10-K 1 d444385d10k.htm FORM 10-K FORM 10-K
Table of Contents

As filed with the Securities and Exchange Commission on March 11, 2013

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 001-11015

 

 

 

LOGO

Viad Corp

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   36-1169950

State or other jurisdiction of

incorporation or organization

 

(I.R.S. Employer

Identification No.)

1850 North Central Avenue, Suite 1900

Phoenix, Arizona

  85004-4565
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code:

(602) 207-1000

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange

on which registered

Common Stock, $1.50 par value   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨      Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the Common Stock (based on its closing price per share on such date) held by non-affiliates on the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2012) was approximately $391 million.

Registrant had 20,249,721 shares of Common Stock ($1.50 par value) outstanding as of January 31, 2013.

Documents Incorporated by Reference

A portion of the Proxy Statement for the Annual Meeting of Shareholders of Viad Corp to be held May 21, 2013 is incorporated by reference into Part III of this Annual Report.

 

 

 


Table of Contents

INDEX

 

     Page  
Part I   

Item 1. Business

     1   

Item 1A. Risk Factors

     7   

Item 1B. Unresolved Staff Comments

     10   

Item 2. Properties

     10   

Item 3. Legal Proceedings

     11   

Item 4. Mine Safety Disclosures

     11   

Other. Executive Officers of Registrant

     12   
Part II   

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     14   

Item 6. Selected Financial and Other Data

     17   

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     18   

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     31   

Item 8. Financial Statements and Supplementary Data

     32   

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

     32   

Item 9A. Controls and Procedures

     32   

Item 9B. Other Information

     33   
Part III   

Item 10. Directors, Executive Officers and Corporate Governance

     34   

Item 11. Executive Compensation

     34   

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     34   

Item 13. Certain Relationships and Related Transactions, and Director Independence

     34   

Item 14. Principal Accounting Fees and Services

     34   
Part IV   

Item 15. Exhibits, Financial Statement Schedules

     34   


Table of Contents

PART I

Item 1. Business.

Viad Corp (together with its subsidiaries, “Viad” or the “Company”) derives its revenue from experiential services provided primarily within the exhibition and events industry and the travel and recreation industry. Viad occupies leading positions as a value-added service provider in many of the markets in which it competes. Viad serves clients predominantly in North America, the United Kingdom, Germany and the United Arab Emirates.

Viad operates two business groups:

Marketing & Events Group. The Marketing & Events Group 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. The mission of the Marketing & Events Group is to create the world’s most meaningful and memorable experiences for brand marketers, show organizers, event attendees and retail shopping centers. 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 which want to promote their brands, feature new products, services and innovations and build business relationships. Viad’s retail shopping center customers include major developers, owners and management companies of shopping malls and lifestyle centers.

Travel & Recreation Group. The Travel & Recreation Group generates its revenue from tourism products and experiential services, including world-class attractions, hotel and concession operations, transportation services and package tour operations in and around Western Canada, Glacier National Park in Montana, Denali National Park and Preserve in Alaska and Waterton Lakes National Park in Alberta, Canada.

Viad’s two business groups are supported by a centralized Corporate Services Group, which provides functional support in the areas of human resources, legal, finance and accounting, internal auditing, information technology, insurance, corporate development, real estate and tax.

Reportable Segments

Within the two business groups, Viad’s organizational structure, operational decision-making authority, allocation of resources and internal reporting are aligned into the following reportable business segments:

 

   

Marketing & Events U.S. segment;

 

   

Marketing & Events International segment; and

 

   

Travel & Recreation Group segment.

No reportable segment has a client comprising more than 5.2 percent of that segment’s revenue, and no client comprises more than 3.1 percent of Viad’s revenue. Viad’s reportable business segments are described below.

Marketing & Events U.S. Segment

The Marketing & Events U.S. segment (the “U.S. segment”) is comprised of the domestic operations of Global Experience Specialists, Inc. and affiliates (“GES”). During 2012, the U.S. segment provided services to over 1,300 exhibitions and events and more than 167,000 exhibitors. The U.S. segment has full-service operations in every major exhibition market in the United States, including: Las Vegas, Nevada; Chicago, Illinois; Orlando, Florida; New York, New York and Los Angeles, California. In each of these locations, the U.S. segment is a leading service provider, servicing some of the most visible and influential events in its industry.

This segment generates revenue from the following services:

Show Organizer Services. Under agreements with show organizers, the U.S. segment serves as the official services contractor of an exhibition, which is also referred to as a “trade show,” “convention” or “show.” As the official services contractor, the U.S. segment provides the following services to the show organizer: general event management; planning and consultation; concept design; exhibition layout and design; graphics and design; show traffic analysis; carpeting and flooring; signage; decorating products and accessories; custom graphics; overhead rigging; booth rigging; cleaning and temporary electrical, lighting and plumbing.

Exclusive Services Provided to Exhibitors. As the official services contractor, the U.S. segment is designated by the show organizer as the exclusive provider of certain services offered to exhibitors participating in the exhibition. This designation provides exhibitors with a single point of contact to facilitate a timely, safe and efficient move-in and move-out of the exhibition and to facilitate an organized, professional during-show experience. The exclusive services offered by the U.S. segment to exhibitors include: material handling services; overhead rigging; temporary electrical and plumbing and cleaning.

 

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Discretionary Services Provided to Exhibitors. In addition to the exclusive services offered to exhibitors, the U.S. segment competes with other service providers to sell non-exclusive services to exhibitors, including: custom exhibit design and construction; portable and “modular” exhibits and design; integrated marketing, including pre- and post-event communications and customer relationship management; multimedia services; event surveys; return on investment analysis; attendee and exhibit booth traffic analysis; staff training; online management tools; logistics and freight-forwarding; storage and refurbishment of exhibits; booth furnishings, carpeting and signage; in-house installation and dismantling and various other show services. The U.S. segment aims to provide these services, combined with complete event program management and planning, to corporate brand marketers across all exhibitions and events in which they participate. The U.S. segment competes with other service providers to offer these discretionary services to exhibitors, regardless of whether or not the U.S. segment is the official services contractor of the exhibition.

Other Marketing Services. The U.S. segment also 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 movie studios, leading consumer brand marketers, shopping malls and museums. In addition, the U.S. segment offers retail clients complete turnkey services, including design, engineering, graphic production, fabrication, warehousing, shipping and on-site installation of retail merchandising units, kiosks and holiday environments. The U.S. segment also provides construction and installation services for permanent installations, including museum exhibits, corporate lobbies, visitor centers, showrooms and retail interiors.

Competition. The U.S. segment generally competes in the exhibition and events industry on the basis of discernible differences, value, quality, price, convenience and service. Viad believes the primary competitor in the domestic official services contractor market is The Freeman Companies (a private company); however, the U.S. segment encounters substantial competition from a large number of providers. No competitor has significant market share in the other categories of offerings of the U.S. segment. Most of the competitors are privately held companies which provide limited public information concerning their operations.

Marketing & Events International Segment

The Marketing & Events International segment (the “International segment”) includes all foreign operations of the Marketing & Events Group and consists of two operating segments: Canada and EMEA (Europe, Middle East and Asia). The International segment offers services that are similar to those provided by the U.S. segment. These services are delivered by Viad’s wholly-owned subsidiaries including: GES Exposition Services (Canada) Limited, Melville Exhibition and Event Services Limited and affiliates (collectively, “Melville GES”), SDD Exhibitions Limited and GES GmbH & Co. KG.

During 2012, the International segment provided services to over 660 exhibitions and events and more than 42,000 exhibitors. The International segment has full-service operations in many of the most active and popular exhibition and event destinations, including, 10 Canadian cities, six United Kingdom cities, one German city, two cities in the United Arab Emirates and one city in the Netherlands. In each of these locations, the International segment is a leading service provider, servicing some of the most visible and influential events in its industry.

Competition. The International segment generally competes on the basis of discernible differences, value, quality, price, convenience and service. The International segment is the largest exhibitions competitor in the countries in which it competes. The International segment encounters competition from a large number of providers of similar services. Most of the competitors are privately held companies which provide limited public information concerning their operations.

Travel & Recreation Group Segment

Travel and recreation services are provided by Brewster Inc. (“Brewster”), Glacier Park, Inc. (“Glacier Park”) and Alaskan Park Properties, Inc. (“Alaska Denali Travel”). Brewster and Alaska Denali Travel are wholly-owned subsidiaries of Viad and Glacier Park is an 80 percent owned subsidiary of Viad.

Brewster

Brewster is a major tourism service operator in Western Canada, delivering tourism products that include world-class hospitality services, attractions, inbound package tour operations and corporate and event management and transportation services.

Hospitality. Brewster operates three hotels in Alberta: the Mount Royal Hotel and the Banff International Hotel, both of which are located in the heart of Banff National Park in downtown Banff, Alberta, Canada, and the Glacier View Inn, which is located on the Columbia Icefield between Lake Louise and Jasper. The Banff International Hotel, which was acquired on March 7, 2012, is a 162-guest room hotel located close to shopping, dining and Canadian Rockies activities. The hotels cater principally to leisure travelers.

 

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Attractions. Brewster’s attractions include the Banff Gondola, tours of the Athabasca Glacier on the Columbia Icefield and the Banff Lake Cruise operations. The Banff Gondola transports visitors to an elevation of over 7,000 feet above sea level to the top of Sulphur Mountain in Banff, Alberta, Canada, offering an unobstructed view of the Canadian Rockies and overlooking the town of Banff and the Bow Valley. Tours of the Athabasca Glacier on the Columbia Icefield provide customers with an opportunity to experience one of the largest accumulations of ice and snow south of the Arctic Circle. Icefield customers ride in an “Ice Explorer,” a unique vehicle specially designed for glacier travel. Brewster also offers boat tours, small boat rentals and charter fishing on Lake Minnewanka, which is situated outside of the town of Banff in the heart of the Canadian Rockies. In July 2012, Viad began construction of the Glacier Skywalk, a 1,312-foot guided interpretive walkway with a 98-foot glass-floored observation area overlooking the Sunwapta Valley at the Tangle Ridge Viewpoint in Jasper National Park, Alberta, Canada. Viad anticipates that the Glacier Skywalk will open at the beginning of the 2014 operating season.

Package Tour Operations and Corporate and Event Management. Brewster’s inbound package tour operations feature year-round package tours throughout Canada. These packages include motorcoach, rail, self-drive automobile, ski and winter touring and consist of both group and individual tours which may be custom designed at the time of booking. Brewster also offers a full suite of corporate and event management services for meetings, conferences, incentive travel, sports and special events. Event-related service offerings include staffing, off-site events, tours/activities, team building, housing, event management, theme development, production and audio visual services.

Transportation Operations. Brewster’s transportation operations include charter motorcoach services, sightseeing, scheduled services and airport shuttle service. Brewster operates a modern fleet of luxury motorcoaches, available for groups of any size, for travel throughout the Canadian provinces of Alberta and British Columbia. In addition, Brewster provides seasonal half- and full-day sightseeing tours from Calgary, Banff, Lake Louise and Jasper, Canada.

Brewster draws its customers from major markets including Canada, the United States, the United Kingdom, Australia/New Zealand and Asia. Brewster markets directly to consumers, as well as through distribution channels that include tour operators, tour wholesalers, destination management companies and retail travel agencies/organizations.

Brewster generated 73 percent of the Travel & Recreation Group’s 2012 segment operating income.

Glacier Park

Glacier Park is an independent hotel operator and concessionaire of Waterton-Glacier International Peace Park, which encompasses Glacier National Park in Montana and Waterton Lakes National Park in Alberta, Canada. Glacier Park is the largest concessionaire in Glacier National Park which is among the most visited National Parks in the United States. Glacier Park provides lodging accommodations, food and beverage services, retail operations, transportation services and tours throughout Glacier and Waterton Lakes National Parks.

The operations of Glacier Park are seasonal, typically running from mid-May until the end of September. During those months, Glacier and Waterton Lakes National Parks typically host over two million visitors, the vast majority of whom purchase services from Glacier Park. During the peak months of July and August, the occupancy level at Glacier Park’s lodges and motor inns typically exceeds 90 percent. During the “shoulder” months of June and September, occupancy typically exceeds 80 percent.

Individual travelers account for over 80 percent of Glacier Park’s customers, and the balance of its customers are tour groups. Demographically, Glacier Park draws over 90 percent of its customers from the United States, with approximately 60 percent of the U.S. customers coming from the Northwest and Midwest regions.

Historic Lodges and Hotel Accommodations. Glacier Park operates five lodges, three 1960s-era motor inns and one full-season resort hotel, with accommodation offerings varying from hikers’ cabins to hotel suites. In January 2011, Glacier Park acquired Grouse Mountain Lodge in Whitefish, Montana, which is near Glacier National Park. In June 2011, Glacier Park acquired St. Mary Lodge & Resort, a 115-room hotel in St. Mary, Montana, which is located outside the east entrance to Glacier National Park.

Hospitality Services. Glacier Park has food and beverage operations providing services to lodging guests and park visitors. Glacier Park also has retail operations, including a camp store and gift shops catering to lodging guests and park visitors.

Tour and Transportation Services. Glacier Park utilizes a fleet of authentic 1930s red touring buses that have rollback canvas tops to conduct interpretive park tours throughout Glacier and Waterton Lakes National Parks, including tours of the scenic Going-to-the-Sun Road.

 

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Concession Business. Glacier Park operates the concession portion of its business under a concession contract with the U.S. National Park Service (the “Park Service”) for Glacier National Park. Glacier Park’s original 25-year concession contract with the Park Service that was to expire on December 31, 2005 has been extended for eight one-year periods and now expires on December 31, 2013. Glacier Park generated approximately 49 percent of its 2012 revenues through its concession contract for services provided within Glacier National Park.

On December 14, 2012, the Park Service issued a prospectus soliciting proposals from prospective bidders, including Glacier Park, for the award of a 16-year concession contract beginning on January 1, 2014. Glacier Park is currently preparing its bid for the contract, which is due on or before April 16, 2013. Although Viad believes that Glacier Park is well-positioned to win the new contract, if the Park Service selects a new concessionaire, Glacier Park would be entitled to $25 million for its “possessory interest,” which generally means the value of the structures acquired or constructed, fixtures installed and improvements made to the concession property at Glacier National Park during the term of the concession contract, plus an estimated $5 million for the personal property Glacier Park uses at the facilities covered by the concession contract.

If a new concessionaire is selected by the Park Service, Glacier Park would continue to generate revenue from the four properties it owns outside of Glacier National Park: Glacier Park Lodge in East Glacier, Montana; Grouse Mountain Lodge in Whitefish, Montana; St. Mary Lodge & Resort in St. Mary, Montana and the Prince of Wales Hotel in Waterton Lakes National Park, Alberta, which Glacier Park owns and operates under a 42-year ground lease with the Canadian government running through January 31, 2052. As shown by the charts below, these four properties contain approximately one-half of the rooms that Glacier Park operates:

 

     Number of
Rooms
 

Owned Properties:

  

Glacier Park Lodge

     161   

Grouse Mountain Lodge

     143   

St. Mary Lodge & Resort

     115   

Prince of Wales Hotel

     86   
  

 

 

 

Total

     505   
  

 

 

 

Concession Contract Properties:

  

Many Glacier Hotel

     214   

Lake McDonald Lodge

     100   

Swift Current Motor Inn

     88   

Rising Sun Motor Inn

     72   

Village Inn Motel

     36   
  

 

 

 

Total

     510   
  

 

 

 

Glacier Park generated 24 percent of the Travel & Recreation Group’s 2012 segment operating income.

Alaska Denali Travel

In September 2011, Alaska Denali Travel acquired Denali Backcountry Lodge, with 42 guest rooms on six acres inside Denali National Park and Preserve, and Denali Cabins, with 46 guest cabins on six acres near the entrance to Denali National Park and Preserve. The lodge operates day trips to its day trip lodge accessed by the scenic park road, a package tours sales and marketing program and daily motorcoach service between Anchorage and Denali National Park and Preserve. Alaska Denali Travel’s operations leverage Viad’s full-service hospitality operational expertise and expand Viad’s national park footprint into Alaska. Full-service operations of Alaska Denali Travel began in 2012 and its operating season runs from May until the end of September.

Competition. The Travel & Recreation Group generally competes on the basis of location, uniqueness of facilities, service, quality and price. Competition exists both locally and regionally in the package tour business, hotel and restaurant business and charter service business.

Recent Business Developments

Over the past several years, Viad has made acquisitions and strategic investments to grow its business. On March 7, 2012, the Travel & Recreation Group acquired the Banff International Hotel, located in Banff National Park in downtown Banff, Alberta, Canada, for $23.6 million in cash. The acquisition of the Banff International Hotel is the most recent acquisition by the Travel & Recreation Group, which also purchased two properties near Glacier National Park (the St. Mary Lodge & Resort and Grouse Mountain Lodge), one property inside Denali National Park and Preserve (Denali Backcountry Lodge) and one property near the entrance to Denali National Park and Preserve (Denali Cabins) in 2011.

 

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On December 14, 2012, Viad announced that the Board of Directors authorized management to explore and evaluate opportunities to enhance shareholder value, including a potential separation of its Travel & Recreation and Marketing & Events business groups. Viad engaged J.P. Morgan Securities LLC as its financial advisor to assist in this evaluation process. See “Item 1A—Risk Factors—There can be no assurances that management’s current strategic evaluation of opportunities to enhance shareholder value will result in a transaction” for a discussion of the risks related to management’s evaluation of these strategic alternatives, which is incorporated herein by reference.

Most recently, on February 19, 2013, Viad acquired the assets of Resource Creative Limited (“RCL”) for $647,000 (£420,000) in cash, subject to certain adjustments, plus a deferred payment of up to approximately $280,000 (£180,000). The deferred payment is subject to RCL’s achievement of certain net revenue targets between the acquisition date and December 31, 2014. 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. RCL’s operations will be merged with Melville GES’ existing London-based operation and will relocate to a new unit on site at ExCeL London, where Melville GES was recently appointed to supply graphics to ExCeL London’s in-house advertising sales agency, InVision.

Intellectual Property

Viad and its subsidiaries own or have the right to use registered trademarks and trademarks pending registration, used in their businesses, including Global Experience Specialists & design®, GES®, GES Servicenter®, GES National Servicenter®, GES MarketWorks®, HANG:RZ®, Trade Show Rigging TSR®, TSE Trade Show Electrical & design®, ethnoMetrics®, eXPRESSO & design®, FIT®, DEXZ®, WAM! The Wireless Ambassador®, LUMA2 & design®, eco-sense and design®, and the trademarks in the 2012 Alaska Denali Travel rebranding program, including Alaska Denali Travel, Alaska Denali Escapes, Denali Backcountry Adventure and Denali Backcountry Lodge. Viad and its subsidiaries also own or have the right to use many registered trademarks and trademarks pending registration outside of the United States, including the Melville lion image, GES, Maxim®, Showtech, SDDRetail, Brewster Travel Canada & design®, Brewster Attractions Explore & design®, Brewster Hospitality Refresh & design® and escape.connect.refresh.explore. United States trademark registrations are for a term of 10 years and are renewable every 10 years as long as the trademarks are used in the regular course of business.

The Company owns a number of patents for exhibit technology and exhibit processes that are cumulatively important to its business and that it believes provide competitive advantages in the marketplace for designing and building exhibits. These include patents relating to modular furniture used in exhibits and displays and a modular structure having a load-bearing surface. The Company also owns a number of design patents for its retail merchandising units. United States utility patents are currently granted for a term of 20 years from the date a patent application is filed and United States design patents are currently granted for a term of 14 years from the date granted. The Marketing & Events Group has extensive design libraries with copyright protections and owns copyright registrations for a number of the designs within its design libraries. Copyright protection for such work is 95 years from the date of publication or 120 years from creation, whichever is shorter.

Although Viad believes that certain of its patents, trademarks and copyrights have substantial value, it does not believe that the loss of any one of these patents, trademarks or copyrights would have a material adverse effect on its financial condition or results of operations.

Government Regulation

Compliance with legal requirements and government regulations represents a normal cost of doing business. The principal regulations affecting the day-to-day businesses are rules and regulations relating to transportation (such as regulations promulgated by the U.S. Department of Transportation and its state counterparts), employees (such as regulations implemented by the Occupational Safety and Health Administration, equal employment opportunity laws, guidelines implemented pursuant to the Americans with Disabilities Act and general federal and state employment laws), unionized labor (such as guidelines imposed by the National Labor Relations Act) and U.S. and Canadian regulations relating to national parks (such as regulations established by the U.S. Department of the Interior and the Park Service).

 

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Employees

Viad’s businesses had approximately 3,930 employees as of December 31, 2012 as follows:

 

     Approximate
Number of
Employees
     Regular Full-Time
Employees Covered by
Collective  Bargaining
Agreements
 

Marketing & Events Group

        3,320            1,260   

Travel & Recreation Group

        450            90   

Viad believes that relations with its employees are satisfactory and that collective-bargaining agreements expiring in 2013 will be renegotiated in the ordinary course of business without a material adverse effect on Viad’s operations.

Viad’s Corporate Services Group had 161 employees as of December 31, 2012 providing management, financial and accounting, internal auditing, tax, administrative, information technology, human resources, corporate development, legal and other services to its operating units and handling residual matters pertaining to businesses previously discontinued or sold by the Company. Viad is governed by a Board of Directors comprised of eight non-employee directors and one employee director, and has an executive management team consisting of nine executive officers (including the CEO, who is also an employee and director of Viad, and the presidents of Viad’s two business groups).

Seasonality

Exhibition and event activity varies significantly depending on the frequency and timing of shows (some shows are not held each year and some may shift between quarters). The Marketing & Events U.S. segment generally reports its highest revenue during the first quarter of each year, while the Marketing & Events International segment generally reports its highest revenue during the second quarter of each year. The Travel & Recreation Group segment experiences peak activity during the summer months and during 2012, 87 percent of its revenue was earned in the second and third quarters. Viad’s average segment operating income during the past three years, as a percentage of the average full year’s segment operating income during the past three years, was approximately 28 percent (first quarter), 34 percent (second quarter), 61 percent (third quarter) and minus 23 percent (fourth quarter). See “Risk Factors – Viad’s businesses are seasonal, which causes results of operations to fluctuate and makes results of operations particularly sensitive to adverse events during peak periods” and “Risk Factors – Exhibition rotation impacts overall profitability and makes comparisons between periods difficult” in Item 1A, which are incorporated herein by reference; see also Notes 19 and 22 of Notes to Consolidated Financial Statements.

Financial Information about Restructuring Charges

Information regarding restructuring charges is provided in Note 16 of Notes to Consolidated Financial Statements.

Financial Information about Segments

Business segment financial information is provided in Note 19 of Notes to Consolidated Financial Statements.

Financial Information about Geographic Areas

Geographic area financial information is provided in Note 19 of Notes to Consolidated Financial Statements.

Available Information

Viad’s internet address is www.viad.com. Viad uses its web site as a routine channel for distribution of Company information, including press releases, financial information and corporate governance initiatives. Viad posts filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (“SEC”), including Viad’s annual, quarterly and current reports, proxy statements, amendments to those reports or statements and other information, as well as transactions in Viad securities by Viad’s directors and executive officers. All such postings and filings are available on Viad’s web site free of charge. In addition, Viad’s web site allows interested persons to sign up to automatically receive e-mail alerts when the Company posts news releases and financial information. The SEC’s web site, www.sec.gov, contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Such information also can be read and copied at the SEC’s public reference section, located in Room 1580, 100 F Street N.E., Washington, D.C. 20549 and on the SEC’s internet site at www.sec.gov. Information regarding the operation of the public reference section can be obtained by calling (800) SEC-0330. The content on any web site referred to in this Form 10-K is not incorporated by reference in this Form 10-K unless expressly noted.

 

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Viad’s web site, at http://viad.investorroom.com/, includes key information about the Company’s corporate governance initiatives, including its Corporate Governance Guidelines, charters of the committees of the Board of Directors, Code of Ethics and information concerning Viad’s directors and a method to communicate with them. Viad will make available in print any of this information upon request to: Corporate Secretary, Viad Corp, 1850 North Central Avenue, Suite 1900, Phoenix, Arizona 85004-4565.

Item 1A. Risk Factors.

Viad’s operating results are subject to known and unknown risks. As a result, past financial performance and historical trends may not be reliable indicators of future performance.

There can be no assurances that management’s current strategic evaluation of opportunities to enhance shareholder value will result in a transaction.

Viad’s Board of Directors authorized management to explore and evaluate opportunities to enhance shareholder value, including a potential separation of its Travel & Recreation and Marketing & Events business groups. The Company engaged J.P. Morgan Securities LLC as its financial advisor to assist in this evaluation process. No decision has been made to separate the two business groups, and Viad cannot assure that it will identify and undertake a transaction that allows its shareholders to realize an increase in the value of Viad’s stock or provide any guidance on the timing of any such action. Viad also cannot assure that any potential transaction or other strategic alternative, if identified, evaluated and consummated, will provide greater value to its shareholders than that reflected in the current stock price. Any potential transaction would be dependent upon a number of factors that may be beyond Viad’s control, including, among other factors, the U.S. and global economic and market conditions, industry trends, the interest of third parties in Viad’s businesses and the availability of financing to potential buyers on reasonable terms.

Viad’s businesses and operating results are adversely affected by deterioration in general economic conditions.

Viad’s businesses are sensitive to fluctuations in general economic conditions and are impacted by increases and decreases in the cost of materials and operating supplies. Operating results for the Marketing & Events U.S. and International segments depend largely on the number of exhibitions held and on the size of exhibitors’ marketing expenditures, which in turn depend partly on the strength of particular industries in which exhibitors operate. The number and size of exhibitions generally decrease when the economy weakens.

Further, many exhibitors’ marketing budgets are partly discretionary, and are frequently among the first expenditures reduced by exhibitors when economic conditions deteriorate, resulting in reduced spending by exhibitors for the Company’s services. Marketing expenditures often are not increased until economic conditions improve. As a result, during periods of general economic weakness, the operating results for the Marketing & Events Group are adversely affected. Similarly, many of the retail shopping mall and lifestyle center clients of the Marketing & Events Group may reduce marketing expenditures when economic conditions deteriorate.

Revenues from the Travel & Recreation Group businesses depend largely on the amount of disposable income that consumers have available for travel and vacations. This amount decreases during periods of weak general economic conditions.

Viad’s results of operations are impacted by changes in foreign currency exchange rates.

Viad conducts foreign operations primarily in Canada, the United Kingdom and, to a lesser extent, in certain other countries. The functional currency of Viad’s foreign subsidiaries is their local currency. Accordingly, for purposes of consolidation, Viad translates the assets and liabilities of its foreign subsidiaries into U.S. dollars at the foreign exchange rates in effect at the balance sheet date. The unrealized gains or losses resulting from the translation of these foreign denominated assets and liabilities are included as a component of accumulated other comprehensive income in Viad’s consolidated balance sheets. Significant fluctuations in foreign exchange rates relative to the U.S. dollar may result in material changes to Viad’s net equity position reported in its consolidated balance sheets. Viad has not hedged its equity risk arising from the translation of foreign denominated assets and liabilities.

In addition, for purposes of consolidation, the revenue, expenses and gains and losses related to Viad’s foreign operations are translated into U.S. dollars at the average foreign exchange rates for the period. As a result, Viad’s consolidated results of operations are exposed to fluctuations in foreign exchange rates, even when the functional currency amounts have not changed. Accordingly, fluctuations in the exchange rates affect overall profitability and historical period-to-period comparisons. Viad has not hedged its net earnings exposure arising from the translation of its foreign operating results.

During 2012, $223.5 million of revenue and $11.7 million of segment operating income was derived through Canadian and United Kingdom operations of the International segment. In addition, $80.6 million of 2012 revenue and $18.3 million of 2012 segment operating income generated in the Travel & Recreation Group was derived through its Canadian operations. For this segment, Canadian operations are largely dependent on foreign customer visitation, and accordingly, increases in the value of the Canadian dollar as compared to other currencies could adversely affect customer volumes, and, therefore, revenue and segment operating income in the Travel & Recreation Group.

 

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Exhibition rotation impacts overall profitability and makes comparisons between periods difficult.

The business activities of the Marketing & Events Group are largely dependent upon the frequency, timing and location of exhibitions and events. Some large exhibitions are not held annually (they may be held once every two or three years or longer). Some large exhibitions may be held at a different time of year than when they have historically been held. In addition, the same exhibition may be held in different locations in different years, and may result in Viad generating lower margins in a given period if the exhibition shifts to a higher-cost city.

As a consequence of these factors, the operating results for these businesses may fluctuate significantly from quarter to quarter or from year to year, making periodic comparisons difficult.

Viad’s businesses are adversely affected by disruptions in the travel industry, particularly those adversely affecting the hotel and airline industries.

The success of Viad’s businesses depends largely on the ability and willingness of people, whether exhibitors, exhibition attendees or others, to travel. Factors adversely affecting the travel industry as a whole, and particularly the airline and hotel industries, generally also adversely affect Viad’s businesses and results of operations. Factors that could adversely affect the travel industry as a whole include high or rising fuel prices, increased security and passport requirements, weather conditions, airline accidents and international political instability and hostilities. Unexpected events of this nature, or other events that may have an impact on the availability and pricing of air travel and accommodations, could adversely affect Viad’s businesses and results of operations.

The failure of a large client to renew its services contract or the loss of business from convention facilities could adversely impact revenue.

Although no single client accounts for more than 5.2 percent of the revenue of any of Viad’s reporting segments, the Marketing & Events U.S. and International segments have a relatively small number of large exhibition show organizers and large customer accounts. The loss of any of these large clients would adversely affect Viad’s results of operations.

In addition, revenue of the Marketing & Events Group may be significantly impacted if certain exhibition facilities choose to in-source electrical, plumbing or other services. When the Marketing & Events Group is hired as the official services contractor for an exhibition, the show organizer contractually grants an exclusive right to perform these electrical and plumbing services, subject in each case to the exhibition facility’s option to in-source the services (either by performing the services themselves or by hiring a separate service provider). Many exhibition facilities are under financial pressure as a result of conditions generally affecting their industry, including an increased supply of exhibition space. As a result, some of these facilities have sought to in-source all or a large portion of these services. If a large number of facilities with which the Marketing & Events Group has these relationships moves these services in-house, Viad’s revenue and operating results could be adversely affected.

Viad’s key businesses are relationship driven.

The business activities of the Marketing & Events U.S. and International segments are heavily focused on client relationships, and, specifically, on the close collaboration and interaction with the client. These relationships require the account team to become attuned to the client’s desires and expectations in order to provide top-quality service. Viad has in the past lost, and may in the future lose, important clients (and corresponding revenue) if a key member of the account team were to cease employment with the Company and take those customers to a competitor.

Completed acquisitions may not perform as anticipated or be integrated as planned.

Viad has acquired businesses and intends to continue to pursue opportunities to acquire businesses that complement, enhance or expand Viad’s current businesses or offer growth opportunities to Viad. Any acquisition can involve a number of risks, including: the failure to achieve the financial and strategic goals and other benefits from the acquisition; the inability to successfully integrate the acquired business into Viad’s ongoing businesses; the inability to retain key personnel or customers of the acquired business; the inability to successfully integrate financial reporting and internal control systems; the disruption of Viad’s ongoing businesses and distraction of senior management and employees of Viad from other opportunities and challenges due to the integration of the acquired business; and the potential existence of liabilities or contingencies not disclosed to or known by Viad prior to closing the acquisition or not otherwise provided for through the purchase agreement.

 

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Viad’s businesses are seasonal, which causes results of operations to fluctuate and makes results of operations particularly sensitive to adverse events during peak periods.

The Marketing & Events U.S. segment generally reports its highest revenue during the first quarter of each year, while the Marketing & Events International segment generally reports its highest revenue during the second quarter of each year. The Travel & Recreation Group businesses are also seasonal, experiencing peak activity during the second and third quarters. These quarters accounted for 87 percent of the segment’s 2012 revenue. Because of the seasonal nature of Viad’s businesses, adverse events or conditions occurring during peak periods could adversely affect the operating results of Viad’s businesses.

New capital projects may not be commercially successful.

From time to time, in an effort to seize opportunities that complement, enhance and expand its businesses, Viad pursues new capital projects. Capital projects are subject to a number of risks, including unanticipated delays and cost overruns, failure to achieve established financial and strategic goals and the inability to successfully integrate into Viad’s ongoing businesses, as well as additional risks specific to a project. The occurrence of any of the events described above could prevent a new capital project from performing in accordance with Viad’s commercial expectations and could have a material adverse effect on its businesses and results of operations.

Transportation disruptions and increases in transportation costs could adversely affect Viad’s businesses and operating results.

The Marketing & Events U.S. and International segments rely on independent transportation carriers to send materials and exhibits to and from exhibitions, warehouse facilities and customer facilities. If they were unable to secure the services of these independent transportation carriers at favorable rates, it could have a material adverse effect on these businesses and their results of operations. In addition, disruption of transportation services because of weather-related problems, strikes, lockouts or other events could adversely affect their ability to supply services to customers and could cause the cancellation of exhibitions, which may have a material adverse effect on these businesses and operating results. Similarly, disruption of transportation services could adversely affect the ability of the Marketing & Events Group to supply time-sensitive holiday-themed exhibits and experiences to retail shopping mall and lifestyle center customers and could cause the cancellation of the exhibits and experiences.

Union-represented labor creates an increased risk of work stoppages and higher labor costs.

A significant portion of Viad’s employees are unionized and Viad’s businesses are party to approximately 100 collective-bargaining agreements, with approximately one-third requiring renegotiation each year. If the results of labor negotiations caused the Company to increase wages or benefits, which increases total labor costs, the increased costs could either be absorbed (which would adversely affect operating margins) or passed on to customers, which may lead customers to turn to other vendors in response to higher prices. In either event, Viad’s businesses and results of operations could be adversely affected.

Moreover, if the Company were unable to reach an agreement with a union during the collective-bargaining process, the union may strike or carry out other types of work stoppages. In such a circumstance, Viad might be unable to find substitute workers with the necessary skills to perform many of the services, or may incur additional costs to do so, which could adversely affect the Company’s businesses and results of operations.

Obligations to fund multi-employer pension plans to which Viad contributes may have an adverse impact on operating results.

Viad’s businesses contribute to various multi-employer pension plans based on obligations arising under collective-bargaining agreements covering its union-represented employees. Viad’s contributions to these multi-employer plans in 2012 and 2011 totaled $20.7 million and $19.6 million, respectively. Viad does not directly manage these multi-employer plans, which are generally managed by boards of trustees. 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. Viad cannot determine at this time the amount of additional funding, if any, it may be required to make to these plans. However, plan contribution increases, if any, could have an adverse impact on Viad’s consolidated financial condition, results of operations and cash flows.

Viad competes in competitive industries and increased competition could negatively impact operating results.

Viad is engaged in a number of highly competitive industries. Competition in the exhibition and events industry and the exhibits and experiential environments industries is driven by price and service quality, among other factors. To the extent competitors seek to gain or retain their market presence through aggressive underpricing strategies, Viad may be required to lower its prices and rates to avoid loss of related business, thereby adversely affecting operating results. In addition, if Viad is unable to anticipate and respond as effectively as competitors to changing business conditions, including new technologies and business models, Viad could lose market share to its competitors. If Viad were unable to meet the challenges presented by the competitive environment, results of operations could be adversely affected.

 

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Liabilities relating to prior and discontinued operations may adversely affect results of operations.

Viad and its predecessors have a corporate history spanning over seven decades and involving approximately 2,400 previous subsidiaries in diverse businesses, such as the manufacturing of locomotives, buses, industrial chemicals, fertilizers, pharmaceuticals, leather, textiles, food and fresh meats. Some of these businesses used raw materials that have been, and may continue to be, the subject of litigation. Moreover, some of the raw materials used and the waste produced by these businesses have been and are the subject of U.S. federal and state environmental regulations, including laws enacted under the Comprehensive Environmental Response, Compensation and Liability Act, or its state law counterparts. In addition, Viad may incur other liabilities, resulting from indemnification claims involving sold subsidiaries, as well as from past operations of predecessors or their subsidiaries. Although the Company believes it has adequate reserves and sufficient insurance coverage to cover these future liabilities, results of operations could be materially affected if future events or proceedings contradict current assumptions, and reserves or insurance become inadequate.

Terrorist attacks, natural disasters or other catastrophic events may have a negative effect on Viad’s business.

The occurrence of catastrophic events ranging from natural disasters (such as hurricanes), health epidemics or pandemics, acts of war or terrorism, or the prospect of these events could disrupt Viad’s businesses. Such catastrophic events could impact the Company’s production facilities preventing Viad from timely completing exhibit fabrication and other projects for customers, and also could cause a disruption in the services the Company provides to its customers at convention centers, exhibition halls, hotels and other public venues. Such catastrophic events also could cause a cancellation of exhibitions and other events held in public venues. If the conditions arising from such events persist or worsen, Viad could experience continuing or increased adverse effects on its results of operations and financial condition.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Viad’s businesses operate service or production facilities and maintain sales and service offices in the United States, Canada, the United Kingdom, Germany, the United Arab Emirates and the Netherlands. The principal properties of Viad’s businesses as of December 31, 2012 were:

Viad’s headquarters, which are leased and approximate 24,700 square feet, are located at 1850 North Central Avenue, Suite 1900 in Phoenix, Arizona 85004-4565.

The Marketing & Events U.S. segment operates 15 offices and 26 multi-use facilities (manufacturing, sales and design, office and/or warehouse and truck marshaling yards). The multi-use facilities vary in size up to approximately 592,100 square feet. Three of the multi-use facilities are owned; all other properties are leased.

The Marketing & Events International segment operates four offices and twenty multi-use facilities, with two offices and nine multi-use facilities in Canada, seven multi-use facilities in the United Kingdom, two multi-use facilities in Germany, one office and two multi-use facilities in the United Arab Emirates and one office in the Netherlands. The multi-use facilities vary in size up to approximately 134,000 square feet. One of the multi-use facilities is owned; all other properties are leased.

The Travel & Recreation Group segment operates four offices, 17 retail stores, one bus terminal, four garages, an icefield tour facility, a gondola lift operation, a boat tour facility, 13 hotels/lodges (including ancillary foodservice and recreational facilities) and 46 guest cabins. All of the facilities are in the United States or Canada. The bus terminal, three garages and the boat tour facility are owned and one garage is leased. The icefield tour facility and gondola lift operation are operated through lease agreements with Parks Canada and all other properties are leased.

 

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The Travel & Recreation Group owns eight of the 13 hotels/lodges it operates and all of the guest cabins, while the remaining five hotels/lodges are operated pursuant to the Glacier Park concession contract. As shown by the charts below, the eight hotels and lodges and the guest cabins account for 922 of the 1,432 rooms managed by the Travel & Recreation Group:

 

      Number of
Rooms
 

Owned Properties:

  

Banff International Hotel

     162   

Glacier Park Lodge

     161   

Grouse Mountain Lodge

     143   

Mount Royal Hotel

     135   

St. Mary Lodge & Resort

     115   

Prince of Wales Hotel

     86   

Denali Cabins

     46   

Denali Backcountry Lodge

     42   

Glacier View Inn

     32   
  

 

 

 

Total

     922   
  

 

 

 

Concession Contract Properties:

  

Many Glacier Hotel

     214   

Lake McDonald Lodge

     100   

Swift Current Motor Inn

     88   

Rising Sun Motor Inn

     72   

Village Inn Motel

     36   
  

 

 

 

Total

     510   
  

 

 

 

Management believes that the Company’s facilities in the aggregate are adequate and suitable for their purposes and that capacity is sufficient for current needs.

Item 3. Legal Proceedings.

Viad and certain 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 December 31, 2012 with respect to certain of 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 condition 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 for 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 condition or results of operations.

Item 4. Mine Safety Disclosures.

None.

 

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Other. Executive Officers of Registrant.

The names, ages and positions of Viad’s executive officers as of the filing of this Annual Report are listed below:

 

Name

   Age   

Business Experience During the Past Five Years and Other Information

Paul B. Dykstra    51    Chairman, President and Chief Executive Officer of Viad since April of 2008; prior thereto, President and Chief Executive Officer since April 2006; prior thereto, Chief Operating Officer since January 2006; prior thereto, President and Chief Executive Officer of GES since January 2000; prior thereto, Executive Vice President-International and Corporate Development of GES since 1999; and prior thereto, Executive Vice President-General Manager or similar executive positions since 1994 with Travelers Express Company, Inc., a former subsidiary of Viad.
Deborah J. DePaoli    48    General Counsel and Secretary since May 2011; prior thereto, Deputy General Counsel and Assistant Secretary since 2009; prior thereto, Assistant General Counsel and Assistant Secretary since 2004; prior thereto, held other attorney positions since joining Viad in 2000; prior thereto, Vice President and General Counsel, Outings on the Links, Inc. since 1996; and prior thereto, Senior Associate and various legal positions with Gallagher & Kennedy, P.A. since 1991.
Michael M. Hannan    47    Group President of the Travel & Recreation Group since July 2009 and President of Brewster since December 2008; prior thereto, Executive Vice President of Gibralt Capital Corporation, a real estate investment firm focusing on Canada and the United States, from July 2008 to November 2008; prior thereto, independent consultant providing business strategy, corporate development and financial advice to companies in British Columbia, Canada since January 2007; prior thereto, Executive Vice President of Intrawest ULC, a leader in the development and management of experiential destination resorts, since May 2002; prior thereto, Chief Executive Officer of Versatel Internet Group N.V., an internet service provider, from February 2000 to December 2001; and prior thereto, Chief Financial Officer – Canada and Latin America of UUNET Canada Inc., an internet service provider, since May 1996.
George N. Hines    40    Chief Information Officer since December 2009; prior thereto, Senior Vice President and Transitioning Chief Information Officer of Stream Global Services, Inc., a business process outsource provider, since October 2009; prior thereto, Senior Vice President and Chief Information Officer of eTelecare Global Solutions, Inc. (merged into Stream Global Services, Inc.) since August 2007; prior thereto, Chief Information Officer of PeopleSupport, Inc., a business process outsource provider, since December 2005; prior thereto, Executive Vice President, Operations and Chief Technology Officer of ChaseCom Limited Partnership, a provider of customer contact center services, since August 2004; prior thereto, Senior Manager–Telecommunications Industry Practice of Deloitte Consulting LLP since April 2000; and prior thereto, Manager – Telecommunications Industry Practice of Ernst & Young LLP from July 1996 to March 2000.
Ellen M. Ingersoll    48    Chief Financial Officer since July 2002; prior thereto, Vice President-Controller or similar position since January 2002; prior thereto, Controller of CashX, Inc., a service provider of stored value internet cards, from June 2001 through October 2001; prior thereto, Operations Finance Director of LeapSource, Inc., a provider of business process outsourcing, since January 2000; and prior thereto, Vice President and Controller of Franchise Finance Corporation of America since May 1992.

 

 

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Name

   Age   

Business Experience During the Past Five Years and Other Information

Thomas M. Kuczynski    48    Chief Corporate Development & Strategy Officer since March 2008; prior thereto, Senior Vice President, Corporate Development & Planning of The Nielsen Company, a media and marketing information company, since August 2006; prior thereto, Managing Director of The Pareto Group, a provider of strategic and investment advisory services, since January 2004; and prior thereto, Vice President of Penton Media, Inc., a business media firm producing magazines, trade shows, conferences and electronic media, from January 1999 to October 2003.
G. Michael Latta    50    Chief Accounting Officer—Controller since November 2002; prior thereto, Corporate Controller or similar position for SpeedFam-IPEC, Inc., a semiconductor equipment manufacturer, since October 1999; and prior thereto, Controller for Cardiac Pathways Corporation, a medical device manufacturer, since September 1994.
Steven W. Moster    43    Group President of the Marketing & Events Group since May 2011 and President of GES since November 1, 2010; prior thereto, independent consultant providing marketing and sales consultation services to 3 Day Blinds Corporation, a manufacturer and retailer of custom window coverings, from April 2010 to August 2010; prior thereto, Executive Vice President—Chief Sales & Marketing Officer of GES from January 2008 to February 2010; prior thereto, Executive Vice President—Products and Services of GES from January 2005 to February 2010; prior thereto Vice President—Products & Services Business of GES from January 2004 to January 2005; and prior thereto, Engagement Manager, Management Strategy Consulting for McKinsey & Company from August 2000 to January 2004.
David C. Robertson    47    Chief Human Resources Officer since August 2010; prior thereto, Senior Vice President of Human Resources, North America & Asia Pacific, of Insight Enterprises, Inc., a global provider of technology solutions, from October 2006 to August 2010; prior thereto, Senior Director of Human Resources, Aerospace Global Repair Services, of Honeywell International Inc., a global diversified technology and manufacturing provider, from July 2005 to October 2006; prior thereto, Director of Human Resources of Honeywell International Inc. from September 2003 to June 2005; and prior thereto, Director of Human Resources of America Online, Inc., a global web services company, from February 1999 to August 2003.

The term of office of the executive officers is until the next annual organization meeting of the Board of Directors of Viad which is scheduled for May 21, 2013.

 

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The principal market on which Viad’s common stock is traded is the New York Stock Exchange. The common stock is also admitted for trading on the Chicago and National Exchanges. The following tables summarize the high and low market prices as reported on the NYSE Euronext Composite Tape and the cash dividends declared for the two years ended December 31:

SALES PRICE RANGE OF COMMON STOCK

 

     2012      2011  
     High      Low      High      Low  

First Quarter

   $ 23.47       $ 17.47       $ 26.78       $ 19.82   

Second Quarter

   $ 20.07       $ 16.69       $ 26.00       $ 19.35   

Third Quarter

   $ 23.25       $ 16.46       $ 23.02       $ 15.77   

Fourth Quarter

   $ 27.48       $ 18.95       $ 22.21       $ 15.87   

DIVIDENDS DECLARED ON COMMON STOCK

 

     2012      2011  

February

   $ 0.04       $ 0.04   

May

     0.04         0.04   

August

     0.10         0.04   

November

     0.10         —     

December

     —           0.04   
  

 

 

    

 

 

 

Total

   $ 0.28       $ 0.16   
  

 

 

    

 

 

 

Regular quarterly dividends were paid on Viad’s common stock on the first business day of January, April, July and October. The terms of Viad’s $130 million secured revolving credit facility, amended and restated as of May 18, 2011, (the “Credit Facility”) restrict Viad from paying more than $10 million in dividends in the aggregate in any calendar year. Effective December 12, 2012, the Credit Facility was amended to change the limitation on restricted payments. Unless the Company’s leverage ratio is greater than 1.50 to 1.00 or a default or an unmatured default exists, additional dividends over the $10 million limitation, repurchase of shares and distributions on capital stock are allowed. Viad expects that comparable cash dividends will continue to be paid in the future as approved by the Board of Directors.

As of January 31, 2013, there were 7,367 shareholders of record of Viad’s common stock following the one-for-four reverse stock split effective on July 1, 2004. There were also 799 shareholders of record as of January 31, 2013 that had not converted pre-split shares into the post-split common stock. Accordingly, there were a total of 8,166 shareholders of record as of January 31, 2013.

For information regarding security ownership of certain beneficial owners and management and related shareholder matters, refer to Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in this Annual Report.

 

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SHAREHOLDER RETURN PERFORMANCE GRAPH

Set forth below is a line graph comparing, for the five-year period ended December 31, 2012, the yearly percentage change in the cumulative total shareholder return on Viad’s common stock to the cumulative total return of the Standard & Poor’s SmallCap 600 Media Index, Standard & Poor’s SmallCap 600 Commercial Services & Supplies Index, Standard & Poor’s SmallCap 600 Index, Russell 2000 Index and Standard & Poor’s 500 Index.

The graph below assumes $100 was invested on December 31, 2007 in Viad’s common stock, Standard & Poor’s SmallCap 600 Media Index, Standard & Poor’s SmallCap 600 Commercial Services & Supplies Index, Standard & Poor’s SmallCap 600 Index, Russell 2000 Index and Standard & Poor’s 500 Index with reinvestment of all dividends.

Comparison of Five-Year Cumulative Total Return

 

LOGO

 

     Year Ended December 31,  
     2007      2008      2009      2010      2011      2012  

Viad Corp

   $ 100.00       $ 78.75       $ 66.28       $ 82.47       $ 57.03       $ 89.77   

S&P 500

   $ 100.00       $ 62.98       $ 79.59       $ 91.48       $ 93.27       $ 107.96   

Russell 2000

   $ 100.00       $ 66.20       $ 84.16       $ 106.73       $ 102.20       $ 118.85   

S&P SmallCap 600

   $ 100.00       $ 68.92       $ 86.52       $ 109.25       $ 110.30       $ 128.22   

S&P 600 Comm. Services & Supplies

   $ 100.00       $ 78.84       $ 99.48       $ 116.12       $ 101.42       $ 136.78   

S&P 600 Media Index

   $ 100.00       $ 28.99       $ 49.46       $ 72.80       $ 56.23       $ 63.93   

 

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Set forth below is a table showing the total number of shares of Viad’s common stock that were repurchased during the fourth quarter of 2012 by Viad either on the open market as part of a repurchase program or from employees, former employees and non-employee directors surrendering previously owned Viad common stock (outstanding shares) to pay the taxes in connection with the vesting of restricted stock awards.

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period

   Total Number of
Shares Purchased
(#)
     Average Price Paid
Per Share ($)
     Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
     Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs (1)
 

November 2012

     2,700         22.41         —            53,621   

December 2012

     24,349         22.91         23,183         1,030,438   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     27,049         22.86         23,183         1,030,438   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 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. During 2012, Viad repurchased 23,183 shares for $526,000. As of December 31, 2012, 1,030,438 shares remain available for repurchase. The authorization of the Board of Directors does not have an expiration date. Effective December 12, 2012, the Company’s $130 million Amended and Restated Credit Agreement dated as of May 18, 2011 was amended to remove the limitation on share repurchases of $10 million in the aggregate per calendar year. This 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.

 

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Item 6. Selected Financial Data.

VIAD CORP

SELECTED FINANCIAL AND OTHER DATA

 

     Year Ended December 31,  
     2012     2011     2010     2009     2008  
     (in thousands, except per share data)  

Statement of Operations Data

          

Revenues:

          

Exhibition and event services

   $ 726,429      $ 670,054      $ 590,444      $ 582,969      $ 804,546   

Exhibits and environments(1)

     175,611        170,496        166,040        147,533        229,694   

Travel and recreation services(2)(3)

     123,191        101,814        88,277        75,302        86,621   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 1,025,231      $ 942,364      $ 844,761      $ 805,804      $ 1,120,861   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations(4)

   $ 5,959      $ 9,292      $ 817      $ (104,808   $ 43,538   

Income from discontinued operations(5)

     624        451        262        679        385   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     6,583        9,743        1,079        (104,129     43,923   

Net income attributable to noncontrolling interest

     (686     (533     (636     (582     (550
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Viad

   $ 5,897      $ 9,210      $ 443      $ (104,711   $ 43,373   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted Income (Loss) per Common Share

          

Income (loss) from continuing operations attributable to Viad common stockholders(4)

   $ 0.26      $ 0.43      $ 0.01      $ (5.28   $ 2.08   

Income from discontinued operations attributable to Viad common stockholders(5)

     0.03        0.02        0.01        0.03        0.02   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Viad common stockholders

   $ 0.29      $ 0.45      $ 0.02      $ (5.25   $ 2.10   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average outstanding and potentially dilutive common shares

     20,005        20,055        20,277        19,960        20,493   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic Income (Loss) per Common Share

          

Income (loss) from continuing operations attributable to Viad common stockholders(4)

   $ 0.26      $ 0.43      $ 0.01      $ (5.28   $ 2.08   

Income from discontinued operations attributable to Viad common stockholders(5)

     0.03        0.02        0.01        0.03        0.02   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Viad common stockholders

   $ 0.29      $ 0.45      $ 0.02      $ (5.25   $ 2.10   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average outstanding common shares

     19,701        19,719        19,955        19,960        20,172   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per common share

   $ 0.28      $ 0.16      $ 0.16      $ 0.16      $ 0.16   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance Sheet Data at Year-End

          

Total assets

   $ 650,577      $ 617,828      $ 616,503      $ 609,186      $ 729,404   

Total debt and capital lease obligations

     2,226        3,239        9,077        12,788        12,643   

Total stockholders’ equity

     397,032        386,179        386,711        384,631        467,089   

Noncontrolling interest

     8,971        8,285        7,752        7,116        6,534   

Other Data

          

Adjusted EBITDA(6)

   $ 58,150      $ 43,284      $ 32,312      $ 12,793      $ 104,702   

 

(1) 

2008 amounts include $25.4 million in revenue from Becker Group which was acquired by Viad in January 2008.

(2) 

2011 amounts include $9.7 million in revenue from Grouse Mountain Lodge, St. Mary Lodge & Resort and Denali Backcountry Lodge and Denali Cabins which were acquired by Viad in January 2011, June 2011 and September 2011, respectively.

(3) 

2012 amounts include $5.2 million in revenue from the Banff International Hotel which was acquired by Viad in March 2012.

(4) 

Income from continuing operations include the following items (see Notes 5, 7,14 and 16 of Notes to Consolidated Financial Statements):

 

     Year Ended December 31,  
     2012      2011      2010      2009      2008  
     (in thousands, except per share data)  

Restructuring charges, net of tax

   $ 3,287       $ 2,453       $ 2,613       $ 8,677       $ 317   

Restructuring charges per diluted share

   $ 0.16       $ 0.12       $ 0.13       $ 0.43       $ 0.02   

Impairment losses, net of tax

   $ —         $ —         $ 268       $ 98,197       $ 9,405   

Impairment losses per diluted share

   $ —         $ —         $ 0.01       $ 4.92       $ 0.46   

2012 amounts also include a charge to income tax expense of $13.4 million ($0.67 per diluted share) representing a valuation allowance for certain deferred tax assets associated with foreign tax credit carryforwards.

 

(5) 

The amounts relate to certain obligations associated with previously sold operations.

(6) 

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of “Non-GAAP Measure.”

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with Viad Corp’s consolidated financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Viad Corp’s actual results could differ materially from those anticipated due to various factors discussed under “Risk Factors,” “Forward-Looking Statements” and elsewhere in this Annual Report.

Overview:

Viad Corp (“Viad” or the “Company”) operates in three reportable business segments: 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 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, motorcoach services, charter and sightseeing services, tour boat operations, inbound package tour operations and hotel operations. Glacier Park operates five lodges, three motor inns and one four-season resort hotel and provides food and beverage operations, retail operations and tour and transportation services in and around Glacier National Park in Montana and Waterton Lakes National Park in Alberta, Canada. Glacier Park is an 80 percent owned subsidiary of Viad. Alaska Denali Travel operates the Denali Backcountry Lodge, which is the largest of three lodges located within Denali National Park and Preserve in Alaska, and the Denali Cabins, which are located near the entrance to Denali National Park and Preserve. In addition to lodging, Alaska Denali Travel also provides food and beverage operations and package tour and transportation services in and around Denali National Park and Preserve.

On December 14, 2012, Viad announced that the Board of Directors authorized management to explore and evaluate opportunities to enhance shareholder value, including a potential separation of its Travel & Recreation and Marketing & Events business groups. Viad engaged J.P. Morgan Securities LLC as its financial advisor to assist in this evaluation process.

Financial Highlights

The following 2012 financial highlights are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”):

Viad Corp (Consolidated)

 

   

Total revenues of $1.0 billion, an increase of 8.8 percent from 2011 revenues

 

   

Net income attributable to Viad of $5.9 million, as compared to $9.2 million in 2011

 

   

Diluted income per share of $0.29, as compared to $0.45 in 2011

 

   

Acquisition of the Banff International Hotel for $23.6 million on March 7, 2012

 

   

Restructuring charges totaling $4.9 million primarily related to reorganization activities in the Marketing & Events Group, comprised of the elimination of certain positions and facility consolidations

 

   

Income tax expense charge of $13.4 million representing a valuation allowance for certain deferred tax assets associated with foreign tax credit carryforwards

 

   

Income from discontinued operations of $624,000 primarily related to the sale of land associated with previously sold operations

 

   

Cash and cash equivalents were $114.2 million as of December 31, 2012

 

   

Debt was $2.2 million as of December 31, 2012

Marketing & Events U.S.

 

   

Revenues of $676.8 million, an increase of 7.2 percent from 2011 revenues

 

   

Segment operating income of $5.6 million, as compared to a loss of $6.3 million in 2011

 

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Marketing & Events International

 

   

Revenues of $240.1 million, an increase of 9.8 percent from 2011 revenues

 

   

Segment operating income of $12.3 million, as compared to $11.4 million in 2011

Travel & Recreation Group

 

   

Revenues of $123.2 million, an increase of 21.0 percent from 2011 revenues

 

   

Segment operating income of $24.0 million, as compared to $20.2 million in 2011

Non-GAAP Measure:

The following discussion includes a presentation of Adjusted EBITDA, which is utilized by management to measure the profit and performance of Viad’s operations and to facilitate period-to-period comparisons. “Adjusted EBITDA” is defined by Viad as net income attributable to Viad before interest expense, income taxes, depreciation and amortization, impairment losses and recoveries, changes in accounting principles and the effects of discontinued operations. The presentation of Adjusted EBITDA is supplemental to results presented under GAAP and may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is considered a useful operating metric as potential variations arising from taxes, depreciation, debt service costs, impairment losses and recoveries, changes in accounting principles and the effects of discontinued operations are eliminated, thus resulting in an additional measure considered to be indicative of Viad’s ongoing operations. This non-GAAP measure should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.

Management believes that the presentation of Adjusted EBITDA provides useful information to investors regarding Viad’s results of operations for trending, analyzing and benchmarking the performance and value of Viad’s business. Management uses Adjusted EBITDA primarily as a performance measure and believes that the GAAP financial measure most directly comparable to this non-GAAP measure is net income attributable to Viad. Although Adjusted EBITDA is used as a financial measure to assess the performance of the business, the use of Adjusted EBITDA is limited because it does not consider material costs, expenses and other items necessary to operate the business. These items include debt service costs, non-cash depreciation and amortization expense associated with long-lived assets, expenses related to U.S. federal, state, local and foreign income taxes, impairment losses or recoveries, and the effects of accounting changes and discontinued operations. Because Adjusted EBITDA does not consider the above items, a user of Viad’s financial information should consider net income attributable to Viad as an important measure of financial performance because it provides a more complete measure of the Company’s performance.

A reconciliation of net income attributable to Viad to Adjusted EBITDA is as follows:

 

     2012     2011     2010  
     (in thousands)  

Net income attributable to Viad

   $ 5,897      $ 9,210      $ 443   

Impairment losses

     —           —           302   

Interest expense

     1,303        1,511        1,835   

Income taxes

     20,843        3,888        1,742   

Depreciation and amortization

     30,731        29,126        28,252   

Income from discontinued operations

     (624     (451     (262
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 58,150      $ 43,284      $ 32,312   
  

 

 

   

 

 

   

 

 

 

The increase in Adjusted EBITDA of $14.9 million from 2011 to 2012 was primarily due to higher segment operating results at all operating segments, partially offset by higher restructuring charges and corporate costs. The increase in Adjusted EBITDA of $11.0 million from 2010 to 2011 was primarily driven by higher segment operating results in the Marketing & Events Group. See “Results of Operations” below for a discussion of fluctuations.

Results of Operations:

2012 vs. 2011:

Revenues for 2012 increased 8.8 percent to $1.0 billion, as compared to $942.4 million in 2011. Viad’s income from continuing operations before income taxes was $26.8 million for 2012, as compared to $13.2 million in 2011. These increases were primarily due to same-show growth, new business wins, positive show rotation revenue of approximately $16 million from non-annual shows that took place during 2012 and continued focus on operating efficiencies at Viad’s Marketing & Events Group, as well as the first peak season contributions from Alaska Denali Travel and the Banff International Hotel, the newly renovated rooms at the Many Glacier Hotel and organic growth at the Company’s Travel & Recreation Group. Net restructuring charges in 2012 were $4.9 million, as compared to $3.8 million in 2011, both primarily related to reorganization activities in the Marketing & Events Group, comprised of facility consolidations, as well as the elimination of certain positions.

 

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Net income attributable to Viad for 2012 was $5.9 million, or $0.29 per diluted share, as compared to $9.2 million, or $0.45 per diluted share, in 2011. These results include a charge to income tax expense of $13.4 million representing a valuation allowance established for certain deferred tax assets associated with foreign tax credit carryforwards. These results also include income from discontinued operations of $624,000, or $0.03 per diluted share, in 2012 primarily related to the sale of land associated with previously sold operations and $451,000, or $0.02 per diluted share, in 2011 relating to obligations associated with previously sold operations.

During 2012, foreign exchange rate variances resulted in decreases in revenues and segment operating income of $6.6 million and $886,000, respectively, as compared to 2011. Viad conducts its foreign operations primarily in Canada, the United Kingdom, Germany and to a lesser extent in certain other countries.

The following table summarizes the effects of foreign exchange rate variances on revenues and segment operating results from Viad’s significant international operations:

 

     Revenues     Segment Operating Results  
     Weighted-Average      Effect of Rate     Weighted-Average      Effect of Rate  
     Exchange Rates      Variance     Exchange Rates      Variance  
     2012      2011      (in thousands)     2012      2011      (in thousands)  

Marketing & Events Group:

                

Canada

   $ 1.00       $ 1.01       $ (954   $ 1.04       $ 1.00       $ 19   

United Kingdom

   $ 1.59       $ 1.61       $ (1,938   $ 1.60       $ 1.61       $ (72

Germany

   $ 1.29       $ 1.40       $ (1,733   $ 1.27       $ 1.43       $ (107

Travel & Recreation Group:

                

Canada

   $ 1.00       $ 1.02       $ (1,952   $ 1.00       $ 1.03       $ (726

Accordingly, Viad’s results were impacted by the weakening of the Canadian dollar, British pound and Euro relative to the U.S. dollar. Future changes in the exchange rates may impact overall expected profitability and historical period-to-period comparisons when operating results are translated into U.S. dollars.

Marketing & Events Group. Revenues for the Marketing & Events U.S. segment were $676.8 million for 2012, up 7.2 percent, as compared to $631.4 million in 2011. The increase was primarily due to base same-show revenue increases of 6.5 percent and positive show rotation of approximately $21 million. Management defines base same-show revenues as revenues from exhibitions and events that occur in the same quarter and same city every year. Base same-shows represented 41.5 percent of Marketing & Events U.S. segment revenues in 2012. The 2012 segment operating income was $5.6 million, as compared to a loss of $6.3 million in 2011. The improved operating results were primarily due to an increase in revenues with a continued focus on margin improvements, as well as ongoing efforts to drive operating efficiencies and control discretionary expenses.

The Company is continuing to execute against a number of margin improvement initiatives designed to more effectively manage labor costs across the Marketing & Events Group and to reduce the physical footprint and the overhead associated with the U.S. warehousing operation. As it relates to labor costs, the focus is on driving productivity gains through rigorous and strategic pre-show planning on the highest opportunity events. The benefits of such measures are shown by a half point reduction in the variable labor-to-revenue ratio on a U.S. base same-show basis. The Company is also working to develop new tools to support and systematize show site labor planning, measurement and benchmarking. On the facility side, approximately 449,000 square feet of warehouse space has been eliminated during 2012, reducing the total U.S. warehouse footprint to approximately 2.4 million square feet as of December 31, 2012. Due to the cost savings efforts, the Company has recognized a U.S. facility cost savings of approximately $2.0 million for 2012, as compared to 2011.

Revenues for the Marketing & Events International segment were $240.1 million for 2012, up 9.8 percent, as compared to $218.6 million in 2011. Segment operating income was $12.3 million in 2012, as compared to $11.4 million in 2011. As discussed above, period-to-period comparisons for this segment were affected by exchange rate variances, which had an unfavorable impact on revenues of $4.6 million and segment operating income of $160,000, as compared to 2011. Excluding exchange rate variances, 2012 revenues increased by $26.1 million, or 11.9 percent, and operating income increased by $1.0 million, or 9.0 percent. These increases were primarily driven by services provided for the 2012 London Summer Olympics and Paralympic Games, as well as increased demand and new show wins, partially offset by net negative show rotation revenues of approximately $5 million.

 

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Although the Marketing & Events Group has a diversified revenue base and long-term contracts for future shows, its revenues are affected by general economic and industry-specific conditions. The prospects for individual shows tend to be driven by the success of the industry related to those shows. In general, the exhibition and event industry is experiencing modest improvement. Following quarterly declines from the third quarter of 2008 through the first quarter of 2010, Marketing & Events U.S. base same-show revenues were essentially flat in the second quarter of 2010 and have increased in each of the following nine quarters. Base same-show revenues for the fourth quarter of 2012 were essentially flat, reflecting growth across the majority of base same-shows offset by a decline in a major show in the government sector.

For the 2013 full year, management expects U.S. base same-show revenues to increase at a low to mid-single digit rate and show rotation to have a net negative impact on full year revenue of approximately $55 million to $60 million. Although the Marketing & Events Group will not benefit from non-annual shows in 2013 as it did in 2012, management expects to reach a full year operating margin of approximately 2.5 percent in 2013 through improved operating efficiencies and new business wins. Additionally, management anticipates that foreign currency exchange rate variances versus 2012 will not have a meaningful impact on the Marketing & Events Group’s 2013 full year revenues and segment operating income. Management remains focused on improving the profitability of the Marketing & Events U.S. segment through continued integration and consolidation of operations to increase capacity utilization and reduce costs. Additional restructuring charges may be incurred as further cost structure improvements are made.

The Marketing & Events Group is subject to multiple collective-bargaining agreements that affect labor costs, about one-third of which expire each year. Although labor relations between the Company and labor are currently stable, disruptions during future contract negotiations could occur, with the possibility of an adverse impact on the operating results of the Marketing & Events Group.

Travel & Recreation Group. Revenues for the Travel & Recreation Group segment were $123.2 million, up 21.0 percent, as compared to 2011 revenues of $101.8 million. Segment operating income was $24.0 million, up 18.6 percent from 2011 segment operating income of $20.2 million. Segment operating margins were 19.5 percent in 2012, as compared to 19.8 percent in 2011. As discussed above, period-to-period comparisons for this segment were affected by exchange rate variances, which had an unfavorable impact on revenues of $2.0 million and segment operating income of $726,000, as compared to 2011. Excluding exchange rate variances, 2012 revenues increased by $23.3 million, or 22.9 percent, and segment operating income increased by $4.5 million, or 22.2 percent. In addition to increased revenues, as discussed below, operating results also reflect higher selling, general and administrative expenses, including costs related to additional resources to support the Company’s growth strategy of “Refresh-Build-Buy.”

The following table provides Travel & Recreation Group revenues by line of business, as well as key performance indicators:

 

     2012     2011     Change  
     (in thousands, except key performance indicators)  

Revenues:

         

Hospitality

   $ 51,969      $ 38,003      $ 13,966         36.7

Attractions

     38,141        34,243        3,898         11.4

Package tours

     18,805        17,409        1,396         8.0

Transportation

     16,858        14,782        2,076         14.0

Intra-segment eliminations & other

     (2,582     (2,623     41         1.6
  

 

 

   

 

 

   

 

 

    

Total

   $ 123,191      $ 101,814      $ 21,377         21.0
  

 

 

   

 

 

   

 

 

    

Key Performance Indicators:

         

Room nights available (Hospitality) 1

     262,090        188,575        73,515         39.0

RevPAR (Hospitality) 2

   $ 134      $ 131      $ 3         2.3

Passengers (Attractions)

     960,305        873,870        86,435         9.9

Revenue per passenger (Attractions) 3

   $ 43      $ 42      $ 1         2.4

 

1 

Excludes rooms closed for renovation at Many Glacier Hotel during 2011.

2 

Calculated as revenues from room sales divided by the number of room nights available during the period. Amounts shown represent simple average of RevPAR for all Travel & Recreation Group hospitality properties.

3 

Calculated as total attractions revenues divided by the number of passengers during the period. Amounts shown represent simple average of revenue per passenger at all Travel & Recreation Group attractions.

 

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Revenue growth from hospitality properties benefitted from the initial peak season contributions from the recently acquired Alaska Denali Travel business (acquired on September 16, 2011) and the Banff International Hotel (acquired on March 7, 2012), with approximately $11.9 million of incremental revenues. St. Mary Lodge & Resort and Grouse Mountain Lodge, both in their second year as part of the Travel & Recreation Group and renovated as part of the Company’s Refresh-Build-Buy strategy, also increased revenue over 2011. Additionally, rooms that were under renovation at the Many Glacier Hotel in 2011 provided a full revenue contribution in 2012.

Revenues were also favorably impacted by increased passenger volumes at Travel & Recreation Group’s attractions. As compared to 2011, passenger volumes increased by 9.9 percent.

During 2012, approximately 65 percent of revenues and 77 percent of segment operating income generated in the Travel & Recreation Group segment were derived through its Canadian operations. These operations are largely affected by foreign customer visitation, and, accordingly, increases in the value of the Canadian dollar, as compared to other currencies, could adversely affect customer volumes, revenues and segment operating income for the Travel & Recreation Group. Additionally, the Travel & Recreation Group is affected by consumer discretionary spending on tourism activities.

Management anticipates that foreign currency exchange rate variances versus 2012 will not have a meaningful effect on Travel & Recreation Group 2013 full year revenues and segment operating income. Management also anticipates the four acquisitions completed by Viad since the beginning of 2011 will generate approximately $25 million in revenues in 2013 with an average Adjusted EBITDA margin (defined as Adjusted EBITDA divided by revenues) of more than 30 percent. By leveraging economies of scale and scope and repositioning the acquired assets for higher returns, management expects to grow this revenue base at a mid single-digit compound annual growth rate from 2013 to 2015, with expanding Adjusted EBITDA margins over that time period.

Glacier Park operates the concession portion of its business under a concession contract with the U.S. National Park Service (the “Park Service”) for Glacier National Park. Glacier Park’s original 25-year concession contract with the Park Service that was to expire on December 31, 2005 has been extended for eight one-year periods and now expires on December 31, 2013. Glacier Park generated approximately 49 percent of its 2012 revenues through its concession contract for services provided within Glacier National Park.

On December 14, 2012, the Park Service issued a prospectus soliciting proposals from prospective bidders, including Glacier Park, for the award of a 16-year concession contract beginning on January 1, 2014. Glacier Park is currently preparing its bid for the contract, which is due on or before April 16, 2013. Although Viad believes that Glacier Park is well-positioned to win the new contract, if the Park Service selects a new concessionaire, Glacier Park would be entitled to $25 million for its “possessory interest,” which generally means the value of the structures acquired or constructed, fixtures installed and improvements made to the concession property at Glacier National Park during the term of the concession contract, plus an estimated $5 million for the personal property Glacier Park uses at the facilities covered by the concession contract.

If a new concessionaire is selected by the Park Service, Glacier Park would continue to generate revenue from the four properties it owns outside of Glacier National Park: Glacier Park Lodge in East Glacier, Montana; Grouse Mountain Lodge in Whitefish, Montana; St. Mary Lodge & Resort in St. Mary, Montana and the Prince of Wales Hotel in Waterton Lakes National Park, Alberta, which Glacier Park owns and operates under a 42-year ground lease with the Canadian government running through January 31, 2052. Glacier Park generated 24 percent of the Travel & Recreation Group’s 2012 segment operating income.

Corporate Activities. Corporate activities expense of $9.4 million in 2012 increased from $7.7 million in 2011. This increase was primarily due to costs related to the amendment and restatement of the Company’s shareholder rights plan as well as increased performance-based compensation expense.

Restructuring Charges. In 2012, Viad recorded net restructuring charges of $4.9 million, as compared to $3.8 million in 2011. These charges primarily related to reorganization activities in the Marketing & Events Group, comprised of facility consolidations as well as the elimination of certain positions.

Income Taxes. The effective tax rate for 2012 was 77.8 percent, as compared to 29.5 percent for 2011. The high rate for 2012, as compared to the statutory rate, was due to the charge to income tax expense of $13.4 million representing a valuation allowance for certain deferred tax assets associated with foreign tax credit carryforwards.

 

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2011 vs. 2010:

Revenues for 2011 increased 11.6 percent to $942.4 million, as compared to $844.8 million in 2010. Viad’s income from continuing operations before income taxes was $13.2 million for 2011, as compared to $2.6 million in 2010. These increases were primarily due to higher revenues from the Marketing & Events Group. Net restructuring charges in 2011 were $3.8 million, as compared to $4.2 million in 2010, both primarily related to the Marketing & Events Group. Impairment losses for 2010 were $268,000 (after-tax), or $0.01 per diluted share. The Company did not record any impairment losses in 2011.

Net income attributable to Viad for 2011 was $9.2 million, or $0.45 per diluted share, as compared to $443,000, or $0.02 per diluted share, in 2010. These results include income from discontinued operations of $451,000, or $0.02 per diluted share, in 2011 and $262,000, or $0.01 per diluted share, in 2010 relating to obligations associated with previously sold operations.

During 2011, foreign exchange rate variances resulted in increases in revenues and segment operating income of $14.1 million and $1.7 million, respectively, as compared to 2010. Viad conducts its foreign operations primarily in Canada, the United Kingdom, Germany and to a lesser extent in certain other countries.

The following table summarizes the effects of foreign exchange rate variances on revenues and segment operating results from Viad’s significant international operations:

 

     Revenues      Segment Operating Results  
     Weighted-Average      Effect of Rate      Weighted-Average      Effect of Rate  
     Exchange Rates      Variance      Exchange Rates      Variance  
     2011      2010      (in thousands)      2011      2010      (in thousands)  

Marketing & Events Group:

                 

Canada

   $ 1.01       $ 0.97       $ 3,141       $ 1.00       $ 0.98       $ (27

United Kingdom

   $ 1.61       $ 1.54       $ 5,684       $ 1.61       $ 1.52       $ 445   

Germany

   $ 1.40       $ 1.32       $ 969       $ 1.43       $ 1.36       $ (38

Travel & Recreation Group:

                 

Canada

   $ 1.02       $ 0.96       $ 4,300       $ 1.03       $ 0.94       $ 1,344   

Accordingly, Viad’s results were impacted by the strengthening of the Canadian dollar, British pound and Euro relative to the U.S. dollar. Future changes in the exchange rates may impact overall expected profitability and historical period-to-period comparisons when operating results are translated into U.S. dollars.

Marketing & Events Group. Revenues for the Marketing & Events U.S. segment were $631.4 million for 2011, up 10.6 percent, as compared to $571.0 million in 2010. The increase was primarily due to base same-show revenue increases of 11.2 percent, increased exhibitor spending, new business wins and positive show rotation of approximately $11 million. Management defines base same-show revenue as revenue from exhibitions and events that occur in the same quarter and same city every year. Base same-shows represented 36.6 percent of Marketing & Events U.S. segment revenues in 2011. The 2011 segment operating loss was $6.3 million, as compared to a loss of $15.2 million in 2010. The improved operating results were primarily the result of higher revenues, partially offset by higher accruals for performance-based incentives.

Revenues for the Marketing & Events International segment were $218.6 million for 2011, up 10.5 percent, as compared to $197.8 million in 2010. Segment operating income was $11.4 million in 2011, as compared to $10.1 million in 2010. As discussed above, results in this segment were impacted by exchange rates during 2011, resulting in increases of $9.8 million in revenue and $379,000 in segment operating income, as compared to 2010. Excluding exchange rate variances, 2011 revenues increased by $11.1 million, or 5.6 percent, and operating income increased by $982,000, or 9.7 percent. The increase in revenues was primarily due to new show wins, positive show rotation of approximately $4 million and same-show growth, which more than offset 2010 first quarter revenues from a major project for the 2010 Winter Olympic Games in Canada. Operating results for 2011 reflect higher compensation expenses, including merit increases and the elimination of temporary wage reductions, as compared to 2010.

Travel & Recreation Group. Revenues for the Travel & Recreation Group segment were $101.8 million, up 15.3 percent, as compared to 2010 revenues of $88.3 million. Segment operating income was $20.2 million, up 1.6 percent from 2010 segment operating income of $19.9 million. Segment operating margins were 19.8 percent in 2011, as compared to 22.5 percent in 2010. As discussed above, results in this segment were impacted by exchange rate variances during 2011, resulting in increases of $4.3 million and $1.3 million in revenues and segment operating income, respectively, as compared to 2010.

 

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The following table provides Travel & Recreation Group revenues by line of business, as well as key performance indicators:

 

     2011     2010     Change  
     (in thousands, except key performance indicators)  

Revenues:

        

Hospitality

   $ 38,003      $ 31,261      $ 6,742        21.6

Attractions

     34,243        30,119        4,124        13.7

Package tours

     17,409        12,720        4,689        36.9

Transportation

     14,782        15,814        (1,032     -6.5

Intra-segment eliminations & other

     (2,623     (1,637     (986     -60.2
  

 

 

   

 

 

   

 

 

   

Total

   $ 101,814      $ 88,277      $ 13,537        15.3
  

 

 

   

 

 

   

 

 

   

Key Performance Indicators:

        

Room nights available (Hospitality) 1

     188,575        137,119        51,456        37.5

RevPAR (Hospitality) 2

   $ 131      $ 131      $ —           0.0

Passengers (Attractions)

     873,870        830,323        43,547        5.2

Revenue per passenger (Attractions) 3

   $ 42      $ 41      $ 1        2.4

 

1 

Excludes rooms closed for renovation at Many Glacier Hotel during 2011.

2 

Calculated as revenues from room sales divided by the number of room nights available during the period. Amounts shown represent simple average of RevPAR for all Travel & Recreation Group hospitality properties.

3 

Calculated as total attractions revenues divided by the number of passengers during the period. Amounts shown represent simple average of revenue per passenger at all Travel & Recreation Group attractions.

Excluding exchange rate variances, 2011 revenues increased by $9.2 million, or 10.5 percent, primarily due to the acquisitions of Grouse Mountain Lodge and St. Mary Lodge & Resort, which are located near Glacier National Park, as well as organic revenue growth at Brewster. The Company acquired Grouse Mountain Lodge on January 5, 2011 for $10.5 million in cash and the 115-room St. Mary Lodge & Resort on June 29, 2011 for $15.3 million in cash. Brewster realized growth across all of its lines of business with the exception of its transportation business, which had higher 2010 revenues resulting from charter contracts related to the 2010 Winter Olympic and Paralympic Games. These improvements were partially offset by lower revenues from Many Glacier Hotel, a property operated by Glacier Park, resulting from planned construction that reduced the number of rooms available during 2011, as compared to 2010, as well as lower visitation to Glacier National Park during July and August.

Excluding exchange rate variances, 2011 segment operating income decreased by $1.0 million primarily due to the lower revenues at Many Glacier Hotel (which have a high flow through to operating income) and the seasonal fourth quarter operating loss at Alaska Denali Travel. The Company acquired the 42-room Denali Backcountry Lodge and 46 Denali Cabins on September 16, 2011 for $15.3 million in cash.

During 2011, approximately 70 percent of revenue and 86 percent of segment operating income generated in the Travel & Recreation Group segment were derived through its Canadian operations. These operations are largely affected by foreign customer visitation, and, accordingly, increases in the value of the Canadian dollar, as compared to other currencies, could adversely affect customer volumes, revenue and segment operating income for the Travel & Recreation Group.

Glacier Park operates the concession portion of its business under a concession contract with the U.S. National Park Service for Glacier National Park as previously noted. Glacier Park generated approximately 45 percent of its 2011 revenues through its concession contract for services provided within Glacier National Park. Glacier Park generated 19 percent of the Travel & Recreation Group’s 2011 segment operating income.

Corporate Activities. Corporate activities expense of $7.7 million in 2011 increased from $6.4 million in 2010. This increase was primarily due to higher legal fees related to employee benefits associated with previously divested operations and other matters.

Restructuring Charges. In 2011, Viad recorded net restructuring charges of $3.8 million, as compared to $4.2 million in 2010 (the 2010 amount includes a reversal of restructuring reserves of $814,000 primarily related to revisions in estimated sublease income associated with certain leased facilities). These charges primarily related to reorganization activities in the Marketing & Events Group, comprised of the elimination of certain positions as well as facility consolidations.

 

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Income Taxes. The effective tax rate for 2011 was 29.5 percent, as compared to 68.1 percent for 2010. The relatively low rate for 2011, as compared to the statutory rate, was due to favorable tax resolutions of $103,000, state tax benefits of $100,000 and other tax benefits. The relatively high rate for 2010, as compared to the statutory rate, was due to the write-off of deferred taxes of $1.3 million as a result of health care legislation, partially offset by favorable tax resolutions of $514,000. Excluding the effects of these items, the 2010 effective rate was 38.2 percent.

Liquidity and Capital Resources:

Cash and cash equivalents were $114.2 million as of December 31, 2012, as compared to $100.4 million as of December 31, 2011, with the increase primarily due to cash flow from operations, partially offset by the acquisition of the Banff International Hotel and capital expenditures. During 2012, the Company generated net cash flows from operating activities of $69.2 million primarily driven by operating results. Management believes that Viad’s existing sources of liquidity will be sufficient to fund operations and capital commitments for at least the next 12 months.

As of December 31, 2012, the Company had $46.8 million of its cash and cash equivalents held outside of the United States. Of the total amount, $37.3 million was held in Canada, $6.4 million in the United Kingdom, $1.8 million in Germany and $1.3 million in the United Arab Emirates. There were certain historical earnings related to its Canadian operations which, if repatriated to the United States, would result in incremental income tax expense. The incremental tax liability as of December 31, 2012 that would result assuming all foreign cash balances were repatriated to the United States would be approximately $1.1 million.

Cash Flows

A summary of cash flow information is provided below:

 

     2012     2011     2010  
     (in thousands)  

Cash and cash equivalents, beginning of year

   $ 100,376      $ 145,841      $ 116,342   

Net cash provided by operating activities

     69,186        34,736        43,283   

Net cash used in investing activities

     (49,474     (62,203     (2,287

Net cash used in financing activities

     (8,254     (16,497     (14,461

Effect of exchange rate changes on cash and cash equivalents

     2,337        (1,501     2,964   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of year

   $ 114,171      $ 100,376      $ 145,841   
  

 

 

   

 

 

   

 

 

 

Operating Activities

Cash flows from operations in 2012 totaled $69.2 million, as compared to $34.7 million in 2011. This increase was primarily due to favorable working capital changes. Cash flows from operations in 2011 totaled $34.7 million, as compared to $43.3 million in 2010. This decrease was primarily due to unfavorable working capital changes.

Investing Activities

Cash used in investing activities in 2012 totaled $49.5 million, as compared to $62.2 million in 2011. This decrease was primarily due to less cash used for acquisitions during 2012. Cash used in investing activities in 2011 totaled $62.2 million, as compared to $2.3 million in 2010. This increase was primarily due to $41.1 million used for acquisitions during 2011 and $14.8 million in proceeds from dispositions of property and other assets in 2010.

Capital expenditures for 2012 totaled $27.7 million and primarily related to the purchase of rental inventory, equipment and computer hardware and leasehold improvements at the Marketing & Events U.S. segment as well as Glacier Skywalk construction costs and building and other improvements at the Travel & Recreation Group. Capital expenditures for 2011 totaled $21.5 million and primarily related to the purchase of rental inventory, equipment and computer hardware primarily at the Marketing & Events U.S. segment as well as building and other improvements at the Travel & Recreation Group. Capital expenditures for 2010 totaled $17.0 million and primarily related to the purchase of rental inventory, equipment and computer hardware primarily at the Marketing & Events U.S. segment and building improvements and equipment at the Travel & Recreation Group.

During 2012, the Company began construction on the Glacier Skywalk, a 1,312-foot guided interpretive walkway with a 98-foot glass-floored observation area overlooking the Sunwapta Valley at the Tangle Ridge Viewpoint in Jasper National Park, Alberta, Canada. In 2012, the Travel & Recreation Group incurred $8.9 million in capital expenditures relating to the Glacier Skywalk, with an accrued capital expenditure amount of $2.6 million as of December 31, 2012. In 2013, management anticipates spending approximately $12 million to $14 million (including the $2.6 million accrued as of December 31, 2012) to complete the project for which funding will be provided by cash from operations.

 

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On March 7, 2012, Viad completed the acquisition of the Banff International Hotel and related assets for $23.6 million in cash. On January 5, 2011, Viad completed the acquisition of Grouse Mountain Lodge for $10.5 million in cash. On June 29, 2011, Viad completed the acquisition of St. Mary Lodge & Resort for $15.3 million in cash. On September 16, 2011, Viad completed the acquisition of Denali Backcountry Lodge and Denali Cabins for $15.3 million in cash. In March 2010, Viad completed the sale of a non-strategic real estate asset for $14.3 million (net of selling costs) within the Travel & Recreation Group.

Financing Activities

Cash used in financing activities in 2012 totaled $8.3 million, as compared to $16.5 million in 2011. This decrease was primarily due to higher debt repayments, debt issuance costs and common stock repurchases in 2011. Cash used in financing activities in 2011 was $16.5 million as compared to $14.5 million in 2010, with the increase primarily driven by higher debt repayments.

Viad’s total debt as of December 31, 2012 was $2.2 million, as compared to $3.2 million as of December 31, 2011. The debt-to-capital ratio was 0.006 to 1 as of December 31, 2012, as compared with 0.008 to 1 as of December 31, 2011. Capital is defined as total debt and capital lease obligations plus total stockholders’ equity.

In May 2011, Viad amended and restated its secured revolving credit agreement (the “Credit Facility”). The Credit Facility provides for a $130 million revolving line of credit, which may be increased up to an additional $50 million under certain circumstances. The term of the Credit Facility is five years (expiring on May 18, 2016) and borrowings are to be used for general corporate purposes (including permitted acquisitions) and to support up to $50 million of letters of credit. The lenders have a first perfected security interest in all of the personal property of Viad and GES, including 65 percent of the capital stock of top-tier foreign subsidiaries. In April 2011, Viad paid off its outstanding borrowing under the previous credit facility of $4.2 million and as of December 31, 2012, Viad’s total debt of $2.2 million consisted entirely of capital lease obligations. As of December 31, 2012, Viad had $128.2 million of capacity remaining under its Credit Facility reflecting outstanding letters of credit of $1.8 million.

Borrowings under the Credit Facility (of which GES is a guarantor) are indexed to the 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 part of the amendment and restatement, Viad’s financial covenants were revised to include a fixed-charge coverage ratio of not less than 2.25 to 1 (and a ratio of not less than 2.50 to 1 after the fiscal quarter ended September 30, 2012) and a leverage ratio (defined as total debt to Adjusted EBITDA) of not greater than 2.50 to 1. Additionally, Viad must maintain a consolidated minimum cash and cash equivalents balance of $50 million. As of December 31, 2012, the fixed-charge coverage and leverage ratios were 3.93 to 1 and 0.16 to 1, respectively. The terms of the Credit Facility allow Viad to pay up to $10 million in dividends in the aggregate in any calendar year.

Effective December 12, 2012, the Credit Facility was amended to remove the limitation on share repurchases of $10 million in the aggregate per calendar year pursuant to certain conditions. The amendment allows share repurchases unless the Company’s leverage ratio, as defined in the Credit Facility, is greater than 1.50 to 1.00 or a default or an unmatured default, as defined in the Credit Facility, exists. The amendment also allows dividends to be declared and paid in excess of $10 million in the aggregate per calendar year, as well as distributions on its capital stock, as defined in the Credit Facility, unless the Company’s leverage ratio, as defined in the Credit Facility, is greater than 1.50 to 1.00 or a default or an unmatured default, as defined in the Credit Facility, exists. Significant other covenants include limitations on: investments, additional indebtedness, sales/leases of assets, acquisitions, consolidations or mergers and liens on property. As of December 31, 2012, Viad was in compliance with all covenants.

As of December 31, 2012, Viad had certain obligations under guarantees to third parties on behalf of its subsidiaries. These guarantees are not subject to liability recognition in the consolidated financial statements and relate to leased facilities entered into by the Company’s subsidiary operations. The Company would generally be required to make payments to the respective third parties under these guarantees in the event that the related subsidiary could not meet its own payment obligations. The maximum potential amount of future payments that Viad would be required to make under all guarantees existing as of December 31, 2012 would be $21.2 million. These guarantees relate to leased facilities and expire through October 2017. There are no recourse provisions that would enable Viad to recover from third parties any payments made under the guarantees. Furthermore, there are no collateral or similar arrangements whereby Viad could recover payments.

In December 2012, the Company announced its intent to repurchase up to an additional one million shares of its common stock from time to time at prevailing market prices. During 2012 and 2011, Viad repurchased 23,183 shares and 250,760 shares for $526,000 and $4.6 million, respectively. As of December 31, 2012, 1,030,438 shares remain available for repurchase from the announced authorization. Additionally, during 2012 and 2011, the Company repurchased 56,885 shares for $1.1 million and 28,627 shares for $679,000, respectively, related to tax withholding requirements on share-based awards.

 

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In August 2012, Viad’s Board of Directors approved a 150 percent increase in the quarterly dividend from $0.04 per share to $0.10 per share. The dividend declared in the fourth quarter of 2012 was paid on January 2, 2013 to stockholders of record on December 14, 2012. Viad has accrued dividends of $2.0 million as of December 31, 2012. During 2012, the Company paid dividends on common stock of $4.5 million.

The following table presents Viad’s contractual obligations as of December 31, 2012:

 

     Payments due by period  
            Less than                    More than  
     Total      1 year      1-3 years      3-5 years      5 years  
     (in thousands)  

Operating leases

   $ 65,390       $ 17,793       $ 26,144       $ 12,130       $ 9,323   

Pension and postretirement benefits (1)

     38,265         3,720         7,658         7,566         19,321   

Purchase obligations (2)

     32,761         24,171         7,215         1,335         40   

Capital lease obligations

     2,226         1,347         831         48         —     

Estimated interest payments

     123         74         46         3         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual cash obligations (3)

   $ 138,765       $ 47,105       $ 41,894       $ 21,082       $ 28,684   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Estimated contributions related to multi-employer benefit plans are excluded from the table above. See Note 15 of Notes to Consolidated Financial Statements for disclosures regarding those obligations.

(2) 

Purchase obligations primarily represent payments due under various licensing agreements and commitments related to consulting and other contracted services that are enforceable and legally binding and that specify all significant terms, including open purchase orders.

(3) 

Aggregate self-insurance liabilities of $29.8 million are excluded from the table above as the timing and amounts of future cash outflows are uncertain. See Note 8 of Notes to Consolidated Financial Statements.

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 December 31, 2012 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, results of operations or liquidity. As of December 31, 2012, there was a remaining environmental remediation liability of $5.3 million related to previously sold operations of which $571,000 is included in the consolidated balance sheets under the caption “Other current liabilities” and $4.7 million under the caption “Other deferred items and liabilities.”

Viad’s businesses contribute to various multi-employer pension plans based on obligations arising under collective-bargaining agreements covering its union-represented employees. Viad’s contributions to these plans in 2012, 2011 and 2010 totaled $20.7 million, $19.6 million and $15.3 million, respectively. 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 December 31, 2012, the amount of additional funding, if any, that Viad would be required to make related to multi-employer pension plans is not ascertainable.

 

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Off-Balance Sheet Arrangements:

Viad does not have any “off-balance sheet” arrangements with unconsolidated special-purpose or other entities that would materially affect the Company’s financial position, results of operations, liquidity or capital resources. Furthermore, Viad does not have any relationships with special-purpose or other entities that provide off-balance sheet financing; liquidity, market risk or credit risk support; or engage in leasing or other services that may expose the Company to liability or risks of loss that are not reflected in Viad’s consolidated financial statements and related notes. See Notes 10, 17 and 18 of Notes to Consolidated Financial Statements.

Critical Accounting Policies and Estimates:

The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements. The SEC has defined a company’s most critical accounting policies as those that are most important to the portrayal of a company’s financial position and results of operations, and that require a company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on these criteria, Viad has identified and discussed with its audit committee the following critical accounting policies and estimates pertaining to Viad, and the methodology and disclosures related to those estimates:

Goodwill — Goodwill is not amortized, but tested for impairment at the reporting unit level on an annual basis on October 31 of each year. Goodwill is also tested for impairment between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. Viad’s reporting units are defined, and goodwill is tested, at either an operating segment level or at the component level of an operating segment, depending on various factors including: the internal reporting structure of the operating segment, the level of integration among components, the sharing of assets and other resources among components and the benefits and likely recoverability of goodwill by the component’s operations.

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

As of December 31, 2012, Viad had total goodwill of $137.8 million consisting of $85.7 million related to the Marketing & Events Group and $52.1 million related to the Travel & Recreation Group. The following table summarizes goodwill balances by reporting unit and segment as of December 31:

 

     2012      2011  
     (in thousands)  

Marketing & Events Group:

     

Marketing & Events U.S.

   $ 62,686       $ 62,686   

Marketing & Events International:

     

United Kingdom (Melville GES)

     13,894         13,291   

GES Canada

     9,160         8,907   
  

 

 

    

 

 

 

Total Marketing & Events Group

     85,740         84,884   
  

 

 

    

 

 

 

Travel & Recreation Group:

     

Brewster

     44,435         41,165   

Glacier Park

     4,461         4,461   

Alaska Denali Travel

     3,184         3,184   
  

 

 

    

 

 

 

Total Travel & Recreation Group

     52,080         48,810   
  

 

 

    

 

 

 

Total Goodwill

   $ 137,820       $ 133,694   
  

 

 

    

 

 

 

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.

The most critical assumptions and estimates in determining the estimated fair value of its reporting units relate to the amounts and timing of expected future cash flows for each reporting unit and the reporting unit cost of capital (discount rate) applied to those cash flows. Furthermore, the assumed reporting unit cost of capital rates (discount rates) are estimated using a build-up method based on the perceived risk associated with the cash flows pertaining to the specific reporting unit. In order to assess the reasonableness of its fair value estimates, the Company performs a reconciliation of the aggregate fair values of its reporting units to Viad’s market capitalization.

 

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As noted above, the estimates and assumptions regarding expected future cash flows, discount rates and terminal values require considerable judgment and are based on market conditions, financial forecasts, industry trends and historical experience. These estimates, however, have inherent uncertainties and different assumptions could lead to materially different results. As of December 31, 2012, Viad had aggregate goodwill of $137.8 million recorded in the consolidated balance sheets. Furthermore, as a result of the Company’s most recent impairment analysis performed in October 2012, the excess of the estimated fair value over the carrying value (expressed as a percentage of the carrying amounts) under step one of the impairment test was 126 percent, 67 percent and 34 percent for each of the Marketing & Events Group reporting units in the United States, the United Kingdom (Melville GES) and Canada, respectively. For the Brewster, Glacier Park and Alaska Denali Travel reporting units, the excess of the estimated fair value over the carrying value was 58 percent, 37 percent and 14 percent, respectively, as of the most recent impairment test. Significant reductions in the Company’s expected future revenues, operating income or cash flow forecasts and projections, or an increase in reporting unit cost of capital, could trigger additional goodwill impairment testing, which may result in impairment losses.

Income taxes — Viad is required to estimate and record provisions for income taxes in each of the jurisdictions in which the Company operates. Accordingly, the Company must estimate its actual current income tax liability, and assess temporary differences arising from the treatment of items for tax purposes, as compared to the treatment for accounting purposes. These differences result in deferred tax assets and liabilities which are included in Viad’s consolidated balance sheets. The Company must assess the likelihood that deferred tax assets will be recovered from future taxable income and to the extent that recovery is not likely, a valuation allowance must be established. The Company uses significant judgment in forming a conclusion regarding the recoverability of its deferred tax assets and evaluates the available positive and negative evidence to determine whether it is more-likely-than-not that its deferred tax assets will be realized in the future. As of December 31, 2012 and 2011, Viad had gross deferred tax assets of $77.2 million and $70.7 million, respectively. These deferred tax assets reflect the expected future tax benefits to be realized upon reversal of deductible temporary differences, and the utilization of net operating loss and tax credit carryforwards.

The Company considered all available positive and negative evidence regarding the future recoverability of its deferred tax assets, including the Company’s recent operating history, taxpaying history and future reversals of deferred tax liabilities. The Company also evaluated its ability to utilize its foreign tax credits, given its recent utilization history. These tax credits are subject to a 10-year carryforward period and begin to expire in 2019. Based on the Company’s assessment, it was determined during the fourth quarter of 2012 that the weight of the evidence indicated that certain deferred tax assets associated with foreign tax credit carryforwards no longer met the more-likely-than-not test regarding the realization of those assets. Accordingly, the Company recorded a valuation allowance related to all of its foreign tax credit carryforwards as of December 31, 2012, which resulted in a charge to income tax expense of $13.4 million. During 2012, the Company increased its valuation allowance related to state and foreign net operating loss carryforwards by $805,000. As of December 31, 2012 and 2011, Viad had a valuation allowance of $1.2 million and $356,000, respectively, related to those state and foreign deferred tax assets. With respect to all other deferred tax assets, management believes that recovery from future taxable income is more-likely-than-not.

As noted above, Viad uses considerable judgment in forming a conclusion regarding the recoverability of its deferred tax assets. As a result, there are inherent uncertainties regarding the ultimate realization of these assets, which is primarily dependent on Viad’s ability to generate sufficient taxable income in future periods. In future periods, it is reasonably possible that the relative weight of positive and negative evidence regarding the recoverability of Viad’s deferred tax assets may change, which could result in a material increase in the Company’s valuation allowance. If such an increase in the valuation allowance were to occur, it would result in increased income tax expense in the period the assessment was made.

Insurance liabilities — Viad is self-insured up to certain limits for workers’ compensation, automobile, product and general liability and property loss claims. The aggregate amount of insurance liabilities (up to the Company’s retention limit) related to Viad’s continuing operations was $21.1 million as of December 31, 2012. Of this total, $13.3 million related to workers’ compensation liabilities and the remaining $7.8 million related to general/auto liability claims. Viad has also retained and provided for certain insurance liabilities in conjunction with previously sold businesses totaling $5.7 million as of December 31, 2012, primarily 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 $200,000 to $500,000 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 $5.6 million, $7.6 million and $6.8 million in 2012, 2011 and 2010, respectively.

 

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In addition, as of December 31, 2012, Viad has recorded insurance liabilities of $3.0 million related to continuing operations in excess of the self-insured levels for which Viad remains the primary obligor. Of this total, $1.8 million related to worker’s compensation liabilities and the remaining $1.2 million related to general liability claims. The Company has presented these amounts as other deferred items and liabilities with a corresponding receivable in other investments and assets.

Pension and postretirement benefits — Viad’s pension plans use traditional defined benefit formulas based on years of service and final average compensation. Funding policies provide that payments to defined benefit pension trusts shall be at least equal to the minimum funding required by applicable regulations. The Company presently anticipates contributing $1.7 million to its funded pension plans and $1.1 million to its unfunded pension plans in 2013.

Viad and certain of its subsidiaries have defined benefit postretirement plans that provide medical and life insurance for certain eligible employees, retirees and dependents. The related postretirement benefit liabilities are recognized over the period that services are provided by employees. In addition, Viad retained the obligations for these benefits for retirees of certain sold businesses. While the plans have no funding requirements, Viad expects to contribute $400,000 to the plans in 2013.

The assumed health care cost trend rate used in measuring the December 31, 2012 accumulated postretirement benefit obligation was 8.5 percent, declining one-half percent each year to the ultimate rate of five percent by the year 2019 and remaining at that level thereafter. The assumed health care cost trend rate used in measuring the December 31, 2011 accumulated postretirement benefit obligation was nine percent, declining one-half percent each year to the ultimate rate of five percent by the year 2019 and remaining at that level thereafter.

A one-percentage-point increase in the assumed health care cost trend rate for each year would increase the accumulated postretirement benefit obligation as of December 31, 2012 by approximately $1.8 million and the total of service and interest cost components by approximately $120,000. A one-percentage-point decrease in the assumed health care cost trend rate for each year would decrease the accumulated postretirement benefit obligation as of December 31, 2012 by approximately $1.5 million and the total of service and interest cost components by approximately $97,000.

The weighted-average assumptions used to determine the pension and postretirement benefit obligations as of December 31 were as follows:

 

     Domestic Plans              
     Funded Plans     Unfunded Plans     Postretirement
Benefit  Plans
    Foreign Plans  
     2012     2011     2012     2011     2012     2011     2012     2011  

Discount rate

     4.11     4.92     3.80     4.75     3.85     4.70     4.06     4.60

The weighted-average assumptions used to determine net periodic benefit cost were as follows:

 

     Domestic Plans              
     Funded Plans     Unfunded Plans     Postretirement
Benefit Plans
    Foreign Plans  
     2012     2011     2012     2011     2012     2011     2012     2011  

Discount rate

     4.93     5.45     4.75     5.10     4.70     5.10     4.65     5.10

Expected return on plan assets

     4.20     6.35     N/A        N/A        4.65     6.10     5.45     5.50

The discount rates used in determining future pension and postretirement benefit obligations are based on rates determined by actuarial analysis and management review, and reflect the estimated rates of return on a high-quality, hypothetical bond portfolio whose cash flows match the timing and amounts of expected benefit payments. See Note 15 of Notes to Consolidated Financial Statements.

Share-based compensation — Viad grants share-based compensation awards to officers, directors and certain key employees pursuant to the 2007 Viad Corp Omnibus Incentive Plan which has a 10-year life and provides for the following types of awards: (a) incentive and non-qualified stock options; (b) restricted stock and restricted stock units; (c) performance units or performance shares; (d) stock appreciation rights; (e) cash-based awards and (f) certain other stock-based awards.

Share-based compensation expense recognized in the consolidated financial statements in 2012, 2011 and 2010 was $7.2 million, $4.4 million and $3.5 million, respectively. Furthermore, the total tax benefits related to such costs were $2.6 million, $1.6 million and $1.2 million in 2012, 2011 and 2010, respectively. No share-based compensation costs were capitalized during 2012, 2011 or 2010.

 

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The fair value of restricted stock and performance-based restricted stock awards are based on Viad’s stock price on the date of grant. Liability-based awards are recorded at estimated fair value, based on the number of units expected to vest and the level of achievement of predefined performance goals (where applicable) and are remeasured on each balance sheet date based on Viad’s stock price until the time of settlement. Viad uses the Black-Scholes option pricing model for purposes of determining the fair value of each stock option grant for which key assumptions are necessary. These assumptions include Viad’s expected stock price volatility; the expected period of time the stock option will remain outstanding; the expected dividend yield on Viad’s common stock, and the risk-free interest rate. While the Company has not granted stock options since 2010, changes in the assumptions could result in different estimates of the fair value of stock option grants, and consequently impact Viad’s future results of operations. See Note 2 of Notes to Consolidated Financial Statements.

Impact of Recent Accounting Pronouncements:

For a description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on Viad’s consolidated financial statements, see Note 1 of Notes to Consolidated Financial Statements.

Forward-Looking Statements:

As provided by the safe harbor provision under the Private Securities Litigation Reform Act of 1995, Viad cautions readers that, in addition to historical information contained herein, this Annual Report includes certain information, assumptions and discussions that may constitute forward-looking statements. These forward-looking statements are not historical facts, but reflect current estimates, projections, expectations, or trends concerning future growth, operating cash flows, availability of short-term borrowings, consumer demand, new or renewal business, investment policies, productivity improvements, ongoing cost reduction efforts, efficiency, competitiveness, legal expenses, tax rates and other tax matters, foreign exchange rates and the realization of restructuring cost savings. Actual results could differ materially from those discussed in the forward-looking statements. Viad’s businesses can be affected by a host of risks and uncertainties. Among other things, natural disasters, gains and losses of customers, consumer demand patterns, labor relations, purchasing decisions related to customer demand for exhibition and event services, existing and new competition, industry alliances, consolidation and growth patterns within the industries in which Viad competes, acquisitions, capital allocations, adverse developments in liabilities associated with discontinued operations and any deterioration in the economy and other risks discussed in Item 1A., “Risk Factors,” included in this Annual Report, may individually or in combination impact future results. In addition to factors mentioned elsewhere, economic, competitive, governmental, technological, capital marketplace and other factors, including terrorist activities or war, a pandemic health crisis and international conditions, could affect the forward-looking statements in this Annual Report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Viad’s market risk exposures relate to fluctuations in foreign exchange rates, interest rates and certain commodity prices. Foreign exchange risk is the risk that fluctuating exchange rates will adversely affect Viad’s financial condition or results of operations. Interest rate risk is the risk that changing interest rates will adversely affect the earnings of Viad. Commodity risk is the risk that changing prices will adversely affect results of operations.

Viad conducts its foreign operations primarily in Canada, the United Kingdom, Germany and to a lesser extent in certain other countries. The functional currency of Viad’s foreign subsidiaries is their local currency. Accordingly, for purposes of consolidation, Viad translates the assets and liabilities of its foreign subsidiaries into U.S. dollars at the foreign exchange rates in effect at the balance sheet date. The unrealized gains or losses resulting from the translation of these foreign denominated assets and liabilities are included as a component of accumulated other comprehensive income in Viad’s consolidated balance sheets. As a result, significant fluctuations in foreign exchange rates relative to the U.S. dollar may result in material changes to Viad’s net equity position reported in its consolidated balance sheets. Viad does not currently hedge its equity risk arising from the translation of foreign denominated assets and liabilities. Viad had cumulative unrealized foreign currency translation gains recorded in stockholders’ equity of $42.2 million and $34.6 million as of December 31, 2012 and 2011, respectively. During 2012 and 2011, an unrealized foreign currency translation gain of $7.5 million and a loss of $4.3 million, respectively, were recorded in other comprehensive income.

In addition, for purposes of consolidation, the revenues, expenses, gains and losses related to Viad’s foreign operations are translated into U.S. dollars at the average foreign exchange rates for the period. As a result, Viad’s consolidated results of operations are exposed to fluctuations in foreign exchange rates as the operating results of its foreign operations, when translated, may vary from period-to-period, even when the functional currency amounts have not changed. Such fluctuations may adversely impact overall expected profitability and historical period-to-period comparisons. Viad does not currently hedge its net earnings exposure arising from the translation of its foreign operating results.

 

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The following table summarizes the effect of foreign exchange rate variances on segment operating results from Viad’s significant international operations:

 

     Weighted-Average      Effect of Rate     Weighted-Average      Effect of Rate  
     Exchange Rates      Variance     Exchange Rates      Variance  
     2012      2011      (thousands)     2011      2010      (thousands)  

Canadian Operations:

                

Marketing & Events Group

   $ 1.04       $ 1.00       $ 19      $ 1.00       $ 0.98       $ (27

Travel & Recreation Group

   $ 1.00       $ 1.03       $ (726   $ 1.03       $ 0.94       $ 1,344   

United Kingdom Operations:

                

Marketing & Events Group

   $ 1.60       $ 1.61       $ (72   $ 1.61       $ 1.52       $ 445   

German Operations:

                

Marketing & Events Group

   $ 1.27       $ 1.43       $ (107   $ 1.43       $ 1.36       $ (38

As the Canadian operations generated aggregate operating income in 2012, Viad’s segment operating income has been unfavorably impacted by $707,000 from the strengthening of the Canadian dollar relative to the U.S. dollar. A hypothetical change of 10 percent in the Canadian exchange rate would have resulted in a change to operating income of approximately $1.9 million. As the United Kingdom operations generated aggregate operating income in 2012, Viad’s segment operating income has been unfavorably impacted by $72,000 from the strengthening of the British pound relative to the U.S. dollar. A hypothetical change of 10 percent in the British pound exchange rate would have resulted in a change to operating income of approximately $1.0 million. As the German operations generated aggregate operating income in 2012, Viad’s segment operating income has been unfavorably impacted by $107,000 from the strengthening of the Euro relative to the U.S. dollar. A hypothetical change of 10 percent in the Euro would have resulted in a change to operating income of approximately $62,000.

Viad is exposed to foreign exchange transaction risk as its foreign subsidiaries have certain revenue transactions denominated in currencies other than the functional currency of the respective subsidiary. From time to time, Viad utilizes forward contracts to mitigate the impact on earnings related to these transactions due to fluctuations in foreign exchange rates. As of December 31, 2012 and 2011, Viad did not have any significant foreign currency forward contracts outstanding.

Viad is exposed to short-term interest rate risk on certain of its debt obligations. Viad currently does not use derivative financial instruments to hedge cash flows for such obligations.

Viad’s subsidiaries have exposure to changing fuel prices. Periodically, Brewster enters into futures contracts with an oil company to purchase two types of fuel and specifies the monthly total volume, by fuel product, to be purchased over the agreed upon term of the contract, which is generally no longer than one year. The main objective of Viad’s risk policy related to changing fuel prices is to reduce transaction exposure in order to mitigate the cash flow risk and protect profit margins. There were no fuel contracts outstanding as of December 31, 2012 or 2011.

Item 8. Financial Statements and Supplementary Data.

Refer to Index to Financial Statements for required information.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of Viad, the effectiveness of the design and operation of disclosure controls and procedures has been evaluated as of December 31, 2012, and, based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of December 31, 2012. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in such reports is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2012 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

 

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Management’s report on internal control over financial reporting and the report of Viad’s independent registered public accounting firm, Deloitte & Touche LLP, are provided in this Annual Report immediately prior to the Index to Financial Statements.

Item 9B. Other Information.

None.

 

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Information regarding directors of Viad, director nomination procedures, the Audit Committee of Viad’s Board of Directors and compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, are included in the Proxy Statement for the Annual Meeting of Shareholders of Viad to be held on May 21, 2013, under the captions “Election of Directors,” “The Board of Directors and Corporate Governance” and “Information on Stock Ownership,” and are incorporated herein by reference. Information regarding executive officers of Viad is located in Part I, “Executive Officers of Registrant” of this Annual Report.

Viad has adopted a Code of Ethics for all directors, officers and employees of the Company and its subsidiaries. A copy of the Company’s Code of Ethics is available at Viad’s website at www.viad.com/pdf/corpgovernance/CodeofEthics.pdf and is also available without charge to any shareholder upon request by writing to: Viad Corp, 1850 North Central Avenue, Suite 1900, Phoenix, Arizona 85004-4565, Attention: Corporate Secretary.

Item 11. Executive Compensation.

Information regarding executive compensation is contained in the Proxy Statement for the Annual Meeting of Shareholders of Viad to be held on May 21, 2013, under the caption “Compensation Discussion and Analysis” and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information regarding security ownership of certain beneficial owners and management and information regarding securities authorized for issuance under equity compensation plans are contained in the Proxy Statement for the Annual Meeting of Shareholders of Viad to be held on May  21, 2013, under the caption “Information on Stock Ownership,” and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Information regarding director independence, and certain relationships and related transactions, is contained in the Proxy Statement for the Annual Meeting of Shareholders of Viad to be held on May 21, 2013, under the caption “The Board of Directors and Corporate Governance,” and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

Information regarding principal accounting fees and services and the pre-approval policies and procedures for such fees and services, as adopted by the Audit Committee of the Board of Directors, is contained in the Proxy Statement for the Annual Meeting of Shareholders of Viad to be held on May 21, 2013, under the captions “Fees and Services of Independent Registered Public Accountants” and “Audit Committee Pre-Approval Policies and Procedures,” and is incorporated herein by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

 

  (a) 1. The financial statements listed in the accompanying Index to Financial Statements are filed as part of this Annual Report.

2. The exhibits listed in the accompanying Exhibit Index are filed as part of this Annual Report.

 

  (b) Exhibits

See Exhibit Index.

 

  (c) Financial Statement Schedules

Schedule II – Valuation and Qualifying Accounts.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, in Phoenix, Arizona, on the 11th day of March, 2013.

 

    VIAD CORP
    By:   /s/ Paul B. Dykstra
      Paul B. Dykstra
      Chairman of the Board, President and
      Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of Viad Corp and in the capacities and on the dates indicated:

 

    Principal Executive Officer
Date: March 11, 2013     By:   /s/ Paul B. Dykstra
      Paul B. Dykstra
      Chairman of the Board, President and
      Chief Executive Officer
    Principal Financial Officer
Date: March 11, 2013     By:   /s/ Ellen M. Ingersoll
      Ellen M. Ingersoll
      Chief Financial Officer
    Principal Accounting Officer
Date: March 11, 2013     By:   /s/ G. Michael Latta
      G. Michael Latta
      Chief Accounting Officer—Controller
    Directors
    Daniel Boggan Jr.
    Isabella Cunningham
    Richard H. Dozer
    Jess Hay
    Edward E. Mace
    Robert E. Munzenrider
    Margaret E. Pederson
    Albert M. Teplin
Date: March 11, 2013     By:   /s/ Ellen M. Ingersoll
      Ellen M. Ingersoll
      Attorney-in-Fact

 

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Viad Corp is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

 

  Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

 

  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

 

  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Management assessed the effectiveness of Viad’s internal control over financial reporting as of December 31, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.

Based on its assessment, management concluded that, as of December 31, 2012, Viad’s internal control over financial reporting is effective based on those criteria.

Viad’s independent registered public accounting firm, Deloitte & Touche LLP, has issued a report relating to its audit of the effectiveness of Viad’s internal control over financial reporting, which appears on the following page of this Annual Report.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of

Viad Corp

Phoenix, Arizona

We have audited the internal control over financial reporting of Viad Corp and subsidiaries (the “Company”) as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2012, of the Company and our report dated March 11, 2013 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.

 

   

/s/ DELOITTE & TOUCHE LLP

 

Deloitte & Touche LLP

Phoenix, Arizona

March 11, 2013

 

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INDEX TO FINANCIAL STATEMENTS

 

     Page

Consolidated Balance Sheets — December 31, 2012 and 2011

   F-1

Consolidated Statements of Operations — Years Ended December 31, 2012, 2011 and 2010

   F-2

Consolidated Statements of Comprehensive Income — Years Ended December  31, 2012, 2011 and 2010

   F-3

Consolidated Statements of Cash Flows — Years Ended December 31, 2012, 2011 and 2010

   F-4

Consolidated Statements of Stockholders’ Equity — Years Ended December  31, 2012, 2011 and 2010

   F-5

Notes to Consolidated Financial Statements

   F-6

Report of Independent Registered Public Accounting Firm

   F-39

Schedule II – Valuation and Qualifying Accounts

   F-40

 

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VIAD CORP

CONSOLIDATED BALANCE SHEETS

 

     December 31,  
     2012     2011  
     (in thousands, except share data)  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 114,171      $ 100,376   

Accounts receivable, net of allowance for doubtful accounts of $1,150 and $1,072, respectively

     62,756        63,583   

Inventories

     35,656        35,825   

Deferred income taxes

     26,301        24,200   

Other current assets

     15,534        14,647   
  

 

 

   

 

 

 

Total current assets

     254,418        238,631   

Property and equipment, net

     197,298        173,813   

Other investments and assets

     32,416        31,051   

Deferred income taxes

     26,104        38,755   

Goodwill

     137,820        133,694   

Other intangible assets, net

     2,521        1,884   
  

 

 

   

 

 

 

Total Assets

   $ 650,577      $ 617,828   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities:

    

Accounts payable

   $ 57,995      $ 51,448   

Other current liabilities

     107,684        97,331   

Current portion of long-term capital lease obligations

     1,347        2,018   
  

 

 

   

 

 

 

Total current liabilities

     167,026        150,797   

Long-term capital lease obligations

     879        1,221   

Pension and postretirement benefits

     37,812        35,419   

Other deferred items and liabilities

     47,828        44,212   
  

 

 

   

 

 

 

Total liabilities

     253,545        231,649   
  

 

 

   

 

 

 

Commitments and contingencies (Notes 17 and 18)

    

Stockholders’ equity:

    

Viad Corp stockholders’ equity:

    

Common stock, $1.50 par value, 200,000,000 shares authorized, 24,934,981 shares issued

     37,402        37,402   

Additional capital

     593,862        599,188   

Retained deficit

     (13,034     (13,256

Unearned employee benefits and other

     (1,301     (2,951

Accumulated other comprehensive income (loss):

    

Unrealized gain on investments, net

     275        222   

Cumulative foreign currency translation adjustments

     42,158        34,648   

Unrecognized net actuarial loss and prior service credit, net

     (14,968     (12,977

Common stock in treasury, at cost, 4,694,468 and 4,790,920 shares, respectively

     (256,333     (264,382
  

 

 

   

 

 

 

Total Viad Corp stockholders’ equity

     388,061        377,894   

Noncontrolling interest

     8,971        8,285   
  

 

 

   

 

 

 

Total stockholders’ equity

     397,032        386,179   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 650,577      $ 617,828   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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VIAD CORP

CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
     2012     2011     2010  
     (in thousands, except per share data)  

Revenues:

      

Exhibition and event services

   $ 726,429      $ 670,054      $ 590,444   

Exhibits and environments

     175,611        170,496        166,040   

Travel and recreation services

     123,191        101,814        88,277   
  

 

 

   

 

 

   

 

 

 

Total revenues

     1,025,231        942,364        844,761   
  

 

 

   

 

 

   

 

 

 

Costs and expenses:

      

Costs of services

     818,837        752,679        656,315   

Costs of products sold

     164,532        164,309        173,690   

Corporate activities

     9,408        7,682        6,422   

Interest income

     (593     (779     (584

Interest expense

     1,303        1,511        1,835   

Restructuring charges

     4,942        3,782        4,222   

Intangible asset impairment losses

     —          —          185   

Other impairment losses

     —          —          117   
  

 

 

   

 

 

   

 

 

 

Total costs and expenses

     998,429        929,184        842,202   
  

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     26,802        13,180        2,559   

Income tax expense

     20,843        3,888        1,742   
  

 

 

   

 

 

   

 

 

 

Income from continuing operations

     5,959        9,292        817   

Income from discontinued operations

     624        451        262   
  

 

 

   

 

 

   

 

 

 

Net income

     6,583        9,743        1,079   

Net income attributable to noncontrolling interest

     (686     (533     (636
  

 

 

   

 

 

   

 

 

 

Net income attributable to Viad

   $ 5,897      $ 9,210      $ 443   
  

 

 

   

 

 

   

 

 

 

Diluted income per common share

      

Income from continuing operations attributable to Viad common stockholders

   $ 0.26      $ 0.43      $ 0.01   

Income from discontinued operations attributable to Viad common stockholders

     0.03        0.02        0.01   
  

 

 

   

 

 

   

 

 

 

Net income attributable to Viad common stockholders

   $ 0.29      $ 0.45      $ 0.02   
  

 

 

   

 

 

   

 

 

 

Weighted-average outstanding and potentially dilutive common shares

     20,005        20,055        20,277   
  

 

 

   

 

 

   

 

 

 

Basic income per common share

      

Income from continuing operations attributable to Viad common stockholders

   $ 0.26      $ 0.43      $ 0.01   

Income from discontinued operations attributable to Viad common stockholders

     0.03        0.02        0.01   
  

 

 

   

 

 

   

 

 

 

Net income attributable to Viad common stockholders

   $ 0.29      $ 0.45      $ 0.02   
  

 

 

   

 

 

   

 

 

 

Weighted-average outstanding common shares

     19,701        19,719        19,955   
  

 

 

   

 

 

   

 

 

 

Dividends declared per common share

   $ 0.28      $ 0.16      $ 0.16   
  

 

 

   

 

 

   

 

 

 

Amounts attributable to Viad common stockholders

      

Income from continuing operations

   $ 5,273      $ 8,759      $ 181   

Income from discontinued operations

     624        451        262   
  

 

 

   

 

 

   

 

 

 

Net income

   $ 5,897      $ 9,210      $ 443   
  

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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VIAD CORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

     Year Ended December 31,  
     2012     2011     2010  
           (in thousands)        

Net income

   $ 6,583      $ 9,743      $ 1,079   
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

      

Unrealized investment gains (losses) arising during the period, net of tax expense (benefit) of $33, $(36) and $82

     53        (60     128   

Unrealized foreign currency translation adjustments, net of tax

     7,510        (4,331     7,696   

Amortization of net actuarial loss, net of tax expense (benefit) of $(574), $(709) and $1,433

     (1,311     (1,777     (2,109

Amortization of prior service credit, net of tax expense (benefit) of $(433), $(487) and $17

     (680     (790     84   
  

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     5,572        (6,958     5,799   
  

 

 

   

 

 

   

 

 

 

Comprehensive income

     12,155        2,785        6,878   

Comprehensive income attributable to noncontrolling interest

     (686     (533     (636
  

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Viad

   $ 11,469      $ 2,252      $ 6,242   
  

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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VIAD CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
     2012     2011     2010  
           (in thousands)        

Cash flows from operating activities

      

Net income

   $ 6,583      $ 9,743      $ 1,079   

Adjustments to reconcile net income to net cash provided by operating activities:

      

Depreciation and amortization

     30,731        29,126        28,252   

Deferred income taxes

     11,274        (924     744   

Income from discontinued operations

     (624     (451     (262

Restructuring charges

     4,942        3,782        4,222   

Impairment charges

     —          —          302   

Losses (gains) on dispositions of property and other assets

     (206     (42     45   

Share-based compensation expense

     7,232        4,413        3,518   

Excess tax benefit from share-based compensation arrangements

     (293     (54     (27

Other non-cash items, net

     10,157        4,659        4,580   

Change in operating assets and liabilities (excluding the impact of acquisitions):

      

Receivables

     142        (18,092     (3,042

Inventories

     195        3,729        6,148   

Accounts payable

     4,310        4,372        4,637   

Restructuring liabilities

     (4,694     (3,888     (6,718

Accrued compensation

     1,631        4,563        6,966   

Customer deposits

     926        4,950        2,000   

Income taxes payable

     467        (2,694     (1,264

Other assets and liabilities, net

     (3,587     (8,456     (7,897
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     69,186        34,736        43,283   
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

      

Capital expenditures

     (27,675     (21,538     (17,040

Acquisition of businesses, net of cash acquired

     (23,546     (41,105     —     

Proceeds from sale of land—discontinued operations

     1,041        —          —     

Proceeds from dispositions of property and other assets

     322        440        14,753   

Proceeds from sale of short-term investments

     384        —          —     
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (49,474     (62,203     (2,287
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

      

Payments on debt and capital lease obligations

     (2,685     (7,375     (4,900

Dividends paid on common stock

     (4,454     (3,241     (3,275

Common stock purchased for treasury

     (1,656     (5,230     (6,906

Debt issuance costs

     —          (1,001     —     

Excess tax benefits from share-based compensation arrangements

     293        54        27   

Proceeds from exercise of stock options

     248        296        593   
  

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (8,254     (16,497     (14,461
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     2,337        (1,501     2,964   
  

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

     13,795        (45,465     29,499   

Cash and cash equivalents, beginning of year

     100,376        145,841        116,342   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of year

   $ 114,171      $ 100,376      $ 145,841   
  

 

 

   

 

 

   

 

 

 

Supplemental disclosure of cash flow information

      

Cash paid for income taxes

   $ 8,386      $ 10,213      $ 7,931   
  

 

 

   

 

 

   

 

 

 

Cash paid for interest

   $ 1,103      $ 1,088      $ 1,131   
  

 

 

   

 

 

   

 

 

 

Equipment acquired under capital leases

   $ 1,011      $ 1,327      $ 963   
  

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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VIAD CORP

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

    Common
Stock
    Additional
Capital
    Retained
Earnings
(Deficit)
    Unearned
Employee
Benefits
and Other
    Accumulated
Other
Comprehensive
Income
    Common
Stock in
Treasury
    Total
Viad
Equity
    Non-
Controlling
Interest
    Total
Stockholders’
Equity
 
    (in thousands)  

Balance, January 1, 2010

  $ 37,402      $ 606,038      $ (16,405   $ (5,954   $ 23,052      $ (266,618   $ 377,515      $ 7,116      $ 384,631   

Net income

    —          —          443        —          —          —          443        636        1,079   

Dividends on common stock

    —          —          (3,275     —          —          —          (3,275     —          (3,275

Common stock purchased for treasury

    —          —          —          —          —          (6,905     (6,905     —          (6,905

Employee benefit plans

    —          (2,397     —          —          —          2,989        592        —          592   

ESOP allocation adjustment

    —          —          —          1,518        —          —          1,518        —          1,518   

Share-based compensation—equity awards

    —          3,785        —          —          —          —          3,785        —          3,785   

Tax deficiencies from share-based compensation

    —          (524     —          —          —          —          (524     —          (524

Unrealized foreign currency translation adjustment

    —          —          —          —          7,696        —          7,696        —          7,696   

Unrealized gain on investments

    —          —          —          —          128        —          128        —          128   

Amortization of prior service credit

    —          —          —          —          84        —          84        —          84   

Amortization of net actuarial loss

    —          —          —          —          (2,109     —          (2,109     —          (2,109

Other, net

    —          —          8        3        —          —          11        —          11   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2010

    37,402        606,902        (19,229     (4,433     28,851        (270,534     378,959        7,752        386,711   

Net income

    —          —          9,210        —          —          —          9,210        533        9,743   

Dividends on common stock

    —          —          (3,241     —          —          —          (3,241     —          (3,241

Common stock purchased for treasury

    —          —          —          —          —          (5,230     (5,230     —          (5,230

Employee benefit plans

    —          (11,086     —          —          —          11,381        295        —          295   

ESOP allocation adjustment

    —          —          —          1,490        —          —          1,490        —          1,490   

Share-based compensation—equity awards

    —          3,688        —          —          —          —          3,688        —          3,688   

Tax deficiencies from share-based compensation

    —          (325     —          —          —          —          (325     —          (325

Unrealized foreign currency translation adjustment

    —          —          —          —          (4,331     —          (4,331     —          (4,331

Unrealized loss on investments

    —          —          —          —          (60     —          (60     —          (60

Amortization of prior service credit

    —          —          —          —          (790     —          (790     —          (790

Amortization of net actuarial loss

    —          —          —          —          (1,777     —          (1,777     —          (1,777

Other, net

    —          9        4        (8     —          1        6        —          6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

    37,402        599,188        (13,256     (2,951     21,893        (264,382     377,894        8,285        386,179   

Net income

    —          —          5,897        —          —          —          5,897        686        6,583   

Dividends on common stock

    —          —          (5,674     —          —          —          (5,674     —          (5,674

Common stock purchased for treasury

    —          —          —          —          —          (1,656     (1,656     —          (1,656

Employee benefit plans

    —          (9,456     —          —          —          9,704        248        —          248   

ESOP allocation adjustment

    —          —          —          1,647        —          —          1,647        —          1,647   

Share-based compensation—equity awards

    —          4,036        —          —          —          —          4,036        —          4,036   

Tax benefits from share-based compensation

    —          96        —          —          —          —          96        —          96   

Unrealized foreign currency translation adjustment

    —          —          —          —          7,510        —          7,510        —          7,510   

Unrealized gain on investments

    —          —          —          —          53        —          53        —          53   

Amortization of net actuarial loss

    —          —          —          —          (1,311     —          (1,311     —          (1,311

Amortization of prior service credit

    —          —          —          —          (680     —          (680     —          (680

Other, net

    —          (2     (1     3        —          1        1        —          1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2012

  $ 37,402      $ 593,862      $ (13,034   $ (1,301   $ 27,465      $ (256,333   $ 388,061      $ 8,971      $ 397,032   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents

VIAD CORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

Note 1. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

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

Nature of Business

Viad’s reportable segments consist of Marketing & Events U.S., Marketing & Events International and Travel & Recreation Group.

Marketing & Events Group

The Marketing & Events Group, comprised of Global Experience Specialists, Inc. and affiliates (“GES”), specializes in all aspects of the design, planning and production of face-to-face events, immersive environments and brand-based experiences for clients, including show organizers, corporate brand marketers and retail shopping centers. In addition, the Marketing & Events Group provides a variety of immersive, entertaining attractions and brand-based experiences, sponsored events, mobile marketing and other branded entertainment and face-to-face marketing solutions for clients and venues, including shopping malls, movie studios, museums and leading consumer brands.

Travel & Recreation Group

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

Brewster provides tourism services in the Canadian Rockies in Alberta and in other parts of Western Canada. Brewster’s operations include the Banff Gondola, Columbia Icefield Glacier Adventure, motorcoach services, charter and sightseeing services, tour boat operations, inbound package tour operations and hotel operations, including the Banff International Hotel acquired on March 7, 2012. The Banff International Hotel is a 162-guest room hotel located in downtown Banff, Alberta, Canada.

Glacier Park operates five lodges, three motor inns and one four-season resort hotel and provides food and beverage operations, retail operations and tour and transportation services in and around Glacier National Park in Montana and Waterton Lakes National Park in Alberta, Canada. Glacier Park is an 80 percent owned subsidiary of Viad.

Alaska Denali Travel operates Denali Backcountry Lodge and Denali Cabins. Denali Backcountry Lodge is a 42-guest room lodge located within Denali National Park and Preserve in Alaska and the Denali Cabins are 46 guest cabins located near the entrance to Denali National Park and Preserve. In addition to lodging, Alaska Denali Travel also provides food and beverage operations and package tour and transportation services in and around Denali National Park and Preserve.

Significant Accounting Policies

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

 

   

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

 

   

Estimated allowances for uncollectible accounts receivable;

 

   

Estimated provisions for income taxes, including uncertain tax positions;

 

   

Estimated valuation allowances related to deferred tax assets;

 

   

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

 

   

Estimated liabilities for losses related to environmental remediation obligations;

 

   

Estimated sublease income associated with restructuring liabilities;

 

   

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

 

   

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

 

   

Allocation of purchase price of acquired businesses.

Actual results could differ from these and other estimates.

 

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Table of Contents

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

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

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

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

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

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

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

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

Fair Value of Financial Instruments. The carrying values of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-term maturities of these instruments. The estimated fair value of debt obligations is disclosed in Note 9.

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

 

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Table of Contents

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

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

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

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

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

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

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

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

Impact of Recent Accounting Pronouncements

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

 

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

Note 2. Share-Based Compensation

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

The following table summarizes share-based compensation expense:

 

     2012     2011     2010  
     (in thousands)  

Restricted stock/PBRS

   $ 3,267      $ 3,042      $ 2,821   

Performance unit incentive plan (“PUP”)

     2,922        714        (3

Stock options

     593        537        447   

Restricted stock units/PBRS units

     450        120        253   
  

 

 

   

 

 

   

 

 

 

Total share-based compensation before income tax benefit

     7,232        4,413        3,518   

Income tax benefit

     (2,574     (1,594     (1,225
  

 

 

   

 

 

   

 

 

 

Total share-based compensation, net of income tax benefit

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

 

 

   

 

 

   

 

 

 

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

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

 

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

Balance at January 1, 2010

     390,810      $ 24.59         174,927      $ 20.77   

Granted

     157,900        19.30         —           —      

Vested

     (65,961     34.42         (29,547     35.31   

Cancelled

     —           —            (126,550     15.36   

Forfeited

     (4,250     22.55         —           —      
  

 

 

      

 

 

   

Balance at December 31, 2010

     478,499        21.51         18,830        33.02   

Granted

     191,850        22.70         —           —      

Vested

     (91,212     31.31         (18,414     33.42   

Forfeited

     (7,115     20.81         —           —      
  

 

 

      

 

 

   

Balance at December 31, 2011

     572,022        20.36         416        15.36   

Granted

     168,050        20.46         —           —      

Vested

     (219,571     18.26         (416     15.36   

Forfeited

     (4,150     24.80         —           —      
  

 

 

      

 

 

   

Balance at December 31, 2012

     516,351        21.25         —           —      
  

 

 

      

 

 

   

 

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

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

 

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

Balance at January 1, 2010

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

Granted

     12,350        19.20         —          —            —          —      

Vested

     —          —            (1,958     15.36         —          —      

Cancelled

     —          —            (8,028     15.36         —          —      
  

 

 

      

 

 

      

 

 

   

Balance at December 31, 2010

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

Granted

     12,550        23.01         —          —            95,500        23.02   

Vested

     —          —           (1,958     15.36         —          —      

Cancelled

     —          —           —          —           (102,960     33.81   
  

 

 

      

 

 

      

 

 

   

Balance at December 31, 2011

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

Granted

     15,850        20.57         —          —            115,100        20.60   

Vested

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

Cancelled

     (850     20.89         —          —            —          —      
  

 

 

      

 

 

      

 

 

   

Balance at December 31, 2012

     40,500        20.82         —          —            210,600        21.70   
  

 

 

      

 

 

      

 

 

   

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

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

Stock Options. The following table summarizes stock option activity:

 

           Weighted-         
           Average      Options  
     Shares     Exercise Price      Exercisable  

Options outstanding at January 1, 2010

     541,718      $ 25.74         462,683   

Granted

     280,900        19.20      

Exercised

     (22,311     23.21      

Forfeited or expired

     (36,513     26.34      
  

 

 

      

Options outstanding at December 31, 2010

     763,794        23.38         451,194   

Exercised

     (14,616     20.14      

Forfeited or expired

     (164,977     23.88      
  

 

 

      

Options outstanding at December 31, 2011

     584,201        23.32         396,688   

Exercised

     (12,099     19.41      

Forfeited or expired

     (208,206     25.81      
  

 

 

      

Options outstanding at December 31, 2012

     363,896        22.03         276,009   
  

 

 

      

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

 

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

 

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

Range of Exercise Prices

   Shares