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 September 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 October 25, 2019, there were 20,326,404 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 September 30, 2019 and December 31, 2018
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018
2
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018
3
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018
4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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
34
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
45
Item 4.
Controls and Procedures
46
PART II - OTHER INFORMATION
Legal Proceedings
47
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
48
Items 3-5
Not applicable
SIGNATURES
49
In this report, for periods presented, “we,” “us,” “our,” “the Company,” and “Viad Corp” refer to Viad Corp and its subsidiaries.
Item 1. Financial Statements
VIAD CORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
December 31,
(in thousands, except share data)
2019
2018
Assets
Current assets
Cash and cash equivalents
$
56,638
44,893
Accounts receivable, net of allowances for doubtful accounts of $1,216 and $1,288,
respectively
144,711
108,936
Inventories
16,323
16,629
Current contract costs
31,659
18,017
Other current assets
26,583
25,486
Total current assets
275,914
213,961
Property and equipment, net
486,533
333,847
Other investments and assets
42,503
42,910
Operating lease right-of-use assets
103,403
—
Deferred income taxes
22,424
19,199
Goodwill
275,568
261,330
Other intangible assets, net
80,029
51,294
Total Assets
1,286,374
922,541
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
89,389
71,927
Contract liabilities
62,260
33,476
Accrued compensation
27,996
22,668
Operating lease obligations
22,526
Other current liabilities
44,597
32,258
Current portion of debt and finance lease obligations
298,940
229,416
Total current liabilities
545,708
389,745
Long-term debt and finance lease obligations
25,295
705
Pension and postretirement benefits
25,574
26,636
Long-term operating lease obligations
82,630
Other deferred items and liabilities
69,209
48,991
Total liabilities
748,416
466,077
Commitments and contingencies
Redeemable noncontrolling interest
5,431
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
574,039
575,339
Retained earnings
130,435
109,032
Unearned employee benefits and other
199
Accumulated other comprehensive loss
(43,911
)
(47,975
Common stock in treasury, at cost, 4,613,463 and 4,741,638 shares, respectively
(232,928
(237,790
Total Viad stockholders’ equity
465,037
436,207
Non-redeemable noncontrolling interest
67,490
14,348
Total stockholders’ equity
532,527
450,555
Total Liabilities and Stockholders’ Equity
Refer to Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
Nine Months Ended
(in thousands, except per share data)
Revenue:
Services
300,446
300,087
898,746
860,358
Products
62,042
58,076
151,615
138,910
Total revenue
362,488
358,163
1,050,361
999,268
Costs and expenses:
Costs of services
256,296
254,638
825,806
792,775
Costs of products
51,370
46,974
134,527
122,529
Business interruption gain
(35
(141
(602
Corporate activities
2,680
3,777
7,795
8,529
Interest income
(79
(101
(260
(238
Interest expense
3,740
2,608
9,612
7,031
Multi-employer pension plan withdrawal
15,508
Other expense
281
527
1,192
1,308
Restructuring charges
1,702
175
6,845
999
Legal settlement
8,500
Impairment recoveries
Total costs and expenses
315,990
308,563
1,009,384
932,296
Income from continuing operations before income taxes
46,498
49,600
40,977
66,972
Income tax expense
11,891
10,806
10,861
15,282
Income from continuing operations
34,607
38,794
30,116
51,690
Income (loss) from discontinued operations
(246
32
403
Net income
34,466
38,548
30,148
52,093
Net income attributable to non-redeemable noncontrolling
interest
(3,418
(1,287
(3,329
(890
Net loss attributable to redeemable noncontrolling interest
368
128
644
289
Net income attributable to Viad
31,416
37,389
27,463
51,492
Diluted income per common share:
Continuing operations attributable to Viad common stockholders
1.54
1.84
1.33
2.49
Discontinued operations attributable to Viad common stockholders
(0.01
0.02
Net income attributable to Viad common stockholders
1.53
1.83
2.51
Weighted-average outstanding and potentially dilutive common
shares
20,311
20,387
20,267
20,427
Basic income per common share:
1.85
2.50
2.52
Weighted-average outstanding common shares
20,168
20,145
20,129
20,187
Dividends declared per common share
0.10
0.30
Amounts attributable to Viad common stockholders
31,557
37,635
27,431
51,089
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Other comprehensive income (loss):
Unrealized foreign currency translation adjustments
(5,229
3,340
3,868
(7,864
Change in net actuarial loss, net of tax(1)
83
(1,570
302
(721
Change in prior service cost, net of tax(1)
186
(106
Comprehensive income
29,285
40,504
34,212
43,514
Non-redeemable noncontrolling interest:
Comprehensive income attributable to non-redeemable
noncontrolling interest
(682
94
Redeemable noncontrolling interest:
Comprehensive loss attributable to redeemable noncontrolling interest
Comprehensive income attributable to Viad
25,553
39,345
31,621
42,913
(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
13,824
331
14,155
(2,006
(89
301
1,301
1,602
781
4,317
776
5,093
99
(36
Acquisition of Mountain Park Lodges
49,711
(223
221
14
Balance, June 30, 2019
572,931
101,045
(38,730
(233,739
438,909
64,746
503,655
3,418
34,834
(2,026
(25
212
1,059
1,271
938
(5,911
-
8
(42
(265
Balance, September 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
23,490
(33
23,457
(2,049
(156
Common stock purchased for treasury
(9,061
(71
1,476
1,405
952
(8,095
220
17
25
Balance, June 30, 2018
574,104
76,458
214
(33,719
(231,687
422,772
13,409
436,181
1,287
38,676
(2,033
(155
259
897
1,156
679
Adoption of ASU 2018-02
1,680
(113
20
(76
Balance, September 30, 2018
575,058
113,381
234
(31,763
(230,944
463,368
14,696
478,064
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
44,061
44,364
5,261
3,182
Income from discontinued operations
(32
(403
Gains on dispositions of property and other assets
(938
(135
Share-based compensation expense
6,448
5,056
Other non-cash items, net
2,772
3,553
Change in operating assets and liabilities (excluding the impact of acquisitions):
Receivables
(37,028
(21,289
389
(2,792
(13,929
(11,928
20,121
12,972
2,308
(12,275
29,177
28,045
Payments on operating lease obligations
(20,853
Other assets and liabilities, net
2,382
203
Net cash provided by operating activities
101,140
101,610
Cash flows from investing activities
Capital expenditures
(60,868
(64,968
Cash paid for acquired businesses, net
(90,992
(4,628
Proceeds from dispositions of property and other assets
1,022
1,320
Net cash used in investing activities
(150,838
(68,276
Cash flows from financing activities
Proceeds from borrowings
170,459
101,336
Payments on debt and finance lease obligations
(99,340
(113,429
Dividends paid on common stock
(6,060
(6,128
Payment of payroll taxes on stock-based compensation through shares withheld or repurchased
(3,019
(1,179
Proceeds from exercise of stock options
92
84
Net cash provided by (used in) financing activities
62,132
(28,377
Effect of exchange rate changes on cash and cash equivalents
(689
(3,210
Net change in cash and cash equivalents
11,745
1,747
Cash and cash equivalents, beginning of year
53,723
Cash and cash equivalents, end of period
55,470
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 events 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 includes 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, audio-visual media, and special effects including wind, scents, and mist to provide a true flying experience for guests. Our FlyOver attractions include: FlyOver Canada; FlyOver Iceland (Opened August 2019); FlyOver Las Vegas (expected opening in 2021); and FlyOver Toronto (expected opening in 2022).
Pursuit 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.
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.
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 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.
January 1, 2020
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. We do not expect this new guidance to have a material impact on our consolidated financial statements.
Standards Recently 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.
September 30, 2019
We early adopted this new guidance on a retrospective basis and determined it did not have a material impact on our consolidated financial statements.
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.
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.
9
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 per share. Refer to Note 21 – Redeemable Noncontrolling Interest for additional information.
Leases
We adopted Topic 842 on January 1, 2019, which requires that we recognize 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 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 are located 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.
10
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 are 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.”
Changes to contract liabilities are as follows:
Balance at December 31, 2018
35,600
Cash additions
150,566
Revenue recognized
(123,330
Foreign exchange translation adjustment
(451
Balance at September 30, 2019
62,385
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
58,330
Expenses
(44,666
Cancelled
(45
(263
11
As of September 30, 2019, capitalized contract costs consisted of $2.4 million to obtain contracts and $32.4 million to fulfill contracts. We did not recognize an impairment loss with respect to capitalized contract costs during the three and nine months ended September 30, 2019 or 2018.
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 September 30, 2019
GES North America(1)
GES EMEA(1)
Intersegment Eliminations
Services:
Core services
155,581
22,425
178,006
Audio-visual
18,742
4,402
23,144
Event technology
4,760
1,414
6,174
Intersegment eliminations
(5,724
Total services
179,083
28,241
201,600
Products:
Core products
12,900
12,945
25,845
191,983
41,186
227,445
Timing of revenue recognition:
Services transferred over time
Products transferred over time(2)
10,558
2,305
12,863
Products transferred at a point in time
2,342
10,640
12,982
Markets:
Exhibitions
89,088
29,519
118,607
Conferences
56,205
6,320
62,525
Corporate events
41,205
5,147
46,352
Consumer events
5,485
200
5,685
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.
12
Nine Months Ended September 30, 2019
563,566
95,309
658,875
61,323
15,171
76,494
23,368
6,501
29,869
(14,731
648,257
116,981
750,507
50,649
48,086
98,735
698,906
165,067
849,242
33,601
10,595
44,196
17,048
37,491
54,539
364,404
124,467
488,871
209,522
20,172
229,694
103,860
19,464
123,324
21,120
964
22,084
13
Three Months Ended September 30, 2018
162,967
27,511
190,478
17,309
4,423
21,732
4,874
1,745
6,619
(2,379
185,150
33,679
216,450
15,705
13,955
29,660
200,855
47,634
246,110
10,645
2,862
13,507
5,060
11,093
16,153
114,387
35,787
150,174
42,053
4,232
46,285
35,555
6,728
42,283
8,860
887
9,747
Nine Months Ended September 30, 2018
555,175
88,270
643,445
55,134
14,144
69,278
23,443
7,866
31,309
(11,888
633,752
110,280
732,144
50,058
46,936
96,994
683,810
157,216
829,138
32,982
11,018
44,000
17,076
35,918
52,994
397,945
116,410
514,355
170,910
21,677
192,587
93,797
17,170
110,967
21,158
1,959
23,117
15
Admissions
49,353
51,316
76,034
78,375
Accommodations
41,292
24,623
56,636
35,358
Transportation
6,868
7,602
12,817
14,292
Travel planning
2,004
651
4,107
1,450
(671
(554
(1,355
(1,260
Total services revenue
98,846
83,638
148,239
128,215
Food and beverage
19,333
16,074
28,903
23,998
Retail operations
16,864
12,341
23,977
17,917
Total products revenue
36,197
28,415
52,880
41,915
135,043
112,053
201,119
170,130
Banff Jasper Collection
75,337
58,525
116,433
94,133
Alaska Collection
26,909
25,546
39,287
36,373
Glacier Park Collection
28,098
23,418
36,296
30,684
FlyOver
4,699
4,564
9,103
8,940
Note 3. Share-Based Compensation
The following table summarizes share-based compensation expense:
Performance unit incentive plan (“PUP”)
1,033
1,607
4,013
3,125
Restricted stock
687
609
2,163
1,779
Restricted stock units
111
78
272
152
Share-based compensation before income tax benefit
1,831
2,294
Income tax benefit
(460
(580
(1,625
(1,276
Share-based compensation, net of income tax benefit
1,371
1,714
4,823
3,780
We did not record any share-based compensation expense through restructuring charges during the three and nine months ended September 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
73,418
58.28
55,440
57.86
5,025
56.81
Vested
(95,309
26.98
(82,647
32.15
(5,377
Forfeited
(2,192
55.92
(5,323
50.03
(115
52.15
215,726
52.54
144,239
52.05
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 September 30, 2019, there were 1,582,828 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 nine months ended September 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 $5.1 million as of September 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 September 30, 2019, the unamortized cost of outstanding restricted stock awards was $3.3 million, which we expect to recognize over a weighted-average period of approximately 1.3 years. We repurchased 24,586 shares for $1.4 million during the nine months ended September 30, 2019 and 21,767 shares for $1.2 million during the nine months ended September 30, 2018 related to tax withholding requirements on vested share-based awards.
Aggregate liabilities related to restricted stock units were $0.4 million as of September 30, 2019 and $0.4 million as of December 31, 2018. During the nine months ended September 30, 2019, restricted stock units vested and we paid $0.3 million in cash and $0.2 million in shares. During the nine months ended September 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 September 30, 2019
53,143
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. During the three months ended September 30, 2019, we made certain purchase accounting measurement period adjustments based on refinements to assumptions used in the preliminary valuation. 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
Cash - Additional purchase price paid for tax liability
4,862
Net working capital adjustment
18
Consideration transferred
75,855
Right to manage
Purchase price, net
74,579
Fair value of net assets acquired:
Accounts receivable
333
Prepaid expenses
276
Property and equipment
101,840
Intangible assets
21,982
Total assets acquired
124,583
329
Advanced deposits payable
400
Deferred tax liability
11,463
Other liabilities
Total liabilities assumed
12,208
Noncontrolling interest equity
49,719
Total fair value of net assets acquired
62,656
Excess purchase price over fair value of net assets acquired (“goodwill”)
11,923
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.
Transaction costs associated with the Mountain Park Lodges were $0.8 million in 2019 and $0.1 million in 2018, which are included in “Corporate activities” in the Condensed Consolidated Statements of Operations. We included these assets and results of operations in the consolidated financial statements from the date of acquisition. During the nine months ended September 30, 2019, revenue related to the Mountain Park Lodges was $15.1 million and operating income was $7.1 million.
Identifiable intangible assets acquired in the Mountain Park Lodges acquisition were $22.0 million and consist primarily of in-place leases, customer relationships, and trade names. The weighted average amortization period related to the intangible assets is approximately 27.6 years.
Pursuit – Geothermal Lagoon Attraction
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. 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). We expect to open our new attraction in 2021.
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:
September 30, 2018
Revenue
370,025
1,058,622
1,022,463
16,347
17,529
46,695
48,455
Income (loss) from continuing operations
42,500
28,709
53,651
Net income (loss) attributable to Viad
39,549
26,765
52,334
Diluted income (loss) per share
1.94
1.29
2.55
Basic income (loss) per share
2.56
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. The Maligne Canyon Restaurant has been renovated and rebranded as the Maligne Canyon Wilderness Kitchen.
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
10,656
12,368
Finished goods
5,667
4,261
19
Note 6. Other Current Assets
Other current assets consisted of the following:
Income tax receivable
9,672
10,886
Prepaid software maintenance
5,070
4,010
Prepaid vendor payments
3,992
4,492
Prepaid insurance
2,521
2,754
Prepaid taxes
1,625
591
Prepaid other
2,737
1,755
Other
966
998
Note 7. Property and Equipment
Property and equipment consisted of the following:
Land and land interests
33,984
32,887
Buildings and leasehold improvements
366,633
238,995
Equipment and other
411,824
383,284
Gross property and equipment
812,441
655,166
Accumulated depreciation
(351,165
(321,319
Property and equipment, net (excluding finance leases)
461,276
Finance lease right-of-use assets, net
25,257
Depreciation expense was $12.7 million for the three months ended September 30, 2019 and $34.0 million for the nine months ended September 30, 2019. Depreciation expense was $13.3 million for the three months ended September 30, 2018 and $35.9 million for nine months ended September 30, 2018.
Amortization expense on finance leases was $0.7 million for the three months ended September 30, 2019 and $1.9 million for the nine months ended September 30, 2019.
Property and equipment purchased through accounts payable and accrued liabilities increased $2.0 million during the nine months ended September 30, 2019 and $4.4 million for the nine months ended September 30, 2018.
Note 8. Other Investments and Assets
Other investments and assets consisted of the following:
Cash surrender value of life insurance
24,060
23,815
Self-insured liability receivable
9,176
Contract costs
3,175
3,461
Other mutual funds
2,933
2,517
3,159
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
12,413
Foreign currency translation adjustments
(1,126
1,506
580
Other adjustment
1,245
155,144
28,828
91,596
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
7.4
73,249
(36,645
36,604
67,729
(31,201
36,528
Operating contracts and licenses
26.6
23,933
(1,803
22,130
9,180
(1,376
7,804
Tradenames
6.8
9,289
(4,100
5,189
7,705
4,596
Non-compete agreements
2.3
5,149
(4,816
5,174
(4,080
1,094
8.1
16,148
(835
15,313
1,365
(553
812
Total amortized intangible assets
127,768
(48,199
79,569
91,153
(40,319
50,834
Indefinite-lived intangible assets:
Business licenses
460
Other intangible assets
128,228
91,613
Intangible asset amortization expense was $2.9 million for the three months ended September 30, 2019 and $8.2 million for the nine months ended September 30, 2019. Intangible asset amortization was $2.9 million for the three months ended September 30, 2018 and $8.4 million for the nine months ended September 30, 2018.
At September 30, 2019, the estimated future amortization expense related to intangible assets subject to amortization is as follows:
Year ending December 31,
Remainder of 2019
2,569
2020
10,030
2021
8,987
2022
7,698
2023
6,481
Thereafter
43,804
21
Note 10. Other Current Liabilities
Other current liabilities consisted of the following:
Continuing operations:
Commissions payable
8,660
2,703
Self-insured liability
6,161
5,688
Accrued sales and use taxes
5,183
5,397
Accrued employee benefit costs
4,493
3,224
Accrued income tax payable
3,623
Accrued legal settlement
2,500
Current portion of pension and postretirement liabilities
2,134
2,310
Accrued dividends
2,010
2,012
Accrued restructuring
1,753
716
Accommodation services deposits
1,483
1,541
Accrued professional fees
1,261
886
Deferred rent (1)
1,659
Other taxes
1,139
695
3,462
4,501
Total continuing operations
43,862
31,332
Discontinued operations:
Environmental remediation liabilities
407
555
252
295
76
Total discontinued operations
735
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
17,933
9,768
Multi-employer pension plan withdrawal liability
9,429
10,681
Self-insured excess liability
7,104
6,664
2,200
1,535
125
2,124
2,719
3,093
1,868
64,568
44,535
2,273
2,437
1,871
1,775
497
244
4,641
4,456
Total other deferred items and liabilities
22
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 September 30, 2019 and 4.3% at December 31, 2018, due through 2023(1)
295,378
227,792
FlyOver Iceland Credit Facility, 4.9% weighted-average interest rate at September 30, 2019, due through 2022(1)
5,452
Less unamortized debt issuance costs
(1,925
(2,310
Total debt (2)
298,905
225,482
Finance lease obligations, 6.2% weighted-average interest rate at September 30, 2019 and 4.5% at December 31, 2018, due through 2021
25,330
4,639
Total debt and finance lease obligations (3)
324,235
230,121
Current portion (4)
(298,940
(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 $297.8 million as of September 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 $8.8 million for the nine months ended September 30, 2019 and $6.2 million for the nine months ended September 30, 2018.
(4)
Borrowings under the 2018 Credit Facility 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 and 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 to 4.00 to 1.00 for four quarters following 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 September 30, 2019, the interest coverage ratio was 10.17 to 1.00, the leverage ratio was 2.32 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 liabilities of single and multi-employer ERISA plans.
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. As LIBOR will be phased out in 2021, 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 0.35% annually as of September 30, 2019. Only our borrowings under the 2018
23
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 September 30, 2019, capacity remaining under the 2018 Credit Facility was $151.0 million, reflecting borrowings of $295.4 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 $5.5 million) credit facility (the “FlyOver Iceland Credit Facility”) with a maturity date of March 1, 2022. The loan proceeds were used to complete the development of the FlyOver Iceland attraction. Quarterly payments will be made until the loan is repaid.
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
3,055
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
196
Net other comprehensive income
4,064
(32,464
(11,447
Unrealized Gains on Investments
Balance at December 31, 2017
(12,026
(11,158
Other comprehensive loss before reclassifications
(715
Net other comprehensive loss
(8,579
Adoption of ASU 2016-01(1)
Balance at September 30, 2018
(19,890
(11,873
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 Per Share
The components of basic and diluted income per share are as follows:
Net income attributable to Viad (diluted)
Less: Allocation to non-vested shares
(226
(338
(196
(493
Adjustment to the redemption value of redeemable noncontrolling interest
(264
(84
(530
(174
Net income allocated to Viad common stockholders (basic)
30,926
36,967
26,737
50,825
Basic weighted-average outstanding common shares
Additional dilutive shares related to share-based compensation
143
242
138
240
Diluted weighted-average outstanding shares
Income per share:
Basic income attributable to Viad common stockholders
Diluted income attributable to Viad common stockholders
Note 16. Income Taxes
The effective tax rate was 25.6% for the three months ended September 30, 2019 and 21.8% for the three months ended September 30, 2018. The effective tax rate was 26.5% for the nine months ended September 30, 2019 and 22.8% for the nine months ended September 30, 2018.
The income tax provision was computed based on our estimated annualized effective tax rate and the full-year forecasted income plus the tax impact of unusual, infrequent, or nonrecurring items during the period. The effective tax rate for the nine months ended September 30, 2019 was more than the federal statutory rate of 21% primarily due to the impact of foreign income taxed at higher rates, non-deductible expenses, and global intangible low-taxed income (“GILTI”) tax. The effective tax rate for the nine months ended September 30, 2018 was more than the federal statutory rate primarily due to foreign income tax at higher rates.
Cash paid for income taxes was $12.1 million for the nine months ended September 30, 2019 and $20.2 million for the nine months ended September 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 September 30, 2019 and 2018 consist of the following:
Domestic Plans
Pension Plans
Postretirement Benefit Plans
Foreign Pension Plans
Service cost
101
Interest cost
209
198
93
129
91
Expected return on plan assets
(65
(122
(126
Amortization of prior service credit
(47
(51
Recognized net actuarial loss
96
124
(43
187
37
38
Net periodic benefit cost
285
270
269
108
141
The components of net periodic benefit cost of our pension and postretirement benefit plans for the nine months ended September 30, 2019 and 2018 consist of the following:
60
303
418
646
585
343
337
273
(74
(145
(382
(154
370
304
920
858
334
547
429
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 nine months ended September 30, 2019, we contributed $1.0 million to our funded pension plans, $0.7 million to our unfunded pension plans, and $0.7 million to our postretirement benefit plans.
26
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 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
5,243
1,397
205
Cash payments
(4,428
(513
(220
(5,161
Adjustment to liability
56
2,809
1,140
3,953
As of September 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
128,660
Liabilities:
Current:
Finance lease obligations
2,784
Noncurrent:
22,546
Total lease liabilities
130,486
27
The components of lease expense consisted of the following:
Finance lease cost:
Amortization of right-of-use assets
697
1,895
Interest on lease liabilities
130
379
Operating lease cost
6,625
19,456
Short-term lease cost
571
1,348
Variable lease cost
1,478
4,695
Sublease income(1)
226
Total lease cost, net
9,727
27,773
(1) Sublease income excludes rental income from owned assets, which is recorded in revenue.
Leases Not Yet Commenced
As of September 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
7,250
20,853
Operating cash flows from finance leases
210
459
Financing cash flows from finance leases
525
1,537
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
49,123
62,375
Finance leases
14,893
35,844
Weighted-average remaining lease term (years):
8.23
15.41
Weighted-average discount rate:
5.78
%
6.16
28
As of September 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
7,040
1,323
8,363
23,839
4,136
27,975
17,340
3,381
20,721
15,102
2,920
18,022
15,152
62,643
25,125
87,768
Total future lease payments
138,332
39,669
178,001
Less: Amount representing interest
(33,176
(14,339
(47,515
Present value of minimum lease payments
105,156
Current portion
25,310
Long-term portion
105,176
As of September 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:
453
2,020
1,716
1,384
5,764
Total minimum sublease rents
12,529
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
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 nine months ended September 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 September 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
29
lawsuits involving environmental matters relating to our past operations. As of September 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 September 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 September 30, 2019 would be $76.5 million. These guarantees relate to our leased equipment and facilities through January 2040. 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 second quarter of 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 $15.6 million as of September 30, 2019, which includes $11.0 million related to workers’ compensation liabilities, and $4.6 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 $2.5 million as of September 30, 2019. The estimated employee health benefit claims incurred but not yet reported was $1.5 million as of September 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 $2.0 million for the three months ended September 30, 2019, $5.3 million for the nine months ended September 30, 2019, $1.4 million for the three months ended September 30, 2018, and $4.1 million for the nine months ended September 30, 2018.
In addition, as of September 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 operating 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”) 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
30
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:
(644
Adjustment to the redemption value
530
Foreign currency translation adjustment
31
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):
(8,562
1,367
22,635
25,055
(3,024
(207
2,775
5,690
(11,586
1,160
25,410
30,745
66,392
55,408
64,710
53,770
Segment operating income
54,806
56,568
90,120
84,515
Corporate eliminations (1)
51
(2,680
(3,777
(7,795
(8,529
Operating income
52,142
52,809
82,374
76,037
79
260
238
(3,740
(2,608
(9,612
(7,031
(15,508
(281
(527
(1,192
(1,308
Restructuring recoveries (charges):
(881
(162
(5,139
(402
(759
(13
(1,501
(467
(140
Corporate
(62
(205
Impairment recoveries:
35
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 nine months ended September 30, 2019. As of September 30, 2019, 600,067 shares remain available for repurchase. During the nine months ended September 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.
33
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
1.2
5.1
(16.0
)%
(46.7
Segment operating income (1)
(3.1
6.6
Diluted income per common share
from continuing operations attributable
to Viad common stockholders
(16.3
(46.6
Three months ended September 30, 2019 compared with the three months ended September 30, 2018
Total revenue increased $4.3 million or 1.2%, primarily due to continued growth at Pursuit and GES and incremental revenue from Pursuit’s Mountain Park Lodges and Belton Chalet acquisitions, offset in part by negative show rotation of approximately $38 million and an unfavorable foreign exchange impact of $2.9 million.
Net income attributable to Viad decreased $6.0 million, primarily due to lower segment operating results at GES driven by higher performance-based incentives and higher restructuring charges related to GES simplification actions during the three months ended September 30, 2019, offset in part by higher segment operating results at Pursuit.
Total segment operating income(1) decreased $1.8 million, primarily due to higher performance-based incentives at GES.
Nine months ended September 30, 2019 compared with the nine months ended September 30, 2018
Total revenue increased $51.1 million or 5.1%, primarily due to underlying growth at Pursuit, continued growth from GES’ corporate clients and other new client wins, incremental revenue from Pursuit’s Mountain Park Lodges and Belton Chalet acquisitions, and the opening of several new build projects at Pursuit, offset in part by negative show rotation of approximately $21 million and an unfavorable foreign exchange impact of $12.3 million.
Net income attributable to Viad decreased $24.0 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), a legal settlement charge of $8.5 million ($6.4 million after tax), and higher restructuring charges, offset in part by higher segment operating results at Pursuit.
Total segment operating income(1) increased $5.6 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 tables summarize the foreign exchange rate variance effects (or “FX Impact”) on revenue and segment operating income (loss) from our significant international operations for the three and nine months ended September 30, 2019 and 2018:
Segment Operating Income (Loss)
Exchange Rates
FX Impact
GES North America:
Canada (CAD)
0.76
0.77
(138
(3
GES EMEA:
United Kingdom (GBP)
1.24
1.31
(1,811
1.23
1.30
Europe (EUR)
1.10
1.17
(255
1.11
1.16
(2,066
144
Pursuit:
(697
(391
(2,901
(250
Segment Operating Income
0.75
0.78
(1,586
(159
1.27
1.35
(6,995
1.26
1.12
1.19
(1,637
(114
(8,632
(2,099
(191
(12,317
(353
36
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 tables present a comparison of GES’ reported revenue and segment operating income (loss) to organic revenue(1) and organic segment operating income (loss)(1) for the three and nine months ended September 30, 2019 and 2018.
% Change
As Reported
Acquisitions
Organic(1)
192,121
(4.4
(4.3
43,252
(13.5
(9.2
**
(2,204
229,649
(7.6
(6.7
Segment operating income (loss)(2):
(8,559
(3,168
(11,727
700,492
2.2
2.4
173,699
5.0
10.5
(23.9
(10,218
859,460
3.7
Segment operating income(2):
22,794
(9.7
(9.0
2,778
(51.2
25,572
(17.4
(16.8
** Change is greater than +/- 100%
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 presented. For more information about organic revenue and organic segment operating income (loss), 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.
GES North America revenue decreased $8.9 million or 4.4%, primarily due to negative show rotation of approximately $29 million and an unfavorable FX Impact of $0.1 million, offset in part by continued growth in revenue from corporate clients and other new
client wins. U.S. base same-show revenue decreased 0.6% driven by one retail exhibition with reduced square footage. Base same-show revenue represented 24.9% of GES North America’s organic revenue during the three months ended September 30, 2019. Organic revenue* decreased $8.7 million or 4.3%.
GES North America segment operating loss of $8.6 million increased $9.9 million, primarily due to accruals for performance-based incentives compared to reversals during the three months ended September 30, 2018 and negative show rotation. Organic segment operating loss* of $8.6 million increased $9.9 million.
GES EMEA revenue decreased $6.4 million or 13.5%, primarily due to negative show rotation of approximately $9 million and an unfavorable FX Impact of $2.1 million, offset in part by new client wins and growth from the underlying business. Organic revenue* decreased $4.4 million or 9.2%.
GES EMEA segment operating loss of $3.0 million increased $2.8 million, primarily due to accruals for performance-based incentives compared to reversals during the three months ended September 30, 2018 and negative show rotation. Organic segment operating loss* of $3.2 million increased $3.0 million.
* 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.
GES North America revenue increased $15.1 million or 2.2%, primarily due to growth in revenue from corporate clients and new business wins, offset in part by negative show rotation of approximately $28 million and an unfavorable FX Impact of $1.6 million. U.S. base same-show revenue increased 1.0%. Base same-show revenue represented 30.8% of GES North America’s organic revenue during the nine months ended September 30, 2019. Organic revenue* increased $16.7 million or 2.4%.
GES North America segment operating income decreased $2.4 million or 9.7%, primarily due to higher performance-based incentives, offset in part by cost reductions resulting from restructuring actions. Organic segment operating income* decreased $2.3 million or 9.0% .
GES EMEA revenue increased $7.9 million or 5.0%, primarily due to new business wins, underlying growth, and positive show rotation of approximately $7 million, offset in part by an unfavorable FX Impact of $8.6 million. Organic revenue* increased $16.5 million or 10.5%.
GES EMEA segment operating income decreased $2.9 million or 51.2%, primarily due to the timing of expenses and the revenue mix, offset in part by the increase in revenue. Organic segment operating income* decreased $2.9 million or 51.2%.
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 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 $15 million to $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 $13.0 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 $1.23 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 plan to Simplify, Grow, and Transform GES with a focus on positioning GES as the preferred global, full-service provider for Live Events with a more favorable revenue mix and stronger margin profile. Specifically, 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 offerings that will accelerate our growth and advance our market position.
Additionally, we remain focused on driving cost-structure improvements at GES, including improving 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. We also undertook some strategic simplification actions during 2019 that will improve GES’ cost structure by approximately $10 million annually through facility consolidations and organizational streamlining.
The following table presents a comparison of Pursuit’s reported revenue and segment operating income to organic revenue(3) and organic segment operating income(3) for the three and nine months ended September 30, 2019 and 2018.
Acquisitions(1)
Organic(3)
Revenue(2):
Attractions
63,581
(538
64,119
60,650
4.8
5.7
Hospitality
62,522
13,050
(102
49,574
43,178
44.8
14.8
6,861
(55
6,916
6,093
12.6
13.5
Travel Planning
2,388
(8
2,396
2,675
(10.7
(10.4
Intra-Segment Eliminations & Other
(309
(315
(543
43.1
42.0
Total Pursuit
122,690
20.5
9.5
Segment operating income(4):
5,901
60,882
19.8
9.9
98,085
(1,439
99,524
93,796
4.6
6.1
86,773
16,068
(366
71,071
61,324
41.5
15.9
13,018
(271
13,289
12,351
5.4
7.6
3,985
(41
4,026
3,905
2.0
3.1
(742
(760
(1,246
40.4
39.0
187,150
18.2
10.0
7,419
57,482
20.3
6.9
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.
39
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.
Pursuit revenue increased $23.0 million or 20.5%, primarily due to incremental revenue from the Mountain Park Lodges and the Belton Chalet acquisitions of $13.1 million, the opening of several new build projects, as well as stronger performance from recently refreshed projects, and revenue management efforts, offset in part by an unfavorable FX Impact of $0.7 million. Organic revenue* increased $10.6 million or 9.5%.
Pursuit segment operating income increased $11.0 million or 19.8% primarily due to the increase in revenue. Organic segment operating income* increased $5.5 million or 9.9%.
Pursuit revenue increased $31.0 million or 18.2%, primarily due to incremental revenue from the Mountain Park Lodges and the Belton Chalet acquisitions of $16.1 million, continued focus on revenue management and refresh efforts to maximize revenue across Pursuit’s attractions and hospitality properties, and the opening of several new build projects, offset in part by an unfavorable FX Impact of $2.1 million. Organic revenue* increased $17.0 million or 10.0%.
Pursuit segment operating income increased $10.9 million or 20.3%, primarily due to the increase in revenue. Organic segment operating income* increased $3.7 million or 6.9%.
* 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.
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. Revenue per attraction 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).
40
The following table provides Pursuit’s same-store key performance indicators for the three and nine months ended September 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
1,274,808
1,333,204
2,076,698
2,163,596
(4.0
Revenue per attraction visitor
50
11.1
43
9.3
Effective ticket price
5.6
5.9
Hospitality:
Room nights available
123,863
119,932
3.3
206,126
201,687
RevPAR
164
155
5.8
ADR
230
7.7
Occupancy
87.6
86.3
1.3
73.7
75.3
(1.6
Same-Store Key Performance Indicators for attractions exclude FlyOver Iceland (opened late August 2019). Same-Store Key Performance Indicators for hospitality for the three-month periods exclude the West Glacier RV Park & Cabins (opened July 2019), the Mountain Park Lodges (acquired in June 2019), and the Belton Chalet (acquired in May 2019). Same-Store Key Performance Indicators for the nine-month periods exclude the West Glacier RV Park & Cabins, the Mountain Park Lodges, the Belton Chalet, and the Mount Royal Hotel, which was closed from December 2016 through June 2018 for reconstruction due to fire damage.
Attractions. The decrease in same-store visitors was driven by the impact of softer visitation from select long-haul markets at certain attractions. Revenue per attraction visitor increased due to higher effective ticket prices and ancillary revenue 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 refreshed properties, including the recently renovated Glacier View Lodge and the Mount Royal Hotel, and revenue management efforts across all of our properties.
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 21.5%. 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 $29 million to $31 million during 2019, inclusive of $19 million to $21 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 $2.5 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
(29.0
(8.6
43.4
36.7
(28.9
42.7
(92.1
Corporate Activities – The decrease in corporate activities expense during the three months ended September 30, 2019 was primarily due to lower performance-based compensation expense. The decrease in corporate activities during the nine months ended September 30, 2019 was primarily due to a gain on sale of corporate fixed assets, offset in part by higher acquisition transaction-related costs in 2019.
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 nine months ended September 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 from the plan.
Restructuring Charges – Restructuring charges during the three and nine months ended September 30, 2019 were primarily related to the elimination of certain positions and facility consolidations at GES. Restructuring charges during the three months ended September 30, 2018 were primarily related to the elimination of certain positions at GES. Restructuring charges during the nine months ended September 30, 2018 were primarily related to the elimination of certain positions at GES and Pursuit.
Legal Settlement – During the nine months ended September 30, 2019, we recorded a charge to resolve a legal dispute at GES involving a former industry contractor.
Income Tax Expense – Our effective income tax rate for the three months ended September 30, 2019 was 25.6%, as compared to 21.8% for the three months ended September 30, 2018. For the nine months ended September 30, 2019, our effective income tax rate was 26.5%, as compared to 22.8% for the nine months ended September 30, 2018. The increases in the effective rates were primarily related to increased non-deductible expenses and lower domestic income, which is taxed at lower rates. In 2019, the rates were favorably impacted by the re-measurement of our Alberta deferred tax assets due to a rate reduction in the third quarter. In 2018, the rates were favorably impacted by the benefit taken related to reductions in our estimated repatriation tax.
Income (Loss) from Discontinued Operations – Loss from discontinued operations for the three months ended September 30, 2019 and 2018 was primarily related to legal expenses related to previously sold operations. Income from discontinued operations for the
42
nine months ended September 30, 2019 and 2018 was primarily related to favorable legal settlements related to previously sold operations.
Liquidity and Capital Resources
Cash and cash equivalents were $56.6 million as of September 30, 2019, as compared to $44.9 million as of December 31, 2018. During the nine months ended September 30, 2019, we generated net cash from operating activities of $101.1 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 September 30, 2019, we held approximately $52.7 million of our cash and cash equivalents outside of the United States, consisting of $27.8 million in Canada, $8.5 million in the Netherlands, $7.3 million in the United Arab Emirates, $6.0 million in the United Kingdom, and $0.8 million in certain other countries. In addition, there was $2.3 million in Iceland related to our investment in Esja for the development of the FlyOver Iceland attraction.
Cash Flows
Operating Activities
Other non-cash items
15,127
9,473
Changes in assets and liabilities
(17,433
(7,064
The decrease in cash provided by operating activities of $0.5 million was primarily due to an unfavorable change in working capital and a decrease in GES results of operations, offset in part by Pursuit results of operations.
Investing Activities
Net cash used in investing activities increased $82.6 million primarily due to the Mountain Park Lodges and the Belton Chalet acquisitions in 2019.
Financing Activities
The change in net cash provided by (used in) financing activities of $90.5 million was primarily due to net debt proceeds, including finance lease obligations, of $71.1 million during the nine months ended September 30, 2019 compared to net debt payments of $12.1 million during the nine months ended September 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 nine months ended September 30, 2019. During the nine months ended September 30, 2018, we repurchased 175,091 shares on the open market for $9.1 million. As of September 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.
44
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 (loss)” 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 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.
We believe non-GAAP Measures are 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 $32.5 million as of September 30, 2019 and $36.3 million as of December 31, 2018. We recorded unrealized foreign currency translation gains in other comprehensive income of $4.0 million during the nine months ended September 30, 2019 and
unrealized foreign currency translation losses of $7.9 million during the nine months ended September 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 September 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 September 30, 2019. Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2019.
There were no changes in our internal control over financial reporting during the three months ended September 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 September 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
July 1, 2019 - July 31, 2019
600,067
August 1, 2019 - August 31, 2019
251
66.92
September 1, 2019 - September 30, 2019
118
66.90
369
66.91
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 nine months ended September 30, 2019. The Board’s authorization has no expiration date.
Item 6. Exhibits
Incorporated by Reference
Exhibit
Number
Exhibit Description
Form
Ending
Filing Date
4.A2
Amendment No. 1, dated July 23, 2019, to the Second Amended and Restated Credit Agreement, Dated October 24, 2018, between Viad Corp and JPMorgan Chase Bank, N.A., as Lender, as LC Issuer, as Swing Line Lender, and as administrative agent, and other lenders party thereto.
8-K
7/25/2019
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 September 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 September 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 September 30, 2019.
101.INS
***
XBRL Instance Document
101.SCH
****
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
104
Cover Page Interactive Data File
Filed herewith.
Furnished herewith.
The XBRL Instance Document and Cover Page Interactive Data File do not appear in the Interactive Data File because their XBRL tags are embedded within the Inline XBRL document.
Submitted electronically herewith.
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)
November 1, 2019
By:
/s/ Leslie S. Striedel
(Date)
Leslie S. Striedel
Chief Accounting Officer (Duly Authorized Officer)