UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
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
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)
(602) 207-1000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1.50 Par Value
VVI
New York Stock Exchange
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files.) Yes ☒ No ☐
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 26, 2019, there were 20,311,857 shares of Common Stock ($1.50 par value) outstanding.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
1
Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018
2
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018
3
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018
4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018
6
Notes to Condensed Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
35
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
46
Item 4.
Controls and Procedures
47
PART II - OTHER INFORMATION
Legal Proceedings
48
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
49
Items 3-5
Not applicable
SIGNATURES
50
In this report, for periods presented, “we,” “us,” “our,” “the Company,” and “Viad Corp” refer to Viad Corp and its subsidiaries and affiliates.
Item 1. Financial Statements
VIAD CORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30,
December 31,
(in thousands, except share data)
2019
2018
Assets
Current assets
Cash and cash equivalents
$
45,578
44,893
Accounts receivable, net of allowances for doubtful accounts of $1,565 and $1,288,
respectively
159,769
108,936
Inventories
21,304
16,629
Current contract costs
19,858
18,017
Other current assets
27,598
25,486
Total current assets
274,107
213,961
Property and equipment, net
487,410
333,847
Other investments and assets
43,288
42,910
Operating lease right-of-use assets
59,123
—
Deferred income taxes
24,731
19,199
Goodwill
276,163
261,330
Other intangible assets, net
57,359
51,294
Total Assets
1,222,181
922,541
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
100,312
71,927
Contract liabilities
50,622
33,476
Accrued compensation
29,283
22,668
Operating lease obligations
22,149
Other current liabilities
48,808
32,258
Current portion of debt and finance lease obligations
313,937
229,416
Total current liabilities
565,111
389,745
Long-term debt and finance lease obligations
10,588
705
Pension and postretirement benefits
26,317
26,636
Long-term operating lease obligations
39,607
Other deferred items and liabilities
71,395
48,991
Total liabilities
713,018
466,077
Commitments and contingencies
Redeemable noncontrolling interest
5,508
5,909
Stockholders’ equity
Viad Corp stockholders’ equity:
Common stock, $1.50 par value, 200,000,000 shares authorized, 24,934,981 shares
issued and outstanding
37,402
Additional capital
572,931
575,339
Retained earnings
101,045
109,032
Unearned employee benefits and other
199
Accumulated other comprehensive loss
(38,730
)
(47,975
Common stock in treasury, at cost, 4,628,501 and 4,741,638 shares, respectively
(233,739
(237,790
Total Viad stockholders’ equity
438,909
436,207
Non-redeemable noncontrolling interest
64,746
14,348
Total stockholders’ equity
503,655
450,555
Total Liabilities and Stockholders’ Equity
Refer to Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
Six Months Ended
(in thousands, except per share data)
Revenue:
Services
347,659
314,723
598,300
560,271
Products
54,620
48,954
89,573
80,834
Total revenue
402,279
363,677
687,873
641,105
Costs and expenses:
Costs of services
306,154
280,842
569,510
538,137
Costs of products
49,683
44,433
83,157
75,555
Business interruption gain
(141
(377
(567
Corporate activities
3,282
2,535
5,115
4,752
Interest income
(83
(53
(181
(137
Interest expense
2,957
2,354
5,872
4,423
Multi-employer pension plan withdrawal
15,508
Other expense
456
543
911
781
Restructuring charges
4,455
662
5,143
824
Legal settlement
8,500
Impairment recoveries
(35
Total costs and expenses
382,271
330,904
693,394
623,733
Income (loss) from continuing operations before income taxes
20,008
32,773
(5,521
17,372
Income tax expense (benefit)
6,565
9,114
(1,030
4,476
Income (loss) from continuing operations
13,443
23,659
(4,491
12,896
Income (loss) from discontinued operations
460
(279
173
649
Net income (loss)
13,903
23,380
(4,318
13,545
Net loss (income) attributable to non-redeemable noncontrolling
interest
(331
33
89
397
Net loss attributable to redeemable noncontrolling interest
252
77
276
161
Net income (loss) attributable to Viad
13,824
23,490
(3,953
14,103
Diluted income (loss) per common share:
Continuing operations attributable to Viad common stockholders
0.65
1.16
(0.22
Discontinued operations attributable to Viad common stockholders
0.02
(0.01
0.01
0.04
Net income (loss) attributable to Viad common stockholders
0.67
1.15
(0.21
0.69
Weighted-average outstanding and potentially dilutive common
shares
20,266
20,436
20,110
20,446
Basic income (loss) per common share:
Weighted-average outstanding common shares
20,143
20,209
20,208
Dividends declared per common share
0.10
0.20
Amounts attributable to Viad common stockholders
13,364
23,769
(4,126
13,454
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Other comprehensive income (loss):
Unrealized foreign currency translation adjustments
4,317
(8,095
9,097
(11,204
Change in net actuarial loss, net of tax(1)
99
220
219
849
Change in prior service cost, net of tax(1)
(36
(71
(180
Comprehensive income
18,283
15,509
4,927
3,010
Non-redeemable noncontrolling interest:
Comprehensive (income) loss attributable to non-redeemable
noncontrolling interest
776
Redeemable noncontrolling interest:
Comprehensive loss attributable to redeemable noncontrolling interest
Comprehensive income attributable to Viad
18,728
15,542
5,792
3,407
(1)
The tax effect on other comprehensive income (loss) is not significant.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common
Stock
Additional
Capital
Retained
Earnings
Unearned
Employee Benefits
and Other
Accumulated Other Comprehensive Income (Loss)
Stock in
Treasury
Total
Viad
Equity
Non-Redeemable Non-Controlling
Interest
Stockholders’
Balance, December 31, 2018
Net loss
(17,777
(420
(18,197
Dividends on common stock ($0.10 per share)
(2,028
Payment of payroll taxes on stock-based compensation through shares withheld
(2,905
Employee benefit plans
(4,302
5,522
1,220
Share-based compensation - equity awards
780
Unrealized foreign currency translation adjustment, net of tax
4,780
Amortization of net actuarial loss, net of tax
120
Amortization of prior service cost, net of tax
Other, net
16
24
41
Balance, March 31, 2019
571,833
89,227
223
(43,110
(235,172
420,403
13,928
434,331
Net income
331
14,155
(2,006
(89
301
1,301
1,602
5,093
Acquisition of Mountain Park Lodges
49,711
(223
221
14
Balance, June 30, 2019
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
Balance, December 31, 2017
574,458
65,836
218
(22,568
(226,215
429,131
13,806
442,937
(9,387
(364
(9,751
(2,046
(868
(2,014
3,137
1,123
815
(3,109
629
(184
Adoption of ASU 2016-01
616
(616
(19
(11
(1
(67
Balance, March 31, 2018
573,223
55,000
207
(25,848
(223,947
416,037
13,442
429,479
(33
23,457
(2,049
(156
Common stock purchased for treasury
(9,061
1,476
1,405
952
17
25
Balance, June 30, 2018
574,104
76,458
214
(33,719
(231,687
422,772
13,409
436,181
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
27,715
28,178
6,215
2,727
Income from discontinued operations
(173
(649
Gains on dispositions of property and other assets
(731
(113
Share-based compensation expense
4,617
2,762
Other non-cash items, net
2,227
2,681
Change in operating assets and liabilities (excluding the impact of acquisitions):
Receivables
(51,293
(37,594
(4,518
(3,043
(2,000
(8,637
31,303
20,140
3,647
(5,753
17,259
Payments on operating lease obligations
(13,603
Other assets and liabilities, net
(5,961
(3,839
Net cash provided by operating activities
39,537
31,460
Cash flows from investing activities
Capital expenditures
(46,517
(43,429
Cash paid for acquired businesses, net
(72,918
(4,628
Proceeds from dispositions of property and other assets
768
1,292
Net cash used in investing activities
(118,667
(46,765
Cash flows from financing activities
Proceeds from borrowings
133,827
80,051
Payments on debt and finance lease obligations
(47,862
(51,607
Dividends paid on common stock
(4,034
(4,095
Payment of payroll taxes on stock-based compensation through shares withheld or repurchased
(2,994
(1,024
Proceeds from exercise of stock options
92
84
Net cash provided by financing activities
79,029
Effect of exchange rate changes on cash and cash equivalents
786
(3,380
Net change in cash and cash equivalents
685
(4,337
Cash and cash equivalents, beginning of year
53,723
Cash and cash equivalents, end of period
49,386
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Overview and Basis of Presentation
Nature of Business
We are an international experiential services company with operations principally in the United States, Canada, the United Kingdom, continental Europe, and the United Arab Emirates. We are committed to providing unforgettable experiences to our clients and guests. We operate through three reportable business segments: GES North America, GES EMEA (collectively, “GES”), and Pursuit.
GES
GES is a global, full-service live events company offering a comprehensive range of services to the world’s leading brands and event organizers. GES’ clients include event organizers and corporate brand marketers. Event organizers schedule and run the event from start to finish. Corporate brand marketers include exhibitors and domestic and international corporations that want to promote their brands, services and innovations, feature new products, and build business relationships. GES serves corporate brand marketers when they exhibit at shows and when GES is engaged to manage their global exhibit program or produce their proprietary corporate events.
Services and Products Offered
GES provides a full suite of services and products for event organizers and corporate brand marketers through the following lines of business:
•
Core Services. GES provides official contracting services and products, including the design and production of experiences, material handling, rigging, electrical, and other on-site event services.
Event Technology. GES offers a comprehensive range of event technology services, including event accommodation solutions, registration and data analytics, and event management tools.
Audio-Visual. GES offers a variety of high-impact multi-media services and technology, including video production, lighting design, digital studio services, entertainment services and talent coordination, projection mapping, and computer rental and support.
Markets Served
GES provides the above services and products across four live event markets: Exhibitions, Conferences, Corporate Events, and Consumer Events (collectively, “Live Events”).
Exhibitions facilitate business-to-business and business-to-consumer sales and marketing.
Conferences facilitate attendee education and may also include an expo or trade show to further facilitate attendee education and to facilitate business-to-business and business-to-consumer sales and marketing.
Corporate events facilitate attendee education of the sponsoring company’s products or product ecosystem.
Consumer events entertain, educate, or create an experience, typically around a specific genre.
Pursuit
Pursuit is a collection of inspiring and unforgettable travel experiences that include world-class recreational attractions, unique hotels and lodges, food and beverage, retail, sightseeing, and ground transportation services.
Pursuit comprises four lines of business: Attractions, including food and beverage services and retail operations; Hospitality, including food and beverage services and retail operations; Transportation; and Travel Planning. Services offered by these lines of business (or a subset of these) include admissions, accommodations, transportation, and travel planning. Products offered include food and beverage and retail operations.
Pursuit provides the above services and products across the following geographic markets:
The Banff Jasper Collection is a leading travel and tourism provider in the Canadian Rockies in Alberta, Canada with two lodging properties in Banff National Park, eight lodging properties in Jasper National Park, including the recently acquired Mountain Park Lodges, five world-class recreational attractions, food and beverage services, retail operations, sightseeing and transportation services.
The Alaska Collection is a leading travel and tourism provider in Alaska with two lodging properties and a sightseeing excursion in Denali National Park and Preserve, a lodge in Talkeetna, Alaska’s top-rated wildlife and glacier cruise, and two lodging properties located near Kenai Fjords National Park. The Alaska Collection also provides food and beverage services and retail operations.
The Glacier Park Collection is an operator of nine lodging properties, food and beverage services, and retail operations in and around Glacier National Park in Montana and Waterton Lakes National Park in Alberta, Canada, with a leading share of rooms in the Glacier Park market.
FlyOver is a recreational attraction that provides a virtual flight ride experience that combines motion seating, spectacular audio-visual media, and special effects including wind, scents, and mist to provide a true flying experience for guests.
o
FlyOver Canada is located in Vancouver, British Columbia that provides an unforgettable experience of flying across Canada.
FlyOver Iceland is currently being built in Reykjavik, Iceland that will provide an experience of flying over some of Iceland’s most spectacular scenery and natural wonders. We are scheduled to open this new attraction in August 2019.
FlyOver Las Vegas is currently being built in Las Vegas, Nevada that will provide an experience of flying over some of the most spectacular scenery and natural wonders of the American Southwest. We expect to open this new attraction in 2021.
FlyOver Toronto is a newly announced expansion into Toronto, Canada. This new attraction will showcase Canada’s most awe-inspiring sights. It will be located in Toronto’s Entertainment District. We expect to open this new attraction in 2022. Refer to Note 24 – Subsequent Events for additional information.
Pursuit recently announced a plan for a new geothermal lagoon attraction in Iceland. It will be located on an oceanfront lot just outside downtown Reykjavik. We expect to open this new attraction in 2021. Refer to Note 24 – Subsequent Events for additional information.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information required by GAAP or SEC rules and regulations for complete financial statements. These financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 27, 2019 (“2018 Form 10-K”).
The condensed consolidated financial statements include the accounts of Viad and its subsidiaries. We have eliminated all significant intercompany account balances and transactions in consolidation.
8
Impact of Recent Accounting Pronouncements
The following table provides a brief description of recent accounting pronouncements:
Standard
Description
Date of adoption
Effect on the financial statements
Standards Not Yet Adopted
ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendment also requires an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. Early adoption is permitted and may be applied on either a retrospective or prospective basis.
January 1, 2020
We are currently evaluating the potential impact of the adoption of this new guidance on our consolidated financial statements and related disclosures.
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments
The amendment eliminates the incurred credit loss impairment methodology in current GAAP and replaces it with an expected credit loss concept based on historical experience, current conditions, and reasonable and supportable forecasts.
Subsequent to the issuance of ASU 2016-13, the FASB issued additional amendments which do not change the core principle of the guidance stated in ASU 2016-13. Rather, they are intended to clarify and improve understanding of certain topics included within the credit losses standard.
We are currently evaluating the potential impact of the adoption of this new guidance on our consolidated financial statements. We will be required to use a forward-looking expected credit loss model for trade receivables. Adoption of this new standard will be applied using the modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date in an amount necessary to adjust our current credit loss methodology to equal the current estimate of expected losses on financial assets held at that date.
Standards Recently Adopted
ASU 2016-02, Leases (Topic 842)
The amendment increases transparency and comparability by requiring the recognition of a right-of-use asset and a lease liability on the balance sheet. The standard also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of cash flows arising from leases.
January 1, 2019
We adopted ASU 2016-02 and its related amendments (collectively, “Topic 842”) on January 1, 2019 using the optional transition method. Under this method, a cumulative adjustment to retained earnings is recorded, if any, and prior periods are not restated. We determined there was no cumulative effect adjustment to retained earnings on January 1, 2019.
The adoption of Topic 842 did not have a material impact on our Consolidated Statement of Operations. The most significant impact related to facility and equipment leases, which were previously recorded as operating leases. Upon adoption as of January 1, 2019, we recognized an additional right-of-use asset and lease liability of $59 million on the balance sheet. The existing deferred rent liabilities balance, resulting from historical straight-lining of operating leases, was reclassified upon adoption to reduce the measurement of leased assets. Refer to our Leases Significant Accounting Policy immediately following this table and Note 19 - Leases and Other for additional information.
9
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 reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Estimates and assumptions are used in accounting for, among other things, the fair value of our reporting units used to perform annual impairment testing of recorded goodwill; allowances for uncollectible accounts receivable; provisions for income taxes, including uncertain tax positions; valuation allowances related to deferred tax assets; liabilities for losses related to self-insured liability claims; liabilities for losses related to environmental remediation obligations; sublease income associated with restructuring liabilities; assumptions used to measure pension and postretirement benefit costs and obligations; assumptions used to determine share-based compensation costs under the fair value method; assumptions used to determine the redemption value of redeemable noncontrolling interests; and the allocation of purchase price of acquired businesses. Actual results could differ from these and other estimates.
Revenue Recognition
Revenue is measured based on a specified amount of consideration in a contract with a customer, net of commissions paid to customers and amounts collected on behalf of third parties. We recognize revenue when a performance obligation is satisfied by transferring control of a product or service to a customer.
GES’ service revenue is primarily derived through its comprehensive range of services to event organizers and corporate brand marketers including Core Services, Event Technology, and Audio-Visual. GES’ service revenue is earned over time over the duration of the exhibition, conference, or corporate event, which generally lasts one to three days; however, we recognize service revenue at the close of the event when we have the right to invoice. GES’ product revenue is derived from the build of exhibits and environments and graphics. GES’ product revenue is recognized at a point in time upon delivery of the product.
Pursuit’s service revenue is derived through its admissions, accommodations, transportation, and travel planning services. Pursuit’s product revenue is derived through food and beverage and retail sales. Pursuit’s revenue is recognized at the time services are performed or upon delivery of the product. Pursuit’s service revenue is recognized over time as the customer simultaneously receives and consumes the benefits. Pursuit’s product revenue is recognized at a point in time.
Noncontrolling Interests – Non-redeemable and Redeemable
Non-redeemable noncontrolling interest represents the portion of equity in a subsidiary that is not attributable, directly or indirectly, to us. Our non-redeemable noncontrolling interest relates to the 20% equity ownership interest that we do not own in Glacier Park, Inc. and the 40% equity interest that we do not own in the recently acquired Mountain Park Lodges. We report non-redeemable noncontrolling interest within stockholders’ equity in the Condensed Consolidated Balance Sheets. The amount of consolidated net income or loss attributable to Viad and the non-redeemable noncontrolling interest is presented in the Condensed Consolidated Statements of Operations.
Noncontrolling interests with redemption features that are not solely within our control are considered redeemable noncontrolling interests. Our redeemable noncontrolling interest relates to our 54.5% equity ownership interest in Esja Attractions ehf. (“Esja”). The Esja shareholders agreement contains a put option that gives the minority Esja shareholders the right to sell (or “put”) their Esja shares to us based on a calculated formula within a predefined term. This redeemable noncontrolling interest is considered temporary equity and we report it between liabilities and stockholders’ equity in the Condensed Consolidated Balance Sheets. The amount of the net income or loss attributable to redeemable noncontrolling interests is recorded in the Condensed Consolidated Statements of Operations and the accretion of the redemption value is recorded as an adjustment to retained earnings and is included in our income (loss) per share. Refer to Note 21 – Redeemable Noncontrolling Interest for additional information.
Leases
We adopted Topic 842 on January 1, 2019, which requires the recognition of a right-of-use (“ROU”) asset and lease liability on the balance sheet, and requires lessees to classify leases as either finance or operating leases. The classification of the lease determines whether the lease expense is recognized on an effective interest method basis (finance lease) or on a straight-line basis (operating lease) over the lease term. In determining whether an agreement contains a lease, we consider if we have a right to control the use of the underlying asset during the lease term in exchange for an obligation to make lease payments arising from the lease. We recognize
10
ROU assets and lease liabilities at commencement date, which is when the underlying asset is available for use to a lessee, based on the present value of lease payments over the lease term.
Our operating and finance leases are primarily facility, equipment, and land leases. Our facility leases comprise mainly manufacturing facilities, sales and design facilities, offices, storage and/or warehouses, and truck marshaling yards. These facility leases generally have lease terms ranging up to 25 years. Our equipment leases comprise mainly vehicles, hardware, and office equipment, each with various lease terms. Our land leases comprise mainly leases in Canada and Iceland on which our hotels or attractions reside and have lease terms ranging up to 42 years.
We made the accounting policy election not to recognize ROU assets and lease liabilities for leases with a term of twelve months or less. We elected to apply the package of practical expedients permitted under Topic 842 transition guidance, which among other things, allows us to carry forward our historical lease classifications. We also elected the practical expedient to not separate non-lease components from lease components for all asset classes, and payments associated with fixed non-lease components are included in measuring the ROU asset and lease liability.
If a lease contains a renewal option that is reasonably certain to be exercised, then the lease term includes the optional periods in measuring a ROU asset and lease liability. Variable leases and variable non-lease components are not included in the calculation of the ROU asset and corresponding lease liability. For facility leases, variable lease costs include the costs of common area maintenance, taxes, and insurance for which we pay our lessors an estimate that is adjusted to actual expense on a quarterly or annual basis depending on the underlying contract terms. These variable lease payments are expensed as incurred. Upon the adoption of Topic 842, our accounting for finance leases, previously referred to as capital leases, remains substantially unchanged from prior guidance. Our lease agreements do not contain any significant residual value guarantees or restrictive covenants.
Substantially all of our lease agreements do not specify an implicit borrowing rate, and as such, we utilize an incremental borrowing rate based on lease term and country, in order to calculate the present value of our future lease payments. The discount rate represents a risk-adjusted rate on a secured basis, and is the expected rate at which we would borrow funds to satisfy the scheduled lease liability payment streams commensurate with the lease term and the country. On January 1, 2019, the discount rate used on existing leases at adoption was extrapolated based on the remaining lease term and the country using available data as of that date. For new or renewed leases starting in 2019, the discount rate is determined using available data at lease commencement and based on the lease term and country including any reasonably certain renewal periods.
We are also a lessor to third party tenants who either lease certain portions of facilities that we own or sublease certain portions of facilities that we lease. Lease income from owned facilities is recorded as rental income and sublease income from leased facilities is recorded against lease expense in the Condensed Consolidated Statements of Operations. All of our leases for which we are the lessor are classified as operating leases under Topic 842.
Note 2. Revenue and Related Contract Costs and Contract Liabilities
GES’ performance obligations consist of services or product(s) outlined in a contract. While multi-year contracts are often signed for recurring events, the obligations for each occurrence are well defined and conclude upon the occurrence of each event. The obligations are typically the provision of services and/or sale of a product in connection with an exhibition, conference, or other event. Revenue for services is recognized when we have a right to invoice at the close of the exhibition, conference, or corporate event, which typically lasts one to three days. Revenue for consumer events is recognized over the duration of the event. Revenue for products is recognized either upon delivery to the customer’s location, upon delivery to an event that we are serving, or when we have the right to invoice, generally at the close of the exhibition, conference, or corporate event. Payment terms are generally within 30-60 days and contain no significant financing components.
Pursuit’s performance obligations are short-term in nature. They include the provision of a hotel room, an attraction admission, a chartered or ticketed bus or van ride, the fulfillment of travel planning itineraries, and/or the sale of food, beverage, or retail products. Revenue is recognized when the service has been provided or the product has been delivered. When credit is extended, payment terms are generally within 30 days and contain no significant financing components.
Contract Liabilities
GES and Pursuit typically receive customer deposits prior to transferring the related product or service to the customer. These deposits are recorded as a contract liability and recognized as revenue upon satisfaction of the related contract performance obligation(s). GES also provides customer rebates and volume discounts to certain event organizers that are recorded as contract liabilities and are recognized as a reduction of revenue. These amounts are included in the Condensed Consolidated Balance Sheets under the captions “Contract liabilities” and “Other deferred items and liabilities.”
11
Changes to contract liabilities are as follows:
Balance at December 31, 2018
35,600
Cash additions
77,448
Revenue recognized
(62,147
Foreign exchange translation adjustment
87
Balance at June 30, 2019
50,988
Contract Costs
GES capitalizes certain incremental costs incurred in obtaining and fulfilling contracts. Capitalized costs principally relate to direct costs of materials and services incurred in fulfilling services of future exhibitions, conferences, and events, and also include up-front incentives and commissions incurred upon contract signing. Costs associated with preliminary contract activities (i.e. proposal activities) are expensed as incurred. Capitalized contract costs are expensed upon the transfer of the related goods or services and are included in cost of services or cost of products, as applicable. The deferred incremental costs of obtaining and fulfilling contracts are included in the Condensed Consolidated Balance Sheets under the captions “Current contract costs” and “Other investments and assets.”
Changes to contract costs are as follows:
21,478
Additions
35,627
Expenses
(32,721
Cancelled
(13
24,234
As of June 30, 2019, capitalized contract costs consisted of $2.1 million to obtain contracts and $22.1 million to fulfill contracts. We did not recognize an impairment loss with respect to capitalized contract costs during the three and six months ended June 30, 2019 or 2018.
12
Disaggregation of Revenue
The following tables disaggregate GES and Pursuit revenue by major product line, timing of revenue recognition, and markets served:
Three Months Ended June 30, 2019
GES North America(1)
GES EMEA(1)
Intersegment Eliminations
Services:
Core services
228,112
41,821
269,933
Audio-visual
24,175
6,881
31,056
Event technology
9,845
2,134
11,979
Intersegment eliminations
(6,317
Total services
262,132
50,836
306,651
Products:
Core products
21,550
18,669
40,219
283,682
69,505
346,870
Timing of revenue recognition:
Services transferred over time
Products transferred over time(2)
11,774
4,811
16,585
Products transferred at a point in time
9,776
13,858
23,634
Markets:
Exhibitions
138,887
49,293
188,180
Conferences
105,455
10,870
116,325
Corporate events
29,868
8,772
38,640
Consumer events
9,472
570
10,042
During the first quarter of 2019, we realigned GES’ organizational structure. As a result, we changed GES’ reportable segments to reflect how our chief operating decision maker regularly reviews and makes decisions regarding the allocation of resources. Accordingly, GES’ new reportable segments are GES North America and GES EMEA.
(2)
GES’ graphics product revenue is recognized over time as it is considered a part of the single performance obligation satisfied over time.
13
Six Months Ended June 30, 2019
407,985
72,884
480,869
42,581
10,769
53,350
18,608
5,087
23,695
(9,007
469,174
88,740
548,907
37,749
35,141
72,890
506,923
123,881
621,797
23,043
8,290
31,333
14,706
26,851
41,557
275,316
94,948
370,264
153,317
13,852
167,169
62,655
14,317
76,972
15,635
764
16,399
Three Months Ended June 30, 2018
211,683
31,774
243,457
20,741
6,553
27,294
10,534
2,847
13,381
(6,231
242,958
41,174
277,901
17,933
19,488
37,421
260,891
60,662
315,322
10,968
4,827
15,795
6,965
14,661
21,626
137,740
40,688
178,428
89,768
12,057
101,825
27,339
7,040
34,379
6,044
877
6,921
15
Six Months Ended June 30, 2018
392,208
60,759
452,967
37,825
9,721
47,546
18,569
6,121
24,690
(9,509
448,602
76,601
515,694
34,353
32,981
67,334
482,955
109,582
583,028
22,337
8,156
30,493
12,016
24,825
36,841
283,558
80,623
364,181
128,857
17,445
146,302
58,242
10,442
68,684
12,298
1,072
13,370
Admissions
23,156
23,480
26,681
27,059
Accommodations
12,926
9,030
15,344
10,735
Transportation
3,954
4,321
5,949
6,690
Travel planning
1,471
491
2,103
799
(499
(500
(684
(706
Total services revenue
41,008
36,822
49,393
44,577
Food and beverage
8,206
6,705
9,570
7,924
Retail operations
6,195
4,828
7,113
5,576
Total products revenue
14,401
11,533
16,683
13,500
55,409
48,355
66,076
58,077
Banff Jasper Collection
33,226
28,519
41,096
35,608
Alaska Collection
12,198
10,614
12,378
10,827
Glacier Park Collection
7,375
6,640
8,198
7,266
FlyOver
2,610
2,582
4,404
4,376
Note 3. Share-Based Compensation
The following table summarizes share-based compensation expense:
Performance unit incentive plan (“PUP”)
1,557
1,324
2,980
1,518
Restricted stock
783
667
1,170
Restricted stock units
71
54
74
Share-based compensation before income tax benefit
2,411
2,045
Income tax benefit
(607
(515
(1,165
(696
Share-based compensation, net of income tax benefit
1,804
1,530
3,452
2,066
We did not record any share-based compensation expense through restructuring charges during the three and six months ended June 30, 2019 or 2018.
The following table summarizes the activity of the outstanding share-based compensation awards:
PUP Awards
Restricted Stock
Restricted Stock Units
Shares
Weighted-Average
Grant Date
Fair Value
239,809
40.65
176,769
40.87
12,090
39.04
Granted
73,020
58.25
55,042
57.82
5,025
56.81
Vested
(95,309
26.98
(81,320
31.79
(5,377
Forfeited
(488
54.70
(2,772
49.24
(115
52.15
217,032
52.54
147,719
52.02
11,623
52.17
Viad Corp Omnibus Incentive Plan
We grant share-based compensation awards to our officers, directors, and certain key employees pursuant to the 2017 Viad Corp Omnibus Incentive Plan (the “2017 Plan”). The 2017 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. In June 2017, we registered 1,750,000 shares of common stock issuable under the 2017 Plan. As of June 30, 2019, there were 1,581,743 shares available for future grant under the 2017 Plan.
The vesting of PUP award shares is based upon achievement of certain performance-based criteria over a three-year period.
During the six months ended June 30, 2019, we granted PUP awards with a grant date fair value of $4.3 million of which $1.7 million are payable in shares. Liabilities related to PUP awards were $4.2 million as of June 30, 2019 and $7.0 million as of December 31, 2018. In 2019, PUP awards granted in 2016 vested and we paid $5.6 million in cash and $3.4 million in shares. In 2019, we withheld 25,771 shares for $1.5 million related to tax withholding requirements on vested PUP awards paid in shares. In 2018, PUP awards granted in 2015 vested and we distributed cash payouts of $5.9 million.
As of June 30, 2019, the unamortized cost of outstanding restricted stock awards was $4.1 million, which we expect to recognize over a weighted-average period of approximately 1.5 years. We repurchased 24,217 shares for $1.4 million during the six months ended June 30, 2019 and 19,237 shares for $1.0 million during the six months ended June 30, 2018 related to tax withholding requirements on vested share-based awards.
Aggregate liabilities related to restricted stock units were $0.3 million as of June 30, 2019 and $0.4 million as of December 31, 2018. During the six months ended June 30, 2019, restricted stock units vested and we paid $0.3 million in cash and $0.2 million in shares. During the six months ended June 30, 2018, the 2015 restricted stock units vested and we distributed $0.2 million in cash payouts.
Stock Options
The following table summarizes stock option activity:
Exercise Price
Options outstanding and exercisable at December 31, 2018
58,689
16.62
Exercised
(5,546
Options outstanding and exercisable at June 30, 2019
53,143
18
Note 4. Acquisition of Businesses
2019 Acquisitions
Belton Chalet
On May 16, 2019, we acquired the Belton Chalet in Glacier National Park for total cash consideration of $3.2 million. Transaction costs associated with the acquisition were $0.3 million, which are included in “Cost of services” in the Condensed Consolidated Statements of Operations. These assets have been included in the consolidated financial statements from the date of acquisition.
Mountain Park Lodges
On June 8, 2019, we acquired a 60% equity interest in Mountain Park Lodges’ group of seven hotels and an undeveloped land parcel located in Jasper National Park for total consideration of $100.6 million Canadian dollars (approximately $76 million U.S. dollars).
The seven Mountain Park Lodges properties include: Sawridge Inn and Conference Centre (152 guest rooms); Pyramid Lake Resort (62 guest rooms); The Crimson Hotel (99 guest rooms); Chateau Jasper (119 guest rooms); Pocahontas Cabins (57 guest rooms); Marmot Lodge (107 guest rooms); and Lobstick Lodge (139 guest rooms).
As the majority owner of these properties we consolidate 100% of the results of operations in our consolidated financial statements and record the 40% owners’ share of the income or loss attributable to non-redeemable noncontrolling interest.
The following table summarizes the preliminary recording of the fair value allocation of the assets acquired and liabilities assumed as of the date of acquisition. Due to the recent timing of the acquisition, the purchase price allocation is not yet final and is subject to change within the measurement period (up to one year from the acquisition date) as the valuation of property and equipment, intangible assets, and working capital is finalized.
Purchase price paid as:
Cash
70,975
Additional purchase price payable for tax liability
4,874
Net working capital adjustment
(6
Consideration transferred
75,843
Right to manage
(1,276
Purchase price, net
74,567
Fair value of net assets acquired:
Accounts receivable
369
Prepaid expenses
324
Property and equipment
115,878
Intangible assets
9,218
Total assets acquired
125,962
366
Advanced deposits payable
449
Deferred tax liability
11,463
Other liabilities
137
Total liabilities assumed
12,415
Noncontrolling interest equity
Total fair value of net assets acquired
63,836
Excess purchase price over fair value of net assets acquired (“goodwill”)
10,731
Under the acquisition method of accounting, the purchase price as shown in the table above is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair value. The excess purchase price over the fair value of net assets acquired was recorded as “Goodwill.” Goodwill is included in the Pursuit business group. The primary factor that contributed to the purchase price resulting in the recognition of goodwill related to future growth opportunities when combined with our other businesses. Goodwill is not deductible for tax purposes. The estimated values of current assets and liabilities were based upon their historical costs on the acquisition date due to their short-term nature.
19
Transaction costs associated with the Mountain Park Lodges were $0.7 million in 2019 and $0.1 million in 2018, which are included in “Corporate activities” in the Condensed Consolidated Statements of Operations. These assets and results of operations have been included in the consolidated financial statements from the date of acquisition. During the three months ended June 30, 2019, revenue related to the Mountain Park Lodges was $2.8 million and operating income was $1.5 million.
Identifiable intangible assets acquired in the Mountain Park Lodges acquisition were $9.2 million and consist primarily of customer relationships and trade name. The weighted average amortization period related to the intangible assets is approximately 10 years.
Supplementary pro forma financial information
The following table summarizes the unaudited pro forma results of operations attributable to Viad, assuming the Mountain Park Lodges acquisition had been completed on January 1, 2018:
June 30, 2019
June 30, 2018
Revenue
406,657
371,099
696,134
652,438
15,839
16,476
30,348
30,926
12,862
24,104
(5,898
11,151
13,578
23,718
(4,651
12,785
Diluted income (loss) per share
0.66
(0.24
0.62
Basic income (loss) per share
2018 Acquisition
Maligne Canyon Restaurant
In March 2018, we acquired the Maligne Canyon Restaurant and Gift Shop for total cash consideration of $6.0 million Canadian dollars (approximately $4.6 million U.S. dollars). Transaction costs associated with the acquisition were $24 thousand in 2018, which are included in “Cost of services” in the Condensed Consolidated Statements of Operations. These assets have been included in the consolidated financial statements from the date of acquisition.
Note 5. Inventories
Inventories, which consist primarily of exhibit design and construction materials and supplies, as well as retail inventory, are stated at the lower of cost (first-in, first-out and specific identification methods) or net realizable value.
The components of inventories consisted of the following:
Raw materials
12,594
12,368
Finished goods
8,710
4,261
Note 6. Other Current Assets
Other current assets consisted of the following:
Income tax receivable
9,817
10,886
Prepaid software maintenance
5,729
4,010
Prepaid vendor payments
5,207
4,492
Prepaid taxes
1,093
591
Prepaid insurance
1,026
2,754
Prepaid other
3,388
1,755
Other
1,338
998
20
Note 7. Property and Equipment
Property and equipment consisted of the following:
Land and land interests
33,953
32,887
Buildings and leasehold improvements
350,538
238,995
Equipment and other
417,466
383,284
Gross property and equipment
801,957
655,166
Accumulated depreciation
(342,968
(321,319
Property and equipment, net (excluding finance leases)
458,989
Finance lease right-of-use assets, net
28,421
Depreciation expense was $11.2 million for the three months ended June 30, 2019 and $21.3 million for the six months ended June 30, 2019. Depreciation expense was $12.3 million for the three months ended June 30, 2018 and $22.6 million for six months ended June 30, 2018.
Amortization expense on finance leases was $0.6 million for the three months ended June 30, 2019 and $1.2 million for the six months ended June 30, 2019.
Property and equipment purchased through accounts payable and accrued liabilities increased $3.2 million during the six months ended June 30, 2019 and $0.1 million for the six months ended June 30, 2018.
Note 8. Other Investments and Assets
Other investments and assets consisted of the following:
Cash surrender value of life insurance
23,981
23,815
Self-insured liability receivable
9,176
Contract costs
3,461
Other mutual funds
3,055
2,517
2,700
3,941
Note 9. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill are as follows:
GES North America
GES EMEA
154,944
29,954
76,432
Business acquisitions
Foreign currency translation adjustments
280
(406
2,983
2,857
Other adjustment
1,245
155,224
29,548
91,391
21
Other intangible assets consisted of the following:
December 31, 2018
Useful Life
(Years)
Gross Carrying
Value
Accumulated
Amortization
Net Carrying Value
Intangible assets subject to amortization:
Customer contracts and relationships
7.7
75,255
(35,060
40,195
67,729
(31,201
36,528
Operating contracts and licenses
23.7
9,564
(1,593
7,971
9,180
(1,376
7,804
Tradenames
7.1
9,736
(3,524
6,212
7,705
4,596
Non-compete agreements
1.9
5,198
(4,707
5,174
(4,080
1,094
8.0
2,689
(659
2,030
1,365
(553
812
Total amortized intangible assets
102,442
(45,543
56,899
91,153
(40,319
50,834
Indefinite-lived intangible assets:
Business licenses
Other intangible assets
102,902
91,613
Intangible asset amortization expense was $2.8 million for the three months ended June 30, 2019 and $5.2 million for the six months ended June 30, 2019. Intangible asset amortization was $2.9 million for the three months ended June 30, 2018 and $5.5 million for the six months ended June 30, 2018.
At June 30, 2019, the estimated future amortization expense related to intangible assets subject to amortization is as follows:
Year ending December 31,
Remainder of 2019
5,248
2020
9,444
2021
8,458
2022
6,933
2023
5,759
Thereafter
21,057
22
Note 10. Other Current Liabilities
Other current liabilities consisted of the following:
Continuing operations:
Accommodation services deposits
10,600
1,541
Commissions payable
8,390
2,703
Self-insured liability
6,076
5,688
Accrued sales and use taxes
3,553
5,397
Accrued employee benefit costs
3,540
3,224
Accrued legal settlement
2,500
Current portion of pension and postretirement liabilities
2,310
Accrued dividends
2,013
2,012
Deferred rent (1)
1,659
Accrued restructuring
1,410
716
Accrued professional fees
1,126
886
Accrued income tax payable
797
Other taxes
1,801
695
4,065
4,501
Total continuing operations
48,005
31,332
Discontinued operations:
Environmental remediation liabilities
510
555
217
295
76
Total discontinued operations
803
926
Total other current liabilities
Upon the adoption of Topic 842, we reclassified deferred rent to operating lease obligations. We did not recast prior year financial statements under the new standard. Refer to Note 19 – Leases and Other for additional information.
Note 11. Other Deferred Items and Liabilities
Other deferred items and liabilities consisted of the following:
Foreign deferred tax liability
21,306
9,768
Multi-employer pension plan withdrawal liability
9,885
10,681
Self-insured excess liability
6,395
6,664
1,879
1,535
2,124
2,719
2,302
1,868
66,817
44,535
2,456
2,437
1,777
1,775
345
244
4,578
4,456
Total other deferred items and liabilities
23
Note 12. Debt and Finance Lease Obligations
The components of our long-term debt and finance lease obligations consisted of the following:
(in thousands, except interest rates)
2018 Credit Facility, 4.1% weighted-average interest rate at June 30, 2019 and 4.3% at December 31, 2018, due through 2023(1)
311,244
227,792
FlyOver Iceland Credit Facility, 4.9% weighted-average interest rate at June 30, 2019, due through 2022(1)
4,552
Less unamortized debt issuance costs
(2,053
(2,310
Total debt (2)
313,743
225,482
Finance lease obligations, 5.2% weighted-average interest rate at June 30, 2019 and 4.5% at December 31, 2018, due through 2021
10,782
4,639
Total debt and finance lease obligations (3)
324,525
230,121
Current portion (4)
(313,937
(229,416
Represents the weighted-average interest rate in effect at the respective periods, including any applicable margin. The interest rates do not include amortization of debt issuance costs or commitment fees.
The estimated fair value of total debt was $316.6 million as of June 30, 2019 and $228.6 million as of December 31, 2018. The fair value of debt was estimated by discounting the future cash flows using rates currently available for debt of similar terms and maturity, which is a Level 2 measurement. Refer to Note 13 – Fair Value Measurements.
(3)
Cash paid for interest on debt was $5.7 million for the six months ended June 30, 2019 and $4.1 million for the six months ended June 30, 2018.
(4)
Borrowings under the credit facilities are classified as current because all borrowed amounts are due within one year
2018 Credit Agreement
Effective October 24, 2018, we entered into a Second Amended and Restated Credit Agreement (the “2018 Credit Agreement”). The 2018 Credit Agreement has a maturity date of October 24, 2023 and provides for a $450 million revolving credit facility (“2018 Credit Facility”). Proceeds from the 2018 Credit Facility were used to refinance certain of our outstanding debt and provide us with additional funds for our operations, growth initiatives, acquisitions, and other general corporate purposes in the ordinary course of business. The 2018 Credit Facility may be increased up to an additional $250 million under certain circumstances. It has a $20 million sublimit for letters of credit. Borrowings and letters of credit can be denominated in U.S. dollars, Euros, Canadian dollars, or British pounds. Our lenders under the 2018 Credit Facility have a first perfected security interest in all of our personal property including GES, GES Event Intelligence Services, Inc., CATC Alaska Tourism Corporation (“CATC”), ON Event Services, LLC (“ON Services”), and 65% of the capital stock of our top-tier foreign subsidiaries (other than Esja). Financial covenants include an interest coverage ratio of not less than 3.00 to 1.00 and a leverage ratio of not greater than 3.50 to 1.00, with a step-up of 4.00 to 1.00 for four quarters for a material acquisition of $50 million or more. Dividends are permitted up to $15 million in any calendar year. In addition, we can declare and pay dividends or repurchase our common stock up to $20 million per calendar year. Dividends and repurchases above those thresholds are permitted as long as our pro forma leverage ratio is less than or equal to 2.75 to 1.00. Unsecured debt is allowed provided we are in compliance with the leverage ratio. In addition, the unsecured debt must mature after the expiration of the 2018 Credit Facility, cannot have scheduled principal payments while the 2018 Credit Facility is in place, and any covenants for unsecured debt cannot be more restrictive than the 2018 Credit Facility. Significant other covenants include limitations on investments, additional indebtedness, sales and dispositions of assets, and liens on property. As of June 30, 2019, the interest coverage ratio was 10.84 to 1.00, the leverage ratio was 2.24 to 1.00, and we were in compliance with all covenants under the 2018 Credit Agreement.
Effective July 23, 2019, we entered into an amendment (“Amendment No.1”) to the 2018 Credit Agreement. Amendment No.1 modified the terms related to the withdrawal limits of single and multi-employer ERISA plans. Refer to Note 24 – Subsequent Events.
Borrowings under the 2018 Credit Facility (of which GES, GES Event Intelligence Services, Inc., CATC, and ON Services are guarantors) are indexed to the prime rate or the London Interbank Offered Rate (“LIBOR”), plus appropriate spreads tied to our leverage ratio. We understand that LIBOR will be phased out in 2021 and our 2018 Credit Facility includes a method for determining an alternative or successor rate of interest that gives consideration to the new prevailing market convention. The vast majority of our borrowings under the 2018 Credit Facility are indexed to LIBOR. Commitment fees and letters of credit fees are also tied to our leverage ratio. The fees on the unused portion of the 2018 Credit Facility were 0.3% annually as of June 30, 2019. Only our
borrowings under the 2018 Credit Facility and the discount rates we use to account for some leases are indexed to LIBOR. We do not expect the alternative or successor rate to LIBOR to have a material impact on either our 2018 Credit Facility or the accounting for our leases.
As of June 30, 2019, capacity remaining under the 2018 Credit Facility was $135.2 million, reflecting borrowings of $311.2 million and $3.6 million in outstanding letters of credit.
FlyOver Iceland Credit Facility
Effective February 15, 2019, FlyOver Iceland ehf., a wholly-owned subsidiary of Esja, entered into a credit agreement with a €5.0 million (approximately $5.6 million) credit facility (the “FlyOver Iceland Credit Facility”) with a maturity date of March 1, 2022. The loan proceeds will be used to complete the development of the FlyOver Iceland attraction.
As of June 30, 2019, capacity remaining under the FlyOver Iceland Credit Facility was approximately $1.0 million.
Note 13. Fair Value Measurements
The fair value of an asset or liability is defined as the price that would be received by selling an asset or paying to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value guidance requires an entity to maximize the use of quoted prices and other observable inputs and minimize the use of unobservable inputs when measuring fair value, and also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value.
Money market mutual funds and certain other mutual fund investments are measured at fair value on a recurring basis using Level 1 inputs. The fair value information related to these assets is summarized in the following tables:
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active
Markets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Unobservable
(Level 3)
Assets:
Money market funds (1)
122
Other mutual funds (2)
Total assets at fair value on a recurring basis
3,177
Quoted Prices
in Active
121
2,638
Money market funds are included in “Cash and cash equivalents” in the Condensed Consolidated Balance Sheets. These investments are classified as available-for-sale and are recorded at fair value. There have been no realized gains or losses related to these investments and we have not experienced any redemption restrictions with respect to any of the money market mutual funds.
Other mutual funds are included in “Other investments and assets” in the Condensed Consolidated Balance Sheets.
The carrying values of cash and cash equivalents, receivables, and accounts payable approximate fair value due to the short-term maturities of these instruments. Refer to Note 12 – Debt and Finance Lease Obligations for the estimated fair value of debt obligations.
Note 14. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (“AOCI”) by component are as follows:
Cumulative
Foreign Currency Translation Adjustments
Unrecognized Net Actuarial Loss and Prior Service Credit, Net
Comprehensive
Income (Loss)
(36,332
(11,643
Other comprehensive income before reclassifications
Amounts reclassified from AOCI, net of tax
148
Net other comprehensive income
9,245
(27,235
(11,495
Unrealized Gains on Investments
Balance at December 31, 2017
(12,026
(11,158
Other comprehensive loss before reclassifications
669
Net other comprehensive loss
(10,535
Adoption of ASU 2016-01(1)
Balance at June 30, 2018
(23,230
(10,489
Upon the adoption of ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, we recorded a cumulative-effect adjustment from unrealized gains on investments to beginning retained earnings.
Amounts reclassified that relate to our defined benefit pension and postretirement plans include the amortization of prior service costs and actuarial net losses recognized during each period presented. These costs are recorded as components of net periodic cost for each period presented. Refer to Note 17 – Pension and Postretirement Benefits for additional information.
Note 15. Income (Loss) Per Share
The components of basic and diluted income (loss) per share are as follows:
Net income (loss) attributable to Viad (diluted)
Less: Allocation to non-vested shares
(102
(222
(139
Adjustment to the redemption value of redeemable noncontrolling interest
(179
(52
(266
(90
Net income (loss) allocated to Viad common stockholders (basic)
13,543
23,216
(4,219
13,874
Basic weighted-average outstanding common shares
Additional dilutive shares related to share-based compensation
123
227
238
Diluted weighted-average outstanding shares
Income (loss) per share:
Basic income (loss) attributable to Viad common stockholders
Diluted income (loss) attributable to Viad common stockholders(1)
Diluted income (loss) per share amount cannot exceed basic income (loss) per share.
26
Note 16. Income Taxes
The effective tax rate was 32.8% for the three months ended June 30, 2019 and 27.8% for the three months ended June 30, 2018. The effective tax rate was 18.7% for the six months ended June 30, 2019 and 25.8% for the six months ended June 30, 2018.
The income tax provision was based on our estimated annualized effective tax rate and the full-year forecasted income plus the tax impact of any unusual, infrequent, or nonrecurring items during the period. The effective tax rate for the six months ended June 30, 2019 was less than the federal statutory rate of 21% primarily due to the impact of non-deductible compensation expenses, global intangible low-taxed income (“GILTI”) tax and foreign income taxed at higher rates. The effective tax rate for the six months ended June 30, 2018 was greater than the federal statutory rate primarily due to foreign income tax at higher rates.
Cash paid for income taxes was $8.0 million for the six months ended June 30, 2019 and $16.8 million for the six months ended June 30, 2018.
Note 17. Pension and Postretirement Benefits
The components of net periodic benefit cost of our pension and postretirement benefit plans for the three months ended June 30, 2019 and 2018 consist of the following:
Domestic Plans
Pension Plans
Postretirement Benefit Plans
Foreign Pension Plans
Service cost
32
101
138
Interest cost
200
126
114
93
91
Expected return on plan assets
(5
(45
(121
(126
Amortization of prior service credit
(47
Recognized net actuarial loss
100
124
65
37
39
Net periodic benefit cost
334
312
144
192
110
142
The components of net periodic benefit cost of our pension and postretirement benefit plans for the six months ended June 30, 2019 and 2018 consist of the following:
31
56
202
437
387
250
208
188
183
(39
(80
(243
(256
(94
(103
206
246
127
117
73
80
635
588
318
278
287
We expect to contribute $1.0 million to our funded pension plans, $1.2 million to our unfunded pension plans, and $1.2 million to our postretirement benefit plans in 2019. During the six months ended June 30, 2019, we contributed $0.5 million to our funded pension plans, $0.4 million to our unfunded pension plans, and $0.5 million to our postretirement benefit plans.
27
Note 18. Restructuring Charges
As part of our efforts to drive efficiencies and simplify our business operations, we have taken certain restructuring actions designed to reduce our cost structure primarily within GES. These actions include consolidating facilities and operations in the U.S., Canada, and the United Kingdom. During the second quarter of 2019, we completed some strategic simplification actions, including a facility consolidation in Las Vegas and other restructuring actions. As a result, we recorded restructuring charges primarily consisting of severance and related benefits as a result of workforce reductions and charges related to the consolidation and downsizing of facilities representing the remaining operating lease obligations (net of estimated sublease income) and related costs.
Other Restructurings
We recorded restructuring charges in connection with the consolidation of certain support functions at our corporate headquarters. These charges primarily consist of severance and related benefits due to headcount reductions.
Changes to the restructuring liability by major restructuring activity are as follows:
Severance &
Employee
Benefits
Facilities
2,039
2,251
3,916
1,084
143
Cash payments
(3,900
(174
(58
(4,132
Adjustment to liability
53
2,022
1,163
104
3,289
As of June 30, 2019, we expect to pay the liabilities related to severance and employee benefits by the end of 2020. The liability related to future lease payments will be paid over the remaining lease terms. Refer to Note 22 – Segment Information, for information regarding restructuring charges by segment.
Note 19. Leases and Other
The balance sheet presentation of our operating and finance leases is as follows:
Classification on the Condensed Consolidated Balance Sheet
Operating lease assets
Finance lease assets
Total lease assets
87,544
Liabilities:
Current:
Finance lease obligations
2,422
Noncurrent:
8,360
Total lease liabilities
72,538
28
The components of lease expense consisted of the following:
Finance lease cost:
Amortization of right-of-use assets
609
1,198
Interest on lease liabilities
182
249
Operating lease cost
6,839
12,831
Short-term lease cost
562
777
Variable lease cost
1,402
3,217
Sublease income(1)
(54
(226
Total lease cost, net
9,540
18,046
(1) Sublease income excludes rental income from owned assets, which is recorded in revenue.
Leases Not Yet Commenced
As of June 30, 2019, we had certain facility and land leases that were executed but for which we did not have control of the underlying assets. Accordingly, we did not record the lease liabilities and right-of-use assets on our Condensed Consolidated Balance Sheets. These leases include future planned attractions for Pursuit that are currently in the planning or development phase and that we expect to commence between fiscal years 2019 and 2022 with lease terms of 15 to 20 years.
Other information related to operating and finance leases are as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
7,405
13,603
Operating cash flows from finance leases
Financing cash flows from finance leases
490
1,012
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
1,813
13,252
Finance leases
19,769
20,951
Weighted-average remaining lease term (years):
4.30
9.61
Weighted-average discount rate:
5.29
%
5.15
29
As of June 30, 2019, the estimated future minimum lease payments under non-cancellable leases, excluding variable leases and variable non-lease components, are as follows:
Operating Leases
Finance Leases
1,705
15,159
23,205
2,687
25,892
12,698
1,945
14,643
8,037
1,494
9,531
5,484
1,380
6,864
7,406
4,301
11,707
Total future lease payments
70,284
13,512
83,796
Less: Amount representing interest
(8,528
(2,730
(11,258
Present value of minimum lease payments
61,756
Current portion
24,571
Long-term portion
47,967
As of June 30, 2019, the estimated future minimum rentals under non-cancellable leases, which includes rental income from facilities that we own and sublease income from facilities that we lease, are as follows:
906
1,695
1,450
3,685
Total minimum sublease rents
11,134
As previously disclosed in our 2018 Form 10-K and under the previous lease accounting standard, our future minimum rental payments and related sublease rentals receivable with respect to non-cancelable operating leases with terms in excess of one year would have been as follows as of December 31, 2018:
Rental
Payments
Receivable
Under Subleases
28,671
2,382
22,919
1,582
13,217
1,711
8,280
1,370
6,201
1,270
8,305
2,798
87,593
11,113
Note 20. Litigation, Claims, Contingencies, and Other
We 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 us. For the six months ended June 30, 2019, we recorded an $8.5 million charge to resolve a legal dispute at GES involving a former industry contractor. Although the amount of liability as of June 30, 2019 with respect to unresolved legal matters is not ascertainable, we believe that any resulting liability, after taking into consideration amounts already provided for and insurance coverage, will not have a material effect on our business, financial position, or results of operations.
We are 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 we have or had operations. If we fail to comply with these environmental laws and regulations, civil and criminal penalties could be imposed and we could become subject to regulatory enforcement actions in the form of injunctions and cease and desist orders. As is the case with many companies, we also face exposure to actual or potential claims and
30
lawsuits involving environmental matters relating to our past operations. As of June 30, 2019, we had recorded environmental remediation liabilities of $2.3 million related to previously sold operations. Although we are a party to certain environmental disputes, we believe that any resulting liabilities, after taking into consideration amounts already provided for and insurance coverage, will not have a material effect on our financial position or results of operations.
As of June 30, 2019, on behalf of our subsidiaries, we had certain obligations under guarantees to third parties. These guarantees are not subject to liability recognition in the condensed consolidated financial statements and relate to leased facilities entered into by our subsidiary operations. We 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 we would be required to make under all guarantees existing as of June 30, 2019 would be $54.5 million. These guarantees relate to our leased facilities through August 2034. There are no recourse provisions that would enable us to recover from third parties any payments made under the guarantees. Furthermore, there are no collateral or similar arrangements pursuant to which we could recover payments.
A significant number of our employees are unionized and we are a party to approximately 100 collective-bargaining agreements, with approximately one-third requiring renegotiation each year. If we are unable to reach an agreement with a union during the collective-bargaining process, the union may call for a strike or work stoppage, which may, under certain circumstances, adversely impact our business and results of operations. We believe that relations with our employees are satisfactory and that collective-bargaining agreements expiring in 2019 will be renegotiated in the ordinary course of business. Although our labor relations are currently stable, disruptions could occur, with the possibility of an adverse impact on the operating results of GES. During the three months ended June 30, 2019, we finalized the terms of a new collective-bargaining agreement with the Teamsters Local 727 union. The terms included a withdrawal from the under-funded Central States Pension Plan. Accordingly, we recorded a charge of $15.5 million, which represents the estimated present value of future contributions we will be required to make to the plan as a result of this withdrawal of this union from the plan.
We are self-insured up to certain limits for workers’ compensation, employee health benefits, automobile, product and general liability, and property loss claims. The aggregate amount of insurance liabilities (up to our retention limit) related to our continuing operations was $16.0 million as of June 30, 2019, which includes $11.1 million related to workers’ compensation liabilities, and $4.9 million related to general/auto liability claims. We have also retained and provided for certain workers’ compensation insurance liabilities in conjunction with previously sold businesses of $2.7 million as of June 30, 2019. The estimated employee health benefit claims incurred but not yet reported was $1.5 million as of June 30, 2019. Provisions for losses for claims incurred, including estimated claims incurred but not yet reported, are made based on our historical experience, claims frequency, and other factors. A change in the assumptions used could result in an adjustment to recorded liabilities. We have purchased insurance for amounts in excess of the self-insured levels, which generally range from $0.2 million to $0.5 million on a per claim basis. We do not maintain a self-insured retention pool fund as claims are paid from current cash resources at the time of settlement. Our net cash payments in connection with these insurance liabilities were $1.5 million for the three months ended June 30, 2019 and $3.3 million for the six months ended June 30, 2019 and $1.2 million for the three months ended June 30, 2018 and $2.7 million for the six months ended June 30, 2018.
In addition, as of June 30, 2019, we have recorded insurance liabilities of $9.2 million related to continuing operations, which represents the amount for which we remain the primary obligor after self-insured insurance limits, without taking into consideration the above-referenced insurance coverage. Of this total, $8.5 million related to workers’ compensation liabilities and $0.7 million related to general/auto liability claims, which are recorded in other deferred items and liabilities in the Condensed Consolidated Balance Sheets with a corresponding receivable in other investments.
Note 21. Redeemable Noncontrolling Interest
On November 3, 2017, we acquired the controlling interest (54.5% of the common stock) in Esja, a private corporation in Reykjavik, Iceland. Through Esja and its wholly-owned subsidiary, we are developing and will operate a new FlyOver Iceland attraction.
The minority Esja shareholders have the right to sell (or “put”) their Esja shares to us based on a multiple of 5.0x EBITDA as calculated on the trailing 12 months from the most recently completed quarter before the put option exercise. The put option is only exercisable after 36 months of business operation (the “Reference Date”) and if the FlyOver Iceland attraction has earned a minimum of €3.25 million in unadjusted EBITDA during the most recent fiscal year and during the trailing 12-month period prior to exercise (the “Put Option Condition”). The put option is exercisable during a period of 12 months following the Reference Date (the “Option Period”) and if the Put Option Condition has been met. If the Put Option Condition has not been met during the first Option Period, the Reference Date will be extended for an additional 12 months up to three times. If after 72 months, the FlyOver Iceland attraction has not achieved the Put Option Condition, the put option expires. If the Put Option Condition is met during any of the Option Periods, yet the shares are not exercised prior to the end of the 12-month Option Period, the put option will expire.
The noncontrolling interest’s carrying value is determined by the fair value of the noncontrolling interest as of the acquisition date and the noncontrolling interest’s share of the subsequent net income or loss. This value is benchmarked against the redemption value of
the sellers’ put option. The carrying value is adjusted to the redemption value, provided that it does not fall below the initial carrying value, as determined by the purchase price allocation. We have made a policy election to reflect any changes caused by such an adjustment to retained earnings, rather than to current earnings.
Changes in the redeemable noncontrolling interest are as follows:
(276
Adjustment to the redemption value
266
Foreign currency translation adjustment
(391
Note 22. Segment Information
We measure the profit and performance of our operations on the basis of segment operating income (loss) which excludes restructuring charges and recoveries. Intersegment sales are eliminated in consolidation and intersegment transfers are not significant. Corporate activities include expenses not allocated to operations. Depreciation and amortization and share-based compensation expense are the only significant non-cash items for the reportable segments.
During the first quarter of 2019, we realigned GES’ organizational structure. As a result, we changed GES’ reportable segments to reflect how our chief operating decision maker regularly reviews and makes decisions regarding the allocation of resources. Accordingly, GES’ new reportable segments are GES North America and GES EMEA. We made no changes to the Pursuit reportable segment.
Our reportable segments, with reconciliations to consolidated totals, are as follows:
GES:
North America
EMEA
Total GES
Segment operating income (loss):
30,589
23,767
31,197
23,688
4,664
5,238
5,799
5,897
35,253
29,005
36,996
29,585
11,313
9,757
(1,682
(1,638
Segment operating income
46,566
38,762
35,314
27,947
Corporate eliminations (1)
(3,282
(2,535
(5,115
(4,752
Operating income
43,301
36,244
30,232
23,228
83
181
(2,957
(2,354
(5,872
(4,423
(15,508
(456
(543
(911
(781
Restructuring recoveries (charges):
(4,275
(240
(4,258
(422
(742
(454
(140
Corporate
(100
(143
Legal settlement:
(8,500
Corporate eliminations represent the elimination of depreciation expense recorded by Pursuit associated with previously eliminated intercompany profit realized by GES for renovations to Pursuit’s Banff Gondola.
Note 23. Common Stock Repurchases
We previously announced our Board of Directors’ authorization to repurchase shares of our common stock from time to time at prevailing market prices. Effective February 7, 2019, our Board of Directors authorized the repurchase of an additional 500,000 shares.
No shares were repurchased on the open market during the six months ended June 30, 2019. As of June 30, 2019, 600,067 shares remain available for repurchase. During the six months ended June 30, 2018, we repurchased 175,091 shares on the open market for $9.1 million. Additionally, we repurchased shares related to tax withholding requirements on vested restricted stock awards. Refer to Note 3 – Share-Based Compensation.
Note 24. Subsequent Events
Credit Agreement Amendment
Effective July 23, 2019, we entered into an amendment (“Amendment No.1”) to the 2018 Credit Agreement. Amendment No.1 modified the terms related to the withdrawal limits of single and multi-employer ERISA plans.
FlyOver Toronto
On July 25, 2019, we announced plans for the expansion of our virtual flight ride theater concept into Toronto, Canada. We were awarded the right to construct the new attraction near the base of Canada’s CN Tower in the Entertainment District. This new attraction will provide guests an exhilarating virtual flight experience showcasing Canada’s most awe-inspiring sights. We expect construction to begin in 2020, and the new attraction to open in 2022.
On July 25, 2019, we announced plans for a new geothermal lagoon attraction that will be located on an oceanfront lot just outside downtown Reykjavik, Iceland. We acquired a 51% controlling interest in the new geothermal lagoon attraction for $13.2 million, which we will operate in partnership with Geothermal Lagoon ehf, the Icelandic entity that owns the lagoon assets. We expect to open our new attraction in 2021.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Form 10-Q contains a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words, and variations of words, such as “will,” “may,” “expect,” “would,” “could,” “might,” “intend,” “plan,” “believe,” “estimate,” “anticipate,” “deliver,” “seek,” “aim,” “potential,” “target,” “outlook,” and similar expressions are intended to identify our forward-looking statements. Similarly, statements that describe our business strategy, outlook, objectives, plans, initiatives, intentions or goals also are forward-looking statements. These forward-looking statements are not historical facts, and are subject to a host of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those in the forward-looking statements.
Important factors that could cause actual results to differ materially from those described in our forward-looking statements include, but are not limited to, the following:
our ability to successfully integrate and achieve established financial and strategic goals from acquisitions;
fluctuations in general economic conditions;
our dependence on large exhibition event clients;
the importance of key members of our account teams to our business relationships;
the competitive nature of the industries in which we operate;
travel industry disruptions;
unanticipated delays and cost overruns of our capital projects, and our ability to achieve established financial and strategic goals for such projects;
seasonality of our businesses;
transportation disruptions and increases in transportation costs;
natural disasters and other catastrophic events;
the impact of recent U.S. tax legislation;
our multi-employer pension plan funding obligations;
our exposure to labor cost increases and work stoppages related to unionized employees;
liabilities relating to prior and discontinued operations;
adverse effects of show rotation on our periodic results and operating margins;
our exposure to currency exchange rate fluctuations;
our exposure to cybersecurity attacks and threats;
compliance with laws governing the storage, collection, handling, and transfer of personal data and our exposure to legal claims and fines for data breaches or improper handling of such data;
the effects of the United Kingdom’s exit from the European Union; and
the effects of changes in the U.S. trade policy.
For a more complete discussion of the risks and uncertainties that may affect our business or financial results, refer to Item 1A, “Risk Factors,” of our 2018 Form 10-K. We disclaim and do not undertake any obligation to update or revise any forward-looking statement except as required by applicable law or regulation.
The following Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with our 2018 Form 10-K and the condensed consolidated financial statements and related notes included in this Form 10-Q. The MD&A is intended to assist in understanding our financial condition and results of operations.
Overview
We are an international experiential services company with operations principally in the United States, Canada, the United Kingdom, continental Europe, and the United Arab Emirates. We are committed to providing unforgettable experiences to our clients and guests. We operate through three reportable business segments: GES North America, GES EMEA, (collectively, “GES”), and Pursuit.
GES is a global, full-service Live Events company that produces exhibitions, conferences, corporate events, and consumer events. GES offers a comprehensive range of live event services including a full suite of audio-visual services from creative and technology to content and design, along with registration, data analytics, engagement, and online tools powered by next generation technologies that help clients easily manage the complexities of their events.
Pursuit is a collection of inspiring and unforgettable travel experiences. Pursuit offers guests distinctive and world renowned experiences through its collection of world-class recreational attractions, unique hotels and lodges, food and beverage, retail, sightseeing, and ground transportation services.
Seasonality
GES’ exhibition and event activity can vary significantly from quarter to quarter and year to year depending on the frequency and timing of shows. Some shows are not held annually, and some shift between quarters. During 2018, GES reported its highest revenue during the second and fourth quarters.
Pursuit experiences peak activity during the summer months. During 2018, 87% of Pursuit’s revenue was earned in the second and third quarters.
Results of Operations
Financial Highlights
Change
10.6
7.3
(41.1
)%
**
Segment operating income (1)
20.1
26.4
Diluted income (loss) per common share
from continuing operations attributable
to Viad common stockholders
(44.0
** Change is greater than +/- 100%
Three months ended June 30, 2019 compared with the three months ended June 30, 2018
Total revenue increased $38.6 million or 10.6%, primarily due to positive show rotation of approximately $19 million, growth from corporate clients, and new business wins at GES, underlying growth at Pursuit, and incremental revenue from Pursuit’s Mountain Park Lodges and Belton Chalet acquisitions, and the re-opening of the Mount Royal Hotel, offset in part by an unfavorable foreign exchange impact of $4.9 million.
Net income attributable to Viad decreased $9.7 million, primarily due to charges related to our partial withdrawal from the Central States Pension Plan of $15.5 million ($11.6 million, after-tax) recorded during the three months ended June 30, 2019, offset in part by higher segment operating results at both GES and Pursuit.
Total segment operating income(1) increased $7.8 million, primarily due to the increase in revenue.
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Six months ended June 30, 2019 compared with the six months ended June 30, 2018
Total revenue increased $46.8 million or 7.3%, primarily due to positive show rotation of approximately $17 million, new business wins at GES, underlying growth at Pursuit, incremental revenue from Pursuit’s Mountain Park Lodges and Belton Chalet acquisitions, and the re-opening of the Mount Royal Hotel, offset in part by an unfavorable foreign exchange impact of $9.4 million.
Net income (loss) attributable to Viad decreased $18.1 million, primarily due to charges related to our partial withdrawal from the Central States Pension Plan of $15.5 million ($11.6 million, after-tax) and a legal settlement charge of $8.5 million ($6.4 million, after tax).
Total segment operating income(1) increased $7.4 million, primarily due to the increase in revenue.
Refer to Note 22 – Segment Information of the Notes to Condensed Consolidated Financial Statements for a reconciliation of the non-GAAP financial measure, segment operating income, to the most directly comparable GAAP measure.
Foreign Exchange Rate Variances
We conduct our foreign operations primarily in Canada, the United Kingdom, the Netherlands, Germany, and to a lesser extent, in certain other countries.
The following table summarizes the foreign exchange rate variance effects (or “FX Impact”) on revenue and segment operating income from our significant international operations for the three and six months ended June 30, 2019 and 2018:
Segment Operating Income
Exchange Rates
FX Impact
GES North America:
Canada (CAD)
0.75
0.78
(128
GES EMEA:
United Kingdom (GBP)
1.28
1.36
(2,614
1.34
(149
Europe (EUR)
1.12
1.19
(618
1.18
(51
(3,232
(200
Pursuit:
0.77
(928
(129
(4,891
(457
(1,448
1.29
1.37
(5,185
(27
1.13
1.20
(1,381
1.21
(120
(6,566
(147
(1,402
(9,416
Revenue and segment operating income were primarily impacted by variances of the British pound, the Canadian dollar, and the Euro relative to the U.S. dollar. Future changes in exchange rates may impact overall expected profitability and historical period-to-period comparisons when revenue and segment operating income are translated into U.S. dollars.
Analysis of Revenue and Operating Results by Reportable Segment
The following table presents a comparison of GES’ reported revenue and segment operating income to organic revenue(1) and organic segment operating income(1) for the three and six months ended June 30, 2019 and 2018.
% Change
As Reported
Acquisitions
Organic(1)
284,413
8.7
9.0
72,737
14.6
19.9
(1.4
(3,963
350,833
10.0
11.3
Segment operating income(2):
30,717
28.7
29.2
4,864
(11.0
(7.1
(328
35,581
21.5
22.7
508,371
5.0
5.3
130,447
13.0
19.0
(8,014
629,811
6.6
31,353
31.7
32.4
5,946
(1.7
0.8
(303
37,299
25.0
26.1
Organic revenue and organic segment operating income are non-GAAP financial measures that adjust for the impacts of exchange rate variances and acquisitions, if any, until such acquisitions are included in the entirety of both comparable periods presented. For more information about organic revenue and organic segment operating income, see the “Non-GAAP Measures” section of this MD&A.
Refer to Note 22 – Segment Information of the Notes to Condensed Consolidated Financial Statements for a reconciliation of the non-GAAP financial measure, segment operating income (loss), to the most directly comparable GAAP measure.
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GES North America revenue increased $22.8 million or 8.7%, primarily due to growth in revenue from corporate clients and new business wins, as well as positive show rotation of approximately $7 million, offset in part by a decrease in U.S. base same-show revenue of 1.7% and an unfavorable FX Impact of $0.7 million. Base same-show revenue represented 26.2% of GES North America’s organic revenue during the three months ended June 30, 2019. Organic revenue* increased $23.5 million or 9.0%.
GES North America segment operating income increased $6.8 million or 28.7%, primarily due to the increase in revenue and cost reductions resulting from restructuring actions. Organic segment operating income* increased $7.0 million or 29.2%.
GES EMEA revenue increased $8.8 million or 14.6%, primarily due to positive show rotation of approximately $12 million, offset in part by an unfavorable FX Impact of $3.2 million. Organic revenue* increased $12.1 million or 19.9%.
GES EMEA segment operating income decreased $0.6 million or 11.0%, primarily due to the timing of certain expenses and the revenue mix. Organic segment operating income* decreased $0.4 million or 7.1%.
GES North America revenue increased $24.0 million or 5.0%, primarily due to growth in revenue from corporate clients, new business wins, and U.S. base same-show revenue growth of 1.4%, offset in part by an unfavorable FX Impact of $1.4 million. Base same-show revenue represented 33.0% of GES North America’s organic revenue during the six months ended June 30, 2019. Organic revenue* increased $25.4 million or 5.3%.
GES North America segment operating income increased $7.5 million or 31.7%, primarily due to the increase in revenue and cost reductions resulting from restructuring actions. Organic segment operating income* increased $7.7 million or 32.4%.
GES EMEA revenue increased $14.3 million or 13.0%, primarily due to positive show rotation of approximately $16 million, new business wins, and underlying growth, offset in part by an unfavorable FX Impact of $6.6 million. Organic revenue* increased $20.9 million or 19.0%.
GES EMEA segment operating income decreased $0.1 million or 1.7%, primarily due to the timing of expenses, and the revenue mix, offset in part by the increase in revenue. Organic segment operating income* increased 0.8%.
* Refer to footnote (1) in the above table for more information about the non-GAAP financial measures of organic revenue and organic segment operating income.
2019 Outlook
Although GES has a diversified revenue base and long-term contracts for future shows, its revenue is 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 growth; however, we continue to experience declines in certain retail-sector events and auto shows.
For 2019, we expect GES’ revenue to be up low-single digits from 2018. Show rotation is expected to have a net negative impact on GES’ revenue of approximately $20 million compared to 2018. We expect GES U.S. base same-show revenue to increase at a low single digit rate. We anticipate an unfavorable FX Impact of approximately $10.0 million on GES’ 2019 full year revenue and approximately $0.5 million on GES’ segment operating income. The expected FX Impact assumes that the U.S. dollar to the British pound exchange rate will be $1.27 and the U.S. dollar to the Canadian dollar exchange rate will be $0.76 during the remainder of 2019. For more information about segment operating income, see the “Non-GAAP Measures” section of this MD&A.
We are executing a strategic growth plan to position GES as the preferred global, full-service provider for Live Events. We are making selective investments in additional resources to capitalize on continued growth opportunities in the under-penetrated category of corporate events and in cross-selling new services. We continue to pursue additional opportunities to acquire businesses with proven products and services to create the most comprehensive suite of services for the Live Events industry.
Additionally, we remain focused on improving GES’ profitability through continued efforts to effectively manage labor costs by driving productivity gains through rigorous and strategic pre-show planning and on-site labor management. Improving labor productivity is a top priority as we continue to develop and enhance tools to support and systematize show site labor planning, measurement, and benchmarking.
During the second quarter of 2019, we completed some strategic simplification actions, including a facility consolidation in Las Vegas and other restructuring actions that we expect will deliver annualized cost savings of about $8 million.
The following table presents a comparison of Pursuit’s reported revenue and segment operating income (loss) to organic revenue(3) and organic segment operating income (loss)(3) for the three and six months ended June 30, 2019 and 2018.
Acquisitions(1)
Organic(3)
Revenue(2):
Attractions
29,836
(681
30,517
28,650
4.1
6.5
Hospitality
20,587
3,018
17,698
15,391
33.8
15.0
4,007
(107
4,114
3,889
3.0
5.8
Travel Planning
1,150
(14
1,164
922
24.7
26.2
Intra-Segment Eliminations & Other
(171
(497
65.6
65.0
Total Pursuit
53,319
10.3
Segment operating income(4):
9,924
15.9
1.7
34,504
(901
35,405
33,146
6.8
24,251
(264
21,497
18,146
33.6
18.5
6,157
(216
6,373
6,258
(1.6
1.8
1,597
1,630
1,230
29.8
32.5
(433
(445
(703
38.4
36.7
64,460
13.8
11.0
Segment operating loss(4):
(3,400
(2.7
Acquisitions include Mountain Park Lodges (acquired June 2019) and Belton Chalet (acquired May 2019).
Revenue by line of business does not agree to Note 2 – Revenue and Related Contract Costs and Contract Liabilities in the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) as the amounts in the above table include product revenue from food and beverage and retail operations within each line of business.
Organic revenue and organic segment operating income (loss) are non-GAAP financial measures that adjust for the impacts of exchange rate variances and acquisitions, if any, until such acquisitions are included in the entirety of both comparable periods
40
presented. For more information about organic revenue and organic segment operating income, see the “Non-GAAP Measures” section of this MD&A.
Pursuit revenue increased $7.1 million or 14.6%, primarily due to incremental revenue from the Mountain Park Lodges and the Belton Chalet acquisitions of $3.0 million and stronger performance from our food and beverage and retail operations as a result of our refresh projects, our revenue management efforts, and the re-opening of the Mount Royal Hotel, offset in part by an unfavorable FX Impact of $0.9 million. Organic revenue* increased $5.0 million or 10.3%.
Pursuit segment operating income increased $1.6 million or 15.9% primarily due to the increase in revenue, offset in part by additional costs to support continued expansion of the business and an unfavorable FX impact of $0.1 million. Organic segment operating income* increased $0.2 million or 1.7%.
Pursuit revenue increased $8.0 million or 13.8%, primarily due to incremental revenue from the Mountain Park Lodges and the Belton Chalet acquisitions of $3.0 million, continued focus on revenue management and refresh efforts to maximize revenue across Pursuit’s attractions and hospitality properties, and the re-opening of the Mount Royal Hotel, offset in part by an unfavorable FX Impact of $1.4 million. Organic revenue* increased $6.4 million or 11.0%.
Pursuit segment operating loss remained relatively flat compared to the prior year. Organic segment operating loss* increased $1.8 million.
* Refer to footnote (3) in the above tables for more information about the non-GAAP financial measures of organic revenue and organic segment operating income (loss).
Performance Measures
We use the following key business metrics to evaluate the performance of Pursuit’s attractions business:
Number of visitors. The number of visitors allows us to assess the volume of tickets sold at each attraction during the period.
Revenue per attraction visitor. Total attractions revenue per visitor is calculated as total attractions revenue divided by the total number of visitors at all Pursuit attractions during the period. Total attractions revenue includes ticket sales and ancillary revenue generated by attractions, such as food and beverage and retail revenue. Total attractions revenue per visitor measures the total spend per visitor that attraction properties are able to capture, which is important to the profitability of the attractions business.
Effective ticket price. Effective ticket price is calculated as revenue from the sale of attraction tickets divided by the total number of visitors at all comparable Pursuit attractions during the period.
We use the following key business metrics, common in the hospitality industry, to evaluate Pursuit’s hospitality business:
Revenue per Available Room. RevPAR is calculated as total rooms revenue divided by the total number of room nights available for all comparable Pursuit hospitality properties during the period. Total rooms revenue does not include non-rooms revenue, which consists of ancillary revenue generated by hospitality properties, such as food and beverage and retail revenue. RevPAR measures the period-over-period change in rooms revenue per available room for comparable hospitality properties. RevPAR is affected by average daily rate and occupancy, which have different implications on profitability.
Average Daily Rate. ADR is calculated as total rooms revenue divided by the total number of room nights sold for all comparable Pursuit hospitality properties during the period. ADR is used to assess the pricing levels that the hospitality properties are able to realize. Increases in ADR lead to increases in rooms revenue with no substantial effect on variable costs, therefore having a greater impact on margins than increases in occupancy.
Occupancy. Occupancy is calculated as the total number of room nights sold divided by the total number of room nights available for all comparable Pursuit hospitality properties during the period. Occupancy measures the utilization of the available capacity at the hospitality properties. Increases in occupancy result in increases in rooms revenue and additional variable operating costs (including housekeeping services, utilities, and room amenity costs), as well as increases in ancillary non-rooms revenue (including food and beverage and retail revenue).
The following table provides Pursuit’s same-store key performance indicators for the three and six months ended June 30, 2019 and 2018. The same-store metrics indicate the performance of all Pursuit’s properties and attractions that we owned and operated at full
capacity, considering seasonal closures, for the entirety of both periods presented. For Pursuit properties and attractions located in Canada, comparisons to the prior year are on a constant U.S. dollar basis, using the current year quarterly average exchange rates for previous periods, to eliminate the FX Impact. We believe this same-store constant currency basis provides better comparability between reporting periods.
Same-Store Key Performance Indicators (1)
Attractions:
Number of visitors
650,724
671,920
(3.2
801,890
830,392
(3.4
Revenue per attraction visitor
42
9.5
43
Effective ticket price
6.1
Hospitality:
Room nights available
66,689
66,181
94,499
93,991
0.5
RevPAR
128
4.9
105
102
2.9
ADR
189
10.1
166
9.6
Occupancy
61.4
64.7
(3.3
57.9
(3.5
Same-Store Key Performance Indicators exclude the Mountain Park Lodges (acquired in June 2019), the Belton Chalet (acquired in May 2019), and the Mount Royal Hotel, which was closed from December 2016 through June 2018 due to fire damage.
Attractions. The decrease in the same-store visitors during the three and six months ended June 30, 2019 was driven by slower visitation primarily due to early season inclement weather that affected visitors at the Columbia Icefield Glacier Adventure and the Maligne Lake Cruise attractions and lower visitation from select long-haul markets. Revenue per visitor increased primarily due to higher effective ticket prices driven by our focus on revenue management, refreshing key assets to enhance the guest experience, and increased programming. Ancillary revenue increased primarily resulting from our recent renovations of the food and beverage and retail operations.
Hospitality. The increase in RevPAR was primarily due to higher ADR driven by our revenue management efforts.
During 2018, Pursuit derived approximately 65% of its revenue and 87% of its segment operating income from its Canadian operations, which are largely dependent on foreign customer visitation. Accordingly, the strengthening or weakening of the Canadian dollar, relative to other currencies, could affect customer volumes and the results of operations.
For 2019, we expect Pursuit’s revenue to increase 20% to 23.5%. We expect Pursuit’s growth to be fueled primarily by investments to support our Refresh-Build-Buy strategy, which we expect to contribute incremental revenue of approximately $28 million to $32 million during 2019, inclusive of $17 million to $19 million from the Mountain Park Lodges and Belton Chalet acquisitions. Additionally, we expect to realize mid-single digit revenue growth across the rest of our attraction and hospitality assets. We expect to incur start-up costs of approximately $1.5 million during 2019 related to the development of our FlyOver attractions. We anticipate an unfavorable FX Impact of approximately $2.0 million on Pursuit’s 2019 revenue and a negligible impact to segment operating income.
Other Expenses
29.5
7.6
25.6
32.8
(28.0
(73.3
Corporate Activities – The increase in corporate activities expense during the three months ended June 30, 2019 was primarily due to higher acquisition transaction-related costs in 2019. The increase in corporate activities during the six months ended June 30, 2019 was primarily due to an increase in performance-based compensation expense and higher acquisition transaction-related costs in 2019, offset in part by a gain on sale of corporate fixed assets.
Interest Expense – The increase in interest expense was primarily due to higher debt balances and interest rates in 2019.
Multi-Employer Pension Plan Withdrawal – During the three months ended June 30, 2019, we finalized the terms of a new collective-bargaining agreement with the Teamsters 727 union. The terms included a withdrawal from the under-funded Central States Pension Plan. Accordingly, we recorded a charge of $15.5 million, which represents the estimated present value of future contributions we will be required to make to the plan as a result of this withdrawal of this union from the plan.
Restructuring Charges – Restructuring charges during the three and six months ended June 30, 2019 were primarily related to the elimination of certain positions and facility consolidations at GES. Restructuring charges during three months ended June 30, 2018 were primarily related to the elimination of certain positions at GES. Restructuring charges during the six months ended June 30, 2018 were primarily related to the elimination of certain positions at GES and Pursuit.
Legal Settlement – During the six months ended June 30, 2019, we recorded a charge to resolve a legal dispute at GES involving a former industry contractor.
Income Tax Expense (Benefit) – Our effective income tax rate for the three months ended June 30, 2019 was 32.8%, as compared to 27.8% for the three months ended June 30, 2018. The increase in the effective rate was primarily related to increased non-deductible expenses and our mix of domestic versus foreign income, which is taxed at higher rates. For the six months ended June 30, 2019, our effective income tax rate was an 18.7% benefit on our pre-tax loss, as compared to a 25.8% tax expense rate on our pre-tax income during the six months ended June 30, 2018. The lower rate in 2019 was primarily due to increased non-deductible expenses and our mix of domestic versus foreign income, which is taxed at higher rates.
Income (Loss) from Discontinued Operations – Income from discontinued operations for the three and six months ended June 30, 2019 was primarily related to a favorable legal settlement related to previously sold operations. Loss from discontinued operations for the three months ended June 30, 2018 was primarily related to legal expenses associated with previously sold operations. Income from discontinued operations for the six months ended June 30, 2018 was primarily related to a favorable legal settlement related to previously sold operations.
Liquidity and Capital Resources
Cash and cash equivalents were $45.6 million as of June 30, 2019, as compared to $44.9 million as of December 31, 2018. During the six months ended June 30, 2019, we generated net cash from operating activities of $39.5 million. We believe that our existing sources of liquidity will be sufficient to fund operations and capital commitments for at least the next 12 months.
As of June 30, 2019, we held approximately $44.1 million of our cash and cash equivalents outside of the United States, consisting of $19.1 million in Canada, $9.0 million in the Netherlands, $6.6 million in the United Arab Emirates, $5.4 million in the United Kingdom, and $1.3 million in certain other countries. In addition, there was $2.7 million in Iceland related to our investment in Esja, which we will use to develop the FlyOver Iceland attraction.
Cash Flows
Operating Activities
Other non-cash items
11,256
6,154
Changes in assets and liabilities
(25,166
(18,460
The increase in cash provided by operating activities of $8.1 million was primarily due to an increase in segment results of operations and deferred income taxes, offset in part by an unfavorable change in working capital.
Investing Activities
Net cash used in investing activities increased $71.9 million primarily due to the Mountain Park Lodges and the Belton Chalet acquisitions in 2019.
Financing Activities
44
Net cash provided in financing activities increased $64.7 million primarily due to net debt proceeds, including finance lease obligations, of $86.0 million during the six months ended June 30, 2019 compared to $28.4 million during the six months ended June 30, 2018 as well as the repurchase of treasury shares on the open market in 2018.
Debt and Finance Lease Obligations
Refer to Note 12 – Debt and Finance Lease Obligations of the Notes to Condensed Consolidated Financial Statements for further discussion, all of which is incorporated by reference herein.
Share Repurchases
Our Board of Directors has authorized us to repurchase shares of our common stock from time to time at prevailing market prices. Effective February 7, 2019, our Board of Directors authorized the repurchase of an additional 500,000 shares. No shares were repurchased on the open market during the six months ended June 30, 2019. During the six months ended June 30, 2018, we repurchased 175,091 shares on the open market for $9.1 million. As of June 30, 2019, 600,067 shares remained available for repurchase. The Board of Directors’ authorization does not have an expiration date.
Additionally, we repurchased shares related to tax withholding requirements on vested restricted stock awards.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements with unconsolidated special-purpose or other entities that would materially affect our financial position, results of operations, liquidity, or capital resources. Furthermore, we do 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 us to liability or risks of loss that are not reflected in the condensed consolidated financial statements and related notes. Refer to Note 12 – Debt and Finance Lease Obligations and Note 20 – Litigation, Claims, Contingencies, and Other of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this quarterly report on Form 10-Q) for further information, which information is incorporated by reference herein.
Critical Accounting Policies and Estimates
Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part II, Item 7) of our 2018 Form 10-K, for a discussion of our critical accounting policies and estimates.
Refer to Note 1 – Overview and Basis of Presentation of the Notes to Condensed Consolidated Financial Statements for further information.
Non-GAAP Measures
In addition to disclosing financial results that are determined in accordance with U.S. generally accepted accounting principles (“GAAP”), we also disclose the following non-GAAP financial measures: Segment operating income, organic revenue, and organic segment operating income (collectively, the “Non-GAAP Measures”). Our use of Non-GAAP Measures is supplemental to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. As not all companies use identical calculations, our Non-GAAP Measures may not be comparable to similarly titled measures used by other companies. We believe that our use of Non-GAAP Measures provides useful information to investors regarding our results of operations for trending, analyzing, and benchmarking our performance and the value of our business.
“Segment operating income” is net income attributable to Viad before income (loss) from discontinued operations, corporate activities, interest expense and interest income, income taxes, restructuring charges, and the reduction for income attributable to noncontrolling interest. Segment operating income is used to measure the profit and performance of our operating segments to facilitate period-to-period comparisons. Refer to Note 22 – Segment Information of the Notes to Condensed Consolidated Financial Statements for a reconciliation of segment operating income (loss) to income (loss) from continuing operations before income taxes.
“Organic revenue” and “organic segment operating income (loss)” are revenue and segment operating income (loss) (as defined above), respectively, without the impact of exchange rate variances and acquisitions, if any, until such acquisitions are included in the entirety of both comparable periods. The impact of exchange rate variances is calculated as the difference between current period activity translated at the current period’s exchange rates and the comparable prior period’s exchange rates. We believe the presentation of “organic” results permits investors to better understand our performance without the
45
effects of exchange rate variances or acquisitions and to facilitate period-to-period comparisons and analysis of our operating performance. Refer to the “Results of Operations” section of this MD&A for reconciliations of organic revenue and organic segment operating income (loss) to the most directly comparable GAAP measures.
Non-GAAP Measures are considered useful operating metrics as they eliminate potential variations arising from taxes, debt service costs, and the effects of discontinued operations, resulting in additional measures considered to be indicative of our ongoing operations and segment performance. Although we use Non-GAAP Measures to assess the performance of our business, the use of these measures is limited because these measures do not consider material costs, expenses, and other items necessary to operate our business. These items include debt service costs, expenses related to U.S. federal, state, local and foreign income taxes, the effects of discontinued operations, as well as exchange rate variances. As the Non-GAAP Measures do not consider these items, you should consider net income attributable to Viad as an important measure of financial performance because it provides a more complete measure of our performance.
Forward-Looking Non-GAAP Financial Measure
We also provide segment operating income (loss) as a forward-looking Non-GAAP Measure within the “Results of Operations” section of this MD&A. We do not provide a reconciliation of this forward-looking Non-GAAP Measure to the most directly comparable GAAP financial measure because, due to variability and difficulty in developing accurate forecasts and projections or certain information not being ascertainable or accessible, not all of the information necessary for a quantitative reconciliation of this forward-looking Non-GAAP Measure to the most directly comparable GAAP financial measure is available without unreasonable efforts. Consequently, any attempt to disclose such reconciliation would imply a degree of precision that investors could find confusing or misleading. It is probable that this forward-looking Non-GAAP Measure may be materially different from the corresponding GAAP Measure.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our market risk exposure relates to fluctuations in foreign exchange rates and interest rates. Foreign exchange risk is the risk that fluctuating exchange rates will adversely affect our financial condition or results of operations. Interest rate risk is the risk that changing interest rates will adversely affect our financial position or results of operations.
Our foreign operations are primarily in Canada, the United Kingdom, the Netherlands, Germany, and to a lesser extent, in certain other countries. The functional currency of our foreign subsidiaries is their local currency. Accordingly, for purposes of consolidation, we translate the assets and liabilities of our 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 (loss) in the Condensed Consolidated Balance Sheets. As a result, significant fluctuations in foreign exchange rates relative to the U.S. dollar may result in material changes to our net equity position reported in the Condensed Consolidated Balance Sheets. We do not currently hedge our equity risk arising from the translation of foreign denominated assets and liabilities. We recorded cumulative unrealized foreign currency translation losses in stockholders’ equity of $27.2 million as of June 30, 2019 and $36.3 million as of December 31, 2018. We recorded unrealized foreign currency translation gains in other comprehensive income of $9.9 million during the six months ended June 30, 2019 and unrealized foreign currency translation losses of $11.2 million during the six months ended June 30, 2018, in each case, net of tax.
For purposes of consolidation, revenue, expenses, gains, and losses related to our foreign operations are translated into U.S. dollars at the average foreign exchange rates for the period. As a result, our consolidated results of operations are exposed to fluctuations in foreign exchange rates as revenue and segment operating income (loss) of our 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. We do not currently hedge our net earnings exposure arising from the translation of our foreign revenue and segment operating income. Refer to “Foreign Exchange Rate Variances” section of this MD&A.
We are exposed to foreign exchange transaction risk, as our foreign subsidiaries have certain revenue transactions denominated in currencies other than the functional currency of the respective subsidiary. From time to time, we utilize forward contracts to mitigate the impact on earnings related to these transactions due to fluctuations in foreign exchange rates. As of June 30, 2019 and December 31, 2018, we did not have any outstanding foreign currency forward contracts.
We are exposed to short-term and long-term interest rate risk on certain of our debt obligations. We do not currently use derivative financial instruments to hedge cash flows for such obligations.
Item 4. Controls and Procedures
We have established disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure. Management, together with our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019. Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2019.
There were no changes in our internal control over financial reporting during the three months ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings
Refer to Note 20 – Litigation, Claims, Contingencies, and Other of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for information regarding our legal proceedings that is incorporated by reference herein.
Item 1A. Risk Factors
In addition to other information set forth in this report, careful consideration should be given to the factors discussed in Part I, Item 1A – Risk Factors and Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2018 Form 10-K, which could materially affect our business, financial condition, or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes the total number of shares of our common stock that were repurchased during the three months ended June 30, 2019 pursuant to publicly announced plans or programs, as well as certain previously owned shares of common stock that were surrendered by employees, former employees, and non-employee directors for tax withholding requirements on vested share-based 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 of Shares
That May Yet Be Purchased
Under the Plans or Programs
April 1, 2019 - April 30, 2019
600,067
May 1, 2019 - May 31, 2019
June 1, 2019 - June 30, 2019
150
64.24
Pursuant to previously announced authorizations, our Board of Directors has authorized us to repurchase shares of our common stock from time to time at prevailing market prices. Effective February 7, 2019, our Board of Directors approved an additional 500,000 shares to repurchase. No shares were purchased on the open market during the six months ended June 30, 2019. The Board’s authorization has no expiration date.
Item 6. Exhibits
Incorporated by Reference
Exhibit
Number
Exhibit Description
Form
Ending
Filing Date
2.1
Share Purchase Agreement, dated May 27, 2019, by and among Brewster Travel Canada Inc., Jas-Day Investments Ltd., and 2192449 Alberta Ltd.
8-K
5/30/2019
2.2
Share and Unit Purchase Agreement, dated May 27, 2019, by and among Brewster Travel Canada Inc., Jas-Day Investments Ltd., 2187582 Alberta Ltd., and the Sawridge Hotels Limited Partnership.
4.A2
Amendment No. 1 to Second Amended and Restated Credit Agreement.
7/25/2019
10.D1
+
Viad Corp Supplemental TRIM Plan, as amended and restated effective January 1, 2005 for Code Section 409A.
10.E
8/29/2007
31.1
*
Certification of Chief Executive Officer of Viad Corp pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the period ended June 30, 2019.
31.2
Certification of Chief Financial Officer of Viad Corp pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the period ended June 30, 2019.
32.1
Certifications of Chief Executive Officer and Chief Financial Officer of Viad Corp pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the period ended June 30, 2019.
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL.
Filed herewith.
Furnished herewith.
Management contract or compensation plan or arrangement.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
August 2, 2019
By:
/s/ Leslie S. Striedel
(Date)
Leslie S. Striedel
Chief Accounting Officer (Duly Authorized Officer)