VIAD CORP, 10-Q filed on 11/6/2015
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2015
Oct. 30, 2015
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
VIAD CORP 
 
Entity Central Index Key
0000884219 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2015 
 
Amendment Flag
false 
 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q3 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
20,136,583 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Current assets
 
 
Cash and cash equivalents
$ 75,313 
$ 56,990 
Accounts receivable, net of allowance for doubtful accounts of $1,640 and $1,258, respectively
105,514 
78,121 
Inventories
38,659 
32,401 
Deferred income taxes
23,042 
22,943 
Other current assets
18,574 
17,440 
Total current assets
261,102 
207,895 
Property and equipment, net
185,848 
199,571 
Other investments and assets
39,790 
40,674 
Deferred income taxes
28,064 
29,639 
Goodwill
186,319 
194,197 
Other intangible assets, net
35,278 
42,967 
Total Assets
736,401 
714,943 
Current liabilities
 
 
Accounts payable
76,092 
61,789 
Customer deposits
56,338 
32,720 
Accrued compensation
25,464 
20,736 
Other current liabilities
34,364 
27,787 
Current portion of debt and capital lease obligations
18,489 
27,856 
Total current liabilities
210,747 
170,888 
Long-term debt and capital lease obligations
98,418 
113,164 
Pension and postretirement benefits
32,766 
33,427 
Other deferred items and liabilities
47,139 
49,762 
Total liabilities
389,070 
367,241 
Commitments and contingencies
   
   
Viad stockholders’ equity:
 
 
Common stock, $1.50 par value, 200,000,000 shares authorized, 24,934,981 shares issued
37,402 
37,402 
Additional capital
576,598 
582,066 
Retained deficit
(14,886)
(36,427)
Unearned employee benefits and other
111 
23 
Accumulated other comprehensive income (loss):
 
 
Unrealized gain on investments
451 
471 
Cumulative foreign currency translation adjustments
(10,701)
12,416 
Unrecognized net actuarial loss and prior service credit, net
(13,258)
(13,476)
Common stock in treasury, at cost, 4,807,098 and 4,842,621 shares, respectively
(241,215)
(247,088)
Total Viad stockholders’ equity
334,502 
335,387 
Noncontrolling interest
12,829 
12,315 
Total stockholders’ equity
347,331 
347,702 
Total Liabilities and Stockholders’ Equity
$ 736,401 
$ 714,943 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Statement of Financial Position [Abstract]
 
 
Allowance for doubtful accounts
$ 1,640 
$ 1,258 
Common stock, par value
$ 1.5 
$ 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
4,807,098 
4,842,621 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Revenue:
 
 
 
 
Exhibition and event services
$ 152,664 
$ 188,005 
$ 603,530 
$ 605,274 
Exhibits and environments
36,199 
38,657 
128,830 
125,797 
Travel and recreation services
67,083 
73,140 
105,017 
110,763 
Total revenue
255,946 
299,802 
837,377 
841,834 
Costs and expenses:
 
 
 
 
Costs of services
205,227 
228,285 
667,356 
658,502 
Costs of products sold
36,148 
38,503 
120,289 
122,821 
Corporate activities
1,354 
3,468 
6,147 
7,498 
Interest income
(65)
(81)
(571)
(200)
Interest expense
1,198 
462 
3,452 
1,069 
Restructuring charges
257 
238 
1,542 
1,814 
Impairment charges
884 
Total costs and expenses
244,119 
270,875 
798,215 
792,388 
Income from continuing operations before income taxes
11,827 
28,927 
39,162 
49,446 
Income tax expense (benefit)
3,746 
(2,623)
10,851 
870 
Income from continuing operations
8,081 
31,550 
28,311 
48,576 
Income (loss) from discontinued operations
(163)
(979)
(233)
13,023 
Net income
7,918 
30,571 
28,078 
61,599 
Net income attributable to noncontrolling interest
(688)
(951)
(515)
(3,355)
Net income attributable to Viad
7,230 
29,620 
27,563 
58,244 
Diluted income (loss) per common share:
 
 
 
 
Income from continuing operations attributable to Viad common stockholders (USD per share)
$ 0.37 
$ 1.53 
$ 1.38 
$ 2.38 
Income from discontinued operations attributable to Viad common stockholders (USD per share)
$ (0.01)
$ (0.05)
$ (0.01)
$ 0.50 
Net income attributable to Viad common stockholders (USD per share)
$ 0.36 
$ 1.48 
$ 1.37 1
$ 2.88 1
Weighted-average outstanding and potentially dilutive common shares (shares)
19,974 
19,954 
19,946 
20,174 
Basic income (loss) per common share:
 
 
 
 
Income from continuing operations attributable to Viad common stockholders (USD per share)
$ 0.37 
$ 1.53 
$ 1.38 
$ 2.38 
Income from discontinued operations attributable to Viad common stockholders (USD per share)
$ (0.01)
$ (0.05)
$ (0.01)
$ 0.50 
Net income attributable to Viad common stockholders (USD per share)
$ 0.36 
$ 1.48 
$ 1.37 
$ 2.88 
Weighted-average outstanding common shares (shares)
19,831 
19,679 
19,782 
19,832 
Dividends declared per common share (USD per share)
$ 0.1 
$ 0.1 
$ 0.3 
$ 1.8 
Amounts attributable to Viad common stockholders
 
 
 
 
Income from continuing operations
7,393 
30,756 
27,796 
48,046 
Income (loss) from discontinued operations
(163)
(1,136)
(233)
10,198 
Net income attributable to Viad
$ 7,230 
$ 29,620 
$ 27,563 
$ 58,244 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net income
$ 7,918 
$ 30,571 
$ 28,078 
$ 61,599 
Other comprehensive income (loss):
 
 
 
 
Unrealized losses on investments, net of tax(1)
(153)1
(67)1
(20)1
(17)1
Unrealized foreign currency translation adjustments, net of tax(1)
(11,491)1
(9,799)1
(23,117)1
(9,950)1
Amortization of net actuarial gain, net of tax(1)
139 1
183 1
475 1
438 1
Amortization of prior service credit, net of tax(1)
(86)1
(252)1
(257)1
(470)1
Comprehensive income (loss)
(3,673)
20,636 
5,159 
51,600 
Comprehensive income attributable to noncontrolling interest
(688)
(951)
(515)
(3,355)
Comprehensive income (loss) attributable to Viad
$ (4,361)
$ 19,685 
$ 4,644 
$ 48,245 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Cash flows from operating activities
 
 
Net income
$ 28,078 
$ 61,599 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
27,040 
21,853 
Deferred income taxes
(1,128)
(1,291)
(Income) loss from discontinued operations
233 
(13,023)
Restructuring charges
1,542 
1,814 
Impairment charges
884 
Gains on dispositions of property and other assets
(307)
(392)
Share-based compensation expense
3,131 
1,562 
Excess tax benefit from share-based compensation arrangements
(13)
(41)
Other non-cash items, net
4,427 
7,689 
Change in operating assets and liabilities (excluding the impact of acquisitions):
 
 
Receivables
(27,956)
(29,933)
Inventories
(6,258)
(7,052)
Accounts payable
14,899 
27,301 
Restructuring liabilities
(1,888)
(4,268)
Accrued compensation
3,385 
4,053 
Customer deposits
23,618 
18,267 
Income taxes payable
2,641 
4,273 
Other assets and liabilities, net
4,899 
(11,283)
Net cash provided by operating activities
76,343 
82,012 
Cash flows from investing activities
 
 
Capital expenditures
(19,030)
(21,898)
Cash paid for acquired business
(430)
(40,775)
Proceeds from dispositions of property and other assets
844 
502 
Proceeds from possessory interest and personal property—discontinued operations
28,000 
Net cash used in investing activities
(18,616)
(34,171)
Cash flows from financing activities
 
 
Proceeds from borrowings
35,000 
68,000 
Payments on debt and capital lease obligations
(58,981)
(56,196)
Acquisition of business - deferred consideration
(896)
Dividends paid on common stock
(6,020)
(36,374)
Common stock purchased for treasury
(4,776)
(11,631)
Excess tax benefit from share-based compensation arrangements
13 
41 
Proceeds from exercise of stock options
1,041 
1,155 
Net cash used in financing activities
(34,619)
(35,005)
Effect of exchange rate changes on cash and cash equivalents
(4,785)
(1,739)
Net change in cash and cash equivalents
18,323 
11,097 
Cash and cash equivalents, beginning of year
56,990 
45,821 
Cash and cash equivalents, end of period
75,313 
56,918 
Supplemental disclosure of cash flow information
 
 
Cash paid for income taxes
6,835 
6,409 
Cash paid for interest
3,220 
880 
Property and equipment acquired under capital leases
618 
541 
Property and equipment purchases in accounts payable and accrued liabilities
$ 184 
$ 230 
Basis of Presentation and Principles of Consolidation
Basis of Presentation and Principles of Consolidation
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements of Viad Corp (“Viad” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information required by GAAP or Securities and Exchange Commission (“SEC”) rules and regulations for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with Viad’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 13, 2015.
The condensed consolidated financial statements include the accounts of Viad and its subsidiaries. All significant intercompany account balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates and assumptions include, but are not limited to: fair value of Viad’s reporting units used to perform annual impairment testing of recorded goodwill; allowances for uncollectible accounts receivable; provisions for income taxes (including uncertain tax positions); valuation allowances related to deferred tax assets; liabilities for losses related to self-insured liability claims and environmental remediation obligations; sublease income associated with restructuring liabilities; assumptions used to measure pension and postretirement benefit costs and obligations and 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.
Nature of Business
Viad’s reportable segments consist of Marketing & Events U.S. Segment, Marketing & Events International Segment(collectively, the “Marketing & Events Group”) and the Travel & Recreation Group.
Marketing & Events Group
The Marketing & Events Group, comprised of Global Experience Specialists, Inc. and affiliates (“GES”), is a global full-service provider for live events that helps clients gain more awareness, more engagement and a greater return at their events. The Marketing & Events Group offers a complete range of services, from design and production of immersive environments and brand-based experiences, to material handling, rigging, electrical, and other on-site services for clients, including show organizers, corporate brand marketers, and retail shopping centers. In addition, the Marketing & Events Group offers clients a full suite of online tools and technologies to help them more easily manage the complexities of their events. Show organizers include for-profit and not-for-profit show owners as well as show management companies. Corporate brand marketers include exhibitors and domestic and international corporations that want to promote their brands, services and innovations, feature new products, and build business relationships. Viad’s retail shopping center customers include major developers, owners, and management companies of shopping malls and leisure centers.
The Company completed the following acquisitions in 2014:
Blitz. In September 2014, the Company acquired Blitz Communications Group Limited and its affiliates (collectively, “Blitz”);
onPeak. In October 2014, the Company acquired onPeak LLC and Travel Planners, Inc. with Travel Planners, Inc. merging into onPeak LLC (collectively, “onPeak”) in January 2015; and
N200. In November 2014, the Company acquired N200 Limited and its affiliates (collectively, “N200”).
Refer to Note 3 - Acquisition of Businesses for additional information on the Company’s 2014 acquisitions.
Travel & Recreation Group
The Travel & Recreation Group consists of Brewster Inc. (“Brewster”), Glacier Park, Inc. (“Glacier Park”) and Alaskan Park Properties, Inc. (“Alaska Denali Travel”).
Brewster provides tourism products and experiential services in the Canadian Rockies in Alberta and in other parts of Western Canada. Brewster’s operations include the Banff Gondola, Columbia Icefield Glacier Adventure, Glacier Skywalk, Banff Lake Cruise, motorcoach services, charter and sightseeing services, inbound package tour operations, and hotel operations.
Glacier Park, an 80 percent owned subsidiary of Viad, owns and operates seven properties, with accommodation offerings varying from hikers’ cabins to hotel suites, including St. Mary Lodge, a full-service resort located outside the east entrance to Glacier National Park in St. Mary, Montana; Glacier Park Lodge, a historic lodge in East Glacier, Montana; Grouse Mountain Lodge, a full-season lodge offering golf, skiing, hiking, and other seasonal recreational activities, located near Glacier National Park in Whitefish, Montana; Prince of Wales Hotel in Waterton Lakes National Park, Alberta, Canada, which is situated on land for which the Company has a 42-year ground lease with the Canadian government running through January 31, 2052; West Glacier Motel & Cabins in West Glacier, Montana; Motel Lake McDonald located inside Glacier National Park; and Apgar Village Lodge located inside Glacier National Park. Glacier Park also operates the food and beverage services with respect to those properties and the retail shops located near Glacier National Park. Refer to Note 20 - Discontinued Operations for additional information on the expiration of Glacier Park’s concession operations within Glacier National Park.
In July 2014, the Company acquired the West Glacier Motel & Cabins, the Apgar Village Lodge and related land, food and beverage services and retail operations (collectively, the “West Glacier Properties”). Refer to Note 3 - Acquisition of Businesses for additional information.
Alaska Denali Travel operates the Denali Backcountry Lodge and Denali Cabins. In addition to lodging, Alaska Denali Travel also provides food and beverage operations and package tour and transportation services in and around Denali National Park and Preserve.
Impact of Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The standard establishes a new recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company may adopt the requirements of ASU 2014-09 using either of two acceptable methods: (1) retrospective adoption to each prior period presented with the option to elect certain practical expedients; or (2) adoption with the cumulative effect recognized at the date of initial application and providing certain disclosures. In July 2015, the FASB approved a one-year deferral of the effective date of the new standard, making it effective for our annual and interim reporting periods beginning January 1, 2018. The Company is currently evaluating the potential impact of the adoption of this new guidance on its financial position or results of operations, including the method of adoption to be used.
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”) which clarifies the guidance in ASU 2015-03 related to line-of-credit arrangements. ASU 2015-15 provides that an entity may defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. Presentation ASU 2015-03 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The adoption of this guidance is not expected to have a significant effect on our consolidated financial statements or financial covenants.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330) - Simplifying the Measurement of Inventory (“ASU 2015-11”). The amendments in ASU 2015-11 apply to inventory measures using first-in, first-out or average cost and will require entities to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the normal course of business, minus the cost of completion, disposal and transportation. Replacement cost and net realizable value less a normal profit margin will no longer be considered. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. The adoption of this guidance is not expected to have a significant effect on our consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). The amendment in ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The adoption of this guidance is not expected to have a significant effect on our consolidated financial statements.
Share-Based Compensation
Share-Based Compensation
Share-Based Compensation
The following table summarizes share-based compensation expense:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands)
2015
 
2014
 
2015
 
2014
Restricted stock
$
523

 
$
653

 
$
1,623

 
$
2,066

Performance unit incentive plan (“PUP”)
456

 
(600
)
 
1,444

 
(505
)
Restricted stock units
46

 
6

 
64

 
1

Share-based compensation before income tax benefit
1,025

 
59

 
3,131

 
1,562

Income tax benefit
(381
)
 
(17
)
 
(1,180
)
 
(587
)
Share-based compensation, net of income tax benefit
$
644

 
$
42

 
$
1,951

 
$
975


Viad recorded no share-based compensation expense for the three months ended September 30, 2015 and approximately $0.1 million for the nine months ended September 30, 2015 through restructuring expense.
On January 24, 2014, Viad’s Board of Directors declared a special cash dividend of $1.50 per share, or $30.5 million in the aggregate, which was paid on February 14, 2014. In accordance with the mandatory provisions of the 2007 Viad Corp Omnibus Incentive Plan (the “2007 Plan”) and the 1997 Viad Corp Omnibus Incentive Plan, the Human Resources Committee of Viad’s Board of Directors approved equitable adjustments to the outstanding long-term incentive awards of stock options and PUP awards issued pursuant to those plans in order to prevent the special dividend from diluting the rights of participants under those plans. The equitable adjustment to the outstanding stock options reduced the exercise price and increased the number of shares of common stock underlying such options. The equitable adjustment to the PUP awards reflects the effect of the special dividend, but will be paid only if certain performance goals are met at the end of the three-year performance period.
The following table summarizes the activity of the outstanding share-based compensation awards:
 
Restricted Stock
 
PUP Awards
 
Restricted Stock Units
 
Shares
 
Weighted-Average
Grant Date
Fair Value
 
Units
 
Weighted-Average
Grant Date
Fair Value
 
Units
 
Weighted-Average
Grant Date
Fair Value
Balance, December 31, 2014
328,602

 
$
23.30

 
267,120

 
$
23.51

 
25,370

 
$
23.17

Granted
82,000

 
$
27.36

 
91,100

 
$
27.31

 
4,800

 
$
27.35

Vested
(105,115
)
 
$
20.52

 
(103,555
)
 
$
20.60

 
(11,623
)
 
$
20.91

Forfeited
(27,765
)
 
$
24.19

 
(22,300
)
 
$
24.92

 

 
$

Balance, September 30, 2015
277,722

 
$
25.47

 
232,365

 
$
26.16

 
18,547

 
$
25.67


As of September 30, 2015, the unamortized cost of all outstanding restricted stock awards was $3.1 million, which Viad expects to recognize in the consolidated financial statements over a weighted-average period of approximately 1.6 years. During the nine months ended September 30, 2015 and 2014, the Company repurchased 34,364 shares for $0.9 million and 45,711 shares for $1.1 million, respectively, related to tax withholding requirements on vested share-based awards. As of September 30, 2015, there were 964,960 total shares available for future grant in accordance with the provisions of the 2007 Plan.
As of September 30, 2015 and December 31, 2014, Viad had liabilities recorded of $1.9 million and $3.5 million, respectively, related to PUP awards. In March 2015, the PUP units granted in 2012 vested and cash payouts of $2.4 million were distributed. In March 2014, the PUP units granted in 2011 vested and cash payouts of $2.9 million were distributed.
As of September 30, 2015 and December 31, 2014, Viad had aggregate liabilities recorded of $0.3 million and $0.5 million, respectively, related to restricted stock unit liability awards. In February 2015, portions of the 2010, 2011, and 2012 restricted stock unit awards vested and cash payouts of $0.2 million were distributed. Similarly, in February 2014, portions of the 2009, 2010, and 2011 restricted stock unit awards vested and cash payouts of $0.2 million were distributed.
The following table summarizes stock option activity:
 
Shares
 
Weighted-
Average
Exercise Price
 
Options
Exercisable
Options outstanding at December 31, 2014
247,590

 
$
17.82

 
247,590

Exercised
(54,076
)
 
$
16.62

 
 
Forfeited or expired
(129,741
)
 
$
18.91

 
 
Options outstanding at September 30, 2015
63,773

 
$
16.62

 
63,773


As of September 30, 2015, there were no unrecognized costs related to non-vested stock option awards.
Acquisition of Businesses
Acquisition of Businesses
Acquisition of Businesses
2014 Acquisitions
West Glacier Properties
In July 2014, the Company acquired the West Glacier Properties. The purchase price was $16.5 million in cash with a working capital adjustment of $0.3 million related to the true-up of certain current assets and liabilities. The allocation of the purchase price was completed as of September 30, 2015. The results of operations of the West Glacier Properties have been included in Viad’s condensed consolidated financial statements from the date of acquisition.
Blitz
In September 2014, the Company acquired Blitz, which has offices in the United Kingdom and is a leading audio-visual staging and creative services provider for the live events industry in the United Kingdom and continental Europe. The purchase price was £15.0 million (approximately $24.4 million) in cash, subject to certain adjustments.

The following table summarizes the updated allocation of the aggregate purchase price paid and amounts of assets acquired and liabilities assumed based upon the estimated fair value at the date of acquisition. During the nine months ended September 30, 2015, the Company made certain purchase accounting measurement period adjustments based on refinements to assumptions used in the preliminary valuation of approximately $0.1 million to property and equipment, $16,000 from intangible assets, $0.2 million from accrued lease obligations, $0.2 million to deferred taxes and $21,000 to goodwill. These adjustments did not have a significant impact on the Company’s condensed consolidated statements of operations, balance sheet, or cash flows for all periods presented, and therefore, were not retrospectively adjusted in the 2014 financial statements. Other than the line items mentioned previously, the balances in the table below as of September 30, 2015 remain unchanged from the balances reflected in the Consolidated Balance Sheets in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The allocation of the purchase price was completed as of September 30, 2015.
(in thousands)
 
 
 
 
Purchase price
 
 
 
$
24,416

Cash acquired
 
 
 
(190
)
Purchase price, net of cash acquired
 
 
 
24,226

 
 
 
 

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

 
 
Inventory
 
433

 
 
Prepaid expenses
 
410

 
 
Property and equipment
 
5,951

 
 
Intangible assets
 
8,692

 
 
Total assets acquired
 
15,750

 
 
Accounts payable
 
1,232

 
 
Accrued liabilities
 
2,246

 
 
Customer deposits
 
199

 
 
Deferred tax liability
 
468

 
 
Revolving credit facility
 
488

 
 
Accrued dilapidations
 
417

 
 
Total liabilities acquired
 
5,050

 
 
Total fair value of net assets acquired
 
 
 
10,700

Excess purchase price over fair value of net assets acquired (“goodwill”)
 
 
 
$
13,526


Goodwill is included in the Marketing & Events International Segment and the primary factor that contributed to a purchase price resulting in the recognition of goodwill relates to future growth opportunities when combined with our other businesses. Goodwill is deductible for tax purposes over a period of 15 years. The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature.
Identified intangible assets acquired in the Blitz acquisition totaled $8.7 million and consist of customer relationships, non-compete agreements, and a trade name. The weighted-average amortization period related to the intangible assets is approximately 6.9 years. The results of operations of Blitz have been included in Viad’s condensed consolidated financial statements from the date of acquisition.

onPeak LLC
In October 2014, the Company acquired onPeak LLC for a purchase price of $43.0 million in cash, subject to certain adjustments. Of the initial purchase price, $4.1 million was deposited at closing into escrow to secure post-closing purchase price adjustments, resolution of certain tax matters and other indemnity claims. onPeak LLC provides event accommodations services in North America to the live events industry.

The following table summarizes the updated allocation of the aggregate purchase price paid and amounts of assets acquired and liabilities assumed based upon the estimated fair value at the date of acquisition. During the three months ended March 31, 2015, the Company made certain purchase accounting measurement period adjustments based on refinements to assumptions used in the preliminary valuation of approximately $0.2 million from intangible assets, $38,000 from deferred taxes and $0.2 million to goodwill. These adjustments did not have a significant impact on the Company’s condensed consolidated statements of operations, balance sheet, or cash flows for all periods presented, and therefore, were not retrospectively adjusted in the 2014 financial statements. Other than the line items mentioned previously, as of September 30, 2015, the balances in the table below remain unchanged from the balances reflected in the Consolidated Balance Sheets in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The purchase price allocation remains open and may be adjusted as a result of the finalization of our purchase price allocation procedures related to certain tax amounts.
(in thousands)
 
 
 
 
Purchase price paid as:
 
 
 
 
Cash
 
 
 
$
42,950

Cash acquired
 
 
 
(4,064
)
Purchase price, net of cash acquired
 
 
 
38,886

 
 
 
 
 
Fair value of net assets acquired:
 
 
 
 
Accounts receivable, net
 
$
4,008

 
 
Prepaid expenses
 
640

 
 
Property and equipment
 
2,450

 
 
Other non-current assets
 
309

 
 
Intangible assets
 
14,100

 
 
Total assets acquired
 
21,507

 
 
Accounts payable
 
738

 
 
Accrued liabilities
 
3,341

 
 
Customer deposits
 
4,225

 
 
Deferred tax liability
 
1,576

 
 
Other liabilities
 
309

 
 
Total liabilities acquired
 
10,189

 
 
Total fair value of net assets acquired
 
 
 
11,318

Excess purchase price over fair value of net assets acquired (“goodwill”)
 
 
 
$
27,568


Goodwill is included in the Marketing & Events U.S. Segment and the primary factor that contributed to a purchase price resulting in the recognition of goodwill relates to future growth opportunities when combined with our other businesses. Goodwill of $9.3 million is expected to be deductible for tax purposes over a period of 15 years. The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature.
Identified intangible assets acquired in the onPeak LLC acquisition totaled $14.1 million and consist primarily of customer relationships and trade name. The weighted-average amortization period related to the definite lived intangible assets is 9.9 years. The results of operations of onPeak LLC have been included in Viad’s condensed consolidated financial statements from the date of acquisition.
Travel Planners, Inc.
In October 2014, the Company acquired Travel Planners, Inc. for a purchase price of $33.7 million in cash less a working capital adjustment of $0.3 million, subject to certain adjustments. Of the purchase price, $8.8 million was deposited at closing into escrow to secure post-closing purchase price adjustments, resolution of certain tax matters and other indemnity claims. An additional amount of $0.9 million was paid during the third quarter of 2015 to Travel Planners, Inc. as a result of an election made by the Company to treat the purchase as an asset acquisition for tax purposes. Travel Planners, Inc. provides event accommodations services in North America to the live events industry. Travel Planners, Inc. was merged into onPeak LLC in January 2015.

The following table summarizes the updated allocation of the aggregate purchase price paid and amounts of assets acquired and liabilities assumed based upon the estimated fair value at the date of acquisition. During the nine months ended September 30, 2015, the Company made certain purchase accounting measurement period adjustments based on refinements to assumptions used in the preliminary valuation of $0.6 million from intangible assets, $0.4 million from additional purchase price payable upon tax election and $0.1 million from other accrued liabilities. These adjustments did not have a significant impact on the Company’s condensed consolidated statements of operations, balance sheet, or cash flows for all periods presented, and therefore, were not retrospectively adjusted in the 2014 financial statements. Other than the line items mentioned previously, the balances in the table below as of September 30, 2015 remain unchanged from the balances reflected in the Consolidated Balance Sheets in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The purchase price allocation remains open and may be adjusted as a result of the finalization of our purchase price allocation procedures related to certain tax amounts.
(in thousands)
 
 
 
 
Purchase price paid as:
 
 
 
 
Cash
 
 
 
$
33,674

Additional purchase price paid for tax election
 
 
 
896

Working capital adjustment
 
 
 
(279
)
Cash acquired
 
 
 
(4,204
)
Purchase price, net of cash acquired
 
 
 
30,087

 
 
 
 
 
Fair value of net assets acquired:
 
 
 
 
Accounts receivable, net
 
$
1,450

 
 
Prepaid expenses
 
120

 
 
Property and equipment
 
93

 
 
Intangible assets
 
14,400

 
 
Total assets acquired
 
16,063

 
 
Accounts payable
 
488

 
 
Accrued liabilities
 
1,557

 
 
Customer deposits
 
4,525

 
 
Total liabilities acquired
 
6,570

 
 
Total fair value of net assets acquired
 
 
 
9,493

Excess purchase price over fair value of net assets acquired (“goodwill”)
 
 
 
$
20,594


Goodwill is included in the Marketing & Events U.S. Segment and the primary factor that contributed to a purchase price resulting in the recognition of goodwill relates to future growth opportunities when combined with our other businesses. Goodwill is deductible for tax purposes over a period of 15 years. The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature.
Identified intangible assets acquired in the Travel Planners, Inc. acquisition totaled $14.4 million and consist primarily of customer relationships, favorable lease contracts and trade name. The weighted-average amortization period related to the definite lived intangible assets is 9.8 years. The results of operations of Travel Planners, Inc. have been included in Viad’s condensed consolidated financial statements from the date of acquisition.
N200
In November 2014, the Company acquired N200 for €9.7 million (approximately $12.1 million) in cash, subject to certain adjustments, plus an earnout payment (the “Earnout”) of up to €1.0 million. The amount of the Earnout was based on N200’s achievement of established financial targets for the twelve-month period ended June 30, 2015. N200 exceeded those financial targets and consequentially on October 5, 2015, the Company paid the full €1.0 million (approximately $1.1 million) Earnout to the former owners of N200. N200, which has offices in the United Kingdom and the Netherlands, is a leading event registration and data intelligence services provider for the live events industry in the United Kingdom and the Netherlands.

The following table summarizes the updated allocation of the aggregate purchase price paid and amounts of assets acquired and liabilities assumed based upon the estimated fair value at the date of acquisition. During the nine months ended September 30, 2015, the Company made certain purchase accounting measurement period adjustments based on refinements to assumptions used in the preliminary valuation of $0.1 million from contingent consideration, $0.5 million to working capital payable, $15,000 from accounts receivable, net, $0.1 million to intangible assets, $0.1 million to accrued liabilities, $20,000 to deferred taxes and $0.3 million to goodwill. These adjustments did not have a significant impact on the Company’s condensed consolidated statements of operations, balance sheet, or cash flows for all periods presented, and therefore, were not retrospectively adjusted in the 2014 financial statements. Other than the line items mentioned previously, the balances in the table below as of September 30, 2015 remain unchanged from the balances reflected in the Consolidated Balance Sheets in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The purchase price allocation remains open and may be adjusted as a result of the finalization of our purchase price allocation procedures related to certain tax amounts.
(in thousands)
 
 
 
 
Purchase price paid as:
 
 
 
 
Cash
 
 
 
$
12,068

Working capital adjustment
 
 
 
458

Contingent consideration
 
 
 
1,145

Cash acquired
 
 
 
(943
)
Purchase price, net of cash acquired
 
 
 
12,728

 
 
 
 
 
Fair value of net assets acquired:
 
 
 
 
Accounts receivable, net
 
$
1,732

 
 
Inventory
 
46

 
 
Prepaid expenses
 
115

 
 
Property and equipment
 
1,280

 
 
Intangible assets
 
3,682

 
 
Total assets acquired
 
6,855

 
 
Accounts payable
 
421

 
 
Accrued liabilities
 
1,057

 
 
Customer deposits
 
569

 
 
Deferred tax liability
 
911

 
 
Other liabilities
 
106

 
 
Total liabilities acquired
 
3,064

 
 
Total fair value of net assets acquired
 
 
 
3,791

Excess purchase price over fair value of net assets acquired (“goodwill”)
 
 
 
$
8,937


Goodwill is included in the Marketing & Events International Segment and the primary factor that contributed to a purchase price resulting in the recognition of goodwill relates to future growth opportunities when combined with our other businesses. Goodwill is deductible for tax purposes over a period of 15 years. The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature.
Identified intangible assets acquired in the N200 acquisition totaled $3.7 million and consist primarily of customer relationships. The weighted-average amortization period related to the definite lived intangible assets is 7.4 years. The results of operations of N200 have been included in Viad’s condensed consolidated financial statements from the date of acquisition.
Supplementary pro forma financial information

The following table summarizes the unaudited pro forma results of operations attributable to Viad, assuming the 2014 acquisitions had each been completed on January 1, 2013:
(in thousands, except per share data)
 
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2014
Revenue
 
$
308,268

 
$
884,867

Depreciation and amortization
 
$
10,204

 
$
29,228

Income from continuing operations
 
$
30,172

 
$
50,104

Net income attributable to Viad
 
$
28,245

 
$
59,793

Diluted net income per share
 
$
1.42

 
$
2.96

Basic net income per share
 
$
1.44

 
$
3.01

Inventories
Inventories
Inventories
The components of inventories consisted of the following as of the respective periods:
(in thousands)
September 30,
2015
 
December 31,
2014
Raw materials
$
14,646

 
$
16,749

Work in process
24,013

 
15,652

Inventories
$
38,659

 
$
32,401

Other Current Assets
Other Current Assets
Other Current Assets
Other current assets consisted of the following as of the respective periods:
(in thousands)
September 30,
2015
 
December 31,
2014
Income tax receivable
$
4,274

 
$
1,869

Prepaid software maintenance
3,077

 
1,934

Prepaid insurance
2,626

 
2,170

Prepaid vendor payments
2,503

 
2,689

Prepaid rent
1,493

 
186

Prepaid taxes
1,010

 
1,416

Prepaid other
2,982

 
4,427

Other
609

 
2,749

Other current assets
$
18,574

 
$
17,440

Property and Equipment, Net
Property and Equipment, Net
Property and Equipment, Net
Property and equipment consisted of the following as of the respective periods:
(in thousands)
September 30,
2015
 
December 31,
2014
Land and land interests
$
29,200

 
$
30,360

Buildings and leasehold improvements
131,572

 
138,104

Equipment and other
278,423

 
319,435

Gross property and equipment
439,195

 
487,899

Less: accumulated depreciation
(253,347
)
 
(288,328
)
Property and equipment, net
$
185,848

 
$
199,571


Depreciation expense was $7.5 million and $7.7 million for the three months ended September 30, 2015 and 2014, respectively, and $21.6 million and $21.1 million for the nine months ended September 30, 2015 and 2014, respectively.
Other Investments and Assets
Other Investments and Assets
Other Investments and Assets
Other investments and assets consisted of the following as of the respective periods:
(in thousands)
September 30,
2015
 
December 31,
2014
Cash surrender value of life insurance
$
20,994

 
$
20,866

Self-insured liability receivable
7,728

 
7,728

Workers’ compensation insurance security deposits
4,250

 
4,250

Other mutual funds
2,162

 
2,536

Other
4,656

 
5,294

Other investments and assets
$
39,790

 
$
40,674

Other Current Liabilities
Other Current Liabilities
Other Current Liabilities
Other current liabilities consisted of the following as of the respective periods:
(in thousands)
September 30,
2015
 
December 31,
2014
Continuing operations:
 
 
 
Self-insured liability accrual
$
6,728

 
$
6,297

Accrued employee benefit costs
3,824

 
3,215

Accrued foreign income taxes
3,767

 
2,370

Accrued sales and use taxes
3,039

 
3,624

Accrued dividends
2,102

 
2,107

Accrued rebates
1,813

 
1,600

Current portion of pension liability
1,729

 
1,641

Deferred rent
1,721

 
783

Accrued restructuring
1,020

 
1,154

Accrued professional fees
990

 
1,228

Other
6,725

 
2,837

Total continuing operations
33,458

 
26,856

Discontinued operations:
 
 
 
Environmental remediation liabilities
289

 
350

Self-insured liability accrual
214

 
173

Other
403

 
408

Total discontinued operations
906

 
931

Other current liabilities
$
34,364

 
$
27,787

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill are as follows:
(in thousands)
Marketing &
Events U.S. Segment
 
Marketing &
Events
International Segment
 
Travel &
Recreation
Group
 
Total
Balance at December 31, 2014
$
110,618

 
$
42,221

 
$
41,358

 
$
194,197

Purchase price allocation adjustments
230

 
397

 

 
627

Foreign currency translation adjustments

 
(2,905
)
 
(5,600
)
 
(8,505
)
Balance at September 30, 2015
$
110,848

 
$
39,713

 
$
35,758

 
$
186,319



The original purchase price allocations were based on information available at the respective acquisition dates. During the nine months ended September 30, 2015, we recorded measurement period adjustments to the original purchase price allocation for Blitz, onPeak LLC, Travel Planners, Inc., and N200, which increased goodwill by $0.6 million. The amount was not considered significant and, therefore, prior periods were not retrospectively adjusted. Refer to Note 3 - Acquisition of Businesses for additional information.
Intangible assets consisted of the following as of the respective periods:
 
September 30,
2015
 
December 31,
2014
(in thousands)
Gross Carrying
Value
 
Accumulated
Amortization
 
Gross Carrying
Value
 
Accumulated
Amortization
Amortized intangible assets:
 
 
 
 
 
 
 
Customer contracts and relationships
$
38,647

 
$
(6,534
)
 
$
41,624

 
$
(2,961
)
Other
4,495

 
(1,790
)
 
4,576

 
(732
)
Total amortized intangible assets
43,142

 
(8,324
)
 
46,200

 
(3,693
)
Unamortized intangible assets:
 
 
 
 
 
 
 
Business licenses
460

 

 
460

 

Other intangible assets
$
43,602

 
$
(8,324
)
 
$
46,660

 
$
(3,693
)

The original purchase price allocations were based on information available at the respective acquisition dates. During the nine months ended September 30, 2015, we recorded measurement period adjustments to the original purchase price allocation for Blitz, onPeak LLC, Travel Planners, Inc., and N200, which reduced other intangible assets by $0.7 million. The amount was not considered significant and, therefore, prior periods were not retrospectively adjusted. Refer to Note 3 - Acquisition of Businesses for additional information.
Intangible asset amortization expense was $1.7 million and $0.2 million for the three months ended September 30, 2015 and 2014, respectively, and $5.5 million and $0.8 million for the nine months ended September 30, 2015 and 2014, respectively.
The estimated future amortization expense related to amortized intangible assets held at September 30, 2015 is as follows:
(in thousands)
 
Year ending December 31:
 
Remainder of 2015
$
1,802

2016
6,370

2017
5,546

2018
4,573

2019
4,190

Thereafter
12,337

Total
$
34,818

Other Deferred Items Liabilities
Other Deferred Items and Liabilities
Other Deferred Items and Liabilities
Other deferred items and liabilities consisted of the following as of the respective periods:
(in thousands)
September 30,
2015
 
December 31,
2014
Continuing operations:
 
 
 
Self-insured liability accrual
$
12,772

 
$
13,525

Self-insured excess liability
7,728

 
7,728

Accrued compensation
6,989

 
6,824

Deferred rent
3,010

 
2,787

Foreign deferred tax liability
2,406

 
2,135

Accrued restructuring
434

 
555

Other
3,248

 
5,117

Total continuing operations
36,587

 
38,671

Discontinued operations:
 
 
 
Environmental remediation liabilities
4,248

 
4,395

Self-insured liability accrual
4,040

 
4,327

Accrued income taxes
1,143

 
1,119

Other
1,121

 
1,250

Total discontinued operations
10,552

 
11,091

Other deferred items and liabilities
$
47,139

 
$
49,762

Debt and Capital Lease Obligations
Debt and Capital Lease Obligations
Debt and Capital Lease Obligations
The components of long-term debt consisted of the following as of the respective periods:
(in thousands)
September 30, 2015
 
December 31, 2014
Revolving credit facility and term loan, 2.3% and 2.4% weighted-average interest rate at September 30, 2015 and December 31, 2014, respectively, due through 2019
$
115,625

 
$
139,500

Capital lease obligations, 6.2% and 6.0% weighted-average interest at September 30, 2015 and December 31, 2014, respectively, due through 2018
1,282

 
1,520

Total debt
116,907

 
141,020

Current portion
(18,489
)
 
(27,856
)
Long-term debt and capital lease obligations
$
98,418

 
$
113,164



Effective December 22, 2014, Viad entered into a $300 million Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement amended and replaced in its entirety the Company’s $180 million revolving credit facility under the Amended and Restated Credit Agreement dated as of May 18, 2011. The Credit Agreement provides for a senior credit facility in the aggregate amount of $300 million, which consists of a $175 million revolving credit facility (the “Revolving Credit Facility”) and a $125 million term loan (the “Term Loan”). Loans under the Credit Agreement have a maturity date of December 22, 2019, and proceeds from the loans made under the Credit Agreement were used to refinance certain outstanding debt of the Company and will be used for the Company’s general corporate purposes in the ordinary course of its business. Under the Credit Agreement, the Revolving Credit Facility and/or the Term Loan may be increased up to an additional $100 million under certain circumstances. If such circumstances are met, the Company may obtain the additional borrowings under the Revolving Credit Facility, the Term Loan, or a combination of the two facilities. The Revolving Credit Facility has a $40 million sublimit for letters of credit. Borrowings and letters of credit can be denominated in U.S. dollars, Euros, Canadian dollars, or British pounds.

Viad’s lenders have a first perfected security interest in all of the personal property of Viad, GES, and GES Event Intelligence Services, Inc., including 65 percent of the capital stock of top-tier foreign subsidiaries. Financial covenants include a fixed charge coverage ratio of not less than 1.75 to 1.00, with a step-up to 2.00 to 1.00 for the fiscal quarter ending June 30, 2016. Viad must maintain a leverage ratio of not greater than 3.00 to 1.00, with a step-down to 2.75 to 1.00 from January 1, 2016 through December 31, 2016 and a step-down to 2.50 to 1.00 thereafter. Acquisitions in the same or related lines of business are permitted if the leverage ratio, on a pro forma basis, is less than or equal to 2.50 to 1.00 for acquisitions consummated on or prior to December 31, 2015, 2.25 to 1.00 for acquisitions consummated between January 1, 2016 and December 31, 2016, and 2.00 to 1.00 for acquisitions consummated thereafter. Viad is permitted a single acquisition of $25 million or more after December 31, 2016 if the pro forma leverage ratio is less than or equal to 2.25 to 1.00. As of September 30, 2015 and December 31, 2014, the fixed charge coverage ratio was 2.12 to 1.00 and 2.61 to 1.00, respectively, and the leverage ratio was 1.66 to 1.00 and 1.73 to 1.00, respectively. The terms of the Credit Agreement allow Viad to pay dividends or purchase the Company’s common stock up to $20 million in the aggregate in any calendar year, with additional dividends, share repurchases, or distributions of stock permitted if the Company’s leverage ratio is less than or equal to 2.00 to 1.00, and the Liquidity Amount (defined as cash in the U.S. and Canada plus available revolver borrowings on a pro forma basis) is not less than $100 million, and no default or unmatured default, as defined in the Credit Agreement, exists. Significant other covenants include limitations on investments, additional indebtedness, sales/leases of assets, acquisitions, consolidations or mergers, and liens on property. As of September 30, 2015, Viad was in compliance with all covenants.
As of September 30, 2015, Viad’s total debt was $116.9 million, consisting of outstanding borrowings under the Term Loan of $115.6 million and capital lease obligations of $1.3 million. As of December 31, 2014, Viad’s total debt was $141.0 million, consisting of outstanding borrowings under the Term Loan and the Revolving Credit Facility of $125.0 million and $14.5 million, respectively, and capital lease obligations of $1.5 million. As of September 30, 2015, Viad had $172.5 million of capacity remaining under its Credit Facility reflecting outstanding letters of credit of $2.5 million.
Borrowings under the Revolving Credit Facility (of which GES and GES Event Intelligence Services, Inc. are guarantors) 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.
As of September 30, 2015, Viad had certain obligations under guarantees to third parties on behalf of its subsidiaries. These guarantees are not subject to liability recognition in the condensed consolidated financial statements and relate to leased facilities entered into by the Company’s subsidiary operations. The Company would generally be required to make payments to the respective third parties under these guarantees in the event that the related subsidiary could not meet its own payment obligations. The maximum potential amount of future payments that Viad would be required to make under all guarantees existing as of September 30, 2015 would be $2.9 million. These guarantees relate to leased facilities and expire through October 2017. There are no recourse provisions that would enable Viad to recover from third parties any payments made under the guarantees. Furthermore, there are no collateral or similar arrangements whereby Viad could recover payments.
The estimated fair value of total debt was $101.6 million and $123.0 million as of September 30, 2015 and December 31, 2014, respectively. The fair value of debt was estimated by discounting the future cash flows using rates currently available for debt of similar terms and maturity.
Fair Value Measurements
Fair Value Measurements
Fair Value Measurements
The fair value of an asset or liability is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value guidance requires an entity to maximize the use of quoted prices and other observable inputs and minimize the use of unobservable inputs when measuring fair value, and also establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value.
Viad measures its money market mutual funds and certain other mutual fund investments at fair value on a recurring basis using Level 1 inputs. The fair value information related to these assets is summarized in the following tables:
 
 
 
Fair Value Measurements at Reporting Date Using
(in thousands)
September 30,
2015
 
Quoted Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobserved
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market funds
$
7,519

 
$
7,519

 
$

 
$

Other mutual funds
2,162

 
2,162

 

 

Total assets at fair value
$
9,681

 
$
9,681

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
Earnout contingent consideration liability
$
(1,118
)
 
$

 
$

 
$
(1,118
)
Total liabilities at fair value on a recurring basis
$
(1,118
)
 
$

 
$

 
$
(1,118
)
 
 
 
Fair Value Measurements at Reporting Date Using
(in thousands)
December 31,
2014
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobserved
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market funds
$
8,518

 
$
8,518

 
$

 
$

Other mutual funds
2,536

 
2,536

 

 

Total assets at fair value
$
11,054

 
$
11,054

 
$

 
$

Liabilities:


 
 
 
 
 
 
Earnout contingent consideration liability
$
(1,210
)
 
$

 
$

 
$
(1,210
)
Total liabilities at fair value on a recurring basis
$
(1,210
)
 
$

 
$

 
$
(1,210
)

As of September 30, 2015 and December 31, 2014, Viad had investments in money market mutual funds of $7.5 million and $8.5 million, respectively, which are included in cash and cash equivalents in the condensed consolidated balance sheets. These investments are classified as available-for-sale and were recorded at fair value. There have been no realized or unrealized gains or losses related to these investments and the Company has not experienced any redemption restrictions with respect to any of the money market mutual funds.
As of September 30, 2015 and December 31, 2014, Viad had investments in other mutual funds of $2.2 million and $2.5 million, respectively, which are included in other investments and assets in the condensed consolidated balance sheets. These investments were classified as available-for-sale and were recorded at fair value. As of September 30, 2015 and December 31, 2014, there were unrealized gains of $0.7 million ($0.5 million after-tax) and $0.8 million ($0.5 million after-tax), respectively, which are included in accumulated other comprehensive income (loss) (“AOCI”) in the condensed consolidated balance sheets.
The fair value measurement of the Earnout contingent consideration obligation relates to the acquisition of N200 in November 2014, and is included in accrued liabilities in the condensed consolidated balance sheets. The fair value measurement is based upon significant inputs not observable in the market. Changes in the value of the obligation are recorded as income or expense in our condensed consolidated statements of income. On October 5, 2015, the Company paid €1.0 million (approximately $1.1 million) related to the Earnout provisions of the acquisition to the former owners of N200 as a result of N200 exceeding its financial target for the Earnout period. During the nine-month period ended September 30, 2015, the estimated contingent payment increased $0.1 million, due primarily to an increase in the estimated attainment of Earnout objectives.
The carrying values of cash and cash equivalents, receivables, and accounts payable approximate fair value due to the short-term maturities of these instruments. The estimated fair value of debt obligations is disclosed in Note 11 - Debt and Capital Lease Obligations.
Stockholders' Equity
Stockholders' Equity
Stockholders' Equity
The following represents a reconciliation of the carrying amounts of stockholders’ equity attributable to Viad and the noncontrolling interest for the nine months ended September 30, 2015 and 2014:
(in thousands)
 
Total Viad
Stockholders’
Equity
 
Noncontrolling
Interest
 
Total
Stockholders’
Equity
Balance at December 31, 2014
 
$
335,387

 
$
12,315

 
$
347,702

Net income
 
27,563

 
515

 
28,078

Dividends on common stock
 
(6,020
)
 

 
(6,020
)
Common stock purchased for treasury
 
(4,776
)
 

 
(4,776
)
Employee benefit plans
 
5,243

 

 
5,243

Unrealized foreign currency translation adjustment
 
(23,117
)
 

 
(23,117
)
Tax benefits from share-based compensation
 
13

 

 
13

Other changes to AOCI
 
209

 

 
209

Other
 

 
(1
)
 
(1
)
Balance at September 30, 2015
 
$
334,502

 
$
12,829

 
$
347,331

(in thousands)
 
Total Viad
Stockholders’
Equity
 
Noncontrolling
Interest
 
Total
Stockholders’
Equity
Balance at December 31, 2013
 
$
347,441

 
$
9,102

 
$
356,543

Net income
 
58,244

 
3,355

 
61,599

Dividends on common stock
 
(36,374
)
 

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

 
(11,631
)
Employee benefit plans
 
5,519

 

 
5,519

Unrealized foreign currency translation adjustment
 
(9,950
)
 

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

 
(17
)
Employee Stock Ownership Plan allocation adjustment
 
44

 

 
44

Other
 
(32
)
 

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

 
$
12,457

 
$
365,701


Changes in AOCI by component are as follows:
(in thousands)
 
Unrealized Gains
on Investments
 
Cumulative Foreign Currency Translation Adjustments
 
Unrecognized Net Actuarial Loss and Prior Service Credit, Net
 
Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2014
 
$
471

 
$
12,416

 
$
(13,280
)
 
$
(393
)
Other comprehensive income (loss) before reclassifications
 
29

 
(23,117
)
 

 
(23,088
)
Amounts reclassified from AOCI, net of tax
 
(49
)
 

 
22

 
(27
)
Net other comprehensive income (loss)
 
(20
)
 
(23,117
)
 
22

 
(23,115
)
Balance at September 30, 2015
 
$
451

 
$
(10,701
)
 
$
(13,258
)
 
$
(23,508
)

The following table presents information about reclassification adjustments out of AOCI:
 
 
Nine Months Ended September 30,
 
Affected Line Item in the
Statement Where Net
Income is Presented
(in thousands)
 
2015
 
2014
 
Unrealized gains on investments
 
$
79

 
$
52

 
Interest income
Tax effect
 
(30
)
 
(20
)
 
Income taxes
 
 
$
49

 
$
32

 
 
 
 
 
 
 
 
 
Recognized net actuarial loss(1)
 
$
(569
)
 
$
(705
)
 
 
Amortization of prior service credit(1)
 
414

 
757

 
 
Tax effect
 
133

 
(20
)
 
Income taxes
 
 
$
(22
)
 
$
32

 
 
(1) Amount included in pension expense. Refer to Note 16 - Pension and Postretirement Benefits.
Income (Loss) Per Share
Income (Loss) Per Share
Income Per Share
The components of basic and diluted income per share are as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands, except per share data)
2015
 
2014
 
2015
 
2014
Net income attributable to Viad (diluted)
$
7,230

 
$
29,620

 
$
27,563

 
$
58,244

Less: Allocation to non-vested shares
(100
)
 
(538
)
 
(402
)
 
(1,098
)
Net income allocated to Viad common stockholders (basic)
$
7,130

 
$
29,082

 
$
27,161

 
$
57,146

Basic weighted-average outstanding common shares
19,831

 
19,679

 
19,782

 
19,832

Additional dilutive shares related to share-based compensation
143

 
275

 
164

 
342

Diluted weighted-average outstanding shares
19,974

 
19,954

 
19,946

 
20,174

Income per share:
 
 
 
 
 
 
 
Basic income attributable to Viad common stockholders
$
0.36

 
$
1.48

 
$
1.37

 
$
2.88

Diluted income attributable to Viad common stockholders(1)
$
0.36

 
$
1.48

 
$
1.37

 
$
2.88

(1) Diluted income per share amount cannot exceed basic income per share.
The number of share-based compensation awards considered dilutive and included in the computation of diluted income per share were 143,000 and 164,000 for the three and nine months ended September 30, 2015, respectively, and 275,000 and 342,000 for the three and nine months ended September 30, 2014, respectively. Options to purchase 4,897 and 27,000 shares of common stock were outstanding during the nine months ended September 30, 2015 and 2014, respectively, but were not included in the computation of dilutive shares outstanding because the effect would be anti-dilutive.
Income Taxes
Income Taxes
Income Taxes
The effective tax rate for the three months ended September 30, 2015 was an expense of 31.7 percent as compared to a benefit of 9.1 percent for the three months ended September 30, 2014. The effective tax rates for the nine months ended September 30, 2015 and 2014 were 27.7 percent and 1.8 percent, respectively.
The income tax provisions were computed based on the Company’s estimated effective tax rate and forecasted income by jurisdiction expected to be applicable for the full fiscal year, including the impact of any unusual or infrequent items. The effective tax rate for the nine months ended September 30, 2015 was less than the federal statutory rate of 35.0 percent primarily due to foreign income taxed at lower rates and the recording of a non-cash tax benefit relating to certain foreign intangible deferred tax assets that was recorded during the first quarter of 2015. The effective tax rate for the nine months ended September 30, 2014 was lower than the federal statutory rate principally due to foreign income which is taxed at lower rates in addition to the projected utilization of foreign tax credit carryforwards and the release of the related valuation allowance and other deferred tax adjustments.
Viad is required to estimate and record provisions for income taxes in each of the jurisdictions in which the Company operates. Accordingly, the Company must estimate its actual current income tax liability and assess temporary differences arising from the treatment of items for tax purposes, as compared to the treatment for accounting purposes. These differences result in deferred tax assets and liabilities which are included in Viad’s consolidated balance sheets. The Company must assess the likelihood that deferred tax assets will be recovered from future taxable income and, to the extent that recovery is not likely, a valuation allowance must be established. The Company uses significant judgment in forming a conclusion regarding the recoverability of its deferred tax assets and evaluates the available positive and negative evidence to determine whether it is more likely than not that its deferred tax assets will be realized in the future. These deferred tax assets reflect the expected future tax benefits to be realized upon reversal of deductible temporary differences and the utilization of net operating loss and tax credit carryforwards.
The Company considered all available positive and negative evidence regarding the future recoverability of its deferred tax assets, including the Company’s recent operating history, taxpaying history, and future reversals of deferred tax liabilities. The Company also evaluated its ability to utilize its foreign tax credits, given its recent utilization history and projected future domestic income. The foreign tax credits are subject to a 10-year carryforward period and begin to expire in 2020. As of December 31, 2014, $12.7 million of the $21.8 million in tax credit carryforwards were related to foreign tax credits. Based on the Company’s evaluation of all positive and negative evidence, it was determined to be more likely than not that the foreign tax credit carryforwards would be utilized before their expiration. Therefore, a valuation allowance against the foreign tax credit was not required. The positive evidence relied upon in making this assessment included the Company’s positive cumulative income position, the projected future utilization of foreign tax credit carryforwards, the history of utilizing all deferred tax assets including net operating losses, and future forecasts of domestic income.

As noted above, Viad uses considerable judgment in forming a conclusion regarding the recoverability of its deferred tax assets. As a result, there are inherent uncertainties regarding the ultimate realization of these assets, which is primarily dependent upon Viad’s ability to generate sufficient taxable income in future periods. In future periods, it is reasonably possible that the relative weight of positive and negative evidence regarding the recoverability of Viad’s deferred tax assets may change, which could result in a material increase or decrease in the Company’s valuation allowance. If such a change in the valuation allowance were to occur, it would result in a change to income tax expense in the period the assessment was made.
Viad had liabilities, including interest and penalties, associated with uncertain tax positions for continuing operations of $0.9 million and $1.3 million as of September 30, 2015 and December 31, 2014, respectively. The reduction in the liability was primarily due to statute expirations. In addition, Viad had liabilities, including interest and penalties, for uncertain tax positions relating to discontinued operations of $1.1 million and $1.1 million as of September 30, 2015 and December 31, 2014, respectively. Future tax resolutions or settlements that may occur related to these uncertain tax positions would be recorded through either continuing or discontinued operations (net of applicable federal tax benefit). The total liability associated with uncertain tax positions was $2.0 million and $2.4 million as of September 30, 2015 and December 31, 2014, respectively, which was classified as both current and non-current liabilities. The Company expects approximately $0.5 million of uncertain tax positions to be resolved or settled within the next twelve months.
Pension and Postretirement Benefits
Pension and Postretirement Benefits
Pension and Postretirement Benefits
The net periodic benefit cost of Viad’s pension and postretirement plans for the three months ended September 30, 2015 and 2014 included the following components:
 
 
Domestic Plans
 
 
 
 
 
 
Pension Plans
 
Postretirement Benefit Plans
 
Foreign Pension Plans
(in thousands)
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost
 
$
25

 
$
20

 
$
27

 
$
11

 
$
123

 
$
104

Interest cost
 
237

 
263

 
148

 
140

 
124

 
158

Expected return on plan assets
 
(93
)
 
(107
)
 

 

 
(143
)
 
(161
)
Amortization of prior service credit
 

 

 
(138
)
 
(149
)
 

 

Recognized net actuarial loss
 
100

 
101

 
123

 
16

 
2

 
3

Net periodic benefit cost
 
$
269

 
$
277

 
$
160

 
$
18

 
$
106

 
$
104


The net periodic benefit cost of Viad’s pension and postretirement plans for the nine months ended September 30, 2015 and 2014 included the following components:
 
 
Domestic Plans
 
 
 
 
 
 
Pension Plans
 
Postretirement Benefit Plans
 
Foreign Pension Plans
(in thousands)
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost
 
$
76

 
$
65

 
$
114

 
$
105

 
$
382

 
$
313

Interest cost
 
763

 
809

 
464

 
517

 
384

 
478

Expected return on plan assets
 
(285
)
 
(327
)
 

 

 
(443
)
 
(484
)
Amortization of prior service credit
 

 

 
(414
)
 
(445
)
 

 

Recognized net actuarial loss
 
368

 
305

 
396

 
225

 
5

 
8

Net periodic benefit cost
 
$
922

 
$
852

 
$
560

 
$
402

 
$
328

 
$
315


Viad expects to contribute $1.4 million to its funded pension plans, $0.8 million to its unfunded pension plans, and $1.1 million to its postretirement benefit plans in 2015. During the nine months ended September 30, 2015, Viad contributed $1.0 million to its funded pension plans, $0.5 million to its unfunded pension plans, and $1.0 million to its postretirement benefit plans.
Restructuring Charges
Restructuring Charges
Restructuring Charges
The Company executed certain restructuring actions designed to reduce the Company’s cost structure primarily within the Marketing & Events U.S. Segment, and to a lesser extent in the Marketing & Events International Segment. As a result, the Company recorded restructuring charges related to the consolidation and downsizing of facilities. Additionally, the Company recorded restructuring charges in connection with certain reorganization activities. These charges consist of severance and related benefits due to headcount reductions.
Changes to the restructuring liability by major restructuring activity are as follows:
 
Marketing & Events
Group Consolidation
 
Other Restructurings
 
 
(in thousands)
Severance &
Employee
Benefits
 
Facilities
 
Severance &
Employee
Benefits
 
Total
Balance at December 31, 2014
$
543

 
$
1,161

 
$
240

 
$
1,944

Restructuring charges
882

 
98

 
562

 
1,542

Cash payments
(1,036
)
 
(291
)
 
(561
)
 
(1,888
)
Adjustment to liability

 

 
(144
)
 
(144
)
Balance at September 30, 2015
$
389

 
$
968

 
$
97

 
$
1,454


As of September 30, 2015, the liabilities related to severance and employee benefits are expected to be paid by the end of 2015. Additionally, the liability of $1.0 million related to future lease payments will be paid over the remaining lease terms for the Marketing & Events Group. Refer to Note 19 - Segment Information, for information regarding restructuring charges (recoveries) by segment.
Litigation, Claims, Contingencies and Other
Litigation, Claims, Contingencies and Other
Litigation, Claims, Contingencies and Other
Viad and certain of its subsidiaries are plaintiffs or defendants to various actions, proceedings, and pending claims, some of which involve, or may involve, compensatory, punitive, or other damages. Litigation is subject to many uncertainties and it is possible that some of the legal actions, proceedings, or claims could be decided against Viad. Although the amount of liability as of September 30, 2015, with respect to these matters, is not ascertainable, Viad believes that any resulting liability, after taking into consideration amounts already provided for and insurance coverage, will not have a material effect on Viad’s business, financial position or results of operations.
Viad is subject to various U.S. federal, state, and foreign laws and regulations governing the prevention of pollution and the protection of the environment in the jurisdictions in which Viad has or had operations. If the Company has failed to comply with these environmental laws and regulations, civil and criminal penalties could be imposed and Viad could become subject to regulatory enforcement actions in the form of injunctions and cease and desist orders. As is the case with many companies, Viad also faces exposure to actual or potential claims and lawsuits involving environmental matters relating to its past operations. Although it is a party to certain environmental disputes, Viad believes that any resulting liabilities, after taking into consideration amounts already provided for and insurance coverage, will not have a material effect on the Company’s financial position or results of operations. As of September 30, 2015, Viad had recorded environmental remediation liabilities of $4.5 million related to previously sold operations.
As of September 30, 2015, Viad had certain obligations under guarantees to third parties on behalf of its subsidiaries. These guarantees are not subject to liability recognition in the condensed consolidated financial statements and relate to leased facilities entered into by Viad’s subsidiary operations. The Company would generally be required to make payments to the respective third parties under these guarantees in the event that the related subsidiary could not meet its own payment obligations. The maximum potential amount of future payments that Viad would be required to make under all guarantees existing as of September 30, 2015 would be $2.9 million. These guarantees relate to leased facilities expiring through October 2017. There are no recourse provisions that would enable Viad to recover from third parties any payments made under the guarantees. Furthermore, there are no collateral or similar arrangements whereby Viad could recover payments.
A significant portion of Viad’s employees are unionized and the Company is a party to approximately 100 collective-bargaining agreements, with approximately one-third requiring renegotiation each year. If the Company was unable to reach an agreement with a union during the collective-bargaining process, the union may call for a strike or work stoppage, which may, under certain circumstances, adversely impact the Company’s businesses and results of operations. Viad believes that relations with its employees are satisfactory and that collective-bargaining agreements expiring in 2015 will be renegotiated in the ordinary course of business without having a material adverse effect on Viad’s operations. The Company entered into new showsite and warehouse agreements with the Chicago Teamsters Local 727, effective January 1, 2014, and those agreements contain provisions that allow the parties to re-open negotiation of the agreements on pension-related issues. The Company is in informal discussions regarding those issues with all relevant parties and is working diligently to resolve those issues in a manner that will be reasonable and equitable to employees, customers, and shareholders. Although the Company’s labor relations are currently stable, disruptions pending the outcome of the Chicago Teamsters Local 727 negotiations could occur, as they could with any collective-bargaining agreement negotiation, with the possibility of an adverse impact on the operating results of the Marketing & Events Group.
Viad’s businesses contribute to various multi-employer pension plans based on obligations arising under collective-bargaining agreements covering its union-represented employees. Based upon the information available to Viad from plan administrators, management believes that several of these multi-employer plans are underfunded. The Pension Protection Act of 2006 requires pension plans underfunded at certain levels to reduce, over defined time periods, the underfunded status. In addition, under current laws, the termination of a plan, or a voluntary withdrawal from a plan by Viad, or a shrinking contribution base to a plan as a result of the insolvency or withdrawal of other contributing employers to such plan, would require Viad to make payments to such plan for its proportionate share of the plan’s unfunded vested liabilities. As of September 30, 2015, the amount of additional funding, if any, that Viad would be required to make related to multi-employer pension plans is not ascertainable.
Viad is self-insured up to certain limits for workers’ compensation, employee health benefits, automobile, product and general liability, and property loss claims. The aggregate amount of insurance liabilities (up to the Company’s retention limit) related to Viad’s continuing operations was $19.5 million as of September 30, 2015 which includes $12.3 million related to workers’ compensation liabilities and $7.2 million related to general/auto liability claims. Viad has also retained and provided for certain insurance liabilities in conjunction with previously sold businesses of $4.3 million as of September 30, 2015, related to workers’ compensation liabilities. Provisions for losses for claims incurred, including estimated claims incurred but not yet reported, are made based on Viad’s historical experience, claims frequency, and other factors. A change in the assumptions used could result in an adjustment to recorded liabilities. Viad has purchased insurance for amounts in excess of the self-insured levels, which generally range from $0.2 million to $0.5 million on a per claim basis. Viad does not maintain a self-insured retention pool fund as claims are paid from current cash resources at the time of settlement. Viad’s net cash payments in connection with these insurance liabilities were $3.9 million for the nine months ended September 30, 2015.
In addition, as of September 30, 2015, Viad recorded insurance liabilities of $7.7 million related to continuing operations, which represents the amount for which Viad remains the primary obligor after self-insured insurance limits, without taking into consideration the above-referenced insurance coverage. Of this total, $4.6 million related to workers’ compensation liabilities and $3.1 million related to general/auto liability claims. The Company has recorded these amounts in other deferred items and liabilities in Viad’s condensed consolidated balance sheets with a corresponding receivable in other investments and assets.
Segment Information
Segment Information
Segment Information
Viad’s reportable segments consist of Marketing & Events U.S. Segment, Marketing & Events International Segment(collectively, the “Marketing & Events Group”) and the Travel & Recreation Group.
Viad measures profit and performance of its operations on the basis of segment operating income which excludes restructuring charges and recoveries and impairment charges and recoveries. Intersegment sales are eliminated in consolidation and intersegment transfers are not significant. Corporate activities include expenses not allocated to operations. Depreciation and amortization and share-based compensation expense are the only significant non-cash items for the reportable segments.
Viad’s reportable segments with reconciliations to consolidated totals are as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands)
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
Marketing & Events Group:
 
 
 
 
 
 
 
U.S. Segment
$
148,314

 
$
168,058

 
$
550,006

 
$
558,292

International Segment
44,870

 
64,199

 
195,829

 
186,296

Intersegment eliminations
(4,321
)
 
(5,595
)
 
(13,475
)
 
(13,517
)
Total Marketing & Events Group
188,863

 
226,662

 
732,360

 
731,071

Travel & Recreation Group
67,083

 
73,140

 
105,017

 
110,763

Total revenue
$
255,946

 
$
299,802

 
$
837,377

 
$
841,834

Segment operating income (loss):

 
 
 
 
 
 
Marketing & Events Group:
 
 
 
 
 
 
 
U.S. Segment
$
(9,039
)
 
$
1,069

 
$
12,572

 
$
22,044

International Segment
(5,751
)
 
1,297

 
6,405

 
7,512

Total Marketing & Events Group
(14,790