Reductions for tax settlements

    —          —          —     

Reductions for lapse of applicable statutes

    —          —          —     
   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2010

    —          636       636  

Reductions for tax positions taken in prior years

    —          —          —     

Reductions for tax settlements

    —          —          —     

Reductions for lapse of applicable statutes

    —          —          —     
   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

    —          636       636  

Reductions for tax positions taken in prior years

    —          —          —     

Reductions for tax settlements

    —          —          —     

Reductions for lapse of applicable statutes

    —          —          —     
   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2012

  $ —       $ 636     $ 636  
   

 

 

   

 

 

   

 

 

 

Viad’s 2009 through 2012 U.S. federal tax years and various state tax years from 2008 through 2012 remain subject to income tax examinations by tax authorities. Additionally, 2005 through 2008 remain subject to examination due to net operating loss carryback claims. In addition, tax years from 2008 through 2012 related to Viad’s foreign taxing jurisdictions also remain subject to examination.

Viad classifies liabilities associated with uncertain tax positions as non-current liabilities in its consolidated balance sheets unless they are expected to be paid within the next year. As of December 31, 2012 and 2011, liabilities associated with uncertain tax positions (including interest and penalties) of $1.1 million and $1.0 million, respectively, were classified as non-current liabilities.

Deferred income tax assets and liabilities included in the consolidated balance sheets as of December 31 related to the following:

 

                 
    2012     2011  
    (in thousands)  

Deferred tax assets:

               

Pension, compensation and other employee benefits

  $ 26,790     $ 22,103  

Tax credit carryforwards

    25,290       25,219  

Provisions for losses

    15,229       16,038  

State income taxes

    2,813       2,400  

Net operating loss carryforward

    1,755       3,086  

Deferred income

    —          125  

Other deferred income tax assets

    5,331       1,745  
   

 

 

   

 

 

 

Total deferred tax assets

    77,208       70,716  

Foreign deferred tax assets included above

    (990     —     

Valuation allowance

    (14,576     (356
   

 

 

   

 

 

 

Net deferred tax assets

    61,642       70,360  
   

 

 

   

 

 

 

Deferred tax liabilities:

               

Property and equipment

    (8,801     (7,729

Goodwill and other intangible assets

    (1,306     (1,006

Unremitted foreign earnings

    (978     —    

Other deferred income tax liabilities

    (176     (287
   

 

 

   

 

 

 

Total deferred tax liabilities

    (11,261     (9,022
   

 

 

   

 

 

 

Foreign deferred tax liabilities included above

    2,024       1,617  
   

 

 

   

 

 

 

United States deferred tax assets

  $ 52,405     $ 62,955  
   

 

 

   

 

 

 

 

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. As of December 31, 2012 and 2011, Viad had gross deferred tax assets of $77.2 million and $70.7 million, respectively. 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. These tax credits are subject to a 10-year carryforward period and begin to expire in 2019. Based on the Company’s assessment, it was determined during the fourth quarter of 2012 that the weight of the evidence indicated that certain deferred tax assets associated with foreign tax credit carryforwards no longer met the more-likely-than-not test regarding the realization of those assets. Accordingly, the Company recorded a valuation allowance related to all of its foreign tax credit carryforwards as of December 31, 2012, which resulted in a charge to income tax expense of $13.4 million. As of December 31, 2012 and 2011, Viad had state and foreign net operating loss carryforwards of $82.0 million and $91.9 million, respectively, for which the Company had deferred tax assets of $1.8 million and $2.1 million, respectively. The state and foreign net operating loss carryforwards expire on various dates from 2016 through 2032. During 2012, the Company increased its valuation allowance related to state and foreign net operating loss carryforwards by $805,000. As of December 31, 2012 and 2011, Viad had a valuation allowance of $1.2 million and $356,000, respectively, related to those state and foreign deferred tax assets. With respect to all other deferred tax assets, management believes that recovery from future taxable income is more-likely-than-not.

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 on 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 in the Company’s valuation allowance. If such an increase in the valuation allowance were to occur, it would result in increased income tax expense in the period the assessment was made.

As of December 31, 2012, Viad had tax credit carryforwards related to alternative minimum tax of $11.4 million that may be carried forward indefinitely. Additionally, as of December 31, 2012, Viad had foreign tax credit carryforwards of $13.4 million, of which $268,000 expire in 2019, $8.3 million expire in 2020, $4.5 million expire in 2021 and $320,000 expire in 2022. As noted above, the Company recorded a valuation allowance of $13.4 million related to the foreign tax credit carryforwards. Viad also had general business credits of $519,000 as of December 31, 2012, which expire at various dates from 2028 to 2032.

Viad has not recorded deferred taxes on certain historical unremitted earnings of its Canadian subsidiaries as management intends to reinvest those earnings in its Canadian operations. As of December 31, 2012, the incremental unrecognized tax liability (net of estimated foreign tax credits) related to those undistributed earnings was approximately $711,000. To the extent that circumstances change and it becomes apparent that some or all of those undistributed earnings will be remitted to the U.S., Viad would accrue income taxes attributable to such remittance.

Income tax expense consisted of the following:

 

                         
    2012     2011     2010  
    (in thousands)  

Current:

                       

United States:

                       

Federal

  $ (272   $ (4,643   $ (9,286

State

    2,189       1,292       677  

Foreign

    7,652       8,163       9,607  
   

 

 

   

 

 

   

 

 

 
      9,569       4,812       998  
   

 

 

   

 

 

   

 

 

 

Deferred:

                       

United States:

                       

Federal

    11,127       992       3,212  

State

    40       (1,560     (939

Foreign

    107       (356     (1,529
   

 

 

   

 

 

   

 

 

 
      11,274       (924     744  
   

 

 

   

 

 

   

 

 

 

Income tax expense

  $ 20,843     $ 3,888     $ 1,742  
   

 

 

   

 

 

   

 

 

 

 

The aggregate tax benefit realized in connection with the vesting of restricted stock and PBRS and the exercise of stock options was $96,000 for 2012, which was recorded as a credit to stockholders’ equity. During 2011 and 2010, the Company recorded tax deficiencies of $325,000 and $524,000, respectively, related to the vesting of restricted stock and PBRS and the exercise of stock options, which were recorded as charges to stockholders’ equity.

Eligible subsidiaries (including sold and discontinued businesses up to their respective disposition dates) are included in the consolidated federal and other applicable income tax returns of Viad.

United States and foreign income from continuing operations before income taxes was as follows:

 

                         
    2012     2011     2010  
    (in thousands)  

United States

  $ (2,843   $ (16,227   $ (22,592

Foreign

    29,645       29,407       25,151  
   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

  $ 26,802     $ 13,180     $ 2,559  
   

 

 

   

 

 

   

 

 

 
Pension and Postretirement Benefits
Pension and Postretirement Benefits

Note 15. Pension and Postretirement Benefits

Domestic Plans. Viad has trusteed, frozen defined benefit pension plans that cover certain employees which are funded by the Company. Viad also maintains certain unfunded defined benefit pension plans which provide supplemental benefits to select management employees. These plans use traditional defined benefit formulas based on years of service and final average compensation. Funding policies provide that payments to defined benefit pension trusts shall be at least equal to the minimum funding required by applicable regulations.

Viad also has certain defined benefit postretirement plans that provide medical and life insurance for certain eligible employees, retirees and dependents. The related postretirement benefit liabilities are recognized over the period that services are provided by employees. In addition, Viad retained the obligations for these benefits for retirees of certain sold businesses. While the plans have no funding requirements, Viad may fund the plans.

The components of net periodic benefit cost and other amounts recognized in other comprehensive income of Viad’s pension plans included the following:

 

                         
    2012     2011     2010  
    (in thousands)  

Net Periodic Benefit Cost

                       

Service cost

  $ 104     $ 121     $ 145  

Interest cost

    1,150       1,189       1,242  

Expected return on plan assets

    (406     (563     (588

Amortization of prior service cost

    —         —         41  

Recognized net actuarial loss

    491       457       572  
   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

    1,339       1,204       1,412  
   

 

 

   

 

 

   

 

 

 

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income

                       

Net actuarial loss

    1,942       1,589       1,190  

Reversal of amortization item:

                       

Net actuarial loss

    (491     (457     (572

Prior service cost

    —          —          (41
   

 

 

   

 

 

   

 

 

 

Total recognized in other comprehensive income

    1,451       1,132       577  
   

 

 

   

 

 

   

 

 

 

Total recognized in net periodic benefit cost and other comprehensive income

  $ 2,790     $ 2,336     $ 1,989  
   

 

 

   

 

 

   

 

 

 

 

The components of net periodic benefit cost and other amounts recognized in other comprehensive income of Viad’s postretirement benefit plans included the following:

 

                         
    2012     2011     2010  
    (in thousands)  

Net Periodic Benefit Cost

                       

Service cost

  $ 146     $ 128     $ 130  

Interest cost

    814       868       1,039  

Expected return on plan assets

    (74     (135     (160

Amortization of prior service credit

    (1,113     (1,277     (1,171

Recognized net actuarial loss

    547       533       608  
   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

    320       117       446  
   

 

 

   

 

 

   

 

 

 

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income

                       

Net actuarial loss

    224       24       421  

Prior service credit

    —          —          (1,197

Reversal of amortization item:

                       

Net actuarial loss

    (547     (533     (608

Prior service credit

    1,113       1,277       1,171  
   

 

 

   

 

 

   

 

 

 

Total recognized in other comprehensive income (loss)

    790       768       (213
   

 

 

   

 

 

   

 

 

 

Total recognized in net periodic benefit cost and other comprehensive income

  $ 1,110     $ 885     $ 233  
   

 

 

   

 

 

   

 

 

 

The following table indicates the funded status of the plans as of December 31:

 

                                                 
                            Postretirement  
    Funded Plans     Unfunded Plans     Benefit Plans  
    2012     2011     2012     2011     2012     2011  
    (in thousands)  

Change in benefit obligation:

                                               

Benefit obligation at beginning of year

  $ 13,938     $ 12,853     $ 10,883     $ 10,352     $ 18,667     $ 18,987  

Service cost

    —          —          104       121       146       128  

Interest cost

    659       678       491       511       814       868  

Actuarial adjustments

    1,419       1,157       799       609       250       106  

Plan amendments

    —          —          —          —          —          —     

Benefits paid

    (668     (750     (707     (710     (1,176     (1,422
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Benefit obligation at end of year

    15,348       13,938       11,570       10,883       18,701       18,667  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in plan assets:

                                               

Fair value of plan assets at beginning of year

    9,846       8,858       —          —          2,118       2,678  

Actual return on plan assets

    683       741       —          —          100       217  

Company contributions

    763       997       707       710       355       645  

Benefits paid

    (668     (750     (707     (710     (1,176     (1,422
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair value of plan assets at end of year

    10,624       9,846       —          —          1,397       2,118  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Funded status at end of year

  $ (4,724   $ (4,092   $ (11,570   $ (10,883   $ (17,304   $ (16,549
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The net amounts recognized in Viad’s consolidated balance sheets under the caption “Pension and postretirement benefits” as of December 31 were as follows:

 

                                                 
                            Postretirement  
    Funded Plans     Unfunded Plans     Benefit Plans  
    2012     2011     2012     2011     2012     2011  
    (in thousands)  

Other current liabilities

  $ —        $ —        $ 816     $ 717     $ 392     $ 440  

Non-current liabilities

    4,724       4,092       10,754       10,166       16,912       16,109  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net amount recognized

  $ 4,724     $ 4,092     $ 11,570     $ 10,883     $ 17,304     $ 16,549  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Amounts recognized in accumulated other comprehensive income as of December 31, 2012 consisted of:

 

                                 
    Funded     Unfunded     Postretirement        
    Plans     Plans     Benefit Plans     Total  
    (in thousands)  

Net actuarial loss

  $ 9,052     $ 4,548     $ 6,706     $ 20,306  

Prior service credit

    —         —         (2,900     (2,900
   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

    9,052       4,548       3,806       17,406  

Less tax effect

    (3,433     (1,725     (1,443     (6,601
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 5,619     $ 2,823     $ 2,363     $ 10,805  
   

 

 

   

 

 

   

 

 

   

 

 

 

Amounts recognized in accumulated other comprehensive income as of December 31, 2011 consisted of:

 

                                 
    Funded     Unfunded     Postretirement        
    Plans     Plans     Benefit Plans     Total  
    (in thousands)  

Net actuarial loss

  $ 8,238     $ 3,911     $ 7,029     $ 19,178  

Prior service credit

    —         —         (4,013     (4,013
   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

    8,238       3,911       3,016       15,165  

Less tax effect

    (3,146     (1,493     (1,153     (5,792
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 5,092     $ 2,418     $ 1,863     $ 9,373  
   

 

 

   

 

 

   

 

 

   

 

 

 

The estimated net actuarial loss for the pension plans that is expected to be amortized from accumulated other comprehensive income into net periodic pension cost in 2013 is approximately $597,000. The estimated net actuarial loss for the postretirement benefit plans that is expected to be amortized from accumulated other comprehensive income into net periodic benefit cost in 2013 is approximately $566,000. The estimated prior service credit for the postretirement benefit plans that is expected to be amortized from accumulated other comprehensive income into net periodic benefit credit in 2013 is approximately $901,000.

 

The fair value of the domestic plans’ assets by asset class was as follows:

 

                                 
          Fair Value Measurements at December 31, 2012  
                Significant        
          Quoted Prices     Other     Significant  
          in Active     Observable     Unobserved  
          Markets     Inputs     Inputs  

Description

  Total     (Level 1)     (Level 2)     (Level 3)  
    (in thousands)  

Domestic Pension Plans:

                               

Cash

  $ 10,401     $ 10,401     $  —       $  —    

Other

    223       —         223       —    
   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 10,624     $ 10,401     $ 223     $ —    
   

 

 

   

 

 

   

 

 

   

 

 

 

Postretirement Benefit Plans:

                               

Cash

  $ 1,397     $ 1,397     $ —       $ —    
   

 

 

   

 

 

   

 

 

   

 

 

 

 

                                 
          Fair Value Measurements at December 31, 2011  
                Significant        
          Quoted Prices     Other     Significant  
          in Active     Observable     Unobserved  
          Markets     Inputs     Inputs  

Description

  Total     (Level 1)     (Level 2)     (Level 3)  
    (in thousands)  

Domestic Pension Plans:

                               

U.S. equity securities

  $ 2,849     $  —       $ 2,849     $  —    

International equity securities

    914       —         914       —    

Aggregate fixed income securities

    2,373