Note 1. Basis of Preparation and Principles of Consolidation

The accompanying unaudited, condensed consolidated financial statements of Viad Corp (“Viad” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2013, are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

For further information, refer to the consolidated financial statements and related footnotes for the year ended December 31, 2012, included in the Company’s Form 10-K (File No. 001-11015), filed with the Securities and Exchange Commission on March 11, 2013.

The condensed consolidated financial statements include the accounts of Viad and all of its subsidiaries. All significant intercompany account balances and transactions between Viad and its subsidiaries have been eliminated in consolidation. Viad’s reporting segments consist of Marketing & Events U.S., Marketing & Events International and Travel & Recreation 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.

The Travel & Recreation Group segment consists of 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. Glacier Park, an 80 percent owned subsidiary of Viad, currently 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. As discussed in Note 3 below, Glacier Park’s concession portion of its business with the U.S. National Park Service (the “Park Service”) for Glacier National Park expires on December 31, 2013. Thereafter, the ongoing operations of Glacier Park will include: Glacier Park Lodge in East Glacier, Montana; Grouse Mountain Lodge in Whitefish, Montana; St. Mary Lodge in St. Mary, Montana; Stewart Motel, an in-holding within Glacier National Park and the Prince of Wales Hotel in Waterton Lakes National Park, Alberta, Canada. 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.

Note 2. Share-Based Compensation

The following table summarizes share-based compensation expense:

In addition, $253,000 of share-based compensation costs were included in restructuring charges during the nine months ended September 30, 2012, including $94,000 related to the PUP awards presented below.

The following table summarizes the activity of the outstanding share-based compensation awards:

The unamortized cost of all outstanding restricted stock awards as of September 30, 2013 was $4.1 million, which Viad expects to recognize in the consolidated financial statements over a weighted-average period of approximately 1.9 years. During the nine months ended September 30, 2013 and 2012, the Company repurchased 48,937 shares for $1.3 million and 53,019 shares for $1.0 million, respectively, related to tax withholding requirements on vested share-based awards. As of September 30, 2013, there were 1,005,372 total shares available for future grant.

As of September 30, 2013 and December 31, 2012, Viad had liabilities recorded of $405,000 and $633,000, respectively, related to restricted stock unit liability awards. Portions of the 2009 and 2010 restricted stock unit awards vested in February 2013 and February 2012 and cash payouts of $300,000 and $257,000 were distributed in February 2013 and 2012, respectively. In addition, a portion of the 2009 performance-based restricted stock unit awards vested effective December 31, 2009 and cash payouts of $35,000 were distributed in January 2012.

As of September 30, 2013 and December 31, 2012, Viad had liabilities recorded of $4.6 million and $3.7 million, respectively, related to PUP awards. There were no PUP awards which vested during the nine months ended September 30, 2013 or 2012. Furthermore, there were no cash settlements of PUP awards during the nine months ended September 30, 2013 or 2012.

The following table summarizes stock option activity:

The total unrecognized cost related to non-vested stock option awards was $3,000 as of September 30, 2013, which Viad expects to recognize in the consolidated financial statements over a weighted-average period of less than one year. No stock options were granted during the nine months ended September 30, 2013.

Note 3. Impairment Losses

In August 2013, Viad was notified by the Park Service that the concession contract for Glacier National Park, commencing in 2014, was awarded to another concessionaire. As a result, management revised its outlook for future revenues and earnings from Glacier Park and performed a preliminary interim impairment evaluation of goodwill at the Glacier Park reporting unit. Based on this preliminary evaluation, the Company recorded a non-cash impairment charge of $4.5 million representing all goodwill at the Glacier Park reporting unit, of which $892,000 related to the noncontrolling interest. The goodwill impairment loss is included in the consolidated statements of operations under the caption, “Goodwill impairment loss.” Management intends to finalize the impairment evaluation during the fourth quarter of 2013, which could result in adjustments to the amount initially recorded.

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 different results.

Also in the third quarter of 2013, Viad recorded other asset impairment charges of $952,000 at the Marketing & Events Group related to the write off of a touring exhibition asset and amounts capitalized for internally developed software that is not anticipated to be put into use. These impairment losses are included in the consolidated statements of operations under the caption, “Other impairment losses.”

Note 4. Acquisition of Businesses

On February 19, 2013, Viad acquired the assets of Resource Creative Limited (“RCL”) for $647,000 in cash, subject to certain adjustments, plus a deferred payment of up to approximately $278,000, which is contingent upon RCL’s performance. RCL is a United Kingdom-based company specializing in providing creative graphic services to the exhibition, events and retail markets throughout the United Kingdom and continental Europe.

The final amounts assigned to the assets of RCL as of the acquisition date included: property and equipment of $72,000, goodwill of $158,000 and other intangible assets of $695,000. In addition, a liability of $278,000 was recorded as of the acquisition date related to the contingent consideration. The primary factor that contributed to a purchase price resulting in the recognition of goodwill relates to future growth opportunities. The goodwill is deductible for tax purposes over a period of 15 years. The amounts assigned to other intangible assets included: $564,000 of customer relationships and $131,000 of noncompete agreements. The weighted-average amortization period related to the other intangible assets was 4.5 years. The transaction costs related to the acquisition were insignificant. The results of operations of RCL have been included in Viad’s consolidated financial statements from the date of acquisition.

In March 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:

The goodwill recorded in connection with the transaction 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 deductible for tax purposes pursuant to regulations in Canada. The amount assigned to other intangible assets relates to an operating contract and customer relationships. The weighted-average amortization period related to the other intangible assets was 7.7 years. 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.

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

Note 5. Inventories

The components of inventories were as follows:

Note 6. Property and Equipment

During the three months ended September 30, 2013, Viad sold a facility and the land upon which it was situated within the Marketing & Events Group for $12.7 million (net of selling costs). Viad recorded a gain on the sale of the facility and related land of $4.8 million.

Property and equipment consisted of the following:

Depreciation expense for the three months ended September 30, 2013 and 2012, was $7.1 million and $8.4 million, respectively, and for the nine months ended September 30, 2013 and 2012, was $20.8 million and $23.1 million, respectively.

Note 7. Other Investments and Assets

Other investments and assets consisted of the following:

Note 8. Goodwill and Other Intangible Assets

As discussed in Note 3 above, Viad recorded a goodwill impairment loss of $4.5 million related to Glacier Park during the three months ended September 30, 2013, of which $892,000 related to the noncontrolling interest.

The changes in the carrying amount of goodwill for the nine months ended September 30, 2013, were as follows:

The following table summarizes goodwill by reporting unit and segment:

A summary of other intangible assets as of September 30, 2013, is presented below:

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

During the nine months ended September 30, 2013, Viad recorded a contract-related intangible asset of $2.1 million in connection with a preferred supplier agreement. Intangible asset amortization expense for the three months ended September 30, 2013 and 2012, was $318,000 and $187,000, respectively, and $930,000 and $508,000 for the nine months ended September 30, 2013 and 2012, respectively. Estimated amortization expense related to amortized intangible assets for future periods is expected to be as follows:

Note 9. Accrued Liabilities and Other

Other current liabilities consisted of the following:

Other deferred items and liabilities consisted of the following:

Note 10. Debt and Capital Leases

In May 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. As of September 30, 2013 and December 31, 2012, Viad’s total debt of $1.7 million and $2.2 million, respectively, consisted entirely of capital lease obligations. As of September 30, 2013, Viad had $128.2 million of capacity remaining under the 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, dividend limits and share repurchase restrictions. 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, 2013, Viad was in compliance with all covenants.

In December 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 immediately prior to and immediately after giving effect to such share repurchases. 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 immediately prior to and immediately after giving effect to such distributions.

The estimated fair value of total debt was $1.7 million and $2.1 million as of September 30, 2013 and December 31, 2012, 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.

Note 11. 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, 2013:

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, 2012:

In December 2012, Viad announced its intent to repurchase up to an additional one million shares of the Company’s common stock from time to time at prevailing market prices. At the time of the announcement, there were 30,438 shares available for repurchase pursuant to previously announced authorizations. No shares were repurchased during the nine months ended September 30, 2013 or 2012. As of September 30, 2013, 1,030,438 shares were available for repurchase. Additionally, during the nine months ended September 30, 2013 and 2012, the Company repurchased 48,937 shares for $1.3 million and 53,019 shares for $1.0 million pursuant to separate authority, respectively, related to tax withholding requirements on share-based awards.

Changes in accumulated other comprehensive income (“AOCI”) by component were as follows:

The following table presents information about reclassification adjustments out of AOCI for the nine months ended September 30:

Note 12. 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:

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 table:

As of September 30, 2013 and December 31, 2012, Viad had investments in money market mutual funds of $16.7 million and $10.2 million, respectively, which are included in the consolidated balance sheets under the caption “Cash and cash equivalents.” These investments were 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, 2013 and December 31, 2012, Viad had investments in other mutual funds of $1.3 million and $1.2 million, respectively, which were classified in the consolidated balance sheets under the caption “Other investments and assets.” These investments were classified as available-for-sale and were recorded at fair value. As of September 30, 2013, and December 31, 2012, there were unrealized gains on the investments of $641,000 ($392,000 after-tax) and $450,000 ($275,000 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, accounts payable and contingent considerations approximate fair value due to the short-term maturities of these instruments. The estimated fair value of debt obligations is disclosed in Note 10.

During the third quarter of 2013, Viad had certain non-financial assets that were measured at fair value on a non-recurring basis using Level 3 inputs. These assets include goodwill and certain property and equipment for which impairment losses were recorded during the third quarter of 2013. The fair value information related to these assets is summarized in the following table:

Note 13. Income Per Share

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

Options to purchase 47,000 and 436,000 shares of common stock were outstanding during the nine months ended September 30, 2013 and 2012, respectively, but were not included in the computation of dilutive shares outstanding because the effect would be anti-dilutive. Additionally, 323,000 and 296,000 share-based compensation awards were considered dilutive and included in the computation of diluted income per share during the three months ended September 30, 2013 and 2012, respectively. During the nine months ended September 30, 2013 and 2012, 349,000 and 299,000 share-based compensation awards were considered dilutive and included in the computation of diluted income per share, respectively.

Note 14. Income Taxes

The effective tax rates for the nine months ended September 30, 2013 and 2012 were 29.3 percent and 32.6 percent, respectively. The income tax provisions were computed based on the Company’s estimated effective tax rate and forecasted income by jurisdiction expected to be applicable for the full fiscal year, including the impact of any unusual or infrequent items. The relatively low effective tax rates compared to the federal statutory rate of 35 percent were primarily due to foreign income which is taxed at lower rates.

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. As of September 30, 2013 and December 31, 2012, Viad had gross deferred tax assets of $73.4 million and $77.2 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. As of September 30, 2013, the weight of the evidence with respect to the foreign tax credit has not changed. As of September 30, 2013 and December 31, 2012, Viad had a valuation allowance of $14.7 million and $14.6 million, respectively, related to certain federal, 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 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 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.

Viad had accrued gross liabilities associated with uncertain tax positions for discontinued operations of $636,000 as of both September 30, 2013 and December 31, 2012. In addition, as of September 30, 2013 and December 31, 2012, Viad had accrued interest and penalties related to uncertain tax positions for discontinued operations of $441,000 and $418,000, 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. As of both September 30, 2013 and December 31, 2012, liabilities associated with uncertain tax positions (including interest and penalties) of $1.1 million were classified as non-current liabilities.

Note 15. Pension and Postretirement Benefits

The net periodic benefit cost of Viad’s pension and postretirement benefit plans for the three months ended September 30 included the following components: