VIAD CORP - Quarter Report: 2010 June (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2010

or

o		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

Delaware		36-1169950
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
1850 North Central Avenue, Suite 800
Phoenix, Arizona		85004-4545
(Address of principal executive offices)		(Zip Code)

(602) 207-4000

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 þ No o

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

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Small reporting company o

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

As of July 31, 2010, 20,545,194 shares of common stock ($1.50 par value) were outstanding.

 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

VIAD CORP

		June 30, 2010				December 31, 2009
		(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents		$	133,971			$	116,342
Accounts receivable, net of allowance for doubtful accounts of $2,318 and $3,892, respectively			67,938				44,767
Inventories			37,916				44,818
Deferred income taxes			16,891				20,150
Asset held for sale			—				13,982
Other current assets			27,631				21,476
Total current assets			284,347				261,535
Property and equipment, net			148,011				155,000
Other investments and assets			29,339				29,069
Deferred income taxes			31,997				35,951
Goodwill			123,185				124,931
Other intangible assets, net			2,184				2,700
Total Assets		$	619,063			$	609,186
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	54,901			$	41,509
Other current liabilities			93,381				85,077
Current portion of long-term debt and capital lease obligations			7,240				4,301
Total current liabilities			155,522				130,887
Long-term debt and capital lease obligations			3,125				8,487
Pension and postretirement benefits			32,655				32,767
Other deferred items and liabilities			48,648				52,414
Total liabilities			239,950				224,555
Commitments and contingencies (Note 14)
Stockholders’ equity:
Viad Corp stockholders’ equity:
Common stock, $1.50 par value, 200,000,000 shares authorized, 24,934,981 shares issued			37,402				37,402
Additional capital			606,803				606,038
Retained deficit			(17,995	)			(16,405	)
Unearned employee benefits and other			(5,207	)			(5,954	)
Accumulated other comprehensive income (loss):
Unrealized gains on investments			135				154
Cumulative foreign currency translation adjustments			27,373				31,283
Unrecognized net actuarial loss and prior service credit			(10,051	)			(8,385	)
Common stock in treasury, at cost, 4,390,287 and 4,379,125 shares, respectively			(266,247	)			(266,618	)
Total Viad Corp stockholders’ equity			372,213				377,515
Noncontrolling interest			6,900				7,116
Total stockholders’ equity			379,113				384,631
Total Liabilities and Stockholders’ Equity		$	619,063			$	609,186

See Notes to Condensed Consolidated Financial Statements.

VIAD CORP

		Three months ended June 30,								Six months ended June 30,
		2010				2009				2010				2009
		(in thousands, except per share data)
Revenues:
Convention and event services		$	155,097			$	154,721			$	333,856			$	351,617
Exhibits and environments			40,813				40,638				78,994				79,804
Travel and recreation services			22,389				18,206				29,802				23,093
Total revenues			218,299				213,565				442,652				454,514
Costs and expenses:
Costs of services			166,712				161,984				347,551				351,267
Costs of products sold			43,862				41,773				87,177				86,772
Corporate activities			2,058				703				2,702				2,206
Interest income			(88	)			(132	)			(184	)			(393	)
Interest expense			473				425				966				845
Restructuring charges			559				198				2,612				2,930
Total costs and expenses			213,576				204,951				440,824				443,627
Income before income taxes			4,723				8,614				1,828				10,887
Income tax expense			1,790				3,311				1,998				4,212
Net income (loss)			2,933				5,303				(170	)			6,675
Net loss attributable to noncontrolling interest			95				96				216				227
Net income attributable to Viad		$	3,028			$	5,399			$	46			$	6,902
Diluted income per common share
Net income attributable to Viad common stockholders		$	0.15			$	0.26			$	—			$	0.34
Weighted-average outstanding and potentially dilutive common shares			20,375				20,170				20,338				20,167
Basic income per common share
Net income attributable to Viad common stockholders		$	0.15			$	0.26			$	—			$	0.34
Weighted-average outstanding common shares			20,059				19,977				20,055				19,935
Dividends declared per common share		$	0.04			$	0.04			$	0.08			$	0.08

See Notes to Condensed Consolidated Financial Statements.

VIAD CORP

		Three months ended June 30,								Six months ended June 30,
		2010				2009				2010				2009
		(in thousands)
Net income (loss)		$	2,933			$	5,303			$	(170	)		$	6,675
Other comprehensive income (loss):
Unrealized gains (losses) on investments:
Holding gains (losses) arising during the period, net of tax			(78	)			118				(19	)			61
Unrealized foreign currency translation adjustments			(7,956	)			15,504				(3,910	)			10,424
Pension and postretirement benefit plans:
Net actuarial loss, net of tax			183				22				(1,371	)			95
Prior service credit, net of tax			(175	)			(190	)			(295	)			(380	)
Total other comprehensive income (loss)			(8,026	)			15,454				(5,595	)			10,200
Comprehensive income (loss)			(5,093	)			20,757				(5,765	)			16,875
Comprehensive loss attributable to noncontrolling interest			95				96				216				227
Comprehensive income (loss) attributable to Viad		$	(4,998	)		$	20,853			$	(5,549	)		$	17,102

See Notes to Condensed Consolidated Financial Statements.

VIAD CORP

		Six months ended June 30,
		2010				2009
		(in thousands)
Cash flows from operating activities:
Net income (loss)		$	(170	)		$	6,675
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			14,004				13,535
Deferred income taxes			4,295				5,739
Restructuring charges			2,612				2,930
Losses (gains) on dispositions of property and other assets			37				(14	)
Share-based compensation expense			1,800				1,215
Other non-cash items, net			1,852				2,171
Change in operating assets and liabilities:
Receivables			(23,444	)			(20,213	)
Inventories			6,902				11,963
Accounts payable			14,415				(3,758	)
Restructuring liabilities			(5,016	)			(2,668	)
Accrued compensation			9,342				(15,605	)
Customer deposits			(1,856	)			(10,699	)
Income taxes payable			(130	)			(5,510	)
Other assets and liabilities, net			(6,359	)			(6,405	)
Net cash provided by (used in) operating activities			18,284				(20,644	)
Cash flows from investing activities:
Capital expenditures			(8,404	)			(14,780	)
Proceeds from dispositions of property and other assets			14,541				28
Net cash provided by (used in) investing activities			6,137				(14,752	)
Cash flows from financing activities:
Payments on debt and capital lease obligations			(2,869	)			(1,606	)
Dividends paid on common stock			(1,644	)			(1,648	)
Common stock purchased for treasury			(573	)			(1,162	)
Proceeds from exercise of stock options			38				—
Net cash used in financing activities			(5,048	)			(4,416	)
Effect of exchange rate changes on cash and cash equivalents			(1,744	)			1,690
Net increase (decrease) in cash and cash equivalents			17,629				(38,122	)
Cash and cash equivalents, beginning of year			116,342				148,040
Cash and cash equivalents, end of period		$	133,971			$	109,918
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes		$	3,855			$	6,727
Interest		$	511			$	475
Equipment acquired under capital leases		$	390			$	2,776

See Notes to Condensed Consolidated Financial Statements.

VIAD CORP

Note 1. Basis of Preparation and Principles of Consolidation

The accompanying unaudited, condensed consolidated financial statements of Viad Corp (“Viad” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

For further information, refer to the consolidated financial statements and related footnotes for the year ended December 31, 2009, included in the Company’s Form 10-K (File No. 001-11015), filed with the Securities and Exchange Commission on March 8, 2010.

The condensed consolidated financial statements include the accounts of Viad and all of its subsidiaries. All significant intercompany account balances and transactions between Viad and its subsidiaries have been eliminated in consolidation. Viad’s reporting segments consist of Marketing & Events U.S., Marketing & Events International and Travel & Recreation Group. As discussed below, the Company changed its reporting segments related to the Marketing & Events Group during the first quarter of 2010. The Travel & Recreation Group segment consists of Brewster Inc. (“Brewster”) and Glacier Park, Inc. (“Glacier Park”). Glacier Park is an 80 percent owned subsidiary of Viad.

In July 2009, Viad announced a strategic reorganization to align its brands and operations into two operating groups: the Marketing & Events Group and the Travel & Recreation Group. The operating groups are supported by a Corporate Services Group that centralizes responsibility for various corporate functions. Immediately following the close of business on December 31, 2009, substantially all of the domestic operations of the Marketing & Events Group were combined into one legal entity by transferring all of the assets and third party liabilities of Exhibitgroup/Giltspur, a division of Viad Corp, The Becker Group, Ltd. (“Becker Group”) and other related entities into GES Exposition Services, Inc. Furthermore, on February 2, 2010, GES Exposition Services, Inc. changed its name to Global Experience Specialists, Inc. (“GES”). The services that were previously provided under the Company’s brands of “Exhibitgroup/Giltspur” and “Becker Group” are now provided under the “Global Experience Specialists” brand.

In connection with the reorganization and consolidation of business units within the Marketing & Events Group, the Company changed its management structure and internal organization in a manner that caused a change to the composition of its reportable segments, which was effective in the first quarter of 2010. Accordingly, the Marketing & Events Group consists of two reporting segments based on geographical lines of responsibility, the U.S. segment and International segment, as follows:

1.

Marketing & Events U.S., which includes all domestic GES and affiliated operations, including those services formerly provided under the Exhibitgroup/Giltspur and Becker Group brands. The consolidation of the domestic Marketing & Events Group operations is aimed to provide a fully integrated service delivery network through a realigned sales organization, shared infrastructure and facilities, and a common operational platform.

2.

Marketing & Events International, which includes all foreign operations of the Marketing & Events Group and consists of two operating segments: Canada and EMEA (Europe, Middle East, Africa). This reporting segment includes the operations of the following companies: GES Exposition Services (Canada) Limited, Giltspur Exhibits of Canada, Inc., Melville Exhibition and Event Services Limited and Melville Data Services Limited (collectively “Melville”) and affiliates, SDD Exhibitions Limited and GES GmbH & Co. KG.

Beginning in the first quarter of 2010, the presentation of segment information for the Marketing & Events Group is based on the redefined segments, and comparable prior year information has been restated to reflect the revised segment structure.

Note 2. Share-Based Compensation

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

Share-based compensation expense recognized in the consolidated financial statements during the three months ended June 30, 2010 and 2009 was $980,000 and $982,000, respectively, and $1.8 million and $1.2 million during the six months ended June 30, 2010 and 2009, respectively. In addition, $509,000 of costs associated with share-based compensation were included in restructuring expense (including $43,000 related to restricted stock units and performance-based restricted stock units presented below) during the six months ended June 30, 2010. Furthermore, the total tax benefits related to share-based compensation expense were $345,000 and $359,000 for the three months ended June 30, 2010 and 2009, respectively, and $628,000 and $420,000 during the six months ended June 30, 2010 and 2009, respectively. No share-based compensation costs were capitalized during the six months ended June 30, 2010 or 2009.

Share-based compensation expense of restricted stock and performance-based restricted stock (“PBRS”) for the three months ended June 30, 2010 and 2009 was $804,000 and $834,000, respectively, and $1.5 million and $2.0 million during the six months ended June 30, 2010 and 2009, respectively. Viad expects to recognize the unamortized cost of all outstanding restricted stock and PBRS awards in the consolidated financial statements over weighted-average periods of approximately 2.1 years and less than one year, respectively. During the six months ended June 30, 2010 and 2009, the Company repurchased 28,407 shares for $573,000 and 68,715 shares for $1.2 million, respectively, related to tax withholding requirements on vested share-based awards.

The following table summarizes restricted stock and PBRS activity during the six months ended June 30, 2010:

		Restricted Stock								PBRS
						Weighted-Average								Weighted-Average
						Grant Date								Grant Date
		Shares				Fair Value				Shares				Fair Value
Balance at January 1, 2010			390,810			$	24.59				174,927			$	20.77
Granted			143,000				19.28				—				—
Vested			(65,961	)			34.42				(29,547	)			35.31
Forfeited			(1,150	)			24.38				(126,550	)			15.36
Balance at June 30, 2010			466,699				21.58				18,830				33.02

In addition to the awards in the table above, Viad also grants restricted stock unit and PBRS unit liability awards to key employees at certain of the Company’s Canadian operations. During the six months ended June 30, 2010, Viad granted 12,350 restricted stock units. The aggregate liability is recorded at estimated fair value and is remeasured on each balance sheet date. Share-based compensation costs related to these awards were $26,000 and $34,000 for the three months ended June 30, 2010 and 2009, respectively, and $61,000 and $50,000 during the six months ended June 30, 2010 and 2009, respectively. A portion of the 2009 PBRS unit award vested effective December 31, 2009 and a cash payout of $37,000 was distributed in March 2010. As of June 30, 2010 and December 31, 2009, Viad had liabilities recorded of $218,000 and $151,000, respectively, related to these awards.

From time to time, Viad has granted units to key employees under the performance unit incentive plan (“PUP”). PUP liability awards are earned based on the level of achievement of predefined performance goals over a three-year performance period. Share-based compensation expense attributable to PUP awards for the three months ended June 30, 2009 was $9,000. No expense was recognized during the three months ended June 30, 2010. During the six months ended June 30, 2010 and 2009, share-based compensation expense attributable to PUP awards were credits of $3,000 and $1.1 million, respectively. The PUP awards for the 2006-2008 period vested effective December 31, 2008 and a cash payout of $1.8 million was distributed in March 2009. The PUP awards for the 2007-2009 period vested effective December 31, 2009 and a cash payout of $19,000 was distributed in March 2010. No PUP awards were granted during the six months ended June 30, 2010 or 2009 nor were there any additional cash settlements of PUP awards or any other share-based compensation awards during those periods. There was no PUP liability recorded as of June 30, 2010.

Stock options granted in 2010 were for a term of 10 years and become exercisable one third after one year, another third after two years and the balance after three years from the date of grant. The fair value of the 2010 stock option grant was estimated on the date of grant using the Black-Scholes option pricing model assuming Viad’s expected stock price volatility of 33.2 percent, a five year expected period of time the stock options will remain outstanding, an expected dividend yield on Viad common stock of 0.8 percent and a risk-free interest rate estimate of 2.44 percent. Share-based compensation expense related to stock option awards was $150,000 and $105,000 for the three months ended June 30, 2010 and 2009, respectively, and $263,000 and $312,000 during the six months ended June 30, 2010 and 2009, respectively. The total unrecognized cost related to non-vested stock option awards was $1.6 million as of June 30, 2010. Viad expects to recognize such cost in the consolidated financial statements over a weighted-average period of approximately 2.7 years.

The stock options outstanding as of June 30, 2010 had no intrinsic value based on the weighted-average exercise price and Viad’s closing stock price of $17.65 as of June 30, 2010. The total intrinsic value of stock option awards exercised during the six months ended June 30, 2010 was $16,000. During the six months ended June 30, 2010, Viad received cash proceeds from the exercise of stock options of $38,000. No stock options were exercised during the six months ended June 30, 2009. The grant date fair value of stock options that vested during the six months ended June 30, 2010 and 2009 was $370,000 and $599,000, respectively.

The following table summarizes stock option activity during the six months ended June 30, 2010:

						Weighted-
						Average				Options
		Shares				Exercise Price				Exercisable
Options outstanding at January 1, 2010			541,718			$	25.74				462,683
Granted			280,900				19.20
Exercised			(695	)			19.57
Forfeited or expired			(29,348	)			25.48
Options outstanding at June 30, 2010			792,575				23.44				477,350

The following table summarizes information concerning stock options outstanding and exercisable as of June 30, 2010:

		Options Outstanding												Options Exercisable
						Weighted-Average				Weighted-								Weighted-
						Remaining				Average								Average
Range of Exercise Prices		Shares				Contractual Life				Exercise Price				Shares				Exercise Price
$18.40 to $19.20			282,150			9.6 years				$	19.20				1,250			$	18.40
$19.57 to $24.05			148,759			1.5 years					21.93				148,759				21.93
$24.22 to $26.07			151,171			1.5 years					25.12				143,171				25.13
$26.31 to $26.49			141,950			1.6 years					26.34				141,950				26.34
$30.82 to $38.44			68,545			3.6 years					34.47				42,220				34.26
$18.40 to $38.44			792,575			4.6 years					23.44				477,350				25.28

In addition to the above, Viad had stock options outstanding which were granted to employees of MoneyGram International, Inc. (“MoneyGram”) prior to the spin-off of that company in 2004. As of June 30, 2010, there were 29,497 of such options outstanding and exercisable, both with exercise prices ranging from $17.74 to $26.07. The weighted-average remaining contractual life of these options outstanding was approximately 1.2 years. During the six months ended June 30, 2010, 1,250 options were exercised by MoneyGram employees at an exercise price of $19.52.

Note 3. Inventories

The components of inventories were as follows:

		June 30,				December 31,
		2010				2009
		(in thousands)
Raw materials		$	21,922			$	23,113
Work in process			15,994				21,705
Inventories		$	37,916			$	44,818

Note 4. Property and Equipment

Property and equipment consisted of the following:

		June 30,				December 31,
		2010				2009
		(in thousands)
Land		$	8,966			$	8,997
Buildings and leasehold improvements			84,885				84,242
Equipment and other			292,428				291,108
			386,279				384,347
Accumulated depreciation			(238,268	)			(229,347	)
Property and equipment, net		$	148,011			$	155,000

Depreciation expense for the three months ended June 30, 2010 and 2009 was $7.0 million and $6.7 million, respectively, and for the six months ended June 30, 2010 and 2009 was $13.5 million and $12.6 million, respectively.

During the fourth quarter of 2009, Viad commenced a plan of sale related to a non-strategic real estate asset. The asset consisted of land, building and related improvements and as of December 31, 2009, was classified on Viad’s consolidated balance sheets under the caption “Asset held for sale.” In March 2010, Viad completed the sale for $14.3 million (net of selling costs).

Note 5. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the six months ended June 30, 2010 were as follows:

						Marketing &
		Marketing &				Events				Travel &
		Events U.S.				International				Recreation Group				Total
		(in thousands)
Balance at January 1, 2010		$	62,686			$	22,472			$	39,773			$	124,931
Foreign currency translation adjustments			—				(1,156	)			(590	)			(1,746	)
Balance at June 30, 2010		$	62,686			$	21,316			$	39,183			$	123,185

A summary of other intangible assets as of June 30, 2010 is presented below:

		Gross Carrying				Accumulated				Net Carrying
		Value				Amortization				Value
		(in thousands)
Amortized intangible assets:
Customer contracts and relationships		$	2,459			$	(794	)		$	1,665
Non-compete agreements			1,931				(1,894	)			37
Proprietary technology			507				(378	)			129
Design libraries			175				(66	)			109
Other			158				(85	)			73
			5,230				(3,217	)			2,013
Unamortized intangible assets:
Trademarks and trade names			171				—				171
Total		$	5,401			$	(3,217	)		$	2,184

A summary of other intangible assets as of December 31, 2009 is presented below:

		Gross Carrying				Accumulated				Net Carrying
		Value				Amortization				Value
		(in thousands)
Amortized intangible assets:
Customer contracts and relationships		$	2,507			$	(511	)		$	1,996
Non-compete agreements			1,952				(1,865	)			87
Proprietary technology			526				(331	)			195
Design libraries			175				(22	)			153
Other			158				(65	)			93
			5,318				(2,794	)			2,524
Unamortized intangible assets:
Trademarks and trade names			176				—				176
Total		$	5,494			$	(2,794	)		$	2,700

Intangible asset amortization expense for the three months ended June 30, 2010 and 2009 was $240,000 and $513,000, respectively, and $483,000 and $981,000 for the six months ended June 30, 2010 and 2009, respectively. Estimated amortization expense related to amortized intangible assets for future periods is expected to be as follows:

		(in thousands)
2010		$	464
2011		$	707
2012		$	359
2013		$	349
2014 and thereafter		$	134

Note 6. Accrued Liabilities and Other

Other current liabilities consisted of the following:

		June 30,				December 31,
		2010				2009
		(in thousands)
Continuing operations:
Customer deposits		$	39,555			$	41,411
Accrued compensation			20,062				10,533
Self-insured liability accrual			7,722				8,078
Accrued restructuring			3,422				5,684
Accrued sales and use taxes			3,283				3,325
Accrued dividends			839				845
Other			16,726				13,330
			91,609				83,206
Discontinued operations:
Environmental remediation liabilities			913				1,075
Self-insured liability accrual			357				395
Other			502				401
			1,772				1,871
Total other current liabilities		$	93,381			$	85,077

Other deferred items and liabilities consisted of the following:

		June 30,				December 31,
		2010				2009
		(in thousands)
Continuing operations:
Self-insured liability accrual		$	14,597			$	14,083
Accrued compensation			4,789				4,979
Accrued restructuring			4,786				5,971
Foreign deferred tax liability			3,023				4,358
Accrued income taxes			423				407
Deferred gain on sale of property			163				646
Other			4,790				5,111
			32,571				35,555
Discontinued operations:
Self-insured liability accrual			7,982				8,075
Environmental remediation liabilities			5,412				5,638
Accrued income taxes			967				948
Other			1,716				2,198
			16,077				16,859
Total other deferred items and liabilities		$	48,648			$	52,414

Note 7. Debt

As of June 30, 2010, Viad’s total debt of $10.4 million consisted of $5.2 million of capital lease obligations and a $5.2 million borrowing under the Company’s secured revolving credit agreement (the “Credit Facility”). The Credit Facility provides for a $75 million revolving line of credit, which may be increased up to an additional $50 million under certain circumstances. The term of the Credit Facility is five years (expiring on June 15, 2011) and borrowings are to be used for general corporate purposes (including permitted acquisitions) and to support up to $25 million of letters of credit. The lenders have a first perfected security interest in all of the personal property of Viad and GES, including 65 percent of the capital stock of top-tier foreign subsidiaries.

Borrowings under the Credit Facility (of which GES is a guarantor) are indexed to the prime rate or the London Interbank Offered Rate, plus appropriate spreads tied to Viad’s leverage ratio. Commitment fees and letters of credit fees are also tied to Viad’s leverage ratio. The fees on the unused portion of the Credit Facility are currently 0.50 percent annually. As of June 30, 2010, Viad had $63.3 million of capacity remaining under its Credit Facility reflecting an outstanding borrowing of $5.2 million and outstanding letters of credit of $6.5 million. Financial covenants include a fixed-charge coverage ratio of not less than 0.80 to 1 through the third quarter of 2010 and 1.00 to 1 thereafter and a leverage ratio of not greater than 2.50 to 1. Additionally, Viad must maintain a consolidated minimum cash balance of $50 million. As of June 30, 2010, the fixed-charge coverage and leverage ratios were 1.05 to 1 and 1.90 to 1, respectively. Significant other covenants include limitations on: investments, common stock dividends, stock repurchases, additional indebtedness, sales/leases of assets, acquisitions, consolidations or mergers and liens on property. The terms of the Credit Facility restrict Viad from paying more than $5 million in dividends in the aggregate in any calendar year and also restrict the Company from repurchasing more than $10 million in the aggregate of the Company’s common stock during the remainder of the credit facility term. As of June 30, 2010, Viad was in compliance with all covenants.

The estimated fair value of total debt was $10.2 million and $12.8 million as of June 30, 2010 and December 31, 2009, respectively. The fair value of debt was estimated by discounting the future cash flows using rates currently available for debt of similar terms and maturity.

Note 8. Stockholders’ Equity

The following represents a reconciliation of the carrying amounts of stockholders’ equity attributable to Viad and the noncontrolling interest for the six months ended June 30, 2010:

		Total Viad								Total
		Stockholders’				Noncontrolling				Stockholders’
		Equity				Interest				Equity
		(in thousands)
Balance at January 1, 2010		$	377,515			$	7,116			$	384,631
Net income (loss)			46				(216	)			(170	)
Dividends on common stock			(1,644	)			—				(1,644	)
Common stock purchased for treasury			(573	)			—				(573	)
Employee benefit plans			1,708				—				1,708
Unrealized foreign currency translation adjustment			(3,910	)			—				(3,910	)
Unrealized loss on investments			(19	)			—				(19	)
Prior service cost and net actuarial loss			(1,666	)			—				(1,666	)
ESOP allocation adjustment			750				—				750
Other			6				—				6
Balance at June 30, 2010		$	372,213			$	6,900			$	379,113

The following represents a reconciliation of the carrying amounts of stockholders’ equity attributable to Viad and the noncontrolling interest for the six months ended June 30, 2009:

		Total Viad								Total
		Stockholders’				Noncontrolling				Stockholders’
		Equity				Interest				Equity
		(in thousands)
Balance at January 1, 2009		$	460,555			$	6,534			$	467,089
Net income (loss)			6,902				(227	)			6,675
Dividends on common stock			(1,648	)			—				(1,648	)
Common stock purchased for treasury			(1,162	)			—				(1,162	)
Employee benefit plans			1,039				—				1,039
Unrealized foreign currency translation adjustment			10,424				—				10,424
Unrealized gain on investments			61				—				61
Prior service cost and net actuarial loss			(285	)			—				(285	)
ESOP allocation adjustment			500				—				500
Other			22				—				22
Balance at June 30, 2009		$	476,408			$	6,307			$	482,715

Note 9. Fair Value Measurements

The fair value of an asset or liability is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value guidance requires an entity to maximize the use of quoted prices and other observable inputs and minimize the use of unobservable inputs when measuring fair value, and also establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value as follows:

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.

Viad measures its money market mutual funds and certain other mutual fund investments at fair value on a recurring basis using Level 1 inputs. Viad’s money market mutual funds are included under the caption “Cash and cash equivalents” in the consolidated balance sheets and its other mutual fund investments are included under the caption “Other investments and assets” in the consolidated balance sheets. The fair value information related to these assets is summarized in the following table:

						Fair Value Measurements at June 30, 2010 Using
										Significant
						Quoted Prices				Other				Significant
						in Active				Observable				Unobserved
		June 30,				Markets				Inputs				Inputs
		2010				(Level 1)				(Level 2)				(Level 3)
		(in thousands)
Assets:
Money market funds		$	24,661			$	24,661			$	—			$	—
Other mutual funds			1,628				1,628				—				—
Total		$	26,289			$	26,289			$	—			$	—

As of June 30, 2010 and December 31, 2009, Viad had investments in money market mutual funds of $24.7 million and $27.6 million, respectively, which were included in the consolidated balance sheets under the caption “Cash and cash equivalents.” These investments were classified as available-for-sale and were recorded at fair value. There have been no realized or unrealized gains or losses related to these investments and the Company has not experienced any redemption restrictions with respect to any of the money market mutual funds.

As of June 30, 2010 and December 31, 2009, Viad had investments in other mutual funds of $1.6 million and $1.8 million, respectively, which were classified in the consolidated balance sheets under the caption “Other investments and assets.” These investments were classified as available-for-sale and were recorded at fair value. As of June 30, 2010 and December 31, 2009, there were unrealized gains on the investments of $221,000 ($135,000 after-tax) and $252,000 ($154,000 after-tax), respectively, which were included in the consolidated balance sheets under the caption “Accumulated other comprehensive income (loss).”

The carrying values of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-term maturities of these instruments. The estimated fair value of debt obligations is disclosed in Note 7.

Note 10. Income Per Share

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

		Three months ended June 30,								Six months ended June 30,
		2010				2009				2010				2009
		(in thousands, except per share data)
Basic net income per share
Numerator:
Net income attributable to Viad		$	3,028			$	5,399			$	46			$	6,902
Less: Allocation to non-vested shares			(71	)			(164	)			(1	)			(188	)
Net income allocated to Viad common stockholders		$	2,957			$	5,235			$	45			$	6,714
Denominator:
Weighted-average outstanding common shares			20,059				19,977				20,055				19,935
Net income attributable to Viad common stockholders		$	0.15			$	0.26			$	—			$	0.34
Diluted net income per share
Numerator:
Net income attributable to Viad		$	3,028			$	5,399			$	46			$	6,902
Denominator:
Weighted-average outstanding shares			20,059				19,977				20,055				19,935
Additional dilutive shares related to share-based compensation			316				193				283				232
Weighted-average outstanding and potentially dilutive shares			20,375				20,170				20,338				20,167
Net income attributable to Viad common stockholders		$	0.15			$	0.26			$	—			$	0.34

Options to purchase 480,000 shares of common stock were outstanding during the six months ended June 30, 2010, but were not included in the computation of diluted income per share because the effect would be anti-dilutive. All outstanding options to purchase shares of common stock during the six months ended June 30, 2009 were not included in the computation of diluted income per share because the effect would be anti-dilutive.

Note 11. Income Taxes

The following represents a reconciliation of income tax expense and the amount that would be computed using the statutory federal income tax rates for the six months ended June 30:

		2010								2009
		(in thousands)
Computed income tax expense at statutory federal income tax rate of 35%		$	640				35.0	%		$	3,810				35.0	%
State income tax expense (benefit), net of federal benefit or provision			(34	)			(1.9	%)			339				3.1	%
Change in enacted tax law			1,279				70.0	%			—				0.0	%
Other, net			113				6.2	%			63				0.6	%
Income tax expense		$	1,998				109.3	%		$	4,212				38.7	%

In March 2010, the Patient Protection and Affordable Care Act and a related measure, the Health Care and Education Affordability Reconciliation Act of 2010, were both enacted into law. As a result of this legislation, the tax deductions for the portion of the prescription drug costs for which the employer receives a Medicare Part D subsidy have been eliminated for tax years beginning after December 31, 2012. Accordingly, during the first quarter of 2010, Viad reduced its deferred tax asset related to its postretirement benefit plan liability to reflect the change in the tax law. The reduction in the deferred tax asset resulted in an increase to income tax expense of $1.3 million during the first quarter of 2010.

Viad is required to estimate and record provisions for income taxes in each of the jurisdictions in which the Company operates. Accordingly, the Company must estimate its actual current income tax liability, and assess temporary differences arising from the treatment of items for tax purposes as compared to the treatment for accounting purposes. These differences result in deferred tax assets and liabilities which are included in Viad’s consolidated balance sheets. The Company must assess the likelihood that deferred tax assets will be recovered from future taxable income and to the extent that recovery is not likely, a valuation allowance must be established. The Company uses significant judgment in forming a conclusion regarding the recoverability of its deferred tax assets and evaluates the available positive and negative evidence to determine whether it is more-likely-than-not that its deferred tax assets will be realized in the future. As of June 30, 2010 and December 31, 2009, Viad had gross deferred tax assets of $53.9 million and $61.2 million, respectively. These deferred tax assets reflect the expected future tax benefits to be realized upon reversal of deductible temporary differences, and the utilization of net operating loss and tax credit carryforwards.

For the cumulative three-year period ending December 31, 2009, Viad had a pre-tax operating loss, which was primarily the result of the goodwill and other impairment losses recorded during the third and fourth quarters of 2009. The Company considered the negative evidence of this cumulative pre-tax operating loss position on the future recoverability of its deferred tax assets. Viad also considered positive evidence regarding the realization of deferred tax assets including the Company’s historical and forecasted taxable income, taxpaying history and future reversals of deferred tax liabilities. Furthermore, Viad also considered the fact that the goodwill impairment losses are not tax deductible, and thus do not contribute to tax losses. As of both June 30, 2010 and December 31, 2009, Viad had a valuation allowance of $162,000 related to certain state deferred tax assets. With respect to all other deferred tax assets, management believes that recovery from future taxable income is more-likely-than-not.

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

Viad is subject to regular and recurring audits by the taxing authorities in the jurisdictions in which the Company conducts or had previously conducted operations. These include U.S. federal and most state jurisdictions, and certain foreign jurisdictions including Canada, the United Kingdom and Germany.

Viad exercises judgment in determining its income tax provision due to transactions, credits and calculations where the ultimate tax determination is uncertain. As of June 30, 2010 and December 31, 2009, Viad did not have any accrued gross liabilities associated with uncertain tax positions for continuing operations. However, as of June 30, 2010 and December 31, 2009, Viad had accrued interest and penalties related to uncertain tax positions for continuing operations of $423,000 and $407,000, respectively. Viad classifies interest and penalties related to income tax liabilities as a component of income tax expense. During the three months ended June 30, 2010 and 2009, Viad recorded tax-related interest expense of $4,000 and $64,000, respectively. During the six months ended June 30, 2010 and 2009, Viad recorded tax-related interest expense of $16,000 and $116,000, respectively.

In addition to the above, Viad had accrued gross liabilities associated with uncertain tax positions for discontinued operations of $636,000 as of both June 30, 2010 and December 31, 2009. In addition, as of June 30, 2010 and December 31, 2009, Viad had accrued interest and penalties related to uncertain tax positions for discontinued operations of $331,000 and $312,000, respectively. Future tax resolutions or settlements that may occur related to these uncertain tax positions would be recorded through discontinued operations (net of federal tax effects, if applicable).

As of June 30, 2010, Viad did not have any unrecognized tax benefits for continuing operations; however, the Company had $423,000 of accrued tax-related interest. If amounts accrued are less than amounts ultimately assessed by the taxing authorities, Viad would record additional income tax expense. To the extent that the Company determines that accrued amounts are no longer needed due to a lapse in the applicable statute of limitations or other reasons, such liabilities would be reversed as a reduction of income tax expense (net of federal tax effects, if applicable) in the period such determination is made. The Company believes that it is reasonably possible that the entire amount of accrued interest could be resolved or settled within the next 12 months, which would reduce the amount of accrued income taxes payable. If such tax resolutions or settlements occur, they could result in cash payments, the recognition of additional income tax expense, or the reversal of accrued income taxes which may impact Viad’s effective tax rate in future periods.

During the second quarter of 2010, Viad received income tax refunds of $5.6 million related to carryback claims associated with 2009 operating losses.

During the first quarter of 2009, Viad paid reassessments of $4.9 million and received aggregate tax refunds of $1.9 million related to a Canadian tax settlement agreement.

Viad’s 2006 through 2009 U.S. federal tax years and various state tax years from 2005 through 2009 remain subject to income tax examinations by tax authorities. In addition, tax years from 2005 through 2009 related to Viad’s foreign taxing jurisdictions also remain subject to examination.

Viad classifies liabilities associated with uncertain tax positions as non-current liabilities in its consolidated balance sheets unless they are expected to be paid within the next year. As of both June 30, 2010 and December 31, 2009, liabilities associated with uncertain tax positions (including interest and penalties) of $1.4 million were classified as non-current liabilities.

Viad does not record deferred taxes on the undistributed earnings of its Canadian subsidiaries as management presently intends to reinvest the earnings of those operations. As of December 31, 2009, there was approximately $84.6 million of accumulated undistributed earnings related to Viad’s Canadian subsidiaries, the majority of which has been previously reinvested in the assets of those foreign operations. The incremental unrecognized tax liability (net of estimated foreign tax credits) related to those undistributed earnings was approximately $2.3 million. To the extent that circumstances change and it becomes apparent that some or all of the undistributed earnings will be remitted to the parent, Viad would accrue incremental U.S. income taxes and foreign withholding taxes attributable to such remittance. Furthermore, there have been certain legislative initiatives, which could potentially result in the reduction or elimination of the deferral of U.S. income taxes on unrepatriated foreign earnings. If such initiatives were to become enacted tax law, the Company may be required to record additional income tax expense, which could have a negative impact on Viad’s financial position and results of operations.

Note 12. Pension and Postretirement Benefits

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

		Domestic Plans
										Postretirement								Foreign
		Pension Plans								Benefit Plans								Pension Plans
		2010				2009				2010				2009				2010				2009
		(in thousands)
Service cost		$	53			$	44			$	27			$	16			$	76			$	61
Interest cost			311				324				265				271				195				186
Expected return on plan assets			(149	)			(161	)			(41	)			(52	)			(151	)			(128	)
Amortization of prior service cost (credit)			10				11				(293	)			(323	)			—				—
Recognized net actuarial loss			138				91				156				76				—				—
Net periodic benefit cost (credit)		$	363			$	309			$	114			$	(12	)		$	120			$	119

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

		Domestic Plans
										Postretirement								Foreign
		Pension Plans								Benefit Plans								Pension Plans
		2010				2009				2010				2009				2010				2009
		(in thousands)
Service cost		$	106			$	88			$	54			$	32			$	151			$	119
Interest cost			622				648				530				542				387				364
Expected return on plan assets			(298	)			(322	)			(82	)			(104	)			(299	)			(250	)
Amortization of prior service cost (credit)			20				22				(586	)			(646	)			—				—
Recognized net actuarial loss			277				180				313				150				—				—
Net periodic benefit cost (credit)		$	727			$	616			$	229			$	(26	)		$	239			$	233

Viad expects to contribute $1.1 million to its funded pension plans, $785,000 to its unfunded pension plans and $553,000 to its postretirement benefit plans in 2010. As of June 30, 2010, Viad had contributed $662,000 to its funded pension plans, $400,000 to its unfunded pension plans and $150,000 to its postretirement benefit plans.

Note 13. Restructuring Charges and Recoveries

During the six months ended June 30, 2010, Viad recorded aggregate restructuring charges of $2.6 million. The charges primarily related to reorganization activities in the Marketing & Events Group, comprised of the elimination of certain positions. Previously, Viad has incurred charges attributable to headcount reductions and facility consolidations, and has recorded adjustments to restructuring liabilities in certain circumstances. As of June 30, 2010, the remaining aggregate restructuring liabilities primarily relate to future lease payment obligations to be made over the remaining lease terms. The changes in the restructuring liability balances for the six months ended June 30, 2010 are as follows:

		Marketing &
		Events Group				Other
		Consolidation				Restructurings				Total
		(in thousands)
Balance at January 1, 2010		$	8,628			$	3,027			$	11,655
Restructuring charges			2,325				287				2,612
Cash payments			(4,154	)			(862	)			(5,016	)
Adjustment to liability			(785	)			(195	)			(980	)
Foreign currency translation adjustment			(63	)			—				(63	)
Balance at June 30, 2010		$	5,951			$	2,257			$	8,208

Note 14. Litigation, Claims and Other Contingencies

Viad and certain of its subsidiaries are plaintiffs or defendants to various actions, proceedings and pending claims, some of which involve, or may involve, compensatory, punitive or other damages. Litigation is subject to many uncertainties and it is possible that some of the legal actions, proceedings or claims could be decided against Viad. Although the amount of liability as of June 30, 2010, with respect to certain of these matters is not ascertainable, Viad believes that any resulting liability, after taking into consideration amounts already provided for, including insurance coverage, will not have a material impact on the Company’s business, financial position or results of operations.

Viad is subject to various U.S. federal, state and foreign laws and regulations governing the prevention of pollution and the protection of the environment in the jurisdictions in which Viad has or had operations. If the Company has failed to comply with these environmental laws and regulations, civil and criminal penalties could be imposed and Viad could become subject to regulatory enforcement actions in the form of injunctions and cease and desist orders. As is the case with many companies, Viad also faces exposure to actual or potential claims and lawsuits involving environmental matters relating to its past operations. Although it is a party to certain environmental disputes, Viad believes that any resulting liabilities, after taking into consideration amounts already provided for, including insurance coverage, will not have a material impact on the Company’s financial position or results of operations. As of June 30, 2010, there was a remaining environmental remediation liability of $6.3 million related to previously sold operations of which $913,000 was included in the consolidated balance sheets under the caption “Other current liabilities” and $5.4 million under the caption “Other deferred items and liabilities.”

As of June 30, 2010, Viad had certain obligations under guarantees to third parties on behalf of its subsidiaries. These guarantees are not subject to liability recognition in the consolidated financial statements and primarily relate to leased facilities and credit or loan arrangements with banks, entered into by Viad’s subsidiary operations. The Company would generally be required to make payments to the respective third parties under these guarantees in the event that the related subsidiary could not meet its own payment obligations. The maximum potential amount of future payments that Viad would be required to make under all guarantees existing as of June 30, 2010 would be $39.9 million. These guarantees primarily relate to leased facilities expiring through October 2017. There are no recourse provisions that would enable Viad to recover from third parties any payments made under the guarantees. Furthermore, there are no collateral or similar arrangements whereby Viad could recover payments.

Viad’s businesses contribute to various multi-employer pension plans based on obligations arising under collective bargaining agreements covering its union-represented employees. Based upon the information available to Viad from plan administrators, management believes that approximately one-third to one-half of these multi-employer plans are underfunded. The Pension Protection Act of 2006 requires pension plans underfunded at certain levels to reduce, over defined time periods, the underfunded status. In addition, under current laws, the termination of a plan, or a voluntary withdrawal from a plan by Viad, or a shrinking contribution base to a plan as a result of the insolvency or withdrawal of other contributing employers to such plan would require Viad to make payments to such plan for its proportionate share of the plan’s unfunded vested liabilities. As of June 30, 2010, the amount of additional funding, if any, that Viad would be required to make related to multi-employer pension plans is not ascertainable.

Glacier Park operates the concession portion of its business under a concession contract with the U.S. National Park Service (the “Park Service”) for Glacier National Park. Glacier Park’s original 25-year concession contract with the Park Service that was to expire on December 31, 2005, has been extended for five one-year periods and now expires on December 31, 2010. The Park Service, in its sole discretion, may continue extending Glacier Park’s concession contract in one-year increments. When this contract ultimately expires, Glacier Park will have the opportunity to bid on a new concession contract. If Glacier Park does secure a new contract, possible terms would be for 10, 15 or 20 years. If a new concessionaire is selected by the Park Service, Glacier Park’s remaining business would consist of its operations at Waterton Lakes National Park, Alberta, Canada and East Glacier, Montana. In such a circumstance, Glacier Park would be entitled to an amount equal to its “possessory interest,” which generally means the value of the structures acquired or constructed, fixtures installed and improvements made to the concession property at Glacier National Park during the term of the concessions contract. Glacier Park owns its East Glacier Lodge operations and the Prince of Wales Hotel in Waterton Lakes National Park, which is operated under a ground lease with the Canadian government that was recently renewed for a 42-year term running through January 31, 2052. Glacier Park generated 25 percent of Travel & Recreation Group’s full year 2009 segment operating income.

Note 15. Segment Information

Viad measures profit and performance of its operations on the basis of segment operating income which excludes restructuring charges and recoveries and impairment losses and recoveries. Corporate activities include expenses not allocated to operations. Depreciation and amortization and share-based compensation are the only significant non-cash items for the reportable segments. Disclosures regarding Viad’s reportable segments with reconciliations to consolidated totals are as follows:

		Three months ended June 30,								Six months ended June 30,
		2010				2009				2010				2009
		(in thousands)
Revenues:
Marketing & Events Group:
U.S.		$	144,460			$	147,248			$	313,869			$	341,030
International			56,059				52,657				106,426				95,934
Intersegment eliminations			(4,609	)			(4,546	)			(7,445	)			(5,543	)
			195,910				195,359				412,850				431,421
Travel & Recreation Group			22,389				18,206				29,802				23,093
		$	218,299			$	213,565			$	442,652			$	454,514
Segment operating income (loss):
Marketing & Events Group:
U.S.		$	(2,297	)		$	1,815			$	(2,346	)		$	7,143
International			6,532				5,700				9,169				9,443
			4,235				7,515				6,823				16,586
Travel & Recreation Group			3,490				2,293				1,101				(111	)
			7,725				9,808				7,924				16,475
Corporate activities			(2,058	)			(703	)			(2,702	)			(2,206	)
			5,667				9,105				5,222				14,269
Interest income			88				132				184				393
Interest expense			(473	)			(425	)			(966	)			(845	)
Restructuring charges:
Marketing & Events U.S.			(272	)			(198	)			(2,325	)			(2,930	)
Travel & Recreation Group			(235	)			—				(235	)			—
Corporate			(52	)			—				(52	)			—
Income before income taxes		$	4,723			$	8,614			$	1,828			$	10,887