VIAD CORP, 10-Q filed on 11/4/2016
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2016
Oct. 28, 2016
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, 2016 
 
Amendment Flag
false 
 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
Q3 
 
Current Fiscal Year End Date
--12-31 
 
Trading Symbol
VVI 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
20,307,906 
Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Current assets
 
 
Cash and cash equivalents
$ 52,681 
$ 56,531 
Accounts receivable, net of allowances for doubtful accounts of $1,465 and $1,593, respectively
136,888 
93,800 
Inventories
41,271 
27,529 
Other current assets
21,349 
17,311 
Total current assets
252,189 
195,171 
Property and equipment, net
267,377 
189,239 
Other investments and assets
37,643 
37,631 1
Deferred income taxes
42,178 
50,137 
Goodwill
222,896 
185,223 
Other intangible assets, net
70,602 
33,322 
Total Assets
892,885 
690,723 
Current liabilities
 
 
Accounts payable
110,105 
65,497 
Customer deposits
61,720 
33,128 
Accrued compensation
27,986 
23,154 
Other current liabilities
42,052 
29,238 
Current portion of debt and capital lease obligations
115,623 2
34,554 2
Total current liabilities
357,486 
185,571 
Long-term debt and capital lease obligations
78,852 
92,849 
Pension and postretirement benefits
29,399 
29,629 
Other deferred items and liabilities
45,819 
47,336 
Total liabilities
511,556 
355,385 
Commitments and contingencies
   
   
Viad Corp stockholders’ equity:
 
 
Common stock, $1.50 par value, 200,000,000 shares authorized, 24,934,981 shares issued
37,402 
37,402 
Additional capital
573,369 
576,523 
Retained earnings (deficit)
22,381 
(17,866)
Unearned employee benefits and other
144 
109 
Accumulated other comprehensive income (loss):
 
 
Unrealized gain on investments
408 
346 
Cumulative foreign currency translation adjustments
(22,534)
(23,257)
Unrecognized net actuarial loss and prior service credit, net
(11,165)
(11,265)
Common stock in treasury, at cost, 4,638,092 and 4,771,443 shares, respectively
(232,198)
(239,411)
Total Viad stockholders’ equity
367,807 
322,581 
Noncontrolling interest
13,522 
12,757 
Total stockholders’ equity
381,329 
335,338 
Total Liabilities and Stockholders’ Equity
$ 892,885 
$ 690,723 
Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Statement Of Financial Position [Abstract]
 
 
Allowance for doubtful accounts
$ 1,465 
$ 1,593 
Common stock, par value
$ 1.50 
$ 1.50 
Common stock, shares authorized
200,000,000 
200,000,000 
Common stock, shares issued
24,934,981 
24,934,981 
Treasury stock, shares
4,638,092 
4,771,443 
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Revenue:
 
 
 
 
Exhibition and event services
$ 240,278 
$ 152,664 
$ 681,592 
$ 603,530 
Exhibits and environments
44,785 
36,199 
123,871 
128,830 
Travel and recreation services
97,402 
67,083 
143,111 
105,017 
Total revenue
382,465 
255,946 
948,574 
837,377 
Costs and expenses:
 
 
 
 
Costs of services
278,764 
205,227 
743,032 
667,356 
Costs of products sold
44,784 
36,148 
118,891 
120,289 
Corporate activities
2,772 
1,354 
7,390 
6,147 
Interest income
(44)
(65)
(138)
(571)
Interest expense
1,489 
1,198 
4,109 
3,452 
Restructuring charges
1,697 
257 
3,664 
1,542 
Impairment charges
120 
 
120 
 
Total costs and expenses
329,582 
244,119 
877,068 
798,215 
Income from continuing operations before income taxes
52,883 
11,827 
71,506 
39,162 
Income tax expense
17,878 
3,746 
23,652 
10,851 
Income from continuing operations
35,005 
8,081 
47,854 
28,311 
Loss from discontinued operations
(221)
(163)
(771)
(233)
Net income
34,784 
7,918 
47,083 
28,078 
Net income attributable to noncontrolling interest
(992)
(688)
(765)
(515)
Net income attributable to Viad
33,792 
7,230 
46,318 
27,563 
Diluted income per common share:
 
 
 
 
Continuing operations attributable to Viad common stockholders
$ 1.68 
$ 0.37 
$ 2.33 
$ 1.38 
Discontinued operations attributable to Viad common stockholders
$ (0.01)
$ (0.01)
$ (0.04)
$ (0.01)
Net income attributable to Viad common stockholders
$ 1.67 1
$ 0.36 1
$ 2.29 1
$ 1.37 1
Weighted-average outstanding and potentially dilutive common shares
20,207 
19,974 
20,150 
19,946 
Basic income per common share:
 
 
 
 
Continuing operations attributable to Viad common stockholders
$ 1.68 
$ 0.37 
$ 2.33 
$ 1.38 
Discontinued operations attributable to Viad common stockholders
$ (0.01)
$ (0.01)
$ (0.04)
$ (0.01)
Net income attributable to Viad common stockholders
$ 1.67 
$ 0.36 
$ 2.29 
$ 1.37 
Weighted-average outstanding common shares
20,017 
19,831 
19,972 
19,782 
Dividends declared per common share
$ 0.10 
$ 0.10 
$ 0.30 
$ 0.30 
Amounts attributable to Viad common stockholders
 
 
 
 
Income from continuing operations
34,013 
7,393 
47,089 
27,796 
Loss from discontinued operations
(221)
(163)
(771)
(233)
Net income attributable to Viad
$ 33,792 
$ 7,230 
$ 46,318 
$ 27,563 
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
 
Net income
$ 34,784 
$ 7,918 
$ 47,083 
$ 28,078 
Other comprehensive income (loss):
 
 
 
 
Unrealized gains (losses) on investments, net of tax
42 1
(153)1
62 1
(20)1
Unrealized foreign currency translation adjustments, net of tax
(3,849)1
(11,491)1
723 1
(23,117)1
Change in net actuarial gain, net of tax
93 1
139 1
334 1
475 1
Change in prior service cost, net of tax
(78)1
(86)1
(234)1
(257)1
Comprehensive income (loss)
30,992 
(3,673)
47,968 
5,159 
Comprehensive income attributable to noncontrolling interest
(992)
(688)
(765)
(515)
Comprehensive income (loss) attributable to Viad
$ 30,000 
$ (4,361)
$ 47,203 
$ 4,644 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Cash flows from operating activities
 
 
Net income
$ 47,083 
$ 28,078 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
31,206 
27,040 
Deferred income taxes
(3,549)
(1,128)
Loss from discontinued operations
771 
233 
Restructuring charges
3,664 
1,542 
Impairment charges
120 
 
(Gains) losses on dispositions of property and other assets
126 
(307)
Share-based compensation expense
4,709 
3,131 
Excess tax benefit from share-based compensation arrangements
(60)
(13)
Other non-cash items, net
4,644 
4,427 
Change in operating assets and liabilities (excluding the impact of acquisitions):
 
 
Receivables
(41,510)
(27,956)
Inventories
(12,903)
(6,258)
Accounts payable
38,522 
14,899 
Restructuring liabilities
(2,518)
(1,888)
Accrued compensation
(620)
3,385 
Customer deposits
26,954 
23,618 
Income taxes payable
5,280 
2,641 
Other assets and liabilities, net
13,503 
4,899 
Net cash provided by operating activities
115,422 
76,343 
Cash flows from investing activities
 
 
Capital expenditures
(32,582)
(19,030)
Cash paid for acquired businesses
(145,735)
(430)
Proceeds from dispositions of property and other assets
774 
844 
Net cash used in investing activities
(177,543)
(18,616)
Cash flows from financing activities
 
 
Proceeds from borrowings
153,000 
35,000 
Payments on debt and capital lease obligations
(86,989)
(58,981)
Acquisition of business - deferred consideration
 
(896)
Dividends paid on common stock
(6,079)
(6,020)
Debt issuance costs
(340)
 
Common stock purchased for treasury
(679)
(4,776)
Excess tax benefit from share-based compensation arrangements
60 
13 
Proceeds from exercise of stock options
 
1,041 
Net cash provided by (used in) financing activities
58,973 
(34,619)
Effect of exchange rate changes on cash and cash equivalents
(702)
(4,785)
Net change in cash and cash equivalents
(3,850)
18,323 
Cash and cash equivalents, beginning of year
56,531 
56,990 
Cash and cash equivalents, end of period
52,681 
75,313 
Supplemental disclosure of cash flow information
 
 
Cash paid for income taxes
8,355 
6,835 
Cash paid for interest
3,679 
3,220 
Property and equipment acquired under capital leases
950 
618 
Property and equipment purchases in accounts payable and accrued liabilities
$ 5,617 
$ 184 
Basis of Presentation and Principles of Consolidation
Basis of Presentation and Principles of Consolidation

Note 1. 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, 2015, filed with the SEC on March 11, 2016.

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 reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Estimates and assumptions are used in accounting for, among other things, the 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, liabilities for losses related to environmental remediation obligations, sublease income associated with restructuring liabilities, assumptions used to measure pension and postretirement benefit costs and obligations, assumptions used to determine share-based compensation costs under the fair value method, and allocation of purchase price of acquired businesses. Actual results could differ from these and other estimates.

Nature of Business

Viad is an international experiential services company with operations in the United States, Canada, the United Kingdom, continental Europe, and the United Arab Emirates. Viad is committed to providing best in class experiences to its clients, customers, and guests by offering products and services designed to meet their current and future needs. Viad operates through three reportable business segments: the Marketing & Events U.S. Segment (the “U.S. Segment”), the Marketing & Events International Segment (the “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 produces exhibitions, congresses and conferences, corporate events, consumer events, exhibits, and entertainment experiences. GES provides a comprehensive range of live event services, including official show services, audio-visual services, cutting-edge creative and design, strategic marketing and measurement services, registration, and event accommodations – all with a global reach.

GES’ clients include event organizers and corporate brand marketers. 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. GES serves corporate brand marketers when they exhibit at shows and when GES is engaged to manage their global exhibit program or produce their proprietary corporate events.

Travel & Recreation Group

The Travel & Recreation Group offers guests distinctive and world renowned experiences in iconic natural and cultural destinations in North America through its collection of unique hotels, lodges, recreational attractions, and transportation services. The Travel & Recreation Group is composed of four lines of business: (i) Hospitality; (ii) Attractions; (iii) Package Tours; and (iv) Transportation. These four lines of business work together, driving economies of scope and meaningful scale in and around the iconic destinations of Banff, Jasper, and Waterton Lakes National Parks in Canada, and Glacier, Denali, and Kenai Fjords National Parks in the United States. The Travel & Recreation Group is composed of Brewster Inc. (“Brewster”), Glacier Park, Inc. (“Glacier Park”), and Alaskan Park Properties, Inc. (“Alaska Denali Travel”) and CATC Alaska Tourism Corporation, formerly known as CIRI Alaska Tourism Corporation (“CATC”), (collectively, the “Alaska Collection”).

Impact of Recent Accounting Pronouncements

The following table provides a brief description of recent accounting pronouncements:

 

Standard

 

Description

 

Date of adoption

 

Effect on the financial statements

Standards Not Yet Adopted

 

 

 

 

 

 

ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

 

The standard establishes a new recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company may adopt either retrospectively to each prior period presented with the option to elect certain practical expedients or with the cumulative effect recognized at the date of initial application and providing certain disclosures.

 

Subsequent to the issuance of ASU 2014-09, the FASB issued several amendments in 2016 to the original standard including ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients. These amendments do not change the core principle of the guidance stated in ASU 2014-09. Rather, they are intended to clarify and improve understanding of certain topics included within the revenue standard

 

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.

ASU 2015-11, Inventory (Topic 330) - Simplifying the Measurement of Inventory

 

The amendment applies 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.

 

January 1, 2017

 

The adoption of this guidance is not expected to have a significant effect on Viad's consolidated financial statements.

ASU 2016-02, Leases (Topic 842)

 

The amendment requires lessees to recognize on their balance sheet a right-of-use asset and a lease liability for leases with lease terms greater than one year. The amendment requires additional disclosures about leasing arrangements, and requires a modified retrospective approach to adoption. Early adoption is permitted.

 

January 1, 2019

 

The Company is currently evaluating the potential impact of the adoption of this new guidance on its financial position or results of operations.

ASU 2016-09, Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting

 

The amendment identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. Early adoption is permitted.

 

January 1, 2017

 

The Company is currently evaluating the potential impact of the adoption of this new guidance on its financial position or results of operations.

ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments

 

The amendment provides guidance on eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. Early adoption is permitted.

 

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.

 

Standard

 

Description

 

Date of adoption

 

Effect on the financial statements

Standards Recently Adopted

ASU 2014-12, Compensation - Stock Compensation (Topic 718) - Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period

 

The amendment requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award.

 

January 1, 2016

 

The Company adopted this guidance prospectively to all awards granted after the effective date. The adoption of this guidance did not have a material impact on the consolidated financial statements.

ASU 2015-03, Interest - Imputation of Interest Simplifying the Presentation of Debt Issuance Costs

ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements

 

The amendments require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. For line-of-credit arrangements, 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.

 

January 1, 2016

 

The adoption of this guidance resulted in the reclassification of unamortized debt issuance costs of $1.6 million from other long-term assets to a reduction in long-term debt on the December 31, 2015 consolidated balance sheet.

ASU 2015-16, Business Combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments

 

The amendment requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.

 

January 1, 2016

 

The adoption of this guidance did not have a material impact on the consolidated financial statements.

 

Share-Based Compensation
Share-Based Compensation

Note 2. Share-Based Compensation

The following table summarizes share-based compensation expense:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(in thousands)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Performance unit incentive plan (“PUP”)

 

$

1,601

 

 

$

456

 

 

$

2,952

 

 

$

1,444

 

Restricted stock

 

 

523

 

 

 

523

 

 

 

1,597

 

 

 

1,623

 

Restricted stock units

 

 

86

 

 

 

46

 

 

 

160

 

 

 

64

 

Share-based compensation before income tax benefit

 

 

2,210

 

 

 

1,025

 

 

 

4,709

 

 

 

3,131

 

Income tax benefit

 

 

(812

)

 

 

(381

)

 

 

(1,750

)

 

 

(1,180

)

Share-based compensation, net of income tax benefit

 

$

1,398

 

 

$

644

 

 

$

2,959

 

 

$

1,951

 

Viad recorded zero and $0.2 million of share-based compensation expense through restructuring expense for the three and nine months ended September 30, 2016, respectively, and zero and $0.1 million for the three and nine months ended September 30, 2015, respectively.

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

 

 

Shares

 

 

Weighted-Average

Grant Date

Fair Value

 

 

Shares

 

 

Weighted-Average

Grant Date

Fair Value

 

Balance at December 31, 2015

 

 

279,217

 

 

$

25.65

 

 

 

231,165

 

 

$

26.15

 

 

 

16,447

 

 

$

25.69

 

Granted

 

 

75,250

 

 

$

27.13

 

 

 

104,084

 

 

$

26.88

 

 

 

5,500

 

 

$

26.98

 

Vested

 

 

(73,280

)

 

$

26.77

 

 

 

(73,188

)

 

$

27.35

 

 

 

(5,965

)

 

$

27.18

 

Forfeited

 

 

(12,747

)

 

$

24.85

 

 

 

(6,556

)

 

$

25.84

 

 

 

 

 

$

 

Balance at September 30, 2016

 

 

268,440

 

 

$

25.80

 

 

 

255,505

 

 

$

26.11

 

 

 

15,982

 

 

$

25.58

 

Restricted Stock

As of September 30, 2016, the unamortized cost of all outstanding restricted stock awards was $2.9 million, which Viad expects to recognize in the consolidated financial statements over a weighted-average period of approximately 1.4 years. During the nine months ended September 30, 2016 and 2015, the Company repurchased 24,432 shares for $0.7 million and 34,364 shares for $0.9 million, respectively, related to tax withholding requirements on vested share-based awards. As of September 30, 2016, there were 863,127 total shares available for future grant in accordance with the provisions of the 2007 Viad Corp Omnibus Incentive Plan (the “2007 Plan”).

PUP Awards

In February 2016, the PUP Plan was amended to provide that PUP awards earned under the 2007 Plan may be payable in the form of cash or in shares of Viad common stock (or a combination of both). Previously, payouts could only be made in cash. The vesting of shares is based upon achievement of certain performance-based criteria. The performance period of the shares is for a three-year period.

During the nine months ended September 30, 2016, Viad granted $2.7 million of PUP awards of which $0.9 million are payable in shares. As of September 30, 2016 and December 31, 2015, Viad had recorded liabilities of $4.9 million and $2.4 million, respectively, related to PUP awards. In March 2016, the PUP awards granted in 2013 vested and cash payouts of $0.2 million were distributed. In March 2015, the PUP awards granted in 2012 vested and cash payouts of $2.4 million were distributed.

Restricted Stock Units

As of September 30, 2016 and December 31, 2015, Viad had aggregate liabilities recorded of $0.3 million for both periods related to restricted stock units. In February 2016, portions of the 2011, 2012, and 2013 restricted stock units vested and cash payouts of $0.2 million were distributed. Similarly, in February 2015, portions of the 2010, 2011, and 2012 restricted stock units vested and cash payouts of $0.3 million were distributed.

Stock Options

During the three and nine months ended September 30, 2016, there was no stock option activity. As of both September 30, 2016 and December 31, 2015 there were 63,773 stock options outstanding and exercisable with a weighted-average exercise price of $16.62. As of September 30, 2016, there were no unrecognized costs related to non-vested stock option awards.

Acquisition of Businesses
Acquisition of Businesses

Note 3. Acquisition of Businesses

Maligne Lake Tours

On January 4, 2016, the Company acquired the assets and operations of Maligne Tours Ltd. (“Maligne Lake Tours”), which provides interpretive boat tours and related services at Maligne Lake, the largest lake in Jasper National Park. The purchase price was $20.9 million Canadian dollars (approximately $15.0 million U.S. dollars) in cash, subject to certain adjustments.

The following table summarizes the allocation of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed based on the estimated fair value as of the acquisition date. The purchase price allocation remains open and may be adjusted as a result of the finalization of the Company’s purchase price allocation procedures related to the assessment of accrued liabilities, property and equipment, and intangible assets.  

 

(in thousands)

 

 

 

 

 

 

 

 

Purchase price paid as:

 

 

 

 

 

 

 

 

Cash

 

 

 

 

 

$

14,962

 

 

 

 

 

 

 

 

 

 

Fair value of net assets acquired:

 

 

 

 

 

 

 

 

Inventories

 

$

246

 

 

 

 

 

Prepaid expenses

 

 

2

 

 

 

 

 

Property and equipment

 

 

4,133

 

 

 

 

 

Intangible assets

 

 

9,244

 

 

 

 

 

Total assets acquired

 

 

13,625

 

 

 

 

 

Customer deposits

 

 

15

 

 

 

 

 

Total liabilities assumed

 

 

15

 

 

 

 

 

Total fair value of net assets acquired

 

 

 

 

 

 

13,610

 

Excess purchase price over fair value of net assets acquired (“goodwill”)

 

 

 

 

 

$

1,352

 

Under the acquisition method of accounting, the purchase price as shown in the table above is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over the fair value of net assets acquired was recorded as goodwill. Goodwill is included in the Travel & Recreation Group and the primary factor that contributed to the purchase price resulting in the recognition of goodwill relates to future growth opportunities when combined with the Company’s other businesses. Goodwill is expected to be deductible for tax purposes pursuant to Canadian tax regulations. The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature. Transaction costs associated with the acquisition of Maligne Lake Tours were $0.1 million in 2016 and $0.2 million in 2015, and are included in corporate activities in Viad’s condensed consolidated statements of operations.

Identified intangible assets acquired in the Maligne Lake Tours acquisition totaled $9.2 million and consist of operating licenses, customer relationships, and trade name. The weighted-average amortization period related to the intangible assets is 26.7 years, largely attributable to operating licenses amortized over the remaining Parks Canada lease of 29 years.

The results of operations of Maligne Lake Tours have been included in Viad’s condensed consolidated financial statements from the date of acquisition. During the three months ended September 30, 2016, revenue and operating income related to Maligne Lake Tours were $4.7 million and $2.4 million, respectively. During the nine months ended September 30, 2016, revenue and operating income related to Maligne Lake Tours were $6.3 million and $2.3 million, respectively.

CATC

On March 11, 2016, the Company acquired 100 percent of the equity interest in CATC, the operator of an Alaskan tourism business that includes a marine sightseeing tour business, three lodges, and a package tour business. The purchase price was $45.0 million in cash, subject to certain adjustments.

The following table summarizes the updated allocation of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed based on the estimated fair value as of the acquisition date. During the nine months ended September 30, 2016, the Company made certain purchase accounting measurement period adjustments based on refinements to assumptions used in the preliminary valuation of approximately $89,000 from working capital receivable, $0.1 million to accounts payable, and $16,000 from accrued liabilities. All other balances in the following table remain unchanged. The purchase price allocation remains open and may be adjusted as a result of the finalization of the Company’s purchase price allocation procedures related to the assessment of property and equipment, and intangible assets.

 

(in thousands)

 

 

 

 

 

 

 

 

Purchase price paid as:

 

 

 

 

 

 

 

 

Cash

 

 

 

 

 

$

45,000

 

Working capital

 

 

 

 

 

 

(35

)

Cash acquired

 

 

 

 

 

 

(2,196

)

Purchase price, net of cash acquired

 

 

 

 

 

 

42,769

 

 

 

 

 

 

 

 

 

 

Fair value of net assets acquired:

 

 

 

 

 

 

 

 

Accounts receivable

 

$

8

 

 

 

 

 

Inventories

 

 

921

 

 

 

 

 

Prepaid expenses

 

 

82

 

 

 

 

 

Property and equipment

 

 

43,470

 

 

 

 

 

Intangible assets

 

 

980

 

 

 

 

 

Total assets acquired

 

 

45,461

 

 

 

 

 

Accounts payable

 

 

306

 

 

 

 

 

Accrued liabilities

 

 

434

 

 

 

 

 

Customer deposits

 

 

1,952

 

 

 

 

 

Total liabilities assumed

 

 

2,692

 

 

 

 

 

Total fair value of net assets acquired

 

 

 

 

 

 

42,769

 

Excess purchase price over fair value of net assets acquired (“goodwill”)

 

 

 

 

 

$

 

Under the acquisition method of accounting, the purchase price as shown in the table above is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature. Transaction costs associated with the acquisition of CATC were $0.1 million in 2016 and $0.6 million in 2015 and are included in corporate activities in Viad’s condensed consolidated statements of operations.

Identified intangible assets acquired in the CATC acquisition totaled $1.0 million and consist of customer relationships and trade names. The weighted-average amortization period related to the intangible assets is 5.8 years.

The results of operations of CATC have been included in Viad’s condensed consolidated financial statements from the date of acquisition. During the three months ended September 30, 2016, revenue and operating income related to CATC were $18.7 million and $8.0 million, respectively. During the nine months ended September 30, 2016, revenue and operating income related to CATC were $28.1 million and $8.9 million, respectively.

ON Services

On August 11, 2016, the Company acquired the assets and operations of ON Event Services, LLC (“ON Services”), a leading provider of audio-visual production services for live events in the United States. The aggregate purchase price was up to $92.5 million in cash, subject to certain adjustments, which includes an earnout payment (the “Earnout”) of up to $5.5 million. The fair value of the Earnout was valued on the date of acquisition and will be remeasured quarterly based on a probability weighted assessment that the financial performance targets of ON Services may be achieved for 2016. As of the transaction date, the fair value of the Earnout was estimated to be $540,000. Refer to Note 12 – Fair Value Measurements for the estimated fair value of the Earnout as of September 30, 2016.

The following table summarizes the preliminary recording of the fair value of the assets acquired and liabilities assumed as of the acquisition date. Due to the recent timing of the acquisition, the purchase price allocation is not yet finalized and is subject to change within the measurement period (up to one year from the acquisition date) as the assessment of contingent consideration, property and equipment, intangible assets, and working capital is finalized.

 

(in thousands)

 

 

 

 

 

 

 

 

Purchase price paid as:

 

 

 

 

 

 

 

 

Cash

 

 

 

 

 

$

87,000

 

Working capital adjustment

 

 

 

 

 

 

972

 

Contingent consideration

 

 

 

 

 

 

540

 

Purchase price

 

 

 

 

 

 

88,512

 

 

 

 

 

 

 

 

 

 

Fair value of net assets acquired:

 

 

 

 

 

 

 

 

Accounts receivable

 

$

4,813

 

 

 

 

 

Inventories

 

 

270

 

 

 

 

 

Prepaid expenses

 

 

974

 

 

 

 

 

Property and equipment

 

 

14,827

 

 

 

 

 

Intangible assets

 

 

33,340

 

 

 

 

 

Total assets acquired

 

 

54,224

 

 

 

 

 

Accounts payable

 

 

879

 

 

 

 

 

Accrued liabilities

 

 

472

 

 

 

 

 

Customer deposits

 

 

851

 

 

 

 

 

Other liabilities

 

 

274

 

 

 

 

 

Total liabilities assumed

 

 

2,476

 

 

 

 

 

Total fair value of net assets acquired

 

 

 

 

 

 

51,748

 

Excess purchase price over fair value of net assets acquired (“goodwill”)

 

 

 

 

 

$

36,764

 

Under the acquisition method of accounting, the purchase price as shown in the table above is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over the fair value of net assets acquired was recorded as goodwill. Goodwill is included in the Marketing & Events Group and the primary factor that contributed to the purchase price resulting in the recognition of goodwill primarily relates to future growth opportunities when combined with the Company’s other businesses. Goodwill is expected to be deductible for tax purposes over 15 years. The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature. Transaction costs associated with the acquisition of ON Services were $0.8 million in 2016 and were included in corporate activities in Viad’s condensed consolidated statement of operations.

Identified intangible assets acquired in the ON Services acquisition totaled $33.3 million and consist of customer relationships, trade names, and non-compete agreements. The weighted-average amortization period related to the intangible assets is 10.4 years.

The results of operations of ON Services have been included in Viad’s condensed consolidated financial statements from the date of acquisition. During the three months ended September 30, 2016, revenue and operating income related to ON Services were $7.8 million and $0.5 million, respectively.

Supplementary pro forma financial information

The following table summarizes the unaudited pro forma results of operations attributable to Viad, assuming the above acquisitions had each been completed on January 1, 2015:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(in thousands, except per share data)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue

 

$

387,751

 

 

$

290,205

 

 

$

985,482

 

 

$

911,762

 

Depreciation and amortization

 

$

13,885

 

 

$

14,001

 

 

$

37,776

 

 

$

38,591

 

Income from continuing operations

 

$

34,794

 

 

$

12,852

 

 

$

47,148

 

 

$

31,589

 

Net income attributable to Viad

 

$

33,581

 

 

$

12,001

 

 

$

45,612

 

 

$

30,841

 

Diluted income per share (1)

 

$

1.65

 

 

$

0.60

 

 

$

2.25

 

 

$

1.54

 

Basic income per share

 

$

1.65

 

 

$

0.60

 

 

$

2.25

 

 

$

1.54

 


(1)  Diluted income per share amount cannot exceed basic income per share.

 

Inventories
Inventories

Note 4. Inventories

The components of inventories consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

(in thousands)

 

2016

 

 

2015

 

Raw materials

 

$

17,266

 

 

$

14,383

 

Work in process

 

 

24,005

 

 

 

13,146

 

Inventories

 

$

41,271

 

 

$

27,529

 

 

Other Current Assets
Other Current Assets

Note 5. Other Current Assets

Other current assets consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

(in thousands)

 

2016

 

 

2015

 

Prepaid vendor payments

 

$

7,091

 

 

$

2,140

 

Prepaid insurance

 

 

3,142

 

 

 

2,024

 

Prepaid software maintenance

 

 

2,884

 

 

 

2,026

 

Prepaid rent

 

 

1,612

 

 

 

1,406

 

Income tax receivable

 

 

1,390

 

 

 

4,643

 

Prepaid taxes

 

 

892

 

 

 

1,261

 

Prepaid other

 

 

2,242

 

 

 

2,777

 

Other

 

 

2,096

 

 

 

1,034

 

Other current assets

 

$

21,349

 

 

$

17,311

 

 

Property and Equipment
Property and Equipment

Note 6. Property and Equipment

Property and equipment consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

(in thousands)

 

2016

 

 

2015

 

Land and land interests

 

$

31,857

 

 

$

29,032

 

Buildings and leasehold improvements

 

 

184,977

 

 

 

135,381

 

Equipment and other

 

 

323,439

 

 

 

270,957

 

Gross property and equipment

 

 

540,273

 

 

 

435,370

 

Accumulated depreciation

 

 

(272,896

)

 

 

(246,131

)

Property and equipment, net

 

$

267,377

 

 

$

189,239

 

 

Depreciation expense was $10.0 million and $7.5 million for the three months ended September 30, 2016 and 2015, respectively, and $25.1 million and $21.6 million for the nine months ended September 30, 2016 and 2015, respectively.

Other Investments and Assets
Other Investments and Assets

Note 7. Other Investments and Assets

Other investments and assets consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

(in thousands)

 

2016

 

 

2015 (1)

 

Cash surrender value of life insurance

 

$

22,242

 

 

$

21,970

 

Self-insured liability receivable

 

 

5,979

 

 

 

5,979

 

Workers’ compensation insurance security deposits

 

 

4,050

 

 

 

4,250

 

Other mutual funds

 

 

2,052

 

 

 

2,192

 

Other

 

 

3,320

 

 

 

3,240

 

Other investments and assets

 

$

37,643

 

 

$

37,631

 

 

(1)

In accordance with ASU 2015-03, unamortized debt issuance costs are reflected as a direct deduction from the carrying amount of the related debt. The Company adopted the new guidance retrospectively to all prior periods presented in the condensed consolidated financial statements. As a result, $1.6 million of unamortized debt issuance costs were reclassified from other investments and assets to a reduction of long-term debt on the December 31, 2015 condensed consolidated balance sheet.

 

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

Note 8. Goodwill and Other Intangible Assets

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

 

(in thousands)

 

Marketing &

Events U.S. Segment

 

 

Marketing &

Events

International Segment

 

 

Travel &

Recreation

Group

 

 

Total

 

Balance at December 31, 2015

 

$

112,300

 

 

$

38,635

 

 

$

34,288

 

 

$

185,223

 

Business acquisitions

 

 

36,764

 

 

 

 

 

 

1,352

 

 

 

38,116

 

Foreign currency translation adjustments

 

 

 

 

 

(2,529

)

 

 

2,086

 

 

 

(443

)

Balance at September 30, 2016

 

$

149,064

 

 

$

36,106

 

 

$

37,726

 

 

$

222,896

 

Other intangible assets consisted of the following:

 

 

 

September 30, 2016

 

 

December 31, 2015

 

(in thousands)

 

Gross Carrying

Value

 

 

Accumulated

Amortization

 

 

Net Carrying Value

 

 

Gross Carrying

Value

 

 

Accumulated

Amortization

 

 

Net Carrying Value

 

Amortized intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer contracts and relationships

 

$

65,923

 

 

$

(12,222

)

 

$

53,701

 

 

$

38,342

 

 

$

(7,814

)

 

$

30,528

 

Operating contracts and licenses

 

 

9,535

 

 

 

(648

)

 

 

8,887

 

 

 

665

 

 

 

(272

)

 

 

393

 

Other

 

 

10,310

 

 

 

(2,756

)

 

 

7,554

 

 

 

3,736

 

 

 

(1,795

)

 

 

1,941

 

Total amortized intangible assets

 

 

85,768

 

 

 

(15,626

)

 

 

70,142

 

 

 

42,743

 

 

 

(9,881

)

 

 

32,862

 

Unamortized intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business licenses

 

 

460

 

 

 

 

 

 

460

 

 

 

460

 

 

 

 

 

 

460

 

Other intangible assets

 

$

86,228

 

 

$

(15,626

)

 

$

70,602

 

 

$

43,203

 

 

$

(9,881

)

 

$

33,322

 

Intangible asset amortization expense was $2.7 million and $1.7 million for the three months ended September 30, 2016 and 2015, respectively, and $6.1 million and $5.5 million for the nine months ended September 30, 2016 and 2015, respectively. The weighted-average amortization period of customer contracts and relationships, operating contracts and licenses, and other amortizable intangible assets is approximately 9.6 years, 27.3 years, and 3.6 years, respectively. The estimated future amortization expense related to amortized intangible assets held at September 30, 2016 is as follows:

 

(in thousands)

 

 

 

 

Year ending December 31,

 

 

 

 

Remainder of 2016

 

$

2,937

 

2017

 

 

11,511

 

2018

 

 

10,218

 

2019

 

 

9,033

 

2020

 

 

7,561

 

Thereafter

 

 

28,882

 

Total

 

$

70,142

 

 

Other Current Liabilities
Other Current Liabilities

Note 9. Other Current Liabilities

Other current liabilities consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

(in thousands)

 

2016

 

 

2015

 

Continuing operations:

 

 

 

 

 

 

 

 

Accrued income tax payable

 

$

7,117

 

 

$

986

 

Self-insured liability accrual

 

 

6,442

 

 

 

6,891

 

Accrued sales and use taxes

 

 

5,557

 

 

 

4,772

 

Accrued employee benefit costs

 

 

5,040

 

 

 

3,892

 

Accrued dividends

 

 

2,116

 

 

 

2,103

 

Current portion of pension liability

 

 

1,767

 

 

 

1,768

 

Accrued restructuring

 

 

1,744

 

 

 

1,757

 

Accrued rebates

 

 

1,507

 

 

 

752

 

Deferred rent

 

 

1,314

 

 

 

548

 

Accrued professional fees

 

 

846

 

 

 

751

 

Other taxes

 

 

4,887

 

 

 

1,465

 

Other

 

 

1,678

 

 

 

2,537

 

Total continuing operations

 

 

40,015

 

 

 

28,222

 

Discontinued operations:

 

 

 

 

 

 

 

 

Environmental remediation liabilities

 

 

434

 

 

 

295

 

Self-insured liability accrual

 

 

158

 

 

 

200

 

Other

 

 

1,445

 

 

 

521

 

Total discontinued operations

 

 

2,037

 

 

 

1,016

 

Total other current liabilities

 

$

42,052

 

 

$

29,238

 

 

Other Deferred Items and Liabilities
Other Deferred Items and Liabilities

Note 10. Other Deferred Items and Liabilities

Other deferred items and liabilities consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

(in thousands)

 

2016

 

 

2015

 

Continuing operations:

 

 

 

 

 

 

 

 

Self-insured liability

 

$

13,483

 

 

$

13,662

 

Accrued compensation

 

 

6,555

 

 

 

7,612

 

Self-insured excess liability

 

 

5,979

 

 

 

5,979

 

Deferred rent

 

 

5,639

 

 

 

5,607

 

Accrued restructuring

 

 

1,847

 

 

 

519

 

Foreign deferred tax liability

 

 

1,065

 

 

 

2,384

 

Other

 

 

2,563

 

 

 

1,262

 

Total continuing operations

 

 

37,131

 

 

 

37,025

 

Discontinued operations:

 

 

 

 

 

 

 

 

Self-insured liability

 

 

3,814

 

 

 

3,986

 

Environmental remediation liabilities

 

 

3,424

 

 

 

4,177

 

Accrued income taxes

 

 

1,177

 

 

 

1,151

 

Other

 

 

273

 

 

 

997

 

Total discontinued operations

 

 

8,688

 

 

 

10,311

 

Total other deferred items and liabilities

 

$

45,819

 

 

$

47,336

 

 

Debt and Capital Lease Obligations
Debt and Capital Lease Obligations

Note 11. Debt and Capital Lease Obligations

The components of long-term debt and capital lease obligations consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

(in thousands, except interest rates)

 

2016

 

 

2015

 

Revolving credit facility and term loan 2.6% and 2.4% weighted-average interest rate at

   September 30, 2016 and December 31, 2015, respectively, due through 2019 (1)

 

$

194,438

 

 

$

127,500

 

Less unamortized debt issuance costs (2)

 

 

(1,552

)

 

 

(1,572

)

Total debt

 

 

192,886

 

 

 

125,928

 

Capital lease obligations, 6.2% and 6.1% weighted-average interest rate at September 30,

   2016 and December 31, 2015, respectively, due through 2018

 

 

1,589

 

 

 

1,475